Business Context and Reporting Period
Company: Inter & Co, Inc. (Nasdaq: INTR)
Filing Type: Form 6-K (Unaudited Condensed Consolidated Interim Financial Statements)
Reporting Period: Nine months ended September 30, 2023
Currency: Brazilian Reais (BRL) in thousands
Overview: Inter & Co operates as a digital multi-service bank in Brazil, offering banking, investment, insurance, and marketplace services. The period includes the consolidation of new US-based subsidiaries (Inter US Finance and Inter US Management) acquired in January 2023 to expand real estate credit operations.
Key Financial Metrics
| Metric (Nine Months Ended Sep 30, 2023) | Value (BRL '000s) |
|---|---|
| Net Revenues | 3,439,645 |
| Net Interest Income | 1,135,592 |
| Net Result from Services & Commissions | 828,986 |
| Impairment Losses on Financial Assets | (1,157,140) |
| Profit Before Income Tax | 231,552 |
| Net Profit for the Period | 192,550 |
| Profit Attributable to Owners | 151,443 |
| Earnings Per Share (Basic & Diluted) | R$ 0.38 |
| Total Assets | 55,078,840 |
| Total Liabilities | 47,710,614 |
| Total Equity | 7,368,226 |
| Cash and Cash Equivalents | 4,297,078 |
| Loans and Advances to Customers (Net) | 25,296,620 |
| Net Cash from Operating Activities | 5,959,919 |
Material Changes vs. Prior Period
- Profitability Turnaround: The Company reported a net profit of R$192.6 million for the nine months ended September 30, 2023, compared to a net loss of R$42.9 million in the same period of 2022. Profit attributable to owners increased from a loss of R$43.3 million to a profit of R$151.4 million.
- Revenue Growth: Net revenues grew 34.3% year-over-year to R$3.44 billion, driven by a 106% increase in Net Interest Income (R$1.14 billion vs. R$0.55 billion) and a 38% increase in Net Result from Services and Commissions.
- Asset Expansion: Total assets increased 18.9% to R$55.1 billion. Loans and advances to customers grew 18.3% to R$25.3 billion, with significant growth in credit card (25.9% increase) and real estate loans (20.4% increase).
- Liquidity Position: Cash and cash equivalents surged 222.7% to R$4.3 billion, supported by strong operating cash flows of R$5.96 billion.
- Impairment Costs: Impairment losses on financial assets increased 41.4% to R$1.16 billion, reflecting higher provisions for expected credit losses, though offset by strong revenue growth.
Outlook, Risks, and Contingencies
- US Expansion: The Company acquired Inter US Finance, LLC and Inter US Management, LLC in January 2023 to originate and distribute mortgages in the US. These entities contributed R$3.9 million in net revenue but a loss of R$3.9 million for the nine-month period. Goodwill of R$3.0 million was recognized.
- Capital Increase: A subsequent event noted a R$100 million capital increase in Granito Instituição de Pagamento S.A. (50% owned by Inter), approved by the Central Bank of Brazil in November 2023.
- Legal Contingencies:
- US Litigation: A putative class action was filed in January 2024 in the US District Court for Southern Florida against Inter&Co Payments regarding alleged violations of the Telephone Consumer Protection Act. The amount is unspecified.
- Tax Disputes: Significant contingent tax liabilities exist regarding COFINS (social contribution on financial revenues) and income tax assessments dating back to 2008-2009. Total contingent tax liabilities classified as possible losses were R$60.6 million as of September 30, 2023.
- Market Risk: The Company manages market risk (interest rate, foreign exchange, price index) using Value-at-Risk (VaR) models. The 21-day VaR for the banking book was R$519.9 million as of September 30, 2023, compared to R$337.3 million at year-end 2022.
Investor Verification Checklist
- Credit Quality: Verify the trend in Stage 3 (credit-impaired) loans and the adequacy of the R$1.75 billion provision for expected losses given the 41% increase in impairment charges.
- US Operations Viability: Monitor the profitability timeline for the newly acquired US mortgage subsidiaries, which currently report a loss.
- Regulatory Capital: Confirm compliance with Central Bank of Brazil capital adequacy requirements given the rapid asset growth.
- Tax Litigation Resolution: Track the status of the COFINS and historical income tax disputes, which represent material contingent liabilities.
- US Class Action: Assess the potential financial impact of the January 2024 Telephone Consumer Protection Act lawsuit against Inter&Co Payments.