Reuters BHI.BA Bloomberg - BHIP AR <Equity> Bloomberg - BHIP <Corporate> Bloomberg BHN <Mortgage> www.e-potecario.com FOR INMEDIATE RELEASE Contacts: Claudio J. Vettier Financial Controller Tel. (54-11) 4347-5115 / 5759 Fax. (54-11) 4347-5113 / 5874 Buenos Aires, Argentina e-mail: cvettier@hipotecario.com.ar Gabriel G. Saidon Chief Financial Officer Tel. (54-11) 4347-5759 / 5115 Fax. (54-11) 4347-5874 / 5113 Buenos Aires, Argentina e-mail: gsaidon@hipotecario.com.ar PRESS RELEASE Banco Hipotecario Sociedad Anónima reports its financial results for the second quarter of 2001 Highlights I. Financial results for the second quarter of 2001 Net income for the second quarter of 2001 was Ps.24.2 million (Ps.0.16 per share), 13.8% and 50.3% higher than Ps.21.3 million (Ps.0.14 per share) and Ps.16.1 million (Ps.0.11 per share) in the previous quarter and the same quarter of 2000, respectively; continuing with the growing trend of quarterly results recorded in the last five quarters. Net financial income grew 6.6% mainly as a result of higher income from CMOs, interests from interbank loans, and premiums from foreign currency forward sales; benefiting the Bank from the increase in domestic interest rates due to its conservative liquidity position. Additionally, financial expenses decreased, basically as a consequence of lower average interest bearing liabilities at slightly lower interest rates. Provision for loan losses in the quarter amounted to Ps.17.5 million, 72.8% higher compared to that recorded in the first quarter. This increase mainly resulted from the adoption of more conservative criteria regarding the current economic environment. The Bank s net contribution from insurance increased 5.4% to Ps.12.8 million mainly as a consequence of higher insurance premiums due to the increase in mortgage loan origination and the improvement in the quality of the loan portfolio. Net income from services decreased 46.1% basically due to lower commissions from the origination and servicing of own and third party loans as a result of a decrease in the level of business activity. Additionally, administrative expenses decreased 3.5% and 19.1% compared to the previous quarter and the same quarter of 2000, respectively; mainly as a consequence of reduced operating expenditures, fees, publicity and other expenses. II. Business Activities Mortgage loan origination reached Ps.98 million in the quarter, 22% lower than Ps.126 in the previous quarter and 108% higher than Ps.47 million in the same quarter of last year. III. Funding and Solvency Liquid assets 1 at June 30, 2001 reached Ps.505 million, Ps.79 million lower than Ps. 584 million at March 31, 2001. 1 Include cash & due from banks, government securities and interbank loans.
In June 2001, Banco Hipotecario participated in the securities exchange transaction carried out by the Argentine government with part of its portfolio of government securities. The Bank delivered Ps.126 million (book value) from its portfolio of government securities and received in exchange newly issued U.S. dollar-denominated Global Bonds due in 2008. As of June 30, 2001 the Bank had Ps.201.6 million of government securities recorded under investment accounts, of which Ps.3.0 million were recorded in Government Securities and Ps.198.6 million in Other receivables from financial intermediation given that they are applied to reverse repo transactions. If holdings were valued at market price, total assets would have been Ps.20.0 million lower as of June 30, 2001. EBITDA for the first semester (annualized), excluding non-cash items, amounted to Ps.380 million, 12% higher compared to Ps.339 million for the year 2000; representing 1.6 times the annualized financial expenditures of 2001. Besides, the ratio of liquid assets / financial expenditures was 2.2 times from 1.5 times at December 31, 2000. The Bank s net operating cash flows for first semester, annualized, after interest payments, administrative and other operating expenses and capital expenditures, amounted to Ps.362 million. Additionally, in July 2001 the Bank obtained a US$75 million one-year syndicated loan, with the participation of Citibank N.A., ABN AMRO and Societe Generale. At June 30, 2001, the ratio of Bank s debt / shareholders equity reached 0.9 times and the Bank s shareholders equity amounted to Ps.2,003 million. IV. Asset quality Despite the adverse economic conditions prevailing in Argentina, the ratio of non-performing loans showed an improvement of 70bps compared to the previous quarter, reaching 16.8% at June 30, 2001 from 17.5% at March 31, 2001. This variation results mainly from improvements in the performance of the pre-91 and post-91 individual portfolios, the classification as performing of certain loans restructured in the year 2000 that at June 30, 2001 did not have any installment in arrears and the Bank s efforts to work out delinquent loans. Regarding this ratio and its common use as indicator of the asset quality evolution, we consider appropriate to explain the following: 1) 49% of the total non-performing loans, that at June 30, 2001 reached Ps.652 million, belongs to the pre-91 portfolio. The coverage ratio of reserves for loan losses over non-performing loans in this portfolio is higher than the average of the total portfolio. 2) When the Bank issues a Ps.100 million off balance sheet securitization of individual post-91 mortgage loans, the ratio of total non-performing loans and the ratio of non-performing loans in the individual post-91 loan portfolio increase 45bps and 65bps, respectively; just for the reduction in the total amount of loans. 3) The Bank s non-performing loans have a maximum of 24 months in arrears. 4) The high level of reserves covering non-performing loans and the fact that approximately 91% of the loan portfolio is collateralized by real estate; reduce the potential adverse impacts in shareholders equity. The coverage ratio of reserves over non-performing loans increased 230bps to 73.4% from 71.1% at March 31, 2001, resulting 890bps higher than 64.5% 1 average of the Argentine Banking System. Furthermore, the portion of non-performing loans that exceeds the reserve for loan losses only represents 8.7% of the Bank s shareholders equity, 140bps lower than 10.1% at March 31, 2001. In the Asset Quality section, we have included a detailed analysis, which intends to provide a better understanding of the Bank s loan portfolio. Note: For a better understanding denominations pre-restructuring portfolio and post-restructuring portfolio have been replaced by pre-91 portfolio and post- 91 portfolio, respectively. 1 Source: BCRA at May 31, 2001. 2
V. Overview As a conclusion, we can say that during the quarter, in a volatile context and critical environment, Banco Hipotecario: Preserved liquidity and maintained high solvency ratios. Continued its profit growth trend. Improved its asset quality. Reduced recurring administrative expenses. Maintained its market share of mortgage loan origination. Managed its assets and liabilities in a conservative manner. The period between April 1, 2001 and the date of this release was characterized by certain difficult macroeconomic and market conditions that adversely affected Argentina's financial environment. These conditions resulted in increased volatility, decreased values of financial assets, constrained liquidity and a perception of increased systemic risk. In response to these conditions, the Argentine Government has recently taken certain initiatives intended to stimulate economic growth and reduce the current fiscal deficit. The effectiveness of the Government's measures will become clear with the passage of time. Notwithstanding the current challenges described above, Banco Hipotecario believes that it has taken appropriate actions to ensure its continuing ability to engage in its customary course of business. 3
Selected financial information 1 &2 Buenos Aires, August 9, 2001 - Banco Hipotecario S.A. (Buenos Aires Stock Exchange: BHIP) reports its results for the second quarter of 2001. Net income for the second quarter of 2001 was Ps.24.2 million (Ps.0.16 per share), 50.3% higher compared to Ps.16.1 million (Ps.0.11 per share) in the same quarter of the previous year. This increase was primarily the result of: (i) a 19.1% reduction in administrative expenses mainly due to lower fees, advertising expenses and severance payments, (ii) a 3.0% increase in financial income as a consequence of higher income from government securities, CMOs, interests from interbank loans and premiums from foreign currency forward sales, (iii) a decrease in financial expenditures in connection with a lower average balance of interest bearing liabilities, (iv) a higher net contribution from insurance, (v) an increase in net income from services as a result of higher commissions related to origination and servicing of own and third-party loans and lower structuring and underwriting fees, and (vi) higher net miscellaneous income basically as a consequence of higher loan recoveries. These effects were partially offset by higher loan loss provisions charged to income. As compared to the first quarter of the year, the results of the period were Ps.2.9 million or 13.8% higher. The main variations resulted from: (i) a 2.7% increase in financial income mainly related to higher income from CMOs, interests from interbank loans and premiums from foreign currency forward sales, (ii) a decrease in financial expenditures as a result of a reduced average balance of interest bearing liabilities, (iii) a 3.5% decrease in administrative expenses basically due to lower advertising expenses and fees, and (iv) higher net miscellaneous income basically as a consequence of higher loan recoveries. These factors were partially offset by: (i) higher loan loss provisions and (ii) lower other income from services, net as a result of a decrease in the level of business activity. Financial Income 111,638 108,688 108,386 2.7% 3.0% Financial expenditures (57,662) (58,065) (59,931) (0.7)% (3.8)% Net financial income 53,976 50,623 48,455 6.6% 11.4% Provision for loan losses (17,519) (10,138) (4,999) 72.8% 250.5% Contribution from insurance 12,845 12,182 11,194 5.4% 14.7% Net income from services 1,791 3,321 (67) (46.1)% NM Administrative expenses (33,465) (34,695) (41,343) (3.5)% (19.1) Net income from financial intermediation 17,628 21,293 13,240 (17.2)% 33.2% Miscellaneous income, net 6,608 10 2,883 NM 129.2% Income tax - - - - - Net income 24,236 21,303 16,123 13.8% 50.3% 1 When used in this report, pre-91 loans are those originated before 1991 or individual loans derived from construction project loans originated prior to such period, and post-91 loans are all loans originated after 1991. 2 Unaudited figures. Unless otherwise mentioned, all figures are stated in thousands of pesos. Exchange rate of Ps.1=US$ 1. 4
Financial Income Financial income for the second quarter increased Ps.3.3 million or 3,0% to Ps.111.6 million from Ps.108.4 million in the same period of 2000, mainly due to: (i) a Ps.2.4 million or 21.5% increase in other financial income basically as a consequence of higher premiums from foreign currency forward sales and higher interest from interbank loans that resulted from an increase in domestic interest rates, (ii) a Ps.1.5 million or 17.1% increase in income from government securities and other interest mainly related to higher income from CMOs and marginally to the higher yield of the government securities portfolio and (iii) Ps.0.9 million or 2.4% higher interest from pre-91 loans as a consequence of the improvement in the performance of this portfolio and the classification to performing status of certain previously restructured loans, after the borrower made timely payment of at least six consecutive monthly installments. These effects were partially offset by a Ps.1.5 million or 2.9% decrease of interest from post-91 loans mainly due to the securitization in February 2001 of Ps.115.9 million of post-91 individual mortgage loans through the BACS I Mortgage Trust. Financial income during the quarter increased Ps.2.9 million or 2.7% from Ps.108.7 million in the first quarter of this year, mainly as a result of: (i) Ps.1.3 million or 3.7% higher interest from pre-91 loans as a consequence of the improvement in the performance of this portfolio and the classification to performing status of certain previously restructured loans, (ii) a Ps.1.4 million or 16.3% increase in income from government securities and other interest due to higher income from CMOs and (iii) higher interest from interbank loans and premiums from foreign currency forward sales. This increase was partially offset by a Ps.0.9 million or 1.7% decrease in interest from post-91 loans as a result of the securitization in February 2001 of Ps.115.9 million of post-91 individual mortgage loans through the BACS I Mortgage Trust. Interest on Pre-91 Loans 36,815 35,494 35,939 3.7% 2.4% Interest on Post-91 Loans 51,009 51,909 52,537 (1.7)% (2.9)% Income from Government Securities and other Interest 10,071 8,659 8,598 16.3% 17.1% Other financial income 13,743 12,626 11,312 (8.8)% 21.5% Total Financial Income 111,638 108,688 108,386 2.7% 3.0% Financial Expenditures The Bank s financial expenditures reached Ps.57.7 million, Ps.2.3 million or 3.8% lower compared to $59.9 million in the same period of the previous year. As compared to the previous quarter, financial expenditures decreased Ps.0.4 million or 0.7% from Ps.58.1 million. The decrease with respect to both periods corresponded to lower average interest bearing liabilities, partially offset by higher interest from deposits and interbank loans as a result of the context of high domestic interest rates that prevailed during the quarter. Interest on external financing 40,872 43,220 47,276 (5.4)% (13.5)% Interest on interbank loans 3,101 1,924 1,783 61.2% 73.9% Interest on other deposits and other payables 10,926 10,365 8,131 5.4% 34.4% Contributions and taxes on financial income 2,763 2,556 2,741 8.1% 0.8% Total Financial Expenditures 57,662 58,065 59,931 (0.7)% (3.8)% 5
Net Contribution from Insurance The Bank s net contribution from insurance was Ps.12.8 million, Ps.1.9 million or 17.6% higher than Ps.10.9 million at June 30, 2000. This increase is related to: (i) higher insurance premiums as a consequence of the increase in mortgage loan origination and the improvement in the quality of the loan portfolio, (ii) lower technical reserves set up in accordance with the regulations issued by the National Superintendence of Insurance and (iii) lower insurance claims. As compared to the previous quarter, the net contribution from insurance increased Ps.0.7 million or 5.4% from Ps.12.2 million in the first quarter of the year, mainly due to the increase in insurance premiums collected and the decrease in insurance claims paid. Property damage premiums 4,861 4,692 4,635 3.6% 4.9% Life insurance premiums 9,860 9,561 8,737 3.1% 12.9% Unemployment insurance premiums 704 704 721 NM (2.4)% Total Premiums 15,425 14,957 14,093 3.1% 9.5% Property damage insurance claims paid 128 258 78 (50.4)% 64.1% Life insurance claims paid 2,138 2,151 2,457 (0.6)% (13.0)% Unemployment insurance claims paid 314 366 364 (14.2)% (13.7)% Total Claims 2,580 2,775 2,899 (7.0)% (11.0)% Contribution from Insurance 12,845 12,182 11,194 5.4% 14.7% Insurance reserve provision (included in net miscellaneous income) ---- ---- 271 NM NM Net Contribution from Insurance 12,845 12,182 10,923 5.4% 17.6% Other Income from Services, Net Other income from services, net increased Ps.1.9 million to Ps.1.8 million at June 30, 2001 compared to Ps.(0.1) million in the same quarter of 2000. The primary reasons for this increase are related to: (i) a Ps.1.5 million or 28.2% increase in commissions related to origination and servicing of own and third party loans, mainly due to the recovery of commissions from previously restructured loans that were classified as performing, and to the increase in mortgage loan origination and (ii) lower structuring and underwriting fees paid. These effects were partially offset by higher commissions paid in connection with loans and lower service commissions collected in relation with the distribution of FONAVI-funds. As compared to the first quarter of 2001, other income from services, net decreased Ps.1.5 million or 46,1% from Ps.3.3 million in the previous quarter. The main variations corresponded to: (i) lower commissions related to origination and servicing of own and third party loans, basically as a consequence of the decrease in mortgage loan origination and the increase in the delinquency rate of the managed loan portfolio, (ii) lower service commissions collected in connection with the distribution of FONAVI-funds and (iii) higher commissions paid in connection with loans. This decrease was partially offset by lower structuring and underwriting fees paid. Commissions related to origination and servicing of own and third-party loans 6,605 7,677 5,154 (14.0)% 28.2% FONAVI service commissions 1,063 1,344 1,223 (20.9)% (13.1)% Other income from services 591 618 453 (4.4)% 30.5% Subtotal Income from Services 8,259 9,639 6,830 (14.3)% 20.9% Commissions paid in connection with loans 1,640 1,224 986 34.0% 66.3% Collection services 646 696 733 (7.2)% (11.9)% Structuring and underwriting fees 2,823 3,120 3,797 (9.5)% (25.7)% Commissions on third-party originations 358 370 410 (3.2)% (12.7)% Taxes 567 534 572 6.2% (0.9)% Other expenditures on services 434 374 399 16.0% 8.8% Subtotal Other Expenditures on Services 6,468 6,318 6,897 2.4% (6.2)% Income from Services, Net 1,791 3,321 (67) (46.1)% NM 6
Administrative Expenses The Bank s administrative expenses decreased Ps.7.9 million or 19.1% to Ps.33.5 million from Ps.41.3 million in the same period of the previous year. The main variations resulted from: (i) a Ps.5.7 million or 95.1% decrease in severance payments, (ii) a Ps.1.0 million or 32.2% reduction in advertising and publicity expenses, (iii) a Ps.2.1 million or 25.1% decrease in fees, mainly as a consequence of the capitalization of certain expenses attributable to the implementation and development of core systems and, (iv) a Ps.1.5 million or 33.8% reduction in other administrative expenses. This reduction was partially offset by an increase in non-recoverable taxes, mainly related to the effect of the new tax imposed to the financial transactions in checking accounts; and the increase in salaries and social security contributions. As compared to the previous quarter, administrative expenses decreased Ps.1.2 million or 3.5% from Ps.34.7 million in the first quarter of 2001, basically as a consequence of reduced advertising expenses, fees and other expenditures. These effects were partially offset by higher salaries and social security contributions and an increase in non-recoverable taxes, mainly related to the effect of the new tax imposed to the financial transactions in checking accounts. Salaries and social security contributions 16,510 14,694 15,251 12.4% 8.3% Severance payments 291 507 5,967 (42.6)% NM Other fees 2,348 3,135 4,499 (25.1)% (47.8)% Advertising and publicity 2,050 3,584 3,022 (42.8)% (32.2)% Non recoverable VAT and other taxes 3,472 2,538 2,744 36.8% 26.5% Operating expenditures 5,940 5,928 5,479 0.2% 8.4% Other 2,854 4,309 4,381 (33.8)% (34.9)% Total 33,465 34,695 41,343 (3.5)% (19.1)% Administrative Expenses / Total Assets 2.65% 2.48% 3.18% 17bps (53)bps Miscellaneous Income, Net In the second quarter, miscellaneous income, net reached Ps.6.6 million, Ps.3.7 million or 129.2% higher compared to Ps.2.9 million in the same period of 2000. The main reason for this variation resulted from higher loan recoveries in connection with the classification to performing status of certain previously restructured loans. This effect was partially offset by higher other provisions. As compared to the first quarter of 2001, miscellaneous income, net increased Ps.6.6 million from Ps.0.01 million in the previous period. The main variations resulted from higher loan recoveries related to the classification as performing of certain previously restructured loans and lower other provisions. Penalty interest 1,680 1,590 1,734 5.7% (3.1)% Reversal of reserves 1 144 NM NM Recovery of loans 9,952 3,274 400 204.0% NM Other 2,417 3,067 4,368 (21.2)% (44.7)% Subtotal Miscellaneous Income 14,050 8,075 6,502 74.0% 116.1% Other provisions 4,864 6,834 (1,868) (28.8)% NM Insurance reserve provision 271 NM NM Taxes 81 108 108 (25.0)% (25.0)% Other 2,497 1,123 5,108 122.4% (51.1)% Subtotal Miscellaneous Expenses 7,442 8,065 3,619 (7.7)% 105.6% Total Miscellaneous Income, Net 6,608 10 2,883 NM 129.2% 7
Loan Portfolio The Bank s total on balance sheet loan portfolio at June 30, 2001 decreased Ps.515.2 million or 11.7% to Ps.3,880.8 million from Ps.4,396.0 million at June 30, 2000. This variation was basically due to: (i) the Ps.224.6 million write-off of individual loans made in the last four quarters, (ii) the Ps.91.8 million write down of principal balances of certain pre-91 loans made in connection with the suspension of the capitalization of interest, (iii) the US$115.9 million off balance sheet securitization of post-91 mortgage loans to individuals issued in February 2001 structured by BACS, (v) the reduction in the outstanding balance of post-91 construction projects loans mainly due to the effects of the Casa & Crédito campaign, (vi) the natural amortization of the loan portfolio and (vii) the Ps.105.7 million decrease in other loans mainly related to lower interbank loans. These effects were partially offset by the origination of mortgage loans during the last year. Additionally, the Bank s total on balance sheet loan portfolio decreased Ps.62.4 million or 1.6%, compared to Ps.3,943.3 million at March 31, 2000; mainly as a result of: (i) a Ps.74.6 million reduction in interbank loans, (ii) the Ps.26.6 million write-off of non-performing mortgage loans and the application of the special relief fund created pursuant to Art.13 of Law 24,143 by Ps.2.3 million; and (iii) the natural amortization of the loan portfolio. This decrease was partially offset by the origination of individual post-91 mortgage loans in the quarter. Loan Portfolio - per product - Mortgage loans - Pre-91 loans individual mortgages 1,592,699 1,619,652 1,953,748 (1.7)% (18.5)% - Pre-91 loans construction projects 6,301 6,140 6,377 2.6% (1.2)% Total Pre-91 loans 1,599,000 1,625,792 1,960,125 (1.6)% (18.4)% 1 - Post-91 loans individual mortgages 1,661,367 1,605,031 1,620,135 3.5% 2.5% - Post-91 loans construction projects 311,366 328,780 400,977 (5.3)% (22.3)% Total Post-91 loans 1,972,733 1,933,811 2,021,112 2.0% (2.4)% 2 Other loans 309,094 383,661 414,795 (19.4)% (25.5)% Total Loan Portfolio 3,880,827 3,943,264 4,396,032 (1.6)% (11.7)% Securitized mortgage loans 3 (off balance sheet) 441,247 458,259 384,638 (3.7)% 14.7% Total Managed Loan Portfolio (off and on balance sheet) 4,322,074 4,401,523 4,780,670 (1.8)% (9.6)% Loans Portfolio - per sector- Non financial public sector 190,630 206,154 221,665 (7.5)% (14.0)% Financial sector 198,167 207,947 235,929 (4.7)% (16.0)% Non financial private sector - With preferred guaranties 1 3,480,502 3,464,434 3,875,095 0.5% (10.2)% - Other 2,500 5,346 5,738 (53.2)% (56.4)% Reserves (478,669) (490,086) (757,152) (2.3)% (36.8)% Total Loan Portfolio 3,393,130 3,393,795 3,581,275 (0.02)% (5.3)% 1 Includes Ps.339,575 thousands at June 30, 2001, Ps.344,214 thousands at March 31, 2001 and Ps.469,346 thousands at June 30, 2000 of individual post-91 mortgage loans conveyed in a trust in anticipation of future securitizations. 2 Other loans includes Ps.9,028 thousands at June 30, 2001, Ps.59,383 thousands at March 31, 2001, and Ps.57,605 thousands at June 30, 2000 of Other receivables includible in the Statement of Debtors Status Report recorded in Other receivables form financial intermediation. 3 Securitized mortgage loans includes principal amounts of off balance sheet, securitized, U.S. dollar-denominated individual post 91 loans. 8
Asset Quality The following table set forth information regarding the classification of the Bank s loan portfolio, according to Central Bank criteria. Pre-91 Post-91 Others Total The Bank The Branch Other Construction Private Public Category / (days) Network Network Institutions sector sector (in thousands of pesos, except for percentages) Normal (0-30) 1,130,390 353,548 532,739 511,446 127,591 203,299 103,420 2,962,433 Potential risk and inadequate performance (31-90) 148,738 20,880 50,424 40,990 5,488 0 0 266,520 Problematic and deficient perfomance (91-180) 87,898 8,748 20,417 20,826 8,314 1,843 0 148,046 High risk of insolvency and difficult collection (181-365) 110,014 16,472 14,809 21,009 60,493 0 0 222,797 Uncollectible (>365) 116,782 13,174 11,623 22,707 102,449 532 0 267,267 Uncollectible for technical reasons 5,178 0 1,103 452 7,031 0 0 13,764 Total 1,599,000 412,822 631,115 617,430 311,366 205,674 103,420 3,880,827 Non performing loans 319,872 38,394 47,952 64,994 178,287 2,375 0 651,874 Non-performing loans / Total loans 20.00% 9.30% 7.60% 10.53% 57.26% 1.15% 0.00% 16.80% Reserves for loan losses 478,669 Reserves for loan losses/ Total Non-performing 73.43% Non Performing loans, net / Total Loan portfolio 4.46% 1 Mortgage loans originated through the Bank Network enjoy a partial guarantee by the originating banks for 20% of the original principal balance of the mortgage loan and for the initial 20% of the term of the loan, provided that in no event may such period be shorter than 24 months. The mortgagor of these loans must not have been more than 90 days past due on any payments in the last 12 months prior to the release of the guarantee. The ratio of non-performing loans over total loans at June 30, 2001 was 16.8%, 70bps lower than 17.5% at March 31, 2001. The main reasons for this increase correspond to improvements in the performance of the pre-91 and post-91 individual portfolios, the classification as performing of certain loans restructured in the year 2000 that at June 30, 2001 did not have any installment in arrears and the Bank s efforts to work out delinquent loans, even in a recessive economic environment. As compared to the same quarter of the previous year, the ratio of non-performing loans over total loans was 10bps lower. This slight decrease mainly resulted from: (i) the classification as performing of certain loans restructured in the year 2000, (ii) the charge-off of non-performing loans during last four quarters and (iii) the adequate performance of the mortgage loans originated in recent years. These effects were partially offset by the Ps.91.8 million write down of principal balances of certain pre-91 performing loans made in connection with the suspension of the capitalization of interest and the US$115.9 million off balance sheet securitization of post-91 mortgage loans to individuals issued in February 2001 and structured by BACS. If the Bank had not securitized these mortgage loans, the improvement in the ratio of non-performing loans would have been 50bps. At June 30, 2001, the non-performing loans ratio in the pre-91 portfolio reached 20.0%, 200bps and 170bps lower than 22.0% and 21.7% at March 31, 2001 and June 30, 2000, respectively. This reduction mainly results from the improvement in the performance of this portfolio, and the classification as performing of certain loans restructured in the year 2000 that at June 30, 2001 did not have any installment in arrears. It is worth highlighting that although the Argentine economy undergoes a recessive period, Ps.1,130 million of the total pre-91 portfolio was current at June 30, 2001, with an average aging in excess of 11 years. In addition, the non-performing loans ratio in the individual post-91 portfolio was 9.1%, 30bps lower compared to 9.4% at March 31, 2001, mainly as a consequence of the adequate behavior of this loan portfolio and the good performance of the mortgage loans originated in recent years. As compared to the same quarter of previous year, the ratio of non-performing loans in this portfolio increased 100bps from 8.1% at June 30, 2000, basically due to the US$115.9 million off balance sheet securitization and marginally due to the increase in non-performing loans derived from the recessive environment in Argentina. The non-performing loans ratio of this portfolio would have reached 8.5% if the Bank had not fulfilled this transaction. 9
Asset Quality (continued) The non-performing loans ratio for post-91 construction projects portfolio reached 57.3% increasing 240bps and 1,030bps from 54.9% at March 31, 2001 and 47.0% at June 30, 2000, respectively. As compared to the previous quarter, even though the amount of non-performing loans remained almost unchanged, the increase in the ratio of non-performing loans resulted from higher repayments of performing construction projects. The coverage ratio of reserves over non-performing loans increased 230bps to 73.4% from 71.1% in the first quarter of the year, resulting 890bps higher than 64.5% 1 average of the Argentine Banking System. Furthermore, at June 30, 2001, the portion of non-performing loans that exceeds the reserve for loan losses only represents 8.7% of the Bank s shareholders equity, 140bps lower compared to 10.1% at March 31, 2001. Reserve for loan losses 06/30/01 03/31/01 06/30/00 Reserve for Loan Losses at the begging of the quarter (490,086) (537,071) (929,528) Provisions charge to income (17,519) (10,138) (4,999) Write off 28,936 57,123 177,375 Reserve for Loan Losses at the end of the quarter (478,669) (490,086) (757,152) Reserves for loan losses / Total non-performing loans 73.4% 71.1% 101.2% Reserves for loan losses / Total Loan Portfolio 12.3% 12.4% 17.2% 1 Source: BCRA at May 31, 2000 10
Funding Sources On balance sheet funding at June 30, 2001 decreased to Ps.1,884.7 million, Ps.294.8 million or 13.5% lower than Ps.2,179.5 million at June 30, 2000 and a Ps.219.1 million or 10.4% decrease compared to Ps.2,103.8 million in the previous quarter. In the second quarter of the year, volatility affecting local and international financial markets limited the access of Banco Hipotecario to the international capital markets. In this context, the Bank raised funding in the domestic market, increasing its portfolio of time deposits from institutional investors in Ps.53.1 million and through repos on government bonds with international banks of US$94.6 million. Additionally, in July 2001 the Bank obtained a US$75 million one-year syndicated loan, with the participation of Citibank N.A., ABN AMRO and Societe Generale. During the quarter, the Bank continued with its strategy to prepay debt, early redeeming US$9.8 million of the 13% US$175 million bond due in 2008 with a put option settled in 2001 and US$2.3 million of the 12.625% US$125 million bond due in 2003. Therefore, at June 30, 2001 the Bank early redeemed US$35.8 million of its own debt. The shareholders equity to assets ratio was 39.6% at June 30, 2001, and the ratio of Bank's debt / shareholders equity reached 0.9x. Deposits 443,211 386,219 443,742 14.8% (0.1)% Corporate bonds 1,269,452 1,529,035 1,588,044 (17.0)% (20.1)% Interbank loans and international agencies 97,038 113,564 84,322 (14.6)% 15.1% Other interest bearing liabilities 75,000 75,000 63,387 --- 18.3% Total Funding 1,884,701 2,103,818 2,179,495 (10.4)% (13.5)% Other non-interest bearing liabilities 1,051,784 1,379,823 964,780 (23.8)% 9.0% 2,936,485 3,483,641 3,144,275 (15.7)% (6.6)% Minimum Capital Requirements At June 30, 2001, the Bank s capital excess over the minimum capital required by the Argentine Central Bank amounted to Ps.1,628.5 million. 06/30/01 03/31/01 06/30/00 Minimum Capital Requirement (a) 317,633 298,670 327,596 Risk weighting for assets 254,548 275,916 302,808 Market risk value 1,696 1,934 516 Interest rate risk value 61,389 20,820 24,272 Bank Capital calculated under Central Bank requirements (b) 1,946,153 1,924,093 1,882,450 Core capital 1,957,455 1,957,455 2,477,083 Supplemental capital 49,006 27,885 (540,119) Deductions (61,683) (61,307) (55,027) Market risk value 1375 60 513 Excess capital over required capital (a) less (b) 1,628,520 1,625,423 1,554,854 Excess capital / Minimum capital requirement 5.1 5.4 4.7 11
BALANCE SHEET Thousand of pesos 06/30/01 03/31/01 06/30/00 Cash and due from banks 106,683 49,884 44,054 Government Securities 200,501 326,433 228,550 Pre-restructuring loans 1,599,000 1,625,792 1,960,125 Post-restructuring loans 1,622,697 1,589,597 1,551,766 Other loans 310,527 324,278 357,190 Reserves for loan losses (457,294) (468,711) (735,777) Loans, net 3,074,930 3,070,956 3,133,304 Other receivables from financial intermediation 1,509,973 1,917,022 1,577,720 Reserve for other receivables from financial intermediation (21,375) (21,375) (21,375) Other assets 188,589 249,218 236,704 Total Assets 5,059,301 5,592,138 5,198,957 Deposits 443,211 386,219 443,742 Other liabilities from financial intermediation 2,493,274 3,097,422 2,700,533 Other liabilities 119,822 129,739 133,095 Total Liabilities 3,056,307 3,613,380 3,277,370 Shareholders Equity 2,002,994 1,978,758 1,921,587 Financial Statements Thousand of pesos 06/30/01 03/31/01 06/30/00 Financial income 220,326 108,688 213,587 Financial expenditures (115,727) (58,065) (118,995) Provisions for loan losses (27,657) (10,138) (540,184) Income from services 48,287 24,591 43,896 Expenditures on services (18,148) (9,088) (18,633) Administrative expenses (68,160) (34,695) (75,202) Miscellaneous income 22,125 8,075 10,232 Miscellaneous expenses (15,507) (8,065) (70,196) Income tax - - - Net income 45,539 21,303 (555,495) 12
Selected Ratios Thousand of pesos, except percentages Profitability 1 06/30/01 03/31/01 06/30/00 ROAA (Return on average assets) 1 1.69% 1.55% 1.24% ROAE (Return on Average Shareholders Equity) 1 4.54% 4.3% 2.91% Net interest margin 2 3.88% 3.7% 3.63% Efficiency* 47.04% 50.2% 51.72% Capital Total Shareholders Equity / Total Assets 39.59% 35.4% 36.96% Argentine regulatory required capital 317,633 298,670 327,596 Argentine regulatory actual capital 1,946,153 1,924,093 1,882,450 Excess regulatory capital 1,628,520 1,625,423 1,554,854 Actual capital / Argentine regulatory required capital 6.1 6.4 5.7 Liquidity Quick assets /Deposits 69.31% 97.4% 61.43% Loans / deposits 693.78% 795.1% 706.11% Asset Quality Non-performing financing / Total financing 16.80% 17.5% 16.88% Non performing pre-91 loans / Total pre-91 loan portfolio 20.0% 22.0% 21.7% Non performing post-91 loans / Total post-91 loan portfolio 14.55% 17.2% 14.31% Non performing post-91 loans individual mortgages / Total post-91 loan portfolio individual mortgages Non performing post-91 loans construction projects / Total post-91 loans construction projects 9.1% 9.4% 8.1% 57.3% 54.9% 47.0% Reserves for loan losses / Total non-performing loans 73.4% 71.1% 101.2% Reserves for loan losses / Total Loan Portfolio 12.33% 12.4% 17.8% Data per share Earnings per share 0.30 0.14 (3.70) Book value per share 13.35 13.19 12.81 1 Based on quarterly results annualized. * Administrative expenses (excluding severance payments and bonuses) over financial income and income from services. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITGATION REFORM ACT OF 1995: THIS DOCUMENT MAY CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS CONCERNING THE BANK S OPERATIONS, PERFORMANCE, BUSINESS AND FINANCIAL CONDITION 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 CONTROL OF THE BANK, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS, FACTORS THAT COULD AUSE 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 COUTRIES, PARTICULARLY EMERGING MARKET ECONOMIES, CHANGES IN THE ARGENTINE BANKING AND INSURACE SYSTEM, CHANGES IN ARGENTINE TAXATION AND EVENTS IN OTHER FINANCIAL MARKETS, 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. 13