Inter & Co, Inc. (INTR) Earnings Call Transcript & Summary

Hello, everyone. I'm Rafaela Vitoria, IR Officer at Inter, and I would like to welcome all to Inter & Co's Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. This conference is being recorded. [Operator Instructions] A replay will be available at the company's IR website. With me on today's call are Joao 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, Joao 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 Joao. Joao, please go ahead.

Thank you, Rafaela. 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 0 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 shareholders, the disciplined execution of our 6th 3030 plan allow us to deliver attractive balance of profitability and growth and sharing 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 spirits. 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 connection. 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 4 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 makes 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 Shande and Santi, who will present our operational and financial performance. Shande, please go ahead.

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 shares. Our Net Promoter Score remains at the excellent 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 log-ins. That's 14,000 per minute. On average, we processed 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 7 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 reinforce clients' view of Inter's 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 3 aspects that make us confident with the future. First, we have improved cost onboarding dynamics, and that's seen throughout the onboarding funnel, so several improvements 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. And finally, the sum of these 2 points is resulting in a fast payback of around 2 months after clients on board. 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 in 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 3 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 2/3 of our portfolio is secured, 1/3 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're also seeing operational improvements coming from DataPrev and company's HRs, which increases product quality and our confidence with the delinquency levels that we're 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. And third, 2 quarters ago, I introduced the concept of reshaping of our credit card portfolio as a key focus for the year. We're making good progress in moving clients from being pure transactors to our interest-earning portfolio. IPs 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. Shande 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 2 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 2 products, but this product -- 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 markets 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 7 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.

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 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 clearinghouse 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're moving quickly to capture the private payroll market opportunity. And in just 6 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 are 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 #2 player in originations, growing 33% year-on-year, significantly outpacing the market growth of 21%. And in credit cards, we reached 30% growth while maintaining our conservative approach to risk underwriting. As Shande mentioned, we are also successfully reshaping this portfolio to further improve its profitability. Moving to asset quality. Our metrics showed 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 while 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. And finally, NPL formation and Stage 3 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 pass the breakeven 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 strong quarter, growing BRL 1.3 billion or 7% this quarter. And 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. Where we add 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 55.1%, 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 ARPAC 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 in our net interest margins. Both our NIM 1.0 and our NIM 2.0, which excludes the noninterest 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 faced lower inflation, which impacts our real estate portfolio and 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 7.9x to 9.4x year-on-year. On the expense side, this quarter allows us to have a comparable basis, given the acquisition of Inter Pag 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 leverage of our business. The quarterly growth in personnel 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. And 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 bps 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 maintain 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 Joao for his final remarks.

Thank you, Shande 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 cost 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. Rafaela, let's now open the Q&A session. Thank you all.

[Operator Instructions] Our first question is from Tito Labarta.

I guess my question is more thinking about the longer-term guidance that you've given of the 60-30-30, right? Because, 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%, but just to think about to get to that 30% in the next 2 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. But 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?

Tito, Joan Vitor speaking. Thank you for the question. So 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, let's say, almost 3 years. If you recap, we came from a 0% ROE back down to almost 15% ROE now on a running base for three quarters. So 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. And also October was the best month ever for the past 3 years. So we're really doing a great job in bringing clients to our ecosystem. On the efficiency ratio also this quarter was a very good one. We dropped almost 200 bps in that. So 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. And, therefore, our credit portfolio exposure today is lower than it was supposed to be, but 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. And with all that in place, it's hard for us to predict if we're going to be on the 30% ROE by the end of 2027 or later on, but 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'd like to say that it's good that we have been growing 30% ratio year-over-year, but we still have most of the portfolios that we operate today, single digits -- low single digit and market share. With all 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 don't know, somewhere on 2028. So very committed, excited, and I believe that the platform is well-turned for us to keep achieving the 60-30-30.

No, very helpful, Joao Vitor. 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, do you think be more macro, just given that rates, as you mentioned, are at 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 said, right? So 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. So, therefore, for instance, the payroll segment grows slower, the margin, and everything grows slower. But 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 are improving the efficiency by being more diligent on the expense, trying to use AI to optimize how we run the machine. So that's it. I see that as of today, our biggest headwind is the interest rate in Brazil, it's a right assumption.

Our next question is from Gustavo Schroden.

Can you hear me?

Yes.

Okay. 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. So my question is, this is a new level of cost of risk that we should work with for the coming quarters or the increase in coverage ratio that you did in this quarter is enough for the coming quarters?

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. And then as the quarters go by, the delinquency starts passing the 90-day mark and then the NPL follows. We haven't seen that NPL increase yet, or it was very minimal, yet given the life of the book is close to 6 months right now. And the majority of that was built on the second part of those 6 months, meaning in this last third quarter. So 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%. But again, as we mentioned many times, we are 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 are actually good for them and tends to lower the cost of -- or borrowing cost relative to alternative products that they have in the market. So 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, but Stage 3 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.

So 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 breakeven in the second quarter, and now it is at a positive territory, right? So my question is, could you share with us what is the level of profitability, you are delivering in this product if -- and if there is further room to improve the profitability in the private payroll loan?

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 of the first few months was higher. And as the months go by and the system starts working as it was designed originally, then the cost of risk hits the high single digit. With the high single digits, 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 3s percent per month. And 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. So it starts moving the NIM in the right direction. It's, as I mentioned in the prior question, a product that will the clients have available to go away from more expensive alternatives. And this one, it's 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. So it's 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 3x more employees in the private sector than in the public sector, but we'll see how much continues growing in the future. But so far, we're very pleased with the results.

Our next question is from Mario Pierry.

Congrats on the quarter. Let me ask you 2 questions. First one is on your net interest margin expansion, right? You're growing your margins 10 to 20 basis points per quarter as you had talked about at the beginning of the year. And in part, that reflects 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.

Mario, thank you for the question. So the 3 drivers of NIM expansion are: one, repricing; two, better mix; and three, investment yield going up. Those are the 3 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 a payroll, because mortgages have higher growth than public payroll, even though it has a higher -- longer duration. And then on payroll, we still have a significant of -- part of our loans that are at rate not very far from 1%, 1.2% per month that have some upside on repricing. So there is some element. It's 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 1/3 of those portfolios still have upside in terms of interest rates. And the good thing is that on public payroll, which hasn't grown for several quarters, public payroll specifically, it has grown in the last 2 quarters. And, therefore, that accelerates the repricing or the increase in the yield of that portfolio. In terms of better mix within the loan book, the 2 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. And then on the investment yield also, we have been improving in that sense. But 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 Selic or structured records to optimize the capital more than what we could. That's another lever that could be added to the list of the 3 that I mentioned before. But when you put all that together to summarize the answer, Mario, we think that the trend of NIM expansion still has an ample room to continue to improve. We have answered this in the prior calls, at least in the next 4 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. And now my second question then on Slide 19, right, you show that you're growing faster than the market in all the products. What gives you confidence, right? Because when we talk to the big incumbent banks, they are -- they seem more concerned about the economic outlook. They seem like they are derisking their loan books. And while you're doing the opposite, right? You're trying to accelerate growth. And maybe this is the best time to grow, right? When the competition is slowing down, you probably can get like very good clients at attractive spreads. So first of all, so then the question is, what makes you comfortable to be growing your loan book at 30% pace when everyone expects the economy to decelerate? And how do you think you can maintain this growth once the traditional banks start to accelerate again?

Mario, this is Shande speaking. Thank you for your question. So there is a lot here, right? I think the first thing is about what we call our right to win. So we're very well positioned to grow overall and to expand in the markets we're operating. So large client base, our brand is getting stronger and stronger as we go and the products are there. And these products, we derive to the next portion of why we believe we can keep growing, which is about the Inter by design. So we positioned our credit portfolio with those 2/3 in secured lending, 1/3 in unsecured. Within the secured lending, we're talking about Brazil's largest credit markets, which includes mortgages and also payroll loans. All these products are growing. And when we think about mortgages specifically, we see a decline in the balance of savings accounts in Brazil when the poupança linked mortgages. And this is really good for Inter. So we have been originating for more than 10 years mortgages at market-based pricing, and this gives us confidence that we're 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. So this takes care of mortgages, payroll loans, as Santi mentioned already, having the client base, having the digital experience, and being playing 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. And in here, we talk a lot about share of wallet. So we're occupying still a relatively small part of the share of wallet of our customers. And as we improve -- as we keep doing all the improvements that we have been doing in underwriting, in growth in UX, we will keep expanding our penetration. So having said all of this, it's a lot about continuity of good execution, and our team is getting stronger and stronger, and we'll keep on it to sustain these growth levels that we have been seeing.

Our next question is from Pedro Leduc.

Congrats on the journey so far. Question on credit cards. We've been watching it carefully. Simple math, interest minus provisions was negative, breakeven. Now this quarter, positive, sustainably positive. So if you could share with us maybe what you have learned, what actions have led to this? And now at these that look to be much more healthy ROE levels for the product stand-alone, if we could expect a more meaningful penetration increase within your client base, which is still fairly underpenetrated, I would say. So 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.

Leduc, this is Shande speaking. Thank you for your question. So yes, we're very positive on what's been happening in the credit card portfolio. So as you know, we've been evolving on a 360 view. So both credit team getting more and more mature and models getting more and more mature collections, same thing and the product team, very engaged on making this evolution that we saw in the last periods. So this is the first to say that like the ground to keep the good execution is set, and 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. So about 2 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 and the idea is to expand this. So the result that we see in interest is all about the execution or the good execution of the reshaping of the portfolio. We're now at more than 23% interest earning. And as we execute, we should see this interest-earning portfolio expanding. And the good thing about the lessons learned, and you asked about the lessons learned that I will -- that it's important to explore is, as we increase interest-earning portfolio, and we want to get to, say, 25%, 26%, we're also helping clients. Before, we didn't have the number of collection products that we have today. And as we implement them, we help clients pass through moments where they need more time to pay. So it's truly a win-win for the portfolio, and we'll keep on it to deliver this, let's say, this first goal of interest-earning portfolio at 25%, 26%.

And about, maybe, rolling out more within your project.

Leduc, João speaking here. On that, I think that was explaining how we are more confident on underwriting more credit cards, and we're doing that. But also on the other hand, when connecting to Mario Pierry 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 have -- 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, but 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. So as we always say, we like to produce alpha on our credit portfolio to try to get away from the debt. So even though the employment might not be doing well next year or whatever the interest rate is too high, we don't want to get that exposure. So what we're trying to do at Inter, we are building exposure to credits, 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 is 1/3, 2/3 and that's how we want to keep doing ahead. So I wouldn't expect Inter -- we should not expect Inter to massively growing 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. So -- and consumer finance is a segment that we need to be cautious. So that's how we are running the business for the years to come, okay.

Our next question is from Yuri Fernandes.

Congrats on the journey. A follow-up, and I think João already clarified part of my questions here on Stage 3 and Stage 2. Like on Stage 2, my question is what drove the increase quarter-over-quarter like on your total balance? I think last quarter was a little bit low, so maybe it's a base. I'm not sure what happened in the second quarter, but Stage 2 balance, they went up 28% quarter-over-quarter. So just trying to understand what drove it. And regarding Stage 3, like your new Stage 3 formation is mostly stable, there was a marginal increase. But when we break it down byproducts, 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 this. These 2 products together, they are up 20% quarter-over-quarter. And 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. But 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 2 products? Is the private payroll within personal loans? Like is there anything on credit cards? And again, I think João was very clear saying that it's cautious and not the time to be super aggressive on cards, but I would love to understand a little bit the moving parts here on Stage 2 and Stage 3.

It's Sandi here. So starting with Stage 3, you are correct that on a byproduct 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. So the driver was the private payroll, and that's the main one on Stage 2 as well, even more pronounced on Stage 2, given the fact that the tenors now of the Stage 2 captures in the life of the portfolio being a 6 months old portfolio is more predominant by now in Stage 2 and Stage 3. But both drivers are having private payroll. We think that's going to be hitting more proportionately in Stage 3 in the coming quarters, and 90-day NPL as well as the portfolio continues to grow in size.

Santi, and regarding the Stage 3 that you really 90 days after two as an absolute figure. The increase on private payroll is because of operational risk is too high and like this should be the level because it was. Just trying to understand because given these are new products, Stage 2 is fine, but I would not be expecting Stage 3 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. It is the way we modeled it, Yuri. Differentiated operational risk from credit risk in a product that is very early stage, sometimes it's a bit blurry. But as we mentioned, we are converting to a high single-digit delinquency level in this product. And with that, the return profile is, as I mentioned in a prior question, north of 30%. So it's very accretive for the results.

Our next question is from Marcelo Mizrahi.

Congratulations for the very solid results. My question is regarding the fee business. So we were seeing in the last couple of quarters this deceleration, especially in this last one on the growth of the fees. Can you share a little bit your ideas and the strategy here? So there are a lot of investments here in insurance, in the international accounts. So why do you believe that the growth is slowing down and how to reaccelerate that?

Marcelo, Joao speaking. Thank you for your question. Santi will deep dive on the numbers and on the KPIs and economics later on, but 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, but the thing is out of our 7 verticals, 5 of them are focused on fees. So we have FX, as we mentioned, global account, we have investments, insurance, loyalty, our Loop program and our Inter Shop. So 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, as again, as I mentioned, we're growing fast on NII, but we see still a good opportunity for us to keep running on this 25% range going forward. And again, I'm sure that once some of these verticals get more mature, we believe that this could be a tailwind for us. So and Santi will mention about the change between quarter-over-quarter and year-over-year on that metrics, okay?

Just to complement Joao, we had 2 one-offs in the fee side impacting negatively. One was, we shut down IM Design, which is a company that we co-owned, was a graphic design company acquired many, many years ago, and that had an impact of BRL 15 million in the fee line as well. And another one is the BRL 4,966 impact of deferred fees associated with credit of around another BRL 15 million. So those 2 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. And with that, the growth would have been 7% instead of 1%. So it's a line that is growing less than NII. As we mentioned, NII is growing consistently around 40%. Last 5 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.

Our next question is from Neha Agarwala.

Can you hear me?

Yes.

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

Neha, it's Sandi here. So yes, that's quite accurate. So if we decompose a bit by line, the biggest component of fees is credit card, and that's highly associated with TPV growth. As Shande showed, TPV grew 20%. So this fee line is growing quite in line with it. An interesting thing to mention is that Inter Shop or e-commerce platform has a big part of the monetization now being driven on the NII through buy now, pay later or credit diario, how we call it in Portuguese. So that's a fee driver of NII directly. And then FX is performing very well. It's still a smaller line, but it's growing very, very high. So all of that together, we think in the 20s or around 20% is a fair assumption to have, which is slower than NII, but still it's a high -- an important component of our revenue base.

Perfect. Perfect. Then 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 6 months ago?

So I'm going to talk a little bit -- this is Alex speaking, and thank you for your question. So 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. So from the capacity of underwriting more, we're happy. So we're growing underwriting. We're doing evolutions in our credit model and our credit policies. And this has been driving increased underwriting volumes day after day. So very happy there. From a collection standpoint, we're also seeing improvements. And 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 that, 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. And from a competitive standpoint, we don't see any concerns yet. As we mentioned also earlier, we're talking about the BRL 250 billion to BRL 300 billion potential portfolio that today is running close to BRL 90 billion. So a lot of expansion to happen. And the idea now and the idea in the upcoming quarters is to keep absorbing as much demand as we can. On a static basis, the market share is at 2.1%, but on an underwriting basis, we're executing at a much higher percentage of market share, probably in the -- getting close to the 10% range of market share, and we'll keep on it. And João will follow up also on the question, Neha.

Neha, Joao speaking. Just more of a high-level view in terms of competition, as you asked. We see Inter in, I would say, in a sweet spot in terms of competing in Brazil. We have elements that the incumbents they 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. And also, we have elements that the incumbent banks they do have and the fintechs they don't have, which is a very good cost of funding. So when you combine all of that, and I really think that we're in a sweet spot between the incumbents and between the FinTech players in on the north of 30% year-over-year. So -- and 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 -- from a good banking approach. So we started having the clients. We started doing the digital distribution. We start to bring very good deposit base. So we have all that in place. So I don't see competition as an issue, as I mentioned. And 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. And last but not least, when we think about the incumbent banks that they have already a huge market share on most of the products out there on the credit products, we still have small market share on that product. But when we connect that to our market share on PIX, which is about 8.5%, we do see that's going to -- our clients will be flowing to the credit products with us soon. So we are very excited with the future ahead, and we don't think that competition between the digital players will be a headwind for us going forward.

With that, we conclude the Q&A session. I will now pass it to Joao for his closing remarks.

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. And hope to see you soon in a few months for us to discuss the 4Q results. Thank you very much, and have a good day. Bye-bye.