CADERNO BALANÇO ENGLISH SET 10 INTERNETri.banrisul.com.br/...CADERNOBALANCO_20101107_Eng.pdf ·...

F I N A N C I A LS T A T E M E N T S

2 0 1 0SEPTEMBER

2 FINANCIAL STATEMENTSSEPTEMBER 2010

Message from the CEO

The Brazilian economy maintained the strong

activity pace, supported by the decrease in

unemployment rates, and the growth of

payroll and credit. The dynamism of economic

activity, boosted by the heating of domestic

demand, reflected in the generation of jobs,

with the most significant contributions

coming from the processing industry,

commerce, service and civil construction

industries, sectors responsible for the recent

rebound in the labor market.

In the State of Rio Grande do Sul, industrial

production, based on the domestic market

and export of commodities, has motivated

the maintenance of a heated pace of activity,

resulting in a higher level of employment,

rising real incomes and increased volume of

imports. The unemployment rate in the

metropolitan region of Porto Alegre reached

4.1%, in September 2010, the lowest among

the major regions in Brazil, and the average

income of the employed population totaled

R$1,442.7, the third largest, according to IBGE

research.

After a period of budget restrictions,

significant public investments in

infrastructure and aimed at promoting

technological innovations in relevant supply

chains in the State support of Rio Grande do

Sul give basis for promising expectations of

achieving faster growth in the economic

activity in coming years.

Thus, both domestic and regional economic

environments have been extremely

conducive to banking activities. The credit

supply remains strong and stable. The risk is

lower, resulting in lower provisioning

expenses. The rates are reduced and the

maturity of operations stretches, reflecting

trends of greater predictability. Card

transactions, after market regulation in place

in Brazil, should form themselves into

promising mechanism of business expansion.

Banrisul’s net profit of R$511.4 million at the

end of 9M10 is 43.3% higher than the same

period last year, and equivalent to a 19.5%

ROE, with improvement perspectives. Based

on the last quarter’s results only, the

annualized return on average equity is 24.5%.

At the end of September 2010, shareholders’

equity of R$3.7 billion and total assets of

R$32.3 billion increased, respectively, 13.5%

and 13.2% over September 2009. Funds raised

and under management, at R$24.1 billion,

increased 15.5% in twelve months, while

credit assets, equivalent to R$16.2 billion at

end-September 2010, recorded an increase

of 29.6% over the same period, a solid growth

and above the average of the market.

3

Mateus Affonso BandeiraCEO & IRO

Payroll loans to individuals, in an

environment of rising employment and real

wages, constituted an important mechanism

to maximizing yields and preserving the

quality of the credit portfolio. Credit supply

has also extended to companies, a segment

that particularly contributed to the expansion

of loan portfolio last quarter.

Banrisul also maintains a robust, retail

deposit base. Obtained from its large branch

franchise, this low cost funding base is key to

the sustainable growth of assets.

Management efforts, especially in the last six

months, have been focused on improving the

Bank’s operating efficiency. At the end of

September 2010, total administrative

expenses increased only 7.6% in comparison

to the same period in 2009. From 2Q10 to

3Q10, and excluding personnel expenses,

other administrative expenses decreased

2.0%, after the 10,9% reduction registered

from 1Q10 to 2Q10. Hence the cost-income

ratio of 48.5% at the end of the last quarter,

for the first time in Banrisul’s history below

the 50% indicator and in line with the

indicators provided by the large retail banks

in Brazil.

With responsi bi l ity and firmness of

purpose, Banrisul is presently one of the

most important regional public banks in

Brazil, constantly improving businesses,

perfecting control mechanisms to ensure

greater transparency, providing state-of-art

services to add comfort to customers,

fulfi l l ing the role of agent for the

development of Rio Grande do Sul. Above

all, without neglecting the goal of

delivering good results to shareholders.

4

Contents

Message from the CEO ........................................................................................... 2

FINANCIAL STATEMENTSSEPTEMBER 2010

Press Release .............................................................................................................. 10

Management Report .................................................................................................. 16

Economic Scenario .................................................................................................. 17

Consolidated Performance ..................................................................................... 19

Net Income ............................................................................................................. 19

Shareholders’ Equity.............................................................................................. 19

Total Assets ............................................................................................................. 20

Taxes and Contributions ........................................................................................ 20

Operating Performance .......................................................................................... 21

Funds Raised and Under Management ................................................................. 21

Breakdown of Funds Raised and Under Management ......................................... 21

Securities................................................................................................................ 22

Loan Operations ..................................................................................................... 23

Commercial Credit - Individuals ............................................................................ 24

Commercial Credit - Companies............................................................................ 24

Agribusiness ........................................................................................................... 25

Foreign Exchange ................................................................................................... 25

Real Estate Loans ................................................................................................... 25

Long-Term Financing.............................................................................................. 25

Microcredit ............................................................................................................. 26

Products, Services and Channels............................................................................. 26

Banricompras.......................................................................................................... 26

Banrisul’s Correspondent Banks ............................................................................ 26

Virtual Branch – Home and Office Banking ........................................................... 27

Banrifone e Call Center .......................................................................................... 27

Eletronic Bidding.................................................................................................... 27

Credit Cards ............................................................................................................ 27

Insurances, Private Pension and Capitalization.................................................... 28

Banrisul’s Customer Service Network.. ................................................................... 29

Subsidiaries ............................................................................................................ 30

Corporate Governance ........................................................................................... 31

Overview ................................................................................................................ 31

Banrisul’s Corporate Governance Structure .......................................................... 31

Shareholding Structure .......................................................................................... 32

Investor Relations and Communication Policy ..................................................... 32

Interest on Equity and Dividends Distribution Policy .......................................... 33

5

Internal Controls and Compliance .......................................................................... 33

Risk Management .................................................................................................. 34

Basel Ratio .............................................................................................................. 37

Technology Modernization .................................................................................... 38

Public Sector Activities .......................................................................................... 39

Marketing .............................................................................................................. 41

Human Resources .................................................................................................. 42

Corporate Responsability ...................................................................................... 42

Awards................................................................................................................... 44

Acknowledgements ............................................................................................... 46

Index of Graphs

Graph 1: Net Income ................................................................................................... 19

Graph 2: Shareholders’ Equity Growth ....................................................................... 19

Graph 3: Total Assets Growth...................................................................................... 20

Graph 4: Growth of Funds Raised and Under Management ...................................... 21

Graph 5: Breakdown of Funds Raised and Under Management ................................ 22

Graph 6: Securities Growth ......................................................................................... 22

Graph 7: Loan Operations Growth .............................................................................. 23

Graph 8: Commercial Credit Growth – Individuals and Companies .......................... 24

Graph 9: Banricompras ................................................................................................ 26

Graph 10: Shareholding Structure. ............................................................................. 32

Graph 11: Market Value X Shareholders’ Equity ........................................................ 32

Graph 12: Basel Ratio Growth ..................................................................................... 37

Financial Statements ................................................................................................. 47

Balance Sheet ........................................................................................................ 48

Statement of Income ............................................................................................. 52

Cash Flow............................................................................................................... 53

Statement of Value Added ..................................................................................... 54

Statement of Changes on Shareholders’ Equity ..................................................... 55

Notes of Management to the Financial Statement ................................................ 56

Note 01 - Operations .............................................................................................. 57

Note 02 – Presentation of the Financial Statements ........................................... 57

Note 03 – Significant Accounting Practices ........................................................... 59

Note 04 – Interbank Investments .......................................................................... 62

Note 05 – Securities and Derivatives ..................................................................... 62

Note 06 – Restricted Deposits ............................................................................... 64

Note 07 – Loans, Lease Operations and Other Receivables ................................. 65

Note 08 – Other Receivables ................................................................................. 67

Note 09 – Permanent Assets .................................................................................. 68


Note 10 – Deposits and Money Market Funding ................................................... 69

Note 11 - Borrowings .............................................................................................. 69

Note 12- Onlendings ............................................................................................. 70

Note 13 - Other Payables ....................................................................................... 70

Note 14 – Reserves for Tax, Labor and Civil contingencies ................................... 71

Note 15 – Income from Services Rendered ........................................................... 72

Note 16 – Income from Bank Fees ......................................................................... 73

Note 17 – Other Administrative Expenses ............................................................ 73

Note 18 - Other Operating Income ....................................................................... 73

Note 19 – Other Operating Expenses .................................................................... 74

Note 20 – Shareholders’ Equity - Banrisul ............................................................. 74

Note 21 – Commitments, Guarantees and Other .................................................. 75

Note 22 – Income Tax and Social Contribution...................................................... 76

Note 23 - Fundação Banrisul de Seguridade Social e Cabergs – Caixa de

Assistência dos Empregados do Banco do Estado do Rio Grande do Sul .......... 78

Note 24 – Financial Instruments ............................................................................ 79

Note 25 – Transactions With Related Parties ........................................................ 80

Note 26 – Autorization for Completion of the Financial Statements .................. 85

Report.................................................................................................................... 86

Analysis of Performance ............................................................................................. 88

Banco do Estado do Rio Grande do Sul S.A. ............................................................ 89

Macro-economic Environment and Competitive Market ....................................... 90

National Economy .................................................................................................. 90

Regional Economy.................................................................................................. 91

Banking Industry and Competitive Environment ................................................. 91

Economic and Financial Indicators.......................................................................... 93

Assets and Earning Structure.................................................................................. 94

Financial Performance........................................................................................... 94

Capital Expenditure Policy .................................................................................... 96

Margin Analysis ...................................................................................................... 98

Variations in Interest Income and Expenses: Volumes and Rates ....................... 99

Operational Highlights ............................................................................................ 101

Banrisul’s Stock Market Performance ..................................................................... 102

Evolution of Balance Sheet Accounts ...................................................................... 104

Total Assets ....................................................................................................... 104

Securities................................................................................................................ 105

Interbank and Interbranch Transactions ............................................................... 105

Credit Operations .................................................................................................. 106

Breakdown of Credit by Company Size ................................................................. 106

Breakdown of Credit by Sector .............................................................................. 107

Breakdown of Credit by Portfolio ......................................................................... 107

Commercial Credit ................................................................................................. 109

7

Breakdown of Credit by Rating .............................................................................. 110

Allowance for Loan Losses..................................................................................... 111

Cover Ratio ............................................................................................................. 112

Default Ratio .......................................................................................................... 112

Funds Raised and Under Management .................................................................. 113

Demand Deposits................................................................................................... 113

Savings Accounts.................................................................................................... 113

Time Deposits ........................................................................................................ 113

Assets under Management.................................................................................... 114

Cost of Funding ...................................................................................................... 114

Shareholders’ Equity.............................................................................................. 115

Return on Average Shareholders’ Equity .............................................................. 115

Basel Ratio .............................................................................................................. 116

Pace of Growth ....................................................................................................... 117

Evolution of Income Statement Accounts .............................................................. 118

Net Income ............................................................................................................. 118

Financial Income .................................................................................................... 118

Revenue from Treasury Operations ...................................................................... 119

Revenues from Credit and Leasing Operations .................................................... 119

Revenues from Commercial Credit - Individuals and Companies ....................... 120

Financial Expenses ................................................................................................. 122

Expenses with Market Funding Operations .......................................................... 123

Allowance for Loan Losses..................................................................................... 124

Gross Profit from Financial Intermediation .......................................................... 124

Financial Margin..................................................................................................... 125

Revenue from Services Rendered ......................................................................... 125

Administrative Expenses ....................................................................................... 126

Other Operating Income ........................................................................................ 127

Other Operating Expenses .................................................................................... 128

Economic Indicators ................................................................................................ 129

Leverage Ratio ....................................................................................................... 129

Operating Cost ....................................................................................................... 129

Debt-Equity Ratio................................................................................................... 129

Employee Productivity .......................................................................................... 130

Efficiency Ratio ...................................................................................................... 130

Consolidated Pro Forma Balance Sheet .................................................................. 131

Pro Forma Income Statement ................................................................................. 132

8 FINANCIAL STATEMENTS SEPTEMBER 2010

Index of Graphs

Graph 1: Banrisul PNB stock’s performance vs. Brazilian Stock Market Indexes ...... 102

Graph 2: Financial Volume, Number of Trades and Number of Shares .................... 103

Graph 3: Banrisul´s Stock - Geographic Distribution .................................................. 103 Graph 4: Total Assets ................................................................................................... 104

Graph 5: Composition of Assets ................................................................................. 104

Graph 6: Securities and Liquid Interbank Transaction ............................................... 105

Graph 7: Interbank and Interbranch Transactions ...................................................... 105

Graph 8: Credit Operations ......................................................................................... 106 Graph 9: Commercial Credit Portfolio - Individuals and Companies ........................ 108

Graph 10: Credit Portfolio by Risk Levels ................................................................... 110

Graph 11: Breakdown of Allowance for Loan Losses ................................................. 111

Graph 12: Cover Ratio.................................................................................................. 112

Graph 13: Default Ratio ............................................................................................... 112 Graph 14: Funds Raised and Under Management ...................................................... 113

Graph 15: Cost of Funding as % of Selic Rate ............................................................. 114

Graph 16: Shareholders’ Equity .................................................................................. 115

Graph 17: Return on Average Shareholders’ Equity .................................................. 116

Graph 18: Basel Ratio .................................................................................................. 116 Graph 19: Pace of Growth - Credit and Funding......................................................... 117

Graph 20: Net Income. ................................................................................................ 118

Graph 21: Financial Income ........................................................................................ 119

Graph 22: Revenues from Credit and Leasing Operations......................................... 120

Graph 23: Financial Expenses ..................................................................................... 123

Graph 24: Expenses with Market Funding Operations .............................................. 123 Graph 25: Allowance for Loan Losses ......................................................................... 124

Graph 26: Financial Margin .........................................................................................125

Graph 27: Revenue from Services Rendered ............................................................. 126

Graph 28: Personnel and Other Administrative Expenses ........................................ 127

Graph 29: Other Operating Income ............................................................................ 127 Graph 30: Other Operating Expenses ......................................................................... 128

Graph 31: Leverage Ratio ............................................................................................ 129

Graph 32: Operating Cost............................................................................................ 129

Graph 33: Debt-Equity Ratio ....................................................................................... 129

Graph 34: Employee Productivity ............................................................................... 130 Graph 35: Efficiency Ratio ........................................................................................... 130

9

Index of Tables

Table 01: Competitive Environment ........................................................................... 92

Table 02: Economic and Financial Indicators.............................................................. 93

Table 03: Margin Analysis............................................................................................ 98

Table 04: Variations in Interest Income and Expenses: Volumes and Rates ............. 100

Table 05: Communication and Relationship Efforts ................................................... 102

Table 06: Breakdown of Credit to Companies by Company Size ............................... 106

Table 07: Breakdown of Credit by Sector ................................................................... 107

Table 08: Breakdown of Credit by Portfolio ............................................................... 108

Table 09: Composition of Unmarked Credit - Individuals and Companies ............... 110

Table 10: Balance of Allowance for Losses ................................................................. 112

Table 11: Funding Composition .................................................................................. 114

Table 12: Cost of Funding ............................................................................................ 115

Table 13: Revenues from General Credit - Individuals and Companies .................... 121

Table 14: Monthly Average Commercial Credit Rates – Individuals and Companies 122

Table 15: Consolidated Pro Forma Balance Sheet ...................................................... 131

Table 16: Pro Forma Income Statement ..................................................................... 132


PressRelease

11

Monday, November 08, 2010 - Earnings Results for the 3rd Quarter of 2010

We report Banrisul’s most relevant numbers for 3Q10 and 9M10. The Analysis of Performance,Management Report, Financial Statements and the Accompanying Notes are available at theBank’s site (www.banrisul.com.br/ir).

Bovespa: BRSR3, BRSR5 , BRSR6

This press release contains forward-looking statements, which not only relate to historic

facts but also reflect the targets and expectations of the Company management. The terms

“anticipate”, “desire”, “expect”, “project”, “plan”, “intend” and similar words are intended to

identify statements that necessarily involve known and unknown risks. Known risks include

uncertainties that are not limited to the price and service war impact, acceptance of services

by the market, service transactions of either the Company or its competitors, regulatory

approval, currency fluctuation, changes in the service mix and other risks described in the

Company’s reports. This Press Release is updated until the present date and Banrisul is not

obliged to update it upon new information and/or future events.

( 1 ) Including Personnel Expenses, Other Administrative Expenses and Other OperatingExpenses

( 2 ) Interest on own capital and dividends paid and/or distributed (before income taxwitholding at source),

( 3 ) Including interbank investments and excluding matched transactions.( 4 ) Net income / average total assets.( 5 ) Net income / average shareholders’ equity.

( 6 ) Efficiency Ratio - 12-month accumulation.Personnel expenses + other administrative expenses/Net financial margin +revenue from services rendered + (other operating income - other operatingexpenses)

( 7 ) Fixed assets/ shareholders’ equity.( 8 ) Default > 60 days / total loans( 9 ) Allowance for loan losses / default > 60 dias

Main Income Statement Accounts - R$ Million 9M10 9M09 3Q10 2Q10 1Q10 4Q09 3Q09 3Q10/ 9M10/

2Q10 9M09

Net Financial Margin 2,128.0 1,873.7 769.7 710.9 647.3 668.7 628.1 8.3% 13.6%

Allowance for Loan Losses Expenses (391.7) (325.9) (111.2) (127.1) (153.5) (96.7) (65.8) -12.5% 20.2%

Gross Profit from Financial Operations 1,736.2 1,547.8 658.5 583.9 493.8 572.0 562.3 12.8% 12.2%

Financial Income 3,531.4 3,185.9 1,298.2 1,165.4 1,067.8 1,076.7 1,045.5 11.4% 10.8%

Financial Expenses 1,795.2 1,638.1 639.7 581.5 574.0 504.7 483.2 10.0% 9.6%

Income from Services Rendered 468.2 427.2 160.9 157.4 149.9 152.1 144.6 2.2% 9.6%

Administrative and Other Operational Expenses (¹) 1,395.8 1,375.7 478.7 457.2 460.0 431.8 462.1 4.7% 1.5%

Other Operation Income 127.8 88.7 39.0 43.1 45.7 55.0 29.1 -9.5% 44.1%

Income from Operations 786.0 552.7 327.0 277.5 181.6 300.6 229.2 17.8% 42.2%

Net Income 511.4 356.8 206.4 183.1 121.9 184.3 146.0 12.7% 43.3%

Used/Distributed Results - R$ Million 9M10 9M09 3Q10 2Q10 1Q10 4Q09 3Q09 3Q10/ 9M10/

2Q10 9M09

Interest on Own Capital - Dividends (²) 172.8 141.8 51.6 71.0 50.2 73.7 46.6 -27.4% 21.9%

Main Balance Sheet Accounts - R$ Million 9M10 9M09 Sep10 Jun10 Mar10 Dec09 Sep09 3Q10 9M10/

2Q10 9M09

Total Assets 32,339.3 28,573.2 32,339.3 31,098.8 29,864.6 29,084.1 28,573.2 4.0% 13.2%

Securities (³) 10,014.1 10,683.3 10,014.1 10,150.4 9,949.1 10,758.6 10,683.3 -1.3% -6.3%

Total Lending 16,237.1 12,528.5 16,237.1 15,442.0 14,765.7 13,414.2 12,528.5 5.1% 29.6%

Allowance for Loan Losses (1,122.7) (1,039.3) (1,122.7) (1,117.5) (1,082.3) (1,016.8) (1,039.3) 0.5% 8.0%

Past Due Loans > 60 days 487.9 478.7 487.9 493.6 512.7 453.1 478.7 -1.1% 1.9%

Funding and Assets under Management 24,095.2 20,855.8 24,095.2 23,163.7 22,368.7 21,902.4 20,855.8 4.0% 15.5%

Shareholders’ Equity 3,746.4 3,299.8 3,746.4 3,590.1 3,480.0 3,408.5 3,299.8 4.4% 13.5%

Reference Equity 3,608.2 3,240.8 3,608.2 3,455.9 3,422.9 3,349.4 3,240.8 4.4% 11.3%

Average Shareholders’ Equity 3,577.4 3,189.5 3,668.2 3,535.1 3,444.2 3,354.1 3,249.0 3.8% 12.2%

Average Total Assets 30,711.7 26,889.3 31,719.1 30,481.7 29,474.4 28,828.7 28,158.3 4.1% 14.2%

Financial Inde x (%) per Year 9M10 9M09 3Q10 2Q10 1Q10 4Q09 3Q09

Return on Total Asse ts 2.1% 1.7% 2.6% 2.4% 1.6% 2.6% 2.1%

Return on Shareholders’ Equity 18.6% 14.7% 23.9% 22.0% 14.8% 23.4% 18.9%

ROAA (p.a.) ( 4) 2.2% 1.8% 2.6% 2.4% 1.7% 2.6% 2.1%

ROAE (p.a.) (5) 19.5% 15.2% 24.5% 22.4% 14.9% 23.9% 19.2%

Efficiency Ratio (6) 48.5% 53.5% 48.5% 50.5% 52.2% 52.0% 53.5%

Basel Ratio 15.4% 18.0% 15.4% 15.7% 16.5% 17.5% 18.0%

Fixed Assets Ratio (7) 4.6% 4.7% 4.6% 4.8% 5.1% 5.0% 4.7%

Default Rate (8) 3.0% 3.8% 3.0% 3.2% 3.5% 3.4% 3.8%

Cover Rate (9) 230.1% 217.1% 230.1% 226.4% 211.1% 224.4% 217.1%

Economic Indicators 9M10 9M09 3Q10 2Q10 1Q10 4Q09 3Q09

Effective Selic Rate (accrued) 7.03% 7.68% 2.62% 2.23% 2.03% 2.10% 2.19%

Foreign Exchange Rate (R$/USD – end of period) 1.69 1.78 1.69 1.80 1.78 1.74 1.78

Foreign Exchange (%) -2.70% -23.92% -5.96% 1.15% 2.29% -2.08% -8.89%

IGP-M (General Market Price Index) 7.90% -1.60% 2.09% 2.84% 2.77% -0.11% -0.37%

IPCA (Extended National Consumer Price Index) 3.60% 3.21% 0.50% 1.00% 2.06% 1.06% 0.63%


Banrisul’s net income from January to

September 2010 totaled $511.4 million was,

43.3% (R$154.6 million) higher than the

recurring income in same period of 2009. In

3Q10, net income of R$206.4 million was

41.3% (R$ 60.3 million) over 3Q09’s and 12.7%

(R$23.3 million) higher than 2Q10’s net income.

9M10 performance, compared to 9M09,

reflects the increase in credit revenues and

the reduction of other operating expenses,

while negatively affected by reduced

treasury revenues (from lower securities

balance and lower Selic Rate) and by higher

financial expenses (onlendings), operating

expenses and provisions.

Compared to 3Q09, 3Q10 was positively

affected by higher credit and securities

revenues, and negatively by higher market

funding and onlendings expenses. From 2Q10

to 3Q10, higher net income is associated with

higher credit and securities and with lower

provisions and other administrative expenses

(staff costs excluded), reflecting cost cutting

efforts.

Net income in 9M10 represents a 19.5% return

over average shareholders’ equity.

Financial margin in 9M10 was R$2,128.0

million, 13.6% (R$254.3 million) more than

in 9M09. In 3Q10, financial margin, in the

amount of R$769.7 million, increased 22.5%

(R$141.6 million) from 3Q09, and 8.3% (R$58.8

million) from 2Q10. From 9M09 to 9M10,

higher revenues from credit contributed to

increasing the financial margin, while lower

revenues from securities and higher loans and

onlendings expenses affected margins

negatively. The margin expansion from 2Q10

to 3Q10 is due to the increase in revenues

from credit, albeit minimized by higher flow

of funding and onlendings costs, following

the rise of the Selic Rate.

The increase of 20.2% in provision in 9M10

was due mostly to the increase of loan

portfolio by 29.6% over the same period in

2009. The changes in provisions from 3Q09 to

3Q10 are associated with credit growth and

higher write-offs. In the last quarter, the

lower provision cost is due to the reduction

in past due loans over 60 days.

At the end of September 2010, total assets

presented a balance of R$32,339.3 million,

13.2% than in September 2009, 11.2% higher

than December 2009 and 4.0% over June 2010.

The year-on-year and quarter-on-quarter

assets growth came from the expansion of

deposits and the increase in the Reserve Fund

for Judicial Deposits.

Banrisul’s loan portfolio totaled R$16.237

billion in September 2010, exceeding by

29.6% the balance of September 2009, in

21.0% the balance of December 2009 and in

5.1% the balance of June 2010. In the

Individuals segment, commercial credit

(unmarked operations) totaled R$7.218

billion in September 2010, an increase of

40.5% compared to September 2009 and of

4.7% in relation to June 2010. As for the

Companies segment, the balance of R$5.296

billion in September 2010 increased 26.2%

over September last year and 6.7% over June

2010.

9M10 9M09 3Q10 2Q10 1Q10 4Q09 3Q09

Financial Margin 2,128.0 1,873.7 769.7 710.9 647.3 668.7 628.1

Allowance for Loan Losses Expenses (391.7) (325.9) (111.2) (127.1) (153.5) (96.7) (65.8)

Gross Profit from Financial Operations 1,736.2 1,547.8 658.5 583.9 493.8 572.0 562.3

Income from Services Rendered 468.2 427.2 160.9 157.4 149.9 152.1 144.6

Revenue from Credit Operations and Leasing 2,551.6 2,115.4 933.1 850.4 768.0 761.5 710.9

Personnel and Other Administratives Expenses 1,265.4 1,175.8 428.1 414.2 423.1 404.1 410.3

Interest on Own Capital/Dividends 172.8 141.8 51.6 71.0 50.2 73.7 46.6

Consolidated Net Income 511.4 356.8 206.4 183.1 121.9 184.3 146.0

Results R$ Million

13

The increase in the Individuals segment is

driven by payroll loans, which ended

September 2010 with a balance of R$5.347

billion, a year-on-year increase of R$1.631

billion, influenced motivated by the rise of

28.8% on organic payroll loans and of 77.8%

on payroll loans acquired portfolio. In the last

quarter, payroll loans portfolio increased

R$214.0 million.

The default ratio over 60 days in proportion

to total loan portfolio maintained the falling

trend. Past due loans amounting to R$487.9

million in September 2010 contributed to the

NPL of 3.0%, which is 0.8 pp below September

2009’s, 0.4 pp lower than in December 2010

and 0.2 pp lower than in June 2010.

Investments in securities totaled R$10.014

billion at the end of September 2010, volume

6.3% below September, 2009, 6.9% below the

balance of December 2009 and 1.3% below

June 2010. This amount includes liquid

interbank transactions but excludes total

liabilities from matched transactions.

At the end of September 2010, Banrisul’s

shareholders’ equity was R$3.746 billion,

13.5% up on September 2009, 9.9% up on

December 2009 and 4.4% higher than June

2010’s. Basel Ratio reached 15.4% in 3Q10.

The 48.5% cost-income ratio in 3Q10 is the

lowest ever registered at Banrisul, below the

50% indicator and in line with what large retail

banks have presented. The improvement of

the efficiency ratio reflects the decrease of

other operating expenses, the growth of the

financial margin and the increase in banking

fees and in other operating income.

Highlights R$ Million

Sep/10 Jun/10 Mar/10 Dec/09 Sep/09

Total Asse ts 32,339.3 31,098.8 29,864.6 29,084.1 28,573.2

Total Credit Operations 16,237.1 15,442.0 14,765.7 13,414.2 12,528.5

Securities (1) 10,014.1 10,150.4 9,949.1 10,758.6 10,683.3

Funds raised and under management 24,095.2 23,163.7 22,368.7 21,902.4 20,855.8

Shareholders’ Equity 3,746.4 3,590.1 3,480.0 3,408.5 3,299.8

(1) Securities + Interbanck Investiments - Matched Transactions.

Operating cost reached 5.2% in the last twelve

months, influenced by rising assets leveraged

by the growth in credit operations, which

contributed to the absorption of

administrative costs.

From 1Q10 on, cost-control points have beenstrengthened and implemented, goals for

managing corporate costs set, responsibilities

and tasks for commercial and back office areasdefined, all with a view to the effective

reduction of administrative expenses,

measures whose effects, while have a

positive impact on cost efficiency indicators.

The Bank showed steady growth in assets and

liabilities and ended 9M10 with favorable

profitability and solvency indicators, most of

them being above the guidance. The

expansion of credit supply, in line with the

greater dynamism of Brazil’s and Rio Grande

do Sul’ economic activity, was the dominant

strategy. F inancial margin on interest-earning

assets grew, positively influenced by the

increased loan portfolio and the reduction in

the cost of funding, while negatively affected

by lower loan interest rates and by funding

increasing.


For the last quarter of 2010, Banrisul has opted to maintain its market guidance disclosed at

the end of 1T10.

9M10 9M09 3Q10 2Q10 1Q10 4Q09 3Q09

Financial Margin 2,128.0 1,873.7 769.7 710.9 647.3 668.7 628.1

Gross Profit from Financial Operations 1,736.2 1,547.8 658.5 583.9 493.8 572.0 562.3

Average Profitable Assets(1) 28,004.0 25,135.2 28,457.8 27,550.3 26,995.2 26,301.7 25,157.3

Net Financial Margin (2) 10.3% 10.1% 11.3% 10.7% 9.9% 10.6% 10.4%

Gross Profit from Financial Operations(3) 12.8% 12.7% 9.6% 8.8% 7.5% 9.0% 9.2%

(1) Average Interest-Earning Assets of the Period.(2) Net Financial Margin / Average Profitable Assets (Annualized).(3) Gross Profit from Financial Operations / Average Profitable Assets (Annualized).

Financial Margin R$ Million

Estimate Banrisul 2010 2010 Year -to-Date Performance

(Annualized)

CREDIT PORTFOLIO 22% to 28% 28.9%

Commercial Credit - Individuals 30% to 35% 46.4%

Commercial Credit - Companies 18% to 23% 17.7%

Housing 16% to 20% 16.6%

Provision Cost / Average Credit Portfolio 3% to 4% 3.2%

Allowance for loan Losses / Average Credit Portifolio 7% to 8% 6.9%

FUNDING 13% to 16% 13.6%

Time Deposits 15% to 20% 15.9%

Return on Average Shareholders’ Equity 16% to 19% 19.5%

Efficiency Ratio 49% to 54% 48.5%

Net Financial Margin / Interest-Earning Assets 9% to 10% 10.3%

Highlights

Banrisul is the fourth best Brazilian bank according to the ranking of the As Melhores da

Dinheiro, published by the weekly magazine IstoÉ Dinheiro, from São Paulo. The

institution was also awarded in financial sustainabi lity, social responsibility, human

resources and corporate governance. The Bank was also highlighted in the survey The

500 Largest Companies in Brazil, appearing in the 98th place.

Banrisul is awarded at the Congress of Information Technology for Financial Institutions

organized by the Brazilian Federation of Banks between June 09-11, 2010, having

received five awards in the following categories: Social Management,

Telecommunications Management, Digital Identity, IT Governance and Risk Management,

as well as distinguished with the Best IT Manager award, received by the Vice-President

of the Bank.

Investments in hardware, software and asset maintenance totaled R$143.5 million in

September 2010.

15

Awards

January/2010. Banrisul’s share among the most profitable in the Americas.

March/2010. Banrisul is one of 100 most valuable brands in Brazil.

April/2010 Banrisul is one of the 2,000 largest companies in the world.

Banrisul is one of the most remembered companies by the State’s

population.

Banrisul is one of 500 most valuable brands in global financial sector.

May/2010 Banrisul is one of the largest companies in Rio Grande do Sul.

June/2010 Banrisul is among the most valuable brands in Brazil.

Management at Banrisul receives national IT award.

July/2010 Banrisul’s shares stand out among Latin American banks’.

August/2010 Bank is the fourth best bank in the country.

September/2010 Banrisul is the 10th largest company in the ranking of the 500 largest

companies in the Southern Region.

Banrisul is highlighted in Finance ranking published by Valor 1000.

Porto Alegre, November 08, 2010.


ManagementReport

WE PRESENT THE MANAGEMENT REPORT AND FINANCIAL STATEMENTS OF BANCO DO

ESTADO DO RIO GRANDE DO SUL S.A. FOR THE NINE MONTHS OF 2010, PREPARED IN

ACCORDANCE WITH THE RULES OF THE BRAZILIAN SECURITIES AND EXCHANGE COMMISSION

(COMISSÃO DE VALORES MOBILIÁRIOS – CVM) AND THE CENTRAL BANK OF BRAZIL.

17

Economic Scenario

From January to September 2010, the economic

scenario was characterized by the preservation of the

heterogenic recovery process of the global economy,

where emerging countries, especially China,

presented vigorous growth, while developed

economies like Europe, USA and Japan showed weak

performances. Government officials responded to

this situation of deteriorating expectations by

withdrawing monetary and fiscal stimulus to emerging countries, and by further injections of

liquidity and quantitative easing in the developed economies. During that period, having

presented moments of euphoria operating under strong assets appreciation and drop in

global risk aversion in the first quarter, and great strain from the European fiscal crisis and the

consequent fear of another recessive environment in the second quarter, financial markets

have taken a more cautious approach, on the outlook of a slower, uneven global economic

recovery in the coming years.

On its turn, Brazil has been presenting a vigorous, robust cycle of economic growth, with

domestic demand as the main growth vector, underpinned by low unemployment rates and

the payroll and credit market expansion. The exchange rate not only reflected the worth of

Brazil’s economy, but also the effects of the US dollar global devaluation and the higher real

domestic interest rate in comparison to other economies. These factors led the exchange

rate to increase in 2.87%, from R$1.74/USD1.00 by the end of 2009 to R$1.69/USD1.00 at the

end of September 2010.

However, as occurred elsewhere in the world throughout the year, the growth rate settled

down and the levels of use of installed capacity and industrial production decompressed,

indicative of a potential pace closer to the projected. Indeed, general price levels have also

suffered some gradual decompression over the months, returning to more comfortable levels,

driving inflation expectations to closer to the inflation target. Accordingly, the IPCA inflation

in the first nine months of 2010 reached 3.60%, largely on account of prices behavior in the

first half of 2010. Moreover, the cooling of administered prices and services prices ultimately

improved the dynamics of inflation, the latter being less dynamic.

Identifying the reduction of real interest rate to neutral levels and the increasing effects of

the monetary policy, the Central Bank of Brazi l estimated that the inflationary scenario, would

gradually return to the targeted path after the risks presented at the beginning of the year,

part from the reversal of a substantial portion of measures introduced during the financial

crisis, part from the perception of a slower global recovery process. Therefore, a cycle of

hikes in the Selic rate, mostly concentrated in the second quarter of 2010, was observed: it

went from 8.75% pa to 10.75% pa, a total adjustment of 200 basis points, steady since

September’s meeting.


As for the economy of the State of Rio Grande do Sul, the first three quarters of 2010 have

been determined by the consolidation of the recovery of economic activity, supported mainly

by the dynamism of the industry sector Despite a brief accommodation period due to the

withdrawal of tax incentives, the industry returned to an upward recovery trajectory toward

pre-financial crisis levels, pace of activity which is accompanied by all the variables included

on the Industrial Performance Index (IDI-RS) released by the Federation of Industries of Rio

Grande do Sul – FIERGS. With emphasis on sales, industry purchases and employment, the

IDI-RS grew 10.1% from January to August this year. It should be further mentioned that the

level of use of installed capacity in the industry segment remains at a consistent trend, reaching

84.7%, yet still below pre-crisis peak of 88.3%.

On the other hand, Rio Grande do Sul’s exports grew only 4.4% from January to September

this year, with a significant drop in profitability as a result of the appreciation of the Brazilian

Real and of still depressed international prices. Imports have maintained strong growth, high

of 46.7% from January to September 2010, stimulated by the growth of employment and

income levels in a context of booming domestic economic activity. In this scenario, it is

important to note that price indexes behaved well in the first nine months of this year,

ending September and 9M10 with increases of 0.19% and 3.21% in the year, respectively,

based on the Extended National Consumer Price Index – IPCA, calculated for the metropolitan

region of Porto Alegre.

19

Consolidated Performance

Net Income

Banrisul’s net income totaled R$511.4 million from January to September of 2010, R$154.6

million or 43.3% above the recurring result recorded in the same period last year. Higher

credit revenues and lower other operating expenses were positive year-on-year drivers to

the result. Bottom line was negatively impacted by lower treasury revenues, on account of

lower Securities balance and Selic Rate, and higher onlending expenses and loan losses

provisions.

Graph 1: Net Income - R$ Million

Shareholders’ Equity

At the end of September 2010, Banrisul’s shareholders’ equity totaled R$3,746.4 million,

growing 13.5% in twelve months as the result of the incorporation of the net income net of

dividend and interest on equity payments and provisions. Annualized return on average

shareholders’ equity for 2010 reaches 19.5% in 9M10.

Graph 2: Shareholders’ Equity Growth - R$ Million


Total Assets

Total assets amounted to R$32,339.3 million in September 2010, a 13.2% increase in relation

to the R$28,573.2 million recorded in the same period of 2009 derived from the expansion of

the base of funding and the judicial deposits reserve funds. In the past twelve months, credit

portfolio stands out in the composition of Assets, increasing R$3,708.5 million.

Graph 3: Total Assets Growth - R$ Million

Taxes and Contributions

From January to September 2010, Banrisul collected and provisioned R$380.8 million in taxes

and contributions, while taxes retained and passed through levied directly on financial

intermediation and other payments amounted to R$360.7 million.

21

Operating Performance

Funds Raised and Under Management

Funds Raised and Under Management totaled R$24,095.2 million in September of 2010, up

15.5% or R$3,239.4 million in twelve months

The balance of time deposits reached R$9,533.0 million, an increase of 12.0% or R$1,023.3

million in relation to September 2009. Savings deposits grew 21.1% or R$1,095.5 million,

totaling R$6,295.7 million. Demand deposits increased 25.4% or R$426.8 million in twelve

months and reached R$2,108.9 million. Assets under management amounted to R$6,141.1

million at the end of September of 2010, 13.9% or R$747.6 million over September of 2010.

Graph 4: Growth of Funds Raised and Under Management - R$ Million

Breakdown of Funds Raised and Under Management

Funds raised and under management consist of time deposits, the key funding instrument

for lending, with R$9,530.0 million in September 2010, accounting for 39.6% of the total funding;

assets under management, with R$6,141.1 million, account for 25.5%; savings deposits, with

R$6,295.7 million, account for 26.1%; and demand deposits, with R$2,108.9 million, 8.8%.


Graph 5: Breakdown of Funds Raised and Under Management - R$ Million

Securities

The balance of investments in securities stood at R$10,014.1 million in September 2010, a

year-on-year reduction of R$669.3 million. This balance includes interbank investments net

of resale and repurchase agreement liabilities. Bank has prioritized the applications in recent

months in credit assets, due to the increased profitability of these assets compared to treasury

operations, Given its comfortable liquid status, Banrisul has sought a larger participation of

credit portfolio to assets, due to the higher profitability of these assets compared to treasury

operations

As confirmed by internal technical studies, Banrisul has a strong financial capacity and intends

to hold securities classified as “held-to-maturity” pursuant to Article 8 of the Central Bank of

Brazil Circular Letter 3,068 of November 8, 2001.

Graph 6: Securities Growth - R$ Million

23

Loan Operations

In September 2010, Banrisul’s loan portfolio totaled

R$16,237.1 million, 29.6% or R$3,708.6 million above

the R$12,528.5 million recorded in the same month

of the previous year. Accounting for 85.8% of such

growth, the commercial credit portfolio increased

from R$9,331.9 million to R$12,514.6 million, rising

34.1% or R$3,182.7 million in twelve months.

In twelve months, the other loan portfolios

performed as follows: rural credit posted an increase of 26.1% or R$244.3 million and amounted

to R$1,180.5 million; long-term financing recorded an increase of 34.5% or R$165.4 million,

reaching R$644.3 million; real estate loans increased 15.3% or R$161.7 million, amounting to

R$1,217.6 million; ACC and ACE contracts (pre- and post-shipment export financing) decreased

8.7% or R$44.6 million, totaling R$470.0 million; leasing fell by 18.3% or R$18.0 million, totaling

R$80.2 million. Public sector loans amounted to R$129.8 million.

At the end of September 2010, credit operations of AA to C ratings, representative of normal

risk according to Resolution 2,682/99 of the Central Bank of Brazil, accounted for 89.4% of the

credit portfolio, with a balance of R$14,516.5 million. Credit operations rated D to G (risk level

1), amounted to R$1,291.6 million, equal to 8.0% of the loan portfolio. Risk level 2, composed

solely by operations rated H that require provisions of 100%, represented 2.6% or

R$428.9 million of the total loan portfolio.

Graph 7: Loan Operations Growth - R$ Million


Commercial Credit - Individuals

At the end of September 2010, commercial loan operations (non ear-marked credit) to

individuals totaled R$7,218.2 million, accounting for 57.7% of the commercial portfolio and

44.5% of all loan operations. The 40.5% or R$2,081.6 million year-on-year increase was largely

driven by the acquisition of payroll loans from other banks, in which the vendor is co-obliged

in case of defaults.

Own payroll loan portfolio amounted to R$3,311.1 million, 28.8% above the figures recorded

in the same month of 2009. R$1,848.1 million in payroll loans were granted in 299.900 operations

in the first nine months of 2010. The acquisitions of payroll loans from other banks totaled

R$2,036.3 million in September 2010, up 77.8% in twelve months.

Commercial Credit - Companies

Commercial loan operations targeted at companies amounted to R$5,296.4 million in

September 2010, growing 26.2% or R$1,101.1 million year-on-year, accounting for 42.3% of

the commercial portfolio and 32.6% of total loan operations. With a balance of R$3,770.8

million in September, 2010, working capital lines grew 39.3% year-on-year.

Working capital granted to hospitals, clinics and laboratories totaled R$38.5 million in the first

nine months of 2010. In the same period, R$147.0 million were allocated to the education

sector, comprised of universities and educational institutions.

Graph 8: Commercial Credit Growth – Individuals and Companies - R$ Million

25

Agribusiness

In addition to programs already operational funded by BNDES onlendings, the Bank began in

2010 to address financing demands for rural investments under BNDES special programs:

Sustainable Investment Program (PSI); Storage Incentive Program to National Grain Producers

(Cerealista) and Special Rural Credit Program (BNDES PROCER). In the nine-month period, 697

credit applications were granted in accordance to MCR 6.2 (set of rules for rural financing) and

195 in accordance to MCR 6.4 (set of rules for the use of funds from savings into rural financing),

totaling R$17.0 million in 195 credit proposals. Banrisul has also been present in official and

private agricultural fairs.

From January to September 2010, 29,500 operations targeted to agribusiness were granted,

amounting to R$738.1 million, an increase of 32.0% over the same period of 2009. Of that

amount, R$633.7 million were directed to rural production and R$104.5 million to rural

investments. The balance of rural credit portfolio reached R$1,180.5 million in September

2010, 26.1% higher than the same month of 2009.

Foreign Exchange

ACC and ACE (pre- and post-shipment export financing operations) totaled R$470.0 million at

the end of September 2010. From January to September this year, 17,000 export and import

operations were contracted, amounting to US$1,104.0 million, 27.9% over the same period in

2009. Export operations totaled US$542.3 million, while import operations totaled US$561.8

million.

Real Estate Loans

Banrisul’s real estate loan portfolio ended September 2010 at R$1,217.6 million, a year-on-

year increase of 15.3%. Through the Bank’s real estate credit lines, 4,000 operations were

granted in the first nine months of 2010, representing a volume of R$419.8 million. Of this

total, R$108.8 million was allocated to purchase 1,052 previously-owned properties, R$29.9

million to purchase 237 new properties, and R$3.8 million to purchase 65 commercial

properties. As part of the corporate plan, R$195.7 million were invested in 1,863 units, and for

individual home construction, R$25.9 million was invested in 264 homes.

Long-Term Finance

The long-term finance portfolio totaled R$644.3 million in September, 2010, an increase of

34.5% over the R$478.9 million recorded in September, 2009. In the nine months of 2010, 374

long-term loans were approved, totaling R$165.5 million in funds from Finame and BNDES. Of

this total, R$105.1 million were allocated to the industrial sector in 196 operations, R$34.5

million to the public sector in 76 new operations and R$26.0 million to the commerce and

service sectors in 102 operations.


Microcredit

Microcredit lines aim to facilitate working capital access for micro-companies and SMBs. From

January to September 2010, microcredit grants totaled R$1,001.6 million, 11.7% higher than

the R$896.9 million recorded in the same period of 2009. The most used credit lines were

Banricompras, receivables, with R$457.1 million in 232,000 operations, Promicro, with R$309.7

million in 23,300 operations and Conta Empresarial (business account), with R$229.5 million

in 80,400 operations.

Products, Services and Channels

Banricompras

Graph 9: Banricompras

Financial Transactions - R$ Million Number of Transactions - Million

Banricompras, an electronic payment method available to cardholders of Banrisul’s debit

cards, comprises today 99,600 affiliated establishments. In September, 2010, 50.8 million

transactions were carried out through its network, with a financial turnover of R$3,379.8

million, a year-on-year increase of 15.9% and 25.9%, respectively.

Banrisul developed the INSS Banricompras Card to serve retirees, pensioners and beneficiaries

of Social Security in the State of Rio Grande do Sul. Easy to join and use, cost-free for the

customer, it seeks a closer relationship with that public, who can use the card for withdrawals

and transactions at Banricompras network. Launched in January 2010, the product has issued

approximately 50,000 cards until the September of 2010.

Banrisul’s Correspondent Banks

At the end of September 2010, Banrisul had approximately 2,100 Correspondent Banks, a

flexible customer service alternative that avoids trips to Banrisul branches and extends

business hours, with a financial turnover of R$10,052.3 million in 43.2 million operations, an

increase of 12.9% over September 2009.

27

Virtual Branch – Home and Office Banking

From January to September 2010, 72.5 million operations totaling R$56,649.2 million were

carried out through Agência Virtual Banrisul (Banrisul Virtual Branch), an online service

throughout which clients can perform several banking operations. In relation to the same

period of 2009, the number of transactions grew 23.9%, whereas the financial turnover

decreased by 23.4%.

Banrifone and Call Center

Banrisul’s customers can make all their banking transactions by telephone using services

channels such as Banrifone and Branch Call Center, Via Banrifone, they can obtain account

statements, demand banking services and make transactions. At the Call Center, incoming

phone calls directed to the branches connected to the system are filtered and taken care of

whenever possible, helping front office personnel to more effectively do business.

Until September 2010, Banrifone electronic service had 3.8 million accesses, 440,700 of them

operator assisted, and a financial turnover of R$153.2 million. Over the same period, the

Branch Call Center received 1.1 million personal phone calls, having taken care of 42.4% of

them or a financial turnover of R$13.1 million.

During the third quarter of 2010, Banrisul Consórcio (Consortium) portfolio of products was

added to the Banrifone base, as well as the inclusion of Agência Central (Main Branch) to the

Branch Call Center. For the fourth quarter of 2010, it is planned the migration of the SAC, SOS

and Virtual Agency hotlines, currently outsourced.

Electronic Bidding

From January to September of 2010, Pregão On Line Banrisul (Banrisul Online Bidding website)

hosted 18,200 bidding processes, totaling R$402.6 million, an increase of 18.8% and 54.1%

over the same period last year, respectively. The savings for users of the public sector accounted

for 29.3% compared to the original estimated purchase price.

Banrisul was user of the Bidding service, in 372 events held until September 2010, totaling

R$94.3 million in purchases, which represent savings of 40.3% over the original offered price

to the Bank. The percentage of savings is the difference between the average amounts for

the bid over the lowest bid at the end of each event.

Credit Cards

At the end of September 2010 Banrisul had 283,800 Visa and MasterCard credit cardholders,

with a financial turnover of R$542.8 million in 7.4 million transactions. The average sales

ticket increased by 5.8% year-on-year - 10.9% as for withdrawals.

The card market legislation in Brazil in 2010 demanded the split between credit transaction


capture, card processing and acquiring services, hitherto an exclusivity of large credit brands,

increasing market competition and bringing transparency as to the rates charged by the

operators, measures that reflected in of networks and POS terminals sharing. The regulatory

measures are conducive to business growth and improving the prospects of widespread use

of the card as a payment and credit instrument.

In August 2010, in line with changing market conditions, it was announced the partnership

between Banrisul and MasterCard t for the capture by Banricompras network of transactions

with Mastercard’s credit and debit cards. Therefore, the approximately 100,000 affiliated

retail outlets to Banricompras network also begin to operate with MasterCard, besides

Banricompras card itself. Thus, MasterCard cardholders have more options to pay for purchases,

particularly in Rio Grande do Sul and Santa Catarina.

This partnership provides for the companies involved (Banrisul and MasterCard) new business

opportunities and increases the number of affiliated stores. For customers, the possibility of

at a single POS, making electronic payment with any of the cards, recognized by their safety

and quality features.

Insurance, Private Pension and Capitalization

Seeking to meet its clients’ needs and in partnership with Icatu Seguros, Icatu Capitalização

and SulAmérica Seguros, Banrisul provides capitalization, insurance and private pension plans

through its branch network. From January to September 2010, more than 88,000 products

were acquired by customers, a 22.5% increase over the same period last year. In the same

period, approximately R$9.5 million were paid out for 7,300 capitalization and insurance

policies hold by customers.

29

Trindade Branch - Florianópolis

Eletronic Sevice Station - Brasília Passo da Areia Branch - Bourbon Shopping - Porto Alegre

Banrisul´s Customer Service Network

Present in 411 cities in Rio

Grande do Sul, which

correspond to 98% of the

population and the State’s GDP,

Banrisul’s customer service

network was comprised of

1,229 service stations

throughout 438 branches, 279

banking service stations and

512 electronic service stations

by September 2010. Of all 438

branches, 398 are located in Rio

Grande do Sul State, 23 in the

state of Santa Catarina, 15 in

other Brazilian states and two branches overseas, in New York and Grand Cayman.

Banrisul opened four new branches from January to September of 2010 , one in Rio Grande do

Sul and three in Santa Catarina, along with six banking service station. For the next months, it

is planned the opening of two new branches, two service stations and one remote banking

service station in Rio Grande do Sul. The expansion plan to Santa Catarina will continue, with

estimated five new branches in the cities of Rio do Sul, Itapema, Blumenau, Joinville and São

José.


Subsidiaries

Banrisul S.A. Administradora de Consórcios administers groups to purchase real estate,

automobiles and motorcycles. The Company ended September 2010 with 21,180 active groups

and with a loan portfolio of R$537.0 million. Net income from January to September 2010

totaled R$8.5 million. At the end of September 2010, the Comissão de Valores Mobi liários

(CVM – Brazil’s SEC equivalent) approved the delisting of Banrisul Consórcios. The heavy

operating costs associated with the maintenance of public-held company registry and the

notable share in Banco do Estado do Rio Grande do Sul motivated the request filled at CVM

for registry cancellation.

Banrisul S.A. Corretora de Valores Mobiliários e Câmbio From January to September 2010

grew 90.0% over the first nine months of 2009, brokering R$1,315.3 million in the equity

market, 39.0% or R$511.0 million of which via Home Broker. Net income in the period totaled

R$5.1 million.

Banrisul Armazéns Gerais S.A. Operating as grantee on behalf of Receita Federal (the Brazilian

Internal revenue service) for the handling and storage of goods, Banrisul Armazéns Gerais

provides general warehouses and dry port services. The number of customs clearance from

January to September 2010 amounted to 19,420 (16,885 in the same period of 2009). At the

end of September 2010, the Company registered a net income of R$673,500.

Banrisul Serviços Ltda. responsible for Refeisul brand, Banrisul Serviços Ltda. operates in the

southern region of the country in the segments of meal and food vouchers, fuel, gifts, private

label and benefit cards. At the end of September 2010, Banrisul Services network had over

50,000 affiliated establishments to service about 320,000 users. Within the scope of the

Programa de Alimentação ao Trabalhador (PAT, or Workers’ Food Program), Banrisul Serviços

offers PAT benefits to about 30% of total beneficiaries in the state of Rio Grande do Sul At the

end of September 2010, its net profit was R$8.4 million.

99.6% ON70.5% PNA13.0% PNB57.0% Total

0.4% ON29.5% PNA87.0% PNB43.0% Total

State of RioGrande do Sul

OtherShareholders´

Banco do Estadodo Rio Grande do Sul S.A.

Banrisul S.A.Adm. Consórcios

Banrisul S.A.CVMC

Banrisul ArmazénsGerais S.A

Banrisul ServiçosLtda.

99.6% Total 98.7% Total 99.5% Total 99.8% Tot al

31

Corporate Governance

Overview

Since July 2007 listed on BM&F Bovespa SA‘s of Corporate

Governance Level 1, Banrisul fully meets the

requirements of its level of listing and, also requirements

of other levels of corporate governance, in line with best

market practices, on behalf of greater transparency,

fairness and proper accountability, while enhancing

credibility and the interest of investors and customers.

At the end of the third quarter of 2010, eight institutions (sell side) were issuing monitoring

reports on Banrisul.

Banrisul’s Corporate Governance Structure

Banrisul’s corporate governance structure is composed by the Board of Executive Officers and

Committees, Boards of Administration, Fiscal Council and Audit Committee, as described

below.

Board of Executive Officers and Committees: Banrisul’s management is conducted by the

Chief Executive Officer and other Officers, assisted by strategically relevant bodies acting in

the form of committees composed of employees in charge of various areas of the Bank;

Board of Directors: responsible for establishing Banrisul’s general business policies,

including its long-term strategy, it its composed by a minimum of five and a maximum of nine

board members, all of them shareholders, being at least 20% independent shareholders, for

a unified two-year term;

Audit Committee: connected to the Board of Directors, the committee is composed of

three members appointed by the Board, with at least one of them with proven knowledge in

the accounting and auditing areas. The term of office is one year and may be renewed for the

same period upon prior authorization from the Central Bank of Brazil;

Fiscal Council: responsible for the adequacy of management activities with the duties

established by law and by Bylaws, it is composed of five members, one chosen by the

preferred shareholders, and five alternate members for one-year;


Shareholding Structure

The Rio Grande do Sul State Government, as the majority shareholder, has control over the

election of the Board of Directors and, therefore, over Banrisul’s management and operations.

However, the Bank has a free float above to the minimum of 25% required by Level 1 Corporate

Governance: 42.8% of its total shares are held by shareholders without any connection with

the Institution. Banrisul’s shareholding structure is presented in the following graph.

Graph 10: Shareholding Structure

Investor Relations and Communication Policy

A transparent relationship with clients and investors is built through the disclosure of data

and information to the market, communication that allows broader and more timely

knowledge of the Bank’s business, especially for experts.

Banrisul’s Investor Relations website, available in Portuguese and English, provides clear,

detai led and timely information for the Bank’s shareholders, institutional investors,

individuals, market analysts and other interested stakeholders.

The significance of these events is reflected on Banrisul’s trading volume. At the end of

September 2010, the Bank’s PNB stock (BRSR6) ranked 69th among the 100 most-traded stocks

on BM&F Bovespa (80th in twelve months).

Banrisul’s market value at the end of 9M10, represented by the total number of outstanding

shares multiplied by the closing price of its PNB stock, was 86% higher than shareholders’

equity in the same period.

Graph 11: Market Value X Shareholders’ Equity - R$ Million

33

The table below shows the geographic distribution of shareholders by number and number

of Banrisul’s shares held.

REGION SHAREHOLDERS % SHARES %

BRAZIL 53,906 95.7% 233,737,918 57.2%

LATIN AMERICA AND CENTRAL AMERICA 1,973 3.5% 23,781,279 5.8%

NORTH AMERICA 203 0.4% 46,978,193 11.5%

ASIA 50 0.1% 13,869,416 3.4%

EUROPE 190 0.3% 88,485,605 21.6%

OCEANIA 23 0.0% 2,052,066 0.5%

AFRICA 1 0.0% 70,000 0.0%

TOTAL 56,346 100.00 408,974,477 100.0%

Interest on Equity and Dividends Distribution Policy

Since early 2008, Banrisul has maintained policy of paying interest on equity on a quarterly

basis and, historically, has remunerated its shareholders by paying interest on capital and

dividends above the minimum level required.

From January to September of 2010, and net of Income Tax withheld at source, R$164.5 million

were paid as interest on capital and dividends.

Internal Controls and Compliance

The internal control system is a process established by the Bank’s senior

management involving all hierarchical levels and aimed at ensuring

compliance by monitoring business processes.

Banrisul instituted a method geared towards protecting the Bank’s

resources while complying with laws and regulations in the Bank’s

various departments.

External Regulations

Banrisul has instituted mechanisms for registering and accompanying operational routines

and risk management processes in its various areas, with the goal of effectively monitoring

aspects of its operations as recommended by regulatory bodies and the External Auditors.

The control of processes governed by external regulations, carried out internally by the

Legislation Group, consists of monitoring rules published by regulatory agencies and

representative bodies of the banking sector, such that all the Bank’s areas remain in

compliance.


Internal Regulations

The Institution has intensified its actions aimed at strengthening the culture and management

of the internal control and compliance system, instituting a specific Regulatory Instruction to

reaffirm the related concepts, basic elements, goals, responsibilities and regulations.

Branch Certification

Implemented by the Bank in 2008, the Branch Certification focuses on customers’ records; by

remote and on site monitoring, these procedures have reinforced the “Know Your Customer”

policy and the importance of the quality and timeliness of clients’ registries.

Money Laundering Prevention - MLP

Based on the institutional money laundering prevention policy, Banrisul established specific

processes and systems seeking to minimize money laundering risk in the various financial

operations under the Bank’s responsibi lity.

New procedures were implemented in compliance with Central Bank of Brazil Circular No.

3461 of July 24, 2009 and Circular Letter No. 3430 of February 11, 2010.

Aiming at the dissemination and awareness of the ‘Know Your Customer” policy and other

matters addressed in current legislation, Banrisul has increased training for employees who

work in activities related to money laundering prevention.

Internal Control Structure

Corporate policies seek to institutionalize control procedures based on regulatory compliance,

training programs focusing on best market practices, and definitions of the Institution’s

standards of ethics and conduct.

Risk Management

The activity of risk management is an essential, strategic tool for any financial institution. The

risks inherent to a company within the banking industry range from those easily identifiable,

like market, liquidity and credit risks, to those not directly identified as such, but also of

extreme importance, like operating or image risks, among others.

The internal regulating bases that guide risk management have, as assumption, to identify

and integrate processes focused on mitigating hazards natural to banking, with continuous

and systematic improvement in policies development, internal control systems and safety

standards, integrated with strategic and market objectives.

The schedule of activities established by Banrisul is as required by the monetary authority in

resolutions and circular letters that inform the tenets of risk management embodied in the

New Basel Capital Accord - Basel II.

The complexity of this process is reinforced at the internal structures of the Bank, in line with

the philosophy of continuous improvement of risks management by means of professional

qualification of employees, investment in systems, processes and internal restructuring in

HO areas, such as the recently inception of the Corporate Risk Management Unit implemented,

good examples of measures taken by Banrisul.

35

Credit Risk

Given the importance of credit assets on the the institution’s total assets, the effective

management of credit risk constitutes a fundamental activity. The capability of the instruments

used to measure risks inherent to each client and structured processes for decision-making

have allowed the institution to safely expand its loan portfolio.

Banrisul’s structure for assessing credit risk is based on the principle of collegiate, technical

decision, when credit limits are set accordingly to decision-making levels established to each

and every branch, as well as to the Management and to Credit and Risk committees and the

HO. This process aims to streamline credit grant based on technically predefined limits that

determine the desirable exposure the institution is willing to work with each client, individual

and company, observing the risk/return ratio.

The continuous, growing implementation of statistical methodologies for risk assessment of

individuals and companies, along with the parameterization of credit policies and business

rules, that combine the optimization of the controls on registry information and a certification

model, enhanced and strengthened internal risk ratings.

The use of Behavior and Credit Score systems made possible the establishment of pre-

approved credit limits to individuals according to risk ratings outputs from the statistical

models, conceptually more appealing when dealing with massive credit. Banrisul’s proprietary

models are in accordance with Central Bank of Brazil Resolution no. 2682, of December .12,

1999.

For the Corporate segment, the Bank has used internal technical studies that assess companies

under the financial, management, marketing and production prisms, with periodic reviews

that also take into account current and prospective economic scenarios, to which Companies

are confronted. The management of exposure to credit risk has as guidelines the selective

and conservative policy of the institution, following strategies set by senior management

and technical areas of the Corporation.

The consolidation of the models to mitigate exposure to credit risk has laid the bases for

modernization of these instruments in the aegis of the principles laid down by Basel II, which

will make possible for the Bank to switch from the standard approach to the intermediate

level, maximizing its capital structure with an even more precise calibration about the risks

embedded in credit transactions.

Towards the end of 2010 and to the year of 2011, improvement actions in various processes

are scheduled, including customer registry and the implementation of electronic and Internet

registration; the statistical risk model for individuals, with the definition of new customer

profiles; statistical risk model for companies; the completion of the project for the

implementation of statistical risk and pre-approved credit limits; rating and risk Centers;

development of new method of calculating designed to micro and small enterprises.


Market Risk

Market risk arises due to market fluctuations that may cause losses to the Bank. These

oscillations can occur in the prices of financial assets and liabilities or in some variables such

as interest rates, exchange rates, price indexes, among others.

Banrisul monitors market risk through the use of statistical methodologies, Value at Risk

(VaR) and Sensitivity Tests among them, which seek to simulate and determine, within an

interval of confidence, the maximum levels of expected losses over a period of time, both in

normal market conditions and in scenarios of stress and volatility.

Market monitoring reports and daily balances of the Bank’s assets and liabilities portfolios,

along with other operating procedures, allow following, preventing and correcting possible

imbalances, ensuring the soundness of the institution.

Liquidity Risk

Liquidity risk refers to the inability to meet cash needs, in other words, mismatches between

cash flows of assets and liabilities that affect the Institution’s financial ability to obtain funds

to honor its obligations.

Banrisul jointly monitors liquidity and market risks, observing cash flow projections and

possible changes in its structure arising from variations in the macroeconomic scenario that

might affect allocation and fund raising on the market.

With regard to assets, several scenarios projected for credit portfolio growth and financial

instrument settlement are taken into consideration. On the other hand, for liabilities, the

adopted assumptions cover the possibility of early redemption and difficulties in maintaining

the funding structure.

Operating Risk

In accordance with Central Bank of Brazil Resolution nº. 3,380/06, and with Institutional Policy

for the Management of Operational Risk, the administrative structure implemented at Banrisul

is responsible for identifying, assessing, monitoring, controlling and mitigating operational

risks of the Bank, including those resulting from outsourced services.

Thus, in the third quarter of 2010, the mapping of internal processes, operational risk

assessments and the development of action plans to mitigate identified risks continued.

Through the analysis of collected information, the Matrix of Banrisul’s Operating Risk is

generated. The action plans are evaluated and prioritized by decision-makers of the institution

seeking, from the reduction of risk exposure and of potential losses, to inspire greater

confidence in all levels of business.

In order to improve the methodology for assessment and mitigation of operational risks,

Banrisul is tailoring its information to the quantitative modeling of data by establishing a

Data Base of Losses, which provides greater efficiency and assertiveness in dealing with

operational risks incurred.

More information about the structure of operational risk management are available at http:/

/www.banrisul.com.br/Investor Relations/Corporate Governance/Operational Risk

Management Structure.

37

Basel Ratio

The Basel Index is the relation between the Base Equity (Reference Equity – PR) and weighted

risks (Required Reference Equity – PRE), according to current regulations, showing the

company’s solvency. The minimum percent required by the Central Bank of Brazil is 11%,

calculated according to the formula below:

PR* 100IB =

{EPR + [1/F * (Pcam + Pjur + Pcom + Pacs + Popr)]}

In September 2010, Banrisul’s Basel Ratio stood at 15.4%. The reduction in relation to the ratio

as of September 2009 was largely driven by the growth in the Bank’s credit portfolio.

Of the portions that compose PRE, operational risk stands out with a variation resulting from

the change of its multiplication factor, which in September of 2009 was 80% but was increased

to 100% in January of 2010 as established by Central Bank of Brazi l Circular 3,383/08.

Graph 12: Basel Ratio Growth


Technology Modernization

Banrisul’s investments in hardware, software and asset

maintenance totaled R$143.5 million from January to

September of 2010, and include the acquisition of equipment

and applications which are intended to ensure security in

electronic transactions, compliance with requirements from

external bodies and the education for the safe use of

technological resources, as well as in engineering works and

infrastructure assets.

Banrisul’s technology area unfolds on three fronts -

infrastructure, general systems architecture and information

security, practices that are developed in accordance with the

strategic definitions of governance, risk and compliance of

the institution.

The IT infrastructure projects are aligned with Banrisul assumptions for simplification,

environmental management, business continuity and costs streamlining. Among the projects

implemented from January to September 2010, it is included: contingency and virtualization

of servers, a project that combines features of replication and continuity; reduced energy

costs, heat dissipation and physical space in data centers; the continuity of the automation of

the use of the OPEN SRM Site Recovery Manager; implementation of new storage environment

for Windows, Unix and Linux, with synchronous replication between the sites of the Bank,

consolidating corporate storage technologies on these platforms; and also the acquisition of

Blade Servers to act as a processing base of virtual systems.

As for information security, encryption mechanisms have been defined to be used with the

new Electronic Permit automation system for State Court of Justice, as well as security

mechanisms to allow using Banrisul multiple card for transactions at Banco 24 Horas, besides

the inception of an environment to request, install and sign digital certificates.

The Bank pays particular attention to prevent and combat fraud at ATMs and Internet Banking,

and maintains strategic group for the implementation of actions to ensure the minimization

of losses in such channels.

The Bank is the only Latin American institution that participates in the Board of Advisors of

the PCI (Payment Card Industry), which deals with card payments safety, directly influencing

the definition of rules to be applied worldwide.

From the partnership between Banrisul and MasterCard, the goal is that Banricompras network

fully complies with international safety standards, particularly in transactions with card flags

other than Banricompras that are processed at outsourced companies hired on behalf of

Banrisul as credit and debit card acquirer.

39

The Bank participated in several events during the first nine months of 2010, among which

are: CardWare 2010 (Canada); IV Electronic Crimes Combat Operational Symposium (SP - Brazil);

Websense - Protection of Information in Secure Gateway (RS - Brazil); RSA Conference (USA)

Fraud Prevention in Checks Imaging Clearing Seminar; Banking Security Seminar; CIAB and

CNAB Febraban Meeting (SP - Brazil); PCI board meeting (UK), meeting of the Subcommittee

on Digital Certificate in conjunction with GT (SP - Brazil) ; Pre-2010 CIAB Pre-2010 meeting (SP

- Brazil); CARDS 2010 Security Forum (SP - Brazil) and Forum CIAB 2010.

Banrisul coordinated, yet, the actions for the realization of the 3rd IT International Forum,

which brought together national and international experts, when several presentations

focused on the current and prospects situation in the payment means security were held.

Public Sector Activities

Federal Public Sector

The Bank offers products and services to customers

stimulate federal employees to choose to have Banrisul

as their bank of choice for payroll at. The advantages

include, among other benefit, the extensive branch and

banking correspondent networks, the Banricompras

card, and real estate loans.

Given the faculty to federal civil servants to choose the bank of choice for payment of pension,

several new payroll agreements were signed in 2010, including Federal University - Santa

Maria, Farroupilha Federal Institute, Rio-grandense Federal Institute, State of Rio Grande do

Sul Federal Institute and the Federal Ministry of Finance, as well as payroll loan agreements

with the Regional Labor Court - 4th Region, in the State of Santa Catarina.

National Institute of Social Insurance

Since January 2010, Banrisul has been assigned the bank of choice for the payment of benefits

granted within the state of Rio Grande do Sul for five years. Thus, all the new benefits provided

by Social Security (INSS) in the State are deposited at Banrisul, except for those beneficiaries

or pensioners who opt for another bank. At places outside the State, the beneficiary may

request that their benefits be transferred to Banrisul.

To serve well beneficiaries of Social Security is a major focus of attention for Banrisul, which

makes avai lable to them, among other services: update their address at any of Banrisul’s

branches, without having to go to INSS’ offices; use of Beneficiary ID Card, for discounts at

pharmacies, cinemas, museums and other participating establishments, obtain Social Security

Credit Benefits, free of charge, statements of in all channels of service made available to

Banrisul’s customer , the Statement of, without having to request the document from INSS.


State Public Sector

For public servants located at agencies and bodies under the the direct administration of the

State of Rio Grande do Sul, the Digital Teacher Program coordinated by the State Department

of Education, structured a financing program that allowed the acquisition of 42,700 notebooks.

Under that program, R$11.3 million were disbursed in the metropolitan region of Porto Alegre,

for the purchase of 7,200 personal computers, completely financed by Banrisul, with

maturities of 24 or 36 months.

Aimed at companies to and to promote the settlement of ICMS (VAT) and state taxes debts

due until December 31, 2009, the State Government created the ICMS Debt Adjustment. The

Bank has provided a specific credit line, with maturities up to 36 months, so customers could

benefit from discounts offered by the Government, so they would not compromise their cash

flow.

For entities under the indirect administration of the State of Rio Grande do Sul, Banrisul has

intensified efforts to deploying technology solutions such as the modernization of suppliers

payments – in use by UERGS (State University of Rio Grande do Sul), DETRAN and Court of

Auditors -, and the procedures towards improving greater security, agility and economy

customers to payroll and the collection of State taxes, in order to provide.

The Bank has developed efforts in order to offer benefits to the servers from entities indirectly

administered by the State of Rio Grande do Sul like payroll loans agreements (CEASA and

real estate financing of (CEASA), both with competitive rates and terms.

Judiciary

Payroll loan agreement was signed with representatives from the Judiciary Branch of the

State of Rio Grande do Sul, allowing all servers and Justices the access to lines of credit with

special rates and terms.

Aiming at qualifying the public sector, Banrisul reformed its Judiciary Branch located in the

Central Forum of Porto Alegre. In the third quarter of 2010, tests with the Automated Electronic

Permit project were started, , which will expedite significantly information related to court

deposits, above all withdrawals ordered by the Justice courts.

Municipal Public Sector

In 2010, products and services for the municipal sector has been a priority, with Banrisul

offering financial solutions aimed at securing and optimizing revenue collection and to

reducing operating costs for municipalities, such as the barcode collection system, the fleet

management solution with the use of Refeisul Fuel Card, and the use of Banrisul Online

Bidding, an electronic system for the management of purchases.

The collection of taxes, fees and other municipal services totaled 3.8 million documents

which amounted to R$705.0 million.

With regard to fundraising, meetings were held with portfolio managers from various

municipal pension funds for advise, guidance and mandatory allocation of their investments,

currently worth at R$1.3 billion.

41

Banrisul participated of local events and of the meeting of AGIP – State Association of Social

Security Institutes, an event with national repercussions which brought together over 500

participants, presenting the performance of its investment funds portfolio tailored to the

municipal sector.

In events organized in partnership with FAMURS - Federation of Associations of Municipalities

of Rio Grande do Sul, fleet management solutions using Refeisul Fuel Card were presented to

municipalities like Santa Maria, Venâncio Aires, Alegrete, Getúlio Vargas, Tapera, Santa Rosa,

Camaquã, Caxias do Sul, Santo Antônio da Patrulha e Novo Hamburgo.

The Digital Teacher campaign available at all cities in the State of Rio Grande do Sul, addressed

teachres from public, municipal schools under the supervision of the Municipal Office for

Education. The program aims to assist in developing new competencies in the education

sector for the twenty-first century, and to be a tool for empowering teachers and students to

a new educational design, to make teaching more attractive through the adaptation of school

contents to the reality of students and to combine efforts between state’s and municipal’s

public representatives to grant access to information and communication technologies.

MarketingBanrisul was notified in September 2010 of investigations initiated upon representation of

the Prosecutor’s Office about alleged irregularities involving one employee located at its

Marketing area, in sponsorship related activities and events related to sponsorship.

The Bank, abiding to its rigorous internal controls and to equally thorough external supervision,

immediately offered technical and legal support to the authorities to help clarify the facts,

expecting that any individual eventually involved be identified and held responsible and

that any losses incurred, compensated to Banrisul.

The Bank’s marketing orientation focuses on meeting the needs of customers and society and

is committed to ensuring the profitability of investors. The event occurred has served,

however, as the basis for implementing a major overhaul of internal control mechanisms,

measures that included the creation of the Marketing Committee, review of contracts and

payment schedules and changes in management tools by establishing metrics to help evaluate

the effectiveness of expenses.

The measures adopted have produced results. Advertising, campaings and marketing

expenses reached R$15.1 million in the third quarter of 2010, 53.5% below the amount recorded

in the same period in 2009 and 50.9% below the second quarter of 2010.

With the adoption of a new marketing policy, the technical and administrative activities

related to the area - strategies proposition, analysis and consolidation, the monitoring of the

strategy implementation, product repositioning and institutional campaigns, among others -

have moved into Banrisul’s management model, established in March 2007. The Marketing


Committee aligns itself with the nine other committees already structured in the Bank, whose

architecture ensures corporate responsibility and economic rationality to the decision making

process.

The transparency of procedures that has guided the business of the Bank has now acquired

even stricter contours. That is the commitment of the Board of Administration, the Board of

Executive Officers and the Fiscal Committee that manage Banrisul, an 82 year-old institution

recognized for its responsible market role.

Human ResourcesAt the end of 3Q10, Banrisul headcount totaled

9,349 employees and 2,165 trainees. Until

September 2010, 536 new employees were hired

for the position of bank clerk, selected from tender

01/2009-2 held in early 2010,

In nine months, the Bank held 1,588 training

courses, with 18,400 participants. The investment

in professional training totaled R$6.2 million, of

which R$1.1 million was directed to graduating

programs, R$2.6 million to post-graduating

programs and R$934,100 for language courses.

In March 2010, the Continuous Management Program started, aimed at developing and leveling

knowledge and technical skills, employees’ values and attitudes, necessary to address sound

banking practices, as well as improving Banrisul’s competitiveness profile in the regional and

national context of banking market. Jointly designed with Rio Grande do Sul Federal University,

the MBA in Banking Management started in July 2010 with the participation of about 300

employees.

Corporate ResponsibilityBanrisul has distinguished itself not only as a provider of financial services, but also as an

agent of social transformation. Through projects and actions directed towards improving the

welfare of its employees, customers, suppliers, outsourced, society and environment, the

Bank affirms its commitment to promoting sustainable development in the communities

where it operates.

The internal links created by the employees involved in various programs and activities

developed by the Bank in sectors directly related to provide interaction and knowledge

sharing. The goal is to further structure the institutional view of corporate responsibi lity,

43

from the development of a set of strategies that strengthen social, environmental and

organizational integration.

From January to September 2010, there were many projects for job training, education and

social responsibility, improvement of quality of life through educational, cultural, social, and

environmental protection. The investments in this segment amounted to R$31.4 million.

The relationship with the community has been strengthened by projects such as Criança no

Esporte (Children in Sports), Karate Além do Esporte (Karate Beyond Sports), Concertos Banrisul

para a Juventude (Banrisul Concerts for the Youth), Orquestra de Câmara Jovem do RS (Young

Chamber Orchestra of Rio Grande do Sul), Desafio Banrisul (Challenge Banrisul), among others.

The Projeto Pescar Banrisul (Banrisul F ishing Project), aimed at youngsters in situations of

social vulnerability, is in its 7 th class, teaching over 20 students.

As for programs targeting the internal audience, the Programa Voluntariado Banrisul (Banrisul

Volunteer Program) develops and provides to nearly 100 volunteers registered the possibility

to participate in actions and activities in institutions attended by the program. Volunteers

provide two hours a month to share their knowledge and help those in need.

The Bank is also attentive to the issue of accessibility to people with special needs and works

to achieve conditions for the access and use, safely and autonomously, buildings, space and

furniture. This envisions the right to eliminate architectural barriers, to the availability of

communication, physical access, equipment and appropriate programs.

In the socio-environmental arena, the actions of Programa Reciclar Banrisul (Banrisul Recycling

Program) are preceded by sensitization and mobilization activities with the larger goals of

the program: a more just and economically sustainable society. During 2010, among several

other activities, the program strengthened the awareness of the internal audience towards

the consumption and proper disposal of waste and the benefits of relationships with local

partners.

The Projeto Sementes Banrisul (Seed Project) distributed seeds of native trees (adapted to

each biogeographic region of the State of Rio Grande do Sul) and agro-ecological horticulture

to farmers, schools, associations, student groups, agro-ecological fairs and environmentally

linked events, among others.

The Bank has distinguished itself by also attending to the social and environmental issue in

the effectiveness of its business. Credit lines for the generation of sustainable projects such

as: energy efficiency, for example, were created, as well as alternative energy projects like

wind energy and rural credit lines to ensure adequate planting to agribusiness.

In 2010, Banrisul innovated and opened in Porto Alegre its first branch to ever adopt the

standard of sustainability in its physical structure, built valuing sustainable practices such as

use of rainwater, green roof and floor drainage.


Awards

January/2010. Banrisul’s share among the most profitable in the Americas.

Banrisul’s shares obtained the third best performance in 2009 of the banking sector in Latin

America and the United States, according to a survey by consultancy firm Economática, São

Paulo, with a year-on-year increase of 277.7% and an average daily volume of U$3.429 million.

March/2010. Banrisul is one of 100 most valuable brands in Brazi l.

The Bank appeared for first time in the list of 100 most valuable brands in Brazil. The fifth

edition of the annual top 100 brands survey, prepared by consultancy firm Brand Finance, in

partnership with the magazine The Brander/IAM, indicates the brand value of Banrisul at

R$494 million. The brand rating of the Bank, based on the strength of the brand among its

customers, is “B +”.

April/2010. Banrisul is one of the 2,000 largest companies in the world.

Banrisul climbed 69 positions in the ranking of the 2,000 largest companies in the world from

the previous survey, from 1501 st to 1432 nd place. The list was released by the U.S. publication

Forbes, which specializes in economics, finance and business. In the study, the market value

of Banrisul was valued at US$3.38 billion. The classification accounts for annual sales in U.S.

dollars, profit, assets and market value.

April/2010. Banrisul is one of the most remembered companies by gauchos.

Banrisul is one of the most widely recognized brands by the gauchos (the inhabitants of the

State of Rio Grande do Sul) in the ranking Large Company, according to the Top of Mind 2010

survey, conducted by the magazine Amanhã in partnership with the Segmento Pesquisas.

Banrisul was also featured in the categories Bank , Savings Deposits , Pension, Private Banking,

Efficient Public Company, Company which invests in Culture , Company one would like to work

for in and Internet Marks - Bank segment. The Banricompras was awarded distinction prize in

the category Credit Card and Refeisul in the category Meal Voucher.

April/2010. Banrisul is one of 500 most valuable brands in global financial sector.

Banrisul is one of ten Brazilian financial institutions listed in the ranking of the 500 most

valuable bank brands in the world in 2010. Banrisul’s brand value was estimated at R$494

million, up 32.8% compared to last year’s analysis. The study was prepared by Brand Finance,

multinational consultancy firm specializing in brand management and evaluation, in

partnership with the British magazine The Banker.

May/2010. Banrisul is one of the largest companies in Rio Grande do Sul

Banrisul is the third largest company in Rio Grande do Sul, according to ranking released by

the report Valor Estados - Rio Grande do Sul, by Valor Econômico newspaper, specializing in

economics and finance.

45

June/2010. Banrisul is among the most valuable brands in Brazil.

Banrisul is the 12th most valuable brand in Brazil. The ranking was compiled by Interbrand, a

brand consultancy in the USA. In accordance with the company, the brand value was set at

R$645 million. In a similar study conducted in 2008, in which we evaluate the most valuable

brands in Latin America, Banrisul appeared in 31st position, with a value of R$317 million.

June/2010. IT Management at Banrisul receives national award.

Banrisul received five awards from the E-Finance Award 2010, sponsored by the magazine

Executivos Financeiros, in the areas of security, information technology and social management.

Rubens Bordini, Banrisul’s Vice-President and CIO, responsible for the IT areas of the Bank,

was distinguished with the E-Finance 2010 Executive of the Year special category prize, as Best

IT Manager.

August/2010. Bank is the fourth best bank in the country

The Bank is the fourth best Brazilian bank according to the ranking of the As Melhores da

Dinheiro, published by the weekly magazine IstoÉ Dinheiro, from São Paulo. The institution

was also awarded in financial sustainability, social responsibility, human resources and

corporate governance. The Bank was also highlighted in the survey The 500 Largest Companies

in Brazil, appearing in the 98th place.

September 2010. Banrisul is the 10th Largest company in the ranking of the 500 South

The Bank occupies the 10th place in the Top 500 Southern Region Largest Companies ranking,

prepared by Amanhã Magazine and PricewaterhouseCoopers. In Rio Grande do Sul, Banrisul

is the fourth largest among the 100 largest and stands as a leader with the largest net working

capital. Also in the State, Banrisul is the third company among the 50 largest equities.

September 2010. Banrisul is featured in national ranking.

The Bank was featured in the ranking F inanças of publication Valor 100, published by the

newspaper Valor Econômico. The Bank occupies the 10th position among 100 largest banks in

the country. It was classified also among the 20 largest banks in loans, total deposits,

shareholders’ equity and net income, among other items.


Acknowledgements

The Bank ended the third quarter of 2010 with a favorable performance, numerous awards

and promising prospects. This is the result of the confidence of our investors, the preference

of our customers and the competence of those working in this institution. To all who are part

of this network of relationships, our thanks.

The Management.

47

FinancialStatements


Balance SheetSeptember 30, 2010 and 2009(In Thousands of Reais)

Banrisul Banrisul ConsolidatedASSETS 2010 2009 2010 2009

CURRENT........................................................................ 17,900,459 17,678,723 17,979,713 17,746,905

CASH ................................................................................. 396,334 356,730 396,370 356,753

INTERBANK INVESTMENTS (Note 04)........................... 3,804,581 5,742,915 3,822,569 5,762,302

Money Market Investments ..................................... 3,681,978 5,614,159 3,699,966 5,633,546

Interbank Deposits ................................................... 122,603 128,756 122,603 128,756

SECURITIES AND DERIVATIVES (Note 05) .................... 3,463,850 3,209,545 3,467,794 3,217,431

Own Portfolio .............................................................. 1,341,690 919,926 1,345,629 927,807

Linked to Repurchase Commitments ..................... 2,099,078 2,018,682 2,099,078 2,018,682

Derivatives .................................................................. 23,082 15,562 23,082 15,562

Linked to Central Bank of Brazil ............................. - 190,429 - 190,429

Linked to Guarantees ............................................... - 64,946 - 64,946

Privatization Certificates .......................................... - - 5 5

INTERBANK ACCOUNTS .................................................. 2,114,289 1,438,803 2,114,289 1,438,803

Payments and Receipts Pending Settlement ....... 207,024 192,062 207,024 192,062

Restricted Deposits (Note 06) ................................. - -

Central Bank of Brazil ............................................ 1,881,085 1,223,931 1,881,085 1,223,931

Correspondents ....................................................... 26,180 22,810 26,180 22,810

INTERBRANCH ACCOUNTS ............................................. 50,429 50,410 50,429 50,410

Third-party Funds in transit .................................... 1,900 1,252 1,900 1,252

Internal Trans fers of Funds ..................................... 48,529 49,158 48,529 49,158

LOANS (Note 07) ............................................................. 6,967,177 5,800,557 6,967,177 5,800,557

Loans ............................................................................

Public Sector ............................................................ 41,252 31,573 41,252 31,573

Private Sector ........................................................... 7,345,034 6,193,164 7,345,034 6,193,164

Allowance for Loan Losses ....................................... (419,109) (424,180) (419,109) (424,180)

LEASE OPERATIONS (Note 07) ....................................... 37,018 46,726 37,018 46,726

Lease Receivables ....................................................

Public Sector ............................................................ 708 1,218 708 1,218

Private Sector ........................................................... 38,770 47,010 38,770 47,010

Allowance for Doubtful Lease Receivables ......... (2,460) (1,502) (2,460) (1,502)

OTHER RECEIVABLES (Note 08) ..................................... 1,049,599 1,010,275 1,106,648 1,050,904

Foreign Exchange Portfolio ...................................... 436,752 449,968 436,752 449,968

Income Receivable .................................................... 33,232 31,870 32,233 29,830

Trading Accounts ........................................................ - - 3,440 3,354

Specific Credits ........................................................... - - 16 14

Other ............................................................................. 592,072 559,196 647,167 599,656

Allowance for Losses on Other Receivables ....... (12,457) (30,759) (12,960) (31,918)

OTHER ASSETS ................................................................. 17,182 22,762 17,419 23,019

Temporary Investiments ........................................... 232 232 232 232

Allowance for Losses ................................................ - - - -

Other Assets ............................................................... 1,801 5,526 1,943 5,672

Allowance for Valuation .......................................... - (644) - (644)

Prepaid Expenses ...................................................... 15,149 17,648 15,244 17,759

49

Banrisul Banrisul ConsolidatedASSETS (cont´d) 2010 2009 2010 2009

LONG-TERM ASSETS ....................................................... 13,978,819 10,454,879 13,992,928 10,476,915

SECURITIES AND DERIVATIVES (Note 05) .................... 5,006,651 4,114,988 5,009,598 4,117,685Own Portfolio .............................................................. 3,970,901 2,995,974 3,970,901 2,995,974

Linked to Repurchase Commitments ..................... 251,544 455,262 251,544 455,262Derivatives .................................................................. 136,558 130,095 136,558 130,095

Linked to Central Bank of Brazil ............................. 578,581 338,223 578,581 338,223Linked to Guarantees ............................................... 69,067 195,434 72,014 198,131

INTERBANK ACCOUNTS .................................................. 485,813 426,666 485,813 426,666Restricted Deposits (Note 06) ................................. - - - -

National Housing System ..................................... 485,813 426,666 485,813 426,666LENDING OPERATIONS (Notes 07) ............................... 7,632,863 5,121,766 7,632,863 5,121,766

Lending Operations .................................................. - -Public Sector ............................................................ 85,593 78,456 85,593 78,456

Private Sector ........................................................... 8,211,831 5,609,557 8,211,831 5,609,557Allowance for Loan Losses ...................................... (664,561) (566,247) (664,561) (566,247)

LEASING OPERATIONS (Note 07) .................................. 38,633 45,336 38,633 45,336Lease Receivables .................................................... - - - -

Public Sector ............................................................ 2,229 1,504 2,229 1,504Private Sector ........................................................... 41,478 51,233 41,478 51,233

Allowance for Doubtful Lease Receivables ......... (5,074) (7,401) (5,074) (7,401)OTHER RECEIVABLES (Note 08) ..................................... 805,750 734,068 816,912 753,407

Foreing Exchange Portfolio ...................................... 22,764 9,214 22,764 9,214Other ............................................................................. 872,059 812,631 883,221 831,970

Allowance for Losses on Other Receivables ....... (89,073) (87,777) (89,073) (87,777)OTHER ASSETS ................................................................. 9,109 12,055 9,109 12,055

Other Assets ............................................................... 20,142 20,636 20,142 20,636Allowance for Valuation .......................................... (11,936) (8,581) (11,936) (8,581)

Prepaid Expenses ...................................................... 903 - 903 -PERMANENT ASSETS ...................................................... 668,640 631,996 366,707 349,389

INVESTIMENTS ................................................................ 317,944 295,080 7,759 7,995Investments in Domestic Subsidiaries

(Note 02 (c)) .............................................................. 311,039 288,156 - -Other Investiments ................................................... 11,888 11,921 13,214 13,465

Allowance for Losses ................................................ (4,983) (4,997) (5,455) (5,470)PROPERTY AND EQUIPMENT IN USE (Note 09 (a)) ..... 164,138 151,434 171,349 155,899

Real Estate .................................................................. 121,068 119,968 131,330 127,012Other ............................................................................. 461,271 408,307 466,507 413,370

Accumulated Depreciation ...................................... (418,201) (376,841) (426,488) (384,483)INTANGIBLE (Note 09 (b)) ............................................. 186,558 185,482 187,599 185,495

Intangible Assets ...................................................... 360,663 302,570 361,704 302,583Accumulated Amortization ...................................... (174,105) (117,088) (174,105) (117,088)

TOTAL ASSETS................................................................. 32,547,918 28,765,598 32,339,348 28,573,209


Banrisul Banrisul Consolidated

LIABILITIES AND SHAREHOLDERS’ EQUITY 2010 2009 2010 2009

CURRENT........................................................................ 24,053,677 21,029,304 23,939,721 20,834,834

DEPOSITS (Note 10) ....................................................... 14,735,857 12,315,192 14,603,711 12,134,593

Demand Deposits ...................................................... 2,114,254 2,114,254 2,114,254 2,114,254

Saving Deposits ......................................................... 6,295,708 5,200,180 6,295,708 5,200,180

Interbank Deposits ................................................... 14,652 61,599 14,652 61,599

Time Deposit s ............................................................ 6,309,382 5,358,631 6,182,578 5,182,024

Other Deposits ........................................................... 1,861 8,659 1,861 8,713

MONEY MARKET FUNDING (Note 10) .......................... 2,350,621 2,473,944 2,285,898 2,414,101

Own Portfolio .............................................................. 2,350,621 2,473,944 2,285,898 2,414,101

INTERBANK ACCOUNTS .................................................. 264,506 236,786 264,506 236,786

Receipt and Payment Pending Settlement ........... 264,107 234,582 264,107 234,582

Correspondents .......................................................... 399 2,204 399 2,204

INTERBRANCH ACCOUNT ............................................... 210,541 170,152 210,541 170,152

Third-party Funds in Transit .................................... 210,074 169,562 210,074 169,562

Internal Trans fers of Funds ..................................... 467 590 467 590

BORROWINGS (Note 11) ............................................... 572,272 542,623 572,272 542,623

Domestic Borrowings - Other Institutions ........... - 108,831 - 108,831

Foreign Borrowings ................................................... 572,272 433,792 572,272 433,792

DOMESTIC ONLENDINGS - OFFICIAL INSTITUTIONS

(Note 12) ...................................................................... 281,944 368,098 281,944 368,098

Nacional Treasury ...................................................... 58,510 46,264 58,510 46,264

National Economic and Social Development

Bank (BNDES) ........................................................... 116,793 220,896 116,793 220,896

Federal Savings and Loan Bank (CEF) .................... 4,951 10,206 4,951 10,206

National Equipment Financing Authority (FINAME) 101,690 90,732 101,690 90,732

FOREING ONLENDINGS (Note 12) ............................... 42,222 36,101 42,222 36,101

Foreign Onlendings .................................................. 42,222 36,101 42,222 36,101

DERIVATIVES (Note 05 (d)) ........................................... 19,985 11,331 19,985 11,331

Derivatives .................................................................. 19,985 11,331 19,985 11,331

OTHER PAYABLES (Note 13) ............................................ 5,575,729 4,875,077 5,658,642 4,921,049

Collected Taxes and Other ....................................... 111,978 91,281 111,978 91,281

Foreign Exchanges Portfolio .................................... 42,468 18,645 42,468 18,645

Social and Statutory .................................................. 54,347 23,151 55,655 23,204

Tax and Social Security ............................................. 311,799 235,856 324,851 245,502

Trading Account and Intermediation ..................... - - 3,089 2,579

Financial and Development Funds ....................... 4,395,584 3,895,201 4,395,584 3,895,201

Other ............................................................................. 659,553 610,943 725,017 644,637

51

Banrisul Banrisul Consolidated

LIABILITIES AND SHAREHOLDERS’ EQUITY (cont´d) 2010 2009 2010 2009

LONG-TERM LIABILITIES ................................................. 4,747,857 4,436,531 4,651,484 4,436,994

DEPOSITS (Note 10) ....................................................... 3,447,243 3,327,690 3,350,387 3,327,690

T ime Deposits ............................................................ 3,447,243 3,327,690 3,350,387 3,327,690

BORROWINGS (Note 11) ............................................... 3,223 - 3,223 -

Foreign Borrowings ................................................... 3,223 - 3,223 -

DOMESTIC ONLENDINGS - OFFICIAL INSTITUTIONS

(Note 12) ...................................................................... 709,678 501,385 709,678 501,385

Nacional Treasury ...................................................... 10,807 12,531 10,807 12,531

National Economic and Social Development

Bank (BNDES) ........................................................... 470,739 373,694 470,739 373,694

Federal Savings and Loan Bank (CEF) .................... 32,833 15,971 32,833 15,971

National Equipment Financing Authority (FINAME) 195,299 99,189 195,299 99,189

FOREING ONLENDINGS (Note 12) ............................... 2,540 - 2,540 -

Foreign Onlendings .................................................. 2,540 - 2,540 -

DERIVATIVES (Note 5 (d)) .............................................. 36,520 30,943 36,520 30,943

Derivatives .................................................................. 36,520 30,943 36,520 30,943

OTHER PAYABLES (Note 13) ............................................ 548,653 576,513 549,136 576,976

Tax and Social Security ............................................. 388,981 382,172 388,981 382,172

Other ............................................................................. 159,672 194,341 160,155 194,804

MINORITY INTEREST....................................................... - - 1,759 1,618

SHAREHOLDERS’ EQUITY (Note 20) ............................... 3,746,384 3,299,763 3,746,384 3,299,763

Capital ......................................................................... 2,900,000 2,600,000 2,900,000 2,600,000

Capital Reserves ........................................................ 4,511 6,164 4,511 6,164

Profit Reserves ........................................................... 691,914 598,109 691,914 598,109

Assets valuation adjustment (Note 05 (b)) .......... (4,870) (4,870) (4,870) (4,870)

Accumulated Profits .................................................. 154,829 99,408 154,829 99,408

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY .......... 32,547,918 28,765,598 32,339,348 28,573,209


Statement of IncomeSeptember 30, 2010 and 2009(In Thousands of Reais)

Banrisu Banrisul Consolidated 2010 2009 2010 2009

FINANCIAL INCOME ........................................................ 3,524,970 3,178,764 3,531,439 3,185,917

Loans ............................................................................... 2,540,312 2,100,200 2,540,312 2,100,204

Lease Operations .......................................................... 11,290 15,159 11,290 15,159

Securities ........................................................................ 786,407 846,925 792,876 854,023

Derivatives ..................................................................... - 23,093 - 23,144

Foreign Exchange .......................................................... 46,718 59,419 46,718 59,419

Compulsory Investments ............................................. 140,243 133,968 140,243 133,968

FINANCIAL EXPENSES ..................................................... 1,807,681 1,650,336 1,795,226 1,638,146

Funding Operations ..................................................... 1,034,024 1,039,464 1,021,405 1,027,064

Borrowings, Assignments and Onlendings ............. 380,966 285,153 380,966 285,153

Derivatives ..................................................................... 1,095 - 1,116 -

Allowance for Loan Losses (Note 07 (d)) ................. 391,596 325,719 391,739 325,929

GROSS PROFIT FROM FINANCIAL OPERATIONS .......... 1,717,289 1,528,428 1,736,213 1,547,771

OTHER OPERATING INCOME (EXPENSES) ....................... (943,710) (987,018) (950,209) (995,065)

Income from Services Rendered (Note 15) .............. 74,554 70,078 111,505 101,498

Bank Fees Income (Note 16) ....................................... 356,682 325,720 356,674 325,720

Equity in Subsidiaries (Note 02 (c))........................... 21,774 16,615 - -

Personnel Expenses ..................................................... (682,229) (665,906) (687,531) (670,776)

Other Administratives Expenses (Note 17) .............. (569,814) (498,765) (577,884) (505,012)

Tax Expenses .................................................................. (145,177) (130,894) (150,324) (135,248)

Other Operating Income (Note 18) ............................ 129,841 91,178 127,774 88,691

Other Operating Expenses (Note 19) ......................... (129,341) (195,044) (130,423) (199,938)

INCOME FROM OPERATIONS ............................................ 773,579 541,410 786,004 552,706

INCOME BEFORE TAXES ON INCOME AND EMPLOYEE

PROFIT SHARING ......................................................... 773,579 541,410 786,004 552,706

INCOME TAX AND SOCIAL CONTRIBUTION (Note 22 (a)) (228,695) (162,120) (240,994) (173,304)

EMPLOYEE PROFIT SHARING .......................................... (33,500) (22,486) (33,500) (22,486)

MINORITY INTEREST....................................................... - - (126) (112)

NET INCOME................................................................... 511,384 356,804 511,384 356,804

Number of Outstanding Shares (Thousands) ......... 408,974 408,974 408,974 -

Earning per Thousand Shares (R$) ............................ 1,250,41 872,44 1,250,41 -

53

Cash FlowSeptember 30, 2010 and 2009(In Thousands of Reais)

Banrisul Banrisul Consolidated 2010 2009 2010 2009

Adjustes to Net Income.......................................................... 1,014,175 779,777 1,038,350 801,355Net Income ............................................................................ 511,384 356,804 511,384 356,804

Adjustment to Net Income:Depreciation and Amortization ..................................... 81,031 67,145 81,572 67,808

Equity in Subsidiaries ..................................................... (21,774) (16,615) - -Provision for Loan Losses ............................................... 391,596 325,719 391,739 325,929

Reserve for Securitization Losses ................................. (3,167) 831 (3,167) 831Reserve for Contingencies .............................................. 79,595 67,763 80,935 72,333

Deferred Income Tax and Social Contribution ........... (24,490) (21,870) (24,113) (22,350)Changes in Assets and Liabilities ........................................... (2,310,119) 472,899 (2,330,544) 453,932

Valuation adjustment to Equity ..................................... 977 5,589 977 5,589(Increase) Decrease in Interbank Deposits ............... 12,119 - 12,119 -

(Increase) Decrease in Securities ................................. (1,060,575) (1,186,791) (1,060,450)(1,188,572)(Increase) Decrease in Derivatives .............................. 1,112 (29,366) 1,112 (29,365)

(Increase) Decrease in Interbank and InterbranchAccounts .......................................................................... (479,385) 134,007 (479,385) 134,007

(Increase) Decrease in Loan Operations .................... (3,110,311) (1,189,862) (3,110,311)(1,189,862)(Increase) Decrease in Lease Operations .................. 12,167 6,975 12,167 6,975

(Increase) Decrease in Other Receivables ................. (211,477) (51,542) (221,451) (60,729)(Increase) Decrease in Other Assets ............................ 19,329 (11,330) 19,329 (11,365)

Increase (Decrease) in Deposits .................................. 1,624,681 1,217,104 1,584,353 1,206,200Increase (Decrease) in Money Market Funding ......... 280,728 183,724 279,401 179,850

Increase (Decrease) in Borrowing ................................ 130,199 78,222 130,199 78,222Increase (Decrease) in Other Liabilities ..................... 470,317 1,316,169 501,396 1,322,982

NET CASH USED IN OPERATING ACTIVITIES ........................... (1,295,944) 1,252,676 (1,292,194) 1,255,287

CASH FLOW PROVIDED BY INVESTING ACTIVITIES

Disposal of Investiments ............................................... 52 76 - 364Disposal of Property and Equipment in Use .............. 109 233 109 236

Acquisition of Investiments ........................................... (16) (117) (1,660) (117)Acquisition of Property and Equipment in use .......... (26,042) (31,749) (29,391) (31,987)

Acquisition of Intangible Assets .................................. (60,340) (21,630) (61,052) (21,630)

NET CASH USED IN INVESTMENT ACTIVITIES ........................ (86,237) (53,187) (91,994) (53,134)

CASH FLOW FROM FINANCING ACTIVITIESInterest on Capital Paid .................................................. (152,620) (141,769) (152,620) (141,769)

Change in Minority Interest ............................................ - - 104 (1,685)

NET CASH USED IN FINANCING ACTIVITIES ........................... (152,620) (141,769) (152,516) (143,454)

NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS (1,534,801) 1,057,720 (1,536,704) 1,058,699Cash and Cash Equivalents ............................................ 411,158 373,239 411,220 373,278

Interbank Investments (Note 03(n)) ............................. 5,222,087 4,668,686 5,241,952 4,687,078

CASH AND CASH EQUIVALENT AT THE BEGINNING OF THE

PERIOD ............................................................................ 5,633,245 5,041,925 5,653,172 5,060,356Cash ..................................................................................... 396,334 356,730 396,370 356,753

Interbank Investments (Note 03(n)) ............................. 3,702,110 5,742,915 3,720,098 5,762,302

CASH AND CASH EQUIVALENT AT THE END OF THE PERIOD . 4,098,444 6,099,645 4,116,468 6,119,055


Statement of Value AddedSeptember 30, 2010 and 2009(In Thousands of Reais)


INCOME (a) ............................................................................ 3,696,039 3,339,855 3,737,223 3,375,719

Financial Income ................................................................. 3,526,558 3,178,598 3,533,010 3,185,739

Services Rendered and Bank Fees Income .................... 431,236 395,798 468,179 427,218

Allowance for loan losses ................................................. (391,596) (325,719) (391,739) (325,929)

Other ....................................................................................... 129,841 91,178 127,773 88,691

FINANCIAL INTERMEDIATION EXPENSES (b) .......................... 1,417,650 1,324,617 1,405,031 1,312,217

INPUTS ACQUIRED FROM THIRD PARTIES (c) ........................ 581,022 594,781 590,821 606,301

Materials, Energy and other ............................................. 485,707 513,647 493,477 523,635

Third-party Services ............................................................ 95,292 81,300 97,316 82,844

Assets Value Recovery (Loss) ............................................ 23 (166) 27 (178)

GROSS VALUE ADDED (d=a-b-c) ............................................ 1,697,367 1,420,457 1,741,372 1,457,201

DEPRECIATION AND AMORTIZATION (e) ................................ 81,031 67,145 81,572 67,808

NET VALUE ADDED PRODUCED BY THE BANK (f=d-e) ........... 1,616,336 1,353,312 1,659,800 1,389,393

VALUE ADDED RECEIVED IN TRANSFER (g) ........................... 21,774 16,615 - -

Equity in Subsidiaries ........................................................ 21,774 16,615 - -

VALUE ADDED FOR DISTRIBUTION (h=f+g) ........................... 1,638,110 1,369,927 1,659,800 1,389,393

DISTRIBUTION OF VALUE ADDED .......................................... 1,638,110 1,369,927 1,659,800 1,389,393

Personnel ............................................................................ 610,430 588,864 615,494 593,561

Salary ................................................................................... 468,899 452,650 473,107 456,563

Benefits .............................................................................. 105,061 97,663 105,573 98,121

F.G.T.S. .................................................................................. 36,470 38,551 36,814 38,877

Tax Fees and contributions .................................................. 479,171 392,542 496,855 408,253

Federal ............................................................................... 453,963 369,733 469,891 384,009

State .................................................................................... 335 371 341 398

Municipality ....................................................................... 24,873 22,438 26,623 23,846

Third-party capital compensation ....................................... 37,125 31,717 35,941 30,663

Rentals ............................................................................... 37,125 31,717 35,941 30,663

Shareholders’ equity compensation .................................... 511,384 356,804 511,510 356,916

Interest on Capital ........................................................... 152,620 141,769 152,620 141,769

Dividends ........................................................................... 20,159 - 20,159 -

Retained Earnings ............................................................ 338,605 215,035 338,605 215,035

Minority interest ............................................................... - - 126 112

55

Statement of Changes in Shareholders’ EquitySeptember 30, 2010 and 2009(In Thousands of Reais)

Capital Reserves Profit ReservesAdjustment ofMemberships Assets

Capital Certificates in Investments For Valuation Reatined Stock Subsidiary Grants Legal Estatutory Expansion Adjustment Earnings TOTAL

Balance as of January 01, 2009 ......................................... 2,300,000 1,653 4,511 128,314 289,757 364,411 (9,507) - 3,079,139

Capital Increase (Note 20 (a)) ............................................. 300,000 - - - - (300,000) - - -

Adjustment of Memberships Certificates in Subsidiary - - - - - - - - -

Valuation Adjustment t o Equity (Note 05 (b)) ................... - - - - - - 5,589 - 5,589

Net Income ............................................................................ - - - - - - - 356,804 356,804

Allocation of Net Income (Note 20 (b)) .............................. - - - - - - - - -

Recognition of Reserves .................................................... - - - 10,538 52,689 52,400 - (115,627) -

Interest on Capital ............................................................. - - - - - - - (141,769) (141,769)

Balance as of September 30, 2009 ................................... 2,600,000 1,653 4,511 138,852 342,446 116,811 (3,918) 99,408 3,299,763

Balance as of January 01, 2010 ......................................... 2,600,000 1,660 4,511 155,369 425,031 227,738 (5,847) - 3,408,462

Capital Increase (Note 20 (a)) ............................................. 300,000 - - - (72,262) (227,738) - - -

Adjustment of Memberships Certificates in Subsidiary - (1,660) - - - - - - (1,660)

Valuation Adjustment t o Equity (Note 05 (b)) ................... - - - - - - 9 7 7 - 9 7 7

Net Income ............................................................................ - - - - - - - 511,384 511,384

Allocation of Net Income (Note 20 (b)) .............................. - - - - - - - - -

Recognition of Reserves .................................................... - - - 15,250 76,250 92,276 - (183,776) -

Interest on Capital ............................................................. - - - - - - - (152,620) (152,620)

Dividends Accrued ............................................................. - - - - - - - (20,159) (20,159)

Balance as of September 30, 2010 ................................... 2,900,000 - 4,511 170,619 429,019 92,276 (4,870) 154,829 3,746,384


Notes of theManagement to the

Financial Statements

57

Note of Management to theFinancial Statements

NOTE 01 Operations

Banco do Estado do Rio Grande do Sul S.A. (Banrisul) is a multiple-service bank, operating

commercial, lending, financing and investment, mortgage loan, development, lease and

investment portfolios, including exchange, securities brokerage, and credit card and

consortium management. Transactions are conducted within the context of a group of financial

institutions that operate on an integrated basis in the financial market. Banrisul also operates

as an instrument for the execution of the economic and financial policy of the state of Rio

Grande do Sul, in conformity with the state government’s plans and programs.

NOTE 02 Presentation of the Financial Statements

(a) The individual and consolidated financial statements have been prepared in accordance

with Brazilian accounting practices and standards and instructions from the Central Bank of

Brazil and from the Brazilian Securities and Exchange Commission (CVM), include accounting

practices and estimates concerning the recognition of allowances and determination of assets

that comprise its securities portfolio. Actual results could differ from those estimated.

(b) The Bank’s individual financial statements include operations conducted in Brazil as well

asthe incorporation of its foreign branches (New York and Grand Cayman). Assets, liabilities

and income from foreign branches, before consolidation eliminations, are summarized as

follows:

In Thousands of Reais 2010 2009

ASSETSSecurities ........................................................................................... - 8,924Lending Operations............................................................................ 140,884 149,740

Operations in Brazil ........................................................................ 78,086 81,648Other Lending Operations ............................................................... 62,798 68,092

Other Assets ...................................................................................... 40,392 39,349Total Assets ........................................................................................ 181,276 198,013

LIABILITIESDeposits ............................................................................................. 66,760 79,620

Operations in Brazil ........................................................................ 17,136 22,556Other Deposits ................................................................................. 49,624 57,064

Other Liabilities ................................................................................. 629 1,427Shareholders’ Equity .......................................................................... 113,887 116,966Total Liabilities and Shareholders’ Equity ............................................ 181,276 198,013Statement of Income

Financial Intermediation Income ................................................... 4,448 5,852Financial Intermediation Expenses ................................................ (1,072) (1,266)Other Expenses, Net ......................................................................... (1,562) (1,670)

Net Income for the period................................................................. 1,814 2,916


The effects of the exchange variation over operations in foreign branches are distributed in

the statement of income according to the nature of corresponding assets and liabilities.

(c) The consolidated financial statements include the accounts of the Bank, its foreign branches

and subsidiaries whose balance of investments, as of September 30, 2010, amounted to

R$311,039 thousand (2009 – R$288,156 thousand), and generated equity gains in subsidiaries

for the nine-month period then ended of R$21,774 thousand (2009 – R$16,615 thousand), and

are presented as follows:

MAIN INFORMATION ON INVESTMENTS IN SUBSIDIARIES:

In Thousands of ReaisBanrisul Banrisul S.A. Banrisul S.A. Banrisul

Armazéns Corretora de Val. Administradora ServiçosGerais S.A. Mob. e Câmbio de Consórcios Ltda. Total

Thousands of Shares

. Common Shares ............................................. 6 9 6 10,000 89,114 - -

. Preferred Shares ........................................... - 19,608 - - -

. Shares ............................................................. - - - 2,780 -

Adjusted Ownership Interest (%) ...................... 99.498 98.693 99.569 99.785 -

Capital ................................................................... 23,750 58,000 116,000 77,975 -

Shareholders’ Equity ........................................... 24,760 67,350 129,496 91,192 -

Net Income ........................................................... 6 7 4 5,125 8,501 8,422 -

Net Amounts Eliminated on

Consolidation (Note 25):

Assets (Liabilities) ...............................................

. As of September 30, 2010 ............................ 1 4 7 (63,855) (127,611) (107,188) (298,507)

. As of September 30, 2009 ............................ (175) (58,937) (115,150) (88,709) (262,971)

Income (Expenses)

. As of September 30, 2010 ............................ (1,087) (2,546) (6,542) 4 9 4 (9,681)

. As of September 30, 2009 ............................ (975) (2,451) (6,565) 4 9 9 (9,492)

Book Value of the Investment

. As of September 30, 2010 ............................ 24,636 66,470 128,937 90,996 311,039

. As of September 30, 2009 ............................ 24,110 59,966 120,427 83,653 288,156

Equity in Subsidiaries

. As of September 30, 2010 ............................ 6 7 0 6,709 8,464 5,931 21,774

. As of September 30, 2009 ............................ 1,149 4,389 8,300 2,777 16,615

The preparation of consolidated financial statements eliminated interests among

consolidated companies, remaining balance and results of transactions. The portions of

income in the period and shareholders’ equity referring to minority shareholders’ interest

have been highlighted.

(d) Financial Lease Operations are stated at present value in the Balance Sheet, and related

income and expenses, which represent the financial result of said operations, are grouped in

Lease Operations in the Statement of Income.

59

NOTE 03 Significant Accounting Practices

(a) Results of operations

Income and expenses are recorded on the accrual basis.

(b) Interbank Investments

Represent funds invested in the interbank market, stated at present value, calculated on

“pro rata die” basis, according to the variation of both the agreed index and the interest rate.

(c) Securities and Derivatives

According to Central Bank of Brazil Circular 3,068 of November 8, 2001 and supplementary

regulation, securities are classified and assessed into three specific categories, in conformity

with the following accounting criteria:

i) Trading Securities – securities acquired for the purposes of being actively and frequently

traded, adjusted to fair value, and realized and unrealized gains or losses recognized in the

statement of income.

ii) Available-for-Sale Securities – Include securities used as part of the strategy to manage

risk of changes in interest rates and which may be traded as a result of these changes, changes

in payment conditions or other factors. These securities are adjusted to fair value, and income

earned is recorded in the statements of income, whereas unrealized gains and losses from

changes in fair value are recorded in a separate shareholders’ equity caption, net of taxes,

where applicable, denominated “Valuation adjustments to equity” unti l they are realized

through sale.

Gains and losses, when realized, are recorded in the statement of income on the trading

date, with a contra entry to a specific shareholders’ equity account, net of taxes, where

applicable.

iii) Held-to-Maturity Securities – Include securities for which Management has the intent and

financial capacity to hold to maturity and are stated at cost plus income earned. Financial

capacity is defined in cash flow projections, disregarding any possible sale of these securities.

Derivatives – Derivatives contracted with other investment operations are recognized based

on income earned and expenses incurred through the balance sheet date in the statement of

income.

(d) Loans, Lease Transactions and Other Receivables

All loans and lease transactions are classified based on Management’s risk assessment, taking

into account the economic scenario, past experience and specific risks related to operations,

debtors and guarantors, pursuant to National Monetary Council (CMN) Resolution 2,682/99,

which requires a periodic analysis of the portfolio and its classification into nine risk levels,

from AA to H. A summary of this classification is presented in Note 07.

Loans and lease transactions are recorded at present value, calculated on a daily pro-rata

basis, based on the agreed index and interest rate, and are adjusted up to the sixtieth day

past-due. Thereafter, income is recognized only when received.

The risk of renegotiated assets are classified in accordance with the criteria established by

National Monetary Counci l (CMN) Resolution 2,682/99, i.e. the rating assigned before the

renegotiation is maintained and renegotiated loans previously written-off against the

allowance and controlled in memorandum accounts are rated level H. Any gains on

renegotiation are recognized as revenue only when actually received.


(e) Other Receivables – Operations with Credit Cards

Unbilled amounts are represented by receivables from cardholders for transactions in Visa

and MasterCard banners. These amounts are accounted for as Notes and Credits Receivable,

without credit characteristics, and transactions paid in installments when Banrisul is the issuer,

and the outstanding balance of transactions paid by the minimum amount of the bill

(Revolving), are reclassified as Loans.

(f) Allowance for loan losses, for doubtful lease receivables and for losses on other receivables

Recorded in an amount considered sufficient to cover possible considering the risk level

classification of the customer based on periodic assessment of credit quality, and not only on

the minimum percentages required by the National Monetary Council (CMN) Resolution 2,682/

99 when a default event occurs.

As of September 30, 2010, the total amount related to the allowance for loan losses, allowance

for doubtful lease receivables and losses and 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 2,682/99. This procedure

has been adopted by Management since its publication to cover possible losses on operations.

(g) Permanent Assets

Permanent assets are stated at acquisition cost, adjusted for inflation through December 31,

1995, considering the following aspects:

• Investments in subsidiaries are accounted for under the equity method, based on financial

statements prepared in compliance with the same accounting practices. Other investments

are stated at acquisition cost and adjusted based on allowances for losses, where applicable;

• Depreciation of property and equipment in use under the straight-line method is based on

the expected economic useful lives of assets considering the minimum rates set annually by

the Central Bank of Brazil, and disclosed in Note 09;

• Intangible Assets consist, basically, of investments whose benefits wi ll occur in the future.

This group is represented by bank services contracts and software acquisition. Amortization is

calculated under the straight line method at the rates stated reported in Note 09; and

• Annually, the bank reviews intangible assets for impairment losses. When identified, losses

are charged to income.

(h) Assets and Liabilities Denominated in Foreign Currency

The assets and liabilities of foreign branches, as well as other assets and liabilities in foreign

currency, were translated at the exchange rate prevailing at balance sheet date.

(i) Deposits, Money Market Funding, Borrowings and Onlendings and Financial and

Development Fund

Stated at collectable amounts plus charges incurred through the balance sheet date,

recognized on a pro rata die basis.

Pursuant to Laws 12,069/04 and 12,585/06 of the Rio Grande do Sul State Government, up to

85% of the escrow deposits made by third parties in the Bank are made available to the state

of Rio Grande do Sul, and the remaining balance is retained at the Bank for allocation to a

fund. Transferred escrow deposits are controlled in a memorandum account and the retained

portion is classified as “Other Payables”, as described in Note 21(a). The charges on the

remaining balance are recorded under the caption Expenses with Borrowings, Assignments

and Onlendings.

61

(j) Reserves for Tax, Labor and Civil Risks

These reserves are recorded based on the legal counsel’s opinion, using models and criteria

which permit obtaining the most adequate measurement, despite the uncertainty about

their period and the final outcome amount. The criterion used according to the nature of the

contingency is as follows:

i) Labor Contingencies – Recognized upon court notification of judicial discussion involving

Banrisul, the risk of loss of which is deemed as probable. Amounts are determined according

to disbursement estimates by our Management, timely revised based on information received

from our legal counsels, adjusted based on the amount of the deposit related to the execution,

when required.

ii) Civil Contingencies – Recognized, upon court notice, and monthly adjusted based on the

intended amount of indemnities, the evidence presented, and the legal counsel’s evaluation

– which considers previous court decisions, factual support, evidence produced in the records

and legal decisions that might be rendered in the lawsuit, for the lawsuit loss risk.

iii) Tax and Social Security Contingencies – Refer basically to taxes whose lawfulness or

constitutionality is being challenged at administrative or judicial level and whose likelihood

of loss is – or has been in previous phases – deemed as probable and are recognized at the full

amount under dispute. For lawsuits with respective escrow deposits, amounts are not updated

except when the Bank is authorized to withdraw the deposits on account of a favorable

outcome of the lawsuit.

(l) Income Tax and Social Contribution

Calculated at the rate of 15% for social contribution tax and 15% (plus a 10% surtax pursuant to

legislation) for income tax on taxable income in the period, adjusted by permanent

differences. Deferred income tax and social contribution were calculated based on the rates

in force on balance sheet date over the temporary additions and recorded under Other

Receivables, as contra entry of Income for the Period.

(m) Post-Employment Benefits

The Bank sponsors a “defined benefit” plan to its employees that has been valued in

compliance with specific legislation. As required by Accouting and Standard (NPC) 26, Issued

by Brazilian Institute of Independent Auditors (Ibracon) and based on an appraisal report

issued by an independent actuary, the Bank reviews the actuarial position of the plan annually,

as discussed in Note 23.

(n) Cash and Cash Equivalents in Cash Flow Statement

Include the balances of cash and cash equivalents and interbank investments, redeemable

within 90 days from the date of investment. These highly-liquid investments, which are

stated at cost plus income earned through the balance sheet dates, have maturities of up to

30 days or no deadline for redemption and are subject to an immaterial risk of change in

value.


NOTE 04 Interbank Investments

In Thousands of Reais Banrisul Banrisul Consolidated 2010 2009 2010 2009

Money Market Investments .................................................... 3,681,978 5,614,159 3,699,966 5,633,546

Pending Setlement resales - Own Portfolio

Tre asur y Bills - LFT ................................................................ 3,601,979 1,593,413 3,601,979 1,593,413

National T re asury Bills - LTN ............................................... 50,000 96,928 50,000 96,928

National T re asury Notes - NTN ........................................... 29,999 3,923,818 29,999 3,923,818

Other ...................................................................................... - - 17,988 19,387

Interbank Deposits ................................................................... 122,603 128,756 122,603 128,756

Interbank Deposits .................................................................. 119,005 128,756 119,005 128,756

Foreign Currencies Deposits .................................................. 3,598 - 3,598 -

Tot al .......................................................................................... 3,804,581 5,742,915 3,822,569 5,762,302

NOTE 05 Securities and Derivatives

Breakdown of the portfolio of Securities and Derivatives:


Trading Securities ......................................................................... 2,017,053 1,926,273 2,018,816 1,926,882

Available-for-sale Securities ...................................................... 1,666,709 1,037,169 1,668,890 1,044,446

Held-to-Maturity Securities ........................................................ 4,627,099 4,215,434 4,630,046 4,218,131

Derivatives .................................................................................... 159,640 145,657 159,640 145,657

Tot al .......................................................................................... 8,470,501 7,324,533 8,477,392 7,335,116

Current Assets .......................................................................... 3,463,850 3,209,545 3,467,794 3,217,431

Long-Term Asse ts ...................................................................... 5,006,651 4,114,988 5,009,598 4,117,685

The fair value presented in the chart below were assessed as follows: Treasury Bills that hold

active negotiations are determined based on prices published by the ANBIMA; for shares of

Publicly-held Companies the average price of the last negotiation of the day is used; and for

securities that have no price published, the Bank adopts as basis for calculation of the fair

value, the value obtained by means of internal pricing technique.

(a) Trading Securities

Composed mainly of Federal Government Securities (Treasury Bills - LFT) registered at fair

value.

Breakdown per maturity:

In Thousands of Reais Banrisul Banrisul Consolidated

Acquisition Fair Acquisition FairMaturity Cost Value Cost Value

Up to 3 months .............................................................................. - - 1,763 1,7633 to 12 months .............................................................................. 478,003 478,009 478,003 478,0091 to 3 years .................................................................................... 1,250,020 1,250,050 1,250,020 1,250,0503 to 5 years .................................................................................... 288,983 288,994 288,983 288,994Tot al in 2010 ............................................................................. 2,017,006 2,017,053 2,018,769 2,018,816Tot al in 2009 ............................................................................. 1,926,201 1,926,273 1,926,796 1,926,882

According to the Central Bank of Brazil regulations, these securities are classified in current

assets at their fair value.

63

(b) Available-for-Sale Securities

Breakdown of the Available-for-Sale Securities Portfolio by category per fair value: In Thousands of Reais Banrisul Banrisul Consolidated 2010 2009 2010 2009

Treasur y Bills - LFT ......................................................................... 1,125,532 1,020,679 1,125,532 1,020,679Shares of Publicly-Held Companies ........................................... 14,614 16,490 14,616 16,652Privatization Certificates ............................................................ - - 5 5Fixed Income Fund Shares ........................................................... 5,542 - 7,716 7,110Receivable Investment Funds Shares (*) .................................. 521,021 - 521,021 -Tot al .......................................................................................... 1,666,709 1,037,169 1,668,890 1,044,446

(*) Refers to 100% of the senior shares of the Matone Credit Receivable Investment Fund - Payroll Loans. As the resourcesof the Fund is invested in receivables, the redemption of shares by the Bank depend on the availability of funding, and mayrequire that the Bank to wait until the maturity of such credits (up to 72 months). The remuneration of the fund is 114%of the DI rate,

Breakdown per maturity: In Thousands of Reais Banrisul Banrisul Consolidated

Acquisition Fair Acquisition FairMaturity Cost Value Cost Value

Without maturity ......................................................................... 549,315 541,177 551,496 543,3581 to 3 years .................................................................................... 1,040,764 1,040,772 1,040,764 1,040,7723 to 5 years .................................................................................... 84,749 84,760 84,749 84,760Tot al in 2010 ............................................................................. 1,674,828 1,666,709 1,677,009 1,668,890Tot al in 2009 ............................................................................. 1,043,775 1,037,169 1,051,052 1,044,446

The adjustment to fair value as of September 30, 2010, in the amount of R$8,119 thousand

(2009 – R$6,606 thousand), was recorded under a specific Shareholders’ Equity account, net of

taxes of R$3,249 thousand (2009 – R$2,688 thousand), recorded in “Other Credits”.

(c) Held-to-Maturity Securities

The Portfolio of Held-to-Maturity Securities, by category, stated at cost plus income earned is

as follows: In Thousands of Reais Banrisul Banrisul Consolidated

Restated RestatedAcquisition Fair Acquisition Fair

Cost Value Cost Value

Federal Government SecuritiesTreasury Bills - LFT .................................................................... 4,431,248 4,431,412 4,434,195 4,434,359National Treasur y Bills - NTN .................................................. 7,741 7,918 7,741 7,918 Salary Variation Compensation Fund - CVS ......................... 155,259 115,120 155,259 115,120

Other ............................................................................................... 6 6 6 6Mortgage-Backed Securities - LH ................................................ 30,158 30,158 30,158 30,158Certificate of Real Estate Receivables - CRI ............................. 2,687 2,687 2,687 2,687Tot al in 2010 ............................................................................. 4,627,099 4,587,301 4,630,046 4,590,248Tot al in 2009 ............................................................................. 4,215,434 4,175,698 4,218,131 4,178,395

The maturities of securities are as follows: In Thousands of Reais


Up to 3 months .............................................................................. 6 1,191 6 1,1913 to 12 months .............................................................................. 882,532 1,250,029 882,532 1,250,0291 to 3 years .................................................................................... 2,035,292 1,138,994 2,035,292 1,138,9943 to 5 years .................................................................................... 1,551,324 541,816 1,554,271 544,5135 to 15 years .................................................................................. 2,686 1,083,973 2,686 1,083,973Over 15 years ................................................................................. 155,259 199,431 155,259 199,431Tot al .......................................................................................... 4,627,099 4,215,434 4,630,046 4,218,131Current Assets .......................................................................... 882,538 1,251,220 882,538 1,251,220Long-Term Asse ts ...................................................................... 3,744,561 2,964,214 3,747,508 2,966,911

As held-to-maturity securities are redeemed, new securities are acquired according to portfolio

requirements and terms available in the market.


(d) Derivatives

In order to meet its own needs to minimize the effect of changes in the fixed rate, exchange

variation and TR (a managed prime rate), the Bank has conducted swap transactions to

exchange these rates for SELIC (Central Bank overnight rate) variation. Other risks are explained

in Note 24.

Banrisul and Banrisul Consolidated In Thousands of ReaisNotional Up to 3 3 to 12 1 to 3 3 to 5 5 to 15 Over 15

Value months months years years years years 2010 2009

AssetsSELIC + Fixed Rate-FCVS 65,555 - - - 9 21,300 4,603 25,912 23,170SELIC + Fixed Rate 88,974 10,788 12,294 24,588 24,588 61,470 - 133,728 122,487

LiabilitiesTR + Fixed Rate (65,555) (8,504) (10,761) (14,049) (6,835) (10,158) (646) (50,953) (37,779)USD+BID+Fixed Rate (88,974) - (720) (1,314) (1,163) (2,355) - (5,552) (4,495)

Net Adjustment 2,284 8 1 3 9,225 16,599 70,257 3,957 103,135 103,383

The above-mentioned swap transactions have as counterparty the Rio Grande do Sul State

Government and were entered in connection to the assignment of credits of the Salary Variation

Compensation Fund (FCVS) and credit operations with municipal public entities, and will be

settled on the same dates the main operations are received.

Swap and transactions combined therewith are subject to rates equivalent to those prevailing

in the market on the contracting date, since maturity dates are the same and the original

transactions and swap contracts will not be negotiated separately.

As of September 30, 2010, the amounts receivable and amounts payable are as follows:

Banrisul and Banrisul Consolidated In Thousands of Reais

2010 2009

DerivativesAdjustments Receivable - Short Term .......................................................................... 23,082 15,562Adjustments Receivable - Long Term ........................................................................... 136,558 130,095

Adjustments Payable - Short Term ................................................................................ (19,985) (11,331)Adjustments Payable - Long Term ................................................................................. (36,520) (30,943)Net Adjustment ........................................................................................................ 103,135 103,383

As of September 30, 2010, there were no futures or options contracts.

NOTE 06 Restricted Deposits


Description Interest Rate 2010 2009

Compulsory Deposits - Brazilian Central Bank. .............................................................. 1,881,085 1,223,931

Demand deposits and other funds .......... None ..................................................... 447,926 222,074

Additional Reserve ...................................... SELIC ..................................................... 26,709 -

Savings deposits .......................................... Savings account ................................. 1,190,599 982,533

Other deposits ............................................. None ..................................................... 26,398 19,324

Other deposits ............................................ TR .......................................................... 189,453 -

Credits with the National Housing System ..................................................................... 485,813 426,666

Acquired portfolio - swap ........................... 17.5% to 26% p.a. (*).............................................. 314,655 285,383

Acquired portfolio ....................................... TR + Interest ........................................ 155,543 126,202

Own portfolio ............................................... TR + Interest ........................................ 15,615 15,081

Correspondents ............................................. None ..................................................... 26,180 22,810

Total ................................................................................................................................ 2,393,078 1,673,407

Current Assets ................................................................................................................ 1,907,265 1,246,741

Long-term Assets ............................................................................................................ 485,813 426,666

(*) Linked to swap transactions as detailed in Note 05 (d).

65

National Housing System - Third-party Portfolio Acquired - From October 2002 to March 2005,

the Bank acquired from the Rio Grande do Sul State Government receivables from the Salary

Variation Compensation Fund (FCVS). As of September 30, 2010, the credits are stated at cost

plus income earned through the balance sheet date, at the amount of R$470,198 thousand

(2009 – R$411,585 thousand). Their face value is R$779,543 thousand (2009 – R$719,926

thousand). These receivables will be converted into CVS securities, pursuant to ratification

and novation processes, and, in spite of no established maturity, their fair values, upon the

issuance of the securities, may differ significantly from the carrying amounts.

National Housing System - Own Portfolio – Refers to credits of the FCVS arising from Banrisul’s

own mortgage loans portfolio that have already been approved by the FCVS’s regulatory

body.

NOTE 07 Loans, Lease Operations and Other Receivables

The tables below show loans, lease and foreign exchange portfolio balances.

(a) Breakdown by Type of Operation and Risk Level:

Banrisul and Banrisul Consolidated In Thousands of ReaisA A A B C D E F G H 2010 2009

Loan and Discounted Receivables ........ 4,135,830 4,101,336 1,650,878 874,744 140,444 168,486 659,880 45,571 325,973 12,103,142 9,119,070

Financing ................................................ 454,163 419,840 115,470 70,752 17,596 18,594 7,167 8,383 13,102 1,125,067 761,818

Rural and Agro-Industrial Financing .... 170,167 396,008 309,604 137,286 43,435 29,390 22,486 17,200 55,561 1,181,137 937,321

Real Estate Financing ............................ 445,610 393,384 205,226 82,672 22,571 19,473 33,030 1,073 14,584 1,217,623 1,055,873

Infrastructure and Development

Financing .............................................. - 56,741 - - - - - - - 56,741 38,668

Total Loans ........................................... 5,205,770 5,367,309 2,281,178 1,165,454 224,046 235,943 722,563 72,227 409,220 15,683,710 11,912,750

Lease Operations ................................... 10,655 27,570 22,064 7,918 3,811 4,669 3,740 232 2,526 83,185 100,965

Advances on Foreign Exchange ............

Contracts (1) ........................................ 86,654 154,837 160,933 18,194 3,288 2,132 3,673 9,191 4,256 443,158 484,785

Other Receivables - Foreign Exchange (2) 1,098 2,506 3,979 379 249 41 5,308 535 12,932 27,027 30,039

Total Banrisul in 2010 .......................... 5,304,177 5,552,222 2,468,154 1,191,945 231,394 242,785 735,284 82,185 428,934 16,237,080

Total Banrisul in 2009 .......................... 3,262,833 4,678,124 1,972,145 892,459 332,179 193,517 738,012 69,861 389,409 12,528,539

(1) Advances on foreign exchange contracts are classified as a reduction of “Other payables - Foreign exchange portfolio”(Note 13).

(2) Other Receivables - Foreign exchange include receivables from foreign exchange contracts and receivables from exportcontracts.

(b) Client Breakdown per Maturity and Risk Levels:

Banrisul and Banrisul Consolidated In Thousands of ReaisA A A B C D E F G H 2010 2009

Falling due (*) .................................... 5,303,720 5,550,224 2,459,127 1,171,425 220,510 228,202 683,301 50,714 262,993 15,930,216 12,186,731

Up to 180 days ................................. 1,539,637 1,703,524 1,104,664 563,545 99,084 105,922 320,566 18,868 68,175 5,523,985 4,661,491

181 to 360 days ............................... 730,757 861,804 406,229 180,271 43,710 41,702 102,611 8,081 43,391 2,418,556 1,883,923

Over 360 days .................................. 3,033,326 2,984,896 948,234 427,609 77,716 80,578 260,124 23,765 151,427 7,987,675 5,641,317

Past-due .............................................. 457 1,998 9,027 20,520 10,884 14,583 51,983 31,471 165,941 306,864 341,808

Up to 180 days ................................. 457 1,998 9,027 20,520 10,884 13,822 47,638 28,255 78,841 211,442 257,589

181 to 360 days ............................... - - - - - 761 4,345 3,216 50,403 58,725 60,920

Over 360 days .................................. - - - - - - - - 36,697 36,697 23,299

Total Banrisul in 2010 .......................... 5,304,177 5,552,222 2,468,154 1,191,945 231,394 242,785 735,284 82,185 428,934 16,237,080

Total Banrisul in 2009 .......................... 3,262,833 4,678,124 1,972,145 892,459 332,179 193,517 738,012 69,861 389,409 12,528,539

(*) Amounts up to 14 days past-due are included in the current.


(c) Portfolio Breakdown by Business Sector:


2010 2009

Municipal Public SectorGovernment - direct and indirect administration .................................................. 110,850 112,751Corporate activity - Other services ........................................................................... 18,932 -

Total Public Sect or .................................................................................................... 129,782 112,751Private sector

Rural ............................................................................................................................... 1,181,137 937,321Industry ......................................................................................................................... 3,376,862 2,740,398Commerce ..................................................................................................................... 1,899,208 1,471,525Services and other ....................................................................................................... 1,312,165 1,133,811Individuals ..................................................................................................................... 7,120,303 5,076,860Housing .......................................................................................................................... 1,217,623 1,055,873

Total Priv ate Sect or .................................................................................................. 16,107,298 12,415,788Total .......................................................................................................................... 16,237,080 12,528,539

(d) Changes in allowances for loan losses, doubtful lease receivables and other receivables:

The changes in allowances for losses on loan, lease and other receivables with loan

characteristics are as follows:


2010 2009

Opening balance ...................................................................................................... 1,016,754 970,691

Allowance recorded in the halfyear ......................................................................... 389,751 325,719

Write-offs to memorandum accounts ...................................................................... (283,802) (178,544)

Allowance other loans without credit characteristics .......................................... - (78,563)

Allowance for Loan Losses per risk level .................................................................. 1,122,703 1,039,303

Allowance for loan losses .........................................................................................

Current Assets .............................................................................................................. 419,109 424,180

Long-Term Assets ......................................................................................................... 664,561 566,247

Allowance for doubtful lease receivables

Current Assets .............................................................................................................. 2,460 1,502

Long-Term Assets ......................................................................................................... 5,074 7,401

Allowance for Loan losses for Other Receivables with Loan Characteristics

Current Assets .............................................................................................................. 12,457 30,759

Long-Term Assets ......................................................................................................... 19,042 9,214

Expenses related to allowance for other receivables without loan characteristics, as of

September 30, 2010, amount to R$1,845 thousand.

(e) Breakdown of allowances for loans losses, doubtful lease receivables and other receivables

per risk level:

Banrisul and Banrisul Consolidated In Thousands of Reais Recorded Allowance

Minimum MinimumRisk Loan allowance required by allowance Additional Allowancelevel Portfolio Resolution 2,68 2/99 required (Note 3(f)) Total

AA 5,304,177 0.0% - 10,483 10,483A 5,552,222 0.5% 27,761 11,105 38,866B 2,468,154 1.0% 24,682 12,340 37,022C 1,191,945 3.0% 35,758 23,839 59,597D 231,394 10.0% 23,139 4,628 27,767E 242,785 30.0% 72,835 4,856 77,691F 735,284 50.0% 367,642 14,706 382,348G 82,185 70.0% 57,530 2,465 59,995H 428,934 100.0% 428,934 - 428,934

Total in 2010 16,237,080 1,038,281 84,422 1,122,703Total in 2009 12,528,539 968,477 70,826 1,039,303

67

Loans written off at loss in the nine-month period ended in September 30, 2010 and controlled

based on the adjusted amount until the date of the respective write-off in a memorandum

account amounted to R$283,802 thousand (2009 – R$178,544 thousand).

Recoveries of loans previously written off as loss have been recognized as income from

lending operations and amounted to R$86,648 thousand (2009 – R$42,837 thousand) in the

nine-month period ended in September 30, 2010 net of losses or gains generated from these

recoveries.

NOTE 08 Other Receivables In Thousands of Reais Banrisul Banrisul Consolidated 2010 2009 2010 2009

Foreign Exchange Portfolio ............................................................ 459,516 459,182 459,516 459,182

Pending Setlement exchange purchased ................................... 435,188 441,088 435,188 441,088

Foreign Currency Advances Received ......................................... (126) - (126) -

For eign Exchange and Term Documen ts - Foreign Curr encies . 75 101 75 101

Rights to foreign exchange sold .................................................... 39,814 11,582 39,814 11,582

Advances in local currency ........................................................... (24,910) (6,779) (24,910) (6,779)

Income receivable from advances .............................................. 9,475 13,190 9,475 13,190

Income receivable ......................................................................... 33,232 31,870 32,233 29,830

Dividends and bonuses receivable ............................................. 2,247 2,040 1,248 -

Receivables from services rendered .......................................... 30,687 29,573 30,687 29,573

Other ................................................................................................. 2 9 8 2 5 7 2 9 8 2 5 7

Negociation and intermediation of amounts ................................. - - 3,440 3,354

Negociation and intermediation of amounts ............................ - - 3,440 3,354

Specific Credits ............................................................................... - - 16 14

Specific Credits ............................................................................... - - 16 14

Sundry ............................................................................................. 1,464,131 1,371,827 1,530,388 1,431,626

Advances to Loan Guarantee Fund .............................................. 62,291 81,962 62,291 81,962

Advances to employees ................................................................ 20,035 15,605 20,118 15,670

Advances for payment by our account ........................................ 6 8 0 6 1 2 7,151 6,323

Deferred income tax and social contribution (Note 22(b)) ...... 622,503 616,512 627,693 622,604

Escrow deposits (Note 14) ............................................................ 162,321 147,315 173,851 161,440

Recoverable taxes .......................................................................... 131,899 125,878 138,756 129,682

Reimbursable payments ............................................................... 82,394 72,041 82,950 72,087

Notes and credits receivable(*) ................................................... 241,045 211,047 241,782 212,061

Credit Cards ..................................................................................... 68,922 58,126 68,922 58,126

Other debtors – Domestic ............................................................. 72,041 42,729 106,874 71,671

Allowance for losses on other receivables .................................... (101,530) (118,536) (102,033) (119,695)

Tot al other receivables ................................................................... 1,855,349 1,744,343 1,923,560 1,804,311

Current assets ................................................................................. 1,049,599 1,010,275 1,106,648 1,050,904

Long-term assets ............................................................................ 805,750 734,068 816,912 753,407

(*) Notes and Credit Receivables are described mainly as follows:

a) in the first quarter of 2005, as part of receivables recovery policy, Banrisul received as payment in kind bonds issued t o pay c ourt ordered debts of the Federal Governmentfrom several companies to settle past-due loans of such companies. As of September 30, 2010, these bonds amount to R$86,418 thousand (2009 - R$80,517 thousand). Thesebonds are subject to the variation of the price and interest index.

b) in Other Receivables without credit characteristics, transactions with entities of the Municipal Public Sector were registered in the amount of R$91,763 (R$88,919thousand) related to receivables acquired from the Government of the State of Rio Grande do Sul State Government or its controlled entities.


NOTE 09 Permanent Assets

(a) Property and equipment

Banrisul In Thousands of ReaisNet Balance Net Balance

Rate Original Cost Depreciation in 2010 in 2009

Property in UseLand and Buildings in Use ............................................ 4 % 121,068 (98,253) 22,815 22,386Other

Furniture and Equipment in inventory ................... - 12,315 - 12,315 9,023Property and Equipment in Progress ..................... - 1 1 4 - 1 1 4 4,358Facilities ..................................................................... 10% 87,594 (75,752) 11,842 11,293Furniture and Equipment in Use ............................. 10% 69,914 (48,983) 20,931 22,283Other

Communication System ....................................... 10% 4,437 (3,847) 5 9 0 5 4 3Data Processing System ....................................... 20% 275,188 (182,582) 92,606 78,262Security System ..................................................... 10% 9,229 (6,623) 2,606 2,769Trans portation S ystem ......................................... 20% 2,480 (2,161) 3 1 9 5 1 7

Total ........................................................................ 582,339 (418,201) 164,138 151,434

Banrisul Consolidated In Thousands of ReaisNet Balance Net Balance

Rate Original Cost Depreciation in 2010 in 2009

Property in UseLand and Buildings in Use ............................................ 4 % 131,330 (102,942) 28,388 25,030Other

Furniture and Equipment in Inventory ................... - 12,315 - 12,315 9,023Property and Equipment in Progress ..................... - 1 1 4 - 1 1 4 5,197Facilities ..................................................................... 10% 88,792 (76,124) 12,668 11,354Furniture and Equipment in Use ............................. 10% 73,127 (51,564) 21,563 23,047Other

Communication System ....................................... 10% 4,438 (3,847) 5 9 1 5 4 3Data Processing System ....................................... 20% 275,947 (183,212) 92,735 78,354 Security System .................................................... 10% 9,229 (6,624) 2,605 2,769Trans portation S ystem ......................................... 20% 2,545 (2,175) 3 7 0 5 8 2

Total ........................................................................ 597,837 (426,488) 171,349 155,899

(b) Intangible Assets In Thousands of Reais Banrisul Banrisul Consolidated

Net Net Net NetOriginal Balance Balance Balance Balance

Rate Cost Amortization in 2010 in 2009 in 2010 in 2009

Intangible AssetsRight from Acquisition of Payroll

operations (*)Public Sector ........................................ 20% 298,285 (140,328) 157,957 168,298 157,957 168,298Private Sector ...................................... 20% 25,777 (5,440) 20,337 9,191 20,337 9,191

Software Acquisition ................................... 20% 35,933 (27,733) 8,200 7,914 8,200 7,927Other .............................................................. - 6 6 8 (604) 64 79 1,105 79Total .......................................................... 360,663 (174,105) 186,558 185,482 187,599 185,495

(*) It refers to agreements entered into with the public sector and private sector entities to ensure the exclusivityin banking services for processing of payroll credit and deductible payroll loans, bill collection portfolio, supplierpayment and other services. Such agreements are effective for five years and are amortized over the agreementperiod. No indications that these assets are impaired were identified.

69

NOTE 10 Deposits and Money Market Funding

Banrisul In Thousands of ReaisWithout Up to 3 to Overmaturity 3 months 12 months 12 months 2010 2009

DepositsDemand deposits (a) ............................... 2,114,254 - - - 2,114,254 1,686,123Savings deposits (a) ................................. 6,295,708 - - - 6,295,708 5,200,180Interbank deposits .................................. - - 14,652 - 14,652 61,599Time deposits (b) ...................................... 7,402 2,166,340 4,135,640 3,447,243 9,756,625 8,686,321Other deposits .......................................... 1,861 - - - 1,861 8,659

Tot al ........................................................... 8,419,225 2,166,340 4,150,292 3,447,243 18,183,100 15,642,882

Current liabilities ...................................... 14,735,857 12,315,192Long-term liabilities .................................. 3,447,243 3,327,690

Money market fundingOwn Portfolio ............................................ - 2,350,621 - - 2,350,621 2,473,944

Tot al ........................................................... - 2,350,621 - - 2,350,621 2,473,944

Banrisul Consolidated In Thousands of ReaisWithout Up to 3 to Overmaturity 3 months 12 months 12 months 2010 2009

DepositsDemand deposits (a) ............................... 2,108,912 - - - 2,108,912 1,682,077Savings deposits (a) ................................. 6,295,708 - - - 6,295,708 5,200,180Interbank deposits .................................. - - 14,652 - 14,652 61,599Time deposits (b) ...................................... 7,402 2,039,536 4,135,640 3,350,387 9,532,965 8,509,714Other deposits .......................................... 1,861 - - - 1,861 8,713

Total .......................................................... 8,413,883 2,039,536 4,150,292 3,350,387 17,954,098 15,462,283

Current liabilities ...................................... 14,603,711 12,134,593Long-term liabilities .................................. 3,350,387 3,327,690

Money market fundingOwn Portfolio ............................................ - 2,285,898 - - 2,285,898 2,414,101

Tot al ........................................................... - 2,285,898 - - 2,285,898 2,414,101

(a) Cla ssified without specified maturity as they do not consider the historical average turno ver.

(b) Consider the maturities set for each investment.

Time deposits are made by the Bank’s customers, with floating or fixed charges equivalent to

76% and 24% of the total portfolio, respectively. The average funding rate for floating-rate

deposits corresponds to 96.85% (2009 – 96.96%) of the CDI variation, and for fixed-rate deposits,

to 8.44% (2009 – 9.14%) p.a.

Funding through money market purchase and sale commitments operations – own portfolio

–, conducted with financial institutions, has an average funding rate of 100% of the CDI variation.

NOTE 11 Borrowings

Foreign Borrowings: represented by funds obtained from foreign banks to be used in foreign

exchange commercial transactions subject to the variation of the corresponding currencies

plus annual interest rates from 2.0% to 7.76% (2009 – 1.79 % to 9.00%) with maximum term of

1,100 days (2009 – 360 days).


NOTE 12 Onlendings

Banrisul and Banrisul Consolidated In Thousands of ReaisDomestic Onlendings

Official Institutions Foreingn Onlendings Total

2010 2009 2010 2009 2010 2009

Up to 90 days ................................................ 252,579 248,791 26,318 9,624 278,897 258,41591 to 360 days .............................................. 29,365 119,307 15,904 26,477 45,269 145,7841 to 3 years ................................................... 314,712 216,712 1,814 - 316,526 216,7123 to 5 years ................................................... 174,747 131,384 7 2 6 - 175,473 131,384Over 5 years .................................................. 220,219 153,289 - - 220,219 153,289Total ........................................................... 991,622 869,483 44,762 36,101 1,036,384 905,584

Current liabilities ...................................... 281,944 368,098 42,222 36,101 324,166 404,199Long-term liabilities .................................. 709,678 501,385 2,540 - 712,218 501,385

Internal funds for onlending refer basically to funds from Official Institutions (BNDES – NationalBank for Economic and Social Development, FINAME – National Equipment Financing Authorityand Caixa Econômica Federal – Federal Savings and Loan Bank). These liabilities mature on amonthly basis through July 2023, and are subject to interest of 0.90% to 8.00% (2009 – 0.90% to3.50%) p.a., plus variation of the indexes (TJLP, U.S. dollar and Currency Basket) for floating-rate operations and up to 11.00% (2009 – 11.00%) p.a. for fixed-rate operations. Funds aretransferred to customers on the same terms and with the same funding rates, plus commissionon financial intermediation. These funds are collateralized by the same guarantees receivedfor the related loans.

NOTE 13 Other Payables In Thousands of Reais Banrisul Banrisul Consolidated 2010 2009 2010 2009

Collected taxes and other ................................................................ 111,978 91,281 111,978 91,281Receipt of federal taxes ................................................................... 111,710 91,175 111,710 91,175Other .................................................................................................... 2 6 8 1 0 6 2 6 8 1 0 6

Foreign exchange portfolio .............................................................. 42,468 18,645 42,468 18,645Pending Settlement exchange sold ................................................ 38,759 11,474 38,759 11,474Foreign exchange purchased ........................................................... 446,867 491,953 446,867 491,953Advances on foreign exchange contracts (Note 07 (a)) ............... (443,158) (484,785) (443,158) (484,785)Other .................................................................................................... - 3 - 3

Social and statutory .......................................................................... 54,347 23,151 55,655 23,204Dividends and bonuses payable ..................................................... 20,814 6 6 5 22,122 7 1 8Bonuses and profit sharing payable .............................................. 33,533 22,486 33,533 22,486

Taxes and social security ................................................................... 700,780 618,028 713,832 627,674Taxe s and contributions payable .................................................... 48,529 43,788 49,500 44,667Reserve for taxes and social contribution ..................................... 252,308 183,676 262,953 191,015Reserve for deferred taxes and contributions (Note 22 (b2)) ..... 10,962 8,392 10,962 8,423Reserve for tax contingencies (Note 14 (b)) .................................. 388,981 382,172 390,417 383,569

Trading and intermedia tion of securities ......................................... - - 3,089 2,579Trading and intermediation of securitie s ...................................... - - 3,089 2,579

Financial and development funds .................................................... 4,395,584 3,895,201 4,395,584 3,895,201Payables for financial and development funds (Note 21 (a)) ..... 4,376,184 3,874,263 4,376,184 3,874,263Other .................................................................................................... 19,400 20,938 19,400 20,938

Sundry ............................................................................................... 819,225 805,284 885,172 839,441Ca shier ’s check .................................................................................. 1,092 9 3 2 1,092 9 3 2Creditors for unreleased funds ....................................................... 48,609 39,162 48,799 39,357Payables for acquisition of assets and rights ............................... 2,121 2,105 2,208 2,206Liabilities under government agreements ................................... 22,944 15,873 22,944 15,873Accrued vacation and related charges .......................................... 207,483 193,699 200,824 169,437Actuarial deficit of Fundação Banrisul (Note 23) ......................... 61,236 58,891 61,236 58,891Reserve for labor contingencies (Note 14(b)) ............................... 109,274 97,514 123,098 114,033Brazilian Central Bank fines on foreign exchange transactions (Note 14 (b)) ............................................................... 114,229 110,154 114,229 110,154Reserve for social security contingencies ..................................... 18,783 18,783 18,783 18,783Reserve for securitization losses (*) .............................................. 4,262 12,884 4,262 12,884Reserve for civil risk (Note 14 (b)) ................................................... 9,686 5,438 9,686 5,438Reserve for debts assumed with Grupo de Empresas SeguradorasBrasileiras (GESB) arising from Companhia União de Seguros Gerais . 7,334 7,697 7,334 7,697FGTS (Severance Pay Fund) for amortization ................................ 3,221 2,704 3,221 2,704Sundry creditors – Domestic ........................................................... 76,481 84,108 134,061 124,926Card transactions payable .............................................................. 57,655 45,941 57,655 45,941Other .................................................................................................... 74,815 109,399 75,740 110,185

Total Other Payable s ......................................................................... 6,124,382 5,451,590 6,207,778 5,498,025Current Liabilities ............................................................................ 5,575,729 4,875,077 5,658,642 4,921,049Long-Term Liabi lities ........................................................................ 548,653 576,513 549,136 576,976

(*) The management of the Bank maintains provision for co-obligation of securitized receivable s with the National Treasur y,in the amount of R$42,779 thousand (2009 – R$51,293 thousand), controlled in a memorandum account, which are theresponsibility of agricultural borrowers.

71

NOTE 14 Reserves for Contingent Assets and Contingent Liabilities

In the normal course of their activities, Banrisul and its subsidiaries are party to tax, labor and

civil lawsuits at the judicial and administrative levels.

The provisions were calculated based on the opinion of the legal counselors, based on the

best measurement models and benchmarks available, despite the inherent uncertainty as to

the outcome. Banrisul records a reserve in the total amounts involved in lawsuits that have

been assessed as probable loss.

Management believes that the reserves are sufficient to cover any losses arising from lawsuits.

(a) Contingent Assets

As of September 30, 2010 there were no contingent assets recognized.

(b) Changes in Provisions for Contingent AssetsBanrisul In Thousands of Reais

Tax Labor Civil Other Total

Initial Balance at 12/31/2009 386,006 96,599 7,200 111,105 600,910

Recognition and Inflation Adjustment ......... 12,592 61,115 2,764 3,124 79,595

Payment ............................................................ (9,617) (48,440) (278) - (58,335)

Closing Balance at 09/30/2010 ..................... 388,981 109,274 9,686 114,229 622,170

Guaranteed Deposits (Note 8) ...................... 18,557 99,319 44,445 - 162,321

Banrisul Consolidated In Thousands of Reais Tax Labor Civil Other Total

Initial Balance at 12/31/2009 387,410 111,571 7,200 111,105 617,286

Recognition and Inflation Adjustment ......... 12,624 62,422 2,764 3,124 80,934

Payment ............................................................ (9,617) (50,895) (278) - (60,790)

Closing Balance a t 09/30/2010 ..................... 390,417 123,098 9,686 114,229 637,430

Garanteed Deposits (Note 8) ......................... 19,993 108,060 45,798 - 173,851

(c) Tax Contingencies

Provisions for tax contingencies relate primarily to liabilities related to taxes whose legality

or constitutionality is being challenged at the administrative or judicial levels, whose

likelihood of loss is or has been considered as probable and are recognized at the full amont

under dispute.

For lawsuits collateralized by escrow deposits, the amounts involved are not adjusted for

inflation. When legal permits are issued as a result of a favorable outcome, the amounts are

adjusted for inflation and withdrawn.

The main legal claims are:

i) Income tax and social contribution on the deduction of expenses arising from the settlement

of the actuarial deficit of the Banrisul Foundation, questioned by the Federal Revenue Service

for the period from 1998 to 2005 and from R$388,981 thousand. The Bank, through its legal

counsel, has been addressing the matter in court and prudently recorded provisions for

contingencies in the amount of the probable loss and

ii) Social security tax notification related to social security amounts collected on payments

that refer neither to salary nor to education allowance in the amount of R$18,783 thousand.


(d) Labor Contingencies

Refer to lawsuits filed by unions and former employees claiming labor rights, in particular the

payment of overtime and other labor rights.

Recognized for labor claims filed against Banrisul when a court notification is received and

the likelihood loss is considered as probable. The reserve is calculated according to the

disbursement estimated by our management, timely reviewed based on data received from

our legal advisors, and adjusted to the escrow deposit when required . Of the aforementioned

reserve, R$83,515 thousand (consolidated - R$91,557 thousand) has been deposited in a escrow

amount. Additionally, R$15,804 thousand was required related to escrow deposits for the

appeals.

There are labor claims whose reserve for contingency is not recorded in the books and whose

likelihood of loss is considered as possible, according to their nature, in the approximate

amount of R$44,000 thousand.

(e) Civil Contingencies

Lawsuits for damages refer to compensation for property damage and/or pain and suffering,

related to consumption relationships, in particular, matters relating to credit cards, consumer

credit, checking accounts, banking collection and loans.

Recognized when a court notification is received and adjusted monthly according to the

amount of compensation claimed, evidence presented and the evaluation of legal advisors,

taking on account jurisprudence, opinions issued, evidence produced in the records and

judgments that may be rendered in the lawsuit, regarding the risk of losing the claim.

There is also R$44,445 thousand in deposited in escrow accounts related to claims whose

likelihood of loss is assessed by our legal advisors as possible and remote, for which there is

no reserve recorded in the books.

(f) 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 1989. In an appeal

decision at the administrative level, Banrisul was required to pay a fine equivalent to 100% of

the amount of the supposedly irregular transactions. This decision is being challenged in

court by Management, which, on a conservative basis and in compliance with BACEN

requirements, recorded a reserve for this contingency.

NOTE 15 Income from Services Rendered In Thousands of Reais Banrisul Banrisul Consolidated 2010 2009 2010 2009

Funds Management ........................................................................ 42,304 40,132 47,389 43,995

Collection of Debt Instruments ..................................................... 31,593 29,255 31,862 29,261

Income from Refeisul ..................................................................... - - 15,723 12,369

Income from Group Financing Management Fee ....................... - - 8,660 8,139

Income from Brokerage of Operations ......................................... - - 3,396 2,930

Other Income .................................................................................... 6 5 7 6 9 1 4,475 4,804

Total ............................................................................................ 74,554 70,078 111,505 101,498

73

NOTE 16 Income from Bank Fees


Banricompras ................................................................................... 61,611 49,985 61,611 49,985

Check Returns .................................................................................. 13,730 15,152 13,730 15,152

Checking Account Debits ................................................................ 15,976 14,833 15,976 14,833

Collection Services .......................................................................... 44,960 41,709 44,960 41,709

Transactions with Checks ............................................................... 10,647 9,144 10,647 9,144

Bank Fees from Checking Accounts ............................................... 178,577 167,390 178,577 167,390

Credit Card ........................................................................................ 9,143 8,390 9,143 8,390

Other Income from Fees ................................................................. 22,038 19,117 22,030 19,117

Tot al ............................................................................................ 356,682 325,720 356,674 325,720

From the income amount of R$356,682 thousand for nine-month period ended September

30, 2010, R$174,352 thousand (2009 – R$172,646 thousand) arise from operations with

individuals and R$182,330 thousand (2009 – R$153,074 thousand) from operations with legal

entities.

NOTE 17 Other Administrative Expenses


Data Proce ssing and Telecommunication ................................... 114,553 106,968 118,032 109,439

Security and Money Transportation ............................................. 60,103 55,662 60,103 55,662

Amortization and Depreciation .................................................... 81,031 67,145 81,572 67,808

Rentals .............................................................................................. 40,425 34,477 39,241 33,422

Supplies ............................................................................................. 19,039 14,973 19,077 15,009

Outside Services .............................................................................. 95,292 81,300 97,316 82,844

Advertising, Promotions and Publicity (*) .................................... 85,313 71,816 86,177 72,378

Maintenance .................................................................................... 18,666 14,085 18,830 14,318

Water, Electricity and Gas ............................................................. 14,552 12,816 14,707 12,952

Financial System Services .............................................................. 14,652 12,650 15,352 13,067

Other .................................................................................................. 26,188 26,873 27,477 28,113

Tot al ............................................................................................ 569,814 498,765 577,884 505,012

(*) Comprises mainly institutional advertising of R$34,160 thousand (2009 - R$38,013 thousand) and sponsorship of sportevents and clubs of R$43,663 thousand (2009 - R$27,650 thousand).

NOTE 18 Other Operating Income In Thousands of Reais Banrisul Banrisul Consolidated 2010 2009 2010 2009

Recovery of Charges and Expenses ............................................... 36,380 35,244 33,184 31,557

Reversal of Operating Reserves for:

- Reserve for Securitization Losses (Note 13)

- Other Assets ............................................................................... 3,167 - 3,167 -

Other Taxes ....................................................................................... 1,791 4,114 1,791 4,114

Commission on Capitalization Certificates ................................. 61 42 61 42

Interbank Fees ................................................................................. 1,379 2,153 1,379 2,153

Foreign exchange adjustment ....................................................... 15,881 15,670 15,881 15,670

Credit Notes Receivable ................................................................. 7,972 4,410 7,972 4,410

Reserve Fund - Escrow Deposit - Law 12,069 .............................. 11,507 11,902 11,507 11,902

Insurance - Commission and Placement Administration Fee .. 2,374 1,750 2,374 1,750

Other Operating Income ................................................................. 49,329 15,893 50,458 17,093

Tot al ............................................................................................ 129,841 91,178 127,774 88,691


NOTE 19 Other Operating Expenses In Thousands of Reais Banrisul Banrisul Consolidated 2010 2009 2010 2009

Discount Granted from Renegotiations ....................................... 5,081 3,886 5,081 3,886

Reserves for Labor Provisions (Note 14 (b)) ................................ 61,115 46,140 62,422 50,710

Provision for Properties - Assets not in use ................................ 3,283 7 2 3 3,283 7 2 3

Provision for Securitization Losses .............................................. - 8 3 1 - 8 3 1

Provision for Civil Lawsuits (Note 14 (b)) ..................................... 2,764 20 2,764 20

Collection of Federal Taxes ............................................................ 1,621 1,358 1,621 1,358

Inflation Adjustment of Re serve for Tax Conting encies

(Social Contribution / Income Tax) - (Note 14 (b)) ................... 12,592 14,753 12,624 14,753

Lawsuits Indemnifications ............................................................ 5,999 3,189 5,999 3,189

Inflation Adjustment of Brazilian Central Bank fines on

Foreign Exchange (Note 14 (b)) ....................................................... 3,124 3,661 3,124 3,661

Inflation Adjustment of Actuarial Deficit of

Fundação Banrisul (Note 23) ..................................................... 6,599 1,454 6,599 1,454

Overdraft Accounts and Banricompras Premiável ..................... 7 0 4 7 7 0 7 0 4 7 7 0

Provision for Debts Assumed with GESB ...................................... 9 5 1 4 2 9 9 5 1 4 2 9

Banrisul Foundation - Actuarial Liabilities pursuant

Ibracon NPC 26 ............................................................................. - 21,597 - 21,597

Exchange Adjustment - Foreign Branches .................................... 3,109 35,849 3,109 35,849

Lawsuits ............................................................................................ 5,435 4,474 5,435 4,474

Cards .................................................................................................. 3,007 2,938 3,007 2,938

Other Operating Expenses (*) ......................................................... 13,957 52,972 13,700 53,296

Total ............................................................................................ 129,341 195,044 130,423 199,938

(*) In September 30, 2009, the amount of R$39,124 thousand refers mainly to the payment of mandatory allocation ofsavings deposits from prior years.

NOTE 20 Shareholders´ Equity - Banrisul

(a) Capital

Fully subscribed paid-up capital as of September 30, 2010 is R$2,900,000 thousand and it is

represented by 408,974 thousand shares without par value as follows:

ON PNA PNB Total

Amount % Amount % Amount % Amount %

Rio Grande do Sul State ................................. 204,199,859 99.59 2,721,484 73.55 26,086,957 13.03 233,008,300 56.97

Fundação Banrisul de Seguridade Social

(pension plan) .......................................... 449,054 0.22 158,983 4.30 - 0.00 608,037 0.15

Social Security Institute of

Rio Grande do Sul State ............................ 44,934 0.02 168,612 4.56 - 0.00 213,546 0.05

Market ........................................................... 349,527 0.17 651,006 17.59 174,144,061 86.97 175,144,594 42.83

Total ............................................................ 205,043,374 100 .00 3,700,085 100.00 200,231,018 100.00 408,974,477 100.00

The Extraordinary Shareholders’ Meeting held on April 30, 2010 approved a capital increase

by using the earnings reserve in the amount of R$300,000 thousand, with no issuance of new

shares, already homologated by BACEN.

Preferred shares do not carry voting rights and are entitled to the following payments:

Class A Preferred Shares:

i) Priority to receive a non-cumulative, preferred fixed dividend of six percent (6%) p.a.,

calculated over the quotient resulting from the division of capital by the number of shares

composing it;

75

ii) Right to take part, after the payment to Class B Common and Preferred Shares of a dividend

equal to that paid to those shares, in the distribution of any other dividends or bonuses in

cash distributed by the Bank, under equal conditions with Class B Common and Preferred

Shares, adding ten percent (10%) over the amount paid to those shares;

iii) Interest in capital increases deriving from the capitalization of reserves, under equal

conditions of 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 equal

conditions of 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 6,404/76, will have the following

allocations: (i) 5% to the Legal Reserve, which will not exceed 20% of Capital, (ii) 25% to the

Statutory Reserve, and (iii) mandatory minimum dividends up to the limit of 25% of adjusted

net income. The remaining net income will be allocated as decided in the Shareholders´

Meeting.

The Statutory Reserve is intended to ensure funds for investments in the information

technology area, and is limited to 70% of paid-up capital.

In April 30,2010, the Ordinary and Extraordinary Shareholders’ Meeting ratified and approved

the proposal for the distribution of additional dividends for 2009 and 2010 respectively,

equivalent to 15% of the Adjusted Net Income, totaling 40%.

The pay-out policy adopted by Banrisul aims to pay interest on capital in the maximum

calculated in accordance with prevailing legislation, whith are included net of whithholding

income tax in the calculation of mandatory dividends for the fiscal year, as stated in our by-

Laws.

As permitted by Law no. 9,249/95, Banrisul’s management paid interest on capital in the

amount of R$144,306 thousand net referring to the period from January to September 2010,

to be credited to dividends, net of withholding income tax.

The payment of this interest on capital resulted in a tax benefit for the Bank in the amount of

R$61,048 thousand (2009 – R$56,707 thousand) (Note 22).

NOTE 21 Commitments, Guarantees and Other

(a) On April 22, 2004, State Law 12,069, amended by Law 12,585 of August 29, 2006, was

approved, under which the Bank must make available, when required, to Rio Grande do Sul

State up to 85% of the escrow deposits made by third parties with the Bank (except for those

in which the litigant is a municipality). The remaining amount not available is recorded in a

reserve fund to ensure the refund of said escrow deposits. As of September 30, 2010, the

amount of escrow deposits made by third parties with the Bank, adjusted through the balance

sheet date by the TR (managed prime rate) variation plus interest of 6.17% p.a., totaled

R$6,419,184 thousand (2009 – R$5,917,263 thousand), of which R$2,043,000 thousand (2009 –

R$2,043,000 thousand) was transferred to the State upon its request and written off from the


respective equity accounts. The remaining balance, which makes up the aforementioned

fund managed by Banrisul, is recorded in Other Payables - Financial and Development Funds

(Note 13).

(b) Sureties and guarantees granted to customers amount to R$538,738 thousand (2009 –

R$530,303 thousand), and are subject to financial charges and backed by the beneficiaries’

sureties.

(c) The Bank is responsible for the custody of 430,441 thousand securities of customers (2009

– 341,868 thousand).

(d) The Bank has co-obligations in import credits in the amount of R$60,515 thousand (2009 –

R$38,981 thousand).

(e) The Bank manages various funds and portfolios, which have the following net assets:


Investment funds (*) ........................................................................ 5,368,942 4,698,279 5,385,461 4,853,461Investment funds in investment fund quotas ............................ 114,167 72,757 255,614 72,757Fund to Guarantee the Liquidity of Rio Grande do Sul State Debt Securities ................................................................... 980,891 1,570,081 980,891 1,570,081Managed portfolios ......................................................................... 483,982 417,326 499,148 431,828Credit Rights Investment Fund ...................................................... - 35,335 - 35,335Investment Clubs ............................................................................ - - 855 140Total ............................................................................................ 6,947,982 6,793,778 7,121,969 6,963,602

(*) The investments fund portfolios consist basically of fixed-rate and variable rate government bonds, and their carryingamounts already reflect mark-to-market adjustments at the balance sheet date.

(f) The subsidiary Banrisul S.A. Administradora de Consórcios is responsible for the

management of 113 consortium groups (105 in 2009, September), distributed among real

estate, motorcycles, vehicles and tractors, gathering 21,180 active consortium members

(19,852 in 2009, September).

(g) The Bank rents properties, manly used for branches, based on standard contracts which

may be cancelled as its own criterion and include the right to opt for renewal and adjustment

clauses, classified as operating lease. Total future minimum payments of not-cancelable rent

as of September 30, 2010 is R$105,809 thousand, of which R$32,535 thousand matures in up to

one year, R$60,318 thousand from one to five years and R$12,956 thousand over five years.

Payments for operating leases, recognized as expenses for the period, were R$37,125 thousand.

NOTE 22 Income Tax and Social Contribution

(a) Conciliation of Expenses/Revenue with Income Tax and Social Contribution


Income for the Period before Taxes and Pr ofit Sharing ............. 773,579 541,410 786,004 552,706Income Tax on Profit - Rate 25% ..................................................... (193,395) (135,353) (196,501) (138,177)Social Contribution on Profit - Rate 9% ........................................ - - (956) (738)Social Contribution on Profit - Rate 15% ...................................... (116,037) (81,212) (116,307) (81,675)Total Income Tax and Social Contribution

calculated at Effective Rate .................................................... (309,432) (216,565) (313,764) (220,590)Adjustment of Fine on Foreign Exchange Operations ................ (1,250) (1,464) (1,250) (1,464)Profit Sharing .................................................................................... 13,400 8,994 13,400 8,994Interest on Capital .......................................................................... 61,048 56,707 61,048 56,707Equity in Subsidiaries and Foreing Exchange Adjustment

on Branches .................................................................................. 8,192 6,527 (1,244) (14,339)

Other Additions, Net of Exclusions ................................................ (653) (16,319) 8 1 6 (2,612)

Total Income Tax and Social Contribution .................................. (228,695) (162,120) (240,994) (173,304)

77

(b) Deferred Income Tax and Social Contribution

In September 2010, the Bank had Deferred Income Tax and Social Contribution Credits on

temporary differences as follows:

(b1) Tax credits

Tax credit balances, by origin and disbursements made, are as follows:

Banrisul In Thousands of ReaisBalance on Balance on

12/31 /2009 Recognition Realization 09/30 /2010

Allowance for loan losses .............................................................. 432,370 159,412 142,779 449,003

Reserve for labor contingencies ................................................... 38,640 24,446 19,376 43,710

Reserve for tax contingencies ....................................................... 70,059 8,995 3,958 75,096

Other temporary provisions .......................................................... 56,967 1,759 4,009 54,717

Tot al tax credit s on temporary diff erences................................ 598,036 194,612 170,122 622,526

Unrecorded credits ......................................................................... (23) - - (23)

Tot al tax credits recorded .......................................................... 598,013 194,612 170,122 622,503

Deferred tax liabilities ................................................................... (9,409) (1,619) (66) (10,962)

Tax credit s, net of deferred liabilities ........................................ 588,604 192,993 170,056 611,541

Banrisul Consolidated In Thousands of Reais

Balance on Balance on12/31 /2009 Recognition Realization 09/30 /2010

Allowance for loan losses .............................................................. 432,370 159,412 142,779 449,003

Reserve for labor contingencies ................................................... 43,730 24,890 20,208 48,412

Reserve for tax contingencies ....................................................... 70,536 9,006 3,958 75,584

Other temporary provisions .......................................................... 56,967 1,759 4,009 54,717

Tot al tax credit s on temporary diff erences................................ 603,603 195,067 170,954 627,716

Unrecorded credits ......................................................................... (23) - - (23)

Tot al tax credits recorded .......................................................... 603,580 195,067 170,954 627,693

Deferred tax liabilities ................................................................... (9,440) (1,621) (99) (10,962)

Tax credit s, net of deferred liabilities ........................................ 594,140 193,446 170,855 616,731

Expected realization of these receivables are as follows: In Thousands of Reais Banrisul Banrisul Consolidated Tempor ary Diferences

Year Income Tax Social Contribution Total Total Recorded Total Recorded

2010 19,893 11,936 31,829 31,829 31,9472011 132,663 79,598 212,261 212,261 212,7312012 101,285 60,771 162,056 162,056 162,5262013 83,370 50,022 133,392 133,392 134,3512014 38,750 23,250 62,000 62,000 62,4702015 to 2017 12,594 7,556 20,150 20,150 21,5602018 to 2020 5 0 9 306 8 1 5 8 1 5 2,108After 2020 15 8 23 - -Total on 09/30/2010 389,079 233,447 622,526 622,503 627,693Total on 09/30/2009 385,335 231,200 616,535 616,512 622,604

The total consolidated present value of tax credits is R$492,397 thousand, calculated based

on the expected realization of temporary differences at average funding rate projected for

the corresponding periods.

(b2) Deferred Tax Liabilities

The balance of the Reserve for Deferred Taxes and Contributions is represented by: In Thousands of Reais Banrisul Banrisul Consolidated 2010 2009 2010 2009

Excess Depreciation ........................................................................ (10,954) (8,316) (10,954) (8,316)

Available for Sale Securities .......................................................... (8) (10) (8) (10)

Adjustment to Fair Value of Trading Securities ........................... - (66) - (97)

Tot al ............................................................................................ (10,962) (8,392) (10,962) (8,423)


NOTE 23 Fundação Banrisul de Seguridade Social e Cabergs - Caixa deAssistência dos Empregados do Banco do Estado do Rio Grande do Sul

Banrisul is the main sponsor of Fundação Banrisul de Seguridade Social (“Fundação Banrisul”),

which is mainly engaged in supplementing the benefits covered and provided by the Social

Security to the employees of the Bank, Banrisul Serviços, and Cabergs, and carrying out social

security programs promoted by its sponsors.

On July 6, 2009, a new retirement benefit plan named Banrisulprev was approved and has

been offered to non members of the Benefit Plan I since then. This new variable contribution

benefit plan became effective in November 2009. As a result of the implementation of this

new plan, new members are no longer allowed to join the Benefit Plan I.

To attain its objectives, Fundação Banrisul receives monthly contributions from its sponsors

and participants, which are calculated based on the monthly compensation of employees and

their beneficiaries. The Bank’s contribution amount of R$9,192 thousand (2009 - R$7,867

thousand) for the year, which, as of September 30, 2010, corresponds to 3.51% (2009 – 3.63%)

of the monthly payroll of employees’ contribution salaries, was recorded in operating

expenses.

Benefit Plan I - In the defined benefit type, Benefit Plan I provides retirement and survivorship

benefits, sick pay, inmate pension, funeral allowance and annual bonus.

The active participant’s normal contribution corresponds to the monthly amount equivalent

to the result of the application of the following fees:

a) Fixed general percentage of 3% applicable to the contribution salary;

b) First additional percentage of 2% applicable to the contribution salary surplus (if any) on

half of the highest Social Security benefit salary; and

c) Second additional percentage of 7% applicable to the contribution salary surplus (if any) on

the highest Social Security benefit salary.

Banrisul’s remaining portion of the contracted debt related to this plan in the amount of

R$61,236 thousand as of September 30, 2010 (2009 – R$58,891 thousand) is recorded in Other

Payables (Note 13). In addition to this deficit, Banrisul pays interest of 6% per year with final

maturity in 2028, which is monthly adjusted based on the General Price Index – Domestic

Availability (IGP-DI).

Banrisulprev - In the variable contribution type, Banrisulprev provides benefits with defined

contribution characteristics, such as regular retirement, early retirement and funeral

allowance, and benefits with defined benefit characteristics, such as disability retirement,

proportional benefits, sick pays, annual bonus, minimum benefit and survivorship benefit.

The participant ’s normal contribution is comprised of three portions:

a) Basic portion: 1% on the contribution salary;

b) Additional portion: may vary from 1% to 7.5% on the contribution salary portion that exceeds

9 reference units; and

c) Variable portion: percentage applied on the contribution salary annually established by the

actuary to cover 50% of the costs of risk benefits and the plan’s administrative expenses.

79

In addition to the regular contribution, the participant may opt to make a contribution not

lower than one reference unit and not paid by the sponsor.

The Bank’s contributions are equal to the participants’ normal contributions.

Medical and dental care - Banrisul offers medical and dental care to its employees and

Fundação Banrisul’s retirees through Cabergs.

As of December 31, 2009, the actuarial appraisal of post-employment benefits related to

defined benefits, Banrisulprev and health care granted to its employees was as follows:

In Thousands of ReaisBenefit Banrisulprev Medical and

Plan I Plan dental care Total

Present obligation of actuarial obligations ................................ (2,301,202) (669) (107,882) (2,409,753)

Fair value of Fundação Banrisul’s asse ts ..................................... 2,491,893 1 0 3 92,989 2,584,985

Gains /Losses and cost of unrecognized services ...................... 111,681 5 6 6 25,033 137,280

Actuarial assets (liabilities) ........................................................ 302,372 - 10,140 312,512

The main actuarial assumptions used as December 31, 2009 are as follows:

Discount rate: 11.40% p.a.

Expected return rate of pension plans’ assets:

Defined benefit plan: 12.36% p.a.

Variable contribution plan: 12.39% p.a.

Medical and dental care: 10.58% p.a.

Future salary increase rate: 6.59% p.a.

Increase in average costs: 7.64% p.a.

Inflation: 4.50% p.a.

Mortality table: AT – 2000.

NOTE 24 Financial Instruments

The main risks related to financial instruments are credit risks, market risks and liquidity

risks, as follows:

Credit risk: it is the possibility of the Bank incurring losses related to the nonperformance of

a loan or financial obligation by the counterparty.

Credit risk management is carried out through statistical models that allow continuous

improvement of the credit granting process. Banrisul continuously performs adherence tests

per period, monitoring credit portfolio shifts, customer and sector concentration and default

levels.

Market risk: it is directly related to the fluctuation of prices and rates, that is, to the fluctuation

of the stock exchange, interest rate market and foreign exchange inside and outside Brazil

that affects the prices of the assets and liabilities negotiated in the market.

Liquidity risk: it is related to a mismatch between the cash flows of assets and liabilities,

affecting the institution’s financial capacity to obtain funds to honor its obligations.

The purpose of market and liquidity risk politicizes is to mitigate possible losses resulting

from fluctuations in market price, currency and asset and liability interest rates and from cash

flow mismatches. The Bank may use, among other choices, derivatives.


Banrisul has not contracted operations known as “target forward swap” or any other leveraged

derivative because its policies do not provide for operations whose objective is not to hedge

its assets and liability positions.

Except for the “swap” agreements referred to in Note 5(d), Banrisul has deemed its exposures

to the risks mentioned above as reasonable and has not contracted new operations involving

Derivative Financial Instruments.

Sensitivity analysis - Although swap operations in the Bank’s portfolio and underlying

transactions are subject to floating rates equivalent to those prevailing in the market, in

compliance with CVM Resolution 475/08, the possible impacts on cash flows and on gains

compared to the market for similar transactions are shown below.

The impacts of financial exposures of the Banking portfolio (especially for interest rate and

foreign exchange factors) shown in the following chart is not necessarily and indication of

potential loss for the Bank, since these operations are funded by deposits, which are a natural

hedge for possible interest rate fluctuations. The Bank’s intention is to hold these operations

to maturity and use them to hedge transactions conducted with customers.

The chart below shows the possible impacts of derivatives (Banking portfolio) exposures on

cash flows and hedged instruments as of September 30, 2010, under three different scenarios

(sensitivity analysis):

In Thousands of Reais

Risk Factors Scenarios 1 2 3

Derivatives - Swap

Exposures subject to interest rate variations .................... (149,591) (170,013) (190,902)

Exposures subject to foreign exchange variations ............. (29,073) (31,630) (35,372)

Hedged Financial Instrument (1)

Exposures subject to interest rate variations .................... 160,262 218,294 308,738

Exposures subject to foreign exchange variations ............. 41,195 45,455 51,152

Net Value ................................................................................. 22,793 62,106 133,616

(1) Adjusting a financial instrument consists of obtaining the gains that fixed-rate securities will have above market rates,considering the scenarios.

Scenario 1: based on market information (BM&FBovespa, Anbima, etc) a 50 base-point stress

test was applied on foreign exchange variation and interest rate.

Scenario 2: a 25% stress test was applied to the respective price curves (interest rate, foreign

exchange) based on the market as of September 30, 2010; the main risk refers to a downturn

scenario for interest rates and an upward trend in foreign exchange rate.

Scenario 3: a 50% stress test was applied to the respective price curves (interest rate and,

foreign exchange rate) based on the market as of September 30, 2010; the main risk refers to

a downturn scenario for interest rates and an upward trend in foreign exchange rate.

NOTE 25 Transactions with Related Parties

Banrisul’s commercial relations with the Rio Grande do Sul State Government and its

subsidiaries, Companhia Estadual de Energia Elétrica (CEEE), Companhia Rio-Grandense de

Saneamento (CORSAN), Companhia de Gás do Rio Grande do Sul (SULGÁS), Centrais de

Abastecimento do Rio Grande do Sul S.A. (CEASA), Companhia Estadual de Silos e Armazéns

(CESA), Companhia Rio-Grandense de Artes Gráficas (CORAG), Companhia Rio-Grandense de

81

Mineração (CRM) and Companhia de Processamento de Dados do Estado do Rio Grande do Sul

(PROCERGS), are described below:

Rio Grande do Sul State Government - On June 29, 2007, Cooperation Agreement 1959/2007

was entered into between Banrisul and Rio Grande do Sul State Government, under which

Banrisul will provide to the Government, on an exclusive basis and for a five-year period,

banking services related to the payment of active and inactive servants, lifetime and special

pensioners of the Executive Branch (Direct Administration), and pension plan pensioners

(Social Security of the Rio Grande do Sul State – IPERGS) and the Government gives the Bank

the right to grant payroll loans. In view of the reciprocity of services provided, under this

Agreement Banrisul releases the Rio Grande do Sul State Government from costs related to

the provision of banking services, such as the collection of revenue and state taxes, debt to

bank account, FGTS (severance pay fund) statement and mortgage loan collection services.

The Bank also provides services related to the financial transfers made by the government

departments of amounts related to social programs and updates information related to inactive

servants and holders of special or lifetime pension plans of the Direct Administration. These

services are not paid.

The Bank also pays the suppliers of the Public Finance System and processes changes related

to the Cash Management Integrated System (SIAC), which is responsible for centralizing in

one bank account the cash and cash equivalents of the Direct and Indirect State Administration

and its subsidiaries. These services are not paid.

The Bank provides other services to foundations and government agencies, such as payment

services through payment forms and the supply of meal and fuel tickets. For the nine-month

period ended September 30, 2010, these services generated fees in the amount of R$6,830

thousand. The Bank offers a solution for the management of e-commerce through the Compras

Pregão On Line portal. This service is not paid.

The Bank purchased FCVS credit rights, as described in Note 06, and receivables assignment

agreements in the amount of R$498,577 thousand. These receivables were purchased with

negative goodwill and their index was changed to Selic through a swap agreement, as described

in Note 05.

For the nine-month period ended September 30, 2010, the Bank’s lease agreements on the

State Government’s properties generated expenses in the amount of R$851,000.

Also, the Bank has with the State Government an agreement whereby the State Government

assigned 13 employees from the dissolved Caixa Econômica Estadual to the Bank and received

9 employees to work in Government departments and foundations. These employee-related

costs are refunded by the parties.

Companhia Estadual de Energia Elétrica (CEEE) - The Bank is responsible for the provision of

banking services related to personnel payment, including payroll loan operations. The

payment of consumption accounts issued by CEEE and the supply of meal and fuel tickets is

also the responsibility of the Bank, which for the nine-month period ended September 30,

2010 was paid R$2,715,000 to perform these services. The Bank offers a solution for the

management of e-commerce through the Pregão On Line portal.

Companhia Riograndense de Saneamento (CORSAN) - The Bank is responsible for the

provision of banking services related to the payment of personnel, including payroll loan

operations. The payment of consumption accounts issued by Corsan and the supply of meal

and fuel tickets is also the responsibility of the Bank, which for the nine-month period ended


September 30, 2010 was paid R$2,926,000 to perform these services. The Bank offers a solutions

fot the management of e-commerce through the Pregão On Line portal.

The Bank intermediates the implementation of the financial flow expected from the

agreements entered into by this company and the National Bank for Economic and Social

Development (BNDES). There are no guarantees pledged and/or compensation related to

these operations.

SULGÁS, CEASA, CESA, CORAG, CRM and PROCERGS - The Bank is responsible for the provision

of banking services related to the payment of personnel and has an agreement with SULGÁS,

CEASA and CESA for payroll loan operations. Services related to the e-payment issued by

these Companies and the supply of meal and fuel tickets is also the responsibility of the

Bank, which for the nine-month period ended September 30, 2010 was paid R$217,000 to

perform these services. The Bank offers a solution for the management of e-commerce

through the Pregão On Line portal.

SULGÁS has investments whose yield is indexed to the CDI variation. The Bank intermediates

the implementation of the financial flow expected from the agreements entered into by this

company and the National Bank for Economic and Social Development (BNDES). There are no

guarantees pledged and/or compensation related to these operations.

CaixaRS Agência de Fomento - The Bank is responsible for the provision of banking services

related to the payment of personnel, including payroll loan operations. The e-payment

services and the supply of meal and fuel tickets is also the responsibility of the Bank, which

for the nine-month period ended September 30, 2010 was paid R$46,000 to perform these

services. The Bank also manages purchases through the Compras Pregão On Line portal.

Based on the Bank’s employee assignment agreement, 8 (eight) employees were assigned.

These employee-related costs are refunded by the parties.

Banco Regional de Desenvolvimento do Extremo Sul (BRDE) - The Bank is responsible for the

provision of banking services related to the payment of personnel, including payroll loan

operations to employees allocated in the Rio Grande do Sul State and is responsible for e-

payment services.

Fundação Banrisul de Seguridade Social - As described in Note 23, the Bank’s debt contracted

on March 31, 1998, related to the remaining portion of the actuarial deficit, amounts to R$61,236

thousand. This. In addition to this deficit, Fundação Banrisul pays interest of 6% per year with

final maturity in 2028, which is monthly adjusted based on the General Price Index – Domestic

Availability (IGP-DI).

To supplement the employees’ social security benefits the Bank contributed of R$9,192

thousand to Fundação Banrisul in the nine-month period ended September, 30 2010 as

described in Note 23.

The Bank is responsible for the provision of banking services related to the payment of

personnel, and the payment of retirement benefits and pension plans to Fundação Banrisul’s

beneficiaries. Fundação Banrisul also has an exclusive investment fund managed by the Bank,

which earned income of R$222,000 on this service in the nine-month period ended as of

September 30, 2010. Investments made by Fundação Banrisul with the Bank earn yield at

rates indexed to the CDI variation.

For the nine-month period ended September 30, 2010, the Bank’s lease agreements on the

Fundação Banrisul’s properties generated expenses in the amount of R$3,925 thousand.

83

CABERGS – Caixa de Assistência dos Empregados do Banco do Estado do Rio Grande do Sul

S.A. - Fundação Banrisul provides medical and dental care benefits to its employees and

retirees generating expenses during the nine-month period ended September 30, 2010, of

R$13,643 thousand.

The Bank is responsible for providing banking services related to the payment of staff and

suppliers. Cabergs also has an exclusive investment fund managed by the Bank which earned

income of R$94,000 on this service, in the nine-months period ended in September 30, 2010.

Investments made by Cabergs with earn yields at rates indexed to the CDI variation.

The Bank offers a solution for the management of electronic purchases through “Portal de

Compras Pregão On Line” this service is not paid.

All interest-bearing transactions were contracted at rates compatible with the third-parties’

rates prevailing on the transaction dates.

Transactions with companies and subsidiaries are as follows:

Banrisul In Thousands of Reais

Assets (Liabilities) Income (Expense) 2010 2009 2010 2009

Derivatives .................................................................................. 103,135 103,383 (1,095) 23,093

State of Rio Grande do Sul Government .................................. 103,135 103,383 (1,095) 23,093

Collection Services ..................................................................... 5,072 5,072 - -

State of Rio Grande do Sul Government .................................. 5,072 5,072 - -

Other Credits .............................................................................. 14,912 2,262 4,138 3,981

State of Rio Grande do Sul Government .................................. 12,483 - - -

Subsidiaries .................................................................................. 2,429 2,262 4,138 3,981

Demand Deposits ....................................................................... (163,573) (102,368) - -

State of Rio Grande do Sul Government .................................. (130,536) (76,055) - -

Subsidiaries of State of Rio Grande do Sul Government ....... (27,694) (22,268) - -

Subsidiaries .................................................................................. (5,343) (4,045) - -

Time Deposits ............................................................................. (223,660) (176,607) (8,330) (8,128)

Subsidiaries .................................................................................. (223,660) (176,607) (8,330) (8,128)

Money Market Funding .............................................................. (1,045,614) (1,629,922) (90,774) (144,779)

State of Rio Grande do Sul Government (*) ............................. (980,891) (1,570,078) (86,484) (140,508)

Subsidiaries .................................................................................. (64,723) (59,844) (4,290) (4,271)

Other Payables ............................................................................ (80,467) (83,628) (10,121) (10,106)

State of Rio Grande do Sul Government .................................. (11,576) - (851) (930)

Banrisul foundation .................................................................... (61,681) (58,891) (8,071) (8,102)

Subsidiaries .................................................................................. (7,210) (24,737) (1,199) (1,074)

Tot al ................................................................................................... (1,390,195) (1,881,808) (106,182) (135,939)

(*) These funds receive 100% of the CDI variation.

Banrisul Consolidated In Thousands of Reais Assets (Liabilities) Income (Expense) 2010 2009 2010 2009

Cash ............................................................................................ 17,988 19,387 1,247 1,390State of Rio Grande do Sul Government .................................. 17,988 19,387 1,247 1,390

Derivatives .................................................................................. 103,135 103,383 (1,095) 23,093State of Rio Grande do Sul Government .................................. 103,135 103,383 (1,095) 23,093

Tax R evenues .............................................................................. 5,072 5,072 - -State of Rio Grande do Sul Government .................................. 5,072 5,072 - -

Other Credits .............................................................................. 18,605 7,010 607 596State of Rio Grande do Sul Government .................................. 18,605 7,010 6 0 7 5 9 6

Demand Deposits ....................................................................... (158,230) (98,323) - -State of Rio Grande do Sul Government .................................. (130,536) (76,055) - -Subsidiaries of State State of Rio Grande do Sul Government . (27,694) (22,268) - -

Money Market Funding .............................................................. (980,891) (1,570,078) (86,484) (140,508)State of Rio Grande do Sul Government (*) ............................. (980,891) (1,570,078) (86,484) (140,508)

Other Payables ............................................................................ (73,257) (58,891) (8,922) (9,032)State of Rio Grande do Sul Government .................................. (11,576) - (851) (930)Banrisul Foundation ................................................................... (61,681) (58,891) (8,071) (8,102)

Tot al ............................................................................................ (1,067,578) (1,592,440) (94,647) (124,461)

(*) These funds receive 100% of the CDI variation.


Remuneration of the Senior Management

Yearly, in the General Shareholders’ Meeting, it is defined:

a) The total annual remuneration of the Management, the members of the Board, the members

of the Audit Committee and members of the Audit Committee as stated in the Company’s By-

Laws; and

b) The allowance to cover Complementary Pension Plans Additional on behalf of the Senior

Management, included in the Private Pension Plan for the Bank and its subsidiaries’

Management and Employees.

In 2010, it was fixed the maximum annual individual amount of R$403,000 as remuneration

and bonuses paid to the members of the Board of Administration, Board of Executive Officers,

Fiscal Council and Audit Committee.

For the nine-month period ended September 30, 2010, the Management compensation is as

follows: In Thousands of Reais

Short Term Benefits p aid to Senior Management 2010 2009

Salaries .................................................................................................................................... 2,727 2,015

Bonuses .................................................................................................................................... 3 -

Social Security ......................................................................................................................... 6 3 5 4 4 6

Total ................................................................................................................................ 3,365 2,461

Banrisul pays in full defined benefit pension plan to administrators who belong to the staff.

In the nine-month period ended September 30, 2010, contributions to Banrisul Foundation

Social Security are summarized as follows: In Thousands of Reais

Post-Employment Benefits 2010 2009

Defined Contribution Pension Plan ..................................................................................... 15 10

The Bank has contracted liability insurance to Officers and Councils Members, in the amount

of R$376,000, valid for the year 2010.

Banrisul does not offer any long-term benefits, termination of employment contracts or

stock-based compensation for its Senior Management.

Additional information

(1) According to existing legislation, financial institutions may not grant loans or advances to:

a) Directors and members of advisory, administrative or fiscal councils and the like, as well as

their spouses and relatives up to the 2nd degree;

b) Individuals or entities that participate in its Equity, with more than 10%; and

c) legal entities whose capital involved, with more than 10%, the very financial institution,

any directors or officers of the institution as well as their spouses and relatives up to the 2nd

degree.

Thus, it is not made by the Bank loans or advances to any subsidiary, members of the Board or

the Executive Board and their families.

85

MATEUS AFFONSO BANDEIRACEO

RUBENS SALVADOR BORDINIVice-President

LUIZ CARLOS MORLINAccountant CRCRS 51.124

BRUNO FRONZACARLOS TADEU AGRIFOGLIO VIANNA

CÉSAR ANTÔNIO CECHINATOLUIZ GONZAGA VERAS MOTA

MARINÊS BILHARPAULO ROBERTO GARCIA FRANZ

Officers

Board of Executive Officers

(2) Shareholding

Executive Officers and members of the Board of Administration, the Fiscal Council and Audit

Committee had jointly the following Banrisul shareholding Bank as of September 30, 2010.

Shares Amount

Voting Shares 12

Common Shares 1,282

Total Shares 1,294

NOTE 26 Authorization for Completion of the Financial Statements

Banrisul’s Board of Executive Officers authorized the completion of these financial statements

on November 03, 2010, which consider subsequent events occurred to this date that might

affect these financial statements


Report

87

Independent Accountants’Review Report

To the Management and Shareholders ofBanco do Estado do Rio Grande do Sul S.A.

Porto Alegre - RS

1. We have performed a limited review of the accompanying individual (Bank) and

consolidated balance sheets of Banco do Estado do Rio Grande do Sul S.A. (“Bank”) as of

September 30, 2010 and 2009 and the related statements of income, changes in

shareholders’ equity (Bank) cash flows and value added for the nine-month periods then

ended, all expressed in Brazilian reais and prepared under the responsibility of the Bank’s

management.

2. Our review was conducted in accordance with specific standards established by the

Brazilian Institute of Independent Auditors (IBRACON) and consisted principally of: (a)

inquiries of and discussions with certain officials of the Bank who have responsibility for

accounting, financial and operating matters about the criteria adopted in the preparation

of the financial statements referred to in paragraph 1 above; and (b) applying analytical

procedures to financial data. Since this review did not constitute an audit in accordance

with Brazilian auditing standards, we do not express an opinion on the interim financial

statements mentioned in paragraph 1.

3. Based on our limited review, we are not aware of any material modifications that should

be made to the financial statements referred to in paragraph 1 for them to be in conformity

with Brazilian accounting practices applicable to the institutions authorized to operate by

the Central Bank of Brazil.

4. The accompanying financial statements have been translated into English for the

convenience of readers outside Brazil.

Porto Alegre, November 3, 2010

Deloitte Touche TohmatsuAuditores IndependentesCRC nº. 2 SP 011.609/O-8/F/RSFernando CarrascoContadorCRC nº. 1 SP 157.760/T/RS


Analysis ofPerformance

3Q10

FOLLOWING IS THE ANALYSIS OF THE PERFORMANCE OF BANCO

DO ESTADO DO RIO GRANDE DO SUL S.A. IN THE 3RD QUARTER OF

2010 AND BETWEEN JANUARY AND SEPTEMBER 2010.

89

Banco do Estado do Rio Grande do Sul S.A.

Founded in 1928, Banrisul is a multiple-service bank

controlled by the State of Rio Grande do Sul. , with a strong

penetration among the population of the state that

strengthens its identity as a regional bank.

Banrisul is comparable to the large banks in Brazil, where it

occupies the 11th position in assets, according to Central Bank

of Brazil’s ranking as of June 2010. At the end of September

2010, Banrisul had R$32.3 billion in total assets, of which

R$16.2 billion in its loan portfolio, and equity of R$3.7 billion.

In the third quarter of 2010, Banrisul was listed as the 4th

best Brazilian bank according to the ranking of the As

Melhores da Dinheiro , published by the weekly magazine

IstoÉ Dinheiro, from São Paulo. The institution was also awarded in financial sustainability,

social responsibi lity, human resources and corporate governance. The Bank was also

highlighted in the survey The 500 Largest Companies in Brazil, appearing in the 98 th place.

During the Congress of Information Technology for F inancial Institutions, organized by the

Brazilian Federation of Banks between June 09 and 11, 2010, the Bank was distinctly awarded

in five categories: Social Management, Telecommunications Management, Digital Identity, IT

Governance, Risk Management, and also the Executive of the Year award, in the Best IT manager

special category, awarded to the Vice-president and CIO.

As a retail bank, Banrisul focuses on meeting consumer finance demands and lending working

capital to small and medium enterprises, in addition to providing financial related services to

public sector entities.

Its wide products and services portfolio includes: loans to individuals, specially consumer

credit and payroll loans; real estate financing; long-term financing with own funds and funds

from federal government institutions; agricultural credit; credit lines to companies, and various

types of investment and financial services to the community.

Among the main products, it is highlighted the payroll loans to individuals and working capital

to companies, the most representative credit lines in the commercial credit portfolio, with

4.2% and 8.0% growth in 3Q10, respectively. In twelve months, these credit lines grew 43.9%

and 39.3% respectively.

The geographic focus of the Bank is the Southern Region of Brazil, especially the state of Rio

Grande do Sul, with the 4th largest Gross Domestic Product (GDP) of all 27 states in Brazil and

where Banrisul’s headquarters is located.

Banrisul group consists of Banco do Estado do Rio Grande do Sul S.A., Banrisul S.A.

Administradora de Consórcios, Banrisul S.A. Corretora de Valores Mobi liários e Câmbio,

Banrisul Armazéns Gerais S.A. and Banrisul Serviços Ltda.


Macro-economic Environment andCompetitive Market

National Economy

From January to September 2010, the economic scenario was characterized by the preservation

of the heterogenic recovery process of the global economy, where emerging countries,

especially China, presented vigorous growth, while developed economies like Europe, USA

and Japan showed weak performances. Government officials responded to this situation of

deteriorating expectations by withdrawing monetary and fiscal stimulus to emerging countries,

and by further injections of liquidity and quantitative easing in the developed economies.

During that period, having presented moments of euphoria operating under strong assets

appreciation and drop in global risk aversion in the first quarter, and great strain from the

European fiscal crisis and the consequent fear of another recessive environment in the second

quarter, financial markets have taken a more cautious approach, on the outlook of a slower,

uneven global economic recovery in the coming years.

On its turn, Brazil has been presenting a vigorous, robust cycle of economic growth, with

domestic demand as the main growth vector, underpinned by low unemployment rates and

the payroll and credit market expansion. The exchange rate not only reflected the worth of

Brazi l’s economy, but also the effects of the US dollar global devaluation and the higher real

domestic interest rate in comparison to other economies. These factors led the exchange

rate to increase in 2.87%, from R$1.74/USD1.00 by the end of 2009 to R$1.69/USD1.00 at the

end of September 2010.

However, as occurred elsewhere in the world throughout the year, the growth rate settled

down and the levels of use of installed capacity and industrial production decompressed,

indicative of a potential pace closer to the projected. Indeed, general price levels have also

suffered some gradual decompression over the months, returning to more comfortable levels,

driving inflation expectations to closer to the inflation target. Accordingly, the IPCA inflation

in the first nine months of 2010 reached 3.60%, largely on account of prices behavior in the

first half of 2010. Moreover, the cooling of administered prices and services prices ultimately

improved the dynamics of inflation, the latter being less dynamic.

Identifying the reduction of real interest rate to neutral levels and the increasing effects of

the monetary policy, the Central Bank of Brazil estimated that the inflationary scenario, would

gradually return to the targeted path after the risks presented at the beginning of the year,

part from the reversal of a substantial portion of measures introduced during the financial

crisis, part from the perception of a slower global recovery process. Therefore, a cycle of

hikes in the Selic Rate, mostly concentrated in the second quarter of 2010, was observed: it

went from 8.75% pa to 10.75%, pa, a total adjustment of 200 basis points, steady since

September’s meeting.

91

Regional Economy

The State of Rio Grande do Sul is located in

the southernmost part of Brazil. With an

area of 281.7 thousand square kilometers,

it represents 3.32% of the Brazilian territory,

and is home to a population of 10,582,887

inhabitants, equivalent to 6% of the total

population of the country.

The first three quarters of 2010 have been

determined by the consolidation of the

recovery of economic activity, supported

mainly by the dynamism of the industry

sector Despite a brief accommodation

period due to the withdrawal of tax

incentives, the industry returned to an

upward recovery trajectory toward pre-

financial crisis levels, pace of activity which

is accompanied by all the variables included

on the Industrial Performance Index (IDI-RS) released by the Federation of Industries of Rio

Grande do Sul – FIERGS. With emphasis on sales, industry purchases and employment, the

IDI-RS grew 10.1% from January to August this year. It should be further mentioned that the

level of use of installed capacity in the industry segment remains at a consistent trend, reaching

84.7%, yet still below pre-crisis peak of 88.3%.

On the other hand, Rio Grande do Sul’s exports grew only 4.4% year-to-date, with a significant

drop in profitability as a result of the appreciation of the Brazilian Real and of still depressed

international prices. Imports have maintained strong growth, high of 46.7% in the nine months

of 2010, stimulated by the growth of employment and income levels in a context of booming

domestic economic activity. In this scenario, it is important to note that price indexes behaved

well in the first nine months of this year, ending September and 9M10 with increases of 0.19%

and 3.21% in the year, respectively, based on the Extended National Consumer Price Index –

IPCA, calculated for the metropolitan region of Porto Alegre.

Banking Industry and Competitive Environment

Over the nine months of 2010, despite the slower pace of global economic activity and high

volatility in international financial markets, the Brazilian economy continues to maintain

strong growth rates, supported by buoyant domestic demand, the favorable labor market

and credit expansion.

The expansion of credit supply occurs in an environment of reduced interest rates, less

delinquency and stretching terms, though access to the capital market has become an

important source of fundraising for the leverage of companies. The Credit/GDP ratio reached

46.7% in September 2010 and the balance of credit granted by the national financial system

grew 19.6% over the last twelve months.


Brazil Rio Grande do Sul Sep/10¹ Jun/10² Jun/10¹ Mar/10²

Demand Deposits 1.4643% 1.4756% 20.3190% 21.0328%

Saving Deposits 1.7484% 1.7660% 20.6787% 20.6081%

Time Deposits 1.6304% 1.5872% 29.5735% 27.5558%

Credit Operations 1.0073% 1.0100% 18.0972% 17.9710%

Number of Branches 2.2408% 2.2088% 25.6113% 25.2218%

¹ Last information disclosed

² Last available information

Table 01 Competitive Environment

Among the events that influenced the dynamics of the banking sector over the first nine

months of 2010, there is the change made in reserve requirements. The Central Bank of Brazil

has reversed the flexibility adopted in the last quarter of 2008, rising the enforceability of

reserve requirements on time deposits from 13.5% to 15.0% through Circular no. 3485 and no.

3486, of February 24, 2010 The additional reserve requirements on time and demand deposits,

set at 4.0% and 5.0% since December 2008, respectively, also changed, rising to 8.0% on both

items.

From the standpoint of corporate governance, financial institutions remain focused in

implementing financial statements reporting procedures in accordance with the guidelines

issued by the International Accounting Standards Board (IASB), as provided by the Central

Bank of Brazil Circular Letter No. 3447 of May 12, 2010.

Likewise, CVM Instruction 480, of December 07, 2009, required all publicly held companies to

compile a comprehensive array of information to be delivery at the end of June, by means of

the Reference Form, a requirement that greatly increased the quality of periodic data provided

to the market by issuers of equity and capital market financial instruments, increasing the

responsibility of the Administration.

Reduction in spreads in the financial industry is expected for the last quarter of 2010, from

the stabilization of default rates and a more competitive credit environment among banks.

The signs of credit expansion remain, either through increased demand of credit for

consumption or from greater needs of working capital and long-term funds on account of the

economic revival.

Banrisul held in June 2010 the 11th position among mid-sized banks and large national financial

system in total assets, 11th in equity, 8 th e in total deposits and 7th in number of branches,

according to rankings released by the Central Bank Brazil, BNDES apart, having gained national

market share in time deposits. In the State of Rio Grande do Sul, Banrisul increased market

share in time deposits as well, moving from 27.55% in March 2010 to 29.57% in June 2010, last

available regional information. In the same period, market share in credit also improved,

increasing 0.13 pp.

93

Economic and Financial Indicators

Table 2 Economic and Financial Indicators

( 1 ) Including Personnel Expenses, Other Administrative Expenses and Other Operating Expenses( 2 ) Interest on own capital and dividends paid and/or distributed (before income tax witholding at source),( 3 ) Including interbank investments and excluding matched transactions.( 4 ) Net income / average total assets.( 5 ) Net income / aver age shareholders’ equity.( 6 ) Efficiency Ratio - 12-month accumulation.

Personnel expenses + other administrative expenses/Net financial margin + revenue from services rendered + (other operating income - other operating expenses)( 7 ) Fixed assets/ shareholders’ equity.( 8 ) Default > 60 days / total loans( 9 ) Allowance for loan losses / default > 60 dias

Main Income Statement Accounts - R$ Million 9M10 9M09 3Q10 2Q10 1Q10 4Q09 3Q09 3Q10/ 9M10/

2Q10 9M09

Net Financial Margin 2,128.0 1,873.7 769.7 710.9 647.3 668.7 628.1 8.3% 13.6%

Allowance for Loan Losses Expenses (391.7) (325.9) (111.2) (127.1) (153.5) (96.7) (65.8) -12.5% 20.2%

Gross Profit from Financial Operations 1,736.2 1,547.8 658.5 583.9 493.8 572.0 562.3 12.8% 12.2%


Financial Expenses 1,795.2 1,638.1 639.7 581.5 574.0 504.7 483.2 10.0% 9.6%

Income from Services Rendered 468.2 427.2 160.9 157.4 149.9 152.1 144.6 2.2% 9.6%

Administrative and Other Operational Expenses (¹) 1,395.8 1,375.7 478.7 457.2 460.0 431.8 462.1 4.7% 1.5%



Net Income 511.4 356.8 206.4 183.1 121.9 184.3 146.0 12.7% 43.3%

Used/Distributed Results - R$ Million 9M10 9M09 3Q10 2Q10 1Q10 4Q09 3Q09 3Q10/ 9M10/

2Q10 9M09

Interest on Own Capital - Dividends (²) 172.8 141.8 51.6 71.0 50.2 73.7 46.6 -27.4% 21.9%

Main Balance Sheet Accounts - R$ Million 9M10 9M09 Sep10 Jun10 Mar10 Dec09 Sep09 3Q10 9M10/

2Q10 9M09

Total Assets 32,339.3 28,573.2 32,339.3 31,098.8 29,864.6 29,084.1 28,573.2 4.0% 13.2%

Securities (³) 10,014.1 10,683.3 10,014.1 10,150.4 9,949.1 10,758.6 10,683.3 -1.3% -6.3%

Total Lending 16,237.1 12,528.5 16,237.1 15,442.0 14,765.7 13,414.2 12,528.5 5.1% 29.6%

Allowance for Loan Losses (1,122.7) (1,039.3) (1,122.7) (1,117.5) (1,082.3) (1,016.8) (1,039.3) 0.5% 8.0%

Past Due Loans > 60 days 487.9 478.7 487.9 493.6 512.7 453.1 478.7 -1.1% 1.9%

Funding and Assets under Management 24,095.2 20,855.8 24,095.2 23,163.7 22,368.7 21,902.4 20,855.8 4.0% 15.5%

Shareholders’ Equity 3,746.4 3,299.8 3,746.4 3,590.1 3,480.0 3,408.5 3,299.8 4.4% 13.5%

Reference Equity 3,608.2 3,240.8 3,608.2 3,455.9 3,422.9 3,349.4 3,240.8 4.4% 11.3%

Average Shareholders’ Equity 3,577.4 3,189.5 3,668.2 3,535.1 3,444.2 3,354.1 3,249.0 3.8% 12.2%

Average Total Assets 30,711.7 26,889.3 31,719.1 30,481.7 29,474.4 28,828.7 28,158.3 4.1% 14.2%

Financial Inde x (%) per Year 9M10 9M09 3Q10 2Q10 1Q10 4Q09 3Q09

Return on Total Asse ts 2.1% 1.7% 2.6% 2.4% 1.6% 2.6% 2.1%

Return on Shareholders’ Equity 18.6% 14.7% 23.9% 22.0% 14.8% 23.4% 18.9%

ROAA (p.a.) ( 4) 2.2% 1.8% 2.6% 2.4% 1.7% 2.6% 2.1%

ROAE (p.a.) (5) 19.5% 15.2% 24.5% 22.4% 14.9% 23.9% 19.2%

Efficiency Ratio (6) 48.5% 53.5% 48.5% 50.5% 52.2% 52.0% 53.5%

Basel Ratio 15.4% 18.0% 15.4% 15.7% 16.5% 17.5% 18.0%

Fixed Assets Ratio (7) 4.6% 4.7% 4.6% 4.8% 5.1% 5.0% 4.7%

Default Rate (8) 3.0% 3.8% 3.0% 3.2% 3.5% 3.4% 3.8%

Cover Rate (9) 230.1% 217.1% 230.1% 226.4% 211.1% 224.4% 217.1%

Economic Indicators 9M10 9M09 3Q10 2Q10 1Q10 4Q09 3Q09

Effective Selic Rate (accrued) 7.03% 7.68% 2.62% 2.23% 2.03% 2.10% 2.19%

Foreign Exchange Rate (R$/USD – end of period) 1.69 1.78 1.69 1.80 1.78 1.74 1.78

Foreign Exchange (%) -2.70% -23.92% -5.96% 1.15% 2.29% -2.08% -8.89%

IGP-M (General Market Price Index) 7.90% -1.60% 2.09% 2.84% 2.77% -0.11% -0.37%

IPCA (Extended National Consumer Price Index) 3.60% 3.21% 0.50% 1.00% 2.06% 1.06% 0.63%


Assets and Earnings Structure

Financial Performance

April, 2010 marked a management reshuffle, when Mateus Bandeira took office as Banrisul’s

Chief Executive Officer replacing Fernando Guerreiro de Lemos. His management plans have

included the improvement of efficiency levels and business expansion, especially among the

Companies segment. The performance of 3Q10 already reflects the objectives defined as

priorities by the new CEO.

Last September, the Bank was surprised with investigations conducted by representatives of

the Prosecutor’s Office about alleged irregularities involving an employee working at

Banrisul’s Marketing Unity specifically related to activities involving marketing events and.

However, the fact helped implement a major overhaul of the internal control mechanisms,

which included the creation of Marketing Committee, revision of contracts and payment

schedule and changes in management tools, through the setting up of metrics to evaluate the

effectiveness of expenses.

Banrisul held in the nine months of 2010 a consistent growth of its asset base and ended the

period with favorable profitability and solvency indicators, with most of them above the

market guidance disclosed in 1H10. Credit growth was the dominant strategy, helped by the

revival of economic activity. The institution has diversified funding sources that ensure the

financial capacity to leverage credit growth, has low exposure to risk in treasury operations,

demonstrates adequate levels of default and cost of funding, besides management

mechanisms that support the implementation of its business strategy and mitigate market

and operating risks.

Banrisul’s liquidity is favored by its market fundraising features, from an extensive branch

network, especially in Rio Grande do Sul, in other cities in southern Brazil and in other states

of the federation. Deposits are the main source of funding. Moreover, the cash and cash

equivalents are invested in federal bonds indexed to the Selic Rate, Treasury bills or in matched

transactions, always backed by federal securities, without any foreign exchange exposure,

swaps or derivatives operations.

The policy of attracting small and medium depositors and savers, rather than institutional

investors, ensures the reduction of financial costs and the diversification of the sources of

funding, strategy suited to the needs of funding for new loans. Total deposits represented

62.8% of the third parties liabilities at the end of September 2010.

Responsible for 50.2% of total assets, the credit portfolio is too composed of non-concentrated

operations, mainly granted to individuals and small businesses. Payroll loans to individuals

and working capital to companies absorbed 32.9% and 23.2%, respectively, of total credit at

the end of September 2010.

Nonperforming loans over 60 days reduced to 3.0% of total loans in September 2010, from

3.8% in September 2009, 3.4% in December 2009, and 3.2% in June 2010. Total provisions

remain at a level sufficient to cover loans in arrears. The effective management of credit risk

exposure allows the continued, expedite and safe expansion of the loan portfolio on account

of efficient instruments used to measure each client’s risks. The Bank’s risk assessment

structure is based on the principle of collegiate technical decision, where limits for credit

95

granting are deliberated according to the existing decision levels for at branches, set in regards

to their internal classification, and at the Head Offices’ managing boards and it ’s the Credit

and Risk Committees. The structured allows to improve credit based on technically predefined

limits and determines the desirable exposure that the institution is willing to operate with

each individual and corporate client. The improvement of the credit portfolio has been based

on the continuous, increasing use of statistical methodologies for customers’ risk assessment

of, where parameterized credit policies and business rules are combined with the optimized

controls on customers’ information via branch evaluation.

Banrisul has conditions to support the growth of its transactions, capacity demonstrated by

the 15.4% Capital Adequacy Ratio, in September 2010. Administrative cost indicators, given

by the administrative costs-total assets ratio and the cost-income ratio, remains at descending

levels, having reached 5.2% and 48.5% in September 2010, respectively.

Accumulated results until September 2010 were not affected by non-recurring events.

Banrisul’s net income reached R$511.4 million at the end of 9M10, 43.3% or R$154.6 million

above 9M09. The performance is positively affected by the increase of credit revenues and

the reduction of other operating expenses, and negatively by lower treasury revenues, as

consequence of smaller balance of securities, fall in the Selic Rate, higher onlending expenses

and provisions for loan losses.

In 3Q10, net income of R$206.4 million is 41.3% or R$60.3 million above 3Q09 and 12.7% or

R$23.3 million over 2Q10. The performance of the 3Q10 compared to that registered in 2Q10

reflects the increase in credit and securities revenues and lower provisions costs.

The results obtained from January to September 2010 represent an annualized return on

average equity of 19.5%. In September 2010, shareholders’ equity reached R$3,746.4 million,

an increase of 13.5% over September 2009, of 9.9% over December 2009, and of 4.4% higher

than June 2010.

Gross profit from financial intermediation in 9M10 was R$1,736.2 million, 12.2% higher than

the same period last year. The performance in 2010 positively reflects the expansion of credit

revenues, while negatively affected by lower treasury revenues, higher onlending expenses

and provisions. In 3Q10, the gross margin totaled R$658.5 million, 17.1% higher than 3Q09 and

12.8% higher than 2Q10.

Consolidated total assets reached R$32,339.3 million in September 2010, an increase of 13.2%

over September 2009, 11.2% over December 2009 and 4.0% above June 2010. Year-on-year

and quarter-on-quarter asset growth was driven by the increase in credit operations, leveraged

mainly by the Individual segment.

Banrisul’s credit operations totaled R$16,237.1 million at the end of September 2010, a 29.6%

year-on-year increase, 21.0% year-to-date and 5.1% quarter-on-quarter. The commercial credit

(unmarked) portfolio totaled R$12,514.6 million, an increase of 34.1% in twelve months,

23.8% in the last nine months and 5.5% in the last quarter. Commercial credit to Individuals

totaled R$7,218.2 million at the end of September 2010, an increase of 40.5% over September

2009 and 4.7% over June 2010. Commercial credit to Companies totaled R$5,296.4 million in

September 2010, an increase of 26.2% compared with September last year and of 6.7%

compared to June 2010.

Funds raised and under management reached R$24,095.2 million in September 2010, growing

15.5% over September 2009, 10.0% over December 2009 and 4.0% from June 2010. Deposits


reached R$17,954.1 million in September 2010, growing 16.1% over September 2009, 9.7%

over December 2009 and 4.7% over June 2010. Assets under management reached

R$6,141.1 million, 13.9% above September 2009, 11.0% higher than December 2009 and

2.0% over June 2010.

From January to September 2010, Banrisul collected and provisioned R$380.8 million in taxes

and contributions, while taxes withheld and paid, which are levied directly on financial

intermediation and other payments, amounted to R$360.7 million.

Capital Expenditure Policy

Investments in infrastructure and in information technology are necessary to cope with the

purpose of offering customers state-of-art, most modern and secure financial services,

especially in electronic transactions. The capital expenditure policy unfolds on three pillars:

(i) technology expansion/modernization, (ii) service network renovation/expansion and (iii)

the expansion of distribution network. From January to September, 2010, hardware

investments, software and maintenance of goods totaled R$143.5 million.

Technology Expansion/Modernization

Investments in information technology amounted to R$120.3 million From January to

September, 2010,. The bank’s main priorities in this area are to strengthen the mechanisms

for security in banking transactions and increase the operational efficiency of its systems

infrastructure.

The IT infrastructure projects are aligned with Banrisul assumptions for simplification,

environmental management, business continuity and costs streamlining. Among the projects

implemented from January to September 2010, it is included: contingency and virtualization

of servers, a project that combines features of replication and continuity; reduced energy

costs, heat dissipation and physical space in data centers; the continuity of the automation of

the use of the OPEN SRM Site Recovery Manager; implementation of new storage environment

for Windows, Unix and Linux, with synchronous replication between the sites of the Bank,

consolidating corporate storage technologies on these platforms; and also the acquisition of

Blade Servers to act as a processing base of virtual systems.

As for information security, encryption mechanisms have been defined to be used with the

new Electronic Permit automation system for State Court of Justice, as well as security

mechanisms to allow using Banrisul multiple card for transactions at Banco 24 Horas, besides

the inception of an environment to request, install and sign digital certificates.

The Bank pays particular attention to prevent and combat fraud at ATMs and Internet Banking,

and maintains strategic group for the implementation of actions to ensure the minimization

of losses in such channels.

The Bank is the only Latin American institution that participates in the Board of Advisors of

the PCI (Payment Card Industry), which deals with card payments safety, directly influencing

the definition of rules to be applied worldwide.

From the partnership between Banrisul and MasterCard, the goal is that Banricompras network

fully complies with international safety standards, particularly in transactions with card flags

other than Banricompras that are processed at outsourced companies hired on behalf of

Banrisul as credit and debit card acquirer.

97

The Bank participated in several events during the first nine months of 2010, among which

are: CardWare 2010 (Canada); IV Electronic Crimes Combat Operational Symposium (SP - Brazil);

Websense - Protection of Information in Secure Gateway (RS - Brazil); RSA Conference (USA)

Fraud Prevention in Checks Imaging Clearing Seminar; Banking Security Seminar; CIAB and

CNAB Febraban Meeting (SP - Brazil); PCI board meeting (UK), meeting of the Subcommittee

on Digital Certificate in conjunction with GT (SP - Brazil) ; Pre-2010 CIAB Pre-2010 meeting (SP

- Brazil); CARDS 2010 Security Forum (SP - Brazil) and Forum CIAB 2010.

Banrisul coordinated, yet, the actions for the realization of the 3rd IT International Forum,

which brought together national and international experts, when several presentations

focused on the current and prospects situation in the payment means security were held.

Service Network Renovation/Expansion

At the end of 9M10, Banrisul had invested R$23.2

million to update and conserve its physical

infrastructure, in order to maintain good working

conditions from renovations and expansions in real

estate, CCTV’s (closed circuit television), metal

detector gates, alarm, thermal conditioning, electric

automation infrastructure, furniture, changes in

layout and design modernization.

Expansion of Distribution Network

By September 2010, continuing the project to expand the service network, four new branches,

six service station and 55 electronic service points were opened. It represents 62 new service

channels over December 2009, a strategy that contributes to strengthening the institution of

the regional market, expanding the customer base and market share. For the coming months,

it is scheduled the opening of two new branches, two service stations and one remote location

service station in Rio Grande do Sul. The expansion project will be continued in Santa Catarina,

with estimated five more branches in that state.

Passo da Areia Branch - Bourbon Country - Porto Alegre

Gaspar Branch - SC Curitiba Branch - PR


Table 03 Margin AnalysisR$ Million

9M10 9M09 2009 2008Average Income Average Average Income Average Average Income Average Average Income AverageBalance Expense Rate Balance Expense Rate Balance Expense Rate Balance Expense Rate

Interest-Earning Assets 28,004.0 3,530.4 12.61% 25,135.2 3,185.6 12.67% 25,996.9 4,262.1 16.39% 21,635.9 3,866.6 17.87%

Loan Portfolio 14,207.9 2,598.4 18.29% 11,512.9 2,174.5 18.89% 11,954.9 2,948.1 24.66% 9,963.5 2,574.7 25.84%

Resales pending Settlement 4,323.5 290.9 6.73% 5,410.5 401.3 7.42% 5,582.3 517.1 9.26% 4,519.2 509.2 11.27%

Money Market Investments 1,931.7 131.3 6.80% 1,582.5 117.8 7.45% 1,761.2 166.4 9.45% 333.7 33.7 10.09%

Available-for-Sale Securities 1,282.5 87.2 6.80% 928.1 69.1 7.45% 966.4 91.3 9.45% 465.0 46.9 10.09%

Held-to-Maturity Securities 4,022.0 273.3 6.80% 3,710.0 276.3 7.45% 3,677.5 347.4 9.45% 3,387.8 364.9 10.77%

Interbank Deposits 132.4 8.0 6.02% 162.3 12.9 7.95% 155.2 15.4 9.91% 230.3 27.0 11.75%

Other Interest-Earning Assets 2,104.0 141.3 6.72% 1,828.9 133.7 7.31% 1,899.3 176.4 9.29% 2,736.3 310.1 11.33%

Compulsories 1,645.6 95.3 5.79% 1,421.4 89.2 6.28% 1,479.8 117.6 7.95% 2,376.9 253.3 10.66%

Other 458.4 46.0 10.04% 407.5 44.5 10.92% 419.5 58.8 14.01% 359.4 56.8 15.79%

Non Interest-Earning Assets 2,353.2 2,123.7 1,980.3 2,256.8

Total Assets 30,357.3 3,530.4 11.63% 27,258.9 3,185.6 11.69% 27,977.2 4,262.1 15.23% 23,892.7 3,866.6 16.18%

Interest - Bearing Liabilities 22,752.4 (1.402.4) 6.16% 20,466.4 (1.311.9) 6.41% 21,097.3(1.719.7) 8.15% 17,435.5 (1,887.6) 10.83%

Domestic Interbank Deposits 79.4 (3.6) 4.57% 47.2 (2.7) 5.76% 59.3 (4.2) 7.10% 5.6 (0.7) 12.13%

Domestic Saving Deposits 5,809.7 (257.5) 4.43% 4,928.5 (220.2) 4.47% 5,136.1 (292.9) 5.70% 4,559.6 (296.9) 6.51%

Domestic Time Deposits 8,838.1 (602.0) 6.81% 8,168.9 (599.1) 7.33% 8,334.7 (782.3) 9.39% 7,129.5 (772.5) 10.83%

Money Market Funding 2,031.9 (161.1) 7.93% 2,578.4 (206.5) 8.01% 2,485.5 (257.6) 10.36% 2,662.7 (331.0) 12.43%

Borrowings and Onlendings 1,620.1 (83.1) 5.13% 1,374.3 (42.1) 3.06% 1,407.9 (57.1) 4.05% 1,195.2 (289.9) 24.26%

Domestic 1,040.2 (51.0) 4.90% 858.9 (30.2) 3.51% 914.6 (42.0) 4.59% 689.6 (44.9) 6.52%

Foreing 579.9 (32.2) 5.55% 515.4 (11.9) 2.30% 493.4 (15.0) 3.05% 505.7 (245.0) 48.45%

Other 4,373.1 (295.1) 6.75% 3,369.0 (241.4) 7.16% 3,673.8 (325.6) 8.86% 1,882.9 (196.6) 10.44%

Non Interest - Bearing Liabilities 4,076.5 3,588.3 3,609.0 3,499.7

Shareholders’ Equity 3,528.3 3,204.2 3,270.8 2,957.4

Total Liabi lities 30,357.3 (1,402.4) 4.62% 27,258.9 (1,311.9) 4.81% 27,977.2 (1,719.7) 6.15% 23,892.7 (1,887.6) 7.90%

Spread 7.01% 6.87% 9.09% 8.28%

NIM (9M) 2,128.0 7.60% 1,873.7 7.45%

NIM (Yearly) 10.26% 10.06% 2,542.4 9.78% 1,978.9 9.15%

Margin Analysis

The Margin Analysis in the following chart was based on the average balances of assets and

liabilities, calculated as of the closing balances of the months in each period.

The chart shows the revenue-generating assets and interest-bearing liabilities, the

corresponding financial incomes on assets and financial expenses on liabilities, as well as the

effective average rates generated by the respective yields and interest paid in each period.

Credit operations include advances on foreign exchange contracts and leasing agreements,

which are shown at the current net value of the leasing agreements. Income from credit

operations overdue for more than 60 days, irrespective of their risk level, will only be booked

as revenues when they are received. Income from leasing operations is booked when each

installment becomes due. These criteria impact the average volume of income and the

effective rates in the periods being analyzed.

Average balances of interbank investments, funds invested or raised in the interbank market

correspond to the redemption amount deducted from the income or expenses corresponding

to future periods.

Average balances of deposits, open-market funding, loans and onlendings include the fees

payable till the date of closing of the financial statements, booked on a pro rata die basis. As

for expenses related to these items, fees relating to deposits include contributions to the

Credit Guarantee Fund (FGC).

99

Interest booked in the balance sheet includes nominal interest and a component of monetary

restatement. This monetary restatement may be related to an inflation index, changes in

exchange rates (usually U.S. dollar) or floating interest rates. The interest and monetary

restatement are applied at the end of each month on the balance of the principal of each

operation. The restated amount is the new basis for calculating interest and monetary

restatement of the next month, and so on, till final settlement.

The higher margin generated in the first nine months of 2010 compared to that recorded in

9M09 is a direct effect of the reduction of the Selic Rate on average rates received from

interest-earning assets and paid to interest-bearing assets.

However, despite the reduction in average rates, a natural backdrop of the fall of the Selic

Rate, spreads were slightly higher, from the average 6.87% in 9M09 to 7.01% in 9M10. And the

accumulated margin until September 2010 was 0.57 percentage points higher than the effective

Selic Rate in the same period, while in the same period in 2009, the registered margin was

0.23 pp lower than the Selic.

The Annual statements also report margin drop from the 12.54% in 2008 to the 9.93% in 2009,

in line with falling basic interest rate. In both years, the margin was lower relative to the Selic

Rate in the period.

Margin hikes above the Selic Rate, reference to financial transactions, derive from changes in

the structure of assets and liabilities of the Bank. Higher yield assets such as credit have

increased share as proportion to total intersect-earning assets, from 45.8% in 9M09 to 50.7%

in 9M10.

On the other hand, savings deposits - funding with lower cost - increased share from 24.1% in

9M09 to 25.5% in 9M10 in proportion to the total interest-bearing liabilities, while higher cost

funding like market funding and time deposits, reduced share.

The Bank had gains of scale from 9M09 to 9M10. Total assets increased by R$3.1 billion year-

on-year. The volume increase offset decline in rates, since it generated higher spreads in 12

months and above the Selic Rate year-to-date.

Variations in Interest Income and Expenses: Volumes and Rates

The following chart shows the variations in the interest incomes and expenses consolidated

among the variations in volume and interest rates (i) in the first nine months of 2010 compared

to 9M09, (ii) 2009 compared to 2008, and (iii) 2008 in relation to 2007.

The variations in the volume and interest rates were calculated based on the average balances

in the period and the variations in the nominal interest rates on interest-earning assets and

average of interest-bearing liabilities. Net variation was calculated based on the variations in

the volume and rates, and was allocated to the respective variation (volume and interest

rate) proportionally, considering the absolute amount attributable to the volume and interest

rates.

The assessment of changes in revenues and expenditures due to increases or decreases in

volumes and rates shows that, in absolute terms, the increase of revenue on interest-earning

assets is associated with increased volumes, which offset the reduction in revenue caused by

falling rates, especially provoked by credit revenues.


Table 04 Variations in Interest Income and Expenses: Volumes and RatesR$ Million

9M10 / 9M09 2009 / 2008 2008 / 2007Increase / Decrease Increase / Decrease Increase / Decrease According tochange in: According to change in: According to change in:

Volume Interest Net Volume Interest Net Volume Interest NetRate Change Rate Change Rate Change

Interest - Earning AssetsLending Operations, Leasing Operationsand Other Receivables 490.4 (66.5) 423.9 484.1 (110.7) 373.4 805.9 52.8 858.7

Resales pending Settlement (66.7) (43.6) (110.3) 32.4 (24.5) 7.9 157.6 10.0 167.6

Securities and Derivatives 61.4 (32.8) 28.6 202.5 (42.8) 159.7 (4.1) (55.2) (59.3)

Interbank Deposits (4.5) (0.4) (4.9) 96.3 (5.8) 90.5 18.7 6.4 25.1

Other 16.6 (9.0) 7.6 (273.9) 38.0 (235.9) 7.3 15.7 23.0

Total Interest-E arning Asset s 497.3 (152.4) 344.9 541.4 (145.8) 395.6 985.4 29.7 1,015.1

Interest -Bearing Liabilities

Interbank Deposits (1.6) 0.7 (0.9) (3.9) 0.4 (3.5) 6.8 (2.6) 4.2

Savings Deposits (39.1) 1.8 (37.3) 256.2 (252.1) 4.1 (30.3) (9.3) (39.6)

Time Deposits (47.2) 44.3 (2.9) (120.8) 110.9 (9.9) (154.2) (25.1) (179.3)

Money Market Funding 43.4 2.1 45.5 20.9 52.4 73.3 (93.3) 1.0 (92.3)

Onlendings (5.7) (35.3) (41.0) (63.3) 296.2 232.9 (11.0) (224.9) (235.9)

Other Interest-Earning Assets (68.4) 14.7 (53.7) (162.6) 33.6 (129.0) (136.0) (5.4) (141.4)

Total Interest -Bearing Liabilities (118.6) 28.3 (90.3) (73.4) 241.3 167.9 (418.0) (266.3) (684.3)

As to interest-bearing liabilities, it is perceived that higher expenses are associated more to

changes in volume than to reductions caused by rates fluctuations.

101

Operational Highlights

· Management change. April 2010 marked an important administrative event at Banrisul: the

replacement of Officers at Banrisul. Mateus Affonso Bandeira as the Company’s new Chief

Executive Officer, replacing Fernando Guerreiro de Lemos. Also the Chief Financial Officer

and Investor Relations Officer, the Credit Officer and the Administrative Officer have been

replaced. The Board of Executive Officers is now complete, with its newly sworn-in officers,

Bruno Fronza, Cesar Antônio Cechinato and Marinês Bilhar, and will follow the strategy

implemented in recent years, not only because much of the structural soundness of Banrisul’s

assets and liabilities may be credited to it, but also because of the trajectory of impressive

results recorded.

· Customer Service Network. Banrisul presented, at the end of September 2010, 1,229 banking

service points distributed among 398 agencies in the State of Rio Grande do Sul and 40 outside

the State, 279 service posts and 512 electronic sales points. Also until 9M10, in continuity to

the project to expand service network, three branches were opened in the state of Santa

Catarina, in the cities of Florianopolis, Brusque and Rio Negrinho, one branch in the city of

Cachoeirinha, in Rio Grande do Sul, six service post and 55 electronic sales points. Compared

to December 2009, there are 62 new channels of service. The strategy of service network

expansion contributes to strengthening the institution in the regional market and to expanding

customer base and market share.

· Interest on Equity and Dividends Distribution Policy. The Annual Shareholders Meeting held

in April maintained the 15% additional dividends policy, ensuring the shareholders the

payment of interest on capital and/or dividends corresponding to 40% of net income, set in

2009, was approved by. The payment of interest on capital is due quarterly, as decided by the

Board of Administration in a meeting held on May 06, 2008. Thus, on 3Q10, the quarterly

payment of interest on equity totaled R$152.7 million, with dividends totaling R$20.1 million.

· Rating. In June 2010, the risk-rating agency Austin Rating ratified Banrisul’s long-term risk

rating “A+” and short-term risk rating “A-2.” The rating was maintained based on the Bank’s

excellent capitalization, dispersal of assets and liabilities, diverse funding sources, quality of

loans, adequate liquidity levels, profitability and expansion of its area of operations through

the inauguration of branches strategically outside the state. The “A+” rating signifies that the

Bank has solid intrinsic fundamentals, operates within safety limits and has a healthy financial

track record. The business environment may change without affecting the Bank’s operations.

The “A-2” rating is given to institutions that have good capacity to pay short-term debts and

low credit risk.


Table 05 Communication and Relationship Efforts

3Q10 2Q10 1Q10 4Q09 3Q09

Meetings 39 3 11 18 4

Conference Calls 28 28 17 12 18

Events Abroad * 0 2 0 22 28

Expo Money 0 0 0 1 0

APIMEC Meetings 0 0 0 2 0

TOTAL 67 33 28 55 50

*2009: Amster dam, Boston, Dublin, Frankfurt, Geneva, Lausanne, Lisbon, London, Los Angeles, Madrid, New York, Paris, Rotter dam, SanFrancisco and Washington.

* 2010: New York.

Banrisul’s StockMarket Performance

The graph below shows the performance of Banrisul PNB Shares (BRSR¨) vis-à-vis stock market

indexes.

Graph 01: Banrisul PNB stock’s performance vs. Brazilian Stock Market Indexes

Since September 2010, Banrisul’s shares have now been listed in Bovespa’s Mid-Large Cap

index, automatically delisted from the Small Cap group.

In the third quarter of 2010, Banrisul held 39 meetings and 28 conference calls totaling 67

opportunities for approaching market analysts, investors, as well as individual and corporate

shareholders in Brazil and abroad.

103

Banrisul’s share also performed positively in the stock market At the end of September 2010,

the PNB share (BRSR6) was ranked 69th among the 100 most traded shares in Bovespa (and 80th

in twelve months). In 3Q10, average daily financial trade was circa 80% higher than in 3Q09,

while average daily trade increase by 49% in the same period.

Graph 02: Financial Volume, Number of Trades and Number of Shares

The following chart gives the geographic distribution and the number of shares held by each

shareholder.

Graph 03: Banrisul´s Stock - Geographic Distribution

At the end of 3Q10, eight sell side financial institutions covered Banrisul.


Evolution of Balance Sheet Accounts

Total Assets

At the end of September 2010, total assets presented a balance of R$32,339.3 million, 13.2%

or R$3,766.1 million higher than in September 2009. In comparison with December 2009, total

assets increased 11.2% or R$3,255.2 million. In the last quarter, the assets increased 4.0% or

R$1,240.6 million.

The growth of assets, in twelve months, came from the expansion of deposits and the increase

in the Reserve Fund for Judicial Deposits, which totaled R$2,992.2 million. Credit Portfolio

growth was an important year-on-year driver for assets composition, increasing R$3,708.5

million in twelve months and R$795.1 million in the last quarter.

Graph 04: Total Assets - R$ Million

Total assets in September 2010 were represented by 50.2% of credit operations, 38.0% of

interbank investments and securities, 8.2% of interbank and interbranch accounts and 3.6%

of other assets.

Graph 05: Composition of Assets - R$ Million

105

Securities

Investments in securities totaled R$10,014.1 million at the end of September 2010, volume

6.3% below September, 2009, 6.9% below the balance of December 2009 and 1.3% below

June 2010. This amount includes liquid interbank transactions but excludes total liabilities

from matched transactions.

The Bank has prioritized asset allocation into higher yield portfolios such as credit, given

their higher profitability when compared to treasury operations, as well as due to its

comfortable liquidity.

Graph 06: Securities and Liquid Interbank Transaction* - R$ Million

* Excluding Matched Transactions

Interbank and Interbranch Transactions

The balance of interbank and interbranch transactions was R$2,650.5 million at the end of

September 2010, which is 38.3% (R$734.7 million) more than in September 2009 and 12.6%

(R$297.1 million) over than in June 2010. The 12-month variation refers to increase on reserve

requirements on account of higher balances of demand and savings deposits. Last quarter’s

variations also reflect the increase on reserve requirements, especially from the increase in

savings deposits.

Graph 07: Interbank and Interbranch Transactions - R$ Million


Sep10 Jun10 Sep09 % % Size Balance % Co. % Total Balance % Co. % Total Balance % Co. % Total Sep10/ Sep10/

Portfolio Portfolio Portfolio Jun10 Sep09

Large Companies 2,494.7 34.4% 15.4% 2,307.6 33.7% 14.9% 1,546.3 26.4% 12.3% 8.1% 61.3%

Total Middle/Small/Micr o 4,767.0 65.6% 29.4% 4,534.1 66.3% 29.4% 4,301.9 73.6% 34.3% 5.1% 10.8%

Middle Companies 3,346.9 46.1% 20.6% 3,190.7 46.6% 20.7% 3,268.6 55.9% 26.1% 4.9% 2.4%

Small Companies 1,152.7 15.9% 7.1% 1,077.3 15.7% 7.0% 794.8 13.6% 6.3% 7.0% 45.0%

Micro-companies 267.3 3.7% 1.6% 266.1 3.9% 1.7% 238.4 4.1% 1.9% 0.4% 12.1%

Total Companies 7,261.6 100.0% 44.7% 6,841.6 100.0% 44.3% 5,848.3 100.0% 46.7% 6.1% 24.2%

Table 6 Breakdown of Credit to Companies by Company Size R$ Million

Credit Operations

Banrisul‘s credit portfolio totaled R$16,237.1 million in September 2010, exceeding by 29.6%

the balance in September 2009, by 21.0% the amount of December 2009 and by 5.1% the

amount recorded in June 2010.

The growth in credit is basically due to the expansion in the portfolio of commercial credit to

individuals. Of the year-on-year R$3,708.5 million increase of in the credit portfolio, R$2,081.6

million came from the Individuals segment, which increased by 40.5% compared to September

2009. In the last quarter, the 5.5% or R$653.5 million increase observed in the commercial

credit was leveraged both by the individual segment, which added R$323.0 million to the

portfolio, mainly throughout payroll loans, and by the segment of companies, which

contributed with R$330.5 million to the unmarked portolio.

Graph 08: Credit Operations - R$ Million

Breakdown of Credit by Company Size

At the end of September 2010, credit to companies represented 44.7% of total credit portfolio.

Credit to individuals accounted for 55.3%, surpassing the companies’ share. The breakdown

of credit operations to companies by company size is provided in the following table.

The criterion used for de termining the company’s size is the average monthly revenue: Micro – up to R$20,000; Small – upto R$200,000; Mid-sized – up to R$10 million; and Large – above R$10 million.

107

Table 7 Breakdown of Credit by SectorR$ Million

Sep10 Jun10 Mar10 Dec09 Sep09 Sep10/ Sep10/Jun10 Sep09

Private Sector 16,107.3 15,307.0 14,634.6 13,292.7 12,415.8 5.2% 29.7%

Rural 1,181.1 1,139.9 1,047.4 1,020.9 937.3 3.6% 26.0%

Industrial 3,376.9 3,093.7 3,163.9 2,963.0 2,740.4 9.2% 23.2%

Commercial 1,899.2 1,816.9 1,689.8 1,615.2 1,471.5 4.5% 29.1%

Other Services 1,312.2 1,280.6 1,255.2 1,255.9 1,133.8 2.5% 15.7%

Individuals 7,120.3 6,815.8 6,356.5 5,352.4 5,076.9 4.5% 40.3%

Housing 1,217.6 1,160.0 1,121.8 1,085.3 1,055.9 5.0% 15.3%

Public Sector 129.8 135.0 131.1 121.5 112.8 -3.9% 15.1%

Government - Direct and Indirect Management 110.9 113.0 110.0 99.9 112.8 -1.9% -1.7%

Corporate - Other Services 18.9 22.1 21.1 21.6 0.0 -14.3% 0.0%

Total 16,237.1 15,442.0 14,765.7 13,414.2 12,528.5 5.1% 29.6%

The amount of credit to companies grew by 24.2% in the past twelve months and by 6.1% in

the last quarter. The 61.3% increase in twelve months in the balance of credit operations to

mid-sized, small and micro companies, expanded this segment’s share of total credit to

companies from 26.4% in September 2009 to 34.4% at the end of September 2010. Credit to

Companies, however, is mainly represented by operations with micro, small and medium

enterprises, whose balance increased by 10.8% in twelve months and 5.1% last quarter.

Breakdown of Credit by Sector

The following table provides the breakdown of the credit portfolio by sector. Of the total

loans disbursed at the end of September 2010, 99.2% were allocated to the private sector,

representing 29.7% growth in the past twelve months. Leading sectors to the year-on-year

growth were: individuals, with R$2,043.4 million growth; industry, which grew R$636.5 million;

commerce, with R$427.7 million increase; and rural, with a growth of R$243.8 million.

Breakdown of Credit by Portfolio

The portfolio breakdown shows unmarked and directed resources invested in loan assets.

Allocations in the commercial (unmarked) portfolio, leasing and public sector, which account

for 78.4% of the total portfolio, are funded from deposits and the Bank’s equity. Development

(long-term finance), rural, real estate and foreign exchange portfolios, which represent 21.6%

of the portfolio, are mostly from specific funding sources and are used for directed credit.

The commercial portfolio, consisting of revolving credit and installment loans for individuals

and companies, totaled R$12,514.6 million at the end of September 2010, representing 77.0%

of total credit volume. The breakdown of the commercial portfolio, given its importance, is

discussed in a specific item.

Real estate credit totaled R$1,217.6 million at the end of September 2010, up 15.3% (R$161.7

million) in twelve months and 5.0% (R$57.7 million) in the last three months, appearing shortly

after the commercial portfolio as the second best performance for the quarter. This product

was included in the commercial goals in the last quarter, given its relevance for the Bank and

the economic features which greatly promote the real estate market.

Rural credit totaled R$1,180.5 million in September 2010, up 26.1% (R$244.3 million) year-on-

year and 3.6% (R$41.2 million) over June 2010.


Table 8 Breakdown of Credit by PorfolioR$ Million


Private Sector 16,107.3 15,307.0 14,634.6 13,292.7 12,415.8 5.2% 29.7%

Foreign Exchange 470.0 443.9 426.5 482.9 514.6 5.9% -8.7%

Commercial Credit 12,514.6 11,861.1 11,370.6 10,108.6 9,331.9 5.5% 34.1%

Individuals 7,218.2 6,895.3 6,468.5 5,421.6 5,136.6 4.7% 40.5%

Credit Card 75.2 74.9 77.3 74.0 75.1 0.3% 0.1%

Loan and Discounted Receivables - Individuals 6,912.6 6,656.1 6,239.4 5,205.0 4,932.9 3.9% 40.1%

Customer Financing - Individuals 230.4 164.3 151.8 142.6 128.7 40.3% 79.1%

Companies 5,296.4 4,965.8 4,902.2 4,687.0 4,195.3 6.7% 26.2%

Foreign Credit 62.8 69.6 56.7 62.2 68.1 -9.7% -7.8%

Loan and Discounted Receivables - Companies 5,053.2 4,818.5 4,771.0 4,543.1 4,044.1 4.9% 25.0%

Customer Financing - Companies 180.4 77.8 74.5 81.7 83.1 131.8% 117.1%

Long-term Financing 644.3 617.4 579.7 501.3 478.9 4.4% 34.5%

Real Estate Financing 1,217.6 1,160.0 1,121.8 1,085.3 1,055.9 5.0% 15.3%

Leasing 80.2 85.3 89.6 94.6 98.2 -6.0% -18.3%

Rural 1,180.5 1,139.3 1,046.5 1,020.1 936.2 3.6% 26.1%

Agricultural Financing 129.8 135.0 131.1 121.5 112.8 -3.9% 15.1%

Public Sector 16,237.1 15,442.0 14,765.7 13,414.2 12,528.5 5.1% 29.6%

The long term credit portfolio at the end of September 2010 totaled R$644.3 million, up 34.5%

(R$165.4 million) in twelve months and 4.4% (R$27.0 million) over June 2010.

In commercial (unmarked) credit, the individuals segment totaled R$7,218.2 million at the

end of September 2010, representing 57.7% of the commercial portfolio balance and 44.4% of

the balance of total credit. The companies segment, which totaled R$5,296.4 million in

September 2010, absorbed 42.3% of commercial credit and 32.6% of total credit.

Graph 09: Commercial Credit Portfolio - Individualsand Companies - R$ Million

109

Commercial Credit

Commercial Credit (unmarked) to individuals totaled R$7,218.2 million in September 2010,

up 40.5% (R$2,081.6 million) from September 2009 and 4.7% (R$323.0 million) from June 2010.

The acquisition of payroll loans with co-obligation from vendor constituted an important

mechanism for leveraging these operations, accounting for large portion of the variation of

the credit portfolio in twelve months. In the last quarter, payroll loans of own origination

responded for much of the increased in credit registered.

At the end of September 2010, payroll loans, which accounted for 74.1% of commercial credit

to individuals, totaled R$5,347.4 million, up 43.9% (R$1,631.3 million) in the last twelve months

and 4.2% (R$214.0 million) in the last three months.

Among the payroll loans, credit of own generation came to R$3,311.1 million at the end of

September 2010, representing 61.9% of the payroll loan portfolio and 45.9% of the credit to

individuals, increasing 28.8% or R$740.2 million in twelve months and 7.3% or R$225.6 million

in three months. Acquired Payroll loans totaled R$2,036.3 million at the end of September

2010, an increase of 77.8% or R$891.1 million compared to September 2009 and a small decrease

compared to June 2010.

Credit to companies totaled R$5,296.4 million at the end of September 2010, up 26.2%

(R$1,101.1million) in twelve months and an increase of 6.7% (R$330.5 million) in the last

quarter.

In twelve months, working capital loans registered the best performance, growing 39.3%

(R$1,064.3 million), followed by receivables discounted portfolio, which increased 28.7% or

R$76.5 million, and by guarantee account, which grew 15.1% or R$61.7 million.

In 3Q10, working capital loans grew 8.0% (R$279.5 million), being responsible by 84.6% of the

increased in unmarked credit to companies. Working capital loans account for the biggest

share of credit to the companies segment, representing 71.2% of total commercial credit to

companies and 30.1% of total commercial credit.


R$ Million

Table 9 Composition of Unmarked Credit - Individuals and Companies


Individuals 7,218.2 6,895.3 6,468.5 5,421.6 5,136.6 4.7% 40.5%

Payroll-deductible Loan 5,158.0 5,003.5 4,751.8 3,957.9 3,612.1 3.1% 42.8%

Payroll-deductible Purchase of Consumer Goods 189.4 129.9 122.1 115.1 104.0 45.8% 82.1%

Purchase Goods - other 5.2 5.8 6.3 6.5 6.6 -9.4% -20.0%

Vehicle Loan - Individuals 36.4 29.8 24.9 22.3 19.3 22.2% 88.1%

Overdraft 610.4 588.2 540.9 446.4 469.9 3.8% 29.9%

One Minute Loan 259.2 241.0 212.8 190.4 184.0 7.6% 40.9%

Automatic Individual Loan 254.8 237.6 209.8 179.2 157.4 7.2% 61.9%

Non Payroll-deductible Loan 378.1 349.8 316.1 245.1 340.3 8.1% 11.1%

Credit Card 75.2 74.9 77.3 74.0 75.1 0.3% 0.1%

Other - Individuals 251.4 234.8 206.4 184.9 167.8 7.1% 49.8%

Companies 5,296.4 4,965.8 4,902.2 4,687.0 4,195.3 6.7% 26.2%

Purchase Goods - other 30.5 29.1 28.0 27.8 28.1 4.7% 8.6%

Vehicle Loan - Companies 22.4 20.1 18.7 18.6 18.1 11.7% 23.8%

Working Capital - Guarantee 2,780.4 2,671.5 2,662.8 2,514.6 2,124.0 4.1% 30.9%

Working Capital - Receivable 990.4 819.9 769.9 773.7 582.4 20.8% 70.0%

Financing to Customers - Companies 25.7 29.1 28.9 35.9 38.3 -11.7% -32.9%

Compror 102.1 104.4 181.0 236.7 243.2 -2.2% -58.0%

Indebted Security Account 171.7 165.1 166.3 169.8 172.4 4.0% -0.4%

Guaranted Account 470.5 458.6 429.8 338.5 408.7 2.6% 15.1%

Debt Instruments Discount 343.1 328.2 316.8 284.0 266.6 4.5% 28.7%

Vendor 121.0 88.2 89.0 85.9 97.9 37.2% 23.6%

Foreign Credit 62.8 69.6 56.7 62.2 68.1 -9.7% -7.8%

Other - Companies 175.8 182.1 154.4 139.3 147.5 -3.4% 19.2%

Total 12,514.6 11,861.1 11,370.6 10,108.6 9,331.9 5.5% 34.1%

Breakdown of Credit by Rating

At the end of September 2010, credit operations rated between AA and C, representing

normal risk according to Resolution 2,682/99 of the Central Bank of Brazil, accounted for 89.4%

of the credit portfolio, 3.2 percentage points higher than in September 2009 and 0.2 percentage

points higher than in June 2010.

Graph 10: Credit Portfolio by Risk Levels

111

Allowance for Loan Losses

Allowance for loan losses totaled R$1,122.7 million in September 2010, equivalent to 6.9% of

the consolidated credit portfolio, compared to 8.3% in September 2009, 7.6% in December

2009 and 7.2% in June 2010.

The reduction in the ratio of provisions to the volume of credit operations, in September

2010, is mainly due to three factors: (i) growth in the loan portfolio focused on lower risk

operations; (ii) adjustments in the allowance for loan losses as a result of write-offs of loans

contracted along an environment of greater risk; ( iii) improvements in the compliance

procedures for loans to individuals, thanks to the maturation of the model for classifying the

portfolio by rating, which enabled a reduction in the allowance for loan losses. However, the

Bank’s allowance ratio remains close to the average recorded by major commercial banks in

2010.

Graph 11: Breakdown of Allowance for Loan Losses - R$ Million

The breakdown of the allowance for loan losses in September 2010, according to Resolution

2,682/99 of the Central Bank of Brazi l, was as follows:

· R$374.7 million for operations with installments overdue for more than 60 days;

· R$663.6 million for contracts due or to be overdue for up to 60 days; and

· R$84.4 million relating to the excess allowance to the minimum required by Resolution

2,682/99 of the Central Bank of Brazil, which is constituted after a periodical analysis of the

portfolio risk carried out by the Bank Management, a procedure adopted ever since the

regulation was passed.


Graph 12: Cover Ratio

Graph 13: Default Ratio

R$ Million

Resolution EffectiveRating Required Total Accumulated Total Total Minimun Provision 2682 Total Provision

Provision Portfolio Relative Credits Credits Excess Over% Consolidated Status % Past Due Receivable Past Due Receivable Provision Provision Portfolio %

AA 0.0% 5,304.2 32.7% 0.0 5,304.2 0.0 0.0 10.5 10.5 0.2%

A 0.5% 5,552.2 66.9% 0.6 5,551.6 0.0 27.8 11.1 38.9 0.7%

B 1.0% 2,468.2 82.1% 0.2 2,467.9 0.0 24.7 12.3 37.0 1.5%

C 3.0% 1,191.9 89.4% 9.7 1,182.0 0.3 35.5 23.8 59.6 5.0%

D 10.0% 231.4 90.8% 19.9 212.1 1.9 21.2 4.6 27.8 12.0%

E 30.0% 242.8 92.3% 27.9 216.0 8.0 64.8 4.9 77.7 32.0%

F 50.0% 735.3 96.9% 89.9 643.9 45.7 322.0 14.7 382.3 52.0%

G 70.0% 82.2 97.4% 42.0 38.8 30.4 27.2 2.5 60.0 73.1%

H 100.0% 428.9 100.0% 297.7 140.5 288.4 140.5 0.0 428.9 100.0%

Total 16,237.1 487.9 15,757.1 374.7 663.6 84.4 1,122.7 6.9%

Table 10 Balance of Allowance for Losses

Cover Ratio

The following graph shows the cover ratio,

which is the percentage between the

allowance for loan losses and the balance of

operations overdue for more than 60 days that

did not generate revenue, which shows the

capacity to cover defaults with provisions

remains at comfortable levels. The cover ratio

of 230.1% in September 2010, 13.0 pp over

September 2009, proving Banrisul’s

conservative approach to credit risk

management.

Default Ratio

In September 2010, default loans over 60 days

in proportion to total loans still improved,

reaching 3.0%, below the 3.8% indicator

recorded in 3Q09, and also below down from

the 3.4% and 3.2% ratios of December 2009 and

June 2010, respectively.

The continuous, constant implementation of

statistical methodologies for risk assessment

of individuals and companies, where

parameterized credit policies and business rules are combined with the optimized controls

on customers’ information via branch evaluation, have intensified in the first half of 2010 and

improved credit granting. In this sense, the adoption of Behavior Score and Credit Score

systems have made possible to set pre-approved loans to individuals according to risk ratings

provided for in statistical models, which makes it a conceptually attractive tool for dealing

with massive credit.

113

Funds Raised and Under Management

Funds raised and under management totaled R$24,095.2 million at the end of September

2010, 15.5% up on September 2009, 10.0% up on December 2009 and 4.0% over June 2010.

The growth of R$3,239.4 million in twelve months came mainly from the increase in time and

savings deposits. In 3Q10, time deposits recorded the highest growth.

Graph 14: Funds Raised and Under Management - R$ Million

Demand Deposits

Demand deposits, which make up 8.8% of the funds raised and under management, totaled

R$2,108.9 million at the end of September 2010, 25.4% (R$426.8 million) over September 2009

and 3.9% (R$80.0 million) over June 2010. In twelve months, deposits from companies and

public sector presented the highest growth, the latter also responsible for the most significant

increase in the last quarter.

Savings Accounts

Savings accounts totaled R$6,295.7 million at the end of September 2010, 21.1% (R$1,095.5

million) over September 2009 and 4.3% (R$258.1 million) over June 2010. Savings accounts,

which represent 26.1% of the funds raised and managed, presented, in absolute numbers,

the best performance year-on-year and the second best performance quarter on-quarter

among funding sources.

Time Deposits

Time deposits represent 39.6% of the funds raised and under management. At the end of

September 2010, time deposits totaled R$9,533.0 million, up 12.0% (R$1,023.3 million) over

September 2009 and 5.5% (R$498.6 million) over June 2010. Being the main funding instrument

for unmarked credit, this product is promoted through business policies.



Total Deposits 17,954.1 17,144.7 16,519.9 16,369.7 15,462.3 4.7% 16.1%

Time Deposits 9,533.0 9,034.4 8,804.1 8,530.7 8,509.7 5.5% 12.0%

Demand Deposits 2,108.9 2,028.9 1,922.8 2,100.6 1,682.1 3.9% 25.4%

Saving Deposits 6,295.7 6,037.6 5,692.2 5,636.8 5,200.2 4.3% 21.1%

Other Deposits 16.5 43.8 100.7 101.6 70.3 -62.3% -76.5%

Funds Under Management 6,141.1 6,019.0 5,848.9 5,532.7 5,393.5 2.0% 13.9%

Total 24,095.2 23,163.7 22,368.7 21,902.4 20,855.8 4.0% 15.5%

R$ Million

Table 11 Funding Composition

Assets under Management

Assets under management totaled R$6,141.1 million at the end of September 2010, R$747.6

million higher than in September 2009, driven by changes introduced in the regulations related

to the allocation of funds belonging to municipal pension plans systems (RPPS), which allowed

the restructuring of the investment fund portfolio. In 3Q10, assets under management

increased by R$122.0 million, driven mainly by the growth in fixed income funds.

Cost of Funding

The Bank’s average cost of funding, as a percentage of the Basic Interest Rate (Selic), of

74.63% in 3Q10 was down from the 82.90% registered on 3Q09, and also down from the

78.19% registered in 2Q10. Last quarter’s trend reflects (i) the increased share of savings

accounts, of lower cost of funding in the total volume of funding, (ii) the reduced share of

market funding in the total of funds raised, (iii) the increase of demand deposits participation

to total funding which, however without cost, are added to funding and alter average cost,

(iv) the average funding terms, and (v) the mix between fixed and floating rates funding.

As to time deposits, the quarterly accumulated interest rates (2.17% in 3Q09, 2.11% in 2Q10

and 2.39% in 3Q10) demonstrate the trend of the Selic Rate and the amount of floating rate

deposits as proportion to the total portfolio, comprising 76% of the portfolio of time deposits.

The Selic Rate had an increase trend during the periods analyzed: 2.19% in 3Q09, 2.23% in

2Q10 and 2.62% in 3Q10. In an environment of rising Selic Rate, the cost of time deposits

contributes to reduce the cost of funding, decreasing from 98.81% in 3Q09 (94.74% in 2Q10) to

91.18% in 3Q10.

Graph 15: Cost of Funding as % of Selic Rate

115

3Q10 2Q10 3Q09Average Accumulated Average Average Accumulated Average Average Accumulated Average

Balance Expense Cost Balance Expense Cost Balance Expense Cost

Demand Deposits 2,074.4 2,017.2 1,627.0

Saving Deposits 6,208.8 -95.3 1.54% 5,900.9 -84.5 1.43% 5,124.4 -71.7 1.40%

Time Deposits 9,321.8 -222.6 2.39% 8,946.1 -188.7 2.11% 8,411.3 -182.3 2.17%

Interbank Deposits 28.0 -0.3 1.08% 68.6 -0.3 0.45% 76.8 -0.6 0.80%

Credit Guarantee Fund Expenses -6.6 -6.3 -5.7

Payable for Financial and Development Funds 2,180.1 -62.6 2.87% 2.009.8 -50.1 2.49% 2,504.3 -62.6 2.50%

Investment Deposits 2.1 1.9 2.0

Depósitos para Investimento 7.1 10.5 12.6

Total Averag e Balance / Total Expense s 19,822.3 -387.5 1.95% 18,955.0 -329.9 1.74% 17,758.3 -322.9 1.82%

Selic 2.62% 2.23% 2.19%

Average Cost / Selic 74.63% 78.19% 82.90%

Cost of Time Deposits / Selic 91.18% 94.74% 98.81%

R$ Million and %Table 12 Cost of Funding

Shareholders’ Equity

At the end of September 2010, Banrisul’s shareholders’ equity was R$3,746.4 million,

13.5% up on September 2009, 9.9% up on December 2009 and 4.4% higher than June 2010’s.

The changes in shareholders’ equity are related to the incorporation of results and the

payment of dividends and interest on equity.

Graph 16: Shareholders’ Equity - R$ Million

Return on Average Shareholders’ Equity

The Return on Average Shareholders’ Equity was 19.5%. The results during the nine months

of 2010 reflect positively the increase in the credit portfolio and the decrease in other

operating expenses, but were negatively affected the higher flow of financial expenses with

onlendings and credit provisions, and higher administrative expenses.


Graph 17: Return on Average Shareholders’ Equity

Basel Ratio

Basel Ratio is the relation between the reference equity and the weighted risks, as per

legislation, demonstrating the company’s solvency. The New Basel Accord II provides a better

measurement of the risks that financial institutions are exposed to. The Central Bank of Brazil

passed Resolution 3,490/07 specifying changes in the calculation of the reference equity

(PRE). Accordingly, this defined the installments that make up the PRE, which involved changes

in the calculation of the corresponding credit risks (Pepr), market risks (Pjur) and exchange

risks (Pcam). The resolution also included in the new PRE calculation method the portions

relating to operating risk (Popr), variations in share prices (Pacs) and the variation in

commodity prices (Pcom). Another requirement was the coverage for interest rate risks on

operations not included in the trading portfolio (Rban).

Banrisul’s Basel II Ratio in September 2010 was 15.4%. The reduction in the twelve-month

period was due to the increase in the credit portfolio.

With regards to the items included in the PRE calculation, it should be mentioned the variation

shown in the portion of the operating risk, which changed from 80% in September 2009 to

100% in January this year, as per Circular 3,383/08 of the Central Bank of Brazil. As to the part

of the required capital to cover exposures subject to market risk, the evolution of 26.4%

presented results from increased exposure to interest rate coupons.

Graph 18: Basel Ratio

117

Pace of Growth

The pace of growth in time deposits and commercial credit, measured by the relative growth

in volumes, is shown in the following graph. The 34.1% growth in commercial credit in the

twelve months ended September 2010 was higher than the 12.0% growth in time deposits.

Since December 2009 Banrisul’s total credit has been growing faster than the financial industry.

Credit operations grew 29.6% year-on-year in September 2010, while the financial sector

grew 19.6% in the same period.

Graph 19: Pace of Growth - Credit and Funding


Evolution of Income Statement Accounts

Net Income

Banrisul’s net income in the nine months of 2010 was R$511.4 million, 43.3% (R$154.6 million)

higher than the recurring income the nine months of 2009. In 3Q10, net income totaled R$206.4

million, 41.3% or R$60.3 million up on 3Q09 and 12.7% or R$23.3 million up on 2Q10.

The performance in 9M10 compared to 9M09 reflects positively the increase in credit revenues

and the reduction of other operating expenses, while is negatively affected by lower treasury

revenues (due to lower balances of securities transactions and lower Selic Rate) and by higher

financial expenses (onlendings), higher operating expenses and provisions.

When compared to 3Q09, 3Q10 was positively affected by higher credit and securities

revenues, and negatively by higher market funding and onlendings expenses. From 2Q10 to

3Q10, higher net income is associated with higher credit and securities and with lower

provisions and other administrative expenses (not including staff costs), reflecting cost cutting

efforts.

Graph 20: Net Income - R$ Million

Financial Income

Financial Income totaled R$3,351.4 million in 9M10, 10.8% (R$345.5 million) above the amount

registered in the same period in 2009. In 3Q10, financial income totaled R$1,298.2 million,

24.2% (R$252.7 million) above the amount registered in the same quarter last year and 11.4%

(R$132.8 million) above the amount recorded in 2Q10.

The higher amount of financial income until September 2010 is related to the R$436.2 million

growth in credit revenues that came from the R$3,708.5 million increase in the volume of

credit transactions and to the recovery of loans losses in the amount of R$ 43.8 million, which

helped offset lower treasury revenues in the amount of R$84.3 million, in light of the reduction

of the balance of operations and interest rates on account of a smaller effective Selic Rate

year-on-year.

From 3Q09 to 3Q10, revenues from financial income were also affected by credit revenues,

due to the increase of the loan portfolio. Quarter-on-quarter, besides the contribution of

revenues from credit, treasury income also grew by R$49.2 million, what is explained by

increasing Selic Rate and higher balance of treasury.

119

Graph 21: Financial Income - R$ Million

Revenue from Treasury Operations

In 9M10 revenues from securities and derivatives totaled R$791.8 million, 9.7% (R$85.4) million

below the amount recorded in the same period of 2009. In 3Q10, revenues from securities

and derivatives operations totaled R$303.9 million, 11.4% increase (R$31.0 million) over 3Q09

and up 20.4% (R$51.5 million) from 2Q10.

The reduction of the revenues of securities and derivatives observed in 9M10 from 9M09 is

due to the lower balance of the securities portfolio (less R$797.5 million) and lower effective

Selic Rate, which reduced from 7.68% in 9M09 to 7.03% in 9M10.

The increase in treasury revenues from 3Q09 to 3Q10 also comes from higher Selic Rate year-

on-year. From 2Q10 to 3Q10, an increase in the amount of the securities portfolio was observed,

as well as its average remuneration, as the Selic Rate (effective) rose from 2.23% in 2Q10 to

2.62% in 3Q10.

Revenues from Credit and Leasing Operations

Revenues from credit and leasing operations totaled R$2,551.6 million in 9M10, 20.6% (R$436.2

million) above 9M09. In 3Q10, revenues from credit and leasing operations totaled R$933.1

million, 31.3% (R$222.2 million) over 3Q09 and 9.7% (R$82.7 million) higher than 2Q10.

The increase in credit revenues from 9M09 to 9M10 reflects the growth of the loan portfolio,

which offset the decrease in credit rates, and the higher credit revenue from credit recovery.

In relation to 3Q09, 3Q10’s revenues reflect the increase of credit operations and the increase

in credit recovery. In relation to 2Q10, besides the previously explained reasons, the increase

in credit rates contributed to generating higher revenues.


Graph 22: Revenues from Credit and Leasing Operations - R$ Million

Revenues from Commercial Credit - Individuals and Companies

Revenues from commercial credit to individuals totaled R$1,525.8 million in 9M10, 26.9%

higher than in the same period of 2009. In 3Q10, revenues from commercial credit to individuals

totaled R$545.6 million, 29.2% more than in 3Q09 and 5.9% on 2Q10.

The R$323.7 million increase in revenues from commercial credit to individuals registered

from January to September 2010 is due to the growth in two of the main credit lines to

individuals: payroll loans and overdraft accounts. The increase in the balance offset lower

rates, contributing to increase revenues year-to-date.

From 3Q09 to 3Q10, the R$123.3 million increase in revenues also comes from the balance

growth of R$1,771.8 million in payroll loans and overdraft accounts. Revenues from these

products make up 76.2% of segment revenues and 49.6% of revenues from commercial credit.

Revenues from commercial credit to companies totaled R$800.0 million in 9M10, up 9.7%

(R$70.7 million) from the same period 2009, 28.6% (R$64.8 million) higher than 3Q09 and

increasing 10.5% (R$27.7 million) from 2Q10.

In 3Q10, working capital lines represented 59.0% of the revenues generated in the Companies

segment and 20.5% of commercial credit revenues. The increase in revenues from 3Q09 to

3Q10 was driven by the growth in operations and in the average rates increase. The revenue

increase in the last quarter also comes from the higher balance of working capital lines.

121

R$ Million

Table 13 Revenues from General Credit - Individuals and Companies

9M10 9M09 3Q10 2Q10 1Q10 4Q09 3Q09 9M10/9M09

Individuals 1,525.8 1,202.1 545.6 515.3 464.9 436.9 422.3 26.9%

Payroll-deductible Loan 757.8 569.0 263.9 255.5 238.4 216.0 205.9 33.2%

Payroll-deductible Purchase of Consumer Goods 18.9 14.8 7.5 5.8 5.6 5.2 4.8 27.8%

Purchase Goods - other 0.3 0.3 0.1 0.1 0.1 0.1 0.1 3.0%

Vehicle Loan - Individuals 4.9 3.7 1.9 1.6 1.4 1.3 1.2 34.1%

Overdraft 392.8 329.5 144.1 134.2 114.6 108.6 108.9 19.2%

One Minute Loan 109.2 89.5 40.4 36.4 32.4 30.9 30.2 22.1%

Automatic Individual Loan 96.6 62.3 35.9 32.7 28.1 23.8 20.7 55.1%

Non Payroll-deductible Loan 90.2 75.6 32.8 30.5 26.9 31.9 32.5 19.3%

Credit Card 35.0 42.4 11.4 11.9 11.8 14.0 13.2 -17.3%

Other - Individuals 20.0 15.1 7.7 6.7 5.7 5.1 4.7 32.5%

Companies 800.0 729.3 291.4 263.7 244.8 232.4 226.6 9.7%

Purchase Goods - other 3.6 3.8 1.3 1.2 1.1 1.0 1.1 -3.6%

Vehicle Loan - Companies 3.2 3.1 1.2 1.0 1.0 1.0 0.9 4.4%

Working Capital - Guarantee 365.7 320.5 131.2 121.6 113.0 106.4 102.0 14.1%

Working Capital - Receivable 103.5 94.7 40.7 33.7 29.1 26.2 25.7 9.4%

Financing to Customers - Companies 5.7 8.7 1.7 1.8 2.2 2.4 2.9 -34.7%

Compror 15.9 35.3 4.5 4.7 6.8 8.9 9.7 -54.9%

Indebted Security Account 22.9 30.5 8.0 7.7 7.2 7.6 7.8 -24.8%

Guaranted Account 195.7 153.8 72.0 64.3 59.4 54.1 52.0 27.3%

Debt Instruments Discount 54.8 50.1 19.9 18.2 16.6 15.6 15.5 9.2%

Vendor 10.8 16.0 3.9 3.4 3.4 3.7 4.5 -32.5%

Foreign Credit 1.5 2.0 0.6 0.5 0.5 0.5 0.5 -28.0%

Other - Companies 16.5 10.9 6.4 5.5 4.6 4.9 3.8 52.0%

Total 2,325.8 1,931.4 837.1 779.1 709.7 669.3 648.9 20.4%

The average commercial credit rates fell from 3Q09 to 3Q10, following the downward trend of

the Selic interest rate in the same period. The higher volume of revenues in 3Q10 over 3Q09

is chiefly due to increasing credit amounts, mainly commercial credit to individuals.

The commercial credit revenue increase from 2Q10 to 3Q10 also came from higher credit

amounts, both from individual and corporate segments. The average quarterly rates charged

to the individuals segment increased slightly, following the behavior of the Selic Rate,

particularly affecting overdraft accounts. As for working capital lines, the average rates charged

in 3Q10 also reflected the increase in the Selic Rate, given the larger portion of floating-rate

operations in such portfolio.


Table 14 Monthly Average Commercial Credit Rates - Individuals and Companies

9M10 9M09 3Q10 2Q10 1Q10 4Q09 3Q09

Individuals 2.55% 2.97% 2.56% 2.54% 2.55% 2.73% 2.84%

Payroll-deductible Loan 1.74% 2.04% 1.72% 1.73% 1.78% 1.90% 1.97%

Payroll-deductible Purchase of Consumer Goods 1.52% 1.61% 1.51% 1.52% 1.55% 1.58% 1.60%

Purchase Goods - other 0.60% 0.54% 0.63% 0.62% 0.55% 0.50% 0.50%

Vehicle Loan - Individuals 1.90% 2.07% 1.85% 1.90% 1.97% 2.05% 2.08%

Overdraft 7.80% 8.14% 7.95% 7.76% 7.66% 7.65% 7.86%

Crédito 1 Minuto 5.27% 5.54% 5.29% 5.25% 5.28% 5.39% 5.53%

Automatic Individual Loan 4.75% 4.35% 4.78% 4.75% 4.70% 4.64% 4.52%

Non Payroll-deductible Loan 3.00% 3.24% 2.96% 2.95% 3.09% 3.30% 3.35%

Credit Card 5.16% 6.00% 5.06% 5.25% 5.18% 6.23% 5.87%

Other - Individuals 1.00% 1.12% 1.04% 1.00% 0.95% 0.96% 0.96%

Companies 1.78% 1.85% 1.86% 1.79% 1.69% 1.74% 1.78%

Purchase Goods - other 1.42% 1.34% 1.52% 1.45% 1.29% 1.28% 1.27%

Vehicle Loan - Companies 1.77% 1.78% 1.79% 1.77% 1.75% 1.75% 1.75%

Working Capital - Guarantee 1.53% 1.66% 1.59% 1.54% 1.45% 1.53% 1.59%

Working Capital - Receivable 1.38% 1.65% 1.46% 1.39% 1.25% 1.28% 1.45%

Financing to Customers - Companies 2.18% 2.09% 2.10% 2.12% 2.30% 2.28% 2.25%

Compror 1.29% 1.45% 1.43% 1.38% 1.16% 1.21% 1.29%

Indebted Security Account 1.48% 1.88% 1.53% 1.45% 1.46% 1.45% 1.59%

Guaranted Account 4.77% 3.77% 4.97% 4.74% 4.59% 4.75% 4.14%

Debt Instruments Discount 1.87% 2.10% 1.92% 1.85% 1.84% 1.89% 1.97%

Vendor 1.29% 1.55% 1.27% 1.30% 1.31% 1.36% 1.39%

Foreign Credit 0.27% 0.28% 0.28% 0.26% 0.26% 0.25% 0.21%

Other - Companies 1.10% 0.95% 1.22% 1.06% 1.02% 1.18% 0.90%

Total 2.22% 2.42% 2.26% 2.23% 2.17% 2.28% 2.35%

Financial Expenses

Financial expenses totaled R$1,795.2 million in 9M10, which is 9, 6% (R$157.1 million) more

than 9M09. In 3Q10, they totaled R$639.7 million, 32.4% (R$156.5 million) higher than in 3Q09.

From 2Q10 to 3Q10, financial expenses increased 10.0% (R$58.2 million).

The increase in financial expenses from 9M09 to 9M10 resulted from higher loans and

onlendings costs, in the amount of R$95.8 million, from the R$500.4 million increase in the

balance of the reserve fund for escrow deposits, the higher volume of loans and onlendings

(R$163.7 million) and from equalization of rates in Finame operations with BNDES. Higher

amounts of credit provisions (R$65.8 million) on account of increases in the credit portfolio

and write-offs also contributed to increasing financial intermediation year-on-year.

The higher flow of expenses from 3Q09 to 3Q10 (R$156.5 million) stems mainly from (i) the

R$64.6 million increase in marketing funding due to larger deposit base and higher Selic Rate,

(ii) higher expenses with loans and onlendings, in the amount of R$48.0 million, which also

reflects increasing expenses with escrow deposits, and (iii) from the R$45,4 million increase

in provision expenses.

From 2Q10 to 3Q10, the increase in financial expenses is explained by market funding

operations, in the amount of R$57.6 million, basically due to larger deposit base and higher

Selic Rate, which was offset by the R$15.9 million reduction in provision expenses.

123

Graph 23: Financial Expenses - R$ Million

Expenses with Market Funding Operations

Expenses with market funding operations totaled R$1,021.4 million in 9M10, closer to the

amount in 9M09. In 3Q10, expenses with market funding operations totaled R$387.5 million,

a 20.0% (R$64.6 million) increase from 3Q09 and 17.5% (R$57.6 million) higher than 2Q10.

The slight reduction of R$5.7 million in expenses from 9M09 to 9M10 is due to the decrease of

the Basic Interest Rate (natural indexer for time deposits rates), to the funding structure

(retail and floating rates, mostly) and to the R$128.2 million year-on-year reduction in the

market funding balance.

The expenses increase from 3Q09 to 3Q10 is due to hikes in the Selic Rate and to higher time

and savings deposits balances at the end of each quarter. From 2Q10 to 3Q10, higher costs

were related to increases on the Selic Rate and on deposits and market funding.

Graph 24: Expenses with Market Funding Operations - R$ Million


Allowance for Loan Losses

Allowance for loan losses totaled R$391.7 million in 9M10, up 20.2% (R$65.8 million) over the

same period in 2009. In 3Q10, allowance for loan losses totaled R$111.2 million, a 69.0%

increase (R$45.4 million) from 3Q09, but 12.5% (R$15.9 million) down from 2Q10.

Despite the year-on-year improvement in the quality of the credit portfolio, the R$3,708.5

million growth in loans, combined with the write-offs of R$105.3 million above the amount

recorded in 9M09, led, as a consequence, to increasing the costs of provision. The write-offs

also reflect the amount of loans granted in 2009, a critical period on account of the worsening

of the financial crisis at the end 2008.

The changes in provisions from 3Q09 to 3Q10 are also associated with credit growth and

higher write-offs, reflected in increasing expenses. On the other hand, the lower provision

cost from 2Q10 to 3Q10 (R$5.7 million decrease) is due to the reduction in past due loans.

Graph 25: Allowance for Loan Losses - R$ Million

Gross Profit from Financial Intermediation

Gross profit from financial intermediation reached R$1,736.2 million in 9M10, 12.2% (R$188.4

million) higher than in same period of last year. The gross profit from financial intermediation

of R$658.5 million in 3Q10 represents an increase of 17.1% (R$96.2 million) from 3Q09, and of

12.8% (R$74.6 million) over 2Q10.

The performance in 9M10 reflects especially the growth of credit revenues, minimized by a

decline in treasury operations, the decrease of market funding on account of the decline of

the Selic Rate, and the increase of loans and onlendings expenses and of provision costs, with

a lowering effect on the outcome.

The higher gross financial margin from 3Q09 to 3Q10 is due to the higher flow of credit

revenues, compensating for the increase in market funding, loans and onlendings expenses

and with provisions. From 2Q10 and 3Q10, the increase in the gross profit from financial

intermediation reflects the expansion of revenues from credit and lower provision expenses,

minimized by the higher expenses with funding and onlendings.

125

Financial Margin

Financial margin was R$2,128.0 million in 9M10, 13.6% (R$254.3 million) more than in 9M09. In

3Q10, financial margin, in the amount of R$769.7 million, increased 22.5% (R$141.6 million)

from 3Q09, and 8.3% (R$58.8 million) from 2Q10.

From 9M09 to 9M10, higher revenues from credit contributed to increasing the financial margin,

while lower revenues from securities and higher loans and onlendings expenses affected

margins negatively.

The margin expansion from 2Q10 to 3Q10 is due to the increase in revenues from credit,

albeit minimized by higher flow of funding and onlendings costs, following the rise of the

Selic Rate.

Graph 26: Financial Margin - R$ Million

Revenue from Services Rendered

Revenues from services totaled R$468.2 million in 9M10, 9.6% (R$41.0 million) more than in

the same period of last year. In 3Q10, revenues form services, in the amount of R$160.9

million, increased 11.2% (R$16.2 million) from 3Q09, and 2.2% (R$3.4 million) from 2Q10.

The twelve-month increase from 9M09 and 9M10 in revenues from services was due to the

growth of Banricompras tariffs, the expansion of the affiliated network, and on checking

accounts, given the increased volume of transactions, especially in the companies segment.

The same reasons apply to explaining fees increases from 3Q09 to 3Q10: Banricompras and

fees on checking accounts, given the growth on Banricompras’ network and on financial

turnover, especially within the corporate segment. In comparison with 2Q10, the increase in

fees derives from assets under management, collection services and checking accounts for

individuals.


Graph 27: Revenue from Services Rendered - R$ Million

Administrative Expenses

In 9M10, administrative expenses totaled R$1,265.4 million, 7.6% or R$89.6 million above the

amount recorded in the same period in 2009. In 3Q10, administrative expenses totaled R$428.1

million, 4.4% or R$17.9 million above the amount recorded in 3Q09 and 3.4% or R$13.9 million

above 2Q10.

Staff costs, which comprise 54.3% of total administrative costs in 9M10, increased 2.5% or

R$16.8 million over the amount recorded in the same period of 2009, while other administrative

expenses increased 14.4% or R$72.9 million in the same period. The relatively small increase

on personnel expenses is function of staff turnover, as 740 employees were hired in the last

twelve months and headcount has remained stable.

The increase in other administrative expenses has, as drivers, increases in (i) third-party

services (R$14.5 million), (i i) marketing and advertisement (R$13.8 million) and ( iii)

amortization and depreciation (R$13.8 million).

Personnel expenses increased R$13.5 million from 3Q09 and R$17.6 from 2Q10. From 3Q09,

the variation is explained by wages increases granted in September 2009 affecting the

following months. In the last quarter, the higher amount of expenses comes from provisions

made for salary increases arising from collective agreements with the Union of Bank

Employees.

Other administrative expenses recorded an increase of R$4.4 million from 3Q09 and 3Q10,

and a decreased of R$3.7 million from 2Q10. The growth of other administrative expenses

from 3Q09 to 3Q10 is driven by increases on third party services and amortization and

depreciation, in the amount of R$10.8 million, which were offset by the R$17.3 million decrease

in marketing costs. The reduction observed in the last quarter is from lower marketing costs,

in the amount of R$15.6 million.

Since April 2010, cost-control points have been strengthened and implemented, goals for

managing corporate costs set, responsibilities and tasks for commercial and Head Offices’

areas defined, all with a view to the effective reduction of administrative expenses.

In September 2010, the marketing policy and its technical and administrative activities

(proposition, strategies analysis, consolidation and monitoring, product repositioning and

127

institutional campaigns, among others) were changed, becoming part of Banrisul’s

management model established in March 2007. The recently created Marketing Committee

aligns itself with the other nine existing committees, and its architecture ensures corporate

responsibility and economic rationality to the decision-making processes.

Graph 28: Personnel and Other Administrative Expenses - R$ Million

Other Operating Income

Other operating income totaled R$127.8 million in 9M10, 44.1% (R$39.1 million) higher than

in September of 2009, explained mainly because of accounting balances adjustments related

to systemic improvements, totaling R$20.6 million.

In 3Q10, other operating income totaled R$39.0 million, increasing 34.0% (R$9.9 million)

especially on adjustments related to systemic improvements, which also justify the 9.5%

(R$4.1 million) decrease quarter-on-quarter.

Graph 29: Other Operating Income - R$ Million


Other Operating Expenses

Other operating expenses totaled R$130.4 million in 9M10, 34.8% (R$69.5 million) below the

amount recorded in the same period last year, basically due to the payment of reserve

requirements on savings deposits from previous fiscal years, without repetition throughout

2010, in addition to foreign exchange variations that affected the foreign branches’ equity

and to post-employment benefits, as defined by Ibracon NPC 26 (Institute of Brazilian

Accountants – Accounting Standards and Procedures # 26), amounts partially offset by increased

labor provisions expenses .

In 3Q10, other operating expenses totaled R$50.6 million, 2.3% (R$1.2 million) below the

amount recorded in 3Q09 and 17.7% (R$7.6 million) above the amount of 2Q10. From 2Q10 to

3Q10, the increase of other operating expenses is due to higher expenses related to foreign

exchange variations.

Graph 30: Other Operating Expenses - R$ Million

129

Graph31: Leverage Ratio

Graph32: Operating Cost

Graph 33: Debt-Equity Ratio

Economic Indicators

Leverage Ratio

The leverage ratio is the ratio of the

credit operations portfolio to

shareholders’ equity. In September

2010, Banrisul’s credit operations

represented 4.3x of shareholders’

equity, rising from to the 3.8x

registered in September 2009, the 3.9x

in December 2009 and the 4.3x in June

2010.

The significant growth of the loan

portfolio in the twelve months reflected the variation of the Leverage Ratio. The Bank’s

comfortable leverage shows its capacity for loan portfolio growth in the future.

Operating Cost

Operating cost measures the total of

administrative expenses in relation to

total assets. The ratio is calculated

based on the expenses in the twelve

months against the balance of assets

at the end of the period being

analyzed.

The 13.2% growth in assets in the

twelve months, caused by the growth

in credit operations, helped to absorb

administrative expenses, reflecting in

the reduction of costs in proportion to assets in twelve months.

Debt-Equity Ratio

The debt-equity ratio measures the ratio of shareholders’ equity to funds raised from the

public, including investment funds. It evaluates the security that the company’s own funds

offer to third-party capital.

In September 2010, the debt-equity

ratio was 15.5%, 0.3 p.p. lower than

September 2009, 0.1 p.p. lower than

December 2009 and identical to June

2010. The reduction in the capital ratio

demonstrates the higher share of third-

party funds in the funding for loans.


Graph 34: Employee Productivity - R$ Thousand

Graph 35: Efficiency Ratio

Employee Productivity

The productivity ratio, which is

measured by the total volume of

business (funding and credit) per

employee, grew 16.8% in the twelve

months to R$4,314.1 thousand, thanks

to the Bank’s business performance,

driven by the system of variable

remuneration, which helped to raise

productivity.

In September 2010, Banrisul had 9,349 employees, 314 more than in September 2009.

Efficiency Ratio

The Efficiency Ratio measures the

percentage volume of revenues used

to cover administrative expenses. The

48,5% twelve-month accumulated

ratio in 3Q10 is the lowest level since

it started being calculated at Banrisul,

below the target released last quarter,

when the ratio was set in the range

between 49% and 54%.

The consistent reduction in efficiency

ratio reflects the capacity of the

financial margin, sustained by the growth in revenue from credit and securities operations

and favored by the reduction in other operating expenses, to absorb the increase in

administrative expenses.

131

R$ Million

Consolidated Pro Forma Balance Sheet

Assets Sep10 Jun10 Mar10 Dec09 Sep09 Sep10/ Sep10 /Jun10 Sep09

Curr ent and Long-Term Assets 31,972.6 30,719.6 29,509.4 28,726.2 28,223.8 4.1% 13.3%

Cash 396.4 339.9 357.2 411.2 356.8 16.6% 11.1%

Interbank Investments 3,822.6 4,133.2 4,090.8 5,356.5 5,762.3 -7.5% -33.7%

Securities and Derivatives 8,477.4 8,091.1 7,760.2 7,408.5 7,335.1 4.8% 15.6%

Interbank and Interbranch Accounts 2,650.5 2,353.5 2,238.1 1,856.8 1,915.9 12.6% 38.3%

Lending Operations 15,683.7 14,909.4 14,246.0 12,833.2 11,912.8 5.2% 31.7%

Allowance for Loan Losses (1,083.7) (1,054.7) (1,030.2) (966.2) (990.4) 2.7% 9.4%

Leasing Operations 83.2 88.5 93.0 97.9 101.0 -6.0% -17.6%

Allowance for Doubtful Lease Receivables (7.5) (9.8) (8.5) (8.7) (8.9) -23.3% -15.4%

Other Receivables 2,025.6 1,955.4 1,845.5 1,813.2 1,924.0 3.6% 5.3%

Allowance for Losses on Other Receivables (102.0) (121.9) (124.3) (122.1) (119.7) -16.3% -14.8%

Other Assets 26.5 35.1 41.5 45.9 35.1 -24.3% -24.4%

Permanent 366.7 379.2 355.1 357.9 349.4 -3.3% 5.0%

Investments 7.8 7.8 7.8 7.8 8.0 0.0% -3.0%

Property in Use 171.3 170.9 178.1 170.1 155.9 0.3% 9.9%

Intangible 187.6 200.6 169.2 180.1 185.5 -6.5% 1.1%

Total Assets 32,339.3 31,098.8 29,864.6 29,084.1 28,573.2 4.0% 13.2%

Passivo Sep10 Jun10 Mar10 Dec09 Set09 Sep10/ Sep10 /Jun10 Sep09

Current and Long-Term Liabi lities 28,591.2 27,506.9 26,382.9 25,674.0 25,271.8 3.9% 13.1%

Deposits 17,954.1 17,144.7 16,519.9 16,369.7 15,462.3 4.7% 16.1%

Demand Deposits 2,108.9 2,028.9 1,922.8 2,100.6 1,682.1 3.9% 25.4%

Saving Deposits 6,295.7 6,037.6 5,692.2 5,636.8 5,200.2 4.3% 21.1%

Intebank Deposits 14.7 34.6 91.1 90.0 61.6 -57.6% -76.2%

Time Deposits 9,533.0 9,034.4 8,804.1 8,530.7 8,509.7 5.5% 12.0%

Other Deposits 1.9 9.2 9.6 11.6 8.7 -79.7% -78.6%

Money Market Funding 2,285.9 2,073.9 1,901.9 2,006.5 2,414.1 10.2% -5.3%

Intebank and Interbranch Accounts 475.0 454.0 424.7 160.7 406.9 4.6% 16.7%

Borrowings and Onlendings 1,611.9 1,655.1 1,621.4 1,481.7 1,448.2 -2.6% 11.3%

Derivatives 56.5 51.6 46.6 47.0 42.3 9.6% 33.7%

Other Payables 6,207.8 6,127.7 5,868.3 5,608.5 5,498.0 1.3% 12.9%

Collected Taxes and Other 112.0 130.3 111.0 28.4 91.3 -14.1% 22.7%

Foreign Exchange Portfolio 42.5 37.2 33.7 24.1 18.6 14.3% 127.8%

Social and Statutory 55.7 43.3 38.5 33.4 23.2 28.5% 139.9%

Tax ans Social Securities 713.8 593.3 503.3 523.2 627.7 20.3% 13.7%

Trading Acc ount 3.1 3.1 2.5 4.2 2.6 -1.7% 19.8%

Financial and Development Funds 4,395.6 4,448.1 4,368.8 4,140.0 3,895.2 -1.2% 12.8%

Other 885.2 872.4 810.6 855.1 839.4 1.5% 5.4%

Minority Interest 1.8 1.7 1.7 1.7 1.6 2.9% 8.7%

Shareholders’ Equity 3,746.4 3,590.1 3,480.0 3,408.5 3,299.8 4.4% 13.5%

Total Liabilities and Shareholders’ Equity 32,339.3 31,098.8 29,864.6 29,084.1 28,573.2 4.0% 13.2%

Table 15 Consolidated Pro Forma Balance Sheet


R$ Million

Pro Forma Income Statement

Table 16 Pro forma Income Statement

9M10 9M09 3Q10 2Q10 1Q10 4Q09 3Q09 3Q10/ 9M10/2Q10 9M09


Expenses Income (1,403.5) (1,312.2) (528.5) (454.5) (420.5) (408.0) (417.4) 16.3% 7.0%

Financial Margin 2,128.0 1,873.7 769.7 710.9 647.3 668.7 628.1 8.3% 13.6%

Allowance for Loan Losses (391.7) (325.9) (111.2) (127.1) (153.5) (96.7) (65.8) -12.5% 20.2%

Gross Profit from Financial Income 1,736.2 1,547.8 658.5 583.9 493.8 572.0 562.3 12.8% 12.2%

Other Operations Income / Expenses (950.2) (995.1) (331.6) (306.4) (312.3) (271.4) (333.1) 8.2% -4.5%

Services / Bank Fees 468.2 427.2 160.9 157.4 149.9 152.1 144.6 2.2% 9.6%

Personnel Expenses (687.5) (670.8) (245.5) (227.9) (214.0) (230.2) (232.0) 7.7% 2.5%

Other Administrative Expenses (577.9) (505.0) (182.6) (186.3) (209.0) (173.9) (178.3) -2.0% 14.4%


Tax Expenses (150.3) (135.2) (52.7) (49.7) (47.9) (46.7) (44.8) 5.9% 11.1%

Other Operation Expenses (130.4) (199.9) (50.6) (43.0) (36.9) (27.7) (51.8) 17.7% -34.8%


Income Before Taxes on Income 786.0 552.7 327.0 277.5 181.6 300.6 229.2 17.8% 42.2%

Income Tax and Social Contribution (241.0) (173.3) (109.4) (83.2) (48.3) (94.3) (75.6) 31.5% 39.1%

Statutory Interest (33.5) (22.5) (11.1) (11.1) (11.3) (21.9) (7.5) 0.0% 49.0%

Minority Interest (0.1) (0.1) (0.1) 0.0 0.0 (0.1) 0.0 27.5% 11.8%

Net Income 511.4 356.8 206.4 183.1 121.9 184.3 146.0 12.7% 43.3%

133

Board of Executive OfficersBoard of Executive OfficersBoard of Executive OfficersBoard of Executive OfficersBoard of Executive Officers

MATEUS AFFONSO BANDEIRACEO

RUBENS SALVADOR BORDINIVice-President

BRUNO FRONZACARLOS TADEU AGRIFOGLIO VIANNA

CÉSAR ANTÔNIO CECHINATOLUIZ GONZAGA VERAS MOTA

MARINÊS BILHARPAULO ROBERTO GARCIA FRANZ

Officers

LUIZ CARLOS MORLINAccountant CRCRS 51.124

GOVERNO DO ESTADODO RIO GRANDE DO SUL

Secretaria da FazendaBanco do Estado do Rio Grande do Sul

Board of Directors

RICARDO ENGLERTChairman

MATEUS AFFONSO BANDEIRAVice Chairman

ARIO ZIMMERMANNDILIO SERGIO PENEDO

JOÃO VERNER JUENEMANNJOÃO ZANI

MANOEL ANDRÉ DA ROCHARUBENS SALVADOR BORDINI

Board Members

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