Inter & Co - Q1 2023

Transcript

Operator (participant)

Good afternoon. Thank you for standing by. Welcome to the Inter & Co first quarter of 2023 earnings conference call. Today's speakers are João Vitor Menin, CEO; Alexandre Riccio, VP of Tech, Operations, and Finance; Helena Caldeira, CFO; and Santiago Stel, Strategy and IR Officer. Please be advised that today's conference is being recorded and a replay will be available at the company's IR website. At this time, all participants are in listen-only mode. After the prepared remarks, there will be a question-and-answer session. For this session, we ask you to write your question via the Q&A icon on your screen. Your name will be announced. You will be able to ask your question live. At that point, a request to activate your microphone will appear on your screen.

If you do not want to open your microphone live, please write down "no microphone" at the end of your question. In this case, our operator will read your question. Please note that there is an interpretation button on your screen where you can choose the language you want to hear, English or Portuguese. Throughout this conference call, we will be presenting non-IFRS financial information. These are important financial measures for the company but are not financial measures as defined by IFRS. Reconciliations of the company's non-IFRS information to the IFRS financial information are available in Inter'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 yield the floor to Mr. Santiago Stel. Sir, the floor is yours.

Santiago Stel (Chief Strategy and Investor Relations Officer)

Thank you, operator. Good afternoon, everyone. Thank you for attending our first quarter 2023 earnings call. Before covering the agenda, let me present the phrase that summarizes the results and the moment in which we are at Inter. Harvesting profitable results from solid foundations. This phrase captures the essence of who we are and where we stand today. João Vitor will elaborate on this in his opening remarks. Jumping into page four, let me introduce the agenda for the day. João Vitor will start the presentation sharing with you an overview of our vision and the main achievements of the quarter. Alexandre will cover the credit engine section. I will present funding capabilities together with the transactional platform. Finally, Helena will cover the financial performance section, with then João closing with his final remarks. João, I'll pass the mic to you.

João Vitor Menin (CEO)

Thank you, Santi. Good afternoon, everyone. Before going to the details of the quarter, let me share my vision for Inter on page six. I was reflecting on this given that we just had the fifth-year anniversary of our IPO. Since then, we have been able to attract a top-level management team. This gave us the ability to build the best Super App in the Americas. The best Super App in the Americas allowed us to build a unique deposit franchise that quickly achieved critical mass in the Brazilian banking system. The result is a fortress balance sheet with massive capital and liquidity. All this was made possible by our more than 26 million clients. This was done through an amazing journey of innovation, creating strong foundations over which we stand today.

Like everything in life, we are always evolving and need to adapt to the context in which we operate. On the next slide, I want to share with you the way we're running the business for the next five years. Client-wise, we are adapting from a massive growth to a growth and engagement approach. On loans, instead of being just market share driven, we're more price insensitive. On capital, we moved from the deployment phase to a tactical use of this important pillar. Last but not least, on efficiency, we had this concept as an outcome, and now it became one of the most important guidelines for our business. With that said, on page eight, I will present you a glimpse of the value that can be produced with this strong harvesting approach.

In demand deposits, we increased our market share an additional 21 basis points and reached 3.6% share. Proudly ranked 6th among all Brazilian banks. On activation, we increased 50 basis points and added the record number of new active clients in our history, 1 million new active clients on the quarter. On operational leverage, our efficiency ratio reached an impressive 62% in this quarter. The disciplined repricing of our loan portfolio allowed us to increase our NIM by 30 basis points on this quarter. We produced bottom-line profitability, which sets the base for the remaining of the year. Finally, we conclude the quarter with 23% CET1, which according to our estimates, is twice the level of the top five incumbent banks in Brazil. That said, I'll now pass the mic to Alexandre, who will walk you through our credit engine.

Alexandre Riccio (VP of Technology, Operations, and Finance)

Thank you, João, and good afternoon, everyone. I will start talking about the growth of our loan portfolio on page 10. We were able to start the year running at a 20% annualized loan growth, growing 5% quarter on quarter, with the portfolio reaching BRL 24 billion. As you can see, the growth has been mostly focused on the lower risk segments, such as the FGTS loans, which grew 58% in just one quarter. In credit cards, we grew 6%, still reflecting the more conservative stance to unsecured credit that we have in place since the beginning of last year. Regarding payroll and real estate loans, we continue evolving with the repricing initiative, which is driving much higher profitability levels in these portfolios.

Additionally, this quarter, our financials include the interest income breakdown by portfolio, which will allow investors to see the evolution of our loan yield by product. As you can see, the rates are increasing across products as our portfolio is increasingly repriced. Please note that the implied rate in SMBs has an impact of lower outstanding balances in January and February. Finally, the all-in annualized yield of the portfolio increased from 20.3 to 22% this quarter. An impressive evolution. On page 11, we highlight our asset quality metrics, which performed well this quarter. Starting with the 15-90-day NPLs, which isolates the impact of loan growth, we were roughly flat during the quarter.

On the 90-days past due metric, which does have an impact of our loan deceleration relative to a year ago, the ratio increased by 30 basis points, in line with the general market trend. The main driver of this NPL increase is delinquency in the old cohorts of credit cards. To illustrate this point, we included a graph that shows the NPL of cards by cohorts. As we can see, there is a consistent improvement across cohorts, which is a result of both our choice to be more conservative and our credit underwriting improvements. Finally, we reported 1.5% NPL formation, again in line with the market trends and our past performance. To finish, on page 12, we show that our cost of risk reached 6% in the quarter. The increase, as mentioned in the prior page, is mainly associated to older cohorts of credit cards.

To give better color of this effect, we included in this slide the breakdown of the provision expense of each quarter, showing in orange how much was due to the originations of that same quarter versus how much was from portfolio built in prior quarters. This intends to show that the increase in provisioning is explained by the older cohorts. Once these delinquent credits from older cohorts pass the 360 day mark, they are written off, and the ratio of NPLs and cost of risk should improve. Finally, on coverage ratio, we kept the ratio constant at 130% by provisioning in line with the NPL formation trend. Now I'll pass the word to Santiago, who will cover the funding and transactional platform sections.

Santiago Stel (Chief Strategy and Investor Relations Officer)

Thank you, Alexandre. On page 13, you can see the evolution of our funding base, one of the key competitive advantages of our platform. Our deposits grew 33% year-over-year, reaching BRL 30.8 billion. When we compare this figure to our loan balance described by Alexandre, you can see that our loans to deposit ratio remains very healthy, significantly below 100%. Interesting to note that this quarter we materially increased our market share in demand deposits, growing to 3.58% and now rank as the 6th largest Brazilian bank by this metric. Another point to highlight again is our deposit base is highly fragmented, with more than 12 million clients trusting us with our deposits.

Moving to page 15, we are glad to say that on funding costs we continue delivering strong performance, with a cost of funding among the very best in the industry. We recorded a 65% funding cost as percentage of CDI, even with seasonality of demand deposits being adverse in the quarter. As we continue gaining share of demand deposits and improve our activation further, we believe we will be able to maintain this strong competitive advantage. Now let me walk you through the main topics of our transactional platform on page 17. As João mentioned, we reported our highest level of net new active clients on record by adding 1 million this quarter.

This came combined with a low level of total new clients at 1.6 million, which shows that our conversion ratio to active clients improved significantly to 59% from 38% a year ago. You can see also on the left side graph, the activation rate showed as relative to the prior quarter and reversing the prior trend. This dynamic is the result of our effort to build new activation opportunities as the clients navigate in our Super App. To name an example, we deployed our personalized version of our Super App, together with other material improvements in our onboarding and UX/UI processes. We are fully focused on adding high quality client base, we continue to optimize our CAC, which decreased to below BRL 30 this quarter.

All this together shows the profitability profile of our CAC investment increased meaningfully as a result of better use of data with stronger understanding of our customer's behavior and customer preferences. On page 18, in terms of volume transacted in debit and credit cards, as well as Pix, we reached BRL 181 billion, which demonstrates our strong position in banking. As a result of better quality clients acquisition and improvement of activation and engagement campaigns, looking at transaction volume by cohort, we can see newest cohorts reaching higher levels at a faster pace than the older ones. Moving to page 19. With our clients transacting more than BRL 180 billion per quarter in their daily banking activities, we see a higher propensity to adopt our broader transactional platform. On Inter Shop, we reached 2.5 million clients transacting during the quarter.

Our momentum in our e-commerce allowed us to continue growing our net take rate, which now stands at 6.5%, our highest level ever. Inter Insurance, a similar pattern is seen as we improved our upselling and cross-selling initiatives and reached 1.3 million insured clients. Finally, on Inter Invest, we also had strong adoption, reaching 3.3 million clients and a record level of AUC of BRL 68 billion. As mentioned in the past, all these products are high ROE, given that they consume no capital. Page 20, you can see our newest initiative, Inter Global, which has been performing at a much higher pace than we anticipated. Starting by the number of clients, we are nearly at 1.5 million, having just started a year ago.

These are clients with an account and a routing number in the U.S., meaning real banking clients. When we compare this to other neobanks in the U.S., we rank twelfth in this category. These clients trust and transact in our global platform. As a consequence, we have more than $140 million in deposits plus investments. To conclude here, the best of this is that we're increasingly replicating our Brazil offering into the U.S. with minimal investments by leveraging our existing platform and learning curve. Now I'll pass the mic to Helena, who will cover the financial performance section.

Helena Caldeira (CFO)

Thank you, Santiago. Hello, everyone. Starting with our financial performance on page 22, I would like to highlight our revenue growth. We recorded BRL 1.8 billion of gross revenues in the quarter, which is a run rate level of BRL 7.2 billion. Percentage-wise, it means a 40% growth year-over-year or 23% growth on a net of funding cost basis. This dynamic has been led mainly by the ongoing repricing of our portfolio, as mentioned earlier by Alexandre. On page 23, we can see that the ARPAC on a cohort basis continues to increase over time, with newer cohorts outperforming older cohorts. This reflects our improvements in engagement and cross-sell initiatives, leading to higher monetization. Jumping to page 24, we discuss the evolution of our interest margins and see the effect of our repricing strategy moving forward.

Starting on the left side, we see our NIM 1.0. It considers all portfolio, including cards receivables that do not accrue interest, also known as the à vista balance in Brazil. On a quarter-on-quarter basis, our NIM 1.0 improved 20 basis points. On the left side, we show our NIM 2.0, which considers only the interest earning portfolio. In this metric, we saw a 30 basis points increase compared to the prior quarter and a 70 basis points increase compared to a year ago. It is worth noting that the growth in funding was skewed towards most expensive deposits this quarter. Delivering this NIM increase in such context is a testament of the strong ongoing repricing exercise that we are thoroughly executing. Flipping to page 25, in the expense side, we report what we believe is a very strong progress.

Our expenses decreased 13% compared to the prior quarter, showing a nominal decrease in most significant lines. In particular, personal expenses decreased by 17%, despite having the impact of the annual increase in the fourth quarter, known as dissídio in Portuguese. The other lines remained under control, reflecting the strong focus on expense management to deliver the best to our customers in a cost-efficient manner. Going to page 26, the improvements can be seen in our operational leverage. The evolution of our ratio of active clients per employee is in a positive trend and has even accelerated further this year. We went from a ratio of 2,600 active client per employee a year ago to 3,500 active clients per employee in the first quarter. As a result, we have lowered the Cost to Serve, which now stands at 13.8.

Finally, I'd like to highlight the impressive improvement in our Efficiency Ratio. This is a result of our repricing strategy and cost control initiative. We reached 62% in this metric, an improvement of nine percentage points. This is a strong sign of our commitment towards our five-year business plan presented in the last Investor Day and also as highlighted by João. Moving to page 27. We recorded a 23% CET1 ratio in the quarter, with the lowest level of capital consumption since our IPO. Additionally, if we consider the impact that we expect from the new Basel rules taking effect in July of this year, our CET1 ratio on a pro forma basis would increase by an additional 150 basis points.

Finally, if we put in context our capital, which is fully comprised of top quality core equity without any hybrid capital instruments, we see that it is twice as higher as the medium of the five incumbent banks in Brazil. On page 28, I will walk you through our profitability profile. Net income continues trending positively, reaching BRL 24 million. On a pre-tax basis, we ended the quarter with BRL 6 million income. Our ROE-driven underwriting, our efficient funding at scale, and our obsession on operational excellence are the foundations to this improvement, which is just getting started. I'll pass the word back to João for his closing remarks.

João Vitor Menin (CEO)

Thank you, Helena. Closing on page 30, I would just conclude by saying that, as we mentioned previously, we are harvesting the results of our solid foundations. Across metrics, I see very encouraging improvements on market share, client activation, operational leverage, NIMs, and bottom line, with the best yet to come. Last but not least, I would like to thank our amazing team that is motivated, engaged, and excited to continue with us on this journey. Many thanks to all for hearing our earnings call. Operator, we can open it up for questions. Thank you very much.

Operator (participant)

We will now begin the question and answer session live. At this point, a request to activate your microphone will appear on your screen. If you prefer not to open your microphone live, please write, "No microphone," at the end of your question, and our operator will read your question out loud. Our first question comes from Mr. Thiago Batista from UBS. Sir, we're now opening the audio so you can ask your question live. Please go ahead.

Thiago Batista (Executive Director and Head of Br Research)

Hi, guys. Good afternoon. I have two questions. The first one on the FGTS loans. Your loan book already achieved about BRL 1 billion in this segment or 4% of the bank's loans in just a couple of quarters. Can you share with us the strategy of Inter in terms of distribution pricing to achieve this level of loan portfolio with these FGTS? The second one about the gross ARPAC. Gross ARPAC has been relatively stable in the last quarters, around BRL 45-BRL 47 per month. Do you believe that Inter has achieved already the cap of this ARPAC, or we can see an expansion going forward?

João Vitor Menin (CEO)

Thiago, João Vitor speaking. Thank you for the question. I'm gonna cover the section related to the FGTS and then Sant to cover the other part of the question. Sorry. FGTS, just to highlight that, I really love this product. It has a very good ROE for our business.

It also have a very good debt service for our clients. Why were we able to achieve that impressive number in just a couple of quarters? I would say that first of all, we have a very good fit among our clients for this product. We have many young clients here, people that really have a job, they do have the outstanding balance at FGTS. This is the first reason why we're able to attract and underwrite a lot of that.

We spent some time to have the best design, the best UX/UI for our clients to, through our app, engage, hire the product, and get the funds released immediately in our checking account. We took a while to get into the market, but we did that in a very good way. As you mentioned, the results are great, and we expect to keep gaining momentum on that product going forward. Santi will cover the other part of the question.

Santiago Stel (Chief Strategy and Investor Relations Officer)

Thank you, João. Yeah, on ARPAC, we do think that it still has significant room to grow further. What happened in this quarter is that we recorded a record growth in number of active clients, which grew 8% relative to December levels, as João mentioned before. This is a consequence of the targeted marketing approach where we are trying to increase the monetization and the investment in the ARPAC that we get, specifically targeting the clients that turn active.

This combined with a quarter that had lower revenue, growth due to seasonality on the fee side, led to this ARPAC trend keeping it relatively stable. I would highlight that the growth in the active clients is probably the number one highlight that we see in the quarter. The combination of this with the flat revenue gave the ARPAC low. We think we're seeing in the second quarter this normalizing and the trend upwards coming back.

Thiago Batista (Executive Director and Head of Br Research)

Very clear. Thank you, João and Santiago.

Operator (participant)

The next question comes from Mr. Yuri Fernandes from J.P. Morgan. Mr. Fernandes, we're now opening the audio so you can ask your question live. Please go ahead, sir.

Yuri Fernandes (Executive Director and Research Analyst)

Hi, everybody. Good afternoon. I have a question regarding the cost of risk. If you can provide an outlook for the year. I think cost of risk was 6% this quarter, so where should we be? Like, where is the peak in asset quality? If I may, I guess congrats on the improved disclosure. We saw, like, some improvements on your Excel, on your release, so congrats on that. If you may, I would like to know more information about renegotiated loans and portfolio sales. If you can provide us some color how you are, I don't know, seeing renegotiated inside the company or if you did or did not sell any portfolio this quarter, that would be great. Thank you very much.

Alexandre Riccio (VP of Technology, Operations, and Finance)

Hi, Yuri. Thank you for your question. I'll start talking about the cost of risk portion and what we see going forward. To start, I'll talk about what's been building our cost of risk. The main impact on the, on the NPL formation has been due to the credit card portfolio with the main pressure coming from the 2021 cohort. You've probably seen that to make this visible, we added two pieces of information in our disclosure. One was the NPL of cards by cohort, where we see a sequential improvement on the newer cohorts. Two is the breakdown of the cost of risk from provisions that come from the new versus the old cohorts.

The conclusion there is that most of what we're seeing going through, going through the PNL now is coming from old cohorts, and it's not about first payment default. It's really about just some macro deterioration. What we saw in macro, in the macro perspective, is that, and what we see actually, is a high correlation between the Selic rate and monetary tightening with overall delinquency of the unsecured credit, given the pressure that these high rates put in the capacity of families to serve their debt. Although we do not provide guidance in general terms, our forecast for 2Q 23 is still showing some continuation of the current trend in NPLs and cost of risk. We believe that this trend will be in line with the general market. From the second half of 2023 on, we're expecting better figures for several factors.

First up, the improvement of our underwriting and collections model, the aging of the poor older cohorts, and also better mix in the new originations skewed towards existing clients over new ones. As we know the behavior, the models tend to behave better. Moving to the second part of the question, both renegotiation and asset sales are as business as usual. We did not have any sale of portfolio during the quarter. Thanks, Yuri.

Yuri Fernandes (Executive Director and Research Analyst)

No, that's great, Alexandre. Just to follow up in the first part of your answer, you mentioned 2021 cohorts, right? Credit cards are very kind of short-term, so just checking, like these are like old clients, right? You originate, those guys used to be good, but for any, I don't know, like maybe your risk appetite was higher back in 2021, you added some clients.That maybe they were good for part of the, of the history, but now they are showing some weakness, right? Like that's the mindset. Like we should continue to see worsening from those old clients because My question is, credit card is a very short-term product, right? Your portfolio should be clean very quickly, if that's the case.If you originate, like for some clients that are somewhat riskier, we may continue to see this worsening trend. Does it make sense?

Alexandre Riccio (VP of Technology, Operations, and Finance)

Yuri, it does make sense. There are a few things here that I'd like to highlight. First, in the past, we've talked about FPD, which is first payment default. What that tells us is that what's the quality of the recent underwriting. We improved in that metric by 50% or more last year on this first payment default. What that tells us is a prediction that we're gonna see their NPLs as we move forward. We've seen that as shown in the cohorts that we showed in the presentation. What we're seeing the 2021 cohort is really about another dynamic. We typically will see the maturity of a credit card cohort in 36 months.

This means that not every client that's gonna become delinquent is gonna default in the first payment or second payment or third payment. Given deteriorations in the credit scenario, you may see this happening further down the road. That's what we're seeing. The tendency is that the more the time goes by, the better the remaining clients of the cohort, and things should come to like a more stable performance in the long term. Let me know if that was clear. Thank you.

Yuri Fernandes (Executive Director and Research Analyst)

No, that was super clear. Thank you very much.

Operator (participant)

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

Tito Labarta (VP and Senior Equity Analyst)

Hi, good afternoon. Thanks for the call to get my question. The question I wrote was answered, but another question on expenses, right. You know, good job there, particularly on the cost to serve. Is there room to improve this further from here, or do you think, you know, this is a new recurring level? Just to think about how that should evolve. Just a second question in terms of your profitability and your capital, right? I mean, we saw capital not falling less than in prior quarters, but, you know, still coming down a bit. I mean, when do you think you'll be able to start generating capital? In other words, are you still confident you'll get...

I know you have the long-term ROE target of 30%. Do you think you'll be able to generate capital by the end of the year? In other words, have a level of profitability that will allow you to generate capital? When do you think you start to see that inflection where you can generate your own capital?

João Vitor Menin (CEO)

Tito Labarta, João Vitor speaking here. Regarding expenses, which by the end of the day drives down our Cost to Serve. On the personal front, which you asked us, we are improving a lot, in two angles, actually. The first one, we downsized the company. We started the year with 4,100 employees, and currently we are slightly below 3,700. This evolution happened through tactical adjustments and through not replacing people that decide to leave.

We are working to keep our expense level on this line flat throughout the year. Second, as important as this one, we want to have the proper management structure. We are working with advice of BCG on this front and expect to have it in place soon. This new structure will also help drive our personal expenses down. I'm very excited with what we have achieved so far, but we believe that more to come in the coming quarters. Okay? Now Santiago will cover the rest of the question. Thank you.

Santiago Stel (Chief Strategy and Investor Relations Officer)

On the capital side, Tito, we are excited of the trend we are seeing. We see still a very strong buffer of 2x relative to the large incumbent banks, comprise 100% of top quality CET1. In terms of organic capital creation, as we see the ROE building up, we see that we start creating our own organic capital to fund growth further. As we mentioned in January, in our Investor Day, we expect to have a fully funded business plan from a capital perspective. As the ROE builds up, combined with our LUA consumption of the loan growth, we see that this will match each other and as we continue building this organic capital.We're comfortable on this, on this front, and the sequential improvement on net income is the one that will help us fund this business plan.

Tito Labarta (VP and Senior Equity Analyst)

Okay. Thanks, João Vitor and Santiago. Maybe just one follow-up there. I mean, just in terms of, you know, when you can begin to see that inflection point. I mean, do you think you reached it at all this year? I think you had mentioned the capital around 20% by year-end. Is that still what you're thinking? Is it maybe you start to get organic capital sometime next year? Is that a fair assumption?

Santiago Stel (Chief Strategy and Investor Relations Officer)

We don't give guidance on profitability, which is the indirect question I think here. What I can say is that we expect to continue having a sequential improvement of net income. In terms of loan growth, which is the other big variable that plays out in, in capital, we started running in 20% loan growth a year, which is the 5% of the quarter annualized. We'll monitor macro conditions to see if this goes up a bit. We would like it to be a bit higher than 20, but it will be around that zip code. Expansion of net income together with this level of other LUA growth, we see a capital level that should sustain about 20% throughout the end of the year.

Tito Labarta (VP and Senior Equity Analyst)

Okay, that's clear. Thanks, Santiago.

Operator (participant)

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

Flavio Yoshida (VP of Equity Research for Latin America Financials)

Hi, good afternoon, everyone. My question is on NII trends going forward. On this quarter, we saw the loan portfolio growth decelerating, at the same time, the lower spreads lines such as real estate and payroll loans were more resilient. This suggests weaker NII going forward. On the other hand, you guys showed strong repricing efforts, which is actually driving NII up, right? My question is, what should we expect going forward, taking all this into consideration? Thanks.

Santiago Stel (Chief Strategy and Investor Relations Officer)

Thanks, Flavio, for the question. On NIM, we're truly excited with the dynamic that we're seeing. You noticed we printed the highest NIM in three quarters. We declined the size of the portfolio of the lower yielding part, which is supply chain finance and the prepayment card receivables. We had in real estate, the mix is much richer in the new originations and shifting towards home equity and IPCA inflation adjusted loans. On payroll, we are originating diligently at rates that at 1.75% monthly or more. On SMBs, we increased the rates 100-200 basis points from the new originations. As you saw at GTS, which has a monthly rate of 2.15% per month, is gaining critical mass in the overall portfolio.

All this together is playing positively. We have been recording NIM expansions of 20-30 basis points. We don't give guidance of what's going on, what should happen in the next quarters, but within the past is a pretty good indications of the trend going forward.

Flavio Yoshida (VP of Equity Research for Latin America Financials)

Okay, thanks.

Operator (participant)

Our next question comes from Ms. Neha Agarwala from HSBC. Ma'am, we're now opening the audio so you can ask your question live. Please go ahead.

Neha Agarwala (Director, FinTech specialist, and LatAm Financials Analyst)

Hi, thank you for taking my question. Actually my question was already asked. I have a clarification on the loan growth and the cost of risk balance for the year. For loan growth, should we expect, you mentioned about 20% loan growth for the year. Is that the level that we should expect for the full year, or could it be a bit higher? Also, what would be the focus segments for this year in terms of loan growth? My second question is on cost of risk. How much improvement can we expect during the year in terms of cost of risk? Would it be, I understand from your comments, it'll be more in the second half of this year versus in the first half. Thank you so much.

Alexandre Riccio (VP of Technology, Operations, and Finance)

Hi, Neha. Thank you for your question. This is Alexandre speaking. I'll start from the second piece. As you mentioned, yes, we expect to see more stability during the year and given expectations that we have from the macro scenario and also due to improved underwriting collections and the aging of the older cohorts, we might see improvements in the cost of risk front in the second half of the year. Moving to the first part of the question, which regards to the growth of the loan portfolio. As Santiago said, we ran the first quarter at about 5% growth. That's 20% annualized. He also said that it's a little bit below what we expected, but it's a good position to be in the tough macro that we saw in the first quarter.

We saw very busy movements happening with Americanas and other corporate events happening that made the market tense. As we observe this tension fading away, we may see a more aggressive growth towards the volumes that we've discussed during our Investor Day earlier this year, towards the 40% level or something like that. Thank you.

Neha Agarwala (Director, FinTech specialist, and LatAm Financials Analyst)

Perfect. Can I ask one more question in terms of your costs? You've shown good performance in terms of increasing efficiency, reducing your cost of cost to income. What other levers do you have? I mean, are there any other low-hanging fruits that can help you further drive down the cost to income ratio? What is the plan for the cost of income to be by the end of this year? Thank you so much.

João Vitor Menin (CEO)

Neha, João Vitor speaking. Yes, we do have also another initiatives on that front. You're right, I would call them low-hanging fruits. We have some big contracts that we're trying to renegotiate, which will help us drive our Cost to Serve down. Mainly, MasterCard, AWS, Salesforce, call centers and so on. We're working hard on that front. Also on personnel, we still have more room to improve, as I mentioned before. All of that combined with improving on the NIMs and repricing should help us on profitability. I'm convinced that we can reduce the Cost to Serve even further. We do have objective of having more active clients per employee, so we're really looking for this metric.Having said that, I believe that we will improve a lot on that metric, but we don't give a guidance for that. Okay? Thank you for your question.

Neha Agarwala (Director, FinTech specialist, and LatAm Financials Analyst)

Thank you so much. Very helpful.

Operator (participant)

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

Eduardo Rosman (Financial Institutions Analyst)

Hi, everyone. Congrats on the quarter. We like to see the improvement in efficiency and also the performance, you know, coming from capital. I have a quick follow-up on Tito's question, right? Given the repricing efforts, right? The better cost control and the fact that interest rates probably have peaked, do you think it's fair to say that from now on we should expect, you know, growing results on a profit before taxes basis? I understand that visibility on recent results was still a little bit low, but you think it's fair to say that the visibility on what to expect for the coming quarters improved? I'm just trying to understand here the five-year view, and I think we all agree here that profitability will improve.

I think investors have been, kind of a, have been having a hard time to forecast the next 12 months. If we are able to understand if the trends are now, let's say, on a clear way, or if the trends are of improvement in results, I think it would be great if you can share that with us. Thanks.

João Vitor Menin (CEO)

Rosman, João Vitor here. Yes, you're right. As I mentioned on the beginning of the presentation, I would say that the previous five year of Inter were building our foundation with a lot of cost up front, bringing the team, building the platform, putting all the features. We're doing our IPOs, follow-ons and everything. From now on, as I highlighted, we're taking a more cautious approach on pricing, on using the capital in a good way, growing in a, I would say, in a better manner, looking for engagement, trying to optimize the fixed cost for the business, G&A, personal and everything. The point I'm trying to make here is that we're really focused on this new, I would say, new...

Not the new environment, but the new momentum for the company. We call this the next five years. With that said, I'm sure that we'll keep improving our profitability, taking a more cautious approach on our equity, having a better pricing, a better cost control. When you combine all of it, Rosman, pretty much we'll keep improving quarter over quarter our ROE, our profitability. We're very focused, very committed to that, to that metric. We have the team, and when I say the team, I'm talking about almost everyone here at Inter looking for that. When you have everyone pursuing the same goal, your chance to get there is way higher. I'm very excited and very, very convinced that we'll get there. Improving our ROE quarter-over-quarter and get to a very good number on that metric soon. Thank you.

Eduardo Rosman (Financial Institutions Analyst)

Thanks a lot, João.

Operator (participant)

This concludes our question and answer session. I turn the floor back to over to Mr. João Vitor Menin for his closing remarks.

João Vitor Menin (CEO)

Thank you, operator. I'd like to thank you everyone for participating in our earnings call. Again, I would like to thank all the team here at Inter that's working hard every day to keep improving the business. Hope to see you soon in another three months. Thank you very much. Bye-bye.

Operator (participant)

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