PagSeguro Digital Q2 2026 Earnings Call: Complete Transcript
PagSeguro Digital (NYSE:PAGS) reported second-quarter financial results on Tuesday. The transcript from the company's second-quarter earnings call has been provided below.
This content is powered by Benzinga APIs. For comprehensive financial data and transcripts, visit https://www.benzinga.com/apis/.
Access the full call at https://mzgroup.zoom.us/webinar/register/WN_ppISAJ4jTVm3rJVp70cwEw#/registration
Summary
PagSeguro Digital reported a solid Q2 2026 with increased client engagement, expanding its multiproduct ecosystem, and achieving resilient profitability despite a challenging environment.
Total payment volume (TPV) reached 133 billion reais, a 3% increase year over year, and the credit portfolio expanded to 52 billion reais with a 31% increase in total loans.
Net revenue excluding interchange fees was 3.4 billion reais, up 2% year over year, while recurring net income grew 2% to 576 million reais. Diluted non-GAAP EPS increased by 10%.
The company returned approximately 2 billion reais to shareholders through dividends and share buybacks over the last 12 months, representing a total yield of 13.4%.
Operational highlights include the launch of Minizinha Voz and iOS cashback, expansion in banking products, and a focus on credit growth with a strong risk management strategy.
Total deposits grew by 15% year over year to 43 billion reais, supporting future credit growth and reducing funding costs.
Management emphasized maintaining targets for 2026 despite a challenging macroeconomic environment, with plans to continue expanding its ecosystem and executing against long-term strategic goals.
The company’s cost efficiency initiatives led to a 5% decline in financial costs quarter over quarter, contributing to improved gross profit margins.
The introduction of new leadership with Enrique Fragata as COO aims to strengthen execution, efficiency, and operational excellence.
Full Transcript
Sofia, Conference Operator
Good evening. My name is Sofia, and I will be your conference operator today. Welcome to PagSeguro Digital's earnings call for the second quarter of 2026. The slide presentation for today's webcast is available on PagSeguro Digital's investor relations website at investors.pagibenki.com. Please refer to the forward-looking statements and reconciliation disclosure in this presentation and in the company's earnings release appendix. All participants will be in a listen-only mode.
To ask a live question after the presentation, please use the Raise Hand button to join the queue. Once you are announced, a request to activate your microphone will appear on your screen. Today's conference is being recorded and will be available on the company's IR website after the event is concluded. Now I will turn the call over to Spencer Pioner, Head of Investor Relations.
Daniel Spencer Pioner, IR, ESG and Market Inteligence Superintendent (Head of IR)
Good evening, everyone, and thank you for joining PagSeguro Digital's second quarter 2026 earnings conference call. We appreciate your time and interest in our company. Joining me tonight are Ricardo Dutra, our Principal Executive Officer; Carlos Mawad, our CEO; and Gustavo Sechini, our CFO. After the presentation, we will open the call for questions, and to allow for broader participation, we ask that each analyst limit themselves to one question only.
I now turn the call over to Ricardo Dutra for this quarter's highlights and key accomplishments. Dutra, please go ahead.
Ricardo Dutra, Principal Executive Officer
Good evening, everyone, and thank you for joining our earnings call. Let's start on slide 4 with some key figures. Q2 was another solid quarter for our company. We continue to increase client engagement while expanding our multiproduct ecosystem across payments, banking, and credit, driving resilient profitability and reinforcing the strength of our business model. Total payment volume reached 133 billion reais, up 3% year over year, reinforcing the gradual reacceleration trend we have seen over the past quarters.
Our expanded credit portfolio reached 52 billion reais, while total loans increased an impressive 31% year over year, driven mainly by the expansion of working capital and credit cards offering. Total deposits continue to grow, reaching 43 billion reais, up 15% year over year and providing an important foundation to support future credit growth. On the financial side, net revenue excluding interchange fees reached 3.4 billion reais, growing 2% year over year, mainly driven by acquiring volumes reacceleration and our credit portfolio.
Recurring net income (non-GAAP) also grew 2%, reaching 576 million reais, while diluted non-GAAP EPS increased 10%, supported by earnings resilience and capital optimization initiatives and within our guidance range for the year. Overall, we're seeing this strategy play out as expected: stronger engagement, broader monetization, and resilient profitability despite a challenging microenvironment. Going to slide 5, before moving into the business highlights, it is worth stepping back and looking at the broader value creation journey.
Over the last 12 months, PagBank returned approximately 2 billion reais to shareholders through dividends and share buybacks, representing a last 12 months total yield of around 13.4%. Since our IPO we have significantly expanded the platform. We started as a payment-led ecosystem and have gradually built a much broader financial services platform around our clients' needs, combining payments, banking, credit, investments, insurance, and new digital solutions.
This evolution has increased the recurrence of our results, expanded our addressable market, and strengthened our ability to monetize client relationships across different products and use cases. With that, I'll now turn the call over to Carlos Mawad.
Carlos Mauad, CEO
Thank you, Dutra, and good evening, everyone. Before going into the business update, I would like to start on slide 7 with the key messages that frame our performance this quarter and our long-term ambition. Q2 reinforces the consistency of our strategy. We continue to evolve our ecosystem with broader monetization across payments, banking, and credit while deepening our relationship with our active client base. This evolution is reflected in our operational performance, with acceleration in all business, from TPV to credit portfolio, and most importantly with increasing penetration of our banking products across our active client base.
At the same time, execution and discipline are central to how we manage the business, demonstrating the resilience of our business model. In the second quarter of this year we protected profitability supported by financial cost efficiency, operational leverage, and disciplined capital allocation. Finally, as we move forward, our focus remains on strengthening our competitive position, capturing the opportunities ahead, and consistently executing against both our 2026 commitments and our long-term strategic ambition.
With that context, let me move to the business overview and the opportunity ahead of us. Starting with the market opportunity, we continue to see significant room for growth across our core verticals. PagBank has built an integrated platform across payments, banking, and credit, serving individuals and micro to small and medium-sized businesses, in markets where penetration remains low and growth potential is still meaningful. Our ecosystem gives us several avenues for growth.
We have opportunities to increase share in Pix, deposits, expanded credit, and other financial services. In several of these markets, our current share remains below 1%, which reinforces how much room we have to expand. Moving to slide 9, product innovation continues to support engagement and monetization across the ecosystem. During the quarter we advanced several initiatives designed to make PagBank more useful in our clients' daily lives. These include Minizinha Voz, the first terminal in Brazil featuring an AI-powered sales assistant, launched in January of this year; iOS cashback on international credit card transactions; private payroll loans; and Pix Finance, an integrated Pix installments solution. Both products launched earlier this year and will be rolled out in the next months. Zero-fee investments, private pension plans, collections management tools, and new insurance products. What is important here is that these products expand our relationship beyond payments. They strengthen our banking and financial services offering, create additional cross-sell opportunities, and support our long-term ambition of building a more complete financial platform for both merchants and individuals.
As we have discussed before, the more products the clients use, the more engaged they become with the platform. That drives transaction activity and creates additional monetization opportunities over time. Turning to banking on slide 10, engagement continues to translate into higher transactionality and broader product adoption. Cash-in volumes, excluding acquiring-related inflows, reached almost 100 billion reais in the quarter, increasing 23% year over year and 19% quarter over quarter.
Active banking clients reached 5.7 thousand, up 27% year over year. We also continue to see stronger usage of our daily banking features, including bill payments and Pix transactions, with an increase of 12% year over year. In parallel, product penetration expanded across the active client base. Investment penetration increased from 23% to 28%, while insurance penetration increased from 11% to 16% year over year. Credit products penetration, excluding payroll clients, also increased from 4% to 6%, a strong 43% expansion that shows not only our capacity to perform but, most important, the growth potential in this avenue.
What we are seeing is simple: clients are bringing more activity into PagBank and using a broader mix of products. This deeper relationship is central to our strategy, and it supports higher engagement, broader monetization, and stronger lifetime value. Moving to slide 11, credit remains one of the key growth levers. It deepens client relationships and gives us additional opportunities to monetize the ecosystem. Our total credit portfolio reached 5.1 billion reais, increasing 31% year over year.
Growth was mainly driven by working capital and credit cards, both of which are important in the long-term strategy and to the ambition we have shared with the market. Working capital reached 0.6 billion reais in credit outstanding, growing 204% year over year, while credit cards reached 1.1 billion reais, up 35% year over year. Payroll loans and other credit products totaled 3.4 billion, increasing 18% year over year. It is also worth highlighting the origination trend.
While working capital origination was lower on average in Q2 compared to Q1, July already shows a stronger run-rate at approximately 80 million reais in credit production. This is above Q2 average and also above the average level seen in the prior quarters, which gives us confidence in the continued momentum and scalability of the product. When we include financial operations linked to merchants' prepayment, the expanded credit portfolio reached 52.4 billion reais, up 9% year over year and 3% quarter over quarter.
Just as important, we are growing the portfolio while maintaining a prudent risk profile. NPL 90 stood at 3.4%, remaining well below the Brazilian market average of 6.2%. This reflects the strength of our underwriting, enhanced analytics, risk governance, and the proximity we have with our clients through the ecosystem. As expected, the portfolio mix continues to evolve gradually, with unsecured products increasing as a share of the total portfolio.
This is consistent with our strategy and remains supported by prudent risk management across cycles. Let me move to funding on slide 12, which remains one of our key competitive advantages. Total deposits reached almost 43 billion reais, growing 15% year over year, while total funding reached 47 billion, up 10% year over year. More than 90% of our total deposits are generated on-platform, which reinforces the strength of our ecosystem and the relevance of our digital channels.
The growth of our deposit base, combined with a high on-platform concentration and lower funding cost, provides a scalable and efficient foundation to support credit expansion. During the quarter we continued to optimize the cost of funding. The company has now delivered nine consecutive quarters of funding cost reduction as a percentage of the CDI, reflecting disciplined liability management and improvements in product pricing and remuneration conditions.
This funding structure gives us flexibility to continue growing credit while maintaining a healthy balance sheet and strengthening client relationships. Now I will hand it over to Gustavo to cover how these business trends translated into financial performance. Gustavo, please.
Gustavo Sechini (CFO)
Thank you, Mauad. Hello everyone, and thank you for joining us today. I will now cover our consolidated financial performance for the quarter. This slide shows the contribution of business execution and funding efficiency to revenue and gross profit. Total revenue and income excluding interchange fees reached 3.4 billion in the quarter, increasing 2% year over year and 1% quarter over quarter. Gross profit reached approximately 2 billion reais, growing 3% year over year and 6% quarter over quarter.
This performance reflects business execution, continued contribution from banking and credit, and a sequential improvement in financial costs. At the same time, it’s important to note that interest rates remain high for the year, and the rate cuts have not come in the magnitude initially expected. So we continue to manage pricing, funding, and capital allocation with discipline. The banking business is an important driver of our results. Higher transactionality, credit expansion, and broader product penetration are contributing to a more diversified gross profit base and reinforcing the value of our integrated ecosystem.
Now on slide 15, we provide more details on the cost and efficiency drivers behind the quarter. Financial costs declined 5% quarter over quarter, primarily reflecting management initiatives to optimize the company’s funding cost. Despite still elevated levels, total losses increased 9% year over year, mainly reflecting the expansion and mix evolution of the credit portfolio. This is consistent with our strategy to scale credit in a disciplined way while maintaining strong asset quality indicators.
Operating expenses represented 25.9% of our total revenue and income excluding interchange fees in the quarter. On a year-to-date basis, operating expenses improved as a percentage of revenues, reinforcing again our focus on operating leverage, even considering second-quarter effects related to the World Cup broadcast sponsorship in Brazil and the annual collective bargaining agreement. D&A plus POS write-off also improved as a percentage of revenues in the first quarter of the year, reflecting better allocation and POS management.
Looking ahead, we still see room for additional efficiency gains, and they remain an important part of our value creation. Next slide, we summarize how these dynamics translate into bottom-line performance and returns. Non-GAAP net income reached 576 million, up 2% year over year. Diluted non-GAAP EPS reached 2.06 reais, increasing 10% year over year, supported by earnings resilience and a reduction in average shares outstanding following the execution of our share buyback program.
Annualized non-GAAP ROE reached 15.6%, increasing 30 basis points year over year and remaining in line with our solid capital structure and planned approach to our profitability. These results show that we continue to protect profitability while investing in technology, product innovation, and the long-term growth of the business. Moving to the next slide, I would like to reinforce the strength of our capital position and our commitment to disciplined shareholder returns.
We have continued to advance our capital optimization agenda, pursuing a Basel ratio within our target range of 18 to 22 over time. At the end of this quarter, our adjusted Basel ratio stood at 22.5%, compared to 24.1% in the first quarter and 29.6% in the second quarter of a year ago. This movement brings us closer to our target range while preserving all the flexibility and capabilities to support the company’s growth. Over the last 12 months, PagSeguro Digital returned 2 billion reais to shareholders through dividends and share buybacks.
In this first half of 2026, we completed our third repurchase program authorized for up to $200 million, with more than 370 million reais repurchased during this period. In addition, the second tranche of our 2026 dividend was paid in June, and a third tranche of $0.28 per common share will be paid on September 30th, with record date on September 16th. We continue to expect total cash dividends paid in 2026 to reach approximately 1.40 billion reais, subject to the relevant approvals.
As always, we see market conditions and the company’s financial position. As we said before, we always manage the use of dividends and buybacks, and dividends remain the most effective way to optimize capital while continuing to support the business growth. Moving to the next slide, we show where we stand against our 2026 commitment after the first half of the year. At this point, we are maintaining our targets for the year, recognizing that year-to-date performance is reasonably in line with our strategy.
We have been observing a much more challenging year than we were expecting, with risks coming both internally and externally. The macroeconomic environment remains clearly uncertain, and it is very important to recognize that Selic rate levels create additional pressure for the performance of the business. At the same time, we have been focusing on running the business with efficiency and discipline, looking for different initiatives to boost our profitability.
For that reason, we continue to expect to deliver a full-year performance in line with the guidance range. Now starting with credit, total credit portfolio growth reached 31% year over year in the first half, within our expected range for the full year. We expect to keep this growth within the expected range for the year as we further evolve our credit offer with the rollout of new products in the next quarters, such as private payroll and Pix finance.
Gross profit grew 2% year over year in the first half, highlighted by the positive contribution coming from financial cost efficiency. Again, we managed the business to reduce our financial cost. Diluted non-GAAP EPS increased 11% year over year in the first half, within the guidance range for 2026. This reflects resilient profitability and the positive effect of capital optimization initiatives. Finally, CapEx reached 1.1 billion reais in the first half of this year, and we continue to manage investments with discipline, aligned with our full-year commitment.
With that, I will turn the call back to Mauad for his final announcement.
Carlos Mauad, CEO
Thank you, Gustavo. Before we move to Q&A, I would like to share a recent leadership update. We are pleased to welcome Enrique Fragata as PagSeguro Digital’s new COO. Enrique brings strong experience in the financial sector, and his arrival strengthens our focus on execution, efficiency, and operational excellence. He comes at an important stage as we continue to expand our ecosystem and advance our long-term strategy. With that, I thank you all for joining us today.
We appreciate your continued trust and partnership.
Sofia, Conference Operator
Thank you all for the presentation. We will now begin the Q&A session for investors and analysts. Our first question comes from Abnor Shirazi with Citi. You can open your microphone.
Abnor Shirazi, Analyst at Citi
Hi all, nice to be here. My question is related to credit and the 2029 goals. Remember that the expectation was to accelerate the credit portfolio, especially in 2027, but for 2026 you are testing the product. From the current scenario that we are seeing today, with everyday surprisingly negative news on the delinquency levels, do you see any change in plan, reducing the growth pace, or revising the 2029 goals? Thank you.
Carlos Mauad, CEO
Hello, this is Mauad. Thank you for your question. No, we are still quite confident in everything that we are doing here. In fact, we see the 31% increase in the credit outstanding as a very good number in terms of volume and performance. There is a long way to go before 2029. Of course, there are going to be different macro cycles that we’re going to have to face. There are going to be regulatory milestones that can change the credit landscape in Brazil, especially on the collateral products.
But again, it is our mission here to find out the workarounds, find out the new products, and to scale up the credit strategy of the company. So, so far, despite the fact that the macro is tougher than we thought at the beginning of the year, we’re still quite confident in everything that we are doing and confident in the long-term guidance that we published last year. Just to complement part of the answer here is to remember that—look at slide 11—we have very low NPLs to give us the comfort to keep growing the credit portfolio in a sustainable way.
We are still far below the industry: 3.4% compared to 6.2%. So we do have the comfort to keep growing in a sustainable way, the same way we’ve been doing so far.
Abnor Shirazi, Analyst at Citi
Great. If I may, a follow-up on credit regarding the private payroll loans. The product was tested internally. How is this advancing, and has the rollout to charter companies started yet?
Carlos Mauad, CEO
Yes, we already started to produce credit outside of the group—the economic group that we have here. We already produced the first few millions in terms of credit outstanding, and we’re going to keep pushing up these volumes as we get confident in everything related to the operational risks on the product. We are confident on the first signs that we saw that everything that we designed and implemented is solid. But of course there are some parts of the credit cycle that we still need to test.
But again, answering straightforwardly your question, we are already creating credit production outside of the group on the payroll loans.
Abnor Shirazi, Analyst at Citi
And how’s the quality so far? Sorry for the follow-up.
Carlos Mauad, CEO
So far it’s been perfect. But of course we started with the top tiers in terms of credit quality. So in terms of delinquency, it’s coming at the levels that we expected.
Abnor Shirazi, Analyst at Citi
Great answer.
Sofia, Conference Operator
Our next question comes from Danielle Vaz with Safra. You can open your microphone.
Danielle Vaz, Analyst at Safra
Hi everyone. Thank you for the opportunity to make questions. Maybe two questions on my side. Looking at your TPV, it improved sequentially, but we didn’t see the revenues being budged at the same pace. So you have a beat on TPV and a miss on revenues, maybe versus consensus. On my side, this can mean your take rate at the margin is compressing. Can you give some comments on if that has to do with pricing—maybe a seasonal World Cup volume with more betting at your mix or more Pix?
Or a struggling client mix? So that’s my question number one. And question number two, trying to look at your gross profit guidance for 2026—you’re currently at 2%, and your guidance isn’t changed at between 6% and, I guess, 9%. Any expectations of pickup in the gross profit for the second half of the year to meet guidance? Thank you.
Carlos Mauad, CEO
This is Mauad. I’m going to answer the first question, then I’ll hand over to Gustavo to give you some light on the gross profit question. So in terms of the TPV, there is a small dilution when we saw the growth of the net revenue and the TPV itself. There is an impact in terms of product mix driven by the World Cup, as you mentioned. But that is nothing that really worries us. Of course we keep pushing TPV. We are being very careful about pricing, and as you probably remember, there is also a tough comp when you look at the second quarter of last year, where we had a massive repricing of the entire customer base due to the hike of Selic.
So if you take a look at the evolution of net revenues from the first quarter of last year to the second quarter, it is quite strong. So we created this step, and it’s a little bit harder to push up the net revenue growth in the second quarter. But again, that is a price to be paid on the churn that we had to manage later last year. And here we are much more confident on this balance that we are creating between growth and defending the profitability of the company.
I will pass the floor to Gustavo so he can answer your second question.
Gustavo Sechini (CFO)
Daniel, Gustavo here. So, talking about the guidance, especially the gross profit guidance, we know that we have a lot of moving parts and we have a lot of headwinds coming from the macro scenario, which give us some level of uncertainty. But at the same point, as we have been talking, we always say that the second part of the year, the second half of the year, should be the most important in terms of the guidance achievement. And talking about the gross profit, we can say that we considered some contributions coming from the credit origination, the credit acceleration as we post in this presentation, also as Moad said, related to the TPV.
Remember that we have been saying that the third quarter, between the third and fourth quarter of last year, were the worst part of the cycle for us. And gradually we had an increase in terms of the payment activity, also in terms of financial costs. Despite the headwinds of this higher Selic when compared with what we were expecting, we have maybe easy confidence in the second half of the year. And I can say that we are always looking for different initiatives that could give us the ability to deliver the guidance, but again, probably not by the top of the range, but probably reaching the bottom of the gross profit guidance as we post.
Daniel, Analyst
Okay, thank you guys. Thank you for the answers.
Sofia, Conference Operator
Before moving on to the next question, please remember each analyst should only ask one question. Next question comes from Caio Prato with UBS. You can open your microphone.
Caio Prato, Analyst at UBS
Hi guys, thanks for the opportunity to ask questions. I have one question on cost this quarter. Actually in the last two quarters we noticed, I would say, better-than-expected POS write-offs. I think those were lower than expected in the first Q and now I think we had a reversal in this the second quarter. Can you give us any color around that? Anything that's happening different than expected on the POS write-off and what can we expect going forward as well?
And still on this topic, if you are seeing anything related to cost related to POS, we note that some players claim about higher costs related to POS. Just wondering if you have anything on your side as well. Thank you.
Gustavo Sechini (CFO)
Okay, to stop here. Caio, good to talk to you. So, talking about the write-off of POS or the POS in general, we have implemented a series of different initiatives to organize our logistics and also how we can deploy different initiatives in terms of how we can get the POS that we had on in the street and our merchants are not using anymore, and how we can deliver a different approach, a different solution on that. So that's the main reason that you are seeing.
So, considering going forward, probably we are going to seek for continuous improvement in that line. I would say that probably it is not going to be something linear. But the idea is to continue improving our POS database. And we are looking to generate some kind of initiatives. And talking about efficiency or other lines in terms of expense, in general, as we said, we are managing the business to get some operational leverage. So we have implemented some initiatives in terms of how we can redesign some processes, how we can implement some automations.
We have used AI to help us not only in the back office, but also in the customer care, in the customer assistance. So we have been deploying different kinds of initiatives to give us the opportunity to continue generating operational levers. So that's the idea. We are managing the company, trying to seek for different opportunities to improve our profitability through the efficiency gains.
Caio Prato, Analyst at UBS
Okay, thank you. Anything on the cost related to POS?
Carlos Mauad, CEO
Hello, this is Mauad. There is nothing major. We do have a memory shortage on the global market, so that kind of pressured the terminals prices a little bit. But on the other hand, FX is helping a little bit the efficiency that we are building, as Gustavo mentioned, on how to recover the POS that are on the churn customers' hands. So everything that we are putting together here, we are not feeling this impact on the unit perspective. So, so far so good here on our side when we talk about the POS cost.
Caio Prato, Analyst at UBS
Okay, thank you very much, Mauad. I think it's over.
Sofia, Conference Operator
Our next question comes from Marcelo Mitai. You can open your microphone.
Marcelo Mitai (Analyst)
Hello everyone. Thank you for the opportunity. I have two questions. So the first question is regarding the take rate, so the financial revenues. And looking forward, with this dynamic to have a lower impact of credit cards, so having more PIX, it's possible to see this dynamic maintained, so stable going forward, is the first question. And the second question is regarding the expenses side. We saw some expenses related to the World Cup. So it's probably possible to see better profitability or even a reduction of the operational expenses on the third quarter looking forward.
Thank you.
Gustavo Sechini (CFO)
Hi, Marcelo, Gustavo here. I will start from your second question. I wouldn't say that we could expect a reduction in terms of expenses, but the idea is to manage the company to grow the expenses below revenues. That's the main idea. Or at least below the inflation. So, as I said in the previous question, we are looking for opportunities from the operational side. We are looking for opportunities on the customer experience, both trying to gather and to generate operational leverage to the business and also give us, as I said, space to be more—to improve our profitability in general.
So that's the idea. I don't know if I understood correctly your first question, but when we talk about take rate or the mix between different kinds of transactions, we are seeing in general that they are pretty much similar. Of course, what it means is that we are observing the increase in terms of PIX that contributes not only on the payment business itself, but also through the banking. And at this point it's very important to highlight the performance of the cash-in.
Remember that we now reach almost 100 billion AI in terms of cash-in in the quarter. And mainly that cash-in comes from Dex. And that gives us the capability to monetize that kind of flow of money from customers that choose our platforms as their main platform through different projects. So when we look at the take rates, it gives us only a portion of the relation of the customers. That's very important to look at the transactionality as a whole.
So look at the inflow of money that comes from the payment side, look at the inflow of money that comes on the bank side, and all the opportunities that we have to monetize that kind of inflow of money.
Marcelo Mitai (Analyst)
So, but the question here is that—so, sorry to do this follow-up—is that looking forward this dynamic of mix, so we will have to see the gross profit yield, so gross profit compared to the revenues, going up. So that's definitely what we have to see to deliver and to achieve the low end of the guidance. So probably the idea here is that it's accretive in terms of gross profit yield.
Gustavo Sechini (CFO)
Yes. The short answer, yes. Not related to that, but also relates to increasing transactionality in general.
Marcelo Mitai (Analyst)
Okay, thank you.
Sofia, Conference Operator
Our next question comes from Neha Agarwala with HSBC. You can open your microphone.
Neha Agarwala, Analyst at HSBC
Hi, thank you for taking my question. I have a question on the credit business. Could you expand a bit more and tell us what are the kind of NPLs and cost of credit that you're seeing for your working capital loans at the moment? It's considerably small right now, but just to get a sense of how things are going and where should the NPL and cost of risk normalize as you grow the book, and what gives you comfort regarding accelerating in July? Was the deceleration in 2Q more a conscious effort to kind of control this given the environment?
And if that is the case, why the acceleration in July? Has there been any benefit from the Desenrola program in your customer base? Thank you so much.
Carlos Mauad, CEO
Hello, Neha, thank you for your question. We do not disclose any information regarding individual product here in terms of credit appetite or anything like that. So I'm going to jump the first part of your question, and I'm going straight forward to the second part of it. If you take a look, in April—I'm sorry, on the second quarter—we had a lower credit production on average due to a new credit model that we deployed at the beginning of the second quarter.
So we were waiting the first cohorts here to see if the cohorts would come inside the credit appetite and would deliver the performance that we want to before we rolled out for the entire customer database. That's why you see this hike in terms of credit production in July, and you see a more, let's say, conservative approach in the second quarter. That's a little bit what explains the movements between the average of the second quarter and the credit production of July.
Gustavo Sechini (CFO)
It's Gustavo here, just to complement Mauad here. I think that's very important to highlight that we are not seeing any kind of deterioration on our asset side in none of our products that we operate. So it gives us the confidence that we have developed all the capabilities to continue growth with prudence and with sound credit portfolio. And despite that we do not provide reference in terms of NPLs, you could expect that it will continue growing but at a sustainable pace and much more related to the change or to the evolution in our product mix than compared to deterioration itself.
Neha Agarwala, Analyst at HSBC
And just to clarify, there's not been any impact from the Desenrola program and we don't plan to do secured working capital loans. It's going to be more secured more from the funding side. You would focus on the unsecured working capital. Right.
Carlos Mauad, CEO
There is no major impact of this second program here for us. The first program was a much bigger program due to the stock in terms of non-performing assets that we had in the company. So the second one has a much lower impact. And again, working capital is going to still be our priority here because it is where we have a very clear right to win with the kind of customer that we have in our client base.
Neha Agarwala, Analyst at HSBC
Thank you so much.
Sofia, Conference Operator
Our next question comes from Mario Pierry with Bank of America. You can open your microphone.
Mario Pierry, Analyst at Bank of America
Hey guys, good evening. Thanks for taking my question. Let me ask you a question on what you said about capital distribution, right, that your capital ratio is about 22.5% above your target of 18 to 22% and you have completed your buyback program, and you mentioned that you'd rather pay dividends than buy back shares. I just wanted to explore that a little bit more—why you think paying dividends is better than buying back shares. Especially because when we look at your share price, it's back to the levels where it was in September of last year when you announced your strategic plan.
So just wondering why you'd rather pay dividends than buy back shares. Thank you.
Gustavo Sechini (CFO)
Hi, Mario, Gustavo here. So the first part of the answer of the question why we choose dividends at this point is that because dividends give a much more regular and predictable esteem to investors. So we can set a target, as we said, in terms of capital ratio between 18 to 22, and through dividends we have been deploying very clear capital optimization at the same time in a predictable way. It doesn't mean that we cannot use buybacks in the future, but we choose to use dividends because of the reason that I said before.
At the same time, as you said here, we used the instrument of buybacks in the last 12, 18 months with two programs that we executed in a very short period, but with limited effect and without the predictability. So that's why we are now focused much more on dividends than buybacks. That's the main reason.
Mario Pierry, Analyst at Bank of America
Okay, that's clear. So just to be clear then on your EPS guidance, right, where you talk about EPS growth of 9 to 13% for the year, that does not contemplate any more buybacks this year, correct?
Gustavo Sechini (CFO)
Yes, correctly.
Mario Pierry, Analyst at Bank of America
Thank you.
Sofia, Conference Operator
Our next question comes from Guillermi Grisbo with JP Morgan. You can open your microphone.
Chris, Analyst
Hi, good evening everyone. I'll keep my questions to one. It's more looking into 2027 already a little bit, coupling with the guidance for the rest of the year in gross profit, but more looking throughout the year, more 2027. I think there's a growing risk that we start to get into a scenario in which you mentioned two tailwinds to gross profit, but maybe eventually in 2027 they're going to move in the opposite direction. So it's basically rates moving lower in the second half.
We don't know what is going to happen in 2027. And then you have the accretion of the credit, right? As you recognize the credit revenues. But maybe we have been discussing financials, eventual credit cycle, and you need to pull back on credit. So with all that said, my question is assuming that, considering that you're growing gross profit 2% year over year today, if you don't have those benefits next year, what levers can you pull to deliver earnings growth next year?
Thank you so much.
Gustavo Sechini (CFO)
Hi Chris, Gustavo here. I think it's too early to discuss 2027. As I said in one previous question, we have a lot of moving parts right now. We are managing the business to deliver the 2026 guidance. That's our main focus that we are working here, trying to mitigate the headwinds, especially when it comes from the SELIC, try to mitigate the uncertainty or the volatility that comes both from internal and external environment. But I think that the correct time to discuss 2027 should be a little bit later.
And as you said, we have uncertainty and we are looking, when we start to discuss that, at alternatives to deliver a continuous growth, especially the continuous growth of the business, not only in terms of gross profit, but also in terms of top line. So that should be the answer at this point.
Chris, Analyst
Okay, that's clear. Thank you, Gustavo.
Sofia, Conference Operator
Our next question comes from Pedro Lebuki with Itaú BBA. You can open your microphone.
Pedro Lebuki, Analyst at Itaú BBA
Thanks, guys. Good evening. Question on financial costs this quarter down a little bit. I know you mentioned working days and such, but you also didn't have an impact of a lower average SELIC, even though it's slight, and we saw good dynamics in deposits. So looking at least until the end of this year, how should we think about financial expenses, especially relative to revenues, and what levers you're pulling there? Thank you.
Gustavo Sechini (CFO)
Pedro, Gustavo again. I would say that when we consider the second half of the year, probably we're going to see easy comps in the financial expense. I would say that this is the first quarter, to be clear, that we are seeing reduction, at least in nominal terms, in our financial cost after eight quarters, if I'm not wrong. So I would say that that trend should remain a reality in the second part of this year. So despite that we are seeing, or we can forecast, a lower pace in terms of the reduction in rates in Brazil, remember that we assume in our guidance year-end SELIC around 12.5 and now we are looking much more close to 14 or 13.75.
We have better comps when compared to the second half of last year.
Pedro Lebuki, Analyst at Itaú BBA
Great, thank you.
Sofia, Conference Operator
Our next question comes from Thiago Binsfeld with Goldman Sachs. You can open your microphone.
Thiago Binsfeld, Analyst at Goldman Sachs
Hi, good evening. Thank you for taking our questions. Also on the deposit franchise, we see your deposit costs coming down annually to 83% of CDI. So from here, when you look forward, how much more do you think there's space to lower your deposit costs? Would you say it stabilizes around these low 80s, 83%? And what kind of initiatives are you implementing to lower that cost? Thank you.
Gustavo Sechini (CFO)
Hi, Thiago, Gustavo here. So I would say that we are seeing our deposits growing 15% year over year. Should be higher for sure. We could expect a higher pace, but I think that we have a very healthy pace in terms of deposits, especially considering that we have implemented, as you said, a bunch of different initiatives to mitigate the increasing rates and also reduce the remuneration that we used to pay in our deposits, both CDs and also our digital accounts.
But more important than that, and also connected to the deposit, is the inflow of money, as I said, connected to cash-in, connected to the banking business. So it, combined with the payments inflow, gives us the ability to continue growing our deposit franchise. That's definitely a clear advantage that we have in the business. And we are always trying to identify different opportunities, using different instruments in our funding structure to deliver a continuous reduction in our funding cost and also maintain that advantage that I said.
Thiago Binsfeld, Analyst at Goldman Sachs
Thanks, Gustavo. That's clear.
Sofia, Conference Operator
This concludes the question and answer section and today's presentation. You may now disconnect and have a nice evening.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.