Reuters BHI.BA Bloomberg - BHIP AR <Equity> Bloomberg - BHIP <Corporate> Bloomberg BHN <Mortgage> www.e-potecario.com Contacts: Marcelo Icikson Nicolas Vocos Capital Markets Tel. (54-11) 4347-5798 Fax (54-11) 4347-5874 Buenos Aires, Argentina micikson@hipotecario.com.ar nmvocos@hipotecario.com.ar Gabriel G. Saidon Chief Financial Officer Tel. (54-11) 4347-5759/5212 Fax (54-11) 4347-5874/5113 Buenos Aires, Argentina gsaidon@hipotecario.com.ar Banco Hipotecario Sociedad Anónima Reports Third Quarter 2004 Results Highlights I. Executive Summary Banco Hipotecario recorded net income of Ps.61.8 million during the third quarter of 2004, building on the positive trend from 2003 (with a net income of Ps.255.2 million), and resulting in net income of Ps. 223.5 million for the nine months period ended September 30, 2004, which has strengthened the Bank s position as a leading institution in the Argentine financial system. Banco Hipotecario ranked first among private banks in terms of shareholders equity and net income, with total shareholder s equity of Ps.1,899.1 million and net income of Ps.223.5 million at September 30, 2004. Banco Hipotecario achieved significant profitability and efficiency ratios, with a return on average shareholders equity of 17.75% and administrative expenses to total assets of 1.10%. Creditworthiness and liquidity levels in excess of the average recorded by the Argentine financial system, with a capitalization level measured in terms of shareholders equity over total assets of 22.03%. Credit rating upgrade, Standard & Poor s raised the Bank s counterparty credit rating to CCC+ from SD at global scale and to investment grade rating ( rabbb- from SD ) at local scale. Increased lending and development of new lines of business, in addition to mortgage lending, the Bank has increased its portfolio of consumer and corporate loans, credit cards, expanded its retail and wholesale deposit base and the provision of financial products and services. Significant improvement in asset quality, through a substantial reduction in delinquency rates as reflected by the Bank s non-performing loan ratios, which are among the lowest in the system. Banco Hipotecario is the first bank to obtain foreign financing since the Argentine crisis, with total funding of US$85 million. Banco Hipotecario recorded net income of Ps.61.8 million at September 30, 2004 (Ps.0.41 per share), an increase of Ps.60.4 million compared to net income of Ps.1.4 million recorded at September 30, 2003. Third quarter results reflect the substantial improvement in the Bank s financial position resulting from the achievements made in terms of operating income, reduction in the Bank s indebtedness and in the cost of such indebtedness, sustained improvement in operating efficiency, continued upgrading in the quality of its loan assets and consolidation of its capital base. Administrative expenses were Ps.25.5 million for the third quarter of 2004, representing an 8.4% increase compared to the same period of 2003, primarily as a result of the implementation by the Bank of its business diversification strategy. At September 30, 2004, non-performing loans accounted for 12.44% of the Bank s total loan portfolio, compared to 15.09% in the third quarter of 2003. Total loan reserves were 89.09% at September 30, 2004.
II. Present Condition During the third quarter of 2004, Banco Hipotecario made further progress in the implementation of its business diversification initiatives, capitalizing on the current franchise of its mortgage business. Some of the actions taken include: Increase in loan products and lines of business, as reflected by the 19% growth in retail and wholesale time deposits, the 4% increase in savings accounts, the 7% increase in sales of new insurance products, the 79% increase in disbursements of personal loans and 54% increase in new mortgage loans, in each case compared to the third quarter of 2003. Development of new products, since July 2004 the Bank began taking savings account deposits denominated in foreign currencies. In addition, during September the Bank started offering VISA credit cards and pledge loans. On November 1, 2004, Standard & Poor s raised Banco Hipotecario s counterparty risk rating from SD to CCC+ at global scale and from SD to rabbb- (Investment Grade) at local scale, reflecting the stabilization of its operating results and strengthening of its financial condition. In addition, on August 6, 2004, the Bank s Global Medium Term Note Program was rated BBB-(arg) by Fitch Ratings. Banco Hipotecario is the first bank to obtain foreign financing after the Argentine economic crisis, as it closed two new credit facilities with foreign financial institutions for a total of US$ 85 million. On November 4, 2004 Banco Hipotecario launched the second series of Cédulas Hipotecarias in the local capital market. The aggregate amount of the offering was Ps.50 million, consisting of Ps.40 million of Senior Bonds and Ps.10 million of Subordinated Bonds and Certificates of Participation issued under the Cedulas Hipotecarias Argentinas Ps.500 million Note Program. Senior 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. III. Relevant events during the first quarter and recent developments On August 3, 2004 the Bank serviced the first principal payment under its U.S. dollar and peso-denominated mediumterm guaranteed notes due 2010 in an amount of US$21.0 million and Ps. 5.5 million, respectively, that were issued in January 2004 in connection with the Bank s exchange offer. In addition, on August 4, 2004 the Bank released excess collateral in an aggregate amount of US$79.5 million of BODEN due 2012 and US$32.4 million of guaranteed loans that has been deposited in trust as collateral for the Bank s debt securities issued in connection with the exchange offer. The excess of assets deposited in trust as collateral for such debt results from the repayment of principal, the buyback and subsequent cancellation of a substantial portion of the collateralized debt and the interest payments made by the Argentine government on the BODEN due 2012 given as collateral for the medium-term notes. On October 27, 2004, under Resolution No. 269 of the Superintendence 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
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 2002. The Bank s loss suffered as a result of pesification amounted to US$1,193.5 million (equivalent to Ps.3,559.6 million, based on the exchange rate at September 30, 2004 of Ps.2.9825 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 September 30, 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$812.7 million of additional BODENs, all of which are reflected as assets of the Bank at September 30, 2004. 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 September 30, 2004 were converted into Pesos at the exchange rate of Ps.2.9825/US$1.00 and Ps.3.7033/EUR1.00, which was the reference exchange rate published by the Central Bank on such date. 3
Selected statistical information 1 Buenos Aires, November 9, 2004 - Banco Hipotecario S.A. (Buenos Aires Stock Exchange: BHIP) reports third quarter of 2004 results. The Bank s net income for the third quarter of 2004 was Ps.61.8 million, reflecting an increase of Ps.60.4 million from Ps.1.4 million recorded in the third quarter of 2003. Results for the third quarter of 2004 were impacted primarily by: i) the positive effects of lower interest rates on the Bank s restructured financial indebtedness resulting from the exchange offer that was consummated in January 2004; ii) higher financial income as a result of the appreciation of government securities and investments in financial trusts; iii) the positive effect of the buyback of financial debt at market prices; iv) the positive impact of the appreciation of the dollar on the Bank s net foreign currency position; and v) an increase in the value of metals. As compared to the second quarter of 2004, the Bank s net income increased to Ps.61.8 million from Ps.61.0 million. This variation reflects: i) lower financial expenditures due to lower inflation from the CER index accrued on Central Bank borrowings; and ii) lower accrual of restructured financial debt due to lower average balances caused by the first principal repayment of guaranteed debt and buyback of debt made during the quarter. These effects were partially offset by i) lower financial income, mainly from the impact of the suspension of the CVS index during the previous quarter; and ii) higher administrative expenses on personnel bonuses and advertising related to the actions taken by the Bank in implementing its strategy of becoming a diversified financial institution. Quarter Ended Variation (%) Financial income 160,913 165,734 102,043 (2.91)% 57.69% Financial expenditures (78,298) (90,399) (90,511) (13.39)% (13.49)% Net financial income 82,615 75,335 11,532 9.66% NA Provision for loan losses (2,703) (5,851) 13,866 (53.80)% 119.49% Net contribution from insurance 9,220 8,616 10,688 7.01% (13.74)% Other income from services, net 1,041 1,151 (363) (9.56)% NA Administrative expenses (25,523) (22,726) (23,545) 12.31% 8.40% Miscellaneous income, net (2,814) 4,498 (10,775) (162.56)% 73.88% Net income 61,836 61,023 1,403 1.33% NA 1 Unless otherwise indicated, all financial data presented in the tables below are stated in thousands of Argentine pesos. 4
Financial Income Financial income for the third quarter of 2004 was Ps.160.9 million, an increase of Ps.58.9 million or 57.7% from the Ps.102.0 million recorded in the third quarter of 2003. This increase was mainly due to: i) the positive effect of the prepayment of financial debt at market values; ii) higher income from government securities and other investments due to the appreciation of certificates of participation in financial trusts, iii) higher other financial income due to the appreciation of marketable securities held by the Bank; and iv) the positive change in the value of metals and the positive impact of the exchange rate on the Bank s net positive position in foreign currency. These effects were partially offset by: i) lower income from mortgage loans due to the suspension of the CVS index effective May 31, 2004 and lower average balances due to natural amortization, prepayments and the securitization of mortgage loans for Ps.50 million carried out in June 2004. As compared to the second quarter of 2004, financial income for the third quarter of 2004 decreased Ps.4.8 million to Ps.160.9 million from Ps.165.7 million, primarily due to: i) lower income from mortgage loans due to the suspension of the CVS index on mortgage loans; ii) lower prepaid amounts under the Bank s restructured financial debt; and iii) lower income from guaranteed loans resulting from lower increase in the CER index during the period. These effects were partially offset by higher income from securities and other investments due to the increased value of certificates of participation in financial trusts; and ii) higher income from Compensatory and Hedge Boden resulting from the increase in the Libor rate during the quarter. Interest on Mortgage loans 49,375 70,225 74,459 (29.7)% (33.7)% Income from Compensatory and Hedge BODENs 10,454 7,298 7,813 43.3% 33.8% Income from Government Securities and other interest 33,244 14,101 4,358 135.8% NA Effects of changes in exchange rates 17,946 16,103-11.4% NA Interests on Guaranteed Loans 18,340 24,236 12,893 (24.3)% 42.3% Other 18,588 (6,016) 2,520 NA NA Repurchase of Restructuring Financial Debt 12,966 39,787 - (67.4)% NA Total Financial Income 160,913 165,734 102,043 (2.9)% 57.7% Financial Expenditures Financial expenditures for the third quarter of 2004 reached Ps.78.3 million, Ps.12.2 million lower than the Ps.90.5 million recorded in the third quarter of 2003. The main reason for this decrease was the positive impact of lower interest rates accrued on bonds and interbank loans, which were restructured, from an average annual interest rate of 10% to approximately 3% during the quarter. This effect was partially offset by: i) an increase in the accrual of interest and CER on Central Bank borrowings; and ii) an increase in other expenditures mainly related to higher taxes accrued during the period. As compared to the previous quarter, financial expenditures decreased Ps.12.1 million from Ps.90.4 million in the second quarter of 2004, mainly due to: i) lower interest on external financing due to lower average debt balances resulting from the first repayment of principal under the Bank s guaranteed debt and buyback of debt made during the quarter; and ii) lower negative results from interest and CER on Central Bank borrowings. Interest on external financing 23,418 26,907 69,806 (13.0)% (66.5)% Interest on Central Bank Advances 43,245 51,562 17,164 (16.1)% 152.0% Interest on inter-bank loans 4,095 5,202 19,069 (21.3)% (78.5)% Other interest liabilities 1,506 743 323 102.7% NA Losses from securities and other participations - - (13,898) NA NA Effects of changes in exchange rate - - (2,021) NA NA Other financial expenditures 6,034 5,986 68 NA NA Total Financial Expenditures 78,298 90,399 90,511 (13.4)% (13.5)% 5
Net Contribution from Insurance As compared to the third quarter of 2003, net contribution from insurance activities during the third quarter of 2004 decreased 13.7%, to Ps.9.2 million as of September 30, 2004 as compared to Ps.10.7 million as of September 30, 2003. This reduction reflects the lower premiums earned due to lower average loan balances, partially offset by higher premiums earned on additional insurance products. As compared to the second quarter of 2004, net contribution from insurance activities increased slightly, mainly due to the effect of higher premiums earned on traditional and new insurance products, partially offset by higher claims paid. Property damage premium 3,456 2,994 4,069 15.4% (15.1)% Life insurance premium 6,886 6,605 7,310 4.3% (5.8)% Unemployment insurance premium 438 399 484 9.8% (9.5)% Additional Insurance 806 542 513 48.7% 57.1% Total Premiums 11,586 10,540 12,376 9.9% (6.4)% Property damage insurance claims paid 111 17 45 NA 146.7% Life insurance claims paid 2,117 1,754 1,538 20.7% 37.7% Unemployment insurance claims paid 63 103 60 (38.8)% 5.0% Additional Claims 75 50 45 50.0% 66.7% Total Claims 2,366 1,924 1,688 23.0% 40.2% Net Contribution from Insurance 9,220 8,616 10,688 7.0% (13.7)% Other Income from Services, Net Other income from services, net amounted to Ps.1.0 million in the third quarter of 2004, reflecting an increase of Ps.1.4 million from a loss of Ps.0.4 million in the third quarter of 2003. The main variations resulted from lower structuring and underwriting fees related to the Bank s financial debt, partially offset by expenditures on services incurred by the Bank in connection with its new financial products. As compared to the previous quarter, other income from services, net decreased Ps.0.1 million during the third quarter of 2004. This decrease was mainly due to higher expenditures on services related to the new products offered by the Bank. Quarter Ended Variation (%) Other income from services Commissions related to origination and servicing of own and thirdparty loans 4,407 4,393 4,662 0.3% (5.5)% FONAVI service commissions 761 704 715 8.1% 6.4% Other 884 776 715 13.9% 23.6% Subtotal 6,052 5,873 6,092 3.1% (0.7)% Commissions paid in connection with loans 1,225 1,164 938 5.2% 30.6% Collection services 550 536 563 2.6% (2.3)% Structuring and underwriting fees 1,504 1,791 4,471 (16.0)% (66.4)% Commissions on third-party origination 118 179 68 (34.1)% 73.5% Taxes 326 540 - (39.6)% NA Other 1,288 512 415 151.6% NA Subtotal 5,011 4,722 6,455 6.1% (22.4)% Other Income (Loss) from Services, Net 1,041 1,151 (363) (9.6)% NA 6
Administrative Expenses Administrative expenses for the third quarter of 2004 increased to Ps.25.5 million, Ps.2.0 million higher than for the quarter ended September 30, 2003, as a result of the increase in personnel bonuses, taxes and advertising and publicity related to the Bank s efforts to develop its strategy of becoming a diversified financial institution. As compared to the second quarter of 2004, administrative expenses increased by Ps.2.8 million from Ps.22.7 million as of June 30, 2003, basically due to an increase in taxes, bonuses and salaries and social contributions related to the actions aimed at increasing the range of services offered by the Bank. Salaries and social security contributions 10,965 10,554 9,968 3.9% 10.0% Bonuses and severance payments 847 65 294 NA 188.1% Other fees 1,115 1,044 1,124 6.8% (0.8)% Advertising and publicity 1,069 1,179 380 (9.3)% 181.3% Non recoverable VAT and other taxes 2,936 1,938 2,020 51.5% 45.4% Operating expenditures 3,687 3,541 3,671 4.1% 0.4% Amortizations 1,936 1,661 3,495 16.6% (44.6)% Other 2,968 2,744 2,593 8.2% 14.5% Total Administrative Expenses 25,523 22,726 23,545 12.3% 8.4% Administrative Expenses (annualized) / Total Assets 1.18% 1.08% 1.24% Miscellaneous Income (Loss), Net At September 30, 2004, miscellaneous income (loss), net decreased to a loss of Ps.2.8 million, Ps.8.0 million lower than the Ps.10.8 million loss recorded at September 30, 2003. This decrease resulted primarily from: i) higher miscellaneous income mainly due to the change in the method of valuation of public sector assets to be delivered as collateral for future advances from the Central Bank in order to subscribe additional Boden, offset by higher miscellaneous losses from provisions for other contingencies made. Miscellaneous income, net decreased by Ps.7.3 million in the third quarter of 2004 as compared to the second quarter of 2004, mainly as a result of higher provisions for other contingencies made, partially offset by the change in the valuation of public sector assets to be delivered as collateral for future advances from the Central Bank in order to subscribe additional Boden. Penalty interest 2,728 2,162 3,940 26.2% (30.8)% Reversal of provisions - - 706 NA NA Loan loss recoveries 12,229 16,331 11,117 (25.1)% 10.0% Other 39,245 8,192 11,811 NA NA Subtotal Miscellaneous Income 54,202 26,685 27,574 103.1% 96.6% Other provisions 49,245 10,198 24,594 NA 100.2% Insurance reserve provision 582 - - NA NA Taxes 132 193 - (31.6)% NA Other Investments - - 1,748 NA NA Other 7,057 11,796 12,007 (40.2)% (41.2)% Subtotal Miscellaneous Expenses 57,016 22,187 38,349 157.0% 48.7% Total Miscellaneous Income (Loss), Net (2,814) 4,498 (10,775) (162.6)% (73.9)% 7
Loans The Bank s total loan portfolio at September 30, 2004 increased by Ps.16.1 million to Ps.3,159.0 million from Ps.3,142.8 million at June 30, 2004. This increase mainly resulted from higher disbursements in new lines of consumer and corporate loans and higher balances of guaranteed loans resulting from changes in their accounting valuation, partially offset by the natural amortization of loans and prepayments. In addition, the Bank s total loan portfolio at September 30, 2004 decreased by Ps.89.8 million from Ps.3,248.8 million as of September 30, 2003. Changes resulted primarily from lower average balances in the Bank s mortgage portfolios due to prepayments and the natural amortization of loans, and the securitization of Ps.50.0 million of mortgage loans in connection with the issuance of Argentine Mortgage Bonds ( Cedulas Hipotecarias Argentinas ). Such effects were partially offset by the effect of the CER/CVS indexes on mortgage loans. Loan Portfolio per product 09/30/04 06/30/04 09/30/03 Quarterly Annual Mortgage loans - Pre-91 loans individual mortgages 994,296 1,027,487 1,121,304 (3.2)% (11.3)% - Pre-91 loans construction projects 1,357 1,366 1,370 (0.7)% (1.0)% Total Pre-91 loans 995,653 1,028,852 1,122,674 (3.2)% (11.3)% - Post-91 loans individual mortgages1 1,025,128 1,037,543 1,106,878 (1.2)% (7.4)% - Post-91 loans construction projects 9,802 10,844 19,449 (9.6)% (49.6)% Total Post-91 loans 1,034,930 1,048,387 1,126,327 (1.2)% (8.1)% Other loans2 1,128,375 1,065,590 999,801 5.9% 12.9% Total Loan Portfolio 3,158,958 3,142,829 3,248,802 0.5% (2.8)% Loan Portfolio By Economic Sector 09/30/04 06/30/04 09/30/03 Quarterly Annual Non financial government sector 824,991 750,453 771,137 9.9% 7.0% Financial Sector 61,260 568 6,169 NA NA Non financial private sector - Advances 119,093 112,387 139,000 6.0% (14.3)% - With preferred guarantees1 1,999,753 2,043,857 2,213,895 (2.2)% (9.7)% - Documents 15 - - NA NA - Pledge loans 818 830 - (1.5)% NA - Personal loans 10,598 6,451 623 64.3% NA - Credit Cards 345 - - NA NA - Non-applied collections (10,769) (11,319) (20,449) (4.9)% (47.3)% - Other 59,763 58,559 25,615 2.1% 133.3% - Interest accrued on uncollected loans due to changes in exchange rate 38,029 39,173 49,702 (2.9)% (23.5)% Reserves (350,164) (367,490) (486,193) (4.7)% (28.0)% Total Loan Portfolio 2,753,732 2,633,469 2,699,499 4.6% 2.0% 1 Includes Ps.304,914 thousand at September 30, 2004, Ps. 348,900 thousand at June 30, 2004 and Ps.321,331 thousand at September 30, 2003 of individual post-91 mortgage loans conveyed in a trust in anticipation of future securitizations. 2 Other loans includes Ps.55,378 thousand at September 30, 2004, PS.141,870 thousand at June 30, 2004, and Ps.63,111 thousand at September 30, 2003 of Other receivables included in the Statement of Debtors Status recorded in Other receivables from financial operations. 8
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 September 30, 2004. Asset Quality September 30, 2004 Consumer Commercial Total jun - 04 sep - 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) 736.027 782.171 11.001 2 178.272 122.541 824.811 2.654.825 2.603.360 2.589.234 With special pursuit and inadequate performance (31-90) 56.812 52.881 151 1.240 0 0 0 111.084 134.063 169.381 Problemtic and deficient performance (91-180) 38.692 30.408 38 0 154 0 0 69.292 83.570 87.639 High risk of insolvency and difficult collection (180-365) 65.931 36.065 11 1.212 0 0 0 103.219 107.673 111.654 Uncollectible (>365) 87.646 86.326 0 3.568 1.076 2.471 0 181.087 191.357 264.383 Uncollectible for technical reasons 20.947 17.725 12 767 0 0 0 39.451 22.806 26.511 Total 1.006.055 1.005.576 11.213 6.789 179.502 125.012 824.811 3.158.958 3.142.829 3.248.802 Non performing loans 213.216 170.524 61 5.547 1.230 2.471 0 393.049 405.406 490.187 Non performing loans / Total loans 21,19% 16,96% 0,54% 81,71% 0,69% 1,98% 0% 12,44% 12,90% 15,09% Reserves for loan losses 218.269 103.818 133 21.806 2.802 3.336 0 350.164 367.490 486.193 Reserve for loan losses / Total non performing loans 102,37% 60,88% 218,03% 393,11% 227,80% 135,01% 0% 89,09% 90,65% 99,19% Non performing loans, net / Total loan portfolio 1,36% 1,21% 0,12% The ratio of non-performing loans to total loans as of September 30, 2004 was 12.44%, 46 basis points lower than the 12.90% as of June 30, 2004 and 245 basis points lower than the 15.09% as of September 30, 2003, showing a substantial improvement during the third quarter of 2004 as compared to the same quarter of the previous 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 export companies. Reserve for Loan Losses Due to the favorable development of its loan asset quality experienced during this fiscal year, the Bank did not establish reserves for loan losses, reaching a ratio of reserves for loan losses over total non-performing loans of 89.1% compared to 90.7% as of June 30, 2004, and 99.2% at September30, 2003. Quarter ended 30/09/04 30/06/04 30/09/03 Reserve for Loan Losses at the beginning of the quarter (367,490) (385,473) (546,421) Increases (2,703) (5,852) 13,867 Charge-offs 20,029 23,835 46,361 Reserve for Loan Losses at the end of the quarter (350,164) (367,490) (486,193) Reserves for loan losses / total non-performing loans 89.1% 90.6% 99.2% Reserve for loan losses / total loan portfolio 11.1% 11.7% 15.0% 9
Funding Sources Total on-balance sheet funding for the third quarter of 2004 was Ps.6,430.2 million compared to Ps.6,442.1 million as of September 30, 2003. This decrease was primarily due to the reduction in total funding of (Ps.637.6) million, or (10)%, as a consequence of the financial debt restructuring process concluded by the Bank early in 2004. This effect was partially offset by: i) new financing granted by foreign entities for US$85 million; ii) higher deposits resulting from increased acceptance of institutional time deposits, iii) an increase in the CER index applicable on Central Bank borrowings, and iv) an increase in other non-interest bearing liabilities, mainly due to a currency swap to hedge the Bank s liability exposure in Euros. Funding at September 30, 2004 was 1.8% higher as compared to the Ps.6,318.7 million recorded as of June 30, 2004. This increase was mainly due to an increase in the total financing derived from funding obtained abroad during the quarter. As of September 30, 2004, shareholders equity amounted to 22.0% of assets and the ratio of debt to shareholder s equity was 3.0x. On January 14, 2004 Banco Hipotecario restructured its then existing financial liabilities totaling approximately US$1,208.4 million principal amount, reducing its debt by US$361.0 million, extending maturities to an average life of 6.5 years and achieving a reduction in average interest rates to 5%, allowing it to align principal and interest payments with its cash flow without having to rely on changes in the stock or flow of deposits. On August 3, 2004 the Bank serviced the first principal payment under its U.S. dollar and peso-denominated mediumterm guaranteed notes due 2010 in an amount of US$21.0 million and Ps. 5.5 million, respectively, that were issued in January 2004 in connection with the Bank s exchange offer. In addition, on August 4, 2004, the Bank released excess assets deposited in trusts as collateral for such debt in an aggregate amount of US$79.5 million of BODEN due 2012 and US$32.4 million of guaranteed loans. Such excess results from: i) the repayment of principal, ii) the buyback and subsequent cancellation of a substantial portion of the referred debt (US$46.6 million and Ps.175.7 million), and iii) the interest payments made by the Argentine Government on the BODEN due 2012 given as collateral for the medium-term notes. On November 4, 2004 Banco Hipotecario launched the second series of Cédulas Hipotecarias Argentinas in the local capital market. The aggregate amount of the offering was Ps.50 million, consisting of Ps.40 million of Senior Bonds and Ps.10 million of Subordinated Bonds and Certificates of Participation issued under the Cédulas Hipotecarias Argentinas Ps.500 million Note Program. Senior 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. Deposits 202,655 186,078 110,652 8.9% 83.2% Corporate bonds 2,803,307 2,779,232 3,162,466 0.9% (11.4)% Central Bank 2,212,991 2,179,917 2,070,909 1.5% 6.9% Interbank loans and international agencies 495,261 333,893 769,895 48.3% (35.7)% Other interest bearing liabilities - - 237,934 NA NA Total Funding 5,714,214 5,479,120 6,351,856 4.3% (10.0)% Other non-interest bearing liabilities 716,023 839,564 90,236 (14.7)% NA Total 6,430,237 6,318,684 6,442,092 1.8% (0.2)% 10
Balance sheet (amounts in thousands of pesos) 30/09/04 30/06/04 30/09/03 Cash and due from banks 544,597 354,268 302,354 Government Securities 598,397 496,641 1,269,393 Pre-91 Loans 995,653 1,028,852 1,122,674 Post-91 Loans 730,016 699,487 804,996 Other Loans 1,073,313 923,720 936,690 Reserve for loan losses (306,729) (326,758) (458,194) Loans, net 2,492,253 2,325,301 2,406,166 Other receivables from financial operations 4,149,370 4,116,748 3,099,774 Reserve for other receivables from financial operations (43,435) (40,732) (27,999) Miscellaneous assets 878,994 1,149,114 571,245 Total Assets 8,620,176 8,401,340 7,620,933 Deposits 202,655 186,078 110,652 Other liabilities from financial operations 6,227,582 6,132,606 6,331,440 Miscellaneous liabilities 290,811 245,364 206,712 Total Liabilities 6,721,048 6,564,048 6,648,804 Shareholders Equity 1,899,128 1,837,292 972,129 Income Statement (amounts in thousands of pesos) 30/09/04 30/06/04 30/09/03 Financial income 556,178 395,265 314,639 Financial expenditures (227,012) (148,714) (640,272) Provision for losses on loans (13,306) (10,603) (31,160) Income from services 50,595 32,957 54,252 Expenditures on services (20,120) (12,743) (19,963) Monetary gain (loss) from financial operations - - (9,314) Administrative expenses (70,918) (45,395) (71,705) Monetary gain (loss) from operating expenses - - 41 Miscellaneous income 100,706 46,504 71,106 Miscellaneous losses (152,644) (95,628) (121,142) Monetary gain (loss) from financial operations - - 24 Income tax - - - Net income 223,479 161,643 (453,494) 11
Selected Ratios (amounts in thousands of pesos, except for percentages) 30/09/04 30/06/04 30/09/03 Profitability ROAA (Return on average assets)1 3.68% 4.05% (7.82)% ROAE (Return on average shareholder s equity)1 17.75% 18.34% (48.86)% Net interest margin 5.42% 6.18% (5.61)% Efficiency* 19.42% 16.94% (23.81)% Capital Total shareholder s equity / total assets 22.03% 21.87% 12.76% Funding / Shareholders Equity 3.0 3.0 6.5 Liquidity Current Assets / deposits 564.01% 457.29% 1420.44% Loans / deposits 1229.80% 1249.64% 2174.53% Asset Quality Non-performing loans / total loans 12.44% 12.90% 15.09% Reserves for loan losses / total non-performing loans 89.09% 90.65% 99.19% Reserves for loan losses / total loan portfolio 1.36% 1.21% 0.12% 1 Based on annualized quarterly results. *Administrative expenses (excluding severance payments and bonuses) over net financial income and income from services, net. Conference Call to Discuss Third quarter 2004 Results: Banco Hipotecario S.A. will host a conference call to discuss results for the third quarter of 2004 at 11:00 a.m. (New York time) on Wednesday, November 17, 2004. To participate in the conference call, please call one of the following telephone numbers: USA: (888) 469-5794 International: (303) 262-3303 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