BBVA(BBAR) - 2021 Q3 - Quarterly Report

Consolidated Financial Statements This section presents the Group's financial position, income, comprehensive income, equity changes, and cash flows for the period Consolidated Condensed Statement of Financial Position As of September 30, 2021, the Group's total assets were ARS 914.2 billion, a slight decrease from ARS 942.2 billion at year-end 2020, primarily driven by a reduction in 'Loans and other financing', while total liabilities also decreased to ARS 765.8 billion from ARS 800.1 billion, mainly due to lower deposits and provisions, consequently increasing total equity to ARS 148.4 billion from ARS 142.1 billion Consolidated Statement of Financial Position (in thousands of ARS) | Account | 09.30.21 | 12.31.20 | | :--- | :--- | :--- | | Total Assets | 914,205,994 | 942,226,807 | | Cash and deposits in banks | 197,263,229 | 208,324,763 | | Loans and other financing | 327,318,122 | 382,823,323 | | Other debt securities | 173,305,627 | 165,176,550 | | Total Liabilities | 765,802,601 | 800,126,325 | | Deposits | 630,776,028 | 654,964,538 | | Provisions | 5,274,214 | 15,715,478 | | Total Equity | 148,403,393 | 142,100,482 | Consolidated Statement of Income For the nine months ended September 30, 2021, the Group reported a net income of ARS 14.88 billion, a slight increase from ARS 14.72 billion in the same period of 2020, with net interest income growing modestly to ARS 81.90 billion from ARS 79.89 billion, significantly influenced by a positive income tax of ARS 2.22 billion in 2021, compared to an expense of ARS 8.90 billion in 2020, largely due to the reversal of a tax provision Consolidated Statement of Income (in thousands of ARS) | Account | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | | Net interest income | 81,898,211 | 79,886,037 | | Net commission income | 16,187,500 | 12,928,253 | | Operating income | 39,573,792 | 40,895,913 | | Gain (loss) on net monetary position | (26,984,894) | (17,617,723) | | Income before income tax | 12,655,110 | 23,619,323 | | Income tax | 2,220,538 | (8,903,335) | | Net income for the period | 14,875,648 | 14,715,988 | Earnings Per Share Basic and diluted earnings per share for the nine months ended September 30, 2021, were ARS 24.3463, slightly up from ARS 23.8130 for the same period in 2020, with identical figures as the bank has not issued any dilutive financial instruments Earnings Per Share (in ARS) | Metric | 09.30.21 | 09.30.20 | | :--- | :--- | :--- | | Basic earnings per share | 24.3463 | 23.8130 | | Diluted earnings per share | 24.3463 | 23.8130 | Consolidated Statement of Other Comprehensive Income For the nine-month period ended September 30, 2021, the Group reported a Total Other Comprehensive Loss of ARS 417.8 million, a significant shift from a gain of ARS 7.21 billion in the prior-year period, resulting in a Total Comprehensive Income of ARS 14.46 billion for 9M 2021, down from ARS 21.92 billion in 9M 2020 Total Comprehensive Income (in thousands of ARS) | Account | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | | Net income for the period | 14,875,648 | 14,715,988 | | Total Other Comprehensive Income for the period | (417,828) | 7,205,768 | | Total comprehensive income | 14,457,820 | 21,921,756 | Consolidated Condensed Statement of Changes in Shareholders' Equity Shareholders' equity increased from ARS 142.1 billion at the beginning of the year to ARS 148.4 billion as of September 30, 2021, driven by the net income for the period of ARS 14.9 billion, partially offset by cash dividends of ARS 8.15 billion and an other comprehensive loss of ARS 417.8 million - Total equity increased to ARS 148.4 billion, primarily due to net income of ARS 14.9 billion[21] - The company distributed cash dividends of ARS 8.15 billion, equivalent to ARS 13.31 per share[21] - An amount of ARS 40.3 billion from the optional reserve was used to absorb accumulated losses from prior periods[21] Consolidated Condensed Statement of Cash Flows For the nine months ended September 30, 2021, the Group generated ARS 75.3 billion in cash from operating activities, a significant turnaround from the ARS 43.4 billion used in the same period of 2020, with cash used in investing and financing activities being ARS 2.37 billion and ARS 5.04 billion, respectively, resulting in an overall decrease of ARS 11.06 billion in cash and cash equivalents to end at ARS 197.26 billion Net Cash Flows by Activity (in thousands of ARS) | Activity | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | | Operating Activities | 75,300,121 | (43,436,549) | | Investing Activities | (2,367,208) | (1,600,390) | | Financing Activities | (5,040,025) | (9,534,655) | | Total changes in cash flows | (11,061,534) | (88,295,964) | Notes to the Consolidated Condensed Interim Financial Statements This section provides detailed notes on the bank's general information, accounting policies, financial instruments, income tax, investments, and regulatory compliance General Information and Economic Context Banco BBVA Argentina S.A. operates as a universal bank in Argentina, controlled by Spain's Banco Bilbao Vizcaya Argentaria S.A. (BBVA), within a complex economic context characterized by high inflation and financial volatility, with the government extending a Public Emergency Law, and the COVID-19 pandemic impacting operations, leading to various regulatory measures by the Argentine Central Bank (BCRA) aimed at providing credit relief and support to the economy, including the suspension of dividend distributions by financial institutions until December 31, 2021 - The bank is part of the global BBVA group, which holds a 66.55% stake[30] - The operating environment is challenging due to high inflation, financial volatility, and a declared Public Emergency in Argentina, extended until December 31, 2021[38][39] - In response to COVID-19, the BCRA implemented measures such as credit facilities for MSMEs, payment extensions for credit cards, and a suspension of dividend distributions by financial institutions until the end of 2021[47][49] Basis for Preparation and Significant Accounting Policies The financial statements are prepared under the BCRA's framework, which is based on IFRS but includes significant exceptions related to the impairment of non-financial government sector debt, the measurement of the investment in Prisma Medios de Pago S.A., and the accounting for income tax reassessments, with statements also adjusted for hyperinflation per IAS 29, and a key change in accounting policy being the reclassification of certain fixed-income instruments from 'Held to Collect and Sell' (fair value through OCI) to 'Held to Collect' (amortized cost) effective January 1, 2021 - The financial statements deviate from IFRS in three key areas mandated by the BCRA: impairment of government debt, valuation of the Prisma Medios de Pago investment, and accounting for an income tax reassessment provision[54][55][56][59] - Due to Argentina's hyperinflationary economy, the financial statements are restated into constant currency as of September 30, 2021, in accordance with IAS 29[63][64][65] - Effective January 1, 2021, the business model for certain fixed-income instruments used to meet reserve requirements was changed from 'Held to Collect and Sell' to 'Held to Collect', resulting in a reclassification from fair value to amortized cost[76][77][78] Key Financial Instruments Breakdown The bank's financial instruments are detailed across several notes, with 'Loans and other financing' standing at ARS 327.3 billion as of September 30, 2021, credit cards being the largest component, 'Other debt securities' totaling ARS 173.3 billion dominated by BCRA Liquidity Bills, and deposits, the main funding source, amounting to ARS 630.8 billion, while the bank also utilizes derivatives, primarily for foreign currency forwards, and holds a put option related to its Prisma Medios de Pago investment Loans and Other Financing Breakdown (in thousands of ARS) | Category | 09.30.21 | 12.31.20 | | :--- | :--- | :--- | | Credit Cards | 138,341,993 | 156,864,926 | | Consumer loans | 35,681,717 | 38,513,431 | | Discounted instruments | 23,011,178 | 26,182,472 | | Mortgage loans | 21,636,434 | 22,934,622 | | Total (net) | 327,318,122 | 382,823,323 | Other Debt Securities Breakdown (in thousands of ARS) | Category | 09.30.21 | 12.31.20 | | :--- | :--- | :--- | | BCRA Liquidity Bills (FVOCI) | 115,439,146 | 123,111,636 | | Government securities (FVOCI) | 37,788,252 | 41,707,577 | | Government securities (Amortized Cost) | 19,513,734 | - | | Total | 173,305,627 | 165,176,550 | Deposits Breakdown (in thousands of ARS) | Category | 09.30.21 | 12.31.20 | | :--- | :--- | :--- | | Savings accounts | 252,602,583 | 282,033,599 | | Time deposits | 171,910,078 | 164,442,649 | | Checking accounts | 138,422,073 | 154,192,326 | | Total | 630,776,028 | 654,964,538 | Income Tax The bank's income tax situation is complex, influenced by changes in tax law and legal disputes over inflation adjustments, with Law No. 27630 enacted in June 2021 establishing a progressive corporate income tax rate system topping at 35%, applicable from January 1, 2021, and a major event in 2021 being the reversal of a provision for income tax reassessments for fiscal years 2016, 2017, and 2018, following favorable court rulings, totaling ARS 5.4 billion in nominal values, which significantly contributed to the income tax benefit recorded in the period - Law No. 27630, enacted in June 2021, established a progressive income tax rate system, with the highest bracket at 35%, applicable from January 1, 2021[110] - The bank successfully challenged the prohibition of applying inflation adjustments for tax purposes for fiscal year 2016, with the judgment becoming final in February 2021[119][120] - Following favorable legal developments, the bank reversed the entire provision for income tax reassessments related to inflation adjustments for fiscal years 2017 and 2018, totaling ARS 4.26 billion in nominal value[122][123][124] Investments in Equity Instruments and Associates The bank's key equity investment is its remaining 5.44% stake in Prisma Medios de Pago S.A., valued at ARS 1.80 billion, with the valuation based on an independent appraiser's report but adjusted as per BCRA requirements, representing a deviation from IFRS, and the bank holds a put option to sell this remaining stake, initiating the process to exercise this option on October 1, 2021, while investments in associates, accounted for using the equity method, totaled ARS 1.95 billion - The investment in Prisma Medios de Pago S.A. represents a 5.44% stake, valued at ARS 1.80 billion, with its valuation method being a deviation from IFRS as mandated by the BCRA[136] - The bank holds a put option to sell its remaining shares in Prisma Medios de Pago S.A. to the buyer on December 30, 2021[140] - On October 1, 2021, the bank, along with other shareholders, exercised the put option to initiate the sale of the remaining 49% of Prisma's capital stock[141][282] Regulatory Compliance and Other Disclosures The bank is subject to several regulatory constraints, including the BCRA's suspension of profit distribution by financial institutions until December 31, 2021, impacting dividend payments, while the bank maintains capital and liquidity levels above the minimums required by the BCRA and the Argentine Securities Commission (CNV), with a surplus capital of ARS 86.3 billion over the regulatory minimum as of September 30, 2021, and the report also details several ongoing administrative proceedings initiated by the BCRA, primarily related to foreign exchange regulations - The BCRA has suspended the distribution of profits by financial institutions, including dividend payments, until December 31, 2021[247] - The bank's paid-in capital of ARS 133.5 billion exceeds the minimum requirement of ARS 47.2 billion, resulting in a surplus of ARS 86.3 billion as of September 30, 2021[259] - The bank is involved in several administrative proceedings initiated by the BCRA concerning alleged breaches of foreign exchange regulations, though management does not expect an adverse financial impact[273][274][279] Independent Auditors' and Supervisory Committee's Reports This section includes the independent auditors' limited review report and the supervisory committee's report on the interim financial statements Independent Auditors' Limited Review Report The independent auditors, KPMG, concluded that nothing came to their attention to suggest the consolidated condensed interim financial statements were not prepared, in all material respects, in conformity with the accounting standards established by the BCRA, including an "Emphasis of Matter" paragraph highlighting that the BCRA's accounting framework differs from IFRS in certain aspects related to impairment, investment valuation, and income tax reassessment - The auditors issued an unqualified conclusion based on their limited review[315] - An "Emphasis of Matter" was included to draw attention to the deviations from IFRS as mandated by the BCRA's financial reporting framework[316] Supervisory Committee's Report The Supervisory Committee reviewed the interim financial statements and the work of the external auditors, raising no observations and stating that the financial statements reflect all substantial known facts and circumstances, and similar to the auditors, the committee included an emphasis matter paragraph highlighting the deviations from IFRS due to the BCRA's regulatory framework - The Supervisory Committee expressed a favorable opinion on the financial statements, having no observations to raise[453] - The committee's report also emphasized that the financial statements were prepared under the BCRA framework, which differs from IFRS in specific areas[454] Reporting Summary This section provides an overview of the bank's business performance and financial results, along with its outlook Business Overview and Performance BBVA Argentina is a major financial institution with over 2.7 million active customers and a network of 243 branches, where for the nine months ended September 30, 2021, the loan portfolio decreased by 14.44% year-over-year, while deposits grew by 3.53%, and the bank maintained a strong portfolio quality, with an irregular portfolio ratio of 2.54% and a coverage level of 181.76%, with its market share standing at 8.08% in private-sector financing and 7.02% in private deposits Key Performance Indicators (as of 09.30.21) | Metric | Value | | :--- | :--- | | Active Customers | > 2.7 million | | Branches | 243 | | Loan Portfolio (YoY Change) | -14.44% | | Deposits (YoY Change) | +3.53% | | Irregular Portfolio Ratio | 2.54% | | Coverage Ratio | 181.76% | | Market Share (Private Financing) | 8.08% | | Market Share (Private Deposits) | 7.02% | Financial Results and Outlook The bank recorded an accumulated profit of ARS 14.88 billion for the first nine months of 2021, with a return on average equity of 9.56%, and net interest income grew 2.52% YoY, while the outlook remains uncertain due to Argentina's political and economic situation, including negotiations with the IMF, however, the bank believes it is well-positioned due to its low funding costs, strong capital, and high portfolio quality, with digital transformation continuing to be a key focus, as digital customer share reached 74% and mobile customer share 63% - Accumulated profit for 9M 2021 was ARS 14.88 billion, with a ROAE of 9.56%[477] - The economic outlook is uncertain, pending political developments and an agreement with the IMF[480] - Digital adoption continues to grow, with 74% of customers being digital and 63% mobile as of September 2021[482] - The bank is focused on maintaining its strength through transactional funding and organic capital generation, while also advancing its sustainability and responsible banking initiatives[483][484]