banco votorantim s.a. · 2018-08-30 · votorantim’s decision on the recoverable value of the...

KPDS 220069

Banco Votorantim S.A. Consolidated financial statements in IFRS December 31, 2017 (A free translation of the original report in Portuguese containing financial statements prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board - IASB)

Banco Votorantim S.A. Consolidated financial statements in IFRS

December 31, 2017 Amounts expressed in thousands of Reais, unless when indicated

2

CONTENTS INDENPENDENT AUDITOR’S REPORT ON CONSOLIDATED FINANCIAL STATEMENTS .... 3 STATEMENT OF FINANCIAL POSITION..................................................................................... 9 STATEMENT OF INCOME ......................................................................................................... 10 STATEMENT OF COMPREHENSIVE INCOME ........................................................................ 11 STATEMENT OF CHANGES IN SHAREHOLDER’S EQUITY ................................................... 12 STATEMENT OF CASH FLOWS ................................................................................................ 13 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS IN IFRS 1. THE CONGLOMERATE AND ITS OPERATIONS 14 2. PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS 14 3. SIGNIFICANT ACCOUNTING PRACTICES 14 4. MAIN JUDGMENTS AND ACCOUNTING ESTIMATES 31 5. CONSOLIDATED FINANCIAL STATEMENTS 31 6. CASH AND CASH EQUIVALENTS 33 7. FINANCIAL ASSETS WITH REPURCHASE AGREEMENTS 33 8. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS, AVAILABLE FOR SALE AND HELD TO MATURITY 34 9. DERIVATIVE FINANCIAL INSTRUMENTS 36 10. LOANS AND RECEIVABLES 40 11. NON-FINANCIAL ASSETS HELD FOR SALE 41 12. INVESTMENTS 42 13. OTHER ASSETS 45 14. TANGIBLE ASSETS 45 15. ATIVOS INTANGÍVEIS INTANGIBLE ASSETS 45 16. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS 45 17. FINANCIAL LIABILITIES AT AMORTIZED COST 46 18. OTHER LIABILITIES 48 19. SHAREHOLDERS’ EQUITY 48 20. TAXES 51 21. PROVISIONS, CONTINGENT ASSETS, LIABILITIES AND LEGAL, TAX AND SOCIAL SECURITY OBLIGATIONS 53 22. INTEREST REVENUE 56 23. INTEREST EXPENSES 56 24. NET INCOME (LOSS) FROM SERVICES AND COMMISSIONS 57 25. INCOME WITH FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS 57 26. OTHER OPERATING INCOME (LOSS) 57 27. NET IMPAIRMENT LOSS OF FINANCIAL ASSETS 57 28. PERSONNEL EXPENSES 58 29. OTHER ADMINISTRATIVE EXPENSES 58 30. DEPRECIATION AND AMORTIZATION EXPENSES 58 31. RELATED PARTIES 58 32. EMPLOYEE BENEFITS 60 33. OPERATING SEGMENTS 61 34. RISK AND CAPITAL MANAGEMENT 62 35. OTHER INFORMATION 95 36. SUBSEQUENT EVENTS 96

KPMG Auditores Independentes, uma sociedade simples brasileira e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça.

KPMG Auditores Independentes, a Brazilian entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

3

KPMG Auditores Independentes Rua Arquiteto Olavo Redig de Campos, 105, 6º andar - Torre A 04711-904 - São Paulo/SP - Brasil Caixa Postal 79518 - CEP 04707-970 - São Paulo/SP - Brasil Telefone 55 (11) 3940-1500, Fax 55 (11) 3940-1501 www.kpmg.com.br

Independent auditors' report on consolidated financial statements To The Board of Directors and Shareholders of Banco Votorantim S.A. São Paulo - SP Opinion We have audited the consolidated financial statements of Banco Votorantim S.A. and it is subsidiaries (“Banco Votorantim”), which comprise the consolidated statement of financial position as of December 31, 2017 and the respective consolidated statements of income, consolidated statements of comprehensive income, changes in shareholder’s equity and cash flows for the year then ended and notes, comprising significant accounting policies and other explanatory information. In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Banco Votorantim as of December 31, 2017, the consolidated financial performance of its operations and its consolidated cash flows for the year then ended, in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). Basis for opinion We conducted our audit in accordance with Brazilian and international standards on auditing. Our responsibilities, under those standards, are further described in the “The Auditor’s responsabilities for the audit of consolidated financial statements”. We are independent of Banco Votorantim, in accordance with the ethical requirements established in the Accountant´s Professional Ethics Code and the Professional Standards issued by the Federal Accounting Council (CFC), and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those that, in our professional judgment, were of most significance in our audit of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and, we do not express a separate opinion on these matters.



4

Impairment of loans and receivables As disclosed in notes 3g, 3j and 10, Banco Votorantim periodically reviews its operations of loans and receivables, evaluating the estimated impairment loss on is operations. The determination of the impairment of loans and receivables was documented in internal policies and requires the use of judgments and assumptions by Banco Votorantim, which include analysis of both external factors such as general economic conditions, and internal factors such as the debtor’s payment history and collateral considerations. Banco Votorantim segregates its impairment analysis between individualized analysis, for clients with exposures considered “individually significant” and collective analysis, for the other clients. In addition, as from 2018, IFRS 9 - Financial Instruments ("Pronouncement"), which changes the criteria for measuring the impairment of loans and receivables, will come into force, and in this context, Banco Votorantim has structured a new process to meet the new established in this Pronouncement. Banco Votorantim made qualitative and quantitative disclosures related to the most relevant impacts of this pronouncement based on the balances as of December 31, 2017, in accordance with IAS 8 Accounting Policies, changes in accounting estimates and errors. Due to the relevance of loans and receivables and the uncertainties and judgements related to the of the impairment and the impact that any changes in assumptions may generate on the recorded amounts in the individual and consolidated financial statements and the disclosure of the most relevant impacts related to the application of IFRS 9 - Financial Instruments, we considered this as a significant matter in our audit. How our audit addressed this matter We have evaluated the design, implementation and operating effectiveness of the relevant internal controls, manual and automated, implemented by Banco Votorantim and related to the approval and registration of loans and receivables and the calculation of impairment. Based on a sample, we evaluated the impairment of loans and receivables considered individually significant, we inspect the documentation and assumptions that support Banco Votorantim’s decision on the recoverable value of the operations, including the sufficiency analysis of the guarantees. We have also tested the adequacy of the models, assumptions and data used by Banco Votorantim to measure impairment losses on loan portfolios and on a collective valuation basis, including the assumptions and data used to determine the losses incurred but not identified and whether the disclosures in the consolidated financial statements described in notes 3g, 3j and 10 are in accordance with the applicable accounting practices. Based on the evidence obtained from the procedures described above, we considered the impairment of loans and receivables and the disclosures acceptable in the context of the consolidated financial statements taken as a whole for the year ended December 31,2017. Fair value of financial instruments As disclosed in Notes 3g, 3k, 8 and 9, Banco Votorantim has significant balances of financial instruments measured at fair value. For financial instruments that are not actively traded and those which market prices and parameters are not available, the determination of fair value is subject to a higher uncertainty level, to the extent Banco Votorantim makes significant judgments to estimate such amounts. Therefore, we considered the fair value measurement of these financial instruments as a significant matter in our audit. How our audit addressed this matter We have tested the design, implementation, and operating effectiveness of the relevant internal controls, manual and automated, implemented by Banco Votorantim to mitigate the risk of material misstatement in consolidated financial statements arising from uncertainties in the fair value measurement of financial instruments, which depend on Banco Votorantim’s internal models. For a sample of financial instruments for which fair value measurement



5

parameters are not observable, with the technical support of our specialists with knowledge of financial instruments, we evaluated the adequacy of the models developed by Banco Votorantim for determining fair values and the reasonableness of data, the parameters and information included in the pricing models used, and recalculated the corresponding fair values of these operations. We also evaluated whether the disclosures in the individual and consolidated financial statements, in notes 3g, 3k, 8 and 9, are in accordance with the applicable accounting practices. Based on the evidence obtained from the procedures described above, we considered the fair value measurement of financial instruments acceptable in the context of the individual and consolidated financial statements taken as a whole for the year ended December 31, 2017. Provisions and contingent liabilities - labor, civil and tax As disclosed in Notes 3t and 21, Banco Votorantim recognizes provision for labor, civil and tax claims arising from the normal course of its operations. Estimates of the outcome and the financial effect are determined by the nature of the claims and by Banco Votorantim’s judgment, based on the opinion of the legal advisors, on the elements of the process, complemented by the experience of similar claims. Due to the relevance, complexity and judgment involved in the evaluation, measurement, timing of recognition definition and disclosures related to Provisions and contingent Liabilities and Provisions, we consider this as a significant matter in our audit. How our audit addressed this matter We have evaluated the design, implementation and operating effectiveness of the relevant internal controls, manual and automated, implemented by Banco Votorantim, related to the process identification, risk evaluation, measurement of provision, process management and closing steps. Based on tests we have evaluated the adequacy of the measurement and recognition of the provision and disclosure of contingent liabilities, considering the values of constitutions and reversals and evaluations of the internal and external legal advisors of Banco Votorantim. We have evaluated the assumptions of the procedural risk of causes for relevant matters and values of Banco Votorantim by evaluating the criteria adopted in the measurement methodology for the amounts recognized and/or disclosed, as well as historical data and information and analyzed the changes in the assumptions in relation to previous periods, when applicable. We also have evaluated whether the disclosures made in the consolidated financial statements, disclosed in notes 3t and 21, are in accordance with the applicable accounting practices. Based on the evidence obtained from the procedures described above, we considered the level of provisioning acceptable in the context of the individual and consolidated financial statements taken as a whole for the year ended December 31, 2017. Projection of future results for realization of deferred tax assets The consolidated financial statements include assets related to deferred tax assets (Notes 3u, 20b and 20f), which realization depends on future profitability based on the business plan and budgets prepared by Banco Votorantim and approved at its governance levels. To prepare the projections of future results for purposes, among others, of verifing the realization of assets, Banco Votorantim adopts assumptions based on its corporate strategies and the macroeconomic scenario, such as interest rate, inflation rate, among others, considering the current and past performance and the expected growth in the market it acts. Due to the relevance of the balances related to these assets (deferred tax assets), as they are based on future profitability estimated and the impacts that eventual changes in the assumptions would have on the amounts recorded in the consolidated financial statements, we have



6

considered this as a significant matter in our audit. How our audit addressed this matter We have evaluated the design, implementation and effectiveness of the relevant internal controls implemented by Banco Votorantim related to the process of determining and approving the assumptions used to prepare the projection of future results, which is the basis for evaluating the realization of assets. With the support of our corporate finance specialists, we evaluated the reasonableness of the assumptions used by Banco Votorantim, recalculated the projections based on such assumptions, and if they were in compliance with current regulatory guidelines. With the support of our tax specialists, we evaluated the bases of calculation in which the current tax rates are applied and the study of the capacity to realize the deferred tax assets. We also have evaluated whether the disclosures in the consolidated financial statements described in notes 3u, 20b and 20f are in accordance with the applicable accounting practices. Based on the evidence obtained from the procedures described above, we considered the deferred tax assets in respect of their recovery and the disclosures acceptable in the context of the consolidated financial statements taken as a whole for the year ended December 31, 2017. Responsibilities of management and those in charge with governance for the consolidate financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), and for such internal controls as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement whether to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing Banco Votorantim’s ability to continue as going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless management either intends to liquidate Banco Votorantim or to cease operations, or there has no realistic alternative but to do so. Those charged with governance are those responsible for overseeing Banco Votorantim’s financial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Brazilian and international standards on auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit performed in accordance with the Brazilian and international standards on auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:



7

• Identified and assessed the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, designed and performed audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtained an understanding of internal control relevant to the audit to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Banco Votorantim’s internal control.

• Evaluated the appropriateness of accounting policies used and the reasonableness of

accounting estimates and related disclosures made by management.

• Concluded on the appropriateness of management’s use of the going concern basis of

accounting and, based on the audit evidence obtained, whether material uncertainty exists related to events or conditions that may cast significant doubt on Banco Votorantim’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause Banco Votorantim to cease to continue as a going concern.

• Evaluated the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtained sufficient appropriate audit evidence regarding the financial information of the

entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit and, consequently, for our audit opinion.

We have communicated with those charged with governance regarding, among other matters, the planned scope, the audit timing and significant audit findings, including any significant deficiencies in internal control that we have identified during our audit.



8

We also have provided those charged with governance with a statement that we have complied with the relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we have determined those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We have described these matters in our auditors’ report, unless law or regulation precludes public disclosure about the matter, or when, in extremely rare circumstances, we have determined that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefit of such communication. São Paulo, March 26, 2018 KPMG Auditores Independentes CRC 2SP014428/O-6 Original report in Portuguese signed by João Paulo Dal Poz Alouche Accountant CRC 1SP245785/O-2

9

Banco Votorantim S.A. STATEMENT OF FINANCIAL POSITIONDecember 31, 2017 and 2016

(In thousands of Reais)

Note 12.31.2017 12.31.2016 Note 12.31.2017 12.31.2016CURRENT ASSETS 49,102,855 52,967,848 CURRENT LIABILITIES 56,121,978 64,998,707

Cash and cash equivalents 6 2,654,752 2,095,767 Financial liabilities at fair value through profit or loss 16 4,634,238 2,226,651 Financial assets with repurchase agreements 7 11,338,894 13,991,463 Financial liabilities at amortized cost 17 45,636,950 56,609,857 Financial assets at fair value through profit or loss 8a 2,527,258 5,812,824 Derivative financial instruments 9f 555,597 1,721,867 Financial assets available for sale 8a 1,658,700 2,941,341 Provisions for contingences 21e 1,366,506 1,242,829 Financial assets held to maturity 8a 4,624,660 1,135,784 Tax liabilities 20 415,145 348,046 Derivative financial instruments 9f 908,455 1,453,375 Dividends payable 19c 110,598 101,131 Loans and receivables 10a 24,159,651 24,176,703 Other liabilities 18 3,402,944 2,748,326 Dividends receivable 5,886 2,340 Tax assets 20 60,732 204,396 NON-CURRENT LIABILITIES 28,200,802 29,515,721 Non-financial assets held for sale 11 291,549 397,102 Financial liabilities at amortized cost 17 26,914,969 27,933,303 Other assets 13 872,318 756,753 Derivative financial instruments 9f 968,067 985,842

Tax liabilities 20 226,143 320,818 NON-CURRENT ASSETS 44,450,978 50,172,899 Other liabilities 18 91,623 275,758

Financial assets available for sale 8a 9,816,801 11,767,447 TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO CONTROLLING SHAREHOLDERS 9,231,052 8,626,318 Financial assets held to maturity 8a 1,888,401 5,793,062 Derivative financial instruments 9f 1,118,335 1,332,208 Capital 19a 8,130,372 7,826,980 Loans and receivables 10a 22,730,805 22,176,789 Reserves 19b 797,699 746,011 Dividends receivable 4,193 - Equity evaluation adjustments 19d (51,793) (138,084) Tax assets 20 7,138,784 7,354,081 Non-appropriated accumulated earnings 354,774 191,411 Investments 12a 641,201 705,585 Other assets 13 828,527 837,174 Tangible assets 14 106,765 98,226 Intangible assets 15 177,166 108,327

TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO THE NON-CONTROLLING SHAREHOLDERS 1 1

TOTAL ASSETS 93,553,833 103,140,747 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 93,553,833 103,140,747 See the accompanying notes to the financial statements.

10

Banco Votorantim S.A. STATEMENT OF INCOMEYears ended December 31, 2017 and 2016

(In thousands of Reais, except for income (loss) for the year per thousand shares)

Note 2017 2016Interest revenue 22 13,128,080 14,519,358 Interest expenses 23 (8,121,246) (9,859,133)

Financial margin 5,006,834 4,660,225

Net income (loss) from services and commissions 24 1,213,404 887,245

Income with financial instruments at fair value through profit or loss 25 178,815 459,406 Income from available for sale financial assets 68,102 191,622 Income from derivative financial instruments 9i (451,957) (494,678) Other operating income (loss) 26 (34,559) 223,323

Gross income from financial intermediation 5,980,639 5,927,143

Net impairment loss of financial assets 27 (2,294,755) (2,774,933) Personnel expenses 28 (1,100,847) (1,282,304) Other administrative expenses 29 (626,578) (617,060) Depreciation and amortization expenses 30 (61,418) (62,556) Tax expenses 20e (450,005) (422,179) Share of earnings (losses) in equity-method investments 12a (19,055) 36,264 Income from disposal of non-current assets for sale (5,911) (34,961)

Income before taxes, contributions and profit sharing 1,422,070 769,414

Taxes and contributions on current income 20f (414,717) (294,490) Deferred income taxes and contributions 20f (213,462) (10,163)

Profit sharing (164,850) (132,468)

Net income attributable to controlling shareholders 629,041 332,293

Net income 629,041 332,293

Basic and diluted net income per thousand shares - R$ 5.97 3.15Quantity of shares (thousand lot) - basic and diluted 105,391,473 105,391,473

See the accompanying notes to the financial statements.

11

Banco Votorantim S.A. STATEMENT OF COMPREHENSIVE INCOMEYears ended December 31, 2017 and 2016


Note 2017 2016Net income for the year 629,041 332,293

Other comprehensive results that will be subsequently reclassified to profit or loss:

Net variation in the fair value of financial assets available for sale 183,024 683,343 Adjustment to fair value against shareholders’ equity 114,922 491,721 Adjustment to fair value transferred to income 68,102 191,622

Cash flow hedge (25,756) (26,571) Change in fair value (25,756) (26,571)

Income and social contribution taxes on comprehensive income 19d (70,977) (203,587)

TOTAL COMPREHENSIVE INCOME 715,332 785,478


12

Banco Votorantim S.A. STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITYYears ended December 31, 2017 and 2016


Capital Capital reserves

Profit reserves

Equity evaluation adjustments

Non-appropriated retained earnings Total

Balances at December 31, 2015 7,483,754 372,120 392,434 (591,269) 284,932 7,941,971 1 7,941,972

Capital increase 19a 343,226 - (343,226) - - - - -

Constitution / (reversal) of reserves - - 324,683 - (324,683) - - -

Equity evaluation adjustments 19d - - - 453,185 - 453,185 - 453,185

Net income for the year - - - - 332,293 332,293 - 332,293

Allocation of dividends 19c - - - - (101,131) (101,131) - (101,131)


Changes in the period 343,226 - (18,543) 453,185 (93,521) 684,347 - 684,347


Capital increase 19a 303,392 - (303,392) - - -

Constitution / (reversal) of reserves - - 355,080 - (355,080) - - -

Equity evaluation adjustments 19d - - - 86,291 86,291 86,291

Net income for the year - - - - 629,041 629,041 - 629,041

Allocation of dividends 19c - - - - (110,598) (110,598) - (110,598)


Changes in the period 303,392 - 51,688 86,291 163,363 604,734 - 604,734


Shareholders' equity attributable to the controlling shareholders Non-controlling interest

Total shareholders'

equityNote

13

Banco Votorantim S.A.STATEMENT OF CASH FLOWSYears ended December 31, 2017 and 2016


Note 2017 2016Cash flows from operating activities

Income (loss) before income and social contribution taxes 1,422,070 769,414 Adjustments to Income (loss) before income and social contribution taxes 2,385,366 2,681,699

Depreciation and amortization expenses 30 61,418 62,556 Net impairment loss of financial assets 27 2,783,125 3,161,169 Share of earnings (losses) in equity-method investments 12a 19,055 (36,264) Expenses (Reversal) with civil, labor and tax provisions 21e.1 125,287 (13,585) Impairment of non-financial assets held for sale 26 742 26,619 Interest accrued and not received from financial assets held to maturity (592,610) (679,605) Effects of changes in exchange rates on cash and cash equivalents (13,313) 167,270 Other operating income and expenses 1,662 (6,461)

Changes in operating assets and liabilities (7,237,381) (12,643,511) Net change in financial assets with repurchase agreement 2,652,569 (6,638,672) Net change in financial assets measured at fair value through profit or loss 3,285,566 (196,483) Net change in derivative financial instruments (425,252) (386,462) Net change in loans and receivables (3,320,089) 104,955 Net change in dividends receivable (8,454) (30,185) Net change in current taxes (130,095) (389,402) Cash payments relating to current tax liabilities (233,711) (287,003) Net change in deferred taxes (3,964) 1,251 Net change in non-financial assets held for sale 105,553 (116,105) Net change in financial liabilities at fair value through profit or loss 2,407,587 1,111,603 Net change in financial liabilities at amortized cost (6,488,138) (310,828) Net change in securities issued (5,275,315) (6,003,807) Other variations in assets (107,660) 2,085,181 Others variations in liabilities 304,022 (1,587,554)

Net cash provided by/(used in) operating activities (3,429,945) (9,192,398)

Cash flow from investing activities(Acquisition) of financial assets available for sale (4,644,380) (9,504,878) (Acquisition) of financial assets held to maturity (127,390) (5,686,033) (Acquisition) of investments (27,490) (145,457) (Acquisition) of tangible assets (42,261) (29,419) (Acquisition) of intangible assets (101,291) (51,168) Disposal and maturity of financial assets available for sale 8,034,935 12,295,846 Disposal and maturity of financial assets held to maturity 1,135,785 6,585,365 Disposal of investments 57,315 61,905 Disposal of tangible assets 4,609 2,940 Disposal of intangible assets 201 14,909 Dividends received 14,503 39,785

Net cash provided by/(consumed in) investing activities 4,304,536 3,583,795

Cash flows from financing activitiesDividends paid 35d (101,131) (114,409) Subordinated liabilities 35d (227,788) (882,000)

Net cash provided by/(used in) financing activities (328,919) (996,409)

Net variation in cash and cash equivalents 545,672 (6,605,012)

Cash and cash equivalents at the beginning of the year 2,095,767 8,868,049 Effects of changes in exchange rates on cash and cash equivalents 13,313 (167,270) Cash and cash equivalents at the end of the year 6 2,654,752 2,095,767 Increase (decrease) in cash and cash equivalents 545,672 (6,605,012)




14

Notes to the Financial Statements 1. THE CONGLOMERATE AND ITS OPERATIONS Banco Votorantim S.A. (“Banco Votorantim”, “Bank”, “Conglomerate” or “Consolidated) is a private company, which, operating as a Multiple Bank, conducts, authorized banking activities, including commercial banking, investment banking and foreign exchange operation portfolios. Through its subsidiaries, the Conglomerate also carries out activities in the areas of consumer credit, leasing, administration of investment funds and credit cards, of securities brokerage and distribution and any other activities in which institutions that are part of the National Financial System are permitted to engage. Transactions are conducted in the context of a set of institutions that operate in an integrated manner in the financial market, including in relation to risk management, and certain transactions have the joint participation or the intermediation of other associated institution, which are also members of the financial system. The benefits of the services provided between these institutions and the costs of the operational and administrative structure, are absorbed based on the practicality and reasonableness of the allocation of benefits and costs, jointly or individually. 2. PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS a) Statement of conformity The consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and respective predecessor bodies. All relevant information inherent to Financial Statements under IFRS is properly evidenced and corresponds to the information used to manage the Bank and its subsidiaries. 3. SIGNIFICANT ACCOUNTING PRACTICES a) Recognition of income and expenses Income and expenses are recognized on an accrual basis, and reported in the financial statements for the periods to which they refer. Income from interest, fees and commissions is recognized when the amount of revenue and associated costs can be reliably measured, it is probable that economic benefits associated with the transaction will be realized and the stage of completion of the transaction can be reliably measured. This concept is applied to the main revenues generated by the Bank's activities, namely: Financial margin - Interest income and expenses arising from all interest-earning assets and interest-bearing liabilities are recognized in the income (loss) for the period, on an accrual basis, using the effective interest method for a significant portion of the financial instruments held by the Bank. The effective interest rate method is a method for subsequently measuring the amortized cost of a financial asset or financial liability (or of a group of financial assets or financial liabilities) and of allocating the interest income or expense over the relevant period of the financial asset or liability. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or liability. The effective interest rate is established upon initial recognition of the financial asset or liability. When calculating the effective interest rate method, the Bank estimates the future cash flows considering all contractual terms of the financial instrument, without considering any estimated future losses.



15

Effective rate includes commissions, transaction costs and discounts or premiums that are associated with a financial instrument. Transaction costs correspond to incremental costs directly attributable to the acquisition, issuance or disposal of a financial asset or liability. The interest income and expenses presented in the Consolidated Statement of Income mainly include: (i) interest on financial assets and liabilities measured at amortized cost, based on the effective interest rate; (ii) income from financial assets recorded at fair value through profit or loss; and (iii) income from available-for-sale financial assets. The Conglomerate uses a deferred income and expense mechanism that makes up the effective interest rate, producing an effect similar to that of using a single subsequent measurement rate of the financial instrument. Income from fees and commissions - The recognition of income from fees and commissions is determined by the purpose of the fees and the existence of financial instruments associated with them. If there is an associated financial instrument, fees that are an integral part of the effective interest rate of that financial instrument are recognized in profit or loss in a deferred manner by the flow and term of the financial instrument, except when the financial instrument is classified in the at fair value through profit or loss category, which, in addition to recognizing such revenues, recognizes the changes in their fair value in the statement of income, which, in addition to recognizing such revenues, recognition of changes in fair value. However, fees from services that are provided over a specified service period are recognized over this service period. Fees earned for the completion of a specific service or significant event are recognized when the service has been completed or the event has occurred. Income from investments in associates and joint ventures - income resulting from application of the equity method to value investments in associated companies and joint ventures is recognized proportionally to the equity interest held by the Bank in the results generated by the investees. Income from dividends - Income from dividends is recognized in the statement of income for the period when the Bank acquires the right to receive the payment. Dividends are presented under "Other operating income (loss)."

b) Consolidation basis The Conglomerate's consolidated financial statements reflect the assets, liabilities, revenues and expenses of the Bank and its subsidiaries. Intragroup balances and transactions, as well as any revenues or expenses not realized in transactions between the Bank and its subsidiaries, are eliminated in the preparation of the consolidated financial statements. Unrealized gains originating from transactions with investee recorded using the equity method, are eliminated against the investment in the proportion of the Group's interest in the investee. Non-controlling shareholders are presented in the statement of financial position as a separate component of equity. Net income attributable to non-controlling shareholders is evidenced separately in the Consolidated Statement of Income and Consolidated Statement of Comprehensive Income. Subsidiaries - Subsidiaries are entities over which the Bank has control. The Bank controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Subsidiaries are fully consolidated as from the moment the Bank assumes the control on its activities until the end of this control. Business combination - The acquisition of a subsidiary through a business combination is recorded at the acquisition date, i.e., the date on which control is transferred to the Group, using the acquisition method. Under this method, identifiable acquired assets (including intangible assets not previously recognized), assumed liabilities and contingent liabilities are recognized at fair value at the acquisition date. Positive values that exceed the difference between the acquisition cost and the fair value of the



16

identifiable net assets acquired are recognized as goodwill. In the event, a negative difference is calculated (gain on advantageous purchase), the identified amount is recognized in the statement of income for the period within "Other operating income." Transaction costs incurred by the Bank in a business combination, except for those related to the issue of debt or equity instruments, are recorded in the statement of income for the period when incurred. Any contingent payments to be made are stated at their fair value on the acquisition date. The results of subsidiaries acquired during the accounting period are included in the consolidated financial statements from the date of the acquisition until the reporting date. The results of subsidiaries sold during the year are included in the consolidated financial statements from the beginning of the year until the date of the disposal, or the date on which the Bank ceased to have control. Business combinations of jointly-controlled entities - A business combination involving jointly-controlled entities or businesses is one in which all entities or businesses of the combination are controlled by the Bank, both before and after the combination, and that control is not transitory. In this situation, the pre-combination carrying amounts of the assets and liabilities are merged into the Bank, without any fair value measurements. The Bank does not recognize goodwill arising from these combinations. Any differences between the cost of the transaction and the carrying amount of the net assets is recorded directly in equity. There is no normative forecast for Combination of Businesses between entities under common control. Changes in ownership interests in subsidiaries - Changes in ownership interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions (i.e., transactions with owners in their capacity as owners). Consequently, no goodwill is recognized as a result of such transactions. In these circumstances, the carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received shall be recognized directly in equity and attributed to the owners of the parent. Loss of control - In accordance with IFRS 10, in the event the control of a subsidiary is lost, the Bank ceases to recognize on the date control is lost: (i) assets, including goodwill, and liabilities of the subsidiary at their book values; and (ii) the book value of any non-controlling interests in the former subsidiary, including any components of other comprehensive income attributable to it. In addition, the Bank recognizes on the date control is lost: (i) the fair value of the consideration received, if any, from the transaction, event or circumstances that resulted in the loss of control; (ii) a distribution of the shares of the subsidiary to owners if the transaction that resulted in the loss of control involves a distribution of shares; (iii) any investment retained in the former subsidiary at its fair value; and (iv) any resulting difference as a gain or loss in profit or loss attributable to the parent. Special-purpose entity (SPE) - The Bank invests in SPEs through its subsidiary BV Empreendimentos e Participações S.A., with a view to investing in the real estate developments. In special cases, SPE's are received by payment in the total or partial settlement of credits. Before consolidating an SPE, the Bank assesses a number of criteria provided for in IFRS 10. SPEs are fully consolidated as from the moment the Bank assumes the control on its activities until the end of this control. The Bank reassesses the consolidation process of an SPE in the event certain facts and circumstances indicate that there are changes to one or more of the elements of control, as established by IFRS 10. Joint venture - a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement, rather than rights to the assets and obligations for the liabilities. Joint control is the contractually agreed sharing of control of an arrangement, which exists



17

only when decisions on relevant activities require the unanimous consent of the parties sharing control. The Bank recognizes its interests in joint ventures under the equity method. The Group's investments in joint ventures are initially recorded at acquisition cost and subsequently accounted for under the equity method, and their carrying amounts are increased (or decreased) to reflect the Bank's share of the results of the investee after the acquisition date. The Bank's share of the profit or loss of the investee is recognized in the Consolidated Statement of Income, in the periods this profit or loss is calculated. The Bank adjusts the carrying amounts of its investments by recognizing its proportionate share of changes in the balance of components of the investee's other comprehensive income (loss). The Bank's share of these changes is recognized directly in equity under "Other comprehensive results." Upon the acquisition of investments in joint ventures, any positive difference between the cost of the investment and the Bank's share of the net fair value of the investee's identifiable assets and liabilities is accounted for as goodwill and included in the carrying amount of the investment. The Bank does not amortize this goodwill, however, its recoverable amount is tested, at least annually, for the evaluation of impairment losses. Subsequently, any excess of the Bank’s share of the net fair value of the investee’s identifiable assets and liabilities over the cost of the investment is included as revenue in the Consolidated Statement of Income by the equity method. When the Bank's share of the joint venture's loss for the period equals or exceeds the carrying amount of its interest, the Bank discontinues the recognition of its share of future losses. After the carrying amount of the Bank's interest has been reduced to zero, further losses are only recognized as a liability to the extent that the Bank has incurred legal or constructive obligations or made payments on behalf of the investee. If the investee subsequently reports profits, the Bank resumes applying the equity method only after its share of those profits equals its share of the losses not recognized. All the Bank's investments in joint ventures are structured through separate vehicles. Associated companies - An associated company is an entity over which the Bank has significant influence, i.e. the power to participate in its financial and operating policy decisions, but not control or joint control. Significant influence is presumed to exist when the Bank holds 20% or more of the voting power of the investee. Even when the Bank holds less than 20% of the voting stock, significant influence may exist if the Bank participates in the management of the associated company, or its governing bodies with executive powers. The existence and effect of potential voting rights that are currently exercisable or convertible, and material transactions between the companies, are considered when assessing whether the Bank controls another entity. The Group's investments in associated company are initially recorded at acquisition cost and subsequently accounted for under the equity method, and their carrying amounts are increased (or decreased) to reflect the Bank's share of the results of the investee after the acquisition date. The Bank's share of the profit or loss of the investee is recognized in the Consolidated Statement of Income, in the periods this profit or loss is calculated. The Bank adjusts the carrying amounts of its investments by recognizing its proportionate share of changes in the balance of components of the investee's other comprehensive income (loss). The Bank's share of these changes is recognized directly in equity under "Other comprehensive results." Upon the acquisition of investments in associated companies, any positive difference between the cost of the investment and the Bank's share of the net fair value of the investee's identifiable assets and liabilities is accounted for as goodwill and included in the book value of the investment. The Bank does not amortize this goodwill, however, its recoverable amount is tested, at least annually, for the assessment of impairment losses. Subsequently, any excess of the Bank’s share of the net fair value of the investee’s identifiable assets and liabilities over the cost of the investment is included as revenue in the Consolidated Statement of Income by the equity method. When the Bank's share of the associated company's loss for the period equals or exceeds the carrying amount of its interest, the Bank discontinues the recognition of its share of future losses. After the carrying amount of the Bank's interest has been reduced to zero, further losses are only recognized as



18

a liability to the extent that the Bank has incurred legal or constructive obligations or made payments on behalf of the investee. If the investee subsequently reports profits, the Bank resumes applying the equity method only after its share of those profits equals its share of the losses not recognized. Non-monetary contributions to associates and jointly-controlled subsidiaries - In compliance with IFRS 28, when the Bank makes contributions of non-monetary assets to an associated company or jointly-controlled entity in exchange for an equity interest in the associate or jointly-controlled entity, the gain or loss on the transaction is recognized to the extent of the interests of the other non-related investors. No gain or loss is recognized if the transaction has no commercial substance. c) Offset of asset and liabilities

The Bank does not offset assets or liabilities against other assets or liabilities, or any revenues or expenses against other revenues and expenses, unless there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

d) Translation of operations in foreign currency Functional and presentation currency - The consolidated financial statements are presented in Brazilian Reais, Bank's functional and presentation currency. The functional currency, which is the currency of the primary economic environment in which the entity operates, is the real for all Group entities. Transactions and balances - Transactions in foreign currency are initially recorded at the exchange rate of the functional currency in force on the date of transaction. Bank’s assets and liabilities denominated in foreign currency, mostly monetary, are converted at the foreign exchange rate of the functional currency in force on the balance sheet date. All translation differences are recognized in the statement of income for the period in which they occur. Translation into the presentation currency - The financial statements of entities domiciled abroad (none of which has the currency of a hyperinflationary economy) are translated into the presentation currency at the exchange rate in effect at the end of the period. When applicable, exchange differences arising from the translation of the financial statements of entities located abroad, whose functional currency is the real, are recognized in the Consolidated Statement of Income. When applicable, for the entities whose functional currency is not the real, accumulated exchange differences are recognized directly in equity, until the sale of the subsidiary abroad or loss of control, when these accumulated exchange differences are reclassified from Other comprehensive income (loss) to income or expenses for the period. The amount of exchange differences attributable to non-controlling shareholders is allocated and recognized as part of non-controlling interests in the statement of financial position. e) Cash and cash equivalents Funds available equivalents are represented by available funds in domestic currency, foreign currency, money market repurchase commitments - own portfolio, interbank deposit investments and foreign currency investments with high liquidity and insignificant risk of changes in value, whose maturity of the operations on the date of the investment is equal to or shorter than 90 days. f) Financial instruments with repurchase/resale commitment Securities sold with agreement to repurchase on a specific future date are not derecognized from the balance sheet, given that the Conglomerate retains substantially all of the risks and benefits of ownership. The corresponding cash received is recognized in the balance sheet as an obligation for reimbursement, including interest appropriated as a debt of the Conglomerate. The difference between sale and repurchase prices is treated as interest expense and accrued over the duration of the contract using the effective interest rate.



19

Conversely, for securities purchased under agreements to resell at a specific future date, the amount paid, including interest accrued, is recorded on the balance sheet as “Financial assets with repurchase agreements agreements”, reflecting the economic substance of the transaction. The difference between purchase and resale price is recorded in ‘Interest income’ and accrued during the contractual term using the effective interest rate. g) Financial instruments According to IAS 39, all financial assets and liabilities, including derivative financial instruments, must be recognized on the Balance Sheet and measured according to the category in which the respective instrument is classified. Financial assets and liabilities are classified in the following categories: • Financial assets with repurchase agreements; • Financial assets at fair value through profit or loss; • Financial assets available for sale; • Financial assets held to maturity; • Derivative financial instruments; • Loans and receivables; • Financial liabilities at fair value through profit or loss; and • Financial liabilities at amortized cost.

The classification depends on the purpose for which the financial assets were acquired or financial liabilities were assumed. Management determines the classification of its financial instruments at initial recognition. The Conglomerate, through its Management, classifies in its consolidated financial statements the financial instruments into categories that reflect the manner most suitable to the nature and characteristics of such instruments. Regular purchases and sales of financial instruments, including derivatives, are recognized on date of trading - the date on which the Conglomerate agrees to the purchase or sale of the asset. The Conglomerate classifies fair value measurements using a fair value hierarchy, which reflects the characteristics of the inputs used in measuring these values: • Level 1: Refer to pricing information quoted on the market (not adjusted). Accordingly, consists of

the current bid price verified in active markets. • Level 2: Composed of observable inputs in the market directly or indirectly. • Level 3: Refers to the assumptions not based on observable data, measured through internally

approved academic and/or technical methods. Other information about the fair value hierarchy are shown in Note 34h. (i) Financial assets at fair value through profit or loss

Are recorded and measured at fair value, and the respective changes in the fair value are immediately recognized in profit or loss. This category of liabilities in conformity with international accounting standards (IAS 39) may be divided into two different categories:

Held for trading

These are the assets acquired and incurred primarily with the intention of being traded in the short term or if they are part of a portfolio of financial instruments that are managed as a whole and for which there is evidence of a recent history of short-term sales. Derivative financial instruments are classified as held-for-trading except when they are designated and effective as hedging



20

instruments. Banco Votorantim S.A. chose to disclose derivatives in a separate line of the statement of financial position.

After their initial recognition, the financial assets with prefixed or post fixed remuneration are measured at amortized cost and stated at fair value. The initially recognized remuneration calculated by amortized cost of financial assets is presented in income as “Interest revenue”. The remuneration of held-for-trading financial assets is considered applicable to the trading operations of Banco Votorantim S.A. and are reported in a manner aggregated to all changes in the fair value of the assets held for trading in the account “Results of financial instruments at fair value through profit and loss”. Changes in their fair value are recognized in income for the period and shown in the income statement as “Income from financial assets held at fair value through profit or loss.” Designated at fair value

Assets designated at fair value through profit and loss upon initial recognition (fair value option). This recognition may not be subsequently changed. In accordance with IAS 39, fair value option may only be applied when its application reduces or eliminates accounting inconsistencies in results or when financial assets are part of a portfolio whose risks are managed and reported to Management based on their fair values or when these assets comprise a debt instrument and embedded derivative that should be separated. The Conglomerate has no financial liability at fair value through profit or loss - designated at fair value in its portfolio for the years ended December 31, 2017 and 2016.

(ii) Financial assets available for sale - available for sale financial assets are financial assets that are not classified in any of the other categories. Subsequent to initial recognition, the financial assets with prefixed or post fixed remuneration are measured at amortized cost using the effective interest rate method and stated at fair value. Changes in fair value, other than through impairment, are recognized - net of tax effects - within shareholders’ equity as equity valuation adjustments. When an investment is derecognized, the cumulative result in shareholders’ equity is transferred to the income statement.

When securities classified as available for sale are sold or impaired, the cumulative fair value adjustments recognized in shareholders’ equity are included in the income statement as “income from financial assets available for sale.”

(iii) Financial assets held to maturity - If the Conglomerate has the intention and ability to hold financial assets to maturity, such assets are classified as held-to-maturity. After initial recognition, financial assets with a fixed or variable remuneration are measured at amortized cost through the effective interest method and reported in the income statement as Interest revenue, less any impairment.

(iv) Derivative financial instruments - Derivative financial instruments that do not meet the criteria for hedges have their fair value adjustments recorded directly in earnings and presented in the income statement as a result of derivative financial instruments.

Financial instruments combined with other financial instruments, derivatives or not, are treated as separate financial instruments and recorded to include economic characteristics and risks directly related to the main contract.

Embedded derivatives are separated from the host contracts and accounted for separately if the economic characteristics and risks of the host contract and embedded derivative are not intrinsically related; or a separate instrument with the same terms as the embedded derivative meets the definition of a derivative.



21

(v) Loans and receivables - Loans and receivables are financial assets with fixed or calculated

payments and not quoted on an active market. Such assets are initially recognized at fair value, plus any attributable transaction costs. After their initial recognition, loans and receivables are measured at amortized cost using the effective interest rate method, reduced by any impairment losses. Revenues measured at amortized cost are shown in the income statement as “interest revenue”.

Loans and receivables subject to fair value hedge of derivative financial instruments are measured at fair value, using consistent criteria and verifiable. Changes in their fair value are recognized in income for the period and shown in the income statement as “Income from financial assets at fair value through profit or loss.

h) Write-off of financial instruments Financial assets are derecognized when the rights to receive cash flows have expired or when Banco Votorantim S.A. substantially transfers all the risks and benefits of ownership, in a manner that justifies the reversal (IAS 39). Therefore, if the risks and benefits have not been substantially transferred, Banco Votorantim S.A. reassesses its control and determines whether the actual involvement related to any retained control does not prevent it from making such a reversal. Financial liabilities are reversed upon liquidation or extinction thereof. (i) Financial assets

A financial asset (or applicable portion of a financial asset or group of similar assets) is derecognized when: • The right to receive cash flows from the asset has expired; or • The Conglomerate has transferred the right to receive cash flows from the asset or has assumed

an obligation to pay the cash flow received, in full and without material delay, to a third party due to a transfer agreement, and: • The Conglomerate has not substantially transferred or retained all the risks and rewards of

the asset, or • The Conglomerate has not substantially transferred or retained all the risks and rewards of

the asset, but has transferred control of the asset. Financial assets available for sale and financial assets measured at fair value through profit or loss as subsequently measured at fair value. Loans and receivables reaching 360 days of arrears are charged against provision for losses on impairment, except when there is some expectation of recovery.

(ii) Financial liabilities A financial liability based on a contract is derecognized when obligation in relation to the liability is eliminated, canceled, expired or settled. When an existing financial liability is replaced by another one from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, the exchange or modification is treated as a write-off of the original liability and recognition of a new liability, and the difference calculated in book value is recognized in the income statement. On December 31, 2017 and 2016, there were no significant substitutions of financial liabilities.

i) Hedge accounting The Conglomerate uses financial hedge derivatives to hedge its exposures to foreign currency and interest rate changes.



22

Upon initial designation of the hedge, the Conglomerate formally documents the relationship between the hedge instruments and the hedge able instruments, including the risk management goals and strategy in the execution of the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedge relationship. The Conglomerate evaluates - both at the beginning of the hedge relationship and continuously - assuring whether hedge instruments are expected to be highly effective to offset fair values of hedged items against respective hedges in the hedged period, and whether actual results of each hedge are within the interval of 80-125 percent. Derivative financial instruments considered as hedging instruments (hedge) are classified by their nature as follows: Fair value hedge - Derivative financial instruments classified in this category as well as the hedged item, have their fair value adjustments recorded against income and shown in the income statement as a “result of derivative financial instruments”; and Cash flow hedge - Derivative financial instruments in this class, have their fair value adjustments recognized in shareholders’ equity as “equity valuation adjustments”, net of tax. For object items that were discontinued from the hedge list and that remain recorded in the balance sheet, as in the case of credit contracts granted with substantial transfer of risks and benefits, when applicable, the mark-to-market adjustment is incorporated to cost and recognized over the remaining period at the new effective interest rate. j) Impairment losses

(i) Financial assets A financial asset not measured at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that there has been impairment. A financial asset is impaired when there is objective evidence that a loss event has occurred after the initial recognition of the asset, and that such loss event had a negative effect on the projected future cash flows of that asset that can be reliably estimated. The measurement of impairment applies to the following financial assets included on the balance sheet, whether attributed to the Wholesale segment or Retail segment: • Financial assets with repurchase agreement; • Financial assets at fair value through profit or loss; • Financial assets held to maturity; and • Loans and receivables.

In addition to above-mentioned assets, all items outside the balance sheet that present credit risks to the entity, such as granted collateral signatures, are also considered. Procedures applicable to measurement of impairment losses consider financial assets life cycle, as follows: origination/ acquisition of financial assets, appearance of impairment objective evidences, financial asset renegotiation and write-off to losses. In the origination or acquisition of financial assets, the Conglomerate does not recognize any impairment of the asset, in the same way that it does not consider - for accounting purposes - the estimated expected losses as a result of future and uncertain events, regardless of likelihood of such events. The emergence of objective evidence of impairment in their recoverable value indicates possible problems recovery on a financial asset or group of financial assets. Under the Conglomerate’s internal policies, the following facts are considered by the institution as “objective evidence of impairment”: • Non-payment; • Late payment,



23

• Restructuring of the amount due under terms that the Conglomerate would not consider for other transactions;

• Signs that the borrower or issuer will be going into bankruptcy; and • The disappearance of an active market for a security.

The Conglomerate, first, evaluates whether there is “objective evidence of impairment losses” for “individually significant assets” or collectively for “diversified assets”. For this purpose, “individually significant assets” are considered as those assets whose nominal value is equal to or more then the individually significant reference value (amount corresponding to the application of a percentage to the reference equity). These transactions are periodically evaluated (loan by loan) in relation to the borrower’s or economic group’s ability to pay, quality of guarantees offered, and all contractually negotiated conditions. Those transactions not covered by the level defined as assets individually significant transactions are classified as “massed” and assessed as a whole. If an “individually significant asset” presents one or more aspects of “objective evidence of loss, a provision is recorded as the difference between the asset’s carrying value and present value of estimated cash flows. The level of provisions for impairment of individually significant balances defined as material is reviewed at least every three months, and more regularly if circumstances require. This usually involves a revaluation of the applicability of execution of guarantees held and pre-payment of receivables. When assessing impairment on an aggregate basis the Conglomerate makes use of valuation internal system that considers historical trends of probability of default, the recovery term and the amounts of losses incurred, adjusted to reflect Management judgment. The portfolio of massified transactions is divided in order to identify groups with homogeneous levels on the observed parameters of default probability and losses attributed to default and stability on such parameters in a particular historical period. Each of these groups shows different levels of these parameters. The formation of homogeneous groups is guided by criteria such as product, type and term. In these cases, measurement of loss allowance is based on statistical methods that take into account loss, given default (calculated based on historical loss data for cases in which evidence of loss was identified). Provisions for impairment are reduced only when there is reasonable and objective evidence of favorable changes in previously stipulated loss estimates. The impairment of a financial asset measured at amortized cost, calculated based on the difference between the book value and the present value of future estimated cash flows, is recognized in P/L and reported in the income statement as a result of impairment, offset in an allowance account. When a subsequent event causes the amount of the impairment loss to decrease, the decrease in impairment loss is reversed and recorded in the income (loss). When possible, the Conglomerate seeks to restructure debts rather than take the guarantees. This may involve extending payment terms and agreeing to new loan conditions. Management performs ongoing review of renegotiated loans to ensure that all criteria are met and that future payments will be made. Loans continue to be subject to individual or collective assessment of impairment, calculated using the loan’s original effective rate. (ii) Non-financial assets The entity assesses at least at the end of each fiscal year if there is any sign that an asset may have lost value. If any such indication exists, the entity estimates the recoverable amount of the asset, which is either i) its fair value less costs to sell it; or ii) its value in use, whichever is higher. If the asset’s



24

recoverable value is lower that its book value, the asset is reduced to its recoverable value through a provision for impairment losses that is recognized under “Other operating income (loss)”. k) Determination of the fair value The fair value of publicly quoted financial instruments is based on current market prices. For financial assets and liabilities with no active market, the Conglomerate establishes fair value by using valuation techniques. These techniques are established based on consistent and verifiable criteria and may include: • Comparison with transactions recently contracted with third parties; • Reference to other instruments that are substantially similar; • Analysis of discounted cash flows; and • Conventional and established pricing models.

The main additional data about the assumptions used to determine fair values are disclosed in specific notes for that asset or liability. l) Assignment of financial assets On applying accounting policies to assigned financial assets, the Conglomerate took into account the extent of transfer of risks and benefits of the assets transferred to another entity: • When the Conglomerate transfers financial assets to another entity, but does not substantially

transfers all risks and rewards related to the assets transferred, assets will continue being recognized in the Conglomerate's balance sheet.

• When the Conglomerate transfers substantially all risks and benefits related to the assets transferred to an entity other than a subsidiary, the assets are derecognized in the Conglomerate’s balance sheet.

• If the Conglomerate does not transfer or retain substantially all risks and benefits related to transferred financial assets and retains control of the transferred assets, the Conglomerate continues to recognize the transferred asset to the extent of its continuing involvement in the transferred financial asset.

In the course of its activities, the Conglomerate carries out transactions that give rise to the transfer of financial assets to third parties or to Credit Rights Investment Funds, but these transactions’ credit risks are substantially retained. Thus, the Conglomerate continues to recognize these operations on its balance sheet and an associated liability. m) Non-financial assets held for sale Non-current assets and groups of assets for sale are classified as held for sale if their book value is recovered mainly through sale instead of continuous use. This condition is fulfilled only when sale is highly probable and the non-current asset is available for immediate sale in its current state. Management should be committed to this sale, which is expected, in recognition, may be considered to be completed within one year of classification date. n) Investments (i) Investments in associated companies An associated company is an entity in which the Conglomerate holds significant influence and which is not characterized as a subsidiary or an investment in a joint venture. Significant influence is the power to participate in decisions on the financial and operating policies of the investee, without jointly or severally controlling such policies. Changes in shareholders’ equity of the investments included in this kind of investment are recognized in the Group’s P/L by the equity method.



25

(ii) Investments in jointly-controlled subsidiaries A jointly controlled operation is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. The consolidated financial statements include the assets that the Conglomerate controls and the liabilities incurred during the course of the activities of the joint operation, the expenses incurred by the Conglomerate and its share in the revenue generated by joint operation. Changes in shareholders’ equity of the investments included in this kind of investment are recognized in the Group’s P/L by the equity method. o) Tangible assets Tangible assets are recognized at acquisition cost less respective depreciation account, whose value is calculated at the straight-line basis using the following annual rates in accordance with estimated useful lives of assets, as follows: • Vehicles - 20%; • Data processing and similar systems - 20%; • Facilities, furniture and equipment in use - 10%; • Improvements on the property of others - lease agreement term.

Software acquired as an integral part of the functionality of an item of equipment is capitalized as part of that equipment. At least at the end of each reporting period, the entity is assesses whether there is any indication that a tangible asset may be impaired. p) Intangible assets Corresponds to the rights based on immaterial goods used to maintain the Institution or exercised for this purpose. Intangible assets have defined useful lives and refer primarily to software, amortized on the straight-line basis at the rate of 20% per year starting on the date on which it becomes available for use. At least at the end of each reporting period, the entity is assesses whether there is any indication that an intangible asset may be impaired. If so, the entity estimates the asset's recoverable value. Amortization is calculated by the straight-line method, based on the period over which the benefit is generated, calculated under “Depreciation and amortization”, Note 30. q) Contingent assets Contingent assets usually arise from unplanned events or other unexpected events that give rise to the possibility of an inflow of economic benefits to the enterprise. Contingent assets are not recognized in Financial Statements since this may result in the recognition of income that may never be realized. However, when the realization of income is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate. r) Financial liabilities at fair value through profit or loss Are recorded and measured at fair value, and the respective changes in the fair value are immediately recognized in profit or loss. This category of liabilities in conformity with international accounting standards (IAS39) may be divided into two different categories: (i) Financial liabilities at fair value through profit or loss - designated at fair value - The

Conglomerate had no financial liabilities at fair value through income - recorded at fair value in its portfolio for years ended December 31, 2017 and 2016.



26

(ii) Financial liabilities at fair value through profit or loss income - held for trading - Correspond to repurchase and resale commitments, share-based loans, loans and onlending, securities issued and subordinated liabilities and derivative financial instruments, unless they are recorded and effective as hedging instruments - and financial liabilities recorded at fair value through income at initial recognition (fair value option). This recognition may not be subsequently changed. In accordance with IAS 39, fair value option may only be applied when its application reduces or eliminates accounting inconsistencies in results or when financial assets are part of a portfolio whose risks are managed and reported to Management based on their fair values or when these assets comprise a debt instrument and embedded derivative that should be separated.

s) Financial liabilities at amortized cost They are initially recognized at fair value plus any transaction costs directly assignable. After the initial recognition, these financial liabilities are stated at amortized cost using the effective interest rate method. Charges calculated at amortized cost are shown in the income statement as “interest expense”. (i) Financial liabilities associated with transferred assets

Financial liabilities are composed of signed contractual obligations with assignees, purchasers of portfolios of loans and receivables with co-obligation clauses or significant credit risk retention.

Financial liabilities associated with transferred assets consist of contractual obligations entered into

with assignees, purchasers of loan portfolios and receivables with a co-obligation clause or significant retention of credit risk are initially recognized at fair value, plus any attributable transaction costs. After their initial recognition, these financial liabilities are measured at amortized cost using the effective interest rate method. Charges calculated at amortized cost are shown in the income statement as “interest expense”.

(ii) Financial institution and client deposits

They are initially recognized at fair value plus any transaction costs directly assignable. After initial recognition, these deposits are measured at amortized cost using the effective interest method. Charges calculated at amortized cost are shown in the income statement as “interest expense”.

(iii) Loans and onlendings, securities issued and subordinated liabilities

They are initially recognized at fair value plus any transaction costs directly assignable. After initial recognition, these liabilities are measured at amortized cost using the effective interest method. Charges calculated at amortized cost are shown in the income statement as “interest expense”. Those that are designated and effective as a hedge instruments are measured at fair value, using consistent criteria and verifiable. Changes in fair value are recognized in: • the period’s income and shown in the income statement as “income from financial instruments

at fair value through profit or loss”, when classified as a fair value hedge or; • in shareholders' equity as equity valuation adjustments, net of tax effects, when classified as

cash flow hedge. t) Provisions Contingent liabilities are recognized in the financial statements when, based on the opinion of the legal counsel and of Management, the risk of loss of a lawsuit or administrative proceeding is considered probable, with a probable outflow of financial resources for the settlement of obligations and when the sums involved are measurable with sufficient assurance. Contingent liabilities classified as possible losses are not accounted for, and should only be disclosed in the notes to the financial statements, whereas those classified as remote do not require provision and disclosure.



27

Legal obligations are lawsuits discussing tax obligations legality or constitutionality and whose amounts are fully recognized in financial statements, based on Management’s risk assessment. u) Income taxes and contributions Income taxes - income tax (IRPJ) and social contribution (CSLL) are taxes levied on the profits of financial institutions in Brazil. Income tax is a tax due by the taxpayer (an individual or a legal entity) to the government upon the occurrence of a taxable event, and is calculated by applying a tax rate to a tax base. Income tax is calculated at the rate of 15% plus a 10% surtax; social contribution is calculated at the rate of 20% for financial institutions, insurance companies, credit card companies, after adjustments determined by tax legislation. For non-financial entities, the tax rate for social contribution is of 9%. Income taxes comprise current and deferred taxes, and are recognized in the statement of income, unless they are related to items that are recognized directly in equity, and under "other comprehensive results." Taxes recognized in equity are subsequently recorded in the statement of income as the gains and losses that gave rise to them are recognized. Current taxes - the current tax expense refers to the amount of income tax and social contribution payable or recoverable in relation to the taxable income (loss) for the period. Current tax assets consist of income tax and social contribution amounts to be recovered within the next twelve months. Current taxes for the current and prior periods are recognized as liabilities to the extent that they have not yet been settled, and as an asset to the extent that the amounts already paid exceed the amount due for these periods. Current tax assets and liabilities of the last period and of previous years are measured at recoverable value expected or paid to the tax agency. Tax rates and the tax laws used to calculate the amount are those that are in force on the balance sheet date. Deferred taxes - these consist of amounts of tax assets and liabilities to be recovered and settled in future periods, respectively. Deferred tax liabilities arise from taxable temporary differences, and deferred tax assets arise from deductible temporary differences and carryforward of unused tax losses. Deferred tax assets arise from income tax and social contribution losses and temporary differences. Deferred tax assets arising from temporary differences are recognized to the extent that it is probable that future taxable profit will be available to offset these temporary differences. The carrying amount of a deferred tax asset is reviewed at the end of each reporting period. An entity reduces the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the related tax benefit to be utilized. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profit will be available. Deferred tax assets and liabilities are measured at tax rates expected to be applicable in the year when the asset is realized or the liability is settled, based on tax rates (or tax law) promulgated by balance sheet date. Temporary differences - these are differences between the carrying amount of an asset or liability in the balance sheet and its tax base that impact or may impact the calculation of income tax and social contribution. Temporary differences may be taxable or deductible. Temporary taxable differences are temporary differences that will yield taxable amounts to determine taxable income (tax loss) of future periods when the book value of an asset or liability is recovered or settled. Deductible temporary differences are temporary differences that will yield deductible amounts in determining taxable profit (tax loss) of future periods when the book value of the asset or liability is recovered or settled.



28

The tax base of an asset is the amount that tax deductible against any taxable economic benefits that will flow to the entity when it recovers the book value of this asset. If those economic benefits are not taxable, the tax base of the asset is equal to its book value. The tax base of a liability is its book value, less any amount that will be deductible for tax purposes, related to that liability in future periods. In the case of revenue received in advance, the tax base of the resulting liability is its book value, less any amount of revenue that will not be taxable in future periods. Offsetting of income taxes Current and deferred tax assets and liabilities for current taxes are offset if, and only if, the entity: (i) has the legal right to offset the recognized amounts; and (ii) intends to either settle on a net basis, or realize the asset and settle the liability simultaneously. Deferred tax assets and deferred tax liabilities are offset if, and only if: (i) the company has a legal right to offset current tax assets against current tax liabilities; and (ii) the deferred tax assets and tax liabilities are related to income taxes levied by the same tax authority: (a) at the same taxable entity or (b) different taxable entities that intend to settle the current tax liabilities and assets on net bases, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant values of deferred tax assets or liabilities are expected to be paid off or recovered. Taxes are calculated based on rates shown in the chart below: Taxes Alíquotas vigentes Income tax (15% + 10% additional) 25% Social contribution on net income - CSLL (1) 20% PIS / PASEP (2) 0.65% Contribution for Social Security Funding - COFINS (2) 4% Service tax (ISS) - ISSQN De 2% a 5% (1) The applicable rate to financial companies, from September 01, 2015 (the rate was 15% until August 31, 2016). Beginning

as of January 2019, the rate will return to 15%. For other non-financial companies, CSLL (social contribution on net income) rate corresponds to 9%.

(2) For non-financial companies that opted for the non-cumulative calculation regime, PIS/Pasep rate is 1.65% and Cofins rate is 7.6%.

Deferred tax assets arising from the increase of the rate for social contribution from 15% to 20% are recognized in an amount sufficient for use by the end of the term of the new rate (12/2018), according to Law 13,169/2015. v) Other assets and liabilities Other assets are stated at their realizable amounts, including, where applicable, income and monetary and foreign exchange earned and provision for loss, if deemed necessary. Other liabilities stated include known and measurable values plus monetary and currency rate variations charges incurred. w) Interest revenue and expense For all financial instruments that generate interest, income or expense on interest is recorded using the agreed rate, including variations in forward exchange contracts in foreign currency. The calculation takes into account all contractual terms of the financial instrument, but not of the future credit losses. The incremental costs directly attributable to financial instruments are disclosed under "Net profit from fees and commissions”, Note 24. x) Net income (loss) from services and commissions The Conglomerate earns fee and commission income on various types of services it provides for its customers. Fees earned for the provision of services are recognized over the same period in which the services are provided.



29

Revenues from loan commitment fees for which credit probably will not be used, revenues is recognized over the commitment term using the straight-line method. y) Revenues from dividends Revenues from dividends is recognized when the right of receipt is established. Dividends are reflected as a component of “Income from financial instruments at fair value through profit or loss” or “Other operating income (loss)”, depending on the classification of the equity instrument. z) Investment fund management The Conglomerate manages and administers assets held in investment funds and other types of investment in favor of investors. These funds are not consolidated in the Consolidated Financial Statements of the Conglomerate, except those funds controlled by the Conglomerate, whose information is stated in Note 5a. aa) Operating segments Management takes operational results from its business units separately for the purposes of making decisions on resource allocation and assessing their performance. A segment’s performance is assessed based on profit or loss, which in some cases is measured differently from operating income or loss in consolidated financial statements and are divided into segments: wholesale and retail. Interest income is reported net, following the form of business performance measurement, and not gross revenues and expenses separately. Prices of transfers between operational segments are conducted at market prices, in a manner similar to transactions with third parties. bb) Standards and interpretations that became effective in the year ended December 31, 2017 There were no new accounting pronouncements applicable for the year ended December 31, 2017. cc) Standards and interpretations will be effective after the year ended December 31, 2017 and

without early adoption by the Conglomerate when permitted by IASB IFRS 9 - Financial Instruments - Statement that replaces IAS 39 - Financial Instruments: Recognition and Measurement. The new standard establishes new criteria for a) classification and measurement, b) impairment and c) hedge accounting. a) Classification and measurement

Following the criteria of the new standard, the accounting assignment of an active financial instrument will depend on the business model that will be marketed and the characteristics of the cash flows allocated in the agreement. Business models define how the Bank manages its financial assets and cash flow, that is, whether the business model of a particular product is intended to receive contractual cash flows, the sale of these financial assets, or both. The cash flow receipt and cash flow and sale receivables business models are maintained only the instruments that have the contractual characteristics of only principal and interest. In order to verify that financial instruments have this characteristic, the SPPI (Solely Payments of Principal and Interest) test is applied, which aims to certify that the instrument has the characteristics described above, without increasing any contractual clause that exposes the holder to variations If this occurs, the instrument must be recorded at fair value through profit or loss, regardless of the business model assigned by management.



30

b) Impairment IFRS 9 brings the expected loss concept to the provisioning of financial assets and guarantee operations, the calculation methodology will depend on the classification of assets in three stages. This classification will depend on the credit quality of the instrument and will migrate to stages with higher provision volumes when credit deterioration occurs. On the other hand, if there is an improvement in the credit quality, the asset can return to a stage with a lower level of provisioning, unless it is an asset originated with recovery problems.

• Stage 1: Assets with no significant credit risk and no credit recovery problems at origination. At this stage, the expected losses are recorded for 12 months.

• Stage 2: Assets with significant credit risk and no credit recovery problems at origination. At this stage, losses are recorded for the total term of the contract.

• Stage 3: Assets considered in default, due to the occurrence of events that prove the probable impairment of the future cash flows of the instrument. At this stage the losses are also recognized for the total term of the contract, as well as in Stage 2.

c) Hedge Accounting

New approach to Hedge Accounting, using alignment with risk management practiced by the entity. IFRS 9 allows entities to opt at each beginning of the year whether they will adopt the new concepts brought by the standard or whether they will retain the concepts presented by IAS 39 until the IASB finalizes the Macro Hedging standard. For the year 2018, the Conglomerate has chosen to maintain the criteria established by IAS 39 for Hedge Accounting, the option of which is subject to annual review. Initial adjustments for the adoption of IFRS 9 The impacts resulting from the initial adjustments for the adoption of IFRS 9 in the Conglomerate, on January 1, 2018, result in a decrease in Shareholders' Equity of R$ 648,841, comprising:

• Decrease of R$ 1,016,589 arising from an increase in the impairment losses on loans and receivables and on off-balance-sheet operations to provide guarantees.

• Decrease of R$ 64,812 arising from an increase in the allowance for losses on available-for-sale financial assets.

• Increase of R$ 432,560 arising from an increase in deferred tax assets. IFRS 15 - Revenue from Contracts with Customers - requires the recognition of revenue to be done in such a way as to depict the transfer of goods or services to the customer for an amount that reflects the company's expectation of having the rights of those goods or services in exchange. IFRS 15 supersedes IAS 18, IAS 11 and related interpretations (IFRICS 13, 15 and 18). Effective for fiscal years beginning after January 1, 2018, and early adoption is permitted by the IASB. There are no significant impacts on the adoption of the standard. IFRS 16 - Leases - The standard replaces IAS 17 - Leases, as well as related interpretations (IFRIC 4, SIC 15 and SIC 27). Eliminates operating lease accounting for the lessee, instead a single lease model has been introduced, which: (a) recognizes leases with a period of more than 12 months and substantial values; (b) initially recognizes the lease in assets and liabilities in present value; and (c) recognizes depreciation and lease interest separately in the results. For the lessor, accounting will remain segregated between operational and financial. Effective for the years started on January 1, 2019. The possible impacts of the adoption of this standard are being evaluated and will be completed by the date on which the standard enters into force.



31

dd) Authorization of Financial Statements The Financial Statements were authorized for issue by Management on March 26, 2018. 4. MAIN JUDGMENTS AND ACCOUNTING ESTIMATES Preparation of the financial statements requires that Management use its judgment in determining and recording accounting estimates. The settlement of transactions involving these estimates may result in significantly different amounts due to the lack of precision inherent to the process of their determination. Significant items subject to such estimates and assumptions include valuations of financial assets and liabilities, financial derivative instruments at fair value, credit risk analysis to determine allowance for impairment, and analysis of contingent liabilities. The Management reviews the estimates and assumptions on a regular basis. Main amounts recognized in the Financial Statements through estimates are included in the following notes: • No. 8 - Financial assets at fair value through profit or loss, available-for-sale and held-to-maturity • No. 9 - Derivative financial instruments • No. 10 - Loans and receivables • No. 16 - Financial liabilities at fair value through profit or loss • No. 20b - Deferred tax assets • No. 20d - Deferred tax liabilities • No 21 - Provisions, contingent assets, liabilities and legal, tax and social security obligations

5. CONSOLIDATED FINANCIAL STATEMENTS a) Shareholding interest included in consolidated financial statements, segregated by

business segments Investee over which the Entity exercises control are considered as subsidiaries, based on the evaluation of an investor having power over the investee; exposure to, or rights over, variable returns from its involvement with the investee; and the ability to use its power over the investee to affect their return. The investees subsidiaries are fully consolidated as of the Conglomerate’s assuming control over their activities through the date that such control ceases. The consolidated financial statements include the transactions of Banco Votorantim (parent company) and the following controlled investees:

Activity Ownership interest

12.31.2017 12.31.2016 Domestic subsidiaries (direct interest)

Votorantim Corretora de Títulos e Valores Mobiliários Ltda. Brokerage securities 99.99 99.99 Votorantim Asset Management DTVM Ltda. (Votorantim DTVM) (1) Administration of assets 99.99 99.99 BV Financeira S.A. Crédito, Financiamento e Investimento (BV Financeira) (1) Financial 100.00 100.00 BV Leasing Arrendamento Mercantil S.A. (BV Leasing) (1) Lease 100.00 100.00

Promotiva S.A. Rendering of services 100.00 100.00 BV Investimentos Altern. e Gestão de Recursos S.A. (BVIA) Administration of assets 100.00 100.00 Votorantim Corretora de Seguros S.A. (1) Insurance brokers 100.00 100.00 BVIA Fundo de Investimento em Participações Multiestratégia (BVIA FIP) Investment fund 100.00 100.00

Votorantim Expertise Multimercado Fundo de Investimento (Expertise) Investment fund 100.00 - Domestic subsidiaries (indirect interest)

BV Empreendimentos e Participações S.A. (BVEP) (2) Holding 100.00 100.00 IRE República Empreendimento Imobiliário S.A. (IRE República) (3) SPE 100.00 100.00

Senador Dantas Empreendimento Imobiliário SPE S.A. (Senador Dantas) (3) SPE 100.00 100.00 Henri Dunant Empreend. Imobiliário S.A. (Henri Dunant) (3) SPE 100.00 100.00 Arena XI Incorporações SPE Ltda. (Arena) (3) SPE 100.00 100.00

D’oro XVIII Incorporações Ltda. (D’oro) (3) SPE 100.00 100.00 Marques de Monte Santo Empreend. Imobiliário SPE Ltda (Monte Santo) SPE 100.00 100.00

Parque Valença Empreendimento Imobiliário SPE Ltda (Valença) SPE 100.00 100.00 Subsidiaries abroad (direct interest) Votorantim Bank Limited (4) Bank - 99.99

Banco Votorantim Securities Inc. (5) Brokerage securities - 100.00 Votorantim Securities (UK) Limited (6) Brokerage securities - 100.00



32

(1) Financial subsidiaries. (2) The calculation of investments in subsidiaries, jointly-controlled subsidiaries and jointly-controlled companies

accounted for using the equity method is carried out on a monthly basis, based on the balance sheet or the trial balance sheet drawn up with a two-month lag, The adjustments necessary to consider the effects of extraordinary events occurred in the period.

(3) Financial statements for consolidation relative to 10/2017. (4) Votorantim Bank Limited had its activities closed during the year ended December 31, 2016 and was terminated in

January 4, 2017. (5) Banco Votorantim Securities Inc. was extinguished on December 28, 2017. (6) Votorantim Securities (UK) Limited had its activities closed during the year ended December 31, 2017 and is in the

process of dissolution.

b) Financial position of domestic subsidiaries (direct interest)

Votorantim CTVM (1)

Votorantim DTVM(1)

BV Financeira(1)

BV Leasing(1) Promotiva BVIA

Votorantim Corretora

de Seguros BVIA FIP Expertise

12.31.2017 Current assets 357,367 251,397 19,361,288 9,246,539 57,399 43,985 627,454 24,346 857,487 Non-current assets 29,628 16,607 20,918,992 776,878 3,078 98,712 5,897 1,004,515 - Total assets 386,995 268,004 40,280,280 10,023,417 60,477 142,697 633,351 1,028,861 857,487 Current liabilities 109,755 132,702 25,513,004 33,164 29,504 3,989 199,699 330 720,855 Non-current liabilities 10,449 38,154 14,159,081 8,981,635 1,198 - 38 - - Shareholder’s equity 266,791 97,148 608,195 1,008,618 29,775 138,708 433,614 1,028,531 136,632 Total liabilities 386,995 268,004 40,280,280 10,023,417 60,477 142,697 633,351 1,028,861 857,487

12.31.2016 Current assets 434,755 175,848 20,084,318 18,325,815 44,011 25,879 316,715 1,045,294 - Non-current assets 18,314 30,513 20,362,900 668,503 381 110,015 3,865 - - Total assets 453,069 206,361 40,447,218 18,994,318 44,392 135,894 320,580 1,045,294 - Current liabilities 173,729 74,682 16,623,685 47,850 29,735 5,599 254,792 865 - Non-current liabilities 14,000 50,239 22,166,622 17,959,413 676 - 27 - - Shareholder’s equity 265,340 81,440 1,656,911 987,055 13,981 130,295 65,761 1,044,429 - Total liabilities 453,069 206,361 40,447,218 18,994,318 44,392 135,894 320,580 1,045,294 - (1) Balances presented in accordance with accounting practices adopted in Brazil, applicable to Financial Institutions authorized

to operate by the Central Bank of Brazil (BACEN).

c) Financial position of domestic subsidiaries (indirect interest) BVEP Senador Dantas IRE Repúlica Henri Dunant Arena D’oro Monte Santo Valença

12.31.2017 Current assets 171,155 52,671 14,568 2,517 46,660 18,146 110 35 Non-current assets 845,214 13 - 41,740 - 1 33,380 42,710 Total assets 1,016,369 52,684 14,568 44,257 46,660 18,147 33,490 42,745 Current liabilities 32,608 11 470 36 42,327 13,078 1,300 502 Non-current liabilities 135,689 - - - 790 5,925 - - Shareholder’s equity 848,072 52,673 14,098 44,221 3,543 (856) 32,190 42,243 Total liabilities 1,016,369 52,684 14,568 44,257 46,660 18,147 33,490 42,745

12.31.2016 Current assets 172,702 53,190 12,731 1,267 16,458 15,614 33,999 51,739 Non-current assets 772,532 15 - 40,417 - 9 - - Total assets 945,234 53,205 12,731 41,684 16,458 15,623 33,999 51,739 Current liabilities 9,365 - 471 9,002 11,672 11,410 - 3 Non-current liabilities - - - - - - - - Shareholder’s equity 935,869 53,205 12,260 32,682 4,786 4,213 33,999 51,736 Total liabilities 945,234 53,205 12,731 41,684 16,458 15,623 33,999 51,739



33

Financial position of the subsidiaries abroad (direct interest)

12.31.2017 12.31.2016 BV Securities BV Securities UK BV Securities BV Securities UK

Current assets 25,459 330 45,398 18,087 Non-current assets - - - - Total assets 25,459 330 45,398 18,087 Current liabilities 25,459 330 4,546 491 Non-current liabilities - - 2,182 160 Shareholder’s equity - - 38,670 17,436 Total liabilities 25,459 330 45,398 18,087

6. CASH AND CASH EQUIVALENTS

12.31.2017 12.31.2016 Cash and cash equivalents 296,356 183,634

Cash and cash equivalents in national currency 2,423 83,079 Cash and cash equivalents in foreign currency 293,933 100,555

Interbank funds applied (1) 2,358,396 1,912,133 Money market repurchase -

commitments - Sales pending settlement - own portfolio 1,458,881 711,425

Interbank accounts or relations 571,156 897,954 Investments in foreign currency 328,359 302,754

Total 2,654,752 2,095,767 (1) Refer to transactions with original maturity equal to or lower than 90 days and present insignificant risk of fair value change.

7. FINANCIAL ASSETS WITH REPURCHASE AGREEMENTS

12.31.2017 12.31.2016

Book value Fair value of guarantee Book value Fair value of

guarantee Sales pending settlement - own portfolio 829,322 943,537 2,005,290 2,025,639

National Treasury Bills 110,713 112,472 259,506 258,828 National Treasury notes 718,609 831,065 1,745,784 1,766,811 Sales pending settlement - financed operations 5,908,507 5,908,096 9,796,964 9,836,437

Financial Treasury Bills 1,506,540 1,509,952 6,497,077 6,503,241 National Treasury Bills 2,053,779 2,058,517 2,485,704 2,523,694

National Treasury notes 2,348,188 2,339,627 814,183 809,502 Sale pending settlement - short position 4,601,065 4,612,888 2,189,209 2,206,483 Federal government bonds - National Treasury 4,601,065 4,612,888 2,189,209 2,206,483 Total 11,338,894 11,464,521 13,991,463 14,068,559

Banco Votorantim S.A. Demonstrações Contábeis consolidadas em IFRS

Exercício findo em 31 de dezembro de 2017 Valores expressos em milhares de Reais, exceto quando indicado

34

8. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS, AVAILABLE FOR SALE AND HELD TO MATURITY

a) Composition of portfolio by category, paper type

Maturity in days 12.31.2017 12.31.2016

Fair value Total Total Without maturity

From 0 to 30

From 31 to 180

From 181 10 360

Over 360 days Cost Fair value Fair value

adjustment Cost Fair value Fair value adjustment

1 - Financial assets at fair value through profit or loss 52,690 884,928 73,774 6,774 1,509,092 2,467,435 2,527,258 59,823 5,851,105 5,812,824 (38,281) Government bonds - 884,928 73,774 6,774 1,487,060 2,416,470 2,452,536 36,066 5,765,212 5,731,173 (34,039)

Financial Treasury Bills - - 24,573 4,131 18,213 46,920 46,917 (3) 232,215 232,215 - National Treasury Bills - 203,307 49,201 - 531,444 781,624 783,952 2,328 3,272,031 3,279,737 7,706 National Treasury notes - 681,544 - 2,643 937,403 1,587,850 1,621,590 33,740 2,256,334 2,214,605 (41,729) Agricultural debt securities - - - - - - - - 707 716 9 Brazilian Foreign Debt Securities - 77 - - - 76 77 1 3,925 3,900 (25)

Private securities 52,690 - - - 22,032 50,965 74,722 23,757 85,893 81,651 (4,242) Shares in investment funds 1,291 - - - 1,291 1,291 - 1,841 1,841 - Shares 51,399 - - - - 27,611 51,399 23,788 27,619 24,315 (3,304) Rural Product Bills - Commodities - - - - - - - - 23,005 22,469 (536) Eurobonds - - - - 755 806 755 (51) 10,927 10,870 (57) Debentures - - - - 21,277 21,257 21,277 20 - - Other - - - - - - - - 22,501 22,156 (345)

2 - Financial assets available for sale 646,934 543,587 276,457 191,722 9,816,801 11,579,587 11,475,501 (104,086) 15,085,983 14,708,788 (377,195) Government bonds - - 142,900 28,073 6,901,022 6,950,041 7,071,995 121,954 8,034,335 8,114,120 79,785

Financial Treasury Bills - - 142,900 28,073 2,782,910 2,951,188 2,953,883 2,695 1,851,047 1,850,330 (717) National Treasury Bills - - - - 282,656 263,857 282,656 18,799 1,424,026 1,438,328 14,302 National Treasury notes - - - - 2,445,075 2,384,782 2,445,075 60,293 3,429,586 3,463,813 34,227 Brazilian Foreign Debt Securities - - - - 1,390,381 1,350,214 1,390,381 40,167 1,329,676 1,361,649 31,973

Private securities 646,934 543,587 133,557 163,649 2,915,779 4,629,546 4,403,506 (226,040) 7,051,648 6,594,668 (456,980) Debentures (1) - 517,245 - 96,396 2,014,437 2,821,343 2,628,078 (193,265) 4,411,909 4,145,335 (266,574) Promissory notes - - 3,359 3,359 13,431 20,154 20,149 (5) 233,423 232,847 (576) Shares(2) 410,662 - - - - 458,027 410,662 (47,365) 691,484 591,744 (99,740) Shares in investment funds(3) 159,679 - - - - 159,679 159,679 - 214,636 214,636 - Rural Product Bills - Commodities (4) - 26,342 112,247 26,076 110,399 292,754 275,064 (17,690) 217,010 207,587 (9,423) Eurobonds(5) - - - - 341,079 337,107 341,079 3,972 520,759 488,803 (31,956) Credit Linked Notes - - - - - - - - 97,987 97,628 (359) Financial Bills - - - - 109,221 109,238 109,221 (17) 200,888 200,797 (91) Other 76,593 - 17,951 37,818 327,212 431,244 459,574 28,330 463,552 415,291 (48,261)

3 - Financial assets held to maturity - 4,285,466 - 344,912 2,026,792 6,513,061 6,657,170 144,109 6,928,846 7,061,608 132,762 Government bonds - 4,285,466 - 344,912 2,026,792 6,513,061 6,657,170 144,109 6,928,846 7,061,608 132,762

National Treasury Bills - 3,499,069 - - 1,169,536 4,569,922 4,668,605 98,683 4,025,086 4,143,466 118,380 National Treasury notes - 786,397 - 344,912 857,256 1,943,139 1,988,565 45,426 2,903,760 2,918,142 14,382

Total (1 + 2 + 3) 699,624 5,713,981 350,231 543,408 13,352,685 20,560,083 20,659,929 99,846 27,865,934 27,583,220 (282,714)

Banco Votorantim S.A. Demonstrações Contábeis consolidadas em IFRS

Exercício findo em 31 de dezembro de 2017 Valores expressos em milhares de Reais, exceto quando indicado

35

The fair value includes the prudential adjustment of credit sprea. Securities classified as held-to-maturity financial assets are recorded at cost. For the purpose of demonstrating the table above, these transactions are presented at fair value.

(1) The cost of the Debentures includes a provision for losses in the amount of R$ 929,311 (R$ 894,514 on December 31, 2016) against the income from available-for-sale financial assets.

(2) The cost value of the Shares includes a provision for losses in the amount of R$ 74,745 (R$ 74,745 as of December 31, 2016) against the income from available-for-sale financial assets. The fair value of the shares represents the quotation disclosed by B3 S.A. - Brazil, Bolsa, Balcão.

(3) The cost value of Shares in Investments Funds also considers the provision for losses in the amount of R$ 12,397 as a contra entry to the Income from available-for-sale financial assets.

(4) The cost of the Rural Product Notes also considers the allowance for losses in the amount of R$ 38,047 (R$ 8,286 as of December 31, 2016) against the income from available-for-sale financial assets.

(5) At December 31, 2016, the cost value of Eurobonds also considers the allowance for losses in the amount of R$ 14,807 against income from available-for-sale financial assets.

b) Reclassifications of financial assets On December 31, 2016, occurred the reclassification of Government Securities - National Treasury Bills, from the "Financial assets available for sale" to the "Financial assets held to maturity" as a result of the review of management's intention on their titles. The financial assets were transferred from accounting category at fair value on the transfer date. With the reclassification, the securities were measured at amortized cost, generating no impact on P/L on the transfer date. Cost Fair value Unrealized gain /(loss) National Treasury Bills 801,988 759,962 (42,026) Total 801,988 759,962 (42,026)

The Conglomerate states that it has the capacity and financial intention of holding them to maturity. Additionally, the reference assets may be used as ballast in buyback operations. There was no reclassification of Financial Assets between categories in the year ended December 31, 2017.



36

9. DERIVATIVE FINANCIAL INSTRUMENTS a) Breakdown of derivative financial instruments by index

By index 12.31.2017 12.31.2016

Notional value Cost Fair value Notional value Cost Fair value

Futures contracts Purchase commitments 17,843,228 - - 28,014,200 - -

DI (Interbank deposit rates) 7,752,324 - - 15,192,049 - - Currencies 349,271 - - 1,612,388 - - Índex 296,084 - - 1,278,055 - - Foreign currency coupon 9,330,268 - - 9,931,708 - - Other 115,281 - - - - -

Sales commitments 61,229,792 - - 57,685,592 - - DI 43,268,708 - - 32,039,719 - - Currencies 120,421 - - 1,609,229 - - Índex 36,815 - - 327,655 - - Libor 11,074,453 - - - - - Foreign currency 6,647,677 - - 23,708,989 - - Other 81,718 - - - - -

Forward transactions Asset position 177,111 177,111 177,101 314,132 314,132 314,092

Forward currency - - - 73,863 73,863 73,863 Government bond term 177,111 177,111 177,101 240,269 240,269 240,229

Liability position 177,111 (177,111) (177,078) 314,132 (314,132) (309,209) Forward currency - - - 73,863 (73,863) (69,017) Government bond term 177,111 (177,111) (177,078) 240,269 (240,269) (240,192)

Option contracts (1) Purchase – Long position 2,547,030 113,040 49,890 9,628,705 217,717 78,080

Foreign currency 2,058,350 99,971 37,398 8,018,900 168,921 49,732 Flexible options 462,680 9,516 6,958 594,485 12,042 1,810 Shares 26,000 3,553 5,534 1,015,320 36,754 26,538

Sale – Long position 2,825,290 273,475 397,082 10,183,011 704,612 949,473 Foreign currency 2,452,325 165,236 127,044 5,754,700 222,717 341,334 Flexible options 8,783 166 52 2,915,426 177,133 223,022 Shares and other assets 364,182 108,073 269,986 1,512,885 304,762 385,117

Purchase – Short position 2,817,177 (61,780) (61,329) 14,804,009 (568,483) (377,201) Foreign currency 2,333,850 (48,008) (48,833) 9,299,763 (188,411) (33,759) Flexible options 454,327 (11,477) (9,951) 3,891,606 (342,743) (307,245) Shares 29,000 (2,295) (2,545) 1,612,640 (37,329) (36,197)

Sale – Short position 2,479,198 (149,748) (161,516) 8,597,969 (707,500) (921,989) Foreign currency 2,178,488 (140,391) (143,637) 6,039,325 (643,709) (842,701) Flexible options 269,210 (7,318) (17,122) 575,924 (15,735) (40,956) Shares 31,500 (2,039) (757) 1,982,720 (48,056) (38,332)

Swap contracts(1) Asset position 10,398,507 1,055,609 1,300,989 12,412,169 1,348,737 1,348,023

DI (Interbank deposit rates) 3,571,848 577,465 491,268 7,186,349 720,751 702,734 Foreign currency 2,457,181 272,373 249,891 1,382,488 289,315 223,079 Pre-fixed 2,124,943 31,679 246,099 806,176 20,431 122,690 IPCA 2,109,170 169,139 301,457 2,477,513 242,339 212,235 IGPM 35,000 4,513 5,516 285,000 75,751 74,534 Libor 22,527 84 288 180,580 3 326 Other 77,838 356 6,470 94,063 147 12,425

Liability position 7,665,749 (779,630) (1,087,372) 7,356,954 (822,107) (921,632) DI (Interbank deposit rates) 1,928,308 (123,648) (50,186) 2,086,776 (109,035) (71,688)

Foreign currency 2,156,826 (164,090) (146,999) 1,418,788 (168,358) (163,518) Pre-fixed 732,263 (33,620) (257,260) 915,623 (16,017) (160,162) IPCA 2,303,017 (426,736) (598,421) 2,699,789 (483,577) (480,293) IGPM 40,000 (14,189) (15,768) 95,000 (44,239) (44,147) Libor 495,335 (16,663) (18,239) 130,978 (764) (1,098) Other 10,000 (684) (499) 10,000 (117) (726)

Other Derivative Financial Instruments Asset position 2,782,917 113,054 101,728 4,100,865 92,321 95,915

Non Deliverable Forward (1) 2,764,723 113,538 101,608 4,051,978 89,744 93,254 Credit derivatives (2) 18,194 (484) 120 48,887 2,577 2,661

Liability position 3,573,906 (35,733) (36,369) 2,486,708 (182,960) (177,678) Non Deliverable Forward (1) 3,573,906 (35,733) (36,369) 1,882,145 (164,396) (165,826)

Credit derivatives (2) - - - 604,563 (18,564) (11,852) (1) The fair value of swap, option and non-deliverable forward transactions contemplate the credit risk of the counterparty (credit

spread adjustment). (2) The presentation of credit derivatives by position (active or passive) takes into account the respective fair value of each

contract.



37

b) Breakdown of derivative financial instruments by maturity date (referential value)

Maturity in days 12.31.2017

12.31.2016 From 0 to 30

From 31 to 180

From 181 to 360

Over 360 days Total

Future contracts 18,398,509 18,009,372 9,543,688 33,121,451 79,073,020 85,699,792 Forward contracts 177,111 - - - 177,111 314,132 Option contracts 741,715 1,158,850 8,182,236 585,894 10,668,695 43,213,694 Swap contracts 344,733 3,381,578 2,238,534 12,099,411 18,064,256 19,769,123 Credit derivatives - - 16,540 1,654 18,194 653,450 Non Deliverable Forward – Foreign currency 3,759,414 2,097,129 303,706 178,380 6,338,629 5,934,123

c) Breakdown of Derivatives Portfolio per negotiation site and counterparty (notional value on

December 31, 2017) Futures Term Options Swap Credit

derivatives Non Deliverable

Forward Stock Exchange 79,073,020 - 9,645,850 - - - Over-the-counter - 177,111 1,022,845 18,064,256 18,194 6,338,629

Financial institutions - 177,111 - 11,332,272 18,194 2,629,005 Client - - 1,022,845 6,731,984 - 3,709,624

d) Breakdown of credit derivative portfolio

12.31.2017 12.31.2016

Notional value Cost Fair value Notional

value Cost Fair value Credit swap

Asset position - Risk received 18,194 (484) 120 278,653 (18,539) (11,502) Liability position - Transferred risk - - - 374,797 2,552 2,311

Por indexador Asset position - Prefixed 18,194 (484) 120 48,887 2,577 2,661 Liability position - Prefixed - - - 604,563 (18,564) (11,852)

For hedge sales, credit limits are approved both for client risk and for counterparty risk, according to credit committee’s levels and forums. Credit limits are assigned to the risk customer at derivative notional value, considering amounts deposited in guarantee. To acquire hedge, transaction is conducted in a trading portfolio with a sovereign risk customer. In this case, future possible exposure is considered to assign the counterparty limit. The credit derivatives portfolio impacted Portion Referring to Weighed Exposures per Risk Factor (PMPR) for determination of the Bank’s Basel ratio of R$ 1,862 (R$ 3,310 as of December 31, 2016). e) Margin given as collateral for transactions that use derivative financial instruments 12.31.2017 12.31.2016 Financial Treasury Bills 21,452 238,987 National Treasury notes 312,017 1,214,236 National Treasury Bills 55,478 608,881 Shares in investment funds - B3 45,467 - Other 22,342 35,036 Total 456,756 2,097,140



38

f) Derivative financial instruments segregated as current and non-current

12.31.2017 12.31.2016 Current Non-current Total Current Non-current Total

Assets Forward operations 177,101 - 177,101 314,092 - 314,092 Options market 306,982 139,990 446,972 685,855 341,698 1,027,553 Swap contracts 322,977 978,012 1,300,989 363,007 985,016 1,348,023 Credit derivatives 112 8 120 - 2,661 2,661 Other derivative financial instruments 101,283 325 101,608 90,421 2,833 93,254

Total 908,455 1,118,335 2,026,790 1,453,375 1,332,208 2,785,583

Passivo Forward operations (177,078) - (177,078) (309,209) - (309,209) Options market (210,118) (12,727) (222,845) (1,135,862) (163,328) (1,299,190) Swap contracts (135,310) (952,062) (1,087,372) (120,152) (801,480) (921,632) Credit derivatives - - - (350) (11,502) (11,852) Other derivative financial instruments (33,091) (3,278) (36,369) (156,294) (9,532) (165,826)

Total (555,597) (968,067) (1,523,664) (1,721,867) (985,842) (2,707,709) g) Breakdown of derivatives portfolio for hedge accounting Hedge transactions were evaluated as effective, in accordance with provisions of IAS 39, and hedge effectiveness varies from 80% to 125%. For loans and receivables operations, the classification and percentage of allowance for doubtful accounts is considered in the effectiveness calculation metric. Fair value hedge The Conglomerate, in order to protect itself against fluctuations in its financial instruments’ interest and exchange rates, contracted derivatives to offset risks deriving from exposures to fair value variations. 12.31.2017 12.31.2016 Fair value risk hedge

Hedge instruments Assets 3,170,303 3,419,083

Future 3,040,459 3,126,786 Swap - 29,869 Options 129,844 262,428

Liabilities 30,482,345 28,227,058 Future 30,482,345 28,227,058

Itens to be hedged Financial assets 24,484,219 22,100,456

Financial assets with repurchase agreements 6,675,740 5,781,536 Financial assets available for sale 70,329 197,382 Loans and receivables 17,738,150 16,121,538

Financial liabilities 2,869,143 3,271,177 Financial liabilities at amortized cost 2,869,143 3,271,177

Cash flow hedge

To protect the future cash flows of payments against exposure to variable interest rate (CDI), the Conglomerate traded DI Future contracts at B3.

To protect the cash flow of future disbursements on securities issued abroad against exposure to exchange rate risk (USD), the Conglomerate has traded over-the-counter Swap contracts recorded in B3.



39

12.31.2017 12.31.2016 Cash flow hedge

Hedge instruments Liabilities 4,265,317 265,531

Swap (1) 9,389 - Future 4,255,928 265,531

Itens to be hedged Liabilities 5,264,962 250,639

Financial liabilities at amortized cost 5,264,962 250,639 (1) The notional value of the swap agreements at December 31, 2017 is R$ 970,620. h) Gains and losses from instruments and hedge items

Fair value hedge

2017 2016 Losses from hedged items (659,717) (1,243,926) Gains from hedge instruments 656,584 1,281,496 Net effect (3,133) 37,570 Gains from hedge items 3,373,052 4,531,606 Losses from hedge instruments (3,369,298) (4,557,345) Net effect 3,754 (25,739)

Cash flow hedge

Hedge instruments

2017 2016 Effective portion

accumulated Ineffective portion

accumulated Effective portion

accumulated Ineffective portion

accumulated Future DI (48,842) (23) (26,571) (15) Swap (3,485) (4,659) - - Total (52,327) (4,682) (26,571) (15)

The effective portion is recognized in Shareholders' Equity in equity valuation adjustments and the ineffective portion is recognized in the statement of income in financial intermediation income - income from derivative financial instruments. As of December 31, 2017, the fair value adjustment of the effective portion, in the amount of R$ (25,756) (R$ (26,571) as of December 31, 2016) was recognized in Shareholders' Equity and ineffective portion, in the amount of R$ (4,667) (R$ (15) in the year ended December 31, 2016) was recognized in "Income from derivative financial instruments". Net losses of tax effects relating to cash flow hedges that the Conglomerate expects to recognize in income over the next 12 months totaling R$ 13,088 (R$ 3,529 as of December 31, 2016).

i) Income from derivative financial instruments 2017 2016 Swap contracts 229,929 1,158,509 Forward contracts (239) 5,405 Future contracts (708,852) (1,305,310) Option contracts (1,165) 26,346 Non Deliverable Forward contracts (10,895) (133,072) Credit derivatives 18,377 33,417 Income from foreign exchange variation of investments abroad 20,888 (279,973) Total (451,957) (494,678)



40

j) Hedge accounting Estratégias/Risco

Object of hedge Hedge instruments 12.31.2017 12.31.2016

Derivative 12.31.2017 12.31.2016

Fair value Unrealized gain/ (loss) Fair value Fair value Fair value

Purchase and sale commitment hedge/ fixed rate 6,675,740 2,601 5,781,536 Future DI 9,153,055 6,782,618

Share of Companies / Fair value 70,329 (43,270) 197,382 Options 129,844 262,428

Purchase and sale commitment hedge/ fixed rate 17,738,150 452,598 16,121,538

Future DI 16,003,597 13,653,456 Future DDI 854,542 1,671,709

Future Libor 4,471,151 509,582 Subordinated debt hedge / exchange variation / IGP-M 2,869,143 (113,769) 3,271,177 Future DDI 3,040,459 3,126,786

Swap - 390,317 Hedge of Financial bills and subordinated debt / Cash flow / fixed rate 5,264,962 (50,590) 250,639 Future DI 4,255,928 265,531

Swap 1,263,056 - 10. LOANS AND RECEIVABLES a) Breakdown of operations Note 12.31.2017 12.31.2016 Loans 10,773,665 10,918,766 Discounted securities 469,312 115,999 Financings 33,152,419 30,857,277 Export financings 2,600,908 3,962,973 Financing in foreign currency 56,272 47,579 Rural financing agreements 461,067 450,197 Real estate financing agreements 147,252 307,446 Advances on exchange contracts 322,256 316,167 Financial lease operations 10b 245,053 127,351 Credits for sureties and guarantees paid - 174,084 Total transactions with loan characteristics 48,228,204 47,277,839

Provision for impairment losses 34d.vii (3,357,596) (3,538,231) Fair value adjustment 10c 452,647 352,888 Associated costs 573,744 428,064 Other receivables 10d 993,457 1,832,932

Total loans and receivables 46,890,456 46,353,492 b) Financial leasing information The portfolio of lease operations segregated by maturity is reported resented as follows:

12.31.2017 12.31.2016

Minimum future payments

Unearned income Present value Minimum future

payments Unearned income Present value

Up to 1 year 301,747 (156,275) 145,472 157,488 (83,899) 73,589 Between 1 and 5 years

206,558 (106,977) 99,581 115,056 (61,294) 53,762

Total 508,305 (263,252) 245,053 272,544 (145,193) 127,351 The 10 material financial lease agreements, representing approximately 15% of the portfolio at December 31, 2016, are as follows:



41

Start date Final date Agreed rate Present value Impairment july-17 july-19 CDI + 4.0900% p.a. 12,224 61

november-17 november-19 CDI + 4.1220% p.a. 3,743 19 july-17 july-19 CDI + 4.1100% p.a. 3,376 17

august-17 august-19 CDI + 4.1050% p.a. 3,169 16 august-15 august-20 16.8354% p.a. 3,138 31

december-17 december-19 CDI + 4.255% p.a. 2,777 14 august-17 august-19 CDI + 4.0960% p.a. 2,449 12

november-17 november-19 9.8804% p.a. 2,392 - august-17 august-19 11.4602% p.a. 2,280 - march-13 march-18 CDI + 1.6069% p.a. 2,222 22

c) Breakdown of fair value adjustment The amounts that comprise the balance of the fair-value adjustment refer to the valuation of portfolios of Loans, Financing and Leases that are hedged and are part of the hedge-accounting structures, as described in Note 9j. 12.31.2017 12.31.2016 Loans (2,683) 430 Financings 399,286 235,109 Export financing 56,055 117,358 Other (11) (9) Total 452,647 352,888 d) Composition of other receivables 12.31.2017 12.31.2016 Interbank deposits (1) 840,019 1,212,687 Central Bank of Brazil deposits 14,074 340,569 Correspondent relations 82 72 Income receivable 36,216 44,950 Credit card transactions 11,810 11,234 Receivables from securities abroad 8,603 1,745 Other receivables - For trading and securities clearing accounts 49,749 218,318 Other 32,904 3,357 Total 993,457 1,832,932 (1) Refer to transactions with an original maturity of 90 days, which is not classified as funds available.

11. NON-FINANCIAL ASSETS HELD FOR SALE a) Composition of non-financial assets held for sale Non-current assets held for sale refer to awarded, received in any other form of payment or amortization of debts; and (ii) properties built by companies invested and held for sale. 12.31.2017 12.31.2016 Real estate 217,994 315,884 Vehicles 71,017 79,841 Machinery and equipment 2,538 1,377 Total (1) 291,549 397,102 (1) Net book value of provisions.

The fair value of the assets is recorded using the following criteria: • Goods with financed amount higher than R$ 50,100.00 are recorded at the value obtained through

the technical report by a third-party firm not related the Conglomerate; • Goods with financed amount between R$ 50,100.00 and R$ 25,550.00 are recorded at the value

obtained through a technical report; and • Goods with financed amount less than R$ 25,550.00 are recorded at average balance obtained in

sales over the last six months, taking into account the characteristics of the item. Assets are disposed through periodic official auctions.



42

With the publication of Law 13,506 of 11/13/2017, which revoked art. 35, item II, of Law 4,595 / 64, financial institutions were exempted from requesting approval from BACEN to extend the term of sale of real estate not for own use. In addition, Circular Letter 3,863 of the Central Bank dated January 29, 2018 revoked circular letter 2,829 which dealt with the procedures to be followed in the process of extending the term for the sale of these properties. 12. INVESTMENTS a) Breakdown of investments in subsidiaries

Investment amount Changes in 2017 Investment

amount % of Interest

12.31.2016 Acquisition Disposal Dividends Equity in income of

subsidiaries Impairment 12.31.2017 2017 2016

Associated company CSUL Desenvolvimento Urbano S.A. 172,054 4,266 - - (968) - 175,352 50,00 50,00 Phaser Incorporação SPE S.A. 126,251 - (18,814) (9,975) (1,254) - 96,208 30,00 30,00 Jaguatirica Emp. Imob. S.A. 64,845 - (428) - (453) - 63,964 33,33 33,33 NS Emp. Imob. 10 S.A. 44,986 11,003 - (20,306) - 35,683 59,50 59,50 SCP - Henri Dunant Lotes 1 e 3 40,417 - (80) - 1,403 - 41,740 20,00 20,00 Vitacon 50 Desenvolvimento Imob. S.A. 32,264 - (1,750) - 71 - 30,585 29,99 30,00 Performance G.S.S.A 4,233 - (128) - (457) - 3,648 90,00 90,00 Tolle Emp. Imob. S.A. 3,893 - (3,060) - (447) - 386 40,00 40,00 Costa Laguna Emp. Imob. S.A. (1) 3,581 1,190 - (1,346) 228 - 3,653 10,72 10,72

Costa Laguna Emp. Imob. S.A. Ações Classe B. - 3,660 - - - - 3,660 61,00 -

Castelblanco Emp. Imob. S.A. 1,508 - (30) (642) (183) - 653 26,76 26,76 Queiroz Galvão Sabia Emp. Imob. S.A. 272 - (27) - (126) - 119 40,00 40,00 Alfa Emp. Imob. S.A. 171 - (445) - (708) - (982) 25,00 25,00 Vista Alegre Emp. Imob. S.A. (13) - (1) - (12) - (26) 20,00 20,00

Jointly-controlled subsidiaries Reserva Natural Emp. Imob. S.A. 19,137 - (4,653) 1,982 (661) - 15,805 50,00 50,00 GT 11 Emp.Imob. S.A. (2) 17,646 - (2) - (56) - 17,588 60,00 60,00 Brookfield SPE 23 S.A. 15,031 4,705 - - (1,183) - 18,553 50,00 50,00 Villagio Pompéia Emp. Imob. S.A. (2) 12,971 - (11,330) (900) (494) - 247 60,00 60,00 NS Emp. Imob. Noroeste S.A. (2) 8,577 - (738) - (3,335) - 4,504 70,00 70,00 Diálogo Ibiapava Emp. Imob. S.A. 5,432 215 - - 4,715 - 10,362 50,00 50,00 Upcon SPE 4 Emp. Imob. S.A. 5,021 - (5,236) (1,060) (860) - (2,135) 50,00 50,00 Ramá SPE Emp. Imob. S.A. 4,943 73 - - (20) - 4,996 50,00 50,00 Upcon SPE 7 Emp. Imob. S.A. 4,237 - (16) - (66) - 4,155 50,00 50,00 Salaverry Emp. Imob. S.A. 2,449 190 - (1,841) (10) - 788 50,00 50,00 GMAX Emp.Imob. SPE S.A. 2,123 1,931 - - (77) - 3,977 50,00 50,00 Upcon SPE 12 Emp. Imob. S.A. 1,490 248 - - (170) - 1,568 50,00 50,00 RKM 01 Emp.Imob. SPE S.A. (2) 1,127 - (307) - 6,312 - 7,132 80,00 80,00 Joaquim Antunes Emp. Imob. S.A. 142 - (96) - 56 - 102 50,00 50,00 Colméia Life Tower Emp. Imob. S.A. 6 7 - (6) (2) - 5 50,00 50,00 Colméia Capim Macio Emp. Imob. S.A. (225) 2 - - 8 - (215) 50,00 50,00

Goodwill in the acquisition (Note 12b) 113,281 - (10,174) - - (1,238) 101,869 Adjustment to recoverable value (Note 12b) (2,265) - - - - (478) (2,743) Total 705,585 27,490 (57,315) (13,788) (19,055) (1,716) 641,201

(1) The enterprise CSUL Desenvolvimento Urbano S.A.. holds a 75.12% of the investment, as well the Conglomerate has indirect interest of 85.83% plus 10.72% direct interest;

(2) Despite these enterprises having shareholdings that are more than half of the enterprise’s share capital, are not controlled companies, because according to the shareholder agreements, these entities have joint control in decision making.

BV Empreendimentos e Participações S.A. BVEP acts as an investor, developer and consultant in residential and commercial real estate projects through participation in ventures or real estate developments, providing consulting, planning and advisory services. Investments are made through Special Purpose Entities (SPEs), mostly in partnership with experienced real estate companies. The table above shows related investments in SPEs, which BVEP hold or has joint control with other shareholders or associated companies These SPEs have not had their balances consolidated.



43

b) Goodwill and adjustment to recoverable value

Goodwill Impairment 12.31.2017 12.31.2016 12.31.2017 12.31.2016

Associated companies NS Emp. Imob. 10 S.A. 37,402 37,402 - - SCP - HD Fases 1 e 3 16,796 21,005 - - CSUL Desenvolvimento Urbano S.A. 10,822 10,822 - - Jaguatirica Emp. Imob. S.A. 4,055 4,055 - - Phaser Incorporação SPE S.A. 2,418 2,417 - - Costa Laguna Emp. Imob. S.A. - 1,508 - - Castelblanco Emp. Imob. S.A. 4 1,332 - - Vitacon 50 Desenvolvimento Imob. S.A. 663 663 - - Alfa Emp. Imob. S.A. - - - (171) Tolle Emp. Imob. S.A. - - (319) - Ramá SPE Emp. Imob. S.A. - - (1,255) - Performance G.S.S.A - - (1,169) -

Jointly-controlled subsidiaries GMAX Emp.Imob. SPE S.A. 10,600 10,600 - - Reserva Natural Emp. Imob. S.A. 7,233 8,333 - - Brookfield SPE 23 S.A. 3,063 5,239 - - Upcon SPE 4 Emp. Imob. S.A. 3,221 3,408 - - NS Emp. Imob. Noroeste S.A. 599 1,504 - - Upcon SPE 12 Emp. Imob. S.A. 1,300 1,300 - - Upcon SPE 7 Emp. Imob. S.A. 1,207 1,207 - - GT 11 Emp.Imob. S.A. 661 661 - - Villagio Pompéia Emp. Imob. S.A. - - - (2,094)

Controlled Doro 18 Incorporações Ltda 925 925 - - Arena 11 Incorporações SPE Ltda 900 900 - -

Total 101,869 113,281 (2,743) (2,265) c) Financial information – Associated companies as of 12.31.2017 CSUL Desenv. Urbano

S.A. Phaser Jaguatirica NS 10

Cash and cash equivalents 27 4,535 1,196 156 Current assets 162 371,653 187,365 1 Non-current assets 364,083 73,504 5,074 70,002 Current liabilities 13,568 74,243 1,723 88 Non-current liabilities - 54,754 - 10,100 Income 4,055 76,090 3,904 19,925 Income / (loss) for the period (1) (1,935) (4,180) (1,358) (34,128) Adjusted shareholders' equity 350,704 320,695 191,912 59,971 % of interest 50.00 30.00 33.33 59.50 Balance of the investment 175,352 96,208 63,964 35,683 SCP - Henri

Dunant Lotes 1 e 3 Vitacon 50 Performance G.S.S.A Tolle Costa Laguna

Cash and cash equivalents 44,177 12,989 20 1 6 Current assets 506,326 107,742 341 1,495 78,270 Non-current assets 100 - 3,763 3,613 587 Current liabilities 140,593 14,699 71 4,076 5,164 Non-current liabilities 201,310 4,050 - 68 39,623 Income 104,851 374 174 8,387 29,292 Income / (loss) for the period (1) 7,015 237 (508) (1,117) 2,127 Adjusted shareholders' equity 208,700 101,982 4,053 965 34,076 % of interest 20.00 29.99 90.00 40.00 10.72 Balance of the investment 41,740 30,585 3,648 386 3,653



44

Castelblanco Queiroz Galvão Sabia Alfa Vista Alegre Cash and cash equivalents 89 - 54 96 Current assets 1,698 631 9,643 206 Non-current assets 1,838 597 4,584 149 Current liabilities 697 145 17,894 582 Non-current liabilities 488 785 313 - Income 103 - - 8 Income / (loss) for the period (1) (683) (315) (2,834) (60) Adjusted shareholders' equity 2,440 298 (3,926) (131) % of interest 26.76 40.00 25.00 20.00 Balance of the investment 653 119 (982) (26)

(1) Determined until October / 2017, following the accounting consolidation procedures. d) Financial information - Jointly-controlled subsidiaries as of December 31, 2017 Reserva Natural GT 11 Brookfield Villagio Pompéia Cash and cash equivalents 120 - 2,088 - Current assets 8,796 29,594 14,705 5,026 Non-current assets 26,119 - 24,967 6,910 Current liabilities 928 281 3,168 11,525 Non-current liabilities 2,497 - 1,485 - Income 3,535 - 7,896 6,555 Income / (loss) for the period (1) (1,322) (94) (2,366) (823) Adjusted shareholders' equity 31,610 29,313 37,107 411 % of interest 50.00 60.00 50.00 60.00 Balance of the investment 15,805 17,588 18,553 247 NS Noroeste Diálogo Ibiapava Upcon SPE 4 Ramá Cash and cash equivalents 707 2 122 42 Current assets 9,056 12,476 5,395 9,946 Non-current assets - 22,012 - 16 Current liabilities 3,227 1,766 9,787 12 Non-current liabilities 97 12,001 - - Income 1,509 24,204 3,536 2 Income / (loss) for the period (1) (4,765) 9,430 (1,720) (41) Adjusted shareholders' equity 6,439 20,723 (4,270) 9,992 % of interest 70.00 50.00 50.00 50.00 Balance of the investment 4,504 10,362 (2,135) 4,996 Upcon SPE 7 Salaverry GMAX Upcon SPE 12 Cash and cash equivalents 13 1,156 69 30 Current assets 9,935 906 6,235 7,451 Non-current assets - 531 2,354 - Current liabilities 1,302 701 49 3,686 Non-current liabilities 338 317 655 659 Income - 1,028 - 3,819 Income / (loss) for the period (1) (132) (21) (154) (340) Adjusted shareholders' equity 8,308 1,575 7,954 3,136 % of interest 50.00 50.00 50.00 50.00 Balance of the investment 4,155 788 3,977 1,568 RKM 01 Joaquim Antunes Colméia Life Tower Colméia Capim

Macio Cash and cash equivalents 234 - 21 183 Current assets 24,614 - - 334 Non-current assets 28 204 - 24 Current liabilities 3,436 1 11 670 Non-current liabilities 12,526 - - 301 Income 34,842 658 - 16 Income / (loss) for the period (1) 7,890 110 (4) 16 Adjusted shareholders' equity 8,914 203 10 (430) % of interest 80.00 50.00 50.00 50.00 Balance of the investment 7,132 102 5 (215) (1) Determined until October / 2017, following the accounting consolidation procedures.



45

13. OTHER ASSETS

12.31.2017 12.31.2016 Purchased foreign exchange to be settled 452,795 336,653 Receivables from foreign exchange sales 208,295 178,705 Advances in national currency received (2,847) (7,057) Debtors accounting settlement pending 178,605 67,564 Salary advances 3,933 3,992 Advances to suppliers 3,987 1,400 Debtors of guarantee deposits - Others 634,003 824,776 Debtors of guarantee deposits - Others 56 528 Prepaid expenses on insurance 5,594 3,612 Data processing prepaid expenses 10,650 7,657 Prepaid expenses on specialized technical services 2,386 2,912 Prepaid financial system service expenses 2,685 2,469 Other 200,703 170,716 Total 1,700,845 1,593,927

14. TANGIBLE ASSETS

12.31.2016 2017 12.31.2017

Book balance Changes Depreciation Cost Accumulated

depreciation Book

balance Facilities 54,051 22,453 (14,048) 138,272 (75,816) 62,456 Furniture and equipment for use 14,026 1,457 (3,859) 42,908 (31,284) 11,624 Communication system 2,444 129 (579) 14,217 (12,223) 1,994

System data processing 27,422 13,446 (10,563) 133,184 (102,879) 30,305

Security system 89 94 (36) 2,557 (2,410) 147 Transportation system 189 127 (82) 804 (570) 234 Construction in process 5 - - 5 - 5 Total 98,226 37,706 (29,167) 331,947 (225,182) 106,765 15. ATIVOS INTANGÍVEIS INTANGIBLE ASSETS

a) Change and Breakdown

12.31.2016 2017 12.31.2017

Book balance Acquisitions Write-

offs Amortization Impairment Cost Accumulated amortization

Accumulated impairment

Book balance

Software acquired 13,123 13,767 (117) (5,534) - 41,265 (20,027) - 21,238 Use licences 41,770 16,486 (84) (24,968) - 109,094 (75,890) - 33,204 Sales rights agreements 85 - - (85) - 5,000 (5,000) - - Softwares internally developed 53,349 71,038 - (1,664) - 151,624 (11,288) (17,612) 122,724

Brands and patents - - - - - 1,000 - (1,000) - Total 108,327 101,291 (201) (32,251) - 307,983 (112,205) (18,612) 177,166

b) Amortization estimate

2018 2019 2020 2021 2022 A partir de 2023 Total Amounts to be amortized 48,114 41,252 25,922 23,871 23,073 14,934 177,166

16. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

12.31.2017 12.31.2016

Cost Fair value (book)

Unrealized gain/ (loss) Cost Fair value (book) Unrealized gain/

(loss) Domestic Repurchase commitments - Free movement 4,618,402 4,612,888 (5,514) 2,176,496 2,206,483 29,987

Securities abroad 20,236 21,350 1,114 19,238 20,168 930 Total 4,638,638 4,634,238 (4,400) 2,195,734 2,226,651 30,917



46

17. FINANCIAL LIABILITIES AT AMORTIZED COST

12.31.2017 12.31.2016 Financial liabilities under repurchase agreements (NotE 17a) 13,421,947 18,086,414 Financial liabilities at amortized cost, related to transferred financial assets (NotE 17b) 9,447,130 13,760,441 Financial institution deposits 2,048,367 1,997,318 Customer deposits (Note 17c) 5,867,691 2,281,996 Borrowings (Note 17d) 1,127,677 1,804,185 Onlendings (Note 17e) 2,933,905 3,404,501 Securities issued (Note 17f) 31,887,412 37,162,727 Subordinated liabilities (Note 17g) 5,817,790 6,045,578 Total (1) 72,551,919 84,543,160 (1) Includes transactions adjusted to fair value by the Hedge Accounting structure (Note 9g).

a) Composition of Financial liabilities with repurchase agreements

12.31.2017 12.31.2016 Own portfolio 7,509,722 8,311,820

National Treasury Bills 1,665,685 3,439,828 National Treasury notes 1,216,239 1,444,200 Private securities - Debentures 1,587,941 578,467 Financial Treasury Bills 1,892,958 1,569,132 Private securities - Other 1,146,899 1,280,193

Third-party portfolio 5,912,225 9,774,594 National Treasury Bills 2,051,912 2,485,111 Financial Treasury Bills 1,506,221 6,496,484 National Treasury notes 2,354,092 792,999

Total 13,421,947 18,086,414 b) Financial liabilities, related to transferred assets

12.31.2017 12.31.2016 Financial liabilities associated with transferred assets (Note 34d-xi) 9,447,130 13,760,441 Total 9,447,130 13,760,441 c) Breakdown of client deposits

12.31.2017 12.31.2016

Demand deposits 90,057 87,594 Individuals 37,469 17,482 Legal entities 52,572 70,072 Linked 16 40

Time deposits 5,777,634 2,194,402 Local currency 5,476,044 1,811,575 Foreign currency 301,590 382,827

Total 5,867,691 2,281,996 d) Breakdown of borrowings

12.31.2017 12.31.2016

Abroad 1,127,677 1,804,185 Obtained from foreign banks 1,095,193 1,763,293 Exports 7,581 18,893 Imports 24,903 21,999

Total 1,127,677 1,804,185



47

e) Breakdown of onlendings Programs Rates of restatement (1) 12.31.2017 12.31.2016 National Treasury 45,429 82,739

Fixed rate From 5.50% to 8.50% p.a. 45,429 82,734 Variable rate Selic - 5

BNDES 1,364,330 1,597,268 Fixed rate From 0.70 to 9,50% p.a. 264,726 389,657

Variable rate From 7.02% to 10.01% p.a. + IPCA

1,063,593 1,160,451 Until 4,00% p.a. + TJLP From 1,70% to 2,40% p.a. + Selic

Exchange rate variation From 1,30% to 3,00% p.a. + Exchange variation 36,011 47,160 FINAME 1,524,146 1,724,494

Fixed rate Until 18,96% p.a. 1,331,615 1,636,132

Variable rate From 0,50% to 5,50% p.a. + TJLP 190,442 87,769 From 1,70% to 2,48% p.a. + SELIC Exchange rate variation From 1,70% to 2,00% a.a. + Exchange variation 2,089 593

Total 2,933,905 3,404,501 (1) The remuneration rates refers to the operations on December 31, 2017. f) Breakdown of securities abroad Funding Currency Amount

issued Remuneration p.a. (1) Funding year Maturity 12.31.2017 12.31.2016 Debentures 7,823,844 15,380,482

Fixed rate R$ 14,794 From 6.74% to 17.17% p.a. 2013 2020 14,794 198,829

Variable rate R$

7,761,708 From 81.00% to 106.30% Interbak Deposit 2011 2026 7,761,708 15,111,602

47,342 From 4.99% to 8.22% p.a.+ IPCA 2014 2022 47,342 67,230 - 6.85% p.a.+ IGPM 2015 2017 - 2,821

Real estate credit note 660,338 369,810 Fixed rate R$ 1,900 From 8.38% to 15.04% p.a. 2015 2021 2,128 13,543

Variable rate R$ 595,052 From 89.00% to 97.00% Interbak Deposit 2015 2021 655,412 348,019 2,524 From 4.42% to 6.07% p.a. + IPCA 2015 2021 2,798 8,248

Agribusiness credit bills 2,190,501 2,564,336 Fixed rate R$ 22,765 From 8.05% to 15.44% p.a. 2015 2021 29,239 64,137

Variable rate R$ 1,836,918 From 87.50% to 98.50% p.a. Interbak Deposit 2009 2022 2,130,673 2,460,129

23,847 From 5.14% to 6.39% p.a. +IPCA 2015 2021 30,589 40,070 Financial bills 20,617,260 17,552,169

Fixed rate R$ 293,845 From 7.84% to 17.63% p.a. 2012 2024 341,541 356,219

Variable rate R$ 17,655,489 From 100.00% to 110.00% Interbak

Deposit 2013 2022 19,781,328 16,582,501

344,362 From 3.71% to 8.31% p.a. + IPCA 2012 2022 493,259 612,388 967 From 5.70% to 7.43% p.a. + IGPM 2016 2019 1,132 1,061

Securities issued abroad 585,957 1,295,930 Fixed rate R$ 26,264 From 7.50% to 19.09% p.a. 2012 2020 35,236 56,234 Variable rate R$ 3,543 de 92.10% a 101.40% Interbak Deposit 2012 2017 - 4,331 Exchange rate variation

USD 183,042 Until 6.60% p.a. + Exchange variation 2012 2020 550,721 1,166,024 EUR 20,200 até 0.48% a.a. + Exchange variation 2016 2017 - 69,341

Certificates of Structured Operations 9,512 -

Fixed rate R$ 9,695 From 8.98% to 10.64% a.a. 2017 2018 9,512 -

Total 31,887,412 37,162,727 (1) The remuneration rates refers to the operations on December 31, 2017.



48

g) Composition of subordinated liabilities Funding Amount issued Remuneration p.a. (1) Funding year Maturity

12.31.2017 12.31.2016

Subordinated bill 2,866,616 2,876,929 Exchange variation USD 803,048 7,38% p.a. + exchange variation 2013 2020 2,866,616 2,876,929 Subordinated financing bills 1,960,577 3,168,649 Fixed rate 103,500 From 11,03% to 17,98% p.a. 2015 2024 136,107 90,058

Variable rate

1,006,226 From 1,24% to 2,16% p.a. + Interbak Deposit From 100,00% to 120,00% Interbak Deposit 2014 2024 1,259,110 2,001,164

187,200 From 6,60% to 7,57% p.a. + IGPM 2011 2017 - 383,694 353,665 From 5,71% to 9,31% p.a. + IPCA 2011 2030 531,104 663,100 27,500 From 117,20 to 117,50% SELIC 2016 2023 34,256 30,633

Funding Amount issued Remuneration p.a. Funding year Perpetual Bonus (2) 990,597 - Fixed rate USD 300,000 8,25% p.a. 2017 990,597 - Total 5,817,790 6,045,578

(1) The remuneration rates refers to the operations on December 31, 2017. (2) On November 30, 2017, the issuance abroad of USD 300,000 was made with semi-annual interest payments.

The bonds have a redemption option on the initiative of the Bank as of Dec. 2022 or in each subsequent half-yearly interest payment, provided that it has previously been authorized by the Central Bank of Brazil (BACEN).

h) Financial liabilities at amortized cost presented at an undiscounted cash flow

12.31.2017 12.31.2016 Without maturity 89,090 87,594 Up to 90 days 18,080,506 28,085,804 From 91 to 360 days 28,391,578 27,823,594 From 1 to 3 years 20,548,181 22,352,329 From 3 to 5 years 3,825,648 7,259,074 Over 5 years 3,239,854 1,414,743 Total 74,174,857 87,023,138

18. OTHER LIABILITIES

12.31.2017 12.31.2016 Third-party funds in transit 63,538 99,685 Foreign currency sold to liquidate 208,791 177,680 Liabilities for foreign exchange purchases 441,748 344,145 Provision for profit sharing 160,729 139,771 Provision for personnel expenses 425,737 431,326 Provision for administrative expenses 129,564 124,124 Commission for intermediation of operations payable 29,198 35,768 Liabilities for credit card transactions 1,225,067 989,175 Amounts of abroad securities payable - 5,327 Obligations for purchase of assets and rights 677 1,844 Provision for off-balance sheet losses (Nota 34d-vii) 391,795 29,609 Securities clearing accounts 369,264 482,374 Legal obligations (Note 21h) 21,768 15,013 Other liabilities 26,691 148,243 Total 3,494,567 3,024,084 19. SHAREHOLDERS’ EQUITY a) Capital The capital of Banco Votorantim S.A., fully subscribed and paid-in, totaling R$ 8,130,372 (R$ 7,826,980 as of December 31, 2016) is represented by 105,391,472,816 nominative shares, 86,229,386,840 of which are common shares with no par value and 19,162,085,976 nominative preferred shares with no par value. At the Extraordinary Shareholders’ Meeting held on April 28, 2016 decided and approved the increase of Capital Stock through incorporation of the special profit reserve in the amount of R$ 343,226, without issuance of new shares, homologated by Central Bank of Brazil on May 12, 2016.



49

At the Extraordinary Shareholders’ Meeting held on April 26, 2017, decided and approved the increase of Capital Stock through incorporation of the special profit reserve in the amount of R$ 303,392, without issuance of new shares, approved by Central Bank of Brazil on May 26, 2017. b) Breakdown of reserves Capital reserve Capital reserve is formed on premium on the subscription of shares in the amount of R$ 373,120. Legal reserve Composed mandatorily of 5% of the period’s net profit, up to the limit of 20% of capital. Legal reserve may not be formed when the result of its addition to capital reserves is greater than 30% of capital. The legal reserve can only be used for capital increase or to offset loss. Special profit reserve The Management may propose that the non-distributed portion of profit, if any, be earmarked for "special reserve of profits", which will be available to shareholders for future deliberation at the Annual Shareholders’ Meeting. c) Dividends Shareholders are assured a minimum compulsory dividend equivalent to 25% of net profit for the year (BRGAAP), deducted from the Legal reserve. Management proposes to distribute the net income in the amount of R$ 110,598 referring to the year ended December 31, 2017 (R$ 101,131 in the year ended December 31, 2016).

2017 2016 Net income for the period- BR GAAP 582,229 425,814 Effects of adjust from inicial aplication of Resolution CMN nº 4.512/2016 (116,551) - Legal reserve (23,285) (21,291) Calculation basis 442,393 404,523 Mandatory minimum dividend 110,598 101,131 Proposed value 110,598 101,131 % on the basis of calculation 25% 25%

2017 2016

Value Value per lot of one thousand shares -

R$ Value

Value per lot of one thousand shares -

R$ Net income for the period - BRGAAP 582,229 5,52 425,814 4,04 Dividends payable 110,598 1,05 101,131 0,96

d) Equity valuation adjustments

2017 2016

Opening balance Changes Tax effect Closing

balance Opening balance Changes Tax

effect(2) Closing balance

Securities available for sale (123,470) 183,024 (82,567) (23,013) (591,269) 683,343 (215,544) (123,470) Banco Votorantim (1) (132,330) 151,685 (68,464) (49,109) (520,636) 538,810 (150,504) (132,330) Subsidiaries 8,860 31,339 (14,103) 26,096 (70,633) 144,533 (65,040) 8,860 Cash flow hedge (14,614) (25,756) 11,590 (28,780) - (26,571) 11,957 (14,614) Banco Votorantim (14,614) (25,756) 11,590 (28,780) - (26,571) 11,957 (14,614) Total (138,084) 157,268 (70,977) (51,793) (591,269) 656,772 (203,587) (138,084)

(1) Includes agency abroad. (2) Since the fourth quarter of 2016 the tax effects of securities available for sale abroad have been recognized.



50

e) Non-appropriated retained earnings Net earnings in accordance with accounting practices generally accepted in Brazil is fully earmarked for dividends, interest on equity and establishment of profit reserves. Thus, the balance presented in this account, in these consolidated financial statements prepared in accordance with IFRS, mainly represents the effect of differences between the accounting practices adopted in Brazil and the International Accounting Standards. f) Reconciliation of shareholders’ equity’ and net income from BRGAAP to IFRS

12.31.2017 12.31.2016

Shareholders’ equity

Net income (loss)

Shareholders’ equity

Net income (loss)

Balance - BRGAAP 8,867,550 582,229 8,425,890 425,814 Assignment of receivables with co-obligation, net of tax effects - - - 4,372 Provision for impairment losses, net of tax effects 143,913 36,215 107,698 (141,224) Adjustment to fair value of Swap Circ. 3.129/02, net of tax effects - 59 (59) (30,999) Adjustment of the deferral of fees CMN Resolution 4,294, net of taxes 234,294 126,801 107,493 69,560 Reversal of PDD on sureties Res. CMN 4,512, net of tax effects - (116,551) - - Other adjustments, net of tax effects (14,704) 288 (14,703) 4,770 Balance - IFRS 9,231,053 629,041 8,626,319 332,293

Summary of the main differences between BRGAAP (BACEN) and IFRS:

Assignment of receivables - In the course of its activities, the Conglomerate enters into transactions that result in the transfer of financial assets to third parties and to Investment Funds in Receivables (FIDCs), which the Conglomerate has the majority of the subordinated shares, in which the credit risks of these operations are substantially retained. For the purpose of preparing Financial Statements under BRGAAP, loan assignments conducted up to December 31, 2011 were calculated recognizing income at the time of assignment, irrespectively of retention or not of risk. To comply with IFRS, an assignment of financial assets with substantial retention of risks and benefits related to the transferred assets, remain on the balance sheet of the Conglomerate and a liability is recognized in association. Through the issuance of CMN Resolution No. 3,533/08, starting on January 01, 2012, all transfers follow the same procedure, regarding accounting treatment, for both IFRS and BRGAAP, so there will be no differences in the accounting practices for the treatment of operations made from that date forward. Provision for impairment - In BRGAAP, the provision for doubtful accounts is measured considering a risk analysis as to the realization of receivables, in an amount considered sufficient to cover possible losses following the guidelines established by the Central Bank of Brazil by means of the CMN Resolution No. 2,682/99 and its supplementary items. According to such standards, provisions are set up as from credit concession, based on credit risk rating, taking into consideration a periodic analysis of a client's quality and the segments of activity, and not only upon occurrence of default. In BRGAAP, the provision cannot be lower than the minimum required by regulator's standards, though an additional provision may be recognized when the minimum provision is considered insufficient. The IAS 39 establishes that the entity should evaluate at each reporting period if there is objective evidence that loan operation or a group of loan operations is subject to impairment loss. A loan operation or group of loan operations is subject to loss for reduction in its recoverable value, if there is objective evidence of impairment as a result of one or more events occurring after the initial recognition of the loan operation (event of loss) and this event or events have an impact on its future estimated cash flow and may be reliably estimated. Impairment loss of financial assets available for sale - According to the 39, when an impairment loss of a financial asset available for sale has been recognized to other comprehensive income and there is objective evidence in the recoverable value, the accumulated loss that has been recognized to other comprehensive income is reclassified from shareholders’ equity to profit or loss as a reclassification adjustment, even if the financial asset has not been written off. Some investments in



51

stocks in closed stock corporations, classified as available for sale, reported negative fair value adjustments for more than one financial year. Adjustment to fair value of swap circ. 3.129/02 - The Conglomerate operated with swaps in hedge operations of Securities Held to Maturity, as permitted by BACEN Circular Letter No. 3129/02. According to this standard, adjustment to fair value of derivatives contracted in hedge operations of Securities Held to Maturity should be recognized disregarding the increase or decrease resulting from adjustment to fair value. The IAS 39 requires derivative instruments be measured at fair value through profit or loss. Thus, under IFRS, we recorded the adjustment to fair value of these operations against result, recorded under the heading "Results of derivative financial instrument". Adjustment of deferral of commissions Res. CMN 4,294 - As of January 2, 2015, in compliance with the requirements of CMN Resolution 4,294 / 2013, and in accordance with the option provided in Circular BACEN No. 3,738 / 2014, two thirds of the remuneration related to origination, in 2015, of credit and lease transactions sent by correspondents are now recorded as assets, the remaining portion being recognized as an expense for the period at the time of origination. As of January 1, 2016, the portion recorded in assets was reduced to one third of the remuneration of operations originated in 2016. Transactions generated as from January 1, 2017, have the remuneration fully recognized as an expense. For IFRS purposes, commissions are appropriated in the income statement according to the contractual term. 20. TAXES a) Current tax assets 12.31.2017 12.31.2016 Income taxes to offset 54,555 139,952 Social contribution to offset 4,883 58,913 PIS tax to offset 1,790 945 COFINS tax to offset 8,373 4,445 Other assets 212 980 Total (1) 69,813 205,235

(1) Includes current taxes and contributions to be offset whose expected compensation period is greater than 12 months.

b) Deferred tax assets (Recognised)

12.31.2016 2017 12.31.2017 (1)

Book balance Net changes in the period Book balance Constitution Write-off Temporary differences 6,188,481 1,520,851 (1,634,424) 6,074,908

Allowance for loan losses 4,335,889 1,107,671 (1,164,709) 4,278,851 Liability provisions 1,317,652 181,441 (214,435) 1,284,658 Fair value adjustment (2) 506,622 221,743 (253,351) 475,014 Other provisions 28,318 9,996 (1,929) 36,385

CSLL tax loss/negative basis 1,164,761 2,871 (112,837) 1,054,795 Total deferred tax assets recognized 7,353,242 1,523,722 (1,747,261) 7,129,703

Income tax 4,552,650 902,963 (974,503) 4,481,110 Social contribution 2,800,592 620,759 (772,758) 2,648,593

(1) On December 31, 2017, the portion of R$ 22,603 (of the amount R$ 475,014) corresponds to the tax credit arising from the adjustment to fair value of the securities classified as available-for-sale, recorded In Shareholders' Equity.

(2) The amounts corresponding to the tax credit arising from the adjustments to fair value of available-for-sale securities recorded in Shareholders' Equity, without exercise of 2017, are R$ 49,057 of the total R$ (31,608).

Deferred tax assets (Not recognised) 12.31.2017 12.31.2016 Tax credit abroad - 10,278 Tax credit other provisions 33,343 24,391 Total of deferred tax assets not recorded in assets 33,343 34,669 Income tax 24,510 23,638 Social contribution 8,833 11,031



52

On December 31, 2017, the balance excluding deferred tax assets was R$ 33,343 (R$ 34,669 on December 31, 2016), which will be recorded when address the regulatory aspects and presenting actual realization perspective. Realization estimate The expected realization of deferred tax assets draws upon a technical study prepared on December 31, 2017. Nominal value Present value In 2018 2,271,929 2,182,726 In 2019 1,226,633 1,123,844 In 2020 993,204 863,240 In 2021 567,349 466,195 In 2022 661,260 512,750 As from 2023 1,409,328 796,765 Total deferred tax assets 7,129,703 5,945,520 Realization of nominal values for tax credit assets

Tax losses carryforwards/CSLL recoverable (1) Intertemporary differences (2)

In 2018 1% 37% In 2019 8% 19% In 2020 16% 14% In 2021 9% 8% In 2022 7% 10% As from 2023 59% 12% (1) Projected consumption linked to the capacity to generate IRPJ and CSLL taxable amounts in subsequent periods. (2) The consumption capacity arises from movements in provisions expectation of reversals, write-offs and uses).

c) Current tax liabilities 12.31.2017 12.31.2016 Taxes and contributions on income payable 11,157 159,781 Provision for taxes and contributions on income 310,723 247,187 Taxes and contributions payable 101,437 100,859 Total (1) 423,317 507,827

(1) Includes current taxes and contributions, whose settlement period is over 12 months.

d) Deferred tax liabilities 12.31.2017 12.31.2016 From liabilities 1,126 690 Fair value adjustment 216,845 160,347 Total deferred tax liabilities 217,971 161,037 Income tax 122,340 89,367 Social contribution 95,631 71,670

e) Tax expenses 2017 2016 Cofins (302,368) (292,202) ISSQN (64,360) (56,401) PIS (51,111) (48,689) Other (32,166) (24,887) Total (450,005) (422,179)



53

f) Expenses - income taxes and social contributions Statement of Income Tax and Social Contribution Expenses 2017 2016 Current amounts (414,717) (294,490)

IR & CSLL in Brazil - current (414,147) (309,683) IR & CSLL in Brazil - previous years (570) 15,193

Deferred amounts (213,462) (10,163) Deferred tax liabilities (38,980) 123,694

Fair value adjusment (38,980) 108,514 Excess depreciation - 15,180

Deferred tax assets (174,482) (133,857) Tax loss carryforwards and negative basis of CSLL (109,966) (1,849) Temporary difference (81,965) 159,204 Fair value adjustment 17,449 (291,212)

Total (628,179) (304,653) Reconciliation of IR and CSLL charges 2017 2016 Income (loss) before taxes and contributions 1,422,070 769,414 Total IR charges (25% rate) and CSLL (20% until December 2018 and 15% from January 2019) (639,932) (346,111) Equity in the earnings of subsidiaries (8,575) 16,319 Employee profit sharing 74,182 59,611 Other amounts (53,854) (34,472) Income tax and social contribution in the period (628,179) (304,653) 21. PROVISIONS, CONTINGENT ASSETS, LIABILITIES AND LEGAL, TAX AND SOCIAL

SECURITY OBLIGATIONS a) Contingent assets Contingent assets were not recognized in the financial statements, as IAS 37.

b) Labor lawsuits The Conglomerate is the defendant in labor lawsuits mostly filed by former employees. Provisions for probable losses represent several claims, such as: indemnities, overtime, working time exemption, supplement per function and representation, among other matters.

c) Tax lawsuits The Conglomerate, in audits carried out by the tax authorities, is the subject to inquiries relating to taxes, which can generate fines, such as: tax basis of the composition of income tax/social contribution [IRPJ/CS] (deductibility); and discussion of the levying of taxes, upon the occurrence of certain economic facts. Most lawsuits deriving from tax assessments refer to ISS, IRPJ, CSLL, PIS/Cofins, and Employer Social Security Contributions. Some of them are guaranteed, when necessary, by escrow deposits made to suspend payment of taxes under discussion. d) Civil lawsuits They refer basically to legal claims of the following nature: refusal of the total real cost of the agreements entered into; and tariffs.



54

e) Provision for labor, tax and civil lawsuits - Probable

In conformity with IAS 37, the Conglomerate recognized a provision for labor, tax and civil lawsuits with “probable” risk of loss, classifed by individual methodology or on a collective basis, according to the nature and/or value of the process. The estimates of outcome and financial effect are determined by the nature of the actions, by the judgment of the entity’s Management, by the opinion of the legal counsel, based on the process elements, supplemented by the experience and complexity of similar claims. The provision for labor, tax and civil lawsuits that was set up to cover the losses estimated, are considered sufficient by the Conglomerate’s Management. e.1) Changes in provisions for tax, civil and labor claims classified as probable 2017 2016 Tax claims

Opening balance 52,812 45,724 Additions 11,313 10,152 Reversal of provision (3,266) (6,792) Write-offs due to payment (1) (19,551) (2,147) Inflation indexation 1,656 5,875

Closing balance 42,964 52,812 Demandas cíveis

Opening balance 302,241 300,598 Additions 113,460 134,647 Reversal of provision (82,379) (88,680) Write-offs due to payment (73,932) (107,814) Inflation indexation 52,334 63,490

Closing balance 311,724 302,241 Demandas trabalhistas

Opening balance 887,776 911,009 Additions 356,504 494,003 Reversal of provision (165,158) (400,768) Write-offs due to payment (158,967) (210,035) Inflation indexation 91,663 93,567

Closing balance (2) 1,011,818 887,776 Total Labor, Tax and Civil claims 1,366,506 1,242,829

(1) Includes payments resulting from the adhesion to the “Debt Installment Program of São Paulo´s Government” occured in the year ended December 31, 2017.

(2) In October 2017 the risk measurement criteria were improved, so that the mass valuation model was incorporated into the model that includes risk inputs with greater granularity, as well as the effects of judicial settlements. This change resulted in an increase in the provision in the amount of R$ 5,839.

e.2) Estimated schedule of disbursements

12.31.2017 Labor Tax Civil

Up to 5 years 1,011,818 33,357 311,724 From 5 to 10 anos - 9,607 - Total 1,011,818 42,964 311,724 Uncertain lawsuit duration and the possibility of changes in prior court judgments make disbursement schedule and values uncertain. f) Contingent liabilities - Possible The amounts shown in the table below represent the estimated amount that might be paid in the case of a conviction. The claims are classified as possible when there is no way conclude safely the outcome of the process and when the probability of loss is less than probable but higher than the remote.



55

12.31.2017 12.31.2016 Tax claims (1) 1,048,142 1,202,059 Civil claims (2) 103,302 43,070 Labor claims (3) 614,406 820,655 Total 1,765,850 2,065,784

(1) Refer basically to:

Description of the main possible causes - Taxes 12.31.2017 12.31.2016 INSS on Profit Sharing PLR 144,713 138,907 IRPJ - FINOR 62,478 59,394 ISS 11,981 11,096 INSS on Profit Sharing PLR - Nassau Branch 43,663 41,700 PIS/COFINS on demutualization 40,608 38,895 IRPJ on undue offset of tax loss - Gratuities to statutory officers 21,667 28,418 IRPJ/CSLL - Deduction Allowance for loan losses (PDD) 2008 108,648 104,520 Infringement Fine (non-homologation of DCOMP) 84,193 142,804 CSLL - Exclusion of interests of oreign government securities 146,416 138,200 IRPJ/CSLL - Assessment notice: improper exclusion of goodwill on acquisition of securities of foreign governments 22,869 21,935

IRRF from remittances abroad: impossibility of compensation 34,629 32,550 PF e BNCSLL: excess compensation AB 2012 65,794 62,883 IRPJ/CSLL on JCP cumulatively distributed 133,563 - Other 126,920 380,757 Total 1,048,142 1,202,059

(2) Refers, basically, to collection actions. (3) In October 2017 the risk measurement criteria were improved, so that the mass valuation model was incorporated into the

model that includes risk inputs with greater granularity, as well as the effects of judicial settlements. The amounts of contingent liabilities classified as possible disclosed on December 31, 2016 of R$ 289,441 were restated, in order to demonstrate for both periods the possible loss risk in the light of this new modeling of provision calculation implemented for comparability purposes.

g) Deposits as collateral Balances of escrow deposits recognized for contingencies

12.31.2017 12.31.2016 Tax claims 110,993 307,246 Civil claims 200,484 242,009 Labor claims 322,526 275,521 Total 634,003 824,776

h) Legal obligations The Conglomerate maintains the amount of R$ 21,456 (R$ 15,013 on December 31, 2016) recorded in specific Legal Obligations account and the main discussion is about a Declaratory Action in which it is intended to offset the impact of the ISS on revenues arising guarantee and other guarantees provided, as well as to obtain the restitution of the amounts paid in the last five years. The other actions refers to PIS LC 07/10, ISS Deduction in the PIS and COFINS calculation basis and APF - Accident Protection Factor. i) Public civil lawsuits Conglomerate has contingent liabilities involving public civil actions in which, based on the opinion of the legal advisors and Management’s judgment, the risk of loss is considered possible. Due to their current stage of completion, measurement of amounts involved in these lawsuits could not be determined safely. Main themes discussed in these lawsuits refer to collection of tariffs and issues involving payroll credit to INSS retirees and pensioners.



56

22. INTEREST REVENUE

2017 2016 Advances to depositors - 1 Investments in fixed income securities 2,300,003 2,725,856 Investments in foreign securities 105,999 94,762 Foreign investments 1,061 (95,535) Loans 1,884,723 2,272,387 Discounted securities 42,646 44,169 Financings 7,041,083 7,359,406 Export financing 361,916 38,895 Financing operations in foreign currency 225 1,310 Rural financing agreements 38,829 34,162 Real estate financing agreements 25,348 56,603 Funds available in foreign currency 41,430 (147,002) Forex transactions 33,307 3,026 Leases 17,415 8,046 Credits for sureties and guarantees paid 503 713 Money market repurchase commitments 1,629,042 2,280,391 Interbank deposit investments 92,455 138,143 Acquired portfolio - 16,885 Costs associated with the origination of loans and receivables (415,475) (421,903) Others (72,430) 109,043 Total (1) 13,128,080 14,519,358

(1) Includes foreign exchange variation. In 2016, the amount of R$ 342,900 (R$ 151,469 in 2016) was recognized as interest income on operations with loan characteristics with impairment. 23. INTEREST EXPENSES

2017 2016 Money market repurchase commitments (2,868,305) (4,588,512) Expenses assignees (1,387,074) (2,219,572) Interbank deposits (208,270) (266,637) Time deposits (505,984) (219,737) Foreign borrowings (157,654) (80,224) National Treasury Onlendings (4,192) (6,708) BNDES Onlendings (119,140) (105,304) Onlending - FINAME (79,683) (80,443) Obligations with abroad financial institutions 68,892 492,086 Funds from real estate credit notes (53,127) (44,465) Agribusiness credit bill funds (192,298) (350,223) Financial Bills (2,275,906) (2,568,021) Securities issued abroad (316,815) 191,158 Other (21,690) (12,531) Total (1) (8,121,246) (9,859,133)

(2) Includes foreign exchange variation on Loans and Onlendings abroad.



57

24. NET INCOME (LOSS) FROM SERVICES AND COMMISSIONS 2017 2016 Bank fees 443,010 335,089 Income from guarantees granted 111,198 127,185 Third-party asset management 125,371 114,605 Commissions on placing of securities 57,766 77,530 Brokerage of Stock Exchange transactions 15,416 19,651 Collection income 3,815 2,010 Income from commissions on intermediation of transactions 458,329 314,745 Technical/financial advisory (306,249) (280,551) Judicial and civil law notary emoluments and attorneys' fees (93,923) (110,964) Credit card transactions 167,837 123,461 Other 230,834 164,484 Total 1,213,404 887,245 25. INCOME WITH FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS 2017 2016 Financial assets at fair value through profit or loss 68,832 (174,302)

Government bonds 45,635 (34,965) Private securities 23,197 (139,337)

Financial liabilities at fair value through profit or loss 7,298 (66,291) Purchase and sale commitments - Free movement 7,468 (59,337) Option box - Fixed income strategy (170) (6,954)

Financial liabilities at amortized cost (1) 3,642 106,565 Securities issued (5,226) (15,123) Subordinated liabilities 8,868 121,688

Loans and receivables (1) 99,043 593,434 Loans (3,082) 64,129 Financings 162,919 600,332 Export financings (60,794) (71,027)

Total 178,815 459,406 (1) Refers to adjustment to fair value of financial instruments that are subject to Hedge Accounting.

26. OTHER OPERATING INCOME (LOSS) 2017 2016 Capital gains 10,195 28,906 Restatement of judicial deposits 31,548 80,739 Reversal/(Provision) for contingent liabilities (175,879) (122,442) Devaluation of financial assets held for sale (742) (26,619) Expenses with interest COFINS (REFIS joining and PERT) (3,233) (35,512) Reversal of provision for variable compensation 113 4,051 Income (loss) from interest on equity 42,951 191,952 Recovery of Paid-to-Own Taxes 6,543 14,026 Other 53,945 88,222 Total (34,559) 223,323

27. NET IMPAIRMENT LOSS OF FINANCIAL ASSETS 2017 2016 (Constitutions) /reversals of provision for losses (2,783,125) (3,161,169) Recovery of loans written off as losses 796,030 734,489 Discounts on renegotiation (307,660) (348,253) Total (2,294,755) (2,774,933)



58

28. PERSONNEL EXPENSES 2017 2016 Directors fees (16,235) (19,157) Benefits (124,011) (127,756) Social charges (196,939) (182,900) Dividends (528,105) (613,093) Training (4,101) (3,078) Labor claims (231,456) (336,320) Total (1,100,847) (1,282,304) 29. OTHER ADMINISTRATIVE EXPENSES 2017 2016 Water, energy and gas (5,073) (7,024) Rents (57,459) (68,480) Leased property (14,631) (13,107) Communications (67,628) (78,333) Philanthropic contributions (8,597) (5,773) Maintenance and preservation assets (16,960) (19,499) Material (3,434) (3,162) Data processing (205,399) (200,037) Promotions and public relations (10,394) (10,257) Advertising and publicity (25,385) (9,095) Publications (905) (1,448) Insurance (3,717) (2,241) Outsourced services (165,479) (162,546) Surveillance and security (3,113) (2,481) Transportation (15,221) (12,934) Traveling (8,727) (9,768) Other (14,456) (10,875) Total (626,578) (617,060)

30. DEPRECIATION AND AMORTIZATION EXPENSES 2017 2016 Amortization (32,251) (31,742) Depreciation (29,167) (30,814) Total (61,418) (62,556)

31. RELATED PARTIES Costs of salaries and other benefits granted to key management personnel of Banco Votorantim, comprising the Executive Board, Audit Committee, Board of Directors and Fiscal Council: 2017 2016 Fees and Directors’ fees 16,235 19,157 Bonuses 40,466 32,745 Social charges 16,639 15,104 Total 73,340 67,006

The Bank does not provide post-employment benefits to key management personnel. The Bank does not grant loans to key Management personnel in accordance with the prohibition to any financial institution established by the Central Bank of Brazil. The balances of accounts relating to transactions between consolidated companies of the Bank are eliminated in the Consolidated Financial Statements and also take into consideration the lack of risk. In relation to the controlling shareholders, the transactions with the Banco do Brasil Conglomerate and



59

Votorantim SA (are included the main companies of which are: Votorantim Finanças, Votorantim Cimentos, Votorantim Metais, Votorantim Siderurgia, Votorantim Energia, Fibria and Citrosuco) . The Conglomerate carries out banking transactions with related parties, such as current account deposits (not remunerated), remunerated deposits, securities sold under repurchase agreements, derivative financial instruments and assignment of credit transaction portfolios. There are also service agreements. These transactions are carried out under terms and conditions similar to those performed with third parties where applicable, prevailing at the transaction dates. These transactions do not involve extraordinary default risks. In the year ended December 31, 2016, the Bank sold securities (Shares in investment funds) classified in the category Available for sale to subsidiary BV Financeira. This operation generated no impact on the net income, subject to elimination in the financial Conglomerate’s consolidation process. In the year ended December 31, 2017, Conglomerate, through its subsidiary BV Financeira, carried out credit assignments with a related party, with substantial risk retention. Sum of present values totaled R$ 3,511,983 (R$ 7,593,212 on December 31, 2016). The net result of credit assignments, considering income and expenses of the assignments with substantial retention of risks and benefits is presented in the table below under “Income from interest, provision of services and other income”.

12.31.2017 Banco do

Brasil Conglomerate

Votorantim S.A.

Financial subsidiaries

(1) Non-financial

subsidiaries (2) Key

management personnel (3)

Other (4) Total

Assets Cash and cash equivalents 1,032 - - - - - 1,032 Financial assets with repurchase

agreements 1,506,540 - - - - 572,376 2,078,916

Loans and receivables 245,541 - 24,682,565 - - - 24,928,106 Derivative financial instruments 950 477 8,977,943 - - 1,562,587 10,541,957 Other assets - 7,926 1,021,190 - 324 313 1,029,753 Liabilities Financial liabilities – Amortized cost (9,972,649) (1,139,173) (8,855,151) (583,178) (19,498) (210) (20,569,859) Derivative financial instruments (5,940) (798) - - - (177,563) (184,301) Other liabilities - - (29,700) - - - (29,700) Income (loss) 2017 Income from interest, provision of

services and other 1,011,368 - 3,136,754 - - 140,787 4,288,909 Derivative financial instruments (4,612) (2,923) - - - 16,040 8,505 Expenses with fund raising,

administrative expenses and other expenses

(36,992) (196,599) (1,056,992) (36,509) (1,234) - (1,328,326)

12.31.2016 Banco do

Brasil Conglomerate

Votorantim S.A.

Financial subsidiaries

(1) Non-financial

subsidiaries (2) Key

management personnel (3)

Other (4) Total

Assets Cash and cash equivalents 79,879 - - - - - 79,879 Financial assets with repurchase

agreements 5,054,804 - 19,613,440 - - - 24,668,244 Financial assets available for sale - - 17,935,260 - - 1,223,195 19,158,455 Loans and receivables 236,263 7,848 - - 383 290 244,784 Derivative financial instruments - 384 - - - - 384 Other assets 24,483 - 17,386 - - - 41,869 Liabilities Financial liabilities – Amortized cost (14,948,165) (1,392,230) (15,935,407) (298,972) (12,354) - (32,587,128) Derivative financial instruments (23,947) (9,430) - - - - (33,377) Other liabilities (1,315) - (1,447) - - - (2,762) Income (loss) 2016 Income from interest, provision of

services and other 1,303,786 - 5,428,691 - 2 149,267 6,881,746 Derivative financial instruments (419) (6,463) (263,648) - - - (270,530) Expenses with fund raising,

administrative expenses and other expenses

(97,187) (202,724) (1,754,445) (42,817) (1,902) - (2,099,075)

(1) Related Companies in Note 5 identified in item (1). Does not include transactions between financial subsidiaries. (2) Includes Promotiva S.A, BVIA - BV Investimentos e Participações de Gestão de Recursos S.A. and Votorantim Corretora de



60

Seguros S.A. (3) The Board of Directors, Executive Board, Audit Committee, Tax Committee and family members (spouse, children and

stepchildren) of key personnel, as well as all companies in which the key personnel has participation. (4) In 2017 includes BVIA FIP and Votorantim Expertise Multimercado; and in 2016 includes BVIA FIP. 32. EMPLOYEE BENEFITS There are no post-employment benefits such as: pensions, other retirement benefits, post-employment life insurance and medical care, other long-term benefits to employees, including long service leave and other leaves, jubilee or other benefits per years of service, share-based remuneration and rescission of contract benefits. Variable compensation program The Long-Term and Short-Term Compensation Programs: Conditional Variable Incentive, Long-Term Incentive and Virtual Share Repurchase Program approved by the Board of Directors on May 10, 2012 were valid until 2016. In the first semester of 2017, the Conglomerate implemented the new Variable Compensation Program. The directors and employees of the Conglomerate are eligible for the program. This program was approved by the Board of Directors on March 09, 2017. The program has a long-term incentive plan that aims to: (i) attract, motivate and retain talent; (ii) alignment of the interests of the officers and employees with the objectives and interests of the shareholders; (Iii) generation of results and sustainable creation of value; And (iv) creating a long-term vision: ILP plan: a four-year plan consisting of the granting of an incentive based on the performance of each year. All employees of the Conglomerate are eligible for the plan. In the year ended December 31, 2017 were recognized in the result, under Personnel Expenses - Salary R$ 156,877 (R$ 166,639 in the year ended December 31, 2016) in relation to long-term incentives transactions. These incentives in general become a right between one and in not more than four years as of the granting date, with settlement in cash. In the Consolidated, the following payments related to the Long-Term Compensation Programs ocurred: Program year 2017 2016 2012 40,382 41,147 2013 66,284 64,925 2014 76,612 11,440 2015 9,686 89 2016 235 - Total 193,199 117,601

On December 31, 2017, the Conglomerate recorded under caption “Other liabilities - Other - Sundry - Provision for unsettled payments”, in the amount of R$ 336,313 (R$ 345,813 on December 31, 2016). Virtual share value is calculated at least on a quarterly basis and is based on the Conglomerate’s income and on entries directly made to Shareholders’ equity accounts, as determined by prevailing accounting practices. From this change in Shareholders’ Equity value, non-recurring movements will be excluded, individually evaluated and submitted to the Remuneration Committee, which will decide on its exclusion or not from Shareholders’ equity calculation basis to value virtual share.



61

Changes in virtual shares 2017 2016 Opening quantity 78,584,156 65,642,106

New 37,054,055 42,334,935 Paid (43,741,331) (27,583,094) Expired (1,458,879) (1,809,791)

Closing quantity 70,438,001 78,584,156 33. OPERATING SEGMENTS An operating segment is a component of the Conglomerate, which engages in business activities from which it may earn revenues and incur expenses, including income and expenses relating to transactions with other components of the Conglomerate. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. The unallocated items include mostly the corporate assets, office expenses and income and social contribution tax assets and liabilities. The Conglomerate has two segments, as described below, which are the business units of the Conglomerate. The business units offer different products and services and are managed separately, have specific management models, target publics, marketing strategies, and different sub-segmentation. The Conglomerate's reportable segment operations can be detailed as follows: • Retail - Transactions with the characteristic of direct credit granting to consumer, credit granting

and credit card;

• Wholesale - Financial operations and services mainly directed at financial institutions and corporate clients with annual revenues above R$ 200M. The modalities of products and services include: Loans and Financing, Derivatives, Foreign Trade, Bank Guarantees, Real Estate Projects, Investments (Fixed Income, Investment Funds, Shares and Structured Products), Payments and collection services.

Information referring to each segment results are included below. The performance is evaluated based on the net income for the period. a) Managerial statement of income by segment and reconciliation of managerial result by

segment with consolidated result according to IFRS

2017

Retail Wholesale Consolidated Management

Adjustments and reclassifications

Consolidated IFRS

Net interest income and services 4,088,141 1,467,859 5,556,000 (549,166) 5,006,834 Provision for impairment (1,180,272) (911,243) (2,091,515) (203,240) (2,294,755) Administrative and personnel expenses (643,579) (396,214) (1,039,793) (687,632) (1,727,425) Tax expenses (338,398) (87,539) (425,937) (24,068) (450,005) Depreciation and amortization expenses (39,107) (22,306) (61,413) (5) (61,418) Other operating income/expenses (416,929) (24,916) (441,845) 1,390,684 948,839 Variable compensation (133,031) (193,300) (326,331) 161,481 (164,850) IR/CS (608,635) 21,698 (586,937) (41,242) (628,179) Net income for the year 728,190 (145,961) 582,229 46,812 629,041



62

2016

Retail Wholesale Consolidated Management

Adjustments and reclassifications

Consolidated IFRS

Net interest income and services 3,659,171 1,429,256 5,088,427 (428,202) 4,660,225 Provision for impairment (1,372,135) (836,235) (2,208,370) (566,563) (2,774,933) Administrative and personnel expenses (648,279) (420,119) (1,068,398) (830,966) (1,899,364) Tax expenses (287,704) (123,177) (410,881) (11,298) (422,179) Depreciation and amortization expenses (39,209) (24,818) (64,027) 1,471 (62,556) Other operating income/expenses (529,101) (108,510) (637,611) 1,905,832 1,268,221 Variable compensation (109,177) (213,438) (322,615) 190,147 (132,468) IR/CS (347,127) 396,416 49,289 (353,942) (304,653) Net income for the year 326,439 99,375 425,814 (93,521) 332,293 b) Asset information by segment

12.31.2017 Retail Wholesale Total

Loans and receivables 35,992,148 12,236,056 48,228,204 Financial asset impairment (1) (2,226,175) (2,185,921) (4,412,096) Deferred tax assets 4,276,790 2,852,913 7,129,703 Total assets 41,056,327 52,497,506 93,553,833 Total liabilities 36,774,148 47,548,632 84,322,780 Total shareholders’ equity 4,282,179 4,948,874 9,231,053

12.31.2016 Retail Wholesale Total

Loans and receivables 33,353,089 13,924,750 47,277,839 Financial asset impairment (1) (2,210,683) (2,319,900) (4,530,583) Deferred tax assets 4,587,031 2,766,211 7,353,242 Total assets 41,344,541 61,796,206 103,140,747 Total liabilities 37,152,618 57,361,810 94,514,428 Total shareholders’ equity 4,191,923 4,434,396 8,626,319

(1) Includes financial assets repurchase agreements, available-for-sale and held-to-maturity, as well as loans and receivables.

34. RISK AND CAPITAL MANAGEMENT

a) Integrated risk management

The integrated approach to risk management consists of the adoption of tools which enable the consolidation and control of material risks to which the Conglomerate is subject. The aim of this approach is to organize the decision-making process and define tools for maintaining acceptable risk levels which are compatible with the volume of capital available, in line with the business strategy adopted. The consolidation of risks covers all material exposures inherent to the Conglomerate's business lines. The exposures mainly are grouped into the following risk categories: market, liquidity, credit and operating. This consolidation is done through a structured process that includes mapping, counting and aggregating values at risk. The levels of risk exposure are monitored through a risk limit framework, incorporated into the Conglomerate's daily activities by means of an strutured management and control process, which assigns functional responsibilities to the areas involved. Senior management’s involvement consists of monitoring and taking the actions required to manage the risks. Financial return is calculated using processes that enable us to monitor managerial profitability of various lines of business, consistent with budget programming while adhering to the accounting results obtained. In sum, the Conglomerate adopts the following principles in its integrated risk management process:

• Consolidated vision of risks;



63

• Consistency between levels of exposure to risks, authorized limits and intended financial return; • Functional segregation between business areas, risk control, audit and operations processing; • Adoption of risk calculation methodologies aligned on the market practices; and • Involving Senior Management.

(i) Policies, Standards, Procedures and Manuals The risk management process has a set of documents setting out the main guidelines to be observed in the activities of risk management. The level of detail of these standards is structured depending on the purpose of each document and is organized according to the hierarchy shown below:

• Corporate Policies: fundamental principles and guidelines established by the highest hierarchical level must be followed by the entire organization and govern all the other regulations, procedures and product and service manuals;

• Standards: rules established to define the activities and the manner in which procedures are organized, detailing the aspects addressed by corporate policies;

• Procedures: operating rules established to describe activities and steps for their implementation, detailing the issues addressed in guidelines; and

• Manuals Products, Services, and Calculation Systems and Modeling: set of documents that compile the main features on structuring of products, services, systems and calculation methodologies used.

These regulations are published for the Conglomerate’s internal consultation at the Corporate Portal (Intranet), and are reviewed and updated in specific periods, or whenever there are significant changes. (ii) Governance Structure and Committees The Conglomerate has deliberative committees in order to ensure adequate risk and capital management. The Risk and Control Committee (CRC) stands out as the main risk and capital management forum, the ALM and Tax Committee and, at a higher level, the Executive Committee (ComEx), which also other forums. Finally, it also has a Board of Directors, a Board of Directors (CA), a Fiscal Council (CF) and an Audit Committee (COAUD). Committees have an important role in risk and capital governance. The meetings are organized by the respective coordinators, responsible for formalizing the minutes. Executive committee – ComEX (Statutory Committee - since 04/26/2017) • Duties: monitoring the bank's performance, market context and projections of future results, as well

as monitoring issues in open systems, deciding on urgent needs or the need to validate management, and periodically monitor the issues addressed in the United States of internal governance, arbitrating conflicts, ensuring compliance with corporate governance standards.

• Periodicity: biweekly • Report: Board of Directors

Risk and Control Committee (CRC) • Duties: recommend to the Board of Directors the proposed risk appetite and monitor the relevant

risk indicators, both financial and non-financial; evaluate and approve operations that may impact consumption or capital base; monitor the evolution of capital ratios and capital planning for three years; monitor liquidity and cash reserves; to deliberate on policies and indicators of Risks, Compliance, Internal Controls and LDP; ratify and follow the integrated capital stress test; evaluate, monitor and control activities carried out by Internal Controls, Compliance, Information Security, Business Continuity Plan and Money Laundering Prevention; monitor and control corrective actions for deficiencies identified by internal and external audits, regulatory agencies and self-regulatory entities, deliberate and monitor risk assumptions; approve reports of regulatory demands; and to submit proposals to the Executive Committee and the Board of Directors regarding actions for risk and capital management, as well as internal controls, when necessary.

• Periodicity: biweekly



64

• Report: Executive Committee. ALM and Taxes Committee • Duties: evaluating and proposing initiatives aimed at protecting and maximizing the Bank's

structural balance sheet from an economic, financial, accounting and fiscal point of view; to evaluate gaps in the accounting and fiscal results of legal vehicles, as well as the asymmetries; perform monthly monitoring of unrecognized results (RNR), accounting and tax; monitor the effectiveness of hedge accounting programs, propose and periodically review asset and liability management strategies, guide and request studies to the ALM Working Group, and approve relevant initiatives or changes in the hedge policies proposed by it; analyze scenarios and macroeconomic indicators; propose capital optimization strategies of the Bank; evaluate and approve proposals to maximize the fiscal efficiency of the Votorantim Conglomerate, as well as corporate reorganizations; assessing tax risks that may impact the balance sheet of the Conglomerate's companies; among others.

• Periodicity: biweekly. • Report: Executive Committee.

People Management Committee • Duties: to analyze, approve and, if necessary, transmit to the Executive Committee the strategies

and actions with regard to. Human Resource practices with institutional impact on attracting, developing and retaining talent; organizational structure that involves changes in directorates and promotions to executive levels; succession planning; performance management and organizational culture; validate the strategies of the Human Resources Area through the monitoring of its results; support the processes of change management and strengthening of the Organization's culture; ensure compliance with the Code of Conduct of the Organization, among others.

• Periodicity bimonthly. • Report: Executive Committee.

Products and Technology Committee • Duties: approve new businesses, new products or services and digital solutions, periodically review

the catalog of products and services; monitor the operational performance of products and services; approve the portfolio and roadmap of IT projects, monitor project portfolio indicators, assess action plan for indicators with status "in arrears" and "at attention", deliberate on renegotiations, segregation and replanning of projects, among others.

• Periodicity: monthly. • Report: Executive Committee

Credit Committee • Duties: assessing the feasibility of approval of limits and/or lending operations referred by the

commercial departments, evaluation of negotiations or agreements for settlement of problematic loans, and the lowering of credit restrictions (temporary or permanent) to individuals, groups and sectors of the economy.

• Periodicity: weekly. • Reporting: Executive committee

b) Market risk

It is the aim of market risk control to provide support for the management of the business, establish the processes and implement the tools required for assessing and controlling market risks, enabling the measurement and follow-up of the risk appetite levels defined by Senior Management. (i) Definitions Market risk is defined as the possibility of financial losses arising from the variation in the fair value of exposures held by a financial institution. These financial losses may be incurred due to the impact produced by the variation of risk factors, such changes in interest rates, exchange rates, and stock or commodity prices.



65

(ii) Basicle principles The Bank has an institutional structure and policies for market risk management approved by the Board of Directors and the basic principles observed in management and control were established in compliance with the current regulations and market practices, as follows:

• Involvement of Senior Management: the existing committees are structured in order to involve

Senior Management in overall supervision of risk-taking; • Segregation of portfolios: for the purpose of managing and consolidating the market risk of the

exposures, the operations are segregated, according to their business strategy, into trading portfolio or non-trading portfolio. In addition, other management classifications of the portfolios can be carried out, in line with the management structure, below the trading and banking portfolios;

• Segregation of duties: the segregation of duties between the areas responsible for performing operations and defining business strategies and the areas in charge of accounting, risk control, compliance, internal controls and other internal controls and audit;

• Definition of pricing and risk calculation methodologies, made by area independent of the business areas: for the purpose of risk control, structured methodologies of mandatory corporate use are adopted, based on market practices and other factors that can be used in model marking , according to prudential criteria established by the regulator, which include cost of settlement of positions, spread of credit risk, among others;

• Setting limits: Clear and objective definition of the authorized risk levels, based on the risk measures. This definition is structured with the objective of including the risk appetite levels defined by the Conglomerate in the daily activities; and

• Monitoring of limits: definition of the process for monitoring and reporting on the level of usage of the authorized limits.

(iii) Areas involved Market risk management functions include a set of functional activities that permeate the entire 'business chain', from product development, to operations, modeling and control of market risk, P&L attribution and formalization, accounting and settlement of transactions, as well as monitoring the effectiveness of processes and controls used. These functions are performed by functional units with technically capable staff managed separately with clearly defined responsibilities, as shown below: Market and Liquidity Risk • Responsible for pricing and market risk calculation methods; • Responsible for the independent capture of the prices used; and • Responsible for calculating the values at risk and the allocated capital and monitoring authorized

limits. Treasury • Responsible for trade execution with the market, constantly ensuring fair prices and trading

compliance; • Responsible for monitoring market trends and opportunities, managing risk exposures while

following defined strategies and authorized limits; and • Responsible for the effective operation of the management segregation of portfolios.

Operations Responsible for independent confirmation, formalization, registration and accounting, settlement of transactions and ensuring that databases are comprehensive and consistent, integral and reliable.

Finances Responsible for the determination and tracking of the accounting and management results of operations.



66

(iv) Risk Measures and Limits for Management and Control The Conglomerate adopts a set of objective measures for managing and controlling liquidity risks: • VaR (Value at Risk): it seeks to determine the risk resulting from market exposures, by determining

the highest expected loss within a confidence interval and a time horizon; • Stress test: used in order to estimate the potential fluctuations in the value of financial instruments,

which occur due to extreme changes in market variables (or risk factors); • Market Risk Regulatory Capital: comprises the regulatory capital calculated for trading and non-

trading portfolio exposures; • Sensitivity Analysis: this is used to estimate the potential fluctuations in value of financial

instruments, which occur because of fluctuations in the risk factors; • GAP analysis: Consists of the measurement of cash flow mismatching by risk factor.

The analysis is made for the Consolidated and the trading and non-trading portfolios; and • sVar (VAR stressed) (1). The sVAR consists of a measure complementary to the Historic Var, with

the objective of simulating for the current portfolio of the institution the impact of historical periods of stress not considered in the historical window of returns of the VAR. (1) Technical guidance: BACEN Circular No. 3,646 / 2013 (Art. 10).

Risk measures are used along with limits as market risk management tools. Risk measures are used along with limits as market risk management tools. These limits include the definition of maximum authorized amounts, adhering to the strategies adopted, the scope of products authorized for trading, consistent with budgeted assumptions and targets. There are two types of limits, depending on decision-making powers: • Upper Limits: maximum authorized limits at the Board of Directors’ level; • Operating limits: internal authorized limits at the level of the Risks and Controls Committee, always

in compliance with the Upper limits The limits are established based on the risk appetite and defined in a manner to pragmatically enable the achievement of the intended financial performance targets. Limits and targets are matched at the budget programming level. Amounts or values set in limits are updated and revised at least annually, together with budgetary programming. (v) Segregation of portfolios For the purposes of consolidated management and control of market risk exposures, transactions are segregated into two types of portfolios depending on their business strategy: trading portfolio (trading) or banking portfolio (non-trading). The trading portfolio covers all transactions, financial instruments, commodities or derivatives held with the intention of trading, or turning over, or hedging other trading portfolio transactions, and not subject to tradability restrictions. The banking portfolio encompasses all the operations not classified as trading. The following are the principal mechanisms adopted by the Conglomerate for segregating portfolios: • segregation of transactions is based on business strategies and intention, as captured at the time

of trading, reflecting proactive treasury management, and may be classified as trading or banking; • conditions for trading classification: intention of trading in short-term, need for liquidity, not be

limited to its marketability, and observe rules for defined turnover dates and carrying levels; and • banking portfolio composition: includes other transactions, financial instruments, commodities or

derivatives, which, by exclusion, are those not held for the sole purpose of trading in the short term.



67

Trading Portfolio - Methodology for Measuring Risk Trading portfolio is comprised of Conglomerate transactions available for negotiation. To measure the risk of the trading portfolio, the Conglomerate adopts the methodology of VaR analysis through Historical Simulation. The table below presents the minimum, average and maximum VaR of the trading portfolio.

Period Minimum Average Maximum January to December/ 2017 12,668 53,917 112,888 January to December/ 2016 2,666 35,450 118,854

Banking Portfolio - Risk Measurement Methodology The banking portfolio consists of structural exposures arising from loans as such and from borrowing to fund these loans, irrespective of maturity dates and currencies, or their commercial segments (retail and wholesale: middle or corporate). The banking portfolio also includes transactions to hedge assets or equity, and loans or funding in the banking portfolio. This portfolio is also known as the structural portfolio because it includes structural management of asset-liability mismatch. To measure the risk of the banking portfolio, the Conglomerate adopts the methodology of VaR analysis through Historical Simulation and methodology uses the rules established by the Central Bank of Brazil, through Circular Letter No. 3365 of September 12, 2007. The Conglomerate uses conservative assumptions for prepayment of loans and deposits that have no definite maturity date: • in the case of loans, the final settlement date is assumed with no statistical modeling for a scenarios

in which amounts owed are received before due date; • in the cases of daily liquidity deposits, such as funding with repurchase commitment, the date

assumed is that after which redemption is possible (early settlement); and • in the case of sight deposits, for non-material positions, the first business day subsequent to the

calculation base date is assumed to be maturity date. The table below presents the minimum, average and maximum VaR of the consolidated portfolio.

Period Minimum Average Maximum January to December/ 2017 80,875 138,098 204,506 January to December/ 2016 49,867 82,846 121,002

(vi) Measurement system and communication process The Conglomerate's corporate systems for measuring and controlling market risk combine internally developed applications with market solutions of proven robustness. These systems include integrated treatment of information in sequential order: • capturing price and curves from independent sources, reflecting parameters of trading conditions

effectively practiced; • capturing records of trading and registration data; • continuous updating and archiving this information in structured databases, monitoring its integrity

and consistency from an accounting point of view; • calculating fair values of positions for accounting purposes, managerial monitoring of positions held

and financial performance; and • calculating values at risk using VaR methodology.



68

The Conglomerate fully adopts a structured process for reporting issues related to market risk management. This communication process comprises: • periodically issuing objective reports showing exposures and levels of use of authorized limits; • periodically holding collective monitoring forums, within decision-making competencies, in which

current issues are discussed with full participation; and • specific electronic messages reporting and monitoring cases of limits being exceeded or non-

compliance, in which positions and managers responsible are identified.

(vii) Reporting limits exceeded or noncompliant transactions The procedure adopted for monitoring utilization of limits or non-compliant transactions comprises two steps: (i) reporting and (ii) return to compliance. Communication • Notification is through standard 'Utilization Alert' e-mails indicating predetermined trigger limits for

using or Exceeding Limits, advising that above-authorized risk-exposure has occurred. Return to compliance • Any limits being exceeded or non-compliance involves executing strategies for returning to

authorized limits and reducing amounts utilized. • These strategies are the responsibility of business managers, in light of market conditions,

subsequently monitored by the Risk and Control Committee.

(viii) Sensitivity analyses Conglomerate uses two methodologies for sensitivity analysis of its exposures: Sensitivity analysis 1 Initially, it uses the application of parallel shocks on most relevant risk factor curves. The purpose of this method is to simulate effects on Conglomerate income in view of possible scenarios, which consider possible fluctuations in market interest rates. Two possible scenarios are simulated in which analyzed risk would be increased or reduced by 100 base points. Trading portfolio

Risk Factor Concept Basic interest rate shock

12.31.2017 12.31.2016 + 100 bps - 100 bps + 100 bps - 100 bps

Prefixed rate Prefixed interest rate variation risk (1,177) 1,549 8,957 (8,743) Forex coupons Exchange rate risk of fx coupon (6,179) 6,847 (5,943) 5,916 Price indices Risk from variation in Price index coupon 237 (159) (1,723) 1,660 Trading and Banking Portfolio

Risk Factor Concept Basic interest rate shock

12.31.2017 12.31.2016 + 100 bps - 100 bps + 100 bps - 100 bps

Prefixed rate Prefixed interest rate variation risk (110,160) 111,131 (104,674) 103,729 Forex coupons Exchange rate risk of fx coupon 7,651 (6,066) 6,652 (4,518) Price indices Risk from variation in Price index coupon (12,628) 13,313 (84,731) 92,235

TR/TBF Risk of TR (reference rate) and TBF (basic financial rate) coupon variation 6,874 (7,248) 5,043 (5,186)



69

Sensitivity analysis 2 Simulations that measure the effect of changes in market and price curves on Conglomerate exposures for the purpose of simulating effects on income of three specific scenarios, as follows: • Scenario 1 - Probable market scenario for risk factors, as estimated by the institution. In

constructing this scenario, the currencies and the IBOVESPA index suffer shocks of 1.00% over the closing price on 31 December 2017 (R$ 3.3363 and 77,166 points, respectively). The curves of fixed-rate yields, price index coupons, foreign currency coupons and other interest rate coupons suffer parallel shocks of 10 base points, i.e. all the amounts, regardless of the maturity, increase by 0.10%.

• Scenario 2 - Scenario presenting a shock of 25% on probable market scenario (Scenario 1), according to internal standard for pricing assets and economic analysis consistent with best market practices.

• Scenario 3 - Scenario presenting a shock of 50% on probable market scenario (Scenario 1), according to internal standard for pricing assets and economic analysis consistent with best market practices.

In the analysis performed for transactions classified in the banking portfolio, valuation or devaluation resulting from changes in market interest rates and prices do not have a financial and accounting impact on Conglomerate income. This is because this portfolio is mainly comprised by loans and receivables and securities that are accounted for, mainly, by agreed-on rates. In addition, note that the main characteristic of these portfolios is that they are classified as available for sale and, therefore, effects of interest rate or price fluctuations are reflected in Shareholders’ equity and not in income (loss). There are also other transactions naturally linked to other instruments (natural hedge) that minimize impacts in stress scenario. The tables below summarize Trading Portfolio results - public and private securities, derivatives and borrowing through repurchase agreements, ebanking, showing amounts by base date: Trading portfolio Risk Factor Concept Exposure

Scenario 1 Scenario II Scenario III Variation of rates

Income (loss)

Variation of rates

Income (loss)

Variation of rates

Income (loss)

12.31.2017 Prefixed rate Prefixed interest rate variation risk (473,522) Increase (134) Decrease (1,818) Increase (2,737) Forex coupons Exchange rate risk of fx coupon 676,273 Increase (646) Increase (3,109) Increase (6,080) Foreign exchange Foreign exchange variation rate risk 198,722 Increase (2,695) Increase (49,270) Increase (80,388)

Price indices Risk from variation in Price index coupon (297,775) Increase 21 Decrease (118) Decrease (192)

Other Variation risk for other coupons 78,383 Increase 4 Decrease (439) Increase (1,078) 12.31.2016

Prefixed rate Prefixed interest rate variation risk 505,044 Increase 888 Decrease (24,518) Decrease (46,199) Forex coupons Exchange rate risk of fx coupon (163,995) Increase (591) Increase (3,387) Increase (6,790) Foreign exchange Foreign exchange variation rate risk 122,072 Increase (8,311) Increase (182,603) Increase (310,198)

Price indices Risk from variation in Price index coupon 370,385 Increase (170) Increase (2,525) Increase (5,141)

Other Variation risk for other coupons 57,537 Increase (85) Increase (54,988) Decrease (184,916)



70

Trading and Banking Portfolio

Risk Factor Concept Exposure Scenario 1 Scenario II Scenario

III Variation of rates

Income (loss)

Variation of rates

Income (loss)

Variation of rates

Income (loss)

12.31.2017 Prefixed rate Prefixed interest rate variation risk 5,967,541 Increase (11,093) Increase (189,284) Increase (377,420) Forex coupons Exchange rate risk of fx coupon (3,886,266) Increase 722 Decrease (8,775) Decrease (17,325) Foreign exchange Foreign exchange variation rate risk 198,722 Increase (2,021) Increase (35,646) Increase (57,682) TJLP Risk from variation in TJLP coupon (283,461) Increase 677 Increase (913) Increase (1,832)

TR/TBF Risk of TR (reference rate) and TBF (basic financial rate) coupon variation 25,807 Increase 251 Increase - Increase -

Price indices Risk from variation in Price index coupon 141,395 Increase (1,293) Increase (8,599) Increase (16,902)

Other Variation risk for other coupons 90,824 Increase 4 Decrease (439) Increase (1,078) 12.31.2016

Prefixed rate Prefixed interest rate variation risk 15,877,328 Increase (10,393) Increase (303,590) Increase (615,290) Forex coupons Exchange rate risk of fx coupon (3,595,664) Increase 579 Decrease (5,457) Increase (10,641) Foreign exchange Foreign exchange variation rate risk 122,072 Increase (618) Decrease (46,353) Decrease (197,321) TJLP Risk from variation in TJLP coupon (295,150) Increase 481 Increase (121,161) Increase (229,842)

TR/TBF Risk of TR (reference rate) and TBF (basic financial rate) coupon variation 7,874 Increase 30 Decrease (170) Decrease (336)

Price indices Risk from variation in Price index coupon 2,208,051 Increase (8,789) Decrease (3,654) Decrease (7,394)

Other Variation risk for other coupons 91,110 Increase (85) Increase (54,988) Decrease (316,730) (ix) Stress testing The Conglomerate uses stress measures resulting from simulations of their exposures subject to market risks under extreme conditions, such as financial crises and economic shocks. These tests aim at measuring impacts of events that are plausible but not likely to occur. The Conglomerate test program on market risk stress uses evaluation methods based on retrospective tests.

Retrospective tests The retrospective test on stress estimates Bank’s consolidated portfolio exposure variation by applying shocks to risk factors that are equivalent to those recorded in historic market stress periods, considering the following parameters: • Extension of historic series to determine the scenarios: from 2005 to reference base date; • Maintenance period: 10-business-day accumulated returns; • Test frequency: daily.

Retrospective stress tests intend to evaluate the capacity of absorbing great losses and identify measures to reduce the institution’s exposure to risks. For estimates of profits and losses of the retrospective stress test in the Consolidated Portfolio on December 31, 2017 and based on the perception of Top Management about the behavior of stocks, commodities, foreign exchange and interest rates, two scenarios were used: Scenario I - In this scenario, the yield curves suffer parallel positive shocks; the exchange rate (BRL/USD) considered is R$ 3.78; commodities suffer positive shocks of 10% over the closing price on December 31, 2017; and a negative variation of -16.20% in the BOVESPA Index is applied. Scenario II - In this scenario, the yield curves suffer parallel negative shocks; the exchange rate (BRL/USD) considered is R$ 2.95; commodities suffer positive shocks of 10% over the closing price on December 31, 2017; and a negative variation of 24.49% in the BOVESPA Index is applied. Chart amounts represent greatest losses and gains of the Consolidated Portfolio considering scenarios of the historic series used for the simulation.



71

Results of the retrospective stress test on consolidated portfolio, in accordance with the Conglomerate’s market risk stress test program, are as follows: Estimates of retrospective stress test greatest losses - Consolidated portfolio Risk Factor 12.31.2017 12.31.2016

Exposure Stress Exposure Stress Shares 35,742 (381) 91,110 (52,383) Foreign currencies 198,722 (273,613) 122,072 (125,164) Interest rate 1,965,016 (136,211) 14,202,439 (397,273) Total 2,199,480 (410,205) 14,415,621 (574,820)

Estimates of retrospective stress test greatest gains - Consolidated portfolio Risk Factor 12.31.2017 12.31.2016

Exposure Stress Exposure Stress Shares 35,742 - 91,110 1,387 Foreign currencies 198,722 374,526 122,072 11,470 Interest rate 1,965,016 167,721 14,202,439 278,886 Total 2,199,480 542,247 14,415,621 291,743

c) Operating risk

Operational risk management supports management of business through risk assessment and control, capture and management of the operating losses base and risk of capital allocated to operational risk, enabling prioritization and implementation of plans for improving processes, in accordance with risk appetite levels determined by Senior Management. (i) Definitions Operational risk is defined as the possibility of the occurrence of losses resulting from external events or from failure, deficiency or inadequacy of internal processes, people or systems. This definition includes the Legal Risk associated with the inadequacies or deficiencies in contracts signed by the Conglomerate, the sanctions due to non-compliance with legal provisions and indemnities for damages to third parties arising from the activities developed by the Conglomerate. Operational risk events include: • Internal and external fraud; • Labor claims and poor workplace safety; • Inadequate practices regarding customers, products and services; • Damage to physical assets owned or in use by the Conglomerate; • Situations that lead to the disruption of the activities of the Conglomerate; • Failures in Information Technology (IT) systems, processes or infrastructure; • Failure to execute, comply with deadlines or manage the activities of the Conglomerate.

(ii) Basicle principles The Bank has an institutional structure and policies for operational risk management approved by the Board of Directors and the basic principles observed in the management and control were established in compliance with the current regulations and best market practices, as follows: • Involvement by Senior Management in global supervision and risk assumption by means of

established committees and commissions; • Creating a culture on Conglomerate of operational risks in management concepts through

corporate training, promoted with discussions on specific forms governance;



72

• Capturing operational losses and maintaining a structured database with information relating to events;

• Preparation and evaluation of indicators of operational losses; • Calculation of capital allocated to operational risk based on structured methodologies and adequate

to regulatory requirements; • Mapping of operational and system processes, mapping of existing controls and analysis of

inherent and residual risks; • Analysis, communication, and deployment of action plans to improve processes and controls for

mitigation of the risks incurred; and

(iii) Areas involved Operational risk management is carried out by formally constituted functionally segregated units staffed by qualified teams with clearly defined attributions, as shown below: Internal controls Person in charge: • Providing support in the identification and assessment of the operational risks and controls existing

in the areas and processes of the Institution, including relevant outsourced services; • Evaluate the design and test the effectiveness of the controls of business, support and Information

Technology IT processes; • Evaluate the adequacy of the technological architecture, made available by the Information

Technology (IT) area, as well as the integrity of the systemic interfaces that affect the internal risk models;

• Monitoring the progress and implementation of action plans developed to mitigate operational risks and promote improvements in the control environment;

• Providing methodologies, models and tools to assure the identification and monitoring of relevant risks;

• Training and fostering a culture of internal controls to the Institution’s employees; and • Informing the Risk and Controls Committee as to the findings of the mapping, assessment and

testing of control, as well as risks and relevant potential weaknesses found. Operational Risk Responsible for managing the operational risk, through the following attributions:

• Maintain operational risk management in accordance with legal requirements, institutional guidelines and business management needs;

• Review and update policies, procedures and communication plans related to operational risk management and measurement activities;

• Disseminate the culture of operational risk management throughout the institution; • Monitor indicators and corrective and preventive actions defined for relevant losses; • Define the information necessary to structure the operational risk event database; • Capture, validate and store information regarding the operational losses of the institution; • Capture and store the information related to the operational risk indicators of the institution; • Perform the Management of the Operational Loss Reporting System.

Regulatory Capital • Calculation and analysis of the risk-weighted assets (RWA) portion, related to the calculation of

required capital for operational risk using a standardized approach (RWAOPAD), according to BACEN Circular No. 3,640 / 2013 and subsequent amendments.

Managers & staff • Responsible for managing and reviewing operational risks pertaining to their activities and

processes, implementing controls and definition of indicators for monitoring the risks and action plans for their mitigation; and

• Responsible for timely reporting of incidents related to operational risk.



73

(iv) Measurement System and Communication Process The assessment of operational risks existing in the organization’s processes considers the “impact” and “vulnerability” factors defined in the corporate Risk Ruler, which categorizes them in Low, Medium, High or Extreme. The mapped and classified risks are submitted for validation of the process managers, to define the appropriate treatment: accept or reduce the risk. If treatment is to reduce the risk, the process managers are responsible for proposing mitigation actions. The Operational Risk unit prepares and publishes the Operational Risk Annual Report to the Senior Management describing the structure of operational risk management as well as actions in the current year and planned for the next year in order to improve the management of the operational risk in the Bank. (v) Business Continuity Management The Conglomerate has a high-availability and highly-resilient technology environment, composed of the following elements: • Two hot site datacenters, built according to the safe room concept, where the infrastructures to

support critical systems are replicated – one of them in the Rochaverá no Morumbi building and the other in the BFC building on Avenida Paulista;

• Data storage system at both data centers where the production databases are mirrored in a synchronous manner;

• Application server pool and file-server cluster for critical processes and systems; • Tape units at both datacenters and external backup storage; • Remote access to critical applications; and • Tool for Internet access to contingency plans;

The corporate guidelines for Business Continuity Management includes policies, standards, procedures, roles and responsibilities aimed at implementing and effective Business Continuity and Crisis Management in the Entity, ensuring greater resilience to adverse situations. Based on the established principles and guidelines, Consolidated strengthens its risk management structure and its corporate governance, offers greater security to its clients and shareholders in the event of unforeseen events and during recovery until the return to normality. The Information Security and Business Continuity area is the structure responsible for coordinating these activities at the Consolidated with the Business and Support areas and is, in principle, independent in the performance of its duties. d) Credit risk

The aim of credit risk management is to provide support for Top Management in the decision-making process by defining strategies and policies and establishing operational limits, risk mitigation tools and procedures to maintain credit risk exposure within levels deemed acceptable by the Institution’s management. (i) Definitions Credit Risk is defined as a possibility of losses associated with the failure of a borrower, issuer or counterparty to honor their respective financial obligations as agreed. • Non-compliance by the counterparty (the borrower, the guarantor or the issuer of securities or

securities acquired), from its obligations under the terms agreed upon;



74

• Devaluation, reduction of remuneration and expected gains in financial instruments arising from the deterioration of the credit quality of the counterparty, the intervening party or the mitigating instrument;

• Restructuring of financial instruments; or • Costs of recovery of exposures of problematic assets.

(ii) Basic principles The Bank has an institutional structure and policies for credit risk management approved by the Board of Directors and the basic principles observed in management and control were established in compliance with current regulations and market practices, as follows: • Manuals and procedures containing the organizational structure, significant products, corporate

policies, standards and procedures including flowcharts and rules related to the governance, business and credit support processes;

• Technological environment encompassing the credit cycle ranging from risk admission, tracking and monitoring, to restructuring when applicable;

• Validation process covering risks involved in systems, accuracy of models used for calculations and quality of processed data, as well as the coverage of the documentation;

• Committee structure and powers for approving credit; • Criteria and procedures for selecting clients and preventing money laundering; • Credit analysis, lending and management standards; • Procedures for review, approval and release of new products involving credit risk; • Documented procedures for policy exceptions. • Classification of portfolio risk levels, considering ratings of clients, collateral involved and arrears; • Tracking sector and conglomerate concentration, and monitoring internal and regulatory limits

defined by policies and rules; • Managing counterparty credit risk and limits for derivatives; • Evaluating risk in transactions for sales or transfer of assets; • Formalized procedures covering credit recovery flows; • Setting limits for carrying out transactions subject to credit risk, both at the level of credit, at both

the individually and at the aggregate level - a group of companies with common economic interest - and for borrowers or counterparties with similar characteristics;

• Control of guarantees and instruments for mitigating credit risk; • Monitoring of the loan asset portfolio using indicators with the objective of minimizing the risk of

losses; • Performance of stress tests, measuring the combined effect of adverse movements in

macroeconomic indicators, estimating financial impacts affecting delinquency, provisions and consequently, available required capital;

• Periodic reporting to Senior Management showing the performance of risk management indicators arising from policies and strategies adopted; and

In addition, credit risk management activities are carried out by specific control units, strengthening their performance with independence in relation to their trading units, providing a global view of risk exposure of Banco Votorantim to Top Management. (iii) Risk management structure and areas involved Executive Board of Risks Risk management functions are performed by formally constituted credit units with technically qualified staff under separate management, with clearly defined responsibilities, as shown below:



75

Retail Credit Risk and Fraud Prevention Retail Credit Risk Management • GRC Vehicles: responsible for the management of credit risk of vehicles, building risk contouring

strategies and prioritizing the detailed loss control, acting in a timely manner to control the risk appetite, always keeping current policies documented and updated;

• GRC Cards, Consigned and New Businesses: responsible for the management of credit risk of Cards, Consigned and new businesses, taking care of the detailed control and acting in a timely manner in the control of the risk appetite, always keeping the current policies documented and updated;

• GRC Personal Credit and CIG: responsible for credit risk management Personal Credit and CIG (Credit with property in guarantee), taking care of the detailed control and acting in a timely manner in controlling the risk appetite, always keeping the current policies documented and updated;

• Credit Solutions: responsible for the elaboration of demands directed to IT in the development of technological solutions, ensuring that the needs of users are adequately reflected in the systems, as well as their management and maintenance; and responsible for the management of bureaux, seeking new information that aggregates in the credit decision;

• MIS (Management Information System) and PDD Retail: responsible for the measurement and control reports of the exposures and the main indicators of the retail portfolio at the aggregate level (portfolio view) and calculation of the Allowance for Doubtful Accounts (PDD).

Fraud Risk Management

• Responsible for the fraud budget and analysis of fraud trends in order to identify risks and deficiencies in the processes;

• Elaboration and maintenance of preventive strategies / rules to mitigate fraud in Retail products; • Preparation and maintenance of procedures and scripts with the operational teams (Service,

Collection, Operations and Commercial); • Management of outsourced fraud prevention operations; • Evaluation of new solutions to combat fraud and action in projects involving the fraud prevention

process. Management and Data Science • Data Science for Service and Collection: Responsible for extracting values through analysis of

unstructured data and deployment of disruptive models in the various segments of the bank. • Data Science and Retail Credit Modeling: Responsible for the exploitation of the value of available

data as well as development and risk management of models in retail credit, such as Credit Score, Behavior Score and Expected Loss and its adequacy to the current regulation.

• Data Management and BI Tools: Responsible for implementing the data-driven culture in the institution through the execution of Self-Service Analytics projects, corporate data structuring and BI Governance (Business Intelligence).

• CRM and Fraud: Responsible for extracting values through the use of statistical and / or computational techniques that allow, from the data analysis, to detect opportunities to generate revenue or reduce costs, with a focus on CRM (Customer Relationship Management) and Operational Risks.

Credit Risk Wholesale and Capital Credit Policies • Elaboration of analyzes and technical studies that may result in policies identifying, measuring and

mitigating the credit risk of the Wholesale segment. Management also aims to ensure the adherence of Wholesale credit risk policies to regulatory provisions, as well as to meet internal and external regulatory demands regarding the credit risk of the Wholesale.



76

• Development, management and monitoring of the effectiveness of the statistical models used in credit risk management, such as: Credit Rating and PD (Probability of default) / LGD (Loss Given Default) parameters.

• Development and application of credit risk model (default and provision for doubtful debtors) for integrated capital stress test;

• Consolidation and evaluation of the capital impacts of the extreme market conditions simulations (integrated stress test) for each risk, carried out by the risk areas involved; and Determination and analysis of economic capital (according to BACEN Circular Letter 3,547 / 2011) for credit risk;

MIS and PDD Wholesale • Responsible for the measurement and control of exposures and key aggregate portfolio indicators

(portfolio view), and calculation of Allowance for Doubtful Accounts (PDD). Infrastructure Wholesale • Responsible for the elaboration of demands directed to IT regarding the development of technological

solutions, ensuring that the needs of users are adequately reflected in the systems, as well as their management and maintenance.

Regulatory Capital and Social and Environmental Risk • Calculation and analysis of the risk-weighted assets (RWA) portion, referring to exposures to credit

risk subject to the calculation of the capital requirement using a standardized approach (RWACPAD), in accordance with BACEN Circular No. 3,644 / 2013 and subsequent amendments;

• Calculation and analysis of the risk-weighted assets (RWA) portion, related to the calculation of required capital for operational risk using a standardized approach (RWAOPAD), according to BACEN Circular No. 3,640 / 2013 and subsequent amendments.

• Calculation and analysis of the capital ratios (Basel, Level I and Principal); • Elaboration, consolidation and submission to the BACEN of the Operational Limits Demonstration

(DLO), according to regulatory rules and periodicities; • Consolidated capital adequacy assessment to cover all material risks treated from the standpoint of

capitalization, both in the regulatory view and in the economic / managerial view; and • Evaluate the socio-environmental aspects with which the client is involved, establishing their level of

socio-environmental risk and issue socio-environmental advice to subsidize the area of Credit Concession in the credit decision process;

Social and Environmental Risk • Responsible for assessing the social and environmental aspects with which the client is involved,

such as: Waste Management, Compliance with Legislation, Working Conditions and Use of Natural Resources, establishing their level of environmental and social risk and issuing a social and environmental opinion to subsidize the Lending area in the credit decision process.

Credit Granting Board CIB Credit - Corporate & Investment Banking • Responsible for the credit analysis and approval process of the CIB, is a member of decision-making

committees of the area, keeps track of business strategy based on market scenarios and internal credit policies and instructs the commercial managers in relation to best credit practices, aiming at sustainable growth and alignment with the organization's strategic objectives.

Retail Credit Concession • Responsible for the individual analysis, when necessary by policy, of credit requests produced

through the corporate structures of the Retail segment, ensuring that they are treated with adherence to the rules and procedures and respective levels of responsibility of each operation, as well as by controlling the risk exposure of the portfolio.



77

Credit Monitoring • Responsible for the recurrent monitoring of wholesale portfolios, detecting warning signs that identify,

with property, in advance and in a timely manner, the deterioration of credit at individual and aggregate levels.

Planning and control • Responsible for carrying out analyzes, proposing actions, planning and monitoring the performance

of the Credit Concession in order to guarantee greater efficiency in each process, in order to mitigate the associated risks.

Executive Board of Corporate & Investment Banking Credit Restructuring & Special Assets / Risk Portfolio Management (GPR) • Responsible for defining the strategy, management and negotiation of the problem cases of the

Conglomerate, aiming to maximize the NPV (Net Present Value) of the distressed loan portfolio through debt restructuring, sale of assets, execution of guarantees, equity, either alone or in conjunction with other creditors. The deliberations of the renegotiation proposals are made in the respective Credit Committees.

Executive Board of Retail Retail Credit Recovery • Responsible for the management of delinquent claims, in the administrative and litigation areas, for

all retail products (Vehicles, Consigned, Cards, Personal Credit and CDC); generation of area management information (MIS) and budgeting of DRE lines related to credit recovery.

Retail Billing Planning • Responsible for the definition, implementation and monitoring of collection policies and strategies;

parameterization and maintenance of management systems of the collection portfolio; conceptualization, specification and implementation of projects and collection processes; quality management and collection back office processes.

BNDU Management - Non-Assets • Responsible for the management of the BNDU, contemplating the processes of removal, custody,

regularization of documentation and sale of the reinstated guarantees. (iv) Credit Risk Management The Institution performs credit risk management through the adoption of instruments and tools that allow the identification, assessment and measurement, tracking and reporting of the risk incurred in its activities in the main stages of credit risk, which are lending, credit monitoring and credit recovery. These aspects are detailed below, depending on your segmentation (Wholesale or Retail). Credit granting The process of granting credit in the Wholesale segment is based on detailed assessments of customers who wish to renew or request credits or limits for their business. In the admission process, the Institution has systems to register clients (know your client - Know Your Client "KYC"), grant and approval of proposals of credit limits. After the evaluation of a certain credit granting opportunity performed by the bankers, the proposal is inserted in a specific system of the credit area (Limit Concession System - CL). This system has a workflow characteristic, that is, the entire process by which a credit proposal is processed and can be tracked by those involved, according to the specific level of authority. The required documentation that supports the credit analysis process is also included in the CL system, being available to analysts for evaluation, including, for example, updated balance sheets and bank indebtedness, among others.



78

With all the documents available to the Credit Grant area, analysts begin to evaluate the proposed limit and / or credit operations. In the evaluation are considered aspects related to stock control and management of the company, economic-financial information, competitive environment, market aspects and economic sector, among others. In the Retail segment, credit proposals are processed by an automated and parameterized system, supported by a score model, which provide greater agility and reliability in decision-making on the granting of credit, which are intended for individuals who demonstrate ability to pay and suitability. For cases where the score model does not automatically decide, the credit bureau performs a more detailed check of all aspects that involve the contract, in order to approve or deny the credit proposal. Credit monitoring The objective is to carry out the recurrent monitoring of the portfolio, identifying warning signs that demonstrate, with propriety, in advance and in a timely manner, the deterioration of credit at individual and aggregate level in order to ensure the good quality of the portfolio . In Consumer Finance, the institution performs the monitoring of the credit risk through performance indicators and management reports of the credit portfolio. Credit Recovery The Credit Recovery area works in conjunction with the Monitoring area as of the first day of delinquency observed in loans and receivables and other financial assets. Several strategies are used to maximize collection opportunities. (v) Counterpart's Credit Risk Management

The credit risk of the counterparty is defined as the possibility of losses resulting from the bilateral risk relating to the uncertainty of the fair value of the operation and its fluctuations associated with the movement of the risk factors or with the deterioration of the counterparty’s credit rating. Counterparty credit risk is defined as the possibility of losses arising from non-compliance with obligations relating to the settlement of transactions involving bilateral flows, including the trading of financial or derivative assets. The Conglomerate considers that the credit risk of the counterparty is present mainly in operations with derivative financial instruments, unsettled operations, purchase and sale commitments and loans of assets. Specific classifications and treatments are performed for derivative operations with regards the existence of a central counterparty. • Operations without a central counterparty: the management and control process for derivative

operations without a central counterparty is carried out in such a way that specific credit limits of derivatives are defined for each client. The credit policies and standards adopted by the Institution are employed both in the definition and in the periodic tracking of these limits.

• Operations with a central counterparty: Operations with a central counterparty have contract clauses (margin calls, etc.) that mitigate the counterparty credit risk.

The Conglomerate has a dedicated structure for managing limits, which monitors portfolio behavior and issues periodic reports informing Senior Management of business opportunities and any risks of exceeding limits. (vi) Exposure to credit risk

The book values of financial assets, balances and off balance represents the maximum credit exposure. The maximum credit risk exposure on balance sheet date is:



79

12.31.2017 12.31.2016 Financial assets 84,764,460 93,601,110

Cash and cash equivalents 2,654,752 2,095,767 Financial assets with repurchase agreements 11,338,894 13,991,463 Financial assets at fair value through profit or loss 2,527,258 5,812,824 Financial assets available for sale 11,475,501 14,708,788 Financial assets held to maturity 6,513,061 6,928,846 Derivative financial instruments 2,026,790 2,785,583 Loans and receivables (1) 48,228,204 47,277,839

Off Balance 4,861,733 7,823,978 Sureties and guarantees 4,861,733 7,823,978

Total 89,626,193 101,425,088 (1) The Conglomerate uses transactions of credit granting nature for credit risk exposure purposes in loans and receivables

see Note 10a. Financial assets without credit granting

The maximum exposure to credit risk for financial assets other than loans and receivables on the reporting date, by type of counterparty market was: 12.31.2017 12.31.2016 Domestic 34,758,610 44,185,633 Abroad 1,777,646 2,137,638 Total 36,536,256 46,323,271

The Company's maximum exposure to receivables on the date of financial statements, segregated by the counterparty was as follows: 12.31.2017 12.31.2016 Public 16,037,595 20,774,139 Private 20,498,661 25,549,132 Total 36,536,256 46,323,271

Financial assets from credit granting The Company's maximum credit exposure to loans and receivables on the date of Financial statements by type of counterparty’s market is as follows:

12.31.2017 12.31.2016 Domestic 46,540,262 45,722,721 Abroad 1,687,942 1,555,118 Total 48,228,204 47,277,839

The Company's maximum credit exposure to loans and receivables on the date of Financial statements by business segment is as follows:

12.31.2017 12.31.2016 Retail clients 35,839,068 33,353,089 Wholesale clients 12,389,136 13,924,750 Total 48,228,204 47,277,839

The Company's maximum credit exposure to loans and receivables on the date of Financial statements by concentration of risks is as follows:

12.31.2017 % of portfolio 12.31.2016 % of portfolio Major debtor 674,314 1.40% 1,011,003 2.14% 10 greatest debtors 3,619,824 7.51% 3,954,235 8.36% 20 greatest debtors 5,011,363 10.39% 5,569,892 11.78% 50 greatest debtors 7,617,591 15.80% 8,550,298 18.09% 100 greatest debtors 9,984,079 20.70% 10,953,214 23.17%



80

The Company's maximum credit exposure to loans and receivables on the date of Financial statements by economic activity is as follows:

12.31.2017 % 12.31.2016 % Public sector 466,398 0.97% 527,358 1.12%

Government 466,398 0.97% 527,358 1.12% Public administration 466,398 0.97% 527,358 1.12%

Private sector 47,761,806 99.03% 46,750,481 98.88% Individuals 35,081,687 72.74% 32,905,505 69.60% Legal entity 12,680,119 26.29% 13,844,976 29.28% Agribusiness of animal origin 321,244 0.67% 378,178 0.80% Agribusiness of plant origin 207,490 0.43% 262,484 0.56% Specific construction activities 49,591 0.10% 382,521 0.81% Automotive 6,372 0.01% 38,362 0.08% Wholesale trade and various industries 4,028,965 8.35% 4,340,008 9.17% Retail business 995,858 2.06% 1,073,845 2.27% Heavy Construction 25,300 0.05% 43,974 0.09% Electronics 31 0.00% 1,715 0.00% Electric power 379,244 0.79% 570,347 1.21% Real estate 166,320 0.34% 249,927 0.53% Institutions and financial services 742,929 1.54% 720,698 1.52% Wood and furniture 7,270 0.02% 17,349 0.04% Mining and Metallurgy 191,533 0.40% 306,679 0.65% Paper and pulp 317,751 0.66% 309,587 0.65% Chemical 511,841 1.06% 1,076,464 2.28% Services 2,101,673 4.36% 1,766,451 3.74% Telecommunications 35,420 0.07% 81,112 0.17% Textile and clothing 70,488 0.15% 71,646 0.15% Transportation 935,482 1.94% 1,198,664 2.54% Other activities 1,585,317 3.29% 954,965 2.02%

Total 48,228,204 100.00% 47,277,839 100.00% The flow of maturity of the installments of the loan and receivables’ portfolio with characteristics of credit granted on the date of the financial statements is: 12.31.2017 12.31.2016

Operations in normal progress Payment installments 42,280,811 40,805,945

From 01 to 30 3,146,270 2,788,953 From 31 to 60 2,037,601 2,349,789 From 61 to 90 1,891,290 1,778,467 From 91 to 180 4,876,615 4,705,679 From 181 to 360 8,387,776 7,849,859 Above 360 21,941,259 21,333,198

Installments overdue 1,370,469 1,135,012 Up to 14 1,370,469 1,135,012

Subtotal 43,651,280 41,940,957 Operations in unusual progress

Payment installments 3,231,438 3,258,943 From 01 to 30 178,538 200,892 From 31 to 60 177,830 195,689 From 61 to 90 174,609 180,692 From 91 to 180 445,571 491,040 From 181 to 360 723,446 795,007 Above 360 1,531,444 1,395,623

Installments overdue 1,345,486 2,077,939 From 01 to 14 64,567 76,051 From 15 to 30 311,974 392,896 From 31 to 60 184,967 209,304 From 61 to 90 139,326 149,582 From 91 to 180 268,740 342,041 From 181 to 360 373,888 866,878 Above 360 2,024 41,187

Subtotal 4,576,924 5,336,882 Total 48,228,204 47,277,839



81

Credit quality of financial assets for credit concession financing Below we present the breakdown of operations with credit granting characteristics, considering the book value of the maximum exposure to credit risk on the date of financial statements: 12.31.2017 12.31.2016 Portfolio falling due and not subject to impairment 34,535,893 32,838,392

Low (AA to C) 33,500,162 31,891,860 Medium (D to E) 833,289 769,692 High (F to H) 202,442 176,840

Portfolio past due and not subject to impairment 4,248,031 3,693,283 From 1 to 30 days past due 4,241,194 3,654,798 From 31 to 90 days past due 6,837 38,485

Portfolio subject to impairment 9,444,280 10,746,164 Collective evaluation 3,343,288 3,733,127 Individual assessment 6,100,992 7,013,037

Total 48,228,204 47,277,839 This category includes transactions with significant amounts, in which the Conglomerate performs individualized analysis to measure losses incurred. Also considered are the other loans with recoverability problems, in which the Conglomerate performs mass analysis. In the individual evaluation, quantitative and qualitative aspects inherent to the client and specific to the operations, such as the operations situation and the economic and financial situation of the client are weighted. Loans with impairment are the operations of clients with financial difficulties, which are subject to breach of contract, such as default or late payment of interest or principal, as well as loans in which the borrower is likely to enter into Judicial reorganization or bankruptcy. The recoverability of credit is treated as inherent to the client and not exclusively in relation to the operations. Thus, if an operation is identified in such a situation, all other customer operations are classified in the same way. Below we present the individually significant lending operations with incidence of impairment:

Qualification of exposure 12.31.2017 12.31.2016 Present value Impairment Net value Present value Impairment Net value

Low (AA to C) 4,638,145 43,242 4,594,903 5,728,651 57,428 5,671,223 Medium (D to E) 353,781 48,420 305,361 404,675 40,468 364,207 High (F to H) 1,109,066 997,774 111,292 879,711 879,711 - Total 6,100,992 1,089,436 5,011,556 7,013,037 977,607 6,035,430

(vii) Impairment losses Provision for impairment losses in loans and receivables segregated by individually significant transactions and massified portfolio are as follows:

12.31.2017 12.31.2016 Individually significant transactions (1) 1,399,143 1,004,215 Massified transactions (2) 2,350,248 2,563,625 Total 3,749,391 3,567,840

(1) Contains impairment losses for Off-Balance operations in the amount of R$ 309,707 (R$ 26,608 in 2016). (2) Contains impairment losses for Off-Balance operations in the amount of R$ 82,088 (R$ 3,001 in 2016).

Changes in impairment losses in relation to loans and receivables with credit characteristics are as follows:



82

2017 2016 Opening balance 3,567,840 4,057,285

Constitutions / (reversals) 2,295,223 3,161,169 Write-offs to loss (2,113,672) (3,650,614)

Closing balance 3,749,391 3,567,840 On balance sheet date, Management evaluates risk behavior of financial assets and groups of financial assets in order to identify the need to recognize a provision for incurred and not identified losses, in accordance with IAS 39.58. If there is evidence that a financial asset or group of financial assets presents recovery problems, a impairment should be recognized. (viii) Changes in renegoatied loans 2017 2016 Opening balance 6,765,372 7,961,559

Signings 4,547,480 4,353,894 (Receiving) and accrual of interest (4,972,006) (4,848,717) Written off as losses (669,714) (701,364)

Closing balance 5,671,132 6,765,372 (ix) Guarantees provided (Off Balance) The Company's maximum credit exposure to portfolio of credit commitments through sureties and guarantees, recorded in memorandum accounts on the date of financial statements by lines of activityis as follows:

12.31.2017 12.31.2016

Commerce Industry Financial institutions Individuals Services Other Total Total

Sureties and guarantees 429,033 1,124,977 833,243 13,035 2,115,292 346,153 4,861,733 7,823,978 Total 429,033 1,124,977 833,243 13,035 2,115,292 346,153 4,861,733 7,823,978

The Company's maximum credit exposure to portfolio of credit commitments through sureties and guarantees, recorded in memorandum accounts on the date of financial statements by geographic region is as follows:

12.31.2017 12.31.2016

Mid-West Northeast South Southeast Total Total Sureties and guarantees - 148,900 58,318 4,654,515 4,861,733 7,823,978 Total - 148,900 58,318 4,654,515 4,861,733 7,823,978 (x) Guarantees received Guarantees received in loans and receivables, sureties and surety bonds, and transactions in securities of the wholesale segment, on the date of the Financial Statements, by branch of activity of the counterparty, are as follows:

12.31.2017 12.31.2016

Commerce Industry Financial institutions Individuals Services Total Total

Sureties and guarantees 2,316,707 4,961,762 - 199,082 1,515,449 8,993,000 9,920,581 Securities 879,473 1,842,723 608,123 295,552 1,383,517 5,009,388 4,412,597 Machinery and equipment 92,182 617,328 - - 156,597 866,107 1,057,996 Mortgages 1,071,538 2,453,971 - 359,681 1,353,918 5,239,108 5,620,266 Other 395,402 630,791 - - 273,472 1,299,665 1,917,182 Total 4,755,302 10,506,575 608,123 854,315 4,682,953 21,407,268 22,928,622



83

Guarantees received by geographic region of the counterparty, are as follows:

12.31.2017 12.31.2016 Mid-West Northeast South Southeast Mid-West Total

Sureties and guarantees 539,314 24,745 229,796 8,199,145 8,993,000 9,920,581 Securities - 149.128 5.920 4.854.340 5.009.388 4.412.597 Machinery and equipment 3.725 13.169 4.052 845.161 866.107 1.057.996 Mortgages 30.724 7.134 117.739 5.083.511 5.239.108 5.620.266 Other 11.926 15.844 14.006 1.257.889 1.299.665 1.917.182 Total 585.689 210.020 371.513 20.240.046 21.407.268 22.928.622

The maximum exposure to credit risk and their guarantees are shown below:

Assets with excess guarantees

Assets with insufficient guarantees

Assets with no

guarantees Total

Asset value

Value of the guarantee

Asset value

Value of the guarantee Asset value Assets Guarantees

12.31.2017 Financial assets 11,558,149 12,833,945 704,726 665,913 24,273,381 36,536,256 13,499,858

Cash and cash equivalents - - - - 2,654,752 2,654,752 - Financial assets with repurchase

agreements 11,338,894 12,562,934 - - - 11,338,894 12,562,934

Financial assets at fair value through profit or loss - - - - 2,527,258 2,527,258 -

Financial assets available for sale 110,248 151,053 280,572 258,290 11,084,682 11,475,501 409,343 Financial assets held to maturity - - - - 6,513,061 6,513,061 - Derivative financial instruments 109,007 119,958 424,154 407,623 1,493,628 2,026,790 527,581

Attn: Credit concession financing 8,975,820 16,535,526 39,252,384 26,038,672 - 48,228,204 42,574,198 Loans and receivables - Wholesale 8,975,820 16,535,526 3,260,236 1,418,681 - 12,236,056 17,954,207 Loans and receivables - Retail (1) - - 35,992,148 24,619,991 - 35,992,148 24,619,991

Off Balance 775,046 1,987,105 72,650 17,969 4,014,037 4,861,733 2,005,074 Total 21,309,015 31,356,576 40,029,760 26,722,554 28,287,418 89,626,193 58,079,130

12.31.2016 Financial assets 14,297,061 14,953,139 430,852 22,390 31,661,477 46,323,271 14,975,529

Cash and cash equivalents - - - - 2,095,767 2,095,767 - Financial assets with repurchase

agreements 13,991,463 14,068,559 - - - 13,991,463 14,068,559

Financial assets at fair value through profit or loss 22,469 80,773 - - 5,790,355 5,812,824 80,773

Financial assets available for sale 217,010 340,452 - - 14,491,778 14,708,788 340,452 Financial assets held to maturity - - - - 6,928,846 6,928,846 - Derivative financial instruments 66,119 463,355 430,852 22,390 2,354,731 2,785,583 485,745

Attn: Credit concession financing 10,731,040 17,602,383 36,526,156 27,412,236 20,643 47,277,839 45,014,619 Loans and receivables - Wholesale 10,731,040 17,602,383 3,173,067 2,612,186 20,643 13,924,750 20,214,569 Loans and receivables - Retail (1) - - 33,353,089 24,800,050 - 33,353,089 24,800,050

Off Balance 983,651 1,796,666 13,478 10,417 6,826,849 7,823,978 1,807,083 Total 26,011,752 34,352,188 36,970,486 27,445,043 38,508,969 101,425,088 61,797,231 (1) In the Retail segment, financing contracts have financed assets as real guarantee, which are regulated by the contract

entered into by the parties; guarantee amounts are monthly measured upon the quotation of the fair value disclosed in websites of specialized companies and usually used by the financial market.

The estimated sale value was determined through a comparative study between the fair value of the assets disclosed on websites of specialized companies and usually used by the financial market, and the actual sale value of the asset. Factors that influence the price such as brand, model and age of the guarantee were considered in the calculation. Regarding the costs, average values of costs of the entire process of recovery are used, including: filing, location of guarantee, tow service, cost of stay in the impoundment yard, DETRAN fees and sales fees. (xi) Transfer of financial assets whose recognition was not canceled In the years ended December 31, 2017 and 2016, in the course of its business, the Conglomerate carried out transactions resulting in the transfer of financial assets represented by publicly-issued bonds and loans and receivables to clients. In accordance with transaction conditions, transferred financial assets continue to be recognized in the institution’s accounting books.



84

The Conglomerate transfers financial assets through the following transactions: Sale with a repurchase clause Sale under repurchase agreement is a transaction in which the Conglomerate sells bonds, mostly publicly issued and, at the same time, it agrees to buy the same bond at a fixed price, on a future date. The Conglomerate continues to recognize the bond in its entirety in the balance sheet because bonds risks and benefits were substantially retained, that is, the Conglomerate is fully responsible for any change in fair value and income offered by the bond is recognized by the Conglomerate. Transaction balances are stated in the following captions: Sale with a repurchase clause - own 12.31.2017 12.31.2016 Assets

Financial assets at fair value though profit and loss 1,433,347 1,050,493 Financial Treasury Bills - 89,337 National Treasury Bills 517,642 874,169 National Treasury notes 915,705 66,039 Other - 20,948

Financial assets available for sale 4,763,037 2,846,974 Financial Treasury Bills 1,898,662 - National Treasury notes 32,180 769,113 Debentures 1,452,231 575,849 Securities of the Brazilian Foreign Debt 1,281,634 - Other 98,330 1,502,012

Financial assets held to maturity 1,986,735 4,634,688 Financial Treasury Bills - 1,481,355 National Treasury Bills 1,066,189 2,524,998 National Treasury notes 920,546 628,335

Liabilities associated Financial liabilities at amortized cost (7,509,722) (8,311,820)

Private securities - Debentures (1,587,941) (578,467) Financial Treasury Bills (1,892,958) (1,569,132) National Treasury Bills (1,665,685) (3,439,828) National Treasury notes (1,216,239) (1,444,200) Others (1,146,899) (1,280,193)

Total 673,397 220,335 Sale with a repurchase clause - third-parties 12.31.2017 12.31.2016 Assets

Financial assets with repurchase agreements 5,908,507 9,796,964 Financial Treasury Bills 1,506,540 6,497,077 National Treasury Bills 2,053,779 2,485,704 National Treasury notes 2,348,188 814,183

Liabilities associated Financial liabilities at amortized cost (5,912,225) (9,774,594)

Financial Treasury Bills (1,506,221) (6,496,484) National Treasury Bills (2,051,912) (2,485,111) National Treasury notes (2,354,092) (792,999)

Total (3,718) 22,370 Sale with repurchase agreement - free movement 12.31.2017 12.31.2016 Assets

Financial assets with repurchase commitments - sold 4,601,065 2,189,209 Liabilities associated

Financial liabilities at fair value in profit or loss (4,612,888) (2,206,483) Total (11,823) (17,274)

Credit assignment with substantial risk and benefit retention The Conglomerate transfers the right to receive future cash flows from financial assets classified as loans and receivables, to the assignee, upon receipt of an amount in cash, calculated on the date of transfer. However, the Conglomerate continues to recognize on its balance sheet, financial asset in highlighted items, because the risks and benefits of bonds were substantially retained, that is, the



85

Conglomerate is fully responsible for any bad debt situation occurred in the receivables transferred. Due to this responsibility before the assignor, an associated financial liability is recognized. Transaction balances are stated in the following captions: Credit assignment 12.31.2017 12.31.2016 Assets

Loans and receivables 8,316,725 12,170,848 Credits assigned with co-obligation 8,316,725 12,170,848

Liabilities associated Financial liabilities associated with transferred assets (9,447,130) (13,760,441)

Assignees (assignments with co-obligation) (9,447,130) (13,760,441) Total (1,130,405) (1,589,593)

The Conglomerate holds loan and receivable guarantees of credit granting nature represented by mortgages on properties, securities and other guarantees. (xii) Derivative instruments subject to compensation with master agreements enforceable of

liquidation The Conglomerate contracts operations of derivatives through General Derivative Contracts (“CGD”) and Derivative Operations Agreements (“COD”) that provide for cash payments. In general, based on these contracts, the amounts held by each counterparty on a certain day in relation to all outstanding transactions in the same currency, are aggregated into a single net amount which is paid by one party to the other. In certain circumstances, for example, when a default occurs, all outstanding transactions under this agreement are terminated, then the value of closure is determined and only a single net amount is paid for liquidation of all transactions. Esses contratos não atendem os critérios para compensação de saldos no Balanço Patrimonial. Isso porque atualmente o Conglomerado não possui nenhum direito legalmente exercível para compensar os montantes reconhecidos, uma vez que o direito de compensação só pode ser exercido na ocorrência futura de determinados eventos, tais como a inadimplência das operações. A tabela a seguir indica os valores contábeis dos instrumentos financeiros reconhecidos que estão sujeitos aos contratos mencionados acima.

Description Gross amounts of

recognized financial assets

Gross amounts of recognized financial

liabilities Net balances

Derivatives 2017 70,201 (125,376) (55,175) 2016 147,688 (114,285) 33,403

e) Capital management

Following the regulations of BACEN and in accordance with the recommendations of the Basel Committee on Banking Supervision, the Institution employs prudential guidelines of capital management aiming at the efficient and sustainable management of its resources and contributing to promote the stability of the National Financial System. In accordance with Resolution No. 3,988 of the National Monetary Council (CMN), Resolution No. 4,557 and Circular No. 3,846 of the Central Bank, the Institution has institutional structure and policies for capital management, approved by the Board of Directors, in accordance with the Process Internal Capital Adequacy Assessment (ICAAP), contemplating the following items: • Identification and assessment of material risks; • Documented policies and strategies; • Capital Plan for three years, including Capital targets and projections, main funding sources and

Capital contingency plan; • Stress tests and their impacts on Capital; • Management reports to the Top Management (Executive Board and Board of Directors);



86

• Evaluation of Capital Adequacy in the Regulatory and Economic View; and • Annual Report of Internal capital adequacy assessment process (ICAAP).

(i) Available Capital (Capital, Level I Capital and Core Capital)

The Available Capital, classified as Reference Equity (PR), Capital Level I and Principal Capital, is the assets used as a basis for verifying compliance with the operational limits of financial institutions. The Reference Equity (PR) is obtained by adding Capital Level 2 and Capital Level 1, the latter being obtained by adding Principal Capital and Complementary Capital, as defined in Resolution 4,192 and 4,193 of the CMN. Principal Capital is composed of Shareholders' Equity and specific deductions. (ii) Risk-weighted asset - RWA RWA, as defined by CMN Resolution No. 4,193, is composed of the sum of risk-weighted assets referring to the credit, market and operational risks:

Whereas: • RWACPAD: meaning the portion of risk-weighted assets (RWA) relating to credit risk exposures

subject to the calculation of capital requirement using a standardized approach (Circular Letter nº 3.644) of BACEN;

• RWACAM: portion of risk-weighted assets (RWA) relating to exposures in gold, in frying currency and in assets subject to exchange rate variation (Bacen Circular No. 3,641 do Bacen);

• RWAJUR: portion of risk-weighted assets (RWA) relating to exposures subject to the variation of interest rate classified in the trading portfolio (Bacen Circulars No. 3,634, 3,635, 3,636 and 3,637);

• RWACOM: portion of risk-weighted assets (RWA) relating to exposures subject to the variation of commodity prices (Bacen Circular No. 3,639);

• RWAACS: portion of risk-weighted assets (RWA) relating to exposures subject to the variation of the price of shares classified in the trading portfolio (Bacen Circular No. 3,638);

• RWACOM: portion of risk-weighted assets (RWA) relating to the calculation of capital required for operational risk using a standardized approach (Bacen Circular No. 3,640).

The Capital Requirement is obtained from the portions of Risk-Weighted Assets, and is calculated as follows:

Where Factor F is equal:

Up to 12.31.2015 01/01/2016 01/01/2017 12/31/2018 01/01/2019 11% 9,875% 9,25% 8,625% 8%

(iii) Capital Adequacy (Regulatory view) At the institution, capital is managed in order to ensure adequacy within regulatory limits and to establish a strong capital base enabling the Institution to develop business and transactions in accordance with its strategic plan. Our annual capital plan includes growth projections for the loan portfolio and other transactions and assets, in order to assess adequacy of its capital to deal with the associated risks and ensure compliance with regulatory operational limits.



87

Management reports tracking the capital (Reference equity) allocated to risks and the capital indices (Basel, Level I and Core) are disclosed on a monthly basis after the determination of the Capital and Capital Requirement. (iv) Capital indices The capital ratios are calculated according to the criteria established by CMN Resolutions Nos. 4,192 / 2013 and 4,193 / 2013, which deal with the calculation of Reference Equity (PR) and Equity. The capital indices disclosed was determined according to the criteria set by CMN Resolutions 4,192/2013 and 4,193/2013, which refer to the calculation of Regulatory Capital (PR) and the Minimum Regulatory Capital (PRMR) in relation to Risk-Weighted Assets (RWA), respectively. On October 1, 2013 onwards the set of rules that implemented in Brazil the recommendations of the Basel Committee on Banking Supervision related to the Capital structure of financial institutions, known as Basel III, came into effect. Newly adopted rules address the following matters: I - new methodology to determine regulatory capital, which continues to be divided into Levels I and II, being Level I comprised of Main Capital (less Prudential Adjustments) and Supplementary Capital; II - new methodology to determine requirements to maintain capital, adopting minimum PR, Level I and Main Capital requirements, and introducing the Additional Main Capital. Since January 2014, CMN Resolution no. 4,192/2013 defines the following items referring to prudential adjustments to be deducted from Reference Capital:

(i) goodwill paid on acquisition of investments based on expected future income net of deferred tax liabilities;

(ii) intangible assets formed as from October 2013; (iii) actuarial assets related to defined benefit pension plans net of related deferred tax liabilities

associated to them; (iv) non-controlling interest; (v) direct or indirect investments higher than 10% of capital of entities similar to non-

consolidated financial institutions and of insurance and reinsurance firms, capitalization organizations and open pension plan entities (higher investments);

(vi) deferred tax assets deriving from temporary differences that depend from future income generation or tax revenues for their realization;

(vii) deferred tax assets from depreciation excess tax loss; (viii) deferred tax assets deriving from tax losses and social contribution on net income negative

basis.

In accordance with CMN Resolution no. 4,192/2013, deductions referring to prudential adjustments will be carried out gradually, at 20% p.a. from 2014 to 2018, except for deferred assets and funding instruments issued by financial institutions, which are already being fully deducted since October 2013. Consolidation scope used as the basis to verify operating limits and also considers the Financial Conglomerate, and the Prudential Conglomerate beginning as of January 1, 2015, as defined in CMN Resolution no. 4,280/2013.



88

(v) Capital indexes calculated based on the financial position prepared in accordance with accounting practices adopted in Brazil, applicable to financial institutions.

Basel ratio 12.31.2017 12.31.2016 PR - Reference Equity 9,233,158 9,218,435 Tier I 6,758,636 6,836,538 Common Equity 6,758,636 6,836,538

Shareholders' equity 8,618,574 8,247,123 Prudential adjustments (1,859,938) (1,410,585)

Other (1,859,258) (1,408,486) Adjustment to fair value (680) (2,099)

Tier II 2,474,522 2,381,897

Subordinated debts eligible as capital 2,474,522 2,381,897 Subordinated debts authorized pursuant to CMN Resolution no. 4,192/2013 1,521,133 956,147 Subordinated debts authorized pursuant to rules prior to CMN Resolution no. 4,192/2013 (1) 953,389 1,425,750 Funding sources abroad 940,433 1,404,551 Funds raised with Financing Bills 12,956 21,199 Risk-weighted assets (RWA) 59,409,716 61,230,489

Credit risk (RWACPAD) 52,083,037 55,945,627 Market risk (RWAMPAD) 1,937,099 669,866 Operational risk (RWAOPAD) 5,389,580 4,614,996

Minimum Required Regulatory Capital (2) 5,495,399 6,046,511 Minimum Required Capital (3) 2,673,437 2,755,372 Tier I Minimum Required Reference Equity (4) 3,564,583 3,673,829 Regulatory Capital determined to cover interest rate risk of transactions not classified in trading portfolio (RBAN) 162,651 299,168 Margin on Minimum Required Regulatory Capital 3,737,760 3,171,924 Margin on Minimum Required Capital 4,085,199 4,081,165 Margin on Minimum Required Tier I Regulatory Capital 3,194,053 3,162,708 Margin on Minimum Required Regulatory Capital including RBAN 2,089,866 2,872,756 Common Equity Index (CP / RWA) 11.37% 11.17% Tier I Capital Index (Tier I / RWA) 11.37% 11.17% Basel Ratio (PR / RWA) 15.53% 15.06%

(1) The balance of Subordinated Debt instruments comprising Reference Equity as of December 31, 2012 was considered after applying on it the decay of 10% as determined by CMN Resolution no. 4,192/2013.

(2) Corresponds to the application of the “F” factor to RWA amount, being “F” equal to: a. 9,25% do RWA, from January 1, 2017 to December 31, 2017. b. 8,625% do RWA, from January 1, 2018 to December 31, 2018. c. 8% do RWA, as from January 1, 2019

(3) It represents at least 4.5% of RWA.. (4) It represents at least 6% of RWA.. On November 30, 2017, the Bank issued a perpetual bond issue in the amount of USD 300,000, which, after approval by the Central Bank of Brazil, will integrate Level I of the Referential Equity as complementary capital, further strengthening the structure of the Conglomerate. If perpetual bonds were already part of Complementary Capital as of December 31, 2017, the indices would be as follows: 12.31.2017 Common Equity Index (CP / RWA) 11.37% Tier I Capital Index (Tier I / RWA) 13.04% Basel Ratio (PR / RWA) 17.20%



89

Prudential Adjustments deducted from Common Equity:

12.31.2017 12.31.2016 Prudential Adjustments II - Intangible assets (133,765) (62,272) Prudential Adjustments VII Deferred tax assets and Intertemporal differences (881,658) (647,358) Prudential Adjustments VIII - Deferred tax assets of Tax losses/negative basis of CSLL (843,835) (698,857) Prudential Adjustments XV - Understatement - Resolution 4,277/13 Adjustments (680) (2,099) Total (1,859,938) (1,410,586)

Fixed asset ratio The property, plant and equipment indexrequired ratio of the Prudential Conglomerate amounted to 37.30% (33.10% as of December 31, 2016) and determinated in accordance with CMN Resolutions No. 4,192 / 2013 and No. 2,669 / 1999. 12.31.2017 12.31.2016 Fixed assets limit 4,616,579 4,609,217 Value of fixed assets limit position 1,720,395 1,523,243 Value of margin or insufficiency 2,896,184 3,085,974

In compliance with the Brazilian Central Bank (BACEN) Circular 3,678/2013 and 3.716/2014, the Conglomerate maintains additional information on its risk and capital management process available in the website: www.bancovotorantim.com.br/ri. f) Liquidity risk

Liquidity risk management aims to organize, evaluate and monitor the liquidity risk of the Institution, establishing the processes, tools and limits necessary for the generation and analysis of prospective liquidity scenarios and the monitoring of levels of risk appetite established by the Senior Management. (i) Definitions Liquidity risk is defined as: • Possibility that the Conglomerate may not be able to efficiently meet its expected and unexpected

(current and future) obligations, including those arising from binding guarantees, without affecting its daily operations and incurring material losses; and

• Possibility that the Conglomerate may not be able to trade a position at market price due to its large size in relation to the usually traded volume, or due to market discontinuity.

(ii) Basic Principles

In line with CMN Resolution 4,090, the Bank has the structure and institutional policies for liquidity risk management approved by the Board of Directors. The information about the liquidity risk management structure contained in this document is in line with these policies. The basic principles observed in management and control were established in accordance with current regulations and market practices, as follows:

• Involvement of Senior Management: the existing committees are structured in order to involve Senior Management in overall supervision of risk-taking;

• Independence of functions: Segregation of functions between units responsible for trade execution and defining business strategies, and the units responsible for accounting, risk control, compliance and internal controls and auditing. This segregation is structured with the objective of ensuring independence and autonomy in the management of the duties inherent to each role;

• Definition of responsibilities: Clear definition of processes and the range of activities of each function involved in management and control of liquidity risks. This definition is structured with the objective of enabling organized and efficient operations management;

• Monitoring limits: definition of the process of monitoring and reporting the level of use of authorized limits;

http://www.bancovotorantim.com.br/ri



90

• Definition of methodologies for building scenarios: structured methodologies are adopted for mandatory corporate use, based on market practices, to incorporate the dynamics of new transactions and settlement of existing portfolios;

• Setting limits: clear and objective definition of authorized risk limits, based on measures of risk, structured so that risks appetite level defined by the Board of Directors are part of everyday business; and

• Liquidity contingency plan: definition and periodic review of a structured plan for recomposing the pre-established cash levels, with the assignment of responsible persons and instruments.

(iii) Management and control governance and commissions The monitoring of liquidity risk management activities is an integral part of the duties of the following collegiate bodies, with clearly defined tasks, composition and frequency: Board of Directors Responsible for setting the basic guidelines of the Institution's general Liquidity policy, and for checking and monitoring whether they are being complied with. Risk and Control Committee Responsible for ratifying and monitoring liquidity risk appetite, monitoring the cash level and deliberating strategies for management, control and liquidity contingencies. ALM and Taxes Committee Responsible for evaluating and proposing initiatives aimed at protecting and maximizing the bank's structural balance sheet from an economic, financial, accounting and fiscal point of view. (iv) Involved areas Liquidity risk management includes a set of functional activities that permeate the entire 'business chain” from product development, trading and disbursement, liquidity risk modeling and control and the formalization, accounting records and disbursement of transactions, as well as monitoring the effectiveness of processes and controls used. Liquidity risk management functions are carried out by formally constituted functional units with technically capable staff under separate management with clearly defined responsibilities, as shown below: Market risk and liquidity • Responsible for modeling methodologies and assumptions used to validate liquidity-risk scenarios

and metrics; and • Responsible for updating and periodically revising liquidity scenarios and the liquidity contingency

plan and for monitoring of authorized cash limits. • Responsible for the calculation of the Short-term Liquidity (LCR) indicator.

Treasury and Commercial Units • Responsible for executing trades and transactions with the market and clients, at all times seeking

fair prices and compliance for these transactions; and • Responsible for the definition and periodic update of investment and funding assumptions and the

implementation of the liquidity contingency plan, in compliance with the strategies defined and previously approved instruments.



91

Finance • Responsible for the preparation and delivery of the projected budget; and • Responsible for monitoring portfolios and composition of assets, and evaluating proposals to issue

subordinated debt instruments. (v) Risk Measures and Limits for Management and Control The Conglomerate has a set of objective measures to manage and control liquidity risk: • Liquidity Target and Operational Minimum Cash: includes establishing minimum acceptable levels

and ranges, setting limits for the various prospective liquidity scenario; • Maturity scenarios: consist of the calculation of the future liquidity profile, based on the general

maturity assumption of the current portfolios and all cash flows; • Budgetary scenarios: consist of the calculation of the future liquidity profile, using assumptions

which are consistent with the budgetary planning, based on the general rollover assumption of the current portfolios;

• Stress scenarios: include simulations of impact on portfolios arising from extreme market conditions and/or the dynamics and composition of portfolios, which may change significantly and the Bank's projections for liquidity scenarios;

• Sensitivity analyses: comprise simulations of the sensitivity of the future liquidity profile to slight fluctuations in market conditions and/or the dynamics and composition of the portfolios; and

• Funding Concentration Profile: consists of the tracking of the portfolios' concentration profile in relation to volumes, terms, instruments, segments and counterparties.

Risk measures are used to set limits and for decision taking. These limits comprise the definition of the maximum authorized amounts through the establishment of minimum cash limits and contingency measures. The Market and Liquidity Risk area is responsible for the daily monitoring of liquidity risk and for notifying the competent forums in the event of an increase in risk. Amounts established in liquidity limits and the contingency plan are periodically updated and reviewed as a result of significant change in market conditions or in the dynamics and composition of portfolios.

Liquidity Coverage Ratio (LCR)

As of October 1, 2015, Circular No. 3,749 entered into force, establishing the methodology for calculating the Short-term Liquidity (CRL) indicator. This circular is in line with the recommendations contained in the Basel III documents, which were released with the objective of showing that large financial institutions have high liquidity resources to withstand a one-month standardized acute financial stress scenario, Regulations.

The LCR, as defined by the circular, is the ratio between the inventories of highly liquid assets (HQLA) and the total net cash outflows forecast for a period of 30 days.

𝑳𝑳𝑳𝑳𝑳𝑳 =𝐻𝐻𝐻𝐻𝐻𝐻ℎ 𝑙𝑙𝐻𝐻𝑙𝑙𝑙𝑙𝐻𝐻𝑙𝑙𝐻𝐻𝑙𝑙𝑙𝑙 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑙𝑙 𝐻𝐻𝑖𝑖𝑖𝑖𝑎𝑎𝑖𝑖𝑙𝑙𝑖𝑖𝑖𝑖𝑙𝑙𝑁𝑁𝑎𝑎𝑙𝑙 𝑖𝑖𝑙𝑙𝑙𝑙𝑜𝑜𝑙𝑙𝑖𝑖𝑜𝑜𝑎𝑎 𝐻𝐻𝑖𝑖 𝑙𝑙ℎ𝑎𝑎 𝑖𝑖𝑎𝑎𝑛𝑛𝑙𝑙 30 𝑙𝑙𝑎𝑎𝑙𝑙𝑎𝑎

≥ 𝟏𝟏𝟏𝟏𝟏𝟏%

(vi) Measurement system and communication process The Bank has corporate systems for measuring and controlling liquidity risk, combining internally developed applications with market solutions of proven robustness. These systems deploy integrated treatment of information on a sequential basis: • capturing records of trading and registration data; • continuous updating and archiving this information in structured databases, monitoring its integrity

and consistency from an accounting point of view;



92

• determining liquidity profile, by calculating rollover and maturity of transactions, depending on the premises of the various scenarios under consideration.

In addition, the Bank has a structured process for reporting liquidity-risk management related issues. This communication process comprises: • periodically issuing objective reports showing liquidity scenarios and evolution of the profile of

funding portfolios, and showing levels of use of authorized limits; and • periodically holding collective monitoring forums, within decision-making competencies, in which

current issues are discussed with full participation. (vii) Notifying limits exceeded and Contingency Plan The procedure adopted for monitoring the cash levels and contingency plan is made up of two stages: communication and monitoring. Communication:

• For notification purposes, the liquidity scenarios and metrics are submitted to the Risk and Control

Committee, variations are analyzed with predetermine trigger levels if there may be failure to maintain limits.

Monitoring: • Any extrapolation of limits will necessarily lead to implementation of agreed business strategies,

with investment and funding portfolio management to rebuild liquidity levels, including, if necessary, taking initiatives previously determined in the contingency plan. These strategies are the responsibility of the business managers, considering the market conditions, and monitored by the Risks and Controls Committee.

g) Asset and liability management

The CCR Controls and Risks Committee is responsible for the management of the structural risks of interest rate, exchange rate and liquidity, and the ALM and Tax Committee is responsible for managing the capital that seeks to improve the risk versus return ratio and greater efficiency in composition of factors that impact on the Solvency Ratio (Basel). The exposure of the Conglomerate to foreign currency risk, presented in thousands of Reais, is as follows:

12.31.2017

Local currency Dollar Euro Yen Swiss Franc Pounds sterling Other Total

Assets Financial assets with repurchase agreements

11,296,304 41,308 1,240 24 - 18 - 11,338,894

Financial assets at fair value through profit or loss

1,851,647 675,611 - - - - - 2,527,258

Financial assets available for sale 9,740,877 1,734,624 - - - - - 11,475,501 Loans and receivables (1) 43,591,530 3,298,926 - - - - - 46,890,456 Other assets 1,297,120 156,750 245,370 150 280 447 728 1,700,845

Total 67,777,478 5,907,219 246,610 174 280 465 728 73,932,954 Liabilities

Financial liabilities at amortized cost (65,072,202) (7,463,721) (15,932) - - (64) - (72,551,919) Other liabilities (3,299,832) (193,997) (667) - - (45) (26) (3,494,567)

Total (68,372,034) (7,657,718) (16,599) - - (109) (26) (76,046,486) Derivative financial instruments

Foreign currency asset position 22,722,169 208,289 - - - - Foreign currency liability position (20,772,324) (440,438) - - - -

Foreign currency exposure 199,346 (2,138) 174 280 356 702



93

12.31.2016 Local currency Dollar Euro Yen Swiss Franc Pounds sterling Other Total Assets Financial assets with repurchase agreements 13,903,297 80,232 7,866 32 - 36 - 13,991,463 Financial assets at fair value through profit or loss 5,173,493 639,331 - - - - - 5,812,824 Financial assets available for sale 12,610,056 2,098,732 - - - - - 14,708,788 Loans and receivables (1) 41,971,292 4,236,105 140,151 5,944 - - - 46,353,492 Other assets 1,075,206 459,190 41,922 308 109 16,647 545 1,593,927

Total 74,733,344 7,513,590 189,939 6,284 109 16,683 545 82,460,494 Liabilities

Financial liabilities at amortized cost (76,713,699) (7,746,586) (79,046) (635) (3,189) (5) - (84,543,160) Other liabilities (2,846,071) (147,823) (30,161) - - (5) (24) (3,024,084)

Total (79,559,770) (7,894,409) (109,207) (635) (3,189) (10) (24) (87,567,244) Derivative financial instruments

Foreign currency asset position 22,694,465 70,795 518 3,267 15,161 -

Foreign currency liability position (22,200,537) (143,206) (5,932) - (32,134) -

Foreign currency exposure 113,109 8,321 235 187 (300) 521 (1) Includes provision for losses, fair value adjustments, associated costs and other receivables.

h) Fair value hierarchy

Calculation of fair value is subject to a control structure defined to assure that the calculated amounts are determined by a department that is independent from the risk taker. Fair value is determined according to the following hierarchy: • Level 1: prices quoted (not adjusted) in active market; • Level 2: inputs which are observable for assets or liabilities, directly (prices) or indirectly (derived

from prices); and • Level 3: assumptions which are not based on observable market data (non-observable inputs).

The table below presents financial instruments recorded at fair value at December 31, 2017 and 2016, classified in different hierarchy levels for the fair value measurement:

12.31.2017 12.31.2016 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Assets Financial assets with repurchase agreements

(1) - 6,675,740 - 6,675,740 - 5,781,536 - 5,781,536

Financial assets at fair value through profit or loss 1,829,079 698,179 2,527,258 5,767,483 45,341 - 5,812,824

Public 1,776,925 675,611 - 2,452,536 5,730,457 716 - 5,731,173 Private - 21,277 - 21,277 - 22,469 - 22,469 Shares in investment funds - 1,291 - 1,291 1,841 - - 1,841 Shares 51,399 - - 51,399 24,315 - - 24,315 Other - - - - - 22,156 - 22,156 Abroad 755 - - 755 10,870 - - 10,870

Financial assets available for sale 7,977,330 3,099,154 399,017 11,475,501 9,001,968 5,036,360 670,460 14,708,788 Public 7,071,995 - - 7,071,995 8,114,120 - - 8,114,120 Private 552,611 2,204,837 2,757,448 165,497 4,413,482 - 4,578,979 Shares in investment funds - 275,064 - 275,064 - 207,587 - 207,587 Shares - 159,679 159,679 214,636 - - 214,636 Other 11,645 - 399,017 410,662 18,912 - 572,832 591,744 Abroad - 459,574 459,574 - 415,291 - 415,291 Public 341,079 - - 341,079 488,803 - 97,628 586,431

Derivative financial instruments 303,213 1,723,577 - 2,026,790 - 2,772,786 12,797 2,785,583 Loans and receivables(1) - 17,738,150 - 17,738,150 - 16,121,538 - 16,121,538

Total 10,109,622 29,934,800 399,017 40,443,439 14,769,451 29,757,561 683,257 45,210,269 Liabilities - - -

Financial liabilities at fair value through profit or loss

- (4,634,238) (4,634,238) (2,206,483) - (20,168) (2,226,651)

Money market repurchase commitments - (4,612,888) - (4,612,888) (2,206,483) - - (2,206,483) Securities abroad - (21,350) (21,350) - - (20,168) (20,168) Financial liabilities at amortized cost (1) - (2,869,143) - (2,869,143) - (3,271,177) - (3,271,177) Derivative financial instruments (201,302) (1,322,362) (1,523,664) - (2,690,404) (17,305) (2,707,709)

Total (201,302) (8,825,743) - (9,027,045) (2,206,483) (5,961,581) (37,473) (8,205,537) (1) With reference to those operations marked to market by the hedge accounting structure (Note 9g).



94

The fair value of financial instruments negotiated on active markets (such as securities held for trading and available for sale) is based on market prices, quoted at the balance sheet date. A market is considered active when the quoted prices are readily and regularly available from an Exchange, distributor, broker, industry group, pricing service or regulatory agency, and these prices represent actual market transactions which occur regularly on a purely commercial basis. The best evidence of fair value is the price quoted in an active market. Most valuation techniques use observable market inputs, characterizing a high degree of confidence in the estimated fair value. According to the levels of information in the measurement of fair value, the following evaluation techniques are applied: The fair value determined for financial instruments classified as Level 1 assumes the pricing, at the daily minimum, through price quotes, indices and rates immediately available for non-forced transactions and originating from independent sources. In cases where quoted market prices are not available, fair values are obtained by using quoted prices for similar assets and liabilities in active markets, or through future cash flows discounted to present value at discount rates obtained through observable market inputs or other valuation techniques based on mathematical methods that use market references. In this context, the fair value of financial instruments that are not negotiated on active markets (for example, over the counter derivatives) is determined based on evaluation techniques. These valuation techniques maximize the use of the data adopted by the market where it is available and rely as little as possible on entity-specific estimates. If all relevant information required for the fair value of an instrument is adopted by the market, the instrument is included in Level 2. For the fair value of financial instruments classified as Level 3, there is no pricing information observable in active markets. The Conglomerate uses pricing criteria based on mathematical models known in the academic environment and/or use specific governance with the participation of experts and structured internal processes. For non-listed shares, currently classified at Level 3, the process of fair value assessment uses the Merton model, considering the expected cash flows, subject to the conditions defined in the contract, and evaluates the behavior of the company's assets (information of the companies’ financial statements) by estimating the volatility of the assets. This parameter is generated based on the historical volatility of similar assets observable on the market. Regarding other financial instruments classified as Level 3, Credit Linked Notes (CLN), which the fair value assessment process considers the combination of a fixed-income security and credit derivative. This model evaluates the probability of joint default of the issuer and the reference entity, the correlation used is not directly observable in the market, being generated from the analysis of the historical correlation of company assets. The quality of and adherence to the models used are guaranteed through a structured governance process. The areas responsible for defining and implementing the pricing models are segregated from the business areas. The models used are documented and submitted to validation of an independent area and approved by the Market Risk Committee.

(i) Transfers of Level 2

Balance at 2017 Balancet at 12.31.2016 Level 1(1) Other changes 12.31.2017

Assets Financial assets at fair value through profit or loss 45,341 - 652,838 698,179 Financial assets available for sale 5,036,360 (406,974) (1,530,232) 3,099,154

Derivative financial instruments 2,772,786 (303,213) (745,996) 1,723,577 Total 7,854,487 (710,187) (1,623,391) 5,520,909

(1) It refers to debentures being used at an indicative rate, provided by Anbima, to determine the fair value and derivative



95

financial instruments traded on the Brazilian Stock Exchange.

(ii) Changes in level 3

Balance at 2017 Balance at

12.31.2016 Transfers (1) Sales and redemptions

Income (loss) 12.31.2017

Assets Financial assets available for sale 670,460 - (333,719) 62,276 399,017

Shares of companies. Closed 572,832 - (238,550) 64,735 399,017 Credit Linked Notes 97,628 - (95,169) (2,459) -

Derivative financial instruments 12,797 (12,797) - - - Liabilities Financial liabilities at fair value through profit or loss

(20,168) 20,168 - - -

Credit Linked Notes (20,168) 20,168 - - - Derivative financial instruments (17,305) 17,305 - - - Total 645,784 24,676 (333,719) 62,276 399,017

(1) Refers to Credit Linked Notes transactions and operations of derivative financial instruments that have been revalued for hierarchical allocation purposes.

(iii) Fair value of financial instruments at amortized cost The book balance and the fair value (level 2 hierarchy) of financial instruments that are measured by amortized cost are:

12.31.2017 12.31.2016 Book value Fair value Book value Fair value

Financial assets at amortized cost 35,665,367 35,809,476 37,160,800 37,293,562 Financial assets held to maturity 6,513,061 6,657,170 6,928,846 7,061,608 Loans and receivables (1) 29,152,306 29,152,306 30,231,954 30,231,954

Financial liabilities at amortized cost (72,551,919) (70,920,042) (84,543,160) (84,792,672) Money Market repurchase commitments (13,421,947) (11,649,750) (18,086,414) (18,111,176) Financial liabilities at amortized cost associated

with transferred financial assets (9,447,130) (9,447,130) (13,760,441) (13,760,441)

Financial institution deposits (2,048,367) (1,835,699) (1,997,318) (1,834,499) Deposits from customers (5,867,691) (6,459,993) (2,281,996) (2,539,860) Liabilities from borrowings and onlendings (4,061,582) (3,808,298) (5,208,686) (5,171,035) Securities issued (31,887,412) (31,224,035) (37,162,727) (37,315,281) Subordinated liabilities (5,817,790) (6,495,137) (6,045,578) (6,060,380)

Total (36,886,552) (35,110,566) (47,382,360) (47,499,110) (1) Excludes loans and receivables accounted at fair value, mainly, as a result of the Hedge Accounting structure. 35. OTHER INFORMATION a) Commitments undertaken due to funding from international financial institutions The Conglomerate is a borrower of short-term loans from international financial institutions, who in certain cases may require compliance with financial ratios (financial covenants). When required, the financial ratios are calculated based on the financial information prepared in accordance with Brazilian law and standards of the Central Bank of Brazil (BACEN). On December 31, 2017 the Conglomerate did not have operations with these characteristics. b) Insurance coverage The Conglomerate contracts insurance coverage for assets subject to risks for amounts considered to be sufficient to cover eventual claims, considering the nature of its activity.



96

Insurance in force on December 31, 2017

Covered risk Covered amounts Premium amount Insurance Guarantee - legal proceedings 459,526 4,359 Real estate insurance for properties in use of relevant third parties 263,566 81

c) Agreements for offset and settlement of liabilities in the scope of the National Financial

System Agreements were executed for the offset and settlement of receivables and payables pursuant to CMN Resolution No. 3,263/2005, the purpose of which is to enable the offsetting of credits and debits maintained with the same counterparty, and in which the maturity dates of receivables and payables can be advanced to the date in event of default by one of the parties occurs or in case of the bankruptcy of the debtor. d) Reconciliation of equity transactions with cash flows arising from financing activities

Liabilities Shareholders’ equity

Total Subordinated debts Dividends Capital

Capital and profit

reserves Balance at 12.31.2016 6,045,578 101,131 7,826,980 746,011 14,719,700 Changes financing cash flows - Proceeds from the allocation of income - - 303,392 51,688 355,080 Dividends and interest on capital paid - (101,131) - - (101,131) Subordinated liabilities - - - - - Funds from new funding 1,561,431 - - - 1,561,431 Liquidation (2,323,436) - - - (2,323,436) Interest expenses 502,906 - - - 502,906 Exchange variation 53,536 - - - 53,536 Other (22,225) - - - (22,225) Total changes in financing cash flows (227,788) (101,131) 303,392 51,688 26,161 Balancet at 12.31.2017 5,817,790 - 8,130,372 797,699 14,745,861

36. SUBSEQUENT EVENTS

a. Merger of Votorantim Corretora de Títulos e Valores Mobiliários By Private Instrument of Amendment of the Articles of Incorporation of Votorantim Asset Management Distribuidora de Títulos e Valores Mobiliários Ltda. meeting of Votorantim - Corretora de Títulos e Valores Mobiliários Ltda., held on January 31, 2018, Banco Votorantim SA, controller of both, approved the merger of Votorantim CTVM into Votorantim Asset, in accordance with the Protocol and Justification of Incorporation between them. The merged net assets were valued at book value on December 31, 2017, the transaction's base date, in the amount of R$ 266,791; adding up the equity variations occurring between the base date of the appraisal report and the date of the merger. The merger is justified by the discontinuation of the activities of Votorantim CTVM and the object identity among the companies involved and represents the improvement of the corporate structure of the Conglomerate, rationalizes its operations, simplifies administration, facilitates accounting and financial procedures; minimizes administrative expenses, leading to the optimization of its assets and results. As a result, Votorantim CTVM had its legal personality extinguished and Votorantim Asset became the successor, on a universal basis, of all its rights and obligations. The merger will imply an increase of Votorantim Asset's Capital Stock in the amount of R$ 190,763, through the issuance of 19,076,313,565 new shares with a par value of R$ 0.01, to be attributed to Votorantim CTVM's shareholders, replacing to its shares in this company. In addition to the amendment to the Capital Stock clause, Votorantim Asset's articles of association will not be altered.



97

We present below the equity balances at December 31, 2017 of Votorantim CTVM incorporated by Votorantim Asset: Asstes: 386,995 Liabilities: 120,204 Shareholder’s equity: 266,791

***

banco votorantim s.a. · 2018-08-30 · votorantim’s decision on the recoverable value of the...

Documents