Nu Holdings Ltd. (NYSE: NU) saw its shares tick up 0.4% in premarket trading on Wednesday, as investors weighed robust loan portfolio expansion against a concerning uptick in late-stage delinquencies. The digital banking giant, which operates primarily in Brazil and other Latin American markets, reported a 37% year-over-year increase in its credit portfolio for the second quarter, reaching $39.4 billion.
At 08:38 EDT, Nu shares were trading at $14.52, up from Tuesday's closing price of $14.46. The modest gain belies the underlying tension in the company's financials: while revenue surged 39% to nearly $5.9 billion and net income jumped 49% to $1.1 billion, the proportion of loans overdue by more than 90 days rose to 6.9%, up 35 basis points from the previous quarter.
This divergence between growth and credit quality is particularly significant given that lending now accounts for 41% of Nu's gross profit. The company's risk-adjusted margin widened considerably, however, providing a buffer against potential losses. The risk-adjusted net interest margin expanded to 12.4% in Q2 from 9.5% in Q1, a substantial improvement that may help absorb the impact of rising defaults.
Credit Quality Deterioration
The 15-90 day delinquency ratio, an early indicator of credit stress, actually improved by 16 basis points to 4.8% during the quarter. However, the more worrying metric—loans overdue by more than 90 days—climbed to 6.9%, a level that has drawn attention from analysts and investors alike. The company attributed most of the late-stage arrears to seasonal migration patterns, suggesting that some of the deterioration may be temporary.
Despite the rising NPL ratio, Nu's credit costs declined 9% quarter-over-quarter to $1.7 billion, indicating that the company is managing its provisioning effectively. The deposit base also grew to $45.3 billion, comfortably outpacing the credit portfolio and underscoring Nu's strong funding position.
Operational Highlights
The company added approximately 4 million net new customers during the quarter, bringing its total customer base to 139 million. Monthly activity rates climbed to 83.5%, while average monthly revenue per active customer approached $17. These metrics suggest that Nu's core business remains healthy, even as credit quality concerns persist.
CEO David Vélez highlighted the company's financial strength, noting that Nu is now "generating more than a billion dollars in quarterly net income." The return on equity stood at 33%, a figure that underscores the company's profitability despite the challenging credit environment.
Market Performance and Risks
Nu's stock remains well below its 52-week high of $18.98, currently trading about 23.5% lower. However, it is up roughly 29.6% from its 52-week low of $11.20. Tuesday's trading volume totaled 67.51 million shares, about 4% below the stock's 10-day average, though Nu remains among the most actively traded U.S.-listed stocks.
Investors are closely watching whether Nu can sustain its margin improvements as more accounts transition into late-stage delinquency. The company faces several risks, including a potential acceleration in unsecured lending defaults, currency fluctuations, regulatory changes, and higher expansion costs that could erode dollar-denominated income.
The premarket advance on Wednesday does little to resolve the central question facing Nu: can it maintain its impressive growth trajectory while managing the rising tide of late payments? The answer will likely determine whether the stock can recover from its recent slump or if further downside is in store.
