Inter & Co, Inc. Q2 FY2025 earnings call

• Joao highlighted that Inter had solid results for the quarter, with consistent profit growth over the last 10 quarters. They focused on sustainable credit options, diversified fee sources, and built a strong funding franchise. Features like My Credit (to help clients build healthy credit relationships) and My Piggy Bank By Savings Goals (to help clients organize savings) were introduced. They reached 40 million clients, and Inter was named the 7th most powerful brand in Brazil and #1 banking brand for Gen Z. - Alexandre discussed strong client growth, with 1 - 1.1 million new active clients added each quarter, activation rate at 57.7% trending towards 60%, and business client base growing 19% year - over - year to 2.4 million accounts. Banking performance was strong with TPV growth, credit penetration rising, and other verticals like investments, insurance, shopping, and loyalty showing good growth. Global account clients and deposits also saw significant growth. - Santiago talked about loan portfolio growth of 8% quarter - on - quarter, with a strong mix including collateralized products. Asset quality metrics showed improvement, with 15 - 90 - day NPL improving 20 basis points. Funding growth was strong, with total funding surpassing BRL 62 billion. Revenues grew, net interest margins were strong, and expenses grew 5% with focus on strategic investments, technology, and operational leverage to improve efficiency ratio.

In the second quarter of 2025, Inter had strong performance across segments. Banking performance saw total payment value grow 33% year - over - year to BRL 374 billion, with PIX accounting for BRL 346 billion and 8.2% market share. Credit across secured and unsecured products was strong, with credit penetration among active clients reaching 33.8%. The private payroll loan portfolio soared to BRL 728 million serving 153,000 clients. Real estate lending grew 37% year - over - year to BRL 13.3 billion. Investments had 7.9 million active clients, a 38% year - over - year growth, with assets under custody up 47% year - over - year. Insurance adoption reached 10 million active contracts, up 272% year - over - year. Shopping's net take rate increased to 7.6% and GMV grew 9%, with 9.3% of total GMV converted into Buy Now Pay Later. Loyalty client base grew 64% year - over - year to 13.6 million. Global account clients grew 34% year - over - year to 4.4 million, and deposits surpassed $294 million this quarter, up 90% year - over - year. Total gross revenues were BRL 3.6 billion and net revenue was $2.0 billion, with year - over - year growth of 48% and 35% respectively. Net interest margins showed growth, and the efficiency ratio improved to 47.8% (47.1% excluding certain taxes). ROE reached a record 13.9% with net income of BRL 315 million.

• Management is focused on achieving the 6 - 30 - 30 plan, which includes goals related to number of clients, efficiency ratio, and ROE. They see the network effect of their platform starting to kick in, with more profitability enabling more investment and growth. Loan growth is expected to be on the high end of the previously mentioned range of 25% - 30% due to new products like private payroll loans, strong performance in mortgages, home equity, and FGTS. - For the efficiency ratio, they expect continuous quarter - over - quarter improvements as they work on renegotiating contracts with vendors to shift from variable to fixed dynamics, and revenues are expected to grow significantly higher than expenses.

• There are risks related to the performance of new products like private payroll loans, including potential delinquency and operational risks. However, Inter is pricing for these risks and being disciplined in its approach. - Macro factors such as inflation and changes in the economy can impact the business, although Inter's diversified loan portfolio skewed towards collateralized products provides some resilience. - There are also risks associated with the renegotiation of contracts with vendors, as changing from variable to fixed dynamics takes time and there are uncertainties in the process.

Q: Can you hear me now?

A: Yes.

Q: Congrats on the numbers and on the execution. My question, I think it's on the private payroll product. It would be great to hear an update from you on your expectations for the product and how we can, I think, Inter's great UX and hyperpersonalization offering can help boost the product success with clients?

A: Xandre said they're very constructive with the product, expected to pass $1 billion portfolio soon, in - app sales around 40%, delinquency coming better than expectations with potential ROE beyond 30%, and they're working on using UX and hyperpersonalization to feed the product and find right journeys to offer it. Joao added they have portability rate in place, already running at 15% - 20% market share excluding portability, and see private payroll as a perfect product for Inter with good capital allocation, pent - up demand, and win - win for clients.

Q: Can you hear me now?

A: Yes.

Q: Congrats on the strong results. I guess my question, asset quality seems to be holding up fairly well. Your provisions kind of did go up a bit, cost of risk a bit higher as you're growing, I guess, in riskier products, particularly maybe with the growth in the private payroll as well. So just how do you think about those two lines in terms of the outlook for credit quality for the rest of the year, given you kind of had to factor in a higher Selic and maybe economy slowing a little bit? And then your outlook for provisioning levels as well as you continue to grow at a very healthy pace, and you're growing in somewhat higher risk segments. Just help us how you're thinking about those two lines?

A: Santiago said they prepare to navigate asset quality cycles through diversified loan portfolio skewed towards securitized products, aiming to increase risk - adjusted NIM. They reported lowest 90 - day NPL since 2022, expect cost of risk to be in 5% - 5.25% range, and see improvement in credit and collections fronts.

Q: Congrats, Joao, Santiago, Alexandre, for a good quarter. I would like to ask you about margins on your NIM expansion, especially on a by - product when we try to look after the hedges. We see a pretty good improvement on personal loans and real estate. I think like the personal loan yields, they moved to 23%, from 19.5% in the first Q. So if you can explain a little bit what drove this improvement? If this is seasonal? If it is sustainable? If it is driven by, I don't know, your peak finance product? Is it mix? So just to understand. And in addition to the yield, if you can comment a little bit on the margins. It has been a pretty good run. Markets continue to go up even with a small increase in the funding cost that is still very low, right? But if you can also comment a little bit on your new trajectory, I think that's interesting.

A: Santiago said the improvement in personal loan yields was driven by digital private payroll loan balance surpassing BRL 130 million, acceleration in mortgage loan growth with front book more accretive to NIM, prioritizing performance over size in SMEs, and other lines like FGTS and home equity pushing NIM up. They see the model working with ROE - driven underwriting framework.

Q: Congrats on the results. Strong evolution indeed. So my question is regarding the 6 - 30 - 30 plan, right? So we are doing some math here, taking into consideration the current run rate you have presented. And in a simple math here, we estimate an ROE by the end of this year, around 16% to 17%. Efficiency ratio around 45% and the number of customers around 40 million, 42 million customers by the end of this year. And for the next year, assuming the same run rate we would be around 22%, 23%. And efficiency ratio around 40% and 50 million clients by the end of 2026. I know that you don't give official guidance, but my point here is that would you be able to elaborate on these numbers that I just mentioned? If those numbers, they make sense? And how do you see the evolution of these KPIs, let's say, to achieve this 6 - 30 - 30 plan by the end of 2027?

A: Joao said they're focused on the 6 - 30 - 30 plan, with network effect of platform starting to kick in. They have tools, clients, portfolio, data, and regulation to achieve the plan, and believe it's feasible, with their numbers in line with in - house expectations.

Q: Congratulations on the journey here. First question, just a quick follow - up on PIX financing. Now you mentioned as a driver for the nontransactor portfolio to be gaining share. Can you elaborate a little bit more just for us to get a sense of -- for example, how many clients of yours already have it, maybe how representative, it's already being in the nontransactor card portfolio? And then tied to that, the second question on general credit appetite. On one side, we have macro indicators turning a bit worse. On the other, you have very good credit harvest coming through that you're showing. How are you weighing these factors when thinking about growth plans for the second half as we try to also get a glimpse for next year, especially compared to when the year started? How are you feeling on credit appetite looking ahead?

A: Xandre said PIX finance is a product where clients use part of their limit for PIX financing, with good behavior and delinquency levels aligned with overall NPLs. Santiago said credit appetite is as high as ever, with loan growth this quarter being one of the highest, and they want to deploy funding franchise towards clients through increasing credit penetration, with diversified portfolio skewed to collateralized products making them less affected by macro changes.

Q: Congrats on the results. I wanted to touch base on your renegotiated portfolio. Just to understand how do you classify in the stages, right? So do you classify it as normally as a Stage 2? Or is it Stage 3? Because we have been seeing a rising trend on the renegotiated portfolios. And when we listen to incumbents, and I don't want to trade you as an incubent here, but they are being more restrictive in terms of renegotiating clients and now they're accelerating some write - offs. So I want to hear you about your renegotiation strategy? And how do you classify between the stages here? Just to understand how it can evolve for the next 12 months?

A: Santiago said renegotiations depend on the case, with some in Stage 1, 2, 3. This quarter's growth was in Stage 1 real estate contracts, and most are commercial renegotiations on the real estate front within Stage 1.

Q: Congratulations on the results. I wanted to go back on the private payroll product, Xandre, you talked about running this product having a 30% ROE and you're very excited about it, which we agree, right? We see this as a tremendous opportunity. However, talking to the other banks, they have been quite reluctant so far to really grow into this product, citing that they don't feel like the guarantees are good enough, or they're still seeing a lot of operational risks. And we even heard some news outlets in Brazil talking about the NPL or the product being around 10%. So can you discuss why are you more positive right now at the beginning than the other players? And you show that you already have 10% market share. But at a time when the other players are quite cautious as they come back to the market, do you think you're going to be able to retain this 10% market share? What do you think this could put some pressure on the prices that you're offering right now? So basically, I'm just trying to get a little bit more why are you so comfortable with the products and the other players are not at the beginning? And then I have another question on the efficiency.

A: Joao said he saw a similar pattern with the payroll product in the past, with incumbents initially reluctant but then big banks buying out successful players. Xandre said Inter doesn't have a portfolio to be cannibalized, they price for risks, and believe delinquency levels will be better than forecasted, with the portfolio potentially growing and prices potentially reducing but leading to higher origination volumes.

Q: That's very clear, Xandre. And on these originations that you're making, are these like new originations? Or do you think there are people replacing their existing private payroll loan, with your private payroll loan?

A: Alexandre said the absolute majority are new originations.

Q: Congratulations on the results. Just two quick questions. Again, on the private payroll side, I think one of the questions that the industry has is how effective will the collateral be? Do we have any more color on collateral in case of delinquencies, which will arise in the future, it's too soon to say? And my second question is on expected loan growth for the year. You mentioned that the private payroll, which has been doing so well was not budgeted initially. What kind of loan growth should we expect for this year and for next year, in view of this new product and also in view of the macro, which is ever evolving.

A: Xandre said collateral for private payroll is expected to be good, with delinquency trending towards single digits due to client behavior, company collection processes, and FGTS balance. For loan growth, they had 8% quarter - on - quarter growth, core portfolio grew 31% year - over - year, and expect to be on the high end of 25% - 30% growth range due to new products like private payroll loans, strong performance in other lines, and ability to price products properly despite macro factors.