Earnings Call Transcript
Nu Holdings Ltd. (NU)
Earnings Call Transcript - NU Q4 2025
Operator, Operator
Good evening, ladies and gentlemen. Welcome to Nu Holdings conference call to discuss the results for the fourth quarter of 2025. A slide presentation is accompanying today's webcast, which is available on Nu's Investor Relations website in English and 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. I would now like to turn the call over to Mr. Guilherme Souto, Investor Relations Officer at Nu Holdings. Mr. Souto, you may proceed.
Guilherme Souto, Investor Relations Officer
Thank you, operator, and thank you, everyone, for joining our earnings call today. With me on today's call are David Velez, our Founder, Chief Executive Officer and Chairman; and Guilherme Lago, our Chief Financial Officer. Start with this quarter's results. We're introducing a new managerial reporting framework, including managerial indicators and our managerial P&L. All financial metrics discussed and presented today reflect this framework. Lago will provide additional details during his presentation. 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 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 this earnings presentation for additional information. With that, I will now turn the call over to David. Please go ahead, David.
David Velez-Osomo, CEO
Hello, everyone, and thank you for joining us today. 2025 was a fantastic year for Nubank, and Q4 '25 truly showed the strength of our business model. During the year, effectively, most of our key indicators from customer love to scale, engagement and profitability moved in the right direction, while we continue to invest significantly in long-term growth. We closed the year with 131 million customers adding 17 million net new customers and maintaining an activity rate of 83%. Scale and engagement remained the foundation of our model. ARPAC reached $15 per active customer, up approximately 9% quarter-over-quarter and 27% year-over-year, driven by deeper monetization across our platform. As a result of strong customer growth and higher ARPAC, revenues in Q4 '25 reached $4.9 billion, up 45% year-over-year. Gross profit in the same period reached nearly $2 billion, up 38% year-over-year. At the same time, we maintained discipline with an efficiency ratio of 20% under the new methodology even as we continued investing in our core markets and new technologies. Net income reached $895 million, translating into a record 33% return on equity while maintaining strong capital buffers and scaling our credit portfolio responsibly. These results reflect the priorities we set and the discipline of execution throughout the year. One way to see this execution is to look at what we put in customers' heads. Across our markets, we launched more than 100 new products and features. More important than the number was the intent. Each launch aimed to deepen engagement to expand access and strengthen unit economics. Individually, these initiatives are incremental. At scale, they compound. In payments, we evolved Pix with AI-enabled features, launched instant payments in Colombia and expanded Mexico's cash in and cash out network to more than 30,000 physical points. In credit, we expanded responsibly, launching new payroll loan modalities in Brazil, the subscription-based credit card in Colombia, and rolling out programs like Fresh Start to help engage customers regain access to credit. We also introduced the under 18 credit card, beginning to build financial relationships earlier in customers' lives. On the affluent segment, Ultravioleta continued to strengthen our value proposition. For SMEs, we scaled credit products and launched tools like Charging Assistant to help small businesses manage cash flow. Behind this execution was a clear set of priorities, cutting our allocation of capital and talent throughout the year. As you may recall, our top priority is to build the largest and most loved retail banking franchise in Latin America. In 2025, we made measurable progress across all three markets. In Brazil, we became the largest private financial institution by number of customers, reaching 113 million with an activity rate of 86%. Scale and engagement continue to reinforce each other. In Mexico, we reached 14 million customers, advanced our banking license process, and roughly half of our customers received their first credit card through Nu, reinforcing our role in expanding access to credit. In Colombia, we surpassed 4 million customers, and the subscription-based credit card significantly increased approval rates while maintaining healthy unit economics. In our digital ecosystem, we reached over 12 million unique active customers across initiatives such as NuCel, NuPay and NuTravel. Adoption remains early relative to our base, but growth and satisfaction indicators are compelling. On AI and global expansion, our foundation model, nuFormer, is now in production for credit decisioning in Brazil and is in testing across additional use cases. AI is already improving underwriting, conversion and service quality with Pix with AI surpassing 10 million monthly active users. In January, we also received conditional approval from the OCC for a U.S. national bank charter. Overall, we delivered on our 2025 priorities while strengthening the foundation for what comes next. Let me now turn to how we're thinking about 2026. As we enter 2026, we see this as an inflection year. The year we begin transitioning from a Latin American leader to a global digital banking platform. Our priorities are organized around three pillars. First, winning in our core markets. Brazil and Mexico will continue to absorb the majority of our capital and management attention. In Brazil, we will deepen leadership in the mass market, expansion of wallets and ARPAC, strengthening small businesses and grow our high-income presence through Ultravioleta. In Mexico, finalizing our banking license process is critical as it unlocks the next phase of credit growth and customer depth. In Colombia, we will continue scaling credit and bringing a number of new products. Across all three markets, our focus remains on experience, principality and monetization. Second, strengthen foundations for international expansion. During 2026, we will lay the operational groundwork for our U.S. opportunity, building on the conditional bank charter approval. Latin America remains our primary growth engine. Third, AI as a superpower. We will expand nuFormer to lending in Brazil and credit cards in Mexico, and continue putting AI directly into customers' hands, moving closer to our long-term vision of an AI-powered personal banker in every customer's pockets. With that context, I'll hand it over to Lago to walk through the quarter's financial results.
Guilherme Marques do Lago, CFO
Thank you, David, and good evening, everyone. Now before moving into this quarter's financials, I will briefly explain an evolution in our disclosures. As Nubank has become a multiproduct, multisegment and multicountry platform, we are introducing a managerial P&L to provide a clear view of value creation and internal performance. This evolution does not change economic reality. It only clarifies it. The managerial P&L is derived entirely from our IFRS results and represents our structural reorganization of IFRS line items designed to enhance comparability and better reflect economic contribution. The framework preserves net income, cash flow, equity and regulatory capital and is fully reconciled to IFRS. The key benefit is clear visibility into how margins, operating leverage, and value creation evolve as the Nubank platform scales across multiple products, segments, and geographies. And to support this new disclosure, we are publishing a detailed managerial P&L reconciliation report on our Investor Relations website, including the full bridge to IFRS and the complete methodology used. We have also updated historical data back to the first quarter of 2021 under this new framework. With that context, I will now walk you through the quarter's performance already used in the managerial P&L. We ended the quarter with a total portfolio of $32.7 billion, up 40% year-over-year, driven primarily by credit cards and unsecured lending. Credit cards increased 12.2% quarter-over-quarter. This was the strongest quarterly growth since the end of 2023. This reflects continued limit expansion in Brazil supported by our foundational credit models, along with typical fourth-quarter seasonality. Now unsecured lending balance surpassed $8 billion with record-high originations of $4 billion in the fourth quarter. Secured lending grew 3.8% quarter-over-quarter. Recent changes to FGTS regulations have reduced new originations by more than half, though the impact on the outstanding portfolio remains limited given the longer duration nature of the secured loans. We remain very comfortable with the portfolio's growth trajectory and risk profile, underpinned by very disciplined credit underwriting and the evolving nature of our credit models. I will now turn to deposits where we continue to build a scalable and resilient funding base. We ended the quarter with total deposits of $41.9 billion, up 29% year-over-year, with growth across all three countries. In Brazil, growth reflected typical fourth-quarter seasonality, including the 13th salary. In Mexico, following pricing and product adjustments in the third quarter, deposits resumed growth in the fourth quarter. On funding costs, we saw improvements across all geographies. The cost of deposits declined to 87% of the interbank rate on a consolidated basis by the end of the fourth quarter, reflecting mixed dynamics, disciplined pricing, and seasonality. Now deposits remain a very strategic lever for us. Strengthening balance sheet resilience, supporting earnings and reinforcing customer engagement while we continue to manage pricing with discipline to preserve attractive economics. Turning to NII, CLA, and risk-adjusted margins. Net interest income increased 13% quarter-over-quarter, driven by portfolio growth and improved funding costs, especially in Mexico. Credit loss allowance increased primarily as a function of growth. As we expanded credit card limits and balances, provisions rose mechanically due to front-loaded origination accounting while underlying credit quality remained stable. We also recorded a one-off item related to Mexico. As background, Prosofipo is a sector-wide deposit insurance fund to which all Sofipos are required to contribute to. As the largest Sofipo in the country, Nu was required to make an extraordinary contribution of approximately $25 million, which is reflected in interest expenses this quarter. This is a one-time nonrecurring regulatory levy, not a reflection of the credit quality or the financial health of our operations in Mexico. Risk-adjusted NIM closed at 10.5%, and would have been broadly stable quarter-over-quarter excluding the Prosofipo contribution. Moving to asset quality. As our portfolio has diversified across products, segments and geographies, we are now presenting consolidated NPL metrics. We believe this provides a more holistic view of credit quality across the Nubank platform. Now given Brazil's relative size, trends remained largely driven by the Brazilian portfolio, where credit performance continues to track our expectations, supported by disciplined underwriting. As you see in the slide, early-stage delinquencies measured by 15 to 90 NPLs improved for the fourth consecutive quarter, declining 20 basis points to 4.1%, partially reflecting the seasonality of the quarter in Brazil. As a result of prior improvements in early delinquencies, 90+ NPLs declined 10 basis points, pointing to 6.6% in the quarter. Coverage ratios remained strong, both on total balances basis and on 90+ NPLs, providing continued comfort across loss absorption. We typically see a seasonal uptick in the 15 to 90-day NPLs in the first quarter of the year. This pattern is expected for this coming quarter, aligned with historical trends. Overall, we see no signs of deterioration and remain comfortable with our credit quality indicators. Turning to gross profit. Gross profit reached nearly $2 billion in the quarter, up 38% year-over-year. In terms of composition, float contribution increased, reflecting strong deposit inflows in Brazil and improved funding economics in Mexico following the pricing adjustments implemented in prior quarters. Fees also performed well, driven by very strong purchase volumes supporting the largest quarterly increase in our credit card market shares in Brazil in over 10 quarters. The credit component reflected higher front-loaded credit loss allowances consistent with the strong portfolio growth in the quarter. Now looking ahead, we will remain credit-first. Credit represents the largest profit pool in financial services and is a key driver of engagement and relationship depth across our platform. At the same time, fees and float provide diversification and support a more resilient gross profit profile as we continue to scale across products, segments, and geographies. Moving to the efficiency ratio now. As part of our disclosure evolution, we updated the methodology for calculating this metric to better align with industry practice and enhance comparability. Details of this new methodology are included in the appendix to this presentation, and we are also presenting the ratio under the prior methodology for reference. Under the new methodology, the efficiency ratio declined to 19.9%, falling below 20% for the first time in our history. This reflects operating leverage with net revenues growing faster than operating expenses even after typical fourth-quarter seasonality in marketing and transactional costs. In the fourth quarter, we also recognized approximately $22 million of transition expenses provisions related to our return-to-office decision, which becomes effective only in mid-2026. These cost provisions are temporary and not indicative of the ongoing run rate. Now looking ahead, as David outlined before, 2026 is in fact an investment year. We are laying the operational foundations for global expansion and accelerating the adoption of AI and other new technologies across the platform. These are deliberate investments in long-term capacity building for Nubank, and they will likely put upward pressure on the efficiency ratio in the near term. We are comfortable with this trade-off. The structural drivers of operating leverage, revenue growth, scale, and disciplined cost management remain unchanged, and we expect efficiency to continue improving over the medium term as these investments that we are making today begin to generate returns. To close the P&L review, net income. In the fourth quarter, net income increased 50% year-over-year to $895 million, delivering a record-high ROE of 33%, while we continue investing in growth and maintaining robust capital buffers. This includes certain nonrecurring items in the quarter, a positive impact of approximately $58 million of net income related to the remeasurement of deferred tax assets following the CSLL rate increase in Brazil and a negative impact of approximately $29 million related to return-to-office provisions and the Prosofipo levy in Mexico. Together, these results demonstrate the scalability of our operating model, growing earnings while sustaining high returns. Now turning to capital and liquidity. At the holdings level, total capital stands at $8.9 billion. Of that, $3.6 billion covers regulatory requirements across our three geographies. $2.2 billion represents excess capital in our operating entities. And $3 billion sits at the Nu Holdings level as unrestricted cash and equivalents available to fund continued growth in our core markets as well as our global ambitions. On the liquidity side, available funding of $38.8 billion represents approximately twice our net credit portfolio of $19 billion, which represents our gross credit portfolio net of credit card accounts payable, providing very significant headroom to continue scaling credit responsibly while also seizing the opportunities coming from further balance sheet optimization. Our capital liquidity positions reinforce our ability to invest in growth from a position of strength, and that is exactly what we intend to do. Taken together, our capital and liquidity positions are not simply a reflection of our past performance. They are, in fact, the foundation of what comes next, and we enter 2026 with the financial strength to win in our core markets, the firepower to accelerate globally, and the discipline to do both things responsibly. Now I'd like to thank you, and we are very happy to take your questions.
Operator, Operator
I would now like to turn the call over to Mr. Guilherme Souto, Investor Relations Officer.
Guilherme Souto, Investor Relations Officer
Thank you, operator. Could you please open the line for Mr. Eduardo Rosman from BTG Pactual?
Eduardo Rosman, Analyst
I have a question for David Velez regarding AI. David, do you see a risk that Nu could be disrupted by AI? Or do you see Nu as a potential winner in this transformation? It would be great if you could elaborate a little bit since I think the stock and then the sector in the U.S. has been suffering lately because of that.
David Velez-Osomo, CEO
Certainly. The situation presents both challenges and opportunities. Overall, we perceive more opportunities than challenges for us, but we're taking it seriously. There's a common trend in technological transformations, including the internet era, where business models that primarily act as intermediaries, transferring data from one place to another, face quicker risks of disruption. In financial services, those businesses just moving money can be particularly vulnerable. To thrive, adding more value is crucial. We believe that credit revenue is among the most sustainable in financial services due to its capital intensity, regulatory requirements, balance sheet characteristics, and the proprietary nature of data enhanced by AI, which aids in decision-making. While there may be challenges to our business model, we are well-positioned with our strong credit framework. On the revenue side, we see significant potential, especially with our package priced at $15 a day compared to competitors at around $40, allowing for an increase in our average revenue per account. We aim to leverage our large consumer base for cross-selling and new products, using our existing data to introduce additional services. We've noted a substantial lift in revenue opportunities through our own foundation model in credit and cross-selling. Regarding costs, every company, particularly banks, can enhance operations through AI, improving customer service, compliance, and regulatory processes. While some business models may face disruption, it's important to remember that a large majority of financial services profits are still held by traditional banks with higher cost structures, positioning us well to harness AI for growth in revenue and cost efficiency and potentially emerge as a leader in this technological transformation.
Guilherme Souto, Investor Relations Officer
Operator, could you please open the line for Mr. Jorge Kuri from Morgan Stanley?
Jorge Kuri, Analyst
Congratulations on the numbers. I have a question regarding your loan growth for the quarter, which is actually a two-part question. First, could you explain the impact that your limit increases are having on your credit card growth? Specifically, how much of the year-on-year growth can be attributed to those limit increases? How much of the acceleration in credit cards do you anticipate will continue into 2026? The second part of my question is about FGTS. Can you quantify the headwind on your loan book due to FGTS? In other words, what would the portfolio sequential growth have been without FGTS?
Guilherme Marques do Lago, CFO
Thanks for the questions. I'll break them into two parts. Your first question was about the limit. This year, we've successfully implemented new technologies and approaches to credit underwriting, allowing our customers, particularly in Brazil, to increase their credit limits. To illustrate the extent of this increase, recently, we started providing details on unused credit limits. They rose from approximately $18 billion to $29 billion, which is an $11 billion increase and represents a 60% rise in unused credit limits. This significant growth would not have been possible without our predictive AI credit underwriting tools developed over the past 18 to 24 months. However, we have not yet seen these benefits reflected in our net income. Normally, I see credit limit increases unfolding in three steps: first, offering additional credit limits; second, translating those limits into purchase volume; and third, seeing whether that volume translates into income before provisions. We're beginning to see the first step, as in the fourth quarter of 2025, our market share in purchase volume in Brazil increased by about 50 basis points, marking the largest market share gain Nubank has experienced in the past 10 to 11 quarters. There are still two more steps to go, and we need to confirm that the purchase volumes will convert into income. While 2025 shows a significant ability to increase limits, I believe we will continue to see progress with new models and improvements throughout 2026 and beyond. Additionally, the use of predictive AI technology will not be limited to Brazil; it will extend to Mexico, Colombia, and areas such as acquisition and fraud management. We have many opportunities to explore. Regarding your second question about FGTS, new regulations came into effect on November 1, 2025, which led to a 50% to 60% decline in our FGTS loan originations since the regulation took effect. This decline has been more than compensated for by growth in public payroll loans, but it has certainly posed a challenge for this particular asset class.
Jorge Kuri, Analyst
And is there a way to quantify that? Thinking about it on a quarter-to-quarter basis, what would have been the total balance of credit expansion excluding that? So instead of the 11% FX-neutral quarter-on-quarter, what would have been the number without FGTS?
Guilherme Marques do Lago, CFO
Yes, it would have been about 13% to 14%.
Jorge Kuri, Analyst
Okay. So quite significant. That was super clear. Congrats again.
Guilherme Marques do Lago, CFO
Thanks, Jorge.
Guilherme Souto, Investor Relations Officer
Operator, could you please open the line for Mr. Pedro Leduc from Itau BBA?
Pedro Leduc, Analyst
As we look ahead to 2026, I want to touch on the efficiency trajectory. You mentioned potential pressures, and I'd like to delve deeper into that. It's important to consider the ratio as we think about revenues, especially since you're concluding with a strong pace in your loan book and net interest income. Moving forward, could you clarify the key drivers as funding costs fluctuate? Please help us understand these factors, especially now that you're achieving a 35% return on equity.
Guilherme Marques do Lago, CFO
Thanks for the question, Leduc. I want to direct your attention to Slide 16 of our earnings presentation, which outlines the evolution of our efficiency ratio. Over the past quarters and years, we've observed ongoing potential for operating leverage within the organization. It's important to note that we may experience upward pressure on the efficiency ratio in the upcoming quarters, specifically over the next four to six quarters, due to intentional investments, which fall into three categories. First, we've recently implemented a return-to-office policy, set to begin on July 1, 2026, requiring employees to return to the office twice a week. This necessitates preparing our office spaces and increasing the leased area to accommodate our employees, which we believe will yield significant benefits such as increased ingenuity, innovation, and coordination. However, this will result in higher operating expenses in the short term. We estimate that this return could raise our efficiency ratio by approximately 80 to 100 basis points, all else being equal. Secondly, we are making substantial investments in AI and new technologies. This includes hiring new talent and increased R&D investments in GPUs, which will create short-term costs. Nonetheless, we anticipate that these investments will lead to much greater medium-term benefits. We remain committed to investing in talent, R&D, and GPUs to enhance our AI initiatives. The third area involves globalization. We are investing heavily to establish a foundation that allows us to expand beyond Brazil, Mexico, and Colombia. A significant portion of these expenses will not be capitalized but will be incurred in 2026 as we work towards generating revenues and margins in future years. While I cannot provide precise figures on the impact of these three areas at this moment, we do believe they will contribute to upward pressure in the coming quarters.
Guilherme Souto, Investor Relations Officer
Operator, could you please open the line for Mr. Yuri Fernandes from JPMorgan?
Yuri Fernandes, Analyst
Congrats on the year. Most metrics, they look very good. But there is one line here that I think investors are a little bit more puzzled this quarter. That is the tax rate, right? And I know there are managerial adjustments, and we see some incumbents in Brazil also having similar adjustments. So I think it's easy to understand and explain. But regarding this quarter, and maybe Lago can help me here, I would like to understand what drove the lower accounting tax, if this was the DTA? And you have lower DTAs, but just checking if this was DTA, some kind of tax-exempt bond, IOC. And maybe some kind of color going ahead, what should we expect for the tax rate for Nubank?
Guilherme Marques do Lago, CFO
Sure. So Yuri, look, I think the lower effective tax rate in the fourth quarter can be explained by, I would say, largely two things: 1 completely nonrecurring and 1 recurring. What's the nonrecurring one? So about beginning of December 2025, the federal government approved an increase in the corporate income tax applicable to fintechs, including those like Nubank that essentially kind of increased progressively the corporate income tax from about 40% to 45% starting in 2026 and then going all the way in the next two years. Even though that, in the medium term, is a headwind for our effective tax rate, in the quarter in which this kind of legislation is passed, we have to remeasure our deferred tax assets. So our DTAs remeasure up, and that increase in the DTA, which was about $58 million, is recognized in the fourth quarter of 2025, decreasing the effective tax rate in the quarter. So that's the portion that I attribute as a nonrecurring one-off event. The recurring ones is that kind of as we increase the amount of investments that we have been making in technology across the firm in Brazil but also in the other countries, we end up also benefiting from kind of a technology investment tax breaks that some of the governments provide. And that may increase a little bit the OpEx, but they are more than offset by lower effective tax rate. Those are the two aspects that have kind of impacted ETR this quarter.
Yuri Fernandes, Analyst
So very clear, Lago. And you also had the nonrecurring on the Prosofipo, like the deposit as you mentioned, so not the same magnitude but also negative versus this tailwind you had in the quarter.
Guilherme Marques do Lago, CFO
No, Yuri. That's precisely clear. I think we have basically three one-offs in the quarter, right, what I would say. One is the $58 million DTA reassessment that we just discussed. The other one was the about $25 million one-off expense of the Prosofipo. And the third one was the $22 million provision expense for the return-to-office program, right? So those are the three moving parts that we have: DTA positive, return to the office negative and Prosofipo negative.
Guilherme Souto, Investor Relations Officer
Operator, could you please open the line for Mr. Mario Pierry from Bank of America?
Mario Pierry, Analyst
I wanted to focus more on the provision expenses because we noticed an increase in your cost of risk this quarter. Last quarter, if I remember correctly, you mentioned your ability to extend credit to existing clients by using AI, which resulted in a lower cost of risk. Now, I want to understand what happened with provisions this quarter. Additionally, you indicated that your non-performing loans were relatively stable. However, this is a consolidated figure, correct? Previously, you only showed Brazil's non-performing loans. It appears that your consolidated non-performing loans are lower than before. Can you explain why, as you expand into Mexico, are you observing lower non-performing loans there compared to Brazil?
Guilherme Marques do Lago, CFO
Thank you for your questions. Let me address them one by one. Firstly, we did experience an increase in the CLA item this quarter, which was entirely due to growth, not any deterioration in asset quality. Our asset quality has performed well in line with expectations, including seasonal trends. As of now, we have not observed any signs of deterioration in asset quality across all asset classes in Brazil, Mexico, and Colombia. We monitor these metrics closely, and they continue to track in accordance with our expectations. The increase in CLA is justified by the growth in exposure, including a rise in the credit book, which grew about 11% quarter-over-quarter, and an increase in unused credit limits that necessitate building CLA. CLA growth is thus completely driven by increased exposure, not by asset degradation. I would also like to point out that non-performing loan (NPL) formation has remained fairly stable, moving from 3.6 to 3.5, with Stage 3 formation also being stable. I personally track the CLA divided by the average credit portfolio, which shifted from 3.9 in the fourth quarter of 2024 to 4.3, then back to 3.9. In the third quarter of 2025, it dipped slightly to 3.3 but has now returned to 3.9. It's possible that this third quarter showed slightly lower figures, but we expect it to stabilize again around that level. Looking forward, we anticipate a figure around or below the average of 3.3 and 3.9 in the upcoming quarters, which is beyond our control but reflects our expectations based on the current mix. Regarding your second question about consolidated NPL trends, as we expand internationally into Mexico and Colombia, we anticipate that these metrics will better reflect the company's economic reality rather than focusing solely on Brazil. However, if we were to present Brazil-only NPL charts, they'd still indicate a fairly benign trend in asset quality, moving in line with the expected seasonal patterns for the fourth quarter. As to how Mexico and Colombia contribute to lower NPLs, it largely relates to our write-off policies in those countries rather than the inherent risk involved. In Mexico and Colombia, we have shorter write-off policies compared to Brazil, which influences the overall NPL calculations. Overall, I want to emphasize that we currently have no concerns regarding asset quality. It's important to note, especially for those new to the call, that in the fourth quarter of each year, we typically observe a benign trend in NPLs due to seasonality. We also expect to see a slight increase in NPLs in the first quarter of 2026, following seasonal patterns.
Guilherme Souto, Investor Relations Officer
Operator, could you please open the line for Mr. Gustavo Schroden from Citi?
Gustavo Schroden, Analyst
My question is about credit products and the client mix. We noticed a significant increase in the loan book for credit cards and personal loans, but I want to delve deeper into secured loans. Lago mentioned that the recent FGTS change has affected this portfolio's development. I'm interested in understanding the demand for payroll loans, both public and private, and how the bank perceives these products. Should we anticipate some replacement of FGTS by private payroll loans? Any insights on this would be appreciated. Additionally, regarding the client mix, could you elaborate on how the bank is progressing in exploring the affluent market, particularly among mid- to high-income customers, especially after the increase in credit limits? That would be helpful.
Guilherme Marques do Lago, CFO
Thanks for the question. Let me try to address the first one on the breakdown of originations of our secured loans, and then David may address the second one on our performance in both the, what we call, super core and high-income segments. So I would basically divide our secured loan portfolio into three, right? So we will have the FGTS. We have the public payroll loans, and we have the private payroll loans. So FGTS is the one that has recently received kind of a negative impact of the new regulations starting on November 1, 2025. It has dropped kind of our originations by about 50%, and we continue to have a very good dialogue with the government to try to influence the agenda for 2026 and 2027. We have become market leaders in FGTS. It was a very good product, and we believe it will continue to play an important role in the formation of our secured lending book. Even though if regulations don't change, it will probably play a smaller role than it could have played before. But that's bucket number one. Bucket number two, public consignado or public payroll, which I put here, including both SIAPE and INSS, we are very bullish on this. We think it is still a market that has a lot of opportunity to increase efficiency in the intermediation and in the distributions. We can offer products at materially lower cost than most of the other market participants. And it's now finally entering into time in which we will see interest rates drop in Brazil. And with that, we hope that kind of portability will pick up, and we like to believe that we're going to be one of the biggest beneficiaries of that trend. So I think it is one that we think regulation is there. Portability is there. The interest rate cycle is there. So we are bullish that this will have an even faster growth in 2026. The third bucket is private consignado. So this is a product with which we are very, very optimistic and bullish on a structural form by which I mean it is a way for fintechs such as Nubank to have access to information and to customers who used to be primarily served by incumbent banks, which own the payroll service of large corporates in Brazil. So it's a massive opportunity for us. And it's one that we will lean in as soon as we see the mature improvements in credit risk that this product offers. We are still not seeing that. I think part of that is kind of a counterparty risk of the corporates. Part of that is the collateral is not yet operating at its full potential. We, however, think it's a matter of when, not a matter of if. This is a good product. This is a good structure. This will benefit consumers, by and large. We just don't think that is yet ready to be kind of the product in which we will lean in that heavily at this point.
David Velez-Osomo, CEO
On the secured lending side, there remains a significant opportunity for us. However, growing within that existing profit pool has proven to be more complicated than we anticipated due to the considerable operational complexities associated with the product. There are numerous features that need to be integrated, especially concerning portability. Most of the growth in these products hinges on portability, and when customers engage in this process, extensive integrations are required. Additionally, there are several fees involved. Fortunately, much of the friction previously encountered is diminishing. A consistent positive factor in Brazilian financial services is the reduction of friction and costs that historically hampered movement toward better products. As a result, we are experiencing accelerating market share gains, and we are actively developing many of those necessary features, securing a significant share in the secured line. While I wish the growth so far had been more substantial, we are seeing an upward trend in market share every month, supported by favorable conditions. On the high-income side, we continue to achieve solid growth in a competitive environment, with both incumbent banks and others targeting this segment. We define this high-income category as customers earning more than BRL 12,000 per month, which represents a larger pool of around 10% of Brazilians. Within this demographic, we have captured around 40% of these potential customers; however, many do not use us as their primary card. We tend to act as a third card in their wallets and currently hold a small share of their spending, often due to initially low credit limits offered. We are now exploring opportunities to enhance credit limits for the mass market, leveraging AI models to better understand customer behaviors, especially for high-income individuals. We are improving our credit limits and enhancing the value proposition of our credit card products. Over the past few quarters, we have rolled out significant improvements, including various cashback rates and integrations with our NuTravel platform, which provides customers with guaranteed pricing on tickets and hotels booked through our app. Customers are finding substantial value in this offering. Additionally, we have introduced a frequent flyer lounge in Guarulhos, Sao Paulo, which has been well-received. This creates a wealth of opportunities for us to further enhance our credit card products, and we anticipate this will lead to increased market share. This segment has experienced approximately 40% year-over-year growth and is gaining traction within our portfolio, showing that our investments are starting to yield results. The second aspect of our value proposition is investments. As we've discussed before, it has taken time to develop a compelling investment offering in our app, but we are nearing product parity. We now provide all the essential products for this segment, including fixed income, equity, and crypto products, along with the types of visualizations that customers seek. We are on the verge of establishing a robust investment platform, which is essential for winning over the high-income demographic. Overall, these two specific areas of opportunity are long-term projects involving various product enhancements. We are optimistic about the progress we’ve made and the potential that lies ahead.
Guilherme Marques do Lago, CFO
And Gustavo, just one additional point. We mentioned about the mass market, which, in our definition, our customers will earn up to BRL 5,000 per month. And then you asked about what is called high income, which are customers who earn more than BRL 12,000 per month, which was the answer that David had provided. But in the middle, which is what we call super core, i.e., customers who earn from BRL 5,000 to BRL 12,000 per month, it is the segment in which we are growing the fastest. So as David mentioned that in the high-income segment, we've been growing at about 40% per year. In what we call super core, we are growing at about 100% in 2025. So I would kind of invite you and others to segment this at least into three parts. And I think there's a massive opportunity for us to go into the super core there as well.
Guilherme Souto, Investor Relations Officer
Operator, could please open the line for Neha Agarwala from HSBC?
Neha Agarwala, Analyst
I wanted to follow up on the private payroll segment. We understand your concerns about operational complexities at this time, but we are seeing many other lenders being more aggressive in this market, which has doubled in 2025. Do you see the risk of some of your customers with personal loans or credit cards going to other banks for private payroll loans, potentially increasing their leverage and impacting the asset quality for those unsecured customers?
Guilherme Marques do Lago, CFO
Yes, very good question. And yes, we are very mindful of those two risks, which I call kind of the cannibalization, i.e., customers borrowing from another bank and kind of us losing the primary banking relationship. That's one. The second one is structural subordination, right? So customers borrowing and providing the collateral and ourselves becoming structurally subordinated to someone else. The same can be made when we lean in into this product. Even though we have been very mindful of this, we have not yet seen any evidence that any of those two risks that you've laid out are materializing within our customer base. In fact, most of the customers who have been applying for private payroll loans have been customers with higher credit risk, at least that has been our experience, and most likely customers who would not be entitled to have access to unsecured personal loans or even sometimes to unsecured credit cards. But we are tracking this very, very closely. In terms of the growth of the market that you've also pointed out now, I would highlight that there are a few things to adjust in this growth. One is there's just a natural shift from asset classes that were considered private consignado without the collaterals that were instituted by the government and are just now migrating to the new private consignado. Those are usually loans that have been carried by kind of the more traditional incumbent banks, and they account for a fairly substantial portion of what is seen as the growth of this new asset class, i.e., is just migration from the old to the new. The second one, we now see kind of players playing in this space with very two kind of different approaches. The incumbent banks who have relationships with the corporates when it comes to payroll loans, they are more focused on the lower risk customers, and the digital players are more focused on the higher-risk customers. But when we step back, we are seeing kind of this market operating with first losses of low double digits, which is not yet conducive to the quality of the collateral that this product can have. Once we see kind of a credit improving as the product will deliver, we will not shy away to leaning very heavily, and the term cannibalization is just not a term that we use. We will be there offering the best product for our customers irrespective of whether they will actually use the proceeds to prepay or repay higher yield assets. We are not moving ahead with this as strongly as others not because of the risk of cannibalization but more because of conservatism with credit risk.
Neha Agarwala, Analyst
Understood, Lago. And in terms of cannibalization, yes, your NIMs might go down, but risk-adjusted NIMs might not be impacted as much even if you replace the credit from unsecured to secured with some of your customers, right?
Guilherme Marques do Lago, CFO
That's correct. The other component of that, Neha, is that you may see, at some point in time, the amount of capital that you have to allocate to private consignado possibly being lower than the ones for unsecured. So not only risk-adjusted NIMs may be preserved or even increased in an absolute amount, but the return on equity may be as appealing, if not more appealing because you have to post lower capital to that. Yet to be defined.
Neha Agarwala, Analyst
I just wanted to understand why not offer the private payroll. And I understand that there are complexities, and you can price for those complexities and collateral not working smoothly. Why not offer it to some of the customers whom you deem to be riskier and you don't want to give them an unsecured loan at this point? Why not start off with the secured private payroll loan with them and price it accordingly?
Guilherme Marques do Lago, CFO
Yes, we most certainly could. I think what we are saying is that the benefits of the collateral for the higher-risk customers have not proven to be material enough to justify a substantially different credit underwriting or pricing policy to date. But again, just to be super clear, I think it is a matter of when, not a matter of if. This is a good product. This is a good structure. This will benefit consumers, by and large. We just don't think that it is yet ready to be kind of the product in which we will lean in that heavily at this point.
Guilherme Souto, Investor Relations Officer
Operator, could you open the line for Mr. Tito Labarta from Goldman Sachs, please?
Tito Labarta, Analyst
I guess my question is following up a bit more on expenses. First, you talked about 2026 being an investment year and thinking more about the global expansion. Just help us think a little bit about what investments are needed there because, I mean, you got the initial license pre-approval, I guess, in the U.S. But is there more investments that you need to make in the U.S. already in 2026? Just help us think about what are these investments that you need to lay this global foundation. And then also just specifically in the quarter, because if I look at the accounting P&L, which, I guess, is more comparable to the estimates that are out there, there was a big jump in expenses, and I know there was the one-off from the return to office but marketing expenses jumped quite a bit. G&A expenses jumped a bit. If you can just give some more color, what specifically drove those increases in operating expenses in the quarter would also be helpful.
David Velez-Osomo, CEO
Thanks, Tito. Regarding the U.S., we will keep investing, primarily in team building and product development. The investment amount is modest and not a major part of our launch efforts in the U.S. Recently, we announced several larger marketing partnerships that are related to both our core markets and the U.S., as well as potential future markets globally. There will be some increase in marketing efforts and team expansion for the U.S. launch, but I wouldn’t expect them to be significant in 2026.
Guilherme Marques do Lago, CFO
And then, Tito, on your questions about the breakdown of our OpEx in the fourth quarter of 2025, I think the marketing one is a traditional seasonal one. It usually spikes a little bit in the fourth quarter of the year. The other one was incorporated in the tax breaks related to technology investments. So many of the increases in Lei do Bem are recognized as OpEx, but they actually drive quite a bunch of off-tax efficiency. But nothing extraordinary or nonrecurring other than those three moving parts that we've mentioned.
Tito Labarta, Analyst
Okay. No, super helpful. And maybe just one quick follow-up for David. Any just initial thoughts on what the expansion plan in the U.S. will be, like just a high-level footprint on what you're targeting segments, go to market there? Any color or thoughts that you can provide would be super helpful.
David Velez-Osomo, CEO
Sure. At a high level, we're not quite ready to share the specific strategy yet, but this is the largest market globally. Although some segments appear saturated or competitive, when we explore certain niches that are significant in size, we find opportunities to address consumer problems similar to our previous experiences. Our strategy will be highly targeted, and we will be disciplined in our investments. We are focusing on specific geographies or subsegments of interest. We won't be taking a scattered approach because we recognize this is a lengthy journey and a competitive and sophisticated market in areas. However, we believe there are opportunities to build a meaningful business in certain subareas of the United States.
Guilherme Souto, Investor Relations Officer
So thank you, everyone. We now have approached 60 minutes of the call, so we are now concluding today's call. On behalf of Nu Holdings, our Investor Relations team, I want to thank you very much for your time and participation in Nu's earnings call today. Over the coming days, we will be following up with questions received tonight but we are not able to answer. And please do not hesitate to reach out to our team if you have any further questions. Thank you, and have a good night.
Operator, Operator
The Nu Holdings conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.