Q1 2026 Pics NV Earnings Call

Speaker #1: Materials available on our investor relations website for additional information. This call is being recorded and our replay will be available on our website shortly after the call.

Speaker #1: Before I hand the call over to our CEO, Eduardo Chedi, I would like to briefly highlight the strength of our execution. As you can see on the next slide, we deliver results above the guidance we presented across all key metrics for the first quarter of 2026.

Speaker #1: Our total credit portfolio reached 28 billion reais, 5.8% above our guidance of 26.5 billion. Driven by a better-than-expected performance on our private payroll loans, which continue to gain traction during the quarter.

Speaker #1: Our cost of risk came in at 3.7%, fully aligning with guidance reflecting stability in our asset quality metrics underpinned by a more resilient and diversified credit portfolio.

Speaker #1: On the revenue side, our managerial revenues, which exclude derivative revenues and hedge accounting effects, reached 3.2 billion reais. Net interest income came in at 1.7 billion reais, surpassing 20% net interest margin for the quarter.

Speaker #1: And gross profit reached 1.1 billion reais, with both delivering slightly above guidance. Looking at our profitability metrics, IFRS earnings before taxes came in at 222 million reais, 3.1% above the guidance and the IFRS net income reached 152 million reais.

Speaker #1: 8.4% above the guidance of 140 million. On adjusted basis, which excludes stock-based compensation expenses, adjusted EBT reached 248 million reais, 5.7% above the guidance of 235 million, and our adjusted net income came in at 169 million reais.

Speaker #1: 9.3% above the guidance of 155 million. These results reinforce our strong execution and our ability to consistently grow with profitability. With that, I will now turn the call over to Eduardo Chedi.

Speaker #2: Thank you, Andrei. Good evening, everyone, and thank you for joining us for our second earnings call. I'm pleased to report that we delivered another strong quarter, beating our guidance across every single metric we track.

Speaker #2: Let me walk you through the highlights. We delivered solid results in the operational metrics. Total accounts reached 68.6 million, up 11% year over year, and 2% quarter over quarter, continuing to expand at a steady pace.

Speaker #2: Quarterly active clients grew to 44.3 million. Consolidated TPV came in at 156 billion reais, 31% above the prior year. Sequentially, the 1% decline is consistent with typical Q1 seasonality following a strong fourth quarter.

Speaker #2: Wallet and banking TPV reached 134 billion reais, a 24% year-over-year expansion. The 5% sequential decline reflects the same seasonal dynamic and is fully expected.

Speaker #2: Total cash in was 125.4 billion reais in the quarter, growing 22% versus a year ago. On a sequential basis, the 10% decline mirrors the typical Q1 pattern relative to Q4's elevated activity.

Speaker #2: Consumer deposits grew to 30.8 billion reais, up 46% year over year, and 7% higher than last quarter, reinforcing the trust and principality trends we have been building.

Speaker #2: And active insurance policies reached 10.2 million, 78% ahead of Q1 last year, and 13% above Q4, as our insurance vertical continues to scale at a rapid clip.

Speaker #2: Turning to financials, net revenues reached 3.5 billion reais, a 70% increase year over year, and 17% higher than last quarter. Excluding derivatives and hedge accounting, managerial revenues were 3.2 billion, up 60% versus the prior year, and 9% sequentially.

Speaker #2: Average revenue per active client grew to 80.7 reais in the quarter, 55% above where we were a year ago, and 14% ahead of Q4.

Speaker #2: Excluding hedge accounting and derivatives, ARPAC was 73.3 reais, up 46% year over year, and 6% quarter over quarter. Deeper monetization and a richer product mix are driving this expansion.

Speaker #2: Gross profit came in at 1.1 billion reais, representing a 44% year-over-year gain and an 8% step-up from the prior quarter. On efficiency, cost to serve was 20.3 reais per active client, up 9% from a year ago, but down 1% versus Q4, showing that scale benefits are kicking in.

Speaker #2: For context, revenue per client expanded 55% year over year, while cost to serve grew just 9%. That's the leverage embedded in this model. Adjusted earnings before taxes reached 248 million reais, more than tripling year over year, with a 224% increase and advancing 3% sequentially, despite the seasonally lower activity typical of first quarters.

Speaker #2: This demonstrates the consistency of our earnings trajectory. Adjusted net income was 169 million, nearly doubling with 92% year-over-year growth. The 10% sequential decline is entirely attributable to normal Q1 seasonality following a strong fourth quarter.

Speaker #2: As you can see, our revenue diversification continues to evolve. We now have a significantly more diversified and resilient revenue mix as only 31% is driven by unsecured credit.

Speaker #2: To put that in perspective, in Q1 2024, secured credit accounted for only 4% of net revenues. Today, secured credit represents 23%, fees and commissions contribute 25%, and float plus hedge accounting accounts for 21%.

Speaker #2: The key takeaway: 69% of our revenues are now driven by no or low credit risk streams. That's up from 63% just 12 months ago, so we're growing net revenues 70% year over year, while building a fundamentally more resilient business.

Speaker #2: Looking at the three revenue engines individually, secure credit revenues reached 820 million reais, up 272% compared to a year ago, and 41% higher than Q4, fueled by the rapid ramp-up of our payroll loan portfolio.

Speaker #2: Unsecured credit revenues came in at 1.1 billion, a 44% year-over-year expansion, and 10% above last quarter, growing at a measured pace as we deliberately shift the mix toward collateralized products.

Speaker #2: Non-credit revenues hit 1.6 billion, 47% ahead of Q1 last year, and 11% higher sequentially. This line includes fees, commissions, float, hedge accounting, insurance, acquiring, and revenues originated by our audiences and ecosystem business unit.

Speaker #2: Essentially, all revenue streams that carry no credit risk. Quarter after quarter, this capital light engine continues to compound. On returns, adjusted net income grew 92% year over year to 169 million reais, the 10% sequential decline reflects normal Q1 seasonality.

Speaker #2: Quarterly annualized adjusted ROE was 15.5%, compared to 24.4% last quarter, the sequential compression is fully explained by the expanded equity base from our IPO capital raise.

Speaker #2: As we deploy these proceeds into our high-returning credit portfolio, we expect ROE to trend back above 20% within the next couple of quarters. Now moving to credit, PicPay Card TPV was 17.4 billion reais, 41% higher year over year, with a modest 1% sequential decline reflecting typical first quarter seasonality rather than any change in engagement trends.

Speaker #2: Consumer loans origination reached 4.5 billion, more than doubling year over year at 119% growth and edging up 2% from Q4, holding essentially flat against the seasonally strong fourth quarter demonstrates the strength of our origination engine.

Speaker #2: Total credit portfolio reached 28 billion reais, 116% above the prior year, and 17% above last quarter, the consumer book represents 93% of the total, with SMBs and others comprising the remaining 7%.

Speaker #2: Beyond the numbers, we advanced several strategic initiatives in the quarter. On PicPay Card, we launched Skip Purchases, a feature that allows cardholders to pause a monthly payment without penalties, improving their cash flow management and deepening engagement with the product.

Speaker #2: On Small and Medium Businesses, new business accounts openings grew from 60,000 per month in Q4 to 80,000 in Q1, a 33% sequential increase. We also rolled out supply chain finance, enabling businesses to anticipate receivables and improve their cash cycles, and it's first quarter the product generated 693 million reais in origination.

Speaker #2: We also announced a strategic partnership with TIM, one of Brazil's largest telecom operators, structured as a two-way distribution agreement. PicPay will offer TIM's telecom plans within our app, while TIM will offer PicPay accounts and credit products to its large customer base.

Speaker #2: The partnership is expected to reduce our customer acquisition costs by activating new users through TIM's existing infrastructure while driving higher engagement for both platforms.

Speaker #2: On the cover acquisition, we reached an important milestone: CADI, the Brazilian Antitrust Agency, approved the transaction on May 28th without restrictions. We're now awaiting final clearance from SUSEPI, the insurance regulator, as well as from the central bank to close the deal.

Speaker #2: Finally, on brand, in the quarter we launched a new brand positioning. PicPay, your next bank. It marks PicPay's evolution from a payment platform to a full-service digital bank, building trust and daily relevance while preserving the simplicity and innovation that set us apart.

Speaker #2: The campaign has already generated 1.2 billion impressions and over 75 million views, achieving 81% brand favorability, nearly double the 44% average in the financial services category.

Speaker #2: This is a strategic investment in long-term principality, and the initial data confirms it's working. Now I will hand it over to Danilo Cafaro, our consumer banking vice president.

Speaker #1: Thank you, Eduardo. In this next slide, we can see that we continue to execute on our strategy, gaining market share of major credit products by gaining share of wallet of our clients, as of first quarter 26, we reached 4.93% market share for private payroll loans, coming from 0.2%, 2.76% market share of personal loans, coming from 2%, and 1.53% market share of credit card TPV, and 1.08% of credit card portfolio, coming from 1.18% and 0.77%, respectively.

Speaker #1: On the next slide, we have the breakdown of our portfolio growth for the consumer business. We reached 26.1 billion reais in the first quarter of 26, it represents a 3.6 billion growth from fourth quarter 25.

Speaker #1: Already after a one-off public payroll portfolio sale. As you can see, we continue to grow our portfolio, 91% of the total growth on lower-risk products and more mature cohorts.

Speaker #1: Meaning, clients that already have built credit behavior with us. Last but not least, the following slides take a deeper look at our private payroll loans operation.

Speaker #1: We continue to believe in the massive opportunity of private payroll loans, and we have seen strong evolution since the product launch, in April 2025.

Speaker #1: From the very beginning, we have been operating this product very tightly, following our prudent underwriting strategy. Early on, as operational issues affected first payment defaults in the initial cohort, we decided to slow down origination in the following months.

Speaker #1: As the product matured and we gained more confidence in its performance, we increased origination quarter over quarter. This shows our ability to respond quickly to changing market conditions.

Speaker #1: As you can see on this slide, first payment defaults (FPDs) have improved significantly from the first cohorts and are now stable at around 9% across recent cohorts.

Speaker #1: January FPDs are currently tracking broadly flat quarter over quarter. Although, we still do not have the quarter fully closed given the product's 30-day grace period plus an additional 30 days for payroll processing.

Speaker #1: Delinquency rates represented here by the over 30 days metric have also improved month after month, important to mention, that origination (FPDs) and over 30 for third quarter 2025 cohorts are reflecting a more conservative underwriting strategy.

Speaker #1: On the following slide, we continue to see very healthy unit economics in private payroll loans, with lifetime NIMALs around 30%, lifetime ROEs consistently above 100%, and FPDs stable at high single-digit levels.

Speaker #1: While FPDs remain stable, and within a controllable range, our strategy is not centered on minimizing this metric at any cost, but rather on optimizing risk-adjusted returns.

Speaker #1: We are comfortable and already expanding into new customer segments with higher cost of risk. Provided they are properly priced and structured to deliver returns and loss absorption levels in line with or above what we achieve today.

Speaker #1: In practice, the riskier the segment, the higher the spread, the shorter the duration, and the tighter the leverage to income criteria. Importantly, our current pricing model does not yet incorporate the potential upside from collateral enhancements, such as FGTS balances and severance package proceeds, which should become effective throughout the year and help reduce cost of risk, particularly in higher-risk segments.

Speaker #1: Now, I will hand it over to Rodrigo Couto, our CFO. Thank you.

Speaker #2: Now, I will walk you through our financial performance. On page 22, we see the familiar pattern of revenue growth several times higher than expense growth, leading to an improvement of 3 percentage points in our efficiency ratio relative to the fourth quarter.

Speaker #2: This means that our operating leverage continued to deliver impact, even in a quarter in which revenues are seasonally weaker. AI is already having an impact, as our headcount has been flat since October 25, and the projected 10% increase during 2026 will not materialize.

Speaker #2: We expect AI to be a major booster of our operational leverage, which should be even more powerful going forward. On the right-hand side of the page, we see that our ROE for the first quarter was 15.5%, as our average equity increased by more than 40% from the incorporation of the IPO proceeds.

Speaker #2: ROE will go back up towards the 20s in the next couple of quarters, as we gradually deploy the IPO proceeds. On the next slide, we present the expansion of our financial margins.

Speaker #2: Our net interest income, margin from credit products, and margin from credit products effort losses all grew between 17% and 19% relative to the fourth quarter.

Speaker #2: While our net interest margin rose back above 20% to 20.7%. The main driver of the margin expansion was a credit portfolio growth of 17%, which we will detail on the next slide.

Speaker #2: Net interest margin rose to 20.7% due to an increase in the share of credit over total interest-earning assets. On the next slide, looking at the credit portfolio, we reached approximately 28 billion in total credit, growing 17% quarter over quarter, and sustaining a triple-digit growth rate year over year.

Speaker #2: The main driver of our credit growth continues to be the private payroll loan product, which has been performing within our expectations as Danilo explained.

Speaker #2: When we look at the composition of our credit portfolio growth, we see that collateralized products corresponded to 69% of the portfolio expansion, which is similar with the 70% figure observed in the last quarter.

Speaker #2: As a result, the proportion of the portfolio that is collateralized continued to rapidly increase reaching 54%. On the next page, number 25, we present a classification of our portfolio by stages and the coverage of each stage.

Speaker #2: The composition of the portfolio by stages did not change significantly, and the coverages of stages 2 and 3 rose resulting in a 1.9 percentage point increase in the coverage of stages 2 plus 3 of 63.9%.

Speaker #2: Moving on to the next slide, we see that stage 2 formation rose slightly to 5.8%, which is typical of the first quarter due to seasonality.

Speaker #2: When compared to the first quarter of 2025, stage 2 formation was 1.3 percentage points lower. Stage 3 formation normalized to 3.9% after the spike observed in Q4, which is caused by a change in methodology.

Speaker #2: To finalize the presentation on credit metrics, on the next slide, we see that the ongoing loss absorption ratio rose slightly and that the cost of risk remained stable at 3.7%, while total portfolio coverage increased to 13.9%.

Speaker #2: For Q2, we expect the cost of risk to be between 3.7 and 3.9%. Moving on to funding on slide 28, you see that our funding base grew 8% quarter on quarter, while the cost of funding remained largely flat at around 94% of CDI.

Speaker #2: We continue to execute our diversified funding strategy, notably with the structuring of our second FIGIC FGTS. Through which we raised $1.25 billion last month, we will continue to mobilize different sources of funding as well as to strengthen our own deposit distribution capabilities to finance the rapid growth of our credit portfolio.

Speaker #2: Finally, we present on the next slide our common equity capital, with the incorporation of the IPO proceeds approximately $2 billion, our common equity tier 1 ratio reached 16.7%, with approximately $500 million corresponding to 2 percentage points of the ratio held at our holding company in the Netherlands.

Speaker #2: With that, I'll turn back to call to Eduardo Shadid for his final remarks.

Speaker #3: Well, we're issuing guidance for the second quarter of 2026, excluding any covered contribution. We expect the total credit portfolio to reach approximately $31 billion (11% growth quarter over quarter).

Speaker #3: Quarterly cost of risk should remain within the 3.7 to 3.9% range, consistent with the levels we've delivered this quarter. Managerial revenues are expected at approximately 3.6 billion, a 13% sequential increase.

Speaker #3: Net interest income should reach approximately 1.9 billion, up 12% from Q1. Unprofitability we expect gross profit of approximately 1.15 billion, 5% above this quarter.

Speaker #3: IFRS earnings before taxes are expected at approximately $265 million, 19% higher sequentially. On an adjusted basis, we expect earnings before taxes of approximately $285 million, a 15% step up from Q1.

Speaker #3: IFRS net income is expected at approximately $235 million, a 55% sequential increase, adjusted net income should reach approximately $245 million, 45% above this first quarter.

Speaker #3: As you can see, across the board, sequential acceleration in every profitability metric, reinforcing the trajectory we've outlined today. Before we open to Q&A, I would like to reinforce an important point regarding our credit strategy and the recent discussions around asset quality.

Speaker #3: At PicPay, we do not manage the business with the objective of simply minimizing NPLs at any cost. Our approach has always been centered around risk-adjusted profitability, supported by a very disciplined underwriting framework and a structurally low cost-to-serve model.

Speaker #3: Our operating model allows us to selectively participate in higher-risk segments as long as those products remain within our risk-return matrix particularly in terms of loss absorption between 40 and 60% and minimum 30% ROE thresholds.

Speaker #3: In practice, our playbook is very consistent. The riskier the product, the higher the spread, the shorter the duration, and the lower the leverage relative to income.

Speaker #3: What gives us confidence is that the current stability we're seeing across asset-quality metrics is fully consistent with the portfolio mix strategy we intentionally designed over the past quarters.

Speaker #3: A more diversified credit portfolio combining secure products, mature unsecure cohorts, and transactional-led underwriting. And this is where the strength of our ecosystem becomes a key differentiator.

Speaker #3: Because our digital wallet is deeply transactional, we're able to leverage proprietary behavioral data and real-time engagement signals that provide a much more accurate understanding of customer risk than traditional market benchmarks alone.

Speaker #3: On top of that, we layer in data obtained through open banking, which is non-proprietary but highly complementary. The combination of proprietary transactional intelligence with open banking insights gives us a uniquely powerful underwriting edge.

Speaker #3: Our market bidding performance in private payroll loans, as reflected in lower FPD metrics, demonstrates our product velocity, our agility in learning and adapting, the strength of our underwriting model, our digital distribution model, and our operational excellence.

Speaker #3: Finally, although some market credit indicators suggest some deterioration, a closer look at PicPay's portfolio, which is more resilient by design, reassures us about our risk-adjusted return policy and our ability to meet projections for the 2026 unchanged.

Speaker #3: Okay, now we're ready to move into the Q&A session. Please, operator, take over.

Speaker #2: Thank you. We are going to start the question-and-answer section for investors and analysts. If you'd like to ask a question, please click on raise hand.

Speaker #2: If your question has already been answered, you can leave the cue by clicking on put hand down. Our first question is from Gustav Schröder, with Citi.

Speaker #4: Hi, guys. Hi, Shadid. Kazuto, Diogo. And team, congrats on the numbers. In line with slightly above the guidance for the first cue, so decent trends.

Speaker #4: Congrats. I have two questions. The first one is we saw good trends in the stage two plus three formation. But we saw an increase in NPLs, 90-day NPLs, so if you could clarify this mathematical or this mismatch between numerator and denominator.

Speaker #4: I think that would be great, right? Because usually when we see the strong credit growth, denominator growth faster than numerator, and offsetting these pressures.

Speaker #4: So I think that would be welcome if you give some color or clarify this increase in 90-day NPLs. And my second question is regarding the guidance for the second quarter.

Speaker #4: You are guiding for $3 billion growth or $3 billion additional loan book quarter on quarter. It is slightly below the growth you presented in the first quarter.

Speaker #4: But we know that the first quarter usually we have this seasonal effect, so it was lower loan growth. I was expecting an acceleration in a sequential base in this loan growth.

Speaker #4: If you could explain as if it is there are some let's say conservative strategy here or what is behind these numbers. Thank you.

Speaker #5: Thanks, Gustavo. I will pick up the question on NPLs. The ratios are fundamentally different, right? When NPLs and NPL coverage, let's talk about NPL first.

Speaker #5: It's simply based past due, right? So it's first of all, it only takes into account one form of deterioration. And it also is highly sensitive to the write-off policy of each bank.

Speaker #5: Therefore, the levels are very hard to compare. We've said all along that our NPL ratios would continue to grow as our portfolio matures. And we would end up somewhere in the low teens.

Speaker #5: And this is what we expect to see going forward. The way we look at our credit performance and our coverage is in the proportion of stages, which was fairly stable.

Speaker #5: And also in the coverage of each stage. With which we are comfortable. So while NPLs will continue to rise, they're really not reflecting the dynamics because they're very, again, limited in terms of their risk sensitivity.

Speaker #5: And also highly subject to not only the write-off policies, but also the renegotiation policies of each institution. And therefore, it's very hard to use NPLs as a metric to manage a business.

Speaker #5: And that's why we manage in terms of cost of risk, loss absorption, and the proportion information of each of the stages as well as our coverage.

Speaker #4: Okay, Gustavo, this is Shadid. Now, going back to your second question, I think that we actually remain very positive on credit origination and on credit overall.

Speaker #4: I'd say that it's much more a conservative guidance than a conservative let's say way of doing business. If I could take you through what we believe on the macro credit scenario as well as on PicPay's let's say ability to navigate there, I'd say that talking about the macro, yes, the central bank data shows a gradual deterioration on delinquency.

Speaker #4: But at the same time, household debt service ratios remain stable. And the labor market is providing a strong floor. If we take a look at Brazil, is that a record low, 5.8% unemployment rate.

Speaker #4: With real aggregate wages growing 6.5% year over year, which in total it means that families in Brazil have 22.9 billion reais of additional real income.

Speaker #4: In circulation, and that acts as a buffer. Also, if you look at job creation, it remains concentrated in the lower-income brackets. This segment, which is typically more sensitive to income shocks, right?

Speaker #4: As long as unemployment holds at the same levels, we don't see a systemic risk of mass delinquency in lower ticket credit. In summary, our baseline any credit quality deterioration is likely to be gradual and not systemic.

Speaker #4: And this is very consistent with a control accommodation cycle without disruption. And looking at PicPay, it's fully consistent with the guidance we have provided.

Speaker #4: Looking at our own positioning within this macro environment, we believe that we are really well positioned for a more challenging backdrop. And we have deliberately built a more diversified revenue mix as we explained in the call.

Speaker #4: 69% of our revenues now come from no or low credit risk streams. Which translates into a more resilient business itself. We're only 31% is exposed to unsecure credit.

Speaker #4: And if you look at our credit underwriting strategy, it delivered a total credit portfolio which is 54% secure and only 46% unsecured. And Q1 numbers show that 91% actually of new volumes are coming from lower-risk loans and mature credit card cohorts.

Speaker #4: And this is by design. I mean, over the past several quarters, we have been intentionally rotating the portfolio towards secure products and seasoned unsecure vintages.

Speaker #4: With proven performance. On top of that, which gives us an additional layer of protection, I would say that our playbook allows us to adapt quickly to the changing scenarios.

Speaker #4: The risk of the product, the higher the spread, the shorter the duration, and the lower the leverage relative to income. And this is a framework which is not reactive.

Speaker #4: It's embedded in how we originate every day. So to summarize, I mean, we've built a diversified revenues model in deliberately resilient portfolio mix. And we've been very let's say strict and disciplined on the origination.

Speaker #4: So we believe we are well positioned to navigate this cycle. Just one additional comment here, Gustavo. It sounds right speaking. For the consumer, low on book were expecting the origination to be pretty much flattish with the fourth quarter.

Speaker #1: Ninety-one percent, actually, of new volumes are coming from lower-risk loans and mature credit card cohorts. And this is by design. I mean, over the past several quarters, we have been intentionally rotating the portfolio towards secured products and seasoned, unsecured vintages.

Speaker #4: So we're expecting to originate close to 3.5 billion reais, okay? That's our expectation of the consumer banking. We also have some SMB credit portfolio rolling off.

Speaker #4: So that's probably something that is impacting let's say the total credit figure that we share in our guidance.

Speaker #1: with proven performance. On top of that, which gives us an additional layer of protection, I would say that our playbook allows us to adapt quickly to the changing scenarios.

Speaker #3: All right, guys. Clear. Very clear. Just to follow up on my first question regarding NPL. So what is the write-off policy? Is that 360 days, 540 days?

Speaker #1: The riskier the product, the higher the spread, the shorter the duration, and the lower the leverage, relative to income. And this is a framework—framework—which is not reactive.

Speaker #3: What is the write-off policy?

Speaker #4: It's 360 days. Yeah.

Speaker #3: Okay.

Speaker #4: Both cards and loans.

Speaker #1: It's embedded in how we originate every day. So, to summarize, we've built a diversified revenue model, a deliberately resilient portfolio mix, and we've been very, let's say, strict and disciplined on the origination.

Speaker #3: All right. Thank you.

Speaker #1: The next question is from Mario Pierre with Bank of America.

Speaker #5: Hey, guys. Good evening and thanks for taking my question. Let me ask two questions as well. I want to focus on the private payroll loan.

Speaker #1: So, I believe we are well positioned to navigate this cycle.

Speaker #2: Just one additional comment here, Mustafa. It sounds right, speaking for the consumer loan book—we're expecting the origination to be pretty much flattish with the fourth quarter.

Speaker #5: I don't know if you when you said the NPL should be in low teens, did I understand that correctly?

Speaker #4: Yes. Yeah, for the whole portfolio.

Speaker #2: So we're expecting to originate close to R$3.5 billion, okay? That's our expectation on the consumer banking. We also have some SMB credit portfolio rolling off.

Speaker #5: For the whole portfolio.

Speaker #4: But go ahead, Mario. We'll wait until you finish and then we'll answer.

Speaker #2: So that's probably something that is impacting, let's say, the total credit figure that we share in our guidance.

Speaker #5: Okay. And you showed right on slide 17 that your market share in private payroll loans has gone from 0 to almost 5%. In one year.

Speaker #1: All right, guys. Clear, very clear. If I may, just to follow up on my first question regarding NPL, what is the write-off policy?

Speaker #5: What do you think is making you so successful in this product? What are you doing different from the other players? Also, you talked about this collateral enhancements, right?

Speaker #1: Is that 360 days, 540 days? What is the write-off policy?

Speaker #3: It's 360 days.

Speaker #2: Yeah.

Speaker #1: Okay.

Speaker #5: Especially related to FGTS. We've been waiting for that. And it appears to be delayed. What is delaying that? When do you think those collaterals are going to be effective?

Speaker #2: Both cards and loans.

Speaker #1: All right. Thank you.

Speaker #4: The next question is from Mario Pieri with Bank of America.

Speaker #5: And what do you see in terms of interest rates that you're charging on this product? Clearly, right, this is not a uniform product. If you are doing a private payroll to someone who works in a small company for a short period of time, you're going to charge a higher rate.

Speaker #1: Hey, guys. Good evening, thanks for taking my question. Let me ask two questions as well, and I want to focus on the private payroll loan.

Speaker #1: I don't know if, when you said the NPL should be in the low teens, did I understand that correctly? And the whole portfolio?

Speaker #5: Then for someone who has a longer term, more mature job. But can you tell us the direction of rates that you're charging in this product?

Speaker #2: Yeah, for the whole portfolio.

Speaker #1: For the whole portfolio.

Speaker #2: Right.

Speaker #1: Uh-huh.

Speaker #5: And then my second question is unrelated to this. It's related to cover. Like you said, you got all the approvals, expecting now Suzepi to approve the transaction.

Speaker #2: But, well, go ahead, Mario. We'll wait until you finish, and then we'll answer.

Speaker #1: Okay, and you showed, right on slide 17, that your market share in private payroll loans has gone from zero to almost 5%.

Speaker #5: Just remind us again what is the expectation for net income from cover on a full year basis. Thank you.

Speaker #1: In one year, what do you think is making you so, so successful in this product? What are you doing differently from the other players?

Speaker #4: Hi, Mario. Going back to the private payroll loans. I think that our performance as you said, it's been pretty solid. And I think it's at the end of the day, it's the result of several factors.

Speaker #1: Also, you talked about these collateral enhancements, right? Especially related to FGTS. We've been waiting for that, and it appears to be delayed.

Speaker #4: I mean, we were the second company to be accredited in this product. And we entered very early. As we identified operational deficiencies in the system, we adapted quickly and developed some proprietary workarounds on those deficiencies.

Speaker #1: What is delaying that? When do you think those collaterals are going to be effective? And what do you see in terms of interest rates that you're charging on this product?

Speaker #1: Clearly, right, this is not a uniform product. If you are doing a private payroll to someone who works in a small company for a short period of time, you're going to charge a higher rate.

Speaker #4: Our underwriting model has evolved significantly since the beginning. And on top of that, I'd say that our digital distribution capabilities also played an important role with around 70% of all origination being done in-app.

Speaker #1: Then, for someone who has a longer-term, more mature job, can you tell us the direction of the rates that you're charging in this product?

Speaker #1: And then, and then, like, my second question is unrelated to this. It's related to cover. Like you said, you got all the approvals. You're expecting, expecting now, Suzepi to approve the transaction.

Speaker #4: And from the beginning, I think that we maintained focus and conviction in the product's potential, which gave us a meaningful, let's say, and quicker learning curve which we're taking into advantage.

Speaker #1: Just remind us again, what is the expectation for net income from cover on a full-year basis? Thank you.

Speaker #4: So I think it's a mix of many things that we did. And also driven by a lot of focus and the belief that this would unlock a meaningful opportunity for us.

Speaker #3: Hi, Mario. Going back to the private payroll loans, I think that our performance, as you said, has been pretty solid. And I think it's, at the end of the day, the result of several factors.

Speaker #4: When you talked about, we said that FPDs in our case, it's around 9%. And this has been steady throughout quite a few, let's say, vintages now.

Speaker #3: I mean, we were the second company to be accredited in this product, and we entered very early. As we identified operational deficiencies in the system, we adapted quickly and developed some proprietary workarounds for those deficiencies.

Speaker #4: So we are, let's say, we're pretty confident on the product and we're getting more confident as time goes by. At the same time, you asked about, yeah, there is an upside possible upside when the additional guarantees, the FGTS, as well as the severance package access are implemented.

Speaker #3: Our underwriting model has evolved significantly since the beginning. And on top of that, I'd say that our digital distribution capabilities also played an important role, with around 70% of all origination being done in-app.

Speaker #3: and, and from the beginning, I think that we maintained focus and conviction in the in the product's potential, which gave us a, a meaningful, let's say, a-and quicker learning curve, which we're taking, into advantage.

Speaker #4: And you were right. I mean, they've been delayed quite a couple of times. And we're being conservative so we're actually in our view, we'll we expect them to be let's say of have some impact on our case in the fourth quarter of the year.

Speaker #3: So, I think it's a mix of many things that we did, and also driven by a lot of focus and the belief that this would unlock a meaningful opportunity for us.

Speaker #4: Provided there are no additional delays. And all in, we remain pretty positive and product is behaving, let's say, as expected.

Speaker #3: When you talked about it, we said that FPDs, in our case, are around 9%, and this has been steady throughout quite a few, let's say, vintages now.

Speaker #5: Okay. And Shiji, when you talked about the low teens NPLs, are you talking specifically for private payroll or are you talking about for the entire loan book?

Speaker #4: For the entire loan book, well, that's over time. When we stabilized the portfolio, right?

Speaker #3: so, we are, let's say, we're pretty confident, o-on the product, and we're getting more confident, as, as time goes by. At the same time, you asked about, yeah, there is a, a upside, possible upside when, the additional guarantees, the FGTS, as well as the severance package, access, are implemented.

Speaker #5: So just to be clear, you had an NPL ratio of 8.9% this quarter. 7.2% previous quarter. And you expect this to normalize around low teens.

Speaker #4: That's correct, Mario.

Speaker #5: Okay. And then on cover.

Speaker #3: And you're right. I mean, they've been delayed quite a couple of, of, times. And we're being conservative. so we are actually, in our view, we're, we'll, we expect them to be, let's say, of have some impact on our case in the fourth quarter of the year.

Speaker #4: The expected net income, that was your question, right?

Speaker #5: Correct. Correct.

Speaker #4: Yeah. I mean, Mario, we could talk about what we expected last year. As we still didn't have full clearance and approval, I cannot be I mean, I don't have access to how they're performing this year.

Speaker #3: Provided there are no additional delays, and all in, we remain pretty positive. The product is behaving, let's say, as expected.

Speaker #4: But I can share with you is that with the products that we distribute from them, we're performing pretty well. So we should expect that from their total portfolio.

Speaker #1: Okay. And Shiji, when you talked about the low teen NPLs, are you talking specifically about private payroll, or are you talking about the entire loan book?

Speaker #4: But I'm talking mainly from my own perspective. And so I cannot be precise now. But hopefully in a few weeks, as soon as the as Suzepi, the insurance regulator, approves and central bank also will be able to actually give you much more visibility on what we expect for the full year.

Speaker #3: For the entire loan book—well, that's over time. When we stabilized the portfolio, right?

Speaker #1: So, just to be clear, you had an NPL ratio of 8.9% this quarter and 7.2% the previous quarter, and you expect this to normalize around the low teens?

Speaker #3: That's correct, Mario.

Speaker #5: Okay. Thank you very much.

Speaker #1: Okay. And then on cover...

Speaker #6: The next question is from Dan Doles with Mizuhu.

Speaker #3: The expected net income—that was your question, right?

Speaker #7: Hey, guys. Can you hear me?

Speaker #1: Correct. Correct.

Speaker #4: Yeah.

Speaker #3: Yeah. I mean, Mario, we could talk about what we expected last year. As we still didn't have full clearance and approval, I cannot be—I mean, I don't have access to how they're performing this year.

Speaker #7: Great. Results here really strong first quarter. Congrats from our end at Mizuhu. I have one question. I mean, I caught some of the comments you mentioned about AI.

Speaker #7: And how accretive the initiatives are to margin. Can you maybe elaborate a little bit on what you're doing in AI specifically and what the opportunities that you see down the road?

Speaker #3: What I can share with you is that, with the products that we distribute from them, we're performing pretty well. So we should expect that from their total portfolio.

Speaker #7: And congrats again.

Speaker #5: Hi, it's Danilo here. So we've been using AI and LLM models since the beginning of 2023. Our first use case was around customer service.

Speaker #3: But I'm talking mainly from my own perspective. And so, I cannot be precise now, but hopefully in a few weeks, as soon as SUSEP, the insurance regulator, approves, and the central bank also, we’ll be able to actually give you much more visibility on what we expect for the full year.

Speaker #5: And we continue to adopt AI heavily on our entire value chain, actually. From customer service to credit, engineering, marketing, and so on. We currently have our own version of OpenCall.

Speaker #5: Running on a multi-LLM stack. With most of our employees using on a weekly basis. And of course, it's still early days. But we're already seeing significant performance improvements on AI-first teams.

Speaker #1: Okay. Thank you very much.

Speaker #2: The next question is from Dan Dolev with Mizuho.

Speaker #4: Hey, guys, can you hear me?

Speaker #5: And as we mentioned in the release, this is one of the factors that enables us to continue growth, to grow a business while keeping the headcount flat since October 2025.

Speaker #3: Yeah.

Speaker #4: Great results here—really strong first quarter. Congrats from our end at Mizuho. I have one question. I caught some of the comments you mentioned about AI and how accretive the initiatives are to margin.

Speaker #5: And we believe that it will be a major boost of our operating leverage for the upcoming quarters.

Speaker #4: Can you maybe elaborate a little bit on what you're doing in AI, specifically, and what opportunities you see down the road? And congrats again.

Speaker #7: Great. Thank you. And congrats again.

Speaker #6: The next question is from Ricardo Botpigo with BTG Pactual.

Speaker #3: Hi, it's Danilo here. So, we've been using AI and LLM models since the beginning of 2023. Our first use case was around customer service.

Speaker #8: Hi, everyone. And thank you for the opportunity of making questions. Most of my questions were already answered. So I have just one here. If you could provide an update on the new Disney Hola program, giving a bit more color on how origination under the program has been evolving and how important you feel that this program could be to mitigate any potential delinquency risk depending on how the macro unfolds.

Speaker #3: And we continue to adopt AI heavily across our entire value chain, actually—from customer service to credit, engineering, marketing, and so on. We currently have our own version of Open Call.

Speaker #3: Running on a multi-LLM stack, with most of our employees using it on a weekly basis. And of course, it's still early days, but we are already seeing significant performance improvements on AI-first teams.

Speaker #8: Thank you very much.

Speaker #4: Thanks. and we actually entered early on. So we're quick to begin. The program originations are responding well. We already have converted about 10% of the potential that we believe we can do that.

Speaker #3: And as we mentioned in the release, this is one of the factors that enables us to continue to grow the business while keeping the headcount flat since October 2025.

Speaker #4: And then we have the collateral for 50% of the renegotiated value granted by the federal government fund. So I'd say that in terms of final, let's say, impact, it's definitely an upside.

Speaker #3: And we believe that it will be a major boost to our operating leverage in the upcoming quarters.

Speaker #4: Great. Thank you. And congrats again.

Speaker #4: But I wouldn't say that it's relevant for the full year results. Although we remain positive on it. And we've been originating quite well.

Speaker #2: The next question is from Ricardo Bottigo with BTG Pactual.

Speaker #5: Hi, everyone, and thank you for the opportunity to ask questions. Most of my questions have already been answered, so I have just one here. If you could provide an update on the new Desenrola program, giving a bit more color on how origination under the program has been evolving and how important you feel this program could be to mitigate any potential delinquency risk, depending on how the macro unfolds.

Speaker #8: No, that's very clear. And if I may do a follow-up here, you mentioned that you are seeing that the commitment to that payment has been more or less stable in recent months.

Speaker #8: But there is overall a concern that disposable income could be impacted by the accelerating economy, right? So it would be interesting to see how you guys factor this risk in your underwriting.

Speaker #5: Thank you very much.

Speaker #3: Thanks. Well, we see this positively, and we actually entered early on, so we were quick to begin. The program originations are responding well. We have already converted about 10% of the potential that we believe we can achieve.

Speaker #8: And if you expect that we can have an increase in the delinquency, not necessarily for peak pay, but the market as a whole, towards the second semester of this year or perhaps next year.

Speaker #3: And then we have the collateral for 50% of the re-renegotiated value, granted by the federal government fund. So I'd say that, in terms of final impact, it's definitely an upside, but I wouldn't say that it's relevant for the full-year results.

Speaker #8: Thank you.

Speaker #4: I'd say that generally speaking, we are expecting some increase in delinquency for the market overall. As I said before, we don't see anything that is sudden.

Speaker #4: So it's probably a very gradual thing. If you look at our own portfolio and our, let's say, ability to, let's say, navigate those debt backdrop, I'm going back to the diversified revenue mix as well as a more secure credit portfolio and if you look at how we're growing the credit portfolio, we are mainly growing that through low-risk loans, mainly collateralized, as well as mature credit card cohorts.

Speaker #3: Although we remain positive on it, and we've been originating quite well.

Speaker #5: No, that's, that's very clear. And, and if I may do a, a, a follow-up here, you mentioned that you are seeing that, commitment, to that payment has been more or less stable in, in, in recent months.

Speaker #5: But there is, overall, a concern that disposable income could be impacted by the accelerating economy, right? So it would be interesting to see how you guys factor this risk into your underwriting.

Speaker #4: So we don't I mean, we expect a reasonable stability both on credit risk as well as on stage three formation let's say around 4%.

Speaker #5: And if you do if you expect that we can have, like, a, a, a increase in the delinquency, not necessarily for PicPay, but the market as a whole, towards the second semester of, of this year or perhaps next year.

Speaker #5: Thank you.

Speaker #8: Perfect. Thank you.

Speaker #3: I'd say that, generally speaking, we are expecting some increase in delinquency for the market overall. As I said before, we don't see anything that is sudden.

Speaker #6: The next question is from Craig Maurer with FT Partners.

Speaker #9: Hi. Thanks for taking the questions. Good to hear from you, Eduardo and Andre. Wanted to ask again about the private payroll loans. I wanted to understand the positioning you think this product is taking with the consumer.

Speaker #3: So it's probably a very gradual thing. If you look at our own portfolio and our, let's say, ability to s to, let's say, navigate those, that backdrop, I'm going back to, the diversified revenue mix.

Speaker #9: Is this do you think muting growth in credit card in any way? And also, do you think that the private payroll loans are better path to principality versus, say, the credit card?

Speaker #3: As well as a more secure credit portfolio. And if you look at how we're growing the credit portfolio, we are mainly growing that through low-risk loans, mainly collateralized.

Speaker #9: So trying to understand how this changes the relationship with the consumer in terms of ongoing product usage.

Speaker #4: Yeah. So I'd say that in the first half of our question, we see lots of people who are, let's say, out of the credit market taking that product.

Speaker #3: As well as mature credit card cohorts. So, we don't—I mean, we expect reasonable stability both on credit risk as well as on stage three formation.

Speaker #4: So it's somehow it's additional. If you look at the big pay case specifically, I'd say that it's taken, let's say, share from personal loans instead of credit cards.

Speaker #3: Let's say around, 4%.

Speaker #5: Perfect. Thank you.

Speaker #2: The next question is from Craig Maurer with FT Partners.

Speaker #4: And I think that one of the key aspects in our case is the ability to actually distribute that product digitally. If you compare our distribution with what we've been hearing from the average of the market, we've been able to distribute more in-app than the than most of the of the other players.

Speaker #4: Hi, thanks for taking the questions. Good to hear from you, Eduardo and Andre. I wanted to ask again about the private payroll loans. I wanted to understand the positioning you think this product is taking with the consumer.

Speaker #4: Do you think this is muting growth in credit cards in any way? And also, do you think that private payroll loans are a better path to profitability versus, say, credit cards?

Speaker #4: We just shows that I mean, the engagement with the app is basically an important tool to distribute. Clients I'd say that private payroll loans.

Speaker #4: So, I'm trying to understand how this changes the relationship with the consumer in terms of ongoing product usage.

Speaker #3: Yeah. So, I'd say that, in the first half of your question, we see lots of people who are, let's say, out of the credit market taking that product.

Speaker #4: Clients the trend is to actually increase peak pay usage as well as product adoption. I mean, we've seen that with the current clients. So it's not only a factor of the direct benefits from the product, but a overall, let's say, driver of engagement and adoption of other products.

Speaker #3: So, somehow, it's additional. If you look at the PicPay case specifically, I'd say that it's taken and, let's say, share from personal loans instead of credit cards.

Speaker #5: And Craig, just to complement your currently around 70 to 75 percent of all private payroll loan origination, it's already done through our app. So basically, this is helping to increase the cross-selling of additional products like insurance.

Speaker #3: And I think that, one of the key aspects in, in our case is, the ability to actually, distribute that product digitally. if you compare, our, distribution with, what we've been hearing from the, average of the market, we've been able to distribute more in-app than the, than most of the, of the other players.

Speaker #5: And of course, this is going to be extremely helpful in terms of, let's say, creating better engagement and faster principality for a customer base.

Speaker #9: Okay. Thank you.

Speaker #6: The next question is come from Dan Perlin with RBC.

Speaker #3: It just shows that, I mean, the engagement with the app is, is basically, an important tool to distribute. clients, I'd say that it, it, it, it, private payroll loans clients the trend is to actually, increase PicPay usage as well as, product adoption.

Speaker #5: Hey, guys. Good evening. Two quick ones here. So the commentary around AI and headcount growth, not materializing now because you've got all these efficiency gains, I'm wondering one, are you planning on leaning in on those cost savings into marketing or kind of higher-risk private payroll opportunities that you talked about?

Speaker #3: I mean, we've seen that with the current clients. So, it's not only a factor of the direct benefits from the product, but an overall, let's say, driver of engagement and adoption of other products.

Speaker #5: And then secondly, the net interest income growth guidance of 12% versus the 5% growth profit growth. I'm just assuming that that is a function of your kind of makeshift such that your credit loss allowances just stepping up in that period of time.

Speaker #4: Yeah, Craig, just to complement here, currently, around 70 to 75 percent of all private payroll loan origination is already done through our app. So, basically, this is helping to increase the cross-selling of additional products, like insurance.

Speaker #5: Thanks.

Speaker #4: Hi, Dan. First part of your question, definitely I mean, we're leaning in on AI and besides that, I mean, Danilo already mentioned that we've been running headcounts flat since October.

Speaker #4: And of course, this is going to be extremely helpful in terms of, let's say, creating better engagement and faster principality with our customer base.

Speaker #4: But if you even got only the, let's say, the avoided hiring that we had on the customer service platform, in the last two years, we avoided hiring an additional 3,000 new customer service reps.

Speaker #3: Okay. Thank you.

Speaker #2: The next question comes from Dan Perlin with RBC.

Speaker #6: Hey, guys. Good evening. Two quick ones here. So, the commentary around AI and headcount growth not, you know, materializing now because you've got all these efficiency gains—I'm wondering, one, are you planning on leaning in on those cost savings—into marketing, or kind of higher-risk, you know, private payroll opportunities that you talked about?

Speaker #4: So it's not only about having it flat, but also avoiding some meaningful new hires. On your point of, yeah, part of those efficiency gains will be deployed on growth and part will be converted into better margins.

Speaker #6: And then, secondly, the net interest income growth guidance of 12% versus the 5% gross profit growth—I'm just assuming that that is a function of your, kind of, makeshift such that your credit loss allowances are just stepping up in that period of time.

Speaker #4: But yes, we definitely plan to invest some of that of that additional, let's say, productivity.

Speaker #6: Thanks.

Speaker #3: Hi, Dan. First part of, of, of your question, definitely—I mean, we're leaning in on AI, and besides, I mean, Danilo already mentioned that we've been running headcounts flat since October.

Speaker #5: That's great. And then on the net interest income guidance versus gross profit, growth guidance, just is that a function of just a step up in your credit loss allowances that you've got going into the next quarter?

Speaker #5: Or is there something else that I'm just not.

Speaker #4: So that's correct. We do expect our credit loss allowances to be a little higher than our income net income growth. All within the dynamics of the portfolio and within the, let's say, our risk return parameters.

Speaker #3: But if you even got only the, let's say, the avoided hiring that we had on the customer service platform in the last two years, we avoided hiring an additional 3,000 new customer service reps.

Speaker #4: But yes, we do expect it to be a little higher.

Speaker #5: Great. Thank you so much.

Speaker #6: The next question is from Niha Aggarwala with HSBC.

Speaker #3: So it's not only about having it flat, but also about avoiding some meaningful new hires. On your point of, yeah, part of those efficiency gains will be deployed on growth.

Speaker #7: Hi. Thank you for taking my question. Just a quick one. You mentioned that the NPLs will be in the low teen levels. And given that your book is almost 70% secured, why should we continue to see a pickup in NPLs?

Speaker #3: And part will be converted into better margins. But yes, we definitely plan to invest some of that—of that additional, let's say, productivity.

Speaker #7: Why not maybe a pickup for a quarter or two because of the private payroll and then an easing as the economy improves and rates decline?

Speaker #7: If you can split for us how much of the increase in the NPL ratio and the cost of fiscus driven by the strong growth in the private payroll, that will help us understand what is the core dynamic for your remaining part of the portfolio.

Speaker #4: That's great. And then, on the net interest income guidance versus gross profit growth guidance, is that just a function of a step up in your credit loss allowances that you've got going into the next quarter?

Speaker #7: Thank you so much.

Speaker #4: Or is there something else that I'm just not seeing?

Speaker #4: So the increase in the NPL ratio is basically a catch-up of things that are already in our stage three, right? So if you look at our at our stage three as a proportion of the portfolio in the first quarter, it was 12.7, while NPL was 8.9.

Speaker #3: No, that's correct. We do expect our credit loss allowances to be a little higher, and that our net interest income grows, you know, all within the dynamics of the portfolio and within, let's say, our risk-return parameters.

Speaker #3: But yes, we do expect it to be a little higher.

Speaker #4: Great. Thank you so much.

Speaker #4: The 8.9 will end the year in the low teens. The 12.7 will end the year in the mid-teens, right? So if you want to see what's going to happen with NPLs, just look at what's happening with the share of stage three, which is ultimately a better metric because it captures other forms of increasing risk that are not captured in NPL 90 days.

Speaker #2: The next question is from Niha Aggarwala with HSBC.

Speaker #5: Hi. Thank you for taking my question. Just a quick one—you mentioned that the NPLs will be in the low teen levels.

Speaker #5: And given that your book is almost 70% secured, why should we continue to see a pickup in NPLs? Why not just see a pickup for a quarter or two because of the private payroll and then an easing as the economy improves and rates decline?

Speaker #4: The levels we see of NPLs and the share of stage three again, they're highly influenced by our write-up policy, which is our 360 days.

Speaker #4: And there are players in the market that do 270. There are players in the market that do 120. And that results in very different levels of NPLs.

Speaker #5: If you can split for us how much of the increase in the NPL ratio and the cost of fiscus is driven by the strong growth in the private payroll, that will help us understand what is the core dynamic for your remaining part of the portfolio.

Speaker #4: Ultimately, also, as we find more opportunities to grow in private payrolls, the NPLs for that product will also increase or that the credit losses will increase.

Speaker #5: Thank you so much.

Speaker #3: So, the increase in the NPL ratio is basically a catch-up of things that are already in our Stage 3, right? So, if you look at our Stage 3 as a proportion of the portfolio in the first quarter, it was 12.7%.

Speaker #4: But the revenues will increase by at least double. And ultimately, we're going to make more money, have higher returns. So just taking let's say a credit loss metric without looking at what's happening in revenues doesn't tell the whole story.

Speaker #3: While NPL was 8.9, the 8.9 will end the year in the low teens. The 12, 12.7 will end the year in the mid-teens, right?

Speaker #4: And the way we manage is by looking both at both things in conjunction.

Speaker #5: Yeah. And pretty much let's say keeping our let's say guidelines in terms of loss absorption ratios that should be between 40 to 60 percent and ROEs minimum ROEs at 30%.

Speaker #3: So, if you want to see what's going to happen with NPLs, just look at what's happening with the share of Stage 3, which is ultimately a better metric, because it captures other forms of increasing risk that are not captured in NPL, 90 days.

Speaker #6: Understood. I mean, and I understand that Naimal is a more relevant parameter than just looking at what's happening with the cost of risk. But what is a bit confusing is that given that the majority of your book is secured, when I look at other players, who have a similar composition, their NPLs are not at similar levels.

Speaker #3: The levels we see of NPLs and the share of the Stage Three, again, they’re highly influenced by our write-off policy, which is our 360 days.

Speaker #3: And, you know, there are players in the market that do 270. There are players in the market that do 120. And that results in very different levels of NPLs.

Speaker #6: So I just wanted to understand why is your NPL? And I understand that stage three is higher, so the natural progression will be you expect that the NPL for the book will be in low teens by the end of the year.

Speaker #3: Ultimately, also, as we find more opportunities to grow in private payrolls, the NPLs for that product will also increase, or the credit losses will increase.

Speaker #6: So we have a progression throughout the year. But I just wanted to understand why these levels of NPLs. Are you seeing a much worse asset quality in the private payroll than what the system is seeing?

Speaker #3: But the revenues will increase by at least double, and ultimately we're going to make more money and have higher returns. So, you know, just taking, let's say, a credit loss metric without looking at what's happening in revenues doesn't tell the whole story.

Speaker #6: Or is there any other pockets where you're seeing more pressure for your clients?

Speaker #4: Again, comparisons of levels of NPLs are very difficult to make especially in the Brazilian market where write-up policies are pretty different. So it's hard to compare the levels.

Speaker #3: And the way we manage is by looking at both things in conjunction.

Speaker #4: Yeah, and pretty much, let's say, keeping our, let's say, guidelines in terms of loss absorption ratios, that should be between 40% to 60%, and ROEs, minimum ROEs at 30%.

Speaker #4: And what's driving the increase in the NPL ratio? It is partly a maturation of the private payroll loans, but the they're not the big contributors here.

Speaker #2: Understood. But I mean—and I understand that—Naimal is a more relevant parameter than just looking at what's happening with the cost of risk.

Speaker #4: Secured portfolio that is responsible for the majority of the NPLs and of the share of stage three. But again, I think going back to the comment that was made in another question that our gross profit grows by less than our net interest income, you'll see already in the second quarter our NPLs close to where they should be.

Speaker #2: But what is a bit confusing is that, given that the majority of your book is secured, when I look at other players who have a similar composition, their NPLs are not at similar levels.

Speaker #2: So I just wanted to understand, why is your NPL? And I understand that stage three is higher, so the natural progression will be you expect that the NPL for the book will be in low teens by the end of the year.

Speaker #4: And closer to our stage three proportion. And then they change only slightly throughout the rest of the year.

Speaker #2: So we have a progression throughout the year. But I just wanted to understand why these levels of NPLs. Are you seeing much worse asset quality in the private payroll than what the system is seeing?

Speaker #5: And Niha, just complementing here, if we look at a product-by-product and cohort-by-cohort analysis, we're not seeing any great deterioration on any of those pockets.

Speaker #2: Or are there any other pockets where you're seeing more pressure for your clients?

Speaker #3: Again, comparisons of levels of NPLs are very difficult to make, especially in the Brazilian market, where write-up policies are pretty different. As such, it's hard to compare the levels.

Speaker #5: It's just a compounded effect of many different things as it's the credit portfolio mix it's also the fact that, yes, the private the private payroll loan is a secure product, but it's not a no-risk product.

Speaker #3: And what's driving the increase in the NPL ratio? It is partly a maturation of the private payroll loans, but they're not the big contributors here.

Speaker #5: It is a low-risk product. So as we keep growing the portfolio, there is going to be some delinquency there as well. But in every sense, a much more secure product than the unsecure ones.

Speaker #3: You know, secured portfolio that, that is responsible for the majority of the NPLs and of the, the share of stage three. But again, I think, going back to, to, to the comment, that was made in another question that are, are gross profit grows by less than our net interest income, you'll see already in the second quarter our, our NPLs close to where they should be.

Speaker #6: Understood. And in terms of loan mix, probably looking at 75% secured by year-end given the growth that you're having in the private payroll. Make sense?

Speaker #4: No. No, that shouldn't be the case. Because we still grow quite well especially on credit cards. Which are not secure. I mean, it's definitely going to increase from 54.

Speaker #3: ...and closer to our stage three proportion. And then, they change only slightly throughout the rest of the year.

Speaker #4: And Niha, I’m just complimenting here. If we look at a product-by-product and cohort-by-cohort analysis, we're not seeing any great deterioration in any of those pockets.

Speaker #4: But definitely not going to be around 70.

Speaker #6: Okay. Okay. Perfect. Thank you so much. The question answer section is over. We would like to hand the floor back to Mr. Eduardo Chedid for the company's final remarks.

Speaker #4: It's just a compounded effect of many different things. It's the credit portfolio mix, it's also the fact that, yes, the private payroll loan is a secure product, but it's not a no-risk product.

Speaker #7: Yes. Thanks a lot for being here with us again. I think that we've delivered a strong first score. As you will see, guidance for the second quarter means that we remain positive.

Speaker #4: It is a low-risk product. So as we keep growing the portfolio, there is going to be some delinquency there as well. But in every sense, it is a much more secure product than the unsecured ones.

Speaker #7: And I'd say that the main message here is that we hold the high conviction on delivering full-year results. With that said, I'd just like to thank you guys and we'll see you guys in the next earning calls.

Speaker #2: Understood. And in terms of loan mix, probably looking at 75% secured by year-end, given the growth that you're having in the private payroll. Makes sense?

Speaker #3: No, no, that shouldn't be the case. Because we still grow quite well, especially on credit cards, which are not secured.

Speaker #3: I mean, it's definitely going to increase from 54, but it's definitely not going to be around 70.

Speaker #2: Okay. Okay. Perfect. Thank you so much. The question-and-answer section is over. We would now like to hand the floor back to Mr. Eduardo Shajid for the company's final remarks.

Speaker #5: Yes, thanks a lot for being here with us again. I think that we've delivered a strong first score. As you will see, guidance for the second quarter means that we remain positive.

Speaker #5: And I'd say that the main message here is that we hold high conviction on delivering full-year results. With that said, I'd just like to thank you guys.

Speaker #5: And we'll see you guys in the next earnings call.