Financiera Independencia Reports 2Q12 Results

MEXICO CITY, July 26, 2012 /PRNewswire/ --

• Total loan portfolio reached Ps.7,372.1 million, a 9.3% year-over-year increase, driven by growth in Independencia's individual loans and Apoyo Economico Familiar
• Independencia's individual new loan origination increased to Ps.1,184.3 million, up 18.9% YoY
• Non-performing loans ratio increased to 10.4% in 2Q12 from 9.8% in 1Q12 and 9.8% in 2Q11
• NIM after provisions including fees decreased to 42.3% in 2Q12 from 45.7% in 2Q11
• Provisions for loan losses rose to 45.3% of financial margin in 2Q12, from 42.7% in 1Q12 and 34.0% in 2Q11
• Funding cost decreased to 10.76% in 2Q12 from 10.82% in 2Q11 and 10.90% in 1Q12
• Net loss of Ps.38.2 million for 2Q12 compared with Net income of Ps.57.0 million in 2Q11
• Equity to total assets of 28.3% compared with 28.4% in 2Q11 and 28.6% in 1Q12
• ROE in 2Q12 was negative 5.1%, compared with 7.6% in 2Q11.

Financiera Independencia, S.A.B. de C.V., SOFOM, E.N.R. (BMV: FINDEP; OTC: FNCRY), ("Findep" or the "Company") 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- and six-month periods ended June 30, 2012. During 2Q12 the Company recorded a Net loss of Ps.38.2 million compared with Net income of Ps.57.0 million in 2Q11.

Commenting on the results, Noel Gonzalez, Executive Vice President and Group CEO, said, "This has been a challenging quarter in terms of profitability. We are pleased to see, however, ongoing growth in our top line as the strategies put in place to strengthen our operations continue to deliver positive results."

Looking forward, we remain focused on improving asset quality to reduce provisions for loan losses and thus improve the profitability of our business."

In line with this, the recent appointment of Mr. Mauricio Galan as CEO of Financiera Independencia, will contribute to better positioning the Company in a more challenging competitive environment, as we continue to expand our business and improve efficiencies. In addition to strengthening our management team, this allows me the flexibility to focus on fulfilling a more strategic role in our group of companies." concluded Mr. Gonzalez.

All financial figures discussed in this announcement are unaudited and are prepared in accordance with Mexican Banking Accounting Principles unless stated otherwise. Figures for 2011 and 2012 are expressed in nominal pesos. Tables state figures in millions of pesos, unless otherwise noted. Independencia: refers to operations excluding the acquisitions of Finsol, AEF and AFI.   NM: Not Meaningful

2Q12 CONSOLIDATED RESULTS

Unaudited results for 2Q12 include the effect of the consolidation of the following acquisitions: Apoyo Economico Familiar ("AEF"), one of the largest unsecured personal lending institutions in Mexico, on March 15, 2011; Apoyo Financiero Inc. ("AFI"), a microfinance company primarily serving the unbanked Hispanic community in San Francisco, California, on February 28, 2011; and Financiera Finsol, one of the largest group lending microfinance institutions in Mexico, and Instituto Finsol Brazil (collectively, "Finsol") on February 19, 2010.

Financial Margin after Provision for Loan Losses

Financial margin after provision for loan losses for 2Q12 decreased 5.0% year-on-year to Ps.566.3 million. This is principally explained by the following:

Interest Income

Interest income for the quarter increased 12.0% year-on-year to Ps.1,223.8 million, mainly as a result of the Ps.130.1 million, or 11.9%, increase in interest income on loans. The total loan portfolio increased 9.3% during the period. Growth was driven by a 13.3% increase in the average balance per client, particularly the considerably higher average balance per client at AEF and AFI's larger share of the total loan portfolio. Furthermore, during the quarter, the Company terminated 125,851 clients' revolving lines of credit, which had zero balance and had remained inactive for the previous six months.

The average balance per client increased to Ps.5,050 in 2Q12 from Ps.4,459 in 2Q11. The average lending rate¹ of the total loan portfolio rose to 66.4% in 2Q12 from 65.7% in 2Q11, but decreased from 68.5% in 1Q12. The year-on-year increase was mainly driven by AEF's higher share of the total loan portfolio and by an increase in the average lending rate in Independencia's individual loan portfolio from 60.4% in 2Q11 to 62.5% in 2Q12.

Findep's total informal sector loans increased 13.3% year-on-year to Ps.3,777.1 million in 2Q12, representing 51.2% of the loan portfolio. Growth reflects increases of 13.1% in Finsol Mexico group loans and 21.3% in AEF's informal sector loan portfolio. Independencia's individual loans to the informal sector rose by Ps.249.9 million, or 15.4% year-on-year, driven by growth of 21.2% in the CrediPopular product. The share of non-Independencia loans to the informal sector increased to 25.9% of Findep's total loans in 2Q12 from 25.5% in 2Q11, reflecting the growth of Finsol and AEF which have contributed to further diversify the Company's business.

The Company's total formal sector loans represented 48.8% of the total loan portfolio and increased by 5.5% to Ps.3,595.0 million in 2Q12, from Ps.3,408.7 million in 2Q11. This was mainly driven by the CrediInmediato loan product. Growth in AEF and AFI formal loans also contributed to the year-on-year increase. The CrediInmediato loan portfolio, rose year-on-year by Ps.87.9 million, or 3.0%, to Ps.2,971.5 million. However, this product represented a lower share of Findep's total loan portfolio, accounting for 40.3% of total loans in 2Q12, from 42.8% in 2Q11 and 40.6% in 1Q12.  On a sequential basis, the number of CrediInmediato clients decreased 18.1% reflecting the termination of 125,851 revolving lines as described above. CrediInmediato's average balance per contract was Ps.5,097 in 2Q12, up 24.3% year-on-year and 21.1% quarter-on-quarter.  

Finsol's total loans reached Ps.1,429.9 million in 2Q12, a 8.2% increase from 2Q11, but a 2.6% decrease from the Ps.1,467.5 million reported in 1Q12. During 2Q12, a total of Ps.1,113.5 million loans were originated at Finsol Mexico and Ps.310.0 million at Finsol Brazil, representing sequential growth of 0.6% and 8.2%, respectively. Starting in 1Q12, and to improve asset quality in a more challenging competitive environment, the Company implemented more restrictive policies in the group loan origination process which has slowed down loan growth in this segment. As of 2Q12, Finsol loans represented 19.4% of the total loan portfolio, down from the 19.9% reported in 1Q12 and the 19.6% posted in 2Q11.

Apoyo Economico Familiar total loan portfolio was Ps.1,032.9 million in 2Q12, a 4.8% sequential increase and up 16.7% from the Ps.885.0 million in 2Q11.  Apoyo Financiero Inc.'s total loan portfolio was Ps.70.0 million in 2Q12, a 98.7% increase from Ps.35.2 million in 2Q11. Approximately 35% of the annual increase, or Ps.12.1 million, was driven by the two additional branches opened by this subsidiary in 1Q12. As of June 2012, AFI's loan portfolio represented 0.9% of the total consolidated portfolio.

Interest Expense

Interest expense during 2Q12 slightly decreased by Ps.0.3 million, or 0.2%, year-on-year, to Ps.188.4 million. This was principally the result of a 0.6% decrease in the average interest rate paid² to 10.76% in 2Q12 from 10.82% in 2Q11. The average TIIE decreased to 4.76% in 2Q12 compared with 4.85% in 2Q11. Although the loan portfolio grew 9.3% during the period, the daily average balance of interest bearing liabilities remained practically unchanged, from Ps.6,906 million in 2Q11 to Ps.6,925 million in 2Q12.

Provision for Loan Losses

Provisions for loan losses increased year-on-year by 52.4%, or Ps.161.4 million, to Ps.469.1 million in 2Q12, reflecting the increase in default probabilities in Independencia's loan portfolio and higher write-offs during the period. Excluding AEF and AFI, provisions for loan losses rose by 53.2% year-on-year, or Ps.151.4 million. Write-offs in 2Q12 increased 70.9%, or by Ps.177.9 million, to Ps.429.0 million from Ps.251.1 million in 2Q11. Excluding AEF and AFI, write-offs increased by 74.3% to Ps.397.2 million in 2Q12. Total non-performing loans reached Ps.763.7million, up 15.2% from Ps.662.9 million on 2Q11, and 6.3% from the Ps.718.6 million posted in 1Q12. 

Market Related Income

During 2Q12, the Company reported a Ps.7.6 million gain, principally as a result of foreign exchange operations of Financiera Independencia, Finsol Brazil and AFI. As previously disclosed, since 3Q10 the mark-to-market impact of the cross currency swap to hedge the US dollar bond issuance has been reported in the Stockholders Equity line of the Balance Sheet.

Net Operating Revenue

The new Accounting Standards for Credit Institutions published in the Official Gazette of the Federation (DOF) starting Fiscal Year 2011, established changes in the presentation of the Income Statement. Financiera Independencia adopted those changes starting 4Q11. As a result, the line item "Other Income (expenses), which previously was presented below the Net Operating Income, is now included within "Other Operating Income (Expenses)".  The most relevant items under "Other Operating Income (Expenses)" now include:  recovery and sale of written-off loans, income from the sale of micro-insurance, fees from receiving payment of third-party services at branches, fees from commercial correspondents and sale of fixed assets, among others. For comparison purposes, figures for fiscal year 2011 were reclassified under these new accounting standards.

Net operating revenue fell year-on-year by Ps.1.4 million, or 0.2%, to Ps.822.0 million in 2Q12 due to the reasons outlined before as well as an increase in other operating income and higher commissions and fees collected. Other operating income increased to Ps.50.0 million in 2Q12 from Ps.33.3 million in 2Q11. This was mainly driven by a Ps.13.0 million increase from the sale of written-off loans and by a Ps.6.7 million increase from the sale of micro-insurance. Commissions and fees collected increased to Ps.216.2 million in 2Q12 from Ps.208.5 million in 2Q11. The increase was driven by higher collection fees in Independencia's traditional business.

Net Operating Income (Loss)

During 2Q12, the Company reported a Net operating loss of Ps.42.5 million, compared with Net operating income of Ps.90.9 million in 2Q11 and Ps.42.2 million in 1Q12.

Non-interest expense rose by Ps.132.0 million, or 18.0%, year-on-year. The increase was driven by higher personnel expenses and operational expenses in connection with the expansion strategy of Finsol Mexico and AEF. Personnel expenses increased by Ps.111.4 million, or 23.4%, as a result of the higher number of Independencia collection agents during the quarter and the increase in Finsol Mexico and AEF's staff following the opening of 21 and 24 new branches, respectively, since 2Q11.

During the last twelve months, the Company added a net total of 48 branches to its network, ten of which were added during the quarter. Out of the ten additional branches, five were opened by AEF and another five by Finsol Mexico. In 2Q12, Independencia closed one branch, bringing the total network to 526 units.

Net Income (Loss)

As a result of the factors discussed above, and after income tax, during 2Q12 the Company reported a Net loss of Ps.38.2 million, compared with Net income of Ps.57.0 million in 2Q11 and of Ps.34.2 in 1Q12.

Earnings per share (EPS) for the quarter were negative Ps.0.0534 compared with Ps.0.0796 for the same period last year.

Apoyo Financiero Inc. Contribution

During 2Q12, AFI generated financial margin after provisions of Ps.3.9 million, or 0.7% of consolidated results. Additionally, AFI contributed with Ps.6.8 million of non-Interest expense, or 0.8% of consolidated results.

FINANCIAL POSITION

Total Loan Portfolio

The total loan portfolio rose 9.3% year-on-year to Ps.7,372.1 million, reflecting a 13.3% increase in the average outstanding balance per client and a 3.5% decrease in the number of clients during the period. At the end of the quarter, Findep had a total of 1,459,748 clients. Of these, 282,006 clients were from Finsol, 134,245 from AEF and 1,852 from AFI.

As of June 30, 2012, the total loan portfolio represented 70.4% of Findep's total assets, compared with 64.3% as of June 30, 2011. Cash and Investments represented 3.7% of total assets for 2Q12 compared with 6.3% in 2Q11.

Non-Performing Loan Portfolio

Total non-performing loans reached Ps.763.7 million, up 6.3% on a sequential basis, from Ps.718.7 million and 15.2% year-over-year. The NPL ratio increased to 10.4% in 2Q12, from 9.8% in 2Q11 and in 1Q12. Excluding Finsol, AEF, and AFI, total non-performing loans reached Ps.658.2 million, up 10.3% year-on-year.

The NPL ratio for the CrediInmediato product decreased to 12.0% in 2Q12, from 13.2% in 2Q11, but increased from 11.4% in 1Q12. The NPL ratio for Independencia's individual informal segment was 16.2% in 2Q12, compared to 14.6% in 1Q12 and 13.4% in 2Q11. The NPL ratio in 2Q12 for the group lending segment, Finsol, was 5.8% in Mexico and 7.4% in Brazil, compared to 4.8% and 2.9%, respectively in 2Q11. The year-on-year increase in Finsol Mexico's NPLs is mainly the result of a higher exposure in the loan portfolio to clients within their first three loan cycles which historically experience higher NPL rates than those with a history of more than three cycles. A more challenging competitive environment has also impacted collections performance in Mexico and Brazil.

For the quarter, AEF's NPL ratio stood at 1.2% compared to 1.1% in 1Q12 and 2Q11.

The coverage ratio for 2Q12 was 80.2%, compared with 79.7% in 1Q12 and 69.6% in 2Q11. The increase in the coverage ratio reflects the higher default probability of the loan portfolio and AEF´s high coverage ratio.

Liabilities

As of June 30, 2012 total liabilities were Ps.7,506.6 million, practically unchanged from the Ps.7,510.3 million reported on June 30, 2011. On a sequential comparison, total liabilities decreased 0.2% from Ps.7,524.4 million in March 31, 2012.

At the end of 2Q12, Findep's debt consisted of Ps.2,600.7 million of senior guaranteed notes due March 2015, Ps.1,504.9 million in medium-term notes "Certificados Bursatiles" due May 2014, as well as Ps.2,945.1 million of bank and other entities loans. The Company's total lines of credit amounted to Ps.5,576.7 million at the end of 2Q12, of which Ps.1,731.3 million, or 31.0%, are available. This includes the lines of credit at Finsol and AEF.

Of the total lines of credit, Ps.1,877 million mature in December 2012, Ps.1,500 million in December 2013, Ps.70 million in July 2014, Ps.170 million in October 2014, Ps.260 million in April 2015 and the remaining Ps.1,700 million have an evergreen feature. These amounts include the available lines of credit at Finsol and AEF.

On August 30 2011, the Company entered into a step-up interest rate swap from a floating to a fixed rate for a notional amount of Ps.1,500.0 million to hedge the medium-term notes "Certificados Bursatiles" for a three-year period starting on September 7, 2011. The interest rate for the first twelve months is 6.95% and thereafter it is 7.80% until maturity.

Stockholders' Equity

As of June 30, 2012 stockholder's equity was Ps.2,962.2 million, a 0.7% decrease from Ps.2,981.7 million in the same year-ago period, reflecting the net loss for the period.  

As a result of the revaluation of foreign currency denominated debt and the underlying derivatives position to hedge for foreign exchange risk, in 2Q12 the Company posted a Ps.75.7 million negative impact recorded as Financial Instruments - Derivatives. This impact will be naturally eliminated as the contract progresses and expires and is composed by the following items: a Ps.24.8 million negative impact from marking-to-market the Cross Currency Swap, a Ps.65.6 million loss from the revalorization of the bond, Ps.32.4 million in deferred taxes, and Ps.11.1 million loss from hedge-ineffectiveness. In this same line-item, the Company recorded a Ps.8.7 million loss from the mark-to-market of the interest rate swap of the Certificados Bursatiles outstanding and a Ps.2.1 million gain from the mark-to-market of the swap to hedge foreign exchange operations between subsidiaries.

PROFITABILITY AND EFFICIENCY RATIOS

ROAE/ROAA

During 2Q12, the Company posted a negative ROAE 5.1% compared with 7.6% in 2Q11 and 4.4% in 1Q12. ROAA for 2Q12 was negative 1.5% compared with 2.2% in 2Q11 and 1.2% in 1Q12.

Efficiency Ratio & Operating Efficiency

From 2Q11 to 2Q12 the Company increased the size of its loan portfolio by 9.3%, added a net total of 48 offices and increased its total labor force by 19.2% to 12,790 people.  

During 2Q12 Findep's efficiency ratio was 105.2%, compared with 89.0% in 2Q11 and 95.1% in 1Q12. The year-on-year increase is principally the result of the 52.4% rise in provisions for loan losses and the 18.0% increase in non-interest expense during the period. Excluding provisions for loan losses, the efficiency ratio in 2Q12 was 67.0% compared to 64.8% in 2Q11. Operating efficiency was 32.9% in 2Q12, up 4.3 pps year-on-year and 2.4 pps on a sequential basis.

DISTRIBUTION NETWORK

At the end of the quarter, Independencia operated 526 offices in Mexico, Brazil, and the US, ten of which were added during the quarter. This includes 499 offices in Mexico of which 203 operated under the Financiera Independencia brand name, 173 offices under the Finsol brand name, and 123 offices under the Apoyo Economico Familiar brand name. The Company also operated 23 branches in Brazil under the Finsol Brazil brand name, and four branches in California under the Apoyo Financiero Inc. brand name.

The Company's total loan portfolio is well diversified and no federal entity represents more than 10.0% of the total loan portfolio. The three federal entities with the highest loan portfolio concentration are Veracruz, Estado de Mexico and Tamaulipas, with a 9.1%, 8.3%, and 8.1% share of the total portfolio, respectively.

KEY EVENTS

Financiera Independencia Strengthens Executive Management Team

On June 11, 2012, the Company announced a corporate restructuring to enhance its strategic and operational capabilities. Mr. Noel Gonzalez, up until then, CEO of Financiera Independencia took on the role of Executive Vice President and Group CEO. In this capacity, Mr. Gonzalez no longer leads the day to day operations of the Company's traditional business to focus on the strategic leadership of the Group with all subsidiaries' CEOs still reporting to him. Accordingly, Mr. Mauricio Galan, former CEO of Apoyo Economico Familiar, was appointed CEO of Financiera Independencia, and Mr. Arturo Casillas, former Operations Director of Apoyo Economico Familiar took on the role of CEO of that same subsidiary.

Financiera Independencia Secures Line of Credit from BBVA Bancomer

On May 8, 2012 the Company announced it obtained a Ps.260 million line of credit with BBVA Bancomer, thus further diversified its funding sources and lowered its average cost of funding.

The line of credit is unsecured, has a three-year maturity, an interest rate equivalent to approximately TIIE plus 295 basis points, and no covenants attached.

2Q12 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 and rural areas of both the formal and informal economy. As of June 30, 2012, Independencia had a total outstanding loan balance of Ps.7,372.1 million, operated 526 offices in Mexico, Brazil, and the US and had a total labor force of 12,790 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.findep.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.

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

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

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