Financiera Independencia Reports 1Q10 Net Income up 21.1% to Ps.141.9 Million With Loan Portfolio Growth of 21.6%

MEXICO CITY, April 22 /PRNewswire-FirstCall/ --

• Net income up 21.1% year-on-year for the quarter.
• Client base continues to grow, up 20.5% YoY with 120,872 new clients in 1Q10.
• 1Q10 loan growth driven by Finsol acquisition and CrediPopular, a product targeted to working capital needs, which posted a 45.7% YoY loan portfolio growth.
• Finsol's total loans reached Ps.726.7 million in 1Q10, a 14.0% growth from the Ps.637.2 million posted on Feb 19, 2010, date when the acquisition was closed.
• Finsol's loan origination increased from Ps.259.2 million in Feb 2010 to Ps.340.8 million in March 2010, equivalent to 31.5% sequential growth in the first month of operations under Independencia's control.
• Non-performing loans to total loans down to 10.7% in 1Q10 from 12.0% in 4Q09 and 12.5% in 1Q09. Excluding Finsol, non-performing loans decreased to 11.9% in 1Q10 from 12.0% in 4Q09.
• NIM after provisions including fees declined to 42.3% from 51.2% in 1Q09 and 52.7% in 4Q09 due to a higher cash balance reflecting the US$200 million bond issuance. This is a temporary effect.
• Provisions for loan losses in 1Q10 represented 31.4% of financial margin, compared with 37.6% in 4Q09 and 31.1% in 1Q09, below the 2009 quarterly average which stood at 38.6%.
• Efficiency ratio increased to 77.3% from 75.3% in 1Q09 and 74.2% in 4Q09, mainly due to acquisition of Finsol.
• Funding costs decreased to 8.73% in 1Q10 from 10.64% in 1Q09.
• ROE in 1Q10 down to 24.4% from 35.0% in 4Q09 and 31.8% in 1Q09, mainly due to the Ps.850 million capital increase undertaken during 1Q10 to fund Finsol's acquisition.
• Equity to total assets ratio at 27.2% continues to provide support in the current environment.

Financiera Independencia, S.A.B. de C.V., SOFOM, E.N.R. (BMV: FINDEP), (Independencia) a leading Mexican microfinance lender of personal loans to lower income segment individuals and working capital loans through group lending microfinance, today announced results for the three-month period ended March 31, 2010. Net income for 1Q10 increased 21.1% YoY to Ps.141.9 million.

Commenting on the results, Noel Gonzalez, Chief Executive Officer, said, "We had a positive start of the year. Finsol, following its acquisition in February 2010, already started to show improving results.  Our core business of individual loans continued to report organic growth and we also further improved the quality of our loan portfolio."

"In the first month since taking control, Finsol has shown significant signs of improvement and contributed positively to our net income.  Reflecting the growth opportunities in the market and our significantly larger funding capacity, resources origination showed a significant increase.  During the quarter, Finsol contributed with 152,740 clients and represented 13.4% of the Company's total loan portfolio. During 1Q10 we also continued to achieve organic growth. In fact, excluding Finsol our loan portfolio increased by 5.3% year-on-year."

"But most importantly, we have seen an important improvement in the quality of our loan portfolio as adjustments made to our credit scoring model at the end of 2009 resulted in a sequential decrease in provisions for loan losses. Excluding Finsol, NPLs declined to 11.9% from 12.0% in 4Q09. Finsol's group lending methodology results in lower NPLs which have also contributed to improve the quality of our consolidated loan portfolio."

"The successful placement of a US$200 million bond offering was another important milestone achieved during this quarter. It allowed us to continue to diversify funding sources and has opened access to the international markets."

"Looking ahead, we expect to see a pick up in our growth trends and a continued improvement in our asset quality as a result of actions taken by the Company and more favorable economic conditions," concluded Mr. Gonzalez.

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All financial figures discussed in this announcement are unaudited and are prepared in accordance with Mexican Banking Accounting Principles unless stated otherwise. Figures for 2009 and 2010 are expressed in nominal pesos. Tables state figures in millions of pesos, unless otherwise noted.

1Q10 CONSOLIDATED RESULTS

Unaudited results for 1Q10 include the effect of the consolidation of the acquisition of Financiera Finsol, S.A. de C.V., SOFOM, E.N.R., the second largest group lending microfinance institution in Mexico, and several related companies (collectively, "Finsol") on February 19, 2010.

Financial Margin after Provision for Loan Losses

Financial margin after provision for loan losses for 1Q10 increased 17.7% year-on-year to Ps.526.8 million. This is principally explained by the following:

Interest Income

Interest income for the quarter increased 13.9% year-on-year to Ps.848.3 million, principally as a result of the Ps.98.4 million, or 13.3%, increase in interest income on loans. The total loan portfolio increased 21.6% during the period, reflecting a 20.5% growth in the number of clients and a 0.9% increase in the average balance per client. The increase in number of clients was driven by a 6.9% growth in Independencia´s client base and 152,740 new clients as a result of Finsol's acquisition.

The average lending rate (1) of the total loan portfolio increased to 68.0% from the 66.8% reported in 1Q09 and stood relatively stable from the 68.4% reported in 4Q09. The year-on-year increase was mainly driven by higher participation of loans targeted to the informal sector and the addition of Finsol group loans, all which carry higher interest rates and more than offset the higher level of discounts offered to encourage payments of past due installments. Discounts increased from Ps.88.8 million, or 11.9% of interest income, in 1Q09 to Ps.107.2 million, or 12.6% of interest income, in 1Q10.

Individual loans to the informal sector rose 16.4% year-on-year, driven by growth of the CrediPopular product, which more than offset declines in CrediMama and CrediConstruye. As a percentage of the total loan portfolio, individual loans to the informal sector declined to 30.6% in 1Q10 from 32.0% in 1Q09, due to the inclusion of Finsol loans. CrediPopular loans, rose to 23.3% of total loans in the quarter (26.9% of total loans excluding Finsol) reaching 338,433 clients, up by 69,896 clients, or 26.0%, year-on-year. On a sequential basis, individual loans to the informal sector declined 3.5%, reflecting the increase in the rejection rate from 48% in 4Q09 to 58% in 1Q10 following the increase in the cut off points of our credit scoring model which took place in December 2009.

The CrediInmediato loan product, a revolving line of credit that targets the formal sector, accounted for 55.9% of total loans in 1Q10 down from 68.0% in 1Q09 and 64.3% in 4Q09. Excluding Finsol loans, CrediInmediato represented 64.6% of the total loan portfolio in 1Q10.  The number of CrediInmediato clients in 1Q10 grew by 5.4% year-on-year, while the total loan portfolio of this product remained unchanged year-on-year at Ps.3,020.7 million. On a sequential basis the number of CrediInmediato clients declined 1.1%, while the loan portfolio fell 2.4%, reflecting the increase in the rejection rate described above. The average balance per client decreased from Ps.4,290 in 1Q09 to Ps.4,070, as clients in the formal economy remain cautious on the usage of credit. The average draw down rate declined from 75% in March 2009 to 73% in March 2010.

Finsol's total loans reached Ps. 726.7 million in 1Q10, a 14.0% growth compared to the Ps. 637.2 million recorded in Feb 19, 2010, date in which Finsol was acquired. This monthly increase was driven by growth in Finsol's operations in Mexico and Brazil. Finsol Mexico reported a 25.7% increase in the amount of loans originated from Ps. 207.0 million in February 2010 to Ps. 260.4 million in March 2010. Finsol Brazil, in turn, reported a 54.1% growth in the amount of loans originated from Ps.52.2 million in February 2010 to Ps.80.5 million in March 2010.  The growth in loan origination is a consequence of Finsol not been restricted any longer in terms of funding its loan portfolio.

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(1) Average lending rate: interest income / average balance of the total loan portfolio.

Interest Expense

Interest expense during 1Q10 declined by Ps.14.2 million, or 15.0%, to Ps.80.8 million from Ps.95.0 million on 1Q09, principally reflecting a lower rate on interest bearing liabilities during the period, which more than offset the higher debt levels during the quarter. Debt increased by Ps.3,385.9 million or 93.5% year-on-year, reflecting the Ps.2,511.0 million in debt corresponding to the 144A / Reg S US$200 million senior guaranteed notes issued on March 23, 2010. Proceeds of this issuance will be used to reduce the amounts of outstanding debt under Independencia's revolving credit lines, reduce a portion of Finsol's debt and for general corporate purposes.

The reduction in TIIE (benchmark 28-day interbank lending rate) allowed Independencia to decrease the average interest rate paid (2) on interest bearing liabilities to 8.73% from 10.64% in 1Q09. The average interest rate paid, however, increased from the 7.85% observed in 4Q09 due to the debt issuance described above and as a result of the Finsol acquisition. The average TIIE stood

at 4.92% in 1Q10 compared with 8.00% in 1Q09 and 4.93% in 4Q09.

Provision for Loan Losses

Provisions for loan losses rose year-on-year by 19.1%, or Ps.38.6 million, to Ps.240.7 million in 1Q10. Quarter-on-quarter, however, provisions for loan losses declined 14.5%, or Ps.41.0 million, from Ps.281.7 million in 4Q09, driven by a decrease in Independencia's write-offs from Ps. 283.7 million in 4Q09 to Ps.258.5 million in 1Q10.

The year-on-year increase in provisions for loan losses was driven by higher write-offs at Independencia's operations (excluding Finsol) during the period. Write-offs rose 14.0%, or by Ps.31.7 million, to Ps.258.5 million in 1Q10 from Ps.226.7 million in 1Q09.  Total non-performing loans reached Ps.578.8 million, up 19.1% from Ps.486.0 million at March 31, 2009. On a sequential comparison, non-performing loans increased 0.5%. Excluding Finsol, total non-performing loans decreased 3.6% to Ps. 555.4 million in 1Q10 from Ps.576.1 million in 4Q09.

Market Related Income

As a result of our recent US dollar bond issuance and due to our internal policy of hedging such exposure, our Risk Management Committee approved a hedging strategy composed of the following two derivative transactions:

1. An interest rate swap to exchange the 10% fixed coupon payments computed on the US.200 million principal amount to a floating rate (TIIE + 393 bps) computed on a notional amount of Ps.2,511 million.  With this instrument we are hedging the exchange rate exposure of the coupons for the entire life of the bond.
2. A rolling forward to hedge the principal amount of the bond.  This strategy will be continuously rolled over during the entire life of the bond.  At inception, we entered into a six-month forward for a notional amount of US.200 million at an exchange rate of 12.8355 pesos per US$.

During 1Q10, the combined effects of the transactions mentioned above on our Income Statement are the following: a foreign exchange gain of Ps.44.8 million derived from the valuation of the bond, partially offset by a Ps.39.4 million loss due to fair value of the swap, resulting in a Ps.5.4 million net impact accounted as Market Related Income.  Also, there is a Ps.45.2 million impact reflected on our Stockholders' Equity due to the valuation of the forward.  

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(2) average interest rate paid = interest expense / daily average balance of interest bearing liabilities for the period.

Net Operating Revenue

Net operating revenue increased year-on-year by Ps.118.4 million, or 19.3%, to Ps.731.2 million in 1Q10 due to the reasons stated above and the increase in other income (expense) of operations.

During the quarter, the Company reported other income from operations of Ps.25.6 million which resulted mainly from a Ps.18.2 million increase in income from restructured loans. On a sequential comparison, net operating revenue increased 6.6% from Ps.686.1 million in 4Q09, principally as a result of the 14.5% decline in provisions for loan losses and the 2.4% increase in financial margin, which more than offset the 8.3% decline in non-interest income, net.

Net Operating Income

Net operating income for 1Q10 increased year-on-year by Ps.14.8 million, or 9.8%, to Ps.166.1 million. On a sequential comparison net operating income declined 6.3% from Ps.177.2 million in 4Q09.

Total non-interest expense increased year-on-year by Ps.103.5 million, or 22.4%, to Ps.565.1 million in 1Q10 from Ps.461.6 million in 1Q09.  Excluding Finsol, total non-interest expense rose 8.8% YoY. This was driven by an increase in salaries and employee benefits reflecting the 870 people added to the collection force and higher operational expenses as a result of additional costs incurred in connection with the 2010 marketing plan and as a result of the implementation of new centralized collection strategies. On a sequential basis, total non-interest expenses rose by 11.0% from Ps.508.9 million in 4Q09. Excluding Finsol, total expenses decreased by 1.3%.

During the quarter, Independencia reported under operational expenses Ps.6.6 million of extraordinary items, of which Ps.5.4 million are related to Finsol restructuring charges and Ps.1.2 million related to the process of applying for a banking license.

During the year, the Company added a total of 172 branches to its network, of which 165 resulted from the acquisition of Finsol. In the same period, Independencia also opened seven new offices, five of which were opened in 1Q10, bringing the total network to 369 units at the end of the quarter.

Net Income

As a result of the factors discussed above, and after other income and expenses, as well as income tax, net income for 1Q10 increased year-on-year by Ps.24.7 million, or 21.1%, to Ps.141.9 million. Earnings per share (EPS) for the quarter were Ps.0.1985 compared with Ps.0.1861 for the same period of last year.

Finsol Contribution

With approximately one month of operations under Financiera Independencia's control, during 1Q10 Finsol contributed with Ps. 3.9 million, or 2.7%, of consolidated net income. This is explained by a Ps.55.8 million, or 10.6%, contribution to financial margin after provision for loan losses. Finsol's loan origination increased by 31.5% during the period, from Ps.259.2 million in Feb 2010 to Ps. 340.8 million in March 2010. Additionally, Finsol contributed with Ps.62.9 million, or 11.1%, of consolidated expenses and Ps.12.3 million of other income.

FINANCIAL POSITION

Total Loan Portfolio

The total loan portfolio rose year-on-year by 21.6% to Ps.5,403.6 million, reflecting a 20.5% increase in the number of clients during the period, and a 0.9% increase in the average outstanding balance. During the period, Independencia contributed with 77,841 new clients, while 152,740 clients were added through the Finsol acquisition. As of March 31, 2010 Independencia had 1,356,964 clients.

The total loan portfolio represented 52.9% of Independencia's total assets as of March 31, 2010, compared with 81.9% of total assets on March 31, 2009. Cash and Investments represented 57.4% of total loans for 1Q10 compared with 6.9% in 1Q09, reflecting proceeds from the US$200 million five-year senior notes issued on March 23, 2010. This is a temporary effect as cash will be deployed during the following quarters to reduce the usage of the lines of credit outstanding.

Non-Performing Loan Portfolio

Total non-performing loans reached Ps.578.8 million, up 0.5% on a sequential basis from Ps.576.1 million at December 31, 2009 and up 19.1% from March 31, 2009. The NPL ratio declined to 10.7% in 1Q10, from 12.0% in 4Q09 and 10.9% in 1Q09. Excluding Finsol, total non-performing loans reached Ps.555.4 million down 3.6% from 4Q09 and up 14.3% year-on-year.

The NPL ratio in the CrediInmediato product in 1Q10 was 11.1%, compared with 11.6% in 4Q09 and 11.9% in 1Q09. The NPL ratio for the individual informal segment rose to 13.4% in 1Q10, from 12.7% in 4Q09 and 8.8% in 1Q09. At the group lending segment (Finsol), the NPL ratio was 2.4% in Mexico and 5.4% in Brazil during 1Q10.

The coverage ratio for 1Q10 was 75.1%, compared with 73.4% in 4Q09 and 67.1% in 1Q09. The increase in coverage ratio reflects a higher probability of default in our loan portfolio.

Liabilities

As of March 31, 2010 total liabilities were Ps.7,433.0 million, a 91.6% increase from Ps.3,878.5 million in March 31, 2009. Of this, Ps.2,511.0 million reflects the US$200 million bond issuance. The increase in total liabilities is also the result of higher financing needs as a consequence of the growth of the loan portfolio and overall working capital needs. On a sequential comparison, total liabilities increased 81.9% from Ps.4,087.1 million in December 31, 2009.

At the end of 1Q10, Independencia's debt consisted of Ps.2,511.0 million (US$200 million) in senior guaranteed notes described above (due March 2015), Ps.784.0 million in medium-term notes "Certificados Bursatiles" (due June 2011) as well as Ps.3,713.0 million of bank and other entities loans. Independencia's total available lines of credit amount to Ps.4,200 million. Of the total lines of credit, Ps.700 million are due in March 2011, Ps.1,250 million in December 2012, Ps.1,250 million in December 2013 and the remaining Ps.1,000 million has an evergreen feature. Additionally, Finsol's total available lines of credit with third parties amount to Ps.1,265.7 million plus a US$4.0 million line of credit of Finsol Brasil.

On February 24, 2010 the Company's Board of Directors approved a Ps. 500.0 million line of credit for Finsol's entities. As of March 31, 2010 Finsol has used Ps.42.7 million or 8.5% of this facility.

During 3Q09 Independencia purchased an interest rate cap to hedge the risk of a significant increase in interest rates in Mexico. The Company is hedged for the following six months for any increase in TIIE beyond 7.0% for a notional amount of Ps.3,600 million.

Stockholders' Equity

As of March 31, 2010 stockholder's equity was Ps.2,783.6 million, an 80.2% increase from Ps.1,544.6 million in March 31, 2009. This increase principally reflects the 85,000,000 share capital increase concluded on February 5, 2010. All shares were subscribed at the issue price of Ps.10.00 per share. Proceeds of Ps.850 million from the capital increase were used to finance the Ps.530 million acquisition of Finsol, as announced on November 30, 2009. Proceeds were also used to strengthen the balance sheets of the companies acquired by Ps.310 million. This was undertaken during the last week of February

The year-over-year increase in stockholders' equity is also attributable to net income generated during the period, which more than offset the share buyback program of the Company.

Finsol's Contribution

Finsol's Ps.726.7 million loan portfolio accounted for 13.4% of the Company's consolidated loan portfolio. Finsol's total non-performing loans amounted to Ps.23.4 million, equivalent to an NPL ratio of 3.2%. As of March 31, 2010 Finsol reported total liabilities of Ps.1,037.2 million, representing 13.9% of consolidated total liabilities, of which Ps.866.8 million were bank and other entities' loans. During 1Q10, Finsol contributed to stockholders' equity with Ps.3.8 million from net income generated during the period. Consolidated stockholders' equity as of March 31, 2010 was Ps.2,783.6 million

PROFITABILITY AND EFFICIENCY RATIOS

ROAE/ROAA

ROAE for 1Q10 was 24.4% compared with 31.8% in 1Q09 and 35.0% in 4Q09. ROAE for 1Q10 reflects the Ps.850 million capital increase described above.

ROAA for 1Q10 was 7.0% compared with 8.7% in 1Q09 and 11.0% in 4Q09 and reflects the high level of cash as of 1Q10 as a consequence of the US$ bond issuance.

Efficiency Ratio & Operating Efficiency

Through the acquisition of Finsol and organic growth, from 1Q09 to 1Q10 Independencia increased the size of its loan portfolio by 21.6% and the number of clients by 20.5%. The Company also added a net of 172 offices and increased its total labor force by 24.4% to 11,460 people.

During 1Q10 the Company's efficiency ratio (including provisions) was 77.3%, compared with 75.3% in 1Q09 and 74.2% in 4Q09. The year-on-year increase is principally the result of the Finsol acquisition. Excluding Finsol, the efficiency ratio (including provisions) would have been 74.1%, and total expenses would have increased 8.8% year-on-year, in line with the 8.8% increase in financial margin for the period. Operating efficiency was 28.0% in 1Q10, down 620 bps in year-on-year and 700 bps quarter-on-quarter.

DISTRIBUTION NETWORK

At the end of the quarter, Independencia operated 369 offices in Mexico and Brazil. This includes 304 offices in Mexico of which 204 operated under the Financiera Independencia brand name and 149 offices under the Finsol brand name. The Company also operated 16 branches in Brazil under the Finsol Brazil brand name.

During the last twelve months, the Company increased  by seven its Financiera Independencia branches, five of which were opened during 1Q10 in the states of Baja California, Jalisco and Veracruz.

The Company's total loan portfolio is well diversified and no federal entity represents more than 10.5% of the total loan portfolio. The three federal entities with the highest loan portfolio concentration are Veracruz, Tamaulipas and Jalisco, with a 10.5%, 8.7%, and 7.4% share of the total portfolio, respectively.

KEY EVENTS

Financiera Independencia Announces Successful Bond Offering for US$200 million in the International Markets

On March 23, 2010 Independencia announced it successfully placed a 144A / Reg S US$200 million of senior guaranteed notes ("the Notes".) The Notes have a 5-year maturity and pay an annual interest rate of 10% and are rated BB- by both Standard & Poor's and Fitch. Net proceeds from the Notes Offering will be used mainly to reduce the amounts of outstanding debt under certain of our revolving credit lines and for general corporate purposes. This successful transaction, which constitutes the first international debt offering by a Microfinance institution in Latin America, brings the Company one step closer to achieving its medium term goal of diversifying funding sources so that no single institution represents more than 25 percent of the Company's funding. Bank of America Merrill Lynch and Morgan Stanley acted as joint bookrunners in this transaction.

Fitch Ratings Affirms Financiera Independencia's Credit Ratings and Removes Negative Outlook

On March 16, 2010 Fitch Ratings affirmed Financiera Independencia's A(mex) long-term and F1 (mex) short-term national-scale corporate credit ratings. Fitch also affirmed the A(mex) rating of its Ps.1,5000,000 Long-Term Notes Program "Certificados Bursatiles" and the first issuance under this Program. In addition, Fitch raised Independencia's long-term credit ratings outlook to "Stable" from "Negative".

1Q10 EARNINGS CONFERENCE CALL

About Financiera Independencia:

Financiera Independencia, S.A.B. de C.V., SOFOM, E.N.R. (Independencia), is a Mexican microfinance lender of personal loans to individuals and working capital loans through group lending microfinance. Independencia provides microcredit loans on an unsecured basis to individuals in the low-income segments in Mexico in urban areas of both the formal and informal economy. As of March 31, 2010, Independencia had a total outstanding loan balance of Ps.5,403.6 million, operated 369 offices in Mexico and Brazil and had a total labor force of 11,460 people. The Company listed on the Mexican Stock Exchange on November 1, 2007, where it trades under the symbol "FINDEP". On November 30, 2009 Independencia launched a sponsored Level I American Depositary Receipt (ADR) program in the United States. Each ADR represents 15 shares of Independencia common stock and trades over-the-counter (OTC). More information can be found at www.independencia.com.mx

Some of the statements contained in this press release discuss future expectations or state other forward-looking information. Those statements are subject to risks identified in this press release and in Financiera Independencia's filings with the Mexican Stock Exchange. Actual developments could differ significantly from those contemplated in these forward-looking statements. The forward-looking information is based on various factors and was derived using numerous assumptions. Our forward-looking statements speak only as of the date they are made and, except as may be required by applicable law, we do not have an obligation to update or revise them, whether as a result of new information, future or otherwise.

SOURCE Financiera Independencia, S.A.B. de C.V., SOFOM, E.N.R.