Nu Holdings Ltd. (NU) Q2 2026 Earnings Call Transcript

good evening ladies and gentlemen welcome to new holdings conference call to discuss the results for the second quarter of 2026. a slide presentation is accompanying today's webcast which is available in new investors relations website www.investors.nu in english and www.investidores.nu in Portuguese. This conference is being recorded and the replay can also be accessed on the company's IR website. This call is also available in Portuguese. To access, you can press the globe icon on your lower right side of your Zoom screen and then choose to enter the Portuguese After that, select Mute Original Audio. Para acessar nossa conferência em português, clique no ícone do globo ao lado inferior da sua tela Zoom e selecione a opção Portuguese Room. Ao acessar a nova sala, certifique-se de mutar o áudio original. Please be advised that all participants will be in listed only mode. You may submit online questions at any time today using the Q&A box on the webcast. I would now like to turn the call over to Mr. Guilherme Souto, Investor Relations Officer at New Holdings. Mr. Souto, you may proceed.

Thank you, Operator, and thank you, everyone, for joining our earnings call today. With me on today's call are David Ellis, our Founder, Chief Executive Officer and Chairman, and Rob Livingstone, our Chief Financial Officer. All financial metrics discussed and presented today reflect our managerial P&L framework, which we introduced in the Q4 2025. These managerial measures are important to how we manage the business, but are not financial measures as defined under IFRS and may not be comparable to other companies. A full reconciliation report to the most directly comparable IFRS figures is available in our managerial P&L reconciliation report and in the appendix to this presentation. Unless otherwise noted, all growth rates discussed today are presented on a year-over-year FX-neutral basis. Today's discussion may include forward-looking statements which are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those expressed or implied. Please refer to the forward-looking statements disclosure included in the earnings presentation for additional information. With that, I will now turn the call over to David. Please, go ahead, David.

Hello, everyone, and thank you for joining us today. 13 years ago, we started with a simple hypothesis. That a bank built in technology with no branches and no legacy to defend could serve hundreds of millions of people better, and at a fraction of the cost. Today, I'm proud to announce that in the past quarter, for the first time we generated more than one billion dollars in net income this milestone is the result of our customer obsession translated into an earnings generating formula it is also a testament to the tremendous work of our team here at Nubank 13 years later that hypothesis continues to play out exactly as we envision our customer base reach 139 million customers including almost 118 million in brazil more than 5 million in colombia and in the end of july mexico just reached 16 million customers engagement continued to deepen alongside that growth our activity rate expanded sequentially to 83.5 percent while brazil surpassed 86 percent for the first time the combination of more customers and deeper engagement continues to drive monetization with ARPAC reaching $17. Together, they generated $5.9 billion in gross revenue while maintaining a highly efficient operating model with an efficiency ratio of 20%. This operating leverage allows us to continue investing in our three core markets, Brazil, Mexico, and Colombia, while laying the foundation for our international expansion. That is why we have always meant by optimizing for the long term. it is why we can continue building for the next decade while delivering a quarter like this one let me walk you through both starting with brazil brazil remains our largest growth opportunity and most of it lies within our existing customer base the mass market alone represents roughly 30 billion dollars in industry gross profit we already serve most of the segment and we're the primary account for approximately 60 percent of those customers even so there is significant room to deepen those relationships and capture more of that profitable that is possible because of the capabilities we have built over the past 13 years they allow us to expand financial access while delivering a better customer experience lower costs and increasingly personalized products as we built one of the leading financial services brands in latin america for the most market we find ourselves attracting millions of higher-income Brazilians that unfortunately we were not able to serve well at the time. In 2021, we launched Ultravioleta, a high-income focused brand and product. Our nearly 1 million Ultravioleta customers have significantly higher purchase volumes and assets under custody than the rest of our portfolio, with both continuing to grow strongly up 41 percent and 37 percent year over year respectively in q2 2026 however we have realized that there is a meaningful segment between mass market and high income that we could also be serving better we call this segment supercore and in july we launched chroma a subscription-based tier for our supercore customers a segment with an even larger profit pools and high income in one where we already have significant penetration chroma gives them a dedicated experience enhanced credit offerings and a broader set of banking and lifestyle benefits designed to reward customers for concentrating more of their financial lives with newback that includes new cell a free chat gpt gold subscription accelerated savings products and other benefits across our own ecosystem and partners our goal is to develop primary banking relationships and chroma is a significant step in this direction for this segment of course the opportunity also extends beyond consumers we already serve 6.8 million small businesses making lubang the largest financial institution in brazil by number of business customers till we still reach only about one-third of the market this is how we see the next chapter growth in brazil continuing to expand our customer base while increasingly serving a larger share of customers financial lives through better product and segmentation now let me turn to our other core market earlier this month mexican regulators approved our banking license in the country and we're happy to be born as the largest digital bank in mexico with more than 16 million customers that completes our transformation from a credit first fintech into a full-scale digital bank and it unlocks capabilities we did not have before. Payroll direct deposits strengthen primary banking relationships and customer engagement. Higher deposit insurance increases confidence in holding balances with us. Those deposits fund a broader credit offering, while allowing us to expand into new products and customer segments over time. Financial inclusion has been a defining part of the journey. For 35% of our customers, we were their first bank account. for 52 percent their first credit card today our customers live in 98 percent of mexico's municipalities with nearly 80 percent outside the country's major cities demonstrating how technology lets us reach customers everywhere but what excites us most is what comes next mexico remains at an earlier stage of digital financial adoption bank account penetration has increased from 44 percent to 63 percent over the past decade yet 85 percent of mexicans still prepared to pay in cash yet the pace of change is accelerating digital payments in mexico continue to compound year after year in the first half of this year spay transfers below five dollars grew more than 60 percent and today nearly half of all transfers in the country are less than 25 dollars these are everyday transactions and a clear sign that cash is steadily giving way to digital payments in June the central bank introduced new rules that every financial institution must implement by the end of the year the objective is to simplify the experience across different payment rails going forward consumers will see a standardized interface and follow the same steps regardless of who they are paying or how they choose to pay since these rules are mandatory for the entire financial system they strengthen network effects and should further accelerate digital payment adoption we have seen this movie before in Brazil the regulatory agenda fostered competition and digital innovation expanding financial inclusion driving everyday usage and ultimately accelerating credit adoption this is the clearest example we offer a simple and seamless experience from the very beginning became the market leader in transaction volume and turn that into primary banking relationships that environment toward exactly the digital model we have built we believe mexico is following a similar path we can already see it in our numbers today we reach 16.5 percent of mexico's adult population essentially the same preparation we had in brazil in 2020 but the cohorts are monetizing earlier at the same stage arpaq in mexico is 12.3 dollars against 5.6 dollars in Brazil that affects higher income per capita better unit economics in the credit card product and higher interest earning balances all at a lower cost to serve Mexico is Brazil's playbook running faster and with the benefit of the scale we have today that's how we broke even in six years in Mexico compared with eight years in Brazil to recap customer behavior technology and regulation are now all moving in the same direction taken together they created one of the most compelling opportunities we have ever seen in Mexico. As more financial activity moves up onto our platform, we build deeper customer relationships, gain better underwriting insights, and expand our ability to serve a larger share of our customers' financial lives. For the first time, we now have the full set of capabilities to capture that opportunity in Mexico. And Brazil and Mexico run on the same technology stack and increasingly on the same brain. Let me show you what that means. About a year A year ago, we introduced NuFormer, our foundation model for financial behavior. Since then, we have focused on one objective, building a single AI platform that powers business and customer decisions across Newbank. That work spans every layer of the stack. We increased and upgraded our own GPU fleet, giving us good control of the compute layer. We expanded our architecture research efforts, and we continue building on one of our greatest advantages more than a decade of transaction history across more than 100 million customers in three countries that research is unlocking compounding against inefficiency and model quality we recently advanced the former to a hybrid linear attention design the same architectural approach behind frontier models like kiwi k3 and quen 3.5 and we trained with more the same class of optimizer powering today's most efficient large language models by decoupling the former score backbone from specific downstream decisions, any improvement to the central model can instantly upgrade performance across all our business lines without costly retraining. The latest generation quadrupled context length, training speed and inference speed, while reducing the cost of running models in production. As we've scaled retraining, the base model's understanding of how our customers behave has become deep enough to change and we build every model on top of it. To give you one example, today we can achieve the same predictive performance with 20 million fine-tuning data rows that previously required over 400 million, cutting development cycles from weeks to days. The platform now reaches nearly every decision we make. We first deployed the former in our flagship credit portfolio in Brazil. Through 2025, we replicated the model in Mexico, demonstrating that the platform generalizes across markets during the first half of this year we extended it to unsecured lending in Brazil and to the next generation of our core credit models we're now testing it in credit cards for SMEs and for our Colombian customers but underwriting is only one application today AI agents handle more than 60% of customer support conversation in Brazil with customer ratings at or above human party you underwriting and customer support we're using artificial intelligence to optimize decisions across credit deposits and growth moving from predicting outcomes to determining the actions that maximize value on the real world constraints and at the same understanding of transactions that predict credit risk also predicts what a customer wants next it allows us to recommend the products that maximize long-term customer value personalize the app experience and move toward our vision of an AI private banker. The former is also improving how we grow. As the model learns a representation of how every customer behaves, we use it to put each campaign in front of the customers most likely to find it useful. And more than a hundred campaigns have already run this way. One AI platform now powers underwriting, customer support, optimization, and growth. Every improvement will make benefits every application built on top of it. We're incredibly excited about the progress nubank has had to date levering ai as a transformative technology and have strong confidence our approach will be a meaningful differentiation going forward before we turn to our financial results i want to say a few words about our cfo transition as we announced in early june rob livingstone has succeeded guillermo lago as our chief financial officer lago spent seven years with us five of them as cfo and he handed over the role at the strongest moment in our history with our first billion dollar quarter he has been incredible partner and i am glad we will keep working together in his new role as special advisor rob has spent the past few weeks working alongside lagwa and our teams and we're very

excited to be able to come with his significant experience rob welcome over to you thank you david it is a privilege to step into this role at such an important moment for the company Since joining NewBank, I have spent time with our teams across the organization. What has impressed me most is the customer obsession, the consistency of the business model, and the discipline with which it has been executed. I'm excited to help lead the next phase of NewBank's journey, and today I'm pleased to walk you through our Q2 2026 financial results. Let's start with our consolidated credit portfolio. The portfolio reached $39.4 billion, up 37% year-over-year and 5% sequentially. Growth remained broad-based. Credit cards increased 35% year-over-year to $26 billion. Unsecured lending grew 45% to $10.3 billion, and secured lending increased 30% to $3.1 billion. Sequential growth remained solid. while normalizing after a period of exceptionally strong expansion. Origination does not expand in a straight line, and we see that as a healthy dynamic. Throughout the quarter, our underwriting framework remained unchanged and growth remained strong relative to the broader market. As we'll discuss in the next few slides, we're comfortable with the quality of the portfolio and the performance of the vintages were originating. Now, turning to deposits. We ended the quarter with $45.3 billion in deposits, up 18% year-over-year and 6% sequentially, recovering the seasonal outflows we discussed last quarter. Brazil closed at $36.4 billion, Mexico at $5.7 billion, and Colombia at $3.3 billion. In Mexico, deposits declined modestly again this quarter, reflecting our ongoing deposit optimization strategy. This continues to improve our cost of funding while maintaining ample liquidity, with our loan-to-deposit ratio stilled at just 35%. Our cost of deposits was 88% of the interbank rate, essentially unchanged from last quarter, and three percentage points lower than a year ago. Overall, we're pleased with both the growth and pricing of our deposits franchise across all three markets. As always, our objective is not simply to maximize deposits, but to build a resilient funding base that deepens customer relationships, supports profitable growth, and strengthens the long-term economics of the business. Net interest income reached $3.7 billion, up 9%, and net interest margin expanded 180 basis points to 22.9%. That is the result of what we laid out last quarter. The growth we put on the books, a mix weighted further towards unsecured lending, and the deliberate risk expansions we made. Cost of credit reduced quarter-over-quarter to $1.7 billion. Decianrola, the government debt renegotiation program, impacted this number by just about 5%. And even more important than the accounting impact, the program allowed us to help nearly 1.8 million customers renegotiate past due balances and get their finances back on track. With margin up and cost of credit down, risk-adjusted net interest margin expanded to a record 12.4%, up from 9.5%. I'm going to walk you through the drivers of this expansion in risk-adjusted net interest margin in more detail. That brings us to the risk-adjusted net interest margin bridge, and I want to focus on the expansion between Q1 and Q2. Credit income was a primary driver of risk-adjusted NIM expansion, contributing 178 basis points to the quarter-over-quarter increase compared to 152 basis points in Q1. This acceleration was driven by our strong loan growth in cards and unsecured lending in Q1 reflected in our improving loan-to-deposit ratio. Lower cost of credit contributed a further 115 basis points. The majority of the improvement in cost of credit came from the expected seasonal patterns we observed and disciplined underlying business performance, rather than one-time items. Float income and funding costs both remained broadly neutral. Together, these dynamics explained the strong expansion in risk-adjusted NIM this quarter and continue to demonstrate the resilience of our underlying unit economics, supporting the sustainability of current levels going forward. Now, let me turn to asset quality. As expected, our NPL metrics continue to follow their normal seasonal pattern. 15- to 90-day delinquencies improved 16 basis points to 4.8%. That improvement reflects several underlying dynamics, which I'll unpack on the next slide. 90-plus delinquencies increased 35 basis points to 6.9%, broadly reflecting the seasonal migration of first-quarter early delinquencies into the 90-plus bucket. Taken together, these metrics are consistent with the seasonal dynamics we expected and continue to support our view that the underlying quality of a portfolio remains robust. Looking at the drivers of early delinquency, this bridge explains why the 15 to 90-day ratio improved sequentially. Seasonality reduced the ratio by 37 basis points. Against that, our intentional risk expansions in the first half of the year added back 24 basis points. Those were deliberate decisions to serve cohorts with higher expected losses, but which also generate higher risk-adjusted returns, as you've seen in our risk-adjusted margin performance. product mix and the remaining drivers are broadly neutral we don't see any evidence in our portfolio of a broad base weakening and consumer credit yet we remain vigilant as always altogether the 15 to 90 day ratio improves 16 basis points during the quarter the allowance bridge tells a similar story from the balance sheet perspective the allowance increased from 6.1 billion dollars to 6.6 billion dollars The largest driver by far was portfolio growth, contributing $342 million. Under IFRS 9, we recognize expected credit losses at origination, so growth increases the allowance before the associated interest income is earned. The intentional risk expansions we just discussed contributed another $170 million, while all other movements were immaterial, including Desenrola, which primarily affects recoveries rather than the ECL allowance due to the accounting treatment of renegotiated loans. Together, these two bridges reinforce the same message. The quarter's credit dynamics were driven by growth, seasonality, and disciplined risk expansion, not by any deterioration in the underlying quality of the portfolio. Our approach to provisioning and coverage remains disciplined and consistent. Starting with the chart on the left, we billed allowances equal to 113% of new 15-plus delinquency formation during the quarter, broadly in line with our historical averages. The chart on the right reinforces the same point. Total coverage over NPL 90-plus stood at 244%, meaning we continue to carry allowances equal to almost 2.5 times our 90-plus balances. This provides a strong balance sheet cushion and remains consistent with the levels we've maintained over the past several years, even as the portfolio has continued to grow. Together, these two metrics reinforce an important point. While the portfolio continues to grow across products and customer segments, our provisioning philosophy remains disciplined and consistent through the cycle. Now, one final point on credit risk, and this is an important one. As David mentioned, NewBank leads the Brazilian market in primary banking relationships. That leadership reflects the trust customers place in us. Combined with the analytical rigor of our underwriting models and the quality of the data generated through those relationships, it creates a structural edge in credit. You can see that clearly on this slide, showing the percent of credit card outstanding that are 90-plus days past due in Brazil. Across every income band, our credit risk performance has been steady. This strong and stable performance is driven by customers who have Nubank as their primary banking relationship. The delinquency measures of these customers is roughly half the portfolio average. What's the implication? That customer primacy is not only a growth and revenue advantage, it is also a credit advantage. A deeper relationship gives us richer behavioral data, strengthens our underwriting, and places NewBank at the top of our customers' payment hierarchy. Together, these factors produce consistently better credit outcomes. That is why we continue to view customer primacy as a key pillar of our credit superpower. Now, turning to our income statement. Gross revenues reached nearly $5.9 billion, up 39% year-over-year. Gross profit reached $2.4 billion during the quarter, up 43% year-over-year and 25% sequentially. As credit normalized in line with its expected seasonal pattern, its contribution to gross profit increased 41% this quarter, while fees represented 25% and flowed 34%. These shares naturally fluctuate from quarter to quarter. What matters is that all three components continue to grow in absolute dollars, reflecting the diversification of our business model. Looking ahead, we remain confident that credit, fees, and float will continue to complement one another as drivers of long-term growth's profit growth. Turning to operating leverage. Net revenues surpassed $4 billion for the first time, reaching $4.1 billion, up 8% sequentially. Operating expenses totaled $806 million, up 20% quarter over quarter, as real estate and marketing expenses shifted from the first quarter into the second, alongside our continued investments in international expansion. As a result, our efficiency ratio ended the quarter at 19.5%. As we discussed last quarter, the 17.6% reported in Q1 was not a run weight. Roughly two-thirds of that improvement reflected temporary timing effects, which reversed as expected this quarter. Looking ahead, we continue to expect the efficiency ratio for the full year to average about 20%. More importantly, our long-term view remains unchanged. We will continue to invest while maintaining operating leverage as we scale. To conclude, net income reached $1.1 billion for the first time in New Bank's history, up 17% from the first quarter and 49% year-over-year. More importantly, we delivered that result while sustaining a record 33% return on equity and continuing to invest across our three markets and in our long-term opportunities. I believe this quarter reflects the strength of the business model David described earlier. The investments we've made in technology, AI, underwriting, and customer experience continue to translate into profitable growth at scale. I'm excited to be part of this next chapter, and I look forward to continuing to build on this momentum. With that, we'll open the call for your questions.

We will now start a Q&A session for investors and analysts. If you wish to ask a question, please press the Reaction button and then click on Raise Your Hand. If your question is answered, you can exit the queue by clicking on Put Your Hand Down. Please limit yourself to one question and a follow-up. If you have further questions, please re-enter the queue. You may submit online questions at any time today using the Q&A box on the webcast. I would like to turn the call over to Mr. Guilherme Souto, investor relations officer.

Thank you operator. Could you please open the line for Mr. Tito from Goldman Sachs?

Hi, good evening. Thanks Souto, David, Rob, thank you for the call and taking my questions and thanks for the thorough presentation and congrats on the strong results. Just to clarify and understand a little bit the death control of our impact, as Rob, you mentioned a few different numbers. I think you said maybe 5% of provisions, but not sure if that necessarily impacted the bottom line. And just thinking through our fire calls, you know, you had mentioned risk adjusted margin, getting back 10.8%, well above that this quarter, you know, very good performance there for sure. But just to understand, was there an impact from Desenrola on that risk-adjusted margin given the different moving parts? And I'll follow up after that.

All right. Thanks so much, Tito. Let me take that and good to hear from you again. Yes, I did mention that Desenrola had an impact of about 5% on our cost of credit. That's the main metric that we're looking at there. And so, as a result, it did also have an impact on our risk-adjusted net interest margin. If you think about the progress that we made from last quarter to this quarter of almost 3% expansion in the metric, the majority of it did come from lending growth, and this was really due to the strong growth that we saw in Q4 last year, Q1 last year, and the matriculation of that into revenues in Q2. Now, the cost of credit also contributed 115 basis points, and you're right that Desenrolo would be part of that. It's a minority of the impact. The majority did come from seasonality, but also just really solid underlying credit performance.

Very helpful, Rob. And I think also just to think in terms of the context, whatever you worry about, you know, is going into next year. I mean, you mentioned overall credit quality trends look good. You feel comfortable. But given the macro that we're seeing in Brazil, how do you think about the growth outlook maybe going into 2027 and the ability to get this level of risk-adjustedness?

Hi, Tito. David here. So, as we've said a few times to investors, we don't take a directional view necessarily on the economy. our base assumption when we underwrite alone is that the future will be worse than the past, that things will actually be much worse than everything we have seen. So a lot of underwriting, everything, every single underwriting decision already assumes a deterioration by default. It has a pretty significant cushion in terms of what do we need to see for that decision to continue to be NPV positive. Obviously, we're in an environment where there is a lot of caution. We are actively looking at every single sign that we have. So far, we don't really see any significant or structural deterioration in our numbers. And we continue to operate with very significant pollution in this environment. We're also in a position where we, while we have a large consumer base, we're still a very small percentage of the market. As we've said in this call, we have 7% market share of that profit pool. So we're still a small player in that big market, and we get to cherry pick our customers, cherry pick them with loans and products that have very short term duration, which gives us a huge amount of ability to react quickly, have a lot of conviction on a lot of the underwriting capabilities, as we mentioned. And then primarily, we have this huge advantage, as Rob mentioned, of being the largest primary bank account in the country today. Over 60% of our mass market customers use this as their primary bank account. So that's a huge advantage because, as Rob mentioned, positions us effectively as being senior in the credit stack of a customer. And so when you combine strong analytics, significant cushion, being the primary bank account and having that seniority, then there is a lot of conditions for us to continue growing at a very good pace. I won't necessarily give you a specific number of growth, but we continue to see the conditions to continue growing and taking share as we use a lot of these levers to do that very effectively. Yeah.

And to your question on net interest margin or risk-adjusted net interest margin for the foreseeable future, we see it as being in the same region as where we are today. We think that it's sustainable.

Great. Thanks so much for the call.

Operator, could you please open the line for Mr. Horikuri from Morgan Stanley?

Thanks for the opportunity to ask questions, and congrats on the great numbers. I wanted, I guess, to go back to the risk-adjusted name at 12.4% and maybe tie this to the usage of AI and the sophistication on your credit line increases and overall your ability to take on more risk with lower losses. And now that you've seen maybe a full-year vintage of people that you improve their offer with AI models and that you've been tracking them, would you mind sharing some of the KPIs that you've seen and to what extent their ties to these 12% risk-adjusted margins? because you evidently seem very confident about this being the new level. Not only you said it, Rob, right now, but also in an interview with Bloomberg earlier. And in the past, we have seen volatility in that number, you know, based on mix. And so, I guess, yeah, I just want to get to a little bit more of the KPIs that are driving that, To what extent is the AI models and get more comfort on that being a floor from here?

Yeah. So thank you so much for the question, Jorge. I think there are a few things to say there. The first is that it certainly is the case that our AI sort of generated models and assisted models are more powerful than traditional logistic regression models. That is incontrovertible. And we are tracking them, though, in the exact same way that we would have tracked our historical models. We're looking at the degree of predictability, the variance at the low end and the high end of the predictive range, as well as the outcomes across both backtesting as well as forward testing of that model in production. So the macro point is that our risk approach and our credit monitoring hasn't actually shifted in this dynamic. And, in fact, we are very happy to continue to have that same level of discipline going forward. I would correct one thing you said, though, where you said that 12% is a floor. I didn't say that it was a floor. I said we'd be in that ballpark. And so I don't want to overcommit there. But what we are seeing is that our strategy that has been partially enabled by stronger models to make intentional risk expansions that produce more risk-adjusted margin is paying off, and that's what we're seeing for the foreseeable future.

I think, Jorge, the additional factor I always need to take into account is the increasing LDR and what LDR brings to the business model. This is something we've mentioned a few times, that if you look at our balance sheet, it continues to be very unlevered. You see in slide 16 how that LDR has evolved over the past few quarters. Q1 had significant growth, but then a large cost of credit, mainly because of seasonality. As we go into Q2, we start seeing the benefits of a lot of the growth and the sort of optimization of the balance sheet. And there's a significant opportunity going forward. We will continue to optimize that balance sheet, obviously, as we continue to grow our credit portfolio. And that just will simply be reallocating a lot of deposits that they are earning CDI or refer rate towards a much higher yielding asset. And that obviously falls directly into margin and into ROE. So that's a very strong dynamic that is also happening within the business model.

Thank you, David. That was very clear. And congrats again on the numbers.

Thank you. Operator, could you open the line for Mr. Eduardo Rosman from BTG Pactual?

Hi. Hi, everyone, and congrats on the numbers. I have a question for David regarding AI. I think we read recently that you became a part of the board of OpenAI, so it would be great if you could share with us, you know, how do you believe you can help OpenAI, but more importantly, how this experience might help you here at Nubank? Thanks.

Sure. Thanks, Edu. So, really, this is not OpenAI's earnings call, so I won't get into much of a lot. But I think effectively we discussed very openly that, internally and externally, that we think artificial intelligence is the most important technology transformation in our history. and it will be one of the most technological impactful shifts in any business, in any industry around the world. So this is a global trend and a very powerful trend. Businesses are going to see significant transformation. And it's early days, but we're seeing it very clearly inside Nubank. We've discussed here today a lot of the different applications from credit and underwriting, but even customer facing. and we're in the middle of a significant transformation across our organization around how we're using, putting AI in front and center as a technological trend and what will deliver us effectively an advantage. So from that perspective, for me, getting closer to a company like OpenAI obviously provides a very interesting insight. Me personally also, I think it's a great opportunity to make sure that some of these great AI companies builds something great for humanity, and I have a huge amount of respect for the OpenAI team and the way they are executing this mission. So I think it's a win-win, and clearly, I mean, it's early days, but I hope I can be able to contribute significantly to the way the organization is executing.

Thanks a lot, David, and congrats again. Thank you.

Operator, could you please open the line for Mr. Pedro Leduci from Itaumevia?

Thanks, everybody. Good evening. Two questions. The first, a little more homework technical. The portfolio that you now have with clients under the government renegotiation program, that appeared in stage three, maybe, in your personal loan book, And I'm assuming with a little bit less expected default, loss given default, given the coverage. Just that's the homework question that I'm trying to interpret here, the movements. And then the second, a little bit back to business. In the prepared remarks, when going over the unsecured lending, you mentioned the pace. You made some comments around that. If you can give us a little bit more color. And I also want on your latest update on how you are on payroll, including private payroll. Thank you.

Okay. Well, let me start with the technical question there. There was a small impact on expected credit losses, as I mentioned in my prepared remarks, but it wasn't material, less than $10 million, and it does appear in stage three of lending is where it shows up. I do think that we are going to see a little bit more impact from Desenrola in Q3, but we've already seen more than four-fifths of that hitting us in or benefiting us in Q2. and hope that answers your question.

The portfolio that you now have under the program, it is a stage three portfolio or starts in stage one?

Oh, right. So that, no, it's in a stage three portfolio.

Oh, perfect. No, the other one.

Yeah, sure. And in private payroll, we are accelerating month over month. We are slowly getting more comfortable with the product. There's been a significant progress in how the product is set up in the Brazilian market, the way companies are able to get the collateral, the way the systems are working. So as we've said many times, we've found asymmetric, an asymmetric that to go too fast or quickly on a product that has so many question marks. We think we're getting close to a system that makes a lot of sense, and we are accelerating. And ultimately, the lowest cost provider and whoever treats the customer best will win this market. And so we think we're extremely well positioned to be one of the leading players in this market over the next 18, 24 months. So we have – and we think it's a good thing for the market. The other part that is also starting to change slightly is, contrary to most people's intuitions, the first people that started taking these loans were very high risk. These were not the use cases that you would expect of people refinancing low risk, people refinancing high cost debt. It was actually very high risk at customers. And so from that perspective, it just didn't make a lot of sense for us to be opening the door for that as we understand the true level of risk. And there is a bit of a change of behavior. Customers actually, good customers actually seen the opportunity to refinance. Then this becomes a much more attractive product for consumers. We would love to do the trade. There's been a lot of conversations that we are fearful of cannibalizing ourselves or that we don't want it to be a success. But we'll be super happy being able to refinance all of the customers that want a lower interest rate for a product that has that collateral, it would be very beneficial for us to have a more diversification of portfolio. It would add more resilience. It would be less cyclical. But strategically, it's a product that we are very – we think in the long run will be very good, and we're very well positioned to do it. We just are going at our right pace, and we're getting more comfortable by the month.

Thank you, David. Operator, could you please open the line for this day, Judith Fernandez from JP Morgan?

Thank you, Soto. Congrats, Davi. Congrats, Rob. I have a question regarding the over $1 billion net income, and congrats on that, Davi. I was checking here at Itaú Unibanco, one of the leading banks in Brazil, and when I looked at the retail operation, Itaú is around $1.1 billion, right? So you are very close to that. And my question is, how to continue increasing this net income, David? I know your ROAs are higher. You have better cost of income. You have this efficiency tailwind. But you are getting very big, right? So if you can help us understand if this is just an RPAQ normalization, you have, like, your mature cohorts coming, or it's about new products, or it is about Mexico.

So trying to congratulate you on the $1 billion, dollars but also ask how to keep growing this sizable profitability thank you sure a couple of points you are right that uh at some point we're not there yet at some point we're run we're going to run out of brazilian customers uh we we have been saying that for about four years we continue to get close to a million customers in brazil um every every quarter and so uh we were in very sorry every month and so we're in very good shape in terms of of user count but there'll be a time where the number of brazilian customers will decrease then the opportunity is arpaq and as you've seen slide six the arpaq expansion is pretty significantly uh we've gone from 13 to 17. a lot of the incumbent banks if you look at the arpaq they are 40 to 45. we don't think necessarily we'll get to 40 or 45 because there is a lot of fees that we don't charge there might be a lot of products that we don't offer but we'll certainly there's significant upside from the 17 and above. And when you look at all these cohorts, our customers that have been with us for seven, eight years, they're already in the mid-20s RPAC and higher. So from that perspective, there's going to be a lot of the opportunity in Brazil is to continue increasing RPAC. Then we have the opportunity in Mexico and Colombia. As we've said, we think Mexico, a basic for Mexico is a business that could be 60%, 70% of Brazil, if the utilization in Mexico happens and a real-time payment system works, could be as big of Brazil. It's a lower population but has 30% higher income per capita, and the RPACs that we're seeing in Mexico are equal or above Brazil. So significant opportunity in Mexico. There is also a significant opportunity in Colombia. We are, our business there is significantly overperforming, and we're very happy with the opportunity there. So there is a huge amount of avenues of growth. Going back a little bit to Brazil, what we do see is that we need to have a better segmented portfolio, and that's why we announced Chroma. Now we have three core segments and value propositions to serve better other segments like super core and high income, where we already have a lot of customers, but we're not serving them well. We have a low share of wallet. We gave them – they came for a credit card. We gave them a very low credit limit. And because of the sophistication and improvement in our models, we're finally able to improve or create an underwriting capability for these segments and the value proposition for a lot of the products. And then finally, SME, we highlighted it here in slide seven. This is a blue ocean. This is a big opportunity. We are already the largest SME player in Brazil, over 6.5 million SMEs. We're just beginning to monetize that entire base and the cost factor advantage that we have, especially for the small businesses, is pretty significant. So, the net, yes, over a billion in net income, but we're looking at a gross profit pool of $100 billion from that perspective and a lot of opportunities still to grow, even in our core market like Brazil.

Now, super clear, Levi. If I may just follow up on Chroma, can you share any market share you have today and any goal you have for this segment? Thank you.

I can tell you that we already have three out of five Brazilians in this bracket as customers of NU. So it's not an opportunity necessarily. We have to go out in the market and acquire these customers and spend a lot of money on marketing. They're already inside our base. We just haven't treated them as good as they deserve. We just haven't given them the product set and the bundles that they should need. And so that is the opportunity. There's a huge opportunity to increase the share of wallets within those three to five resilience that exist in that base.

Perfect. Thank you very much. Congrats again.

Operator, could you please open the line for Mr. Jofi Elliott from Autonomous?

Hello. Thanks very much for taking the question. I noticed that the number of employees is down. It's down from 10,500 to 10,400, which doesn't sound like a big change, but it had been growing pretty quickly up until now. What are your hiring plans, and how is AI allowing you to use the workforce more effectively?

Sure. I mean, I think we, as you might remember, we announced getting back to the office end of last year, and that announcement caused a number of, a meaningful amount of people to decide not to work at Movenka anymore. So there was some attrition because of that. We have rehired, effectively, a lot of that attrition, and so you end up being something about flat. But looking forward, we are seeing a huge amount of productivity increase with AI, and we're very excited about the potential that that creates. But the list of things that we also want to do, the list of things that we want to build is also infinite. And so it just opens up a larger opportunity of things that we can try. So NetNet, I don't see us significantly increasing that number. I also don't necessarily see us decreasing the number. It feels more or less right, but it's certainly 10,400 employees that will be 2, 3, 4, 5x more productive over the next few years as we really integrate more AI with that. And then, obviously, the output of that headcount will be much larger than what we're able to provide today. And so we're very excited about that. and then staying on headcount thinking about the expansion employees in the u.s are pretty expensive you're moving into the u.s how far do you see the headcount shifting towards the u.s i don't think it's going to be a significant change in the in in the way we are uh uh distributed today where our majority of employees are in brazil and latin america we are hiring more in the U.S. and specifically in certain areas where we are able to find certain level of talent and experience that we just cannot find in Latin America, especially around AI. So we will increase the number of headcounts we have in the U.S., but it will not move the needle. I mean, you might go from 1% to 2% total, and that's sort of the level of changes. But obviously, it's talent that we would be, that we would be adding that would be very impactful. And then as we launch U.S. as a market and we start growing that market, then there'll be more hiring in the U.S. and hopefully we can be very productive and efficient as we launch the market and relying a lot on a lot of the AI capabilities that we're using. Thank you.

Please open the line for Mr. Mario Pierre. He's Bank of America for the next one. Could you please open the line from Mr. Daniel Roas from Safra, please.

Hi, everyone. Hi, David Soto. Thank you for the opportunity to make your questions. Hi, Rob. Again, welcome to Nubank. David, on your slide 11, you show deposit and credit financing, price optimization still in testing with AI. So, I was wondering on the credit card financing, where's the biggest price for you there I mean is to reprice the existing revolvers maybe you're using personalized rate to convert more transactors who never did credit card finance before so you want to offer them a cheap interest rate there so trying to understand where's the biggest price there for you in credit card finance and second on deposits so your loan to deposit is very low as you mentioned so how should we read that primarily as a funding cost lever so you want to bring your only cost down so you dissimulate people to put deposits there on your platform or doesn't have to do anything with that so you want to bring more deposit maybe pay more with for people who doesn't have to pause it today so kind of understand that where's the biggest price for AI applicable in this to businesses. Thank you.

Sure. So, just as a reminder, one of the most important metrics for us is net promoter score, NPS, or a number of different metrics around product quality. And we seek to, we think that the way our model works is that if we build the very best product in the market, then customers will come and financial results will follow. So, a lot of this optimization is not necessarily about minimizing cost, but it could also be about optimizing quality. And so the sense of the opportunity is that whenever we have a price, be it a price for a loan or credit product, or be it a yield that we offer in a deposit, or truly any other product that has a price, then every single customer will going to have a price which will maximize that equation of quality and cost being able to offer a higher quality at a lower cost and so that is the analytical exercise that we're increasingly investing in specifically on the deposit we just get to an equation whether we it would be our decision to decide if we want to optimize cost then we would be able to optimize the funding cost but we will know specifically what would be what we're giving up in terms of quality and competitiveness in that in that opportunity so I wouldn't necessarily think in the short term that this will drive an improvement in funding cost because we might decide to reinvest all of those gains back into the customer especially in countries like Mexico where we're so early and in Colombia and Brazil in some of the segments we want we are still very much on on day one we're still very much on on the challenging mode we're not in a mode of optimizing for net income or increasing earnings we're investing a lot in growth we're investing a lot of improving our products and our customer experience and

a lot of what we can do with this new model is being in it being able to make a better decision as we trade off quality with with cost for that quality all right thank you thank you correct again operator could you please open the line for mr. Marvier from Bank of America please hey guys uh sorry about that before thank you for taking my question and congratulations on the quarter it definitely was better than what we were expecting but two questions here for my part so so on the previous call right in any in the first quarter results. You guys talked about net interest, risk adjusted margin going back to the levels of the second half of last year by the end of this year. So we were talking about 10.8 to 10.5% and you jumped to 12.4%. So I'm trying to understand where is this surprise coming from, from what you guys were expecting? Is it that your credit that models are better, that you're able to grow faster than you expected, or, you know, because it is a big beat versus what you guys were expecting. And then my second question is a little bit more technical, and I appreciate you guys showing that slide on page 20 that shows the NPLs by income. But I was trying to reconcile that slide on page 20 or page 17, Because on page 17, you show that NPLs have some seasonality. And then when I look at this slide on page 20, it doesn't appear like there's much seasonality on that data. In fact, right, if we look at your NPLs, I think you showed July 25th, but now it has improved for every income segment that you showed. But then when we look at the overall NPL, it actually deteriorated 40 basis points. So, does it mean that the entire deterioration that we're seeing and all the seasonality that we're seeing is coming primarily from your unsecured personal loans? Because, again, credit cards are 65% of your loan book, and that is not showing any deterioration at all. Thank you.

Yeah. Thank you so much for those questions. I'll start with the second one first. So on page 20, as you're looking at the credit performance that we have relative to other banks in Brazil, keep in mind that this is credit card only, of course, and the other graph is for the whole company, and it's smooth. So that's in the MICE type at the bottom of the page here is that we're taking a rolling average, and that's why you're not seeing the seasonality that does actually exist in these numbers. Going back to your first question, though, around the overperformance of risk-adjusted NIM, if you recall at the time of the Q1 earnings, Desenrola was not clearly laid out at that time, and so about a third of that benefit relative to what we were expecting is coming from Desenrola. The two-thirds are coming from two things. One is just really solid credit performance across the board, and in some cases, better than expected. And the other is the increase in our balances that we're earning yield in Q2 at the very beginning. That was driven by the growth in Q1 continuing to ramp up. And so that did slightly come in better than we expected, and we're happy to have it now.

Okay, but just let me follow up then, even, okay, I see the footnotes here that says that you smoothed out the trends, but the starting point is higher than the current point for your NPLs, and when I look at your overall NPL, it's higher. So, again, is the deterioration primarily coming in the unsecured personal loans?

So I wouldn't quite characterize it as that as much as I would characterize it as a mixed shift that we are seeing. And so what you see on page 20 is essentially a disaggregated view of the portfolio by income bracket. And when you look at it that way, you do see this steady, if not decreasing, performance across all three segments in Brazil. But when you look at our overall portfolio, there are shifts in terms of where we are lending money. And it's primarily those shifts rather than deterioration within unsecured lending that's driving that increase over time. Does that make sense?

A little bit. But, yeah, we can follow up later. That's fine.

Yeah, it's more of a mixed shift rather than a dynamic where it's all coming from one product segment. And we can talk about it later.

Yeah, and I think that the problem that I have is that it's not like seasonal, right? It's more like a changing mix. The volatility in NPL is more because of changing mix rather than seasonal.

Well, the seasonal is still there. It's more this idea that if you look at slide 17 and you look at 90 plus over the past two years, general trend is upwards and it's been driven by the mix. That was my point.

Okay, thank you very much. Welcome.

Operator, please could you open the line for Mr. Craig Muir from FD Partners.

Hi, thanks for taking the question. Questions specifically for Rob, you know, having come with your background and new moving into the U.S., you spent a lot of time today discussing your data advantages in terms of lending, you know, credit is a superpower, so on and so forth. How do you think your models will hold up in the U.S. considering the change in demographics, and how much legwork do you have to do to rebuild those models before you can have the same degree of confidence?

It's a really good question, and I think it does tail nicely with our commitment that we've made that we are not planning to spend more than 100 basis points in our efficiency ratio on the U.S. entry. And the reason is, is it will take us some time to build up the same confidence in our credit risk models in the U.S. as we have in Brazil and Mexico and Colombia, where we've been operating for years. The way to think about it is that the platform, the new performer platform for credit models and the credit risk expertise that we have in the company will translate very, very quickly across the border. But the actual data richness and building the experience of foundational testing and having the models in place that are specifically tooled for the U.S. market will take somewhere between 12 and 30 months, depending on the degree of maturation of those curves. So our priority at the beginning of our entry into the U.S. market when that happens will be to test, learn, build out our data set, and then be ready to expand once we have that same level of confidence there that we do in our core markets.

Thank you.

Okay, with that, we've not prepared 60 minutes of the session, so we are now concluding today's call. On behalf of New Holdings and our Vector Relations team, I want to thank you very much for your time and participation in our earnings call today. Over the coming days, we will be following up with the questions received by our platform, and with those that attempted we were not able to ask to make questions tonight so please do not hesitate to reach out to our team if you have any further questions thank you and have a good night the new holdings conference call has now concluded thank you for attending today's presentation you may now disconnect