Banco Votorantim S.A. · 2018-08-30 · Votorantim’s judgment, based on the opinion of the legal advisors, on the elements of the process, complemented by the experience of similar

KPDS 182320

Banco Votorantim S.A. Consolidated financial statements in IFRS December 31, 2016 (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, 2016 Amounts expressed in thousands of Reais, unless when indicated

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Contents Independent auditors' report on the financial statements 3

Consolidated balance sheet 9

Consolidated statement of income 10

Consolidated statement of comprehensive income 11

Statement of changes in shareholders’ equity 12

Consolidated statement of cash flows 13

Notes to the consolidated financial statements in IFRS 14

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.

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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, 2016 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, 2016, 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 the 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.



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• Impairment of loans and receivables As disclosed in notes 3g, 3j and 10, the Banco Votorantim periodically reviews its portfolio 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 the 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. The Banco Votorantim divides its impairment analysis between individualized analysis, for clients with exposures considered “individually significant” and collective analysis, for the other clients. 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, 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 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. We also analyzed the disclosures made in the consolidated financial statements.

Based on the evidence obtained from the procedures described above, we considered the level of provisioning adequate in the context of the consolidated financial statements taken as a whole.

• Fair value of financial instruments

As disclosed in Notes 3g, 3k, 8 and 9, the 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 the 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 the 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 the Banco Votorantim internal models. For a sample of financial instruments for which fair value measurement 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 the 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.



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Based on the evidence obtained from the procedures described above, we considered the fair value measurement of financial instruments adequate in the context of the individual and consolidated financial statements taken as a whole.

• Provisions and contingent liabilities - labor, civil and tax

As disclosed in Notes 3t and 18, the 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 the 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 the Banco Votorantim, related to the process identification, risk evaluation, measurement of provision, process management and closing steps. We have evaluated the adequacy of the measurement and recognition of the provision and disclosure of contingent liabilities. By sampling, we performed audit procedures related to the amounts of constitutions and reversals and regarding the adequacy of the provision. We have evaluated the assumptions of the procedural risk of causes for relevant matters and values of the 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 18, are in accordance with the applicable accounting practices. Based on the evidence obtained from the procedures described above, we considered the level of provisioning adequate in the context of the individual and consolidated financial statements taken as a whole.

• Projection of future results for realization of deferred tax assets

The consolidated financial statements include assets related to deferred tax assets (Notes 3u, 19b and 19f), which realization depends on future profitability based on the business plan and budgets prepared by the 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, the 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 impact that eventual changes in the assumptions would have on the amounts recorded in the consolidated financial statements, we have 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 the Banco Votorantim related to the process for 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



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specialists, we evaluated the reasonableness of the assumptions used by the 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, 19b and 19f are in accordance with the applicable accounting practices.

Based on the evidence obtained from the procedures described above, we considered the measurement of the deferred tax assets adequate in the context of the consolidated financial statements taken as a whole. Responsibilities of the 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 the 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:



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• 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 the 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 the 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 the 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. 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.



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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 28, 2017 KPMG Auditores Independentes CRC 2SP014428/O-6 Original report in Portuguese signed by João Paulo Dal Poz Alouche Contador CRC 1SP245785/O-2

Banco Votorantim S.A. CONSOLIDATED BALANCE SHEETDecember 31, 2016 and 2015

(In thousands of Reais)

12/31/2016 12/31/2015 12/31/2016 12/31/2015

CURRENT ASSETS 52,806,947 60,789,550 CURRENT LIABILITIES 64,946,834 71,294,971

Funds available (Note 6) 2,095,767 8,868,049 Financial liabilities at fair value through profit or loss (Note 16) 2,226,651 1,115,048 Financial assets with resale agreements (Note 7) 13,991,463 7,352,791 Financial liabilities at amortized cost (Note 17) 56,609,857 62,578,016 Financial assets at fair value through profit or loss (Note 8a) 5,812,824 5,512,963 Derivative financial instruments (Note 9f) 1,721,867 1,805,525 Financial assets available for sale (Note 8a) 2,941,341 2,813,926 Provisions (Note 18a) 1,190,956 1,244,882 Financial assets held to maturity (Note 8a) 1,135,784 6,349,074 Tax liabilities (Note 19) 348,046 435,452 Derivative financial instruments (Note 9f) 1,453,375 1,342,106 Dividends payable (Note 21c) 101,131 114,409 Loans and receivables (Note 10a) 24,176,703 25,500,297 Other liabilities (Note 20) 2,748,326 4,001,639 Dividends receivable 2,340 5,929 Tax assets (Note 19) 205,235 265,987 NON-CURRENT LIABILITIES 29,467,188 31,533,419 Non-financial assets held for sale (Note 11) 235,362 216,753 Other assets (Note 13) 756,753 2,561,675 Financial liabilities at amortized cost (Note 17) 27,645,852 29,161,779

Derivative financial instruments (Note 9f) 985,842 1,108,857 NON-CURRENT ASSETS 50,233,394 49,980,812 Provisions (Note 18a) 51,873 12,449

Tax liabilities (Note 19) 320,818 773,720 Financial assets available for sale (Note 8a) 11,767,447 14,132,528 Other liabilities (Note 20) 462,803 476,614 Financial assets held to maturity (Note 8a) 5,793,062 799,407 Derivative financial instruments (Note 9f) 1,231,802 1,263,688 Total shareholders’ equity attributable to controlling shareholders 8,626,318 7,941,971 Loans and receivables (Note 10a) 22,176,789 24,119,319 Tax assets (Note 19) 7,353,242 7,665,884 Capital (Note 21a) 7,826,980 7,483,754 Non-financial assets held for sale (Note 11) 161,740 64,244 Reserves (Note 21b) 746,011 764,554 Investments (Note 12a) 705,585 592,448 Equity evaluation adjustments (Note 21b) (138,084) (591,269) Other assets (Note 13) 837,174 1,144,052 Non-appropriated accumulated earnings 191,411 284,932 Tangible assets (Note 14) 98,226 110,746 Intangible assets (Note 15) 108,327 88,496

Total shareholders' equity attributable to the non-controlling shareholders 1 1

Total assets 103,040,341 110,770,362 Total liabilities and shareholders' equity 103,040,341 110,770,362

See the accompanying notes to the financial statements

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Banco Votorantim S.A. CONSOLIDATED STATEMENT OF INCOME Years ended December 31, 2016 and 2015

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

Year 2016 Year 2015

Interest revenue (Note 22) 14,519,358 17,394,400 Interest expenses (Note 23) (9,859,133) (15,280,426)

Financial margin 4,660,225 2,113,974

Net income (loss) from services and commissions (Note 24) 734,603 531,419

Results with financial instruments at fair value through profit or loss (Note 25) 459,406 (340,908) Result from available for sale financial assets 191,622 (28,751) Income from derivative financial instruments (Note 9i) (494,678) 2,630,067 Other operating income (loss) (Note 26) 223,323 31,634

Gross income from financial intermediation 5,774,501 4,937,435

Result from impairment losses (Note 27) (2,774,933) (2,577,179) Personnel expenses (Note 28) (1,282,304) (1,211,945) Other administrative expenses (Note 29) (464,418) (477,003) Depreciation and amortization expenses (Note 30) (62,556) (43,688) Tax expenses (Note 19e) (422,179) (424,018) Equity income (loss) (Note 12a) 36,264 36,049 Income from disposal of non-current assets for sale (34,961) (19,113)

Income before taxes, contributions and profit sharing 769,414 220,538

Taxes and contributions on current income (Note 19f) (294,490) (345,884) Deferred income taxes and contributions (Note 19f) (10,163) 1,042,586

Profit sharing (132,468) (181,136)

Net income attributable to controlling shareholders 332,293 736,104

Net income 332,293 736,104

Earnings per share - R$ 3.15 6.98Number of shares (per thousand shares) 105,391,473 105,391,473

See the accompanying notes to the financial statements.

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Banco Votorantim S.A. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEYears ended December 31, 2016 and 2015


Year 2016 Year 2015

Net income for the year 332,293 736,104

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

Net variation in the fair value of financial assets available for sale 683,343 (393,128) Adjustment to fair value against shareholders’ equity 491,721 (364,377) Adjustment to fair value transferred to income 191,622 (28,751)

Cash flow hedge (26,571) -

Income and social contribution taxes on comprehensive income (203,587) 102,645

Total comprehensive income 785,478 445,621


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Banco Votorantim S.A. STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITYYears ended December 31, 2016 and 2015


Shareholders' equity attributable to the controlling shareholders

CapitalCapital

ReservesProfit

reservesEquity evaluation

adjustmentsNon-appropriated retained

earnings TotalNon-controlling

interest

Total shareholders'

equity

Balances at December 31, 2014 7,125,761 372,120 383,116 (300,786) 30,548 7,610,759 1 7,610,760

Capital increase (Note 21a) 357,993 - (357,993) - - - - -

Formation/ (reversal) of reserves - - 367,311 - (367,311) - - -

Equity evaluation adjustments (Note 21d) - - - (290,483) - (290,483) - (290,483)

Net income for the year - - - - 736,104 736,104 - 736,104

Allocation of dividends (Note 21c) - - - - (114,409) (114,409) - (114,409)


Capital increase (Note 21a) 343,226 - (343,226) - - - - -

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

Equity evaluation adjustments (Note 21d) - - - 453,185 - 453,185 - 453,185

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

Allocation of dividends (Note 21c) - - - - (101,131) (101,131) - (101,131)



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Banco Votorantim S.A.CONSOLIDATED STATEMENT OF CASH FLOWSYears ended December 31, 2016 and 2015


Year 2016 Year 2015

Cash flows from operating activitiesIncome (loss) before income and social contribution taxes 769,414 220,538 Adjustments to Income (loss) before income and social contribution taxes 1,747,440 856,408

Depreciation and amortization expenses (Note 30) 62,556 43,688 Provision for impairment losses (Note 27) 3,161,169 2,900,927 Income (loss) from subsidiaries accounted by the equity method (36,264) (36,049) Labor claims (Note 18a) (23,233) (50,846) Provision for contingent liabilities (Note 18a) 9,648 (25,470) Impairment of non-financial assets held for sale (Note 26) 26,619 16,579 Interest accrued and not received from financial assets available for sale (934,259) (1,036,577) Interest accrued and not received from financial assets held to maturity (679,605) (711,179) Effects of changes in exchange rates on funds available 167,270 (234,980) Other operating income and expenses (6,461) (9,685)

Variation in operating assets and liabilities (7,369,478) (130,185) Net change in financial assets with resale agreement (6,638,672) (3,221,778) Net change in financial assets measured at fair value through profit or loss (926,257) (958,033) Net change in derivative financial instruments (286,056) 178,716 Net change in loans and receivables 104,955 546,353 Net change in dividends receivable (30,185) (1,890) Dividends received from operational financial assets - 54,000 Net change in current taxes (389,402) 223,125 Cash payments relating to current tax liabilities (287,003) (440,711) Net change in deferred taxes 1,251 2,291 Net change in non-financial assets held for sale (116,105) (108,054) Net change in financial liabilities at fair value through profit or loss 1,111,603 1,063,225 Net change in financial liabilities at amortized cost (598,279) 3,153,911 Other variations in assets 2,085,181 (829,013) Others variations in liabilities (1,400,509) 207,673

Net cash provided by/(used in) operating activities (4,852,624) 946,761

Cash flow from investing activities(Acquisition) of financial assets available for sale (8,570,619) (9,158,633) (Acquisition) of financial assets held to maturity (4,956,259) - (Purchase) of investments (145,457) (120,002) (Acquisition) of intangible assets (29,419) (57,361) (Acquisition) of intangible assets (51,168) (72,182) Disposal and maturity of financial assets available for sale 12,295,846 9,048,606 Disposal and maturity of financial assets held to maturity 6,585,365 1,649,534 Sales of investments 61,905 59,854 Disposal of tangible assets 2,940 38,088 Disposal of intangible assets 14,909 5,382 Dividends received from financial asset investment 39,785 13,178 Net cash provided by/(consumed in) investing activities 5,247,828 1,406,464

Cash flows from financing activitiesDividends paid (114,409) (119,331) Securities issued (6,003,807) 2,901,876 Subordinated liabilities (882,000) 688,040 Net cash provided by/(used in) financing activities (7,000,216) 3,470,585

Net variation in funds available (6,605,012) 5,823,810

Funds available at the beginning of the year 8,868,049 2,809,259 Effects of changes in exchange rates on funds available (167,270) 234,980 Funds available at the end of the year (Note 6) 2,095,767 8,868,049 Increase (decrease) in funds available (6,605,012) 5,823,810

See the accompanying notes to the financial statements

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Banco Votorantim S.A.

Consolidated financial statements in IFRS December 31, 2016

Amounts expressed in thousands of Reais, unless when indicated

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1 THE CONGLOMERATE AND ITS OPERATIONS Banco Votorantim S.A. (Entity, Banco Votorantim or Conglomerate) 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 Company 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 Institution.

b) Information for comparative purposes Statement of income reclassifications were made for comparative purposes and to better represent the transactions’ substance, as follows:

• Reclassification of the foreign exchange variation of investments abroad from Other Operating Income / Expenses to Financial Intermediation Income – Income from derivative financial instruments.

2015

Previous

disclosure

Reclassification Reclassified

balance Income from derivative financial instruments (Note 9i) 2,105,249 524,818 2,630,067 Other operating Income (Note 26) 556,452 (524,818) 31,634

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:




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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 is a method of calculating 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, the Bank estimates the future cash flows considering all contractual terms of the financial instrument, without considering any estimated future losses. Effective rate calculation includes all commissions, transactions cots, discounts or premiums that are an integral part of the effective interest rate. 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. 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 included within the interest calculation, except when the financial instrument is classified in the at fair value through profit or loss category. 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.




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Non-controlling shareholders are presented in the Consolidated Balance Sheet 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 differences between the acquisition cost and the fair value of the 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. 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.




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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 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 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. 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. 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.




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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 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. 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. 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 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 assets 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.




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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 Consolidated 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 Consolidated Balance Sheet.

e) Funds available Funds available equivalents are represented by available funds in domestic currency, foreign currency, money market repurchase agreements - 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. 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 resale 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.




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Financial assets and liabilities may be classified into the following categories: • Financial assets at fair value through profit or loss; • Financial assets at fair value through profit or loss; • 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 33h.

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 instruments. Banco Votorantim S.A. chose to disclose derivatives in a separate line of the Consolidated Balance Sheet (Item (iii)).

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”.




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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.

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.

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 hedge 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.




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h) Write-off of financial instruments Financial assets are reversed/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, 2016 and 2015, 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. 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.




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Derivative financial instruments considered as hedging instruments (hedge) are classified by their nature as follows: Market risk 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) Provision for 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 resale 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, • Restructuring of the amount due under terms that the Conglomerate would not consider for

other transactions;




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• 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.




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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 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.




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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.

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.




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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, 2016 and 2015.

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”.




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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 market risk 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. 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




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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. 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.




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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 Current rates 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 From 2 to 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%.

Tax credits 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. 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.




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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, 2016 Change in IFRS 11 - Joint Arrangements - The change establishes accounting criteria for the acquisition of joint ventures and joint arrangements, which constitute a business, according to the methodology established in IFRS 3 - Business Combinations. Effective for fiscal years beginning on 01 January 2016, and early adoption is permitted by the IASB. The impact of this change shall be due only if there is an operating acquisition in conjunction with that which is part of a business. Change in IAS 1 - Presentation of Financial Statements - The aim of the changes is to encourage companies to identify what information is relevant enough to be disclosed in the financial statements. It is also clarified that materiality applies to the full set of Accounting Statements, including the respective notes and that it is applicable to any application for disclosure of IFRS standards. Effective for fiscal years beginning on 01 January 2016, and early adoption is permitted by the IASB. The main impacts are related to the disclosure of accounting policies and material judgments in the notes, which did not have a material impact on the Consolidated Financial Statements.. Change in IAS 16 - Property, Plant and Equipment, and IAS 38 Intangible Assets - The change clarifies the underlying principle for depreciation and amortization as being the expected pattern of consumption of future economic benefits of the asset. Effective for fiscal years beginning on 01 January 2016, and early adoption is permitted by the IASB. We identified no significant impacts of this change on the Consolidated Financial Statements of the Conglomerate. Changes to IAS 28, IFRS 10 and IFRS 12 applying the exception to Consolidation: these changes refer to the application of the concept of Investment Entities. These specific changes in IAS 28, IFRS 10 and IFRS 12 are effective for years beginning on 01 January 2016, and early adoption is permitted by the IASB. We identified no significant impacts of these changes on the Consolidated Financial Statements of the Conglomerate




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cc) Standards and interpretations will be effective after the year ended December 31, 2016 and without early adoption by the Conglomerate when permitted by IASB IFRS 9 - Financial Instruments - Statement intended to replace IAS 39 - Financial Instruments: Recognition and measurement. IFRS 9 includes: (a) a logical model for classification and measurement; (b) a single impairment model for financial instruments, which offers a response to expected losses; (c) removal of the volatility in P/L coming from own credit risk; and (d) a new approach to hedge accounting. Effective for the years started on January 1, 2018 and your early adoption is permitted by IASB The impacts stemming from the adoption of this change are being evaluated for implementation on the date on which the standard enters into force. 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. The possible impacts of the adoption of this change are being evaluated and will be completed by the date on which the standard enters into force. 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.

dd) Authorization of Financial Statements The Financial Statements were authorized for issue by Management on March 28, 2017.

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 • No. 9 - Derivative financial instruments • No. 10 - Loans and receivables • No. 16 - Financial liabilities at fair value through profit or loss • No. 18 - Provisions, contingent assets, liabilities and legal, tax and social security obligations




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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: Ownership interest

Activity 12.31.2016 12.31.2015 Domestic subsidiaries (direct interest) Votorantim CTVM Ltda. Brokerage securities 99.99 99.99 Votorantim Asset Management DTVM Ltda. Administration of assets 99.99 99.99 BV Financeira S.A. Crédito, Financiamento e Investimento Financial 100.00 100.00 BV Leasing Arrendamento Mercantil S.A. Lease 100.00 100.00 BV Promotora S.A. (1) 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. Insurance brokers 100.00 100.00 BVIA - Fundo de Investimento em Participações Investment fund 100.00 100.00 Domestic subsidiaries (direct interest) BV Empreendimentos e Participações S.A.(2) Holding 100.00 100.00 IRE República Empreendimento Imobiliário S.A.(3) SPE 100.00 100.00 Senador Dantas Empreendimento Imobiliário SPE S.A.(3) SPE 100.00 100.00 Henri Dunant Empreend. Imobiliário S.A. (4) SPE 100.00 100.00 Arena XI Incorporações SPE Ltda. (3) (4) SPE 100.00 - D’oro XVIII Incorporações Ltda. (3) (4) SPE 100.00 - Marques de Monte Santo Empreend. Imobiliário SPE Ltda(4) SPE 100.00 - Parque Valença Empreendimento Imobiliário SPE Ltda. (4) SPE 100.00 - Subsidiaries abroad (direct interest) Votorantim Bank Limited (5) Bank - 99.99 Banco Votorantim Securities Inc. Brokerage securities 100.00 100.00 Votorantim Securities (UK) Limited Brokerage securities 100.00 100.00

(1) The name of BV Investments and Holdings SA (BVIP) was amended in February 2016; (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 10/2016. (4) Companies started or acquired during the year ended December 31, 2016. (5) The company was dissolved on August 9, 2016.




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b) Financial position of domestic subsidiaries (direct interest)

12.31.2016 Votorantim CTVM

Votorantim DTVM

BV Financeira

BV Leasing

BV Promotora BVIA

Votorantim Corretora de

Seguros BVIA FIP

Current assets 434,755 175,848 20,126,882 18,328,741 44,011 25,879 320,355 1,045,294 Non-current assets 18,314 30,513 20,499,454 667,333 381 110,015 225 - Total assets 453,069 206,361 40,626,336 18,996,074 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 -

Shareholders' equity 265,340 81,440 1,836,029 988,811 13,981 130,295 65,761 1,044,429 Total liabilities 453,069 206,361 40,626,336 18,996,074 44,392 135,894 320,580 1,045,294

12.31.2015 Votorantim CTVM

Votorantim DTVM

BV Financeira

BV Leasing

BV Promotora BVIA

Votorantim Corretora de

Seguros BVIA FIP

Current assets 438,204 170,120 23,424,217 19,769,959 4,631 16,797 291,069 1,039,117 Non-current assets 16,846 33,413 21,390,433 780,485 134 24,278 667 - Total assets 455,050 203,533 44,814,650 20,550,444 4,765 41,075 291,736 1,039,117 Current liabilities 167,665 67,805 23,744,431 412,958 173 6,313 225,946 44,143 Non-current liabilities 20,362 59,335 19,467,264 19,174,280 - - 29 -

Shareholders' equity 267,023 76,393 1,602,955 963,206 4,592 34,762 65,761 994,974 Total liabilities 455,050 203,533 44,814,650 20,550,444 4,765 41,075 291,736 1,039,117

c) Financial position of domestic subsidiaries (indirect interest)

12.31.2016 BVEP Senador

Dantas IRE

República Henri

Dunant Arena Doro Monte Santo Valença

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 - - - - - - - - Shareholders' equity 935,869 53,205 12,260 32,682 4,786 4,213 33,999 51,736 Total liabilities 945,234 53,183 12,731 41,684 16,458 15,623 33,999 51,739

12.31.2015 BVEP Senador

Dantas IRE

República Henri

Dunant Arena Doro Monte Santo Valença

Current assets 108,913 1,930 313 469 - - - - Non-current assets 730,557 51,601 12,439 39,667 - - - - Total assets 839,470 53,531 12,752 40,136 - - - - Current liabilities 29,076 - 4 8,924 - - - - Non-current liabilities 221 - - - - - - - Shareholders' equity 810,173 53,531 12,748 31,212 - - - - Total liabilities 839,470 53,531 12,752 40,136 - - - -

d) Financial position of the subsidiaries abroad (direct interest)

12.31.2016 12.31.2015

BV Securities BV Securities UK VBL (1) BV Securities BV Securities UK Current assets 45,398 18,087 16,481 53,698 26,844 Non-current assets - - 402 519 112 Total assets 45,398 18,087 16,883 54,217 26,956 Current liabilities 4,546 491 397 8,010 1,511 Non-current liabilities 2,182 160 - 3,241 55 Shareholders' equity 38,670 17,436 16,486 42,966 25,390 Total liabilities 45,398 18,087 16,883 54,217 26,956

(1) The company was dissolved on August 9, 2016.




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6 CASH AND CASH EQUIVALENTS

12.31.2016 12.31.2015 Cash and cash equivalents 183,634 180,013 Cash and cash equivalents in national currency 83,079 5,311 Cash and cash equivalents in foreign currency 100,555 174,702 Interbank funds applied (1) 1,912,133 8,688,036 Money market investments subject to repurchase agreements - Sales pending settlement - own portfolio 711,425 7,499,104

Interbank accounts or relations 897,954 991,360 Investments in foreign currency 302,754 197,572 Total 2,095,767 8,868,049

(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 RESALE AGREEMENT 12.31.2016 12.31.2015

Book value Fair value of the guarantee Book value Fair value of

the guarantee Sales pending settlement - own portfolio 531,638 529,493 1,555,784 1,509,863 National Treasury Bills 259,866 258,828 307,202 303,294 National Treasury notes 271,772 270,665 1,248,582 1,206,569 Sales pending settlement - financed operations 11,270,616 11,332,583 4,725,598 4,783,379

Financial Treasury Bills 6,497,964 6,503,241 - - National Treasury Bills 2,485,704 2,523,694 707,030 703,269 National Treasury notes 2,286,948 2,305,648 4,018,568 4,080,110 Sale pending settlement - short position 2,189,209 2,206,483 1,071,409 1,045,112 Federal government bonds - National Treasury 2,189,209 2,206,483 1,071,409 1,045,112 Total 13,991,463 14,068,559 7,352,791 7,338,354




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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

12.31.2016 12.31.2015 Market value Total Total

Maturity in days Without maturity 0-30 31-180 181-360 >360 Cost Market

value Mark-to-

market Cost Market value Mark-to-market

1 - Financial assets at fair value through profit or loss 26,156 3,704,984 43,287 184,060 1,854,337 5,851,105 5,812,824 (38,281) 5,626,327 5,512,963 (113,364) Government bonds - 3,702,374 41,294 161,459 1,826,046 5,765,212 5,731,173 (34,039) 5,168,695 5,092,124 (76,571) Financial Treasury Bills - - 254 21,417 210,544 232,215 232,215 - 586,464 586,447 (17) National Treasury Bills - 2,270,334 - 139,326 870,077 3,272,031 3,279,737 7,706 2,945,833 2,944,685 (1,148) National Treasury notes - 1,432,040 41,040 - 741,525 2,256,334 2,214,605 (41,729) 1,621,663 1,546,970 (74,693) Agricultural debt securities - - - 716 - 707 716 9 1,322 1,310 (12) Brazilian Foreign Debt Securities - - - - 3,900 3,925 3,900 (25) 13,413 12,712 (701) Private securities 26,156 2,610 1,993 22,601 28,291 85,893 81,651 (4,242) 457,632 420,839 (36,793) Investment Fund Quotas 1,841 - - - - 1,841 1,841 - 2,221 2,221 - Shares 24,315 - - - - 27,619 24,315 (3,304) 27,619 14,013 (13,606) Rural Product Bills - Commodities - 322 - 22,147 - 23,005 22,469 (536) 58,573 55,347 (3,226) Eurobonds - 2,288 1,993 454 6,135 10,927 10,870 (57) 241,249 220,849 (20,400) Financial Bills - - - - - - - - 97,820 97,820 - Others - - - - 22,156 22,501 22,156 (345) 30,150 30,589 439 2 - Financial assets available for sale 686,393 1,071,210 293,509 890,229 11,767,447 15,085,983 14,708,788 (377,195) 17,848,302 16,946,454 (901,848) Government bonds - 909,538 107,106 148,765 6,948,711 8,034,335 8,114,120 79,785 10,809,828 10,274,670 (535,158) Financial Treasury Bills - - - 148,765 1,701,565 1,851,047 1,850,330 (717) 1,525 1,525 - National Treasury Bills - 909,538 - - 528,790 1,424,026 1,438,328 14,302 5,185,339 4,996,967 (188,372) National Treasury notes - - 107,106 - 3,356,707 3,429,586 3,463,813 34,227 4,539,090 4,257,412 (281,678) Brazilian Foreign Debt Securities - - - - 1,361,649 1,329,676 1,361,649 31,973 1,083,874 1,018,766 (65,108) Private securities 686,393 161,672 186,403 741,464 4,818,736 7,051,648 6,594,668 (456,980) 7,038,474 6,671,784 (366,690) Debentures (1) - - 20,545 418,142 3,706,648 4,411,909 4,145,335 (266,574) 3,199,560 3,081,252 (118,308) Promissory notes(2) - - - 232,847 - 233,423 232,847 (576) 636,030 585,321 (50,709) Shares (3) 591,744 - - - - 691,484 591,744 (99,740) 652,519 659,052 6,533 Investment Fund Quotas 20,232 - - 76,414 117,990 214,636 214,636 - 720,268 720,268 - Rural Product Bills - Commodities(4) - 16,596 55,186 14,061 121,744 217,010 207,587 (9,423) 331,810 318,780 (13,030) Eurobonds(5) - - 13,044 - 475,759 520,759 488,803 (31,956) 430,823 316,123 (114,700) Credit linked notes - - 97,628 - - 97,987 97,628 (359) 242,451 220,067 (22,384) Financial Bills - 145,076 - - 55,721 200,888 200,797 (91) 443,184 439,012 (4,172) Others 74,417 - - - 340,874 463,552 415,291 (48,261) 381,829 331,909 (49,920) 3 - Financial assets held to maturity - 838,621 297,518 - 5,925,469 6,928,846 7,061,608 132,762 7,148,481 7,084,905 (63,576) Government bonds - 838,621 297,518 - 5,925,469 6,928,846 7,061,608 132,762 7,148,481 7,084,905 (63,576) National Treasury Bills - - - - 4,143,466 4,025,086 4,143,466 118,380 5,186,366 5,151,226 (35,140) National Treasury notes - 838,621 297,518 - 1,782,003 2,903,760 2,918,142 14,382 1,962,115 1,933,679 (28,436) Total (1 + 2 + 3) 712,549 5,614,815 634,314 1,074,289 19,547,253 27,865,934 27,583,220 (282,714) 30,623,110 29,544,322 (1,078,788)




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The market value includes the prudential adjustment of credit risk spread. Securities classified as “securities held to maturity” are accounted for at cost. For presentation purposes, these are shown in the table above and mark-to-market.

(1) The cost of the Debentures includes provision for losses in the amount of R$ 894,514 (R$ 75,764 on December 31, 2015) as a counterparty to Income of available-for-sale financial assets..

(2) The cost Promissory Notes includes provision for losses in the amount of R$ 101,397 on December 31, 2015 as a counterparty to Income of available-for-sale financial assets..

(3) The cost value of Shares includes a provision for losses of R$ 74,745 (R$ 87,444 on December 31, 2015) in respect to Income of available-for-sale financial assets. BM&FBovespa publish the market value of the shares.

(4) The cost value of Rural Product Notes also include the losses of R$ 8,286 (R$ 7,132 on December 31, 2015) in respect to Income of available-for-sale financial assets..

(5) The cost of Eurobonds also considers the provisions for losses amounting to R$ 14,807 (R$ 58,889 as of December 31, 2015) as a counterparty to Income of 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 Market 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.




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9 DERIVATIVE FINANCIAL INSTRUMENTS

a) Breakdown of derivative financial instruments by index 12.31.2016 12.31.2015

By index Notional value Cost Market value Notional

value Cost Market value

Futures contracts Purchase commitments 28,014,200 - - 31,336,697 - -

DI (Interbank deposit rates) 15,192,049 - - 9,689,066 - - Currencies 1,612,388 - - 3,655,150 - - Index 1,278,055 - - 492,173 - - Foreign currency coupon 9,931,708 - - 17,500,308 - -

Sales commitments 57,685,592 - - 52,433,963 - - DI (Interbank deposit rates) 32,039,719 - - 25,848,628 - - Currencies 1,609,229 - - 807,850 - - Index 327,655 - - 32,794 - - Foreign currency coupon 23,708,989 - - 25,744,691 - -

Forward transactions 314,132 314,132 314,092 5,088 5,088 5,127 Asset position 73,863 73,863 73,863 5,088 5,088 5,127

Forward currency 240,269 240,269 240,229 - - - Government bonds 314,132 (314,132) (309,209) 5,088 (5,088) (5,088) Liability position 73,863 (73,863) (69,017) 5,088 (5,088) (5,088)

Forward currency 240,269 (240,269) (240,192) - - - Government bonds Option contracts (1)

for the purchase - Long position 9,628,705 217,717 78,080 11,867,709 472,390 592,222

Foreign currency 8,018,900 168,921 49,732 8,837,000 413,343 494,547 Flexible options 594,485 12,042 1,810 2,865,709 49,064 96,505 Shares 1,015,320 36,754 26,538 165,000 9,983 1,170

Sale - Long position 9,988,348 704,612 849,067 9,095,592 225,159 83,882 Foreign currency 5,754,700 222,717 341,334 8,556,044 198,163 43,015 Flexible options 2,915,426 177,133 223,022 6,048 336 233 Shares 1,318,222 304,762 284,711 533,500 26,660 40,634

Purchase - Short position 14,804,009 (568,483) (377,201) 14,799,098 (629,808) (1,295,934) Foreign currency 9,299,763 (188,411) (33,759) 13,142,625 (485,323) (1,261,532) Flexible options 3,891,606 (342,743) (307,245) 1,289,173 (136,269) (33,848) Shares 1,612,640 (37,329) (36,197) 367,300 (8,216) (554)

Sale - Short position 8,597,969 (707,500) (921,989) 8,397,037 (168,309) (98,931) Foreign currency 6,039,325 (643,709) (842,701) 6,142,250 (111,633) (60,366) Flexible options 575,924 (15,735) (40,956) 2,129,287 (51,319) (29,255) Shares 1,982,720 (48,056) (38,332) 125,500 (5,357) (9,310)

Swap contracts (1) Asset position 19,769,123 24,659,919 24,687,857 28,515,768 35,109,270 34,433,417

DI (Interbank deposit rates) 12,576,870 14,634,182 14,348,687 20,602,587 23,613,946 23,341,238 Foreign currency 2,540,611 3,161,967 3,171,855 2,067,458 3,440,071 3,241,190 Pre-fixed 896,606 1,036,994 1,387,749 1,428,436 1,518,028 1,600,649 IPCA 3,173,199 4,934,682 4,870,686 3,820,514 5,476,570 5,209,332 IGPM 285,000 611,823 610,606 362,000 694,684 682,939 Libor 202,774 185,265 184,508 212,705 343,848 332,670 Long Term Interest Rate

(TJLP) 94,063 95,006 113,766 20,313 20,351 23,606

Others - - - 1,755 1,772 1,793 Liability position 19,769,123 (24,133,289) (24,261,466) 28,515,768 (34,819,557) (34,257,258)

DI (Interbank deposit rates) 6,640,268 (8,815,253) (9,118,655) 7,108,667 (8,934,711) (9,285,730) Foreign currency 6,284,716 (6,060,981) (5,552,727) 7,581,143 (8,862,073) (8,306,350) Pre-fixed 2,070,021 (2,207,945) (2,557,169) 8,296,552 (8,971,898) (8,956,484) IPCA 3,403,061 (5,434,772) (5,422,919) 4,164,836 (6,136,142) (5,900,604) IGPM 95,000 (252,317) (252,225) 170,000 (409,868) (407,675) Libor 803,083 (863,642) (873,319) 500,961 (790,343) (782,808) Long Term Interest Rate

(TJLP) 25,000 (41,043) (41,601) 15,000 (26,349) (25,317)

URTJLP 447,974 (457,336) (442,851) 678,609 (688,173) (592,290) Others Derivative financial instruments

Asset position 4,100,865 92,321 95,915 2,389,962 326,824 354,192 Non-Deliverable Forward (1) 4,051,978 89,744 93,254 2,376,944 326,782 354,147 Credit derivatives 48,887 2,577 2,661 13,018 42 45

Liability position 2,486,708 (182,960) (177,678) 2,689,617 (75,714) (120,217) Non-Deliverable Forward (1) 1,882,145 (164,396) (165,826) 1,963,324 (53,907) (72,677) Credit derivatives 604,563 (18,564) (11,852) 726,293 (21,807) (47,540)

(1) The market value of swaps, options and non-deliverable forward include the counterparty credit risk (Credit Spread Adjustment).




39

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

Maturity in days 0-30 31-180 181-360 >360 12.31.2016 12.31.2015 Future contracts 14,579,775 16,069,888 13,121,112 41,929,017 85,699,792 83,770,660 Forward contracts 293,879 20,253 - - 314,132 5,088 Option contracts 14,333,457 12,147,870 9,973,767 6,563,937 43,019,031 44,159,436 Swap contracts 1,213,677 3,181,323 1,155,914 14,218,209 19,769,123 28,515,768 Credit derivatives - 325,910 16,296 311,244 653,450 739,311 Non deliverable forward - Foreign currency

666,178 3,679,845 1,376,058 212,042 5,934,123 4,340,268

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

on December 31, 2016)

Futures Term Options Swap Credit

derivatives Non-

Deliverable Forward

Stock Exchange 85,699,792 - 35,714,432 - - - Over-the-counter - 314,132 7,304,599 19,769,123 653,450 5,934,123 Financial institutions - 314,132 5,830,852 12,342,581 653,450 1,842,132 Client - - 1,473,747 7,426,542 - 4,091,991

d) Breakdown of credit derivative portfolio

12.31.2016 12.31.2015

Notional value Cost Market

value Notional value Cost Market

value Credit Swap Asset position - Risk received 278,653 (18,539) (11,502) 348,831 (21,738) (46,203) Liability position - Transferred risk 374,797 2,552 2,311 390,480 (27) (1,292) By index Asset position - Prefixed 48,887 2,577 2,661 13,018 42 45 Liability position - Prefixed 604,563 (18,564) (11,852) 726,293 (21,807) (47,540)

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$ 3,310 (R$ 9,552 as of December 31, 2015).

e) Margin given as collateral for transactions that use derivative financial instruments 12.31.2016 12.31.2015 Financial Treasury Bills 238,987 13,210 National Treasury notes 1,214,236 1,420,010 National Treasury Bills 608,881 1,679,865 Others 35,036 203,758 Total 2,097,140 3,316,843




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

12.31.2016 12.31.2015 Current Non-current Current Non-current Assets 1,453,375 1,231,802 1,342,106 1,263,688 Forward operations 314,092 - 5,127 - Options market 685,855 241,292 661,195 14,909 Swap contracts 363,007 985,016 384,757 1,185,614 Credit derivatives - 2,661 45 - Other derivative financial instruments 90,421 2,833 290,982 63,165 Liabilities (1,721,867) (985,842) (1,805,525) (1,108,857) Forward operations (309,209) - (5,088) - Options market (1,135,862) (163,328) (1,384,884) (9,981) Swap contracts (120,152) (801,480) (363,879) (1,030,333) Credit derivatives (350) (11,502) - (47,540) Other derivative financial instruments (156,294) (9,532) (51,674) (21,003)

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 operations, the classification and percentage of allowance for doubtful accounts is considered in the effectiveness calculation metric. Market risk 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 market value variations. 12.31.2016 12.31.2015 Fair value risk hedge Hedge instruments Assets 3,419,083 9,118,548 Future 3,126,786 9,088,434 Swap 29,869 30,114 Options 262,428 - Liabilities (28,227,058) (17,230,896) Future (28,227,058) (17,230,896) Swap - - Items to be hedged Financial assets 22,100,456 20,040,034

Financial assets with resale agreements 5,781,536 3,443,442 Financial assets available for sale 197,382 - Loans and receivables 16,121,538 16,596,592

Financial liabilities (3,271,177) (9,091,821) Financial liabilities at amortized cost (3,271,177) (9,091,821)

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 BM&FBOVESPA. The mark-to-market of the effective portion in the amount of R$ (26,571), was recognized in equity and the ineffective portion in the amount of R$ (15) was recognized in the net income as "Income from derivative financial instruments". 12.31.2016 12.31.2015 Cash flow hedge Hedge instruments Liabilities 265,531 - Future 265,531 - Items to be hedged Liabilities 250,639 - Financial liabilities at amortized cost 250,639 -




41

The maturity of cash flow hedged items, on December 31, 2016, are as follows: Maturity Book value January/2019 23,514 January/2020 75,286 October/2021 151,839 Total Cash Flow hedged items 250,639

h) Gains and losses from instruments and hedge items

Year 2016 Year 2015 Losses from hedged items (1,243,926) (5,031,437) Gains from hedge instruments 1,281,496 5,070,777 Net effect 37,570 39,340 Gains from hedge items 4,531,606 4,181,176 Losses from hedge instruments (4,557,345) (4,181,264) Net effect (25,739) (88)

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$ 3,529.

i) Income from derivative financial instruments Year 2016 Year 2015 Swap contracts 1,158,509 (110,327) Forward contracts 5,405 3,275 Futures contracts (1,305,310) 2,336,618 Option contracts 26,346 (524,655) NDF contracts (133,072) 418,189 Credit derivatives 33,417 (17,851) Income from foreign exchange variation of investments abroad (279,973) 524,818 Total (494,678) 2,630,067

j) Hedge accounting

Object of hedge Hedge instruments 12.31.2016 12.31.2015

Derivative

12.31.2016 12.31.2015

Strategies/Risk Market value

Unrealized gain/

(Loss) Market value Market value Market value

Purchase and sale commitment hedge / Fair value / Prefixed rates

5,781,536 2,128 3,443,442 Futuro DI 6,782,618 4,584,069

Share of Companies / Fair value

197,382 (22,779) - Opções 262,428 -

Loan and lease hedge and leases / Fair value / Prefixed Rate / foreign exchange variation

16,121,538 354,292 16,596,592

Futuro DI 13,653,456

13,305,967 Futuro DDI 1,671,709 2,496,538

Futuro Libor 509,582 748,012

Hedge of obligations due to Foreign Securities / Fair value / Exchange variation

- - 5,085,442 Futuro DDI - 5,089,518

Subordinated debt hedge / exchange variation / Fair Vaue / IGPM

3,271,177 (150,713) 4,006,379 Futuro DDI 3,126,786 3,998,916

Swap 390,317 338,261

Hedge of Financial bills and subordinated debt / Cash flow / fixed rate

250,639 - - Futuro DI 265,531 -




42

10 LOANS AND RECEIVABLES

a) Breakdown of operations Note 12.31.2016 12.31.2015 Loans 10,918,766 12,583,688 Discounted securities 115,999 50,185 Financings 30,857,277 31,443,532 Export financings 3,962,973 5,202,097 Financing in foreign currency 47,579 302,493 Rural financing agreements 450,197 458,207 Real estate financing agreements 307,446 469,075 Advances on exchange contracts 316,167 593,551 Financial lease operations - 10b 127,351 194,275 Credits for sureties and guarantees paid 174,084 197,497 Loans acquired - 89,186 Total transactions with loan characteristics 47,277,839 51,583,786 Provision for impairment losses 33d.ix (3,538,231) (3,987,483) Fair value adjustment 10c 352,888 (243,616) Associated costs 428,064 255,185 Other receivables 10d 1,832,932 2,011,744 Total loans and receivables 46,353,492 49,619,616

b) Financial leasing information

The portfolio of lease operations segregated by maturity is reported resented as follows: 12.31.2016 12.31.2015

Minimum future

payments Unearned

income Present

value Minimum future

payments Unearned

income Present

value Up to 1 year 157,488 (83,899) 73,589 253,081 (131,713) 121,368 Between 1 and 5 years 115,056 (61,294) 53,762 152,029 (79,122) 72,907

Total 272,544 (145,193) 127,351 405,110 (210,835) 194,275 The 10 material financial lease agreements, representing approximately 30% of the portfolio at December 31, 2016, are as follows: Start Date Final date Agreed rate Present value Impairment Mar 13 Mar 18 CDI + 1.6069% p.a. 11,303 113 Aug 15 Aug 20 16.8354% p.a. 4,002 40 Sep 12 Sep 17 CDI + 3.1635% p.a. 2,460 - Jan 15 Jan 18 14.9196% p.a. 2,426 24 Oct 14 Aug 22 14.3000% p.a. 2,331 - Oct 14 Aug 22 14.3000% p.a. 2,276 - Nov 15 Jul 18 26.1064% p.a. 2,256 - Dec 14 Jun 17 14.6792% p.a. 2,131 21 Oct 14 Aug 22 14.3000% p.a. 1,865 - Oct 14 Aug 22 14.3000% p.a. 1,820 -

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. 12.31.2016 12.31.2015 Loans 430 (64,364) Financings 235,109 (367,650) Export financing 117,358 187,851 Other (9) 547 Total 352,888 (243,616)




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d) Composition of other receivables 12.31.2016 12.31.2015 Interbank deposits (1) 1,212,687 1,145,815 Central Bank of Brazil deposits 340,569 20,233 Interbank onlendings - 51,668 Correspondent relations 72 257 Income receivable 44,950 20,352 Receivables from related companies - 2,634 Credit card transactions 11,234 11,716 Receivables from securities abroad 1,745 21,034 Other receivables - For trading and securities clearing accounts 218,318 737,885 Others 3,357 150 Total 1,832,932 2,011,744 (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 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.. 12.31.2016 12.31.2015 Non-financial assets held for sale - Book value Real estate 315,884 224,172 Vehicles 79,841 55,900 Machinery and equipment 1,377 925 Total 397,102 280,997

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 and the asset may be held as non-current over a period of one year, and this period may be extended with the consent of the regulatory agency (Central Bank of Brazil).




44

12 INVESTMENTS

a) Breakdown of investments in subsidiaries

Investment amount

Changes in 2016

Investment amount % of interest

12.31.2015 Acquisition Disposal Dividends Equity in income of

subsidiaries Impairment 12.31.2016 2016 2015

Associated company CSUL Desenvolvimento Urbano S.A. 132,818 38,926 - - 310 - 172,054 50.00 44.14 Phaser Incorporação SPE S.A. 93,984 17,362 - (1,950) 16,855 - 126,251 30.00 30.00 Jaguatirica Emp. Imob. S.A. 48,620 24,535 (8,240) - (70) - 64,845 33.33 33.33 NS Emp. Imob. 10 S.A. 22,475 11,836 - - 10,675 - 44,986 59.50 46.66 SCP - Henri Dunant Lot 3 31,870 7,349 - - 1,198 - 40,417 20.00 20.00 Vitacon 50 Desenvolvimento Imob. S.A. 32,282 - (48) - 30 - 32,264 30.00 30.00 Performance G.S.S.A - 4,741 - - (508) - 4,233 90.00 - Tolle Emp. Imob. S.A. 5,441 - (559) - (989) - 3,893 40.00 40.00 Costa Laguna Emp. Imob. S.A. (1) 645 2,224 - - 712 - 3,581 10.72 8.94 Castelblanco Emp. Imob. S.A. 5,026 - (42) (3,610) 134 - 1,508 26.76 26.76 Queiroz Galvão Sabia Emp. Imob. S.A. 724 - (460) - 8 - 272 40.00 40.00 Alfa Emp. Imob. S.A. 1,578 - - - (1,407) - 171 25.00 25.00 SCP - Henri Dunant Lote 1 7,797 - (7,797) - - - - 10.00 10.00 Vista Alegre Emp. Imob. S.A. (7) - - - (6) - (13) 20.00 20.00 Jointly-controlled subsidiaries Reserva Natural Emp. Imob. S.A. 11,809 426 - - 6,902 - 19,137 50.00 50.00 GT 11 Emp.Imob. S.A. (2) 17,773 - (72) - (55) - 17,646 60.00 60.00 Brookfield SPE 23 S.A. 15,398 - (23) - (344) - 15,031 50.00 50.00 Villagio Pompéia Emp. Imob. S.A. (2) 12,389 659 - (428) 351 - 12,971 60.00 60.00 NS Emp. Imob. Noroeste S.A. (2) 24,000 - (15,583) - 160 - 8,577 70.00 70.00 Diálogo Ibiapava Emp. Imob. S.A. 4,168 320 - - 944 - 5,432 50.00 50.00 Upcon SPE 4 Emp. Imob. S.A. 3,254 459 - - 1,308 - 5,021 50.00 50.00 Ramá SPE Emp. Imob. S.A. 4,878 87 - - (22) - 4,943 50.00 50.00 Upcon SPE 7 Emp. Imob. S.A. 4,019 429 - - (211) - 4,237 50.00 50.00 Salaverry Emp. Imob. S.A. 12,268 - (10,424) (23) 628 - 2,449 50.00 50.00 GMAX Emp.Imob. SPE S.A. 2,174 - (5) - (46) - 2,123 50.00 50.00 Upcon SPE 12 Emp. Imob. S.A. 611 1,122 - - (243) - 1,490 50.00 50.00 RKM 01 Emp.Imob. SPE S.A. (2) 1,397 - - - (270) - 1,127 80.00 80.00 Joaquim Antunes Emp. Imob. S.A. (164) 180 - - 126 - 142 50.00 50.00 Colméia Life Tower Emp. Imob. S.A. 7 - - - (1) - 6 50.00 50.00 Colméia Capim Macio Emp. Imob. S.A. (221) - (99) - 95 - (225) 50.00 50.00 Goodwill in the acquisition (Note 13b) 97,032 34,802 (18,553) - - - 113,281 Adjustment to recoverable value (Note 13b) (1,597) - - - - (668) (2,265) Total 592,448 145,457 (61,905) (6,011) 36,264 (668) 705,585

(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.




45

b) Goodwill and adjustment to recoverable value Goodwill Impairment 12.31.2016 12.31.2015 12.31.2016 12.31.2015 Associated companies NS Emp. Imob. 10 S.A. 37,402 16,755 - - SCP - HD PHASE 1 and 3 21,005 36,639 - - CSUL Desenvolvimento Urbano S.A. 10,822 - - - Jaguatirica Emp. Imob. S.A. 4,055 4,055 - - Phaser Incorporação SPE S.A. 2,417 2,417 - - Costa Laguna Emp. Imob. S.A. 1,508 - - - Castelblanco Emp. Imob. S.A. 1,332 2,196 - - Vitacon 50 Desenvolvimento Imob. S.A. 663 663 - - Alfa Emp. Imob. S.A. - - (171) (1,578) Tolle Emp. Imob. S.A. - - - (19) Jointly-controlled subsidiaries GMAX Emp.Imob. SPE S.A. 10,600 10,600 - - Reserva Natural Emp. Imob. S.A. 8,333 10,388 - - Brookfield SPE 23 S.A. 5,239 5,239 - - Upcon SPE 4 Emp. Imob. S.A. 3,408 3,408 - - NS Emp. Imob. Noroeste S.A. 1,504 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 - - - Arena 11 Incorporações SPE Ltda 900 - - - Total 113,281 97,032 (2,265) (1,597)

c) Financial information - Associated companies as of 12.31.2016

CSUL Phaser Jaguatirica NS 10 SCP - Henri

Dunant Lot 3 Vitacon

50 Performance

G.S.S.A Tolle Costa Laguna

Funds available 1,976 12,495 7,314 524 70,872 453 27 1 5,365 Current assets 62 480,649 189,012 46 238,970 134,227 - 1,818 53,865 Non-current assets 358,285 113,082 163 76,102 458 - 4,681 8,257 506 Current liabilities 16,215 164,481 1,933 104 14,832 58 5 343 4,404 Non-current liabilities - 20,910 - 959 93,383 27,075 - - 21,927 Income 4,540 121,584 837 22,412 32,262 162 - 5,743 23,952 Income / (loss) for the period 499 56,184 210 21,703 9,172 98 (445) (2,472) 14,231 Other comprehensive income 121 - (420) (3,762) (3,182) - (119) - (7,589)

Total comprehensive income 620 56,184 (210) 17,941 5,990 98 (564) (2,472) 6,642 Adjusted shareholders' equity 344,108 420,835 194,556 75,609 202,085 107,547 4,703 9,733 33,405

% of interest 50.00 30.00 33.33 59.50 20.00 30.00 90.00 40.00 10.72 Balance of the investment 172,054 126,251 64,845 44,986 40,417 32,264 4,233 3,893 3,581

Castelblanco Queiroz Galvão Sabia Alfa SCP - Henri Dunant Lot 1 Vista Alegre Funds available 217 184 50 44,380 - Current assets 3.583 624 8,978 178,525 13 Non-current assets 3,167 545 6,387 14 140 Current liabilities 919 95 14,555 121,171 219 Non-current liabilities 414 578 176 101,748 - Income 3,728 5 1,104 35,815 22 Income / (loss) for the period 502 - (452) (4,186) (24) Other comprehensive income - 20 (5,176) 4,186 - Total comprehensive income 502 20 (5,628) - (24) Adjusted shareholders' equity 5,634 680 684 - (66) % of interest 26.76 40.00 25.00 10.00 20.00 Balance of the investment 1,508 272 171 - (13)




46

d) Financial information - Jointly-controlled subsidiaries as of December 31, 2016

Reserva Natural GT 11 Brookfield Villagio Pompéia

NS Noroeste

Diálogo Ibiapava

Upcon SPE 4 Ramá

Funds available 149 55 2,035 - 20 381 4,228 27 Current assets 5,302 30,127 225 10,107 14,442 3,493 23,086 9,862 Non-current assets 38,495 - 34,789 11,625 3 8,886 - 16 Current liabilities 378 492 764 114 1,440 1,458 17,272 18 Non-current liabilities 5,294 280 6,223 - 772 439 - - Income 17,766 2 49 7,054 11,213 2,231 11,353 2 Income / (loss) for the period 13,803 (92) (688) 585 228 1,889 2,616 (44) Other comprehensive income - - - - - - - - Total comprehensive income 13,803 (92) (688) 585 228 1,889 2,616 (44) Adjusted shareholders' equity 38,274 29,410 30,062 21,618 12,253 10,863 10,042 9,887 % of interest 50.00 60.00 50.00 60.00 70.00 50.00 50.00 50.00 Balance of the investment 19,137 17,646 15,031 12,971 8,577 5,432 5,021 4,943

Upcon SPE 7 Salaverry GMAX Upcon SPE 12 RKM 01 Joaquim

Antunes Colméia

Life Tower Colméia

Capim Macio Funds available 37 365 146 11 422 - 30 182 Current assets 10,046 4,233 6,553 9,964 30,449 640 - 315 Non-current assets - 1,466 1,256 - 4 413 - 24 Current liabilities 1,316 800 29 5,411 5,320 769 - 669 Non-current liabilities 294 366 3,678 1,584 24,147 - 18 303 Income 5 3,126 2 3,284 18 962 - 44 Income / (loss) for the period (422) 1,256 (93) (487) (316) 253 (2) 38 Other comprehensive income - - - - (22) - - 152 Total comprehensive income (422) 1,256 (93) (487) (338) 253 (2) 190 Adjusted shareholders' equity 8,473 4,898 4,248 2,980 1,408 284 12 (451) % of interest 50.00 50.00 50.00 50.00 80.00 50.00 50.00 50.00 Balance of the investment 4,237 2,449 2,123 1,490 1,127 142 6 (225)

13 OTHER ASSETS 12.31.2016 12.31.2015 Purchased foreign exchange to be settled 336,653 1,562,382 Receivables from foreign exchange sales 178,705 631,864 Advances in national currency received (7,057) (18,029) Debtors accounting settlement pending 67,564 72,891 Salary advances 3,992 4,032 Advances to suppliers 1,400 1,688 Debtors of guarantee deposits – Contingencies (Note 18c) 824,776 1,169,530 Debtors of guarantee deposits - Others 528 530 Prepaid expenses on insurance 797 492 Data processing prepaid expenses 7,657 3,682 Prepaid expenses on specialized technical services 2,912 1,409 Prepaid financial system service expenses 2,469 2,650 Others 173,531 272,606 Total 1,593,927 3,705,727

14 TANGIBLE ASSETS 12.31.2015 Year 2016 12.31.2016

Book balance Changes Depreciation Cost Accumulated depreciation

Book balance

Facilities 47,911 15,874 (9,734) 114,898 (60,847) 54,051 Furniture and equipment for use 23,264 (1,686) (7,552) 51,164 (37,138) 14,026 Communication system 3,544 1,317 (2,417) 14,742 (12,298) 2,444 System data processing 20,061 17,485 (10,124) 120,590 (93,168) 27,422 Security system 903 58 (872) 2,462 (2,373) 89 Transportation system 296 8 (115) 786 (597) 189 Improvements to leased property 14,767 (6,691) (8,076) - - - Construction in process - 5 - 5 - 5 Total 110,746 26,370 (38,890) 304,647 (206,421) 98,226




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15 INTANGIBLE ASSETS WITH DEFINED USEFUL LIFE

a) Change and Breakdown

12.31.2015 Year 2016 12.31.2016

Book balance Acquisitions Write-offs Amortiz. Impairment

Cost

Accumulated amortization

Accumulated impairment

Book balance

SISBEX BM&FBOVESPA - - (200) - 200 - - - -

Software acquired 17,134 2,926 (8,176) (5,799) 7,038 27,290 (14,167) - 13,123

Use licenses 48,327 9,753 - (16,310) - 92,854 (51,084) - 41,770

Sales rights agreements 835 - - (750) - 5,000 (4,915) - 85

Software developed internally 22,200 38,489 (6,533) (807) - 80,583 (9622) (17,612) 53,349

Total 88,496 51,168 (14,909) (23,666) 7,238 205,727 (79,788) (17,612) 108,327

b) Amortization estimates 2017 2018 2019 2020 2021 As of 2022 Total Amounts to be amortized 27,577 25,223 23,042 14,596 8,758 9,131 108,327

16 FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

12.31.2016 12.31.2015

Cost Fair value (book)

Unrealized gain / (loss) Cost Fair value

(book) Unrealized

gain / (loss) Domestic Repurchase agreements - Free movement. 2,176,496 2,206,483 29,987 1,067,958 1,045,112 (22,846) Securities abroad 19,238 20,168 930 77,273 69,936 (7,337) Total 2,195,734 2,226,651 30,917 1,145,231 1,115,048 (30,183)

17 FINANCIAL LIABILITIES AT AMORTIZED COST 12.31.2016 12.31.2015 Financial liabilities under repurchase agreements (Note 18a) 18,086,414 13,840,392 Financial liabilities at amortized cost, related to transferred financial assets (Note 18b) 13,472,990 15,961,432 Financial institution deposits 1,997,318 1,932,502 Customer deposits (Note 18c) 2,281,996 2,018,149 Borrowings (Note 18d) 1,804,185 4,227,975 Onlendings (Note 18e) 3,404,501 3,665,233 Securities issued (Note 18f) 37,162,727 43,166,534 Subordinated liabilities (Note 18g) 6,045,578 6,927,578 Total 84,255,709 91,739,795 (1) Includes transactions marked to market by the Hedge Accounting structure (Note 9g).

a) Composition of Financial liabilities with repurchase agreements

12.31.2016 12.31.2015 Own portfolio 8,311,820 9,127,510 National Treasury Bills 3,439,828 5,133,719 National Treasury notes 1,444,200 3,121,013 Private securities - Debentures 578,467 13,101 Financial Treasury Bills 1,569,132 4,031 Private securities - Other 1,280,193 855,646 Third-party portfolio 9,774,594 4,712,882 National Treasury Bills 2,485,111 695,444 Financial Treasury Bills 6,496,484 - National Treasury notes 792,999 4,017,438 Total 18,086,414 13,840,392




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b) Financial liabilities, related to transferred assets

12.31.2016 12.31.2015 Financial liabilities associated with transferred assets (Note 33d-xii) 13,472,990 15,953,175 Other liabilities - 8,257 Total 13,472,990 15,961,432

c) Breakdown of client deposits

12.31.2016 12.31.2015 Demand deposits 87,594 80,861 Individuals 17,482 12,532 Legal entities 70,072 68,288 Linked 40 41 Time deposits 2,194,402 1,937,288 Local currency 1,811,575 1,854,391 Foreign currency 382,827 82,897 Total 2,281,996 2,018,149

d) Breakdown of borrowings

12.31.2016 12.31.2015 Abroad 1,804,185 4,227,975

Obtained from foreign banks 1,763,293 4,143,258 Exports 18,893 72,768 Imports 21,999 11,949

Total 1,804,185 4,227,975

e) Breakdown of onlendings Programs Rates of restatement 12.31.2016 12.31.2015 National Treasury 82,739 77,688 Pre-fixed From 5.5% to 9.5% p.a. 82,734 77,069 Post-fixed Selic 5 619 BNDES 1,597,268 1,581,840 Pre-fixed Until 9.50% p.a. 389,657 568,262

Post-fixed From 7.02% to 10.01% p.a. + IPCA Until 4.00% p.a. + TJLP From 1.70% to 2.50% p.a. + Selic

1,160,451 934,406

With exchange variation From 1.30% to 3.00% p.a. + exchange variation 47,160 79,172 FINAME 1,724,494 2,005,705 Pre-fixed Until 18.96% p.a. 1,636,132 1,910,245

Post-fixed From 0.50% to 5.50% p.a. + TJLP From 1.70 to 2.48% p.a. + Selic 87,769 94,560

With exchange variation 1.70% p.a. + exchange variation 593 900 Total 3,404,501 3,665,233




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f) Breakdown of securities issued FUNDING Currency Amount

issued Remuneration p.a. Funding date Maturity 12.31.2016 12.31.2015

Debentures 15,380,482 17,914,236 Pre-fixed R$ 170,305 From 6.74% to 17.17% p.a. 2013 2020 198,829 246,583

Post-fixed R$

14,342,488 From 81.00% to 106.30% Interbank Deposit 2011 2021 15,111,602 17,554,863

57,971 From 4.99% to 8.22% p.a.+ IPCA 2013 2022 67,230 105,469 2,114 6.85% p.a.+ IGPM 2015 2017 2,821 7,321

Real estate credit note 369,810 389,439 Pre-fixed R$ 11,286 From 12.10% to 15.36% p.a. 2015 2021 13,543 14,812

Post-fixed R$ 311,183 From 88.00% to 100.00% Interbank Deposit 2014 2020 348,019 367,118

6,907 From 4.85% to 6.07% p.a. + IPCA 2015 2018 8,248 7,509 Agribusiness credit bills 2,564,336 3,175,519 Pre-fixed R$ 54,059 From 11.79% to 16.31% p.a. 2015 2021 64,137 94,434

Post-fixed R$ R$

2,071,314 From 90% to 98.50% Interbank Deposit 2008 2022 2,460,129 3,035,283 34,132 From 4.52% to 6.50% p.a. +IPCA 2015 2021 40,070 45,802

Financial bills 17,552,169 13,633,973 Pre-fixed R$ 286,954 From 9.98% to 18.01% p.a. 2012 2024 356,219 391,883

Post-fixed R$ R$ R$

14,496,363 From 100.00% to 112.02% Interbank Deposit 2011 2020 16,582,501 12,746,766

437,043 From 4.04% to 8.31% p.a. + IPCA 2012 2021 612,388 483,191 967 From 5.70% to 7.43% p.a. + IGPM 2016 2019 1,061 12,133

Foreign securities 1,295,930 8,053,367 Pre-fixed R$ 46,738 From 9.20% to 19.77% p.a. 2007 2020 56,234 1,158,483

Post-fixed R$ 3,543 From 92.10% to 101.40% Interbank Deposit 2012 2017 4,331 11,272

With exchange variation

USD 344,430 Until 5.53% p.a. + Exchange variation 2012 2020 1,166,024 6,878,489

EUR 20,200 Until 0.48% p.a. + Exchange variation 2016 2017 69,341 5,123

Total 37,162,727 43,166,534

g) Composition of subordinated liabilities Funding Amount issued Remuneration p.a. Funding date Maturity 12.31.2016 12.31.2015 Subordinated bill 2,876,929 3,652,280 With exchange variation USD 808,048 7.38% p.a. + foreign exchange 2013 2020 2,876,929 3,652,280 Subordinated financing bills 3,168,649 3,275,298 Pre-fixed 73,810 From 14.21% to 17.98% p.a. 2015 2023 90,058 44,330

Post-fixed

1,778,865 From 1.72% to 2.16% p.a. + CDI From 100.00% to 120.00% Interbank Deposit

2011 2023 2,001,164 2,037,018

187,200 From 6.60% to 7.57% p.a. + IGPM 2011 2017 383,694 318,754 458,864 From 7.25% to 9.31% p.a. + IPCA 2011 2030 663,100 875,196 27,500 117.50% SELIC 2016 2023 30,633 -

Total 6,045,578 6,927,578

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

12.31.2016 12.31.2015 Without maturity 87,594 80,861 Up to 90 days 28,085,804 27,119,551 91-360 days 27,823,594 34,658,403 1-3 years 22,352,329 25,186,584 3-5 years 7,259,074 6,274,036 >5 years 1,414,743 3,008,885 Total 87,023,138 96,328,320




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18 PROVISIONS, CONTINGENT ASSETS, LIABILITIES AND LEGAL, TAX AND SOCIAL SECURITY OBLIGATIONS Contingent assets Contingent assets were not recognized in the financial statements, as IAS 37. 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. 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. 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.

a) 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. Changes in provisions for tax, civil and labor claims classified as probable Year 2016 Year 2015 Tax claims

Opening balance 45,724 71,557 Formations 10,152 14,177 Reversal of provision (6,792) (28,086) Write-offs due to payment (2,147) (15,277) Adjustments 5,875 3,353

Closing balance 52,812 45,724 Civil claims

Opening balance 300,598 324,968 Formations 134,647 122,161 Reversal of provision (88,680) (91,083) Write-offs due to payment (107,814) (125,260) Adjustments 63,490 69,812

Closing balance 302,241 300,598 Labor claims

Opening balance 911,009 961,855 Formations 494,003 527,652 Reversal of provision (1) (400,768) (359,069) Write-off due to payment (2) (210,035) (301,627) Adjustments 93,567 82,198

Closing balance 887,776 911,009 Total of Labor, Tax and Civil claims 1,242,829 1,257,331 (1) Refer mainly to negotiating agreements, revisions of processes and loss forecasting. (2) They refer, primarily, to labor claims due to agreements. (3) From August 2016, the measurement criteria were changed with the implementation of a statistical model for

calculating the provision for actions that have homogeneous or similar profiles and standards, which have been valuated in a mass way. This change resulted in an reversal of provision in the amount of R$ 16,810.




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Estimated schedule for disbursement 12.31.2016 Labor Tax Civil Up to 5 year 887,776 43,512 302,241 From 5 to 10 years - 9,300 - Total 887,776 52,812 302,241

The uncertainty regarding the length of the process, and alterations to court jurisprudence, make the values and the expected timing of outflows uncertain.

b) 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. 12.31.2016 12.31.2015 Tax claims (1) 1,202,059 1,016,785 Civil claims (2) 43,070 40,019 Labor claims (3) 289,441 467,292 Total 1,534,570 1,524,096 (1) Basically refer to: a) IRPJ/CS on equity investments abroad R$ 235,787 (R$ 223,034 on December 31, 2015); b)

INSS on Profit Sharing (PLR) R$ 138,907 (R$ 51,514 on December 31, 2015); c) IRPJ of exceeding amount destined to FINOR (2004 to 2010) R$ 45,837 (R$ 119,710 on December 31, 2015); d) ISS R$ 11,096 (R$ 11,139 on December 31, 2015); e) INSS on Profit Sharing - Nassau Branch R$ 41,700 (R$ 39,130 on December 31, 2015); f) PIS / COFINS on demutualization R$ 38,895 (R$ 36,651 on December 31, 2015); g) IRPJ/CS on undue offset of tax loss - Gratuities to statutory officers R$ 28,418 (R$ 27,043 on December 31, 2015); h) IRPJ/CSLL - Deduction Allowance for Doubtful Accounts (PDD) 2008 R$ 104,520 (R$ 99,113 on December 31, 2015); i) Infringement Fine (non-homologation of DCOMP) R$ 142,804 (R$ 127,753 on December 31, 2015); j) CSLL - Exclusion of Interests - Tax Assessments comprising improper exclusion in the BACEN relating to interest earned on the foreign public bonds (Denmark, Spain and Austria) of 2009 and 2010, in the amount of R$ 138,200 relating to principal, fine and interest of the year 2009 (R$ 127,441 on December 31, 2015); k) IRPJ/CSLL - Assessment notice: improper exclusion of goodwill on acquisition of securities of Foreign Governments (2010) in the amount of R$ 11,811 of IRPJ and R$ 10,124 of CSLL (R$ 11,152 of IRPJ and R$ 9,908 of CSLL, respectively, on December 31, 2015); l) Per comp: impossibility of the utilization of IRRF abroad on remittances abroad as negative balance of IRPJ, in the amount of R$ 32,550 (R$ 29,827 on December 2015); m) Gratuity paid to managers (2011 and 2012): impossibility of deduction in the CSLL calculation basis R$ 17,775; n) Tax Loss and Negative Base CSLL: excess compensation (2012), in the amount of R$ 16,994 of IRPJ and R$ 45,889 of CSLL.

(2) They refer to, basically, to collection actions. (3) Refer to processes filed, in the majority of cases, by ex-employees, claiming compensation, overtime pay, working

hours, extra pay associated with certain jobs, and representation costs, and others. Refers to actions mostly brought by former employees claiming compensation, overtime pay, working hours, extra pay associated with certain jobs, and representation costs, and others. In August 2016, the measurement criteria changed with the implementation of a statistical model for the calculation of the provision for actions that have homogeneous or similar profiles and standards, which are now being valuated in a mass way. For comparability purposes, the amount of contingent liabilities classified as possible disclosed on December 31, 2015 amount of R $ 1,008,555 were restated, with the purpose of demonstrating for both periods the calculation of the risk of possible loss in light of the new provision calculation model implemented.

c) Deposits as collateral

Balances of escrow deposits recognized for contingencies 12.31.2016 12.31.2015 Tax claims 307,246 682,384 Civil claims 242,009 221,944 Labor claims 275,521 265,202 Total 824,776 1,169,530




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d) Legal liabilities

The Conglomerate maintains in specific accounts due to legal obligations, the amount of R$ 15,013 (R$ 9,686 on December 31, 2015) due to the following: d.1) PIS LC 07/70 - BV Financeira S.A. CFI BV Financeira S.A. - CFI filed for an injunction aimed at recognizing the right to collect the contribution for the PIS in the form provided in the Complementary Law 7/70, in the period from 01/07/1997 up to 90 days after the publication of Constitutional Amendment Number 17/97. Furthermore, it is required, for the subsequent period (from March 1998 to December 1999), this contribution be collected on operating gross income. Currently, the Writ of Mandamus is suspended in the Federal Regional Court of the 3rd Region, awaiting the Supreme Court to give a ruling on the appeal, a decision that should be replicated in all cases that deal with the same subject matter and are awaiting a hearing before the Judiciary. For this case, we have the provision of R$ 711 (R$ 684 on December 31, 2015) as recorded in Other obligations – Tax and social security - Legal liabilities. d.2) ISS on guarantees - Banco Votorantim SA Banco Votorantim SA filed a Declaratory Action of a Lack of Legal and Tax Relationship combined with Recovery of Undue Payments, in which it seeks to exclude the impact of the ISS on revenues from operations, surety and other guarantees and obtain refund of the amounts paid to that in the last five years. As, in the first instance the application for an anticipated decision was dismissed by the judge, the Bank began to conduct monthly escrow deposits for amounts discussed, in order to suspend the tax credit. Currently, issuance of decision is being awaited. For this case, we have the provision of R$ 11,275 (R $ 6,215 on December 31, 2015) recorded in Other obligations – Tax and social security - Legal liabilities. d.3) Accident Prevention Factor - APF - Banco Votorantim S.A., BV Financeira S.A. CFI Also filed were Declaratory Actions for the declaration of absence of legal and tax relationship requiring the calculation and payment of contributions for insurance of the prevention of Accidents at Work by applying the Accident Prevention Factor (APF) from January 2010. As, in the first instance the application for an anticipated decision was dismissed by the judge, the Bank and BV Financeira made escrow deposits for the amounts discussed for 2010, to suspend the tax credit. Subsequently, the value has to be regularly collected. Regarding the actions of Banco Votorantim and CP Promotora, there was judgment dismissing the application, as well as, in the first case, the termination the process without resolution regarding the INSS, given its illegitimate liability. In the face of these decisions, declaratory embargos were lodged, with only the case of the Bank upheld, to remedy the failure to act as a claim of the Union, maintaining, the dismissal of the request. Thus, if an appeal is bought about, the aim will be full reform of the sentences in the first degree, which were received with double effect. Currently, pending the filed appeal judgment.




53

Regarding the action of BV Financeira, after the distribution of the action, there was judgment, which was upheld the request, also an anticipated decision. However, despite the favorable decision an appeal was imposed by the Plaintiff, also considered by TRF3, as the judge of first instance did not examine the factual-evidential matter. It is, therefore, merely a preventive action, in case the argument of unconstitutionality of PAF to be dismissed by the Court. Currently, pending the filed appeal judgment. For these processes, we have the provision of R$ 3,027(R$ 2,787 recorded in Other obligation – Tax and social security - Legal liabilities.

19 TAXES

a) Current tax assets 12.31.2016 12.31.2015 Income taxes to offset 139,952 175,311 Social contribution to offset 58,913 87,304 PIS tax to offset 945 389 COFINS tax to offset 4,445 1,861 Other assets 980 1,122 Total 205,235 265,987

b) Deferred tax assets Activated 12.31.2015 Year 2015 12.31.2016

Balance Net changes in the period

Balance

Timing differences 6,499,273 (310,792) 6,188,481 Allowance for doubtful accounts 4,434,662 (98,773) 4,335,889 Liability provisions 1,041,485 276,167 1,317,652 Mark- to- market(1) 989,283 (482,661) 506,622 Other provisions 33,843 (5,525) 28,318 CSLL tax loss/negative basis 1,166,611 (1,850) 1,164,761 Total tax credit assets 7,665,884 (312,642) 7,353,242 Income tax 4,670,198 (117,548) 4,552,650 Social contribution 2,995,686 (195,094) 2,800,592 (1) On December 31, 2016, the portion of R$ 93,580 (of the amount R$ 506,622) corresponds to the tax credit arising

from the adjustment to market 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 market value of available-for-sale securities recorded in Shareholders' Equity, without exercise of 2016, are R$ (203,587) of the total R$ (482,661).

Not activated 12.31.2016 12.31.2015 Tax credit abroad 10,278 19,838 Tax credit other provisions 24,391 - Total of Tax credits not recorded in assets 34,669 19,838 Income tax 23,638 13,275 Social contribution 11,031 6,563

On December 31, 2016, the balance excluding tax credits was R$ 34,669 (R$ 19,838 on December 31, 2015), which will be recorded when address the regulatory aspects and presenting actual realization perspective.




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Realization estimate The expected realization of deferred tax assets (tax credits) draws upon a technical study prepared on December 31, 2016. Nominal value Present value In 2017 2,169,894 2,041,919 In 2018 1,437,445 1,269,238 In 2019 814,826 674,013 In 2020 882,620 683,768 In 2021 837,456 607,105 After 2022 1,211,001 648,970 Total tax credits 7,353,242 5,925,013

Realization of nominal values for tax credit assets

Tax losses carryforwards/CSLL recoverable (1)

Intertemporary differences (2)

In 2017 1% 34% In 2018 8% 21% In 2019 16% 10% In 2020 9% 13% In 2021 7% 12% After 2022 59% 10% (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

12.31.2016 12.31.2015 Taxes and contributions on income payable 159,781 515,043 Provision for taxes and contributions on income 247,187 335,192 Taxes and contributions payable 100,859 100,260 Total 507,827 950,495

d) Deferred tax liabilities

12.31.2016 12.31.2015 Due to depreciation of commercial leasing operations - 15,179 From liabilities 690 - Mark- to- market 160,347 243,498 Total deferred tax liabilities 161,037 258,677 Income tax 89,367 150,456 Social contribution 71,670 108,221

e) Tax expenses

Year 2016 Year 2015 Cofins (292,202) (290,923) ISSQN (56,401) (50,860) PIS (48,689) (47,607) Other (24,887) (34,628) Total (422,179) (424,018)




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f) Expenses - income taxes and social contributions Statement of Income Tax and Social Contribution Expenses Year 2016 Year 2015 Current amounts (294,490) (345,884) IR & CSLL in Brazil - current (309,683) (391,168) IR & CSLL in Brazil - previous years 15,193 45,284 Deferred amounts (10,163) 1,042,586 Deferred tax liabilities 123,694 75,279 Mark- to- market 108,514 (35,350) Excess depreciation 15,180 110,629 Deferred tax assets (133,857) 967,307 Tax loss carryforwards and negative basis of CSLL (1,850) (69,631) Temporary difference (1) 159,204 714,715 Mark- to- market (291,211) 322,223 Total (304,653) 696,702

Reconciliation of IR and CSLL charges Year 2016 Year 2015 Income (loss) before taxes and contributions 769,414 220,538 Total income tax charges (25%) and CSLL (15% until August 2015 and 20% from September 2015) (1) (346,111) (213,069)

Charges on interest on own capital - 31,500 Equity in the earnings of subsidiaries 16,319 90,653 Employee profit sharing 59,611 81,653 Other values (2) (34,472) 705,965 Income tax and social contribution in the period (304,653) 696,702

(1) Includes in the year ended December 31, 2015 the amount of R$ 425,642 (consolidated) for the activation of tax credits resulting from the increase of the CSLL (Law 13169/2015). Includes in the year ended in 2016, the update of the exchange variation related to the foreign agency loss.

20 OTHER LIABILITIES

12.31.2016 12.31.2015 Third-party funds in transit 99,685 83,208 Foreign currency sold to liquidate 177,680 623,597 Liabilities for foreign exchange purchases 344,145 1,460,187 Creditors - unsettled accounts - 2,200 Provision for profit sharing 139,771 183,466 Provision for personnel expenses 431,326 388,666 Provision for Administrative Expenses 124,124 115,294 Commission for intermediation of operations payable 35,768 36,260 Liabilities for credit card transactions 985,585 784,032 Amounts of overseas securities payable 5,327 - Obligations for purchase of assets and rights 1,844 211 Provision for off-balance sheet losses 29,609 69,802 Securities clearing accounts 482,374 464,822 Legal obligations (Note 19d) 15,013 9,686 Other liabilities 338,878 256,822 Total 3,211,129 4,478,253




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21 SHAREHOLDERS’ EQUITY

a) Capital The capital of Banco Votorantim S.A., fully subscribed and paid-in, totaling R$ 7,826,980 (7,483,754 as of December 31, 2015) 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 General Meeting held on March 25, 2015, a capital increase was deliberated on and approved by incorporation of a special revenue reserve of R$ 357,993, without the issue of new shares, approved by the Central Bank of Brazil on May 14, 2015. 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.

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. Year 2016 Year 2015 Net income - BRGAAP 425,814 481,720 Legal reserve (21,291) (24,086) Calculation basis 404,523 457,634 Minimum compulsory dividend 101,131 114,409 Amount proposed 101,131 114,409 % on calculation base 25% 25%

Year 2016 Year 2015

Amount Amount per thousand shares - Reais Amount Amount per thousand

shares - Reais Dividends payable 101,131 0.96 114,409 1.09




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d) Equity valuation adjustments recognized in shareholders’ equity

12.31.2016 12.31.2015 Opening

balance Movement Tax effect Closing balance

Opening balance Movement Tax effect

Closing balance

Securities available for sale Banco Votorantim (1) (520,636) 512,239 (138,547) (146.944) (199.477) (436.245) 115.086 (520.636) Subsidiaries (70,633) 144,533 (65,040) 8,860 (101,309) 43,117 (12,441) (70.633) Total (591,269) 656,772 (203,587) (138,084) (300,786) (393,128) 102,645 (591,269)

(1) Includes agency abroad.

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 12.31.2016 12.31.2015

Shareholders'

equity Net income

(loss) Shareholders' equity

Net income (loss)

Balance - BRGAAP 8,425,890 425,814 7,616,664 481,720 Assignment of receivables with co-obligation, net of tax

effects - 4,372 (4,372) 40,456

Provision for impairment losses, net of tax effects 107,698 (141,224) 248,922 158,926 Usufruct of shares, net of tax effects - - - 10,029 Adjustment to fair value of Swap Circ. 3.129/02, net of tax

effects (59) (30,999) 30,939 11,524

Adjustment of the deferral of fees CMN Resolution 4,294, net of taxes 107,493 69,560 37,933 37,933

Other adjustments, net of tax effects (14,703) 4,770 11,886 (4,484) Balance - IFRS 8,626,319 332,293 7,941,972 736,104

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, 2012 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




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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. 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 IAS 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 stocks in closed stock corporations, classified as available for sale, reported negative fair value adjustments for more than one financial year. Usufruct of shares - Operations of usufruct of shares are contracts that give the Votorantim Financial Conglomerate the right of usufruct of income from preferred shares object of the Usufruct arrangement for a specified period of time. When acquiring this right, the Conglomerate disburses a certain amount in order to enjoy the aforementioned benefit. In BRGAAP, these operations have their appropriation in profit or loss on a straight-line basis, while the amounts originating from the rights to receive dividends are recognized as revenue upon proof of such right. For purposes of financial statements under IFRS, the operation of usufruct of shares has characteristics of a non-derivative financial asset, with fixed or determinable payments, which are not quoted in an active market and recognized in the income at the effective rate of operation. 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. 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 P/L, recorded under the heading "Results of derivative financial instrument". Adjustment of the deferral of fees CMN Resolution 4,294 - From January 02, 2015, in observing the requirements of CMN Resolution 4,294/2013 and in line with the option provided for in Central Bank of Brazil Circular 3738/2014, two-thirds of the remuneration relating to the origination, which occurred in 2015, by loans or financial leases forwarded to correspondents are recorded in current assets, with the remaining portion recognized as an expense of the period at the time of origination. For 2016, up to one-third of the remuneration referring to the origination of credit operations was recorded in assets and recognized in the income statement in a linear manner, with a maximum maturity of 36 months. For IFRS purposes, the fees are appropriate on result according to the contractual period.




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22 INTEREST REVENUE Year 2016 Year 2015 Advances to depositors 1 1 Investments in fixed income securities 2,725,856 3,213,765 Investments in foreign securities 94,762 62,540 Foreign investments (95,535) 212 Loans 2,272,387 2,551,777 Discounted securities 44,169 14,243 Financings 7,359,406 7,988,683 Export financing 433,006 1,451,431 Financing operations in foreign currency (392,801) 36,779 Rural financing agreements 34,163 33,929 Real estate financing agreements 56,604 63,540 Funds available in foreign currency (147,002) 103,672 Forex transactions 3,026 401,063 Leases 8,046 31,088 Credits for sureties and guarantees paid 713 4,372 Applications repurchase agreements 2,280,391 1,789,444 Interbank deposit investments 138,143 117,062 Acquired portfolio 16,885 19,053 Costs associated with the origination of loans and receivables (421,903) (498,399) Others 109,041 10,145 Total 14,519,358 17,394,400

In 2016, the amount of R$ 151,469 (R$259,847 in 2015) was recognized as interest income on operations with loan characteristics with impairment.

23 INTEREST EXPENSES Year 2016 Year 2015 Purchase and sale commitments (2,415,795) (1,822,056) Expenses assignees (2,219,572) (3,120,283) Interbank deposits (266,636) (216,483) Time deposits (219,737) (258,662) Domestic borrowings - (324) Foreign borrowings (80,224) (47,869) National Treasury Onlendings (6,707) (6,134) BNDES Onlendings (105,304) (156,344) Onlending - FINAME (80,326) (60,484) Obligations with overseas financial institutions 492,086 (1,169,913) Debentures (2,172,717) (1,787,490) Funds from real estate credit notes (44,465) (53,588) Agribusiness credit bill funds (350,223) (340,155) Financial Bills (2,567,818) (2,269,529) Option box - fixed income strategy - (297) Securities issued abroad 191,158 (3,872,918) Others (12,853) (97,897) Total (9,859,133) (15,280,426)

24 NET INCOME (LOSS) FROM SERVICES AND COMMISSIONS Year 2016 Year 2015 Bank fees 335,089 272,895 Income from guarantees granted 127,185 125,600 Management of investment funds 114,605 106,483 Commissions on placing of securities 77,032 53,906 Brokerage of Stock Exchange transactions 20,256 17,480 Collection income 2,010 2,759 Income from commissions on intermediation of transactions 314,694 243,216 Technical/financial advisory (432,637) (428,177) Judicial and civil law notary emoluments and attorneys' fees (110,964) (106,508) Credit card transactions 123,461 107,480 Others 163,872 136,285 Total 734,603 531,419




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25 RESULTS WITH FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS Year 2016 Year 2015 Financial assets at fair value through profit or loss (174,302) (174,707)

Government bonds (34,965) (245,119) Private securities (139,337) 70,412

Financial liabilities at fair value through profit or loss (66,291) 24,343 Purchase and sale commitments - Free movement (59,337) 21,559 Option box - Fixed income strategy - (25) Securities abroad (6,954) 2,809

Financial liabilities at amortized cost (1) 106,565 (107,556) Securities issued (15,123) (43,639) Subordinated liabilities 121,688 (63,917)

Loans and receivables (1) 593,434 (82,988) Loans 64,129 24,912 Financings 600,332 (129,584) Export financings (71,027) 19,815 Financial lease operations - 1,869

Total 459,406 (340,908) (1) Refers to adjustment to fair value of financial instruments that are subject to Hedge Accounting.

26 OTHER OPERATING INCOME (LOSS) Year 2016 Year 2015 Capital gains 28,906 25,370 Monetary restatement - judicial deposit 80,773 90,729 Reversal/(Provision) for contingent liabilities 107,429 54,251 Civil indemnities (229,871) (233,161) Judicial deposits (34) (246) Impairment of financial assets maintained for sale (26,619) (16,579) REFIS discount (35,512) (43,810) Reversal of provision for variable compensation 4,051 7,389 Income (loss) from interest on equity 191,952 193,231 Recovery of Paid-to-Own Taxes 14,026 - Other 88,222 (45,540) Total 223,323 31,634

27 RESULT FROM IMPAIRMENT LOSSES Year 2016 Year 2015 (Formation)/reversals of provision for losses (3,161,169) (2,900,927) Recovery of loans written off as losses 734,489 737,564 Discounts on renegotiation (348,253) (413,816) Total (2,774,933) (2,577,179)

28 PERSONNEL EXPENSES Year 2016 Year 2015 Directors fees (19,157) (18,798) Benefits (127,756) (131,635) Social charges (182,900) (181,305) Dividends (613,093) (582,441) Training (3,078) (2,947) Labor claims (336,320) (294,819) Total (1,282,304) (1,211,945)




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29 OTHER ADMINISTRATIVE EXPENSES Year 2016 Year 2017 Water, energy and gas (7,024) (7,099) Rents (68,480) (85,144) Leased property (13,107) (7,569) Communications (78,333) (71,266) Philanthropic contributions (5,773) (20,690) Maintenance and preservation assets (19,499) (18,723) Material (3,162) (4,753) Data processing (200,037) (179,471) Promotions and public relations (10,257) (8,166) Advertising and publicity (9,095) (8,432) Publications (1,448) (841) Insurance (2,241) (2,242) Outsourced services (9,904) (9,286) Surveillance and security (2,481) (1,927) Transportation (12,934) (12,683) Traveling (9,768) (11,200) Other (10,875) (27,511) Total (464,418) (477,003)

30 DEPRECIATION AND AMORTIZATION EXPENSES Year 2016 Year 2017 Amortization (31,742) (20,482) Depreciation (30,814) (23,206) Total (62,556) (43,688)

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: Year 2016 Year 2017 Fees and Directors’ fees 19,157 18,798 Bonuses 32,745 26,012 Social charges 15,104 13,282 Total 67,006 58,092

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 Financial Conglomerate and 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.




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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, 2016, Conglomerate, through its subsidiary BV Financeira, carried out credit assignments with a related party, with substantial risk retention. Sum of present values totaled R$ 7,593,212 (R$ 10,079,565 on December 31, 2015). 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”.

12.31.2016

Banco do Brasil Conglomerate

Votorantim Conglomerate

Financial subsidiaries (1)

Non-financial subsidiaries (2)

Key management personnel (3) Other (4) Total

Assets Funds available 79,879 - - - - - 79,879 Financial assets with resale agreement 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) 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)

12.31.2015

Banco do Brasil Conglomerate

Votorantim Conglomerate

Financial subsidiaries (1)

Non-financial subsidiaries (2)

Key management personnel (3) Other (4) Total

Assets Funds available 380 - - - - - 380 Financial assets with resale agreement 9,197,180 - - - - - 9,197,180 Financial assets at fair value through profit or loss - - - - - 994,974 994,974 Financial assets available for sale - - 19,375,490 - - - 19,375,490 Loans and receivables 2,682 18,335 21,156,622 34 1,292 232 21,179,197 Derivative financial instruments 486 10,981 1,579 - - - 13,046 Dividends receivable - - 59,500 - - - 59,500 Current tax assets - - 10,500 - - - 10,500 Other assets 1,681 10 - - - - 1,691 Liabilities Financial liabilities at fair value through profit or loss - - 9,945,377 - - - 9,945,377 Financial liabilities - Amortized cost 16,311,114 1,285,729 7,293,116 255,136 20,899 - 25,165,994 Derivative financial instruments 15,576 1,868 31,341 - - - 48,785 Other liabilities 400 - 35,125 12 - - 35,537 Income (loss) Income from interest, provision of services and other 1,150,587 14,327 6,274,386 - 65 152,989 7,592,354 Derivative financial instruments (48,612) 3,908 (2,631,147) - - - (2,675,851) Expenses with fund raising, administrative expenses and other expenses (27,458) (95,200) (211,540) (34,318) (1,963) - (370,479)

(1) Financial subsidiaries in the country (direct participation) related in Note 6a (2) It includes Promotiva S.A (current BV Promotora S.A.), BVIA - BV Investimentos e Participações de Gestão de

Recursos S.A., Votorantim Corretora de 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 2016 it includes BVIA FIP; and in 2015 includes BVIA FIP, FIDCs I and VI; and for 2014 included BVIA FIP, FIDC I,II and VI.




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32 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 12.31.2016

Retail Wholesale Consolidated management

Adjustments and reclassifications

Consolidated - IFRS

Net interest income and services 3,659,171 1,429,256 5,088,427 333,062 5,421,489 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) (740,880) (1,809,278) Tax expenses (287,704) (123,177) (410,881) (11,298) (422,179) Other operating income/expenses (568,310) (133,328) (701,638) 1,055,953 354,315 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

12.31.2015

Retail Wholesale Consolidated management

Adjustments and reclassifications

Consolidated - IFRS

Net interest income and services 3,827,605 1,167,301 4,994,906 (89,105) 4,905,801 Provision for impairment (1,336,071) (1,166,693) (2,502,764) (74,415) (2,577,179) Administrative and personnel expenses (679,588) (445,726) (1,125,314) (607,322) (1,732,636) Tax expenses (309,009) (112,321) (421,330) (2,688) (424,018) Other operating income/expenses (515,895) (151,402) (667,297) 715,867 48,570 Variable compensation(1) (121,204) (244,410) (365,614) 184,478 (181,136) IR/CS (21,675) 590,808 569,133 127,569 696,702 Net income for the year 844,163 (362,443) 481,720 254,384 736,104




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b) Asset information by segment 12.31.2016 Retail Wholesale Total Loans and receivables characterized as credit assignment 33,353,089 13,924,750 47,277,839 Asset impairment (2,210,683) (1,399,589) (3,610,272) Total assets 41,344,541 61,695,800 103,040,341 Total liabilities 37,152,618 57,261,404 94,414,022 Total shareholders' equity 4,191,923 4,434,396 8,626,319

12.31.2015 Retail Wholesale Total Loans and receivables characterized as credit assignment 34,459,150 17,124,636 51,583,786 Asset impairment (2,312,027) (1,785,079) (4,097,106) Total assets 49,760,378 61,009,984 110,770,362 Total liabilities 46,216,304 56,612,086 102,828,390 Total shareholders' equity 3,544,074 4,397,898 7,941,972

33 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; • 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.




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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, which 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 in business aims and strategies, or in the risk management approach and methodology.

ii. Governance Structure and Committees The Conglomerate has decision-making committees and technical commissions so as to ensure adequate capital management and the self-assessment of its risks. Special emphasis is placed on the ALM, Risks and Capital Committee (CARC) as the primary risk and capital management forum, Control and Operating Risk Committee and, at a higher level, the Executive Committee (ComEx), which also performs the general tracking of forums. Finally, it also has an Executive Board, Board of Directors (“CA”), a Supervisory Board (“FC”) and an Audit Committee (“COAUD”). The internal governance structure ensures that all stakeholders contribute effectively to the internal risk management and mitigation and capital adequacy assessment process. As detailed below, all of these bodies have an important role in Conglomerate’s capital and risk management. Executive committee

• Duties: Definition of the strategy and tracking of the institution’s general performance, of the

market context and of all the topics addressed in the committees and commissions, with the duty of deliberating matters that require the participation of Senior Management or of arbitrating in case of a standoff in the committees.

• Periodicity: weekly. • Reporting: Executive board.

Asset and Liability Management (ALM), Risk and Capital Committee • Duties: draft proposals of the risk appetite (to be ratified by the Board of Directors) and

monitor relevant risk indicators, both financial and non-financial; analyze and ratify proposals from the committees (Market Risk; Credit, Liquidity, Tax and Business Risk); evaluate and approve operations that may impact consumption or capital base; monitor the planning of capital for three years; monitor liquidity and cash reserves and send proposals to the Executive Committee and the Board of Directors referring to actions for risk management and control as well as capital management.

• Frequency: biweekly. • Reporting: Executive Committee.




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Credit Committee

• Duties: Approving 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 The Committee of controls and operational risks

• Duties: consolidates the works of the Sectorial Committees of Risk and Control of each

Division/Area; analysis and validation of actions to correct weaknesses and improve the risk management system; monitoring of the processes related to risk management; monitoring of operational risk and internal control system; monitoring of prevention of money laundering and fraud; decision-making and follow-up on issues of information security and business continuity plans.

• Frequency: biweekly. • Reporting: Executive Committee.

Product Committee • Duties: evaluation of opportunities for new products; (assessment of impact on systems,

operations, processes and controls); monitoring the implementation of new products, monitoring and implementation of improvements of existing products; validation of compliance of new products and structured transactions.

• Periodicity: monthly. • Reporting: Executive committee

Sustainability Committee • Assignments: guide actions of the press office, internal communications, advertising and

marketing, public relations and investor relations; performs the governance of projects with the theme of sustainability and social responsibility included; defines and develops strategies, policies, standards and investments that relate to sustainability and social investment and identifies and analyzes adherence to voluntary commitments that raises issues of sustainability; mitigates situations that can bring reputational risk to the institution.

• Frequency: quarterly. • Reporting: Executive Committee.

Market Risk Commission • Attributions: evaluating exposure to market risk limits and monitoring exposure to the trading

portfolio's major market risks. • Frequency: monthly. • Reporting: CARC

Credit Risk Commission • Duties: follow and monitor the loan portfolio, the exposure limits of credit risk portfolio,

wholesale and retail, assessment of the stress test results, monitoring of the level of lending operations provisioning against default, evaluation of the methodologies for measuring credit risk, assessment of contingency plans relating to the credit risk management and issuance of opinions from the ALM, Risk and Capital Committee and/or the Executive Committee, on new strategies and rules for operations and management of the loan portfolio; monitor




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effectiveness of collection actions and recovery of credit and guarantees; discuss strategies to promote timely payments.

• Frequency: monthly. • Reporting: CARC.

Liquidity Commission • Duties: assesses exposures to liquidity risks and cash strategy scenarios, follows up on and

reviews minimum capital limits, and monitors and updates the funding contingency plan. • Frequency: monthly. • Reporting: CARC.

ALM Committee • Duties: Evaluate and propose initiatives to protect and maximize the structural balance of

the Bank under an economic and financial point of view, accounting and tax, guiding and educating the areas responsible for technical studies. This includes identifying and treating risks that may adversely affect the balance sheet of the Bank.

• Frequency: biweekly. • Reporting: CARC.

Tax Commission • Duties: Assessment of tax risks that may impact the balance sheets of the companies from

the Financial Conglomerate and statement for approval of the Technical Studies for realization of Tax Credits for financial businesses.

• Frequency: monthly. • Reporting: CARC.

Sectorial Risk and Control Management Commissions • Duties: discuss, consider and deliberate on relevant points of risks, internal controls,

compliance and internal audit of each Division/Area; monitor corrective actions and define how to implement the relevant points identified; prioritize projects according to the identified risks and weaknesses.

• Frequency: bimonthly. • Reporting: Internal control and Operating risk committee

Information Security and Business Continuity Commission • Duties: deliberate on Information Security and Business Continuity Strategies, risk

assessment versus corporate action plans, and monitor the implementation of the established plans; monitor incidents and indicators of Information Security and Business Continuity; design and monitor crisis management processes and procedures; quantify and mitigate risks related to leakage of information and interruption of business.

• Frequency: quarterly. • Reporting: Internal control and Operating risk committee

Commission for Prevention of Money Laundering (PLD) • Duties: Set standards for performance in different areas of the Conglomerate in relation to

anti-money laundering and combating the financing of terrorism; reviews policies and procedures on the subject, including the legal aspects in relation to current legislation; establish procedures for receiving and processing information on the subject.

• Periodicity: Biweekly. • Reporting: Internal control and Operating risk committee




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Fraud prevention commission • Duties: Monitor the volume of fraud, modus operandi and origin; monitor the effectiveness of

preventive controls and fraud detection; analyze and propose actions to prevent fraud by creating or changing rules for the prevention, routines, operational processes and standards; propose improvements in the fraudulent values recovery processes.

• Periodicity: Monthly. • Reporting: Internal control and Operating risk committee

Committees of Business CIB, Retail and BVEP • Duties: Evaluation of the return on operations proposed by the business areas and

preparation of opportunities for additional operations to increase revenue and maximize the return on the allocated capital.

• 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 market value of exposures held by a financial institution. These financial losses may be incurred due to the impact produced by changes in interest rates, exchange rates, and stock or commodity prices.

ii. Basic 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 and commissions are

structured in order to involve Senior Management in overall supervision of risk-taking; • Segregation of portfolios: for a consolidated management and control of market risk

exposures, operations are divided into two types of portfolios, in accordance with their business strategy: trading portfolio or banking (non-trading) portfolio;

• 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. 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 market risks. This definition is structured with the objective of enabling organized and efficient operations management;

• Definition of pricing methodologies and risk calculation: for the purpose of risk control, structured methodologies based on best market practices are adopted for mandatory corporate use;

• 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 institution in the daily activities; and




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• 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 Risk Control

• 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.

Finance Responsible for the determination and tracking of the accounting and management.

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; and • GAP analysis: Consists of the measurement of cash flow mismatching by risk factor.

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.




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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 ALM, Risk and Capital

Committee and Market Risk Commission, 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, being marked to market on a daily basis, 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.

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/2016 2,666 35,450 118,854 January to December/2015 12,418 38,661 191,856

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). 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.




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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/2016 49,867 82,846 121,002 January to December/2015 59,284 252,285 564,555

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 market values of positions for accounting purposes, managerial monitoring of

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

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.




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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 Market Risk Commission.

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 Basic interest rate shock 12.31.2016 12.31.2015

Risk Factor Concept + 100 bps - 100 bps + 100 bps - 100 bps

Prefixed rate Prefixed interest rate variation risk 888 (885) 487 (485) Forex coupons Exchange rate risk of fx coupon (591) 590 (999) 1,001 Price indices Risk from variation in Price index coupon (170) 169 (1,668) 1,675

Trading and Banking Portfolio Basic interest rate shock 12.31.2016 12.31.2015 Risk Factor Concept + 100 bps - 100 bps + 100 bps - 100 bps Prefixed rate Prefixed interest rate variation risk (10,393) 10,384 (17,083) 17,090 Forex coupons Exchange rate risk of fx coupon 581 (560) (1,209) 1,227 Price indices Risk from variation in Price index coupon (8,789) 8,863 (4,918) 4,940

TR / TBF Risk of TR (reference rate) and TBF (basic financial rate) coupon variation 511 (512) 997 (1,001)

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 2016 (R$ 3.2591 and 60,227 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.




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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 credit transactions (direct credit to the consumer, agribusiness, working capital, etc.), retail fund raising (demand deposits and term deposits) 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 I Scenario II Scenario III Variation of rates

Income (loss)

Variation of rates

Income (loss)

Variation of rates

Income (loss)

31.12.2016 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 index Risk from variation in Price index coupon 370,385 Increase (170) Increase (2,525) Increase (5,141) Others Variation risk for other coupons 57,537 Increase (85) Increase (54,988) Decrease (184,916)

31.12.2015 Prefixed rate Prefixed interest rate variation risk 413,384 Increase 487 Decrease (16,867) Decrease (26,959) Forex coupons Exchange rate risk of fx coupon 1,136,317 Increase (999) Increase (8,673) Increase (17,163) Foreign exchange Foreign exchange variation rate risk 183,526 Increase (12,994) Increase (309,463) Increase (594,169) Price index Risk from variation in Price index coupon 798,823 Increase (1,668) Increase (23,587) Increase (45,865) Others Variation risk for other coupons 17,461 Increase 8 Increase (7,819) Decrease (23,203)

Trading and Banking Portfolio Risk Factor Concept Exposure

Scenario I Scenario II Scenario III Variation of rates

Income (loss)

Variation of rates

Income (loss)

Variation of rates

Income (loss)

31.12.2016 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) Long Term Interest Rate (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 index Risk from variation in Price index coupon 2,208,051 Increase (8,789) Decrease (3,654) Decrease (7,394)

Others Variation risk for other coupons 91,110 Increase (85) Increase (54,988) Decrease (316,730) 31.12.2015

Prefixed rate Prefixed interest rate variation risk 14,129,551 Increase (17,083) Increase (675,048) Increase (1,345,357) Forex coupons Exchange rate risk of fx coupon (3,533,619) Increase (1,207) Increase (13,874) Increase (27,472) Foreign exchange Foreign exchange variation rate risk 183,526 Increase (1,344) Increase (74,138) Increase (201,967) Long Term Interest Rate (TJLP) Risk from variation in TJLP coupon (535,503) Increase 970 Decrease (18,338) Decrease (38,036)

TR/TBF Risk of TR (reference rate) and TBF (basic financial rate) coupon variation 7,095 Increase 27 Decrease (124) Decrease (246)

Price index Risk from variation in Price index coupon 1,512,289 Increase (4,918) Increase (69,327) Increase (134,350)

Others Variation risk for other coupons 30,941 Increase 8 Increase (7,819) Decrease (23,203)

ix. Stress testing The Bank 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.




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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, 2016 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$ 3.2140; commodities suffer positive shocks of 10% over the closing price on December 31, 2016; and a negative variation of 4.68% 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$ 3.6430; commodities suffer positive shocks of 10% over the closing price on December 31, 2016; 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. 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 12.31.2016 12.31.2015 Risk Factor Exposure Stress Exposure Stress Shares 91,110 (52,383) 30,941 (7,453) Foreign currencies 122,072 (125,164) 183,526 (30,031) Interest rate 14,202,439 (397,273) 11,579,813 (624,931) Total 14,415,621 (574,820) 11,794,280 (662,415)

Estimates of retrospective stress test greatest gains - Consolidated portfolio 12.31.2016 12.31.2015 Risk Factor Exposure Stress Exposure Stress Shares 91,110 1,387 30,941 - Foreign currencies 122,072 11,470 183,526 758 Interest rate 14,202,439 278,886 11,579,813 352,121 Total 14,415,621 291,743 11,794,280 352,879

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.




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i. Definitions Operating risk is defined as the possibility of losses resulting from failure, weakness or inadequacy of internal processes, people and systems or external events of the Institution.

ii. Basic 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 of operational risks in management concepts through corporate training,

promoted with discussions on specific forms governance; • Mapping of operational and system processes, mapping of existing controls and analysis of

inherent and residual risks; • Evaluation of the potential financial impact and of the vulnerability of the control environment

to the mapped risks through Control Risk Self Assessment. Based on this assessment, operating risk level is defined according to entire institution’s standard risk matrix;

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

• Analysis, communication, and deployment of action plans to improve processes and controls for mitigation of the risks incurred; and

• Calculating capital allocated to operational risk using structured methodologies based on best market practices and complying with regulatory requirements.

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 area 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 IT

processes; • 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 area • Responsible for managing and maintaining the database of operating losses, monitoring

action plans for significant losses, establishing methods and tools for structuring of indicators of operating risk; and

• Responsible for periodic review and update policies, procedures and communication plans related to the activities of management and measurement of operational risk.




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Operational Risk Modeling and Contingencies • Responsible for managing and maintaining the database of operating losses, monitoring

action plans for significant losses, establishing methods and tools for structuring of indicators of operating risk; andResponsible for periodic review and update policies, procedures and communication plans related to the activities of management and measurement of operational risk; and

• Responsible for calculating the unit value for provisioning of comprehensive civil and labor contingencies.

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.

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; • 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.




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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.

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; • 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 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

• Documented procedures for policy exceptions. 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.




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iii. Risk management structure and areas involved

Risk management functions are performed by formally constituted credit units with technically qualified staff under separate management, with clearly defined responsibilities, as shown below: Credit Risk Management - Wholesale and Retail Wholesale credit risk management The mission of Credit Risk Management-Wholesale is to guide and continuously monitor the Bank’s Wholesale credit risk, in order to mitigate the associated risks. It is composed of three structures, namely: • Credit policies: responsible for the preparation of analyses and technical studies that may

result in policies identifying, measuring and mitigating the Bank’s Wholesale credit risk. Furthermore, the management also aims to ensure compliance of the Wholesale credit risk policies with regulatory devices as well as to meet internal and external regulatory requirements regarding wholesale credit risk and compliance.

• MIS and PDD Wholesale: responsible for the measurement and control of the exposures and main indicators of the wholesale portfolio at the aggregate level (portfolio view), and calculation of the Provision for Debtors.

• Wholesale Infrastructure: 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.

Retail credit risk management Its mission is to continually direct and monitor the credit risk of retail products in order to mitigate the associated risks through analyzes and technical studies that may result in policies and monitoring indicators of risk deterioration in a timely manner. It is composed of four structures, namely: • MIS 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).

• Retail Credit Infrastructure, 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.

• GRC Vehicles and Consignees, responsible for managing credit risk by constructing risk-by-risk strategies and prioritizing the detailed control of the loss, acting in a timely manner when the combined risk appetite is being disregarded, always keeping current policies documented and updated.

• GRC Cards and Personal Credit, responsible for the management of credit risk of Cards and Personal Credit, to appreciate for the meticulous control and to act on time when the combined risk appetite is being disrespected, always keeping the current policies documented and updated.

Statistical Modeling Responsible for developing Statistical Models such as Credit Score, Behavior Score, Collection Score and rating governmental and private companies in line with the new Basel agreement.




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Collection and strategy Manages the Consumer Finance Credit Recovery, Wholesale Credit Recovery and Collection Planning, whose main duties are detailed below: • Wholesale Credit Recovery: Responsible for management and control of loans in arrears,

supporting the commercial unit's renegotiations, arranging friendly credit collections and ongoing monitoring, along with the legal department, and bringing judicial proceedings, acting as liaison and coordinator between the units involved, and analyzing and submitting renegotiating proposals to the proper court.

• Credit Risk Monitoring: responsible for the recurrent monitoring of the wholesale banking portfolios, detecting warning signs that identify, with property, in advance and in a timely manner, the deterioration of credits at individual and aggregate levels.

• Credit Recovery-Retail: responsible for administrative, litigious and mass collections (products: consigned loans, cards, personal credit and direct consumer credit - “CDC”), safeguard and sale of repossessed goods, as well as the design, specification and tracking of collections projects.

• Collections Planning: responsible for generating and monitoring collections reports and indicators and defining policies.

Derivative Risk Control Performs the daily monitoring of the portfolio of derivatives held with clients. 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. Integrated Risk and Capital Responsible for the (procedural and methodological) coordination of the Internal Capital Adequacy Assessment Process (ICAAP), risk appetite, stress test and ALM, Risks and Capital Committee (CARC) and for the determination and analysis of the regulatory and economic capital of credit risk, as well as for the capital indices (Basel, Level I and Core).

iv. Credit Granting Structure and Areas Involved CIB - Corporate & Investment Banking Responsible for the credit analysis and approval process of the CIB segment. Is a member of the credit committee of the CIB and 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. Consumer finance credit Responsible for the individual analysis, when required by policies, of requests for credit produced through the corporate commercial structures of the Consumer Finance segment, ensuring that they are dealt with in compliance with the norms and procedures and with the respective approval levels of each operation. It is also responsible for control over the risk exposure of the portfolio.




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v. Structure of the Directorate of Internal Controls and Operational Risk Validation of models: Responsible for the independent assessment of the risks associated with the model development process, tracking of action plans prepared to mitigate risks identified in the validation of models and monitoring of model performance.

vi. Credit Risk Management The institution performs credit risk management through the adoption of governance, 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. Credit granting The lending process of the wholesale segment is based on detailed assessments of proponent clients, either in the admission of prospective clients or in the renewal of credit limits for existing clients. In the credit analysis process, the institution relies on integrated systems that manage the entire analysis flow, from the proposition of limits, through to the updating of detailed knowledge of the client (Know Your Client “KYC”), verification of documentation and inquiries to credit bureaus, market information, submission to the credit approval levels and implementation of the decisions of the corresponding committees. Evaluations of the proposals are segmented into specific organizational structures according to the service level (Industry Team and Regional Team) and consider aspects relating to the management of the company, socio-economic information, competitive environment where the Entity carries out its activities, market aspects and economic sector where the Entity is inserted, among others. After the evaluation, a credit presentation is prepared, which compiles the main points of risks and their mitigating factors that should be analyzed by the Credit Committees. In the Consumer Finance segment, credit proposals are processed by an automated, parameterized system supported by a scoring model, which favor greater efficiency and reliability in lending decisions, which are intended for individuals that demonstrate payment ability and reputability. For cases where the scoring model does not automatically decide, the credit desk carries out a more detailed check of all the aspects involved in the contract, with the intention of approving or rejecting 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 together with the monitoring area from the first day of delinquency observed in loans. Several strategies are used to maximize credit collection opportunities.

vii. 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 market 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. 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.




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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.

viii. 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 was: 12.31.2016 12.31.2015 Financial assets 93,500,704 100,018,318

Funds available 2,095,767 8,868,049 Financial assets with resale agreements 13,991,463 7,352,791 Financial assets at fair value through profit or loss 5,812,824 5,512,963 Financial assets available for sale 14,708,788 16,946,454 Financial assets held to maturity 6,928,846 7,148,481 Derivative financial instruments 2,685,177 2,605,794 Loans and receivables (1) 47,277,839 51,583,786

Off Balance 7,823,978 9,362,459 Sureties and guarantees 7,823,978 9,362,459

Total 101,324,682 109,380,777 (1) The Conglomerate uses transactions of credit granting nature for credit risk exposure purposes in loans and

receivables see Note 10a. Financial assets The maximum exposure to credit risk for financial assets on the reporting date, by type of counterparty market was: 12.31.2016 12.31.2015 Domestic 44,085,227 46,525,839 Abroad 2,137,638 1,908,693 Total 46,222,865 48,434,532

The Company's maximum exposure to receivables on the date of financial statements, segregated by the counterparty was as follows:

12.31.2016 12.31.2015 Public 20,774,139 22,515,275 Private 25,448,726 25,919,257 Total 46,222,865 48,434,532

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 was as follows:

12.31.2016 12.31.2015 Domestic 47,277,839 51,583,786 Total 47,277,839 51,583,786




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

12.31.2016 12.31.2015 Retail clients 33,353,089 34,459,150 Wholesale clients 13,924,750 17,124,636 Total 47,277,839 51,583,786

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

12.31.2016 % of portfolio 12.31.2015 % of portfolio Major debtor 1,011,003 2.14% 1,214,226 2.35% 10 greatest debtors 3,954,235 8.36% 4,862,267 9.43% 20 greatest debtors 5,569,892 11.78% 6,569,802 12.74% 50 greatest debtors 8,550,298 18.09% 9,760,914 18.92% 100 main debtors 10,953,214 23.17% 12,482,182 24.20%

The Company's maximum credit exposure to loans and receivables on the date of Financial statements by economic activity was as follows: 12.31.2016 % 12.31.2015 % Public sector 527,358 1.12% 705,295 1.37% Government 527,358 1.12% 705,295 1.37% Public administration 527,358 1.12% 705,295 1.37% Private sector 46,750,481 98.88% 50,878,491 98.63% Individuals 32,916,159 69.62% 34,120,050 66.14% Legal entity 13,834,322 29.26% 16,758,441 32.49% Agribusiness of animal origin 378,178 0.80% 339,346 0.66% Agribusiness of plant origin 262,484 0.56% 373,637 0.72% Specific construction activities 382,521 0.81% 438,540 0.85% Automotive 38,362 0.08% 217,740 0.42% Wholesale trade and various industries 4,340,008 9.17% 5,634,465 10.92% Retail business 1,073,845 2.27% 1,153,163 2.24% Heavy Construction 43,974 0.09% 651,076 1.26% Electronics 1,715 0.00% 1,676 0.00% Electric power 570,347 1.21% 623,897 1.21% Real estate 249,927 0.53% 394,731 0.77% Institutions and financial services 720,698 1.52% 241,033 0.47% Wood and furniture 17,349 0.04% 19,617 0.04% Mining and Metallurgy 306,679 0.65% 320,343 0.62% Paper and pulp 309,587 0.65% 672,619 1.30% Chemical 1,076,464 2.28% 1,251,800 2.43% Services 1,766,451 3.74% 2,209,689 4.28% Telecommunications 81,112 0.17% 91,287 0.18% Textile and clothing 71,646 0.15% 148,290 0.29% Transportation 1,198,664 2.54% 1,533,474 2.97% Other activities 944,311 2.00% 442,018 0.86% Total 47,277,839 100.00% 51,583,786 100.00%




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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 was: Consolidated 12.31.2016 12.31.2015

Operations in normal progress Payment installments 40,805,945 46,024,456

01 to 30 2,788,953 2,789,174 31 to 60 2,349,789 2,326,628 61 to 90 1,778,467 1,932,771 91 to 180 4,705,679 5,623,533 181 to 360 7,849,859 8,690,360 Above360 21,333,198 24,661,990

Installments overdue 1,135,012 796,789 Up to 14 days 1,135,012 796,789

Subtotal 41,940,957 46,821,245 Operations in unusual progress

Payment installments 3,258,943 2,978,961 01 to 30 200,892 183,571 31 to 60 195,689 164,784 61 to 90 180,692 164,992 91 to 180 491,040 423,998 181 to 360 795,007 663,686 Above 360 1,395,623 1,377,930

Installments overdue 2,077,939 1,783,580 From 01 to 14 76,051 103,040 15 to 30 392,896 289,795 31 to 60 209,304 249,092 61 to 90 149,582 137,927 91 to 180 342,041 437,251 181 to 360 866,878 559,114 Above 360 41,187 7,361

Subtotal 5,336,882 4,762,541 Total 47,277,839 51,583,786

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: 12.31.2016 12.31.2015 Portfolio falling due and not subject to impairment 32,838,392 42,043,474

Low (AA to C) 31,891,860 41,267,276 Medium (D to E) 769,692 660,360 High (F to H) 176,840 115,838

Portfolio past due and not subject to impairment 3,693,283 3,655,087 1-30 days past due 3,654,798 3,635,854 31-90 days past due 38,485 19,233

Portfolio subject to impairment 10,746,164 5,885,225 Collective evaluation 3,733,127 4,730,602 Individual assessment (1) 7,013,037 1,154,623

Total 47,277,839 51,583,786 (1) In 2016, the percentage over the Reference Equity used for the classification of the operations in individually

significant and massified was changed. 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.




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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 problem 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:

12.31.2016 12.31.2015 Qualification of exposure Present value Impairment Net amount Present value Impairment Net value

Low (AA to C) 5,728,651 57,428 5,671,223 184,754 - 184,754 Medium (D to E) 404,675 40,468 364,207 32,105 3,211 28,894 High (F to H) 879,711 879,711 - 937,764 810,940 126,824 Total 7,013,037 977,607 6,035,430 1,154,623 814,151 340,472

ix. Provision for impairment losses

Provision for impairment losses in loans and receivables segregated by individually significant transactions and massified portfolio are as follows: 12.31.2016 12.31.2015 Individually significant transactions (1) 1,004,215 832,658 Massified transactions(2) 2,563,625 3,224,627 Total (3) 3,567,840 4,057,285

(1) Contains a provision for impairment losses for Off-Balance operations in the amount of R$ 26,608 (R$ 18,507 in 2014).

(2) Contains a provision for impairment losses for Off-Balance operations in the amount of R$ 3,001(R$ 51,295 in 2014).

(3) In 2016, the percentage of the reference equity used for the classification of the transactions in individually significant and massed has changed.

Changes in allowance for impairment losses in relation to loans and receivables with credit characteristics were as follows: 12.31.2016 12.31.2015 Opening balance 4,057,285 4,443,709

Formations / (reversals) 3,161,169 2,900,927 Write-offs to loss (3,650,614) (3,287,351)

Closing balance 3,567,840 4,057,285 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 Provision for Impairment should be recognized.

x. Changes in renegoatied loans Year 2016 Year 2015 Opening balance 7,961,559 2,906,644

Signings (1) 4,353,894 9,335,072 (Receiving) and accrual of interest (4,848,717) (3,791,599) Written off as losses (701,364) (488,558)

Final balance 6,765,372 7,961,559 (1) In the year ended December 31, 2015 includes the increase in the stock of renegotiated balances arising from the

change of the classification criteria of the renegotiation of objects credits.




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xi. 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 activity was as follows:

12.31.2016 12.31.2015

Commerce Industry Financial institutions Individuals Services Other Total Total

Sureties and guarantees 388,979 1,142,664 3,574,123 7,939 2,299,772 410,501 7,808,011 9,362,459

Total 388,979 1,142,664 3,574,123 7,939 2,299,772 410,501 7,823,978 9,362,459 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 was as follows: 12.31.2016 12.31.2015 Mid-West Northeast South Southeast Total Total Sureties and guarantees 7,169 172,663 118,555 7,525,591 7,808,011 9,362,459 Total 7,169 172,663 118,555 7,525,591 7,823,978 9,362,459

xii. Guarantees received

Guarantees received in credit operations, guarantees and in transactions in securities recorded in offset accounts on financial statement date, per field of activity of the counterparty, were as follows:

12.31.2016 12.31.2015

Commerce Industry Financial institutions Individuals Services Total Total

Sureties and guarantees 2,648,968 4,609,260 - 252,060 2,410,293 9,920,581 12,526,205 Securities 791,346 1,546,380 458,551 261,933 1,354,387 4,412,597 4,046,568 Machinery and equipment 103,888 773,383 - - 180,725 1,057,996 1,150,560

Mortgages 1,194,244 2,541,977 - 384,434 1,499,611 5,620,266 5,735,955 Others 643,223 948,129 - - 325,830 1,917,182 2,640,929 Total 5,381,669 10,419,129 458,551 898,427 5,770,846 22,928,622 26,100,217

Guarantees received by geographic region of the counterparty, were as follows: 12.31.2016 12.31.2015 Mid-West Northeast South Southeast North Total Total Sureties and guarantees 85,121 47,214 839,623 8,284,060 664,563 9,920,581 12,526,205 Securities 79 156,819 81,500 4,174,199 - 4,412,597 4,046,568 Machinery and equipment 3,725 13,193 22,257 1,018,821 - 1,057,996 1,150,560 Mortgages 48,544 45,553 477,129 5,049,040 - 5,620,266 5,735,955 Others 55,230 35,690 254,146 1,550,569 21,547 1,917,182 2,640,929 Total 192,699 298,469 1,674,655 20,076,689 686,110 22,928,622 26,100,217




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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

12.31.2016 Financial assets 14,230,942 14,489,784 496,971 485,745 31,494,952 46,222,865 14,975,529

Funds available - - - - 2,095,767 2,095,767 - Financial assets with resale 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 - - 496,971 485,745 2,188,206 2,685,177 485,745

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 25,945,633 33,888,833 37,036,605 27,908,398 38,342,444 101,324,682 61,797,231

12.31.2015 Financial assets 610,275 1,064,599 7,352,791 7,338,354 40,471,466 48,434,532 8,402,953

Funds available - - - - 8,868,049 8,868,049 - Financial assets with resale agreements - - 7,352,791 7,338,354 - 7,352,791 7,338,354 Financial assets at fair value through profit or

loss 55,347 232,907 - - 5,457,616 5,512,963 232,907

Financial assets available for sale 232,158 398,166 - - 16,714,296 16,946,454 398,166 Financial assets held to maturity - - - - 7,148,481 7,148,481 - Derivative financial instruments 322,770 433,526 - - 2,283,024 2,605,794 433,526

Attn: Credit concession financing 13,436,717 22,918,826 35,600,091 24,910,871 2,546,978 51,583,786 47,829,697 Loans and receivables - Wholesale 13,436,717 22,918,826 1,140,941 510,168 2,546,978 17,124,636 23,428,994 Loans and receivables – Retail (1) - - 34,459,150 24,400,703 - 34,459,150 24,400,703

Off Balance 927,689 1,584,532 26,449 22,092 8,408,321 9,362,459 1,606,624 Total 14,974,681 25,567,957 42,979,331 32,271,317 51,426,765 109,380,777 57,839,274

(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 market 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 market 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, sales fees, etc.

xiii. Transfer of financial assets whose recognition was not canceled In the years ended December 31, 2016 and 2015, 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. 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 market value and income offered by the bond is recognized by the Conglomerate. Transaction balances are stated in the following captions:




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Sale with a repurchase clause - own 12.31.2016 12.31.2015 Assets

Financial assets at fair value though profit and loss 1,050,493 2,549,288 Financial Treasury Bills 89,337 3,939 National Treasury Bills 874,169 1,780,083 National Treasury notes 66,039 765,266 Others securities overseas 20,948 - Financial assets available for sale 2,846,974 5,208,707 National Treasury Bills - 2,666,886 National Treasury notes 769,113 1,249,098 Debentures 575,849 314,723 Others securities overseas 1,502,012 978,000 Financial assets held to maturity 4,634,688 1,863,614 Financial Treasury Bills 1,481,355 - National Treasury Bills 2,524,998 730,053 National Treasury notes 628,335 1,133,561

Liabilities associated Financial liabilities at amortized cost (8,311,820) (9,127,510) Private securities - Debentures (578,467) (13,101) Financial Treasury Bills (1,569,132) (4,031) National Treasury Bills (3,439,828) (5,133,719) National Treasury notes (1,444,200) (3,121,013) Others (1,280,193) (855,646)

Total 220,335 494,099 Sale with a repurchase clause - third-parties 12.31.2016 12.31.2015 Assets

Financial assets with resale agreement 11,270,616 4,725,598 Financial Treasury Bills 6,497,964 -

National Treasury Bills 2,485,704 707,030 National Treasury notes 2,286,948 4,018,568

Liabilities associated Financial liabilities at amortized cost (9,774,594) (4,712,882)

Financial Treasury Bills (6,496,484) - National Treasury Bills (2,485,111) (695,444) National Treasury notes (792,999) (4,017,438)

Total 1,496,022 12,716

Sale with repurchase agreement - free movement 12.31.2016 12.31.2015 Assets

Financial assets with resale agreements - sold 2,189,209 1,071,409 Liabilities associated

Financial liabilities at fair value in profit or loss (2,206,483) (1,045,112) Total (17,274) 26,297

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 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 12.31.2016 12.31.2015 Assets

Loans and receivables 12,170,848 14,289,163 Credits assigned with co-obligation 12,170,848 14,289,163

Liabilities associated Financial liabilities associated with transferred assets (13,472,990) (15,953,175) Assignees (assignments with co-obligation) (13,472,990) (15,953,175)

Total (1,302,142) (1,664,012)




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The Conglomerate holds loan and receivable guarantees of credit granting nature represented by mortgages on properties, securities and other guarantees.

xiv. 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. These contracts do not meet the criteria for offsetting balances on the Balance Sheet. This is because currently the Conglomerate has no legally exercisable right to offset the recognized amounts, since the right to offset may be exercised only upon future occurrence of certain events, such as the default of operations. The table below shows the book values of the recognized financial instruments that are subject to the aforementioned contracts.

Description Gross amounts of recognized financial assets

Gross amounts of recognized financial

liabilities Net

balances

Derivatives 2016 147,688 (114,285) 33,403 2015 210,656 (424,592) (213,936)

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 line with CMN Resolution no. 3,988 3,988 and BACEN Circular No. 3,547, the Institution has an institutional structure and policies for capital management, approved by the Board of Directors, in accordance with the Internal Capital Adequacy Assessment Process (ICAAP), covering 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); • 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 Capital, is the equity used as a basis for verification of compliance with the operational limits of financial institutions. The Capital is obtained by adding Level 2 Capital and Level 1 Capital. The latter is obtained by adding Core Capital, Supplementary Capital and specific deductions, as defined in CMN Resolution No. 4,192.




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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. 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 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.

Capital Exigido = Fator F x RWA

Risco de Crédito Risco de Mercado

RWACAM + RWAJUR + RWACOM + RWAACS RWACPAD RWAOPAD RWA = + + Risco Operacional




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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: • Goodwill paid on acquisition of investments based on expected future income; • Intangible assets formed as from October 2013; • Actuarial assets related to defined benefit pension plans net of deferred tax liabilities

associated to them; • Non-controlling interest; • Direct or indirect investments higher than 10% of equity capital of entities similar to non-

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

• Tax credits deriving from temporary differences that depend from future income generation or tax revenues for their realization;

• Tax credits from depreciation excess tax loss; and • Tax credits 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 was also changed and now considers Prudential Conglomerate, as defined in CMN Resolution no. 4,280/2013, beginning as of January 1, 2015.




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v. Capital indexes calculated based on the financial position prepared in accordance with accounting practices adopted in Brazil, applicable to financial institutions. Basel ratio 12.31.2016 12.31.2015

PR - Reference Equity 9,218,435 10,742,263 Level I 6,836,538 6,686,016 Main Capital 6,836,538 6,686,016 Shareholders' equity 8,247,123 7,616,664 Prudential adjustments (1,410,585) (930,648) Deferred assets - (14,767) Others (1,408,486) (913,229) Adjustment to fair value (2,099) (2,652) Level II 2,381,897 4,056,247 Subordinated debts eligible to capital 2,381,897 4,056,247 Subordinated debt authorized in accordance with CMN Resolution no. 4,192/2013 956,147 834,046

Subordinated debts authorized pursuant to rules prior to CMN Resolution no. 4,192/2013 (1) (2) 1,425,750 3,222,201

Funds raised abroad 1,404,551 1,884,476 Raised funds with CDB (Bank deposit certificates) - 272,451 Funds raised with financial bills 21,199 1,065,274 Risk-weighted assets (RWA) 61,230,489 70,549,049 Credit risk (RWACPAD) 55,945,627 62,926,270 Market risk (RWAMPAD) 669,866 2,842,895 Operating risk (RWAOPAD) 4,614,996 4,779,884 Minimum Required Reference Equity (3) 6,046,511 7,760,395 Minimum Required Core Capital (4) 2,755,372 3,174,707 Minimum Required Referential Equity - Level I (5) 3,673,829 4,232,943 RE determined to cover interest-rate risk for transactions not classified in the trading book (RBAN) 299,168 392,989 Margin on the Minimum Required Reference Equity 3,171,924 2,981,868 Margin on the Minimum Capital Required 4,081,165 3,511,308 Margin on the Tier I Minimum Required Reference Equity 3,162,708 2,453,073 Margin on the Minimum Required Reference Equity included - RBAN 2,872,756 2,588,879 Core Capital Index (CP/RWA) 11.17% 9.48% Level I Core Capital Index (Level I / RWA) 11.17% 9.48% Basel ratio (PR / RWA) 15.06% 15.23%

(1) Instruments authorized by Bacen to comprise PR in accordance with CMN Resolution no. 3,444/2007 - and that do not qualify for requirements of CMN Resolution no. 4,192/2013 - will decay 10% p.a. from 2013 to 2022, on amounts that comprised PR as of December 31, 2012.

(2) Balance of Subordinated Debt instruments that comprised PR as of December 31, 2012 was considered, and a decay of 10% was applied to it, as determined by CMN Resolution no. 4,192/2013.

(3) Corresponds to the application of the “F” factor to RWA amount, being “F” equal to: a. 11% of RWA, 10/01/2013-12/31/2015. b. 9.875% of RWA, 01/01/2016-12/31/2016. c. 9.25% of RWA, 01/01/2017-12/31/2017. d. 8.625% of RWA, 01/01/2018-12/31/2018. e. 8% of RWA, as from 01/01/2019.

(4) It represents at least 4.5% of RWA. (5) (e) It represents at least 5.5% of RWA, 10/01/2013-12.31.2015, and 6% of RWA, as from 01/01/2015.

Prudential adjustments deducted from Principal Capital:

12.31.2016 12.31.2015 Prudential adjustments II - Intangible assets (62,272) (31,447) Prudential adjustments VII Tax credits from temporary difference (647,358) (418,931) Set Prudential VIII - Tax Credit of tax losses and negative base (698,857) (462,851) Prudential adjustments IX - Deferred assets - (14,767) Set Prudential XV - Minor Difference - Resolution Adjustments 4,277/13 (2,099) (2,652) Total (1,410,586) (930,648)




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Fixed asset ratio From 2015, the fixed rate now required only for the Prudential Conglomerate totals 16.52% (4.68% on December 31, 2016) , and calculated in accordance with CMN Resolution 4,192/2013 and 2669/1999. Fixed assets limit 12.31.2016 12.31.2015 Fixed assets limit 4,609,217 5,371,131 Value of fixed assets limit position 1,523,243 503,015 Value of margin or insufficiency 3,085,974 4,868,116

In compliance with the Central Bank of Brazil (BACEN) Circular no 3.477/09, 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 intends to organize, evaluate and monitor the Conglomerate liquidity risk control by establishing processes, tools and limits required to generate and analyze prospective liquidity scenarios and monitor appetite risk levels defined by Top Management.

i. Definitions Liquidity risk is defined as: • Possibility that the Institution 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 Bank 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

The Bank has an institutional structure and policies for liquidity 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 market practices, as follows:

• Involvement of Senior Management: the existing committees and commissions 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;

• Definition of methodologies for building scenarios: structured methodologies are adopted for mandatory corporate use, based on best 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 risk 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.




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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 Bank's general policy, and for checking and monitoring whether they are being complied with. Executive committee Responsible for discussing and monitoring recurring topics addressed in operational committees and commissions and continuously reviewing the internal governance structure, with a view to making improvements and approving potential adjustments and changes to internal governance operating committees, commissions and sub-commissions. Asset and Liability Management (ALM), Risk and Capital Committee Responsible for assessing and approving proposals submitted by subordinate Commissions when they refer to measures aimed at risk management and control. Liquidity Commission Responsible for monitoring and deciding on matters related to risk liquidity management, submitting them to the follow-up of the ALM Risk and Capital Committee.

iv. Areas involved 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.




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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 Bank has a set of objective measures to manage and control liquidity risk: • Liquidity Target and 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; • 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:




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• 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; and • 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 ALM

Committee and Liquidity Risk Commission, 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 business managers, considering market conditions, and subsequent monitored by the Liquidity Risk Commission and ALM Committee, Risks and Capital.

g) Asset and liability management

The Assets & Liabilities Operating Committee (“ALM”), Risks and Capital are in charge of managing the structural risks of interest rate, liquidity and exchange rate, as well as the capital management, aiming to optimize the risk/return ratio and seeking greater efficiency when composing the factors that impact the Solvability Index (Basel).




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The exposure of the Conglomerate to foreign currency risk, presented in thousands of Reais, was as follows: 12.31.2016

Local

currency Dollar Euro Yen Swiss Franc

Pounds sterling Other Total

Assets Financial assets with resale agreements 13,903,297 80,232 7,866 32 - 36 - 13,991,463

Financial assets designated at fair value through profit or loss 5,173,493 639,331 - - - - - 5,812,824

Financial assets for sale 12,610,056 2,098,732 - - - - - 14,708,788 Loans and receivables 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 (76,426,248) (7,746,586) (79,046) (635) (3,189) (5) - (84,255,709)

Other liabilities (3,033,116) (147,823) (30,161) - - (5) (24) (3,211,129) Total (79,459,364) (7,894,409) (109,207) (635) (3,189) (10) (24) (87,466,838) 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

12.31.2015

Local

currency Dollar Euro Yen Swiss Franc

Pounds sterling Other Total

Assets Financial assets with resale agreements 7,352,791 - - - - - - 7,352,791

Financial assets designated at fair value through profit or loss 4,523,812 989,151 - - - - - 5,512,963

Financial assets for sale 15,390,476 1,555,978 - - - - - 16,946,454 Loans and receivables 42,324,591 7,295,025 - - - - - 49,619,616 Other assets 2,621,033 973,658 82,261 281 858 26,041 1,595 3,705,727

Total 72,212,703 10,813,812 82,261 281 858 26,041 1,595 83,137,551 Liabilities Financial liabilities at amortized cost (75,828,563) (15,909,624) (1,608) - - - - (91,739,795)

Other liabilities (4,003,465) (456,504) (4,439) - - (34) - (4,478,253) Total (79,832,028) (16,366,128) (6,047) - - (34) - (96,218,048) Derivative financial instruments Foreign currency asset position 14,620,134 94,664 - - 23,016 - Foreign currency liability position (8,893,508) (162,158) - - (51,260) -

Foreign currency exposure 174,310 8,720 281 858 (2,237) 1,595

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).




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The table below presents financial instruments recorded at fair value at December 31, 2016 and 2015, classified in different hierarchy levels for the fair value measurement: 12.31.2016 12.31.2015 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets Financial assets with resale agreement(1) - 5,781,536 - 5,781,536 - 3,443,442 - 3,443,442 Financial assets at fair value through profit or loss 5,767,483 45,341 - 5,812,824 5,328,424 184,539 - 5,512,963

Public 5,730,457 716 - 5,731,173 5,090,814 - - 5,090,814 Private - 22,469 - 22,469 - 97,820 - 97,820 Rural - - - - - 56,657 - 56,657 Fund quotas 1,841 - - 1,841 2,221 - - 2,221 Shares 24,315 - - 24,315 14,013 - - 14,013 Others - 22,156 - 22,156 527 30,062 - 30,589 Abroad 10,870 - - 10,870 220,849 - - 220,849

Available for sale financial assets 9,001,968 5,036,360 670,460 14,708,788 11,419,144 4,661,671 865,639 16,946,454 Public 8,114,120 - - 8,114,120 10,274,670 - - 10,274,670 Private 165,497 4,413,482 - 4,578,979 94,603 4,010,982 - 4,105,585 Rural - 207,587 - 207,587 - 318,780 - 318,780 Fund quotas 214,636 - - 214,636 720,268 - - 720,268 Shares 18,912 - 572,832 591,744 13,480 - 645,572 659,052 Others - 415,291 - 415,291 - 331,909 - 331,909 Abroad 488,803 - 97,628 586,431 316,123 - 220,067 536,190

Derivative financial instruments - 2,672,380 12,797 2,685,177 - 2,605,794 - 2,605,794 Loans and receivables(1) - 16,121,538 - 16,121,538 - 16,596,592 - 16,596,592

Total 14,769,451 29,657,155 683,257 45,109,863 16,747,568 27,492,038 865,639 45,105,245 Liabilities Financial liabilities at fair value result (2,206,483) - (20,168) (2,226,651) (1,045,112) - (69,936) (1,115,048)

Purchase and sale commitments (2,206,483) - - (2,206,483) (1,045,112) - - (1,045,112) Securities abroad - - (20,168) (20,168) - - (69,936) (69,936)

Financial liabilities at amortized cost(1) - (3,271,177) - (3,271,177) - (9,091,821) - (9,091,821) Derivative financial instruments - (2,690,404) (17,305) (2,707,709) - (2,914,382) - (2,914,382)

Total (2,206,483) (5,961,581) (37,473) (8,205,537) (1,045,112) (12,006,203) (69,936) (13,121,251) (1) With reference to those operations marked to market by the hedge accounting structure (Note 9g). 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.




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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 12.31.2015 Level 1(1) Level 3(2) Other changes 12.31.2016 Assets Financial assets at fair value through profit or loss 184,539 - - (139,198) 45,341

Available for sale financial assets 4,661,671 (144,421) - 519,110 5,036,360 Derivative financial instruments 2,605,794 - (12,797) 79,383 2,672,380 Total 7,452,004 (144,421) (12,797) 459,295 7,754,081

(1) It refers to debentures being used at an indicative rate, provided by Anbima, to determine the fair value. (2) Refers to credit linked notes assessed for hierarchical allocation purposes.

ii. Changes in level 3

12.31.2015 Transfers(1) Acquisitions Sales and redemptions

Income (loss) 12.31.2016

Assets Financial assets available for sale 865,639 22,025 36,539 (123,776) (129,967) 670,460

Shares of companies. Closed 645,572 - 36,539 - (109,279) 572,832 Credit Linked Notes 220,067 22,025 - (123,776) (20,688) 97,628

Derivative financial instruments - 12,797 - - - 12,797 Liabilities Financial liabilities at fair value result (69,936) (22,339) 59,060 - 13,047 (20,168)

Credit Linked Notes (69,936) (22,339) 59,060 - 13,047 (20,168) Derivative financial instruments - (17,305) - - - (17,305) Total 795,703 (4,822) 95,599 (123,776) (116,920) 645,784

(1) Refers to credit linked notes and And TJLP / URTJLP swap operations assessed for hierarchical allocation purposes.




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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: 12.31.2016 12.31.2015 Book value Fair value Book value Fair value Financial assets at amortized cost 37,160,800 37,293,562 40,171,505 40,107,929 Financial assets held to maturity 6,928,846 7,061,608 7,148,481 7,084,905 Loans and receivables (1) 30,231,954 30,231,954 33,023,024 33,023,024 Financial liabilities at amortized cost (84,255,709) (84,584,325) (91,739,795) (91,667,151) Purchase and sale commitments (18,086,414) (18,111,176) (13,840,392) (13,762,011) Financial liabilities at amortized cost associated with transferred financial assets (2) (13,472,990) (13,552,094) (15,961,432) (15,754,161)

Financial institution deposits (1,997,318) (1,834,499) (1,932,502) (2,036,577) Deposits from customers (2,281,996) (2,539,860) (2,018,149) (1,941,219) Liabilities from borrowings and onlendings (5,208,686) (5,171,035) (7,893,208) (7,914,901) Securities issued (37,162,727) (37,315,281) (43,166,534) (43,208,512) Subordinated liabilities (6,045,578) (6,060,380) (6,927,578) (7,049,770) Total (47,094,909) (47,290,763) (51,568,290) (51,559,222)

(1) Credit operations are recorded at fair value, mainly, as a result of the Hedge Accounting structure. (2) Refers primarily to the liabilities associated with the assignment of the credit portfolio.

34 OTHER INFORMATION

a) 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, except those provided for in collective bargaining of the category. Variable compensation program The Company put in place the Short-term and Long-term Compensation Program during the first semester of 2013. Executive officers and Conglomerate employees are eligible for the program. This program was approved by the Board of Directors on May 10, 2012. The Company has three long-term incentive plans with the purpose of (i) attracting, motivating and retaining talents; (ii) aligning the interests of executive officers and employees to shareholders’ objectives and interests; (iii) generation of results and creation of sustainable value; and (iv) creation of a long-term vision. They are as follows: a) Conditioned Variable Incentive: a plan with a minimum one-year and maximum three-year duration, consisting in granting an incentive conditioned to performance during each year. All employees of the Conglomerate are eligible for the plan. b) Long-term incentive: a plan with a four-year duration consisting in granting the Company’s Investment Units (known as “virtual shares”) based on performance during each year. Executive officers and executive-level employees are eligible for the program. c) Virtual share repurchase program: a plan with a four-year duration in which every executive officer and employee has the opportunity to invest part or all of their variable compensation available in the Company’s Investment Units (known as “virtual shares”), and as a counterpart the Company will progressively grant additional Investment Units. In the year ended on December 31, 2016 were recognized in the result, under Personnel Expenses - Earnings R$ 165,588 (R$ 161,274 in the year ended December 31, 2015) in relation to long-term incentives transactions. This expense derives from agreements entered into with some Company’s employees, in conformity with the remuneration policy. These incentives in




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general become a right between one and in not more than four years as of the granting date, with settlement in cash. In the Company, in the year ended December 31, 2016, payments in the amount of R$ 117,601 were made, of which R$ 41,147 in regard to the Long-Term Remuneration Program of 2012, R$ 64,925 in regard to the Long-Term Compensation Program of 2013, R$ 11,440 in regard to the Long-Term Compensation Program of 2014 and R$ 89 in regard to the Lon-Term Compensation Program of 2015. On December 31, 2016, the Company recorded under caption “Other liabilities - Other - Sundry - Provision for unsettled payments”, in the amount of R$ 345,380 (R$ 293,509 on December 31, 2015). Virtual share value is calculated at least on a quarterly basis and is based on the Company’s income and on entries made directly to Shareholders’ equity accounts, as the applicable accounting practices. From this change in Shareholders’ Equity value, non-recurring movements will be 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. Changes in virtual shares Year 2016 Year 2015 Opening quantity 65,642,106 36,715,932

New 42,312,245 40,064,146 Payd (27,583,094) (10,275,509) Called off (1,809,791) (862,463)

Closing quantity 78,561,466 65,642,106 The initial value of the virtual shares granted is calculated on the Shareholders' Equity at the end of each fiscal year, where the nominal value of R$ 1.00 (one real) is assigned to each virtual share unit.

b) Insurance coverage The Conglomerate adopts the policy of contracting insurance coverage for assets subject to risks for amounts considered to be sufficient to cover eventual claims, considering the nature of its activity. The adopted risk assumptions, in view of their nature, are not part of the scope of an audit of Financial statements; therefore, were not analyzed by our independent auditors.

Documents

Banco Votorantim S.A. · 2018-08-30 · Votorantim’s judgment, based on the opinion of the legal advisors, on the elements of the process, complemented by the experience of similar