Inter & Co, Inc. (INTR) Q2 2023 Earnings Call Transcript

Inter & Co, Inc. (NASDAQ:INTR) Q2 2023 Results Conference Call August 14, 2023 2:00 PM ET

Company Participants

João Vitor Menin – CEO

Alexandre Riccio – SVP, Retail Banking

Santiago Stel – SVP, Finance and Risks

Conference Call Participants

Thiago Batista – UBS

Yuri Fernandes – JPMorgan

Eduardo Rosman – BTG

Rafael Frade – Citi

Pedro Leduc – Itaú BBA

Neha Agarwala – HSBC

Tito Labarta – Goldman Sachs

Operator

Good afternoon, and thank you for standing by. Welcome to the Inter & Co Second Quarter Earnings Conference Call. Today’s speakers are João Vitor Menin, CEO; Alexandre Riccio, Senior Vice President of Retail Banking; and Santiago Stel, Senior Vice President of Finance and Risks. [Operator Instructions]

We will be presenting non-IFRS financial information. These are important financial measures for the company but are not financial measures as defined by IFRS. Reconciliations of the company’s non-IFRS financial information to the IFRS financial information are available in Inter’s earnings release and earnings presentation appendix. 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.

Now let me introduce the agenda for today. Mr. João Vitor Menin will start the presentation sharing with you an overview of the vision and the main achievements of the quarter. Then Mr. Alexandre Riccio will cover the banking and transactional platform sections. Mr. Santiago Stel will present the financial performance section. Then Mr. João Vitor Menin will make some closing remarks, and we will proceed to the Q&A session.

Now I would like to lead the floor to Mr. João Vitor Menin. Sir, the floor is yours.

João Vitor Menin

Thank you, operator. Good afternoon, everyone, and thank you for joining our earnings call. This is a truly special quarter for several reasons. On one hand, it marks the 1-year anniversary of our U.S. listing, which is why we are broadcasting from NASDAQ, New York studios.

And more importantly, this is a quarter of records representing an inflection point in our history. If you recall what I said in the last quarter earnings call, I mentioned that our results were just a glimpse of our strong potential. Well, the glimpse is now a reality, reflected in the multiple records we were able to print in a single quarter. First, we combined both top and bottom line record performance. Second, we delivered our strongest operational results with record new active clients and activations.

Third, we launched our seventh vertical, which is loyalty, improving the value proposition for our clients with the new rewards problem called Inter Loop. And lastly, we launched our global app, the first ever in the banking industry. With all of that, I could not be more excited. I believe this shows our huge port to deliver the best platform for our stakeholders.

On Page 6, we delivered an interactive combination of record figures. From a financial side, our gross revenue reached BRL 1.9 billion, 33% higher than a year ago and it continues to be highly diversified with a great balance between fees and NII. The top line growth was combined with a very disciplined cost control which enabled us to deliver our record efficiency of 53%. We continued with our ROE-driven underwriting, enabling us to have strong NIM expansion. On the bottom line, we had our highest ever profitability, both on pre- and post-tax basis.

This is not just a few percentage points higher than in the prior period, but multiple times higher, particularly on pretax basis, reaching BRL 80 million. When we look at operations and innovations, I’m flattered to see also a series of remarkable milestones. We had another quarter adding 1 million active clients and we reached a total of 28 million clients. We continued improving our activation ratio by impressive 6 to 8 bps, surpassing 52%, our highest level since 2021. We continued innovating by launching Inter Loop, which we believe will drive strong engagement and activation.

Additionally, we started operating our global app. Now we have our Super App working seamlessly across geographies, same as Uber or Netflix.

On Page 7, as an engineer, I’m a builder by heart. And in that sense, I’m very excited with the launch of our loyalty product called Inter Loop. I had the same excitement when we launched our digital account in 2015 and also when we launched Inter Shop back in 2019. I’m fully convinced that we have all the elements to succeed in this new journey such as 28 million clients, BRL 200 billion transacting per quarter, a state-of-the-art technology platform and full banking infrastructure behind us. I’m sure that we will disrupt this market in the same way that we did with digital banking a few years ago.

On Page 8, in summary, this is a quarter of records, the best one ever. It’s a truly inflection point in our history that enable us to start seeing the full potential of — despite still being in day one and to have a lot to deliver in the next years, I’m happy to report real operational excellence and profitability. This innovative and profitable business model is gaining momentum as we continue to grow, gaining market share, keep innovating, enhancing our super app for our clients and lastly, expand our profitability for our shareholders. We’re starting the second half of this year on a very strong note with the momentum that enables us to continue delivering results over what was built so far. Thanks again for listening.

Xande, please go ahead.

Alexandre Riccio

Thank you, João, and good afternoon, everyone. I’ll start talking about our credit and funding capabilities. Jumping into our loans on Page 10, I’ll pass through some important highlights. Our portfolio grew by 5% this quarter, focused on high ROE products such as FGTS loans, which grew 26% and home equity, which grew nearly 10% in a quarter-over-quarter basis. In credit cards, we grew 6%.

In payroll and real estate, we continued improving our pricing and materially increased the average yields. The word that better describes this quarter in terms of credit underwriting is consistency. This discipline has enabled us to improve more and more the average yield of our portfolio, with 200 basis points increase in a single quarter. We have been doing a very diligent job related to our underwriting capabilities and are already seeing the strong results of it.

Now on Page 11, we present our asset quality metrics. Starting with the 15 to 90-days NPL, we saw an impressive decrease of 30 bps in a year-over-year comparison. On the 90-days metric, which has an impact of changes in growth rates, the ratio increased 30 bps on a quarterly basis, in line with the general market trend. We’re happy to report that newer cohorts are consistently improving as a result of our more assertive and data-driven credit underwriting, as you can see in the bottom left chart. Finally, the NPL and Stage 3 formation reached 1.6%, in line with the market trends and our best performance.

On Page 12, we see that our cost of risk reached 6.5% in the quarter. The increase, as mentioned in the prior page, is mainly associated with older cohorts of credit cards. Aside of cards, our cost of risk is demonstrating a solid and stable trend of around 1% since the fourth quarter of 2022. Our coverage ratio remained constant at 130% by provisioning in line with the NPL trend. Overall, we see that our asset quality metrics are following the macro trend with similar behavior when compared to peers.

On Page 13, we can see the evolution of our funding base, one of the key competitive advantages of our platform. Our deposits grew 29% year-over-year reaching BRL 33.5 billion in a highly fragmented base, with more than 13 million clients trusting us with their deposits. We continue delivering best-in-class cost of funding, reaching 63% of CDI in the quarter.

Now let’s move forward to the transactional platform session. We’re glad to report our second consecutive quarter, adding 1 million new active clients, combined with the lower CAC in over 2 years. Our activation rate showed strong progress, increasing 68 basis points, surpassing the trend that started last quarter. We achieved these results with big data and AI, which allowed us to advance towards much stronger understanding of our customer profiles, behaviors and product preferences. In addition, we have advanced significantly in the app personalization, which we presented early this year in our Investor Day.

As an example, we have more than doubled the number of app home screens when comparing to the end of the first quarter. In terms of volumes on Page 16, you can see that debit and credit cards as well as PIX reached BRL 197 billion in TPV, which demonstrates our strong position in banking and in the daily lives of our customers. Interesting to note that credit cards continues to outpace debit transactions, providing us with a much higher interchange and profitability profile.

In a cohort basis, as presented in the right chart, we can see the positive evolution in: One, increasing TPV across cohorts; and two, higher starting points, which is a strong evidence of better quality clients. With our clients transacting almost BRL 200 billion per quarter in their daily banking activities, the cross-selling opportunities are notably higher. As we keep enhancing communication channels and create new engagement solutions such as Inter Loop, this opportunity can scale even more in the future. On e-commerce, we reached 2.7 million clients transacting during the quarter. Our momentum allowed us to continue growing our net take rate, which now stands at 9%, our highest level ever.

On insurance, we saw a 46% increase in active clients as we evolve with our upselling and cross-selling initiatives. And finally, on investments, which reached 3.6 million clients, we saw an impressive 66% year-over-year growth along with a strong AUC that increased 41% to BRL 77 billion. These products boost ROE and consume no capital.

As João mentioned in the beginning of the presentation, we are super excited with all the possibilities that Inter Loop is bringing as our seventh business vertical. We’re using our robust banking structure as the backbone of this program.

The breadth of our platform dramatically facilitates the earn and burn opportunity — opportunities with the marketplace being the most obvious synergy. The solutions are already built. We just need to connect them. In that sense, Inter Loop leverages not only a strong potential of cross-selling but also can create revenue streams such as: one, earn versus burn spread; two, breakage; three, point sales; and four, subscriptions and much more. The idea is to connect all of our verticals with Inter Loop, creating a true beneficiation experience.

Talking about our global solutions on Page 19, we illustrate the evolution of this vertical. We’re glad to say that it is performing at that base much stronger than we anticipated reaching almost 1.9 million global clients and USD 220 million in deposits and AUC. The strong adoption of these products is related to its seamless UX into our go-to-market strategy that’s focused on: One, Brazilians who travel abroad and want to spend in a U.S. issued card; two, Brazilians who wants to invest on NASDAQ or NICE; three, people who live abroad and send remittances worldwide, mainly immigrants; and four, people who want to invest in real estate funds.

We continue evolving to replicate our Brazilian offering in the U.S. with minimal investments by taking advantage of our flexible and scalable technology. By now, we already have deployed 5 of 7 of our business verticals in the U.S. all of them integrated into our global app. In terms of products, we have in place remittances, store discounts, gift cards, debit cards, mortgages and investments.

And as we move forward, we plan to add a full e-commerce platform, BNPL and credit cards. Important to note that we’re [coding] BRL and monetizing in U.S. dollars. Now Santi will pass through the financial highlights of our quarter of records. Thanks, everyone.

Santiago Stel

Thank you, Xande. Good afternoon, everyone. Now let me walk you through the financial performance section. In the context of the quarter records, revenue is certainly one of them. We reached BRL 1.9 billion of gross and BRL 1.2 billion of net revenue this quarter.

In terms of growth, it’s interesting to notice the acceleration of 12% in net revenues in a single quarter marking the strong momentum of our franchise. Another important highlight is how balanced NII and net fees grew side by side, both at double-digit rates. . On Page 22, we can see ARPAC evolution across cohorts. As we already highlighted in prior quarters, newer cohorts continue outperforming the older ones.

In addition, when clients get to know our platform by using it, we see even higher ARPAC levels. We believe that this trend will remain increasing as a new approach of client activation and the app personalization continues moving forward. On the right-hand side, we can see a stable ARPAC trend from a financial statements perspective in the strong growth in new active clients.

Now let’s discuss our strong NIM evolution on Page 23, starting with the NIM 1.0, which considers the full portfolio, including core receivables that do not accrue interest, known as Avista in Portuguese. We reached an impressive 8.1%, which is 70 bps points higher than the first quarter of this year. Regarding NIM 2.0 considers only interest earning portfolio, the increase was even higher at 80 basis points, by far our best performance in several years. When we look at the evolution of NIM since 2022, we can see 4 different stages. First, we converted our rates to market level as we shifted from growth to growth with profitability.

Second, we actually repriced the legacy portfolio of mortgages and payrolls. Third, we’re rarely changing the portfolio mix as we originate more of the high ROE products. And finally, going forward, we expect to benefit from the recent launch of Conta com Pontos, the scale-up of new products and the increase of Selic rates. Moving to the expense side on Page 24, we can see the effectiveness of our cost control initiatives. Our expenses decreased for the second consecutive quarter, even on a nominal basis.

When we look across lines, you can see a very stable trend in all of them. With this disciplined focus on expense management, we still see a strong opportunity to continue strong operational leverage.

Moving to Page 25, we can see that these results are also visible in the ratio of active clients per employee, which is a good proxy of our workforce productivity. It now stands at 4,200 with the most notable evolution in a single quarter. The cost to serve also had a strong performance, decreasing 20% on a year-over-year basis standing today at BRL 12.5. I would like to highlight the importance of operating at such low cost to serve, as it gives us a unique competitive advantage vis-à-vis incumbent banks.

Moving to Page 26, what is probably my preferred slide, the left chart shows the impressive work that we are doing at Inter on the operating the rest side. We’re being able to increase revenue and increase expenses at an accelerated pace while delivering best-in-class products to our customers. On the right-hand side, I would like to highlight a remarkable improvement in our efficiency ratio, which is also one of the most important records for our quarter of records. We reached 53% in the second consecutive work quarter with nearly 900 bps improvement. As you can see, we had a great performance in personal and administrative expenses with an increasing trend in both lines.

Recording our Investor Day target of 30% efficiency we’re considerably ahead of schedule towards this metric. These results reinforce our strong commitment and disciplined focus towards our 5-year business plan.

Moving to capital on Page 27, we recorded a CET1 of 22.8% in the quarter, which is the lowest capital consumption of a quarter since our IPO. As mentioned in prior calls, our capital is fully comprised of top quality core equity without any high rate capital instruments. When we compare CET1 level, it remains nearly twice that of the median of the 5 largest income banks of Brazil.

And last, but definitely not least, another record for the quarter of records is profitability on Page 28. We accelerated our back to profitability, delivering BRL 64 million of net income at a 14x increase in a pretax basis to reach an EBITDA of BRL 80 million. This is our highest profitability since our IPO back in 2018, and we couldn’t be more excited about what’s coming next.

Now João will share with you his closing remarks. João, please go ahead.

João Vitor Menin

Thank you, Xande. Thank you, Santi for highlighting all the important topics of our quarter of records. Before moving to Q&A, I would like to say that these results were possible because first, we have a very disciplined focus on increase our revenue, scaling up the products in our platform. Second, we optimized our cost structure. And third, maintained our strong innovative DNA approach.

As you can see, Inter is at its inflection point, delivering strong results still with the best yet to come. Thank you, clients and investors for your valuable trust. Thank you to our employees to make this incredible quarter of records possible. Like I already said, we’re starting the second half of this year on a very strong note. We will now start the Q&A section. Thank you very much.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Mr. Thiago Batista from UBS. [Operator Instructions]

Thiago Batista

Very good earnings, congratulations. So I have two questions. The first one about the Conta com Pontos. It’s fair to say that the vast majority of the conversion of the demand deposits to the low-cost and deposits were already done. And — but we were not able to see yet the full impact of this change in the P&L.

So I wanted to see if the improvement in our profitability coming from this change will appear going forward? And second, if I look for your ARPAC and then we looked into the net ARPAC, we saw some expansion this quarter to something close to BRL 30 per month. But this is still about 10%, 12% below the peak let’s say.

One year ago more or less. And if you look for the chart that you show about the net ARPAC by cohorts, we also — it’s possible to see that the new vintages are a little bit worse than average. So my question is, are the new clients of Inter a little bit worse than the previous clients? Or the bank more conservative credit approach is causing this slightly lower net ARPAC for the new clients?

Alexandre Riccio

Thiago, this is Alexandre speaking. Thank you for the question. I’m going to start with the Conta com Pontos one and Santi will take the second part. So Conta com Pontos is part of a larger program, as you know, called Inter Loop, and — so we launched this about 2 months ago as our loyalty program, and we’re really seeing it as an opportunity to be our seventh business vertical. So it’s a full rewards program, and it connects our Inter — our ecosystem and gives even more possibilities to our clients, right?

So instead of being limited to receiving cash back in e-commerce investments and credit cards, which was the case before, clients can now earn points and have the freedom to choose how to burn these points. Options to consume points now already range from like cash back, discounts in Inter Shop, airline miles, investments, donations to multiple charities. So this donations part is super nice.

And we have a lot more to come. And so the key strategy with Inter Loop is to, in the short term, as it applies to customers to retain, engage and monetize further our existing base and also to attract new customers with a more comprehensive offering that’s flexible and suitable to a wider range of preferences. And in the long term, we believe that this has — it has the potential to be a business by itself. So João mentioned it in his remarks, that with our 28 million clients, the full banking platform and the state-of-the-art technology, it’s a low-hanging fruit that was demanded by our customers. So we’re eager to pursue this challenge there.

As we deep dive into Conto com Pontos, it’s one of the possibilities that we offer to our clients to earn points inside Inter Loop. So clients earn points given certain rules as a function of their transactional account balance. So the way it works is the customers’ overnight deposits are invested on a CD and the CD yields are converted into points. Nothing changes in the clients’ experience besides receiving points and the yields on a transactional account for Inter — on either perspective are optimized.

And finally, on the implementation of the project, we did convert about 75% of the demand deposit balance, but this move happened mostly in June. So we had about 1/3 of the month of the revenue optimization or the balance on reserve requirement optimized. So we still have a lot more to see in the third quarter and fourth quarter.

Santiago Stel

Thiago, Santiago here. So we’re very happy with the performance of the ARPAC this quarter. Still more to go, but at the end of the day it’s a race between the numerator and the denominator now with revenues, which has been growing very well, particularly this quarter and new active clients with 1 million new per quarter, which also has been performing well. So when we look at the underlying dynamics for this ratio, we see new active clients at close to record coming into Inter, which was super important. It means that they like the platform and they continue selecting it.

The new cohorts are starting at slightly higher points which is a reflection of the profile of the clients. On average, the clients we’re bringing now at around 30 years old with slightly higher income than in prior quarters, like the ones we had in 2020 and 2021. And then we have dynamics on new products that have been recently launched, which are still to be penetrated in the existing clients, and that will also drive our ARPAC higher. So overall, we look at it on a cohort basis and with these underlying trends, which we think are flowing well, and eventually, it will adjust because revenue will end up growing more than new ARPAC client growth going forward.

Operator

The next question comes from Mr. Yuri Fernandes from JPMorgan. [Operator Instructions]

Yuri Fernandes

Congrats for the strong quarter, João, Alexandre, Santiago. I have a first one regarding payroll. When we try to see the implied yield, we see a big increase on personal loans, right? That’s mostly, I guess, payroll. The gross financial income for this line is up maybe 40% quarter-over-quarter.

So just checking the box here, what drove this increase on payroll? Is it basically the repricing? Is this FGTS mix? How sustainable is this and if you see room for higher mix on payroll? And I can ask my second question later.

Santiago Stel

Thank you, Yuri. I can take that one. So it’s a mix of two factors. One, the loan mix more towards FGTS. And we added this quarter, the breakdown of FGTS together with the breakdown of home equity in the loan breakdown to be able to see this more clearly.

So the growth has been clearly skewed towards these 2 ROE products, higher ROE products. And then on rates and payroll loans, we are originating very decently above 1.7%. The curve has been going down. So the spread has been increasing. We’re evaluating the new levers to originate in the second half as Selic moves. But so far, what’s reflected in the second quarter is an origination rate that has stood about 1.7% on payroll. And in FGTS, we increased from 2 to around 2.1%, 2.15% the monthly rate and that is driving the overall personal loans rate up. And you have a follow up?

Yuri Fernandes

Thank you very much, Santiago. Just on Granito, I guess on your equity income, you had a loss this quarter on the equity income line. And just checking what happened there if these laws on Granito was a one-off. Just some color on equity pick up line. Thank you.

João Vitor Menin

João Vitor here. Yes, we have a loss on the income from Granito, which is a one-off, yes. Though we are very excited with the Granito business, we just changed the management to have a new COO, Enrique, that came from Pfizer. The Granito business is very important for us to have a full service platform for our business account, which is performing really, really well. So I believe that it is going to be a great moment ahead for our business account and also for the acquiring business going forward. Thank you very much.

Operator

Our next question comes from Mr. Eduardo Rosman from BTG. [Operator Instructions]

Eduardo Rosman

I have two questions here. First one is on asset quality. When do you think we can expect to see a real improvement in NPLs and the cost of risk, right? I think if we look to your results, all the lines are moving in the right direction. So we’re just missing this one. If we see cost of risk moving down, I think the ROE jump will become more clear and loud to everyone. And the second question has some sort of a relationship as well, has to do with principality. We saw most banks and retailers facing challenges with NPLs within the riskier individual lending sectors, right? You have a peer, which is a new bank that clearly stood out. And one of the reasons is the strong principality with clients. You also have you have been showing there are a lot of clients of Inter that use Inter as the number — their primary choice. So what have you learned? And what can you, let’s say, use to be better prepared in the future once you have to resume growth on these riskier lines again?

Santiago Stel

Rosman, I’ll take the first part and João Vito will take the second one. So on asset quality, we are increasingly more optimistic as we’ve been doing the work behind the scenes very thoroughly for several quarters. And I would split that into — on noncards and cards. So on cards, if you — on noncards, if you see in the disclosure, the cost of risk remained flat at around 1% and this applies to around 70% of the loan portfolio. So noncards, there haven’t been any issues, which is what we expected.

So that is great news. On cards, the way we analyze it is on a cohort by cohort basis, we added the disclosure last quarter, and we updated on this one to be able to see how the cohorts perform and how they improve. In addition, we have implemented maintenance strategies in the card portfolio, which include increasing limits for high-performing clients and reducing limits for clients whose credit profile have deteriorated. So overall, we think that with a better mix on origination and the great work that the risk management and collection team is doing. We expect second half of the year with a trend improving relative to the first half. And even if we look at June numbers and the dynamics relative to what we had at the beginning of the second quarter, we’re already seeing that trend improving.

João Vitor Menin

This is João Vitor, I’m going to take the second one regarding principality. This is, by the way, is a metric that we have been improving so far. So we’ve reached almost 70% principality amongst our clients. So we’re improving quite fast, to be honest. Regarding the connection between principal and NPLs, we don’t see that as the main thing for us to underwrite well, to collect well and, therefore, have good NPLs.

We do think that as Santi mentioned, the right credit model was a very, very good collection process, is the one that are going to drive the right NPLs down the road. And by having the clients using us, which is the principality that you mentioned, we can also help to gather some information. But again, it’s not a silver bullet. It’s important more to bring more revenue streams, using other verticals than to reduce the NPLs. That’s how we see principality versus NPL’s trend.

Operator

The next question comes from Rafael Frade from Citi. [Operator Instructions]

Rafael Frade

Congrats on the strong results. I have two questions here. One is related to how are you positioned for potentially the easing cycle in terms of interest rates. I saw that there was an increase of around BRL 3 billion related to hedge for interest rates. So I would like to understand a little bit of the — how this reflects your positioning? And the second question is related to expenses. When you look for — you had a huge decline in head count since the end of the last year. But when you look for personnel expenses, specifically, we didn’t see a reduction. In fact, we still see those expenses going up. So just would like to understand if we don’t have the impact of the lower head count yet, it was — I don’t know if there were some severance costs in the middle of this process.

So I just want to understand a little bit how this should go.

Santiago Stel

I’ll take that one, both of them. So starting with the rates front, so just to revise the structure of our balance sheet, first, we’re highly unlevered with a CET1 of 22.8%. And additionally, we have a much higher funding base than where we have loans. So in summary, we’re liability sensitive and we expect to benefit from a Selic reduction. The impact is more or less depending on the way that plays out. But the impact for us is positive, and we see that as one of the factors driving NIM expansion towards the second half.

In terms of personal loans, we have a few dynamics playing out. First, we had sell costs. So around half of the reduction that we have in personnel, it was voluntary. The other half was involuntary or company induced. And in addition to that, as we recorded positive profitability, we started provisioning according to accounting rules, the long-term incentive plans and compensation for the team. So both things together made the number on personnel expenses go up by around 9%.

Operator

The next question comes from Mr. Pedro Leduc from Itaú BBA. [Operator Instructions]

Pedro Leduc

First, great job again on efficiency. If you could talk a little bit more on the cost savings fronts that you felt, if growth projects, more costs, their core that you’ve come to optimize? Maybe some learnings, so we can start to draw some dynamics here for the next few quarters. In other words, if maybe you pushed something forward to 2024 or most of it is really here to stay. That would be great. Thank you.

Santiago Stel

Thanks, Leduc. So on expenses, we were quite aggressive both on personal and nonpersonal. So we closed the year in 4,100 employees last year. We reduced 300 head count and another 400 in the second quarter. Now we expect to stay roughly at this level for some time. We want to see the platform responding with this level of employees. We have some impressions that potentially we can improve in the future. But for now, we want to cruise at this level for some time. But this has already been an interesting effort that the organization has adjusted pretty well. On non-personnel expenses, there is a mix of variable expenses, many of which are vendors or providers like Mastercard, Salesforce, in the U.S., et cetera.

Those are contracts that are not that fast to renegotiate or it takes some time to deliver operational level, but we’re working on them as well. And then there’s a large collection of expenses that are being monitored by our expense committee, that meets every Friday morning and is led by João Vitor personally. And that has many improvements to happen still in the second half.

Overall, if you remember, we wanted to have at least 10 percentage points of operational leverage in the year, which was going from 70 to 60. We’re at 53. What we see in terms of this ratio for the second half is to stay as close to 50% as we can. So the majority of the improvement was done with a few more percentage points to come, but not in the 900 basis points magnitude that we had in the first and the second quarter.

Operator

The next question comes from Ms. Neha Agarwala from HSBC. [Operator Instructions]

Neha Agarwala

Congratulations on the great quarter. Just quickly following up on the cost side. Regarding the CAC which went down on a positive note. And we saw a big reduction in the marketing expenses. Could you please elaborate on what area specifically have you captured regarding the marketing? And how sustainable do you see that in the coming quarters?

João Vitor Menin

João Vitor speaking. Thank you for the comments. We do see an opportunity to keep improving our marketing costs for acquisition. Not only that, we believe that the competition is slowing down, has slowed down a lot. And also not only regarding competition, but we have been improving our platform since then.

So new products, products, new features and therefore, we are gaining new clients with more engagement and new clients cheaper than we used to do before. So the trend for CAC is very good. We believe that, again, we don’t think it will have tens of platforms being a winner of this digital banking business, and we believe that we are ahead and capturing all the benefits of this position that I just mentioned to you. Again, the best app and the right pricing, the right products, and this is what it’s really driving our low CAC and high engagement since the mid last year, and this trend should continue going forward.

Operator

The next question comes from Mr. Tito Labarta from Goldman Sachs. [Operator Instructions]

Tito Labarta

Congrats on the strong results. Question on loan growth rate, good growth this quarter, but just think about the outlook going forward. With rates coming down, you mentioned asset quality, perhaps maybe some positive signs there. Is there room to accelerate loan growth from here? Which segments would you feel most comfortable growing in? And then just kind of related to that, a good improvement on the margin, but as you continue to grow the loan portfolio and if there’s any more repricing, how high or how much more can the margin improve from here?

Santiago Stel

Tito, thanks for the question. So on loan growth, we reported 5.4% this quarter, which is an annualized of about 20%. We think at the very least, we would like to have this level of growth, if not more. We would actually like to have a second half closer to 30% annualized than to 20% annualized. But we want to do that very meaningfully in terms of use of our capital allocation.

So we have been prioritizing higher OE products which are mainly but not exclusively FGTS loans and home equity. We think that we are well positioned to accelerate on traditional payroll loans and real estate loans as well as well as [indiscernible]. The decrease in the rates will help on the demand side and the portability side, which is something that was a bit tougher with Selic at 13.75. And then we have the scaling up of new products. We have launched overdraft.

We have launched buy now, pay later. And those are products that are doing the baby steps, but we have a great potential to penetrate our client base with them as well. And we think that overall, this, together with maintaining the higher OE discipline and will be a driving force for the NIM to stay in the high single digit as we have reported this quarter.

Operator

The conference call is now concluded. Inter’s IR area is at your disposal to answer any additional questions. Thank you for attending today’s presentation. Have a good day.