Inter & Co - Earnings Call - Q3 2025

Transcript

Operator (participant)

Hello everyone, I'm Rafa Vitória, IR Officer, at Inter, and I would like to welcome all to Inter & Co's Third Quarter 2025 Earnings Conference Call. First of all, some instructions. 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. 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. 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 Riccio, Brazil CEO, and Santiago Stel, Senior Vice President and CFO. Throughout this conference call, we'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. Reconciliations 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 guarantees of future performance. 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. We'll then open the call for questions. I will now turn the call over to João. João, please go ahead.

João Vitor Menin (Global CEO)

Thank you, Rafa. Hello everyone. I'm excited to share that we have accomplished yet another remarkable quarter of growth while continuing to build Inter, for the future. This year is a very special one for us. It marks the 10-year anniversary, of the launch of Brazil's, first digital account. It's a moment of pride and reflection as we look back to 2015, and remember the challenges we overcame to get where we are today. What makes us even prouder is that we have never lost our essence, creating value, for every single stakeholder, and truly walking the talk of transforming Brazil's, financial system into a better, more inclusive environment. For our clients, our no-hidden fees approach, and more importantly, our sustainable credit products offer an inclusive and accessible way to meet their financial needs. This has led us to come from zero to 41 million, clients in this amazing journey.

For regulators, being the pioneer, launched the first digital bank back in 2015, we act as a partner of a better financial system, one that is efficient, transparent, and client-focused. For our holders, the disciplined execution of our Sixth, 3030 plan, allows us to deliver an attractive balance of profitability and growth, ensuring long-term value, as shown in our path of growing our ROE. For our employees, Inter, remains an exciting, dynamic work environment where our people are empowered to innovate, grow, and contribute to meaningful change every day. As we celebrate a decade of innovation, we remain true to our disruptive spirit. Inter is built for the future, and I believe that our next decade will be even more exciting than this one. As we celebrate our 10-year anniversary, I'm sure that our mission statement was the secret sauce that made it possible.

Our mission statement, is crystal clear: to create a world, where interactions between people generate more value. This mission captures what drives us every day. We create products, services, and solutions that simplify lives, empower people, and build stronger connections. Whether through innovation, flawless execution, or a customer-first approach, every interaction brings meaningful value. Our mission, is deeply rooted in our culture, which is built on four core pillars. First, is customer centricity, always prioritizing our clients' needs and delivering great experiences. Second, we lead through innovation. We are always looking ahead to anticipate our clients' needs. Third, our operational excellence. This means we aim on flawless execution for everything we do at Inter, and fourth, our winning mentality, by delivering the extra mile and achieving great results together as a team. By living these pillars every day, we are setting the foundation to make our mission a reality.

With these pillars as our foundation, my focus for the next steps is clear: keep innovation alive within the company by leveraging AI, hyper-personalization, and introducing new features to our app. Today, we already have 380 AI initiatives, live at Inter. For perspective, during our 2024 Tech Day, we had just 80. Second, driving our global expansion, enhancing our global account with new products and exploring opportunities in new markets to strengthen our international footprint. Three, investing in our talent team, by developing our executives, bringing market experts, and continuously nurturing the cultural pillars that make Inter unique. I'm tremendously proud of what we are building and the ability we have to create meaningful value, for every client we serve. With that in place, I will pass to Shandi and Santi, who will present our operational and financial performance. Shandi, please go ahead.

Alexandre Riccio (Brazil CEO)

Thank you, João. Hello, everyone. Guided by our core pillars, we are on track for another outstanding year of execution. We're the fastest-growing large financial institution in Brazil, among those with over 20 million clients, pursuing what we believe is our market fair share. Our Net Promoter Score, remains at the excellence zone at 85 points. These results come from clients who use our platform at a high frequency. In September, we saw more than 20 million, daily logins. That's 14,000 per minute. On average, we process 20,000 financial transactions per minute, totaling over 850 million, in a single month. This level of engagement, shows how well our platform works and proves the value created by the synergy between our seven verticals. In the third quarter, we set a new record performance in new active clients and accounts opened.

We welcomed 2 million new clients, our highest number ever, beating the second quarter, of 2022. This reinforced clients' view of Inter, strong value proposition. Our focus on quality remains strong. Of these new clients, 1.2 million, were active, bringing our overall activation rate to 58%. I'd like to stress three aspects, that make us confident with the future. First, we have improved cost onboarding dynamics, and that's seen throughout the onboarding funnel. Several improvements are helping us increase the number of new accounts. Second, we have been running an efficient client early activation journey, and that explains why we can consistently increase our activation rate. Finally, the sum of these two points is resulting in a fast payback of around two months after clients onboard. This engagement translates into high transaction volumes.

Our active clients transacted over BRL 412 billion, in our platform, a year-over-year growth of around 30%. A large part of this volume comes from Pix, which is a strong indicator of clients using Inter, as a primary bank. Moving to our credit cards, volume reached a new record, surpassing BRL 15 billion, for the first time. This represents a 20% growth, on a yearly basis. This growth in TPV levels, is consistent across all cohorts, but our newer clients present impressive results, transacting more and faster than older ones. Moving to our credit vertical, I have three key highlights. First, we continue disciplined in our strategy of high growth, respecting ROE targets, and a balanced ratio, of secured to unsecured loans. Roughly two-thirds, of our portfolio is secured; one-third, of our portfolio is unsecured.

Second, private payroll loans,, have been the main highlight of the year, and we keep a very positive view on the product. We reached a BRL 1.3 billion portfolio with over 300,000 clients. This shows the strength of our digital distribution and our ability to scale a new product quickly. We are also seeing operational improvements coming from DataPrev, and companies' HRs, which increases product quality and our confidence with the delinquency levels that we are going to see long-term. We also expect clients from the FGTS loan products, to migrate to this product, given the similar profile and the new regulatory changes that came in the last few months. Third, two quarters ago, I introduced the concept of reshaping our credit card portfolio, as a key focus for the year. We are making good progress in moving clients from being pure transactors to our interest-earning portfolio.

IEPs, now represent over 23%, of our credit card portfolio, up from 20%, last year. This is happening through key initiatives like Pix Financing, monthly limit reassessments, and new installment plan offerings. Santi, will provide more details on our strong loan book performance. Talking about market shares, consistency, is the name of the game. We have always used our market share in Pix, as an internal benchmark. Our goal was for other products to reach that same level of success. This quarter, I'm proud to announce that two, of our key products have surpassed that goal. First, home equity for individuals. Thanks to the amazing work of our credit and distribution teams, we're now the second-largest underwriter of the product in Brazil. We have reached 8.9%, market share in portfolio balance. Second, FX transaction.

The success here is driven by the high engagement in our global account and the amazing UX, of this product. We have reached 8.4%, of the market transactions. I have highlighted two products, but this progress is visible across all of our businesses with consistent growth quarter after quarter. I am confident, we will keep strengthening our position in the market and that more and more products will surpass the Pix benchmark. To finish, I want to emphasize how these outstanding results are powered by our seven verticals, and our commitment to continuous innovation. Each vertical, contributes to our growth, working seamlessly, and interconnected to enhance client value and compound our profitability. This ecosystem, is what makes Inter, unique and drives us forward. Now, I'll pass the word to Santi, who will walk us through our financial performance.

Santiago Stel (CFO)

Thank you, Shande, and good morning, everyone. Moving to our loan portfolio, we delivered another quarter, of strong results. Our loan book grew 30%, year-on-year, with quarterly growth accelerating to 9% or 36%, on an annualized basis. Within collateralized loans, we achieved an impressive growth led by private payroll loans. In credit cards, the reshaping strategy mentioned by Shande, together with our continuously improving underwriting and collection processes, gives us confidence to continue growing at a pace of around 30%, year-on-year. Looking at SMBs, we have been prioritizing profitability over loan growth, though we see a great potential to accelerate growth soon with the upcoming centralized invoice discounting clearing house, known in Portuguese, as Duplicatas Escriturais, which is set to be launched by the central bank early next year. Once again, we outpaced the market in our key portfolios: private payroll, home equity, and credit cards.

In payroll and personal loans, we are moving quickly to capture the private payroll market opportunity, and in just six months, we built a BRL 1.3 billion, portfolio from scratch. The overall market, also considering public and other personal loans, grew 22%, while we reached a growth of 38%. In mortgages, we're differentiating our offering through digital distribution, and we have been able to grow at 37%, on an annual comparison, reaching a BRL 9 billion, portfolio. In home equity, we're the number two player in originations, growing 33%, year-on-year, significantly outpacing the market growth of 21%. In credit cards, we reached 30%, growth while maintaining our conservative approach to risk underwriting. As Shande mentioned, we're also successfully reshaping this portfolio to further improve its profitability. Moving to asset quality, our metrics show strong performance this quarter.

The 15 to 90-day, NPL ratio, stayed stable at 4.1%, while the 90-day, past due metric improved 10 basis points, decreasing from 4.6% to 4.5%. The credit card NPLs, when analyzed across cohorts, continue to show strong performance, validating the improvement made in our underwriting and collection models. Finally, NPL, formation and stage three formation stood at 1.65% and 1.46%, respectively, in line with historical trends. Here, we see the evolution of our cost of risk, which reached 5.35%, this quarter. The main driver of the recent increase is the new private payroll portfolio, which requires upfront provisioning. The coverage ratio, shows the increase associated with those provisions.

On the right-hand side, we show an illustrative chart, of the return profile of the new portfolio, in which we have been investing throughout this year as we build the portfolio and now passed the break-even point, and from now on, we expect high profitability. Our funding franchise, had another great quarter, growing 35%, year-on-year, reaching BRL 68 billion. This growth was primarily led by time deposits driven by the higher SELIC rate, and the success of My Piggy Bank, our product that makes fixed income investing, easy for our clients. Our transactional deposits, which are a core competitive advantage of our platform, also had a strong quarter, growing BRL 1.3 billion, or 7%, this quarter.

Lastly, on this page, our active clients surpassed for the first time ever an average of BRL 2,000 in deposits, which is a great milestone that shows how our clients trust our platform with their deposits. This strong funding franchise translates directly into a key competitive advantage: our low cost, of funding, which this quarter reached 68.2%, of CDI. What we added this quarter is a complementary metric, which fixes the number of business days, making the comparison across quarters better. In that sense, our ratio, reached 65.1%, which was the best one so far this year. Our strong operational performance, translates directly into strong revenue growth. In that sense, our net revenue reached BRL 2.1 billion, up 29%, year-on-year and 8%, sequentially. The key driver this quarter, was our growth in our credit book, with NII, increasing 39%, in a yearly comparison.

As already mentioned, this was fueled by strong results in private payroll, credit cards, mortgages, and home equity portfolios. As Shande showed, higher client engagement is driving faster monetization across our cohort. As Shande showed, higher client engagement is driving faster monetization across cohorts. This quarter, net RPAC, reached BRL 33.2. This shows our potential as our mature clients are already generating close to BRL 90. When we combine this strong monetization with our low cost to serve of BRL 13.1, the result is our best-ever gross margin, per active client, which reached BRL 20.2. We are confident that the success of new products like private payroll, will continue to drive monetization even higher in the coming quarters. Now, let's deep dive into our net interest margins.

Both our NIM 1.0 and our NIM 2.0, which excludes the non-interest receivables, of credit cards, are consistently showing growth quarter after quarter, and achieving new record levels. As you can see in the page, we have improved our risk-adjusted NIM, by an average of 14 basis points, per quarter. In this quarter, in particular, our NIM, was positively impacted by private payroll and credit cards,, given the reshaping of this portfolio. However, we face lower inflation, which impacts our real estate portfolio, and a higher number of business days, which increases cost of funding. With all these impacts together, our NIM, continued to expand both before and after cost of risk. Lastly, we continue to optimize the use of our capital structure with our assets-to-equity ratio increasing from 7.9 times, to 9.4 times, year-on-year.

On the expense side, this quarter, allows us to have a comparable basis given the acquisition of Inter & Pac back in the third quarter, of 2024. Our strong cost control, focus allowed us to report a total expense growth, of 5%, quarter on quarter, and 16%, year-on-year. This growth is approximately half of the pace of our annual net revenue growth, showcasing the strong operational levels of our business. The quarterly growth, in personal expenses, reflects mandatory annual salary adjustments, as well as bonus linked to our growing earnings. As our business continues to expand rapidly, we remain focused on renegotiating contracts with major vendors to reduce our cost per transaction and further improve our efficiency. In terms of ratios, the result of our cost control, is an efficiency ratio, improving from 47.1% to 45.2%, this quarter.

This 190 basis points, improvement is a very significant one, which demonstrates that the operating leverage, of our digital banking model, is very promising. Finally, I'd like to highlight the progress we've made in profitability. This quarter, we reached 14.2%, ROE, and delivered a record net income of BRL 336 million, a true milestone in our journey. What makes this quarter, even more meaningful is that we maintained this profitability while investing heavily in innovation, enhancing the client experience, and improving operational excellence. These efforts lay a strong foundation as we continue positioning Inter, as a world-class financial institution. Thank you all. I'll pass it now to João, for his final remarks.

João Vitor Menin (Global CEO)

Thank you, Shand and Santi. After hearing what they shared, it's clear that our powerful ecosystem is running seamlessly, and we are exceptionally well-positioned within the evolving banking trends being shaped by the regulators in Brazil. The focus on sustainable credit, client-centric solutions, and lowering borrowing costs is perfectly aligned with the Inter, by Design concept. We are laser-focused on finishing 2025, with strong momentum, setting the stage to start 2026 energized. We are committed to keeping pushing forward, creating value for our clients, shareholders, partners, and employees. Rafa, let's now open the Q&A session. Thank you all.

Operator (participant)

We'll now open the call for the Q&A. We'll take one question and one follow-up from each participant. Our first question is from Tito Labarto. Tito, your mic is open. Please go ahead.

All right. Thanks, Rafa. Good morning. João, Santi, Shande, thank you for the call and taking my question. I guess my question is more thinking about the longer-term guidance that you've given of the 60-30-30, right? I mean, trends are looking very healthy, right? NIM, is expanding, risk-adjusted NIM expanding, loan growth is doing well, efficiency is improving, and ROE is up to 14%. Just to think about, to get to that 30%, in the next two years, what else would need to drive that? I mean, you mentioned that you're delivering this ROE, despite investing a lot in the business. Do you expect some of these investments to begin to subside or will pay off and that's going to boost the ROE? Just because looking at the trends, right? I mean, NIM, I think you've mentioned in the past should continue to expand through next year.

You're still repricing the loan book. Just help us kind of bridge from where you are today to sort of that longer-term view that you had previously given and what can drive that continued ROE improvement. Thank you.

João Vitor Menin (Global CEO)

Tito, João Vitor speaking. Thank you for the question. Let me start by saying that we are really happy with what we have achieved having this 60-30-30 plan, as a guideline for us for the past, I would say, almost three years. If you recap, we came from a 0%, ROE, back then to almost 15%, ROE, now on a running base for three quarters. This is something that highlights what we have achieved in terms of profitability. Also, on the first number of it, the 60, talking about the 6 million, clients that we want to achieve, this quarter, was the best quarter, ever in terms of client addition. Also, October, was the best month ever for the past three years. We are really doing a great job in bringing clients to our ecosystem. On efficiency ratio, also, this quarter was a very good one.

We dropped almost 200 basis points, in that. We see that we are on the right direction. About the ROE, which was your specific question, to be honest, we know that we have a tough environment in terms of SELIC, different from when we predict the 60-30-30 plan. Therefore, our credit portfolio exposure today is lower than it was supposed to be. We see very good trends ahead, such as the private payroll loan. We see coming in next year the factoring clearing house that is going to help us to grow a lot our exposure to SMEs, which we are very excited. Without that in place, it is hard for us to predict if we are going to be on the 30%, ROE, by the end of 2027, or later on.

The important thing is that the trend is good, the team is committed, and last but not least, we do have a very strong, a very positive room to grow our credit portfolio ahead. I like to say that it is good that we have been growing a 30%, ratio year over year, but we still have in most of the portfolios that we operate today, single-digit, low single-digit market share. With that in place, and maybe with the SELIC, going now, we can grow faster on the credit portfolio that will help us to get to the 30%, ROE, by end of 2027 or, I do not know, somewhere on 2028. Very committed, excited, and I believe that the platform is well-term for us to keep achieving the 60-30-30.

No, very helpful, João Vitor. Thank you for that. I guess maybe just to ask it a slightly different way, but maybe to paraphrase a little bit what you said, would the biggest headwind you think be more macro? Just given that rates, as you mentioned, are 15%, is that the biggest headwind to be able to achieve that 30%? Because execution-wise, I mean, you seem to be doing everything that you've said, right? Just what the biggest risk to achieving that could be?

Yes, Tito. I would say that as of today, the biggest headwind is the SELIC. Therefore, for instance, the payroll segment grows slower, the margin, everything grows slower. As you mentioned, everything that is on our hands, we're doing well. I mean, we're bringing deposits, we're improving the asset side, we're improving the efficiency by being more diligent on the expense, trying to use AI to optimize how we run the machine. That's it. I see that as of today, our biggest headwind is the interest rate in Brazil.

No, very clear.

It's a right assumption.

Okay, great. Thank you very much, João Vitor, and congrats on the results.

Operator (participant)

Our next question is from Gustavo Schroden. Gustavo, please go ahead.

Hi, can you hear me?

Yes.

Okay. Good afternoon and thanks for the call and congrats on the high-quality results. My question is specifically about this higher cost, of risk that we saw in the quarter. You mentioned that it is related to private payroll loans, while we saw the NPLs, totally under control. My question is, is this a new level of a cost of risk that we should work with for the coming quarters or is the increase in coverage ratio, that you did in this quarter, enough for the coming quarters? Thank you.

João Vitor Menin (Global CEO)

Good morning, Gustavo. Thank you for the question. Yes, so what happens in the sequence of factors as we build a new portfolio, cost of risk picks up first since we have the expected credit loss model, and we have to provision upfront. Then as the quarters go by, the delinquency starts passing the 90-day mark, and then the NPL, follows. We have not seen that NPL increase, yet or it was very minimal yet given the life of the book is close to six months now by now. The majority of that was built on the second part of those six months, meaning on this last third quarter. The NPL, should start to catch up a bit and the cost of risk will likely stabilize very close to the current level of around 5.5%.

As we mentioned many times, we're working to maximize risk-adjusted NIM, not to minimize cost of risk. That's the variable we aim for in a sustainable way, as we call in the Inter by Design, by providing our clients with products that actually are good for them and tends to lower their cost of or borrowing cost, relative to alternative products that they have in the market. We think we're driving the outcome there in the proper way. The coverage ratio, also anticipates in that way together with the cost of risk. Stage three and NPLs, are the ones that follow later. We should see that going up a bit in the next quarters, without increasing further the cost of risk to the level that we have reported this quarter.

Great, Santi. A follow-up on this private payroll loan, because even with this higher cost of risk that you mentioned in the product, we showed a nice slide, a nice chart demonstrating that the product has reached the break-even, in its second quarter, and now it is at a positive territory, right? My question is, could you share with us what is the level of profitability, you are delivering in this product and if there is further room to improve the profitability, in the private payroll loan? Thank you.

Santiago Stel (CFO)

It's super high. By now, we are starting to see the cost of risk or delinquency level, converge towards the high single-digit level. In the prior cohorts, the first few months was higher. As the months go by and the system starts working as it was designed originally, the cost of risk hits the high single digit. With the high single digit, this is significantly higher than 30%, ROE. What we think will likely happen is that the interest rate, on the asset side, will probably go down as more competition comes in. For now, we're seeing it in the high 3%, per month. With that level of interest rate, the ROE, as I mentioned, is highly above the 30%, mark. It's the highest ROE product, we have in the portfolio. Nicely, it's BRL 1.3 billion, and counting in the loan book.

It starts moving the NIM, in the right direction. As I mentioned in the prior question, it is a product that the clients have available to go away from more expensive alternatives. This one is one that they can use their income, to finance their daily needs, or their financing needs in a much better way, which is what we call the Inter by Design. It is a really win-win product. Hats off to the regulators in having it designed this way. We think that the TAM, is really significant. It should be multiple times more than the public payroll, TAM, given that you have three times more employees in the private sector than in the public sector. We will see how much it continues to grow in the future. So far, we are very pleased with the results.

Okay, great. Thank you. And congrats on the execution.

Operator (participant)

Our next question is from Mario Pierre. Mario, please go ahead.

Hi, guys. Good morning. Congrats on the quarter. Let me ask you two questions. First one is on your net interest margin expansion, right? You're growing your margins 10-20 basis points, per quarter, as you had talked about at the beginning of the year, in parts that reflect some of the repricing that you had done to your portfolio in the past. So have we seen the full benefits of the repricing yet? And should we think about margins, now going forward being more stable, especially as the mix of the loan book is shifting, right? Like I would imagine, right, the rates you charge on the private payroll product, is lower than a credit card. So help us understand how you're thinking about the outlook for net interest margin. And then I'll ask my second question later.

João Vitor Menin (Global CEO)

Mario, good morning. Thank you for the question. The three drivers of NIM, expansion are, one, repricing; two, better mix; and three, investment yield going up. Those are the three drivers. On repricing, we have done a very high share of that repricing since we started this a few years ago. Surprisingly, we did more on mortgages, than on payroll, because mortgages, had higher growth than public payroll, even though it has a longer duration. On payroll, we still have a significant part of our loans, that are at rates not very far from 1%, 1.2%, per month that have some upside on repricing. There is some element. It is no longer the higher driver of NIM, expansion as it was in the early days of the 60-30-30, but there is still some potential.

I would say that around one-third of those portfolios, still have upside in terms of interest rates. The good thing is that on public payroll, which has not grown for several quarters, public payroll specifically, it has grown in the last two quarters. Therefore, that accelerates the repricing or the increase in the yield of that portfolio. In terms of better mix within the loan book, the two main drivers were FGTS, and home equity in the prior years. This year is a bit more led by private payroll, and credit cards, through the reshaping that Shande, alluded to. On the investment yield also, we have been improving in that sense. What we still have to go to make some more progress on is on optimizing capital.

We haven't done much very complicated structures yet in terms of FIDICs, or structural records to optimize the capital more than what we could. That's another lever that could be added to the list of the three that I mentioned before. When you put all that together to summarize the answer, Mario, we think that the trend of NIM, expansion still has ample room to continue to improve. We have answered this in the prior calls. At least in the next four quarters, we see a continuation in the trend of the risk-adjusted NIM, in line with what we have seen in the prior quarters.

Okay, so that's clear. Now my second question then on slide 19, right? You show that you're growing faster than the market in all of the products. What gives you confidence, right? Because when we talk to the big incumbent banks, they seem more concerned about the economic outlook. They seem like they are de-risking the loan books. While you're doing the opposite, right? You're trying to accelerate growth. Maybe this is the best time to grow, right? When the competition is slowing down, you probably can get very good clients at attractive spreads. First of all, the question is, what makes you comfortable to be growing your loan book at 30%, pace when everyone expects the economy to decelerate? How do you think you can maintain this growth, once the traditional banks, start to accelerate again? Thank you.

Alexandre Riccio (Brazil CEO)

Hi, Mario. This is Shande speaking. Thank you for your question. There is a lot here, right? I think the first thing is about what we call our right to win. We are very well positioned to grow overall and to expand in the markets we are operating. Large client base, our brand is getting stronger and stronger as we go. The products are there. These products, we derive to the next portion of why we believe we can keep growing, which is about the Inter by Design. We positioned our credit portfolio with those two-thirds in secured lending, one-third in unsecured. Within the secured lending, we are talking about Brazil's largest credit markets, which include mortgages, and also payroll loans. All these products are growing.

When we think about mortgages specifically, we see a decline in the balance of savings accounts in Brazil, with the poupança linked mortgages. This is really good for Inter. We have been originating for more than 10 years mortgages, at market-based pricing. This gives us confidence that we are going to keep on growing both mortgages and home equity as the entire market should derive to a more market-based solution that we believe is a lot more sustainable long-term. This takes care of mortgages, payroll loans, as Santi mentioned already. Having the client base, having the digital experience, and being in a market that should achieve between BRL 250 billion, and BRL 300 billion, we should keep on growing. Credit cards, another point that we have been growing fast, and we believe we can stay there. In here, we talk a lot about share of wallet.

We are occupying still a relatively small part of the share of wallet of our customers. As we improve, as we keep doing all the improvements that we have been doing in underwriting, in growth, in EUX, we will keep expanding our penetration. Having said all of this, it is a lot about continuity of good execution. Our team is getting stronger and stronger, and we will keep on it to sustain these growth levels that we have been seeing.

Very clear, Santiago. Thank you very much.

Operator (participant)

Our next question is from Pedro Leduc. Leduc, please go ahead.

Thanks, guys, for the call. Congrats on the journey so far. Question on credit cards. We've been watching it carefully. Simple math, interest minus provisions was negative, break-even. Now this quarter, positive, and sustainably positive. If you could share with us maybe what you have learned, what actions have led to this. Now at these, what look to be much more healthy ROE levels, for the product standalone, if we could expect a more meaningful penetration increase within your client base, which is still fairly underpenetrated, I would say. Just trying to see if now this product is at the economics that seems fruitful for you to roll it out a little bit more aggressively.

I'm imagining that maybe it could grow ahead of the overall loan book in 2026 again, maybe even faster than it grew this year, considering also the income tax boost that a lot of your clients are going to have. Thank you.

Alexandre Riccio (Brazil CEO)

Hi, Leduc. This is Shande speaking. Thank you for your question. Yeah, we're very positive on what's been happening in the credit card portfolio. As you know, we've been evolving on a 360 view. Both credit team getting more and more mature and models getting more and more mature, collections, same thing. The product team, very engaged on making this evolution that we saw in these last periods. This is the first to say that the ground to keep the good execution is set. We're very positive on that. When we get on the metrics and the portfolio, we go back to the reshaping that we talked also during the call. About two quarters ago, we started saying that the percentage of interest earning portfolio at Inter was asymmetrical as compared to the market. We were at only about 20%, interest earning.

The idea is to expand this. The result that we see in interest is all about the execution or the good execution of the reshaping of the portfolio. We are now at more than 23%, interest earning. As we execute, we should see this interest earning portfolio expanding. The good thing about the lessons learned in the U.S., about the lessons learned that it is important to explore, is as we increase interest earning portfolio and we want to get to, say, 25-26%, we are also helping clients. Before, we did not have the number of collection products that we have today. As we implement them, we help clients pass through moments where they need more time to pay. It is truly a win-win for the portfolio. We will keep on it to deliver this, let's say, this first goal of interest earning portfolio, at 25-26%.

Thank you.

About maybe rolling out more within your project.

João Vitor Menin (Global CEO)

Leduc, João speaking here, on that. I think that Shanji was explaining how we are more confident on underwriting more credit cards, and we're doing that. Also, on the other hand, when connecting to Mario Pierre's, question about the market being not too aggressive in credit underwriting, we always connect that type of question to Inter by Design, where we want to explore more the collateralized credit solutions, private payroll, the receivables for the SME company, that is going to roll out next year. On credit card, per se, we believe that we're growing in the right pace, to be honest. I mean, we're growing a lot, I would say. We don't want to just go all in on that product. We know that this is the product that gets more impacted when the economy is not doing well.

As we always say, we like to produce alpha, on our credit portfolio to try to get away from the beta. Even though the employment might not be doing well next year or whatever, the interest rate is too high, we do not want to get that exposure. What we are trying to do at Inter, we are building exposure to credit, as you can see, growing 30%, year over year, but doing that in a cautious way, a good balance between unsecured and secured, which is today’s one-third to two-thirds. That is how we want to keep doing ahead. I would not expect Inter, we should not expect Inter, to massively grow our exposure to credit cards going forward. I would say that we want to compound our portfolio, increase NIMs, as Santi mentioned, but without doing unforced errors.

Rafaela de Oliveira Vitória (Chief Investor Relations Officer)

Consumer finance, is a segment that we need to be cautious. That is how we're running the business for the years to come. Okay.

Operator (participant)

Our next question is from Yuri Fernandes. Yuri, please go ahead.

Thank you, Rafa. Hi, João, Shande, Santi. Also, congrats on the journey. A follow-up, and I think João, already clarified part of my questions here on stage three, end stage two. On stage two, my question is, what drove the increase quarter over quarter, on your total balance? I think last quarter, was a little bit low, or maybe it's a base. I'm not sure what happened in the second quarter, but stage two balance, they went up 28%, quarter over quarter. Just trying to understand what drove it. And regarding stage three, your new stage three formation, is mostly stable. There was a marginal increase. When we break down by products and we take a look on personal loans and credit cards, and usually we look together, right? Because sometimes refinance, they are part of personal loans and all these.

Rafaela de Oliveira Vitória (Chief Investor Relations Officer)

These two products together, they are up 20%, quarter over quarter. I think Leduc was very happy in mentioning interest income because in the end, I think you are building more provisions, but you are pricing the risk and your interest income is higher. Given we are in a moment that people are getting a little bit more concerned about asset quality in Brazil, what explained this increase in information for those two products is the private payroll within personal loans. Is there anything on credit cards? I think João, was very clear saying that he's cautious and not the time to be super aggressive on cards. I would love to understand a little bit the moving parts here on stage two and stage three. Thank you.

Santiago Stel (CFO)

Hi, Yuri, Santi here.

Starting with stage three, you're correct that on a by-product basis, it varies, but it's personal loans category, which includes private payroll, the one that led the growth. It went from 2.1% last quarter to 3.4%. The remaining ones, including credit cards, were quite stable quarter over quarter. The driver was the private payroll, and that's the main one on stage two as well. Even more pronounced on stage two, given the fact that the tenors of the stage two captures, given the life of the portfolio being a six-month-old portfolio, it's more predominant by now in stage two than stage three. Both drivers are having private payroll. We think there's going to be hitting more proportionally stage three in the coming quarters on 90-day NPL, as well, as the portfolio continues to grow in size.

No, no, thank you, Santi. Regarding the stage three, that is usually 90 days, after two as an absolute figure, the increase on private payroll, is because of operational risk. Too high, and this should be the level because I was just trying to understand because given this is a new product, stage two is fine, but I would not be expecting stage three to be a problem for this product right now.

It's within the expected losses that we had. Nothing out of the ordinary in terms of the expectation is the way we modeled it, Yuri. Differentiating operational risk from credit risk in a product that is very early stage sometimes is a bit blurry. As we mentioned, we are converging to a high single-digit delinquency level in this product. With that, the return profile is, as I mentioned in a prior question, north of 30%. It is very accurate for the results.

Alexandre Riccio (Brazil CEO)

No, no. Thank you. Thank you, Santi. Clear on your answers and congrats on pricing those losses. Thank you.

Rafaela de Oliveira Vitória (Chief Investor Relations Officer)

Thanks.

Operator (participant)

Our next question is from Marcelo Mizrai. Marcelo, please go ahead.

Santiago Stel (CFO)

Hello, everyone. Thanks for the question and congratulations for a very solid result. My question is regarding the fee business. We were seeing the last couple of quarters a deceleration, especially in this last one on the growth of the fees. Can you share a little bit your ideas and the strategy here? There are a lot of investment here in insurance and the international account. Why do you believe that the growth is slowing down and how to reaccelerate that? Thank you very much.

João Vitor Menin (Global CEO)

Marcelo, João speaking. Thank you for your question. Santi, we'll deep dive on the numbers and on the KPIs, in economics later on. Just to highlight, we have been since, I would say, the launch of our digital account, trying to put more and more service business on our platform that will get us more fees, a better fee ratio. We were running between 25% and 30%, back then. What happened is because we're growing more on credit, recently due to private payroll, mortgage, and everything that we just discussed on this call, the ratio was lower. There are some one-offs here Santi, will cover. The thing is, out of our seven verticals, five of them are focused on fees. We have FX, as we mentioned, global account. We have investments, insurance, Loyalt, our loop program, and our Intershop.

This is something that it's in our DNA, putting new products, and we'll keep doing that, increasing the addressable market for that. We don't know how our breakdown between fees and NII, will behave going forward because, again, as I mentioned, we're growing fast on NII. We see still a good opportunity for us to keep running on this 25%, range going forward. Again, I'm sure that once some of these verticals get more mature, we believe that this could be a tailwind for us. When Santi, will mention about the change between quarter over quarter, and year over year on that metrics, okay? Thank you.

Santiago Stel (CFO)

Good morning, Marcelo. Just to complement João, we had two one-offs in the fee side impacting negatively. One was we shut down IM Design, which is a company that we co-owned. It was a graphic design company acquired many, many years ago, and that had an impact of BRL 15 million, in the fee line. Another one is the 4966, impact of deferred fees associated with credit of around another BRL 15 million. Those two one-offs together would have given us BRL 30 million of additional NII to make it on an apples-to-apples basis to what we had in the same third quarter, of last year. With that, the growth would have been 7%, instead of 1%. It is a line that is growing less than NII. As we mentioned, NII, is growing consistently around 40%.

The last five quarters, we had a growth in that level. Fees, is trailing a bit behind that, but we continue to have high hopes on this being a key driver of revenue growth and profitability.

Okay, thank you.

Operator (participant)

Our next question is from Neha Agarwala. Neha, please go ahead. Neha, your mic is open.

Can you hear me?

Yes.

Okay, perfect. Sorry about that. Congratulations on the results. Just following up on the fee income discussion here. We do understand these one-offs, which led to the weakness, but would it be fair, like as João mentioned, that going forward, we could still see net fees growing in the 20% range, or is that too high?

Santiago Stel (CFO)

Kindly, Santi here. Yes, that's quite accurate. If we decompose a bit by line, the biggest component of fees is credit card, and that's highly associated with TPV growth. As Chanda showed, TPV, grew 20%. This fee line is growing quite in line with it. An interesting thing to mention is that Intershop, our e-commerce platform, has a big part of the monetization now being driven on the NII, through Buy Now Pay Later, or credit diário, how we call it in Portuguese. That's a fee driver of NII directly. FX, is performing very well. It's still a smaller line, but it's growing very, very high. All of that together, we think in the 20s, or around 20%, is a fair assumption to have, which is lower than NII, but still it's an important component of our revenue base.

Perfect. Perfect. On the private payroll, we already had a lot of discussion on that, but it seems from your comments that things have been improving. The collateral is still not fully functional. The FGTS, collateral has been delayed to next year, but it seems like things are going in the right direction. Have you seen more competition from maybe not the incumbent banks, but from other smaller players become a bit more aggressive if the product seems much more viable than it was six months ago?

Alexandre Riccio (Brazil CEO)

Hi, Neha. I'm going to talk a little bit. This is Alex speaking, and thank you for your question. Talking about the payroll loans, looking at the product as a whole, we're very happy with what we're seeing from any angle we look at. From the capacity of underwriting more, we're happy. We're growing underwriting. We're doing evolutions in our credit model and our credit policies. This has been driving increased underwriting volumes day after day. Very happy there. From a collection standpoint, we're also seeing improvements. As Santi mentioned, we should converge longer term to high single digits, which is much better than what we initially forecasted or how we initially calculated the profitability of the product. As we mentioned before, we had a scenario of up to 15%, and now we're looking at long-term high single digits, much lower, much higher ROE.

From a competitive standpoint, we do not see any concerns yet. As we mentioned also earlier, we are talking about a BRL 250 billion-BRL 300 billion, potential portfolio, that today is running close to BRL 90 billion. A lot of expansion to happen. The idea now and the idea in the upcoming quarters is to keep absorbing as much demand as we can. On an aesthetic basis, the market share is at 2.1%, but on an underwriting basis, we are executing at a much higher percentage of market share, probably getting close to the 10%, range of market share, and we will keep on it. João will follow up also on the question, Neha.

João Vitor Menin (Global CEO)

Hi, Neha. João speaking. Just more of a high-level view in terms of competition, as you asked. We see Inter, I would say, in a sweet spot in terms of competing in Brazil. We have elements that the incumbents do have, such as a massive number of clients, all the products. We do have elements that only the fintech players have, such as digital distribution, good NPS, good service. Also we have elements that the incumbent banks, they do have, and the fintechs, they do not have, which is a very good cost of funding. When we combine all of that, I really think that we are in a sweet spot between the incumbents and between the fintech players on the north of 30%, year over year. Again, we have been building this platform for many, many years to be in that position.

We started from the beginning, from the basics of a good banking approach. We started having the clients. We started doing the digital distribution. We started to bring very good deposits base. We have all that in place. I do not see competition as an issue, as I mentioned. Again, just to repeat, we are in a position to keep producing alpha, in terms of credit underwriting, and not just to follow the market, to follow the trends. Last but not least, when we think about the incumbent banks that already have a huge market share on most of the products out there, on the credit products, we still have a small market share on that products.

When we connect that to our market share on Pix, which is about 8.5%, we do see that our clients will be flowing to the credit products with us soon. We are very excited with the future ahead. We do not think that competition between the digital players will be a headwind for us going forward. Thank you.

Thank you so much, Team. A very interesting performance in terms of net adds and the deposit growth, which will help you keep maintaining that funding edge that you mentioned. Thank you so much.

Operator (participant)

With that, we concluded the Q&A session. I'll now pass it to João, for his closing remarks.

João Vitor Menin (Global CEO)

Thank you, Rafaela. Thank you, everyone, for being with us for this last hour. I would like also to thank our employees. We have a very good team working hard every day to put Inter ahead of the competition to drive us to the next chapter. Thank you for all the shareholders that have been supporting us since 2018 when we listed the company. I hope to see you soon in a few months for us to discuss the four key results. Thank you very much, and have a good day. Bye-bye.