Banco Hipotecario Sociedad Anónima Reports Fourth Quarter 2004 Results

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1 Reuters BHI.BA Bloomberg - BHIP AR <Equity> Bloomberg - BHIP <Corporate> Bloomberg BHN <Mortgage> Contacts: Marcelo Icikson Nicolás Vocos Capital Markets Tel. (54-11) Fax (54-11) Buenos Aires, Argentina micikson@hipotecario.com.ar nmvocos@hipotecario.com.ar Gabriel Saidon Chief Financial Officer Tel. (54-11) /5212 Fax (54-11) /5113 Buenos Aires, Argentina gsaidon@hipotecario.com.ar Banco Hipotecario Sociedad Anónima Reports Fourth Quarter 2004 Results Highlights I. Executive Summary Banco Hipotecario recorded net income of Ps million for the year ended December 31, Net income for the fourth quarter of 2004 was Ps.55.7 million, consolidating the improvement in net financial income and operating income that began to develop early in The Bank ranked first in 2004 among Argentine private banks in terms of net income for the year. In 2004 Banco Hipotecario ranked first among private banks in Argentina in terms of shareholders equity. The Bank has a sound equity position with total shareholders equity of Ps.1,959.2 million, representing an excess of Ps.1,035.1 million over the minimum capital required by the Central Bank. Sustained growth in lending and development of new lines of business. The Bank s solid creditworthiness and liquidity position have enabled it to respond to the demand for loans, maximizing its individual and corporate lending capacity. Banco Hipotecario achieved significant profitability and efficiency ratios. In 2004, the Bank featured a return on average shareholders equity of 15.18% and administrative expenses to total assets of 1.17%. Significant improvement in asset quality. The Bank s ratio of non-performing loans to total loans decreased by 206 basis points and its balance of non-performing loans was reduced by 18.7% in Diversified funding sources. In the fourth quarter of 2004, Banco Hipotecario issued its second series of Cédulas Hipotecarias for an aggregate amount of Ps.50 million in the local capital markets, and obtained new foreign financing in an aggregate principal amount of US$ 30 million. Significant reduction in financial indebtedness. The Bank s total restructured debt as of December 31, 2004 was reduced to US$950.1 million, representing a 19.4% reduction of the total debt outstanding as of December 31, The trading price of Banco Hipotecario s Class D shares appreciated by 46.5% during the fourth quarter of Banco Hipotecario recorded net income of Ps million for 2004 (Ps.1.86 per share), an increase of 9.4% compared to net income of Ps million in the previous year. Net income for the fourth quarter was Ps.55.7 million (Ps.0.37 per share). Results for 2004 mainly reflect the sustained improvement in net financial income, reduction in the Bank s indebtedness, continued upgrading in the quality of its loan portfolio, sustained improvement in operating efficiency, and significant efforts made in terms of financial hedging, aimed at conservatively managing the risks faced by the Bank. The Bank s low leverage, excess over minimum regulatory capital and minimum cash requirements, prudent liquidity management policy and adequate matching of financial assets and liabilities in terms of currency, terms and interest rates, have enabled Banco Hipotecario to embark on an aggressive growth strategy.

2 Administrative expenses for 2004 were Ps million, representing a 3.6% increase compared to the previous year, primarily as a result of the actions taken by the Bank in implementing its retail business diversification strategy. At December 31, 2004, non-performing loans accounted for 11.47% of the Bank s total loan portfolio, compared to 13.53% at the closing of the previous year. Total loan reserves were 92.06% at December 31, II. Present Condition During 2004, Banco Hipotecario made further progress in the implementation of its business diversification initiatives, capitalizing on the traditional franchise of its mortgage business. Throughout the year, Banco Hipotecario actively pursued the growth of its lending business and the development of new business lines, focusing its efforts on the implementation of integral technological solutions to strengthen the Bank s expansion towards retail banking, extended the Bank s marketing channel network and created backup areas to support its diversified business strategy. Some of the actions taken include: Increase in loan products and launching of new products: In 2004 the Bank began to offer personal loans, resumed mortgage lending and launched pledge loans. The variety of corporate loan products was extended and customer fidelity strategies were implemented. Moreover, during 2004 there was a sustained increase in the demand for retail and wholesale time deposits and savings accounts, and the Bank started offering checking accounts. In addition, the Bank launched the Visa Banco Hipotecario credit card, with high levels of acceptance and transaction amounts and growing financing rates since its inception. Finally, the Bank continued its strategy of expanding the variety of non-mortgage related insurance products it offers, including combined family, life, unemployment, health, personal accident and ATM robbery insurance. Opening of alternative marketing channels. The Bank focused on the expansion of its channel network, emphasizing on the reduction of structure costs related to the sale of new products and management efficiency. Development of organizational structure. The new strategy implied changes in the Bank s organizational strategy, as new areas were created and existing ones were streamlined, positions were redefined to suit the new processes and circuits designed for the new products, and staff training was provided to meet the new challenges. Implementation of a new IT solution. The systems area focused its efforts on the implementation of a comprehensive IT solution capable of supporting the Bank s diversified business expansion strategy. In addition, significant investments were made in upgrading central servers and workstations. On November 17, 2004, Banco Hipotecario successfully closed its second series of Cédulas Hipotecarias in the local capital markets for an aggregate amount of Ps.50 million, issued under the Cédulas Hipotecarias Argentinas Ps.500 million Note Program. The offer was oversubscribed by approximately three times the authorized amount issued. The Bonds accrue variable interest at the higher of CER + 3% and the interest rate for time deposits between Ps.100,000 and Ps.500,000, up to 59 days, reported by the BCRA + 4%, subject to a floor of 8% per annum and a ceiling of 15% per annum. The securities are collateralized by residential mortgage loans and were rated raaa by Standard & Poor s. In February 2005, Banco Hipotecario obtained new credit lines from foreign financial institutions for US$ 30 million. III. Relevant events during the fourth quarter and recent developments On December 1, 2004, the Bank paid the second interest coupon due under its long-term debt due 2013 in an amount of US$ 7.2 million and EUR 4.2 million. On February 3, 2005, the Bank paid the third interest coupon due under its guaranteed medium-term debt due 2010, in an amount of US$ 2.4 million. On October 27, 2004, under Resolution No. 269 of the Superintendency of Financial and Exchange Institutions, the Bank s Regularization Plan filed pursuant to Resolutions No. 213/02 and 227/03 of the Central Bank s Board of Directors, was declared concluded. 2

3 Under Resolution No. 308 dated November 4, 2004, the Board of Directors of the Central Bank authorized Banco Hipotecario S.A. to prepay its debt in foreign currency, provided that it previously cancelled all credit assistance provided by the Central Bank. Therefore, the Bank prepaid Central Bank borrowings totaling Ps.40 million. On December 15, 2004, the Argentine Senate promulgated Law No. 25,820 that extended the Economic Emergency Law until December 31, On January 20, 2005, the Bank took part in the tender solicited by the Central Bank under Communications A 4368 and 4282 for the repayment of advances extended by the Central Bank during the liquidity crisis of The amount accepted as repayment was Ps.63.8 million. IV. Presentation of Information The Bank s assets include Argentine government bonds (the so-called BODENs) issuable pursuant to Decree 905/ 02 as compensation for the loss suffered by the Bank as a result of the asymmetric pesification of assets and liabilities and the devaluation of the peso that took place in The Bank s loss suffered as a result of pesification amounted to US$1,193.5 million (equivalent to Ps.3,549.2 million, based on the exchange rate at December 31, 2004 of Ps per dollar). Compensation for this loss resulted in the Bank becoming entitled to receive from the Argentine Government US$381.0 million in compensatory Boden and US$812.5 million in additional Boden. As of December 31, 2004, the Bank had received US$344.1 million in compensatory BODEN from the Central Bank but had not received the additional Boden. The Bank maintains the right to subscribe for an additional US$812.5 million of additional BODENs, all of which are reflected as assets of the Bank at December 31, The definitive amount of such bonds the Bank ultimately receives is subject to approval by the Argentine Ministry of Economy. In accordance with Central Bank regulations, the Bank s right to receive compensatory and additional Boden from the Argentine government is recorded at book value, including the accrual of interest on such bonds during the periods under analysis in this press release, which is recorded as income on the Bank s income statement. Assets and liabilities denominated in foreign currency as of December 31, 2004 were converted into Pesos at the exchange rate of Ps /US$1.00 and Ps /EUR1.00, which was the reference exchange rate published by the Central Bank on such date. 3

4 Selected statistical information 1and 2 Buenos Aires, February 15, Banco Hipotecario S.A. (Buenos Aires Stock Exchange: BHIP) reports fourth quarter of 2004 results. As compared to the fourth quarter of 2003, the Bank s net income was Ps.55.7 million, lower from Ps million. Results for the fourth quarter of 2004 primarily reflect: i) the positive effect of the debt restructuring recorded in the fourth quarter of 2003, which impacted on net financial income and miscellaneous income; ii) lower financial income due to the suspension of the CVS index on pesified mortgage loans; iii) higher financial expenditures from Central Bank borrowings due to the increase of the CER index during the period; iv) lower contribution from insurance due to lower loan balances; and v) higher administrative expenses related to the actions taken by the Bank in implementing its strategy of becoming a diversified financial institution. These effects were partially offset by: i) higher financial income from the prepayment of restructured financial indebtedness at market prices and the appreciation of securities and investments in financial trusts; ii) lower financial expenditures as a result of lower average debt balances; and iii) lower negative impact derived from the appreciation of the peso on the Bank s net foreign currency position. The Bank s net income for the fourth quarter of 2004 was a profit of Ps.55.7 million, a 10.0% reduction from Ps.61.8 million recorded in the previous quarter. This variation reflects: i) higher administrative expenses due to personnel bonuses and other fees, advertising and publicity expenses and other expenses related to the launching of new products; ii) lower contribution from insurance products; and iii) a slight reduction in net financial income as a result of lower interest accrued on mortgage loans, lower income from securities and investments in financial trusts and lower income from guaranteed loans. 12/31/04 09/30/04 12/31/03 Quarterly Annual Financial income 165, , , % (74.3)% Financial expenditures (83,414) (56,869) 20, % NA Net financial income 82,272 82, ,350 (0.4)% (87.7)% Provision for loan losses (3,824) (2,703) (2,129) 41.5% 79.6% Net contribution from insurance 8,823 9,220 10,936 (4.3)% (19.3)% Other income from services, net 1,196 1,041 (2,800) 14.9% (142.7)% Administrative expenses (34,417) (25,523) (30,003) 34.8% 14.7% Miscellaneous income, net 1,614 (2,814) 66, % (97.7)% Net income 55,664 61, ,696 (10.0)% (92.1)% 1 When used in this report, Pre-91 loans are those originated before 1991 or individual loans derived from construction project loans originated prior to such period, and Post- 91 loans are all loans originated after Unless otherwise indicated, all financial data presented in the tables below are stated in thousands of Argentine pesos. 4

5 Financial Income Financial income for the fourth quarter of 2004 was Ps million, a decrease of Ps million or 74.3% from the Ps million recorded in the fourth quarter of This decrease was mainly due to: i) the positive effect of the debt restructuring recorded in the fourth quarter of 2003; and ii) lower average income from mortgage loans due to the suspension of the CVS index on pesified mortgage loans and lower interest accrued on mortgage loans due to lower average loan balances derived from loan prepayments, securizations and natural amortizations. These effects were partially offset by: i) the positive effect of the prepayment of restructured financial indebtedness at market prices; ii) higher income resulting from the appreciation of government and corporate securities and investments in financial trusts; and iii) higher income from Compensatory and Hedge Boden resulting from the increase in the Libor rate during the quarter. As compared to the third quarter of 2004, financial income increased to Ps million as of December 31, 2004, from Ps million as of September 30, 2004, primarily due to: i) higher other financial income due to the appreciation of corporate securities; and ii) higher income from Compensatory and Hedge Boden resulting from the increase in the Libor rate during the quarter. These effects were partially offset by: i) lower income from individual mortgage loans due to lower balances resulting from securitizations made by the Bank during the quarter; ii) lower income from securities and other investments due to lower income from certificates of participation in financial trusts; and iii) lower income from guaranteed loans due to the change in their valuation method recorded in the third quarter of /31/04 09/30/04 12/31/03 Quarterly Annual Income from Mortgage Loans 47,055 49, ,016 (4.7)% (54.8)% Income from Compensatory and Hedge BODENs 12,798 10,454 6, % 92.8% Buyback of restructured debt 12,946 12,966 - (0.2)% NA Income from Securities and other investments 20,948 29,761 (2,877) (29.6)% (23.3)% Debt restructuring ,403 NA NA Interest on guaranteed loans 14,363 18,340 17,981 (21.7)% (20.1)% Other financial income 57,576 18,588 3, % NA Total Financial Income 165, , , % (74.3)% Financial Expenditures Financial expenditures for the fourth quarter of 2004 reached Ps.83.4 million, Ps million higher than the Ps.(20.8) million recorded in the fourth quarter of The main reasons for this increase were: i) the positive effect of the reduction in interest rates accrued on bonds and interbank loans restructured in the previous year, which represented a decrease of approximately 7% on average debt balances; ii) higher impact of the CER index accrued on Central Bank borrowings in 2004; and iii) higher contributions and taxes during the quarter. These effects were partially offset by a lower negative effect derived from the appreciation of the peso on the Bank s net foreign currency position and the impact on financial expenditures caused by lower restructured debt amounts due to the prepayment of existing debt. As compared to the previous quarter, financial expenditures increased Ps.26.5 million from Ps.56.9 million in the third quarter of 2004, mainly due to: i) the appreciation of the peso on the Bank s net foreign currency position and the negative impact of the price of metals; ii) higher interest on interbank loans due to new external financing obtained by the Bank; and iii) higher contributions and taxes during the quarter. Such effects were partially offset by: i) lower CER index accrued on Central Bank borrowings; and ii) lower average balances of restructured debt due to prepayments made during the period. 12/31/04 09/30/04 12/31/03 Quarterly Annual Interest on external financing 23,507 23,418 (95,492) 0.4% 124.6% Interest on Central Bank Advances 36,047 43,245 33,160 (16.6)% 8.7% Interest on inter-bank loans 6,561 4,095 (34,918) 60.2% 118.8% Other interest liabilities 1,650 1, % NA Losses from securities and other participations (1) - - NA NA Effects of changes in exchange rate 10,501 (17,946) 72, % (85.5)% Contributions and taxes 5,149 2,550 3, % 46.3% Total Financial Expenditures 83,414 56,869 (20,802) 46.7% NA 5

6 Net Contribution from Insurance Net contribution from insurance activities during the fourth quarter of 2004 decreased 19.3%, to Ps.8.8 million as of December 31, 2004 compared to Ps.10.9 million as of December 31, This reduction reflects the lower premiums earned due to lower average loan balances, partially offset by lower claims paid during the period and higher premiums earned on new insurance products launched to the market. As compared to the third quarter of 2004, net contribution from insurance activities decreased slightly due to similar effects as those mentioned in the previous paragraph. 12/31/014 09/30/04 12/31/03 Quarterly Annual Property damage premium 3,181 3,456 4,327 (8.0)% (26.5)% Life insurance premium 6,320 6,886 7,449 (8.2)% (15.2)% Unemployment insurance premium (6.4)% (17.3)% Additional Insurance (15.3)% 27.2% Total Premiums 10,594 11,586 12,809 (8.6)% (17.3)% Property damage insurance claims paid (15.3)% 64.9% Life insurance claims paid 1,570 2,117 1,694 (25.8)% (7.3)% Unemployment insurance claims paid (33.3)% (4.5)% Additional Claims (13.3)% (16.7)% Total Claims 1,771 2,366 1,873 (25.1)% (5.4)% Net Contribution from Insurance 8,823 9,220 10,936 (4.3)% (19.3)% Other Income from Services, Net Other income from services, net amounted to Ps.1.2 million in the fourth quarter of 2004, reflecting an increase of Ps.4.0 million from a loss of Ps.2.8 million in the fourth quarter of The main variations resulted from lower fees related to the Bank s debt restructuring process recorded in the previous year and higher other income from services related to the Bank s new retail products. As compared to the previous quarter, other income from services, net increased Ps.0.2 million during the fourth quarter of This increase was mainly due to higher income related to the new products launched to the market. 12/31/04 09/30/04 12/31/03 Quarterly Annual Other income from services Commissions related to origination and servicing of own and third party loans 4,354 4,407 5,022 (1.2)% (13.3)% FONAVI service commissions (9.5)% 1.0% Other 1, % 85.3% Subtotal 6,244 6,052 6, % (1.7)% Commissions paid in connection with loans 1,575 1, % 58.5% Collection services (3.1)% (1.3)% Structuring and underwriting fees 1,157 1,504 6,520 (23.1)% (82.3)% Commissions on third-party origination (41.5)% 11.3% Taxes % 8.8% Other 1,172 1, (9.0)% 117.8% Subtotal 5,048 5,011 9, % (44.8)% Other Income (Loss) from Services, Net 1,196 1,041 (2,800) 14.9% (142.7)% 6

7 Administrative Expenses Administrative expenses for the fourth quarter of 2004 were Ps.34.4 million, 14.7% higher than the Ps.30.0 million recorded as of December 31, The main reasons for this increase were mandatory salary rises required under the regulations in force, higher advertising expenses related to the launching of the new products and an increase in personnel bonuses and other fees related to the actions adopted by the Bank in developing its retail banking business. As compared to the third quarter of 2004, administrative expenses increased by Ps.8.9 million from Ps.25.5 million as of September 30, 2004, basically due to an increase in personnel bonuses and other fees and amortization during this quarter. 12/31/04 09/30/04 31/12/03 Quarterly Annual Salaries and social security contributions 11,228 10,965 10, % 11.8% Bonuses and severance payments 5, ,298 NA 38.6% Other fees 3,160 1,115 1, % 105.9% Advertising and publicity 2,156 1, % 183.7% Non recoverable VAT and other taxes 2,415 2,936 2,233 (17.7)% 8.2% Operating expenditures 3,551 3,687 3,944 (3.7)% (10.0)% Amortizations 2,113 1,936 3, % (43.2)% Other 3,838 2,968 3, % 10.6% Total Administrative Expenses 34,417 25,523 30, % 14.7% Administrative Expenses (annualized) / Total Assets 1.52% 1.18% 1.52% Miscellaneous Income, Net At December 31, 2004, miscellaneous income, net decreased to Ps.1.6 million, Ps.64.7 million lower than the Ps.66.3 million recorded at December 31, This decrease resulted primarily from the positive effect of the Bank s debt restructuring recorded in the fourth quarter of 2003 and the allocation of rights related to the CER/CVS asymmetric indexation recorded during 2003 in accordance with the regulations then in effect. Miscellaneous income, net increased by Ps.4.4 million in the fourth quarter of 2004 as compared to the third quarter of 2004, mainly as a result of lower provisions for unforeseen risks recorded in the fourth quarter. The quarters ended December 31 and September 30, 2004 have been affected by certain results that were reclassified into Prior Year Adjustments resulting from: i) the allocation of profits from previous years arising from changes in the valuation of guaranteed loans and other public sector assets delivered by the Bank as collateral in order to subscribe additional Boden (Decree 905/02) in accordance with Communication A 4095 of the Central Bank; and ii) the allocation to loss from previous years of the difference resulting from applying the CVS instead of the CER index to certain loans, in accordance with the criterion set forth in Communication A 4202 of the Central Bank. 12/31/04 09/30/04 12/31/03 Quarterly Annual Penalty interest 2,338 2,728 3,195 (14.3)% (26.8)% Reversal of provisions - - (222) NA NA Loan loss recoveries 14,160 12,229 8, % 59.5% Other (16,703) 39, ,678 (142.6)% (109.2)% Subtotal Miscellaneous Income (205) 54, ,528 (100.4)% (100.1)% Other provisions 31,729 49, ,928 (35.6)% (72.9)% Insurance reserve provision (84.9)% NA Taxes NA NA Other Investments - - (7,739) NA NA Other (34,140) 7,057 17,811 NA NA Subtotal Miscellaneous Expenses (1,819) 57, ,186 (103.2)% (101.4)% Total Miscellaneous Income (Loss), Net 1,614 (2,814) 66, % (97.6)% 7

8 Loans The Bank s total loan portfolio decreased by Ps million from Ps.3,302.0 million at December 31, This decrease mainly resulted from lower average loan balances of Pre- and Post-91 loans due to prepayments, natural amortization of loans, the suspension of the CVS index applied on pesified loans and the securitizations made in 2004 for a total cumulative amount of Ps.100 million. These effects were partially offset by i) higher commercial and consumer loans under new credit lines; ii) higher guaranteed loans due to the increase in the CER index; and iii) the change in the valuation of guaranteed loans given as security for future advances from the Central Bank in order to subscribe additional Boden. In addition, the Bank s total loan portfolio at December 31, 2004 increased slightly by Ps.8.0 million to Ps.3,167.0 million from Ps.3,158.9 million as of September 30, This variation resulted primarily from changes in the valuation of guaranteed loans given as security to the Central Bank in order to subscribe additional Boden, partially offset by: i) the securitization of Ps.50.0 million of residential mortgage loans in connection with the second series of Cédulas Hipotecarias issued under the Cédulas Hipotecarias Argentinas Ps.500 million Note Program ; and ii) the natural amortization of mortgage loans. Loan Portfolio per product 31/12/04 30/09/04 31/12/03 Quarterly Annual Mortgage loans - Pre-91 loans individual mortgages 966, ,296 1,089,706 (2.8)% (11.3)% - Pre-91 loans construction projects 1,357 1,357 1,366 - (0.7)% Total Pre-91 loans 968, ,653 1,091,072 (2.8)% (11.3)% - Post-91 loans individual mortgages 1 953,100 1,025,128 1,101,523 (7.0)% (13.5)% - Post-91 loans construction projects 6,137 9,802 16,554 (37.4)% (62.9)% Total Post-91 loans 959,237 1,034,930 1,118,077 (7.3)% (14.2)% Other loans 2 1,239,552 1,128,375 1,092, % 13.4% Total Loan Portfolio 3,166,967 3,158,958 3,302, % (4.1)% Loan Portfolio By Economic Sector 12/31/04 09/30/04 12/31/03 Quarterly Annual Non financial government sector 843, , , % 8.6% Financial Sector 84,333 61,260 1, % N.A Non financial private sector - Advances 145, , , % 38.3% - With preferred guarantees 1 1,898,723 1,999,753 2,165,471 (5.1)% (12.3)% - Documents NA NA - Pledge loans 2, % NA - Personal loans 19,712 10,598 3, % NA - Credit Cards 3, NA NA - Non-applied collections (11,949) (10,769) (14,153) 11.0% (15.6)% - Other 60,429 59,763 50, % 18.8% - Interest accrued on uncollected loans due to changes in exchange rate 38,233 38,029 51, % (25.7)% Reserves (334,400) (350,164) (449,737) (4.5)% (25.7)% Total Loan Portfolio 2,750,435 2,753,732 2,690,972 (0.1)% 2.2% 1 Includes Ps.270,016 thousand at December 31, 2004, Ps.304,914 thousand at September 30, 2004 and Ps.327,858 thousand at December 31, 2003 of individual post-91 mortgage loans conveyed in a trust in anticipation of future securitizations. 2 Other loans includes Ps.82,132 thousand as of December 31, 2004, Ps.55,378 thousand at September 30, 2004, and Ps.161,335 thousand at December 31, 2003 of Other receivables included in the Statement of Debtors Status recorded in Other receivables from financial operations. 8

9 Asset Quality The following table sets forth information regarding the classification of the Bank s total loan portfolio per product according to the Central Bank s criteria, as of December 31, Asset Quality December 31, 2004 Consumer Commercial Total sep - 04 dec - 03 Pre-91 Post-91 Others Construction Short Term Loans Others Public Total Total Category/days Individuals Commercials Sector (in thousand of pesos, except percentages) Normal (0-30) With special pursuit and inadequate performance (31-90) Problemtic and deficient performance (91-180) High risk of insolvency and difficult collection ( ) Uncollectible (>365) Uncollectible for technical reasons Total Non performing loans Non performing loans / Total loans 20,66% 16,56% 0,76% 72,00% 0,52% 1,31% 0% 11,47% 12,44% 13,53% Reserves for loan losses Reserve for loan losses / Total non performing loans 104,84% 62,93% 166,14% 794,75% 284,96% 135,86% 0% 92,06% 89,09% 100,65% Non performing loans, net / Total loan portfolio 0,91% 1,36% -0,09% The ratio of non-performing loans to total loans as of December 31, 2004 was 11.47%, 206 basis points lower than the 13.53% recorded as of December 31, 2003, showing a substantial improvement during this year. This variation was primarily due to a better collection performance of mortgage loans as a result of the Bank s collection management efforts and analysis of non-performing loans, and due to the origination of short-term loans to high quality companies. Reserve for Loan Losses Due to the favorable loan repayment performance and significant loss recoveries from written-off loans, the Bank continues its policy of not establishing reserves for loan losses. 12/31/04 09/30/04 12/31/03 Reserve for Loan Losses at the beginning of the quarter (350,164) (367,490) (486,193) Increases (3,823) (2,703) (2,130) Charge-offs 19,587 20,029 38,586 Monetary gain (loss) Reserve for Loan Losses at the end of the quarter (334,400) (350,164) (449,737) Reserves for loan losses / total non-performing loans 92.06% 89.09% % Reserve for loan losses / total loan portfolio 10.56% 11.08% 13.62% 9

10 Funding Sources Total on-balance sheet funding as of December 31, 2004, was Ps.5,704.0 million compared to Ps.5,747.7 million as of December 31, The decrease in total funding during 2004 is explained by the prepayments of restructured debt made by the Bank throughout the year and the first principal payment made by the Bank under its medium-term guaranteed notes due This decrease was partially offset by: i) higher deposits resulting from increased acceptance of institutional time deposits, ii) an increase in the CER index applicable on Central Bank borrowings, and iii) access to new financing granted by foreign entities for US$85 million. Total Debt was Ps.6,749.1 million as of December 31, 2004, reflecting the changes in Other Liabilities resulting from the registration of two EUR/US$ currency swaps for EUR 250 million entered into by the Bank to hedge its liability exposure in Euros. Total on-balance sheet funding of Ps.5,704.0 million was slightly lower than in the third quarter of 2004, as a result of the debt prepayments made during the fourth quarter. This effect was partially offset by increased acceptance of institutional time deposits. As of December 31, 2004, shareholders equity amounted to 21.7% of assets and the ratio of debt to shareholder s equity was 2.9x. On November 17, 2004, the Bank successfully closed its second series of Cédulas Hipotecarias in the local capital markets for an aggregate amount of Ps.50 million, issued under the Cédulas Hipotecarias Argentinas Ps.500 million Note Program. The offer was oversubscribed by approximately three times the authorized amount issued. The Bonds accrue variable interest at the higher of CER + 3% and the interest rate for time deposits between Ps.100,000 and Ps.500,000, up to 59 days, reported by the BCRA + 4%, subject to a floor of 8% p.a. and a ceiling of 15% p.a. The securities are collateralized by residential mortgage loans and were rated raaa by Standard & Poor s. On December 1, 2004, the Bank paid the second interest coupon due under its long-term debt due 2013 in an amount of US$ 7.2 million and EUR 4.2 million. On February 3, 2005, the Bank paid the third interest coupon under its guaranteed medium-term debt due 2010, in an amount of US$ 2.4 million. In February 2005, Banco Hipotecario obtained new credit lines from foreign financial institutions for US$ 30 million, for a term of 18 months. 12/31/04 09/30/04 12/31/03 Quarterly Annual Deposits 236, , , % 78.2% Corporate bonds 2,769,684 2,803,307 2,798,399 (1.2)% (1.0)% Central Bank 2,198,949 2,212,991 2,079,361 (0.6)% 5.8% Interbank loans and international agencies 498, , , % 0.3% Other interest bearing liabilities ,732 NA NA% Total Funding 5,703,982 5,714,214 5,747,679 (0.2)% (0.8)% Other non-interest bearing liabilities 1,045, , , % NA Total Debt 6,749,141 6,430,237 5,889, % 14.6% 10

11 Balance sheet (amounts in thousands of pesos) 12/31/04 09/30/04 12/31/03 Cash and due from banks 316, , ,002 Government Securities 816, ,397 1,358,173 Pre-91 Loans 968, ,653 1,091,072 Post-91 Loans 689, , ,219 Other Loans 1,157,420 1,073, ,560 Reserve for loan losses (287,142) (306,729) (419,608) Loans, net 2,527,677 2,492,253 2,393,243 Other receivables from financial operations 4,559,453 4,149,370 3,227,831 Reserve for other receivables from financial operations (47,258) (43,435) (30,129) Miscellaneous assets 864, , ,989 Total Assets 9,037,082 8,620,176 7,912,109 Deposits 236, , ,625 Other liabilities from financial operations 6,512,749 6,227,582 5,757,125 Miscellaneous liabilities 328, , ,534 Total Liabilities 7,077,922 6,721,048 6,231,284 Shareholders Equity 1,959,160 1,899,128 1,680,825 Income Statement (amounts in thousands of pesos) 12/31/04 09/30/04 12/31/03 Financial income 707, , ,983 Financial expenditures (296,442) (223,529) (589,266) Provision for losses on loans (17,130) (13,306) (33,289) Income from services 67,433 50,595 73,413 Expenditures on services (26,939) (20,120) (30,988) Monetary gain (loss) from financial operations - - (9,314) Administrative expenses (105,335) (70,918) (101,708) Monetary gain (loss) from operating expenses Miscellaneous income 100, , ,634 Miscellaneous losses (150,825) (152,644) (248,328) Monetary gain (loss) from financial operations Income tax Net income 279, , ,202 11

12 Selected Ratios (amounts in thousands of pesos, except for percentages) 12/31/04 09/30/04 12/31/03 Profitability ROAA (Return on average assets) % 3.68% 3.26% ROAE (Return on average shareholder s equity) % 17.75% 13.82% Net interest margin 4.98% 5.42% 4.35% Efficiency* 21.76% 19.42% 24.81% Capital Total shareholder s equity / total assets 21.68% 22.03% 21.24% Funding / Shareholders Equity Liquidity Current Assets / deposits % % 1,309.84% Loans / deposits 1,069.27% 1,229.80% 1,804.52% Asset Quality Non-performing loans / total loans 11.47% 12.44% 13.53% Reserves for loan losses / total non-performing loans 92.06% 89.09% % Reserves for loan losses / total loan portfolio 0.91% 1.36% (0.09)% 1 Based on annualized results. *Administrative expenses (excluding severance payments and bonuses) over net financial income and income from services, net. Conference Call to Discuss Fourth quarter 2004 Results: Banco Hipotecario S.A. will host a conference call to discuss results for the fourth quarter of 2004 at 11:00 a.m. (New York time) on Friday, February 25, To participate in the conference call, please call one of the following telephone numbers: USA: (800) International: (612) THIS DOCUMENT MAY CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS CONCERNING THE BANK S OPERATIONS, PERFORMANCE, BUSINESS, FINANCIAL CONDITION AND GROWTH PROSPECTS AND THE ARGENTINE ECONOMY. THESE STATEMENTS ARE BASED UPON BELIEFS OF MANAGEMENT AS WELL AS A NUMBER OF ASSUMPTIONS AND ESTIMATES, WHICH ARE INHERENTLY SUBJECT TO SIGNIFICANT UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE BANK S CONTROL. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY INCLUDE, BUT ARE NOT LIMITED TO, INCREASED COMPETITION, CHANGES IN THE ARGENTINE ECONOMY, INCLUDING THE CURRENCY USED IN ARGENTINA, AND IN THE ECONOMY OF OTHER COUNTRIES, PARTICULARLY EMERGING MARKET ECONOMIES, CHANGES IN THE ARGENTINE BANKING AND INSURANCE SYSTEM, CHANGES IN ARGENTINE TAXATION AND EVENTS IN OTHER FINANCIAL MARKETS. THESE STATEMENTS ARE MADE AS OF THE DATE OF THIS PRESS RELEASE AND THE BANK UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. IN LIGHT OF THESE RISKS AND UNCERTAINTIES, THERE CAN BE NO ASSURANCES THAT THE EVENTS DESCRIBED OR IMPLIED IN THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS DOCUMENT WILL IN FACT TRANSPIRE. 12