Grupo Supervielle Reports 3Q22 Results

Despite reporting a consolidated net loss, the Company delivered a pre-tax profit, while on a stand-alone basis the bank delivered 2.6% ROAE in real terms, a sequential improvement versus second-quarter 2022

Grupo Supervielle S.A. (NYSE: SUPV; BYMA: SUPV), (“Supervielle” or the “Company”) a universal financial services group headquartered in Argentina with a nationwide presence, today reported results for the three and nine-months period ended September 30, 2022.

Starting 1Q20, the Company began reporting results applying Hyperinflation Accounting, in accordance with IFRS rule IAS 29 (“IAS 29”) as established by the Central Bank.

In 3Q22 IUDU adopted IFRS 9 for the fiscal year beginning on January 1, 2022, and the IFRS 9 transition date was scheduled for January 1, 2021. For comparative purposes, and according to IAS 8, changes in accounting policies were applied retrospectively to each of the quarters of 2021 and the full year, and to the first and second quarters of 2022, therefore reported figures and applicable ratios have been restated. A reconciliation with reported figures in 2021 and 2022 is disclosed on page 11 of this report.

Management Commentary

Commenting on second quarter 3Q22 results, Patricio Supervielle, Grupo Supervielle’s Chairman & CEO, noted: “We remain focused on advancing on our key strategic pillars, including initiatives to augment customer engagement and digital adoption, enhance asset quality, and drive higher efficiencies by rightsizing our operations, while operating in a challenging macro environment with inflation accelerating to 22% in the quarter, the highest level observed in several decades.

“The integration of our IUDU customer base into Banco Supervielle is progressing as planned and we are on track to complete this process during the fourth quarter this year, in addition to capturing most operating efficiencies from IUDU, we are providing this client segment with access to the Bank´s wide range of financial products and services through an omnichannel experience.

“The ongoing transformation of our branch network gained momentum in the quarter contributing to improved productivity. We fully transferred our financial agent business, including 18 branches that served the government of the Province of San Luis while continuing to serve our strong franchise of private customers in this market. To drive further efficiency gains, this month we have requested authorization from the regulator to close an additional 14 branches, which will enable us to reduce our entire network from 184 branches as of year-end 2020 to 138 by the close of 2023.

“Our loan portfolio increased in nominal terms but grew below inflation, in line with system trends. Despite slower loan growth, overall asset quality remained at healthy levels, with NPLs relatively stable sequentially at 3.7% and Net Cost of Risk at a low of 2.8%.

“In this context, we delivered a 320 basis points sequential increase in NIM to 22% this quarter mainly reflecting higher yields in Central Bank securities held in our investment portfolio which more than offset lower NIM in our AR$ loan portfolio resulting from a lag in repricing. While we reported a consolidated net loss for the quarter, our Bank subsidiary on a stand-alone basis reported a 2.6% ROAE in real terms, improving sequentially.

“Looking ahead, while Argentina has met the IMF´s quantitative targets, significant fiscal, financial and monetary headwinds remain; particularly against a more challenging global backdrop and facing an electoral year in 2023. Grupo Supervielle remains fully focused on successful execution of our transformational strategy. We therefore keep on track to achieve our targeted efficiency and productivity levels which encompass the full integration of IUDU´s operations into the bank, rightsizing of our branch network – including transfer of certain low-performing San Luis branches – and merging certain branches while increasing our overall customer base and engagement. Our solid capital base with a Tier 1 ratio of 14.2% remains hedged against inflation and provides the sufficient liquidity to weather the current environment as we await more favorable economic and market conditions.

“Assuming a macro context in line with the current market consensus, we are committed to returning to positive ROE by the close of 2Q23,” concluded Mr. Supervielle.

Attributable Net loss of AR$562.4 million in 3Q22, compared to net losses of AR$316.1 million in 3Q21 and AR$2.1 billion in 2Q22. The Bank on a stand-alone basis excluding its participation in IUDÚ reported an Attributable net gain of AR$ 458.4 million compared to a net loss of AR$747.0 million in 2Q22.

ROAE was negative 2.7% in 3Q22 compared with negative 1.5% in 3Q21 and negative 10.2% in 2Q22.

The bank ROAE was +2.6% compared to negative 4.4% in 2Q22 and +3.3% in 3Q21.

ROAA was negative 0.4% in 3Q22 compared to negative 0.2% in 3Q21 and 1.4% in 2Q22.

Profit before income tax of AR$565.4 million in 3Q22 compared to gain of AR$300.6 million in 3Q21 and a loss of AR$2.6 billion in 2Q22. QoQ performance is explained by: i) a 7.4%, or AR$ 1.7 billion, increase in net financial income due to higher yield on central bank securities while loans repriced lagging behind inflation, ii) a 10.7%, or AR$1.3 billion, decrease in Personnel expenses, even including AR$1.4 billion in severance payments, and iii) healthy asset quality resulting in loan loss provisions decreasing AR$1.2 billion to AR$2.2 billion in 3Q22. These were partially offset by: i) a 7.0%, or AR$426.9 million, increase in administrative expenses mainly related to a new credit related insurance policy contracted, ii) an 11.1%, or AR$ 425.5 million, increase in the result from exposure to inflation reflecting accelerated inflation in the quarter, and iii) a 5.7%, or AR$297.1 million, decrease in fees due to lagged fee repricing following inflation.

Net Financial Income of AR$24.6 billion in 3Q22 increasing 12.6% YoY and 7.4% QoQ. Sequentially, the Bank's Net Financial Income on a stand-alone basis increased 9.8% QoQ to AR$22.7 billion.

Net Interest Margin (NIM) reached 22.0% compared to 18.8% in 2Q22. The performance in the quarter is explained by higher rates on lower volumes of Leliqs which more than offset the lag in AR$ loan repricing.

The total NPL ratio was 3.7% in 3Q22 decreasing 10-bps from 2Q22. The improvement in the NPL ratio reflects healthy asset quality with non-performing loan portfolio declining 11.9% QoQ.

Loan loss provisions (LLP) totaled AR$2.2 billion in 3Q22, decreasing 28.6% YoY and 34.2% QoQ.

In September 2022, IUDU adopted IFRS 9 for the fiscal year beginning on January 1, 2022, and the IFRS 9 transition date was scheduled for January 1, 2021. For comparative purposes, and according to IAS 8, changes in accounting policies were applied retrospectively to each of the quarters of 2021 and the full year, and to the first and second quarters of 2022, therefore reported figures and applicable ratios have been restated.

The Coverage ratio was 141.7% as of September 30, 2022, 142.0% as of June 30, 2022, and 147.8% as of September 30, 2021. The Coverage ratio reported for 2Q22 was 108.3% before the restatement.

Efficiency ratio was 73.1% in 3Q22, compared to 74.9% in 3Q21 and 81.4% in 2Q22.

Loans to deposits ratio of 49.8% compared to 53.3% as of September 30, 2021, and 46.3% as of June 30, 2022. AR$ loans to AR$ deposits ratio was 50.4% as of September 30, 2022. US$ loans to US$ deposits ratio was 43.6%.

Total Deposits of AR$428.0 billion flat (+0.6%) QoQ and up 53.0% YoY in nominal terms. In real terms, total deposits decreased 17.5% QoQ and 16.4% YoY. AR$ deposits amounted to AR$ 390.3 billion, flat (+0.3%) QoQ and up 57.3% YoY in nominal terms. In real terms, AR$ deposits decreased 17.8% QoQ and 14.0% YoY. In turn, average AR$ deposits decreased 8.6% QoQ, while average AR$ core deposits declined 3.8% QoQ. The QoQ performance in real terms in AR$ deposits was mainly driven by liquidity management reflecting a 19.6% decrease in institutional funding, while AR$ core deposits decreased 16% mainly due to seasonality and the decline in deposits related to the transfer of the Province of San Luis financial agent agreement.

Loans were up 43.0% YoY and 8.3% QoQ in nominal terms to AR$213.3 billion. In real terms, loans decreased 11.2% QoQ and 21.8% YoY impacted by elevated inflation which increased to 22% QoQ and 83% YoY.

Total Assets were down 16.3% YoY and 14.7% QoQ, to AR$562.8 billion as of September 30, 2022, impacted by elevated inflation of 22% QoQ and 83% YoY.

Common Equity Tier 1 Ratio as of September 30, 2022, was 14.2% reflecting increases of 60 bps when compared to 2Q22 and 10 bps from September 30, 2021.

The increase in the Tier 1 Capital Ratio in 3Q22 mainly reflects that the expansion in Risk weighted assets was more than offset by inflation adjustment of capital, as the loan portfolio grew below inflation in the quarter.

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