Grupo Supervielle S.A. Reports 2Q19 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 six-month periods ended June 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.

Second Quarter 2019 Highlights

• Revenues up 14.6% QoQ, driven by increases of 19.8% in Net Financial Income and 1.9% in Net Service Fee Income. YoY total revenues rose 72.4% supported by growth of 81.5% in Net Financial Income and 26.8% in fee income.
• Net Financial Income of AR$6.6 billion up 81.5% YoY and 19.8% QoQ reflecting increases in average asset and deposit volumes and higher interest market rates. Interest on loans benefitted from additional repricing in personal loans.
• Net Interest Margin (NIM) of 22.1% up 470 bps YoY and 300 bps QoQ. YoY growth reflects higher volumes invested in high-yield Central Bank 7-days Leliqs while QoQ increase was driven by higher Leliqs yields and a lower proportion of non-remunerated minimum reserve requirements. Sequential growth was also supported by the 60 bps increase in AR$ Loan portfolio NIM in the quarter to 23.8% driven by continuing repricing in loans to individuals.
• Loan Loss Provisions decreased 36.0% QoQ and Cost of Risk declined 390 bps to 6.0% in 2Q19 while increasing NPL Coverage to 107.7%. 1Q19 LLPs and Cost of Risk were penalized by a delinquent commercial loan that was fully anticipated in FY19 guidance.
• Efficiency ratio was 62.4% in 2Q19 improving 390 bps YoY, but increasing 340 bps QoQ. Excluding non-recurring severance charges mainly at the Bank of AR$ 273 million in 2Q19, the efficiency ratio would have been 58.7% which compares with a 57.6% 1Q19 efficiency ratio, also adjusted by non-recurring severance costs.
• Profit before income tax was AR$ 1.6 billion increasing 243.4%, or AR$ 1.1 billion YoY and 109.2%, or AR$817.4 million QoQ. Attributable Net income of AR$1,901.5 million, increasing 602.4% YoY, or AR$1,630.8 million, and 222.8% QoQ, or AR$1,312.4 million. 2Q19 results include AR$664,2 million of inflation adjustment in the income tax provision.
• ROAE improved to 42.2% in 2Q19, from 7.2% in 2Q18 and 13.6% in 1Q19. ROAA increased to 4.7% in 2Q19, from 1.0% in 2Q18 and 1.5% in 1Q19. If inflation adjustment in the income tax provision would have been accounted for as of March 31, 2019, the impact would have been AR$331 million and AR$333 million in 2Q19 and 1Q19, respectively. Accordingly, attributable net income would have been AR$1.6 billion and AR$923 million in 2Q19 and 1Q19, respectively, and ROAE would have been 34.6% and 21.1% in 2Q19 and 1Q19, respectively.
• 2Q19 ROAE, excluding Consumer finance lending losses, was 57.4%. This compares to Grupo Supervielle consolidated ROAE of 42.2%. Consumer finance lending business remained impacted by high market interest rates in its wholesale funding structure, while asset quality continued to show improvement after the tightening of underwriting policies and reducing exposure. If inflation adjustment in the income tax provision would have been accounted for as of March 31, 2019, 2Q19 ROAE, excluding Consumer finance lending losses, would have been 48.5%.
• Loans to deposits ratio of 72.9% in 2Q19 compared to 100.2% in 2Q18, and 74.6% in 1Q19, reflecting higher deposit base and weak loan demand. Loan to assets of 49.4% in 2Q19 compared to 49.9% in 1Q19 and 62.8% in 2Q18.
• Deposits increased 48.8% YoY and 2.7% QoQ to AR$112.6 billion. AR$ deposits rose 42.1% YoY and 3.2% QoQ, while foreign currency deposits (measured in US$) increased 12.3% YoY and 3.9% QoQ.
• Loans up 8.3% YoY and flat (+0.4%) QoQ at AR$82.1 billion. AR$ Loan portfolio rose 7.5% YoY and 3.6% QoQ. FX loans, measured in US$, declined 24.8% YoY and 5.7% QoQ. Measured in local currency FX loans increased 10.6% YoY and decreased 7.7% QoQ.
• Total assets up 37.5% YoY and 1.4% QoQ, to AR$ 166.1 billion outpacing loan growth, mainly due to larger holdings of Central Bank securities, which accounted for 23.6% of total assets at quarter-end, while average balance of these securities represented 22.9% of average interest-earnings assets. YoY comps also reflect higher cash regulatory minimum reserve requirements.
• NPL ratio increased by 140 bps YoY and decreased 20 bps QoQ to 5.1% in 2Q19. QoQ performance reflects a stable Corporate Segment NPL, and a decrease in the Consumer Finance NPL formation (showing a lower incidence over total portfolio). Both Retail and Consumer Finance loans posted a higher NPL ratio mainly due to low loan portfolio origination. Consumer Finance NPL portfolio decreased 7.4% QoQ, or AR$ 130.4 million, but the segment loan portfolio declined 10.3%, or AR$734 million sequentially.
• Common Equity Tier 1 Ratio (Consolidated Proforma) of 11.9% in 2Q19 compared to 12.1% as of March 31, 2019. During 2Q19 the Central Bank clarified an interpretation regarding deductions on Tier1 Capital related to deferred tax assets. Until 1Q19 we deducted deferred tax assets net of deferred tax liabilities, as they are shown in our balance sheet according to IFRS, and following the Basel framework. Starting 2Q19 we deduct deferred tax assets without offsetting deferred tax liabilities. This means the deduction to our Tier 1 capital in accordance to the Central Bank interpretation is higher than the deferred tax asset shown in our balance sheet. Had this criteria been adopted in 1Q19, Common Equity Tier 1 Ratio (Consolidated Proforma) as of March 31, 2019 would have been 11.8%.

Commenting on second quarter 2019 results, Jorge Ramirez, Grupo Supervielle's CEO, noted: "We reported solid results in the quarter with pre-tax income doubling sequentially. Overall, our franchise demonstrated once again its resiliency and flexibility to adapt to a more volatile environment coupled with low credit demand. While our consumer finance operation continues to face higher cost of funding, this business posted the second consecutive quarter of improvement in NPL formation contributing to a 390 basis point sequential decline in its cost of risk.

This good sequential pre-tax income performance was achieved despite AR$273 million in non-recurring severance charges in 2Q19 in connection with the recent management streamlining at our Bank subsidiary. Moreover, this quarter we also increased the coverage ratio by 770 basis points sequentially to 107.7%, as we remain cautious given the persistently high interest rates and weak activity levels observed across several economic sectors.

Our strategy to deepen our customer centric culture remains at the center of our execution plan. We are doing this by developing an agile digital strategy aimed at improving the customer experience and increasing efficiency of the organization. The June 2019 acquisition of Deautos.com, one of the leading online platforms for consumers to buy new and pre-owned cars, enabled us to take another step towards completing the construction of an ecosystem centered around automobiles which also further strengthens our position as a key player in this market while advancing on our digitalization strategy. Moreover, the reorganization of our Bank subsidiary early in the quarter propelled us ahead towards our goal of operating as a more efficient organization.

Our first half performance would have net income tracking ahead of the annual net income guidance provided earlier in the year. However, the current macro risks together with the presidential elections have added a higher level of uncertainty. As such, we are temporarily placing our guidance under revision since we remain cautious about the second half of the year. While high monetary policy rates could support high margins, we continue to closely monitor asset quality given high market interest rates and weak activity levels across several sectors. We expect to update the investment community on our guidance when volatility recedes.

In sum, business conditions remain challenging, but we have a long track record of operating under such scenarios," 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. Loans/Total Deposits ratio was restated in previous quarters due to the inclusion in the balance sheet of the securitized and transferred loans.
4. This ratio includes the liquidity held at the holding company level.
5. 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 June 30, 2019, the liquidity amounted to AR$ 442 million.
6. 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$442 million retained at the holding company which are available for growth.
7. 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%.
8. 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%.
9. Source: INDEC
10. The decrease in the number of Access Points in 4Q18, reflects the closing of certain consumer finance sales points.
11. The decrease in the number of employees in 3Q18 reflects the reorganization process in the consumer finance business. The decrease in the number of employees in 2Q19 mainly reflects the streamlining at the Bank

2Q19 Earnings Call Dial-In Information