Financiera Independencia Reports 3Q10 Net Income up 11.6% to Ps.112.9 Million with Loan Portfolio Growth of 16.9%

MEXICO CITY, Oct. 21 /PRNewswire-FirstCall/ --

• Net income up 11.6% for the quarter and 12.1% for the first nine months, year-on-year.
• Total loan portfolio growth of 16.9% YoY, driven by a 12.2% increase in client base, mainly from CrediPopular and Finsol.
• Finsol's total loans reached Ps.973.6 million in 3Q10, a 24.3% sequential growth from the Ps.783.4 million posted on 2Q10.
• Non-performing loans to total loans ratio improved to 10.5%, compared to 12.5% in 3Q09.
• NIM after provisions including fees was 41.1% in 3Q10 below the 46.0% in 3Q09, reflecting the effect of the surplus cash remaining from the US$200 million bond issue.  For the first nine months of the year this ratio stood at 49.7% compared to 48.2% in 9M09.
• Provisions for loan losses in 3Q10 represented 31.1% of financial margin, compared with 45.2% in 3Q09, and 32.5% in 2Q10.
• Efficiency ratio was 84.5% in 3Q10, compared to 77.7% a year ago.
• Equity to total assets increased to 34.7% from 31.5% in 3Q09, and 34.1% in 2Q10.
• ROE in 3Q10 down to 15.1% from 19.8% in 2Q10 and 23.2% in 3Q09, mainly due to the Ps.850 million capital increase in 1Q10 to fund Finsol's acquisition. For the first nine months of the year the ROE was 21.9%, compared to 29.7% in 9M09.

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, announced today results for the three-month period ended September 30, 2010. Net income for 3Q10 increased 11.6% YoY to Ps.112.9 million.

Commenting on the results, Noel Gonzalez, Chief Executive Officer, said, "We continue to take the necessary actions to strengthen our business and position ourselves for future growth.  Our NPLs have improved gradually and we are seeing decreasing default probabilities across all segments."

Finsol, our group lending segment, continues to show a strong performance, with the loan portfolio growing sequentially by 24.3% this quarter. Furthermore, the number of individuals in each  group increased in size, and this has resulted in improved productivity and better asset quality. We are very well positioned to continue to deliver healthy growth in this segment."  

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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.

3Q10 CONSOLIDATED RESULTS

Unaudited results for 3Q10 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 3Q10 increased 37.2% year-on-year to Ps.533.8 million. This is principally explained by the following:

Interest Income

Interest income for the quarter increased 14.6% year-on-year to Ps.897.1 million, principally as a result of the Ps.103.2 million, or 13.2%, increase in interest income on loans. The total loan portfolio increased 16.9% during the period, reflecting a 12.2% growth in the number of clients and a 4.2% increase in the average balance per client. The growth in the number of clients was driven by a 19.4% sequential increase in Finsol's client base.

The average balance per client increased from Ps.3,943 in 3Q09 to Ps.4,108.3 in 3Q10, driven by the acquisition of Finsol and the sequential increase in its client base, while the average lending rate(1) of the total loan portfolio decreased to 65.3% 3Q10 compared to 66.6% 3Q09.

Individual loans to the informal sector decreased 2.5% year-on-year, driven by a 40.5% decline in CrediConstruye, even though CrediPopular and CrediMama grew 8.1% and 10.7% respectively. As a percentage of the total loan portfolio, individual loans to the informal sector declined to 29.1% in 3Q10 from 34.8% in 3Q09, due to the inclusion of Finsol group loans and the continued growth of its loan portfolio. CrediPopular loans accounted for 22.7% of total loans in the quarter reaching 332,264 clients, up by 6,494 clients, or 2.0%, year-on-year. On a sequential basis, individual loans to the informal sector declined 1.3%.

The CrediInmediato loan product, a revolving line of credit that targets the formal sector, accounted for 53.6% of total loans in 3Q10 down from 65.2% in 3Q09 and 55.6% in 2Q10.  The number of CrediInmediato clients in 3Q10 decreased by 1.0% year-on-year, while the total loan portfolio of this product decreased by 3.9% to Ps.3,001.6 million. Consumer loans provided by the Mexican banking system, however, fell by 4.8% during the same period. The average balance per contract for CrediInmediato was Ps.4,097 in 3Q10, down 2.9% year-on-year, with the draw-down rate decreasing from 75.1% to 73.5%.  On a sequential basis the number of CrediInmediato clients declined 0.7%, while the loan portfolio increased 0.3%.

Finsol's total loans reached Ps.973.6 million in 3Q10, a 24.3% increase from the Ps.783.4 million reported in 2Q10. This increase was driven by growth in both the Mexican and Brazilian operations. During 3Q10, a total of Ps.852.9 million in loans were originated at Finsol Mexico and Ps.255.5 million at Finsol Brazil.

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

Interest Expense

Interest expense during 3Q10 increased by Ps.48.4 million, or 65.8%, to Ps.121.9 million from Ps.73.5 million on 3Q09, reflecting the US$200 million 144A / Reg S senior guaranteed notes issued on March 23, 2010. Debt increased by Ps.1,491.4 million or 51.5% year-on-year. A portion of the proceeds of this issuance was used during the quarter to reduce the amount of outstanding debt under the Company's revolving credit lines.

The average interest rate paid(2) increased to 11.14% in 3Q10 from the 7.85% reported in 3Q09, also as a result of the bond issuance mentioned above. The average TIIE remained flat at 4.9% in 3Q10 compared to 3Q09.

Provision for Loan Losses

Provisions for loan losses declined year-on-year by 24.7%, or Ps.79.0 million, to Ps.241.3 million in 3Q10, reflecting an improving trend in the default probabilities of the loan portfolio. Write-offs in 3Q10 decreased 6.9% year-over-year, or by Ps.19.4 million, to Ps.262.4 million in 3Q10.  Excluding Finsol, write offs decreased to Ps.246.6 million in 3Q10 from Ps.281.8 million in 3Q09.  Total non-performing loans reached Ps.585.8 million, down 2.2% from Ps.599.2 million on September 30, 2009.  Excluding Finsol, total non-performing loans decreased Ps.33.1 million, or 5.5% compared to 3Q09.

Quarter-on-quarter, provisions for loan losses decreased by 2.0%, or Ps.5.0 million, from Ps.246.3 million in 2Q10 to Ps.241.3 million in 3Q10. Also, on a sequential basis, write offs decreased from Ps.263.6 million in 2Q10 to Ps.262.4 million in 3Q10.

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

Market Related Income

The Company's Risk Management Committee decided to fully hedge the Company's currency exposure.  Therefore, we proceeded to unwind our previous derivatives position, which consisted of a coupon swap and the rolling forward position, and executed a full cross currency swap.  The unwinding of our previous structure and the mark to market valuation of the bond and the derivatives resulted in a negative impact of Ps.33.1 million in 3Q10.

The breakdown of this effect is: a Ps.32.0 million loss as a result of the unwinding of the previous derivatives position used to hedge the Company's currency exposure and the marking to market of the bond and the derivatives position held during the quarter, including the cross currency swap, and a Ps.1.1 million loss due to hedge-ineffectiveness, as defined by Mexican Banking GAAP.

Going forward, the mark to market impact of the cross currency swap and the valorization of the bond will be reported on the Stockholders Equity line on the Balance Sheet.  Only the portion defined as hedge ineffectiveness will be reported on the Financial Statement as Market Related Income.

Net Operating Revenue

Net operating revenue increased year-on-year by Ps.120.7 million, or 20.7%, to Ps.703.0 million in 3Q10 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.15.2 million, including Ps.9.3 million from written off loans that were sold, and Ps.5.9 million from restructured loans. On a sequential comparison, net operating revenue decreased 14.4% from Ps.821.6 million in 2Q10.

Net Operating Income

Net operating income for 3Q10 decreased year-on-year by Ps.21.0 million, or 16.2%, to Ps.108.6 million. On a sequential comparison net operating income declined 32.4% from Ps.160.6 million in 2Q10.

Total non-interest expense increased by Ps.141.7 million, or 31.3%, to Ps.594.4 million in 3Q10 from Ps.452.7 million in 3Q09.  Excluding Finsol and non-recurring items, total non-interest expense rose 13% year-on-year, mainly as a result of higher marketing expenses related to the Company's media campaign and an increase in the head count of the collection force. For 3Q10 Finsol's non-interest expense was Ps.119.1 million, decreasing 21% on a sequential basis, mainly due to the non-recurring expenses reported in 2Q10.

During the last twelve months, the Company added a total of 172 branches to its network, of which 163 resulted from the Finsol acquisition, bringing the total network to 370 units at the end of the quarter.

Net Income

As a result of the factors discussed above, and after other income and expenses, and income tax, net income for 3Q10 increased year-on-year by Ps.11.8 million, or 11.6%, to Ps.112.9 million.

Earnings per share (EPS) for the quarter were Ps.0.1577 compared with Ps.0.1605 for the same period of last year.

Finsol Contribution

During 3Q10 Finsol generated Financial Margin after Provisions of Ps.119.1 million, or 22.3% of consolidated results, and Net Operating Revenue of Ps.121.4 million, or 17.3% of consolidated results.   Additionally, Finsol contributed with Ps.119.1 million of Non-Interest Expense, or 20.0% of consolidated results.  For 3Q10, Finsol's average monthly loan origination increased by 25.4% compared to 2Q10

FINANCIAL POSITION

Total Loan Portfolio

The total loan portfolio rose year-on-year by 16.9% to Ps.5,603.3 million, reflecting a 12.2% increase in the number of clients during the period, and a 4.2% increase in the average outstanding balance. During this period, Finsol contributed with 193,949 clients. As of September 30, 2010 Independencia had 1,363,913 clients.

The total loan portfolio represented 65.2% of Independencia's total assets as of September 30, 2010, compared with 84.5% of total assets on September 30, 2009.

Cash and Investments represented 13.7% of total assets for 3Q10 compared with 5.5% in 3Q09, reflecting proceeds from the US$200 million five-year senior notes issued on March 23, 2010. A considerable part of the cash has already been deployed to reduce the usage of the outstanding lines of credit.

Non-Performing Loan Portfolio

Total non-performing loans reached Ps.585.8 million, down 3.3% on a sequential basis from Ps.605.6 million on June 30, 2010 and down 2.2% from September 30, 2009. The NPL ratio declined to 10.5% in 3Q10, from 12.5% in 3Q09 and 11.2% in 2Q10. Excluding Finsol, total non-performing loans reached Ps.566.1 million, down 5.5% year-on-year.

The NPL ratio in the CrediInmediato product in 3Q10 was 13.0%, compared with 13.2% in 3Q09. The NPL ratio for the individual informal segment decreased to 10.7% in 3Q10, from 12.3% in 2Q10 and also improved compared to the 11.2% in 3Q09. The NPL ratio in 3Q10 for the group lending segment (Finsol) was 2.0% in Mexico and 2.1% in Brazil, compared to 1.8% and 3.8% respectively, in 2Q10.

The coverage ratio for 3Q10 was 68.0%, compared with 68.9% in 2Q10 and 70.9% in 3Q09. The decrease in the coverage ratio reflects a lower probability of default in our loan portfolio.

Liabilities

As of September 30, 2010 total liabilities were Ps.5,612.4 million, a 44.5% increase from Ps.3,884.7 million reported on September 30, 2009. Of these, Ps.2,614.0 million reflect the US$200 million bond issue. On a sequential comparison, total liabilities decreased 3.2% from Ps.5,799.4 million in June 30, 2010, reflecting a reduction in the use of the Company's credit lines.

At the end of 3Q10, Independencia's debt consisted of Ps.2,614.0 million (US$200 million) of senior guaranteed notes as described above (due March 2015), Ps.785.5 million in medium-term notes "Certificados Bursatiles" (due June 2011) as well as Ps.2,218.2 million of bank and other entities loans. Independencia's total available lines of credit amounted to Ps.4,200 million at the end of 3Q10.

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 have an evergreen feature. In addition, at the end of the quarter Finsol had a total of Ps.1,264 million in available lines of credit with third parties.

On July 27, 2010 the Company's Board of Directors approved a Ps.1,000 million line of credit for the Finsol entities. As of June 30, 2010 Finsol has used Ps.755 million of this facility.  On October 20, 2010 the Board of Directors approved an increase of this facility to Ps.1,500 million.

In June, the Company purchased an interest rate cap to hedge for a period of twelve months starting October 8, 2010 for any increase in TIIE beyond 7.0% for a notional amount of Ps.5,500 million.

Stockholders' Equity

As of September 30, 2010 stockholder's equity was Ps.2,987.9 million, a 66.9% increase from Ps.1,790.1 million on September 30, 2009. This increase principally reflects the 85,000,000 share capital increase completed 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, during the last week of February.

As a result of the revaluation of foreign currency denominated debt and the underlying derivatives position to hedge foreign exchange risk, there is a Ps.73.0 million impact recorded as Financial Instruments - Derivatives. The breakdown of this impact is as follows: a (Ps.168.2) million due to marking to market the Cross Currency Swap, Ps.94.1 million due to the revalorization of the bond, and Ps.1.1 million due to hedge-ineffectiveness.

The year-on-year increase in stockholders' equity is also attributable to net income generated during the period.

Finsol's Contribution

Finsol's Ps.973.6 million loan portfolio accounted for 17.4% of the Company's consolidated loan portfolio. Finsol's total non-performing loans amounted to Ps.19.7 million, equivalent to an NPL ratio of 2.0%. As of September 30, 2010 Finsol reported Ps.499.4 million in bank and other entities loans.

PROFITABILITY AND EFFICIENCY RATIOS

ROAE/ROAA

ROAE for 3Q10 was 15.1% compared with 23.2% in 3Q09 and 19.8% in 2Q10. ROAE for 3Q10 reflects the Ps.850 million capital increase described above. For the first nine months of the year the ROE was 21.9%, compared to 29.7% in 9M09.

ROAA for 3Q10 was 5.2% compared with 7.1% in 3Q09 and 6.0% in 2Q10 and reflects the high level of cash as of 3Q10 as a consequence of the bond issue.

Efficiency Ratio & Operating Efficiency

From 3Q09 to 3Q10 Independencia increased the size of its loan portfolio by 16.9% and the number of clients by 12.2%. The Company also added a net of 172 offices and increased its total labor force by 16.3% to 11,153 people.  

During 3Q10 the Company's efficiency ratio (including provisions) was 84.5%, compared with 77.7% in 3Q09 and 80.5% in 2Q10. The year-on-year increase is principally the result of the Finsol acquisition, as explained previously. Operating efficiency was 27.3% in 3Q10, down 4.4 pp on a year-on-year basis, and 0.5 pp quarter-on-quarter. Excluding Finsol the operating efficiency ratio in 3Q10 was 28.1%.

DISTRIBUTION NETWORK

At the end of the quarter, Independencia operated 370 offices in Mexico and Brazil. This includes 352 offices in Mexico of which 207 operated under the Financiera Independencia brand name and 145 offices under the Finsol brand name. The Company also operated 18 branches in Brazil under the Finsol Brazil brand name.

The Company's total loan portfolio is well diversified and no federal entity represents more than 10.9% of the total loan portfolio. The three federal entities with the highest loan portfolio concentration are Veracruz, Tamaulipas and Jalisco, with a 10.9%, 8.8%, and 7.0% share of the total portfolio, respectively.

KEY EVENTS

Financiera Independencia Ordinary Shareholders meeting approves cash dividend of Ps.0.21 per share

On September 21, 2010, Financiera Independencia announced that on the Ordinary Shareholders Meeting held September 20, 2010, its shareholders approved the payment of a cash dividend to be charged to the balance of the net tax profit account of the Company, in the amount of Ps 0.21 Mexican currency per share, to be paid on three equal installments of Ps 0.07 Mexican currency per share on the following dates:

(i) First Installment: September 29, 2010

(ii) Second Installment: December 15, 2010

(iii) Third Installment: March 15, 2011

All resources with which the Company will pay the aforementioned cash dividend will come from the net tax profit account; therefore, no amount shall be withheld to the stockholders.

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 September 30, 2010, Independencia had a total outstanding loan balance of Ps.5,603.3 million, operated 370 offices in Mexico and Brazil and had a total labor force of 11,153 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.