Successful execution of strategic pillars advancing on return to profitability by the close of 2Q23; Tier 1 Capital Ratio at 13%

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 twelve-months period ended December 31, 2022.

Management Commentary

Commenting on fourth quarter and year-end 2022 results, Patricio Supervielle, Grupo Supervielle’s Chairman & CEO, noted: “This was a transformational year for our Company and we remain on track to achieve positive ROE by the close of 2Q23. We streamlined our network and merged our consumer finance operation with the Bank achieving significant operating leverage in an adverse macro environment marked by inflation at the highest level since 1991 and loan demand at all-time lows. Notwithstanding, we expanded our customer base while increasing digital adoption and cross-sell.

Loan growth for the quarter remained weak and in line with the industry trend, closing the year with an NPL ratio of 3.7%, and annual NIM at nearly 20%.

Importantly, during the year we undertook major initiatives to optimize our operations, including reducing headcount by 21% from 2021 levels, primarily at IUDU, our consumer finance business and at the Bank.

As planned, we completed the integration of our consumer finance client base and back-office into Banco Supervielle during 4Q22, and fully merged this business into the Bank. With this, we are capturing a major source of efficiency, in a sector that has suffered the most from the economic crisis and worsening macro conditions. At the same time, we are providing this customer segment access to the bank´s broad range of financial products and services.

As we build the bank of the future, we are transforming our branch network leveraging our virtual hubs that support our anytime – anywhere banking strategy and, expanding our reach while at the same time further enhancing customer satisfaction. As part of this process, we reduced 27 branches to-date and expect to receive regulatory approval by mid-year to close another 20 branches.

While optimizing operations, we successfully expanded our Retail customer base by 6%, excluding the transfer of the public employee base in the province of San Luis, and our SME and Corporate customers by 13% even as we rightsized the branch network. This growth is reflective of the success of our digitalization efforts with digital retail customers accounting for 53% of total clients at year-end, up from 38% a year-ago.

We are also pleased to see increased customer engagement and cross-selling, including good traction in asset management, car insurance and in our investment platform.

Our efforts in boosting share of wallet and transactionality among SMEs and corporate customers contributed to a 20 basis points gain in our share of sight deposits to nearly 2%, while increasing our share in payroll services, and foreign trade, among others.

Looking ahead, the government remains committed to meeting its agreement with the IMF, although significant headwinds remain, particularly against a more challenging global backdrop and an electoral year. In this context, we are prioritizing customer engagement, monetization and cross-sell, over customer acquisition, as we seek to gain further share of wallet among target customers, while keeping a strong focus on asset quality.

Reflecting the efficiency actions undertaken during the year, our lower cost structure is anticipated to drive higher operating leverage and significantly improve financial performance in 2023. Thus, we remain on track to reach profitability towards the close of 2Q23 and positive inflation-adjusted ROE in 2023, assuming a macro environment in line with current market consensus. Moreover, our solid capital base with a Tier 1 ratio of 13% remains hedged against inflation and provides sufficient liquidity to support the business in the current environment. In turn, we are committed to further advancing on the successful execution of our transformational strategy.

Attributable Net loss of AR$791.6 million in 4Q22, compared to net losses of AR$1.8 billion in 4Q21 and AR$659.6 million in 3Q22.

Net Income in the quarter was impacted by the following extraordinary events:

1. accelerated expenses related to the Company's strategy to capture operating efficiencies at the Bank and other subsidiaries;
2. Bank’s fixed assets revaluation to reflect year-end fair value as inflation surpassed FX depreciation throughout the year; and
3. the merge commitment between the bank, IUDÚ and Tarjeta. As a result, the Company impaired and wrote-off IUDU’s non-financial assets that were linked to IUDU’s cash flows. Total write-off of non-financial assets and accelerated amortization of remaining fixed assets accounted for AR$2 billion which produced a loss in 4Q22. The Company also recorded an impairment of IUDU’s goodwill of AR$732 million, and a tax gain in the income tax of AR$3.1 billion.

Excluding one-time impact from IUDU's merger and accelerated severance, Supervielle would have delivered a net profit of AR$390 million in 4Q22.

Moreover, Net Income in the quarter remained impacted by several factors, including: i) low credit demand from the private sector which remains at historical lows, further impacted by inflation of 17% in the quarter; and ii) regulatory minimum interest rates on time deposits.

ROAE was negative 3.4% in 4Q22 compared with negative 7.0% in 4Q21 and negative 2.7% in 3Q22.

ROAA was negative 0.5% in 4Q22 compared to negative 1.0% in 4Q21 and negative 0.4% in 3Q22.

Loss before income tax of AR$4.9 billion in 4Q22 compared to a loss of AR$842.5 million in 4Q21 and a gain of AR$663.1 million in 3Q22. Excluding one-time charges from the IUDU merger and accelerated severances, the Company would have reported an Adjusted Profit before income taxes of AR$148.7 million.

Net Financial Income of AR$26.9 billion in 4Q22 remaining flat YoY and decreasing 7.0% QoQ. Adjusted Net Financial Income (Net Financial Income + Result from exposure to inflation) of AR$ 23.2 billion in 4Q22, down 3.1% from AR$23.9 billion in 3Q22 and 2.0% from AR$23.6 billion in 4Q21.

Net Interest Margin (NIM) reached 21.6% compared to 18.3% in 4Q21 and remained stable from 22.0% in 3Q22. On an accumulated basis, FY22 NIM was 19.8%, an increase of 230 bps when compared to FY21 NIM.

The total NPL ratio was 3.7% in 4Q22 remaining flat from 3Q22 and reflecting healthy asset quality. This was driven by improved performance in commercial loans while the individual customers' NPL ratio at the Bank increased 80-bps due reflecting slightly higher delinquency levels in open market customers following industry trends. The Bank has been tightening its underwriting policies in this segment during 2022.

Loan loss provisions (LLPs) totaled AR$3.2 billion in 4Q22, decreasing 24.5% YoY and increasing 23.4% QoQ. On an accumulated basis, LLPs decreased 26.5% in FY22 when compared to FY21.

The Coverage ratio was 135.9% as of December 31, 2022, 141.7% as of September 30, 2022, and 143.9% as of December 31, 2021.

Efficiency ratio was 91.9% in 4Q22, compared to 76.6% in 4Q21 and 73.1% in 3Q22. The QoQ increase mainly reflects one-time charges from IUDU´s merger and accelerated severances at IUDU and the Bank. Excluding these extraordinary charges, the Efficiency ratio would have been 74.2% compared to 67.8% in 3Q22, impacted by a 7.0% decrease in Net Financial Income, while adjusted expenses (excluding the abovementioned one-time charges) decreased 2.0%.

Loans to deposits ratio of 44.5% compared to 55.9% as of December 31, 2021, and 49.8% as of September 30, 2022. AR$ loans to AR$ deposits ratio was 45.7% as of December 31, 2022, declining from 56.1% as of December 31, 2021, and 50.4% as of September 30, 2022.

Total Deposits of AR$547.5 billion, increasing in nominal terms by 27.9% QoQ and 89.8% YoY. In real terms, total deposits increased 9.1% QoQ, but decreased 2.6% YoY. AR$ deposits in nominal terms amounted to AR$ 492.6 billion, increasing 26.2% QoQ and 89.7% YoY, while AR$ industry deposits increased 23.7% QoQ and 93.2% YoY. In real terms, AR$ deposits increased 7.6% QoQ, but decreased 2.6% YoY. In turn, average AR$ deposits decreased 4.7% QoQ. The QoQ performance in real terms in AR$ deposits was mainly driven by seasonality of AR$ core deposits increasing 7%, or AR$15.9 billion, together with liquidity management initiatives reflecting a 5.7%, or AR$12.4 billion, increase in institutional funding. Moreover, average AR$ core deposits increased 5.8% QoQ in real terms.

Loans increased 51.0% YoY and 14.1% QoQ in nominal terms to AR$243.4 billion. In real terms, loans decreased 2.7% QoQ and 22.5% YoY impacted by inflation level of 17% QoQ and 95% YoY. The AR$ Loan portfolio amounted to AR$225.2 billion, increasing 14.4% QoQ and 54.5% YoY in nominal terms. In real terms, the AR$ loan portfolio declined 2.4% QoQ and 20.7% YoY.

Total Assets declined 8.3% YoY, but increased 5.6% QoQ, to AR$697.4 billion as of December 31, 2022.

Common Equity Tier 1 Ratio was 13.0%, a decline of 120 bps when compared to 3Q22 but increasing 30-bps from December 31, 2021. The Tier 1 Capital Ratio was impacted by: i) the impairment of goodwill and intangible assets related to IUDU´s merger commitment dated December 14,2022; ii) higher deductions to Tier 1 capital on increased IT investments; iii) the impact on net results from accelerated headcount efficiencies in the quarter; and iv) funds used to execute Supervielle’s share repurchase program.

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