Inter's Q3 2025: Contradictions Emerge on Private Payroll Product Performance, Asset Quality, and Growth Impact

Date of Call: None provided

Financials Results

• Revenue: BRL 2.1 billion, up 29% YOY and 8% sequentially

Guidance:

• Timing to achieve 30% ROE depends on macro rates (SELIC) and could be by end-2027 or into 2028.
• Cost of risk expected to stabilize around ~5.5% as the private payroll portfolio matures.
• Risk-adjusted NIM expected to continue expanding over the next four quarters driven by repricing, mix, and investment yields.
• Central bank’s Duplicatas Escriturais (factoring clearing house) launching early next year should accelerate SME lending.
• Private payroll is already profitable and will be scaled further as delinquency converges to high-single-digits.

Business Commentary:

• Client Growth and Engagement:
• Inter & Co added 4 million new clients in the third quarter, with 2 million being active, achieving a 58% activation rate.
• The growth was driven by improvements in the onboarding funnel, efficient client activation journey, and high client engagement with more than 20 million daily logins, processing over 850 million financial transactions in a single month.

• Loan Portfolio and Credit Card Performance:
• The loan book grew 30% year-on-year, with private payroll loans reaching a BRL 1.3 billion portfolio.

• The company reshaped the credit card portfolio, increasing interest-earning clients to 23%, leading to a record BRL 15 billion in credit card volume, up 20% year-on-year.

• Profitability and Risk Management:

• Inter & Co reported a 14.2% ROE and a record net income of BRL 336 million.

• Profitability improvements were driven by financial discipline, investment in innovation, and digital distribution, despite a higher cost of risk (5.35% this quarter) largely due to new private payroll loans.

• Funding and Investment Growth:

• The total funding franchise grew 35% year-on-year, reaching BRL 68 billion, with transactional deposits increasing by BRL 1.3 billion or 7%.
• The growth was driven by higher SELIC rates, success of fixed-income investments, and a strong client base, maintaining a competitive cost of funding at 68.2% of CDI.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted strong growth (2 million net new clients), record net revenue BRL 2.1bn (up 29% YOY), record net income BRL 336mn and 14.2% ROE, best-ever gross margin per active client BRL 20.2, and reiterated continued NIM expansion and profitable private payroll product (ROE north of 30%).

Q&A:

• Question from Tito Labarto (Unknown): You previously gave the 60-30-30 targets; given current trends (NIM expansion, loan growth, efficiency improvements, ROE ~14%), what needs to change to reach 30% ROE in the next two years? Will investment rollout/subsidies subside or pay off? And is the biggest headwind macro rates (SELIC)?
  Response: Biggest headwind is Brazil's high SELIC; execution is on track but timing to reach 30% ROE depends on rate normalization—possible by end-2027 or in 2028—while growth levers (private payroll, SME clearing house, onboarding) remain in place.

• Question from Gustavo Schroden (Unknown): The quarter showed higher cost of risk linked to private payroll while NPLs remain controlled—should we expect this higher cost of risk to persist? And what is current profitability of the private payroll product and room for improvement?
  Response: Cost of risk rose upfront due to ECL provisioning for the new private payroll portfolio and should stabilize near ~5.5% as the book seasons; private payroll already converges to high-single-digit delinquency and is delivering ROE well above 30%.

• Question from Mario Pierre (Unknown): On NIM expansion—have you realized full benefit of prior repricing and how should margins behave going forward given mix shifts (e.g., private payroll vs credit cards)? Also, why are you growing loans ~30% when incumbents de-risk—how sustainable versus competition?
  Response: NIM expansion will continue (repricing, mix shift, investment yield) with further room over the next four quarters; loan growth is sustainable due to Inter’s digital distribution, product mix skewed to secured lending and low market share runway, enabling continued share gains.

• Question from Pedro Leduc (Unknown): Credit cards moved from breakeven to positive this quarter—what actions drove this; what profitability are you seeing; will you materially increase penetration of cards in your client base or grow cautiously?
  Response: Reshaping the card portfolio (higher interest-earning mix from ~20% to >23%), improved underwriting and collections drove profitability; cards are profitable and will be expanded cautiously (target ~25–26% interest-earning share) rather than aggressively.

• Question from Yuri Fernandes (Unknown): Stage 2 balances rose sharply QoQ—what drove the increase? And with stage 3 formation roughly stable, what are the product-level drivers (personal loans, credit cards)?
  Response: The quarter-over-quarter rise in stage 2 (and the marginal stage 3 increase) is driven mainly by the nascent private payroll portfolio as it seasons; levels are in line with expected-loss models and should normalize toward higher 90-day delinquencies as the book ages.

• Question from Marcelo Mizrai (Unknown): Fee income growth decelerated—what caused the slowdown and how will you reaccelerate fees given investments in insurance and international accounts?
  Response: Two one-offs (~BRL 30m) depressed fee growth; underlying fee drivers (TPV/credit card fees, FX, Intershop) remain healthy and management expects fee growth roughly in the ~20% range as these verticals scale.

• Question from Neha Agarwala (Unknown): Given the one-offs, is ~20% fee growth a fair expectation going forward? And has competition intensified for private payroll as the product proves viable?
  Response: Yes—~20% fee growth is a reasonable expectation; private payroll shows strong unit economics and scale potential, with no material competitive pressure observed yet while market TAM remains large.

Contradiction Point 1

Private Payroll Product Performance

It involves differing views on the performance of the private payroll product, particularly in terms of risk and expected returns, which can impact investor perceptions and strategic decision-making.

Is the increased risk cost this quarter from private payroll loans a new benchmark, or will the coverage ratio increase be sufficient for future quarters? - Gustavo Schroden

2025Q3: The cost of risk increases as new portfolios are built, followed by a stabilization phase after those portfolios mature. The NPL should increase in the next quarters, but the cost of risk is expected to stabilize. - João Vitor Menin(CEO)

Can you update us on the private payroll product and discuss how Inter's UX and hyper-personalization features drive client success? - Eduardo Rosman (JPMorgan)

2025Q2: The delinquency has been better than expected, suggesting an ROE beyond 30%. - Alexandre De Oliveira(CEO, Brazil)

Contradiction Point 2

Asset Quality and Risk Management

It reflects differing perspectives on asset quality trends and risk management strategies, which are crucial for understanding the bank's financial health and risk appetite.

Is the increased risk cost from private payroll loans in the recent quarter a new level, or will the increased coverage ratio be sufficient for future quarters? - Gustavo Schroden

2025Q3: The strategy is to navigate asset quality cycles through diversified loan portfolios and sustainable borrowing costs for clients. Asset quality has shown improvement, with 15- to 90-day NPL at a record low. - Santiago Stel(CFO)

How do you assess asset quality trends in high-risk segments and the credit quality outlook amid macroeconomic shifts? - Daer Labarta (Tito Labarta)

2025Q2: The strategy is to navigate asset quality cycles through diversified loan portfolios and sustainable borrowing costs for clients. Asset quality has shown improvement, with 15- to 90-day NPL at a record low. - Santiago Stel(CFO)

Contradiction Point 3

Private Payroll Product Growth and Impact

It involves expectations regarding the growth and impact of the private payroll product, which could have significant implications for company revenue and market positioning.

What will drive ROE to reach the 30% target over the next two years, with current NIM, loan growth, and efficiency gains? - Tito Labarto (Goldman Sachs)

2025Q3: The private payroll loan and factoring clearing house are growth opportunities. - João Vitor Menin(CEO)

What are your initial thoughts on the private payroll product? Are there any key learnings so far? Have there been any impacts on this quarter's results, and can you share any volume data? - Pedro Leduc (Itaú BBA)

2025Q1: We're very excited with the private payroll product, which aligns with our Inter by design strategy. Initially, we could grow faster, but we're taking our time to understand the nuances. - João Vitor Menin(CEO)

Contradiction Point 4

Asset Quality and Risk Management

It reflects differing perspectives on asset quality trends and risk management strategies, which are crucial for understanding the bank's financial health and risk appetite.

Have we fully realized the benefits of portfolio repricing on net interest margin expansion, and is margin stability expected? - Mario Pierre

2025Q3: The NIM expansion is driven by repricing, better mix, and investment yield. Some repricing potential remains, especially in payroll loans. The balance is shifting towards lower credit card rates, but there are still opportunities for improvement. The trend of NIM expansion is expected to continue in the next four quarters. - João Vitor Menin(CEO)

Can you maintain ~30% loan book growth in 2025? Will NIM hold up in a rising rate environment? - Mario Pierry (Bank of America)

2024Q4: Mario, thank you for the question. We are disciplined in deploying capital for strong ROEs. We've hedged loans with over a year's duration, which marginally turns CDI movements to positive in a rising rate environment. The mix of higher ROE products like FGTS, home equity, and newer consumer finance lines adds to NIM growth. We expect a continued trend of 20 bps quarterly increase in NIM. - Santiago Stel(CFO)