Grupo Supervielle Reports 2Q23 Results

Delivered 2Q23 ROAE of 17.6% in real terms; Consistent strategy execution drives swing in profitability to 9.9% ROAE in real terms in 1H23 from negative 6% in 1H22.

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, 2023.

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, therefore reported figures and applicable ratios have been restated.

Management Commentary

Commenting on second quarter 2023 results, Patricio Supervielle, Grupo Supervielle’s Chairman & CEO, noted: “We delivered positive ROAE improving to 17.6% in real terms as we continue executing on our strategic plan and progressing on our path to profitability while at the same time navigating a complex macroeconomic and political environment. ROAE also benefited from a lower turnover tax burden starting this quarter.

NIM reached 26.6% driven mainly by a 20.4% sequential increase in net financial income primarily due to a combination of higher volumes and spreads. This high NIM continued into July driven by our strong asset and liability management capabilities. We increased the spread of short-term central bank securities portfolio leveraging the 16% expansion of our peso deposit base. This sequential growth in deposits was aided by public sector deposits, corporates, and the positive impact from the thirteenth salary. This more than offset a contraction in the loan book as we maintained a prudent approach to lending prioritizing high value customers.

Reflecting our focus on asset quality, the NPL ratio declined to a low of 2.5% this quarter. We maintained stringent credit scoring criteria focusing on loans to payroll, entrepreneurs and middle-market customers with early delinquency improving month over month.

Overall, we reported a solid first half of the year, with ROE in real terms at 9.9%. During 1H23 and compared with the same period a year ago, Net financial income increased 9%, loan loss provisions declined 37% reflecting a healthier loan mix, while personnel and administrative expenses declined 8% as we made significant progress in streamlining our branch network and capturing significant efficiencies while further enhancing the customer experience. Lower costs together with strong revenues resulted in an improvement in the efficiency ratio to 67% from 78% in 1H22.

Today, our branches serve a larger number of clients more efficiently while our digital capabilities have allowed us to maintain a consolidated footprint and expand our reach across the country. This year we have also been focusing on cross-selling products to our existing base of individual customers. Additionally, we see many opportunities ahead to continue serving our customers through the launch of new products and services. Starting June 3, we expanded the timeframe our customers can invest in money market funds through our App to 24/7 from 24/5, helping protect transactional funds against inflation, and positioning us as the first bank to offer this convenient service. This initiative has been well received with 90,000 clients already investing through this platform.

Looking ahead, in our view the recent Primary elections reflect a desire of Argentine citizens for a sustainable economic model with a lower tax burden and tighter monetary and fiscal discipline. After the presidential elections we look forward to a more business friendly environment while position to grow and to further develop our franchise supported by our 15.7% Tier 1 capital ratio. Our capital is hedged against inflation,” concluded Mr. Supervielle.

Second quarter 2023 Highlights

Attributable Net Income of AR$6.3 billion in 2Q23, compared to a net loss of AR$3.8 billion in 2Q22 and a net gain of AR$690.0 million in 1Q23. In 1H23, Attributable Net Income was AR$6.9 billion compared to a loss of AR$4.4 billion in 1H22.

YoY, Net Income performance reflects the result of the execution on the Company’s strategic plan implemented in 2022 and 2023 to optimize operations and streamline its branch network.

ROAE was 17.6% in 2Q23 compared with negative 10.2% in 2Q22 and positive 2.0% in 1Q23. ROAE also benefited from a lower turnover tax burden starting this quarter. 1H23 ROAE was 9.9% compared to -6.0% in 1H22.

ROAA was 2.7% in 2Q23 compared to negative 1.4% in 2Q22 and positive 0.3% in 1Q23. 1H23 ROAA was 1.4% compared to -0.8% in 1H22.

Profit before income tax of AR$9.0 billion in 2Q23 compared to a loss of AR$4.7 billion in 2Q22 and a gain of AR$2.1 billion in 1Q23. Profit before income tax of AR$ 11.1 billion in 1H23 compared to a loss of AR$ 5.2 billion in 1H22.

YoY performance is explained by: i) higher spread and higher volumes in the investment portfolio on the back of higher interest rates, ii) a decrease of 51.6%, or AR$ 2.8 billion, in Loan loss provisions reflecting mainly a lower share of consumer finance loans, iii) a 5.9%, or AR$ 2.1 billion, decrease in expenses, reflecting the results of the operations optimization, iv) higher revenues from the brokerage and asset management businesses on increased activity and assets under management, and v) a lower turnover tax as in line with the Central Bank claim for the unconstitutionality of the turnover tax on income from Leliqs and Repos with the national monetary authority, the Bank is not taxing Leliqs in Buenos Aires and Mendoza since April and January this year, respectively. In addition, both Banking Associations ADEBA and ABA and the majority of financial institutions operating in these jurisdictions followed suit. These were partially offset by: i) weak credit demand with loan portfolio increasing below the 105.6% inflation; and ii) a 10.8%, or AR$ 734.0 million, increase in the loss from exposure to inflation mainly due to the 19% increase in net monetary assets excluding income tax credits while inflation increased to 105.6% YoY.

Net Financial Income of AR$48.4 billion in 2Q23 increasing 20.4% QoQ and 19.4% YoY. Adjusted Net Financial Income (Net Financial Income + Result from exposure to inflation) was AR$40.9 billion in 2Q23, increasing 21.2% YoY and 21.3% QoQ. 1H23 Net Financial Income of AR$ 88.7 billion, up 9.1% from AR$ 81.3 billion in 1H22. Adjusted Net Financial Income was AR$74.7 billion in 1H23, up 10.5% YoY.

Net Interest Margin (NIM) reached 26.7% compared to 18.8% in 2Q22 and 21.9% in 1Q23. The QoQ and YoY performance reflect the combination of higher volumes and spreads in the Company´s investment portfolio on the back of higher interest rates set by the Central Bank, which more than offset lower NIM in the AR$ loan portfolio.

The total NPL ratio was 2.5% in 2Q23 decreasing 160 bps from 4.1% in 1Q23. The decrease is mainly explained by: i) the sale of a non-performing loan portfolio, mainly of the consumer finance segment within the Bank´s personnel and business segment, and ii) the upgrade of a corporate customer to stage 2 from stage 3. The Bank´s NPL also reflects the tightening of its underwriting policies during 2022 and 2023.

Loan loss provisions (LLPs) totaled AR$3.5 billion in 2Q23, decreasing 41.1% YoY and 2.8% QoQ. The YoY performance reflects a lower share of consumer finance loans, the tightening in underwriting policies and a shift to payroll loans. Net loan loss provisions amounted to AR$2.6 billion in 2Q23 compared to AR$3.5 billion in 1Q23 and AR$5.5 billion in 2Q22. In 1H23, LLP of AR$ 7.2 billion decreasing 36.9% from AR$11.4 billion in 1H22. LLP, net of AR$ 6.1 billion decreasing 34.6% from AR$ 9.4 billion in 1H22.

The Coverage ratio increased to 147.9% as of June 30, 2023, from 115.9% as of March 31, 2023, and 141.5% as of June 30, 2022.

Efficiency ratio was 62.5% in 2Q23, compared to 81.4% in 2Q22 and 71.8% in 1Q23. In 1H23, the efficiency ratio was 66.7% compared to 77.7% in 1H22. Total expenses declined 6.9% or AR$ AR$4.8 billion to AR$ 64.6 billion.

Loans to deposits ratio was 37.0% as of June 30, 2023, compared to 46.3% as of June 30, 2022, and 44.9% as of March 31, 2023. AR$ loans to AR$ deposits ratio was 37.3% as of June 30, 2023, declining from 46.3% as of June 30, 2022, and from 45.9% as of March 31, 2023.

Total Deposits of AR$805.9 billion expanded 39.8% QoQ and 89.4% YoY in nominal terms. In real terms, total deposits increased 12.9% QoQ but decreased 12.1% YoY. The leverage ratio (Assets to shareholders´ equity) increased 40 bps to 7.1x from 6.7x as of March 31, 2023, and decreased 100 bps from 8.1x as of June 30, 2022, reflecting asset & liability management flexibility to maximize NIM and profitability.

Total Assets increased 9.7% QoQ and declined 11.4% YoY to AR$1,033 billion as of June 30, 2023. The YoY performance reflects weak credit demand together with asset & liability management. The QoQ performance mainly reflects higher balances of securities issued by the Central Bank and Repo transactions with the Central Bank leveraging asset & liability management to maximize NIM and profitability.

Common Equity Tier 1 Ratio as of June 30, 2023, was 15.7%, increasing 100 bps when compared to 1Q23 and 210-bps compared to June 30, 2022.

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