AGI Posts 31% Profit Jump as Origination Machine Reaccelerates

AGI (NYSE:AGBK) grew third-quarter net income 31% year over year to BRL 276 million, a figure that also sits 38% above the second quarter, according to CFO and Investor Relations Officer Marcello Dubeux. Annualized return on equity reached 22.4%, up from 16.9% in the prior quarter. The Brazilian digital-and-branch lender, it appears, has remembered how to originate credit.

Total revenue rose 15% year over year to BRL 3.2 billion. Fee revenue climbed 30% to BRL 244 million, propelled by insurance brokerage and the first quarter of revenue from Agi+, the company's subscription program. Executives said they expect lending and subscription income to keep growing.

Where did the growth come from?

AGI originated BRL 10.2 billion in credit during the quarter, its highest quarterly total in more than a year. Originations increased 77% from a year earlier and 43% from the second quarter, Dubeux said on the earnings call.

The total loan portfolio reached BRL 38.8 billion, up 12% year over year and 5% sequentially. The mix remains heavily collateralized:

• Secured loans: 88% of the portfolio
• Unsecured loans: 12%

AGI's share of Brazil's INSS (the federal pension institute for private-sector workers) payroll-credit market reached 10%, a gain of 40 basis points during the quarter. Dubeux said the company sees room for further share gains and expects INSS lending to remain a major growth driver.

The private payroll loan portfolio reached BRL 2.3 billion, up 130% year over year and 61% quarter over quarter. Dubeux noted that monthly originations of the product held between BRL 250 million and BRL 300 million during the quarter, and that first-payment defaults in newer cohorts showed signs of improvement.

Active customers — defined as those with at least one active product at quarter-end — increased 29% from a year earlier to 8.3 million. Approximately 1.7 million customers received pensions or benefits in AGI checking accounts.

Asked about unsecured lending, Dubeux said the portfolio stabilized and began growing after shrinking earlier in the year. He expects continued expansion as AGI originates more loans to customers with existing relationships. Cross-sell, in other words, is now the strategy.

Can fees carry more of the weight?

Founder and CEO Marciano Testa said Agi+, which launched as a pilot at the end of the second quarter, had surpassed 700,000 subscribers. The program bundles learning and streaming platforms, medical consultations and pharmacy discounts.

Dubeux said the rise in fee income was not a one-time event. Insurance brokerage benefited from a redesigned sales process, while Agi+ began contributing revenue only in the third quarter. He expects the subscription program to deliver more recurring revenue in the fourth quarter.

Testa also announced that Rafael Siqueira, formerly a Latin AI leader at McKinsey, joined as a partner to support the integration of artificial intelligence across AGI's business units. Testa said he expects data science and credit models to improve delinquency predictions.

What happened to margins?

Here the picture dulls slightly. Net interest income rose 10% year over year to BRL 1.3 billion but increased only 1% from the second quarter. Annualized net interest margin (the spread between lending yield and funding cost) fell 20 basis points sequentially to 11.8%, which Dubeux attributed primarily to the greater share of secured loans.

Net interest margin after provisions declined 50 basis points to 6.3%, reflecting faster origination. Dubeux said the newly originated portfolio had not yet had sufficient time to show its full effect on margins, but he expected a different margin trend in the fourth quarter. The verb "expected" is doing considerable work in that sentence.

Loans more than 90 days past due rose to 3.5% of the portfolio, up 20 basis points from the second quarter. The coverage ratio (provisions held against potential losses) fell to 157% from 183% in June, a level Dubeux said the company considers adequate given the share of secured lending.

The operating efficiency ratio improved to 44.2%, down 470 basis points from the prior quarter, as net interest income plus fees grew while operating expenses remained flat.

What about capital and the fourth quarter?

AGI's consolidated capital adequacy ratio stood at 18.1% at quarter-end. Testa said that position supports investment in growth and technology alongside a share repurchase program announced on October 27, authorizing up to 3 million Class A shares over 12 months at management's discretion.

On the outlook for INSS lending, Dubeux said an expiration of a provisional measure affected borrowing capacity and contributed to September's acceleration. Conditions normalized in October, he said, and fourth-quarter growth would probably be less pronounced than in the third quarter.

Asked about higher funding costs, Dubeux said AGI views INSS payroll lending as a customer-acquisition tool for longer-term relationships, including insurance and unsecured loans. Testa said the company would focus more on higher-margin products as it manages funding costs.

Agibank S.A., which traces its origins to Agiplan, established in 1999, combines digital banking with physical service locations across Brazil. Its offerings span digital accounts, payments, cards, personal credit and insurance, with a particular focus on payroll-deductible loans for retirees and public-sector employees.