Inter & Co(INTR) - 2023 Q1 - Quarterly Report

Management Report Company Overview Inter & Co, Inc. is a Cayman Islands holding company listed on Nasdaq (INTR), with its primary subsidiary being Banco Inter S.A., operating as a "Super App" offering an integrated ecosystem of financial and non-financial services - Inter & Co, Inc. is a holding company trading on Nasdaq under the ticker INTR, with its main subsidiary being Banco Inter S.A., which operates a global services platform[2] - The company operates a 'Super App' model, integrating a wide range of financial (current accounts, loans, investments) and non-financial services (Inter Shop digital mall) into a single application[3][4] - In January 2022, the company acquired Inter & Co Payments, Inc. (formerly USEND), a US-based company specializing in foreign exchange and money transfers, to accelerate its global expansion and offer a Global Account solution[5] Operating and Financial Highlights In the first quarter of 2023, Inter & Co demonstrated strong growth, surpassing 26.3 million customers and achieving a profit of R$24.2 million, a significant turnaround from a loss in the same period of 2022 Key Operating Metrics - Q1 2023 | Metric | Value | Change vs. Dec 2022 | | :--- | :--- | :--- | | Total Customers | 26.3 million | 44.4% growth in the period | | Loan Portfolio | R$23.8 billion | +4.8% | | - Real Estate Secured Loan | R$6.6 billion | +4.8% | | - Credit Card Portfolio | R$7.3 billion | +6.4% | | Total Funding | R$30.6 billion | +2.7% | Key Financial & Equity Highlights - Q1 2023 | Metric | Q1 2023 | Change | | :--- | :--- | :--- | | Profit/(Loss) | R$24.2 million | vs. R$28.8 million loss in Q1 2022 | | Revenues | R$2,937.0 million | +R$1,749.2 million vs. Q1 2022 | | Admin & Personnel Expenses | R$558.0 million | +R$36.1 million vs. Q1 2022 | | Total Assets | R$47.7 billion | +2.9% vs. Dec 2022 | | Shareholder's Equity | R$7.1 billion | +0.7% vs. Dec 2022 | Relationship with the Independent Auditors The company confirms that it has not contracted any non-audit services from its independent auditor, KPMG Auditores Independentes Ltda., and maintains policies to ensure auditor independence - The company states that no services other than the auditing of its financial statements have been contracted from its independent auditors, in compliance with CVM Instruction nº 162/22[14] - The company has policies and an Audit Committee in place to evaluate the effectiveness and independence of the auditors, ensuring that any non-audit services do not affect their objectivity[14][15] Report of the Independent Auditors Auditor's Conclusion KPMG Auditores Independentes Ltda. reviewed the condensed consolidated interim financial information for Q1 2023, concluding that it was prepared in all material respects in accordance with IAS 34 - The auditor's review was conducted on the condensed consolidated interim financial information for the quarter ended March 31, 2023[20] - A review is substantially less in scope than a full audit, and therefore, the auditors do not express an audit opinion[22] - Based on the review, KPMG found no evidence to believe the financial information is not prepared in all material respects according to IAS 34[23] - The supplementary consolidated statement of value added was also reviewed and found to be prepared in accordance with relevant criteria and consistent with the overall financial information[25] Consolidated Financial Statements Consolidated Balance Sheets As of March 31, 2023, Inter & Co's total assets reached R$47.70 billion, a 2.9% increase from year-end 2022, with total liabilities and equity also seeing increases Consolidated Balance Sheet Highlights (in thousands of BRL) | Account | 03/31/2023 (in thousands of BRL) | 12/31/2022 (in thousands of BRL) | | :--- | :--- | :--- | | Total Assets | 47,701,094 | 46,343,100 | | Loans and advances to customers, net | 22,371,167 | 21,379,916 | | Securities | 12,535,351 | 12,448,565 | | Total Liabilities | 40,561,188 | 39,253,996 | | Liabilities with customers | 24,182,006 | 23,642,804 | | Liabilities with financial institutions | 8,216,538 | 7,906,897 | | Total Equity | 7,139,906 | 7,089,104 | Consolidated Income Statements For Q1 2023, the company reported a net profit of R$24.2 million, a significant improvement from a loss in Q1 2022, driven by increased net interest income and service revenues Consolidated Income Statement Highlights (in thousands of BRL) | Account | Q1 2023 (in thousands of BRL) | Q1 2022 (in thousands of BRL) | | :--- | :--- | :--- | | Net interest income | 711,080 | 532,402 | | Net result from services and commissions | 246,675 | 177,703 | | Net revenues | 1,024,114 | 833,521 | | Impairment losses on financial assets | (350,681) | (312,946) | | Profit / (loss) for the period | 24,216 | (28,822) | | Basic earnings (loss) per share (BRL) | 0.0284 | (0.0112) | Consolidated Statements of Comprehensive Income The company's total comprehensive income for Q1 2023 was R$41.4 million, comprising net profit and positive other comprehensive income from financial asset fair value changes Consolidated Comprehensive Income (in thousands of BRL) | Account | Q1 2023 (in thousands of BRL) | Q1 2022 (in thousands of BRL) | | :--- | :--- | :--- | | Profit (loss) for the quarters | 24,216 | (28,822) | | Other comprehensive income | 17,191 | (52,029) | | Total comprehensive income for the quarters | 41,407 | (80,851) | Consolidated Statements of Cash Flows In Q1 2023, net cash generated from operating activities was R$721.9 million, leading to a net increase in cash and cash equivalents of R$460.2 million for the period Consolidated Cash Flow Highlights (in thousands of BRL) | Activity | Q1 2023 (in thousands of BRL) | Q1 2022 (in thousands of BRL) | | :--- | :--- | :--- | | Net cash from operating activities | 721,900 | 927,110 | | Net cash used in investing activities | (244,732) | (202,448) | | Net cash from financing activities | (16,978) | (54,123) | | (Decrease)/ Increase in cash and cash equivalents | 460,190 | 670,539 | | Cash and cash equivalents at the beginning of the period | 1,331,648 | 500,446 | | Cash and cash equivalents at March 31 | 1,791,707 | 1,171,654 | Consolidated Statements of Changes in Equity Total equity increased from R$7.09 billion to R$7.14 billion in Q1 2023, primarily due to net profit and positive changes in other comprehensive income, partially offset by share repurchases Changes in Total Equity - Q1 2023 (in thousands of BRL) | Item | Amount (in thousands of BRL) | | :--- | :--- | | Balance at January 1, 2023 | 7,089,104 | | Profit for the period | 24,216 | | Net change in fair value - financial assets at FVOCI | 17,721 | | Repurchase of treasury shares | (16,409) | | Other changes | (526) | | Balance at March 31, 2023 | 7,139,906 | Consolidated Statements of Added Value The total added value to be distributed for Q1 2023 was R$259.9 million, primarily allocated to personnel, taxes, and retained profit Distribution of Added Value (in thousands of BRL) | Item | Q1 2023 (in thousands of BRL) | Q1 2022 (in thousands of BRL) | | :--- | :--- | :--- | | Total added value to distribute | 259,905 | 201,286 | | Personnel and tax | 149,418 | 124,540 | | Taxes, contributions and fees | 74,143 | 95,167 | | Rent | 11,857 | 10,401 | | Profit (losses) retained | 11,405 | 3,272 | | Non-controlling interest | 12,811 | (32,094) | Notes to the Financial Statements Note 4. Significant Accounting Policies This note details the Group's accounting policies, including the Q1 2023 acquisition of YellowFi entities to expand US real estate credit operations, following the 2022 acquisition of Inter & Co Payments for internationalization Business Combination On January 24, 2023, the Group acquired YellowFi Mortgage LLC and YellowFi Management LLC for R$3.3 million, generating R$3.0 million in preliminary goodwill, to expand US real estate credit services - On January 24, 2023, the Group acquired 100% of YellowFi Mortgage LLC and YellowFi Management LLC, US-based companies providing real estate-focused credit, to expand its financial services offerings in the US[68][69] YellowFi Acquisition Details (in thousands of BRL) | Item | YellowFi Mortgage, LLC (in thousands of BRL) | YellowFi Management, LLC (in thousands of BRL) | | :--- | :--- | :--- | | Total consideration transferred | 1,990 | 1,327 | | Total net identifiable assets | 72 | 212 | | Goodwill on acquisition (preliminary) | 1,918 | 1,114 | - The note reiterates details of the January 14, 2022 acquisition of Inter & Co Payments, Inc. (USEND) for a total consideration of R$721.2 million, which resulted in goodwill of R$554.8 million as part of the company's internationalization strategy[73][74][75] Note 5. Operating Segments The Group's operations are divided into four reportable segments, with 'Banking & Spending' being the largest by assets but reporting a pre-tax loss, while 'Inter Shop & Commerce Plus' was the most profitable in Q1 2023 - The Group's four reportable segments are: Banking & Spending, Investments, Insurance Brokerage, and Inter Shop & Commerce Plus[81] Segment Performance - Q1 2023 (in thousands of BRL) | Segment | Revenues (in thousands of BRL) | Profit (loss) before taxes (in thousands of BRL) | Total Assets (in thousands of BRL) | | :--- | :--- | :--- | :--- | | Banking & Spending | 924,916 | (25,661) | 47,963,471 | | Investments | 33,551 | 15,299 | 641,651 | | Insurance Brokerage | 40,562 | 23,914 | 145,386 | | Inter Shop & Commerce Plus | 90,845 | 63,814 | 507,602 | Note 6. Financial Risk Management The Group manages credit, liquidity, market, and operational risks through independent structures, with real estate loans primarily having a Loan-to-Value (LTV) ratio between 31-70% and market risk monitored via Value at Risk (VaR) - The majority of the real estate loan portfolio has a Loan-to-Value (LTV) ratio between 31% and 70%[96] Value-at-Risk (VaR) - 21 days, 99% CL (in thousands of BRL) | Portfolio | VaR at 03/31/2023 (in thousands of BRL) | VaR at 12/31/2022 (in thousands of BRL) | | :--- | :--- | :--- | | Trading Book | 1,694 | 4,751 | | Banking Book | 262,565 | 337,254 | - A sensitivity analysis simulating a 50% adverse shock (Scenario III) shows a potential loss of R$799.9 million from IPCA coupon exposure and R$345.8 million from TR coupon exposure[109][110] Note 12. Loans and Advances to Customers The total loan portfolio grew to R$23.8 billion as of March 31, 2023, with credit cards, real estate, and personal loans as the largest components, and the provision for expected credit losses increasing to R$1.46 billion Loan Portfolio Breakdown (in thousands of BRL) | Loan Type | 03/31/2023 (in thousands of BRL) | % of Total | 12/31/2022 (in thousands of BRL) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Credit card | 7,273,032 | 30.52% | 6,870,565 | 30.27% | | Real estate loans | 6,616,802 | 27.76% | 6,251,813 | 27.54% | | Personal loans | 6,081,266 | 25.45% | 5,463,781 | 24.07% | | Business loans | 3,110,840 | 13.12% | 3,392,500 | 14.95% | | Rural loans | 750,934 | 3.15% | 719,669 | 3.17% | | Total Gross Loans | 23,832,874 | 100.00% | 22,698,328 | 100.00% | | Provision for expected loss | (1,461,707) | | (1,318,412) | | - The concentration risk is moderate, with the 100 largest debtors accounting for 23.08% of the total loan portfolio, up from 16.56% at the end of 2022[138] - Analysis of expected credit losses shows an increase in provisions across all three stages, with the total provision rising from R$1.32 billion to R$1.46 billion during the quarter[140] Note 33. Share-Based Payment Following a corporate reorganization, share-based payment plans were migrated to Inter&Co, Inc., resulting in an incremental expense of R$16.0 million from repriced 2022 grants, with total Q1 2023 compensation costs of R$16.3 million - Following a corporate reorganization, share-based payment plans were migrated from Banco Inter S.A. to Inter&Co, Inc., with options adjusted proportionally (6 Banco Inter options to 1 Inter&Co share)[190] - The exercise price for options granted in 2022 was repriced, resulting in an additional incremental expense of R$15,990 thousand to be appropriated over the final vesting period[190] - In Q1 2023, R$9,912 thousand in costs were recognized for the main stock option plans, and R$6,355 thousand were recognized for plans related to the Inter & Co Payments, Inc. acquisition[193][196] Note 34. Transactions with Related Parties The company engages in various transactions with related parties, with significant balances in loans and amounts due from financial institutions, and Stone Pagamentos S.A. is no longer considered a related party after selling its interest in February 2023 Key Related Party Balances (Assets) at 03/31/2023 (in thousands of BRL) | Category | Parent Company (in thousands of BRL) | Associates (in thousands of BRL) | Key Management (in thousands of BRL) | Other Related Parties (in thousands of BRL) | Total (in thousands of BRL) | | :--- | :--- | :--- | :--- | :--- | :--- | | Loans and advances to customers | 4,497 | 6,509 | 15,938 | 496,432 | 523,376 | | Amounts due from financial institutions | 10,399 | 660,587 | - | 358 | 671,344 | | Securities | 18,074 | - | 17,328 | 78,618 | 114,020 | - Stone Pagamentos S.A., which owned 4.20% of Inter's capital as of December 2022, sold 100% of its interest in February 2023 and is no longer classified as a related party[202] Note 35. Subsequent Events After Q1 2023, Inter & Co executed a partial spin-off of Inter Marketplace, approved a 3-for-1 stock split, and renamed several US-based subsidiaries - On April 1, 2023, Banco Inter S.A. executed a partial spin-off of its investment in Inter Marketplace Ltda. into a new company, Inter Conectividade Ltda.[208] - On April 28, 2023, the company approved a change to its authorized capital and a 3-for-1 stock split of all authorized or issued shares, which will become effective on a future date to be set by the Board of Directors[209][210][211] - Several subsidiaries were renamed, including YellowFi Mortgage, Inc. to Inter US Finance, LLC and YellowFi Management, Inc. to Inter US Management, LLC[212]