Q2 2025 Inter & Co Inc Earnings Call
Speaker #2: Good morning, everyone. I'm Rafaela Vitória, Inter's IR Officer, and I would like to welcome all to Inter's second quarter 2025 earnings conference call. First of all, some instructions.
Speaker #2: This call is also available in Portuguese. To access it, press the globe icon on the lower right side of your Zoom screen, then select the Portuguese room.
Speaker #2: Please be advised that all participants will be in listen-only mode, and that the conference is being recorded. You may submit online questions at any time today using the Q&A box on the webcast.
Speaker #2: A replay will be available at the company's IR website. With me on today's call are João Vitor Menin, Inter's Global CEO; Alexandre Rício, Brazil CEO; and Santiago Stel, Senior Vice President and CFO.
Speaker #2: Throughout this conference call, 'll be presenting non-IFRS financial information. These are important financial measures for the company, but are not financial measures as defined by the IFRS.
Speaker #2: Reconciliations to the company's non-IFRS to the IFRS financial information are available in our earnings release and earnings presentation appendix. I would also like to remind everyone that today's discussion might include forward-looking statements, which are not a guarantee of future performance.
Speaker #2: Please refer to the forward-looking statements disclosure in the company's earnings release and earnings presentation. Today, João will discuss Inter's strategy and business overview. After that, Alexandre and Santiago will take you through our financial and operating results in more detail.
Speaker #2: We'll then open the call for questions. I'll now turn the call over to João. João, please go head.
Speaker #3: Thank you, Rafa. Good morning, everyone. Today, I'm happy to share that we had another quarter of solid results. I'm also excited about our progress.
Speaker #3: As we keep innovating and making the client experience better, every day, Inter was designed with a clear focus. From the beginning, we chose to offer sustainable credit options.
Speaker #3: For us and for our clients, we also worked hard to diversify our sources of fees and to build a strong funding franchise. Because of these choices, our profitability has compounded quarter after quarter.
Speaker #3: For the last 10 quarters, we have grown our profits in a consistent way. This compounding effect gives us a solid foundation for the future.
Speaker #3: And we plan to keep building on it. What gets me really excited is that, in addition to delivering increasing profits, we are building long-term value for our stakeholders.
Speaker #3: This quarter, we delivered two features that exemplify this value creation. One on the asset side and another one on the funding side. Let's start with my credit; this is a new journey inside our app.
Speaker #3: To help clients build a healthy credit relationship with Inter, our goal is to expand credit access in a safe and responsible way. With my credit, clients can now track their scores with us directly in the app.
Speaker #3: This is much more transparent than what you usually see in Brazilian banks. Where your score is often hidden. Through my credit, clients can take steps to improve their scores.
Speaker #3: And unlock higher limits, all in clear states. This feature is not just for those who are behind on payments and want to rebuild their credit.
Speaker #3: It is also for clients who want to improve their scores and plan their finance better. We believe my credit is a strong tool for financial education, and it will help us grow in credit penetration in a sustainable and healthy way.
Speaker #3: Now, moving on the funding side, we have launched my piggy bank by savings goals. With this new feature, clients can organize their savings for a specific purpose.
Speaker #3: Like buying new car, planning a vacation, or getting a new smartphone. It is a simple way for people to take control of their future.
Speaker #3: The response has been excellent. In less than one month, over 425,000 clients have used this feature, creating more than 520,000 savings goals.
Speaker #3: This shows how engaged our users are and the strength of our platform. For example, if a client is saving for a new smartphone, we can offer a special promotion from Inter Shop.
Speaker #3: And send tailored communications. If someone is saving for a new home, we can present our mortgage solutions. By understanding our clients' goals, we can offer the right products at the right time.
Speaker #3: This is a powerful tool for monetization, as it drives cross-sale across our verticals. Features like My Piggy Bank, which allows users to set savings goals, and My Credit show how we listen to our clients and bring useful solutions for their everyday lives.
Speaker #3: By doing that, we were able to continuously grow our client base. Just a few days ago, we reached 40 million clients. This is a clear sign of the trust people place in our platform.
Speaker #3: We know this trust will keep growing as we deliver real value to our clients. That's why user experience is always at the center of what we do.
Speaker #3: Every interaction must be simple and intuitive and enjoyable. This approach has helped us build a strong brand. We're proud that Inter was named the seventh most powerful brand in Brazil.
Speaker #3: And the number one banking brand for Gen Z. This achievement tells us that we are on the right path. We want to create lasting and meaningful relationships with our clients.
Speaker #3: We're very grateful for their trust. Now, Shandy and Santi, we walk you through the quarterly results. Shandy, please go ahead.
Speaker #4: Thank you, João. It's incredibly exciting to see 40 million clients embracing our platform, enjoying us on this journey. The strength of our brand is rooted in the close relationship we've built with our customers.
Speaker #4: Our Net Promoter Score remains firmly in the excellence zone, at 85. We also continue to receive outstanding feedback with ratings of 4.9 in the Apple Store and 4.8 in the Play Store.
Speaker #4: These numbers aren't just statistics. They reflect the trust and engagement of real users who interact with our platform every day. In June, we saw nearly 19 million daily logins.
Speaker #4: And we now process over 780 million financial transactions each month. All these achievements highlight the high level of engagement our clients have with our ecosystem.
Speaker #4: As well as the value and synergy we create across our seven verticals. Moving to the next slide, let me start by highlighting our ongoing robust client growth.
Speaker #4: We've consistently added one to 1.1 million active clients each quarter. Showing how attractive and relevant our platform is to millions of people. Our activation rate has reached 57 point seven, with a clear upward trend towards 60%.
Speaker #4: Driven by continuous improvements in marketing, onboarding, and personalized experiences. Our private payroll loan is helping us reactivate former clients and attract new active users from day one.
Speaker #4: On the business side, our client base grew 19% year over year, to 2.4 million accounts. With strong engagement and rising ARPAC levels. These achievements demonstrate the power of our platform and our commitment to delivering innovation and value.
Speaker #4: Moving to the next page, when we look at banking performance, we see strong momentum. Total payment value grew by 33% year over year, and reached 374 billion reais, a new record high.
Speaker #4: Peaks was a major driver, accounting for R$346 billion and achieving an 8.2% market share. On the chart on the right, we can see that PPV levels keep rising across all cohorts.
Speaker #4: With a darker line representing our newest clients. These cohorts are transacting even more intensely and at a faster pace, showing higher engagement levels from the beginning.
Speaker #4: These results highlight the growing engagement of our users and the power of our platform to drive sustainable, high-quality transactional growth. Moving to the next page, we see that we had a strong quarter in credit, across both secured and unsecured products.
Speaker #4: Credit penetration among active clients continues to climb now, reaching 33.8%. This healthy and sustainable growth is underpinned by initiatives such as the my credit journey, that João presented, as well as our monthly credit reassessments to make sure we're supporting our clients.
Speaker #4: I want to highlight this quarter our private payroll loan portfolio, which soared to R$728 million and now serves 153,000 clients. This success demonstrates the strength of our digital distribution and how seamlessly this product fits into our strategy.
Speaker #4: Truly Inter by design. Real estate lending also continues to perform exceptionally well. Despite a high interest rate environment, our portfolio grew 37% year over year, reaching R$13.3 billion, including mortgages and home equity loans.
Speaker #4: In the last quarter, I shared our focus on reshaping our credit card portfolio. We're continuing to increase the share of installment products, that help clients organize their financial lives.
Speaker #4: Santi will provide more detail on our strong and balanced loan book performance in the next session. Altogether, these results reinforce the effectiveness of our credit strategy and our commitment to delivering sustainable, high-quality growth across all of our lending products.
Speaker #4: Moving to the next page, let's now look at the strong performance of our other verticals. Investments continue to deliver impressive results, reaching 7.9 million active clients, a growth of 38% year over year.
Speaker #4: This was fueled by the success of my piggy bank, with its new savings goals feature driving high engagement. As a result, assets under custody grew by 47% year over year.
Speaker #4: Insurance adoption continues to rise, reaching 10 million active contracts, up 272% year over year. This reflects the success of our fully integrated offering across other verticals, including e-commerce and banking.
Speaker #4: In shopping, our in-app e-commerce platform we saw our net take rate increase to 7.6%, while GMV grew 9%. Additionally, 9.3% of our total GMV was converted into a buy now, pay later.
Speaker #4: Highlighting our ecosystem's strong cross-selling power. Finally, in loyalty, our client base grew 64% year over year, to 13.6 million. Member of our loyalty program, our highly engaged transacting three times more than non-members and using more products across our platform.
Speaker #4: These results show how each vertical not only grows individually, but also drives greater engagement and value through integration within our ecosystem. Our global front, on the next page, continues to accelerate with a remarkable result.
Speaker #4: This quarter, the number of global account clients grew 34% year over year, reaching 4.4 million. We also had a record performance in deposits, which surpassed 294 million dollars this quarter, up 90% year over year, marking our best ever quarterly growth.
Speaker #4: This vertical is becoming increasingly relevant for our clients. Whether they're traveling, diversifying their investments internationally, or doing business abroad, this significant deposit growth is a clear sign of the scale and importance we have achieved with our global account offering.
Speaker #4: These results confirm that our global platform is not only gaining traction, but also building real materiality for Inter and our clients around the world.
Speaker #4: To wrap up, on the next slide, I want to highlight our continued and impressive market share gains across some of the key markets in which we participate.
Speaker #4: Quarter after quarter, we see tangible progress in both our credit and fee-based businesses. This momentum is a result of giving our clients real access to our complete range of solutions.
Speaker #4: Which increases our share of wallet and compounds depositive impact on engagement. Our strong performance in market share demonstrates not only our capacity to attract new clients, but also to deepen relationships with existing ones.
Speaker #4: Showing the strength and relevance of our platform. I'm confident that we'll continue strengthening our position and capturing even more opportunities ahead. With that, I'll hand it over to Santi who will share more about our financial performance.
Speaker #4: Thank you, Shandle. Starting with loans, we have another great quarter. The total portfolio grew 8% quarter on quarter, with a run rate basis that is slightly over 30%.
Speaker #4: Marking a slight acceleration versus the growth we experienced in prior quarters. The quality of our portfolio mix continues to be very strong, with close to 70% of it being collateralized.
Speaker #4: And therefore, resilient to asset quality cycles while maintaining strong profitability as our mix continues evolving towards the high ROE products. As shown on this slide, we outpaced the market growth rate in most of our portfolios.
Speaker #4: FGTS and home equity grew at around 40% on a year-on-year basis. Continue to gain market share and prominence in our loan mix. Mortgages, as Shandle mentioned, performed very well, growing 27% year-on-year, benefiting from an operating environment where incumbents are struggling to grow through earmarked loans.
Speaker #4: On payroll and personal loans, we accelerated to 27% that mainly by digital private payroll, where we have been aggressively seizing the opportunity given its strong fit in the Inter by design model.
Speaker #4: Credit cards also grew nearly one and a half times the market, reaching a 24% year-on-year growth level. This was achieved while working on the reshaping of the portfolio, as alluded to by Shandle, and therefore improving the profitability profile of the product.
Speaker #4: Lastly, on SMEs, we have strongly prioritized profitability over loan growth, focusing on secured working capital lines such as Pronap and FGI PAC, or, in Portuguese, FGI PAC.
Speaker #4: Moving on to the asset quality metrics, the 15 to 90-day MPL improved by 20 basis points, while the 90-day past due demonstrated a stable trend.
Speaker #4: The credit card MPLs, when analyzed across cohorts, continue to show strong performance, validating the improvement made in our underwriting and collection models. And finally, MPL formation and Stage Three formation stood at 1.6% and 1.5%, respectively, in line with historical trends.
Speaker #4: As we observed the evolution of our cost of risk, we reached 5.0% this quarter. In this quarter, reminding what I've mentioned in prior calls, that we're not solving to minimize these metrics, but to continuously expand our risk-adjusted NIM on a healthy and sustainable basis both for us and even more importantly for our clients.
Speaker #4: This level of cost of risk allowed us to build a coverage ratio of 143% since the prior quarter, which is approximately 10 percentage points higher than the one we operated in the prior quarters.
Speaker #4: We had another strong quarter of funding growth, increasing 30% year over year and surpassing the R$62 billion mark. This growth was driven primarily by time deposits.
Speaker #4: This is mainly explained by the SELIC increase and the success of my piggy bank. Our product, through which clients can invest in fixed income.
Speaker #4: It is also important to mention that our active clients had, on average, nearly R$2,000 in deposits, our second highest level on record, or the highest outside of our fourth quarter, which is typically the moment of the year when liquidity is at its highest.
Speaker #4: Once again, the healthy growth and mixed funding shown in the prior page enabled us to have an industry-leading cost of funding, which stood at 64.8% of CDI.
Speaker #4: It is interesting to note that even though our funding mix may be affected at times of high interest rates, as clients naturally gravitate towards higher yielding deposits, on the other hand, this funding cost becomes more advantageous to our performance, the highest denominated interest rate level is.
Speaker #4: Jumping into revenues, we achieved R$3.6 billion in total gross revenues and R$2.0 billion in net revenues, representing a year-over-year growth of 48% and 35%, respectively.
Speaker #4: Quarterly growth levels were also strong, at 13% and 9%, respectively. This quarter, the fees performed even stronger than NII, as explained by our growth in interchange investments and shopping.
Speaker #4: As we are experiencing higher engagement, as presented by Shandle, we observed acceleration in client monetization across cohorts. On a mature basis, we reached 128 and 89 reais on gross and net basis respectively, while the average across active clients reached 54 and 32 reais respectively.
Speaker #4: This strong level, combined with a cost to serve of R$13, allowed us to print our second best quarter of gross margin per active client, which reached R$19.
Speaker #4: We are excited about the performance we're seeing in the monetization of our customers across cohorts, and believe the success in products such as private payroll will enable us to continue seeing performance in the coming quarters.
Speaker #4: Now, let's deep dive into our net interest margins. Both our NIM 1.0 and NIM 2.0, which exclude the non-interest receivables of credit cards, are consistently showing growth quarter after quarter and achieving new record levels.
Speaker #4: This performance is a result of having a healthy mix across products with an ROE-driven credit origination model, which is resulting in an increasingly optimized capital allocation of our balance sheet.
Speaker #4: When we consider the risk-adjusted NIM, which deducts the cost of risk from the NIM, the performance is strong too. Demonstrating the compounding result of our strategy.
Speaker #4: It is interesting to see that the, despite the big movements, macro variables such as inflation and CDI, the trend in our NIMs has remained stable, moving in the right direction.
Speaker #4: We think this is a good example of how our ALM strategy is proving successful. On the expense side, we grew this quarter 5%, reaching 873 million reais.
Speaker #4: A few important remarks. We continue to make strategic investments in marketing to strengthen our brand awareness. This has resulted with a record net ads of 1.1 million new active clients this quarter.
Speaker #4: On the personal side, we continue to invest in the seniorization of our team. An example of this is the addition of Marlos Araujo, who joined us as the CRO of the company after having a highly successful career of more than 20 years at Bradesco.
Speaker #4: We are also actively investing in technology, focusing on process automation and providing a seamless experience to our clients. As our business continues to expand at a strong pace, we are focused on converging the contracts with major vendors to further reduce our cost per transaction and improve overall efficiency as we continue to scale up.
Speaker #4: We continue focusing on operational leverage, which is one of our core pillars of our digital banking model. As a result, we are able to see improvement in our efficiency ratio, and we delivered a 100 basis point improvement, moving from 48.8% to 47.8%.
Speaker #4: We added, this quarter, another version of the efficiency ratio, which excludes the tax expense that comes from paying interest on capital, or JCP in Portuguese, which isn't an operational expense but instead a tax one.
Speaker #4: We think that this metric is more accurate to observe and assess our operational leverage evolution, and on that basis, we reached 47.1%, a record low level.
Speaker #4: Same as with all of our other KPIs, we added the detail of this metric in our historical Excel series, which is available on our investor relations website.
Speaker #4: And last, but certainly not least, I'd like to highlight our journey towards higher profitability. We reached a record ROE of 13.9%, delivering a record net income of R$315 million.
Speaker #4: On a quarterly basis, we think that the page speaks for itself, showing a remarkable consistency that makes us very proud. And it does so because we achieved it while keeping a fortress balance sheet and continuing to invest in our long-term franchise.
Speaker #4: With that said, I'll pass it back to João for his final remarks. Thank you.
Speaker #3: Thank you, Shandy and Santi. After sharing the quarter highlights, I want to share why I'm so excited about Inter's future. Back in 2015, when we started this journey, our focus was on building the platform.
Speaker #3: Over the last two years, we have added consistent profitability to our story. Today, growth and profitability working through symbiosis. Each one is strengthening the other.
Speaker #3: And this is the engine behind our network effect. As our client base grows, we gain scale and efficiency. This greater efficiency feeds our profitability.
Speaker #3: With higher profitability, we are able to invest more in our platform, improve our products, and bring in even more clients. This restarts the cycle, stronger and larger each time.
Speaker #3: Thank you to our clients, partners, and the Inter team for making all of this possible. Let's keep building the future together.
Speaker #1: Before we move to the Q&A, I'd like to remind our investors about the current subsidy period for converting BDRs to Class A shares. We've been highly successful in our journey to migrate our share liquidity to the US market since 2022, and it's now surpassed 50% of combined volume on most trading days.
Speaker #1: I want to emphasize that the subsidy period ends at the close of this month on August 30th. If you have any questions, please don't hesitate to reach out to us.
Speaker #1: On our IR website, we've available all the conversion rules and comprehensive guide to help you through the operational process. We want to reinforce that this movement benefits everyone, both shareholders and the company, as having shares traded in a single market creates value for all parties involved.
Speaker #1: Now, 's open for questions. Our first question comes from Eduardo Hozman. Hozman, please go head.
Speaker #5: Hi, can you hear me now?
Speaker #1: Yes. Yes.
Speaker #5: Hi. Congrats on the numbers and on the execution. My question I think it's on the private payroll product. You know, it would be great to hear an update from you on your expectations for the product, and how can I think Inter's great UX and hyper-personalization offering can help boost, you know, the product's success, you know, with clients.
Speaker #5: Thanks.
Speaker #6: Hi, Rahman. This is Shandle speaking. Thank you for your estion. So first, I'd like to say that we're very constructive with the product. So we've said before that it was like almost a product that's like made for Inter in the Inter by design.
Speaker #6: That we've been talking about. So we were very happy with the launch. For the early days, we're great. And the first quarter was even better.
Speaker #6: So we should pass the one billion portfolio soon. Here in the next days, we've been increasing in-app sales. So it's around getting close to 40% already.
Speaker #6: The other part comes from the government app, and it is a digital-only product for us, which also fits all the digital strategy that Inter has.
Speaker #6: And the potential pain point with the product that is delinquency is coming better than our expectations. So as we have discussed before, we started the product pricing it in the conservative side, with the expectation that delinquency could be in the range of 15%.
Speaker #6: But the early signs that we see as the collection progresses, is that it's going to be in the in the in the single digit.
Speaker #6: Side. So much better than what we forecasted in the beginning, but again, this is a story to be written within saying that, let's say, the first 12 months is going to be at least what we need to stabilize and have a good view, but the first readings are very good.
Speaker #6: The base scenario, given the the what we see in s of delinquency, is that the product the product will run with an ROE beyond 30%.
Speaker #6: Finally, as we go to the UX and hyper-personalization, the first goal that we have is to keep bringing underwriting volume to the app. So having Inter's app as the primary channel for underwriting is an important goal for us.
Speaker #6: We're working it. And how do we do this? You touched hyper-personalization, and it's a good point there. It's about feeding the product not only for people that push like the credit button that are looking for credit, but also finding situations where we can solve the customer's problem with the credit.
Speaker #6: And it's where we're ing. So finding the right journeys to offer the product and solve the client's problems will see lot of that in the upcoming months.
Speaker #6: Thank ou.
Speaker #5: No, great, Shandle. Just a follow-up here. Given that the product is digital first, and everyone is kind of starting from the state from the same kind of a lane, let's say the starting point.
Speaker #5: It's fair to say that you expect to have a substantially higher market share in this product than you have, for instance, on the public sector payroll.
Speaker #3: Yeah, we expect to get like in the older growth products as you mentioned. So like in picks, we started with a high market share.
Speaker #3: Even FGTS, since it was a new product this despite starting 4% market share, and that's what we're eing in the private payroll. So we do expect to have a market share that's going to go, say, beyond 5% given that we're starting together.
Speaker #3: And we do have appetite for the product. And it's a digital product. And João will complement me here.
Speaker #6: So Hozman, joint speaking, thank you for your question, for your comments. One thing to highlight, we have on the numbers that we're released, we have the portability rates in place.
Speaker #6: So the incumbent banks, migrating their former contracts to the new one. If you exclude that, we are already running at between 15 and 20% market share.
Speaker #6: So this is very good. So we believe that we have the other tools to get a big market share of this product. And last but not least, 're very excited with that.
Speaker #6: I'd like to say that the private payroll, which has been a common topic on all the conference, all the earnings calls, I mean, it's a perfect product for Inter.
Speaker #6: I'd like to say that this a combination of yes. Yes, it's 100% digital. Yes, it does have a good capital allocation, as Shandle mentioned, 30% plus ROE.
Speaker #6: Yes, it does have a significant pent-up amount in Brazil. We're talking about maybe hundreds of billions of reais in portfolio. Who knows, maybe a trillion? I don't know.
Speaker #6: Yes, it does have a very good win-win situation with the client, which is very important for us. That's our mindset. It's good for the client, good that services, good for our companies, good for our balance sheet.
Speaker #6: It's good for our long-lasting relationship with the client. So that said, I mean, we're very happy with that product. And not only that, we believe that some other private payroll-like products will emerge, such as duplicate structural, which will also want to get their at first do this digital approach and get a significant market share on the market.
Speaker #6: We're very happy and thank you for the question.
Speaker #5: Great. Thanks a lot, guys.
Speaker #1: Our next question comes from Titula Barta. Titula, please go head.
Speaker #7: Hello, can you hear me now?
Speaker #1: Yes.
Speaker #7: Okay, great. Couldn't get the te button there. Okay, thanks. Good morning. Thank you for the call. And thank you, my estions congratulations on the strong results.
Speaker #7: I guess my question you know asset quality seems to be holding up fairly well. You have provisions kind didn't go up a bit. Cost of risk a bit higher.
Speaker #7: You know, as you're rowing, I guess, in riskier products, particularly maybe with the growth in the private payroll as well. So just how do ou think about those two lines in terms of the outlook for credit quality for the rest of the year given you kind of have to factor in a higher SELIC and maybe the economy slowing a little bit?
Speaker #7: 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.
Speaker #7: Just help us how you're thinking about those two lines. Thank you.
Speaker #8: Good morning, Titula. This is Santiago. I'll take that one. So starting by the Inter, the ceptional or the Inter by design, that's how we prepare to navigate the asset quality cycles.
Speaker #8: So a diversified loan portfolio, which is skewed towards securitized products. And with sustainable borrowing costs for the clients, which we think is the way have a healthy long-term relationship.
Speaker #8: And as we mentioned, we are solving to increase risk-adjusted NIM. We're not solving to rease NIM alone or to minimize cost of risk. So we see that as the variable that we're aiming to optimize.
Speaker #8: We did report the lowest 90-day MPL since 2022. We think that this is the result of all of the great work done by our credit underwriting collections and risk teams.
Speaker #8: And that is paying off as we continue to improve quarter over quarter. We are taking, as you mentioned, more marginal risk on certain lines, private payroll is an example.
Speaker #8: We're super happy with the performance that we'll have in the risk-adjusted NIM and the ROEs, as Shandle mentioned, are significantly above the 30% level.
Speaker #8: We are reshaping the credit card portfolio. And by now, pay later is another product that we're trying lever on the success of the Inter shop platform.
Speaker #8: So all this together, it's resulting in an increase in the credit penetration of our active clients, which is something that we're increasingly more focused on.
Speaker #8: We want to monetize our client increasingly more and the ARPAC has a high sensitivity to this credit penetration. All of this to say, to answer your question, Titula, the 5 to 5.25% number that we have been mentioning in the prior quarters, we continue to think that's the case.
Speaker #8: We have been surprised on having many quarters better than that. So the reality has shown us a bit better performance than what our models were predicting.
Speaker #8: We would like to continue to be positively surprised going forward, but our base case continues to be in the 5 to 5.25 cost of risk basis.
Speaker #5: Great. No, thanks. That's helpful, Santiago. So I guess high level, maybe because of the growth that you're having, growing in higher risk segments, that the cost of risk could be a little bit higher or just maybe getting closer to that 5.25?
Speaker #5: I'm not sure the exact number, but compensated with better margins overall. No, but in general, maybe cost of risk can still trend up a ittle bit more from here given the risk and the growth that you have.
Speaker #8: The 5 to 5.25 already contemplates the mix at which we are originating today. So we are continuing to do a lot of FGTS as well.
Speaker #8: Mortgages, we are accelerating, Shandle ioned that in his part where seizing the attractive opportunity, home equity continues to be a product with a lot of success.
Speaker #8: So we're also growing on the lines, right? So when we put all of it together, and we add the improvements that we're ing in the credit and collections front as well, we see 5 to 5.25 continue to be the base case.
Speaker #8: With some potential to be surprised as we have been in the prior quarters.
Speaker #5: Okay. And on the asset quality front, it sounds like you feel fairly comfortable with the asset quality given the MPLs that you're delivering.
Speaker #8: We are. We are. We have been, as I mentioned, seeing that improvement. It's the lowest level we had since the 2022. And as we continue to navigate this new product, private payroll, as Shandle mentioned, we see that trending towards the single digit.
Speaker #8: We need more time to see where it actually ends up. But again, the goal is to continue to improve the risk-adjusted NIM. And that's what we're ying to aim for.
Speaker #8: And we see that on page 27, moving consistently in the right direction.
Speaker #5: Okay. No, very clear. Thanks, Santiago.
Speaker #8: Thanks, Titula.
Speaker #1: Our next question comes from Yuri Fernandez. Yuri, please go ahead.
Speaker #3: Thank you, Rafa. And congrats to Santiago, Alexandre, for a good quarter. I would like to ask you about margins. On your NIM expansion, especially on a byproduct when we try to look after the edges.
Speaker #3: We see a pretty good improvement on personal loans and real estate, I think like the personal loans yield. They moved to 23% from 19 and a half in the first queue.
Speaker #3: So if you can explain a little bit what drove this improvement, if this is seasonal, if this is sustainable, if this is driven by, I don't know, your peak finance product, this mix.
Speaker #3: So just trying 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.
Speaker #3: Margins continue to go up. Even with a a small increase in the funding costs, that is still very low, right? But if you can also comment a little bit on your NIM trajectory, I think that's interesting.
Speaker #3: Thank ou.
Speaker #8: Good morning, Yuri. Here me again. So yes, we're very happy with the way the interest rates on the product level evolve. When we look at the all-in loans rate, we grew from 20.3% to 22.5%.
Speaker #8: So a pretty nice growth, twice more than what we had in the prior quarters. The driver at the product level, the main one, was personal on the personal lines, which is a digital private payroll.
Speaker #8: That loan balance now surpassed R$30 million. It has pushed the interest rate of that product up. Then, on mortgages or real estate, we have been accelerating that loan growth, as we mentioned. The competitive dynamic is favorable for us to attack that segment.
Speaker #8: And the newer loans are coming at interest rates, so the front book is significantly more accretive to NIM than the back book. So the repricing is accelerating there.
Speaker #8: And performing very well. Then on the SMEs, as we mentioned also in the intro, we are prioritizing performance over size. The size is an output, and we want to continue to foster these lines like Pronap and FGI PAC.
Speaker #8: Which are lines that have a very strong profitability profile. So when we put all that together, we see this improvement. Another line that we're mentioning because were already performing well with NIM from before, like FGTS, which has a 1.8% rate, or home equity, which has inflation plus 10%, plus 15%, inflation plus 15%.
Speaker #8: We are also pushing the NIM up, so we're seeing the model working. This ROE-driven underwriting framework is working across the firm in a very positive way.
Speaker #8: And the results compound and also we seize the opportunities that come to us. João mentioned . Private payroll was something we did not have factored in our budget for 2025, when we did it at the end of the prior year.
Speaker #8: And we're able to start offering that product since the very first day that it was available.
Speaker #3: No, super clear. So basically repricing and mix, right? Those two things combined. If I may, just a follow-up, Santiago. You mentioned like in presentations about the change in the nature of the credit card offering.
Speaker #3: If ou can simplify a ittle bit more, what are those changes? If this is loyalty, new product, fixed finance, atever. Just trying to understand what you mean by that.
Speaker #3: And congrats on card CPV. I think like the growth on volumes were strong. So just want to stand what is different on the credit card product here for you.
Speaker #3: Thank you.
Speaker #8: Hi, Yuri. This is Shandle speaking. So on the credit card product, there is a lot going on. We are working to grow that portfolio.
Speaker #8: And there are a few things that we're doing there. One, which is one of our key goals, is to reshape the portfolio to clarify means of increasing the interest-earning portfolio.
Speaker #8: And this increase comes in mainly two ways. One is increasing fixed finance, and we keep on working to increase this volume. The second one is helping customers solve their problems when they have delinquency, which means offering them more products, or installments.
Speaker #8: So in the in the second quarter, we saw an improvement in this reshaping initiative. As you see, we went from 78.5 in transactors to 78.
Speaker #8: So, we did see these improvements. We launched a new product in about May, which is a full balance installment renegotiation. With that launch, we held a little bit on the fixed financing for 45 days in the tail of the quarter.
Speaker #8: And overall, did see a growth in the installment portion, as you can also see on page 14. With the 1.2 billion portfolio. So we'll keep doing that.
Speaker #8: We'll be stimulating growth in the installment portion of the interest-earning portfolio. And one last piece that I'd like to mention in terms of the growth of the portfolio is the product we talked about in the last quarter's call, which is Intercard.
Speaker #8: Which is a credit card limit that works exclusively to fixed financing or boleto or for just to pay. So it's only it's a credit card that's always interest earning.
Speaker #8: That's the new one. We have a few clients with already this feature enabled. And we'll see how it evolves here the next few months.
Speaker #8: Thank ou.
Speaker #3: No, thank you, Shandle. Thank you.
Speaker #1: Our next question comes from Gustavo Schröding. Gustavo, please go ahead.
Speaker #9: Hi, good morning. Can you hear me?
Speaker #5: Yes, we can.
Speaker #9: Okay, so good morning, everybody. Congrats on the results. Strong evolution indeed. So my question is regarding the 6 to 30, 30 plan, right? So we are doing some math here.
Speaker #9: 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%.
Speaker #9: Efficiency ratio around 45%. And the number of customers around 40, 42 million customers by the end of this year. And for the next year, assuming the same run rate, ROE would be around 22, 23%.
Speaker #9: And efficiency ratio around 40%. And the 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?
Speaker #9: If those numbers, they make sense, and how do you e the evolution of these KPIs, let's say, to achieve these 6, 30, 30 plan by the end of 2027?
Speaker #9: Thank ou.
Speaker #5: Shroden, thank you for your estion. João speaking here. First of all, I mean, we're very proud of the 6, 30, 30 plan, which was unveiled two and a half years ago.
Speaker #5: As we just mentioned, it's not a guidance, but we're really focused on delivering the three KPIs of it: number of clients, efficiency, efficiency, and also ROE.
Speaker #5: In a five-year period, a lot of things change. We have some headwinds, some tailwinds. For instance, we didn't expect that the macro would be like that today.
Speaker #5: But also, we didn't expect that we would have the private payroll kicking in. We didn't expect that, for instance, we might have the duplicate structural starting next year, as the central bank is advocating for.
Speaker #5: So it's a lot of uncertainty, of course, for a five-year plan. But the good news is, as I told in my closing remarks, we see that the network effect of our platform is starting to kick in.
Speaker #5: So we have more profitability to invest more, grow more, more clients, more dilution of expense. So I'm really not only committed, but I'm really excited.
Speaker #5: And I really think that we can achieve that. Okay, it might go a few months, a few quarters ahead. It doesn't matter. At the end of the day, we're running the company only to get to these metrics.
Speaker #5: We're running the company to have the best capital allocation ever, the best customer-centric approach ever. And the good news is, we have the tools, we have the clients, we have the portfolio, we have the data, we have the all the the regulation behind us to get there.
Speaker #5: So excited, I ieve it's feasible that you get there. And I think that your numbers are pretty much in line with what you in-house.
Speaker #5: Okay, thank you for the question.
Speaker #9: Thank you. Thank you, João.
Speaker #1: Our next question comes from Pedro Leduc. Leduc, please go head.
Speaker #10: Hello, everybody. Thank you very much for the call. Thank you for the question. Also, congratulations on the journey here. The first question is just a quick follow-up on fixed financing.
Speaker #10: Now, you mentioned it as a driver for the non-transactor portfolio to be gaining share. Can you elaborate little bit more just for us to get a sense of, for ample, how many clients of yours already have it, maybe how representative it's already being in the non-transactor card portfolio?
Speaker #10: 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 ou're showing.
Speaker #10: 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?
Speaker #10: Especially compared to when the year started, how are you feeling on credit appetite looking ahead? Thank you.
Speaker #3: Hi, Leduc. Thanks for your question. This is Shandle speaking. So I'll take the first part. So the way we're approaching the fixed finance is not to get the clients and expect them to have full usage of their credit card limit on fixed finance.
Speaker #3: It's a product that adds up in the mix that they use. So they'll do normal purchases as a transactor. And then they use part of their limit to fixed financing.
Speaker #3: This is the way this behavior is happening. Say two, three uses a month, recurrently. And delinquency levels are also following almost a normal path.
Speaker #3: So marginally higher than the normal, the client that doesn't use fixed credit, but nothing that's so good behavior overall, good trends. That are aligned with what we presented in NPLs overall.
Speaker #3: So that's kind of the way we approach it. Obviously, we stimulate usage of fixed credit. And we'll ep stimulating the usage of it. But it's a product to help clients in situations where they don't have cash to pay with a debit card.
Speaker #3: And they'll use this product. Yeah, I think this is it. Santi.
Speaker #8: Hey, Leduc. Good morning. So on credit appetite, it's as high as it's ever been for us. You saw the long growth, this quarter was one of the highest we've in a quarter.
Speaker #8: And we want to put our balance sheet to work. We have a blessed funding franchise, which is something that we want to increasingly deploy towards our clients.
Speaker #8: Through an increase in the credit penetration, we're eing very positive signs of that credit penetration on the active clients that is also a moving target as we continue to add a million or, in this case, a million one new active clients per quarter.
Speaker #8: So we are strong. The fact that we have a diversified portfolio which is skewed to products that have collateral makes us less we change less our perspectives to the macro, right?
Speaker #8: ecause the home equity, the FGTS, the private payroll, et cetera, they don't change. If the economy will grow, a bit more or bit less.
Speaker #8: The dynamic is the same. We are aggressors in the market. We want to take as we mentioned in many calls before, our market shares towards the fixed ket share, which is 8%.
Speaker #8: We already did it in home equity. We had foreign change in FGTS growing quarter by quarter. And we expect to have the same dynamic in many of the other products.
Speaker #8: So our risk appetite is, as I mentioned, as high as ever. We think that this is an opportunity for us to accelerate our business plan in the credit side.
Speaker #8: And it's one we are intentionally attacking with the tools that we have. Amazing. Thank you, Santiago. Shandle.
Speaker #1: Our next question comes from Danielle Vaz. Danielle, please go head.
Speaker #5: Hi, yone. Congrats on the results. And good morning. I want to touch base on your renegotiated portfolio just to understand how do ou classify in the stages?
Speaker #5: Right? So do you classify it as normally as a stage two or as a stage three? Because we have been seeing we have been seeing a rising trend on the renegotiated portfolios.
Speaker #5: And when we listen to incumbents and I don't ant to treat you as an incumbent here, but they are being more restrictive in terms of renegotiating clients and now they're accelerating some write-ups.
Speaker #5: 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.
Speaker #5: Thank ou.
Speaker #8: Yeah, Santiago, if you're taking that one again. So it depends on the case of the renegotiation. So we have some that are in stage one, in stage two, and stage three.
Speaker #8: The ones that grew this quarter were within stage one, which were real estate contracts that were written 20 this quarter, which means that the client was performing, but the contract was amended for certain conditions.
Speaker #8: That was the Delta of this particular quarter. In those cases, those were still within stage one. And then the others depend on the case of the loan.
Speaker #8: Some are in stage two, stage three, and in others in stage one.
Speaker #5: So, basically, these clients are not defaulting on credit card lines. You're pretty much focusing on adjusting some conditions on the mortgage portfolio. Is that correct?
Speaker #8: Yes, it's correct. It's commercials renegotiations. Most of them are on the real estate fund, by the ay, which are the ones that we have collateral.
Speaker #8: And it's a longer-term agreement. And we're in stage one.
Speaker #5: All right. Thank you. Thanks again.
Speaker #8: Thanks.
Speaker #1: Our next question comes from Mario Pie. Mario, please go head.
Speaker #9: Hi, guys. Good morning. Congratulations on the results. Thank you for taking my question. I wanted to back on the private payroll product, Shandle. You talked , right, this product having a 30% ROE.
Speaker #9: 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.
Speaker #9: 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, right, some news outlets in Brazil talking about the NPL or the product being around 10%.
Speaker #9: So, can you discuss why you are more positive right now at the beginning than the other players? And, you know, you showed that you already have 10% market share.
Speaker #9: 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?
Speaker #9: Or 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 of, you know, more why are you so comfortable with the product and the other players are not?
Speaker #9: At the beginning, and then I have another question on efficiency. Thank ou.
Speaker #8: Mario, João here. Thank you your question. I'm going to start and then Shandle can complement. I have been in the industry for a while since 2002, since 2004 working at Inter.
Speaker #8: And I see the same pattern when the payroll started back in 2002. Back then, everyone said, "Oh, this is not a good product. There's a lot of risks." And what we realized later on was the guys that had the consumer finance portfolio were reluctant to jump in because there was a normal cannibalization on that product.
Speaker #8: Of course, there were some issues. Back then, and throughout the time, the government and other institutions were able to fix it. And long story short, this is an excellent product today in the market.
Speaker #8: We're talking 700 billion plus credit portfolio, good service that for the population in Brazil and very good business also for the banks. I see the same pattern here today.
And Marv, I will take this 1. Um, so it's a it's a great point. So we want to see compounding. We love. And that's what we have been seeing. We do not control all of the variables at the exact same time. Life is not linear. Like we like to say, but we do see a trend of improvement across the metrics efficiency ratio being 1 of them. When in fact, mentioned or added this quarter, a new methodology for efficiency ratio, in addition to the power 1, which is cleaner. And given that it takes, it takes out the iOS no or JCP tax from that and you can see the evolution there very clearly with a regular level of level of 47.1%. What we are doing structurally is to continue to switch our contracts with our largest vendors.
From a variable Dynamic to a fixed Dynamic. So many of these contracts are associated with a number of clients or volumes and that gives us less room for operational, leverage to the extent that we can change those contracts to some made less variables and more fixed. Then the revenues without paying the growth.
Of the expenses but with no doubt, expenses will grow. We expect to have revenues growing significantly higher than expenses. This is a good quarter to see that playing out 5% expense growth and 8% Revenue growth. So that is the dynamic that we expect playing out in terms of the shape or the angle of the, the slope of the curve of the efficiency ratio. Going forward is very hard for us to predict, but we do want to see quarter of a quarter improvements. We haven't seen that and and the interact transaction of last year made that analysis a bit more blurred because it was a company that we acquired with 100% efficiency ratio, therefore, it increased the number up. And now, as we're delivering the efficiencies that we have planned there,
Many of which are on the expense side that, you know, our friends as well and that number is continue to to improve versus the pro level that we have prior to the interact, transaction know. So all of this to say, it's a variable that that we do expect continuous improving in the in the coming quarters and we will continue to see how that plays out as we solve, the more structural contracts that we have with with our clients which as you know, represents more than the ones that we have a more short-term control where we have a, a bigger short-term control, or number of employees, which we were able to to increase from the levels that we had at the end of last year.
And another fixed expenses like rental and a few other things on the, on the big vendor contracts is what we are doing, the majority of the work and that's what will change in the coming quarters versus what we had in the past few years.
Since that's clear, what percentage of your costs today are fixed versus variable? And are there some of these contracts you are trying to renegotiate? Are these like technology that you could develop yourself rather than relying on third parties?
So on the expense breakdown, we have our own 1 third which is personal and 2 third which is Administrative in those 2 thirds that is Administrative. We have our own 75% that are with with this technology provider. So it's it's a it's a big part on the administrative within those we are working to make them less variable and more sticky know and therefore to have more operational leverage these contracts are multi-year contracts so it does not happen overnight but we have been seeing increasing level of of success and it's not only on the on the top 3 or 4 names that you may imagine. But also in the longer list, we're working on the 1, 0 0, t
RS, continuing to play out.
Thank you very much.
Our last question comes from Niha. Please go ahead.
We have any more color on collateral in case of the inquiries, which will arise in the future exclusion to say. And my second question is on uh 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 uh should we expect for this year? And for next year uh in in view of this uh, new product uh, and also in new of the macro, which is ever evolving. Thank you so much.
This is Sean speaking, thank you for your question. Uh, so I'll start with the collab from for the private payroll. Uh we expect it's going to be a very good uh collateral to be exercised it today it's already as I mentioned point being towards somewhere in the single digits as a long-term delinquency. Why is that? Because companies are learning and engaging more and more, uh, with the paying process and this third round of payments is much better than the first round, and it should keep improving. As we move forward. On top of that, we have the, a piece of a part of the fgc fgts balance of these customers that will be used to pay for some of the debt that's not yet happening. It's going to be a piece for another Improvement around on this on this whole private page.
Process, and also you have the client itself, right? So if the company didn't collect or didn't pay as they should, the client is still liable. What we're seeing in the early days is good behavior from these clients as we approach them to do the collection process. There’s good collateral, and also other means of payment, with a final point that I almost forgot to mention, which is that customers switch jobs.
The liability or the collateral follows them almost like Lifetime and uh with automatic recollection. This is being fine-tuned by the government now, but everything points towards like an automatic re-establishment of the collateral as clients change jobs. So again, should be exciting. We're going to have to learn we'll keep working on it. Uh,
But it seems to be good moving to Long growth.
So, we have a, we had a strong quarter 8% growth quarter and quarter, the core portfolio, grew 31% year-over-year. Uh, and what we're seeing also given that we have new products such as the private payroll,
Is to be on the high end of the range. We've been talking about. We've been talking about the range of 25 to 30% growth for the long portfolio. We believe we're going to be on the high range. What is the main drive and why this components, right? Why can you, why can we grow 30% in a year, despite macro 15% celik because we have good products. As drivers of this growth that are aligned to this type of environment. So, private payroll loans is the new kid on the Block that we can keep on. Growing mortgages are behaving very well and we've been able to price them properly home equity. Also fgts and given the size of the client base and the opportunity will keep pushing to grow. Also, the unsecured Landing picks financing and these other lines to to uh, to get us there to the 30% overall growth.
Thank you. Thank you.
Super helpful. Thank you so much.
And this concludes our Q&A session, I'll pass the word to strong for his final thoughts.
Thank you, have fun. Um, thank you everyone for
Being with us today.
It's been a long journey so far.
As I mentioned in my final remarks, I believe we are in the early days of the business for the network effect that is kicking in.
For helping us to make this dream come true. Thank you very much. See you on our next earnings, call have a good day.