Intercorp Financial Services(IFS) - 2021 Q3 - Quarterly Report

3Q21 Earnings Overview Highlights Intercorp Financial Services (IFS) achieved record Q3 2021 earnings of S/ 551.5 million and a strong 23.1% ROAE, driven by Inteligo and Interbank, leading to revised 2021 guidance IFS 3Q21 Key Performance Indicators | Metric | Value | | :--- | :--- | | Net Earnings | S/ 551.5 million | | ROAE | 23.1% | | 9M21 Net Earnings | S/ 1,535.8 million | | 9M21 ROAE | 22.1% | | 9M21 ROAA | 2.3% | - The company's strong performance led to an upward revision of its 2021 guidance for Return on Average Equity (ROAE) and Cost of Risk (CoR)[2] - Interbank achieved an 18.6% ROAE, increased its retail loan market share to 18.8%, and saw its retail deposit market share reach an all-time high of 15.2%[2] - Interseguro's quarterly results were weak, affected by lower other income and higher technical reserves, despite strong premium growth[2] - Inteligo's profits surged due to mark-to-market gains on its investment portfolio, and it saw continued growth in Assets Under Management (AUM) & Deposits, which were up 22.8% YoY[2] Intercorp Financial Services (Consolidated Results) Financial Position As of September 30, 2021, IFS's total assets grew to S/ 92.4 billion, with liabilities reaching S/ 82.6 billion and equity increasing to S/ 9.75 billion, reflecting overall balance sheet expansion Consolidated Statement of Financial Position (S/ million) | Account | 09.30.21 | % chg QoQ | % chg YoY | | :--- | :--- | :--- | :--- | | Total Assets | 92,386.6 | 2.0% | 7.4% | | Cash and due from banks | 20,330.7 | 4.7% | 15.7% | | Loans, net | 44,037.3 | 0.4% | 0.2% | | Total Liabilities | 82,588.7 | 1.7% | 6.3% | | Deposits and obligations | 50,904.7 | 2.9% | 12.6% | | Total Equity, net | 9,797.9 | 5.1% | 17.5% | P&L Statement and Performance Analysis IFS reported a Q3 2021 net profit of S/ 551.5 million, significantly up QoQ and YoY, driven by reduced loan impairment losses and higher other income, partially offset by increased operating expenses Consolidated P&L Statement (S/ million) | Metric | 3Q21 | % chg QoQ | % chg YoY | | :--- | :--- | :--- | :--- | | Net interest and similar income | 900.0 | 3.7% | (0.7)% | | Impairment loss on loans, net | (112.1) | (37.0)% | (75.8)% | | Other income | 377.1 | 40.7% | 40.8% | | Other expenses | (585.6) | 11.4% | 31.1% | | Profit for the period | 551.5 | 21.1% | 73.1% | | ROAE | 23.1% | 310 bps | 730 bps | - Quarter-on-quarter profit growth was driven by higher other income at Inteligo and the holding company, plus lower loan impairment losses at Interbank[9] - Year-on-year profit growth was mainly due to a S/ 351.2 million (75.8%) decline in impairment loss on loans at Interbank, reflecting an improved credit environment compared to the peak of the COVID-19 impact in 3Q20[16][18] - Other expenses increased 11.4% QoQ and 31.1% YoY, attributed to higher administrative expenses, salaries, and investments in digital ventures across all subsidiaries[14][22] Contribution by Segments Profit by Segment In Q3 2021, Interbank remained the top profit contributor at S/ 299.1 million, Inteligo's profit surged to S/ 183.7 million, while Interseguro's contribution sharply declined to S/ 13.4 million Profit by Segment (S/ million) | Segment | 3Q21 Profit | % chg QoQ | % chg YoY | | :--- | :--- | :--- | :--- | | Interbank | 299.1 | 9.1% | n.m. | | Interseguro | 13.4 | (87.7)% | (79.8)% | | Inteligo | 183.7 | n.m. | 66.2% | | IFS Total Profit | 551.5 | 21.1% | 73.1% | Segment Analysis Interbank Interbank's Q3 2021 profit rose to S/ 299.1 million with an 18.6% ROAE, driven by reduced loan impairment losses and improved NIM, despite a higher efficiency ratio from increased expenses Interbank P&L Highlights (S/ million) | Metric | 3Q21 | % chg QoQ | % chg YoY | | :--- | :--- | :--- | :--- | | Net interest and similar income | 681.1 | 1.6% | (8.2)% | | Impairment loss on loans, net | (110.0) | (38.2)% | (76.3)% | | Other expenses | (468.4) | 11.6% | 27.5% | | Profit for the period | 299.1 | 9.1% | n.m. | | ROAE | 18.6% | 130 bps | 850 bps | - Retail loans grew 3.6% QoQ, driven by consumer loans, while commercial loans decreased 3.0%, partly due to repayments under the Reactiva Peru Program[41][43][44] Key Ratios | Ratio | 3Q21 | 2Q21 | 3Q20 | | :--- | :--- | :--- | :--- | | NIM | 4.0% | 3.9% | 4.6% | | NPL Ratio | 3.0% | 3.2% | 3.4% | | NPL Coverage Ratio | 169.2% | 168.7% | 196.5% | | Efficiency Ratio | 47.1% | 42.5% | 35.2% | | Total Capital Ratio | 16.3% | 16.5% | 17.0% | - The NPL ratio improved to 3.0%, down 20 bps QoQ and 40 bps YoY, mainly due to better performance in the retail loan portfolio[102] - Other expenses rose 11.6% QoQ, driven by higher administrative costs (marketing, credit card) and employee profit sharing, as well as investments in digital ventures[112] Interseguro Interseguro's Q3 2021 profit sharply declined to S/ 13.4 million with a 5.3% ROAE, primarily due to mark-to-market losses and increased technical reserves, despite strong net premium growth Interseguro P&L Highlights (S/ million) | Metric | 3Q21 | % chg QoQ | % chg YoY | | :--- | :--- | :--- | :--- | | Net Interest and similar income | 193.0 | 15.1% | 38.0% | | Other income | 23.6 | (71.6)% | (62.2)% | | Total premiums earned minus claims and benefits | (87.7) | 90.9% | 38.6% | | Profit for the period | 13.4 | (87.7)% | (79.8)% | | ROAE | 5.3% | -3790 bps | -3040 bps | - The quarterly profit decline was mainly due to a S/ 59.5 million reduction in other income (net loss on financial assets) and a S/ 41.8 million decrease in 'total premiums earned minus claims and benefits'[126] - Net premiums increased 13.3% QoQ to S/ 254.9 million, driven by growth in annuities, retail insurance, and individual life premiums[142][143] - Adjustment of technical reserves increased significantly by S/ 62.8 million QoQ, mainly attributed to higher reserves for inflation-indexed annuities and the effect of higher sales[146][147] Inteligo Inteligo reported a strong Q3 2021 net profit of S/ 183.7 million and an impressive 56.7% ROAE, driven by mark-to-market gains on investments and significant growth in Assets Under Management and deposits Inteligo P&L Highlights (S/ million) | Metric | 3Q21 | % chg QoQ | % chg YoY | | :--- | :--- | :--- | :--- | | Net interest and similar income | 26.1 | (12.3)% | 4.1% | | Fee income from financial services, net | 50.4 | 2.8% | 25.9% | | Other income | 146.6 | n.m. | 95.0% | | Profit for the period | 183.7 | n.m. | 66.2% | | ROAE | 56.7% | 2630 bps | 320 bps | - The solid performance was mainly driven by strong gains in other income, associated with positive mark-to-market valuations on proprietary portfolio investments[160][176] - Assets Under Management (AUM) plus deposits grew 4.2% QoQ and 22.8% YoY, reaching S/ 23.6 billion in AUM and S/ 4.7 billion in client deposits as of September 30, 2021[161][165][166] - Other expenses increased 8.6% QoQ and 34.7% YoY, mainly due to an increase in total headcount and the effect of a higher foreign exchange rate on certain cost components[178] Interim Consolidated Financial Statements Interim Consolidated Statement of Financial Position As of September 30, 2021, IFS's total assets increased to S/ 92.4 billion, with liabilities rising to S/ 82.6 billion and total equity growing to S/ 9.8 billion, reflecting overall balance sheet expansion Consolidated Financial Position (S/ 000) | Account | 30.09.2021 | 31.12.2020 | | :--- | :--- | :--- | | Total Assets | 92,386,599 | 88,236,029 | | Cash and due from banks | 20,330,713 | 18,765,482 | | Financial investments | 24,154,724 | 24,277,115 | | Loans, net | 41,738,532 | 40,519,423 | | Total Liabilities | 82,588,741 | 79,282,080 | | Deposits and obligations | 50,904,686 | 47,149,275 | | Insurance contract liabilities | 11,412,030 | 12,501,723 | | Total Equity, net | 9,797,858 | 8,953,949 | Interim Consolidated Statement of Income For the nine months ended September 30, 2021, IFS reported a net profit of S/ 1,535.8 million, a significant turnaround from 2020, primarily due to a substantial reduction in loan impairment losses Consolidated Income Statement for the Nine-Month Period (S/ 000) | Metric | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | | Net interest and similar income | 2,601,340 | 2,551,988 | | Impairment loss on loans, net | (478,950) | (2,066,425) | | Fee income from financial services, net | 600,936 | 537,556 | | Other expenses | (1,623,385) | (1,373,846) | | Net profit for the period | 1,535,811 | 6,112 | | EPS (Soles) | 13.248 | 0.063 | Notes to the Interim Consolidated Financial Statements The notes detail the Group's business, accounting policies, and COVID-19 impact, covering financial instruments, loan quality, risk management, related party transactions, and subsequent events, including participation in government relief programs Note 1: Business Activity & COVID-19 Impact IFS, a holding company majority-owned by Intercorp Perú, operates in Peru and Panama through its subsidiaries, detailing the COVID-19 impact, government relief programs like 'Reactiva Peru', and liquidity-bolstering measures - As of September 30, 2021, Intercorp Perú Ltd. holds 70.65% of the issued capital stock of IFS[193] - The Peruvian Government launched the 'Reactiva Peru' program, providing guarantees for working capital loans. As of September 30, 2021, Interbank held S/5.51 billion in loans under this program[202][204] - To strengthen liquidity and solvency, Interbank reduced its 2019 dividend distribution and capitalized profits, while both Interbank and Interseguro placed subordinated bonds in 2020[205] Note 6: Loans, Net The Group's net loan portfolio totaled S/ 41.7 billion, with commercial loans leading the S/ 43.7 billion direct portfolio, and the allowance for expected credit losses decreasing to S/ 2.30 billion due to improved credit conditions Direct Loan Portfolio by Type (S/ 000) | Loan Type | 30.09.2021 | 31.12.2020 | | :--- | :--- | :--- | | Commercial loans | 21,952,006 | 22,001,567 | | Consumer loans | 11,729,174 | 11,416,175 | | Mortgage loans | 8,411,024 | 7,721,267 | | Small and micro-business loans | 1,564,495 | 1,942,895 | | Total | 43,656,699 | 43,081,904 | Allowance for Expected Credit Losses - Direct Loans (S/ 000) | Period | Stage 1 | Stage 2 | Stage 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Balance 31.12.2020 | 180,241 | 1,145,207 | 1,659,403 | 2,984,851 | | Balance 30.09.2021 | 129,711 | 891,235 | 1,277,791 | 2,298,737 | Note 23: Financial Risk Management The Group manages credit, market, liquidity, insurance, and real estate risks, implemented COVID-19 loan rescheduling without derecognition, and maintained a net US Dollar asset position of S/ 2.02 billion as of September 30, 2021 - The Group's main financial risks are credit, market, liquidity, insurance, and real estate risk, managed independently by each subsidiary under the oversight of the IFS Board and Audit Committee[320][321] - Due to the pandemic, Interbank offered three types of loan rescheduling: Structural, Unilateral, and Landing. These adjustments did not constitute a substantial modification, thus avoiding derecognition of the financial assets[323][324][326] Foreign Exchange Monetary Position, Net (S/ 000) | Currency | 30.09.2021 | | :--- | :--- | | US Dollars | 2,016,160 | | Soles | 4,082,194 | | Other currencies | 127,221 | | Total | 6,225,575 | Note 26: Subsequent Events On October 12, 2021, IFS sold its InRetail Perú Corp. shares for US$84.1 million, resulting in an equity reclassification of S/ 271.0 million from 'Unrealized results' to 'Retained earnings' without impacting total net equity - On October 12, 2021, IFS sold its shares in InRetail Perú Corp. for US$84,108,000 (S/341,646,000)[341] - The sale resulted in a reclassification within equity, moving a cumulative valuation gain of S/270,993,000 from 'Unrealized results' to 'Retained earnings', with no impact on total net equity[341]