Profitability improved to a loss of AR$60 M in 3Q21 from a loss of AR$348 M in 2Q21 reflecting lower LLPs and operating expenses, although Central Bank regulations and soft loan demand continue to weigh on NIM

Solid capital base with Tier 1 ratio at 14.1%

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, 2021.

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. According to Central Bank regulation until December 31, 2020, the Other Comprehensive Income also reflected the result from the changes in the purchasing power of the currency results on securities classified as available for sale. Through communication "A" 7211, effective January 1, 2021, the Central Bank established that the monetary result of items measured at fair value with changes in Other Comprehensive Income should be recognized in profit or loss under the line item "Result from exposure to changes in the purchasing power.” As this change in the accounting policy was applied retrospectively to all comparative figures, figures for all quarters of 2020 have been restated applying this new rule. This report also includes Managerial figures which exclude the IAS29 adjustment for 3Q21, 2Q21, 1Q21, 4Q20 and 3Q20.

Management Commentary

Commenting on third quarter 2021 results, Patricio Supervielle, Grupo Supervielle's Chairman & CEO, noted: “While we have seen a recent rebound in economic activity as compared to the sharp contraction experienced in 2020 amid the pandemic, we continue to operate in a market dominated by high inflation, negative real interest rates and industry loans at historical lows and growing below inflation. Results for the quarter improved sequentially benefitting from: i) our strong underwriting and collection policies and procedures which resulted in reduced loan loss provisions, and ii) lower operating expenses while we continued resizing our branch network, accelerating headcount efficiencies and advancing on our digital transformation strategy.”

“Our loan portfolio increased by mid-single digits sequentially recovering market share versus last year, mainly driven by mandatory credit lines to SMEs and short-term financing to corporates. Personal loan origination, in turn, increased consistently throughout the quarter reaching a record high in October supported by the pick-up in economic activity. Total deposits were up in the high-single digits quarter-on-quarter while corporate checking accounts increased in the quarter with this trend continuing into October. NIM however, was largely impacted by lower yield on inflation-linked loans following the deceleration of the price index during the quarter. Central Bank regulations on volumes and prices of banking assets and liabilities also continue to weigh on NIM. Importantly, our capital is hedged against inflation through real estate investments, mortgages, and sovereign bonds, although this quarter the lower inflation had a negative impact on NIM.”

“In this context, we remain fully focused on executing on our value-creation transformation strategy across Grupo Supervielle, accelerating our strategic initiatives to capture efficiencies, diversifying revenue sources beyond Argentina, and enhancing our service model.”

“Starting with our digital and channel transformation strategy, we continue introducing best-in-class technologies to extend service hours and productivity while facilitating self-service banking and expanding our serving offerings to multi-segments with the vision of anytime anywhere banking. This also includes increasing self-serving areas in some branches and converting others to a full self-service format. Following the successful results obtained from our Virtual Hub MVPs for individuals in the province of San Luis, we are now starting to scale this hybrid model to other regions and segments, expanding our footprint while offering a superior customer experience combining the strength of our face-to-face approach with the higher efficiencies of a virtual hub. We additionally expanded our reach to new locations operating 100% virtually. Over the past four months we have also modernized and expanded services to SMEs and related segments in 11 branches that previously were fully-dedicated to serve senior citizens and expect to complete the repositioning of another four branches by year-end. Finally, we successfully relaunched our bank´s enhanced mobile App with a 4.4 ranking in the PlayStore and 4.3 in the App Store.”

“Our subsidiary IUDU is formally launching next week its mobile digital savings account for individuals which will contribute to attract low cost funding at this subsidiary. This is another step in building wide range of digital banking services, insurance and wellness offerings, while also diversifying revenues outside of Argentina. On this front, we are advancing with two international providers to offer B2C Wellbeing and Health services in Paraguay with the goal of launching during 2Q22.”

“Throughout the years we have been very active in providing SMEs with access to the local capital markets, and today hold a leading position as coordinators and placement agents of bonds in this market segment. Underscoring our strong commitment to sustainable financing, this quarter we acted as placement agents for the first bond issued by an SME in Argentina listed in the Social, Green and Sustainable Panel of BYMA. Funds from this social bond will be applied to finance internet access in several cities with scarce connectivity infrastructure contributing to improve access to knowledge, education, virtual work and entertainment, within the framework of the pandemic.”

“While we are seeing some signs of improvement vis-a-vis the prior year period with moderated growth in our loan book, we continue to expect near-term profitability to remain impacted by relatively weak loan demand and pressure on NIMs. At the same time, our focus remains on building an ecosystem and advancing on our transformation which requires investments and certain costs. This strategy positions us to retain and enhance our current customer relationships while attracting new digital clients and driving operating efficiencies in the longer-term,” concluded Mr. Supervielle.

Third quarter 2021 Highlights

Following the retrospective application of the Central Bank communication A 7211 effective January 1, 2021, figures for all quarters of 2020 have been restated.

Attributable Net loss of AR$60.2 million in 3Q21, compared to a net gain of AR$1.2 billion in 3Q20 and a net loss of AR$347.5 million in 2Q21.

In 3Q21 and 9M21, net income excluding non-recurring severance charges in both periods, would have reached AR$241.4 million and AR$923.2 million, with ROAE in real terms at approximately 2.0% and 2.6%, respectively.

QoQ performance was mainly explained by: i) a 4.2%, or AR$515 million, decline in net financial margin reflecting lower interest income on inflation adjusted mortgage loans following lower inflation in the quarter, together with a decline in interest income on personal loans granted in the consumer finance business since the non performing deferred loans stopped accruing in the quarter, and increased interest expenses on higher volumes in assets and deposits, and ii) an AR$471 million increase in income tax. These negative impacts were partially offset by: i) a 29.3%, or AR$596 million, decline in LLPs reflecting the Company’s IFRS9 expected loss models after a rebound in economic activity and some industries improving their risk profile, ii) a 3.3%, or AR$313 million, decline in personnel and administrative expenses, iii) a 12.5%, or AR$231 million, lower impact from inflation adjustment following the 160 bps deceleration in inflation in 3Q21 compared to 2Q21, and iv) a 3.1%, or AR$81 million improvement in net fee income reflecting the repricing of products

ROAE was negative 0.5% in 3Q21 compared with positive 9.8% in 3Q20 and negative 2.8% in 2Q21. ROAE, excluding the consumer finance lending business was 4.0% in 3Q21, a 450-bps gap with as reported ROAE. This compares to gaps of 300 bps and 360 bps in 2Q21 and 3Q20 respectively. ROAA was negative 0.1% in 3Q21 compared to positive 1.3% in 2Q21 and negative 0.4% in 2Q21.

Profit before income tax of AR$314.4 million in 3Q21 compared to gains before income tax of AR$1.2 billion in 3Q20 and a loss of AR$444.4 million in 2Q21.

Excluding the impact of IAS29, Profit before income tax would have been AR$2.3 billion in 3Q21 compared to AR$2.0 billion in 3Q20 and AR$1.5 billion in 2Q21.

Net Revenues of AR$13.4 billion in 3Q21, compared to AR$17.5 billion in 3Q20 and AR$13.8 billion in 2Q21, down 23.4% YoY and 2.8% QoQ.

Net Financial Income of AR$11.7 billion in 3Q21 down 23.1% YoY and 4.2% QoQ. Net Interest Margin of 16.6% was down 480 bps YoY, and 132 bps QoQ. The AR$ NIM was 16.7%, down 583 bps YoY and 203 bps QoQ.

The total NPL ratio was 5.3% in 3Q21 and 4.4% in 2Q21. The NPL ratio as of 3Q20 was 4.5%, although a more comparable figure, excluding the Central Bank regulatory easing on debtor classifications amid the pandemic (adding a 60-day grace period before loans are classified as non-performing) and the suspension of mandatory reclassification of customers that were non-performing with other banks, was 5.1%.

Loan loss provisions (LLP) totaled AR$1.4 billion in 3Q21, down 65.4% YoY and 29.3% QoQ. Loan loss provisions, net, which includes reversed provisions, amounted to AR$1.2 billion in 3Q21 compared to AR$1.8 billion in 2Q21, down 33.3% QoQ. The level of provisioning reflects the Company’s IFRS9 expected loss models and the nominal growth of the loan portfolio. The Coverage ratio was 125.1% as of September 30, 2021, 164% as of June 30, 2021, and 181.3% as of September 30, 2020. Comparable Coverage ratio as of 3Q20, excluding the Central Bank regulatory easing on debtor classification, was 158%.

Efficiency ratio was 74.9% in 3Q21, compared to 60.5% in 3Q20 and 75.1% in 2Q21. The QoQ performance was mainly driven by a 3.1% decrease in expenses and a 2.8% decline in revenues. Excluding non-recurring severance payments and early retirement charges, the 3Q21 and 2Q21 efficiency ratios would have been 71.4% and 72.0% respectively.

Loans to deposits ratio of 53.3% compared to 60.6% as of September 30, 2020, and 53.4% as of June 30, 2021.

Total Deposits increased 5.3% QoQ to AR$279.8 billion. AR$ deposits rose 9.8% YoY and 6.6% QoQ. The QoQ increase in AR$ deposits was mainly driven by a 14.9%, or AR$26 bn, increase in institutional funding reflecting liquidity management and the increase in the loan portfolio, a 13.6%, or AR$5.8 bn, increase in checking accounts from commercial customers and a 7.6%, or AR$6 bn, seasonal decline in savings accounts from individuals. Average AR$ deposits increased 4.7% QoQ. Foreign currency deposits (measured in US$) increased 10.5% YoY and 1.5% QoQ. As of September 30, 2021, FX deposits represented 11.3% of total deposits.

Loans declined 4.9% YoY and increased 5.1% QoQ to AR$149.1 billion.

Total Assets increased 2.4% YoY and 5.1% QoQ, to AR$368.7 billion as of September 30, 2021. The QoQ performance mainly reflects the increase in loans to comply with mandatory credit lines, higher balance of Repo transactions with the Central Bank, and the increase in the US$ cash balance on higher liquidity. These were partially offset by lower balances of government securities. Average AR$ Assets were up 2.0%, or AR$6.0 bn, QoQ.

Common Equity Tier 1 Ratio as of September 30, 2021, was 14.1% decreasing 20 bps when compared to 2Q21 but increasing 10 bps when compared to September 30, 2020.

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