Santander Brasil(BSBR) - 2024 Q4 - Annual Report

Independent Auditor's Report Opinion The independent auditor, PricewaterhouseCoopers, issued an unqualified opinion, stating that the consolidated financial statements of Banco Santander (Brasil) S.A. as of December 31, 2024, are fairly presented in all material respects, in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB - The auditor's opinion is unqualified, indicating that the financial statements are presented fairly and in accordance with IFRS[10] Key Audit Matters The audit identified three Key Audit Matters (KAMs) that were of most significance: the estimation of impairment for credit operations, provisions for legal and administrative proceedings, and the information technology environment. These areas were highlighted due to the high level of management judgment, complexity, and dependency on technology required - The estimation of impairment for credit operations under IFRS 9 was a key audit matter due to the high level of management judgment involved in assessing future cash flows, credit risk deterioration, and economic factors[15][16] - Provisions for legal and administrative proceedings were identified as a KAM because determining the liability and its measurement requires significant management judgment regarding the outcome of complex and long-running tax, labor, and civil cases[23][24] - The Information Technology (IT) environment was a focus area due to the bank's high dependency on a complex IT infrastructure for processing a large volume of daily transactions, where deficiencies could lead to incorrect processing of critical financial information[29] Consolidated Financial Statements Consolidated Balance Sheet As of December 31, 2024, Total Assets increased by 11.0% year-over-year to R$1,238.8 billion, driven by growth in financial assets and loans. Total Liabilities grew by 11.8% to R$1,119.0 billion, primarily due to increased deposits from credit institutions and customer deposits. Total Shareholders' Equity rose to R$119.8 billion from R$114.9 billion Consolidated Balance Sheet Summary (in thousands of Reais) | Account | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Assets | 1,238,796,810 | 1,115,652,776 | 11.0% | | Loans and advances to customers (net) | 566,089,914 | 517,977,135 | 9.3% | | Debt instruments | 284,173,184 | 244,414,650 | 16.3% | | Total Liabilities | 1,118,969,678 | 1,000,796,422 | 11.8% | | Customer deposits | 605,068,163 | 583,220,576 | 3.7% | | Credit institution deposits | 158,565,482 | 118,511,957 | 33.8% | | Total Shareholders' Equity | 119,827,132 | 114,856,354 | 4.3% | Consolidated Statement of Income For the fiscal year 2024, the Bank reported a Consolidated Net Income of R$13.41 billion, a 41.2% increase from R$9.50 billion in 2023. This growth was driven by a 20.9% rise in Net Interest Income to R$56.68 billion and a 61.0% increase in Operating Income Before Tax. Profit attributable to the Parent Company was R$13.37 billion Consolidated Statement of Income Summary (in thousands of Reais) | Account | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Interest Income | 56,678,560 | 46,884,034 | 20.9% | | Total Income | 73,757,286 | 65,864,310 | 12.0% | | Impairment losses on financial assets (net) | (28,484,030) | (28,008,086) | 1.7% | | Operating Income Before Tax | 19,190,228 | 11,921,651 | 61.0% | | Consolidated Net Income for the Fiscal Year | 13,413,763 | 9,498,812 | 41.2% | | Profit attributable to the Parent Company | 13,365,506 | 9,449,313 | 41.4% | Consolidated Statement of Comprehensive Income Total Comprehensive Income for 2024 was R$10.67 billion, a slight increase from R$10.02 billion in 2023. The result was impacted by a significant net loss of R$1.98 billion in Other Comprehensive Income (OCI) items that may be reclassified to profit or loss, primarily due to unrealized losses on financial assets measured at FVOCI Consolidated Statement of Comprehensive Income Summary (in thousands of Reais) | Account | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Consolidated Net Income for the Fiscal Year | 13,413,763 | 9,498,812 | 14,339,475 | | OCI that will be reclassified to profit or loss | (1,978,264) | 1,166,391 | (1,108,715) | | OCI that will not be reclassified to profit or loss | (761,060) | (648,164) | 28,701 | | Total Comprehensive Income | 10,674,439 | 10,017,039 | 13,259,461 | Consolidated Statement of Changes in Stockholders' Equity Shareholders' equity attributable to the parent company increased from R$114.45 billion at the end of 2023 to R$119.49 billion at the end of 2024. Key movements included a R$10 billion capital increase through the capitalization of profit reserves, net profit of R$13.37 billion, dividend and interest on capital payments of R$6.0 billion, and a negative impact from Other Comprehensive Income of R$2.74 billion - A capital increase of R$10 billion was executed by capitalizing profit reserves, raising the total share capital to R$65 billion[55] - The bank distributed R$6.0 billion in dividends and interest on capital during 2024[55] Changes in Equity Attributable to the Parent (in thousands of Reais) | Description | Amount | | :--- | :--- | | Balance on December 31, 2023 | 114,453,004 | | Net profit attributable to the Parent Company | 13,365,506 | | Other comprehensive income | (2,739,324) | | Dividends and interest on capital | (6,000,000) | | Capital increase (from reserves) | 0 | | Other movements (Treasury shares, compensation, etc.) | 412,499 | | Balance on December 31, 2024 | 119,491,685 | Consolidated Statement of Cash Flows The Bank experienced a net cash outflow from operating activities of R$21.13 billion in 2024, a significant shift from a R$36.61 billion inflow in 2023, mainly due to changes in operating assets and liabilities. Net cash used in investing activities was R$2.02 billion, while financing activities provided a net cash inflow of R$0.93 billion. Consequently, cash and cash equivalents decreased by R$22.22 billion to end the year at R$67.20 billion Consolidated Statement of Cash Flows Summary (in thousands of Reais) | Cash Flow Activity | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net Cash Flow from Operating Activities | (21,131,267) | 36,614,788 | 6,847,026 | | Net Cash Flow from Investing Activities | (2,015,767) | (2,580,315) | (2,705,289) | | Net Cash Flow from Financing Activities | 930,179 | 5,817,953 | 12,754,848 | | Net (Decrease) Increase in Cash | (22,216,855) | 39,852,426 | 16,896,585 | | Cash at Beginning of Year | 89,417,760 | 49,565,334 | 32,668,749 | | Cash at End of Year | 67,200,905 | 89,417,760 | 49,565,334 | Notes to the Consolidated Financial Statements Note 1. Operating Context and Presentation of Financial Statements Banco Santander (Brasil) S.A. is a universal bank controlled by Banco Santander, S.A. of Spain, operating through various portfolios including commercial, investment, credit, and financing. The consolidated financial statements for the year ended December 31, 2024, were prepared in accordance with IFRS and authorized for issuance on February 27, 2025. The report also notes the adoption of amendments to IAS 1, IAS 7, IFRS 7, and IFRS 16, which did not have a material impact - The Bank operates as a universal bank in Brazil, with activities spanning commercial banking, investment, credit, financing, leasing, and insurance, among others[60] - The financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB[62] - The preparation of the financial statements involves significant management estimates and assumptions, particularly concerning the fair value of financial instruments, provisions for credit losses, pension fund provisions, legal provisions, goodwill impairment, and the realization of tax credits[70][71] Note 2. Accounting Policies and Determination Criteria This note details the significant accounting policies applied in the financial statements. Key policies include the basis for consolidation of subsidiaries and investment funds, the classification and measurement of financial instruments (at amortized cost, fair value through other comprehensive income, or fair value through profit or loss), hedge accounting, lease accounting under IFRS 16, and the recognition of provisions and taxes. The policies are consistent with IFRS standards - Financial assets are classified for measurement into three categories: fair value through profit or loss (FVTPL), fair value through other comprehensive income (FVOCI), and amortized cost, based on the business model and the asset's cash flow characteristics (SPPI test)[103][106][108] - The Bank uses the equity method to account for its interests in joint ventures and associates where it has joint control or significant influence[94][95][96] - Provisions for legal and administrative proceedings are recognized when the risk of loss is assessed as probable and the amount can be reliably measured. Contingent assets are not recognized unless their realization is virtually certain[224][226] - Goodwill is not amortized but is tested for impairment at least annually. Other intangible assets with finite lives are amortized over their useful lives, typically up to 5 years for software[209][216][218] Note 3. Basis for Consolidation This note details the subsidiaries and investment funds included in the consolidation and outlines significant corporate actions undertaken in 2023 and 2024. Key transactions in 2024 included the incorporation of several entities (Return Capital, Mobills Labs, Apê11), the formation of a partnership with Pluxee Group, and acquisitions of stakes in América Gestão Serviços em Energia S.A. and Fit Economia de Energia S.A. In 2023, the bank sold its entire stake in Banco PSA Finance Brasil and a 40% stake in Webmotors S.A - In June 2024, the bank formed a partnership with Pluxee Group, contributing its benefits subsidiary and cash for a 20% stake in the new partnership vehicle, Pluxee Benefícios Brasil S.A.[282][284][285] - The bank acquired a 70% stake in América Gestão Serviços em Energia S.A. and a 65% stake in Fit Economia de Energia S.A. in 2024, expanding its presence in the energy sector[288][289] - In April 2023, the bank sold a 40% stake in Webmotors S.A. to Carsales.com, reducing its holding to 30%[295] Note 9. Loans and Advances to Clients The gross loan portfolio grew by 8.7% to R$599.7 billion in 2024. Loans to individuals represented the largest segment at 48.4% of the portfolio. The allowance for loan losses remained stable at R$33.6 billion. Impaired assets (Stage 3) increased to R$42.2 billion from R$39.9 billion year-over-year Loans and Advances to Customers (in thousands of Reais) | Category | 2024 | 2023 | | :--- | :--- | :--- | | Loans and advances to customers, gross | 599,687,844 | 551,536,203 | | Allowance for loan losses | (33,597,930) | (33,559,068) | | Loans and advances to customers, net | 566,089,914 | 517,977,135 | Loan Portfolio by Borrower Sector (Gross, in thousands of Reais) | Sector | 2024 | 2023 | | :--- | :--- | :--- | | Commercial and Industrial | 241,177,143 | 233,946,173 | | Real Estate Credit - Construction | 64,820,223 | 61,747,721 | | Loans to Individuals | 290,347,270 | 252,687,422 | | Leasing | 3,343,208 | 3,154,887 | | Total | 599,687,844 | 551,536,203 | - The balance of impaired assets (non-recoverable due to credit risk) increased to R$42.2 billion at the end of 2024 from R$39.9 billion at the end of 2023[374] Note 13. Intangible Assets - Goodwill Total goodwill on the balance sheet was R$27.89 billion as of December 31, 2024, largely unchanged from R$27.85 billion in 2023. The majority of this balance, R$27.22 billion, relates to the acquisition of Banco ABN Amro Real S.A. (Banco Real). Annual impairment tests were conducted, and no impairment loss was identified for 2024 or 2023 - The majority of the goodwill, R$27.2 billion, originates from the acquisition of Banco Real[399][401] - Annual impairment tests, based on value-in-use cash flow projections, concluded that there was no evidence of goodwill impairment in 2024[399][403] Note 19. Debt Instruments Eligible as Capital The balance of Debt Instruments Eligible as Capital increased to R$23.14 billion in 2024 from R$19.63 billion in 2023. This was primarily due to a new issuance of R$7.6 billion in Tier I Financial Bills in September 2024, offset by the repurchase of R$7.53 billion in other instruments Debt Instruments Eligible as Capital (in thousands of Reais) | Instrument Type | 2024 | 2023 | | :--- | :--- | :--- | | Tier I (Perpetual) | 7,890,652 | 6,116,218 | | Financial Bills - Tier II | 15,247,132 | 13,510,749 | | Total | 23,137,784 | 19,626,967 | - In September 2024, the bank issued R$7.6 billion in new Tier I perpetual Financial Bills[419][420][421] Note 22. Provisions for Judicial and Administrative Proceedings Provisions for judicial and administrative proceedings increased to R$9.61 billion in 2024 from R$8.93 billion in 2023. The provisions cover probable losses from civil, labor, and tax matters. The bank also disclosed contingent liabilities with a possible loss risk totaling R$35.8 billion for tax matters, R$459 million for labor, and R$3.2 billion for civil lawsuits, which are not provisioned Provisions for Judicial and Administrative Proceedings (in thousands of Reais) | Category | 2024 | 2023 | | :--- | :--- | :--- | | Civil | 3,330,621 | 2,888,359 | | Labor | 2,946,482 | 3,277,476 | | Tax and Social Security | 2,788,750 | 2,291,832 | | Total | 9,065,853 | 8,457,667 | - Contingent liabilities classified as 'possible loss' and therefore not provisioned amount to R$35.8 billion for tax lawsuits, with major cases related to PIS/COFINS, INSS on profit sharing, and ISS[474] Note 27. Shareholders' Equity Share capital was increased by R$10 billion to R$65 billion in April 2024 through the capitalization of profit reserves, with no new shares issued. The bank distributed a total of R$6.0 billion in dividends and interest on equity in 2024. A share buyback program is active, with a target of acquiring up to 36.2 million Units, representing approximately 1% of the bank's share capital, to maximize shareholder value and for long-term incentive plans - Share capital was increased to R$65 billion from R$55 billion by capitalizing part of the statutory profit reserve[511] Dividends and Interest on Equity Declared in 2024 (in thousands of Reais) | Declaration Date | Type | Amount | | :--- | :--- | :--- | | Jan 11, 2024 | Interest on Capital | 1,500,000 | | Apr 10, 2024 | Interest on Capital | 1,500,000 | | Jul 10, 2024 | Interest on Capital | 1,500,000 | | Oct 10, 2024 | Interest on Capital | 1,300,000 | | Oct 10, 2024 | Dividends | 200,000 | | Total | | 6,000,000 | - The bank has an ongoing share repurchase program set to end in August 2025, aiming to acquire up to 1% of its share capital for treasury or subsequent sale[527][528][529] Note 28. Earnings Per Share Basic earnings per 1,000 common shares increased to R$1,708.02 in 2024 from R$1,208.83 in 2023. For preferred shares, basic earnings per 1,000 shares rose to R$1,878.82 from R$1,329.71. Diluted earnings per share were the same as basic, as the exercise price of benefit programs was higher than the average market price of the shares, resulting in no dilutive effect Basic Earnings per 1,000 Shares (in Reais) | Share Type | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Common shares | 1,708.02 | 1,208.83 | 1,831.43 | | Preferred shares | 1,878.82 | 1,329.71 | 2,014.57 | - Diluted EPS is identical to Basic EPS because the potential dilutive effect of long-term compensation programs was not computed, as their exercise prices were above the average market share price[536] Note 30. Operational Ratios As of December 31, 2024, the Bank remains compliant with the capital requirements set by the Brazilian Central Bank. The Regulatory Capital (Basel) Ratio was 14.28%, above the 11.50% minimum requirement. The Tier 1 Capital Ratio was 12.09% (above 9.50% min) and the Common Equity Tier 1 (CET1) Ratio was 10.96% (above 8.00% min) Capital Adequacy Ratios | Ratio | 2024 | 2023 | Minimum Requirement | | :--- | :--- | :--- | :--- | | Regulatory Capital (Basel) | 14.28% | 14.51% | 11.50% | | Tier 1 Capital | 12.09% | 12.43% | 9.50% | | Common Equity Tier 1 (CET1) | 10.96% | 11.48% | 8.00% | - Total Risk-Weighted Assets (RWA) increased to R$707.5 billion in 2024 from R$654.3 billion in 2023, driven primarily by growth in credit risk[557] Note 44. Business Segment Reporting The Bank operates through two main segments: Commercial Banking and Global Wholesale Banking (GWB). In 2024, Commercial Banking generated an operating profit before tax of R$12.46 billion on total income of R$64.80 billion. The GWB segment contributed R$6.73 billion in operating profit before tax on total income of R$8.95 billion Segment Performance 2024 (in thousands of Reais) | (Condensed) Income Statement | Commercial Banking | Global Wholesale Banking | Total | | :--- | :--- | :--- | :--- | | TOTAL INCOME | 64,803,629 | 8,953,657 | 73,757,286 | | Impairment losses on financial assets (net) | (28,450,756) | (33,274) | (28,484,030) | | OPERATING PROFIT BEFORE TAX | 12,460,706 | 6,729,522 | 19,190,228 | Segment Assets (in thousands of Reais) | Category | Commercial Banking | Global Wholesale Banking | Total | | :--- | :--- | :--- | | Total assets (2024) | 1,143,663,122 | 95,133,688 | 1,238,796,810 | | Total assets (2023) | 1,010,503,261 | 105,149,515 | 1,115,652,776 | Note 46. Risk Management The bank maintains a comprehensive risk management framework based on principles of independence, senior management involvement, and the use of statistical tools. For credit risk, the non-performing loan ratio improved to 7.03% in 2024 from 7.23% in 2023. Market risk is managed using Value at Risk (VaR), with the trading portfolio's average VaR at R$4.5 billion in 2024. Liquidity risk is managed through metrics like the Liquidity Coverage Ratio (LCR) and stress testing to ensure obligations can be met - The bank's risk management framework is based on principles including risk function independence, senior management involvement, portfolio diversification, and the use of statistical tools like VaR, economic capital, and stress testing[639] - The non-performing loan ratio improved to 7.03% in 2024 from 7.23% in 2023, reflecting better quality in new loan vintages and the write-off of older ones[695][697] - Market risk for the trading portfolio is measured by Value at Risk (VaR), which averaged R$4.527 billion in 2024[758] - Liquidity risk management utilizes short-term metrics like the Liquidity Coverage Ratio (LCR) and long-term metrics like the Net Stable Funding Ratio (NSFR), complemented by stress testing[736][738][741] Note 47. Subsequent Events On January 10, 2025, the Board of Directors approved the distribution of Interest on Equity amounting to R$1.5 billion. The payment was scheduled for February 12, 2025, and will be attributed to the mandatory minimum dividends for the 2025 fiscal year - The Board of Directors approved a R$1.5 billion distribution of Interest on Equity on January 10, 2025, which was paid on February 12, 2025[811] Appendix I – Reconciliation of Shareholders' Equity and Net Income Reconciliation between Brazilian GAAP and IFRS This appendix reconciles the Shareholders' Equity and Net Income from Brazilian GAAP to IFRS. For 2024, Shareholders' Equity under IFRS was R$119.49 billion, compared to R$90.74 billion under BRGAAP. Net Income under IFRS was R$13.37 billion, compared to R$13.48 billion under BRGAAP. The largest reconciling item for equity is the reversal of goodwill amortization (R$26.93 billion), as IFRS does not permit amortization of goodwill Shareholders' Equity Reconciliation (in thousands of Reais) | Description | 2024 | | :--- | :--- | | Equity under Brazilian GAAP | 90,743,958 | | Reversal of goodwill amortization | 26,925,987 | | Deferral of fees/commissions | 2,044,873 | | Impairment of financial assets | (387,348) | | Other adjustments | 264,215 | | Equity under IFRS | 119,491,685 | - The primary difference between BRGAAP and IFRS for equity is the treatment of goodwill. BRGAAP allows for systematic amortization, while IFRS requires annual impairment testing without amortization, leading to a significant positive adjustment to equity under IFRS[818] Performance Report Economic Situation The economic environment in 2024 was marked by international challenges, including the US presidential election outcome and a cautious stance from the Federal Reserve. Domestically, Brazil faced a deteriorating perception of fiscal risk, leading to exchange rate devaluation and an increase in the Selic base interest rate to 12.25%. Despite these headwinds, GDP performance in Q3 2024 was stronger than expected, leading to an upward revision of the full-year growth projection to 3.5% - International challenges include the US election, which could lead to trade tariff impositions, and the Federal Reserve signaling fewer interest rate cuts for 2025[831][832] - Domestically, fiscal risk perception worsened, and the Central Bank of Brazil raised the Selic rate to 12.25% by year-end 2024 to combat unanchored inflation expectations[834][835] - Brazilian GDP growth for 2024 is projected to be 3.5%, revised upwards after a surprisingly strong Q3 performance driven by resilient labor markets and fiscal stimulus[836] Consolidated Performance The bank's managerial net profit grew 47.8% to R$13.87 billion in 2024, driven by a 14.2% increase in the gross financial margin and a 13.3% rise in commissions. The performance reflects a strategy of selective growth in assets with better returns, diversification of revenue, and controlled default rates, while maintaining a focus on productivity and efficiency Managerial Income Statement (in R$ million) | Account | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Gross Financial Margin | 60,746 | 53,179 | 14.2% | | Commissions | 20,917 | 18,458 | 13.3% | | Total Revenues | 81,663 | 71,637 | 13.2% | | Managerial Net Profit | 13,872 | 9,382 | 47.8% | Corporate Governance and Management Statements Composition of Management Bodies As of December 31, 2024, the Board of Directors was chaired by Deborah Stern Vieitas (independent) and included ten other members. The Executive Board was led by CEO Mario Roberto Opice Leão. The bank also has several advisory committees, including Audit, Risk and Compliance, Sustainability, Nomination and Governance, and Compensation - The Board of Directors is chaired by Deborah Stern Vieitas and includes a majority of independent members[858] - The bank's governance structure includes an Audit Committee, Risk and Compliance Committee, Sustainability Committee, Nomination and Governance Committee, and Compensation Committee[859][860] Directors' Statements and Audit Committee Report The Executive Board declared that they reviewed and concurred with the 2024 financial statements, which received an unqualified opinion from the independent auditors. The Audit Committee reported that it advised the Board of Directors, oversaw the financial statements' reliability, the effectiveness of internal and independent audits, and the internal control system. Based on its work, the Committee recommended the approval of the 2024 financial statements - The Executive Board formally declared its review and agreement with the 2024 financial statements[865] - The Audit Committee reviewed the financial statements, met with internal and independent auditors, monitored internal controls and operational risks, and oversaw compliance with regulatory bodies[876][879] - The Audit Committee concluded that its work provided transparency and quality to the financial statements and recommended their approval by the Board of Directors[889]