Inter & Co Inc

NASDAQ:INTR

Earnings Call Analysis

Inter's Q3 Earnings Highlight Significant Growth and Innovation

In the third quarter, Inter reported a remarkable 25% increase in gross revenue, reaching BRL 2.7 billion, with net revenue up 32% at BRL 1.6 billion. The company grew its customer base to 35 million, driving fees up 20%. A strong focus on hyperpersonalization contributed to a monthly average revenue per active client (ARPAC) of BRL 32.5. Notably, the net interest margin (NIM) improved to 91.7%, underscoring effective capital deployment. The Consumer Finance portfolio is projected to hit BRL 700 million by year-end. Inter aims for an efficiency ratio under 30% and expects continued growth despite macroeconomic challenges.

A Strong Quarter of Growth

In the latest earnings call, Inter & Co reported a remarkable year-over-year growth of 25% in gross revenue, totaling BRL 2.7 billion, and a 32% increase in net revenue, reaching BRL 1.6 billion. This growth was powered by strategic initiatives like hyperpersonalization and targeted marketing, which led to record engagement metrics. The company also experienced significant growth in net fees, increasing by 20% in just one quarter, driven by high levels of activity across key sectors such as Inter Shop and Insurance Distribution【4:1†source】.

Profitability Metrics on the Rise

Inter & Co achieved a record-breaking return on equity (ROE) of 11.9%, a significant milestone as it marks a sustained trend of improvement. Notably, net income reached BRL 260 million, which is 2.5 times higher than in the same quarter the previous year. This indicates the company's focus on enhancing profitability while growing their client base【4:3†source】.

Operational Efficiency and Future Guidance

The efficiency ratio achieved was 50.7%, excluding the impacts from Inter Pag, which was incorporated recently. The target is to improve this metric towards a longer-term goal of a 30% efficiency ratio【4:3†source】. With significant synergies expected from integrating Inter Pag, the company anticipates operational leverage that could further enhance margins in the near future【4:17†source】.

Market Expansion and Client Acquisition

Inter & Co has successfully grown the number of active clients to 35 million, adding 1.1 million in the latest quarter alone. The onboarding process has been optimized, and the activation rate remains strong at 56%, which reflects their effective cross-selling strategy. This suggests a robust future revenue stream as client engagement deepens【4:11†source】.

Cautiously Optimistic on Credit Growth

The company is proceeding with caution in its Consumer Finance portfolio, although it has set an ambitious target for the year-end to reach around BRL 700 million, reflecting growth from a low base【4:5†source】. Credit card growth stands at 25% annually, with a focus on maintaining low delinquency rates while expanding this segment【4:12†source】.

High-Quality Funding and Strategic Product Offerings

Inter & Co reported a funding franchise surpassing BRL 50 billion, primarily through time and transactional deposits, which grew by 30% and 40%, respectively. This solid funding base underpins the company’s strategy of having a low loan-to-deposit ratio, allowing flexibility and resilience during volatile market conditions【4:1†source】.

Innovative Product Expansion

The introduction of new financial products, such as Pix Financing and Buy Now Pay Later, showcases Inter's innovative approach to meet diverse client needs. With a remarkable 74% market growth in foreign exchange services, the company is effectively capturing new client segments【4:9†source】.

Sustaining Momentum and Future Outlook

Overall, Inter & Co is on a positive trajectory, with management emphasizing the importance of capturing market share across all its seven financial verticals. The commitment to strategic investments in marketing, technology, and talent positions the firm well for further growth. The expectations are for continued improvements in margins and return metrics in the next quarters【4:6†source】【4:4†source】.

Earnings Call Transcript 2024-Q3

[Operator]

Good afternoon and thank you for standing by. Welcome to Inter & Co's Third Quarter of 2024 Earnings Conference Call. Today's speakers are Joao Vitor Menin, Inter's Global CEO; Alexandre Riccio, Brazil CEO; Santiago Stel, Senior Vice President and CFO; and Rafaela Vitoria, 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. [Operator Instructions]

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 & Co's earnings release and earnings presentation appendix. Today's discussion might include forward-looking statements, which are not guarantees of future performance. Please refer to the forward-looking statements disclosure in the company's earnings release and earnings presentation.

Now I would like to give the floor to Mr. Joao Vitor Menin. Sir, the floor is yours.

[João Vitor Nazareth Teixeira de Souza, executive]

Thank you, operator. Hello, everyone. Thanks for joining us on our call today. As always, I will start with an overview at our strategy before giving the floor to Xandre and Santi. Today, I would like to spend some time sharing my thoughts on how unique our financial Super App is. I see it as having 3 key dimensions: First, our differentiated platform. It is complete, has the best UX UI with a 4.8 rating in Apple Store. It goes far beyond banking, and it is global by offering our products across many countries.

Second, the massive number of clients that transact with us. We're proud of having reached 35 million clients, producing a massive level of interaction inside our ecosystem with, for instance, 15 million logins per day. And last but not least, the high level of principality. As most of you know, the relationship with our clients starts with the digital account, which has helped us drive principality and from it, drive upsell and cross-sell into credit and services.

These 2 dimensions shows how powerful our platform is. It creates a strong network effect that reinforce a virtual cycle that combines growth with profitability. To show the power of this network effect, we show how we were able to generate alpha across many verticals. People don't just use banking services. They engage across our different businesses, credit, investments, insurance, shopping, global and Loop, our loyalty program.

In each of these areas, we're growing at a much faster pace than the market. 2 great examples are FX transactions. We are growing 74% or 3.8x more than the market. And credit, which we're growing 3.5x faster than the market, while consistently expanding our NIM and keeping sound asset quality metrics. In summary, this page shows our exceptional ability to attract clients and cross-sell our products, capturing market share gains.

Promoting cross-selling, upselling and engaging clients is one of my focus. To achieve this, we work strongly to remain innovative, pushing the frontier of technology and bringing new solutions to our clients. I would like to name a few of our recent initiatives in the innovation front. First, the hyperpersonalization. We're getting better and better every day, and we are seeing excellent results by driving conversion and increasing sales.

Second, the AI-powered Inter Shop Concierge; it drives traffic and monetization in our e-commerce platform. We will be launching in our next Black Friday, and we have high expectations to continue driving growth of Inter Shop and soon into other verticals. Third, the Forum, our content platform, which was launched last quarter and has now over 5 million users. It is designed to discuss personal finance, investments, market trends, product launch, tips and much more.

It's a new way to engage within the financial Super App and promote cross-selling while fostering a sense of community among our clients. When it comes to engagement, our focus on clients has resulted in several impressive milestones. We achieved more than BRL 1.2 trillion in our run rate TPV, showing how our clients use the platform daily in an exponential way.

We also reached BRL 122 billion in AUC, of which BRL 50 billion in deposits, a great indicator of how much our clients trust us. To give a sense of dimension, we received around 21,000 deposits per hour this quarter from more than 80 million individual depositors. And we already have over 3.6 million clients investing, saving, buying and banking in the U.S. We're changing the way people bank globally. Today, we can clear international transactions within a few seconds.

The great thing about all of this is that there is much more to come to improve and to explore. In summary, what I presented gives me strong confidence and excitement on what lies ahead. We have been working very diligently on executing the plan quarter-after-quarter, and the results are paying off. Combining profitability with innovation has proved not only to be possible, but also an excellent recipe to remain competitive. As you can see on the page, the results of the 60/30/30 plan are very strong and speak for themselves.

Now I'd like to give the floor to Xandre, who will provide more details about our opportunities and achievements in each of our verticals. Xandre, please go ahead.

[Alexandre De Oliveira, executive]

Thank you, Joao, and thanks, everyone, for being with us. I'd like to begin by focusing on those who are at the center of everything we do, our clients. We're excited to report that we have reached 35 million clients and welcomed 1.1 million new active clients this quarter. For 7 consecutive quarters, we have successfully increased our activation rate, which now stands at 56%, the highest since the fourth quarter of 2021.

Our refined onboarding process, combined with the app's hyperpersonalization has significantly improved our ability to engage clients after the onboarding conclusion. For example, between the third quarter of 2022 and the third quarter of 2024, our early activation ratio increased by 12 percentage points, going from 40% to 52%. Now I would like to focus on our business clients. As we have highlighted in previous quarters, we believe that traditional banking solutions for businesses are falling short of effectively meeting their needs.

This is an opportunity for us, and we're seizing it. We've seen growth once again with the number of business accounts increasing by 22% year-over-year, reaching 2.2 million, representing a 10% penetration in all businesses across Brazil. Our focus has been particularly strong among small- and medium-sized businesses, which tend to exhibit higher activation rates and ARPAC. We're dedicated to enhance client experience in this segment, recognizing the opportunity it presents.

Now moving to Slide 13; I'll deep dive into our 7 business verticals. In banking, the TPV has shown an increase of 46% year-over-year, reaching BRL 320 billion. Transactions made through Pix totaled BRL 294 billion in a single quarter with Inter capturing 8.1% of this market. This quarter, volumes and growth from credit cards have once again surpassed those from [indiscernible], resulting in higher interchange revenue and consolidating the improvement of quality of our TPV. The improvement in this mix has led to a 38% year-over-year increase in interchange revenues. Moreover, as we have consistently observed in the past few quarters, we're continuously increasing TPV levels among both new and existing cohorts.

This is a direct result of our strategies to better understand our clients' life cycles and use the right tools at the right moments to engage them effectively with our products. Now moving to credit; I'm pleased to report strong growth in our new credit lines, Consumer Finance 2.0, which includes Pix Financing, Buy Now Pay Later and Overdraft. In a quarterly comparison, we saw a solid 52% increase, reaching a combined total of BRL 503 million in portfolio.

This quarter, we expanded our products to a broader client base and implemented user experience improvements that are already yielding results such as acceleration of adoption and higher duration in the portfolio. We expect to maintain healthy growth in these product lines. Shifting to our marketplace; the third quarter had an encouraging performance with a growth in an annual basis of 59% in our GMV that reached BRL 1.4 billion.

Our hyperpersonalization approach is increasing our conversion rates for sales as the offerings that each client sees are more and more aligned to their moment. Additionally, our Buy Now Pay Later product achieved around 6% of the total GMV, an impressive number for a payment method that is still new for many of our clients. Regarding loyalty, we achieved 10 million clients, continuing Loop's growth path. This quarter, we launched new ways to redeem points, including Pix Insurance and Soccer tickets, leveraging our strategic partnerships in soccer.

Moreover, clients can now earn points by spending with debit cards in their global accounts. We continue to see Loop clients as more engaged than non-Loop clients as they generate a 2x higher ARPAC. In investments, we surpassed BRL 122 billion in assets under custody, serving over 6.3 million active clients in the vertical, which represents a 50% increase year-over-year. This was the fastest increase in AUC that we have observed in a single quarter.

Piggy Bank or Meu Porquinho in Portuguese has demonstrated an impressive adoption and achieved over 2 million clients and 48% quarter-over-quarter growth in AUC. This product has become an important funding distribution asset for Inter, reaching BRL 3.4 billion in AUC and accounting for nearly 7% of our total funding. On the Insurance front, we continue to witness accelerated growth. Our sales have now surpassed 1.3 million, driven by new growth initiatives.

Furthermore, this quarter, we achieved 3.4 million active contracts in insurance with a 115% year-over-year growth in a high-margin vertical, all supported by our asset-light and highly scalable business model. Additionally, our focus on hyperpersonalization has unlocked numerous opportunities within this vertical, enabling us to deliver the right products to the right clients and significantly boost our sales even for niche offerings.

Finally, on the global front, our deposits, along with assets under custody and assets under management have reached the milestone of $1.4 billion as we now are able to offer managed accounts for our clients investing abroad. This achievement is an important milestone and an evidence of our strong performance in the U.S. business. Within this vertical, we have reached 3.6 million clients, which are typically higher income Brazilians who frequently travel and invest in the U.S.

This growth and engagement in our global operations affirms our dedication to expanding our reach and delivering valuable financial solutions to our clients regardless of geographical boundaries. Now let's turn to Page 22. In this slide, we zoom into the evolution of products that have more than 1 million active clients. As we evolve, we've been able to reduce the cycle time to achieve large-scale adoption of the products we launch, reflecting not only client engagement, but also our ability to make the right choices and to execute properly our product strategy.

This progress is an evidence of the 3-dimensional approach that Joao highlighted earlier. Most importantly, this momentum is translating into noticeable improvements in our market share for several products, enhancing our competitive positioning in the industries we participate. Talking about market share on Page 23, we dive in our share evolution for a few products. One year ago, we held a significant Pix market share, showcasing the highly engaged client base within our financial Super App.

We emphasized that an important part of our mission was to close this gap between Pix share and our share in other products. The results have been positive. We're effectively providing our clients with access to our extensive product range and increasing our share of wallet. Important to highlight that this evolution is happening both on credit and fee businesses, one more evidence of our well-executed 3-dimensional strategy.

As we continue to expand our product offerings and enhance client engagement, I am confident that we will further solidify our position in the market. To finish on Slide 24, we show that despite a significant evolution in market share, we're just beginning. Our client-centric approach boosted by hyperpersonalization, optimized our sales efficiency as we fish in our own aquarium.

There is still significant potential to grow business by conquering share of wallet. And on top of that, we maintain our focus on new client acquisition. We believe that maintaining product evolution, improving client service and having an edge on our overall value proposition will be key to maintaining the positive trends to deepen market share and increase principality.

Now I would like to pass the word to Santi, who will take us through the financial section. Santi, the floor is yours.

[Santiago Stel, executive]

Thank you, Xandre. Hello, everyone. Really impressive Slide 23, showing the convergence to 8% market share. Now jumping to the financial results; starting with our loan book, we grew 7% this quarter, surpassing BRL 38 billion. FGTS and Home Equity, the 2 collateralized products with the highest ROEs achieved record levels of underwriting, surpassing the BRL 6 billion in combined loan balance.

Regarding personal loans, which is primarily comprised of payroll loans, we focus on 3 main fronts. The first one, digital underwriting. We successfully implemented the 100% digital process for [indiscernible], our 2 main distribution channels. We're also advancing with our digital portability, which we believe will further enhance our origination capacity of this product. Second, we focus on market share gains. As Xandre mentioned, we have a significant opportunity to leverage our existing payroll operations by fishing in our own aquarium.

Currently, we hold around 1% payroll loan market share, but we have the potential to increase this to 5% by bringing our current clients through portability. And third, focusing on higher ticket clients. We have increased our capacity to target these higher ticket clients by improving the efficiency of our commercial effectiveness. Moreover, we have many opportunities to increase ticket size via hyperpersonalization, not only with public sector employees, but also on the private ones as well. On credit cards, we presented a 25% growth on an annual basis.

Going forward, we expect to accelerate growth by continuing to run more limits to our existing clients while enhancing financing options such as Pix Financing and installments with interest. Finally, Agribusiness and SMBs are 2 segments that we're deploying our balance sheet strategically, prioritizing clients with strong principality and synergy potential now reinforced with our Inter Pag acquisition.

Moving to Page 27; we continue to operate a high-quality, highly collateralized credit portfolio, making it resilient to credit cycles. Both NPLs showed improvements with a 15 to 90 days standing at 3.6% and the 90-day plus decreasing to 4.5%. This represents an improvement of 30 bps and 20 bps, respectively, when compared to the prior quarter. The credit card NPLs when seen across cohorts continues to show strong performance, thus validating the improvements in our underwriting models.

With this scenario, NPL formation remained stable around 1.6%, while Stage 3 formation increased slightly to converge with Resolution 4966. On Page 27, we can observe the evolution of our credit cost of risk metric, which has been flattish at 5.1%. We continue to focus on improving our underwriting models together with the collection practices, which are the ultimate drivers of our asset quality trends. Furthermore, our coverage ratio has remained stable at 130%.

This high coverage level of provisions, combined with a high-quality collateralized portfolio enables us to operate with consistent performance through time. Moving to Page 29; we had another strong quarter of a robust funding franchise, surpassing the BRL 50 billion mark. This growth was primarily driven by time deposits and transactional deposits, which increased 40% and 30%, respectively. The mix remains strong with transactional deposits accounting for approximately 32% of our total funding base.

In terms of relative growth, it is interesting to notice that transactional deposits grew in line with our loan book at around 30%. Also very important to mention, our active clients had, on average, BRL 1,900 in deposits, a record level that highlights the primary relationship with us. As shown in the prior page, we had a large growth of time deposits, mainly due to the success in Meu Porquinho, which achieved BRL 3.4 billion.

Although this growth was compensated by our transactional deposits performance, which, as mentioned, grew 30% on a last 12-month basis, our cost of funding remained flat at 6.8%. Jumping into Page 31; we are thrilled to report a remarkable quarter in terms of revenue, breaking previous records once again. We reached an impressive year-over-year growth of 25% in total gross revenue and 32% in net terms. The gross revenue achieved BRL 2.7 billion with a net revenue of BRL 1.6 billion.

Both fees and NII experienced strong growth even when excluding the effects of Inter Pag consolidation, validating the effectiveness of our diversified business model. Our strategy of hyperpersonalization and targeted marketing is becoming a driving force behind our revenue growth. Moving on to Page 32; as a consequence of higher engagement, which was accelerated by our hyperpersonalization strategy, we were able to achieve a record monthly ARPAC of BRL 32.5.

This growth was primarily driven by a robust performance in net fees, which had an increase of 20% just this quarter. The key contributors of this growth were Inter Shop, Insurance Distribution, FX and interchange. These areas demonstrated high levels of recurring active clients transacting on a daily basis within the platform, significantly enhancing our fee revenue lines. We also reached record margin per active client of BRL 19.9, continuing our trend of sequential improvements quarter-after-quarter.

We believe that this demonstrates our ability to effectively monetize our customer base while capturing economies of scales in terms of cost. Let's now deep into our interest income, specifically focused on NIMs. We are pleased to report record-breaking level NIMs before and after deducting cost of risk. Both our NIM 1.0, which means including in the denominator, the noninterest accrual of credit cards and the NIM 2.0, which excludes these noninterest receivables, we are showing a positive upward trend compared to prior quarters, even within the negative inflation of the quarter.

When we consider the risk-adjusted NIM, which deducts cost of risk, the performance is even stronger, further highlighting the work that we have been doing in optimizing our deployment of capital. In Page 34, we can see the NIM improvement on a different perspective, this time in relation with the CDI rate. Our NIM 2.0 reached 91.7% and the NIM 1.0 reached nearly 80%. As you can see clearly, this performance has consistently improved over the past quarters, driven by our diligent use of our balance sheet across portfolios.

Jumping into expenses; we continue to invest strategically in core areas that will help us drive the future of the company. Areas are in particular, marketing, technology and talent. In terms of advertising and marketing, we focus on attracting high-quality clients in terms of engagement and principality, and we also initiated the second wave of our branding campaign to continue increasing awareness. In personnel expenses, we grew mainly in technology department to support our new and existing initiatives, always focusing on delivering top quality products to our clients.

Additionally, the integration of Inter Pag in the third quarter resulted in an increase in expenses, particularly in personnel with strong optimization potential in the coming quarters. We are proud of the results we have achieved through our cost control initiatives through the quarters and expect to continue having significant gains in the coming quarters. Jumping to our operational leverage page; this quarter, as I mentioned, we integrated Inter Pag back in July.

This company, which will become a business unit inside of Inter, started with a standalone efficiency ratio close to 100%. Going forward, we expect significant synergy gains from Inter Pag through a cost structure optimization, combined with accelerated revenue growth, driving significant opportunities to drive further operational leverage. In terms of the efficiency ratio, we achieved 50.7% and 48.7% when excluding Inter Pag, continuing ahead of our 60/30/30 plan in this specific metric.

To conclude, I'd like to highlight our performance in terms of profitability as presented on Page 37. This quarter, we achieved another record-breaking ROE, surpassing the double-digit mark and reaching an impressive 11.9% and 11.3% when excluding non-controlling interest. Our reported net income of BRL 260 million or BRL 243 million when excluding non-controlling interest is 2.5x higher than the net income of the third quarter of the prior year. We believe that the strong performance shows our commitment to drive sustainable profitability while creating a truly differentiated platform that is built to succeed in the long term.

Now I will pass it back to Joao for his closing remarks. Thank you.

[João Vitor Nazareth Teixeira de Souza, executive]

Thank you, Santi. To conclude, I believe we had a quite good quarter. But don't get me wrong. There is still a lot more to deliver. And I would like to assure you, myself and the rest of the team, we work relentlessly to keep delivering the best financial platform to all our stakeholders, which are our clients, our employees, the regulators, our community and of course, to our shareholders.

Thank you for the support. And remember, the best is yet to come. See you. Bye-bye.

[Operator]

[Operator Instructions] Our first question comes from Mr. Tito Labarta from Goldman Sachs.

[Daer Labarta, analyst]

My question, just to understand, I guess, the incorporation of Inter Pag and the pickup in expenses. I know you mentioned there that you should get some operating leverage. But just to understand, I guess, one, how do we think about expense growth from here?

And if you can maybe either quantify or help us think about that operating leverage, right? Because I mean you still have a lot to go to get to the 30% efficiency ratio target. But does that -- does the implement incorporation of Inter Pag delay that in any sense or could it accelerate? How should we think about that evolution from here?

[Santiago Stel, executive]

Thank you, Tito. This is Santiago. I'll take that one. So on efficiency ratio, this is the metric from the 3 main metrics of our 60/30/30 plan, where we're the most ahead of. Remember, when we reported the plan or we presented the plan into the market, we were at 70% and only 7 quarters or less than 40% of the time went by, and we're already more than halfway into the target. So we are very excited of what we delivered in the expense front.

Obviously, we started with the lower-hanging fruits on the expense side and now the majority of the improvement on efficiency will come on the revenue side as we continue to cross-sell the products and monetize our clients. Specifically on this quarter, on the efficiency ratio, we had a few things that played out that I think are worth mentioning. On the one hand, we had the inflation, which was a bit lower than in prior quarters.

We had 0.8% relative to 1.1% in the second quarter, which is the same number we expect for the fourth quarter, 1.1%. That had an impact of around BRL 15 million in NII or 40 bps in efficiency. We also invested in the structured notes in the investment portfolio, around BRL 3.2 billion. This is visible in the financial statements. This consumes NII in around BRL 10 million, but it [ liberates ] taxes in the bottom in around 20%, and this has another 30 bps of impact on the efficiency ratio. And then we have the Inter Pag situation. So Inter Pag, we incorporated at the beginning of July. So the entire quarter, it was part of our conglomerate. It has an efficiency ratio higher than 100% with BRL 40 million in revenues and BRL 15 million expense. That has a huge potential in terms of optimizing on both sides of the equation. On revenues, we can cross-sell our products to Inter Pag clients. We can cross-sell Inter Pag products to Inter clients. And additionally, we can improve the efficiency through expenses as we integrate the platforms together.

So overall, we are excited on efficiency. We think that the work we are doing diligently to control expenses continues to play out nicely. We have some specific factors playing in the quarter. But overall, we think that the trend of continuation towards the 30% remains intact.

[Daer Labarta, analyst]

And just one quick question on the tax rate. How should we think about the tax rate from here?

[Santiago Stel, executive]

Yes. So on tax rate, we see the number on a yearly basis. So we have to see the cumulative number. And for that, we are roughly above 20%. We think that 20%-ish is the number at which we will operate with this level of profitability. We did have, as I mentioned before, the Notas Estructuradas, where we invested BRL 3.2 billion. We are paying [ IOC or JCP ] as well, and we are reallocating capital from the operating entity -- the main operating entity, which is Banco Inter S.A., into a holding, which is tax-efficient. We did a lot of work in the past to be able to do this now, and we're beginning to see the benefits of that now. So in the 20% level is where we expect to continue operating on a yearly accumulative basis.

[Operator]

Our next question comes from Mr. Ricardo Buchpiguel from BTG.

[Ricardo Buchpiguel, analyst]

I have one here on my side. You mentioned that Inter has now a consumer finance portfolio of around BRL 500 million. So I would like to understand a little bit better what is reasonable to expect for this portfolio by year-end and also next year? Any information you could tell us about the growth from this specific portfolio would be very helpful.

[João Vitor Nazareth Teixeira de Souza, executive]

Ricardo, Joao Vitor speaking here. Thanks for the question. I don't know if you recall, but I have been advocating for this Consumer Finance 2.0 portfolio for a while. And if you break down the number, we have the Pix financing, we have the Buy Now Pay Later at Inter Shop, and we have the Overdraft. We have been growing, I would say, quite fast. We're coming from a very low base, of course. We believe that maybe something close to BRL 700 million at year-end is possible. That's what we expect. And we believe that 2025, 2026, we're going to keep growing that. But again, you know Inter for a while. We like to proceed, but always with caution. So we're always monitoring how the delinquency is evolving, how we can improve the products to make sure that we have the right risk/reward equation. We know that we have 8% market share at Pix. At Pix, we could move way, way faster on that portfolio, but we're doing that step-by-step. But anyway, excited for what's ahead.

Our transaction platform is big, and we have a very good underwriting approach on these 3 products, and also, very important, a very good collection approach through the app for these 3 products. So very excited. I believe that's going to keep helping us to improve our NIMs going forward. So very constructive on this Consumer Finance 2.0 ahead.

[Ricardo Buchpiguel, analyst]

And just a quick follow-up. If you could also mention if the deterioration in the macroenvironment changed in any way the outlook for loan growth with you guys, if you are more -- you mentioned you're being more cautious -- could be more cautious a little bit on the consumer finance. If we should see something similar as well in the other products?

[João Vitor Nazareth Teixeira de Souza, executive]

Okay, Ricardo. Yes, we are always watching the macro. It's very important, for sure, the ability for our clients to repay. We need to remember that at Inter we have, first of all, most of our portfolio collateralized. We have always worked this way. We have a very good cost of funding, and therefore, we are always cherry-picking the clients that we want to underwrite.

On the consumer finance, we tend to be more cautious when the macro is deteriorating, but we need to remember that we still have a small market share on credit underwriting on the market. Remember, so we have 8% market share of Pix, a lot of deposits, a low loan-to-deposit ratio, the best cost of funding in the industry. With all that in place, we can keep growing, even on the unsecured portfolio, at a good pace and also cherry-picking and being cautious with the delinquency. So still confident that we're going to grow despite of the macro.

[Operator]

The next question comes from Mr. Pedro Leduc from Itau BBA.

[Pedro Leduc, analyst]

Sorry if they've already made. I dropped out. But first, can you comment a little bit on the credit card cohort performances, be it delinquency, be it interest-bearing, how you're feeling? It seems to be growing fast, but if it's really something you feel comfortable in continue accelerating next year? And the second question, if you can comment or update us on the international side of the U.S. [indiscernible], either be it in size of revenues or profitability. And I know Joao has made some recent comments about the broader international ambition, if you can update us there as well.

[Alexandre De Oliveira, executive]

Leduc, this is Xandre speaking. I'll start with the credit card, and then Joao will fill in for the international part. So on credit cards, we are seeing good improvement in cohorts. So new cohorts activating well with low delinquency, a lot of control of the early delinquency metrics, such as first payment default. So we're being able to do what we've discussed in the past, which is being able to drive the outcome using our underwriting models. This is working well.

And simultaneously, we're seeing the, let's call it, the digestion of the delinquency of those older cohorts that we've been talking about for the last quarters, like the 2021 cohort mainly. It's getting out of the way, remaining good transactional clients. Having said that, plans don't change. If we look at 2027, we're still aiming at having about 30% of our portfolio on credit cards. And as we move on, thinking about next year, we'll keep also focused on increasing the interest-earning portfolio. So Joao talked about the Consumer Finance 2.0 just in the last question. We'll keep our focus on increasing products such as Pix financing, which we've been not only gaining traction, but also observing very good delinquency levels as we move forward. With that, I'll pass the word to Joao so he can comment on international.

[João Vitor Nazareth Teixeira de Souza, executive]

Leduc, thanks for the question. Joao speaking. They are our global expansion, which we're doing that through our Global Account approach. It's going really, really well. So when we envisioned 2 years ago to launch that product, we were, to be honest, afraid of what would be the outcome. And as of today, 10% of our clients, they have, and they use the Global Account feature, I would say. And they are using it both for investments and for service.

We see that we have, as of today, a very good volume in AuC rate in U.S. We have good TPV on debit cards, launching the credit card by the beginning of 2025. It's going to be very interesting. We have also our shop initiative starting to gain momentum here, and we have also our mortgage portfolio gaining momentum as well. About other geographies that you mentioned, actually, I was in a podcast 2 months ago trying to explain a little bit about our Global Account approach.

So what we envision is by having a solid foundation in U.S., having our account here, our security platform, our shopping platform, we could offer that not only for Brazilians, but to other geographies as well. But different from what we have in Brazil, where we have the bank license and the portfolio and our capital, we could go to other geographies through bank-as-a-service and just launching the Global Account approach to that clients over there. So we think that 2025 will be a year for us to try some other markets, and we'll let you know as soon as we decide which markets that will be. But excited that this is an asset-light approach, very fee business-oriented, and very excited with the quality of the clients that we attract when we launch the Global Account product in Brazil. So very excited with this initiative for 2025.

[Operator]

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

[Yuri Fernandes, analyst]

Joao, Santi, Alexandre, I have one on capital here. When we go to your [indiscernible] is dropping, and you provide some explanation on operational risk and some other things. But going to the core capital in nominal terms, like the amount of capital, there was a decrease this quarter, quarter-over-quarter, while your earnings was up. So just trying to understand what drove the impact on the core capital. And then I can do a follow-up.

[Santiago Stel, executive]

Yuri, Santiago here. I'll take the question. So we had an incorporation of Inter Pag, created goodwill for around BRL 90 million together with the [ IOC or JCP ] payment from the bank to the holding and the mark-to-market of the portfolio of investment securities. Those 3 had negative impact this quarter, and that affected the regulatory capital or reference capital as the Central Bank defines it.

[Yuri Fernandes, analyst]

Santi, if I may, just a follow-up on expenses. I totally get your speech on cost to income. But going to one line specifically that was personnel expenses, even when we exclude Inter Pag, there was a big increase. Can you provide more color what is driving that increase, like which areas you're hiring? When should we see, I don't know, an improvement on those, I don't know, projects? Just trying to understand because we have the headcount increase, and I'm not sure how much is Inter Pag in the number of headcount, but pretty sure at this increase here, it's not only profit sharing and inflation. There may be, I don't know, other initiatives that you're hiring, and I would like to understand what you're putting your energy on.

[Santiago Stel, executive]

Yes, I can take that one, too. So on year 1 of the plan, we went down from 4,100 employees to 3,300. So we pushed on the employee front quite a lot. That was 2024. On this year, we are reinforcing certain teams where we think we can add significant value to the offering in the platform, particularly on technology, but also on other fronts as well. The average compensation of executives in the company, in many cases, is increasing. We're bringing top talent from the market in Brazil and globally. And we are also expensing more bonds, more on compensation -- variable compensation, as the net income grows throughout the year. So a combination of those factors is the one that continues to drive the personnel expenses. On the other hand, we think that for 2025, with the incorporation of many automation processes we're doing and AI, we hope to continue having operational leverage on the personnel expenses front as well.

[Yuri Fernandes, analyst]

Santi, data processing was pretty good. I guess there is some operating leverage being built there. The personnel line was the one that caught my attention the most. So thank you for the clarification.

[Operator]

Our next question comes from Mr. Gustavo Schroden from Citi.

[Gustavo Schroden, analyst]

I have 2 questions. The first one is a follow-up, but sorry to insist on the risk appetite. I think it is a very important point to the bank. And let me put that question in a different way. Because as the earnings season is ending, and we could get a view from most of the banks with a more conservative approach, even yesterday evening, an important digital player gave us a more conservative view regarding the consumer finance. So what I'm trying to understand here is, is Inter going to be a counter-cycle player in this new cycle? Or what Inter could see in a different way than the other banks? Because just to give you an idea, talking to many of the banks, the expectation is that they are not expecting acceleration in loan growth for 2025. Again, they are not guiding for better mix, so a more conservative approach. So I'm trying to understand here, I got and I could hear what Joao mentioned about the cherry-picking. But again, I think that if you could elaborate more here, I think that would be really, really great.

And my second question is regarding the 4966 Resolution from the Central Bank. We could see some uptick in the NPL formation in the quarter. And if I'm not wrong, you mentioned that it is related to 4966 Resolution. So what could be the main impact you are expecting for the next year, not only in the capital, but also in the provision expenses?

[João Vitor Nazareth Teixeira de Souza, executive]

Gustavo, Joao speaking here. I'm going to cover the credit appetite again. So you might know that Inter, and I would say maybe also myself, we are known in the market for being too conservative, and we have had a lot of pushbacks for the past, I would say, maybe 4 or 5 years on that topic. Inter it should grow faster, it should give more credit limits on the credit cards, and so on and so on. And we had always took a different approach. So first of all, not being a monoliner, this is very important for us. We always wanted to have the short-term duration portfolio, the long-term duration portfolio, the ones that are collateralized, payroll, mortgage, home equity, but the ones also that they are not collateralized and have a good NIMs.

What we see today, that despite of the macro, we're not changing our credit appetite. We're still growing at 30%, 30% each this year, and this is what we foresee for 2025. The reason behind that, Gustavo, is quite simple. Again, first of all, we still have a very small market share in most of the credit portfolios that we operate. And look, we're not talking about 1 or 2, but maybe 5 or 6 different credit portfolios. So market share growth is important for us, and we have the ability to grow without impacting the market. Second, a good diversification, consumer finance and collateralized portfolio. We're still growing on payroll loan, we're still growing on home equity, we're still growing on mortgage side. And last, we have a very good cost of funding.

This is very important for us to, again, be able to cherry-pick the best clients without jeopardizing our NIMs. So this is our approach, still growing, but again, compounding and compounding and compounding. We don't want to just give a big stretch, as we see some other players doing, and then retract very fast. We want to keep compounding and compounding until we see room for us to grow without being a big player in the market. That's our approach, and we're going to stick to it. That's how we're going to operate most likely 2025 and probably also 2026, okay? Thank you very much. And Santi will cover the new regulation.

[Santiago Stel, executive]

Gustavo, so on 4966 Resolution, as you know, since 2022, we have been reporting our results under IFRS. So therefore, most of the impact from Bacen GAAP to IFRS for us has been already accounted for. The 2 impacts yet to come are: one, increasing Stage 3 formation, and this is due to the longer period during which renegotiations will remain in Stage 3 before being moved to Stage 2 or written off. This is called the healing period. We started anticipating a bit of this impact this quarter, and that can be seen in the Stage 3 formation level going up from 1.7% to 1.9%. And then the same logic applies to NPL formation due to the extended period during which loans can remain in our balance sheet before being written off. There's NPL formation trend that will go up as a consequence of the 4966. There is no impact on cost of risk or provision expense as a consequence of this, nor on results or Tier 1, but yes, on the metric of NPL and Stage 3 formation as I just mentioned.

[Gustavo Schroden, analyst]

Just a follow-up, Joao. Would you accept higher NPLs whether you have higher NIMs, which means that what is important here is the risk-adjusted NIM in this new cycle -- in this cycle?

[Santiago Stel, executive]

Gustavo, that's a great one. The metric that improved the most this quarter, before and after cost of risk, was NIM. We're very proud on the way we are allocating capital and the way that is playing out sequentially quarter after quarter with consistency since the beginning of last year. This is a combination of many different factors. One is the deployment of our excess liquidity from the 100 CDI liquidity pool into a loan book. Then we also had an interesting improvement sequentially on the loan mix.

Now, as we said in the opening remarks, FGTS and home equity, which are 30% to 40% plus ROEs, represent a significant portion of the portfolio, and they continue to gain share. And also, legacy portfolios like the one of agribusiness, which was sub-CDI is also decreasing in participation of the loan portfolio. So the combination of all of these factors together, plus the Consumer Finance 2.0 portfolios has been driving NII, cost of risk, depending on the mix on the unsecured side, we could or not have some pressure. We don't know until which level that portfolio will grow. But overall, the risk-adjusted NIM, as we call it, or the NIM after cost of risk, will continue within the trend that we have been seeing, which we're very proud of.

[Operator]

Our next question comes from Mr. Jorge Kuri from Morgan Stanley.

[Andrew Geraghty, analyst]

This is Andrew Geraghty from Jorge's team at Morgan Stanley. Just wanted to ask quickly about the NIM. In previous quarters, you had mentioned that you see a path of roughly 20 basis points, I believe, in upside each quarter coming from portfolio repricing mostly. And I just wanted to see if that has kind of changed or whether your view stays the same? And I guess just in general, with respect to NIM over the coming quarters, what you see as the various moving parts on cost of funding, repricing, et cetera?

[Santiago Stel, executive]

Andrew, Santiago here again. In line with what I answered to Gustavo, we think that the NIM dynamic will continue to play out. We don't want to point at 20 bps specifically, but the trend is in line with what we have seen in the prior quarters as a consequence of, as I just mentioned, the capital allocation improving and being more efficient on a quarter-by-quarter basis.

[Operator]

Our next question comes from Mr. Mario Pierry from Bank of America. Apparently, Mr. Pierry is no longer with us. Let's move on to the next question, which is from Ms. Neha Agarwala from HSBC.

[Neha Agarwala, analyst]

Just a quick follow-up on the consumer finance portfolio. You mentioned that you have 8% share in Pix, but you remain cautious in growth in Pix financing. Are there any specific trends that you're seeing which makes you a bit cautious, or it's just more seeing how the portfolio performs and then continue to grow? Because it's pretty much about extending credit to customers who are already approved with your credit card. So if you can elaborate the trends that you're seeing there. And second question is on the Global Account. You mentioned that you could roll out the Global Account feature to other countries. What countries do you have in mind? What would it imply in terms of investments required to roll out this feature to other countries? How scalable is this?

[João Vitor Nazareth Teixeira de Souza, executive]

Neha, Joao speaking. Thanks for both questions. I'm going to start from the last one. We haven't decided yet when and what's going to be our next market. We are analyzing some options. But again, we don't want to go to a place where we need to deploy capital, license, and everything. We want to go to a place where we can operate through a bank as-a-service partner, where we can launch our Global Account and bring deposits, shopping, buying power, volume, TPV for our U.S. operation business. This is our approach going forward. The same we did with Brazil. Regarding your first question was about -- sorry, can you repeat the first one?

[Neha Agarwala, analyst]

Pix financing, and what trends are you seeing in terms of quality there?

[João Vitor Nazareth Teixeira de Souza, executive]

Okay. So similar to what I answered before, Neha, I agree we have a big market share in Pix. We only approve for Pix financing the clients that we have a credit limit for them at the credit card product. But on the other hand, we know that it's something new. So every time we run our models, and we try to get data from how the clients are performing, try to build all the cohorts to see if they are doing better or worse than what we had predicted, we need to get data and data in more cohorts, more cohorts and maturing. So we're still learning. We're still trying to make sure that we have the right pattern from the clients that are using this product.

Let's remember, this product was unveiled, I would say, maybe 1.5 years, maybe 2 years ago. So it's a very, very new way of doing consumer finance. So we are improving fast in terms of the growth that we're putting percentage-wise, but we need to learn and make sure that we're not going to put a bad, I would say, credit portfolio on our books. So again, proceeding, but with caution. That's our approach. And we do see now, so far, good delinquency ratio on that portfolio.

[Neha Agarwala, analyst]

And what are the main use cases for the Pix financing product that you see with your customers? Is this only for -- do you see it more for like buying on your platform, or it's more outside your platform? What are the main use cases?

[João Vitor Nazareth Teixeira de Souza, executive]

Neha, so far, ballpark, we see 65% consumer-to-consumer, C2C, and 35% C2B, consumer-to-business. And I don't have the number here about how much of that is within our ecosystem, but we have a lot of transactions within our ecosystem, again, because we have a big market share in Pix, as I mentioned before. So new product and let's see how it's going to play out in the following years.

[Operator]

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

[João Vitor Nazareth Teixeira de Souza, executive]

Thank you, operator. First of all, thank you, everyone, for the audience. Again, a very good quarter. We're very happy, the team, myself, with what we have printed this quarter and what we have ahead for Inter. Also, after listening to the Q&A and reading all the reports, I would say that there are 2 key messages that I would like you to take home. So first one, business-wise, we are gaining market share across all verticals, and I mean all the 7 verticals that we have at Inter. This is very important for us. Upsell and cross-sell help us to improve profitability.

Second, financial-wise, we are improving our NIMs quarter-over-quarter. That said, we are doing the best we can in terms of optimizing our capital structure. This is what we have been working hard for the past 3 or 4 years, and we are delivering this improvement. Thank you very much for your time. See you soon on the next quarterly results on 2025. Have a good day.

[Operator]

This conference call has 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.