Nu's Q3 2025: Contradictions Emerge on Asset Quality, Credit Limits, AI in Credit Underwriting, and NIM

Date of Call: None provided

Financials Results

• Revenue: $4.0B, record revenues (described as 'over $4 billion')
• Gross Margin: 43.5% gross profit margin; gross profit up 32% year-over-year (FX-neutral)

Business Commentary:

* Customer Growth and Engagement: - Nubank's customer base grew to 127 million customers with over 4 million net additions in Q3 2025. - The activity rate maintained above 82%, indicating deep engagement with customers. - This growth was driven by the company's successful expansion into new markets like Mexico, where they surpassed 13 million customers, and Colombia, approaching 4 million customers.

• Revenue and Financial Performance:
• Nubank reported record revenues exceeding $4 billion in Q3, up 39% year-on-year.
• The company's gross profit rose sharply, with a margin of 43.5%, reflecting strong unit economics and operating leverage.
• Revenue growth was supported by broader customer adoption, deeper monetization, and disciplined credit policies.

• Credit Portfolio and Risk Management:
• The credit portfolio reached $3.4 billion, up 42% year-over-year, with secured lending growing 133% and unsecured loans by 63%.
• Credit loss allowance expenses declined by 7% quarter-over-quarter due to disciplined underwriting and improved recovery strategies.

• The lower cost of credit was attributed to enhanced risk management and credit modeling techniques.

• Deposit Growth and Cost Management:

• Deposit balances rose to $38.8 billion, up 34% year-over-year, with a cost of funding improving to 89% of interbank rates.
• Nubank managed to grow deposits while enhancing efficiency, demonstrated by a decrease in the cost-to-income ratio to 28%.
• Cost management was achieved by strategically investing in growth and optimizing operational processes.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted record revenues >$4B, net income of $783M and ROE of 31% (up 39% YoY), customer base growth to 127M and ARPU >$13; commentary emphasized strong unit economics, improving efficiency (cost-to-income ~28%) and AI-driven improvements in credit and operations.

Q&A:

• Question from Yuri Fernandes (JPMorgan): Your cost of risk was lower. Can you explain what drove the lower provisions this quarter and help investors understand this change?
  Response: Lower provisions driven by better-than-expected asset performance, higher recoveries from a program reactivating previously defaulted customers, and improved precision from ML/AI credit models; coverage ratios remain robust.

• Question from Jorge Kuri (Morgan Stanley): NIM contracted — interest income up 14% q/q vs loan book up 11%, but interest expense rose 24% vs deposits up 6%. Walk through dynamics explaining the NIM compression.
  Response: NIM compression due to mix shift toward lower-yield, lower-risk assets (e.g., secured lending) and higher funding costs concentrated in Brazil; Mexico and Colombia funding costs fell; risk-adjusted NIM expanded to 9.9% from 9.2% because of lower credit costs.

• Question from Jorge Kuri (Morgan Stanley): You mentioned stronger-than-expected recoveries — can you quantify the one-off impact on provisions from recoveries?
  Response: They declined to quantify the one-off recoveries; recovery uplift mainly stems from the reactivation program but breakdown not disclosed.

• Question from Pedro Leduc (Itau BBA): On the credit limit increases: how is the rollout performing, timing of effects on revenues, and quality of customers receiving higher limits?
  Response: Limit increase program rolled out roughly one-third each quarter (Q2–Q4); full financial effects expected mid–end 2026; most increases went to lower-risk customers, reducing utilization effects; AI credit improvements applied to existing-customer limit adjustments only so far.

• Question from Mario Pierry (Bank of America): Mexico ARPAC is ~$12.50 — what's the split between interest and fees/interchange, views on proposed interchange caps, and any NPL/coverage metrics for Mexico?
  Response: ARPAC is largely interest-driven (credit and deposit-related); interchange/fees are a smaller share; management is engaging regulators and is concerned caps could harm inclusion; they won't provide the precise split now but say Mexico asset quality has been strong and they will disclose more granularity as Mexico scales.

• Question from Mario Pierry (Bank of America): As Mexico becomes larger, will you disclose NPLs for the total group and provide Mexico-specific asset-quality metrics?
  Response: Yes — as Mexico grows materially (currently <10–15% of the book) they will provide more granular Mexico disclosures; asset performance in Mexico has been good and lending has accelerated with improving quality.

• Question from Marcelo Mizrahi (Bradesco BB): Given the lower cost of risk this quarter from recoveries, is this the new baseline going forward and will future earnings improvements come more from lower cost of risk than NIM?
  Response: They will not provide guidance on cost of risk; current trends are encouraging but they will continuously monitor data and are prepared to slow growth if asset quality deteriorates.

• Question from Marcelo Mizrahi (Bradesco BB): On LDR in Mexico — are you already seeing leverage benefit contributing to profitability?
  Response: Mexico LDR is about 15%; recent NIM improvement mainly came from lower funding costs, with LDR expected to play a bigger role over time.

• Question from Thiago Bovolenta Batista (UBS): On mortgages and recent regulation changes (savings/mortgage) in Brazil — could you operate in this market soon? Also, will FGTS loan changes materially reduce originations?
  Response: Mortgages are not a near-term priority due to long duration and funding mismatch; possible partnerships later. FGTS regulatory changes may reduce FGTS originations but impact on overall portfolio growth is not expected to be material.

• Question from Gustavo Schroden (Citi): Transfers to Stage 3 have been rising while provisions fell — how do you reconcile rising transfers with a lower provision expense?
  Response: Improved collections platforms, better recoveries (including from reactivated customers) and refined modeling have driven better-than-expected asset performance; there's nothing atypical and trends should hold absent macro deterioration.

• Question from Gustavo Schroden (Citi): Given funding and NPL trends in Mexico, can we expect Mexico to produce positive ROE/net income soon?
  Response: No timeline or guidance provided; management says Mexico unit economics are already compelling (cost-to-serve ~$1, strong ROA/ROE trends) and profitability is achievable, but they prioritize reinvesting for long-term growth rather than short-term profitability.

• Question from Daer Labarta (Goldman Sachs): Interest expense rose notably — any impact from more working days or new products (Turbo money boxes)? Also on secured lending: could public payroll offset FGTS headwind?
  Response: More working days had minor impact; major driver was targeted, higher-cost segmented deposits in Brazil (Turbo money boxes) which raised funding cost there; overall weighted cost vs interbank fell due to Mexico/Colombia. FGTS headwind expected but should be offset mainly by increased public payroll loan originations; private payroll is promising but being approached cautiously.

Contradiction Point 1

Asset Quality and Risk Migration

It involves the explanation of asset quality and risk migration strategy, which are critical for investor understanding of the company's financial health and risk management.

Why the lower provisions this quarter, especially regarding risk migration to middle-income customers and secured lending? - Yuri Fernandes (JPMorgan Chase & Co, Research Division)

20251114-2025 Q3: Asset quality has been positive, with improvements seen across products. Reactivated customers have shown better recovery levels, and AI advancements have enhanced credit modeling. - Guilherme Marques do Lago(CFO)

What drove the lower provisions this quarter, particularly the risk migration strategy's impact? - Yuri Fernandes (JPMorgan Chase & Co, Research Division)

2025Q3: Asset quality has performed in line or better than expectations, particularly with Credit Cards Brazil. - Guilherme Marques do Lago(CFO)

Contradiction Point 2

Credit Limit Increase Impact

It involves the impact and rollout of credit limit increases, which are crucial for understanding the company's credit lending strategy and financial performance.

Can you discuss the impact of recent credit limit increases and their rollout? - Pedro Leduc (Itaú Corretora de Valores S.A., Research Division)

20251114-2025 Q3: Credit limit increases have been rolling out since Q2 2025 and have impacted PV positively. - Guilherme Marques do Lago(CFO)

Can you discuss the credit limit increase program rollout and its impact on credit performance? - Pedro Leduc (Itaú Corretora de Valores S.A., Research Division)

2025Q3: The credit limit program is being rolled out over mid-2026, with expectations for full effects later. - Guilherme Marques do Lago(CFO)

Contradiction Point 3

AI Advancements and Credit Underwriting

It involves the role and impact of AI advancements in credit underwriting, which is essential for understanding the company's risk management and credit strategy.

What caused the lower provisions this quarter, particularly regarding risk migration to middle-income customers and secured lending? - Yuri Fernandes (JPMorgan Chase & Co, Research Division)

20251114-2025 Q3: AI advancements have enhanced credit modeling. - Guilherme Marques do Lago(CFO)

Can you explain the credit limit increase program and its effect on credit performance? - Pedro Leduc (Itaú Corretora de Valores S.A., Research Division)

2025Q3: AI is enhancing credit underwriting by enabling sharper credit limit increases, but hasn't yet been applied to lending decisions. - Guilherme Marques do Lago(CFO)

Contradiction Point 4

Net Interest Margins (NIM) and Interest Income/Expense Dynamics

It involves differing explanations for the resilience and changes in net interest margins, impacting financial performance expectations and strategic positioning.

Why did net interest margins decline despite loan growth? - Jorge Kuri (Morgan Stanley)

20251114-2025 Q3: Lower interest income was due to a shift towards less risky assets and lower yields, while interest expenses rose, particularly in Brazil. - Guilherme Marques do Lago(CFO)

Why has Brazil's NIM remained resilient despite rising funding costs and reduced Pix financing? - Jorge Kuri (Morgan Stanley)

2025Q1: The resilience of Brazil's NIM is due to an increase in loan-to-deposit ratios (LDRs), which offset portfolio mix changes and higher SELIC rates. - Guilherme Marques do Lago(CFO)

Contradiction Point 5

Asset Quality and Risk Migration

It highlights differing views on asset quality and risk migration, which are crucial for evaluating the company's financial health and risk management strategy.

What caused the lower provisions this quarter, given the risk shift to middle-income customers and secured loans? - Yuri Fernandes (JPMorgan)

20251114-2025 Q3: Asset quality has been positive, with improvements seen across products. Reactivated customers have shown better recovery levels, and AI advancements have enhanced credit modeling. - Guilherme Marques do Lago(CFO)

How will Nu stabilize or improve risk-adjusted NIMs with higher provision expenses? - Pedro Leduc (Itaú BBA)

2025Q1: The decline in risk-adjusted NIMs is largely seasonal. The strategy involves leveraging balance sheets and optimizing deposits, aiming for NIM stability and efficiency improvements in the medium term. - Guilherme Marques do Lago(CFO)