Inter & Co, Inc. Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 6, 2023

There are 10 speakers on the call.

Operator

Good afternoon and thank you for standing by. Welcome to the InterNCo's Third Quarter Earnings Conference Call. Today's speakers are Joao Widtermennen, Inter's CEO Alexandre Ritio, Senior Vice President of Retail Banking and Santiago Stel, Senior Vice President of Finance and Risks. Please be advised that today's conference is being recorded and a replay will be available at the company's IR website. At this time, all participants are in listen only mode.

Operator

After the prepared remarks, there will be a question and answer session. Your name will then be announced and you will be able to ask your question live. At that point, a request to activate a microphone will appear on your screen. If you do not want to open your microphone live, please write down no microphone at the end of your question. In this case, Our operator will read your question for you.

Operator

Please note that there is an interpretation button on your screen where you can choose the language you want to hear, English or Portuguese. Throughout this conference call, we will be presenting non IFRS financial information. These are important financial measures for the company, but are not financial measures as defined by IFRS. Reconciliations of the company's Non IFRS financial information to the IFRS financial information are available in Interimco's earnings release and earnings presentation appendix. Today's discussion might include forward looking statements, which are not guarantees of future performance.

Operator

Please refer to the forward looking statements disclosure in the company's earnings release and earnings presentation. Now I would like to ear the floor to Mr. Joao Viter Menon. Sir, The floor is yours.

Speaker 1

Thank you, operator. Good afternoon, everyone. I'm pleased to announce Another record breaking quarter in our history. We believe that we have successfully entered a virtual cycle that lead us into a sustainable, growing and profitable business model. Once again, we can affirm that our results No longer a glimpse as we said a few quarters ago, but a clear testament of our long term profitability potential.

Speaker 1

When I reflect on the states in our history, I see 3 clear phases. The first, which was until 2021, focused on growth, creating the full ecosystem of products And gaining market share while creating deep primary relationships with our customers. The second, which took place during 2022, when we had our platform in place and started to prioritize monetization, building the foundations for a business model That was built to last. Now in the 3rd phase, with the foundations in place, we started 2023 We have strong momentum. We continued improving our profitability while reaccelerating our growth profile.

Speaker 1

As I mentioned before, we have entered a virtual cycle, as we can see on the slide, Driven by our innovative DNA in the center, we Built a best in class financial super app, delivering the broadest digital offering with a top notch UX that continuously attracts new clients. As these clients engage more deeply with us, we are generating higher revenues that yields growing profits, making it a sustainable business model. This dynamic then restarts to the beginning by reinforcing our innovative DNA, And this cycle keeps moving on and on. To conclude, I believe that the importance of this quarter We are in the right direction to meet our 5 year North Star, which we named the 6thirty-thirty plan. The commitment to the 6thirty-thirty is already generating significant value to all our stakeholders, Which we believe is the only way to build a company to last.

Speaker 1

Let me elaborate a little more on that. 1st, to our clients, by disrupting the industry offering the best value banking services. 2nd, to our employees with a great place that foster creativity and growth. 3rd, To regulators, developing technology and bringing efficiency into the financial system. 4th, to our community, with an eco efficient business model.

Speaker 1

And last but not least, we are generating value to our shareholders By delivering sustainable long term profitability. Before passing the word to Sanji and Santi, I will highlight Some of our record breaking numbers of the quarter. We delivered an impressive combination of record figures, which we believe proves we are on the path to sustained profitability. From a financial perspective, Our gross revenue had another record quarter, surpassing BRL2.1 billion, 39% higher than last year. The combination of top line growth and cost control enabled us to achieve Another record efficiency ratio of 52.4%.

Speaker 1

On the bottom line, we We had our highest ever profitability level with a pretax income of BRL145 1,000,000 and post tax income of BRL104 1,000,000. We also achieved a record breaking ROE of 5.7%. When we look at the operational side, we also see a series of milestones. For the Q3 in a row, we attracted 1,000,000 new active clients. We also continued Increasing our activation ratio, reaching 52.7%, the highest level since 4Q 'twenty one.

Speaker 1

Our monthly ARPAP increased once again, reaching the record level of 48 hedges. And finally, we had a great quarter in terms of transacted volumes, expanding our TPV To BRL 219 1,000,000,000. Now I'll pass it to Sanjay And Santiago, who will deep dive on both fronts. Thank you.

Speaker 2

Thank you, Joao, and good afternoon, everyone. I'll start talking about credit and our funding capabilities. Jumping to Page 10, I'll pass through some important highlights regarding credit. This quarter, we were able to accelerate the growth in our loan portfolio, Growing by 7% and remaining focused on high ROE products such as our FGTS loans, which once again grew more than 20% and home equity, which grew nearly 10% and reached a market share in originations of also 10%. The most interesting factor of this quarter was on credit cards, which reached a growth of 13%.

Speaker 2

This is the result of continuous improvement in the credit underwriting processes, active portfolio management, The success of Loop amongst other factors. When we look at pricing on the top part of the page, the all win Yield, excluding real estate loans, which is the dotted line, continued its quarter over quarter improvement. Now moving to Page 11, we'll talk about improvements in our asset quality metrics. What we see in this slide is the result of our ongoing efforts to enhance our credit underwriting processes and collection strategies, Reaching a more precise data driven model. As a result, we're delivering flattish NPLs, both on a 15 to 90 days and above 90 days basis.

Speaker 2

When we look at the cohorts of NPLs of credit cards, We continue to see a sequential improvement, forecasting a positive trend for the upcoming quarters. Finally, the NPL and Stage 3 formation also have shown stability. On Page 12, we can see a very positive improvement on the cost of risk metric, which decreased by 30 bps. This improvement was driven by our active risk management mentioned in the previous slide. Despite the decrease in cost of risk, Our coverage ratio increased 200 bps to 132%.

Speaker 2

Always worth mentioning That around 70% of our portfolio is collateralized, thus presenting a lower than average risk profile. Overall, these results give us confidence for the quarters to come. On Page 13, We can see once again that we have one of the best in class funding franchises in the industry. Our deposit growth accelerated to 11% this quarter, almost twice the growth level of last quarter. In total, we reached a funding base of around BRL 40,000,000,000.

Speaker 2

In Page 14, We see that we continue delivering an impressive cost of funding, which is now 61.44 percent of CDI, Including all interest bearing liabilities, we're confident in the sustainability of this cost of funding profile Our deposit base is diversified In more than 14,000,000 retail customers that trust us with their savings and transactional balances, our average deposit per client grew by 4% to 2,600 despite the accelerated growth in our activation rates. Now Let's move forward and talk about our transactional platform session. As mentioned in the beginning, we're reporting our 3rd Consecutive quarter bringing 1,000,000 new active customers, achieving 15,500,000. Our activation rate showed another quarter of strong progress, increasing by 49 bps. This milestone, combined with the lowest CAC since the Q3 of 2020, is a direct outcome and feeding this new knowledge into our algorithms to optimize the new cohorts.

Speaker 2

In terms of volumes, you can see that our TPV reached an impressive BRL219 1,000,000,000, mostly driven by credit and peaks. This is the highest credit TPV growth in a quarter since the Q2 of 2022, Combined with a more balanced mix between credit and debit transactions, this contributed We can see that the newer cohorts are starting at higher levels and growing at a faster pace than the older ones. We're proud about this performance, which is a strong evidence of better quality in client adds and activation. Moving forward to other verticals, we can see the power of our financial super app ecosystem. In the quarter, another record.

Speaker 2

We also had BRL870 1,000,000 in GMV Leveraged by our Inter Day in July 7, our net take rate in the quarter was 8.7%. Combining this, we reached a record breaking gross revenue in this vertical of BRL124 1,000,000. On insurance, we had a great quarter reaching more than 322,000 sales and 1,600,000 active clients. And finally, on investments, our simpler and accessible product offering along with a strong AUC that increased to BRL83 1,000,000,000. Talking about our global solutions, we experienced another quarter of strong success.

Speaker 2

We achieved Over US270 million dollars in deposits and AUC. We continue replicating our Brazilian offering In the U. S, by taking advantage of our scalable technology to create a best in class global app. The strong adoption of these products is a result of the continuous UX improvement and Our focus on Brazilians who travel, invest and or are immigrants in the U. S.

Speaker 2

The client base grew nearly 4 times year over year, reaching almost 2,000,000. Before passing to Santi, I would like to comment that in the U. S, we're replicating our number one competitive advantage. That we have in Brazil, which is our unique cost of funding. Now Santi, please go ahead.

Speaker 2

Thanks, everyone.

Speaker 3

Thank you, Sande. Good afternoon, everyone. Now I walk you through the financial section. Jumping into Page 21, here we can see the revenues, which had another great quarter, reaching also record numbers. As mentioned at the beginning of the presentation, we achieved $2,100,000,000 of gross and $1,300,000,000 of net revenues this quarter.

Speaker 3

The growth was mainly driven by fee expansion, which resulted from the strong performance of interchange, e commerce, insurance In terms of net interest income, the lower inflation in the quarter impacted KII, resulting in a growth of 2%, 22, here we can see the unit economic metrics. Our growth monthly ARPAK reached BRL48, an all time record. This is impressive in our opinion as we continue adding a strong number of new clients every quarter. The strong ARPAK combined with a stable cost to serve has led us to improve our gross margin per active client For the 4th consecutive quarter, reaching another record of BRL 35. We expect that this trend will continue improving As a new approach of client acquisition, activation and the app personalization continues to move forward.

Speaker 3

Jumping to the NIMs on Page 23, here we can see that our NIM 1.0, which considers the full portfolio, Including cash receivables that do not accrue interest, known in Portuguese as AvisTA, reached 7.8%, our 2nd highest level ever. Regarding NIM 2.0, which considers only the interest earning portfolio, it reached 9.2% This quarter, as mentioned before, we observed lower inflation levels in the Q3, which are now normalizing to the current one. Additionally, we had more renegotiations triggered by the Decentrola program, which despite impacting NII, Had a positive effect on cost of risk. Finally, our repricing strategy continues ongoing. And in addition to the shift in underwriting mix, we expect to continue improving the implied rates of our portfolios.

Speaker 3

Moving to the expense side on Page 24, here we can see better trends in the last three as a result of our cost control initiatives. As our profitability increased, our personnel expense line reflected an increase in compensation associated with accrued bonuses and profit share agreements. The other expense lines remain roughly in line with the prior periods as a consequence of multiple initiatives to optimize Our cost structure, with this disciplined focus on expense management, we still see strong opportunity to continue delivering economies of scale. Moving to Page 25, to summarize the work that we are doing on the operational leverage front, these two charts On the left hand side, we can easily see the remarkable increased gap between the growth levels in net revenues And on the right hand side, I would like to highlight another great quarter of improvement in our efficiency ratio, which once again is a record low of 52.4%, meaning 100 bps better than in the prior quarter. Unlike in the prior two quarters, on this Q3, the improvement in efficiency was led entirely by revenue growth.

Speaker 3

On page 26, we are actively monitoring at Inter what the percentages of the SG and A base Relative to the net fees, as you can see in the chart, the ratio has been nicely evolving during the past few quarters And now stands at 73%, our all time high. The continuous improvement in this ratio is a key component to meet Our ROE goals. In terms of profitability on page 27, We couldn't be more proud of what we achieved. We are able to deliver a record breaking ROE of 5.7% by printing our best Our net income of BRL 104,000,000. On a pretax basis, we reached BRL145,000,000, which is more than 80% higher than in the prior quarter.

Speaker 3

Concluding our financial section on Page 28, We recorded a 23.7 percent CET1 ratio this quarter, our first ever organic capital creation. As mentioned in prior calls, our capital is fully comprised on top quality core equity with no hybrid instruments. Now I'll pass the mic back to Joao for his final remarks. Thank you, Sanjay

Speaker 1

and Sanjay, for highlighting all the important topics of our another record breaking quarter. Before moving to Q and A, I would like to summarize This impressive results quarter in one phrase, we are building a business model to last By adding value to our stakeholders, our core competitive advantage, which are cost of funding, cost to serve And strong fee income remained as strong as ever. We are delivering solid growth, leading to strong market share gains, Disrupting the status quo. Our state of the art technology is like no other and sets us apart from our competitors, offering the best UX and integrated banking experience in the market. I would like to close

Operator

We will now begin the question and answer session. Once again, for this Q and A session, we ask you to write down your question via the Q and A icon at the bottom of your screen. Your name will then be announced and you will be able to ask your question live. At this point, a request to activate your microphone will appear on your screen. If you prefer not to open your microphone live, please write down Our first question comes from Flavio Yoshida from Bank of America.

Operator

We are now opening the microphone so you can ask your question live. Please go ahead, sir.

Speaker 4

Hi, everyone. Thank you for the opportunity to ask questions. I actually have two questions on my side. The first one is on the net interest margin. So you guys already mentioned the impact of lower inflation that Ended up impacting the NII, but I was wondering what happened here.

Speaker 4

I mean, you guys were doing a great job on the repricing process And also on the shifting the loan portfolio mix towards a higher ROE product. So we're not expecting a NIM reduction In this quarter, so what really happened here? And what should we expect going forward? And then my second question It's on expenses, specifically on personnel expenses, right? So there was a strong increase compared to the previous quarter, Even considering the headcount reduction, right?

Speaker 4

So according to our calculations, the cost per employee Increased more than 40% year on year. So I would appreciate if you guys could share some color here. Thanks.

Speaker 3

Thank you, Flavio. Santiago here. I'll take your question. Thank you for asking. So on the first one regarding NIM, First, let me clarify that the NII did grow this quarter from BRL 802,000,000 to BRL 818,000,000 And that is after a very strong growth that we exceeded in this last quarter.

Speaker 3

So we're on a high base. We grew on top of that. That $818,000,000 that we reported this quarter is 50% higher than a year ago. Now going to NIM Specifically, there are several factors playing out here. On the negative side, we did experience lower inflation, which impacted our real estate Loans that have revenues linked to the inflation index IPCR that had around BRL 20,000,000 of NII Delta negative delta this quarter.

Speaker 3

The second point is that we had greater volume of renegotiations of portfolio this quarter In the context of the Decentrola program and the awareness that that program created, that's close to BRL30 1,000,000 of impact. So those two Pushed the NII down relative to what we were having in the prior quarter and what we expect to have in the next one. And then on the positive side, We had a continuous optimization of the reserve requirement, playing the full 3 months. That's the Conta Compontos or Loop program that We announced on the last quarter that we had a continuation of the improvement in our loan mix as the higher ROE products continued to grow faster than the lower ones And again, representation in the in our loan mix. So all that together, on NII, the numerator Less than the average earning assets, the denominator, though the fundamentals of our trend to expand net income margin, continue to be strong, Leveraging on our funding franchise and the improving ROE driven credit portfolio.

Speaker 3

So we don't see that we are deviating at all On the repricing strategy, we continue doing it actively. We're also ceasing opportunities like the Contact Compuentos before or there were negotiations now. And we stay true to our mission to deliver double digit means. Now going to a second question on personal loans. Given the strong bottom line result this quarter, we did accrue business and profit sharing for employees and executive.

Speaker 3

Excluding these factors, personnel expenses grew only 5% this quarter, given our number of employees continue to reduce organically and now it stands Close to 3,300 employees. The average salary of employees is growing as we're increasing the performance and talent level of Employees across the organization, and we think that going forward, the expense on personnel expenses will be highly correlated With the bottom line. Final comment worth noting that we don't do any adjustment on net income related to expenses Of salaries, personnel, share based, they are all in. So the bottom line considers all these expenses in the metric. Thank you, Flavio.

Speaker 5

Thanks a lot, Sinchi.

Operator

The next question comes from Rafael Frati from Citi. We are now opening the audio, so you can ask your question live. Please go ahead, sir.

Speaker 6

Hi, guys. Good afternoon. Two questions here. One is a follow-up on said comments about renegotiations. Just to be clear, how does DKK30 1,000,000 impact the NII?

Speaker 6

If it's related to discounts, I understand that the other banks maybe classify this as cost of risk. So just to understand a little bit this dynamic of renegotiations On the NII in the quarter. And second, if you could comment on fees. So you have a very strong performance Quarter over quarter, so try to understand here if there is someone off here or if it's a base that we can use as a reference going forward. Thank you.

Speaker 3

Thank you, Fadi, for your questions. So starting with the one related to renegotiations. So realizations were done over interest income, so accrued interest income. So it does impact that line. This has been done This way for a loan matter because the discounts are done or accrued interest.

Speaker 3

So that impacts interest income. Do think we will continue having a bit of that in the Q4. We're looking at the integral or the full economic impact In the P and L of this, so when we look at it together with the impact on asset qualities is clearly a net positive. And to give a bit of broader context on this, Frasim, As our written off portfolio has grew significantly, we started to debate whether to continue with our written off portfolio sales, No, the portfolios that we have historically been doing would typically give discounts on those that were Plus 90%, but these ones that we're doing in the context of the program are close to 40%. So this has Much better performance on the P and L and we see great results from the clients anticipating payments as soon as the agreements are done.

Speaker 3

And then going on to fees, increasing fees was R100 $1,000,000 this quarter. The main driver of that was growth of interchange Of credit cards, this is driven as a consequence of the increase in the loan portfolio of cards, in particular, which had 13% Growth is 2nd highest in our portfolio, followed by insurance revenues and close to $10,000,000 additional. On Mastercard, we had extra performance of close to $20,000,000 as a consequence of beating the performance metrics that we have with them. InterneCo performed very well and delivered growing GMV for the first time in several quarters and that generated an additional R10 $1,000,000 Of revenue, so it's a combination of factors. We do see fee as a key component Of our strategy, we always say that it's one of the 3 competitive advantages that we have, which are cost of funding, cost to serve and a high percentage of fee income, which continues to be around a third of the Total net fees, and this is the way it's explained that we're happy with the performance and expect it to continue delivering that way.

Speaker 6

Perfect. Thanks, Santiago.

Speaker 1

Pradeep, here Jean Vitor. Just to complement on Santiago's answer. I have been telling other shareholders and everybody for a while that the fee income is very important for our business. By delivering a growth on fee income and a sustainable fee income, a fee income that's here for that's going to be here for a while. We're not charging the 10 AIs on the peaks and this type of things.

Speaker 1

We will always have a big percentage of our fees on top of total revenues. And with that trend, we will always be able to improve our ROE going forward. So I myself, I'm very, very dedicated to improve All types of fees on InterShop, on insurance, on the expansion to U. S. Through FX.

Speaker 1

So this is a very important A revenue generation for Interim. So I do believe that it will keep being important and also I see room to keep Improving on a percentage base going forward. Okay, thank you.

Speaker 6

Perfect. Thank you, Yaron.

Operator

The next question comes from Neha Agarwala from HSBC. We are now opening the audio, so you can ask your question live. Please go ahead.

Speaker 7

Hi, thank you for taking my question. Can I just have a clarification on the NIM discussion that we've had earlier in the call? There was a negative impact on the real estate portfolio of about $20,000,000 you mentioned from lower inflation. Is this something that we should See in the coming quarters as well or do you think the adjustment is largely done by now? And my second question is on asset quality.

Speaker 7

Asset quality so far is stable, But we noticed that you reactivated the growth in the credit card portfolio. So how do you think about the asset quality in the credit Card portfolio, now do you see improvements enough for you to be encouraged to expand your loan portfolio there? And how confident are you with your the improvements in your origination that you made in the past quarters? Thank you so much.

Speaker 1

Jean Vittra here. I'm going to talk about the growth on the credit card. Alexandre is going to cover later the links. So first of all, we have always been very cautious on credit card underwriting. Everybody knows that at Interimco, we like to have A very well collateralized credit portfolio, but I would say that for the past 12 months or so, we have been improving Our underwriting process and also our collection process as well.

Speaker 1

We have In spite of the macro, we have been more excited about this product. You see that our TPV is growing. As Santiago also mentioned, we improved the credit limit from R20 1,000,000,000 to R25 1,000,000,000. So it's a big incremental In a quarter or so, so we are more excited with the credit cards business going forward. And not only that, We believe that we have a lot of change on the regulatory framework ahead and combine What we learned and what we're improving and what we're doing on the credit card together with Inter Shop, we do believe that we're going to have the best Consumer finance product available in the market to run this business here at Tinta.

Speaker 1

So I'm very excited with the improvements on the credit card and combining this With Inter Shop initiatives and therefore having this state of the art consumer finance portfolio. Regarding the NPLs, we have a gap

Speaker 2

So on the non performing loans and delinquency, as we expected, The asset quality metrics did perform well during this quarter. So cost of risk closed at 5.9%, that's 30 bps better than last quarter. NPL 15% to 90% and 90% plus reported flat figures, which is we see it as good news. And also NPL formation was flat at 1.6%. In terms of what's driving delinquency, it continues The bulk of it continues to come from the credit cards, about 90% of it.

Speaker 2

When we look at the credit more deeply, we see improving delinquency on a cohort basis. So like on Page 11 of our presentation, We see that there is a consistent improvement across all of the cohorts that we have. In terms of cost of risk, the reason for this study bps improvement is mainly a result Of the underwriting models and collection initiatives that we've been implemented. So we've implemented maintenance strategies In the card portfolio and part of that is increasing limits for high performing individuals and part of that is to reduce the limits Of clients that have deterioration in the credit profile, that tends to be favorable in the short and long term For reduction of cost of risk. In terms of mix, when we think about the overall portfolio, we continue to Add FGTS and home equity loans that have better average delinquency levels.

Speaker 2

So these two segments, They represented 8% of the portfolio a year ago, and now they're at 13%. And finally, but important to highlight, Our coverage ratio increased 2 percentage points to 132%, even considering that the biggest part The portfolio has a strong level of collateral. With that said, we're very comfortable with our underwriting machine and the speed That we are evolving. Thanks, Neha.

Speaker 7

Hi. Could I follow-up on one of the topics? You mentioned about integrating the credit cards with the Intershop. Is this something that you've already Started to pilot or test or is this something in the world and maybe something we see in 2024?

Speaker 1

Okay, Neha. Jean, Victor speaking here. As I mentioned, we do believe that the future of consumer finance is the integration of The payments, the installments together with the e commerce. And yes, we started that already. I would say that we started our buy now pay later 2 months ago or so, we don't have yet the right trends, The right number for the delinquency on that product, but the good news is, the good news are we get a very reduced take rate On that product and we do get a DOUBT payment for the products.

Speaker 1

So when you combine DOUBT payment plus a good take rate, The question that we have for the legacy is huge. So we're very confident that this product is going to be profitable going forward. We expect to share more on that NPL ratios maybe by end of the year for 4Q maybe, okay? But again, I myself very excited with the way we are Combining these two things, the commerce and the banking side. Thank you, Neha.

Speaker 7

Perfect. Thank you so much. And on the NIM, The impact on the real estate portfolio and lower inflation, is that something recurring for the coming quarters as well or are we done with that?

Speaker 3

So on inflation, we're seeing now for the Q4 similar levels that we saw in the first half. So the impact on the Q3, which actually has 1 month of lag, so that was the last month of the Q2, June, July and August had lower inflation levels. Now we're seeing normalized levels into the following 3 months, so we are back to what we saw on the first half of the year.

Speaker 7

Okay, perfect. Very helpful. Thank you so much.

Operator

The next question comes from Yuri Fernandes from JPMorgan. We are now opening the audio, so you can ask your question live. Please go ahead.

Speaker 4

Hello, everybody. Thank you very much. I have a follow-up on the fees on Frade's question on fees. We know the interchange growing a lot, like 15%, 16% quarter over quarter, but your credit card TPV, excluding peaks, was growing like 8%. So what drove this different behavior?

Speaker 4

Usually, TPV and interchange, they tend to follow each other. Why interchange is growing faster? Is this because of, I don't know, higher income clients, higher income cards? I just would like to have more details on the interchange versus TPV behavior. And I have a second question regarding other revenues.

Speaker 4

Other revenues was also part of the good quarter, right? Like it's growing 60% quarter over quarter. And when we look to your financial statement, we see capital gains, other revenues and performance fees. Performance fees, Santi already mentioned, That I think was Mastercard here, but what drove the capital gains and the other revenues? My point about this line is

Speaker 2

Hi, Yuri. This is Alex. Thank you for your question. I'll take the first part and defer the second one for Santi. So in terms of the interchange revenues, what we had was a change in mix.

Speaker 2

So we started growing credit cards again And had a mix flip with credit becoming more relevant than debit. That was the key change, so relatively simple And drives a lot more interchange fees, which is a good move for us. We are preparing, as Ronn Viter mentioned earlier, To keep on growing on that front with several things as we mentioned, including Loop, so our loyalty program is starting to kick in, In terms of bringing more recurring spenders to Interne. So I'll pass the word to Santi. Thank you.

Speaker 3

Hi, Yuri. So on the other fee revenue question, 100% of these other fee revenues are correlated to business volumes, Where we excelled in cards, insurance and investments, deep diving on each of these points on TPV of cards, Building up on what Alexandre just mentioned, it grew 12% this quarter, exclusively of credit cards, not to BRL 10,300,000,000 KAIS in a quarter with no particular positive seasonality, just driven by our acceleration in the credit card business, where loan portfolio, as you know, growth It grew 13%. Another relevant number to mention, which I think, Dror anticipated a bit, it's the increase in our credit card limits From $20,000,000,000 to $25,000,000,000 this is a 25% increase in our limits in just a quarter, focusing on clients with higher propensity to spend, Therefore, driving higher TBV. The second point is insurance. This has two parts.

Speaker 3

The first part is related to performance, where we've been over delivering the business goals We are bancassurance partners, both Liberty and Sompo, and for that we have crude recurring revenue. And the second one is related to our stake in Inteceguros, We have a profit sharing agreement and the more performance the company has, the more we benefit from it. 3rd and last is investments. We have a volume based agreement with B3 that we've been beating quarter after quarter and for which we also receive a performance fee. To put numbers into these three components, we have on credit cards close to BRL20 1,000,000 on insurance close to BRL20 1,000,000 And the remaining is mainly investments with a bit of InterShop as well.

Speaker 3

So that explains the $50,000,000 delta in other revenues. It's 100% again Related to business, and we think this is recurrent, though some of them are recurrent in every single quarter and some Our current in every single year, but not necessarily in every single quarter, which I understand that make modeling a bit more complex, but they have occurred in each of the prior years and They will continue occurring in the future.

Speaker 4

It's pretty clear, Santi, which one is reflecting capital gains of those?

Speaker 3

The insurance part, Juri, the insurance is on capital gains.

Speaker 4

Perfect. If I may, guys, a third one on capital. It was pretty good. Your capital this quarter to your Tier one ratio was up almost 100 bps, right, like 90 bps. What drove this?

Speaker 4

It's basically the new central bank credit risk regulation or are you optimizing capital Somehow, because in the past, we discussed about doing some things to improve your capital. So just checking if this is more regulation or if this is Interne is doing something on the capital side. Thank you.

Speaker 1

Juri, here Jean Vitor speaking. We always like to get all the benefits from the context of the market, which are exactly what you mentioned, Some change on the regulation, but we are also working at Intech to improve everything from operations and the way we use our capital. And I would say that one of the most recurrent words for the past, I'd say, 12 months or so here at Interim was ROE. So every underwriting credit underwrite, what was the ROE? What was the ROE?

Speaker 1

Is it delivering a good ROE for us? Yes. No, let's not underwrite. So We really changed our mindset on that. We need to remember that before we had, I don't know, 50% CET1 after all the follow on offers we did.

Speaker 1

We were not so concerned about the right to use of our equity. I would say that, again, for the Pastel Avance is a whole different scenario. So we have been way more diligent on underwriting and get the best use of our equity. That's why I also mentioned in one of the previous questions, we want to see these fee revenues that you also asked Growing consistently quarter over quarter year over year because this is going to help also our CET1. So Using the equity on the right way for the credit portfolio expansion and bringing more revenue fees, We will always have, I would say, the best CET1 on the retail banking industry in Brazil.

Speaker 1

So that's What we're working hard to achieve.

Speaker 4

Super clear Joao and thank you and congrats on the ROE improvement in the past quarters. Thank you.

Operator

The next question comes from Eduardo Rosman from BTG. We're now opening the audio, so you can ask your question live. Please go ahead.

Speaker 8

Hi. I have one question here. In the CO letter at the press release, you mentioned that Interimco It's currently ahead of schedule with respect to the sixty-thirty-thirty goals for 2027, right? So Do you believe it's just a matter of time of doing more of the same to get there, or do you still need to come up with new products such as overdraft or And in other geographies like such as U. S, right?

Speaker 8

So it would be great if you could share with us where do you think you are ahead of

Speaker 1

Hello, Jose, Jean Victor speaking. Thank you for the question. Yes, we are, I would say, ahead of the budget, but we're still trying To work harder, even harder, to try to anticipate as much as we can and to keep being ahead of it. So I believe that on client engagement and client adoption, we're doing great. So Adding, I would say, 1,500,000, 1,600,000 new clients every single quarter with a very good CAC.

Speaker 1

So they are doing a really, really good job. And also on efficiency, we're able to, I would say, to get most of the fat that we had at the conference. So we improved a lot. But also we just gone after the vendors, the biggest vendors to renegotiate most of our contracts. So anyway, we're working hard to also improve our efficiency ratio.

Speaker 1

We still have room to improve that. We are close to 50, but We see this also ahead of the budget. And lastly, on ROE, which is the last 30 of the six-thirty-thirty project, We know that we are still far from the 30% mark. But again, we need to consider we have A big buffer of CET1. So we'll keep growing our credit portfolio.

Speaker 1

We can grow our credit portfolio, Osman. We do have only, I would say, 1.5%, 1.2% of the credit portfolio in Brazil, but we do We have 8% of the fixed transactions. We do have a very good cost of funding, actually the best cost of funding on the Street. We do have 7 different credit portfolios for us to grow, and we're adding more of more credit portfolios, so such as FTTS picks credit. So we're very comfortable that we will leverage more our balance sheet and then combined with the fee revenue, which sounds very good, We'll be able to achieve maybe, who knows also ahead of the budget, our six-thirty-thirty.

Speaker 1

So I'm very convinced that it's achievable more than when we launched it, when we unveiled it by the beginning of the year. But again, still a lot of work to be done, but I'm happy that we are improving in all the three fronts of the plan. So That's how I see Inter performing on that North Star project called the 6,000,000

Speaker 8

Great, Joao. If I may, just another topic here, another question, because we've been receiving a lot of questions on the payroll lending market. There's another digital bank that has set very aggressive goals for growing in that market, and indeed they are coming with very low interest Right. So we know that you were one of the first ones to offer the product 100% digitally. So what steps can you take here to further accelerate your market What are the challenges and opportunities that you see in the segment going forward, right?

Speaker 8

Thank you very much.

Speaker 1

Thank you. Look, we have been underwriting payroll loan at Interneco since 2,001, okay? So this is not something new at Interneco. And I know you covered the space for a while, and we know that the payroll loan is not a commodity. I also just mentioned a few questions ago that we're being very diligent at Inter to underwrite Credit portfolio with the right ROE.

Speaker 1

And also I just mentioned, we have the best funding in the market. And also you know that we are very digital oriented Having said that, in a diligent way, I consider Interne the most capable A player on the industry to reduce and to have the best cost for the payroll loan. Also, we don't do that with the banking correspondence, which take a big toll on the profitability of the business and also Put a lot of pressure on the legal claims down the road. So I'm confident that we will be able to Keep improving, of course, we need to always improve the CRM initiative. So to get to the clients that are willing to change and to migrate to Interneco, we do know that when the interest rates are high, It's not easy for you to do the migration from one bank to the other, but we're very well positioned.

Speaker 1

We don't want To do a dumping, as we did before already, if you remember. We were doing the best, the lowest rating consignanado in the past, And we don't think that's the right way to go, but we have the tools to be one of the cheapest on the market. And I would say that with time, we will conquer more and more and more clients. I would say a B2C strategy, okay. We will own that client.

Speaker 1

They're going to use our other product and not a B2B to CIT approach. So I'm excited with that product as well.

Operator

The next question comes from Jorge Curi from Morgan Stanley, and I will repeat it. I actually have two questions, please. First, Can you help us understand how your NIM will look like if rates get to 9% as current consensus anticipates? What are the puts and takes here? The second question is, I also wanted to get some guidance on how your cost of risk should move going forward.

Operator

Your provisions to loans are running at around 6% on a last 12 month basis. What do you think the level should be in 2024 2025.

Speaker 3

Thank you, operator, and thank you, Jorge, for the question. I'll take the first one and I'll let Alexandre take the second one. So in terms of decrease impact from decrease in Selic, We believe that our balance sheet is truly unique given that we have a differentiated funding structure where free transactional deposits are very high, representing roughly One fourth of our funding and as a consequence, we are liability sensitive and we benefit from a reduction in Seliq at least in the short term. To put this into numbers, for every 100 bps of CELIC reduction, our NII growth around BRL 20,000,000 per quarter. What happened with the reduction of CELIC is that it will start playing out or being visible in our NIM in the 4th quarter.

Speaker 3

The first reduction occurred in August. It takes around 1 month to start being re pricing on the liability side. And additionally on NIM, we do see a very strong change in the credit mix as we're continually growing The higher reliance, as I mentioned, FTTH, home equity and credit cards with the lower yielding mortgages we've used. So this combined, it is a positive impact for us. We do need a few quarters to that for that to be reflected, And it is a key component to our path to a double digit need.

Speaker 2

Thanks, Antti. Hi, Jorge. Thank you for the question. When we think about cost of risk, looking at the past, we came from like around 3% in 2020, 4.6% in 2021. And now last year is when delinquency really spiked, as in the macro perspective.

Speaker 2

We got to 5.4 and this year saw what we call the peak at 6.2 in the 2nd quarter. This quarter, we improved. We came down to 5.9 and have a lot of actions, as we have discussed here before, To keep pushing it down, so this in Hola has played a factor. A lot of modeling based Collection, working, a lot of the renegotiation discounts that Santiago mentioned before are also helping Improvements in the cost of risk and the idea is to push it towards the neighborhoods of 5% in 2024 And 2025. The indications that we have as we look to the newest the newer cohorts Is that this is definitely a possibility.

Speaker 2

So we'll keep working hard on the collection, implementing all the strategies that we can To move it and to achieve this 5% level, which should be is very aligned with the sixty-thirty-thirty plan. Thank you.

Operator

The next question comes from Pedro Leduk from Itau BBA, we're now opening the audio so you can ask your question live. Please go ahead.

Speaker 5

Thanks a lot guys for taking the question on the call. I feel that prepared ones have been answered already, but I would like to dig in a little bit into What you've mentioned in the prepared remarks, I believe, some tag on the renegotiated portfolio that it's partially explaining the NIMs, at least visually. Can you remind us how large it is? How much it grew this quarter? And in which product line is the renegotiation concentrated Ian, thank you.

Speaker 3

So thank you, Neduk. So the impact was mainly On renegotiation of delinquent credit card portfolios and that impacted in The NIM I mentioned are BRL 25,000,000 of difference versus what we had the prior quarter, taking the compression on the NII. And that's the impact that we had. And then on the positive side, it impacted the asset quality, measured the cost of risk with a net positive impact on the bottom line.

Speaker 5

Can you remind us, Santiago, how large it is nowadays within either your total portfolio or within credit cards, the renegotiated portion?

Speaker 3

So we disclosed the renegotiation in the O2O financial statements and it went up from 1.6% to 1.9%, The amount renegotiated this quarter.

Speaker 5

Okay. Thank you. And the second question,

Speaker 3

Luke, just correct me here. I apologize. I missed the number. It went up from 0.6% to 0.9%, the renegotiated amount, and that's on the notes On the Basen Financials.

Speaker 5

Thank you. That's very clear, small number indeed. A second question perhaps more for Jean Vitor on the U. S. There's a nice chart where you have the product rollout schedule, the 2,000,000 in global accounts, almost.

Speaker 5

Can you tell us if these are clients in Brazil that you're bringing to global accounts or already onboarding U. S. Clients itself? I know you're also sponsoring a soccer team there. I imagine It's part of the marketing rollout as well.

Speaker 5

Thank you.

Speaker 1

LeDuc, Jean Vitor here. Look, as I mentioned before, when we started back in 2016, we had a very good product to offer to the market. So the word-of-mouth helped us a lot to grow on the Brazilian market. Also, we saw that by bringing this client who had the best cost of funding That helped us to underwrite credit in different portfolios. This is the same thing, the same pattern we see in U.

Speaker 1

S. In our expansion, we have a very good product so far. Just to be clear, we're not there yet, okay. So we still need to fine tune the product to have Some of the verticals in Brazil that are not there yet, but to believe that maybe another 1 or 2 quarters, we'll have the product almost ready. Of course, We are always improving our product also in Brazil, but we're going to have everything almost ready.

Speaker 1

And I would say that next year will be more like a go to market Phase for the U. S. Market with a better product in place. So with more word-of-mouth Client production instead of just burning cash on Kaki. Of course, we want to start On the easiest way, so we started by bringing the Brazilians taking the Brazilians to U.

Speaker 1

S. For them to transact with our debit Cars to use our inter shop, to invest in our intersecurities, but we believe that with time, We'll be able to bring also Americans and also Latin Americans, individuals that live there In U. S. To use our products and we're very confident that by having our product as a component, So we can replicate that quite easily for our global app because we have, as I mentioned before, a state of the art IT framework. We'll be able to have, I would say, maybe one of the best financial super apps in U.

Speaker 1

S. As we do have in Brazil today, Edouc, so very excited with the outcome there. Our rates surpassed $300,000,000 in deposits. So Again, I do believe that we have a bright future for U. S.

Speaker 1

On the digital banking space.

Operator

The next question comes from Thiago Batista from UBS. We're now opening the audio, so you can ask your question live. Please go ahead.

Speaker 9

Yes. Hi, guys. I have two questions. The first one about the peaks finance. I understand that Inter includes the fixed financing side of the credit card, but I want to double check to confirm if this is the case.

Speaker 9

And more important, if you can comment on the asset quality trends or the asset quality profile that you believe this product will have, If this is better or worse than the average credit card loans and also if the behavior of the users of this Is more to make money transfer or to buy things even in the shop? And the second question, You mentioned already a couple of times that the numbers is ahead of your budget or Ahead of the work, you guys are expecting to achieve the 2/27 goals. It's possible to say already that the bank ROE should

Speaker 2

Addressing the first part. So when we think about PIX Credit, we launched this product about 40 days ago. Along with it, we also launched boletos with paying boletos with the credit card. So The approach we're taking to the product is to start from the lowest risk clients and expand through the highest risk clients With different pricing according to the risk profile, it's we're in the early stages of the product, so we don't have yet The behavior of delinquency, but our expectation is to have something very similar to what we have In the credit card, the regular credit cards.

Speaker 1

Thiago, Jean Vito here. Just to complement on Alexandre's response to that question, what's interesting about the PIXGRED and PIXVOLETO It's that we're getting the best use of this very, very innovative platform in Brazil called PIX. What do I mean? The risk profile of the client is the same. So if Thiago is doing a credit card transaction on a Shopping mall or doing a fixed transaction, your credit profile is pretty much the same, but the economics are better because we don't need to use the whole payment scheme To make that transaction go through, that's exactly what we're doing at InterShop.

Speaker 1

We have the same credit profile, But with a better economic, so every time that we embed a consumer finance such as PIX Credit, Bolleto Credit, in your own ecosystem, you tend to have A better monetization, a better ROE on that front. So we're very excited with PIXGRESTO, with At PIX Boleto and also with our buy now pay later at InterShop. But as Alexandre just mentioned, we're on the early days of that portfolio. As you know, Interne, we're always taking a conservative approach, but I'm sure that we'll be able to perform very well on this space going forward. And now Sanjay will cover the question on the ROE for 2024.

Speaker 3

So thank you, Teo, for the questions. So on RWE, we gave two numbers in the Investor Day back in January. We mentioned that the North Star is 30% By 2027, and we mentioned that in 2023, which is year 1 of that 5 year business plan, we expect it to have a mid single digit ROE. We are fully focused on closing this year. Until we close this year, we're not going to give any numbers or share any guidance at all in terms of what we expected 2024.

Speaker 3

We do think that the 4th quarter will be meaningfully more profitable than the 3rd quarter, which is basically a continuation of the Trend that we're seeing from the Q1 1 percent ROE, 3.5 percent on the second one, almost 6% on this one. This is despite the high excess capital That pushes the ROE metric down and we see the continuation to the Q4. We'll have time to talk about 2024 later once we close this year.

Operator

This conference call is now concluded. Enter's IR area is at your disposal to answer any additional questions. Thank you for attending today's presentation. Have a good day.

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Key Takeaways

  • Record Q3 results: Gross revenue of BRL 2.1 billion (+39% YoY), pretax income of BRL 145 million, post-tax income of BRL 104 million, ROE of 5.7% and efficiency ratio of 52.4% all reached all-time highs.
  • Robust customer traction: added 1 million active clients for the third consecutive quarter, lifting total active base to 15.5 million and record activation ratio of 52.7%, while monthly ARPAP hit BRL 48.
  • Credit portfolio expansion with disciplined underwriting: loans rose 7%, including FGTS loans up 20%, home equity up 10% and credit cards up 13%, with stable NPLs, cost of risk improving to 5.9% and coverage ratio at 132%.
  • Strong funding franchise: deposits grew 11% to ~BRL 40 billion, with a best-in-industry cost of funding at 61.44% of CDI and diversified retail customer base of 14 million.
  • Global push gaining momentum: U.S. AUC and deposits exceeded US$270 million, nearly 2 million clients onboarded, leveraging Inter’s low-cost funding model to scale its super-app overseas.
AI Generated. May Contain Errors.
Earnings Conference Call
Inter & Co, Inc. Q3 2023
00:00 / 00:00