Industry loan demand at historical lows in recessionary context, increasing regulations and taxes, and higher LLPs as Covid-19 rescheduling programs ended, drove net loss of AR$318

Solid capital base with Tier 1 ratio at 14.3%

Accelerating strategic initiatives to drive efficiencies, expand digital presence, enhance CX and geographically diversify revenue origination

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-month periods ended June 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 2Q21, 1Q21, 4Q20, 3Q20 and 2Q20.

Management Commentary

Commenting on second quarter 2021 results, Patricio Supervielle, Grupo Supervielle's Chairman & CEO, noted: “We are committed to long-term value creation and to meet that goal we have been implementing a sustainable transformation of our business across Grupo Supervielle. We continue to prioritize ensuring that our customers are well-served today and into the future as we navigate the second Covid-19 wave and a continued challenging macro environment.”

“Over the past three years, Argentina has experienced a recessionary environment, further deepened by the pandemic with loan demand dropping to historical lows and banks investing excess liquidity in Central Bank securities. And this quarter was no exception, with system credit demand growing below inflation remaining at historical lows. At Supervielle, we are also keeping a prudent approach to lending in this difficult economic environment.”

“In addition to weak loan demand, increasing Central Bank regulations on volumes and prices of banking assets and liabilities continue to put significant pressure on NIM. Moreover, since the beginning of the year, we have been facing higher turnover taxes, mainly from the City of Buenos Aires and other Provinces. This, together with higher administrative expenses as we advance on the digital transformation strategy and increased loan loss provisions reflecting our expected loss models have impacted profitability. Importantly, our capital is hedged against inflation through real estate investments, mortgages and sovereign bonds.”

“In this context, we are advancing our transformation agenda and accelerating our strategic initiatives with the aim of capturing efficiencies, diversifying revenue sources beyond Argentina, and enhancing our service model. To achieve this, we are working on three main fronts:”

“First, accelerating execution of the digital and channel transformation strategy at Banco Supervielle to meet the changing demands of our customers and capture improved efficiency in the mid-term. Key initiatives under implementation include: executing our IT strategy, adding APIs, a data lake and migrating to a multi-cloud; modernizing our network to promote self-service banking, resizing our branch network and adopting a hybrid workplace model.”

“Second, our consumer finance subsidiary IUDU has recently launched its mobile first retail digital savings account to attract retail deposits and contribute to lower cost of funding. We also expect IUDU to be adding additional financial and wellbeing services over the next six months targeting mid-to-medium high-income clients accessing digital services. A milestone this quarter was the renewal of the agreement with The Narvaez Group, the new operators of Walmart stores in Argentina.”

“Third, we are working towards growing sources beyond Argentina starting by diversifying the reach of IOL Invertironline, our online broker and deploying IUDU Servicios. IOL Invertironline aims to gradually expand to several LatAm markets ex-Brazil offering US investment products. As a first step, we have requested authorizations from the Central Bank to operate as an online broker in Uruguay, to deploy from there our regionalization plan. Building on existing distribution capabilities, and financial agreements with international providers, IUDU Servicios will deploy Wellbeing and Health services with the B2C format in LATAM ex-Brazil.”

“We expect near-term profitability to remain impacted by overall weak loan demand and pressure on NIMs, coupled with the required costs and investments of the transformation strategy. Our relentless focus and commitment to long-term value creation remains intact, as we continue building an ecosystem to retain and enhance the primary banking relationships with our customers by anticipating and servicing their everyday banking and wellness needs, while also attracting new digital clients. With a comfortable capital position, we expect to achieve our ambitious goals,” concluded Mr. Supervielle.

Second 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$318.0 million in 2Q21, compared to net gains of AR$1.4 billion in 2Q20 and AR$210.0 million in 1Q21.

For the first half of the year, net income excluding non-recurring severance charges in both quarters, would have reached AR$643 million and ROAE in real terms of approximately 2.8%.

QoQ performance was explained by: i) a 1.1% increase in financial margin, reflecting higher volumes on Central Bank Leliqs and repo transactions, higher yield on AR$ treasury bonds, and a slightly higher yield on peso loans, but partially offset by the increase in cost of funds impacted by regulatory minimum rates on time deposits, weak credit demand and mandatory credit lines granted at subsidized rates, ii) a 0.6% increase in net fee income following the repricing of products, and iii) a 9.6% decline in personnel expenses. These trends were offset by: i) higher LLPs impacted by increased retail loan delinquency since the automatic deferrals were lifted starting on April 2021, while the Company maintained a conservative stance and not affecting to those loans the Covid-19 specific anticipatory provisions created in 2020, ii) 21.9% higher administrative expenses related to additional expenses related to ongoing projects to support the Company’s Digital Transformation and to increased taxes, and iii) higher turnover taxes from the City of Buenos Aires and other Provinces.

ROAE was negative of 2.8% in 2Q21 compared with positive 13.2% in 2Q20 and 1.8% in 1Q21. ROAE, excluding our consumer finance lending business was 0.2% in 2Q21, a 260-bps gap with our as reported ROAE, which compares to similar gaps of 320 bps and 270 bps in 2Q20 and 1Q21 respectively. ROAA was negative of 0.4% in 2Q21 compared to positive 1.8% in 2Q20 and 0.3% in 1Q21.

Loss before income tax of AR$406.6 million in 2Q21 compared to gains before income tax of AR$1.7 billion in 2Q20 and AR$176.8 million in 1Q21.

Excluding the impact of IAS29, Profit before income tax would have been AR$1.5 billion in 2Q21 compared to AR$2.0 billion in 2Q20 and AR$2.0 billion in 1Q21.

Net Revenues of AR$12.6 billion in 2Q21, compared to AR$15.8 billion in 2Q20 and AR$13.1 billion in 1Q21, down 20.0% YoY and 3.5% QoQ.

Net Financial Income of AR$11.2 billion in 2Q21 down 18.4% YoY and up 1.1% QoQ. Net Interest Margin (NIM) of 18.3% was down 530 bps YoY, and 100 bps QoQ. The AR$ NIM was 18.7%, down 670 bps YoY but up 30 bps QoQ.

The total NPL ratio was 4.4% in 2Q21. Comparable NPL for previous quarters, 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 are non-performing with other banks, were 7.1% as of 2Q20 and 4.0% as of 1Q21, decreasing 2,700 bps YoY but increasing 40 bps QoQ. Reported NPL were 6.1% as of 2Q20 and 3.4% as of 1Q21.

Loan loss provisions (LLP) totaled AR$1.9 billion in 2Q21, down 45.4% YoY but up 22.1% QoQ. Loan loss provisions, net, which includes reversed provisions, amounted to AR$1.7 billion in 2Q21 compared to AR$1.0 billion in 1Q21. The level of provisioning reflects the Company’s IFRS9 expected loss models and the nominal growth of the loan portfolio. The Coverage ratio was 163.9% as of June 30, 2021. Comparable Coverage ratio excluding the Central Bank regulatory easing o debtor classification was 108% as of June 30, 2020 and 173% as of March 31, 2021. Reported Coverage ratio in 2Q20 and 1Q21 was 127.1% and 205.2% respectively, including the impact of the regulatory easing as of those dates.

Efficiency ratio was 75.1% in 2Q21, compared to 61.8% in 2Q20 and 71.9% in 1Q21. The QoQ performance was mainly driven by a 3.5% drop in revenues while expenses remained relatively flat (+0.8%). Excluding non-recurring severance payments and early retirement charges, the 2Q21 and 1Q21 efficiency ratio would have been 71.8% and 66.3% respectively.

Loans to deposits ratio of 53.4% compared to 70.4% as of June 30, 2020 and 54.8% as of March 31, 2021.

Total Deposits measured in comparable AR$ units at the end of 2Q21 remained flat YoY (-0.4%) and increased 2.1% QoQ to AR$243.2 billion. AR$ deposits rose 1.4% YoY and 2.8% QoQ. The QoQ increase in AR$ deposits was mainly driven by higher core peso deposits due to the 50% payment of the 13^th salary in June, while institutional funding declined 3.7%. Average AR$ deposits increased 5.4% QoQ. Foreign currency deposits (measured in US$) declined 1.6% YoY and increased 4.1% QoQ. As of June 30, 2021, FX deposits represented 12% of total deposits, compared to 13% as of March 31, 2021.

Loans measured in comparable AR$ units at the end of 2Q21 declined 13.8% YoY and 0.6% QoQ to AR$129.8 billion.

Total Assets were down 5.7% YoY and 1.3% QoQ, to AR$321.0 billion as of June 30, 2021. The QoQ performance mainly reflect the decline in loans, the cash payment of the amortization of a foreign trade line in June and the cash payment of the amortization of the US$ linked medium term note. These were partially offset by higher holdings of Central Bank instruments and higher balance of government bonds. Average AR$ Assets were up 6.9% or AR$17.7 bn QoQ.

Common Equity Tier 1 Ratio as of June 30, 2021 was 14.3% increasing 50 bps when compared to 1Q21 and 90 bps compared to June 30, 2020.

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