Q3 2025 Nu Holdings Ltd Earnings Call

Speaker #2: Good evening, ladies and gentlemen. Welcome to Nu Holdings conference call to discuss the results for the third quarter of 2025. As live presentation is accompanying today's webcast, which is available in news, investor relations website, www.investors.new in English and www.investidores.new in Portuguese.

Speaker #2: conference is being recorded and the This 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.

Speaker #2: After that, select mute original audio. Para acessar nossa conferência em português, clique no ícone do globo ao lado inferior Zoom e selecione a opção Portuguese room.

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Speaker #2: I would now like to turn the call over to Mr. Guilherme Souto, investor relations officer at Nu Holdings. Mr. Souto, you may

Speaker #2: I would now like to turn the call over to Mr. Guilherme Souto, investor relations officer at Nu Holdings. Mr. Souto, you may proceed. Thank you,

Speaker #3: the early call today. If you have operator. And thank you, everyone, for joining not seen the earnings release already, a copy is posted in the investor relations website.

Speaker #3: With me on today's call are David Velez, our founder, chief executive officer and chief financial officer. Throughout this chairman, and Guilherme Lago, our non-IFRS financial information, are important financial measures for Nu Holdings, but are not financial measures as defined by IFRS.

Speaker #3: measures from other companies. And may not be comparable to similar the IFRS financial information are available in the earnings press release. Unless noted on a year-over-year FX neutral basis.

Speaker #3: discussion might include forward-looking statements, which are not guarantees of future performance, and reliance on them. These statements are subject to numerous risks and therefore, you should not put undue uncertainties, and could cause actual expectations.

Speaker #3: discussion might include forward-looking statements, which are not guarantees of future performance, and reliance on them. These statements are subject to numerous risks and therefore, you should not put undue uncertainties, and could cause actual I would also Please refer to the forward-looking statements disclosure in the earnings release.

Speaker #3: I will otherwise all growth rates are now. Turn the call over to David. Please go ahead. Results to defer materially from our.

Speaker #4: America and one of the leading fintech platforms globally. Our customer base grew to 127 million customers, with more than Hello, everyone, and thank 4 million net additions in the above 83%.

Speaker #4: America and one of the leading fintech platforms globally. Our customer base grew to 127 2025, effectively every single one of reflection of the depth of engagement we continue to build with our users.

Speaker #4: Around 14% of the adult population, while maintaining an activity rate of 13 million customers, now reaching 14 million customers. Both markets in Mexico continue to demonstrate strong traction, and in Colombia, we're approaching 4 million, highlighting the scalability of our model.

Speaker #4: The solid growth, combined with continued ARPA expansion, which surpassed $13 this quarter, has led to record revenues of over $4 billion. These results highlight the compounding effect of our customer expansion, deeper engagement, and disciplined monetization.

Speaker #4: Our gross profit continues to rise sharply, reflecting strong unit economics and operating leverage. And with a cost-to-income ratio of 28%, we continue to progress on our trajectory of improving efficiency.

Speaker #4: And finally, we delivered net income of $783 million. Another quarter of solid profitability, even as we keep investing in growth and innovation across all markets.

Speaker #4: This consistent performance is a direct result of our business model, one that attracts millions of new customers every quarter, fosters deeper engagement that expands monetization, all while operating on a low-cost and highly efficient platform.

Speaker #4: This formula continues to drive our earnings growth across markets, but with each component playing a distinct role in every geography. In Brazil, we now serve over 60% of the adult population, and estimate that we're already at our display in the SME segment by number of accounts.

Speaker #4: Having reached scale, revenue per customer has become the main growth driver. Our focus going forward is on broadening our product portfolio, deepening engagement across all segments, and continuing to execute our credit strategy.

Speaker #4: Increasing exposure among customers with the strongest risk-adjusted returns. In Mexico, our main focus remains on expanding our customer base, deepening product adoption, and advancing financial inclusion, all while laying the groundwork for sustainable, monetization.

Speaker #4: Long-term projections indicate that ARPAC levels are already nearing those seen in Brazil. This reflects the strong unit economics of the credit card business in that market, driven by a higher share of interest-bearing balances and a steadily declining cost-to-serve, supported by our ongoing platformization efforts.

Speaker #4: Both markets demonstrate the strength and adaptability of our model, which is capable of driving rapid growth and scale in earlier stages, while expanding profitability as market matures.

Speaker #4: Diving deeper into Mexico, our second S-curve, we see a market now beginning to scale, and one that we expect will contribute meaningfully to our results in the years ahead.

Speaker #4: We're building strong foundations, having reached market leadership position in the Mexican digital banking space, already reaching $13 million customers, or around the 14% of the adult population, compared with about 10% when Brazil entered its inflection point back in 2019.

Speaker #4: Even with a product portfolio still largely centered on the credit card, ARPAC has already reached $12.5, reflecting strong customer engagement and the favorable unit economics of this product in Mexico.

Speaker #4: On the cost side, cost-to-service is already below $1, and recent adjustments to deposit yields are beginning to flow through our cost of funding. Looking ahead, we'll continue stacking new S-curves with a focus on discipline, while Brazil and Mexico remain our core priorities, where most of our resources and execution efforts are directed. We also see transformational optionality in the U.S., following our filing for a national bank charter.

Speaker #4: A step that could unlock new opportunities over time, as we remain fully focused on our core markets. As we continue scaling across markets, we're also building the next generation of our platform, redefining how we operate and how customers experience banking.

Speaker #4: We have heard several investors asking us about our AI strategy, and so we wanted to spend a few minutes on it. Our vision is to become AI first, which means integrating foundation models deeply into our operations to drive an AI-native interface to banking, while creating meaningful benefits for both our customers and our business.

Speaker #4: For our customers, AI is enhancing our understanding of each individual and their financial needs, allowing us to deliver personalized recommendations contextual offers and products, and proactive insights at the right moment.

Speaker #4: It will also transform the way people interact with Nubank, be it through a simpler and seamless app or through a number of additional channels embedding conversational user interfaces.

Speaker #4: We think there is a significant opportunity to include agentic workflows across most products and services, improving customer experiences across the board. For our business, AI is strengthening how we manage risk and scale efficiently.

Speaker #4: It is helping us to design safer and more precise financial solutions, reducing credit and fraud losses, and enabling tailored collection strategies that drive better recoveries.

Speaker #4: At the same time, it is enhancing productivity across the company, from linear operations to faster development cycles and higher engineering throughput. When we bring all of this together, becoming AI first means accelerating our flywheel by scaling to offer higher quality products at lower costs.

Speaker #4: Unlocking the full value of open finance, deepening cross-sell and product penetration, and opening new revenue streams, all while optimizing pricing and delivering superior value for both customers and shareholders.

Speaker #4: But AI is not a buzzword for us. We believe Nubank is uniquely positioned to become AI first and a leader in the use of AI in financial services globally, and we're already starting to see the first breakthroughs.

Speaker #4: Since our early days, we've known that technology and data would be our strongest competitive advantage. Being cloud-native and built entirely on modern architecture enables us to simulate, experiment, train, and deploy foundation models at scale.

Speaker #4: Coupled with our proven ability to attract world-class talent, this puts us ahead of incumbent banks and regional thinking competitors and places us in a unique position globally.

Speaker #4: Over the past 12 to 15 months, we developed new former, or proprietary approach for building large generalizable models, based on advanced transformer architectures and self-supervised learning principles.

Speaker #4: Similar to those powering world-class LLMs. These models provide a deeper understanding of customer behaviors, and can be deployed across our critical risk and personalization engines.

Speaker #4: To reach this level of performance, the first generation of our new former model was built with 330 million parameters and trained on approximately 600 billion tokens, an unprecedented scale of data by financial industry standards.

Speaker #4: GitHub represents only a fraction of our full data set, which spans trillions of tokens and reflects the vast scale and diversity of Nubank's platform.

Speaker #4: Our business model would principality at its core, generates a deep repository of high-quality transactional and behavioral data, giving us a distinctive edge by enabling new former to learn from richer context and continuously strengthen its predictive power.

Speaker #4: Historically, gains in credit performance have come from our main fronts, incorporating more and better data sources into models, expanding training samples or reducing bias within them, optimizing policy frameworks, including the use of complementary models that evaluate different dimensions of credit risk, and finally, refining modeling techniques from definition of targets to model architecture and feature engineering.

Speaker #4: The adoption of foundation models represents a radical expansion of these last frontier. It brings our research-driven approach that moves the needle through advances in model architecture, and training processes, enabling rapid and continuous improvement as AI researchers push the boundaries of what's possible.

Speaker #4: When we applied this approach, the models were built delivering average improvement about three times higher than what's typically observed in successful machine learning model upgrades.

Speaker #4: Translating these into business outcomes, our initial models enable a major upgrade to credit the card limit policies in Brazil, allowing us to meaningfully increase limits for eligible customers while maintaining the same overall risk appetite.

Speaker #4: This successful breakthrough within an already robust underwriting model like credit cards in Brazil underscores the significant potential of these advanced approaches. We're now focused on scaling this innovation beyond Brazil, already in motion in Mexico, and extending it across every part of Nubank, from personalization and cross-sell to fraud and collections, further reinforcing both the strength of our model and our ability to execute at scale.

Speaker #4: That said, we're still just scratching the surface, as always at Nubank, it's still day one, but we believe that embedding AI into our business represents a once-in-a-lifetime opportunity to further differentiate Nubank from traditional banks.

Speaker #4: We're building on years of experience in model governance, privacy, and large-scale model deployment to ensure we continue evolving responsibly. This means having robust processes that make sure our tools truly promote our customers' financial well-being with the right guardrails in place to bring these advanced models safely into production within a highly regulated environment.

Speaker #4: We'll continue to share our progress as this journey evolves. With that, I'll hand it over to Lago, our CFO, to walk you through the financial highlights of the quarter.

Speaker #4: Thanks a

Speaker #4: lot. Thank you, David, and good evening

Speaker #2: Everyone, to begin, I'd like to start with our credit portfolio. Total balances reached $30.4 billion in the third quarter, up 42% year over year on an FX-neutral basis.

Speaker #2: With very solid growth across all products. Credit cards accelerated during the quarter, supported by our ability to continuously enhance the precision of our credit models and increase limits for our customers.

Speaker #2: All while maintaining very healthy risk metrics, as we will see in the following slides. At the same time, secure lending grew 133% and unsecure loans 63% year over year, reflecting the ongoing diversification and maturation of our portfolio.

Speaker #2: Together, secured and unsecure loans now account for nearly 35% of total balances, up from 27% a year ago. This reinforces our capacity to broaden the credit spectrum and serve a wider range of customers' needs over time.

Speaker #2: Moving to loan originations, we reached a record high of $4.2 billion in the quarter, up 40% year over year on an FX-neutral basis, with growth coming from both unsecured and secure lending.

Speaker #2: In unsecured lending, performance was supported by the strong momentum in our SME portfolio and by new credit policies introduced for both business and individual customers.

Speaker #2: These updates are enabling us to safely expand eligibility and increase average loan sizes, while keeping new originations more concentrated in lower-risk segments. In secure lending, results were driven by strong originations in public payroll loans or consignado, which grew nearly 130% year over year along with a gradual normalization of INSS loans.

Speaker #2: Now turning to deposits, our balances reached $38.8 billion, up 34% year over year on an FX-neutral basis, while the cost of funding actually improved from 91% to 89% of interbank rates.

Speaker #2: This is a clear demonstration of our ability to grow volumes while enhancing efficiency, continue to build a scalable and sustainable funding franchise across Latin America.

Speaker #2: In Colombia, deposits continue to grow steadily, even with funding costs below the interbank rate. In Brazil, we saw strong inflows across all segments, reinforcing the depth and the resilience of our deposit franchise.

Speaker #2: And in Mexico, we had anticipated some outflows following the recent reduction in deposit yields. This was a deliberate move that reduced our consolidated funding costs.

Speaker #2: And this was fully aligned with both our expectations and our long-term strategy for sustainable growth. Recent trends in Mexico reinforce our confidence in our ability to continue expanding and strengthening our deposits franchise.

Speaker #2: Moving to net interest income, we reached 2.3 billion dollars in the quarter, up 32% year over year on an FX-neutral basis. Driven, again, by the continued expansion of our credit portfolio.

Speaker #2: Net interest margins contracted by about 40 basis points from the prior quarter, this reflects our disciplined approach to optimizing risk-adjusted returns as we continue to expand the originations in lower-risk segments, including in credit card interest-earning portfolios, unsecured loans also to lower-risk individuals, and a higher share of SME and secure loans within our total interest-earning portfolio.

Speaker #2: While some of these products carry lower nominal yields, they strengthen the portfolio's overall quality and resilience over time, as you can see in the next slide.

Speaker #2: Our credit portfolio continues to outperform our expectations, supported by disciplined underwriting and a healthy mixed shift towards customers and products with stronger risk-adjusted returns.

Speaker #2: Combined with better recoveries, these factors drove a 7% decline in credit loss allowance expenses quarter over quarter, also on an FX-neutral basis, mainly reflecting lower provisions in our two largest products, namely credit cards and unsecured loans.

Speaker #2: As a result of these lower costs of credit, our risk-adjusted net interest margins expanded to 9.9% in the quarter, underscoring the resilience and quality of our portfolio.

Speaker #2: Next, looking at the liquidity metrics for our consumer credit portfolio in Brazil, the 15 to 90-day NPL ratio remained well within expectations, ending the quarter at 4.2%, slightly below the historical third-quarter seasonality.

Speaker #2: The 90-plus-day NPL ratio increased marginally to 6.8%, also very much in line with the expected seasonality and the underlying portfolio dynamics. Now, finally, our covered ratios remained solid, even though they declined modestly in line with the recent movements in credit loss allowance.

Speaker #2: We continue to maintain what we believe to be a quite robust provision buffer, both over the total portfolio and specifically over the 90-plus-day NPL balances.

Speaker #2: Moving to gross profit, we delivered another quarter of solid growth, reaching 1.8 billion dollars, up 32% year over year, also on an FX-neutral basis.

Speaker #2: The expansion in gross profit margin now to 43.5% reflects the consistent top-line growth, combined with the continued improvement in the risk-adjusted performance that we saw in the prior slide.

Speaker #2: The strength reinforced the sustainability and the scalability of our business model, as we continue to balance growth, profitability, and risk discipline across the three markets in which we operate.

Speaker #2: In the third quarter, our efficiency ratio decreased slightly to 27.7%. Reflecting continued progress in productivity and operating leverage. Yet, we will continue to invest intentionally and strategically to become the largest and the most loved retail financial institution in Latin America.

Speaker #2: This investment is fully aligned with our long-term value creation strategy, even if they sometimes create short-term pressures on costs. That all said, the structured trend remains clear, as we scale, revenue growth, and discipline cost management will continue to drive efficiency gains and margins expansion.

Speaker #2: Now, to wrap up, we delivered a record-high net income of 783 million dollars, and a record ROE of 31%, up 39% year over year, also on an FX-neutral basis.

Speaker #2: We achieved these results while continuing to deliver strong operational growth, always putting our customer at the very center of everything that we do, offering better products, lower fees, and an exceptional experience.

Speaker #2: These results, once again, highlight the strength and the scalability of our model, as well as our ability to combine growth with profitability. Now, with that, we will open the call for questions.

Speaker #2: Thank you. We will now start the Q&A session for investors and analysts. If you wish to ask a question, please 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.

Speaker #2: 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.

Speaker #2: I would now like to turn the call over to Mr. Guilherme Souto, investor relations officer.

Speaker #3: Thank you, Operator. Could you please open the line for Mr. Yuri Fernandez from JP Morgan?

Speaker #4: Thank you, Souto. Hi, David. Hi, Lago. Congrats on delivering. I think the debate from investors here, and I would love to hear your thoughts, is going to be related to our provisions.

Speaker #4: Lago, your cost of risk was lower. I think you are doing a risk migration growing more middle-income in Brazil. Growing more sacred lending. When we check your new Stage 3 formation, new Stage 3 formation improved, but I guess investors, they will try to understand the lower provisions this quarter that helped on the bid.

Speaker #4: So if you can, like provide some explanation for investors to understand what drove these lower provisions. I think this will help with the understanding for the quarter.

Speaker #4: Thank you very much. And congrats

Speaker #4: again. No, thank you, Yuri, for the

Speaker #3: question. Yes, I think asset quality has been a positive over the past two quarters. I think this quarter we have also seen kind of asset quality performing as per expectation, even in slightly better than expectations.

Speaker #3: have also had some effects We of the policies that we have intensified over the past now three to four quarters of reactivating customers in Brazil, who had defaulted with us a few years ago and only now, after they have cured their debt, we are also kind of offering them additional credit opportunity that has materially improved the recovery levels.

Speaker #3: And then finally, we actually have seen through both machine learning, but also the predictive AI technology and modeling that we alluded, the ability to actually have greater precision in some of the credit modeling techniques.

Speaker #3: So what you have seen is kind of asset quality performing in line or even better, but still, if I would draw your attention, Yuri, to, let me go here, slide 17, you see that the coverage ratio that we continue to have are at levels that we believe to be fairly robust in both the total balance as well as NPL 90 plus.

Speaker #3: So let's see how it goes, but we are also kind of in the middle of the fourth quarter of 2024 now, like November 13, and we continue to see asset quality performing relatively okay.

Speaker #3: So that's kind of the main background for the evolution of our CLA this quarter.

Speaker #4: No, no, super clear, Lago. Thank you, and

Speaker #3: Thanks, Yuri. Operator, could you please open the line for Mr. Jorge Curie from Morgan Stanley? Okay, let's move on. Operator, could you please? Okay.

Speaker #3: Hi, Jorge.

Speaker #5: Sorry. Hi, sorry about that. Good afternoon, everyone. So congrats on the numbers. Great results. My question is around your net interest margin. I heard what Lago said about the mix of credit being responsible for the decline.

Speaker #5: In NIM, I have—I'm looking at just the nominal numbers and your interest income was up 14% quarter on quarter. Versus a loan book in total that was up 11%.

Speaker #5: So it doesn't seem that you're growing your income less than the assets, which would be sort of like a signal of a mixed deterioration.

Speaker #5: It's actually the other way around. But on the flip side, your interest expense was up 24% quarter on quarter, versus your deposits up 6%.

Speaker #5: And so you talked about the cost of deposits coming down, but it's just in dollar numbers; it's kind of like it doesn't add up. And so I'm just wondering if you can walk us through this dynamic and exactly what explains that NIM.

Speaker #5: contraction. Sure,

Speaker #3: Jorge. Look, two things on this. So first, on the revenue and then on the cost. I think on the revenue side, we have seen the growth being kind of more heavily weighted into less risky assets.

Speaker #3: Not only asset classes per se, for example, you can see that if you go to slide 12, you can see that, for example, secure lending has outpaced the rest of the portfolio.

Speaker #3: Secured assets have no—everything else constant lower kind of yield levels. But even within lending and within credit card, Jorge, we are seeing kind of a faster growth on a balance basis towards less risky customers that would have all else equal kind of lower yields.

Speaker #3: So that is one of the things that would justify. But you correctly pointed out that we have also seen an increase in interest expenses, and that has come entirely from Brazil.

Speaker #3: So our average funding cost in Brazil has gone up. And the average funding cost in Mexico and Colombia have been coming down. When we look at the average funding cost that we published on slide 14, you will see kind of the what we call the cost of deposits is a percentage of the interbank rate going from 91 to 89.

Speaker #3: And then they call the question, why? How do I kind of connect the dots, right? If you are lowering the cost of funding as a percent expressed as a percentage of interbank rates, how can your cost of funding expressed in dollars be going up?

Speaker #3: It's because the piece that is going up is the piece denominated in Brazilian reais, which is subject to the nominally higher interest rates of Selic of 15%.

Speaker #3: So the weighted average cost of funding expressed as a percentage of the interbank deposit rate—which is what you see here in slide 14—has come down.

Speaker #3: But the overall interest expense, in dollar terms, has gone up a little bit. So, the combination of lower asset yield because of the mix, with a slightly more expensive funding base in Brazil, has compressed net interest margins in the quarter. This is what you see on slide 15, where it has gone from 17.7 to 17.3.

Speaker #3: What I would, however, point out is that when you take into account the asset quality or the cost of risk, you actually see an expansion in margin.

Speaker #3: And that is what is shown on the subsequent slide, which is slide 16. Our risk-adjusted margin has actually gone up from 9.2% to 9.9%.

Speaker #3: Which goes to show that even though we have kind of increased the growth towards less risky assets, that has come at the expense of slightly lower asset yield. This has been more than offset by a much lower cost of risk, which has led to the expansion of

Speaker #3: risk-adjusted NIMs. All right,

Speaker #5: Lago. Thank you very much. That was very clear. And if you don't mind my follow-up, on the previous question, on provisions, you mentioned recoveries stronger than expected.

Speaker #5: What do you mind quantifying that and what impact it had on the combined provision number?

Speaker #3: We are not disclosing this one-off impact, Jorge. It's basically the additional of the recoveries mostly from the customers that we reactivated over the past three quarters.

Speaker #3: This is a program that we have done by kind of offering a second chance to customers who defaulted to us a few years ago have completely kind of paid down their debt, and then we have seen that out of those customers, the recovery has been higher than we had booked for.

Speaker #3: But we are not disclosing the exact breakdown of the additional recovery coming from this program.

Speaker #5: All right. Understood. Thanks again, and congrats on the numbers.

Speaker #1: Operator, could you please open the line for Mr. Pedro Eduque from Itaú?

Speaker #1: BBA? Hello.

Speaker #6: Good evening, everybody. Thank you for the call and taking the question. If I may, on credit cards, please, in the last quarter, we saw a big increase in newly granted limits.

Speaker #6: This quarter, we may be seeing some of the effects here. There's more cards active, more cards generating revenues. Transaction volumes per card seem to be going up.

Speaker #6: Can you talk a little bit more about how you're seeing this rollout perform on the ground? It looks like you did another small increase now in TrueQ.

Speaker #6: If you can talk about that as well, I think it may tie up to what we're seeing in the stages and the probabilities.

Speaker #6: It seems like this growth is coming from slightly better quality mix if you can also include that. I know it's a longer question, but I think you get the spirit.

Speaker #6: Thank you.

Speaker #3: Sure. Thanks for the question. So look, we announced a relatively large credit limit increase program in the second quarter of 2025. And the rollout of that credit limit program was spread grossly one-third in the second quarter, one-third in the third quarter, and one-third expected to be finalized in the fourth quarter.

Speaker #3: So we have not yet seen the full effects of that clipped program materializing in the financial performance of the company. It's something that we will only see in full most likely towards the mid and end of 2026 because it takes some time for limits to converge into PV and for PVs to converge into IBB.

Speaker #3: So there's some leeway there as well. Second point, Eduque, you're right. I think a substantial portion of the credit limit was granted to less risky customers.

Speaker #3: And so kind of the average unit of risk that we have added has actually lowered over time. However, as we increase the limits to kind of lower-risk customers, we also decrease the flip side: the utilization, right?

Speaker #3: So I think if you have R$1,000 limits and we increase this by 20%, you would experience much higher utilization than if you have R$100,000 limits and we increase this by 10%.

Speaker #3: But both the utilization as well as the credit performance related to this credit limit increase have performed largely per our expectation. So, nothing kind of deviates or forces us to revisit both on the offensive as well as on the defensive side the pace and intensity of those movements.

Speaker #3: Now, even though we did disclose in the second quarter that we saw a big clip, a credit limit increase, I don't think we should see this as a one-off, right?

Speaker #3: This is really a continuous enhancement of the programs. That will not be kind of a straight line, but we will see kind of a clipped programs being introduced from time to time.

Speaker #3: That's what we've seen over the past years. And then, if you go a little bit to what Vee mentioned at the beginning of his session about the implications of the predictive AI modeling on our credit underwriting, I would say that, first, we have introduced this to credit limit increases that have not yet been introduced to releases. By which I mean, we have been able to sharpen how we increase credit limits for existing customers.

Speaker #3: We have not yet applied this to the determination of the new customers to which we granted the initial line, which we call customer acquisition. We have also not introduced this to lending.

Speaker #3: And we have not introduced this to Maxco in Colombia. So, I think there's still quite a lot of runway for us to see further improvements and enhancements in our performance.

Speaker #1: Thank you very much. Congrats.

Speaker #3: Operator, could you please open the line for Mr. Mario Pierre. He's from Bank of

Speaker #3: America. Hey,

Speaker #1: guys. Good evening. Congrats on the results. Let me double-click a little bit on Maxco and Maxco RPAC. Of $12.50 that you're showing. And which is a quite impressive number, right?

Speaker #1: Especially given that Maxco is fairly new for you and the RPAC is almost similar to Brazil? Can you give us a little bit more details on the breakdown of this RPAC between interest income and fees?

Speaker #1: Because I asked this, right? Because we saw the regulator in Mexico now proposing a cap on card interchange fees, so I was wondering, what is your view on that?

Speaker #1: And how much could that impact your results in Mexico? Also, staying with Mexico, you only give us data by the NPL data and coverage data for Brazil operations only.

Speaker #1: I was wondering, if you could share any asset quality metrics from Mexico, that would be helpful. Thank you.

Speaker #3: Sure, let me try to address each of those questions and feel free to follow up if I missed any of them. So I think on Mexico, you mentioned about the evolution of the customer in RPAC and cost to serve.

Speaker #3: And I would draw your attention, and the attention of the others, to slide seven, where you can see the evolution of our customers in Mexico.

Speaker #3: It's now about 13 million customers, accounts for grossly 14, 15 percent of the adult population of Mexico, but accounting for nearly 25 percent of the bank population in Mexico.

Speaker #3: So we can easily say now that about one out of every four banked Mexicans are customers of Nubank, which makes us quite excited. And then, as you said, you see kind of the RPAC evolution in Mexico.

Speaker #3: Most of them are kind of interest-related, both from credit card lending and floating from our deposit-based. The fees, the interchange related to both credit cards and to debit cards accounts for a smaller portion of the overall RPAC.

Speaker #3: That said, Mario, I think you alluded to the public consultation that the Mexican government has recently issued, aimed at capping the interchanges of both credit cards and debit cards in Mexico.

Speaker #3: We have since this kind of came out being in very active dialogue with other industry participants and with the government itself. And even though that accounts for the smaller portion of our revenues, we are concerned with the idea of caps and price controls there because they may actually inhibit the financial inclusion and credit deepening that we have seen in Brazil and other countries as they make the unit economics of new-to-credit customers less compelling.

Speaker #3: So we are kind of in active discussions with all of the industry participants we are very confident that kind of we will be able to find together as an industry to a good balance that will not put at risk our ability to promote together with other fintechs, the financial inclusion in Mexico over time.

Speaker #3: Mario, I may have I did I forget any of your questions?

Speaker #1: No, no, that's helpful. And then on the NPLs. And just to clarify, when you say, right, that fees are a smaller percentage, are we talking about a 15 percent, 20 percent?

Speaker #1: Any idea? Do your colleagues could...

Speaker #3: We don't.

Speaker #3: No, we don't give to us? provide this breakdown, but I think if you take a look at the financial statements that we post with the regulators in Mexico, you will largely get a good proxy of kind of the weight of each of those components for us.

Speaker #3: But I think even if they, Mario, for example—let's assume that interchange accounts for a small portion—if you cap this in the magnitude that has been proposed by the government, the existing kind of business plan that we have, a significant portion of the new customers, the ones that we would bring from informality to the bank, may be compromised, right?

Speaker #3: So we do believe that it's our obligation and duty to be able to share this very openly with the stakeholders in Mexico to continue to foster the competition and financial inclusion that we want to

Speaker #3: do so. Okay.

Speaker #1: And the second part of my question was on the NPLs in Mexico. As Mexico becomes more relevant, right? Are you going to disclose the NPLs for the total group rather than just Brazil and if you can make any comments on how that is behaving in Mexico and the coverage that you

Speaker #1: see? Yeah.

Speaker #3: No, absolutely. We do expect that as Mexico gains relevance in our overall credit portfolio, we will start providing kind of a much more granular disclosure on its asset quality today.

Speaker #3: It still accounts for less than 10 to 15 percent of our overall book, but we are certainly ready, able, and willing to provide those levels of disclosures.

Speaker #3: Asset quality and asset performance in Mexico overall has been a fairly good story for us. I think we spent the good part of 2023 and 2024 kind of sharpening the data stacks and the models.

Speaker #3: And what you have seen over the past 12 to 18 months, it's a relatively strong acceleration of the growth of our credit book in Mexico.

Speaker #3: Growing at a clip of about 50 to 70 percent on an annualized basis. But more than the top-line growth or the size of the book, the asset quality has performed very much in line in some cases even better than expected.

Speaker #3: Also, we have recently launched a kind of lending product in Mexico. We have been primarily working with credit cards, and lending has been doing really, really well in Mexico.

Speaker #3: I wouldn't be surprised if differently from Brazil, at some point in time, lending becomes an even bigger business for us in Mexico than credit card.

Speaker #3: So I would say that the left side of the balance sheet has expanded nicely in both kind of quantum and quality. And then on the right side of the balance sheet, as you may have seen, Mario, we have been kind of sequentially redesigning and repricing deposits.

Speaker #3: It has led to a fairly substantial drop in cost of funding in Mexico. And still preserving what we see very intensively there, which is primary banking relationship, transactionality, activation, so for most of the customers, it has actually been going up.

Speaker #3: We are in all-time high of transactionality there. So we're excited with Mexico with what we're seeing. Still early days, but as Davi mentioned, it's playing out to be as strong, if not even stronger than Brazil.

Speaker #1: Thank you, Lago. Yeah, no, it's very impressive how quickly and how profitable you're growing in Mexico.

Speaker #1: You. All right, could you please open the

Speaker #3: Line for Mr. Marcelo Mizrahi from Bradesco.

Speaker #3: BB? Hi, guys.

Speaker #4: Thank you very much for the opportunity to participate. So my question is regarding the cost of risk again. I understand what drives the cost of risk to go down.

Speaker #4: But, as Lago has said, regarding the campaign for recovery to bring back clients, we are already seeing the number of active cards going up.

Speaker #4: So the question is looking forward, this level of cost of risk seems to be the new level for the next quarters. Thus, the growth of the NIM will come with this proportionality.

Speaker #4: So, for more from the cost of risk than from the net interest margin. Thank you.

Speaker #3: So, so thanks for the question. I think it will, in terms of NIMs, just starting with the latter part of your question, it will be a function of both asset mix as well as LBR, right?

Speaker #3: So I think as we increase kind of we continue to increase the ratio and the weight of secure lending in our book, we could eventually see the continuous kind of lowering of the asset yield.

Speaker #3: But as LBRs go up, we should expect to see kind of a NIMs even expanding potentially. So it will depend on the velocity with which we increase kind of our credit assets versus the velocity with which we continue to increase deposits in both Brazil, Mexico, and Colombia.

Speaker #3: In terms of the cost of risk, we don't provide guidance on the cost of risk in the short term or in the long term.

Speaker #3: What we have been doing, as you have followed us for some time, is we have been kind of measuring and managing the business with a paranoid focus on the short-term data that we collect on the margins.

Speaker #3: So far, that data has proven to be fairly encouraging and reassuring for us to continue to grow the book. However, as we have done in the past, if and when we see any deterioration in asset quality across any of the segments, any of the products, or any of the geographies, we will not hesitate to kind of pull the brakes, reassess, and revisit whether we will go.

Speaker #3: So that's one of the reasons why we are so hesitant to provide kind of guidance on both top line as well as cost of risk.

Speaker #4: Can I just do a follow-up here on the LDR? So looking for what is happening now in Mexico, it makes sense to see this as part of the profitability coming from the leverage of the portfolio.

Speaker #4: So, on the LDR part, are you guys seeing that already or not?

Speaker #3: Yeah, look, I think the LDR in Mexico is about 15%, 1.5, right? So it's certainly, in many respects, one of the most liquid financial institutions that we may have in the region.

Speaker #3: Having said that, over the past two quarters, most of the expansion of NIMs in Mexico has come from the lowering of the cost of funding rather than any material changes in LBR.

Speaker #3: Going forward, however, I think that LDR will play a much bigger role than any material change in the cost of funding.

Speaker #4: Okay, thank you very

Speaker #4: Okay, thank you very much. Operator, could you

Speaker #3: Please open the line for Mr. Thiago Batista from...

Speaker #3: UBS? Hi, guys.

Speaker #4: Congratulations on part of the results. I have one question, actually one question divided into two. About regulation. The first part of the question is about mortgage.

Speaker #4: With the recent change in regulation on saving deposits and mortgages in Brazil, do you believe it's possible to start to operate in this market in the near future?

Speaker #4: And second, on the FGTS loans, with the change that we saw probably one month ago or less than that, do you believe that FGTS loans will be reduced materially?

Speaker #4: way? Thank you for the

Speaker #5: So, we've looked at the mortgage space in Brazil and certainly there are a number of attractive angles, specifically around principal. But it's not a priority for us right now.

Speaker #5: It's not a product that I see ourselves really doing over the next couple of years. The main reason for that is we think about our balance sheet fundamentally as a small balance sheet that is well capitalized, that has very high velocity and very high return on equity.

Speaker #5: So from that perspective, we're going to be picking products, especially credit products, that have short duration, are very data-intensive, and give us the opportunity to react very quickly to changing macroeconomic environments. This approach maintains a lot of agility.

Speaker #5: And obviously, mortgages are kind of the opposite of that. They have a very long-term duration, remove a lot of agility, and require a lot of long-term funding.

Speaker #5: So, it doesn't really match with the type of products that we want to be offering. Directly from the balance sheet, and perhaps down the road, there might be an opportunity to partner with somebody to actually do it, but it's not something that we will be prioritizing right now.

Speaker #5: On FGTS regulation, yes, I think the regulation would have a decrease in our FGTS originations. But given the size of the portfolio and the rest of the lending products that we offer, it wouldn't really be material.

Speaker #5: So yes, effect on FGTS, but not really a material effect overall on the portfolio.

Speaker #5: growth. Very Thank

Speaker #4: clear, Dave.

Speaker #5: you.

Speaker #3: Operator, could you please open the line for Mr. Gustavo Schroden from Citi?

Speaker #6: Hi, guys. Congrats on the results. Thanks for the call. Most of my questions were answered, so let me do a follow-up here. The first one is I'd like to understand better this asset quality, indeed debate was on the lower ECL.

Speaker #6: So despite this, some metrics like 90-day NPLs are relatively stable, and early NPLs are improving. However, when we analyze the transfers to Stage 3 in both credit cards and loans, it is continuing to increase, right?

Speaker #6: I mean, it's rising. So, I'd like to understand how we reconcile this increase in transfers to stage three with this, let's say, lower risk credit portfolio you are adopting and this lower provision expenses in the quarter.

Speaker #6: Thank

Speaker #6: you. Thanks.

Speaker #3: I would think, thanks for the question. Look, we've seen, I think, other than what we've already mentioned related to the better than expected asset quality performance in some of the segments, especially with credit cards in Brazil. I think the other positive surprise—I wouldn't say surprise.

Speaker #3: I mean, the positive outcome that we have had after kind of many months and years of investment is also on the ability to improve our collections engines and platforms.

Speaker #3: Which has had kind of a material improvement in Brazil, and I think it will start to have material improvements in Mexico, most likely starting in the fourth quarter of 2025.

Speaker #3: But other than that, it's just kind of a general performance of the portfolio. There's nothing atypical or nothing abnormal that you would have seen over the past two to three quarters that we wouldn't expect to continue seeing in the next two to three quarters, unless we see kind of material changes in macro.

Speaker #6: Okay. Okay. Understood. And my follow-up would be regarding Mexico. Assuming this, let's say, improving in cost of funding, we follow data from Mexico and we can fund there.

Speaker #6: Assuming a potential improvement also in the loan-to-deposit ratio, and we also follow the NPL ratio and we see the NPL ratio in Mexico under control.

Speaker #6: So, do you think that, assuming these trends you are posting in Mexico, we can expect some positive ROE or bottom line in Mexico soon?

Speaker #3: So I wouldn't guide in any way or form, as we haven't done in the past, on kind of the P&L or net income, either for the company or for any of the legal entities.

Speaker #3: So I would stay away from trying to provide you any high-conviction outlook on when we're going to become net income positive or ROE.

Speaker #3: That said, I'm much more comfortable providing you with our impressions of the profitability potential of Mexico. If you take a look at our business in Mexico, it actually poses unit economics that are as compelling, if not more compelling, than Brazil's.

Speaker #3: It has higher ROA, it has higher ROE, and allows us to actually provide kind of material credit asset access to a portion of the population that hasn't yet had access to credit.

Speaker #3: If you take a look at the more than 13 million, now almost 14 million customers in Mexico, about 20% of those do not have access to any kind of banking or credit before joining Nubank.

Speaker #3: And we think that in Mexico, we enjoy a very favorable cost structure compared with many of the other players in the region that allows Nubank to play at segments that, in common banks, are unable or unwilling to play, to price it lower and still have compelling unit economics.

Speaker #3: And we are super excited about what lies ahead in Mexico. We are still very, very, very early. But as we continue to gain scale, we will see economies of scale and operational leverage playing out there.

Speaker #3: In fact, today, Mexico already has a cost to serve that is about $1, which is much better than what Brazil had when it was at the same point in time developing enough for Mexico.

Speaker #3: And it already has kind of a very encouraging ROE and ROA trends. The question in Mexico becomes how fast the economy will truly digitalize and how much banking penetration will grow.

Speaker #3: We are now excited not only to witness this, but also to be a very active agent in promoting this together with other players in the industry and with the Mexican government.

Speaker #6: Margo, the other point I would just add here is that if we wanted to be profitable in Mexico, we would be profitable already. It's a decision.

Speaker #6: We literally touch a button, make a decision, and we're profitable immediately. We already have the scale to generate that profitability. But that would actually be a really bad decision.

Speaker #6: It would be sacrificing the future for a short-term decision. We've always told investors we're optimizing for the long run. We're really optimizing to try to make investments that will pay for as long as possible.

Speaker #6: And this is a very attractive market. Another data point that I don't think Lago mentioned previously is on the ARPA question. This is a country that has a 40% higher income per capita than Brazil.

Speaker #6: And where credit cards are the majority, about 80% are revolvers versus only in Brazil, about 10% to 15% for our portfolio of revolvers. So anyway, it's a big market, low penetration, and a lot of the advantages that we have, like our capabilities on credit underwriting and the efficiency ratio.

Speaker #6: Good unit economics provide a really compelling investment opportunity, and so we'll continue investing the excess capital that we have in trying to maintain a leadership position in the country.

Speaker #6: Okay, okay, okay, David. It's a great answer. And as I said, we have followed your data in Mexico, and we can see these trends improving.

Speaker #6: This is why I was asking about the potential profitability, maybe sooner than we were expecting. But thanks again and congrats on the results.

Speaker #3: All right. Could you please open the line for Mr. Tito Labata from Goldman?

Speaker #3: Sachs?

Speaker #7: Hi. Good evening. Thank

Speaker #7: Thank you for the call and for taking my question. First, I have a follow-up question. Guilherme Lago, regarding your comment on the higher interest expenses driven by higher funding costs in Brazil, with SELIC being a little bit higher, I think.

Speaker #7: But just to understand, the average SELIC only increased modestly in the quarter. Was there any impact, perhaps, from having more working days in the quarter?

Speaker #7: You had also launched the Turbo Money Boxes. I was wondering if that had any impact. I was a bit surprised by how much the interest expenses...

Speaker #7: jumped. So

Speaker #3: So, no, Tito, you're right. There were a few additional working days in the quarter, but it would have been equally offset by the revenues as well.

Speaker #3: But what you will see is that as we took a more aggressive stance on the segmented portion of our deposits in Brazil, by which I mean for a selected profile of customers that we think are our primary banking relationship customers, or are prone to become primary banking relationship customers, we have been more aggressive with the Money Boxes and the Turbo Cajitas. That has all constantly increased our cost of funding in Brazil.

Speaker #3: So that is unequivocal observation. What I was trying to allude to, Tito, is that how would you reconcile what I've just said with slide 14, which is where we show kind of the cost expressed as a percentage of the intrabank rate coming down?

Speaker #3: And I was just trying to say that the reason why it comes down is because we do a weighted average of the percentage of CDI, the percentage of IBR, and the percentage of T in Mexico.

Speaker #3: And as both Colombia and Mexico went down, that line here on slide 14 goes down, notwithstanding the fact that the overall cost of funding denominated in dollars has gone up because of our deliberate intention to play more aggressively on the segmented roles of Cajitas in Brazil.

Speaker #6: Okay. No, that's very clear. No, that helps clarify a lot because we expected funding costs in Mexico and Colombia to come down. I was just a little bit surprised by how much they had gone up, specifically in Brazil.

Speaker #6: And as you mentioned, more than offset by the revenues. So my second question, somewhat on the revenue, just thinking on the loan growth, right?

Speaker #6: And you have very good loan growth overall. But first, on the secured lending, right? And David, you mentioned your FGTS could be a headwind, but it shouldn't have an impact.

Speaker #6: Do you expect that to be potentially offset by private payroll loans? I don't think you're necessarily growing significantly there. Just think about what could offset that FGTS.

Speaker #6: Potential headwinds would be helpful. Thank you.

Speaker #6: you.

Speaker #3: Yeah. No, absolutely,

Speaker #3: Tito, look, let me put it this way. The secure lending class, or segment, that we define here is largely composed of FGTS, public payroll loans, and private payroll loans.

Speaker #3: So grossly, those are the three components. You do still have a smaller portion that we call IBR, investment bank loans, but that's a much minor portion.

Speaker #3: We do expect to see a material headwind in terms of FGTS if the new regulation kind of prevails. But we do believe that this will be more than offset by an increase in public payroll loans at this point in time, more so than on private payroll loans.

Speaker #3: On public payroll loans, we have seen a fairly material uptick in our ability to originate public payroll loans in Brazil in the third quarter.

Speaker #3: We expect to see this in the fourth quarter as well. As we see nominal interest rates in Brazil finally coming down, we do expect to see portability going up, as we have seen in all of the prior cycles.

Speaker #3: And that will give us the opening to actually get a disproportionately higher share of the public payroll loan market in the country. Now, going to your third and final piece, which is private payroll loans, we are very, very bullish on this product in the medium and long term.

Speaker #3: We are still more cautious than some of the other players in the industry with respect to its cost of risk, mostly related to what we call employer-related collateral.

Speaker #3: But we are seeing this kind of improvement quarter after quarter, and we are reflecting and watching this very carefully on when and how we will lean in more aggressively in the future.

Speaker #3: It's not something that we are taking as a base case now, but we are certainly paying very close attention to that. For now, public payroll loans is the one that will offset this lowdown in FGTS.

Speaker #3: Tito. Oh, that's very clear.

Speaker #6: Thanks a lot, Lago. And congrats on the results.

Speaker #3: Thank you, everyone. We have now approached 60 minutes of the call, so we are concluding today's call. On behalf of Nu Holdings, our investor relations team, I want to thank you very much for your time and participation in the Nu Earnings Call today.

Speaker #3: Over the coming days, we'll be following up with questions received tonight that we are not able to answer. Please do not hesitate to reach out to our team if you have any further questions.

Speaker #3: Thank you, and have a good night.

Speaker #1: The Nu Holdings Conference Call has now concluded. Thank you for joining us.