Banco Hipotecario Sociedad Anónima Earnings Release - First Quarter of Fiscal Year 2006

Transcription

1 Banco Hipotecario Sociedad Anónima Earnings Release - First Quarter of Fiscal Year 2006

2 Banco Hipotecario cordially invites you to participate in its First Quarter 2006 Results Conference Call Monday, May 15, 2006, 11:00 EDT To participate, please call: USA: (888) International: (703) Confirmation Number: Preferably 10 minutes before the call is due to begin. The conference will be in English. 2

3 Contacts: Marcelo Icikson Nicolas Vocos Capital Markets Tel. (54-11) /5798 Fax (54-11) Buenos Aires, Argentina Gabriel Saidon Chief Financial Officer Tel. (54-11) /5212 Fax (54-11) /5113 Buenos Aires, Argentina Banco Hipotecario Sociedad Anónima reports first quarter 2006 results Highlights I. Executive Summary Banco Hipotecario recorded net income of Ps.64.1 million for the first quarter of 2006 (Ps.0.43 per share), 27% higher than the net income recorded in the first quarter of Significant qualitative improvement in results and enhanced capacity to generate recurring income, reflecting the Bank s expanded lines of business and commercial activities, which resulted in a substantial increase in operating income, significant reduction of inflation-adjusted liabilities, solid loan asset quality performance, and increased operating efficiency. Increased volume of business and demand for new loans, as reflected in increased volume of loans in the Bank s loan portfolio. Loans to the private sector increased Ps million or 7% during the first quarter of 2006 compared to the fourth quarter of 2005, mainly reflecting the significant demand for consumer and housing loans. In addition, deposits grew 9% during the quarter compared to the balance of deposits at December 31, Consolidated equity position, recording shareholders equity of Ps.2,281.2 million which, together with the Bank s substantial liquid assets, positions the Bank to focus on the growth of its financial assets and increase its business franchise. Successful issuance of US$250 million in Notes due 2016 in the international markets, the largest transaction and latest maturity of any Argentine issuer since the crisis. Simultaneously, the Bank launched a tender offer to repurchase US dollar and Euro denominated bonds due 2013 that were issued in 2004 in connection with the Bank s debt restructuring, having received and accepted for purchase an aggregate principal amount of US$ million. The tender offer was funded from the proceeds of the issue of the Notes due With the consummation of the tender offer, the Bank became the first Argentine institution to retire a substantial portion of the outstanding portfolio of debt issued in its restructuring. Banco Hipotecario successfully closed its sixth series of Cédulas Hipotecarias Argentinas for Ps.69 million in the local capital markets, consolidating this product s positioning among individual and institutional investors. An aggregate amount of Ps.360 million has been issued during the first 21 months of this Program. Consolidation of balance sheet structure. Banco Hipotecario enhanced its equity position and achieved sustained improvements in intermediation margins, in order to support future growth and profitability. In this regard, the Bank reduced its public sector exposure, recorded a substantial increase in private sector lending and improved its funding structure. Improved Risk Rating. Standard & Poor s raised Banco Hipotecario s rating on a global scale to B from B-, being the first Argentine financial institution to obtain such status. In addition, S&P raised the Bank s long-term rating on a local scale to raa+ from raa. High profitability and efficiency ratios. The Bank had an annualized return on average shareholders equity of 11.4% and administrative expenses to financial income and income from services, net of 36.6%. Substantial improvement in loan asset quality. The sound performance of the Bank s loan assets has allowed the Bank to report an improved a 6.4% ratio of non-performing loans to total loans, the lowest such ratio ever registered by the Bank. In addition, total loan loss reserves to non-performing loans increased from 98.6% to 116.2%. 3

4 II. Relevant events during the quarter and recent developments On January 13, 2006, the bank redeemed all its outstanding medium-term guaranteed bonds. In this way, the Bank cancelled an entire tranche of its restructured debt, which totaled US$ 268 million as of the restructuring date. The Stock Appreciation Rights (StARs) attached to the medium term bonds continue outstanding, given their nature as separately tradable securities. On January 26, 2006, the Bank issued an additional US$100 million of the 9.75% Series IV Notes due This issue is the second tranche of the Series IV Notes that mature on November 16, Through this placement, the total amount issued under this series increased to US$250 million. The issue was placed in the local and international capital markets, among institutional and retail investors. On March 23, 2006, Standard & Poor s raised the Bank s rating on a global scale to B from B-, along with the upgrading of Argentina s sovereign rating. Banco Hipotecario was the only Argentine financial institution to obtain this status. On April 3, 2006, Standard & Poor s raised Banco Hipotecario s long-term rating on a global scale to raa+ from raa. The upgrading reflects the Bank s high capitalization level and sound liquidity position, improved maturity profile of its liabilities, good access to local and international capital markets, as well as the significant reduction of Central Bank borrowings. On March 31, 2006, the Bank implemented a Level I American Depositary Receipts ("ADR") Program, in order to provide for an increased liquidity and visibility of its shares to international investors. The Bank of New York will act as depositary bank. An ADR gives international investors access to the Banco Hipotecario shares through the over-the-counter market on which ADRs are freely negotiable in the United States. On April 7, 2006, the Bank successfully closed its sixth series of Cédulas Hipotecarias in the local capital markets for an aggregate principal amount of Ps.69 million, issued under the Cédulas Hipotecarias Argentinas Ps.500 million Note Program. The offer was oversubscribed by 2.6 times the authorized amount issued. The Cédulas Hipotecarias accrue interest at a variable rate equal to the higher of CER plus 1% and the interest rate for time deposits between Ps.100,000 and Ps.500,000, up to 59 days, reported by the Central Bank plus 2%, subject to a floor of 9% per annum and a ceiling of 19% per annum. The securities are collateralized by residential mortgage loans and were rated raaaa by Standard & Poor s. On April 27, 2006, the Bank successfully completed the issue of its US$250 million 9.75% Series V Notes due The transaction was placed in the local and international capital markets, among institutional and retail investors in the United States, Europe and Asia, and is a landmark in the Argentine capital market, as it is the largest principal amount of debt and longest maturity (10 years) transaction by an Argentine issuer since the Argentine crisis, bolstering the success obtained by Banco Hipotecario in its two prior issues and strengthens the Bank s high reputation in the local and international capital markets as pioneer of capital market transactions in Argentina. On May 8, 2006, Banco Hipotecario concluded its Tender Offer to purchase US Dollar denominated Notes due 2013 and EURO denominated Notes due 2013, having received and accepted for purchase an aggregate principal amount of US$ million. The Tender Offer allowed the Bank to refinance the debt issued in connection with its restructuring, extend the maturities of its debt and eliminate specific amortizations. III. Presentation of Information The Bank s assets at March 31, 2006 included US$921.1 million Boden 2012 Argentine government bonds (the so-called Bodens). Additionally, the Bank s assets include the right to receive additional Boden from the Argentine government for US$59.3 million. In accordance with Central Bank regulations, the Bank s compensatory and additional Boden received and the right to receive 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 March 31, 2006 were converted to pesos at the exchange rate of Ps /US$1.00 and Ps.3.736/EUR1.00, which was the reference exchange rate published by the Central Bank on such date. 4

5 Selected financial information 1 Buenos Aires, May 5, Banco Hipotecario S.A. (Buenos Aires Stock Exchange: BHIP) reports first quarter 2006 results. Net income for the first quarter of 2006 was Ps.64.1 million, Ps.24.0 million lower than the Ps.88.1 million recorded in the fourth quarter of This resulted primarily from lower miscellaneous income recorded in the first quarter of 2006 due to the reversal of contingent liability provisions related to the stock appreciation rights issued in connection with the Bank s debt restructuring in Excluding the effect of the above items, there was a substantial improvement in operating income and recurring financial income in the first quarter of 2006 due to: i) higher interest income from increased financial intermediation activities and the broader range of products offered; ii) the positive impact of the net position in assets adjusted by the CER index on the Bank s income, mainly due to the significant reduction in financial expenditures experienced during the period resulting from the substantial decrease of Central Bank borrowings, iii) higher income from services, net, due to higher income from insurance premiums and fees related to new products, and iv) lower administrative expenses as a result of the significant improvement in operating efficiency. Net income for the first quarter of 2006 was Ps.13.6 million higher than the Ps.50.5 million recorded in the first quarter of Results for the first quarter of 2006 primarily reflect: i) higher interest income from loans to the private sector as a result of increased volume and diversification of the Bank s business, ii) lower financial expenditures mainly resulting from the substantial reduction of Central Bank borrowings during the period and ensuing reduction of the Bank s assets that are exposed to inflation, iii) higher income from insurance and services relating to the Bank s increased retail business, and iv) higher net miscellaneous income, mainly resulting from charges recorded in the first quarter of the 2005 in connection with stock appreciation rights issued in connection with the 2004 restructuring and other provisions. These effects were partially offset by lower non-recurring financial income from the repurchase of restructured financial debt at market prices and higher administrative expenses resulting from the Bank s new retail business, new products launched and increased volume of business. 03/31/06 12/31/05 03/31/05 Quarterly Annual Financial income 172, , , % (20.5)% Financial expenditures (90,081) (92,740) (130,489) (2.9)% (31.0)% Net financial income 81,974 63,823 85, % (4.5)% Provision for loan losses (6,599) (5,742) (5,665) 14.9% 16.5% Net contribution from insurance 11,941 10,842 9, % 26.4% Other income from services, net 1,272 1,083 2, % (49.1)% Administrative expenses (34,998) (39,057) (27,172) (10.4)% 28.8% Miscellaneous income, net 10,461 57,130 (14,479) (81.7)% (172.2)% Net income 64,051 88,079 50,458 (27.3)% 26.9% 1 Unless otherwise indicated, all financial data presented in the tables below are stated in thousands of Argentine pesos. 5

6 Financial Income Financial income for the first quarter of 2006 was Ps million, compared to Ps million recorded in the fourth quarter of 2005, reflecting a sustained improvement in financial intermediation margins as a result of i) higher income from private sector loans resulting from the Bank s increased volume of business and broader range of products offered, ii) the positive impact of the Bank s net asset position adjusted by CER, and iii) higher income from securities due to the higher Libor rate accrued during this period on the stock of Boden due 2012 recorded in investment accounts. These effects were partially offset by lower income from repurchase of restructured debt at market prices and lower income from the effect of changes in the exchange rate. Financial income was Ps million as of March 31, 2006, a reduction of Ps.44.3 million or 20.5% compared to Ps million recorded in the first quarter of The reduction in financial income during the quarter mainly reflects lower non-recurring income from the repurchase of restructured debt at market prices and lower other financial income. These effects were partially offset by higher interest income from loans to the private sector as a consequence of the Bank s increased financial intermediation activities, higher interest income from Boden due 2012 held in investment accounts resulting from the increase in the Libor rate and higher income from government securities and certificates of participation in financial trusts. Interest on private sector loans 64,464 57,199 52, % 23.9% Interest on government sector loans 4,781 4,842 4,890 (1.3)% (2.2)% Interest on guaranteed loans 6,154 7,508 28,833 (18.0)% (78.7)% Income from compensatory and additional Boden 2,065 3,824 16,076 (46.0)% (87.2)% Income from securities and other investments 67,530 44,524 24, % 175.0% Buyback of restructured debt - 11,194 38,459 NA NA Effects of changes in exchange rate 6,338 16,878 - (62.4)% NA Other financial income 20,723 10,594 51, % (59.7)% Total Financial Income 172, , , % (20.5)% Financial Expenditures Financial expenditures for the first quarter of 2006 decreased to Ps.90.1 million, from Ps.92.7 million as of December 31, 2005, due to the substantial reduction of Central Bank borrowings adjusted for inflation resulting from the direct subscription of Boden due This effect was partially offset by higher interest liabilities under new debt issued and an increase in the Libor rate, partially offset by lower balances of restructured financial debt resulting from repurchases and prepayments. In addition, financial expenditures as of March 31, 2006 decreased 31.0% from Ps million recorded during the first quarter of This decrease resulted primarily from the substantial reduction of Central Bank borrowings due to the full prepayment under the matching transaction and direct subscription of additional Boden and the repurchases and prepayments of restructured financial debt during the period. This effect was partially offset by: i) the impact on the financial debt caused by the increase in the Libor rate on new financing incurred during the period; and ii) higher interest liabilities resulting from increased balances on savings accounts and time deposits. 6 Interest on external financing 63,105 46,485 32, % 92.6% Interest on inter-bank loans 7,215 7,649 7,408 (5.7)% (2.6)% Central Bank borrowings 8,624 31,410 73,268 (72.5)% (88.2)% Other interest liabilities 6,629 4,543 2, % 123.3% Income from securities and other investments 1, NA NA Effects of changes in exchange rate ,491 NA NA Contributions and taxes 3,258 2,653 3, % (9.2)% Total Financial Expenditures 90,081 92, ,489 (2.9)% (31.0)%

7 Net Contribution from Insurance As compared to the fourth quarter of 2005, net contribution from the Bank s insurance business increased to Ps.11.9 million as a consequence of higher premiums accrued due to increased origination of loans and increased insurance products offered, partially offset by higher claims paid during the quarter. As compared to the first quarter of 2005, the Bank s insurance business increased 26.4%, to Ps.11.9 million as of March 31, 2006 from Ps.9.5 million as of March 31, This increase reflects the higher premiums earned from the Bank s increased volume of business and broader range of insurance products. Property damage premium 3,069 3,346 3,224 (8.3)% (4.8)% Life insurance premium 9,774 9,022 7, % 37.7% Unemployment insurance premium (5.9)% (14.9)% Additional Insurance (2.9)% 37.2% Total premiums 13,857 13,423 11, % 23.6% Property damage insurance claims paid % (1.8)% Life insurance claims paid 1,702 2,338 1,550 (27.2)% 9.8% Unemployment insurance claims paid (30.2)% 0.0% Additional Claims (25.5)% 7.0% Total claims 1,916 2,581 1,761 (25.8)% 8.8% Net contribution from insurance 11,941 10,842 9, % 26.4% Other Income from Services, Net For the first quarter of 2006, other income from services, net increased slightly to Ps.1.3 million compared to Ps.1.1 million as of December 31, This increase was mainly due to higher commissions derived from the origination of mortgage loans and new consumer products, partially offset by higher expenditures on services related to the Bank s higher volume of business and higher expenditures related to the issue of bonds and financial trusts. Income from services, net amounted to Ps.1.3 million as of March 31, 2006, compared to Ps.2.5 million as of March 31, The changes in other income from services, net resulted primarily from higher structuring and underwriting expenses relating to the issue of bonds and financial trusts and higher expenditures due to the Bank s increased volume of business. Such effects were partially offset by higher commissions on loans and other income from services due to the Bank s increased retail business. Commissions related to origination and servicing of own and third party loans 5,786 5,814 4,011 (0.5)% 44.3% FONAVI service commissions % 5.1% Other 5,121 4,417 1, % 246.7% Other income from services 11,816 11,108 6, % 86.0% Commissions paid in connection with loans 4,641 4,525 1, % 146.2% Collection services % 103.8% Structuring and underwriting fees 2,622 1, % 258.2% Taxes % 25.2% Other 2,782 3, (25.7)% 219.8% Other expenditures on services 10,544 10,025 3, % 173.7% Income from services, net 1,272 1,083 2, % (49.1)% 7

8 Administrative Expenses Administrative expenses for the first quarter of 2006 were Ps.35.0 million, compared to Ps.39.1 million recorded as of December 31, This decrease reflects lower bonuses and severance payments recorded during the quarter and lower taxes. Such effects were partially offset by higher personnel expenses resulting from increased headcount and higher salaries, and higher fees payable for advisory services retained by the Bank. As compared to the first quarter of 2005, administrative expenses increased to Ps.35.0 million, due primarily to higher salaries and social security contributions required under Argentine Law, and the increase in the number of employees assigned to the Bank s new retail activities, higher advertising expenses attributable to the launch of new products, and higher expenses incurred in other fees payable for the hiring of temporary staff and outsourced services relating to the Bank s new business policy. Salaries and social security contributions 15,457 14,816 11, % 31.4% Bonuses and severance payments 125 4, (97.4)% (9.4)% Other fees 5,132 2,423 1, % 205.3% Advertising and publicity 2,067 2, (29.5)% 177.4% Non recoverable VAT and other taxes 1,227 3,089 2,214 (60.3)% (44.6)% Operating expenditures 4,429 3,641 3, % 25.8% Amortizations 1,938 2,087 2,370 (7.1)% (18.2)% Other 4,623 5,287 4,739 (12.6)% (2.4)% Total administrative expenses 34,998 39,057 27,172 (10.4)% 28.8% Administrative Expenses (annualized) / Total Assets 1.66% 1.95% 1.19% Miscellaneous Income, Net As of March 31, 2006, miscellaneous income, net was Ps.10.5 million, compared to Ps.57.1 million during the fourth quarter of This increase resulted primarily from higher positive results from reversal of provisions in the previous quarter resulting from the recovery of stock appreciation rights due to the prepayment of medium-term guaranteed bonds; ii) lower loans recovered during this quarter and higher miscellaneous losses. In addition, for the first quarter of 2006, miscellaneous income, net increased by Ps.24.9 million from a Ps.14.5 million loss recorded as of March 31, This increase resulted primarily from: i) higher other provisions recorded in the first quarter of the previous fiscal year related to stock appreciation rights issued under the restructured debt and other contingent liabilities, and ii) higher income from recovered loans. Penalty interest 1,195 1,435 2,129 (16.7)% (43.9)% Reversal of provisions 2,545 22,850 - (88.9)% NA Loan loss recoveries 17,912 23,898 15,523 (25.0)% 15.4% Other 2,586 3,326 4,265 (22.2)% (39.4)% Miscellaneous income 24,238 51,509 21,917 (52.9)% 10.6% Other provisions 4,172 (10,477) 31,230 (139.8)% (86.6)% Insurance reserve provision NA NA Taxes % (17.4)% Other Investments 1,297 (273) 1,210 NA 7.2% Other 8,232 4,430 3, % 116.3% Miscellaneous losses 13,777 (5,621) 36,396 NA (62.1)% Total miscellaneous income (loss), net 10,461 57,130 (14,479) (81.7)% 172.2% 8

9 Loans The Bank s loan portfolio to the private sector, net of reserves and excluding the effect on our balance sheet derived from the securitizations made during the period, increased Ps million or 25.4% from March 31, 2005, as a result of the increased volume of business and higher demand for loans. This increase principally reflected the origination of consumer and housing loans, higher credit card financing and increased corporate loans. In addition, the Bank s total loan portfolio, net of reserves and including the effect on our balance sheet derived from the securitizations made, decreased Ps million, compared to Ps.2,721.9 million as of March 31, 2005, due primarily to: i) a Ps million reduction in loan balances to the non-financial government sector resulting from the sale of guaranteed government loans at market prices and ensuing reduction in public sector exposure; and ii) mortgage loan securitizations related to the issue of three series of Cédulas Hipotecarias during the quarter for approximately Ps million. In addition, the Bank s total loan portfolio at March 31, 2006 increased by Ps million to Ps.2,410.4 million from Ps.2,293.4 million as of December 31, This increase resulted primarily from higher loan balances to the private sector, which increased by Ps million or 7%, principally reflecting the origination of mortgage loans, higher credit card financing and personal loans and increased corporate loans. Loan Portfolio By Economic Sector Non financial government sector 261, , ,951 (6.1)% (69.4)% Financial sector 45,481 21,872 88, % (48.6)% Non financial private sector 2,303,944 2,199,236 2,106, % 9.4% - Advances 177, , ,728 (18.1)% 68.2% - Mortgages 1 1,690,445 1,664,267 1,865, % (9.4)% - Documents 15,714 15,969 0 (1.6)% NA - Pledge loans 4,836 5,912 3,210 (18.2)% 50.7% - Personal loans 194, ,908 39, % 393.1% - Credit cards 76,912 57,343 8, % 756.9% - Non-applied collections (13,436) (16,451) -11,165 (18.3)% 20.3% - Other 111,295 56,632 56, % 97.2% - Interest accrued on uncollected loans due to changes in exchange rate 46,214 39,473 38, % 21.2% Reserves (200,278) (205,832) (328,032) (2.7)% (38.9)% Total loan portfolio 2,410,387 2,293,388 2,721, % (11.4)% 1 Includes Ps.187,717 thousand at March 31, 2006, Ps. 124,343 thousand at December 31, 2005 and Ps. 312,457 thousand at March 31, 2005 of individual mortgage loans conveyed in a trust in anticipation of future securitizations. 9

10 Asset Quality The following table sets forth information regarding the classification of the Bank s total loan portfolio according to the Central Bank s criteria, as of March 31, March 31, 2006 Category Consumer Commercial Total 12/31/05 03/31/05 Normal 1,691, ,410 2,434,063 2,311,122 2,726,592 Special collection and inadequate performance 90,067 6,828 96,895 86, ,222 Problematic and deficient performance 42,965 5,491 48,456 48,337 53,163 High risk of insolvency and difficult collection 57,875 1,212 59,087 62,469 76,725 Uncollectible 37, ,342 53, ,037 Uncollectible for technical reasons 27, ,465 28,869 32,927 Total 1,947, ,101 2,703,308 2,591,082 3,161,666 Non performing loans 172, , ,852 Non performing loans / total loans 6,38% 7,46% 10,53% Reserve for loan losses 200, , ,032 Reserve for loan losses / Total non performing loans % % 98.55% Non performing loans, net / Shareholders equity (1.2)% (0.6)% 0.2% The ratio of non-performing loans to total loans as of March 31, 2006 was 6.38%, 415 and 108 basis points lower than the 10.53% and 7.46% recorded as of March 31, 2005 and December 31, 2005, respectively. The ratio of non-performing loans to total loans excluding the government sector reached 7.06% as of March 31, 2006, reflecting a substantial improvement in the quality of the loan portfolio during the last year. This result was primarily attributable to improved collection from the Bank s mortgage debtors, revamped collection management efforts and analysis of non-performing loans, and the origination of new consumer and commercial loans. Funding Sources Total on-balance sheet funding as of March 31, 2006, was Ps.4,156.2 million, Ps.1,505.1 million or 13.3% lower than the Ps.5,661.3 million recorded as of March 31, The decrease in total funding as compared to the first quarter of 2005 is primarily the result of: i) the significant reduction in debt due to the Central Bank due to the early prepayment of all the outstanding amounts due to the Central Bank and lower liabilities adjustable by CER that resulted from the subscription of additional Boden due 2012; and ii) lower balances of corporate bonds and bank facilities outstanding that were issued in connection with the 2004 restructuring resulting from scheduled amortization payments, repurchases at market prices and prepayments made, partially offset by the issue of US$250.0 million notes due 2010 during In addition, deposits experienced a significant increase, mainly including savings account and time deposits. The Bank s total debt showed a lower decreased, to Ps.5,891.6 million from Ps.6,797.9 million at March 31, 2005; as a result of the recording in other liabilities of currency swap transactions and other derivatives aimed at protecting the Bank s equity position against market risks. The actions taken with respect to the management of assets and liabilities consolidate the Bank s sound financial and equity position, and have a strong positive impact on its balance-sheet quality. Total on-balance sheet funding for the first quarter of 2006 increased Ps million or 6.1%, from Ps.5,551.5 million in the fourth quarter of 2005, mainly as a result of the reopening of the US$ million Series V Notes in January 2006 and repo transactions whose underlying assets are US$ Boden due 2012, partially offset by the reduction of debt due to the Central Bank adjusted for inflation. On January 13, 2006, the bank redeemed all its outstanding medium-term guaranteed bonds. In this way, the Bank cancelled the entire tranche of its restructured debt, which totaled US$ 268 million as of the restructuring date. The Stock Appreciation Rights (StARs) attached to the medium term bonds continue outstanding, given their nature as separately tradable securities. On January 26, 2006, the Bank concluded the issue of an additional US$ 100 million 9.75% Series IV Notes due This issue is the second tranche of the Bank series notes that mature on November 16, Through this placement, 10

11 the total amount issued under this series is US$ 250 million. The issue was placed in the local and international capital markets, in Europe and Asia, among institutional and retail investors. On April 7, 2006, Banco Hipotecario successfully closed its sixth series of Cédulas Hipotecarias in the local capital markets for an aggregate principal amount of Ps.69 million, issued under the Cédulas Hipotecarias Argentinas Ps.500 million Note Program. The offer was oversubscribed by 2.6 times the authorized amount issued. The Bonds accrue interest at a variable rate equal to the higher of CER plus 1% and the interest rate for time deposits between Ps.100,000 and Ps.500,000, up to 59 days, reported by the Central Bank plus 2%, subject to a floor of 9% per annum and a ceiling of 19% per annum. The securities are collateralized by residential mortgage loans and were rated raaaa by Standard & Poor s. On April 27, 2006, Banco Hipotecario successfully completed the issue of its US$250 million 9.75% Series V Notes due 2016 under its US$1.2 billion Medium Term Note program. The transaction was placed in the local and international capital markets, among institutional and retail investors in the United States, Europe and Asia. It was a landmark in Argentina, as it is the largest in principal amount (US$ 250 million) and has the longest maturity (10 years) of any debt issuance by an Argentine issuer since the Argentine crisis, bolstering the success obtained by Banco Hipotecario in its two prior issues and strengthens the Bank s high reputation in the local and international capital markets as pioneer of capital market transactions in Argentina. On May 8, 2006, Banco Hipotecario concluded its Tender Offer to purchase US Dollar denominated Notes due 2013 and EURO denominated Notes due 2013, having received and accepted for purchase an aggregate principal amount of US$ million. The Tender Offer allowed the Bank to refinance the debt issued in connection with its restructuring, extend the maturities of its debt and eliminate specific amortizations. As of March 31, 2006, shareholders equity amounted to 27.1% of assets and the ratio of debt to shareholder s equity was 1.8 times. Deposits 588, , , % 60.5% Corporate bonds 3,052,687 2,747,728 2,565, % 19.0% Central Bank 158, ,489 2,228,923 (66.0)% (92.9)% Interbank loans and international agencies 248, , ,550 (20.0)% (50.3)% Other interest bearing liabilities 107,048 69, % NA Total Funding 4,156,183 4,135,383 5,661, % (26.6)% Other non-interest bearing liabilities 1,735,436 1,416,126 1,136, % 52.7% Total Debt 5,891,619 5,551,509 6,797, % (13.3)% 11

12 Balance Sheet (amounts in thousands of pesos) 03/31/06 12/31/05 03/31/05 Cash and due from banks 162, , ,986 Government securities 2,460,868 2,172, ,961 Consumer loans 1,525,773 1,555,273 1,582,646 Other Loans 897, ,604 1,154,838 Reserve for loan losses (160,538) (172,691) (275,109) Loans, net 2,262,411 2,202,186 2,462,375 Other receivables from financial operations 2,943,601 2,780,962 4,572,395 Reserve for other receivables from financial operations (39,740) (33,141) (52,923) Miscellaneous assets 642, , ,099 Total Assets 8,431,949 8,029,683 9,133,893 Deposits 588, , ,751 Other liabilities from financial operations 5,302,844 5,011,709 6,431,174 Miscellaneous liabilities 259, , ,702 Total Liabilities 6,150,783 5,812,568 7,119,627 Shareholders Equity 2,281,166 2,217,115 2,014,266 Income Statement (amounts in thousands of pesos) 03/31/06 12/31/05 03/31/05 Financial income 172, , ,315 Financial expenditures (90,081) (92,740) (130,489) Provision for losses on loans (6,599) (5,742) (5,665) Income from services 25,673 24,531 17,562 Expenditures on services (12,460) (12,606) (5,614) Administrative expenses (34,998) (39,057) (27,172) Miscellaneous income 24,238 51,509 21,917 Miscellaneous losses (13,777) 5,621 (36,396) Income tax Net income 64,051 88,079 50,458 12

13 Selected ratios (amounts in thousands of pesos, except percentages) 03/31/06 12/31/05 03/31/05 Profitability ROAA (Return on average assets) % 2.89% 2.22% ROAE (Return on average shareholders equity) 11.38% 12.26% 10.04% Net interest margin 4.00% 3.14% 3.78% Efficiency % 39.06% 27.65% Capital Total shareholder s equity / total assets 27.05% 27.61% 22.05% Funding / total shareholders equity Liquidity Current assets / deposits % % % Loans / deposits % % % Asset Quality Non-performing loans / total loans 6.38% 7.46% 10.53% Reserves for loan losses / total non-performing loans % % 98.55% Reserves for loan losses, net / shareholders equity (1.2)% (0.60)% 0.20% 1 Based on annualized results. 2 Administrative expenses (excluding severance payments and bonuses) over net financial income and income from services, net. 13