AGI Inc (AGBK) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to AGI's Fourth Quarter and Full Year 2025 Earnings Conference Call. Today's conference call is being recorded. At this time, I would like to turn the call over to Felipe Gaspar Oliveira, Head of Investor Relations. Please go ahead.

Thank you, and good afternoon. With me today are Marciano Testa, our Founder, Chairman and CEO; and Marcello Dubeux, Chief Financial Officer. Throughout this conference call, we will be presenting non-IFRS financial information. These are important financial measures for AGI, but are not financial measures as defined by IFRS and may not be comparable to similar measures from other companies. Reconciliations of the non-IFRS to the IFRS financial information are available in the earnings press release. Unless noted otherwise, all figures are presented in Brazilian reals. I'd also like to remind everyone that today's discussion might include forward-looking statements, which are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties and could cause actual results to differ materially from our expectations. Please refer to the forward-looking statements disclosure in the earnings release. I will now hand over the call to Marciano.

Thanks, Felipe. Good afternoon, everyone. On behalf of the entire AGI team, it's my pleasure to welcome you to our first earnings call as a public company. During today's call, we will review our fourth quarter and the full year 2025 results. Our CFO, Marcello Dubeux; and our Head of Investor Relations, Felipe Gaspar, will walk you through the numbers and host a Q&A session. But first, I would like to take a few minutes to share some personal thoughts with you and provide my long-term perspective of the business and also I want to build a strong relationship with the investors community based on transparency, execution and trust. Let me share a few thoughts on Agibank. Our mission, our unique model and our vision for the future. As many of you know by now, Agibank was built to serve the largest and fastest-growing segment of the Brazil population. Over 100 million social security beneficiaries and the payroll workers, which has historically been underserved by the traditional banks. And the digital-only banks have also struggled to serve them effectively because customers in this segment still value proximity and human interaction when needed. To address this opportunity, we designed a new approach that combine a fully digital bank with a nationwide retail network of smart hubs that are low cost and more effectively than bank branches. We call this our hybrid model, and it has given us a powerful structural advantage in the Brazil payroll linked financial ecosystem. We can acquire customers and serve them in a better way at lower cost, enabling us to build strong engagement and become the primary bank of our customers. Our model allows us to scale efficiently and continue growing with the same asset-light benefits that define Agibank. This creates a powerful flywheel effect within our ecosystem. More engagement leads to more products per customer, better data, stronger risk model and improved economics across our platform. And to do this, we rely heavily on advanced technology, including a proprietary core bank system without legacy constraint that was designed to integrate with new technologies, such as artificial intelligence to automate process across our organization and underwrite new opportunities more effectively. data science to constantly collect and analysis proprietary information that we use to improve our customer experience, increase efficiency and scale our operations and software application that we use to engage with our customers in our smart hubs outside of the competitors' offices and our client mobile phones. This is not new but differentiating through technology has been a core principle of mine. We use our technology to help bridge the gap for customers who are not naturally tax savvy. Millions and perhaps billions of people outside the United States have learners over the generation not to trust banks because of the poor service and high cost and many of these people will need sometimes a little help to feel more comfortable managing the small amount of money they have digitally. That is exactly what we do. So as all of you know, this is our first earnings call. It's very important to me and for you, keep in mind the 3 principles that anchor our long-term management philosophy. First principle, we live for the customer. The core of our strategy is keeping customers deeply engaging in our hybrid platform. We help them access the benefits and payroll in a better way, help them become more comfortable using digital tools, offer them a small amount of the secured credit and then use our technology and data to offer them a growing range of financial solutions to help them across different areas of their lives. Our total addressable market continue to expand year after year in Brazil, driven by 3 factors: demographic, income and education. Based on our unique hybrid business model, we can address favorable demographic trends. On top of that, the majority of the population in Brazil is still lower middle class, and they have barriers in access to resources such as education, which is unlikely to change radically over the next decade. To help them overcome these barriers, creating a long runway for Agibank's growth. Second principle, we continuously enhance our technology. We believe that delivering the best experience in the payroll ecosystem requires constant innovation. Customer behavior evolving rapidly with a new technology and expectations continue to rise. At the same time, the regulatory environment evolves constantly, and we must always remain one step ahead. As I mentioned, technology is a core enabler of our strategy. So we will always be looking to invest and innovate in this area. Part of the capital we raised in the IPO, we will be investing in even more technology to empower our customers and make us even more efficient than we already are, enabling to provide you a strong combination of growth and profitability. The last principle but not least, we have an entrepreneurial culture focused on long-term compound returns. We believe in building a business that compounds value over many years. Whenever necessary, we will prioritize the long-term interests of the company and its shareholders over the short-term outcomes. Looking ahead, we believe that over the next 5 years, our market is going to continue to expand, enabling us to grow it. We plan to do this with discipline and evaluating new opportunities based on the potential to consistently create value for our shareholders. And finally, we are and we remain a long-term focus on company, and I am looking forward to sharing this journey with you, earning your trust and improving the lives of our customers together. I am always open to any questions or concerns through our journey together above and beyond this first earnings call. And with that, I will pass over to Marcello and Felipe, who will walk you through our performance in more details. Thank you again.

Thank you, Marciano, and good afternoon, everyone. This is Marcello, CFO of AGI. I'm pleased to report that we delivered a strong set of results for the fourth quarter and the full year 2025, which demonstrates the strength of our unique hybrid business model. In the fourth quarter and throughout 2025, we continue to execute against our core strategic priorities, growing our client base in Brazil with a focus on multiproduct relationships, expanding our market leadership in the payroll credit segment through the new product releases and integrations and maintaining our status among Brazil's most efficient and trusted financial institutions. Today, I will walk through our fourth quarter and 2025 results and offer some insights. Before hoping into results, I'd like to make a quick comment on our relationship with the INSS, which is Brazil's Social Security Administration, responsible for the payroll of 42 million beneficiaries. Agibank maintains a contractual relationship with the INSS to provide benefits payments and payroll credit underwriting. As part of an ongoing auditing process, the INSS and Agibank executed 2 operational agreements, one in November 2025 related to the benefits payments in AGI's accounts and another in January 2026 related to origination of INSS payroll credit. This agreement set standards for enhanced customer service and product delivered aligned with updated regulations. Although the discussions resulted in temporary suspensions that impacted credit origination for INSS clients in 4Q '25, operations fully resumed by mid-January 2026. Commenting briefly on the addressable market and our strategic positioning, AGI has a nationwide hybrid model with over 1,100 smart hubs deployed with an opportunity to expand alongside our digital solutions. When we look at Brazil landscape, we see a BRL 733 billion market in secured loans from INSS beneficiaries, private and public workers, representing approximately 100 million individuals we can serve with our specialized products. Adding complementary cross-selling products such as payroll, credit cards, personal loans, insurance and fees, we see a total addressable market of BRL 2.1 trillion. We would like to start off by showing how AGI delivered substantial yearly growth across some of the most important indicators, maintaining its position as a relevant player in this market and reiterating the high potential for the coming years. Taking a closer look at customer growth, as seen on Slide 9, total active customers count increased 73% in 2025, and we exited the fourth quarter with 6.7 million active clients, which we define as those using at least one product at quarter end. AGI customers with primary banking relationships average over 5 products, rising above 7 products among our most mature cohorts, underscoring the cross-selling opportunity within our model and validating our relationship-centric strategy. Turning to our credit portfolio on Slide 10. Total loan balances grew 44% in 2025 to BRL 34.9 billion. Our credit portfolio maintains a healthy mix with secured loans representing 86% of total or BRL 29.9 billion and unsecured loans representing 14% or BRL 4.9 billion. We believe this mix brings a sustainable balance of profitability, credit quality and a focus on long-term relationships with our clients. In private payroll credit, an offering we launched in March 2025, centered around a more conservative approach, our portfolio reached BRL 0.9 billion. For public payroll credit, a growth lever in our credit portfolio that brings our business model to municipalities and regions where the footprint of the traditional banking systems continue to be less accessible, AGI finished 2025 with BRL 0.3 billion. Unsecured lending restricted to account holders who maintain primary relationship and direct deposit arrangements with AGI, which significantly mitigates default exposure while improving margins, expanding 18.3% during 2025 to BRL 4.8 billion. Within INSS payroll credit, we continue to successfully execute against our strategy of being the disruptor of this segment in Brazil, as we can see on Slide 11. Based on our strong positioning with the INSS, we further increased our market share of payroll credit, reaching 8.9%, a gain of 250 bps compared to 2024. With regards to credit quality on Slide 12, nonperforming loans exceeding 90 days reached 3.7% by year-end 2025, impacted primarily by 2 factors. First, a larger share of private payroll credit, which has structurally higher delinquency ratio compared to INSS loans; and second, nonrecurring effects from the INSS suspensions beginning in August and ending in January 2026. Nevertheless, NPLs by end of 2025 of the overall portfolio remained comfortably below the average for consumer credit in Brazil. The coverage ratio measured by provisions over NPLs above 90 days was 189.4% by end of 2025. Turning now to our revenue on Slide 13. In the fourth quarter, we delivered a total revenue of BRL 2.96 billion, an increase of 6% quarter-over-quarter. For the full year, the total revenue was BRL 10.7 billion, growing 46.8% year-over-year. On Slide 14, we see net interest income growing 19% in the year to BRL 4.7 billion. Net interest margin was 12.5% for the year, resulting from a loan portfolio more weighted towards secured loans. Moving to efficiency on Slide 15, which highlights the operating leverage embedded in our unique business model. As discussed, our proprietary physical digital channel network drives a highly efficient, scalable operation. Our operating efficiency ratio, which we calculate as NII plus fee revenue divided by operating and personnel expenses, improved to 40.6%, an approximately 590 basis points improvement year-over-year as revenue growth continues to outpace expenses. Continuing down the income statement and to Slide 16. Net income in the 4Q 2025 reached BRL 215 million, supporting the BRL 1.05 billion figure for the full year, an increase of 31.8% year-over-year with return on equity of 35.8%, maintaining AGI as one of Brazil's most profitable financial services companies. Speaking briefly to our funding approach on Slide 17. As a regular debt issuer, AGI maintained established relationships with Brazil's credit markets, diversifying funding sources to support portfolio expansion. As a result, total deposits reached BRL 37.8 billion, an increase of 50% from 2024. Institutional counterparties represented 51% of total funding, while retail sources came to a share of 49%. We follow conservative principles, aligning secured credit portfolio durations indexation with corresponding funding sources, safeguarding spreads against market and interest rate fluctuations. Lastly, as you can see on Slide 18, our capital adequacy ratio stood at 15.5% exiting 2025 with a Tier 1 capital ratio of 14.2%. AGI's consistently above-average ROE track record enables self-sustaining capital generation. As a reminder, IPO proceeds will appear in our Q1 2026 financial statements. But if reflected in 2025's capital structure, we estimate a capital adequacy ratio of circa 19%. Looking forward, we remain confident in our capacity to address the financial needs of millions of Brazilians. On behalf of AGI, I would like to thank you all for your interest and support. And now we would like to open the call for the Q&A session. Thank you very much. Operator?

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

Congrats on the IPO. Just a follow-up, thanks for the color on the relationship with the INSS. But just one question we get from investors. And just to get comfortable that there won't be any other suspensions or delays in your ability to underwrite credit and also to sell insurance. Just -- I mean, how comfortable are you that this is definitely behind you that there won't be any other risks related to that? And I mean, do you feel like for the rest of this year and going forward, that's behind you completely? And then I guess just second question, more, I guess, on the competitive environment. I mean, I think you have a unique position with the hybrid model. But as interest rates come down, I mean, do you see a risk of increasing competition either from incumbents or fintechs trying to go after this market? Any color you can give on that would also be helpful.

Tito, thanks for your question. Good to be talking to you. So first of all, in terms of the relationship with INSS, we have a contractual relationship with INSS for years. We believe that we passed through an audit process, and we signed 2 agreements with the authority, and that validates our processes going forward as long as we are in compliance with the process and with the adjustments that we made, which we are. So based on that, we have no reason to believe that there's a possibility of a different type of suspension or friction with the with the authority. So we -- all of our operations are back to normal, full normalized. The user experience is also in fully operation in terms of the relationship with the INSS. So we really believe this is a turn page in our relationship with them. So that's the first part of your question. The second part, we believe the competition in terms of relation to the interest rates, we have to remember that our business positioning, it is focused on the experience of the client. We serve an underserved big portion of the population in Brazil that is less related with the cycles of the economy, but on how they are being left behind both by the incumbent banks and the digital-only banks. So we believe we have -- we still won't see any important variation in terms of that due to the interest rates. I think also Marciano can complement on that. Marciano, I will hand over to you.

Okay. Marcello, thank you. Thank you for the question, Tito. So yes, we see as a very competitive market between the players and a very high structural demand from the population side. Payroll credit is the biggest and biggest credit portfolio for individuals in Brazil. The reason for this, the payroll credit is the most affordable and cheapest credit for individuals in our country. We are very well positioned to capture the opportunities in the payroll credit ecosystem. Basically, we see 3 structural factors to support our thesis for the long term. First, demographic trends, education and average income in Brazil. So our country population is aging rapidly. And we are very well positioned with our hybrid model to allow us -- that allow us to offering advisers to this segment. It is not simple for this segment to navigate in the digital world for itself, especially to the complexity transaction as a portability of financial products or in the open finance platform. Agibank has been built to solve a very specific problem who -- the question is how to use technology to improve the lives of the largest population that is not natural tax savvy. Because of that, we have always operate at the interaction of the technology, data and human interactions. So somebody can say that the new older people are more digital, right? Here, we see the second factor that is education. Unfortunately, we don't see signs that we will have a revolution of the education system in Brazil and the people still have less access to the better education. And the third, it is average income in Brazil, more than 65% of the population have income less than $400 monthly. Also, we don't see a radical changes in this structural situation in Brazil over the decade. Based on that, we see several barriers to replicate our model. In the incumbent side, they don't have the specific setup to address this special segment. While the other digital banks have the best structure of the cost, but it's not the best model in terms of channels and customer journey to adviser most of this part of the population, right? And finally, we have decided to invest heavily to be an AI-driven company in the next 12 to 24 months. And we can continue to deliver the best hybrid experience to the customers and improve our efficiency rates and scale to continue to be relevant, will be the bigger player in the payroll credit ecosystem in Brazil.

Our next question comes from Eduardo Rosman with BTG.

Congrats on the numbers. Congrats on the IPO. I have 2 questions here. The first one, just trying to understand the dynamics at the start of the year, right? Because we've been tracking INSS payroll lending and it has been weak for everyone, right, because of all the changes going through, right, the social security entity, right? So given the relevance of the segment to your business, how should this impact your results? Should we expect a softer start to the year with results improving in the second half? So it would be great to understand a little bit what's going on. And my second question would be regarding the private payroll lending, right? As far as I understand, you were one of the first movers in the product, right, with the goal of gaining experience and understanding how it works. However, at the margin, it seems that your appetite for the product has come down, right? So I just wanted to confirm if that's the case, what happened or if you can come back with more growth or more appetite in the future depending on the changes that the product is going through?

Okay. Rosman, good to be talking to you. Thanks for the question, Marcello here. So first of all, on the credit origination in the INSS product. So first of all, in the market itself, there were some frictions in the beginning of the year. We see normalization of the flows of production since mid-February. And that is also combined with our situation as well because, as you know, we got the temporary suspension from December to mid-January. And we were able to be back in full operation after that. And we see now since end of the last month, the pace of origination in our case, I'm talking about AGI as pre-suspension levels. So we are very comfortable with the production and origination of credit that we see every day, especially in the INSS payroll loans. So that's one thing. And we believe implicitly that we are originating market share at the margin the way we were before the suspensions, which means above average, above the market share that we have, which is 8.9%. We believe that we are already reaching the numbers of mid-teens in terms of the market share origination at the margin, right? So that's one thing for the INSS production. And then the private payroll, yes, you are correct. You have the full reading of the situation regarding the beginning of the operations last year, we were -- we demonstrated our operational and technological readiness to be the first to offer this product in the market. Then we took a more cautious approach throughout the year. And we see this product as operated by 2 types of competitors. One is the incumbents who have the behavior, the relationship who know the companies that the potential clients they work for and the other types are the challengers who have to develop their own model to work with this product. And within this segment, we believe we are -- we have state-of-the-art capabilities to develop credit modeling as we demonstrated already in our -- in the way we run our credit business throughout the last few years. So we now are comfortable with the models that we developed to operate the private payroll, and we're already seeing in this month of March, the product starting to ramp up in our production technology here at AGI. So we are now taking a very realistic approach to grow in this product.

Yes. So we have the question from Jorge Kuri. He has audio issues and then he asked to ask for him here. So the question is -- so he would like to ask why NPL ratio went up from third Q to 4Q and why net interest margin came down from the third Q to the 4Q. Can you please give us color on what is driving this? So this is the question.

Okay. Thank you, Felipe. Thanks, Jorge, for the question. So regarding the NPLs, we believe, first of all, that we have structurally low -- and low risk and comfortable levels of NPLs in our portfolio. Have to remember that a big portion of our portfolio is in the social secured payroll loans, which have under 2% NPLs, but we've been increasing the private payroll and we have also the unsecured loans who have both of them most close to the teens NPLs. And what we saw in the fourth quarter, we saw a mix influence on the private payrolls, the vintages -- the first vintages of the private payroll starting to mature and to influence the average of the NPLs in one hand. And the other hand, also as a factor of the denominator, we did have the slowdown in the production because of the suspension, which halted the pace of origination, the pace of growth in the total credit portfolio, which in turn, took us to a higher ratio in terms of the NPLs. But we are very comfortable to say that it is not a different trend in terms of growing NPLs. This is the number that we should run in the equilibrium in the stability going forward in terms of NPLs, given that we will continue to grow private payrolls and they have a higher number in terms of this ratio. Regarding the NIMs, on the other hand, the NIMs, there's a few factors impacting the NIMs since the beginning of last year, which is one, mix more towards the secured lending compared to unsecured, which has tighter spreads, as we know, is one factor. The other factor is that on the unsecured loans by themselves, we have been also working with slightly lower rates for the customer because remember, we -- our strategy is focusing in the long-term relationship with this client. We want to maintain them with us in our portfolio. But it's important to say that this is the kind of NIMs that we think is healthy for the business that is structural, sustainable going forward. And we have one another factor that impacted the year and it might be reverted this next year, which is the interest rates. Although we have a very conservative approach to ALM to match durations indexation when we see abrupt impact in the interest rates, of course, they will impact in the cost of funding, which happened during the year of 2025. We know that the Selic went up almost 300 basis in the second half of the year. So that impacted also the NIM. On the flip side, we can expect a potential reduction on the Selic, which we can capture also in the next quarters as well. So maybe Felipe can add a few observations on that as well. Felipe?

Thank you, Marcello. Just to complement one thing, it's important to say that in terms of interest-bearing assets mix, we also had a growth in assets yield to Selic versus lending operations. So when we see financial assets and treasury allocation, it has a bigger share over the interest-bearing assets when compared to the end of 2024. So it helps in this kind of explanation about the net interest margin about the fourth quarter.

Our next question comes from Gustavo Schroden with Citi.

First of all, congratulations on the IPO. And I have 2 questions here. The first one is regarding the commissions and fees revenues, which declined in the quarter. So I would like to understand what is behind this decrease, if it is related to the suspension of INSS originations in the fourth quarter, late last year, if it is behind this decrease? And my second question is regarding the selling, general and administrative expenses, which also we saw a relevant decrease of almost 31% quarter-on-quarter. So if you could explain us what is behind this decrease in the selling, general and administrative expenses.

Okay. Thanks, Schroden. Good to be talking to you. So on the one hand, on the fees, we see the fees as a very sustainable business for us. As you know, we have the full distribution. We work as a broker selling customized insurance to a public that really looks for products that can complement their wallet of solutions. This is one thing. In the fourth quarter, we have some impact on the overall slowdown of the production and the cross-sell that impacted the selling of insurance. This is one thing. But when we look at the adjustments that we made derived from the agreements that we executed with the authority of the social security in Brazil, we see nowadays already since the middle of the quarter, the user experience in acquiring insurance totally normalized and the product flowing very well. So we're very comfortable to affirm and to state that this is a product that will be -- continue to be a very important revenue stream of the business, very important contributor of our returns going forward. So that's one thing for the insurance. Regarding the G&A and the expenses, yes, we see a reduction in the fourth quarter. At one hand, we see a portion of that is related to the cost to serve that we pay related to a variable part of the expenses as we have the disruptions of the suspensions that impacted the quarter, both the payments of the payrolls and part of the fourth quarter that impacted part of the variable cost to serve that we have to pay for the salaries for each of the individuals that we are paying. And the other part, we see nonrecurring event on the model of lawsuits that we have because we started using AI, we are, as Marciano said, heavily investing in AI in the company. we have initiative in tackling lawsuits with AI agents that reads all the proceeds and prepares the defenses and that increased a lot the number of the percentage of victories that we have in the massive lawsuits that we have, and that made us -- allowed us to make an adjustment in the model that we use to provision lawsuits in the company. So we were able to adjust this model in the fourth quarter, and that produced also an additional impact in the G&A. So those are the main factors that we can mention here.

Our next question comes from Pedro Leduc with Itau BBA.

Just to make sure I understood the explanation behind SG&A. There was a reversal in legal contingencies in the fourth quarter because you've read through all the stuff and you've found that you had maybe too much provisions. So there was an actually reversal and the run rate going forward is going to be kind of the one we saw here. Is that right?

Good to be talking to you. Yes, that's right. That's the reading. It's a reversion based on the much better model that we established throughout being investing in AI for the lawsuits.

All right. Great. And then just on NIMs, you mentioned that the fourth quarter is sort of the level we should see as well. But there's going to be a mix effect that should maybe play in your favor or the Selic should play in your favor. So when you talked about NIMs being this level, was it a mix constant or funding cost constant? Just want to make sure I got that one too.