Intercorp Financial Services(US:IFS)2022-08-16 01:13Overall Performance Summary (2Q 2022) Financial and Operational Highlights IFS's quarterly profit declined significantly due to a major investment loss in Wealth Management, despite the consolidation of Izipay - Overall results were significantly impacted by a S/ -147.0 million investment loss in the Wealth Management business, which dragged down the company's consolidated profit despite strong performance in other segments9 - In April 2022, IFS acquired the remaining 50% of Procesos de Medios de Pago S.A. (Izipay), making it a wholly-owned subsidiary and a key pillar of its payments ecosystem3217 IFS Consolidated Net Profit and ROE (2Q22) | Metric | 2Q22 | 1Q22 | 2Q21 | QoQ Change | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Profit (S/ million) | 251.3 | 403.3 | 455.5 | -37.7% | -44.8% | | Annualized ROE | 11.1% | 17.4% | 20.0% | -6.3 p.p. | -8.9 p.p. | | ROE (ex-Wealth Mgt. loss) | 17.5% | - | - | - | - | Profit Contribution by Business Segment (S/ million) | Business Segment | 2Q22 | 1Q22 | 2Q21 | | :--- | :--- | :--- | :--- | | Banking | 321.2 | 322.4 | 274.3 | | Insurance | 77.0 | 38.6 | 108.9 | | Wealth Management | (120.3) | 3.0 | 89.6 | | Payments | 12.6 | - | - | Performance by Business Segment Banking (Interbank) The banking segment delivered stable profit driven by strong net interest income growth and significant margin expansion - Performing loans grew 5.2% YoY, driven by an 18.2% increase in retail loans, while total performing loans excluding the Reactiva Peru Program would have grown 14.1% YoY5051 - The total regulatory capital ratio stood at 15.2%, well above the minimum requirement, with a Core Equity Tier 1 (CET1) ratio of 11.1%119121124 Interbank Key Performance Indicators (2Q22) | Metric | 2Q22 | 1Q22 | 2Q21 | | :--- | :--- | :--- | :--- | | Profit for the period (S/ million) | 321.2 | 322.4 | 274.3 | | ROE | 19.4% | 19.1% | 17.3% | | NIM | 4.9% | 4.5% | 3.9% | | Efficiency Ratio | 42.3% | 41.7% | 42.5% | | Cost of Risk (Impairment/Avg Loans) | 1.8% | 1.4% | 1.7% | Insurance (Interseguro) The insurance segment saw a strong quarterly profit rebound from real estate gains but declined year-over-year from a high base - The quarterly profit surge was mainly due to higher net gain on valuation of real estate investments, while the annual decline was primarily caused by a S/ 113.5 million YoY decrease in net gain on financial assets127137138 - Annuities premiums, a key business line, contracted by 27.8% QoQ and 16.2% YoY, partially offset by growth in other retail lines144145 Interseguro Key Performance Indicators (2Q22) | Metric | 2Q22 | 1Q22 | 2Q21 | | :--- | :--- | :--- | :--- | | Profit for the period (S/ million) | 77.0 | 38.6 | 108.9 | | ROE | 31.6% | 15.7% | 43.2% | | Net Premiums (S/ million) | 234.0 | 272.3 | 225.0 | Wealth Management (Inteligo) The wealth management segment recorded a substantial loss driven by negative mark-to-market results on its proprietary portfolio - The primary driver of the loss was a mark-to-market loss on the proprietary portfolio, resulting in a S/ -140.8 million net trading loss160176 - Assets Under Management (AUM) decreased 5.0% YoY, mainly due to outflows in mutual funds and lower mark-to-market valuations162166 Inteligo Key Performance Indicators (2Q22) | Metric | 2Q22 | 1Q22 | 2Q21 | | :--- | :--- | :--- | :--- | | Profit for the period (S/ million) | (120.3) | 3.0 | 89.6 | | Other Income (Loss) (S/ million) | (147.0) | (24.3) | 52.3 | | Net Fee Income (S/ million) | 44.6 | 40.8 | 49.1 | | AUM (S/ million) | 21,423.8 | 21,307.0 | 22,557.7 | Payments (Izipay) The newly consolidated payments segment contributed positively to profit, fueled by strong growth in merchant services and transactions - Annual growth was driven by strong business expansion, with merchants and transactional volumes growing 53% and 66% YoY, leading to a 74.9% YoY increase in income from acquirer services182186189 - Strong revenue growth was partially offset by higher costs related to customer acquisition and license fees, including a 42.3% YoY increase in other expenses and a 93.4% YoY rise in service costs182189190 Izipay Key Performance Indicators (2Q22, Proforma) | Metric | 2Q22 | 1Q22 | 2Q21 | | :--- | :--- | :--- | :--- | | Profit for the period (S/ million) | 12.6 | 15.1 | 10.3 | | ROE | 26.9% | 35.1% | 30.5% | | Net Fee Income (S/ million) | 72.3 | 72.2 | 53.3 | | Efficiency Ratio | 63.6% | 54.6% | 54.6% | Interim Consolidated Financial Statements Consolidated Statement of Financial Position Total assets and liabilities decreased slightly, while equity was negatively impacted by unrealized investment losses Consolidated Statement of Financial Position (S/ 000) | Account | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | 85,702,484 | 89,953,909 | | Cash and due from banks | 12,303,969 | 17,104,465 | | Financial investments | 23,594,353 | 24,547,294 | | Loans, net | 43,980,349 | 43,005,583 | | Total Liabilities | 76,687,682 | 80,398,547 | | Deposits and obligations | 47,277,705 | 48,897,944 | | Insurance contract liabilities | 10,351,718 | 11,958,058 | | Total Equity, net | 9,014,802 | 9,555,362 | Consolidated Statement of Income Half-year net profit declined as significant investment losses outweighed growth in net interest and fee income Consolidated Income Statement - Six Months Ended June 30 (S/ 000) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Net interest and similar income | 1,976,442 | 1,701,365 | | Fee income from financial services, net | 488,919 | 401,873 | | Net (loss) gain on financial assets at FVTPL | (150,428) | 144,259 | | Net profit for the period | 654,597 | 984,301 | | Attributable to IFS's shareholders | 649,876 | 979,711 | | Earnings per share (Soles) | 5.631 | 8.488 | Selected Notes to Financial Statements Notes detail the Izipay acquisition, dividend distributions, a major tax contingency, and fair value asset classifications - In April 2022, IFS acquired the remaining 50% of Izipay for US$83.8 million, gaining 100% control and recording a preliminary goodwill of S/ 222.5 million217219 - The company approved and paid a dividend distribution of US$1.75 per share (approx. S/ 751.5 million total) in May 2022289 - Interbank has ongoing tax litigation with a potential liability of approximately S/ 431 million, for which no provision has been recorded based on legal advice300301 Fair Value Hierarchy of Financial Assets (S/ 000) - June 30, 2022 | Level | Financial Assets at Fair Value | % of Total | | :--- | :--- | :--- | | Level 1 | 13,186,267 | 64.2% | | Level 2 | 6,272,306 | 30.5% | | Level 3 | 1,098,452 | 5.3% | | Total | 20,557,025 | 100.0% |