Grupo Supervielle Reports 2Q22 Results

2Q22 profitability impacted by higher loss at IUDÚ due to increased inflation & severance charges, lower margin from sharp drop in price of government securities in June, and early retirement severance charges at the bank

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 six-months period ended June 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.

Management Commentary

Commenting on second quarter 2022 results, Patricio Supervielle, Grupo Supervielle’s Chairman & CEO, noted: “We continued to make significant advances on our key strategic pillars, increasing customer acquisition and digital adoption, improving asset quality, driving higher efficiencies by rightsizing our operations while undertaking a major restructuring of the consumer finance business and improving our funding.

We are encouraged by the progress on our customer acquisition, digitalization and transformation agenda at our bank, with a 26% sequential increase in total digital customers. Retail bank customers increased 6%, with 65% of new customers onboarded digitally. The number of mobile app customers in June 2022 increased by 60% in the period with the share of mobile transactions also rising steadily, accounting for 20% of total monetary transactions at the bank vs 10% in the same quarter last year.

Our loan book stabilized during the quarter growing slightly above inflation. A solid performance in Corporate and SMEs was offset by a contraction in consumer finance loans, as we lowered our risk appetite in a context of rising inflation and interest rates. We maintained overall healthy asset quality despite the challenging environment we are facing with NPLs improving 50 basis points sequentially to 3.8% with coverage stable at 108%. Deposits in turn, increased 6% sequentially with the market share of corporate checking account deposits reaching a historical high of nearly 2%. Total NIM, however, was negatively impacted by regulatory increases in minimum interest rates on time deposits and by the sharp drop in the pricing of our Argentine bond holdings.

This is a transformational year for our Company, one in which we are significantly rightsizing our operations effectively reducing headcount by 18% year-to-date to drive higher efficiencies as we execute our digitalization and transformation initiatives. Together with inflationary pressures, this negatively impacted operating costs.

At IUDÚ, macro assumptions have fundamentally changed since we launched this platform. In this context, we are slowing down loan origination, improving asset quality, and accelerating the rightsizing of this business, while integrating IUDÚ´s customer base to Banco Supervielle. While this is resulting in higher non-recurring charges today, it positions us well to run a more efficient operation.

As anticipated in our prior earnings call, in late July, we closed the agreement to transfer our financial agent business that serves the government of the Province of San Luis. This accounts for approximately 2.4%, 3.1% and 4% of our total loans, deposits, and employees, respectively. With this transaction, our business model gains on efficiency as we are transferring 10% of our branch network while we continue to build on the strong franchise built over the past 25 years serving the private sector in this province through five physical branches in the most densely populated areas together with our innovative virtual branches.

At IOL invertironline, our fintech subsidiary, we recently appointed a new CEO. In line with the difficult context faced by fintechs, in addition to highly restrictive regulations in Argentina, we are currently streamlining this business to mitigate lower trading volumes and fees in the current economic framework.

Looking ahead, Argentina faces significant fiscal, financial and monetary challenges that still need to be addressed. On our end, we remain fully focused on executing our strategy to further strengthen our business while cautiously monitoring market dynamics. Reflecting our sustained confidence and the conviction of our board of directors and management team in the execution of our strategic initiatives, in July the board approved a share repurchase program for a total of AR$2 billion, or the lower amount equivalent to 10% of our capital stock, through March 2023. This initiative is supported by a liquid and well capitalized and inflation-hedged balance sheet with a Tier 1 ratio of 13.6% at quarter-end,” concluded Mr. Supervielle.

Second quarter 2022 Highlights

PROFITABILITY

Attributable Net loss of AR$2.0 billion in 2Q22, compared to net losses of AR$521.5 million in 2Q21 and AR$442.9 million in 1Q22. The Bank on a stand-alone basis excluding its participation in IUDÚ reported an Attributable net loss of AR$ 612.4 million compared to a net gain of AR$928.4 million in 1Q22, impacted by the sharp drop in prices of government securities held.

Excluding non-recurring severance charges, Supervielle would have delivered net loss of AR$1.2 billion in 2Q22, with adjusted ROAE in real terms at approximately negative 6.8%, compared to 2.9% in previous quarter. The Bank, excluding non-recurring severance charges, would have recorded a net loss of AR$ 159.6 million.

Net Income in the quarter remained impacted by several factors, including: i) low credit demand from the private sector which remains at historical lows, although 2Q22 recorded a 0.6% increase in loans reversing the declining trend registered since September 2021, ii) further regulatory increases in minimum interest rates on time deposits, iii) higher expenses incurred in accelerating the Company´s strategy to capture operating efficiencies at the Bank, and iv) a higher loss at IUDÚ due to increased inflation and severance charges to restructure the business. Moreover, financial margin this quarter was impacted by the sharp decline in June in the price of government securities held by the Company and the result from the sale of some of the government securities held as trading portfolio.

ROAE was negative 11.2% in 2Q22 compared with negative 2.8% in 2Q21 and negative 2.5% in 1Q22.

ROAA was negative 1.6% in 2Q22 compared to negative 0.4% in 2Q21 and 0.3% in 1Q22.

Loss before income tax of AR$2.6 billion in 2Q22 compared to losses before income tax of AR$666.8 million in 2Q21 and AR$511.0 million in 1Q22.

Net Financial Income of AR$18.8 billion in 2Q22 increasing 1.5% YoY but decreasing 0.4% sequentially QoQ and YoY performance were impacted by the sharp decline in June in the price of government securities held by the Company and the result from the sale of some of the government securities trading portfolio. Excluding the government securities impact on margin, which amounted to AR$ 770 million, Net Financial Income would have increased 3.7%.

Net Interest Margin (NIM) of 18.8%, negatively impacted by regulatory increases in minimum interest rates on time deposits and the decline in the pricing of our Argentine bond holdings. On an accumulated basis, 1H22 NIM was 18.9%, up 50 bps when compared to 1H21 NIM.

The total NPL ratio was 3.8% in 2Q22 decreasing 50-bps from 1Q22. The improvement in NPL ratio reflects low delinquency levels for corporate loans, loan portfolio growth at the Bank, and write offs in the quarter mainly in the IUDÚ business segment. The NPL portfolio declined 11.5% QoQ.

Loan loss provisions (LLP) totaled AR$2.8 billion in 2Q22, decreasing 8.7% YoY, but increasing 20.0% QoQ. On an accumulated basis, LLP decreased 8% in 1H22 when compared to 1H21. Net loan loss provisions, amounted to AR$2.5 billion in 2Q22 compared to AR$1.7 billion in 1Q22. The Coverage ratio was 108.3% as of June 30, 2022, 107.4% as of March 31, 2022, and 163.9% as of June 30, 2021.

Efficiency ratio was 81.4% in 2Q22, compared to 75.1% in 2Q21 and 74.2% in 1Q22.

Total Deposits of AR$425.4 billion increasing 6.3% QoQ and 6.7% YoY. AR$ deposits amounted to AR$ 389.3 billion, rising 7.0% QoQ and 11.5% YoY.

Loans declined 7.4% YoY but increased 0.6% QoQ in real terms to AR$197.0 billion. The AR$ Loan portfolio amounted to AR$180.2 billion, declining 0.7% YoY but increasing 1.5% QoQ.

Total Assets up 3.2% YoY and 3.7% QoQ, to AR$543.1 billion as of June 30, 2022.

Common Equity Tier 1 Ratio as of June 30, 2022, was 13.6% declining 20 bps when compared to 1Q22 and 70-bps from June 30, 2021. 2Q22 Tier 1 Capital Ratio evolution reflects the growth of loan portfolio above inflation and impact of net results.

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