Business context and reporting period
Inter & Co, Inc. filed this Form 20-F on April 28, 2023, for the fiscal year ended December 31, 2022. It is a Cayman Islands holding company whose principal operating business is Banco Inter, a Brazilian digital bank and “Super App” spanning banking, credit, commerce, investments, insurance and international payments. The financial statements are audited and prepared under IFRS. This is an annual filing; it does not provide a clear standalone set of fourth-quarter 2022 financial results.
Key financial metrics
Amounts below are in Brazilian reais (R$); “bn” means billion and “m” means million.
| Metric | 2022 | 2021 | Change or context |
|---|---|---|---|
| Net revenue | R$3.563bn | R$2.222bn | Up 60.3% |
| Net interest income | R$829.8m | R$892.2m | Down 7.0%; interest income rose 95.3%, while interest expense rose 263.2% |
| Net services and commissions | R$838.8m | R$442.3m | Up 89.2% |
| Impairment losses on financial assets | R$1.083bn | R$595.6m | Up 81.9% |
| Loss before tax | R$178.6m | R$231.1m | Loss narrowed |
| Net loss | R$14.1m | R$55.1m | Loss narrowed; 2020 net profit was R$30.7m |
| Operating cash flow | R$2.103bn | R$91.6m | Cash generated from operations increased |
| Cash and cash equivalents | R$1.332bn | R$500.4m | At year-end |
| Total assets | R$46.343bn | R$36.626bn | At year-end |
| Total liabilities | R$39.254bn | R$28.177bn | At year-end |
| Total equity | R$7.089bn | R$8.450bn | At year-end; affected by the corporate reorganization and non-controlling interests |
Gross customer loans were R$22.698bn, with R$21.380bn net of expected-loss provisions. The broader non-GAAP gross loan portfolio, including loans to financial institutions, was R$24.544bn, up 40% year over year. The allowance for customer-loan losses rose to R$1.318bn, or 5.8% of gross customer loans, from R$680.9m, or 4.0%, in 2021. Net charge-offs were 0.6% of average loans versus 0.4%.
At year-end, liabilities included R$23.643bn owed to customers, R$7.907bn owed to financial institutions and R$6.202bn of securities issued. Borrowings and onlendings were R$36.4m. Banco Inter’s regulatory capital ratio was 24.1%, down from 44.3% in 2021; the filing states a minimum requirement of 10.5% in its capital discussion. Management reported R$20.544bn in current financial assets, including R$10.929bn of high-quality liquid assets, and said the top 10 funding clients represented less than 5% of total funding. The filing also reports R$160m invested in stated development initiatives during 2022.
The reported net yield on average interest-earning assets was 13.2%, compared with 8.8% in 2021. This measure is not the same as net interest income, which declined during the year.
Material changes versus the prior comparable period
- Net revenue grew 60.3%, supported by higher interest income, service and commission revenue, securities income and foreign-exchange revenue. Rising funding costs more than offset the increase in interest income, reducing net interest income.
- Credit expanded, but credit costs also rose: the filing attributes higher impairment losses to loan-book growth, increased defaults amid higher interest rates and a review of debtor information. Credit-card and personal-loan exposures grew substantially.
- Operating scale increased: the company reported approximately 24.7 million clients at year-end, up 51%, and approximately 12 million active clients. Commerce platform GMV was R$4.0bn, up 13%; insurance revenue grew 47%.
- The June 2022 corporate reorganization made Inter & Co the indirect owner of Banco Inter. Shareholders who chose cash received a total of R$1.145bn; this and related transactions materially affected equity and non-controlling interests, so year-over-year balance-sheet comparisons require context.
- Inter acquired USEND, now Inter & Co Payments, in January 2022. The acquisition generated R$554.8m of goodwill; the acquired business contributed R$120.0m of revenue and a R$22.3m loss for the year. The company acquired YellowFi mortgage businesses in January 2023.
Outlook, commentary, risks and unusual items
The filing gives no quantified earnings, revenue or credit-loss guidance. Management expects to retain available funds to support business development and does not anticipate cash dividends in the foreseeable future. It expects available cash and operating cash flows to cover ordinary working-capital needs, capital expenditures and its business plan for at least 12 months. Planned investment areas include technology, customer service and app experience, new products, international expansion, data security, operational risk and internal controls.
Key risks include worsening borrower defaults and loan-loss estimates; competition and pressure on pricing and funding costs; Brazilian interest-rate, inflation, currency, political and regulatory volatility; technology outages, cyberattacks and data-protection compliance; and execution, integration and regulatory risks in international expansion. The filing discusses U.S. financial-sector disruptions in 2023 and the Americanas credit-market event, but says the company had no cash or cash-equivalent deposits at Silicon Valley Bank, Signature Bank or Silvergate Capital.
Controls: Management concluded that disclosure controls and internal control over financial reporting were ineffective as of December 31, 2022, due to six material weaknesses. These concern accounting reconciliations and manual entries; significant disclosure processes; M&A controls; related-party transaction controls; IT general controls; and data used to calculate credit-loss provisions. Management described remediation work for 2023 but gave no assurance that it would be effective. The independent auditor did not attest to internal controls. KPMG issued an unqualified opinion on the IFRS financial statements.
Legal and other items: Provisions for legal and administrative proceedings were R$28.1m. The company disclosed possible-loss tax matters, including a R$29.9m income-tax and social-contribution assessment and COFINS matters with R$52.3m identified as possible loss. Approximately 12,000 civil cases sought aggregate damages of R$544.7m; the civil provision was R$24.3m. A U.S. trade-secrets lawsuit brought by WireCash was not provided for in the financial statements; the company said it could not predict the outcome. In March 2023, the company acquired 160,875 Class A shares at an average US$19.65 per share to satisfy put-option obligations connected with the Inter & Co Payments acquisition.
Most important facts an investor should verify
- Whether the six reported internal-control material weaknesses are remediated, and whether subsequent filings report effective controls.
- Whether credit delinquencies, loss allowances and charge-offs continue to rise, particularly in credit cards and personal loans.
- How funding costs, deposit mix and liquidity evolve, and whether the capital ratio remains comfortably above applicable requirements as the loan portfolio grows.
- Whether Inter & Co Payments and YellowFi deliver the expected strategic and financial benefits, including the impact of acquisition-related costs and goodwill.
- Developments in the disclosed tax, civil and WireCash proceedings, including changes in assessed exposure or provisions.