Intercorp Financial Services(IFS) - 2022 Q3 - Quarterly Report

Intercorp Financial Services 3Q22 Earnings Overview Financial Highlights IFS reported a 3Q22 net profit of S/ 613.4 million, significantly boosted by a one-off gain from the Izipay revaluation IFS 3Q22 Key Financial Metrics | Metric | 3Q22 | 2Q22 | 3Q21 | QoQ Change | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Profit (S/ million) | 613.4 | 251.3 | 551.5 | +144.1% | +11.2% | | Annualized ROE | 26.5% | 11.1% | 23.1% | +15.4 p.p. | +3.4 p.p. | | Recurring Net Profit (S/ million) | 391.0 | - | - | - | - | | Recurring Annualized ROE | 17.1% | - | - | - | - | - 3Q22 earnings included a significant one-time positive impact of S/ 223 million from the revaluation of the Izipay acquisition[4][7] - The company's performance showed strong growth in payments, solid core banking activity, and a 31% QoQ earnings growth in the insurance segment[3] Consolidated Financial Position Total assets reached S/ 88.7 billion, growing 3.5% QoQ, while total equity increased 5.5% to S/ 9.5 billion Statement of Financial Position Highlights (S/ million) | Account | 09/30/2022 | 06/30/2022 | 09/30/2021 | QoQ Change | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Assets | 88,707.3 | 85,702.5 | 92,386.6 | 3.5% | (4.0)% | | Loans, net | 47,128.8 | 46,024.9 | 44,037.3 | 2.4% | 7.0% | | Total Liabilities | 79,193.4 | 76,687.7 | 82,588.7 | 3.3% | (4.1)% | | Total Equity, net | 9,513.9 | 9,014.8 | 9,797.9 | 5.5% | (2.9)% | Consolidated Profit & Loss Analysis Profit growth was driven by the Izipay revaluation, higher Net Interest Income, and increased fee income - QoQ Performance: Profit grew more than two-fold, driven by a recovery in 'Other Income' across all businesses, higher NII in Banking and Wealth Management, and increased fee income from Banking and Payments[11] - YoY Performance: Profit increased 11.2%, primarily due to a 20.5% growth in NII and a 58.9% rise in net fee income (benefiting from the Izipay consolidation)[19][20][21] P&L Statement Highlights (S/ million) | Account | 3Q22 | 2Q22 | 3Q21 | QoQ Change | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | 1,084.2 | 1,031.8 | 900.0 | 5.1% | 20.5% | | Impairment Loss on Loans | (209.6) | (193.3) | (112.1) | 8.5% | 87.0% | | Net Fee Income | 316.3 | 293.6 | 199.1 | 7.7% | 58.9% | | Other Income | 306.4 | (4.8) | 377.1 | n.m. | (18.8)% | | Other Expenses | (687.6) | (670.4) | (585.6) | 2.6% | 17.4% | | Profit for the period | 613.4 | 251.3 | 551.5 | n.m. | 11.2% | Contribution by Business Segment The Banking segment was the largest profit contributor, while Insurance recovered strongly and Wealth Management improved but remained at a loss Profit Contribution by Business (S/ million) | Segment | 3Q22 | 2Q22 | 3Q21 | QoQ Change | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Banking | 365.6 | 321.2 | 299.1 | 13.8% | 22.2% | | Insurance | 100.5 | 77.0 | 13.4 | 30.6% | n.m. | | Wealth Management | (41.0) | (120.3) | 183.7 | (65.9)% | n.m. | | Payments | 11.7 | 12.6 | — | (6.4)% | n.m. | | Corporate & eliminations | 176.7 | (39.1) | 55.2 | n.m. | n.m. | Segment Performance Analysis Banking (Interbank) Interbank delivered strong profit growth driven by higher Net Interest Income, solid loan growth, and improved efficiency Financial Performance Interbank 3Q22 Financial Highlights | Metric | 3Q22 | 2Q22 | 3Q21 | | :--- | :--- | :--- | :--- | | Profit for the period (S/ million) | 365.6 | 321.2 | 299.1 | | ROE | 21.4% | 19.4% | 18.6% | | Efficiency Ratio | 40.1% | 42.3% | 47.1% | | NIM | 5.0% | 4.9% | 4.0% | - Quarterly profit growth was mainly attributed to a S/ 51.5 million increase in net interest income and a S/ 22.9 million rise in net fee income[31] Loan Portfolio Loan Portfolio Growth (S/ million) | Loan Type | 09/30/2022 | 06/30/2022 | 09/30/2021 | QoQ Change | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Retail Loans | 22,405.6 | 22,001.5 | 19,281.7 | 1.8% | 16.2% | | Commercial Loans | 20,640.4 | 20,384.8 | 21,028.8 | 1.3% | (1.8)% | | Total Performing Loans | 43,046.0 | 42,386.3 | 40,310.5 | 1.6% | 6.8% | - Excluding the effect of the maturing Reactiva Peru Program loans, total performing loans would have grown 3.4% QoQ and 15.2% YoY[44][47] - Retail loan growth was driven by a 2.3% QoQ increase in mortgages and a 1.5% QoQ increase in consumer loans (credit cards and cash loans)[45] Funding Structure - Total funding grew 4.4% QoQ to S/ 60.2 billion, driven by a 9.4% increase in retail deposits[56][57][58] Deposits by Customer (S/ million) | Deposit Type | 09/30/2022 | 06/30/2022 | QoQ Change | | :--- | :--- | :--- | :--- | | Retail | 23,726.1 | 21,686.3 | 9.4% | | Commercial | 16,278.2 | 16,298.1 | (0.1)% | | Institutional | 5,119.7 | 5,222.6 | (2.0)% | Net Interest Income - Net Interest Margin (NIM) expanded to 5.0%, up 10 bps QoQ and 100 bps YoY, driven by higher asset yields that outpaced the rise in funding costs[69][85][95] - The average yield on assets increased by 70 bps QoQ to 7.5%, while the average cost of funding rose 60 bps QoQ to 2.8%[71][73][84] Asset Quality Asset Quality Ratios | Ratio | 3Q22 | 2Q22 | 3Q21 | | :--- | :--- | :--- | :--- | | Cost of Risk (annualized) | 1.9% | 1.8% | 1.1% | | Stage 3 NPL Ratio | 2.5% | 2.6% | 2.7% | | S3 NPL Coverage Ratio | 182.4% | 185.9% | 210.2% | - Impairment loss on loans increased 8.4% QoQ and 90.6% YoY, driven by higher provisions in commercial and retail portfolios[96][98][99] Regulatory Capital Capital Ratios | Ratio | 09/30/2022 | 06/30/2022 | 09/30/2021 | | :--- | :--- | :--- | :--- | | Total Capital Ratio | 15.2% | 15.2% | 16.3% | | CET1 Ratio | 11.6% | 11.1% | 12.0% | - The total capital ratio remained stable QoQ at 15.2%, well above the risk-adjusted minimum requirement of 9.6%[115][117][121] Insurance (Interseguro) Interseguro's profits surged due to improved underwriting results, premium growth, and strong investment performance Financial Performance Interseguro 3Q22 Financial Highlights | Metric | 3Q22 | 2Q22 | 3Q21 | | :--- | :--- | :--- | :--- | | Profit for the period (S/ million) | 100.5 | 77.0 | 13.4 | | ROE | 46.8% | 31.6% | 5.3% | - The quarterly profit growth was driven by an S/ 18.5 million improvement in the insurance underwriting result and higher other income[125] Underwriting Results - Total premiums earned minus claims and benefits improved by S/ 18.5 million QoQ and S/ 45.5 million YoY, reaching S/ -42.2 million[140] - Net premiums grew 16.0% QoQ to S/ 271.5 million, mainly due to a 21.4% increase in annuities and growth in retail and individual life premiums[143][144] - Net claims and benefits incurred remained stable QoQ and decreased 6.5% YoY to S/ 218.6 million[152] Wealth Management (Inteligo) Inteligo reported a net loss due to mark-to-market losses on its proprietary portfolio amid adverse market conditions Inteligo 3Q22 Financial Highlights (S/ million) | Metric | 3Q22 | 2Q22 | 3Q21 | | :--- | :--- | :--- | :--- | | Profit for the period | (41.0) | (120.3) | 183.7 | | Net Interest Income | 30.9 | 24.0 | 26.1 | | Net Fee Income | 40.3 | 44.8 | 50.4 | | Other Income (Loss) | (68.1) | (147.0) | 146.6 | - The quarterly performance improved due to a lower mark-to-market loss on the proprietary portfolio, though the result remained negative[161][178] - Assets Under Management (AUM) reached S/ 21,992.2 million, up 2.7% QoQ but down 6.8% YoY, affected by market valuation and outflows in mutual funds[163][167] Payments (Izipay) Izipay's profitability was impacted by higher service and administrative costs despite strong revenue growth Izipay 3Q22 Financial Highlights (S/ million) | Metric | 3Q22 | 2Q22 | 3Q21 (Proforma) | | :--- | :--- | :--- | :--- | | Profit for the period | 11.7 | 12.6 | 15.2 | | ROE | 23.6% | 26.9% | 41.2% | | Net Fee Income | 84.9 | 81.0 | 76.5 | - Income from payments acquirer grew 11.0% QoQ and 44.3% YoY, driven by a 65% YoY increase in the number of merchants and a 41% YoY rise in transaction volumes[184][187] - Profitability was impacted by a 74.6% YoY increase in Service Costs and a 22.2% YoY rise in Other Expenses, reflecting higher business activity and investments in customer acquisition[184][187][193] Interim Consolidated Financial Statements and Notes Business Activity and Significant Events Key events include the full acquisition of Izipay, resulting in a one-time gain, and ongoing government economic programs - In April 2022, IFS acquired the remaining 50% of Procesos de Medios de Pago S.A. (Izipay), gaining 100% control[211][219] - The Izipay acquisition was accounted for as a 'Step acquisition', resulting in a revaluation of the previously held stake and a gain of S/ 222.5 million, recorded in 'Other income'[220][221] - As of September 30, 2022, the outstanding balance of loans under the government-guaranteed 'Reactiva Peru' program was S/ 3.01 billion[217] Financial Risk Management The Group manages credit, market, liquidity, and other financial risks through specialized subsidiary-level structures - The Group's primary financial risks are credit, market, liquidity, insurance, and real estate risk, managed by each subsidiary under the oversight of IFS[339][340] - As of September 30, 2022, the Group had a net long monetary position in US Dollars of S/ 221.0 million after accounting for derivative positions[349] Fair Value Measurement The Group held S/ 22.1 billion in financial assets at fair value, primarily classified as Level 1 and Level 2 Fair Value Hierarchy of Financial Assets (S/ million, as of 09/30/2022) | Level | Financial Assets at Fair Value | | :--- | :--- | | Level 1 | 9,115.2 | | Level 2 | 11,933.7 | | Level 3 | 1,043.9 | | Total | 22,092.7 | - Level 3 financial instruments, valued using unobservable inputs, decreased from S/ 1.13 billion at the start of the year to S/ 1.04 billion, mainly due to sales and net losses[354]