Financiera Independencia B de C SOFOM E N R : posts the highest net profit for a second quarter in over a decade

Financiera Independencia posts the highest net profit for a

second quarter in over a decade

Mexico City, July 20th, 2023.- Financiera Independencia, S.A.B. de C.V., SOFOM, E.N.R. (BMV: FINDEP; OTC: FNCRY), ("FINDEP" or the "Company") the leader in bringing financial inclusion to underserved Hispanic communities of North America through responsible lending and insurance products, announced today its results for the three months ended June 30th, 2023.

• Reported Net Profit for the quarter was Ps. 165 million 9% higher YoY.
• Total Loan Portfolio closed at Ps. 7.77 billion, a 5% YoY reduction. Under a constant FX basis, the portfolio would have increased 2% YoY. Our US operations currently represent 38% of our portfolio.
• Consolidated NPL ratio, measured as Stage 3 loan portfolio over total portfolio, stood at 6.5% in 2Q23, unchanged against the last quarter, and 70 basis points above the 5.8% from twelve months ago.
• Net Interest Income closed at Ps. 1.03 billion, 3% higher than 2Q22.
• Income before tax in 2Q23 increased Ps. 18 million, or 8%, year over year. This is composed by an increase of Ps. 16 million in Revenue, and a Ps. 43 million decrease in Operating expenses, offsetting the increase in Provision for Loan Losses (Ps. 22 million) and Interest Expense (Ps. 19 million).
• The Provision for Loan Losses was Ps. 336 million in 2Q23, a 7% YoY increase. Annualized PLL to average loans increased from 16 to 17% YoY.
• Write-offs reached Ps. 405 million, 45% higher YoY, and 7% below last quarter's. Compared to average portfolio, trailing twelve months write-offs increased from 13 to 19%.
• Non-interestExpense, decreased 6% YoY during the second quarter of 2023, comparing favorably to the 3% increase in NII, and the total loan portfolio reduction of 5%.
• Net Debt declined 25% YoY from Ps. 4.7 billion in 2Q22 to Ps. 3.5 billion in 2Q23. On a neutral FX basis, net debt declined 17% YoY. When compared to 1Q23, Net Debt declined Ps. 286 million, or 7%, from Ps. 3.8 billion in 1Q23.
• Cash and Cash Equivalents closed the quarter at Ps. 717 million, 13% above 2Q22, and 35% below last quarter's.
• The Company's Return on Equity improved from 13.4% in the first half of 2022 to 13.7% in same period of 2023, and the Return on Assets reached 6.0%, up from 5.5% YOY. Return on Tangible Equity marginally advanced YoY at 17.3%.

FINANCIERA INDEPENDENCIA | 2Q23

MESSAGE FROM THE CEO

This quarter's results reflect the continued emphasis on executing our priorities: improve our maturities profile, strengthen our balance sheet, and maintain positive profitability trends.

Our Loan portfolio posted a 5% year over year reduction, reflecting a more prudent stance favoring high- quality origination, under a constant FX basis, the portfolio would have increased 2% YoY. On the efficiency front, our non-interest expenses to average portfolio improved from 34 to 32% YOY, yielding historic results on our bottom line.

Furthermore, our balance sheet remains sound. We hold over a Ps. 717 million cash position. Net debt decreased Ps. 1.2 billion on a yearly basis, largely outpacing our portfolio's Ps. 384 million YoY contraction. While our equity-to-asset ratio stood strong at 47% at the end of the quarter.

The overall performance in the quarter confirms the success of our strategy of focusing on our core business in our strategic markets. Our deep analytics and disciplined origination have kept healthy risk metrics in our portfolio. Asset quality combined with the efficiency achieved through our digital transformation leads to a step change in our results.

Eduardo Messmacher

Chief Executive Officer

FINANCIERA INDEPENDENCIA | 2Q23

2Q23 CONSOLIDATED RESULTS

Table 1: Financial & Operational Highlights.

	2Q23	2Q22	%	6M23	6M22	%
Income Statement Data
Net Interest Income after Provisions*	698.5	691.6	1.0%	1,418.7	1,384.2	2.5%
Net Operating Income (Loss)*	235.7	217.3	8.5%	474.6	426.3	11.3%
Net Income (Loss)*	165.4	151.4	9.2%	331.5	298.3	11.1%
Total Shares Outstanding (million)	337.5	337.5	0.0%	337.5	337.5	0.0%
Earnings (Loss) Per Share	0.4901	0.4487	9.2%	0.9821	0.8839	11.1%
Profitability & Efficiency
NIM before Provisions Excl. Fees	46.9%	46.2%	0.7 pp	46.1%	46.8%	-0.7 pp
NIM after Provisions Excl. Fees	31.7%	31.8%	-0.1 pp	31.3%	32.7%	-1.3 pp
NIM after Provisions Incl. Fees	39.6%	41.2%	-1.7 pp	38.8%	41.5%	-2.7 pp
ROA	6.1%	5.5%	0.6 pp	6.0%	5.5%	0.5 pp
ROE	13.6%	13.8%	-0.2 pp	13.7%	13.4%	0.3 pp
Efficiency Ratio Incl. Provisions	73.0%	75.8%	-2.8 pp	73.0%	75.8%	-2.8 pp
Efficiency Ratio Excl. Provisions	52.7%	56.2%	-3.4 pp	52.9%	56.5%	-3.7 pp
Operating Efficiency	23.5%	24.7%	-1.1 pp	23.1%	24.6%	-1.5 pp
Fee Income	14.2%	14.6%	-0.3 pp	13.7%	13.9%	-0.1 pp
Capitalization
Equity to Total Assets	46.9%	40.6%	6.3 pp	46.9%	40.6%	6.3 pp
Credit Quality Ratios
NPL Ratio	6.5%	5.8%	0.7 pp	6.5%	5.8%	0.7 pp
Coverage Ratio	201.8%	215.2%	-13.4 pp	201.8%	215.2%	-13.4 pp
Operational Data
Number of Clients	304,392	318,612	-4.5%	304,392	318,612	-4.5%
Number of Offices	347	350	-0.9%	347	350	-0.9%
Total Loan Portfolio*	7,768.5	8,152.7	-4.7%	7,768.5	8,152.7	-4.7%
Average Balance (Ps.)**	25,521.4	25,588.1	-0.3%	25,521.4	25,588.1	-0.3%

• Figures in millions of Mexican Pesos.
• Excludes Other Loans from the average calculation

INTEREST INCOME

In 2Q23 Interest Income was Ps.1.19 billion, that is Ps. 48 million above 2Q22, or a 4% YoY expansion. This was driven by an increase in our products active rates, as well as a higher share of the Mexican loan portfolio in the overall mix.

During 2Q23 Net interest income was Ps. 1.03 billion, which is Ps. 29 million above 2Q22, or a 3% YoY expansion. The expansion is due to Interest Expenses outpacing top line performance YOY. Despite witnessing a hike on reference rates on a yearly basis, our funding strategy has been effective in the absorption of any major impacts. The overall effective rate on our funding sources posted a 357pb YoY increase, to 13.3%, despite the 413 and 408 bp increase in the reference rates, in Mexico and the US, respectively.

FINANCIERA INDEPENDENCIA | 2Q23

Interest Income	Financial Margin
(Figures in Ps. million)	(Figures in Ps. million)
+4% YoY	+3% YoY
1,138	1,186	1,034
1,005

2Q22	2Q23			2Q22			2Q23
Table 2: Financial Margin.
		2Q23	1Q23	2Q22	QoQ %	YoY %	6M23	6M22	%
Interest Income		1,186.1	1,216.7	1,138.5	-2.5%	4.2%	2,402.8	2,247.4	6.9%
Interest on Loans		1,170.9	1,197.2	1,134.3	-2.2%	3.2%	2,368.1	2,238.8	5.8%
Interest from Investment in Securities		15.3	19.4	4.2	-21.5%	267.0%	34.7	8.6	302.1%
Interest Expense		152.2	163.0	133.2	-6.7%	14.2%	315.1	265.0	18.9%
Net Interest Income		1,034.0	1,053.7	1,005.3	-1.9%	2.9%	2,087.7	1,982.4	5.3%
Provision for Loan Losses		335.5	333.4	313.7	0.6%	7.0%	669.0	598.2	11.8%
Net Interest Income After Provision for Loan Losses	698.5	720.2	691.6	-3.0%	1.0%	1,418.7	1,384.2	2.5%
* Figures in millions of Mexican Pesos

INTEREST EXPENSE

Interest Expense in 2Q23 was Ps. 152 million, a 14% YoY expansion. This comes on the back of higher YoY reference rates, partially offset by a 20% contraction on interest bearing liabilities. It is important to note that our funding structure holds a 55% share of fixed rate funding, partially offsetting the impact of increasing rates during the last year.

PROVISION FOR LOAN LOSSES

PLL was Ps. 336 million in 2Q23, a 7% increase when compared to the Ps. 314 million of 2Q22. Annualized PLL to average loans increased from 16 to 17% year on year.

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

Net Interest Income after Provisions posted a 1% YoY expansion, reaching Ps. 698 million during the quarter. This is consistent to the higher interest income was pressured by higher interest expenses and provisioning.

NET OPERATING REVENUE

Net Operating Revenue was Ps. 873 million in 2Q23, a 3% decrease when compared to Ps. 899 million in 2Q22. Independencia and AEF's net operating revenues advanced 2% and 7% YOY respectively, while AFI's observed a 30% decline.

During 2Q23, Commissions and Fees Collected were Ps. 143 million, 5% decrease compared to Ps. 150 million registered in 2Q22. Commissions and Fees Paid were Ps. 19 million in 2Q23, 3% decrease

FINANCIERA INDEPENDENCIA | 2Q23