3 rd quarter 2018 EARNINGS RELEASE. COVE R

Transcription

1 3 rd quarter 2018 EARNINGS RELEASE 1 COVE R

2 CONTENTS Executive Summary Key Information Corporate strategy Analysis of Managerial Result Net interest income Cost of credit Income from services and insurance Administrative and personnel expenses Other operating income and expenses Balance sheet analysis Balance sheet Loan portfolio Auto finance Loan portfolio quality Funding and Liquidity Capital Ratings Corporate Governance Accounting x Managerial Reconciliation Appendices 2

3 EXECUTIVE SUMMARY Net income for the 9M18 totaled R$ 779 million equivalent to annualized return on equity (ROE) of 11.5% p.y., comparable to R$ 426 million for the 9M17, representing growth of 83.0% over the period. In the 3Q18, net income totaled R$ 268 million, with ROE of 11.9% p.y. Total income (net interest income + income from services and insurance brokerage) grew 6.3% in 9M18/9M17 and 3.8% in relation to 2Q18. Net interest income grew 4.9% in the first nine months of 2018, reflecting the higher businesses return. Net Interest Margin (NIM) increased to 6.2% in the 9M18, as compared to 5.5% in the 9M17. Result of loan losses and impairments decreased 34.3% in the 9M18/9M17 comparison due to the lower credit cost of businesses. Coverage Ratio reached 174% in the end of Sept.18, as compared to 165% in Sept.17. In the 3Q18, the result of loan losses and impairments decreased 22.9%, reflecting lower provisions and higher revenues from credit recovery. The 90-day NPL ratio of the loan portfolio ended Sept.18 at 4.2%, 0.2 p.p. higher in the quarter, due to a specific Wholesale s case properly provisioned. The effective management of the cost base and the consistent and diversified revenues generation in 2018 contributed to the improvement in the Efficiency Ratio for the last 12 months to 33.2%. Funding: funding sources totaled R$ 61.6 billion in Sept.18. Stable funding instruments accounted for more than half of total funding. Liquidity: cash at a conservative level, more than sufficient to fully cover funding with daily liquidity. Capital: Basel Ratio reached 16.4% in Sept.18, of which 13.1% of Tier I Capital, which consists of the sum of Equity Tier (11.1%) and Additional Capital (2.1%). The Bank keeps focused on its strategy to leverage businesses returns, increase operational efficiency, and diversify income sources, continuously investing in digital transformation aimed at improving client experience. In this sense, the Bank advanced on new partnerships in this quarter, as the exclusive agreement for BV to offer credit solutions to Yalo s clients, the first benefit platform of healthcare procedures and wellness services in the Brazilian market. As a result of the continuous investment in customer relationship in its digital transformation process, the Bank was recognized with the PrêmioABT 2018 (2018 ABT Award), in the Innovation in Processes category, for the Artificial intelligence in Customer Service case created by the Data Science area, responsible for collecting and analyzing information on client interaction, producing solutions that gain their satisfaction. Besides, in Sep.18 the Bank launched its new institutional website with an updated interface, providing a user friendlier and more intuitive browsing experience, combining in one site information and access to several areas of the institution. 3 Executive Summary 2Q18 Earnings Release EXECUTIVE SUMMARY

4 Key Information We show below Banco Votorantim s select managerial information and indicators aimed at enabling analyses on same comparison bases. RESULTS (R$ Million) 3Q17 2Q18 3Q18 9M17 9M18 Variation 3Q18/2Q18 9M18/9M17 Net Interest Income 1,323 1,259 1,326 3,749 3, % 4.9% Result of loan losses and impairments (567) (379) (292) (1,517) (997) -22.9% -34.3% Income from services and banking fees , % 7.2% Personnel and admin. expenses (w/ profit sharing) (594) (541) (674) (1,746) (1,868) 24.7% 7.0% Operating Income , % 107.9% Net Income % 83.0% MANAGERIAL INDICATORS (%) Return on Average Equity¹ (ROAE) p.p. 4.8 p.p. Return on Average Assets² (ROAA) p.p. 0.5 p.p. Net Interest Margin³ (NIM) p.p. 0.7 p.p. Efficiency Ratio (ER) - accumulated of 12 months p.p p.p. Basel ratio p.p. 1.8 p.p. Tier I Capital Ratio p.p. 2.2 p.p. MACROECONOMIC INDICATORS 5 CDI - in the period (%) p.p p.p. Selic rate- end of the period (p.y.%) p.p p.p. IPCA - in the period (%) p.p. 1.5 p.p. Dolar exchange rate - end of the period (R$) % 26.4% BALANCE SHEET (R$ Million) Variation Sept18/Jun18Sept18/Sept17 Total assets 99,420 98,154 97, % -2.2% Expanded loan portfolio 59,651 59,197 59, % -0.4% Wholesale segment 24,707 22,353 22, % -10.8% Consumer Finance segment 34,944 36,844 37, % 7.0% Funding sources 64,777 63,820 61, % -4.9% Shareholders' equity 8,777 9,349 9, % 8.2% LOAN PORTFOLIO QUALITY INDICATORS (%) 90-day NPL p.p. 0.1 p.p. Coverage Ratio (90-day NPL) p.p. 8.8 p.p. OTHER INFORMATION Sept17 Jun18 Sept18 Employees 6 (quantity) 3,889 3,831 3, % 0.1% AuM 7 (R$ Million) 55,277 50,122 50, % -9.3% 1. Ratio between net income and average equity of the period. This ratio is annualized; 2. Ratio between net income and average assets of the period. This ratio is annualized; 3. Ratio between net interest income and average interestearning assets of the period. This ratio is annualized; 4. ER = administrative and personnel expenses / (net interest income+ fee income/ banking fees income + equity in income from subsidiares + other operational income and expenses); 5. Source: Cetip; Bacen; IBGE; IBGE; 6. Does not consider trainees and statutory; 7. Includes onshore funds (ANBIMA criteria) and private clients' resources. 4 Executive Summary 3Q18 Earnings Release Key Information

5 CORPORATE STRATEGY Banco Votorantim aims to consolidate its position among the main national privately-held banks, leveraging synergies with shareholders and bringing the client to the center of the business. For this purpose, the Bank has focused on the generation of income from the businesses, increase of operating efficiency and diversification of sources of revenues, continuously investing in the digital transformation aimed at improving the client s experience. The portfolio of the Bank is divided in three business units: Consumer Finance business Wholesale Bank (Corporate Bank) Wealth Management Consumer Finance Business The core business of Consumer Finance is Auto finance, in which the Bank operates through the subsidiary BV mainly in the used and light auto finance market (multi-brand dealers), in which it has history of leadership and recognized expertise. Its competitive differentials include: (i) expertise in pricing, credit concession and collection; (ii) high capillarity through extensive outsourced distribution chain; (iii) agility in decision-making; and (iv) relationship with dealers. Using the client base of Vehicles, the Bank seeks to diversify its sources of revenues through credit cards and insurance brokerage, both products with well-defined strategies: Credit cards Seeks to increase the volume of active cards issued with the brands MasterCard and Visa, through the offer to the current client base of auto finance, as well as for the offer to clients of commercial partners. Insurance Brokerage Through Votorantim Corretora de Seguros, the aim is to increase revenues from insurance brokerage. Besides continuing to grow in products such as Auto and Credit Insurance, the Bank has also been diversifying its portfolio, which currently includes capitalization and life, residential, and personal accident insurance. In addition, the Bank has specific strategies for other loans and financing products. Payroll loan Aims to maintain an important position in the market of payroll loans, focusing on Private categories (organic portfolio growth) and INSS National Institute of Social Security (refinancing of portfolio). Individual loans and other business Individual Loan: partnership with fintechs (ex.: Pocket Guide and Neon Pagamentos) and leveraging BV s clients; Student loan: partnership with Ideal Invest and Kroton; Real Estate Credit; Financing for acquisition of residential solar power panel - partnership with Portal Solar. In addition, the Bank has been seeking to increase income from commissions of Promotiva S.A., joint-venture with BB which is mainly engaged in the origination of payroll loan (Public and INSS) directly to the shareholder. 5 Corporate Strategy 3Q18 Earnings Release CORPORATE STRATEGY

6 Wholesale Bank (Corporate Bank) With a diversified portfolio of products and banking services, sectorial expertise and an agile and customized service, the Wholesale Bank serves clients with minimum annual billing of R$ 300 million, which are internally grouped in two sectors. Large Corporate Clients¹ (including financial institutions) with annual revenues above R$ 1.5 billion, whose main focus is to operate in the capital market, financial structuring, guarantees and treasury. Corporate Clients¹ with annual revenues of up to R$ 1.5 billion, whose focus is to operate selectively in cash management, financial structuring, guarantees, floating capital, hedge, foreign exchange, capital markets and mergers and acquisitions. Wide range of products Local Currency & Cash Management Foreign Currency & FX Corporate Finance Project Finance Derivatives Capital Markets & M&A Funding 1. Economic groups Wealth Management The Wealth Management business develops and provides sustainable wealth management solutions, with clearly set strategic goals for the two distinct markets in which operates: Asset Management It is recognized for its consistent performance and for developing solutions appropriate to the clients needs by means of its capacity for innovation and differentiated capacity for restructuring and managing products that have a high added value. Votorantim Asset Management (VAM) holds an important position within its peer group (assets managements without branch network structure) and has its partnership with BB to structuring, management, administration and distribution of investment funds. Private Bank It is among the best private banks in the market, expanding its performance in integrated patrimonial management through differentiated solutions. Private Bank adopts a macro approach, evaluating different scenarios to identify the best investment options, always supported by modern management tools, statistical models, and systems specially developed to interpret stress scenarios and monitor risks to prioritize the hedging of invested capital. 6 Corporate Strategy 3Q18 Earnings Release

7 ANALYSIS OF MANAGERIAL RESULT In this chapter the main components of Banco Votorantim s financial and operational result will be discussed. Net income totaled R$ 779 million in the 9M18, a growth of 83.0% in relation to the same period of the previous year, basically explained (i) by the growth in Net Interest Income, (ii) by lower expenses with loan losses, (iii) by higher result from insurance brokerage, and (iv) by lower expenses with contingent liabilities. The ROE reached 11.5% p.y. in the 9M18, against 6.7% p.y. in the 9M17. In the 3Q18, profit amounted to R$ 268 million, with growth of 4.7% in relation to the 2Q18. The main positive effects during the last quarter were (i) the growth in NII with clients, and (ii) the reduction in the result with loan losses and impairments, reflecting a higher credit recovery volume and lower credit cost. Meanwhile, in the 3Q18 personnel and administrative expenses increased, mainly due to the collective bargaining agreement of financing/bank employees, and the growth in profit sharing distribution, following the business performance improvement. INCOME STATEMENT (R$ Million) 3Q17 2Q18 3Q18 Variation (%) Variation (%) 9M17 9M18 3Q18/2Q18 9M18/9M17 Net Interest Income - NII 1,323 1,259 1, ,749 3, Results of Loan Losses and impairments (567) (379) (292) (22.9) (1,517) (997) (34.3) Net financial margin , ,232 2, Other operating income/expenses (491) (412) (491) 19.1 (1,504) (1,420) (5.6) Fee income (1.1) 943 1, Personnel and administrative expenses (594) (541) (674) 24.7 (1,746) (1,868) 7.0 Tax expenses (106) (109) (99) (9.1) (286) (300) 4.8 Equity in income of subsidiaries Other operating income/(expenses) (197) (190) (145) (23.4) (618) (511) (17.3) Operating income , Non-operating income (loss) 24 (2) (2) (1.9) 8 (7) - Income before taxes , Income tax and social contribution (136) (210) (273) 30.2 (310) (729) - Net income Return on Equity (ROE) 7.3% 11.6% 11.9% 6.7% 11.5% Net Interest Income (NII) NII grew 4.9% in 9M18/9M17 comparison and 5.3% in 3Q18/2Q18, due to the higher profitability of the businesses, particularly the Consumer Finance operation, whose share in the portfolio has grown on consistent basis. It is worth mentioning that funding expenses decreased in both comparison periods, a change resulting from lower CDI and reduction in the average funding sources balance. NIM grew to 6.2% p.y. in 9M18, due to the increase of the share of Vehicles and Cards in the mix of portfolio. NIM 1 Net interest income (R$M) and NIM¹ (% p.y.) +4.9% +5.3% 3,749 3,931 1,323 1,259 1,326 3Q17 2Q18 3Q18 9M17 9M18 6.0% 6.1% 6.4% 5.5% 6.2% 1. Net Interest Margin: Ratio between Gross Margin and Average Profitable Assets 7 Managerial result analysis 3Q18 Earnings Release ANALYSIS OF MANAGERIAL RESULT

8 ALL and income from services Result of loans losses and impairments R$ Million 3Q17 2Q18 3Q18 9M17 9M18 Variation (%) 3Q18/2Q18 9M18/9M17 Allowance for loan losses expenses (516) (527) (454) (1,687) (1,381) (14.0) (18.1) Revenues from recovery of written-off loans (11.3) Impairments (252) (52) (60) (455) (170) 14.9 (62.6) Result of loan losses and impairments (567) (379) (292) (1,517) (997) (22.9) (34.3) The result of loan losses and impairments in the 9M18 decreased 34.3% in relation to 9M17, and 22.9% in the 3Q18/2Q18 comparison, mainly due to lower credit cost and consistent volume of revenues from credit recovery. The Bank s credit risk management aims at maintaining the provision of loan portfolio at adequate levels for each segment. It is thus possible to note a gradual reduction in the relation of the result of loan losses with the average credit portfolio (on-balance). Result of loan losses and Impairments (R$M) Provisions for loan losses and impairments Revenues from recovery of loans written-offs -34.3% % 1, (201) (200) (221) (625) (555) 3Q17 2Q18 3Q18 9M17 9M18 2.7% 2.7% 1.9% 3.0% 2.3% Result of loan losses/loan Portfolio (%p.y.) Income from services² and insurance¹ The income from services and banking fees grew 10.9% in the 9M18/9M17 comparison, reflecting the higher auto finance origination in 2018, and the higher income from credit card portfolio. It is worth emphasizing that the total income from insurance brokerage grew 23.5% against 9M17, aligned with the strategy to use the Auto client base to diversify insurance income. When comparing with the 2Q18, income from services remained practically stable, mainly due to lower revenues from investment fund performance fees, which accounting recognition occurs in June and December. Income from services and Insurance (R$M) Insurance (brokerage)¹ Services and Tariffs Q17 2Q18 3Q18 1, M % 1, ,010 9M Auto Finance Origination (R$B) 1. Income from Votorantim Corretora de Seguros (VCS) insurance brokerage, and the result of recognized under the equity method of accounting. For more details, see page 24. INCOME FROM SERVICES² (R$ Million) 2. Includes Banking Fees Income. 3Q17 2Q18 3Q18 9M17 9M18 Variation (%) 3Q18/2Q18 9M18/9M17 Master file registration and Appraisal of assets Credit cards Income from guarantees provided (11.9) Management of investment funds (29.3) 23.8 Other (5.3) Total Income From Services ,010 (1.1) 7.2 Revenues from insurance brokerage Total Income From Services and Insurance ,222 1,355 (0.2) Managerial result analysis 3Q18 Earnings Release

9 Administrative and Personnel Expenses General personnel and administrative expenses, including profit sharing, totaled R$ 1,868 million in the 9M18, with increase of 7.0% in relation to the 9M17 mainly due to higher expenses on labor lawsuits and administrative expenses. In the comparison with the 2Q18, general expenses grew 24.7%, reflecting the growth in personnel expenses in the 3Q18. Personnel expenses grew 3.5% as compared to the 9M17, impacted by higher labor provisions, which in turn grew due to the inflation adjustment to the amount of lawsuit provisions, posting a considerable drop in the filing of new lawsuits. In comparison to the 2Q18, total personnel expenses grew because of the collective bargaining agreement of financing/bank employees, and because of the increase with provisions related to variable remuneration. Administrative and Personnel Expenses (R$M) Labor claims Personnel - Other¹ Administrative Q17 2Q % 3Q % 32.9% 33.2% Efficiency Ratio² (past 12 months) 1, M % 1. Considers PLR expenses; 2. Does not consider labor lawsuits and PLR. 1,868 9M18 Administrative expenses increased 11.0% in the 9M18/9M17 comparison, and 12.2% in the 3Q18/2Q18 comparison. In both periods the growth is explained by higher expenses with (i) data processing, reflecting higher investments in technology in 2018, in line with the Bank's digital transformation process, and with (ii) specialized technical service, due to higher one-off expenses with legal fees, whose impact was neutralized by lower expenses with provisions for contingent liabilities (see item other operating income and expenses). The Efficiency Ratio for the last 12 months ended Sept.18 at 33.2%, better in relation to 35.1% in Sept.17, reflecting the ongoing efforts of effective management of cost base, in compliance with Bank s income diversification strategy and increase in operational efficiency. ADMINISTRATIVE AND PERSONNEL EXPENSES (R$ Million) 3Q17 2Q18 3Q18 9M17 Variation (%) 3Q18/2Q18 9M18/9M17 Personnel Expenses (301) (240) (337) (921) (953) Salaries, Benefits e Social Charges (217) (185) (213) (645) (614) 15.0 (4.8) Labor lawsuits (42) (46) (71) (136) (222) Profit sharing expense (41) (7) (51) (137) (114) - (17.1) Training (1) (2) (2) (3) (4) Administrative Expenses (293) (301) (338) (825) (915) Specialized technical services (95) (99) (119) (268) (310) Data processing (52) (51) (61) (153) (162) Services of the financial system (23) (27) (25) (72) (77) (8.4) 7.7 Judicial and Notary public fees (26) (19) (23) (72) (62) 16.9 (13.2) Marketing (7) (15) (15) (18) (38) (3.7) - Other (89) (88) (95) (242) (266) Total (594) (541) (674) (1,746) (1,868) M18 At the end of Sept.18, Banco Votorantim had 3,892 employees, excluding interns and statutory employees. 9 Managerial result analysis 3Q18 Earnings Release Administrative and Personnel Expense

10 Other operating income and expenses Other operating income and expenses totaled R$ 511 million in the 9M18, with reduction of 17.3% in relation to the 9M17, mainly because of lower expenses on provision for contingent liabilities related to civil lawsuits. In relation to the 2Q18, other operating income and expenses decreased 23.4%, impacted by lower expenses for contingent liabilities and higher reversals of provisions for provided guarantees. OTHER OPERATING INCOME/(EXPENSES) (R$ Million) 3Q17 2Q18 3Q18 9M17 Variation (%) 3Q18/2Q18 9M18/9M17 Costs associated with the production (159) (148) (144) (470) (442) (2.7) (5.9) Reversal (provision) for contingent liabilities (44) (51) (29) (180) (112) (43.3) (38.0) Reversal (provision) for unhonored guarantees (6) 2 27 (22) Other (88.1) (68.3) Total Other Operating Income/(Expenses) (197) (190) (145) (618) (511) (23.4) (17.3) 9M18 10 Managerial result analysis 3Q18 Earnings Release Other operating income and expenses

11 EQUITY HIGHLIGHTS BALANCE SHEET HIGHLIGHTS Balance sheet Total assets reached R$ 97,256 million in the end of Sept.18, with growth of 0.9% in three months and reduction of 2.2% in 12 months. Shareholders equity totaled R$ 9,498 million in the same period. BALANCE SHEET Assets (R$ Million) Sept17 Jun18 Sept18 Variation (%) Sept18/Jun18 Sept18/Sept17 CURRENT AND LONG-TERM ASSETS 98,505 96,750 95,729 (1.1) (2.8) Cash and cash equivalents Interbank funds applied 17,903 20,658 13,815 (33.1) (22.8) Securities and derivative financial instruments 22,682 15,143 20, (10.3) Derivative financial instruments 3,419 4,817 4,536 (5.8) 32.7 Interbank accounts or relations 401 1, (50.2) 61.0 Loan Operations, Leases and Others receivables 46,103 47,434 48, Alowance for loan losses (3,196) (3,622) (3,635) Tax credit 7,311 7,042 6,997 (0.6) (4.3) Other Assets 3,780 3,891 4, NON-CURRENTS 915 1,404 1, Investments 661 1,092 1, Fixed Intangible and Diferred TOTAL ASSETS 99,420 98,154 97,256 (0.9) (2.2) BALANCE SHEET Liabilities (R$ Million) Sept17 Jun18 Sept18 Variation (%) Sept18/Jun18 Sept18/Sept17 CURRENT AND LONG-TERM LIABILITIES 90,604 88,766 87,717 (1.2) (3.2) Deposits 9,945 12,636 10,971 (13.2) 10.3 Demand and interbank deposits 2,249 1,984 2, (8.0) Time deposits 7,696 10,652 8,902 (16.4) 15.7 Money market borrowings 26,289 22,124 20,767 (6.1) (21.0) Acceptances and endorsements 24,840 26,058 28, Interbank accounts Borrowings and onlendings 4,468 4,111 4, (1.7) Derivative financial instruments 2,856 4,285 4,110 (4.1) 43.9 Other obligations 22,129 19,480 18,428 (5.4) (16.7) Subordinated debts 5,294 6,352 6, Credit transactions subject to assignment 11,510 8,198 6,635 (19.1) (42.4) Other 5,326 4,930 5, DEFERRED INCOME SHAREHOLDERS EQUITY 8,777 9,349 9, TOTAL LIABILITIES 99,420 98,154 97,256 (0.9) (2.2) 11 Balance sheet highlights 3Q18 Earnings Release

12 Credit Portfolio In the end of Sept.18, the expanded credit portfolio (including guarantees provided and private securities) reached R$ 59.4 billion, with growth of 0.4% in relation to the previous quarter and increase in participation of Consumer Finance business. The expanded credit portfolio in Wholesale reached R$ 22.0 billion in Sept.18, with reduction of 10.8% in the past 12 months, mainly in the private securities balance. In the quarterly comparison, the reduction was 1.4%. In Consumer Finance, the loan portfolio reached R$ 37.4 billion in Sept.18, 7.0% higher than in Sept.17 and 1.5% when compared to Jun.18, leveraged by the growth in Auto Finance, specially used cars. It is worth mentioning the 17.4% growth in the credit card portfolio over the last 12 months, a result of the strategy on the diversification of revenues. The Bank has strengthened its credit card portfolio and making more sophisticate offering to current clients and business partners. CREDIT PORTFOLIO (R$ Million) Sept17 Jun18 Sept18 Variation (%) Sept18/Jun18 Sept18/Sept17 Wholesale segment (a) 12,664 12,326 12, (2.2) Consumer Finance segment (b) 34,944 36,844 37, Auto finance 29,446 31,578 32, Loans and financing¹ 3,750 3,274 3,110 (5.0) (17.1) Credit Cards 1,748 1,992 2, On-balance loan portfolio (a+b) 47,608 49,170 49, Guarantees provided (c) 5,140 5,512 5,299 (3.9) 3.1 Private securities (d) 6,903 4,515 4,349 (3.7) (37.0) Expanded credit portfolio (a+b+c+d) 59,651 59,197 59, (0.4) Wholesale segment (a+c+d) 24,707 22,353 22,031 (1.4) (10.8) Consumer Finance segment (b) 34,944 36,844 37, Payroll loans (INSS, private and government), individual loans (with and without guarantee), home equity, student credit and solar. For more details, see page 24. Mix of credit (Wholesale) expanded portfolio (R$B) Mix of credit (Consumer Finance) (R$B) 2% Sept/17 34% 21% 12% 28% 24.7 Sept/17 75% 9% 2% 9% % Sept/18 41% 2% 10% 24% 20% 22.0 Sept/18 79% 7% 6% 2% 5% 37.4 Loan portfolio Loans BNDES Onlendings Export./Import. financing Other Guarantees provided Private Securities Used New Vehicles Payroll loan Cards Personal loans + Other 12 Balance sheet highlights 3Q18 Earnings Release Loan Portfolio

13 Auto finance The auto finance loan origination volume was R$ 4.3 billion in the quarter, of which used cars accounted for 88%. The combination of continuous improvements in the credit processes and models and the prudence in the granting of loans has maintained the quality in vehicle origination, whose volume grew 6.3% in relation to 3Q17. The Bank remained conservative regarding the auto finance market, with an average down payment percentage of 41% and an average term of 45 months. Banco Votorantim is one of the leaders of the auto finance market. 3Q17 2Q18 3Q18 Variation (%) 3Q18/2Q18 3Q18/3Q17 Average rate (% p.y.) p.p p.p. Average term (months) Down payment (%) p.p p.p. Used cars/auto finance origination (%) p.p p.p. Total auto finance origination (R$ billion) % 6.3% Sept17 Jun18 Sept18 Variation (%) Sept18/Jun18 Sept18/Sept17 Average rate (% p.y.) p.p p.p. Maturity (months) Used cars/auto finance portfolio (%) p.p. 2.6 p.p. Average vehicle age (years) Auto finance origination (R$B) +6.3% Q18 /3Q % 3.6 (89%) 3.7 (89%) 3.8 (88%) +5.0% 3Q17 2Q18 3Q18 Other vehicles Used Cars 13 Balance sheet highlights 3Q18 Earnings Release Auto finance

14 Loan Portfolio Quality All the segmentations of the credit portfolio risk in this section refer to the loan portfolio (Res. CMN No /99), unless otherwise indicated. The Bank maintains a consistent process of evaluation and monitoring of the credit risk on operations carried out with clients. LOAN PORTFOLIO QUALITY INDICATORS (R$ Million, except w here indicated) Sept17 Jun18 Sept18 90-Day NPL balance 1,947 1,969 2, Day NPL ratio 4.1% 4.0% 4.2% Write-off (a) (549) (557) (436) Credit recovery (b) Net Loss (a+b) (348) (357) (215) Net Loss / Loan portfolio - annualized 3.0% 2.9% 1.7% New NPL New NPL / Loan portfolio¹ - quarter 0.9% 1.4% 1.1% ALL balance² 3,218 3,630 3,644 ALL balance / Loan portfolio 6.8% 7.4% 7.3% ALL balance / 90-day NPL 165% 184% 174% AA-C balance 42,630 43,654 44,390 AA-C balance / Loan portfolio 89.5% 88.8% 89.2% 1. D NPL quarterly + write-offs of loss for the period) / Loan Portfolio for the immediately preceding quarter; 2. Includes, in Sep.18, R$ 9M of generic credit provision recognized as Liabilities in the "Other" line (Note # 18d of 3Q18 FS). Coverage ratio Reflecting the solid risk management model and the continuous balance sheet strengthening, the Coverage Ratio of 90-Day NPL balance remained at a sturdy level, evolving to 174% in Sept.18 (Sept.17: 165%). Coverage ratio (90-day Coverage Ratio) 90-day Coverage Ratio 165% 3, % 191% 184% 174% 3,688 3,551 3,630 3,644 1,947 1,924 1,861 1,969 2,095 Sept/17 Dec/17 Mar/18 Jun/18 Sept/18 ALL balance (R$M) 90-Day NPL balance (R$M) 14 Balance sheet highlights 3Q18 Earnings Release Loan portfolio quality

15 Loan Portfolio per Risk Level (%) The Bank s credit risk management aims at maintaining the loan portfolio quality at adequate levels for each market segment. D-H Loan Portfolio per Risk Level (%) 10.5% 11.3% 10.8% 11.2% 10.8% Loans classified between AA-C, according to Resolution No of the Brazilian Central Bank (BACEN) represented, at the end of Sept.18, 89.2% of the loan portfolio, against 88.8% in Jun.18, ratifying the quality of the portfolio. AA-C 89.5% 88.7% Sept/17 Dec/ % Mar/ % Jun/ % Sept/18 Delinquency of loan portfolio - 90-day NPL ratio The consolidated ratio of delinquency over 90 days (90-day NPL ratio) reached 4.2% in the end of Sept.18, compared to 4.0% in Jun.18 and 4.1% in Sept.17. The increase in the indicator in the quarter reflects an occasional case in Wholesale that is properly provisioned. In Wholesale, 90-day NPL ratio attained 2.1% in Sept.18, from 1.3% in Jun.18. Disregarding the specific case, the consolidated ratio would be 4.0%, and the Wholesale s would be 1.3%, comparable to the last quarter level. Consumer Finance 90-day NPL ratio ended Sept.18 at 4.9%, an increase of 0.1 p.p. in relation to Sept.17. This behavior reflects the quality of the Auto Finance portfolio, which 90-day NPL ratio ended in Sept.18 stable at 4.4%. Banco Votorantim 5.3% 4.6% 5.5% 4.5% 4.1% 3.9% 4.0% 4.2% 4.0% Consumer Finance 5.4% 5.6% 5.5% 5.2% 4.8% 5.3% 5.3% 5.2% 4.8% 4.3% Consumer Finance Vehicles Disregarding specific case 4.6% 4.9% 4.9% 4.1% 4.4% 4.4% Wholesale 5.0% 2.4% 5.3% 2.6% 2.1% 1.5% 1.3% 2.1% 1.3% Sept/15 Dec/15 Mar/16 Jun/16 Sept/16 Dec/16 Mar/17 Jun/17 Sept/17 Dec/17 Mar/18 Jun/18 Sept/18 Disregarding specific case 15 Balance sheet highlights 3Q18 Earnings Release

16 Consumer Finance New NPL Ratio The New NPL, that considers the volume of loans that became default above 90 days in the quarter, was R$ 562 million in 3Q18. Due to this, the New NPL in relation to portfolio was 1.14% in Sept % 1.15% 0.86% 1.26% 0.92% 0.92% 0.97% 1.38% 1.14% Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 New NPL¹ Ratio New NPL (R$B) 1. D NPL quarterly + write-offs of loss for the period) / Credit Portfolio for the immediately previous quarter. Renegotiated Loan In the chart below are segregated the operations renegotiated by segment, considering all renegotiation types, whether not past due, past due, and those arising from the credit recovery written-off to loss. The balance of renegotiated loans amounted to R$ 5,184 million in Sept.18, a reduction of 2.5% in 12 months and 3.8% in the quarter. The reduction was observed in both Wholesale and Consumer Finance. It is worth mentioning that most of balance of the renegotiated Consumer Finance portfolio is composed of renewed operations without delay (refinancing), mainly of Payroll loans product. Renegotiated loan portfolio (R$M) 5,319 5,390 5,184 1,009 1,173 1,254 2,478 1,966 1,759 1,832 2,251 2,171 Sept/17 Jun/18 Sept/18 Wholesale Payroll loan Other 16 Balance sheet highlights 3Q18 Earnings Release Funding and Liquidity

17 Funding and Liquidity The total amount of funding reached R$ 61.6 billion in Sept.18, down 4.9% in 12 months and 3.5% in 3Q18. The funding from Bills continued to post growth in the quarter, and combined with loans securitized with recourses and subordinated debts more stable funding instruments, accounted for 60% of total funding sources in Sept.18. The Bank remains with a diversified portfolio and keeps providing terms and conditions appropriate to the profile of its assets. It is worth mentioning the decrease in the balance of repos backed by BV Leasing debentures, reflecting the regulatory change introduced by Res. No , which made it impossible new repos operations with debentures of lease subsidiaries as of As a substitute for this instrument, the Bank increased the volume of funding with bank deposit certificates (CDB) and Commercial Leasing Bills (LAM). FUNDING SOURCES (R$ Billion) Sept17 Jun18 Sept18 Variation (%) Sept18/Jun18 Sept18/Sept17 Debentures (repos) (27.4) (46.2) Deposits (13.2) 10.3 Time deposits (16.4) 15.7 Deposits on demand and interbank (8.0) Subordinated debts Subordianted Financing bills (18.9) Others subordinated debts Borrowings and onlendings (1.7) Bills Financing bills Agribusiness credit bills ("LCA") and real estate credit bills ("LCI") (5.0) (8.4) Financial lease bills ("LAM") (15.7) - Securitization with recourses (19.1) (42.4) Securities abroad (24.0) Other Total funding (3.5) (4.9) In relation to liquidity, the Bank has maintained its cash at a very conservative level enough to cover our funding with daily liquidity. Additionally, it is important to emphasize that the Bank has a credit facility at BB since 2009, which represents a significant liquidity reserve and that has never been used. The table below demonstrates the LCR calculation, which objective is to measure short-term liquidity of banks in stress scenario. Liquidity Coverage Ratio (LCR) (R$ Million) 1. Mainly federal public securities and bank reserves; 2Q18 3Q18 Total high-quality liquid assets (HQLA)¹ 11,172 12,361 Total cash outflows 6,496 7,937 LCR 172% 156% Further details about the LCR may be found in the Report on Management of Risks and Capital at the website of RI: 17 Balance sheet highlights 3Q18 Earnings Release

18 Capital Capital Basel Ratio reached 16.4% in Sept.18, with increase of 1.8 p.p. in relation to Sept.17, mainly due to the Tier I Additional Capital increment arising from the issue of perpetual bonds abroad in Nov.17. The capital index Tier I reached 13.1%, of which 11.1% of Equity Tier. The Basel ratio was determined pursuant to Basel III method for calculating minimum Reference Equity, Tier I capital and principal capital requirements. In 2018, the minimum capital requirement was 10.50%, where 7.88% was the minimum for Tier I Capital, and 6.38% for Equity Tier (CET1). BASEL RATIO (R$ Million) Sept17 Jun18 Sept18 Total Capital 8,808 9,578 9,731 Tier I Capital 6,592 7,634 7,801 Common Equity Tier I 6,592 6,477 6,570 Additional Tier I - 1,157 1,230 Tier II Capital 2,216 1,944 1,930 Risk Weighted Assets (RWA) 60,213 59,790 59,364 Credit risk 53,267 51,824 51,842 Market risk 1,557 2,326 1,926 Operational risk 5,390 5,640 5,597 Minimum Capital Requirement 5,570 5,157 5,120 Basel Ratio (Capital/RWA) 14.6% 16.0% 16.4% Tier I Capital Ratio 10.9% 12.8% 13.1% Common Equity Tier I Ratio 10.9% 10.8% 11.1% Additional Tier I Ratio - 1.9% 2.1% Tier II Capital Ratio 3.7% 3.3% 3.3% In relation to Jun.18, the Ratio grew 0.4 p.p., impacted by (2) the reduction in market risk due to lower exposures of Treasury and ALM, (3) by the generation of net income for the 3Q18, and (4) by the exchange rate change of Additional Tier I Capital. This growth was partially offset (1) by greater regulatory adjustments, mainly due to deferred tax assets. 16.0% Change in Basel ratio for 3Q18 0.1% 0.5% 0.4% 0.2% % Basel Jun/18 Prudential adjustments Riskweighted assets Net income 3Q18 Additional Capital Basel Sept/18 18 Balance sheet highlights 3Q18 Earnings Release

19 RATINGS Banco Votorantim is rated by international rating agencies and the ratings assigned reflect its operating performance, financial soundness and the quality of its management, in addition to other factors related to the financial sector and economic environment in which the company is operating. It should be stressed that the longterm rating in foreign currency is limited to Brazil s sovereign rating. The table below presents the ratings assigned by the main agencies: RATING AGENCIES International National Local Foreign Local Brazil Sovereign rating Moody s Long-term Ba2 Ba3 Aa3.br Short-term NP NP BR-1 Ba2 Standard & Poor s Long-term BB- braaa Short-term B bra-1+ BB- In Oct.18, Moody's rating agency reaffirmed the Bank s rates, maintaining them as Ba2 (local currency) and Ba3 (foreign currency), both with negative outlook. 19 Ratings 3Q18 Earnings Release RATIN

20 CORPORATE GOVERNANCE The Votorantim Financial Conglomerate adopts the best governance practices, guaranteeing transparency and equity in the information, in order to contribute to the decision-making process. Ownership Structure Votorantim S.A. Total: 50.00% Com. shares: 50.01% Pref. shares: 49.99% Banco do Brasil Total: 50.00% Com. shares: 49.99% Pref. shares: 50.01% The Bank's management is shared between the shareholders Votorantim Finanças and Banco do Brasil, with an equal participation of both in the Board of Directors (BD), which is composed of six members. The Board of Directors meetings are periodically held to deliberate on strategic issues and track the business performance. With respect to decision-making process, the Board of Directors decisions are made by absolute majority with no casting vote. Each member holds office for a two-year term, and the positions of CEO and Vice-President are annually alternated between both shareholders. Also included in the governing bodies are the Fiscal Council and the BD advisory forums, as well as the Executive Board, Executive Committee and internal governance technical committees. It is worth emphasizing that the Risk and Capital Committee was implemented in the beginning of 2018, with reporting to the CA and whose principal attribution is the assessment of the operation of the structures of Management of Risks and Capital of the Bank. Corporate Governance Bodies Members of the Board of Directors Name Position Shareholder Paulo Rogério Caffarelli Chairman Banco do Brasil José Luiz Majolo Vice-Chairman Votorantim Finanças Antonio Mauricio Maurano Director Banco do Brasil Celso Scaramuzza Director Votorantim Finanças Marcelo Augusto Dutra Labuto Director Banco do Brasil Jairo Sampaio Saddi Director Votorantim Finanças Fiscal Council Audit Committee Compensation & HR Committee General Shareholders' Meeting Board of Directors Management Executive Board Advisory Committee Risk and Capital Committee 20 Corporate Governance 3Q18 Earnings Release CORPORATE GOVERNANCE

21 RECONCILIATION BETWEEN ACCOUNTING AND MANAGERIAL INCOME STATEMENT In order to enable a better understanding, comparison and analysis of the Bank s results and the performance of its businesses, the explanations contained in this report are based on the Managerial Statement of Income, which considers certain managerial reallocations made in the audited Statement of Income, with no impact in net income. These reallocations refer to: Income from credit recovery written-off to loss, recorded in Revenues from loans and reallocated to Allowance for Loan Losses ; Expenses with allowance for loan losses characteristics recorded in Other Operating Income (Expenses), which were reallocated to Allowance for Loan Losses ; and Impairment of Wholesale segment s private securities, classified as Net Interest Income, which were reclassified to Allowance for loan losses. Fiscal and tax effects of the hedge in relation to changes in exchange rates for overseas investments, which are recorded in Tax Expenses (PIS and Cofins) and Income Tax and Social Contribution, and that were also reallocated to Derivative Financial Instruments. The management strategy of the foreign exchange risk of resources invested abroad is intended to avoid effects resulting from exchange-rate change on income, and for this purpose, foreign exchange risk is neutralized using derivative financial instruments. Reconciliation of Audited and Managerial Income Statement 3Q17, 2Q18 and 3Q18 INCOME STATEMENT (R$ Million) 3Q17 Audited Adjust ments 3Q17 Managerial 2Q18 Audited Adjust ments 2Q18 Managerial 3Q18 Audited Adjust ments 3Q18 Managerial Income from financial intermediation 3,103 (19) 3,084 3,313 (10) 3,303 3,053 (94) 2,959 Loans¹ 2,351 (201) 2,150 2,604 (312) 2,291 2,471 (221) 2,249 Leases Securities , Derivative financial instruments (50) (70) (120) (84) (114) 68 (46) Foreign exchange operations (3) - (3) Compulsory deposits Expenses from financial intermediation (1,769) 7 (1,762) (2,044) - (2,044) (1,634) - (1,634) Money market borrow ings (1,438) - (1,438) (1,610) - (1,610) (1,321) - (1,321) Borrow ings and onlendings 7-7 (239) - (239) (115) - (115) Sale or transfer from financial assets (338) 7 (331) (196) - (196) (198) - (198) Net interest income - NII 1,334 (12) 1,323 1,269 (10) 1,259 1,419 (94) 1,326 Result of loan losses and impairments (514) (53) (567) (639) 261 (379) (449) 157 (292) Net financial margin 820 (65) ,034 Other operating income/expenses (452) 1 (451) (395) (10) (405) (444) 4 (440) Fee income Personnel and administrative expenses (553) - (553) (533) - (533) (624) - (624) Tax expenses (112) 6 (106) (99) (10) (109) (98) (1) (99) Equity in income of subsidiaries Other operating income/expenses (192) (5) (197) (190) (0) (190) (150) 5 (145) Operating income (loss) 369 (64) Non-operating income (loss) (2) - (2) (2) - (2) Income (loss) before taxes and contributions 393 (64) Provision for income tax and social contribution (199) 64 (136) 31 (240) (210) (206) (67) (273) Profit sharing (41) - (41) (7) - (7) (51) - (51) Net income (loss) Includes income from loan assets assigned with recourse under Resolution 3, Reconciliation of accounting vs. managerial income statement 3Q18 Earnings Release INCOME STATEMENT

22 Reconciliation of Audited and Managerial Income Statement 9M17 and 9M18 INCOME STATEMENT (R$ Million) 9M17 Audited Adjustments 9M17 Managerial 9M18 Audited Adjustments 9M18 Managerial Income from financial intermediation 10,325 (215) 10,109 9,186 (171) 9,015 Loans¹ 7,336 (625) 6,711 7,398 (667) 6,731 Leases Securities 2, ,404 1, ,944 Derivative financial instruments (48) (45) (93) (252) Foreign exchange operations Compulsory deposits Expenses from financial intermediation (6,401) 41 (6,360) (5,083) - (5,083) Money market borrow ings (5,137) - (5,137) (4,030) - (4,030) Borrow ings and onlendings (140) - (140) (411) - (411) Sale or transfer from financial assets (1,123) 41 (1,082) (642) - (642) Net interest income - NII 3,923 (174) 3,749 4,102 (171) 3,931 Result of loan losses and impairments (1,646) 129 (1,517) (1,488) 492 (997) Net financial margin 2,278 (45) 2,232 2, ,935 Other operating income/expenses (1,371) 5 (1,366) (1,299) (6) (1,306) Fee income ,010-1,010 Personnel and administrative expenses (1,609) - (1,609) (1,754) - (1,754) Tax expenses (290) 4 (286) (289) (11) (300) Equity in income of subsidiaries Other operating income/expenses (619) 1 (618) (516) 5 (511) Operating income (loss) 907 (41) 866 1, ,629 Non-operating income (loss) 8-8 (7) - (7) Income (loss) before taxes and contributions 914 (41) 874 1, ,622 Provision for income tax and social contribution (351) 41 (310) (415) (314) (729) Profit sharing (137) - (137) (114) - (114) Net income (loss) 426 (0) Includes income from loan assets assigned with recourse under Resolution 3, Reconciliation of accounting vs. managerial income statement 3Q18 Earnings Release

23 APPENDI APPENDICES Overview Banco Votorantim s Position Banco Votorantim is one of the largest Brazilian privately-held banks in total assets and loan portfolio. 10 Largest Banks in Assets - Jun/18 (R$B) 10 Largest Banks in Loan Portfolio - Jun/18 (R$B) BB 1,449 CEF 684 Itaú 1,388 BB 624 CEF 1,272 Itaú 537 Bradesco 1,071 Bradesco 440 BNDES 836 BNDES 299 Santander 729 Santander 289 BTG Pactual 172 Safra 64 Safra th 9 th Votorantim 98 Votorantim Banrisul Cielo S.A. 79 PAN 19 Public Foreign Brazilian and private Public Foreign Brazilian and private Strategy Vision by business R$ 59.4B Consumer Finance R$ 37.4B Wholesale Auto Finance Other Businesses Corporate Bank Wealth Management Pillars To focus on used auto finance (multi-brand dealers), where BV has a history of leadership and expertise To originate portfolios with quality, scale and profitability Innovation and digital transformation Credit Cards and Insurance: revenue diversification crossselling to Auto customer base Loans: revenue diversification Payroll loans Personal loans Home equity Student loans Solar energy Promotiva: dedicated payroll loans origination to BB Corporate: growth cash management, financial structure, guarantees, floating capital, hedge, FX, capital markets and M&A Large Corp.: profitability capital markets, financial structure, guarantees and treasury Agility and flexibility to serve Capital discipline (RAR²) Asset: 12 th largest in the market, with innovative products and relevant synergies with BB R$ 50.1B in AuM Private: focus on asset management through tailormade solutions R$ 32.2B R$ 5.2B R$ 22.0B Shareholders Banco do Brasil + Votorantim S.A. 1. Includes provided guarantees and corporate securities; 2. Risk-adjusted return. Expanded¹ credit porfolio 23 Appendices 3Q18 Earnings Release

24 Consumer finance - Other businesses Payroll loan Focus on the refinancing of the payroll loan portfolio INSS (retirees and pensioners) Growth in the payroll loan portfolio Private Selective operation in public/government agreements Continuous improvement in management tools (pricing, credit, collection, etc.) Public Private INSS Payroll loans - Loan Portfolio (R$B) (9%) Sept/ (9%) Jun/ (9%) Sept/18 Credit cards Active cards (Million) and Portfolio (R$B) Issue of credit cards with Visa and Mastercard brands 1,75 1,99 2,05 Focus on exploring the current client base of auto finance loans Portfolio Growth organically by entering into new business partnerships (e.g.: Netpoints) Sept/17 Jun/18 Sept/18 Active Cards Insurance Brokerage To boost insurance brokerage revenues, leveraging the Consumer Finance customer base Diversify insurance portfolio : Life Homeowners Accident, etc. Other Auto Credit Insurance Insurance Premiums (R$M) Q17 2Q18 3Q18 24 Appendices 3Q18 Earnings Release

25 Quality of the Loan Portfolio - Wholesale Sectoral concentration Wholesale Wholesale Sectorial concentration Sept/17 Sept/18 R$M Part.(%) R$M Part.(%) Financial Institutions 1, % 2, % Sugar and Ethanol 1, % 1, % Telecom 1, % 1, % Retail % 1, % Automotive/Auto parts/car Dealers % % Mining % % Railways % % Government % % Food and beverages industry % % Oil & Gas % % Slaughterhouses % % Industry % % Trading Agro % % Services % % Agrochemistry % % Agribusiness % % Electricity Distribution % % Car Rental % % Eletricity Generation % % Cooperatives % % Other 4, % 2, % Total¹ 16, % 16, % 1. Balance does not consider corporate securities and is net of loan loss allowances Credit Concentration 10 Major debtors¹ 100 Major debtors¹ Only 7.0% of credit risk is concentrated in the 10 largest debtors. 7,4% 7,6% 7,0% 21,1% 19,6% 19,2% Sept/17 Jun/18 Sept/18 Sept/17 Jun/18 Sept/18 1. In relation to consolidated loan portfolio. 25 Appendices 3Q18 Earnings Release