Inter & Co, Inc. Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2024

There are 11 speakers on the call.

Operator

Good afternoon, and thank you for standing by. Welcome to Interneco's Second Quarter Earnings Conference Call. Today's speakers are Joao Wittermenen, Inter's Global CEO Alexandre Riccio, Brazil CEO Santiago Stel, Senior Vice President of Finance and Risks and CFO and Raffaella Vittoria, Chief Economist and IRO. 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. For this session, we ask you to write down your question via the Q and A icon on your screen. 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. If you do not want to open your microphone live, please write down no microphone at the end of your question.

Operator

In this case, our operator will read your question for you. 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 Inter and Co earnings release and earnings presentation appendix.

Operator

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 I would like to yield the floor to Mr. Joao Witter Menon. Sir, the floor is yours.

Speaker 1

Thank you, operator. Hello, everyone. As usual, I will begin with a brief overview of our strategy before handing over to Sanje and Santi that will cover operational and financial metrics. But before we begin, I want to express my gratitude to Sanje, our new Brazil CEO. Sanje, I'm confident that you will continue to do an amazing job in our new role, leading our business in Brazil into a bright future.

Speaker 1

Now let's deep dive into 2nd quarter results. I'm very happy with our deliveries in our six thirty-thirty plan this quarter. I can affirm that the combination of growth and profitability is propelling us to new heights. Once again, we are demonstrating our ability to deliver remarkable results by focusing on execution day after day. While constantly pushing for innovation and new ideas, we also delivered strong financial performance, ensuring that our business is here to last.

Speaker 1

I would like to express my gratitude and admiration for our group of 3,800 employees. We are very proud to see that our company is producing alpha in the Brazilian banking market. A clear way to see this is in the pace of growth that we had in very important portfolios. We are growing multiple times faster than the industry, such as 8 times faster in individual accounts and 4 times faster in FTTS loans. This reflects the beauty of our financial super app and the great ability to attract clients and cross sell our products within the platform.

Speaker 1

Therefore, maximizing our market share gains. To really understand what I'm trying to say, let's spend some time on page 7. We can see here the opportunity we have to fish in our own aquarium. We have scaled at the most difficult part, getting clients on board and building the product offering. Now, if we keep growing at the same pace for the following years, we can reach greater market share just by fishing in our own aquarium, meaning getting more business from our existing clients.

Speaker 1

Obviously, on top of that, we will continue bringing new clients as we have done consistently for many years. As you know, we have one of the most complete product offerings in the market, serving multiple client profiles in one single app. To maximize conversion of our products, we rely on a strategy that are based on: higher personalization, best in class UI and UX, and a unique digital journey for every moment inside the app. Sanji will present the details later, but just to give you a little sneak peek, our insurance vertical printed the best quarter ever. Thanks to the amazing impact of integrated data, target campaigns, and the strength of our connected platform.

Speaker 1

What I mean with that is, we are seeing incredible results by leveraging our data effectively and constantly pushing the boundaries of innovation. I'm personally passionate about the client experience and driving innovation. We will continue to enhance our UX and UI, and introduce new features to provide the best possible experience. Moving to page 9, we can see our 7 verticals powerfully working together. As an engineer myself, I like to say that all cylinders are working in perfect coordination.

Speaker 1

And this makes me confident on the continued success of our platform. By providing a complete range of personalized products to each client, we observe amazing outcomes across all verticals, which Sanje will deep dive in the next page. Sanje, please go ahead.

Speaker 2

Thank you, Joao. Good afternoon everyone and thanks for joining us today. First of all, I'm extremely proud to assume the role of CEO of Brazil and leading our operations. Having been part of Inter for 11 years, I can say that I have a deep passion for everything we have built so far End of what lies ahead. Joao, once again, thank you for your support and trust as well as of your forward looking vision that constantly pushes us to be innovation pioneers.

Speaker 2

Going into the results, I'll start by focusing on the most important topic: our clients. We are happy to announce that once again we welcomed 1,000,000 new active clients this quarter. This figure has led to a 6th consecutive quarter of increasing activation, now standing at 55.3%. Throughout the Q2, we achieved a total of 33,000,000 clients, successfully increasing the client base by 1,600,000. This demonstrates our ability not only to increase activation among existing clients, but also to attract a new pool of qualified clients who are activating faster and engaging more with our platform.

Speaker 2

In addition to the total clients, I would like to introduce everyone to some details of our business clients. We currently have over 2,000,000 business accounts, growing at a fast pace of 21% year over year. These 2,000,000 clients are highly engaged with an impressive activation rate of 80%, in addition to higher deposits, TPV and interchange levels. Last month, we announced the closing of the acquisition of Granitou, renamed to Interpag, our acquiring business. We're excited about this transaction as we now will be able to fully integrate the business into our ecosystem.

Speaker 2

The transaction brings a long list of opportunities. Three examples are: 1st, cross selling our banking products to all of Interpac's merchant clients. 2nd, cross selling, acquiring services through existing base of merchants and individuals, 100 of 1000 of which already flow their acquiring receivables into our account. And third, building powerful bundles of banking and acquiring services to address retail clients currently underpenetrated in our base. In summary, we see opportunity ahead of us and are already moving to capture it.

Speaker 2

Turning our attention to page 12, the total TPV has shown a remarkable increase of 47% year over year, reaching BRL290 billion. Specifically, when we consider transactions made through PIX, we transacted over BRL266 1,000,000,000 in a single quarter, capturing 8% market share of the total number of transactions. Also important was that for the 2nd consecutive quarter, volumes and growth from credit cards have surpassed debit, resulting in higher interchange revenue and further improving the TPV mix. Moreover, as we have consistently seen in the past few quarters, we are continuously increasing TPV levels among both new and existing cohorts. This demonstrates the growing engagement of our customers with our product offerings, ensuring continued success.

Speaker 2

Moving to the credit side, I want to provide a brief update on our new credit lines expansion, Peaks Financing, Buy Now Pay Later and our other unsecured lines. In the quarterly comparison, we had an inspiring increase of almost 90%, reaching a combined of BRL330 1,000,000 in portfolio. This is one more important step in bringing our unsecured products to full potential. In the beginning of Q3, we expanded our PIX financing offering to the entire credit card base, one more element to sustain growth. Moving to Page 13.

Speaker 2

In the e commerce vertical, we have achieved the best growth level of the post pandemic base. In the annual comparison, we increased our GMV by more than 50%, surpassing BRL1.1 billion in the quarter, with more than 3,000,000 clients making purchases within the period. On loyalty, a vertical that completed 1 year in June, we achieved impressive 8,000,000 clients, we achieved impressive 8,000,000 clients, demonstrating our strength in launching and growing new products that have strategic fit with our platform. Those clients are highly engaged, spending 2.7 times more than non loyalty clients and generating an ARPAK that is 1.7 times higher. Moving to page 14 on the insurance front, we are very happy to report one of our best quarters ever.

Speaker 2

Our sales have exceeded $1,000,000 for the first time ever, far exceeding what we have experienced in the previous quarter. And we have seen a 39% quarterly increase in the number of active clients. As a result, we now have 2,600,000 active insurance clients, an amazing number. We are also proud to have successfully launched new products in this vertical, such as the FGTS loan insurance. This product integrated seamlessly into the FGTS Loan product user experience and this is a great example of our hyper personalization strategy, as previously highlighted by Joao.

Speaker 2

Turning our attention to the investments vertical, we had a quarter of encouraging growth. Within a year, we have increased the number of active clients by around 60%, reaching 5,700,000. Furthermore, we have surpassed a significant milestone of of BRL100 1,000,000,000 in AUC for the first time and are already close to BRL110 1,000,000,000. This achievement showcases our cutting edge product offering in this vertical and the evolution of our distribution capacity. Moving to the next page, last but not least, on the global front, as mentioned by Joao, we are continuously advancing in replicating one of our key competitive advantages in the U.

Speaker 2

S, our robust deposit franchise. We're excited to report that our assets under custody and deposits in U. S. Dollars have reached the milestone of $516,000,000 reflecting an extraordinary 133% year over year growth. This achievement underscores our strong performance in the U.

Speaker 2

S. Market. Within this vertical, we have successfully acquired 3,300,000 clients, comprising of higher income Brazilian clients who frequently travel and invest in the U. S. This means a higher quality customer profiles in terms of spending, engagement and RPAC levels.

Speaker 2

This growth and engagement in our global operations encourages us more and more to dedicate to expanding our reach and delivering valuable financial solutions to our clients regardless of geographical boundaries. With that, I'll pass the word to Santi, who will cover the financial performance section.

Speaker 3

Thank you, Shande, and congratulations once again on your promotion. Now let's deep dive in our financial performance of the Q2. Starting with our loan book, we delivered 35% growth compared to same quarter of 2023, resulting in a portfolio of BRL35.7 billion. Once again, FZTS and home equity continue to be key drivers of this credit growth with impressive year over year increases of 93% 50%, respectively. As Joe said, our focus on hyper personalization has opened up new opportunities to optimize our distribution capabilities.

Speaker 3

Great examples of this improvements in distribution through hyper personalization are FGTS and PIX Financing, which are fully digital products with remarkable growth and profitability profiles. Now speaking about the implied rates on the top of the page, the stability that we can see is attributed mainly to 2 factors. The first, the overall lower interest rate environment in the entire banking system compared to a year ago when Seliq was much higher and 2, with the lower inflation in the quarter, which affected mainly our real estate loans. We believe that the performance in terms of deals was very strong with an all in loans rates of 21%, which is twice the level of CDI and is the highest we had at Inter in the last 4 years. We'll go deeper into the full impact of rates in the NIM pages.

Speaker 3

Let's go deeper into our loan growth by product, which reflects our continuous commitment on deploying capital efficiently. Our top performing credit products, such as FTTS and home equity, Experian remarkable growth and now represent 15% of our loan book. Regarding credit cards, we remain focused on allocating new limits for existing clients with strong risk adjusted profiles. This strategy has resulted in nearly 40% increase in credit cards in the last year. Both SMBs and real estate loans grew around the yearly average of our loan growth of 35%.

Speaker 3

While personal loans, which is mainly comprised on payroll loans, had a small negative growth, but when excluding the portfolios acquired nearly 2 years ago, meaning looking only at the portfolios that we originated internally, we had a positive growth of 4% with nice acceleration towards the end of the quarter, reflecting the success of the new digital initiatives ongoing in this product. In terms of asset quality, we saw stable trends across metrics. Both NPLs, 15 to 90 days 90 days plus, presented slight improvements in the quarter. Regarding NPL and Stage 3 formation, we experienced a slight increase in the metric as a result of the Q2 2023 credit card cohort, which presented higher than average delinquency. We think that this effect is specific to this cohort and will reverse in the coming quarters.

Speaker 3

Now moving on to page 20, we can observe that our cost of risk metric improved 20 bps to 5.0 percent or 10 bps to 5.3% if excluding anticipation of credit cards receivables. These levels are the lowest we have seen since 2022 and reflect how we continue to improve quality of the underwriting model and the collection practices. In terms of our coverage ratio, it remains stable at 130%, indicating that we are provisioning in line with the NPL formation trend. Passing here to page 21, we are pleased to once again highlight the robustness of our funding franchise, which reached BRL 47,800,000,000. A key highlight is how retail and fragmented our funding base is with more than 17,000,000 clients trusting us with our savings.

Speaker 3

Another key highlight mentioned many times before is the mix with transactional deposits accounting for 32% of our total funding base. In terms of growth, we have seen a remarkable 9% 34% increase quarterly and annually, respectively. In terms of transactional deposits specifically, this quarter alone, we grew BRL 1,300,000,000. Moving on to page 22. As we mentioned before, we firmly believe that our funding mix sets us apart from other financial institutions in Brazil and provides us with a notable competitive advantage in terms of cost of funding.

Speaker 3

In this particular quarter, we reached a cost of funding of 6.8%, which is the lowest since I joined Inter at the beginning of 2022. Once again, we are thrilled to report another great quarter in terms of revenue, breaking previous records for the 2nd consecutive quarter. We achieved gross revenues of BRL 2,400,000,000 with a net revenue of R1.5 billion dollars These numbers reflect a substantial 29% year over year growth and a solid 7% quarter over quarter growth in total net revenues. Both fees and NII experienced robust growth, further validating the effectiveness of our hyper personalization and marketing efforts. Let's now turn our attention to the unit economic metrics highlighted on page 24.

Speaker 3

We're pleased to report that our ARPA increased to BRL30.4 per month. This growth is a result of further engaging and monetizing our clients through our broad suite of high value products. On the cost side, we continue to make significant improvements in our cost to serve metric. This positive trend has been consistent over the last 5 quarters, reaching record low level of 11.1 reais. This demonstrates our ability to efficiently monetize our customer base while capturing economies of scale.

Speaker 3

Let's now deep dive into our interest income, specifically focusing on NIMs as presented on page 25. Starting from the top of the page, both our NIM 1.0 and t.0 with and without the non interest accruals of credit cards known as A Vista in Portuguese, are showing a positive upward trend compared to the prior quarters. It's important to note that we face a negative impact from IPCA this quarter inflation, which contributed to a slower growth in the quarter, particularly on the real estate loans. When we consider the risk adjusted NIM, which deducts the cost of risk, the performance is even stronger, further highlighting the consistent positive trends and reaching record levels. Maximizing the value of our capital allocation is a key priority that with consistently quarter after quarter, results are visible and with the continued repricing and new consumer finance initiatives ongoing, we're optimistic on the continuous improvement in the coming quarters.

Speaker 3

As seen on page 26, we had a modest 5% growth in expenses this quarter following a 0% increase in the prior one, therefore also increasing 5% in the first half of this year relative to the Q4 level of 2023. But more importantly than the growth levels themselves, we can affirm that our marginal spending is strategically allocated to investing in 3 main areas, people, technology, and branding. This reflects our mindset of creating long term value of our franchise by investing more in these specific areas. Another worthy aspect to highlight is our marketing expenses. We launched a targeted campaign aimed at increasing brand awareness.

Speaker 3

Since this campaign was launched, we have seen a notable 20 5% increase in searches for inter and a 20% increase in our app downloads. Regarding personal expenses, we strategically increased hiring in key areas such as IT and commercial teams. We continue to see significant opportunities for us to achieve operational leverage as highlighted on page 27. On the left hand side, you can see that we have successfully increased the gap between the growth of our net revenues and the growth of our expenses through time. As a result, our efficiency ratio on the right side reported at 47.9%, firmly ahead of our 60, 30, 30 plan.

Speaker 3

These charts reflect the merits of our digital banking model where we can scale up our business significantly while maintaining a controlled cost structure that services our clients in a state of the art digital manner. To conclude, I'd like to highlight our strong performance in terms of profitability as presented on page 28. This quarter, we achieved another record breaking ROE, surpassing the double digit mark, reaching 10.4%. Our pretax income reached nearly BRL300 1,000,000 and our net income reached BRL223 million. This performance shows our commitment and discipline to drive sustainable profitability.

Speaker 3

Now I will pass the floor to Joao for his closing remarks. Thank you.

Speaker 1

Thank you, Santi. For my closing remarks, I would like to enforce 3 important topics from the last quarter. 1, the execution of our 6thirtythirty plan. 2, the recent additions on our senior management. And 3, the launch of our latest product, our social platform.

Speaker 1

The 6,000,030 is on track with consistent growth in total clients and ROE and a stable efficiency ratio. And to help us on our plan, we recently announced some updates to our management team. On internal sites, as we mentioned before, Sian is now our Brazil CEO and Rafael Vittoria has taken over as our new Investor Relations Officer. In addition, over the past few months, we have welcomed several new members to our team, such as Julian Andrew, Monica Sacarelli, Fernando Bakin and Marcelo Dantes. All of them bring extensive market knowledge from top financial institutions in Brazil and abroad.

Speaker 1

And we will add strong value with fresh perspectives in their respective fields. On the board front, we announced Jean Allen as our new independent board member, bringing decades of experience into our board. Guys, welcome to the team! Last but certainly not least, as part of our commitment of staying ahead of the market, today we launched our social platform. Through this platform, our clients will have the opportunity to engage in discussions, share their experience with our products, and invest collectively.

Speaker 1

All of it in our financial super app. Thank you very much, operator. Let's move to the Q and A session.

Operator

We will now begin the question and answer session. Please note that in the interest of time, we will allow each participant to ask one question with one follow-up for each question. 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.

Operator

If you prefer not to open your microphone live, please write down no microphone at the end of your question and our operator will read your question out loud. Our first question comes from Mr. Gustavo Schroeden from Bradesco BBI. We're opening the audio now, sir. Please go ahead.

Speaker 4

Hi, good afternoon, everybody. And thanks for taking my question. First of all, congrats to to the new role well deserved and, I, I all the success for you in the news in this new role. So my question is regarding the NIM, adjusted by risk. Right?

Speaker 4

We could see an improvement quarter by quarter, quarter over quarter. But the increase was mainly driven by the lower cost of risk, while the NIM was stable quarter on quarter. I'm trying to understand how should we think this in the coming quarters? Because in my understand, when I see the implied interest rates that you are charging in the credit, which is a 200% of a CDI, while the securities gains are at 100% of CDI. So I believe that this potential increase in NIM would come from or would be driven by you improve the capital location, increasing the exposure to the credit.

Speaker 4

So my question here is this right? So my point is this correct. If you think that as you improve the capital location, this NIM should improve in the coming quarters. And the NIM adjusted by risk will remain in this improvement track considering both sides, cost of risk under control and the NIM with credit improving. So this is my question.

Speaker 4

Thank you.

Speaker 3

Gustavo, thank you for the question. So I'll break down the question in 2 parts, on the NIM part and then on the cost of risk, both parts affect, not the risk adjusted. So on the cost of risk side, we think that we should continue to be able to operate in the range of 5.0 percent to 5.5 percent cost of risk. We continue to work actively in managing credit card exposures and improving that performance on a cohort by cohort basis. We have some portfolios that tend to improve that ratio as our FGTS and home equity and real estate, the collateralized ones.

Speaker 3

And then we have others that tend to increase that cost of risk ratio as fixed financing and buy now, pay later. Altogether, we think that they will net each other, and we should continue to be operating with this range. Obviously, quarter by quarter, we might have some volatility, but it will be within that range. Now moving to a NIM side, not a pure NIM side before cost of risk, we have a few dynamics playing out. We still have on payroll loans, which hasn't grown yet, and on real estate loans, which has grown, a lot of upside in terms of increasing the average rate of those portfolios.

Speaker 3

We have a better mix playing out. We said many, many times that FGTS and Home Equity are gaining share in the portfolio. Jointly, they represent 15%. The 2 new ones on top of those are PIX financing and buy now, pay later. We will see how much they will represent in the future.

Speaker 3

We will we have high hopes, but but it's still uncertain on how much they will they will grow to. And then what we also have is a what we call a a good problem to have is that we had a lot of liquidity flowing into our system. Now we grew $4,000,000,000 deposits and the loan book grew a portion of that. So when that extra liquidity comes in, it is temporarily yielding 100% of CDI. Therefore, it doesn't necessarily increase the NIM.

Speaker 3

It is NII accretive, but until we deploy it in the loan book, it will take some time. So all of this together, we do see upsides in the NIM before cost of risk. It will not be every single quarter linear, but we mentioned many times that around 20 bps per quarter is what we see over the coming quarters. And then on cost of risk staying around the level, as I mentioned at the beginning.

Speaker 4

Perfect. Very clear, Santi. If I may, just a follow-up here, especially on the fixed finance and buy now pay later and the other unsecured loans, you reached the R303,000,000 in the quarter. So 90% growth quarter on quarter. Should even if we assume some deceleration in this space of growth, I think that at least at our estimates, it is possible to reach something around the R900 to R1 1,000,000,000 loan book in this segment.

Speaker 4

Do you think it is reasonable to work with this number?

Speaker 2

Hi, Gustavo. This is Sean speaking. Thank you for your message in the beginning. So when we think about the PIC financing portfolio, we're more solving for growth in all the unsecured lines, right? So PIX financing, bill pay, cash financing, buy now pay later and the overdraft.

Speaker 2

We're thinking of in all of those together, we are aiming something close to $1,000,000,000 maybe a little bit under that, but that's what we're working for. But one message I think it's important and I'd like to bring is about is not about just portfolio size, but also revenue formation, especially when we think about the credit card portfolio. Today, our mix is about BRL1 in interchange fees for every BRL1.2 dollars in credit revenue from credit cards. If we look at the competition, they're today at about 1 interchange to 3 in credit. So the idea is to move closer, so close this gap.

Speaker 2

We want to move from this 1 to 1.2 to 1 to 2 as quickly as possible, obviously, maintaining our risk appetite under control and delinquency under control. Thank you.

Speaker 4

Thank you very much.

Speaker 1

Gustavo, Gustavo. So Jean Vitor here. Just to add on Sanci and Sanji, one thing that's very important on this new portfolio, this consumer finance, is what we have been saying for a while. We are improving the risk reward equation. So when we do the PIX Finance and when we do the Buy Now Pay Later, we have the same risk that they used to have on the credit cards, on the Pastelado Saint Jours.

Speaker 1

But now with more yields on the PIX financing and with take rate on the buy now, pay later. So the change on the economics is very important. So as Sanyo mentioned, grow the volume, the amount of the portfolio, but grow a lot the profitability revenue that we're going to make on this new portfolio. So this is the good thing, better risk reward.

Speaker 4

Okay. Very clear, and thank you for the answers.

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, sir.

Speaker 5

Hi, everyone. Congrats on the numbers. I think I have a question to Jean Veltar, right, because Inter has been very successfully improving its ROEs. However, these improvements, they not necessarily, they will come in a straight line, right? And from time to time, the company will need to invest, you know, thinking about, you know, medium, long term, projects.

Speaker 5

Right? So I think this includes, you know, the US expansion, for instance. I think Joao did an interview with Brazil Journal recently where he talked about it and how how he thinks it's a cheap call option. Right? So so my question is, Joao, how to to balance, you know, growth, investments, you know, and profitability.

Speaker 5

Right? And how can you help us to CapEx for the future? Thanks.

Speaker 1

So, Hosmer, Jean Vitor here. Thanks for the question. So, if you listen to the interview, I mentioned that I like that when you are really, really innovating, you are generating value without a lot of CapEx and a lot of OpEx. So most of the things that we did at Rinde in the past, we didn't spend a lot. So let's think about the Inter Shop for instance.

Speaker 1

We just came with that idea out of the blue. We're able to use the same components in our app, the same things on our platform, and we're able to generate a lot of revenue. So we're always trying to raise the bar. How can we innovate our platform, how can we cross sell, upsell without the burden of investing a lot. And when you think about combination of ROE and growth, it's important to highlight that when we launched the 6:30:30 plan back in January, 2023, we stated that it was and it still is a plan for both growth and profitability.

Speaker 1

I want to make it crystal clear. We are a growth company. We're not an incumbent company. We are here to grow the business, to grow the revenue. But the good thing, Rosman, that we can do that both we can keep we can both grow and now also improve our profitability.

Speaker 1

That's what we're proving now on 2024. Of course, it's not going to be linear. It's not that we want to keep improving our ROE faster and faster quarter over quarter, but long term long term what we see is also that the operational leverage really kicks in. So we're adding more revenue, adding more revenue and diluting our fixed costs. So this is very important.

Speaker 1

This trend is here to continue. So, we're very comfortable on both growing, innovating, bringing more revenue, but also delivering our profitability. So it's a good balance. And actually, at the end of the day, Jose, this is my role as the CEO. I need to balance these two things on the right way with the right time.

Speaker 1

We need to see the context of the market. And I believe that we did that very well in the past and we're going to keep doing that going forward.

Speaker 5

Great. Thanks a lot, John.

Operator

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

Speaker 6

Thank everybody and congrats Aleksandra again for the promotion. I have a follow-up on the margins on the implied rates. I know like hedges they tend to bring like some difference in the numbers. But when you go to the personal loans and credit cards, we note a decrease on the quarterly implied rates, right? And I know I guess PIX is within the cards and maybe and correct me if I'm wrong here.

Speaker 6

And I think like the overdraft and other lines they are within the personal loans. So my question is should we not see those lines moving up as you continue to deliver on these mix towards, I would say, more profitable products? It was a surprise to me that we saw this small decrease and what happened for this. Thank you very much.

Speaker 3

Hi, Yuri. It's Sandeep here. So thank you for the question. On personal loans, the improvements will be slow but steady relative to a year ago. We're now at 140 basis points higher in the rates that we disclosed today.

Speaker 3

If we measure that relative to CDI even more, we do have the majority of that portfolio is a consignado or payroll deductible loan. And we had a portfolio or a series of portfolios that we acquired of INSS retirees that had higher rates. Those are expiring and maturing, and that has pushed a bit down the rate. But overall, we do see a continuation of improvement in the coming quarters and the Concinado Digital, these digital initiatives that are being taking place together with more portability in a lower rate environment than what we had a year and 2 ago with some growth on that portfolio that repricing today should be faster going forward.

Speaker 6

Okay. Thank you. And regarding the cards, similar approach, like should we continue to see this recovery and moving up as fixed gain traction there?

Speaker 3

Yes. So the main driver there in change of cards, no doubt about it is fixed financing. As I mentioned in the prior question, we have been accelerating from the beginning of the year, but since it's a newer product, it's difficult to model to which level it will grow. We do it's a very short product, so we are running and trying to extend through our client base, but we need more time to assess on how much it will grow. But as it gains share within credit cards, interest rates of cards will obviously go up.

Speaker 3

The average interest rate on these loans is 6% per month.

Speaker 6

Super clear. Thank you.

Operator

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

Speaker 7

Hi, good afternoon. Thanks for the call and taking my question. A couple of questions, if I can, actually. First, just on the hirings in the quarter, I mean, do you think that was more of a one time thing? Do you expect to do more hirings?

Speaker 7

I just I know you're still on track for the longer term, 30% efficiency, but just in the more short to medium term, how should we think about efficiency and any other hiring plans that you may have? And then a second question, just and congrats Sandeep with the promotion. But with that promotion, Javalik, now you're more of a global CEO. In the past, you had talked about the U. S.

Speaker 7

Could be 50% of the business. I don't think those are necessarily the plans today. But just, I mean, do you expect to spend more time looking at the U. S. Or other expansion plans?

Speaker 7

How do you think about other potential geographies and how much they may contribute to earnings or profitability over the coming years? Thank you.

Speaker 1

Tito, Jean Vito speaking. Let's start from the last question, last comment on expansion. As I also mentioned on the interview I gave to Brazil during that Rosman mentioned earlier today, it's not about only the U. S. Business, it's about having our Global Account initiative available for other countries as you mentioned.

Speaker 1

And as of today, the Brazilians are the only one using that. We believe that we're going to be able to offer this amazing product, which is a huge success among the Brazilians to other individuals all over the globe as well. Also being more in the strategy and going thinking the future of Inter with this new, let's say, position, I have been very focused and I love that, to be honest, on the UX, the UI and the technology behind the scenes. So for us to be ahead of the competition, for us to be the most innovative company, we need to think about what we're going to launch next, how's our UI performing, how are our UX. And not only that, do we think that you're going to be a bank that's going to a platform that we're going to interact with our customer only through an app?

Speaker 1

Or do you think we're gonna use our applications on the back end to integrate, to interact with our clients through voice, through text, through WhatsApp. So I'm really trying to put this in place together with Guylaine, our CTO. I really love to not only to build the best products, but to facilitate how the clients engage, embrace and use that products with us. The other question regarding hiring, as also I mentioned to Rozman on the previous question, we're playing here for the mid long term, I would say that more for the long term. And I like to say to our team here and to our Thais, our Head of IR, that my dream is to have millions of employees, no problem.

Speaker 1

But we need to make sure that they are generating value for our company. And mostly, on technology, on the commercial side, that's where we're investing more of these new hires. Just for you to have an idea on that, we add 195 we call GoTex last quarter. We did a big program here in Brazil. We were able to bring, we believe very, very talented guys to help us on IT.

Speaker 1

They just joined us. They're going to help us a lot building these new products, evolving these new products. And we also bring a lot of people on the commercial side because we believe these guys are the one generating revenue for our platform. But all that said, we're still committed to our 6:30:30 plan, which we want to get to a 30% efficiency ratio. And therefore, we don't see our platform getting a lot of new hires without bringing the revenue together.

Speaker 1

So what we see is that we invest in technology, we invest in market and we invest in these new hires, but we get more, I would say the double in terms of revenue that we're putting in terms of expense. This is the right equation for us. So that's it.

Operator

Our next question comes from Mr. Pedro Leduc from Itau BBA. Mr. Laduk, we are opening the audio so you can ask your question live. Please go ahead, sir.

Speaker 8

Yeah. Thank you so much. First on the service revenues, a nice increase here, line commissions, capturing things as insurance. If you can talk a little bit more about it, if this quarter had any specific boost to it or if it's really a new run rate level you're reaching here for services? And on the loan book side credit portfolio, you had a significant increase in credit card anticipation.

Speaker 8

If this is already something that has to do with integration of Granito or not yet? So these two questions. Thank you.

Speaker 3

Luc, Santi here. Thank you for the question. So on commission and brokerage fees, which grew from $146,000,000 to $189,000,000 meaning almost a 30% quarter over quarter, no, we did not have any one offs of any type. It was pure organic growth. The main driver was InterShop.

Speaker 3

Intershop had a 50% GMV growth relative to the prior the same quarter of last year, BRL 1,100,000,000, very nice acceleration. On top of that, which is not in this number, buy now pay later attributed to this is also scaling up nicely. And then the other one was insurance. So we had a nice growth on that front as well, which has to do with many factors, But the one that I would stand out is the NGTS insurance that we are we launched at the beginning of the year. It has had a great adoption throughout our client base and that has pushed up.

Speaker 3

The airlines also grew a bit, but those were the main two drivers. And then in terms of can you remind me the second one?

Speaker 8

The credit card anticipation on the loan book.

Speaker 3

Yes. So now what we did here, as I mentioned before, we were blessed on having a very nice inflow of deposits from our clients. So that's, as I said, we mentioned with Roshan, a good problem to have. We deployed as much as we could in our loan portfolio, which is the accretive long term way to do it. But temporarily, we deployed in different cash options that try to yield a bit more than just CDI, and this is one of them.

Speaker 3

Now buy the portfolios of anticipate portfolios of credit card receivables, We get a margin over the CAI. These are short portfolios, but we park the cash there with a bit of an extra yield until we're able to deploy in the loan portfolio.

Speaker 8

Okay. And this has nothing to do with Granito yet? And if you can comment how it cycles in the second half?

Speaker 1

So, Leduc, Jean speaking. I'd like to comment on Interpagi. Actually, Granitu, we renamed it Interpagi. We don't have a connection with that yet. But on the other hand, I'd like to express how excited I am about this integration.

Speaker 1

To be honest, it surpassed our expectations and I believe we will crush it on SMEs and acquiring. Just by changing the name, we see a big inflow of clients asking for the acquiring product at Inter. As Santi mentioned, we have a very good cost of funding, short term funding through our demand deposits that will serve very well on this strategy. Of course, we still need to integrate a lot of things. So for instance, Granito now in the app, PAG has its own app.

Speaker 1

Now we are integrating the app to our Peixiotta, to our business app. And I'm very excited that we will be able to do something amazing with SMEs down the road. But so far, what we did was pretty much with other players on the market, we were able to buy the receivables and not a lot to Interpac yet, but very excited with what we can do with this platform embedded in our Super App.

Operator

Our next question comes from Ms. Neha Agarwal from HSBC. Ms. Agawala, we are opening the audio so you can ask your question live. Please go ahead, ma'am.

Speaker 9

Hi. Thank you so much for my question. Thank you so much for taking my question. Two questions. First follow-up on the last point.

Speaker 9

Can you talk a bit more about what is your ambition regarding the SMEs? We saw good growth in the number of SME accounts that you have. You're talking about good uptake from the Interpark, the acquiring solutions. So, and and we understand that SME is a space which is not very penetrated. There are not a lot of digital banks which are focusing solely on SMEs.

Speaker 9

So what is the opportunity you see there? And how would you like to position, BankWork there for, the SMEs? And my second question is on on the BNPL product. Could you talk a bit more about the BNPL product that you have mostly on your inter shop? What percentage of GMV are you now financing for your customers?

Speaker 9

What is the takeaway that you get on the BNPL product? A bit more color on that. Thank you so much.

Speaker 2

Hi, Neha. This is Sean speaking. Thank you for your question. I'll start with the SME part. So in terms of positioning, so we have almost 2 different strategies that are converging now.

Speaker 2

First is an SME lending that we've done for many years and that's growing and we have a very good momentum. And the second one goes back to what we started in 2019, which is the SME accounts. These accounts have grown a lot. They're super popular already. So we are currently at about 2,000,000 clients that have a variety of profiles.

Speaker 2

About 1,000,000 are May, which are small entrepreneurs in Brazil, then we have about 600,000 micro businesses, 200,000 small businesses and the remaining, which is a little more than 100,000 are larger businesses. And this amounts to about 10% of the companies in the country already with us, banking with us. The profile of these customers today leans more towards services, given that our offering up to now was more of a digital bank. We didn't have acquiring. We did sell the prior product of the old Granito, but not integrated as Interpag.

Speaker 2

So we didn't have a robust offering for retail. So on a few things, account usage on is very heavy on the transactional business today. So we're super underpenetrated on everything else. This means a lot of opportunity for growing clients, bringing clients in with a more robust offering and also increasing the share of wallet of high value add products. This is when InterPAG comes in.

Speaker 2

So we believe that we're going to be able to do a lot of nice things with InterPag. So cross selling, as I mentioned, and I'll call it like bidirectional in inter into interpag, interpag into inter. This is something that we will do. One of my favorite approaches that we're already putting together is product bundles with banking and acquiring. Now we can think of a client as unique and sum the revenues for both sides to see where it's interesting to grow.

Speaker 2

And with that in place, we can do a strong go to market in the retail businesses of all sizes. So again, we have the balance sheet, we have the credit products and now we'll have the bundles and this excites us to keep growing on SMEs. And Jerome will take the second part, Nijs. Thank you.

Speaker 1

Thank you, Sankes. Nijan, I'm going to comment about buy in Opelara, but just to add on Sankes' comment. And with all due respect to our contenders, to our competitors, I mean, the digital banks, we have by far the best product in business account and for a lot of reasons, but we start by differentiating that we are a bank at the end of the day. And for a business account is very important. How you can offer, how you can serve a client by being a bank.

Speaker 1

And now the last thing that we didn't have was AcquireNow. We have by far the best product. Is it still a blue ocean in Brazil, the business account. They are still underserved, overcharged in Brazil, not on the individual account. The competition is big.

Speaker 1

But on the business account, most of the market are still underserved, overcharged, huge opportunity for us. Going to buy now Payera, we as I have been saying for a while, I'm very excited with this product. We launched at Intershop back in 2019, and we wanted to connect the engagement that we have with the clients, with the financing there. That's how you sell a product from the retail, financing it. And what we're happy about that, Nihir, that with small tweaks on the product, we can see that the volumes are growing.

Speaker 1

So we were doing like only 100,000 reais per day, then 200, 500, 1,000,000. Now we're getting close to €2,000,000 €3,000,000 per day in buy now Payelera. So it's already a big percentage of our GMV at Inter Shop. And the good news with very good risk reward, as I mentioned. So I believe that the future of consumer finance Brazil is to offer together the product, good UX, good UI and a good finance embedded.

Speaker 1

That's how we foresee consumer finance in Brazil and not only for goods, for service as well. So we have here airline tickets, lodging, everything to sell to the clients. And just to connect with one question that was made, I believe, by Yuri or I don't know, I don't recall about PIX financing. These type of things together. PIX financing by an operator, slowly they are replacing the famous Pesci Jota, Passe Laudos, Saint Jourous, which is a problem in Brazil.

Speaker 1

So when we do the PIX financing, the buy now, pay later, we're putting our balance sheet, our risk to work and get yielded at the same time for the right client, for the right product. We can differentiate the rates for this client, that client, if they are buying a service, a good. So we now have all the hands on deck to improve the risk reward for consumer finance in Brazil. So PIX financing, Binaulte, together are outpacing Pastelado St. Jules, which is very good which are very good news for ourselves and for the digital players on the consumer finance environment in Brazil.

Speaker 9

That's super clear Joao. Thank you so much. I'll just follow-up with Alexandra on the SME business. So, going to the SMEs, do you think you are getting consumer, getting SMEs by attracting them to your banking product and then cross selling acquiring? I believe that is the route which makes more sense for you because your banking offering is probably much more superior to what competitors offer.

Speaker 9

And who are you getting these customers from? I believe a lot of them use acquiring with either the incumbents, say, Seattle already get that or maybe with the new ones, like Stone and Pugs. Who are the main acquirers from which it's been a bit easier for you to gain SMB merchants from? Thank you.

Speaker 2

Thanks, Neha. So the natural trend for us is to do the cross sell, as you mentioned. So we attract customers based on our the quality of our business account, which is, again, very popular, super good UX both from both web and app. We convert we did a large project in the last, say, 2, 3 years where we converged the experiences and this attracts customers in high volumes as we're seeing. And then the idea is so what happened is also to what you said, most of the revenue base that we already have from these customers are related to the transactional business, which is the core of the product offering today.

Speaker 2

As we move forward with InterPack, we are deploying obviously the acquiring products and we're going to keep on growing and increasing both share of wallet of these customers. So bringing acquiring share of wallet, for example, and also exploring new products that we're launching Brazil, FGI, we've been growing there. There is another one that's popular in Brazil, FGI. We've been growing there. There is another one, which is Pernampi, which has more than $100,000,000,000 portfolio in Brazil that we're going to explore.

Speaker 2

So this is also good and has a very good can have a very good adoption rate with our base. So a lot of good plans to go there and your approach is right. But I wouldn't not explore also the opportunities to go to market and explore the retail opportunity now that we have the acquiring in at home. Last, before I forget, where the market where you we're acquiring these clients from, primarily big banks. So that's where it's flowing.

Speaker 2

Customers are hurt there for years, mainly Peixeo atas with super high fees, and we came up with the free offering back in 2019. And it was a big source of flow of customers from big banks to us to save on banking fees. Thanks, Neha.

Speaker 9

Very clear. Thank you so much and congratulations on the results.

Speaker 2

Thank you.

Operator

Our next question comes from Mr. Mario Pierry from Bank of America. Mr. Pierry, we're opening the audio so you can ask your question live. Please go ahead,

Speaker 10

sir. Hi. Good afternoon, everybody. Thank you for taking my question. Let me ask 3 quick questions.

Speaker 10

The first one is on Page 22, right? You show your cost of funding at 6.8%. This is the lowest level since the Q2 of 2022. However, as a percentage of market rates, it has gone up to 64%. If we look at the Q1 of 2022, you were like 55%.

Speaker 10

So I'm wondering, are you seeing any pressure on raising deposits? And that's why we're seeing like a higher cost of funding versus the lead rates. So that's question number 1. 2nd question is related to your marketing expenses. We saw a big increase in marketing expenses.

Speaker 10

So I'm just trying to understand, is this the level that we should continue to see? And are these marketing expenses targeted at an increasing client base or increasing engagement? And my third question is related to your sales of insurance, right? You showed the number of policies rose like 2.5 times roughly quarter on quarter, but revenues only grew 10%. So does it mean that these policies that you are growing, they have a much lower ticket?

Speaker 10

How should we think about that? Why such a big disconnect in number of policies versus revenues? Thank you.

Speaker 3

Mario, I'll take that those 3. So on the funding, this is connected, no, the right hand side of the balance sheet with the left hand side of the balance sheet. So on the liability side, we are fortunate to have the quarter with the highest growth in deposits, excluding the Q4 that has positive seasonality. And we raised 4,000,000,000 dollars of deposit this quarter, dollars 1,300,000,000 were the transactional ones, which don't have a cost, but then we had $1,900,000,000 on time deposits and another $0,800,000,000 in what are LCIs, LCAs, etcetera. This excess funding, as I mentioned before, is mostly allocated into liquid assets that yield close to 100% of CDI and tend to until we deploy this into a loan portfolio, they tend to compress a bit the NIM, but they are accretive, and they also tend to push slightly up the cost of funding.

Speaker 3

But we feel that the more we capture the principalities of our clients, the more we bring their savings and their transactional life into a platform, the better it is for us independently of the cost of funding level. We do think that the cost of funding as a percentage of CI is a competitive advantage that we have and that we will continue having, but we will have some movements depending on the speed at which we get these deposits and the mix that we get them at. On branding, we do recognize that we have investment to do. It's not as spending. We do see that this is in line with what we mentioned in some questions before.

Speaker 3

We want to build the a stronger brand. We think that the product is excellent and with a good branding along with it, we will be able to benefit from the product offering that we have in place. It's difficult to say how it will evolve through time, but we are testing higher levels of branding spending or investing, and we'll see, depending on the results, how we continue to invest or not. The upsellcrosssellsmetrics are the main ones that we track to see the performance of that investment. And then insurance, yes, you kind of anticipated the answer.

Speaker 3

FGTS is a very small ticket insurance that is the was the main driver in that business line and the policies were greater on the average side. So average ticket of those policies reduced this quarter. But again, we welcome that growth. We have more than 2,000,000 clients with FTTS credit, and that's an opportunity that we try to seize with the fully digital platform, both on the loan part and also on the insurance side. Very happy with the results that we had so far.

Speaker 10

That's clear. Santi, let me just go back then to the deposit question. How are you seeing the competitive environment to raise deposits? Again, you have a very healthy deposit base already. Your loan to deposit ratio is very low.

Speaker 10

So I'm just wondering then, you have excess liquidity, what is the need here to really be focusing on growing deposits if you are seeing a more competitive scenario?

Speaker 1

Mario, Ron Vitor speaking. Let me tell you, I love to look on our deposit franchise. I started at the internship on the commercial side, raising deposits for our bank back in 2004. So I have been following that for a while and I'm always with our Treasury, Leopay Sean, discussing about that. So as Santo anticipated, we have a good problem.

Speaker 1

People are choosing our platform to transact, but also to save. And we have in the past distributed a lot of 3rd party CDs, other companies, the banters, the bonds and everything. But at the end of the day, they like our brand and they said, no, I want a CD from Inter. And what we see that we could start reducing the percentage of CDI that we pay. But it's not going to move the needle in terms of profitability, but we could lose the client to our competitor.

Speaker 1

We're keeping them at 100% of the LIC. But the good news, one thing that you should look at is how fast our demand deposits grow. And when you compare the loan portfolio growth with the demand deposits growth, they are pretty much steady. So they are on the same pace. So therefore, every deposit, every time deposit that come, even at 100% of Seliq and you can deploy that 1, 2%, 1, 3%, 1, 5% of the LIK in securities in our cash position is accretive to NII.

Speaker 1

So that's what we're doing. I would say the opposite. Our deposit franchise are getting more and more efficient as we speak. So I'm very proud of that. And I'm sure that it will keep being a thing that will differentiate That's how we manage these things of cost of funding at Inter.

Speaker 10

That's very clear, Joao. I completely agree with you. I think your deposit franchise is fantastic and it's one of your main differentiators from your peers. Thank you.

Operator

This concludes our question and answer session. I would like to yield the floor back over to Mr. Joao Widtermennen for his closing remarks.

Speaker 1

So another very good earnings result call. I'd like to thank for our team, our employees that are working hard every single day to raise the bar at INTE. I also like to thank for our shareholders that are supporting our business, our franchise. And also like to thank as well all the analysts on the sell side industry. Very good questions.

Speaker 1

A lot of good quality questions for us. We love that to interact with you. We're very happy with the business and hope to see you soon, another good quarter in a few months. Thank you very much. Have a good day.

Speaker 1

Bye bye.

Operator

This conference is now concluded. Inter's IR department is at your disposal to answer any additional questions. Thank you for attending today's presentation. Have a nice day.

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Earnings Conference Call
Inter & Co, Inc. Q2 2024
00:00 / 00:00