Brazilian Mortgages Companhia Hipotecária Financial statements at December 31, 2012 and independent auditor's report

Transcription

1 (A free translation of the original in Portuguese) Brazilian Mortgages Companhia Hipotecária Financial statements at December 31, 2012 and independent auditor's report

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4 Balance sheet at December 31 All amounts in thousands of reais (A free translation of the original in Portuguese) Assets Note Current assets 1,081, ,173 Cash and cash equivalents 3,696 1,913 Short-term interbank investments 4 342,443 74,038 Investments in interbank deposits 342,443 74,038 Marketable securities and derivative financial instruments 5 13,611 20,220 Own portfolio 13,611 20,220 Loans 6 692, ,769 Private sector 705, ,623 Allowance for loan losses (13,561) (2,854) Other receivables 13,893 8,635 Income receivable - 4,444 Sundry 7 14,633 7,866 Allowance for loan losses (740) (3,675) Other assets 15, Other receivables 15, Prepaid expenses Long-term receivables 647, ,869 Marketable securities and derivative financial instruments 5 82, ,444 Own portfolio 48, ,039 Linked to collateral provided 33,726 65,405 Loans 6 546, ,103 Private sector 575, ,478 Allowance for loan losses (29,301) (9,375) Other receivables 17,983 7,936 Sundry 7 17,983 7,936 Other assets Prepaid expenses Permanent assets ,278 Investments 1 1 Property and equipment in use Other property and equipment in use Accumulated depreciation (603) (530) Intangible assets ,151 Intangible assets ,294 Accumulated amortization (248) (143) Total assets 1,729,289 1,303,320 1 of 24

5 Balance sheet at December 31 All amounts in thousands of reais (continued) Liabilities and equity Note Current liabilities 1,030, ,388 Deposits - 40 Other deposits - 40 Funds from acceptance and issue of securities 880, ,007 Resources from Housing Loan Bills 8 880, ,007 Borrowings 37,401 74,773 Domestic borrowing - other institutions 9 37,401 74,773 Other liabilities 113,393 89,568 Collection of taxes and similar Social and statutory 3,053 1,524 Taxes and social security contributions 23,139 8,669 Negotiation and intermediation of securities 10 77,271 72,525 Sundry 9,781 6,506 Long-term liabilities 445, ,902 Funds from acceptance and issue of securities 345,729 12,562 Resources from Housing Loan Bills 8 345,729 12,562 Borrowings 100, ,000 Domestic borrowing - other institutions 9 100, ,000 Other liabilities 183 4,340 Taxes and social security contributions 183 4,340 Equity , ,030 Capital Local residents 151, ,911 Revenue reserves 100,317 91,112 Adjustment to market value - securities and derivatives Total liabilities and equity 1,729,289 1,303,320 The accompanying notes are an integral part of these financial statements. 2 of 24

6 Statement of income Years and six-month period ended December 31 and second six-month period of 2012 All amounts in thousands of reais, unless otherwise stated (A free translation of the original in Portuguese) Six-month period ended Year December 31, Note Revenues from financial intermediation 127, , ,229 Loans 98, , ,236 Result from transactions with securities 12,654 30,304 42,993 Sale or transfer of financial assets 16,069 29,098 - Expenses from financial intermediation (69,726) (140,180) (118,452) Funds obtained in the market (39,171) (80,895) (75,746) Borrowing and onward lending (8,980) (21,984) (29,982) Sale or transfer of financial assets (199) (284) - Allowance for loan losses 6(c ) (21,376) (37,017) (12,724) Gross profit from financial intermediation 57,950 94,913 79,777 Other operating income (expenses) (40,707) (73,820) (63,138) Income from services rendered 12 18,558 42,619 33,526 Personnel expenses 13 (9,946) (20,140) (15,227) Other administrative expenses 14 (42,843) (83,882) (71,484) Tax expenses (6,182) (11,459) (7,356) Other operating income Other operating expenses 15 (1,032) (1,907) (3,052) Operating profit 17,243 21,093 16,639 Other non-operating income (expenses) (1,813) (1,813) 312 Capital gains 16 (1,813) (1,813) 312 Profit before taxation 15,430 19,280 16,951 Income tax 17 (7,615) (16,056) (5,368) Social contribution 17 (2,746) (5,789) (1,989) Deferred tax assets 5,676 15, Statutory profit sharing (1,420) (2,559 ) (1,096 ) Profit for the six-month period/year 9,325 10,192 9,397 Earnings per share - R$ Number of shares 960, , ,960 The accompanying notes are an integral part of these financial statements. 3 of 24

7 Statement of changes in equity Years and six-month period ended December 31 and second six-month period of 2012 All amounts in thousands of reais, unless otherwise stated (A free translation of the original in Portuguese) The accompanying notes are an integral part of these financial statements. 4 of 24 Revenue reserves Carrying value Note Capital Legal reserve Expansion reserve adjustment - securities and derivatives Retained earnings Total At December 31, ,911 4,853 86, ,030 Capital increase 11(a) 50, ,000 Carrying value adjustment - securities and derivatives Profit for the year ,192 10,192 Applications Additional dividends - R$ 0.66 per share 11(b) - - (503) - - (503) Minimum mandatory dividends - R$ 0.50 per share 11(b) (484) (484) Reserves 11(b) ,198 - (9,708) - At December 31, ,911 5,363 94, ,582 At December 31, ,911 4,383 77, ,072 Capital increase 11(a) 10, ,000 Carrying value adjustment - securities and derivatives Profit for the year ,397 9,397 Applications Minimum mandatory dividends - R$ 0.58 per share 11(b ) (446) (446) Reserves 11(b ) ,481 - (8,951) - At December 31, ,911 4,853 86, ,030 At June 30, ,911 4,896 85,756 1, ,645 Carrying value adjustment - securities and derivatives (904) - (904) Profit for the six-month period ,325 9,325 Applications Minimum mandatory dividends - R$ 0.50 per share 11(b ) (484) (484) Reserves 11(b ) ,198 - (9,665) - At December 31, ,911 5,363 94, ,582

8 Statement of cash flows Years ended December 31 and second six-month period of 2012 All amounts in thousands of reais (A free translation of the original in Portuguese) Six-month period ended December 31, 2012 Year Cash flows from operating activities Adjusted profit 9,398 10,370 9,582 Profit for the six-month period/year 9,325 10,192 9,397 Depreciation Amortization Changes in assets and liabilities Decrease (increase) in short-term interbank investments (314,011) (268,405) 43,980 Decrease (increase) in marketable securities and derivative financial instruments 102, ,958 (40,609) Decrease (increase) in loans (13,919) (272,632) (341,130) Decrease (increase) in other receivables (11,032) (15,305) 27,252 Decrease (increase) in other assets (10,800) (15,137) (984) Increase in other deposits - (40) 40 Increase in collateralized notes 219, , ,166 Increase (decrease) in borrowing and onward lending (36,598) (73,372) 59,408 Increase (decrease) in other liabilities 12,669 (2,394) 7,386 Income tax and social contribution paid 18,415 21,845 4,905 Cash provided by (used in) operating activities (23,752 ) (71,951) 4,996 Cash flows from investing activities Disposal of intangible assets 24,813 24,813 - Acquisitions of property and equipment in use (21) (48) (70) Acquisitions of intangible assets (43) (82) (15,348) Cash provided by (used in) investing activities 24,749 24,683 (15,418 ) Cash flows from financing activities Capital increase - 50,000 10,000 Dividends paid - (949) (1,394) Cash provided by financing activities - 49,051 8,606 Cash flow generated (used) in the six-month period/year 997 1,783 (1,816 ) Cash and cash equivalents at the beginning of the six-month period/year 2,699 1,913 3,729 Cash and cash equivalents at the end of the six-month period/year 3,696 3,696 1,913 The accompanying notes are an integral part of these financial statements. 5 of 24

9 (A free translation of the original in Portuguese) Brazilian Mortgages Companhia Hipotecária All amounts in thousands of reais, unless otherwise stated 1 Operations The objective of Brazilian Mortgages Companhia Hipotecária ("Company") is to carry out the activities of a Mortgage Company, as defined by Resolution 2122/94 of the National Monetary Council (CMN). A single integrated corporate structure provides support for business activities, including all of the technology, processing and operating, commercial, administrative, financial and legal controls necessary to perform the various activities in the real estate segment. On July 19, 2012, the stockholders of BFRE, the Company's indirect parent company, in an Extraordinary General Meeting, approved the partial split-off of BFRE with the merger of the split-off portion, including the investment in Brazilian Capital Companhia de Gestão de Investimentos ("Brazilian Capital"), into BPMB IV Participações S.A. ("BPMB IV"). In addition, also on the same date and after the split-off mentioned above: (i) the indirect acquisition of 100% of BFRE's share capital by Panamericano was concluded and, consequently, also the acquisition of the origination, financing and securitization assets developed by its subsidiaries: BM Sua Casa Promotora de Vendas Ltda., Brazilian Mortgages Companhia Hipotecária and Brazilian Securities Companhia de Securitização; and (ii) the indirect acquisition of 100% of Brazilian Capital's share capital by BTG Pactual. Brazilian Capital is engaged into investment management activities in real estate assets and also in investment management/advisory services for real estate investment funds or share. 2 Presentation of the financial statements These financial statements were approved by the Company's Board of Directors on February 18, The financial statements have been prepared in accordance with the standards of the Brazilian Central Bank (BACEN) and the Brazilian Corporation Law, and are being presented in accordance with the criteria established by the Chart of Accounts for Institutions of the National Financial System (COSIF). Law 11638/2007 was enacted on December 28, 2007, and amended by the Provisional Measure (MP) 449, dated December 3, 2008, converted into Law 11941/09. This Law and the Provisional Measure amended and introduced new provisions to the Brazilian Corporation Law. Their main objective was to update Brazilian corporate legislation to make possible the process of convergence of the accounting practices adopted in Brazil with those set out in International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). The changes in accounting practices approved by the Brazilian Central Bank (BACEN) were adopted from the annual financial statements for 2008 and are being applied uniformly from 2009, including: CPC 01 (R1) - "Impairment of Assets", CPC 03 (R1) - "Statements of Cash Flow", CPC 05 (R1) - "Related Party Disclosures", CPC 24 - "Events after the Reporting Period", CPC 25 - "Provisions, Contingent Assets and Liabilities". The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates are used for, but not limited to, the selection of the useful lives of property and equipment, any provisions necessary for contingent liabilities or for impairment of trade receivables, fair values, taxes and other similar charges. Actual results may differ from these estimates. 6 of 24

10 3 Summary of significant accounting policies (a) Recognition of income and expenses Income and expenses are recognized on an accrual basis. (b) Marketable securities Marketable securities are recorded in accordance with the recording and valuation criteria established by BACEN Circular 3068, of November 8, 2001, which consider management's intention to negotiate and divide them into the following categories:. Trading securities - acquired to be frequently and actively traded, adjusted to market value with a corresponding entry to the results for the period.. Securities available for sale - securities which are not classifiable as trading securities nor as securities to be held to maturity, adjusted to their market values with corresponding entries in specific accounts in equity.. Securities held to maturity - securities, except for non-redeemable shares, that the Company has the intention or obligation and financial capacity to hold in the portfolio up to their maturity, accounted for at their acquisition cost, plus accrued income, with a corresponding entry in the results for the year/period. Gains and losses on securities available for sale, when realized, are recognized as at the date of negotiation in the statements of income, with corresponding entries in specific equity accounts. Decreases in the market value of securities available for sale and those held to maturity below their related costs, due to non-temporary causes, are recorded as realized losses. (c) Loans Loans are recorded at their initial amounts, plus interest and monetary restatement. The allowance for loan losses is recorded based on Resolution 2682, dated December 21, 1999, of the National Monetary Council (CMN) and is considered sufficient to cover losses on the realization of receivables, based on an analysis of the outstanding transactions and the specific and overall portfolio risks. (d) Property and equipment in use and intangible assets Property and equipment in use and intangible assets are recorded at cost of acquisition/formation. Depreciation and amortization are calculated on the straight-line basis, using annual rates established based on the economic useful lives of the assets. Intangible assets refer to rights to use software, recorded at cost and amortized over 60 months. In addition, up to July 19, 2012, they included the amount paid on the acquisition of the Real Estate Investment Fund management business, as described in Note 20(e). 7 of 24

11 (e) Current assets and liabilities, long-term receivables and long-term liabilities These assets and liabilities are stated at their realization and settlement values, respectively, including monetary and exchange variations, as well as accrued income and charges up to the balance sheet date, recognized on a daily pro rata basis. (f) Provision for income tax and social contribution Income tax and social contribution were calculated based on taxable income, adjusted in line with the terms of current legislation, at the rates of 15% plus a 10% surcharge on the excess of the tax limit, and 9%, respectively. According to Provisional Measure 449/08, converted into Law 11941/09, the changes in the criteria for recognition of income, costs and expenses computed for purposes of profit for the year, introduced by Law 11638/07 and articles 36 and 37 of the abovementioned Provisional Measure, will not affect the calculation of taxable income of a legal entity choosing the Transitional Tax System (RTT). Therefore it is necessary to consider, for tax purposes, the accounting criteria and methods effective at December 31, For accounting purposes, the tax effects of adopting Law 11638/07 are recorded in the corresponding deferred tax assets and liabilities. The Company recognized deferred tax assets and liabilities on temporarily non-deductible additions or exclusions to the tax calculation amounting to R$ 17,186 ( R$ 6,206) and R$ 183 ( R$ 4,340), respectively. In the year, the Company recognized tax assets amounting to R$ 10,980 and reversal of provision for deferred taxes amounting to R$ 4,157, on the allowance for loan losses and other non-deductible provisions. (g) Cash and cash equivalents Cash and cash equivalents include cash on hand and available bank deposits, as well as highly liquid short-term financial investments, which are readily convertible into a known amount of cash and which are subject to an insignificant risk of change in value and mature within a period shorter than 90 days from the date of acquisition. (h) Impairment The Company conducts a periodic analysis of possible impairment of property and equipment items and intangible assets, when applicable. (i) Contingent assets and liabilities The recognition, measurement and disclosure of contingent liabilities are carried out in accordance with the criteria established in Resolution 3823 of December 16, 2009, which approved CPC 25 - "Provisions, Contingent Assets and Liabilities". These are recorded in the financial statements when, based on the opinion of the Company's legal advisers and management, the risk of an unfavorable outcome in a legal or administrative action is considered high, and would involve a probable outflow of resources to settle the obligations. Contingent liabilities classified as possible losses by the legal advisors and management are disclosed only in the notes to the financial statements, while those classified as remote losses do not require the recording of a provision or relevant disclosure. 8 of 24

12 Contingent assets are not recorded in the financial statements, since they may never be realized. Contingent assets are disclosed when the inflow of economic benefits is probable. 4 Short-term interbank investments Include investments in Interbank Deposit Certificates (CDI) with maturity dates up to December 23, 2013 and yield 100.0% p.p. of CDI ( maturity dates up to December 2012 and yields from 100% to 100.5% of CDI). 5 Marketable securities and derivative financial instruments (a) The analysis of the marketable securities portfolio is as follows: Cost Market value Cost Market value Own portfolio Trading securities Real estate investment fund quotas FII Hotel Maxinvest ,306 11, ,306 11,956 Available-for-sale securities Financial Treasury Bills (LFT) 54,673 54, , ,303 Credit Fund quotas 7,300 7, ,973 62, , ,303 Linked to collateral provided Available-for-sale securities Financial Treasury Bills (LFT) 33,722 33, Real estate investment fund quotas FII Shopping West Plaza - - 2,277 1,854 FII BCRE Fund I ,361 46,542 FII Hotel Maxinvest ,088 17,009 33,722 33,726 53,726 65,405 Total 95,695 96, , ,664 The market value of Credit Fund quotas is assessed according to the equity value of the quotas. The market value of government securities is that negotiated in the secondary market for government securities - obtained via the Brazilian Financial and Capital Markets Association (ANBIMA). 9 of 24

13 In 2012 and 2011, the Company used a portion of the Financial Treasury Bills (LFT) and of the Real Estate Fund quotas to guarantee some of its funding transactions (Note 9). (b) Maturity of securities In 2012 and 2011, Financial Treasury Bills (LFT) have yields corresponding to the Special System for Settlement and Custody (SELIC) rate and maturities up to September 7, Credit Fund quotas and real estate investment fund quotas are considered as having no maturity date. 6 Loans Loans are mostly comprised of real estate financing for the completion of construction, real estate financing for acquisition and real estate financing with guarantees and fiduciary liens. They are inflation adjusted by the Referential Rate (TR), plus interest rates ranging from 7.95% p.a. to 19.56% p.a. ( % p.a. to 19.56% p.a.), the General Market Price Index (IGP-M), plus rates from 0.00% p.a. to 17.23% p.a. ( % p.a. to 19.56% p.a.), or fixed rates from 10.43% p.a. to 19.95% p.a. ( % p.a. to 19.95% p.a.). Interest is payable monthly, and the loans have final maturities up to December (a) Analysis by maturity Overdue for 15 days or more 11,162 2,853 Falling due between 15 and 90 days 253, ,909 Falling due between 91 and 360 days 440, ,861 Falling due after more than 360 days 575, ,478 Total 1,281, , of 24

14 (b) Analysis by risk level Loans are classified by credit risk level, and the allowance for loan losses is recorded in accordance with the Brazilian Central Bank Regulations, as follows: Risk level Provision - % Balances Provision required (a) Additional provision (b ) Total provision Balances Total provision AA 643, ,224 - A ,492 (2,212) (164) (2,376) 369,751 (1,953) B ,404 (424) (31) (455) 40,773 (431) C ,054 (1,382) (103) (1,485) 53,239 (1,687) D ,515 (5,152) (382) (5,534) 14,712 (1,554) E ,767 (7,430) (551) (7,981) 7,024 (2,226) F ,760 (2,880) (214) (3,094) 3,239 (1,711) G ,474 (8,032) (596) (8,628) 1,814 (1,342) H ,309 (13,309) - (13,309) 1,325 (1,325) Loans 1,281,366 (40,821) (2,041 ) (42,862) 978,101 (12,229 ) Other receivables 1,702 (740) - (740) 5,243 (3,675 ) Total 1,283,068 (41,561) (2,041 ) (43,602) 983,344 (15,904 ) (a) Minimum provision required by the parameters of BACEN Resolution (b) Additional provisions are recorded and allocated at each risk level so as to reflect possible stress situations within the current economic context. 11 of 24

15 (c) Changes in the allowance for loan losses Presented below are the changes in the allowance for loan losses for the period/year ended December 31: Six-month period ended December 31, At the beginning of the period/year 30,696 15,904 4,909 Provision recorded 40,609 66,628 16,234 Reversal of provision (19,233) (29,611) (3,510) Written off as loss (8,470) (9,319) (1,729) Balance at the end of the period/year 43,602 43,602 15,904 During the year, the Company recovered receivables which had been previously written off as losses, amounting to R$ 1,711 ( R$ 477). In addition, it renegotiated receivables amounting to R$ 696,170 ( R$ 623,682), mainly due to delays in construction schedules and the extension of the grace period for the commercialization of the units. 7 Other sundry credits Deferred taxes (a) 17,186 6,206 Taxes and contributions to be offset 8,585 5,520 Commission advances (b) 1,702 2,308 Real estate credits (c) 1,764 1,061 Amounts receivable from associated companies (d) 2,644 7 Other Total 32,616 15,802 (a) This balance refers to deferred tax assets on temporary differences related to income tax and social contributions, with realization expected to take place within one and two years, in the amounts of R$ 6,062 and R$ 11,124, respectively. (b) According to instruments from June 10, 2008 and June 29, (c) These correspond to real state loans amortized, whose financial settlement was substantially made in January (d) In 2012, this balance includes the amount of R$ 2,596, corresponding to unsettled amounts arising from contracts assigned, the collection of which continues to be made by the assigning institution, as contractually established. 12 of 24

16 8 Resources from Housing Loan Bills (a) Analysis by maturity Up to 3 months 587, ,003 From 3 to 12 months 292, ,004 From 1 to 3 years 345,729 12,562 Total 1,225, ,569 (b) Analysis by index Interbank Deposit Certificate (CDI) 1,221, ,010 General Market Price Index (IGP-M) 2,644 7,167 Fixed rate 1,656 5,993 Referential Rate (TR) Total 1,225, ,569 In 2012, House Loan Bills are inflation adjusted by 82.00% to % of the CDI ( % to 98.00% of CDI) or by the General Market Price Index (IGP-M), plus interest rates varying from 3.52% p.a. to 5.60% p.a. ( % p.a. to 6.00% p.a.) or fixed rates ranging from 8.32% p.a. to 12.08% p.a. ( % p.a. to 12.08% p.a.) or, in 2011, at the Referential Rate (TR) plus interest rates of 9.92% p.a. 9 Domestic borrowings Domestic borrowings in 2012 and 2011 refer to Bank Credit Notes (CCB) taken by the Company from financial institutions, subject to 100% of CDI, plus interest rates ranging from 3.30% p.a. to 3.75% p.a., with maturities up to April 11, Other liabilities - negotiation and intermediation of securities 13 of Amounts to release from sale of loans (a) 73,072 67,414 Business negotiation and intermediation (b) 3,530 4,379 Other Total 77,271 72,525 (a) This balance refers to credit transactions granted, whose amounts are to be released to the borrowers.

17 (b) This balance refers to amounts payable to BM Sua Casa Promotora de Vendas Ltda. (Note 18(a)), related to the business intermediation services provided. 11 Equity (a) Capital The Company's capital comprises 960,588 shares, of which 480,294 are common shares and 480,294 are preferred shares ( ,960; 381,480 and 381,480 common and preferred shares, respectively), all nominative and with no par value, fully subscribed and paid-up at the balance sheet date by locally domiciled stockholders. The stockholders approved at the Extraordinary General Meeting held on February 8, 2012 the capital increase of R$ 50,000 by the stockholder BMSR II Participações S.A with the issue of 197,628 new shares. This capital increase was approved by BACEN on February 22, The stockholders approved at the Extraordinary General Meeting held on December 12, 2011 the capital increase of R$ 10,000 by the stockholder BMSR II Participações S.A with the issue of 39,990 new shares. This capital increase was approved by BACEN on December 19, (b) Dividends and reserves The Company's bylaws prescribe the payment of minimum dividends of 5% of profit for the year, after the appropriation to the legal reserve. At the Annual Meeting held on March 30, 2012, the Board of Directors and the stockholders approved the financial statements and the management report for the year ended December 31, 2011, as well as the distribution of minimum mandatory dividends amounting to R$ 446, in accordance with statutory provisions, and of additional dividends amounting to R$ 503, totaling R$ 949, which were paid on June 11, Furthermore, the remaining balance was retained for reinvestment in the Company's activities, based on the capital budget approved by management. For 2012, Management is proposing to the stockholders the payment of minimum mandatory dividends, in accordance with the bylaws, amounting to R$ 484, and the retention of the remaining profit for reinvestment in the activities of the Company, based on the capital budget approved by management. 12 Services revenue Six-month period ended December 31, Operation structuring fee 10,406 21,297 15,187 FII administration fee (a) 4,811 15,818 12,429 Financial advisory services 3,341 5,504 5,910 Total 18,558 42,619 33,526 (a) BTG Pactual Serviços Financeiros S.A. DTVM became the manager of the FIIs (previously managed by the Company) on July 19, 2012 (Note 20(e)). 14 of 24

18 13 Personnel expenses Six-month period ended December 31, Directors' fees 1,571 4,114 4,274 Other direct compensation 4,939 9,330 6,041 Social security costs 1,504 3,180 2,490 Other social costs 706 1, Benefits 1,226 2,467 1,934 Total 9,946 20,140 15, Other administrative expenses Six-month period ended December 31, Business intermediation (a) 19,799 40,566 41,347 Technical advisory services 6,533 12,080 8,617 Commission on the distribution of Mortgage bills and Housing Loan Bills. 3,617 7,968 7,078 Commission - partnerships 5,335 8,792 1,694 Construction inspection fee 1,590 2,865 2,706 Rental expenses 851 1,586 1,201 Lawyers' fees 598 1,131 1,071 Bookkeeping 310 1, Subscription 888 1,590 1,433 Notary office fees 626 1, Third-party services Financial system services Technology and systems Marketing Telecommunication Amortization and depreciation expenses Other 931 1,879 2,523 Total 42,843 83,882 71,484 (a) This balance refers to expenses from the performance of business intermediation services to BM Sua Casa Promotora de Vendas Ltda. (Note 18(a)). 15 of 24

19 15 Other operating income and expenses Six-month period ended December 31, Revenue Recovery of charges and expenses Assets not for use (BNDU) Monetary variation gains Other Subtotal Expenses Assets not for use (BNDU) (119) (119) (22) Monetary variation losses (451) (1,109) (1,969) Provision for contingencies (343) (401) (3) Other (119) (278) (1,058) Subtotal (1,032) (1,907 ) (3,052 ) Total (294) (958 ) (2,597 ) 16 Other non-operating income (expenses) Non-operating expense in 2012, amounting to R$ 1,813, refers to the loss incurred in the transfer of FII management to BTG Pactual Serviços Financeiros S.A. DTVM, according to the "Commercial Agreement for the Transfer of Management of Real Estate Investment Funds" (Note 20(e)). Non-operating income in 2011 refers to profit on sale of equity securities of the Clearing House for the Custody and Financial Settlement of Securities (CETIP). 17 Analysis of income tax and social contribution Six-month period ended December 31, Profit before taxation and after profit sharing 14,010 16,721 15,855 Additions Impairment of trade receivables 21,376 37,017 12,724 Mark-to-market (MTM) - Real estate investment funds (FII) - 12,330 7,527 Provision for contingencies Permanent additions 607 2,564 3,201 Exclusions Reversal of provision for other credits (2,935) (2,935) - Mark-to-market (MTM) - Real estate investment funds (FII) - - (17,208) Recovery of receivables written-off as losses, not previously deducted (1,711) (1,711) - Other temporary deductions (1,149) - - Tax basis (income tax and social contribution) 30,512 64,324 22, of 24

20 Six-month period ended December 31, Income tax Social contribution Income tax Social contribution Income tax Social contribution Income tax and social contribution 7,616 2,746 16,057 5,789 5,501 1,989 Tax incentives in the period (1) - (1) - (133) - 7,615 2,746 16,056 5,789 5,368 1, Related-party transactions (a) The related party transactions, as well as the relevant assets, liabilities and income and expenses, can be summarized as follows: Assets (liabilities) Revenue (expenses ) Assets (liabilities) Revenue (expenses) BMSR II Participações S.A. (l) Dividends payable (Note 11(b)) (484) - (446) - Brazilian Finance & Real Estate S.A. (n) Resources from Housing Loan Bills (a) (1,884) Amounts payable (b) (56) - (100) - Brazilian Securities Companhia de Securitização (m) Credit assignment (c) ,296 Amounts receivable (b) Amounts payable (d) - - (66) - BM Sua Casa Promotora de Vendas Ltda. (m) Amounts payable (e) (3,530) (40,566) (4,379) (41,347) Amounts receivable (b) Banco Panamericano S.A. (n) Short-term interbank investments (f) 342,443 6, Credit assignment (g) - 16, Amounts receivable (h) 2, Panamericana de Seguros S.A. (m) Amounts payable (i) (54) (50) - - PANSERV Prestadora de Serviço Ltda. (m) Amounts payable (e) (69) (155) - - Banco BTG Pactual (n) Resources from Housing Loan Bills (j) (78,769) (1,501) - - BTG Pactual Serviços Financeiros S.A. DTVM (m) Transfer of FII management (k) - (1,813) - - (a) This refers to Housing Loan Bills, which are restated by 96% of CDI and fall due up to April 29, (b) Administrative expense reimbursement. (c) In 2011, it corresponds to the recognition of the accounts receivable from BS, for the sale of real state related receivables, restated at the pro-rata variation of IGP-M or TR + interest ranging from 7.67% p.p. to 18.50% p.p. 17 of 24

21 (d) Amounts to be transferred relating to credits, which, although assigned, were collected by the Company in accordance with the "Private Credit Assignment Agreement and Other Covenants" signed between April and October (e) Amounts payable in relation to commission on business intermediation services. (f) This refers to interbank deposit certificates, which are restated by 100% of CDI and fall due up to December 23, (g) Pursuant to the "Private Credit Assignment Agreements and Other Covenants" signed on September 26, 2012, October 29, 2012, November 27, 2012 and December 19, 2012, the Company assigned a credit portfolio to Banco Panamericano S.A., without substantial retention of risks and benefits, for R$ 380,660. The amount of the assigned portfolio totaled R$ 364,591, generating a profit of R$ 16,069 with the sale. (h) Unsettled amounts arising from contracts granted, the collection of which continues to be made by the granting institution, as contractually established. (i) Refers to life insurance expenses. (j) This refers to Housing Loan Bills, which are restated by 92.50% to 98.50% of CDI and fall due up to September 29, (k) Pursuant to the Commercial Agreement for the Transfer of Management of Real Estate Investment Funds, signed on July 19, 2012, BM transferred the management of the FIIs to BTG Pactual Serviços Financeiros S.A. DTVM, generating a prejudice on sale in the amount of R$ 1,813. However, BM accrued revenue of R$ 4,811 with the management of these funds during 2012 up to the effective transfer to the new manager (Note 16). (l) Direct parent company. (m) Associated company. (n) Indirect parent company. (b) Key management compensation is disclosed in Note 13 and refers to short-term benefits. The sharebased compensation agreement is disclosed in Note 20(d). 19 Risk management The Company's risk management and control policy is strategically in line with the best market prices and the guidelines defined by regulatory agencies. Policies and procedures and a risk management system capable of identifying, measuring, managing, assessing, controlling and mitigating risks inherent to its business were implemented, providing the Executive Officers with an overview of all expected and unexpected risks. The risk management policies are designed to support calculation of risk exposure, guide employees and establish procedures to monitor, control, measure, assess and report the risks to the Executive Officers. The Company reviews and updates regularly its risk management policies and systems to reflect changes in the scenario, internal and external factors, markets and products and best practice. (i) Governance and responsibility in relation to risks The Conglomerate's Governance and Compliance structure is intended to monitor, improve and advise the Board of Directors and the Executive Board regarding the principles, guidelines and the best 18 of 24

22 corporate governance and risk management practices. The structure is responsible for defining, managing and testing the compliance with to the Code of Ethics and Good Behavior, assessing possible conflicts of interest, adopting strategies and measures for the dissemination of the Code of Ethics and Good Behavior of the Conglomerate, as well as directing cases of violation to analysis and discussion by relevant authorities, dispelling doubts regarding the interpretation of the Code of Ethics and Good Behavior and of the Policies for Disclosure and Trading. For the management and control of risks, the Integrated Risk Management and Capital Allocation Committee was created, responsible for validating policies and approving processes and activities of the companies comprising the Conglomerate, in the management of Market, Credit, Liquidity, Capital Allocation and Operating risks. It is a multidisciplinary forum with representatives of the Executive Board and the Senior Management and has among its attributions: analyze and approve the main policies, guidelines, methodologies, tools and limits, and approve management reports related to risk management and control. (ii) Stress test scenarios Stress test scenario analyses are important tools to understand the Company's capital sensitivity and business plans in extreme but plausible situations and consider the potential financial effect on business plans. This tool provides Executive Officers with the possibility of establishing action plans to mitigate these events, should they occur. Periodic exercises are carried out to compare the existing capital required with the volume demanded by stress scenarios, including a further severe deterioration of the global economic scenario. Qualitative and quantitative tests are used to estimate the potential impact on the capital position under such scenarios. These tools assist in the mitigation of risks presented by financial crises. While the prediction of future events may not cover all events or precisely identify future events, scenarios analyzed in the past may represent privileged information in the identification of actions required to mitigate risks when similar events occur. (iii) Market risk Market risk is defined as the possibility of occurrence of losses resulting from fluctuations in the rates, and mismatches of terms and currencies in asset and liability portfolios of the Company. These risks are managed on a daily basis using methodologies which are consistent with the best practices. The operations are exposed to real estate market risks, and the main factors are the adverse changes in the forward structure of risk-free interest rate, TR and IGP-M coupons. (iv) Operating risks The Company defines operating risk as the possibility of losses resulting from failure, deficiency or inadequacy of internal processes, people and systems, or of external events, including legal risk, associated with inadequate or deficient contracts signed by the institution, with penalties due to noncompliance with laws, and with compensation for third-party damages arising from activities carried out by the institution. In order to be in compliance with the guidelines of the National Monetary Council (CMN) Resolution 2,554/98, CMN Resolution 3,380/06, Superintendency of Private Insurance (SUSEP) Circular Letter 19 of 24

23 249/04 and Brazilian Securities Commission (CVM) Instruction 505/11, the Conglomerate has an independent organizational structure responsible for the management and control of operating risks named Executive Management for Internal Controls, Compliance and Operating risks, which includes also Brazilian Mortgages. Management has intensified efforts in managing and controlling the operating risks, through the implementation and spreading of concepts and attitudes focused on world and local banking standards, notably the precepts of the Basel Accords and rules published by the Brazilian Central Bank, the Brazilian Securities Commission and the Superintendency of Private Insurances. For this purpose, the main procedures adopted by the Conglomerate's companies are documented internally in policies, standards and manuals of instructions and processes. To provide an adequate environment for the identification and assessment of risks and internal controls, the Conglomerate has an approved Operating Risk Management and Control policy, which establishes guidelines and strategies and defines a system of rules, objectives, principles and responsibilities, designed to ensure the adequate management and control of operating risk. The operating procedures and the methodology for identification, assessment, measurement, control/mitigation and monitoring of operating risks, as well as the main concepts, are documented in the rules published and disclosed internally. (v) (a) Credit risk Introduction to credit risk management Credit risk consists of the possibility of occurrence of losses associated with default, by the debtor or counterparty, on its financial obligations under the agreed terms, as well as the devaluation of the credit contract due to the reduction of gains or earnings, advantages granted in renegotiations, and costs of recovery. The decision-making process ensures agility and focus on credit actions, taking into consideration business opportunities and changes of scenario. The priority has been to balance the asset volume growth and the risk/return ratio maximization. For this purpose, the Company has an independent department for credit risk management, following the best corporate governance practice. All transactions involving individuals or companies are mandatorily submitted for proper approval. The transaction approval process takes into consideration mainly the analysis of the individual customers' ability to pay and, in the case of companies, the conditions/feasibility of the funded development, as well as the guarantees offered. The feasibility of a development is analyzed through a feasibility study developed by a specialized company, and the releases are made according to the construction work schedule, through reimbursement of the percentage already completed. The internal request for releases of funds is approved by the director responsible for the transaction or, in his absence, by a statutory director. Controls and monitoring of the related processes, restrictions and established limits are carried out, as well as the risk analysis and its submission to approving levels and committees. (b) Credit risk cycle Credit risk management is monitored by all parties involved in the credit cycle phases. The Commercial, Operating and Risk Management areas have the mission of supervising the identification, measurement, monitoring, control and mitigation of risks. 20 of 24

24 (c) Decision, monitoring and control The Risk department monitors the transactions and the mitigating factors that will be required and establishes the operating limits on credit risk exposure. (d) (d.1) Measures and measurement tools Classification of credit quality (rating tools) Transactions are classified according to the Company's judgment of the risk level, taking into consideration the economic scenario, past experience and specific risks in relation to the transaction, debtors and guarantors, late payment periods, and the economic group. Risks are classified based on the parameters defined by Resolution 2682 of December 21, 1999, of the Brazilian Central Bank (BACEN), used in designing a Risk Matrix, considering also relevant factors that may differentiate the risk levels, such as: reference file status, the economic and financial situation of the borrower, guarantees, liquidity ratios, etc. (vi) Liquidity risk The liquidity risk is defined as (i) the possibility of the Company not being able to honor its expected and unexpected obligations, whether current or future, including those from commitments of guarantees, without affecting the Company's daily operations and not incurring significant losses; and (ii) the possibility of the Company not being able to negotiate a position at market value, because of its large size when comparing to the volume normally traded or because of some market discontinuation. The Company constantly monitors the liquidity, the mismatch between the primary risk factors, and the rates and terms between assets and liabilities of the portfolio. The Company has adequate liquidity levels, resulting from the quality of its assets, and from the risk control, in line with the Market and Liquidity Risk policy established, adopting as management tools short-, medium- and long-term liquidity projections, risk limits, and the liquidity contingency plan. 20 Other information (a) (b) (c) The income tax returns for the last five years are subject to review and assessment by the tax authorities. Other taxes and contributions remain subject to review and approval by the relevant agencies for variable periods of time, according to the applicable legislation. In 2012 and 2011, the Company did not have any derivative financial instruments recorded in its balance sheet and offsetting accounts. Contingent assets and liabilities The Company recorded a provision for contingent liabilities relating to civil and labor lawsuits whose likelihood of loss is probable, as shown below: 21 of 24

25 Civil Labor Total Civil Opening balance Constitutions, net of reversals and derecognition Closing balance (a) (a) Provision recorded in "Other liabilities - sundry". In addition, in 2012, the Company was party to civil lawsuits where a loss was considered possible, for which there was no provision established, in the amount of R$ 443 ( R$ 7,090), relating to sundry civil liabilities. In 2011, the Company was part to labor lawsuits in the amount of R$ 212, which mainly referred to complaints presented by former employees claiming labor rights. (d) On May 2, 2008, options for the purchase of 7,323,636 nominative preferred shares of BFRE, the indirect parent company of the Company, were granted to the managers and employees occupying managing positions at BFRE and companies under its control, including Brazilian Mortgages, exercisable as from 2009, according to the conditions established in the Plan and in the Agreements issued by BFRE itself, the grantor of the referred options. Management calculated the probable fair value of the options as at the grant date through mathematical models based on multiples of the results of similar companies, and determined that the fair value was close to zero. Thus, there were no accounting entries to be made, in conformity with CPC 10 - "Share-Based Payments". In April 2011, all Plan beneficiaries, who held managing positions at BFRE, exercised the first third of options, which became exercisable from May 2, 2009, and one beneficiary exercised the second third of his options, exercisable from May 2, 2010; in April 2012, all beneficiaries exercised the second and the last third of options, which became exercisable as from May 2, 2010 and May 2, 2011, respectively. On July 7, 2011 BFRE, the indirect parent company of Brazilian Mortgages, issued 1,295,661 preferred shares, as a result of the purchase options exercised by the Option Plan beneficiaries, of which 1,220,606 were shares at the price of R$ and 75,055 were shares at the price of R$ All of the shares were fully subscribed and paid up to July 27, 2011, totaling R$ 4,881. Through July 27, 2011, based on a private transaction and upon the approval of the CVM, BFRE acquired 1,295,661 preferred shares for R$ per share, with the total amount of R$ 7,304. On April 09, 2012 BFRE, the indirect parent company of Brazilian Mortgages, issued 2,291,104 preferred shares, as a result of the purchase option exercised by the Option Plan beneficiaries, of which 1,145,552 were shares at the price of R$ and 1,145,552 were shares at the price of R$ All of the shares were fully subscribed and paid up to April 23, 2012, totaling R$ 8,248. Through April 24, 2012, based on a private transaction and upon the approval of the CVM, BFRE has acquired 2,291,104 preferred shares for R$ per share, with the total amount of R$ 12,398. Therefore, the shares granted according to the terms of the Company's Stock Option Plan were automatically and legally extinct, considering that they were fully exercised. All 3,586,765 preferred shares maintained in treasury of the parent company BFRE were cancelled after the decision taken by stockholders at the Extraordinary General Meeting held on April 26, of 24

26 (e) On June 15, 2010, Brazilian Mortgages (BM) and Banco Ourinvest (Bank) entered into an Agreement for the Assignment of Rights and Assumption of Obligations and Other Covenants, in order to assign to BM all real estate investment fund management activities, which will be valid in relation to each of the Funds from the relevant dates of transfer of management or formation of the real estate investment funds in the structuring phase, as applicable, in compliance with the provisions contained in that agreement and in the pertinent legislation and regulations. On July 19, 2012, BM transferred the management of the FIIs to BTG Pactual Serviços Financeiros S.A. DTVM, pursuant to the Commercial Agreement for the Transfer of Management of Real Estate Investment Funds, generating a loss of R$ 1,813 with the sale. However, BM accrued revenue of R$ 15,818 with the management of these funds during 2012 up to the effective transfer to the new manager. Third-party funds managed by BM totaled R$ 821,022 ( R$ 5,064,704), which correspond to the total assets in the portfolios of the related Real Estate Investment Funds being transferred to BTG Pactual, because they are waiting for the approval of the transfer of the management responsibilities at General Meetings of Stockholders. (f) Events after the reporting period There were no events after the reporting period for disclosure, in accordance with CPC 24 - "Events after the reporting period". * 23 of 24

27 (A free translation of the original in Portuguese) BRAZILIAN MORTGAGES COMPANHIA HIPOTECÁRIA Management report To our stockholders, In accordance with the legal and statutory provisions, the management of Brazilian Mortgages Companhia Hipotecária is pleased to present its financial statements for the years ended December 31, 2012 and 2011, accompanied by the independent auditor's report. Should you require additional information, please contact the Company's management. São Paulo, February 18, 2013 * * * 24 of 24