Intercorp Financial Services(IFS) - 2022 Q1 - Quarterly Report

Intercorp Financial Services (IFS) Overall Performance Financial Highlights IFS reported a Q1 2022 net profit of S/ 403.3 million with a 17.4% ROAE, driven by Interbank's strong core business IFS Key Financial Metrics Q1 2022 | Metric | 1Q21 | 4Q21 | 1Q22 | | :--- | :--- | :--- | :--- | | Net Profit (S/ million) | 528.7 | 264.4 | 403.3 | | EPS (S/) | 4.56 | 2.26 | 3.47 | | ROAE | 23.7% | 10.9% | 17.4% | | ROAA | 2.4% | 1.2% | 1.8% | | Efficiency Ratio | 30.0% | 44.6% | 37.2% | - IFS's Q1 2022 net profit was S/ 403.3 million, a 52.6% increase QoQ but a 23.7% decrease YoY[4] - The annualized ROAE for Q1 2022 was 17.4%, up from 10.9% in Q4 2021 but down from 23.7% in Q1 2021[6] - The performance was supported by a 19.1% ROE at Interbank, while Inteligo's results were negatively affected by its investment portfolio[2] Financial Position Analysis As of March 2022, total assets decreased 5.1% QoQ to S/ 85.4 billion, driven by a reduction in cash balances Statement of Financial Position (S/ million) | Account | 03.31.21 | 12.31.21 | 03.31.22 | % chg QoQ | % chg YoY | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Assets | 90,042.3 | 89,953.9 | 85,383.9 | (5.1)% | (5.2)% | | Total Liabilities | 81,121.0 | 80,398.5 | 76,362.2 | (5.0)% | (5.9)% | | Total Equity, net | 8,921.3 | 9,555.4 | 9,021.7 | (5.6)% | 1.1% | - The decrease in total assets was mainly driven by a 20.1% QoQ reduction in 'Cash and due from banks and inter-bank funds'[4] - Net loans decreased slightly by 1.7% QoQ to S/ 44,320.3 million[4] Profit & Loss Analysis Q1 2022 profit rose 52.6% QoQ on lower expenses but fell 23.7% YoY due to a high base effect from prior investment gains Quarter-on-Quarter (QoQ) Performance Profits surged 52.6% QoQ, driven by Inteligo's mark-to-market recovery, reduced expenses, and a lower effective tax rate - Profits increased 52.6% QoQ, mainly due to lower mark-to-market losses at Inteligo, positive developments in other income, and a reduction in other expenses across all subsidiaries[10] - Other income reversed positively, driven by a significant recovery in mark-to-market valuations on Inteligo's proprietary portfolio[14] - Other expenses decreased by 9.1% QoQ, explained by lower administrative expenses across all subsidiaries[17] - The effective tax rate decreased from 42.3% in Q4 2021 to 19.1% in Q1 2022, contributing to higher earnings[18] Year-on-Year (YoY) Performance Profits declined 23.7% YoY due to a high base from extraordinary 2021 investment gains and increased operating expenses - Profits decreased 23.7% YoY, mainly due to a base effect of extraordinary gains on investments in Q1 2021 and higher other expenses across all subsidiaries[19] - Net interest and similar income grew 13.3% YoY, primarily due to higher interest on all interest-earning assets at Interbank[20] - Other income declined by S/ 283.7 million YoY, mainly due to a lower net gain on the sale of financial investments, which included an extraordinary gain on sovereign bonds at Interbank in Q1 2021[23] - Other expenses grew 13.5% YoY due to higher administrative expenses and salaries, associated with a higher level of activity[25] Contribution by Segments Interbank was the primary profit contributor in Q1 2022, while Inteligo's profit fell sharply YoY and Interseguro's dropped significantly Profit by Segment (S/ million) | Segment | 1Q21 | 4Q21 | 1Q22 | % chg QoQ | % chg YoY | | :--- | :--- | :--- | :--- | :--- | :--- | | Interbank | 319.8 | 467.1 | 322.4 | (31.0)% | 0.8% | | Interseguro | 137.1 | 13.4 | 38.6 | n.m. | (71.8)% | | Inteligo | 86.9 | (76.6) | 3.0 | n.m. | (96.6)% | | Corporate and eliminations | (15.0) | (139.4) | 39.2 | n.m. | n.m. | | IFS profit for the period | 528.7 | 264.4 | 403.3 | 52.6% | (23.7)% | Segment Analysis Interbank Interbank's profit was stable YoY at S/ 322.4 million, with a strong 19.1% ROAE and expanded NIM, driven by retail loan growth Summary of Performance Interbank's Q1 2022 profit was S/ 322.4 million, down 31.0% QoQ from a provision reversal but stable YoY with a solid 19.1% ROAE Interbank P&L Highlights (S/ million) | Metric | 1Q21 | 4Q21 | 1Q22 | | :--- | :--- | :--- | :--- | | Profit for the period | 319.8 | 467.1 | 322.4 | | ROAE | 20.5% | 27.8% | 19.1% | | NIM | 3.7% | 4.4% | 4.5% | - The quarterly profit decrease was mainly attributed to higher impairment loss on loans compared to Q4 2021, which had a significant reversion of provisions[32] - Excluding the one-off provision reversal in Q4 2021, ROAE for that quarter would have been 15.5%, making the Q1 2022 ROAE of 19.1% a strong improvement[34] Interest-Earning Assets and Loan Portfolio The loan portfolio grew 2.2% YoY, driven by strong retail loan performance which offset a contraction in commercial loans - Retail loans grew 4.0% QoQ and 17.9% YoY, driven by consumer loans (up 5.6% QoQ) and mortgages (up 1.6% QoQ)[46][48] Retail Loan Portfolio Breakdown (S/ million) | Loan Type | 03.31.21 | 12.31.21 | 03.31.22 | % chg QoQ | % chg YoY | | :--- | :--- | :--- | :--- | :--- | :--- | | Credit cards & other loans | 5,778.0 | 7,471.8 | 8,145.5 | 9.0% | 41.0% | | Payroll deduction loans | 4,445.2 | 4,542.1 | 4,545.3 | 0.1% | 2.3% | | Mortgages | 7,647.0 | 8,247.1 | 8,376.3 | 1.6% | 9.5% | | Total Retail Loans | 17,870.3 | 20,261.1 | 21,067.1 | 4.0% | 17.9% | - Commercial loans decreased 6.3% QoQ and 10.3% YoY, affected by the maturity and prepayment of loans under the Reactiva Peru Program[44][47] Funding Structure and Deposits The total funding base declined due to reduced Central Bank funds, with resilient retail deposit growth offsetting institutional declines - Total funding base declined 5.7% QoQ and 8.7% YoY, influenced by the reduction of Central Bank funds related to the Reactiva Peru Program[55][56][59] Deposits by Customer Service (S/ million) | Customer Type | 03.31.21 | 12.31.21 | 03.31.22 | % chg QoQ | % chg YoY | | :--- | :--- | :--- | :--- | :--- | :--- | | Retail | 21,115.3 | 22,911.8 | 22,190.3 | (3.1)% | 5.1% | | Commercial | 16,534.4 | 15,443.0 | 15,447.6 | 0.0% | (6.6)% | | Institutional | 8,480.3 | 6,251.7 | 4,907.7 | (21.5)% | (42.1)% | | Total | 46,636.8 | 44,966.3 | 42,885.9 | (4.6)% | (8.0)% | Net Interest and Similar Income (NII) NII grew 15.6% YoY as the Net Interest Margin expanded to 4.5%, driven by higher asset yields and a shift to retail loans NII and NIM Performance | Metric | 1Q21 | 4Q21 | 1Q22 | Change QoQ | Change YoY | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Interest Income (S/ million) | 647.0 | 745.6 | 748.0 | +0.3% | +15.6% | | NIM | 3.7% | 4.4% | 4.5% | +10bps | +80bps | - The average yield on interest-earning assets increased by 40 bps QoQ and 110 bps YoY to 6.1%, in line with higher returns on due from banks and investments[70][77][88] - The average cost of funding increased by 20 bps QoQ and 40 bps YoY to 1.8%, mainly due to a higher cost of deposits following Central Bank rate hikes[72][81][92] Asset Quality and Provisions Asset quality remained solid with an improved Stage 3 NPL ratio of 2.9% and a lower annualized cost of risk at 1.4% Key Credit Quality Ratios | Ratio | 1Q21 | 4Q21 | 1Q22 | | :--- | :--- | :--- | :--- | | Cost of Risk (Impairment/Avg Loans) | 1.8% | (0.9)% | 1.4% | | S3 NPL Ratio | 3.1% | 3.1% | 2.9% | | S3 NPL Coverage Ratio | 212.8% | 159.4% | 168.7% | - The Stage 3 NPL ratio decreased 20 basis points QoQ and YoY to 2.9%, primarily due to a 20 bps quarterly decrease in retail loans' NPL[97] - The annualized cost of risk was 1.4% in Q1 2022, lower than the 1.8% in Q1 2021[95] Non-Interest Income (Fees & Other) Net fee income grew 14.3% YoY, while other income fell significantly due to a high base effect from prior-year investment gains - Net fee income increased 14.3% YoY, primarily from higher commissions on credit card services, maintenance fees, and banking services[100] - Other income decreased 39.8% YoY, mostly due to a lower net gain on the sale of financial investments compared to an extraordinary gain in Q1 2021[104] Other Expenses and Efficiency Other expenses rose 12.5% YoY due to higher business activity, while the efficiency ratio improved slightly QoQ to 41.7% Efficiency Ratio | Period | Efficiency Ratio | | :--- | :--- | | 1Q21 | 39.1% | | 4Q21 | 42.2% | | 1Q22 | 41.7% | - The 12.5% YoY increase in other expenses was due to higher salaries and employee benefits (including profit sharing) and administrative expenses from higher activity levels[107][108] Regulatory Capital The total capital ratio stood at 15.5%, well above the regulatory minimum, despite a decline from higher Risk-Weighted Assets Regulatory Capital Ratios | Ratio | 03.31.21 | 12.31.21 | 03.31.22 | | :--- | :--- | :--- | :--- | | Total Capital Ratio | 16.9% | 15.9% | 15.5% | | Tier I Capital / RWA | 11.5% | 10.9% | 10.9% | | CET1 | 11.4% | 12.5% | 10.9% | - The total capital ratio of 15.5% is well above the risk-adjusted minimum requirement of 9.0% for Interbank[119] - The annual reduction in the capital ratio was due to a 10.2% increase in RWA, driven by higher requirements for credit and operating risk[116] Interseguro Interseguro's profit recovered QoQ to S/ 38.6 million but fell 71.8% YoY due to negative investment property valuations Summary of Performance Q1 2022 profit of S/ 38.6 million marked a strong QoQ recovery but a sharp YoY decline due to a swing in other income Interseguro P&L Highlights (S/ million) | Metric | 1Q21 | 4Q21 | 1Q22 | | :--- | :--- | :--- | :--- | | Profit for the period | 137.1 | 13.4 | 38.6 | | ROAE | 56.6% | 5.7% | 15.7% | - The YoY profit decrease was mainly due to negative performances of S/ 167.3 million in other income and S/ 41.8 million in recovery due to impairment of financial investments[123] Results from Investments Total investment results fell 53.3% YoY from a high base, impacted by losses on investment sales and property valuations Results from Investments Breakdown (S/ million) | Account | 1Q21 | 4Q21 | 1Q22 | | :--- | :--- | :--- | :--- | | Net interest and similar income | 165.1 | 184.8 | 184.4 | | Net gain (loss) on sale of financial investments | 87.6 | 31.3 | (7.3) | | Valuation gain (loss) from investment property | 35.5 | (47.3) | (30.8) | | Total Results from investments | 355.4 | 153.3 | 165.8 | - The YoY decrease in investment results was attributed to a negative performance in valuation gain from investment property and a lower net gain on sale of financial investments[132] Underwriting Results (Premiums, Reserves, Claims) The underwriting result improved significantly YoY, driven by a 28.5% increase in net premiums and lower COVID-related claims - Net premiums grew 28.5% YoY, mainly due to increases of S/ 35.1 million in annuities, S/ 15.4 million in retail insurance, and S/ 9.9 million in individual life[137][138] - Net claims and benefits incurred decreased 17.8% YoY, primarily explained by a S/ 55.5 million reduction in retail insurance claims associated with lower COVID-19 mortality compared to Q1 2021[145][146] Inteligo Inteligo reported a small S/ 3.0 million profit, recovering from a prior quarter loss but collapsing 96.6% YoY on investment losses Summary of Performance and AUM Inteligo's Q1 2022 profit was S/ 3.0 million, a sharp 96.6% drop YoY, while AUM decreased 7.3% QoQ due to market volatility Inteligo P&L Highlights (S/ million) | Metric | 1Q21 | 4Q21 | 1Q22 | | :--- | :--- | :--- | :--- | | Profit for the period | 86.9 | (76.6) | 3.0 | | ROAE | 30.7% | (22.5)% | 1.0% | - The YoY performance was mainly attributable to a negative development in other income due to a loss on the sale of investments in Q1 2022[153] - AUM decreased 7.3% QoQ and 4.6% YoY to S/ 21,310.7 million, mostly because of a lower foreign exchange rate and market volatility[154][158] Net Interest and Fee Income Both net interest income and net fee income declined YoY by 7.9% and 17.3% respectively, affected by market volatility - Net interest and similar income decreased 14.5% QoQ and 7.9% YoY[162][163] - Net fee income decreased 15.1% QoQ and 17.3% YoY, mainly affected by a lower foreign exchange rate and lower client activity amid global markets volatility[165][166] Other Income and Expenses Other income showed a S/ -24.3 million loss, improving QoQ on trading gains but declining sharply YoY on investment sale losses - Other income (loss) was S/ -24.3 million, improving from S/ -110.5 million in Q4 2021 due to a recovery in net trading gain, but down from a S/ 47.7 million gain in Q1 2021[167][169] - Other expenses decreased 11.0% QoQ due to lower salary and administrative expenses, but increased 11.0% YoY[171][172] Consolidated Financial Statements and Notes Consolidated Financial Statements The statements show total assets of S/ 85.4 billion and a net profit of S/ 403.3 million for the three months ended March 31, 2022 Statement of Financial Position As of March 31, 2022, total assets were S/ 85.4 billion, with total liabilities at S/ 76.4 billion and total equity at S/ 9.0 billion Consolidated Statement of Financial Position (S/ 000) | Account | 31.03.2022 | 31.12.2021 | | :--- | :--- | :--- | | Total Assets | 85,383,911 | 89,953,909 | | Cash and due from banks | 13,440,799 | 17,104,465 | | Financial investments | 24,306,689 | 24,547,294 | | Loans, net | 42,281,059 | 43,005,583 | | Total Liabilities | 76,362,218 | 80,398,547 | | Deposits and obligations | 46,502,713 | 48,897,944 | | Insurance contract liabilities | 11,031,107 | 11,958,058 | | Total Equity, net | 9,021,693 | 9,555,362 | Statement of Income Net profit for Q1 2022 was S/ 403.3 million, down from S/ 528.7 million in Q1 2021 due to a net loss on sale of financial investments Consolidated Statement of Income (S/ 000) | Account | 31.03.2022 | 31.03.2021 | | :--- | :--- | :--- | | Net interest and similar income | 944,691 | 833,880 | | Impairment loss on loans, net | (149,595) | (189,004) | | Net (loss) gain on sale of financial investments | (35,386) | 206,084 | | Other expenses | (581,207) | (512,042) | | Net profit for the period | 403,301 | 528,748 | | Earnings per share (Soles) | 3.474 | 4.560 | Statement of Cash Flows The period saw a net cash outflow from operations of S/ 1.86 billion, resulting in a S/ 3.16 billion net decrease in cash Consolidated Statement of Cash Flows Highlights (S/ 000) | Activity | 31.03.2022 | 31.03.2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | (1,859,008) | 2,058,581 | | Net cash used in investing activities | (1,060,224) | (1,475,329) | | Net cash used in financing activities | (241,592) | (34,308) | | Net (decrease) increase in cash and cash equivalents | (3,160,824) | 548,944 | Notes to the Financial Statements The notes detail the impact of the 'Reactiva Peru' program, loan portfolio composition, funding sources, and fair value hierarchies - As of March 31, 2022, Interbank held S/ 4,267.9 million in loans from the government's "Reactiva Peru" program, down from S/ 4,976.1 million at year-end 2021[200] - The loan portfolio is segmented into Retail Banking, Commercial Banking, and Small Business Banking for impairment estimation purposes under IFRS 9[239] - The General Shareholders' Meeting on March 31, 2022, approved a dividend distribution of US$1.75 per share for the year 2021[272] - On April 13, 2022, IFS acquired the remaining 50% of Procesos de Medios de Pago S.A. (PMP), giving it 100% ownership[339]