Adds share move in paragraph 3, analyst comment in paragraphs 4, 14

By Kylie Madry

MEXICO CITY, May 14 (Reuters) - Nubank, Latin America's largest digital bank, posted first-quarter net income below analyst expectations as provisions rose with rapid loan growth, while signaling a cautious U.S. expansion after its Mexico business broke even for the first time.

Brazil's Nu Holdings NU.N reported on Thursday a 41% increase in net income to $871.4 million, though it still fell below an estimate from analysts of $980 million. Revenue rose 42% to $5.3 billion, topping expectations of $4.5 billion.

Shares sank nearly 9% in after-market trading on the earnings publication, but trimmed losses to around 3% during the firm's call with analysts.

The quarter "appears weak at first glance," analysts at J.P. Morgan said in a note, but argued the market reaction could prove too negative as the miss was largely driven by heavier loan provisioning.

MEXICO BREAKS EVEN

Nubank ended March with 135.2 million customers, up 14% from a year earlier, including more than 15 million in Mexico, where the business reached break-even for the first time.

"Mexico is beating Brazil across every single (key performance indicator) in terms of growth, engagement and profitability," Chief Financial Officer Guilherme Lago told Reuters in an interview.

He downplayed recent changes in operations in Mexico, such as the end of a tie-up with convenience store chain Oxxo, which he attributed to regulatory difficulties.

BRAZIL ASSET QUALITY IN FOCUS

Nu's total credit portfolio grew 40% year-on-year to $37.2 billion, while deposits rose 22% to $42.4 billion.

The company's 15-to-90-day non-performing loan ratio, a key early delinquency gauge, rose to 5.0% in the quarter from 4.1% in the prior quarter. But Lago said the increase was in line with seasonal patterns and did not point to broader asset quality deterioration in Brazil, where investors have closely watched the outlook for consumer credit as household indebtedness rises.

"We are not seeing any signs of asset quality degradation," Lago said. "That has given us the confidence to continue to grow and gain market share."

He said most of the rise in bad loans reflected first-quarter seasonality, while part came from deliberate expansion into riskier segments and changes in product mix.

That may still be a sticking point for investors, J.P. Morgan said, as concerns over Brazil's credit cycle may mean an increase in non-paying loans will likely "not be well received."

Lago said Nubank's relatively short-duration loan book allows it to react quickly if credit conditions worsen. The average duration on its Brazilian credit card portfolio is about three months, he said, compared with roughly two months in Mexico.

CAUTIOUS U.S. EXPANSION

On international expansion, Nu said it would take a measured approach to entering the U.S. market, with maximum investment expected to remain below 100 basis points of its consolidated efficiency ratio in each of 2026 and 2027.

Lago declined to give details on Nubank's U.S. go-to-market strategy, citing competitive reasons, but said the lender sees room for a mix of low-cost banking, AI-driven tools and strong user experience to appeal to American consumers.