Inter & Co, Inc. Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 14, 2023

There are 11 speakers on the call.

Operator

Good afternoon, and thank you for standing by. Welcome to the InterContino Second Quarter Earnings Conference Call. Today's speakers are Joao Victor Menon, CEO Alexandre Riccio, 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 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 Your name will then be announced and you will be able to ask your question live. At that point, a request to activate your microphone will appear on your screen. In this case, our operator will read your question. Please note that there is an interpretation button at the bottom of 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.

Operator

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. Please refer to the forward looking statements disclosure in the company's earnings release and earnings presentation. Now let me introduce the agenda for today.

Operator

Mr. Joao Witter Menon will start the presentation sharing with you an overview of the vision and the main achievements of the quarter. Then Mr. Alexandre Riccio will cover the Banking and Transactional Platform Sections. Mr.

Operator

Santiago Stel will present the Financial Performance section. Then Mr. Joao Viter Menon will make some closing remarks, and we will proceed to the Q and A session. Now I would like to yield the floor to Mr. Joao Victor Menon.

Operator

Sir, the floor is yours.

Speaker 1

Thank you, operator. Good afternoon, everyone, And thank you for joining our earnings call. This is a truly special quarter for several reasons. On one hand, it marks the 1 year anniversary of our U. S.

Speaker 1

Listing, which is why we are broadcasting from NASDAQ New York Studios. And more importantly, this is a quarter of records, representing an inflection point in our history. If you recall what I said in the last quarter earnings call, I mentioned that our results were just a glimpse of our strong potential. Well, the glimpse is now a reality. Reflecting the multiple records we were able to print in a single quarter.

Speaker 1

First, we combined both top and bottom line record performance. 2nd, We delivered our strongest operational results with record new active clients and activation. 3rd, we launched our 2nd vertical, which is loyalty, improving the value proposition for our clients with the new rewards program called Interloop. And lastly, we launched our global app, the first ever in the banking industry. With all of that, I could not be more excited.

Speaker 1

I believe this shows our huge effort to deliver the best platform for all stakeholders. On Page 6, we delivered an impressive combination of record From a financial side, our gross revenue reached BRL1.9 billion, 33% higher than a year ago and it continues to be highly diversified We continued with our ROE driven underwritten, enabling us to have strong NIM expansion. On bottom line, we had our highest ever profitability, both on pre- and post tax This is not just a few percentage points higher than in the prior periods, but multiple times higher, particularly on pre tax basis reaching BRL80 1,000,000,000. When we look at operations and innovations, I'm flattered to see also a series of remarkable milestones. We had another quarter adding 1,000,000 active clients, And we reached a total of 28,000,000 clients.

Speaker 1

We continued improving our activation ratio by an impressive 68 bps, surpassing 52%, our highest level since 2021. We continued innovating by launching Interloop, which we believe will drive strong engagement and activation. Additionally, we started operating our global app. Now we have our super app working On Page 7, as an engineer, I am a builder by heart. And in that sense, I'm very excited with the launch of our loyalty product called Interloop.

Speaker 1

I had the same excitement when we launched our digital account in 2015 and also when we launched Inter Shop back in 2019. I am fully convinced that we have all the elements to succeed in this new journey, such as To end 8,000,000 clients, BRL200 1,000,000,000 transacting per quarter, a state of the art technology platform and full banking infrastructure behind. I'm sure that we will disrupt this market in the same way that we did with Digital Banking a few years ago. On Page 8, In summary, this is a quarter of records, the best one ever. It's a truly inflection point in our history that enable us to start seeing the full potential of Despite still being in day 1 and to have a lot to deliver in the next years, I'm happy to report real operational excellence and profitability.

Speaker 1

This innovative And profitable business model is gaining momentum as we continue to grow, gaining market share, keep innovating, enhancing our super app for our clients and lastly, Expand our profitability for our shareholders. We're starting the second half of this year on a very strong note With a momentum that enable us to continue delivering results over what was built so far. Thanks again for listening. Sean, please go ahead.

Speaker 2

Thank you, Joao, and good afternoon, everyone. I'll start talking about our credit and funding capabilities. Jumping into our loans on Page 10. I'll pass through some important highlights. Our portfolio grew by 5% this quarter, focused on high ROE products such as PGTS loans, which grew 26% and home equity, which grew nearly 10% in a quarter over quarter basis.

Speaker 2

In credit cards, we grew 6%. In payroll and real estate, we continued improving our pricing and The word that better describes this quarter in terms of credit underwriting is consistency. This discipline has enabled us to improve more and more the average yield of our portfolio With 200 basis points increase in a single quarter, we have been doing a very diligent job related to our underwriting capabilities and already seeing the strong results of it. Now on Page 11, we present our asset quality metrics. Starting with the 15 to 90 day NPL, We saw an impressive decrease of 30 bps in a year over year comparison.

Speaker 2

On the 90 days metric, which has an impact of changes in growth rates. The ratio increased 30 bps on a quarterly basis, in line with the general market trend. We're happy to report that newer cohorts are consistently improving as a result of our more assertive and data driven credit underwriting, as you can see in the bottom left chart. Finally, The NPL and Stage 3 formation reached 1.6% in line with the market trends and our best performance. On Page 12, we see that our cost of risk reached 6.5% in the quarter.

Speaker 2

The increase, as mentioned in the prior page, is mainly associated with older cohorts of credit cards. Aside of cards, our cost of risk is demonstrating a solid and stable trend of around 1% Since the Q4 of 2022, our coverage ratio remained constant at 130% by provisioning in line with the NPL trend. Overall, we see that our asset quality metrics are following the macro trend with similar behavior when compared to peers. On Page 13, we can see the evolution of our funding base, one of the key competitive advantages of our platform. Our deposits grew 29% year over year, reaching BRL33.5 billion In a highly fragmented base with more than 13,000,000 clients trusting us with their deposits.

Speaker 2

We continue delivering best in class cost of funding, reaching 63% of CDI in the quarter. Now let's move forward to the transactional platform session. We're glad to report our 2nd consecutive quarter adding 1,000,000 New active clients combined with the lower CAC in over 2 years, our activation rate showed strong progress, increasing 68 basis points, surpassing the trend that started last quarter. We achieved these results With big data and AI, which allowed us to advance towards much stronger understanding of our customer profiles, Behaviors and Product Preferences. In addition, we have advanced significantly In the app personalization, which we presented early this year in our Investor Day.

Speaker 2

As an example, We have more than doubled the number of at home screens when comparing to the end of the first quarter. In terms of volumes on Page 16, you can see that debit and credit cards as well as fixed Reached BRL197 1,000,000,000 in TPV, which demonstrate our strong position in banking and in the daily lives of our customers. Interesting to note that credit cards continues to outpace debit transactions, providing us with a much higher interchange and profitability profile. In a cohort basis, As presented in the right chart, we can see the positive evolution in 1, increasing TPV across With our clients transacting almost BRL200 1,000,000,000 per quarter in their daily banking activities, The cross selling opportunities are notably higher as we keep enhancing communication channels and create new engagement solutions such as Interloop, this opportunity can scale even more in the future. On e commerce, we reached 2,700,000 clients transacting during the quarter.

Speaker 2

Our momentum allowed us to continue growing our net take rate, which now stands at 9%, our highest level ever. On insurance, we saw a 46% increase in active clients as we evolve with our upselling and cross selling initiatives. And finally, on investments, which reached 3,600,000 clients. We saw an impressive 66% Year over year growth along with a strong AUC that increased 41% to BRL77 1,000,000,000. These products boost ROE and consume no capital.

Speaker 2

As Ro mentioned in the beginning of the presentation, we are super excited with all the possibilities that Interloop is bringing as our 7th This is vertical. We're using our robust banking structure as the backbone of this program. The breadth of our platform dramatically facilitates the earn and burn opportunities With the marketplace being the most obvious synergy, the solutions are already built. We just need to connect them. In that sense, Interloop leverages not only a strong potential of cross selling, but also can create revenue streams such as 1, earn versus burn spread 2, breakage 3, point sales and 4, subscriptions and much more.

Speaker 2

The idea is to connect all of our verticals with Interloop, creating a true gamification experience. Talking about our Global Solutions on Page 19, we illustrate the evolution of this vertical. We're glad to say that it is performing at a pace much stronger than we anticipated, reaching almost 1,900,000 Global Clients and $220,000,000 in deposits and AUC. The strong adoption of these products It's related to its seamless EOX into our go to market strategy that's focused on 1, Brazilians will travel abroad and want to spend in a U. S.

Speaker 2

Issued card 2, Brazilians Who wants to invest on NASDAQ or Nice? 3, people who live abroad and send remittances worldwide, Mainly immigrants and for people who want to invest in real estate funds. We continue evolving to replicate our Brazilian offering in the U. S. With minimal investments by taking advantage of our flexible and scalable technology.

Speaker 2

By now, we already have deployed 5 of 7 of our business verticals in the U. S, all of them integrated into our global app. In terms of products, We have in place remittances, store discounts, gift cards, debit cards, mortgages and investments. And as we move forward, we plan to add a full e commerce platform, BNPL and credit cards. Important to note that we're coding reals and monetizing in U.

Speaker 2

S. Dollars. Now Santi will pass through the financial highlights of our quarter of records. Thanks, everyone.

Speaker 3

Thank you, Shanday. Good afternoon, everyone. Now let me walk you through the financial performance section. In the context of the quarter records, revenue is certainly one of them. We reached $1,900,000,000 of gross $1,200,000,000 of net revenue this quarter.

Speaker 3

In terms of growth, it's interesting to notice the acceleration of 12% in net revenues in a single quarter, marking the strong momentum of our franchise. Another important highlight is how balanced NII and Net fees grew side by side, both at double digit rates. On Page 22, We can see the ARPAK evolution across cohorts. As we already highlighted in prior quarters, new cohorts continue outperforming the older ones. In addition, when clients get to know our platform by using it, we see even higher back levels.

Speaker 3

We believe that this trend will remain increasing as the new approach of client activation and the app personalization continues moving forward. On the right hand side, we can see a stable ARPA trend from a financial statements perspective in the strong growth in new active clients. Now let's discuss our strong NIM evolution on Page 23. Starting with the NIM 1.0, which considers the full portfolio, including cash receivables that do not accrue interest, known as Alista in Portuguese, We reached an impressive 8.1%, which is 70 bps points higher than the Q1 of this year. Regarding NIM 2.0, which considers only interest earning portfolio, the increase was even higher at 80 basis points, by far Our best performance in several years.

Speaker 3

When we look at the evolution of NIM since 2022, we can see 4 different stages. First, we converged our rates to the market level as we shifted from growth to growth with profitability. 2nd, we actively repriced the legacy portfolio of mortgages and payrolls. 3rd, We're gradually changing the portfolio mix as we originate more of the high ROE products. And finally, going forward, We expect to benefit from the recent launch of Punta Compontos, the scale up of new products and the increase of select rates.

Speaker 3

Moving to the expense side on Page 24, we can see the effectiveness of our cost control initiatives. Our expenses decreased for the 2nd consecutive quarter even on nominal basis. When we look across slides, we can see a very stable trend in Ogilva. With this disciplined focus on expense management, we still see a strong opportunity to continue strong operational leverage. Moving to Phase 25, we can see that these results are also visible In the ratio of active clients per employee, which is a good proxy of our workforce productivity, it now stands at 4,200, with the most notable evolution in a single quarter.

Speaker 3

The cost to serve also had strong performance, decreasing 20% in a year over year basis, standing today at BRL12.5. I would like to highlight the importance of operating at such low cost to serve as it gives us a unique competitive advantage visavis incumbent banks. Moving to Page 26, in what is probably my preferred slide, The left chart shows the impressive work that we are doing at Inter on the operating Teres side. We are being able to increase revenue and decrease expenses at an accelerated pace, while delivering best in class products to our customers. On the right hand side, I would like to highlight a remarkable improvement in our efficiency ratio, which is also one of the most important records of our quarter of records.

Speaker 3

We reached 53%, the 2nd consecutive quarter with nearly 900 bps improvement. As you can see, we had a great performance in personnel and administrative expenses with increasing trend in both lines. Recoding our Investor Day target of 30% efficiency, we are considerably ahead of schedule towards this metric. These results reinforce our strong commitment and disciplined focus towards our 5 year business plan. Moving to capital on Page 27, we recorded a CET1 of 22.8% in the quarter, which is the lowest capital consumption of a quarter since our IPO.

Speaker 3

As mentioned in prior calls, our capital is fully comprised of top equity without any hybrid capital instruments. When we compare CET1 level, it remains nearly twice that of the 1,000,000 of the 5 Large Incumbent Bank of Brazil. And last but definitely not least, another record or the quarter of records profitability on Page 28. We accelerated our path to profitability, delivering BRL64 1,000,000 of net income At a 14x increase in our pretax basis to reach an EBT of BRL80 1,000,000. This is our highest profitability since our IPO back in 2018, and we couldn't be more excited about what's coming next.

Speaker 3

Now Joao will share with you his closing remarks. Joao, please go ahead.

Speaker 1

Thank you, Sanjay. Thank you, Sanjay, for highlighting all the important topics of our quarter of records. Before moving to Q and A, I would like to say that these results were possible because: 1st, we have a very disciplined focus on increase Our revenue is scaling up the products in our platform. 2nd, we optimize our cost structure. And 3rd, maintain our strong innovative DNA approach.

Speaker 1

As you can see, Inter is at its inflection point, Delivering strong results still with the best yet to come. Thank you, clients and investors, Thank you to our employees to make this incredible quarter of records possible. Like I already said, we're starting the second half of this year on a very strong note.

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 no microphone at the end of your question and our operator will read your question aloud.

Operator

Our first question comes from Mr. Thiago Batista from UBS. We are now opening the audio, so you can ask your question live. Please go ahead, sir.

Speaker 2

Hello?

Speaker 1

Can you hear me?

Operator

Loud and clear, sir.

Speaker 4

Okay, perfect. Thanks guys for the opportunity. Very good earnings. Congratulations. So I have two questions.

Speaker 4

The first one about the Conta Compontos. Is it fair to say that the vast majority of the conversion of the demand deposits To the low cost and deposits, we're already done. And but we were not able to see yet the full impact of this change in the P and L. So only to see if the improvement in your profitability coming from this change will appear going forward. And second, if I look for your ARPAQ and I mean looking to the net ARPAQ, we saw some expansion this quarter To something close to BRL30 per month.

Speaker 4

But this is still about 10%, 12% below the peak, That's a 1 year ago, more or less. And if you look for the chart that you show about the net impact by cohorts, We also it's possible to see that the new vintage are a little bit worse than average. So my question is, Are the new clients of Inter a little bit worse than the previous clients or the bank more conservative

Speaker 2

Hi, Thiago. This is Alexandre speaking. Thank you for the question. I'm going to start with the Quanta Compontos 1, and Santi will take the 2nd part. So Quanta Compontos is Part of a larger program, as you know, called Interloop.

Speaker 2

And so we launched this about 2 months ago as our loyalty program, and we're really seeing it as an opportunity to be our 7th business vertical. So it's a full rewards program, And it connects our ecosystem and gives even more possibilities to our clients, right? So instead of being limited To receiving cash back in e commerce investments and credit cards, which was the case before, clients can now earn points And have the freedom to choose how to burn these points. Options to consume points now already range from like cash back, Discounts in Inter Shop, airline miles, investments, donations to multiple charities. So this donations part It's super nice.

Speaker 2

And we have a lot more to come. And so the key strategy with Interloop Is to, in the short term, as it applies to customers, to retain, engage and monetize further our existing base And also to attract new customers with a more comprehensive offering that's flexible and suitable to a wider range of preferences. And in the long term, we believe that this has the potential to be a business by itself. So Jean mentioned in his remarks that with our 28,000,000 clients, the full banking platform and the state of the art technology. It's a low hanging fruit that was demanded by our customers.

Speaker 2

So we're eager to pursue this challenge there. As we deep dive into Quanta Compontos, it's one of the possibilities That we offer to our clients to earn points inside Interloop. So clients earn points given certain rules as a function of their transactional account balance. So the way it works is that customers' overnight deposits are invested on a CD And the CD yields are converted into points. Nothing changes in the client's experience besides receiving points.

Speaker 2

And the yields on a transactional account on Inter's perspective And finally, on the implementation of the project, We did convert about 75% of the demand deposit balance, but this move happened mostly in June. So we had about 1 third of the month of the revenue optimization or The balance on reserve requirements optimized. So we still have a lot more to see in the Q3 and Q4.

Speaker 3

Santiago, on ARPUK, hi, good afternoon. Santiago here. So we're very happy with the performance of the ARPUK this quarter. Still more to go, but at the end of the day, it's a race between the numerator and the denominator, with revenues, which has been growing very well, particularly This quarter and new active clients with 1,000,000 new per quarter, which also has been performing well. So when we look at the underlying dynamics For this ratio, we see new active clients at close to the record Coming into Inter, which for us is super important, it means that they like the platform and they continue selecting it.

Speaker 3

The new cohorts Are starting at slightly higher points, which is a reflection of the profile of the clients. On average, the clients we're bringing now At around 30 years old with slightly higher income than in prior quarters like the ones we had in 2020 and 2021. And then we have dynamics on new products that have been recently launched, which are still to be penetrated in the existing clients and that will also drive ARPAK higher. So overall, we look at it on a cohort basis and with these underlying Trends which we think are flowing well and eventually will it will adjust because revenue will end up growing more than net new active client growth going forward.

Operator

The next question comes from Mr. Yuri Fernandes from JPMorgan.

Speaker 3

We are

Operator

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

Speaker 5

Thank you. Congrats for the strong quarter, Joao, Alexandre, Santiago. I have the first one regarding payroll. When we try to see the implied yield, we see a big increase On personal loans, right, that's mostly, I guess, payroll. The gross financial income for this line is up maybe 40% quarter over quarter.

Speaker 5

So just checking the box here, what drove this increase on payroll is basically the repricing, is this FTTS mix, How sustainable is this and you should see more room for higher yields on payroll? And I can ask my second question later. Thank you, guys.

Speaker 3

Thank you, Yuri. I can take that one. So it's a mix of 2 factors. 1, the loan mix more towards FGTS, and we added this quarter the breakdown of GTS together with the breakdown of home equity in the loan breakdown to be able to see this More clearly, so the growth has been fairly skewed towards these 2 ROE products, high ROE products. And then on rates In payroll loans, we are originating very diligently above 1.7%.

Speaker 3

The curve has been going down, so the spread It has been increasing. We're evaluating the new levels originate in the second half as Selig moves, but so far And what's reflected in the 2nd quarter is an origination rate that has stood above 1.7% on payroll. And on FTTS, we increased From 2% to around 2.1%, 2.15%, the monthly rate and that is driving

Operator

The next question I'm sorry, sir, go ahead.

Speaker 3

A second one, you had a follow-up.

Speaker 5

Thank you. I was unable to unmute myself. Thank you very much, Santiago. Just on Granito, I guess on your equity income, you had a loss this quarter on the equity income line. And just checking what

Speaker 1

Hi, Juri, Jean Vitor here. Yes, we have a loss on the income from Granitos, which is a one off, yes. Though we are very excited with the Granito business, we just changed the management to have a new CEO, Hi, Ricky. That came from Pfizer. The Granitos business is very important for us to have a full Service platform for our business account, which is performing really, really well.

Speaker 1

So I believe that it's going to be A great moment ahead for our business account and also for the acquiring business going forward. Thank you very much.

Operator

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

Speaker 6

Hi, good afternoon. I have two questions here. First one is on asset quality. When do you think we can expect to see a real improvement in NPLs and the cost of risk, right? I think If we look to your results, all the lines are moving in the right direction.

Speaker 6

So we're just missing this one. If we see cost of risk moving down, I think the ROE jump We'll become more clear and allow it to everyone. And the second question has some sort of a relationship as well, Has to do with Principality. We saw most banks and retailers face Challenges with NPLs within the riskier individual lending sectors, right? You have a peer, which is new bank that clearly stood out.

Speaker 6

And one of the reasons is the strong principalities with clients. You also have You have been showing there are a lot of clients of Inter that use Inter as the number their primary choice. So What have you learned and what can you, let's say, use to be better prepared in the

Speaker 3

Thanks, Roseman. I'll take the first part And Lovito will take the second one. So on asset quality, we're increasingly more optimistic as we've been doing The work behind the scenes very thoroughly for several quarters and I would split up on non cards and cards. So on cards, if you on non cards, if you see in the disclosure, the cost of risk remained flat at around 1.1% And this applies to around 70% of the loan portfolio. So non cards, there hasn't been any issues, which is what we expected.

Speaker 3

So that is great news. On cards, the way we analyze it is on a cohort by cohort basis. And we added the disclosure last quarter, and we updated this one to be able to see How the cohorts perform and how they improve. In addition, we have implemented maintenance strategies in the cards portfolio, which including increasing limits for high performing clients and reusing limits for clients whose credit profile have deteriorated. So overall, we think that with a better mix on origination and the great work that the risk management and collection team is doing, We expect second half of the year with a trend improving relative to the first half.

Speaker 3

And even if we look at June numbers And the dynamics relative to what we had at the beginning of the second quarter, we're already seeing that trend improving.

Speaker 1

Jose, here is Jean Victor. I'm going to take the second one regarding Principality. This is, by the way, is a metric that we have been improving so far. So we've reached almost 70% Principality on amongst our clients. So we're improving quite Regarding the connection between principalities and NPLs, we don't see that as the main thing for us To underwrite well, to collect well and therefore have a good NPLs.

Speaker 1

We do think that as Santi mentioned, the right Credit modeling plus a very, very good collection process is the one that are going to drive the right NPLs down the road. And by having the clients using us, which is the principal that you mentioned, we can also help to gather some information. But Again, it's not a silver bullet. It's important more to bring more revenue streams using other verticals than To reduce the NPLs. That's how we see Principality versus NPLs trend.

Operator

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

Speaker 7

Hi, guys. Good afternoon. Congrats on the strong results. I have two questions here. One is related to how are you positioned for potentially the easing In terms of interest rates, I saw that there was an increase in of around BRL3 1,000,000,000 related to hedge So I would like to understand a little bit of the how this reflects your positioning.

Speaker 7

And the second question relates to expense. When you look for you had a huge decline in headcount since the end of the last year. But when you look for personnel expenses specifically, we didn't see a reduction. In fact, we still see those expenses going up. So just like to understand if we don't have the impact of the lower headcount yet.

Speaker 7

It was I don't know if there were some severance costs in the middle of this process. So just to understand a little bit how this should evolve. Thank you.

Speaker 3

Hi, Frasier. Good afternoon. I'll take that one, both of them. So starting with the rates front. So just to revise the structure of our balance sheet, we first were highly unlevered with CET1 of 22.8%.

Speaker 3

And additionally, we have a much higher funding base than where we have loan. So in summary, we're liability sensitive and we expect to benefit From a Selic reduction, the impact is more or less depending on the way that plays out, But the impact for us is positive, and we see that as one of the factors driving NIM expansion towards the second half. In terms of personal loans, we have a few dynamics playing out. First, we had Inter and Co, so around half of the reduction that we have in personnel was voluntary, the other half That was involuntary or company induced. In addition to that, as we recorded positive profitability, We started provisioning according to accounting rules, the long term incentive plans and compensation for the team.

Speaker 3

So both things together And made the number on personnel expenses go up by around 9%.

Operator

The next question comes from Mr. Pedro LeDuc from Itau BBA. We are now opening the audio, so you can ask your question live. Please go ahead, sir.

Speaker 8

Thank you so much. First, great job again on efficiency. If you could talk a little bit more on the Cost savings funds that you found, if a growth projects, more costs that are core that you've come to optimize, Maybe some learnings, so we can start to draw some dynamics here for the next few quarters. And not worry much if Maybe you push something forward to 2024 or most of it is really here to stay, that would be great. Thank you.

Speaker 3

Thanks, Luke. So on expenses, we were Quite aggressive both on personal and non personal. So we closed the year in 4,100 employees last year. We used 300 headcount and R400 in the second quarter. Now we expect to stay roughly at this level for some time.

Speaker 3

We want to see the platform responding with this level of employees. We have some impressions that potentially we can improve in the future, but for now, we want to cruise at this level for some time. But this has already been an interesting effort that the organization has adjusted pretty well. On non personnel expenses, there is a mix of variable expenses, many of which are vendors or providers like Mastercard, Salesforce, AWS, etcetera, those are contracts that are not that fast to renegotiate or It takes some time to lead operational levers, but we're working on them as well. And then there's a large collection of expenses that are being monitored by our expense committee.

Speaker 3

Let me say every Friday morning and it's led by Joao Peter personally and that has many improvements to happen still in the second half. Overall, if you remember, we wanted to have at least 10 percentage points of operational leverage in the year, which was going from 70% to 60%. We are 53%. What we see in terms of this ratio for the second half is to stay as close to 50% as we can. So the majority of the improvement was done with a few more percentage points to come, but not in the 900 basis points magnitude that we had in the first and the second quarter.

Operator

The next question comes from Ms. Neha Agarwalah from HSBC. Ma'am, we're now opening the audience, so you can ask your question live. Please go ahead. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:]

Speaker 9

Hi, everyone. Thank you so much for taking my question and congratulations on the great quarter. Just quickly following up on the cost side, Regarding the CAC, which went down on a positive note, and we saw a big reduction in the marketing expenses. Could you please elaborate on what areas specifically have you got regarding the marketing? And how sustainable do you see that in the coming quarters?

Speaker 9

Thank you so much.

Speaker 1

Hi, Micha, Jean Victor speaking. Thank you for the comments. We do see An opportunity to keep improving our marketing costs for acquisition. Not only that, we believe that The competition is slowing down, has slowed down a lot. And also, not only regarding competition, but we have been improving our Cheaper than we used to do before.

Speaker 1

So the trend for CAC is very good. We believe that, Again, we don't think we will have tens of platforms being a winner of This digital banking business, and we believe that we are ahead and are at Capturing all the benefits of this position that I just mentioned to you. Again, the best app, the right pricing, the right products, And this is what is really driving our low CAC and high engagement since the mid last year. And this trend should continue going forward.

Operator

The next question comes from Mr. Tito Labarta from Goldman Sachs. We are now opening the audio, so you can ask your question live. Please go ahead, sir.

Speaker 10

Hi, good afternoon. Thanks for the call and taking my question and congrats on the strong results. Question on loan growth rate, good growth this quarter. But just think about the outlook going forward with rates coming down, you mentioned asset Probably perhaps maybe some positive signs there. Is there room to accelerate loan growth from here?

Speaker 10

Which segments would you feel most Comfortable growing in? And then just kind of related to that, good improvement on the margin, but as you continue to grow The loan portfolio, if there's any more repricing, how high or how much more can the margin improve from here? Thank you.

Speaker 3

Hi, Tito. Thanks for the question. So on loan growth, we reported 5.4% This quarter, which is an annualized of about 20%, we think at the very least, we would like to have this area of growth, If not more, we would actually like to have a second half closer to 30% annualized and to 20% annualized. But we want to do that very meaningfully in terms of use of our capital allocation. So we have been prioritizing higher OE products, which are mainly, but not exclusively, FGTS loans and home equity.

Speaker 3

We think that we are well positioned To accelerate on traditional payroll loans and real estate loans as well as SMEs, the decrease in the rates We'll help on the demand side and the portability side, which is something that was a bit tougher with the Semic at 13.75. And then we have the scaling up of new products. We have launched Overdraft. We have launched Buy Now Pay Later. And those are probably starting with the baby steps, but we have a great potential to penetrate our client base with them as well.

Speaker 3

And we think that overall, This together with maintaining the higher OE discipline will be a driving force for the NIM to stay In the high single digit as we have reported this quarter.

Operator

The conference call is now concluded. Inter'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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Earnings Conference Call
Inter & Co, Inc. Q2 2023
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