Nu Holdings Ltd. (NU) Earnings

Management highlights

### Customer Growth & Geographic Positioning - Total customer base surpassed 135 million globally: - Brazil: 115 million customers, solidifying position as Brazil's largest private financial institution by customer count, with ~7% share of the addressable annual profit pool. - Mexico: Crossed 15 million customers to become the third-largest financial institution in the market, reaching first IFRS profitability in Q1 2026 ahead of internal plan, with profit pool share still below 1%. - Colombia: Near 5 million customers with steady net customer additions. - Consolidated monthly activity rate held at 83% despite typical Q1 seasonality, expanding sequentially; Brazil is approaching 100 million monthly active customers. ### AI Transformation - AI transformation is a core company priority, focused on rebuilding banking around AI rather than just adding AI to existing processes, with three phases: 1. AI assistance (largely complete): Close to 100% employee utilization across all functions, driving 50% YoY higher engineering throughput, 90% faster testing cycles, and nearly 10x higher weekly token consumption compared to the start of 2026. 2. Workflow reinvention (in motion): End-to-end rebuilt customer journeys, with AI-native experiences launching in 2026; many products originally planned for mid-2027 are already in development. 3. AI-native bank (early stage): AI Private Banker features already serve over 15 million monthly active users; proprietary nuFormer foundation models are in production for credit decisioning in Brazil and Mexico, enabling real-time NPV-based personal loan approval in under 1 second, supporting resilient, faster credit portfolio growth. - Nu holds three structural competitive advantages for AI: scale and unique first-party data from 135 million daily active customers, a cloud-native proprietary tech stack enabling fast experiment-to-production deployment, and aligned company-wide talent and culture focused on AI integration. ### Balance Sheet & Credit Operations - Total deposits reached $42.4 billion, up 22% YoY FX-neutral. Mexico deposit outflows stem from stronger-than-expected reversal of year-end seasonal inflows and deliberate optimization of the cost of funds at low loan-to-deposit ratios. - Consolidated cost of deposits closed at 88% of the interbank rate, slightly higher QoQ due to seasonal balance migration in Brazil, offsetting improvements in Mexico and Colombia. - Net interest margin (NIM) reached 21.1%; risk-adjusted NIM fell 100 basis points QoQ to 9.5% due to Q1 seasonal provision increases, with no underlying asset quality degradation. - The 15-90 day delinquency ratio rose 89 basis points QoQ to 5% in line with historical seasonal patterns, while 90+ day NPLs fell 10 basis points QoQ to 6.5%, well below the 7% 2024 Q3 peak. - Total portfolio coverage stands at 16.2%, ~2.5x the total 90+ delinquency balance, with gross CLA coverage of new 90+ NPL formation at 153.8%, indicating a resilient, conservatively provisioned balance sheet. - The $800 million Q1 increase in expected credit loss allowance is driven 86% by portfolio growth and seasonality, with no component reflecting underlying credit quality deterioration; all core credit cohorts remain NPV positive even under substantial stress scenarios, and short portfolio duration allows fast, granular adjustment to changing credit conditions. ### Gross Profit Diversification - Gross profit is increasingly diversified across credit, fee, and deposit float businesses, with float representing ~40% of gross profit in Q1 2026 due to elevated seasonal credit loss provisions, creating a more stable, higher-quality earnings profile. ### Operational Efficiency - Reported consolidated efficiency ratio fell to a record 17.6%, with a core efficiency ratio (excluding RTO, international expansion, and AI investments) of 16.6%. ~1/3 of the Q1 overperformance vs plan comes from durable structural AI-driven efficiency gains, while 2/3 stems from temporary timing of expenses that will normalize through 2026. ### Strategic Expansion - U.S. expansion is proceeding at a deliberate, measured pace with bounded downside risk: maximum annual OpEx headwind for 2026 and 2027 is less than 100 basis points on the consolidated efficiency ratio (already included in the full-year 20% guidance), with further investment contingent on proving product-market fit. The opportunity offers asymmetric upside (a second full-scale Nu if successful) with minimal permanent impact on core business if unsuccessful.

Guidance

- Risk-adjusted NIM is expected to converge back to the levels seen in H2 2025 as Q1 seasonal effects normalize in coming quarters. - Full-year 2026 consolidated efficiency ratio is expected to reach approximately 20%, broadly in line with the 2025 full-year result, and already includes all planned investments in return to office, U.S. expansion, and AI infrastructure. - IFRS effective tax rate for the remainder of 2026 is expected to converge to a 15-20% range, while managerial effective tax rate is expected to converge to a 30-35% range, in line with regional peers. - The Brazilian government's Desenrola program is expected to provide a credit quality tailwind in Q2 and Q3 2026.

Segment performance

Consolidated performance: Q1 2026 total revenue hit a record $5 billion, with net income reaching a historical high of $871 million (up 41% YoY FX-neutral). Gross profit came in at $1.88 billion, up 27% YoY FX-neutral. The consolidated credit portfolio totaled $37.2 billion, up 40% YoY FX-neutral and 7% QoQ. - Credit Cards: Grew 36% YoY FX-neutral; contributed a majority of incremental exposure alongside unsecured lending. - Unsecured Lending: Grew 53% YoY FX-neutral to reach a $10 billion total portfolio; accounted for a large share of 98% of Q1 2026 incremental exposure alongside credit cards, carrying higher expected losses and higher yields than secured lending. - Secured Lending: Grew 38% YoY FX-neutral, maintaining an 8% share of the total credit portfolio despite 2025 FGTS loan regulatory setbacks. Secured lending's contribution to new exposure stepped down following FGTS changes, with growth supported by rising originations of public and private payroll loans.

Risks & headwinds

- Credit risk: While Q1 2026 higher provisions are fully explained by seasonality, portfolio growth, and mix shift with no underlying asset quality degradation, Brazil's household debt service ratio remains a top investor concern. Nu notes that overall employment is strong, and the new Brazilian income tax exemption for earnings up to BRL 5,000 per month provides a structural disposable income tailwind for Nu's core customer segment. - U.S. expansion risk: The U.S. market has strong, competent incumbents, and there is no guarantee of achieving product-market fit; however, the structured, staged investment approach limits maximum downside to less than 100 basis points of annual efficiency ratio headwind. - Private payroll lending risk: Many competitors rushed to launch the product with high interest rates, leading to 10-15% first payment default rates; Nu notes emerging regulatory risk of price caps that would disproportionately harm faster-moving competitors that set high pricing. - Seasonal balance sheet volatility: Q1 typically sees seasonal spikes in delinquency and provisioning due to year-end balance migration patterns.

Analyst Q&A

• Q: What is Nu's strategy and opportunity for the newly launched SME product in Brazil? /

  A: Nu has already silently built a 5 million-customer SME base in Brazil with zero customer acquisition cost, cross-selling to existing individual customers. The company is expanding the product lineup to include savings accounts, SME credit cards, and new secured and unsecured lines of credit, some leveraging government guarantee programs. This is a highly underserved blue ocean opportunity, Nu is expanding from micro-entrepreneurs to larger SMEs, builds customer loyalty, and adds incremental value to Nu's business flywheel.

• Q: Is Q1's higher provisioning and coverage a sign Nu is being more conservative due to a hidden worsening credit outlook? /

  A: Nu has always maintained a conservative provisioning approach, assuming the future will be worse than the past regardless of the credit cycle position. Every credit cohort is stress tested to remain NPV positive even under material deterioration. The higher Q1 provisions fully align with seasonal patterns, growth, and mix shift previously disclosed, with no change in approach or hidden negative outlook. The new Brazilian income tax cut and Desenrola 2.0 are expected to be credit tailwinds that are not yet priced into current provisions.

• Q: Why do many local Brazilian investors see Nu more positively than foreign investors, and what are the key current investor concerns? /

  A: The key polarizing topics across investors are asset quality, U.S. expansion, and AI. After 13 years of operation, most investors now acknowledge Nu has proven its resilient, large-scale credit underwriting capability, though credit risk will always remain a top priority. U.S. expansion splits investors: some see major upside in the world's largest financial market, while others are skeptical. Nu's staged, capital-constrained approach limits downside risk to protect the core Latin American business. AI is also unevenly understood: Nu has already delivered material AI-driven results (credit underwriting improvements, efficiency gains) rather than just announcing efforts, and is well positioned to capture further value.

• Q: Why is Nu focused on unsecured lending when most competitors are prioritizing secured products like private payroll loans in Brazil? /

  A: The opportunity for growth remains large across both product categories in Brazil, as Nu only holds 7% of the total addressable profit pool despite its leading customer position. Unsecured lending still has massive room for share gains, with Nu holding 25-30% of new monthly originations already. While Nu entered secured lending later, secured lending (including FGTS loans, where Nu became the largest provider in 18 months) is already growing meaningfully. Nu is deliberately moving slower in private payroll lending due to untested integration and operational risks, high observed default rates at competitors, and emerging regulatory price cap risk, but expects to be well positioned to gain share long-term with its data, cost, and trust advantages.

• Q: How is the high-income customer segment performing for Nu, and what is driving the strong Q1 secured lending growth despite FGTS headwinds? /

  A: High-income (mass affluent) is one of Nu's fastest growing segments, with 2 out of 5 high-income Brazilians already Nu customers, and customer and PV growth exceeding 40% YoY, outpacing mass market growth. Disproportionate credit exposure growth is coming from higher limits for high-income customers, a historic underpenetrated segment for Nu. On secured lending, the FGTS portfolio has long duration, so the impact of lower originations takes time to appear in the total balance. Slowdown in FGTS originations is being offset by growing public payroll loan originations, with private payroll originations expected to pick up later in the year, keeping total secured lending growth strong.