S t a t e m e n t s. September

Transcription

1 F i n a n c i a l S t a t e m e n t s September

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3 Message from the CEO The external environment has been evolving amid a context of increasing risk perception associated with the financial instability that has deepened over the first nine months of The delicate fiscal situation of the Eurozone s peripheral countries, the debate over raising the debt ceiling in the United States that ended up with the downgrade of the American rating, the increase in the inflation risk in emerging economies and the uncertainties regarding the global economy s ability to recover have also contributed to the worsening of tensions in international markets. Backed by the stability of the labor market and the credit evolution, together with a significant in-flow of foreign capital, the strong growth observed in Brazil in the beginning of the year produced a picture of inflationary pressures exacerbated by rising commodity prices, a scenario that was managed through increasing interest rates and fiscal control measures that reduced the economic activity and reversed the contraction cycle in August 2011, in face of the deepening global instability. Given Rio Grande do Sul s exporting profile, the industry performance reflected the dynamics of the global economy; however, infrastructure investments such as roads duplication, the use of alternative energy sources and the development of the technological pole, among others, are signs of favorable prospects for the development of the regional environment, also supported by the good performance of the agricultural sector, aided by productivity gains and appropriate climatic conditions. The high degree of integration among the local, domestic and international economies and the dynamics of the banking sector, extremely linked to the movements of business cycles, have required planning efforts and constant review of businesses strategies. After six months of managing Banrisul, many events, actions, relevant facts have enabled us to better understand the nuances of the business environment, as well as to improve the diagnosis of a financial institution that celebrated in September its 83 rd anniversary. In the last three months, the preparation of the strategic plans can be safely cited as a key process on which we have focused. Various meetings addressing all Banrisul s employees were held in July and August, for the purpose of promoting a broad discussion about the alternatives that will ensure the growth and sustainability of the Bank s business. Several are the challenges within the banking industry. Changes in the economic environment and in the regulatory framework, such as the recent alignment of the Central Bank of Brazil to Basel III, aiming at preparing the banking system to support systemic crises, and changes in the competitive and technological environments, that ultimately respond for innovation in the financial sector, illustrate our point. And many have being the changes wrought in the social environment in recent years. The life expectancy of Brazilians has increased, the habits are different, and the entry of new classes in the consumer market demands new approaches to sales and information management related to different customer profiles. Hence we have defined, in our planning efforts, the improvement of customer service as one of the main pillars of the current administration. Banrisul s other strategic guidelines are grounded in the (i) expansion of the credit and funding portfolios, (ii) increase and consolidation of our market share in banking services, (iii) ongoing improvements of internal controls and corporate risk mitigation mechanisms, and (iv) training, retention and qualification of employees, all based on sound principles of sustainability and efficiency-focused management. The improvement of customer service covers not only the branch network, planned to expand especially to towns lacking financial services, to 3

4 promote local development in coordinated efforts jointly with the State Government, but also to increase the quality of services and accessibility conditions in the different customer channels, including home and office banking, mobile banking and correspondent banking network. With respect to services provided at branches, in the last quarter, business hours of local offices in 25 municipalities was expanded, the opening of 89 new branches in the Southern Region approved, the purchase of equipment for technology upgrade and furniture for standardizing branch layout triggered, procedures to review and improve the sizing and allocation of human and material resources at the Head Office initiated, and procedures for the integration of internal communication mechanisms defined. The strengthening and consolidation of Banricompras network as an acquiring channel to capture cards other than those of Banrisul s issue and the back office automation are part of actions aimed at increasing levels of operating efficiency and deepening customer loyalty and the relationship with and users of the institution, within market guidelines and the continuous improvement of processes. And finally, to make a difference in service to customers, improvements related to processes of dealing with people must be reached. As much as technology incorporates agility and comfort to banking transactions, the delivery of high service standards, characterized by warmth, attention, knowledge and efficiency, implies employee qualification and the ability to retain a talented, skilled workforce aware of developments in their career possibilities. By integrating technology, processes and people, we have maintained the consistent trend of positive results. Banrisul s net income of R$678 million in the first nine months of was 32.52% higher than that of the same period last year. Net income of R$239 million in 3Q11 was 15.89% higher than 3Q10 and 5.28% higher than that of 2Q11. With R$37 billion in assets, of which R$20 billion in loans, Banrisul s credit portfolio grew 21.05% in the last twelve months. Total funding, including third party assets under managed, reached R$28 billion in September 2011, an increase of 14.15% over the same month last year. Shareholders equity totaled R$4 billion at the end of September, with an ROAE of 22.76%. Banrisul recently figured in the third position in relation to customer satisfaction level in the ranking of standard banks, and was highly noted in the item of banking safety as perceived by customers. Recently, the Bank was included in The Best Companies list published by IstoÉ Dinheiro, with special emphasis on indicators of financial sustainability, social responsibility and environmental and human resources. Banrisul has been repeatedly highlighted by the value of its brand, the reputation achieved in the local market and the return of its shares in the stock exchange. And all this has been achieved obtained from people s work. One has no reason to doubt that we can be one of the best financial institutions in Brazil when it comes to tending customers. Túlio Luiz Zamin CEO 4 FINANCIAL STATEMENTS SEPTEMBER 2011

5 Index Message from the CEO... 3 Press Release Management Report Economic Scenario Consolidated Performance Net Income Shareholders' Equity Total Assets Taxes and Contributions Operational Performance Funds Raised and Under Management Securities Loan Operations Products, Services and Channels Banricompras Banrisul's Correspondent Banks Virtual Branch - Home and Office Banking Banrifone and Branch Call Center Credit Cards Insurances, Private Pension and Capitalization Eletronic Bidding Public Sector Activities Banrisul's Customer Service Network Subsidiaries Corporate Governance Overview Shareholding Structure Investor Relations and Communication Policy Interest on Equity and Dividends Payout Policy Internal Controls and Compliance Risk Management Basel Ratio Technological Modernization Marketing Human Resources Corporate Responsibility Awards Acknowledgements

6 Index of Graphs Graph 1: Net Income Graph 2: Shareholders' Equity Growth Graph 3: Total Assets Growth Graph 4: Growth of Funds Raised and Under Management Graph 5: Securities Growth Graph 6: Loan Operations Growth Graph 7: Commercial Credit Growth - Individuals and Companies Graph 8: Banricompras Graph 9: Shareholding Structure Graph 10: Market Value X Shareholders' Equity Graph 11: Pay Out - Quartely Payments - R$ Million Financial Statements Balance Sheet Statement of Income Cash Flow Statement of Value Added Statement of Changes on Shareholders' Equity Contents of the Notes to 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 - Loans, Lease Operations and Other Credit-like Receivables Note 08 - Other Receivables Note 09 - Permanent Assets Note 10 - Deposits and Money Market Funding Note 11 - Borrowings Note 12- Onlendings Note 13 - Other Payables Note 14 - Reserves, Contingent Assets and Liabilities 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 and Cabergs - Caixa de Assistência dos Empregados do Banco do Estado do Rio Grande do Sul Note 24 - Financial Instruments and Financial Risks Management Note 25 - Transactions With Related Parties FINANCIAL STATEMENTS SEPTEMBER 2011

7 Note 26 - Impact from the Adoption of the Internacional Financial Reporting Standards (IFRS) Note 27 - Authorization for Completion of the Financial Statements Report Analysis of Performance Banco do Estado do Rio Grande do Sul S.A Banking Industry and Competitive Environment Economic and Financial Indicators Assets and Earnings Structure Financial Performance Capital Expenditure Policy Margin Analysis Variations in Interest Income and Expenses: Volumes and Rates Banrisul's Stock Market Performance Evolution of Balance Sheet Accounts Total Assets Securities Interbank and Interbranch Transactions Credit Operation Breakdown of Credit by Company Size Breakdown of Credit by Sector Breakdown of Credit by Portfolio Breakdown of Credit Disbursement Commercial Credit Breakdown of Credit by Rating Allowance for Loan Losses Cover Ratio Default Ratio Funds Raised and Under Management Demand Deposits Savings Accounts Time Deposits Assets under Management Cost of Funding Shareholders' Equity Return on Average Shareholders' Equity Basel Ratio Pace of Growth Evolution of Income Statement Accounts Net Income Financial Income Revenue from Treasury Operations Revenues from Credit and Leasing Operations Revenues from Commercial Credit - Individuals and Companies Financial Expenses

8 Expenses with Market Funding Operations Expenses with Borrowings and Onlendings Allowance for Loan Losses Financial Margin Revenue from Services Rendered Administrative Expenses Other Operating Income Other Operating Expenses Economic Indicators Leverage Ratio Operating Cost Debt-Equity Ratio Employee Productivity Efficiency Ratio Consolidated Pro Forma Balance Sheet Pro Forma Income Statement Index of Graphs Graph 01: Banrisul PNB Performance vs. Brazilian Stock Market Indexes Graph 02: Average Financial Volume, Number of Trades and Number of Shares Graph 03: Banrisul s Shares - Geographic Distribution Graph 04: Total Assets Graph 05: Composition of Assets Graph 06: Securities and Liquid Interbank Transaction Graph 07: Interbank and Interbranch Transactions Graph 08: Credit Operations Graph 09: Commercial Credit Portfolio - Individuals and Companies Graph 10: Credit Portfolio by Risk Levels Graph 11: Breakdown of Allowance for Loan Losses Graph 12: Cover Ratio Graph 13: Default Ratio Graph 14: Funds Raised and Under Management Graph 15: Cost of Funding as % of Selic Rate Graph 16: Shareholders' Equity Graph 17: Return on Average Shareholders' Equity Graph 18: Basel Ratio Graph 19: Pace of Growth - Credit and Funding Graph 20: Net Income Graph 21: Financial Income Graph 22: Revenues from Credit and Leasing Operations Graph 23: Financial Expenses Graph 24: Expenses with Market Funding Operations Graph 25: Allowance for Loan Losses Graph 26: Financial Margin FINANCIAL STATEMENTS SEPTEMBER 2011

9 Graph 27: Revenue from Services Rendered Graph 28: Personnel and Other Administrative Expenses Graph 29: Other Operating Income Graph 30: Other Operating Expenses Graph 31: Leverage Ratio Graph 32: Operating Cost Graph 33: Debt-Equity Ratio Graph 34: Employee Productivity Graph 35: Efficiency Ratio Index of Tables Table 01: Competitive Environment Table 02: Economic and Financial Indicators Table 03: Margin Analysis Table 04: Variations in Interest Income and Expenses: Volumes and Rate Table 05: Communication and Relationship Efforts Table 06: Breakdown of Credit to Companies by Company Size Table 07: Breakdown of Credit by Sector Table 08: Breakdown of Credit by Portfolio Table 09: Breakdown of Credit Disbursement Table 10: Composition of General Credit - Individuals and 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: Monthly Average Commercial Credit Rates - Individuals and Companies Table 16: Consolidated Pro Forma Balance Sheet Table 17: Pro Forma Income Statement

10 10 FINANCIAL STATEMENTS SEPTEMBER 2011

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12 12 FINANCIAL STATEMENTS SEPTEMBER 2011

13 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. Monday, November 7, Earnings Results for the 3 rd Quarter of We report Banrisul s most relevant numbers for 3Q11 and 9M11. The Analysis of Performance, Management Report, Financial Statements and the Accompanying Notes are available at the Bank s site ( Main Income Statement Accounts - R$ Million 9M11 9M10 3Q11 2Q11 1Q11 4Q10 3Q11/ 9M11/ 3Q10 2Q11 9M10 Net Financial Margin 2, , % 15.7% Allowance for Loan Losses Expenses (463.8) (391.7) (182.3) (143.1) (138.5) (126.6) (111.2) 27.4% 18.4% Gross Profit from Financial Operations 1, , % 15.0% Financial Income 4, , , , , , , % 24.7% Financial Expenses 2, , % 34.1% Income from Services Rendered % 10.5% Administrative and Other Operational Expenses (¹) 1, , % 7.2% Other Operation Income % 56.4% Income from Operations 1, % 33.2% Net Income % 32.5% Used/Distributed Results - R$ Million 9M11 9M10 3Q11 2Q11 1Q11 4Q10 3Q11/ 9M11/ 3Q10 2Q11 9M10 Interest on Own Capital - Dividends (²) % 34.4% Main Balance Sheet Accounts - R$ Million Sep11 Sep10 Sep11 Jun11 Mar11 Dec10 Sep10 Sep11/Sep11/ Jun11 Sep10 Total Assets 36, , , , , , , % 13.0% Securities (³) 10, , , , , , , % 5.6% Total Lending 19, , , , , , , % 21.0% Allowance for Loan Losses (1,284.6) (1,122.7) (1,284.6) (1,214.7) (1,156.0) (1,101.9) (1,122.7) 5.8% 14.4% Past Due Loans > 60 days % 16.1% Funding and Assets under Management 27, , , , , , , % 14.2% Shareholders' Equity 4, , , , , , , % 14.7% Consolidated Reference Equity 4, , , , , , , % 14.8% Average Shareholders' Equity 4, , , , , , , % 14.0% Average Total Assets 34, , , , , , , % 11.8% Financial Index 9M11 9M10 3Q11 2Q11 1Q11 4Q10 3Q10 Return on Total Assets 2.5% 2.1% 2.6% 2.6% 2.6% 2.9% 2.6% Return on Shareholders' Equity 21.6% 18.6% 24.2% 24.0% 22.8% 26.1% 23.9% ROAA (p.a.) (4) 2.6% 2.2% 2.7% 2.7% 2.6% 2.9% 2.6% ROAE (p.a.) (5) 22.8% 19.5% 24.7% 24.3% 23.3% 26.5% 24.5% Efficiency Ratio (6) 44.4% 48.5% 44.4% 45.0% 45.8% 47.8% 48.5% Consolidated Basel Ratio 15.9% 15.8% 15.9% 15.6% 15.8% 16.1% 15.8% Fixed Assets Ratio (7) 3.8% 4.6% 3.8% 4.0% 4.3% 4.4% 4.6% (8) Default Rate 2.9% 3.0% 2.9% 2.7% 2.7% 2.5% 3.0% Cover Rate (9) 226.7% 230.1% 226.7% 243.5% 241.7% 263.6% 230.1% Economic Indicators 9M11 9M10 3Q11 2Q11 1Q11 4Q10 3Q10 Effective Selic Rate (accrued) 8.74% 7.03% 3.03% 2.82% 2.65% 2.57% 2.62% Foreign Exchange Rate (R$/USD end of period) Foreign Exchange (%) 11.30% -2.70% 18.79% -4.15% -2.25% -1.67% -5.96% IGP-M (General Market Price Index) 4.15% 7.90% 0.97% 0.70% 2.43% 3.18% 2.08% IPCA (Extended National Consumer Price Index) 4.97% 3.60% 1.06% 1.40% 2.44% 2.23% 0.50% (1) Inclui despesas de pessoal, outras despesas administrativas e outras despesas operacionais. (2) Juros sobre o capital próprio e dividendos pagos e/ou distribuídos (antes da retenção do Imposto de Renda). (3) Inclui aplicações interfinanceiras de liquidez e deduz as obrigações compromissadas. (4) Lucro líquido sobre ativo total médio. (5) Lucro líquido sobre patrimônio líquido médio. (6) Índice de eficiência acumulado no período dos últimos 12 meses. Despesas de pessoal + outras despesas administrativas / Margem financeira líquida + rendas de prestação de serviços + (Outras receitas operacionais outras despesas operacionais). (7) Imobilizado sobre o patrimônio líquido. (8) Atrasos > 60 dias / carteira de crédito. (9) Provisão para devedores duvidosos / atrasos > 60 dias 13

14 Operational Highlights In 9M11, Banrisul presented ascendant credit rates. Default indicators and credit quality remained stable, in spite of the riskier environment due to the effects of macroprudential measures issued in December 2010 and high interest rates, reverted at the end of 3Q11 due to the foreign economies environment instability. The increase of credit, treasury and foreign Exchange revenues contributed to the growth of the net interest income. Six months after the Management change, Banrisul has maintained its market-oriented business strategies focused on returns to public and private shareholders. A mature organization, and by adopting the best practices of corporate governance, Banrisul ensures that reshuffles in the Board of Administration and its Executive Body, a natural process within a statecontrolled bank, reinforces the continuity of business management and operational processes. The focus on efficiency is also compatible with maintaining, by the third consecutive quarter, the Company s guidance released, despite the changing circumstances of the economy. Financial Performance Net income registered in 9M11 was R$677.7 million, 32.5% or R$166.3 million above the net income reached in the same period of In 3Q11, net income was R$239.2 million, 15.9% or R$32.8 million higher than in 3Q10. From 3Q10 to 3Q11, the Bank s performance positively reflects the increase of 23.3% or R$217.5 million in credit revenues, of R$44.3 million in treasury income and services fees and of R$95.2 million in foreign exchange revenues, however offset by growing financial, market funding and onlendings expenses. From 2Q10 to 3Q11, the performance positively was impacted by the increase of 8.9% (R$94.0 million) in credit revenues and the increase of 6.4% (R$20.2 million) in treasury revenues, negatively offset by higher financial, market funding and onlending expenses and administrative costs. The net interest margin totaled R$2,461.1 million at the end of 9M11, a 15.7% (R$333.1 million) increase over that of 9M10. NIM was positively affected by the growth of revenues from credit, treasury, restricted deposits and foreign exchange, while negatively impacted by increasing financial, market funding and onlending expenses. 3Q11 s NIM of R$873.2 million is 13.4% (R$103.5 million) above 3Q10 s, on account of higher income from credit, treasury and foreign exchange that offset increases recorded on financial and market funding expenses. NIM increase in from 2Q11 to 3Q11 is explained by higher credit and treasury and foreign exchange income in comparison to increases seen on financial expenses. 14 FINANCIAL STATEMENTS SEPTEMBER 2011

15 Financial Margin R$ Million 9M11 9M10 3Q11 2Q11 1Q11 4Q10 3Q10 Financial Margin 2, , Gross Profit from Financial Operations 1, , Average Profitable Assets (1) 31, , , , , , ,291.2 Net Financial Margin (2) 10.7% 10.1% 11.3% 11.0% 10.5% 11.1% 10.9% Gross Profit from Financial Operations (3) 8.6% 8.2% 8.9% 9.1% 8.5% 9.2% 9.3% (1) Average Interest-Earning Assets of the Period (2) Net Financial Margin / Average Profitable Assets (Annualized) (3) Gross Profit from Financial Operations / Average Profitable Assets (Annualized) At the end of 3Q11, expenses with loan losses allowance totaled R$463.8 million, 18.4% (R$72.1 million) higher than that recorded on 9M10, reflecting the growth of the loan portfolio and also of loans past due over 60 days. From 2Q11 to 3Q11, provision expenses totaled R$182.3 million, increasing 63.9% (R$71.1 million) in twelve months and 27.4% (R$39.2 million) quarter-on-quarter. Evolution of Assets Total assets at the end of September 2011 were R$36,554.1 million, 13.0% (R$4,214.8 million) higher than in September In comparison to December 2010, assets increased 13.8% (R$4,426.4 million), while expanding 5.2% (R$1,799.1 million) from 2Q11 to 3Q11. The year-on-year asset growth of R$2,956.0 million comes from the expansion of the funding portfolio and the increase of R$616.2 million in escrow deposits. In the last twelve months, the growth of credit (in R$3,417.6 million) and interbank transactions (in R$812.9 million) were the main drivers of asset allocation. Banrisul s credit portfolio totaled R$19,654.7 million in September 2011, exceeding by 21.0% the balance as of September 2010, by 15.4% the amount as of December 2010 and by 4.5% the balance as of June In September 2011, commercial credit to Individuals totaled R$8,326.7 million, 15.4% (R$1,108.5 million) over September 2010, increasing 12.5% (R$928.3 million) over December 2010 and 1.4% (R$115.3 million) from 2Q10. Payroll loans consolidated as important tool in the expansion of operations in the last twelve months. Credit to companies totaled R$6,580.2 million at the end of September 2011, increasing 24.2% (R$1,283.8 million) in twelve months, 14.8% (R$848.0 million) year-to-date and 3.4% (R$216.4 million) from 2Q10 to 3Q10. Non-performing loans over 60 days, 2.9% of the loan book, reduced 10 basis points from September 2010 to 2.9% of total loans in September NPL over 90 days was 2.4% in September 2011, below market ratios. Total provisions remain at a level sufficient to cover loans in arrears. Securities totaled R$10,571.2 million at the end of September 2011, amount 5.6% (R$557.1 million) above that of 3Q10. Yearto-date, securities increased 10.4% (R$997.2 million) and rose 6.1% (R$605.2 million) from 2Q11 to 3Q11. This amount includes liquid interbank transactions but excludes total 15

16 liabilities from matched transactions. The lower securities balance year-on-year reflects the Bank s policy of migrating to higher yield assets. Funds raised and under management totaled R$27,505.3 million in September 2011, growing 14.2% (R$3,410.2 million) over September 2010, 9.6% (R$2,414.5 million) year-to-date and 5.4% (R$1,412.6 million) quarter-on-quarter. The growth in the last twelve months came mainly from the expansion of time and demand deposits. Year-to-date, the increase of time deposits and third-party assets under management exceeded the reduction of demand and savings deposits, indicating migration of funding. Similar trend was also observed in the last quarter. At the end of September 2011, shareholders equity totaled R$4,298.1 million, with increases of 14.7% in twelve months, 11.5% year-to-date and 4.4% from 2Q11 to 3Q11, on account of profits accounted net of dividends and interest on capital paid and provisioned. In 9M11, ROE reached 22.8%, and Basel ratio was 15.9%. Highlights R$ Million Sep/11 Jun/11 Mar/11 Dec/10 Sep/10 Total Assets 36, , , , ,339.3 Tot al Credit O perations 19, , , , ,237.1 Securities (1) 10, , , , ,014.1 Funds raised and under management 27, , , , ,095.2 Shareholders' Equity 4, , , , ,746.4 (1) Securities + In terbank Investiments - Matched Transactions The efficiency ratio reached 44.4% in the past twelve months ended in September The consistent reduction in efficiency ratio reflects the capacity of the financial margin, sustained by the growth in revenue from credit, treasury and favored by reduction of financial expenses, to absorb the increase in administrative and operating expenses. Operating cost indicator ended September 2011 at 4.9% for the past twelve months. Asset expansion, leveraged by the growth in credit operations helped to absorb the increase of administrative expenses, reflecting in the reduction of costs in proportion to the assets in twelve months. Guidance Banrisul s strategic guidelines established for the period are grounded on the expansion of loan and funding portfolios, on the consolidation of market share in services, especially through Banricompras Network, on ongoing improvements of customer services, on preserving investment in innovation and reinforcing mechanisms of internal controls and risk mitigation and on employees retention and qualification, based on sound, efficiency oriented principles of sustainability and management. In the short term, the special attention to business continuity and the Bank s commitment to its 2011 guidance has been reflected in the results achieved in the 9M11, in line to expectations from when it was first released and the reason as to why business 16 FINANCIAL STATEMENTS SEPTEMBER 2011

17 and indicators forecasts have been maintained ever since. Credit evolution confirms the expected deceleration in response to measures adopted by the Central Bank of Brazil at the end of December 2010, with a view to maintaining monetary stability. Other assumptions included in the guidance reflect the priority to preserve asset quality and to manage costs. Estimate Banrisul Year 2011 Not Altered CREDIT PORTFOLIO 15% to 20% Commercial Credit - Individuals 12% to 17% Commercial Credit - Companies 16% to 21% Real Estate Loans 18% to 23% Provision Cost / Average Credit Portfolio 3% to 4% Allowance for loan Losses / Average Credit Portfolio 6% to 8% FUNDING 15% to 20% Time Deposits 35% to 40% Return on Average Shareholders' Equity 19% to 23% Efficiency Ratio 44% to 48% Net Financial Margin / Interest-Earning Assets 10% to 11% * No altered in 3Q11 Awards January January March April/2011. April/2011. May/2011. May/2011. June/2011. June/2011. June /2011. Banrisul Brand is featured in world ranking. Banrisul is one of the best reputed companies in Rio Grande do Sul. Banrisul is highlighted in the study Brands of Who Decides. Banrisul s shares presented the best performance. Banrisul, one of the largest companies in the world. Banrisul s shares listed in Bovespa s new index. Banrisul, one of Brazil s most valuable brands. Banrisul among Brazil s most valuable brands. Banrisul is the most remembered brand of Rio Grande do Sul in the bank category. Banrisul receives Government and Society Sustainability Certificate. 17

18 July/2011. July/2011. August/2011. August/2011. August/2011. August/2011. August/2011. Banrisul is one of Brazil s 100 largest companies. Projeto Pescar Banrisul is awarded as Best Educational Practice. Banrisul is recognized as the Sports Best Friend. Bank is featured in national ranking. Banrisul is among the 500 best companies in the country. Banrisul is featured on the socio-environmental area. Banrisul is awarded the Luiz Henrique Roessler Environmental Merit. September/2011. Banrisul featured in the ranking of customer satisfaction. Porto Alegre, November 7, FINANCIAL STATEMENTS SEPTEMBER 2011

19 Management Report WE PRESENT THE MANAGEMENT REPORT AND FINANCIAL STATEMENTS OF BANCO DO ESTADO DO RIO GRANDE DO SUL S.A. IN THE 3 RD QUARTER OF 2011 AND BETWEEN JANUARY AND SEPTEMBER 2011, PREPARED IN ACCORDANCE WITH THE RULES OF THE BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (COMISSÃO DE VALORES MOBILIÁRIOS CVM) AND THE CENTRAL BANK OF BRAZIL. 19

20 20 FINANCIAL STATEMENTS SEPTEMBER 2011

21 Economic Scenario During the first semester and the beginning of the second half of 2011, the international economic scenario was characterized by the deepening of the global financial instability, directly associated with the worsening of fiscal problems in developed economies and the increasing risk of inflation, especially in emerging economies, and uncertainties regarding the recovery of the world s economic activity. The protracted stalemate on raising the debt ceiling as well as the unfavorable prospects for the performance of the economy in the USA led to the downgrading of the world s largest economy rating, with relevant consequences in the deterioration of consumer and business confidence and in the almost stagnation of the economic activity. In Europe, high unemployment rates, high public debt and low economic growth contributed to increasing global risk aversion and the demand for liquid, low risk assets, and promoted, more recently, the recovery of the US Dollar in world markets. The domestic environment, although housed in a highly uncertain international environment, presented a firm economic growth, albeit moderate when compared to the same period last year, driven by household consumption which, in turn, was supported by the stability of the labor market, with historically low unemployment rates and high real wages, as well as by the consistent evolution of credit in Brazil. In combination with high levels of installed capacity utilization, such a situation led to the gap between the demand and supply growth rates, culminating at inflationary pressures aggravated by the boom of commodity prices internationally. Stubbornly such pressures kept market expectations pessimist throughout the year, signaling further deterioration of the inflation picture and lower growth rate, nevertheless being partially attenuated by the appreciation of the Brazilian Real in the same period, largely stemming from excess of liquidity in international markets and from the attractiveness of the local economy. In contrast, the monetary authority has implemented adjustments in monetary policy, raising the Selic rate by 175 basis points from January to July, reaching 12.50% per year, besides other macro prudential measures such as lifting bank reserve requirements and increasing tax on financial operations and capital requirement for banks. However, against the backdrop of increased uncertainty and pessimism about the evolution of the global economy, monetary policy was promptly reversed by starting, in late August, a new setting cycle for the Selic rate, with a drop of 50 points base to the level of 12.00% per year, in order to preserve adequate conditions for the Brazilian economy. As for the State of Rio Grande do Sul, economic activity showed moderate performance from January to September 2011 in comparison to the first nine months of 2010, following the 21

22 dynamics of the rest of the country. This moderate scenario reflected fundamentally the stagnation of industrial activity, despite the positive performance of retail sales supported by solid labor market and the exports of primary products as a result, mainly, of the appreciation of commodities. According to data released by the Federation of Industries of Rio Grande do Sul FIERGS -, the Industrial Performance Index stalled in the first eight months of this year, revealing difficulties to overcome restrictions and resume growth. Among the restrictive factors to the expansion of the industrial sector, exchange valuation stood out, with direct effects on the trade balance of manufactured products and on the domestic demand, as it makes local products less attractive abroad and favors the supply of internal market with imported goods, in combination with the apathy of international economic activity. It is worth mentioning that, despite this scenario, the level of installed capacity utilization remained at high peaks and the variables associated with labor market still showed no significant deterioration. Regarding the agricultural sector, the estimate for the total grain harvest in the State of Rio Grande do Sul for 2010/2011 already surpasses by 13.5% the effective 2009/2010 harvest, the highest growth in the Southern Region of Brazil which, coupled with rising prices, guarantees the performance of the primary sector in the State. According to Conab s (Companhia Nacional de Abastecimento - National Supply Company) September survey, grain production is expected to surpass 28 million tons, driven by productivity increases and suitable climatic conditions. As for the State s trade balance, the result of foreign sales from January to September 2011 recorded significant growth driven mainly on higher prices. In the period, exports totaled USD15 billion, 30.03% higher than that of 9M10. With these figures, Rio Grande do Sul has returned to be listed among the largest Brazilian exporting states, contributing now to 7.89% of Brazil s total exports. On the other hand, imports remained high, supported by favorable exchange rate and the expansion of the internal market, recording, in 9M11, an increase of 18.26%. Thus, the State s trade balance had a surplus of USD3 billion, representing an increase of 95.08% on accumulated numbers in the first nine months of In this scenario, it is worth noting also that the evolution of prices from January to September this year remained dynamic similar to that observed nationally, with major impacts on Food, Housing and Education. Based on IPCA - Extended Consumer Price Index for the Metropolitan Region of Porto Alegre, accumulated inflation in period was 4.68%. 22 FINANCIAL STATEMENTS SEPTEMBER 2011

23 Consolidated Performance Net Income Banrisul s net income totaled R$678 million between January and September 2011, R$166 million or 32.52% above the result recorded in the same period in 2010, due to the growth of credit and treasury revenues and services fees, and lower administrative costs (except personnel expenses). Graph 1: Net Income - R$ Million Shareholders Equity At the end of September 2011, Banrisul s shareholders equity totaled R$4,298 million, growing 14.73% in twelve months as the result of the incorporation of net income net and the deduction of dividend and interest on equity payments and provisions. Return on average shareholders equity in 9M11 reached 22.76% per annum. Graph 2: Shareholders Equity Growth - R$ Million 23

24 Total Assets Total assets amounted to R$36,554 million at the end of September 2011, a 13.03% increase in relation to the R$32,339 million recorded in the same period of 2010, coming from credit expansion leveraged by the growth of the commercial credit to individuals and companies. Graph 3: Total Assets Growth - R$ Million Taxes and Contributions In 9M11, Banrisul collected and provisioned R$582 million in taxes and contributions. The taxes retained and passed through levied directly on financial intermediation and other payments amounted to R$370 million. 24 FINANCIAL STATEMENTS SEPTEMBER 2011

25 Operational Performance Funds Raised and Under Management Funds Raised and Under Management totaled R$27,505 million in September 2011, up 14.15% or R$3,410 million in twelve months. Banrisul has maintained its retail funding policy. The balance of time deposits reached R$13,269 million, a 39.19% or R$3,736 million increase over September 2010, and make up for 48.24% of total funding. Savings deposits reduced 19.43% or R$1,223 million, ending 9M11 with a balance of R$5,072 million, and account for 18.44% of the total funds raised and under management. Demand deposits, which account for 9.29% of total funding, increased 21.20% or R$447 million year-over-year and reached the balance of R$2,556 million. Assets under management, which account for 23.98% of total funding, totaled R$6,595 million at the end of 9M11, increasing R$454 million or 7.4% over September Graph 4: Growth of Funds Raised and Under Management - R$ Million Securities The balance of securities stood at R$10,571 million in September 2011, a year-on-year increase of 5.56% or R$557 million. This balance includes interbank investments net of resale and repurchase agreement liabilities. As confirmed by internal technical studies, Banrisul has a strong financial capacity and intends to hold securities classified as held-to-maturity pursuant to Article 8 of the Central Bank of Brazil Circular Letter no of November 8,

26 Graph 5: Securities Growth* - R$ Million *Net of Matched transactions 26 FINANCIAL STATEMENTS SEPTEMBER 2011

27 Loan Operations In September, 2011, Banrisul s loan portfolio totaled R$19,655 million, 21.05% or R$3,418 million above the R$16,237 million recorded in the same month of Accounting for 70.00% of such growth, the commercial credit portfolio increased from R$12,515 million to R$14,907 million, rising 19.12% or R$2,392 million in twelve months. At the end of September 2011, credit operations of AA to C ratings, representative of normal risk according to Resolution no. 2682/99 of Conselho Monetário Nacional, accounted for 89.02% of the credit portfolio, with a balance of R$17,496 million. Credit operations rated D to G (risk level 1), amounted to R$1,642 million, equivalent to 8.35% of the loan portfolio. Risk level 2, composed solely by operations rated H that require provisions of 100%, represented 2.63% or R$517 million of the total loan portfolio. Graph 6: Loan Operations Growth - R$ Million At the end September 2011, commercial loan operations (non ear-marked credit) to individuals totaled R$8,327 million, accounting for 55.86% of the commercial portfolio and 42.37% of all loan operations. The 15.36% or R$1,108 million year-on-year increase is particularly due to the growth of payroll loans. Own payroll loan portfolio amounted to R$3,717 million in September 2011, 12.25% above the balance recorded in the same month of Acquired payroll loan portfolio amounted to R$2,381 million in September 2011, a year-on-year increase of 16.93%. Commercial loan operations targeted to Companies increased R$1,284 million or 24.24%, totaling R$6,580 million at the end of September 2011, and accounted for 44.14% of the 27

28 commercial credit portfolio and for 33.48% of the loan book. Working capital lines increased 28.23% year-on-year, reaching a balance of R$4,835 million in September Graph 7: Commercial Credit Growth Individuals and Companies - R$ Million The balance of real estate loans reached R$1,611 million in September 2011, an increase of R$393 million or 32.31% in twelve months. In 2011, Banrisul held events in various locations to promote the lines of credit and financing conditions offered by the Bank to real estate companies and brokers, to real estate loans correspondents, to developers and other professionals engaged in real estate business. Since September 2011, and looking to add benefits to the portfolio, the customer who was has a real estate finance at Banrisul has the benefit of opting to include in the loan the amount due as ITBI (tax transfer of immovable property) and other fees, and may also choose for a grace period of up to 3 (three) months for the payment of amortization. At the end of September 2011, rural lending amounted to R$1,584 million, an increase of R$403 million or 34.18% in twelve months. In order to stimulate the productive sector of agribusiness and to expand Banrisul s market share in rural lending, the Bank has attended agricultural fairs, created new products for the sector and provided training to employees. The Bank s participation at the 34 th Expointer, held between August 27 and September 04, 2011, increased the amount of agricultural credit proposals in the amount of R$47 million, an increase of 138% over In their implementation phase and expected to begin operations in the fourth quarter of 2011, programs were created, such as the Banriagro Simplified Credit, for cooperatives and agribusinesses, and the Rice in the Mercantile Exchange, a partnership with Banrisul s Brokerage Company. During this period, 330 branch employees participated in training courses to efficiently and effectively operate the demand for rural credit. 28 FINANCIAL STATEMENTS SEPTEMBER 2011

29 The long-term finance portfolio totaled R$838 million in the end of 9M11, an increase ofr$193 million or 30.00% over the balance recorded in 9M10. ACC and ACE (pre- and post-shipment export financing operations) totaled R$513 million at the end September It is the aim of Banrisul to align public policy with social and economic development to expand the supply of credit for formal and informal businesses. Given this purpose, in July 2011 microcredit s project and risk policy were approved. In August, the launch of Gaucho Microcredit program by the State Government was the highlight, and microcredit operations started at Banrisul. 29

30 Products, Services and Channels Banricompras Banrisul customer s unique product, Banricompras conducted 56 million operations from January to September 2011, totaling R$3,909 million in financial turnover, numbers that are 9.67% and 15.66%, respectively, higher to the same period last year. The strengthening of the Banricompras Network is part of the Bank s business strategy, which included entering into accrediting new merchant stores, providing shop owners and customers various payment options on a single terminal. Banrisul has established agreement to offer the SafetyPay system in Brazil, through operations to be carried out online by the store Amazon.com and settled through Banrisul's Internet Banking. Initially, the launch of the International SafetyPay Banricompras is available only to Banrisul's employees for subsequent use by customers. In July 2011, the Bank and the Verde Administradora de Cartões de Crédito (VerdeCard Credit Card Issuing Company) entered into a partnership that will allow Banricompras network to capture debit and credit transactions other than Banrisul s debit card directly at terminals and POS, providing new business opportunities for both companies. Partnerships with other card brands allow the increase of Banrisul own network, which is becoming a multibrand one. This diversity of payment options offered by Banricompras Network enables business expansion to the Bank and brings convenience, safety and stateof-the-art benefits to its affiliated stores and customers. Graph 8: Banricompras Financial Transactions - R$ Million Transactions - Million Banrisul s Correspondent Banks From January to September 2011, Banrisul had approximately 2,000 correspondent banks, with an average of 5 million transactions per month. At the end of this quarter, 43 million transactions were recorded with a financial turnover of R$ million, an increase of 8.08% over 9M FINANCIAL STATEMENTS SEPTEMBER 2011

31 Virtual Branch Home and Office Banking From January to September 2011, 76 million operations totaling R$65,664 million were carried out through Agência Virtual Banrisul (Banrisul Virtual Branch). In relation to the same period in 2010, the number of transactions grew 4.11% and the financial turnover, 15.91%. Banrifone and Branch Call Center Through Banrifone, customers can obtain account statements and balances, request banking services and carry out banking transactions, all these over the phone. During the first nine months of 2011, Banrifone electronic service had 4 million accesses, of them operator assisted, and presented a financial turnover of R$166 million, information services aside. Over the same period, phone calls with a financial turnover of R$17 million were made to the Branch Call Center, designed to capture calls from individual customers that are made to branches that are part of such service. Credit Cards At the end of September 2011, Banrisul had a base of 403,000 Visa and MasterCard credit cardholders, 42.18% up over the same period in During the same period, credit card customers were responsible for a financial turnover of R$759 million in 10 million transactions, an increase of 39.88% and 34.32%, respectively, over 9M10. In Banrisul s own acquiring network, Banricompras Network, a wide variety of transactions can be carried out: with Banricompras and MasterCard cards, Meal Food, Benefits, Present and Fuel cards, and IPE s (Instituto de Previdência do Estado Social Security Institute of the State of Rio Grande do Sul) Health Care. As a result from the strategy of entering into the acquiring business, Banricompras network has started a multibrand expansion since 2010 and, from March 2011 on, has gained notoriety with the capture of debit and credit cards transactions with the MasterCard brand. Recently, the Bank has also prepared the network to capture credit card transactions with the VerdeCard label. The technological advances offered by the network include modern solutions that meet the needs of commercial trade. As issuer of Visa and MasterCard cards, Banrisul has promoted internal campaigns to increase sales. Beside the BanriClube de Vantagens (Banrisul s reward program), released at the end of 2010, commercial campaigns conducted during 3Q11 ended up with sales of more than 50,000 credit cards. These actions to broaden and improve the card base and has brought in recognition. Recent survey conducted by the consulting company CVA Solutions demonstrated that Banrisul s customers are satisfied with the interest rates charged in the revolving credit facilities and with the outreach of its network in the State. The survey indicated that the Bank is the second best institution according to how customers perceive the cost-benefit perceived of plastic money. 31

32 Insurance, Private Pension and Capitalization The expansion of the Brazilian economy and improved income distribution have brought into the insurance market new customers, especially from the classes C and D. In this scenario, following the rapid growth of the insurance industry, Banrisul has sought to better reposition its products and establish actions and campaigns to increase synergy among customers, point of sale and brand value, which strengthens Banrisul s identity as a provider of insurance solutions. In the third quarter of 2011, the Bank launched three new insurance products: Engineering Risk, Civil Liability and Miscellaneous Equipment Risks. In the same period, the marketing of life and automotive insurance products was encouraged, through campaigns named Auto and Life SuperAção, with the participation of more than 3,000 employees. Electronic Bidding The Electronic Auction is a modern shopping portal on the Internet directed at public companies indirectly controlled by the State Government, municipal governments and other public and private entities. By September 2011, R$608 million in purchases of goods and the hiring of services were carried out, in 34,000 trading sessions of bidding contests. Banrisul, in the same period, while user of the Procurement System, held 298 trading sessions, with a total of R$24 million in purchases of goods and contracting of services, which represented a reduction of R$12 million over the R$36 million initially offered for the purchases, an economy of 33.33%. Public Sector Activities Banrisul continuously strives to strengthen customer service and collaborate with the economic and social development of Rio Grande do Sul. Focused on that mission, it establishes partnerships with the government at the municipal, state and federal levels. In order to reduce operating costs for the municipalities, the Bank has maintained the focus of providing products and services, particularly the fleet management solutions and the management of electronic purchases. During the 9M11, through placing telephone calls and sending illustrative s to local government representatives, the disposition of credit lines to anticipate year-end bonus (the 13 th salary) to municipal civil servants was made available. Among the banking services offered from January to September 2011, a total of R$814 million was raised from municipal taxes and fees upon the collection of more than four million documents. In relation to managing assets from the public sector, marketing actions addressing the social security system related to the civil servants were restructured, in order to expand the attractiveness of Banrisul s products. Also noteworthy is the Bank s participation in FAMURS 31 st General Congress with the theme Agriculture: Sustainable Growth and Economic Relevance. 32 FINANCIAL STATEMENTS SEPTEMBER 2011

33 To service the state public sector, in conjunction with the Court of the State and the State Department of Finance, Banrisul launched the Automated State Debt Security, a new system of transferring information between the Court of Justice of the State of Rio Grande do Sul and Banrisul, which enables the deposit of amounts in all of the Bank s branches, eliminating the need for going in person to the State Debt Security Agency in Porto Alegre. Responsible for payments to policyholders/beneficiaries of Social Security, Banrisul made more than 254,000 payments to new beneficiaries of the Social Security during the first nine months of 2011, consolidating its position as the bank of choice in the state of Rio Grande do Sul in the providing benefits payment on behalf of the Institute. Banrisul s Customer Service Network By the end of September 2011, Banrisul served its customers in 1,272 points, distributed in 440 branches (399 in Rio Grande do Sul, 25 in Santa Catarina, 14 in other Brazilian states, one in New York and one in Grand Cayman), 279 banking service stations and 553 electronic service stations. In Rio Grande do Sul, the Bank is present in 414 municipalities, covering 98.31% of the population and the GDP of the state. Trindade Branch - Florianópolis The focus of expansion of the service network is in the Southern Region of the country. The current expansion project encompasses the opening of 35 branches in places where Banrisul is already present, 21 new branches in cities that lack banking presence and to transform 48 service stations into full small size branches in the State of Rio Grande do Sul, besides the 7 new branches to be opened in the State of Santa Catarina, totaling 111 branches. Eletronic Service Station - Brasília Passo da Areia Branch - Bourbon Shopping - Porto Alegre 33

34 Subsidiaries 99.6% ON 70.5% PNA 13.0% PNB 57.0% Total State of Rio Grande do Sul Market 0.4% ON 29.5% PNA 87.0% PNB 43.0% Total Banco do Estado do Rio Grande do Sul S.A. Banrisul S.A. Adm. Consórcios Banrisul S.A. CVMC Banrisul Armazéns Gerais S.A Banrisul Serviços Ltda. 99.6% Total 98.7% Total 99.5% Total 99.8% Total Banrisul S.A. Administradora de Consórcios The Company ended September 2011 with 24,983 active groups and with a loan portfolio of R$762 million. In the first nine months of 2011, 3,403 letters of credit were granted to customers, equivalent to R$83 million for the purchase of goods. Net income in 9M11 totaled R$11 million. Banrisul S.A. Corretora de Valores Mobiliários e Câmbio By the end of September 2011, the Company brokered R$843 million in the stock market, of which 65.30% through Home Broker. Net income for the first nine months of 2011 totaled R$3 million. Banrisul Armazéns Gerais S.A. Banrisul Armazéns Gerais S.A. accumulated until September 2011 a net income of R$1 million. The company s strategy to expand its participation in the logistics market is to invest in technology, process automation, increase of workforce and search for new market niches. Banrisul Serviços Ltda. Banrisul Serviços Ltda. operates in the southern region of Brazil in the segments of meal and food vouchers, fuel, gifts, private label and benefit cards. On a daily basis, more than 410,000 individual customers and 5,500 companies use its products in more than 50,000 affiliated stores. Regarding the lines sponsored by the Federal Government within the Programa de Alimentação ao Trabalhador (PAT - Workers' Nourishment Program), Refeisul is responsible to make payments under PAT program to about 35% of the total beneficiaries in Rio Grande do Sul. By September 2011, the company's net income was R$15 million. 34 FINANCIAL STATEMENTS SEPTEMBER 2011

35 Corporate Governance Overview Since July 2007 listed on BM&FBovespa SA s Corporate Governance Level 1, Banrisul meets the requirements of this level of listing and also requirements of other levels of corporate governance, in line with best market practices, on behalf of greater transparency, fairness and proper accountability, while enhancing credibility and the interest of investors and customers. Corporate governance practices create incentives and monitoring mechanisms, ensuring that the Banrisul s behavior is market oriented. They also confirm the interest in improving and strengthening relations with its controlling shareholders, the Board of Administration, Fiscal Council, Board of executive Officers, independent auditors, oversight bodies and other related parties and stakeholders. Such practices are important, especially in times of administrative changes such as occurred during the first semester of this year, yet without significant changes in Banrisul s business management, reinforcing its role as a state-controlled, market-oriented publicly held company. It is also worth noting that, in the first quarter of 2011, Deloitte Touche Tohmatsu, independent auditors, was replaced by Ernst & Young Terco Auditores Independentes S/S upon termination of contract. The hiring was done through a bidding process (Public Competition 97/2010), as establishing by the Law No of June 21, 1993 (Public Procurement Law), which sets forth rules forbidding and contracts within the Public Administration area, to which Banrisul has to abide for being a public capital company controlled directly by the State of Rio Grande do Sul. The participation of the Boards of Administration and Fiscal Council in the decision-making structure, the management model focused on profitability and quality of operations and the adoption of corporate governance policies give Banrisul strength and recognition, as reflected in the proper performance within the banking industry. Shareholding Structure The Government of the State of Rio Grande do Sul, as the main shareholder, have control over the election of the Board of Administration and, therefore, over Banrisul s management and operations. However, the Bank s free float is above the minimum of 25% required by Corporate Governance Level 1: 42.8% of its total shares are held by shareholders without any connection with the Institution. Banrisul s shareholding structure is presented in the following graph. 35

36 Investor Relations and Communication Policy A transparent relationship with clients and investors is built through the disclosure of data and information to the market, communication that allows broader and timely knowledge of the Bank s business. Banrisul s Investor Relations website, available in Portuguese and English, provides clear, detailed and timely information for the Bank s shareholders, institutional investors, individuals, market analysts and other interested stakeholders. The significance of these events is reflected on Banrisul s trading volume. At the end of September 2011, the Bank s PNB stock (BRSR6) ranked 94 th among the 100 most-traded stocks on BM&F Bovespa (78 th in twelve months). Banrisul s market value in September 2011, represented by the total number of outstanding shares multiplied by the closing price of its PNB stock, was 52% higher than shareholders equity in the same period. Graph 10: Market Value X Shareholders Equity - R$ Million 36 FINANCIAL STATEMENTS SEPTEMBER 2011

37 The table below shows the geographic distribution of shareholders by number and number of Banrisul s shares held. REGION SHAREHOLDERS % SHARES % BRAZIL 55, % 242,276, % NORTH AMERICA % 57,451, % CENTRAL AMERICA % 1,528, % SOUTH AMERICA (Except Brazil) % 1,162, % EUROPE % 85,992, % AFRICA % 95, % ASIA % 18,354, % OCEANIA % 2,114, % TOTAL 56, % 408,974, % Interest on Equity and Dividends Payout Policy Since early 2008, Banrisul has maintained the policy of paying interest on equity on a quarterly basis and, historically, has remunerated its shareholders by paying interest on capital and dividends above the minimum level required. From January to September 2011, R$221 million net of income taxes were paid/provisioned as interest on own equity and dividends. Graph 11: Pay Out Quarterly Payments - R$ Million 37

38 Internal Controls and Compliance To strengthen the system of internal controls, Banrisul has adopted policies aimed at spreading the culture of internal controls, ensuring compliance with rules, procedures and standards established by law and enforcement agencies. The internal controls policy establishes guidelines that seek to periodically reinforce the alignment of internal controls with the goals related to global business strategies and other institutional policies set by the management. The area in charge of internal control monitors activities in order to ensure compliance with regulations, the use and the effectiveness of controls in the many processes of the institution, to prevent and reduce risks inherent to business. The spread of a controlling culture and the maintenance of an ethical environment are guaranteed by a set of rules, regulations and codes that guide employees in their activities to incorporate the values and ethical principles of the Organization. Money Laundering Prevention - MLP The Bank has established specific prevention processes and systems in order to ensure that its activities are conducted in an environment of adequate controls to prevent risks related to the crime of money laundering. In this context, Banrisul maintains dedicated staff devoted to the execution of tasks focused on the prevention of money laundering, which is responsible for reviewing legislation and procedures and developing training programs for all employees. The Know Your Customer process is continually reviewed and disseminated, emphasizing the importance of timely, qualified customer information gathered at the beginning of each and every business relationship, mitigating the risks of having the Bank s services and products used to legitimize illicit activities. Risk Management The risk management is embedded and continuously monitored in Banrisul s strategic planning. Management is performed on a consolidated basis and is added to the management structures dealing with credit, market, liquidity and operational risk, which contributes to expedite processes, to decision making and to the alignment to the provisions of best practices and standards defined by the Central Bank of Brazil, in accordance with the guidelines of the Basel Committee. 38 FINANCIAL STATEMENTS SEPTEMBER 2011

39 Credit Risk The institutional policy for the management of credit risk at Banrisul aims to identify, measure, monitor and mitigate exposure to credit risk within the loan portfolio; to act towards consolidating a culture of best practices in credit risk management; to enhance ongoing management of credit risk in all types of assets; to ensure adequate levels of risk and avoid losses not covered; to ensure impartial and segregation of function in the process of managing credit risk. In the process of identifying, evaluating and monitoring credit risk, Banrisul adopts Credit Score and Behavior Score models when dealing with Individuals, defining pre-approved credit limits based on risk classifications provided for in statistical models. The analysis of adherence to the model is assessed every six months by the Board of Executive Officers and the Banking Management Committee. For the Companies segment, the Automated Credit Risk Model was established in February 2011, also based on models of Credit and Behavior Scores. At this stage of implementation, the current policy model in use by the Bank, through credit scope and credit grant by the Branches Credit Committees, remains as it is. For the Corporate segment, Banrisul has adopted technical studies performed by the internal area of risk analysis, which evaluates companies from the financial, management, marketing and production perspectives, with periodic review, considering economic scenarios, simulating the economic situation of companies in these environments. As for the credit operations not covered by scoring models and onlendings operations through financial agents, Banrisul assesses the probability of default of counterparties individually, through classification tools designed for the different categories of counterparties. Regularly, the Administration validates the performance of the classification and its predictive power with respect to events of default. According to Resolution no. 2682/99 of the National Monetary Council, financial institutions should classify loans in increasing order of risk, considering aspects in relation to debtors and their guarantors and in relation to the transaction itself. Based on such rule, all Banrisul customers operations have ratings defined which, added to the minimum rating, determine the highest risk to the customer. With regard to the provisions, they are monthly made in accordance with the Resolution, and additional amounts have still being accrued by the Bank since December 2008, in order to cover possible events not captured by the customer rating model. Banrisul s management of credit risk exposure is based on the selective and conservative stance of the Bank, following strategies defined by the senior management and technical areas of the corporation. For all customer segments, analysis of past due, default and credit grant indicators are performed in various clusters and granularities, enabling managing such exposures by product, risk classification, concentration of credit and branch. Also, managerial reports of the loan portfolio of the Bank are regularly reported to senior on management for monitoring of allocated volumes and default rates. 39

40 More information about the structure of operational risk management is available at / Investor Relations / Corporate Governance / Risk Management / Credit Risk Management Structure. Market Risk Market risk arises due to market fluctuations that may cause losses to the institution. These oscillations can occur in the prices of financial assets and liabilities or in determining variables such as, among others, interest rates, exchange rates, price indexes. Banrisul monitors the market risk using statistical methodologies, Value at Risk (VaR) and Sensitivity Tests among them, which seek to simulate and determine, with a degree of reliability, the maximum levels of expected loss over a certain period of time, both in normal market conditions and in stress and volatility scenarios. Market monitoring reports and the daily review of Banrisul s assets and liabilities portfolios, as well as other operational procedures, allow monitoring, preventing and correcting possible imbalances, ensuring the soundness of the institution. Liquidity Risk Liquidity risk relates to the inability to meet cash requirements, i.e. the occurrence of mismatches in financial flows between assets and liabilities and the resulting consequences on the Bank s ability to raise funds when fulfilling its obligations. Banrisul jointly monitors liquidity and market risk by observing cash flow projections and possible changes in its structure resulting from alterations in the macroeconomic scenario, which may affect market funding and allocation. Concerning to the asset side, different scenarios designed for the evolution of credit portfolio and settlement of financial instruments are considered. Moreover, as to the liabilities, the assumptions made include the possibility of early redemptions and difficulties in maintaining the current funding structure. Operational Risk The main responsibilities of the operational risk management group are to identify, assess, monitor, control and mitigate operational risks at Banrisul, including those resulting from outsourced services. They group is composed by the Board of Administration and the Board of Executive Officers, the Committee for the Management of Internal Controls, Corporate Risk Management Unit, the Comptroller, the branches and Head Offices areas, and the internal controls executive. More information about the structure of operational risk management is available at / Investor Relations / Corporate Governance / Risk Management / Operational Risk Management Structure. To facilitate the process of staff qualification, the Bank keeps internal communication instruments for operational risk available on the Corporate Risks Intranet, by means of forums, 40 FINANCIAL STATEMENTS SEPTEMBER 2011

41 newsletters, and media news, and promotes training courses for new employees and to the preparation of new business managers, supervisors and internal auditors. For the monitoring and controlling of operational risk processes, periodic cycles of risk assessment are performed and the results of the analysis and mitigation plans submitted to the approval of the senior management. Additionally, plans are being implemented to improve processes, upon diagnosis prepared by PWC - Associated Consultants. Basel Ratio The Basel Ratio is the relation between the Base Equity (Reference Equity - RE) and weighted risks (Required Reference Equity - RRE), according to current regulations, showing the company's solvency. The minimum required by the National Monetary Council (CMN) is 11%. CMN also determines that the minimum amount of the Reference Equity must be equal to the sum of the parcels calculated for credit, market and operational risks. In the 9M11, Banrisul's Group Basel Ratio was 15.51%, above the minimum requirement. The increase in relation to September 2010 was caused by improvements on the calculation of capital allocation to cover market risk, which reduced such amount from R$329 million to R$196 million, and by the growth of 15% in the RRE. The credit risk parcel varied due to the increase of the loan book and capital allocation (Circular No. 3,515/10 from the Central Bank of Brazil); operational risk parcel increased on account of revenue growth in the same period. In relation to the Economic and Financial Conglomerate, impacts on portions of the RRE remained, which required the increasing the Capital Adequacy Ratio from 15.83% in September 2010 to 15.91% in September 2011, with a potential growth of up to R$ 8,584 million in new loans. 41

42 Technological Modernization Banrisul s investments in hardware, software and maintenance of goods totaled R$141 million from January to September During this period, the Bank has adapted the encryption routines and digital certification, conducted market research, set security policies and fraud combat, has developed new document generator and contributed to the expansion of community access to technology. Regarding encryption and digital certification, the Bank has designed new models of generating cryptographic keys aimed at meeting the requirements of the Safety Program of the card issuers that Banrisul has entered into agreements with. Adjustments were also made in encryption routines that meet the SPB (Brazilian Payments System), adapting it to the new size of keys and hash algorithm of the SPB certificates, in accordance with version 3 of the Security Manual of the RSFN - National Financial System Network. Looking for speed, ease and safety in servicing customers in person at branches, Banrisul made market research on innovative TOTEM (the ATM electronic password emitter) solutions to be used on the branch facility. In addition, market analyses were conducted for the preparation of proposals that will make Banrisul present in social medias, enabling the safe use of a new channel of customer relationship. To ensure security, to prevent and combat fraud in Banricompras Network and in all networks that acquire the brands Banrisul has agreements with, policies were defined, processes and procedures adopted to conform to the safety standards in payment cards. With a view to the certification PCI to Banricompras network, a complete mapping of the network was performed. In the Web POS environment, several improvements were implemented, ensuring high safety standards. In order to facilitate the maintenance of texts in contracts and documents generated from automated systems at Banrisul, the BJP Document Generator system has been developed. With this application, texts are stored in a database from which standard parts can be reused and conditional functions applied to generate the final text. The new application will allow that in the medium term the Bank has its contractual templates and documents centralized, standardized, and managed in a single, more reliable environment, giving greater flexibility and autonomy for end users. In June 2011, while taking part in the initiative of the Digital Inclusion Plan promoted by the State Government, Banrisul donated 300 computers in the 12 th Free Software Forum in Porto Alegre. The computers will be available for projects such as community telecentres. 42 FINANCIAL STATEMENTS SEPTEMBER 2011

43 Marketing During the first nine months of 2011, Banrisul directed its marketing strategies towards market segmentation, in order to expand the potential sale of specific products such as real estate loans, agricultural loans, credit cards, acquiring and insurance. For this, the Bank has changed forms of sales approach, attended events, increased the use of Banricompras card, and narrowed business relationship with business customers. The segmentation policy has been targeted to the development of a portfolio of high-income customers. This audience now has personalized service, sales approach and specific products. Credit cards are already being repositioned at Banrisul. Scheduled to be launched in the fourth quarter of 2011, besides the Gold Card already in used, there is the development of the Platinum Credit Card, whose benefits addressed such niche of customers. Participating in events has created to Banrisul opportunities for effecting business and attracting new customers. The creation of the Mobile Business Branch, which provides the integration of corporative systems, has allowed the hiring of closure of operations, the sale of products and services outside of the environment of a formal branch and fostered contact with customers at the fairs for the settlement of business. This tool will expand the customer base through personalized, differentiated service with a focus on customer loyalty. During the 2011 edition of Expointer (Latin America Largest Agricultural Fair), Banrisul reinforced the Programa Mais Alimento (More Food Program), aimed at the family agribusiness, and increased its agricultural credit grant. Participation in the Fair increased in 138% the number of business that were settled last year. For the real estate sector, Banrisul took part in various Real Estate Fairs, in which real estate developers and builders were present, making available credit to individuals and demonstrating how competitive it is when it comes to real estate financing within the conditions set by the Sistema Financeiro de Habitação (SFH - Housing Finance System) and Sistema Hipotecário (SH - Mortgage System). As an innovative marketing strategy, Banrisul turned in August 2011 its checking account card - Banricompras card - in an International Purchasing Card. Through SafetyPay, a comprehensive, secure online payment system, the customer of the Bank may now acquire products on the Amazon.com website, settling transactions through Banrisul Internet Banking. In order to expand business with the corporate sector, especially small and medium enterprises, Banrisul has improved business relationship and met the credit needs of companies. This market action, along with the productive sectors, enables the development of and the investment capacity of enterprises. Credit grants are evaluated and risk assessed according to customers profile and creditworthiness. The amplitude of Banrisul s business model is focused on participating in new markets and capturing customers, with the strategic advantage on customer service, proximity to the communities and the offering of segmented products and services, in order to meet the needs of customers and with a vision on continuity and sustainability. 43

44 Human Resources Banrisul ended the September 2011 with 9,836 employees and 2,199 trainees. By the end of September 2011, 1,366 training courses were performed, with 8,298 attendants. In these qualification programs, the Bank invested R$10 million, of which R$380,000 were directed to college programs, R$288,000 to postgraduation programs and R$267,000 to language courses. To Banrisul, the professional qualification is essential for improving customer service, a process that is a strategic priority of the institution. By the end of July 2011, 368 agencies were included in the Programa de Qualificação do Atendimento (PQA - Customer Service Qualification Program QAP), where 5,400 employees were qualified. Customer Service Training for 5,282 employees allocated at branches and working at service platforms, back office positions and as tellers was also available, distributed in 172 classes. The courses were held in different regional centers of the Bank and focused aspects related to communication, sales, customers, telephone service and personal presentation. Corporate Responsability Banrisul works to generate and increase income, always renewing the commitment to always act as an agent of sustainable economic development. To ensure that growth in a balanced manner, the Bank promotes activities and programs, supports sport activities and is committed to the best social and environmental practices. Regarding to programs and actions, the Bank encourages volunteering activities among its employees. The partnership built between Banricoop (Banrisul Employees Credit Cooperative) and Banrisul Volunteer Program has started the digital inclusion project, in which volunteer instructors, all employees of Banrisul, teach retired senior citizens who wish to be entered in the digital world. Volunteers are also teach courses of Portuguese, English, computer science and mathematics, and behavioral disciplines such as ethics, adolescence, drug prevention and environmental preservation directed to socially vulnerable youngsters within Projeto Pescar Banrisul (Fishing Project), which was awarded in the second half of 2011 the prize of Best Educational Practices from Fundação Projeto Pescar (Fishing Project Foundation) for its course on Ecological Consciousness of Being. Support for sport activities has always been encouraged by Banrisul. In recognition of these actions, the Bank was honored in August 2011 the Sports Best Friend in the State of Rio 44 FINANCIAL STATEMENTS SEPTEMBER 2011

45 Grande do Sul for its support of the Children in Sport program, in an event in São Paulo. The Ministry of Sport presented the award Businessman Friend of Sport to entrepreneurs who have most contributed to sports projects through the Lei de Incentivo ao Esporte (LIE - Sports Incentive Law). Committed to the social and environmental best practices, Banrisul adds value to its products and services and try and settle for its customers examples of the importance of respecting and preserving the environment. One of its environmental project is Projeto Sementes Banrisul (Banrisul Seed Project), which distributes agroecological horticultural and native trees seeds adapted to the different biogeography landscape of the State. Since its beginning in 2008, over 20 million seeds and seedlings of native trees were delivered to farmers, schools, associations and cooperatives of ecological farmers, in college lectures in universities, in agroecological fairs and events related to environmental rural area. Awards January Banrisul Brand is featured in world ranking The value of the brand Banrisul in 2011 reached R$532 million, up 12.5% compared to last year. The outcome is part of a survey prepared by the British consultancy Brand Finance, which examined the 500 largest financial institutions in several countries. Banrisul s goodwill appears in the 319 th position in the ranking Global Banking 500 by Brand. January Banrisul is one of the best reputed companies in Rio Grande do Sul. The Bank was one of the winners of the Corporate Reputation award given by Tomorrow magazine, which showed Rio Grande do Sul s most prestigious corporations, as the outcome of a study by Trojan Brand Consultancy. Banrisul has reached the Prestige of Corporate Brand level equivalent to points and was presented in all fields covered by the survey: Confidence and Admiration, Innovation Capacity, Quality of Products and Services, Social and Environmental Responsibility and History and Evolution. March Banrisul is highlighted in the study Brands of Who Decides. Banrisul is highlighted in the study Marks of Who Decides, in the 13 th edition of the survey conducted by Jornal do Comércio and the company Qualidata, as one of the most remembered brand in the Bank and Savings Deposits categories. April/2011. Banrisul s shares presented the best performance. Banrisul s class B preferred shares (PNB BRSR6) Banrisul had the best average performance among Brazilian banks, according to a survey made by the consulting firm Economática. The profitability of Banrisul s PNB shares reached 41.2% in the last 12 months. April/2011. Banrisul, one of the largest companies in the world. Banrisul appears in the new list of the world s largest two thousand companies published by Forbes magazine. The Bank, one of 37 Brazilian companies listed in the ranking, appears in the 1,438 th place. The survey was prepared based on criteria that take into account sales, net income, assets and market value. 45

46 May/2011. Banrisul s shares listed in Bovespa s new index. Banrisul s shares were included in the Broad Brazil Index (IBRA), Bovespa s most recent index. As disclosed by Bovespa, the index includes all shares of the listed companies that meet the minimum criteria of liquidity, such as inclusion in a list whose trade index added represent 99% of the total trading and the financial volume recorded, besides participating in no less than 95% of trading sessions in the 12 months prior to the calculation of the indicator. May/2011. Banrisul, one of Brazil s most valuable brands. For the first time, Banrisul is part of the 50 most valuable brands in Brazil ranking and, in the category of Banks, is listed as the 4 th largest Brazilian financial institution in value. In this year s edition, Banrisul brand reached USD344 million. The survey was prepared by the consulting firm BrandAnalytics and the magazine Dinheiro. June/2011. Banrisul among Brazil s most valuable brands. The Bank is among the 25 most valuable brands in Brazil. The ranking was elaborated by Interbrand, an American brand consultancy company. Banrisul s brand value was set at R$501 million. June/2011. Banrisul is the most remembered brand of Rio Grande do Sul in the bank category. The Bank is listed among the most remembered local brands in the category Large Company in Rio Grande do Sul of Top of Mind 2011 survey, published by the newspaper Tomorrow. With 26.4% of citations, the Company also took the lead among banks in the State, and was ranked first in the item Electronic Payment Network, Banricompras especially. Banrisul stood out as an efficient public company that invests in culture and, in the Savings Account and Credit Card categories, with the Banricompras. In the same study, Banrisul Serviços won the category Meal Voucher. June/2011. Banrisul receives Government and Society Sustainability Certificate. The Bank received the Certificate of Sustainability as a function of the 7 th Sustainable Management Research. The survey involved 112 medium and large companies that operate in the southern region of Brazil and are aware of corporate responsibility. July/2011. Banrisul is one of Brazil s 100 largest companies. Banrisul is one of the 100 largest public companies by market value in Brazil, according to ranking published by the Exame magazine in its special edition The Largest and the Best of The study pointed that the Bank s R$6.7 billion market value in 2010 is up 11.5% over the previous year. Within the domestic financial industry, the Bank is prominent among the ten largest banks in of net income and shareholders equity. Among the sector ratios of the financial market, the Bank is listed in top positions in demand deposits and savings deposits, branch network, personal loans, real estate loans and wealth created. July/2011. Projeto Pescar Banrisul is awarded as Best Educational Practice. Projeto Pescar Banrisul (Banrisul Fishing Project) was awarded Best Practice Educational by the Fundação Projeto Pescar (Fishing Project Foundation). Banrisul was chosen unanimously 46 FINANCIAL STATEMENTS SEPTEMBER 2011

47 among the 22 units that are part of the Regional Porto Alegre, the largest of the 11 regional countrywide. The award is granted on account of the course Ecological Consciousness of Being, where students from Projeto Pescar Banrisul create and environmental projects that are subsequently presented in public schools in Southern Porto Alegre. August/2011. Banrisul is recognized as the Sports Best Friend. The Bank won the Sports Best Friend Award in Rio Grande do Sul. The award, sponsored by the Ministry of Sports, recognizes companies that have invested the most in the segment through the Lei de Incentivo ao Esporte (LIE - Sports Incentive Law).. The Bank received the award for developing sports projects for children and teenagers, especially the Children in Sports program, in partnership with Sport Club Internacional and Grêmio Foot-Ball Porto Alegrense, the two most famous soccer teams in the State. August/2011. Bank is featured in national ranking. The Bank was featured in the ranking list Valor 1000, edited by the newspaper Valor Econômico. The Bank occupies the 11 th position among the 100 largest banks in Brazil. Banrisul was also listed among the 20 largest banks in total loans, total deposits, shareholders equity and net income, among other items. August/2011. Banrisul is among the 500 best companies in the country. Banrisul is one of the top 500 companies in Brazil according to the ranking As Melhores (The Best) of Dinheiro, released by the magazine publication IstoÉ Dinheiro from São Paulo. The Bank is in 106 th place in the study, which was compiled from questionnaires completed by the companies themselves. In banking, Banrisul is highlighted in indicators of financial sustainability, social and environmental responsibility and human resources. The institution also appears among the largest state owned companies in the country, in the 12 th position. August/2011. Banrisul is featured on the socio-environmental area. The Bank has earned the merit Outstanding in Government and Society during the 2011 Sustainable Management Forum in Florianópolis, by distinguishing itself in the research Sustainable Management published by the Expressão Yearbook, which was drafted based on the Ethos Indicators and the Balanced Scorecard methodology. August/2011. Banrisul is awarded the Luiz Henrique Roessler Environmental Merit. The Bank received the Luiz Henrique Roessler Environmental Merit Award, granted by the journal Ecology and Environment from Porto Alegre, for its performance in the social and environmental area, on account of its Seeds and Recycling programs. September/2011. Banrisul featured in the ranking of customer satisfaction. The Bank received the 3 rd place in the ranking of standard banks with respect to the level of customer satisfaction, according to the research 2011 Brazil Retail Banking Customer Satisfaction StudySM, released by JD Power of Brazil. 47

48 Acknowledgments To offer the best customer service care is paramount for Banrisul. And the good results from January to September 2011 show that the Bank is on right on track for the target set. To customers, for their incentive to produce more and better, to the staff, for their competence and dedication, and to all who contribute to make Banrisul increasingly sound, the sincere thanks of the Financial Institution representing the gaucho people. The Management 48 FINANCIAL STATEMENTS SEPTEMBER 2011

49 Financial Statements 49

50 50 FINANCIAL STATEMENTS SEPTEMBER 2011

51 Balance Sheet September 30, 2011 and 2010 (In Thousands of Reais) Banrisul Banrisul Consolidated ASSETS CURRENT... 19,328,346 17,900,459 19,412,830 17,979,713 CASH , , , ,370 INTERBANK INVESTMENTS (Note 04)... 3,037,770 3,804,581 3,056,998 3,822,569 Money Market Investments... 2,920,180 3,681,978 2,939,408 3,699,966 Interbank Deposits , , , ,603 SECURITIES AND DERIVATIVES (Note 05)... 3,315,445 3,463,850 3,325,966 3,467,794 Own Portfolio... 2,412,813 1,341,690 2,423,328 1,345,629 Linked to Repurchase Commitments ,632 2,099, ,632 2,099,078 Derivatives ,082-23,082 Privatization Certificates INTERBANK ACCOUNTS... 2,767,257 2,114,289 2,767,257 2,114,289 Payments and Receipts Pending Settlement , , , ,024 Restricted Deposits (Note 06) Central Bank of Brazil... 2,524,256 1,881,085 2,524,256 1,881,085 Agreements... 3,304-3,304 - Correspondents... 31,438 26,180 31,438 26,180 INTERBRANCH ACCOUNTS... 56,247 50,429 56,247 50,429 Third-party Funds in transit... 5,616 1,900 5,616 1,900 Internal Transfers of Funds... 50,631 48,529 50,631 48,529 LENDING OPERATIONS (Notes 07)... 8,512,485 6,967,177 8,512,485 6,967,177 Lending Operations Public Sector... 28,042 41,252 28,042 41,252 Private Sector... 8,939,667 7,345,034 8,939,667 7,345,034 Allowance for Loan Losses... (455,224) (419,109) (455,224) (419,109) LEASE OPERATIONS (Note 07)... 37,256 37,018 37,256 37,018 Lease Receivables Public Sector Private Sector... 38,850 38,770 38,850 38,770 Allowance for Doubtful Lease Receivables... (2,450) (2,460) (2,450) (2,460) OTHER RECEIVABLES (Note 08)... 1,095,546 1,049,599 1,149,970 1,106,648 Foreign Exchange Portfolio , , , ,752 Income Receivable... 40,140 33,232 37,643 32,233 Trading Accounts ,474 3,440 Specific Credits Other , , , ,167 Allowance for Losses on Other Receivables... (16,932) (12,457) (18,804) (12,960) OTHER ASSETS... 25,289 17,182 25,564 17,419 Temporary Investiments Other Assets... 2,041 1,801 2,181 1,943 Prepaid Expenses... 23,248 15,149 23,383 15,244 51

52 Banrisul Banrisul Consolidated ASSETS (cont d) LONG-TERM ASSETS... 16,821,570 13,978,819 16,843,227 13,992,928 SECURITIES AND DERIVATIVES (Note 05)... 5,816,778 5,006,651 5,822,246 5,009,598 Own Portfolio... 4,304,004 3,970,901 4,304,004 3,970,901 Linked to Repurchase Commitments , , , ,544 Derivatives , ,558 Linked to Central Bank of Brazil , , , ,581 Linked to Guarantees... 67,777 69,067 73,245 72,014 INTERBANK ACCOUNTS , , , ,813 Restricted Deposits (Note 06) National Housing System , , , ,813 LENDING OPERATIONS (Note 07)... 9,311,869 7,632,863 9,311,869 7,632,863 Lending Operations Public Sector... 90,808 85,593 90,808 85,593 Private Sector... 9,999,643 8,211,831 9,999,643 8,211,831 Allowance for Loan Losses... (778,582) (664,561) (778,582) (664,561) LEASING OPERATIONS (Note 07)... 37,721 38,633 37,721 38,633 Lease Receivables Public Sector... 2,277 2,229 2,277 2,229 Private Sector... 41,599 41,478 41,599 41,478 Allowance for Doubtful Lease Receivables... (6,155) (5,074) (6,155) (5,074) OTHER RECEIVABLES (Note 08) , ,750 1,014, ,912 Foreing Exchange Portfolio... 27,156 22,764 27,156 22,764 Other... 1,019, ,059 1,035, ,221 Allowance for Losses on Other Receivables... (47,643) (89,073) (47,643) (89,073) OTHER ASSETS... 10,687 9,109 10,687 9,109 Other Assets... 22,909 20,142 22,909 20,142 Allowance for Valuation... (12,738) (11,936) (12,738) (11,936) Prepaid Expenses PERMANENT ASSETS , , , ,707 INVESTIMENTS , ,944 7,660 7,759 Investments in Domestic Subsidiaries (Note 02 (c)) , , Other Investiments... 11,599 11,888 12,926 13,214 Allowance for Losses... (4,793) (4,983) (5,266) (5,455) PROPERTY AND EQUIPMENT IN USE (Note 09 (a)) , , , ,349 Real Estate , , , ,330 Other , , , ,507 Accumulated Depreciation... (454,821) (418,201) (463,723) (426,488) INTANGIBLE (Note 09 (b)) , , , ,599 Intangible Assets , , , ,704 Accumulated Amortization... (242,247) (174,105) (243,170) (174,105) TOTAL ASSETS... 36,788,434 32,547,918 36,554,101 32,339, FINANCIAL STATEMENTS SEPTEMBER 2011

53 Banrisul Banrisul Consolidated LIABILITIES AND SHAREHOLDERS EQUITY CURRENT... 24,083,994 24,053,677 23,847,574 23,939,721 DEPOSITS (Note 10)... 14,277,663 14,735,857 14,011,030 14,603,711 Demand Deposits... 2,558,461 2,114,254 2,555,954 2,108,912 Saving Deposits... 5,072,399 6,295,708 5,072,399 6,295,708 Interbank Deposits... 11,516 14,652 11,516 14,652 Time Deposits... 6,634,396 6,309,382 6,370,270 6,182,578 Other Deposits , ,861 MONEY MARKET FUNDING (Note 10)... 1,702,516 2,350,621 1,634,047 2,285,898 Own Portfolio... 1,702,516 2,350,621 1,634,047 2,285,898 INTERBANK ACCOUNTS , , , ,506 Receipt and Payment Pending Settlement , , , ,107 Correspondents INTERBRANCH ACCOUNT , , , ,541 Third-party Funds in Transit , , , ,074 Internal Transfers of Funds BORROWINGS (Note 11) , , , ,272 Foreign Borrowings , , , ,272 DOMESTIC ONLENDINGS - OFFICIAL INSTITUTIONS (Note 12) , , , ,944 National Treasury... 77,980 58,510 77,980 58,510 National Economic and Social Development Bank (BNDES) , , , ,793 Federal Savings and Loan Bank (CEF)... 9,342 4,951 9,342 4,951 National Equipment Financing Authority (FINAME) , , , ,690 FOREING ONLENDINGS (Note 12)... 1,684 42,222 1,684 42,222 Foreign Onlendings... 1,684 42,222 1,684 42,222 DERIVATIVES (Note 05 (d)) ,985-19,985 Derivatives ,985-19,985 OTHER PAYABLES (Note 13)... 6,431,468 5,575,729 6,530,150 5,658,642 Collected Taxes and Other , , , ,978 Foreign Exchanges Portfolio... 36,149 42,468 36,149 42,468 Social and Statutory ,804 54, ,863 55,655 Tax and Social Security , , , ,851 Trading Account and Intermediation ,163 3,089 Financial and Development Funds... 5,011,739 4,395,584 5,011,739 4,395,584 Other , , , ,017 53

54 Banrisul Banrisul Consolidated LIABILITIES AND SHAREHOLDERS EQUITY (cont d) LONG-TERM LIABILITIES... 8,406,295 4,747,857 8,406,800 4,651,484 DEPOSITS (Note 10)... 6,899,086 3,447,243 6,899,086 3,350,387 Interbank Deposits... 6,899,086 3,447,243 6,899,086 3,350,387 INTERBANK ACCOUNTS (Note 11)... 3,976 3,223 3,976 3,223 Interbank Onlendings... 3,976 3,223 3,976 3,223 BORROWINGS... 11,505-11,505 - Foreign Borrowings... 11,505-11,505 - DOMESTIC ONLENDINGS - OFFICIAL INSTITUTIONS (Note 12) , , , ,678 National Treasury... 9,094 10,807 9,094 10,807 National Economic and Social Development Bank (BNDES) , , , ,739 Federal Savings and Loan Bank (CEF)... 43,674 32,833 43,674 32,833 National Equipment Financing Authority (FINAME) , , , ,299 FOREING ONLENDINGS (Note 12)... 32,042 2,540 32,042 2,540 Foreign Onlendings... 32,042 2,540 32,042 2,540 DERIVATIVES (Note 5 (d)) ,520-36,520 Derivatives ,520-36,520 OTHER PAYABLES (Note 13) , , , ,136 Tax and Social Security , , , ,981 Other , , , ,155 MINORITY INTEREST ,582 1,759 SHAREHOLDERS' EQUITY (Note 20)... 4,298,145 3,746,384 4,298,145 3,746,384 Capital... 3,200,000 2,900,000 3,200,000 2,900,000 Capital Reserves... 4,512 4,511 4,512 4,511 Profit Reserves , , , ,914 Assets valuation adjustment (Note 05 (b))... (8,055) (4,870) (8,055) (4,870) Accrued Profits , , , ,829 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... 36,788,434 32,547,918 36,554,101 32,339, FINANCIAL STATEMENTS SEPTEMBER 2011

55 Statement of Income September 30, 2011 and 2010 (In Thousands of Reais) Banrisul Banrisul Consolidated FINANCIAL INCOME... 4,392,626 3,524,970 4,405,258 3,531,439 Loan Operations... 3,157,797 2,540,312 3,157,797 2,540,312 Lease Operations... 11,660 11,290 11,660 11,290 Securities , , , ,876 Foreign Exchange ,743 46, ,743 46,718 Compulsory Investments , , , ,243 FINANCIAL EXPENSES... 2,424,136 1,807,681 2,408,038 1,795,226 Funding Operations... 1,348,577 1,034,024 1,332,210 1,021,405 Borrowings, Assignments and Onlendings , , , ,966 Derivatives Allowance for Loan Losses (Note 07 (d)) , , , ,739 GROSS PROFIT FROM FINANCIAL OPERATIONS... 1,968,490 1,717,289 1,997,220 1,736,213 OTHER OPERATING INCOME (EXPENSES)... (938,685) (943,710) (950,385) (950,209) Income from Services Rendered (Note 15)... 80,895 74, , ,505 Bank Fees Income (Note 16) , , , ,674 Equity in Subsidiaries (Note 02 (c))... 29,136 21, Personnel Expenses... (794,802) (682,229) (798,522) (687,531) Other Administratives Expenses (Note 17)... (523,766) (569,814) (533,928) (577,884) Tax Expenses... (165,313) (145,177) (171,259) (150,324) Other Operating Income (Note 18) , , , ,774 Other Operating Expenses (Note 19)... (160,174) (129,341) (163,856) (130,423) INCOME FROM OPERATIONS... 1,029, ,579 1,046, ,004 INCOME BEFORE TAXES ON INCOME AND EMPLOYEE PROFIT SHARING... 1,029, ,579 1,046, ,004 INCOME TAX AND SOCIAL CONTRIBUTION (Note 22 (a)) (311,555) (228,695) (328,478) (240,994) EMPLOYEE PROFIT SHARING... (40,569) (33,500) (40,569) (33,500) MINORITY INTEREST (107) (126) NET INCOME , , , ,384 Number of Outstanding Shares (Thousands) , , Earning per Thousand Shares (R$)... 1,657,03 1,250,

56 Cash Flow September 30, 2011 and 2010 (In Thousands of Reais) Banrisul Banrisul Consolidated Adjustes to Net Income... 1,242,135 1,014,175 1,268,761 1,038,350 Net Income , , , ,384 Adjustment to Net Income: Depreciation and Amortization... 82,970 81,031 83,408 81,572 Equity in Subsidiaries... (29,136) (21,774) - - Dividends Received From Subsidiaires... 5, Provision for Loan Losses , , , ,739 Reserve for Securitization Losses... (1,323) (3,167) (1,323) (3,167) Reserve for Contingencies... 93,952 79,595 96,812 80,935 Deferred Income Tax and Social Contribution... (51,172) (24,490) (51,652) (24,113) Changes in Assets and Liabilities... (254,638) (2,310,119) (280,234) (2,330,544) Valuation adjustment to Equity... (2,606) 977 (2,606) 977 Increase (Decrease) in Interbank Deposits... 6,824 12,119 6,824 12,119 (Increase) Decrease in Securities... (621,793) (1,060,575) (622,466) (1,060,450) Increase (Decrease) in Derivatives ,112-1,112 (Increase) Decrease in Interbank and Interbranch Accounts... 56,118 (479,385) 56,118 (479,385) (Increase) Decrease in Lending Operations... (2,790,253) (3,110,311) (2,790,253) (3,110,311) (Increase) Decrease in Lease Operations... (2,951) 12,167 (2,951) 12,167 (Increase) Decrease in Other Receivables... (365,885) (211,477) (375,806) (221,451) (Increase) Decrease in Other Assets... (6,407) 19,329 (6,379) 19,329 Increase (Decrease) in Deposits... 1,886,968 1,624,681 1,857,111 1,584,353 Increase (Decrease) in Money Market Funding , , , ,401 Increase (Decrease) in Borrowing , , , ,199 Increase (Decrease) in Other Liabilities , , , ,396 NET CASH USED IN OPERATING ACTIVITIES ,497 (1,295,944) 988,527 (1,292,194) CASH FLOW PROVIDED BY INVESTING ACTIVITIES Restatement of Assets in Subsidiaries Disposal of Investiments Disposal of Property and Equipment in Use Acquisition of Investiments... (80) (16) - (1,660) Acquisition of Property and Equipment in Use... (26,314) (26,042) (26,442) (29,391) Acquisition of Intangible Assets... (7,280) (60,340) (7,280) (61,052) NET CASH USED IN INVESTMENT ACTIVITIES... (33,548) (86,237) (33,597) (91,994) CASH FLOW FROM FINANCING ACTIVITIES Interest on Capital Paid... (172,574) (152,620) (172,574) (152,620) Change in Minority Interest (97) 104 NET CASH USED IN FINANCING ACTIVITIES... (172,574) (152,620) (172,671) (152,516) NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS ,375 (1,534,801) 782,259 (1,536,704) Cash and Cash Equivalents , , , ,220 Interbank Investments (Note 03(n))... 2,235,788 5,222,087 2,254,128 5,241,952 CASH AND CASH EQUIVALENT AT THE BEGINNING OF THE PERIOD... 2,639,069 5,633,245 2,657,449 5,653,172 Cash , , , ,370 Interbank Investments (Note 03(n))... 2,939,393 3,702,110 2,958,621 3,720,098 CASH AND CASH EQUIVALENT AT THE END OF THE PERIOD... 3,420,444 4,098,444 3,439,708 4,116, FINANCIAL STATEMENTS SEPTEMBER 2011

57 Statement of Value Added September 30, 2011 and 2010 (In Thousands of Reais) Banrisul Banrisul Consolidated INCOME... 4,612,419 3,696,039 4,663,522 3,737,224 Financial Income... 4,392,635 3,526,558 4,407,049 3,533,010 Services Rendered and Bank Fees Income , , , ,179 Allowance for loan losses... (463,566) (391,596) (463,835) (391,739) Other , , , ,774 FINANCIAL INTERMEDIATION EXPENSES (b)... 1,960,570 1,417,650 1,944,203 1,405,031 INPUTS ACQUIRED FROM THIRD PARTIES (c) , , , ,821 Materials, Energy and other , , , ,478 Third-party Services ,007 95, ,293 97,316 Assets Value Recovery (Loss) , GROSS VALUE ADDED (d=a-b-c)... 2,083,531 1,697,367 2,138,896 1,741,372 DEPRECIATION AND AMORTIZATION (e)... 82,970 81,031 83,408 81,572 NET VALUE ADDED PRODUCED BY THE BANK (f=d-e)... 2,000,561 1,616,336 2,055,488 1,659,800 VALUE ADDED RECEIVED IN TRANSFER (g)... 29,136 21, Equity in Subsidiaries... 29,136 21, VALUE ADDED FOR DISTRIBUTION (h=f+g)... 2,029,697 1,638,110 2,055,488 1,659,800 DISTRIBUTION OF VALUE ADDED... 2,029,697 1,638,110 2,055,488 1,659,800 Personnel , , , ,494 Salary , , , ,107 Benefits , , , ,573 F.G.T.S ,440 36,470 43,824 36,814 Tax Fees and contributions , , , ,855 Federal , , , ,891 State Municipality... 26,896 24,873 28,801 26,623 Third-party capital compensation... 39,777 37,125 38,872 35,941 Rentals... 39,777 37,125 38,872 35,941 Shareholders' equity compensation , , , ,510 Interest on Capital , , , ,620 Dividends... 59,596 20,159 59,596 20,159 Retained Earnings , , , ,605 Minority interest

58 Statement of Changes in Shareholders Equity September 30, 2011 and 2010 (In Thousands of Reais) Capital Reserves Profit Reserves Adjustment of Capital Member ships Assets l Certificates Investments For For Valuation Reatined in Stock in Subsidiary Grants Legal Estatutory Expansion Adjustment Earnings TOTAL Balance as of January 01, ,600,000 1,660 4, , , ,738 (5,847) - 3,408,462 Capital Increase (Note 20 (a)) , (72,262) (227,738) Adjustment of Memberships Certificates in Subsidiary - (1,660) (1,660) Adjustments for Evaluation Sheet (Note 05(b)) Allocation of Net Income (Note 20 (b) Net Income , ,384 Recognition of Reserves ,250 76,250 92,276 - (183,776) - Interest on Capital (152,620) (152,620) Dividends Accrued (20,159) (20,159) Balance as of September 30, ,900,000-4, , ,019 92,276 (4,870) 154,829 3,746,384 Balance as of January 01, ,900,000-4, , , ,666 (5,449) - 3,855,239 Capital Increase (Note 20 (a)) , (74,334) (225,666) Adjustment of Memberships Certificates in Subsidiary Adjustments for Evaluation Sheet (Note 05(b)) (2,606) - (2,606) Net Income , ,681 Allocation of Net Income (Note 20 (b) Recognition of Reserves , , ,076 - (264,625) - Interest on Capital (172,574) (172,574) Dividends Accrued (59,596) (59,596) Balance as of September 30, ,200, , , , ,076 (8,055) 180,886 4,298, FINANCIAL STATEMENTS SEPTEMBER 2011

59 Notes to the Financial Statements 59

60 60 FINANCIAL STATEMENTS SEPTEMBER 2011

61 Notes to the Financial Statements as of September 30, 2011 and 2010 Amounts expressed in thousands of Reais (unless otherwise indicated) and presented as follows: NOTE 1 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, lease 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 agent for 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 applicable to financial institutions, and with 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) Banrisul s individual financial statements include operations conducted in Brazil as well as the incorporation of its foreign branches (New York and Grand Cayman). Assets, liabilities, income and expenses reported by foreign branches, before consolidation eliminations, are summarized as follows: ASSETS Lending Operations , ,884 Operations in Brazil... 86,728 78,086 Other Lending Operations... 67,044 62,798 Other Assets... 46,852 40,392 Total Assets , ,276 LIABILITIES Deposits... 67,776 66,760 Operations in Brazil... 29,461 17,136 Other Deposits... 38,315 49,624 Other Liabilities... 4, Shareholders' Equity , ,887 Total Liabilities and Shareholders' Equity , ,276 STATEMENT OF INCOME Financial Intermediation Income... 5,228 4,448 Financial Intermediation Expenses... (914) (1,072) Other Expenses, Net... (1,551) (1,562) Net Income... 2,763 1,814 61

62 The effects of the exchange variation over operations in foreign branches are distributed in the statement of income according to the nature of corresponding assets and liabilities. (c) The consolidated financial statements include the accounts of Banrisul, its foreign branches and subsidiaries whose balance of investments, as of September 30, 2011, amounted to R$349,153 (2010 R$311,039), and generated equity gains in subsidiaries of R$29,136 for the period (2010 R$21,774), and are presented as follows: MAIN INFORMATION ON INVESTMENTS IN SUBSIDIARIES: 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. Common Shares ,000 89, Preferred Shares , Shares ,780 - Adjusted Ownership Interest (%)... 99,498 98,957 99,683 99,785 - Capital... 24,700 58, ,000 77,640 - Shareholders Equity... 26,176 73, , ,568 - Net Income... 1,342 3,289 10,656 14,928 - Net Amounts Eliminated on Consolidation (Note 25): Assets (Liabilities). As of September 30, (14) (67,598) (133,344) (139,492) (340,448). As of September 30, (63,855) (127,611) (107,188) (298,507) Income (Expenses).... As of September 30, (1,089) (3,726) (8,351) 2,205 (10,961). As of September 30, (1,087) (2,546) (6,542) 494 (9,681) Book Value of the Investment. As of September 30, ,045 73, , , ,153. As of September 30, ,636 66, ,937 90, ,039 Equity in Subsidiaries. As of September 30, ,326 3,285 10,624 13,901 29,136. As of September 30, ,709 8,464 5,931 21,774 In the preparation of the consolidated financial statements, interests held among consolidated companies were eliminated, as well as intercompany balance sheet and profit and loss accounts. The portions of income for the half year and net equity referring to noncontrolling interests are shown separately in the financial statements. (d) Finance Lease 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 Lease Operations in the Statement of Income. NOTE 03 Significant Accounting Practices (a) Results of operations Income and expenses are recorded on the accrual basis. (b) Interbank Investments These 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 Circular no. 3068, issued by the Central Bank of Brazil on November 8, 2001, and supplementary regulation, these are classified and valued in three specific categories, in conformity with the following accounting criteria: 62 FINANCIAL STATEMENTS SEPTEMBER 2011

63 i) Trading Securities these include securities acquired for purposes of being actively and frequently traded, measured at fair value, with related gains or losses being recognized in the statement of income. ii) Available-for-Sale Securities these include securities used as part of the strategy to manage risk of changes in interest rates and 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 statement 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 Valuation Adjustments to Equity until they are realized through sale. Gains and losses, when realized, are recorded in the statement of income on the trading date, matched with a specific shareholders equity account, net of taxes, where applicable. iii) Held-to-Maturity Securities these include securities for which Management has the intention and financial capacity to hold to maturity. These securities are stated at cost plus income earned on a pro rata temporis basis. Financial capacity is defined in cash flow projections, disregarding any possible sale of these securities. Derivatives Derivatives acquired together with other investment operations are stated at fair value amounts. income earned and expenses incurred are recorded on the accrual basis, matched with a P&L account. (d) Loans, Lease Transactions and Other Credit-Like Receivables All loans and lease transactions 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 no. 2682/ 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. Loans and lease transactions are recorded at present value, calculated on a daily pro-rata basis, based on the agreed index and interest rate, and are adjusted to the 60 th day past-due. Thereafter, revenue is recognized only when the operations are actually received. The risk of renegotiated asset operations is classified in accordance with the criteria established by National Monetary Council (CMN) Resolution no. 2682/99, i.e. the rating assigned before the renegotiation is maintained and renegotiated loans previously writtenoff 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 under Visa and MasterCard banners. These amounts are accounted for as non credit-like Notes and Receivables, and installment payment transactions where Banrisul is the issuer and the outstanding balance of transactions after minimum payment of the bill is made (Revolving credit) are reclassified as Loans. (f) Allowance for loan losses, for doubtful lease receivables and for losses on other receivables This is recorded in an amount considered sufficient to cover possible considering the risk level classification of the customer based on periodic assessment of credit quality, and not only on the minimum percentages required by the National Monetary Council (CMN) Resolution no. 2682/99 when a default event occurs. 63

64 As of September 30, 2011, the total amount related to the allowance for loan losses, allowance for doubtful lease receivables and losses on other receivables, as stated in Note 07, exceeds the minimum amount required if only the rating of transactions based on the number of past due days is considered as set forth by National Monetary Resolution no. 2682/99. This procedure has been adopted by Management since its publication to cover possible events not captured by the credit-scoring model. (g) Permanent Assets Permanent assets are stated at acquisition cost, considering the following aspects: Investments in subsidiaries are accounted for under the equity method, based on the financial statements prepared in conformity with the accounting practices adopted by the parent company, i.e. the Brazilian accounting practices applicable to financial institutions. Other investments are stated at cost and adjusted for allowances for permanent losses, when applicable; Depreciation of property and equipment in use under the straight-line method is based on the expected economic useful lives of assets considering the minimum rates set annually by the Central Bank of Brazil, and disclosed in Note 09; Intangible Assets consist, basically, of investments whose benefits will occur in the future. This group of accounts is represented by bank services contracts and software acquisition. Amortization is calculated under the straight line method at the rates stated in Note 09; and Annually, Banrisul reviews intangible assets for impairment losses. When identified, losses are charged to income. (h) Assets and Liabilities in Foreign Currency The assets and liabilities of foreign branches, as well as other assets and liabilities arising from foreign currency transactions carried out by Banrisul and its subsidiaries were translated at the exchange rate prevailing at the balance sheet date. (i) Deposits, Money Market Funding, Borrowings and Onlendings and Financial and Development Fund These are stated at liability amounts plus charges incurred through the balance sheet date, recognized on a pro rata die basis. As prescribed by Laws No /04 and No /06, issued by the Rio Grande do Sul State Government, up to 85% of the escrow deposits made by third parties at Banrisul should be, if so requested, made available to the state of Rio Grande do Sul, and the remaining balance is retained at Banrisul for the creation of a fund. Escrow deposits transferred to the Rio Grande do Sul Government are controlled in a memorandum account and the retained portion is classified as Other Payables, as described in Note 21(a). Expenses on charges on the remaining balance are recorded under Expenses with Borrowings, Assignments and Onlendings. (j) Contingent Assets and Liabilities and Tax, Labor and Civil Risks Contingent assets, contingent liabilities, and legal obligations are recognized, measured and disclosed in accordance with the criteria set forth by Resolution no. 3823/09 and Technical Pronouncement CPC 25, issued by the Brazilian FASB (CPC), recorded based on the legal counsel s opinion, using models and criteria which permit obtaining the most adequate measurement, despite the uncertainty about their period and the final outcome amount. The criteria used according to the nature of the contingency are as follows: i) Contingent Assets Not recognized in the financial statements, except when there is evidence of likely realization, and to which no further appeal can be made. ii) Contingent Liabilities Recognized in the financial statements when the risk of losing a lawsuit or administrative claim is probable, based on the opinion of management and of legal 64 FINANCIAL STATEMENTS SEPTEMBER 2011

65 advisors, with a probable outflow of funds for the settlement of liabilities and when the amounts involved are measurable reliably, as follows: Reserve for Labor Contingencies Recognized upon court notification of judicial discussion involving Banrisul, the risk of loss of which is deemed as probable. Amounts are determined according to disbursement estimates by Management, timely revised based on information received from our legal counsels, adjusted based on the amount of the deposit related to the execution, when required. Reserve for Civil Risks Recognized upon court notice, and monthly adjusted based on the amount of compensation sought, on the evidence presented, and on 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, for the risk of loss on the lawsuit. Reserve for Tax and Social Security Contingencies This refers basically to taxes whose lawfulness or constitutionality is being challenged at administrative or judicial levels and whose likelihood of loss is or has been in previous phases deemed as probable, and is recognized at the full amount under dispute. For lawsuits with respective escrow deposits, amounts are not updated except when Banrisul is authorized to withdraw the deposits on account of a favorable outcome of the lawsuit. Contingent liabilities assessed as possible losses are reported in the financial statements; those liabilities that cannot be measured reliably and are assessed as remote losses are neither accrued nor disclosed. (l) Other Current and Noncurrent Assets and Liabilities These are stated at realizable or settlement values, including earnings and charges incurred to the balance sheet date, calculated on a daily pro rata basis, and, where applicable, the effect of adjustments to bring the asset cost to realizable or fair value. Amounts receivable and payable within twelve months are classified as current assets and liabilities, respectively. (m) Income and social contribution taxes Social contribution tax (CSLL) is calculated at a rate of 15% (9% for non financial companies) and corporate income tax (IRPJ) is calculated at 15% (plus a 10% surtax pursuant to legislation) on taxable profit for the period, adjusted for permanent differences. Deferred income and social contribution taxes were calculated based on the rates in force on balance sheet date over the temporary differences and recorded under Other Receivables, matched with Net Income for the Period. (n) Post-Employment Benefits Banrisul offers its employees defined benefit and variable contribution plans that have been valued in compliance with specific legislation. As required by Brazilian Accounting Standard Procedures (NPC) 26, issued by the Brazilian Institute of Independent Auditors (Ibracon), and based on an appraisal report issued by an independent actuary, Banrisul reviews the actuarial position of the plan annually, as discussed in Note 23. (o) Cash and Cash Equivalents For purposes of the statements of cash flows (as defined in Resolution - CMN 3604/08), cash and cash equivalents correspond to the balances of cash and readily convertible, highly liquid financial investments, or with original maturity not exceeding ninety days. 65

66 NOTE 04 Interbank Investments Banrisul Banrisul Consolidated Money Market Investments... 2,920,180 3,681,978 2,939,408 3,699,966 Pending Setlement resales - Own Portfolio... Treasury Bills - LFT... 2,570,180 3,601,979 2,570,180 3,601,979 National Treasury Bills- LTN ,000 50, ,000 50,000 National Treasury Notes - NTN ,999-29,999 Other ,228 17,988 Interbank Deposits , , , ,603 Interbank Deposits (*) , , , ,005 Foreign Currency Investments... 3,598 3,598 Total... 3,037,770 3,804,581 3,056,998 3,822,569 (*) On September 30, 2011, out of the amount of R$117,590 in Interbank Deposits, R$98,377 have maturities of more than ninety days from the date of application. NOTE 05 Securities and Derivatives Breakdown of the portfolio of Securities and Derivatives: Banrisul Banrisul Consolidated Trading Securities... 2,251,663 2,017,053 2,253,636 2,018,816 Available-for-sale Securities... 1,764,451 1,666,709 1,772,999 1,668,890 Held-to-Maturity Securities... 5,116,109 4,627,099 5,121,577 4,630,046 Derivatives , ,640 Total... 9,132,223 8,470,501 9,148,212 8,477,392 Current Assets... 3,315,445 3,463,850 3,325,966 3,467,794 Noncurrent Assets... 5,816,778 5,006,651 5,822,246 5,009,598 The fair value presented in the chart below was assessed as follows: actively traded Treasury Bills are determined based on prices published by the ANBIMA; equity shares of publiclyheld companies are based on the average last day trade; investment fund shares are daily updated by the respective share price informed by the fund administrator; and for securities where no prices are available (mainly Salary Variation Compensation Fund - CVS), Banrisul calculates their fair value based on the figure derived from adopting an internal pricing method. (a) Trading Securities Breakdown of Trading Securities per Type, at Market Value: Banrisul Banrisul Consolidated Tresury Bills - LFT... 2,251,663 2,017,053 2,251,663 2,017,053 Shares of Publicly-Held Companies ,973 1,763 Total... 2,251,663 2,017,053 2,253,636 2,018,816 Breakdown per maturity: Banrisul Banrisul Consolidated Updated Updated Acquisition Market Acquisition Market Maturity Cost Value Cost Value Without maturity ,248 1,973 3 to 12 months , , , ,394 1 to 3 years... 1,214,799 1,214,825 1,214,799 1,214,825 3 to 5 years... 95,581 95,591 95,581 95,591 5 to 15 years , , , ,853 Total in ,251,623 2,251,663 2,253,871 2,253,636 Total in ,017,006 2,017,053 2,018,769 2,018,816 According to the Central Bank of Brazil regulations, these securities are classified in current assets at their fair value. 66 FINANCIAL STATEMENTS SEPTEMBER 2011

67 (b) Available-for-Sale Securities Breakdown of Available-for-Sale Securities per Type, at Market Value: Banrisul Banrisul Consolidated Treasury Bi lls - LFT... 1,242,802 1,125,532 1,242,802 1,125,532 Shares of Publicly-Held Companies... 9,305 14,614 9,307 14,616 Privatization Certificates Fixed Income Fund Shares... 10,052 5,542 18,592 7,716 Receivable Investment Funds Shares (*) , , , ,021 Total... 1,764,451 1,666,709 1,772,999 1,668,890 (*) Refers to 100% of senior shares of the Matone Credit Receivable Investment Fund - Payroll Loans administered by BTG Pactual Serviços Financeiros S.A., whose credit receivables are held in custody at Deutsche Bank S.A. As the resources of the Fund are invested in receivables, the redemption of shares owned by Banrisul depends on available funds, and Banrisul may be required to wait until the maturity of such credits (up to 72 months). The expected yield of the senior shares is 114% of the DI rate. Breakdown per maturity: Banrisul Banrisul Consolidated Updated Updated Acquisition Market Acquisition Market Cost Value Cost Value Without maturity , , , ,197 Up to 3 months , , , ,182 1 to 3 years... 1,026,856 1,026,868 1,026,856 1,026,868 3 to 5 years... 74,744 74,752 74,744 74,752 Total in ,777,878 1,764,451 1,786,424 1,772,999 Total in ,674,828 1,666,709 1,677,009 1,668,890 The adjustment to fair value as of September 30, 2011, in the amount of R$13,427 (2010 R$8,119), was recorded under a specific Shareholders Equity account, net of taxes of R$5,372 (2010 R$3,249), recorded in Other Receivables. (c) Held-to-Maturity Securities Breakdown of Held-to-Maturity Securities per Type, at cost plus yield: Banrisul Banrisul Consolidated Updated Updated Acquisition Market Acquisition Market Maturity Cost Value Cost Value Federal Government Securities Tre asur y Bills - LFT... 4,940,819 4,940,939 4,946,287 4,946,407 Salary Variation Compensation - CVS , , , ,922 Other Mortgage-Backed Securities - LH... 24,263 24,263 24,263 24,263 Certificate of Real Estate Receivables - CRI... 2,550 2,550 2,550 2,550 Total in ,116,109 5,079,680 5,121,577 5,085,148 Total in ,627,099 4,587,301 4,630,046 4,590,248 Breakdown per maturity: Banrisul Banrisul Consolidated Maturity Up to 3 months , , to 12 months , ,532 1 to 3 years... 2,288,325 2,035,292 2,288,325 2,035,292 3 to 5 years... 1,299,423 1,551,324 1,304,891 1,554,271 5 to 15 years ,939 2, ,939 2,686 Over 15 years , , , ,259 Total... 5,116,109 4,627,099 5,121,577 4,630,046 Current Assets , , , ,538 Noncurrent assets... 4,715,158 3,744,561 4,720,626 3,747,508 (d) Derivatives Until November 2010, Banrisul conducted swap transactions in order to mitigate the effects of changes in fixed rates, exchange rates and reference rates (TR) on certain assets, thereby exchanging these rates for the SELIC rate variation. On December 7, 2010, Banrisul amended 67

68 the assignment agreement entered into with the State of Rio Grande do Sul, whereby it revoked the rate equalization clauses in the swap contracts, and offset adjustments to be received calculated through that base date in the amount of R$ against the fair value of the Credits with National Housing System Salary Variation Compensation Fund (FCVS), not affecting Banrisul s income (loss). As of September 30, 2010, the amounts were as follows: Banrisul and Banrisul Consolidated Notional Up to 3 3 to 12 1 to 3 3 to 5 5 to 15 Over Value months months years years years 15 years 2010 Assets SELIC + Fixed Rate-FCVS 65, ,300 4,603 25,912 SELIC + Fixed Rate 88,974 10,788 12,294 24,588 24,588 61, ,728 Liabilities TR + Fixed Rate (65,555) (8,504) (10,761) (14,049) (6,835) (10,158) (646) (50,953) USD+BID+Fixed Rate (88,974) - (720) (1,314) (1,163) (2,355) - (5,552) Net Adjustment 2, ,225 16,599 70,257 3, ,135 The counterparty to the above mentioned swap transactions was the Rio Grande do Sul State Government and these transactions were tied to the assignment of FCVS credits and borrowings from municipal governmental entities, with the same maturity dates as the main operations. These swap transactions were designed to adjust the prices of transactions linked to them and, along with these transactions, were subject to rates equivalent to those prevailing in the market on the same date, since their maturity dates would be concurrent with those of the original transactions and swap contracts not separately negotiated. As of September 30, 2010, the amounts receivable and amounts payable were as follows: Banrisul and Banrisul Consolidated 2010 Derivatives Adjustments Receivable - Short Term... 23,082 Adjustments Receivable - Long Term ,558 Adjustments Payable - Short Term... (19,985) Adjustments Payable - Long Term... (36,520) Net Adjustment ,135 As of September 30, 2011, there were no outstanding operations involving derivatives. NOTE 06 Restricted Deposits Banrisul and Banrisul Consolidated Description Inerest Rate Compulsory Deposits - Brazilian Central Bank... 2,524,256 1,881,085 Demand deposits and other funds... None , ,926 Additional liabilities... SELIC ,138 26,709 Savings deposits... Savings account... 1,006,901 1,190,599 Other deposits... None... 41,291 26,398 Other deposits... TR ,453 Bacen Time Deposits... SELIC ,969 - Credits with the National Housing System , ,813 Acquired portfolio... (*) , ,655 Acquired portfolio... TR + Interest (**) , ,543 Own portfolio... TR + Interest (**)... 16,286 15,615 Correspondents... None... 31,438 26,180 Agreements... SELIC... 3,304 - Total... 3,204,740 2,393,078 Current Assets... 2,558,998 1,907,265 Non current Assets , ,813 (*) Until November 2010, the yield on those credits was linked to a swap contract as detailed in Note 05 (d), resulting in a net yield equivalent to the Selic Rate plus some 1% p.a. on average. Beginning December 2010, the yield is fixed at 14.07% p.a. (**) Refers to credits with FCVS updated according to the payment of funds from which TR % for loans from own resources and TR % for credits from FGTS. 68 FINANCIAL STATEMENTS SEPTEMBER 2011

69 National Housing System (SFH) - Acquired Portfolio From October 2002 to March 2005, Banrisul acquired from the Rio Grande do Sul State Government receivables from the Salary Variation Compensation Fund (FCVS). On December 7, 2010, pursuant to the cancellation of the equalization rate clause in swap contracts, as stated in note 05, these assets were priced by adding the amount of R$102,909 to the acquisition cost, thus offsetting adjustments receivable of swap contracts, as described in note 05 (d), with no impact on net income (loss). As of September 30, 2011, receivables are stated at cost plus income earned through the balance sheet date, in the amount of R$629,456 (2010 R$470,198). Their face value is R$818,839 (2010 R$779,543). These receivables will be converted into CVS securities, pursuant to ratification and novation processes, which have passed the original deadline estimated by management, and the past due amounts are shown separately and restated by the TR rate variation plus interest. While no maturity date has been defined, the fair values of securities, upon their issue date, could significantly differ from the carrying amounts. National Housing System (SFH) - Own Portfolio Refers to FCVS credits arising from Banrisul s own mortgage loans portfolio that have already been approved by the FCVS s regulatory body. NOTE 07 Loans, Lease Operations and Other Credit-Like Receivables The tables below show loans, lease and foreign exchange portfolio balances. (a) Breakdown by Type of Operation and Risk Level: Banrisul and Banrisul Consolidated AA A B C D E F G H Loan and Discounted Receivables... 1,931,791 7,173,864 2,326,114 1,332, , , ,862 75, ,320 14,464,512 12,103,142 Financing , , ,706 76,584 16,579 18,824 7,048 3,548 26,765 1,329,332 1,125,067 Rural and Agro-Industrial Financing , , , ,657 68,416 43,488 34,755 12,157 44,852 1,584,164 1,181,137 Real Estate Financing , , , ,128 38,385 23,062 22,947 1,717 20,881 1,610,976 1,217,623 Infrastructure and Development Financing... 19,522 49, ,176 56,741 Total Loans... 3,125,765 8,791,706 3,333,153 1,723, , , ,612 93, ,818 19,058,160 15,683,710 Lease Operations... 10,859 21,280 23,169 13,164 5,591 1,967 2, ,505 83,582 83,185 Advances on Foreign Exchange Contracts (1)... 10, , , ,689 23,826 4,974 3,536 1,027 17, , ,158 Other Receivables - Foreign Exchange (2) ,039 3,817 1,621 1, ,648 1,046 17,575 27,027 Tot al Banrisul in ,147,382 8,983,963 3,524,597 1,840, , , , , ,669 19,654,679 Tot al Banrisul in ,304,177 5,552,222 2,468,154 1,191, , , ,284 82, ,934 16,237,080 (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 AA A B C D E F G H Falling due (*)... 3,147,329 8,982,905 3,515,204 1,814, , , ,223 68, ,268 19,324,809 15,930,216 Up to 180 days... 1,224,758 2,260,712 1,384, , , , ,633 26,831 94,561 6,447,497 5,523, to 360 days ,730 1,401, , ,738 94,569 71,921 76,454 11,875 53,927 3,128,944 2,418,556 Over 360 days... 1,455,841 5,320,502 1,486, , , , ,136 30, ,780 9,748,368 7,987,675 Past-due ,058 9,393 25,735 21,956 26,257 44,512 31, , , ,864 Up to 180 days ,058 9,393 25,735 21,956 26,204 43,934 31, , , , to 360 days ,031 47,127 58,725 Over 360 days ,570 14,570 36,697 Tot al Banrisul in ,147,382 8,983,963 3,524,597 1,840, , , , , ,669 19,654,679 Tot al Banrisul in ,304,177 5,552,222 2,468,154 1,191, , , ,284 82, ,934 16,237,080 (*) Amounts up to 14 days past-due are classified as falling due. 69

70 (c) Portfolio Breakdown by Business Sector: Banrisul and Banrisul Consolidated Municipal Public Sector Government - direct and indirect administration , ,850 Corporate activity - Other services ,932 Total Public Sector , ,782 Private sector Rural... 1,584,164 1,181,137 Industry... 3,888,389 3,376,862 Commerce... 2,324,943 1,899,208 Services and other... 1,791,023 1,312,165 Individuals (*)... 8,333,201 7,120,303 Housing... 1,610,976 1,217,623 Total Priv ate Sect or... 19,532,696 16,107,298 Total... 19,654,679 16,237,080 (*) Includes R$2,381,070 (R$2,036,284 in 2010) related to acquired payroll loan portfolio with co-obligation from other financial institutions. (d) Changes in allowances for loan losses, doubtful lease receivables and other credit-like receivables The changes in allowances for losses on loans, on lease transactions and on other credit-like receivables (exclusively) are as follows: Banrisul and Banrisul Consolidated Opening balance of allowance for loan losses... 1,101,923 1,016,754 Allowance recorded in the period , ,751 Write-offs to memorandum accounts... (280,615) (283,802) Allowance for Loan Losses per risk level... 1,284,599 1,122,703 Allowance for loan losses Current Assets , ,109 Non current Assets , ,561 Allowance for doubtful lease receivables Current Assets... 2,450 2,460 Non current Assets... 6,155 5,074 Allowance for losses on other credit-like receivables Current Assets... 16,932 12,457 Non current Assets... 25,256 19,042 Expenses related to allowance for other receivables without loan characteristics, as of September 30, 2011, amount to R$275. (e) Breakdown of allowances for loans losses, doubtful lease receivables and other credit-like receivables per risk level: Banrisul and Banrisul Consolidated Recorded Allowance Minimum Minimum Risk Loan allowance required by allowance Additional allowance Level Portfolio Resolution 2.682/99 required (Note 03(f)) Tot al AA 3,147,382 0,0% - 6,160 6,160 A 8,983,963 0,5% 44,920 17,968 62,888 B 3,524,597 1,0% 35,246 17,623 52,869 C 1,840,335 3,0% 55,210 36,807 92,017 D 585,080 10,0% 58,508 11,702 70,210 E 433,650 30,0% 130,095 8, ,768 F 522,735 50,0% 261,367 10, ,822 G 100,268 70,0% 70,188 3,008 73,196 H 516, ,0% 516, ,669 Total in ,654,679 1,172, ,396 1,284,599 Total in ,237,080 1,038,281 84,422 1,122,703 Loans written off as losses in the nine-month period ended September 30, 2011, stated at the adjusted amount until actual write-off in a memorandum account, amounted to R$280,615 (2010 R$283,802). 70 FINANCIAL STATEMENTS SEPTEMBER 2011

71 Recoveries of loans previously written off as losses were recognized as income from lending operations and amounted to R$89,985 (2010 R$86.648) in the nine-month period ended September 30, 2011, net of losses generated from these recoveries. NOTE 08 Other Receivables Banrisul Banrisul Consolidated Foreign Exchange Portfolio , , , ,516 Purchased foreign exchange, pending settlement , , , ,188 Advances in foreign currency received... - (126) (126) Term bills in foreign curr ency... 1, , Rights on sale of foreign exchange... 21,299 39,814 21,299 39,814 Advances in local currency... (18,291) (24,910) (18,291) (24,910) Income receivable from advances... 11,395 9,475 11,395 9,475 Income receivable... 40,140 33,232 37,643 32,233 Dividends and bonuses receivable... 2,497 2,247-1,248 Receivables from services rendered... 37,418 30,687 37,418 30,687 Other Negotiation and intermediation of amounts ,474 3,440 Negotiation and intermediation of amounts ,474 3,440 Specific Credits Specific Credits Sundry... 1,519,198 1,464,131 1,590,684 1,530,388 Advances to Loan Guarantee Fund... 42,620 62,291 42,620 62,291 Advances to employees... 22,353 20,035 22,503 20,118 Advances for payment by our account ,723 7,151 Deferred income and social contribution taxes (Note 22 (b)).. 669, , , ,693 Escrow deposits (Note 14 (b)) , , , ,851 Recoverable taxes , , , ,756 Reimbursable payments... 39,268 82,394 39,296 82,950 Notes and credits receivable(*) , , , ,782 Credit Cards ,048 68, ,048 68,922 Other debtors Domestic... 67,276 72, , ,874 Allowance for losses on other receivables... (64,575) (101,530) (66,447) (102,033) Credit-like receivables... (42,188) (31,499) (42,188) (31,499) Non-credit-like receivables... (22,387) (70,031) (24,259) (70,534) Total other receivables... 2,094,319 1,855,349 2,164,932 1,923,560 Current assets... 1,095,546 1,049,599 1,149,970 1,106,648 Noncurrent assets , ,750 1,014, ,912 (*) Notes and Credit Receivables mainly comprise: a) Securities issued to cover court-ordered debts ( precatórios ). In the first quarter of 2005, as part of receivables recovery policy, Banrisul received as payment in kind securities issued to pay court-ordered debts from companies in the same Economic Group. The actual receipt of such securities depends on the outcome of litigation between the Economic Group and the Government of Brazil and the release of escrow deposits that have been made by the Federal Government as the flow of the original judiciary bonds. As of September 30, 2011, these securities amount to R$93,614 ( R$86,418). These bonds are subject to the variation of the Extended National Consumer Price Index (IPCA-E) and interest. b) Other non-credit-like receivables from transactions with municipal governmental entities, in the amount of R$88,664 ( R$91,763) related to receivables acquired from the State Government of Rio Grande do Sul or its controlled entities, with yield of 1% to 8.5% p.a. plus the TR or IGPM variation, maturing through

72 NOTE 09 Permanent Assets (a) Property and equipment Banrisul Net Balance Net Balance Rate Original Cost Depreciation in 2011 in 2010 Property in Use Land and Buildings in Use... 4 % 120,325 (98,229) 22,096 22,815 Other... Furniture and Equipment in inventory ,100-7,100 12,315 Property and Equipment in Progress Facilities... 10% 91,240 (79,765) 11,475 11,842 Furniture and Equipment in Use... 10% 73,452 (52,225) 21,227 20,931 Other Communication System... 10% 4,433 (3,943) Data Processing System... 20% 302,866 (211,630) 91,236 92,606 Security System... 10% 9,406 (6,968) 2,438 2,606 Transportation System... 20% 2,248 (2,061) Total in ,126 (454,821) 156,305 Total in ,339 (418,201) 164,138 Banrisul Consolidated Net Balance Net Balance Rate Original Cost Depreciation in 2011 in 2010 Property in Use Land and Buildings in Use... 4 % 130,586 (103,134) 27,452 28,388 Other... Furniture and Equipment in Inventory ,100-7,100 12,315 Property and Equipment in Progress Facilities... 10% 92,438 (80,233) 12,205 12,668 Furniture and Equipment in Use... 10% 76,903 (55,080) 21,823 21,563 Other Communication System... 10% 4,434 (3,943) Data Processing System... 20% 303,657 (212,277) 91,380 92,735 Security System... 10% 9,406 (6,968) 2,438 2,605 Transportation System... 20% 2,313 (2,088) Total in ,893 (463,723) 163,170 Total in ,837 (426,488) 171,349 (b) Intangible Assets Banrisul Banrisul Consolidated Original Net Balance Net Balance Net Balance Net Balance Intangible Assets Rate Cost Amortization in 2010 in 2009 in 2011 in 2010 Right from Acquisition of Payroll operations (*) Public Sector... 20% 298,284 (199,985) 98, ,957 98, ,957 Private Sector... 20% 27,664 (10,495) 17,169 20,337 17,169 20,337 Software Acquisition... 20% 41,585 (31,148) 10,437 8,200 11,014 8,200 Other (619) ,105 Total in ,501 (242,247) 126, ,214 Total in ,663 (174,105) 186, ,599 (*) This refers to agreements entered into with public and private sector entities to ensure the exclusivity in banking services for payroll processing and priority offering of payroll loans to employees, bill collection portfolio, supplier payment and other banking services. Such agreements are effective for five years and are amortized over the agreement period. No indications that these assets are impaired were identified. 72 FINANCIAL STATEMENTS SEPTEMBER 2011

73 NOTE 10 Deposits and Money Market Funding Banrisul Without Up to 3 to Over maturity 3 months 12 months 12 months Deposits Demand deposits(a)... 2,558, ,558,461 2,114,254 Savings deposits (a)... 5,072, ,072,399 6,295,708 Interbank deposits , ,516 14,652 Time deposits (b)... 7,270 2,170,306 4,456,820 6,899,086 13,533,482 9,756,625 Other deposits ,861 Total... 7,639,021 2,181,822 4,456,820 6,899,086 21,176,749 18,183,100 Current liabilities... 14,277,663 14,735,857 Noncurrent liabilities... 6,899,086 3,447,243 Money market funding Own Portfolio ,702, ,702,516 2,350,621 Total ,702, ,702,516 2,350,621 Banrisul Consolidated Without Up to 3 to Over maturity 3 months 12 months 12 months Deposits Demand deposits (a)... 2,555, ,555,954 2,108,912 Savings deposits (a)... 5,072, ,072,399 6,295,708 Interbank deposits , ,516 14,652 Time deposits (b)... 7,270 1,906,180 4,456,820 6,899,086 13,269,356 9,532,965 Other deposits ,861 Total... 7,636,514 1,917,696 4,456,820 6,899,086 20,910,116 17,954,098 Current liabilities... 14,011,030 14,603,711 Noncurrent liabilities... 6,899,086 3,350,387 Money market funding Own Portfolio ,634, ,634,047 2,285,898 Total ,634, ,634,047 2,285,898 (a) Classified as without maturity since they can be redeemed immediately. (b) Consider the maturities set for each investment. Time deposits are made by individuals and companies, with floating or fixed charges equivalent to 86% and 14% of the total portfolio, respectively. The average funding rate for floating-rate deposits corresponds to 72.73% ( %) of the CDI variation, and for fixed-rate deposits, to 9.33% ( %) p.a. 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. NOTE 11 Borrowings Foreign Borrowings: represented by funds obtained from foreign banks to be used in foreign exchange commercial transactions subject to the variation of the corresponding currencies plus annual interest at rates ranging from 2.0% to 5.5% ( % to 7.76%) with maximum term of 1,826 days (2010 1,100 days). 73

74 NOTE 12 Onlendings Banrisul and Banrisul Consolidated Domestic Onlendings Official Instituitions Foreign Onlendings Total Up to 90 days , ,579-26, , , to 360 days ,067 29,365 1,684 15, ,751 45,269 1 to 3 years , ,712 31,778 1, , ,526 3 to 5 years , , , ,473 Over 5 years , , , ,219 Total... 1,135, ,622 33,726 44,762 1,169,219 1,036,384 Current liabilities , ,944 1,684 42, , ,166 Noncurrent liabilities , ,678 32,042 2, , ,218 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 September 2028, and are subject to interest of 0.50% to 8.00% ( % to 8.00%) p.a., plus variation of the indexes (TJLP, U.S. dollar and Currency Basket) for floating-rate operations and up to 11.00% ( %) p.a. 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 loans. NOTE 13 Other Payables Banrisul Banrisul Consolidated Collected taxes and other , , , ,978 Receipt of federal taxes , , , ,710 Other Foreign exchange portfolio... 36,149 42,468 36,149 42,468 Pending Setlement exchange sold... 21,670 38,759 21,670 38,759 Foreign exchange purchased , , , ,867 Advances on foreign exchange contracts (Note 07 (a))... (495,362) (443,158) (495,362) (443,158) Social and statutory ,804 54, ,863 55,655 Dividends and bonuses payable... 60,236 20,814 60,295 22,122 Bonuses and profit sharing payable... 40,568 33,533 40,568 33,533 Taxes and social security , , , ,832 Taxes and contributions payable... 58,400 48,529 59,542 49,500 Reserve for income and social contribution taxes , , , ,953 Reserve for deferred taxes and contributions (Note 22 (b2))... 13,415 10,962 13,416 10,962 Reserve for tax contingencies (Note 14 (b)) , , , ,417 Trading and intermediation of securities ,163 3,089 Trading and intermediation of securities ,163 3,089 Financial and development funds... 5,011,739 4,395,584 5,011,739 4,395,584 Payables for financial and development funds (Note 21 (a))... 4,991,570 4,376,184 4,991,570 4,376,184 Other... 20,169 19,400 20,169 19,400 Sundry , ,225 1,011, ,172 Cashier s check... 1,669 1,092 1,669 1,092 Creditors for unreleased funds... 96,664 48,609 96,884 48,799 Payables for acquisition of assets and rights... 2,789 2,121 2,843 2,208 Liabilities under government agreements... 25,411 22,944 25,411 22,944 Accrued vacation and related charges , , , ,824 Actuarial deficit of Fundação Banrisul (Note 23)... 63,961 61,236 63,961 61,236 Reserve for labor contingencies (Note 14(b)) , , , ,098 Brazilian Central Bank fines on foreign exchange transactions (Note 14 (f)(i)) , , , ,229 Reserve for social security contingencies (Note 14 (f)(ii))... 18,783 18,783 18,783 18,783 Reserve for securitization losses (*)... 3,584 4,262 3,584 4,262 Reserve for civil risk (Note 14 (b))... 10,445 9,686 10,533 9,686 Reserve for debts assumed with Grupo de Empresas Seguradoras Brasileiras (GESB) arising from Companhia União de Seguros Gerais... 8,028 7,334 8,028 7,334 FGTS (Severance Pay Fund) for amortization... 4,367 3,221 4,367 3,221 Sundry creditors Domestic... 74,841 76, , ,061 Card transactions payable... 84,878 57,655 84,878 57,655 Other... 52,782 74,815 54,208 75,740 Total Other Payable s... 7,058,292 6,124,382 7,157,479 6,207,778 Current Liabilities... 6,431,468 5,575,729 6,530,150 5,658,642 Noncurrent Liabilities , , , ,136 (*) Banrisul management recognizes a provision for co-obligation of securitized receivables with the National Treasury, in the amount of R$27,649 (2010 R$42,779), controlled in a memorandum account, which are the responsibility of agricultural borrowers. 74 FINANCIAL STATEMENTS SEPTEMBER 2011

75 NOTE 14 Reserves, Contingent Assets and Liabilities In the normal course of their activities, Banrisul and its subsidiaries are parties to tax, labor and civil lawsuits at the judicial and administrative levels. The provisions were calculated based on the opinion of the legal counselors, using the best measurement models and benchmarks available, despite the inherent uncertainty as to the period and outcome of the suits. Banrisul records a reserve in the total amounts involved in lawsuits that have been assessed as probable losses. Management believes that the reserves are sufficient to cover any losses arising from lawsuits. (a) Contingent Assets As of September 30, 2011 no contingent assets were recorded. (b) Changes in Provisions Banrisul Tax Labor Civil Other Total Initial Balance at 12/31/ , ,894 9, , ,103 Recognition and Inflation... 15,216 73,582 1,948 3,907 94,653 Reversal of Provision (767) - (767) Payment... - (72,813) (311) - (73,124) Closing Balance at 09/30/ , ,663 10, , ,865 Garanteed Deposits (Note 8) ,602 63,202 18, ,361 Banrisul Consolidated Tax Labor Civil Other Total Initial Balance at 12/31/ , ,073 9, , ,728 Recognition and Inflation... 15,251 76,399 2,036 3,907 97,593 Reversal of Provision... - (80) (767) - (847) Payment... - (75,038) (311) - (75,349) Closing Balance at 09/30/ , ,354 10, , ,125 Garanteed Deposits (Note 8)... 1, ,036 64,623 18, ,793 (c) Tax Provisions Provisions for tax contingencies relate primarily to liabilities related to taxes whose legality or constitutionality is being challenged at the administrative or judicial levels, whose likelihood of loss is considered as probable and are recognized at the full amount under dispute. For lawsuits collateralized by escrow deposits, the amounts involved are not adjusted for inflation. When legal permits are issued as a result of a favorable outcome, the amounts are adjusted for inflation and withdrawn. The main tax contingency refers to income and social contribution taxes on the deduction of expenses arising from the settlement of the actuarial deficit of Fundação Banrisul de Seguridade Social (Banrisul Social Security Foundation), challenged by the Federal Revenue Service from 1998 to 2005 in the amount of R$408,686. Banrisul, through its legal counsel, has been discussing the matter in court and, on recorded a reserve for contingencies in the amount of the estimated loss. There are also some tax contingencies whose likelihood of loss, based on their nature, is considered as possible, in the amount of R$ R$40,759 (Consolidated R$59,084). A reserve for contingencies was not recognized, in accordance with applicable accounting practices. (d) Labor Provisions These refer to lawsuits filed by, mainly, unions and former employees claiming labor rights, in particular the payment of overtime and other labor rights. 75

76 This account records the provision for labor claims filed against Banrisul when a court notification is received and the likelihood of loss is considered as probable. The reserve is calculated according to the disbursement estimated by our management, timely reviewed based on data received from our legal counsel, and adjusted to the escrow deposit when required. Of the aforementioned reserve, R$73,686 (consolidated - R$81,351) has been deposited in an escrow account. Additionally, R$17,916 (consolidated - R$18,685) was required for appeals. There are also some labor claims whose likelihood of loss, based on their nature, is considered as possible, in the approximate amount of R$47,039 (Consolidated - R$47,740). In labor claims that have claims considered probable losses already accrued and there are also applications in the same action that are considered as a possible loss in the amount of R$171,743 (Consolidated - R$180,174). A reserve for contingencies was not recognized, in accordance with applicable accounting practices. (e) Civil Provisions Lawsuits for damages refer to compensation for property damage and/or pain and suffering, referring to consumer relations, in particular, matters relating to credit cards, consumer credit, checking accounts, banking collection and loans. This account records the provision for civil suits when a court notification is received, and is adjusted monthly based on the amount claimed, on evidence produced and on the assessment of the related risk of loss made by the legal counsel, considering case law, factual information gathered, evidence produced in the records and court decisions on the lawsuit. There is also an amount of R$93,414 (Consolidated R$94,245) included in the balance of escrow deposits related to claims filed by third parties against Banrisul, whose likelihood of loss is classified by our legal counsel as possible. (f) Others i) On September 29, 2000, Banrisul received an assessment notice from the Central Bank of Brazil in connection with administrative proceedings filed by that authority related to supposed irregularities in foreign exchange transactions between 1987 and In an appeal decision at the administrative 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 in the amount of R$119,288 for this contingency. ii) INSS tax assessment notice related to social security contribution on compensation other than salary and on education allowance, whose likelihood of loss is classified by our legal counsel as probable. A reserve in the amount of R$18,783 was recorded. NOTE 15 Income From Services Rendered Banrisul Banrisul Consolidated Funds Management... 45,547 42,304 48,138 47,389 Collection of Debt Instruments... 34,467 31,593 34,467 31,862 Income from Group Financing Management Fee ,149 8,660 Income from Brokerage of Operations ,820 3,396 Other Income ,434 20,198 Total... 80,895 74, , , FINANCIAL STATEMENTS SEPTEMBER 2011

77 NOTE 16 Income From Bank Fees Banrisul Banrisul Consolidated Banricompras... 73,603 61,611 73,603 61,611 Check Returns... 13,948 13,730 13,948 13,730 Checking Account Debits... 17,268 15,976 17,268 15,976 Collection Services... 44,407 44,960 44,407 44,960 Transactions with Checks... 9,686 10,647 9,686 10,647 Bank Fees from Checking Accounts , , , ,577 Credit Card... 7,008 9,143 7,008 9,143 Other Income from Fees... 24,895 22,038 40,105 22,030 Tot al , , , ,674 Of a total R$395,152 in income received for the nine-month period ended September 30, 2011, R$191,725 (2010 R$174,352) arise from operations with individuals and R$203,427 (2010 R$182,330) from operations with legal entities. NOTE 17 Other Administrative Expenses Banrisul Banrisul Consolidated Data Processing and Telecommunication , , , ,032 Security and Money Transportation... 63,055 60,103 63,055 60,103 Amortization and Depreciation... 82,970 81,031 83,408 81,572 Rentals and related fees... 43,622 40,425 42,717 39,241 Supplies... 17,456 19,039 17,490 19,077 Outsourced Services ,007 95, ,293 97,316 Advertising, Promotions and Publicity (*)... 35,343 85,313 35,833 86,177 Maintenance and upkeep... 16,344 18,666 16,528 18,830 Water, Electricity and Gas... 13,876 14,552 14,052 14,707 Financial System Services... 15,833 14,652 16,777 15,352 Other... 26,991 26,188 29,146 27,477 Tot al , , , ,884 (*) Comprises mainly institutional advertising of R$4,549 ( R$34,160) and sponsorship of sport events and clubs of R$25,898 ( R$43,663). NOTE 18 Other Operating Income Banrisul Banrisul Consolidated Recovery of Charges and Expenses... 42,509 36,380 40,307 33,184 Reversal of Operating Reserves for: Labor Civil Other... 32,801 1,791 32,801 1,791 Reserve for Securitization Losses... 1,323 3,167 1,323 3,167 Other Taxes Commission on Capitalization Cerficates... 3,270 1,379 3,270 1,379 Interbank Fees... 14,784 15,881 14,784 15,881 Exchange Rate Adjustment... 12,744-12,744 - Credit Notes Receivable... 6,264 7,972 6,264 7,972 Reserve Fund - Escrow Deposit - Law no, ,156 11,507 19,156 11,507 Brokerage and Administration Fee on Insurance... 2,641 2,374 2,641 2,374 Other Operating Income... 63,928 49,329 65,673 50,458 Tot al , , , ,774 77

78 NOTE 19 Other Operating Expenses Banrisul Banrisul Consolidated Discount Granted from Renegotiations... 7,258 5,081 7,258 5,081 Labor Provisions (Note 14 (b))... 73,582 61,115 76,399 62,422 Provision for Properties - Assets not in use... 2,859 3,283 2,859 3,283 Provision for Civil Lawsuits (Note 14 (b))... 1,948 2,762 2,036 2,764 Collection of Federal Taxes... 2,721 1,621 2,721 1,621 Inflation Adjustment of Reserve for Tax Contingencies (Social Contribution Tax / Income Tax) - (Note 14 (b))... 15,216 12,592 15,251 12,624 Lawsuits Indemnifications , ,999 Inflation Adjustment of Brazilian Central Bank fines on Foreign Exchange... 3,907 3,124 3,907 3,124 Inflation Adjustment of Borrowing from Fundação Banrisul... 5,330 6,599 5,330 6,599 Expenses with Overdraft Accounts and Banricompras Prize Programs Provision for Debts Assumed with GESB... 1, , Exchange Adjustment - Foreign Branches ,109-3,109 Lawsuits... 11,527 5,435 11,527 5,435 Cards... 2,579 3,007 2,579 3,007 Credit Card Membership Program... 3,815-3,815 - Other Operating Expenses (*)... 28,016 13,957 28,758 13,700 Total , , , ,423 NOTE 20 Shareholders Equity Banrisul (a) Capital Fully subscribed paid-up capital as of September 30, 2011 is R$3,200,000 and it is represented by 408,974 thousand shares without par value as follows: ON PNA PNB Tot al 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, , , Outros , , ,216, ,144, Total ,043, ,627, ,303, ,974, The Extraordinary Shareholders Meeting held on April 29, 2011 approved the capital increase through the use of revenue reserves in the amount of R$300,000 without the issuance of new shares. This capital increase has been approved by the Central Bank of Brazil. Preferred shares do not carry voting rights and are entitled to the following payments: Class A Preferred Shares: i) Priority to receive fixed non-cumulative dividends of six percent (6%) p.a. on the figure resulting from the division of capital by the related number of shares comprising it; ii) Right to take part, after Class B Common and Preferred Shares have been paid dividends equal to that paid to those shares, in the distribution of any other cash dividends or bonuses paid out by Banrisul, under the same conditions as Class B Common and Preferred Shares, plus an additional ten percent (10%) over the amount paid to those shares; iii) Interest in capital increases deriving from the capitalization of reserves, under the same conditions as Class B Common and Preferred Shares; and 78 FINANCIAL STATEMENTS SEPTEMBER 2011

79 iv) Priority in capital reimbursement, without premium. Class B Preferred Shares: i) Interest in capital increases deriving from the capitalization of reserves, under the same conditions as Class A Common and Preferred Shares; and ii) Priority in capital reimbursement, without premium. (b) Allocation of Income Net Income for the year, adjusted in accordance with Law no. 6404/76, shall be allocated as follows: (i) 5% to the Legal Reserve, not to exceed 20% of total Capital, (ii) 25% to the Statutory Reserve, and (iii) mandatory minimum dividends limited to 25% of adjusted net income. The remaining net income shall be allocated as decided in the Shareholders Meeting. The Statutory Reserve is intended to ensure funds for investments in information technology, and is limited to 70% of paid-up capital. The Ordinary and Extraordinary Shareholders Meeting held on April 29, 2011 approved the proposed distribution of additional dividends for 2011, equivalent to 15% of Adjusted Net Income, totaling 40%. The pay-out policy adopted by Banrisul aims to pay interest on capital for the maximum tax deductible amount calculated in accordance with prevailing legislation, which is included, net of withholding income tax, in the calculation of mandatory dividends for the fiscal year, as stated in our by-laws. As permitted by Law no. 9249/95 and CVM Resolution no. 207/96, Banrisul s management paid interest on capital in the amount of R$161,663 referring to the period from January to September 2011 (2010 R$144,306), to be credited to dividends, net of withholding income tax. The payment of this interest on capital resulted in a tax benefit for Banrisul in the amount of R$69,029 (2010 R$61,048) (Note 22 (a)). NOTE 21 Commitments, Guarantees and Other (a) State Law no was enacted on April 22, 2004, as amended by Law no , of August 29, 2006, whereby Banrisul must transfer to Rio Grande do Sul State, upon its request, up to 85% of the escrow deposits made by third parties at Banrisul (except for those in which the litigant is a municipality). The remaining amount not transferred is to be recorded in a reserve fund to ensure the refund of said escrow deposits. As of September 30, 2011, the amount of escrow deposits made by third parties at Banrisul, adjusted through the balance sheet date by the TR (managed prime rate) variation plus interest of 6.17% p.a., totaled R$7,040,904 (2010 R$6,419,184), of which R$2,043,000 (2010 R$2,043,000) was transferred to the State upon its request and written off from the respective balance sheet accounts. The remaining balance, which 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$579,470 (2010 R$538,738), and are subject to financial charges and backed by the beneficiaries sureties. (c) Banrisul is responsible for the custody of 453,124 thousand securities owned by customers ( ,441 thousand). 79

80 (d) Banrisul has co-obligations in import credits in the amount of R$78,540 (2010 R$60,515). (e) Banrisul manages various funds and portfolios, which have the following net assets: Banrisul Banrisul Consolidated Investment funds (*)... 5,110,767 5,368,942 5,110,767 5,385,461 Investment funds in investment fund quotas , , , ,614 Equity Funds... 82,387-82,387 Fund to Guarantee the Liquidity of Rio Grande do Sul State Debt Securities , , , ,891 Managed portfolios... 1,270, ,982 1,281, ,148 Investment Clubs , Total... 7,228,017 6,947,982 7,242,184 7,121,969 (*) The investments fund portfolios consist basically of fixed-rate and variable rate securities, and their carrying amounts already reflect mark-to-market adjustments at the balance sheet date. (f) Subsidiary Banrisul S.A. Administradora de Consórcios is responsible for the management of 126 buyers pools (113 in September 2010), including real estate, motorcycles, vehicles and tractors, gathering 24,983 active pool members (21,180 in September 2010). (g) Banrisul leases properties, manly used for branches, based on standard contracts which may be cancelled as its own discretion and include the right to opt for renewal and adjustment clauses. Total future minimum payments under noncancellable lease agreements as of September 30, 2011 total R$157,309, of which R$41,307 matures in up to one year, R$101,864 from one to five years and R$14,138 over five years. Lease payments recognized as expenses for the period from January to September 2011 amounted to R$39,777. NOTE 22 Income and Social Contribution Taxes (a) Reconciliation of Income and Social Contribution Tax Expenses/Revenue Banrisul Banrisul Consolidated Income for the Period before Taxes and Pr ofit Sharing... 1,029, ,579 1,046, ,004 Income Tax (IRPJ) - Ra te 25%... (257,451) (193,395) (261,709) (196,501) Social Contribution Tax (CSLL) - Rate 9% (1,274) (956) Social Contribution Tax - Rate 15%... (154,471) (116,037) (156,189) (116,307) Total Income and Social Contribution Taxes c alculated at Effective Rate... (411,922) (309,432) (419,172) (313,764) Adjustment of Fine on Foreign Exchange Operations... (1,563) (1,250) (1,563) (1,250) Profit Sharing... 16,228 13,400 16,228 13,400 Interest on Capital... 69,029 61,048 69,029 61,048 Equity in Subsidiaries and Foreing Exchange Adjustment on Branches... 17,857 8,192 6,593 (1,244) Other Additions, Net of Exclusions... (1,184) (653) Total Income and Social Contribution Taxes... (311,555) (228,695) (328,478) (240,994) Current... (362,727) (244,371) (380,130) (256,690) Deferred... 51,172 15,676 51,652 15,696 (b) Deferred income and social contribution taxes In September 2011, Banrisul had deferred income and social contribution tax credits on temporary differences as follows: 80 FINANCIAL STATEMENTS SEPTEMBER 2011

81 (b1) Tax credits Tax credit balances, by origin and disbursements made, are as follows: Banrisul Balance on Balance on 12/31/2010 Recognition Realization 09/30/2011 Allowance for loan losses , , , ,797 Reserve for labor contingencies... 44,758 29,433 29,126 45,065 Reserve for tax contingencies... 76,892 6, ,978 Other temporary provisions... 42, ,612 41,038 Tot al tax credit s on temporary diff erences , , , ,878 Unrecorded credits... (23) - - (23) Tot al tax credits recorded , , , ,855 Deferred tax liabilities... (11,635) (1,780) - (13,415) Tax credits, net of deferred liabilities , , , ,440 Banrisul Consolidated Balance on Balance on 12/31/2010 Recognition Realization 09/30/2011 Allowance for loan losses , , , ,995 Reserve for tax contingencies... 48,559 60,590 60,079 49,070 Reserve for tax contingencies... 77,384 6, ,482 Other temporary provisions... 42,706 1,054 2,614 41,146 Tot al tax credit s on temporary diff erences , , , ,693 Unrecorded credits... (23) - - (23) Tot al tax credits recorded , , , ,670 Deferred tax liabilities... (11,636) (1,780) - (13,416) Tax credits, net of deferred liabilities , , , ,254 Expected realization of these receivables is as follows: Banrisul Banrisul Consolidated Tempor ary Diferences Year Income Tax Social Contribution Total Total Recorded Total Recorded ,099 47, , , , ,404 63, , , , ,990 61, , , , ,579 42, , , , ,173 27,105 72,278 72,278 72, to ,350 8,610 22,960 22,960 24, to , ,702 1,702 3,206 After Total at 9/30/ , , , , ,670 Total at 9/30/ , , , , ,693 The total present value of tax credits is R$561,184, 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: Banrisul Banrisul Consolidated Excess Depreciation... (13,407) (10,954) (13,407) (10,954) Available for Sale Securities... (8) (8) (8) (8) Adjustment to Fair Value of Trading Securities (1) - Tot al... (13,415) (10,962) (13,416) (10,962) 81

82 NOTE 23 Fundação Banrisul de Seguridade Social and Cabergs Caixa de Assistência dos Empregados do Banco do Estado do Rio Grande do Sul Banrisul is the main sponsor of Fundação Banrisul de Seguridade Social ( Fundação Banrisul ), which is mainly engaged in supplementing the benefits covered and provided by the Social Security to the employees of Banrisul, Banrisul Serviços, and Cabergs, as well as in carrying out social security programs promoted by its sponsors. On July 6, 2009, new retirement benefit plan Banrisulprev was approved and has been offered to non members of Benefit Plan I since then. This new variable contribution benefit plan became effective in November Following implementation of this new plan, new members are no longer allowed to join Benefit Plan I. To attain its objectives, Fundação Banrisul receives monthly contributions from its sponsors and participants, which are calculated based on the monthly compensation of employees and their beneficiaries. Banrisul s contributions for the period amounted to R$9,511 ( R$9,192), which, as of September 30, 2011, corresponds to 3.17% ( %) of employees monthly contribution salaries, and were recorded as operating expenses. Benefit Plan I - Benefit Plan I provides defined benefits in the form of retirement and survivorship benefits, sick pay, inmate pension, funeral allowance and annual bonus. The active participant s regular contributions correspond to monthly amounts equivalent to the result of applying the following rates: a) An overall fixed rate of 3% applicable to the contribution salary; b) A first additional rate of 2% applicable to the contribution salary surplus (if any) on half of the highest Social Security benefit salary; and c) A second additional rate of 7% applicable to the contribution salary surplus (if any) on the highest Social Security benefit salary. Banrisul s remaining portion of the contracted debt related to this plan in the amount of R$63,961 as of September 30, 2011 (2010 R$61,236) is recorded in Other Payables (Note 13). In addition to this debt, Banrisul pays interest of 6% per year with final maturity in 2028, which is monthly adjusted based on the General Price Index Domestic Availability (IGP-DI). Banrisulprev - Banrisulprev provides variable contribution benefits with defined contribution characteristics, such as regular retirement, early retirement and funeral allowance, and benefits with defined benefit characteristics, such as disability retirement, proportional benefits, sick pays, annual bonus, minimum benefit and survivorship benefit. The participant s regular contributions comprise three portions: a) Basic portion: 1% of the contribution salary; b) Additional portion: may vary from 1% to 7.5% of the contribution salary in excess of 9 reference units; and c) Variable portion: percentage applied on the contribution salary annually established by the actuary to cover 50% of the costs of risk benefits and the plan s administrative expenses. In addition to regular contributions, a participant may opt to make monthly contributions not lower than 1 reference unit and not matched by the sponsor. Banrisul s contributions match the participants regular contributions. Medical and dental care - Banrisul offers medical and dental care benefits to its active employees and Fundação Banrisul s retirees through Cabergs. 82 FINANCIAL STATEMENTS SEPTEMBER 2011

83 As of December 31, 2010, the actuarial appraisal of post-employment benefits related to defined benefits, Banrisulprev and health care granted to its employees was as follows: Benefit Banrisulprev Medical and Plan I Plan Dental Care Total Present obligation of actuarial obligations... (2,787,358) (2,696) (129,621) (2,919,675) Fair value of Fundação Banrisul s assets... 2,636,530 1, ,322 2,748,829 Gains /Losses and cost of unrecognized services , , ,620 Actuarial assets (liabilities) ,413 (47) 9, ,774 The main actuarial assumptions used as December 31, 2010 are as follows: Discount rate: 10.77% p.a. Expected return rate of pension plans assets: Defined benefit plan: 13.28% p.a. Variable contribution plan: 12.01% p.a. Medical and dental care: 10.69% p.a. Future salary increase rate: 6.59% p.a. Increase in medical costs: 7.64% p.a. Inflation: 4.50% p.a. Mortality table: AT NOTE 24 Financial Instruments and Financial Risks Management Risk management is an essential strategic tool for Banrisul. The inherent risks range from those easily identifiable, such as market, liquidity and credit risks, to those which are not directly identified as such, but also extremely important, such as operating and reputational risk, among others. Banrisul seeks to align its activities with the standards set forth by the New Capital Accord - Basel II, by adopting best market practices to maximize profitability and to ensure the best possible combination of investments in assets and use of required capital. The systematic improvement of risk policies, internal control systems and security standards aligned with Banrisul s strategic and market objectives are ongoing processes within this structure. Credit risk: it is the possibility of Banrisul incurring losses related to the nonperformance of a loan or financial obligation by the counterparty under the agreed terms. Banrisul s risk assessment structure is based on the principle of joint technical decision. Banrisul defines different credit limits corresponding to the decision levels, from the widespread branch network (with various categories) to the credit and risk committees at the Head Office. This process aims at expediting the concession of credit based on technically predefined limits, which establish Banrisul s risk exposure for every customer, in conformity with the risk/return ratio. The continuous, increasing use of statistical methodologies for assessing customers risks, with the standardization of credit and business policies along with the optimization of the controls over registry information through a certification model, increased and strengthened risk assessments. The use of credit score and behavior score systems allowed establishing reapproved credit limits to individuals according to the risk ratings described in the statistical models, conceptually considered more appealing when dealing with mass credit. 83

84 For the corporate segment, Banrisul evaluates companies from the financial, management, market and production standpoint, with periodic reviews that also take into account current and future economic and competitive environments, adding companies to them. The management of the credit risk exposure is based on a selective, conservative approach, pursuant the strategies set by Banrisul s management and technical areas. (a) Credit Risk Assessment Direct Lending and Onlendings by Financial Agents - Banrisul assesses the potential default of each counterparty by using credit rating tools designed for different categories of counterparties. Such internally developed tools, which combine statistical analyses and the opinion of the credit area staff, are validated, when appropriate, by comparing external available data. The rating tools are reviewed and updated when necessary. Frequently, Management validates the rating performance and its ability to forecast to default events. Default exposure is based on the amounts that may be owed to Banrisul at the time of default, e.g. in the case of a loan, it corresponds to the nominal value. Loan commitments include all amounts withdrawn in excess of the amount that may be withdrawn at the time of default, if any. Default loss or loss extent represents Banrisul s expectation regarding the amount of the loss resulting from a dispute, should the default occur. This amount is expressed as a percentage loss per unit of exposure and typically varies in accordance with the category of the counterparty, the type and level of the suit and the availability of collaterals or credit mitigation instruments. (b) Risk Limit Control and Mitigation Policies Banrisul manages, limits and controls credit risk concentrations whenever they are identified - particularly in relation to counterparties and groups. Management manages assumed risk levels by setting limits to the extent of acceptable risk in relation to a specific borrower, or groups of borrowers and industry segments. These risks are continuously monitored and subject to annual or more frequent reviews when necessary. The limits on the level of credit risk by product and industry sector are approved by the Executive Board and by the Board of Directors, if applicable. In the case of a counterparty, the exposure to any borrower, including financial agents, is additionally restricted by sublimits that cover exposures, whether recorded or not, in the financial statements. The actual exposures are monitored on a monthly basis in accordance with the established limits. The credit risk exposure is also managed through the regular analysis of actual or potential borrowers, with respect to payments of principal and interest and change in limits when appropriate. c) Credit Related Commitments Credit related commitments represent unused portions of established limits by the counterparty, normally attributed to working capital, overdraft accounts, credit cards, among others. They also refer to contracts whose funds will be released upon fulfillment of any contractual condition, pursuant to the construction schedule, such as in some real estate agreements. The contractual amount represents the maximum credit risk in such transactions, if the counterparty actually uses the fund available. However, the exposure to losses resulting from these contracts is lower than the total funds to be released, since part of these commitments 84 FINANCIAL STATEMENTS SEPTEMBER 2011

85 expires without being entirely used, either by customer s decision or at Banrisul s discretion which adopts criteria for the availability of these funds, as set forth in certain contractual clauses. Market risk: Banrisul is exposed to market risks inherent in its trading activities, through borrowings and loans / financing based on various types of indexes. Banrisul has an ongoing portfolio management process that encompasses the control over all positions exposed to market risks, according to business objectives and better performance achievement. This process takes into consideration factors that could adversely affect and change assets and liabilities, including changes in interest and exchange rates, loss of the capacity of receiving deposits and loss of customers to competitors, as well as other restrictions on lending and investing activities that may affect the fair value of products and securities, as established by regulatory measures issued by the monetary authorities. The main component of market risk measurement includes an estimate of potential losses under adverse market conditions, for which the Value at Risk (VaR) methodology is used. VaR is a measure of the maximum expected loss on monetary values under normal market conditions, within a ten-day period, with a desired level of probability of 99% used to measure market risk exposures of portfolios. Additionally, due to the limitation of the VaR methodology, scenario analyses and sensitivity and calibration measurements are performed, and stress tests are conducted on a quarterly basis, based on specific scenarios for each risk factor in order to determine Banrisul s financial soundness and its resilience in a potential crisis, in order to protect Banrisul s equity and its operating results against such adverse conditions. Sensitivity analysis: aiming at improving risk management and in compliance with CVM Resolution 475 as of December 17, 2008, Banrisul conducte a sensitivity analysis of its Trading portfolios. Stress tests were carried out for plus or minus variations on the following scenarios: 1% (Scenario 1), 25% (Scenario 2) and 50% (Scenario 3). Trading Portfolio to set the scenarios that compose the table of sensitivity analysis, Banrisul considered the situations set forth by CVM Resolution 475, as follows: Scenario 1: considered as premise a shock of 1% in market risk variables (Trading Portfolio), taking into account prevailing conditions in 09/30/2011. Scenario 2: considered as premise a shock of 25% in market risk variables (Trading Portfolio), taking into account prevailing conditions in 09/30/2011. Scenario 3: considered as premise a shock of 50% in market risk variables (Trading Portfolio), taking into account prevailing conditions in 09/30/2011. The following table presents the maximum expected loss considering scenarios 1, 2 and 3 and their variations to plus or minus. For Foreign Exchange Risk, it was used the rate of R$1.85/USD1.00 as of 09/30/2011 (PTAX - BACEN). Resulting Amounts from Sensitivity Test Risk Factor Scenario 1 Scenario 2 Scenario 3 Interest Rate ,259 10,350 Exchange Rate ,258 36,517 Equity ,820 5,640 Tot al... 1,057 26,337 52,507 85

86 Definitions: Interest Rate - Exposures subject to variations in interest rates and fixed-coupon interest rates. Exchange Rate - Exposures subject to currency fluctuations. Equity - Exposures subject to the variation of stock prices. The analysis of the output identifies in the Foreign Currency risk factor the greatest expected loss, which represents approximately 70% of the expected loss for the three scenarios. From Scenario 1 to Scenario 2, an increase of 96% on the highest expected loss was observed given the total exposure to all risk factors. From Scenario 2 to Scenario 3, the variation is 50%. The highest expected loss in these sensitivity analysis scenarios occurs in Scenario 3 (50%), in the amount of R$ 52,507. Liquidity risk: arises from the potential inability to finance financial assets and to meet the required obligations on the respective maturity dates and from difficulties to settle positions in the portfolio without incurring significant losses. Banrisul s liquidity risk is managed by analyzing cash flows projections, based on different market scenarios. For asset positions, the growth of the credit portfolio and the settlement of financial instruments are taken into account. For liabilities, the assumptions adopted include the possibility of making early redemptions and also lower-than-expected funding rollover. The Corporate Risk Unit is responsible for the consolidated management of Banrisul s liquidity risk, in order to monitor the availability of funds to meet Banrisul s financial needs from the point of view of funding and allocation, business and performance and business references, to avoid significant mismatches which could jeopardize the Bank s liquidity and budget planning. Banrisul s controls are kept on a preventive standpoint, calculated according to the rules of Resolution no. 2804/00 and Circular no. 3393/07, that establish monitoring consistent with the positions assumed in financial markets, in order to emphasize the liquidity risk arising from such exposures. Daily Cash Flow, Portfolio Position Map, Maturity and Currency Mismatch Map and Duration Maps, among other reports, are prepared to assist with the monitoring of these positions. This information is made available on a daily basis to the CFO and to the Market Risk Officer. The Market and Liquidity Risk Report is monthly prepared, including the main events during the period to highlight the Bank s current guidelines and policies and ensure compliance with exposure limits for market and liquidity risks, with the approval from the Banking Management and Economic Committees, the Executive Board and the Board of Directors. Derivatives: Banrisul has not entered into target forward swap transactions or any other leveraged derivative since its policies do not provide for non-hedging transactions for its assets and liability positions. On December 7, 2010, Banrisul amended its contracts, thus canceling its positions in derivatives swap transactions in effect as of September 30, 2010, as described in note 05. Sensitivity analysis: Banrisul has no derivatives transactions in its portfolio as of September 30, 2011, therefore the sensitivity analysis table is not disclosed herein. (d) Basel Ratio The Basel Ratio represents the ratio between the Shareholders Equity Reference Equity, or PR -, and the risk weighted assets - Required Reference Equity - PRE, according to current legislation, demonstrating the Bank s solvency. The minimum percentage established by the National Monetary Council - CMN - is 11%. CMN also determines that the minimum value of the Reference Equity must be equal to the sum of credit, market and operating risk amounts. The Bank is in compliance with that operational limit as of 30 September FINANCIAL STATEMENTS SEPTEMBER 2011

87 Banrisul Consolidated 2011 Reference Equity Level I... 4,297,659 Shareholders' Equity... 4,118,724 Receivable Income Accounts... 1,959,389 Payable Income Accounts... 1,778,386 Deferred Permanent Assets... 10,124 Adjustment to Fair Value - Securities and Derivatives... (8,056) Reference Equity Level II... (8,056) Adjustment to Fair Value - Securities and Derivatives... (8,056) Reference Equity (PR)... 4,289,603 Required Reference Equity (PRE)... 2,965,833 Amount related to: Credit Risks (PEPR)... 2,347,349 Market Risks (PJUR) ,471 Share Prices Risks (PACS)... 1,805 Operating Riss (POPR) ,208 Portion of Trading P orfolio Risks (RBAN) ,385 Margin Value or insufficiency (PR-PRE-RBAN) ,385 Basel Ratio (Risk Factor/PRE) % Permanent Assets Ratio % Permanent Assets Margin... 1,961,376 NOTE 25 Transactions With Related Parties Banrisul s commercial relations with the Rio Grande do Sul State Government and its subsidiaries, Companhia Estadual de Energia Elétrica (CEEE), Companhia Rio-Grandense de Saneamento (CORSAN), Companhia de Gás do Rio Grande do Sul (SULGÁS), Centrais de Abastecimento do Rio Grande do Sul S.A. (CEASA), Companhia Estadual de Silos e Armazéns (CESA), Companhia Rio-Grandense de Artes Gráficas (CORAG), Companhia Rio-Grandense de Mineração (CRM), Companhia de Indústrias Eletroquímicas CIEL, Companhia de Processamento de Dados do Estado do Rio Grande do Sul (PROCERGS) and Caixa Estadual S.A. Agência de Fomento/RS are described below: Rio Grande do Sul State Government - On June 29, 2007, Cooperation Agreement no. 1959/ 2007 was entered into between Banrisul and Rio Grande do Sul State Government, under which Banrisul will provide to the Government, on an exclusive basis and for a five-year period, banking services related to the payment of active and inactive servants, lifetime and special pensioners of the Executive Branch (Direct Administration), and pension plan pensioners (Social Security of the Rio Grande do Sul State IPERGS) and the Government maintains Banrisul s right to offer payroll loans. In view of the reciprocity of services provided, under this Agreement Banrisul releases the Rio Grande do Sul State Government from costs related to the provision of banking services, such as the collection of revenue and state taxes, debt to bank account, FGTS (severance pay fund) statement and mortgage loan collection services. Banrisul also provides services related to the financial transfers made by the government departments of amounts related to social programs and updates information related to inactive servants and holders of special or lifetime pension plans of the Direct Administration. These services are not paid. Banrisul also pays the suppliers of the Public Finance System and processes changes related to the Cash Management Integrated System (SIAC), which is responsible for centralizing in one bank account the cash and cash equivalents of the Direct and Indirect State Administration and its subsidiaries. These services are not paid. 87

88 Banrisul provides other services to foundations and government agencies, such as payment services through payment forms and the supply of meal and fuel vouchers. For the period ended in September 30, 2011, these services generated fees in the amount of R$10,619. Banrisul offers a solution for the management of e-commerce through the Online Auction Portal (Portal de Compras Pregão On Line). This service is not paid. Banrisul purchased FCVS credit rights, as described in note 06. At September 30, 2011, these credits are stated at acquisition cost plus income earned to the balance sheet date, in the amount of R$629,456. These credit rights were originally purchased at a discount and simultaneously hedged through an exchange rate swap contract to the Selic index variation. On December 7, 2010, in order to simplify the structure of such transaction and the cash flows generated at the settlement dates, the parties amended the contract, as defined in note 05. The changes did not affect Banrisul s net income for the year. For the nine-month period ended September 30, 2011, Banrisul s lease agreements on the State Government s properties generated expenses in the amount of R$751. Also, Banrisul has an employee assignment agreement with the State Government whereby the latter assigned 9 employees from the dissolved Caixa Econômica Estadual to Banrisul and received 7 employees to work in Government departments and foundations. These employeerelated costs are refunded by the parties. Companhia Estadual de Energia Elétrica (CEEE) - Banrisul is responsible for the provision of payroll banking services, including payroll loan operations. Banrisul is also responsible for collecting payments of electricity bills issued by CEEE and for the supply of meal and fuel vouchers, which represented service revenue in the amount of R$4,453 for the nine-month period ended September 30, Banrisul offers an e-commerce management solution through the Pregão On Line portal. Companhia Riograndense de Saneamento (CORSAN) - Banrisul is responsible for the provision of payroll banking services. Banrisul is also responsible for collecting payments of bills issued by Corsan and for the supply of fuel vouchers, which represented service revenue in the amount of R$5,054 for the nine-month period ended September 30, Banrisul offers an e-commerce management solution through the Pregão On Line portal. Banrisul serves as a go between in the implementation of the financial flow expected from the agreements entered into by this company and the National Bank for Economic and Social Development (BNDES). There are no guarantees pledged and/or compensation related to these operations. SULGÁS, CEASA, CESA, CIEL, CORAG, CRM and PROCERGS - Banrisul is responsible for the provision of payroll banking services and has payroll loan agreements with SULGÁS, CEASA and CESA. Banrisul is also responsible for services related to e-payment issued by these companies and the supply of meal and fuel vouchers, which represented service revenue in the amount of R$343 for the nine-month period ended September 30, Banrisul offers an e-commerce management solution through the Pregão On Line portal. SULGÁS has investments whose yield is indexed to the CDI variation. Banrisul serves as a go between in the implementation of the financial flow expected from the agreements entered into by this company and the National Bank for Economic and Social Development (BNDES). There are no guarantees pledged and/or compensation related to these operations. Caixa Estadual S.A. - Agência de Fomento/RS - Banrisul is responsible for the provision of payroll banking services, including payroll loan operations. Banrisul is also responsible for e- 88 FINANCIAL STATEMENTS SEPTEMBER 2011

89 payment services and the supply of meal and fuel vouchers, which represented service revenue in the amount of R$65 for the nine-month period ended September 30, Banrisul offers an e-commerce management solution through the Pregão On Line portal. Banrisul and Caixa Estadual have an employee assignment agreement, whereby the former assigned 7 to the latter. These employee-related costs are refunded by the parties. Banco Regional de Desenvolvimento do Extremo Sul (BRDE) - Banrisul is responsible for the provision of payroll banking services, including payroll loan operations to employees allocated in the Rio Grande do Sul State, and is responsible for e-payment services. Fundação Banrisul de Seguridade Social - As described in Note 23, Banrisul s remaining portion of the contracted debt related to this plan amounts to R$63,961. In addition to this debt, Banrisul pays interest of 6% per year with final maturity in 2028, which is monthly adjusted based on the General Price Index Domestic Availability (IGP-DI). In order to supplement the benefits ensured and provided by the Social Security to its employees, Banrisul s contributions to Fundação Banrisul for the nine-month period ended September, amounted to R$9,511 as described in Note 23. Banrisul is responsible for the provision of payroll banking services as well as the payment of retirement and pension benefits to Fundação Banrisul s beneficiaries. Fundação Banrisul also has an exclusive investment fund managed by Banrisul, which represented service revenue in the amount of R$222 for the nine-month period ended September 30, Investments made by Fundação Banrisul at Banrisul earn yield at rates indexed to the CDI variation. For the nine-month period ended September 30, 2011, Banrisul s lease agreements on the Fundação Banrisul s properties generated expenses in the amount of R$4,050. Cabergs Caixa de Assistência dos Empregados do Banco do Estado do Rio Grande do Sul - Banrisul provides medical and dental care benefits to its employees and Fundação Banrisul s retirees, which generated expenses of R$16,551 for the nine-month period ended September 30, Banrisul is responsible for providing banking services related to the payment of staff and suppliers. Cabergs also has an exclusive investment fund managed by Banrisul, which represented service revenue in the amount of R$116 for the nine-month period ended September 30, Investments made by Cabergs at Banrisul earn yields at rates indexed to the CDI variation. Banrisul offers an e-commerce management solution through the Pregão On Line portal, and this service is not paid. All interest-bearing transactions were carried out on an arm s length basis at rates prevailing on the transaction dates. 89

90 Transactions with parent companies and subsidiaries are as follows: Banrisul Asset s (Liabilities) Income (Expenses) Derivatives ,135 - (1,095) State of Rio Grande do Sul Government ,135 - (1,095) Collection Services... 5,072 5, State of Rio Grande do Sul Government... 5,072 5, Other Credits... 16,850 14,912 6,603 4,138 State of Rio Grande do Sul Government... 14,028 12, Subsidiaries... 2,822 2,429 6,603 4,138 Demand Deposits... (83,589) (163,573) - - State of Rio Grande do Sul Government... (75,764) (130,536) - - Subsidiaries of State of Rio Grande do Sul Government... (5,319) (27,694) - - Subsidiaries... (2,506) (5,343) - - Time Deposits... (264,127) (223,660) (10,642) (8,330) Subsidiaries... (264,127) (223,660) (10,642) (8,330) Money Market Funding... (715,434) (1,045,614) (80,044) (90,774) State of Rio Grande do Sul Government (*)... (646,966) (980,891) (74,319) (86,484) Subsidiaries... (68,468) (64,723) (5,725) (4,290) Other Payables... (116,154) (80,467) (10,413) (10,121) State of Rio Grande do Sul Government... (43,571) (11,576) (751) (851) Banrisul foundation... (64,414) (61,681) (8,465) (8,071) Subsidiaries... (8,169) (7,210) (1,197) (1,199) Total... (1,157,382) (1,390,195) (94,496) (106,182) (*) These funds receive 100% of the Selic rate. Banrisul Consolidated Asset s (Liabilities) Income (Expenses) Cash... 19,228 17,988 1,569 1,247 State of Rio Grande do Sul Government... 19,228 17,988 1,569 1,247 Derivatives ,135 - (1,095) State of Rio Grande do Sul Government ,135 - (1,095) Collection Services... 5,072 5, State of Rio Grande do Sul Government... 5,072 5, Other Credits... 19,177 18, State of Rio Grande do Sul Government... 19,177 18, Demand Deposits... (81,083) (158,230) - - State of Rio Grande do Sul Government... (75,764) (130,536) - - Subsidiaries of State of Rio Grande do Sul Government... (5,319) (27,694) - - Money Market Funding... (646,966) (980,891) (74,319) (86,484) State of Rio Grande do Sul Government (*)... (646,966) (980,891) (74,319) (86,484) Others Payables... (107,985) (73,257) (9,216) (8,922) State of Rio Grande do Sul Government... (43,571) (11,576) (751) (851) Banrisul foundation... (64,414) (61,681) (8,465) (8,071) Total... (792,557) (1,067,578) (81,196) (94,647) (*) These funds receive 100% of the Selic rate. Compensation of key management personnel Yearly, the General Shareholders Meeting resolves on: a) The total annual compensation of the members of the Executive Board, the Board of Directors, the Supervisory Board and the Audit Committee, as stated in the Company s Bylaws; and b) The allowance to cover Supplementary Pension Plans Additional on behalf of the Executive Board, included in the Private Pension Plan for Banrisul and its subsidiaries management and employees. 90 FINANCIAL STATEMENTS SEPTEMBER 2011

91 In 2011, the fixed maximum annual amount of R$403 was defined as compensation and bonuses payable to individual members of the Executive Board, the Board of Directors, the Supervisory Board and the Audit Committee. For the nine-month period ended September 30, 2011, management compensation is as follows: Short Term Benefits paid to Senior Management Salaries... 2,381 2,727 Bonuses Security Total... 2,921 3,365 Banrisul pays in full defined benefit pension plans to officers who belong to the staff. For the nine-month period ended September 30, 2011, contributions to Fundação Banrisul de Seguridade Social (Banrisul Social Security Foundation) are summarized as follows: Post-Employment Benefits Defined Contribution Pension Plan Banrisul has a D&O liability insurance policy for its officers and members of the Boards, and paid insurance premium in the amount of R$298. Banrisul does not offer its key management personnel any long-term, termination or stockbased compensation benefits. Additional information (1) According to existing legislation, financial institutions may not grant loans or advances to: a) Officers, directors or members of the advisory, supervisory or similar boards, as well as their spouses and relatives up to the 2 nd degree of kinship; b) Individuals or legal entities holding equity interest equal to or more than 10%; and c) Legal entities having more than 10% of capital held by the financial institution itself, any of its directors or officers as well as their spouses and relatives up to the 2 nd degree of kinship. Thus, Banrisul does not grant any loans or advances to any subsidiary, members of the Board or the Executive Board and their relatives. (2) Shareholding As of September 30, 2011, members of the Executive Board, the Board of Directors, the Supervisory Board and the Audit Committee jointly hold Banrisul s shares as follows: SHARES AMOUNT Common Shares 9 Preferred Shares 128 TOTAL SHARES

92 NOTE 26 Impact From the Adoption of the International Financial Reporting Standards (IFRS) During the IFRS convergence process, some standards and their interpretations were issued by the Brazilian FASB (CPC), which will be applicable to financial institutions only when approved by the National Monetary Committee (CMN). Currently, financial institutions and other institutions regulated by the Central Bank must adopt the following pronouncements: Impairment of Assets (CPC 01); Statement of Cash Flows (CPC 03); Related Party Disclosures (CPC 05); Subsequent Events (CPC 24) and Provisions, Contingent Liabilities and Contingent Assets (CPC 25). CMN Resolution no. 3786/09 and Official Letters no. 3472/09 and no. 3516/10, issued by the Central Bank of Brazil (Bacen), established that financial institutions and other institutions authorized to operate by Bacen, either incorporated as a public company or required to establish an Audit Committee, must, as of December 31, 2010, annually prepare and disclose in a period not exceeding 120 days after the December 31 reporting date, their consolidated financial statements prepared in accordance with the international financial reporting standards (IFRS), and following international pronouncements issued by the IASB International Accounting Standards Board. The financial statements for the year ended December 31, 2010, prepared in accordance with IFRS was disclosed by Banrisul on May 2, 2011, on its website as well as on the website of the Brazilian Securities Exchange Commission (Comissão de Valores Mobiliários CVM -, Management believes that the reconciliation between net income and shareholders equity as of September 30, 2011 is consistent with the amounts presented in the reconciliation as of December 31, Authorization for Completion of the Financial Statements NOTE 27 Banrisul s Executive Board authorized the completion of these financial statements on October 31, 2011, which consider events subsequent to that date that might affect these financial statements. TÚLIO LUIZ ZAMIN CEO FLAVIO LUIZ LAMMEL Vice-President EXECUTIVE BOARD WERNER KÖHLER Accountant CRCRS GUILHERME CASSEL IVANDRE DE JESUS MEDEIROS JOÃO EMÍLIO GAZZANA JOEL DOS SANTOS RAYMUNDO JONE LUIZ HERMES PFEIFF JULIMAR ROBERTO ROTA LUIZ CARLOS MORLIN Officers 92 FINANCIAL STATEMENTS SEPTEMBER 2011

93 Report 93

94 94 FINANCIAL STATEMENTS SEPTEMBER 2011

95 Interim information review report To the Shareholders, Board of Directors and Officers Banco do Estado do Rio Grande do Sul S.A. Porto Alegre - RS Introduction We have reviewed the individual and consolidated balance sheet of Banco do Estado do Rio Grande do Sul S.A. ("Bank") as of September 30, 2011 and the related statements of income, of changes in shareholders' equity and of cash flows for the quarter then ended, including notes thereto. Management is responsible for the preparation and fair presentation of this interim financial in accordance with the accounting practices adopted in Brazil, applicable to institutions authorized to operate by the Brazilian Central Bank. Our responsibility is to express a conclusion on this interim information based on our review. Scope of review We conducted our review in accordance with Brazilian and international standards on review. A review of interim information consists of inquiries, mainly of the officials in charge of financial and accounting areas, and of the application of analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying individual and consolidated interim information does not present fairly, in all material respects, the Bank's financial position at September 30, 2011, the performance of its operations and cash flows for the quarter then ended, in accordance with the accounting practices adopted in Brazil, applicable to institutions authorized to operate by the Brazilian Central Bank. Other interim information Statement of value added - We have also reviewed the individual and consolidated statement of value added (SVA) for the quarter ended September 30, 2011, the presentation of which in the interim financial information is required in accordance with the regulations issued by Brazilian Exchange Commission (CVM) and deemed to be supplementary information for the purposes of the Brazilian Central Bank and the National Monetary Council, which do not require the presentation of the SVA. These statements were submitted to the same review procedures described above and, based on our review, we are not aware of any fact which makes us believe that they were not prepared, in all material respects, in accordance with the individual and consolidated interim accounting information taken as a whole. Review of prior quarter amounts - The individual and consolidated interim accounting information for the quarter ended September 30, 2010, presented for comparison purposes, was previously reviewed by other independent auditors who issued their report dated November 03, 2010 with no modification. Porto Alegre (RS), November 1, 2011 Fernando Radaich de Medeiros Contador CRC-1SP217532/O-6/"S"RS ERNST & YOUNG TERCO Auditores Independentes S.S. CRC 2SP015199/O-6/F/RS Porto Alegre, 05 de agosto de

96 96 FINANCIAL STATEMENTS SEPTEMBER 2011

97 Analysis of Performance 3Q11 FOLLOWING IS THE ANALYSIS OF THE PERFORMANCE OF BANCO DO ESTADO DO RIO GRANDE DO SUL S.A. IN THE NINE MONTHS OF 2011 AND IN THE 3 RD QUARTER OF

98 98 FINANCIAL STATEMENTS SEPTEMBER 2011

99 Banco do Estado do Rio Grande do Sul S.A. Founded in 1928, Banrisul is a multiple-service bank controlled by the State of Rio Grande do Sul. Banrisul is the official and main financial agent of the Government of the State. In 1934, Banrisul began its expansion with the opening of branches in various cities in the state, and continued its growth and consolidation through the incorporation of public financial institutions such as the Banco Real de Pernambuco (1969), Banco Sul do Brasil (1970), Banco de Desenvolvimento do Estado do Rio Grande do Sul, BADESUL (Rio Grande do Sul s Development Bank, 1992) and DIVERGS - Distribuidora de Títulos e Valores Mobiliários do Estado do Rio Grande do Sul (Securities Distributor of the State of Rio Grande do Sul, 1992). In 2007 Banrisul held a primary and secondary public offering of shares, totaling approximately R$2.1 billion and enrolled to the Level 1 of Corporate Governance Practices of the BM&FBovespa. In 2008, Banrisul opened a new Superintendence in the State of Santa Catarina, expanding its inclusion in that State, in order to deepen customer relationships, strengthen partnerships that promote the development of the State of Santa Catarina and expand its business scale was marked by the consolidation of the strategy towards adding efficiency and quality to the management, which took shape with the implementation of a management model focused on generating results, on technology modernization, on the review of internal processes, the development of a new credit model, the restructuring of business goals models and incentive compensation to employees. The Bank presented consistent growth of its asset base in 2010, and ended the period with favorable solvency and profitability indicators. In September 2011, total assets reached the amount of R$36.6 billion. Of these, R$19.7 billion are related to the loan portfolio, and R$4.3 billion recorded in the shareholders equity of. Banrisul focuses on providing consumer credit to individuals and working capital finance to companies. Over the past 12 months, the participation of the corporate segment has expanded e, as well as the real estate credit lines in relation to the total loan book. The growth of these two credit lines was very significant in the last twelve months, surpassing the performance of the credit portfolio to individuals. Yet, payroll lending to individuals has maintained the highest share of the credit portfolio, despite the shy growth of 0.8% from 2Q11 to 3Q11. In comparison to 3Q10, payroll loans increased 14.0%. Another important credit product the portfolio is working capital for companies, that grew 28.2% year-on-year and 4.5% quarter-on-quarter. Real estate portfolio was 3Q11 s highlight, increasing 10.3% from 2Q11 to 3Q11 and 32.3% from September 2010 to September The geographic focus of the Bank is the Southern Region of Brazil, especially the state of Rio Grande do Sul, with the 4 th largest Gross Domestic Product (GDP) and where Banrisul s headquarters is located. Banrisul group consists of 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 S.A. and Banrisul Serviços Ltda. 99

100 Banking Industry and Competitive Environment Banking industry extremely linked to the movement of business cycles and considering the high level of integration between local and global economies, has been impacted, over the nine months of 2011, by the financial instability in full deployment in Europe and in the United States. The effects of turbulence in the macroeconomic environment were felt in the slowdown of credit growth, in the acceleration, though not widespread, of default levels and in a reversal of the monetary policy of increasing interest rates to control inflation. In addition to cyclical pressures, recent changes in the regulatory framework will provoke changes in the structure of the Brazilian banking environment. The balance of credit operations within the Brazilian financial industry reached R$1,929.3 billion in September 2011, an increase of 19.6% in comparison compared to September last year. The moderation in credit added to wage increases resulting from collective bargaining agreements should help keeping default levels under control, which reached 3,5% in September 2011, increasing 10 basis points in twelve. The control of inflation and the reduction in the Selic rate by 50 basis points last August, with the prospect of another reduction in October, as opposed to successive increases of the interest rate made by the Monetary Policy Committee (Comitê de Política Monetária - COPOM), should also contribute to the stability of default rates. The Credit/GDP ratio reached 48.4% in September, up 300 basis points from the ration obtained in September In relation to structural impacts of financial crises, it is important to point out the Basel III accord which, once implemented, will result in new capital requirements for financial institutions. However, many Brazilian banks are already reporting higher BIS ratios than the minimum established by the National Monetary Council, which should reduce possible difficulties in adapting to the new rules. The most relevant aspects in Basel III are the requirement for a higher percentage of better quality regulatory capital. Divided into two levels, capital will be composed of elements capable of absorbing losses during the lifetime of the institution and in the event of bankruptcy. The introduction of countercyclical capital seeks to contemplate the risks from changes in the macroeconomic scenario, in an environment of economic growth. Basel III also proposes two levels of liquidity: short term liquidity will verify the institution s ability to withstand a stress scenario for a period of one month, while long-term liquidity encourages the financing of activities with more stable funding sources. These changes in the regulatory framework may impair mainly the credit concession until banks are dully adequate. In relation to the banking environment in Brazil, in June 2011, Banrisul occupied, among midsized and large Brazilian banks, the 11 th position in total assets, 11 th in equity, 8 th in total deposits and 7 th in the number of branches, according to rankings released by the Central Bank Brazil (BNDES not included). The Bank increased its time deposits market share in Brazil from % in 2Q11 to % 3Q11. Table 01: Competitive Environment Brazil Rio Grande do Sul sep/11¹ jun/11 jun/11 mar/11² Demand Deposits % % % % Saving Deposits % % % % Time Deposits % % % % Credit Operations % % % % Number of Branches % % % % ¹ Last information disclosed. ² Last available information. 100 FINANCIAL STATEMENTS SEPTEMBER 2011

101 In the State of Rio Grande do Sul, Banrisul s market share also increased 0.88 percentage points in credit operations from March 2011 to June The reduction in share of demand and savings deposits is due to migration of funding to time deposits in that period. Economic and Financial Indicators Table 02: Economic and Financial Indicators Main Income Statement Accounts - R$ Million 9M11 9M10 3Q11 2Q11 1Q11 4Q10 3Q10 3Q11/ 9M11/ 2Q11 9M10 Net Financial Margin 2, , % 15.7% Allowance for Loan Losses Expenses (463.8) (391.7) (182.3) (143.1) (138.5) (126.6) (111.2) 27.4% 18.4% Gross Profit from Financial Operations 1, , % 15.0% Financial Income 4, , , , , , , % 24.7% Financial Expenses 2, , % 34.1% Income from Services Rendered % 10.5% Administrative and Other Operational Expenses (¹) 1, , % 7.2% Other Operation Income % 56.4% Income from Operations 1, % 33.2% Net Income % 32.5% Used/Distributed Results - R$ Million 9M11 9M10 3Q11 2Q11 1Q11 4Q10 3Q10 3Q11/ 9M11/ 2Q11 9M10 Interest on Own Capital - Dividends (²) % 34.4% Main Balance Sheet Accounts - R$ Million Sep11 Sep10 Sep11 Jun11 Mar11 Dec10 Sep10 Sep11/Sep11/ Jun11 Sep10 Total Assets 36, , , , , , , % 13.0% Securities (³) 10, , , , , , , % 5.6% Total Lending 19, , , , , , , % 21.0% Allowance for Loan Losses (1,284.6) (1,122.7) (1,284.6) (1,214.7) (1,156.0) (1,101.9) (1,122.7) 5.8% 14.4% Past Due Loans > 60 days % 16.1% Funding and Assets under Management 27, , , , , , , % 14.2% Shareholders' Equity 4, , , , , , , % 14.7% Consolidated Reference Equity 4, , , , , , , % 14.8% Average Shareholders' Equity 4, , , , , , , % 14.0% Average Total Assets 34, , , , , , , % 11.8% Financial Index 9M11 9M10 3Q11 2Q11 1Q11 4Q10 3Q10 Return on Total Assets 2.5% 2.1% 2.6% 2.6% 2.6% 2.9% 2.6% Return on Shareholders' Equity 21.6% 18.6% 24.2% 24.0% 22.8% 26.1% 23.9% ROAA (p.a.) (4) 2.6% 2.2% 2.7% 2.7% 2.6% 2.9% 2.6% ROAE (p.a.) (5) 22.8% 19.5% 24.7% 24.3% 23.3% 26.5% 24.5% Efficiency Ratio (6) 44.4% 48.5% 44.4% 45.0% 45.8% 47.8% 48.5% Consolidated Basel Ratio 15.9% 15.8% 15.9% 15.6% 15.8% 16.1% 15.8% Fixed Assets Ratio (7) 3.8% 4.6% 3.8% 4.0% 4.3% 4.4% 4.6% (8) Default Rate 2.9% 3.0% 2.9% 2.7% 2.7% 2.5% 3.0% Cover Rate (9) 226.7% 230.1% 226.7% 243.5% 241.7% 263.6% 230.1% Economic Indicators 9M11 9M10 3Q11 2Q11 1Q11 4Q10 3Q10 Effective Selic Rate (accrued) 8.74% 7.03% 3.03% 2.82% 2.65% 2.57% 2.62% Foreign Exchange Rate (R$/USD end of period) Foreign Exchange (%) 11.30% -2.70% 18.79% -4.15% -2.25% -1.67% -5.96% IGP-M (General Market Price Index) 4.15% 7.90% 0.97% 0.70% 2.43% 3.18% 2.08% IPCA (Extended National Consumer Price Index) 4.97% 3.60% 1.06% 1.40% 2.44% 2.23% 0.50% (¹) Including Personnel Expenses, Other Administrative Expenses and Other Operating Expenses. (²) Interest on own capital and dividends paid and/or distributed (before income tax witholding at source), (³) Including interbank investments and excluding matched transactions. ( 4 ) Net income / average total assets. ( 5 ) Ne t income / aver age shar eholders equity. ( 6 ) Efficiency Ratio - 12-month accumulation. Personnel expenses + other administrative expenses /Net financial margin + revenue from services rendered + (other operating income - other operating expenses) ( 7 ) Fixed assets/ shareholders equity. ( 8 ) Default > 60 days / total loans. ( 9 ) Allowance for loan losses / default > 60 dias. 101

102 Assets and Earnings Structure Financial Performance Banrisul ended the nine months of 2011 with a growing assets structure and favorable results. The Bank continued its strategy of increasing credit operations, encouraged by the prospects of the economic environment, and enjoyed its competitive advantages in relation to other institutions: comfortable cash at hand, low exposure to treasury risks, adequate levels of default and cost of funding, and the financial capacity to sustain the growth of loan assets. Banrisul s liquidity is favored by its market fundraising features, the cash and cash equivalents are invested in federal bonds indexed to the Selic Rate, Treasury bills or in matched transactions, always backed by federal securities, without any exposure to foreign exchange, swaps or derivatives operations. The policy of attracting small and medium depositors and savers ensures the reduction of financial costs and the diversification of the funding sources, a strategy suited to the needs of funding for new loans. Total deposits represented 64.8% or R$20.9 billion of the third parties liabilities at the end of September Responsible for 53.8% of total assets, the credit portfolio is composed of non-concentrated operations granted mainly to individuals and micro, small and medium companies. Payroll loans to individuals and working capital to companies absorbed 31.0% and 24.6%, respectively, of total credit at the end of September Real estate loans, with less participation but ongoing growth, correspond to 8.2% of the total credit portfolio. Non-performing loans over 60 days reduced to 2.9% of the total loans in September 2011, a level lower than the 3.0% of the same period last year. NPL over 90 days was 2.4% in September 2011, also lower than the 2.6% of September The coverage ratio, total provisions in relation to overdue credit operations, reached 226.7%, an appropriated level in comparison to market practices, given the risks of past due loans. Banrisul has conditions to support credit growth, as demonstrated by the (consolidated) Basel Ratio of 15.9% in September All structural indicators demonstrate the effectiveness of the administrative structure, at favorable levels, as showed by the operating costs/total assets and cost/income ratios, which reached 4.9% and 44.4% in September 2011, respectively. Net income reached R$677.7 million in 9M11, 32.5% (R$166.3 million) above the net income for the same period of In 3Q11, net income was R$239.2 million, 15.9% (R$32.8 million) above 3Q10. The performance reflects increases in credit, treasury and services revenues, offset by higher financial expenses. Net profit increased 5.3% (R$12.0 million) from 2Q11 to 3Q11 due to higher income from credit and foreign exchange portfolios, offset by the increase of financial expenses. Total Net profit in the nine months of 2011 represents an annualized return on average equity of 22.8%. In September 2011, shareholders equity reached R$4,298.1 million, an increase of 14.7% over September 2010, 11.5% over December 2010 and of 4.4% over June Gross interest income of R$1,997.2 million in the nine months of 2011 was 15.0% (R$261.0 million) higher than that of the same period the last year. In 3Q11, it reached R$690.9 million, 4.9% (R$32.3 million) above 3Q10 and 0.2% (R$1.3 million) above that of 2Q11. Total assets reached R$36,554.1 million in September 2011, an increase of 13.0% over September 2010, 13.8% over December 2010 and 5.2% above June The year-on-year, growth was motivated by the increase in credit portfolio, especially in commercial credit portfolio. With respect to growth from 2Q11 to 3Q11, in addition to that of the commercial credit portfolio, it was observed a significant expansion of rural credit. Banrisul s credit operations totaled R$19,654.7 million at the end of September 2011, an increase of 21.0% in 102 FINANCIAL STATEMENTS SEPTEMBER 2011

103 twelve months, 15.4% in nine months and 4.5% in the last quarter. The commercial credit (non-earmarked portfolio) totaled R$14,906.9 million, an increase of 19.1% in twelve months, 13.5% in nine months and 2.3% in the last quarter. Commercial credit to Individuals totaled R$8,326.7 million in September 2011, an increase of 15.4% over September 2010, 12.5% over December 2010 and 1.4% over June Commercial credit to Companies totaled R$6,580.2 million in September 2011, an increase of 24.2% compared with September last year and of 14.8% compared to December 2010 and of 3.4% from June Funds raised and under management reached R$27,505.3 million in September 2011, growing 14.2% over September 2010, 9.6% over December 2010 and 5.4% from June Deposits reached R$20,910.1 million in September 2011, growing 16.5% over September 2010, 9.7% in relation to December 2010 and 5.6% to June Assets under management reached R$6,595.2 million, 7.4% above September 2010, 9.2% over December 2010 and 4.8% above June Banrisul collected and provisioned R$581.7 million in taxes and contributions in nine months of Taxes withheld and paid, which are levied directly on financial intermediation and other payments, amounted to R$369.5 million. Capital Expenditure Policy Investments in hardware, software and maintenance of assets focused mainly on implementation of solutions for ensuring safety in the payments, to Banrisul accreditation as digital certificate-issuing authority and the restructuring of the environment for enterprise storage the large platform (mainframes). The investment policy of the Bank unfolds on three pillars: technology expansion and modernization, renovations and expansions and expansion of the distribution network. For that purposes, R$141.0 million was invested in the nine months of 2011, distributed among software and hardware enhancements and asset maintenance. Technology Expansion/Modernization Investments in information technology amounted to R$121.5 million in September 2011, reflecting the strategy of periodic development of security mechanisms to prevent and combat fraud in banking transactions and improve the operational efficiency of its infrastructure of systems. In the nine months of 2011, in order to meet requirements for the acquisition of cards from MasterCard, Visa and Banricompras, security processes were standardized and implemented, in order to comply with the PCI (Payment Card Industry) safety standards to card market. The Bank is the only institution in Latin America member to PCI board of advisors, directly influencing the definition of rules to be applied worldwide. Encryption and digital certification projects also add a higher level of security to the Bank's relationships channels. Computer authentication features based on digital certificates have been incorporated to the current system in use by Banrisul's correspondent banks. The Bank's web environment systems are now authenticated with digital identity smartcards, increasing security and access validation to products. The digital identity certificates have incorporated alerts of due date proximity to avoid problems from unavailability of access. Service Network Renovation/Expansion Increase operations in the banking industry, review and expand the number of service points guide the restructuring of the Bank. Branches modernization is focused on revitalizing customer service model, setting new standards of configuration of the points, increasing the 103

104 performance of communication channels and improving contact with customers. With the view of expanding and remodeling the network, investments of R$19.5 million were made in nine months of 2011, being R$12.6 million during 1H11 and R$6.9 million in 3Q11. Expansion of Distribution Network In nine months of 2011, Banrisul s customer service network totaled 1,272 points, distributed in 440 branches, 279 banking services stations and 553 electronic service stations. In Rio Grande do Sul, the Bank is present in 414 municipalities, covering 98% of the population and GDP of the state. Margin Analysis The Margin Analysis in the following chart was based on the average balances of assets and liabilities, calculated as of the closing monthly balances in each quarter. The chart shows the revenue-generating assets and interest-bearing liabilities, the corresponding financial incomes on assets and financial expenses on liabilities, as well as the effective average rates practiced. Table 03: Margin Analysis R$ Million 9M11 9M Average Income Average Average Income Average Average Income Average Average Income Average Balance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense Rate Interest-Earning Assets 31, , % 28, , % 28, , % 25, , % Loan Portfolio 18, , % 14, , % 15, , % 11, , % Resales pending Settlement 2, % 4, % 3, % 5, % Money Market Investments 2, % 1, % 1, % 1, % Available-for-Sale Securities 1, % 1, % 1, % % Held-to-Maturity Securities 4, % 4, % 4, % 3, % Interbank Deposits % % % % Other Interest-Earning Assets 2, % 2, % 2, % 1, % Compulsories 1, % 1, % 1, % 1, % Other % % % % Non Interest-Earning Assets 3, , , ,980.3 Total Assets 34, , % 30, , % 31, , % 27, , % Interest - Bearing Liabilities (1,944.2) 7.72% 23,109.4 (1,402.4) 6.07% 23,143.0 (1,925.8) 8.32% 21,097.3 (1,719.7) 8.15% Domestic Interbank Deposits 11.2 (1.0) 8.64% 62.3 (3.6) 5.83% 38.2 (3.9) 10.28% 59.3 (4.2) 7.10% Domestic Saving Deposits 5,242.0 (279.7) 5.34% 5,942.7 (257.5) 4.33% 5,901.4 (349.8) 5.93% 5,136.1 (292.9) 5.70% Domestic Time Deposits 11,647.8 (884.3) 7.59% 9,002.4 (602.0) 6.69% 9,268.2 (837.3) 9.03% 8,334.7 (782.3) 9.39% Money Market Funding 1,742.7 (167.2) 9.60% 2,081.3 (161.1) 7.74% 1,893.2 (214.4) 11.32% 2,485.5 (257.6) 10.36% Borrowings and Onlendings 1,809.1 (220.3) 12.18% 1,637.5 (83.1) 5.07% 1,627.7 (112.5) 6.91% 1,407.9 (57.1) 4.05% Domestic 1,109.6 (76.0) 6.85% 1,045.8 (51.0) 4.87% 1,038.2 (77.5) 7.46% (42.0) 4.59% Foreing (144.2) 20.62% (32.1) 5.43% (35.1) 5.95% (15.0) 3.05% Other 4,743.1 (391.7) 8.26% 4,383.1 (295.1) 6.73% 4,414.3 (407.9) 9.24% 3,673.8 (325.6) 8.86% Non Interest - Bearing Liabilities 5, , , ,609.0 Shareholders' Equity 4, , , ,270.8 Liabilities and Shareholders' Equity 34,479.1 (1,944.2) 5.64% 30,873.9 (1,402.4) 4.54% 31,359.0 (1,925.8) 6.14% 27,977.2 (1,719.7) 6.15% Spread 7.14% 6.89% 9.29% 9.09% NIM 2, % 2, % 2, ,542.4 NIM (Yearly) 10.66% 10.10% 10.13% 9.78% 104 FINANCIAL STATEMENTS SEPTEMBER 2011

105 Credit operations include advances on foreign exchange contracts and leasing agreements, which are 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. 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 Deposit Guarantee Fund (Fundo Garantidor de Crédito - FGC). The interest-earning assets margin presented an upward trend in last nine months in relation the same period last year, when the effective basic interest rate (Selic) increased from 7.03% in 9M10 to 8.74% in 9M11. Average profitable assets grew 9.7% year-on-year, while interestbearing liabilities increased by 9.0%. The absolute margin increased 15.7%, and the relative margin surpassed by 0.41 percentage points that recorded in 9M10. The hikes of the basic interest rate registered in the nine months of the year resulted in increasing rates on interest-earning assets over interest-bearing liabilities. Besides the basic interest rates that index transactions in the financial sector, the assets and liabilities structure and also the tenor of the transactions are determinant factors in the formation of the margin recorded in each period. The representativeness of credit assets in total average interest-earning assets expanded by 6.4 percentage points last year, given that treasury operations maintained, practically, the same participation, going from 26.1% in September 2010 to 26.3% in September 2011, an increase of 0.6 percentage points. The credit revenue from the higher volume of transactions and the effects of the hikes of the Selic Rate over the balance of securities were the main drivers to increase margin. By the side of interest-bearing liabilities, it can be clearly seen the change in funding structure: the average balance of time deposits, during the nine months of 2011, increased to represent 46.2% of the liabilities that generated costs, 7.2 percentage points above the 39.0% shown in the same period last year; savings deposits reduced their participation from 25.7% in 9M10 to 20.8% in 9M11. On the other hand, non interest-bearing demand deposits showed an increase in their participation of 5.7 percentage points in the average balance, going from 48.1% in 9M10 to 53.8% in 9M11. Changes in the structure of assets and liabilities improved the financial margin and increased efficiency. The growth of the average interest-earning assets was influenced by the increase of credit asset and securities portfolio, helping increase revenue-generating rates. In relation to liabilities, the balances of savings and money market funding declined their volume, while time deposits and borrowings increased their average balance. However, interest-bearing liabilities showed an upward trend in average rates strongly influenced by economic measures to increase the Selic rate and the growth of reserve requirements. The results of these changes together produced higher spreads, which reached 7.14%% in nine months 2011, 0.25 percentage points higher than that of 9M

106 Variations in Interest Income and Expenses: Volumes and Rates The following chart shows the variations in the interest incomes and expenses by the change in average volume of interest-earning assets and interest-bearing liabilities (a) from 9M10 to 9M11, (b) from 2009 to 2010 and (c) from 2008 to The variations in the volume and interest rates were calculated based on the average balances in the period and the variations in the average interest rates on interest-earning assets and interest-bearing liabilities. Variation of interest rate was calculated by variation on interest rate in the period multiplied by the average interest-earning assets or average interestbearing in the second period. The volume change was computed as the difference between the interest amounts from the current period to the previous one. The upward net variation of revenue on interest-earning assets of R$874.9 million is associated with increases the volumes of credit and securities, which added revenues of R$676.5 million, and also with oscillations over average rates that caused an increase of R$317.7 million motivated by the growth of credit rates in R$75.0 million, and by the expansion of securities portfolio, increasing repurchase agreements, by R$199.7 million. The growth of R$541.8 million in expenses from interest-earning liabilities is tied to evolution of the average balances of time deposits, that increased the cost of funding by R$221.3 million, to higher average interest rates, the raised the costs of saving accounts and time deposits by R$116.0 million, by money market funding of R$34.9 million, and borrowing and onlendings of R$129.5 million. Both the saving and market funding showed reductions in their average balances, thus reducing costs proportionally, in contrast to the hikes of the interest rates that originated increases in expenses. The change in credit revenues that came from the average rates was directly influenced by the exchange rate of 11.30% accumulated in the nine months of 2011, a result that led to increases in long-term financing in foreign currency and in the income from operations for advance on foreign exchange contracts. This effect was made null because of the cost of borrowings and onlendings, which showed an upward trend, linked specifically to the volatility of the exchange rate. The positive result of variations in financial income and expenses was delivered by higher average volume, making it possible that asset gains of R$375.1 million were higher than the R$42.0 million produced by liabilities expenses, allowing for the expansion of R$333.1 million in the analytical margin. Table 04: Variations in Interest Income and Expenses: Volumes and Rates R$ Million 9M11 / 9M / / 2008 Increase/Decrease Increase/Decrease Increase/Decrease According to change in: According to change in: According to change in: Volume Rate Net Volume Rate Net Volume Rate Net Interest Change Interest Change Interest Change Interest - Earning Assets Lending Operations, Leasing Operations and Other Receivables (160.8) (110.7) Resales pending Settlement (120.9) 52.8 (68.1) (215.4) 67.3 (148.1) 32.4 (24.5) 7.9 Securities and Derivatives (18.8) (42.8) Interbank Deposits 5.2 (1.0) 4.2 (2.1) (2.5) (4.6) 96.3 (5.8) 90.5 Other (3.6) (5.4) 18.4 (273.9) 38.0 (235.9) Total In terest-earning Assets (120.2) (145.8) Interest -Bearing Liabilities Interbank Deposits 6.5 (3.8) 2.7 (1.1) (3.9) 0.4 (3.5) Savings Deposits 32.7 (55.0) (22.3) (46.0) (10.9) (56.9) (252.1) 4.1 Time Deposits (221.3) (61.0) (282.3) (85.1) 30.2 (54.9) (120.8) (9.9) Money Market Funding 28.8 (34.9) (6.1) 70.7 (27.5) Onlendings (7.7) (129.5) (137.2) (7.1) (48.4) (55.5) (63.3) Other Interest-Earning Assets (21.1) (75.5) (96.6) (69.2) (13.1) (82.3) (162.6) 33.6 (129.0) Total Interest -Bearing Liabilities (182.2) (359.7) (541.8) (137.8) (68.3) (206.1) (73.4) FINANCIAL STATEMENTS SEPTEMBER 2011

107 Banrisul s Stock Market Performance In July 31, 2011, Banrisul completed four years of its accession to the Level 1 of Corporate Governance of the BM&FBOVESPA SA - Brazilian Stock Exchange, Commodities and Futures, Banrisul strengthens and consolidates its transparent relationship with clients and investors, built by the dissemination of data and information to the market, providing better and timely knowledge about the Bank's business. From January to September 2011, Banrisul organized 121 opportunities for approaching market analysts and investors, as well as other stakeholders in Brazil and abroad. Table 05: Communication and Relationship Efforts 3Q11 2Q11 1Q11 4Q10 3Q10 Meetings Conference Calls Events Abroad* Expo Money APIMEC Meetings TOTAL * 2010: London, New York and Stavanger. 2011: Amsterdam, Chic ago, The Hague, London, Milwaukee, New York, Paris, Rotterdam, Stavanger and Zurich. Currently, Banrisul s PNB share is part of the composition of seven BM&FBovespa s different listings. The performance of Banrisul s shares compared with those segments is seen in the graph below. Graph 01: Banrisul PNB Performance x Brazilian Stock Market Indexes 107

108 At the end of September 2011, the PNB share (BRSR6) was ranked 92 nd among the 100 most traded shares in Bovespa (73 th in twelve months). In 3Q11, average daily financial trade was approximately 24% below than that in 3Q10, while average daily trade increase by 29% in the same period. Graph 02: Average Financial Volume, Number of Trades and Number of Shares (PNB Shares) The shares and shareholders are distributed geographically according to the charts below: Graph 03: Banrisul s Shares - Geographic Distribution 108 FINANCIAL STATEMENTS SEPTEMBER 2011

109 Expected target-prices divulged by the now ten sell-side financial institutions currently covering the Bank are shown below and available at the Investor Relations website ( Target-Prices (in R$) and Upside (in % - as of September 30, 2011) Market Consensus 109

110 Evolution of Balance Sheet Accounts Total Assets Total assets in September 2011 were R$36,554.1 million, 13.0% (R$4,214.8 million) higher than in September 2010, and increased 13.8% (R$4,426.4 million) from December 2010 and 5.2% or (R$1,799.1 million) from June The year-on-year asset growth comes from the expansion of the funding portfolio in R$2,956.0 million and the increase of R$616.2 million in escrow deposits. In the asset allocation during the last twelve months, the growth of R$3,417.6 million in credit and of R$812.9 million in interbank transactions stand out. In the nine months 2011, the increase of assets comes from the R$ million increase in deposits, from the R$322.9 million growth in matched transactions and from the R$567.1 million increase in escrow deposits. As to funding allocation, credit portfolio grew R$2,621.5 million and investments in securities plus interbank liquidity increased R$1,320.1 million. Assets growth quarter-on-quarter originated from the positive performance of deposits (R$1,109.2 million increase) and escrow deposits (R$218.9 million). As to funding allocation, credit portfolio, treasury operations and interbank transactions increased by R$845.4 million, R$460.4 million and R$335.2 million, respectively. Graph 04: Total Assets - R$ Million Total assets in September 2011 were comprised of credit operations (53.8%), interbank transactions and securities (33.4%), interbank and interbranch accounts (9.4%) and other assets (3.4%). 110 FINANCIAL STATEMENTS SEPTEMBER 2011

111 Graph 05: Composition of Assets - R$ Million Securities Securities totaled R$10,571.2 million at the end of September 2011, 5.6% (R$557.1 million) above that of September In the nine months of 2011, securities increased 10.4% (R$997.2 million) over the balance of December 2010 and rose 6.1% (R$605.2 million) from 2Q11 to 3Q11. This amount includes liquid interbank transactions but excludes total liabilities from matched transactions. The year-on-year increase in securities was the result of the R$2,956.0 million increase of deposits at, the growth of R$616.2 million in escrow deposits and of R$391.7 million in onlendings, deducted of the R$3,417.6 million expansion of the credit portfolio. Year-to-date, the expansion of the securities portfolio in R$1,857.1 million came from the increases of R$567.1 million in escrow deposits and of R$381.1 million in onlendings, offset by the allocation in credit assets in the amount of R$2,621.5 million. From 2Q11 to 3Q11, the increase of R$1,109.2 million in deposits, the growth of R$R$218.9 million in escrow deposits and of R$166.5 million in onlendings fueled both the growth of the securities portfolio and of the loan book. Graph 06: Securities and Liquid Interbank Transaction* - R$ Million * Excluding Matched Transactions 111

112 Interbank and Interbranch Transactions The balance of interbank and interbranch transactions was R$3,469.2 million at the end of September 2011, which is 30.9% (R$818.7 million) more than that in September 2010, 9.9% (R$313.4 million) higher than in December 2010 and 10.8% (R$338.5 million) above June In twelve months, the balance fluctuation refers to the increase of reserve requirements imposed by the Central Bank of Brazil, boosted by the expansion of funding from demand and time deposits, in the amounts of R$447.0 million and R$3,736.4 million, respectively. From December 2010, the positive changes are associated with increasing amount deposits made to comply with reserve requirements. From 2Q11 to 3Q11, it may be noted that the increase of time deposits in R$1,333.0 million boosted reserve requirements even with the reduction of R$225.5 million in the balances of demand and savings deposits. Graph 07: Interbank and Interbranch Transactions - R$ Million Credit Operations Banrisul s credit portfolio totaled R$19,654.7 million in September 2011, exceeding by 21.0% the balance in September 2010, by 15.4% the amount in December 2010 and by 4.5% the amount in June Graph 08: Credit Operations - R$ Million 112 FINANCIAL STATEMENTS SEPTEMBER 2011

113 Breakdown of Credit by Company Size At the end of September 2011, credit to companies represented 46.6% of the total credit portfolio, with a balance of R$9,166.1 million. Table 06: Breakdown of Credit to Companies by Company Size R$ Million Sep11 Jun11 Sep10 % % Size Balance % Co. % Total Balance % Co. % Total Balance % Co. % Total Sep11/ Sep11/ Portfolio Portfolio Portfolio Jun11 Sep10 Large Companies 2, % 13.3% 2, % 12.7% 2, % 15.4% 9.5% 4.6% Total Middle/Small/Micro 6, % 33.4% 6, % 33.0% 4, % 29.4% 5.7% 37.5% Middle Companies 4, % 24.9% 4, % 24.7% 3, % 20.6% 5.2% 46.1% Small Companies 1, % 6.6% 1, % 6.4% 1, % 7.1% 7.4% 12.8% Micro-companies % 1.9% % 1.8% % 1.6% 7.2% 36.6% Total Companies 9, % 46.6% 8, % 45.6% 7, % 44.7% 6.8% 26.2% The company s size is determined by average monthly revenue: Micro up to R$20,000; Small up to R$200,000; Mid-sized up to R$25 million; and Large above R$25 million. Credit to companies grew 26.2% year-over-year, 18.6% year-to-date and 6.8% quarter-onquarter. Balance of large companies operations increased 4.6% from September 2010 to September 2011 and 9.5% from 2Q11 to 3Q11. Loans to mid-sized, small and micro companies increased 37.5% in twelve months, helping expand the segment s share of total credit to companies to 71.5% at the end of September 2011 from 65.6% in September Year-to-date, loans to SME increased by 9.4% (5.7% quarter-on-quarter), amounting to 33.4% of the loan book. Breakdown of Credit by Sector The following table provides the breakdown of the credit portfolio by sector. Out of the credit assets at the end of September 2011, 99.4% were allocated to the private sector, with a 21.0% growth in twelve months. Leading sectors to the year-on-year growth were: individuals, with R$1,212.9 million growth; industry, increasing loans to R$511.5 million; services and other, increase of R$478.9 million; and commerce, which grew R$425.7 million. Table 07: Breakdown of Credit by Sector R$ Million Sep11 Jun11 Mar11 Dec10 Sep10 Sep11/ Sep11/ Jun11 Sep10 Private Sector 19, , , , , % 21.3% Rural 1, , , , , % 34.1% Industrial 3, , , , , % 15.1% Commercial 2, , , , , % 22.4% Other Services 1, , , , , % 36.5% Individuals 8, , , , , % 17.0% Housing 1, , , , , % 32.3% Public Sector % -6.0% Government - Direct and Indirect Management % 10.0% Corporate - Other Services % % Total 19, , , , , % 21.0% 113

114 Breakdown of Credit by Portfolio The portfolio breakdown shows unmarked and directed resources invested in loan assets. Allocations in the commercial (unmarked) portfolio, leasing and public sector, which account for 76.9% of the total portfolio, are funded from time deposits and equity. Development (long-term finance), agricultural, real estate and foreign exchange portfolios, which represent 23.1% of the portfolio, are mostly from specific funding sources and are used for mandatory credit allocation. Table 08: Breakdown of Credit by Portfolio R$ Million Credit Operations Sep11 Jun11 Mar11 Dec10 Sep10 Sep11/ Sep11/ Jun11 Sep10 Private Sector 19, , , , , % 21.3% Foreign Exchange % 9.1% Commercial Credit 14, , , , , % 19.1% Individuals 8, , , , , % 15.4% Credit Card % -27.5% Loan and Discounted Receivables - Individuals 8, , , , , % 16.1% Customer Financing - Individuals % 6.9% Companies 6, , , , , % 24.2% Foreign Credit % 6.8% Loan and Discounted Receivables - Companies 6, , , , , % 25.0% Customer Financing - Companies % 8.5% Long-term Financing % 30.0% Real Estate Financing 1, , , , , % 32.3% Leasing % 0.3% Agricultural Financing 1, , , , , % 34.2% Public Sector % -6.0% Total 19, , , , , % 21.0% The commercial portfolio, consisting of revolving and installment loans to individuals and companies, totaled R$14,906.9 million at the end of September 2011, representing 75.8% of total loan book. Commercial credit portfolio grew 19.1% (R$2,392.3 million) year-on-year, making up for 70.0% of the credit growth. Year-to-date, it increased 13.5% (R$1,776.3 million), and 2.3% (R$331.7 million) from 2Q11 to 3Q11. Graph 09: Commercial Credit Portfolio Individuals and Companies - R$ Million 114 FINANCIAL STATEMENTS SEPTEMBER 2011

115 In commercial (unmarked) credit, the individuals segment totaled R$8,326.7 million at the end of September 2011, representing 55.9% of the commercial portfolio balance and 42.4% of the total credit balance. The companies segment, which totaled R$6,580.2 million in September 2011, absorbed 44.1% of commercial credit and 33.5% of total loan book. Long-term credit portfolio ended September 2011 with a balance of R$837.7 million, increasing 30.0% (R$193.3 million) year-on-year, 17.3% (R$123.4 million) year-to-date and 10.5% (R$79.7 million) quarter-on-quarter. Real estate financing totaled R$1,611.0 million at the end of September 2011, growing 32.3% (R$393.4 million) in twelve months, 25.3% (R$325.6 million) since December 2010 and 10.3% (R$149.9 million) since 2Q11. This performance can be explained by strong market demand and by the addition of real estate financing into Banrisul s business goals. Rural credit totaled R$1,583.9 million in September 2011, an increase of 34.2% (R$403.4 million) year-on-year, 23.3% growth (R$299.7 million) over 4Q10 and increased 22.3% (R$289.0 million) from 2Q11 to 3Q11. Last quarter s fast growth was influenced mainly by Banrisul s effective attendance to 24 regional agricultural fairs, including the 34 th Expointer (largest agricultural fair in Latin America), and the training of 330 employees about specific products targeted to agribusiness. The foreign exchange portfolio reached R$512.8 million in September 2011, an increase of 9.1% (R$42.8 million) since September 2010, 24.5% (R$101.1 million) higher than December 2010 and a decrease of 3.0% (R$15.8 million) from 2Q11 to 3Q11. Breakdown of Credit Disbursement The nine months of 2011 were marked by the grant of R$24,089.2 billion in credit assets, 9.9% (R$2,163.5million) higher than the same period of Credit granted through commercial credit lines increased 7.3% (R$1,412.7 billion) year-on-year, accounting for 65.3% of the growth of the total credit concession, seconded by rural credit (increase of 57.6% or R$380.4 million), long-term financing (increase of 35.4% or R$120.6 million) and real estate credit (increase of 32.0% or R$133.7 million). During 3Q11, Banrisul provided funding for credit in the amount of R$8,231.9 million, R$616.1 million above 3Q10 s disbursement. Commercial credit stood out, participating with 85.4% (R$7,032.8 million) of the total credit grant, mainly in overdraft accounts (R$1,702.9 million), guaranteed account (R$1,457.0 million), working capital (R$1,368.3 million) and consumer credit (R$ 1,368.3 million). Agricultural lending, by increasing 124.9% (R$499.4 million), had the highest relative increase, reflecting the direct participation of Banrisul in fairs and regional events related to the agribusiness. The long-term funding increased by 64.5% (R$80.6 million) leveraged by the strategy to foster the commercialization of the BNDES Card and to provide credit for investments to large and medium enterprises. In relation to 2Q11, credit grant shrank by R$280.7 million, especially related to personal credit, which reduced 23.2% (R$392.3 million), offset by increasing allocation into working capital from by 12.5% (R$152.2 million), both related to the commercial portfolio. The longterm financing stands out for its relative increase of 82.7% (R$93.0 million), followed by and real estate loans, which expanded by 43.6% (R$73.9 million). 115

116 Table 9: Breakdown of credit disbursement R$ Million 9M11 9M10 3Q11 2Q11 1Q11 4Q10 3Q10 9M11/ 3Q11/ 9M10 2Q11 Foreign Exchange 1, , % -47.8% Commercial 20, , , , , , , % -4.9% Overdraft Account 5, , , , , , , % -0.7% Commercial Credit Individuals 4, , , , , , , % -23.2% Guaranteed Account 4, , , , , , , % -3.1% Working Capital 3, , , , , , , % 12.5% Receivable discount 1, , % 0.5% Other Credit - Commercial 1, , % -11.0% Long-Term Financing % 82.7% Real Estate Loans % 43.6% Leasing % 100.9% Agribusiness 1, % 36.8% Tot al 24, , , , , , , % -3.3% Commercial Credit In September 2011, commercial credit to Individuals totaled R$8,326.7 million, increases of 15.4% (R$1,108.5 million) over September 2010, of 12.5% (R$ million) over December 2010 and of 1.4% (R$115.3 million) over June At the end of September 2011, payroll loans accounted for 73.2% of commercial credit to individuals, totaling R$6,097.9 million, up 14.0% (R$750.5 million) in the last twelve months, 7.8% (R$442.9 million) in the last nine months and 0.8% (R$51.0 million) in the last three months. Among payroll lending lines, payroll loans of own origination reached R$3,716.8 million at the end of September 2011, representing 61.0% of the payroll loan portfolio and 44.6% of the credit to individuals. Acquired Payroll loans totaled R$2,381.1 million at the end of September 2011, constituting 39.1% of the total payroll portfolio and 28.6% of commercial credit to individuals. Organic payroll lending generation grew 12.3% (R$405.7 million) year-on-year, 7.3% (R$252.1 million) year-to-date and 1.8% (R$65.4 million) quarter-on-quarter. Acquired payroll loans increased 16.9% (R$344.8 million) since September 2010, 8.7% (R$190.8 million) since 4Q10 and reduced 0.6% (R$14.4 million) since 2Q11. Credit to companies totaled R$6,580.2 million at the end of September 2011, increases of 24.2% (R$1,283.8 million) in twelve months, of 14.8% (R$848.0 million) in nine months and of 3.4% (R$216.4 million) in the last quarter. In twelve months, working capital loans grew 28.2% (R$1,064.3 million), while increased 15.3% (R$642.4 million) year-to-date and 4.5% (R$208.1 million) from 2Q11 to 3Q11. Working capital loans are the most relevant credit line within the companies segment, accounting for 73.5% of total commercial credit to companies and 44.1% of total commercial credit portfolio. 116 FINANCIAL STATEMENTS SEPTEMBER 2011

117 Table 10: Composition of General Credit - Individuals and Companies R$ Million Sep11 Jun11 Mar11 Dec10 Sep10 Sep11/ Sep11/ Jun11 Sep10 Individuals 8, , , , , % 15.4% Payroll-deductible Loan 5, , , , , % 14.5% Payroll-deductible Purchase of Consumer Goods % 0.3% Purchase Goods - other % 14.4% Vehicle Loan - Individuals % 40.2% Overdraft % 8.5% One Minute Loan % 12.9% Automatic Individual Loan % -2.5% Non Payroll-deductible Loan % 38.7% Credit Card % -27.5% Other - Individuals % 54.8% Companies 6, , , , , % 24.2% Purchase Goods - other % 9.5% Vehicle Loan - Companies % 66.1% Working Capital - Guarantee 3, , , , , % 26.1% Working Capital - Receivable 1, , , , % 34.2% Financing to Customers - Companies % 5.5% Compror % -2.3% Indebted Security Account % 7.1% Guaranted Account % 20.3% Debt Instruments Discount % 9.9% Vendor % -20.2% Foreign Credit % 6.8% Other - Companies % 46.4% Total 14, , , , , % 19.1% Breakdown of Credit by Rating At the end of September 2011, credit operations rated between AA and C, normal risk according to Resolution no. 2682/99 of the National Monetary Council, accounted for 89.0% of the credit portfolio, decreasing 0.4 percentage points from September 2010, 0.5 percentage points from December 2010 and 0.1 percentage points from June Graph 10: Credit Portfolio by Risk Levels 117

118 Allowance for Loan Losses Allowance for loan losses totaled R$1,284.6 million in September 2011, equivalent to 6.5% of the consolidated credit portfolio, in comparison to the 6.9% in September 2010 and to the 6.5% of December 2010 and June The reduction in the ratio of provisions in relation to the total loan book observed from 3Q10 to 3Q11 is due to increase of the credit portfolio, to adjustments in the allowance for loan losses and to improvements in the compliance procedures aimed the consolidation of the maturation of the rating classification model. However, the Bank s allowance ratio remains adjusted to that recorded by the major commercial banks in Graph 11: Breakdown of Allowance for Loan Losses - R$ Million The breakdown of the allowance for loan losses in September 2011, according to Resolution no. 2682/99 of the National Monetary Council, was as follows: I. R$423.0 million for operations with installments overdue; II. R$749.2 million for contracts due or to be overdue; and III. III. R$112.4 million relating to the excess allowance to the minimum required by Resolution no. 2682/99 of the National Monetary Council, established based on periodic review carried out by the administration of the quality of the customer, in order to cover possible events not identified by customer rating model. Table 11: Balance of Allowance for Loan Losses Risk Required Consolidated Accumulated Past Due Receivable Minimum Provision Additional Total Provision Provision Relative Over Level % Portfolio Status % Credits Credits Past Due Receivable Provision Provision Portfolio% AA 0.0% 3, % 0.0 3, % A 0.5% 8, % 0.1 8, % B 1.0% 3, % 0.0 3, % C 3.0% 1, % , % D 10.0% % % E 30.0% % % F 50.0% % % G 70.0% % % H 100.0% % % Total 19, , , % R$ Million 118 FINANCIAL STATEMENTS SEPTEMBER 2011

119 Cover Ratio The cover ratio, the percentage between the Graph 12: Cover Ratio allowance for loan losses and the balance of (over 60 days overdue) operations overdue that do not generate revenue, shows the capacity to cover defaults with provisions remains at comfortable levels. The cover ratio to credit operations overdue for more than 60 days of 226.7% in September 2011 is bellow the 230.1% recorded in September 2010, below the 263.6% observed in December 2010 and is lower than the 243.5% presented in June The cover ratio recorded in 3Q11 is, however, comfortable, attesting Banrisul's conservative approach to managing credit risk. Cover ratio for operations overdue for more than 90 days reached 270.1% in September 2011, 0.8 percentage points above the 269.3% of September Default Ratio The 2.9% default ratio over 60 days in Graph 13: Default Ratio September 2011 decreased 0.1 percentage points from the default rate verified in September 2010, increased 0.4 percentage points in relation to December 2010 and slightly increased (0.2 percentage points) in relation to June The 2.4% 90-day default ratio in September 2011 decreased 0.15 percentage points from the default rate verified in September 2010, increased 0.24% in relation to December 2010 and increased 0.12 percentage points in relation to June Focused on leveraging lower risk portfolios, the risk management policy adopted by Banrisul proved to be adequate, given the stable behavior of default loans over 60 days seen in the past twelve months, period in which the loan book increased 21.0%. 119

120 Funds Raised and Under Management Funds raised and under management totaled R$27,505.3 million at the end of September 2011, 14.2% (R$3,410.2 million) higher than September 2010, 9.6% (R$2,414.5 million) higher than December 2010 and 5.4% (R$1,412.6 million) above the balance of June The growth in twelve months came mainly from increases in time and demand deposits. In nine months, the balance of time deposits and surpassed the reduction in demand and savings deposits. The growth in the last quarter was driven by time deposits and third-party investment funds. Graph 14: Funds Raised and Under Management - R$ Million Demand Deposits Demand deposits, which make up 9.3% of the total funding, reached R$2,556.0 million at the end of September 2011, 21.2% (R$447.0 million) over September 2010, 32.4% (R$1,224.0 million) below December 2010 and 5.2% (R$139.1 million) under June The year-onyear growth seen in demand deposits is due to changes to the Poupança Integrada product (a savings account linked to the customer s checking account) introduced in October 2010 that provoked the migration of resources to demand deposits. The reduction observed in relation to December 2010 is due to the base of comparison (year-end is a period of higher seasonal income). As to the changes observed from June 2011, they demonstrate the strategy of migrating resources from demand deposits into time deposits. Savings Accounts Savings deposits totaled R$5, million at the end of September 2011, 19.4% (R$1,223.3 million) below September 2010, 9.1% (R$507.6 million) below December 2010 and 1.7% (R$86.4 million) below June The savings deposits account for 18.4% of funds raised and managed. The migration of resources from savings deposits reflects the discontinuity of the Poupança Integrada (with the automatic transfer feature from demand deposits into a savings account linked to the customer's checking account) and also the strategy of directing funding into time deposits. 120 FINANCIAL STATEMENTS SEPTEMBER 2011

121 T ime Deposits Time deposits represent 48.2% of the total funds raised and under management. At the end of September 2011, time deposits totaled R$13,269.4 million, an increase of 39.2% (R$3,736.4 million) over September 2010, 37.1% (R$3,589.0 million) higher than December 2010 and 11.2% (R$1,333.0 million) over June The expansion observed in twelve months, yearto-date and in the last quarter reflects particularly the startup of a specific time deposit product that replace the Poupança Integrada, improving its attractiveness. Assets under Management Assets under management totaled R$6,595.2 million at the end of September 2011, 7.4% (R$454.1 million) higher than in September Year-to-date, they grew 9.2% (R$454.1 million), and added R$303.4 million in the last quarter, especially by the expansion of fixed income funds. Table 12: Funding Composition R$ Million Sep11 Jun11 Mar11 Dec10 Sep10 Sep11/ Sep11/ Jun11 Sep10 Deposits 20, , , , , % 16.5% Time Deposits 13, , , , , % 39.2% Demand Deposits 2, , , , , % 21.2% Saving Account 5, , , , , % -19.4% Other Deposits % -24.9% Assets under Management 6, , , , , % 7.4% Total 27, , , , , % 14.2% Cost of Funding The upward trend of Banrisul's average funding cost reflects the movement of the basic interest rate in 3Q11, which indexes the remuneration paid to customers. The average cost of funding increased in the quarters, up again to 2.21% in 3Q11, above the 2.09% of 2Q11 and of the 1.95% of 3Q10. The share of the average balance of time deposits in total funds reached 57.4%, up 3.4 percentage points in relation to 2Q11 and 10.4 percentage points higher than in 3Q10, mainly due to the availability of new types of Time Deposits at the end of The cost of funding as proportion of the Selic rate decreases on the last twelve months: from 74.63% in 3Q10 to 74.21% in 2Q11 to 72.70% in 3Q11. Even though Banrisul's average nominal cost increased in the quarters following the upward movement of the Selic rate, it grew relatively less than the interest rate. As to time deposits, the quarterly accumulated interest rates (2.39% in 3Q10, 2.49% in 2Q11 and 2.57% in 3Q11) demonstrate the trend of the Selic. The cost of funding for time deposits - as a proportion of the effective Selic rate - decreased during the last twelve months, specially influenced by the dispersion of Banrisul's customer funding base: from 91.18% in 3Q10, it decreased to 88.52% in 2Q11 and reached 84.57% in 3Q11. Though the average balance of repurchase agreements reduced in relation to 3Q10 and 2Q11, cost increased from 2.87% in 3Q10 to 3.09% in 2Q11 and to 3.22% in 3Q11, accompanying the evolution of the interbank deposit rate (DI) that benchmarks these operations. 121

122 Graph 15: Cost of Funding as % of Selic Rate Table 13: Cost of Funding R$ Million and % 3Q11 2Q11 3Q10 Average Accumulated Average Average Accumulated Average Average Accumulated Average Balance Expense Cost Balance Expense Cost Balance Expense Cost Demand Deposits 2, , ,074.4 Saving Deposits 5,094.0 (95.6) 1.88% 5,200.8 (92.0) 1.77% 6,208.8 (95.3) 1.54% Time Deposits 12,836.5 (329.3) 2.57% 11,578.0 (288.6) 2.49% 9,321.8 (222.6) 2.39% Interbank Deposits 11.4 (0.3) 2.91% 10.8 (0.3) 3.05% 28.0 (0.3) 1.08% Credit Guarantee Fund Expenses 0.0 (7.5) 0.0 (7.3) 0.0 (6.6) Matched Transactions 1,864.1 (60.1) 3.22% 1,927.4 (59.5) 3.09% 2,180.1 (62.6) 2.87% Payable for Financial and Development Funds (0.0) Investment Deposits Total Average Balance/Total Expenses 22,347.9 (492.9) 2.21% 21,423.0 (447.8) 2.09% 19,822.3 (387.5) 1.95% Selic 3.03% 2.82% 2.62% Average Cost / Selic 72.70% 74.21% 74.63% Cost of Time Deposits / Selic 84.57% 88.52% 91.18% Shareholders Equity At the end of September 2010, Banrisul s shareholders equity was R$4,298.1 million, 14.7% (R$551.8 million) over September 2010, 11.5% (R$442.9 million) over December 2010 and 4.4% (R$180.0 million) higher than in June The changes in shareholders equity are related to the incorporation of the net income by the payment of dividends and interest on equity. Graph 16: Shareholders Equity - R$ Million 122 FINANCIAL STATEMENTS SEPTEMBER 2011

123 Return on Average Shareholders Equity The annualized return on average shareholders equity reached 22.8% in 9M11, in which the results positively reflect the growth of services, other operating income, credit and treasury operations and the reduction of other administrative costs. Graph 17: Return on Average Shareholders Equity Basel Ratio The Basel Ratio is the relation between the Equity Base (Reference Equity PR) and weighted risks (Required Reference Equity PRE), according to current regulations, showing the company s solvency. The National Monetary Council (CMN) requires a minimum of 11% as capital ratio, and also determines that the PR should be at least equal to the sum of the parcels calculated to credit, market and operational risks. In September 2011, the BIS ratio of the Financial Conglomerate was 15.51%, 4.51 percentage points above the minimum required by the regulatory agency in Brazil. The increase shown in relation to September 2010 was caused by improvement of the calculation of capital allocation to cover market risk, which decreased from R$328.5 million to R$196.5 million and by the growth of 15.0% in the Equity Base. The portion of credit risk varied due to the increase of loans and capital allocation (Central Bank Circular no. 3515/10) and the portion of operational risk was influenced by the increased revenue in the period. In relation to the Economic and Financial Conglomerate, the impact on portions of the Required Shareholders Equity remained, which resulted in increasing the Basel Ratio from 15.83% in September 2010 to 15.91% in September 2011, allowing an increase of up to R$8,584.5 million in credit operations. The Risk Management Report is available at Relations/ Corporate Governance/Operational Risk/Risk Management Report. 123

124 Graph 18: Basel Ratio Pace of Growth The pace of growth in time deposits and commercial credit, measured by the relative growth in volumes, is shown in the following graph, and demonstrates the effects of economic measures and the strategies internally adopted to manage Banrisul s assets and liabilities. The 19.1% growth in commercial credit in the twelve months ended in September 2011 followed suit the increase the total deposits in 16.5%, yet reducing in relation to the 39.2% year-on-year growth in time deposits. Credit has reduced speed in relation to the 12-month growth rate of 29.6% presented in 3Q10, especially after the credit inhibiting macro-prudential measures at the end of 2010, while the increase of time deposits demonstrates the changes made since October 2010 to products offered to customers. Even so, Banrisul s credit growth has outperformed the loan growth rates reported quarterly by the banking industry year-to-date and in the last twelve months. Loan book grew 21.0% from 3Q10 to 3Q11, 15.4% year-to-date and 4.5% quarter-on-quarter. The banking industry in Brazil grew 19.6%, 13.1% and 5.1% in those same periods, respectively, according to data from the Central Bank of Brazil. Graph 19: Pace of Growth - Credit and Funding 124 FINANCIAL STATEMENTS SEPTEMBER 2011

125 Evolution of Income Statement Accounts Net Income Banrisul s net income of R$677.7 million in 3Q11 is 32.5% (R$166.3 million) above September In 3Q11, net income was R$239.2 million, 15.9% (R$32.8 million) higher than in 3Q10 and 5.3% (R$12.0 million) higher than 2Q11. From 3Q10 to 3Q11, the Bank s performance positively reflects the increase of 24.3% (R$617.5 million) in credit revenues, the increase of 17.4% (R$137.6 million) in treasury income, the growth of revenue from exchange operations of R$77.0 million and the increase of 10.5% (R$49.2 million) in services fees. On the negative side, net income was affected by the increase of 30.4% (R$310.8 million) in market funding expenses, the increase of 60.6% (R$231.0 million) in credit and onlendings expenses and the increase of 5.3% (R$67.0 million) in administrative costs. From 3Q10 to 3Q11, the Bank s performance positively reflects the increase of 20.2% (R$248.5 million) in credit and treasury revenues, the increase of R$95.2 million in revenue from exchange and the increase of 7.2% (R$11.5 million) in services fees. On the negative side, net income was affected by the increase of 50.1% (R$265.7 million) in market funding and onlendings expenses and the increase of 63.9% (R$71.1 million) in expenses with provisions for credit. From 2Q11 to 3Q11, the Bank s performance positively reflects the increase of R$97.1 million in revenue from exchange operations, of 8.9% (R$93.4 million) in credit revenues and the increase of 6.4% (R$20.2 million) in treasury revenues. On the negative side, net income was affected by the increase of 93.9% (R$146.7 million) in credit and onlendings expenses, the increase of 10.1% (R$45.1 million) in market funding expenses, the increase of 27.4% (R$39.2 million) in credit provision expenses and the increase of 8.4% (R$37.1 million) in administrative expenses. Graph 20: Net Income - R$ Million Financial Income Financial income totaled R$4,405.3 million in 9M11, 24.7% (R$873.8 million) above the amount registered in 9M10. In 3Q11, financial income totaled R$1,668.9 million, 28.6% (R$370.7 million) higher than the amount of 3Q10, and 16.2% (R$232.4 million) higher than 2Q11. The growth of financial income from 3Q10 to 3Q11 is related to the R$617.9 million growth in credit revenues, on account of increasing credit operations, the increase of R$77.0 million in 125

126 foreign exchange operations, influenced by exchange rate devaluation, and to the increase of R$137.6 million in treasury income, on account of rise in interest rates between the periods. Financial income in 3Q11 was higher than in 3Q10 due to increase of R$217.5 million in credit and leasing revenues, the increase of R$128.0 million in treasury results and foreign exchange operations. From 2Q11 to 3Q11, financial income was mainly influenced by increases of R$94.0 million in credit and leasing revenues and of R$97.1 million in income from exchange operations. The upward trend of the loan book, the increase of the Selic Rate and the exchange devaluation of 3Q11 favored the income growth in the quarter. Graph 21: Financial Income - R$ Million Revenue from Treasury Operations Revenues from securities and derivatives totaled R$930.5 million in 9M11, 17.5% (R$138.7 million) above the amount recorded in 9M10. In 3Q11, revenues from securities and derivatives operations totaled R$335.2 million, increasing 10.3% (R$31.3 million) from 3Q10 to 3Q11, and 6.4% (R$20.2 million) from 2Q11 to the current quarter. In 9M11, revenues from securities and derivatives reflect the increase of 1.71 percentage points in the accumulated Selic Rate in the period, which went from 7.03% in 9M10 to 8.74% in 9M11, as well as to the termination of derivatives products in December From 3Q10 to 3Q11, the growth of treasury operations results is due to the increase of 0.41 percentage points in the rate of return on assets (Selic rate), which increased from 2.62% in 3Q10 to 3.03% in 3Q11, exceeding the reduction of 0.8% (R$94.8 million) in the balance of securities and interbank investments. The income growth from 2Q11 to 3Q11 is due to the increase of 3.9% (R$460.4 million) in the securities' interest-earning assets, combined with the increase of 0.21 percentage points in the interest rates. Revenues from Credit and Leasing Operations Revenues from credit and leasing operations totaled R$3,169.5 million in 9M11, 24.2% (R$617.9 million) above 9M10. From 3Q10 to 3Q11 revenues from credit and leasing operations totaled R$1,150.7 million, increasing 23.3% (R$217.5 million); from 2Q11 to 3Q11, credit revenues increased 8.9% (R$94.0 million). 126 FINANCIAL STATEMENTS SEPTEMBER 2011

127 The year-to-date increase in credit revenues reflects the growth of R$3,417.6 million in credit assets. Credit revenues were positively impacted by revenues from commercial credit, which increased 24.8% (R$577.4 million), by the growth of 28.9% (R$26.0 million) in revenues from real estate loans, by the increase of 24.1% (R$13.0 million) in revenues from agricultural loans and by the R$39.2 million increase in foreign exchange revenues, on account of exchange devaluation observed in the last quarter. From 3Q10 to 3Q11, credit revenues increased on account of loan growth and higher interest rates. The increase in revenues credit was driven by the growth of 22.0% (R$184.1 million) in commercial credit revenues, by the growth of R$47.6 million in revenues from long term finance in foreign currency, by the growth of 33.0% (R$10.7 million) in income from real estate loans, and the increase of 25.4% (R$4.9 million) in revenues from agricultural lending, helping offset lower credit recovery income (reduction of R$25.9 million). From 2Q11 to 3Q11, credit revenues trend especially reflected the positive variations in revenues from commercial credit, which increased 5.2% (R$50.9 million) quarter-on-quarter, the increase of 12.9% (R$25.0 million) in revenues from real estate and agricultural loans, and income of R$53.0 million on long-term financing in foreign currency, deducted by the lower recovery of written-off loans in R$23.9 million. Graph 22: Revenues from Credit and Leasing Operations - R$ Million Revenues from Commercial Credit - Individuals and Companies During the nine months of 2011, revenues from commercial credit to individuals totaled R$2,903.1 million, 24.8% (R$577.4 million) higher than during 9M10. In 3Q11, revenues from commercial credit reached R$1,021.1 million, 22.0% (R$184.1 million) higher than in 3Q10, and 5.2% (R$50.9 million) above the amount registered during 2Q11. From 9M10 to 9M11, revenues from commercial credit resulted from the 20.3% (R$310.0 million) growth in revenue from individual commercial credit, influenced mainly from the growth of R$138.7 million, in payroll loans and of R$75.5 million in overdraft accounts. As to the commercial credit to companies the increase of 33.4% (R$267.3 million) was originated mainly from the R$173.1 million increase in working capital lines and by the R$61.5 million in guaranteed account. During the nine months of 2011, revenues from commercial credit to Individuals represented 63.2% of total commercial credit revenues; Companies, 36.8%. The credit revenues from commercial credit to Individuals accounted for 58.1% of the total credit revenues, while revenues from commercial credit to Companies represented 33.8%. 127

128 From 3Q10 to 3Q11, the revenue from commercial credit to individuals grew 16.4% (R$89.5 million) and revenues from corporate business segment registered an increase of 32.4% (R$94.5 million). The expansion of commercial credit is grounded in four main credit lines: payroll loans and overdrafts, which added R$57.9 million of additional revenue to the individual segment, and working capital and guaranteed account, which totaled R$82.9 million, influenced by credit expansion. From 2Q11 to 3Q11, the increase in revenues from commercial credit to individuals, which increased 2.8% (R$17.4 million), is due to growth of R$115.3 million in the balance of operations, while interest rates were maintained stable. As for the companies segment, the 9.5% (R$33.4 million) growth was due to the increase of R$216.4 million in portfolio volume and to the increase observed in the average interest rates. Table 14: Revenues from Commercial Credit - Individuals and Companies R$ Million 9M11 9M10 3Q11 2Q11 1Q11 4Q10 3Q10 9M11/ 9M10 Individuals 1, , % Payroll-deductible Loan % Payroll-deductible Purchase of Consumer Goods % Purchase Goods - other % Vehicle Loan - Individuals % Overdraft % One Minute Loan % Automatic Individual Loan % Non Payroll-deductible Loan % Credit Card % Other - Individuals % Companies 1, % Purchase Goods - other % Vehicle Loan - Companies % Working Capital - Guarantee % Working Capital - Receivable % Financing to Customers - Companies % Compror % Indebted Security Account % Guaranted Account % Debt Instruments Discount % Vendor % Foreign Credit % Other - Companies % Total 2, , , % The average commercial credit interest rates increased from 2.22% in 9M10 to 2.26% in 9M11. The upward trend of the average interest rates was directly influenced by credit operations to companies with floating rates linked to the Selic Rate, which reached 8.74% in the nine months of 2011, 1.71 percentage points above the 7.03% of the same period of Average interest rates charged to Individuals remained practically unchanged. From 3Q10 to 3Q11, the average monthly interest rates of 2.27% on commercial credit remain unchanged, influenced by adjustments in credit lines to Companies, whose interest rates were altered due to increase of 500 base points of Selic Rate in the months of July and August of 2011, and also to reproduce its subsequent similar decrease in September FINANCIAL STATEMENTS SEPTEMBER 2011

129 Table 15: Monthly Average Commercial Credit Rates - Individuals and Companies 9M11 9M10 3Q11 2Q11 1Q11 4Q10 3Q10 Individuals 2.54% 2.55% 2.53% 2.55% 2.54% 2.52% 2.56% Payroll-deductible Loan 1.72% 1.74% 1.73% 1.72% 1.71% 1.71% 1.72% Payroll-deductible Purchase of Consumer Goods 1.48% 1.52% 1.48% 1.48% 1.48% 1.49% 1.51% Purchase Goods - other 0.89% 0.60% 1.10% 0.85% 0.66% 0.65% 0.63% Vehicle Loan - Individuals 1.79% 1.90% 1.80% 1.78% 1.78% 1.81% 1.85% Overdraft 7.87% 7.80% 7.86% 7.83% 7.92% 8.03% 7.95% One Minute Loan 5.48% 5.27% 5.57% 5.47% 5.38% 5.36% 5.29% Automatic Individual Loan 4.91% 4.75% 4.98% 4.90% 4.85% 4.82% 4.78% Non Payroll-deductible Loan 3.04% 3.00% 3.01% 3.08% 3.05% 3.02% 2.96% Credit Card 7.29% 5.16% 7.58% 7.33% 6.98% 6.16% 5.06% Other - Individuals 1.21% 1.00% 1.27% 1.23% 1.10% 1.06% 1.04% Companies 1.89% 1.78% 1.95% 1.88% 1.85% 1.85% 1.86% Purchase Goods - other 1.65% 1.42% 1.71% 1.66% 1.56% 1.54% 1.52% Vehicle Loan - Companies 1.89% 1.77% 1.90% 1.90% 1.87% 1.82% 1.79% Working Capital - Guarantee 1.56% 1.53% 1.60% 1.54% 1.54% 1.59% 1.59% Working Capital - Receivable 1.55% 1.38% 1.61% 1.52% 1.51% 1.49% 1.46% Financing to Customers - Companies 2.71% 2.18% 2.91% 2.76% 2.44% 2.21% 2.10% Compror 1.52% 1.29% 1.54% 1.56% 1.45% 1.40% 1.43% Indebted Security Account 1.64% 1.48% 1.67% 1.67% 1.58% 1.56% 1.53% Guaranted Account 5.23% 4.77% 5.40% 5.10% 5.19% 5.22% 4.97% Debt Instruments Discount 2.06% 1.87% 2.12% 2.07% 2.00% 1.98% 1.92% Vendor 1.31% 1.29% 1.34% 1.30% 1.28% 1.19% 1.27% Foreign Credit 0.40% 0.27% 0.55% 0.33% 0.31% 0.33% 0.28% Other - Companies 1.35% 1.10% 1.34% 1.40% 1.32% 1.32% 1.22% Total 2.26% 2.22% 2.27% 2.26% 2.24% 2.24% 2.26% Financial Expenses Financial expenses totaled R$2,408.0 million in 9M11, which are 34.1% (R$612.8 million) more than 9M10. The financial expenses of R$978.0 million recorded in 3Q11 are 52.9% (R$338.3 million) higher than in 3Q10 and 30.9% (R$231.0 million) higher than in 2Q11. The increase in financial expenses from 9M10 to 9M11 resulted, especially, from the 30.4% (R$310.8 million) growth in market funding costs, that followed the R$3,736.4 million increase in the balance of time deposits, and from the hikes of the effective Selic rate. Also with relevant participation in the financial expenses, loans and onlendings expenses increased by 60.6% (R$231.0 million) due to the growth of escrow deposits in R$616.2 million and to the growth of R$391.7 million in onlendings. From 3Q10 to 3Q11, the increase of the financial expenses is originated by higher market funding costs, which increased 27.2% (R$105.4 million) in the period, by the 112.4% (R$160.3 million) increase in expenses with loans and onlendings, and by the increase of credit provisions. The higher volume of expenses from 3Q11 to 2Q11 stems from the increase of 93.9% (R$146.7 million) in expenses with onlendings, the increase of 10.1% (R$45.1 million) in marketing fund expenses, and the increase of 27.4% (R$39.2 million) in credit provisions. 129

130 Graph 23: Financial Expenses - R$ Million Expenses with Market Funding Operations Market funding expenses totaled R$1,332.2 million in 9M11, 30.4% (R$310.8 million) higher than in 9M10. In comparison to 3Q10, fund raising expenses of R$492.9 million in 3Q11 increased 27.2% (R$105.4 million). From 2Q11 to 3Q11, market funding expenses increased 10.1% (R$45.1 million). The growth in fund raising expenses from 9M10 to 9M11 came from the 48.4% (R$275.0 million) increase in time deposits expenses, on account of the higher balance and of the evolution of the effective Selic Rate, and from the 3.8% (R$6.1 million) increase in interbank matched transactions, besides the growth from 0.47% to 0.99% in the Reference Rate (TR), which helped increase expenses with savings deposits by 8.7% (R$22.3 million), despite their balance having reduced by 19.4% (R$1,223.3 million). From 3Q10 to 3Q11, market fund expenses increased on account of the raising of 0.41 percentage points in the Selic Rate, increasing expenses with time deposits in 48.6% (R$105.5 million), offset by reduction of 4.0% (R$2.5 million) in matched transactions. Time deposits expenses were influenced by the growth of R$3,736.4 million in time deposits and decrease of R$651.9 million in matched transactions balance in twelve months. From 2Q11 and 3Q11, the higher amount of market fund expenses is due to the increase of R$1,333.0 million in funding from time deposits that, together with the Selic rate reaching 3.03% in 3Q11, a 0.21 percentage points increase over the 2.82% registered in 2Q11, explains the growth of 14.3% (R$40.3 million) in time deposits expenses. Graph 24: Expenses with Market Funding Operations - R$ Million 130 FINANCIAL STATEMENTS SEPTEMBER 2011

131 Expenses with Borrowings and Onlendings The expenses with borrowings and onlendings totaled R$612.0 million in 9M11, a 60.6% (R$231.0 million) increase above 9M10. The R$302.8 million expenses with borrowings and onlendings recorded in 3Q11 represent increases of 112.4% (R$160.3 million) from 2Q11 to 3Q11 and of 93.9% (R$146.7 million) from 2Q11 to 3Q11. In the nine months of 2011, the evolution of the borrowings and onlendings expenses is explained by expenses with borrowing from foreign banks, in the amount of R$121.7 million, the 32.7% (R$96.6 million) growth of costs with escrow deposits and by the increase of 121.8% (R$23.7 million) in onlendings under the Finame (Financiamento de Máquinas e Equipamentos capital goods long term credit lines from BNDES) program. From 3Q10 to 3Q11, the increase in expenses stemmed from the growth of 11.3% in foreign exchange during the last quarter, from the 2.7% recorded in 2Q11, which led to the expansion of R$140.7 million in the costs of foreign onlendings, and the increase of the Selic rate, which went from 2.62% in 3Q10 to 3.03% in 3Q11, which led to an increase of 26.8% (R$30.2 million) in the expenses with onlendings and escrow deposits. From 2Q11 to 3Q11, the bulk of expenses were originated by the R$141.1 million increase in onlendings from foreign bankers, driven by the currency devaluation of 18.79% in 3Q11, in an opposite direction from the currency appreciation of 4.15% in 2Q11. Increasing 9.3% (R$12.1 million) driven by the hike of the Selic Rate, costs with escrow deposits were offset by the 81.5% (R$14.5 million) drop in expenses with Finame onlendings, due to the completion, in August 2011, of booking adjustments to the Pronaf (Programa Nacional de Fortalecimento da Agricultura Familiar, or National Program for Supporting Family Farming) program. Allowance for Loan Losses In 9M11, expenses with loan losses allowance totaled R$463.8 million, 18.4% (R$72.1 million) above the amount recorded in 9M10. From 3Q10 to 3Q11, provision expenses totaled R$182.3 million, increasing by 63.9% (R$71.1 million); from 2Q11 to 3Q11, provisions expenses increased 27.4% (R$39.2 million). From 9M10 to 9M11, provision expenses increased directly due to the growth of R$ 21.0% in credit portfolio and the increase of 16.1% (R$78.7 million) in past due operations over 60 days. The upward trend observed in provision expenses from 3Q10 to 3Q11 is related to the growth of the loan book. From 2Q11 to 3Q11, 60 - day past due loans increased 13.6% (R$67.7 million), demanding provision adjustments during the last quarter. Graph 25: Allowance for Loan Losses - R$ Million 131

132 Financial Margin Net interest income reached R$2,461.1 million in 9M11, 15.7% (R$333.1 million) higher than in 9M10. The net interest income of R$873.2 million in 3Q11 is 13.4% (R$103.5 million) higher than in 3Q10 and increased 4.9% (R$40.6 million) from 2Q11. From 9M10 to 9M11, net interest income was positively impacted by the increase in credit revenues and by the results from treasury, from restricted deposits, and by result of foreign exchange transactions. On the negative side, it was affected by market funding cost and expenses with loans and onlendings. The margin increase from 3Q10 and 3Q11 is linked to higher credit and treasury revenues and the result of foreign exchange transactions, which offset the growth of expenses with market funding, loans and onlendings. From 2Q11 to 3Q11, the performance of credit revenues and higher results of foreign exchange transactions and treasury gains compensated the increases in market funding, loans and onlendings expenses, substantially contributing to the growth of financial margin. Graph 26: Financial Margin - R$ Million Revenue from Services Rendered Revenues from services totaled R$517.4 million in 9M11, 10.5% (R$49.2 million) more than in 9M10. In 3Q11 fees from services reached R$172.4 million, 7.2% (R$11.5 million) higher than in 3Q10 and 0.6% (R$1.0 million) below 2Q11. The increase in revenues from services from January to September 2011 in comparison to 9M10 reflects mainly the growth of 14.4% (R$25.8 million) in fees on checking accounts, the increase of 19.5% (R$12.0 million) in Banricompras fees and the 28.7% (R$2.5 million) increase in consortium management fees. The growth of checking account and Banricompras fees, that together increased 9.4% (R$7.8 million), help explain fees expansions from 3Q10 to 3Q11. From 2Q11 to 3Q11, fees decrease of 64.2% (R$15.3 million) in other income from fees and of the 6.1% (R$4.2 million) in revenues from bank fees on checking accounts were responsible for the revenue reduction. 132 FINANCIAL STATEMENTS SEPTEMBER 2011

133 Graph 27: Revenue from Services Rendered - R$ Million Administrative Expenses In 9M11, administrative expenses totaled R$1,332.4 million, 5.3% (R$67.0 million) above the amount recorded in 9M10. In 3Q11, administrative expenses totaled R$479.0 million, increasing 11.9% (R$50.8 million) from 3Q10 and 8.4% (R$37.1 million) from 2Q11. Staff costs, which comprised 60.0% of total administrative costs between January and September 2011, increased 16.1% (R$111.0 million) over the amount recorded in 9M10, while other administrative expenses decreased 7.6% (R$44.0 million) in the same period. The increase of personnel expenses in nine months comes from salary adjustments in September 2010, affecting the expense base of subsequent quarters, and headcount increase of 487 employees Among the items that most decreased, the following stand out: advertising, promotions and advertising (R$50.3 million), specialized technical services (R$9.0 million) and telecommunication and data processing (R$4.5 million). From 3Q10 to 3Q11, personnel expenses increased 18.7% (R$45.9 million) due to salary adjustments granted in 2011 related to collective bargaining agreements. Other administrative expenses grew 2.7% (R$4.9 million), reflecting increases in outsourced services (R$3.0 million) and transportation expenses (R$1.5 million). From 2Q11 to 3Q11, personnel expenses increased 9.5% (R$25.2 million), influenced by the 8% salary adjustments regarding the employees wage increase. Other administrative expenses increased 6.8% (R$11.9 million) on account of higher marketing expenses (R$6.8 million), technical specialized services (R$3.1 million) and communications (R$3.0 million), which were compensated by the reduction of office supplies (R$3.1 million) and outsource services (R$2.0 million). Graph 28: Personnel and Other Administrative Expenses -R$ Million 133

134 Other Operating Income Other operating revenue totaled R$199.8 million in 9M11, 56.4% (R$72.0 million) above the amount recorded in 9M10. Other operating income of R$86.7 million in 3Q11 is 122.4% (R$47.7 million) higher than 3Q10 and 86.2% (R$40.1 million) higher than in 2Q11. In 9M11, the growth of other operating income can be explained by (i) the reversal of R$31.0 million in operational provisions from renegotiation agreements that improved the quality of the portfolio of receivables without credit characteristics, (ii) the R$12.7 million increase in revenues from exchange adjustment, due to positive exchange rate occurred on the period, and (iii) the R$7.6 million increase in fees from managing the escrow deposit reserve fund. The increase of other operating income from 3Q10 to 3Q11 reflects the higher income from exchange rate adjustments of R$16.7 million (as consequence of the exchange devaluation of 18.8% in 3Q11, and the growth of R$13.5 million in revenues from reversal of provisions. The increase of other operating income during 3Q11 came from the reversal of operating reserves and from revenues from exchange rate adjustment. Graph 29: Other Operating Income - R$ Million Other Operating Expenses Other operating expenses totaled R$163.9 million in 9M11, 25.6% (R$33.4) million above the amount recorded in the same period last year. Other operating expenses of R$48.9 million in 3Q11 are 3.4% (R$1.7 million) above 3Q10 and 15.2% (R$8.7 million) lower than 2Q11. The growth of other operating expenses from 9M10 to 9M11 was impacted by higher reserves for labor provision expenses (R$15.2 million), the increase of R$6.1 million in expenses with lawsuits and the increase of R$3.8 million with the reward program for Banrisul s credit cards, offset by the reduction of R$3.1 million in expenses on foreign exchange adjustments. From 3Q10 to 3Q11, other operating expenses decreased by the reduction of costs related to exchange rate adjustment (R$10.2 million), offset by higher expenses on lawsuits (R$ 7.0 million) and higher labor provision expenses (R$2.5 million). From 2Q11 to 3Q11, other operating expenses decreased due lower expenses with exchange rate adjustment in the amount of R$11.7 million, the decrease of R$2.2 million in expenses with discounts on renegotiations and also from decreases on provision expenses on property not in use, offsetting the increase of R$4.8 million in costs with escrow deposits. 134 FINANCIAL STATEMENTS SEPTEMBER 2011

135 Graph 30: Other Operating Expenses - R$ Million 135

136 Economic Indicators Leverage Ratio The leverage ratio is the ratio of the Graph 31: Leverage Ratio credit operations portfolio to shareholders equity. In September 2011, Banrisul s credit operations were 4.6x shareholders equity, rising from to the 4.3x registered in September 2010 and the 4.4x in December The significant growth of the loan portfolio in the twelve months reflected the variation of the Leverage Ratio. The Bank s comfortable leverage shows its capacity for loan portfolio growth in the future. Operating Cost Operating cost measures total of Graph 32: Operating Cost administrative expenses in relation to total assets. The ratio is calculated based on the expenses in the twelve months against the balance of assets at the end of the period being analyzed. The 13.0% growth in assets in the twelve months, leveraged by the growth in credit operations, helped to absorb an increase of 5.3% in administrative expenses, reflecting in the reduction of costs in proportion to assets in twelve months. Debt-Equity Ratio The debt-equity ratio measures the ratio of shareholders equity to funds Graph 33: Debt-Equity Ratio raised from the public, including investment funds. It evaluates the security that the company s own funds offer to third-party capital. In September 2011, the debt-equity ratio was 15.6%, 0.1 percentage points above September 2010, 0.2 percentage points above that of December 2010 and 0.2 percentage points below June The increase produced in the months of September and December 2010 showed that the Shareholders Equity grew higher than funding. In comparison to June 2011, funding increased 5.4%, above the 4.4% rise in Shareholders Equity. 136 FINANCIAL STATEMENTS SEPTEMBER 2011

137 Employee Productivity Graph 34: Employee Productivity - R$ Thousand The productivity indicator, measured by total funding and lending amounts per employee, grew by 11.1% over the last twelve months, reaching R$4,794.6 thousand, explained by the commercial performance, leveraged by encouraging productivity through systematic incentive pay to employees, already consolidated in the institution. Banrisul s headcount in September 2011 was 9,836 employees, an increase of 487 employees over September Efficiency Ratio The Efficiency Ratio measures the percentage volume of revenues used to cover administrative expenses. The twelve-month accumulated ratio in the same period of the last year decreased, performance favorable to the Bank. Graph 35: Efficiency Ratio The efficiency ratio reached 44.4% in September 2011, 4.1 percentage points below the income-cost ratio in September 2010 and 3.4 percentage points less than December 2010 and 0.6 percentage points below the indicator for June The improvement of the efficiency index during last twelve months reflects the rising trends of the net interest income (16.1% year-on-year growth), of fees from services (increase of 11.3% since June 2010) and operating income (expansion of 53.7% from 9M10 to 9M11), which helped absorb the increases of 6.4% in administrative expenses and of 38.4% in other operating expenses during the same period. 137

138 Consolidated Pro Forma Balance Sheet Table 16: Consolidated Pro Forma Balance Sheet Assets Sep11 Jun11 Mar11 Dec10 Sep10 R$ Million Sep11/ Sep11/ Sep11/ Jun11 Dec10 Sep10 Curr ent and Long-Term Assets 36, , , , , % 14.1% 13.4% Cash % 19.3% 21.4% Interbank Investments 3, , , , , % 29.6% -20.0% Securities and Derivatives 9, , , , , % 7.3% 7.9% Interbank and Interbranch Accounts 3, , , , , % 9.9% 30.9% Lending Operations 19, , , , , % 15.2% 21.5% Allowance for Loan Losses (1,233.8) (1,167.9) (1,102.3) (1,058.7) (1,083.7) 5.6% 16.5% 13.9% Leasing Operations % -0.1% 0.5% Allowance for Doubtful Lease Receivables (8.6) (6.9) (5.9) (8.9) (7.5) 24.6% -3.5% 14.2% Other Receivables 2, , , , , % 22.2% 10.2% Allowance for Losses on Other Receivables (66.4) (62.8) (71.0) (73.9) (102.0) 5.8% -10.1% -34.9% Other Assets % 21.4% 36.7% Permanent % -14.3% -18.7% Investments % 0.0% -1.3% Property in Use % -3.4% -4.8% Intangible % -25.7% -32.2% Total Assets 36, , , , , % 13.8% 13.0% Liabilities Set11 Jun11 Mar11 Dec10 Set10 Sep11/ Sep11/ Sep11/ Jun11 Dec10 Sep10 Current and Long-Term Liabi lities 32, , , , , % 14.1% 12.8% Deposits 20, , , , , % 9.7% 16.5% Demand Deposits 2, , , , , % -32.4% 21.2% Saving Deposits 5, , , , , % -9.1% -19.4% Intebank Deposits % -6.5% -21.4% Time Deposits 13, , , , , % 37.1% 39.2% Other Deposits % 89.2% -52.1% Money Market Funding 1, , , , , % 24.6% -28.5% Intebank and Interbranch Accounts % 199.3% 13.2% Borrowings and Onlendings 2, , , , , % 24.2% 25.0% Derivatives % 0.0% 0.0% Other Payables 7, , , , , % 17.2% 15.3% Collected Taxes and Other % 465.1% 19.1% Foreign Exchange Portfolio % 92.4% -14.9% Social and Statutory % 261.9% 81.2% Tax ans Social Securitie s % 35.6% 20.6% Trading Account % 54.1% 2.4% Financial and Development Funds 5, , , , , % 12.8% 14.0% Other 1, % 6.2% 14.3% Minority Interest % -5.8% -10.1% Shareholders' Equity 4, , , , , % 11.5% 14.7% Total Liabilities and Shareholders' Equity 36, , , , , % 13.8% 13.0% 138 FINANCIAL STATEMENTS SEPTEMBER 2011

139 Pro Forma Income Statement Table 17: Pro Forma Income Statement R$ Million 9M11 9M10 3Q11 2Q11 1Q11 4Q10 3Q10 9M11/ 3Q11/ 3Q11/ 9M10 2Q11 3Q10 FINANCIAL INCOME 4, , , , , , , % 16.2% 28.6% Lending Operations and Lease Operations 3, , , , % 8.9% 23.3% Securities % 6.4% 10.9% Foreign Exchange % 1,039.8% 850.4% Compulsory Investments % 38.0% 48.8% FINANCIAL EXPENSES (2,408.0) (1,795.2) (978.0) (747.0) (683.1) (650.3) (639.7) 34.1% 30.9% 52.9% Funding Operations (1,332.2) (1,021.4) (492.9) (447.8) (391.5) (381.3) (387.5) 30.4% 10.1% 27.2% Borrowings. Assignments and Onlendings (612.0) (381.0) (302.8) (156.1) (153.1) (142.2) (142.5) 60.6% 93.9% 112.4% Operations of Sale or Transfer of Financial Assets 0.0 (1.1) (0.2) Allowance for Loan Losses (463.8) (391.7) (182.3) (143.1) (138.5) (126.6) (111.2) 18.4% 27.4% 63.9% Gross Profit from Financial Income 1, , % 0.2% 4.9% Financial Margin 2, , % 4.9% 13.4% Other Operations Income / Expenses (950.4) (950.2) (328.9) (336.1) (285.4) (298.3) (331.6) 0.0% -2.1% -0.8% Services / Bank Fees % -0.6% 7.2% Personnel Expenses (798.5) (687.5) (291.4) (266.2) (240.9) (279.0) (245.5) 16.1% 9.5% 18.7% Other Administrative Expenses (533.9) (577.9) (187.5) (175.7) (170.7) (165.3) (182.6) -7.6% 6.8% 2.7% Other Operation Income % 86.2% 122.4% Tax Expenses (171.3) (150.3) (60.1) (56.6) (54.5) (53.7) (52.7) 13.9% 6.3% 14.1% Other Operation Expenses (163.9) (130.4) (48.9) (57.6) (57.4) (54.9) (50.6) 25.6% -15.2% -3.4% Income from Operations 1, % 2.4% 10.7% Inc ome Before Taxes on Income 1, % 2.4% 10.7% Inc ome Tax and Social Contribution (328.5) (241.0) (106.9) (113.9) (107.6) (116.1) (109.4) 36.3% -6.2% -2.3% Statutory Interest (40.6) (33.5) (15.8) (12.3) (12.4) (15.8) (11.1) 21.1% 28.6% 42.8% Minority Interest (0.1) (0.1) (0.0) (0.0) (0.0) -0.1 (0.1) -15.1% 11.4% -23.5% Net Income % 5.3% 15.9% 139

140 GOVERNO DO ESTADO DO RIO GRANDE DO SUL Secretaria da Fazenda Banco do Estado do Rio Grande do Sul BOARD OF DIRECTORS ODIR ALBERTO PINHEIRO TONOLLIER Chairman TÚLIO LUIZ ZAMIN Vice Chairman ALDO PINTO DA SILVA ESTILAC MARTINS RODRIGUES XAVIER ERINEU CLÓVIS XAVIER FLAVIO LUIZ LAMMEL OLÍVIO DE OLIVEIRA DUTRA Board Members EXECUTIVE BOARD TÚLIO LUIZ ZAMIN CEO FLÁVIO LUIZ LAMMEL Vice-President GUILHERME CASSEL IVANDRE DE JESUS MEDEIROS JOÃO EMILIO GAZZANA JOEL DOS SANTOS RAYMUNDO JOSE LUIZ HERMES PFEIFF JULIMAR ROBERTO GARCIA ROTA LUIZ CARLOS MORLIN Officers WERNER KÖHLER Accountant CRCRS FINANCIAL STATEMENTS SEPTEMBER 2011

141 Founded on September 12, 1928 Head Office: Rua Capitão Montanha, Porto Alegre - RS - Brazil Editing/Printing: Banrisul Corporate Communication