Financiera Independencia Reports 1Q11 Net Income of Ps.90.0 Million and Loan Portfolio Growth of 21.4%

MEXICO CITY, April 14, 2011 /PRNewswire/ --

• Total loan portfolio growth of 21.4% year-over-year driven by an 11.0% increase in client base, mainly as a result of the acquisition of AEF and AFI, and significant growth at Finsol.
• Total loan portfolio of Ps.6,561.7 million, with AEF contributing Ps. 842.3 million. Finsol Mexico and Brazil total loans reached Ps.1,280.0 million in 1Q11, a 76.1% YoY growth, and 1.6% on a sequential basis. Independencia's personal loans declined 5.8% year-over-year.
• Non-performing loans to total loans ratio improved to 8.2% in 1Q11 from 10.7% in 1Q10.
• Net income down 36.6% YoY, and up 68.6% on a sequential basis.
• NIM after provisions including fees improved to 43.5% in 1Q11 compared to the 42.3% in 1Q10.
• Provisions for loan losses decreased to 29.6% of financial margin in 1Q11, compared with 31.4% in 1Q10, and 30.8% in 4Q10.
• Efficiency ratio was 84.2% in 1Q11, compared to 90.8% in 4Q10, and 77.3% a year ago.
• Equity to total assets of 30.0% compared to 27.2% in 1Q10, and 34.0% in 4Q10.
• ROE in 1Q11 increased to 12.1% compared to 7.2% in 4Q10, but below the 24.4% in 1Q10.

Financiera Independencia, S.A.B. de C.V., SOFOM, E.N.R. (BMV: FINDEP; OTC: FNCRY), (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 March 31, 2011. Net income for 1Q11 declined 36.6% YoY to Ps.90.0 million, representing an increase of 68.6% on a sequential basis.

Commenting on the results, Noel Gonzalez, Chief Executive Officer, said, "We continue to see an improvement in our loan portfolio, with the NPL ratio down to 9.2%, excluding AEF and AFI, from 10.7% a year ago, mainly driven by a decline in our informal sector non-performing loans. Also excluding AEF and AFI, provisions declined almost 6% on a sequential basis, reflecting lower write-offs during the quarter."

"As we proceed with the integration of our latest acquisitions, we look forward to similar benefits and success as achieved with the integration of Finsol.  We have established plans to significantly grow these businesses and attain operational synergies by benchmarking the different go to market strategies," 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 2010 and 2011 are expressed in nominal pesos. Tables state figures in millions of pesos, unless otherwise noted.

1Q11 CONSOLIDATED RESULTS

Unaudited results for 1Q11 include the effect of the consolidation of the acquisition of Apoyo Economico Familiar ("AEF"), one of the largest unsecured personal lending institutions in Mexico, on March 15, 2011, of Apoyo Financiero Inc. ("AFI"), a microfinance company primarily serving the unbanked Hispanic community in San Francisco, California, on February 28, 2011, and of Financiera Finsol, the second largest group lending microfinance institution 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 1Q11 increased 5.2% year-on-year to Ps.554.0 million. This is principally explained by the following:

Interest Income

Interest income for the quarter increased 12.0% year-on-year to Ps.949.8 million, principally as a result of the Ps.99.9 million, or 11.9%, increase in interest income on loans. The total loan portfolio increased 21.4% during the period, driven by an 11.0% growth in the number of clients and a 9.4% increase in the average balance per client. The increase in the number of clients reflects the significant growth in Finsol since its acquisition, and the integration of AEF into the Company's results.  The increase in the average balance per client reflects the higher share of Finsol in the total loan portfolio, and the considerably higher average balance per client at AEF.

The average balance per client increased from Ps.3,982.1 in 1Q10 to Ps.4,358.2 in 1Q11. The average lending rate(1) of the total loan portfolio decreased to 61.6% in 1Q11 from 66.4% 1Q10, reflecting the consolidation of AEF as of March 15, 2011.  Excluding AEF, the average lending rate was 63.7%.

Individual loans to the informal sector decreased 4.1% year-on-year, driven by reduced origination efforts and consequent 39.8% decline for the CrediConstruye product, partially offset by the 1.1% and 25.2% growth in the CrediPopular and CrediMama products, respectively.

Group loans represented 19.5% of the total loan portfolio, a 2.3 pps decline on a sequential basis due to the consolidation of AEF and AFI into the Company's results.  The share of individual loans to the informal sector fell from 30.6% in 1Q10 to 24.2% in 1Q11. CrediPopular loans accounted for 19.4% of total loans in the quarter.

The CrediInmediato loan product, a revolving line of credit that targets the formal sector, represented a lower share of Independencia's total portfolio, accounting for 42.9% of total loans in 1Q11 from 55.9% in 1Q10 and 50.1% in 4Q10. The number of CrediInmediato clients in 1Q11 declined 4.8% year-on-year, while the total loan portfolio of this product fell 6.7% to Ps.2,817.7 million. The average balance per contract for CrediInmediato was Ps.3,988 in 1Q11, down 2.0% year-on-year, with the draw-down rate dropping from 72.6% to 71.1%.  On a sequential basis the number of CrediInmediato clients declined 2.1%, and the loan portfolio fell 2.6%.

Finsol's total loans reached Ps.1,280.0 million in 1Q11, a 1.6% increase from the Ps.1,259.7 million reported in 4Q10. During 1Q11, total loans of Ps.989.5 million were originated at Finsol Mexico and Ps.268.8 million at Finsol Brazil, a sequential decline of 9.4% and 16.5%, respectively, reflecting the seasonality aspect of the business.

Apoyo Economico Familiar total loan portfolio was Ps.842.3 million in 1Q11, a 7.2% increase compared to the Ps.785.6 million as of 3Q10, as announced in the acquisition press release.  The acquisition of AEF will allow Independencia to establish a strong presence in Mexico City and the Metropolitan area, a market where it did not have a personal loans operation. Apoyo Financiero Inc. total loan portfolio was Ps.32.8 million in 1Q11, representing 0.5% of the total consolidated portfolio.

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

Interest Expense

Interest expense during 1Q11 increased by Ps.81.7 million, or 101.2%, compared to 1Q10, to Ps.162.5 million reflecting the US$200 million 144A / Reg S senior guaranteed notes issued in March 2010. However, debt decreased by Ps.540.5 million or 7.7% year-on-year, as the proceeds of that issuance have already been deployed to reduce the outstanding debt under the Company's revolving credit lines.

The average interest rate paid(2) increased to 11.63% in 1Q11 from the 8.44% reported in 1Q10, as a result of the bond issuance mentioned above. The average TIIE in 1Q11 remained unchanged YoY at 4.9%.

Provision for Loan Losses

Provisions for loan losses, excluding AEF and AFI, declined year-on-year by 4.5%, or Ps.11.1 million, to Ps.229.6 million in 1Q11, reflecting an improving trend in the default probabilities of the loan portfolio. Write-offs in 1Q11 decreased 12.6% year-over-year, or by Ps.34.1 million, to Ps.236.0 million in 1Q10. Total non-performing loans, excluding AEF and AFI, reached Ps.525.9 million, down 9.1% from Ps.578.8 million on 1Q10.  AEF had Ps. 8.7 million in non-performing loans, for a NPL ratio of 1.0%.

Market Related Income

During the quarter there was a negative impact of Ps.14.9 million, mainly from foreign exchange operations in Finsol Brazil.

Net Operating Revenue

Net operating revenue increased year-on-year by Ps.10.9 million, or 1.5%, to Ps.742.1 million in 1Q11 due to the reasons stated above and other income (expense) of operations. During the quarter, the Company reported Ps.12.0 million in other income, as a result of Ps.5.6 million from loans sold, and Ps.6.0 million from restructured loans.  In 1Q10 there were Ps.25.6 million in other income of operations due to loans sold and restructured loans, and Ps.12.0 million from tax adjustments. As a base policy restructured loans are considered past-due and are accordingly reserved. On a sequential comparison, net operating revenue decreased 1.8% from Ps.755.8 million in 4Q10.

Net Operating Income

Net operating income for 1Q11 decreased year-on-year by Ps.48.6 million, or 29.3%, to Ps.117.4 million. On a sequential comparison net operating income increased 68.2% from Ps.69.8 million in 4Q10. The main driver for this increase was a significant reduction in non-interest expenses.

Excluding Finsol and AEF, non-interest expense decreased by Ps.33.6 million, 6.7% year-on-year, reflecting savings from cost reduction initiatives implemented in 4Q10.  For 1Q11 Finsol's non-interest expense was Ps.132.8 million, a 7.4% sequential increase. Total non-interest expense increased by Ps.59.6 million, or 10.5%, to Ps.624.7 million in 1Q11, mainly as a result of the consolidation of Finsol and AEF into the Company's results.

During the quarter, the Company added a total of 99 branches to its network, of which 96 resulted from the acquisition of AEF, one from the acquisition of AFI, and the opening of two new branches in Finsol Brazil, bringing the total network to 470 units at the end of the quarter.

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

Net Income

As a result of the factors discussed above, and after other income and expenses, and income tax, net income for 1Q11 increased 68.6% on a sequential basis, to Ps.90.0 million, while declining year-on-year by Ps.51.9 million, or 36.6%.

Earnings per share (EPS) for the quarter were Ps.0.1258 compared with Ps.0.1985 for the same period last year.

Apoyo Economico Familiar Contribution

During 1Q11 AEF generated financial margin after provisions of Ps.28.6 million, or 5.2% of consolidated results, and net operating revenue of Ps.33.2 million, or 4.5% of consolidated results.   Additionally, AEF contributed with Ps.22.6 million of non-Interest expense, or 3.6% of consolidated results.

Apoyo Financiero Inc Contribution

During 1Q11 AFI generated financial margin after provisions of Ps.0.8 million, or 0.1% of consolidated results, and net operating revenue of Ps.0.2 million.   Additionally, AFI contributed with Ps.0.6 million of non-Interest expense, or 0.1% of consolidated results.

FINANCIAL POSITION

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Total Loan Portfolio

The total loan portfolio rose year-on-year by 21.4% to Ps.6,561.7 million, reflecting an 11.0% increase in the number of clients during the period, and a 9.4% increase in the average outstanding balance. At the end of the quarter, Independencia had a total of 1,505,614 clients, of which 253,491 were Finsol clients, and 114,870 were AEF clients and 1,016 were AFI clients.

The total loan portfolio represented 65.8% of Independencia's total assets as of March 31, 2011, compared with 52.9% as of March 31, 2010. Cash and Investments represented 4.7% of total assets for 1Q11 compared with 30.3% in 1Q10.

Non-Performing Loan Portfolio

Total non-performing loans reached Ps.535.9 million, down 6.0% on a sequential basis from Ps.570.2 million and down 7.4% year-over-year. The NPL ratio declined to 8.2% in 1Q11, from 10.7% in 1Q10 and 9.9% in 4Q10. Excluding Finsol, AEF, and AFI, total non-performing loans reached Ps.480.9 million, down 13.4% year-on-year.

The NPL ratio for the CrediInmediato product in 1Q11 was 10.9%, compared with 11.1% in 1Q10. The NPL ratio for the individual informal segment decreased to 11.0% in 1Q11, from 13.4% in 1Q10. The NPL ratio in 1Q11 for the group lending segment (Finsol) was 4.3% in Mexico and 1.9% in Brazil, compared to 2.4% and 5.4% respectively, in 1Q10.

The coverage ratio for 1Q11 was 75.5%, compared with 65.8% in 4Q10 and 75.1% in 1Q10. The sequential increase in the coverage ratio reflects the decrease in non-performing loans, and the high coverage ratio of AEF.

Liabilities

As of March 31, 2011 total liabilities were Ps.6,979.3 million, a 6.1% decrease from Ps.7,433.0 million reported on March 31, 2010. On a sequential comparison, total liabilities increased 21.7% from Ps.5,732.6 million in December 31, 2010 due to the acquisitions of AEF and AFI.

At the end of 1Q11, Independencia's debt consisted of Ps.2,614.0 million (US$200 million) of senior guaranteed notes (due March 2015), Ps.784.0 million in medium-term notes "Certificados Bursatiles" (due June 2011) as well as Ps.3,069.5 million of bank and other entities loans. The Company's total available lines of credit amounted to Ps.4,570 million at the end of 1Q11, including Finsol and AEF lines.

Of the total lines of credit, Ps.75.0 million are due in June 2011, Ps.15.0 million in July 2011,  Ps.50.0 million in March 2012,  Ps.1,300 million in December 2012, Ps.1,850 million in December 2013, and the remaining Ps.1,280 million have an evergreen feature. These amounts include the available lines of credit of Finsol.

In June 2010, 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 March 31, 2011 stockholder's equity was Ps.2,994.2 million, a 7.6% increase from Ps.2,783.6 million in the same year-ago period. This increase principally reflects the net income generated during the period.

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.59.2 million impact recorded as Financial Instruments - Derivatives. This impact will be naturally eliminated as the contract progresses and expires. The breakdown of this impact is as follows: negative Ps.310.4 million from marking to market the Cross Currency Swap, Ps.232.2 million from the revalorization of the bond, Ps.25.4 million in differed taxes, and negative Ps.6.6 million from hedge-ineffectiveness.

PROFITABILITY AND EFFICIENCY RATIOS

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ROAE/ROAA

ROAE for 1Q11 was 12.1% compared with 24.4% in 1Q10 and 7.2% in 4Q10. These figures reflect the Ps.850 million capital increase in 1Q10.

ROAA for 1Q11 was 3.9% compared with 7.0% in 1Q10 and 2.5% in 4Q10.

Efficiency Ratio & Operating Efficiency

From 1Q10 to 1Q11 Independencia increased the size of its loan portfolio by 21.4% and the number of clients by 11.0%. During the quarter, the Company added a net of 99 offices and increased its total labor force by 7.1% to 10,460 people.  

During 1Q11 the Company's efficiency ratio (including provisions, Finsol's operating costs, and the consolidation of AEF and AFI) was 84.2%, compared with 77.3% in 1Q10 and 90.8% in 4Q10. The year-on-year increase is principally the result of the Finsol acquisition, since in 1Q10 results started to be consolidated as of February 20, 2010. Excluding Finsol, AEF and AFI, the efficiency ratio in 1Q11 was 80.6%. Operating efficiency was 26.8% in 1Q11, down 1.2 pps on a year-on-year basis, and 5.0 pps quarter-on-quarter. Excluding Finsol, AEF, and AFI the operating efficiency ratio in 1Q11 was 22.4%.

DISTRIBUTION NETWORK

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At the end of the quarter, Independencia operated 470 offices in Mexico, Brazil, and the US. This includes 448 offices in Mexico of which 207 operated under the Financiera Independencia brand name, 145 offices under the Finsol brand name, and 96 offices under the Apoyo Economico Familiar brand name. The Company also operated 21 branches in Brazil under the Finsol Brazil brand name, and one branch in San Francisco, CA under the Apoyo Financiero Inc brand name.

The Company's total loan portfolio is well diversified and no federal entity represents more than 9.7% of the total loan portfolio. The three federal entities with the highest loan portfolio concentration are Veracruz, Tamaulipas and Estado de Mexico, with a 9.7%, 7.4%, and 7.2% share of the total portfolio, respectively.

KEY EVENTS

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Financiera Independencia Closes Acquisition of Apoyo Financiero Inc.

On February 28, 2011 Financiera Independencia announced that it had successfully closed the acquisition of 77% of the outstanding shares of Apoyo Financiero Inc. ("AFI"), a microfinance company primarily serving the unbanked Hispanic community in San Francisco, California, as announced on December 22, 2010. Through this acquisition, Independencia increased its loan portfolio by Ps.31.8 million and added 919 new clients.

Financiera Independencia Closes Acquisition of Apoyo Economico Familiar

On March 15, 2011 Financiera Independencia announced that it had successfully closed the acquisition of all of the outstanding shares of Apoyo Economico Familiar S.A. de C.V., SOFOM, E.N.R. ("AEF"), one of the largest unsecured personal lending institutions in Mexico, as announced on December 22, 2010. Through this acquisition, Independencia increased its loan portfolio by Ps.785.6 million, added 96 branches and approximately 110,000 clients.

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1Q11 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, 2011, Independencia had a total outstanding loan balance of Ps.6,561.7 million, operated 470 offices in Mexico, Brazil, and the US and had a total labor force of 10,460 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.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.

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