[November 07, 2019]

Grupo Supervielle S.A. Reports 3Q19 Consolidated Results

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-month periods ended September 30, 2019. All figures presented throughout this document are expressed in nominal Argentine pesos (AR$) and all financial information has been prepared in accordance with IFRS in compliance with the adoption ruled by the Argentine Central Bank.

Third Quarter 2019 Highlights

• Revenues up 20.9% year over year (YoY) supported by growth of 20.3% in Net Financial Income and 31.3% in fee income, but down 13.5% quarter over quarter (QoQ), driven by 19.5% decrease in Net Financial Income while Net Service Fee Income was up 8.6%. 3Q19 revenues were impacted by a AR$2.0 billion loss reflecting mark to market accounting of short term AR$ and U$S treasury notes held by Supervielle (amounting to approximately 3% of assets). Fixed income instrument prices declined between 35% and 45% following the debt reprofiling announced by the Argentine government.
• Net Financial Income of AR$5.3 billion, was up 20.3% YoY but down 19.5% QoQ mainly impacted by the debt reprofiling. Interest on loans benefitted from additional repricing in personal loans. Excluding the debt reprofiling impact, Net Financial Income would have increased 12% QoQ to AR$7.3 billion in 3Q19
• Net Interest Margin (NIM) of 17.4%, up 80 basis points (bps) YoY but down 470 bps QoQ mainly reflecting the abovementioned debt reprofiling effect. AR$ Loan portfolio NIM in the quarter was 24.2% compared to 23.8% in 2Q19 driven by continuing repricing in loans to individuals. Excluding the debt reprofiling loss, NIM would have been 24.1%.
• Loan loss provisions (LLP) totaled AR$2.0 billion in 3Q19, increasing 78.8% YoY and 65.8% QoQ. The increase in LLPs mainly reflects the partial provisioning on certain commercial loans coming from the Public Works Contracting and Retailer sectors that became delinquent during the period. As these NPLs were not 100% provisioned given the collaterals associated with them (provisioning exceeded the Central Bank requirement), the coverage ratio decreased to 86.1% from 107.7% in 2Q19. As of September 30, 2019, collateralized non-performing commercial loans were 55% of total, compared with 20% as of June 30, 2019. The Company expects to foreclose and divest those collaterals in the upcoming quarters..
• Efficiency ratio was 70.4% in 3Q19 increasing 1,110 bps YoY, and 801 bps QoQ. A decline in expenses of 2.3% was offset by lower revenues due to the debt reprofiling. Excluding the impact of the debt reprofiling, 3Q19 efficiency ratio would have been 53%. 2Q19 results included AR$ 273 million in non-recurring severance charges, while the efficiency ratio includes the impact from IFRS16 adoption since January 2019.
• Loss before income tax of AR$116.5 million in 3Q19 compared to a AR$1.0 billion profit in 3Q18 and a AR$1.6 billion profit in 2Q19. Excluding the impact of the debt reprofiling, 3Q19 pre-tax profit would have amounted to AR$ 1.9 billion, up 88% YoY and 23% QoQ. Attributable Net income of AR$301.0 million in 3Q19, declined from AR$867.4 million in 3Q18 and AR$1.9 billion in 2Q19. Income tax recorded a positive result of AR$ 417.8 million mainly from the inflation adjustment in the income tax provision.
• ROAE of 6.2% in 3Q19 compared to 22.2% in 3Q18 and 42.2% in 2Q19. ROAA of 0.7% in 3Q19, compared to 2.7% in 3Q18 and 4.7% in 2Q19. Excluding the debt reprofiling loss, ROAE and ROAA would have been [34.9%] and 4.2% respectively.
• Loans to deposits ratio was 85.8% flat with September 30, 2018 and up from 72.9% as of June 30, 2019. AR$ loans to AR$ deposits ratio was 82.2% compared to 89.6% on September 30, 2018 and 78.5% as of June, 2019. QoQ reflects the 2.8% increase in AR$ loans, following the increase in new AR$ loans granted to customers who paid down their US$ loans, while AR$ deposits decreased 1.7%. Liquid AR$ Assets to AR$ deposits ratio as of September 30, 2019, was 50.2%. US$ loans to US$ deposits ratio was 95.9% compared to 78.1% as of September 30, 2018 and 60.9% as of June, 2019. In 3Q19, US$ deposits outflows were 45%, above the 14% decline in US$ loans. As of September 30, 2019, the Liquid US$ Assets to US$ deposits ratio was 57.5%, flat with June 30, 2019 taking into account the 45% decline in deposits.
• Total Deposits increased 5.0% YoY and decreased 9.4% QoQ to AR$102.1 billion. AR$ deposits rose 15.6% YoY and decreased 1.8% QoQ, while foreign currency deposits (measured in US$) decreased 40.7% YoY and 45.2% QoQ, following industry trends in the quarter.
• Loans up 5.0% YoY and 6.0% QoQ at AR$87.5 billion. AR$ Loan portfolio rose 6.2% YoY and 2.8% QoQ. FX loans, measured in US$, declined 27.4% YoY and 13.7% QoQ. Measured in local currency FX loans increased 2.2% YoY and 17.0% QoQ mainly due to the FX devaluation. YoY and QoQ inflation was 53.5% and 12.5% respectively.
• Total assets up 9.4% YoY and down 3.8% QoQ, to AR$159.8 billion. QoQ performance reflects both the reduction in US$ deposits at the Central Bank following US$ deposits outflows, and the reduction in holdings of Central Bank securities.
• The total NPL ratio increased by 320 bps YoY and 180 bps QoQ to 6.9% in 3Q19. QoQ performance was mainly due to certain delinquent commercial loans that resulted in a 420 bp increase in the Corporate Segment NPL ratio and higher percentage of NPLs from this business segment over the total non-performing loan portfolio. This increase was partially offset by a AR$185.7 million decrease in NPL creation in the Consumer Finance segment.
• Common Equity Tier 1 Ratio (Consolidated Proforma) of 11.8% in 3Q19 compared to 11.9% as of June 30, 2019.

Commenting on third quarter 2019 results, Jorge Ramirez, Grupo Supervielle's CEO, noted: "We have been operating in a challenging environment that was further exacerbated during the most recent quarter following the government's announcement of the debt reprofiling which impacted profitability. Excluding this impact, we would have delivered net income before taxes of AR$1.9 billion, 23% higher than the prior quarter.

Reflecting a weakening macro environment, certain commercial loans turned delinquent in the quarter resulting in higher loan loss provisions. By contrast, consumer loans reported lower NPL loan creation in the quarter as we maintain our prudent approach to asset quality. In turn, the coverage ratio decreased to 86% this quarter given higher collaterals associated. Importantly, we have significantly strengthened collateralization levels of commercial loans when compared with 2Q19. We continue monitoring closely our asset quality in this more challenging environment.

Liquidity management is a key priority area for us, given significant market uncertainty which drove some US$ dollar deposit outflows industry wide. Notwithstanding, liquidity in pesos and US$ remains above 50%.

In sum, we run a strong franchise that is structurally performing well in this difficult scenario. This underlying strength supports our long-term optimism, although challenged by the limited visibility we have today; both in terms of the new government's plan, as well as the current transition plan. We have a long and successful track record of operating in volatile and challenging environments. Importantly, we are well positioned particularly if the new Administration seeks to boost consumption," concluded Mr. Ramirez.

Financial Highlights & Key Ratios

1. Average Assets and average Shareholder´s Equity calculated on a daily basis
2. Total Portfolio: Loans and Leasing before Allowances. According to IFRS, this line item includes Securitized Loan Portfolio and loans transferred with recourse.
3. This ratio includes the liquidity held at the holding company level.
4. Regulatory capital divided by risk weighted assets taking into account operational and market risk. The regulatory capital ratio applies only to the Bank and CCF on a consolidated basis and does not include the liquidity held at the holding company level- The Proforma consolidated capital ratio, includes the liquidity retained at Grupo Supervielle level after the equity offering, which is available for growth. As of September 30, 2019, the liquidity amounted to AR$ 654 million.
5. Tier 1 capital divided by risk weighted assets taking into account operational and market risk. The regulatory Tier 1 capital ratio applies only to the Bank and CCF on a consolidated basis and does not include the liquidity held at the holding company level. The Proforma Consolidated Tier 1 capital ratio includes AR$654 million retained at the holding company which are available for growth.
6. During 2Q19 the Central Bank clarified an interpretation regarding deductions on Tier1 Capital related to deferred tax assets, requesting not to offset deferred tax assets and liabilities even when offsetting is required by IFRS (IAS 12) and Basel framework, hence increasing the deductions on Tier 1 Capital. If the Central Bank criteria would have been adopted in 1Q19, Common Equity Tier 1 Ratio (Consolidated Proforma) would have been 11.8%.
7. Excluding a voluntary AR$462 million LLP in 1Q19, in excess of the 25% regulatory provisioning related to a delinquent commercial loan, Cost of risk would have been 7.5%. Cost of Risk in 4Q18, excluding the AR$ 231 million additional voluntary loan loss provisions made to increase coverage, was 5.9%.
8. Source: INDEC
9. The decrease in the number of Access Points in 4Q18, reflects the closing of certain consumer finance sales points.

3Q19 Earnings Call Dial-In Information

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