Banco Santander (BSBR) 6-K Current report (foreign)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE

SECURITIES EXCHANGE ACT OF 1934

For the month of April, 2019

Commission File Number: 001-34476

BANCO SANTANDER (BRASIL) S.A.

(Exact name of registrant as specified in its charter)

Avenida Presidente Juscelino Kubitschek, 2041 and 2235
Bloco A – Vila Olimpia
São Paulo, SP 04543-011
Federative Republic of Brazil

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:Form 20-F ___X___ Form 40-F _______

 Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): 

Yes _______ No ___X____

 Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): 

Yes _______ No ___X____

 Indicate by check mark whether by furnishing the information contained in this Form, the Registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934: 

Yes _______ No ___X____

 If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):  N/A

 

BANCO SANTANDER (BRASIL) S.A.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS		Page
•  Review Report of Independent Registered Public Accounting Firm		1
•  Consolidated Balance Sheets		5
•  Consolidated Income Statements		7
•  Consolidated Statements of Comprehensive Income		9
•  Consolidated Statements of Changes in Stockholders' Equity		10
•  Consolidated Cash Flows Statements		11
•  Notes to the Consolidated Interim Financial Statements
1	General information, basis of presentation of the consolidated interim financial statements and other information	13
2	Basis of consolidation	27
3	Financial assets	31
4	Non-current assets held for sale	33
5	Investments in associates and Joint Ventures	33
6	Tangible assets	36
7	Intangible assets	36
8	Financial liabilities	37
9	Provisions	41
10	Shareholders’ Equity	44
11	Income Tax	46
12	Breakdown of income accounts	47
13	Share-based compensation	47
14	Business segment reporting	49
15	Related party transactions	50
16	Fair value of financial assets and liabilities	56
17	Other disclosures	60
APPENDIX I – CONSOLIDATED STATEMENTS OF VALUE ADDED		70
Performance Review		71
Executive´s Report of Interim Consolidated Condensed Financial Statements
Executive’s Report of Independent Auditor’s Report

 

Banco Santander (Brasil) S.A.

Independent auditor's report

To the Board of Directors and Stockholders

Banco Santander (Brasil) S.A.

Introduction

We have reviewed the interim consolidated balance sheets of Banco Santander (Brasil) S.A. and its subsidiaries ("Bank") as at March 31, 2019, and the related consolidated income statements, statements of comprehensive income, statements of changes in stockholders’ equity and cash flows statements for the quarter then ended, and a summary of significant accounting policies and other explanatory information.

Management is responsible for the preparation and fair presentation of these interim consolidated financial statements in accordance with theInternational Accounting Standard (IAS) 34 - Interim Financial Reporting issued by the International Accounting Standards Board (IASB).Our responsibility is to express a conclusion on these interim consolidated financial statements based on our review.

Scope of review

We conducted our review in accordance with Brazilian and International Standards on Reviews of Interim Financial Information (NBC TR 2410 – Review of Interim Financial Information Performed by the Independent Auditor of the Entity and ISRE 2410 – Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Brazilian and International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim consolidated financial statements referred to above do not present fairly, in all material respects, the financial position of Banco Santander (Brasil) S.A., and its subsidiaries as at March 31, 2019, their consolidated financial performance and its cash flows for the quarter then ended, in accordance with the International Accounting Standard (IAS) 34 - Interim Financial Reporting issued by the International Accounting Standards Board (IASB).

PricewaterhouseCoopers, Av. Francisco Matarazzo 1400, Torre Torino, São Paulo, SP, Brasil 05001-903, Caixa Postal 61005 T: (11) 3674-2000, www.pwc.com/br

 

Banco Santander (Brasil) S.A.

Other matters

Complementary information - Statements of value added

We have also reviewed the consolidated statements of value added for the quarter ended March 31, 2019, prepared under the responsibility of the management, whose presentation is required by Brazilian Corporate Law by publicly-held companies. These statements have been submitted to the same review procedures described above and, based on our review, nothing has come to our attention that causes us to believe that they have not been prepared, in all material respects, in a manner consistent with the interim consolidated financial statements taken as a whole.

São Paulo, April 29, 2019   

PricewaterhouseCoopers                                                                         

Auditores Independentes                                                                       

CRC 2SP000160/O-5

Edison Arisa Pereira

Accountant CRC 1SP127241/O-0

 

(Free Translation into English from the Original Previously Issued in Portuguese)

BANCO SANTANDER (BRASIL) S.A.

CONSOLIDATED BALANCE SHEETS

Amounts expressed in thousands of Braziian Reals – R$

ASSETS	Note	3/31/2019	12/31/2018
Cash and Balances With The Brazilian Central Bank		24,506,583	31,716,345
Financial Assets Measured At Fair Value Through Profit Or Loss	3-a	25,486,416	43,711,800
Debt instruments		3,302,426	3,171,746
Balances With The Brazilian Central Bank		22,183,990	40,540,054
Financial Assets Measured At Fair Value Through Profit Or LossHeld For Trading	3-a	54,998,655	68,852,314
Debt instruments		36,856,788	50,066,469
Equity instruments		437,300	766,333
Trading derivatives	17-a	17,704,567	18,019,512
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss	3-a	876,583	917,477
Equity instruments		288,592	298,297
Loans and advances to customers		587,991	619,180
Financial Assets Measured At Fair Value Through Other Comprehensive Income	3-a	91,016,739	85,436,677
Debt instruments		90,965,704	85,395,691
Equity instruments		51,035	40,986
Financial Assets Measured At Amortized Cost	3-a	430,945,665	417,478,717
Loans and amounts due from credit institutions		100,391,431	79,607,001
Loans and advances to customers		287,027,934	301,072,207
Debt instruments		43,526,300	36,799,509
Hedging Derivatives	17-a	351,276	343,934
Non-Current Assets Held For Sale	4	1,357,630	1,380,231
Investments in Associates and Joint Ventures	5	1,034,135	1,053,315
Tax Assets		30,513,034	31,565,767
Current		3,927,748	3,885,189
Deferred		26,585,286	27,680,578
Other Assets		4,795,331	4,800,467
Tangible Assets	6	9,126,380	6,588,975
Intangible Assets		30,024,629	30,018,988
Goodwill	7-a	28,378,288	28,378,288
Other intangible assets	7-b	1,646,341	1,640,700
Total Assets		705,033,056	723,865,007
The accompanying Notes are an integral part of these condensed financial statements.

Interim Condensed Consolidated Financial Statements - March 31, 2019          5

 

LIABILITIES AND STOCKHOLDERS' EQUITY	Notes	3/31/2019	12/31/2018
Financial Liabilities Measured At Fair Value Through Profit Or LossHeld For Trading	8-a	40,352,208	50,938,992
Trading derivatives	17-a	19,941,929	18,243,315
Short positions	17-a.7	20,410,279	32,695,677
Financial Liabilities Measured At Fair Value Through Profit Or Loss	8-a	519,581	1,946,056
Other financial liabilities		519,581	1,946,056
Financial Liabilities Measured at Amortized Cost	8-a	538,695,815	547,295,169
Deposits from Brazilian Central Bank and deposits from credit institutions		96,065,378	99,022,806
Customer deposits		308,794,232	304,197,800
Marketable debt securities		77,713,622	74,626,232
Subordinated liabilities		-	9,885,608
Debt Instruments Eligible to Compose Capital		10,000,519	9,779,943
Other financial liabilities		46,122,064	49,782,780
Hedging Derivatives	17-a	281,532	223,520
Provisions	9-a	14,601,404	14,695,898
Provisions for pension funds and similar obligations		3,416,848	3,357,654
Provisions for judicial and administrative proceedings, commitments and other provisions		11,184,556	11,338,244
Tax Liabilities		7,685,246	8,074,764
Current		4,354,654	5,043,375
Deferred		3,330,592	3,031,389
Other Liabilities		8,689,587	9,095,148
Total Liabilities		610,825,373	632,269,547
Stockholders' Equity	10	94,394,010	91,881,738
Share Capital		57,000,000	57,000,000
Reserves		35,374,197	30,377,693
Treasury shares		(522,677)	(461,432)
Option for Acquisition of Equity Instrument		(67,000)	(1,017,000)
Profit for the period attributable to the Parent		3,609,490	12,582,477
Less: Dividends and remuneration		(1,000,000)	(6,600,000)
Other Comprehensive Income		(742,262)	(878,863)
Stockholders' Equity Attributable to the Parent		93,651,748	91,002,875
Non - Controlling Interests		555,935	592,585
Total Stockholders' Equity		94,207,683	91,595,460
Total Liabilities and Stockholders' Equity		705,033,056	723,865,007
The accompanying Notes are an integral part of these condensed financial statements.

Interim Condensed Consolidated Financial Statements - March 31, 2019 6

(Free Translation into English from the Original Previously Issued in Portuguese)

BANCO SANTANDER (BRASIL) S.A.

CONSOLIDATED INCOME STATEMENTS

Amounts expressed in thousands of Brazilian Real – R$, except for shares

Note		1/01 to 3/31/2019	1/01 to 3/31/2018
Interest and similar income		18,331,205	17,041,038
Financial Assets Measured At Fair Value Through Other Comprehensive Income		776,400	186,231
Financial Assets Measured At Amortized Cost		14,685,087	13,809,233
Others		2,869,718	3,045,574
Interest expense and similar charges		(7,863,753)	(7,221,578)
Financial Assets Measured At Fair Value Through Other Comprehensive Income		(80,500)	(93,937)
Financial Assets Measured At Amortized Cost		(7,767,828)	(7,115,880)
Others		(15,425)	(11,761)
Net Interest Income		10,467,452	9,819,460
Income from equity instruments		2,071	13,512
Income from companies accounted by the equity method	5-a	29,034	3,377
Fee and commission income		4,682,742	4,250,044
Fee and commission expense		(918,038)	(794,795)
Gains (losses) on financial assets and liabilities (net)		(817,410)	17,454
Financial Assets Measured At Fair Value Through Profit Or Loss		17,936	101,739
Financial Assets Measured At Fair Value Through Profit Or Loss Held For Trading		(793,394)	-
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss		42,545	-
Other financial instruments measured at fair value through profit or loss		-	(2,251)
Financial instruments not measured at fair value through profit or loss		(19,248)	16,394
Other		(65,249)	(98,428)
Exchange differences (net)		859,319	52,024
Other operating expense		(250,324)	(171,875)
Total Income		14,054,846	13,189,201
Administrative expenses		(4,076,248)	(4,064,911)
Personnel expenses	12-a	(2,304,180)	(2,284,775)
Other administrative expenses	12-b	(1,772,068)	(1,780,136)
Depreciation and amortization		(572,827)	(431,989)
Tangible assets	6-a	(445,993)	(302,095)
Intangible assets	7-b	(126,834)	(129,894)
Provisions (net)	9	(445,977)	(740,792)
Impairment losses on financial assets (net)		(3,105,744)	(3,020,807)
Financial Assets Measured At Amortized Cost	3-b.2	(3,105,818)	(3,020,483)
Gains (losses) due to derecognition of financial assets measured at amortized cost		74	(324)
Impairment losses on other assets (net)		1,552	(62,200)
Other intangible assets	7-b	3,570	-
Other assets		(2,018)	(62,200)
Gains (losses) on disposal of assets not classified as non-current assets held for sale
		(172)	(6,634)
Gains (losses) on non-current assets held for sale not classified as discontinued operations
		(16,952)	3,734
Operating Income Before Tax		5,838,478	4,865,602
Income taxes	11	(2,164,889)	(1,993,926)
Consolidated Net income for the period		3,673,589	2,871,676
Profit attributable to the Parent		3,609,490	2,826,302
Profit attributable to non-controlling interests		64,099	45,374

Interim Condensed Consolidated Financial Statements - March 31, 2019          7

Note	1/01 to 3/31/2019	1/01 to 3/31/2018
Earnings Per Share (Brazilian Real)
Basic earnings per 1,000 shares (Brazilian Real)
Common shares	460.51	358.53
Preferred shares	506.57	394.39
Diluted earnings per 1,000 shares (Brazilian Real)
Common shares	460.51	358.52
Preferred shares	506.57	394.37
Net Profit attributable - Basic (Brazilian Real)
Common shares	1,752,301	1,371,936
Preferred shares	1,857,189	1,454,366
Net Profit attributable - Diluted (Brazilian Real)
Common shares	1,752,301	1,371,935
Preferred shares	1,857,189	1,454,367
Weighted average shares outstanding (in thousands) - basic
Common shares	3,805,025	3,826,510
Preferred shares	3,666,166	3,687,651
Weighted average shares outstanding (in thousands) - diluted
Common shares	3,805,093	3,826,702
Preferred shares	3,666,234	3,687,843
The accompanying Notes are an integral part of these condensed financial statements.

Interim Condensed Consolidated Financial Statements - March 31, 2019          8

 

(Free Translation into English from the Original Previously Issued in Portuguese)

BANCO SANTANDER (BRASIL) S.A.

CONSOLIDATED STATEMENTS OF COMPREENSIVE INCOME

Amounts expressed in thousands of Brazilian Real – R$, except for shares

	1/01 to 3/31/2019	1/01 to 3/31/2018
Consolidated Profit for the Period	3,673,589	2,871,676
Other Comprehensive Income that will be subsequently reclassified for profit or loss when specific conditions are met:	153,179	508,161
Financial Assets Measured At Fair Value Through Other Comprehensive Income	230,465	338,159
Financial Assets Measured At Fair Value Through Other Comprehensive Income	421,557	212,308
Gains / (Losses) on financial assets previously classified as available-for-sale and reclassified to the income statement (net)	-	(2,251)
Gains / (Losses) on financial assets previously classified as available-for-sale and reclassified to reserves (net)	-	296,802
Income taxes	(191,092)	(168,700)
Cash flow hedges	(77,286)	170,002
Valuation adjustments	(123,668)	311,212
Amounts transferred to income statement	18,480	-
Income taxes	27,902	(141,210)
Other Comprehensive Income that won't be reclassified for Net income:	(16,578)	(5,592)
Defined Benefits plan	(16,578)	(5,592)
Defined Benefits plan	(7,745)	(50)
Income taxes	(8,833)	(5,542)
Total Comprehensive Income	3,810,190	3,374,245
Attributable to the parent	3,728,374	3,328,871
Attributable to non-controlling interests	64,099	45,374
Total	3,810,190	3,374,245
The accompanying Notes are an integral part of these condensed financial statements.

Interim Condensed Consolidated Financial Statements - March 31, 2019          9

 

(Free Translation into English from the Original Previously Issued in Portuguese)

BANCO SANTANDER (BRASIL) S.A.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Amounts expressed in thousands of Brazilian Real – R$

		Stockholders´ Equity Attributable to the Parent												Non-controlling Interests	Total Stockholders´ Equity
									Other Comprehensive Income
	Note	Share Capital	Reserves	Treasury shares	Option for Acquisition of Equity Instrument	Profit Attributed to the Parent	Dividends and Remuneration	Stockholders´ Equity Attributable to the Parent	Financial Assets Measured At Fair Value Through Other Comprehensive Income	Defined Benefits plan	Translation adjustments investment abroad	Gains and losses - Cash flow hedge and Investment	Total Stockholders´ Equity Attributable to the Parent
Balances at December 31, 2017		57,000,000	28,966,451	(148,440)	(1,017,000)	8,924,064	(6,300,000)	87,425,075	1,813,574	(2,704,380)	859,370	(742,932)	86,650,707	436,894	87,087,601
Effects of IFRS 9 first adoption	1-c	-	(1,245,023)	-	-	-	-	(1,245,023)	(296,802)	-	-	-	(1,541,825)	-	(1,541,825)
Balances at January 1, 2018	1- 2.i	57,000,000	27,721,428	(148,440)	(1,017,000)	8,924,064	(6,300,000)	86,180,052	1,516,772	(2,704,380)	859,370	(742,932)	85,108,882	436,894	85,545,776
Total comprehensive income		-	-	-	-	2,826,302	-	2,826,302	338,159	(5,592)	-	170,002	3,328,871	45,374	3,374,245
Net profit		-	-	-	-	2,826,302	-	2,826,302	-	-	-	-	2,826,302	45,374	2,871,676
Other comprehensive income		-	-	-	-	-	-	-	338,159	(5,592)	-	170,002	502,569	-	502,569
Financial Assets Measured At Fair Value Through Other Comprehensive Income		-	-	-	-	-	-	-	338,159	-	-	-	338,159	-	338,159
Pension plans		-	-	-	-	-	-	-	-	(5,592)	-	-	(5,592)	-	(5,592)
Gain and loss - Cash flow and investment hedge		-	-	-	-	-	-	-	-	-	-	170,002	170,002	-	170,002
Appropriation of net profit		-	8,924,064	-	-	(8,924,064)	-	-	-	-	-	-	-	-	-
Option for Acquisition of Equity Instrument		-	106,440	-	-	-	-	106,440	-	-	-	-	106,440	(106,440)	-
Dividends and interest on capital	10-b	-	(6,300,000)	-	-	-	5,700,000	(600,000)	-	-	-	-	(600,000)	-	(600,000)
Share based compensation		-	(65,154)	-	-	-	-	(65,154)	-	-	-	-	(65,154)	-	(65,154)
Treasury shares	10-c	-	-	45,737	-	-	-	45,737	-	-	-	-	45,737	-	45,737
Treasury shares income	10-c	-	-	(12)	-	-	-	(12)	-	-	-	-	(12)	-	(12)
Capital restructuring	10-c	-	4,016	-	-	-	-	4,016	-	-	-	-	4,016	-	4,016
Other		-	(8,295)	-	-	-	-	(8,295)	-	-	-	-	(8,295)	100,006	91,711
Balances at March 31, 2018		57,000,000	30,382,499	(102,715)	(1,017,000)	2,826,302	(600,000)	88,489,086	1,854,931	(2,709,972)	859,370	(572,930)	87,920,485	475,834	88,396,319
Balances at December 31, 2018	1- 2.i	57,000,000	30,377,693	(461,432)	(1,017,000)	12,582,477	(6,600,000)	91,881,738	1,992,581	(3,071,040)	859,370	(659,774)	91,002,875	592,585	91,595,460
Total comprehensive income		-	-	-	-	3,609,490	-	3,609,490	230,465	(16,578)	-	(77,286)	3,746,091	64,099	3,810,190
Net profit		-	-	-	-	3,609,490	-	3,609,490	-	-	-	-	3,609,490	64,099	3,673,589
Other comprehensive income		-	-	-	-	-	-	-	230,465	(16,578)	-	(77,286)	136,601	-	136,601
Financial Assets Measured At Fair Value Through Other Comprehensive Income		-	-	-	-	-	-	-	230,465	-	-	-	230,465	-	230,465
Pension plans		-	-	-	-	-	-	-	-	(16,578)	-	-	(16,578)	-	(16,578)
Gain and loss - Cash flow and investment hedge		-	-	-	-	-	-	-	-	-	-	(77,286)	(77,286)	-	(77,286)
Appropriation of net income from prior years		-	12,582,477	-	-	(12,582,477)	-	-	-	-	-	-	-	-	-
Option for Acquisition of Equity Instrument		-	(950,000)	-	950,000	-	-	-	-	-	-	-	-	-	-
Dividends and interest on capital	10-b	-	(6,600,000)	-	-	-	5,600,000	(1,000,000)	-	-	-	-	(1,000,000)	-	(1,000,000)
Share based compensation		-	(32,895)	-	-	-	-	(32,895)	-	-	-	-	(32,895)	-	(32,895)
Treasury shares	10-c	-	-	(59,717)	-	-	-	(59,717)	-	-	-	-	(59,717)	-	(59,717)
Capital restructuring	10-c	-	-	(1,528)	-	-	-	(1,528)	-	-	-	-	(1,528)	-	(1,528)
Treasury shares income	10-c	-	3,121	-	-	-	-	3,121	-	-	-	-	3,121	-	3,121
Other		-	(6,199)	-	-	-	-	(6,199)	-	-	-	-	(6,199)	(100,749)	(106,948)
Balances at March 31, 2019		57,000,000	35,374,197	(522,677)	(67,000)	3,609,490	(1,000,000)	94,394,010	2,223,046	(3,087,618)	859,370	(737,060)	93,651,748	555,935	94,207,683
The accompanying Notes are an integral part of these condensed financial statements.

Interim Condensed Consolidated Financial Statements - March 31, 2019          10

 

(Free Translation into English from the Original Previously Issued in Portuguese)

BANCO SANTANDER (BRASIL) S.A.

CONSOLIDATED CASH FLOW STATEMENTS

Amounts expressed in thousands of Brazilian Real – R$

 

	Note	1/01 to 3/31/2019	1/01 to 3/31/2018
1. Cash Flows From Operating Activities
Consolidated Net income for the period		3,673,589	2,871,676
Adjustments to profit		5,372,600	4,574,025
Depreciation of tangible assets	6-a	445,993	302,095
Amortization of intangible assets	7-b	126,834	129,894
Impairment losses on other assets (net)		(1,552)	62,200
Provisions and Impairment losses on financial assets (net)		3,551,721	3,761,599
Net Gains (losses) on disposal of tangible assets, investments and non-current assets held for sale		17,124	2,900
Income from companies accounted by the equity method	5-a	(29,034)	(3,377)
Changes in deferred tax assets and liabilities	11	926,782	422,888
Monetary Adjustment of Escrow Deposits		(128,810)	(138,046)
Recoverable Taxes		(29,347)	(50,352)
Effects of Changes in Foreign Exchange Rates on Cash and Cash Equivalents		6,429	114
Effects of Changes in Foreign Exchange Rates on Assets and Liabilities		494,682	86,199
Other		(8,222)	(2,089)
Net (increase) decrease in operating assets		10,275,779	(31,506,933)
Balance with the Brazilian Central Bank		(649,562)	6,673,070
Financial Assets Measured At Fair Value Through Profit Or Loss		18,103,312	(1,553,141)
Financial Assets Measured At Fair Value Through Profit Or Loss Held for Trading		13,853,659	(10,531,180)
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss		40,894	(782,264)
Financial Assets Measured At Fair Value Through Other Comprehensive Income		(4,757,314)	(4,707,457)
Financial Assets Measured At Amortized Cost		(16,493,478)	(21,052,824)
Other assets		178,268	446,863
Net increase (decrease) in operating liabilities		(10,388,883)	27,210,482
Financial Liabilities Measured At Fair Value Through Profit Or Loss Held For Trading		(10,586,784)	2,681,636
Financial Liabilities Measured At Fair Value Through Profit Or Loss		(247,835)	-
Financial liabilities at amortized cost		(81,565)	24,131,021
Other liabilities		527,301	397,825
Tax paid		(2,158,761)	(2,014,665)
Total net cash flows from operating activities (1)		6,774,324	1,134,585
2. Cash Flows From Investing Activities
Investments		(2,061,458)	(634,247)
Acquisition of Minority Residual Interest in Subsidiary		(1,291,630)	-
Acquisition of subsidiary, less net cash on acquisition		-	(111,224)
Tangible assets	6-a	(653,504)	(262,607)
Intangible assets	7-b	(116,344)	(260,416)
Change in Scope of Consolidation		20	-
Disposal		229,592	81,948
Tangible assets	6-a	70,059	2,045
Non-Current Assets Held For Sale		131,072	54,045
Dividends and interest on capital received		28,461	25,858
Total net cash flows from investing activities (2)		(1,831,866)	(552,299)

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	Note	1/01 to 3/31/2019	1/01 to 3/31/2018
3. Cash Flows From Financing Activities
Acquisition of own shares		(59,717)	45,737
Issuance of other long-term liabilities	8-b.3	12,365,303	17,228,812
Dividends and interest on capital paid		(4,381,786)	(4,434,827)
Payments of other long-term liabilities	8-b.3	(10,429,727)	(13,904,931)
Payments of Subordinated Debts	8-b.4	(9,924,747)	-
Payments of interest of Debt Instruments Eligible to Compose Capital	8-b.5	-	(224,053)
Net increase in non-controlling interests		4,432	(369)
Capital Increase in Subsidiaries, by Non-Controlling Interests		100,000	48,000
Total net cash flows from financing activities (3)		(12,326,242)	(1,241,631)
Exchange variation on Cash and Cash Equivalents (4)		(6,429)	(114)
Net Increase in Cash and cash equivalents(1+2+3+4)		(7,390,213)	(659,459)
Cash and cash equivalents at the beginning of the period		25,285,160	22,670,902
Cash and cash equivalents at the end of the period		17,894,947	22,011,443
Cash and cash equivalents components
Cash and Balances With The Brazilian Central Bank		11,604,263	11,402,947
Loans and other		6,290,684	10,608,496
Total of cash and cash equivalents		17,894,947	22,011,443
Non-cash transactions
Foreclosure loans and other assets transferred to non-current assets held for sale		111,114	109,446
Dividends and interest on capital declared but not paid	10-b	1,000,000	510,000
Supplemental information
Interest received		16,367,281	16,917,073
Interest paid		(6,086,044)	(7,998,951)
The accompanying Notes are an integral part of these condensed financial statements.

Interim Condensed Consolidated Financial Statements - March 31, 2019          12

(Free Translation into English from the Original Previously Issued in Portuguese)

BANCO SANTANDER (BRASIL) S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Amounts expressed in thousands of Brazilian Real – R$

1.General information, basis of presentation of the consolidated interim financial statements and other information

a) General information 

Banco Santander (Brasil) S.A. (Banco Santander or Bank), directly and indirectly controlled by Banco Santander, S.A., headquartered in Spain (Banco Santander Spain), is the lead institution of the Financial and Prudential Conglomerates (Conglomerate Santander) before the Central Bank of Brazil (Bacen), established as a joint-stock corporation, with head office at Avenida Presidente Juscelino Kubitschek, 2041 and 2235 – Building A - Vila Olímpia, in the City of São Paulo, State of São Paulo. Banco Santander operates as a multiple service bank, conducting its operations by means of its commercial, investment, loans, mortgage loans, leasing and foreign exchange portfolios. Through its subsidiaries, also operates in the segments of payments, management of shares’ club, securities and insurance brokerage operations, capitalization, consumer finance, payroll loans, digital platforms, management and recovery of non-performing loans and private pension products. The operations are conducted within the context of a group of institutions that operates in the financial market on an integrated basis. The corresponding benefits and costs of providing services are absorbed between them and are conducted in the normal course of business and under commutative conditions.

The Board of Directors authorized the issuance of the Financial Statements for the three-month period ended on March 31, 2019, at the meeting held on April 29, 2019 

b) Basis of presentation of thecondensed consolidated interim financial statements

The Condensed Consolidated Interim Financial Statements were prepared in accordance with IAS 34 - Interim Financial Statements derived from the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and interpretations of the IFRS Interpretations Committee (Current denomination of IFRIC) (IFRS).

In accordance with IAS 34,the condensed interim financial information is only intended to update the content of the latest consolidated financial statements authorized for issue, focusing on new activities, events and circumstances occurred in the period, rather than duplicating information reported in the financial statements consolidated financial statements previously presented. Consequently,these condensed interim financial statements do not include all the information required in the consolidated financial statements prepared in accordance with IFRS, as issued by the IASB, in order to obtain the due understanding of the information included in thosecondensed interimfinancial statements, they must be read together with the consolidated financial statements of the Bank for the year ended December 31, 2018. The same policies and calculation methods are followed in thecondensed interim financial statements when compared to the most recent annual financial statements, except forIFRS 16,where the new policies and measurement methods are described below.

Adoption of new standards and interpretations

• IFRS 16 - as of January 1, 2019, the Bank adopted IFRS 16, which replaces IAS 17.

I. Transition

As permitted by the specific transition provisions, Banco Santander opted to apply the regulations in a retrospective modified manner, the effects of which were applied to the opening balance, January 1, 2019.

The changes in accounting practices resulting from the adoption of IFRS 16 were applied to the right of use assets as part of tangible assets and lease liabilities as other liabilities in the balance sheet.

II. Lease Identification

In adopting IFRS 16, the Bank recognized lease liabilities involving leases that had already been classified as "commercial leases" in accordance with the principles of IAS 17 - Leases.

For the initial application of the standard, the Bank used the following permitted practical records:

• The exclusion of the initial direct costs for the measurement of the right to use asset at the date of initial application;

• It was decided not to separate the service provision component embedded in lease agreements; and

• The Bank also decided not to apply IFRS 16 to contracts that were not identified as containing a lease under IAS 17 and IFRIC 4 - Determination as to whether a Contract contains a Lease.

In addition, the following recognition exemptions are also used:

• The accounting of operating leases with a remaining term of less than 12 months as of January 1, 2019 as short-term leases;

• The accounting for operating leases whose underlying asset is of low value;

• Until January 1, 2019, leases of fixed assets, in which the Bank as the lessee, held substantially all the risks and benefits of the property, were classified as financial leases. The balances presented are immaterial.

The Bank leases several real estate and equipment. Predominantly, the assets objects of the lease agreements are real estate business relating to the agencies.

Banco Santander does not have rights-of-use assets that fall within the definition of investment properties.

III. Lease term

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Lease agreements are formalized, analyzed and renegotiated individually and contain a wide range of different terms and conditions. The Bank evaluates the term of the contract, as well as the intention to remain in the real estate. Thus, estimates of terms may vary according to contractual conditions, considering extension options, and also according to legal provisions.

The Bank assumes that the fines for contractual termination charged before the maturity date do not make up a significant portion.

Lease agreements do not contain restrictive clauses, but leased assets can not be used as collateral for loans.

IV. Initial Measurement

In their initial registration, leases are recognized as a right of use asset and a corresponding liability on the date the leased asset becomes available for use by the Group.

The right of use to be recorded is measured at cost against the lease liability, which represents the present value of the lease payments that are not made to date. Lease payments are discounted using the incremental interest rate on the lessee's loan. There is no onerous contract that required an adjustment in usage rights to be recorded as assets on the date of the initial adoption.

The use rights are measured at amortized cost in accordance with the following:

• The value of the initial measurement of the lease liability;

• Any lease payments made before or on the start date of any incentive received;

• any directly attributed initial cost; and

• Restoration costs, if the requirements of IAS 37 are met for the recording of Provisions, Contingent Liabilities and Contingent Assets.

The recognized rights of use assets related to each type of asset are as follows:

	12/31/2018	Adoptions Effects - IFRS 16	1/01/2019
Real Estate and Propertys	-	2,373,959	2,373,959
Data processing systems	-	91,791	91,791
Total	-	2,465,750	2,465,750

The Santander Group uses as an incremental rate the interest rate it would have to pay when borrowing the asset needed to obtain the asset with a similar value to the asset subject to the lease, by term, guarantee and similar economic senators, represented in Santander Brasil by the funding cost curve of a free asset, applied individually to each contract according to the estimates projected as the lease term.

Lease liabilities include the net present value of the following lease payments:

• Reduced fixed payments of any incentive;

• Variable payments that are based on a rate or indexer;

• Expected amounts to be paid by the lessee based on the residual value of collateral;

• The exercise price of a call option, if the lessee is reasonably certain about the exercise of the option; and

• Payment of penalties for the termination of the lease if the term of the operation reflects the exercise of the option by the lessee.

In the analysis of the Santander Group's contracts, only contracts with fixed and non-incentive payments or residual guarantee values ​​were identified or the purchase option was embedded, thus, the effects on the accounting of liabilities arising from the initial adoption:

Lease Contracts as of December 31, 2018	-
Operating lease contracts discounted by the incremental interest rate	2,203,382
(-) Short-term leases as expenses	(19,252)
(+)/(-) Adjustments as a result of a different treatment of the termination dates of the contract	281,620
Balance as of January 1, 2019	2,465,750
Liabilities recognized on January 1, 2019 - Other Financial lliabilities	2,465,750

Effects on accounting for the period ended March 31, 2019 due to the initial adoption (there were no impacts on the results of the comparative periods generated by the initial adoption):

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	1/01 a 3/31/2019
Effects on results arising from the adoption of IFRS 16	3,961
Asset amortization expenses - Tangible Assets	(131,197)
Interest expense on liabilities - Interest and similar income	48,233

V. Subsequent measurement

After the initial measurement, the values ​​of the assets recorded as right of use are being updated using the cost method, so any accumulated depreciation is deducted monthly, according to the criteria of CPC 27 - Property, plant and equipment depreciation of depreciation assets use and corrected any remeasurement of the lease liability when applicable.

The lease liability initially recorded is updated by increasing monthly the liability amount of the interest portion of each lease and reducing the monthly lease payments amount and corrected for any remeasurement of lease when applicable.

The lease liability is remeasured, in case of changes in the lease term or in the contract value, the amount resulting from the new determination of the lease liability is recorded as a contra entry to the corresponding right of use asset.

The effects of adopting IFRS 16 will impact exclusively on the operating segment - Commercial Bank.

•IFRIC 23- Published in June 2017 by the IASB, IFRIC 23 - Uncertainty on the Treatment of Taxes on Profit has mandatory application as of January 1, 2019 and aims to clarify procedures for the application of recognition and measurement requirements established in the IAS 12 of Taxes on Profit when there is uncertainty about the treatments to be adopted for the Taxes on Profit.

The Bank carried out analyzes on the procedures already adopted for accounting and presentation of Income Taxes in relation to the content of IFRIC 23 and it was possible to conclude that there are no impacts on the disclosures made up to December 31, 2018, as well as from the adoption of the new standard on January 1, 2019.

Standards and interpretations that will come into effect after March 31, 2019

At the date of preparation of these consolidated condensed financial statements, the following standards and interpretations that have effective adoption date after December 31, 2018 and have not yet been adopted by the Bank are:

• IFRS 17 - In May 2017, the IASB issued the IFRS for insurance contracts to replace IFRS 4. IFRS 17 is scheduled to be implemented January 1, 2021, with a proposal by the Board for an extension until 2022, approved in public consultation. The purpose of this standard is to demonstrate greater transparency and useful information in condensed financial statements, one of the main changes being the recognition of profits as the delivery of insurance services, in order to evaluate the performance of insurers over time. Considering that Banco Santander operates in the insurance business only in the brokerage business, it is expected that the new standard will not bring impacts.

c) Estimates used

The consolidated results and the calculation of consolidated equity are impacted by the accounting policies, assumptions, estimates and measurement methods used by the Bank's directors in the preparation of condensed financial statements. The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities of future periods. All estimates and assumptions required in accordance with IFRS are the best estimates in accordance with the applicable standard.

In condensed consolidated financial statements, estimates are made by management of the Bank and consolidated entities in order to quantify certain assets, liabilities, revenues and expenses and disclosures of explanatory notes.

c.1) Critical estimates

The main estimates were discussed in detail for the preparation of the consolidated financial statements as of December 31, 2018. In the period ended March 31, 2019, there were no significant changes in the estimates made at the end of the year 2018, in addition to those indicated in these statements financial statements, especially arising from the application of IFRS 16.

The critical estimates and assumptions that have the most significant impact on the accounting balances of certain assets, liabilities, revenues and expenses and the disclosure of explanatory notes are described below:

i. Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL), Social Integration Program (PIS) and Contribution for the Financing of Social Security

The income tax expense is obtained by adding the Income Tax, Social Contribution, PIS and Cofins. Current Income Tax and Social Contribution arise from the application of the respective tax rates on the real income, and the rates of PIS and Cofins applied on the respective calculation basis provided for in the specific legislation, together with the changes in deferred tax assets and liabilities recognized in the consolidated statement of income.

Deferred tax assets and liabilities include temporary differences, identified as the amounts expected to be paid or recovered on the differences between the carrying amounts of the assets and liabilities and their respective bases of calculation, and accumulated tax credits and tax losses. These amounts are measured at the rates that are expected to be applied in the period in which the asset is realized or the liability is settled. Deferred tax assets are only recognized for temporary differences to the extent that it is considered probable that the consolidated entities will have sufficient future taxable profits against which the deferred tax assets may be used andthe deferred tax assets do not result from the initial recognition (except in one combination of business) of other assets and liabilities in an operation that does not affect either the taxable income or the taxable income. Other deferred tax assets (tax credits and accumulated tax losses) are only recognized if it is considered probable that the consolidated entities will have sufficient future taxable income for them to be used.

Interim Condensed Consolidated Financial Statements - March 31, 2019          15

 

The deferred tax assets and liabilities recognized are revalued at the balance sheet date, and the appropriate adjustments are made based on the findings of the analyzes carried out. The expected realization of the Bank's deferred tax assets is based on projections of future results and based on a technical study.

Additional details are in notes 2.aa of the Consolidated Financial Statements of December 31, 2018.

ii. Valuation of the fair value of certain financial instruments

Financial instruments are initially recognized at fair value and those that are not measured at fair value through profit or loss are adjusted for transaction costs.

Financial assets and liabilities are subsequently measured at the end of each period using valuation techniques. This calculation is based on assumptions, which take into account the Management's judgment based on information and market conditions existing at the balance sheet date.

Banco Santander classifies the measurements at fair value using the hierarchy of fair value that reflects the model used in the measurement process, segregating the financial instruments between Levels I, II or III.

Additional details are in notes 2.e and 47.c8 of the Consolidated Financial Statements of December 31, 2018, which present the sensitivity analysis for Financial Instruments.

iii. IFRS 9 - Financial Instruments: issued in its final format in July 2014, the International Accounting Standards Board (IASB) approved IFRS 9, which replaced IAS 39 Financial Instruments, in accordance with the guidelines defined by the G20 by finance ministers of the world's 20 largest economies) in April 2009, establishing requirements for the recognition and measurement of financial instruments.

Provisions for losses on receivables

The book value of non-recoverable financial assets is adjusted by recording a provision for loss of debit from "Losses on financial assets (net) - Financial assets measured at amortized cost" in the consolidated statement of income. The reversal of previously recorded losses is recognized in the consolidated statement of income in the period in which the impairment loss decreases and can be objectively related to a recovery event.

To determine the balance of "Provision for impairment", Banco Santander first assesses whether there is objective evidence of impairment individually for financial assets that are significant, and individual or collective for non-recoverable financial assets. are significant.

In order to individually measure the impairment loss on loans assessed for impairment, the Bank considers the conditions of the counterparty, such as its economic and financial situation, level of indebtedness, income generation capacity, cash flow, management, corporate governance and quality of internal controls, payment history, industry experience, contingencies and credit limits, as well as characteristics of assets, such as their nature and purpose, type, sufficiency and guarantees of liquidity and total credit value , and also based on historical experience of impairment and other circumstances known at the time of valuation.

In order to measure the impairment loss on loans assessed collectively for impairment, the Bank separates financial assets into groups taking into account the characteristics and similarities of credit risk, ie, according to the segment, type of assets, guarantees and other factors associated with the historical experience of impairment and other circumstances known at the time of valuation.

Further details are in note 2.i of the Consolidated Financial Statements of December 31, 2018, which present the sensitivity analysis for Financial Instruments.

Interim Condensed Consolidated Financial Statements - March 31, 2019          16

 

Transition

As permitted by the transitional provisions of IFRS 9, the Group chose not to restate comparative figures. Any adjustments in the carrying amounts of financial assets and liabilities at the transition date were recognized in the initial net income and other reserves of the current period. The Group also opted to continue applying the hedge accounting requirements of IAS 39 in adopting IFRS 9.

As a result, for disclosures of notes, the consequential amendments to IFRS 7 disclosures were also applied only to the current period. The disclosures in the comparative period notes repeat the disclosures made the previous year.

Financial assets and liabilities

Initial Recognition and Measurement

The Bank initially recognizes loans and advances, deposits, debt securities issued and subordinated liabilities at the date of origin.

All other financial instruments (including regular purchases and sales of financial assets) are recognized on the trade date, which corresponds to the date on which the Bank becomes part of the contractual provisions of the instrument.

A financial asset or liability is initially measured at fair value, plus, in the case of an item not designated at fair value through profit or loss, transaction costs directly attributable to its acquisition or issue.

Ranking

Financial assets

On initial recognition, a financial asset is classified as measured at amortized cost, at fair value through Other Comprehensive Income or at fair value through profit or loss.

A financial asset is measured at amortized cost if it meets the following conditions and is not designated at fair value through profit or loss:

• The asset is maintained within a business model whose objective is to maintain assets to receive contractual cash flows;

• The contractual terms of the financial asset generate, at specific dates, cash flows that refer exclusively to payments of principal and interest on the principal amount outstanding.

A debt instrument is measured at fair value through Other Comprehensive Income if it meets the following conditions and is not designated at fair value through profit or loss:

• The asset is maintained within a business model whose objective is achieved through the receipt of contractual cash flows and the sale of financial assets; and

• The contractual terms of the financial asset generate, at specific dates, cash flows that refer exclusively to payments of principal and interest on the outstanding principal amount.

In the initial recognition of an equity instrument not held for trading, the Bank may irrevocably elect to present subsequent changes in fair value through Other Comprehensive Income. This option is made considering each investment individually and was not used by the Bank.

All other financial assets are classified as measured at fair value through profit or loss.

In addition, at initial recognition, the Bank may irrevocably designate at fair value through profit or loss a financial asset that would otherwise meet the measurement requirements at amortized cost or at fair value through Other Comprehensive Income, if such designation eliminate or substantially reduce an accounting mismatch that may exist. This option was not used by the Bank.

Business model evaluation

The Bank evaluates the objective of a business model in which an asset is maintained at the portfolio level, for better reflecting how the business is managed and what information is provided to Management. The information considered includes:

- Defined policies and objectives for the portfolio and the application of these policies in practice. Including, if Management's strategy is focused on earning contractual interest income, maintaining a specific interest rate profile, aligning the duration of the assets;

- How the performance of the portfolio is evaluated and reported to the Bank's Management;

- The risks that affect the performance of the business model (and financial assets held within that business model) and how those risks are managed;

- How the managers of the business are remunerated - for example, if the remuneration is based on the fair value of the managed assets or the contractual cash flows received;

- The frequency, volume and timing of sales in prior periods, the reasons for such sales and their expectations about future sales. However, sales activity information is not considered in isolation, but as part of an overall assessment of the Bank's stated purpose of managing financial assets.

Financial assets held for trading or managed, whose performance is valued at fair value, are measured at fair value through profit or loss, since (i) they are not held to receive contractual cash flows (ii) nor maintained to receive cash flows and sell financial assets.

Assessment to determine whether contractual cash flows refer exclusively to payments of principal and interest

For the purposes of this valuation, "principal" is defined as the fair value of the financial asset at initial recognition. "Interest" is defined as the consideration for the value of the currency over time and for the credit risk associated with the principal amount outstanding for a specific period and for other underlying risks and costs of the borrowings (eg liquidity risk and costs) as well as the profit margin.

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In assessing whether contractual cash flows refer exclusively to payments of principal and interest, the Bank considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the term or value of the contractual cash flows so that it would not meet this condition. In carrying out the evaluation, the Bank considers:

- contingent events that would alter the value and term of the cash flows;

- leverage;

- terms of advance payment and extension;

- terms limiting the Bank's right to cash flows of assets; and

- resources that modify the consideration of the value of the currency in time, for example, periodic readjustment of interest rates.

Reclassification of categories of financial assets

Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Bank changes its business model to manage financial assets.

Write-off of Financial Assets

The Bank lowers a financial asset when the contractual rights to the cash flows of the asset expire or when it transfers the rights to the receipt of the contractual cash flows in a transaction in which essentially all the risks and benefits of ownership of the financial asset are transferred or in which the Bank does not transfer or retain substantially all the risks and rewards of ownership of the financial asset and does not control the financial asset.

The difference between the carrying amount of the asset (or book value allocated to the portion of the asset disposed) and the sum (i) of the consideration received (including any new assets obtained, less any new liabilities assumed) and (ii) any accumulated gains or losses recognized in "Other Comprehensive Income" is recorded in the income statement.

As from the date of opening of IFRS, mentioned above, any accumulated gains / losses recognized in "Other Comprehensive Income" in relation to equity instruments designated at fair value through Other Comprehensive Income are not recorded in the statement of income through the write-off of these securities .

The Bank carries out transactions in which it transfers the assets recognized in its balance sheet, but maintains all or substantially all the risks and benefits of the assets transferred or part thereof. In these cases, the transferred assets are not downloaded. Examples of such operations include assignments of co-sponsored loan portfolios.

In operations in which the Bank does not retain or transfer substantially all the risks and rewards of ownership of a financial asset and hold control of the asset, the Bank continues to recognize the asset in the extent of its continued involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.

Write-off of Financial Liabilities

The Bank lowers a financial liability when its contractual obligations are terminated, canceled or when they expire.

Effective interest rate

The effective interest rate is one that exclusively discounts future cash payments or receipts estimated during the expected life of the financial asset or financial liability at the gross carrying amount of a financial asset (i.e. its amortized cost before any provision for reduction recoverable amount) or the amortized cost of a financial liability. The calculation does not consider expected credit losses and includes transaction costs, premiums or discounts and fees paid or received that are an integral part of the effective interest rate, such as origin taxes.

Changes in financial assets and liabilities

Financial assets

If the terms of a financial asset are modified, the Bank assesses whether the cash flows of the modified asset are substantially different. If the cash flows are substantially different, the contractual rights to the cash flows of the original financial asset will be considered as due. In this case, the original financial asset is written off and a new financial asset is recognized at fair value.

If the cash flows of the modified asset measured at amortized cost are not substantially changed, the change does not result in write-off of the financial asset. In this case, the Bank recalculates the gross carrying amount of the financial asset and recognizes the amount resulting from the adjustments to the gross carrying amount as gain or loss of change in profit or loss. If such a change is made due to the financial difficulties of the debtor, gains or losses are presented together with the impairment losses. In other cases, they are presented as interest income.

Interest Revenue

Interest income is calculated by applying the effective interest rate to the gross carrying amount of the financial assets, except:

(a) Financial assets acquired or originated with credit impairment, for which the original effective interest rate adjusted to the credit is applied to the amortized cost of the financial asset.

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(b) Financial assets that are not acquired or originated with credit impairment, but subsequently presented a default event (or "stage 3"), for which interest income is calculated by applying the effective interest rate to its net amortized cost of the provision.

Equity Instruments

Equity instruments are those that meet the definition of shareholders 'equity from the issuer's point of view, that is, instruments that do not contain a contractual obligation to pay and show a residual interest in the issuer's shareholders' equity. Examples are equity instruments that include common shares.

Generally, all equity instruments are measured at fair value through profit or loss, except where the Bank's management has elected, at the time of initial recognition, the irrevocable designation of an equity investment at fair value through Other Comprehensive Income . The Bank's policy is to designate capital investments as measured at fair value against Other Comprehensive Income when these investments are held for other purposes that do not generate investment returns, in which case the fair value gains and losses are recognized in Other Comprehensive Income and are not subsequently reclassified to profit or loss, including the sale of the asset. Impairment losses (and the reversal of impairment losses) are not accounted for separately from other changes in fair value. With respect to dividends, when they represent a return on such investments, they continue to be recognized in income as other income when the Bank has the right to receive payments.

Gains and losses on investments measured at fair value through profit or loss are included under "Financial Assets measured at fair value through profit or loss" in the Statement of Income.

Financial Liabilities

The Bank lowers a financial liability when its terms are modified and the cash flows of the modified liability are substantially different. In this case, a new financial liability is recognized at fair value based on the modified terms. The difference between the carrying amount of the extinguished financial liability and the new financial liability with modified terms is recognized in the income statement.

Compensation

Financial assets and liabilities are offset and the net amount presented in the balance sheet when, and only when, the Bank currently has a legally enforceable right to offset the amounts and the intention to liquidate them on a net basis, or realize the asset and settle the liability simultaneously.

Revenues and expenses are presented on a net basis only when permitted by IFRSs or for gains or losses resulting from a group of similar operations, such as in the Bank's trading activity.

Measurement at fair value

"Fair value" corresponds to the price that would be received on the sale of an asset or paid in the transfer of a liability in an organized transaction between market participants at the measurement date in the main market or, in the absence thereof, the most advantageous market to which the Bank has access on that date. The fair value of a liability reflects its default risk.

When one is available, the Bank measures the fair value of an instrument based on the price quoted in that market for that instrument. A market is considered active if the transactions for the asset or liability occur with sufficient regularity and volume to provide price information on an ongoing basis.

If there is no quoted price in an active market, the Bank uses valuation techniques to maximize the use of relevant observable information and minimize the use of unobservable information. The chosen valuation technique incorporates all the factors that would be considered by the participants of the active market in the price of an operation.

The best evidence of the fair value of a financial instrument, at initial recognition, usually corresponds to the price of the transaction, that is, the fair value of the consideration paid or received. If the Bank determines that the fair value at initial recognition differs from the price of the transaction and the fair value is not evidenced by a price quoted in an active market for an identical asset or liability or based on an assessment technique for which any non-observable information is considered to be irrelevant to the measurement, the financial instrument will initially be measured at fair value, adjusted to defer the difference between the fair value at the initial recognition and the transaction price. This difference is subsequently recognized in profit or loss appropriately based on the life of the instrument, but until the valuation is fully supported by observable market data or the transaction is terminated.

If an asset or liability measured at fair value has a purchase price and a sale price, the Bank measures the assets and the positions purchased at a purchase price and the liabilities and the positions sold at a sale price.

The fair value of a financial liability with a cash demand (for example, a cash deposit) is not less than the amount payable on demand, discounted from the first date on which payment of the amount could be required.

Impairment

The Bank recognizes adjustments for expected credit losses in respect of the following financial instruments that are not measured at fair value through profit or loss:

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- financial assets that are debt instruments;

- lease receivables;

- financial guarantee contracts issued; and

- loan commitments issued.

No impairment loss is recognized in equity instruments.

The Bank measures the impairment adjustments equal to the expected credit losses during the useful life, except for the instruments below, for which they are recorded as expected credit losses in 12 months:

- debt instruments with a low credit risk at the closing date; and

- other financial instruments (other than lease receivables) in which credit risk has not increased substantially since its initial recognition.

Adjustments for losses on lease receivables are always measured at an amount equal to the expected credit losses during the useful life.

Measurement of expected credit losses

Expected credit losses are a probability-weighted estimate of credit losses. They are measured as follows:

- financial assets not subject to impairment at the closing date: as the present value of all cash shortages, ie the difference between the cash flows due to the entity under the contract and the cash flows the Bank expects to receive;

- financial assets subject to impairment at the closing date: as the difference between the gross carrying amount and the present value of the estimated future cash flows;

- loan commitments to be released: as the present value of the difference between the contractual cash flows due to the Bank if the commitment is used in full and the cash flows that the Bank expects to receive; and

- financial guarantee contracts: expected payments to reimburse the holder, less any amounts that the Bank expects to recover.

Modified Assets

If the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced by a new asset due to financial difficulties of the debtor, it is necessary to assess whether the financial asset should be written off and the expected credit losses are measured as follows :

- If the expected restructuring does not result in derecognition of the existing asset, the cash flows expected and arising from the modified financial asset are included in the calculation of the cash deficiencies of the existing asset.

- If the expected restructuring results in a write-off of the existing asset, the expected fair value of the new asset is treated as the final cash flow of the financial asset existing at the time of its write-off.

This amount is included in the calculation of the cash insufficiencies arising from the existing financial asset discounted from the estimated date of write-off until the closing date, using the original effective interest rate of the existing financial asset.

Determination of significant increases in credit risk

At each balance sheet date, the Bank assesses whether the financial assets carried at amortized cost and the financial instruments at fair value through Other Comprehensive Income are subject to impairment, as well as other financial instruments subject to this assessment.

A financial asset is "subject to impairment" when one or more events that have a negative impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is subject to impairment includes the following observable data:

- significant financial difficulty of the debtor or issuer;

- delays in contractual obligations;

- breach of contract, such as defaults or delays;

- the restructuring of a loan or advance by the Bank under conditions which the Bank would not consider as interesting to carry out;

- the likelihood of the debtor going bankrupt or making another financial reorganization; or

- the disappearance of an active market for a security due to financial difficulties.

A financial instrument that has been renegotiated due to deterioration in the condition of the borrower is generally considered to be subject to impairment unless there is evidence that the risk of not receiving the contractual cash flows has been significantly reduced and there is no no other indicator of impairment.

Provision for expected credit losses in the balance sheet

Provisions for expected credit losses are presented in the balance sheet as follows:

- financial assets measured at amortized cost: as a deduction from the gross book value of the assets;

- loan commitments and financial guarantee contracts: as a provision; and

- debt instruments measured at fair value through Other Comprehensive Income: no provision for losses is recognized in the balance sheet, since the carrying amount of these assets corresponds to the fair value.

Interim Condensed Consolidated Financial Statements - March 31, 2019          20

 

Objective evidence of impairment

At each closing date, the Bank assesses the existence of objective evidence that financial assets not measured at fair value through profit or loss were reduced in their recoverable value. A financial asset or group of financial assets presents a reduction in its recoverable amount when objective evidence shows that a loss event occurred after the initial recognition of the asset (s) and that the loss event had an impact on the cash flows. cash of the asset (s) that could be estimated safely.

Objective evidence that financial assets have had a decline in their recoverable value include:

- significant financial difficulty of a debtor or issuer;

- default or default by a debtor;

- the restructuring of a loan or advance by the Bank under conditions which the Bank would not consider as interesting to carry out;

- indications that a debtor or issuer could go bankrupt;

- the disappearance of an active market for a security; or

- observable data related to a group of assets, such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions correlated with default in the group.

Loans that have been renegotiated due to deterioration in the debtor's condition are generally considered as reduced to recoverable value unless there is evidence that the risk of not receiving the contractual cash flows has been significantly reduced and there is no other indicator of impairment.

All loans and advances and securities measured at individually significant amortized cost were subject to a specific impairment test. Loans and advances and securities measured at amortized cost not considered as individually significant were collectively tested for impairment by grouping loans and advances and securities at amortized cost with similar credit risk characteristics.

Individual or collective evaluation

An individual measurement of impairment was based on Management's best estimate of the present value of the cash flows expected to be received. In estimating these cash flows, Management has judged the financial position of a debtor and the net realizable value of any underlying collateral. Each asset reduced to its recoverable value was evaluated for its merits, while the test strategy and estimated cash flows considered to be recoverable were approved by the Bank's credit risk managers.

In assessing the need for a collective provision for losses, management considered factors such as credit quality, portfolio size, concentrations and economic factors. To estimate the necessary provision, assumptions were made to define how inherent losses were modeled and to determine the required data parameters, based on historical experience and current economic conditions.

Measurement of impairment

Impairment losses on assets measured at amortized cost were calculated as the difference between the book value and the present value of the estimated future cash flows, discounted at the effective effective interest rate of the asset. Impairment losses on assets measured at fair value through Other Comprehensive Income were calculated as the difference between book value and fair value.

Reversal of impairment

For assets measured at amortized cost: If an event occurred after the impairment caused a reduction in the value of the impairment loss, the reduction in the impairment loss was reversed through profit or loss.

For debt securities measured at fair value through Other Comprehensive Income: If, in a subsequent period, the fair value of a debt security reduced to recoverable value has increased and this increase could be objectively tied to an event occurring after recognition of the impairment loss, the impairment loss was reversed through profit or loss; otherwise, any increase in fair value was recognized through Other Comprehensive Income.

Any subsequent recovery in the fair value of an equity instrument measured at fair value through Other Comprehensive Income and reduced to recoverable value was recognized at any time in Other Comprehensive Income.

The reconciliation of shareholders' equity resulting from the initial adoption of IFRS 9 is as follows:

Equity conciliation
Equity before IFRS 9 adjustments - 12/31/2017	87,087,601
Allowance for loan losses	(2,149,051)
Provision for contingent liabilities	(674,513)
Re-measurement of assets arising from the new categories	17,806
Others	237,867
Deferred tax	1,026,066
Equity after IFRS 9 adjustments - 1/01/2018	85,545,776

Interim Condensed Consolidated Financial Statements - March 31, 2019          21

 

Designation at fair value through profit or loss

Financial assets

At initial recognition, the Bank designated certain financial assets at fair value through profit or loss, as this designation eliminates or significantly reduces accounting mismatch that may arise.

Values ​​of expected credit losses

Information, assumptions and techniques used in the estimation of impairment

Classification of financial instruments by stages

The portfolio of financial instruments subject to impairment is divided into three levels, based on the stage of each instrument related to its level of credit risk:

- Stage 1: It is understood that a financial instrument at this stage does not have a significant increase in risk since its initial recognition. The provision on this asset represents the expected loss resulting from possible non-compliance during the next 12 months;

- Stage 2: If a significant increase in risk has been identified since the initial recognition, without materializing deterioration, the financial instrument will be framed within this stage. In this case, the amount referring to the provision for expected loss for delinquency reflects the estimated loss of the residual life of the financial instrument. For the assessment of the significant increase in credit risk, the quantitative measurement indicators used in the normal management of credit risk will be used, as well as other qualitative variables, such as the indication of being an undeveloped operation if considered as refinanced or included operations in a special agreement; and

- Stage 3: A financial instrument is recorded within this stage when it shows signs of deterioration evident as a result of one or more events that have already occurred and which materialize at a loss. In this case, the amount relating to the provision for losses reflects the expected losses due to credit risk over the expected residual life of the financial instrument.

Impairment estimation methodology

The measurement of the expected loss is made through the following factors:

- Exposure to Delinquency or EAD: is the transaction value exposed to credit risk, including the current available balance balance that could be provided at the time of default. The models developed incorporate assumptions about the changes in the payment schedule of operations.

- Probability of Default (PD): is defined as the probability that the counterparty can meet its obligations to pay the principal and / or interest. For the purposes of IFRS 9, both will be considered: PD - 12 months, which is the probability that the financial instrument will default during the next 12 months as well as PD - life time, which considers the probability that the transaction between in default between the balance sheet date and the residual maturity date of the transaction. The standard requires that future information relevant to the estimation of these parameters should be considered.

 - Default Loss (LGD): is the resulting loss in the event of default, that is, the percentage of exposure that can not be recovered in the event of default. It depends mainly on the guarantees associated with the operation, which are considered as risk mitigation factors associated with each credit financial asset and the expected future cash flows to be recovered. As established in the regulations, future information should be taken into account for its estimation.

 - Discount rate: is the rate applied to estimated future cash flows over the expected life of the asset, to bring them to present value.

In order to estimate the aforementioned parameters, the Bank has applied its experience in the development of internal models for the calculation of parameters both for the purposes of the regulatory environment and for internal management.

Definition of defaults

The Bank considers that a financial asset is in a default situation when:

- it is likely that the debtor will not fully pay its credit obligations to the Bank; or

- the debtor has significant credit obligations to the Bank overdue for more than 90 days as a general rule.

Overdrafts are considered past due if the customer violates a recommended limit or has been granted a lower limit than the current outstanding amount.

When assessing whether a debtor is in default, the Bank considers indicators:

- qualitative - eg breaches of covenants;

- quantitative - for example, the status of past due and non-payment of another obligation of the same issuer to the Bank; and

- based on data collected internally and obtained from external sources.

Interim Condensed Consolidated Financial Statements - March 31, 2019          22

 

Allowance for losses                      

The following tables present the reconciliations of the opening and closing balances of the provision for losses by category of financial instrument. The terms expected credit losses in 12 months, expected credit losses during the useful life and impairment losses are explained in the accounting practices note. The comparative values for 12/31/2017 represent a provision for loan losses and reflect the measurement basis in accordance with IAS 39.

R$ millions	Total
Allowance for loan losses - Balance 12/31/2017	18,261,638
Allowance for guarantees - Balance 12/31/2017	312,373
IAS 39 Balance at 12/31/2017	18,574,011
Initial adoption effect of IFRS 9 (Note 1.2i)	2,823,564
IFRS 9 Balance at 01/01/2018	21,397,575

As of January 1, 2018, the Allowance for Loan Losses balance related to IFRS 9 segregated by stages was represented by: Stage 1 – 20%, Stage 2 – 15% and Stage 3 – 65%. There was no significant changes on the segregation for December 31, 2018.

Classification of Financial Assets and Liabilities at the Initial Adoption of IFRS 9

The table below presents the financial assets classified in accordance with IAS 39 and the new measurement categories in accordance with IFRS 9.

IFRS 9 adoption first adoption effects on the Financial Assets and Liabilities (In R$ Millions)		Original classification in accordance with IAS 39	12/31/2017	Reclassifications	Remeasurement (Note 1.1. xvi)	Balance	New classification in accordance with IFRS 9
						01/01/2018
Financial Assets	IAS 39	Loans and receivables	355,246,429	354,317,416	-	354,317,416	Measured at Amortized cost
			-	492,429	5,197	497.626	Measured at Fair value through profit and loss
			-	436,729	-7,179	429.550	Measured at Fair value through other comprehensive income
		Available-for-sale	85,823,384	4,762,234	3,791	4.766.025	Measured at Amortized cost
				79,954,513	-	79.954.513	Measured at Fair value through other comprehensive income
				1,106,637	15,997	1.122.634	Measured at Fair value through profit and loss
		Held to maturity investments	10,214,454	10,214,454	-	10.214.454	Measured at Amortized cost
		Held for trading	86,271,097	86,271,097	-	86,271,097	Measured at Fair value through profit and loss
		Other financial assets measured at fair value through profit and loss	-	-	-	-	Other financial assets measured at fair value through profit and loss
Total (1)			539,247,566	539,247,566	17,806	539,265,372
(1) Does not include Provision for Losses on contingent claims and commitments.

Interim Condensed Consolidated Financial Statements - March 31, 2019          23

 

IFRS 9 adoption first adoption effects on the Financial Assets and Liabilities (In R$ Millions)		Original classification in accordance with IAS 39	12/31/2018	Reclassifications	Remeasurement (Note 1.1. xvi)	Balance	New classification in accordance with IFRS 9
						01/01/2018
Financial liabilities	IAS 39	Held for trading	49,322,546	-	-	49.322.546	Held for trading
		Amortized cost	478,880,704	-	-	478.880.704	Measured at Amortized cost
Total			528.203.250	-	-	528,203,250

iv. Provisions for pension funds

Defined benefit plans are recorded based on an actuarial study performed annually by a specialized company at the end of each year, effective for the subsequent period and are recognized in the consolidated statement of income under Interest and similar expenses and Provisions (net).

The present value of the defined benefit obligation is the present value without deduction of any plan assets from the expected future payments required to settle the obligation resulting from the employee's service in current and past periods.

Additional details are in note 2.x of the Consolidated Financial Statements of December 31, 2018.

v. Provisions, assets and contingent liabilities

Provisions for judicial and administrative proceedings are constituted when the risk of loss of the judicial or administrative action is assessed as probable and the amounts involved are measurable with sufficient security, based on the nature, complexity and history of the actions and the opinion of the legal advisors internal and external.

Explanatory note 2.r to the Bank's consolidated financial statements for the year ended December 31, 2018 includes information on provisions and contingent assets and liabilities. There were no significant changes in provisions and contingent assets and liabilities of the Bank between December 31, 2018 and March 31, 2019, the date of preparation of these consolidated condensed interim financial statements.

vi. Goodwill

The goodwill recorded is subject to the impairment test, at least once a year or in a shorter period, in the event of any indication of impairment of the asset.

The basis used for the recoverability test is the value in use and, for this purpose, the cash flow is estimated for a period of 5 years. Cash flow was prepared considering several factors, such as: (i) macroeconomic projections of interest rates, inflation, exchange rate and others; (ii) behavior and growth estimates of the national financial system; (iii) increased costs, returns, synergies and investment plan; (iv) customer behavior; and (v) growth rate and adjustments applied to flows in perpetuity. The adoption of these estimates involves the probability of future events occurring and the alteration of any of these factors could have a different result. The cash flow estimate is based on a valuation prepared by an independent expert annually or whenever there is evidence of a reduction in its recoverable amount, which is reviewed and approved by Management.

Further details are in note 7.a.

Interim Condensed Consolidated Financial Statements - March 31, 2019          24

 

d) Comparative information 

These interim financial statements include the comparable interim period of March 31, 2018, for the income statement, statement of comprehensive income, statement of changes in equity, and statement of cash flows. A comparative statement of financial position is December 31, 2018. 

e) Seasonality of the Bank’s transactions

Considering the activities conducted by the Bank and its subsidiaries, their transactions are not cyclical or seasonal in nature. Accordingly, no specific disclosures are provided in these explanatory notes to the interim financial statements for the three-month period ended March 31, 2019.  

f) Materiality

In determining the disclosures to be made in relation to the various items in the financial statements or other matters, the Bank, in accordance with IAS 34, took into account their materiality in relation the condensed interim financial statements.                                                                                                                                                           

g) Consolidated cash flow statements 

In preparing the consolidated cash flow statements, the high liquidity investments with insignificant risk of changes in value and with original maturity of ninety days or less were classified as “cash and cash equivalents”. The Bank classifies as cash and cash equivalents the balances recorded under “Cash and balance with the Brazilian Central Bank” and "Loans and amounts due from credit institutions" in the consolidated balance sheet, except for restricted resources and long-term transactions.

The interest paid and received correspond primarily to operating activities of Banco Santander.

Interim Condensed Consolidated Financial Statements - March 31, 2019          25

 

Bank's management decided to segregate the line item "Effects of Changes in Foreign Exchange Rates on Assets and Liabilities" and the corresponding impacts on the net cash flows from operating activities. Consequently, the Consolidated Cash Flow Statements have been reclassified, with the aim of better presentation of the financial statements. Management considered such reclassifications as irrelevant. 

h) Functional and presentation currency  

The consolidated interim financial statements of Banco Santander are presented in Brazilian Real, the functional currency of these statements.

For each subsidiary, entity abroad and investment in a non-consolidated company, Banco Santander has defined the functional currency. The assets and liabilities of these entities with functional currency other than the Brazilian Real are translated as follows:

- Assets and liabilities are translated at the exchange rate at the balance sheet date.

- Revenues and expenses are translated at the monthly average exchange rates.

- Gain and losses on translation of net investment are recorded in the statement of comprehensive income, in “exchange rate of investees located abroad”.

i) Funding, debt notes issued and other liabilities

Funding debt rates Instruments are recognized initially at fair value, considered primarily as the transaction price. They are subsequently measured at amortized cost and its expenses are recognized as a financial cost.  

Among the liabilities initial recognition methods, it is important to emphasize those compound financial instruments, which are classified as such due to the fact that the instruments contain both, a debt instrument (liability) and an embedded equity component (derivative). 

The recognition of a compound instrument consists of a combination of (i) a main instrument, which is recognized as an entity’s genuine liability (debt) and (ii) an equity component (derivative convertible into ordinary share).

The issuance of "Notes" must be registered at an specific liability account and updated according to the agreed rates and adjusted by the effect of the exchange rate variations, when denominated in foreign currency. All remuneration related to these instruments, such as interest and Exchange variation (difference between the functional currency and the currency in which the instrument was named) shall be accounted for as expenses for the period, according to the accrual basis.

The relevant details of these issued instruments are described in note 8-b.5.

j) Measurement of financial assets and liabilities and recognition of fair value changes 

Recognition of fair value changes

As a general rule, changes in the carrying amount of financial assets and liabilities are recognized in the consolidated income statement, distinguishing between those arising from the accrual of interest and similar items which are recognized under “Interest and similar income” or “Interest expense and similar charges”, as appropriate and those arising for other reasons, which are recognized at their net amount under “Gains (losses) on financial assets and liabilities (net)”.

Adjustments due to changes in fair value arising from Available-for-sale financial assets are recognized temporarily in equity under “Other Comprehensive Income”. Items charged or credited to this account remain in the Bank’s consolidated stockholders´ equity until the related assets are written-off, whereupon they are charged to the consolidated income statement.

Hedging transactions

The consolidated entities use financial derivatives for the following purposes: i) to provide these instruments to customers who request them in the management of their market and credit risks; ii) to use these derivatives in the management of the risks of the Bank entities' own positions and assets and liabilities (“hedging derivatives”); and iii) to obtain gains from changes in the prices of these derivatives (“financial derivatives”).

Financial derivatives that do not qualify for hedge accounting are treated for accounting purposes as trading derivatives.  

A derivative qualifies for hedge accounting if all the following conditions are met: 

1. The derivative hedges one of the following three types of exposure: 

a. Changes in the fair value of assets and liabilities due to fluctuations, among other, in the interest rate and/or exchange rate to which the position or balance to be hedged is subject (“fair value hedge”);

b. Changes in the estimated cash flows arising from financial assets and liabilities, commitments and highly probable forecast transactions (“cash flow hedge”);

c. The net investment in a foreign operation (hedge of a net investment in a foreign operation).

2. It is effective in offsetting exposure inherent in the hedged item or position throughout the expected term of the hedge, which means that: 

a. At the date of arrangement the hedge is expected, under normal conditions, to be highly effective (prospective effectiveness).

b. There is sufficient evidence that the hedge was actually effective during the whole life of the hedged item or position (retrospective effectiveness).

3. There must be adequate documentation evidencing the specific designation of the financial derivative to hedge certain balances or transactions and how this effective hedge was expected to be achieved and measured, provided that this is consistent with the Bank’s management of own risks.

Interim Condensed Consolidated Financial Statements - March 31, 2019          26

 

The changes in value of financial instruments qualifying for hedge accounting are recognized as follows: 

a. In fair value hedges, the gains or losses arising on both the hedging instruments and the hedged items (attributable to the type of risk being hedged) are recognized directly in the consolidated income statement.

b. In cash flow hedges, the effective portion of the change in value of the hedging instrument is recognized temporarily in equity under “Other comprehensive Income - Cash flow hedges” until the forecast transactions occur, when it is recognized in the consolidated income statement, unless, if the forecast transactions result in the recognition of non-financial assets or liabilities, it is included in the cost of the non-financial asset or liability. The ineffective portion of the change in value of hedging derivatives is recognized directly in the consolidated income statement. 

c. The ineffective portion of the gains and losses on the hedging instruments of cash flow hedges and hedges of a net investment in a foreign operation are recognized directly under “Gains (losses) on financial assets and liabilities (net)” in the consolidated income statement.  

If a derivative designated as a hedge instrument no longer meets the requirements described above due to expiration, ineffectiveness or for any other reason, the derivative is classified as a trading derivative.

When fair value hedge accounting is discontinued (repealed, expired, sold or no longer meet hedge accounting criteria) the adjustments previously recognized on the hedged item are transferred to profit or loss at the effective interest rate re-calculated at the date of hedge discontinuation. The adjustments must be fully amortized at maturity.   

When cash flow hedges are discontinued, any cumulative gain or loss on the hedging instrument recognized in equity under "Other comprehensive Income” (from the period when the hedge was effective) remains recognized in equity until the forecast transaction occurs at which time it is recognized in profit or loss, unless the transaction is no longer expected to occur, in which case any cumulative gain or loss is recognized immediately in profit or loss.

For the accounting and disclosure of hedge accounting structures as of March 31, 2019, the Bank used the option of IAS 39 to maintain the practices determined by this rule, while IFRS 9 has not yet defined all the treatments to be applied for this operation type.

i) Interest on Shareholders' Equity

Published on December 19, 2018, effective as of January 1, 2019, Resolution 4,706 has prospective application and determines procedures for the accounting of capital remuneration. The Circular decides that Interest on Equity should be recognized as soon as they are declared or proposed and thus set up a present obligation at the balance sheet date, which did not bring about any change in the accounting form of the amounts. In addition, the portion of the proposed capital remuneration, but not mandatory, is recorded in a specific account in Shareholders' Equity, and that is mandatory and has not been distributed at the balance sheet date.

2.Basis of consolidation 

Below are highlighted the direct and indirect controlled entities and investment funds included in the consolidated financial statements of Banco Santander. Similar information regarding companies accounted by the equity method in the consolidated financial statements by the Bank is provided in Note 5.

Interim Condensed Consolidated Financial Statements - March 31, 2019          27

 

Controlled by Banco Santander (Brasil) S.A.		Participation %
	Activity	Consolidated
Banco Bandepe S.A. (1)	Bank	100.00%
Santander Leasing S.A. Arrendamento Mercantil (Santander Leasing)	Leasing	99.99%
Aymoré Crédito, Financiamento e Investimento S.A.(Aymoré CFI)	Financial	100.00%
Santander Brasil Administradora de Consórcio Ltda.(Santander Brasil Consórcio)	Buying club	100.00%
Atual Serviços de Recuperação de Créditos e Meios Digitais S.A.(formerly named as Atual Companhia Securitizadora de Créditos Financeiros) (Atual) (2)	Securitization	100.00%
Santander Corretora de Câmbio e Valores Mobiliários S.A.(Santander CCVM)	Broker	100.00%
Santander Corretora de Seguros, Investimentos e Serviços S.A. (Santander Corretora de Seguros) (formerly named as Santander Participações S.A.)	Other Activities	100.00%
Getnet Adquirência e Serviços para Meios de Pagamento S.A. (Getnet S.A.)	Payment Institution	100.00%
Sancap Investimentos e Participações S.A.(Sancap)	Holding	100.00%
Santander Brasil Establecimiento Financiero de Crédito S.A. (EFC)	Financial	100.00%
Santander Holding Imobiliária S.A. (formerly named Webcasas S.A.)	Holding	100.00%
Santander Brasil Tecnologia S.A. (formerly named Produban Serviços de Informática S.A.) (7)	Technology	100.00%
Banco Hyundai Capital Brasil S.A. (formerly namedBHJV Assessoria e Consultoria Empresarial Ltda.) (14)	Bank	50.00%
Rojo Entretenimento S.A. (8)	Other Activities	94.60%
BEN Benefícios e Serviços S.A	Other Activities	100.00%
Esfera Fidelidade S.A. (6)	Other Activities	100.00%
Controlled byAtualServiços de Recuperação de Créditos e Meios Digitais S.A. (2)
Return Capital Serviços de Recuperação de Créditos e Meios Digitais S.A. (formerly named Ipanema Empreendimentos e Participações S.A.) (12)	Credit Management and Recovery Management	70.00%
Controlled by Return Capital Serviços de Recuperação de Créditos S.A. (formerly named Ipanema Empreendimentos e Participações S.A.)
Return Gestão de Recursos S.A. (formerly named Gestora de Investimentos Ipanema S.A.) (13)	Resource Manager	100.00%
Controlled by Getnet S.A.
Auttar HUT Processamento de Dados Ltda. (Auttar HUT)	Other Activities	100.00%
Integry Tecnologia e Serviços A.H.U Ltda. (Integry Tecnologia)	Other Activities	100.00%
Toque Fale Serviços de Telemarketing Ltda. (Toque Fale)	Other Activities	100.00%
Controlled by Sancap
Santander Capitalização S.A. (Santander Capitalização)	Savings and annuities	100.00%
Evidence Previdência S.A.	Social Securities	100.00%
Controlled by Aymoré CFI
Super Pagamentos e Administração de Meios Eletrônicos Ltda. (Super Pagamentos)	Payment Institution	100.00%
Banco Olé Bonsucesso Consignado S.A. (Olé Consignado)	Bank	60.00%
Banco PSA Finance Brasil S.A.	Bank	50.00%
Controlled by Olé Consignado (12)
BPV Promotora de Vendas e Cobrança Ltda.	Other Activities	100.00%
Olé Tecnologia Ltda.	Other Activities	100.00%
Controlled by Santander Leasing
Pi Distribuidora de Títulos e Valores Mobiliários S.A. (formerly named Si Distribuidora de Títulos e Valores Mobiliários S.A.) (3)(4)	Leasing	100.00%
Consolidated Investment Funds		Participation %
	Activity	Consolidated
Santander Fundo de Investimento Unix Multimercado Crédito Privado	Investment Fund	(a)
Santander Fundo de Investimento Diamantina Multimercado Crédito Privado de Investimento no Exterior	Investment Fund	(a)
Santander Fundo de Investimento Amazonas Multimercado Crédito Privado de Investimento no Exterior	Investment Fund	(a)
Santander Fundo de Investimento SBAC Referenciado DI Crédito Privado	Investment Fund	(a)
Santander Fundo de Investimento Guarujá Multimercado Crédito Privado de Investimento no Exterior	Investment Fund	(a)
Santander Paraty QIF PLC (11)	Investment Fund	(a)
Santander FI Hedge Strategies Fund (Santander FI Hedge Strategies) (16)	Investment Fund	(a)
Prime 16 – Fundo de Investimento Imobiliário (formerly named BRL V - Fundo de Investimento Imobiliário - FII) (10)	Real Estate Investment Fund	(a)
Fundo de Investimento em Direitos Creditórios Multisegmentos NPL Ipanema VI - Não Padronizado (Fundo Investimento Ipanema NPL VI)	Investment Fund	(a)
Fundo de Investimento em Direitos Creditórios Multisegmentos NPL Ipanema V - Não Padronizado (Fundo Investimento Ipanema NPL V)	Investment Fund	(a)
Santander Hermes Multimercado Crédito Privado Infraestrutura Fundo de Investimentos (5)	Investment Fund	(a)

Interim Condensed Consolidated Financial Statements - March 31, 2019          28

 

(a) Entity over which the Bank is exposed or entitled to variable returns and have the ability to affect those returns through the decision-making authority, in accordance with IFRS 10 - Consolidated Financial Statements. Banco Santander and its subsidiaries hold 100% of the quotas of these Investment Funds.

(1) At the Extraordinary General Meeting held on December 7, 2018, Banco Bandepe SA increased its capital stock in the amount of R $ 2,000,000, from R $ 2,787,689 to R $ 4,787,689, divided into three million, five hundred and eighty-nine thousand, three hundred and thirty-four) nominative common shares with no par value. The shareholder Banco Santander subscribed the totality of the new shares issued and paid the shares corresponding to 50% of the capital increase, and the shares subscribed and pending payment will be made under the terms and term established in the legislation.

(2) At the Extraordinary Shareholders' Meeting held on March 23, 2018, the company Atual Companhia Securitizadora de Créditos Financeiros changed its name to Atual Serviços de Recuperação de Créditos e Meios Digitais S.A., and its capital stock increased by R $ 150,000, value of R $ 270,000, divided into two hundred sixty-five million, four hundred and nineteen thousand, three hundred and ninety-two (265,419,392) nominative common shares with no par value, fully owned by Banco Santander.

(3) At the Extraordinary Shareholders' Meeting held on May 3, 2018, the shareholders of Santander Finance Arrendamento Mercantil S.A. approved their transformation into a securities distributing company, and changed their name to SI Distribuidora de Títulos e Valores Mobiliários SA process was approved by the Central Bank on November 21, 2018.

(4) At the Extraordinary General Meeting held on December 17, 2018, the change of the corporate name of SI Distribuidora de Títulos e Valores Mobiliários SA to PI Distribuidora de Títulos e Valores Mobiliários SA was approved. On January 22, 2019, the Central Bank approved the amendment of the company's corporate name.

(5) This fund was consolidated in November 2018.

(6) On August 14, 2018, Sfera Fidelidade S.A. was incorporated with the entire interest held by Banco Santander. The company began operations in November 2018.

7) At the Extraordinary General Meeting held on March 19, 2018, the capital increase of Santander Brasil Tecnologia SA was approved in the amount of R $ 4,000, through the capitalization of the reserve for equalization of dividends, without changing the number of shares, the capital stock of R $ 91,048 to R $ 95,048, represented by forty-five million, three hundred and seventy-one thousand, two hundred and twenty-five (45,371,225) common, nominative shares with no par value.

(8) Investment transferred from non-current assets held for sale (Note 4) in June 2018.

(9) BEN Benefits and Services S.A. was incorporated on June 11, 2018.

(10) Banco Santander was a creditor of certain overdue loans that had certain properties as collateral. The operation to recover these credits consists of the contribution of the properties under guarantee to the capital of the Real Estate Investment Fund and consequent transfer of the quotas of the Fund to Banco Santander, through payment of the aforementioned credit operations.

(11) Banco Santander, through its subsidiaries, holds the risks and benefits of Santander Paraty and the Santander FI Hedge Strategies Subfund, resident in Ireland, and both are fully consolidated in its Consolidated Financial Statements. In the Irish market, an investment fund can not act directly and, for this reason, it was necessary to create another structure (a sub-fund), Santander FI Hedge Strategies. Santander Paraty has no equity position, all of which are recorded in the financial position of Santander FI Hedge Strategies.

(12) At the Extraordinary General Meeting held on July 12, 2018, Ipanema Empreendimentos e Participações SA was renamed Return Capital Serviços de Recuperação de Créditos S.A..

(13) At the Extraordinary General Meeting held on July 12, 2018, Gestora de Investimentos Ipanema S.A. was renamed Return Gestão de Recursos S.A..

(14) The pre-operating company BHJV Assessoria e Consultoria em Gestão Empresarial Ltda. was incorporated on April 11, 2018 and transformed into Banco Hyundai Capital Brasil SA on December 13, 2018. Aymoré CFI, a wholly owned subsidiary of Banco Santander, holds the effective operational control of the company (Note 5). At the EGM held on February 19, 2019, a capital increase of R $ 200,000 was approved, through the issue of 200,000,000 (two hundred million) new common shares, registered and without par value, with a capital stock of R $ 100,000 to R $ 300,000. The shares issued as a result of the capital increase were fully subscribed by the shareholders Aymoré Financiamentos CFI in the amount of R $ 100,000 and Hyundai Capital Services Inc. in the amount of R $ 100,000. On March 31, 2019, the company was consolidated in IFRS.

a) Put option of equity interest in Banco Olé Bonsucesso Consignado S.A.

On March 14, 2019, the minority shareholder of Banco Olé Bonsucesso Consignado S.A. (Olé Consignado) formalized its interest to exercise the put option right provided in the Investment Agreement, executed on July 30, 2014, to sell its 40% equity interest in the capital stock of Olé Consignado to Aymoré CFI. The closing of the transaction is conditioned to implementation of the proceedings set forth in the Investment Agreement.

b) Acquisition of residual equity interest in Getnet S.A.

On December 19, 2018, Banco Santander and the Minority shareholders of Getnet S.A. executed an amendment to the Shares’ Sale and Purchase Agreement and Other Covenants of Getnet S.A., in which Banco Santander commits to acquire all of the Minority shareholders’ shares, corresponding to 11.5% of Getnet S.A. capital stock, per the amount of R$1,431,000. The acquisition was approved by Bacen on February 18, 2019 and closed on February 25, 2019, as a consequence Santander Brasil has become the holder of 100% of the shares representatives of the capital stock of Getnet S.A.

c) Formation of Esfera Fidelidade S.A.

On August 14, 2018, Esfera Fidelidade was incorporated, with equity fully owned by Banco Santander. Esfera Fidelidade will act in the development and management of customer loyalty programs. On November 26, 2018, Esfera Fidelidade had its capital stock increased in the amount of R$10,000, amounting the full share capital of R$10,000, divided into 10,001,000 (ten million and one thousand) nominative common shares without par value, entirely held by Banco Santander. The company started its operation in November 2018.

d) Investment in Loop Gestão de Pátios S.A.

On June 26, 2018, Webmotors S.A., company with 70% interest indirectly owned by Banco Santander, signed an investment agreement with Allpark Empreendimentos, Participações e Serviços S.A. and Celta LA Participações S.A., in order to acquire an equity interest corresponding to 51% of the capital stock of Loop Gestão de Pátios S.A., through capital increase and issuance of new shares of Loop to be fully subscribed and paid-in by Webmotors. Loop operates in the segment of commercialization and physical and virtual auction of motor vehicles. On September 25, 2018, the transaction was completed with increase of the capital stock, in the amount of R$23,900, through issuance of shares representing 51% of equity interest in Loop, which were fully subscribed and paid-in by Webmotors.

e) Formation of BEN Benefícios e Serviços S.A.

On June 11, 2018,BEN Benefícios,with equity fully owned by Banco Santander,was incorporated, toact in the supply and administration of meal, food, transportation, cultural and similar vouchers, via printed or electronic and magnetic cards.

In the EGM held on August 1, 2018, BEN Benefícios had its capital increased in R$ 45,000, passing the capital stock to the amount of R$ 45,001, divided into 45,001,000 (forty-five million and one hundred thousand) registered common shares without par value, fully owned by Banco Santander.

Interim Condensed Consolidated Financial Statements - March 31, 2019          29

 

In the EGM held on March 27, 2019, Santander Brasil approved the capital increase in the amount of R$44,999, totalizing R$90,000 of capital stock distributed into 90,000,000 (ninety million) common shares without par value, fully held by Santander Brasil.

BEN Benefícios started its activities in the first quarter of 2019.

f) Acquisition of Isban Brasil S.A. and Produban Serviços de Informática S.A.

On February 19 and 28, 2018, Banco Santander purchased, respectively, the totality of shares of Isban Brasil, formerly held by Ingeniería de Software Bancário, S.L., and of Produban Serviços de Informática, formerly held by Produban Servicios Informáticos Generales, S.L., for the amount of R$61,078 and R$42,731, respectively. The parties involved in the transactions had Banco Santander, S.A. (Santander Spain) as common indirect controller, being such transactions carried-out under market conditions. At the EGM held on February 19, 2018, was approved the capital increase of Isban Brasil in the amount of R$33,000, through the issuance of 11,783,900 (eleven million, seven hundred and eighty-three thousand and nine hundred) shares, without par value, entirely subscribed and paid in by Banco Santander. On February 28, 2018, the company Isban Brasil was merged into Produban Serviços de Informática S.A. and on the same date, Produban Serviços de Informática had its corporate name changed to Santander Brasil Tecnologia S.A. In continuity, on February 28, 2018, Produban Servicios Informáticos Generales, S.L. (currently named Santander Global Technology, S.L.) approved the merger of the spin-off share of Produban Serviços de Informática into Produban Brasil Tecnologia e Serviços de Informática Ltda. (currently named Santander Global Technology Brasil Ltda.).

g) Sale of equity interest in BW Guirapá I S.A.

On December 22, 2017, Santander Corretora de Seguros, Cia. de Ferro Ligas da Bahia - Ferbasa SA and Brazil Wind S.A. executed agreement for the sale of 100% of the shares issued by BW Guirapá I S.A. held by Santander Corretora de Seguros and Brazil Wind to Ferbasa. The basic price of the total sale was R$414,000, and an additional amount of up to R$35,000 may be paid if future targets stipulated in the Contract are met. As of January 1, 2018, this investment was written-off and, as a consequence, the assets and liabilities of BW Guirapá I and its subsidiaries were no longer consolidated by Banco Santander. On April 2, 2018, the transaction was concluded (Note 5).               

h) Formation of Santander Auto S.A.

On December 20, 2017, Banco Santander and HDI Seguros S.A. (HDI Seguros), executed documents to form a partnership for the issuance, offering and sale of auto insurance, in a 100% digital way, through creation of a new insurance company - Santander Auto, to be held 50% by Sancap, a company controlled by Banco Santander, and 50% by HDI Seguros. On February 2, 2018 the partnership was approved by the Administrative Council of Economic Defense (Conselho Administrativo de Defesa Econômica – CADE), on April, 30, 2018, was approved by the Brazilian Central Bank and, on May, 15, 2018, SUSEP's prior approval was obtained. On October 9, 2018, through transformation of the corporate vehicle L.G.J.S.P.E. Investments and Participations S.A., Sancap and HDI Seguros formed Santander Auto S.A., with capital of R$15,000. On January 11, 2019, Susep granted to Santander Auto the authorization to operate insurance throughout national territory.

i) Formation of Gestora de Inteligência de Crédito S.A.

On April 14, 2017, the definitive documents necessary for the creation of a new credit bureau, Gestora de Inteligência de Crédito, were signed by the stockholders, whose control will be shared among the stockholders who will hold 20% of the its share capital each. In the EGM held on October 5, 2017, the capital increase of Gestora de Crédito was approved in the total amount of R$285,205, so that the capital stock increased from R$65,823 to R$351,028. The Company will develop a database with the objective of aggregating, reconciling and processing registration and credit information of individuals and legal entities, in accordance with the applicable standards, providing a significant improvement in the processes of granting, pricing and directing credit lines. The Bank estimates that the Company will be fully operational in 2019.

j) Formation of Banco Hyundai Capital Brasil S.A.

On April 28, 2016, Aymoré CFI and Banco Santander executed with Hyundai Capital Services, Inc. (Hyundai Capital) the necessary documents for the formation of Banco Hyundai and an insurance brokerage company with the purpose to provide, respectively, auto finance and financial and insurance brokerage services to clients and dealers of Hyundai in Brazil.

Interim Condensed Consolidated Financial Statements - March 31, 2019          30

 

On April 11, 2018, the parties incorporated, with an equity interest of 50% held by Aymoré CFI and 50% held by Hyundai Capital, a non-operational entity named BHJV Assessoria e Consultoria em Gestão Empresarial Ltda. On May 8, 2018, Aymoré CFI and Hyundai Capital took resolution on the conversion of BHJV Assessoria into the non-operational joint-stock corporation named Banco Hyundai Capital Brasil S.A., as well as the capital stock increase in R$99,995, passing to the amount of R$100,000, divided into 100,000,000 (one hundred million) nominative common shares without par value. On December 13, 2018, the incorporation procedure of Banco Hyundai Capital Brasil S.A. was concluded.

In the EGM held on February 19, 2019, the shareholders of Banco Hyundai approved the capital increase in the amount of R$200,000, summing the total value of R$300,000 distributed into 300,000,000 (three hundred million) common shares without par value, held in the proportion of 50% by Aymoré CFI and 50% by Hyundai Capital.

On February 21, 2019, the authorization to operate  granted by Bacen for the functioning of Banco Hyundai was published in the Federal Official Gazette. The expectation is that Banco Hyundai will start to operate in the first semester of 2019, being set that Aymoré CFI holds the effective operational control of this entity.

k) Creation of PI Distribuidora de Títulos e Valores Mobiliários S.A.

On May 3, 2018, Santander Finance Arrendamento Mercantil S.A., an indirectly controlled subsidiary of Banco Santander, was converted into a distribution company of bonds and securities and had its corporate name changed to SI Distribuidora de Títulos e Valores Mobiliários S.A. The conversion process of approved by Bacen on November 21, 2018. On December 17, 2018, SI Distribuidora de Títulos e Valores Mobiliários S.A. had its corporate name changed to PI Distribuidora de Títulos e Valores Mobiliários S.A., being the corporate name change process approved by Bacen on January 22, 2019. The company started its operations on March 14, 2019.

3.Financial assets

a) Breakdown by Category and Nature

The breakdown by nature and category for measurement purpose, of the Bank’s financial assets, except for the balances relating to “Cash and Balances with the Brazilian Central Bank” and “Hedging Derivatives”, at March 31, 2019 and December 31, 2018, is as follows:   

	3/31/2019
			Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss	Financial Assets Measured At Fair Value Through Other Comprehensive Income	Financial Assets Measured At Amortized Cost	Total
	Financial Assets Measured At Fair Value Through Profit Or Loss	Financial Assets Measured At Fair Value Through Profit Or LossHeld For Trading
Balances With The Brazilian Central Bank	22,183,990	-	-	-	-	22,183,990
Loans and amounts due from credit institutions	-	-	-	-	100,391,431	100,391,431
Of which:
Loans and amounts due from credit institutions, gross	-	-	-	-	100,404,400	100,404,400
Impairment losses (note 3-b.2)	-	-	-	-	(12,969)	(12,969)
Loans and advances to customers	-	-	587,991	-	287,027,934	287,615,925
Of which:
Loans and advances to customers, gross (1)	-	-	587,991	-	307,492,193	308,080,184
Impairment losses (note 3-b.2)	-	-	-	-	(20,464,259)	(20,464,259)
Debt instruments	3,302,426	36,856,788	-	90,965,704	43,526,300	174,651,218
Of which:
Debt instruments	3,302,426	36,856,788	-	90,965,704	46,264,711	177,389,629
Impairment losses (note 3-b.2)	-	-	-	-	(2,738,411)	(2,738,411)
Equity instruments	-	437,300	288,592	51,035	-	776,927
Trading derivatives	-	17,704,567	-	-	-	17,704,567
Total	25,486,416	54,998,655	876,583	91,016,739	430,945,665	603,324,058

						12/31/2018
	Financial Assets Measured At Fair Value Through Profit Or Loss	Financial Assets Measured At Fair Value Through Profit Or LossHeld For Trading	Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss	Financial Assets Measured At Fair Value Through Other Comprehensive Income	Financial Assets Measured At Amortized Cost	Total
Balances With The Brazilian Central Bank	40,540,054	-	-	-	-	40,540,054
Loans and amounts due from credit institutions	-	-	-	-	79,607,001	79,607,001
Of which:
Loans and amounts due from credit institutions, gross	-	-	-	-	79,620,562	79,620,562
Impairment losses (note 3-b.2)	-	-	-	-	(13,561)	(13,561)
Loans and advances to customers	-	-	619,180	-	301,072,207	301,691,387
Of which:
Loans and advances to customers, gross (1)	-	-	619,180	-	321,314,010	321,933,190
Impairment losses (note 3-b.2)	-	-	-	-	(20,241,803)	(20,241,803)
Debt instruments	3,171,746	50,066,469	-	85,395,691	36,799,509	175,433,415
Of which:
Debt instruments	3,171,746	50,066,469	-	85,395,691	39,513,460	178,147,366
Impairment losses (note 3-b.2)	-	-	-	-	(2,713,951)	(2,713,951)
Equity instruments	-	766,333	298,297	40,986	-	1,105,616
Trading derivatives	-	18,019,512	-	-	-	18,019,512
Total	43,711,800	68,852,314	917,477	85,436,677	417,478,717	616,396,985

Interim Condensed Consolidated Financial Statements - March 31, 2019          31

 

(1)On March 31, 2019, the amount recorded in “Loans and advances to customers” related to loan portfolio assigned is R$104,328 (12/31/2018 – R$122,271), and R$102,431 (12/31/2018 – R$126,906) of “Other financial liabilities - Financial Liabilities Associated with Assets Transfer”.

b) Valuation adjustments for impairment of financial assets

b.1) Financial Assets Measured at Fair Value through Other Comprehensive Income 

As indicated in Note 2 of the consolidated financial statements of the Bank for the year ended December 31, 2018, changes in the carrying amounts of financial assets and liabilities are recognized in the consolidated income statement. Except in the case of Financial Assets Measured At Fair Value Through Other Comprehensive Income (classified as available-for-sale financial assets until December 31, 2018, prior to the IFRS 9 adoption, as described in note 1), whose changes in value are recognized temporarily in consolidated stockholders' equity under “Other Comprehensive Income”.

Charge or credit to the “Other Comprehensive Income” as a result of the fair value measurement, remain in the Bank's consolidated stockholders' equity until the related assets are write-off, whereupon they are accounted to the consolidated income statement. As part of the process of fair value measurement, when there is objective evidence that the financial instruments are impaired, the amounts are no longer recognized in equity under “Financial Assets Measured at Fair Value through Other Comprehensive Income” and are reclassified, for the cumulative amount at that date, to the consolidated income statement.  

On March 31, 2019 the Bank analyzed the changes in fair value of the various assets comprising this portfolio and concluded that, at that date, there were no significant differences whose origin could be considered to arise from permanent impairment. Accordingly, the total of the changes in the fair value of these assets are presented under “Other Comprehensive Income”. The changes in the balance of valuation adjustments in the interim period are recognized in the Consolidated Statements of Comprehensive Income.

b.2) Financial Assets Measured At Amortized Cost - Loans, amounts due from credit institutions and advances to customers 

The changes in the balance of the allowances for impairment losses on the assets included under inancial “Assets Measured At Amortized Cost - Loans, amounts due from credit institutions and advances to customers” for the three-month period ended March 31, 2019 and 2018 were as follows:

	1/01 to 3/31/2019
Balance at beginning of the period	22,969,315
Provision for losses on financial assets and recovery of loans written off for loss – Loans and receivables	3,274,134
Write-off of impaired balances against recorded impairment allowance	(3,027,810)
Balance at end of the period(Note 3.a)	23,215,639
Provision for contingent liabilities (note 9.a)	594,906
Total balance of allowance for impairment losses, including provisions for contingent liabilities	23,810,545
Loans written-off recovery	168,316
	1/01 to 3/31/2018
Balance at beginning of the period (in 1/01/2018 after the IFRS 9 first adoption)	20,723,062
Provision for losses on financial assets and recovery of loans written off for loss – Loans and receivables	3,208,708
Write-off of impaired balances against recorded impairment allowance	(2,886,958)
Balance at end of the period(Note 3.a)	21,044,812
Provision for contingent liabilities (note 9.a)	901,337
Total balance of allowance for impairment losses, including provisions for contingent liabilities	21,946,149
Loans written-off recovery	188,225

Considering these amounts recognized in “Impairment losses charged to income” and the "Recoveries of loans previously charged off", the "Impairment losses on financial assets measured at amortized cost” (classified previously at Impairment losses on financial assets - loans and receivables) amounted to R$3,105,818 and R$3,020,483 in the three-month period ended March 31, 2019 and 2018, respectively.

Interim Condensed Consolidated Financial Statements - March 31, 2019          32

 

c) Impaired assets

A financial asset is considered impaired when there is objective evidence that events have occurred which: (i) give rise to an adverse impact on the future cash flows that were estimated at the transaction date, in the case of debt instruments (loans and debt securities); (ii) mean that their carrying amount cannot be fully recovered, in the case of equity instruments; (iii) arising from the violation of terms of loans, and (iv) during the Bankruptcy process. 

Detail of the changes in the balance of the financial assets classified as "Loans and advances to customers" considered to be impaired due to credit risk in the three-month period ended March 31, 2019 and 2018 is as follows:

	1/01 to 3/31/2019
Balance at beginning of the period	22,425,801
Net additions	3,083,160
Write-off of impaired balances against recorded impairment allowance	(3,027,810)
Balance at end of the period	22,481,151
	1/01 to 3/31/2018
Balance at beginning of the period (in 01/01/2018 after the IFRS 9 first adoption)	19,847,987
Net additions	3,103,377
Write-off of impaired balances against recorded impairment allowance	(2,886,958)
Balance at end of the period (IFRS 9)	20,064,406

d) Provisions for contingent liabilities

TheIFRS 9 requires that a provision for expected loan losses shall be registered for contracts of financial guarantees provided which had not been honored. It shall be measured and registered the provision expense that reflects the credit risk when the honor of these guarantees occurs and the client endorsed does not comply with its contractual obligations. So it is demonstrated below the changes of such provisions for the period of three months ended in March 31, 2019 and 2018.

	1/01 to 3/31/2019
Balances at the beginning of the period (in 1/01/2018 after the IFRS 9 first adoption) (Note 1.1 xvi)	626,267
Reversal of provisions for contingent liabilities	(31,361)
Balances at the end of period (Note 3.b.2)	594,906
	1/01 to 3/31/2018
Balances at the beginning of the period	674,513
Constitution of provisions for contingent liabilities	226,824
Balances at the end of period (Note 3.b.2)	901,337

4.Non-current assets held for sale 

Non-current assets held for sale includes foreclosed assets. 

5.Investments in associates and Joint Ventures 

Jointly controlled

Banco Santander considers investments classified as jointly controlled when they possess a stockholders' agreement, which sets the strategic financial and operating decisions requiring the unanimous consent of all investors.

Significant Influence

Associates are entities over which the Bank is in a position to exercise significant influence (significant influence is the power to participate in the financial and operating policy decisions of the investee) but it does not control or has joint control over those policies. 

Interim Condensed Consolidated Financial Statements - March 31, 2019          33

 

a) Breakdown 

			Participation %
Jointly Controlled by Banco Santander	Activity	Country	3/31/2019	12/31/2018
Banco RCI Brasil S.A.	Bank	Brazil	39.89%	39.89%
Norchem Participações e Consultoria S.A.(1)	Other Activities	Brazil	50.00%	50.00%
Cibrasec - Companhia Brasileira de Securitização(1)(2)	Securitization	Brazil	9.72%	9.72%
Estruturadora Brasileira de Projetos S.A. - EBP(1)(2)(3)	Other Activities	Brazil	11.11%	11.11%
Gestora de Inteligência de Crédito(2)	Credit Bureau	Brazil	20.00%	20.00%
Campo Grande Empreendimentos(6)	Other Activities	Brazil	25.32%	25.32%
Banco Hyundai Capital Brasil S.A.(7)	Bank	Brazil	-	50.00%
Santander Auto S.A.(8)	Other Activities	Brazil	50.00%	50.00%
Jointly Controlled by Santander Corretora de Seguros
Webmotors S.A.(4)	Other Activities	Brazil	70.00%	70.00%
Tecnologia Bancária S.A. - TECBAN(1)	Other Activities	Brazil	19.81%	19.81%
PSA Corretora de Seguros e Serviços Ltda.(5)	Insurance Broker	Brazil	50.00%	50.00%
Significant Influence of Banco Santander
Norchem Holding e Negócios S.A.(1)	Other Activities	Brazil	21.75%	21.75%

(1)Companies with a one-month lag for the calculation of equity equivalence. For accounting purposes of equity accounting, the positionof February 28, 2019 was used onMarch 31, 2019.

(2)Although the shareholding is less than 20%, the Bank exercises joint control in the entity with the other majority shareholders, through a shareholders' agreement where no business decision can be made by a single shareholder.

(3)Pursuant to its Bylaws, EBP was constituted with the mission of carrying out projects that contributed to the Brazilian economic and social development for a period of 10 years. Following the completion of the established schedule, EBP terminates its activities in 2018. The full dissolution and settlement of the EBP were resolved at the Extraordinary General Meeting held on January 29, 2018.

(4)Although the shareholding is higher than 50%, in accordance with the shareholders' agreement, the control is shared by Santander Corretora de Seguros (current corporate name of Santander Participações S.A.) and Carsales.com Investments PTY LTD. (Carsales).

(5)In accordance with the shareholders' agreement, the control is shared by Santander Corretora de Seguros (current corporate name of Santander Participações S.A.) and PSA Services LTD.

(6)Participation resulting from the credit recovery of Banco Comercial e de Investimentos Sudameris S.A., incorporated in 2009 by Banco ABN AMRO Real S.A., which in the same year was incorporated by Banco Santander (Brasil) S.A., one of the partners of the Company. The partners are conducting the procedures to extinguish the company, which depends on the sale of a property. Once sold, the company will be liquidated and each partner will receive its share of the equity.

(7)The pre-operating companyBHJV Assessoria e Consultoria em Gestão Empresarial Ltda.Was incorporated on April 11, 2018 and transformed into Banco Hyundai Capital Brasil SA on December 13, 2018. Aymoré CFI, a wholly-owned subsidiary of Banco Santander, has the operational operational control of the company (Note 2). At the EGM held on February 19, 2019, the capital increase of R $ 200,000 was approved, through the issue of 200,000,000 (two hundred million) new common shares, registered with no par value, with a capital stock of R $ 100,000 to R $ 300,000. The shares issued as a result of the capital increase were fully subscribed by the shareholders Aymoré Financiamentos CFI in the amount of R $ 100,000 and Hyundai Capital Services Inc. in the amount of R $ 100,000. On March 31, 2019, the company was consolidated in IFRS.

(8)Insurance company incorporated on October 9, 2018, through transformation of the corporate vehicle L.G.J.S.P.E. Empreendimentos e Participações S.A., submitted to Susep to obtain authorization to operate. In accordance with the shareholders' agreement, the control is shared by Sancap and HDI Seguros S.A. (Note 2.g).

  (*) The Bank does not have collateral with associates and joint ventures.

(**) The Bank does not have contingent liabilities with significant risk of possible losses related to investments in affiliates.

	3/31/2019
	Total assets	Total liabilities	Total profit/(loss)
Jointly Controlled by Banco Santander	12,226,353	10,553,933	45,320
Banco RCI Brasil S.A.	11,691,017	10,490,663	44,329
Norchem Participações e Consultoria S.A.	80,192	27,308	673
Cibrasec - Companhia Brasileira de Securitização	80,586	5,136	397
Estruturadora Brasileira de Projetos S.A. - EBP	33,575	96	266
Gestora de Inteligência de Crédito	325,726	30,705	(466)
Santander Auto S.A.	15,257	25	121
Jointly Controlled by Santander Corretora de Seguros	2,587,527	1,417,350	21,497
Webmotors S.A.	452,425	48,159	13,055
Tecnologia Bancária S.A. - TecBan	2,131,854	1,368,424	8,369
PSA Corretora de Seguros e Serviços Ltda.	3,248	767	73
Significant Influence of Banco Santander	124,212	27,292	675
Norchem Holding e Negócios S.A.	124,212	27,292	675
Total	14,938,092	11,998,575	67,492

	12/31/2018
	Total assets	Total liabilities	Total profit/(loss)
Jointly Controlled by Banco Santander	10,500,055	8,755,688	80,954
Banco RCI Brasil S.A.	9,849,508	8,679,715	115,928
Norchem Participações e Consultoria S.A.	79,633	27,423	2,240
Cibrasec - Companhia Brasileira de Securitização	80,300	3,893	1,989
Estruturadora Brasileira de Projetos S.A. - EBP	33,389	176	(9,151)
Gestora de Inteligência de Crédito	338,382	42,894	(32,328)
Banco Hyundai Capital Brasil S.A.	103,703	1,557	2,166
Santander Auto S.A.	15,140	30	110
Jointly Controlled by Santander Corretora de Seguros	2,463,262	1,573,082	9,703
Webmotors S.A.	221,313	60,905	43,751
Tecnologia Bancária S.A. - TecBan	2,238,156	1,510,794	(34,976)
PSA Corretora de Seguros e Serviços Ltda.	3,793	1,383	928
Significant Influence of Banco Santander	123,959	27,714	2,690
Norchem Holding e Negócios S.A.	123,959	27,714	2,690
Total	13,087,276	10,356,484	93,347

Interim Condensed Consolidated Financial Statements - March 31, 2019          34

	Investments
	3/31/2019	12/31/2018
Jointly Controlled by Banco Santander	583,207	613,366
Banco RCI Brasil S.A.	478,833	458,292
Norchem Participações e Consultoria S.A.	26,441	26,105
Cibrasec - Companhia Brasileira de Securitização	7,337	7,298
Estruturadora Brasileira de Projetos S.A. - EBP	3,720	3,690
Gestora de Inteligência de Crédito	59,004	59,098
Campo Grande Empreendimentos	255	255
Banco Hyundai Capital Brasil S.A.	-	51,073
Santander Auto S.A.	7,617	7,555
Jointly Controlled by Santander Corretora de Seguros	429,848	419,016
Webmotors S.A.	282,859	273,721
Tecnologia Bancária S.A. - TECBAN	145,748	144,090
PSA Corretora de Seguros e Serviços Ltda.	1,241	1,205
Significant Influence of Banco Santander	21,080	20,933
Norchem Holding e Negócios S.A.	21,080	20,933
Total	1,034,135	1,053,315

	Results of Investments
	1/01 to 3/31/2019	1/01 to 3/31/2018
Jointly Controlled by Banco Santander	18,054	(1,883)
Banco RCI Brasil S.A.	17,682	861
Norchem Participações e Consultoria S.A.	336	388
Cibrasec - Companhia Brasileira de Securitização	39	(185)
Estruturadora Brasileira de Projetos S.A. - EBP	29	(1,082)
Gestora de Inteligência de Crédito	(93)	(1,865)
Santander Auto S.A.	61	-
Jointly Controlled by Santander Corretora de Seguros	10,833	5,098
Webmotors S.A.	9,139	6,873
Tecnologia Bancária S.A. - TECBAN	1,658	(1,884)
PSA Corretora de Seguros e Serviços Ltda.	36	109
Significant Influence of Banco Santander	147	162
Norchem Holding e Negócios S.A.	147	162
Total	29,034	3,377

b) Changes                                                                                                                                                                         

The changes in the balance of this item in the periods ended March 31, 2019 and 2018 were as follows:   

	01/01 to 3/31/2019		01/01 to 3/31/2018
	Joint Control	Significant Influence	Joint Control	Significant Influence
Balance at beginning of period	1,032,382	20,933	845,704	20,860
Income from companies accounted for by the equity method	28,887	147	3,215	162
Addition	-	-	65,032	-
Change in scope of consolidation	(51,073)	-	-	-
Adjustment to market value	3,799	-	-	-
Others	(940)	-	(6,892)	-
Balance at end of period	1,013,055	21,080	907,059	21,022
Total Investments		1,034,135		928,081

c) Impairment losses                                                                                                                                                       

There are no impairment losses with respect to investments in associates and joint ventures for the period ended March 31, 2019 and December 31, 2018.                                                                          

d) Other information                                                                                                                                                         

Details of the main subsidiaries not consolidated by Banco Santander:                                

Interim Condensed Consolidated Financial Statements - March 31, 2019          35

 

-Banco RCI Brasil S.A.: A company incorporated in the form of corporation headquartered in Parana, primarily engaged in investment, leasing, credit operations, financing and investment, in order to sustain the growth of automotive brands Renault and Nissan in the Brazilian market by financing and leasing the dealer network and the end consumer. It is a financial institution part of the RCI Banque Group and the Santander Group, with operations conducted as part of a set of institutions that operate in the financial market. According to the Stockholders' Agreement, the key decisions that impact this society are taken jointly between Banco Santander and the other controller. 

-Webmotors S.A.: A company incorporated in the form of capital company with headquarters in São Paulo engaged in the design, implementation and/or availability of electronic catalogs, space, products, services or means of marketing products and/or services related to the automotive industry, on the Internet through the website www.webmotors.com.br (owned by Webmotors) or other means related to e-commerce activities and other uses or Internet applications, as well as participation in capital in other companies and the management of business ventures. It is a company of Santander´s Economic and Financial Conglomerate (Santander Group) and Carsales.com Investments PTY LTD (Carsales), and its operations are conducted as part of a group of institutions that operate jointly. According to the Stockholders' Agreement, the key decisions that impact this society are taken jointly between Banco Santander and the other controller.

6.Tangible assets 

a) Changes

Changes in the Tangible assets balances for the three months period ended March 31, 2019 and 2018, are as follows:

	Land and buildings	IT equipment and fixtures	Furniture and vehicles		Works in progress and others	Total
Balances as of December 31, 2018	2,004,335	913,613	3,669,344	-	1,683	6,588,975
First Adoption IFRS 16 (note 1.b)	-	-	-	2,465,750	-	2,465,750
Balances as of Januray 1, 2019	2,004,335	913,613	3,669,344	2,465,750	1,683	9,054,725
Addition	3	138,787	330,142	184,478	94	653,504
Write-off	(3,056)	(2,555)	(7,936)	(56,512)	-	(70,059)
Depreciation of the period	(23,654)	(120,303)	(170,839)	(131,197)	-	(445,993)
Impairment / Reversal in the period	86	-	(3,992)	-	-	(3,906)
Transfers	4,415	13	(66,319)	-	-	(61,891)
Balances as of March 31, 2019	1,982,129	929,555	3,750,400	2,462,519	1,777	9,126,380
		Land and buildings	IT equipment and fixtures	Furniture and vehicles	Works in progress and others	Total
Balances as of December 31, 2017		2,016,815	996,519	3,492,790	3,759	6,509,883
Addition		-	40,754	221,852	-	262,606
Write-off		-	(1,894)	(151)	-	(2,045)
Depreciation of the period		(20,137)	(126,190)	(155,768)	-	(302,095)
Impairment / Reversal in the period		-	389	267	-	656
Transfers		1,898	(950)	(58,090)	-	(57,142)
Balances as of March 31, 2018		1,998,576	908,628	3,500,900	3,759	6,411,863

b) Impairment losses 

In the quarter ended March 31, 2019, there was an impact of impairment in the amount of R$ 3.9 million (03/31/2018 - reversal of impairment of R$ 656)

c) Tangible asset purchase commitments

On March 31, 2019, the Bank has R$61,9 million in contractual commitments for the acquisition of tangible assets (12/31/2018 - R$3,2 million).

7.Intangible assets 

a) Goodwill 

Goodwill is the difference between the acquisition cost and the Bank's participation in the net fair value of assets, liabilities and contingent liabilities of the acquiree. When the difference is negative (negative goodwill), it is recognized immediately through profit or loss. In accordance with IFRS 3 Business Combinations, goodwill is stated at cost and is not amortized but tested annually for impairment or whenever there is an evidence of reduction on the recoverable value of the cash generating unit to which the goodwill was allocated. Goodwill is recognized at cost considering the accumulated  impairment losses. Impairment losses related to goodwill are not reversible. Gains and losses related to the sale of an entity include the carrying amount of goodwill relating to the entity sold.

The goodwill recorded is subject to impairment testing and has been allocated according to the operating segments (note 14).  

Based on the assumptions described above management has not identified any evidence of goodwill impairment on December 31, 2018. In the first quarter of 2019, no indication of impairment of goodwill was identified.

Interim Condensed Consolidated Financial Statements - March 31, 2019          36

 

	3/31/2019	12/31/2018
Breakdown
Banco ABN Amro Real S.A. (Banco Real)	27,217,565	27,217,565
Olé Consignado	62,800	62,800
Super Pagamentos e Administração de Meios Eletrônicos Ltda. (Super)	13,050	13,050
Banco PSA Finance Brasil S.A.	1,557	1,557
Getnet Adquirência e Serviços para Meios de Pagamento S.A. (Santander Getnet)	1,039,304	1,039,304
Return Capital Serviços de Recuperação de Créditos S.A. (formerly named Ipanema Empreendimentos e Participações S.A.)	27,630	27,630
Santander Brasil Tecnologia S.A.	16,382	16,382
Total	28,378,288	28,378,288

	Commercial Bank
	12/31/2018
Key assumptions:
Basis for determining the recoverable amount
Period of the projections of cash flows (1)	5 years
Perpetual growth rate	5.1%
Discount rate (2)	13.6%

(1)The projections of cash flow are prepared using Management´s growth plans and internal budget, based on historical data, market expectations and conditions such as industry growth, interest rate and inflation.

(2)The discount rate is calculated based on the capital asset pricing model (CAPM). The discount rate before tax is 19.33%.

The impairment test was performed during the second half of 2018, since at the end of each reportable period or whenever there is any indication of impairment, goodwill is tested for impairment.

In the goodwill impairment test, discount rates and perpetuity growth are the most sensitive assumptions for the calculation of present value (value in use) of future cash flows discounted to present value. With the variation of + 0.25% or -0.25% in these rates, the value of future cash flows discounted to present value remains higher than Banco Santander's stockholders' equity.

b) Other intangible assets

Changes in the other intangible assets for the three months period ended March 31, 2019 and 2018 are as follows:

	IT developments	Other assets	Total
Balances as of December 31, 2018	1,556,870	83,830	1,640,700
Addition	200,318	(14,173)	186,145
Write-off	(69,801)	-	(69,801)
Transfers	(1,612)	14,173	12,561
Amortization	(121,791)	(5,043)	(126,834)
Impairment (1)	3,570	-	3,570
Balances as of March 31, 2019	1,567,554	78,787	1,646,341
Estimated Useful Life	5 years	Until 5 years
	IT developments	Other assets	Total
Balances as of December 31, 2017	1,734,866	102,921	1,837,787
Addition	288,177	81	288,258
Write-off	(27,842)	-	(27,842)
Transfers	(196,633)	(1)	(196,634)
Amortization	(125,096)	(4,798)	(129,894)
Additions by Company Acquisition	7	-	7
Balances as of March 31, 2018	1,673,479	98,203	1,771,682
Estimated Useful Life	5 years	Until 5 years

(1)In 2018, it refers to impairment loss of assets in the acquisition and development of software. The loss in the acquisition and development of software was recorded due to obsolescence function and disruption of these systems.           

8.Financial liabilities                                                                                                                                                            

a) Breakdown by category                                                                                                                                             

The breakdown by nature and category for purposes of measurement, of the Bank’s financial liabilities, other than “Hedging Derivatives”, as at March 31, 2019 and December 31, 2018 is as follows:

Interim Condensed Consolidated Financial Statements - March 31, 2019          37

 

		3/31/2019
	Financial Liabilities Measured At Fair Value Through Profit Or Loss Held for Trading	Financial Liabilities Measured At Fair Value Through Profit Or Loss	Financial Liabilities Measured at Amortized Cost	Total
Deposits from Brazilian Central Bank and deposits from credit institutions	-	-	96,065,378	96,065,378
Customer deposits	-	-	308,794,232	308,794,232
Marketable debt securities	-	-	77,713,622	77,713,622
Trading derivatives	19,941,929	-	-	19,941,929
Short positions	20,410,279	-	-	20,410,279
Debt Instruments Eligible to Compose Capital	-	-	10,000,519	10,000,519
Other financial liabilities (1)	-	519,581	46,122,064	46,641,645
Total	40,352,208	519,581	538,695,815	579,567,604
(1) Includes the effect of R$2,481,667 related to the impacts of adopting IFRS 16.
		12/31/2018
	Financial Liabilities Measured At Fair Value Through Profit Or Loss Held for Trading	Financial Liabilities Measured At Fair Value Through Profit Or Loss	Financial Liabilities Measured at Amortized Cost	Total
Deposits from Brazilian Central Bank and deposits from  -  credit institutions		-	99,022,806	99,022,806
Customer deposits	-	-	304,197,800	304,197,800
Marketable debt securities	-	-	74,626,232	74,626,232
Trading derivatives	18,243,315	-	-	18,243,315
Subordinated liabilities	-	-	9,885,608	9,885,608
Short positions	32,695,677	-	-	32,695,677
Debt Instruments Eligible to Compose Capital	-	-	9,779,943	9,779,943
Other financial liabilities	-	1,946,056	49,782,780	51,728,836
Total	50,938,992	1,946,056	547,295,169	600,180,217

b) Composition and details 

b.1) Deposits from the Brazilian Central Bank and Deposits from credit institutions

	3/31/2019	12/31/2018
Demand deposits (1)	462,134	709,605
Time deposits (2)	58,705,676	47,227,456
Repurchase agreements	36,897,568	51,085,745
Of which:
Backed operations with Government Securities (3)	7,515,640	44,107,979
Backed operations with Private Securities	29,381,928	6,977,766
Total	96,065,378	99,022,806

(1)Non-interest bearing accounts.

(2)It includes the operation with credit institution arising from export and import financing lines, BNDES and Finame on-lending, locally and abroad, and other foreign credit.

(3)They refer, basically, to repurchase transactions with debentures of their own issuance.

b.2) Customer deposits

	3/31/2019	12/31/2018
Demand deposits
Current accounts (1)	18,214,788	18,853,519
Savings accounts	46,211,153	46,068,346
Time deposits	192,217,166	190,982,541
Repurchase agreements	52,151,125	48,293,394
Of which:
Backed operations with Private Securities (2)	7,515,640	6,977,766
Backed operations with Government Securities	44,635,485	41,315,628
Total	308,794,232	304,197,800

(1)Non-interest bearing accounts.

(2)Refers primarily to repurchase agreements backed by debentures own issue.

Interim Condensed Consolidated Financial Statements - March 31, 2019          38

 

b.3) Marketable Debt securities

	3/31/2019	12/31/2018
Real Estate Credit Notes - LCI (1)	27,019,839	27,159,982
Eurobonds	5,006,188	4,516,647
Treasury Bills (2)	31,268,529	30,721,206
Agribusiness Credit Notes - LCA (3)	13,896,688	11,925,018
Guaranteed Real Estate Bill - LIG (4)	522,378	303,379
Total	77,713,622	74,626,232

(1)LCI´s are fixed income securities underlined to mortgage loans and collateralized by mortgage or chattel mortgage on property. On March 31, 2019, there are maturities between 2019 to 2026 (12/31/2018- there were maturities between 2019 to 2026).

(2)The main features of the financial letters are the minimum period of two years, minimum notional of R$300 and permission for early redemption of only 5% of the issued amount. On March 31, 2019, the maturities are between 2019 to 2025 (12/31/2018 - they have a maturity between 2018 to 2025).

(3)Agribusiness credit notes are fixed income securities in which the funds are used to promote agribusiness, indexed by the CDI. As of March 31, 2019, they have a maturity date between 2019 and 2023 (12/31/2018 - with maturity between 2019 and 2023).

(4)Guaranteed real estate bills are fixed income securities backed by real estate loans guaranteed by the issuer and by a pool of real estate credits separated from the other assets of the issuer. As of March 31, 2019, the maturity date is 2022 (12/31/2018 - with maturity up to 2021).

The changes in the balance of Marketable debt instruments in the three-month periods ended on March 31, 2019 and 2018 were as follows:

	1/01 to 3/31/2019	1/01 to 3/31/2018
Balance at beginning of the period	74,626,232	70,247,012
Issues	12,365,303	17,228,812
Payments	(10,429,727)	(13,904,931)
Interest	1,270,122	1,132,919
Exchange differences and other	(118,308)	54,862
Balance at end of the period	77,713,622	74,758,674

The Composition of "Eurobonds and other securities" is as follows:

				Interest	3/31/2019	12/31/2018
	Issuance	Maturity	Currency	Rate (p.a.)	Total	Total
Eurobonds	2017	2019	USD	LIBOR 3M + 1.00%	195,323	194,243
Eurobonds	2017	2024	USD	6.9% to 10.0%	631,719	639,275
Eurobonds	2018	2019	USD	Zero Coupon to 9.0%	750,175	855,035
Eurobonds	2018	2019	USD	LIBOR 3M + 0.95%	19,495	19,386
Eurobonds	2018	2019	USD	LIBOR 1M + 1.50%	199,123	197,055
Eurobonds	2018	2020	USD	Up to 3.5%	639,889	34,776
Eurobonds	2018	2024	USD	6.6% a 6.7%	1,197,752	1,211,361
Eurobonds	2018	2025	USD	9.0%	1,276,279	1,287,821
Other					96,433	77,695
Total					5,006,188	4,516,647

b.4) Subordinated liabilities 

The Composition of "Subordinated Liabilities" is as follows:

	Issuance	Maturity	Issuance Value	Interest Rate (p.a.)	3/31/2019	12/31/2018
Tier I (1) (2)	jan-2014	No Maturity (Perpetual)	R$ 3,000	7.375%	-	4,906,880
Tier II (1) (2	jan-2014	jan-2024	R$ 3,000	6.000%	-	4,978,728
Total					-	9,885,608

(1)  Subordinated deposit certificates issued with yield paid at the end of the term together with the principal.

(2)   On December 18, 2018, the Bank issued an approval for the repurchase of Notes issued on January 29, 2014. This approval led to the reclassification of these instruments   from the Series of Eligible Debt Instruments to Subordinated Debt Capital (Note 8.b.5) .

Interim Condensed Consolidated Financial Statements - March 31, 2019          39

 

Changes in the balance of "Subordinated liabilities" for the three-month period ended March 31, 2019 and 2018 were as follows: 

	1/01 to 3/31/2019	1/01 to 6/30/2017
Balance at beginning of the period	9,885,608	519,230
Payments	(9,924,747)	-
Interest	39,139	14,409
Balance at end of the period	-	533,639

b.5) Debt Instruments Eligible to Compose Capital

Details of the balance of "Debt Instruments Eligible to Compose Capital" for the issuance of equity instruments to compose the Tier I and Tier II of regulatory capital due to the Regulatory Capital Optimization Plan, are as follows:

	Issuance	Maturity	Issuance Value	Interest Rate (p.a.)(3)	3/31/2019	12/31/2017
Tier I (1) (2)	nov-18	no maturity (perpetual)	US$1.250	7.250%	5,011,136	4,893,668
Tier II (1) (2)	nov-18	nov-28	US$1.250	6.125%	4,989,383	4,886,276
Total					10,000,519	9,779,944

(1)Interest paidsemi-annually, effectiveMay 8, 2019.

(2) Emissions were made through the Cayman Agency and there is no incidence of Income Tax at Source.

Mainly Banco Santander Espanha acquired these instruments (Note 15.d).

Changes in the balance of "Debt Instruments Eligible to Compose Capital" for the three-month period ended on March 31, 2019 and 2018 were as follows:

	1/01 to 3/31/2019	1/01 to 6/30/2017
Balance at beginning of the period	9,779,944	8,436,901
Interest payment Tier I (1)	85,520	68,449
Interest payment Tier II (1)	72,250	55,413
Foreign exchange variation	62,805	67,372
Payments of interest - Tier I	-	(85,294)
Payments of interest - Tier II	-	(138,759)
Balance at end of the period	10,000,519	8,404,082

(1)The remuneration of interest relating to the Debt Instruments Eligible to Compose Capital Tier I and II was recorded against income for the period as "Interest expense and similar charges".

On November 5, 2018, the Board of Directors approved the issuance of the equity instruments, which was held on November 8, 2018. Such issuance took the form of Notes issued in the United States, US $ 2.5 billion, for payment in Level I and Level II of Reference Equity. The offering of these Notes was made outside of Brazil and the United States of America, for non-US Persons, based on Regulation S under the Securities Act, and was fully paid in by Santander España, controlling shareholder of Banco Santander Brasil. On this same date, the Board of Directors approved the redemption of the Level I and Level II Notes issued on January 29, 2014, in the total amount of US $ 2.5 billion (Note 8.b.4).

The specific characteristics of Notes issued to make up Level I are: (a) Principal: US $ 1,250 billion; (b) Interest Rate: 7.25% pa; (c) no maturity (perpetual); (d) Periodicity of payment of interest: semiannually, as of May 8, 2019.

The specific characteristics of Notes issued to make up Level II are: (a) Principal: US $ 1,250 billion; (b) Interest Rate: 6.125% pa .; (c) Maturity Maturity: November 8, 2028; and (d) Periodicity of payment of interest: semiannually, as of May 8, 2019.

Notes have the following common characteristics:

(a) Unit value of at least US $ 150 thousand and in integral multiples of US $ 1 thousand in excess of such minimum value;

(b) The Notes may be repurchased or redeemed by Banco Santander after the fifth (fifth) anniversary as of the date of issue of the Notes, at the sole discretion of the Bank or due to changes in the tax law applicable to the Notes; or at any time, due to the occurrence of certain regulatory events.

On December 18, 2018, the Bank issued an approval for the Notes to comprise Level I and Level II of Banco Santander's Referential Equity as of such date, as well as the repurchase of Notes issued on January 29, 2014. approved the reclassification of these instruments from the line of Eligible Debt Instruments to Capital for Subordinated Debts (Note 8.b.4).

Interim Condensed Consolidated Financial Statements - March 31, 2019          40

 

9.Provisions

a) Breakdown

	3/31/2019	12/31/2018
Provisions for pension funds and similar obligations (1)	3,416,848	3,357,654
Provisions for judicial and administrative proceedings, commitments and other provisions	11,184,556	11,338,244
Judicial and administrative proceedings under the responsibility of former controlling stockholders	601,002	605,638
Judicial and administrative proceedings	9,412,288	9,507,240
Of which:
Civil	3,356,754	3,377,338
Labor	3,751,329	3,819,107
Tax and Social Security	2,304,205	2,310,795
Provision for contingent liabilities (Note 3 b.2)	594,906	626,267
Other provisions	576,360	599,099
Total	14,601,404	14,695,898

(1)In thethree-month period ended March 31, 2019, there was an increase in the cost contribution established for a post-employment benefit plan, which is calculated as a percentage of the total monthly compensation of associates. The increase in the contribution resulted in a decrease in the past service cost, due to changes in the plan. The envisaged changes implied a reduction in the present value of the obligations of the defined benefit plan, which is supported by actuarial valuations. In the Consolidated Statements of Income, this amount was recorded under Provision (Net).

b) Provisions for civil, labor, tax and social security contingencies 

Banco Santander and its subsidiaries are part of lawsuits and administrative tax, labor and civil proceedings arising in the normal course of its activities. 
The provisions were constituted based on the nature, complexity, lawsuits historic and company´s assessment of lawsuit losses based on the opinions of internal and external legal advisors. Banco Santander has the policy to fully provision the lawsuits for which the loss assessment is considered probable. The legal obligation of tax and social security were fully recognized in the financial statements.

Management understands that the provisions recorded are sufficient to meet legal obligations and losses derived from lawsuits and administrative proceedings.

b.1) Lawsuits and Administrative Tax and Social Security

The main lawsuits related to tax legal obligations, recorded in the line "Tax Liabilities - Current", fully registered as obligation, are described below: 

•PIS and Cofins -R$ 3,664,125 (December 31, 2018 - R $ 3,632,467): Banco Santander and its subsidiaries filed lawsuits seeking to eliminate the application of Law 9,718 / 1998, which modified the calculation basis of PIS and Cofins so that levied on all revenues of legal entities and not only on those arising from the provision of services and the sale of goods. In relation to the Banco Santander case, on April 23, 2015, a decision of the Supreme Federal Court (STF) was issued admitting the Extraordinary Appeal filed by the Federal Government concerning PIS and denying the follow-up to the Extraordinary Appeal of the Federal Public Prosecution regarding Cofins. Both appealed this decision, without any success, so that the suit relating to Cofins is defined, ruling the judgment of the Federal Regional Court of the 4th Region of August 2007, favorable to Banco Santander. Pursuant to the STF, Banco Santander's PIS and the PIS and Cofins of other subsidiaries are pending final judgment.

Main lawsuits and administrative proceedings with probable loss risk

Banco Santander and its subsidiaries are part in lawsuits and administrative proceedings related to tax and social security matters, which their risk of loss are classified as probable, based on the opinion of legal counsel.

The main topics discussed in these lawsuits are:

• Provisional Contribution on Financial Transactions (CPMF) on Customer Operations- R$733,620 (December 31, 2018 – R$729,919 ):  in May 2003, the Federal Revenue Service issued a tax assessment against Santander Distribuidora de Títulos e Valores Mobiliários Ltda. (Santander DTVM) and another tax assessment against Banco Santander Brasil S.A. The tax assessments refer to the collection of CPMF tax on transactions conducted by Santander DTVM in the cash management of its customers’ funds and clearing services provided by Banco to Santander DTVM in 2000, 2001 and 2002. Based on the risk assessment of legal counsel, the tax treatment was accurate. Santander DTVM had a favorable decision at the Board of Tax Appeals (CARF). Banco Santander had a unfavorable decision and was considered responsible for the collection of the CPMF tax. Both decisions were appealed by the respective losing party to the highest jurisdiction of CARF. In June 2015 , Bank and DTVM had obtained a non favorable decision at CARF. On July 3, 2015 Bank and Santander Brasil Tecnologia S.A.(current denomination of Produban Serviços de Informática S.A. and Santander DTVM) filed lawsuit aiming to cancel both tax charges on the period ended March 31, 2019 amounting R$1,469.9 million. Based on the evaluation of legal advisors, it was constituted provision to lawsuits with risk of loss as probable.

Interim Condensed Consolidated Financial Statements - March 31, 2019          41

 

• Social Security Contribution (INSS) - R$275,388 (December 31, 2018 – R$273,233 ): Banco Santander and its subsidiaries got into lawsuits and administrative proceedings to challenge the collection of income tax on social security and education allowance contributions over several funds that, according to the evaluation of legal advisors, do not have nature of salary. 

• Tax on Services  for Financial Institutions (ISS) - R$211,330 (December 31, 2018 - R$228,403 ): Banco Santander and its subsidiaries filed lawsuits and administrative proceedings to challenge some municipalities collection of ISS on certain revenues derived from transactions not usually classified as services (Note 9.b.4 - Possible Loss Risk).

.

b.2) Lawsuits and Administrative Proceedings - Labor Contingencies 

These are lawsuits filed by labor Unions, Associations, Public Prosecutors and former employees claiming labor rights they believe are due, especially payment for overtime and other labor rights, including retirement benefit lawsuits. 

For claims considered to be similar and usual, provisions are recognized based on the payments and successes historic. Claims that do not fit the previous criteria have their provisions constituted according to individual assessment performed, and provisions being constituted based on the risk of loss as probable, the law and jurisprudence according to the assessment of loss made by legal counsel. 

b.3) Civil judicial and administrative proceedings 

These contingencies are generally caused by: (1) Lawsuits with a request for revision of contractual terms and conditions or requests for monetary adjustments, including supposed effects of the implementation of various government economic plans, (2) lawsuits deriving of financing agreements, (3) lawsuits of execution; and (4) lawsuits of indemnity by loss and damage. For civil lawsuits considered common and similar in nature, provisions are recorded based on the average of cases closed. Claims that do not fit the previous criteria are provisioned according to individual assessment performed, and provisions are based on the risk of loss as probable, the law and jurisprudence according to the assessment of loss made by legal counsel.

The main processes with the classification of risk of loss as probable are described below: 

• Lawsuits for indemnity - seeking indemnity for material and emotional damage, regarding the consumer relationship on matters related to credit cards, consumer credit, bank accounts, collection and loans and other operations. In the civil lawsuits considered to be similar and usual, provisions are recorded based on the average of cases closed. Civil lawsuits that do not fit into the previous criteria are provisioned according to the individual assessment made, being the provisions recognized based on the risk of loss as probable, the law and jurisprudence according to the assessment of loss made by legal counsel. 

• Economic Plans -  Lawsuits filed by savings accountholders, related to supposed inflation purge arising from the Economic Plans (Bresser, Verão, Collor I and II), based on the understanding that such plans violated acquired rights relating to the application of inflation indexes on Saving Accounts, Lawsuits Deposits and Time Deposits (CDB). Provisions arising from such lawsuits are recorded based on the individual evaluation of loss made by external legal consultants.

Banco Santander is also party in public class lawsuits on the same matter filed by consumer rights organizations, Public Prosecutor’s Offices and Public Defender’s Offices. The provision is made for the lawsuits with the classification of risk as probable, based on the individual execution orders. The STF is still analyzing the subject and has already ordered the suspension of all the procedures except those that were not already decided in courts or in phase of definitive execution. There are favorable decisions to Banks at the STF with regard to a economic phenomenom similar to the savings accounts, as in the case of monetary restatement of time deposits - CDB and agreements (present value table). 

However, the Supreme Court´s jurisprudence has not come to a conclusion regarding the constitutionality of the norms that changed Brazil’s monetary standard. On April 14, 2010, the lastly court prior to the Supreme Court ("STJ") had decided that the deadline for the filing of civil lawsuits that argue the government's purge is five years, but this decision has not been handed down on the lawsuits yet. Thus, with this decision, a majority lawsuits, as they were filed after the period of five years is likely to be rejected, reducing the values involved. Still, the STF decided that the deadline for individual savers to become party on the public civil litigations, is also five years, counted from the final unappealable sentence. Banco Santander believes in the success of the arguments defended in these courts based on their content and the legal basis.

At the end of 2017, the General Union Law (AGU), Bacen, Institute of Consumer Protection (Idec), the Brazilian Front of the Moneysavers (Febrapo), the Brazilian Banks Federation (Febraban) have signed an agreement with the purpose to close all lawsuits related to Economic Plans. 

The discussions focused on the definition of the amount that would be paid to each person according to the oustanding balance in the saving account. The total amount of the payments will depend on the number of the additional clients, and also on the number of moneysavers that approved in the courts the existance of their account and balance in the birthday date of the indexes changes. The term of the agreement signed by the parties was submitted to the STF, which is responsible to decide about its viability.

In a recent decision handed down by the STF, the national suspension of all the cases that dealt with the matter was determined for two years of the homologation of the agreement.

Management considers that the accrued provisions are due to charge interest in accordance with the plans, including considering the agreement approved by the STF.

Interim Condensed Consolidated Financial Statements - March 31, 2019          42

 

b.4) Civil, Labor, Tax, and Security Social Liabilities Contingent Classified with Loss Risk as Possible: 

Refer to lawsuits and administrative proceedings involving tax, labor and civil matters classified by legal counsels with loss risk as possible, which they were not recorded.

The tax lawsuits classification with loss risk as possible, totaled R$23,341 million, being the main lawsuits as follow:

• INSS on Profit Sharing Payments (“PLR”)– Bank and the subsidiaries have several lawsuits and administrative proceedings arising from inquiries by tax authorities in connection with the taxation for social security purposes of certain items which are not considered to be employee remuneration. As of March 31, 2019 the amounts related to these proceedings totaled approximately R$5,163.3 million.

• ISS - Financial Institutions -Banco Santander and its subsidiaries discuss administrative and legal challenges for various municipalities to pay ISS on various revenues arising from operations that are usually not classified as services. As of March 31, 2019, the amounts related to these lawsuits amounted to approximately R$3,061.9 million.

Unrecognized Compensation– The Bank and its affiliates discuss administrative and legal proceedings with the Brazilian Federal Revenue, the not ratification of tax offsets with credits due to overpayment or unduepayment. On March 31, 2019, the figure was R$2,601.9 million.  

• Goodwill amortization of Banco Real –the Brazilian Tax Authority issued infraction notices against the Bank to require the income tax and social payments, including late charges, for the period of 2009. The Tax Authorities considered that the goodwill related to acquisition of Banco Real, amortized for accounting purposes prior to the merger, could not be deduced by Banco Santander for tax purposes. The infraction notice was contested. On July 14, 2015, the Police Judging RFB decided favorably to Banco Santander, fully canceling the tax debt. This decision will craft appealed before the CARF. As of March 31, 2019, the balance was approximately R$1,387.4 million.

• CSLL Tax Losses-Tax assessment  issued by the Brazilian Revenue Service, based on supposed excess utilization of Tax losses and negative basis of CSLL, of 2009 fiscal year , as a result of the other previous assessments  related to previous tax periods. There is no administrative decision yet. As of March 31, 2019, the amount involved was R$1,030.5 million.

• Goodwill amortization of Banco Sudameris– the Brazilian Tax Authority have issued infraction notices to require the income tax and social contribution payments, including late charges, relating to tax deduction of amortization of goodwill from the acquisition of Banco Sudameris, related to the period of 2007 to 2012.  Banco Santander timely presented its appeals, which are pending. On March 31, 2019, the balance was approximately R$619,903 million.

• Credit Losses- Bank and its subsidiaries challenged the tax assessments issued by the Federal Revenue Services claiming the deduction for credit losses  because they fail to meet the relevant requirements under applicable law. As of March 31, 2019 the amount related to this challenge is approximately R$456,125 million.

• IRPJ and CSLL- Capital Gain - the Federal Tax Office of Brazil issued infraction notices against Santander Seguros, successor company of ABN AMRO Brasil  Dois Participações S.A. (AAB Dois Par), charging income Tax and Social Contribution to related base year 2005. The Federal Tax Authority of Brazil claims that capital gain in sales of shares from Real Seguros S.A and Real Vida Previdência  S.A. by AAB Dois Par should be taxed by the rate of 34% instead 15%. The assessment was contested administratively based on understanding that tax treatment adopted at the transaction was in compliance with tax laws and capital gain was taxed properly. The administrative lawsuit is awaiting trial. The Banco Santander is responsible for any adverse outcome in this lawsuit as former Zurich Santander Brasil Seguros e Previdência S.A. stockholder. As of March 31, 2019 the amount related to this proceeding is approximately R$301,730 million.

The labor claims with classification of loss risk as possible totaled R$423 million, excluding the lawsuits below:

•Semiannual Bonus or PLR –An action was filed in 1998 by the Association of Retired Employees of Banespa (AFABESP) requesting the payment of a semi-annual bonus contemplated in the Banespa statute, which would only be carried out in the event Banespa made a profit and that the distribution of this profit was approved by the Administrative Council. The bonus was not paid in 1994 and 1995, since Banespa did not make a profit during those years. Partial payments were made from 1996 to 2000, as approved by the Board of Directors. The clause in question was removed from the statute in 2001. The Regional Labor Court and the Superior Labor Court ordered that Santander Brazil, as successor to Banespa, pay this semi-annual bonus for the period from 1996 to the present. On March 20, 2019, a decision of the Federal Supreme Court (STF)rejectedthe extraordinary appeal filed by the Bank. Santander Brasilshallfile a rescission actionand / or anappeal to reverse the decision in the main proceedings and suspend procedural enforcement, a preliminary decision was granted determining the suspension of execution of the decision rendered in the records of the main act.Based on the opinion of itslegal advisors, Management classifies the risk of loss as possible. The current court ruling does not define a specific amount to be paid by the defendants.

• Readjustment of Banesprev retirement complements by the IGPD-I- lawsuit filed in 2002 in Federal Court by the Association of Retired Employees of the Banco do Estado de São Paulo S.A. - Banespa, requesting the readjustment of the retirement supplementation by the IGPDI for Banespa retirees who have been admitted until May 22, 1975. The judgment granted the correction but only in the periods in which no other form of adjustment could be applied. The Bank and Banesprev have appealed this decision and although the appeals have not yet been judged, the Bank's success rate in this matter in the High Courts is around 90%. In Provisional Execution, calculations were presented by the Bank and Banesprev with "zero" result due to the exclusion of participants who, among other reasons, are listed as authors in other lawsuits or have already had some type of adjustment. The amount related to this claim is not disclosed due to the current stage of the lawsuit and such disclosure may impact the progress of the claim. 

Interim Condensed Consolidated Financial Statements - March 31, 2019          43

 

The liabilities related to civil lawsuits with classification of loss risk as possible totaled R$1.462 million, being the main lawsuits as follow: 

• Indemnity lawsuit arising of the Banco Bandepe - related to mutual agreement on appeal to the Justice Superior Court (STJ - Superior Tribunal de Justiça);  

• Indemnity lawsuit related to custody services - provided by Banco Santander (Brasil) S.A. at an early stage which was not handed down yet;

• Lawsuit arising from a contractual dispute - the acquisition of Banco Geral do Comércio S.A. on appeal to the Court of the State of São Paulo (TJSP - Tribunal de Justiça do Estado de São Paulo).

b.5) Judicial and administrative proceedings under the responsibility of former controlling stockholders 

Refer to tax, labor and civil lawsuits in the amounts of R$593,990, R$213 and R$6,800 (December 31, 2018 - R$598,544, R$327 and R$6,767), with responsibility of the former controlling stockholders of the bank and acquired entities. Based on the agreements signed  these lawsuits have guarantees of full reimbursement by the former controlling stockholders, and amounts reimbursable were recorded under other assets. 

10.Shareholders’ Equity

a) Share Capital 

In accordance with the Bylaws, Banco Santander's share capital may be increased up to the limit of authorized capital, regardless of statutory reform, by resolution of the Board of Directors and by issuing up to 9,090,909,090 (nine billion, ninety million , nine hundred and nine thousand and ninety) shares, observing the legal limits established regarding the number of preferred shares. Any capital increase that exceeds this limit will require the approval of the shareholders.

The fully subscribed and paid-in capital is divided into registered book-entry shares with no par value.

						Thousand shares
			3/31/2019			12/31/2018
	Common	Preferred	Total	Common	Preferred	Total
Brazilian Residents	83,326	108,990	192,316	82,043	107,699	189,742
Foreign Residents	3,735,369	3,570,846	7,306,215	3,736,652	3,572,137	7,308,789
Total	3,818,695	3,679,836	7,498,531	3,818,695	3,679,836	7,498,531
(-) Treasury shares	(13,628)	(13,628)	(27,256)	(13,317)	(13,317)	(26,634)
Total outstanding	3,805,067	3,666,208	7,471,275	3,805,378	3,666,519	7,471,897

Interim Condensed Consolidated Financial Statements - March 31, 2019          44

 

b) Dividends and interest on capital

According to the Bank’s bylaws, stockholders are entitled to a minimum dividend equivalent to 25% of net income for the year, adjusted according to relevant legislation. Preferred shares are nonvoting and nonconvertible, but have the same rights and advantages granted to common shares, in addition to priority in the payment of dividends at a rate that is 10% higher than those paid on common shares, and in the capital reimbursement, without premium, in the event of liquidation of the Bank.

Prior to the annual stockholders meeting, the Board of Directors may resolve on the declaration and payment of dividends on earnings based on (i) balance sheets or earning reserves shown in the last balance sheet; or (ii) balance sheets issued in the period shorter than 6 months, provided that the total dividends paid in each half of the fiscal year shall not exceed the amount of capital reserves. These dividends are fully attributed to the mandatory dividend.

The highlight of interest on capital in the first period of 2019 is described below:

	3/31/2019
		Real per Thousand Shares / Units
	Amount	Common	Preferred	Units
Interest on Capital (1)(2)	1,000,000	127.5853	140.3438	267.9291
Total on March 31, 2019	1,000,000

(1)Established by the Board of Directors in March 29, 2019, Common Shares - R$108.4475, preferred - R$119.2922e Units - R$227,7397 net of taxes and will be paid in May 28, 2019, without any remuneration for monetary restatement.

(2)The amount of interest on stockholders' equity will be fully charged to the mandatory minimum dividends to be distributed by the Bank for the year 2019.

		3/31/2018
		Amount	Real per Thousand Shares / Units
			Common	Preferred	Units
Interest on Capital (1)(2)		600,000	76.3304	83.9634	160.2938
Total on March 31, 2018		600,000
	(1) Established by the Board of Directors in March 27, 2018, Common Shares -R$64.8808, preferred - R$71.3689 eUnits - R$136.2497 net of taxes and was paidin April26, 2018,without any remuneration formonetary restatement.
	(2) The amount of interest on stockholders' equity and interim dividends will be fully charged to the mandatory dividends for the year 2018.

c) Treasury Shares

In the meeting held on November 1, 2018, the Bank’s Board of Directors approved, in continuation of the buyback program that expired on November 1, 2017, the buyback program of its Units and ADRs, by the Bank or its agency in Cayman, to be held in treasury or subsequently sold. 

The Buyback Program will cover the acquisition up to 37,753,760 Units, representing 37,753,760 common shares and 37,753,760 preferred shares, or the ADRs, which, on December 31, 2018, corresponded to approximately 1% of the Bank’s share capital. On December 31, 2018, the Bank held 362,227,661 common shares and 390,032,076 preferred shares being traded.

The Buyback has the purpose to (1) maximize the value creation to stockholders by means of an efficient capital structure management; and (2) enable the payment of officers, management level employees and others Bank’s employees and companies under its control, according to the Long Term Incentive Plans. The term of the Buyback Program was 365 days counted from November 6, 2018, and expired on November 5, 2019.

	3/31/2019	12/31/2018
	Quantity	Quantity
	Units	Units
Treasury shares at beginning of the period	13,317	1,773
Shares Acquisitions	3,338	15,816
Payment - Share-based compensation	(3,027)	(4,272)
Treasury shares at end of period	13,628	13,317
Subtotal - Treasury Shares	R$ 520,267	R$ 460,550
Emission Costs	R$ 2,410	R$ 882
Balance of Treasury Shares	R$ 522,677	R$ 461,432
Cost/Market Value	Units	Units
Minimum cost	R$7.55	R$7.55
Weighted average cost	R$30.69	R$28.59
Maximum cost	R$49.55	R$43.84
Market value	R$43.97	R$42.70

Interim Condensed Consolidated Financial Statements - March 31, 2019          45

 

In the three-month period ended in March 31, 2019, treasury shares were traded, that have resulted in gain of R$3,121 (3/31/2018 - gain of R$4,016) recorded directly in equity in capital reserves.

11.Income Tax

The total income tax for thethree-month period can be reconciled to the accounting profit as follows:

	3/31/2019	3/31/2018
Operating Income before Tax	5,838,478	4,865,602
Interest on capital (1)	-	(600,000)
Operating Income before Tax	5,838,478	4,265,602
Tax (25% of Income Tax and 20% of Social Contribution)	(2,335,391)	(1,919,521)
PIS and COFINS (net of income tax and social contribution) (2)	(451,305)	(374,764)
Non - Taxable/Indeductible :
Equity instruments	11,614	1,520
Goodwill	(24,516)	(25,188)
Exchange variation - foreign operations (3)	81,884	92,749
Net Indeductible Expenses of Non-Taxable Income	429,715	78,378
Adjustments:
IR/CS Constitution on temporary differences	(14,037)	(59,411)
CSLL Tax rate differential effect (4) (5)	24,894	110,926
Others Adjustments	112,253	101,385
Income tax and Social contribution	(2,164,889)	(1,993,926)
Of which:
Current taxes (6)	(1,238,107)	(1,508,499)
Deferred taxes	(926,782)	(485,427)
Taxes paid in the period	(2,158,761)	(2,014,665)

(1) Amount distributed to shareholders as interest attributable to shareholders' equity. For accounting purposes, although interest should be reflected in the statement of income for tax deduction, the charge is reversed before the calculation of net income in the financial statements and deducted from shareholders' equity, since it is considered as a dividend. As of January 2019, pursuant to resolution 4,706, the amounts have the capital declared as a contra entry to the retained earnings account, by the net amount of the tax taxes.

(2) PIS and COFINS are considered as components of the profit base (net of certain revenues and expenses); therefore, and in accordance with IAS 12, are accounted for as income taxes.

(3) Permanent differences related to the investment in subsidiaries abroad are considered as non-taxable / deductible (see details below).

(4) Effect of the rate differential for other non-financial corporations, with a social contribution rate of 9%.

(5) Includes the increase of the provisional CSLL rate (5%) from September 2015 to December 2018.

(6) Includes, mainly, the tax effect on revenues with judicial deposit updates and other income and expenses that do not fall as temporary differences.

Exchange Hedge of Grand Cayman, branch in Luxembourg and of Santander Brasil EFC

Banco Santander operates an agency in the Cayman Islands, a branch in Luxembourg, authorized to operate on March 5, 2018 and a subsidiary called Santander Brasil Establecimiento Financiero de Credito, EFC, or "Santander Brasil EFC" (an independent subsidiary in Spain), which are used primarily to raise funds in the capital and financial markets to provide the Bank with credit lines that are extended to its clients for foreign trade and working capital financing.

To hedge the exposure to exchange rate variations, the Bank uses derivatives and funding. In accordance with Brazilian tax rules, gains or losses arising from the impact of the appreciation or depreciation of the Real on foreign investments are not taxable or deductible for PIS / Cofins / IR / CSLL purposes, while the gains or losses of the derivatives used as hedges are taxable or deductible. The purpose of these derivatives is to protect net income after taxes. 

Tax distinct treatment from such exchange rate differences results in volatility in "Operating Income Before Tax" and "Income taxes". The foreign exchange variations recorded as a result of foreign investments in the period ended March 31, 2019 and 2018.

Interim Condensed Consolidated Financial Statements - March 31, 2019          46

 

	1/01 to 3/31/2019	1/01 to 3/31/2018
Exchange differences (net)
Result generated by the exchange rate variations on the Bank's investment in the Cayman, Luxemburg and EFC Branch	225,467	183,920
Gains (losses) on financial assets and liabilities (net)
Result generated by derivative contracts used as hedge	(396,760)	(350,707)
Income Taxes
Tax effect of derivative contracts used as hedge - PIS / COFINS	18,449	16,308
Tax effect of derivative contracts used as hedge - IR / CS	152,844	150,480

12.Breakdown of income accounts

a) Personnel expenses

	1/01 to 3/31/2019	1/01 to 3/31/2018
Salary	1,488,540	1,441,631
Social security costs	297,622	353,122
Benefits	359,338	352,291
Defined benefit pension plans	2,523	2,410
Contributions to defined contribution pension funds	54,095	51,419
Share-based payment costs	466	(1,501)
Training	11,995	9,222
Other personnel expenses	89,601	76,181
Total	2,304,180	2,284,775

b) Other administrative expenses

	1/01 to 3/31/2019	1/01 to 3/31/2018
Property, fixtures and supplies	184,363	320,284
Technology and systems	462,151	378,120
Advertising	121,140	103,917
Communications	111,758	149,482
Subsistence allowance and travel expenses	32,998	26,096
Taxes other than income tax	23,037	22,094
Surveillance and cash courier services	164,551	159,516
Insurance premiums	8,522	6,682
Specialized and technical services	490,690	440,647
Other administrative expenses	172,858	173,298
Total	1,772,068	1,780,136

13.Share-based compensation 

Banco Santander has long-term compensation plans linked to the market price of the shares. The members of the Executive Board of Banco Santander are eligible for these plans, besides the members selected by the Board of Directors and informed to the Human Resources, may also be eligible according to the seniority of the group. For the Board of Directors members in order to be eligible, they are required to exercise Executive Board functions. 

a) Global and Local Program 

Below are the long-term compensation programs and their characteristics.

.                                                              

Program	Plan	Settlement Types	Vesting Period	Exercise/Settlement Period
Local	SOP 2013 (1)	Shares Banco Santander Brasil	Jan/2013 to Dec/2015	06/30/2016 to 06/30/2018
Local	Long-Term Incentive Plan  - Private Ultra High (2)	Cash	Apr/2017 to Dec/19	In March/20 and March/21
Global	Global Long-Term – ILP CRDIV - Grant 2014 (3) (4)	Global Shares of Grupo Santander	2014 to 2017	In July/2016, July/2017 and July/2018
Global	Global Long-Term – ILP CRDIV - Grant 2015 (3) (4)	Global Shares of Grupo Santander	2015 to 2018	In 2019

(1) The number of Units to be exercised by the participants was determined according to the result of the benchmark performance of the Bank: Total Return to Shareholder (RTA) and adjusted by the Risk Weighted Asset Return (RORWA) indicator, performed and budgeted in each fiscal year. The final achievement of the plan was 89.61%.

Interim Condensed Consolidated Financial Statements - March 31, 2019          47

 

(2) Aims the growth and profitability of the Private business and the recognition of the Participant's contribution.

(3) Subject to the achievement of the Santander Group's RTA performance indicator, comparing the Group's performance in this indicator with respect to the main global competitors.

(4) The Plans do not cause dilution of the Bank's share capital, since they are paid in shares of Banco Santander Espanha.

a) Fair Value and Performance Parameters for Existing Plans

i.Private Ultra High

Each participant has a target in Reais, if the indicators are reached, the target will be applied on the reference value, the first, paid in March 2020 and the second in March 2021.

Phase 1 (Reference Value)	Phase 2 (Calculation of the Incentive in Cash)
BAI (Private Ultra High Segment Income Tax Indicator) for 2017	BAI 50%
	MOL - 25% (Private Ultra High Segment Net Margin Indicator)
	AUM - 25% (Indicator Assets Under Management of Private Ultra High Segment)

ii.CRDIV Global Long Term Incentive - Grants 2015

The agreed values ​​of the ILP for each participant will be obtained from the verification of the achievement of indicators in two moments: first time to determine the eligibility (2015-2016) and a second time to calculate the number of actions due (2016, 2017 and 2018).

Phase 1	Phase 2
RTA versus Competitors	RTA versus Competitors
ROTE (Return on Tangible Capital) of the Bank versus Budget	ROTE Bank versus Budget
	Employee Satisfaction
	Clients Satisfaction
	B usiness Bindings versus Budget

Each executive has a target in Reais, which was converted into shares of the Santander Group (SAN) for a price of R$ 17,473, which will be delivered in 2019, subject to a one-year restriction after delivery.

	Number of Shares	Granted Year	Employees	Data of Commencement of the Period	Data of Expiry of  Period
2nd Long-Term Incentive Global Plan CRDIV - Grant 2015	1,775,049	2016	Directors	Jan-15	Dec-18
Balance Plans on March 31, 2019	1,775,049

b) Impact on Results

The impacts on income are recorded in the Personnel Expenses line, as follows:

Plano	1/01 to 3/31/2019	1/01 to 3/31/2018
Long-Term Incentive Plan - Private Ultra High	-	(2,935)
Long Term Global - IL CRDIV - Grant 2014 and 2015	-	(1,319)

f.3) Variable Remuneration Referenced in Shares

On September 29, 2015, the Board of Directors approved the proposal for the new Incentive Plan (deferral) to pay the variable remuneration of administrators and certain employees, which was approved at the Extraordinary General Meeting held on December 14, 2015.

The approval of the last proposal of the incentive plan (deferment) to pay the variable remuneration of administrators and certain employees occurred on October 25, 2016, as approved by the Extraordinary General Meeting held on December 21, 2016.

In this proposal, certain requirements for future deferred payment of a portion of the variable remuneration due to its managers and other employees were considered, considering the long-term sustainable financial bases and adjustments in future payments, due to the risks assumed and the fluctuations of the cost of capital .

Banco Santander's variable compensation plan is divided into two programs: (i) Identified Collective and (ii) Unidentified Collective. The impacts on income are recorded in the Personnel Expenses line, as follows: 

			Consolidated
Program	Participants	Settlement Types	1/01 to 3/31/2019	1/01 to 3/31/2018
Collective Identified	Members of the Executive Committee, Statutory Officers and other executives who assume significant and responsible risks of control areas	50% in indexed cash to 100% of CDI and 50% in shares (Units SANB11)	9,498	3,131
Unidentified Collective	Management-level employees and employees who are benefited by the Deferral Plan	100% in indexed cash to 100% of CDI	13,713	15,429

Interim Condensed Consolidated Financial Statements - March 31, 2019          48

 

14.Business segment reporting

In accordance with IFRS 8, an operating segment is a component of an entity:

(a)	that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity),
(b)	whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and
(c)	For which discrete financial information are available.

Based on these guidelines the Bank has identified, the following reportable operating segments:

                • Commercial Banking,

                • Global Wholesale Banking, 

The Bank has two segments, the commercial segment include individuals and companies (except for global corporate customers, which are dealt with within our Global Wholesale Banking segment)  Global Wholesale Banking segment includes the Investment Banking and Markets operations, including departments cash and stock trades.

The Bank operates in Brazil and abroad, through the Cayman branch and its subsidiary in Spain, with Brazilian clients and therefore has no geographical segments.

The income statements and other significant data are as follows:

	1/01 to 3/31/2019
(Condensed) Income Statement	Commercial Banking	Global Wholesale Banking	Total
NET INTEREST INCOME	9,983,743	483,709	10,467,452
Income from equity instruments	847	1,224	2,071
Income from companies accounted for by the equity method	29,034	-	29,034
Net fee and commission income	3,378,305	386,399	3,764,704
Gains (losses) on financial assets and liabilities and exchange differences (1)	(348,513)	390,422	41,909
Other operating income/(expenses)	(242,368)	(7,956)	(250,324)
TOTAL INCOME	12,801,047	1,253,799	14,054,846
Personnel expenses	(2,116,707)	(187,473)	(2,304,180)
Other administrative expenses	(1,648,448)	(123,620)	(1,772,068)
Depreciation and amortization	(550,690)	(22,137)	(572,827)
Provisions (net)	(442,374)	(3,603)	(445,977)
Net impairment losses on financial assets	(3,161,794)	56,050	(3,105,744)
Net impairment losses on other financial assets	15,944	(14,392)	1,552
Other financial gains/(losses)	(17,124)	-	(17,124)
OPERATING INCOME BEFORE TAX (1)	4,879,853	958,625	5,838,478
Hedge Cambial (1)	171,293	-	171,293
OPERATING INCOME BEFORE TAX	5,051,146	958,625	6,009,771
	1/01 to 3/31/2018
(Condensed) Income Statement	Commercial Banking	Global Wholesale Banking	Total
NET INTEREST INCOME	9,326,547	492,913	9,819,460
Income from equity instruments	7,832	5,680	13,512
Income from companies accounted for by the equity method	3,377	-	3,377
Net fee and commission income	3,054,685	400,564	3,455,249
Gains (losses) on financial assets and liabilities and exchange differences (1)	(264,463)	333,941	69,478
Other operating income/(expenses)	(152,623)	(19,252)	(171,875)
TOTAL INCOME	11,975,355	1,213,846	13,189,201
Personnel expenses	(2,081,714)	(203,061)	(2,284,775)
Other administrative expenses	(1,708,945)	(71,191)	(1,780,136)
Depreciation and amortization	(404,105)	(27,884)	(431,989)
Provisions (net)	(817,500)	76,708	(740,792)
Net impairment losses on financial assets	(2,937,868)	(82,939)	(3,020,807)
Net impairment losses on non-financial assets	(47,170)	(15,030)	(62,200)
Other financial gains/(losses)	(2,900)	-	(2,900)
OPERATING INCOME BEFORE TAX (1)	3,975,153	890,449	4,865,602
Hedge Cambial (1)	166,788	-	166,788
OPERATING INCOME BEFORE TAX	4,141,941	890,449	5,032,390

Interim Condensed Consolidated Financial Statements - March 31, 2019          49

 

(1)Includes in the Commercial Bank, the economic hedge of investment in US Dollar (a strategy to mitigate the effects of fiscal and exchange rate variation of offshore investments on net income), the result of which is recorded in "Gains (losses) on financial assets and liabilities" fully offset in taxes line.

	3/31/2019
Other aggregates:	Commercial Banking	Global Wholesale Banking	Total
Total assets	630,225,379	74,807,677	705,033,056
Loans and advances to customers	223,988,427	63,627,498	287,615,925
Customer deposits	232,877,192	75,917,040	308,794,232
	12/31/2018
Other aggregates:	Commercial Banking	Global Wholesale Banking	Total
Total assets	646,128,672	77,736,335	723,865,007
Loans and advances to customers	237,411,240	64,280,147	301,691,387
Customer deposits	227,689,079	76,508,721	304,197,800

15.Related party transactions

The parties related to the Bank are deemed to include, in addition to its subsidiaries, associates and jointly controlled entities, the Bank’s key management personnel and the entities over which the key management personnel may exercise significant influence or control. 

Banco Santander has the Policy on Related Party Transactions approved by the Board of Directors, which aim to ensure that all transactions are made on the policy typified in view the interests of Banco Santander and its stockholders'. The policy defines powers to approve certain transactions by the Board of Directors. The rules laid down are also applied to all employees and directors of Banco Santander and its subsidiaries. 

The transactions between the Bank with its related parties on March 31, 2019 and December 31, 2018, and for the nine-month period ended March 31, 2019 and 2018, were as follows:

a) Key-person management compensation

The Board of Directors' meeting, held on March 27, 2019  approved, in accordance with the Compensation Committee the maximum global compensation proposal for the directors (Board of Directors and Executive Officers) overall amounting to R$400.000.000,00 (four hundred million reais) for the 2019 financial year, covering fixed remuneration, variable and equity-based and other benefits. The proposal was object of deliberation in the Ordinary General Assembly (AGO) held on April 26, 2019.

a.1) Long-term benefits

The Banco Santander as well as Banco Santander Spain, as other subsidiaries of Santander Group, have long-term compensation programs tied to their share's performance, based on the achievement of goals. 

a.2) Short-term benefits

The following table shows the Board of Directors’ and Executive Board’s:

	1/01 to 3/31/2019	1/01 to 3/31/2018
Fixed Compensation	22,339	21,651
Variable Compensation - in cash	10,924	11,282
Variable Compensation - in shares	10,057	8,964
Others (1)	9,562	16,750
Total Short-Term Benefits	52,882	58,647
Variable Compensation - in cash	9,587	8,963
Variable Compensation - in shares	8,885	8,964
Total Long-Term Benefits	18,472	17,927
Total (2)	71,354	76,574

(1) In the first half of 2019, the Management of Banco Santander decided to carry out an early initiative, which was practiced by the Bank's liberality.

(2) Refers to the amount paid by Banco Santander and its subsidiaries to their Managers for positions they hold at Banco and other companies in the Conglomerate Santander.

Additionally, in the period of three-month ended March 31, 2019, charges were collected on key-person management compensation amounting R$8,607 (3/31/2018 - R$8,836).

a.3) Contract termination 

The termination of the employment relationship for non-fulfillment of obligations or voluntarily does not entitle executives to anyfinancial compensation. 

Interim Condensed Consolidated Financial Statements - March 31, 2019          50

 

b) Lending operations

The Bank and its subsidiaries may carry out transactions with related parties, in line with the legislation in force as set forth in articles 6 and 7 of Resolution 4,693/18 CMN, article 34 of Law 6,404/76 "Law of Corporations" and the Policy for Transactions with Related Parties of Santander published on the Investor Relations page.

1.The following are considered as related parties of the Santander Financial Institutions in respect of each of them individually:

• its controllers, natural or legal persons, under the terms of art. 116 of the Law of Corporations;

• its directors and members of statutory or contractual bodies;

• in relation to the persons mentioned in items (i) and (ii), their spouse, companion and relatives, consanguineous or the like, up to the second degree;

• natural persons with qualified equity interest in their capital

• corporate entities with qualified equity interest in their capital;

• legal entities in whose capital, directly or indirectly, a Santander Financial Institution has a qualified shareholding;

• legal entities in which a Santander Financial Institution has effective operational control or preponderance in the deliberations, regardless of the equity interest; and

• legal entities that have a director or member of the board of directors in common with a Santander Financial Institution.

c) Ownership Interest   

The table below shows the direct ownership interests (common shares and preferred shares): 

	3/31/2019
	Common	Common	Preferred	Preferred	Total
Stockholders'	shares (thousands)	shares (%)	shares (thousands)	shares (%)	shares (thousands)	Total shares (%)
Grupo Empresarial Santander, S.L. (1)	1,107,673	29.0%	1,019,645	27.7%	2,127,318	28.4%
Sterrebeeck B.V. (1)	1,809,584	47.4%	1,733,644	47.1%	3,543,228	47.3%
Banco Santander, S.A. (1)	521,964	13.7%	519,268	14.1%	1,041,232	13.9%
Employees	3,945	0.1%	3,948	0.1%	7,893	0.1%
Directors (*)	4,765	0.1%	4,765	0.1%	9,530	0.1%
Other	357,136	9.4%	384,938	10.5%	742,074	9.9%
Total	3,805,067	99.6%	3,666,208	99.6%	7,471,275	99.7%
Treasury shares	13,628	0.4%	13,628	0.4%	27,256	0.4%
Total	3,818,695	100.0%	3,679,836	100.0%	7,498,531	100.0%
Free Float (2)	361,081	9.5%	388,886	10.6%	749,966	10.0%
	12/31/2018
	Common	Common	Preferred	Preferred	Total
Stockholders'	shares (thousands)	shares (%)	shares (thousands)	shares (%)	shares (thousands)	Total shares (%)
Grupo Empresarial Santander, S.L. (1)	1,107,673	29.0%	1,019,645	27.7%	2,127,318	28.4%
Sterrebeeck B.V. (1)	1,809,583	47.4%	1,733,644	47.1%	3,543,227	47.2%
Banco Santander, S.A. (1)	521,964	13.7%	519,268	14.1%	1,041,232	13.9%
Employees	2,986	0.1%	2,987	0.1%	5,973	0.1%
Directors (*)	3,930	0.1%	3,930	0.1%	7,860	0.1%
Other	359,242	9.4%	387,045	10.5%	746,287	9.9%
Total	3,805,378	99.7%	3,666,519	99.6%	7,471,897	99.6%
Treasury shares	13,317	0.3%	13,317	0.4%	26,634	0.4%
Total	3,818,695	100.0%	3,679,836	100.0%	7,498,531	100.0%
Free Float (2)	362,228	9.5%	390,032	10.6%	752,260	10.0%

(1) Companies of the Santander Spain Group.

(2) Composed of Employees, Qatar Holding and other.

(*) None of the members of the Board of Directors and the Executive Board holds 1.0% or more of any class of shares.

d) Related-Party Transactions

Santander has a Policy for Related Party Transactions approved by the Board of Directors, which aims to ensure that all transactions typified in the policy are carried out in view of the interests of Banco Santander and its shareholders. The policy defines powers to approve certain transactions by the Board of Directors.

The rules are also applied to all employees and administrators of Banco Santander and its subsidiaries. The transactions and remuneration of services with related parties are carried out in the ordinary course of business and under commutative conditions, including interest rates, terms and guarantees, and do not involve risks greater than normal collection or present other disadvantages.

Interim Condensed Consolidated Financial Statements - March 31, 2019          51

 

As of December 2018, transactions and balances with key management personnel are shown. The main transactions and balances are as follows:

			3/31/2019
	Parent (1)	Joint-controlled companies	Other Related-Party (2)
Assets	2,196,013	2,739,671	1,168,802
Derivatives  Measured At Fair Value Through Profit Or Loss, net	(944,623)	-	29,480
Banco Santander, S.A. – Espanha	(944,623)	-	-
Real Fundo de Investimento Multimercado Santillana Credito Privado (2)	-	-	27,745
Key Management Personnel	-	-	1,735
Loans and amounts due from credit institutions - Cash and overnight operations in foreign currency	3,041,947	-	45,869
Banco Santander, S.A. – Espanha (3)	3,041,947	-	-
Banco Santander Totta, S.A. (2)	-	-	33,893
Bank Zachodni (2)	-	-	283
Santander UK plc	-	-	9,460
Banco Santander, S.A. – México (2)	-	-	2,233
Loans and other values ​​with customers	1,772	-	988,112
Zurich Santander Brasil Seguros e Previdência S.A. (5)	-	-	48,216
Zurich Santander Brasil Seguros S.A.	-	-	922,030
Banco Santander, S.A. – Espanha (1)	1,772	-	-
Isban Mexico, S.A. de C.V.	-	-	122
Gesban Servicios Administrativos Globales, S.L.	-	-	23
Santander Brasil Gestão de Recursos Ltda	-	-	169
Key Management Personnel (7)	-	-	17,551
Loans and other values with credit institutions (1)	32,065	2,723,775	2,311
Banco Santander, S.A. – Espanha	32,065	-	-
Banco RCI Brasil S.A.	-	2,723,775	-
Produban Brasil Tecnologia	-	-	2,091
Santander Global Technology, S.L., SOCI	-	-	220
Other Assets	64,852	15,896	103,030
Banco Santander, S.A. – Espanha	64,852	-	-
Banco RCI Brasil S.A.	-	1,348	-
Webmotors S.A.		14,548
Key Management Personnel			103,030
Liabilities	(10,812,523)	(90,387)	(3,147,144)
Deposits from credit institutions	(42,051)	(89,710)	(1,600,696)
Banco Santander, S.A. – Espanha (4)	(42,051)	-	-
Real Fundo de Investimento Multimercado Santillana Credito Privado (2)	-	-	(1,329,949)
Banco Santander (México), S.A.	-	-	(8,270)
Banco Santander Río S.A. (2)	-	-	(262,477)
Banco RCI Brasil S.A.	-	(89,710)	-
Customer deposits	-	(677)	(1,122,302)
Santander Securities Services Brasil Participações S.A. (2)	-	-	(421,748)
Zurich Santander Brasil Seguros e Previdência S.A. (1) (5)	-	-	(216,353)
Gestora de Inteligência de Crédito	-	-	(89,184)
Santander Brasil Gestão de Recursos Ltda	-	-	(252,255)
Webmotors S.A.	-	(677)	-
Santander Securities Services Brasil DTVM S.A.	-	-	(58,936)
Santander Brasil Asset (2)	-	-	(19,618)
Key Management Personnel	-	-	(43,739)
Others	-	-	(20,469)
Other Liabilities - Dividends and Interest on Capital Payable	(763,365)	-	(1,708)
Banco Santander, S.A. – Espanha	(118,550)	-	-
Grupo Empresarial Santander, S.L. (1)	(241,760)	-	-
Sterrebeeck B.V. (1)	(403,055)	-	-
Banco Madesant	-	-	(216)
Key Management Personnel (6)	-	-	(1,492)
Other Liabilities	(6,575)	-	(422,438)
Banco Santander, S.A. – Espanha	(6,575)	-	-
Santander Brasil Asset (2)	-	-	(14,477)
Santander Securities Services Brasil DTVM S.A.	-	-	(4,321)
Zurich Santander Brasil Seguros e Previdência S.A. (5)	-	-	(18,052)
Key Management Personnel	-	-	(344,164)
Others	-	-	(41,424)
Debt Instruments Eligible for Capital	(10,000,519)	-	-
Banco Santander, S.A. – Espanha	(10,000,519)	-	-

			12/31/2018
	Parent (1)	Joint-controlled companies	Other Related-Party (2)
Assets	8,169,537	3,112,734	1,381,770
Financial assets for trading - Derivatives net	(72,815)	205,337	266,027
Banco Santander, S.A. – Espanha	(72,815)	-	-
Real Fundo de Investimento Multimercado Santillana Credito Privado (2)	-	-	266,027
Banco RCI Brasil S.A.	-	205,337	-
Loans and other values with credit institutions - Cash and overnight operations in foreign currency	8,194,590	-	146,988
Banco Santander, S.A. – Espanha (3)	8,194,590	-	-
Banco Santander Totta, S.A. (2)	-	-	7,883
Abbey National Treasury Services Plc (2)	-	-	87,260
Bank Zachodni (2)	-	-	193
Santander UK plc	-	-	46,615
Banco Santander, S.A. – México (2)	-	-	5,037
Loans and advances to customers	347	-	966,462
Zurich Santander Brasil Seguros e Previdência S.A. (5)	-	-	913,875
Zurich Santander Brasil Seguros S.A.	-	-	45,851
Banco Santander, S.A. – Espanha (1)	347	-	-
Isban Mexico, S.A. de C.V.	-	-	122
Gesban Servicios Administrativos Globales, S.L.	-	-	23
Santander Brasil Gestão de Recursos Ltda	-	-	169
Santander Securities Services Brasil Participações S.A. (2)	-	-	927
Key Management Personnel (7)	-	-	5,495
Loans and amounts due from credit institutions	15,143	2,905,947	2,293
Banco Santander, S.A. – Espanha	15,143	-	-
Banco RCI Brasil S.A.	-	2,905,947	-
BHJV Assessoria e Consultoria em Gestão Empresarial LTDA	-	-	10
Produban Brasil Tecnologia	-	-	2,091
Santander Global Technology, S.L., SOCI	-	-	192
Other Assets	32,272	1,450	-
Banco Santander, S.A. – Espanha	32,272	-	-
Banco RCI Brasil S.A.	-	1,450	-
Liabilities	(23,166,005)	(38,380)	(3,065,551)
Deposits of Brazil Central Bank and deposits of credit institutions	(107,084)	(36,871)	(1,410,619)
Banco Santander, S.A. – Espanha (4)	(107,084)	-	-
Real Fundo de Investimento Multimercado Santillana Credito Privado (2)	-	-	(1,151,399)
Banco Santander Río S.A. (2)	-	-	(259,220)
Banco RCI Brasil S.A.	-	(36,871)	-
Securities	-	-	(96,133)
Key Management Personnel	-	-	(96,133)
Customer deposits	-	(1,509)	(1,134,675)
Santander Securities Services Brasil Participações S.A. (2)	-	-	(58,968)
Zurich Santander Brasil Seguros e Previdência S.A. (1) (5)	-	-	(234,249)
Gestora de Inteligência de Crédito	-	-	(190,674)
Santander Brasil Gestão de Recursos Ltda	-	-	(126,988)
Webmotors S.A.	-	(1,509)	-
Santander Securities Services Brasil DTVM S.A.	-	-	(427,209)
Santander Brasil Asset (2)	-	-	(18,639)
Key Management Personnel	-	-	(37,889)
Others	-	-	(40,059)
Other Liabilities - Dividends and Interest on Capital Payable	(3,922,473)	-	380
Banco Santander, S.A. – Espanha	(609,159)	-	-
Grupo Empresarial Santander, S.L. (1)	(1,242,259)	-	-
Sterrebeeck B.V. (1)	(2,071,055)	-	-
Banco Madesant	-	-	(1,112)
Key Management Personnel (6)	-	-	1,492
Other Liabilities	(9,603)	-	(424,504)
Banco Santander, S.A. – Espanha	(9,603)	-	-
Santander Brasil Asset (2)	-	-	(14,476)
Santander Securities Services Brasil DTVM S.A.	-	-	(4,291)
Zurich Santander Brasil Seguros e Previdência S.A. (5)	-	-	(16,924)
Key Management Personnel	-	-	(381,292)
Others	-	-	(7,521)
Other - Debt Instruments Eligible for Capital	(9,779,943)	-	-
Banco Santander, S.A. – Espanha	(9,779,943)	-	-

Interim Condensed Consolidated Financial Statements - March 31, 2019          52

 

(*) All loans and other securities with related parties were made in the ordinary course of business and on a sustainable basis, including interest rates and guarantees and do not involve risks greater than normal collection or have other disadvantages.

(1) Banco Santander (Brazil) S.A. is indirectly controlled by Banco Santander España (note 1-a), through the subsidiaries Grupo Empresarial Santander, S.L. and Sterrebeeck B.V.

(2) Refer to subsidiaries of Parent Company (Banco Santander Spain).

(3) As of March 31, 2019, it includes cash and cash equivalents in the amount of R$ 608,130 (12/31/2018 - R$ 1,515,437).

(4) As of March 31, 2019, these investments include foreign currency investments (overnight investments) with maturity on April 1, 2019, in the amount of R$1,597,857 (12/31/2018 - R $ 6,583,716) and interest of up to 2.37% p.y held by the Santander Financial Credit Institution, Banco Santander Brasil and its Grand Cayman Agency.

(5) Significant Influence of Banco Santander Spain.

(6) Of the total dividends approved in 2019, R$ 5,540 is allocated to Key Management Personnel, with the remaining provision being paid.

(7) The balance with key management personnel refers to operations contracted before the mandates expire.

Interim Condensed Consolidated Financial Statements - March 31, 2019          53

 

			1/01 to 3/31/2019
	Parent (1)	Joint-controlled companies	Other Related-Party (2)
Income	(413,798)	50,067	453,418
Interest and similar income - Loans and amounts due from credit institutions	32,502	45,015	113
Banco Santander Espanha	32,502	-	-
Banco RCI Brasil S.A.	-	45,015	-
Cibrasec	-	-	13
Key Management Personnel	-	-	100
Interest expense and similar charges - Customer deposits	-	(7)	(6,263)
ISBAN Brasil S.A.	-	-	-
Santander Brasil Gestão de Recursos Ltda	-	-	(3,654)
Santander Cultural	-	-	-
Gestora de Inteligência de Crédito	-	-	(1,987)
Webmotors S.A.	-	(7)	-
Produban Serviços de Informática S.A.	-	-	-
Others	-	-	(26)
Key Management Personnel	-	-	(596)
Interest expense and similar charges - Deposits from credit institutions	-	(516)	(25,052)
Banco Santander – Espanha	-	-	-
Banco RCI Brasil S.A.	-	(516)	-
Santander Securities Services Brasil Participações S.A. (2)	-	-	(7,065)
SAM Brasil Participações	-	-	(10)
Real Fundo de Investimento Multimercado Santillana Credito Privado	-	-	(16,782)
Santander Securities	-	-	(893)
Santander Asset Management, S.A. SGIIC.	-	-	(302)
Fee and commission income (expense)	(1,028)	5,575	713,104
Banco Santander – Espanha	(1,028)	-	-
Banco RCI Brasil S.A.	-	5,523	-
Banco Santander International	-	-	8,533
Webmotors S.A.	-	52	-
Zurich Santander Brasil SegurosS.A.	-	-	78,729
Zurich Santander Brasil Seguros e Previdência S.A.	-	-	620,537
Key Management Personnel			1,547
Others	-	-	3,758
Debt Instruments Eligible to Compose Capital	(175,197)	-	-
Banco Santander Espanha(2)(8)	(175,197)	-	-
Gains (losses) on financial assets and liabilities and exchange differences (net)	(270,075)	-	(4,980)
Banco Santander, S.A. – Espanha	(270,075)	-	-
Real Fundo de Investimento Multimercado Santillana Credito Privado	-	-	(15,670)
Santander Securities Services Brasil Participações S.A. (2)	-	-	(597)
Zurich Santander Brasil Seguros e Previdência S.A.	-	-	11,203
Pessoal Chave da Administração			45
Others	-	-	51
Administrative expenses and amortization	-	-	(219,142)
ISBAN Chile S.A.	-	-	(6)
Aquanima Brasil Ltda.	-	-	(7,225)
TECBAN - Tecnologia Bancaria Brasil	-	-	(78,947)
Santander Securities Services Brasil Participações S.A. (2)	-	-	(11,834)
Santander Global Technology, S.L., SOCI	-	-	(39,072)
Key Management Personnel	-	-	(71,350)
Others	-	-	(10,708)
Other Administrative expenses - Donation	-	-	(4,363)
Fundação Santander	-	-	(363)
Fundação Sudameris	-	-	(4,000)

Interim Condensed Consolidated Financial Statements - March 31, 2019          54

 

			1/01 to 3/31/2018
	Parent (1)	Joint-controlled companies	Other Related-Party (2)
Income	(60,823)	28,194	454,784
Interest and similar income - Loans and amounts due from credit institutions	27,358	26,079	730
Banco Santander, S.A. - Espanha	27,358	-	-
Banco RCI Brasil S.A.	-	26,079	-
Abbey National Treasury Services Plc	-	-	83
Cibrasec	-	-	647
Interest expense and similar charges - Customer deposits	-	-	(1,974)
ISBAN Brasil S.A.	-	-	(90)
Santander Brasil Gestão de Recursos Ltda	-	-	(1,271)
Santander Cultural	-	-	(12)
Gestora de Inteligência de Crédito	-	-	(371)
Produban Serviços de Informática S.A.	-	-	(215)
Others	-	-	(15)
Interest expense and similar charges - Deposits from credit institutions	(2,116)	(1,259)	(36,975)
Banco Santander, S.A. - Espanha	(2,116)	-	-
Banco RCI Brasil S.A.	-	(1,259)	-
Santander Securities Services Brasil Participações S.A. (2)	-	-	(5,764)
SAM Brasil Participações	-	-	(13)
Real Fundo de Investimento Multimercado Santillana Credito Privado	-	-	(29,803)
Santander Securities Services Brasil DTVM S.A	-	-	(1,119)
Santander Asset Management, S.A. SGIIC.	-	-	(276)
Fee and commission income (expense)	6,403	3,374	639,998
Banco Santander, S.A. - Espanha	6,403	-	-
Banco RCI Brasil S.A.	-	3,339	-
Banco Santander International	-	-	5,416
Webmotors S.A.	-	35	-
Zurich Santander Brasil Seguros S.A.	-	-	73,581
Zurich Santander Brasil Seguros e Previdência S.A.	-	-	557,087
Others	-	-	3,914
Debt Instruments Eligible to Compose Capital	(32,836)	-	-
Banco Santander, S.A. - Espanha (2)	(32,836)	-	-
Gains (losses) on financial assets and liabilities and exchange differences (net)	(44,600)	-	21,593
Banco Santander, S.A. - Espanha	(44,600)	-	-
Real Fundo de Investimento Multimercado Santillana Credito Privado	-	-	4,969
Abbey National Treasury Services Plc	-	-	4,300
Santander Securities Services Brasil Participações S.A. (2)	-	-	(1,046)
Zurich Santander Brasil Seguros e Previdência S.A.	-	-	12,847
Zurich Santander Brasil SegurosS.A.	-	-	357
Others	-	-	166
Administrative expenses and amortization	(15,032)	-	(172,951)
Banco Santander, S.A. – Espanha	(15,032)	-	-
ISBAN Brasil S.A.	-	-	(14,210)
Produban Serviços de Informática S.A.	-	-	(33,567)
ISBAN Chile S.A.	-	-	(6)
Aquanima Brasil Ltda.	-	-	(7,157)
TECBAN - Tecnologia Bancaria Brasil	-	-	(69,876)
Produban Servicios Informáticos Generales, S.L. (Produban Espanha)	-	-	(11,216)
Ingeniería de Software Bancário, S.L.	-	-	(22,860)
Santander Securities Services Brasil DTVM S.A	-	-	(11,642)
Others	-	-	(2,417)
Other Administrative expenses - Donation	-	-	4,363
Fundação Santander	-	-	363
Fundação Sudameris	-	-	4,000

Interim Condensed Consolidated Financial Statements - March 31, 2019          55

 

(1) Banco Santander (Brasil) S.A. is indirectly controlled by Banco Santander Spain, through its subsidiary Grupo Empresarial Santander, S.L. and Sterrebeeck B.V.

(2) Refers to the Company's subsidiaries (Banco Santander Spain).

16.Fair value of financial assets and liabilities

As of September 2018, the Bank revisited its policy on the classification of instruments in the fair value hierarchy, including the evaluation of more granular procedures on instrument classification. Definitions related to risk factors and deadlines were included, as well as the degree of observability of prices in the markets, as well as their relevance to the fair value measurement model. The application of these criteria resulted in the reclassification of certain financial instruments. In the first quarter of 2019, continuing the policy review, certain instruments were reclassified to criteria that are more granular.

Not at fair value

During the first quarter of 2019, in line with the aforementioned review of the policies, a review was carried out of the levels determined for financial instruments not measured at fair value. The review was made considering risk factors and deadlines, as well as on the degree of observability of prices in the markets.

Under IFRS 13, fair value measurement using a fair value hierarchy that reflects the model used in the measurement process should be in accordance with the following hierarchical levels:

Level 1: Determined on the basis of public (unadjusted) prices in active markets for identical assets and liabilities, these include public debt securities, stocks, derivatives listed.

Interim Condensed Consolidated Financial Statements - March 31, 2019          56

 

Level 2: Are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices).

Level 3: Are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Trading Financial Assets, Other financial assets at fair value on through profit or loss, Available-for-sale financial assets and Financial liabilities held for trading

Level 1: The securities with high liquidity and observable prices in an active market are classified as level 1. At this level were classified most of the Brazilian Government Securities (mainly LTN, LFT, NTN-B and NTN-F), shares in stocks and other securities traded in an active market.

Level 2:When price quotations cannot be observed, the Management, using their own internal models, make their best estimate of the price that would be set by the market. These models use data based on observable market parameters as an important reference. The best evidence of fair value of a financial instrument on initial recognition is the transaction price, unless the fair value of the instrument can be obtained from other market transactions carried out with the same instrument or similar instruments or can be measured using a valuation technique in which the variables used include only data from observable market, especially interest rates. These securities are classified within Level 2 of the fair value hierarchy and are composed mainly by Private Securities (prominently on Debenture portfolio) in a market with less liquidity than those classified at Level 1.

Level 3:When there is information that is not based on observable market data, Banco Santander uses internally developed models, in order to properly measure the fair value of these instruments. Level 3 comprises mainly unlisted low liquidity instruments.

Derivatives

Level 1: Derivatives traded on exchanges are classified in Level 1 of the hierarchy.

Level 2: For the valuation derivatives traded over the counter, and the valuation of financial instruments (primarily swaps and options), are usually used as observable market data: exchange rates, interest rates, volatility, correlation between indexes and market liquidity.  

When pricing the financial instruments mentioned, uses the method of the Black-Scholes model (exchange rate options, interest rate options; caps and floors) and the method of present value (discount of future values by market curves).

Level 3: Derivatives not traded in the stock market and that do not have an observable data in a active market were classified as Level 3, these and are composed of complex derivatives.

As of September 2018, the Bank revisited its policy on the classification of instruments in the fair value hierarchy, including the evaluation of more granular procedures on instrument classification. Definitions related to risk factors and deadlines were included, as well as the degree of observability of prices in the markets, as well as their relevance to the fair value measurement model. The application of these criteria resulted in the reclassification of certain financial instruments. In the first quarter of 2019, continuing the policy review, certain instruments were reclassified to criteria that are more granular.                          

The following table shows a summary of the fair values ​​of financial assets and liabilities for the period ended March 31, 2019 and December 31, 2018, classified based on several measurement methods adopted by the Bank to determine fair value:

	3/31/2019
	Level 1(1)	Level 2	Level 3	Total
Financial Assets Measured At Fair Value Through Profit Or Loss	762,461	23,143,124	1,580,831	25,486,416
Debt instruments	762,461	959,134	1,580,831	3,302,426
Balances with the Brazilian Central Bank	-	22,183,990	-	22,183,990
Financial Assets Measured At Fair Value Through Profit Or LossHeld For Trading	35,803,327	18,363,097	832,231	54,998,655
Debt instruments	35,366,027	1,373,094	117,667	36,856,788
Equity instruments	437,300	-	-	437,300
Derivatives	-	16,990,003	714,564	17,704,567
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss	132,736	588.611	155,236	876,583
Loans and advances to customers	-	587,991	-	587,991
Equity instruments	132,736	620	155,236	288,592
Financial assets measured at fair value through other comprehensive income	88,588,727	1,476,756	951,256	91,016,739
Debt instruments	88,578,588	1,476,756	910,360	90,965,704
Equity instruments	10,139	-	40,896	51,035
Hedging derivatives (assets)	-	351,276	-	351,276
Financial Liabilities Measured At Fair Value Through Profit Or LossHeld For Trading	20,410,279	19,465,465	476,464	40,352,208
Trading derivatives	-	19,465,465	476,464	19,941,929
Short positions	20,410,279	-	-	20,410,279
Financial Liabilities Measured At Fair Value Through Profit Or Loss	-	-	519,581	519,581
Other financial liabilities	-	-	519,581	519,581
Hedging derivatives (liabilities)	-	281,532	-	281,532
	12/31/2018
	Level 1(1)	Level 2(1)	Level 3	Total
Financial Assets Measured At Fair Value Through Profit Or Loss	2,660,859	40,540,054	510,887	43,711,800
Debt instruments	2,660,859	-	510,887	3,171,746
Balances with the Brazilian Central Bank	-	40,540,054	-	40,540,054
Financial Assets Measured At Fair Value Through Profit Or LossHeld For Trading	49,855,112	17,626,932	1,370,270	68,852,314
Debt instruments	49,094,924	432,910	538,635	50,066,469
Equity instruments	757,843	8,490	-	766,333
Derivatives	2,345	17,185,532	831,635	18,019,512
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss	142,732	619,798	154,947	917,477
Loans and advances to customers	-	619,180	-	619,180
Equity instruments	142,732	618	154,947	298,297
Financial assets measured at fair value through other comprehensive income	83,283,924	1,442,797	709,956	85,436,677
Debt instruments	83,253,117	1,442,797	699,777	85,395,691
Equity instruments	30,807	-	10,179	40,986
Hedging derivatives (assets)	-	343,934	-	343,934
Financial Liabilities Measured At Fair Value Through Profit Or LossHeld For Trading	32,697,510	17,600,024	641,458	50,938,992
Trading derivatives	1,833	17,600,024	641,458	18,243,315
Short positions	32,695,677	-	-	32,695,677
Financial Liabilities Measured At Fair Value Through Profit Or Loss	-	-	1,946,056	1,946,056
Other financial liabilities	-	-	1,946,056	1,946,056
Hedging derivatives (liabilities)	-	223,520	-	223,520

Interim Condensed Consolidated Financial Statements - March 31, 2019          57

 

(1) There was no transfer between Level 1 and 2.

Movements in fair value of Level 3 

The following table shows the changes that occurred in the nine-month period ended March 31, 2019 and 2018 for level 3: 

		Fair Value 12/31/2018	Gains/ losses (Realized/Not Realized)	Transfers to Level 3	Additions / Low	Fair value 3/31/2019
Financial Assets Measured At Fair Value Through Profit Or Loss		510,887	(20,155)	1,090,099	-	1,580,831
Financial Assets Measured At Fair Value Through Profit Or LossHeld For Trading		1,370,270	30,034	(572,693)	4,620	832,231
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss		154,947	289	-	-	155,236
Financial Assets Measured At Fair Value Through Other Comprehensive Income		709,956	(40,277)	271,606	9,971	951,256
Financial Liabilities Measured At Fair Value Through Profit Or Loss		1,946,056	-	-	(1,426,475)	519,581
Financial Liabilities Measured At Fair Value Through Profit Or Loss Held For Trading		641,458	56,210	(333,475)	112,271	476,464
	Fair Value 12/31/2017	Gains/ losses (Realized/Not Realized)	Transfers to Level 3	Additions / Low	Impact IFRS 9	Fair value 3/31/2018
Other financial assets at fair value through profit or loss	33,368	-	-	(4,009)	(29,359)	-
Financial Assets Measured At Fair Value Through Profit Or Loss	-	-	-	-	203,225	203,225
Financial Assets Measured At Fair Value Through Other Comprehensive Income	140,143	-	-	-	(123,668)	16,475

Interim Condensed Consolidated Financial Statements - March 31, 2019          58

 

Financial assets and liabilities not measured at fair value

The financial assets owned by the Bank are measured at fair value in the accompanying consolidated balance sheets, except for loans and receivables.

Similarly, the Bank’s financial liabilities except for financial liabilities held for trading and those measured at fair value - are measured at amortized cost in the consolidated balance sheets.

i) Financial assets at a value other than fair value

Below is a comparison of the carrying amounts of financial assets of the Bank measured to a value other than fair value and their respective fair values at March 31, 2019 and December 31, 2018:

					3/31/2019
Assets	Accounting Value	Fair Value	Level 1	Level 2	Level 3
Open market -Brazilian Central Bank	24,506,583	24,506,583	-	2,146,327	22,360,256
Financial Assets Measured At Amortized Cost
Loans and amounts due from credit institutions	100,391,431	100,422,970	-	12,220,616	88,202,354
Loans and advances to customers	287,027,934	287,774,433	-	-	287,774,433
Debt instruments	43,526,300	44,590,522	528,804	14,266,854	29,794,864
Total	455,452,248	457,294,508	528,804	28,633,797	428,131,907
					12/31/2018
Assets	Accounting Value	Fair Value	Level 1	Level 2	Level 3
Open market -Brazilian Central Bank	15,228,491	15,269,809	-	15,269,809	-
Financial Assets Measured At Amortized Cost
Loans and amounts due from credit institutions	79,607,001	79,607,197	-	79,607,197	-
Loans and advances to customers	301,691,387	303,495,240	-	-	303,495,240
Debt instruments	36,799,509	38,927,356	9,766,162	29,161,194	-
Total	433,326,388	437,299,602	9,766,162	124,038,200	303,495,240

ii) Financial liabilities measured at a value other than fair value

Following is a comparison of the carrying amounts of financial liabilities of the Bank measured to a value other than fair value and their respective fair values at March 31, 2019 and December 31, 2018:

				3/31/2019
Liabilities	Accounting Value	Fair Value	Level 1	Level 2	Level 3
Financial liabilities at measured amortized cost:
Deposits of Brazil's Central Bank and deposits of credit institutions, does not include Interbank Deposits	95,603,244	95,601,082	-	36,901,722	58,699,360
Customer deposits	290,579,444	290,650,038	-	-	290,650,038
Marketable debt securities	77,713,622	77,770,934	-	-	77,770,934
Subordinated Debt	-	-	-	-	-
Debt instruments Eligible Capital	10,000,519	10,000,519	-	-	10,000,519
Other financial liabilities	46,122,064	46,122,064	-	154,236	45,967,828
Total	520,018,893	520,144,637	-	37,055,958	483,088,679
					12/31/2018
Liabilities	Accounting Value	Fair Value	Level 1	Level 2	Level 3
Financial liabilities at measured amortized cost:
Deposits of Brazil's Central Bank and deposits of credit institutions, does not include Interbank Deposits	98,716,735	98,713,988	-	98,713,988	-
Customer deposits	285,344,281	285,417,696	-	285,417,696	-
Marketable debt securities	74,626,232	74,783,289	-	4,599,204	70,184,085
Subordinated Debt	9,885,608	9,853,157	-	9,853,157	-
Debt instruments Eligible Capital	9,779,943	9,782,373	-	9,782,373	-
Other financial liabilities	49,782,780	49,782,780	-	-	49,782,780
Total	528,135,579	528,333,283	-	408,366,418	119,966,865

Interim Condensed Consolidated Financial Statements - March 31, 2019          59

 

Investments in the Open Market -  Brazil's Central Bank - The book value presented for these instruments approximates their fair value due to short term maturities and the recent start date.

The methods and assumptions used to estimate the fair values summarized in the tables above are set forth below:

- Loans and amounts due from credit institutions and from customers – Fair value are estimated for groups of loans with similar characteristics. The fair value was measured by discounting estimated cash flow using the interest rate of new contracts.

That is, the future cash flow of the current loan portfolio is estimated using the contractual rates, and then the new loans spread over the risk free interest rate are incorporated to the risk free yield curve in order to calculate the loan portfolio fair value. In terms of behavior assumptions, it is important to underline that a prepayment rate is applied to the loan portfolio, thus a more realistic future cash flow is achieved.

- Deposits from Bacen and credit institutions and Customer deposits – The fair value of deposits was calculated by discounting the difference between the cash flows on a contractual basis and current market rates for instruments with similar maturities. For variable-rate deposits, the carrying amount was considered to approximates fair value.

- Marketable debt securities, Subordinated liabilities and Debt Instruments Eligible to Compose Capital – The fair value of long-term loans were estimated by cash flow discounted  at the interest rate offered on the market with similar terms and maturities.

The valuation techniques used to estimate each level are defined in note 1.j.

During the first quarter of 2019, in line with the aforementioned review of the policies, a review was carried out of the levels determined for financial instruments not measured at fair value. The review was made considering risk factors and deadlines, as well as on the degree of observability of prices in the markets.

17.Other disclosures

a) Derivative Financial Instruments

a.1) Derivatives Recorded in Memorandum and Balance Sheets

Summary of Trading Derivative portfolio and Used as Hedge portfolio

	3/31/2019	12/31/2018
Assets
Swap Differentials Receivable (1)	15,185,546	14,640,289
Option Premiums to Exercise	650,440	716,936
Forward Contracts and Other	2,219,752	3,006,221
Total	18,055,738	18,363,446
Liabilities
Swap Differentials Payable (1)	16,847,295	15,952,283
Option Premiums Launched	542,102	563,787
Forward Contracts and Other	2,833,426	1,950,765
Total	20,222,823	18,466,835

(1) Includes swaption and embedded derivatives.

Summary by Category

Trading	3/31/2019		12/31/2018
	Notional (1)	Fair Value	Notional (1)	Fair Value
Swap	725,964,407	(1,661,216)	353,512,700	(1,310,696)
Asset	362,434,161	207,036,661	177,278,584	46,470,202
CDI (Interbank Deposit Rates)	42,086,905	24,862,564	36,133,958	24,250,553
Fixed Interest Rate - Real	62,610,360	-	47,968,999	-
Indexed to Price and Interest Rates	1,905,698	-	2,581,215	-
Indexed to Foreign Currency	255,831,199	182,174,097	90,541,012	22,219,649
Other	-	-	53,400	-
Liabilities	363,530,246	(208,697,877)	176,234,116	(47,780,898)
CDI (Interbank Deposit Rates)	23,571,924	-	11,749,613	-
Indexed Interest Rate Fixed - Real	100,556,471	(25,104,250)	88,272,719	(24,937,888)
Indexed to Price and Interest Rates	184,570,962	(182,552,907)	24,308,601	(21,775,017)
Indexed to Foreign Currency	53,700,451	-	50,693,087	-
Other	1,130,438	(1,040,720)	1,210,096	(1,067,993)
Options	456,138,351	108,338	335,073,080	153,149
Purchased Position	213,570,985	650,440	149,076,796	716,936
Call Option - US Dollar	10,979,184	223,821	14,518,058	239,079
Put Option - US Dollar	10,145,197	58,063	8,893,620	90,736
Call Option - Other	14,981,884	252,793	3,118,344	131,297
Interbank Market	10,252,624	16,677	639,488	4,537
Other (2)	4,729,260	236,116	2,478,856	126,760
Put Option - Other	177,464,720	115,763	122,546,774	255,824
Interbank Market	176,510,283	118,143	121,782,816	217,726
Other (2)	954,437	(2,380)	763,958	38,098
Sold Position	242,567,366	(542,102)	185,996,284	(563,787)
Call Option - US Dollar	7,610,083	(79,631)	7,615,856	(101,034)
Put Option - US Dollar	12,189,300	(160,744)	12,160,912	(169,431)
Call Option - Other	56,831,426	(146,122)	31,679,919	(66,002)
Interbank Market	53,876,398	(31,602)	29,609,298	(13,195)
Other (2)	2,955,028	(114,520)	2,070,621	(52,807)
Put Option - Other	165,936,557	(155,605)	134,539,597	(227,320)
Interbank Market	163,083,686	(94,839)	133,703,672	(179,841)
Other (2)	2,852,871	(60,766)	835,925	(47,479)
Futures Contracts	401,703,526	-	368,563,519	-
Purchased Position	111,955,845	-	120,717,115	-
Exchange Coupon (DDI)	47,520,763	-	54,451,189	-
Interest Rates (DI1 and DIA)	48,991,117	-	32,690,685	-
Foreign Currency	15,133,060	-	32,456,813	-
Indexes (3)	291,562	-	1,118,427	-
Treasury Bonds/Notes	19,343	-	-	-
Sold Position	289,747,682	-	247,846,404	-
Exchange Coupon (DDI)	166,957,225	-	159,559,291	-
Interest Rates (DI1 and DIA)	88,545,267	-	76,682,938	-
Foreign Currency	33,211,011	-	11,401,281	-
Indexes (3)	887,536	-	202,894	-
Treasury Bonds/Notes	146,644	-	-	-
Forward Contracts and Other	161,997,647	(613,674)	90,910,841	1,055,456
Purchased Position	106,071,272	(433,228)	38,666,269	1,303,561
Currencies	105,445,507	(472,455)	38,095,625	1,250,706
Other	625,765	39,226	570,644	52,855
Sold Position	55,926,375	(180,445)	52,244,572	(248,105)
Currencies	54,947,921	(181,105)	51,958,529	(252,160)
Other	978,453	660	286,043	4,055

Interim Condensed Consolidated Financial Statements - March 31, 2019          60

 

(1) Nominal value of contracts.

(2) Includes stock options, indices and commodities.

(3) Includes B3 S.A.  (Current Company Name of BM&FBovespa) index and S&P.

a.2) Derivatives Financial Instruments by Counterparty

Notional				3/31/2019
		Related	Financial
	Customers	Parties	Institutions (1)	Total
Swap	32,210,122	52,799,751	277,424,288	362,434,161
Options	13,897,848	968,622	441,271,880	456,138,351
Futures Contracts	-	-	401,703,526	401,703,526
Forward Contracts and Other	42,748,057	55,059,562	64,190,028	161,997,647
Notional				12/31/2018
		Related	Financial
	Customers	Parties	Institutions (1)	Total
Swap	34,296,821	32,669,900	110,311,863	177,278,584
Options	14,636,017	1,086,323	319,350,740	335,073,080
Futures Contracts	-	-	368,563,519	368,563,519
Forward Contracts and Other	39,024,978	48,641,894	3,243,969	90,910,841

 

Interim Condensed Consolidated Financial Statements - March 31, 2019          61

 

(1) Includes trades with the B3 S.A. - Brasil, Bolsa, Balcão (B3 S.A.) (Current Company Name of BM&FBovespa) and other securities and commodities exchanges.

a.3) Derivatives Financial Instruments by Maturity

Notional				3/31/2019
	Up to	From 3 to	Over
	3 Months	12 Months	12 Months	Total
Swap	21,910,943	246,239,792	94,283,426	362,434,161
Options	56,170,210	390,559,095	9,409,046	456,138,351
Futures Contracts	158,408,898	150,414,503	92,880,125	401,703,526
Forward Contracts and Other	106,000,685	35,114,585	20,882,377	161,997,647
Notional				12/31/2018
	Up to	From 3 to	Over
	3 Months	12 Months	12 Months	Total
Swap	12,347,864	70,975,477	93,955,243	177,278,584
Options	63,376,042	220,982,952	50,714,086	335,073,080
Futures Contracts	186,895,803	95,970,916	85,696,800	368,563,519
Forward Contracts and Others	40,186,310	31,255,384	19,469,147	90,910,841

a.4) Derivatives by Market Trading

Notional			3/31/2019
	Stock exchange (1)	Over the counter (2)	Total
Swap	205,952,536	156,481,625	362,434,161
Options	425,354,880	30,783,471	456,138,351
Futures Contracts	401,703,526	-	401,703,526
Forward Contracts and Other	28,870,018	133,127,629	161,997,647
Notional			12/31/2018
	Stock exchange (1)	Over the counter (2)	Total
Swap	39,880,578	137,398,006	177,278,584
Options	307,644,530	27,428,550	335,073,080
Futures Contracts	368,563,519	-	368,563,519
Forward Contracts and Others	323,413	90,587,428	90,910,841

(1) Includes trades with the B3 S.A.

(2) Composed of operations that are included in registration chambers, according to Brazilian Central Bank regulations.

a.5) Information on Credit Derivatives

Banco Santander uses credit derivatives with the objectives of performing counterparty risk management and meeting its customers' demands, performing protection purchase and sale transactions through credit default swaps and total return swaps, primarily related to Brazilian sovereign risk securities.

TotalReturn Swaps – TRS

Credit derivatives are where the exchange of the return of the reference obligation occurs through a cash flow and where, in the event of a credit event, the protection buyer is usually entitled to receive from the protection seller the equivalent of the difference between the and the fair value (market value) of the reference obligation on the settlement date of the contract.

Credit Default Swaps – CDS

These are credit derivatives where, in the event of a credit event, the protection buyer is entitled to receive from the protection seller the equivalent of the difference between the face value of the CDS agreement and the fair value (market value) of the reference obligation on the settlement date of the contract. In return, the seller receives compensation for the sale of the protection.

Below, the composition of the Credit Derivatives portfolio shown by its reference value and effect in the calculation of Required Stockholders' Equity.

Interim Condensed Consolidated Financial Statements - March 31, 2019          62

 

		3/31/2019
	Nominal Value
	Retained Risk	Nominal Value
	Total Rate of Return Swap	Transferred Risk -
		Credit Swap
Credit Swaps	2,354,899	584,505
Total	2,354,899	584,505

The effect in the Reference Equity of the risk was R$94,196.

During the period, there was no occurrence of credit event related to the events generated by the contracts

				3/31/2019
	Up to	From 3 to	Over
Maximum Potential for Future Payments - Gross	3 Months	12 Months	12 Months	Total
Per Instrument
CDS	-	-	2,354,899	2,354,899
Per Risk Classification
Below Investment Grade	-	-	2,354,899	2,354,899
Per Reference Entity
Brazilian Government	-	-	2,354,899	2,354,899

a.6) Hedge Accounting

Hedge relationships are of three types: Fair Value Hedge, Cash Flow Hedge and Net Investment Hedge of Foreign Operations.

Derivatives used as hedge by index are as follows:

Fair Value Hedge

The Bank’s fair value strategy consists of hedging exposure to changes in fair value in receivables and interest payments related to recognized assets and liabilities.

The adopted fair value management methodology segregates transactions by risk factor (e.g. Real/Dollar foreign exchange risk, fixed Reais interest rate risk, Dollar foreign exchange coupon risk, inflation risk, interest rate risk, etc.). The transactions generate exposures that are consolidated by risk factor and compared with internal pre-established limits.

In order to hedge against changes of fair value in receivables and interest payments, the bank uses interest rate Swap contracts related to pre-fixed assets and liabilities.

The Bank applies fair value hedges as follows:

•Designates Foreign Currency + Coupon Versus% CDI and Pre - Real Interest Rate as a derivative instrument in Hedge Accounting structures, with foreign currency loan operations being the object of such transactions.

• The Bank has an active portfolio of loans originated in US dollars at the fixed rate in the balance sheet of Santander EFC, whose operations are recorded in Euro. As a way of managing this mismatch, the Bank designates Euro Floating Foreign Currency swap versusDollar Fixed as a corresponding market risk hedge of the corresponding credits.

• The Bank has a portfolio of assets indexed to the Euro and traded at the Cayman branch. In the transaction, the value of the asset in Euro will be converted to the Dollar by the rate of the exchange contract of the transaction. As from the conversion, the principal amount of the funding, already expressed in US dollars, will be adjusted by the CDI or Pre-Fixed rate. The assets will be covered with Swap Cross Currency in order to cross the risk in Euro for LIBOR + Coupon.

• The Bank has a pre-fixed interest rate risk generated by government securities (NTN-F and LTN) in the portfolio of available-for-sale securities. To manage this mismatch, the Bank contracts DI Futures in the Exchange and designates them as a derivative instrument in a Hedge Accounting structure, with the object of this relationship being fixed-rate government securities (NTN-F and LTN).

• The Bank has a risk to the IPCA index generated by debenture in the portfolio of securities available for sale. To manage this mismatch, the Bank contracts IPCA futures (DAP) on the Stock Exchange and designates them as a derivative instrument in a Hedge Accounting structure.

• Santander Leasing has a pre-fixed interest rate risk generated by government bonds (NTN-F) in the portfolio of available-for-sale securities. To manage this mismatch, the Entity contracts interest swaps and designates them as a derivative instrument in an Hedge Accounting structure.

In market risk hedging, the results, both on hedging instruments and on the objects (attributable to the type of risk being hedged) are recognized directly in the income statement.

Hedge of Credit Operations

• Designates swaps indexed to foreign currency and interest versus post and pre-fixed rates as a derivative instrument in hedge accounting structures, with the object of foreign currency loan operations.

• The Bank has a portfolio of credit assets denominated in US dollars at the fixed rate in the balance sheet of Santander EFC, whose operations are recorded in Euro. As a way of managing this mismatch, the Bank designates each swap indexed to the foreign currency Euro versus Dollar as hedge accouting the fair value of the corresponding loan.

• The Bank has a portfolio of assets indexed to the Euro and traded at the Cayman branch. In the transaction, the value of the asset in Euro will be converted to the Dollar by the rate of the exchange contract of the transaction. Upon conversion, the principal amount of

Interim Condensed Consolidated Financial Statements - March 31, 2019          63

 

funding, already expressed in US dollars, will be adjusted by pre or post fixed rate. The Assets will be hedged with Swap Cross Currency in order to cross the risk in Euro for Libor.

Hedge of Securities

• The Bank has a pre-fixed interest rate risk generated by government securities (NTN-F and LTN) in the Financial Assets portfolio measured through Other Comprehensive Income. In order to manage this mismatch, it contracts DI futures on the Stock Exchange and designates them as a derivative instrument in a hedge accounting structure, with the object of this relationship being fixed-rate government securities (NTN-F and LTN).

• The Bank has a risk to the IPCA index generated by debentures in the portfolio of Financial Assets measured through Other Comprehensive Income. To manage this mismatch, it contracts IPCA futures (DAP) on the Stock Exchange and designates them as a derivative instrument in a hedge accounting framework.

In order to assess the effectiveness and measure the ineffectiveness of the strategies, the institution complies with international accounting standard IAS 39, which requires that the effectiveness test be performed at the beginning (prospective test) of the hedge structure and be repeated periodically (prospective and retrospective tests) in order to demonstrate that the hedge ratio remains effective.

a) Prospective test: In accordance with the standard, the prospective test must be performed on the inception date and on a quarterly basis in order to demonstrate that the expectations regarding the effectiveness of the hedge ratio are high.

a.1) Initial prospective test (at inception): it is restricted to a qualitative review of the critical terms and conditions of the hedging instrument and the hedged item in order to conclude whether changes in the fair value of the two instruments are expected to fully offset each other. 

a.2) Periodic prospective test: the sensitivity of the fair value of the hedged item and the hedging instrument will be periodically computed at a parallel variation of 10 basis points in the interest rate curve. For the purposes of effectiveness, these two sensitivity ratios should be between 80% and 125%.

b) Retrospective test: the retrospective effectiveness test will be performed by comparing the MTM change of the hedging instrument since the inception date with the MTM change of the hedged item since the inception date, excluding the transaction’s liquidity and credit spread: 

In fair value hedges, gains or losses, both on hedging instruments and hedged items (attributable to the type of risk being hedged) are recognized directly in the consolidated statement of income.  

	3/31/2019		12/31/2018
Hedge Structure	Effective Portion Accumulated	Ineffective Portion	Effective Portion Accumulated	Ineffective Portion
Fair Value Hedge
Hedge of Securities	(451,554)	-	(1,572,628)	-
Hegde of Credit Operations	(52,846)	-	(57,331)	-
Total	(504,400)	-	(1,629,959)	-
			3/31/2019
	Hedge Instruments		Hedge Objects
	Adjustment to Market	Market Value	Adjustment to Market	Market Value
Strategies	Value (1)		Value (1)
Swap Agreements	155,791	4,227,055	90,235	4,209,014
Hegde of Credit Operations	96,655	1,850,208	80,592	1,785,609
Hedge of Securities	59,135	2,376,847	9,643	2,423,405
Futures Contracts	-	38,929,340	1,042,213	42,620,346
Hegde of Securities	-	38,929,340	1,042,213	42,620,346
			12/31/2018
	Hedge Instruments		Hedge Objects
	Adjustment to Market	Market Value	Adjustment to Market	Market Value
Strategies	Value (1)		Value (1)
Swap Agreements	111,801	2,356,605	120,074	2,202,687
Hegde of Credit Operations	92,095	1,531,086	89,478	1,371,003
Hedge of Securities	19,706	825,519	30,596	831,684
Futures Contracts	-	34,513,381	940,705	36,690,226
Hegde of Securities	-	34,513,381	940,705	36,690,226
(1) Recorded under Financial assets measured at fair value through profit or loss.
Maturity Opening of Hedge Strategies
			3/31/2019
	Up to	From 3 to	Over
Strategies	3 Months	12 Months	12 Months	Total
Swap Agreements	166,597	449,676	3,610,782	4,227,055
Hegde of Credit Operations	23,812	307,840	1,518,556	1,850,208
Hedge of Securities	142,785	141,836	2,092,226	2,376,847
Futures Contracts	9,227,728	4,430,413	25,271,198	38,929,340
Hegde of Securities	9,227,728	4,430,413	25,271,198	38,929,340
			12/31/2018
	Up to	From 3 to	Over
Strategies	3 Months	12 Months	12 Months	Total
Swap Agreements	66,805	193,375	2,096,425	2,356,605
Hegde of Credit Operations	-	44,387	1,486,699	1,531,086
Hedge of Securities	66,805	148,988	609,726	825,519
Futures Contracts	2,968,539	9,086,746	22,458,095	34,513,381
Hegde of Securities	2,968,539	9,086,746	22,458,095	34,513,381

Interim Condensed Consolidated Financial Statements - March 31, 2019          64

 

Cash Flow Hedge

The Bank's cash flow hedging strategies consist of protecting exposure to changes in cash flows, interest payments and exchange rate exposure, which are attributable to changes in interest rates on recognized assets and liabilities and changes in exchange rates of unrecognized assets and liabilities.

Banco Santander applies the cash flow hedge as follows:

• Contracts US dollar and interest rate swaps in Reais / Euro and designates them as a derivative instrument in a Cash Flow Hedge structure, with the purpose of lending operations indexed in Reais and negotiated with third parties through the agency in Cayman and securities securities held to maturity of Brazilian foreign debt.

• Contracts Dollar futures or Dollar and Real interest futures (Synthetic Dollar Futures) and designates them as a derivative instrument in a Cash Flow Hedge structure, the purpose of which in this relationship is part of the Bank's credit portfolio in Dollars and Promissory Notes in the portfolio of classified securities Financial Assets Measured at Fair Value through Other Comprehensive Income.

•The Bank has post-fixed interest rate risk generated by public securities (LFT) in the portfolio of available-for-sale securities, which present expected cash flows subject to Selic variations over their duration. To manage these fluctuations, the Bank contracts DI futures on the Stock Exchange and designates them as hedging instruments in a Hedge Accountingstructure.

In cash flow hedge, the effective portion of the variation in the hedging instrument is temporarily recognized in shareholders' equity under the heading of equity valuation adjustments until the forecasted transactions occur, when that portion is recognized in the statement of income. The non effective portion of the variation in the value of exchange rate hedge derivatives is recognized directly in the statements of income. In the first quarter of 2019 and 2018, no result was recorded relating to ineffective portion.

a) Prospective Test: According to the regulations, the prospective test should be performed on the start date and quarterly to demonstrate that the expectation regarding the effectiveness of the hedge relationship is high, but the tests are performed monthly for proactive monitoring and more efficient maintenance of test-related routines.

a.1) Periodic Prospective Test: Market Risk performs the projections of three scenarios for the tests, being: 1º 10bps in the curve; 2º 50bps in the curve and 3º 100bps in the curve. Using the validated estimates, the prospective tests are performed through the valuation of the two legs variable from operation to market.

a.2) Initial Prospective Testing: The methodology of the periodic prospective test should also be applied at the start date of each new strategy.

b) Retrospective Testing: It should be performed monthly with historical data to demonstrate cumulatively that the hedge was effective, according to the previously presented methodology. Any ineffectiveness is recognized in profit or loss.

The Ineffective portion is recognized through the prospective hedge test.

Effectiveness should be between 80% and 125%.

Interim Condensed Consolidated Financial Statements - March 31, 2019          65

 

In cash flow hedges, the effective portion of the change in the value of the hedging instrument is temporarily recognized in shareholders' equity under "Other comprehensive income - cash flow hedges" until the forecasted transactions occur, when that portion is recognized in the consolidated statements of income, unless the expected transactions result in the recognition of non-financial assets or liabilities, this portion will be included in the cost of the financial asset or liability. The non-effective portion of the variation in the value of exchange rate hedge derivatives is recognized directly in the consolidated statements of income. And the non-effective portion of the gains and losses on cash flow hedging instruments in a foreign operation is recognized directly in "Gains (losses) on financial assets and liabilities (net)" in the consolidated statements of income.

	3/31/2019		12/31/2018
Strategies	Effective Portion Accumulated	Ineffective Portion	Effective Portion Accumulated	Ineffective Portion
Cash Flow Hedge
Hegde of Credit Operations	(30,305)	-	(16,453)	(3,981)
Hedge of Securities	287,613	-	322,997	-
CDB	1,225	-	1,225	-
Total	258,533	-	307,769	(3,981)
	3/31/2019		12/31/2018
	Hedge Instruments		Hedge Instruments
	Adjustment to		Adjustment to
Strategies	Value Market(1)	Fair Value	Value Market (1)	Fair Value
Swap Agreements	(66,557)	1,933,441	(91,980)	1,133,065
Hegde of Credit Operations	44,705	878,925	955	31,279
Hedge of Secuties	(111,262)	1,054,516	(92,936)	1,101,786
Futures Contracts	-	46,950,299	-	44,541,938
Hegde of Credit Operations (2) (3)	-	46,950,299	-	44,000,952
Hegde of Securities	-	-	-	540,987
			3/31/2019	12/31/2018
			Hedge Objects
Strategies			Cost	Cost
Swap Agreements			1,848,678	1,436,356
Hegde of Credit Operations			847,867	211,599
Hedge of Securities			1,000,811	1,224,757
Futures Contracts			16,669,425	17,224,115
Hegde of Credit Operations			16,669,425	16,910,915
Hegde of Securities			-	313,200
(1) Recorded in Shareholders' Equity in Other Comprehensive Income.
(2) The restated value of the instruments as of March 31, 2019 is R$ 15,859,857 (12/31/2018 - R$16,738,641).
(3) The value of futures contracts correspond to their long position and sold as follows:
			3/31/2019	12/31/2018
Futures Contracts			46,950,299	44,541,938
Purchased Position			17,224,596	-
Exchange Coupon (DDI)			17,224,596	-
Sold Position			29,725,703	44,541,938
Exchange Coupon (DDI)			-	12,610,496
Interest Rates(DI1 e DIA)			28,420,309	22,522,735
Foreign Currency in Dollars			1,305,395	9,408,707
Maturity Opening of Hedge Strategies
				3/31/2019
	Up to	From 3 to	Above
Strategies	3 Month	12 Months	12 Months	Total
Swap Agreements	111,289	319,618	1,502,533	1,933,441
Hegde of Credit Operations	15,686	319,618	543,621	878,925
Hedge of Securities	95,603	-	958,913	1,054,516
Futures Contracts	43,716,250	3,234,049	-	46,950,299
Hegde of Credit Operations	43,716,250	3,234,049	-	46,950,299
Hegde of Securities	-	-	-	-
				12/31/2018
	Up to	From 3 to	Above
Strategies	3 Month	12 Months	12 Months	Total
Swap Agreements	35,495	109,650	2,081,859	2,227,004
Hegde of Credit Operations	-	15,218	1,017,064	1,032,283
Hedge of Securities	35,495	94,431	1,064,795	1,194,721
Futures Contracts	24,705,354	19,306,092	530,492	44,541,938
Hegde of Credit Operations	24,694,860	19,306,092	-	44,000,952
Hegde of Securities	10,495	-	530,492	540,987

Interim Condensed Consolidated Financial Statements - March 31, 2019          66

 

In the first quarter of 2018, a hedge of futures contracts was contracted that was discontinued in June 2018. The hedge objects were certificates of time deposits - CDB. The mark-to-market effect of these contracts, net of tax effects, and which are posted to shareholders' equity, corresponds to a credit in the amount of R $ 33,646, which will be amortized over the next 3 months.

The mark-to-market effect of swap contracts and future assets corresponds to a debit in the amount of R $ 38,263 (12/31/2018 - credit R $ 116,441) and is recorded in shareholders' equity, net of tax effects, of which R $ 25,467 in credit will be realized against revenue in the next twelve months.

Hedge of Investments Abroad

Banco Santander reassessed the structure of its investment in the wholly-owned subsidiary in Madrid (EFC), as it noted that due to the change in the strategy of the operation in practice, this subsidiary has a business model in which the Bank has a significant influence on driving and decision-making of its activities. According to the concept discussed in IAS 21, Management concluded that the functional currency of this investment becomes the Real and, therefore, this change becomes effective prospectively from January 2017. In addition, the Hedge structure Foreign Investment Accounting that Banco Santander had on this investment was discontinued as of the date of change of the functional currency. In this way, the functional currency of Santander EFC and Cayman is Real and the exchange rate differences of operations that are carried out in foreign currency are recorded in the income statement. To hedge exposure to exchange rate variations, the Bank uses derivatives and for both investments abroad the Bank does not use Hedge Accounting. Foreign exchange variations on foreign currency transactions and the effect of derivatives used in economic protection (forward contracts) are recorded in the income statement.

a.7) Derivatives Pledged as Guarantee

The guarantee margin transactions traded on the B3 S.A. - Brasil, Bolsa, Balcão (B3 S.A.) derivative financial instruments themselves and other are composed of government securities. 

	3/31/2019	12/31/2018
Financial Treasury Bill - LFT	7,608,108	7,552,926
National Treasury Bill - LTN	2,130,069	3,392,886
National Treasury Notes - NTN	908,136	873,134
Total	10,646,314	11,818,946

a.8) Sold Position

On March 31, 2019, the balance of sold positions totaled R$20,410,279 (12/31/2018 - R$32,695,677), which includes the amount of financial liabilities resulting from the direct sale of financial assets purchased through resale agreements or borrowed.                                                                                                                                  

b) Financial instruments - Sensitivity analysis

Interim Condensed Consolidated Financial Statements - March 31, 2019          67

 

The risk management is focused on portfolios and risk factors pursuant to the requirements of regulators and good international practices.

Financial instruments are segregated into trading and banking portfolios, as in the management of market risk exposure, according to the best market practices and the transaction classification and capital management criteria of the New Standardized Approach of regulators. The trading portfolio consists of all transactions with financial instruments and products, including derivatives, held for trading, and the banking portfolio consists of core business transactions arising from the different Banco Santander business lines and their possible hedges. Accordingly, based on the nature of Banco Santander’s activities, the sensitivity analysis was presented for trading and banking portfolios.

Banco Santander performs the sensitivity analysis of the financial instruments in accordance with requirements of regulatory bodies and international best practices, considering the market information and scenarios that would adversely affect the positions and the income of the Bank.

The table below summarizes the stress amounts generated by  Banco Santander’s corporate systems, related to the banking and trading portfolio, for each one of the portfolio scenarios as at March 31, 2019

Trading Portfolio
Risk Factor	Description	Scenario 1	Scenario 2	Scenario 3
Interest Rate - Real	Exposures subject to changes in fixed interest rate	(5,474)	(84,745)	(169,490)
Coupon Interest Rate	Exposures subject to changes in coupon rate of interest rate	(1,249)	(15,878)	(31,757)
Coupon - US Dollar	Exposures subject to changes in coupon US Dollar rate	(7,271)	(5,711)	(11,421)
Coupon - Other Currencies	Exposures subject to changes in coupon foreign currencyrate	(5,927)	(2,408)	(4,816)
Foreign currency	Exposures subject to foreign exchange	(3,345)	(83,638)	(167,276)
Eurobond/Treasury/Global	Exposures subject to changes in interest rate negotiated roles in international market	(84)	(457)	(914)
Inflation	Exposures subject to change in coupon rates of price indexes	(3,452)	(19,103)	(38,205)
Shares and Indexes	Exposures subject to change in shares price	(237)	(5,929)	(11,857)
Commodities	Exposures subject to change in shares price	(4)	(89)	(179)
Total (1)		(27,403)	(218,958)	(436,915)

(1) Amounts net of taxes.

Scenario 1: a shock of 10 base points on the interest curves and 1% to price changes (currency and stocks);

Scenario 2: a shock of +25% and -25% in all risk factors, are considered the greatest losses per risk factor;

Scenario 3: a shock of +50% and -50% in all risk factors, are considered the greatest losses per risk factor.

Banking Portfolio
Risk Factor	Description	Scenario 1	Scenario 2	Scenario 3
Interest Rate - Real	Exposures subject to changes in fixed interest rate	(46,127)	(805,145)	(1,610,274)
TR and Long-Term Interest Rate - (TJLP)	Exposures subject to changes in tax of TR in TJLP	(24,184)	(400,839)	(601,897)
Inflation	Exposures subject to change in coupon rates of price indexes	(48,682)	(374,069)	(737,994)
Coupon - US Dollar	Exposures subject to changes in coupon US Dollar rate	(9,671)	(55,575)	(95,768)
Coupon - Other Currencies	Exposures subject to changes in coupon foreign currency rate	(5,474)	(69,925)	(140,701)
Interest Rate Markets International	Exposures subject to changes in interest rate negotiated roles in international market	(3,915)	(92,492)	(160,447)
Foreign currency	Exposures subject to foreign exchange	(1,326)	(33,151)	(66,301)
Total (1)		(139,379)	(1,831,196)	(3,413,382)

(1)Values calculated based on consolidated information of the institutions.

(2)Amounts net of taxes.

Scenario 1: a shock of 10 and -10 base points in interest rate curves and 1% price variance (currency), are considered the greatest losses per risk factor;

Scenario 2: a shock of +25% and -25% in all risk factors, are considered the greatest losses per risk factor;

Scenario 3:  a shock of +50% and -50% in all risk factors, are considered the greatest losses per risk factor.

Interim Condensed Consolidated Financial Statements - March 31, 2019          68

 

c)  Off-balance-sheet funds under management

Banco Santander has under its management, investment funds for which does not hold any substantial participation interests and does not act as principal over the funds, and therefore no ownership in such funds. Based on the contractual relationship governing the management of such funds, third parties who hold the participation interests in such funds are those who are exposed to, or have rights, to variable returns and have the ability to affect those returns through power over the fund. Moreover, though Santander Brasil acts as fund manager, in analyzing the fund manager’s remuneration regime, the remuneration regime is proportionate to the service rendered, and therefore does not create exposure of such importance to indicate that the fund manager is acting as the principal.

The detail of off-balance-sheets funds managed by the Bank is as follows:

	3/31/2019	12/31/2018
Funds under management	1,920,221	1,896,689
Managed funds	207,335,403	200,366,261
Total	209,255,624	202,262,950

d) Third-party securities held in custody                                                                                                    

As of March 31, 2019 and December 31, 2018, the Bank held in custody marketable debt securities and equity instruments totaling R$35,252,746 and R$34,040,742, respectively entrusted to it by third parties.

Interim Condensed Consolidated Financial Statements - March 31, 2019          69

 

APPENDIX I – CONSOLIDATED STATEMENTS OF VALUE ADDED

The following Statements of value added is not required under IAS 34 but being presented as supplementary information as required by Brazilian Corporate Law for publicly-held companies, and has been derived from the Bank´s condensed consolidated financial statements prepared in accordance with IAS 34.  

	1/01 to 3/31/2019		1/01 to 3/31/2018
Interest and similar income	18,331,205		17,041,038
Fee and commission income (net)	3,764,704		3,455,249
Impairment losses on financial assets (net)	(3,105,744)		(3,020,807)
Other income and expense	(669,445)		(1,318,004)
Interest expense and similar charges	(7,863,753)		(7,221,578)
Third-party input	(1,716,777)		(1,625,725)
Materials, energy and other	(153,661)		(125,767)
Third-party services	(1,530,461)		(1,231,682)
Impairment of assets	1,552		(62,200)
Other	(34,207)		(206,076)
Gross added value	8,740,190		7,310,173
Retention
Depreciation and amortization	(572,827)		(431,989)
Added value produced	8,167,363		6,878,184
Added value received from transfer
Investments in affiliates and subsidiaries	29,034		3,377
Added value to distribute	8,196,397		6,881,561
Added value distribution
Employee	2,104,913	25.7%	2,027,479	29.5%
Compensation	1,488,398		1,438,500
Benefits	416,564		407,750
Government severance indemnity funds for employees - FGTS	123,200		108,970
Other	76,751		72,259
Taxes	2,387,193	29.1%	1,787,889	26.0%
Federal	2,141,157		1,575,431
State	13		183
Municipal	246,023		212,275
Compensation of third-party capital - rental	30,702	0.4%	194,517	2.8%
Remuneration of interest on capital	3,673,589	44.8%	2,871,676	41.7%
Dividends and interest on capital	1,000,000		600,000
Profit Reinvestment	2,609,490		2,226,302
Profit (loss) attributable to non-controlling interests	64,099		45,374
Total	8,196,397	100.0%	6,881,561	100.0%

Interim Condensed Consolidated Financial Statements - March 31, 2019          70

 

(Free Translation into English from the Original Previously Issued in Portuguese)
	BANCO SANTANDER (BRASIL) S.A.
	PERFORMANCE REVIEW
In thousands of Brazilian Real - R$, unless otherwise stated

Dear Stockholders: 

We present the Management Report to the Consolidated Financial Statements of Banco Santander (Brasil) S.A. (Banco Santander or Bank) for the period ended March 31, 2019, prepared in accordance with  the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), and the interpretations issued by the IFRS Interpretations Committee (Current name of International Financial Reporting Interpretations Committee (IFRIC)).

1) Macroeconomic Environment

In general, prices of Brazilian financial assets ended the first quarter of 2019 at better levels than the ones registered at the end of 2018. The exception was the exchange rate, which weakened marginally versus the US dollar (approximately 0.6%). However, it is important to notice that price dynamics of all assets followed a similar pattern during the period, as they reached levels that were more favorable in the beginning of first quarter than the ones in its end. That is, the year started with a generalized improvement trend in prices of Brazilian financial assets, which was followed by some profit-taking moves as months went by. In most cases – as stated before – the price correction was not enough to reverse the improvement observed in early 2019. Nonetheless, the performance of Brazilian financial asset prices could have been better than the one registered. Santander considers that both domestic and international factors influenced such a trajectory recorded by the Brazilian financial asset prices in the first three months of 2019.

From the international standpoint, the Bank understands that the aggravation of tensions derived from the so-called “Trade War” between China and the US played an important role in the reversal of Brazilian financial asset prices – as the imbroglio may bring collateral damage to all economies in the globe, including the Brazilian one. Besides, Santander remembers that additional evidences indicating that both Chinese and US economies may go through a more intense economic slowdown than previously anticipated by market participants raised concerns among international investors and increased their levels of risk aversion – a backdrop that put pressure over both the Brazilian exchange rate as well prices of its credit-default-swaps. The Bank also thinks it is important to highlight that two developments reinforced the general perception that world economy should face a protracted period of slow economic growth. Namely, a) the imbroglio related to the conclusion of the Brexit – the process of departure of United Kingdom from the European Union – and; b) signals conveyed by the European Central Bank that it would push forward the deadline for granting monetary stimulus to that economy. According to Santander’s appraisal, less auspicious perspectives for the world economy also contributed to the reversal of Brazilian financial asset prices.

As for the domestic environment, the beginning of 2019 was marked by the inauguration of a new federal administration, a factor that reinforced the process of recovery in confidence indicators – both entrepreneurs and consumer ones – which nurtured a climate of optimism among market participants regarding the approval of structural reforms the country needs. In the Bank’s view, these were the reasons behind the substantial improvement observed in the Brazilian financial asset prices in the beginning of the first quarter of 2019. However, as the complexity to get reforms in place became clearer and clearer – difficult negotiations with a very fragmented Congress, difficulties in the initial organization of the new Government, people’s anxiety with fast and concreted deeds, etc – the enthusiasm dwindled and was replaced by caution. In the wake of this mood change, Santander understands that the unfolding of a profit-taking process was something natural, but the Bank considers that the magnitude of price changes should not be considered as an indication of a critical situation.

On top of the on the political front observed, the Bank also verified a new round of frustration with regard to the performance of activity indicators, which provoked a wave of downward reviews in the forecasts for the GDP growth for 2019. Santander ended up recalculating its own projection for the performance of the Brazilian economy during this year and, instead of counting on a 3.0% expansion for the GDP in 2019, now the Bank considers that the most likely scenario is for a 2.3% growth this year. The maintenance of a gradual recovery reinforced favorable dynamics for price indices, with underlying inflation gauges signaling at plenty of room for the Brazilian Central Bank to meet the targets set by the National Monetary Council for the coming years. Consequently, the Bank believed it was created additional maneuvering-room for the Brazilian monetary authority to keep the base interest rate unchanged at the current level of 6.50% pa, without jeopardizing its duty of keeping inflation dynamics compatible with the convergence of current inflation toward targeted levels. As a result, Santander thinks the Selic target rate is likely to remain unchanged until the end of 2020 – previously the expectation was that the base interest rate would stay put until mid-2020.

These forecasts for economic growth, inflation and low interest rate that Santander works with are based upon the assumption that the country will continue to pursue an agenda of structural reforms, mainly on the fiscal front. The Santander restates that the willingness and commitment of the newly-instated administration in pursuing the improvement of the fiscal balance, as well as in keeping sustainable and sensible economic policy guidelines are going to be crucial for allowing the country to reach out social and economic development over time.

2) Performance

2.1) Net Income

Interim Condensed Consolidated Financial Statements - March 31, 2019          71

 

CONSOLIDATED INCOME STATEMENTS(R$ Millions)	1Q19	1Q18	annual changes%
Interest and similar income	18,331.2	17,041.0	7.6
Financial Assets Measured At Fair Value Through Other Comprehensive Income	776.4	186.2	317.0
Financial Assets Measured At Amortized Cost	14,685.1	13,809.2	6.3
Others	2,869.7	3,045.6	-5.8
Interest expense and similar charges	(7,863.8)	(7,221.6)	8.9
Financial Assets Measured At Fair Value Through Other Comprehensive Income	(80.5)	(93.9)	-14.3
Financial Assets Measured At Amortized Cost	(7,767.8)	(7,115.9)	9.2
Others	(15.4)	(11.8)	30.5
Interest Net Income (2)	10,467.4	9,819.4	6.6
Income from equity instruments	2.1	13.5	-84.7
Income from companies accounted for by the equity method	29.0	3.4	759.8
Fees and Comission (net)	3,764.7	3,455.2	9.0
Gains (losses) on financial assets and liabilities (net) + Exchange differences (net)	41.9	69.5	-39.7
Other operating expense (net)	(250.3)	(171.9)	45.6
Total Income	14,054.8	13,189.1	6.6
Administrative and personnel expenses	(4,076.2)	(4,064.9)	0.3
Depreciation and amortization	(572.8)	(432.0)	32.6
Provisions (net)	(446.0)	(740.8)	-39.8
Impairment losses on financial assets and other assets (net)	(3,104.2)	(3,083.0)	0.7
Gains (losses) on disposal of assets not classified as non-current assets held for sale	(0.2)	(6.6)	-97.4
Gains (losses) on non-current assets held for sale not classified as discontinued operations	(17.0)	3.7	-554.0
Operating Profit Before Tax (1)	5,838.4	4,865.5	20.0
Income taxes	(2,164.9)	(1,993.9)	8.6
Consolidated Net Income	3,673.5	2,871.6	27.9

For a better understanding of the results in IFRS, below is the Operating Profit Before Tax and Income taxes, disregarding the hedge effect (according to item 1):             

ADJUSTED OPERATING PROFIT BEFORE TAXES (R$ Millions)	1Q19	1Q18	annual changes%
Operating Profit Before Tax	5,838.4	4,865.5	20.0
Income Tax and Social Contribution (hedge)	152.8	150.5	1.5
PIS/Cofins (hedge)	18.4	16.3	12.9
Adjusted Operating Profit Before Tax	6,009.6	5,032.3	19.4
INCOME TAXES (R$ Millions)	1Q19	1Q18	annual changes%
Income taxes	(2,164.9)	(1,993.9)	8.6
Income Tax and Social Contribution (hedge)	(152.8)	(150.5)	1.5
PIS/Cofins (hedge)	(18.4)	(16.3)	12.9
Adjusted Income taxes	(2,336.1)	(2,160.8)	8.1

a) Foreign Exchange Hedge of the Grand Cayman Branch and the Subsidiary Santander Brasil EFC

Banco Santander operates branches in the Cayman Islands and Luxembourg and the subsidiary Santander Brasil Establecimiento Financiero de Credito, EFC, or “Santander Brasil EFC” which are used, mainly, to raise funds in the capital and financial foreign markets, providing credit lines that are extended to clients for trade-related financings and working capital. To protect the exposures to foreign exchange rate variations, the Bank uses derivatives. According to Brazilian tax rules, the gains or losses resulting from the impact of appreciation or depreciation of the local currency (Real) in foreign investments are nontaxable to PIS/Cofins/IR/CSLL, while gains or losses from derivatives used as hedges are taxable or deductible. The purpose of these derivatives is to protect the after-tax net income. 

The different tax treatment of such foreign exchange rate differences results in a volatility on the operational earnings or losses and on the gross revenue tax expense  (PIS/Cofins) and income taxes (IR/CSLL), as demonstrated below:

FOREIGN EXCHANGE HEDGE OF THE GRAND CAYMAN BRANCHES AND THE SUBSIDIARY SANTANDER BRASIL EFC (R$ Million)	1Q19	1Q18	annual changes%
Exchange Variation	225.5	183.9	22.6
Derivative Financial Instruments	(396.8)	(350.7)	13.1
Income Tax and Social Contribution	152.8	150.5	1.5
PIS/Cofins - Tax Expenses	18.4	16.3	12.9

b) Interest Net Income

At December 31, 2018, the increase compared to the previous year was mainly due to volume growth and average spread, customer funding and market activities.

c) Other Events

Post-employment Benefit Plan

On June 30, 2018, there was an increase in the cost contribution established in the Post-Employment Benefit Plan, which is calculated as a percentage of the total monthly compensation of members. The increase in the contribution resulted in a decrease in the past service cost, due to changes in the plan. The changes proposed in the Post-Employment Benefit imply a reduction in the present value of the obligations of the defined benefit plan, which is supported by actuarial valuations.

Interim Condensed Consolidated Financial Statements - March 31, 2019          72

 

Recoverable Value Assessment

In the first half of 2018, Banco Santander recognized impairment losses in the amount of R$341 million on intangible assets in the acquisition and development of systems. The loss was recorded based on the performance of technical analysis, which demonstrated a significant reduction in expected future economic benefits on these assets.

Analysis of Income by Segment

The Bank has two segments, Commercial and the Global Wholesale Banking segment, which includes the Investment Banking and Markets operations, including departments cash and stock trades.

Below, the Bank presents table by segment:

OPERATING INCOME BEFORE TAXES BY SEGMENT (R$ Millions)	1T19	% in profit before tax	1T18	annual changes %
Commercial Bank (1)	4,879.9	83.6	3,975.2	22.8
Global Wholesale Banking	958.6	16.4	890.4	7.7
Operating Profit Before Tax	5,838.5	100.0	4,865.6	20.0

 (1) On March 31, 2019 and 2018, includes in the Commercial Bank, the foreign exchange hedge of investment in US Dollar, and excluding this effect, the Operating Income before taxation Adjusted for this segment was R$5,051.1 million and R$4,142.9 million, respectively.

General Expenses -The other administrative expenses totaled R$1,772.1 million and R$1,780.1 million in the period ended on March 31, 2019 and 2018, respectively. The personnel expenses totaled R$2,304.2 million and R$2,284.8 million in the period ended on March 31, 2019 and 2018, respectively. The other administrative expenses decreased 0.5% and the personnel expenses increased 0.8% YoY. Changes in administrative expenses are mainly due to the increase in expenses with data processing, associated with greater transactionality and growth in the customer base and expenses with specialized technical services and third parties, mainly through the contracting of technology services.

GENERAL EXPENSES (R$ Millions)	1Q19	1Q18	annual changes%
Other Administrative Expenses	(1,772.1)	(1,780.1)	-0.5
Personnel Expenses	(2,304.2)	(2,284.8)	0.8
Total General Expenses	(4,076.2)	(4,064.9)	0.3

2.2) Assets and Liabilities

BALANCE SHEET (R$ Millions)	mar/18	dec/18	mar/19 vs. dec/18 changes %
Cash and Balances with the Brazilian Central Bank	24,506.6	31,716.3	-22.7
Financial Assets Measured At Fair Value Through Profit Or Loss	25,486.4	43,711.8	-41.7
Financial Assets Measured At Fair Value Through Profit Or LossHeld For Trading	54,998.7	68,852.3	-20.1
Non-Trading Financial Assets Mandatorily Measured At Fair Value Through Profit Or Loss	876.6	917.5	-4.5
Financial Assets Measured At Fair Value Through Other Comprehensive Income	91,016.7	85,436.7	6.5
Financial Assets Measured At Amortized Cost	430,945.7	417,478.7	3.2
Hedging Derivatives	351.3	343.9	2.1
Non-Current Assets Held For Sale	1,357.6	1,380.2	-1.6
Investments in Associates and Joint Ventures	1,034.1	1,053.3	-1.8
Tax Assets	30,513.0	31,565.8	-3.3
Other Assets	4,795.3	4,800.5	-0.1
Tangible Asset	9,126.4	6,589.0	38.5
Intangible Asset	30,024.6	30,019.0	0.0
TOTAL ASSETS	705,033.1	723,865.0	-2.6
Financial Liabilities Measured At Fair Value Through Profit Or LossHeld For Trading	40,352.2	50,939.0	-20.8
Financial Liabilities Measured At Fair Value Through Profit Or Loss	519.6	1,946.1	-73.3
Financial Liabilities at Amortized Cost	538,695.8	547,295.2	-1.6
Hedge Derivatives	281.5	223.5	26.0
Provisions	14,601.4	14,695.9	-0.6
Tax Liabilities	7,685.2	8,074.8	-4.8
Other Liabilities	8,689.6	9,095.1	-4.5
TOTAL LIABILITIES	610,825.4	632,269.5	-3.4
Total Equity	94,207.7	91,595.5	2.9
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	705,033.1	723,865.0	-2.6

Interim Condensed Consolidated Financial Statements - March 31, 2019          73

 

Initial Adoption - IFRS 9

The quarterly statements, in accordance with IFRS, were prepared on March 30, 2018 for the first time in accordance with the requirements of IFRS9, with prospective adoption as allowed by the referred rule. The statements include special information for the registration of the new standard, such as:

 - revision of the main balance sheet and demonstration headline nomenclatures in 2010;

 - Detail of the new practices adopted by the Bank;    

 - for the power of the provision of the date of the financial instruments;

 The reconciliation of inputs and equity effects of January 1, 2018 (opening) after the acquisition of the new accounting standard, is shown in item 2.4 Stockholders' Equity.

Funding

Total funding (deposits of Brazil Central Bank and deposits of credit institutions, deposits from clients, marketable debt securities, subordinated liabilities and debt instruments eligible to compose capital) reached R$492,573.4 million on March 31, 2019 and R$497,512.4 on December 31, 2018, decreasing 1.0% in the period.

FUNDING (R$ Million)	mar/18	dec/18	mar/19 vs. dec/18 changes %
Deposits of Brazil Central Bank and Deposits of Credit Institutions	96,065.4	99,022.8	-3.0
Deposits from Clients	308,794.2	304,197.8	1.5
Marketable Debt Securities	77,713.6	74,626.2	4.1
Subordinated Liabilities	-	9,885.6	-100.0
Debt Instruments Eligible to Compose Capital	10,000.5	9,779.9	2.3
Total Funding	492,573.8	497,512.4	-1.0

2.3) Loan Portfolio

LOANS AND RECEIVABLES (R$ Million)	mar/18	dec/18	mar/19 vs. dec/18 changes %
Loans and amounts due from credit institutions, gross	100,404.4	79,620.6	26.1
Impairment losses	(13.0)	(13.6)	-4.4
Loans and amounts due from credit institutions, net	100,391.4	79,607.0	26.1
Loans and advances to customers, gross	307,492.2	321,314.0	-4.3
Impairment losses	(20,464.3)	(20,241.8)	1.1
Loans and advances to customers, net	287,027.9	301,072.2	-4.7
Debt instruments	46,264.7	39,513.5	17.1
Impairment losses	(2,738.4)	(2,714.0)	0.9
Debt instruments, net	43,526.3	36,799.5	18.3
Total Loans and Receivables	430,945.6	417,478.7	3.2

Impairment losses on financial assets (net)

The expenses for impairment losses, reduced by loans previously charged off, totaled R$3,105.8 million and 3,020.5 million in the period ended on March 31, 2019 and 2018, respectively, increasing 2.8%

2.4) Issuance of Debt Instruments Eligible to Compose Capital

On November 5, 2018, the Board of Directors approved the issuance of the equity instruments, which was held on November 8, 2018. Such issuance was in the form of Notes issued in US dollars, US$2,5 Billion, for payment in Tier I and Tier II of Reference Equity. The offer of these notes was made outside Brazil and the United States of America, for non-US Persons, based on Regulation S under the Securities Act, and was fully paid in by Santander España, controlling shareholder of Banco Santander Brasil. On the same date, the Board of Directors approved the redemption of the Tier I and Tier II notes issued on January 29, 2014, in the total amount of U$ 2,5 billion.

The specific characteristics of Notes issued to make up Tier I are: (a) Principal: US$1,250 Billion (b) Interest Rate: 7.25% p.a; (c) no maturity (perpetual); (d) Periodicity of payment of interest: semiannually from May 8, 2019.

Interim Condensed Consolidated Financial Statements - March 31, 2019          74

 

The specific characteristics of Notes issued to make up Tier II are: (a) Principal: US $ 1,250 Billion; (b) Interest Rate: 6.125% p.a.; (c) Maturity Term: on November 8, 2028; and (d) Periodicity of payment of interest: semiannually, as of May 8, 2019.

Notes have the following common characteristics

(a) Unit value of at least US$150 thousand and in integral multiples of US$1 thousand in excess of such minimum value.

(b) The Notes may be repurchased or redeemed by Banco Santander after the fifth anniversary as of the date of issue of the Notes, at the sole discretion of the Company or as a reult of changes in the tax legislation applicable to the Notes; or at any time, due to the occurrence of certain regulatory events.

On December 18, 2018, the Bank issued an approval for the Notes to comprise Tier I and Tier II of Banco Santander's Referential Equity, as of that date, as well as the repurchase of the notes issued on January 29, 2014.

2.5) Stockholders’ Equity

In December 2018, Banco Santander consolidated stockholders’ equity presented an increase of2.8%, compared to December, 2018.

The variance of stockholders’ equity is due, mainly, to the increase of other comprehensive income in the amount of R$742.3 million and which includes as the main event the changes in fair value of certain operations, the net income of the period in the amount of R$3,651.9 million and the highlight of Interest on Capital in the amount of R$1 billion.

Initial Adoption - IFRS 9

Reconciliation of the effects on Stockholders' Equity of January 1, 2018 (opening) after the adoption of the new accounting standard.

Reconciliation of Stockholders' Equity R$ Million
Stockholders' equity before adjustments to IFRS 9 (12/31/2017)	87,088
Allowance for doubtful accounts	(2,149)
Provision for contingent commitments	(675)
Remesuration of assets arising from the new categories	18
Others	238
Deferred income tax	1,026
Stockholders' equity after adjustments to IFRS 9 (01/01/2018)	85,546

Treasury Shares

In the meeting held on November 1, 2018, the Bank’s Board of Directors approved, in continuation of the buyback program that expired on November 1, 2017, the buyback program of its Units and ADRs, by the Bank or its agency in Cayman, to be held in treasury or subsequently sold. 

The Buyback Program will cover the acquisition up to 37,753,760 Units, representing 37,753,760 common shares and 37,753,760 preferred shares, or the ADRs, which, on December 31, 2018, corresponded to approximately 1% of the Bank’s share capital. On December 31, 2018, the Bank held 362,227,661 common shares and 390,032,076 preferred shares being traded.

The Buyback has the purpose to (1) maximize the value creation to stockholders by means of an efficient capital structure management; and (2) enable the payment of officers, management level employees and others Bank’s employees and companies under its control, according to the Long Term Incentive Plans. The term of the Buyback Program is 12 months counted from November 6, 2018, and will expire on November 5, 2019.

	mar/18	dec/18
	Quantity	Quantity
	Units	Units
Treasury shares at beginning of the period	13,317	1,773
Shares Acquisitions	3,338	15,816
Payment - Share-based compensation	(3,026)	(4,272)
Treasury shares at end of the period	13,629	13,317
Subtotal - Treasury Shares in thousands of reais	R$ 520,267	R$ 460,550
Emission Costs in thousands of Reais	R$ 2,410	R$ 882
Balance of Treasury Shares in thousands of reais	R$ 522,677	R$ 461,432
Cost/Share Price	Units	Units
Minimum cost	R$ 7.55	R$ 7.55
Weighted average cost	R$ 30.69	R$ 28.59
Maximum cost	R$ 49.55	R$ 43.84
Share Price	R$ 43.97	R$ 42.70

Interim Condensed Consolidated Financial Statements - March 31, 2019          75

 

In the period ended on March 31, 2019 there were highlights of Interest on Capital, as below:

DIVIDENDS AND INTEREST ON CAPITAL (R$ Millions)	09M18	12M17
Interest on capital	1,000.0	600.0
Total	1,000.0	600.0

2.6) Basel Index

Financial institutions are required by Bacen to maintain Regulatory Capital (PR), Tier I and Principal Capital consistent with their risk activities, higher than the minimum requirement of the Regulatory Capital Requirement, represented by the sum of the partial credit risk, market risk and operational risk.

As required by Resolution CMN 4,193/2013, the requirement for PR in 2018 was 11.0%, composed of 8.625% of Reference Equity Minimum plus 1.875% of Capital Conservation Additional. Considering this additional, PR Level I increased to 8.375% and Minimum Principal Capital to 6.875%.           

For the base year 2019, the PR requirement remains at 10.5%, including 8.0% of Minimum of Reference Equity and a further 2.5% of Capital Conservation Additional. The PR Level I reaches 8.5% and the Principal Capital Minimum 7.0%.

The Basel ratio is determined in accordance with the Financial Statements of the Prudential Conglomerate prepared in accordance with accounting practices adopted in Brazil, applicable to institutions authorized to operate by Bacen, as shown bellow:

BASEL INDEX %	mar/18	dec/18
Tier I Regulatory Capital	65,272.2	61,476.7
Principal Capital	60,261.0	56,581.5
Supplementary Capital	5,011.1	4,895.2
Tier II Regulatory Capital	4,989.4	4,887.2
Regulatory Capital (Tier I and II)	70,261.6	66,363.9
Credit Risk	368,652.7	358,955.6
Market Risk	40,200.4	39,231.8
Operational Risk	46,527.0	42,375.6
Total RWA	455,380.1	440,563.0
Basel I Ratio	14.3	14.0
Basel Principal Capital	13.2	12.8
Basel Regulatory Capital	15.4	15.1

2.7) Main Subsidiaries

The table below presents the balances of total assets, net assets, net income and credit operations prepared in accordance with the accounting practices adopted in Brazil, applied for the Financial Institutions authorized to operate by the Bacen for the period ended March 31, 2019, the main subsidiaries of Banco Santander portfolio:

SUBSIDIARIES (R$ Million)	Total Assets	Stockholders' Equity	Net Income	Loan Portfolio(1)	Ownership/Interest (%)
Aymoré Crédito, Financiamento e Investimento S.A.	45,513.2	2,450.4	369.3	40,453.5	100.00%
Getnet Adquirência e Serviços para Meios de Pagamento S.A.	24,749.4	2,296.6	131.2	0.0	100.00%
Santander Leasing S.A. Arrendamento Mercantil	7,132.9	5,790.0	46.3	1,882.0	99.99%
Banco Bandepe S.A.	5,219.0	4,165.8	124.9	0.0	100.00%
Santander Brasil, Establecimiento Financiero de Credito, S.A.	3,597.3	3,432.3	-0.5	1,570.5	100.00%
Santander Corretora de Seguros, Investimento e Serviços S.A.	2,830.9	2,665.7	107.9	0.0	100.00%
Santander Corretora de Câmbio e Valores Mobiliários S.A.	1,012.7	617.8	22.2	0.0	100.00%

Balances reported above are in accordance with accounting practices established by Brazilian Corporate Law and standards established by the CMN, the Bacen and document template provided in the Accounting National Financial System Institutions (Cosif) and the CVM, that does not conflict with the rules of Bacen.

 3) Other Events

3.1) Opening of the branch in Luxembourg 

On June 9, 2017, Banco Santander obtained authorization from the Central Bank to set up an agency in Luxembourg with a capital of US $ 1 billion, with the objective of complementing the foreign trade strategy for corporate clients (large Brazilian companies and their operations abroad) and offer financial products and services through an offshore entity that is not established in a jurisdiction with favored taxation and that allows for the increase of funding capacity. The opening of the agency was authorized by the Luxembourg Minister of Finance on March 5, 2018. On April 3, 2018, after the reduction of the capital of the Cayman agency in the equivalent amount, the value of US$1 billion was allocated to capital of the Luxembourg branch.                                                                                                                                                                      

Interim Condensed Consolidated Financial Statements - March 31, 2019          76

 

3.2) Adhesion to Tax Debt Installment Programs

In October 2017 the Bank also joined the Incentive Payment Programs and Installments issued by the cities Rio de Janeiro and São Paulo. Accessions to the programs include lawsuits and administrative proceedings related to ISS of the periods from 2005 to 2016, in the total amount of R$293 million. As a consequence were registered income of R$435 million.

Adherence to the program included administrative proceedings related to IRPJ, CSLL and Social Security Contributions referring to the base periods from 1999 to 2005, in the total of R$534 million, after the benefits of the installment program, of which R$192 million was paid in August 2017 and R$300 million in January 2018.

3.3) Public offering of Qatar Holding LLC

On April 11, 2017, Banco Santander in Brasil informed its stockholders and the market in general, in furtherance of the material facts disclosed on March 28, 2017 and April 6, 2017, the settlement of the secondary public offering for the distribution of 80,000,000 units issued by Banco Santander in Brasil and held by Qatar Holding LLC (Selling Stockholder), including in the form of American Depositary Shares (ADSs), having been allocated 22,000,000 Units for the Brazilian offering and 58,000,000 ADSs for the international offering. The price per Unit was set at R$25.00, resulting on a total amount of R$2 billion. Additionally, the amount of Units of the international offering initially offered was increased by an additional batch of 12,000,000 Units, exclusively in the form of ADSs also held by the Selling Stockholder.

3.4) Corporate Restructuring                                                                                                                                                        

Several social movements were implemented in order to reorganize the operations and activities of entities according to the business plan of the Conglomerate Santander.

a) Put option of equity interest in Banco Olé Bonsucesso Consignado S.A.

On March 14, 2019, the minority shareholder of Banco Olé Bonsucesso Consignado S.A. (Olé Consignado) formalized its interest to exercise the put option right provided in the Investment Agreement, executed on July 30, 2014, to sell its 40% equity interest in the capital stock of Olé Consignado to Aymoré CFI. The closing of the transaction is conditioned to implementation of the proceedings set forth in the Investment Agreement.

b) Acquisition of residual equity interest in Getnet S.A.

On December 19, 2018, Banco Santander and the Minority shareholders of Getnet S.A. executed an amendment to the Shares’ Sale and Purchase Agreement and Other Covenants of Getnet S.A., in which Banco Santander commits to acquire all of the Minority shareholders’ shares, corresponding to 11.5% of Getnet S.A. capital stock, per the amount of R$1,431,000. The acquisition was approved by Bacen on February 18, 2019 and closed on February 25, 2019, as a consequence Santander Brasil has become the holder of 100% of the shares representatives of the capital stock of Getnet S.A.

c) Formation of Esfera Fidelidade S.A.

On August 14, 2018, Esfera Fidelidade was incorporated, with equity fully owned by Banco Santander. Esfera Fidelidade will act in the development and management of customer loyalty programs. On November 26, 2018, Esfera Fidelidade had its capital stock increased in the amount of R$10,000, amounting the full share capital of R$10,000, divided into 10,001,000 (ten million and one thousand) nominative common shares without par value, entirely held by Banco Santander. The company started its operation in November 2018.

d) Investment in Loop Gestão de Pátios S.A.

On June 26, 2018, Webmotors S.A., company with 70% interest indirectly owned by Banco Santander, signed an investment agreement with Allpark Empreendimentos, Participações e Serviços S.A. and Celta LA Participações S.A., in order to acquire an equity interest corresponding to 51% of the capital stock of Loop Gestão de Pátios S.A., through capital increase and issuance of new shares of Loop to be fully subscribed and paid-in by Webmotors. Loop operates in the segment of commercialization and physical and virtual auction of motor vehicles. On September 25, 2018, the transaction was completed with increase of the capital stock, in the amount of R$23,900, through issuance of shares representing 51% of equity interest in Loop, which were fully subscribed and paid-in by Webmotors.

e) Formation of BEN Benefícios e Serviços S.A.

On June 11, 2018,BEN Benefícios,with equity fully owned by Banco Santander,was incorporated, toact in the supply and administration of meal, food, transportation, cultural and similar vouchers, via printed or electronic and magnetic cards.

In the EGM held on August 1, 2018, BEN Benefícios had its capital increased in R$ 45,000, passing the capital stock to the amount of R$ 45,001, divided into 45,001,000 (forty-five million and one hundred thousand) registered common shares without par value, fully owned by Banco Santander.

In the EGM held on March 27, 2019, Santander Brasil approved the capital increase in the amount of R$44,999, totalizing R$90,000 of capital stock distributed into 90,000,000 (ninety million) common shares without par value, fully held by Santander Brasil.

BEN Benefícios started its activities in the first quarter of 2019.

Interim Condensed Consolidated Financial Statements - March 31, 2019          77

 

f) Acquisition of Isban Brasil S.A. and Produban Serviços de Informática S.A.

On February 19 and 28, 2018, Banco Santander purchased, respectively, the totality of shares of Isban Brasil, formerly held by Ingeniería de Software Bancário, S.L., and of Produban Serviços de Informática, formerly held by Produban Servicios Informáticos Generales, S.L., for the amount of R$61,078 and R$42,731, respectively. The parties involved in the transactions had Banco Santander, S.A. (Santander Spain) as common indirect controller, being such transactions carried-out under market conditions. At the EGM held on February 19, 2018, was approved the capital increase of Isban Brasil in the amount of R$33,000, through the issuance of 11,783,900 (eleven million, seven hundred and eighty-three thousand and nine hundred) shares, without par value, entirely subscribed and paid in by Banco Santander. On February 28, 2018, the company Isban Brasil was merged into Produban Serviços de Informática S.A. and on the same date, Produban Serviços de Informática had its corporate name changed to Santander Brasil Tecnologia S.A. In continuity, on February 28, 2018, Produban Servicios Informáticos Generales, S.L. (currently named Santander Global Technology, S.L.) approved the merger of the spin-off share of Produban Serviços de Informática into Produban Brasil Tecnologia e Serviços de Informática Ltda. (currently named Santander Global Technology Brasil Ltda.).

g) Sale of equity interest in BW Guirapá I S.A.

On December 22, 2017, Santander Corretora de Seguros, Cia. de Ferro Ligas da Bahia - Ferbasa SA and Brazil Wind S.A. executed agreement for the sale of 100% of the shares issued by BW Guirapá I S.A. held by Santander Corretora de Seguros and Brazil Wind to Ferbasa. The basic price of the total sale was R$414,000, and an additional amount of up to R$35,000 may be paid if future targets stipulated in the Contract are met. As of January 1, 2018, this investment was written-off and, as a consequence, the assets and liabilities of BW Guirapá I and its subsidiaries were no longer consolidated by Banco Santander. On April 2, 2018, the transaction was concluded (Notes 15 and 33).

h) Formation of Santander Auto S.A.

On December 20, 2017, Banco Santander and HDI Seguros S.A. (HDI Seguros), executed documents to form a partnership for the issuance, offering and sale of auto insurance, in a 100% digital way, through creation of a new insurance company - Santander Auto, to be held 50% by Sancap, a company controlled by Banco Santander, and 50% by HDI Seguros. On February 2, 2018 the partnership was approved by the Administrative Council of Economic Defense (Conselho Administrativo de Defesa Econômica – CADE), on April, 30, 2018, was approved by the Brazilian Central Bank and, on May, 15, 2018, SUSEP's prior approval was obtained. On October 9, 2018, through transformation of the corporate vehicle L.G.J.S.P.E. Investments and Participations S.A., Sancap and HDI Seguros formed Santander Auto S.A., with capital of R$15,000. On January 9, 2019, Susep granted to Santander Auto the authorization to operate insurance throughout national territory.

i) Formation of Gestora de Inteligência de Crédito S.A.

On April 14, 2017, the definitive documents necessary for the creation of a new credit bureau, Gestora de Inteligência de Crédito, were signed by the stockholders, whose control will be shared among the stockholders who will hold 20% of the its share capital each. In the EGM held on October 5, 2017, the capital increase of Gestora de Crédito was approved in the total amount of R$285,205, so that the capital stock increased from R$65,823 to R$351,028. The Company will develop a database with the objective of aggregating, reconciling and processing registration and credit information of individuals and legal entities, in accordance with the applicable standards, providing a significant improvement in the processes of granting, pricing and directing credit lines. The Bank estimates that the Company will be fully operational in 2019.

j) Formation of Banco Hyundai Capital Brasil S.A.

On April 28, 2016, Aymoré CFI and Banco Santander executed with Hyundai Capital Services, Inc. (Hyundai Capital) the necessary documents for the formation of Banco Hyundai and an insurance brokerage company with the purpose to provide, respectively, auto finance and financial and insurance brokerage services to clients and dealers of Hyundai in Brazil.

On April 11, 2018, the parties incorporated, with an equity interest of 50% held by Aymoré CFI and 50% held by Hyundai Capital, a non-operational entity named BHJV Assessoria e Consultoria em Gestão Empresarial Ltda. On May 8, 2018, Aymoré CFI and Hyundai Capital took resolution on the conversion of BHJV Assessoria into the non-operational joint-stock corporation named Banco Hyundai Capital Brasil S.A., as well as the capital stock increase in R$99,995, passing to the amount of R$100,000, divided into 100,000,000 (one hundred million) nominative common shares without par value. On December 13, 2018, the incorporation procedure of Banco Hyundai Capital Brasil S.A. was concluded.

In the EGM held on February 19, 2019, the shareholders of Banco Hyundai approved the capital increase in the amount of R$200,000, summing the total value of R$300,000 distributed into 300,000,000 (three hundred million) common shares without par value, held in the proportion of 50% by Aymoré CFI and 50% by Hyundai Capital.

On February 21, 2019, the authorization to operate  granted by Bacen for the functioning of Banco Hyundai was published in the Federal Official Gazette. The expectation is that Banco Hyundai will start to operate in the first semester of 2019, being set that Aymoré CFI holds the effective operational control of this entity.

k) Creation of PI Distribuidora de Títulos e Valores Mobiliários S.A.

On May 3, 2018, Santander Finance Arrendamento Mercantil S.A., an indirectly controlled subsidiary of Banco Santander, was converted into a distribution company of bonds and securities and had its corporate name changed to SI Distribuidora de Títulos e Valores Mobiliários S.A. The conversion process of approved by Bacen on November 21, 2018. On December 17, 2018, SI Distribuidora de Títulos e Valores Mobiliários S.A. had its corporate name changed to PI Distribuidora de Títulos e Valores Mobiliários S.A., being the corporate name change process approved by Bacen on January 22, 2019. The company started its operations on March 14, 2019.

Interim Condensed Consolidated Financial Statements - March 31, 2019          78

 

4) Strategy

Banco Santander Brasil is the only international bank with scale in the country. The Bank is convinced that the best way to grow in a profitable, recurring and sustainable manner is by providing excellent services to enhance customer satisfaction levels and attract more customers, making them more loyal. Our actions are based on establishing close and long-lasting relationships with customers, suppliers and shareholders. To accomplish that goal, our purpose is to help people and businesses prosper by being a Simple, Personal and Fair Bank, guided by the following strategic priorities:

· Increase customer preference and loyalty by offering targeted, simple, digital and innovative products and services through a multi-channel platform.

· Generate results in a sustainable and profitable manner, with greater revenue diversification, aiming to strike a balance between loans, funding and services, while maintaining a preemptive risk management approach and rigorous cost control.

· Be disciplined with capital and liquidity to preserve our solidity, face regulatory changes and seize growth opportunities.

· Achieve profitable market share gains through our robust portfolio, optimize the ecosystem and launch new ventures consistently improving the customer experience.

In the first quarter of 2019, the Bank was able to maintain recurring earnings generation, with outstanding profitability. The customer base continued to show steady growth, thanks to improved service to our customers, thereby allowing us to achieve profitable market share gains. At the same time, the Bank reached the highest level of engagement among our employees, which contributes to the sustainability of our business. These factors, allied to our strong capital and liquidity base, place us in a prime position to capture market opportunities.

People

The Bank continue to work on our strategic fronts, such as promoting collaboration, encouraging employee empowerment and horizontal management. The Bank highlight the following accomplishments in the past quarter:

The Bank reached the highest level of engagement, 92%, an increase of 4 p.p. compared to the previous year. In addition, 96% of employees feel proud to work at Santander.

Elected Company of the Year for Diversity by “Exame” magazine at the 2019 Diversity Forum, in partnership with the Ethos institute.

2nd place on LinkedIn’s Top Companies which ranks the most sought-after places to work for professionals in Brazil. The rise of 19 spots in the ranking over twelve months reflects the effectiveness of our talent attraction and retention strategies. 

Our first blood donation campaign of 2019: The Bank hit 88% of the donation volume of the country's main blood bank, with the potential to save more than 33,000 lives.

My Place: internal mobility program with the purpose of encouraging employees to take charge of their careers and stimulating meritocracy. In its first year, the portal had more than 500,000 views.

Customer loyalty:

Our customers have acknowledged the enhancements in service and experience, which has led our NPS (Net Promoter Score) to remain on an upward trend, reaching 59 points this quarter, up 10 points YoY.

For the first time, the Bank was recognized by the EXAME/IBRC customer service ranking, reaching 1st place in customer service in the banking sector in 2018.

The customer base continues to enjoy solid expansion, highlighted by active account holders, who have been growing for the last 46 consecutive months.

Retail

Cards: our robust portfolio enables us to keep gaining market share in the loan portfolio, which reached 13.3%¹ in the quarter (+1.0 p.p. YoY - Source: Brazilian Central Bank, as of February/19), while our total card turnover expanded by 20% YoY. We launched Santander's credit plan for card customers, who can choose to make installment payments directly in the POS in as many as 36 installments, at competitive interest rates. The ability to purchase goods and services in installment payments aims to stimulate card turnover and foster customer loyalty. Santander Pass, our wristband for contactless payments using NFC technology, is now also available with the Visa brand and, in partnership with fashion retailer Osklen, we introduced Santander Pass Osklen. It is also worth mentioning that we have strengthened the Way app with: (i) the account opening functionality for single-product retailers; (ii) the possibility to pay the card bill in installments for current account holders; and (iii) the release of Santander ID for single-products retailers, thus reinforcing security.

Payroll Loans: our market share in the loan portfolio climbed by 10.2%, +1.4 p.p. YoY (Source: Brazilian Central Bank, as of February/19). Digital channels are one of our main credit origination vehicles. This quarter, the number of contracts generated via these channels saw a 27% QoQ rise.

Real Estate: the real estate portal provides more efficiency and agility. An example of that is the reduction in the average lead time for contracts by 43% compared to the previous year. This product remains one of the highlights in Retail, contributing to expand our loan portfolio.

Agro:our service model, with specialized Agro stores and managers exclusively dedicated to rural producers, has proven to be an important strategic component to maximize our role in the sector. This countryside expansion process is in line with our goal of being the best agribusiness bank in the country. Thanks to the increased number of account openings and loan portfolio growth, the Bank has experienced stronger results. In the issuance of agribusiness credit notes (“LCA”), our market share hit 8.5%, +2.8 p.p. YoY (Source: Brazilian Central Bank, as of February/19).

Getnet:The Bank continues with the strategy of offering physical and digital services, including for the e-commerce segment. This quarter, the Bank initiated an unprecedented offering for SuperGet, focused on individuals and individual microentrepreneurs, which includes payment of receivables in two business days and unification of debit and credit transaction fees. This innovative offering brings more transparency to our customer relationships and puts us in a competitive position to increase our presence in this dynamic market. It is worth noting that this product has the option of integrating with Superdigital, our digital account, to facilitate the payment of receivables. Our market share reached 12.3%² (+1.3 p.p. YoY), while total revenue climbed by 16% YoY in 1Q19, maintaining a double-digit growth rate. (Source: ABECS – “Monitor Bandeiras”, as of 4Q18).

SME:The Bank launched the “MEI” account for individual microentrepreneurs, a value offer that includes opening a business current account, access to credit, including the possibility of obtaining microcredit through Prospera, and acquisition of SuperGet at competitive prices. This is an example of integration and cross-selling between businesses that, together with other offers, places us in a good spot to capture opportunities in this segment. The market share in the loan portfolio reached 8.1%¹ (+ 0.3 p.p.), driven by customer base growth and greater loyalty.

Strengthening leading businesses

Consumer Finance: the Bank is the leaders in the sector, with a market share of 23.5%, +0.1 p.p. in twelve months (Source: Brazilian Central Bank, as of February/19. Total market share in vehicles (considering individuals and companies). The Bank attributes this performance to the innovations, partnerships and commercial service. As of this quarter, the Bank is also analyzing the financing documentation on weekends, with the possibility of clearing the vehicle on the same day, providing agile payment to dealerships.

Webmotors: The first phase of the Cockpit tool, which took place primarily in 2018, achieved good results, with high adherence of our dealership base. Now, our actions are focused on fine-tuning the tool and its integration with the bank. With this in mind, the Bank held the first edition of the “Mega Sale” promoted by Webmotors, in partnership with Santander Financiamentos, which generated 40% more leads for participating dealerships. Moreover, the Bank started the “autoguru” pilot, which already includes pricing in inventory acquisition, as well as quality rating alongside suggested sales prices.

Santander Corporate & Investment Banking (SCIB) – The Bank is still recognized as leaders:

Financial advisory for financing and concession auctions and finance structuring, according to Anbima (Financial Advisory – leadership since 2008, ANBIMA 2017) advisor in Americas and Project Finance (MLA) in LATAM according to Dealogic (Dealogic as of 2018).

In the foreign exchange market according to the Brazilian Central Bank (Cumulative figures from January to March 2019).

Innovations

Natura partnership:The Bank partnered with the country's first direct sales company to offer fully digital banking services to its sales consultants. In addition to traditional services, such as current account, cash transfer and withdrawal, it includes SuperGet with special conditions and access to the Prospera microcredit program via the app itself. This initiative is in line with our commitment to financial education, stimulating social transformation in the areas where the Bank operates through innovative solutions (SuperGet, Superdigital and Prospera Microcredit).

Interim Condensed Consolidated Financial Statements - March 31, 2019          79

 

Santander Box: a new, more compact store model for high-flow locations, focusing primarily on potential customers in the Special segment. The objective is to offer fast financial solutions, such as account opening, card sales and SuperGet, among others. In this phase of the pilot program, the Bank inaugurated the first Santander Box in downtown Rio de Janeiro, with extended hours – and it is already showing significant results. This initiative contributes to increase our customer base in an innovative way.

New Ventures

Ben, which operates in the benefits industry, continued to make progress partnering with establishments. The proposal is to offer a better experience for end-customers, in addition to making partnerships with companies’ HR departments and commercial establishments. The Bank see potential synergies with the wholesale, SME and individuals segments, as well as with Getnet.

Pi, our digital investment platform, was made available to the general public this quarter, and the Bank expects to capture investors looking for more autonomy and practicality in the purchase of investment products.

Sustainability

The Bank continues to hold the leadership in microcredit through the the Prospera program, whose loan portfolio grew 63% YoY in March 2019 and reached R$ 730 million.

Volunteering financial guidance: on Saturdays, at our branches, the Bank will promote lectures and individual service for customers and non-customers, as the Bank believe that he can help people prosper. There will be no commercial activity in this action, and it will be executed through our network of volunteer employees.

In Higher Education, which is an important lever for our customer base, the Bank has, in addition to the financial offer, a non-financial offer based on training, employment and entrepreneurship. The Bank has already awarded over 14,200 scholarships in Brazil since 2015.

The Bank introduced the #Desplastify commitment to eliminate, still this year, tons of fast-use plastic across the Bank.

The Bank received AA rating in the MSCI ESG Ratings assessment.

We highlight the following accomplishments in the past quarter:

We reached our highest level of engagement, 92%, an increase of 4 p.p. compared to the previous year. In addition, 96% of employees feel proud to work at Santander.

Elected Company of the Year for Diversity by “Exame” magazine at the 2019 Diversity Forum, in partnership with the Ethos institute.

2nd place on LinkedIn’s Top Companies, rising 19 positions in twelve months, which shows the effectiveness of our talent attraction and retention strategies. 

Blood donation campaign: we hit 88% of the monthly donation volume of the country's main blood bank, with the potential to save more than 33,000 lives.

My Place: internal mobility program with the purpose of encouraging employees to take charge of their careers and stimulating meritocracy. In its first year, the portal had more than 500,000 views.

Customer loyalty:

Our customers have acknowledged the enhancements in service and experience, which has led our NPS (Net Promoter Score) to remain on an upward trend, reaching 59 points this quarter, up 10 points YoY.

For the first time, we were recognized by the EXAME/IBRC customer service ranking, reaching 1st place in customer service in the banking sector in 2018.

The customer base continues to enjoy solid expansion, highlighted by active account holders, who have been growing for the last 46 consecutive months.

Retail

Cards: our broad range of offerings enables us to keep gaining market share in the loan portfolio, which reached 13.3% in the quarter, +1.0 p.p. YoY (Source: Brazilian Central Bank, as of February/19). Total card turnover expanded by 20% YoY. We launched Santander's credit plan for card customers, who can choose to make installment payments at competitive interest rates at the time of purchase, directly in the POS, in as many as 36 installments. This innovation seeks to stimulate card turnover and customer loyalty. We unveiled Santander Pass Osklen, a wristband for contactless payments using NFC technology, in partnership with the fashion retailer. In addition to that, Santander Pass is now also available with the Visa brand. It is worth mentioning that we have strengthened the Way app with the account opening functionality for single-product retailers.

Payroll Loans: our market share in the loan portfolio climbed by 10.2%, +1.4 p.p. YoY (Source: Brazilian Central Bank, as of February/19). Digital channels are one of our main credit origination vehicles. This quarter, the number of contracts generated via these channels saw a 27% QoQ rise.

Real Estate: the real estate portal provides more efficiency and agility. An example of that is the reduction in the average lead time for contracts by 43% compared to the previous year. This product remains one of the highlights in Retail, contributing to expand our loan portfolio.

Agro: our service model, with specialized Agro stores and managers exclusively dedicated to rural producers, has proven to be an important strategic component to maximize our role in the sector. This countryside expansion process is in line with our goal of being the best agribusiness bank in the country. Thanks to the increased number of account openings and loan portfolio growth, we have experienced stronger results. In the issuance of agribusiness credit notes (“LCA”), our market share hit 8.5%, +2.8 p.p. YoY (Source: Brazilian Central Bank, as of February/19).

Getnet:we initiated an unprecedented offering for SuperGet, focused on individuals and individual microentrepreneurs, which includes payment of receivables in two business days and unification of debit and credit transaction fees. This innovative offering brings more transparency to our customer relationships and puts us in a competitive position to increase our presence in this market niche. It is worth noting that this product has the option of integrating with Superdigital, our digital account, to facilitate the payment of receivables. The digitization strategy, coupled with diverse services that set us apart, has contributed to expand our market share to 12.3%, +1.3 p.p. YoY (Source: ABECS – “Monitor Bandeiras”, as of 4Q18). Total revenue climbed by 16% YoY in 1Q19, maintaining a double-digit growth rate.

SME:we launched a financial solution for individual microentrepreneurs that includes opening a business current account, access to credit, including to the Prospera microcredit program, and acquisition of SuperGet at competitive prices. This is an example of integration and cross-selling between businesses that, together with other offers, places us in a good spot to capture opportunities in this segment. The market share in the loan portfolio reached 8.1%, +0.3 p.p. YoY (Source: Brazilian Central Bank, as of February/19) driven by customer base growth and greater loyalty.

Strengthening leading businesses

Consumer Finance: we are the leaders in the sector, with a market share of 23.5%, +0.1 p.p. in twelve months (Source: Brazilian Central Bank, as of November/18. Total market share in vehicles (considering individuals and companies). We attribute this performance to our innovations, partnerships and commercial service. As of this quarter, we are also analyzing the financing documentation on weekends, with the possibility of clearing the vehicle on the same day, providing agile payment to dealerships.

Webmotors: The first phase of the Cockpit tool, which took place primarily in 2018, achieved good results, with high adherence of our dealership base. Now, our actions are focused on fine-tuning the tool and its integration with the bank. With this in mind, we held the first edition of the “Mega Sale” promoted by Webmotors, in partnership with Santander Financiamentos, which generated 40% more leads for participating dealerships. Moreover, we started the “autoguru” pilot, which already includes pricing in inventory acquisition, as well as quality rating alongside suggested sales prices.

Santander Corporate & Investment Banking (SCIB) - We are still recognized as leaders:

Financial advisory for financing and concession auctions and finance structuring, according to Anbima (Financial Advisory – leadership since 2008, ANBIMA 2017) advisor in Americas and Project Finance (MLA) in LATAM according to Dealogic (Dealogic as of 2018).

In the foreign exchange market according to the Brazilian Central Bank (Cumulative figures from January to March 2019).

Interim Condensed Consolidated Financial Statements - March 31, 2019          80

 

Innovations

Natura partnership:we partnered with the country's first direct sales company to offer fully digital banking services to its sales consultants. In addition to traditional services, such as current account, cash transfer and withdrawal, it includes SuperGet with special conditions and access to the Prospera microcredit program via the app itself. This initiative is in line with our commitment to financial education, stimulating social transformation in the areas where we operate through innovative solutions (SuperGet, Superdigital and Prospera Microcredit).

Santander Box: a new store model for high-flow locations, focusing primarily on potential customers in the Special segment. The objective is to offer fast financial solutions, such as account opening, card sales and SuperGet, among others. In this phase of the pilot program, we inaugurated the first Santander Box in downtown Rio de Janeiro, with extended hours – and it is already showing significant results. This initiative contributes to increase our customer base in an innovative way.

New Ventures

Ben, which operates in the benefits industry, continued to make progress partnering with establishments. The proposal is to offer a better experience for end-customers, in addition to making partnerships with companies’ HR departments and commercial establishments. We also see potential synergies with the wholesale, SME and individuals segments, as well as with Getnet.

Pi, our digital investment platform, was made available to the general public this quarter, and we hope to impact account holders as well as non-account holders looking for more autonomy and practicality in the purchase of investment products.

Sustainability

We continue to hold the leadership in microcredit through the the Prospera program, whose loan portfolio grew 63% YoY in March 2019 and reached R$ 730 million.

In Higher Education, which is an important lever for our customer base, we have, in addition to the financial offer, a non-financial offer based on training, employment and entrepreneurship. We have already awarded over 14,200 scholarships in Brazil since 2015.

#Desplastify commitment to eliminate, still this year, tons of fast-use plastic across the Bank.

Volunteering financial guidance: on Saturdays, at certain branches, we will promote lectures and individual service for customers and non-customers, as we believe we can help people prosper. There will be no commercial activity in this action, and it will be executed through our network of volunteer employees.

We received AA rating in the MSCI ESG Ratings assessment.

 5) Rating Agencies

Banco Santander is rated by international ratings agencies and the ratings assigned reflect many factors including management quality, operating performance and financial strength, as well as other factors related to the financial sector and economic environment in which the Bank is inserted, having the long-term foreign currency rating limited to the sovereign rating. The table below presents the ratings assigned by the rating agencies Standard & Poor's and Moody's:

1)      Last updated November 29, 2018.

2)      Last updated February 18, 2019.

 6) Corporate Governance

The Board of Directors of Banco Santander has met and resolved:

On April 29, 2019, to approve the Individual and Consolidated Financial Statements of Banco Santander, prepared in accordance with accounting practices adopted in Brazil, applicable to institutions authorized to operate by Bacen and the Consolidated Financial Statements of Banco Santander, prepared in accordance with the International Financial Reporting Standards (IFRS), respect to the period ended March 31, 2019.

On March 27, 2019, to approve the proposal for declaration and payment of interest on equity, in the gross amount of R$1 billion, for payment as of April 29, 2019, without any indexation.

On March 27, 2019, to acknowledge the resignation of Mr. Fernando Carvalho Botelho de Miranda to the position of Officer without specific designation, as well as to approve the appointment of the following member to be part of the Board of Officers, as Officers without specific designation: Mr. Daniel Fantoni Assa; Mrs. Elita Vechin Pastorelo Ariaz; Mr. Franco Luigi Fasoli; Mr. Jran Paulo Kambourakis and Mr. Roberto Alexandre Borges Fischetti.

On March 20, 2019, to approve the 20-F Form of Banco Santander referred to the fiscal year ended December 31, 2018.

On February 25, 2019, to approve the Consolidated Financial Statements of Banco Santander referred to the fiscal year ended December 31, 2018, prepared in accordance with the International Financial Reporting Standards (IFRS).

On January 29, 2019, to approve the Individual and Consolidated Financial Statements of Banco Santander, prepared in accordance with accounting practices adopted in Brazil, applicable to institutions authorized to operate by Bacen, respect to the fiscal year ended December 31, 2018.

7) Risk Management

On February 23, 2017, Bacen published CMN Resolution 4,557, which provides for the risk and capital management structure (GIRC) and entered into force 180 days from the date of its publication. The resolution highlights the need to implement an integrated risk and capital management framework, definition of integrated stress testing program and Risk Appetite Statement (RAS), constitution of Risk Committee and appointment of director for management and director of capital. Banco Santander is continuously and progressively developing necessary actions aiming at adherence to the resolution. We haven´t identified relevant impacts resulting from this standard up to the date of publication of this note.

For further information, see explanatory note nº 35 of the Financial Statements for the first quarter of 2019, prepared in accordance with the accounting practices adopted in Brazil applicable to entities authorized to operate by the Bacen.

Interim Condensed Consolidated Financial Statements - March 31, 2019          81

 

Structure of Capital Management

Banco Santander’s structure of capital management has a robust governance framework that supports the process related to this theme and establishes the attributions of each teams involved. Furthermore, there is a clear definition that should be adopted to effective capital management. More details can be consult in “Structure Capital and Risk Management”, available on Investor Relations website.        

Internal Audit

Internal Audit reports directly to the Board of Directors, whose activities are supervised by the Audit Committee.

Internal Audit is a permanent function, independent of any other functions or units, whose objective is to provide the Management Body and the senior management with independent assurance on the quality and effectiveness of internal control, risk management (current or emerging) and governance processes and systems, thereby helping to protect the company’s value, solvency and reputation. The Internal Audit has quality certificate issued by the Institute of Internal Auditors (IIA).

In order to perform its duties and reduce coverage risks inherent to Banco Santander's activities, the Internal Audit area has internally developed tools that are updated when necessary. These include the risk matrix, used as a planning tool, prioritizing each unit’s risk level, considering, among others, its inherent risks, the last audit rating, level of compliance with recommendations and their size.  The work programs, which describe the audit tests to be performed, are reviewed periodically.

The Audit Committee and the Board of Directors favorably reviewed and approved the work plan of the Internal Audit for the year 2019

In the first quarter of 2019, internal control procedures and controls on the information systems of the selected units were evaluated according to the work plan for the year, considering the effectiveness of the design and its operation. The Internal Audit informed the Audit Committee and the Board of Directors about the conclusions of the works done during that period, according to its annual plan.

 8) People

When the discussion is about the growth and development of Banco Santander, a force stands out: the People. Having a motivated and dedicated employees is a decisive factor in making the Bank in the best bank for clients and the best company for employees. 

Employees are the strongest link between the Bank and clients and so, day after day, Banco Santander enhances their management practices because it knows that only with dedicated employees, well trained and with full professional development, the Bank will manage to get more and better clients, satisfied, proud to do business with Banco Santander and the Santander brand.

The daily performance of Banco Santander with clients, employees, stockholders and society is guided by the purpose of the Bank to contribute to people and businesses to prosper and their way of act.

The Bank has a talented team of 48,232 employees only in Brazil. The Bank seeks professionals who identified with the Corporate Culture, to be a Simple Bank (with uncomplicated and easy services to operate), Personal (with solutions and channels that meet client’s needs and preferences) and Fair (promoting business and relationships that are good for clients, stockholders, employees and society). In addition to identifying with the culture, the Banco Santander's employees act in their day to day aligned to it.

9) Sustainable Development

Santander’s Sustainability Strategy is based on three pillars: (i) Efficient and strategic use of Natural Capital, (ii) Potential Development and (iii) Resilient and Inclusive Economy. The Bank's vision of the future, through these pillars, is to support Brazilian society in its transformation to Brazil of the 21st Century, maintaining excellence and responsibility in internal management, with ethical values as the basis and technology at the service of people and business.

We remained for the ninth consecutive year in the portfolio of the Corporate Sustainability Index (ISE) of B³ and in 2019; the Guia EXAME of Diversity as the company of the year and the financial institution with the best practices of inclusion and diversity of the national market recognized us. Also in 2019, we received a rating of AA (on a scale of AAA-CCC) in the MSCI ESG Ratings assessment.

In Social and Environmental Business, we disbursed R$340,5 million in the first quarter of 2019. With Prospera Santander Microcredit we generated approximately R$396 million of production (69% more than the same period of 2018).

Through Santander Universities, we have awarded more than 440 study grants in the first quarter, from the Santander University-Business Program, where Banco Santander contributes a scholarship of R$700 to help the student in the payment of monthly fees and/or related costs, and of own programs, carried out directly with the University.

The Amigo de Valor Program allows Banco Santander, as well as our employees and clients, to direct part of the income tax due directly to the Funds for the Rights of Children and Adolescents. In 2018, this program raised funds totaling more than R$13 million, which were directed to 67 projects in Brazil.

Interim Condensed Consolidated Financial Statements - March 31, 2019          82

 

We also launched the Plastic Free project whose initial goal is to reduce the consumption of single use plastic (cups and bottles) in our administrative buildings and until 2020 to impact all bank agencies.

We publish the Bank's Non-Financial Indicators Section that follows local and international guidelines, such as the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC) and the Brazilian Association of Public Held Companies (ABRASCA). The main purpose of the Section is to highlight our responsible internal management and the way in which we promote the transformation of society by the business.

10) Independent Audit

Banco Santander's policy of including its subsidiaries in contracting services not related to the external audit of its independent auditors is based on Brazilian and international auditing standards that preserve the auditor's independence. This reasoning provides as follows: (i) the auditor should not audit his own work, (ii) the auditor should not perform managerial duties on his client, (iii) the auditor should not promote the interests of his client, and (iv) need for approval of any services by the Bank's Audit Committee.

In compliance with the Instruction of the Securities Commission 381/2003, Banco Santander informs that in the period ended March 31, 2019, PricewaterhouseCoopers did not provide services not related to the independent audit of the Financial Statements of Banco Santander and subsidiaries above 5% of total fees related to independent auditing services.

In addition, the Bank confirms that PricewaterhouseCoopers has procedures, policies and controls to ensure its independence, which include an evaluation of the work performed, covering any service that is not independent of the Financial Statements of Banco Santander and its subsidiaries. This evaluation is based on the applicable regulations and accepted principles that preserve the independence of the auditor. The acceptance and provision of professional services not related to the external audit in the period ended March 31, 2019 did not affect the independence and objectivity in conducting the external audits carried out in Banco Santander and other entities of the Group, since the above principles were observed.

The Board of Directors

The Executive

(Authorized at the Meeting of the Board of April 29, 2019).

Interim Condensed Consolidated Financial Statements - March 31, 2019          83

 

7.1)Corporate Governance of the Risk Function   

Banco Santander in Brazil follows the model based on a prudent risk management. It has specialized management structure for each risks listed below, as well as an area that carries out the Integrated Risk Management of the Group, disseminates Risk Pro Culture, manages risk self-assessment and controls Risk Appetite (RAS) - which is approved by the Board of Directors -, atending the requirements of the local regulator and the international good practices, aiming to protect capital and ensure business profitability.

The fundamental principles that rule the risk governance model are:

·All employees are responsible for the management of risk;

·Senior Management Engagement;

·Independence of risk control and management functions;

·Comprehensive approach to management and control of risks;

·Risk management and control must be based on timely, accurate and sufficiently granular management information.

7.2)Credit Risk Management       

The credit risk management is based on accompaniments of credit portfolio and new credit operation indicators. Considering the economic scenario, profitability and defaults projections are estimated under control of appetite for risk. These projections are the basis for a redefinition of credit policies, which affect both the credit evaluation for a specific customer as  customers with similar profile.

Another relevant aspect is the preventive management of credit, which is fundamental in maintaining the quality of Banco Santander's portfolio. The monitoring of the customer portfolio is a daily routine of the entire commercial area, with the support of the central areas.

To measure the quality of a client’s or facility’s credit, the Bank uses its own models score/rating, made by Metodology and independent Validation areas.

On credit restructuring and recovery the Bank uses specific collection teams, which may be:

• Internal teams specializing in with direct action against defaulting clients with delays exceeding 60 days and more significant amounts; and

• External partners specializing in collecting, notifying and filing high-risk clients.

Sale of non-performing loans portfolio is a recurrent part of the recovery strategy (only credit rights), but the Santander may maintain relationships and transactional means with assigned clients.                                                                                                                                                   

Besides, the bank constitutes provision in accordance with the current legislation of Bacen and National Monetary System.

7.3)Market Risk Management

The management of the market risk consists on developing, measuring and monitoring the use of limits previously approved in internal committees, relevant to the value at risk of the portfolios, the sensitivities arising from variation in market data (interest rates, indices, prices, exchange rates, etc.), liquidity gaps, among others, which might affect the positions of Banco Santander's portfolios in the various markets where it operates.

7.4)Operational Risk and Internal Controls Management

Santander's operational risk management model is based on the market best practices and its premise is to evaluate, monitor, control and implement improvements to reduce exposure to risks and losses, in line with the risk appetite approved by the Board of Directors and we adopted the definition of the Basel Committee and Brazilian Central Bank for operational risk. Our governance model is based on the three lines of defense and has people, structures, policies, methodologies and tools to assure support the proper operational risk management.

The Internal Controls Model is based on the methodology developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), covering the strategic, operational, financial disclosure and compliance components and allows compliance with the requirements of regulators BACEN, CVM, B3, SUSEP and SarbanesOxley - SOX (Security Exchange Commission).

7.5)Compliance and Reputacional Risk Management

Compliance risk management has a proactive focus on this risk, policies, implementation of process, including monitoring, training, Consulting, risk assessment and corporate communication of rules and laws to be applied to each businesses area of the Banco Santander.           

Unit for the Prevention of Money Laundering and Financing of Terrorism

Area responsible for promoting the development of the prevention of money laundering and combating the financing of terrorism in the different business units, as well as responsible for the guidelines of the Bank's customer acceptance policy, establishes regulations, procedures and acculturation related to the subject monitors the risks inherent in the products and transactions carried out.

7.6)Social and Environmental Risk Management  

Banco Santander’s Social and Environmental Responsibility Policy (PRSA), which complies with National Monetary Council Resolution 4,327/2014 and the SARB 14 self-regulation issued by Febraban, establishes guidelines and consolidates specific policies for social-environmental practices used in business and stakeholder relations. These practices including social and environmental risk management, impacts and opportunities related themes, such as, adequacy in the concession or use of credit, supplier management and analysis of the social and environmental risk which is carried out through the analysis of the socio-environmental practices ofwholesale and segment Empresas 3 retail clients, that have limits or credit risk greater than BRL5 million and are included in one of the 14 sectors of social and environmental attention. In other to mitigate operational, capital, credit and reputational risk. Since 2009 Santander is Equator Principles signatory, which standards are applied in order to mitigate social and environmental risks when financing big projects.

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The commitments assumed in the PRSA are detailed in others Bank policies, such as, the Anti-Corruption Policy, Supplier Relationships and Homologation Policies and Social-Environmental Risk Policies, besides that the Private Social Investment Policy, which aims to guide the strategy of this topic and present guidelines for social programs that strengthen this strategy.

7.7)Structure of Capital Management

Banco Santander’s structure of capital management has a robust governance framework that supports the process related to this theme and establishes the attributions of each teams involved. Furthermore, there is a clear definition that should be adopted to effective capital management. More details can be consult in “Structure Capital and Risk Management”, available on Investor Relations website.         

7.8)Internal Audit

Internal Audit reports directly to the Board of Directors, whose activities are supervised by the Audit Committee.       

Internal Audit is a permanent function, independent of any other functions or units, whose objective is to provide the Management Body and the senior management with independent assurance on the quality and effectiveness of internal control, risk management (current or emerging) and governance processes and systems, thereby helping to protect the company’s value, solvency and reputation. The Internal Audit has quality certificate issued by the Institute of Internal Auditors (IIA).          

In order to perform its duties and reduce coverage risks inherent to Banco Santander's activities, the Internal Audit area has internally developed tools that are updated when necessary. These include the risk matrix, used as a planning tool, prioritizing each unit’s risk level, considering, among others, its inherent risks, the last audit rating, level of compliance with recommendations and their size.  The work programs, which describe the audit tests to be performed, are reviewed periodically.

The Audit Committee and the Board of Directors favorably reviewed and approved the work plan of the Internal Audit for the year 2019

In the first quarter of 2019, internal control procedures and controls on the information systems of the selected units were evaluated according to the work plan for the year, considering the effectiveness of the design and its operation. The Internal Audit informed the Audit Committee and the Board of Directors about the conclusions of the works done during that period, according to its annual plan.

For further information, see the "Risk and Capital Management Structure - Resolution nº. 4,557 / BACEN" in "Corporate Governance" and "Risk Management" at https://www.ri.santander.com.br/

8) People                                                                                                                                                                                             

When the discussion is about the growth and development of Banco Santander, a force stands out: the People. Having a motivated and dedicated employees is a decisive factor in making the Bank in the best bank for clients and the best company for employees.    ��      

Employees are the strongest link between the Bank and clients and so, day after day, Banco Santander enhances their management practices because it knows that only with dedicated employees, well trained and with full professional development, the Bank will manage to get more and better clients, satisfied, proud to do business with Banco Santander and the Santander brand.

The daily performance of Banco Santander with clients, employees, stockholders and society is guided by the purpose of the Bank to contribute to people and businesses to prosper and their way of act.

The Bank has a talented team of 47,836 employees only in Brazil. The Bank seeks professionals who identified with the Corporate Culture, to be a Simple Bank (with uncomplicated and easy services to operate), Personal (with solutions and channels that meet clients needs and preferences) and Fair (promoting business and relationships that are good for clients, stockholders and employees). In addition to identifying with the culture, the Banco Santander's employees act in their day to day aligned to it.                                             

9) Sustainable Development                                                                                                                                                          

Santander’s Sustainability Strategy is based on three pillars: (i) Efficient and strategic use of Natural Capital, (ii) Potential Development and (iii) Resilient and Inclusive Economy. The Bank's vision of the future, through these pillars, is to support Brazilian society in its transformation to Brazil of the 21st Century, maintaining excellence and responsibility in internal management, with ethical values as the basis and technology at the service of people and business.

Some of the Sustainability awards and recognitions received in 2018 which demonstrate the consistency of environmental, social and governance practices are: inclusion of Santander Brazil as a constituent of the FTSE4Good Index Series; with the case of Prospera Santander Microcredit, Santander was recognized by the United Nations during the event Sustainable Development Goals in Brazil - The Role of the Private Sector; the Santander Group was recognized as one of the three best banks in the world and the first in Europe by the DJSI (Dow Jones Sustainability Index).

Among the third quarter highlights is the launch of CDC Solar, which aims to finance systems for the generation of photovoltaic solar energy with attractive interest rates, long-term, among other special conditions, enabling financing of up to 100% of the value. Through Responsible Agribusiness until September 30, 2018, 129 clients were trained during events related to Sustainability. In Project Financefinancial advisory, the Bank carried out in 2018 R$127 million in investments related to renewable energy. Regarding the major operations, in 2018 Santander participated in Green Bonds issues in the amount of R$621 million for infrastructure projects for power transmission systems.

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Prospera Santander Microcredit resulted in more than R$ 818 million of microcredit operations (70% above 2017), with more than 228 thousand active clients and with 96% of compliance rate, also training more than 1,700 micro entrepreneurs.

Through Santander Universities were been granted 1,846 scholarships and signed agreements with 297 Higher Education Institutions until 09/30/2018. Santander is considered the most investing company in education in the world . Amigo de Valor Program, which directs resources from employees, clients and the Bank itself to Funds for Child and Adolescent Rights Councils, has issued a public notice for selection of initiatives that will receive program support in the 2019-2020 cycle. In total, more than 190 council proposals were distributed throughout Brazil.

10) Independent Audit                                                                                                                                                                      

Banco Santander's policy of including its subsidiaries in contracting services not related to the external audit of its independent auditors is based on Brazilian and international auditing standards that preserve the auditor's independence. This reasoning provides as follows: (i) the auditor should not audit his own work, (ii) the auditor should not perform managerial duties on his client, (iii) the auditor should not promote the interests of his client, and (iv) need for approval of any services by the Bank's Audit Committee.                                                                                                                                            

In compliance with the Instruction of the Securities Commission 381/2003, Banco Santander informs that in nine-month period ended September 30, 2018, PricewaterhouseCoopers did not provide services not related to the independent audit of the Financial Statements of Banco Santander and subsidiaries above 5% of total fees related to independent auditing services.

In addition, the Bank confirms that PricewaterhouseCoopers has procedures, policies and controls to ensure its independence, which include an evaluation of the work performed, covering any service that is not independent of the Financial Statements of Banco Santander and its subsidiaries. This evaluation is based on the applicable regulations and accepted principles that preserve the independence of the auditor. The acceptance and provision of professional services not related to the external audit nine-month period ended September 30, 2018 did not affect the independence and objectivity in conducting the external audits carried out in Banco Santander and other entities of the Group, since the above principles were observed.  

The Board of Directors

The Executive

(Authorized at the Meeting of the Board of October 30, 2018).

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(Free Translation into English from the Original Previously Issued in Portuguese)

BANCO SANTANDER (BRASIL) S.A.

Executive’s  Report of  Independent Auditors' Report

For purposes of compliance with Article 25, § 1, VI, CVM Instruction 480, of December 7, 2009, the Executives' of Banco Santander (Brasil) S.A. (Banco Santander) (Company) state that they have discussed, reviewed and agreed with the Banco Santander's Financial Statements for the period ended March 31, 2019, prepared in accordance with International Financial Reporting Standards (IFRS) and the documents that comprise it, being: Management Reports, consolidated balance sheets, consolidated income statements, consolidated statements of comprehensive income, consolidated cash flow statements, consolidated statements of changes in equity and notes to the consolidated financial statements, prepared according IFRS issued by the International Accounting Standards Board (IASB). These financial statements and the documents that comprise it, have been the object of an unqualified review report of the Independent Auditors and the recommendation for approval issued by the Audit Committee of the Company.

Banco Santander Executives on March 31, 2019:

Chief Executive Officer                   

Sérgio Agapito Lires Rial

Senior Vice-President Executive Officers                 

José de Paiva Ferreira

Vice-President Executive Officer and Investor Relations Officer                       

Angel Santodomingo Martell           

Vice-President Executive Officers                               

Alberto Monteiro de Queiroz Netto

Alessandro Tomao            
Antonio Pardo de Santayana Montes            
Carlos Rey de Vicente       
Jean Pierre Dupui              
Juan Sebastian Moreno Blanco      
Manoel Marcos Madureira                               
Mário Roberto Opice Leão

Patrícia Souto Audi            
Vanessa de Souza Lobato Barbosa

Executive Officers                                            

José Roberto Machado Filho           

Officers without specific designation                                          

Alexandre Grossmann Zancani        

Amancio Acúrcio Gouveia

André de Carvalho Novaes

Carlos Aguiar Neto              

Cassio Schmitt      

Claudenice Lopes Duarte

Daniel Fantoni Assa (*)

Ede Ilson Viani

Elita Vechin Pastorelo Ariaz (*)         

Franco Luigi Fasoli (*)

Germanuela de Almeida de Abreu

Gilberto Duarte de Abreu Filho

Gustavo Alejo Viviani          

Igor Mario Puga

Jean Paulo Kambourakis (*)

José Teixeira de Vasconcelos Neto

Leopoldo Martinez Cruz     

Luis Guilherme Mattos de Oliem Bittencourt

Luiz Masagão Ribeiro Filho

Marcelo Malanga                 

Marino Alexandre Calheiros Aguiar

Nilton Sergio Silveira Carvalho

Rafael Bello Noya                

Ramón Sanchez Díez

Ramon Sanchez Santiago                 

Reginaldo Antonio Ribeiro

Roberto Alexandre Borges Fischetti(*)

Robson de Souza Rezende

Rodrigo Cury         

Sérgio Gonçalves                 

Thomas Gregor Ilg               

Ulisses Gomes Guimarães

(*) Members of the Company’s Board of Officers appointed in the Board of Directors’ meeting held on March 27, 2019. The appointed officers shall take office upon authorization granted by the Central Bank of Brazil, pursuant to the applicable regulations.

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(Free Translation into English from the Original Previously Issued in Portuguese)

BANCO SANTANDER (BRASIL) S.A.

Executive’s  Report of  Independent Auditors' Report

For purposes of compliance with Article 25,§ 1, V,CVM Instruction 480, of December 7, 2009, the Executives of Banco Santander (Brasil) S.A. (Banco Santander) (Company) state that they have discussed, reviewed and agreed with Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS) of Banco Santander which includes the Independent Auditors' Report for the period ended March 31, 2019, prepared in accordance with International Financial Reporting Standards (IFRS) and the documents that comprise it, being: Management Reports, consolidated balance sheets, consolidated income statements, consolidated statements of comprehensive income, consolidated cash flow statements, consolidated statements of changes in equity and notes to the consolidated financial statements, prepared according IFRS issued by the International Accounting Standards Board (IASB). These financial statements and the documents that comprise it, have been the object of an unqualified review report of the Independent Auditors and the recommendation for approval issued by Audit Committee of the Company.

Banco Santander Executives on March 31, 2019:

Chief Executive Officer                   

Sérgio Agapito Lires Rial

Senior Vice-President Executive Officers                 

José de Paiva Ferreira

Vice-President Executive Officer and Investor Relations Officer                       

Angel Santodomingo Martell           

Vice-President Executive Officers                               

Alberto Monteiro de Queiroz Netto

Alessandro Tomao            
Antonio Pardo de Santayana Montes            
Carlos Rey de Vicente       
Jean Pierre Dupui              
Juan Sebastian Moreno Blanco      
Manoel Marcos Madureira                               
Mário Roberto Opice Leão

Patrícia Souto Audi            
Vanessa de Souza Lobato Barbosa

Executive Officers                                            

José Roberto Machado Filho           

Officers without specific designation                                          

Alexandre Grossmann Zancani        

Amancio Acúrcio Gouveia

André de Carvalho Novaes

Carlos Aguiar Neto              

Cassio Schmitt      

Claudenice Lopes Duarte

Daniel Fantoni Assa(*)

Ede Ilson Viani

Elita Vechin Pastorelo Ariaz (*)         

Franco Luigi Fasoli (*)

Germanuela de Almeida de Abreu

Gilberto Duarte de Abreu Filho

Gustavo Alejo Viviani          

Igor Mario Puga

Jean Paulo Kambourakis (*)

José Teixeira de Vasconcelos Neto

Leopoldo Martinez Cruz     

Luis Guilherme Mattos de Oliem Bittencourt

Luiz Masagão Ribeiro Filho

Marcelo Malanga                 

Marino Alexandre Calheiros Aguiar

Nilton Sergio Silveira Carvalho

Rafael Bello Noya                

Ramón Sanchez Díez

Ramon Sanchez Santiago                 

Reginaldo Antonio Ribeiro

Roberto Alexandre Borges Fischetti (*)

Robson de Souza Rezende

Rodrigo Cury         

Sérgio Gonçalves                 

Thomas Gregor Ilg               

Ulisses Gomes Guimarães

(*) Members of the Company’s Board of Officers appointed in the Board of Directors’ meeting held on March 27, 2019. The appointed officers shall take office upon authorization granted by the Central Bank of Brazil, pursuant to the applicable regulations.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

Date: April 29, 2019

Banco Santander (Brasil) S.A.
By:	/S/ Amancio Acurcio Gouveia
	Amancio Acurcio Gouveia Officer Without Specific Designation

By:	/S/ Carlos Rey de Vicente
	Carlos Rey de Vicente Vice - President Executive Officer

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