PicPay (NASDAQ:PICS) held its first-quarter earnings conference call on Tuesday. Below is the complete transcript from the call.

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Summary

Pics N.V. exceeded its guidance across all key financial metrics for Q1 2026, with total credit portfolio reaching 28 billion reais and a net interest income of 1.7 billion reais.

Total accounts grew to 68.6 million, with a 31% year-over-year increase in total payment volume, reflecting strong operational metrics.

The company reported a 70% year-over-year increase in net revenues, driven by diversified revenue streams with secured credit now representing 23% of net revenues.

Strategic initiatives included the launch of Skip Purchases for PicPay cards, a partnership with Tim, and progress in the acquisition of Cover.

Management emphasized the use of AI to maintain flat headcount and improve operational leverage, while providing guidance for continued growth and profitability in Q2 2026.

Full Transcript

Andrea Cazotto (Strategy M&A and Investor Relations Officer)

Good evening everyone and welcome to the Peakpay earnings conference call for the first quarter of 2026. I am Andrea Cazotto, Pics NV's Strategy M and A and Investor Relations Officer. Today I'm joined by Eduardo Sheji, our CEO Rodrigo Cotu, our CFO Danilo Caffaru, 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 and 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 Edouard Chaghi, 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 28 billion reais, 5.8% above our guidance of 26.5 billion, driven by a better than expected performance on our private payroll loans which 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 3.2 billion reais. Net interest income came in at 1.7 billion reais, surpassing 20% net interest margin for the quarter and gross profit reached 1.1 billion reais, with both delivering slightly above guidance. Looking our profitability metrics, IFRS earnings before taxes came in at 222 million reais, 3.1% above the guidance and the IFRS net income reached 152 million reais, 8.4% above the guidance of 140 million on an adjusted basis which excludes stock based compensation expenses.

Adjusted EBIT reached 248 million reais, 5.7% above the guidance of 235 million and our adjusted net income came in at 169 million reais, 9.3% above the guidance of 155 million. These results reinforce our strong execution and our ability to consistently grow with profitability. With that, I will now turn the call over to Eduardo Shejim.

Eduardo Sheji

Thank you Andrea 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 156 billion reais, 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 134 billion reais, a 24% year over year expansion. The 5% sequential decline reflects the same seasonal dynamic and is fully expected. Total cash in was 125.4 billion reais in the quarter, growing 22% versus a year ago on a sequential basis.

The 10% decline mirrors the typical Q1 pattern relative to Q4's elevated activity. Consumer deposits grew to 30.8 billion reais, up 46% year over year and 7% higher than last quarter, reinforcing the trust and principality trends we have been building. And active insurance policies reached 10.2 million, 78% ahead of Q1 last year and 13% above Q4 as our insurance vertical continues to scale at a rapid clip. Turning to financials, net revenues reached 3.5 billion reais, a 70% increase year over year and 17% higher than last quarter.

Excluding derivatives and hedge accounting, managerial revenues were $3.2 billion, up 60% versus the prior year and 9% sequentially. Average revenue per active client grew to 80.7 reais in the quarter, 55% above where we were a year ago and 14% ahead of Q4. Excluding hedge accounting and derivatives, RPAC was 73.3 reais, up 46% year over year and 6% quarter over quarter. Deeper monetization and a richer product mix are driving this expansion. Gross profit came in at 1.1 billion reais, representing a 44% year over year gain and an 8% step up from the prior quarter on efficiency.

Cost to serve was 20.3 reais per active client, up 9% from a year ago, but down 1% versus Q4, showing that scale benefits are kicking in. For context, revenue per client expanded 55% year over year while cost to serve grew just 9%. That's the leverage embedded in this model. Adjusted earnings before taxes reached 248 million reais more than tripling year over year with a 224% increase and advancing 3% sequentially, despite the seasonally lower activity typical of first quarters.

This demonstrates the consistency of our earnings trajectory. Adjusted net income was 169 million, nearly doubling with 92% year over year growth. The 10% sequential decline is entirely attributable to normal Q1 seasonality following a strong fourth quarter. 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. So 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 820 million reais, up 272% compared to a year ago and 41% higher than Q4, fueled by the rapid ramp up of our payroll loan portfolio.

Unsecured credit revenues came in at $1.1 billion, a 44% year over year expansion and 10% above last quarter, growing at a measured pace as we deliberately sh the mix toward collateralized products. Non credit revenues hit $1.6 billion, 47% ahead of Q1 last year and 11% higher sequentially. This line includes fees, commissions, float hedge, accounting, insurance acquiring and revenues originated by our audiences and ecosystem business unit essentially all revenue streams that carry no credit risk quarter after quarter.

This capital light engine continues to compound on returns. Adjusted net income grew 92% year over year to 169 million reais. The 10% sequential decline reflects normal Q1 seasonality. 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 17.4 billion reais, 41% higher year over year with a modest 1% sequential decline from reflecting typical first quarter seasonality rather than any change in engagement trends. Consumer loans origination reached $4.5 billion, more than doubling year over year at 119% growth and edging up 2% from Q4, holding essentially flat against a seasonally strong fourth quarter demonstrates the strength of our origination engine.

Total credit portfolio reached 28 billion billion reais, 116% above the prior year and 17% above last quarter. The consumer book represents 93% of the total, with SMBs and others comprising the remaining 7%. Beyond the numbers, we advanced several strategic initiatives in the quarter. On PicPaycard, we launched Skip Purchases, a feature that allows cardholders to pause a monthly payment with 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 693 million reais 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 or while driving higher engagement for both platforms. On the COVID acquisition, we reached an important milestone. Cadi, the Brazilian antitrust agency, approved the transaction on May 28 without restrictions.

We're now awaiting final clearance from Susepi, 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'll hand it over to Danilo Caffaro, our Consumer banking Vice President.

Danilo Caffaro

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 of 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 26.1 billion reais in Q1 2026. It represents a 3.6 billion growth from 4Q25 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 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 NIMALs 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.

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

Rodrigo Couto (CFO)

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 continue 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 25th 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 $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, when we look at the composition of our credit portfolio growth we see that collateralized products can 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 23 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 remained 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 destruction of our second Fiji Caf, through which we raised 1.25 billion reais 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 2 billion reais. Our common equity tier 1 ratio reached 16.7% with approximately 500 million reais corresponding to 2 percentage points of the ratio held at our holding company in the Netherlands. With that, I'll turn back the call to Eduardo Shadid for his final remarks.

Eduardo Sheji

Well, we're issuing guidance for the second quarter of 2026, excluding any cover contribution. We expect the total credit portfolio to reach approximately 31 billion reais, 11% growth quarter over quarter. Quarterly cost of risk should remain within the 3.7 to 3.9% range, consistent with the levels we've delivered this quarter. Managerial revenues are expected at approximately 3.6 billion reais, a 13% sequential increase.

Net interest income should reach approximately 1.9 billion reais, up 12% from Q1. On profitability, we expect gross profit of approximately 1.15 billion reais, 5% above this quarter. IFRS earnings before taxes are expected at approximately 265 million reais, 19% higher sequentially. On an adjusted basis, we expect earnings before taxes of approximately 285 million, a 15% step up from Q1.

IFRS net income is expected at approximately 235 million reais a 55% sequential increase. Adjusted net income should reach approximately 245 million 45% above this fourth 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 and 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 secured products, mature unsecured cohorts and transactional LED underwriting. And 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 bidding performance in private payroll loans as reflected in lower FPD metrics demonstrates our product velocity, our agility in learning and adapting the strength of our underwriting model, our digital distribution model and our operational excellence.

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 and our ability to meet projections for the 2026 unchanged. Okay, now we're ready to move into the Q and A session. Please operator, take over.

Operator

Thank you. We are going to start a question and answer section for investors and analysts. If you 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 Lower hand. Our first question is from Gustav Schroeden with Citi.

Gustav Schroeden (Equity Analyst)

Hi guys. Hi Sheji, Kazuoto, Diogo and team Congrats on the numbers in line with slightly above the guidance for the first Q. So 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 NPLs 90 days NPLs. So if you could clarify this mathematical or this mismatch between numerator and denominator, I think that that would be great. Right? Because usually when we see the strong credit growth denominator grows faster than the numerator and offsetting this pressure.

So I, I think that it would be welcome if you, if you give some color or clarify this this increase in 90 days NPLs. And my second question is regarding the the guidance for the second quarter. Now you are guiding for 3 billion reais growth in or 3 billion reais additional loan book right quarter on quarter. It is slightly below the growth you present in the first quarter. But we know that the first quarter usually we have this seasonal effect. So slower loan growth.

I was expecting an acceleration in a sequential base in this loan growth. If you could explain us if it is there are some, let's say conservative strategy here or what is what is behind this number? Thank you.

Eduardo Sheji

Thank you. Stavo. I will pick up the question on NPLs. The ratios are fundamentally different, right? When NPLs and NPL coverage. Let's talk about NPL first. It's simply days past due, right? So it's first of all, it only takes into account one form of deterioration and it also is highly sensitive to the write off policy of each bank. 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 is fairly stable and also in the coverage of each stage with which we are comfortable. So while NPLs will continue to rise, they're really not reflecting the dynamics because they're very again limited in terms of their risk sensitivity and also highly subject to not only the write off policies but also the renegotiation policies of each institution.

And therefore it's very hard to use NPLs as a metric to manage a business. And that's why we manage in terms of cost of risk, loss absorption and proportion formation of each of the stages as well as their coverage.

Gustavo, this is shidid 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 Pics NV'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, but at the same time, household debt service ratios remain stable and the labor market is providing a strong floor.

If we take a look at Brazil is 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 22.9 billion reais 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. And looking at PIC pay, 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 low or low credit risk streams, which translates into a more resilient business itself, where only 31% is exposed to unsecuredd credit. And if you look at our credit underwriting strategy, it delivered a total credit portfolio which is 54% secure and only 46% unsecuredd. And Q numbers show that 91% actually of new volumes are coming from lower risk loans and mature credit card cohorts. And this is by design, I mean, over the past several quarters, we have been intentionally rotating the portfolio towards secure products and seasoned unsecured 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 risk of the product. The higher the spread, the shorter the duration and the lower the leverage relative to income. And this is a framework which is not reactive. It's embedded in how we originate every day. So 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.

So I believe we are well positioned to navigate this cycle.

Mustafa Centrai

Just one, one additional comment here. Mustafa Centrai, speaking for the consumer loan book. We're expecting the origination to be pretty much flattish with the four quarter. So we're expecting to originate close to 3.5 billion reais. Okay. That's our expectation of the consumer banking. We also have some SMB credit portfolio rolling off.

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

Gustav Schroeden (Equity Analyst)

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

It's 360 days, both cards and loans. All right, thank you.

Operator

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

Mario Pieri (Equity Analyst)

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

And the whole portfolio? Yeah, for the whole portfolio.

For the whole portfolio. Huh. But. Well, go ahead, Mario. We'll wait until you, you finish and then we'll, we'll answer.

Okay. And you, you showed 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 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? And what are you seeing in terms of interest rates that you're charging on this product? Clearly, right. This is not a uniform product. If you are doing a private payroll to someone who works in a small company for a short period of time, you're going to charge a higher rate than for someone who has a longer term, more mature job.

But can you tell us the direction of rates that you're charging in this product? And then my second question is unrelated to this is related to cover. Like you said, you got all the approvals expecting now Suzepi to approve the transaction. Just remind us again, what is the expectation for net income from COVID on A full year basis.

Thank you.

Eduardo Sheji

Hi Mario. Going back to the private payroll loans, I think that our performance as you said, it's been pretty solid and I think it's, it's the end of the day. It's the result of several factors. I mean we were the second company to be accredited in this product and we entered very early as, as we identified operational deficiencies in the system. We adapted quickly and developed some proprietary workarounds on those deficiencies.

Our underwriting model has evolved significant significantly since the beginning and on top of that, I'd say that our digital distribution capabilities also played an important role with around 70% of all origination being done in app. And from the beginning I think that we maintain focus and conviction in the, in the product's potential which gave us a meaningful let's say and quicker learning curve which we're taking into advantage.

So I think it's a mix of many things that we did and also driven by a lot of focus and the belief that this, this would unlock a meaningful opportunity 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. So we are, let's say we're pretty confident on the product and we're getting more confident as, as time goes by.

At the same time you asked about. Yeah, there is a upside, possible upside when the additional guarantees, the FTTs as well as the severance package access are implemented and you're right, I. They've been delayed quite a couple of of times and we're being conservative. So we are actually in our view we'll.

We expect them to be let's say of have some impact on our case in the fourth quarter of the year provided there are no additional delays and all in we remain pretty positive and product is behaving, let's say as expected.

Mario Pieri (Equity Analyst)

Okay. And Shaji, when you talked about the loadings NPLs, are you talking specifically for private payroll or you talking about for the entire loan book?

Eduardo Sheji

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

Mario Pieri (Equity Analyst)

So just to be clear, you had an NPL ratio of 8.9% this quarter, 7.2% previous quarter and you expect this to normalize around loadings?

Eduardo Sheji

That's correct, Mario.

Mario Pieri (Equity Analyst)

Okay. And then, and then on cover

the expected net income. That was your question, right?

Correct. Correct.

Eduardo Sheji

Yeah. I mean Mayo, we could talk about what we, we expected last year as we still didn't have full clearance and approval. I cannot be. I mean, I don't have access to how they're performing this year. What I can share with you is that with the products that we distribute from them, we're performing pretty well. So we should expect that from their total portfolio. But I'm talking mainly from my own perspective and so I cannot be precise now.

But hopefully in a few weeks, as soon as the AS Suzepi, the insurance regulator approves and central bank also will be able to actually give you much more visibility on what we expect for the full year.

Mario Pieri (Equity Analyst)

Okay, thank you very much.

Operator

The next question is from Dan Dolev. Mizuhu

Dan Dolev (Equity Analyst)

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 mean 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? And congrats again.

Danilo Caffaro

Hi Danilo here. So We've been using AI and LLM models since the beginning of 2023. Our first use case was around customer service and we continue to adopt AI heavily on our entire value chain actually from customer service to credit engineering, marketing and so on. We could have our own version of OpenAI running on a multi-LLM stack with most of our employees using on a weekly basis. And of course it's still early days, but we are already seeing significant performance improvements on AI first teams.

And as we mentioned in the release, this is one of the factors that enables us to continue growth to grow a business while keeping the headcount flat since October 2025 and we believe that it will be a major boost of our operating leverage on the upcoming boards.

Dan Dolev (Equity Analyst)

Great, thank you and congrats again.

Operator

The next question is from Ricardo Botpigo with BTG Pact Wall.

Ricardo Botpigo (Equity Analyst)

Hi everyone and thank you for the opportunity of making questions. Most of my questions were already answered, so I have just one here. If you could provide an update on the new Disney Hola program, giving a bit more color on how origination 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.

Eduardo Sheji

Thanks. Well, we see it positively and we actually entered early on so we're quick to begin the program. Originations are responding well. We already have converted about 10% of of the potential that we believe we can do that and then we have the collateral for 50% of the renegotiated value granted by the federal government fund.

So I'd say that in terms of final, let's say impact, it's definitely an upside, 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.

Ricardo Botpigo (Equity Analyst)

No, that's pretty clear. And if I may do a follow up here, you mentioned that you are seeing that the commitment to that payment has been more or less stable in recent months. But there is overall a concern that disposable income could be impacted by the accelerating economy. Right. So it will be interesting to see how you guys factor this risk in your underwriting.

And if you expect that we can have increasing the link necessary for pick pay, but the market as a whole towards the second semester of this year or perhaps next year. Thank you.

Eduardo Sheji

I'd say that generally speaking we, we are expecting some increasing 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 that backdrop, I'm going back to the diversified revenue mix as well as a more secured credit portfolio.

And if you look at how we're growing the credit portfolio, we are mainly growing that through low risk loans, mainly collateralized as well as mature credit card cohorts.

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

Ricardo Botpigo (Equity Analyst)

Perfect, thank you.

Operator

The next question is from Craig Maurer with FT Partners.

Craig Maurer (Equity Analyst)

Hi, thanks for taking the questions. Good to hear from you. Eduardo and Andre wanted to ask again about the private payroll loans. You know, 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? And also do you think that the private payroll loans are better path to principality versus say the credit card?

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

Eduardo Sheji

So I'd say that in the first half of your question, we see lots of people who are, let's say out of the credit market taking that product. So it's somehow it's additional. If you look at the Pics NV case specifically, I'd say that it's taken, let's say share from personal loans instead of credit cards. And I think that one of the key aspects in our case is

the ability to actually distribute that product digitally. If you compare our distribution with what we've been hearing from the average of the market, we've been able to distribute more in app than the than most of the of the other players. Which just shows that I mean the engagement with the app is basically an important tool to distribute

clients. I'd say that private payroll loans to clients, the trend is to actually increase pickpay usage as well as product adoption. I mean we've seen that with the current clients. So it's not only a factor of the direct benefits from the product but a overall, let's say driver of engagement and adoption of other products.

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

Craig Maurer (Equity Analyst)

Thank you.

Operator

The next question is come from Dan Perlin with rbc.

Dan Perlin

Hey guys, good evening. Two quick ones here. So the commentary around AI and headcount growth not materializing now because you've got all these efficiency gains. I'm wondering one are you planning on leaning in on those cost savings into marketing or kind of higher risk private payroll opportunities that you talked about? 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 mix shift such that your credit loss allowance is just stepping up in that period of time. Thanks.

Eduardo Sheji

Hi. Then first part of your question definitely, I mean we're leaning in on AI. Besides Danilo already mentioned that we've been running headcounts flat since October. But if you even got only the let's say the avoided hiring that we had on the customer service platform in the last two years, we avoided hiring an additional 3,000 new customer service reps. So it's not only about having it flat but also avoiding some meaningful new hires.

On your point of yeah, part of those efficiency gains will will be deployed on on growth and part will be converted into better margins. But yes, we definitely plan to invest some of that of that additional let's say productivity.

Dan Perlin

That's great. And then on the net interest income guidance versus gross profit growth guidance just is that a function of just a step up in your credit loss allowances that you've got going into the next quarter or is There something else that I'm just not so that's correct.

Eduardo Sheji

We do expect our credit loss allowances to be a little higher that our income, net interest income growth, you know, all within the dynamics of the portfolio and within the, let's say our risk return parameters. But yes, we do expect it to be a little higher.

Dan Perlin

Great, thank you so much.

Operator

The next question is from Niha Agarwala with hsbc.

Niha Agarwala (Equity Analyst)

Hi, thank you for taking my question. Just a quick one, you, you mentioned that the NPLs will be in the lotin level and given that your book is almost 70% secured and why should we continue to see a pickup in NPLs? Why not maybe a pickup for a quarter or two because of the private payroll and then an easing as the economy improves and rates decline.

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.

Rodrigo Couto (CFO)

So the increase in the NPL ratio is basically a catch up of things that are already in our stage three. So if you look at our stage three 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 teams. The 12.7 will end the year in the mid teens.

So if you want to see what's going to happen with NPLs, just look what's happening with the share of stage three which is ultimately a better metric because it captures other forms of increasing risk that are not captured in NPL 90 days. The levels we see of NPLs in the share of stage three again are highly influenced by our write off policy which is our 360 days.

And you know there are players in the market that do 270, there are players on the market that do 120 and that results in very different levels of, 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 and ultimately we're going to make more money, have higher returns.

So you know, just taking let's say a credit loss metric without looking at what's happening in revenues doesn't tell the whole story. And the way we manage is by looking both at both things in conjunction

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

Niha Agarwala (Equity Analyst)

I mean and I understand that NAL is a more relevant parameter than just looking at what's happening with the cost of risk. But what is 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. So I just wanted to understand why is your NPL and I and I understand that stage C is higher.

So the natural progress will be you expect that the NPL for the book will be in low teens by the end of the year. So we have a progression throughout the year. But I just want to send why these level of NPLs? Are you seeing a much worse asset quality in the 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?

Rodrigo Couto (CFO)

Yeah, comparisons of levels of NPLs are very difficult to make, especially in the Brazilian market where write off policies are pretty different. So it's hard to compare the levels and what's driving the increase in the in the NPL ratio. It is partly a maturation of the private payroll loans, but they're not the big contributors here the unsecured portfolio that, that is responsible for the majority of the NPLs and of the the share of stage three.

But again I think going back to to, to the comment that was made in another question that our, 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 straight street proportion and then they change only slightly throughout the rest of the year.

And neha, just complimenting 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 as 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 is a low risk product.

So as we keep growing the portfolio there is going to be some delinquency there as well, but in every sense a much more secure product than the unsecured ones.

Niha Agarwala (Equity Analyst)

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

Rodrigo Couto (CFO)

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

Niha Agarwala (Equity Analyst)

Okay. Okay, perfect.

Eduardo Sheji

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

Operator

Nice. 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. With that said, I just like to thank you guys, and we'll see you guys in the next earning calls.

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