PICS

Good evening everyone, and welcome to PicPay's second quarter 2026 earnings conference call. Joining the call today are Eduardo Chedid, Chief Executive Officer, André Cazotto, Chief Financial and Investor Relations Officer, and Danilo Caffaro, Vice President of Consumer Banking. Please note that this presentation may contain forward-looking statements and non-GAAP financial measures. Please refer to the disclaimer on the screen and to the earnings materials available on the investor relations section of PicPay's website for additional information. This call is being recorded, and a replay will be available on the company's website shortly after the conclusion of the call. At this time, I would like to turn the call over to Eduardo Chedid, Chief Executive Officer of PicPay.

Thank you, operator, and welcome everyone. This is our third earnings call as a public company, and I'm proud to share another quarter of strong execution across our platform. Before we get into the results, I want to say a few words about our CFO transition. As we announced in early August, André Cazotto has succeeded Rodrigo Couto as our Chief Financial Officer. This transition is the result of a planned succession process, and I'm confident in the strength and continuity of our leadership team. Rodrigo played a key role in a critical phase of PicPay's evolution, strengthening our finance organization, leading our Sarbanes-Oxley preparation, and being instrumental in our successful IPO in January. He has been a tremendous partner, and I'm glad he will continue working with us as special advisor through year-end.

Cazotto brings over 20 years of experience in payments and financial services and has been with PicPay since 2021, leading the capital markets workstream for our NASDAQ listing, investor relations, and M&A. He has deep institutional knowledge and strong relationships with our financial stakeholders. Cazotto, I'm confident you are the right person for this role. Welcome, and best of luck as we enter this new chapter together.

Thank you, Eduardo. It's a privilege to step into this role at such an exciting moment for the company. I have spent the past few weeks working closely with Rodrigo and our teams to ensure a seamless transition. What stands out to me is the strength of our financial foundation and the discipline with which this business operates. I'm excited to lead the next phase of PicPay's financial journey.

Thank you, Cazotto. Let's jump into the second quarter results now. I am proud of what we delivered in the second quarter. This slide tells the story in one picture. We beat guidance on virtually every metric. Credit portfolio came in at BRL 31.9 billion, 3% above the high end of guidance. Cost of risk came in at 3.9%, aligned within our guidance range. Revenues reached BRL 3.7 billion, 3.6% above guidance, and net interest income was BRL 2 billion, 5.4% above our guidance range.

But the real story is in the profitability. Gross profit came in at BRL 1.25 billion, that is 8.4% above guidance, driven by the operating leverage. Adjusted net income reached BRL 283 million, 15.5% above guidance, reflecting strong top-line momentum and continued cost discipline. That is the story. We delivered on our commitments across the board with particularly strong beats on the profitability metrics that matter most.

Let me start with our operating metrics, which are scaling with consistency. Total accounts reached 70.4 million, up 10% year-over-year and 3% sequentially. Quarterly active clients grew to 45.4 million, reflecting sustained engagement across our base. Consolidated TPV came in at BRL 167.6 billion, 27% above the prior year and 7% higher sequentially. Wallet and banking TPV reached BRL 142.6 billion, up 19% year-over-year and 6% quarter-over-quarter. Total cash-in was BRL 136.4 billion, growing 17% versus a year ago and 9% sequentially. On average, more than BRL 45 billion per month. Deposits grew to BRL 35.8 billion, up 45% year-over-year, and 10% higher than last quarter. This is a strong signal of increasing trust and principality in our franchise. Active insurance policies reached 11.1 million, 63% ahead of last year and 9% above Q1, as our insurance vertical continues to scale rapidly.

Across every metric, consistent sequential growth on top of already strong comparables. Turning to financials, this is where the monetization engine really shows its power. Total revenues reached BRL 4.1 billion, a 67% increase year-over-year and 17% higher than last quarter. That is the top line growing fast. Let me highlight what is underneath. Excluding derivatives and hedge accounting, managerial revenues were BRL 3.7 billion, up 59% year-over-year and 17% sequentially. That acceleration is driven by secured and partially secured credit origination, deeper card engagement, and a richer fee-based product mix. RPAC grew to BRL 92 per active client, 52% above where we were a year ago, and 14% ahead of Q1. Excluding hedge accounting, RPAC was BRL 83.3, showing that even on a like-for-like basis, we are monetizing each client significantly more.

Gross profit came in at BRL 1.25 billion, up 48% year-over-year and 14% higher sequentially. The gap between revenue growth at 67% and cost growth at a fraction of that is the operating leverage this model was built for, and that leverage shows up clearly in our unit economics. Cost to serve was BRL 21.3 per active client, up 13% year-over-year, but only 5% sequentially. It is worth noting that this figure includes BRL 0.70 per client of opportunistic investments in marketing campaigns for seasonal events that we brought forward from the third quarter. Excluding this anticipation, cost to serve would have been BRL 20.6, representing only a 1% sequential increase. Let me put that in perspective. Revenue per client expanded 67% year-over-year, while cost to serve grew just 13%.

For every BRL we invest in serving our clients, we are generating over 4 BRL in revenue. That's the leverage embedded in this model. Adjusted earnings before taxes reached BRL 291 million, up 174% year-over-year and 17% sequentially. This reflects a business that is scaling efficiently and translating top-line growth into bottom-line results. Adjusted net income was BRL 283 million, up 135% year-over-year and 67% above last quarter. The sequential jump from BRL 169 million-BRL 283 million reflects strong top-line momentum, continued cost discipline, and the positive tax benefit from Brazil's Lei do Bem incentive program for technology companies. I want to spend a moment on this slide because it captures a planned structural shift in PicPay's revenue mix.

Total revenue of BRL 4.1 billion is broken down as follows: 29% from unsecured credit, 24% from secured and partially secured products, 24% from fees and commissions, and 23% from float and hedge accounting. The key number, 71% of our revenues are now driven by no or lower credit risk streams, float, hedge accounting, fees, commissions, and secure and partially secured credit. That's up from 63% just 12 months ago. Let me say that again. We are growing total revenue 67% year-over-year while simultaneously building a fundamentally more resilient business. A more diversified revenue mix, combined with a higher share of collateralized credit revenues, allows us to balance growth across more mature collateralized portfolios while using intentional risk as a lever, growing through small and progressive limits on cards, Buy Now, Pay Later on loans, and selectively expanding into slightly higher-risk clusters within private payroll loans.

All of this while maintaining the same risk appetite and targeted risk-adjusted returns. Looking at the three revenue engines individually over the last five quarters, secure credit revenues reached BRL 1 billion, up 158% year-over-year, and 23% sequentially. The trajectory from BRL 391 million to BRL 1 billion in 12 months tells the story of our payroll loan franchise reaching meaningful scale. Unsecured credit revenues came in at BRL 1.2 billion, up 40% year-over-year and 11% above last quarter, growing at a strong, deliberate, but measured pace. Non-credit revenues hit BRL 1.9 billion, up 57% year-over-year and 19% higher sequentially. This is fees, commissions, float, hedge accounting, insurance, and acquiring. All capital light, all compounding quarter after quarter. Three engines, three growth vectors, and each one getting stronger. On returns, let me walk you through the two charts on this slide.

First, adjusted net income, BRL 283 million, up 135% year-over-year and 67% sequentially. This represents a significant acceleration in profitability as we scale the business. Second, adjusted ROE, 20.2%, up from 15.5% in the previous quarter. Both metrics benefited from the positive impact of Lei do Bem, our R&D tax incentive program, which contributed to the strong quarterly performance. Moving to credit, PicPay Card TPV was BRL 19.5 billion, up 40% year-over-year and 12% sequentially. Card engagement continues to deepen as our maturing vintages drive higher spend per user. Consumer loan origination reached BRL 4.8 billion, up 78% year-over-year and 7% above last quarter. Total credit portfolio reached BRL 31.9 billion, up 99% from a year ago and 14% higher sequentially. The consumer book represents 93% of the total, with SMBs and others comprising the remaining 7%.

On our audiences and ecosystem business unit, we've built a portfolio that lets our users solve most of their daily needs within PicPay. More reasons to use the app every day drives higher engagement, which creates opportunities to cross-sell financial products and increase customer lifetime value. From shopping and food delivery to travel, entertainment, telecom, and urban mobility, we cover the key journeys of everyday life. One standout example is iGaming. In just one year, we built a high-margin business with over 2.7 million clients across lucky numbers, national lotteries, and themed World Cup games, all integrated into our ecosystem. This broader everyday ecosystem increases our relevance, deepens engagement, and strengthens the financial relationship with our customers. On our small and medium businesses segment, we're seeing real momentum across the board.

New small and medium business accounts reached 85,000 per month in the first half of 2026, up from 27,000 in the first half of 2025, a threefold acceleration. Supply chain finance is scaling fast. Origination hit BRL 1.05 billion in the quarter from BRL 40 million in the last quarter of last year and BRL 693 million just a quarter ago. The trajectory is clear, and the unit economics are attractive. We're also rolling out Tap on Phone to individual consumers, turning 70 million PicPay users into potential merchants. It's a distribution play that uniquely positions us in the payments value chain. We just launched our marketing AI agent. SMBs now can create self-serve ads, and our platform identifies the most relevant customers within the merchant geographic footprint and delivers the ads to them. First week results, 10,000 opt-ins, 1.5 thousand campaigns, and 1.7 million individuals reached.

AI powering SMBs to boost sales through our base of more than 70 million customers. Danilo, please tell us more about our highlights on consumer finance products.

Thanks, Eduardo. I'm pleased to share an update on our progress and priorities. Our focus remains simple: serve customers well, build products people value, and grow with discipline. Our day-to-day banking business continues to evolve, reflecting growing customer trust and deeper engagement across payments, credit, and everyday benefits, supported by disciplined execution, thoughtful risk management, and a strong customer experience. Our investment platform now offers more than 280 products, including investment funds and fixed income. We also launched a brokerage platform that allows customers to buy and sell stocks through our app. We are gradually rolling out the Epic segment to existing customers. The offer reached 23% penetration of the eligible base this quarter. Epic credit cards account for 14% of total card TPV, and 80% of the user base is actively using benefits such as Amazon Prime, Einstein Telemedicine, and Sem Parar toll tags. In Brazil, convenience matters.

Whether paying a bill, using telemedicine, or passing through a toll, the experience should be quick and reliable. AI agents are also becoming central to our strategy. We are the first Brazilian bank with an official plugin in both the Claude and OpenAI ecosystems. We are also rolling out second-generation WhatsApp and in-app agents with more tools, memory, internet access, and sequential multi-step execution. This reinforces our appless strategy, solving broken journeys wherever our users need us with contextual and relevant products and services. Turning to credit, we continue to gain market share by increasing our share of wallet across the products used by our customers. We reached 6.4% in private payroll loans, 2.8% in personal loans, 1.6% in card TPV, and 1.2% in the credit card portfolio. We still believe we have significant room to grow.

Moving to portfolio growth, our credit portfolio grew BRL 3.9 billion in the second quarter. 86% of that growth came from lower-risk loans and mature credit cards. New cards also almost doubled their contribution to portfolio expansion compared with last quarter, reflecting our progressive limits approach and the maturation of newer card cohorts. Moving to underwriting strategy and cohort performance, we continue to execute our underwriting strategy across two complementary objectives, performance optimization and growth optimization. Progressive limits are becoming a larger share of the portfolio as the cohorts mature. NPL creation in the credit card portfolio is trending better than in the same period last year across both strategies and remains relatively stable versus recent quarters, even after considering seasonality. Cohort performance across both strategies has remained relatively stable in recent quarters, reflecting the resilience of our models and our active risk management approach.

In private payroll loans, we resumed increasing originations in growth clusters after regaining confidence in the product's operational maturity and implementing new features since the fourth quarter of 2025. This is increasing the growth strategy mix. Newer cohorts reflect the deliberate incremental risk assumed to accelerate growth while remaining within our approved risk appetite and targeted risk-adjusted returns. Although we see no relevant early signs of credit deterioration within the same risk groups, we expect portfolio indicators to reflect additional intentional risk-taking in private payroll loans and cohort aging and maturation in the coming quarters. These indicators include 90+ NPL, Stage 3, and cost of risk as a percentage of the total portfolio. As new originations become a smaller share of the outstanding portfolio, their dilution effect on these metrics will naturally decrease. Cazotto will provide further detail on these dynamics in the next session.

Now, a deeper dive into our private payroll loans operation. We reached a portfolio of BRL 7.2 billion this quarter, with more than 3.6 million contracts and well-diversified employer risk. Expected marginal ROEs remain attractive, supported by risk-adjusted pricing and credit-related revenues. We are also seeing better RPAC and cross-selling indicators for these clients, supporting other revenue streams. We remain confident in our ability to scale this operation with healthy ROEs and risk-adjusted returns. Now I will pass it to André Cazotto, our CFO, to cover our financial results.

Thank you, Danilo. Now let me go over the evolution of our delinquent metrics and explain the dynamics behind these curves. On the left-hand side, we show our early NPL, defined as loans between 15 and 90 days past due. After reaching 8.4% in the first quarter, early NPL improved to 7.5% in the second quarter. A quarter-over-quarter reduction driven by a favorable seasonal effect in the period, combined with improving performance in more recent vintages. On the right-hand side, NPL over 90 days increased to 9.8% in the quarter, while Stage 3 reached 12.9%. These two metrics need to be interpreted together. NPL over 90 days is fully captured within Stage 3, meaning the loans driving that metric are already classified as credit impaired and provisioned accordingly.

Stage 3 is the broader classification, as it also encompasses other credit-impaired exposures that may not yet be more than 90 days past due but have already been identified as deteriorated. In other words, there is no additional credit risk sitting outside Stage 3. It is all already recognized and provisioned within that bucket. The increase in these later stage metrics is primarily driven by portfolio aging. As our products and vintages mature, a larger portion of the book naturally migrates into later stages of delinquency, a mechanical and expected dynamic in a rapidly growing portfolio, not a sign of deterioration. It is also worth noting that these metrics will continue to be influenced by our deliberate strategy of intentional risk-taking in private payroll loans, a conscious portfolio decision where we are comfortable assuming higher delinquents in exchange for meaningfully better risk-adjusted returns over the life of the product.

As the portfolio continues to season and this strategy matures, we expect both NPL over 90 days and Stage 3 to gradually converge toward a more stable level. It is also important to highlight that Stage 3 portfolio is already more than 75% provisioned, reflecting a robust level of coverage against expected losses and reinforcing the adequacy of our provisioning framework. Moving to the next page, this slide breaks down the key drivers behind the sequential movement in both NPL over 90 days and Stage 3 from the first quarter 2026 to the second quarter 2026. Starting with the NPL over 90 days, which moved from 8.9%-9.8%, a net increase of 93 basis points. The primary driver was portfolio aging, which contributed to 318 basis points, reflecting the natural seasoning of earlier vintages flowing to later delinquency stages.

This was partially offset by the Desenrola program, which contributed in 117 basis points improvement. Seasonality added 50 basis points, consistent with typical patterns for the period. It is also worth noting that lower pace of new originations relative to prior years generated a smaller dilution effect on the metric, meaning the denominator grew less rapidly, contributing to the upward pressure on the ratio. Product mix and other factors contributed modest offsets of 34 basis points and 7 basis points, respectively. For Stage 3, which moved from 12.7%-12.9%, a net increase of only 27 basis points, the drivers are broadly similar, but with one important distinction. Aging contributed 184 basis points, materially lower impact than the 318 basis points observed in NPL over 90. This is not a coincidence. Stage 3 is a pre-NPL metric capturing credit deterioration earlier in the cycle.

As a result, the aging dynamic that is still feeding NPL over 90 days has already been partially absorbed into Stage 3 in prior quarters, resulting in a lower incremental aging effect. Seasonality added 41 basis points, while the Desenrola program offset 46 basis points. Origination offset 117 basis points, and product mix and others provided additional offsets of 26 and 9 basis points, respectively. Taken together, these waterfall charts reinforce our earlier message. The NPL dynamics we are observing are mainly driven by vintage maturation, seasonality, and our deliberate strategy of intentional risk-taking private payroll loans and not by a deterioration in the underlying quality of our portfolio. Moving to the next slide, on the left-hand side, Stage 2 + Stage 3 formation continued to improve, declining to 4.9% in the second quarter compared to 5.1% in the previous two quarters.

On the right-hand side, Stage 3 formation declined to 3.65% in the second quarter from 3.9% in the previous quarter. This improvement was mainly driven by the impact of the Desenrola renegotiation program. Most of the loans renegotiated under the program were still on our balance sheet, as they were less than 360 days past due. The renegotiated exposure totaled approximately BRL 520 million on a gross basis. Considering an average discount of approximately 50%, the outstanding balance was reduced by around BRL 260 million. This reduction directly lowered the balance contributing to Stage 3 formation and was therefore the main factor behind the improvement in the ratio to 3.65%. Excluding the impact of Desenrola, Stage 3 formation would have been around 4%, broadly in line with the previous quarters. This underlying level also reflects the natural aging of the portfolio as our products and vintages continue to mature.

Now, let me walk you through the portfolio classification by stage and our coverage levels. Stage 3 remained stable at approximately 13% of the total credit portfolio in the second quarter. In terms of coverage, we continue to see comfortable levels with coverage for Stage 2 + Stage 3 at 62.7% and Stage 3 coverage at 74.1%. Stage 3 coverage decreased from 77% in the first quarter to 74.1% in the second quarter. This reduction was primarily related to the Desenrola renegotiation program. Loans renegotiated under Desenrola benefit from FGO Guarantee, the Operations Guarantee Fund, covering 50% of the outstanding exposure. This guarantee increases the expected recovery on these loans and consequently reduces the LGD applied to those exposures. Since a lower LGD results in lower provisional requirements, the inclusion of these loans mechanically reduced the overall Stage 3 coverage ratio.

Therefore, the reduction from 77%-74% does not reflect a deterioration in portfolio quality, a change in our provisioning standards, or a change in our risk appetite. It's primarily a mix effect resulting from the lower LGD of the Desenrola portfolio, supported by the FGO Guarantee. As this effect normalizes, we expect Stage 3 coverage to move back toward the high 70% range in the coming quarters. On credit risk management, our three key metrics, loss absorption, cost of risk, and portfolio coverage, collectively paint a picture of a well-controlled and increasingly well-provisioned book. Our loss absorption ratio reached 56.5% in the second quarter, comfortably within our internal guidelines of 40%-60%. Moving to quarterly cost of risk, which came in at 3.9% in the second quarter, within the 3.7% and 3.9% guidance range we provided at the beginning of the quarter.

The sequential increase from 3.7% in the first quarter was primarily driven by the natural aging of our private payroll loan portfolio as earlier vintages continue to season and flow through the provisional cycle. A mechanical and expected dynamic given the rapid growth of this product over the past several quarters. This increase was partially offset by a BRL 59 million positive impact from the Desenrola program, which represented approximately 5% of our total cost of credit in the quarter. Finally, on credit loss allowance expenses and total coverage, CLA expenses reached BRL 1.2 billion in the second quarter, up from BRL 974 million in the first quarter, consistent with the pace of portfolio expansion. More importantly, total portfolio coverage held stable at 13.9%, unchanged from the prior quarter, reinforcing the adequacy of our provisioning levels as the book continues to scale.

The combination of stable coverage and growing absolute provision balances reflects a disciplined and consistent approach to credit risk management. Moving to the next slide on operating leverage. The trend speaks for itself. Net revenues reached BRL 4.1 billion in the second quarter, up 17% quarter-over-quarter and 67% year-over-year, compared to BRL 2.5 billion we reported in the second quarter of last year. Over the same period, adjusted operating expenses, which excludes stock-based expenses, grew to BRL 955 million, increasing a fraction of the pace of the revenue growth. The result is a continued and consistent improvement in our adjusted efficiency ratio, which declined to 44.8% in the second quarter, down from 46.9% in Q1, a 210 basis point sequential improvement. A key driver of this dynamic is AI. Its impact on our operations is already tangible and measurable.

Our headcount has been flat since October 2025, and the projected 10% increase we had originally anticipated for 2026 will not materialize. Productivity gains are translating directly into margin expansion rather than incremental hiring. We expect AI to be a major and accelerating driver of our operational leverage going forward, making the efficiency trajectory you see on this slide not a ceiling but a floor. Moving to financial margin expansion. Net interest income reached BRL 2 billion, up 18% quarter-over-quarter and 65% year-over-year. Our net interest margin came at 19.4%, growing from the 18.7% reported in the first quarter. Margin from credit products reached BRL 2.1 billion, growing 18% sequentially and 81% year-over-year.

This metric captures the full economic contribution of our credit operations, including revenues from products directly tied to the credit origination, such as credit card interchange and credit insurance, while excluding cash remuneration and derivative revenues, providing a cleaner view of the true margin generated by our lending activity. Net interest margin from credit products came in at 27.8%, growing from the 27.2% reported in the first quarter. Equally important is the margin from credit products after losses, which reached BRL 980 million in the second quarter, up 14% quarter-over-quarter and 68% year-over-year. The net interest margin after losses held stable at 12.1%. Moving to funding on the next slide. Our funding base grew 10% quarter-over-quarter, reaching BRL 35.8 billion in the second quarter, up 45% year-over-year from BRL 24.8 billion in the second quarter 2025.

The modest sequential increase in the cost of funding from 94%-96.2% of CDI is largely explained by the issuance of our new PicPay FIDC FGTS II in May 2026, a securitized structure backed by our FGTS portfolio, through which we raised BRL 1.2 billion. More recently, in July and August, we executed additional capital markets transactions, raising funds through promissory notes and debt security issuances, consistent with our strategy of continuously diversifying our funding sources. These transactions further strengthen our balance sheet and enhance our capacity to sustain the rapid growth of our credit portfolio in a disciplined and cost-efficient manner. We will continue to mobilize multiple funding channels, spanning digital platform deposits, third-party platforms, creditary funds, and capital markets instruments, actively seeking the most efficient funding alternatives available to support our growth ambitions.

On the capital side, we maintain a solid capital position with a total capital ratio of 17.6% and a common equity Tier 1 ratio of 15.6% in the second quarter. It is worth highlighting that approximately BRL 450 million, equivalent to roughly 1.7 percentage points of our total capital and common equity Tier 1 ratio, remains held at our holding company in the Netherlands and has not been injected in the operating entity. With the acquisition of Kovr now closed, we expect a capital consumption of approximately 150 basis points in Q3. Even after absorbing this impact, we remain comfortably above our internal capital appetite thresholds, and we expect to close the year with a total capital ratio of approximately 14% and a common equity Tier 1 ratio in the 12%-12.5% range, levels that provide meaningful headroom above regulatory requirements and fully support our growth ambitions.

Finally, on the next slide, we are now providing guidance for the third quarter of 2026. As with our previous guidance, these figures reflect PicPay's standalone operations and exclude any contribution from Kovr. We expect our total credit portfolio to reach approximately BRL 34.7 billion. Quarterly cost of risk is expected to remain within the 3.9%-4.1% range. On the revenue side, managerial revenues are expected at approximately BRL 4 billion, and net interest income should reach approximately BRL 2.1 billion. Gross profit is guided at approximately BRL 1.3 billion. On profitability, we expect a strong pre-tax earnings expansion. IFRS earnings before taxes is guided at approximately BRL 360 million, 34% higher sequentially, and adjusted EBT at approximately BRL 378 million, up 30% from the second quarter of 2026. The net income level, however, it is important to provide context on the sequential dynamics.

IFRS net income is expected at approximately BRL 255 million, down 5% sequentially, and adjusted net income at approximately BRL 265 million, 6% below the second quarter. This decline is not driven by any operational deterioration. Quite the opposite. In the second quarter, we benefited from a significant positive impact from the Lei do Bem, a recurring tax incentive that this year was heavily concentrated in the second quarter, materially reducing our effective tax rate in the period. In Q3, our effective tax rate normalized back to levels consistent with the first quarter of the year. With that, I will now hand the call back to Eduardo Chedid for his closing remarks.

Thanks, Cazotto. Before my closing remarks, I want to highlight a milestone that deserves attention on its own. After obtaining approval from the insurance regulator, the Antitrust Authority, and the Central Bank of Brazil, the acquisition of Kovr was finalized on August 3rd. This is not just an M&A transaction. It is a strategic acceleration of our insurance ambitions. Kovr brings a full-service insurtech platform with over 100 products, a senior executive team with over 20 years of track record in insurance, and established distribution channels that complement our own. The economics are compelling, and we expect a meaningful incremental contribution to PicPay's bottom line from August to December 2026. What really excites me even more is the strategic fit and opportunities in the coming years.

For the insurance products that Kovr sells through our channels, we will now capture the full economics and be able to develop more customized products for our client base. Furthermore, around 70% of Kovr's business is done with high-quality partner distributors, and we expect that channel to keep delivering. With Kovr, we now have the product development speed, the underwriting expertise, and the distribution reach to turn insurance into an even more meaningful, recurring earning stream. We are maintaining Kovr's independence and strengthening its partnerships. This is just the beginning of a new phase, and it is already marked by a change of brand. Kovr is now KEV Seguros. Let me leave you with six points that summarize where we stand. First, the macro outlook. While delinquency remains elevated, recent trends point to stabilization. The economic scenario continues to offer important support for credit quality.

The labor market remains highly resilient, with unemployment near historic lows and more than 103 million people employed. Real wage income reached approximately BRL 380 billion as of June, up 3.6% year-over-year. Notably, net formal job creation was concentrated in income brackets earning up to 2x the minimum wage, with more than 160,000 new positions generated in that segment. While economic activity is showing gradual deceleration as expected under contractionary monetary policy, growth remains positive. Our scenario does not contemplate an abrupt employment deterioration, but rather a progressive normalization with the labor market at historically strong levels. This combination of elevated employment, resilient income, and moderate expansion reduces the risk of a systemic deterioration in households' repayment capacity and positions PicPay well for the quarters ahead. Second, asset quality.

Our portfolio remains resilient by design, supported by greater exposure to secure and partially secured products, disciplined underwriting, and robust risk management, following our credit fundamentals of a balanced portfolio, loss absorption ratios between 40% and 60%, and ROEs above 30%. The increase in NPL over 90 days reflects portfolio aging and intentional risk-taking in payrolls, not deterioration. Early delinquency improved to 7.5%. Cover ratios are robust, and the underlying quality of our origination remains strong. All of this while maintaining the same risk appetite and targeted risk-adjusted returns. Third, private payroll loans. This product is scaling with attractive economics. We have reached more than 3.6 million contracts since inception, with very healthy marginal ROEs and stable over-30-days NPL metrics on both the standard and the growth portfolios. That is supporting profitable growth in partially secured lending. Fourth, non-credit revenue.

It's up 57% year-over-year, underscoring the strength of our broader platform monetization beyond credit-related revenue streams. Fifth, small and medium businesses. This segment is gaining scale, relevance, and customer traction, with increasing potential to contribute meaningfully to future growth. And sixth, KEV Seguros. The acquisition accelerates our insurance ambitions, creating opportunities to develop products and expand penetration, capture additional economics within our customer base, and also through distribution partners. It should unlock a meaningful and recurrent contribution to earnings growth. Finally, we beat guidance on all major metrics this quarter. We're confident in our ability to deliver sustainable, profitable growth and create long-term value for our shareholders. We will move with urgency, but never at the expense of quality or trust. Thank you, and we'll now open the line for questions. Operator?

We are going to start the question-and-answer session for investors and analysts. If you wish to ask a question, please click on Raise Hand. If your question has already been answered, you can leave the queue by clicking Put Hand Down. To send your question by text, just click on Q&A button. The first question comes from Mario Pierry from Bank of America.

Hey, guys. Good evening. Thank you for taking my question. Cazotto, congratulations on the new role. Let me ask you two questions. First one on the Desenrola. I think you made it clear, right? The 117 basis points benefit to NPL and about a 5% reduction in the cost of credits. So that's about BRL 59 million. Were there any other benefits from the Desenrola? My understanding is that the program was extended, right? Should we expect further benefits in the third quarter from the debt renegotiation program? Then I'll ask the second question later.

All right. Thanks, Mario. Thanks for your question. Let me try to reinforce the messages that we just shared in our conference call. Yes, in terms of cost of risk, the Desenrola generated a positive impact of approximately BRL 59 million, which is equivalent to around 5% of our total cost of credit in the quarter. On the NPL over 90 days, the program reduced the ratio by approximately 117 basis points, partially offsetting the impact from portfolio aging and the seasonality. Desenrola also helped the Stage 3 formation, just like we said in the conference call. Approximately BRL 520 million of loans were renegotiated on a gross basis, applying an average discount of 50%, basically reduced the outstanding balance by around BRL 260 million, directly lowering the balance contributing to Stage 3 formation. As a result, the ratio declined from 3.9%-3.65%.

Excluding the Desenrola on Stage 3 formation, let's say that the ratio would be close to 4%, broadly in line with previous quarters. For Q3, yes, we are expecting some additional positive impact from Desenrola, but more limited. I think that we had a much higher impact in the second quarter.

Okay. I think that's clear. Now, one thing that surprised us on the results was the funding cost. It came a little bit higher than what we had in our models. When we look at your deposits, they're growing slower than your loans. You talked about you are issuing other sources of funding. Can you just talk a little bit about the ability to continue to grow deposits from your existing clients?

Hi, Mario. Thanks for your question. Yes, I think we're very comfortable with the level of deposits that we're capturing on our platform. We are expanding our capabilities. Like we said in the conference call, the slight increase in our cost of funding from 94%-96.2% is primarily driven by the issuance of our FGTS. That's basically backed by our FGTS portfolio. We're also accessing other funding capabilities in capital markets. We are increasing, let's say, the principality of our customer base. So our platform more and more is getting more transactional. We continue to grow the cash in around 20% year-over-year. So more and more, we are converting more cash into deposits. So we feel very comfortable in keep growing our deposit franchise going forward. We are expecting to keep, let's say, the funding cost around 95% of CDI in the coming quarters.

We do believe that we can continue to grow, access new lines of funding, and still deliver a very healthy cost of funding our operations.

That is very clear. Thank you.

Our next question comes from Dan Dolev from Mizuho.

Guys, can you hear me?

Yes, we can.

Hey. Great results. Congrats, Cazotto, on the new role. Very much looking for you in this role. I have a question on AI. Can you maybe, Cazotto or Eduardo, comment a little bit about those products? We found it very interesting. Thank you.

Hi, Dan. This is Eduardo. I could comment, but I think that I'll pass that to Danilo, as he's actually heading the AI initiatives here. He'll be able to give you a more, let's say, a deeper understanding on all the dimensions we're going through.

Cool. Hi there. Well, first of all, our AI strategy is actually based on two different pillars. The first one is customer-facing product. The second one, and I could comment a little bit, is around our AI operational capabilities. For the agents that we mentioned throughout the presentation was both focused on the first one. From the customer-facing products. And that's the ones that we have the goal actually to empower our customers anywhere they need us. So we mentioned the agents for consumers that are actually on our second generation, and they're actually able to not only answer questions, but actually execute tasks, like pay bills, send PicPay transactions, manage savings, renegotiations, and so on. All of that, of course, with the strict user confirmation in every transaction. But it's actually more than 70 tools now that we are releasing to our customers.

The agent's actually capable of executing multiple sequential tasks for the customer. It also leads now multiple channels. Not only on our app, but also on WhatsApp, and as we mentioned, we were the first Brazilian bank to actually have it available on both Anthropic and OpenAI official plugin store, our own plugin. That's for the consumer. We also mentioned around small and medium business agent, marketing agent that is actually able to create and distribute ad campaigns for our small and medium business clients to our customer base based on the location of the business. That's the one that we just launched, and we share some of the first big results. But we also have agentic agents for our internal operational capabilities, right?

From the beginning of the year, what we did, we actually developed our own proprietary platform, our AI harness, around some of what we think is the key in order to extract value for the AI agent. We built a platform that has our model routing, caching, a lot of governance layers. Because of that, we were actually able to reduce our token costs by 70% from the beginning of the year until now. That actually enables us to maintain access to the best frontier models without scaling total token costs because of that. We are using different areas. We are using credit. We are just rolling out our proprietary foundational model for personal loans underwriting. That is a model that we expect to have something around 15%-20% benefit for the previous work.

We also have agents and people using our internal platform for product development. AI is supporting coding, designing, quality assurance. Nowadays, approximately something around 90% of our employees are actively using our AI platform, with most of them using daily. From the beginning of the year, we are up 30% of employees that are contributing with deployments, real deployments for PicPay products. Most of them, such as myself, wouldn't be able to contribute without AI. We are not actually coders. But now that is possible, so we are having more and more people contributing with real products. The number of deploys actually doubled from the beginning of the year because of that productivity. We are doing some very good stuff internally as well, and we hope to benefit from that, also on leveraging our operational efficiency.

Great. Well, amazing stuff, and congrats again. Really strong results.

Our next question is from Gustavo Schroden with Citi.

Hi. Good evening, guys, and congratulations on another quarter of solid results, and congratulations, Cazotto, for the new role. Let me concentrate the first question that I have on the private payroll loan. You've continued to grow this product at a very strong pace. Even though it's considered a secured product, we've seen delinquency trends worsening, and in some cohorts, the NPL ratio is starting to get closer to what we see in unsecured personal loans. It is according to the Central Bank of Brazil data, right? I mean, how are you thinking about the risk-reward balancing this private payroll loan today? Are you considering being more selective or adjusting your risk appetite in this product going forward? Why do you think that the consolidated data from the Central Bank of Brazil is pointing to this faster deterioration in this product?

This is my first question, and then I do my second question later. Thank you.

Hi, Gustavo. It's Chedid here. First of all, I think that we haven't seen any deterioration at the risk, at the same risk profiles. What we have seen in our case, and it's there in the presentation, is that we're actually opening intentionally to riskier profiles, which on average you will see the NPLs going up, but not a deterioration on the same risk profiles. If we look forward, I'd say that this is kind of philosophy we've been adopting for all products. Every gain that we are actually getting from our new models, we're actually not, let's say, deploying that into further growth, but basically maintaining origination, but with the gains of the models so that asset quality remains, let's say, in control.

If you look at the Central Bank of Brazil data, I think it also is a reflect of, if you look at the previous product, let's say it only cater for very large companies. Now, this is a product that's mainly due to the new way of doing it. People are actually extending that to also smaller companies, and that is a benefit of the centralized system. As you are actually getting more companies and more employees of those, let us say, smaller companies, it is very hard to compare the previous product with what you have now going on.

Gustavo, if I can just-

Okay.

Sorry, Gustavo, just to complement here on this deliberate strategy of taking incremental risk in very specific and selected customer segments, it is very important to highlight that our risk framework remains unchanged. We continue to target the loss absorption ratio between 40%-60%, and our ROE is above 30%. That is very important to highlight.

Okay, cool. Thank you, guys. Just a follow-up here, two follow-ups on this private payroll loan. Have you seen improvements on the operational issues that we saw in few months ago? If you can share with us what is the cost of risk level that we have in this product.

Gustavo, on the operational issues, I'd say that we went through kind of three stages, right? The first stage where we had huge operational issues, in the beginning, we were seeing FPDs around 17%. Then we went through a cycle, a second momentum, basically where we've diminished originations very much so that we could see the operational issues being solved. Some of them were solved by the centralized system. Some of them were solved by workarounds that we've implemented ourselves. At the same time, I think we are in the third or fourth different concept, fourth evolution of the concession model, which also helped us on basically getting to the third phase, which is expanding the product. If you're mentioning any, let's say, large gains from last quarter to this one, I wouldn't say that. If you look at guarantees as well as the automatic, let's say.

Relinkage.

Payroll relinkage, we're still not underwriting as if they were meaningful. That means that we still think that those were not meaningful enough so that we could take that into consideration.

In terms of the cost of risk, it's basically in line with other, let's say, public peers that published this number recently. So we can say that around mid to high teens in an annual basis.

Cool. Thank you, guys. Still on asset quality, just to finalize here, what are your expectations for the trajectory of NPLs stage. Sorry, 90 days NPLs and Stage 3 over the next quarter. Should we expect some further normalization as the portfolio matures, or do you believe current levels are already broadly representative of the underlying credit performance?

Let's say that we are still expecting NPLs to continue to be impacted by the aging effect. We are expecting by the end of this year, the NPLs over 90 days to be more around, let's say, low teens. Basically converging to something similar that we have on our Stage 3 over total credit portfolio. Remember that Stage 3 is a pre-NPL metric, and it's pretty much absorbing, let's say, all the credit impaired that we have in the model. Basically, we believe that this could convert to a level similar to what we have currently on Stage 3 over the total credit portfolio by the end of this year. But again, we are not seeing deterioration. It's basically the portfolio aging, the growth that we have on the private payroll loan that is still maturing.

We were, let's say, early adopters of this product, probably the second company prepared to operate private payroll loans in Brazil. Naturally, that portfolio continues to age and impact this metric going forward.

Okay, got you. Thank you, guys.

Our next question is from Ricardo Buchpiguel from BTG Pactual.

Hi, everyone. Thanks for the opportunity of making questions. I have just one follow-up here on private payroll. With the increasing concerns about the macro environment, higher unemployment has become an important risk we have been discussing with some investors on private payroll loan, particularly because it has a higher duration. Could you comment to what level of unemployment would you become more concerned about the profitability of the product? What would be a level where the profitability would be closer to breakeven in your view, depending on a rise in unemployment? Thank you.

Okay, thanks for your question. I think that I'm going to answer, I would say not as you were expecting, but trying to get to the same answer, right? If you look at our credit approach, it's primarily based on the loss absorption indicator, right? For private payroll loans, in order for those vintages to break even, we could withstand an increase of up to 70% in the product's delinquency rate. Meaning that my expected losses could actually grow 70%, and I will still be on a break-even condition. Now, talking about the unemployment. If you look at market consensus and focus projections currently, they actually expect unemployment to remain pretty stable and quite healthy, and basically growing from 5.4% to around 6% through 2027, which kind of reinforces our view of a structural floor under household income rather than any sudden labor market deterioration.

Even if we look at the most pessimistic scenarios in the focus survey, unemployment would peak at levels back around what we saw through 2024. Something between 6.5% and 7.2%, meaning that even under stress scenarios, we're talking about historical levels that didn't mean a heavy deterioration on credit or households or household repayment. Obviously, we keep dynamically looking at those projections, and as I told you, we're currently using gains from our concession model more to actually keep the levels of originations than actually growing origination. That's how we feel about it.

That's super clear. If I may do a second question, if you could comment, what's your expectation for the bottom line in 2026 now that you will be consolidating Kovr? Any sense on how much Kovr could eventually contribute in the second half of the year will be very helpful for us here. Thank you.

Okay. Let's talk about the Kovr acquisition, right? Kovr now is called KEV Seguros. KEV Seguros will be consolidated from August 3rd. Our expectation is something between BRL 80 million-BRL 100 million in net income contribution for the August-December period. That's basically what we are sharing on Kovr for those five months of the remaining of the year. We also shared third core guidance. That's all about what we can share right now.

That's clear. Thank you very much.

Our next question is from Dan Perlin from RBC.

Hey, guys. Good evening, and thanks for taking my question. I had a little bit of a follow-up on the RPAC. It remains very strong here again, and your monetization rate continues to improve. I wonder if you could just kind of revisit the strategy, the go-forward strategy, and maybe how some of that dovetails into the product roadmap and mix shifts that you're seeing in the business. Clearly, it's moving in the right direction, but I'm just making sure I understand the cadence as to how that progresses from here. Thank you.

I think it's more or less the same story moving forward. It's still basically driven by more penetration of our products, and mainly that instead of being new clients, but heavily concentrated on cross-selling those products and mainly, let's say, credit and insurance products into our user base. This is what's primarily driving growth in RPAC. At the same time, you can see that our cost to serve is growing at a much lower pace. RPAC growing at 52%, while you have cost to serve growing at a 13% rate year-over-year. Most of that growth in cost to serve mainly driven by the adoption of new products. I'm just trying to give you other proof points that this is what's actually driving all of that RPAC growth.

If you look at more mature cohorts, you will see also RPAC more than doubling if you compare to the average RPAC, which just reinforces the thesis which is cross-selling more of those products, especially credit products, will be the key driver for further increasing RPAC ahead.

Great. Then just real quickly on Kovr, I heard you on the contribution from August to December in terms of net income. Is there a revenue number that you're also attributing to that we could just make sure we're level setting appropriately in the model? Thank you.

Maybe we can share that with you and everyone else later. We don't have that figure right now, but we can share it later.

Okay. Understood. Thank you.

Our next question is from Neha Agarwala from HSBC.

Hi. Thank you for taking my question. I actually have three questions, quick ones. First one on the operating expenses. There was a bit of a jump in 2Q. I believe there were some extra marketing expenses that you undertook in 2Q, and your guidance implies a sequential decline in 3Q. Could you just shed a bit more color on the trend for OpEx growth that we should expect going forward, and what were the one-offs in 2Q? My second question is on risk-adjusted margins. So on the reported numbers, it went down 20 basis points. But if you adjust for the Desenrola benefit, it probably is around 11.3% in risk-adjusted margins. What trajectory should we assume in the coming quarters, and where should this risk-adjusted margin stabilize for you? My third question is on the write-off policy.

Could you remind us of your write-off policies, and has there been any change lately to that? Thank you.

Neha, thanks for your question. Let me start from the last one. Our write-off policies remained unchanged, 360 days for both credit cards and personal loans. On the risk-adjusted NIM, we are expecting stabilization for Q3 compared to what we did in the second quarter, around 12.1%. In terms of efficiency, we had the anticipation of BRL 30 million in marketing expenses this quarter. We decided to anticipate because of the World Cup. We took a decision to accelerate some initiatives on marketing for very specific products like the iGaming platform that we have and other initiatives that we saw an opportunity to accelerate. We should expect some, let's say, benefit from lower marketing expenses compared to the second quarter in Q3. In terms of the overall efficiency, we are in a very health trend.

As you can see in the quarter, our efficiency ratio reached around 44%, coming down more than 200 basis points sequentially. We are expecting that trend to continue going forward. We are seeing AI accelerating our operating leverage opportunities. Headcount is pretty much flat since October 2025. If you remember, we were expecting to grow headcount by around 10% the year. It is not happening because of AI and all the initiatives that we have. We believe that we can deliver our efficiency ratio around low 40s, high 30s by the end of this year, contemplating many, let's say, initiatives that we have, including AI opportunities on the, let's say, personal expenses, but also on tech expenses as well.

Perfect. I just have a quick follow-up there. On the risk-adjusted margins you mentioned you should expect to be around 12.1%. If you exclude the Desenrola benefit, from my calculations, it is around 11.3%. So you expect a rebound in 3Q and for it to stay around the 12% range. Is that right?

Correct. We are expecting in Q3 risk-adjusted NIMs to be the same, let's say, pretty much flattish sequentially. We do have some impact from this in all in Q3 as well, but like we said, a bit more limited compared to the second quarter. But yeah, we are expecting this ratio to be around 12.1%, pretty much in line with the previous quarter.

What would be the driver for that? Because based on your guidance, cost of risk will continue to inch up quarter on quarter. Deposit costs will probably be around the same level, not much improvement based on your comments earlier. So what would be driving the improvement or the stability in NIMs, right? Excluding the Desenrola impact.

Yeah. Basically, mix effect. We are, like we said, growing slightly lower on more, let's say, segments that we are okay in terms of capturing incremental risk. So we do have this risk-adjusted strategy in the business. Funding costs should be slightly lower compared to this quarter. So we did 96.2% of CDI in the quarter. We are expecting probably Q3 to be more in the range of 94%-95%. So it is another, let's say, improvement that we can see on this risk-adjusted NIM.

Okay. Perfect. Thank you so much for the answers.

Our next question is from Craig Maurer from FT Partners.

Hey, guys. Thanks. Again, congratulations, André. I just wanted to ask, with the growth you are seeing in payroll loans, what are the attach rates you are seeing in other products once you have made those loans, credit cards, other offerings? Thanks.

Hi, this is Eduardo here. First of all, if you look at our, let's say, the average RPAC on clients with that product, it is 8.9x higher than of the average client in PicPay. That is driven by both the product itself, but also, let's say, the attachments, as you said, that he basically gets it. If you look at the cross-selling, it is 30% higher than what we have for average customers. That includes many different products. On average, 30% higher than our average client. So it also, let's say, it boosts not only RPAC, but also adoption of other products.

Thank you.

I would like to remind you that to ask a question, you need to click on raise hand. The question-and-answer session is over. We would like to hand the floor back to Mr. Eduardo Chedid for the company's final remarks.

Guys, thanks again for being with us in our third call. We remain confident here on the year-end results. We finalized the Kovr acquisition, which was an important milestone, not only for this year, but for the coming years as well. Well, let's see if we can surprise you next quarter again. Thank you.

PicPay's conference is now closed. We thank you for your participation and wish you a nice evening.

Good evening, everyone, welcome to the PicPay earnings conference call for the first quarter of 2026. I am André Cazotto, PicPay's Strategy, M&A, and Investor Relations Officer. Today, I'm joined by Eduardo Chedid, our CEO, Rodrigo Couto, our CFO, Danilo Caffaro, Vice President of Consumer Banking, and our investor relations and strategy teams. We will begin with a short presentation highlighting our quarterly results, followed by a live Q&A with our management team. Please note that this presentation may contain forward-looking statements and non-GAAP measures. Please refer to the disclaimer on screen and in our earnings materials available on our investor relations website for additional information. This call is being recorded and a replay will be available on our website shortly after the call. Before I hand the call over to our CEO, Eduardo Chedid, 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. Our total credit portfolio reached BRL 28 billion, 5.8% above our guidance of BRL 26.5 billion, driven by a better than expected performance on our private payroll loans, which continued to gain traction during the quarter. 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. On the revenue side, our managerial revenues, which exclude derivative revenues and hedge accounting effects, reached BRL 3.2 billion. Net interest income came in at BRL 1.7 billion, surpassing 20% net interest margin for the quarter, and gross profit reached BRL 1.1 billion, with both delivering slightly above guidance.

Looking at our profitability metrics, IFRS earnings before taxes came in at BRL 222 million, 3.1% above the guidance, and the IFRS net income reached BRL 152 million, 8.4% above the guidance of BRL 140 million. On adjusted basis, which excludes stock-based compensation expenses, adjusted EBT reached BRL 248 million, 5.7% above the guidance of BRL 235 million, and our adjusted net income came in at BRL 169 million, 9.3% above the guidance of BRL 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 Chedid.

Thank you, André. 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. 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. Quarterly active clients grew to 44.3 million. Consolidated TPV came in at BRL 156 billion, 31% above the prior year. Sequentially, the 1% decline is consistent with typical Q1 seasonality following a strong fourth quarter. Wallet and banking TPV reached BRL 134 billion, a 24% year-over-year expansion. The 5% sequential decline reflects the same seasonal dynamic and is fully expected. Total cash-in was BRL 125.4 billion 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. Consumer deposits grew to BRL 30.8 billion, up 46% year-over-year and 7% higher than last quarter, reinforcing the trust and principal trends we have been building. 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. Turning to financials. Net revenues reached BRL 3.5 billion, a 17% increase year-over-year and 17% higher than last quarter. Excluding derivatives and hedge accounting, managerial revenues were BRL 3.2 billion, up 60% versus the prior year and 9% sequentially. Average revenue per active client grew to BRL 80.7 in the quarter, 55% above where we were a year ago and 14% ahead of Q4.

Excluding hedge accounting and derivatives, RPAC was BRL 73.3, up 46% year-over-year and 6% quarter-over-quarter. Deeper monetization and a richer product mix are driving this expansion. Gross profit came in at BRL 1.1 billion, representing a 44% year-over-year gain and an 8% step-up from the prior quarter. On efficiency, cost to serve was BRL 20.3 per active client, up 9% from a year ago, but down 1% versus Q4, showing that scale benefits are kicking in. 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 BRL 248 million, more than tripling year-over-year with a 224% increase, and advancing 3% sequentially despite the seasonally lower activity typical of first quarters. This demonstrates the consistency of our earnings trajectory.

Adjusted net income was BRL 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. 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. 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%. 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. We're growing net revenues 70% year-over-year while building a fundamentally more resilient business.

Looking at the three revenue engines individually, secured credit revenues reached BRL 820 million, up 272% compared to a year ago, and 41% higher than Q4, fueled by the rapid ramp-up of our payroll loan portfolio. Unsecured credit revenues came in at BRL 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. Non-credit revenues hit BRL 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. 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 BRL 169 million. The 10% sequential decline reflects normal Q1 seasonality.

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. 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 BRL 17.4 billion, 41% higher year-over-year with a modest 1% sequential decline, reflecting typical first quarter seasonality rather than any change in engagement trends. Consumer loans origination reached BRL 4.5 billion, more than doubling year-over-year at 119% growth and edging up 2% from Q4. Holding essentially flat against a seasonally strong fourth quarter demonstrates the strength of our origination engine. Total credit portfolio reached BRL 28 billion, 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%. 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. 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. In its first quarter, the product generated BRL 693 million in origination. 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. The partnership is expected to reduce our customer acquisition cost by activating new users through TIM's existing infrastructure while driving higher engagement for both platforms. On the Kovr acquisition, we reached an important milestone. CADE, the Brazilian antitrust agency, approved the transaction on May 28th without restrictions. We are now awaiting final clearance from SUSEP, the insurance regulator, as well as from the Central Bank to close the deal. 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. 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. 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 Caffaro, our Consumer Banking Vice President.

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 2026, 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. On the next slide, we have the breakdown of our portfolio growth for the consumer business. We reached BRL 26.1 billion in the first quarter of 2026. It represents a BRL 3.6 billion growth from fourth quarter 2025, 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, 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. 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. 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 cohorts, we decided to slow down origination in the following months. 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.

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

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. 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. 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. I will hand it over to Rodrigo Couto, our CFO. Thank you.

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. 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 2025 and the projected 10% increase during 2026 will not materialize. 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.

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. Our net interest income, margin from credit products, and margin from credit products after losses all grew between 17% and 19% relative to the fourth quarter, 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. 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 BRL 28 billion in total credit, growing 17% quarter-over-quarter and sustaining a triple-digit growth rate year-over-year.

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. 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. 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. 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%.

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. 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 was caused by a change in methodology. 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 remains stable at 3.7%, while total portfolio coverage increased to 13.9%. 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.

We continue to execute our diversified funding strategy, notably with the structuring of our second FGTS, through which we raised BRL 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. Finally, we present on the next slide our common equity capital. With incorporation of the IPO proceeds, approximately BRL 2 billion, our Common Equity Tier 1 ratio reached 16.7%, with approximately BRL 500 million corresponding to 2 percentage points of the ratio held at our holding company in the Netherlands. With that, I will turn back the call to Eduardo Chedid for his final remarks.

Well, we're issuing guidance for the second quarter of 2026, excluding any Kovr contribution. We expect the total credit portfolio to reach approximately BRL 31 billion, 11% growth quarter-over-quarter. Quarterly cost of risk should remain within the 3.7%-3.9% range, consistent with the levels we've delivered this quarter. Managerial revenues are expected at approximately BRL 3.6 billion, a 13% sequential increase. Net interest income should reach approximately BRL 1.9 billion, up 12% from Q1. On profitability, we expect gross profit of approximately BRL 1.15 billion, 5% above this quarter. IFRS earnings before taxes are expected at approximately BRL 265 million, 19% higher sequentially. On an adjusted basis, we expect earnings before taxes of approximately BRL 285 million, a 15% step up from Q1. IFRS net income is expected at approximately BRL 235 million, a 55% sequential increase. Adjusted net income should reach approximately BRL 245 million, 45% above this first quarter.

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. 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. 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. 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.

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. A more diversified credit portfolio combining secure products, mature unsecured cohorts, and transactional-led underwriting. This is where the strength of our ecosystem becomes a key differentiator. Because our digital wallet is deeply transactional, we are 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. 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.

Our market-beating 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. 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. Now we are ready to move into the Q&A session. Please, operator, take over.

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. If your question has already been answered, you can leave the queue by click on Put Hand Down. Our first question is from Gustavo Schroden with Citi.

Hi, guys. Hi, Chedid, Cazotto, Couto, and team. Congrats on the numbers, slightly above the guidance for the first Q, decent trends. Congrats. I have two questions. The first one is we saw good trends in the Stage 2 plus 3 formation, but we saw an increase in 90-day NPLs. If you could clarify this mathematical or this mismatch between numerator and denominator, I think that would be great, right? Because usually when we see the strong credit growth, denominator grows faster than the numerator and offsetting this pressure. I think that it would be welcome if you give some color or clarify this increase in 90-day NPLs. My second question is regarding the guidance for the second quarter. Now, you are guiding for BRL 3 billion growth or BRL 3 billion additional loan book, right? Quarter-on-quarter.

It is slightly below the growth you present in the first quarter. 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. If you could explain as if there are some, let's say, conservative strategy here, or what is behind these numbers? Thank you.

Thanks, Gustavo. I will pick up the question on NPLs. The ratios are fundamentally different, right? Let's talk about NPL first. It simply days past due, right? 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. 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 would end up somewhere in the low teens, 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, and also in the coverage of each stage with which we are comfortable.

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 and also highly subject to not only the write-off policies, but also the renegotiation policies of each institution. Therefore, it's very hard to use NPLs as a metric to manage a business. That's why we manage in terms of cost of risk, loss absorption, and proportion information of each of the stages as all other coverage.

Okay, Gustavo. This is Chedid now. Going back to your second question, I think that we actually remain very positive on credit origination and on credit overall. 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. 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 at a record low 5.8% unemployment rate, with real aggregate wages growing 6.5% year-over-year, which in total it means that families in Brazil have BRL 22.9 billion of additional real income 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? 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, and this is very consistent with a control accommodation cycle without disruption. Looking at PicPay, it's fully consistent with the guidance we have provided. Looking at our own positioning within this macro environment, we believe that we are really well-positioned for a more challenging backdrop. We have deliberately built a more diversified revenue mix, as we explained in the call. 69% of our revenues now come from no or low credit risk streams, which translates into a more resilient business itself, where only 31% is exposed to unsecured credit. If you look at our credit underwriting strategy, it delivered a total credit portfolio, which is 54% secure and only 46% unsecured.

Q1 numbers show that 90%, 91% actually, of new volumes are coming from lower risk loans and mature credit card cohorts. This is by design. Over the past several quarters, we have been intentionally rotating the portfolio towards secure products and seasoned and secure vintages 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. The riskier the product, the higher the spread, the shorter the duration, and the lower the leverage relative to income. This is a framework which is not reactive. It's embedded in how we originate every day. To summarize, we've built a diversified revenues model, a deliberately resilient portfolio mix, and we've been very, let's say, strict and disciplined on the origination. I believe we are well-positioned to navigate this cycle.

Just one additional comment here, Gustavo, it's André speaking. For the consumer loan book, we're expecting the origination to be pretty much flattish with the fourth quarter. We're expecting to originate close to BRL 3.5 billion, okay. That's our expectation with the consumer banking. We also have some SMB credit portfolio rolling off, so that's probably something that is impacting, let's say, the total credit figure that we share in our guidance.

All right, guys. Clear, very clear. Just if I may, just to follow up on my first question regarding NPL. What is the write-off policy? Is that 360 days, 540 days? What is the write-off policy?

It's 360 days.

Yeah. Okay.

Both cards and loans.

All right. Thank you.

The next question is from Mario Pierry with Bank of America.

Hey, guys. Good evening. Thanks for taking my question. Let me ask two questions as well. I want to focus on the private payroll loan. I don't know when you said that the NPL should be in low teens, did I understand that correctly?

Yes. For the whole portfolio.

Yeah, for the whole portfolio.

For the whole portfolio.

Go ahead, Mario. We'll wait until you finish, and then we'll answer.

Okay. You show right on slide 17 that your market share in private payroll loans has gone from zero to almost 5% in one year. 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 these collateral enhancements, right? Especially related to FGTS. We've been waiting for that, and appears to be delayed. What is delaying that? When do you think those collaterals are going to be effective? What are you seeing in terms of interest rates that you're charging on this product? Clearly, 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 than for someone who has a longer-term, more mature job.

Can you tell us the direction of rates that you're charging in this product? My second question is unrelated to this. It's related to Kovr. Like you said, you got all the approvals, expecting now SUSEP to approve the transaction. Just remind us again, what is the expectation for net income from Kovr on a full year basis? Thank you.

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 at the end of the day, it's the result of several factors. 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. Our underwriting model has evolved significantly since the beginning. On top of that, I'd say that our digital distribution capabilities also played an important role, with around 70% of our origination being done in-app. 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.

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. 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. We're pretty confident on the product, and we're getting more confident as time goes by. At the same time, you asked about, there is a possible upside when the additional guarantees, the FGTS, as well as the severance package access are implemented. You're right, they've been delayed quite a couple of times. We're being conservative, so we're actually, in our view, we expect them to have some impact on our case in the fourth quarter of the year, provided there are no additional delays.

All in, we remain pretty positive and product is behaving as expected.

Okay. Chedid, 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?

The entire loan book. Well, that's over time when we stabilize the portfolio, right?

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.

That's correct, Mario.

Okay. Then on Kovr?

The expected net income, that was your question, right?

Correct.

Yeah. Mario, we could talk about what we expected last year. As we still didn't have full clearance and approval, I don't have access to how they're performing this year. What I can share with you is that with the products that we distribute from them, we're performing pretty well. We should expect that from their total portfolio, but I'm talking mainly from my own perspective. I cannot be precise now, but hopefully in a few weeks, as soon as SUSEP, the insurance regulator, approves and Central Bank also, we'll be able to actually give you much more visibility on what we expect for the full year.

Okay. Thank you very much.

The next question is from Dan Dolev with Mizuho.

Hey, guys. Can you hear me?

Yeah.

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. Can you maybe elaborate a little bit on what you're doing in AI specifically, and what the opportunities do you see down the road? Congrats again.

Hi, it's Danilo here. We've been using AI and LLM models since the beginning of 2023. Our first use case was around customer service. 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 OpenClaude running on a multi LLM stack with most of our employees using on a weekly basis. Of course, it's still early days, but we are already seeing significant performance improvements on AI first teams. As we mentioned in the release, this is one of the factors that enables us to continue growth, to grow the business, while keeping the headcount flat since October 2025. We believe that it will be a major boost of our operating leverage for the upcoming quarters.

Great. Thank you, and congrats again.

The next question is from Ricardo Buchpiguel with BTG Pactual.

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 Desenrola program, giving a bit more color on how origination under the program has been evolving, how important do you feel that this program could be to mitigate any potential delinquency risk, depending on how the macro unfolds? Thank you very much.

Thanks. Well, we see it positively, and we actually entered early on. 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. Then we have the collateral for 50% of the renegotiated value granted by the federal government fund. I'd say that in terms of final, let's say, impact it's definitely an upside, 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.

No, that's super clear. 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. There is overall a concern that disposable income could be impacted by decelerating economy, right? It'll be interesting to see how you guys factor this risk in your underwriting. If you expect that we can have an increase in delinquency, not necessarily for PicPay, but the market as a whole towards the second semester of this year or perhaps next year. Thank you.

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, 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, that backdrop. I'm going back to the diversified revenue mix as well as a more secured credit portfolio. 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. We expect a reasonable stability both on credit risk as well as on Stage 3 formation, let's say around 4%.

Perfect. Thank you.

The next question is from Craig Maurer with FT Partners.

Hi. Thanks for taking the questions. Good to hear from you, Eduardo and André. Wanted to ask again about the private payroll loans. I wanted to understand the positioning you think this product is taking with the consumer. Is this, do you think, muting growth in credit card in any way? Also, do you think that the private payroll loans are a better path to principality versus, say, the credit card? Trying to understand how this changes the relationship with the consumer in terms of ongoing product usage.

I'd say that, the first half of your question, we see lots of people who are, let's say, out of the credit market taking that product. Somehow it's additional. If you look at the PicPay case specifically, I'd say that it's taken, let's say, share from personal loans instead of credit cards. 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 most of the other players, which just shows that the engagement with the app is basically an important tool to distribute. Clients, I'd say that in private payroll loans clients, the trend is to actually increase PicPay usage as well as product adoption.

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 driver of engagement and adoption of other products.

Craig, just to complement here, currently around 70%-75% of all private payroll loan origination, it's already done through our app. Basically, this is helping to increase the cross-selling of additional products like insurance, and of course, this is going to be extremely helpful in terms of creating better engagement and faster principality for our customer base.

Okay. Thank you.

The next question is come from Dan Perlin with RBC.

Hey, guys. Good evening. Two quick ones here. 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? 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 mix shift such that your credit loss allowance is just stepping up in that period of time. Thanks.

Hi, Dan. First part of your question. Definitely, we're leaning in on AI. Besides, Danilo already mentioned that we've been running headcounts flat since October. If you even got only 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. It's not only about having it flat, but also avoiding some meaningful new hires. On your point of, part of those efficiency gains will be deployed on growth and part will be converted into better margins. Yes, we definitely plan to invest some of that additional productivity.

That's great. 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? Is there something else that I'm just?

No, that's correct.

Okay.

We do expect our credit loss allowances to be a little higher than our Net Interest Income growth, all within the dynamics of the portfolio and within the risk return parameters. Yes, we do expect it to be a little higher.

Great. Thank you so much.

The next question is from Neha Agarwala with HSBC.

Hi. Thank you for taking my question. Just a quick one. You mentioned that the NPLs will be in the low-teen levels. Given that your book is almost 70% secured, why should we continue to see a pickup in NPLs? Maybe a pickup for a quarter or two because of the private payroll, and then an easing as the economy improves and rates decline. If you can split for us how much of the increase in the NPL ratio and the cost of risk 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. Thank you so much.

The increase in the NPL ratio is basically a catch-up of things that are already in our Stage 3. If you look at our Stage 3 as a proportion of the portfolio in the first quarter, it was 12.7%, while NPL was 8.9%. The 8.9% will end the year in the low teens. The 12.7% will end the year in the mid teens. If you want to see what's going to happen with NPLs, just look 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. The levels we see of NPLs in the share of Stage 3, again, are highly influenced by our write-off policy, which is our 360 days.

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. 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, but the revenues will increase by at least double. Ultimately, we're going to make more money, have higher returns. Just taking, let's say, a credit loss metric without looking at what's happening in revenues doesn't tell the whole story. The way we manage is by looking at both things in conjunction.

Yeah. Pretty much, let's say, keeping our guidelines in terms of loss absorption ratios, that should be between 40%-60%, and minimum ROEs at 30%.

Understood. I understand that NIMAL is a more relevant parameter than just looking at what's happening with the cost of risk. What is a bit confusing is that given that majority of your book is secured, when I look at other players who have a similar composition, their NPLs are not at similar levels. I just wanted to understand why is your NPL. I understand that Stage 3 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. We have a progression throughout the year. I just want to understand why these level of NPLs. Are you seeing a much worse asset quality in the private payroll than what the system is seeing, or is there any other pockets where you're seeing more pressure for your clients?

Again, comparisons of levels of NPLs are very difficult to make, especially in the Brazilian market where write-off policies are pretty different.

Okay.

It's hard to compare the levels. 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. It's the secured portfolio that is responsible for the majority of the NPLs and of the share of Stage 3. 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 and closer to our Stage 3 proportion, and then they change only slightly throughout the rest of the year.

Neha, 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. 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. It's a low risk product. As we keep growing the portfolio, there is going to be some delinquency there as well. In every sense, a much more secure product than the unsecured ones.

Understood. 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?

No. That shouldn't be the case because we still grow quite well, especially on credit cards, which are not secure. It's definitely going to increase from 54%, but definitely not going to be around 70%.

Okay. Perfect. Thank you so much.

The question and answer section is over. We would like to hand the floor back to Mr. Eduardo Chedid for the company's final remarks.

Guys, thanks a lot for being here with us again. I think that we've delivered a strong first quarter. As you will see, guidance for the second quarter means that we remain positive and I'd say that the main message here is that we hold the high conviction on delivering full year results. That said, I'd just like to thank you guys and we'll see you guys in the next earnings call.