BMA

Business Context and Reporting Period

Company: Macro Bank Inc. (Banco Macro S.A.)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Six months ended June 30, 2014
Filing Date: August 22, 2014
Business Overview: A commercial bank authorized by the Central Bank of Argentina (BCRA), operating primarily in regional areas outside Buenos Aires. The bank offers traditional banking products to companies and individuals and operates through subsidiaries including Banco del Tucumán S.A. and Macro Bank Limited. The financial statements are prepared in accordance with BCRA rules and Argentine professional accounting standards, with a limited review performed by Pistrelli, Henry Martin y Asociados S.R.L.

Key Financial Metrics

All figures in thousands of Argentine Pesos (ARS), unless otherwise noted.

Material Changes vs. Prior Period

• Profitability Surge: Net income increased by approximately 109% year-over-year, driven by a significant rise in the Gross Intermediation Margin (up 77%).
• Revenue Growth: Financial income rose to 7,387,045 from 4,176,483 in the prior period. This was largely due to increased interest income on loans (particularly credit cards and personal loans) and a substantial gain from differences in quoted prices of gold and foreign currency (713,996 vs. 237,987).
• Expense Increases: Financial expenses increased to 3,201,439 from 1,812,846, primarily due to higher interest on time deposits. Administrative expenses also rose to 2,536,844 from 1,881,010, reflecting higher personnel costs and taxes.
• Balance Sheet Expansion: Total consolidated assets grew by roughly 23% from year-end 2013, fueled by a 16% increase in deposits and a significant expansion in the loan portfolio.
• Dividend Distribution: The bank approved and paid cash dividends of 596,254 during the period.

Guidance, Outlook, Risks, and Contingencies

Management Commentary & Outlook: Management notes that the international and local macroeconomic context generates uncertainty due to growth contractions and volatility in financial assets and exchange rates. Specifically, the Argentine foreign exchange market has seen restrictions and strong appreciation of foreign currency in early 2014. Management is monitoring these situations to determine potential impacts on future financial statements.

Risks and Contingencies:

• Legal Actions (Crisis of 2001): The bank faces ongoing legal actions regarding the reimbursement of deposits denominated in foreign currency converted to pesos during the 2001 crisis. The Supreme Court has ruled on specific cases, and the bank has recorded provisions (29,636 consolidated) for these liabilities. Management believes no additional significant effects are expected beyond recognized amounts.
• Tax Claims: Significant ongoing claims exist with the AFIP (Federal Public Revenue Agency) and City of Buenos Aires tax authorities regarding income tax and turnover tax for prior years. The bank disputes these assessments, citing favorable precedents from the Federal Administrative Tax Court and Supreme Court.
• Regulatory Proceedings: The bank and its directors have been notified of financial and exchange proceedings by the Central Bank and the Financial Information Unit (UIF) related to customer transactions. These are being challenged administratively and/or in court.
• Accounting Differences: The filing highlights material differences between BCRA accounting standards and Argentine professional accounting standards, particularly regarding the valuation of government securities, business combinations, and deferred taxes. These differences result in adjustments to equity and income if restated under professional standards.

Investor Verification Checklist

• Currency Risk: Verify the impact of Argentine peso volatility and foreign exchange restrictions on the bank's reported earnings and asset valuations.
• Accounting Standards: Review Note 5 to understand the specific valuation differences between BCRA rules and professional accounting standards, particularly regarding government securities and deferred taxes.
• Legal Provisions: Assess the adequacy of provisions for the "Crisis of 2001" deposit lawsuits and ongoing tax disputes with AFIP and local authorities.
• Loan Quality: Examine the breakdown of the loan portfolio by risk category (Exhibit B) and the adequacy of allowances for loan losses given the economic environment.
• Capital Adequacy: Confirm compliance with minimum capital requirements (Computable capital of 8,830,544 vs. Minimum requirement of 4,274,439).