Q2 2024 Nu Holdings Ltd Earnings Call

August 13, 2024

Speaker Change: You have joined the meeting as an attendee and will be muted throughout the meeting.

Unknown Attendee: You have joined the meeting as an attendee and will be muted throughout the meeting. [inaudible] Activist Preacher B ??ija Sudiri, Rafa Cmg, Nirwana Goel, R Villanueva, Chattanooga, Montana, West. ? Thank you for watching, and don't forget to like, share, and subscribe to our channel. Thank you. Youssef Lahrech, Guilherme Lago, Nubank, https://www.youtube.com www.milktoothmusic.info , , , , , , , , , , , , , , Duh, Duh, Duh, Duh, Duh, Duh Duh, Duh Duh, Duh, Duh, A-A-A-A-A-A-A-A-A A-A-A-A-A A-A-A-A-A, Jorg Friedemann, Youssef, Good afternoon, ladies and gentlemen, welcome to New Holdings conference call to discuss the results for the second quarter of 2024.

Speaker Change: [inaudible]

Emily Beynon: © transcript Emily Beynon

Emily Beynon: Thank you very much for watching this video.

Unknown Attendee: A slide presentation accompanies today's webcast, which is available on News Investor 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 it, you can press the globe icon on the lower right side of your Zoom screen and then choose to enter the Portuguese room. After that, select Mute Original Audio.

Speaker Change: Good afternoon, ladies and gentlemen. Welcome to New Holdings conference call to discuss the results for the second quarter of 2024.

Speaker Change: A slide presentation accompanies today's webcast, which is available on NU's Investor Relations website, www.investors.nu in English and www.investidores.nu in Portuguese.

Speaker Change: This conference is being recorded and the replay can also be accessed on the company's IR website.

Speaker Change: This call is also available in Portuguese. To access, you can press the globe icon on the lower right side of your Zoom screen, and then choose to enter the Portuguese room. After that, select Mute Original Audio.

Unknown Attendee: To access our conference in Portuguese, click on the globe icon at the bottom right of your Zoom screen and select the Portuguese Room option. When accessing the new room, make sure to mute the original audio. Please be advised that all participants will be in a listen-only mode. You may submit online questions at any time today using the Q&A box on the web. I would now like to turn the call over to Mr. Jorg Friedemann, Investor Relations Officer at New Holdings.

Speaker Change: To access our conference in Portuguese, click on the globe icon at the bottom right of your Zoom screen and select the option Portuguese Room. When accessing the new room, make sure to mute the original audio.

Speaker Change: Please be advised that all participants will be in a listen-only mode. You may submit online questions at any time today using the Q&A box on the webcast.

Unknown Attendee: Mr. Friedemann, you may proceed. Thank you very much, operator, and thank you all for joining our earnings call today. If you have not seen our earnest release, a copy is posted in the results center section of our investor relations website. With me on today's call are David Velez, our Founder, Chief Executive Officer, and Chairman, Youssef Lahrech, our President and Chief Operating Officer, Guilherme Lago, our Chief Financial Officer, and Jag Duggal, our Chief Product Officer.

Speaker Change: I would now like to turn the call over to Mr. Jorg Friedemann, Investor Relations Officer at New Holdings. Mr. Friedemann, you may proceed.

Unknown Attendee: Throughout this conference call, we will be presenting non-IFRS financial information, including adjusted net income. These are important financial measures for new holdings, but they are not financial measures as defined by IFRS and may not be comparable to similar measures from other companies.

Jorg Friedemann: Thank you very much, operator, and thank you all for joining our earnings call today. If you have not seen our earnings release, a copy is posted in the results center section of our investor relations website.

Speaker Change: With me on today's call are David Velez, our Founder, Chief Executive Officer and Chairman, Youssef Lahrech, our President and Chief Operating Officer, Guilherme Lago, our Chief Financial Officer, and Jack Dougal, our Chief Product Officer.

Speaker Change: Throughout this conference call, we will be presenting non-IFRS financial information, including adjusted net income.

Speaker Change: These are important financial measures for new holdings, but are not financial measures as defined by IFRS, and may not be comparable to similar measures from other companies.

Jorg Friedemann: Reconciliations of our non-IFRS financial information to IFRS financial information are available in our Earn Express release. And let's note that, otherwise, all growth rates are on a year-over-year, effects-neutral basis. I would also like to remind everyone that today's discussion might include forward-looking statements, which are not guarantees of future performance, and therefore, you should not rely on them. These statements are subject to numerous risks and uncertainties and could cause actual results to differ materially from our expectations.

Speaker Change: Reconciliations of our non-IFRS financial information to the IFRS financial information are available in our EARN express release.

Speaker Change: And let's note that otherwise, all growth rates are on a year-over-year, effects-neutral basis.

Speaker Change: I would also like to remind everyone that today's discussion might include forward-looking statements, which are not guarantees of future performance, and therefore you should not put your reliance on them.

Speaker Change: These statements are subject to numerous risks and uncertainties, and could cause actual results to differ materially from our expectations.

Jorg Friedemann: Please refer to the forward-looking statements disclosure in our earnest release. Today, our founder, chairman, and CEO, David Velez, will discuss the main highlights of our second quarter, 2024. Subsequently, Guilherme Lago, our CFO, and Youssef Lahrech, our President and COO, will take you through our financial and operating performance for the quarter, after which time we will be happy to take your questions. Now, I would like to turn the call over to Davi. Davi, please go ahead.

Speaker Change: Please refer to the forward-looking statements disclosure in our earnest release.

David Velez: Today our Founder, Chairman and CEO David Velez will discuss the main highlights of our second quarter 2024.

Speaker Change: Subsequently, Guilherme Lago, our CFO, and Youssef Lahrech, our President and COO, will take you through our financial and operating performance for the quarter, after which time we will be happy to take your questions.

Speaker Change: Now, I would like to turn the call over to David. David, please go ahead.

You have joined the meeting as an attendee and will be muted throughout the meeting.

David Velez: Thank you, Jorg. Good evening, everyone, and thank you again for being with us today. During Q2 2024, our business model, anchored in three fundamental principles, customer expansion, revenue per customer, and efficient operating costs, demonstrated its formidable strength by accelerating earnings power. Net customer additions consistently exceeded expectations, reaching 105 million customers by the end of the quarter, a 60 percent increase from the 65 million recorded just two years ago. Customer growth in Brazil remains outstanding, with an average of 1.2 million new customers monthly, bringing the total to 95.5 million at the end of the quarter.

David Velez: Thank you, Jorg.

David Velez: Good evening, everyone, and thank you again for being with us today.

Speaker Change: During Q2 2024, our business model anchored in three fundamental principles.

Speaker Change: Customer Expansion, Revenue per Customer, and Efficient Operating Costs demonstrated its formidable strength by accelerating earnings power.

Speaker Change: Our net customer additions have consistently exceeded expectations, reaching 105 million customers by the end of the quarter, a 60% increase from the 65 million recorded just two years ago.

Speaker Change: Customer growth in Brazil remains outstanding, with an average of 1.2 million new customers monthly, bringing the total to 95.5 million at the end of the quarter.

David Velez: Meanwhile, Mexico also experienced strong growth, with 1.2 million net ads in the quarter, culminating in 7.8 million customers. This success validates our strategy of increasing deposit yields in Mexico, boosting our momentum, and solidifying New as the leading digital financial platform in Mexico. Additionally, Colombia surpassed the 1 million customer mark, ending the quarter with almost 1.3 million customers, following the successful launch of the Quenta product.

Speaker Change: Meanwhile, Mexico also experienced strong growth, with 1.2 million net ads in the quarter, culminating in 7.8 million customers. This success validates our strategy of increasing deposit yields in Mexico, boosting our momentum and solidifying new as the leading digital financial platform in Mexico.

Speaker Change: Additionally, Colombia surpassed the 1 million customer mark, ending the quarter with almost 1.3 million customers, following the successful launch of the Quenta product.

David Velez: Now let's go to some financial highlights. Despite LATAM currencies depreciating against the U.S. dollar during the quarter, our revenue surged to $2.8 billion as we continued to successfully cross-sell and up-sell while introducing relevant new products, reflecting a 65% year-over-year increase. Gross profit climbed to $1.4 billion, marking an 88% year-over-year growth, with a gross margin of 47.7%. Net income also saw significant growth, reaching $487 million, resulting in a record annualized return of equity of 28%, one of the highest in the industry.

Speaker Change: Now let's go to some financial highlights.

Speaker Change: Despite Latin currencies depreciating against the U.S. dollar during the quarter, our revenue surged to $2.8 billion as we continued to successfully cross-sell and up-sell while introducing relevant new products.

Speaker Change: reflecting a 65% year-over-year increase. Our gross profit climbed to $1.4 billion, marking an 88% year-over-year growth with a gross margin of 47.7%.

Speaker Change: Net income also saw significant growth, reaching $487 million.

Speaker Change: resulting in a record annualized return of equity of 28%.

Operator: Good afternoon, ladies and gentlemen. Welcome to New Holdings Conference called to discuss the results for the second quarter of 2024. A slide presentation accompanies today's webcast, which is available on news investor relations website, www.investors.new in English and www.invisitores.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 the lower right side of your zoom screen and then choose to enter the Portuguese room after that select mute original audio. Please be advised that all participants will be in a listen only mode. You may submit online questions at any time today using the Q&A box on the webcast.

David Velez: Additionally, our adjusted net income hit $563 million, with a sequential expansion of 36% quarter over quarter and 131% year over year. These achievements underscore the strength of our business model, which combines robust top-line growth with solid profitability. In this slide, we again demonstrate how our flywheel effectively drives customer acquisition and data growth while sustaining strong momentum in our key financial networks, where models, inner, and operational strengths are driving significant profitability. In the second quarter, new holdings achieved an adjusted net income of $563 million with an adjusted analyzed return on equity of 33%, despite maintaining a robust level of excess capital of $2.4 billion at the holding level and with two subsidiaries in Mexico and Colombia yet to be Now, I'd like to pass the floor to our CFO, Guilherme Lago, who will guide you through our financial numbers. Over to you, Lago. Thank you, Davi, and good evening, everyone.

Speaker Change: one of the highest in the industry.

Speaker Change: Additionally, our adjusted net income hit $563 million.

Speaker Change: with a sequential expansion of 36% quarter over quarter and 131% year over year.

Speaker Change: These achievements underscore the strength of our business model, which combines robust top-line growth with solid profitability.

Speaker Change: In this slide, we again demonstrate how our flywheel effectively drives customer acquisition and data growth while sustaining strong momentum in our key financial metrics.

Speaker Change: Our models' inner and operational strengths are driving significant profitability.

Speaker Change: In the second quarter, new holdings achieved an adjusted net income of $563 million, with an adjusted analyzed return on equity of 33%, despite maintaining a robust level of excess capital of $2.4 billion at the holding level and with two subsidiaries in Mexico and Colombia yet to be profitable.

Guilherme Lago: Now, I'd like to pass the floor to our CFO, Guilherme Lago, who will guide you through our financial numbers. Over to you, Lago.

Guilherme Lago: Thank you, David, and good evening, everyone. As David mentioned, we deliver a robust second quarter as we continue to increase revenue growth, see enhanced customer engagement, and deliver strong operating margins and profitability.

Guilherme Lago: As Davi mentioned, we delivered a robust second quarter as we continue to increase revenue growth, see enhanced customer engagement, and deliver strong operating margins and profitability. Now, let's dig deeper into the second quarter results to gain a greater understanding of the progress against each one of these pillars. I will begin with the results of our customer acquisition. During the second quarter of 2024, our customer base grew at a strong pace, with 5.2 million new customers joining our platform. By the end of the quarter, our total customer count reached 104.5 million, marking a 25% increase year-over-year.

Jorg Friedemann: I would now like to turn the call over to Mr. York Freedom and Investor Relations Officer at New Holdings. Mr. Friedemann, you may proceed.

Unnamed Speaker: Thank you very much, operator and thank you all for joining our early school today. If you have not seen our early release, a copy is posted in the Results Center section of our Investor Relations website.

Speaker Change: Now, let's dig deeper into the second quarter results to gain a greater understanding of the progress against each one of these pillars.

Speaker Change: I will begin with the results of our custom requisition.

Unnamed Speaker: With me on today's call are, David Velez, our Founder, Chief Executive Officer, and Chairman, Youssef Lahrech, our President and Chief Operating Officer, Guilherme Lago, our Chief Financial Officer, and Jack Duggal, our Chief Product Officer. Throughout this conference call, we will be presenting no IFRS financial information, including adjusted net income. These are important financial measures for no holdings, but are not financial measures as defined by IFRS, and may not be comparable to similar measures from other companies. Reconciliation of our non IFRS financial information to the IFRS financial information are available in our early press release, unless noted otherwise, all growth rates are on a near-for-year effects neutral basis.

Speaker Change: During the second quarter of 2024, our customer base grew at a strong pace with 5.2 million new customers joining our platform.

Speaker Change: By the end of the quarter, our total customer count reached 104.5 million, marking a 25% increase year-over-year.

Guilherme Lago: Once we add more customers, engaging and retaining them becomes our focus. Our active base increased by 27% year-over-year, followed by another sequential quarterly increase in the monthly activity rate, which now stands at 83.4%, up from 82.2% just one year ago. This marks the eleventh consecutive increase in this metric, demonstrating our proficiency and consistently offering a compelling value proposition to our customers in Brazil, Mexico, and Colombia. Now, turning our attention to revenue expansion.

Speaker Change: Once we add more customers, engaging and retaining them becomes our focus.

Speaker Change: Our active base increased by 27% year-over-year, followed by another sequential quarterly increase in the monthly activity rate, which now stands at 83.4%, up from 82.2% just one year ago.

Speaker Change: This marks the 11th consecutive increase in this metric, demonstrating our proficiency and consistently offer of compelling value proposition to our customers in Brazil, Mexico and Colombia.

Unnamed Speaker: I would also like to remind everyone that today's discussion might include forward-looking statements, which are not guarantees of future performance, and therefore you should not put on your lines on them. These statements are subject to numerous risks and uncertainties, and could cause actual results to differ materially from our expectations. Please refer to the forward-looking statements disclosure in our early release.

Speaker Change: Turning our attention to Revenue Expansion

Guilherme Lago: The first chart highlights that New has established primary banking relationships with around 60% of our active customer base. This solid performance underscores our ability to increase the share of wallet in an agile manner within our customer base. Moreover, recent cohorts are achieving this level of principality at an increasingly rapid pace.

Speaker Change: The first chart highlights the new has established primary banking relationships with around 60% of our active customer base.

Speaker Change: This solid performance underscores our ability to increase the share of wallet in an agile manner within our customer base. Moreover, recent cohorts are achieving this level of principality at an increasingly rapid pace.

David Velez: Today, our founder, Chairman and CEO David Vellus will discuss the main highlights of our second quarter, 2024.

Guilherme Lago: As you can see in the second chart, the number of products per active customer is at 4.1, illustrating the success of our cross-selling strategy even as we continue to quickly onboard many new customers. By effectively introducing our products to new customers, we solidify our role as their primary banking partner. The last chart illustrates the combined effect of these two powerful dynamics.

Speaker Change: As you can see in the second chart, the number of products per active customer is at 4.1, illustrating the success of our cross-selling strategy even as we continue to quickly onboard many new customers.

Guilherme Lago: Subsequently, Guilherme Lago, our CFO, and UCF Lourish, our President and CEO, will take you through our financial and operating performance for the quarter.

Speaker Change: By effectively introducing our products to new customers, we solidify our role as their primary banking partner.

Unnamed Speaker: After which time, we will be happy to take your questions.

David Velez: Now, I would like to turn the call over to David. David, please go ahead.

Speaker Change: The last chart illustrates the combined effect of these two powerful dynamics.

Guilherme Lago: By having significant customer engagement, as demonstrated in the first chart, coupled with our growing product cross-sell capabilities, as shown in the second chart, we achieve increasingly positive results. While our monthly RPEC contracted to $11.2 this quarter compared to $11.4 last quarter, on an FX neutral basis, RPEC in fact increased by 6%. On the next slide, we will present the growth rates on an FX-neutral basis, and you can also note that our more mature cohorts are already generating a monthly RPEC of $25. Our monthly RPAC goal reached $11.2.

David Velez: Thank you, George. Good evening, everyone, and thank you again for being with us today. During Q2 2024 or business model, anchored in three fundamental principles, customer expansion, revenue per customer, and efficient operating costs, demonstrated its formidable strength by accelerating earnings power. Or net customer additions have consistently exceeded expectations, reaching 105 million customers by the end of the quarter at 60 percent increase from the 65 million recorded just two years ago. Customer growth in Brazil remains outstanding with an average of 1.2 million new customers monthly, bringing the total to 95.5 million at the end of the quarter.

Speaker Change: By having significant customer engagement, as demonstrated in the first chart, coupled with our growing product cross-sell capabilities, shown in the second chart, we achieve increasingly positive results.

Speaker Change: While our monthly RPEC contracted to $11.2 this quarter, compared to $11.4 last quarter, on an FX neutral basis, RPEC in fact expanded by 6%.

Speaker Change: On the next slide, we will present the growth rates on an FX-neutral basis, and you can also note that our more mature cohorts are already generating a monthly RPAC of $25.

David Velez: Meanwhile, Mexico also experienced strong growth with 1.2 million net ads in the quarter, culminating in 7.8 million customers. This success validates our strategy of increasing the positive yields in Mexico, boosting our momentum, and solidifying new at the leading digital financial platform in Mexico. Additionally, Colombia surpassed the 1 million customer mark, ending the quarter with almost 1.3 million customers following the successful launch of the Quinter Pro.

Speaker Change: Our monthly RPAC reached $11.2.

Guilherme Lago: However, on an FX-neutral basis, it grew 6% sequentially and a robust 30% year-over-year, up from $9.3 just one year ago. We continue to see a clear path to further increase RPAC to its full potential. The second chart highlights that our revenues hit a new record high this quarter, reaching $2.8 billion, an increase of 65% year-over-year. Just a year ago, our revenues stood at $

Speaker Change: However, on an effects-neutral basis, it grew 6% sequentially and a robust 30% year-over-year, up from $9.3 just one year ago. We continue to see a clear path to further increase RPAC towards its full potential.

Speaker Change: The second chart highlights that our revenues hit a new record high this quarter, reaching $2.8 billion, an increase of 65% year-over-year.

David Velez: Now let's go to some financial highlights. Despite a lot of currencies depreciating against the US dollar during the quarter, our revenue surged to $2.8 billion as we continued to successfully cross sell and upsell while introducing relevant new products, reflecting a 65% year-over-year increase. Our gross profit climbed to $1.4 billion, marking an 88% year-over-year growth with a gross margin of 47.7%. Net income also saw significant growth reaching $487 million, resulting in a record annualized return of equity of 28%, one of the highest in the industry.

Speaker Change: Just a year ago, our revenues stood at $1.8 billion. This impressive growth was driven by two things, the increase in active customers combined with higher RPEC levels year over year.

Guilherme Lago: This impressive growth was driven by two things, the increase in active customers combined with higher RPEC levels year-over-year. This quarter, our consumer finance portfolio, encompassing credit cards and lending, showed strong growth. While the nominal dollar value of our book contracted, it achieved a 49% year-over-year and an 8% quarter-over-quarter expansion on an FX-neutral basis, reaching a total of $18.9 billion. This growth was driven by increases across both product categories.

Speaker Change: In the next video, we'll see you in the next video.

Speaker Change: This quarter our consumer finance portfolio, encompassing credit cards and lending, showed a strong growth. While the nominal dollar value of our book contracted, it achieved a 49% year-over-year and an 8% quarter-over-quarter expansion on an FX neutral basis, reaching a total of $18.9 billion.

David Velez: Additionally, or adjust the net income hit $563 million, with a sequential expansion of 36% quarter-over-quarter and 131% year-over-year. This achievement underscored the strength of our business model, which combines robust top-line growth with solid profitability. In this slide, we again demonstrate how our flywheel effectively drives customer acquisition and data growth while sustaining strong momentum in our key financial metrics. Our model's interim operational strengths are driving significant profitability. In the second quarter, new holdings achieved an adjusted net income of $563 million, with an adjusted annualized return on equity of 33%, despite maintaining a robust level of excess capital of $2.4 billion on the holding level and with two subsidiaries in Mexico and Colombia, yet to be profitable.

Speaker Change: This growth was driven by increases across both product categories.

Guilherme Lago: Credit cards expanded sequentially. Despite the same effects impact in nominal dollars, it grew by 39% year over year and 6% quarter over quarter, reaching $14.3 billion. This growth was driven by a consistent increase in the share of wallet across all customer segments. Once again, our lending portfolio performed extremely well, growing 92% year-over-year and 15% quarter-over-quarter on an FX-neutral basis, reaching $4.6 billion. Lending growth continues to outpace credit cards and now represents 24% of the total portfolio. Consistent with trends from the previous quarters, our lending cohorts continue to show strong credit performance, enabling us to scale originations effectively. Now, let's move to the breakdown of our credit card portfolio. The interest-earning installment balance now represents 28% of our total credit card portfolio, up from 26% last quarter.

Speaker Change: Credit cards expanded sequentially. Despite the same effects impact in nominal dollars, it grew by 39% year-over-year and 6% quarter-over-quarter reaching 14.3 billion dollars.

Speaker Change: This growth was driven by the consistent increase in the share of wallet across all customer segments.

Speaker Change: Once again, our lending portfolio performed extremely well, growing 92% year-over-year and 15% quarter-over-quarter on an FX-neutral basis, reaching $4.6 billion.

Speaker Change: LendingGrowth continues to outpace credit cards and now represents 24% of the total portfolio.

Guilherme Lago: Now, I'd like to pass the floor towards CFO Guillermo Lago, who will guide you through our financial numbers, or to your Lago. Thank you, David, and good evening, everyone. As David mentioned, we deliver a robust second quarter as we continue to increase revenue growth, see enhanced customer engagement, and deliver strong operating margins and profitability.

Speaker Change: Consistent with trends from the previous quarters, our lending cohorts continue to show strong credit performance, enabling us to scale originations effectively.

Speaker Change: Now, let's move to the breakdown of our credit card portfolio.

Speaker Change: Interest-earning installments balance now represents 28% of our total credit card portfolio, up from 26% last quarter.

Guilherme Lago: Once again, this growth was fueled by the successful expansion of our peak and volatile financing products. This type of financing offers an attractive risk-adjusted rate of return, enabling us to further expand the monetization of our credit card business while meeting important customer needs. Our strategy is further validated by the stability of our revolving receivables, which remain at 6% of total credit card receivables this quarter. Going forward, we expect the percentage relevance of interest-earning installments to begin to stabilize. Looking at our lending business, Originations reached 13 billion reais this quarter, a 78% year-over-year increase. Unsecured lending remains the primary driver of growth, reaching R$11.2 billion in originations this quarter.

Guilherme Lago: Now, let's dig deeper into the second quarter results to gain a greater understanding of the progress against each one of these pillars. I will begin with the results of our customer acquisition. During the second quarter of 2024, our customer base grew at a strong pace with 5.2 million new customers joining our platform. By the end of the quarter, our total customer count reached 104.5 million, marking a 25% increase year-over-year. Once we add more customers, engaging and retaining them becomes our focus. Our active base increased by 27% year-over-year, followed by another sequential quarterly increase in the monthly activity rate. Which now stands at 83.4% up from 82.2% just one year ago.

Speaker Change: Once again, this growth was fueled by the successful expansion of our PIX and Boleto financing products. This type of financing offers an attractive risk-adjusted rate of return, enabling us to further expand the monetization of our credit card business while meeting important customer needs.

Speaker Change: Our strategy is further validated by the stability of our revolving receivables, which remain at 6% of total credit card receivables this quarter.

Speaker Change: Going forward, we expect the percentage relevance of interest-earning installments balance to begin to stabilize.

Speaker Change: Looking at our lending business, Originations reached 13 billion reais this quarter, a 78% year-over-year increase.

Speaker Change: Unsecured lending remains the primary driver of growth, reaching 11.2 billion reais in originations this quarter. This highlights our ability to extend credit availability to those who previously lacked access to this product.

Guilherme Lago: This highlights our ability to extend credit availability to those who previously lacked access to this product; our secure lending originations reached 1.8 billion reais during the second quarter of 2024, or 14% of total lending originations. During the second half of the year, we anticipate a gradual increase in the pace of secure lending originations, as new features such as portability top-ups and refinancings are introduced. We have also signed six new collateral agreements to increase eligibility for TAM, including parts of the armed forces and some of the major Brazilian states and municipalities.

Guilherme Lago: This marks the 11th consecutive increase in this metric, demonstrating our proficiency and consistently offer of compelling value preposition to our customers in Brazil, Mexico and Colombia.

Speaker Change: Our secure lending originations reached 1.8 billion reals during the second quarter of 2024, or 14% of total lending originations.

Guilherme Lago: Turning our rotation to revenue expansion. The first chart highlights the new has established primary banking relationships with around 60% of our active customer base. This solid performance underscores our ability to increase the share of wallet in an agile manner within our customer base. Moreover, recent cohorts are achieving this level of principality at an increasingly rapid pace. As you can see in the second chart, the number of products per active customer is at 4.1, illustrating the success of our cross-selling strategy, even as we continue to quickly onboard many new customers. By effectively introducing our products to new customers, we solidify our role as their primary bank and partner.

Speaker Change: During the second half of the year, we anticipate a gradual increase in the pace of originations of secure lending, as new features such as portability top-ups and refinancings are introduced.

Speaker Change: We have also signed six new collateral agreements to increase eligibility in TAM, including parts of the Armed Forces and some of the major Brazilian states and municipalities.

Guilherme Lago: The integrations of these new entities are ongoing, and once completed, we will release the product for newly eligible customers, thus helping us further grow Origination. In fact, during the month of July 2024, total originations exceeded R$5.2 billion, of which R$750 million were secured lending alone.

Speaker Change: The integrations of these new entities are ongoing, and once completed, we will release the product for newly eligible customers, thus helping us further grow Originations.

Speaker Change: In fact, during the month of July 2024, total originations exceeded 5.2 billion Reais, of which 750 million in secure lending alone.

Guilherme Lago: The last chart illustrates the combined effect of this two powerful dynamics by having significant customer engagement, as demonstrated in the first chart, coupled with our growing product cross-sell capabilities shown in the second chart, we achieve increasingly positive results. While our monthly RPEG contracted to $11.2 this quarter, compared to $11.4 less quarter, on an FX neutral basis, RPEG in fact expanded by 6%. On the next slide, we will present the growth rates on an FX neutral basis, and you can also note that our more mature cohorts are already generating a monthly RPEG of $25. Our monthly RPEG reaches $11.2. However, on an FX neutral basis, it grew 6% sequentially in a robust 30% year-over year, up from $9.3 just one year ago.

Guilherme Lago: Now, let's review the progress on the funding front. Although deposits in our Brazilian business contracted in nominal dollars to $21.7 billion, they grew 10% quarter over quarter on a fax-neutral term. Our total deposit base for the quarter increased to $25.2 billion, representing a 64% year-over-year growth, primarily driven by significant expansion in Mexico through Cuentanil. By the end of the second quarter of 2024, we surpassed over $3 billion in deposits in Mexico, more than tripling in just two quarters.

Speaker Change: Now, let's review the progress on the funding front. Although deposits in our Brazilian business contracted in nominal dollars to $21.7 billion, they expanded 10% quarter over quarter on FX neutral terms.

Speaker Change: Our total deposit base for the quarter increased to $25.2 billion, representing a 64% year-over-year growth, primarily driven by significant expansion in Mexico through Quantanue.

Speaker Change: By the end of the second quarter of 2024, we surpassed over $3 billion in deposits in Mexico, more than tripling in just two quarters.

Guilherme Lago: The strong growth in Mexico represents a significant milestone in building one of the strongest local currency retail deposits franchises in Latin America. Another noteworthy achievement was the launch of New Colombia's checking account product in the second quarter of 2024, which attracted over $220 million in consumer deposits, more than 80% in the month of June. Net Interest Income, or NII, increased by 77% year-over-year, reaching another record high of $1.7 billion.

Speaker Change: The strong growth in Mexico represents a significant milestone in building one of the strongest local currency retail deposits franchise in Latin America.

Speaker Change: Another noteworthy achievement was the launch of New Colombia's checking account product in the second quarter of 2024, which attracted over $220 million in consumer deposits, more than 80% in the month of June.

Guilherme Lago: We continue to see a clear path to further increase our pack towards its full potential. The second chart highlights that our revenues hit a new record high this quarter, reaching $2.8 billion, an increase of 65% year-over-year. Just a year ago, our revenues is 2.8 billion dollars. This impressive growth was driven by two things, the increase in active customers combined with higher RPEG levels year-over-year. This quarter, our consumer finest portfolio, encompassing credit cards and lending, showed this strong growth, while the nominal value of our book contracted, it achieved a 49% year-over-year and an 8% quarter-over-quarter expansion on an FX neutral basis, reaching a total of $18.9 billion.

Speaker Change: Net interest income, or NII, increased by 77% year-over-year, reaching another record high of $1.7 billion.

Guilherme Lago: This consistent growth was driven by our expanding credit card and lending products, collectively boosting our NII and net interest margins, or NIM, to new record highs. For the second quarter of 2024, we delivered a net interest margin of 19.8%, an increase of 30 basis points from last quarter and 150 basis points from one year ago. Looking ahead, and regardless of the direction of interest rates, we are confident that the primary driver for future NIMS will be the continuous deployment of our balance sheet capacity in the form of credit originations growth. Our excess deposits today, invested primarily in public bonds, yield much lower returns compared to the lowest-yield loan products, such as secured credit.

Speaker Change: This consistent growth was driven by our expanding credit card and lending products, collectively boosting our NII and Net Interest Margins, or NIM, to new record highs.

Speaker Change: For the second quarter of 2024, we deliver a net interest margin of 19.8%, an increase of 30 basis points from last quarter and 150 basis points from one year ago.

Speaker Change: Looking ahead, and regardless of the directions of interest rates, we are confident that the primary driver for future NIMS will be the continuous deployment of our balance sheet capacity in the form of credit originations growth.

Guilherme Lago: This growth was driven by increases across both product categories. Credit cards expanded sequentially. Despite the same effects impact in nominal dollars, it grew by 39% year-over-year and 6% quarter-over-quarter, reaching $14.3 billion. This growth was driven by the consistent increase in the share of wallet across all customer segments. Once again, our lending portfolio performed extremely well, growing 92% year-over-year and 16% quarter-over-quarter on an FX neutral basis, reaching $4.6 billion.

Speaker Change: Our excess deposits today, invested primarily in public bonds, yield much lower returns compared to the lowest yield long products, such as secure credits.

Guilherme Lago: Let's now turn our attention to the very last pillar of our overall strategy, maintaining a low cost to serve. Our platform remains one of the most cost-effective in our markets, with its low cost-to-serve providing a significant competitive advantage. We anticipate this cost at or below $1 per active customer for the foreseeable future. And once again, we successfully achieved this goal with a cost to serve per active customer of 90 cents.

Speaker Change: Let's now turn our attention to the very last pillar of our overall strategy, maintaining a low cost-to-serve.

Speaker Change: Our platform remains one of the most cost-effective in our markets, with its low cost-to-serve providing a significant competitive advantage.

Speaker Change: We anticipate this cost at or below the $1 per active customer for the foreseeable future.

Guilherme Lago: Lending growth continues to outpace credit cards and now represents 24% of the total portfolio. Consistent with trends from the previous quarters, our lending cohorts continued to show strong credit performance enabling us to scale originations effectively.

Speaker Change: And once again, we successfully achieved this goal, with a cost to serve per active customer at $0.90.

Guilherme Lago: On an effects-neutral basis, this figure has grown 19% year-over-year when adjusted for one-offs related to network reimbursement in Mexico during the second quarter of 2023. In the same period, our RPEC expanded by 30%. This showcases the strong operating leverage of our business model. Our gross profit reached a new quarterly high of approximately $1.4 billion, an 88% year-over-year increase.

Speaker Change: On an effects-neutral basis, this figure has grown 19% year-over-year when adjusted by one-offs related to networks reimbursements in Mexico during the second quarter of 2023.

Guilherme Lago: Kelly. Now, let's move to the breakdown of our credit car portfolio. Interest earning installments balance now represents 28% of our total credit car portfolio up from 26% less water. Once again, this drill was fueled by the successful expansion of our peaks and volatile financing products. This type of financing offers an attractive risk-adjusted rate of return, enabling us to further expand the monetization of our credit car business while meeting important customer needs. Our strategy is further validated by the stability of our revolving receivables, which remain at 6% of total credit car receivables this quarter.

Speaker Change: In the same period, our RPAC expanded by 30%. This showcases the strong operating leverage of our business model.

Speaker Change: Our gross profit reached a new quarterly high of approximately 1.4 billion dollars, an 88% year-over-year increase.

Guilherme Lago: Our annualized gross margins have rebounded to 2023 levels, despite higher costs of funding in the new GEOs. Our investments in Mexico and Colombia have been effectively offset by the positive trends in Brazil, driving our gross margins to 47.7%. A core element of our strategy is achieving operational leverage. Our efficiency ratio was 32% in the second quarter of 2024, an improvement of 10 basis points from the first quarter of 2024 and more than 300 basis points better than a year ago.

Speaker Change: Our annualized gross margins has rebounded to 2023 levels, despite higher costs of funding in the new GEOs.

Speaker Change: Our investments in Mexico and Colombia have been effectively offset by the positive trends in Brazil, driving our gross margins to 47.7%.

Speaker Change: A core element of our strategy is achieving operational leverage.

Guilherme Lago: Going forward, we expect the percentage relevance of interest earning installments balance to begin to stabilize. Look at the options reach at 13 billion reais this quarter, a 78% year-over-year increase. Unsecure lending remains the primary driver of growth reaching 11.2 billion reais in originations of this quarter. This highlights our ability to expand credit availability to those who previously elected access to this product. Our secure lending originations reach at 1.8 billion reais during the second quarter of 2024 or 14% of total lending originations.

Speaker Change: Our efficiency ratio is to the 32% during the second quarter of 2024, an improvement of 10 basis points from the first quarter of 2024, and more than 300 basis points better than a year ago.

Guilherme Lago: We are set to fully harness our platform's operational potential as we expand our customer base, upsell and cross-sell products, launch new features, and achieve profitability in the new markets of Mexico and Colombia, which are essentially in their investment phases. Let's now review the sustainable advantages across all four cost pillars. Number one, our cost to acquire was stable at seven dollars. This figure continues to be one of the lowest among consumer fintechs and banks globally.

Speaker Change: We are set to fully harness our platform's operational potential as we expand our customer base, upsell and cross-sell products, launch new features, and achieve profitability in the new markets of Mexico and Colombia, which are essentially in their investment phases.

Guilherme Lago: Number two, as expected, our cost to serve remains exceptionally low, below $1 and approximately 85% lower than those of incumbent banks. This position is new as one of the most efficient financial services companies worldwide. Number three, on cost of risk, we have effectively managed credit risk, consistently outperforming competitors on an apples-to-apples basis with respect to delinquency rates. And finally, on cost of funding, we have significantly increased deposits volumes while maintaining our cost of funding at a competitive level of 87% of the blended interbank rates in the countries in which we operate. This has closed the gaps with incumbent banks and widened our advantage over consumer fintech.

Speaker Change: Let's now review the sustainable advantages across all four cost pillars.

Speaker Change: Number one, our cost to acquire was a stable at seven dollars. This figure continues to be one of the lowest among consumer fintechs and banks globally.

Guilherme Lago: During the second half of the year, we anticipate a gradual increase in the pace of originations of secure lending, as new features such as portability top-ups and refinances are introduced. We have also signed six new collateral agreements to increase eligibility in time, including parts of the armed forces and some of the major Brazilian states and municipalities. The integrations of these new entities are ongoing and once completed, we will release the product for newly eligible customers, thus helping us further grow originations.

Speaker Change: Number two, as expected, our cost to serve remains exceptionally low, below $1 and approximately 85% lower than those of incumbent banks.

Speaker Change: This position is new as one of the most efficient financial services companies worldwide.

Speaker Change: Number three on cost of risk we have effectively managed credit risk consistently outperforming competitors on an apples-to-apples basis with respect to delinquency rates.

Guilherme Lago: In fact, during the month of July 2024, total originations exceeded 5.2 billion reais of which 750 million in secure lending alone.

Speaker Change: And finally, number four, on the cost of funding, we have significantly increased deposits volumes while maintaining our cost of funding at a competitive level of 87% of the blended interbank rates of the countries in which we operate.

Guilherme Lago: Now let's review the progress on the funding front. Although deposits in our Brazilian business contracted nominal dollars to 21.7 billion, they expanded 10% quarter-over-quarter on effects neutral terms. Our total deposit base for the quarter increased to 25.2 billion, representing a 64% year-over-year growth, primarily driven by significant expansion in Mexico through Quentanue. By the end of the second quarter of 2024, we surpassed over 3 billion dollars in deposits in Mexico, more than three-pling in just two quarters.

Speaker Change: This has closed the gaps with incumbent banks and widened our advantage over consumer fintechs.

Guilherme Lago: And finally, turning to net income, we delivered another quarter of strong profitability, with net income reaching $487 million, representing an increase of 134% compared to the previous year. These results underscore the effectiveness of our strategy and business model. Additionally, adjusted net income for this quarter reached $563 million, growing 131% versus one year ago.

Speaker Change: And finally, turning to net income, we deliver another quarter of strong profitability, with net income reaching $487 million, representing an increase of 134% compared to the previous year.

Speaker Change: These results underscore the effectiveness of our strategy and business model. Additionally, adjusted net income for this quarter reached $563 million, growing 131% versus one year ago.

Guilherme Lago: The strong growth in Mexico represents a significant milestone in building one of the strongest local currency retail deposits franchise in Latin America. Another noteworthy achievement was the launch of new Colombia's checking account product in the second quarter of 2024, which attracted over 220 million dollars in consumer deposits, more than 80% in the month of June. Net Interest Income or NII increased by 77% year-over-year, reaching another record high of $1.7 billion. This consistent growth was driven by our expanding credit card and lending products, collectively boosting our NII and net interest margins or NIM to new record highs.

Youssef Lahrech: While we are very encouraged by the second quarter results, our focus remains steadfast on long-term value creation. This approach may involve making strategic short-term investments to optimize our long-term opportunities. Now, I'd like to hand over the call to Youssef, our President and Chief Operating Officer, who will walk you through the key highlights of our asset quality and credit portfolio health. Thank you, Lago, and good evening, everyone.

Speaker Change: While we are very encouraged by the second quarter results, our focus remains steadfast on long-term value creation. This approach may involve making strategic short-term investments to optimize our long-term opportunities.

Youssef Lahrech: Now, I would like to hand over the call to Youssef, our President and Chief Operating Officer, who will walk you through the key highlights of our asset quality and credit portfolio health.

Youssef Lahrech: Thank you, Lago, and good evening, everyone.

Youssef Lahrech: Let's start by having a look at our NPL trend. First, following an anticipated seasonal rise in NPL 15-90 in the first quarter of 2024, which is typical for early stage delinquencies, it has decreased to 4.5% this quarter, slightly more than historical seasonality. Second, our 90-plus NPL ratio increased to 7%, also in line with expectations. The 70-basis point increase in 90-plus NPL this quarter is simply a reflection of the 90-basis point, mostly seasonal, increase in 15-90 NPL we saw last quarter.

Youssef Lahrech: Let's start by having a look at our NPL trends.

Youssef Lahrech: First, following an anticipated seasonal rise in NPL 15-90 in the first quarter of 2024, which is typical for early stage delinquencies, it has decreased to 4.5% this quarter, slightly more than historical seasonality.

Guilherme Lago: For the second quarter of 2024, we deliver a net interest margin of 19.8%, an increase of 30 basis points from less water and 150 basis points from one year ago. Looking ahead and regardless of the directions of interest rates, we are confident that the primary driver for future NIMs will be the continuous deployment of our balance capacity in the form of credit originations growth. Our access deposits today invested primarily in public bonds used much lower returns compared to the lowest yield-long products such as secure credits.

Youssef Lahrech: Second, our 90 plus NPL ratio increased to 7% also in line with expectations.

Youssef Lahrech: The 70 basis point increase in 90 plus NPL this quarter is simply a reflection of the 90 basis point mostly seasonal increase in 15 to 90 NPL we saw last quarter.

Youssef Lahrech: As discussed in past earnings calls, we are intentionally and strategically growing our lending book and expanding down the credit spectrum where we see relevant opportunities. In line with our credit philosophy, we prioritize decisions that optimize the long-term net present value of our credit cohorts, rather than focusing solely on short-term NPLs. When we identify asset classes or customer segments with compelling risk-adjusted returns that promote responsible customer behavior, we actually pursue growth in those areas.

Youssef Lahrech: As discussed in past earnings calls, we are intentionally and strategically growing our lending book and expanding down the credit spectrum where we see relevant opportunities.

Youssef Lahrech: In line with our credit philosophy, we prioritize decisions that optimize the long-term net present value of our credit cohorts, rather than focusing solely on short-term NPL metrics.

Guilherme Lago: Let's now turn our attention to the very less pillar of our overall strategy, maintaining a low cost to serve. Our platform remains one of the most cost-effective in our markets, with its low cost to serve, providing a significant competitive advantage. We anticipate this cost at or below the $1 per active customer for the foreseeable future. And once again, we successfully achieved this goal, with a cost to serve per active customer and 90 cents.

Youssef Lahrech: When we identify asset classes or customer segments with compelling risk-adjusted returns that promote responsible customer behavior, we actually pursue growth in those areas.

Youssef Lahrech: As we will show in the next few slides, this strategy has yielded increased revenue and greater resilience that are more than offsetting the higher delinquency rates that come with it. To illustrate the impact of credit expansion on our consumer finance portfolio, we are presenting this analysis of normalized NPLs starting in December 2022 before the latest waves of credit expansion. This shows what our NPLs would have been if we hadn't undertaken these expansions.

Youssef Lahrech: To illustrate the impact of credit expansion on our consumer finance portfolio, we are presenting this analysis of normalized NPLs starting in December 2022, before the latest waves of credit expansions.

Guilherme Lago: On an effects neutral basis, this figure has grown 19% year-over-year, when adjusted by one-offs related to networks for investments in Mexico during the second water of 2023. In the same period, our RPECT expanded by 30%. This showcase is the strong cooperating leverage of our business model.

Youssef Lahrech: This shows what our NPLs would have been if we hadn't undertaken these expansions.

Youssef Lahrech: In other words, you can see clearly that the increase in NPLs in the last three quarters is largely the product of these deliberate expansions. In fact, the evolution of these NPL metrics continues to closely follow our expectations.

Youssef Lahrech: In other words, you can see clearly that the increase in NPLs in the last three quarters is largely the product of these deliberate expansions.

Youssef Lahrech: In fact, the evolution of these NPL metrics continues to closely follow our expectations.

Guilherme Lago: Our growth profit reaches a new quarterly high of approximately $1.4 billion, an 88% year-over-year increase. Our annualized gross margins has rebounded to 2023 levels despite higher costs of funding in the New Geos. Our investments in Mexico and Colombia have been effectively offset by the positive trends in Brazil driving our gross margins to 47.7%.

Youssef Lahrech: Similarly to last quarter, we show on this slide asset quality trends on a different basis, considering both 15 to 90 and 90 plus NPL per interest earning balances rather than total receivables on the previous slide. On this basis, you can clearly see a stable to downward trend in the last few years, aside from the normal seasonal ups and downs like the ones we saw in Q1 with 15 to 90 and in Q2 with 90+. This goes to show that we have been remunerated for the additional risk we've taken. In the next slide, we further validate this conclusion by looking directly at risk-adjusted returns.

Youssef Lahrech: Similarly to last quarter, we show on this slide asset quality trends under a different basis, considering both 15 to 90 and 90 plus NPL per interest earning balances rather than total receivables on the previous slide.

Youssef Lahrech: On this basis, you can clearly see a stable to downward trend in the last few years, aside from the normal seasonal ups and downs like the ones we saw in Q1 with 15-90 and in Q2 with 90+.

Guilherme Lago: A core element of our strategy is achieving operational leverage. Our efficiency ratio is to the 32% during the second quarter of 2024, an improvement of 10 basis points from the first quarter of 2024, and more than 300 basis points better than a year ago. We are set to fully harness our platform's operational potential, as we expand our customer base, upsell and cross-sell products, launch new features, and achieve profitability in the new markets of Mexico and Colombia, which are essentially in their investment phases.

Youssef Lahrech: This goes to show that we have been remunerated for additional risk we've taken.

Youssef Lahrech: In the next slide, we further validate this conclusion looking directly at risk-adjusted returns.

Youssef Lahrech: To demonstrate the significant value generated by this expansion strategy, we show on this slide the risk-adjusted margins, or RAMs, for our Brazil consumer credit portfolio, with and without the risk expansions we undertook since late 2020. This clearly indicates that the additional revenues stemming from this expansion strategy have more than offset the additional credit risk and delivered substantially increased returns. Credit loss allowance expenses declined to $760 million this quarter, a decrease of only 2% on a forex-neutral basis.

Guilherme Lago: Let's now review the sustainable advantages across all four cost pillars. Number one, our cost to acquire was a stable at $7. This figure continues to be one of the lowest among consumer fintechs and banks globally. Number two, as expected, our cost to serve remains exceptionally low, below $1 and approximately 85% lower than those of incumbent banks. This position is new as one of the most efficient financial sources companies worldwide. Number three, on Costa Frisk, we have effectively managed credit risk, consistently outperforming competitors on an apples to apples basis, with respect to the linkancy rates.

Youssef Lahrech: to

Youssef Lahrech: Credit loss allowance expenses declined to 760 million dollars this quarter, a decrease of only 2% on a forex neutral basis.

Youssef Lahrech: This slight drop is the result of two drivers. The first is the relatively slower growth base in Q2 compared to Q1, as growth is the main driver of our ECL provisions, as you can see in the appendix of this presentation. The second driver is early delinquency, which behaves slightly better than historical seasonality in the second quarter, as mentioned previously. Lastly, risk adjusted NIMH reached a record high of 11% this quarter, reflecting a 300-basis point expansion from a year ago and a 150-basis point increase quarter over quarter. Now, I would like to turn the call over to the... David, over to you.

Youssef Lahrech: The second driver is early delinquency, which behaves slightly better than historical seasonality in the second quarter, as mentioned previously.

Youssef Lahrech: Lastly, risk adjusted NIMH a record high of 11% this quarter, reflecting a 300 basis point expansion from a year ago and 150 basis point increase quarter over quarter.

Guilherme Lago: And finally, number four, on the cost of funding, we have significantly increased deposits volumes while maintaining our cost of funding at a competitive level of 87% of the blended interbank rates of the countries in which we operate. This has closed the gaps with incumbent banks and widened our advantage over consumer syntax.

Speaker Change: Now I would like to turn the call over to the beat.

David Velez: David, over to you.

David Velez: Over the past decade, we have cultivated unique attributes that position Nu to become the largest consumer technology platform in Latin America. These strengths include a brand by consistently simplifying complexity to empower people. We are building one of Brazil's most beloved and trusted brands with recognition rapidly growing in Mexico and Colombia. Scale, our significant presence in Brazil, reaching now 56% of the adult population, enables us to offer superior products at lower prices, creating a powerful flywheel effect. Data. Our vast data, supported by a cutting-edge infrastructure, forms the foundation of our advanced customer segmentation and credit underwriting capabilities. Talent is important.

David Velez: Over the past decade, we have cultivated unique attributes that position New to become the largest consumer technology platform in Latin America.

David Velez: These strengths include brand, by consistently simplifying complexity to empower people, we built one of Brazil's most beloved and trusted brands, with recognition rapidly growing in Mexico and Colombia.

Guilherme Lago: And finally, turning to net income, we deliver another quarter of strong profitability, with net income reaching $487 million, representing an increase of 134% compared to the previous year. This results underscore the effectiveness of our strategy and business model. Additionally, adjust the net income for this quarter, reach at $563 million, growing 131% versus one year ago.

David Velez: Scale, with significant presence in Brazil, reaching now 56% of the adult population, enables us to offer superior products at lower prices, creating a powerful flywheel effect.

David Velez: VAT data, supported by a cutting-edge infrastructure, forms the foundation of our advanced customer segmentation and credit underwriting capabilities.

David Velez: We boast one of the world's leading technology and product teams, a distinction unmatched by any other company in Latin America. Culture Our values, including customer centricity and operational excellence, are deeply ingrained in every team member and driver of decision-making, ensuring our focus on long-term sustainable growth. While our success relies on a combination of these unique attributes, I'd like to double-click on some key factors that place us in an unmatched market position.

David Velez: Talent. We boast one of the world's leading technology and product teams, a distinction unmatched by any other company in Latin America.

Guilherme Lago: While we are very encouraged by the second quarter results, our focus remains steadfast on long-term value creation. This approach may involve making strategic short-term investments to optimize our long-term opportunities.

David Velez: Culture. News values, including customer centricity and operational excellence, are deeply ingrained in every team member and driver of decision-making, ensuring our focus on long-term sustainable growth.

David Velez: While our success relies on a combination of these unique attributes, I'd like to double-click on some key factors that place us in an unmatched market position.

Youssef Lahrech: Now, I like to hand over the call to Yusuf, our president and chief operating officer, who will walk you through the key highlights of our asset quality and credit per fall you have. Thank you, Lago, and good evening, everyone. Let's start by having a look at our NPL trends. First, following an anticipated seasonal rise in NPL 15 to 90 in the first quarter of 2024, which is typical for early-stage delinquencies, it has decreased to 4.5% this quarter slightly more than historicals is now.

David Velez: Our exceptional talent, our focus on technology as a driver of sustainable growth, and our enduring brand that has galvanized and empowered almost 105 million Latin Americans. Since our beginning, we have described ourselves as a technology company, not a financial institution.

David Velez: Our exceptional talent, our focus on technology as a driver of sustainable growth, and our enduring brand that has galvanized and empowered almost 105 million Latin Americans.

David Velez: Since our beginning, we have described ourselves as a technology company, not a financial institution.

David Velez: Therefore, through our 11 years of history, we have gone to great lengths to build what we think is the leading product engineering team in Latin America. Today we have over 59 nationalities working at Nubank, and over 50% of our headcount is focused on technology and analytics. This access to world-class technical talent has been a key reason for our historical performance and will continue to be a great enabler of our performance over the long run as competition increases.

David Velez: Therefore, through our 11 years of history, we have gone to great lengths to build what we think is the leading product engineering team in Latin America.

David Velez: Today, we have over 59 nationalities working at Nubank, and over 50% of our headcount is focused in technology and analytics.

Youssef Lahrech: Second, our 90-plus NPL ratio increased to 7% also in line with expectations. The 70-basis point increase in 90-plus NPL this quarter is simply a reflection of the 90-basis point mostly seasonal increase in 15 to 90 NPL we saw last quarter. As discussed in past earning calls, we are intentionally and strategically growing our lending book and expanding down the credit spectrum where we see relevant opportunities. In line with our credit philosophy, we prioritize decisions that optimize the long-term net present value of our credit cohorts rather than focusing solely on short-term NPL metrics.

David Velez: This access to world-class technical talent has been a key reason for our historical performance and will continue to be a great enabler of our performance over the long run as competition increases.

David Velez: Additionally, the ongoing AI revolution creates new opportunities for differentiation, and we're very focused on building on this talent magnet aspect. As an example, I wanted to highlight our recently announced acquisition of HyperQ. Hyperplane is a Silicon Valley-based leader in AI power solutions for financial services. As we tested Hyperplane's platform on our vast amount of data, we were impressed by the opportunity to meaningfully improve the performance of even our most advanced machine learning models by using a financial services-focused foundation model that included our own unstructured data.

David Velez: Additionally, the ongoing AI revolution creates new opportunities for differentiation and we're very focused on building on this talent magnet asset.

David Velez: As an example, I wanted to highlight our recently announced acquisition of Hyperplay.

David Velez: Hyperplane is a Silicon Valley based leader in AI power solutions for the financial services space.

David Velez: As we tested Hyperplane's platform on our vast amount of data, we were impressed by the opportunity to meaningfully improve performance of even our most advanced machine learning models by using a financial services focused foundation model that included our own unstructured data.

Youssef Lahrech: When we identify asset classes or customer segments with compelling risk-adjusted returns that promote responsible customer behavior, we actually pursue growth in those areas. As we will show in the next few slides, the strategy has yielded increased revenue and greater resilience that are more than offsetting the higher the liquidity rates that come with it. To illustrate the impact of credit expansion on our consumer finance portfolio, we are presenting this analysis of normalized NPLs, starting in December 2022, before the latest waves of credit expansions.

David Velez: We're very excited to welcome the HyperPLAN team on board and see them as a key part of our AI strategy for the foreseeable future. The powerful trio of trust, exceptional service, and competitive pricing also underscores Newspontinium's success. This winning combination is the foundation of our beloved brand, attracting customers who seek the most compelling value proposition in the market. We believe that in a world of choices, customers will naturally gravitate towards those who offer superior products and services, and that's exactly what we provide.

Speaker Change: We're very excited to welcome the HyperPLAN team on board and see them as a key part of our AI strategy in the foreseeable future.

Speaker Change: The powerful trio of trust, exceptional service, and competitive pricing also underscores Newspontinium's success.

Speaker Change: This winning combination is the foundation of our beloved brand, attracting customers who seek the most compelling value proposition in the market.

Youssef Lahrech: This shows what our NPLs would have been if we hadn't undertaken these expansions. In other words, you can see clearly that the increase in NPLs in the last four quarters is largely the product of these deliberate expansions. In fact, the evolution of these NPL metrics continues to closely follow our expectations. Similarly to last quarter, we show on this slide asset quality trends under a different basis, considering both 15 to 90 and 90 plus NPL per interest earning balances rather than total receivables on the previous slide.

Speaker Change: We believe that in a world of choices, customers will naturally gravitate towards those who offer superior products and services. And that's exactly what we provide.

David Velez: The growth of our deposit base in Mexico and now in Colombia is a testament to this principle. In Mexico, we've attracted $3.3 billion in retail deposits in just over a year since the launch of our checking account product. In Colombia, our Quenta product, launched this quarter, has already garnered over $220 million in new deposits.

Speaker Change: The growth of our deposit base in Mexico and now in Colombia is a testament to this principle.

Speaker Change: In Mexico, we've attracted $3.3 billion in retail deposits in just over a year since the launch of our checking account product.

Speaker Change: In Colombia, our Cuenta product, launched this quarter, has already garnered over $220 million in new deposits.

Unknown Attendee: While other players are pursuing even more aggressive pricing strategies, paying higher yields on their savings accounts, since launch, NU has been able to capture over 70% of the deposits in both Mexico and Colombia across all fintechs combined. This proves that consumers are going beyond whoever simply pays them the highest yield and are coming to Nubank because of our product, our brand, and ultimately the entire user experience that we are providing. With that, we're now ready to address your questions.

Speaker Change: While other players are pursuing even more aggressive pricing strategies, paying higher yields in their savings account, since launch, Nu has been able to capture over 70% of the deposits in both Mexico and Colombia across all fintechs combined.

Youssef Lahrech: On this basis, you can clearly see a stable to downward trend in the last few years, aside from the normal seasonal ups and downs, like the ones we saw in Q1 15 to 90 and in Q2 with 90 plus. This goes to show that we have been remunerated for additional risk we've taken. In the next slide, we further validate this conclusion looking directly at risk-adjusted returns. To demonstrate the significant value generated by this expansion strategy, we show on this slide the risk-adjusted margin, Iran, for our Brazil consumer credit portfolio, with and without the risk expansions we undertook since late 2022.

Speaker Change: This proves that consumers are going beyond whoever simply pays them the highest yield and are coming to Nubank because of our product, our brand, and ultimately the entire user experience that we are providing.

Speaker Change: With that, we're now ready to address your questions. Thank you very much.

Speaker Change: In the next video, we'll see you in the next video.

Unknown Attendee: Thank you very much. We will now start the 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.

Speaker Change: [inaudible]

Speaker Change: We will now start the 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.

Unknown Attendee: 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.

Youssef Lahrech: This clearly indicates that the additional revenues stemming from this expansion strategy have more than offset the additional credit risk and delivered substantially increased returns. Credit loss allowance expenses declined to $760 million this quarter, a decrease of only 2% on a 4x neutral basis. This slight drop is the result of two drivers. The first is the relatively slower growth base in Q2 compared to Q1, as the growth is the main driver of our ECL provisions, as you can see in the appendix of this presentation.

Speaker Change: Please limit yourself to one question and a follow-up.

Speaker Change: 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.

Jorg Friedemann: I would like to turn the call over to Mr. Jorg Friedemann, Investor Relations Officer. Thank you, Jorge. And our first question comes from the line of Jorge Kuri, Morgan's... Hi, everyone. Good afternoon, and congratulations on the results.

Jorg Friedemann: I would like to turn the call over to Mr. Jorg Friedemann, Investor Relations Officer.

Youssef Lahrech: The second driver is early which behaves slightly better than historical seasonality in the second quarter, as mentioned previously. Lastly, risk-adjusted NIM, a record high of 11% in this quarter, reflecting a 300 basis point expansion from a year ago and a 150 basis point increase quarter over quarter.

Speaker Change: Thank you, Jorge. And our first question comes from the line of Jorge Curie, Morganstown.

Jorge Kuri: Thanks for the color on how originations are running in July, that that's evidently an impressive number already annualizing various, for the quarter already showing a very strong run rate. Can you provide some color on how the payroll loan, particularly is trending now that you have all of the features that consumers look for, mainly the top up, you know, what's the acceptance level that you're seeing with your consumers? What is the reaction from competitors?

Jorge Curie: Hi everyone. Good afternoon and congrats on the results.

Speaker Change: Thanks for the color on how.

Jorge Curie: Originations are running in July. That's evidently an impressive number already. And for the quarter, already showing very strong run rate.

Unnamed Speaker: Now I would like to turn the call over to the beat. The beat over to you.

Unnamed Speaker: Over the past decade, we have cultivated unique attributes that position new to become the largest consumer technology platform in Latin America. These strengths include brand. By consistently simplifying complexity to empower people, we build one of Brazil's most beloved and trusted brands with recognition rapidly growing in Mexico and Colombia. Scale, where significant presence in Brazil, reaching now 56% of the adult population, enables us to offer superior products at lower prices, creating a powerful flywheel effect. Data, or VAT data, supported by a cutting-edge infrastructure, farms the foundation of our advanced customer segmentation and create underwriting capabilities.

Speaker Change: Can you provide some color on how

Speaker Change: The payroll loan, particularly, is trending now that you have all of the features that consumers look for, mainly the top-up. You know, what's the...

Speaker Change: acceptance level that you're seeing with your consumers? What is the reaction from competitors? Are you taking share or is the growth coming from new customers? Just all help us understand sort of like in these early days how this is shaping up. Thank you.

Guilherme Lago: Are you taking share, or is the growth coming from new customers? Just help us understand, sort of, in these early days, how this is shaping up. Thank you. Hi Jorge.

Guilherme Lago: Thanks so much for the question. So we are super pleased with the performance of what we call our secure lending product, which encompasses both public payroll loans as well as FGTL. And we are still in the very early part of this journey, right? So today we are operating only with two collateral agreements, which are INSS and CRP. INSS for...

Speaker Change: [inaudible]

Speaker Change: Hi Jorge, this is Lago. Thanks so much for the question. So we are super pleased with the performance of what we call our secure lending product which compensates both public payroll loans as well as FGTS.

Unnamed Speaker: Adities. Talent, we boast one of the world's leading technology and product teams a distinction on match by any other company in Latin America. Culture, news values, including customer centricity and operational excellence, are deeply ingrained in every team member and driver of decision making, ensuring our focus on long-term sustainable growth. While our success relies on a combination of these unique attributes, I'd like to double-click on some key factors that places in an unmatched market position. Our exceptional talent or focus on technology as a driver of sustainable growth in our enduring brand that has galvanized and empower almost 105 million Latin Americans.

Speaker Change: and we are skewing the very early part of this journey. So today we are operating only with two collateral agreements.

Speaker Change: which are INSS and GRP INSS for

Guilherme Lago: The two collateral agreements combined account for approximately 50% of the target market that we have in Brazil. We have already signed six additional collateral agreements with armed forces in some of the largest states and municipalities in Brazil, and we expect to continue to expand this so that by the end of the year, our target market can be expanded from today's 50% to somewhere around 70% to 75%, and even more is expected to come in 2025. So that's one dimension of...

Speaker Change: the pensioners and the retirees, and Shafi Ford, the federal public servant.

Speaker Change: The two collateral agreements combined, they account for approximately 50% of the target market that we have in Brazil.

Speaker Change: We have already signed six additional collateral agreements with armed forces in some of the largest states and municipalities in Brazil, and we expect to continue to expand this.

Unnamed Speaker: Since our beginning, we have described ourselves as a technology company, not a financial institution. Therefore, through 11 years of history, we have gone to great lengths to build what we think is the leading product engineering team in Latin America. Today, we have over 59 nationalities working on Nubank, and over 50 percent of our headcount is focused in technology and analytics. This access to world-class technical talent has been a key reason for historical performance and will continue to be a great enabler of over-performance over the long run as competition increases. Additionally, the ongoing AI revolution creates new opportunities for differentiation and we're very focused on building on this talent magnet aspect.

Speaker Change: so that by the end of the year, our target market can be expanded from today's 50% to somewhere around 70% to 75% and even more is expected to come in 2025. So that's one dimension of expansion.

Guilherme Lago: However, the second dimension of expansion is the launch of new products and features which are already, but are still far from being complete. You did point out that we have ready-launched portability, and we did so progressively throughout the second quarter of the year, but there are still some features that are very important missing, specifically related to refinancing and top-down. Those two features, refinancing and top-up, when coupled with portability, can account for more than 50% of their production for online or digital players.

Speaker Change: However, the second dimension of expansion is the launch of new products and features which are still far from being complete.

Speaker Change: You did point out that we have ready-launched portability and we did so progressively throughout the second quarter of the year, but it's still with some features that are very important missing, specifically related to refinancing and top-up.

Unnamed Speaker: As an example, I wanted to highlight or recently announced a acquisition of hyperplane. Hyperplane is a silicon value-based leader in AI power solutions for the financial services space. As we tested hyperplane's platform on our vast amount of data, we were impressed by the opportunity to meaningfully improve performance of even our most advanced machine learning models by using a financial services-focused foundation model that included our own unstructured data. We're very excited to welcome the hyperplane team on board and see them as a key part of our AI strategy in the foreseeable future.

Speaker Change: And those two features, refinancing and top-up, when coupled with portability, can, for the online or digital players, account for more than 50% of their portability.

Guilherme Lago: So we are seeing kind of a progressive ramp-up in public payroll loans. We do believe that we have structural cost advantages to play in the segment. So, as you know, we originate 100% digitally. Therefore, we have no customer acquisition costs whatsoever. We don't operate with loan brokers or branches.

Speaker Change: So we are seeing kind of progressive ramp-ups in public payroll loans.

Speaker Change: We do believe that we have structural cost advantages to play in the segment. So, as you know, we originate 100% digitally. Therefore, we have no customer acquisition costs whatsoever. We don't operate with loan brokers or branches.

Guilherme Lago: Our existing customers account for nearly 40% of the total public payroll on books in Brazil. So again, we don't need to go outside of Portugal to tap into more than 40% of the total. So, early days for us, encouraging signs so far on both public theater loans and also, if not primarily, NEPGTF, and we expect that growth will pick up in the coming months. Thank you, Lago. That was very clear. And the second question comes from the line of Pedro Leduc from Ita. Hi everybody.

Speaker Change: And our existing customers account for nearly 40% of the total public payroll on books in Brazil. So again, we don't need to fish outside of our fish bowl to tap into more than 40% of the total market.

Unnamed Speaker: The powerful tree of trust, exceptional service, and competitive pricing also underscores new spontaneous success. This winning combination is the foundation of our beloved brand, attracting customers who seek the most compelling value proposition in the market. We believe that in a world of choices, customers will naturally gravitate towards those who offer superior products and services, and that's exactly what we provide. The growth of our deposit base in Mexico and now in Colombia is a testament to this principle.

Speaker Change: So early days for us, encouraging signs so far on both public data loans and also if not primarily in the FGPS and we expect that growth will pick up in the coming quarters.

Speaker Change: Thank you, Lago. That was very clear.

Unnamed Speaker: In Mexico, we've attracted $3.3 billion in retail deposits in just over a year since the launch of our checking account product. In Colombia or Quenta products, launch this quarter has already garnered over 220 million in new deposits. While other players are pursuing even more aggressive pricing strategies, paying higher yields in their savings account since launch, new has been able to capture over 70% of the deposits in both Mexico and Colombia across all FinTechs combined. These proves that consumers are going beyond whoever seems to pay the highest yield and are coming to no bank because of our product, our brand, and ultimately the entire user experience that we are providing.

Speaker Change: and the second question comes from the line of Pedro Lebuque from Itaús.

Pedro Leduc: Thank you so much for the question. I would like to pick your brains a little bit on the provision expense side for bad credit. Here, of course, we have seen that it increased a lot during 1Q, and back then, we discussed how it was related to greater risk-taking, well-planned, conscious move, you know, and that had brought up those provision expenses. And now, in the second quarter, this one affects neutral, you're sort of flattish, lowering your cost to risk effectively.

Speaker Change: i

Pedro Lebuque: Hi everybody, thank you so much for the question. I would like to pick our brains a little bit on the provision expense side for bad credit.

Speaker Change: here. Of course, we have seen that it increased a lot during 1Q and back then we discussed how it was related for greater risk-taking, well-planned, conscious move.

Speaker Change: Jorg Friedemann, David Velez, Guilherme Lago

Pedro Leduc: So I want to get your thoughts around this a little bit, probably go around how those recently originated portfolios have behaved, how we are seeing risk in the coming origination harvests, just to get a sense on the provision side. So that's that. Thank you again. Hi Pedro. This is Youssef.

Speaker Change: So I want to get your thoughts around this a little bit and probably go around how those recently originated portfolios have behaved, how you're seeing risk in the coming origination harvests.

Unnamed Speaker: With that, we're not ready to address your questions. Thank you very much.

Operator: We will now start the 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.

Speaker Change: just to get a sense on the provision side. So that's that. Thank you again.

Youssef Lahrech: Thanks so much for the question. So look, I believe you're referring to slide 24, of our presentation, which shows our CLA quarter on quarter. And you are correct that there was a slight contraction from Q1 to Q2 on an FX-neutral basis, about 2% down. As I mentioned previously, you have to think about the fact that we provision when we grant loans or book credits on the basis of expected credit losses under IFRS 9. And so what's happened this quarter is that the credit quality, the actual performance has played out for our expectations. In fact, slightly better when you look at 15 to 90, as I pointed out.

Speaker Change: Hi Pedro, this is Youssef. Thanks so much for the question. So look, I believe you're referring to slide 24.

Pedro Lebuque: of our presentation, which shows our CLA quarter-on-quarter. And you are correct that there was a slight contraction from Q1 to Q2 on an FX neutral basis, about 2% down. As I mentioned previously,

Operator: You may submit online questions at any time today using the Q&A box on the webcast.

Speaker Change: You know, you have to think about the fact that we provision when we grant loans or book credits on the basis of, you know, expected credit losses, right, for IFRS 9. And so what's happened this quarter is the credit quality, the actual performance has played out.

Jorg Friedemann: I would like to turn the call over to Mr. Jorg Friedemann, Investor Relations Officer. Thank you for either.

Unnamed Speaker: And our first question comes from the line of how to include it, Morgan Stanley. Hi, everyone. Good afternoon and congrats on the results. Thanks for the caller on how originations are running in July. That's an impressive number already and analyzing. For the quarter already showing very strong run rate. Can you provide some caller on how the payroll loan particularly is trending now that you have all of the features that consumers look for mainly the top off?

Speaker Change: For our expectations, in fact, slightly better when you look at 15 to 90, as I pointed out. So that's what's in part driving the slight decrease.

Youssef Lahrech: So that's what's, in part, driving the slight decrease in CLA, coupled with the fact that on a relative basis to the size of the portfolio, the relative growth was less in Q2 than in Q1. You know, another way to look at it is if you refer to the appendix of the presentation, I believe it's slide... 37 with the coverage ratios on both the basis of total loans and and coverage of 90 plus.

Speaker Change: in CLA, coupled with the fact that on a relative basis to the size of the portfolio, the relative growth was less in Q2 than Q1. You know, another way to look at it is if you refer to the appendix of the presentation, I believe it's slide

Speaker Change: with the coverage ratios on both the basis of total loans and

Youssef Lahrech: You see, the coverage ratio of total loans has continued to go up, as one would intuitively expect, given that, you know, the net effect of all our growth is expanding credit and expanding credit risk. On the basis of 90-plus, it continues to be hovering around 200%. Again, the fact that it decreased a little bit is just based on the early delinquencies improving, as I mentioned. Thank you.

Speaker Change: and a coverage of 90 plus. You see the coverage ratio of total loans has continued to go up as one would intuitively expect given that the net effect of all our growth is expanding credit and expanding credit risk.

Unnamed Speaker: What's the acceptance level that you're seeing with your consumers? What is the reaction from competitors? Are you taking share or is the growth coming from new customers? I'll help us understand in these early days how this is shaping up.

Speaker Change: On the basis of 90 plus it continues to be you know hovering around 200%. Again the fact that he decreased a little bit is just based on the early delinquencies improving as I mentioned.

Speaker Change: [inaudible]

Youssef Lahrech: Thank you. Hi, what is this line? Thanks so much for the question. So we are super pleased with the performance of what we call our secure landing product, which encompasses both public payroll loans as well as FGTS. And we are skew in the very early parts of this journey. So today we are operating only with two collateral agreements, which are INSS and TIP, INSS for the pension years in the retirees and TIP for the federal public servants.

Speaker Change: Thank you.

Mario Pierry: And the next question comes from the line of Mario Pierri at Bank of America. Hi, guys. Good afternoon.

Mario Pierry: Let me stay on this topic of provisions because I think that was the big surprise this quarter. You show right on, I think it's slide 11 or 12, that your originations went up. So you are originating more credits, and then you're provisioning less. Like you mentioned, you provision based on expected losses.

Speaker Change: Hi guys, good afternoon. Let me

Speaker Change: stay on this topic of provisions because I think that was the big surprise this quarter.

Speaker Change: You show right on, I think it's slide 11 or 12, that your originations went up.

Speaker Change: So you are originating more credits, and then you're provisioning less. Like you mentioned, you provision based on expected losses. So does it mean that you expect

Youssef Lahrech: The two collateral agreements combine the account for approximately 50% of the target market that we have in Brazil. We have already signed six additional collateral agreements with armed forces in some of the largest state and municipalities in Brazil and we expect to continue to expand this so that by the end of the year our target market can be expanded from today's 50% to somewhere around 70% to 75% and even more is expected to come in 2025.

Youssef Lahrech: So does it mean that you expect lower losses on these new originations than you had before? And why would that be the case? Because we continue to see, right, the NPL is going up. So yeah, that's my question. If you can give us a little bit more color on why, you know, even if origination is going up, revisions are going down. Thanks for the question Youssef again. Again, it might be helpful to refer to slide 38, in the appendix of the presentation, which looks at the ECL itself, right? So the ECL increased by about. You know, 300 million or so.

Speaker Change: lower losses on these new originations than you had before. And why would that be the case? Because we continue to see, right, the NPL is going up.

Speaker Change: So, yeah, that's my question. If you can give us a little bit more color on why, you know, even if origination is going up, revisions are going down.

Youssef Lahrech: So that's one dimension of expansion. However, the second dimension of expansion is the launch of new products and features, which are skew far from being no complete. You did point out that we have ready launch for the ability and we did so progressively throughout the second quarter of the year, but still with some features that are very important and missing, specifically related to refinancing and talking. And those two features, refinancing and top up, and a couple with portability, can for the online or digital players account for more than 50% of the upper tabla.

Speaker Change: It's actually a question to Youssef again, so it might be helpful to refer to slide 38.

Speaker Change: in the appendix of the presentation which looks at the ECL itself, right?

Speaker Change: The ECL increased by about $300 million or so.

Youssef Lahrech: 400 million of that was growth, so the impact of growth is fully reflected there. And then we had 110 million of other factors, mostly what I mentioned in terms of the slightly better than expected early delinquency performance.

Youssef Lahrech: and so in fact you know we're continuing to grow this line item the ECL line item it's just a little bit better than than our expectations when we front-loaded provisions in Q1

Youssef Lahrech: So we are seeing kind of a progressive ramp up to the public bearer launch. We do believe that we have structural cost advantages to play in the segment. So as you know, we originated 100% digitally, therefore we have an ocassum requisition cost whatsoever. We don't operate with loan brokers or branches. And our existing customers account for nearly 40% of the total public payroll on both in Brazil. So again, we don't need to fish outside of our fish balls to tap into more than 40% of the total market. So early days for us, encouraging signs so far on both public payroll loans. And also, it's not primarily that you can expect that growth will pick up in the coming waters.

Unnamed Speaker: Thank you, Lago.

Youssef Lahrech: 400 million of that was growth, so the impact of growth is fully reflected there. And then we had 110 million in other factors, mostly what I mentioned in terms of the slightly better than expected early delinquency performance. And so, in fact, we're continuing to grow this line item, the ETL line item. It's just a little bit better than our expectations when we front-loaded provisions in Q1. Okay, and Youssef, you mentioned, right, that the NPLs continue to behave according to your expectations, but what are your expectations going forward for NPLs? Yeah, a good question.

Youssef Lahrech: Okay, and Youssef, you mentioned that the NPLs continue to behave according to your expectations, but what are your expectations going forward for NPLs?

Youssef Lahrech: So in terms of what to expect going forward, it's very much along the lines of continuing to grow our credit book. You know, there are several dynamics at play. First of all, we continue to increase the relevance in the mix of lending, you know, personal loans, both secure and unsecured, as a percentage of total receivables. Personal loans have been growing faster than credit cards, but they tend to have, on net, a higher risk content.

Youssef Lahrech: Yeah, good question. So in terms of what to expect going forward, it's very much along the lines of continuing to grow our credit book. You know, there's several dynamics at play. First of all, we continue to increase

Youssef Lahrech: The relevance and the mix of lending, you know, personal loans, both secure and unsecured.

Youssef Lahrech: as the percentage of total receivables. Personal loans have been growing faster than credit cards. They tend to have on net a higher risk content.

Unnamed Speaker: That was very clear.

Unnamed Speaker: And the second question comes from the line of the book from me.

Youssef Lahrech: So that tends to push NPLs up and provisions up.

Youssef Lahrech: So that tends to push NPLs up and provisions up. But also, within credit cards, what we've been seeing over the last several quarters is a pickup in interest-bearing receivables because we have more interest-bearing receivables in the credit card book, which gives us better unit economics, which allows us to then expand credit to more customers and more credit to existing and already eligible customers. And then in both products, both personal loans and credit cards, you know, as we improve our models, as we get more data, and more test results.

Unnamed Speaker: Hi, everybody. Thank you so much for for the question. I would like to pick a brains a little bit on the provision expense side for bad credit. But here, of course, we had seen that it increased a lot during one key when back then we discussed how it was related for greater risk taking well planned conscious move. No, and that had brought up those provision expenses. And now in the second quarter, this on the sex neutral, you're sort of flatish lowering your cost of risk effectively.

Youssef Lahrech: But also within credit card, what we've been seeing over the last, you know, several quarters is a pickup in interest-bearing receivables

Youssef Lahrech: because we have more interest-bearing receivables in the credit card book that gives us better unit economics, which allows us to then expand credit to more customers and more credit to existing and already eligible customers. And then in both products, both personal loans and credit card, you know, as we improve our models, as we get more data, more test results.

Youssef Lahrech: We're able to serve more customers across the spectrum and expand our credit box. So all those dynamics point to, you know, increasing NPL and also increasing returns, as we've illustrated earlier in this call. But there is one offsetting factor, which is the growth in secured lending, which tends to come with lower NPL, but on a net basis.

Youssef Lahrech: we're able to serve more customers across the spectrum and expand our credit box.

Youssef Lahrech: So all those dynamics point to, you know, increasing NPL and also increasing returns as we've illustrated earlier in this call.

Unnamed Speaker: So when we get your thoughts around this, a little bit probably go around how those recent originated portfolios have behaved, how we were seeing risk in the coming origination harvest. Just to get a sense on the provision side. So that's that.

Speaker Change: There's one offsetting factor, which is the growth in secured lending, which tends to come with lower NPL.

Youssef Lahrech: I would expect, you know, to continue the trend that we've been seeing. And again, this is all related to our philosophy of what are we trying to optimize when we grow? We try to optimize the NPV of that full customer relationship over its lifetime, you know, including future cross-sale opportunities, including principality increases, et cetera, rather than trying to minimize NPL over the short term. So again, when we see opportunities to grow in a way that's resilient, that is suitable for those customers, that is high NPS, and high quality, you know, we see those opportunities. And so do I.

Speaker Change: I would expect, you know, to continue the trend that we've been seeing over the last several quarters. And again, this is all related to, you know, our philosophy of what are we trying to optimize when we grow, we try to optimize.

Youssef Lahrech: Thank you again.

Youssef Lahrech: Hi, Pedro. This is you. So thanks so much for the question. So look, I believe you're referring to slide 24 of our presentation, which shows our CLA quarter on quarter. And you are correct that there's a slight contraction from Q1 to Q2 on an effects neutral basis about 2% down as I mentioned previously. You have to think about the fact that we provision when we grant loans or book credits on the basis of expected credit losses, right, Paris 9.

Speaker Change: the NPV of that full customer relationship over its lifetime.

Speaker Change: Jorg Friedemann, David Velez, Guilherme Lago

Speaker Change: opportunities to grow in a way that's resilient, that is suitable for those customers, that is high NPS, high quality, you know, we seize those opportunities. And so I...

Youssef Lahrech: We still see a lot of opportunity to grow going forward on that basis. You know, you can also think of it through the lens of, in Brazil, for example, we have about 60% of the total adult population. When you look at the proportion of customers who have Nubank as their primary banking account, it's about a third of the total population of Brazil. In contrast, our market share for our most mature product, like credit cards, is about 13, 14%. It's even lower when you look at loans.

Speaker Change: We still see a lot of opportunity to grow going forward on that basis. You know, you can also just think of it through the lens of, in Brazil, for example, we have about 60% of the total adult population. When you look at

Youssef Lahrech: And so what's happened this quarter is the credit quality, the actual performance has played out for our expectations. In fact, slightly better when you look at 15 to 90 as I pointed out. So that's what's in part driving the slight decrease in the CLA couples with the fact that on a relative basis to descend the portfolios and the relative growth was less in Q2 than Q1. Another way to look at it is if you refer to the appendix of the presentation, I believe it's slide 37 with the coverage ratios on both the basis of total loans and coverage in 90 plus.

Speaker Change: The proportion of customers

Speaker Change: who have Nubank as their primary banking

Speaker Change: account. It's about a third of the total population of Brazil. In contrast, our market share in our most mature product like credit cards is about 13-14 percent. It's even lower when you look at loans. It's in the single digits. Secured loans even lower in the

Youssef Lahrech: It's in the single digits, and secured loans are even lower in the small single digit range. And so we still see a lot of opportunity to grow those market shares on the basis of the customer base we already have. Okay, so then to summarize, basically, you're saying you expect NPLs to continue to go up. But we did see an acceleration in the deterioration this quarter, right? Like we saw 70 basis points of deterioration, you were deteriorating 20 to 30 basis points before. Is that the 70 basis points that you were expecting? Or should we go back to the 20 to 30 basis points per quarter?

Speaker Change: small in the small single-digit range and so we we still see a lot of our team to grow those those market shares on the basis of the customer base we already have.

Speaker Change: Okay, so then to summarize, basically you're saying you expect NPLs to continue to go up.

Youssef Lahrech: You see the coverage ratio of total and then continue to go up, as one would intuitively expect, given that, you know, the net effect of all our growth is expanding credit and expanding credit risk. On the basis of 90 plus, it continues to be, you know, hovering around 200%. Again, the fact that it decreased a little bit is just based on the early delinquencies improving, as I mentioned. Thank you.

Speaker Change: But we did see an acceleration in the deterioration this quarter, right, like we saw 70 basis points deterioration, you were deteriorating 20 to 30 basis points before. Is that the 70 basis points that you were expecting, or should we go back to the 20 to 30 basis points per quarter?

Youssef Lahrech: Right. So in terms of what we saw this quarter, the 70 basis points on 90 plus that you point out, the way I would think about it is, if you go back one quarter and you look at what happened between 15 and 90, that was a seasonal pickup in Q1 of about 90 basis points. What we're observing this quarter in 90 plus is merely the impact of that rolling forward. You know, into the next bucket of delinquency.

Speaker Change: Right, so in terms of what we saw this quarter, the 70 basis points on 90-plus that you point out, the way I would think about it is if you go back one quarter and you look at what happened to 15 to 90, that was a seasonal pickup in Q1 of about 90 basis points.

Unnamed Speaker: And the next question comes from the line of Mario P.A, at Bank of America. Hi guys, good afternoon. Let me, let me stay on this topic of the provisions because I think that was the big surprise this quarter. You show right on, I think it's live 11 or 12, that your originations went up. So you're originating more credits and then you provisioning less, like you mentioned, your provision based on expected losses.

Speaker Change: What we're observing this quarter in 90PLUS is merely the impact of that rolling forward.

Youssef Lahrech: So 90 basis points increase in 1590 in Q1 resulted in about 70 basis points, in Q2 in 90 plus. So that's just kind of the mechanics of it. And remember, Q1 tends to be the peak of Delinquency in 1590, which then translates to Peak. An increase in the next quarter in 90 plus, so I think that's just more than anything seasonality. Okay, thank you very much.

Speaker Change: You know into the next bucket of delinquency. So 90 basis points increase in 1590 in Q1 resulted in about 70 basis points

Speaker Change: in Q2 and 90 plus. So that's just kind of the mechanics of it. And remember Q1 tends to be the peak

Speaker Change: of delinquency in 15 to 90, which then translates to a peak increase in the next quarter in 90 plus. So I think that's just more than anything seasonality.

Unnamed Speaker: So doesn't mean that you expect lower losses on this new originations than you had before. And why would that be the case? Because we continue to see, right, the NPLs going up. So, yeah, that's my question.

Speaker Change: Okay, thank you very much.

Geoffrey Elliott: And our next question comes from the line of Geoff Elliott at Autonomous. Hello, thanks very much for taking the question. We've spoken in the past about moving upmarket initiatives like Ultra Via Letta, but the message here feels almost one of moving downmarket, taking on more risk. If you look at the purchase volumes analysis by cohort that you show, it seems to point to maybe lower purchase volumes for newer customers. What is the thinking on the shift upmarket? Is that still going to happen? Is that pushback? What's going on there?

Speaker Change: And our next question comes from the line of Joss Elliot at Autonomous.

Joss Elliot: Hello, thanks very much for taking the question.

Joss Elliot: We've spoken in the past about moving up-market initiatives like Ultravioletta, but the message here feels almost one of moving down-market.

Youssef Lahrech: If you can give us a little bit more color on why, you know, even if originations going up, provisions are going down. Yeah, Mario, actually the question to use it again. So it might be helpful to refer to slide 38 and the appendix of the presentation, which looks at the ECL itself, right. So the ECL increased by about, you know, 300 million or so, 400 million of that was growth. So like the impact of growth is fully reflected there.

Joss Elliot: Taking on more risk, if you look at the purchase volumes analysis by cohort that you show, it seems to point to maybe lower purchase volumes.

Speaker Change: for newer customers. So what is the thinking on the shift up market? Is that still going to come? Is that pushback? What's happening there?

Youssef Lahrech: And then we had 110 million of other factors, mostly, but what I mentioned in terms of the slightly better than expected, the early frequency performance. And so in fact, you know, we're continuing to grow this line item, the ECL item, it's just a little bit better than, then our expectations when we've uploaded provisions into one. Okay, and use a few mentioned right that the NPLs continue to behave according to your expectations.

Guilherme Lago: So, Geoff, I think I'll try to let my colleagues add as well, but by no means, the growth that we have had in lending and credit cards suggests a deviation from our intention to grow very fast in high income. I think the high-income market provides us with a tremendous opportunity in consumer credit in Brazil, as it accounts for a fairly substantial share of all of the asset classes in which, Over the past 12 to 24 months, we believe that we have made fairly good inroads into our pursuit of increasing our share of wallets within the high-income population.

Speaker Change: So Joe, I think I'll try to let my colleagues add as well, but...

Joe: No, by no means, the growth that we have had in lending and credit cards suggests a deviation from our intention to grow very fast in high income, on the opposite.

Speaker Change: I think the high-income market provides us with a tremendous opportunity in consumer credit in Brazil as it accounts for a fairly relevant share of all of the asset classes in which we play.

Youssef Lahrech: But what are your expectations going forward for NPLs? Yeah, good question. So in terms of what to expect going forward, you know, it's very much along the lines of continuing to grow our credit book. There's several dynamics that play, first of all, we continue to increase the relevance and the mix of lending, you know, personal loans, but secure and unsecured as the percentage of total receivables, personal loans have been growing faster than credit card.

Joe: Over the past, now, 12 to 24 months,

Joe: We believe that we have made fairly good enrolls into our pursuit of increasing our share of wallets within the high-income population.

Guilherme Lago: As we pointed out in prior calls, we have the opportunity now to increase share of wallet largely as a result of our success in having acquired high-income customers over the past two years. Today, if you define high income as a customer in Brazil who earns more than R$12,000, we estimate that we already have more than 60% of those high-income customers with us.

Joe: As we pointed out in prior calls, we have the opportunity now to increase share of wallet largely as a result of our success in having acquired high income customers over the past two years.

Joe: Today, if you define high income as a customer in Brazil who earns more than R$12,000, we estimate that we already have more than 60% of those high income customers with us.

Youssef Lahrech: They tend to have on net a higher risk content, so that tends to push NPLs up and purges up. But also within credit card, what we've been seeing over the last, you know, several quarters is a pickup in interest bearing receivables because we have more interest bearing receivables in the credit card book that gives us better unit economics, which allows us to then expand credit to more customers and more credit to existing and already eligible customers.

Guilherme Lago: Over the past quarters, we have materially improved brand awareness and, materially improved brand consideration for the high-income segment. As of December 2023, we have become the number one player in NPS within the high-income category. And high income has become the fastest growing segment within our purchase volume. So, as a reference, the PV of ultraviolet, which is our higher tier, has increased by over 70% over the past 12 months, even coming still from a relatively low base, but we are fairly encouraged by our drive to go into high income.

Joe: Over the past quarters, we have materially improved brand awareness, materially improved brand considerations.

Joe: for the High Income Segment.

Joe: As of December 2023, we have become the number one player in NPS within the high-income category.

Joe: And High Income has become the fastest growing segment within our world purchase volume. So, as a reference...

Youssef Lahrech: And then in both products, both personal and credit card, you know, as we improve our model, as we get more data, more test results, we're able to serve more customers across the spectrum and expand our credit box. So all those dynamics points to, you know, increasing NPL and also increasing returns as we illustrated earlier in this call. There's one offsetting factor which is the growth in secured lending which tends to come with lower NPL.

Joe: The PV of ultraviolet, which is our higher tier, has increased by over 70% over the past 12 months.

Speaker Change: David Velez, Jorg Friedemann, David Velez, Guilherme Lago

Guilherme Lago: And we think that is fairly compatible and addicted to what we are doing. Thanks. And the principality among high income, what would that look like? So our overall principality is about 60%. I don't have the figures for high income, middle income, and low income here, nor do I think we disclose them, but they are certainly higher within the bottom of the pyramid than they are within the top of the pyramid.

Youssef Lahrech: But on net, I would expect, you know, to continue the trend that we've been seeing over the last several quarters. And again, this is all related to, you know, our philosophy of what are we trying to optimize when we grow, we try to optimize the NPV of that full customer relationship over its lifetime, you know, including future cross-tailed opportunities, including principality, increases, et cetera, rather than trying to minimize, you know, NPL over the short term.

Speaker Change: Thanks, and the principality among high-income, what would that look like?

Speaker Change: So we the our overall principality is about 60%

Speaker Change: I don't have the figures for high income, middle income, and low income here, nor do I think we've disclosed them, but they are certainly higher.

Speaker Change: within the bottom of the pyramid than they are within the top of the pyramid. The opportunity that we have now as we improve kind of our brand attributes, as we launch new products and features, is to gain principality and share quality with our customers.

Guilherme Lago: The opportunity that we have now as we improve the kind of our brand attributes, as we launch new products and features, is to gain principality and share quality, And we can thank you as we as we track the primary banking relationship, or PBR, has increased quarter after quarter within the higher income segments. Great. Thanks very much.

Youssef Lahrech: So again, when we see opportunities to grow in a way that's resilient, that is suitable for those customers, that is high NPS high quality, you know, we see those opportunities. And so I, we still see a lot of opportunity to grow going forward on that basis. You know, you can also think of it through the lens of, in Brazil, for example, we have about 60 percent of total adult population. When you look at the proportion of customers who have Nubank as their primary banking account, it's about a third of total population of Brazil.

Speaker Change: and we can thank you as we as we track the primary banking relationship or PBR has increased quarter after quarter within the higher income segments in Brazil

Speaker Change: Great. Thanks very much. Sorry to cut you off there.

Yuri Fernandes: Sorry to cut you off there. And our next question comes from the line of Yuri Fernandes, JP Morgan. Thank you, Jorge, and congratulations to everybody for the quarter. I have a question. I think it was Lago that mentioned at the beginning of the call that he expected interesting assets from the card, the installment, to start to stabilize. So I want to confirm I heard that correctly.

Speaker Change: and our next question comes from the line of Judy Fernandez, JP Morgan.

Youssef Lahrech: In contrast, our market share, you know, in our most mature product, like credit cards is about 13-14 percent, it's even lower. When you look at loans, you know, it's in the single digits, they hear loans even lower in the small, in the small single digit range. And so we still see a lot of our opportunities grow those, those market shares on the basis of the customer base we already have.

Judy Fernandez: Jorg and congrats everybody for the quarter. I have a question, I think it was Lago mentioned in the beginning of the call that he expected interesting assets from from the current installments.

Guilherme Lago: And if that's why, because you continue to make, you know, good returns on fixed financing, boletos, and credit cards, as you, as you always mentioned, this is a good risk-adjusted product. So basically, you know, confirming that we should see some stabilization on that EIA for credit cards, NETS, why should we see this stabilization? Thank you guys. So, Yuri, thanks for the question. I think you were referring to my remarks on slide number 10, in which we see the evolution of our interest-earning assets evolving from 19% last year to about 28%. So it is, first, extremely hard to draw high-condition outlooks for innovative products.

Judy Fernandez: to start to stabilize. So I want to confirm I heard this correctly and if that's correct

Youssef Lahrech: Okay, so then to summarize, basically, you're saying you're expecting deals to continue to go up. But we did see an acceleration in the, in the, the iteration of the squatter around, like we saw 70 basis points, 50 iteration, you were deteriorating 20 to 30 basis points before. Is that the 70 basis points that you were expecting, or should we go back to the, to the 20 to 30 basis points per quarter?

Speaker Change: Why? Because you continue to make, you know, good returns on investment.

Speaker Change: David Velez, Jorg Friedemann, David Velez, Guilherme Lago

Speaker Change: NETS, why could we see this stabilization? Thank you guys.

Youssef Lahrech: Right. So in terms of what we saw this quarter, the 70 basis points on 90 plus that you point out, the way I would think about it is, if you go back one quarter and you look at what happened to 15 to 90, that was a seasonal pickup in Q1 of about 90 basis points. What we're observing this quarter in 90 plus is merely the impact of that rolling forward, you know, into the next bucket of the liquidity.

Youssef Lahrech: So 90 basis points increase in 15 90 and Q1 resulted in about 70 basis points in Q2 and 90 plus. So that's just kind of the mechanics of it. And then remember, Q1 tends to be the peak of the length of 15 to 90, which then translates to peak increase in the next quarter in 90 plus. So I think that's just more than anything seasonality.

Guilherme Lago: So this is an innovation that we like to believe that we helped to introduce in Brazil. And you're absolutely right that we are very pleased with the unit economics of this product and with customer adoption. We just feel that the adoption curve that we have experienced over the past four quarters has been fairly steep, so it's hard for us to believe that we will continue to see the same adoption velocity over the coming quarters.

Unnamed Speaker: Okay. Thank you very much.

Unnamed Speaker: And then our next question comes from the line of John Elliott. Hello, thanks very much for taking the question. We were spoken in the past about moving up market initiatives like Ultravia Letter.

Guilherme Lago: So we are assuming that going forward, there's going to be a wide reduction in growth, not a reduction in the overall percentage, but probably not going to grow at the same pace as it grew in the prior No, super clear. So should still gain stomach penetration, but not maybe at the same pace as we are seeing currently, right? Basically, this Whitehead Franchise. Perfect. Thank you a lot.

Youssef Lahrech: But the message here feels almost one of moving down market. Taking on more risk, if you look at the purchase volumes analysis by cohort that you show, it seems to point to maybe lower purchase volumes for newer customers. So what is looking on the shift up market? Is that still going to come? Is that pushback? What's happening there? So, Geoff, I think I'll try to try and meet you know, let my colleagues add as well.

Guilherme Lago: Thank you. And our next question comes from the line of Tito Labarta from Goldman Sachs. Hi, good evening.

Tito Labarta: Thanks for the call and taking my question. A bit of a follow-up on asset quality, looking here at slide 21 in the presentation, it does look like, without the expansions, you know, the early MPLs would be doing even better. So just maybe help us think about the credit quality outlook that you see in Brazil versus ex-Brazil, where it's still very early stages, and maybe you're taking on more risk there. Like, are you feeling more comfortable?

Speaker Change: <unk> been able to follow up on asset quality looking here at slide 21 in the presentation. It does look like yet without the expansion.

Speaker Change: We'll be doing even better so just maybe help us think about.

Youssef Lahrech: But now, by new means, the growth that we have had in lending and credit cards suggests that the deviation from all were inpatient to grow very fast in high income. On the opposite, I think the high income market provides us with no tremendous opportunity in consumer credit in Brazil. I did that counts for a fairly relevant share of all of the asset classes in which we play. Over the past 12 to 24 months, we believe that we have made fairly good enrols into our pursuit of increase in our share of wallet is in the high income population.

Speaker Change: The credit quality outlook that you see in Brazil versus ex Brazil, where it's still very early stages and maybe you are taking on more risk. There like are you feeling more comfortable I mean, you've kind of alluded to this.

Youssef Lahrech: I mean, you kind of alluded to this, but maybe the Brazil credit quality outlook is getting better, and can that help you maybe even accelerate growth in Brazil a bit? Tito, thanks for the question.

Speaker Change: But that maybe the Brazil credit quality outlook is getting better and can that help you maybe even accelerate growth in Brazil a bit.

Youssef Lahrech: So, you know, as a reminder, we think about macro and credit outlook, we try to refrain from making any bets on what's going to happen to macro on a going forward basis. In fact, if you look at our history, starting in Brazil, it is marked by big periods of instability, downturns, etc. So we feel like, Our philosophy continues to be one of demanding a lot of resilience from whatever growth we underwrite, right? So we always kind of take the stance that the future will be worse than the past.

Speaker Change: Hey, Tito thanks for the question.

Speaker Change: As a reminder, we.

Speaker Change: Thinking about macro and credit outlook, we tried to refrain from having any.

Youssef Lahrech: As we pointed out in prior calls, we have the opportunity now to increase share of wallet largely as a result of our success in head and acquired income customers over the past two years. Today, if you define high income as a customer in Brazil who earns more than 12,000 reais, we estimated that we already have more than 60% of those high income customers with us. Over the past waters, we have material improved brand awareness, material improved brand considerations for the high income segments.

Speaker Change: Making any bets on.

Speaker Change: What's going to happen to macro on a going forward basis. In fact, if you look at our history starting in Brazil. It is marked by.

Speaker Change: Big periods of instability downturns et cetera, So we feel like.

Speaker Change: Our philosophy continues to be one of.

Speaker Change: Demanding a lot of resilience from whatever growth, we underwrite right.

Youssef Lahrech: And whatever we underwrite needs to be able to withstand a significant amount of deterioration. So typically, our cohorts, as we've said in the past, will withstand a doubling of risk and still be above hurdle. And so we continue to operate in this way, where we tend to be fairly agnostic to any forecasts about the future.

Speaker Change: Kind of take the stance of the future will be worse than the past and whatever we underwrite needs to be able to withstand a significant amount of deterioration. So typically in our cohorts as we've said in the past will withstand the doubling of risk and still be above hurdle and so we continue to operate in this way, where we tend to be fairly agnostic to any form.

Youssef Lahrech: As of December 2023, we have become the number one player in NPS in the high income category. High income has become the fastest growing segment within our purchase volume. As a reference, PV of ultraviolet, which is our higher tier has increased by over 70% over the past 12 months, even coming still from a relatively low base, but we are fairly encouraged on our drive to go into the high income, and we think that is fairly compatible and addicted to what we are doing in life.

Youssef Lahrech: To your point, when you back out the expansions and you look at what NPLs would have been without the expansions, we see a period of relative stability over the last year and a half or so. But we're not banking on that or any improvement going forward to be able to continue to grow. Okay, no, that's fair.

Speaker Change: Cash is about the future to your point, what we've seen when you back out the expansions and you look at it with Npls would have been without the expenses, we see a period of relative stability over the last year and a half or so.

Speaker Change: But we're not banking on that or any improvement going forward to be able to continue to grow.

Youssef Lahrech: Thanks, Youssef, for that. And maybe a follow-up. The risk-adjusted NIM, right, slide 24, you know, nice improvement there. As you continue to grow the loan book and monetize, do you think there's still room for that to continue to increase further? Yeah, good question.

Speaker Change: Okay, No that's fair thanks for.

Speaker Change: For that and maybe a follow up.

Speaker Change: The risk adjusted NIM right Slide 24, nice improvement there.

Youssef Lahrech: And so, and the principality among high income, what would that look like? So, our overall principality is about 60%. I don't have the figures for high income, middle income, and low income here, nor do I think we disclose them, but they are certainly higher within the bottom of the pyramid than they are within the top of the pyramid. The opportunity that we have now as we improve kind of our brand attributes, as we longfuel products and features, is to gain principality and share of wallets with the trading of customers.

Speaker Change: As you continue to grow the loan book and monetize do you think there's still room for that to continue to increase further.

Youssef Lahrech: So, you know, as I mentioned earlier, we see continued opportunities to grow, as I described the various categories of growth that are available to us across our personal loan and credit card products. That said, it's not a trend that I would expect to go on forever, right, because we optimize NPV, as I said, over the lifetime of the customer relationship rather than minimize NPL. But we are constraining that based on resilience, based on churn, based on the quality of the product and the relationship in NPS.

Speaker Change: Yeah. Good question, so as I mentioned earlier, we see.

Speaker Change: Continued opportunities to grow as I described the various categories of growth that are available to us across.

Speaker Change: A personal loan and credit card.

Speaker Change: <unk>.

Speaker Change: That said, it's not a trend that I would expect to go on forever right, because we optimize NPV as I said over the lifetime of the customer relationship rather than minimize NPL, but we're constraining that based on resilience based on churn based on quality of the product in that relationship in NPS.

Youssef Lahrech: And we can thank you. As we track the primary banking relationship for PVR, has increased quarter after quarter within the high income segments at result.

Unnamed Speaker: Great. Thanks very much.

Youssef Lahrech: And so those are all important guardrails and governance of, you know, how much we allow ourselves to grow down the credit spectrum. In the near term, we still see some opportunity, but I don't think, you know, these numbers are unbounded by any stretch of the imagination. Yeah, perfect. Thanks, Youssef.

And so those are all important guardrails and governance.

Speaker Change: We allow ourselves to grow down the credit spectrum I think.

Unnamed Speaker: Sorry to cut you off, Matt.

Speaker Change: The near term, we still see some opportunity.

Speaker Change: But I don't think.

Unnamed Speaker: And our next question comes from the line of, you referred on this, JP Morgan.

Speaker Change: These numbers are unbounded by any stretch of the imagination.

Speaker Change: Okay perfect. Thanks, guys.

Youssef Lahrech: The one thing that I would add to what Youssef mentioned is that I would also point out that we have a gigantic opportunity to continue to optimize our balance sheet, right? So our loan-to-deposit ratio is still below 40 percent, whereas most of the retail banks in the regions are above 100 percent. So, as we increase loan-to-deposit ratios, our net interest margins are expected to continue to expand, that will just be an additional tailwind to this trend that Youssef was a leader in. Yeah, very clear. Thank you, Lago.

Unnamed Speaker: George, and congratulations everybody for the quarter. I have a question. It was largely mentioned in the beginning of the call that he expected interesting assets from the cards, the installments, to start to stabilize. So, I want to confirm I heard these correctly. And if that's why, because you continue to make good returns on fixed financing, bullet, to then credit cards, as you always mention, you know, like this is a good risk adjusted product. So basically, you know, confirming that we should see some stabilization on that EF or for credit cards. NETS, why should we see this stabilization?

Speaker Change: The one thing that I would add to what you mentioned is that up I would also point to ALS.

And we have a gigantic opportunity to continue to optimize our balance sheet right. So our loan to deposit ratio is still below 40%, whereas most of the retail banks the regions are above 100%.

Speaker Change: So as we increase loan to deposit ratios are net interest margins are expected to continue to expand that it will just be an additional tailwind.

Speaker Change: Trend that you said was a niche.

Sure.

Speaker Change: Yes, very clear.

Michael: Thank you Michael.

Eduardo Rosman: And our next question comes from the line of Eduardo Rosman at BTG Pactual: Hi everyone, I have a question regarding OpenBank. We have been seeing some important changes recently, such as the removal of the requirement for clients to grant access for a limited period. As far as I understand it, we've also been seeing important discussions about the granularity of the data that needs to be shared, you know, whether NU needs to keep requesting the data, or if the other bank, let's say, must provide information whenever something important to that client occurs. We also have been seeing some new articles talking about potential discussions to eliminate the reimbursement cost. In the case of portability, I think that this has been an issue for you on payroll.

Speaker Change: And our next question comes from the line of.

Guilherme Lago: Thank you guys. So, you, thanks for the question. And I think you're referring to my remarks to slide number 10, you know, which we see the evolution of all our interest-earning assets evolving from 19% last year to about 28% this year. So, it is first extremely hard to draw high-conditioned outlooks for innovative products. So, this is an innovation that we like to believe that we help to introduce in Brazil. And you're absolutely right that we are very pleased with the unit economics of this product, with the customer adoption.

Eduardo Rosman: Eduardo Rosman BTG backdrop.

Guilherme Lago: So a lot of things are happening and there are important discussions. So it would be great if you guys could give us an update and let us know if these changes could be material for new. Thanks. My husband, thanks so much for your question.

Eduardo Rosman: Hi, Hi, everyone I have a question regarding open banking.

Speaker Change: We have been seeing some important changes recently such as the removal of the requirement for clients to create access for a limited period.

Speaker Change: As far as I understand as well.

We've been seeing also a point in discussions about the granularity of the data that needs to be sure I don't know whether new needs to keep requesting the data or if the other bank, let's say must provide information whenever something important that quiet of cars we.

Guilherme Lago: We just feel that the adoption curve that we have experienced over the past four quarters has been fairly steep. So, it's hard for us to believe that we will continue to see the same adoption velocity over the coming quarters. So, we are assuming that going forward, there's going to be a slight reduction in the growth, not a reduction in the overall percentage, but probably not going to grow at the same pace, and it grew in the prior waters. No, super clear. So, should you gain some penetration, but not maybe at the same pace, as we are seeing going with, right? Basically, this is what it's trying to say. That's correct. Perfect.

Speaker Change: We also have been seeing some new articles talking about potential discussions to eliminate the reimbursement costs in case of possibility I think that this has been an issue for you on payroll.

Unnamed Speaker: Thank you, Lago.

Speaker Change: A lot of things happening on important discussion. So it would be great. If you guys could give us an update and let us know if.

Unnamed Speaker: Thank you.

Speaker Change: These changes it could be a material final. Thanks.

Speaker Change: Hi, Thanks, so much for your question.

Guilherme Lago: Look, open banking is probably one of the regulatory developments with which we are most excited in Brazil. But if you step back for a moment, and if you look at the real authority framework of OpenBank, that has been adopted in the country, It's probably one of the most progressive open banking frameworks that we have seen globally, even if you compare this with the frameworks that have been developed in India or in the UK.

Speaker Change #100: Open banking is probably one of the regulatory developments with which we are most excited in Brazil.

Speaker Change #101: If you step back for a moment if you look at the regulatory framework.

Speaker Change #102: Thank you.

Speaker Change #103: <unk> has been adopted in the country. It is probably one of the most progressive open bank and frameworks that we have seen globally. Given if you compare this with the frameworks that have been developed in India or the U K.

Unnamed Speaker: And our next question comes from the line of people at Barta from Hi, good evening. Thanks for the call and taking my question. A bit of a follow-up on unanswered quality. Looking here at applied 21 in the presentation, it does look like here that, you know, without the expansions, you know, there are the entails, we'll be doing even better. So, just maybe help us think about the credit quality outlook that you see in Brazil versus X Brazil, where it's so very early stages, and maybe you're thinking on more risk there.

Guilherme Lago: It has a tremendous opportunity to lower the barriers for the exchange of information, to lower the attrition for the movement of data, and to lower the attrition for the movement of both assets. So it is something that we have been investing quite a lot of time and energy in, and we are very excited with the. Going a little bit more into the detail. So there has been a lot of effort from many players to be first.

Speaker Change #104: He has a tremendous opportunity to lower the barriers for the exchange of information.

Speaker Change #104: <unk> lowered the attrition towards the movements of data into lowered attrition for the movements on both assets and liabilities.

Speaker Change #104: It is it is something that we have been investing quite a lot of time and energy and we.

Speaker Change #104: We're very excited with the prospects going a little bit more into the detail. So there has been a lot of efforts from many players to first.

Unnamed Speaker: Like, are you feeling more comfortable? I mean, you kind of alluded to this, but that maybe the Brazil credit quality outlook is getting better, and can that help you maybe even accelerate growth in Brazil a bit? It's easy. So, thanks for the question.

Guilherme Lago: We are happy to say that we probably have a market share that approaches one-third of all the consumers in Brazil. We ended the second quarter of 2024 with about 50 million customers. And that basically translates into additional data that feeds into our customer segmentation, credit, and writing models and translates into better products and features that we can offer to our customers. Going forward, there's a lot to be had to change in the next six to eight months.

Speaker Change #104: Gained confidence from consumers to gain access to their data over the past years.

Speaker Change #104: We're happy to say that we probably have the market share that approaches one third of all the constants in Brazil. We ended the second quarter of 2024 was about 15 million customers a $50 million constant.

Youssef Lahrech: So, you know, as a reminder, we, thinking about macro and credit outlook, we tried to refrain from having any, making any bets, you know, on what's going to happen to macro on a going forward basis. In fact, if you look at our history starting in Brazil, it is marked by, you know, big periods of instability, downturns, etc. And so, we feel like our philosophy continues to be one of demanding a lot of resilience from whatever growth we underwrite.

Speaker Change #104: And that basically translates into additional data that feeds into our customer segmentation credit underwriting models and translates into better products and features that we can offer to our consumers.

Speaker Change #104: Going forward, there's a lot to be had.

Speaker Change #104: In the next six to eight months and we're seeing that given the guidelines that have no indicated.

Guilherme Lago: We think that given the guidelines that have been indicated by the Brazilian Central Bank, you will see lower barriers to exchange assets, so credit assets, both unsecured and secured, and also to exchange liabilities, i.e., deposits and funds, and also insurance and capital markets.

Youssef Lahrech: So, we always kind of take the stance that the future will be worse than the past, and whatever we underwrite needs to be able to withstand a significant amount of deterioration. So, typically in our core hearts, as we've said in the past, we'll withstand a doubling of risk and still be above hurdle. And so, we continue to operate in this way where we tend to be fairly agnostic to any forecasts about the future.

Speaker Change #105: Central Bank, you will see lower barriers to exchange assets, so asset asset credit assets, both unsecured and secured so also exchange liabilities are E deposits and funds and also insurance and capital markets. So there's going to be really transformational to two.

Guilherme Lago: So this can be really transformational for the Brazilian banking sector. We are monitoring this very hard, and we are very glad with the cooperation that the Brazilian Central Bank has been fostering among them. Rosman and David here.

Speaker Change #106: Brazilian banking sector. We are monitoring this very hard and we are very glad with the incorporation of the Brazilian central Bank has been fostering among dentistry.

Youssef Lahrech: To your point, what we've seen, you know, when you back out the expansions, and you look at it, what NPLs would have been without the expansions, we see a period of relative stability over the last year and a half or so. But we're not banking on that or any improvement in a going forward to be able to continue. Okay, now that's fair. Thanks, Youssef, for that. And maybe a follow-up, just the risk-adjusted Nimm, right?

David Velez: I would just add that the agenda for open finance is very ambitious, as I was mentioning. The regulators' commitment is very, very focused on making it work. But the agenda has been so ambitious that execution in the industry has been a bit challenging. So there have been a couple of phases that have been harder for a lot of players to really integrate.

Speaker Change #107: Robin and David here.

Speaker Change #107: I would just add that.

Speaker Change #109: Gender is is very ambitious it up in finance as I was mentioning the regulators our commitment is.

Speaker Change #110: It's very very focused and make it work.

Speaker Change #111: The agenda has been some basis that the execution and the industry has been a bit challenging. So it's been there's been a couple of spaces that have been harder for a lot of players to truly integrate so theres been a couple of bumps in the road I think in terms of the time, then how it's being executed now.

Youssef Lahrech: Slide 24, you know, a nice improvement there. As you continue to grow the loan book and monetize, do you think there's still room for that to continue to increase further? Yeah, good question. So, you know, as I mentioned earlier, we see, continues the opportunities to grow. As I described the various categories of growth that are available to us, you know, across our personal loan and credit card products. That said, it's not a trend that I would expect to go on forever, right?

Youssef Lahrech: We optimize NPV as I said over the lifetime of the custom relationship, rather than minimize NPL. But we are constraining that based on resilience, based on churn, based on quality of the product and the relationship in NPS. And so, those are all important guardrails and governance of, you know, how much we allow ourselves to grow down the credit spectrum. I think, you know, in the near term, we still see some opportunity. But I don't think, you know, these numbers are unbounded by any stretch of the imagination. Perfect. Thanks, Youssef.

David Velez: So there's been a couple of bumps in the road, I think, in terms of the timeline and how it's been executed. Now, I think conceptually, the will that we see from the regulator is that it's going to happen. It's going to work out. And it's so clearly good for the consumer to be able to have access to that data and have increased competition in financial services that ultimately, the consumer, society, government, and regulators are very much aligned in making it work.

Speaker Change #111: I think conceptually it will that we see from the regulator is that it's going to happen and it's going to workout and it's so clearly good pretty consumer to be able to have access to that data and have an increased competition in financial services, but ultimately consumer society government and regulators are very much aligned and make it work so well it has been.

Beat a bit bumpy road bump period, I think than people expected that there is very clear line of sight into creating pretty significant changes in the Brazilian market.

Speaker Change #112: Great. Thanks, a lot <unk>.

David Velez: So while it's been a bit of a bumpy road, or bumpier, I think, than people expected, there is a very clear line of sight into creating pretty significant changes in the Brazilian market. Great, thanks a lot Lago and everyone, and our next question comes from Thiago Batista at UBH. Thiago, your line is open. I think Thiago is having difficulties connecting. So let's move to the next one. Can you hear me?

Speaker Change #113: And our next question comes from the line of Thiago Batista UBS.

Guilherme Lago: One thing to do that I would add to what Youssef mentioned is that I would also point out that we have a gigantic opportunity to continue to optimize our value sheet, right? So, our loan to deposit ratio is a few of the most 40%, whereas most of the retail banks, the regions are both 100%. So, as we increase loan to deposit ratios, our net interest margins are expected to continue to expand. There will just be an additional fail wins to the trend that Youssef was omitted. Yeah, very clear. Thank you, Lago.

Thiago Batista: Yes. Okay. Sorry.

Your line is open.

Speaker Change #113: Okay.

Darren: I think you always have is to connect so let's move to Darren here to me.

Thiago Batista: Sorry, guys. I have one question about no. I do not have a banking license in Brazil. Do you believe it would make sense to ask for a bank license? And what would be the main positive and negative aspects of a bank in Brazil right now? And finally, do you see any material change if the Central Bank decided to consider NU as a S1 and not S3 as it is today? Hi, this is Lago.

Speaker Change #113: Yes.

Speaker Change #113: Okay.

Darren: Yes, hi, guys.

Darren: I have one question.

Speaker Change #115: <unk> does not have a banking license in Brazil.

Speaker Change #115: Do you believe it would make sense to ask a big license and what would be Dominion policy. The negatives of the bank in Brazil right now.

Unnamed Speaker: And our next question comes from the line of, uh, is where the Rosman at Bikigipat 12. Hi, Hi, everyone. I have a question regarding open banking. Uh, we have been seeing some important changes recently, right, such as the removal of the requirement for clients to grant access for a limited period. As far as I understand as well, there have, we've been seeing also important discussions about the granularity of the data that needs to be shared, you know, whether new needs to keep requesting the data.

Speaker Change #115: And finally.

Speaker Change #116: Do you see any material change.

Speaker Change #115: Uh huh.

Speaker Change #117: Hard to consider new.

Speaker Change #117: S one and not at <unk> as it is today.

Guilherme Lago: Those are great questions. Today, we don't see a need to acquire or apply for a banking license. Our financial institution license, called Finansera, coupled with our payment institution license, basically allows us to offer every single thing that we believe is necessary to provide a fairly compelling offer to consumers, both individuals and SMEs, so i.e. We can take deposits, we can issue credit cards, and we can extend loans. Over time, it may be natural that we will try to simplify and consolidate our legal structure in Brazil, and we may eventually apply for or get a banking license at some point in time, and simplify all of the legal entities that we have.

Speaker Change #117: Hi, guys.

Speaker Change #117: These logging.

Joe: Great question, Joe today.

Speaker Change #118: She needs to acquire or apply for a banking license in Brazil.

Joe: All of our financial institution wide zones.

Unnamed Speaker: Or if the other bank, let's say, must provide information whenever something important that quite occurs, we also have been seeing some new articles talking about potential discussions to eliminate the reimbursement costs in case of portability. I think that this has been an issue for you on payroll.

Joe: Data, coupled with our payment institutional license basically allows to offer.

Joe: Single thing that we believe is necessary to provide a fairly compelling offer to consumers. Both individuals and Smes are you. We can take deposits. We can issue credit cards, we said we can.

Joe: Extend loans over time, it may be natural that we will try to simplify and consolidate our legal structure in Brazil, and we may have actually apply or get a banking license at some point in time.

Youssef Lahrech: So, a lot of things happening and important discussion, so it would be great if you guys could give us an update and let us know if it is these changes, you know, could be, you know, material for no thanks. Hi, Ultimate, thanks so much for your question. Look, open banking is probably one of the regulatory developments with which we are most excited in Brazil. If you step back for a moment, and if you look at the regulatory framework of open banking that has been adopted in the country, it is probably one of the most progressive open banking frameworks that we have seen globally.

Speaker Change #119: Simplification of all of the legal entities that we have what will be the implications. If we were to do that and trends of no regulatory counsel drones, all reporting requirements. The answer is zero in terms of regulatory capital and very little in terms of additional.

Youssef Lahrech: Even if you compare this with the frameworks that have been developed in India or in the UK, it has a tremendous opportunity to lower the barriers for the exchange of information to lower the attrition for the movements of data and to lower the tuition for the movements of both assets and liabilities. So, it is something that we have been investing quite a lot of time and energy, and we are very excited with the.

Guilherme Lago: What would be the implications if we were to do that in terms of no regulatory cap or in terms of no reporting requirements? The answer is zero in terms of regulatory capital and very little in terms of additional disclosure requirements.

Speaker Change #119: Disclosure required so we don't see any material change.

Guilherme Lago: So we don't see any monetary change if and when we were to pursue this path in Brazil. Your second question is: we are an S3 financial institution in the country. We think it is very likely that we will become an S2 financial institution in the country, most likely by mid-2025. Again, what are the implications of that? From a regulatory capital perspective, it's zero, with no implication whatsoever. We may have to do certain additional things. Now, reports, analysis, and disclosure requirements that may marginally increase our compliance cost, but those are completely immaterial given our overall regulatory environment.

Speaker Change #119: And when we were to pursue this path in Brazil.

Speaker Change #119: Second question is we are on that.

Speaker Change #119: Financial institution in the country. We think it is very likely that we will become <unk> chief financial institution in the country most likely by each 25 again, what are the implications to that.

Speaker Change #119: From a regulatory capital perspective zero no obligation whatsoever.

They have to use certain additional.

Youssef Lahrech: Rosman. Going a little bit more into the details, so there has been a lot of efforts from many players to first gain concerns from consumers to gain access to their data over the past years. We are happy to say that we probably have a market share that approaches no one-third of all the concerns in Brazil. We ended the second quarter of 2024 with about 15-metre customers, 50 million consens, and Daer basically translates into additional data that feeds into our customer segmentation credit in the right models, and translates into better products and features that we can offer to our consumers.

Speaker Change #119: No reports analysis and disclosure requirements that may increase marginally Aro compliance call those briefly immaterial.

Speaker Change #119: Our overall reservation now more importantly, then.

Guilherme Lago: Now, more importantly than the name of the license, or if it is an S-1, S-2, or S-3, we would like to believe that we have been able to collaborate very effectively and efficiently with the Virginia Central Bank and try to, you know, jointly with them, address any challenge, opportunity, and concern that our growth may generate in the countries where we are. And our next question comes from the line of Brian Flores at Citigroup. Perfect. Can you hear me?

Speaker Change #120: The name of the license.

Speaker Change #121: It is an S. One as two or three.

Speaker Change #122: We like to believe that we have.

Speaker Change #122: Enable to collaborate very effectively and efficiently with the Brazilian central bank and try to.

Speaker Change #122: Jointly with them address 80 challenges opportunities and concerns that our growth may generate in the countries, where we operate.

Youssef Lahrech: Going forward, there's a lot to be had to change in the next six to eight months, and we think that given the guidelines that have no been indicated by the Brazilian Central Bank, you will see lower barriers to the exchange assets, so asset credit assets, both unsecured and secure, to also exchange liabilities, i.e, deposits and funds, and also insurance and capital markets. This can be really transformational to the Brazilian banking sector. We are monitoring this very art, and we are very glad with the cooperation that the Brazilian Central Bank has been fostering among the industry.

Speaker Change #122: And our next question comes from the line of Brian Flores at Citigroup.

Speaker Change #122: Perfect.

Speaker Change #123: And you can you hear me.

Brian Flores: Thank you for the opportunity. I just wanted to ask a bit about Mexico. The information we saw from your information in the second quarter might have shown a decrease in the loans-to-deposit ratio. I just wanted to pick your brains and see how things are evolving there.

Brian Flores: Yes, yes, yes, yes, perfect. Thank you and thank you for your opportunity just wanted to ask a written on Mexico.

Speaker Change #125: Information, we saw from <unk>.

And your information as of the second quarter.

Sean: Maybe Sean.

Speaker Change #127: A decrease in the loan to deposit ratio just wanted to pick up your brain and see how things are evolving there.

David Velez: You mentioned $3.3 billion in deposits, which is impressive. How is the credit part of that deployment going? Any news from the regulator? Any more color on Mexico would be greatly appreciated.

David Velez: Rosman and David here, I would just add that the agenda is very ambitious and open finance that I was mentioning. The regulators' commitment is very, very focused in making it work, but the agenda has been some ambitious that the execution in the industry has been a bit challenging, so there's been a couple of faces that have been hired for a lot of players to really integrate, so there's been a couple of bumps in the road, I think, in terms of the of the timeline, how it's been executed.

Speaker Change #128: You mentioned $3 3 billion in deposits, which is impressive.

Speaker Change #129: How is the credit part of.

Speaker Change #130: And that deployment going any news from the review made or any more color on Mexico would be greatly appreciated. Thank you.

David Velez: Thank you. Sure, thank you for the question. So, we're very excited with what we're seeing in Mexico. The number of deposits that you mentioned really surpassed any expectations. I think that made us kind of realize that there is a significant opportunity to really challenge the conventional wisdom in the Mexican market about how consumers see banks and their savings. The average cost of funding in banks in Mexico is something like 30% of the risk-free rate.

Speaker Change #131: Sure. Thank you for your question so.

Speaker Change #132: Very excited with what we're seeing in Mexico.

The deposit number that you mentioned really surpassed expectations.

Speaker Change #132: I think that made us kind of realize that there is a significant opportunity.

David Velez: Now, I think conceptually, the will that we see from the regulator is that it's going to happen, it's going to work out, and it's so clearly good for the consumer to be able to have access to that data and have an increased competition in financial services that ultimately consumer society, government and regulators are very much aligning making it work, so while it's been a bit of a bumpy road or bumpy road, I think that people expected that there is very clear line of side into creating prisoners can change using the Brazilian market.

Speaker Change #132: To really challenge the conventional wisdom in the Mexico market about how consumers see banks and their savings.

Speaker Change #132: The average coastal finding banks in Mexico is something like 30% of their repeat rate. The majority of consumers are not paid any deal whatsoever.

David Velez: The majority of consumers are not paid any yield whatsoever, and so the moment that we went to market with a very competitive yield, it began changing behavior. And once you change that behavior, and you change that idea in consumer behavior, I think it's very hard to go back. So we like to see the beginning here of an environment where consumers are going to be expecting to get higher remuneration for their deposits. The $3.3 billion in deposits is way more than we need.

Speaker Change #132: And then we went to market with a very competitive yields began changing behavior.

Speaker Change #132: And what does it change their behavior and you change that <unk> very hard to go back so we'd like to see the beginning here of an environment, where consumers are going to be expecting to get higher remuneration for deposits.

Unnamed Speaker: Great, thanks a lot, Lagoa and I have you.

Unnamed Speaker: And our next question comes from the line of Chagolba Quista at UBH. Chagol, your line is open.

Speaker Change #133: The $3 billion of deposits is way more than we that we need.

David Velez: And so, as we've done in Brazil for the next forever, really, there's going to be an optimization of the balance sheet in how we allocate those deposits, but also the yield that we pay. And the other good news in Mexico for us has been that we continue to see a very good environment in terms of credit quality and opportunities to grow credit. We re-accelerated credit over the last quarter, and we think that that continues to grow. We're close to 8 million customers in Mexico, which really positions us already as one of the leading financial institutions in Mexico. And as you know, we've asked for a banking license. We applied last year.

Speaker Change #133: So as we've done in Brazil over the next four.

Speaker Change #133: There's going to be and optimization of the balance sheet and how we allocate that that those deposits, but also the yield that we pay.

Speaker Change #134: And the other good news in Mexico, It really for US it has been.

Unnamed Speaker: I think the algorithm needs to connect, so let's move to the next. I don't hear me? Yes, I don't hear me. Okay, sorry, I guess, sorry guys.

Speaker Change #134: We continue to see very good environment in terms of credit quality and opportunities to growth will reaccelerate credits over the last quarter.

Speaker Change #134: And we think that continues to grow with close to 8 million customer in Mexico, which really positions us already is one of the leading financial institutions in Mexico.

Guilherme Lago: I have one question about no, do not have a banking license in Brazil. Do you believe it would make sense to ask a bank license? And what would be the main policy, the negatives of their bank in Brazil right now? And finally, do you see any material change if Centre Bank is having to consider new as a S1 and not S3 as it is today?

David Velez: We've received a couple of back and forth from the regulator, but everything else so far is going as expected. And we hope that the process continues to go well and we can get that banking license, you know, over the next month or so. So, so far, we feel very good about the opportunity market, a very large market, 120 million people, higher GDP per capita than Brazil, only 12% credit card penetration, which hasn't really moved in over three decades.

Speaker Change #134: And as you know we've asked for a banking license we apply last year. We've received a couple of back and forth from the regulator everything else. So far is going as expected.

Speaker Change #134: And we.

Speaker Change #134: Hopefully that process continues to go well and we can get that thank you letters.

Speaker Change #134: Over the next over the next months or so.

Speaker Change #135: So so far we feel very good with the opportunity market very large market 120 million people higher GDP per capita than Brazil, only 12% credit card penetration that hasnt really bulked in over three decades. So it's a perfect configuration for full disruption with our with our business model.

Guilherme Lago: So, Charlie, Hi, this is Lago. Now, those are great questions. So, today, we don't see a need to acquire or apply for a banking license in Brazil. Our financial institution license, Coltina Zeta, a couple with our payment institution license basically allows to offer every single thing that we believe is necessary to provide a fairly compelling offer to consumers both individuals and SMEs. So, IE, we can take the others, we can use your credit cards with it, we can't extend loans.

David Velez: So it's a perfect configuration for full disruption with our business model. And the kind of branding that we build, the consumer base that we build, all the different pieces are falling into place, and we are excited about continuing to invest heavily in growth in this market. Thank you.

Speaker Change #135: The kind of the branding that would build the consumer base that we build all the different pieces are falling into place.

Speaker Change #135: We're excited about continued investing heavily in growth in this market.

David Velez: And just as a follow-up, so in terms of your credit risk models, are you already comfortable in terms of increasing your credit portfolio a bit more aggressively going forward? So this, you know, the way we do credit is that it's a dynamic decision. It literally is a weekly decision.

Speaker Change #136: Thank you and just as a follow up so in terms of your credit and risk models are you already comfortable in terms of increasing a bit more aggressively.

Guilherme Lago: Over time, it may be natural that we will try to simplify and consolidate our legal structure in Brazil and we may eventually apply or get a bank license at some point in time and the simplification of all of the legal entities that we have. What would be the implications if we were to do that in terms of no regulatory capital in terms of no reporting requirements? The answer is zero in terms of regulatory capital and very little in terms of additional disclosure required.

Speaker Change #137: Great portfolio going forward.

Speaker Change #137: Yes.

Speaker Change #138: The way, we do credit is due.

Speaker Change #139: Make decision is literally weekly decision, we look at data actively daily data.

David Velez: We look at data actively, really daily data. We look at the market. We see a performance report, different cohorts, and we accelerate on one end, or we deaccelerate on the other end. You'll see that the growth curves that we've had for basically all our products in Brazil and Mexico tend to be curves that are not straight lines. They tend to have phases of acceleration and phases of pauses. That's because we launched a new model. We integrated a new data source, and we're testing a new algorithm.

Speaker Change #140: We look at the market, we see a performance of four different cohorts and we generate on one end or with the accelerated on owner and Youll see that the growth quarters that we've had in basically all of our products in Brazil, and Mexico tends to be curves that are now straight lives. They tend to have phases of exploration phases of buses, because we launched a new <unk>.

Guilherme Lago: So, we don't see any more key or change if and when we were to pursue this path in Brazil. Your second question is, we are an S3 financial institution in the country. We think it is very likely that we will become an S2 financial institution in the country, most likely by each 2025. Again, what are the implications to that? From a regulatory capital perspective, it's zero, no implication whatsoever. We may have to do certain additional no reports, analysis and disclosure requirements that may increase marginally our compliance cost.

Motto, we integrate a new data source, we are testing a new algorithm and so in Mexico, that's what happening I think right now if you look at some of the numbers from Q2, we were going through a bit of an exploration phase we see good opportunities to grow.

David Velez: And so in Mexico, that's what's happening. I think right now, if you look at some of the numbers for Q2, we're going through a bit of an acceleration phase. We see good opportunities to grow. But we might have paused a bit, if we see something that works in certain areas, we might accelerate a little bit more if we get more comfortable.

Speaker Change #140: We made a possibility which is something that we're seeing certain area I'll remind we've accelerated a little bit more if we get more comfortable. So these are very much dynamic decision, but in general we see a market that is really wide open and the methodology that we have really perfected.

David Velez: So this is a very dynamic decision. But, in general, we see a market that is really wide open. And the methodology that we've really perfected in, or we're in the process of perfecting in Brazil around low growth, beginning with the unbanked population with low credit limits and growing them, get to know the customer for the first 15, 30 days, increase the credit limit a bit more, get to know the customer a little bit more.

Guilherme Lago: But those are completely immaterial given our overall implementation. Now, more importantly than the name of the license or if it is an S1S2 or S3, we would like to believe that we have been able to collaborate very effectively and efficiently with the Virginia Central Bank and try to know, join through with them, and address any challenges, opportunities and concerns that our growth may generate in the countries where we operate.

Speaker Change #140: President perfecting in Brazil around low grow.

Speaker Change #140: Beginning with the Unbanked population with low credit limits and lower to grow it get to know the customer for the first 15 to 30 days increased limit a bit more.

Speaker Change #140: Get them to the customer a little bit more dynamic way to approach.

David Velez: That dynamic way to approach risk is something that has so far lent itself very well to Mexico, a market that has little access to credit. So we're very optimistic about that opportunity. And just a little bit more color on the credit quality and trends we've been seeing, you know, when you look at the trajectory since we introduced the Quinta product with a very high yield, attractively priced yield, what we've seen, in fact, is a nearly doubling of our credit card customer originations, right?

Speaker Change #140: <unk> lends itself very well so far in Mexico market that has little access to credit. So we're very optimistic about that opportunity.

Speaker Change #140: And just a little bit more color on the.

Speaker Change #140: Credit quality.

Speaker Change #140: Trends, we've been seeing when you look at the trajectory since we introduced.

Unnamed Speaker: And our next question comes from the line of Brian Souris at CD Group. Perfect. Can you hear me? Yes. Perfect. Thank you. Thank you for the opportunity. I just want to ask a bit on Mexico as the information we saw from your information as of the second quarter, maybe should a decrease in the loans to deposit ratio. I just wanted to pick up your brains and see how things are evolving there.

Speaker Change #140: Quint, a product with a very high yield attractively priced steel what we've seen in fact that a nearly doubling of.

Speaker Change #140: Our credit card.

David Velez: So a number of customers come in to enjoy the high yield but also take a credit card at the same time. Those customers tend to be positively selected and have much better credit quality. And so you add that to the fact that the data we get on the Quinta actually helps us underwrite better; you add that to the fact that we now have more experience in the market, more test results, and more returns from the foundational testing we've been doing since the early days.

Speaker Change #140: <unk> originations right. So a number of customers come in to enjoy the high yield but also take a credit card at the same time those customers tend to be.

Speaker Change #140: Possibly selected and much better credit quality.

Speaker Change #140: And so you add that to the fact that the data we get on the <unk> actually helps us underwrite better at that.

Speaker Change #140: So the fact that we now have more experience in the market more test results more of returns from the foundational testing we've been doing since the early days. So that gives us a lot of confidence to continue to grow credit and underwrite better as we go and if you look at it.

Youssef Lahrech: So that gives us a lot of confidence to continue to grow credit and underwrite better as we go. And if you look at, you know, credit quality indicators, either the ones we disclosed as SOFIPO or other ones in Mexico, there's significant improvement year over year. And I would say, you know, credit quality has lately been behaving better than our own expectations. So, as David said, we continue to be very optimistic, very excited about prospects for growth in Mexico. Thank you, team.

Unnamed Speaker: You mentioned 3.3 billion deposit, which is impressive. And how is the credit part of the deployment going and any news from the regulator? Any more color of Mexico would be very appreciated. Thank you. Thank you for your question. So, we're very excited about what we're seeing in Mexico. The deposits number that you mentioned really surpassed any expectations. I think that made us kind of realize that there is a significant opportunity to really challenge the conventional wisdom in the Mexico market about how the server see banks and their savings.

Speaker Change #140: Credit quality indicators.

Speaker Change #141: Discloses so people.

Speaker Change #142: Or otherwise in Mexico, there's significant improvement year over year, and I would say no credit quality has been.

Speaker Change #142: Lately behaving better than our own expectations. So davita, we continue to be very optimistic very excited about prospects for growth in Mexico.

Dave: Thank you Dave.

Craig Moorer: And our next question comes from the line of Craig Moorer from Epstein Park. Thanks for taking the question. I wanted to ask about the evolution of the credit card market in Brazil. Maybe if you were able to break down your growth in both spending and loans between customers who are taking their first credit card versus those where you're winning a share away from other banks. And secondly, I wanted to ask you about Mexico and how you view the non-traditional competition, say from Mercado Libre, who's being aggressive in the consumer finance space. Thanks. Okay, let me take you the first question.

And our next question comes from line of Craig Maurer from Ft partners.

Yeah.

Speaker Change #144: Thanks for taking the question.

Unnamed Speaker: The average cost of funding in banks in Mexico is something like 30% of the risk-free rate. The majority of consumers are not paid any yield whatsoever. And so the moment that we went to market with a very competitive yield, began changing behavior. And once it changed that behavior and you changed that idea in consumer behaviors, they think it's very hard to go back. So we like to see the beginning here of an environment where consumers are going to be expecting to get higher remuneration for deposits.

Craig Maurer: I wanted to ask about the evolution of the credit card market in Brazil.

Speaker Change #146: Maybe if you were able to break down your growth in both spending and loans.

Between customers, who were taking their first credit card versus those where youre winning share away from other banks.

Speaker Change #146: Yeah.

Speaker Change #147: And secondly, I wanted to ask about Mexico, and how you are viewing the non traditional competition say from like Mercado Libre, who is being aggressive in the consumer finance space.

Unnamed Speaker: The $3.3 billion deposit is way more than we need. And so as we're done in Brazil over the next, you know, forever really, there is going to be an optimization of the balance sheet in how we allocate that those deposits but also the yield that we pay. And the other good news in Mexico really for us has been we continue to see very good environment in terms of credit quality and opportunities to growth credit.

Guilherme Lago: And if you don't mind, I'll try to combine that with the second because it's good to draw a parallel between the credit card markets in Brazil and the credit card markets in Mexico. So Brazil has a credit card market that is relatively mature in terms of penetration. So credit card penetration accounts for nearly 50% of the population in Brazil, compared to about 12% in Mexico. However, people often use credit cards in Brazil as a means of payment, not as a means of financing.

Speaker Change #148: So correctly, let me. Thank you. The first question is on wind all trials you combined that with the second because it's good to draw a parallel between the credit card markets in Brazil.

Speaker Change #148: And the credit card markets in Mexico.

Speaker Change #149: Brazil is the credit core market that is relatively mature in terms of penetration so credit card penetration accounts for nearly 50% of the population in Brazil compared to about 12% in Mexico.

Unnamed Speaker: We react to credit over the last quarter. And we think that that continues to grow close to 80 million customers in Mexico, which really positions us already as one of the leading financial institutions in Mexico. And as you know, we've asked for a banking license. We apply last year. We've received a couple of back and forth from the regulator. Everything else so far is going as expected. And we hopefully that that process continues to go well and we can get that banking license over next month or so.

Speaker Change #149: People often use credit cards in Brazil, as a means of payments as a means of financing. Therefore, historically the IDB interest bearing balances as a percentage of the total receivables of credit cards in Brazil has been below those of the auto loss of American markets at about 20% to 25%.

Guilherme Lago: And therefore, historically, the IDB, interest-bearing balance, is a percentage of the total receivables of credit cards in Brazil has been below those of the auto lots in American markets at about 20 to 25%. In Mexico, conversely, consumers tend to use credit cards more as a means of financing than as a means of payment, and therefore, IVB over total credit card receipts tends to be much higher, more in the 60 to 65% of total credit card receipts.

Speaker Change #150: In Mexico, Conversely, consumers tend to use credit cards more as a means of financing.

Unnamed Speaker: So so far we feel very good with the opportunity market, very large market, 120 million people, higher GDP per capita than Brazil, only 12% credit card penetration that hasn't really moved in over three decades. So it's a perfect configuration for full disruption with our with our business model. And then the kind of the branding that we build, the consumer base that we build, all the different pieces are falling into place. And we are excited about continue investing heavily in growth in this market.

Speaker Change #151: And as a means of payments and therefore IBP over total credit card receivables tends to be much higher more than 60% to 65% of the total credit card.

Speaker Change #151: Receivables, so very very very different markets.

Guilherme Lago: So, very, very, very different markets with very kind of different nuances, but both having fairly compelling unit economics for them. Therefore, given the penetration of each country, the customers that we get in Brazil have historically been customers that already had a banking relationship with another bank but that we have groomed and upgraded and graduated to a healthier and higher credit line. Whereas in Mexico, the main opportunity that we have there is more related to financial inclusion, really to offer some kind of banking products and credit cards for the 85 percent of the Mexican population who are currently unbanked or underbanked.

Speaker Change #151: With very different.

Speaker Change #151: Different nuances of the both heavy fairly compelling unit economics for the product.

Speaker Change #151: Therefore, given the penetration of each country.

Speaker Change #151: Customers, then we get in Brazil have been historically.

Unnamed Speaker: Thank you. And just as a follow up. So in terms of your credit risk models, are you already comfortable in terms of increasing a bit more aggressively your credit portfolio going forward? No, the way we do credit is it's a dynamic decision is literally it's a it's a weekly decision. We look at data actively, really daily data. We look at the market, we see a performance of our different cohorts and we accelerate on one end or with the accelerator on our end.

Speaker Change #152: Then way at a banking relationship with another bank.

Speaker Change #152: That we have groomed and upgrade that graduated to a healthier and higher credit lines with us.

Speaker Change #153: Whereas in Mexico. The main opportunity that we have there is more related to financial inclusion is really to offer kind of a banking products and credit cards towards the 85 plus percent of the Nextgen population core currently unbanked or underbanked.

Unnamed Speaker: You'll see that the growth course that we've had in basically all our products in Brazil and Mexico tend to be curves that are not straight lines. They tend to have phases of acceleration, phases of pauses. That's because we launched a new model. We integrated a new data source with we're testing a new algorithm. And so in Mexico, that's that's what happening. I think right now we, if you look at some of the numbers on Q2, we we're going to have a bit of an acceleration phase.

Speaker Change #152: Okay.

Unknown Attendee: Okay, so we are now concluding today's call. On behalf of Novo Lodis and of our investor relations team, I want to thank you very much for your time and participation in our earliest call today. We are very excited about our progress as we continue to strengthen our position in the markets we operate in.

Speaker Change #154: Okay. So we are now concluding today's call.

Unknown Attendee: Over the coming days, we will be following up with the questions received by our platform and with those that were not able to ask 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 day. The New Holdings conference call has now concluded. Thank you for attending today's presentation. You may now disconnect. Goodbye!

Speaker Change #155: Behalf of all of these and all of our Investor Relations team I want to thank you very much for your time and participation in our earnings call. Today, we are very excited with our development as we continue strengthening our position in the markets we operate.

Speaker Change #155: Over the coming days, we will be following up with the questions received by our platform and with those that were not able to ask questions Tonight.

Unnamed Speaker: We see good opportunities to grow. But if we might possibly, if we see something that that worse in scenario or mine, we might accelerate a little bit more if we get more comfortable. So these are very much dynamic decisions. But in general, we see a market that is really wide open. And the methodology that that we've really perfected in or we're in the professional perfecting in Brazil around low growth, beginning with the unbanked population with more credit limits.

Speaker Change #155: So please do not hesitate to reach out to our team you have any further questions. Thank you and have a good day.

Speaker Change #156: Noah Holdings Conference call has now concluded. Thank you for attending today's presentation you may now disconnect.

Unnamed Speaker: And no one can grow it. Get to know the customer for the first 15-30 days, increase limit a bit more, get to know the customer a little bit more. That's dynamic way to approach risk. It's something that is lensed itself very well so far in Mexico, a market that has little access to credit. So we're very optimistic about that opportunity. Thank you. Just have to look a little bit more color on the credit quality trends we've been seeing.

Unnamed Speaker: You know, when you look at the trajectory since we introduced a Quenta product with a very high yield, attractively priced yield, what we've seen in fact is a nearly doubling of our credit card customer originations, right? So a number of customers come in to enjoy the high yield but also take a credit card at the same time. Those customers tend to be positively selected and much better credit quality. And so you add that to the fact that the data we get on the Quenta actually helps us underwrite better.

Unnamed Speaker: You add that to the fact that we now have more experience in the market, more test results, more returns from the foundational testing we've been doing since the early days. So that gives us a lot of confidence to continue to grow credit and underwrite better as we go. And if you look at, you know, credit quality indicators, either the ones we disclose is that so people. Or otherwise in Mexico, the significant improvement year over year. And I would say that credit quality has been lately behaving better than our own expectations. So the V said we continue to be very optimistic, very excited about prospects for growth in Mexico. Thank you.

Craig Maurer: And our next question comes from the line of Craig Mortar from FD Partners. Thanks for taking the question. I wanted to ask about the evolution of the credit card market in Brazil. So maybe if you were able to break down your growth in both spending and loans between customers who are taking their first credit card versus those where you're winning share away from other banks. And secondly, I wanted to ask about Mexico and how you're viewing the non traditional competition, say from like a Mercado Libre who's being aggressive in the consumer finance space. Thanks. So Craig, let me, let me thank you.

Youssef Lahrech: The first question in the human mind, I'll try to combine that with the second because it's good to draw parallel between the credit card markets in Brazil. And the credit card markets in Mexico. So Brazil has a credit card market that is relatively mature in terms of penetration. So credit card penetration accounts were nearly 50% of the population in Brazil compared to about 12% in Mexico. But people often use credit cards in Brazil as a means of payments, not as a means of financing.

Youssef Lahrech: And therefore, historically, the IDB interest bearing balance is a percentage of the total receivables of credit cards in Brazil has been below those of the other lots of American markets at about 20 to 25%. In Mexico, conversely, consumers tend to use credit cards more as a means of financing than as a means of payments. And therefore, IDB over total credit card receivables tends to be much higher, more than 60 to 65% of the total credit card receivables.

Youssef Lahrech: So very, very, very different markets with very different nuances of the both having fairly compelling unit economics for them, and the product. Therefore, given the penetration of each country, the customers that we get in Brazil have been historically customers that we had a banking relationship with another bank, but that we have groomed and upgraded that bread weight that's well healthier and higher credit life with us. Whereas in Mexico, the main opportunity that we have there is more related to financial inclusion is really to offer kind of a banking product and credit cards for the 85 plus percent of the next population who are currently unbanked or underbanked.

Unnamed Speaker: Okay, so we are now concluding today's call.

Unnamed Speaker: On behalf of the Valdis and of our investor relations team, I want to thank you very much for your time and participation in our early call today. We are very excited with our development as we continue strengthening our position and markets we operate. Over the coming days, we will be following up with the questions received by our platform and with those that were not able to ask 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.

Operator: That new holdings conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Good bye.

Q2 2024 Nu Holdings Ltd Earnings Call

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