FINANCIAL STATEMENTS DECEMBER 31, Um retrato de sustentabilidade

Transcription

1 FINANCIAL STATEMENTS DECEMBER 31, 2008 Um retrato de sustentabilidade

2 Message from the CEO The solidity of a bank s reputation is built upon economic fundamentals sustained by strategic management and the credibility it has earned from its clients. The strength of the Banrisul brand reflects the vitality of an institution with an 80-year tradition. The financial crisis affecting the international markets has not shaken Banrisul s confidence or self-esteem, much less its solid business model. Our management model supported by opportune measures and well-chosen technical foundations guaranteed the safety of our account holders and was reflected in the market s confidence in our operations. Consolidated Net Income came to R$590.9 million in 2008, with profitability of 20.1% on Average Shareholders Equity. At the end of December 2008, Net Equity stood at R$3.1 billion. Excluding non-recurring events, growth in Net Income in the year was 30.1% when compared to December In 2008, Total Assets stood at R$25.2 billlion, more than 50% of which are resources in treasury. Funds raised and under management were up 11.1% to R$19.1 billion year-on-year. The credit portfolio totaled R$11.5 billion, up 42.7% over the previous year. The 3.2% delinquency ratio reflects the Bank s responsible credit policy and confirms the quality of its operations. This extremely positive performance in a time of financial instability guaranteed the consolidation of its leadership strategy. For 2009, the bank is projecting consistent growth in credit operations, at levels higher than those estimated for the market in general, a strategy that will be aided by its comfortable liquidity position and by the portfolio s leverage margin. Keeping its leading position in the area of IT is another important tool for business growth and improving the services provided by Banrisul. The Bank s projected growth also involves the expansion of both its branch network and of Banricompras affiliated outlets and other measures aimed at increasing its client base and its market share. Capitalized and strong, recognized by the market in the areas of technology, social and environmental responsibility and managerial and operational controls, Banrisul is moving ahead to consolidate its position as one of Brazil s best commercial banks. Fernando Guerreiro de Lemos Presidente 3

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4 Index Message from the CEO Press Release ANALISYS OF THE PERFORMANCE Financial Highlights Banco do Estado do Rio Grande do Sul S.A The State of Rio Grande do Sul Market Share Operational Highlights Economic and Financial Indicators Consolidated Balance Sheet Total Assets Securities Interbank and Interbranch Transactions Credit Operations Breakdown of Credit by Company Size Breakdown of Credit by Sector Breakdown of Credit by Portfolio General Credit to Individuals General Credit to Companies Breakdown of Credit by Rating Allowance for Loan Losses Cover Ratio Default Ratio Funds Raised and Under Management Demand Deposits Saving Deposits Time Deposits Third Party Funds Cost of Funding Shareholders Equity Return on Average Stockholders Equity Basel Ratio Pace of Growth Consolidated Income Statement Consolidated Results Income Adjusted for Extraordinary Events Financial Income Income from Treasury Operations Revenues from Credit Operations Revenues from Commercial Credit to Individuals and Companies Financial Expenses Expenses with Market Funding Operations Allowance for Loan Losses Gross Profit from Financial Intermediation Financial Margin Revenue from Services Rendered Administrative Expenses Other Operating Income / Expenses

5 Economic Indicators Leverage Ratio Operating Cost Capital Ratio Employee Productivity Efficiency Ratio Margin Analysis Variations in Interest Income and Expense: Volumes and Rates Consolidated Pro Forma Balance Sheet Pro Forma Income Statements MANAGEMENT REPORT Economic Scenario Prospects and Strategies Material Events Consolidated Performance Net Income Shareholders Equity Total Assets Taxes and Contributions Operating Performance Funds Raised and Under Management Breakdown of Funds Raised and Under Management Securities Credit Operations Credit Policy Credit Performance Commercial Credit Individuals Commercial Credit Companies Microcredit Agribusiness Foreign Exchange Real Estate Loans Development and Infrastructure Credit Products, Services and Channels Banricompras Banricompras Celular Banrisul s Correspondent Bank Virtual Branch Home and Office Banking Call Center Electronic Trading Floor Smart Card Credit Cards Insurance, Private Pension and Capitalization Banrisul s Customer Service Network Subisidiaries Banrisul S.A. Administradora de Consórcios Banrisul S.A. Corretora de Valores Mobiliários e Câmbio Banrisul Armazéns Gerais S.A Banrisul Serviços Ltda Corporate Governance Investor Relations Interest on Own Capital/Dividends

6 Internal Controls and Compliance Risk Management Credit Risk Market Risk Liquidity Risk Operational Risk Basel Index Technology Modernization Public Sector Activities Municipal Government State Government Federal Government Judiciary and Public Ministry Marketing Human Resources Corporate Responsibility Awards Acknowledgements FINANCIAL STATEMENTS Balance Sheets Statement of Income Cash Flow Statement of Changes in Financial Position Statement of Value Added Notes of the Management to the Financial Statements Note 01 Operations Note 02 Presentation of the Financial Statements Note 03 Significant Accounting Practices Note 04 Interbank Investments Note 05 Securities and Derivatives Note 06 Restricted Deposits Note 07 Lending Operations, Leasing Operations and Other Receivables Note 08 Other Receivables Note 09 Prepaid Expenses Note 10 Deposits and Money Market Funding Note 11 Foreign Borrowings Note 12 Onlendings Note 13 Other Payables Note 14 Reserve for Tax, Labor and Civil Contingencies Note 15 Income from Services Rendered Note 16 Income from Bank Fees Note 17 Other Administrative Expenses Note 18 Other Operating Income Note 19 Other Operating Expenses Note 20 Shareholders Equity Banrisul Note 21 Commitments, Guarantees and Other Note 22 Income and Social Contribution Taxes Note 23 Fundação Banrisul de Seguridade Social e Cabergs Caixa de Assistência dos Empregados do Banco do Estado do Rio Grande do Sul Note 24 Financial Instruments Note 25 Balance and Transactions with Related Parties Reports

7 INDEX OF CHARTS Chart 1: Growth Rates of Rio Grande do Sul and Brazil Chart 2: Growth Rates of the Rio Grande do Sul Economy Chart 3: Total Assets Chart 4: Composition of Assets Chart 5: Securities and Liquid Interbank Transactions Chart 6: Interbank and Interbranch transactions Chart 7: Credit Operations Chart 8: Growth of Commercial Credit Operations Individuals and Companies Chart 9: Credit Portfolio by Risk Levels Chart 10: Breakdown of Allowance for Losses Chart 11: Cover Ratio Chart 12: Default Ratio Chart 13: Funds Raised and Under Management Chart 14: Cost of Funding as % of Selic Rate Chart 15: Stockholders Equity Chart 16: Return on Average Stockholders Equity Chart 17: Basel Ratio Chart 18: Commercial Credit and Total Funding, Pace of Growth in 12 months Chart 19: Net Income Chart 20: Adjusted Net Income Chart 21: Financial Income Chart 22: Revenues from Credit Operations and Leasing Chart 23: Financial Expenses Chart 24: Expenses with Market Funding Operations Chart 25: Allowance for Loan Losses Chart 26: Financial Margin Chart 27: Revenue from Services Chart 28: Personnel Expenses and Other Administrative Expenses Chart 29: Other Operating Income Chart 30: Other Operating Expenses Chart 31: Leverage Ratio Chart 32: Operating Cost Chart 33: Capital Ratio Chart 34: Employee Productivity Chart 35: Efficiency Ratio INDEX OF TABLES Table 1: Market Share Table 2: Market Share - Brazil Table 3: Market Share Rio Grande do Sul Table 4: Economic and Financial Indicators Table 5: Consolidated Cash and Cash Equivalent Breakdown Table 6: Breakdown of Credit to Companies by Company Size Table 7: Breakdown of Credit by Sector Table 8: Breakdown of Credit by Portfolio Table 9: Breakdown of General Credit to Individuals Table 10: Breakdown of General Credit to Companies Table 11: Balance of Allowance for Losses Table 12: Funding Composition Table 13: Cost of Funding Table 14: Revenues from Commercial Credit Individuals and Companies Table 15: Commercial Credit Rates Individuals and Companies Table 16: Margin Analysis Table 17: Variations in Interest Income and Expense: Volumes and Rates

8 Press Release Bovespa: BRSR3, BRSR5, BRSR6 This press release contains forward-looking statements, which not only relate to historic facts but also reflect the targets and expectations of the Company management. The terms anticipate, desire, expect, project, plan, intend and similar words are intended to identify statements that necessarily involve known and unknown risks. Known risks include uncertainties that are not limited to the price and service war impact, acceptance of services by the market, service transactions of either the Company or its competitors, regulatory approval, currency fluctuation, changes in the service mix and other risks described in the Company s reports. This Press Release is updated until the present date and Banrisul is not obliged to update it upon new information and/or future events. Tuesday, February 10, 2009 Earnings Result for the 4th quarter of 2008 We report Banrisul s important numbers for the 4th Quarter of 2008, and for the year till December The Analysis of Results, Management Report, Financial Statements and the Accompanying Notes are available at the Bank s site ( Results (R$ Million) 3Q08 4Q /2007 Gross Profit from Financial Operations , , % Income from Services Rendered % Revenue from Credit Operations and Leasing , , % Allowance for Loan Losses Expenses (97.9) (55.7) (223.4) (256.5) 14.8% Personnel and Other Administratives Expenses (362.1) (366.5) (1,267.3) (1,410.6) 11.3% Interest on Own Capital / Dividends (41.9) (81.0) (304.7) (207.0) -32.1% Consolidated Net Income % Net Income Adjusment to Non-recurring Events % Net Income in 2008 was R$590.9 million, versus R$916.4 million in Tax Credits of R$528.5 million and R$86.2 million, respectively, were booked in 2007 and Excluding the non-recurring events in these periods, Banrisul s Net Income was R$504.7 million in 2008, 30.1% more than the R$387.9 million in In the 4Q08, Net Income stood at R$171.9 million, increasing R$55.2% (R$61.2 million) over the 3Q08. Banrisul paid and provisioned R$435.8 million in Own Taxes and Contributions in 2008, equivalent to 73.8% of Net Income. Highlights (R$ Million) Sep/07 Dec/07 Sep/08 Dec/08 Dec/08 Dec/07 Total Assets 20, , , , % Total Credit Operations 7, , , , % Securities + Interbank Invetments - Matched Transactions 6, , , , % Funding 15, , , , % Stockholders' Equity 2, , , , % 9

9 Total Assets were R$25,205.4 million at the end of December 2008, 23.2% (R$4,748.5 million) over December 2007 and 1.2% (R$300.5 million) lower than in September The volume of Credit Operations was R$11,453.6 million in December 2008, which is 42.7% more than in December The Default Ratio, considering payments overdue for more than 60 days, including the amount overdue and to fall due, was 3.3% in December General Credit to Individuals in December 2008 was R$3,880.8 million, a 43.0% (R$1,167.7million) over December 2007, while General Credit to Companies reached R$4,357.0 million at the end of December 2008, which is 54.9% (R$1,543.4 million) in twelve months. Payroll-deducted Credit at the end of December 2008, amounting to R$2,799.2 million, represented 72.1% of total General Credit to Individuals, up by 45.0% (R$869.2 million) in 12 months. In the General Credit to Companies, Working Capital operations amounted to R$3,364.7 million, representing 77.2% of the total, a 60.0% (R$1,262.0 million) growth in the past 12 months. Investments in Securities totaled R$8,563.6 million (including Liquid Interbank Transactions and excluding Liabilities from Matched Transactions) in December 2008, 29.3% higher than 2007 and 23.8% higher than September Funds Raised and Under Management increased 11.1% last year to R$19,058.2 million at the end of December 2008, led by Term Deposits of R$7,557.8 million, representing 39.7% of the total, Funds under Management totaling R$4,802.1 million, representing 25.2% and Savings Accounts of R$4,805.9 million, representing 25.2%. Shareholders Equity was R$3,079.1 million in December 2008, growing 10.3% in twelve months. In 4Q08, Shareholders Equity grew 3.6%. The Basel Ratio, calculated according to the New Capital Accord (Basel II), was 20.1%. Indexes (%) 3Q08 4Q Net Income / Average Stockholders' Equity (ROAE) 15.9% 24.7% 44.8% 20.1% Net Income / Average Total Assets (ROAA) 1.8% 2.7% 5.1% 2.6% Operating Cost 5.3% 5.6% 6.1% 5.6% Efficiency Ratio 56.6% 55.9% 55.1% 55.9% Basel Ratio (¹) 17.7% 20.1% 26.0% 20.1% Capitalization Ratio 15.5% 16.2% 16.3% 16.2% (¹) In 2008, calculated pursuant New Capital Accord criteria (Basel II) Consolidated Cash and Cash Equivalent Breakdown (R$ Million) Dec/08 Cash ,4 Own Securities... 7,549,6 Linked Securities ,6 Linked Securities to Matched Transactions... 2,287,9 Derivatives ,9 Interbank Deposits ,7 Restricted Accounts (cash)... 1,318,4 Total... 12,384,5 Funds making up the Consolidated Funds represent 49.1% of the Bank s total assets. The cash position demonstrates the Bank s solidity and capacity to sustain the growth of the portfolios. The policy on treasury has not changed in recent months, with the total net funds being invested in federal government bonds indexed to the Selic rate, treasury bills or matched transactions (in which Banrisul is the offeror), always pegged to federal government securities, without involving any exposure to foreign exchange, swaps or derivatives. 10

10 Financial Margin (R$ Million) 3Q08 4Q /2007 Net Financial Margin , , % Gross Profit from Financial Operations , , % Average Profitable Assets(¹) 22, , , , % Net Financial Margin(²)(%) 9.6% 10.3% 9.8% 9.4% Gross Profit from Financial Operations(³)(%) 7.7% 9.2% 8.5% 8.2% (¹) Average Assets in the period in analysis. (²)Net Financial Margin / Average Profitable Assets (Annualized). (³)Gross Profit from Financial Operations / Average Profitable Assets (Annualized). Net Financial Margin in 2008 was R$1,978.9 million, up 20.1% over the R$1,648.1 million in In 4Q08, Net Financial Margin was R$571.2 million, 12.0% more than in 4Q07. The percentage of Net Financial Margin on Average Interest-Earning Assets was 9.4% in 2008 and 10.3% in 4Q08, as against 9.6% in 3Q08, mainly due to the growth in the Avolume of credit operations and treasury assets. Highlights In March, the Annual and Extraordinary General Meeting approved a 10% increase in the dividends for the fiscal years 2007 and 2008, totaling 35% of Net Adjusted Income. In May, the risk rating agency Austin Rating raised Banrisul s long-term risk rating from A to A+, which was retained in the latest valuation. The rating upgrade was based on the Bank s excellent capitalization, dispersal of assets and liabilities, diverse funding sources, quality of loans, adequate liquidity levels, profitability and expansion of its area of operations through inauguration of new branches outside the state. Investments in modernization and technology totaled R$151.9 million in 2008, equivalent to 25.7% of Net Income. Awards Banrisul features the best return on shareholders equity amid Brazilian banks. Banrisul is one of the best investment options for Banrisul is awarded for developing the integrated card. Corporate Reputation Award Banrisul enters the list of the largest companies of the world. Banrisul receives the trophy Outstanding Smart Card Achievement Latin America. 11

11 Banrisul is acknowledged as Brazil s Best Financial Public Conglomerate. Banrisul receives Respect for Individual Investors award. Banrisul receives award in national IT event. Banrisul receives Top Citizen 2008 award in the companies category. Banrisul is considered as one of the best Brazilian retail banks. Banrisul receives National Corporate Socio-Environmental Responsibility Award. Banrisul ranks 15 th in Grandes e Líderes 2008 ranking 500 Largest Companies in the South region. Banrisul featured in Febraban s Social Report. Sinduscon Premium 2008 award for Financial Institution of the Year. Banrisul is Top of Marketing 2008 in the Banks category. Banrisul is Brazil s 50 th biggest economic group. Banrisul named one of the most valuable brands in Latin America. Mérito Lojista 2008 award. Porto Alegre, February 10,

12 Analysis of Performance 4th Quarter FOLLOWING IS THE PERFORMANCE OF BANCO DO ESTADO DO RIO GRANDE DO SUL S.A. IN 4Q08 AND THE YEAR 2008.

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14 Financial Highlights In the beginning of 2008, Brazil s banking sector witnessed a scenario of stable interest rates, longer payment terms, low default rates and strong credit expansion on account of the strong economic growth outlook for the country. The adverse factors were the high funding costs due to the need for maintaining deposits to meet the credit expansion, and the 250 p.p. rise in the Selic rate due to the rising inflation vis-à-vis the target for The second half of the year saw the worsening of the international financial crisis, triggered by the U.S. subprime crisis in August 2008, which affected the Brazilian economy, albeit to a lesser extent than other developed economies, partly due to the remedial efforts of the Central Bank of Brazil. The measures taken by the Brazilian monetary authority included changes in the rules relating to compulsory deposits, incentives to trading of assets among financial institutions and restoration of liquidity conditions in foreign currency. Banrisul, thanks to its vast branch network and a dispersed funding structure, was not affected by liquidity problems. The lowering of compulsory deposit served to maintain the high liquidity buffer. In 4QO8, the treasury policy remained focused on government bonds, without any foreign exchange exposure, swap or derivatives operations. The strong capital structure, consequent to the public share offering in 2007, equally helped to sustain the Bank s growth. Consolidated Net Income in 2008 totaled R$590.9 million, compared to R$916.4 million in The results of both periods were impacted by the booking of deferred income tax and social contribution credits on temporary differences relating to earlier periods, in the amount of R$528.5 million in 2007 and R$86.2 million in Excluding the effect of tax credits, Net Income in 2008 was R$504.7 million, which is R$116.8 million or 30.1% higher than the R$387.9 million in In 4QO8, consolidated Net Income totaled R$171.9 million, 55.2% up over 3QO8. The 2008 result represents a 20.1% return on Average Stockholders Equity, which was R$3,079.1 million in December 2008, a 10.3% increase over 2007 and 3.6% over September Gross Profit from Financial Intermediation was R$1,722.4 million in 2008, 20.9% up on Gross profit in 4QO8 was R$103.2 million more than in 3QO8, reflecting the increase in credit revenue on account of the growth in the volume of operations and higher revenues from treasury operations. Consolidated Assets totaled R$25,205.4 million in 2008, 23.2% up year-on-year and 1.2% down from previous quarter. The Asset growth in the year reflects the strong credit expansion, in line with the dynamic economic scenario in Brazil. In 4Q08, the deepening international financial crisis caused a change in the market funding policy, resulting in a slight reduction in total assets. 15

15 Banrisul s credit operations totaled R$11,453.6 million at the end of December 2008, a 42.7% increase year-on-year and 4.9% over the previous quarter. The Commercial Portfolio totaled R$8,237.9 million, a 49.1% growth in twelve months and 3.2% in the past three months. General Credit to Companies totaled R$4,357.0 million at the end of December 2008, growing by 54.9% over December 2007 and 2.8% over 3QO8. General Credit to Individuals totaled R$3,880.8 million in December 2008, up 43.0% year-on-year and 3.7% over September Funds Raised and Under Management totaled R$19,058.2 million in December 2008 a nominal growth of 11.1% in relation to December 2007 and 0.8% lower than in September Deposits in December 2008 totaled R$14,256.1 million, a 15.3% growth over December 2007 and 6.3% over September Funds under Management totaled R$4,802.1 million, a 0.4% increase over December 2007 and 17.1% reduction from September 2008, mainly due to the exit of exclusive fund. In 2008, Banrisul paid and provisioned R$435.8 million by way of own taxes and contributions. Taxes on financial intermediation revenues, withheld and paid, totaled R$452.8 million. 16

16 Banco do Estado do Rio Grande do Sul S.A. Banrisul completed 80 years in Established on September 12, 1928, the Bank is a mixed-capital company constituted as a sociedade anônima (corporation). Its controlling shareholder is the state of Rio Grande do Sul, which owns 57.0% of the capital stock. Accounts Payable, Bank Account Direct Debit Deposits: demand, time, saving Financing: Agribusiness, Vehicules and Machines and Equipments Virtual Branch As a multiple-service bank, Banrisul operates in commercial banking, credit, financing and investments, real estate credit, development and leasing. Investiments Funds Foreign Exchange, Consortium Product Portfolio Receivable Discount, Collection of Debt Instruments Payroll, Guarantee Letter Banricompras Loans: Individual, Payroll-deductible, Consumer Loan, Housing Working Capital, Vendor, Compror, Leasing Credit Card Through its commercial portfolio, Banrisul offers consumer finance and related services for individuals and working capital loans for micro, small and medium enterprises, while also serving the agricultural and public sectors and large companies. Through its development portfolio, Banrisul acts as a business intermediary and agent to foster the production chains in the state. On the social sphere, it sponsors projects aimed at improving the quality of life of gauchos (the people of Rio Grande do Sul), especially in the areas of education, culture, sports and environment. Banrisul Network Branches 427 Rio Grande do Sul 395 Santa Catarina 16 Other States 14 Exterior 2 Services Posts 280 Eletronic Sales Point 435 Total Banking Services 1,142 Municipalities of Rio Grande do Sul 496 Municipalities with Branches Banrisul 294 Municipalities with Banking Sevices Banrisul 112 Municipalities of Rio Grande do Sul with Services Banrisul 406 Service Range of Rio Grande do Sul 81.65% Participation of Population of State Range 97.78% Participation of GDP of State Range 97.30% Although the Bank's service network is concentrated in the state of Rio Grande do Sul, to serve its 3 million clients, it has 1,142 service points distributed among 395 branches in the state of Rio Grande do Sul, 32 in other Brazilian states, 280 service posts and 435 electronic sales points. The Banrisul group comprises the Banco do Estado do Rio Grande do Sul S.A., Banrisul S.A. Administradora de Consórcios, Banrisul S.A. Corretora de Valores Mobiliários e Câmbio, Banrisul Armazéns Gerais and Banrisul Serviços Ltda. 17

17 The State of Rio Grande do Sul Rio Grande do Sul is located in the southernmost part of Brazil. With an area of 281,800 km², it occupies a little more than 3% of the country s territory and its population of 10.6 million (2007) represents 6% of the country s total. It is the country s largest producer of grains and the second most important business and industrial center. Rio Grande do Sul has the country s fourth biggest GDP and ranks third in the Human Development Index. According to the preliminary estimates of the Economic and Statistics Foundation (FEE), the state s GDP grew 3.8% in real terms in 2008 to R$193.5 billion. The state economy slowed down in relation to the growth in 2007 (7.0%) and in comparison with the 4.7% growth that FEE estimates for Brazil s GDP in 2008, even though Banrisul would assume a 5.4% growth for this item. Chart 1: Growth Rates of Rio Grande do Sul and Brazil

18 This slowdown in the state economy in 2008 especially reflected in the results of the agricultural sector and its impact on other sectors. The long-drawn drought was the reason behind the significant decline in the state s grain production. The substantial growth in the industrial sector was due to the growth in the industrial and construction segments. The services sector grew by 4.6% in 2008, driven by the growth in its component segments commerce, transport, public administration and other services. Chart 2: Growth Rates of the Rio Grande do Sul Economy

19 Market Share Most of the bank branches in Brazil are concentrated in the southeast and south, principally in the big cities. The biggest banks in Brazil favor such markets even though they have branches all over the country. Banrisul is a regional bank, with its branch coverage serving 97.3% of the state s GDP. Yet, its position as one of the 50 biggest banks, according to the Brazilian Central Bank s ranking, proves its importance at the national level. As of June 2008, Banrisul was ranked 9th in the number of branches, 10th in volume of deposits, 13th in assets and 14th in stockholders equity. Competitive Positioning Index Dez/2004 Dez/2005 Dez/2006 Dez/2007 Set/2008 Total Assets 15º 15º 14º 14º 13º Stockholders' Equity 19º 19º 18º 14º 14º Net Income 12º 13º 14º 13º 13º Total Deposits 12º 12º 12º 11º 10º Number of Branches 10º 10º 10º 10º 9º Source: 50 largest Banks - Central Bank of Brazil Table 1: Market Share The volume of credit in Brazil reached R$1.2 trillion in December 2008, a 31.1% growth over December 2007 and 6.5% over September Credit operations represented 41.3% of the GDP in December At Banrisul, volume of credit grew 42.7% over December 2007 and 4.9% over September 2008, representing growth of 11.6 p.p. over that of the country s financial sector and 1.6 p.p. lower year-on-year. The growth in the past 12 months reflected an increase in the market share between December 2007 and December Money supply totaled R$2.2 trillion in December 2008, in line with domestic demand, and specifically, the continued credit growth. The M4, the broadest measure of money supply, rose 18.5% in 12 months. At Banrisul, deposits and funds raised and under management grew 11.1% in the same period. The growth in the market share fell from % in December 2007 to % in December Competitive Market of Brazil Index Dec/2006 Dec/2007 Dec/2008 Brazil Banrisul % Brazil Banrisul % Brazil Banrisul % Time Deposits (Million) 281,968 5, % 298,147 5, % 550,139 7, % Saving Deposits (Million) 187,864 3, % 234,672 4, % 271,111 4, % Demand Deposits (Million) 105,421 1, % 149,179 1, % 132,125 1, % Credit Operations (Million) 732,590 6, % 935,973 8, % 1,227,401 11, % Number of Branches 17, % 18, % 18, % Source: Central Bank of Brazil-Sisbacen (Reclassified) Table 2: Market Share - Brazil 20

20 The evolution of financial volumes in December 2006 and 2007 and in November 2008, the latest available information for the region, is provided in the table below. In Rio Grande do Sul, Banrisul accounted for 26.1% of the branches in operation, 30.4% of time deposits and 17.6% of credit operations at the end of Competitive Market of Rio Grande do Sul Dec/2006 Dec/2007 Nov/2008 Index State of Rio State of State of Grande do Banrisul % Rio Grande Banrisul % Rio Grande Banrisul % Sul do Sul do Sul Total Deposits (Million) 44,241 10, % 54,621 12, % 61,790 13, % Time Deposits (Million) 16,580 5, % 18,917 5, % 25,370 7, % Saving Deposits (Million) 15,914 3, % 20,078 4, % 21,175 4, % Demand Deposits (Million) 6,239 1, % 8,891 1, % 6,826 1, % Credit Operations (Million) 37,963 5, % 46,844 6, % 53,823 9, % Number of Branches 1, % 1, % 1, % Source: Central Bank of Brazil-Sisbacen (Reclassified) Table 3: Market Share Rio Grande do Sul Operational Highlights In May 2008, the risk rating agency Austin Rating raised Banrisul s long-term risk rating from A to A+, based on the Bank s excellent capitalization, dispersal of assets and liabilities, diverse funding sources, quality of loans, adequate liquidity levels, profitability and expansion of its area of operations through inauguration of new branches outside the state. The A+ rating signifies that the Bank has solid intrinsic fundamentals, operates within safety limits and has a good financial condition. The business environment may change without affecting the bank s operations. Risk is very low. Investments in technological upgrade totaled R$151.9 million in Banrisul remained at the vanguard of banking technology in the year, with the biggest novelty being the launch of the multiuse card that was developed in-house as a support mechanism for, in addition to conventional operations, digital certification. The certification technology embedded in the card adds greater security to the transactions as it allows clients to have a single password for all the channels. The project is being tested by the employees of the Bank and a few public entities and should be extended to the Bank s account holders in the first half of The objective is to migrate the entire client base to the chip technology within two years. 21

21 Economic and Financial Indicators Table 4: Economic and Financial Indicators Results - R$ Million 2007(**) 2008(**) % % 3Q08(**) 4Q /2007 4Q08/3Q08 Gross Profit from Financial Operations 1, , Income from Services Rendered (1.9) Administrative and Other Operational Expenses (¹) 1, , Income from Operations Consolidated Net Income (*) (35.5) Used / Distributed Results - R$ Million Interest on Own Capital - Dividends (²) (32.1) Banlance Sheets - R$ Million Total Assets 20, , , ,205.4 (1.2) Total Lending (³) 8, , , , Own Funding, Net and Under Management 17, , , ,058.2 (0.8) Stockholders' Equity 2, , , , Equity Index 2, , , , Average Stockholders' Equity 2, , , , Average Total Assets 18, , , , Financial Index (%) per Year Return on Total Assets 4.5% 2.3% 1.7% 2.8% Efficiency Ratio (⁴) 55.1% 55.9% 56.6% 55.9% Basel Ratio 26.0% 20.1% 17.7% 20.1% Fixed Assets Ratio (⁵) 4.6% 4.9% 5.3% 4.9% ROAE Annualized (⁶) 44.8% 20.1% 15.9% 24.7% ROAE Annualized Ajusted (⁷) 21.8% 17.5% 15.9% 24.7% ROAA Annualized (⁸) 5.1% 2.6% 1.8% 2.7% ROAA Annualized Ajusted (⁹) 2.2% 2.2% 1.8% 2.7% (1) Including Personnel Expenses, Other Administrative Expenses and Other Operational Expenses. (2) In 9M08, includes Dividends of R$132.5 million paid in March 2008, as decided by the Annual and Extraordinary General Meeting and paid starting from April 23, 2008, including R$87.1 million as complementary dividend for the previous year. (3) Total Credit Portfolio. (4) Efficiency Ratio 12-month period accumulation. Personnel Expenses + Other Administrative Expenses / Net Financial Margin + Revenue from Services Provided + (Other Operating Income Other Operating Expenses) (5) Fixed Assets / Stockholders Equity. (6) Net Income / Average Stockholders Equity. (7) Adjusted Net Income / Adjusted Average Shareholders Equity. (8) Net Income / Average Total Assets. (9) Adjusted Net Income / Adjusted Average Total Assets. (*) Including the effects of tax credits of R$528.5 million booked in March 2007 and R$86.2 million in May (**) Reclassified. 22

22 Consolidated Balance Sheet 2008 Total Assets Total Assets at the end of December 2008 amounted to R$25,205.4 million, 23.2% (R$4,748.5 million) up on December 2007, 8.5% (R$1,982.3 million) over June 2008 and a slight 1.2% decline (R$300.5 million) from September The growth in assets in the past twelve months is due to the higher volume of deposits and the increase in the Reserve Fund for Judicial Deposits, amounting to R$3,863.1 million. In 4QO8, the increase in these deposits was R$1,327.9 million. The Asset composition mainly consists of credit and treasury operations amounting to R$3,429.5 million and R$1,945.7 million respectively, in the past 12 months, and R$535.8 million and R$153.3 million in 4Q08. Total Assets remained practically stable in the last quarter. The relaxation of the compulsory deposits enabled market funding operations, resulting in differences between assets and liabilities positions which did not affect the total balances. Also worth mention is the creation this year of the Intangible asset group pursuant to Law 11638/07 of 12/03/2008 and Provisional Measure 449, which amend, revoke and introduce new provisions to Brazilian Corporate Law (Lei das Sociedades por Ações) in order to align Brazilian and international accounting norms. Intangible assets totaled R$204.5 million, mainly represented by the reclassification of payroll acquisition rights, in the amount of R$191.2 million, from the Prepaid Expenses group. Chart 3: Total Assets (R$ Million) Of the total asset balance in December 2008, 45.4% are Credit operations, 42.8% are Liquid Interbank Transactions and Securities, 7.0% Interbank and Interbranch accounts and 4.8% are Other Assets. Chart 4: Composition of Assets (R$ Million) 23

23 Securities Investments in Securities totaled R$8,563.6 million at the end of December 2008, up 29.3% over December 2007, 30.0% over June 2008 and 23.8% over September This amount includes Liquid Interbank Transactions but excludes Total Liabilities from Matched Transactions. The significant evolution in treasury operations in the past 12 months reflects the Bank s strategy of allocating more funds to credit assets. When comparing investments in treasury operations, net of matched transactions, and the sum of treasury, interbank transactions and credit operations, it can be seen that treasury operations declined 2.4 p.p. in 12 months, which was driven by credit assets. Chart 5: Securities and Liquid Interbank Transactions * (R$ Million) * Excluded the Matched Transactions. Note that in 4Q08, the liquidity crisis that ravaged the international markets did not significantly affect Banrisul s capital structure. Considering only the asset positions, Liquid Interbank Transactions and Securities grew 1.4% over September 2008, which demonstrates the Bank s solid treasury management. Interbank and Interbranch Transactions The balance of Interbank and Interbranch transactions was R$1,767.8 million at the end of December 2008, R$941.1 million (34.7%) lower than in December 2007 and R$1,105.0 million (38.5%) lower than in September Chart 6: Interbank and Interbranch transactions (R$ Million) These transactions mainly represent the cash deposits made with the Brazilian Central Bank to meet the mandatory reserve requirements. The oscillations reflect the changes made by the Brazilian Central Bank since September 2008 in the mandatory reserve requirements in order to bring back liquidity in the domestic market affected by the international financial crisis. 24

24 The following table highlights Banrisul s consolidated cash and cash equivalent assets, which represent 49.1% of the Bank s total assets. The available cash demonstrates the Bank s solid financial health and its ability to sustain the growth of its portfolios. The policy on treasury has not changed in recent months, with the entire net funds being invested in federal government bonds indexed to the Selic rate, treasury bills or matched transactions (in which Banrisul is the offeror), always pegged to federal government securities, without involving any foreign exchange exposure, swaps or derivatives operations. Table 5: Consolidated Cash and Cash Equivalent Breakdown (R$ Million) Consolidated Cash and Cash Equivalent Breakdown (R$ Million) Dec/08 Cash Own Securities 7,549.6 Linked Securities Linked Securities to Matched Transactions 2,287.9 Derivatives Interbank Deposits Restricted Accounts (cash) 1,318.4 Total 12,384.5 Credit Operations The year 2008 was marked by the strong demand for credit in the domestic financial system, especially from companies, due to the favorable economic outlook. However, with the continuous rise in the basic interest rate since April 2008 and the worsening of the international financial crisis in September 2008, credit operations became more restricted through higher interest rates and shorter terms. Volume of credit operations at Banrisul totaled R$11,453.6 million in December 2008, which is 42.7% higher than in December 2007, 15.1% than in June 2007 and 4.9% higher than in September Chart 7: Credit Operations (R$ Million) 25

25 Breakdown of Credit by Company Size Of the total credit operations as in December 2008, 57.7% represented credit to Companies and 42.3% to Individuals. The breakdown of credit operations to Companies by company size is given in the following table. Table 6: Breakdown of Credit to Companies by Company Size (R$ Million) The criterion used for determining company size is average monthly revenue: micro up to R$20,000; small up to R$200,000, mid-sized up to R$10million and large above R$10 million. It must be noted that at the national level, the strong growth in credit to Companies did not decline in 4Q08 because of the crisis of confidence in the global financial markets. In fact, the restrictions to foreign funds sustained the domestic working capital requirements. At Banrisul, the pace of growth in credit to Companies slowed down in comparison with the previous quarters. The volume of credit to Companies increased by 53.9% in the past 12 months, with the share of Large Companies rising from 22.0% to 27.1% of the total volume. In 4QO8, the Large Companies segment increased its share of total credit to Companies by 7.1 p.p. in relation to 3QO8. Breakdown of Credit by Sector The breakdown of the credit portfolio by sector is given in the following chart. Of the total loans disbursed, 98.3% went to the private sector at the end of December 2008, up 43.9% in 12 months. The highlight was the business segment, in which Industry and Commerce grew by 62.7% and 43.6%, respectively, representing 39.1% of total credit. Table 7: Breakdown of Credit by Sector (R$ Million) 4Q07 3Q08 4Q08 4Q08/3Q08 4Q08/4Q07 Municipality Public Sector Government - Direct and Indirect Management % -10.7% Corporate - Other Services % 41.0% Total Public Sector % -4.3% Private Sector Rural % 38.8% Industrial 1, , , % 62.7% Commercial 1, , , % 43.6% Other Services , , % 35.4% Individuals 2, , , % 43.0% Housing % 18.7% Total Private Sector 7, , , % 43.9% Total 8, , , % 42.7% 26

26 Breakdown of Credit by Portfolio The Portfolio breakdown shows the free and directed credit invested in loan assets. Investments in the Commercial portfolio, Leasing and the Public sector, which account for 74.4% of the total portfolio, are funded from deposits and own capital. The Development, Rural, Real Estate and Foreign Exchange portfolios, representing 25.6% of the portolio, are mostly from specific funding sources and hence used for directed credit. The Commercial portfolio, which consists of the Individual and Companies segments, totaled R$8,237.9 million at the end of December 2008, representing 71.9% of the total credit volume. Real estate credit totaled R$961.3 million at the end of December 2008, representing 8.4% of the total credit volume. The volume of real estate credit, most of which pertained to operations under the National Housing Finance System (SFH), grew 18.7% in 12 months and 3.4% over September Rural credit totaled R$853.1 million in December 2008, which was 38.8% higher than in December 2007 and 17.8% higher than in the third quarter of this year, due to the higher volume of funds allocated to agricultural activities and sales. At the end of December 2008, Rural Credit represented 7.4% of total credit operations, with funding of agricultural activities representing 67.1% of total Rural Credit. The Development portfolio at the end of December 2008 was R$666.4 million, representing 5.8% of total credit volume. Longterm loans, basically based on BNDES funds, grew 35.4% in 12 months and 6.1% in relation to September Tablet 8: Growth of Credit by Portfolio (R$ Million) Credit Portfolios 4Q07 3Q08 4Q08 4Q08/3Q08 4Q08/4Q07 Commercial Credit - Private Sector 5, , , % 49.1% Individuals 2, , , % 43.0% Companies 2, , , % 54.9% Public Sector % -4.3% Development % 35.4% Housing % 18.7% Rural Credit % 38.8% Foreign / Export % 32.2% Lease - Companies % 125.0% Total Credit Operations 8, , , % 42.7% The growth in the total credit volume is basically due to the growth in Commercial Credit which, in turn, was driven by the continued growth in credit to Companies. Of the increase of R$3,429.5 million in total credit portfolio in the past 12 months, R$2,711.1 million came from the Commercial Portfolio, which grew 49.1% over December In the previous quarter, growth was 3.2% or R$257.3 million. The Individuals segment totaled R$3,880.8 million at the end of December 2008, accounting for 47.1% of the Commercial Portfolio and 33.9% of the Bank s total credit operations. The Companies segment, Chart 8: Growth of Commercial Credit Operations Individuals and Companies (R$ Milhões) amounting to R$4,357.0 million in December 2008, accounted for 52.9% of Commercial Credit and 38.0% of total credit. 27

27 General Credit to Individuals General credit to individuals, in terms of the Brazilian financial system, grew briskly in the first half of 2008 but lost pace in the second half of the year, mainly in the last quarter, especially in payroll-deducted loans and auto loans. At Banrisul, General Credit to Individuals in December 2008 totaled R$3,880.8 million, growth of 43.0% (R$1,167.7 million) over December 2007, 12.6% (R$434.3 million) over June 2008 and 3.7% (R$137.7 million) over September The deceleration of growth in other financial institutions was also witnessed in Banrisul. The main type of general credit to individuals is payroll-deducted credit, which, at the end of December 2008, represented 72.1% of total Commercial Credit to Individuals and 34.0% of Commercial Credit. The growth in payrolldeducted credit was 45.0% (R$869.2 million) in 12 months and 6.6% (R$174.2 million) in relation to September The breakdown of General Credit to Individuals follows. Table 9: Breakdown of General Credit to Individuals (R$ Million) 4Q07 3Q08 4Q08 4Q08/3Q08 4Q08/4Q07 Payroll-deductible Loan 1, , , % 45.0% Payroll-deductible Individual Loan 1, , , % 47.5% Own Portfolio 1, , , % 32.2% Third-party Acquired Portfolio % 151.0% Vehicule Loan % 9.3% Payroll-deductible Vehicule Loan % 3.7% Non Payroll-deductible % 53.2% Individual Loan % 40.2% Overdraft Account % 44.0% Others - Individuals % 25.1% Total Individuals 2, , , % 43.0% General Credit to Companies Demand from companies for credit continued high in 2008, including in the year-end, due to the scarcity of foreign funding sources and lower dynamism of the domestic capital markets, which reflected in the continued demand for funds. At Banrisul, General Credit to Companies totaled R$4,357.0 million at the end of December 2008, representing growth of 54.9% (R$1,543.4 million) in 12 months, 17.1% (R$635.0 million) in 6 months and 2.8% (R$119.6 million) in the last 3 months. Working Capital operations account for the biggest share at the end of December 2008, with 77.2% of total General Credit to Companies and 40.8% of Commercial Credit. Working Capital loans grew 60.0% or R$1,262.0 million in 12 months and 4.8% (R$153.0 million) in relation to September The breakdown is given below. Table 10: Breakdown of General Credit to Companies (R$ Million) 4Q07 3Q08 4Q08 4Q08/3Q08 4Q08/4Q07 Guaranted Account % 113.8% Working Capital 2, , , % 60.0% Vendor % -10.7% Debt Instruments Discount % 23.5% Other - Companies % -0.3% Total Companies 2, , , % 54.9% 28

28 Breakdown of Credit by Rating Banrisul s credit management policy is focused on monitoring the quality of the portfolio. Risk is minimized by increasing the volume of payrolldeducted operations, selective operations with large companies, and dispersal of credit to small and medium companies, thereby enabling the continuous improvement of the portfolio quality. At the end of December 2008, credit operations rated between AA and C, signifying normal risk according to Resolution 2682/99 of the Brazilian Central Bank, represented 85.8% of the credit portfolio, as also in September 2008, and higher than the 82.1% in December Allowance for Loan Losses Allowance for loan losses was R$970.7 million, equivalent to 8.5% of the consolidated credit portfolio. In December 2007, the allowance was 11.1% and, in September 2008, 9.0%. The decrease in the proportion of allowance to the volume of credit is chiefly due to the 42.7% growth in the portfolio in 2008, mainly targeted at low-risk clients. Chart 9: Credit Portfolio by Risk Levels (%) Chart 10: Breakdown of Allowance for Losses (R$ Million) The breakdown of allowance for loan losses in December 2008, according to Resolution 2682/ 99 of the Brazilian Central Bank, was as follows: R$325.9 million for operations with installments overdue for more than 60 days; R$575.6 million for contracts due or that are overdue for up to 60 days; and R$69.2 million, relating to the allowance in excess of the minimum required by Resolution 2682/99 of the National Monetary Council, which was constituted based on the periodical portfolio risk analysis made by the Bank s Management ever since the resolution was published. Rating Required Provision % Table 11: Balance of Allowance for Losses (R$ Million) Accumulated Total Portfolio Relative Status Consolidated % Total Credits Past Due Total Credits Receivable Minimum Provision Past Due Receivable Resolution 2682 Exceeded Provision Total Provision Effective Provision Over Portfolio % AA 0.0% 2, % 0.0 2, % A 0.5% 4, % 0.9 4, % B 1.0% 2, % 0.6 2, % C 3.0% % % D 10.0% % % E 30.0% % % F 50.0% % % G 70.0% % % H 100.0% % % Total 11, , % 29

29 Cover Ratio Credit operations overdue for more than 60 days and that do not generate revenue totaled R$374.1 million in December 2008, representing 3.3% of the total credit portfolio. The following graph shows the Cover Ratio, which is the percentage between the allowance for loan losses and the balance of operations overdue for more than 60 days that did not generate revenue, which shows the capacity to cover defaults with provisions. Chart 11: Cover Ratio (%) Default Ratio Banrisul s risk management policy, which focuses on leveraging lower-risk portfolios, has proven successful, given the stability in default levels in operations overdue for more than 60 days, in comparison with the total credit portfolio, as shown in the graph below. Chart 12: Default Ratio (%) 30

30 Funds Raised and Under Management Funds Raised and Under Management totaled R$19,058.2 million at the end of December 2008, which is 11.1% more than in December 2007, but practically unchanged in comparison with June and September Chart 13: Funds Raised and Under Management (R$ Million) The growth of R$1,908.3 million in the past 12 months comes mainly from the increase in deposits, amounting to R$1,890.1 million. In the past 6 months, deposits contributed R$1,251.3 million and in the last quarter, R$841.2 million of additional funds. Demand Deposits Demand Deposits, which make up 9.8% of the Funds Raised and Under Management, totaled R$1,864.0 million at the end of December 2008, representing growth of 2.0% (R$36.3 million) over the same period last year and growth of 26.1% (R$386.0 million) over September Savings Deposits Savings deposits totaled R$4,805.9 million at the end of December 2008, growth of 3.7% (R$172.1 million) over December 2007 and 6.6% (R$295.8 million) over September These funds represent 25.2% of the total Funds Raised and Under Management. Time Deposits Time deposits represent 39.7% of Total Funds Raised and Under Management. At the end of December Time Deposits totaled R$7,557.8 million, which is 28.5% (R$1,676.7 million) over December 2007 and 2.1% (R$152.9 million) over September Being the main funding instrument for credit operations, they get encouragement through business policies. 31

31 Third Party Funds Third party funds under management totaled R$4,802.1 million at the end of December 2008, representing growth of 0.4% (R$18.1 million) over December 2007 and a decline of 17.1% (R$988.2 million) from September 2008, caused mainly by the exit of exclusive fund. Table 12: Funding Composition (R$ Million) Cost of Funding In the past 12 months, the growth in the volume of funds raised came at a time of financial instability; however, Banrisul s average funding costs, in relation to the basic interest rate (Selic), presented a slight increase, from 74.1% in 4QO7 to 75.0% in 4QO8. The increase in the average cost of Time Deposits, from 2.4% in 4QO7 to 3.0% in 4QO8, is related to the funding structure, with 66.0% represented by floating-rate operations. With the rise in the Selic, however, average cost of term deposits absorbs a lower portion of the basic rate, falling from 90.1% in 4QO7 to 88.6% in 4QO8. In the previous quarter, the increase in average Chart 14: Cost of Funding as % of Selic Rate funding costs, from 2.3% to 2.5%, reflects the raise in the Selic rate, the principal index of remuneration on deposits. Table 13: Cost of Funding (R$ Million) 4Q07 4Q07 3Q08 3Q08 4Q08 4Q08 Average Accumulated Average Average Accumulated Average Average Accumulated Average Balance Expense Cost Balance Expense Cost Balance Expense Cost Demand Deposits 1, , ,599.9 Saving Deposits 4,350.0 (65.9) 1.52% 4,491.7 (79.4) 1.77% 4,642.4 (83.0) 1.79% Time Deposits* 5,872.9 (140.7) 2.40% 7,251.3 (204.5) 2.82% 7,564.9 (225.2) 2.98% Interbank Deposits (0.3) 2.48% 12.0 (0.4) 3.12% Credit Guarantee Fund Expenses (4.3) (4.9) (5.1) Matched Transactions Expenses 2,446.8 (69.1) 2.82% 3,003.0 (91.2) 3.04% 2,816.3 (106.0) 3.76% Payable for Financial and Development Funds Investment Deposits Total Average Balance / Total Expenses 14,223.9 (280.1) 1.97% 16,222.0 (380.3) 2.34% 16,649.1 (419.7) 2.52% Selic 2.66% 3.24% 3.36% Average Cost / Selic 74.09% 72.39% 75.00% Cost of Time Deposits / Selic 90.15% 87.07% 88.56% 32

32 Stockholders Equity At the end of December 2008, Stockholders Equity of Banrisul was R$3,079.1 million, growth of 10.3% over December 2007, 5.9% over June 2008 and 3.6% over September The growth is due to the incorporation of the periods results and payment of interest on own capital and dividends. The General and Extraordinary General Meeting of the stockholders approved a 10% increase in the dividends relating to the years 2007 and 2008, by which dividends increased from 25% to 35% of adjusted net income. Thus, during 2008, a total of R$87.0 million had been paid as additional dividend for the fiscal year 2007 and R$168.5 million as interest on equity. Moreover, complementary dividends amounting to R$38.5 million relating to 2008 were provisioned and should be paid on the Chart 15: Stockholders Equity (R$ Million) date to be decided at the General and Extraordinary General Meeting of the stockholders. Return on Average Stockholders Equity Return on average stockholders equity was 20.1% in 2008, in line with estimates for the period, reflecting the Bank s capacity in managing its assets. Chart 16: Return on Average Stockholders Equity Basel Ratio Since July 2008, the Basel Ratio is being calculated according to the Basel II norms, the rules of the Brazilian Central Bank relating to the implementation of structures for management of operational and market risks, rules relating to the calculation of Reference Equity, as per Resolutions 3,444, 3,464 and 3,490 and Circulars 3,360, 3,361, 3,362, 3,363, 3.364, 3,365, 3,366, 3,368, 3,383 and 3,389. The Brazilian Central ank has set the minimum ratio at 11.0%. Chart 17: Basel Ratio * In 2008, calculated according to Basel II norms. 33

33 The Basel Ratio represents the ratio of reference equity to risk-weighted assets, which shows the Company s capital adequacy. Banrisul s Basel Ratio in December 2008 was 20.1%, 9.1 p.p. over the minimum set by the Brazilian Central Bank. The ratio was positively impacted by the reduction in the weighted risk factor applicable to tax credits arising from temporary differences, from 300% to 100%, and the increase in the Reference Equity as a result of the new treatment for the additional provision for credit operations. Pace of Growth The pace of growth in funding and lending, measured by the relative growth in the volumes, is given by the following graph. The growth trajectory of credit, averaging 42.3% every 12 months, has maintained a significant pace, driven by the 19.0% growth in total deposits. Banrisul s credit growth is monitored by its Economic Management and Banking Committees. The balance between assets and liabilities positions is reviewed on a weekly basis in order to maintain the positive liquidity status. Banrisul s liquidity status is positively influenced by the dispersal of its funding structure. Time deposits are obtained through the branches at fixed or floating rates. Thus, the stability of the funds raised, thanks to the historically high volume of funding on account of the capillarity of the service points and clientele, the substantial securities portfolio and the stockholder s equity, enable Banrisul to sustain the growth in credit assets. Chart 18: Commercial Credit and Total Funding, Pace of Growth in 12 months 34

34 Consolidated Income Statement Consolidated Results Consolidated Net Income in 2008 totaled R$590.9 million, as against R$916.4 million in The results of both the periods were impacted by the booking of deferred income tax and social contribution credits on temporary differences relating to earlier periods, amounting to R$528.5 million in 2007 and R$86.2 million in In 4QO8, Consolidated Net Income totaled R$171.9 million, 50.0% (R$57.3 million) more than in 4QO7 and 55.2% (R$61.2 million) more than in 3QO8. The tax credits of R$86.2 million in 2008 were booked in 2QO8 and did not affect the quarterly results considered in the analysis. Chart 19: Net Income (R$ Million) Income Adjusted for Extraordinary Events Excluding the effects of tax credits, the 2008 Net Income of R$504.7 million is R$116.8 million (30.1%) more than the R$387.9 million in Chart 20: Adjusted Net Income (R$ Million) 35

35 Banrisul s performance in 2008 reflects the higher volume of revenues from credit operations and leasing, originating from the 42.7% growth in loan operations in the 12 months, and the higher income from treasury operations Thus, the growth in financial and operating income offset the increase in financial and operating expenses, generating an Operating Profit of R$704.2 million, which is R$71.1 million more than in The Bank s foreign currency operations were not affected by the 31.9% devaluation of the Real in the year because of the absence of mismatch between foreign currency assets and liabilities, though individual items, as commented below, were affected by these fluctuations. Financial Income Financial Income totaled R$3,879.7 million in 2008, 34.9% (R$1,003.8 million) higher than in the same period in 2007, due to the R$662.9 million increase in credit and leasing revenues, R$173.8 million in treasury and compulsory investments and R$167.1 million in foreign exchange revenues. Chart 21: Financial Income (R$ Million) In 4QO8, Financial Income totaled R$1,213.5 million, 50.6% (R$407.8 million) higher over 4Q07 and 12.0% (R$129.6 million) over 3QO8. The main factors that impacted Financial Income in the last quarter were revenues from credit operations, which grew R$81.2 million (resulting from the 4.9% or R$535.8 million growth in the volume of operations), increased revenues from treasury operations and compulsory investments amounting to R$34.5 million and revenue from foreign exchange operations (R$111.1 million, impacted by the exchange rate oscillation throughout the year). Income from Treasury Operations Income from securities and derivatives totaled R$999.0 million in 2008, 17.5% (R$148.9 million) more than in In 4Q08, income from treasury operations totaled R$331.3 million, 34.8% (R$85.5 million) more than in 4QO7 and 32.3% (R$80.9 million) more than in 3QO8. The growth in income from treasury operations reflects the changes in the basic interest rate, which was 11.86% in 2007 and 12.49% in 2008, and in the operational volumes, which grew 22.0% (R$1,945.7 million) in 12 months and 1.4% (R$153.3 million) in the last 3 months. 36

36 Revenues from Credit Operations Revenues from credit operations and leasing totaled R$2,352.6 million in 2008, 39.2% (R$662.9 million) more than in the previous year. In 4QO8, they totaled R$716.6 million, 61.3% (R$272.3 million) more than in 4QO7 and 12.8% (R$81.2 million) more than in 3Q08. Revenues from Commercial Credit, which correspond to 85.3% of the revenues from credit operations and leasing, totaled R$2,007.4 million in 2008, of which R$1,227.7 million originated from Individuals, R$775.8 million from Companies and R$3.9 million from the public sector. Chart 22: Revenues from Credit Operations and Leasing (R$ Million) Revenues from Commercial Credit to Individuals and Companies In 4QO8, revenues from Commercial Credit to Individuals and Companies totaled R$602.0 million, 59.7% more than in 4Q07 and 12.6% more than in 3QO8. Revenues from Commercial Credit to Individuals totaled R$355.3 million in 4QO8, 46.3% (R$112.5 million) more than in 4QO7 and 9.2% (R$30.0 million) more than in 3QO8. In the Companies segment, revenues totaled R$246.7 million, an 84.0% (R$112.6 million) increase over 4QO7 and 17.9% (R$37.5 million) over 3QO8. Among the lines of credit to Individuals, Payrolldeducted credit and Overdraft represent 45.9% and 30.1% respectively, of the segment s revenues. Together, they account for 76.1% of the segment s revenues and 44.9% of the revenues from Commercial Credit. In the Companies segment, working capital credit accounts for 67.0% of the segment s revenues and 27.4% of the revenues come from Commercial Credit. Payroll-deducted Credit (Individuals segment) and Working Capital credit (Companies segment) jointly account for 54.6% of the revenues from Commercial Credit. 37

37 Table 14: Revenues from Commercial Credit Individuals and Companies (R$ Million) 4Q07 3Q08 4Q08 4Q08/3Q08 4Q08/4Q07 Payroll-deductible Loan % 52.6% Payroll-deductible Individual Loan % 53.5% Own Portfolio % 44.7% Third-party Acquired Portfolio % 183.9% Vehicule Loan % 33.5% Payroll-deductible Vehicule Loan % 28.8% Non Payroll-deductible % 59.1% Individual Loan % 20.6% Overdraft Account % 55.0% Others - Individuals % 49.8% Total Individuals % 46.3% Guaranted Account % 71.8% Working Capital % 96.9% Vendor % 25.4% Debt Instruments Discount % 47.1% Other - Companies % 90.8% Total Companies % 84.0% The revenue growth in 12 months is due to the increase in the volume of operations and the rise in interest rates, especially in the second half of the year. In the last 3 months, the increase in the cost of credit on account of the financial instability and the increase in the volume of operations were instrumental for revenue growth. Table 15: Commercial Credit Rates Individuals and Companies 4Q07 3Q08 4Q08 Payroll-deductible Loan 1.98% 1.99% 1.95% Payroll-deductible Individual Loan 2.01% 2.01% 1.97% Own Portfolio 2.11% 2.14% 2.21% Third-party Acquired Portfolio 1.17% 1.36% 1.08% Vehicule Loan 1.47% 1.60% 1.46% Payroll-deductible Vehicule Loan 1.40% 1.56% 1.55% Non Payroll-deductible 2.01% 1.88% 1.17% Individual Loan 4.46% 3.90% 4.05% Overdraft Account 8.20% 8.85% 9.35% Others - Individuals 2.45% 2.83% 3.56% Total Individuals 3.02% 2.96% 3.02% Guaranted Account 4.23% 3.00% 3.27% Working Capital 1.47% 1.53% 1.68% Vendor 1.02% 1.21% 1.53% Debt Instruments Discount 2.02% 1.98% 2.43% Other - Companies 1.43% 1.74% 1.86% Total Companies 1.71% 1.71% 1.90% 38

38 Financial Expenses Financial Expenses totaled R$2,157.3 million in 2008, 48.7% more than in In 4QO8, Financial Expenses totaled R$697.9 million, 74.0% more than in 4QO7 and 3.9% more than in 3Q08. The increase of R$706.2 million in 12 months is due to the increase in the volume of borrowings and onlendings (R$343.7 million), mainly due to the increase in expenses relating to foreign exchange operations (R$236.5 million) and the Reserve Fund for Judicial Deposits (R$141.4 million). Other factors were the higher volume of deposits (R$311.8 million) and the R$33.1 million increase in the allowance for loan losses. The R$296.9 million increase in Financial Expenses in 4QO8 over 4QO7 is due to the higher expenses with borrowings, assignments and onlendings (R$144.8 million), in turn due to the increase in expenses with foreign exchange operations and to the higher volume of funds in the Reserve Fund for Judicial Deposits. Funding expenses rose R$139.6 million and allowance for loan losses rose R$6.2 million. Chart 23: Financial Expenses (R$ Million) The R$26.3 million increase in Financial Expenses in the last quarter is due to the increase in the volume of funding (R$39.4 million), increase in expenses with borrowings and onlendings (R$34.1 million) on account of the reasons mentioned earlier and the positive impact of lower allowance for loan losses (R$42.2 million), in relation to 3QO8. Expenses with Market Funding Operations Expenses with Market Funding Operations totaled R$1,401.1 million in 2008, 28.6% more than in In 4QO8, these expenses totaled R$419.7 million, 49.9% more than in 4QO7 and 10.4% more than in 3QO8. The higher volume of expenses in 12 months is due to the growth of R$1,853.8 million in remunerated deposits, and the continued high volume of market funding, which came to R$2,234.3 million at the end of December 2008, besides the raise in the basic interest rate, which signals the remuneration on these funds to 12.49% in 2008, compared to the Selic rate of 11.86% in The R$39.4 million increase in Expenses with Market Funding Operations in 4Q08 was mainly due to the growth in Time Deposits, amounting to R$152.9 million. Chart 24: Expenses with Market Funding Operations (R$ Million) 39

39 Allowance for Loan Losses Allowance for loan losses totaled R$256.5 million in 2008, 14.8% (R$33.1 million) more than in In 4QO8, these expenses totaled R$55.7 million, 12.5% (R$6.1 million) more than in 4QO7 and 43.1% (R$42.2 million) less than in 3QO8. In 4Q08, financial turnover and the seasonal increase in revenues helped decrease the amount registered in allowance for loan losses. Chart 25: Allowance for Loan Losses (R$ Million) Gross Profit from Financial Intermediation Gross Profit from Financial Intermediation was R$1,722.4 million in 2008, 20.9% higher than in 2007, reflecting the higher volume of revenues from credit and treasury operations. In 4QO8, Gross Profit from Financial Intermediation was R$515.5 million, 27.4% (R$110.9 million) more than in 4Q07, and 25.0% (R$103.2 million) more than in 3QO8. The 4QO8 performance was positively impacted by revenues from credit and securities, as well as the lower allowance for loan losses in comparison with 3QO8, and negatively by the higher expenses with borrowings, onlendings and funding. Financial Margin Financial Margin was R$1,978.9 million in 2008, 20.1% (R$330.8 million) more than in In 4QO8, Financial Margin was R$571.2 million, 25.8% (R$117.1 million) more than in 4QO7 and 12.0% (R$61.0 million) more than in 3QO8. The increase in Financial Margin between 2007 and 2008 is due to the growth in revenues from credit and treasury operations (R$811.4 million), which decreased because of the increase in expenses with borrowings and onlendings (R$343.7 million) and with market funding operations (R$311.8 million). The increase in the Financial Margin between 3Q08 and 4Q08 is due to the same reasons: higher revenues from credit and treasury operations (R$162.1 million), minus expenses, especially due to the higher funding volume (R$39.4 million) and expenses relating to borrowings and onlendings (R$34.1 million). 40

40 Chart 26: Financial Margin (R$ Million) Revenue from Services Rendered Revenues from Services Rendered totaled R$538.7 million in 2008, 1.9% (R$10.3 million) less than in In 4QO8, these revenues totaled R$138.7 million, a 4.1% (R$5.9 million) decline in 4QO7, and 8.2% (R$10.5 million) increase over 3QO8. Chart 27: Revenue from Services (R$ Million) The decline in 2008 compared to 2007 was due to the implementation of a new tariff collection system, as required by the Brazilian Central Bank starting from May 2008, which resulted in extinction of tariffs charged to individuals, mainly the fee charged for credit analysis (TAC). Administrative Expenses Administrative Expenses totaled R$1,410.6 million in 2008, 11.3% (R$143.3 million) more than in QO8, Administrative Expenses totaled R$366.5 million, 15.6% (R$49.5 million) more than in 4QO7 and in line with the 3QO8 figures. Personnel Expenses were impacted by the wage increases of 6% and 9% in 2007 and 2008, respectively, and the provisions for the variable remuneration based on target performance model implemented in Consequently, these came to R$835.4 million in 2008, 12.9% (R$95.7 million) more than in In 4QO8, Personnel Expenses totaled R$218.9 million, 20.6% (R$37.4 million) more than in 4Q07 and 4.6% (R$9.6 million) more than in 3QO8. Other Administrative Expenses totaled R$575.2 million in 2008, a 9.0% (R$47.6 million) increase over In 4QO8, Other Administrative Expenses totaled R$147.6 million, 8.9% (R$12.1 million) more than in 4QO7 and 3.4% (R$5.2 million) less than in 3QO8,.The increase observed in the comparison between 4Q08 and the same period last year is mainly due to the 9.8% variation in the IGP-M index, that serves as the reference for adjustments in the majority of agreements. 41

41 Chart 28: Personnel Expenses and Other Administrative Expenses (R$ Million) Other Operating Income / Expenses Other Operating Income Other Operating Income totaled R$193.2 million in 2008, 22.7% (R$56.6 million) lower than in In 4QO8, Other Operating Income totaled R$51.3 million, which is 73.7% (R$21.8 million) more than in 4QO7 and 1.1% (R$550,600) less than in 3QO8. The reversal of Operating Provisions in Other Assets, consequent to the legal decision relating to the unconstitutionality of raising the rate of FINSOCIAL and the reduction in the foreign exchange penalties due to the reversal of provisions on account of the change in the indexer, resulted in higher amounts booked under these items in 2007 but which did not recur in 2008, reflecting in a decrease in Other Operating Income. In 4Q08, Other Operating Income totaled R$ 51.3 million, 73.7% (R$21.8 million) over the amount registered in 4Q07, and 1.1% (R$550,6 Chart 29: Other Operating Income (R$ Million) thousand) less than in 3Q08. The variation observed in 4Q08 when compared to the same period last year is related to the effects of exchange variation over operations in foreign branches. 42

42 Other Operating Expenses Other Operating Expenses totaled R$186.8 million in 2008, which is 10.1% (R$17.1 million) more than in In 4QO8, Other Operating Expenses totaled R$55.1 million, 33.6% (R$13.9 million) more than in 4QO7 and 27.6% (R$11.9 million) more than in 3QO8. The increase in Other Operating Expenses is chiefly due to the booking of expenses relating to the amortization of the exclusive service agreements between Banrisul and the Federation of the Municipal Associations of Rio Grande do Sul (FAMURS) in November, 2007, which was partially offset by the reversal of revenues receivable from the state of Rio Grande do Sul in 2007 and by the lower provision requirements for labor suits. Chart 30: Other Operating Expenses (R$ Million) Economic Indicators Leverage Ratio The Leverage Ratio is the ratio of the credit operations portfolio to stockholders equity. In December 2007, Banrisul s credit operations represented 2.9x of stockholders equity, which rose to 3.7x in September 2008 and remained at the same level in December The significant growth in the portfolio in 12 months reflected the variation of the Leverage Chart 31: Leverage Ratio Ratio. Considering the Bank s comfortable leverage standards, the capacity for loan book growth in the coming periods, and, consequently, to generate income, is noticeable. 43

43 Operating Cost Operating Cost measures the total of Administrative Expenses in relation to Total Assets. The ratio is calculated based on the expenses in the 12 months against the balance of assets at the end of the period being analyzed. Banrisul s ratio was 5.6% in the 12 months ended December 2008, below the 6.1% in December The 23.1% growth in assets in the past 12 months, due to the growth in credit and excellent funding performance, has contributed Chart 32: Operating Cost (%) to reducing costs in relation to assets. In the last quarter the raise in the ratio is chiefly due to the stability of the total assets in a period of higher personnel expenses, due to the wages increases. Capital Ratio The Capital Ratio measures the ratio of Stockholders Equity to funds raised from the public, including investment funds. Leverage evaluates the security that the company s own funds offer to third-party capital. In December 2008, the Capital Ratio was 16.2%, practically the same as in December In 4QO8, the rise in the Capital Ratio is due to the increase in Stockholders Equity due to the reinvestment of profits, and to the smaller pace growth observed in funds raising Chart 33: Capital Ratio Employee Productivity The productivity ratio, which is measured by the total volume of business (funding and credit) per employee, grew 16.1% in the past 12 months to R$3,314,000 per employee, thanks to the Bank s excellent business performance and the system of variable remuneration, which helps to raise productivity. As of December 2008, Banrisul had 9,207 employees, 387 more than in December Hiring of staff was necessary to replace the retiring employees and to support the increasing number of branches. Chart 34: Employee Productivity (R$ Thousand) 44

44 Efficiency Ratio The Efficiency Ratio measures the volume of funds required to be generated from operations to cover administrative expenses. The ratio in 4Q08 remained practically stable in comparison with 4Q07 and 3Q08. The stability of the efficiency ratio in the 12 months is due to shrinking margins, given that the growth in revenues came at a time of higher financial expenses, thereby reducing the proportion of administrative costs in relation to revenue, as well as the reduction in the share of Other Operating Income, which did not generate in 2008 income booked in 2007 (reversal of legal provisions and settlement of Chart 35: Efficiency Ratio tax proceedings). In comparison with 3Q08, the ratio improved, showing the recent realignment of prices and, consequently, the financial margin s improved capacity to absorb administrative expenses. Margin Analysis The margin analysis in the following chart was based on the average balances of assets and liabilities, calculated as of the closing balances of the months in each quarter. The chart shows the revenue-generating assets and interest-bearing liabilities, the corresponding financial incomes on assets and financial expenses on liabilities, as well as the effective average rates generated by the respective yields and interest paid in each period. Credit operations include advances on foreign exchange contracts and leasing agreements, shown at the current net value of the leasing agreements. Income from credit operations overdue for more than 60 days, irrespective of their risk level, will only be booked as revenues when they are received. Income from leasing operations is booked when each installment becomes due. These criteria impact the average volume of income and the effective rates in the periods being analyzed. Average balances of interbank investments, funds invested or raised in the interbank market correspond to the redemption amount deducted from the income or expenses corresponding to future periods. Average balances of deposits, open-market funding, loans and onlendings include the fees payable till the date of closing of the financial statements, booked on a pro rata die basis. As for expenses related to these items, fees relating to deposits include contributions to the Credit Guarantee Fund (FGC). Interest booked in the balance sheet includes nominal interest and a component of monetary restatement, which may be related to an inflation index, changes in exchange rates (usually U.S. dollar) or floating interest rates. The interest and monetary restatement are applied at the end of each month on the balance of the principal of each operation. The restated amount is the new basis for calculating interest and monetary restatement of the next month, and so on, till final settlement. 45

45 Table 16: Margin Analysis (R$ Thousand) 4Q07 3Q08 4Q08 Real Real Real Balance Income Average Balance Income Average Balance Income Average Average Expense Yield/rate Average Expense Yield/rate Average Expense Yield/rate Interest-Earning Assets Loan Portfolio 7, % 10, % 11, % Resales pending Settlement 3, % 4, % 4, % Money Market Investments % % % Available-for-Sale Securities % % % Held-to-Maturity Securities 3, % 3, % 4, % Interbank Deposits % % % Other Interest-Earning Assets Compulsories 2, % 2, % 1, % Other % % % Total Interest-Earning Assets 18, % 22, , % 23, , % Interest - Bearing Liabilities Domestic Interbank Deposits % % % Domestic Saving Deposits 4, % 4, % 4, % Domestic Time Deposits 5, % 7, % 7, % Resales pending Settlement 2, % 3, % 2, % Borrowings and Onlendings Domestic % % % Foreing % % % Other % 1, % 2, % Total Interest - Bearing Liabilities 14, % 17, % 18, % Spread 1.9% 1.7% 1.9% NIM (Quarterly) 2.4% 2.3% 2.5% NIM (Yearly) 10.2% 9.6% 10.3% Variations in Interest Income and Expense: Volumes and Rates The following chart shows the variations in the interest incomes and expenses consolidated among the variations in volume and interest rates (i) in 4Q08 compared to 4Q07 and (ii) in 4Q08 in relation to 3Q08. The variations in the volume and interest rates were calculated based on the average balances in the period and the variations in the nominal interest rates on income generating assets and average of interest-bearing liabilities. Net variation was calculated based on the variations in the volume and rates, and was allocated to the respective variation (volume and interest rate) proportionally, considering the absolute amount attributable to the volume and interest rates. Table 17: Variations in Interest Income and Expense: Volumes and Rates (R$ Million) Interest - Earning Assets Lending Operations, Leasing Operations and Other Receivables Dec08/Dec07 Dec08/Sep08 Increase / Decrease Increase / Decrease According to change in: According to change in: Volume Tax Change Tax Change Volume Interest Net Interest Net Resales pending Settlement Securities and Derivatives 22.1 (12.3) Compulsory Deposits (33.9) 16.3 (17.6) (51.9) 4.8 (47.1) Other Interest-Earning Assets (3.2) 1.5 (1.7) Total Interest-Earning Assets Interest -Bearing Liabilities Time Deposits Savings Deposits Other Interest-Earning Assets Money Market Funding (5.2) Total Funding Total Onlendings (0.5) 12.6 Total Interest -Bearing Liabilities

46 Consolidated Pro Forma Balance Sheet 47

47 Pro Forma Income Statement R$ Million Absolute Change 4Q07 (*) 3Q08 (*) 4Q08 (*) 2007 (*) Q Q Financial Income , , , , ,003.8 Expenses Income , , Financial Margin , , Allowance for Loan Losses (49.5) (97.9) (55.7) (223.4) (256.5) (6.2) (33.1) Gross Profit from Financial Income , , Other Operations Income / Expenses (225.0) (262.6) (272.7) (791.6) (1,018.1) (47.7) (226.5) Services (33.4) Bank Fees (5.9) 23.1 Personnel Expenses (181.5) (209.3) (218.9) (739.7) (835.4) (37.4) (95.7) Other Administrative Expenses (135.5) (152.8) (147.6) (527.6) (575.2) (12.1) (47.6) Other Operation Income (56.6) Tax Expenses (40.8) (37.3) (41.1) (153.4) (152.6) (0.2) 0.8 Other Operating Expenses (41.2) (43.1) (55.1) (169.7) (186.8) (13.9) (17.1) Income from Operations Income Before Taxes on Income Income and Social Contribution Taxes (59.7) (32.3) (60.8) (83.2) (1.1) (429.0) Statutory Interest (5.1) (6.6) (10.1) (62.2) (30.0) (5.0) 32.2 Minority Interest (0.2) (0.0) (0.0) (0.3) (0.2) Net Income (325.5) (-) Extraordinary Events (442.3) Adjusted Net Income * Reclassified 48

48 Management Report WE PRESENT THE MANAGEMENT REPORT AND FINANCIAL STATEMENTS OF BANCO DO ESTADO DO RIO GRANDE DO SUL S.A. FOR THE 2008 FISCAL YEAR, PREPARED IN ACCORDANCE WITH THE RULES OF THE BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (COMISSÃO DE VALORES MOBILIÁRIOS CVM) AND OF THE BRAZILIAN CENTRAL BANK.

49 50

50 Economic Scenario During 2008, the Brazilian economy continued to grow, while the economies of many developed countries fell into recession and many emerging economies began to decelerate due to the negative effects of the international financial crisis. Nevertheless, the CMN (National Monetary Council) raised the Selic (Basic Interest Rate) rate by 250 base points, from 11.25% in January to 13.75% p.a. in December. The decision to increase interest rates was a response to deteriorating inflationary expectations. For most of the year, inflation was projected above 4.5%. The National Consumer Price Index, IPCA, the official inflation index and the basis for the projection system, closed 2008 at 5.9%. Analysis showed that the period from January to July registered higher inflationary pressures, after which, as the foriegn crisis worsened, the speculative element of prices was dilluted and there was less inflationary pressure. On the exchange market, the Real suffered a steep devaluation in August due to external liquidity restrictions brought on by the global financial crisis, after following in the first half of 2008 the tendency seen over the previous two years of maintaining its value against the dollar. In December 2008, the exchange rate closed at R$2.34 per USD, an annual devaluation in the Brazilian currency of 31.9% against the Dollar. Despite relatively strong performance on the national level, Rio Grande do Sul s economic performance was less favorable. This deceleration in 2008 can be partially explained by the lower volume of the 2007/08 grain harvest even at above 20 million tonnes and a stronger-that-usual basis of comparison, since in 2007 the state s economy grew at a rate substantially higher than the national average. In terms of individual segments, the industrial segment stood out with third-quarter results showing strong and even record growth in several sectors, as well as the services sector, in which the credit and financial intermediation areas stand out. Overall, Rio Grande do Sul s GDP will show a positive result in the year despite posting a growth rate lower than the national average. Both the state s economic and national growth for 2008 are estimated to be lower than those of 2007, given that the official figures, not released yet, indicate a strong deceleration in all sectors of the state and national economies in the last quarter of

51 Prospects and Strategies The current international financial instability requires attention to risks and opportunities, the key challenge to maintaining Banrisul as one of the best financial institutions in Brazil. Banrisul s efforts are focused on modernizing its operational and managerial procedures, its distribution mechanisms, relationship strategies and the constant search for technological innovations that continually change the ways in which the Bank interacts with and relates to clients, investors, government and the community at large. Intensified competition requires changes in assumptions and approaches that translate into new ways of thinking, acting and establishing and strengthening relationships, as well as making decisions. In 2009, Banrisul is preparing itself to consolidate processes implemented since 2006 in ways that will allow it to increase its revenues and maintain its position as one of Brazil s best commercial banks. In terms of financial management, the liquidity that dominated the international scene until the second half of 2008 allowed Banrisul to strengthen its capital structure through its 2007 public offering and to prepare itself to face the vulnerability felt by many companies, principally during the fourth quarter, as a result of the financial crisis. In 2009, the Bank will continue its strategy of maintaining comfortable liquidity levels, which should favor the Bank as many companies turn to domestic funding strategies because of the scarcity of foreign credit lines. On the credit market, the growth prospects for the regional and national economies seem relatively favorable, despite expectations of a global economic slowdown. Banrisul expects its credit portfolio to increase by some R$3 billion, expanding by approximately 25% in the 2009 fiscal year, beating anticipated market growth. Consistent growth in loan operations, improved quality of service provided at our network of branches and the rigorous management of administrative costs are all strategies that will favor revenue generation in Focusing on segmenting clients and earning their loyalty, strengthening investor relations, improving distribution channels, increasing the Bank s penetration in southern Brazil and expanding the Banricompras and Correspondent Bank Commercial Networks, Banrisul s client capture and relationship policies will also contribute to revenue generation and maintaining comfortable liquidity levels. IT investments in 2009 should absorb R$230 million. The Bank will also modify some internal processes in 2009, either at the behest of the regulatory agency, Banco Central do Brasil (Brazilian Central Bank), or out of the need to provide mechanisms that improve decision-making and internal and external communications, among which projects relating to IT security, risk management and updating accounting statements to comply with International Financial Reporting Standards stand out. 52

52 Material Events March 2008 Banrisul opens a regional sales branch and expands its presence in Santa Catarina State. Headquartered in the city of Blumenau, the Superintendence of Santa Catarina was opened on March 17, The opening of a regional sales branch and three branches in the regions of Vale do Itajaí, Greater Florianópolis and the southern coast of the state are part of the first phase of Banrisul s Santa Catarina expansion project. The project aims to improve the relationship with local clients, favoring partnerships that strengthen development in Santa Catarina and broaden Banrisul s scale of operation. March 2008 Payment of Additional Dividends. Banrisul s Board of Directors submitted a proposal to establish additional dividends of 10%, effective as of the fiscal years 2007 and This proposal was approved at the Annual and Extraordinary General Meeting held on March 25, 2008, bringing about the payment of total dividends of 35% on the adjusted net income. September/2008 Banrisul turns 80. From the initiative of a few rural producers to nearly three million clients. From 50,000 contos de réis (the Brazilian currency at the time) to shareholders equity higher than R$3 billion. From a mortgage to multiple bank. These statements summarize the 80 years of the Banco do Estado do Rio Grande do Sul S.A., a public bank that promotes commercial and social development, a bank that that was born public and, after eight decades, still belongs to all citizens of Rio Grande do Sul. October/2008 Banrisul International IT Forum. As part of its 80 th anniversary commemoration, Banrisul hosted the International IT Forum in October of 2008, an event designed to share some of what the Bank has been doing in terms of IT development and implementation with the public. Banrisul s partnership with major domestic and foreign companies allowed experts from some of these companies to discuss the current IT climate and prospects for the area, in addition to presenting the projects in development at Banrisul.TECHNOLOGY MODERNIZATION 53

53 Consolidated Performance Net Income for the Year Banrisul posted Net Income of R$590.9 million in 2008, including effects of tax credits in the amount of R$86.2 million. In 2007, the Net Income of R$916.4 million was higher than the 2008 total due to the activation of the tax credits and debts deferred from Income Tax and Social Contribution regarding timing differences in prior periods in the amount of R$528.5 million. Excluding non-recurring effects, year-to-date Net Income amounts to R$504.7, 30.1% up the amount recorded in the previous year, which was R$ Net Income for the Year Excluding Tax Credit Effects (R$ Million) Including Tax Credit Effects (R$ Million) The 2008 performance reflects higher credit and commercial leasing revenues due to the increase in the volume of operations, which expanded by 42.7% in the twelve-month period, as well as to the expansion of revenues from treasury operations. Shareholders Equity Banrisul s Shareholders Equity, which totaled R$3,079.1 million at the end of 2008, increased by 10.3% in twelve months. Annualized return on Average Shareholders Equity reached 20.1% in the period. Shareholders Equity has grown 200.1% over the past four four years as a result of the incorporation of increasing results recorded in the periods and the capital injection from the July 2007 public offering that raised R$800.0 million. Shareholders Equity Growth (R$ Million) 54

54 Total Assets Total Assets amounted to R$25,205.4 million at the end of 2008, an increase of 23.2% over the R$20,456.9 million in December Among the items that contributed to this growth, deposits and the Judicial Deposit Reserve Fund stand out, with a R$3,863.1 million increase in twelve months. In the Asset structure, the expansion of credit and treasury operations, which totaled R$3,429.5 million and R$1,945.7 million in the previous twelve-month period, stands out. Over four years, Total Assets rose 107.9%. Graph 3: Total Assets Growth (R$ Million) Taxes and Contributions In 2008 Banrisul collected and provisioned R$435.8 million in taxes and contributions. Taxes retained and passed through levied directly on financial intermediation and other payments amounted to R$452.8 million. Operating Performance Funds Raised and Under Management Funds raised and under management amounted to R$19,058.2 million in December 2008, up 11.1%, or R$1,908.3 million, over December Over four years, total growth was 77.1%. The funding strategy which aims at maintaining the credit increase and the generation of service revenues, promoted in the period the increase of funds from deposits and investment funds. The balance of Time Deposits amounted to R$7,557.8 million, an increase of 28.5% or R$1,676.7 million compared to December Savings Deposits rose 3.7% or R$172.1 million, totaling R$4,805.9 million. Demand Deposits increased 2.0% or R$36.3 million in twelve months and reached R$1,864.0 million. Growth of Funds raised and under management (R$ Million) Asset Management totalled R$4,802.1 million at the end of 2008, growing 0.4% or R$18.1 million in relation to December Over the four previous years, the increment was 53.1%. 55

55 Breakdown of Funds Raised and Under Management At the end of 2008, Raised and Managed Funds consisted of Time Deposits, the key funding instrument for credit operations, at R$7,557.8 million or 39.7% of the total, and Asset Management at R$4,802.1 million or 25.2% of the total, Savings Deposits at R$4,805.9 million or 25.2% of the total, and Demand Deposits at R$1,864.0 million or 9.8% of the total. Breakdown of Funds Raised and Under Management (R$ Million) Securities Investments in Securities amounted to R$8,563.6 million in December 2008, accounting for an increase of R$1,939.6 million when compared with the same month of This balance includes Interbank Investments net of Liabilities from Resale and Repurchase Agreements. The growth in the securities portfolio over the past twelve months mirrors the accelerated credit asset growth policy adopted by the Institution. Credit assets increased R$3,429.5 million in the period, chiefly due to deposit funding, which increased R$1,890.1 million. Banrisul has financial capacity, as confirmed by internally developed technical studies, and intends to maintain it until the maturity of Growth of Securities (R$ Million) securities classified at held-to-maturity pursuant to Article 8 of Circular Letter 3,068 of November 08, 2001 of the Brazilian Central Bank. 56

56 Credit Operations Credit Policy In the beginning of 2008, the domestic credit market was characterized by stable interest rates, longer terms, falling delinquency ratios and expanding operations, particularly in the business segment positive trends deriving from the year s good prospects for economic growth. However, during the second half of 2008, the intensification of the global financial crisis affected expectations of sustaining the growth rate of credit operations. Banrisul s credit policy during 2008 reflected the following scenario: credit portfolio expansion outpaced growth registered by financial institutions as a whole; the business segment was a key growth factor in the portfolio; risk mitigation through product diversification and client spread resulted in low delinquency rates; the pace of loan operations cooled in the year s final quarter. Despite the restrictive macroeconomic scenario in the final quarter of 2008 and the decisive CMN actions to ensure domestic liquidity, the quality of Banrisul s loan portfolio was able to avoid serious shocks. The classification of the portfolio by risk follows the procedures provided for in Resolution 2,682/99 of the Brazilian Central Bank. In 2008, Normal Risk operations, comprised of levels AA to C, amounted to R$9,825.5, representing 85.8% of the total portfolio, up 3.7 p.p. over the proportion recorded at the end of Risk 1 operations, including levels D to G, totaled R$1,292.7 million, accounting for 11.3% of the portfolio. Risk 2, which consists exclusively of level H operations, requires a 100% provision and totaled R$335.4 million, or 2.9% of total credit operations. The growth in the credit portfolio comes jointly with an improved rating composition, resulting in a lower Delinquency Index, decreasing from 3.7% in December 2007 to 3.3% in December The continuous improvement of Banrisul s credit portfolio is a result of the pre-approved credit system based on the Credit and Behaviour Score systems that allow measurement, limitation and minimization of the Bank s default risk exposure. Furthermore, the determination of provision levels for potential losses is adequate to the risk exposure of each operation. Analyses take into account the client s credit risk determinators in order to protect the Instituion against losses on the credit portfolio. Credit operations are evaluated based on the credit risk of the client or economic group, collateral and nature and type of operation, as well as the possibility of late payments. Credit Performance At the end of 2008, Banrisul s balance of credit operations totaled R$11,453.6 million, growing 42.7% over the R$8,024.1 million posted in December Accounting for 79.1% of this growth, the commercial portfolio increased from R$5,526.8 million to R$8,237.9 million, a R$2,711.1 million or 49.1% year-on-year increase. The volume of operations targeted at Individuals totaled R$3,880.8 million, increasing by 43.0%. As for Companies, the operations Growth of Credit Operations (R$ Million) 57

57 balance reached R$4,357.0 million, increasing by 54.9% in twelve months chiefly from working capital operations. In the previous twelve months, the other portfolios performed as follows: Rural Credit posted an increase of R$238.3 million, or 38.8%, and reached a balance of R$853.1 million; Development and Infrastructure recorded a R$174.4 million or 35.4% increase, reaching R$666.4 million; Real Estate Loans increased by R$151.3 million or 18.7%, with a balance of R$961.3 million; ACC and ACE contracts (preand post-shipment export financing contracts) increased by R$109.0 million or 32.2%, totaling R$447.1 million, and Leasing grew by R$54.0 million or 125.0%, totaling R$97.1 million. Commercial Credit - Individuals In 2008, Commercial Credit operations targeted at Individuals totaled R$3,880.8 million, accounting for 47.1% of the Commercial Portfolio and for 33.9% of all credit operations. The increase of R$1,167.7 million in twelve months was mainly driven by payroll-deductible operations. Payroll-deductible loans reached R$2,799.2 million in December 2008, growing 45.0% over the same month of the previous year. The thousand payroll-deductible loans granted totaled R$1,784.3 million in the twelve-month period. Commercial Credit - Companies Commercial Credit operations for Companies grew by 54.9% and reached a balance of R$4,357.0 million in December 2008, accounting for 52.9% of the Commercial Portfolio and 38.0% of all credit operations. The business segment posted an increase of R$1,543.4 million in the Company s balance, vis-à-vis the same month of the previous year. Banrisul s working capital, which totaled R$3,364.7 million in December 2008, grew 60.0% in comparison with the same month of the previous year. Funds providing working capital to hospitals, clinics and laboratories totaled R$80.8 million in In the same period R$268.5 million was allocated to the education sector, comprised of universities and educational institutions. Commercial Credit Growth Individuals and Companies (R$ Million) 58

58 Microcredit Banrisul offers micro-companies and SMBs microcredit for short-term operations, aiming to facilitate this segment s access to working capital with no specific destination. Among the products offered by the Bank are Promicro, Corporate Account (Conta Empresarial), Giro Fácil, and Banricompras Receivables. In 2008, Microcredit granted totaled R$1,145.6 million, up 46.5% from the R$781.8 million granted in the same period of The most popular lines were Promicro, granting R$522.6 million in 34.4 thousand operations, Corporate Account (Conta Empresarial), granting R$329.2 million in 94.5 thousand operations, and Banricompras Receivables, granting R$260.3 million in 1,459.3 thousand operations. Agribusiness A longtime partner of agribusiness, Banrisul offers specific credit products to rural producers. With special fees and terms, these lines range from credit for acquiring livestock to harvest costing and sales. During the 2008 fiscal year, 26.2 thousand operations were contracted for a total of R$591.2 million, an increase of 109.0% over the amount granted in 2007 and with 69.3% renewal of the portfolio. Rural Credit operations totalled R$853.1 million in December 2008, 38.8% higher than in the same month of the previous year. That growth was driven by funding operations, which grew by 60.7% in the 12M08 to reach R$ million. Investment lines grew by 8.5% in the same period, totaling R$280.5 million. Foreign Exchange The the balance of ACC and ACE operations increased 32.2% in twelve months, from R$338.2 million in December 2007 to R$447.1 million in the same month in thousand operations were contracted in this period, moving US$1.5 billion a volume 24.0% higher than in the previous year. Export operations totaled US$725.8 million, chiefly composed of ACC in the amount of US$400.3 million and Spot Operations in the amount of US$286.3 million. Import operations moved US$527.3 million, representing a 67.5% year-on-year increase. Real Estate Loans Real Estate Loans cover purchases and construction of commercial and residential buildings, enlargement and remodeling of residential buildings, suburban land purchases and financing of construction companies. The Bank s contribution to the civil construction sector in Rio Grande do Sul won it the Prêmio Sinduscon 2008 honor of Financial Institution of the Year. Banrisul financed 7.1 thousand operations in the previous 12 months, granting a total of R$526.6 million that represents an increase of 136.4% in volume over This amount included allocations of R$183.1 million to purchase 2,590 previously used buildings, R$41.2 million to purchase 429 new buildings and R$6.4 million to purchase 122 commercial real estate. As part of the Plano Empresário (Business Plan), R$241.5 million was invested in 3,183 units and, in Construção Individual da Casa Própria (Individual Home Construction), R$32.0 million was invested in 482 homes. The Real Estate Loan portfolio closed 2008 with a balance of R$961.3 million, up 18.7% over the previous twelve-month period. 59

59 Development and Infrastructure Credit Banrisul operates as a BNDES onlending agent of funds in the Finame, Automático, Finem, Exim and Progeren lines, which are invested in social-economic development projects in the communities in which the Bank operates. The Development and Infrastructure Credit Portfolio ended 2008 with a balance of R$666.4 million, which represents an increase of 35.4% in relation to the total of R$492.0 million recorded at the end of In the 2008 fiscal year, 351 operations were approved in the Development and Infrastructure Portfolio, totaling R$112.7 million in funds for the public and private sectors. Out of this amount, R$65.7 million went to the industrial sector in 214 operations; R$17.3 million to the public sector in 72 operations, and R$29.7 million for businesses and services in 65 new operations. Standing out among the largest undertakings in the private sector is the R$38.9 million infrastructure investment in two Small Hydroelectric Plants that contribute to energy engeration in Rio Grande do Sul State, PCH Criúva and PCH Serrana. 60

60 Products, Services and Channels As a multiple service bank, Banrisul always seeks to increase profitability and adopt the most upto-date practices in the financial market. Launching new products and services, as well as improving existing ones, is supported by constant technological innovations that create value for the Bank s clients, suppliers, shareholders, the government and the community. The benefits technology brings to this process can be seen particularly in terms to facilitating access to financial services. In December 2008, Banrisul electronic transactions accounted for 83.9% of all operations, which shows the extent to which clients depend on the Bank s self- and tele-service channels. Alternative service channels, such as home, office and mobile banking, as well as transactions carried out via the Banrifone, Banricompras and Correspondent Bank services make electronic transactions more secure and convenient and free up Bank employees to provide financial advising services that further strengthen Banrisul s relationship with its clients. Banricompras Banrisul provides its clients with Banricompras, a electronic payment method allowing clients to use their bank cards as debit or credit cards. In addition to its strategic place in the Bank s growth strategy and its efforts to build client loyalty, the product brings several benefits to customers, replacing checks and cash and simplifying account monitoring with the bank statement, all without the burden of annual fees or usage charges. For Rio Grande do Sul businesses, not having access to the Banricompras network could negatively affect sales, as many Banrisul clients opt to use their bank cards exclusively at the expense of other credit cards. This and other advantages for storeowners, such as reduced default rates through our payment guarantee, increased transaction security and the possibility of receiving advanced payment for installment purchases, earned Banrisul the 2008 Mérito Lojista (Storeowner Merit) Award for Best Debit Card from the Federação das Câmaras de Dirigentes Lojistas do Rio Grande do Sul (Rio Grande do Sul State Federation of Chambers of Store Managers). Currently, the network boasts 73.1 thousand establishments to serve the almost 3.0 million Affiliated Stores (Thousand) Financial Transactions (R$ Million) Transactions (Million) 61

61 Banrisul clients, which has helped make the card service more popular and increase its performance. In 2008, 54.4 million card transactions were registered, moving approximately R$3.2 billion. Compared to 2007, these figures represent increases of 15.9% and 25.3%, respectively. These numbers show Banricompras undeniable growth, but the service still has plenty of growth potential, both in terms of the user base and in the number of member establishments. The Banricompras Premiável publicity campaign, designed to encourage service usage and strengthen the Bank s ties with its member establishments, included a random drawing of individual clients for cash prizes as well as reward programs for member establishments, their employees and the Bank s own salespeople. The program awarded more than R$ 1.8 million in prize money to 1,801 randomly selected clients in Banricompras Celular Still in its testing phase, Banricompras Celular is a solution for mobile phone vendors and other service providers such as taxi drivers, delivery personnel and street vendors. It allows the processing of conventional Banricompras payments using a cellular phone and a device that functions as a card reader and printer. The technology used in these transactions is completely secure, since data transmitted over the cellular network is encrypted and can only be decrypted through official Banrisul operational systems. Banrisul s Correspondent Banks Banrisul clients have access to the Correspondentes Banrisul (Banrisul Correspondents) program, a flexible customer service alternative. The program involves a network of authorized commercial establishments that provide banking services such as withdrawals, transfers, payments and prepaid celular phone airtime, among others, avoiding trips to Banrisul branches and increasing business hours. At the end of 2008, the Bank had nearly 2.5 thousand bank correspondents, moving R$8.5 billion in 49.1 million operations in the year. The financial transactions increased 30.1% and the number of operations grew 12.2% year-on-year. Virtual Branch Home and Office Banking The Agência Virtual Banrisul (Banrisul s virtual branch) is an online service center through which clients can perform various banking activities without leaving their homes or offices. Included among these home and office options are consultation of account balance information, applying for loans or making investments, viewing issued or deposited checks, purchasing celular phone airtime and paying various kinds of bills. In 2008, 68.8 million operations were made via Internet, moving R$71.9 billion, for increases of 19.4% and 14.7%, respectively, when compared to 2007 s 57.6 million operations and total volume of R$62.7 billion. 62

62 Call Center In order to improve the speed and flexibility of our customer service and to free up employees to focus on the Bank s business, Banrisul offers two options for telephone customer service: Banrifone and the branches Call Center. In 2008, Banrifone processed 4.9 million electronic customer service operations and carried out an additional thousand personalized assistance operations, moving a total of R$178.2 million. The branches Call Center received thousand personalized service calls at the 11 branches which have already implemented the program. Of that total, 55.7% were answered and resolved by the Call Center rather than the by the branches. The financial turnover was more than R$1.7 million. By the close of 2008, all of the Data Center (equipment room) equipment had been installed as part of the branches Call Center expansion project, and 60 agencies had the required telephone infrastructure in place. System integration and operational tests have been concluded, and the expansion will reach an additional 3 branches in January In order to maintain the quality and efficiency of our customer service, the assistance provided by our representatives is evaluated through customer satisfaction surveys, constant monitoring and periodic recycling procedures. Eletronic Trading Floor Pregão On Line (Online Bidding) is a tool that promotes increased competition and reduction in the prices of products and services contracted by government agencies. Its purpose is to increase the level of competition in public purchases and to offer a series of advantages for the bidder as well as for the supplier. In addition to these savings, makes public purchasing procedures more transparent and allows suppliers from other locations to participate in the bidding, significantly increasing competition. In 2008, implementation of the CELIC simplified registration system shortened the accreditation procedure and made it easier for suppliers to participate, expanding the base of businesses authorized to sell to the public sector. In June, the intermediate bid option became available, giving suppliers the ability to compete placement other than at the one at the top of the board. In addition to these innovations, purchasers were allowed to register more than one authorized buyer, quickening transactions. In 2008, Banrisul s portal hosted 10.4 thousand bidding procedures, 42% more than in 2007, totalling more than R$87.7 million in transactions, 110% higher year-on-year, and saving purchasers R$19.0 million, up 143% over Bidding at Rio Grande do Sul State s debt auctions resulted in savings of approximately R$2 million in the state budget. 63

63 Smart Card Banrisul is implementing an additional security guarantee for home and office banking. Older, magnetic strip cards are being replaced by multifunctional smart cards, a technology that allows the customer to access his or her account from any computer with total security, since access can only be granted to customers with the cards in their possession, featuring a chip bearing their private digital signature. Credit Cards In 2008 Banrisul issued thousand cards under the Visa and MasterCard labels, representing a 5.9% increase over In addition to this growth in the credit card user base, the average purchase price increased by 6.9%, and withdrawals were up 20.2%. Growth in the MasterCard client base was helped by the Tri-Legal internal sales campaign implemented from August to December that awarded salespersons with prizes. During this period, 20,238 cards were issued, surpassing the established goal by 34.9%. Banrisul s Visanet operations performed especially well, placing second in credit authorization performance and third in fraud prevention among all Visa-issuing banks in Brazil. Insurance, Private Pension and Capitalization Through a commercial partnership with Icatu Hartford and SulAmérica Seguros, Banrisul offers insurance, pension and capitalization products through its network of branches. Using its broad portfolio, the Bank seeks to satisfy clients needs offering specialized products for specific market segments, such as Seguro Auto Mulher, Women s Auto Insurance, launched in 2008 and offering rates and services specifically designed for the needs of women drivers. During 2008, capitalization product sales reached R$4.7 million, and property and personal insurance sales totaled more than R$5.0 million. In the same period more than R$12.0 million in claims was disbursed to clients with life insurance and capitalization policies. 64

64 Banrisul s Customer Service Network At the close of 2008 the Bank had 427 branches, 395 of which are located in Rio Grande do Sul State, 16 Santa Catarina State and 14 in other states, in addition to offices in New York and Grand Cayman. The Bank s nearly 3.0 million clients have access to 435 electronic service stations, 169 banking service stations, 109 advanced service stations and 2 collection and payment stations. In Rio Grande do Sul State, the Bank s network is accessible to 97.78% of the population with providing services in 406 cities. In 2008, eleven service stations and nine new branches were opened, three of which, as well as a new regional sales center, are located in Santa Catarina State. The network expansion strategy aims to maintain the Bank s market share in Rio Grande do Sul State and to increase its share in other markets with the potential to generate revenues. Plans for 2009 include opening seven additional branches in Santa Catarina State, three in Rio Grande do Sul State and one in São Paulo State, in addition to adding electronic service stations in high-traffic areas like gas stations, supermarkets and shopping malls. Subsidiaries Banco do Estado do Rio Grande do Sul S.A. Banrisul S.A. Administradora de Consórcios 99.6% Banrisul S.A. Corretora de Valores Mobiliários e Câmbio 98.7% Banrisul Armazéns Gerais S.A. 99.5% Banrisul Serviços Ltda. 99.8% Banrisul S.A. Administradora de Consórcios Banrisul Consórcios seeks to help families from Rio Grand do Sul State and the rest of Brazil by providing a transparent and simple means for acquiring automobiles, real estate or motorcycles. The company closed 2008 with 20,569 quotas, of which 18,863 remained active, with total letters of credit valued at R$428 million. Quotas sold in 2008 totalled 10.4 thousand for a credit volume of R$226.5 million. The company granted 2.9 thousand loans, for 2.2 thousand real estate purchaes and R$42.8 million in disbursements for purchases of consumer goods. Net Income came to R$10.8 million in 2008, an increase of 20.0% over Banrisul S.A. Corretora de Valores Mobiliários e Câmbio Acting in the capital markets as an intermediary in the sale and purchase of spot trades, options, and futures as well as in the management of third-party resources, Banrisul Corretora s professionals are highly qualified in advising and assisting investors. In recognition of the quality of its services, the Corretora was listed among the 20 most efficient brokers in a study released in Balanço Financeiro 2008 magazine published by the São Paulo newspaper Gazeta Mercantil. The global economic downturn did not affect the Brokerage s performance in 2008, posting 65

65 Net Income of R$8.0 million. Total trade volume was up 27.9% over 2007, totaling R$845.6 million. Home Broker transactions totaled R$521.9 million, representing an impressive 283.4% increase in the twelve-month period and giving it a 61.7% share in the Company s total trades. Banrisul Armazéns Gerais S.A. Headquartered in Canoas, Rio Grande do Sul State, Banrisul Armazéns Gerais is bonded by the Internal Revenue Service to provide public warehousing and logistics services such as dry port general warehousing. The Company has nine warehouses with a total constructed area of 33 thousand m 2. In 2008, it oversaw 29.0 thousand customs operations, of which 6.7 thousand involved imports and 22.3 thousand involved exports. Improved internal processes, controlled costs, and increased customs operations with adjustments in service fees contributed to the Company s positive result in Net Income for 2008 reached R$2.1 million, 173.2% higher than in the previous year. Banrisul Serviços Ltda. Serving southern Brazil, Banrisul Serviços manages the Refeisul brand of Grocery and Meal cards and vouchers, in addition to Private Label, Fuel and Gift cards. On a daily basis, more than thousand users prove the efficiency of Refeisul services, which operate on a network of close to 39.0 thousand accredited providers. In 2008 Banrisul Serviços sales came to R$360.0 million, an increase in volume of 12.9% over Net Income totaled R$9.7 million, declining 24.1% year-on-year due to the Bank s incorporation of the credit card portfolio that generated an extraordinary profit of R$12.8 million. In 2009, the Company plans to launch the Benefit and Fleet Maintenance cards, increasing the range of products in a portfolio serving 3.4 thousand member businesses. 66

66 Corporate Governance To assure its owning partners of the Company s strategic management and the effective monitoring the Executive Board, Banrisul adhered to the Level 1 of Corporate Governance in 2007 by making a public tender offering, including a capital increase of approximately R$800.0 million. Owners and the management are related by the Board of Directors, the independent auditors and the Fiscal Council, enabling all stakeholders transparency, equity and adequate disclosure of data and information. The Bank s listing at Level 1 requires compliance with the rules applicable to companies with shares listed on Novo Mercado (Bovespa s New Market), which are included in Banrisul s Bylaws and are displayed below: of the members of the Board of Directors, at least 20% shall be independent members; public offerings must be held in certain circumstances; all shareholders shall be entitled to the same conditions held by the controlling shareholders at the sale of the Bank s control; and Banrisul, its controlling shareholders, managers and members of the Fiscal Council are subject to the Chamber of Arbitration Regulation of Bovespa s Market for resolving the conflicts arising from, related to or derived from the application, validity, effectiveness, interpretation, violation and its effects, of the provisions included in the Brazilian Corporation Law, Banrisul s Bylaws, rules issued by the Brazilian Monetary Council, the Brazilian Central Bank and the Brazilian Securities and Exchange Commission, in addition to those provided for in the Regulation of Level 1 Governance, the Arbitration Regulation and the Agreement of Adoption of Corporate Governance Practices Level 1. In order to fulfill our commitment of responsibility on shares, the institution adopted Banrisul s Code of Ethics, an instrument guiding the ethical and moral behavior applied to employee routines, which establishes behavioral standards for relationships with the public of interest, whether they are shareholders, employees, suppliers, clients, competitors, entities, the community or the government. In line with rules of the Brazilian Securities and Exchange Commission, Banrisul informs that Deloitte Touche Tohmatsu Auditores Independentes rendered services to the Bank exclusively related to auditing in

67 Investor Relations Banrisul has confirmed its ongoing commitment to a transparent relationship with the market through its programs designed to disclose and facilitate the spread of data and information about itself, providing analysts with greater insight into the business. To this end, Banrisul held approximately 280 meetings with market analysts and shareholders in Brazil and abroad during Among the most important events in which the Bank participated were the public APIMEC (Association of Capital Market Analysts and Investment Professionals) presentations held in Porto Alegre and São Paulo, Brazil Day 2008 in New York City and the 10 th Annual Latibex Forum in Madrid, as well as other events sponsored by investment banks in Brazil and other countries. Bank representatives also met with domestic investors in São Paulo and Rio de Janeiro, and with foreign investors in Europe and the United States. The most visible result of these efforts was an increase in trading of the Bank s PNB (preferred class B) shares (code BRSR6) during the course of the year and especially in the last quarter, as well as the Bank s inclusion in January 2009 in the IBrX Índice Brasil, a grouping of companies whose stocks are among the 100 most-traded on the Bovespa during the previous twelve-month period. Trade and financial volumes showed significant variations in In December 2008, the BRSR6 shares posted an average of 329 daily trades, 161% higher than the volume in December 2007 (average of 126 trades). Financial volume grew by R$1.2 million compared to 2007, and the average daily balance in December 2008, R$7 million, is 20% higher than the year-end total in Other decisions made during 2008 included (i) the proposal to distribute additional dividends for the 2007 and 2008 periods from reserves required by Company Bylaws at a rate equivalent to 10% (10 percent) of adjusted net income, bringing total dividends to 35% (thirtyfive percent), (ii) the sale at public auction of fractions remaining from the processes of bonus and reverse stock split programs, as decided by the General and Extraordinary Shareholders Meetings held in 2007, and (iii) the adoption of the policy to pay interest on capital prior to the close of each quarter. Wishing to increase the liquidity of its shares, two institutions initiated coverage of Banrisul in 2008: Banif, in July, and Banco do Brasil, in December. Together with Credit Suisse and UBS Pactual, they bring the total number of companies currently involved in that process to four, which should increase in Interest on Own Capital/Dividends The Bank s Board of Directors proposed and the Annual and Extraordinary General Meeting held on March 25, 2008 approved the 10% addition for the fiscal years of 2007 and 2008, totaling 35% of the Adjusted Net Income. In 2008, R$132.5 million was paid as dividends on the 2007 result and R$168.5 million as Interest on Own Capital, in addition to R$18.4 million in connection with dividends provisioned by the performance recorded in the first half of 2008, with R$10.6 million in Income Tax withheld and R$157.9 million credited. Moreover, R$38.5 million from the 2008 fiscal year were provisioned and should be paid at a date to be defined by the Annual and Extraordinary General Meeting. 68

68 Internal Controls and Compliance Banrisul is constantly improving business practices monitoring, mitigating risks, promoting a culture of control and opportunities for improvement, and complying with market regulations with respect to ethical standards of controls and the information transparency. The System of Internal Controls is a series of actions adopted by the Management to guarantee that the goals and objectives established by the Institution are met. These actions are aimed at protecting the Bank s resources and ensuring that its records are accurate trustworthy as well as compliance with relevant laws, company policies and sector regulations. Control policies are established by the Internal Controls Management Committee and ratified by the Banking Management Committee, which is charged with consolidating the Bank s global strategic vision by monitoring the actions that are proposed and carried out, internal controls and compliance of guidelines established by the Board of Directors. Risk Management Risk management is a fundamental and strategic tool for any financial institution. The risks inherent in the operations such companies range from easily identifiable financial risks, such as market, liquidity and credit risks, to factors that are less easily identifiable as risks, such as operational risk or risk to the company s image, among others. Banrisul s risk management practices and policies seek to identify and integrate risk mitigation processes inherent to banking with the continuous and systematic improvements. The development of policies, internal control systems and security norms, integrated with the Bank s strategic and marketing goals, is aimed at bringing the Company in line with the standards recommended by the New Basel Capital Accords Basel II, adopting the best market practices through the best possible combination of increases in assets and the use of required capital. Credit Risk Banrisul s risk assessment structure is grounded on the principle of joint technical decisions, with the definition of credit granting scopes corresponding to the decision level, from the extensive network of branches with their various categories, to the administration and its risk and credit committees in the General Management. This process aims to accelerate credit granting based on technically pre-defined limits that determine the maximum risk the Institution is willing to incur with each client, meeting the risk/return ratio. The continual and increasing use of statistical methods to evaluate risk for individuals and corporate clients with the application of parameters established in policies and business ruless has had a positive impact on the Bank s assets. The Bank s adoption of the credit and behavior score analyses has made it possible to pre-approve clients based risk classifications projected by statistical models that are conceptually more attractive for managing mass credit. These proprietary models comply with Central Bank Resolution 2,682 of December 22,

69 As for companies, the bank adopts technical studies that assess companies using financial, managerial, market and productive indicators, with periodic reviews that also take into consideration the companies position in current and future macroeconomic and competitive scenarios. Credit Risk Management is based on the Institution s selective and conservative policy, following strategies defined by upper-level Management and technical areas of the Corporation. This principal guideline enabled the Bank s credit performance to surpass that of the past two years, with an improvement in the quality of the portfolio reflected in the increase of the percentage of level AA to C rated operations in the total credit volume. The consolidation of these models has brought a qualitative increase in credit granting with significant advances in risk mitigation, and created a foundation for modernizing these processes that is consistent with the principles of the Basel II Accord. This allows the Bank to advance from the standard approach to the intermediate level, maximizing its capital structure with even more precise gauging of the risks involved with credit operations. Banrisul s timeline of actions regarding this is in line with monetary authority requirements set forth in Central Bank resolutions and circular letters that address exposure weighted by risk. The complexity of this process requires improved risk management, including more training and continuing education for professionals in the area, policies which, along with investments in internal systems and processes, are a constant in Banrisul s actions and directives. Banrisul s effective credit risk management allows its credit portfolio to grow safely, even in the face of an anticipated climate of increasing default because of the international financial crisis, given the effectiveness of the tools and methods used by the Bank to measure the credit risk inherent to each individual client. Market Risk Market risk refers to the potential of the Instuition to incur losses because of changes in the balance between the market values of asset and liability contracts that may result from fluctuations in interest rates, exchange rates or price indexes, etc. In 2008, Banrisul implemented measures to improve information pertinent to market risk through improved management procedures including optimization of the risk to return ratio, risk diversification and identification of minimum and maximum exposure limits, as well as through compliance with specific requirements mandated by the Central Bank since June 1, Among these measures, making systematic changes in the implementation of internal models used to calculate the per-capita market risk requirement and mapping processes necessary to analyzing positions relative to risk exposure across different indexers. The methods adopted by Banrisul to evaluate market risk, include value at risk (VaR), sensitivity analyses and stress testing. VaR is a model used to quantify in monetary terms the maximum expected risk of an investment portfolio within a specific timeframe and degree of confidence. Sensitivity analysis is extremely important to evaluating new scenarios. Once the basic scenario has been identified, several parameters are altered for purposes of analysis and evaluation of the data produced by the model. In this way the sensitivity of the Bank s capital to market variations can be measured by simulating stress scenarios. The stress 70

70 scenarios are produced by altering specific market variables based on historic performance or projected macroeconomic situations. The goal of these studies is to prevent risk and loss of the Institution s resources in the event of a future position change or from instability in the financial markets. These analyses have been particularly relevant since the second half of 2008 that saw upheaval in the financial markets, although the Bank s exposure to risk through exchange, swap or Liquidity Risk Liquidity risk refers to the possibility that a financial institution may have difficulty liquidating its positions because of interruptions or imbalances in the flow of assets and liabilities stemming from term mismatches or alterations in the price curve. At Banrisul, follow-up of liquidation of assets and liabilities positions and decision-making on potential adjustments are in line with market risk management procedures. The Banking and Economic management committees work at the management level to define contingency policies and set comfortable levels of liquidity. At the technical level, daily treasury control protocols use the same derivatives operations has been reduced. It should be noted that the positions of Banrisul s assets and liabilities is monitored on a daily basis by following market conditions and the daily registry of its portfolios. Banrisul s Economic and Banking management committees define policies for adjusting positions such that operational limits are maintained and the solidity of the Bank and the Conglomerate are preserved. instruments and methods as the evaluation of growth in mismatches resulting from changes in the prices of assets and liabilities, in particular those deriving from changes in the macroeconomic environment. In terms of assets positions, the cash flow projections take into account the different growth levels of the credit portfolio and financial instruments, as well as distinct possibilities of alterations in delinquency indicators. Risks affecting liabilities include the possibility of early redemption of remunerated securities, as well as the potential for funding growth at levels lower than projected. Operational Risk According to Brazilian Central Bank Resolution 3,380 of June 29, 2006, Banrisul created an institutional policy and the processes, procedures and systems necessary to implement its operational risk management structure. The Bank s Operational Risk Management Policy was published as Internal Resolution 4,354 of June 20, 2008, and consolidated through a normative regulation. The executive responsible for Banrisul s operational risk is the CEO. Other components in the operational risk management structure include the Internal Controls Committee, which makes decisions regarding matters of its responsibility; the Controllership, as the administrative unit that manages operational risk; Compliance, Superintendents of the General Management Units; branch managers, responsible for compliance with internal controls in their branches; and the Controller, the officer responsible for the Bank s Compliance division. The main responsibilities of this apparatus is to identify, evaluate, monitor, control and mitigate Banrisul s operational risks, including those stemming from third-party services. 71

71 All Banrisul employees and interns, as well as third-party service providers, are responsible for adopting and observing behavioral measures that avoid risk exposure as applicable to their duties. In order to support these measures, Operational Risk Management uses an automated information management system that allows the Institution to identify, create, represent and distribute information in ways that promote usage, awareness and learning. Through analysis of the information collected, the Banrisul s Operational Risk Matrix is created. Using Action Plans that are evaluated and prioritized by the Bank s decision-making processes, the Matrix allows for greater levels of confidence in all aspects of its business, avoiding losses and lowering its risk exposure. As of the first quarter of 2009, a detailed description of the Operational Risk Management Model/Structure will be available Board of Directors and Executive Officers Responsible Director Internal Controls Management Committee Controller Managers of Head Office s Units and Branches Internal Controls Agents on the Bank s website, accessible by following the path: Investor Relations/Corporate Governance/Operational Risk. Banrisul adopted the Basic Indicator Approach methodology to assess the portion of capital needed to cover the Operational Risk, as provided for in Circular Letter 3,383 of April 30, 2008, and Notice 16,913 of May 20, 2008, issued by the Brazilian Central Bank. Basel Index As of July 2008, the Basel Index was calculated according to the premises of the New Basel Capital Accord Basel II, as per rules established by the Brazilian Central Bank addressing the implementation of operational and market risk management structures, the rules for Reference Equity ascertainment by means of Resolutions 3,444, 3,464 and 3,490 and Circular Letters 3,360, 3,361, 3,362, 3,363, 3,364, 3,365, 3,366, 3,368, 3,383 and 3,389. The Brazilian Central Bank requires that the minimum standard index be maintained at 11.0%. The Basel Index represents the ratio between the reference equity and the assets weighted by risk, which shows the company s solvability. At Banrisul, this index reached 20.1% in December 2008, 9.1 p. p. above the Brazilian Central Bank requirements. The reduction of the Basel Index Growth (%) weighted risk factor applicable to tax credits due to timing differences from 300% to 100%, as well as the increase in Reference Equity due to the new treatment of the additional provision for credit operations, positively influenced the composition of the Index. 72

72 Technology Modernization Banrisul has been frequently been recognized in the IT area as an institution that employs technology solutions capable of making a difference in business processes and customer service, even before such innovations become commonplace in the market. Several initiatives serve to illustrate Banrisul s technological trailblazing. During the 1990s, Banrisul was one of the first institutions to offer Internet banking as an alternative means to carry out financial transactions; it was a leader in the use of open-source software in self-service stations and, more recently, in 2007, led through its development of mobile banking, which allows banking operations to be carried out directly from a cell phone. The big news during the 2008 fiscal year was the launch of the multi-use card, an internally developed mechanism supporting conventional operations as well as digital certification. The certification technology incorporated into the card provides greater security since it allows clients to merge their passwords and use a single encrypted key for all channels. The project is still in its testing phase within the Bank and at a few public agencies. Its use will be extended to account holders in the first quarter of 2009, and the Bank s goal is for all of its clients to be using the chipbearing cards within a maximum of two years. These IT investments are closely aligned with Banrisul s business strategy. As part of the Bank s 80th anniversary celebration, it hosted the Banrisul International IT Forum on October 28, with more than a thousand participants among banking sector representatives and important names in IT from Brazil and abroad, including IBM, ITI, Gartner, Bull, Gemalto, Verifone and Smart Card Alliance, among others. The forum allowed extensive debate about the current scenario and new prospects in IT. The event was a convenient way for Banrisul to publicize the projects it has been developing to protect its clients data. Banrisul s good IT practices have earned it a reputation as an innovator in the sector. Some of the awards and acknoledgements it received for these efforts in 2008 include: World s Best Integrated Card Model, for its worldwide project involving the integration of banking operations and the electronic government (Certifying Authority of Rio Grande do Sul), and the trophy for Outstanding Smart Card Achievement Latin America, for its Cartão Múltiplo Banrisul com Chip (Banrisul multiuse card with integrated chip), recognized as the most ambitious and advanced project of its kind in Latin America. The impact of the Bank s IT efforts can also be seen in its participation, as both lecturer and exhibiter, in national and international conferences and conventions. In 2008, Banrisul executives participated in the CTST2008 and in Mobile Commerce, both held in Florida, the CARTES2008 in France and the CLAB2008 in Guatemala in addition to events in Brazil sponsored by FEBRABAN (Brazilian Federation of Banks) CNAB/SP and Workshop FEBRABAN/SP, among others. Investments in technology totaled R$151.9 million in Approximately R$230.0 million in IT investments is planned for

73 Public Sector Activities Banrisul has been innovative with its relationship with the public sector by highlighting its integration in onlending of State and Federal funds earmarked for sustainable development projects in the communities in which it operates. By adopting strategies for advising these communities with its professional expertise and through partnerships, the Bank effectively contributes to the modernization of public administration. In 2008, Banrisul built partnerships with the State of Rio Grande do Sul, FAMURS (Rio Grande do Sul State Federation of Municipalities) and the Public Ministry to provide training for public employees. Moreover, it sponsored several regional events, including fairs, festivals, and rodeos that help to publicize its local services. Municipal Governments In 2008, Banrisul consolidated its position as a leader in the municipal public sector. The commercial projects developed by the Bank increased revenues from the agreement between Banrisul, FAMURS and Municipalities. This year, 64% of all state municipalities paid their employees exclusively through the Bank. Approximately 300 new Real Estate Loan agreements were entered into by Banrisul and municipalities, allowing more than 130 thousand public employees to purchase their own homes with special interest rates, terms and financial percentages, which helped increase the Bank s volume of operation in this segment. Registration for Contas a Pagar Eletônico (online accounts payable), which automatically transfers payroll credits, reached 91% of municipalities with agreements with Banrisul. Its share in tax collection also increased, totalling 3.2 million collection documents from 261 municipalities with agreements in State Government As the financial agent of the State of Rio Grande do Sul Treasury, Banrisul broadened and improved its operations within the public sector over the course of In the last quarter, for example, it implemented a system that makes updated tax collection data available every 15 minutes. This gives managers knowledge of the revenues that will comprise cash flow in advance, optimizing tax collection processes and increasing the security and control of taxpayer remittances. With more than 22.2 collection documents, total state revenues from government offices and public companies reached a volume of R$5.6 billion. Approximately 350 thousand individuals received their salaries and pension benefits through Banrisul s payroll services. The Habitacional Cheque Casa (Housing Check Home) program that subsidizes home construction and remodeling projects, giving low-income urban and rural individuals homes with a minimum of comfort and quality, served numerous people in the cities of São João do Polêsine and Nova Hartz. 74

74 Federal Government In the federal public sector, Banrisul s strategy is to broaden its service structure in order to increase its business with government entities and civil servants. Thus, 2008 was a year marked by new contracts with these clients, such as the payroll-deductible loan contract between the Bank and the federal administration and the real estate loan covenant with the Companhia de Geração Térmica de Energia Elétrica, CGTEE. The Bank also plays an important tax collection agent. In 2008, it received more than 5.5 million collection documents (GPS, DARF, DAS), representing an amount in excess of R$8.1 billion. Additionally, as a payer of INSS (Social Security) benefits, Banrisul made close to 500 thousand monthly payments totaling more than R$3.5 billion. Judiciary and Public Ministry The partnership between Banrisul and the State Justice Tribunal allows for improvements to its collection services, providing better security in and control of fee, cost and legal deposit collection. In 2008, bar codes were added to all judicial collection documents, facilitating payment through self-service channels. The Bank has exclusive rights to all judicial collections and recorded a volume of 1.5 million collection documents in 2008, 25% higher than the previous year. Banrisul has 55 service stations, including branches, banking service stations and electronic service stations located in Justice and Public Ministry facilities to better serve the people of Rio Grande do Sul State. To strengthen its partnership with this public sector, the Bank sponsors publicity campaigns to support professional associations such as RS-AJURIS Association of Rio Grande do Sul Judges, AMP/RS Public Ministry Association of Rio Grande do Sul, ASJ Justice Employees Association, CEJUS Justice Tribunal Employees Organization and APROJUS Association of Public Ministry Employees. 75

75 Marketing Banrisul s sales strategy prioritizes lines of communication including institutional, product and service publicity through virtual, cultural, sporting and social channels. All of these media guarantee accessibility to Banrisul products and services, reinforce its image, strengthen its tradition and add value to the Banrisul brand. September 2008 marked the Bank s 80 th anniversary. Since its founding, Banrisul has been graced with innumerable distinctions and honors, acknowledgements that drive the launches of institutional campaigns that, in 2008, focused on increasing market share, making its businesses more competitive and strengthening its image and tradition. In 2008, Banrisul successfully implemented product and service publicity. The Bank s wide penetration, not just in large cities, but also in smaller communities, allowed it to offer a portfolio of products and services that can be modified to meet the specific demands of each region. Some of Banrisul s successful marketing initiatives from 2008 included campaigns such as Banricompras Premiável, a Bank exclusive, the re-launch of the investment product POP Invest Premiável, which got a new logo and brochure, installation of front lights at branches in 13 cities in Santa Catarina State improving their visibility, as well as school promotions like Banrisul no Colégio (Banrisul in School), aimed at stimulating financial responsibility in students, a strategy that earned the Bank the Top de Marketing distinction for its Na Onda Jovem (Youth Vibe) case. The distribution of online services was another area of focus in To make its internet portal more attractive and faster, the Bank created a new visual identity, in which the institutional campaign Quem tem Banrisul tem tudo (Whoever has Banrisul has it all) stands out, and themed areas on its webpage to make it easier for clients to access the services they most use. Culture has also received special attention from Banrisul: the Bank if a partner in innumerous cultural projects and enterprises. Mixing music and education, the Bank sponsored the 9th annual Concertos Banrisul para Juventude (Banrisul Concert for Youth), opening the musical world of the São Pedro Theater Chamber Orchestra to children and adolescents in public and private schools. Banrisul also supported other cultural projects and events, including Multipalco, the Grape Festival, Expodireto and Expobento, the Mario Quintana Cultural House, Rio Grande do Sul Art Museum, Rio Grande do Sul State Memorial, Hipólito José da Costa Museum of Communication, Julio de Castilhos Museum, 36 th Gramado Film Festival, Expointer, 54 th Porto Alegre Book Fair, Reading is Everything literacy program and Christmas Light, as well as many other fairs, festivals, Rio Grande do Sul film productions, and rural events. Banrisul also sponsors major soccer clubs around Rio Grande do Sul State, including the duo Gre-Nal, as well as athletes participating in numerous other sports like judo, swimming, and skating. Athletic sponsorships represent an important promotional opportunity for the Bank, and, above all, a chance to integrate with and further the development of Rio Grande do Sul State. 76

76 Human Resources Banrisul s people management model prioritizes holistic development of its employees, understanding that they are ultimately responsible for the Bank s reaching its goals. Several kinds of training and educational programs in various areas are available to employees at all levels through partnerships with schools, universities and consulting firms. These programs are made available in-company and at Banrisul Training Centers, as well as at schools and universities, providing diversity of interaction and learning. With this vision, in 2008 Banrisul offered 1,749 courses with 9,348 participants, equivalent to approximately thousand hours of training and a total investment of R$6.0 million. Of this, R$469.5 thousand was invested in graduate programs, R$840.9 thousand invested in postgraduate programs and R$262.3 thousand in foreign language education. These efforts produced 50 new business management graduates and 112 supervisors, with 259 employees enrolled in MBA programs. In addition to professional education programs and those aimed at improving the quality of life of employees and their families, the Bank offers various other benefits, such as childcare stipends, a residence program for managers, health, dental, and prescription drug coverage, group life insurance and a supplemental pension program, among others. At the close of 2008, Banrisul had 9,207 employees and 1,937 interns. These numbers reflect 734 new hires resulting from the latest public service examination and the loss of 347 employees who retired, were dismissed or died. The increase of 387 employees is needed to attend to the Bank s network expansion and new projects in development. Personnel expenses, including payroll, deductions and benefits came to R$835.4 million in Corporate Responsability In the past few years, Banrisul has established itself as a leading presence in the adoption of sustainable practices grounded in the concepts of social responsibility and corporate citizenship. In this context, the Bank invested R$30.3 million in 2008 in community projects, its workforce and the environment. Taken together, these three areas form the basis of the Bank s corporate responsibility management, which also includes education, culture, sports, health and the environment. The quality of Banrisul s products and services also depends on those who produce and deliver them to the public. For this reason, care for their health and quality of life is fundamental. Thus, the Bank offers its employees several preventive medicine and treatment programs for integral and occupational health through its Controle Médico de Saúde Ocupacional (Occupational Health Medical Control) program. 77

77 As a socially responsible company, Banrisul is an active participant in education as well as cultural and sporting social inclusion programs. Among several iniciatives, the Bank s supports Junior Achievement, the RS Children s Network program, Karate Beyond Sports and the Projeto Pescar (Fishing Project) Banrisul, that for more than five years has promoted social inclusion of at-risk youths. In partnership with the Foundation Fishing Project, five classes with a total of 100 youths aged 16 and 19 have participated. Of these, 76% have already been placed in the job market. The Bank s social management policies are designed to make efficient use of energy and to combat waste. Banrisul s Eficientização Energética (Energy Efficiency) Program, PROGEB, is concerned with raising intelligent energy use awareness through lectures and workshops, changing habits. In practice, efficient use of energy means substituting old equipment for modern, certified models. In 2008, Banrisul launched a credit line for implementing energy efficiency projects, providing the financial resources necessary for investments in efficient electricity use through effective socioenvironmental actions. The Reciclar Banrisul (Recycle Banrisul) Program puts the Bank s social and ecological vision into daily practice. The program aims to reduce residual waste generation by companies and to raise awareness of proper disposal of such materials. The initiative, working closely with employees, has also been broadening its partnerships with schools, associations, NGOs, state secretariats and municipal governments. In 2008, several programs including workshops, storytelling, benchmarks and expositions with more than 30 thousand participants were held in various cities throughout Rio Grande do Sul State. The proper disposal of residual waste creates both jobs and income. In 2008, The Recycle Banrisul Program sent 44,807 kg of dry waste products from administrative agencies and 397,000 kg of paper to triage facilities for recycling. In terms of the savings generated, 2008 saw a 33.7% reduction in paper purchased in comparison to From 2001 to 2008, Recycle Banrisul has promoted the recycling of 3,414 tons of paper, saving 48 thousand threes. With the same focus, the year Banrisul turned 80 it launched Projeto Sementes (Project Seeds), which donates seeds from native trees adapted to each region on the state, benefitting close to 16 thousand farmers. Adopting management standards based on the ethics of transparency, throughout 2008 the Bank entered into several partnerships to solidify and increase these initiatives. Among these, the As Vantagens de Permanecer na Escola (Advantages to Staying in School) program, in partnership with Junior Achievement, trains students for business. Another key partnership with the NGO Parceiros Voluntários (Volunteer Partners) is designed to strengthen the volunteerism in the Institution and to spread individual social responsibility among its employees. These kinds of investments are a priority for a bank that is committed to the community in which it operates. For Banrisul, acts of social and corporate responsibility are ways of giving back to society for the prestige and confidence it has deposited in the Institution. 78

78 Awards January/2008. Banrisul features the best return on shareholders equity of Brazilian banks. Banrisul is first among the country s banking institutions in return on shareholders equity. The annual profitability reached 45.2% over the result accumulated up to September The study was prepared by Economática Consulting and published by IstoÉ Dinheiro magazine. February/2008. Banrisul is one of the best investment options for Banrisul is one of the best investment options for 2008, according to Exame magazine. The magazine states the Bank has the third highest potential for a rise among banking institutions, with a rate of 50%. March/2008. Banrisul is awarded for developing the integrated card. The international acknowledgement in the category of best integrated card project electronic government (Certifying Authority of Rio Grande do Sul) and banking system was granted at the 10-year anniversary celebration of the MULTOS System, in London, England. The award demonstrates the international recognition of the state-of-the-art technology implemented by the bank. MULTOS is the operating system of Banrisul s chip card, whose competitive edge lies in the ability to support several applications. MULTOS allows a card to be used for debit transactions, within the international standard EVM, and for safe Internet Banking operations and the digital certification of the State Certifying Authority. March/2008. Banrisul receivescorporate Reputation Award. Banrisul was granted the Corporate Reputation award, as one of the most respected corporate brands in Rio Grande do Sul, according to an unprecedented survey conducted in the country by Revista Amanhã magazine, and Troiano Consultoria de Marca, a brand consulting firm based in São Paulo. April/2008. Banrisul joins the list of the largest companies of the world. For the first time ever, Banrisul is now listed among the 2,000 largest companies in the world, according to Forbes magazine, which specializes in economy, finance and businesses. Forbes s rating takes into account annual sales in dollars, results, assets and market value. May/2008. Banrisul receives the trophy Outstanding Smart Card Achievement Latin America. Banrisul was awarded by Smart Card Alliance Latin America (SCALA) in May, receiving the Outstanding Smart Card Achievement Latin America (OSCA- LA) trophy in the Runner Up category for the Cartão Internet Banrisul com Chip (Banrisul s Internet Chip Card), deemed by the entity to be the most audacious and emerging project in Latin America. The award was granted during the CardTechSecurTech 2008, held in Orlando, USA. 79

79 June/2008. Banrisul is acknowledged as Brazil s Best Public Financial Conglomerate. In 2007, Banrisul was named the Best Brazilian Financial Conglomerate by Conjuntura Econômica magazine, which is edited by the Brazilian Institute of Economics at the Getulio Vargas Foundation (FGV). The acknowledgement is based on domestic market growth indicators, financial-economic performance and structure (shareholders equity/profitability). The performance accomplished is related to restructuring efforts carried out by the Institution, the implementation of a new management model, the participation of the employees in the results and the listing on the capital market. June/2008. Banrisul receives award in national IT event. Banrisul received the e-finance 2008 award, which is granted by Executivos Financeiros magazine, in the Electronic Data Transfer category. The award is given to innovative projects in Information Technology and Telecommunications infrastructure and applications, contemplating projects aimed at improving the quality of services rendered by the Country s financial institutions. June/2008. Banrisul is considered one of the best Brazilian retail banks. Banrisul was considered one of the five Best Retail Banks in Brazil by Balanço Financeiro 2008 magazine. The ranking was prepared by Austin Rating and published in Gazeta Mercantil newspaper of São Paulo. The survey ranks the best institutions in each category of banks, leasing, brokers, distributors, financial institution, insurance, pension plans and capitalization. The publication shows a detailed description of the sector, featuring indicators from 432 institutions. August/2008 Banrisul ranks 15 th in Grandes e Líderes 2008 ranking 500 Largest Companies in the South. Banrisul was 15 th in the Grandes e Líderes 2008 ranking 500 Largest Companies in the South, compiled by Revista Amanhã magazine and PricewaterhouseCoopers consultants. In Rio Grande do Sul State, the Bank is the fourth largest company among the biggest 100, and has the largest working capital. Also in the state, Banrisul is second in terms of shareholders equity. August/ Banrisul featured in Febraban s Social Report Banrisul was the highlight in environmental management in the 2007 Social Report issued by the Brazilian Bank Federation FEBRABAN, which reports on the participation and involvement of the banking sector in meeting society s demands. The programs developed by Banrisul, PROGEB and Recycle Banrisul, were featured in the report as initiatives that mitigate the environmental impacts of the Company s activities and raise the awareness of employees, clients and suppliers about the need to preserve natural resources. The Social Report also emphasized the Bank s participation in social activities, through the Projeto Pescar, cultural initiatives, such as Concertos Banrisul para a Juventude and sports activities, with programs such as Criança no Esporte (Children in Sports) and Social Karate Além do Esporte. 80

80 September/2008 Banrisul named one of the most valuable brands in Latin America. Banrisul was named one of the 50 most valuable brands in Latin America according to the Interbrand Ranking of the Most Valuable Latin American brands, compiled by American company Interbrand, a global leader in brand consulting. The value of the Banrisul brand in 2008 was evaluated at US$179 million, or R$317 million. In the Brazilian financial sector, Banrisul figures among the five most valuable bank brands and, in Rio Grande do Sul State, it is the second most valuable brand. Banrisul s analysis suggests that the 2007 financial result, combined with the image of a trustworthy institution that knows how to modernize in order to offer the best market practices, have jointly contributed to the great brand value. September/2008 Banrisul receives Respect for Individual Investors award Banrisul was featured at the opening ceremony of the 6th Expo Money in São Paulo. The institution received the award for Respect for Individual Investors for its participation in earlier editions of Expo Money, the largest financial education and investments event in Latin America. Expo Money is a circuit of events consisting of lectures and free expositions, targeted at those who are interested in learning about personal financial strategies and investment options. October/2008 Banrisul wins citizenship award. Banrisul was recognized with the Prêmio Top Cidadania 2008 (Top Citizenship Award) in the business category by ABRH, the Brazilian Association of Human Resources of Rio Grande do Sul State, for its case Consciência que gera sustentabilidade (Awareness that creates sustainability) that documents the activities of the Recycle Banrisul Program. October/2008 Banrisul wins social environmental responsibility award. Rio de Janeiro s Instituto Ambiental Biosfera awarded Banrisul the Prêmio Nacional de Responsabilidade Socioambiental Empresarial (National Business Social Environmental Responsibility Award) in recognition of the bank s social environmental development efforts throughout Brazil. November/2008 Sinduscon names Banrisul Financial Institution of the Year. SINDUSCON-RS, the Civil Construction Industries Union of Rio Grande do Sul, recognized Banrisul as the Financial Institution of the Year. This award recognizes the performance of companies, builders and developers that contribute to growth in the civil construction sector. 81

81 November/2008 Banrisul receives prestigious marketing honor. Banrisul received the honor Top de Marketing from the ADVB-RS, Association of Marketing and Sales Directors of Rio Grande do Sul State. The recognition is extremely prestigious in the Rio Grande do Sul marketing industry and confers a competitive advantage on its winner. The distinction was awarded in recognition of the case Na Onda Jovem. November/2008 Banrisul recognized as 50 th largest economic group in Brazil. According to the São Paulo publication Balanço Anual 2008, Banrisul is the 50 th largest economic group in Brazil. Between 2006 and 2007, Banrisul moved up 22 spots from its previous ranking in the list of Brazil s 300 largest groups. It has been ranked 72 nd. December/2008 Banrisul recognized by store managers group. Banrisul received the 2008 Mérito Lojista (Storeowner Merit) Award for Best Debit Card from FCDL-RS, the Rio Grande do Sul State Federation of Chambers of Store Managers. The Bank was recognized in the Best Capital Financial Institution and Best Debit Card (Banricompras) categories. Acknowledments In 2008, Banrisul achieved the result anticipated for the period and it intends to continue to move forward, fulfilling the expectations of its clients and shareholders in close collaboration with the State of Rio Grande do Sul. The Bank s dedicated team of employees worked extremely hard to counter the turbulent economic conditions that characterized the second half of the year, and once again their efforts proved the resilience and efficiency of the Bank s services. We would like to thank all of you for the support and confidence you have given Banrisul and for helping us to improve our services and increase our success. Board of Executive Officers 82

82 Financial Statements

83

84 Balance Sheets December 31, 2008 (In Thousands of Reais) Banrisul Banrisul Consolidated ASSETS (reclassified) (reclassified) CURRENT... 16,298,255 12,286,589 16,354,440 12,339,948 CASH , , , ,353 INTERBANK INVESTMENTS (Notes 03 (b) and 04)... 4,668,686 3,682,417 4,687,078 3,698,062 Money Market Investments... 4,430,537 3,601,587 4,448,929 3,617,232 Interbank Deposits ,149 80, ,149 80,830 SECURITIES AND DERIVATIVES (Notes 03 (c) and 05)... 3,004,516 1,002,425 3,010,816 1,005,946 Own Portfolio... 2,472, ,222 2,478, ,738 Linked to Repurchase Commitments , , , ,497 Derivatives... 7,411 7,802 7,411 7,802 Linked to Central Bank of Brazil ,468 52, ,468 52,668 Linked to Guarantees... 38,557 67,236 38,557 67,236 Privatization Certificates INTERBANK ACCOUNTS... 1,341,804 2,333,859 1,341,804 2,333,859 Payments and Receipts Pending Settlement... 3,377 2,106 3,377 2,106 Restricted Deposits (Note 06) - Central Bank of Brazil... 1,318,412 2,313,984 1,318,412 2,313,984 - Correspondents... 20,015 17,769 20,015 17,769 INTERBRANCH ACCOUNTS... 43,936 50,390 43,936 50,390 Third-party Funds in transit... 1, , Internal Transfers of Funds... 42,568 49,391 42,568 49,391 LENDING OPERATIONS (Notes 03 (d) and 07)... 5,770,975 4,000,069 5,770,975 4,000,069 Lending Operations - Public Sector... 79,942 94,215 79,942 94,215 - Private Sector... 5,960,215 4,189,538 5,960,215 4,189,538 Allowance for Loan Losses (Note 03)... (269,182) (283,684) (269,182) (283,684) LEASING OPERATIONS (Notes 03 (d) and 07)... 45,001 23,335 45,001 23,335) Lease Receivables - Public Sector , ,249 - Private Sector... 46,553 23,789 46,553 23,789 Allowance for Doubtful Lease Receivables... (2,186) (1,703) (2,186) (1,703) OTHER RECEIVABLES (Note 08)... 1,044, ,629 1,075, ,689 Foreign Exchange Portfolio , , , ,682 Income Receivable... 44,173 37,600 39,228 31,596 Trading Accounts ,858 3,078 Other , , , ,076 Allowance for Losses on Other Receivables (Note 07)... (17,396) (11,116) (18,377) (11,743) OTHER ASSETS... 6,044 19,161 6,266 19,245 Temporary Investiments... 3,070 3,441 3,070 3,441 Allowance for Losses... (1,448) (1,225) (1,448) (1,225) Other Assets... 7,827 14,847 7,927 14,863 Allowance for Valuation... (7,826) (2,360) (7,826) (2,360) Prepaid Expenses... 4,421 4,458 4,543 4,526 85

85 Banrisul Banrisul Consolidated ASSETS (cont.) (reclassified) (reclassified) LONG-TERM ASSETS... 8,464,826 7,764,664 8,486,872 7,782,327 SECURITIES AND DERIVATIVES (Notes 03 (c) and 05)... 3,097,472 4,145,912 3,099,975 4,148,139 Linked to Repurchase Commitments... 2,125,424 2,241,885 2,125,424 2,241,885 Derivatives , , , ,334 Linked to Central Bank of Brazil , , , ,096 Linked to Guarantees , , , ,744 Privatization Certificates , , , ,080 INTERBANK ACCOUNTS , , , ,633 Restricted Deposits (Note 06) - National Housing System , , , ,633 LENDING OPERATIONS (Notes 03 (d) and 07)... 4,185,375 2,768,000 4,185,375 2,768,000 Lending Operations - Public Sector , , , ,095 - Private Sector... 4,748,716 3,254,456 4,748,716 3,254,456 Allowance for Loan Losses (Note 03)... (672,960) (588,551) (672,960) (588,551) LEASING OPERATIONS (Notes 03(d) and 07)... 57,194 18,852 57,194 18,852 Lease Receivables - Public Sector , ,664 - Private Sector,... 60,328 18,891 60,328 18,891 Allowance for Doubtful Lease Receivables... (3,559) (1,703) (3,559) (1,703) OTHER RECEIVABLES (Note 08) , , , ,091 Foreing Exchange Portfolio... 5,408 5,233 5,408 5,233 Other , , , ,091 Allowance for Losses on Other Receivables (Note 07)... (5,408) (5,233) (5,408) (5,233) OTHER ASSETS... 17,443 6,612 17,443 6,612 Other Assets... 18,446 15,787 18,446 15,787 Allowance for Valuation,... (1,003) (9,175) (1,003) (9,175) PERMANENT ASSETS , , , ,613 INVESTIMENTS , ,671 8,241 8,073 Investments in Domestic Subsidiaries (Note 02 (c)) , , Other Investiments... 11,920 11,910 13,711 13,543 Allowance for Losses... (4,997) (4,997) (5,470) (5,470) PROPERTY AND EQUIPMENT IN USE (Note 09 (a)) , , , ,076 Real Estate , , , ,758 Other , , , ,786 Accumulated Depreciation... (378,965) (357,182) (386,167) (367,468) INTANGIBLE (Note 09 (b)) , , , ,464 Intangible Assets , , , ,461 Accumulated Amortization... (75,979) (22,997) (75,979) (22,997) TOTAL ASSETS... 25,392,684 20,627,601 25,205,375 20,456,888 86

86 Banrisul Banrisul Consolidated LIABILITIES AND SHAREHOLDERS EQUITY (reclassified) (reclassified) CURRENT... 18,177,692 14,703,066 18,021,578 14,530,335 DEPOSITS (Note 10)... 11,289,466 10,296,039 11,120,370 10,141,348 Demand Deposits... 1,869,619 1,829,413 1,864,035 1,827,727 Saving Deposits... 4,805,853 4,633,790 4,805,853 4,633,790 Interbank Deposits... 11,981 3,507 11,981 3,507 Time Deposits... 4,585,598 3,809,524 4,422,086 3,656,519 Other Deposits... 16,415 19,805 16,415 19,805 MONEY MARKET FUNDING (Note 10)... 2,290,220 2,289,189 2,234,251 2,228,119 Own Portfolio ,131 1,442, ,162 1,380,940 Third Parties... 1,471, ,179 1,471, ,179 INTERBANK ACCOUNTS... 11,779 9,475 11,779 9,475 Receipt and Payment Pending Settlement... 11,773 9,473 11,773 9,473 Correspondents INTERBRANCH ACCOUNT ,070 98, ,070 98,001 Third-party Funds in Transit ,908 95, ,908 95,095 Internal Transfers of Funds , ,906 BORROWINGS , , , ,275 Domestic Borrowings - Other Institutions Foreign Borrowings (Note 11) , , , ,184 DOMESTIC ONLENDINGS - OFFICIAL INSTITUTIONS (Note 12) , , , ,655 Nacional Treasury... 42,290 36,036 42,290 36,036 National Economic and Social Development Bank (BNDES) , , , ,019 Federal Savings and Loan Bank (CEF)... 1,432 1,334 1,432 1,334 National Equipment Financing Authority (FINAME)... 81,869 59,266 81,869 59,266 FOREING ONLENDINGS... 31,792 6,783 31,792 6,783 Foreign Onlendings (Note 11)... 31,792 6,783 31,792 6,783 DERIVATIVES (Note 05 (d))... 8,348 2,984 8,348 2,984 Derivatives... 8,348 2,984 8,348 2,984 OTHER PAYABLES (Note 13)... 3,480,595 1,424,756 3,549,546 1,467,695 Collected Taxes and Other... 80,948 27,258 80,948 27,258 Foreign Exchanges Portfolio... 91,215 22,478 91,215 22,478 Social and Statutory... 39,229 51,472 39,295 51,579 Tax and Social Security... 78,551 69,247 81,551 80,363 Trading Account ,554 3,278 Financial and Development Funds (Note 21 (a))... 2,672, ,401 2,672, ,401 Other , , , ,338 87

87 Banrisul Banrisul Consolidated LIABILITIES AND SHAREHOLDERS EQUITY (cont.) (reclassified) (reclassified) LONG-TERM LIABILITIES... 4,135,853 3,132,522 4,101,355 3,133,139 DEPOSITS (Note 10)... 3,136,312 2,225,817 3,135,713 2,224,610 Time Deposits... 3,136,312 2,225,817 3,135,713 2,224,610 DOMESTIC ONLENDINGS - OFFICIAL INSTITUTIONS (Note 12) , , , ,619 Nacional Treasury... 13,092 15,224 13,092 15,224 National Economic and Social Development Bank (BNDES) , , , ,161 Federal Savings and Loan Bank (CEF)... 8,339 6,139 8,339 6,139 National Equipment Financing Authority (FINAME)... 86,024 76,095 86,024 76,095 DERIVATIVES (Note 05 (d))... 27,538 18,917 27,538 18,917 Derivatives... 27,538 18,917 27,538 18,917 OTHER PAYABLES (Note 13) , , , ,993 Tax and Social Security , , , ,183 Other , , , ,810 MINORITY INTEREST ,303 1,401 SHAREHOLDERS' EQUITY (Note 20)... 3,079,139 2,792,013 3,079,139 2,792,013 Capital... 2,300,000 2,034,000 2,300,000 2,034,000 Capital Reserves... 6,164 6,275 6,164 6,275 Profit Reserves , , , ,691 Assets Valuation Adjustment (Note 05 (b))... (9,507) 47 (9,507) 47 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... 25,392,684 20,627,601 25,205,375 20,456,888 88

88 Statement of Income December 31, 2008 In Thousands of Reais BANRISULBANRISUL CONSOLIDATED 2nd Sem/ (reclassified) (reclassified) FINANCIAL INCOME... 2,297,611 3,870,493 2,848,268 3,879,663 2,875,824 Lending Operations... 1,342,186 2,336,380 1,679,934 2,336,380 1,679,934 Leasing Operations... 9,780 16,192 9,730 16,192 9,730 Securities Transactions , , , , ,399 Derivatives ,056-10,056 Foreign Exchange Operations , ,719 50, ,719 50,607 Compulsory Investments , , , , ,098 FINANCIAL EXPENSES... 1,385,276 2,176,116 1,481,061 2,157,313 1,451,141 Funding Operations ,638 1,420,123 1,104,621 1,401,077 1,089,320 Borrowings, Assignments and Onlendings , , , , ,412 Derivatives... 22,922 17,548-17,548 - Allowance for Loan Losses (Note 07 (d)) , , , , ,409 GROSS PROFIT FROM FINANCIAL OPERATIONS ,335 1,694,377 1,367,207 1,722,350 1,424,683 OTHER OPERATING INCOME (EXPENSES)... (529,083) (1,006,865) (756,612) (1,018,111) (791,581) Income from Services Rendered (Note 15)... 48,337 95,917 94, , ,726 Bank Fees Income (Note 16) , , , , ,268 Equity in Subsidiaries (Note 02 (c))... 17,810 30,152 43, Personnel Expenses... (426,111) (830,099) (734,383) (835,369) (739,692) Other Administratives Expenses (Note 17)... (296,465) (567,549) (508,159) (575,239) (527,615) Tax Expenses... (76,610) (147,433) (141,762) (152,586) (153,381) Other Operating Income (Note 18) , , , , ,850 Other Operating Expenses (Note 19)... (109,265) (186,210) (155,066) (186,826) (169,737) INCOME FROM OPERATIONS , , , , ,102 INCOME BEFORE TAXES ON INCOME AND EMPLOYEE PROFIT SHARING , , , , ,102 INCOME AND SOCIAL CONTRIBUTION TAXES (Notes 03 (l) and 22 (a))... (83,914) (66,659) 368,000 (83,192) 345,838 EMPLOYEE PROFIT SHARING... (16,692) (29,980) (62,214) (29,990) (62,214) MINORITY INTEREST (184) (345) NET INCOME , , , , ,381 Number of Outstanding Shares (Thousands) , , , Earning per Thousand Shares (R$) ,11 1,444,77 2,240,

89 Cash Flow For the 2nd Semester ended December 31, 2008 In Thousands of Reais BANRISULBANRISUL CONSOLIDATED December, 31 December, 31 2nd Sem/ Adjusted Net Income , , , , ,234 Net Income , , , , ,381 Adjustment to Net Income: Depreciation and Amortization... 49,940 91,386 31,709 92,447 32,484 Equity Subsidiaries... (17,810) (30,152) (43,938) - - Dividends Receivable from Subsidiaries ,319 3, Provision for Loan Losses , , , , ,409 Reserve for Co-obligations... (3,348) (2,221) (377) (2,221) (377) Reserve for Contingencies... 26,361 45,762 (24,175) 47,123 (6,073) Deferred Income and Social Contribution Taxes... (15,956) (92,825) (501,817) (91,664) (508,590) Changes in Assets and Liabilities... (135,986) 519, , , ,647 Assets Valuation Adjustment... (5,283) (9,554) 33 (9,554) 33 (Increase) Decrease in Securities... (1,599,509) (963,646) (601,310) (966,701) (605,391) (Increase) Decrease in Derivatives... 30,347 23,980 (4,175) 23,980 (4,175) (Increase) Decrease in Interbank and Interbranch Accounts , ,459 (600,361) 958,458 (600,361) (Increase) Decrease in Loan Operations... (1,519,832) (3,434,235) (1,779,129) (3,434,236) (1,779,134) (Increase) Decrease in Leasing Operations... (32,271) (62,419) (6,240) (62,419) (6,240) (Increase) Decrease in Other Receivables... (228,528) (349,441) (238,046) (358,847) (155,908) (Increase) Decrease in Other Assets... 6,621 2,286 (4,815) 2,149 (4,805) Increase (Decrease) in Deposits... 1,256,378 1,903,922 2,039,005 1,890,125 2,013,020 Increase (Decrease) in Money Market Funding... (309,363) 1, ,186 6, ,927 Increase (Decrease) in Borrowing , , , , ,595 Increase (Decrease) in Other Liabilities... 1,068,337 2,021, ,530 2,010, ,086 NET INCOME FROM OPERATING ACTIVITIES ,277 1,379, ,553 1,380, ,881 CASH FLOW FROM INVESTIMENT ACTIVITIES Updating of Stock Exchange Membership... 3 (111) 612 (111) 612 Disposal of Investiments ,570 Disposal of Property and Equipment in Use Acquisition of Investiments... (19) (42) (1,624) (168) (1,560) Acquisition of property and equipment in use... (42,804) (62,524) (26,652) (61,308) (27,495) Acquisition of Intangible... (11,119) (60,579) (200,713) (60,899) (200,993) NET CASH USED IN INVESTMENT ACTIVITIES... (53,701) (122,643) (227,549) (122,009) (226,867) 90

90 Cash Flow (CONT.) In Thousands of Reais BANRISULBANRISUL CONSOLIDATED December, 31 December, 31 2nd Sem./ CASH FLOW FROM FINANCING ACTIVITIES... Capital Increase , ,000 Dividends Paid... - (87,056) (71,519) (87,056) (71,519) Interest on Own Capital Paid... (84,395) (157,937) (100,700) (157,937) (100,700) Change in Minority Interest , NET CASH FROM (USED IN) FINANCING ACTIVITIES... (84,395) (244,993) 627,781 (243,091) 628,077 NET CASH INCREASE AND CASH EQUIVALENTS ,181 1,012,204 1,191,785 1,014,941 1,193,091 Cash , , , , ,801 Interbank Investments... 4,589,609 3,682,417 2,576,180 3,698,062 2,590,523 CASH AND CASH EQUIVALENT AT THE BEGINNING OF THE PERIOD... 4,840,744 4,029,721 2,837,936 4,045,415 2,852,324 Cash , , , , ,353 Interbank Investments... 4,668,686 4,668,686 3,682,417 4,687,078 3,698,062 CASH AND CASH EQUIVALENT AT THE END OF THE PERIOD... 5,041,925 5,041,925 4,029,721 5,060,356 4,045,415 91

91 Statement of Changes in Shareholders Equity December 31, 2008 In Thousands of Reais Capital Reserves Profit Reserves Updating of Assets Capital Stock Exchange Investments For Valuation Retained Stock Memberships Grants Legal Statutory Expansion Adjustment Earnings TOTAL Balance as of January 01, , Capital Increase (Note 20 (a)) ,- -,- (22.099) ( ) ( ) -,- -, Updating of Stock Exchange Memberships... -, ,- -,- -,- -,- -,- -,- 612 Subventious for Investiments... -,- -,- (2.451) -,- -,- -,- -,- -,- (2.451) Adjustments for Evaluation Sheet (Note 05(b))... -,- -,- -,- -,- -,- -,- 33 -,- 33 Net Income for the 2nd Semester... -,- -,- -,- -,- -,- -,- -, Allocation of Net Income (Note 20 (b)) Recognition of Reserves... -,- -,- -, ,- ( ) -,- Dividends Accrued... -,- -,- -,- -,- -,- -,- -,- ( ) ( ) Interest on Own Capital... -,- -,- -,- -,- -,- -,- -,- ( ) ( ) Balance as of December 31, , Capital Increase (Note 20 (a)) ,- -,- -,- -,- ( ) -,- -,- -,- Updating of Stock Exchange Memberships... -,- (111) -,- -,- -,- -,- -,- -,- (111) Adjustments for Evaluation Sheet (Note 05(b))... -,- -,- -,- -,- -,- -,- (9.554) -,- (9.554) Net Income for the 2nd Semester... -,- -,- -,- -,- -,- -,- -, Allocation of Net Income (Note 20 (b)) Recognition of Reserves... -,- -,- -, ,- ( ) -,- Dividends Accrued... -,- -,- -,- -,- (87.056) -,- -,- (38.528) ( ) Interest on Own Capital... -,- -,- -,- -,- -,- -,- -,- ( ) ( ) Balance as of December 31, (9.507) -, Balance as of July 31, (4.224) -, Updating of Stock Exchange Memberships... -,- 3 -,- -,- -,- -,- -,- -,- 3 Adjustments for Evaluation Sheet (Note 05(b))... -,- -,- -,- -,- -,- -,- (5.283) -,- (5.283) Net Income for the 2nd Semester... -,- -,- -,- -,- -,- -,- -, Allocation of Net Income (Note 20 (b)) Recognition of Reserves... -,- -,- -, ,- ( ) -,- Dividends Accrued... -,- -,- -,- -,- -,- -,- -,- (20.146) (84.394) Interest on Own Capital... -,- -,- -,- -,- -,- -,- -,- (84.394) (20.146) Balance as of December 31, (9.507) -,

92 In Thousands of Reais Banrisul Banrisul Consolidated 2nd Sem/ INCOME FINANCIAL INCOME Services Rendered and Bank Fees Income Allowance for loan losses... ( ) ( ) ( ) ( ) ( ) Other FINANCIAL INTERMEDIATION EXPENSES INPUTS ACQUIRED FROM THIRD PARTIES Materials, Energy and other Third-party Services Assets Value Recovery (Loss) (22.915) 208 (45.787) GROSS VALUE ADDED DEPRECIATION AND AMORTIZATION NET VALUE ADDED GENERATED BY THE BANK VALUE ADDED RECEIVED IN TRANSFER ,- -,- Equity ,- -,- VALUE ADDED FOR DISTRIBUTION DISTRIBUTION OF VALUE ADDED Personnel Salary Benefits F.G.T.S Tax Fees and contributions ( ) (83.117) Federals ( ) ( ) State Municipality Third-party capital compensation Rentals Shareholders equity compensation Interest on Own Capital Dividends Retained Earnings Minority interest... -,- -,- -, Statements of Value Added For the years ended December 31,

93 Notes to Statements

94

95 Notes to Statements NOTE 01 Operations Banco do Estado do Rio Grande do Sul S.A. (Banrisul) is a multiple-service bank, operating commercial, lending, financing and investment, mortgage loan, development, leasing and investment portfolios, including exchange, securities brokerage, and credit card and consortium management. Transactions are conducted within the context of a group of financial institutions that operate on an integrated basis in the financial market. Banrisul also operates as an instrument for the execution of the economic and financial policy of the state of Rio Grande do Sul, in conformity with the state government s plans and programs. NOTE 02 Presentation of the Financial Statements (a) The individual and consolidated financial statements have been prepared in accordance with Brazilian accounting practices and standards and instructions from the Central Bank of Brazil and from the Brazilian Securities and Exchange Commission CVM, which include accounting practices and estimates concerning the recognition of allowances and determination of assets that comprise its securities portfolio. Actual results could differ from those estimated. (b) The Bank s individual financial statements include operations conducted both in Brazil as well as the incorporation of its foreign branches (New York and Grand Cayman). Assets, liabilities and income from foreign branches, before consolidation eliminations, are summarized as follows: In Thousands of Reais ASSETS Securities... 9,509 17,581 Lending Operations , ,258 Operations in Brazil... 98,553 98,665 Other Lending Operations... 97,032 45,593 Other Assets... 45,713 14,472 Total Assets , ,311 LIABILITIES Deposits ,632 65,924 Operations in Brazil... 28,077 3,192 Other Deposits... 73,555 62,732 Other Deposits... (724) 1,659 Other Liabilities , ,728 Shareholders Equity , ,311 Statement of Income Financial Intermediation Income... 13,016 11,353 Financial Intermediation Expenses... (3,652) (3,702) Other Expenses, Net... (2,892) (1,575) Non-Operating Income... (26) (18) Net Income for the period... 6,446 6,058 97

96 The effects of the exchange variation over operations in foreign branches are included in the statement of income according to the nature of the corresponding assets and liabilities. (c) The consolidated financial statements include the accounts of the Bank, its foreign branches and its subsidiaries which investments, as of December 31, 2008, amounted to R$271,765 thousand (2007 R$249,758 thousand) and generated equity gains in subsidiaries on the year of R$30,152 thousand (2007 R$43,938 thousand), are presented as follows: MAIN INFORMATION ON INVESTMENTS IN SUBSIDIARIES: In Thousands of Reais Banrisul Banrisul S.A. Banrisul S.A. Banrisul Armazéns Corretora de Val. Administradora Serviços Gerais S.A. Mob. e Câmbio de Consórcios Ltda. Total Thousands of Shares/Quotas. Common Shares ,000 89, Preferred Shares , Quotas ,780 - Adjusted Ownership Interest (%)... 99,498 98,693 99,569 99,785 - Capital Stock... 21,150 40,000 80,000 23,043 - Adjusted Shareholders Equity... 23,076 55, ,966 81,050 - Net Income for the Year... 2,129 8,044 10,809 9,698 - Net Amounts Eliminated on Consolidation (Note 26): Assets (Liabilities). As of December 31, (54,003) (105,657) (87,234) (246,560). As of December 31, (57,399) (99,598) (75,234) (232,095) Income (Expenses). As of December 31, (1,200) (4,465) (10,794) 463 (15,996). As of December 31, (680) (2,287) (9,895) 2 (12,860) Valor Contábil do Investimento. As of December 31, ,961 54, ,474 80, ,765. As of December 31, ,345 51, ,268 71, ,758 Resultado de Participações em Controladas. As of December 31, ,118 7,967 10,763 9,304 30,152. As of December 31, ,172 20,617 9,021 13,128 43,938 The preparation of consolidated financial statements did not include interests among consolidated companies, remaining balance or results of transactions. The portions of income for the year and shareholders equity referring to minority shareholders interest have been highlighted. (d) Financial Leasing Operations are stated at present value in the Balance Sheet, and related income and expenses, which represent the financial result of said operations, are grouped in Leasing Operations in the Statement of Income. In 2007, for comparison purposes, there was a reclassification, from Leased Property in the amount of R$65,319 thousand, Deferred Charges in the amount of R$3,459 thousand and Other Liabilities Advances for Guaranteed Residual Value in the amount of R$23,441 thousand to Leasing Operations, thus this item increased from R$130 thousand to R$45,593 thousand. In the result, Expenses on Leasing Operations in the amount of R$20,691 thousand were reclassified to Income from Leasing Operations. 98

97 (e) On December 28, 2007, Law 11,638/07 was enacted, and on December 3, 2008, the executive act n 449 was issued, altering, revoking and adding new provisions to the Brazilian Corporate Law, especially with respect to chapter XV.These statutes are effective for fiscal years beginning and/or after January 1, 2008 was designed primarily to update the Brazilian corporate law so as to enable the convergence of the accounting practices Brazilian with the international accounting standards (IFRS) and allow the Securities and Exchange Commission of Brazil (CVM)to issue new accounting standards and procedures in conformity with such international accounting standards. A significant portion of the main change introduced by Law is being adopted by the bank and its subsidiaries and has not impacted retained earnings and/or the bank s net income. The main changes can be summarized as follows: - Presentation of the Statement of Cash Flow replacing the Statement of Changes in Financial Position. - Presentation of the Statement of Value-Added. - Creation of the Intangible Assets Account Group and the exclusion of the Deferred Account in the Fixed Assets, exclusion of the Group of the Deferred Income in the Liabilities and theexclusion of Non-Operating Income in the Statement of Income for the Year. In order to allow the comparability between the fiscal years, the values were reclassified on December 31, 2007, as follows: - R$15,664 thousand (Bank and Consolidated) related to Improvements in Third-Party Real Property from Deferred to Fixed Assets. - R$2,710 thousand (Consolidated R$2,897 thousand) related to Software Expenses from Deferred to Intangible Assets; - R$4,267 thousand (Bank and Consolidated) from Deferred Income to Other Obligations; - R$15,632 thousand (Consolidated R$15,763 thousand) from Non-Operating Income to Other Operating Revenues; and - R$8,448 thousand (Bank and Consolidated) from Non-Operating Income to Other Operating Expenses. - R$196,567 thousand (Bank and Consolidated) from Prepaid Expenses to Intangible Assets. NOTE 03 Significant Accounting Practices (a) Results of operations Income and expenses are recorded on the accrual basis. (b) Interbank Investments Represent funds invested in the interbank market, stated at present value, calculated on pro rata die basis, according to the variation of both the agreed index and the interest rate. (c) Securities and Derivatives According to Brazilian Central Bank Circular 3,068 as of November 8, 2001 and supplementary regulation, securities are classified and assessed into three specific categories, in conformity to the following accounting criteria: i) Trading Securities securities acquired for the purposes of being actively and frequently traded, adjusted to fair value, and realized and unrealized gains or losses recognized in the statement of income in the year. 99

98 ii) Available-for-Sale Securities Include securities used as part of the strategy to manage risk of changes in interest rates and which may be traded as a result of these changes, changes in payment conditions or other factors. These securities are adjusted to fair value, and income earned is recorded in the statements of income, whereas unrealized gains and losses from changes in fair value are recorded in a separate shareholders equity caption, net of taxes, where applicable, denominated Adjustment to fair value securities and derivatives until they are realized through sale. Gains and losses, when realized, are recorded in the statement of income on the trading date, with a contra entry to a specific shareholders equity account, net of taxes, where applicable. iii) Held-to-Maturity Securities Include securities for which Management has the intent and financial capacity to hold to maturity and are stated at cost plus income earned. Financial capacity is defined in cash flow projections, disregarding any possible sale of these securities. Derivatives Derivatives contracted in conjunction with other operations for investments are stated at the amounts of income earned and expenses incurred through the balance sheet date. (d) Lending Operations, Leasing Operations and Other Receivables All lending and leasing operations are classified based on Management s risk assessment, taking into account the economic scenario, past experience and specific risks related to operations, debtors and guarantors, pursuant to National Monetary Council (CMN) Resolution 2,682/99, which requires a periodic analysis of the portfolio and its classification into nine risk levels, from AA to H. A summary of this classification is presented in Note 07. Lending and leasing operations are recorded at present value, calculated on a daily pro-rata basis, based on the agreed index and interest rate, and are adjusted up to the sixtieth day pastdue. Thereafter, income is recognized only when received. The risk of renegotiated assets are classified in accordance with the criteria established by Resolution 2,682/99, i.e. the rating assigned before the renegotiation is maintained and renegotiated lending transactions previously written-off against the allowance and controlled in memorandum accounts are rated level H. Any gains on renegotiation are recognized as revenue only when actually received. (e) Other Receivables Operations with Credit Cards Unbilled amounts are represented by receivables from cardholders for transactions in Visa and MasterCard merchants. These amounts are accounted for as Notes and Credits Receivable, and do not have credit characteristic, transactions paid in installments when Banrisul is the issuer, and the outstanding balance of transactions paid by the minimum amount of the bill (Revolving), are reclassified as Lending Operations. (f) Allowance for Loan Losses, for doubtful lease receivables and for losses on other receivables Recorded in an amount considered sufficient to cover possible losses, based on the minimum percentages required by Brazilian Central Bank (BACEN) Resolution 2,682/99 based on the classification of risk level of the client, assigned based on periodic analysis of the client is credit standing and not only when a default event occurs. As of December 31, 2008, the total amount of the allowance for loan losses, for doubtful lease receivables and losses and other receivables, as stated in Note 07, exceeds the minimum amount that would be required if only the rating of transactions based on the number of days past dues set forth by Brazilian Central Bank Resolution 2,682/99, was considered a procedure which has been adopted by the Management since its publication to cover possible losses on operations. 100

99 (g) Permanent Assets Permanent assets are stated at acquisition cost, monetarily adjusted through December 31, 1995, considering the following aspects: investments in subsidiaries are accounted for under the equity method, based on financial statements prepared following the same accounting practices. Other investments are adjusted based on allowances for losses, where applicable; depreciation of property and equipment in use under the straight-line method in based on the expected economic useful live life span of the assets, according to the rates stated in Note 09. Intangible Assets consist, basically, investment of funds whose benefits will be accrued in the future. This group is represented by bank services contracts and software acquisition. The amortization is calculated under the straight line method at the rates stated reported in Note 09. The bank assesses intangible assets annually impairment possible losses. When identified, are charged to income. (h) Assets and Liabilities Denominated in Foreign Currency The assets and liabilities of foreign branches, as well as other assets and liabilities in foreign currency, were translated at the exchange rate prevailing at the balance sheet closing date. (i) Deposits, Money Market Funding, Borrowings and Onlendings and Financial and Development Fund Stated at original amounts plus charges incurred through the balance sheet date, recognized on a pro rata die basis. Pursuant to Laws 12,069/04 and 12,585/06 of the Rio Grande do Sul State Government, up to 85% of the escrow deposits made by third parties in the Bank are made available to the state of Rio Grande do Sul, and the remaining balance is retained at the Bank for allocation to a fund. The escrow deposited transferred are controlled in a memorandum account and the retained portion is classified as Other Payables, as mentioned in Note 21(a). The charges on the remaining balance are recorded under the caption Expenses with Borrowings, Assignments and Onlendings. (j) Reserves for Tax, Labor and Civil Risks These reserves are recorded based on the legal counsel s opinion, using models and criteria in order to obtain the best estimate possible, despite the uncertainty about their period and the amount upon the final outcome of the lawsuit. The criterion used according to the nature of the contingency is as follows: i) Labor Contingencies Recognized upon court notification for judicial discussion involving Banrisul, the risk of loss of which is deemed as probable. Amounts are determined according to disbursement estimates by our Management, opportunely revised based on information received from our legal counsels, adjusted based on the amount of the deposit related to the execution, when required. ii) Civil Contingencies Recognized, upon court notice, and monthly adjusted based on the intended amount of indemnities, the evidence presented, and the legal counsel s evaluation which considers previous court decisions, factual support, evidence produced in the records and legal decisions that might be rendered in the lawsuit. 101

100 iii) Tax and Social Security Contingencies Refer basically to taxes whose lawfulness or constitutionality is being challenged at administrative or judicial level and whose likelihood of loss is or has been in previous phases deemed as probable and are recognized at the full amount under dispute. For lawsuits with respective escrow deposits amounts are not updated except when the Bank is authorized to withdraw the deposits on account of a favorable outcome of the lawsuit. (l) Income and Social Contribution Taxes Calculated at the rate of 15% for social contribution tax (9% until to April 30, 2008) and 15% (plus a 10% surtax pursuant to legislation) for income tax on taxable income in the year, adjusted by permanent differences. Deferred income tax and social contribution were calculated based on the rates in force on the financial statements date over the temporary additions and recorded under the item Other Receivables, as contra entry of Income for the Period. (m) Post-Employment benefits The Bank sponsors a defined benefit plan to its employees and the actuarial assessment of obligation provided based on specific legislation. According to CVM Resolution 371/00 and based on the appraisal report issued by an independent actuary s opinion, the Bank annually assesses the actuarial situation of the plan, as mentioned in Note 23. NOTE 04 Interbank Investments In Thousands of Reais Banrisul Banrisul Consolidated Money Market Investments... 4,430,537 3,601,587 4,448,929 3,617,232 Resales Pending Settlement - Own Portfolio Treasury Bills - LFT... 1,564,122 2,320,252 1,564,122 2,320,252 National Treasury Bills - LTN... 1,258, ,225 1,258, ,225 National Treasury Notes - NTN ,032 69, ,032 69,999 Other ,392 15,645 Resales Pending Settlement - Third-Party Portfolio Treasury Bills - LFT , ,473 - National Treasury Bills - LTN , , , ,111 National Treasury Notes - NTN... 1,068,942-1,068,942 - Interbank Deposits ,149 80, ,149 80,830 Interbank Deposits ,149 80, ,149 80,830 Total... 4,668,686 3,682,417 4,687,078 3,698,

101 NOTE 05 Securities and Derivatives Breakdown of the portfolio of Securities and Derivatives: In Thousands of Reais Banrisul Banrisul Consolidated Trading Securities , , , ,666 Available-for-sale Securities , , , ,949 Held-to-Maturity Securities... 4,418,302 4,387,345 4,420,805 4,389,572 Derivatives , , , ,898 Total... 6,101,988 5,148,337 6,110,791 5,154,085 Current Assets... 3,004,516 1,002,425 3,010,816 1,005,946 Long-Term Assets... 3,097,472 4,145,912 3,099,975 4,148,139 The fair value presented in the chart below were assessed as follows: Treasury Bills that hold active negotiations is determined based on prices published by the ANDIMA; to shares of Publiclyheld Companies the average price of the last negotiation of the day is used; and for securities that have no price published, the Bank adopts as basis for calculation of the fair value, the value obtained by means of internal pricing technique. (a) Trading Securities Breakdown of Trading Securities Portfolio per category at fair value: In Thousands of Reais Banrisul e Banrisul Consolidated Federal Government Securities Treasury Bills LFT ,170 99,430 CVS ,236 Total , ,666 Breakdown per maturity: In Thousands of Reais Banrisul e Banrisul Consolidated Custo de Aquisição Valor de Maturity Atualizado Mercado From 3 to 12 months... 74,535 74,535 From 1 to 3 years , ,221 From 3 to 5 years , ,447 From 5 to 15 years , ,967 Total in , ,170 Total in , ,666 According to Central Bank of Brazil regulations, these securities are classified in current assets at their fair value. In 2008, due to the reassessment of the Management s intention to maintain the CVS securities from the portfolio acquired, the amount of R$67,236 thousand was reclassified from trading securities to held-to-maturity securities. Adjustment to fair value determined on these securities in the amount of R$22,894 thousand was incorporated to its cost value pursuant to Circular Letter 3,068/01 of the Central Bank of Brazil. On December 31, 2008, the book value of these securities is R$73,697 thousand. 103

102 (b) Available-for-Sale Securities Breakdown of the Available-for-Sale Securities Portfolio by type of securities per fair value: In Thousands of Reais Banrisul Banrisul Consolidated Treasury Bills - LFT , , , ,027 Shares of Publicly-Held Companies,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 6,005 23,401 6,084 23,667 Privatization Certificates Fixed Income Fund Quotas ,216 3,250 Total , , , ,949 Breakdown per maturity: In Thousands of Reais Banrisul Banrisul Consolidated Restated Restated Acquisition Fair Acquisition Fair Maturity Cost Value Cost Value No Maturity... 21,867 6,005 28,157 12,305 Up to 3 months , , , ,712 3 to 12 months... 38,382 38,383 38,382 38,383 1 to 3 years , , , ,513 Total in , , , ,913 Total in , , , ,949 The adjustment to fair value as of December 31, 2008, in the amount of R$15,854 thousand ( R$110 thousand), was recorded under a specific Shareholders Equity account, net of taxes of R$6,342 thousand ( R$37 thousand), recorded in Other Credits. (c) Held-to-Maturity Securities The Portfolio of Held-to-Maturity Securities, by category, stated at cost plus income earned is as follows: In Thousands of Reais Banrisul Banrisul Consolidated Restated Restated Acquisition Fair Acquisition Fair Cost Value Cost Value Federal Government Securities Treasury Bills - LFT... 4,135,897 4,139,619 4,138,400 4,142,122 National Treasury Bills - NTN... 29,638 29,638 29,638 29,638 Salary Variation Compensation Fund - CVS , , , ,217 Brazilian Foreign Debt Securities... 9,509 9,509 9,509 9,509 Fixed Income Fund Quotas... 10,451 10,451 10,451 10,451 Other Mortgage-Backed Securities - LH... 39,742 39,742 39,742 39,742 Certificate of Real Estate Receivables - CRI... 2,936 2,936 2,936 2,936 Total in ,418,302 4,379,118 4,420,805 4,381,621 Total in ,387,345 4,353,240 4,389,572 4,355,467 The maturities of securities are as follows: In Thousands of Reais Banrisul Banrisul Consolidated Up to 3 months... 1,212, ,451 1,212, ,451 3 to 12 months , , , ,972 1 to 3 years... 2,218,672 2,493,738 2,221,175 2,495,965 3 to 5 years , , , ,906 5 to 15 years... 42, ,336 42, ,336 Over 15 years , , , ,942 Total... 4,418,302 4,387,345 4,420,805 4,389,572 Current Assets... 1,644, ,423 1,644, ,423 Long-Term Assets... 2,773,467 3,607,922 2,775,970 3,610,

103 (d) Derivatives In order to meet its own needs to minimize the effect of changes in the fixed rate, exchange variation and TR (a managed prime rate), the Bank has conducted swap transactions to exchange these rates for SELIC (Central Bank overnight rate) variation. Other risks are stated in Note 24. Banrisul and Banrisul Consolidated In Thousands of Reais National Up to 3 3 to 12 1 to 3 3 to 5 5 to 15 Over Value months months years years years 15 years Assets SELIC 10, SELIC + Fixed Rate-FCVS 95, ,240 6,643 20,971 18,470 SELIC + Fixed Rate 106,769 3,706 3,705 14,822 14,822 51,877-88, ,428 Passivo Fixed Rate (10,397) (4) (15) (4,080) (508) (4) - (4,611) (2,301) TR+Fixed Rate (95,645) (3,407) (4,922) (8,759) (4,678) (8,061) (1,448) (31,275) (19,600) USD+BID+Fixed Rate(106,769) Net Adjustment 295 (1,232) 1,983 9,724 58,052 5,195 74,017 97,997 Swap transactions, SELIC + Fixed-rate FCVS and SELIC + Fixed-rate have as a counterpart the Rio Grande do Sul state Government and were entered in connection to the assignment of credits of the Salary Variation Compensation Fund (FCVS) and receivables from municipal public entities, respectively, and will be settled on the same dates the main operations are received. These swap transactions, together with transactions linked to them, have rates equivalent to the market rates on the same date, because the operations mature simultaneously, and the Bank has the intent to hold the original transactions and the swap agreements to maturity. As of December 31, 2008, the amounts receivable and amounts payable are as follows: Banrisul and Banrisul Consolidated In Thousands of Reais Derivatives Adjustments Payable - Short Term... 7,411 7,802 Adjustments Receivable - Long Term , ,096 Other Adjustments Payable - Short Term... (8,348) (2,984) Adjustments Payable - Long Term... (27,538) (18,917) Net Adjustment... 74,017 97,997 As of December 31, 2008, there were no futures or options contracts. 105

104 NOTE 06 Restricted Deposits In Thousands of Reais Banrisul and Banrisul Consolidated Description Interest Rate Compulsory Deposits - Brazilian Central Bank Demand deposits and other funds... None Additional obligation... SELIC... -, Saving deposits... Savings account Other deposits... None Other deposits... TR Credits with the National Housing System Acquired portfolio - swap... 17,5% to 26% p.a.(*) Acquired portfolio... TR + Interest Own portfolio... TR + Interest Correspondents... None Total Current Assets Long Term Assets (*) Linked to Swap transactions as detailed in Note 05 (d). National Housing System - Third-party Portfolio Acquired -, From October 2002 to March 2005, the Bank acquired from the Rio Grande do Sul State Government receivables from the Salary Variation Compensation Fund (FCVS). As of December 31, 2008, the credits are stated at cost plus income earned through the financial statement date, at the amount of R$367,441 thousand (2007 R$310,662 thousand). Their face value is of R$717,828 thousand (2007 R$679,957 thousand). These receivables will be converted into CVS securities, pursuant to ratification and novation processes, and, in spite of no established maturity, their fair values, upon the issuance of the securities, may differ significantly from the carrying amounts. National Housing System - Own Portfolio Refers to credits of the FCVS arising from Banrisul s own mortgage loans portfolio that have already been approved by the FCVS s regulatory body. NOTE 07 Lending Operations, Leasing Operations and Other Receivables The tables below show the balance of lending operations and balances of the leasing and foreign exchange portfolio. 106

105 (a) Breakdown by Type of Operation and Risk Level: Banrisul and Banrisul Consolidated In Thousands of Reais AA A B C D E F G H Loan and Discounted Receivables... 1,927,519 3,137,177 1,461, , , , ,776 20, ,853 8,276,052 5,595,258 Financing... 78, , ,403 78,469 9,460 14,944 5,453 5,719 43, , ,056 Rural and Agro-Industrial Financing , , ,834 94,705 37,694 30,213 39,686 34,152 32, , ,852 Real Estate Financing , , ,414 71,991 40,957 57,670 79,968 1,268 30, , ,960 Infrastructure and Development Financing , ,960 43,620 29,178 Total Lending Operations... 2,595,515 3,860,755 1,981, , , , ,883 61, ,349 10,898,492 7,640,304 Leasing Operations... 26,927 27,063 26,953 16,307 3,762 2,077 3, , ,940 45,593 Advances on Foreign Exchange Contracts (1)... 83, , ,421 45,085 12,314 2,160 3, , , ,252 Other Receivables - Foreign Exchange (2)... 3,049 3,121 3,397 2, , ,171 14,636 13,932 Total in ,708,889 4,027,162 2,156, , , , ,314 62, ,415 11,453,582 Total in ,266,587 2,947,487 1,491, , , , ,676 62, ,871 8,024,081 (1) Advances on foreign exchange contracts are classified as a reduction of Other payables - Foreign exchange portfolio (Note 13). (2) Other Receivables - Foreign exchange include receivables from foreign exchange contracts and receivables from export contracts. (b) Client Breakdown per Maturity and Risk Levels: Banrisul and Banrisul Consolidated In Thousands of Reais AA A B C D E F G H Falling due (*)... 2,708,233 4,024,295 2,147, , , , ,343 48, ,94511,196,901 7,828,872 Up to 180 days... 1,056,185 1,366,588 1,145, , , , ,723 12,155 44,950 4,651,831 3,271, to 360 days , , , ,658 40,183 28, ,294 8,356 40,612 1,715,084 1,186,644 Over 360 days... 1,238,038 2,044, , , , , ,326 27, ,383 4,829,986 3,370,400 Past-due ,867 8,786 17,018 8,108 8,683 56,971 14, , , ,209 Up to 180 days ,867 8,786 17,018 8,108 8,266 51,592 13,304 51, , , to 360 days , ,150 37,764 35,449 Over 360 days ,906 56,906 44,203 Total in ,708,889 4,027,162 2,156, , , , ,314 62, ,41511,453,582 Total in ,266,587 2,947,487 1,491, , , , ,676 62, ,871 8,024,081 (*) Amounts up to 14 days past-due are included in the current. (c) Portfolio Breakdown by Business Sector: In Thousands of Reais Banrisul Banrisul Consolidated Municipal Public Sector Government - direct and indirect administration , , , ,422 Corporate activity - Other services... 34,907 24,751 34,907 24,751 Total Public Sector , , , ,173 Private sector Rural , , , ,852 Industry... 2,892,648 1,778,107 2,892,648 1,778,107 Commerce... 1,589,811 1,107,248 1,589,811 1,107,248 Financial brokers Services and other,... 1,084, ,640 1,084, ,640 Individuals... 3,880,820 2,713,080 3,880,820 2,713,080 Housing , , , ,960 Total Private Sector... 11,262,962 7,824,908 11,262,962 7,824,908 Total... 11,453,582 8,024,081 11,453,582 8,024,081 As of December 31, 2008, lending operations with entities of the Municipal Public Sector include R$87,820 thousand ( R$108,620 thousand) relating to receivables acquired from the Rio Grande do Sul State Government or from entities controlled thereby. 107

106 (d) Changes in allowances for loans losses, doubtful lease receivables and other receivables: In Thousands of Reais Banrisul Banrisul Consolidated Opening balance of allowance for loan losses , , , ,655 Allowance recorded in the year, , , , ,409 Write-offs to memorandum accounts... (177,598) (190,366) (176,860) (192,074) Allowance for loan losses per risk level , , , ,990 Allowance for lending operations Current Assets , , , ,684 Long-Term Assets , , , ,551 Allowance for doubtful lease receivables Current Assets... 2,186 1,703 2,186 1,703 Long-Term Assets... 3,559 1,703 3,559 1,703 Allowance for losses in other receivables Current Assets... 17,396 11,116 18,377 11,116 Long-Term Assets... 5,408 5,233 5,408 5,233 (e) Breakdown of allowances for loans losses, doubtful lease receivables and other receivables per risk level: Banrisul and Banrisul Consolidated In Thousands of Reais Provisão existente Minimum allowance required Minimum Risk Loan by Resolution allowance Additional allowance Level Portfolio 2,682/99 required (Note 03(f)) Total A A 2,708, % - 5,224 5,224 A 4,027, % 20,136 8,054 28,190 B 2,156, % 21,565 10,782 32,347 C 932, % 27,988 18,659 46,647 D 282, % 28,209 5,642 33,851 E 247, % 74,376 4,959 79,335 F 700, % 350,157 14, ,163 G 62, % 43,650 1,870 45,520 H 335, % 335, ,414 Total in ,453, ,495 69, ,691 Total in ,024, ,621 90, ,990 Lending operations written off at loss in the year ended December 31, 2008 and controlled based on the adjusted amount until the date of the respective write-off in a memorandum account amounted to R$177,598 thousand individually (2007 R$190,366 thousand) and R$176,860 thousand consolidated ( R$192,074 thousand). Recoveries of lending operations previously written off as loss have been recognized as income from lending operations and amounted to R$68,665 thousand (consolidated R$68,665 thousand) in the year ended December 31, 2008 ( R$50,215 thousand consolidated R$54,650 thousand), net of losses or gains generated from these recoveries. 108

107 NOTE 08 Other Receivables In Thousands of Reais Banrisul Banrisul Consolidated Foreign Exchange Portfolio , , , ,915 Exchange purchased pending settlement , , , ,238 Term bills in foreign currency Rights to foreign exchange sold... 81,416 3,719 81,416 3,719 Advances in local currency... (9,120) (3,582) (9,120) (3,582) Income receivable from advances... 13,005 5,479 13,005 5,479 Income receivable... 44,173 37,600 39,228 31,596 Dividends and bonuses receivable... 6,721 6,004 1,776 - Receivables from services rendered... 34,959 30,223 34,959 30,223 Other... 2,493 1,373 2,493 1,373 Negociation and intermediation of amounts ,858 3,078 Negociation and intermediation of amounts ,858 3,078 Sundry,... 1,116, ,118 1,171,644 1,027,167 Advances to Loan Guarantee Fund (1)... 96,715-96,715 - Advances to employees... 11,017 7,926 11,058 7,952 Advances for payment by our account ,228 5,939 Deferred income tax and social contribution (Note 22(b)) , , , ,590 Receivables on sale of other assets ,305 1,047 Escrow deposits , , , ,604 Recoverable taxes... 10,920 53,207 12,225 56,886 Reimbursable payments... 67,680 52,375 67,727 52,416 Notes and credits receivable (2) , , , ,553 Credit Cards... 61,686 54,844 61,686 54,844 Amounts receivable from affiliated companies Other debtors Domestic... 33,921 45,600 59,068 65,336 Allowance for losses on other receivables... (22,804) (16,349) (23,785) (16,976) Total other receivables... 1,769,339 1,328,284 1,820,114 1,377,780 Current assets... 1,044, ,629 1,075, ,689 Long-term assets , , , ,091 (1) Pursuant to the Brazilian Central Bank Circular 3,416 and Circular Letter 3,347 in the second half 2008, Banrisul advanced the amount corresponding to sixty contributions to the Loan Guarantee Fund which will be offset against future payments. This advance meets the requirements for a Compulsory Deposit within the Central Bank in cash and interest fee. (2) In the first quarter of 2005, as part of receivables recovery policy, Banrisul received as payment in kind bonds issued tu pay court ordered debts of the Federal Government from several companies to settled past-due loans of such companies. As of December 31, 2008, these bonds amount to R$ 76,121 thousand ( R$ 86,273 thousand). These bonds are subject to the variation of the price and interest index. 109

108 NOTE 09 Permanent Assets (a) Fixed Assets Banrisul In Thousands of Reais Original Depreciation/ Net Balance Net Balance Rate Cost Amortization in 2008 in 2007 Property in Use Land and Buildings in Use... 4% 120,056 (97,068) 22,988 25,753 Other Furniture and Equipments in Invetory ,380-10,380 22,672 Property and Equipments in Progress ,358-4,358 5,359 Facilities... 10% 838 (89) Furniture and Equipment in Use... 10% 67,052 (45,458) 21,594 15,181 Leasehold Improvements ,481 (70,239) 12,242 15,664 Other Communication System... 10% 4,568 (3,956) Data Processing System... 20% 223,702 (153,723) 69,979 30,838 Security System... 10% 9,690 (6,586) 3,104 3,353 Transportation System... 20% 2,516 (1,846) Total ,641 (378,965) 146, ,400 Banrisul Consolidated In Thousands of Reais Original Depreciation/ Net Balance Net Balance Rate Cost Amortization in 2008 in 2007 Property in Use Land and Buildings in Use... 4% 127,086 (101,236) 25,850 30,356 Other Furniture and Equipments in Invetory ,380-10,380 22,672 Property and Equipments in Progress ,159-5,159 6,152 Facilities... 10% 1,170 (339) Furniture and Equipment in Use... 10% 70,119 (47,744) 22,375 16,123 Leasehold Improvements ,481 (70,239) 12,242 15,664 Other Communication System... 10% 4,569 (3,956) Data Processing System... 20% 224,348 (154,221) 70,127 31,064 Security System... 10% 9,690 (6,586) 3,104 3,353 Transportation System... 20% 2,516 (1,846) Total ,518 (386,167) 151, ,076 (b) Intangible Assets Banrisul In Thousands ofreais Net Balance Net Balance Intangible Assets Original Cost Amortization in 2008 in 2007 Right from Acquisition of Payroll Operations (*) - Municipal Public Sector ,570 (52,338) 191, ,567 - Private Sector... 7,960 (803) 7,157 - Software Acquisition... 28,688 (22,838) 5,850 2,710 Total ,218 (75,979) 204, ,277 Banrisul Consolidated In Thousands ofreais Net Balance Net Balance Intangible Assets Original Cost Amortization in 2008 in 2007 Right from Acquisition of Payroll Operations (*) - Municipal Public Sector ,570 (52,338) 191, ,567 - Private Sector... 7,960 (803) 7,157 - Software Acquisition... 28,920 (22,838) 6,082 2,897 Total ,450 (75,979) 204, ,464 (*) It refers to agreements entered into with the municipal government and private sector entities to ensure the exclusivity in banking services for processing of payroll credit and deductible payroll loans, bill collection portfolio, supplier payment and other services as well as other bank services. Such agreements are effective for a five-year periods and are amortized over the agreements periods. No indications that s these assets are impaired were identified. 110

109 NOTE 10 Deposits and Money Market Funding Banrisul In Thousands of Reais Without Up to 3 to Over maturity 3 months 12 months 12 months Deposits Demand deposits... 1,869, ,869,619 1,829,413 Savings deposits... 4,805, ,805,853 4,633,790 Interbank deposits... 11, ,981 3,507 Time deposits (*)... 7,516 1,352,780 3,225,302 3,136,312 7,721,910 6,035,341 Other deposits... 16, ,415 19,805 Total... 6,711,384 1,352,780 3,225,302 3,136,312 14,425,778 12,521,856 Current liabilities... 11,289,466 10,296,039 Long-term liabilities... 3,136,312 2,225,817 Money market funding Own Portfolio , ,131 1,442,010 Third-party Portfolio ,471, ,471, ,179 Total ,290, ,290,220 2,289,189 Banrisul Consolidated In Thousands of Reais Without Up to 3 to Over maturity 3 months 12 months 12 months Deposits Demand deposits... 1,864, ,864,035 1,827,727 Savings deposits... 4,805, ,805,853 4,633,790 Interbank deposits... 11, ,981 3,507 Time deposits (*)... 7,516 1,352,780 3,061,790 3,135,713 7,557,799 5,881,129 Other deposits... 16, ,415 19,805 Total... 6,705,800 1,352,780 3,061,790 3,135,713 14,256,083 12,365,958 Current liabilities... 11,120,370 10,141,348 Long-term liabilities... 3,135,713 2,224,610 Money market funding Own Portfolio , ,162 1,380,940 Third-party Portfolio ,471, ,471, ,179 Total ,234, ,234,251 2,228,119 (*) Consider the maturities set for each investment. Time deposits are made by the Bank s customers, with floating or fixed charges equivalent to 66% and 34% of the total portfolio, respectively. The average funding rate for floating-rate deposits corresponds to 96.80% ( %) of the CDI variation, and for fixed-rate deposits, to 10.43% ( %) per year. Funding through money market purchase and sale commitments operations own portfolio conducted with financial institutions, has an average funding rate of 100% of the CDI variation. 111

110 NOTE 11 Foreign Borrowings Foreign borrowings are represented by funds obtained from foreign banks to be used in foreign exchange transactions subject to the variation of the corresponding currencies plus annual interest rates of 2.00% to 11.89% ( % to 8.50%) maturing in up to 360 days ( days). NOTE 12 Onlendings Internal funds for onlending refer basically to funds from Official Institutions (BNDES National Bank for Economic and Social Development, FINAME National Equipment Financing Authority and Caixa Econômica Federal Federal Savings and Loan Bank). These liabilities mature on a monthly basis through July 2023, and are subject to interest of 0.9% to 3.80% ( % to 5.50%) per year, plus variation of the indexers (TJLP, U.S. dollar and Currency Basket) for floatingrate operations and up to 7.25% ( %) per year for fixed-rate operations. Funds are transferred to customers on the same terms and with the same funding rates, plus commission on financial intermediation. These funds are collateralized by the same guarantees received for the related lending operations. Banrisul and Banrisul Consolidated In Thousands of Reais Domestic Onlendings - Official Institutions Foreign Onlendings Total Up to 90 days , ,007 9,345 1, , , to 360 days ,587 78,648 22,447 5, ,034 84,257 1 to 3 years , , , ,968 3 to 5 years ,337 92, ,337 92,077 Over 5 years ,957 93, ,957 93,574 Total , ,274 31,792 6, , ,057 Current liabilities , ,655 31,792 6, , ,438 Long-term liabilities , , , ,

111 NOTE 13 Other Payables In Thousands of Reais Banrisul Banrisul Consolidated Collected taxes and other... 80,948 27,258 80,948 27,258 Receipt of federal taxes... 80,927 27,213 80,927 27,213 Recebimento de Tributos Estaduais e Municipais Other Foreign exchange portfolio... 91,215 22,478 91,215 22,478 Exchange sold pending settlement... 79,218 3,716 79,218 3,716 Foreign exchange purchased , , , ,013 Advances on foreign exchange contracts (Nota 07 (a))... (432,514) (324,252) (432,514) (324,252) Other Social and statutory... 39,229 51,472 39,295 51,579 Dividends and bonuses payable (Nota 20 (b))... 39,229 45,777 39,295 45,884 Bonuses and profit sharing payable ,695-5,695 Taxes and social security , , , ,546 Taxes and contributions payable... 43,716 34,432 44,609 35,176 Reserve for taxes and social contribution over profit... 30,147 24,528 30,876 33,505 Reserve for deferred taxes and contributions (Nota 22 (b2)) 4,688 10,286 4,692 11,805 Reserve for tax contingencies (Nota 14 (a)) , , , ,060 Trading and intermediation of securities ,554 3,278 Trading and intermediation of securities ,554 3,278 Financial and development funds... 2,672, ,401 2,672, ,401 Payables for financial and development funds (Nota 21 (a)) 2,651, ,477 2,651, ,477 Other... 20,590 17,924 20,590 17,924 Sundry , , , ,148 Cashier s check... 9,717 6,965 9,717 6,965 Creditors for unreleased funds... 26,388 31,102 26,579 31,291 Payables for acquisition of assets and rights... 3,137 1,896 3,224 1,961 Liabilities under government agreements... 13,970 13,152 13,970 13,152 Accrued vacation and related charges , , , ,353 Actuarial deficit of Fundação Banrisul (Nota 23 (a))... 61,349 56,567 61,349 56,567 Reserve for labor contingencies (Nota 14 (b))... 96, , , ,115 Brazilian Central Bank fines on foreign exchange transactions (Nota 14 (c)) , , , ,112 Reserve for social security contingencies... 18,783 18,783 18,783 18,783 Reserve for securitization losses(*)... 12,107 14,239 12,107 14,239 Reserve for other contingencies... 6,386 10,812 6,386 10,812 Reserve for debts assumed with Grupo de Empresas Seguradoras Brasileiras (GESB) arising from Companhia União de Seguros Gerais... 10,017 7,670 10,017 7,670 FGTS (Severance Pay Fund) for amortization... 2,583 2,372 2,583 2,372 Sundry creditors Domestic... 76,489 87, , ,746 Card transactions payable... 50,967 46,969 50,967 46,969 Other... 86,206 76,564 86,687 77,041 Total Other Payables... 4,066,827 1,952,925 4,101,879 1,997,688 Current Liabilities... 3,480,595 1,424,756 3,549,546 1,467,695 Long-Term Liabilities , , , ,993 (*) The management of the Bank maintains provision for co-obligation of securitized receivables with the National Treasury, in the amount of R$43,404 thousand (2007 R$45,470 thousand) controlled in a memorandum account, which are owned by agricultural financing customers. 113

112 NOTE 14 Reserves for Tax, Labor and Civil Contingencies (a) The reserve for tax contingencies refers mainly to Income and Social Contribution taxes on deduction of expense arising from the settlement of the actuarial deficit of Fundação Banrisul de Seguridade Social (pension plan), challenged by the Federal Revenue Service for the period from 1998 to 2002, and amounts related to the same matter for 2003 to 2005, which have not yet been challenged. Through its legal counsel, the Bank has been challenging the matter in court and, on a conservative basis, has recorded a reserve for contingencies considering the probable loss amount. As of December 31, 2007, the reserve value was R$345,732 thousand and in the year it was supplemented by R$21,687 thousand, totaling R$367,419 thousand as of December 31, (b) As of December 31, 2007, the Bank had a reserve for labor contingencies in the amount of R$144,524 thousand that, after settlements in the amount of R$62,630 thousand and additions to the reserve of R$1,361 thousand and a new reserve of R$15,643 thousand, totaled R$96,176 thousand in December Of the aforementioned reserve, the amount of R$72,230 thousand has been deposited in escrow accounts and is recorded under the item Other receivables Escrow Deposits (Note 8). In the consolidated balance as of December 31, 2007, the Bank had a labor reserve of R$163,115 thousand that, after settlements in the year of R$66,336 thousand and additions to the reserve of R$1,361 thousand and a new reserve of R$15,895 thousand, amounted to R$111,313 thousand in December Of the aforementioned reserve, the amount of R$87,066 thousand has been deposit in escrow. There are other lawsuite for which a reserve for contingencies is not recognized regarding, as the Bank considers, based on their nature, the likelihood of an unfavorable outcome possible, and which amount of approximately R$40,000 thousand. c) On September 29, 2000, Banrisul received an assessment notice from the Central Bank of Brazil in connection with administrative proceedings related to supposed irregularities in foreign exchange transactions between 1987 and 1989, In a decision on an appeal at the administration level, Banrisul was required to pay a fine equivalent to 100% of the amount of the supposedly irregular transactions. This decision is being challenged in court by Management, which on a conservative basis and in compliance with BACEN requirements, recorded a reserve for this contingency. The balance as of December 31, 2008 is R$106,493 thousand, with an increase in the year of R$5,381 thousand, In the year ended December 31, 2007, the amount of R$50,864 thousand was reversed due to the revision of the estimate of the amount to be disbursed recorded in Other Operating Income. NOTE 15 Income from Services Rendered Em Milhares de Reais Banrisul Banrisul Consolidado Income from Funds Management... 53,984 49,537 61,175 54,719 Collection of Debt Instruments... 40,893 44,607 40,896 44,607 Income from Credit Cards and Refeisul (*) ,845 56,365 Income from Group Financing Management Fee ,632 4,639 Income from Brokerage of Operations ,680 3,234 Other Income... 1, ,091 5,162 Total... 95,917 94, , ,726 (*) In 2007, Interest and Financial Charges from Credit Card operations belonged to subsidiary Banrisul Serviços Ltda, In October 2007, the portfolio was transferred to the Bank and is accounted in Other Receivables. 114

113 NOTE 16 Income from Bank Fees Banrisul and Banrisul Consolidated In Thousands of Reais Banricompras... 54,925 34,720 54,925 34,720 Check Returns... 24,555 43,888 24,555 43,888 Checking Account Debits... 9,039 8,570 9,039 8,570 Collection Services... 51,424 42,770 51,424 42,770 Transactions with Checks,... 7,263 4,686 7,263 4,686 Bank Fees from Checking Accounts , , , ,482 Other Income from Fees... 51,284 46,152 51,282 46,152 Total , , , ,268 From the income amount of R$403,374 thousand for the year, R$213,874 thousand were originated from operations with individuals and R$189,500 thousand from operations with companies. NOTE 17 Other Administrative Expenses In Thousands of Reais Banrisul Banrisul Consolidated Data Processing and Telecommunication , , , ,148 Security and Money Transportation... 77,689 61,246 77,993 61,526 Amortization and Depreciation... 38,293 31,733 39,153 33,079 Rentals... 35,484 32,123 34,207 31,363 Supplies... 22,251 23,271 22,307 23,324 Outside Services*... 97,200 87,278 99,553 92,502 Advertising, Promotions and Publicity... 91,507 63,915 92,197 64,475 Maintenance... 18,331 17,481 18,679 17,590 Water, Electricity and Gas... 17,052 16,167 17,227 16,328 Other... 37,872 36,387 39,463 46,280 Total , , , ,615 In 2007, induces R$ 13,349 thousand in expenses on the public offering of shares (Note 20(a)). NOTE 18 Other Operating Income In Thousands of Reais Banrisul Banrisul Consolidated Recovery of Charges and Expenses... 44,638 47,426 40,779 45,800 Reversal of Operating Reserves - Losses on Equity Investments Income and Social Contribution Taxes Labore... 1,361 15,429 1,361 -,- - Brazilian Central Bank Exchange Fines (Note 14 (c))... -,- 50,180 -,- 50,180 - Other Assets (a)... 8,992 58,842 8,992 58,842 - Reserve for Securitization Losses (Note 13)... 6,347 4,276 6,347 4,276 - Other - Tax Lawsuits... -,- 16,844 -,- 16,844 Other Taxes... 1,744 3,445 1,744 3,445 Commission on Capitalization Cerficates... 4,468 3,907 4,468 3,907 Interbank Fees... 21,865 18,738 21,865 18,738 Exchange Adjustments... 34,725 -,- 34,725 -,- Credit Notes Receivable... 10,099 7,978 10,099 7,978 Reserve Fund - Escrow Deposit - Law 12, ,402 7,955 15,402 7,955 Commission and management Fee of Putting Insurance... 1,110 1,874 1,110 1,874 Other Operating Income... 43,270 26,391 45,364 29,030 Total , , , ,850 (a) In the year ended on December 31, 2007, the bank recognized income of R$53,194 thousand related to the final and unappealable of the tax rate (above 0.5%) of FINSOCIAL from January 1988 to July The credit amount was recorded as entry of other Assets (short term) and it is being offset against Social Security Contribution COFINS obligations. 115

114 NOTE 19 Other Operating Expenses In Thousands of Reais Banrisul Banrisul Consolidated Discount Granted from Renegotiations... 4,531 6,257 4,531 6,257 Reserves for Labor Provisions (Note 14 (b))... 15,643 25,728 15,895 28,401 Losses on Investment Losses... 1, , Provision for Properties - Assets not in use , ,273 Provision for Securitization Losses... 4,126 3,899 4,126 3,899 Reserves for Civil Contingencies , ,009 Provision for Amortizations of Banking Service Exclusivity Agreements (Note 9 (b))... 50,507 2,635 50,507 2,635 Collection of Federal Taxes... 1,131 1,106 1,131 1,106 Monetary Adjustment of Reserve for Tax Contingencies (Social Contribution / Income Tax) - (Note 14 (a))... 21,687 21,425 21,687 21,425 Lawsuits Indemnifications... 4,073 4,172 4,073 4,172 Monetary Adjustment of Brazilian Central Bank fines on Foreign Exchange (Note 14 (c))... 5,381 3,944 5,381 3,944 Monetary Adjustment of Actuarial Deficit of Fundação Banrisul (Note 23)... 9,833 7,066 9,833 7,066 Overdraft Accounts and Banricompras Premiável... 4,522 6,240 4,522 6,240 Provision for Debts Assumed with GESB... 4, , Exchange Adjustment - Foreign Branches... -,- 21,255 -,- 21,255 Financial Expenses... -,- -,- -,- 11,847 Reversal of Income Receivable from the Rio Grande do Sul State (*)... -,- 16,662 -,- 16,662 Lawsuits... 10,228 3,061 10,228 3,061 Cards... 5,248 4,047 5,248 4,047 Other Operating Expenses... 43,350 21,311 43,714 21,462 Total , , , ,737 (*) Pursuant to the Term of Agreement, whereby the State of Rio Grande do Sul ensures Banrisul s exclusivity in providing banking service related to the payroll of active and inactive civil servants, life and special pensioners of the Executive Branch, and pension fund beneficiaries. In the same Term of Agreement, Banrisul exempts State from any costs associated with the provision of banking services related to the collection of state charges and taxes, debits from checking accounts, Employment Security Fund (FGTS) statements and real estate receivable collection since 2002, and consequently the balance receivable mentioned above. NOTE 20 Shareholders - Banrisul (a) Capital Fully subscribed and paid-up capital as of December 31, 2008 is R$2,300,000 thousand and it is represented by 408,974 thousand shares without par value as follows: ON PNA PNB Total Amount % Amount % Amount % Amount % Rio Grande do Sul State ,199, ,721, ,086, ,008, Fundação Banrisul de Seguridade Social (pension plan) , , , Social Security Institute of Rio Grande do Sul State... 44, , , Other , , ,984, ,144, Total ,017, ,884, ,071, ,974, On March 25, 2008, an Annual and Extraordinary General meeting approved the capital increase by incorporation of Profits Reserve in the amount of R$266,000 thousand, with no new shares issued. 116

115 Preferred shares do not carry voting rights and are entitled to the following payments: Class A Preferred Shares: i) Priority to receive a non-cumulative, preferred fixed dividend of six percent (6%) per year, calculated over the quotient resulting from the division of capital stock by the amount of shares composing it; ii) Right to take part, after the payment to Class B Common and Preferred Shares of a dividend equal to that paid to those shares, in the distribution of any other dividends or bonuses in cash distributed by the company, under equal conditions with Class B Common and Preferred Shares, adding ten percent (10%) over the amount paid to those shares; iii) Participation in capital increases deriving from the capitalization of reserves, under equal conditions of Class B Common and Preferred Shares; iv) Priority in capital reimbursement, without premium; v) Interest on capital may be attributed to Mandatory Dividend, this composing Dividends Paid by the Bank. Class B Preferred Shares: i) Participation in capital increases deriving from the capitalization of reserves, under equal conditions of Class A Common and Preferred Shares; ii) Priority in capital reimbursement, without premium; iii) Interest on capital may be attributed to Mandatory Dividend, this composing Dividends Paid by the Bank. (b) Allocation of Income Net Income for the year, adjusted in accordance with Law 6,404/76, will have the following allocations: (i) 5% to the Legal Reserve, which will not exceed 20% of Capital Stock, (ii) 25% to the Statutory Reserve, and (iii) mandatory minimum dividends up to the limit of 25% of adjusted net income. The remaining net income will be allocated as decided in the Shareholders Meeting. The Statutory Reserve is intended to ensure funds for investments in the information technology area, and is limited to 70% of paid-up capital stock. In March 2008, an Annual and Extraordinary General meeting approved the proposal of distribution of additional dividends of the years 2007 and 2008, in the percentage equivalent to 10% of the adjusted net profit, derived from the Statutory Reserve. In order to do so, the amount of R$87,056 thousand in complementary dividends from 2007 was paid in April 23, Regarding the net income up to December 31, 2008, the Institution has already paid profits as per the paragraph above in the amount of R$56,133 thousand. The remaining net income will be allocated in order to meet business expansion projects according to capital budget approved at the Annual and Extraordinary General Meeting held on March 25, As permitted by Law no. 9,249/95, Banrisul s management paid interest on own capital in the amount of R$168,498 thousand (2007 R$100,700 thousand). The payment of this interest on own capital resulted in a tax benefit for the Bank in the amount of R$63,982 thousand (2007 R$28,049 thousand) (Note 22). 117

116 The payment of interest on capital and dividends is represented as follows: In Thousands of Reais (**) Net Income , ,381 Adjustment - Legal Reserve... (29,544) (45,818) Calculation Basis of Dividends , ,563 Minimum Mandatory Dividend 25% , ,641 Complementary Dividend 10% (*)... 56,133 87,056 Total Dividends , ,697 A) Interest on Own Capital , ,700 Paid - Common Shares (R$ 411,93022 per thousand shares)... 84,455 49,715 - Preferred Shares Class A (R$ 419,51260 per thousand shares)... 1,636 50,985 - Preferred Shares Class B (R$ 411,93022 per thousand shares)... 82, Income tax withholding at source on Interest Own Capital... (10,561) - B) Dividends Paid ,575 - Common Shares ,417 - Preferred Shares Class A ,675 - Preferred Shares Class B ,483 C) Dividends Provisioned... 38,528 45,422 - Common Shares (R$ 94,20559 per thousand shares)... 19, Preferred Shares Class A (R$ 94,20559 per thousand shares) Preferred Shares Class B (R$ 94,20559 per thousand shares)... 18,848 - Total Interest on Own Capital and Dividends (A+B+C) , ,697 (*) Complementary Dividends paid exclusively in 2007 and 2008, as approved by to the Annual and Extraordinary Meeting of March 25, (**) Adjusted by the effects of the Annual and Extraordinary Meeting of March, NOTE 21 Commitments, Guarantees and Other (a) On April 22, 2004, State Law 12,069, amended by Law 12,585 as of August 29, 2006, was approved, under which the Bank must make available to Rio Grande do Sul State up to 85% of the escrow deposits made by third parties with the Bank (except for those in which the litigant is a municipality). The remaining amount not available is recorded in a reserve fund to ensure the refund of said escrow deposits. As of December 31, 2008, the amount of escrow deposits made by third parties with the Bank, brought up to the date of the Statement of Account by the TR (Reference Rate) variation plus interest of 6.17% p.a., totaled R$4,694,411 thousand (2007 R$2,721,477 thousand), of which R$2,043,000 thousand (2007 R$2,043,000 thousand) was transferred to the State and written off from the respective equity accounts, and the remaining balance that makes up the aforementioned fund, managed by Banrisul, is recorded in Other Payables - Financial and Development Funds (Note 13). (b) Sureties and guarantees granted to customers amount to R$525,713 thousand (2007 R$269,753 thousand), and are subject to financial charges and backed by the beneficiaries sureties. (c) The Bank is responsible for the custody of 311,254 thousand securities of customers ( ,458 thousand). (d) The Bank has co-obligations in import credits in the amount of R$53,083 thousand (2007 R$34,995 thousand). 118

117 (e) Management compensation paid by the Bank in 2008 amount to R$1,947 thousand (2007 R$1,549 thousand). Officers employed as bank employees were paid R$28 thousand (2007 R$13 thousand) in the year related to the contributions made to Banrisul Foundation of Social Security. Currently, there are no other benefits defined for management. (f) The Bank manages various funds and portfolios, which have the following net assets: In Thousands of Reais Banrisul Banrisul Consolidated Investment funds (*)... 4,215,003 3,739,515 4,327,703 3,932,674 Investment funds in investment fund quotas... 56, ,701 56, ,701 Fund to Guarantee the Liquidity of Rio Grande do Sul State Debt Securities... 1,470,342 1,097,094 1,470,342 1,097,094 Managed portfolio , , , ,168 Credit Rights Investment Fund... 64,144 93,394 64,144 93,394 Total... 6,159,711 5,687,872 6,272,411 5,881,031 (*) The investments fund portfolios consist basically of fixed-rate and variable rate government bonds, and their carrying amounts already reflect mark-to-market adjustements at the balance sheet date. (g) The subsidiary Banrisul S.A. Administradora de Consórcios is responsible for the management of 96 groups (66 in 2007) of consortia, distributed among real estate, motorcycles, vehicles, and tractors, gathering 18,863 active consortium members (11,222 in 2007). NOTE 22 Income and Social Contribution Taxes (a) Conciliation of Expenses/Income with Income and Social Contribution Taxes: In Thousands of Reais Banrisul Banrisul Consolidated Income for the Period before Taxes , , , ,102 Income Tax on Profit - Rate 25%... (171,878) (152,648) (176,060) (158,275) Social Contribution Tax on Profit - Rate 9%... (17,183) (54,954) (18,365) (56,979) Social Contribution Tax on Profit - Rate 15% (*)... (74,488) - (75,628) - Total Income and Social Contribution Taxes calculated at Effective Rate... (263,549) (207,602) (270,053) (215,254) Effect of Increased Rate Social Contribution Tax on Net Income in Tax Credit (*)... 86,285-86,276 - Adjustment of Fine on Foreign Exchange Operations... (2,057) 15,720 (2,057) 15,720 Profit Sharing... 11,990 21,153 11,990 21,153 Interest on Own Capital... 63,982 28,049 63,982 28,049 Equity in Subsidiaries... 28,218 9, Other Additions, Net of Exclusions... 5,063 2,406 23,261 (3,003) Tax Credit of Previous years... 3, ,934 3, ,605 Portion of Unrecorded Tax Credit... - (3,432) - (3,432) Total Income and Social Contribution Taxes... (66,659) 368,000 (83,192) 345,838 (*) Law 11,727 as of June 23, 2008, changed the Social Contribution on Net Income (CSLL) rate of the financial industry, increasing it from 9% to 15% as of May This increase also impacted tax credits recorded on temporary differences existing on the reference date. (b) Deferred Income Tax and Social Contribution: Since 1998, when the Bank was included in the Financial Institutions Restructuring Program PROES, Banrisul has reverted the loss history and has been presenting increasing taxable income resulting from its business plans. 119

118 CVM Instruction 371, as of June 27, 2002, and National Monetary Council Resolution 3,059, as of December 20, 2002, amended by Resolution 3,355, as of March 31, 2006, and in view of the technical study that presents provision for Banrisul s growth and the ability to generate future taxable income, continuously and in sufficient amounts, it is evident the probability of future taxable obligations with taxes and contributions that allow the realization of tax credit in the maximum term of ten years. Banrisul s Management considers that the Bank s capital increase, which took place in 2007 with new fund raisings, was a solid step for the business plan implementation for the next years, specially the growth of its credit portfolio and will materially contribute for the growth of operations and the fortification of the financial situation of the institution. Due to the factors abovementioned, in the year of 2007 it was registered Deferred Income Tax and Social Contribution Tax Credits over Temporary Differences of previous years in the amount of R$501,817 thousand. In December 2008 the Bank had Deferred Income Tax and Social Contribution Tax Credits on temporary differences as per: (b1) Tax credits The balances of tax credits basis are as follows: Banrisul In Thousands of Reais Balance on Balance on 12/31/2007 Constitution (*) Realization 12/31/2008 Allowance for loan losses , , , ,689 Reserve for labor contingencies... 49,138 17,780 28,448 38,470 Reserve for tax contingencies... 45,857 17, ,624 Other temporary provisions... 22,935 6,947-29,882 Total tax credits on temporary differences , , , ,665 Unrecorded credits... (3,432) 3,409 - (23) Total tax credits recorded , , , ,642 Deferred tax liabilities... (10,286) (2,802) (8,400) (4,688) Tax credits, net of deferred liabilities , , , ,954 (*) It includes effects of the increase in the Social Contribution rate, as described in item (a). Banrisul Consolidated In Thousands of Reais Balance on Balance on 12/31/2007 Constitution (*) Realization 12/31/2008 Allowance for loan losses , , , ,689 Reserve for labor contingencies... 55,459 18,548 30,392 43,615 Reserve for tax contingencies... 46,308 17, ,091 Other temporary provisions... 22,936 6, ,882 Total tax credits on temporary differences , , , ,277 Unrecorded credits... (3,432) 3,409 - (23) Total tax credits recorded , , , ,254 Deferred tax liabilities... (11,737) (2,802) (9,847) (4,692) Tax credits, net of deferred liabilities , , , ,562 (*) It includes effects of the increase in the Social Contribution rate, as described in item (a). The expectations of realization of these receivables are as follows: In Thousands of Reais Banrisul Banrisul Consolidated Temporary Differences Year Income Tax Social Contribution Total Totals Recorded Totals Recorded ,976 32,386 86,362 86,362 86, ,077 30,646 81,723 81,723 82, ,949 61, , , , ,745 38, , , , ,263 22,958 61,221 61,221 61, to ,816 29,290 78,106 78,106 79, to ,825 7,694 20,519 20,519 21,551 After Total on 12/31/ , , , , ,254 Total on 12/31/ , , , , ,

119 The total consolidated present value of tax credits is R$436,240 thousand, calculated based on the expected realization of temporary differences at average funding rate, projected for the corresponding periods. (b2) Deferred Tax Liabilities The balance of the Reserve for Deferred Taxes and Contributions is represented by: In Thousands of Reais Banrisul Banrisul Consolidated Excess Depreciation... (4,685) (1,849) (4,685) (1,849) Available for Sale Securities... (3) (37) (3) (37) Adjustment to Fair Value of Trading Securities... - (8,400) (4) (8,400) Other (1,451) Total... (4,688) (10,286) (4,692) (11,737) NOTE 23 Fundação Banrisul de Seguridade Social e Cabergs - Caixa de Assistência dos Empregados do Banco do Estado do Rio Grande do Sul (a) The Bank is the main sponsor of Fundação Banrisul de Seguridade Social (Banrisul Foundation of Social Security - pension plan), whose main objectives are to supplement the retirement benefits provided by the Government to the employees of the Bank, of the Banrisul Foundation and CABERGS (Bank Employees Social Assistance Fund), as well as to provide assistance programs offered by their sponsors. In order to accomplish its objectives, Fundação Banrisul receives monthly contributions from sponsors and participants, calculated based on employees monthly compensation. The Bank s contributions in the year amounted to R$9,775 thousand ( R$9,520 thousand), equivalent, as of December 31, 2008, to 3.45% (3.45% in 2007) of the monthly payroll of participating employees, and were recorded as operating expenses. Fundação Banrisul offers a defined benefit plan and its valuation, in accordance with specific legislation, is carried out annually at the fiscal year s closing date by an independent actuary. In September 2008, Rio Grande do Sul State settled its debt with Fundação Banrisul de Seguridade Social in the amount of R$946,492 thousand, contracted on March 31, 1998, whose original amount was R$500,000 thousand. Banrisul has a remaining portion of actuarial deficit in the amount of R$61,349 thousand as of December 31, 2008 (2007 R$56,567 thousand), recorded under the caption Other Obligations (Note 13). This deficit is paid with interest of 6% p.a. and adjusted by the General Market Price Index Internal Availability - IGP-DI variation, through monthly adjustments with final term in (b) Banrisul also offers health and dental care benefits, through CABERGS, to its employees, and through Fundação Banrisul, to retired employees. 121

120 (c) As of December 31, 2008, the actuarial valuation of post-employment benefits granted to employees is as follows: In Thousands of Reais Pension Health and Plan dental care plans Total Present value of actuarial obligations... (2,131,954) (99,790) (2,231,744) Fair value of Fundação Banrisul s assets... 1,910,718 89,712 2,000,430 Unrecognized gains/losses and costs of services ,074 19, ,369 Actuarial assets (liabilities) ,838 9, ,055 The main actuarial assumptions used as of December 31, 2008 were: - Discount rate: 11.55% p.a. - Expected rate of return on assets of the pension plan: 12.43% p.a. - Expected rate of return on assets of health care plan: 10.77% p.a. - Future salary increases: 6.59% p.a. - Increase in medical costs: 7.64% p.a. - Inflation: 4.50% p.a. - Mortality table: AT 2000 NOTE 24 Financial Instruments The main risks related to financial instruments are credit risks, market risks and liquidity risks, as follows: Credit risk: it is the possibility of in occurring in losses to the bank, related to the nonperformances of a loan or financial transaction, by the counterparty. The credit risk management in Banrisul is made through statistical models that allow continuous improvement of credit extension to continue improving. Banrisul acts continuously on making the adherence test for periods, supervising credit portfolio s shifts, the concentration on clients or on industries of economic activity and on the levels of defaults. Market risk: it is directly related to the fluctuation of prices and rates, that is, to the fluctuation of the stock exchange, of the interest rate market and foreign exchange inside and outside the country that affects the prices of the assets and liabilities negotiated in the market. Liquidity risk: it is related to a mismatch between the cash flows of assets and liabilities, affecting the institution s financial capacity in having the resources to honor its liability agreements. The market risk politics and the liquidity has the purpose of softening possible losses resulting from market price fluctuations, currencies and interest rates of assets and liabilities and of cash flow mismatch being able to use, among other possibilities, financial instruments and derivatives. Banrisul has not contracted operations known as target forward swap or any other derivative on its behalf, since it is not established in its politics operations that do not have as an aim a hedge of its assets and liabilities positions. Except for the swap agreements referred to in Note 5 (d), Banrisul has deemed plausible its exposures to the risks mentioned above and has not contracted new operations involving Derivative Financial Instruments. Sensitivity Analysis: Banrisul carries out derivatives transactions classified under banking portfolio in order to meet its own transactions, and not available for sale. 122

121 NOTE 25 Balances and Transactions with Related Parties Banrisul Thousands of Reais Subsidiaries Rio Grande do Sul State Assets (Liabilities) Income (Expenses) Assets (Liabilities) Income (Expenses) In Derivatives , ,298 (17,548) 10,056 Collection Services ,072 5, Loans Other Receivables... 5,204 6,285 4,250 3, Demand Deposits... (5,584) (1,687) - - (238,799) (224,080) - - Time Deposits... (164,111) (154,212) (12,546) (11,543) Money Market Funding.. (55,969) (61,070) (6,500) (3,757) (1,470,342) (1,097,092) (212,421) (73,889) Outras Obrigações... (26,100) (21,411) (1,200) (687) Total... (246,560) (232,095) (15,996) (12,860) (1,625,441) (1,215,802) (229,969) (63,833) Banrisul Consolidated In Thousands of Reais Rio Grande do Sul State Assets (Liabilities) Income (Expenses) Disponibilidades - SIAC... 18,392 16,072 2,187 2,186 Instrumentos Financeiros Derivativos... 78, ,298 (17,548) 10,056 Serviços de Arrecadação... 5,072 5, Other Receivables... 5,905 4, Demand Deposits... (238,799) (224,080) - - Money Market Funding... (1,470,342) (1,097,092) (212,421) (73,889) Total... (1,601,144) (1,194,827) (227,017) (60,873) Investments and loans with related parties were contracted at rates compatible with those for unrelated parties, prevailing at the dates of the transactions. On June 29, 2007, it was established the Agreement Term 1959/2007 between Banrisul and the State of Rio Grande do Sul, in which the State ensures Banrisul the exclusivity in bank services related to the personnel payment of active and inactive government employees, life and special pensioners of the Executive Power and social security pensioners, for a 5-year term. In the same Agreement Term, Banrisul exempts the State of Rio Grande do Sul from any cost related to bank services of collection of revenues and state taxes, debt to checking accounts, Unemployment Compensation Fund (FGTS) statements and real estate credit collection services. 123

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125 Summary of the Audit Committee I. Institutional and Statutory Provisions The Audit Committee, as an statutory body of Banco do Estado do Rio Grande do Sul S/A, created by the Extraordinary General Meeting held on April 29, 2004, is formed by Mr. João Verner Juenemann,Mr. João Zani and Mr. Manoel André da Rocha, all members of the Board of Directors, being the first and the third independent members, elected by the Board of Directors, on June 24, 2004 and reelected on April 03, 2008, with term of office until the first meeting of the Board of Directors, to be held after the Annual General Meeting of The Audit Committee s Internal Regulations are available on: bob/data/regimentointerno.pdf. II. Duties and Responsibilities The Audit Committee has the responsibility of supervising the compliance with regulatory and legal requirements, the integrity and quality of the financial statements of the institution and its subsidiaries, the efficiency and effectiveness of the independent audit and internal audit performance. It is also responsible for the permanent follow-up on the quality of the internal controls and risk management. Management is responsible for the elaboration of the financial statements of the companies that make part of Grupo Banrisul (Banrisul Group), in compliance with the guidelines focused on ensuring the quality of the processes related to the financial information, and to the control and risk management activities. It is incumbent upon Deloitte Touche Tohmatsu Auditores Independentes, the external audit company responsible for the financial statements analysis, to issue an opinion on whether they adequately represent the equity and financial situation of the group, pursuant to the fundamental principles of accounting, the Brazilian corporate legislation and the rules of the Securities and Exchange Commission of Brazil CVM, the National Monetary Council and the Brazilian Central Bank. III. Activities Schedule During the 2nd half/2008, the Committee held 24 (twenty-four) meetings, out of which 17 (fifteen) until and the remaining ones between the closing date of the second semester and the date of issue of this summary, as an excerpt of the Audit Committee Report, in which it discussed, in the scope of its authority, the most different subjects, as described in the minutes of the meetings. In these meetings, the Committee was supported by the analysis of the accounting data, managerial reports, supplementary information and meetings held with the presidency and executive officers of the institution, with executives from different levels of the organization, and with the executive officers from the subsidiaries. From the executive superintendents of several units of the institution It has also obtained reports, documents and information. It has, likewise, requested the attendance, when necessary, of the professionals of or the responsible for the respective area of operation, as well as of the independent auditors. During year 2008, the Audit Committee held 47 (forty-seven) meetings. IV. Internal Audit - The Internal Audit, linked to the CEO, has, among its objectives, to safeguard of the assets and to assure the compliance with the policies, plans, procedures and laws, being responsible for assisting the Audit Committee and the independent auditors. Taking into consideration the reports presented by the Internal Audit and the compliance with the concerned matters by the respective areas, the Audit Committee believes to hold reasonable knowledge about each of the questions discussed. The Audit Committee approved the work programming presented by the Internal Audit for 2009 and recommended the improvement of the team qualification actions and of the analysis of Banrisul s adequacy to the international accounting rules V. External Audit - The work planning for 2009 has been requested and opportunely examined and deliberated approved by the Audit Committee The report on the evaluation of the accounting and internal control systems, presented by the external audit company, along with the recommendations made, has been discussed with the Committee, which has followed with the Internal Audit the implementation of the actions suggested for each unit, throughout the year. Due to the permanent supervision of this work, the Committee believes that the work developed was adequate to Banrisul s needs. 127

126 At the discretion of that Committee, during year 2008, the independent auditors have performed the tasks contractually attributed to them. The independent auditors work has been supervised throughout the year, with the guarantee of unrestricted access to the institution s data, with a view to ensure total freedom in the performance of the contract. There is no evidence of any fact or circumstance that might have impaired the adoption of an independent posture, or the development of the auditors work. VI. Risk Management The Committee has followed the development of the Business Continuity Plan. It has also supervised the implementation of an adequate dimensioning of the civil and labor contingencies, with a view to establish the provisions necessary to their coverage in a correspondent level. At the same time, the internal control processes have been analyzed regarding the aspects related to the corresponding judicial deposits. As an addendum to this activity, the Audit Committee has recommended the acceleration of the activities of the Civil and Labor Contingencies Management Group and of the Labor Lawsuits Negotiation and Prevention Board. During this half, the Audit Committee has also supervised the development of the IT activities. This supervision includes the replacement of internal use equipment or of equipment made available to clients or to other users in general. This process has been particularly focused on the development of IT security programs with a view to prevent electronic fraud practices to the clients and to the Bank itself, and to protect the confidentiality of the operations performed by the Institution. In regards to Credit Risk, the Audit Committee has evaluated the quality and the adjustments to the credit score system. As for Market Risk, this Committee has requested that the minimum liquidity level necessary for the Bank to face financial stress situations be determined. VII Channel of Denunciations -The denunciations received by the Audit Committee did not include the existence or the evidence of error or fraud, for the effects of article 8 of its Internal Regulation. The other denunciations have been addressed to the competent areas for the necessary measures, with no need for additional remarks, since they were punctual and did not have great significance for the overall situation. VIII. Self-evaluation - The Audit Committee carried out its self-evaluation, in observance of modeling known and practiced in the market, having hired the services of a specialized consulting firm, KPMG Risk Advisory Services Ltda., aimed at improving consistency and quality of selfevaluations carried out by its members. Therefore, a document has been produced by KPMG Risk Advisory Services Ltda., corroborating with the Committee s conclusions, in its self-evaluation, that its structure and activities performed by its members comply with an, in some items, exceed, in general, the rules set forth by the Central Bank of Brazil and the best practices of corporate governance. The Audit Committee s self-evaluation and the document made by KPMG Risk Advisory Services Ltda. were reported to the Board of Administration on February 05, IX. Continued Education Just as in the previous years, the Audit Committee members have been concerned about their technical development, with a view to better perform their functions. In line with this vision, during the second half, they have participated in events about corporate governance, risk management and better practices for audit committees. For 2009, a proposition for expanding the continued education has been set, particularly in regards to better comply with the international accounting standards. The main approach is to train and qualify its members vis-à-vis the coming adoption of IFRS. X. Conclusion Considering the existing internal control systems, the scope, the thoroughness and the quality of the work performed by the internal and external audits, as well as the issue of the independent auditors opinion, without remarks, on , along with the set of recommendations of the Audit Committee, described in the respective minutes of the meetings, we recommend, to the Board of Directors, the approval of the audited financial statements, related to the period closed on December 31, Porto Alegre, February 05, João Verner Juenemann João Zani Manoel André da Rocha 128

127 Opinion of the Fiscal Council As members of the Fiscal Council of Banco do Estado do Rio Grande do Sul S.A., and in the exercise of the responsibilities conferred to us by Article 163, Items II and VII of Law 6,404 dated December 15, 1976, and by the provisions of the company s Bylaws, we have examined the Management Report and the Financial Statements, which comprise the Balance Sheet, Statement of Income, Statement of Changes in Shareholders Equity, Cash Flow, Statement of Added Value and Notes to the Financial Statements for the fiscal year ended December 31, Based on our examinations, on the Opinion of the Audit Committee and on the Opinion of the Independent Auditors, it is our opinion that the statements cited above should be approved by shareholders. Porto Alegre, February 05, Claudio Morais Machado Chairman Ronei Xavier Janovik Vice-Chairman Americano Lopes Neto Irno Luiz Bassani Rubens Lahude Members 129

128 Independent Auditors Report To the Management and Shareholders of Banco do Estado do Rio Grande do Sul S.A. Porto Alegre - RS 1. We have audited the accompanying individual (Bank) and consolidated balance sheets of Banco do Estado do Rio Grande do Sul S.A. ( Bank ) and subsidiaries as of December 31, 2008 and 2007, and the related statements of income, changes in shareholders equity (Bank), cash flows and value added for the years then ended and six-month period ended December 31, 2008, all expressed in Brazilian reais and prepared under the responsibility of the Bank s management. Our responsibility is to express an opinion on these financial statements. 2. Our audits were conducted in accordance with auditing standards in Brazil and comprised: (a) planning of the work, taking into consideration the significance of the balances, volume of transactions, and the accounting and internal control systems of the Bank and its subsidiaries; (b) checking, on a test basis, the evidence and records that support the amounts and accounting information disclosed; and (c) evaluating the significant accounting practices and estimates adopted by the Management of the Bank and its subsidiaries, as well as the presentation of the financial statements taken as a whole. 3. In our opinion, the financial statements referred to in paragraph 1 present fairly, in all material respects, the individual and consolidated financial positions of Banco do Estado do Rio Grande do Sul S.A. and subsidiaries as of December 31, 2008 and 2007, and the results of their operations, the changes in their shareholders equity (Bank), their cash flows, and the values added in operations for the years then ended and six-month period ended December 31, 2008, in conformity with Brazilian accounting practices. 4. The accompanying financial statements have been translated into English for the convenience of readers outside Brazil. Porto Alegre, February 5, Deloitte Touche Tohmatsu Independent Auditors CRC nº. 2 SP /O-8/F/RS Fernando Carrasco Engagement Partner CRC nº. 1 SP /T/RS 130

129 GOVERNMENT OF RIO GRANDE DO SUL STATE TE Secretary of the Treasury Banco do Estado do Rio Grande do Sul BOARD OF DIRECTORS AOD CUNHA DE MORAES JÚNIOR Chairman FERNANDO GUERREIRO DE LEMOS Vice Chairman ARIO ZIMMERMANN IVO DA SILVA LECH JOÃO VERNER JUENEMANN JOÃO ZANI MANOEL ANDRÉ DA ROCHA MATEUS AFFONSO BANDEIRA RUBENS SALVADOR BORDINI Board Members BOARD OF EXECUTIVE OFFICERS FERNANDO GUERREIRO DE LEMOS CEO RUBENS SALVADOR BORDINI Vice-President CARLOS TADEU AGRIFOGLIO VIANNA LUIZ GONZAGA VERAS MOTA LUIZ VALDIR ANDRES PAULO ROBERTO GARCIA FRANZ RICARDO RICHINITI HINGEL URBANO SCHMIT Officers LUIZ CARLOS MORLIN Accountant CRCRS BANCO DO ESTADO DO RIO GRANDE DO SUL S.A. - FOUNDED IN SEPTEMBER 12, 1928 MAIN ADDRESS: RUA CAPITÃO MONTANHA, PORTO ALEGRE - RS - BRASIL

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