June Consolidated Prudential Conglomerate Financial Statements

Transcription

1 June 2016 Consolidated Prudential Conglomerate Financial Statements 1

2 INDEX FINANCIAL STATEMENTS... 3 PRUDENTIAL CONGLOMERATE BALANCE SHEET... 4 PRUDENTIAL CONGLOMERATE STATEMENT OF INCOME... 8 PRUDENTIAL CONGLOMERATE CASH FLOW... 9 PRUDENTIAL CONGLOMERATE STATEMENTS OF CHANGES IN EQUITY 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 CREDITS NOTE 09 OTHER ASSETS NOTE 10 - PERMANENT ASSETS NOTE 11 - DEPOSITS, MONEY MARKET FUNDING AND FUNDS FROM ACCEPTANCE AND ISSUANCE OF SECURITIES NOTE 12 - BORROWINGS NOTE 13 ONLENDINGS NOTE 14 - OTHER PAYABLES NOTE 15 - RESERVES, CONTINGENT ASSETS AND LIABILITIES NOTE 16 - INCOME FROM SERVICES RENDERED NOTE 17 - INCOME FROM BANK FEES NOTE 18 - PERSONNEL EXPENSES NOTE 19 - OTHER ADMINISTRATIVE EXPENSES NOTE 20 - OTHER OPERATING INCOME NOTE 21 - OTHER OPERATING EXPENSES NOTE 22 - EQUITY - BANRISUL NOTE 23 - COMMITMENTS, GUARANTEES AND OTHERS NOTE 24 - INCOME AND SOCIAL CONTRBUTION TAXES NOTE 25 - POST-EMPLOYMENT LONG-TERM BENEFIT OBLIGATIONS TO EMPLOYEES NOTE 26 - RISKS AND CAPITAL MANAGEMENT NOTE 27 - TRANSACTIONS WITH RELATED PARTIES REPORT INDEPENDENT AUDITOR S REPORT ON CONSOLIDATED PRUDENCIAL CONGLOMERATE FINANCIAL STATEMENTS PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

3 Financial Statements 3

4 PRUDENTIAL CONGLOMERATE BALANCE SHEET As of June 30, 2016 and 2015 (In Thousands of Reais) ASSETS 06/30/ /30/2015 CURRENT ASSETS 31,103,630, ,199,600, CASH 808,639, ,461, INTERBANK INVESTMENTS (Note 04) 1,441,699, ,506,216, Money Market Investments 1,099,999, ,500,000, Interbank Deposits 341,699, ,215, SECURITIES AND DERIVATIVES (Note 05) 4,474,851, ,062,756, Own Portfolio 2,818,511, ,700,988, Linked to Repurchase Agreements 1,554,413, ,270,323, Derivatives 101,918, ,436, Privatization Certificates 8, , INTERBANK ACCOUNTS 9,074,152, ,660,084, Payments and Receipts Pending Settlement 195,569, ,090, Restricted Deposits (Note 06) Central Bank of Brazil 8,844,488, ,410,359, Agreements 62, , Correspondents 34,032, ,579, INTERBRANCH ACCOUNTS 58,421, ,513, Third-party Funds in Transit 5,840, ,233, Internal Transfers of Funds 52,580, ,280, LENDING OPERATIONS (Notes 07) 10,230,632, ,887,673, Lending Operations Public Sector 11,521, ,394, Private Sector 10,534,510, ,237,267, Credit Linked to Credit Assignment 6,563, ,250, Allowance for Loan Losses (321,963,216.87) (369,239,331.96) LEASE OPERATIONS (Notes 03 (d) and 07) (1,370,771.43) (1,098,957.69) Lease Receivables Public Sector 4,426, ,254, Private Sector 11,763, ,185, Unearned income from Lease Operations (15,796,656.47) (17,200,207.70) Allowance for Doubtful Lease Receivables (1,764,249.93) (1,337,933.87) OTHER RECEIVABLES (Note 08) 4,927,808, ,187,870, Endorsements and Sureties Paid 11,757, Foreign Exchange Portfolio 744,465, ,013,391, Income Receivable 144,547, ,325, Trading Accounts 4,452, ,749, Specific Credits 215, , Other 4,165,426, ,135,857, Allowance for Losses on Other Receivables (143,055,699.52) (102,524,819.95) OTHER ASSETS (Note 09) 88,795, ,123, Other Assets 2,204, ,294, Prepaid Expenses 86,591, ,829, PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

5 ASSETS (cont.) 06/30/ /30/2015 NONCURRENT ASSETS 35,148,103, ,205,566, SECURITIES AND DERIVATIVES (Note 05) 16,166,820, ,674,601, Own Portfolio 10,343,818, ,738,034, Linked to Repurchase Agreements 4,025,025, ,353,400, Derivatives - 877,151, Linked to Central Bank of Brazil 567,741, ,495, Linked to Guarantees 1,230,233, ,519, INTERBANK ACCOUNTS 856,566, ,936, Restricted Deposits (Note 06) National Housing System 856,566, ,936, LENDING OPERATIONS (Notes 07) 15,466,531, ,538,060, Lending Operations Public Sector 72,099, ,641, Private Sector 17,181,698, ,889,210, Credit Linked to Credit Assignment 43,253, ,706, Allowance for Loan Losses (1,830,520,984.42) (1,484,499,056.23) LEASE OPERATIONS (Notes 03 (d) and 07) (5,831,376.09) (5,881,731.59) Lease Receivables Public Sector 2,018, ,562, Private Sector 17,935, ,382, Credit Linked to Credit Assignment (19,954,192.24) (22,945,351.27) Allowance for Doubtful Lease Receivables (5,831,376.09) (5,881,731.59) OTHER RECEIVABLES (Note 08) 2,538,858, ,059,815, Foreign Exchange Portfolio 2,345, , Other 2,598,925, ,109,278, Allowance for Losses on Other Receivables (62,412,838.52) (49,526,223.13) OTHER ASSETS (Note 09) 125,158, ,034, Other Assets 89,503, ,120, Allowance for Valuation (27,899,783.73) (23,692,392.49) Prepaid Expenses 63,554, ,606, PERMANENT ASSETS 1,662,053, ,735, INVESTMENTS (Note 10 (a)) 118,254, ,317, Investments in Domestic Subsidiaries 111,451, ,113, Other Investments 11,694, ,095, Allowance for Losses (4,891,689.94) (4,891,689.94) PROPERTY AND EQUIPMENT IN USE (Note 10 (b)) 162,584, ,395, Real Estate 114,408, ,422, Other 593,945, ,472, Accumulated Depreciation (545,769,739.95) (509,498,810.63) FIXED LEASED IN USE (Note 09 (b)) 113,348, ,159, Leased Assets 128,614, ,076, Accumulated Depreciation (15,265,873.88) (24,917,064.93) DEFERRED 1,656, ,688, Organization and Expansion Expenditures 5,717, ,478, Accumulated Amortization (4,061,258.74) (4,790,707.08) INTANGIBLE ASSETS (Note 10 (c)) 1,266,209, ,174, Intangible Assets 1,352,366, ,666, Accumulated Amortization (86,157,003.32) (134,491,530.56) TOTAL ASSETS 67,913,787, ,824,901, See accompanying notes. 5

6 LIABILITIES AND EQUITY 06/30/ /30/2015 CURRENT LIABILITIES 28,388,082, ,713,409, DEPOSITS (Note 11) 13,121,504, ,870,054, Demand Deposits 2,649,536, ,658,779, Saving Deposits 7,525,266, ,682,223, Interbank Deposits 392,680, ,876, Time Deposits 2,554,020, ,032,174, MONEY MARKET FUNDING (Note 11) 5,570,292, ,611,597, Own Portfolio 5,570,292, ,611,597, FUND FROM ACCEPTANCE AND ISSUANCE OF SECURITIES (Note 11) 1,466,439, ,469,275, Mortgage Notes and Similar 1,466,439, ,469,275, INTERBANK ACCOUNTS 312,008, ,391, Receipt and Payment Pending Settlement 310,539, ,538, Interbank Onlendings - 1,483, Correspondents 1,469, ,369, INTERBRANCH ACCOUNT 367,062, ,749, Third-party Funds in Transit 366,576, ,603, Internal Transfers of Funds 485, ,145, BORROWINGS 1,042,174, ,614,406, Foreign Borrowings (Note 12) 1,042,174, ,614,406, DOMESTIC ONLENDINGS OFFICIAL INSTITUTIONS (Note 13) 765,558, ,593, National Treasury 139,095, ,036, National Economic and Social Development Bank (BNDES) 409,665, ,505, Federal Savings and Loan Bank (CEF) 5,868, ,019, National Equipment Financing Authority (FINAME) 210,720, ,995, Other Official Institutions 208, , FOREIGN ONLENDINGS (Note 13) 2,204, ,167, Foreign Onlendings 2,204, ,167, DERIVATIVES (Note 05 (d)) 178,610, ,180, Derivatives 178,610, ,180, OTHER PAYABLES (Note 14) 5,562,227, ,655,994, Collected Taxes and Other 189,314, ,522, Foreign Exchange Portfolio 39,355, ,819, Social and Statutory 59,506, ,457, Tax and Social Security 579,487, ,774, Trading Account and Intermediation 4,602, ,591, Financial and Development Funds 805,200, ,689,627, Subordinated Debt 121,350, ,692, Other 3,763,410, ,148,509, PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

7 LIABILITIES AND EQUITY (cont.) 06/30/ /30/2015 NONCURRENT LIABILITIES 33,061,402, ,245,659, DEPOSITS (Note 11) 26,649,964, ,334,115, Interbank Deposits 211,441, ,375, Time Deposits 26,438,523, ,807,739, FUND FROM ACCEPTANCE AND ISSUANCE OF SECURITIES (Note 11) 1,267,123, ,414,486, Mortgage Notes and Similar 1,267,123, ,414,486, BORROWINGS 3,404, ,800, Foreign Borrowings (Note 12) 3,404, ,800, DOMESTIC ONLENDINGS - OFFICIAL INSTITUTIONS (Note 13) 2,041,971, ,083,316, National Treasury 537, ,074, National Economic and Social Development Bank (BNDES) 1,376,528, ,341,592, Federal Savings and Loan Bank (CEF) 51,694, ,630, National Equipment Financing Authority (FINAME) 611,019, ,860, Other Official Institutions 2,191, , FOREING ONLENDINGS (Note 13) 6,639, ,543, Foreign Onlendings 6,639, ,543, DERIVATIVES (Note 05 (d)) 426,018, Derivatives 426,018, OTHER PAYABLES (Note 14) 2,666,279, ,400,398, Tax and Social Security 495,944, ,099, Financial and Development Funds 34,219, ,796, Subordinated Debts 1,633,343, ,436,200, Other 502,771, ,301, DEFERRED INCOME 18,921, ,730, Deferred Income 18,921, ,730, EQUITY (Note 22) 6,445,380, ,851,101, Capital 4,500,000, ,250,000, Capital Reserves 4,510, ,510, Income Reserves 1,923,870, ,627,102, Valuation Adjustment 14,465, (32,637,959.04) Non-controlling Interest 2,533, ,126, TOTAL LIABILITIES AND EQUITY 67,913,787, ,824,901, See accompanying notes. 7

8 PRUDENTIAL CONGLOMERATE STATEMENT OF INCOME Periods ended June 30, 2016 and 2015 (In Thousands of Reais, except Earnings per Share) 01/01 to 06/30/ /01 to 06/30/2015 INCOME FROM FINANCIAL OPERATIONS , ,96 Lending Operations , ,59 Lease Operations , ,30 Securities , ,70 Derivatives ( ,27) ,92 Foreign Exchange ( ,62) ,63 Compulsory Investments , ,69 Sales or Transfer of Financial Assets , ,13 EXPENSES OF FINANCIAL OPERATIONS ( ,54) ( ,30) Funding Operations ( ,76) ( ,30) Borrowings, Assignments and Onlendings ( ,87) ( ,91) Lease Operations ( ,50) ( ,98) Sales or Transfer of Financial Assets ( ,54) ( ,82) Allowance for Loan Losses (Note 07 (e)) ( ,87) ( ,29) GROSS INCOME FROM FINANCIAL OPERATIONS , ,66 OTHER OPERATING INCOME (EXPENSES) ( ,84) ( ,01) Income from Services Rendered (Note 15) , ,72 Income from Bank Fees (Note 17) , ,74 Personnel Expenses (Note 18) ( ,66) ( ,21) Other Administrative Expenses (Note 19) ( ,38) ( ,09) Tax Expenses ( ,53) ( ,70) Equity in Subsidiaries (Note 02 (c)) ( ,81) ,21 Other Operating Income (Note 20) , ,77 Other Operating Expenses (Note 21) ( ,21) ( ,45) OPERATING INCOME , ,65 NON-OPERATING INCOME ( ,21) ,74 INCOME BEFORE TAXES ON INCOME AND PROFIT SHARING , ,39 INCOME AND SOCIAL CONTRIBUTION TAXES(Note 24 (a)) ( ,99) ( ,00) Current ( ,57) ( ,74) Deferred , ,74 EMPLOYEE PROFIT SHARING ( ,30) ( ,74) NON-CONTROLLING INTEREST ( ,15) ( ,28) NET INCOME , ,37 See accompanying notes. 8 PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

9 PRUDENTIAL CONGLOMERATE CASH FLOW Periods ended June 30, 2016 and 2015 (In Thousands of Reais) 01/01 to 06/30/ /01 to 06/30/2015 Adjusted Net Income Before Taxes on Income and Employee Profit Sharing 1,292,190, ,798,716, Income Before Taxes on Income and Employee Profit Sharing 667,398, ,731, Adjustments to Net Income Before Taxes on Income and Employee Profit Sharing Depreciation and Amortization 65,524, ,577, Equity in Subsidiaries (18,211,501.37) (2,069,687.49) Supervenience (3,734,492.55) (1,972,410.27) Income from Subordinated Debt (267,456,043.51) 476,508, Provision for Loan Losses 734,275, ,403, Provision (Reversal) for Securitization Losses 1, (12,239.51) Provision for Contingencies 114,393, ,549, Changes in Assets and Liabilities 701,375, (137,307,275.33) CASH FLOW FROM OPERATING ACTIVITIES Equity Valuation Adjustment 3,766, ,193, (Increase) in Interbank Deposits (242,759,184.60) - (Increase) in Securities (1,148,818,257.46) (466,268,011.71) (Increase) Decrease in Derivatives 1,461,540, (385,120,810.53) (Increase) in Interbank and Interbranch Accounts (264,542,336.59) (518,395,120.84) (Increase) Decrease in Lending Operations 1,842,483, (1,043,977,926.72) (Increase) in Lease Operations (669,409.59) (481,648.22) (Increase) in Other Receivables (694,063,409.80) (728,799,748.87) Decrease in Other Assets 26,084, ,498, Increase in Deposits 1,072,917, ,067,303, Increase (Decrease) in Money Market Funding (1,540,640,969.47) 293,361, Increase in Funds from Acceptance and Issue of Securities 384,793, ,970, Increase (Decrease) in Borrowing (649,963,408.05) 305,977, Increase in Other Liabilities 635,249, ,453, Increase (Decrease) in Deferred Income 1,486, (2,555,884.10) Income and social contribution taxes paid (185,490,259.80) (151,466,365.89) NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,993,566, ,661,409, CASH FLOW FROM INVESTING ACTIVITIES Dividend Received from Subsidiary 52,714, ,924, Asset Update on Subsidiaries - (128.41) Disposal of Investments 3,372, , Disposal of Property and Equipment in Use 1,075, ,292, Disposal of Lease in Use 2,103, ,457, Acquisition of Investments (4,348,336.65) (354,280.07) Acquisition of Property and Equipment in Use (15,614,074.23) (27,479,025.29) Acquisition of Lease in Use (11,116,899.74) (10,262,537.38) Acquisition in Deferred (89,367.29) (574,788.78) Acquisition of Intangible Assets (1,263,769,835.26) (3,500,317.02) NET CASH USED IN INVESTMENTING ACTIVITIES (1,235,673,157.65) (3,201,308.15) CASH FLOW FROM FINANCING ACTIVITIES Subordinated Debt 108,464, , Interest Payments on the Subordinated Debt (77,958,848.60) (73,965,903.13) Dividends Paid - (12,026,975.29) Interest on Equity Paid (153,026,564.28) (161,397,165.76) Change in Non-controlling Interest 254, , NET CASH FROM FINANCING ACTIVITIES (122,266,559.04) (246,362,713.34) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 635,626, ,411,845, Cash and Cash Equivalents 864,138, ,517, Interbank Investments (Note 04) 507,814, ,315, CASH AND CASH EQUIVALENT AT BEGINNING OF PERIOD 1,371,953, ,832, Cash and Cash Equivalents 808,639, ,461, Interbank Investments (Note 04) 1,198,939, ,506,216, CASH AND CASH EQUIVALENTS AT END OF PERIOD 2,007,579, ,218,677, See accompanying notes. 9

10 PRUDENTIAL CONGLOMERATE STATEMENTS OF CHANGES IN EQUITY Periods ended June 30, 2016 and 2015 (In Thousands of Reais) Capital Stock Capital Increase Capital Reserves Profit Reserves Assets Valuation Adjustments Investment Grants Legal Statutory For Expansion Restatement of Equity Securities in Subsidiaries Securities Available for Sale (Note 05 (b)) Other Assets Valuation Adjustments (Note 25) Retained Earnings Non-controlling Interest Balance as of January 01, ,000,000, ,510, ,548, ,205,402, ,617, (7,686,458.02) (26,145,757.91) - 1,926, ,671,174, Capital Increase (Note 22 (a)) 250,000, (105,382,057.76) (144,617,942.24) Valuation Adjustments (677.69) 1,194, ,193, Restatement of equity in Subsidiaries , , Net Income ,931, ,931, Allocation of Net Income (Note 22 (b)) Reserves Constitution ,996, ,982, ,554, (178,533,947.61) - - Interest on Equity (161,397,165.76) - (161,397,165.76) Balance as of June 30, ,250,000, ,510, ,544, ,185,003, ,554, (1.33) (6,492,199.80) (26,145,757.91) - 2,126, ,851,101, Balance as of January 01, ,250,000, ,510, ,986, ,312,212, ,696, , (6,469,933.00) 17,099,605.95) - 2,279, ,208,385, Capital Increase (Note 22 (a)) - 250,000, (12,303,098.57) (237,696,901.43) Valuation Adjustments (69,973.31) 4,012, (175,461.78) - - 3,766, Restatement of equity in Subsidiaries , , Net Income ,622, ,622, Allocation of Net Income (Note 22 (b)) Reserves Constitution ,481, ,405, ,087, (232,974,058.43) - - Interest on Equity (153,026,564.28) - (153,026,564.28) Dividends (3,621,927.75) - (3,621,927.75) Balance as of June 30, ,250,000, ,000, ,510, ,467, ,397,315, ,087,293,30 (755.28) (2,457,634.01) 16,924, ,533, ,445,380, TOTAL See accompanying notes. 10 PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

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12 NOTES TO THE PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS NOTE 01 - OPERATIONS Banco do Estado do Rio Grande do Sul S.A. ( Banrisul or Institution ) is a multiple-service bank, engaged in retail banking, lending, financing and investment, mortgage loan, development, lease portfolio, and foreign exchange activities. Through its subsidiaries and affiliated companies, Banrisul engages in various other activities, including securities brokerage, management of sales poll groups, credit cards, insurance, pension plan and capitalization products. Financial market transactions are conducted within the context of an integrated group of financial institutions. Banrisul also operates as an economic and financial agent for the state of Rio Grande do Sul, in conformity with the state government s plans and programs. NOTE 02 - PRESENTATION OF THE FINANCIAL STATEMENTS The Prudential Conglomerate financial statements are designed to meet the requirements of Resolution No. 4280/13 of the National Monetary Council (CMN) and supplementary regulations of the Central Bank of Brazil (Bacen). Thus, specific requirements were observed in the consolidation and/or combination of entities described in the Resolution No. 4,280/13 as determined by the CMN and the Bacen, which are not necessarily the same established by the corporate legislation and by the CMN or Bacen to other types of consolidation. In this sense, they include the financial statements of Banrisul, its foreign branches and subsidiaries as required by CMN Resolution No. 4,280/13. In the preparation of the prudential conglomerate 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 six-month period and net equity referring to non-controlling interests are shown separately in the financial statements. Banrisul also consolidates the investment fund in which it may be substantially impacted by risks and benefits. The following table shows the foreign branches, the subsidiaries and the investment fund included in the prudential conglomerate financial statements: As of 06/30/2016 Activity Total Participation Equity Net Income Foreign Branch - Grand Cayman Financial Institution % 115,776, ,679, Foreign Branch - Miami Financial Institution % 156,737, ,133, Banrisul S.A. Corretora de Valores Mobiliários e Câmbio Brokerage 98.98% 79,542, ,052, Banrisul S.A. Administradora de Consórcios Sales Poll Group Management 99.68% 220,654, ,936, Banrisul Cartões S.A. Cards 98.79% 476,383, ,543, Banrisul Giro Fundo de Investimento Renda Fixa Curto Prazo Investment Fund % 121,885, ,792, As of 06/30/2015 Activity Total Participation Equity Net Income Foreign Branch - Grand Cayman Financial Institution % 105,198, ,183, Foreign Branch - Miami Financial Institution % 146,160, ,283, Banrisul S.A. Corretora de Valores Mobiliários e Câmbio Brokerage 98.98% 77,866, , Banrisul S.A. Administradora de Consórcios Sales Poll Group Management 99.68% 195,645, ,690, Banrisul Cartões S.A. Cards 98.79% 331,991, ,684, The financial statements prepared for the reporting period were approved by the Board of Banrisul's management on August 3, PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

13 NOTE 03 SIGNIFICANT ACCOUNTING PRACTICES The significant accounting policies used in preparing the prudential financial statements are as follows: (a) Income and expenses Income and expenses are recorded on the accrual basis. (b) Cash and Cash Equivalents For purposes of the cash flows statements (as defined in CMN Resolution No. 3604/08), cash and cash equivalents comprise cash and readily convertible, highly liquid interbank investments, with original maturity not exceeding ninety days and that have an insignificant risk of change in their fair value. (c) Interbank Investments These comprise funds invested in the interbank market, stated at present value, calculated on pro rata die basis, based on the variation of both the agreed index and the interest rate. (d) Securities Pursuant to Circular No. 3068/01, issued by the Central Bank of Brazil, and supplementary regulations, securities are classified and measured in three specific categories, as follows: - Trading Securities - these include securities acquired for purposes of being actively and frequently traded, measured at fair value, with related gains or losses recognized in the income statement. - 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 income statement. Unrealized gains and losses from changes in fair value are recorded directly in shareholders equity, net of taxes, under Valuation Adjustments until they are realized through sale. When realized, the gains and losses are recognized in the income statement on the trading date, with a counter-entry to equity, net of taxes. - Held-to-Maturity Securities these include securities for which Management has the positive intent and financial capacity to hold to maturity. These securities are carried at amortized cost, less any impairment losses, plus income earned on a pro rata basis. Financial capacity is determined based on cash flow projections, disregarding the possibility of selling such securities. (e) Derivatives Derivative financial instruments are classified at the date of acquisition, in accordance with management s intent to use them as protective (hedge) instruments or not, in accordance with BACEN Circular No. 3082/02. Transactions involving financial instruments carried out at customers requests or at the Bank s discretion, or which do not meet the criteria for hedge accounting (mainly derivatives used to manage the overall risk exposure) are recorded at market value, with gains and losses recognized directly in the income statement. Derivatives are measured at fair value on the contract date. The method for recognizing subsequent changes in the fair value of derivatives depends on whether the derivative is designated or not as a hedging instrument. This being the case, they are recorded according to the nature of the item being hedged. The Bank uses hedge accounting and assigns the derivative contracts to hedge the subordinated debts (Note 14) as a hedge of fair value of recognized assets or liabilities or a firm commitment (market risk hedge). On initial designation of the hedge, Banrisul formally documents the relationship between hedging instruments and hedged items, as well as the objectives of risk management and the strategy behind the various hedge transactions. Both at the beginning of the hedge and on an ongoing basis, the Bank also registers its assessment that derivatives used in hedging transactions are highly effective in offsetting changes in fair value or the cash flows of the hedged items. 13

14 The fair values of the various derivative instruments used for hedging purposes are disclosed in Note 05. The total fair value of a hedge derivative is classified as Noncurrent Asset or Noncurrent Liabilities when the remaining maturity of the hedged item exceeds 12 months, and as current assets or liabilities when the remaining maturity of the hedged item is less than 12 months. Market Risk Hedge derivative financial instruments intended to offset risks from exposure to changes in market value of hedged items are recorded in this category. Banrisul included in this category the derivative contracts used for hedging the proceeds of the US dollar denominated subordinate debt against foreign exchange variation, with a USD million notional amount due on February 2, 2022, described in Note 14. At June 30, 2016, the only current derivatives refer to swap transactions. The fair value variations of derivatives designated and qualified as market risk hedges are recorded in the income statement, together with any changes in fair value of the hedged asset or liability attributable to the hedged risk (note 5 (d)). The gains or losses related to this operation are recognized in the income statement as Income from Financial Intermediation. (f) Loans, Lease Operations 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 transactions, 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 operations are recorded at present value, calculated on a daily pro-rata basis, based on the agreed index and interest rate, and are adjusted through the 60 th day past-due. Thereafter, revenue is recognized only when the payments 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. Renegotiated loans previously written-off against the allowance for loan losses and controlled in memorandum accounts are rated level H. Any gains on renegotiation are recognized as revenue only when actually received. - Leases - Leases are stated by the value of the consideration receivable, updated in accordance with the conditions established in the lease agreements. Unearned income corresponds to the contracted installments and the effective income is recorded in each installment due date, as established by the Finance Ministry Ordinance No. 140/84. Recorded loss at the end of the lease due to call option by the tenant is deferred and amortized, for accounting and tax purposes, by the remaining useful life of the leased object. The financial adjustment of the leasing portfolio, necessary to determine the statement of income and shareholders' equity in accordance with accounting practices adopted in Brazil, was constructed in accordance with the criteria set forth by the Central Bank of Brazil, based on the present value of the future flow of receivables, using the internal rate of return of the respective contracts. This procedure generated an accumulated excess of depreciation in the amount of R$62,837, (2015 R$64,898,270.43). Should the leasing operations had classified under leasing receivables at the present value, and under revenue from leasing operations, the balances on June 30, 2016 would be as follows: 14 PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

15 Property and Equipment Financial Statements Balances Restated Restated Balance Leasing Receivable operations Current Assets 393, ,925, ,319, Long-term assets - 30,238, ,238, Lease in Use 113,348, (113,348,784.72) - Deferred Leasing 1,656, (1,656,181.79) - Creditors for Prepaid Residual Value Current liabilities (57,840,039.59) 57,840, Revenues from Leasing Operations 20,000, (20,000,021.33) 6,175, Expenses from Leasing Operations (13,824,668.50) 13,824, (g) Other Receivables Operations with Credit Cards Unbilled amounts are represented by receivables from cardholders for transactions under Visa and MasterCard flags. These amounts are accounted for as noncredit-like Notes and Receivables. Amounts related to credit cards issued by Banrisul, referring to outstanding revolving balances or those originated from transactions where the payment was converted into more than one installment are classified as loans. (h) Allowance for Loan Losses, for Doubtful Lease Receivables and for Losses on Other Credit Like Receivables This is recorded in an amount considered sufficient to cover probable losses considering the risk level classification of the customer based on periodic assessment of credit quality, and on the minimum percentages required by the National Monetary Council (CMN) Resolution No. 2682/99 when a default event occurs. 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 was adopted by the Bank s management in addition to those foreseen on CMN Resolution No. 2682/99, as a measure to ensure that all events for the purpose of setting the allowance for doubtful receivables were captured by the process established for rating credit operations and customers based on their respective history of delay. (i) Other Assets Comprises mainly Assets Not in Use, relating to real estate available for sale, own and deactivated or received in lieu of payment, which are adjusted to market value through provision, according to current regulations; and by Prepaid Expenses, corresponding to investments whose benefits will occur in future years, basically composed of cost of credit origination through banking correspondents. Since 2015 Banrisul has chosen to adopt the amendment made in CMN Resolution No. 4294/13, which regulates the payment of interest when hiring local banking correspondents, and BACEN Circular No. 3738/14, which establishes accounting procedures for the remuneration of the local banking correspondents. The effects of such option are recorded in Notes 9 and 19. (j) Permanent Assets - Investments investments in subsidiaries and partner companies are accounted for by the equity method, based on their equity value, in conformity with the accounting practices adopted by the parent company, i.e. the Brazilian accounting practices applicable to financial institutions authorized to operate by the Central Bank of Brazil. Other investments are stated at cost and adjusted for allowances for losses, when applicable. Goodwill corresponds to the excess amount paid on the acquisition of investments due to expected generation of future economic gains. Goodwill is annually tested for impairment; 15

16 - Property and Equipment in Use measured at acquisition cost, less accumulated depreciation. Depreciation is calculated under the straight-line method based on the expected economic useful lives of assets considering the minimum rates disclosed in Note 10; and - Intangible corresponds to the acquired rights whose object are intangible assets intended for maintenance of the company or exercised for this purpose. Intangible assets are basically composed by acquisition of rights for the provision of banking services (payrolls acquisition), amortized over the terms of contracts, and software, amortized by the straight-line method over the estimated useful life, based on the rates stated in Note 10. Intangible assets are adjusted by a provision for impairment loss, when applicable. (k) Impairment of Assets Banrisul annually reviews intangible assets for impairment losses. When identified, losses are charged to income of the period. (l) 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 financial statements date. (m) Deposits, Money Market Funding, Funds from Acceptances and Issuance of Securities, Borrowings and Onlendings and Financial and Development Fund These are stated at liability amounts plus charges incurred through the reporting date, recognized on a pro rata die basis. State Law No , sanctioned in April 22, 2004, and amended by Law No /15, establishes that Banrisul shall make available to the State of Rio Grande do Sul, upon request, up to 95% of the escrow deposits deposited by third parties at Banrisul (except for those whose litigant party is a municipality). The amount not made available should constitute a reserve fund to ensure the refund of said escrow deposits. The amount of escrow deposits deposited by third parties at Bank is controlled in a memorandum account and the retained portion is classified as Financial and Development Fund, as described in Note 23 (a). Expenses related to these items are recorded under Expenses with Borrowings, Assignments and Onlendings. (n) Contingent Reserves, Assets and Liabilities and Tax, Labor and Civil Contingencies Contingent reserves, assets and liabilities, and legal obligations are recognized, measured and disclosed in accordance with the criteria set forth by Technical Pronouncement CPC 25, approved by the National Monetary Council (CMN) Resolution No. 3823/09. - Contingent Assets - they are not recognized in the financial statements, except when there is evidence that realization thereof is virtually certain, and that no further appeal can be opposed; - Contingent Reserves and Liabilities a contingent liability provision is recognized in the financial statements when, based on the opinion of management and of legal advisors, the risk of losing a lawsuit or administrative claim is deemed probable, there will be a probable outflow of funds for the settlement of liabilities and the amounts involved can be reliably measured. Contingent liabilities assessed as possible losses are not provided for, however disclosure is made in the Notes to the Financial Statements. Contingent liabilities assessed as remote losses are neither accrued nor disclosed. - Legal, Tax and Social Security Liabilities legal obligations are recorded as liabilities, regardless of the evaluation of loss probability. 16 PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

17 (o) Other Current and Noncurrent Assets and Liabilities These are stated at realizable or settlement amounts, including earnings and charges incurred through the reporting date, calculated on a daily pro rata basis, and, where applicable, the effect of fair value adjustments. Amounts receivable and payable within twelve months are classified as current assets and current liabilities, respectively. (p) Income tax and Social Contribution Social contribution tax (CSLL) is calculated as follows: at the rate of 15% until August 2015, 20% from September 1, 2015 to December 31, 2018, and 15% from January 1, 2019 onwards for financial companies and similar entities (9% for non-financial companies). Income tax (IRPJ) is calculated at 15% upon the taxable profit for the period (plus a 10% surtax pursuant to legislation) adjusted for permanent differences. Deferred income tax and social contribution are measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. Deferred tax assets are recorded under Other Receivables, with a balancing entry in the income statement for the semester. The realization of these tax credits will occur upon realization of the temporary differences. (q) Post-Employment Long Term Benefit Obligations to Employees - Post-Employment Obligations Banrisul sponsors FBSS Fundação Banrisul de Seguridade Social (Banrisul Social Security Foundation) and CABERGS Caixa de Assistência dos Empregados do Banco do Estado do Rio Grande do Sul (Medical Assistance for Employees of Banco do Estado do Rio Grande do Sul) which, respectively, ensure the completion of retirement benefits and medical care to its employees. - Retirement Plans The Bank sponsors pension plans of the defined benefit and variable contribution types. A defined benefit plan is different from a defined contribution plan. In general, defined benefit plans provide a value of pension benefit that the employee will receive upon retirement, usually depending on one or more factors such as age, length of service and salary. The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the reporting date less the fair value of plan assets. Independent actuaries calculate the defined benefit obligation annually using the Projected Credit Unit Method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using rates consistent with market yields, on high quality corporate bonds denominated in the currency in which the benefits will be paid and that have terms to maturity similar to those of the respective obligations of the pension plan. The actuarial valuation is established based on assumptions and projections of interest rates, inflation, increases in benefits, life expectancy, the effect of any limitation upon the contribution of the employer in the cost of future benefits and contributions or third-party contributions that reduce the ultimate cost of those benefits to the Bank, among others. The actuarial valuation and its assumptions and projections are updated on an annual basis at the end of each year. Actuarial gains and losses resulting from adjustments based on experience and changes in actuarial assumptions are recognized directly in other comprehensive income as incurred. The cost of benefits under the defined benefit plans is determined separately for each plan using the Projected Individual Benefit method. Past service costs are recognized immediately in profit or loss as incurred. The variable contribution plans cover benefits with defined contribution characteristics, which are expected retirement, early retirement and funeral assistance. In this case, Banrisul has no further payment obligations besides contributions already paid. The contributions are recognized as employee benefit expense when due. Contributions made in advance are recognized as an asset to the extent that cash refund or a reduction in future payments is available. In addition, there are benefits with defined benefit characteristics, which are retirement for disability, proportionate benefit, sickness allowance, annual bonus, minimum benefit and retirement annuity with life insurance coverage. 17

18 - Health Plans plans provided by Caixa de Assistência dos Empregados do Banco do Estado do Rio Grande do Sul (Cabergs, the Assistance Fund for the Employees of Banco do Estado do Rio Grande do Sul), which offer health care benefits in general and whose cost is established through an agreement of accession. The Bank also offers the benefit of post-retirement health care to its employees. The expected costs of these benefits are accrued over the period of employment using the same accounting methodology used for defined benefit pension plans. Actuarial gains and losses resulting from adjustments based on experience and changes in actuarial assumptions are charged or credited to equity, under Equity Valuation Adjustments. Independent qualified actuaries measure these obligations annually. Plan assets are not available to creditors of Banrisul and cannot be paid directly to the Bank. The fair value is based on information about market price and, in the case of traded assets, their market value. The value of any recognized defined benefit asset is limited to the sum of any previous service cost not yet recognized and to the present value of any economic benefit available as reductions in future employer contributions to the plan. - Retirement Award upon retirement, Banrisul gives its employees a premium for retirement that is proportional to their monthly salary, effective at the time of retirement. Additionally, the results of the actuarial valuation can generate an asset to be recognized. The Institution records this asset only when: it controls a resource, which is the ability to use the surplus to generate future benefits; this control is the result of past events (contributions paid by the Bank and service provided by the employee); and future economic benefits to the Bank are available in the form of reductions in future contributions or of cash refund, either directly to the Bank, or indirectly to compensate for the deficit of another post-employment benefit plan (in compliance with law). The commitments to these three types of post-employment benefits are annually assessed and reviewed by independent qualified actuaries. (r) Earnings per Share The institution calculates earnings per thousand shares by dividing the weighted average number of total common and preferred shares outstanding during the period by the net income for the period. Earnings per share is disclosed in accordance with CVM Rule No. 636/10. NOTE 04 - INTERBANK INVESTMENTS Money Market Investments 1,099,999, ,500,000, Pending Settlement Resale - Own Portfolio National Treasury Bonds LTN 1,099,999, ,500,000, Interbank Deposits 341,699, ,215, Interbank Deposits (1) 341,699, ,215, Total 1,441,699, ,506,216, (1) On June 30, 2016, of the amount of R$341,699, of interbank deposits, R$242,759, matured in more than ninety days from the investment date, and was not considered as cash and cash equivalents in the Cash Flow Statement. On June 30, 2015, Banrisul had no interbank deposits with original maturity of more than ninety days from the investment date. 18 PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

19 NOTE 05 - SECURITIES AND DERIVATIVES Breakdown of the portfolio of Securities and Derivatives: Trading Securities 3,529,836, ,152,861, Available-for-Sale Securities 747,481, ,151, Held-to-Maturity Securities 16,262,435, ,973,755, Derivatives 101,918, ,588, Total 20,641,671, ,737,357, 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 (Brazilian Association of Financial and Capital Markets); shares of publicly-held companies are based on the average last day trade; investment fund shares are updated daily with the respective share price informed by the fund administrator; and for securities where no prices are available Banrisul uses internal technical pricing as a parameter for calculating the market value, using BM&FBovespa s future curves. (a) Trading Securities Breakdown of Trading Securities per Type, at Market Value: Financial Treasury Bills - LFT 3,317,897, ,908,561, Fixed Income Fund Shares 206,219, ,067, Other Fund Shares 5,719, ,233, Total 3,529,836, ,152,861, Breakdown per maturity: Maturity Updated Acquisition Cost Market Value Without Maturity 211,939, ,939, to 3 years 2,648,728, ,647,433, to 5 years 670,900, ,463, Total in ,531,567, ,529,836, Total in ,153,942, ,152,861, According to the Central Bank of Brazil regulations, these securities are classified in current assets at their fair value. (b) Available-for-Sale Securities Breakdown of Available-for-Sale Securities per Type, at Market Value: Financial Treasury Bills LFT 716,108, ,600, Shares of Publicly-Held Companies 18,880, ,782, Privatization Certificates 8, , Fixed Income Fund Shares 10,503, Real Estate Fund Shares 1,869, ,661, Other Fund Shares 111, , Total 747,481, ,151, Breakdown per maturity: Maturity Updated Acquisition Cost Market Value Without Maturity 35,741, ,372, to 3 years 716,208, ,108, Total in ,949, ,481, Total in ,972, ,151,

20 The adjustment to fair value for R$4,468, (2015 R$10,820,333.00as of June 30, 2016,) was recorded in a specific Equity account, under Other Receivables, for R$2,010, (2015 R$4,328,133.20), net of taxes. (c) Held-to-Maturity Securities Breakdown of Held-to-Maturity Securities per Type, at cost plus yield: Updated Acquisition Cost Market Value Federal Government Securities Financial Treasury Bills LFT 15,231,408, ,228,123, Federal Bonds - CVS 118,232, ,186, Certificate of Real Estate Receivables CRI 19,693, ,596, Debentures 61,831, ,758, Financial Bills 831,262, ,813, Other 5, , Total in ,262,435, ,182,483, Total in ,973,755, ,906,038, Breakdown per maturity: Maturity Up to 3 months 731,013, ,034, to 12 months 80,710, ,871, to 3 years 14,731,571, ,458,622, to 5 years 600,255, ,065,348, to 15 years 118,232, ,023, Over 15 years 652, , Total 16,262,435, ,973,755, Management represents that there is financial capability to hold these securities to maturity. (d) Derivatives Banrisul conducts transactions involving derivatives in the form of swaps recorded in balance sheet and memorandum accounts, which are designed to meet its needs to manage its global exposure. The use of derivatives is mainly to mitigate the risks from currency fluctuations in the international funding operation carried out by Banrisul, as mentioned in Note 14, which results in the rate swap to the CDI variation. With this objective, swap derivative transactions have long term nature, following the flow and maturity of foreign funding maturing to the extent that portions of the external funding have natural hedges. The operations are based on OTC contracts registered with CETIP S/A Organized Markets (OTC Clearing House) and have as counterparties top-tier financial institutions. The table below demonstrates the effectiveness of the structure of hedge accounting developed by the Bank, demonstrating the curve value-sketching, market value and market adjustments of the hedge item (subordinated debt) and the hedging instrument (swaps): Derivatives Used as Fair Value Hedge Hedging Instrument Notional Value Curve-Sketching Value Market Value Mark-to-Market Mark-to-Market Swaps 2,102,647, (504,920,410.24) (502,710,589.96) 2,209, ,407, Foreign currency (USD) 2,102,647, (504,920,410.24) (502,710,589.96) 2,209, ,407, Hedged Item Subordinated Debt (Note 14) (917,665,315.00) (1,748,255,753.02) (1,750,603,551.28) (2,347,798.26) (2,563,091,898.72) Foreign currency (USD) (917,665,315.00) (1,748,255,753.02) (1,750,603,551.28) (2,347,798.26) (2,563,091,898.72) 20 PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

21 A partial settlement of swap derivative contracts used in the hedging of the subordinated debt took place in October 2015, in amount equivalent to that of repurchase tender offer as of October 15, 2015, and is described in Note 14. In January 2016, Banrisul contracted new swap operations in substitution of the existing ones as a hedge to the subordinated debt. These transactions are matched in terms of value with notional amount in USD, deadlines and interest rates with the terms of the liabilities from the terms of the foreign subordinated debt, hence remaining the protection of liabilities in the hedge structure. The following table shows the breakdown of derivatives (assets and liabilities) by face value and fair value: Swaps Assets Notional Value Receivable (Payable) Curve-Sketching Value (1) Market Value Adjustments to Results (1) Market Value (1) Foreign currency (USD) % p.a. 2,102,647, (354,246,594.68) 2,208, (352,037,846.40) Liabilities % of interbank deposit rate (CDI) (2,102,647,740.00) (150,673,815.56) 1, (150,672,743.56) Net Adjustment 2015 (504,920,410.24) 2,209, (502,710,589.96) Net Adjustment ,384, ,023, ,407, Values presented net of the notional value. The table below shows the information of derivatives segregated by maturity adjustments: Swaps Assets Foreign currency (USD) % p.a. Liabilities % of interbank deposit rate (CDI) Net Adjustment in 2015 Net Adjustment in 2014 (1) Values presented net of the notional value. Notional Value Market Value (1) Up to 3 months 3 to 12 months 1 to 3 years 3 to 5 years 2,102,647, (352,037,846.40) (28,803,041.96) (24,199,076.84) (44,984,158.26) (39,048,543.60) (215,003,025.74) (2,102,647,740.00) (150,672,743.56) (12,250,845.28) (11,438,896.70) (33,980,034.84) (23,962,666.71) (69,040,300.03) 5 to 15 years (502,710,589.96) (41,053,887.24) (35,637,973.54) (78,964,193.10) (63,011,210.31) (284,043,325.77) 929,407, ,411, ,845, ,678, ,277, ,195, Banrisul or counterparties are subject to adventitiously providing and giving additional guarantees on a reciprocal basis if the derivatives exceed the fair value limits stipulated by contract. The margin deposited by Banrisul as guarantee in operations involving derivatives consists of federal bonds amounting to R$321,126,472.23, and Interbank deposits for R$182,217, The Bank uses hedge accounting practices laid down by the Central Bank of Brazil and the effectiveness expected from the designation of hedging instruments and in the course of the operation is in accordance with the provisions of the Central Bank of Brazil. NOTE 06 RESTRICTED DEPOSITS Description Interest Rate Compulsory Deposits Brazilian Central Bank 8,844,488, ,410,359, Demand deposits and other funds None 440,625, ,063, Additional liabilities SELIC 2,516,924, ,061,039, Saving Deposits Savings account 1,508,122, ,804,028, Other Deposits None 20,196, Time Deposits SELIC 4,358,619, ,998,228, Credits with the National Housing System 856,566, ,936, Acquired portfolio Fixed Rate 14.07% p.a. 542,855, ,936, Acquired portfolio TR + Interest (1) 311,396, ,820, Own portfolio TR + Interest (1) 2,314, ,179, Correspondents None 34,032, ,579, Agreements SELIC 62, , Total 9,735,149, ,236,929, (1) Refers to credits with FCVS updated according to the payment of funds being TR % for loans from own resources and TR % for credits from FGTS. National Housing System (SFH) - Acquired Portfolio - From October 2002 to March 2005, Banrisul acquired from the State Government of Rio Grande do Sul receivables related to the Salary Variation Compensation Fund 21

22 (FCVS). The acquisition terms include a clause guaranteeing financial settlement by the State Government of non-performing contracts, if any. On June 30, 2016, receivables were stated at cost plus income earned through the financial statement date, for R$854,251, (2015 R$783,757,116.36). The face value was R$952,681, (2015 R$895,723,702.46). These receivables will be converted into CVS securities pursuant to ratification and novation processes, which are beyond the original deadline and the amounts already due are separately presented and updated by reference to TR variation plus interest. While no maturity date has been set to these receivables, market values, upon the issuance of securities, 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 regulatory body. 22 PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

23 NOTE 07 - LOANS, LEASE OPERATIONS AND OTHER CREDIT-LIKE RECEIVABLES (a) Breakdown by Type of Operation and Risk Level: AA A B C D E F G H 06/30/ /30/2014 Loan and Discounted Receivables 1,266,133, ,562,457, ,514,743, ,375,593, ,632, ,227, ,118, ,934, ,148,824, ,323,666, ,115,127, Financing 356,063, ,886, ,237, ,673, ,791, ,744, ,460, ,525, ,309, ,165,691, ,926,831, Rural and Agro-Industrial Financing 1,315,762, ,973, ,879, ,436, ,937, ,512, ,297, ,487, ,941, ,421,230, ,529,960, Real Estate Financing 2,257,676, ,517, ,456, ,256, ,567, ,727, ,425, ,036, ,841, ,810,505, ,561,976, Credit Linked to Credit Assignment (1) 32,147, ,863, ,987, ,625, , , ,816, ,957, Infrastructure and Development Financing - 78,736, ,736, ,617, Subtotal Loans 5,227,784, ,332,435, ,022,305, ,068,585, ,616, ,212, ,302, ,983, ,373,421, ,849,647, ,279,471, Lease Operations 3,793, ,680, ,907, ,985, ,848, , , , ,499, ,558, ,945, Advances on Foreign Exchange Contracts (2) 2,004, ,258, ,344, ,636, ,914, ,729, ,994, ,919, ,803, ,746, Other Receivables (3) 1,743, , ,461, ,339, ,100, ,966, ,157, ,086, Credits Linked to Acquired Portfolio with Recourse (Note 08) - 1,027,603, ,099, ,032,702, ,990, Total Operations with Credit Characteristics 5,235,325, ,597,524, ,427,018, ,123,547, ,024,379, ,534, ,674, ,957, ,492,907, ,799,869, ,091,240, Sureties and Guarantees (4) 54,459, ,953, ,940, ,011, ,836, ,306, ,233,507, ,335,363, Total in ,289,785, ,698,478, ,375,958, ,204,558, ,070,216, ,534, ,674, ,957, ,495,214, ,033,377, Total of Credit Like Receivables in ,726,614, ,643,445, ,569,395, ,063,797, ,558, ,536, ,548, ,578, ,090,765, ,426,604, (1) Credit Linked to Credit Assignment - Refers to contract of assignment of receivables with recourse where the Bank has assigned to CIBRASEC mortgage loans operations; (2) Advances on foreign exchange contracts are classified as a reduction of "Other payables - Foreign exchange portfolio" (Note 14); (3) Other Receivables - Refer to securitization credit, credit for guarantees honored and receivable income on foreign exchange and receivables from export contracts; (4) Recorded in Memorandum Accounts. 23

24 (b) Customer Breakdown per Maturity and Risk Levels: Operations in Ordinary Course AA A B C D E F G H Falling due 5,165,156, ,567,247, ,115,295, ,700,070, ,655, ,064, ,546, ,861, ,805, ,879,704, ,585,132, to 30 days 262,775, ,178, ,109, ,855, ,767, ,263, ,521, ,409, ,245, ,544,126, ,988,377, to 60 days 289,843, ,214, ,650, ,807, ,908, ,441, ,210, ,977, ,841, ,657,895, ,768,436, to 90 days 242,536, ,506, ,432, ,100, ,882, ,890, ,858, ,460, ,231, ,586,897, ,781,415, to 180 days 359,846, ,614,463, ,500, ,955, ,215, ,274, ,732, ,493, ,407, ,145,889, ,645,502, to 360 days 542,665, ,076,518, ,532, ,781, ,707, ,119, ,505, ,994, ,579, ,857,404, ,130,030, Over 360 days 3,467,489, ,847,366, ,224,069, ,570, ,174, ,075, ,719, ,526, ,498, ,087,490, ,271,370, Past-due 70,169, ,276, ,203, ,769, ,478, ,819, ,034, ,464, ,086, ,302, ,780, Up to 14 days 70,169, ,276, ,203, ,769, ,478, ,819, ,034, ,464, ,086, ,302, ,780, Subtotal 5,235,325, ,597,524, ,151,499, ,734,840, ,134, ,883, ,581, ,326, ,892, ,096,007, ,756,913, Nonperforming Operations Falling due ,421, ,395, ,076, ,654, ,217, ,076, ,130, ,744,971, ,524,993, to 30 days - - 7,588, ,951, ,590, ,084, ,888, ,893, ,279, ,277, ,070, to 60 days - - 6,937, ,770, ,812, ,459, ,415, ,439, ,368, ,203, ,216, to 90 days - - 6,452, ,579, ,459, ,381, ,135, ,368, ,598, ,975, ,558, to 180 days ,955, ,010, ,133, ,708, ,459, ,343, ,268, ,878, ,286, to 360 days ,139, ,285, ,296, ,734, ,790, ,429, ,515, ,190, ,627, Over 360 days ,347, ,797, ,784, ,286, ,527, ,603, ,099, ,086,446, ,233, Past-due ,097, ,312, ,168, ,996, ,875, ,555, ,884, ,889, ,334, to 14 days , ,591, ,933, , ,859, ,424, ,361, ,571, ,360, to 30 days ,066, ,260, ,928, ,480, ,845, ,415, ,916, ,913, ,618, to 60 days - - 1,619, ,073, ,696, ,638, ,048, ,314, ,930, ,322, ,555, to 90 days ,386, ,451, ,131, ,126, ,090, ,099, ,286, ,650, to 180 days ,157, ,287, ,441, ,159, ,357, ,403, ,454, to 360 days ,468, ,554, ,151, ,524, ,698, ,578, Over 360 days ,693, ,693, ,115, Subtotal ,518, ,707, ,244, ,651, ,092, ,631, ,080,015, ,703,861, ,334,327, Total in ,235,325, ,597,524, ,427,018, ,123,547, ,024,379, ,534, ,674, ,957, ,492,907, ,799,869, Total in ,726,614, ,643,445, ,569,395, ,063,797, ,558, ,536, ,548, ,578, ,090,765, ,091,240, (1) Nonperforming Operations consists of loans with overdue installments over 14 days old; other operations are considered of Normal Course. 24 PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

25 (c) Portfolio Breakdown by Business Sector: Local Public Sector Government direct and indirect administration 88,509, ,911, Total Public Sector 88,509, ,911, Private sector Rural 2,421,387, ,530,123, Industry 4,466,857, ,566,188, Commerce 2,948,769, ,400,741, Services and other 3,758,880, ,892,341, Individuals (1) 12,255,143, ,982,999, Housing 3,860,322, ,621,934, Total Private Sector 29,711,360, ,994,329, Total 29,799,869, ,091,240, (d) Credit Concentration: Value % of Portfolio Value % of Portfolio Main Debtor 682,716, ,670, Next 10 Largest Debtors 1,619,003, ,619,619, Next 20 Largest Debtors 1,189,625, ,267,034, Next 50 Largest Debtors 1,789,688, ,873,933, Next 100 Largest Debtors 1,755,239, ,059,129, (e) Changes in Allowances for Loan Losses, Doubtful Lease Receivables and Other Credit-like Receivables: The changes in allowances for losses on loans, on lease operations and on other credit-like receivables (exclusively) are as follows: 01/01 to 06/30/ /01 to 06/30/2015 Opening balance 2,252,481, ,693,994, Net allowance recorded in the year 733,198, ,951, Write-offs to memorandum accounts (674,570,617.82) (444,042,127.59) Allowance for Loan Losses Balance 2,311,109, ,959,904, Allowance for loan losses 2,152,484, ,853,738, Allowance for doubtful lease receivables 7,595, ,219, Allowance for losses on other credit-like receivables (Note 08) 151,029, ,946, As of June 30, 2016 and 2015, the expenses related to the allowance for other receivables without loan characteristics totaled R$1,076, (2015 R$452,607.20). (f) Breakdown of allowances for loans losses, doubtful lease receivables and other credit-like receivables per risk level: Risk Level Loan Portfolio Minimum allowance required by Resolution No. 2682/99 Minimum allowance required Recorded Allowance Additional Allowance (Note 03 (f)) AA 5,235,325, % A 13,597,524, % 67,987, ,597, ,585, B 5,427,018, % 54,270, ,854, ,124, C 2,123,547, % 63,706, ,853, ,559, D 1,024,379, % 102,437, ,487, ,925, E 346,534, % 103,960, ,930, ,891, F 315,674, % 157,837, ,313, ,150, G 236,957, % 165,870, ,095, ,965, H 1,492,907, % 1,492,907, ,492,907, Total in ,799,869, ,208,977, ,131, ,311,109, Total in ,091,240, ,838,986, ,917, ,959,904, Total 25

26 (g) Recovery and Renegotiation of Credits Recoveries of loans previously written off as losses were recognized as income from lending operations and amounted to R$105,674, (2015 R$127,565,441.11) in the period, net of related losses. The balance of credit operations renegotiated during the period amounted to R$315,997, (2015 R$409,550,897.70). NOTE 08 - OTHER CREDITS Sureties and Guarantees Paid 11,757, Credits for Sureties and Guarantees Paid 11,757, Foreign Exchange Portfolio 746,811, ,013,454, Purchased foreign exchange, pending settlement 718,239, ,621, Rights on sale of foreign exchange 38,523, ,536, Advances in local currency (27,884,981.22) (15,194,854.47) Income receivable from advances 17,933, ,490, Income receivable 144,547, ,325, Dividends and bonuses receivable 2,852, ,888, Receivables from services rendered 79,116, ,424, Income receivable MDR (Merchant Discount Rate) 60,842, ,236, Other 1,735, ,775, Negotiation and intermediation of amounts 4,452, ,749, Negotiation and intermediation of amounts 4,452, ,749, Specific Credits 215, , Specific Credits 215, , Sundry 6,764,351, ,245,136, Advances to employees 34,519, ,736, Advances for payment by our account 4,662, ,095, Deferred income and social contribution taxes (Note 24(b)) 1,724,867, ,270,378, Escrow deposits (Note 15 (b)) 315,163, ,008, Recoverable taxes 222,977, ,109, Reimbursable payments 69,618, ,007, Credit Linked to Credit Assignment 1,590, ,757, Notes and credits receivable (1) 2,729,771, ,059,019, Surplus Benefit Plans (Note 25) 105,969, ,065, Credit Cards 369,549, ,291, Other receivables Domestic 152,959, ,676, Credits Linked to Acquired Portfolio with Recourse (Note 07 (c)) 1,032,702, ,990, Allowance for losses on other receivables (205,468,538.04) (152,051,043.08) Credit-like receivables (Note 07 (e)) (151,029,374.09) (98,946,053.65) Non-credit-like receivables (54,439,163.95) (53,104,989.43) Total other receivables 7,466,666, ,247,685, (1) Notes and Credit Receivables mainly comprise: (a) Securities issued to cover court-ordered debts ( precatórios ) involving the National Treasury. In the first quarter of 2005, as part of its receivables recovery policy, Banrisul received as payment in kind securities issued by the Federal Government to pay court-ordered debts from companies that belonged to the same Economic Group. The amount is represented by a judicial deposit on behalf of Banrisul, which will be released once the Federal Government ends litigation against the Economic Group. As of June 30, 2016, these securities amounted to R$124,933, (2015 R$117,161,207.01) and were subject to the variation of the Extended National Consumer Price Index (IPCA-E) and interest. (b) Refer to non-credit-like receivables, acquired by the Bank from the State Government of Rio Grande do Sul, in the amount of R$66,362, (2015 R$70,068,580.13) related to receivables arising from transactions of the State Government of Rio Grande do Sul or its controlled entities, with the municipality of cities in the State of Rio Grande do Sul. These receivables have yield of 0.50% to 9.37% p.a. plus TR or IGP-M variation with maturity through (c) Debit Cards and Acquiring: refers to the receivables due to merchants when using Banricompras merchants acquiring network and issue fees from Visa, MasterCard and VerdeCard flags also used in the merchant acquiring network, as well as installments for credits granted to merchants. At June 30, 2016, these totaled R$2,440,900, ( R$795,212, FINANCIAL STATEMENTS June 2016

27 NOTE 09 OTHER ASSETS Other Assets 91,708, ,415, Assets not in use 89,503, ,120, Other 2,204, ,294, Allowance for Valuation (27,899,783.73) (23,692,392.49) Prepaid Expenses 150,145, ,435, Cost of Credit Banking Correspondents 133,341, ,720, Other 16,804, ,715, Total 213,954, ,158, (1) Of the amount of R$133,341, (2015 R$183,720,608.33), R$27,179, (2015 R$15,840,110.68) refers to operations contracted in 2015, according to Circular No. 3738/14 of the Central Bank of Brazil. NOTE 10 - PERMANENT ASSETS (a) Investment Investments in Domestic Subsidiaries 111,451, ,113, Investments in Domestic Subsidiaries 35,003, ,157, Investments in Domestic Subsidiaries 55,547, ,521, Goodwill from Investment Acquisitions (1) 20,900, ,433, Other Investments 11,694, ,095, Allowance for Losses (4,891,689.94) (4,891,689.94) Total 118,254, ,317, (1) The goodwill represents the future economic benefits resulting from the acquisition of Bem Promotora de Vendas e Serviços S.A., whose value is being amortized within 10 years. (b) Property and Equipment Rate Original Cost Accumulated Depreciation Net Balance in 2016 Net Balance in 2015 Land and Buildings in Use 4% 114,408, (95,913,151.80) 18,495, ,896, Other Furniture and Equipment in Inventory - 3,004, ,004, ,203, Facilities 10% 175,658, (119,668,954.67) 55,989, ,972, Furniture and Equipment in Use 10% 103,089, (68,720,682.96) 34,368, ,158, Other Communication System 10% 13,093, (6,536,092.99) 6,556, ,845, Data Processing System 20% 283,230, (243,133,023.06) 40,097, ,666, Security System 10% 12,454, (8,635,626.24) 3,818, ,969, Transportation System 20% 3,416, (3,162,208.23) 253, , Subtotal 708,354, (545,769,739.95) 162,584, ,395, Fixed Leased in Use - 128,614, (15,265,873.88) 113,348, ,159, Total ,968, (561,035,613.83) 275,933, Total ,971, (534,415,875.56) 304,555, (c) Intangible Assets Intangible Assets Rate Original Cost Amortization Right from Acquisition of Payroll operations Net Balance in 2015 Net Balance in 2014 Public Sector (1) 10% 1,250,638, (10,421,985.25) 1,240,216, Private Sector (2) 20% 31,480, (23,589,851.40) 7,890, ,038, Software Acquisition 20% 67,766, (51,477,026.03) 16,289, ,336, Other - 2,482, (668,140.64) 1,814, ,799, Total ,352,366, (86,157,003.32) 1,266,209, Total ,666, (134,491,530.56) 18,174, (1) Refers to the agreement signed with the State of Rio Grande do Sul granting Banrisul the exclusive right of servicing the payroll of state civil servants for the next ten years. No indications that these assets are impaired were identified by internal or experts analyses. (2) Refers to agreements entered into with private sector, effective for five years and amortized over the agreement period. No indications that these assets are impaired were identified. 27

28 NOTE 11 - DEPOSITS, MONEY MARKET FUNDING AND FUNDS FROM ACCEPTANCE AND ISSUANCE OF SECURITIES Deposits Without maturity Up to 3 months 3 to 12 months Over 12 months Demand deposits (1) 2,649,536, ,649,536, ,658,779, Savings deposits (1) 7,525,266, ,525,266, ,682,223, Interbank deposits - 312,974, ,705, ,441, ,121, ,023,251, Time deposits (2) 5,198, ,787,482, ,339, ,438,523, ,992,544, ,839,914, Total 10,180,002, ,100,456, ,045, ,649,964, ,771,468, ,204,169, Money market funding Own Portfolio (3) - 5,570,292, ,570,292, ,611,597, Total - 5,570,292, ,570,292, ,611,597, Funds from Acceptance and Issuance of Securities Funds from real state, mortgage, credit and similar bonds (4) - 1,150,981, ,458, ,267,123, ,733,563, ,883,762, Total - 1,150,981, ,458, ,267,123, ,733,563, ,883,762, (1) Classified as without maturity since there is no contractual maturity date. (2) Consider the maturities set for each investment. Time deposits are made up of individuals and companies, with floating or fixed charges equivalent to 96.39% and 3.61% of the total portfolio, respectively. The average funding rate for floating-rate deposits corresponds to 83.87% ( %) of the CDI variation, and for fixed-rate deposits, to 9.36% ( %) p.a % of time deposits have some kind of early redemption option, and the cost recognition made by the use of contracted rate due upon maturity, excluding discounts or reductions applicable at the date of early redemption. The stated maturity dates do not consider the possibility of early redemption (3) 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. (4) Of the amount of R$2,733,563, (2015 R$2,883,762,577.05), R$954,601, (2015 R$1,685,202,443.50) refers to the issuances of Bank Notes held on August 1st, 2nd and 5th, 2013, in three series, with final maturity in 2, 3 and 4 years, respectively, from the date of issuance, with yield indexed to DI rate and limited to up to 108%, 109% and 110% of the accumulated variation of the DI rate. Coupon will be paid semiannually. The Bank Notes from the first series were settled in August 2015, amounting to R$746,856, NOTE 12 - 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 1.62% to 5.15% ( % to 3.90%) with maximum term of up to 1,419 days (2015 2,071 days), and presents the balance of R$1,045,579, (2015 R$1,619,206,823.17). NOTE 13 ONLENDINGS Domestic Onlendings Official Institutions Foreign Onlendings Up to 3 months 234,614, ,767, , ,166, ,767, to 12 months 530,943, ,825, ,652, ,167, ,596, ,992, to 3 years 908,451, ,740, ,433, ,278, ,884, ,018, to 5 years 554,567, ,667, ,206, ,265, ,773, ,933, Over 5 years 578,952, ,907, ,952, ,907, Total 2,807,530, ,835,909, ,843, ,710, ,816,373, ,862,619, Total Internal funds for onlendings refer primarily to funds from Official Institutions (BNDES - National Bank for Economic and Social Development, FINAME - National Equipment Financing Authority, Caixa Econômica Federal - Federal Savings and Loan Bank and FINEP - Funding Authority for Studies and Projects). These liabilities mature on a monthly basis through May 2030, and are subject to interest of 0.40% to 14.87% ( % to 8.00%) p.a., plus variation of the indexes (TJLP Long-term interest rate, URTJ-01, US Dollar, currency basket, UPRD and SELIC) for floating-rate operations and up to 20.09% ( %) 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. 28 FINANCIAL STATEMENTS June 2016

29 NOTE 14 - OTHER PAYABLES Collected taxes and other 189,314, ,522, Receipt of federal taxes 189,049, ,256, Other 265, , Foreign exchange portfolio 39,355, ,819, Foreign Exchange Sold Pending Settlement 37,962, ,432, Financed Imports Foreign Exchange Contracts (8,484,028.86) (5,420,685.26) Foreign Exchange Purchased 773,680, ,553, Advances on Foreign Exchange Contracts (Note 07 (a)) (763,803,767.34) (810,746,226.63) Social and statutory 59,506, ,457, Dividends and bonuses payable 8,814, , Bonuses and profit sharing payable 50,692, ,667, Taxes and social security 1,075,431, ,873, Taxes and contributions payable 84,000, ,325, Provision for income and social contribution taxes 304,783, ,778, Provision for deferred taxes and contributions (Note 24 (b)) 190,702, ,797, Provision for tax contingencies (Note 15 (b)) 495,945, ,972, Trading and intermediation of securities 4,602, ,591, Trading and intermediation of securities 4,602, ,591, Financial and development funds 839,419, ,757,423, Payables for financial and development funds (Note 23(a)) 615,664, ,645,991, Other 223,755, ,432, Subordinated Debts (1) 1,754,693, ,625,893, Subordinated Debts Marked to Market (Note 05) 1,750,603, ,563,091, Embedded Goodwill/Negative Goodwill 4,090, ,801, Sundry 4,266,182, ,572,810, Payables for advanced amounts (Leases) 57,840, ,140, Payables for unreleased funds 52,530, ,381, Obligations related to assignment operations 43,808, ,618, Payables for acquisition of assets and rights 10,780, ,690, Liabilities under government agreements 67,869, ,275, Retailers Acquiring Payable Obligations 1,900,738, ,335,852, Accrued vacation and related charges 300,610, ,024, Refinancing of actuarial deficit of Fundação Banrisul (Note 25) 72,419, ,534, Provision for labor contingencies (Note 15(b)) 311,636, ,877, Brazilian Central Bank fines on foreign exchange (Note 15 (b)) 141,674, ,523, Provision for other tax contingencies (Note 15 (b)) 8,029, ,861, Provision for securitization losses (2) 1,843, ,892, Provision for post-employment benefits (Note 03 (n)) 70,493, ,641, Reserve for civil contingencies (Note 15 (b)) 161,485, ,970, Provision for debts from Companhia União de Seguros Gerais (GESB) 13,895, ,430, Unemployment Indemnity Fund FGTS for amortization 6,858, ,972, Sundry payables Domestic 288,619, ,568, Payable card transactions 585,359, ,497, Provision on Commitments, Guarantees and Others(Note 23 (b)) 23,445, Other 146,242, ,054, Total Other Payables 8,228,506, ,056,392, (1) Subordinated Debt Banrisul concluded the issuance of subordinated bond abroad in two tranches, as follows: (a) On January 26, 2012, at the total amount of USD500 million (500 million U.S. Dollars). The financial settlement was on February 02, 2012, for a 10-year term transaction maturing on February 02, The coupon pays interest of 7.375% per annum, payable semi-annually from the settlement date. The issue price amounted to % of the face value of the bond, resulting in an effective yield of 7.50% p.a. (b) On November 26, 2012, at the total amount of USD275 million (275 million U.S. Dollars). The financial settlement was on December 03, 2012, maturing on February 02, The coupon pays interest of 7.375% per annum, payable semi-annually from the settlement date. The issue price amounted to % of the face value of the bond, resulting in an effective yield of 5.95% p.a. As of December 31, 2015, Banrisul partially repurchased its Subordinated Debt for USD million ( million U.S. Dollars), at 80% of par value, namely USD million ( million U.S. Dollars). As a result of this tender offer, on December 31, 2015 there was also the payment of the contractual interest, accrued to the settlement date, in the amount of USD2.96 million (2.96 million U.S. dollars), related to repurchased subordinated bonds, as well as the settlement of the hedging derivatives related to it. On October 15, 2015, there was new partial repurchase of subordinated debt amounting USD2.85 million for 77% of face value, in the amount of USD2.2 million. As described in Note 03 (c), the remaining amount of the subordinated debt, equal to USD million, and the derivatives transactions contracted to hedge the risk of changes in foreign currency and interest rates arising from the issuance of this debt were designated as market risk hedge. (2) Banrisul s management recognizes a provision for co-obligation of securitized receivables with the National Treasury for R$9,596, (2015 R$10,299,441.41), controlled in a memorandum account, which are of responsibility of agricultural borrowers. 29

30 NOTE 15 - RESERVES, CONTINGENT ASSETS AND LIABILITIES (a) Contingent Assets No contingent assets were recorded and there are no lawsuits in course assessed as probable gains. (b) Contingent Reserves 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 measurement models and benchmarks available, despite the inherent uncertainty as to the period and outcome of the suits. Banrisul records a provision in the total amounts involved in lawsuits that have been assessed as probable losses. Management believes that the provisions are sufficient to cover probable losses arising from lawsuits. The changes in reserves are as follows: Tax Labor Civil Other Total Opening Balance at 12/31/ ,988, ,505, ,048, ,619, ,043,162, Recognition and Inflation Adjustment 12,240, ,326, ,772, ,054, ,393, Payment (254,972.19) (25,194,982.83) (13,335,496.06) - (38,785,451.08) Closing Balance at 06/30/ ,974, ,636, ,485, ,674, ,118,770, Guaranteed Deposits (Note 8) 14,578, ,747, ,837, ,163, Provisions for Tax Contingencies (i) Provisions for tax contingencies relate primarily to liabilities related to taxes whose legality or constitutionality is being challenged at the administrative or judicial levels and the likelihood of loss is considered probable, being recognized at the full amount under dispute. For lawsuits collateralized by escrow deposits, the provisioned amounts and respective escrow deposits are not adjusted for inflation. When legal permits are issued as a result of a favorable outcome, the provisioned amounts and respective escrow deposits 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 Brazilian Internal Revenue Service from 1998 to 2005 in the amount of R$495,945, (2015 R$471,972,061.41). Banrisul, through its legal counsel, has been discussing the matter in court and recorded a provision for contingencies in the amount of the estimated loss. (ii) National Fund for Educational Development - FNDE tax assessment notice related to education allowance, whose likelihood of loss is classified by our legal counsel as probable, and recorded provisions in the amount of R$6,877, (2015 R$6,877,594.00). There are also some tax contingencies whose likelihood of loss, based on their nature, is considered as possible, in the amount of R$114,102, (2015 R$102,017,231.68). A provision for contingencies was not recognized, in accordance with applicable accounting practices. Provisions for Labor Contingencies These refer to labor lawsuits filed by, mainly, employees, former employees, third party employees, Associations, Unions and prosecutors having as object the alleged violation of labor rights. This account records the provision for labor claims filed against Banrisul when a court notification is received and the likelihood of loss is considered probable. The provision amount is calculated according to the disbursement estimated by the Bank management, timely reviewed based on data received from our legal counsel, and 30 FINANCIAL STATEMENTS June 2016

31 adjusted to the escrow deposit when required. Of the aforementioned provision, R$158,817, (2015 R$86,915,455.69) has been deposited in an escrow account. Additionally, R$37,930, (2015 R$30,151,909.39) was required for appeals. There are also some labor contingencies whose likelihood of loss, based on their nature, is considered as possible, in the amount of R$1,163,271, (2015 R$952,696,682.03), that according to the nature of these processes refers mainly to overtime, reintegration to active positions and wage parity. A provision for contingencies was not recognized for the amounts of possible loss on labor claims, in accordance with applicable accounting practices. Provisions for Civil Contingencies 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. From the previously mentioned allowance, the amount of R$103,837, (2015 R$95,512,812.05) has been deposited in court. There is also the amount of R$1,777,999, (2015 R$1,511,128,628.88) related to lawsuits filed by third parties against Banrisul, whose nature refers mainly to personal injury, payment in duplicated, savings accounts and housing finance, whose likelihood of loss is classified by our legal counsel as possible, and, therefore, no provisions were constituted. Others 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, preventively and in compliance with the Central Bank of Brazil requirements, recorded a provision in the amount of R$141,674, (2014 R$135,523,807.29) for this contingency. NOTE 16 - INCOME FROM SERVICES RENDERED 01/01 to 06/30/ /01 to 06/30/2015 Funds Management 40,955, ,624, Collection and Custody 29,976, ,425, Guarantees 3,072, ,502, Income from Group Financing Management Fee 23,348, ,106, Income from Brokerage of Operations 1,419, ,068, BanriCard Management Services Agreement 3,404, ,189, Vero Acquiring Network Management Services Agreement 36,557, ,371, Other Services Incomes 2, , Total 138,736, ,296,

32 NOTE 17 - INCOME FROM BANK FEES 01/01 to 06/30/ /01 to 06/30/2015 Vero Acquiring Network 265,032, ,505, Fees from Benefit Card 19,593, ,698, Check Returns 11,513, ,452, Checking Account Debits 23,795, ,494, Collection Services 100,905, ,094, Transactions with Checks 9,295, ,777, Bank Fees from Checking Accounts 208,069, ,131, Credit Card 20,451, ,811, Fees from withdrawals 3,610, ,454, Fees from Internet Banking 1,757, ,451, Fees from bank guarantee 5,332, ,569, Other Income from Fees 14,839, ,716, Total 684,195, ,157, Individuals 204,866, ,167, Corporations 479,329, ,990, NOTE 18 - PERSONNEL EXPENSES 01/01 to 06/30/ /01 to 06/30/2015 Salary 456,697, ,948, Benefits 148,987, ,809, Social Charges 225,536, ,384, Training 3,491, ,855, Total 834,712, ,998, NOTE 19 - OTHER ADMINISTRATIVE EXPENSES 01/01 to 06/30/ /01 to 06/30/2015 Communications 44,698, ,719, Data Processing 84,987, ,790, Security and Money Transportation 73,143, ,839, Amortization and Depreciation 51,613, ,354, Rentals and related fees 54,764, ,268, Supplies 9,563, ,088, Outsourced Services (1) 335,010, ,235, Specialized Technical Services 25,358, ,751, Advertising, Promotions and Publicity (2) 26,230, ,727, Maintenance and upkeep 24,967, ,359, Water, Electricity and Gas 15,971, ,514, Financial System Services 20,872, ,588, Other 24,891, ,379, Total 792,074, ,616, (1) Of the amount of R$335,010,451.95, R$94,875, (2015 R$120,937,707.08) is related to service expenses for the origination of payroll loans through Bem Promotora de Vendas e Serviços S.A, and from this amount, R$23,119, are from operations originated in 2016, and therefore under the regulations set forth by Circular Letter No. 4294/13 of the Central Bank of Brazil. (2) Comprises mainly institutional advertising expenses of R$6,133, (2015 R$3,678,422.41) and sponsorship of sport events and clubs of R$16,841, (2015 R$16,525,083.50). 32 FINANCIAL STATEMENTS June 2016

33 NOTE 20 - OTHER OPERATING INCOME 01/01 to 06/30/ /01 to 06/30/2015 Recovery of Charges and Expenses 20,919, ,309, Reversal of Operating Reserves for: Labor - 62, Tax - 372, Civil - 546, Other 4,537, ,765, Securitization Losses , Interbank Fees 13,237, ,622, Credit Notes Receivable 237,748, ,257, Reserve Fund - Escrow Deposit - Law No /04 25,558, ,975, Commission and Management Fee on Insurance Placement 11,076, ,426, Miscellaneous Revenues from Cards 34,146, ,955, Reversal of Provisions for Pending Payments 11,362, ,884, Acquiring Fees - Advance on of Performed Operations 35,805, ,656, Other Financial Income 344,923, Icatu Agreement Income (1) 4,000, Other Operating Income 19,163, ,438, Total 762,480, ,287, (1) Related to the complement of the amount paid on December 11, 2014 in connection to the agreement signed by Banrisul and Icatu Seguros for the exclusive distribution of Life Insurance and Pension Plans products through Banrisul distribution channels over the next 20 years, after the approval granted by CADE and the Central Bank of Brazil. NOTE 21 - OTHER OPERATING EXPENSES 01/01 to 06/30/ /01 to 06/30/2015 Discount Granted from Renegotiations 45,728, ,313, Labor Provisions (Note 15) 58,326, ,115, Provision for Properties - Assets not in use 3,388, ,023, Provision for Securitization Losses 1, Provision for Civil Lawsuits (Note 15) 40,772, ,626, Collection of Federal Taxes 4,227, ,723, Inflation Adjustment of Provision for Tax Contingencies (Social Contribution Tax/ Income Tax) (Note 15) 12,240, ,132, Inflation Adjustment of Brazilian Central Bank fines on Foreign Exchange Operations (Note 15) 3,054, ,657, Inflation Adjustment of Borrowing from Banrisul Foundation 5,484, ,812, Provision for Debts Assumed with GESB 1,222, ,190, Card Expenses 14,919, ,329, Banriclube de Vantagens Membership Program 326, ,523, Incentives for Migration - Retirement Plans FBSS (1) 365, , Provision for Endorsements and Sureties Provided by Banrisul 12,784, Other Financial Expenses 190,265, ,862, Other Operating Expenses 45,139, ,258, Total 438,246, ,696, (1) Refers to the incentives offered by the Bank to PBI Benefit Plan participants that migrated their reserves to the Settled Benefit Plan or FBPREV II Benefit Plan. NOTE 22 - EQUITY - BANRISUL (a) Capital Fully subscribed paid-up capital as of June 29, 2016 is R$4,500,000, and it is represented by 408,974,477 thousand shares without par value as follows: 33

34 ON PNA PNB Total Amount % Amount % Amount % Amount % Rio Grande do Sul State 204,199, ,721, ,086, ,008, Fundação Banrisul de Seguridade Social 449, , , cial Security Institute of Rio Grande do Sul State 44, , , Others 360, , ,315, ,144, Total 205,054, ,517, ,402, ,974, In the period, 3,077 PNA shares were converted into PNB shares in view of requests from shareholders. The Extraordinary Shareholders Meeting held on April 29, 2016, approved of a capital increase through the use of Income Reserves in the amount of R$250,000,000.00, without the issuance of new shares, awaiting for the Central Bank of Brazil s approval. 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 (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 exceeding 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 Expansion Reserve is intended to retain earnings to finance capital and operational expenditures, according to the capital budget proposed by the Management and approved by the General Shareholders Meeting. The Ordinary Shareholders Meeting held on April 29, 2016 approved the proposed distribution of additional dividends for 2016 equivalent to 15% of the 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 the Bank s articles of incorporation. As permitted by Law No. 9249/95 and CVM Rule No. 207/96 and Policy of Quarterly payment of interest on equity, Banrisul management paid the amount of R$153,026, referring to interest on equity for the first half of 2016 (2015 R$161,397,165.76), to be credited to dividends, net of withholding income tax. 34 FINANCIAL STATEMENTS June 2016

35 The payment of such interest on equity resulted in a tax benefit for Banrisul in the amount of R$68,861, (2015 R$64,558,866.30). The payment of dividends and interest on equity is represented as follows: 01/01 to 06/30/ /01 to 06/30/2015 Net Income for the Period 389,622, ,931, Adjustments Legal Reserve (19,481,127.52) (16,996,555.67) Basis of Dividends 370,141, ,934, Minimum Mandatory Dividend 25% 92,535, ,733, Additional Dividend 15% 55,521, ,440, Additional Interest on Own Capital - 22,200, Total Dividends 148,056, ,374, A) Interest on Equity paid 144,434, ,374, Common shares (R$ per thousand shares) 76,721, ,918, Preferred A Shares (R$ per thousand shares) 1,321, ,393, Preferred B Shares (R$ per thousand shares) 74,983, ,085, Deferred Income on Source Relating to Interest on Own Capital (8,591,922.85) (10,023,047.47) B) Provisioned Dividends 3,621, Common Shares (R$ per thousand shares) 1,815, Preferred A Shares (R$ per thousand shares) 31, Preferred B Shares (R$ per thousand shares) 1,774, Total Interest on Equity and Dividends 148,056, ,374, NOTE 23 - COMMITMENTS, GUARANTEES AND OTHERS (a) State Law No was enacted on April 22, 2004, as amended by Law No /15 whereby Banrisul must transfer to Rio Grande do Sul State, upon its request, up to 95% 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 June 30, 2016, the amount of escrow deposits made by third parties at Banrisul, adjusted through the balance sheet date by reference to the TR (managed prime rate) variation plus interest of 6.17% p.a., totaled R$9,989,789, (2015 R$10,089,308,391.56), of which R$9,361,877, (2015 R$8,432,999,854.72) were 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 14). (b) Sureties and guarantees granted to customers amount to R$1,193,189, (2015 R$1,262,604,640.83), and are subject to financial charges and backed by the beneficiaries sureties. (c) Banrisul is responsible for the custody of 764,850,020 securities owned by customers ( ,357,824). (d) Banrisul has confirmed import and export credits in the amount of R$30,721, (2015 R$62,459,771.30) and co-obligations in credit assignments in the amount of R$9,596, (2015 R$10,299,441.41). (e) Banrisul manages various funds and portfolios, which have the following net assets: 35

36 Investment funds (1) 9,047,668, ,428,266, Investment funds in investment fund shares 155,539, ,126, Equity Funds 44,716, ,339, Individual Retirement Programmed Funds 17,272, ,014, Fund to Guarantee the Liquidity of Rio Grande do Sul State Debt Securities 25,572, ,182, Managed portfolios 596,567, ,736, Investment Clubs - 1,358, Total 9,887,336, ,371,024, (1) The investments fund portfolios consist primarily 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 170 ( ) buyers pools, including real estate, motorcycles, vehicles and tractors, comprising 44,297 ( ,867) active pool members. (g) Banrisul leases properties, mainly used for branches, based on standard contracts which may be cancelled at its own discretion and include renewal options and adjustment clauses. Total future minimum payments under non-cancellable lease agreements as of June 30, 2016 were R$328,039, of which R$83,553, matures in up to one year, R$193,785, from one to five years and R$50,701, over five years. Lease payments recognized as expenses amounted to R$50,326, (2015 R$42,843,340.98). NOTE 24 - INCOME TAX AND SOCIAL CONTRIBUTION (a) Reconciliation of Income and Social Contribution Tax Expenses/Revenue 01/01 to 06/30/ /01 to 06/30/2015 Income for the Period before Taxes and Profit Sharing 667,398, ,731, Income Tax (IRPJ) - Rate 25% (166,849,668.48) (120,182,783.60) Social Contribution Tax (CSLL) - Rate 9% (15,364,230.99) (11,930,313.00) Social Contribution Tax - Rate 15% until August 2015 and 20% from September 2015 on (99,336,999.24) (52,225,815.15) Total Income and Social Contribution Taxes calculated at Current Rate (281,550,898.71) (184,338,911.75) Effect of Law 13169/15 in Deferred Taxes (1) (14,385,554.81) - Adjustment of Fine on Foreign Exchange Operations (1,374,355.49) (1,063,114.67) Profit Sharing 22,866, ,610, Interest on Equity 85,589, ,558, Equity in Subsidiaries and Foreign Exchange Adjustment on Branches (25,888,901.29) 14,151, Other Additions, Net of Exclusions (11,948,019.20) (5,967,065.24) Total Income and Social Contribution Taxes (226,691,796.99) (94,048,238.00) Current (304,789,779.57) (211,835,363.74) Deferred 78,097, ,787, (1) Law No of October 6, 2015, increased the Social Contribution Tax (CSLL) rate applicable on the financial industry from 15% to 20%, valid from September 1, 2015, to December 31, Such increase has also affected the tax credits accrued from the temporary differences in the deferred taxes. (b) Deferred Income and Social Contribution Taxes - Tax Assets Tax credit balances, by origin and disbursements made, are as follows: Balance at 12/31/2015 Recognition Realization Balance at 06/30/2016 Allowance for loan losses 1,053,563, ,361, ,691, ,111,232, Provision for labor contingencies 119,293, ,267, ,602, ,958, Provision for tax contingencies 124,145, ,471, , ,501, Other temporary provisions 278,070, ,989, ,862, ,197, Total tax assets on temporary differences 1,575,072, ,089, ,271, ,724,890, Unrecorded tax assets (23,207.08) - - (23,207.08) Total tax assets recorded (Note 08) 1,575,049, ,089, ,271, ,724,867, Deferred tax liabilities (115,807,170.76) (74,895,586.35) - (190,702,757.11) Tax assets, net of deferred tax liabilities 1,459,242, ,193, ,271, ,534,164, FINANCIAL STATEMENTS June 2016

37 Expected realization of these tax assets is as follows: Year Temporary Differences Social Contribution Income Tax Tax Total Total Recorded ,808, ,291, ,100, ,100, ,149, ,520, ,669, ,669, ,473, ,371, ,845, ,845, ,820, ,298, ,119, ,119, ,350, ,378, ,729, ,729, to ,931, ,828, ,759, ,759, to ,334, ,308, ,643, ,643, Total on 06/30/2016 1,002,869, ,998, ,724,867, ,724,867, Total on 06/30/ ,203, ,174, ,270,378, ,270,378, The total present value of tax assets is R$1,321,370, calculated based on the expected realization of temporary differences at average funding rate projected for the corresponding periods. - Deferred Tax Liabilities The balance of the Deferred Taxes and Contributions is represented by: Excess Depreciation (15,709,368.61) (16,224,567.61) Available for Sale Securities (388,348.96) 43, Fair Value Adjustment of Trading Securities (126,968,599.54) (213,227.02) Actuarial surplus (47,636,440.00) (34,403,260.00) Total (190,702,757.11) (50,797,484.38) NOTE 25 - POST-EMPLOYMENT LONG-TERM BENEFIT OBLIGATIONS TO EMPLOYEES Banrisul is the sponsor of Banrisul Foundation ( Fundação Banrisul ) and Cabergs, ensuring the supplementary retirement benefits and medical care to its employees. Banrisul Foundation is an independent entity that seeks to offer pension benefit plans to its participants, employees from its sponsors and their beneficiaries, through specific contributions established in their respective plans and regulations. Banrisul s Social Security Policy, operated through Fundação Banrisul de Seguridade Social, and established in January 29, 1963, in accordance with the rules then in force, is legally grounded on article 202 of the Federal Constitution of October 5, 1988, Supplementary Laws No. 108 and No. 109 of May 29, 2001 and other legal provisions in force, issued by regulators associated with the Ministry of Social Security and Welfare (MPAS), the National Supervisory Office of Supplementary Pension (Previc) and the National Council on Supplementary Pension (CNPC), the articles of incorporation of Fundação Banrisul and the relevant regulations of the Benefit Plans and in accordance with Resolution No. 3792/09 of the National Monetary Council, amended by Central Bank Resolution No of October 31, 2013, from which the technically qualified portfolio manager are designated by the Deliberative Committee of the Pension Fund, the Directors for Management of Investments. The Benefit Plans which support the Bank s Private Pension Policy are grounded on the respective regulations of the Plans, which set forth all rights and obligations of the Participants, Sponsors, Actuarial Funding Plan, legal deadlines, way of payment of monthly contributions and benefits, length of minimum contribution and other parameters required for the actuarial sizing. All regulations are approved by the legal internal management bodies, by the Sponsor(s) and by the Federal Supervision and Regulation bodies, pursuant to the legislation currently in force. In accordance with Previc Instruction No. 23 of June 26, 2015, the Executive Council of Banrisul Foundation has appointed the Administrator Responsible for the Benefit Plan - ARPB. The set of hypotheses and actuarial methods adopted for the actuarial calculations arose from interaction with an external actuarial advisory firm which performed the calculations for the Benefit Plans managed by Fundação Banrisul, Executive Board and the representatives of the Decision-making Board of the Foundation and supported 37

38 by the sponsors of Benefit Plan I and Settled Plan (defined benefit type) and FBPREV and FBPREV II Plan (variable contribution type), pursuant to MPS/CGPC Resolution No. 18/2006, amended by MPS/CNPC Resolution No. 9/2012, MPS/CNPC Resolution No. 15/2014 and MPS/CNPC Resolution No. 22/2015 (a) Migration Process Upon the approval of the new benefit plans by Previc by the end of 2013, on February 3, 2014, Fundação Banrisul initiated, the voluntary migration process of the participants and beneficiaries of the Benefit Plan I to: (i) the Settled Plan, which consists of a Defined Benefit plan, in which the amount accumulated by all participants goes into a collective account, and (ii) the FBPREV II Plan, a Variable Contribution plan, that functions as a defined contribution plan during the reserve accumulation stage and as a defined benefit plan during the payment of the lifetime benefit. The aforementioned migration process was concluded on April 3, In September 2014, pursuant to regulatory provisions, the sponsors have provided the resources related to incentives for the migration process. As for Banrisul, in the quality of sponsor of the plan, the corresponding amount, calculated as of February 2013, adjusted by the INPC (National Index for Consumer Prices) plus interest of 5.5% p.a., totaled R$255,064, which were transferred to the new plans. After the plan s restructuring, the remaining portion of the debt, in the amount of R$72,419, as of June 30, 2016 (2015 R$68,534,539.61), was distributed as follows: R$41,047, to the Defined Benefit Plan I (PBI), R$18,474, to the Settled Defined Benefit Plan (PBS), and R$12,897, to the FBPREV Benefit Plan II (FBPREV II), recorded in Other Liabilities (Note 14). This debt, due 2028, is paid with the interest rate of 6% p.a., restated by the General Price Index Internal Availability (IGP-DI), periodically updated and with monthly payments. The table below presents the number of participants in their respective plans after the migration process ended on April 3, 2014: Participants PBI before Migration PBI after Migration Settled Plan FBREV II Plan Active 8,145 1,021 1,715 5,409 Retired 4,779 3,577 1, Disabled Pensioners 1, Total 14,100 5,417 3,116 5,567 (b) Major Assumptions The main assumptions below were calculated based on information available at December 31, 2015 and 2014, being reviewed annually. Economic Assumptions 12/31/ /31/2014 Discount Rate 12.60% p.a % p.a. Inflation Rate 5.00% p.a. 4.50% p.a. Rate of Future Salary Increase 8.74% p.a. 8.22% p.a. Growth Rate of Social Security Benefits and Limits 5.00% p.a. 4.50% p.a. Growth Rate of Pharmaceutical Cost 6.00% p.a. 5.50% p.a. Demographic Assumptions 12/31/ /31/2014 Mortality Table (Able) AT-2000 Basic decreased by 10%, segregated by gender AT-2000 Basic decreased by 10%, segregated by gender Mortality Table (Disable) RRB 1983 decreased by 50% RRB 1983 decreased by 50% Disability Entry Table Strong Light, decreased by 50% Strong Light, decreased by 50% Turnover Table Knowledge of the actuarial consulting firm adjusted to the sponsor s expertise, increased by 125% Knowledge of the actuarial consulting firm adjusted to the sponsor s expertise, increased by 125% The assumptions relating to mortality experience are set based on the actuarial opinion, adjusted according to the demographic profile of Banrisul employees. 38 FINANCIAL STATEMENTS June 2016

39 (a) The current value of obligations for the defined benefit pension plan is obtained from actuarial calculations, which use a set of financial, economic and biometric assumptions. The discount rate is among the assumptions used in determining the net cost (income) for these plans. Any changes in these assumptions will affect the carrying value of the obligations of pension plans. Banrisul determines the appropriate discount rate at the end of each year, in observance of CVM Rule No. 695/12, which is used to determine the present value of estimated future cash outflows that shall be required to settle the obligations of pension plans. In determining the appropriate discount rate, Banrisul considers the interest rates of the Treasury bills, denominated in Reais, the currency in which benefits will be paid, and which have maturities close to the terms of the corresponding obligations. Pursuant to MPS/Previc Ruling No. 12, of October 13, 2014, amended by Instructions Previc No 22 of April 15, 2015 and No. 24 of September 08, 2015, combined with Previc Ruling No. 23, of July 26, 2015 and with CNPC Resolution No. 22, of November 25, 2015, Fundação Banrisul de Seguridade Social carries out studies to establish the profile of the obligation maturities of the Benefit Plans I and determine the duration and other analyses of distribution of the payment of benefits. Other important assumptions for pension obligations are based in part on current market conditions. (c) Descriptions of the Plans and Other Long-Term Benefits Benefit Plan I (PBI) This plan, incorporated as a defined benefit plan, encompass post-retirement benefits, salary payment during any sickness period of the participant, prisoner s family grant, funeral allowance and annual bonus: The plan participants monthly contribution is computed based on the following methodology: (i) a general rate set at 3% (three percent) applicable to the monthly contribution pay base; (ii) a first additional percentage equal to 2% (two percent) applicable to the difference, if any, of the participant s monthly salary over half of the highest benefit paid by the Federal Social Security; and (iii) a second additional percentage equal to 7% (seven percent) applicable to the difference, if any, of the participant s monthly salary on the highest salary paid by the Federal Social Security. The Benefit Plan was closed to new members as from July Settled Defined Benefits Plan (PBS) - the benefits provided by this defined benefit plan include settled retirement benefit, settled disability benefit, death benefits, funeral assistance and annual bonus. There will not be ordinary contributions to the settled benefit plan and, upon retirement, the participant will receive a benefit proportional to the period of contribution to PBI plan. Benefit Plan FBPREV II - the benefits provided by this plan, in the form of "variable contribution", cover benefits with defined contribution characteristics, which include normal retirement, early retirement and funeral assistance, and benefits with defined benefit characteristics, which include disability retirement, proportional benefit, illness assistance, annual bonus, minimum pension and death pension. The participant s regular contributions comprise three portions: (i) Basic portion: 3% to 5% of the monthly contribution pay base; (ii) Additional portion: may vary from 5% to 10% of the monthly contribution pay base in excess of 9 (nine) reference units; and (iii) Variable portion: percentage applied to the monthly contribution pay base 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, the participant may opt to make contributions not lower than 1 (one) reference unit not matched by the sponsor. 39

40 Banrisul s contributions match the participants regular contributions. Benefit Plan FBPREV (previously named 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 life insurance with survival coverage benefit. The participant s regular contributions comprise three portions: (i) Basic portion: 1% to 3% of the monthly contribution pay base; (ii) Additional portion: may vary from 1% to 7.5% of the monthly contribution pay base in excess of 9 (nine) reference units; and (iii) Variable portion: percentage applied to the monthly contribution pay base 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 (one) reference unit and not matched by the sponsor. Banrisul s contributions match the participants regular contributions. Health Plan, Dental and Drug Assistance - Banrisul offers health, dental plans and drug assistance plans through CABERGS, to its active employees and retirees by Banrisul Foundation. Retirement Award (Post-employment Benefits) Banrisul grants its employees a premium for retirement that is paid in full on the date the employee leaves the company for retirement. (d) Main Actuarial Risks Banco do Estado do Rio Grande do Sul and Fundação Banrisul de Seguridade Social together may carry out studies for Assets/Liabilities comparison in order to seek operations in the financial, capital and insurance markets in order to reduce or eliminate the actuarial risks of the Plans. Through its defined benefit plans, the Bank is exposed to a number of risks, the most significant being: Volatility of assets the plan s obligations are calculated using a discount rate that is established based on the profitability of corporate or government bonds, in the absence of an active market; If the event that the plan assets do not achieve such profitability, a deficit is created. The pension plans in Brazil and in the United States maintain a significant proportion of their assets invested in equity, whose yield is expected to exceed the yield of the corporate bonds in the long term, while resulting in volatility and risk in the short term. Variation in bond yields a decrease in the profitability of private or government bonds will result in the increase of the liabilities of the plan, although this variation may be partially offset by an increase in the fair value of securities held by the plans. Inflation risk certain obligations of the Banrisul Group s pension plans are linked to inflation indexes, and higher inflation will lead to higher level of obligations (though, in many cases, there are limits to the level of inflation adjustments allowed to protect the plan against extreme inflation fees). Most of the plan assets either are not affected (securities with fixed interest) or have a small correlation (equity) with inflation, which means that higher inflation will also result in higher deficits. Life Expectancy most of the obligations of the plans is to grant lifetime benefits to participants. Therefore, increases in life expectancy will result in increased obligations of the plans. (e) Actuarial Reviews The net actuarial (asset)/liability breakdown summary for December 31, 2015 and 2014, prepared based on the actuarial report as of December 31, 2015, and in accordance with CPC 33 (R1), is as follows: 40 FINANCIAL STATEMENTS June 2016

41 Liabilities (Assets) Recorded in the Balance Sheet with Benefits of: 12/31/ /31/2014 Pension Plans Benefit Plan I (PBI) 62,702, ,729, Settled Defined Benefit Plan (PBS) - 7,149, FBPREV II Benefit Plan (FBPREV II) 8,647, (144,000.00) FBPREV Benefit Plan (FBPREV) 598, , Health, Dental and Drug Plans (105,969,000.00) (85,921,000.00) Retirement Award (1) 120,490, ,532, Total 86,468, ,610, (1) The amount of R$47,264, (2014 R$49,284,409.14), related to incidents charges on the provision for retirement awards, should be added to this item, totaling R$167,508, (2014 R$172,655,409.14). 41

42 The breakdown of the Net Actuarial Liability prepared based on the actuarial report as of December 31, 2015 and 2014, and according to CPC 33 (R1), is as follows: Settled Defined Changes in the Balance Net Position as of 12/31/2015 Benefit Plan I Benefit Plan FBPREV II Plan FBPREV Plan Health Plan Retirement Award Present Value of Actuarial Liabilities (1,717,126,000.00) (884,797,000.00) (61,135,000.00) (6,730,000.00) (142,680,000.00) (120,490,000.00) Fair Value of Assets 1,654,424, ,890, ,539, ,137, ,649, Surplus/(Deficit) (62,702,000.00) 16,093, (8,596,000.00) (593,000.00) 105,969, (120,490,000.00) Asset Ceiling - (16,093,000.00) (51,000.00) (5,000.00) - - Net Actuarial Assets (Liabilities) (62,702,000.00) - (8,647,000.00) (598,000.00) 105,969, (120,490,000.00) Changes in the Balance Net Position as of 12/31/2014 Benefit Plan I Settled Defined Benefit Plan FBPREV II Plan FBPREV Plan Health Plan Retirement Award Present Value of Actuarial Liabilities (1,834,273,000.00) (913,080,000.00) (46,146,000.00) (4,120,000.00) (133,635,000.00) (123,532,000.00) Fair Value of Assets 1,723,544, ,217, ,933, ,862, ,556, Surplus/(Deficit) (110,729,000.00) (6,863,000.00) 7,787, (258,000.00) 85,921, (123,532,000.00) Asset Ceiling - (286,000.00) (7,643,000.00) (7,000.00) - - Net Actuarial Assets (Liabilities) (110,729,000.00) (7,149,000.00) 144, (265,000.00) 85,921, (123,532,000.00) Settled Defined Changes in the Present Value of Actuarial Liabilities as of 12/31/2015 Benefit Plan I Benefit Plan FBPREV II Plan FBPREV Plan Health Plan Retirement Award Present Value of Actuarial Liabilities as of January 1 st 1,834,273, ,080, ,146, ,120, ,635, ,532, Cost of Current Service 1,043, ,515, ,232, ,385, (13,368,000.00) Financial Cost 193,713, ,893, ,016, , ,668, ,595, Contributions from Plan Participants 41,374, ,049, , , Actuarial (Gains)/Losses - Knowledge 65,344, ,381, ,116, ,546, ,071, ,319, Actuarial (Gains)/Losses - Demographic Assumptions 201, Actuarial (Gains)/Losses - Financial Assumptions (227,407,000.00) (99,663,000.00) (3,392,000.00) (1,425,000.00) (14,894,000.00) (7,621,000.00) Benefits Paid on Plan Assets (191,415,000.00) (62,943,000.00) (3,154,000.00) (88,000.00) (3,612,000.00) - Benefits Paid Directly by the Sponsor (2,573,000.00) (2,967,000.00) Present Value of Actuarial Liabilities at end of Period 1,717,126, ,797, ,135, ,730, ,680, ,490, PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

43 Changes in the Present Value of Actuarial Liabilities as of 12/31/2014 Benefit Plan I Settled Defined Benefit Plan FBPREV II Plan FBPREV Plan Health Plan Retirement Award Present Value of Actuarial Liabilities as of January 1 st 3,205,596, ,078, ,981, ,930, Cost of Current Service 5,367, , (41,000.00) 1,448, ,348, Financial Cost 246,431, ,993, ,329, , ,860, ,605, Contributions from Plan Participants 32,795, ,434, , Actuarial (Gains)/Losses - Experience 70,677, ,331, ,558, ,350, , ,003, Actuarial (Gains)/Losses - Financial Assumptions (125,733,000.00) (44,460,000.00) (1,658,000.00) (220,000.00) (9,121,000.00) (3,768,000.00) Benefits Paid on Plan Assets (203,936,000.00) (38,961,000.00) (1,682,000.00) (8,000.00) (3,493,000.00) - Benefits Paid Directly by the Sponsor (2,430,000.00) (15,586,000.00) Plan Switch - 952,789, ,349, Plan Reductions (308,817,000.00) Settlement (Gains)/Losses (1,088,107,000.00) (23,046,000.00) Present Value of Actuarial Liabilities at end of Period 1,834,273, ,080, ,146, ,120, ,635, ,532, Settled Defined Changes in the Fair Value of the Plan Assets as of 12/31/2015 Benefit Plan I Benefit Plan FBPREV II Plan FBPREV Plan Health Plan Retirement Award Fair Value of the Plan Assets as of January 1 st 1,723,544, ,217, ,933, ,862, ,556, Interest Income on Plan Assets 186,044, ,680, ,359, , ,002, Expected Return on Plan Assets (150,077,000.00) (57,407,000.00) (7,614,000.00) 112, ,091, Contributions from Plan Sponsors 44,954, ,294, ,127, , Contributions from Plan Participants 41,374, ,049, , , Benefits Paid on Plan Assets (191,415,000.00) (62,943,000.00) (3,154,000.00) (88,000.00) - - Fair Value of the Plan Assets at end of Period 1,654,424, ,890, ,539, ,137, ,649, Changes in the Fair Value of the Plan Assets as of 12/31/2014 Benefit Plan I Settled Defined Benefit Plan FBPREV II Plan FBPREV Plan Health Plan Retirement Award Fair Value of the Plan Assets as of January 1 st 2,755,889, ,586, ,086, Interest Income on Plan Assets 222,500, ,006, ,609, , ,029, Expected Return on Plan Assets 156,165, (6,876,000.00) 9,881, , ,441, Contributions from Plan Sponsors 33,259, ,061, , , Contributions from Plan Participants 32,795, ,434, , Benefits Paid on Plan Assets (203,936,000.00) (38,961,000.00) (1,682,000.00) (8,000.00) - - Transfers of Payments - 907,110, ,401, Settlement (Gains)/Losses - (18,557,000.00) Transfer of Assets Due to the Migration of Participants (1,273,128,000.00) Fair Value of the Plan Assets at end of Period 1,723,544, ,217, ,933, ,862, ,556,

44 Settled Defined Changes in the Net Actuarial Plan Assets (Liabilities) as of 12/31/2015 Benefit Plan I Benefit Plan FBPREV II Plan FBPREV Plan Health Plan Retirement Award Net Actuarial Assets (Liabilities) at End of Previous Year (110,729,000.00) (7,149,000.00) 144, (265,000.00) 85,921, (123,532,000.00) Cost of Current Services (1,043,000.00) - (2,515,000.00) (1,232,000.00) (1,385,000.00) 13,368, Interest on (Assets) Liabilities from Net Benefits (7,669,000.00) 755, , , ,334, (11,595,000.00) Effects of Adjustment Recognized in Comprehensive Income 11,785, (3,900,000.00) (8,892,000.00) (7,000.00) 5,914, (1,698,000.00) Benefits Paid Directly by the Sponsor ,169, ,967, Employer Contributions 44,954, ,294, ,127, , , Net Actuarial Assets (Liabilities) at the of Current Year (62,702,000.00) - (8,647,000.00) (598,000.00) 105,969, (120,490,000.00) Changes in the Net Actuarial Plan Assets (Liabilities) as of 12/31/2014 Benefit Plan I Settled Defined Benefit Plan FBPREV II Plan FBPREV Plan Health Plan Retirement Award Net Actuarial Assets (Liabilities) at End of Previous Year (449,707,000.00) - - (492,000.00) 60,105, (109,930,000.00) Cost of Current Services 1,391,557, (948,300,000.00) (38,599,000.00) 40, (1,448,000.00) (3,348,000.00) Interest on (Assets) Liabilities from Net Benefits (23,931,000.00) 13, , , ,169, (9,605,000.00) Effects of Adjustment Recognized in Comprehensive Income 211,221, ,967, (4,408,000.00) (527,000.00) 15,172, (16,235,000.00) Employer Contributions 33,259, ,061, , , ,923, Benefits Paid Directly by the Sponsor ,586, Transfers of Payments - 907,110, ,401, Transfer of Assets Due to the Migration of Participants (1,273,128,000.00) Net Actuarial Assets (Liabilities) at the of Current Year (110,729,000.00) (7,149,000.00) 144, (265,000.00) 85,921, (123,532,000.00) Estimated Cost of Defined Benefit for 2016 Benefit Plan I Settled Defined Benefit Plan FBPREV II Plan FBPREV Plan Health Plan Retirement Award Cost of Current Services 99, , , ,325, ,932, Net Interest on Actuarial Liabilities (Assets) 1,905, (1,081,000.00) 913, (17,000.00) (13,581,000.00) 12,421, Actuarial Estimated Expenses (Income) 2,004, (1,081,000.00) 1,514, , (12,256,000.00) 16,353, The estimated benefit payments for the next 10 years are as follows: Settled Defined Estimated Payment per Year Benefit Plan I Benefit Plan FBPREV II Plan FBPREV Plan Health Plan Retirement Award ,093, ,276, ,715, , ,635, ,820, ,257, ,011, ,821, , ,167, ,439, ,670, ,318, ,927, , ,069, ,681, ,727, ,033, ,030, , ,192, ,328, ,625, ,167, ,135, , ,158, ,449, to ,339,652, ,871, ,075, , ,029, ,322, PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

45 Other information concerning the plan: Settled Defined Number of Participants as of 12/31/2015 Benefit Plan I Benefit Plan FBPREV II Plan FBPREV Plan Health Plan Retirement Award Active 732 1,470 5,287 4,677 5,477 11,482 Retired 3,609 1, ,574 - Pensioners Total 5,298 3,133 5,469 4,691 10,985 11,482 Number of Participants as of 12/31/2014 Benefit Plan I Settled Defined Benefit Plan FBPREV II Plan FBPREV Plan Health Plan Retirement Award Active 827 1,505 5,335 4,696 5,638 11,630 Retired 3,673 1, ,557 - Retired Disability Pensioners Total 5,329 3,101 5,506 4,699 11,142 11,630 45

46 (f) Sensitivity Analysis The assumptions adopted for the actuarial valuation of the defined benefit plan have a significant effect on the amounts reported. The following tables show the impact on the calculation of benefits considering changes in the assumptions considered in the last actuarial revaluation performed for each post-employment benefit. Benefit Plan I (PBI) 12/31/2015 Impact on % Assumption Description Data Considered in the Actuarial Report Impact Assessment Effect on Obligation Discount Rate 12.60% Increase of 0.5% -3.94% Discount Rate 12.60% Decrease of 0.5% 4.94% Mortality Table AT (1) Increase of 10% -1.68% Mortality Table AT (1) Decrease of 10% 1.81% Settled Benefit Plan (PBS) 12/31/2015 Impact on % Assumption Description Data Considered in the Actuarial Report Impact Assessment Effect on Obligation Discount Rate 12.60% Increase of 0.5% -4.37% Discount Rate 12.60% Decrease of 0.5% 4.75% Mortality Table AT (1) Increase of 10% -1.37% Mortality Table AT (1) Decrease of 10% 1.47% FBPREV II Benefit Plan (FBPREV II) 12/31/2015 Impact on % Assumption Description Data Considered in the Actuarial Report Impact Assessment Effect on Obligation Discount Rate 12.60% Increase of 0.5% -2.99% Discount Rate 12.60% Decrease of 0.5% 3.22% Mortality Table AT (2) Increase of 10% 1.14% Mortality Table AT (2) Decrease of 10% -1.10% FBPREV Benefit Plan (FBPREV) 12/31/2015 Impact on % Assumption Description Data Considered in the Actuarial Report Impact Assessment Effect on Obligation Discount Rate 12.60% Increase of 0.5% -3.25% Discount Rate 12.60% Decrease of 0.5% 3.50% Mortality Table AT (1) Increase of 10% 2.78% Mortality Table AT (1) Decrease of 10% -2.78% Health Plan 12/31/2015 Impact on R$ Thousand Assumption Description Data Considered in the Actuarial Report Impact Assessment Effect on Obligation Discount Rate 12.60% Increase of 0.5% (2,163,000.00) Discount Rate 12.60% Decrease of 0.5% 2,336, Mortality Table AT (2) Increase of 10% (694,000.00) Mortality Table AT (2) Decrease of 10% 748, Drug Assistance 12/31/2015 Impact on R$ Thousand Assumption Description Data Considered in the Actuarial Report Impact Assessment Effect on Obligation Discount Rate 12.60% Increase of 0.5% (4,591,000.00) Discount Rate 12.60% Decrease of 0.5% 5,083, Mortality Table AT (3) Increase of 10% (2,164,000.00) Mortality Table AT (3) Decrease of 10% 2,408, Retirement Award 12/31/2015 Impact on % Assumption Description Data Considered in the Actuarial Report Impact Assessment Effect on Obligation Discount Rate 12.60% Increase of 0.5% -2.24% Discount Rate 12.60% Decrease of 0.5% 2.38% Mortality Table AT (2) Increase of 10% -0.18% Mortality Table AT (2) Decrease of 10% 0.18% (1) AT Basic segregated by gender decreased by 10% (2) AT Basic decreased by 10% (3) AT decreased by 10% NOTE 26 - RISKS AND CAPITAL MANAGEMENT Capital and corporate risks are inherent to the financial area, and the management of such risks is an essential and strategic tool for Banrisul. Management of these risks is carried out by the Corporate Risk Management Department, which is responsible for enforcing and annually updating Banrisul s Institutional Structures and 46 PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

47 Policies for Capital and Corporate Risk Management. The constant improvement on processes of identification, measurement, monitoring, control and mitigation of risks contribute to good governance practices aligned to the objectives, policies and strategies of the institution. Credit Risk This corresponds to the possibility of incurring losses related to the nonperformance of a loan or financial obligation by the counterparty under the agreed terms, the devaluation of the credit resulting from deterioration in the borrower's rating, the reduction of earnings or remuneration, the terms set in a renegotiation and loan recovery costs. The credit risk assessment structure is based on the statistical methodologies of Application and Behavior Score and/or the principle of joint technical decision. Banrisul defines different credit limits corresponding to the decision levels, from the widespread branch network (with different categories) to the credit and risk committees at the Head Office and the Board of Directors. This process aims at expediting the concession of credit limits based on technically predefined customers, which establish Banrisul s risk exposure for each customer, in conformity with the risk/return ratio. The description of this structure is available at in "Investor Relations/Corporate Governance/Risk Management/Management of Institutional Structures of Capital and Corporate Risk/Management Structure of Credit Risk". Risk assessments are increased and strengthened through the continuous and crescent use of statistical models to assess customers risks, the improvements in customers segmentation, the standardization of credit and business policies along with the optimization of the registry information controls by using models of certification. The use and improvement of Application and Behavior Score systems have permitted that pre-approved credit limits to individuals be established in accordance with their risk ratings, as set by the statistical models that are more appealing for dealing with mass credit. For the corporate customers, Banrisul uses technical studies conducted by a specialized risk assessment department which evaluate companies from financial, management, market and production standpoints, with periodic reviews that also take into account current and future economic environments. The management of the Credit Risk exposure is based on a selective, conservative approach, pursuant to the strategies set by Banrisul s management and the Board of Directors. (a) Credit Risk Assessment Lending Operations - Banrisul assesses the probability of default of each counterparty individually by using credit rating tools designed for different categories of counterparties. Such proprietary tools, which combine statistical analyses and the opinion of the staff of the credit area, are validated, when appropriate, by comparing external available data. The rating tools are reviewed and updated when necessary. Periodically, Management validates the rating performance and its capacity to forecast default events. Default exposure is based on the total amounts that may be owed to Banrisul at the time of default; in the case of a loan, for example, it corresponds to the nominal value. (b) Risk Limit Control and Risk Mitigation Policy Among the procedures in use to manage, limit and control credit risk concentration, the main highlights are herein presented: (i) Management controls 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 and the related profile of each customer 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; 47

48 (ii) In the case of a counterparty, the exposure to any borrower, including financial agents, is additionally restricted by sublimit that covers adventitious exposures, whether recorded or not, in the financial statements. The actual exposures are monitored on a monthly basis in accordance with the established limits; and (iii) 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 the registration status and their limits when appropriate. (c) Credit-Related Commitments Credit commitments, unconditionally and unilaterally non-cancellable by the Institution, represent unused portions of established limits by the counterparty, normally attributed to working capital, overdraft accounts and credit cards, among others. The amount of the contracts represents the maximum credit risk in these transactions, if the counterparty effectively uses the available funds. However, exposure to losses resulting from such contracts is less than the total funds to be released, since part of them expires without being fully used, either by the customer s or Banrisul s decision, which adopts criteria for the provision of said resources as required by certain contractual clauses. (d) Releasable Credits Releasable credits are future disbursements related to credit transactions, whether or not subject to the fulfillment of pre-specified conditions by the debtor. The exposure amount of releasable credits corresponds to the sum of the installments of loans to be released up to 360 days. Market Risk The Bank is exposed to market risks arising from the possibility of financial loss due to fluctuating prices and interest rates markets of its operations, due to the mismatch of maturities between assets and liabilities, currencies and indexes. The Bank is exposed to foreign exchange risk arising from currency exposures, primarily with respect to the U.S. dollar. Foreign exchange risk arises from the operation of foreign funding described in Note 14. To manage its foreign exchange risk, Banrisul uses derivative contracts as an instrument of protection (hedge market risk), as described in Note 03(c). The management of market risk in Banrisul is held by the Corporate Risk Management Unit, responsible for executing and annually updating risk policies, managing strategies of Banrisul's market risk, establishing operational limits to identify, monitor, assess and manage exposure to risks of trading and non-trading portfolios. Market risk is calculated for operations whether or not classified in the trading portfolio. The trading portfolio comprises operations on financial instruments held for trading, intended for resale, to obtain benefits from price fluctuations or to arbitration. The banking portfolio includes all operations of the institution not classified in the trading portfolio, without intent to sell, or loan portfolio, portfolio of securities held to maturity, time deposits, savings deposits and other transactions held up to maturity. In measuring the market risk of the trading portfolio, the Value at Risk (VaR) methodology is used for calculating the exposure of operations with a risk factor for pre-determined interest rates. VaR is a measure of the maximum expected loss in monetary value under normal market conditions in a given time horizon of ten days, with a probability level of 99%, used to measure the exposures subject to market risk. For the calculation of exposure in other indexes, the Maturity Ladder approach is used. The calculation of the risk of operations of the banking portfolio is held by the Institution's own approach and the methodology used is VaR. 48 PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

49 The Institution also conducts quarterly sensitivity analysis based on specific scenarios for each risk factor. The goal is to measure the impact of market fluctuations on the portfolio of the institution and its ability to recover from a potential worsening of crisis. Sensitivity Analysis of Trading Portfolio - to enhance risk management and in compliance with CVM Rule No. 475/08, Banrisul conducted a sensitivity analysis of its trading portfolios, without considering derivatives. Stress tests are carried out for upward or downward 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 Rule No. 475/08, as follows: Scenario 1: Probable situation. Assumptions: a deterioration of 1% in market risk variables, taking into account prevailing conditions at June 30, Scenario 2: Possible situation. Assumptions: an elevation of 25% in market risk variables, taking into account prevailing conditions at June 30, Scenario 3: Remote situation. Assumptions: an elevation of 50% in market risk variables, taking into account prevailing conditions at June 30, The following table shows the highest and the lowest expected loss considering scenarios 1, 2 and 3 and their upward or downward variations as at December 31, For Foreign Exchange Risk, the rate of R$3.2098/USD1.00 as of June 30, 2016 (PTAX - Bacen) was used. Sensitivity analyses identified below do not consider the responsiveness of the risk and treasury areas because once loss is observed on these positions, risk mitigating measures are rapidly deployed, minimizing the possibility of significant losses. Sensitivity Test: Trading Portfolio Scenario Risk Factors Interest Rate (*) Exchange Rate Equity 1 1% 5, ,948, , ,144, % 133, ,708, ,759, ,601, % 263, ,417, ,518, ,198, (*) Non-existent data at the reference date. 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. Total Analyzing the results, the Risk Factor "Exchange Rate" can be identified as the one with the largest expected loss, which represents approximately 90.9% of the entire expected loss for the three scenarios. The expected loss in Scenario 2 was 25 times greater than in Scenario 1. From the Scenario 2 to 3, the change is 100%. The highest expected loss on these Sensitivity Test Scenarios, occurs in Scenario 3 (65.79%), totaling R$107,198, Sensitivity Analysis of Derivatives - Banrisul also conducted a sensitivity analysis of its derivatives positions (trading portfolio) and the international funding transactions carried out for USD million ( million U.S. Dollars) recorded in the Banking Portfolio (Note 14). These external funding transactions had an original value of USD775 million (775 million U.S. dollars); however, on September 30, 2015, Banrisul repurchased USD million ( million U.S. dollars), and on October 15, 2015, repurchased an additional USD2.85 (2.85 million U.S. Dollars) therefore remaining the outstanding balance of USD million ( million U.S. dollars), upon which stress tests were conducted for upward and downward variations in Scenarios I, II and III. 49

50 Stress tests were carried out on the value of foreign currency U.S. Dollar considering the rate of R$ on June 30, 2016 (PTAX Central Bank of Brazil). Scenario I is the most probable one and considers the changes expected by the Bank in relation to the market reference curves (BM&FBovespa), used to mark to market such financial instruments. Scenarios II and III are defined in accordance with CVM Rule No. 475, which demands that high scenarios should consider upward variations of +25% and +50% and downward scenarios variations of -25% and -50%. Thus, Scenario I is defined by the increase of 1% in the U.S. Dollar coupon, the Scenario II is defined by the increase of 25% in the U.S. Dollar coupon, and the scenario III is defined by the increase of 50% in the U.S. Dollar coupon, according to the Bank's position, considering the conditions prevailing on June 30, The sensitivity analyses shown below were established using premises and assumptions regarding future events. The estimated scenarios show the impacts on the outcome for each scenario in a static position of the portfolio as on June 30, The table below shows the probability of impact on the cash flow in the three scenarios of derivatives exposures (or trading portfolio) and in the instrument being hedged (banking portfolio or held to maturity) on June 30, 2016 independently, since the Bank does not practice hedge accounting. Trading and Banking Portfolio Operation Portfolio Risk Scenario I Scenario II Scenario III Swap Trading Increase in U.S. Dollar Coupon 4,613, ,475, ,751, Line Item Being Hedged Debt 1 Banking Increase in US Dollar Coupon (4,613,976.85) (107,476,946.11) (200,753,842.67) Net Effect (66.14) (1,538.81) (2,839.38) U.S. Dollar coupon: all the products with price variations tied to changes in the U.S. Dollar and interest rates in U.S. Dollars. Additionally, the results do not necessarily translate into accounting results, because the analysis has the sole objective of disclosing the risk exposure and the respective protective actions considering the fair value of financial instruments, decoupled from any accounting practices adopted by the institution. Banrisul considers that the risk of having a debt in CDI by way of swaps would be the rise in the CDI rate and this would be offset by the increase in revenues from its investments linked to the CDI rate. Liquidity Risk The definition of Liquidity Risk is the possibility of incurring losses due to the lack of sufficient liquid funds to meet payment obligations - expected and unexpected, current and future in a defined timeframe, and also of being unable to negotiate at market prices certain positions due to their high amounts in relation to the volume usually transacted or by reason of any interruption of the market itself. The liquidity risk of banking transactions may have its origin in the moment the transactions are generated, due to difficulties in obtaining the funds necessary to finance assets, which usually lead to increases of funding costs; or due to difficulties to settle obligations with third parties, as a result of mismatches in maturities of assets and liabilities. Banrisul establishes operating limits for liquidity risk consistent with the Bank s business strategies for financial instruments and other exposures whose achievement of grandness parameters are regularly reviewed by the Corporate Risk and Banking Management Committees and submitted to the Board in order to ensure its effectively operability by managers. The Corporate Risks Management Unit is in charge of Banrisul s Consolidated Liquidity Risk Management, being responsible for executing and updating annually the policy and strategies for managing liquidity risk of the Bank. 50 PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

51 Liquidity management is centralized at the Treasury Department and aims to maintain a satisfactory level of cash to meet the financial needs in the short-, medium- and long-term, both in normal scenario and in a crisis scenario, taking the necessary corrective action, when necessary. Throughout the control process, mismatches arising from the use of short-term liabilities to ballast long-term assets are monitored, in order to avoid liquidity shortfalls and ensure that the Bank s reserves are sufficient to meet daily cyclical and non-cyclical cash needs, as well as the long-term needs. The Bank seeks to maintain a adequate level of highly funding market assets, along with access to other liquidity sources, and seeks to ensure an appropriate mix of funding operations, meeting the minimum levels required by the regulations. Pursuant to its Liquidity Contingency, Banrisul aims to identify beforehand and minimize potential crises and their effects on business continuity. The parameters used for the identification of crisis situations consist of a range of responsibilities and procedures to be followed to ensure the stability of the required level of liquidity. Periodically, reports are periodically sent to Committees, Commissions, Executive Board and Board of Directors, containing information for management of liquidity risk. Annually, or more frequently when needed, the Liquidity Risk Management Policy is presented to the Board of Directors, containing the guidelines for risk management, which includes budget, financial planning, risk thresholds and optimization of available resources. Operational Risk Operational risk is defined as the possibility of losses resulting from failure, deficiency or inadequacy of internal processes, individuals and systems or from external events. The objective of its management is to get control over the risks, seeking to minimize them to protect the institution and consequently safeguard equity and interests of customers, shareholders, employees and other stakeholders. During the first half of the year projects and activities that contribute to the continuous improvement and the strengthening of operational risk management culture in the institution took place, highlighting the analysis of specific processes, such as the PCI-DSS recertification, held annually. Also noteworthy is the participation in discussions along with FEBRABAN about the public hearing of the Basel Banking Supervision Committee to review the standardized approach to operational risk. Basel Ratio As set forth by the Resolution No. 4192/13, from January 1, 2015 the calculation of the Regulatory Capital shall be based on the financial statements for the Prudential Conglomerate, generating new series of data. Resolution No. 4193/13 set the minimum levels for Core Capital, Tier I Capital and Reference Equity (RE), besides introducing the concept of Additional Capital (AC). Resolution No. 4443/15 altered the calculation of Additional Capital (AC), defined as the sum of three parts: ACConservation, ACCountercyclical and ACSystemic. In June 2016 the ACConservation the minimum required capital limits were 10.50% for the Basel ratio (Reference Equity), 6.63% for Tier I ratio and 5.13% for the Main Capital index. As a complementary risk measure, the calculation of the Leverage Ratio initiated in October 2015, although without a minimum index yet. The indices calculated for the Conglomerate Prudential in June 2016 are shown in the following table and have clearances to the minimum required by the Central Bank: 51

52 Banrisul Prudential 2016 Reference Equity 6,657,811, Tier I 5,591,865, Core Capital 5,591,865, Equity 4,509,894, Capital, Earnings and Revaluation Reserve 1,929,329, Unrealized gains of Equity Valuation Adjustments Except Cash Flow 16,924, Deduction from Core Capital 10,766, Asset and Securities Valuation 6,276, Treasury and Other instruments Issued by the Bank 4,490, Prudential adjustments 853,515, Except Non-Consolidated Participations and Tax Credit 822,696, Tax credits from Temporary Difference and Senior Investments 30,819, Tier II 1,065,945, Tier II Eligible Instruments 1,065,945, RWA - Risk Weighted Assets 39,689,955, RWA Credit Risk 31,780,992, RWA Market Risk 1,061,841, Fixed Interest Rates in Real (RWA jur1) 762, RWA Equity Risk (RWA ACS) 29,541, RWA Exchange Risk (RWA cam) 1,031,537, RWA Operational Risk 6,847,120, Banking Portfolio (RBAN) 423,760, Reference Equity Excess/Insufficiency 2,314,667, Basel Ratio 16.77% Tier I Ratio 14.09% Core Capital Ratio % 14.09% Permanent Assets Ratio 11.90% Leverage Ratio (1) 7.78% (1) According to the methodology for calculating the leverage ratio as set forth by of Circular No. 3748/15 of the Central Bank and effective from October 2015 onwards. NOTE 27 - TRANSACTIONS WITH RELATED PARTIES (a) Transactions among related parties are disclosed in compliance with CVM Resolution No. 642/10 and CMN Resolution No. 3750/09. Account balances referring to transactions among consolidated Banrisul companies are eliminated on the consolidated financial statements and take into consideration the absence of risk. As to the transactions carried out with the State Government and its fully or partially controlled entities controlled, Banrisul has opted for the partial exemption instructed by Resolution No. 3750/09 of CMN. In this case, only the most significant transactions are disclosed. With related parties, Banrisul operates banking transactions such as current account deposits (not remunerated), remunerated deposits, open market funding, loans (except for key management personnel) and the provision of services. These operations are carried out at amounts, terms and average rates of usual market practices during the period, and under reciprocal conditions. The unconsolidated related parties are as follows: (i) Rio Grande do Sul State in June 17, 2016, Banrisul signed with the State Government an agreement for the rights to service the payroll of state employees. Such agreement aims at centralizing at Banrisul the processing of 100% (one hundred percent) of the payroll of the State, which will be processed and deposited at checking accounts owned by the state employees, civil and military alike, or their beneficiaries, for the deposit of their salaries as well as credit of benefits and earnings payable to retirees and pensioners of the State s own pension plan, while preserving any portability rights to the state s employees. The contract is valid for a period of ten years, and the agreed price of R$1,250,638 was paid on June 20, The agreement also establishes that Banrisul will not be entitled to receiving any payment from the State, such as banking fees, for example, in relation to banking services and similar provided. 52 PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

53 The agreement further established that the State and Banrisul should adjust, until November 30, 2016, the conditions in relation to the assignment of public spaces where Banrisul's service points are installed, namely 06 branches, 13 service centers and various electronic service points; (ii) Companhia Estadual de Energia Elétrica (CEEE), Companhia Riograndense 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 Processamentos de Dados do Estado do Rio Grande do sul (PROCERGS) and BADESUL Desenvolvimento S.A. Agência de Fomento/RS companies controlled by the Government of the State of Rio Grande do Sul; (iii) Affiliated Bem Promotora de Vendas e Serviços S.A., engaged in payroll loan origination, and Banrisul Icatu Participações S.A. (BIPAR), holding company owning 100% of Rio Grande Seguros e Previdência S.A., a life and pension insurance company; (iv) Fundação Banrisul de Seguridade Social (FBSS), closed supplementary pension entity that manages the pension plans sponsored by Banrisul and/or its subsidiaries. (v) Caixa de Assistência dos Empregados do Banco do Estado do Rio Grande do Sul (Cabergs) is a non profitable assistance association, regulated by private law; and (vi) Investment Funds and Managed Portfolios, managed by Banrisul. Transactions with parent companies are as follows: Assets (Liabilities) Income (Expense) /01 to 06/30/ /01 to 06/30/2015 State of Rio Grande do Sul Government (207,290,362.16) (248,304,013.28) (21,951,618.38) (123,081,217.07) Other Credits (1) 17,829, ,879, , , Demand Deposits (188,325,687.44) (179,892,533.94) - - Money Market Funding (2) (25,572,735.14) (78,182,144.59) (21,188,580.29) (30,249,282.37) Other Payables (3) (11,221,484.60) (9,108,480.28) (796,394.94) (92,864,771.24) Banrisul Foundation (816,528.43) (69,257,468.97) (5,312,900.48) (8,791,945.16) Other Payables (816,528.43) (69,257,468.97) (5,312,900.48) (8,791,945.16) Total (208,106,890.59) (317,561,482.25) (27,264,518.86) (131,873,162.23) (1) Of the amount R$17,829,545.02, R$17,032, refers to the transferred employees. (2) These funds bear interest at 100% of the Selic rate. (3) Of the amount R$11,221,484.60, R$9,021, refers to attachés employees. (b) Compensation of Key Management Personnel Annually, the General Shareholders Meeting determines the total annual compensation of the members of Management, comprising the Executive Board, the Board of Directors, the Supervisory Board, Audit Committee and the Compensation Committee, as stated in the Bank s bylaws. 01/01 to 06/30/ /01 to 06/30/2015 Management Compensation 3,647, ,508, Bonuses 2,886, ,035, Social Security 761, , Post-Employment Benefits 255, , Supplemental Pension Plans (1) 255, , Total (1) Banrisul pays for complementary pension plans to managers who belong to the staff. 3,902, ,613, Banrisul does not offer its key management personnel any long-term, termination and stock-based compensation benefits. 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$720, (c) Additional information According to existing legislation, financial institutions may not grant loans or advances to: 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; 53

54 Individuals or legal entities holding equity interest equal to or more than 10%; and 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. (d) Shareholding As of June 30, 2016, members of the Executive Board, the Board of Directors, the Supervisory Board, the Audit Committee and the Compensation Committee jointly hold Banrisul s shares as follows: Shares Amount Common Shares 155 Preferred Shares 305 Total Shares PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

55 EXECUTIVE BOARD LUIZ GONZAGA VERAS MOTA CEO IRANY DE OLIVEIRA SANT ANNA JUNIOR Vice-President JORGE FERNANDO KRUG SANTOS JORGE LUIZ OLIVEIRA LOUREIRO JÚLIO FRANCISCO GREGORY BRUNET LEODIR ANTÔNIO ARALDI OBERDAN CELESTINO DE ALMEIDA RICARDO RICHINITI HINGEL SUZANA FLORES COGO Officers WERNER KÖHLER Accountant CRCRS

56 Report 56 PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

57 INDEPENDENT AUDITOR S REPORT ON CONSOLIDATED PRUDENCIAL CONGLOMERATE FINANCIAL STATEMENTS To The Board of Directors and Shareholders Banco do Estado do Rio Grande do Sul S.A. We have audited the accompanying Prudential Conglomerate consolidated financial statements of Banco do Estado do Rio Grande do Sul S.A. (Banrisul), which comprise the consolidated balance sheet as of June 30, 2016, and the related statements of income, changes in equity and cash flows for the six-month period then ended, as well as the summary of significant accounting policies and other explanatory notes. These special purpose financial statements have been prepared by Banrisul s management as required by Resolution no 4,280, dated October 31, 2013, of the National Monetary Council and supplementary regulations of the Central Bank of Brazil, described in the note no 2 to the financial statements. Management s Responsibility for the Financial Statements Banrisul s management is responsible for the preparation and fair presentation of these Prudential Conglomerate consolidated financial statements in accordance with the Resolution no 4,280/13 of National Monetary Council, and supplementary regulations of Central Bank of Brazil, which main criteria and accounting practices are described in note no 2 to the financial statements, and for such internal control as management determines is necessary to enable the preparation of the Prudential Conglomerate consolidated financial statements are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these Prudential Conglomerate consolidated financial statements prepared by Banrisul s management in accordance with the Resolution no 4,280/13, of National Monetary Council, and supplementary regulations of Central Bank of Brazil, based on our audit in accordance with Brazilian and International Standards on Auditing, taking into account the NBC TA 800 (ISA 800) - Special Considerations - Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the Prudential Conglomerate consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Banrisul s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 57

58 Opinion In our opinion, the Prudential Conglomerate consolidated financial statements of Banrisul refered to above, present fairly, in all material respects, the financial position of Banrisul s Prudential Conglomerate consolidated financial statements as of June 30, 2016, the financial performance of its operations and its cash flows for the six-month period then ended in accordance with the provisions for preparation of the Prudential Conglomerate consolidated financial statements pursuant to the Resolution no 4,280/13, of National Monetary Council, and supplementary regulations of Central Bank of Brazil for the preparation of these consolidated financial statements prepared for special purpose, as described in note n o 2 to the financial statements. Emphasis Basis of preparation of the Prudential Conglomerate consolidated financial statements Without modifying our opinion, we draw attention to note no 2 to the financial statements that disclose that the Prudential Conglomerate consolidated financial statements of Banrisul were prepared by Banrisul s management to meet the requirements of Resolution no 4,280/13, of National Monetary Council, and supplementary regulations of Central Bank of Brazil. Consequently, our report on these consolidated financial statements has been prepared solely for meeting these specific requirements and thus may not be appropriate for other purposes. Other Matter Banrisul has prepared a separate set of Individual and Consolidated financial statements for general purposes for the six-mounth period then ended June 30, 2016, in accordance with accounting practices adopted in Brazil applicable to institutions authorized to operate by the Central Bank of Brazil, on which we issued an unqualified auditor s report on August 3, Audit of financial statements for the year and six-month previous period The consolidated financial statements for the year then ended December 31, 2015 and the six-month period then ended June 30, 2015, presented as corresponding amounts in the consolidated financial statements for the six-month period then ended June 30, 2016, were audited by another independent auditor who issued an unmodified audit report dated on February 4, 2016 and August 11, 2015, respectively. Porto Alegre, August 3, KPMG Auditores Independentes CRC 1SP014428/F-7 Original report in Portuguese signed by Fernando Antonio Rodrigues Alfredo Contador CRC 1SP252419/O-0 58 PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016

59 GOVERNO DO ESTADO DO RIO GRANDE DO SUL Secretaria da Fazenda Banco do Estado do Rio Grande do Sul Executive Board LUIZ GONZAGA VERAS MOTA Chief Executive Officer IRANY DE OLIVEIRA SANT ANNA JUNIOR Vice-President JORGE FERNANDO KRUG SANTOS JORGE LUIZ OLIVEIRA LOUREIRO JÚLIO FRANCISCO GREGORY BRUNET LEODIR ANTÔNIO ARALDI OBERDAN CELESTINO DE ALMEIDA RICARDO RICHINITI HINGEL SUZANA FLORES COGO Officers Board of Directors LUIZ ANTÔNIO BINS Chairman LUIZ GONZAGA VERAS MOTA Vice Chairman CARLOS ANTÔNIO BÚRIGO DILIO SERGIO PENEDO FLÁVIO POMPERMAYER IRANY DE OLIVEIRA SANT ANNA JUNIOR JOÃO CARLOS BRUM TORRES JOÃO GABBARDO DOS REIS JOÃO VERNER JUENEMANN Board Members WERNER KÖHLER Accountant CRCRS 38,534 59

60 60 PRUDENTIAL CONGLOMERATE FINANCIAL STATEMENTS June 2016