Business Context and Reporting Period
Company: Grupo Supervielle S.A. (NYSE: SUPV), a universal financial services group headquartered in Buenos Aires, Argentina.
Reporting Period: First Quarter 2017 (ended March 31, 2017).
Filing Date: May 10, 2017.
Accounting Basis: Argentine Banking GAAP (unaudited). Figures are expressed in nominal Argentine Pesos (AR$).
Key Financial Metrics
| Metric | 1Q17 | 1Q16 (YoY) | 4Q16 (QoQ) |
|---|---|---|---|
| Net Income | AR$381.9 million | +118.6% | -28.3% |
| Gross Financial Margin | AR$1,927.8 million | +74.4% | -1.2% |
| Net Service Fee Income | AR$757.0 million | +40.6% | +5.5% |
| Administrative Expenses | AR$1,886.1 million | +45.1% | +4.4% |
| Loan Loss Provisions | AR$342.6 million | +86.6% | +8.2% |
| Total Assets | AR$64.5 billion | +86.1% | +21.3% |
| Total Loans (Gross) | AR$41.2 billion | +62.5% | +6.0% |
| Total Deposits | AR$38.8 billion | +59.5% | +8.2% |
| Shareholders' Equity | AR$7.3 billion | +187.0% | +5.5% |
| ROAE | 21.8% | 27.5% | 31.3% |
| ROAA | 2.6% | 2.1% | 4.1% |
| Net Interest Margin (NIM) | 18.7% | 20.0% | 20.8% |
| Efficiency Ratio | 67.5% | 73.8% | 64.5% |
| NPL Ratio | 2.9% | 2.7% | 2.8% |
| Cost of Risk | 3.9% | 3.4% | 3.9% |
| Proforma CET1 Ratio | 12.0% | 7.2% | 12.3% |
Material Changes vs. Prior Period
- Profitability: Net income surged 118.6% year-over-year (YoY) driven by a 74.4% increase in gross financial margin and 40.6% growth in net service fee income. Sequentially, net income declined 28.3% due to seasonality and non-recurring items in both 4Q16 (gain from real estate trust termination) and 1Q17 (FX loss on bond issuance). Excluding these items, sequential net income would have fallen only 5.8%.
- Loan Growth: Total gross loans grew 62.5% YoY to AR$41.2 billion, significantly outpacing market growth. Balance sheet loans grew 71.0% YoY, while the securitized portfolio declined 33.6% YoY.
- Margins: NIM contracted 130 basis points (bps) YoY to 18.7% and 220 bps QoQ. This was driven by lower interest rates (Badlar rate decline), a higher proportion of lower-yielding Central Bank Notes due to excess liquidity, and a shift in portfolio mix. However, the AR$ NIM on the core loan portfolio (excluding foreign trade and US$ loans) rose 240 bps YoY to 23.4%.
- Asset Quality: The NPL ratio increased to 2.9% (up 20 bps YoY and 10 bps QoQ). The increase is attributed to seasonal deterioration in the Consumer Finance segment. Coverage ratio remained stable at 87.0%.
- Capitalization: Shareholders' equity increased 187.0% YoY, primarily due to the May 2016 IPO proceeds and retained earnings. The Equity to Asset ratio improved to 11.3% from 7.3% in 1Q16.
Guidance, Outlook, and Risks
Management Commentary
CEO Patricio Supervielle highlighted solid execution of the profitable growth strategy, citing a healthy balance sheet and successful capital raising in international markets. The company is focusing on digital innovation, SME leadership, and expanding into the mortgage segment.
2017 Guidance
- Total Loan Growth: 38.0% - 45.0%
- Cost of Risk: 3.2% - 3.6%
- NIM: 17% - 20%
- Efficiency Ratio: 63% - 67%
- Net Income: AR$2.1 billion - AR$2.3 billion
- Tier 1 Ratio (Proforma): 10.5% - 11.2%
Risks and Contingencies
- Seasonality: Results are typically lower in the first half of the year due to salary increases negotiated early in the year and cumulative revenue growth later in the year.
- FX Exposure: The company reported a AR$50 million net loss in 1Q17 due to FX appreciation between pricing and settlement of a US$300 million Global Term Note.
- Asset Quality: The Consumer Finance segment exhibits seasonal delinquency patterns, with higher rates in the first quarter.
- Regulatory Changes: New Central Bank regulations allow interest on checking accounts (impacting NIM) and mandate self-insurance for credit-related risks (impacting insurance revenue).
Investor Verification Checklist
- Non-Recurring Items: Verify the impact of the AR$128.1 million gain in 4Q16 (real estate trust) and the AR$50 million FX loss in 1Q17 on sequential comparability.
- Seasonality Adjustments: Assess the "normalized" sequential decline of 5.8% vs. the reported 28.3% decline to understand true operational performance.
- Consumer Finance Delinquency: Monitor the NPL ratio in the Consumer Finance segment (11.3% in 1Q17) for signs of deterioration beyond seasonal norms.
- Deposit Mix: Review the shift in deposit composition, specifically the rise in interest-bearing checking accounts (86.2% QoQ growth) and its impact on funding costs and NIM.
- Capital Deployment: Track the deployment of IPO proceeds and the US$300 million Global Term Note into the loan portfolio to ensure loan growth targets are met.