Translation from the original prepared in Spanish for publication in Argentina

Transcription

1 Financial statements as of September 30, 2016 jointly with the Independent auditors report and the Supervisory Audit Committee s report on review of interim financial statements

2 FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2016 CONTENTS Page Independent auditors report on review of interim financial statements Cover page... 1 Statements of financial position... 2 Statements of income... 7 Statements of changes in shareholders equity... 9 Statements of cash flows and cash equivalents Notes to the financial statements Exhibit A - Breakdown of government and corporate securities Exhibit B - Financing facilities classified by status and guarantees received Exhibit C - Financing-facilities concentration Exhibit D - Financing facilities broken down by term Exhibit E - Breakdown of investments in other companies Exhibit F - Changes in property, plant and equipment and miscellaneous assets Exhibit G - Breakdown of intangible assets Exhibit H - Deposits concentration Exhibit I - Breakdown by term of deposits, other liabilities from financial intermediation and subordinated corporate bonds Exhibit J - Changes in allowances and provisions Exhibit K - Capital structure Exhibit L - Balances in foreign currency Exhibit N - Credit assistance to related parties Exhibit O - Derivative financial instruments Consolidated financial statements Reporting summary Supervisory Audit Committee s Report on interim financial statements

3 INDEPENDENT AUDITORS REPORT ON REVIEW OF INTERIM FINANCIAL STATEMENTS To the President and Directors of Banco Patagonia S.A. Registered office: Av. de Mayo 701, Floor 24 Taxpayer Identification No. [CUIT]: City of Buenos Aires Report on the financial statements We have examined the accompanying interim financial statements of Banco Patagonia S.A. ( the Bank ), which include the statement of financial position as of September 30, 2016, the statements of income, changes in shareholders equity and cash flows and cash equivalents for the nine-month period then ended, Notes 1 to 26, and Exhibits A, B, C, D, E, F, G, H, I, J, K, L, N and O. We have also examined the accompanying consolidated financial statements of Banco Patagonia S.A. and its subsidiaries, which include the consolidated statement of financial position as of September 30, 2016, and the consolidated statements of income and cash flows and cash equivalents for the nine-month period then ended, Notes 1 to 8, and Exhibit 1, which are presented as supplementary information. The figures and other information as of December 31, 2015 and for the nine-month period ended September 30, 2015 are an integral part of the financial statements mentioned above, and are presented for the purpose of being construed solely in relation to the figures and other information for the current interim period. Board of Directors and Management responsibility for the financial statements The Board of Directors and Management are responsible for the preparation and fair presentation of the accompanying interim financial statements in accordance with the accounting standards established by the Argentine Central Bank ( BCRA ). This responsibility includes designing, implementing and maintaining any such internal control as the Board of Directors and Management determine is necessary for the financial statements to be free from material misstatement. Auditors responsibility and scope of the review Our responsibility is to express a conclusion on the accompanying interim financial statements based on our review. We conducted our review in accordance with the standards set forth by Technical Resolution No. 37 of the Argentine Federation of Professional Councils of Economic Sciences (FACPCE) and the Minimum Standards applicable to External Audits set forth by the BCRA for the review of interim financial statements. In accordance with such standards, a review is limited primarily to the performance of analytical and other review procedures applied to financial data included in the interim financial statements and inquiries of personnel responsible for the preparation thereof. A review is substantially less in scope than an audit conducted in accordance with auditing standards in force, and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the interim financial statements.

4 Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial statements do not present fairly, in all material respects, the financial position of the Bank as of September 30, 2016, the results of its operations, the changes in shareholders equity and cash flows and cash equivalents for the nine-month period then ended, as well as the financial position of the Bank with its subsidiaries as of September 30, 2016, the consolidated results of its operations and consolidated cash flows and cash equivalents for the nine-month period then ended, in conformity with accounting standards established by the BCRA. Emphasis paragraph Without modifying our conclusion, we draw users attention to the information presented in Note 3 to the accompanying stand-alone financial statements, where it is stated that such financial statements have been prepared by the Bank s Board of Directors and Management in compliance with the accounting standards set forth by the BCRA, which differ in terms of certain valuation and presentation criteria from the professional accounting standards in force in the City of Buenos Aires, Argentina, described in such Note. Report on other legal and regulatory requirements In compliance with legal provisions in force, we report that: 1. The accompanying stand-alone interim financial statements have been transcribed into the Inventory Book, and arise from the Bank s accounting records, which, in their formal aspects, are kept pursuant to the legal provisions in force. The information systems used to generate the information included in the financial statements are kept under the security and integrity conditions based on which they were duly authorized; 2. As of September 30, 2016, the Bank records the minimum shareholders equity and counterparty required by the Argentine Securities Commission (CNV), as mentioned in Note 15 to the standalone accompanying financial statements; 3. the accompanying consolidated financial statements have been transcribed into the Inventory Book and prepared by the Bank s Board of Directors and Management, in their significant aspects, in compliance with consolidation standards set forth by Communications A 2227 and 2349 of the BCRA, which are disclosed in notes 1 to 8 to such consolidated financial statements; 4. as of September 30, 2016, there is no evidence of noncompliance with the significant aspects of the monetary and technical regulations set forth by the BCRA in relation to information provided to the BCRA on consolidated bases; 5. we read the reporting summary (sections Highlights, Comparative consolidated financial position items, Comparative consolidated profit or loss items, "Comparative consolidated statement of cash flows", Ratios and Additional information required by section 12 of chapter III, title IV of CNV regulations ), based on which, as far as it relates to our area of responsibility, we have no observations; and 6. as of September 30, 2016, the accrued liability for retirement and pension contributions payable to the Argentine Pension Fund System arising from the accounting records amounted to $ 45,955,601, no amounts being due as of that date. City of Buenos Aires, November 7, Reg. de Asoc. Prof. CPCECABA Vol. 2 Page 6 Marcelo A. Castillo Partner Public Accountant (UBA) Vol. CLXIX Page 52

5 Legal address: Avenida de Mayo 701, Floor 24 City of Buenos Aires Argentina Main business activity: commercial bank Taxpayer identification No. [CUIT]: Incorporation date: May 4, 1928 Registration with the Public Registry of Commerce of the City of Buenos Aires Date Book Of the articles of incorporation: 9/18/1928 Of the latest amendment: 12/7/2011 Stock Corporations Book: 57 Number: Expiration of articles of incorporation: August 29, 2038 Fiscal year No. 93 Beginning date: January 1, 2016 Closing date: December 31, 2016 Number and characteristics of shares 719,145,237 registered, common shares, with a nominal value of ARS 1, and entitled to one vote each Capital structure (Note 8 and Exhibit K) Subscribed In Argentine pesos Paid in 719,145, ,145,237 Information required by the BCRA (Central Bank of Argentina) Name of the undersigned auditor: Professional firm: Report for the nine-month period ended September 30, 2016 Marcelo A. Castillo 8 (quarterly closing Unqualified conclusion) 1

6 STATEMENT OF FINANCIAL POSITION AS OF 09/30/16 AND 12/31/15 ASSETS 09/30/ /31/2015 A. Cash and due from banks Cash on hand 2,731,891 2,886,310 Financial institutions and correspondents 5,355,339 6,380,493 BCRA 4,581,355 5,545,163 Other in Argentina Other abroad 773, ,920 8,087,230 9,266,803 B. Government and corporate securities (Exhibit A) Holdings carried at fair market value 2,092,169 2,707,449 Holdings carried at cost plus yield 169, ,876 Instruments issued by the BCRA 8,503,561 9,370,782 Investments in listed corporate securities ,765,322 12,235,312 C. Loans To the nonfinancial government sector (Exhibits B, C and D) 612, ,123 To the financial sector (Exhibits B, C and D) 1,736,213 1,353,720 Interbank loans (call options granted) 297, ,390 Other financing facilities granted to local financial institutions 1,338, ,773 Accrued interest, adjustments and listed-price differences receivable 100,433 64,557 To the nonfinancial private sector and foreign residents (Exhibits B, C and D) 35,328,292 30,776,333 Overdrafts 7,202,545 6,629,956 Notes 13,265,717 13,238,649 Mortgage loans 23,922 30,781 Consumer 5,068,168 3,968,399 Credit cards 6,474,317 5,325,367 Other 2,823,812 1,230,247 Accrued interest, adjustments and listed-price differences receivable 569, ,909 (Documented interest) (99,439) (104,975) (Allowances) (Exhibit J) (1,232,594) (1,205,725) 36,444,814 31,398,451 2

7 STATEMENT OF FINANCIAL POSITION AS OF 09/30/16 AND 12/31/15 ASSETS Continued 09/30/ /31/2015 D. Other Receivables from Financial Intermediation BCRA 777, ,313 Amounts receivable from spot sales to be settled and forward sales 1,488,091 2,741,930 Securities and foreign currency from spot sales to be settled and forward sales 1,121,125 40,746 Unlisted corporate bonds (Exhibits B, C and D) 40,041 94,624 Unsettled amounts of forward transactions without delivery of underlying asset 22,791 15,374 Other not covered by Debtor Classification Standards 52, Other covered by debtor classification standards (Exhibits B, C and D) 20,112 20,195 Accrued interest and adjustments receivable covered by Debtor Classification Standards (Exhibits B, C and D) (Allowances) (Exhibit J) (3,525) (3,940) 3,518,670 3,544,360 E. Receivables from Finance Leases Receivables from finance leases (Exhibits B, C and D) 1,401,571 1,290,518 Accrued interest and adjustments receivable (Exhibits B, C and D) 14,014 11,652 (Allowances) (Exhibit J) (20,676) (17,428) 1,394,909 1,284,742 F. Investments in other companies (Exhibit E) In financial institutions 1,129, ,808 Other 151, ,052 1,280,591 1,046,860 G. Miscellaneous Receivables Other (Note 5) 778, ,190 Other accrued interest and adjustments receivable (Allowances) (Exhibit J) (9,930) (10,699) 768, ,003 H. Property, plant and equipment (Exhibit F) 580, ,677 I. Miscellaneous assets (Exhibit F) 214, ,500 J. Intangible assets (Exhibit G) Organization and development expenses 36,507 25,409 36,507 25,409 K. Items pending allocation 4,658 3,037 TOTAL ASSETS 63,096,286 59,971,154 3

8 STATEMENT OF FINANCIAL POSITION AS OF 09/30/16 AND 12/31/15 LIABILITIES 09/30/ /31/2015 L. Deposits (Exhibits H and I) Nonfinancial government sector 3,558,397 2,791,670 Financial sector 16,071 31,678 Nonfinancial private sector and foreign residents 41,368,962 38,828,106 Checking accounts 6,519,720 5,991,598 Savings accounts 14,134,764 10,755,434 Time deposit 18,579,366 20,409,674 Investment accounts 5, ,845 Other 1,433, ,941 Accrued interest, adjustments and listed-price differences payable 696, ,614 44,943,430 41,651,454 M. Other liabilities from financial intermediation BCRA (Exhibit I) 13,946 20,572 Banks and international organizations (Exhibit I) 1,713,647 2,329,770 Unsubordinated corporate bonds (Note 9) (Exhibit I) 332, ,200 Amounts to be paid for spot purchases to be settled and forward purchases 1,061,572 36,042 Securities and foreign currency to be delivered under spot sales to be settled and forward 1,636,222 3,044,763 sales Financing facilities received from local financial institutions (Exhibit I) 326,639 58,056 Interbank loans (call received) 326,400 58,000 Accrued interest payable Unsettled amounts of forward transactions without delivery of underlying asset 1 898,448 Other (Exhibit I) (Note 5) 2,761,457 2,716,599 Accrued interest, adjustments and listed-price differences payable (Exhibit I) 37,489 39,988 7,883,173 9,476,438 N. Miscellaneous liabilities Fees 1,932 3,064 Other (Note 5) 1,740,185 1,017,829 1,742,117 1,020,893 O. Allowances (Exhibit J) 137, ,618 Q. Items pending allocation 7,096 3,230 TOTAL LIABILITIES 54,712,958 52,289,633 SHAREHOLDERS EQUITY (as per related statements) 8,383,328 7,681,521 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 63,096,286 59,971,154 4

9 STATEMENT OF FINANCIAL POSITION AS OF 09/30/16 AND 12/31/15 MEMORANDUM ACCOUNTS 09/30/ /31/2015 DEBIT BALANCE Contingent Loans obtained (unused amounts) 4, ,100 Guarantees received 14,107,860 12,584,945 Other not covered by debtor classification standards Contingent debit-balance contra accounts 2,930,978 1,998,901 17,044,285 14,748,504 Control Receivables classified as irrecoverable 583, ,085 Other (Note 5) 34,762,623 25,892,724 Control debit-balance contra accounts 5,135,113 4,062,634 40,481,444 30,558,443 Derivatives Notional value of forward transactions without delivery of underlying asset (Exhibit O and Note 11) 487,628 6,761,078 Derivative debit-balance contra accounts 1,965,469 6,765,460 2,453,097 13,526,538 Trust activity (Note 12) Trust funds 1,961,963 1,521,669 1,961,963 1,521,669 DEBIT-BALANCE MEMORANDUM ACCOUNTS 61,940,789 60,355,154 5

10 STATEMENT OF FINANCIAL POSITION AS OF 09/30/16 AND 12/31/15 MEMORANDUM ACCOUNTS Continued 09/30/ /31/2015 CREDIT BALANCE Contingent Loans granted (unused amounts) covered by debtor classification standards (Exhibits B, C and D) 1,990,823 1,183,005 Other guarantees provided covered by debtors classification standards (Exhibits B, C and D) 106,128 91,457 Other guarantees provided not covered by debtors classification standards 148,363 85,639 Other covered by debtors classification standards (Exhibits B, C and D) 478, ,810 Other not covered by debtor classification standards 207, ,990 Contingent credit-balance contra accounts 14,113,307 12,749,603 17,044,285 14,748,504 Control Checks and securities to be credited 992, ,932 Other 4,142,400 3,383,702 Control credit-balance contra accounts 35,346,331 26,495,809 40,481,444 30,558,443 Derivatives Notional value of forward transactions without delivery of underlying asset (Exhibit O and Note 11) 1,965,469 6,765,460 Derivatives credit-balance contra accounts 487,628 6,761,078 2,453,097 13,526,538 Trust activity Trust activity credit-balance contra accounts 1,961,963 1,521,669 1,961,963 1,521,669 TOTAL CREDIT-BALANCE MEMORANDUM ACCOUNTS 61,940,789 60,355,154 The accompanying notes 1 to 26, exhibits A to L, N and O are an integral part of these financial statements. 6

11 STATEMENT OF INCOME For the nine-month period ended 09/30/2016 and 09/30/2015 BREAKDOWN 09/30/ /30/2015 A. FINANCIAL INCOME Interest on loans to the financial sector 337, ,695 Interest on overdrafts 1,748,973 1,122,896 Interest on notes 2,263,350 1,634,761 Interest on mortgage loans 2,702 3,646 Interest on credit card loans 957, ,329 Interest on other loans 1,372,113 1,044,318 Interest on other receivables from financial intermediation 1, Interest on finance leases 222, ,287 Net income from government and corporate securities 2,598,802 1,783,683 Income from secured loans Presidential Decree No. 1387/ Adjustments under CER clause 4,653 2,021 Gold and foreign currency quoted price difference 433, ,918 Other 298, ,260 10,241,294 6,995,791 B. FINANCIAL EXPENSE Interest on savings-account deposits 3,376 2,486 Interest on time deposits 3,942,098 2,535,347 Interest on interbank loans received (call options received) 21,344 18,101 Interest on other financing facilities from financial institutions 43,154 19,119 Interest on other liabilities from financial intermediation 90,010 53,775 Other interest 48,193 81,927 Adjustments under CER clause Contribution to the deposit guarantee fund (Note 14) 105, ,219 Other 616, ,320 4,870,802 3,216,323 GROSS INTERMEDIATION MARGIN 5,370,492 3,779,468 C. CHARGE FOR LOAN LOSSES (Exhibit J) 277, ,572 D. REVENUE FROM SERVICES Related to lending transactions 637, ,235 Related to deposit transactions 950, ,115 Other fees 148,839 84,067 Other (Note 5) 599, ,104 2,335,867 1,704,521 7

12 STATEMENT OF INCOME For the nine-month period ended 09/30/2016 and 09/30/2015 BREAKDOWN - Continued 09/30/ /30/2015 E. Service-charge expense Fees 186, ,088 Other (Note 5) 617, , , ,474 G. ADMINISTRATIVE EXPENSES Personnel expenses 2,120,455 1,493,927 Directors and supervisory auditors fees 47,021 36,078 Other professional fees 70,283 50,648 Advertising 88,638 63,422 Taxes 212, ,645 Depreciation of property, plant and equipment (Exhibit F) 44,036 27,460 Organization expenses amortization (Exhibit G) 10,535 9,792 Other operating expenses 499, ,416 Other 298, ,752 3,390,871 2,410,140 NET INCOME (LOSS) FROM FINANCIAL INTERMEDIATION 3,233,953 2,254,803 I. OTHER EARNINGS Income from long-term investments 279, ,156 Punitive interest 12,858 8,653 Receivables recovered and allowances reversed 112,956 62,571 Other (Note 5) 103,064 77, , ,079 J. OTHER LOSSES Punitive interest and charges payable to the BCRA 12 9 Charge on uncollectibility of miscellaneous receivables, and other allowances (Exhibit J) 12,702 17,718 Losses and depreciation of miscellaneous assets (Exhibit F) Other (Note 5) 38,785 29,412 51,746 47,377 NET INCOME BEFORE INCOME TAX 3,690,468 2,583,505 L. INCOME TAX (Note 1.6.s) 1,273, ,627 NET INCOME FOR THE PERIOD 2,417,068 1,669,878 The accompanying notes 1 to 26, exhibits A to L, N and O are an integral part of these financial statements. 8

13 STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY For the nine-month period ended 09/30/2016 AND 09/30/2015 Changes Capital stock (1) Noncapitalized contributions Additional paid-in capital Appropriated retained earnings Legal Optional Unappropriated retained earnings (2) Total as of 09/30/2016 Total as of 09/30/2015 Balances at beginning of year 719, ,191 1,406,883 2,932,649 2,405,533 7,681,521 6,320,596 Capital Stock reduction registered with the Supervisory Board of Companies on 03/29/16 (3) (120) Distribution of unappropriated retained earnings approved by the Annual General Shareholders Meeting held on 04/27/ Legal reserve Optional reserve Future distribution of earnings ,107 - (481,107) ,871,698 (1,871,698) Cash dividends (2) - - Distribution of unappropriated retained earnings approved by the Annual General Shareholders Meeting held on 07/25/ (52,728) (52,728) - - Cash dividends (2) (1,662,533) - (1,662,533) (1,044,608) Net income for the period ,417,068 2,417,068 1,669,878 Balances at period-end 719, ,191 1,887,990 3,141,814 2,417,188 8,383,328 6,945,866 The accompanying notes 1 to 26, exhibits A to L, N and O are an integral part of these financial statements. (1) See Note 8.1. (2) See Note 17. (3) See Note

14 STATEMENT OF CASH FLOWS AND CASH EQUIVALENTS For the nine-month period ended 09/30/2016 and 09/30/2015 Changes in cash and cash equivalents (Note 2) 09/30/ /30/2015 Cash at beginning of year 9,266,803 6,360,072 Cash at period-end 8,087,230 6,938,423 Net (decrease)/ increase in cash (1,179,573) 578,351 Causes of changes in cash and cash equivalents Operating activities Net collections / (payments) of: Government and corporate securities 1,694,172 (642,854) Loans 1,821,281 (598,038) - To the financial sector (44,594) (180,193) - To the nonfinancial government sector (133,879) 5,421 - To the nonfinancial private sector and foreign residents 1,999,754 (423,266) Other Receivables from Financial Intermediation 1,302,610 (651,164) Receivables from Finance Leases 107,924 (87,923) Deposits (1,164,427) 4,000,498 - From the financial sector (15,607) (170,192) - From the nonfinancial government sector 766,727 (365,354) - From the nonfinancial private sector and foreign residents (1,915,547) 4,536,044 Other Liabilities from Financial Intermediation 189,622 (468,649) - Financial sector or interbank loans (call options received) 247,239 (202,384) - Other (except for the obligations included under financing activities) (57,617) (266,265) Collections related to revenues from services 2,327,035 1,705,676 Payments related to service-charge expenses (803,947) (494,921) Administrative expenses paid (3,330,185) (2,505,000) Payments of organization and development expenses (21,633) (1,028) Net collections of punitive interest 12,846 8,644 Collection of dividends from other companies 45,720 35,298 Other payments related to other earnings and expenses (41,249) (72,601) Net payments of other operating activities (486,622) (342,040) Income tax paid (599,882) (787,112) Net cash flows provided by /(used in) operating activities 1,053,265 (901,214) 10

15 STATEMENT OF CASH FLOWS AND CASH EQUIVALENTS For the nine-month period ended 09/30/2016 and 09/30/2015 Investing activities 09/30/ /30/2015 Net payments of property, plant, and equipment (262,298) (54,399) Net collection /(payments) of miscellaneous assets 9,483 (91,198) Net cash flows used in investing activities (252,815) (145,597) Financing activities Net (payments)/collection of: Unsubordinated corporate bonds (70,703) (4,504) BCRA (7,500) (7,500) Banks and international organizations (677,804) 1,387,831 Financing facilities received from local financial institutions - 20,000 Payment of dividends (1,715,261) - Net cash flows (used in)/ provided by financing activities (2,471,268) 1,395,827 Financial and holding gain-loss on cash and cash equivalents (including interest and monetary gain (loss) 491, ,335 Net (decrease)/ increase in cash (1,179,573) 578,351 The accompanying notes 1 to 26, exhibits A to L, N and O are an integral part of these financial statements. 11

16 NOTES TO FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2016 COMPARATIVELY PRESENTED NOTE 1: Basis for presentation of financial statements These financial statements have been prepared in conformity with the accounting standards established by the BCRA, and arise from the Bank s accounting records, which are kept in accordance with effective legal requirements and regulations. 1.1 Consolidated financial statements As required by BCRA rules, the Bank presents as supplementary information the consolidated financial statements with its subsidiaries GPAT Compañía Financiera S.A., Patagonia Valores S.A., Patagonia Inversora S.A. Sociedad Gerente de F.C.I. and Banco Patagonia (Uruguay) S.A. I.F.E. 1.2 Comparative information Under BCRA standards, the Statement of Financial Position as of September 30, 2016, and the related exhibits are presented comparatively with the data at prior year-end, while the Statements of Income, Changes in Shareholders' Equity and Cash Flows and cash equivalents for the nine-month period ended September 30, 2016, are presented comparatively with those for the same period of the prior fiscal year. 1.3 Figures stated in thousands of Argentine pesos The amounts presented in these financial statements are stated in thousands of Argentine pesos as required by BCRA CONAU (Communication A 3359). 1.4 Reporting currency The Bank s financial statements recognize the changes in the currency purchasing power through February 28, 2003, being discontinued from that date, as required by Presidential Decree No. 664/2003, CNV General Resolution No. 441 and BCRA Communication A However, the existence of significant variations as those noted in the most recent periods in the relevant variables of the economy affecting the Bank s business, such as the salary cost, the interest rates and the exchange rates, may also impact the Bank s financial position and income/loss. Accordingly, such variations should be considered in the interpretation of the financial position, the results of operations and cash flows disclosed by the Company in these financial statements. with our report dated 11/07/2016 with our report dated 11/07/

17 NOTES TO FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2016 COMPARATIVELY PRESENTED 1.5 Use of accounting estimates In preparing the financial statements, in certain cases, the Bank s Management is required to make estimates to determine the book value of assets and liabilities, as well as the exposure thereof, at each reporting date. The Bank s recorded amounts are based on the best estimate regarding the probability of occurrence of different future events and, therefore, the final amount may differ from such estimates, which may have a positive or negative impact on future periods. 1.6 Main valuation and disclosure criteria The main valuation and disclosure criteria applied to the preparation of the financial statements as of September 30, 2016, and comparative figures (see note 1.2) are the following: a) Assets and liabilities in foreign currency Assets and liabilities denominated in US dollars have been valued at the benchmark exchange rate set by the BCRA through BCRA Communication A 3500 for the US dollar at the close of the last trading day of each period or fiscal year, as applicable. In addition, assets and liabilities denominated in other foreign currencies, different from the US dollar, were converted at the exchange rates published by the BCRA at each fiscal year- or periodend, as applicable. Foreign exchange differences were recognized in profit or loss for each period. b) Government and corporate securities 1. Holdings carried at fair market value They were stated at quoted prices prevailing on the Buenos Aires securities and exchange market (MERVAL) or the Electronic Over-the-counter market (MAE), or at present values reported by the BCRA as of September 30, 2016 and December 31, 2015, plus the coupons pending collection. Quoted prices and present values differences were recognized in profit or loss for each period. 2. Holdings carried at cost plus yield As of September 30, 2016 and December 31, 2015, they were stated at acquisition cost, increased by the accrual of the internal rate of return, net of the offset account, as appropriate and, at the same time, compared with the present values calculated by the Bank. 13

18 NOTES TO FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2016 COMPARATIVELY PRESENTED In accordance with the provisions of Communication "A" 5506, the Bank opted to state the Argentine Bond for Economic Development (BAADE) expiring on 17 July 2016 at cost, increased based on the internal rate of return. As of December 31, 2015, such holdings were stated by following the same criterion. The accrual of the internal rate of return was recognized in profit or loss for each period. 3. Instruments issued by the BCRA a) Holdings with volatility published by the BCRA (own portfolio and earmarked for repo transactions): they were valued in accordance with the last prevailing quoted price for each instrument as of September 30, 2016 and December 31, Quoted price differences were recognized in profit or loss for each period. b) Holdings without volatility published by the BCRA (own portfolio and earmarked for repo transactions): they were valued at acquisition cost increased based on the internal rate of return as of September 30, 2016 and December 31, The internal rate of return accruals mentioned above were recognized in profit or loss for each period. 4. Investments in listed corporate securities They were stated at quoted prices prevailing at the MERVAL as of September 30, 2016 and December 31, Quoted price differences were recognized in profit or loss for each period. c) Credit assistance to the nonfinancial government sector Mainly including amounts actually disbursed but not yet collected plus adjustments, quoted price differences and interest accrued receivable at each period- or fiscal year-end, as applicable. d) Interest accrual Interest has been accrued on the basis of compounding, except for foreign trade transactions, savings account balances and overdraft balances, which have been accrued by applying the simple interest method. The Bank decided directly to interrupt the accrual of interest whenever loans are in default (generally, with delays over 90 days) and the recoverability of principal loaned and accrued interest is uncertain. Interest accrued until the interruption is deemed part of the outstanding balance upon determining the amount of the loan loss allowances. Subsequently, interest is only recognized based on collection, once the receivable for previously accrued interest has been settled. 14

19 NOTES TO FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2016 COMPARATIVELY PRESENTED e) Accrual of the adjustment by CER As of September 30, 2016 and December 31, 2015, some assets and liabilities have been adjusted by applying CER. f) Loans and deposits of government securities They were valued according to the effective quoted prices for each security at the end of each fiscal period or year, as applicable, plus the related accrued interest. Quoted price differences were recognized in profit or loss for each period. g) Allowance for loan losses, contingent commitments and other contingencies 1. Allowance for loan losses and contingent commitments The allowance for loan losses was set up based on the estimated uncollectibility risk of the Bank s credit facilities, which results from assessing the borrowers performance and the guarantees supporting the related transactions in conformity with BCRA Communication A 2950, as supplemented. 2. Allowance for other contingencies: It includes the amounts estimated by the Bank s Management necessary to bear likely contingencies that, if verified, will result in a loss for the Bank. h) Other Receivables from Financial Intermediation 1. Amounts receivable from spot sales to be settled and forward sales They were valued at the prices agreed upon for each transaction, plus the related premiums accrued at the end of each fiscal period or year, as applicable. These premiums were recognized in profit or loss for each period. 2. Securities and foreign currency from spot sales to be settled and forward sales a. Listed: they were valued at the quoted prices prevailing for each security at MERVAL or MAE at the end of each fiscal period or year, as applicable. Quoted price differences were recognized in profit or loss for each period. b. Unlisted: they were valued at cost, increased by applying the internal rate of return at the end of each fiscal period or year, as applicable. The related accrual was recognized in profit or loss for each period. 15

20 NOTES TO FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2016 COMPARATIVELY PRESENTED 3. Unlisted corporate bonds They were valued at cost, increased by applying the internal rate of return. 4. Other not covered by Debtor Classification Standards Financial Trusts They were valued at cost adjusted by CER, where applicable, and increased by applying the internal rate of return. i) Receivables from Finance Leases In accordance with BCRA Communication A 5047 as supplemented, they were valued at the discounted value of the addition of minimum installments pending collection (except for any contingent installments), the residual value previously agreed and the purchase options, for the finance lease agreements in which the Bank acts as a lessor. The discounted value is calculated by applying the imputed interest rate of each lease agreement. As of September 30, 2016 and December 31, 2015, the characteristics of the current lease agreements are those usually prevailing for this kind of transactions, and there is no differentiating issue of any kind compared with the transactions generally agreed on the Argentine financial market. These transactions are distributed among the Bank s customers and there are no preset contingent installments or automatic renewal clauses. j) Investments in other companies As of September 30, 2016 and December 31, 2015, the equity interests in other companies were valued as follows: 1. Subsidiaries Banco Patagonia (Uruguay) S.A. I.F.E.: at the amount calculated by the equity method at the end of each fiscal period or year, as applicable, converted into Argentine pesos, as described in note 1.6.a). Patagonia Valores S.A. and Patagonia Inversora S.A. Sociedad Gerente de Fondos Comunes de Inversión: by the equity method at the end of each fiscal period or year, as applicable. 16

21 NOTES TO FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2016 COMPARATIVELY PRESENTED GPAT Compañía Financiera S.A.: by the equity method at the end of each fiscal period or year, as applicable. As of September 30, 2015, the related amount was net of the negative goodwill, resulting from the difference between the acquisition cost and the equity method value at the time of acquisition. Goodwill amortization was calculated based on a term not shorter than 60 months, subject to a full-month of addition amortization, whereas the disposal month is not amortized. 2. Other companies At cost, restated by applying the procedure described in note 1.4. or by the equity method, whichever lower, considering each company s latest available financial statements. k) Property, plant and equipment, and miscellaneous assets These assets were recorded at cost, restated following the procedure described in note 1.4. Depreciation was calculated based on the months of useful life. The assets were fully depreciated in the month of addition, but were not depreciated in the month of disposal. The residual value of property, plant and equipment, taken as a whole, does not exceed the recoverable value of such assets. l) Other miscellaneous assets These assets were recorded at cost, restated following the procedure described in note 1.4. Depreciation, when appropriate, was calculated based on the months of useful life. The assets were fully depreciated in the month of addition, but were not depreciated in the month of disposal. The residual value of these assets, taken as a whole, does not exceed their recoverable value. m) Intangible assets 1. Differences from court deposits dollarization - deductible for the determination of computable equity Original value As required by BCRA Communication A 4686, dated July 4, 2007, this includes the difference between the equivalent value in pesos, considering the court deposits in the currency in which they were made, and the book value of such deposits made in foreign currency which, as of January 5, 2002, fell within the scope of Law and Presidential Decree No. 214/02. 17

22 NOTES TO FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2016 COMPARATIVELY PRESENTED As of September 30, 2016 and December 31, 2015, the amount recorded is 1,726, and according to the criterion adopted by the Bank, it was fully amortized and recognized in profit or loss. 2. Organization and development expenses Leasehold improvement as well as system expenses incurred by the Bank, involving planning, surveys, organization projects and the development of applications by third parties and the subsequent implementation thereof were recorded. These expenses were recorded at cost, restated following the procedure described in note 1.4., less the related accumulated amortization. Expense amortization is calculated based on the useful life stated in months, which shall not exceed 60 monthly installments as from each capitalization, subject to a full month of addition amortization, whereas the disposal month is not amortized. As of September 30, 2016 and December 31, 2015, the residual value of Organization and development expenses amounts to 36,507 and 25,409, respectively. n) Other Liabilities from Financial Intermediation 1. Unsubordinated corporate bonds They were stated at nominal value plus accrued interest at the end of each fiscal period or year, as applicable. (See Note 9). 2. Amounts to be paid for spot purchases to be settled and forward purchases They were valued at the prices agreed upon for each transaction, plus the related premiums accrued at the end of each fiscal period or year, as applicable. These premiums were recognized in profit or loss for each period. 3. Securities and foreign currency to be delivered under spot sales to be settled and forward sales a. Listed: they were valued at the quoted prices prevailing for each security at MERVAL or MAE at the end of each fiscal period or year, as applicable. Quoted price differences were recognized in profit or loss for each period. b. Unlisted: they were valued at cost, increased by applying the internal rate of return at the end of each fiscal period or year, as applicable. The related accrual was recognized in profit or loss for each period. 18

23 NOTES TO FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2016 COMPARATIVELY PRESENTED o) Items pending allocation It includes items that, due to administrative organization reasons or the special nature of the relationship with third parties, were not directly allocated to the related accounts. p) Equity accounts Capital stock remained at its original value. q) Memorandum accounts - Derivatives Forward transactions without delivery of underlying asset: they were valued according to the effective price quoted on the MAE or Rosario s Security Market (ROFEX), depending on the scope of the agreement at the end of each fiscal period or year. Quoted price differences were recognized in profit or loss for each period. r) Statement of income The accounts comprising monetary transactions occurred in each period (financial income (expenses), revenues from services, service-charge (expenses), uncollectibility charge, administrative expenses, etc.) were recorded at their historical amounts on a monthly accrual basis. The accounts reflecting the effect on income (loss) of the sale, disposal, or consumption of nonmonetary assets were computed based on the values of those assets. Income (loss) from interests in subsidiaries was computed based on the income (loss) of those companies. s) Income taxes and minimum presumed income tax The Bank calculates income tax by applying the effective 35% rate to taxable income for each fiscal period/year, without considering the effect of temporary differences between income for accounting and tax purposes. It also assesses minimum presumed income tax, which was established by Law No for a ten-year term for fiscal years ended on or after December 31, At present, after successive extensions, such tax is effective through December 31, This tax is supplementary to the income tax because, whereas the latter is levied on taxable income for the year, minimum presumed income tax is a minimum levy on the potential income of certain productive assets at a 1% rate. Therefore, the Bank s tax liability will be represented by the highest of the two taxes. In the case of institutions governed by the Financial Institutions Law, the abovementioned law sets forth that they shall consider as 19

24 NOTES TO FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2016 COMPARATIVELY PRESENTED taxable income 20% of their taxable assets, after deducting those assets defined as noncomputable. However, should minimum presumed income tax exceed income tax in a given fiscal year, such excess may be computed as a credit towards future income taxes occurring in any of the next ten fiscal years, once the accumulated tax loss have been used. As of September 30, 2016, and 2015, the Bank assessed the income tax expense based on taxable income of 1,273,400 and 913,627, respectively, which were recorded under Miscellaneous liabilities and recognized in profit or loss for each period under Income tax. Those amounts exceeded minimum presumed income tax amounts for each period; therefore, no provision was recorded in this regard. t) Severance pay The Bank directly expenses severance payments. NOTE 2: Statement of cash flows and cash equivalents The statements of cash flows and cash equivalents as of September 30, 2016 and 2015 explain the changes in cash and cash equivalents and for such purpose, only the total amount included under Cash and due from banks was considered cash. Additionally, there are no transactions related to investment or financing activities which have an impact on cash and which should be disclosed as a result of their significance. NOTE 3: Main differences between BCRA standards and professional accounting standards effective in the City of Buenos Aires The professional accounting standards effective in the City of Buenos Aires, Argentina, differ in certain valuation and disclosure criteria from BCRA accounting standards. The main differences between such criteria identified by the Bank and considered material to these financial statements are further described below: 3.1. Valuation criteria The Bank s main differences in valuation criteria as of September 30, 2016 and December 31, 2015, are as follows: 20

25 NOTES TO FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2016 COMPARATIVELY PRESENTED Adjustments to stand-alone financial statements (as per professional accounting standards) Item a) Government and corporate securities carried at cost plus yield Equity Income/loss Increase/(Decrease) Income/(Loss) 09/30/ /31/ /30/ /30/ ,132 (17,539) 90,671 8,922 b) Acquisition of GPAT Compañía Financiera S.A. 1, (7,260) c) Deferred income tax (assets) 458, ,380 33,192 78,230 d) Derivative financial instruments (212) e) Investments in other companies 30,564 19,452 11, TOTAL 563, , ,173 80,209 Adjustments to the consolidated financial statements (as per professional accounting standards) Item a) Government and corporate securities carried at cost plus yield Equity Income/loss Increase/(Decrease) Income/(Loss) 09/30/ /31/ /30/ /30/ ,132 (17,539) 90,671 9,435 b) Acquisition of GPAT Compañía Financiera S.A. 1, (7,260) c) Deferred income tax (assets) 489, ,832 44,304 78,246 d) Derivative financial instruments (212) TOTAL 563, , ,173 80,209 a) Government and corporate securities carried at cost plus yield As of September 30, 2016 and December 31, 2015, the Bank recorded under Government and corporate securities Instruments issued by the BCRA holdings valued pursuant to note 1.6.b) 2 and 1.6.b) 3.b), respectively. Following that criterion, it recorded BCRA bills under Other receivables from financial intermediation BCRA. According to professional accounting standards, these assets should be stated at current values. 21

26 NOTES TO FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2016 COMPARATIVELY PRESENTED b) Business combinations- Acquisition of GPAT Compañía Financiera S.A. Under the standards set forth by the BCRA, business acquisitions are recorded at the book value of the acquired company. Consequently, the difference between the cost of investment and its equity value in the books of the acquirer is recorded as positive goodwill (when the cost of investment is higher than the equity value) or negative goodwill (when the cost of investment is lower than the equity value), as applicable. If goodwill is negative, BCRA Communication A 3984 establishes specific amortization methods; the maximum annual amortization allowed is 20%. According to professional accounting standards, business combinations are recorded based on the current values of the acquired company s identifiable net assets. Consequently, the difference between the cost of investment and the identifiable net asset measurement value is recorded as a positive or negative goodwill, as applicable. If goodwill is negative, such goodwill will be recognized in profit or loss in accordance with the changes in the specific circumstances that brought about such negative goodwill. c) Deferred income tax The Bank assesses income tax by applying the effective rate to the estimated taxable income for each fiscal period or year, disregarding the effect of temporary differences between income for accounting purposes and income for tax purposes. In accordance with professional accounting standards, the income tax should be recorded by applying the deferred tax method, which consists in recognizing (as a receivable or payable) the tax effect of temporary differences between the valuation of assets and liabilities for accounting and tax purposes, and, subsequently, recognizing them to profit or loss for the periods in which such differences are reversed, having duly considered the likelihood of using such tax losses in the future, if applicable. d) Derivative financial instruments As of September 30, 2015, the Bank recorded the effects of interest rate swap agreements. Under professional accounting standards, derivative financial instruments should be measured at their net realizable value, which, in this case, may be estimated by using mathematical models that reflect the way in which the parties to these agreements set prices and include reliable data. Thus, the fair value applicable to swap rights or obligations can be estimated. e) Investments in other companies The subsidiary GPAT Compañía Financiera S.A. prepares its financial statements pursuant to BCRA rules, which differ from the professional accounting standards. 22

27 NOTES TO FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2016 COMPARATIVELY PRESENTED Had professional accounting standards been applied, the Bank s shareholders equity would have increased by 563,406 and 428,233, respectively, at the stand-alone and consolidated levels, as of September 30, 2016 and December 31, In addition, income/loss for the periods ended September 30, 2016 and 2015 would have increased by 135,173 and 80,209, respectively, at the stand-alone and consolidated levels. 3.2 Disclosure criteria a) The Bank does not disclose segment information or earnings per share. b) The Bank does not classify its assets and liabilities as current and noncurrent based on the point in time at which the assets are expected to be turned into cash or cash equivalents and based on the point in time at which the liabilities become payable, as required by current professional accounting standards. c) There are differences between the disclosure required by professional accounting standards and that conducted by the Bank regarding the cash flows disclosed in the statements of cash flows, as these financial statements are prepared in conformity with specific standards applicable to financial institutions. d) As supplementary information (exhibits), the Bank presents the information specifically required by the BCRA, which does not consider all disclosure requirements of professional accounting standards. NOTE 4: Adoption of International Financial Reporting Standards (IFRS) According to the provisions of BCRA Communication A 5541, the Bank is in the process of adoption of the IFRS issued by the International Accounting Standards Board (IASB). IFRS will be effective for annual accounting periods beginning on or after January 1, 2018, and for the interim accounting periods of such annual periods. Therefore, as from the first quarterly period of fiscal year 2018, financial institutions shall prepare and present their financial statements for publication in accordance with IFRS. Such financial statements will include the opinion of the external auditor, and will be used by financial institutions for all legal and corporate purposes. At a meeting held on March 30, 2015, the Bank s Board of Directors approved the Implementation Plan for Convergence to IFRS, which was filed with the BCRA on March 31, On December 4, 2015, the BCRA issued Communication A 5844 that provides for the requirements to be met by the financial institutions in order to present the adjusting entries for the reconciliation of its assets and liabilities with those arising from applying the IFRS. 23

28 NOTES TO FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2016 COMPARATIVELY PRESENTED In compliance with the frequency required by the BCRA rules, at the meeting held on September 26, 2016, the Bank s Board of Directors became aware of the information relating to the rate of progress with the transition, which was filed with the BCRA on September 30, 2016, together with the reconciliation of assets and liabilities as of June 30, To the date of issuance of these financial statements, the Bank is carrying out the Implementation Plan, the development of which is subject to the specific rules issued by the BCRA. NOTE 5: Breakdown of items in Other accounts with amounts exceeding 20% of the related total account balance Statement of financial position items 09/30/ /31/2015 A. Miscellaneous receivables Security deposits (Note 6) 314, ,681 Advance payments 148, ,262 Sundry receivables 102,395 62,007 Other 212, , , ,190 B. Other liabilities from financial intermediation Credit and debit card consumption charges payable 1,118, ,528 Foreign trade payment orders 444, ,233 Tax withholdings payable 395, ,262 Social security payment orders 173,244 57,437 Collections and other transactions on behalf of others 159, ,269 Other 470, ,870 2,761,457 2,716,599 C. Miscellaneous liabilities Taxes payable 989, ,995 Payroll, social security contributions and withholdings payable 525, ,513 Sundry payables 182, ,799 Other 42,114 54,522 1,740,185 1,017,829 D. Memorandum accounts Debit-balance control accounts Other checks and securities in custody 33,631,108 25,120,170 Checks and securities to be debited 826, ,110 Checks and securities to be collected 304, ,444 34,762,623 25,892,724 24