StoneCo (NASDAQ:STNE) held its second-quarter earnings conference call on Thursday. Below is the complete transcript from the call.
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Summary
StoneCo Ltd reported a 4% growth in Total Payment Volume (TPV) and a significant increase in retail deposits by 22% year over year, indicating successful retention and banking initiatives.
The company launched a new brand positioning, 'Stone — the Bank for Entrepreneurs,' aiming to deepen banking and credit relationships with clients, which is expected to enhance cross-selling and ecosystem growth.
For the first half of 2026, StoneCo reported 3.1 billion reais in adjusted gross profits and 4.58 reais in adjusted basic EPS, with a full-year guidance of 6.6 to 7.0 billion reais in adjusted gross profits and 10.8 to 11.4 reais in adjusted basic EPS, although higher-than-expected interest rates present a challenging environment.
Revenue increased to 3.6 billion reais, driven primarily by the scaling of the credit portfolio, though adjusted net income declined slightly due to provision expenses related to credit growth.
Operational highlights include the integration of Pagar.me into Stone, streamlining merchant operations across physical and digital channels, and the successful launch of government-backed credit programs which contribute to risk-adjusted returns.
Management emphasized the cautious approach towards credit growth, focusing on lower-risk government-backed programs and adjusted ticket sizes in response to macroeconomic challenges.
The company returned 4.3 billion reais to shareholders in the first half of the year through dividends and share buybacks, indicating strong capital management.
Despite market challenges, StoneCo remains focused on achieving the lower end of its financial guidance, with expectations of improved performance in the second half of the year.
Full Transcript
OPERATOR
Good evening, everyone. Thank you for standing by. Welcome to StoneCo's second quarter 2026 earnings conference call. By now, everyone should have access to our earnings release. The company also posted a presentation to go along with this call. All material can be found online at investors.stone.co. Before we begin the call, I advise you to review the disclaimer included in the press release and presentation, which outlines important information about forward-looking statements and non-IFRS financial measures.
In addition, many of the risks regarding the business are filed with the Securities and Exchange Commission, which is also available at www.sec.gov. Before we begin, I would like to highlight that the company is restricting the number of questions to StoneCo's Diego Salgado and the Head of IR, Roberta Noron. I would now like to turn the conference over to Mateus. Please proceed.
Mateus Scherer Schwening — CEO
Thank you, operator, and good evening, everyone. Let me start with some perspective on the quarter. This was a quarter of steady progress on the priorities we laid out earlier in the year: reaccelerating TPV growth through better retention, deepening our banking and credit franchises, and keeping a disciplined approach to costs. TPV growth accelerated to 4%, an early signal that the retention initiatives we launched this year are beginning to work, though there is still a lot of work to be done.
Banking and credit kept advancing, with retail deposits up 22% year over year and our credit portfolio now more than double its level from a year ago. On costs, we kept expense growth well below revenue growth while scaling the use of AI more broadly across the company. Finally, we continued to return meaningful capital to shareholders throughout the quarter. Having said that, today I want to spend a few minutes on something that goes beyond the quarterly numbers: how we are positioning Stone today for the long term and how our ecosystem is coming together.
For the merchants, let's turn to slide 3. This quarter, we launched our new brand positioning, Stone — the Bank for Entrepreneurs. This is not a change in strategy, and it does not depend on anything new. We already have the complete offering — payments, banking, and credit — working together in a single relationship. The gap is in the perception. Many clients still see Stone mainly as a payments company. This positioning is our way of closing that gap so that when an entrepreneur needs banking or credit, Stone is part of the consideration from day one.
As that perception builds, it naturally opens the door to more cross-sell, deeper relationships, and growth across the ecosystem. To bring this to life, we also launched a campaign. The link is on this page. Now moving to slide 4. This is what the Bank for Entrepreneurs means in practice. Everything starts with a complete account. Money comes in through whatever channel the client sells — in person or online. It goes out to pay employees, suppliers, and taxes.
In between, it stays within Stone, where clients can hold a balance, invest their money, or take credit. On its own, this is just what a complete account should do. The difference is what we build around it — helping entrepreneurs run their day to day by charging customers, issuing invoices, managing orders, with AI increasingly doing part of that work, from enhancing catalog images to creating content that helps merchants sell more. On slide 5, we recently reached an important milestone in that direction.
Pagar.me, which historically was our digital commerce front, has been integrated into Stone. For the merchant, this means online and physical operations in one account with one view of the business. It brings our full digital commerce suite into the Stone platform, and with sales consolidated in one place, we understand the business better, which unlocks more credit and more. One brand, one account, one experience. For Stone, this opens a new growth avenue, capturing a larger share of digital transactions, a part of the market that is growing faster than the average.
Now let me connect this to our financial commitments for the year on slide 6. In the first half, we delivered 3.1 billion reais in adjusted gross profits and 4.58 reais in adjusted basic EPS against our full-year 2026 guidance of 6.6 to 7.0 billion reais in adjusted gross profits and 10.8 to 11.4 reais in adjusted basic EPS. While our guidance remains achievable, interest rates have stayed higher for longer than expected, making the backdrop considerably more challenging than what we anticipated at the start of the year.
In that context, while the scenario today is more challenging than it was last quarter, we continue to be focused on delivering towards the lower end of these ranges. Our year-to-date effective tax rate of 15.4% remains consistent with the mid-teen level we guided to, and we stay disciplined on execution, with performance weighted towards the second half as credit revenues compound and our commercial initiatives continue to take hold. With that said, I will pass it over to Diego, who will go over our financial and operating results for the quarter.
Diego Salgado — Chief Financial Officer
Thank you, Mateus, and good evening, everyone. Let me start on slide 7, where we present our main financial metrics for the quarter. Our revenue grew to 3.6 billion reais, led by credit as our portfolio continues to scale. Adjusted gross profit was broadly stable year over year at 1.6 billion reais, as higher revenues and lower financial expenses were offset by the provision expenses that come with the credit portfolio growth. Adjusted net income was down slightly on an annual basis, while adjusted EPS grew 9% with continued share buybacks over the past year meaningfully reducing our share count.
On slide 8, our active client base reached 4.8 million merchants, and RPOC grew, mainly as credit keeps gaining penetration and weight in our client base. Turning to slide 9, TPV growth accelerated to 4% annually, a small improvement over the pace we saw in the first quarter. We're still facing the churn challenges we detected earlier this year, and they still weigh on our overall performance. However, this is the first tangible sign that our initiatives are gaining traction.
Our work here is focused on three fronts: simplifying our offerings and bundles, aligning sales force incentives, and improving client experience to reduce operational friction. So far, the effect is more meaningful on micro merchants, as simpler offerings and an easier contact allowed us to move quickly and bring churn down. With larger merchants, the breadth of the offerings and needs make the operation more complex and riskier, and therefore we calibrate it cautiously before scaling.
We expect the benefits of our initiatives to become more visible as the year progresses and therefore accelerate TPV. Looking at TPV mix, QR code continues to grow faster than card volumes. In banking, our deposit franchise keeps building. Retail deposits reached 10.8 billion reais, up more than 20% year over year, as we further engage clients with our account offerings. On slide 10, we present the growth metrics of our credit business. Our portfolio reached 3.8 billion reais, two times larger than one year ago, driven mainly by working capital solutions.
During this quarter, we also began disbursing government-backed loans, which already account for roughly 300 million reais of our portfolio, while credit cards reached 400 million reais. Moving to revenues, given the continued growing contribution of our credit card, we have revisited our credit revenue and yield metrics to include credit card interchange fees as we see it as part of the overall product P&L. Credit revenues grew 14% in the period with flattish yield.
The stability reflects the entry of government-backed lines, which carry lower rates and lower risk profile. That takes me to slide 11, where I want to spend some time explaining how government-backed facilities will impact our P&L going forward, considering its growing relevance in our portfolio. Let me first explain how we segregate clients on working capital products based on the two main solution channels we have. Our automated desk handles the smaller tickets, about 40,000 reais, and typically up to 18 months, standard, at an average rate of 4% per month.
Our dedicated desk serves larger clients, with an average ticket today closer to 700,000 reais but with tenors going up to 30 months and lower rates of roughly 2.5% per month. Through those desks, we are currently operating two government programs, each with a different profile and focus. We began disbursing PEAC-FGI in April, and it has already gained some relevance in our book. The second program we just launched, so it's still very small. What these programs have in common is a guarantee that reduces losses upon an event of default from a client of ours, considering the reimbursement of guarantees that we obtain from the government.
As a result, this reduction on provision expenses affects the coverage for loans on stage one and two. This kind of guarantee allows us to be more aggressive in pricing for clients where we were previously not that competitive, improving the risk-adjusted returns on what we lend. In short, this is about expanding access to credit and deepening merchant relationships while keeping the risk profile of our growth under control. On slide 12, we turn to credit quality and cost of risk.
In the quarter, provision expenses reached 188 million reais. The growth in expenses is a combination of, first, the record expansion of the portfolio; second, the roll-forward effect of the loans disbursed in late 2025 and early 2026 that are moving to later provisioning stages; and finally, the continuous pressure that we've been noticing on the dedicated desk, with records in bankruptcy protection filings all over the country. Although the dedicated desk represents less than 25% of our total merchant portfolio and the average ticket today is at 700,000 reais, as I've mentioned, we've been facing defaults precisely on some of the largest tickets we have in our books, in some cases north of 10 million reais. On the other hand, on the automated desk, the improvements that we rolled out during the second quarter are showing significant results, with first-payment defaults consistently trending down, and the June cohort presenting the best result during the last 12 months. These combined effects pushed our NPLs higher across all indicators and kept the cost of risk at 21.5%. On coverage, the ratio came down to 204%, and I want to address that directly.
Two main effects explain the move. One, it's mix related, and the other is simply a mechanical effect. In the mix, we're steering new disbursements toward better-rated clients and ramping our government-backed facilities, which carry a guarantee and therefore require lower provisioning. Therefore, these two effects combined structurally lower the coverage we need to hold. The mechanical part is simply the math of a seasoning book. This quarter, our over-90 NPLs grew faster than our provisions as the strong late 2025 and early 2026 vintages rolled into over-90 buckets, while write-offs, which clear the oldest and most heavily provisioned loans, come with a lag. Slide 13 provides a bit more color of the NPL composition by product and channel. On the short end, sequential increase came mainly from new delinquency cases in our dedicated DAs. As I've mentioned, the automated desk by contracts actually pulled this early metric down in line with the improvements of first-payment-default metrics we previously mentioned.
Later-stage delinquency tells the opposite story here: the automated desk was the main driver of the increase as weaker vintages are rolling forward to over 90 days. Staying on slide 14, we present the evolution of our costs and expenses. Cost of services, excluding provisions, was broadly flat year over year as we continue seeking operational leverage using technology and start benefiting from the workforce reduction carried out in the first quarter.
Net financial expenses have been flattish for quite some time now as we've been growing client deposits. This shows in our funding cost, which has come down to roughly 85% of CDI. Admin expenses were lower year over year on reduced personnel and third-party services expenses. Selling expenses were up modestly on higher marketing investments, partially offset by lower distribution channel expenses. Other operating expenses were higher year over year, mainly reflecting a non-recurring gain in the prior year and higher net provisions for POS.
These effects were partially offset by lower share-based compensation. Our effective tax rate was 16.4% in the quarter, slightly higher than the mid-teens implied in our guidance. We certainly have a long path towards the efficiency levels we want, but will keep evolving in time. Finally, on slide 15 we present our capital position and return on equity. Our capital ratio stood at 26%, normalizing after the extraordinary dividend paid in May from the linked sale proceeds.
In total, we have already returned 4.3 billion reais to shareholders during the first half of the year. To wrap it up and coming back to Mateus's opening remarks, this was a quarter of steady execution. TPV growth is reaccelerating, our banking franchise keeps building up, and credit continues to scale despite the short-term headwinds we keep facing. Ultimately, this all comes down to the merchant. Our goal is to be the bank that Brazilian entrepreneurs rely on to run and grow their businesses, and we believe that improving our banking and credit capabilities is how we deepen that relationship over time.
With that, let's open it up for questions.
OPERATOR
We are going to start the question and answer section for investors and analysts. If you wish to ask a question, please press the button reaction and then click on Raise Hand. If your question has already been answered, you can leave the queue by clicking on Put Hand Down. Our first question comes from Eric Ito from Bradesco BBI. Please, Eric, you may now proceed.
Eric Ito — Analyst at Bradesco BBI
Hi. Thank you. Good afternoon, everybody. Mateus, Diego, Roberto, thanks for the call. Thanks for taking my question. I have two here on my side. The first one, I think in the release we saw 200 million non-recurring allowance for expected losses on the issuers in distress. So could you please just give us some color on the main trends there or what happened there, just for us to have more color on that? And then the second one I'd like to touch on the credit.
I think you guys provided very good details on the different desks, but my question is towards the government-backed loans already reaching 330 million in the quarter. So I just wanted to see if you could share more expectations going forward and how does that change your guidance for the credit book going forward. Thank you.
Mateus Scherer Schwening — CEO
Hey Eric, thanks for the question. So I'll start giving some context around the provisions and then hand it over to Diego to talk about the accounting piece and the path forward, as well as the credit question. So in terms of the provision we did for selected issuers this quarter, maybe it's worth giving some context on the topic. As you know, the central bank has ordered the liquidation of a large financial group earlier this year, and one of the subsidiaries of that group was a sizable credit card issuer.
It now has a little bit over 90 days since we last received the cash flow from that issuer, and then, as a matter of accounting prudence, we decided to do the provision. But in terms of how we evolve from here, we have the position that ensuring that these amounts get settled by the issuers is the role of the card networks. And the reason for that is quite straightforward in our view. Just to give you some example and some color on that: whenever a merchant accepts a credit card transaction, usually the merchants don't look at who is the name of the cardholder or who is the issuer behind the transaction.
And in order for that to work, the merchant acquirers need to trust the networks to manage the risk of their members and to ensure that every transaction that is authorized gets settled to the merchant acquirer so that we can pass it through to our merchants. If we merchant acquirers had to underwrite every issuer one by one and then accept only those that we judge to be creditworthy, the credit card itself would lose a lot of the value that makes it such a good item to make purchases of services and goods, and the system would be worse off.
So in summary here, we do have an issuer that has been liquidated. It has been more than 90 days since we last received, and while we do expect to settle this issue and receive the settlements that are due to us, for a matter of accounting prudence we decided to make the provisions. I'll hand it over to Diego to give some more color on that and to address the credit question as well.
Diego Salgado — Chief Financial Officer
So Eric, thank you very much for the question. As Mateus mentioned, since the last time that we collected from that issuer was over 90 days ago, we decided to treat the asset as a distressed asset and start provisioning accordingly. So we are being prudent on the balance sheet management, and you should always expect that from us. We are adjusting to that fact in our results because we understand it's just a temporary effect arising from our accounting standards and not our view on the recovery.
We understand it is the responsibility of the network to ultimately settle these amounts, as Mateus just mentioned, as it's very clear in the central bank legislation who bears the responsibility for the risk management. This is not the first time that an issuer goes bankrupt in Brazil, and historically we have always collected 100% of these accounts receivables from the networks precisely because of that chain of responsibility and trust that Mateus just mentioned, which is what creates value to the overall system.
So I'm cautiously optimistic about a good outcome here, but we're going to be very careful with the balance sheet management. To your second question, on the government programs and the overall impact on the forecast or on the guidance and so on, it doesn't change anything. When during the last quarter we mentioned that you should expect cost of risk to trend down to the mid to high teens, we already had some of that in mind. Naturally, the mix of the disbursements on a quarter-over-quarter basis may fluctuate, so it's not every quarter that we're going to be disbursing the same mix of products, the same kind of clients, and so on and so forth.
So it's natural to have some short-term fluctuation. But the guidance still stands that cost of risk will trend down to that mid to high teens in the medium term, probably ending the end of the year already at the high-teens level.
Eric Ito — Analyst at Bradesco BBI
Perfect. Just to be clear on the first point here, you mentioned, Diego, that you are optimistic with the outlook. So going forward we shouldn't expect more provisions? Just to make sure if we should expect more provisions related to that, and then the recovery will depend on the process. That's correct?
Diego Salgado — Chief Financial Officer
So we may need to provision more. The provision level that we have today is a weighted-probability scenario for different outcomes, including a possible litigation. So all cards are on the table. I'm optimistic about a positive outcome because of the reasons we've mentioned. We think a possible litigation destroys value for everybody, so we think it's just a matter of time getting to that agreement. But it may occur that it won't happen during the next quarter, or it won't happen at all.
So we need to be ready for everything. In terms of size, which I'm pretty sure is going to be your next question about how much else we may need to provision, our total exposure reflects the market share that we have in payments generally. So the exposure that we have for this issuer is proportional to our market share, just as it is to any given issuer.
Eric Ito — Analyst at Bradesco BBI
Very clear. Thank you so much.
OPERATOR
Our next question comes from Daniel Vaz from Safra. Please, Daniel, you may now proceed.
Daniel Vaz — Analyst at Safra
Hi, Mateus. Hi Diego. Roberta. Thank you for the opportunity of making questions. I was looking at your 2026 guidance, which you kept unchanged. You need to catch up a bit under your run rate. I know the fourth quarter usually is stronger, but to reach the low end of gross profit and looking at your revenue trajectory quarter per quarter, it didn't look so well when we compared to the TPV, which has recovered quite a bit — so congrats on that — but mostly on Pix, right?
So Pix might not be bringing the same unit economics as the card when we look to your financial income, and then you have a headwind on the other financial income portion given that you would not have the same cash position, right. So how can we deliver the low end of the guidance with these new take-rate levels that look a bit more sluggish than your past? And if the COGS — the COGS, which you delivered a good COGS this quarter — is where you want to surprise or where you want to have your most upside to deliver the low end.
So how to treat this balance between revenues with take rates and headwinds from the cash position, and then your COGS — is that where you want to meet the guidance with the costs and not the revenues? Thank you.
Diego Salgado — Chief Financial Officer
Hi, Vaz, thank you very much for the question. So the gross profit was flattish during the first half of the year mainly because of the reasons we've mentioned in the presentation. So credit revenues keep adding to the top line, payments revenue not necessarily because of lower prices, marginal lower prices in payments, which you've mentioned as well. But most importantly, what weighs is the cost of provisions that come with the credit portfolio growth.
As to the second half of the year, we expect growth to accelerate both on credit for TPV, but also on Pix, as we've mentioned. And we start benefiting more from the churn initiatives that we've mentioned. So these things, combined with the credit portfolio growth and an improvement on the overall risk profile that we have for the portfolio, should capture an additional benefit for the gross profit during the second half of the year. That said, when we set our guidance for the year, we assumed that the SELIC would end 2026 at 12.5% and today that number is probably closer to 14%, maybe a quarter of a point below that, depending on what happens in the next Central Bank meeting. And as we have disclosed already, every 100 basis points on SELIC carries a pre-tax impact of roughly 200 to 250 million reais. So rates alone had been north of 300 million reais for 2026. On top of that, the credit environment has been tougher than we all expected, in line with what the broader market is seeing. None of this changes our guidance ranges, as we've mentioned before, but it does make the backdrop more demanding than it was at the start of the year, which is why we're focused on delivering toward the lower end of the guidance.
I don't think it's going to have to do with the total cash balance of the quarter or of the year or the benefits that we have on the second quarter in bonds.
Daniel Vaz — Analyst at Safra
Okay, thank you. And if I may follow up, do you have any specific target for your cost of risk for the second half of the year?
Diego Salgado — Chief Financial Officer
So it's going to trend down to those high teens that we've mentioned. Naturally, short-term fluctuations are natural because of the mix of the disbursement, but they also may occur because of specific cases on the dedicated desk, as we've disclosed. For example, this quarter, a big impact that we had on the 15 to 90 days NPLs were cases coming from the dedicated desk. And that's hard to forecast when those cases will happen, if they do happen. So short-term fluctuations may occur, but we are optimistic about going down to those mid to high teen levels that we've always guided the market.
Daniel Vaz — Analyst at Safra
All right, thank you. Thank you and congrats.
OPERATOR
Our next question comes from Antonio Ruet from BofA. Please, Antonio, you may now proceed.
Antonio Ruet — Analyst at BofA
Hi, thank you for your time. So my question is actually a follow-up on Vaz's question related to the cost of risk and the credit business. So my question goes on these large cases of the dedicated desk. If you could provide a little bit of detail of what happened here. So why you decided to move to these clients and which kind of problem did you have and how are you addressing this going forward? Did you reduce the size of loans that you are originating, the size of clients going forward?
That's pretty much it. Thank you.
Mateus Scherer Schwening — CEO
Hey, Antonio, thanks for the question. So I'll give a little bit of color and then talk about the changes that we've made. But first of all, you're right, we have seen some delinquency cases in the dedicated desk. And I think Diego mentioned this in the beginning of the call as well, that the delinquency we saw was particularly among the larger ticket exposures that we have on the desk. If you remember the overall profile of the desk, we have an average ticket of around 700,000 reais, which is precisely the core clients that we serve.
It's part of the core offering. But whenever we try to disburse to higher clients, I think we were a little bit exposed to the record judicial recoveries that we're having in the country as well, and that's part of the problem. In terms of how we are addressing this, I would say we're doing two main things. The first one is that we're shifting originations towards the government-backed credit lines, particularly for clients where we do not have a long-standing relationship or sufficient historical data prior to the disbursement.
And the second thing, we are minimizing the amount of maximum tickets on the dedicated desk so that we don't have exposure to any single clients that can hurt the portfolio or create volatility going forward. So overall, the things I would say is that the dedicated desk itself is part of the core offering. It's something that we have some success whenever we stay around our core clients. I think the issue here has been related to specific cases, especially when we had higher tickets.
Diego Salgado — Chief Financial Officer
And, Antonio, just to add a little bit more color on what Mateus was saying, there are different cases naturally, but just to give you an example, one of the cases that we had in the second quarter was a client of ours, both in payments and software, which had a long-standing relationship, a large client. We had a ticket of 11 million reais, if I'm not mistaken, 11 or 12 million reais, large list of banks, so on and so forth. And we were supporting that client because of the overall business that we were getting from them.
We started discussing banking opportunities with them, and then we were all taken by surprise with this client filing for bankruptcy protection. Once that happens, we move that client immediately from stage one to stage three, and that has an impact on the overall metrics.
Antonio Ruet — Analyst at BofA
This is great. Diego, if I may follow up on this. When you look at most of your large corporate cases, are these usual clients that were distressed by poor macro and high rates, or do you consider that most of them are some kind of fraud, or it's more macro related?
Diego Salgado — Chief Financial Officer
No, this is mostly macro related. In this case, Antonio, it was a large retailer.
Antonio Ruet — Analyst at BofA
All right, that's clear. Thank you very much.
OPERATOR
Our next question comes from Neha Agarwala from HSBC. Please, Neha, you may now proceed.
Neha Agarwala — Analyst at HSBC
Hi. Thank you for taking my question. You mentioned in a press release that you've seen good results from your efforts in the TON clients, but you're still working on the SMB clients. Could you explain why it has been a bit more difficult to gain back the SMB clients? And are you already seeing improvements starting third quarter so we can see the results in 3Q, or would it take a bit more time for the SMB churn to reduce?
Mateus Scherer Schwening — CEO
Thank you, and thanks for the question. I can give some color and then maybe Diego can add. So it is true that we've seen more success faster in micro merchants, and the reason for that is quite simple, which is the offer for micro merchants is usually a lot simpler and the distribution channel is also a lot simpler. Whenever we talk about SMBs, usually the base spans different offerings, different channels and different needs, and because of that there is no single fix.
So we have to adjust offers in many different segments and identify the retention work, which is by definition spread out. These changes, when we talk about SMB, there are no silver bullets and they require, by design, a lot of testing and careful calibration before we roll out. So I wouldn't say that we were unsuccessful in these initiatives. I think by nature of the SMB business we need to test more and the rollout takes a lot more time. But when we see the results that we're having, the reality is that both trends are improving in both the micro merchant segments and within SMBs.
I think it's just the definition that it's not a silver bullet, it's gradual, and therefore when you talk about TPV acceleration, it's going to be gradual as well. I don't think it's going to be the flip of a switch.
Diego Salgado — Chief Financial Officer
Yeah, just to add on Mateus's, most of the capital that we deploy in terms of selling goes towards SMBs. Most of our TPV comes from SMBs, so it's a very large engine and you gotta be careful when changing it significantly. So these things take time. We're evolving, we're optimistic about it, but it's going to take a little bit longer than we would like to.
Neha Agarwala — Analyst at HSBC
Perfect. If I can ask one more question, we've seen very strong growth and a mix shift towards the Pix volumes, and I believe you've been giving some offers where Pix volumes are being processed for free or at very low rates. Should we expect continued pressure on take rate coming from that? And also, as you try to reduce churn, you probably are giving more benefits to the merchants. So should we see pressure on take rate coming more from your initiatives and change in mix?
Thank you.
Diego Salgado — Chief Financial Officer
Hi, Neha. So again, yes, on the margin, take rate in payments are falling mostly as a result of mix because of what you just described, right? Pix is growing proportionally on total TPV and in some segments there are other price moves as well. That said, we've been saying for quite some time now that looking at take rates by product tells less of the story, as we price the client's relationship and not the product on a standalone basis. It's not uncommon already to have clients with very small take rates in payments, which we would typically reprice in other times of the company, but that today we bundle with credit and payments, bringing economics to very healthy levels. So once the client's on the base, we manage the relationship holistically and not looking at payments on a standalone basis or credit on a standalone basis.
Mateus Scherer Schwening — CEO
And just to add on that, when you look at our offerings in place, I don't think we have offers in place where we provide Pix for free unconditionally. It's usually tied to a certain commitment of volume or any other commercial agreement as well, which connects what Diego has just said, which is we really look at the unit economics on a broad base, and I think it's not a good proxy of unit economics to look at those offerings piece by piece.
Neha Agarwala — Analyst at HSBC
Thank you so much.
OPERATOR
Our next question comes from Arnon Shirazi from Citi. Please, Arnon, you may now proceed.
Arnon Shirazi — Analyst at Citi
Hi all, thank you for taking my question. Nice to be here again. My questions may be related to the communication with the client base. From the past conversations we had it was clear that you have some problems communicating with them, mostly with core SME clients, while for TON clients it seems that the communication got better, as was just addressed in the past question from Neha. But how's the communication with these larger SME clients and how the offer is improving?
I see that the integration with Pagar.me is part of this math, but it would be great to have more information on that. Thank you.
Diego Salgado — Chief Financial Officer
Hi, Arnon. We keep evolving on that front. It's still easier to reach out to a micro merchant than to an SMB, especially when it becomes a larger client, which is not necessarily looking at the app every single day or looking at our communications every single day. So those are two different processes. We keep evolving on that front and communicating better both new offerings and the current profiles or plans in which the clients are currently assigned.
But it's a longer journey than simply fixing it from one quarter to the other.
Arnon Shirazi — Analyst at Citi
Okay, I got it. But is there any expectation on that, like should we see that advancing by the end of this year or something for a story for 2027?
Diego Salgado — Chief Financial Officer
It's going to be a gradual process that will certainly come with lower churn. So you will see that gradually. And the best way to see it, it's not going to be on any other metric other than churn.
Arnon Shirazi — Analyst at Citi
Okay, got it. Thank you, Diego.
OPERATOR
Our next question comes from Renato Meloni from Autonomous Research. Please, Renato, you may now proceed.
Renato Meloni — Analyst at Autonomous Research
Good evening, everyone. Thanks for taking the question. Can you expand your comments a bit on your net revenue from transaction activities declining 11% sequentially here, the opposite way from TPV? If you can maybe comment on how pricing mix is affecting that or potentially some reallocations affecting the numbers.
OPERATOR
Thank you.
Diego Salgado — Chief Financial Officer
Hi, Meloni. Basically, we had lower revenues from incentives that we get from the card networks related to our activities as credit card issuer. Every now and then, we collect certain incentives from the networks. Some of those incentives occurred in the first quarter and didn't occur in the second quarter. So, short-term fluctuations.
Renato Meloni — Analyst at Autonomous Research
Perfect. So we shouldn't expect to see anything like that over the coming quarters. Okay, thanks very much.
OPERATOR
Our next question comes from Guilherme Grespon from J.P. Morgan, please. Guilherme, you may now proceed. We're not hearing the question. Guilherme Grespon is having some technical problems. We are handing on to the next one. Our next question comes from Mr. Pedro Leduc from Itaú BBA, please. Pedro, you may now proceed.
Pedro Leduc — Analyst at Itaú BBA
Good evening. Thank you so much. Question on financial results: income but more expenses slid down a bit sequentially, year over year seems very controlled as well. Can you remind us a little bit of your strategy here—how you are in terms of own and third party—and maybe what we should also think for the next quarter, see if there are any levers that we should think about. Or is it just the lower effect from the Selic? Thank you.
Diego Salgado — Chief Financial Officer
Hi, Pedro, thank you for the question. There were two combined effects here. First, yes, Selic is slightly lower on average this quarter than it was last quarter or at the same period of last year. But most importantly, we had more deposits from clients on average deployed on the operation. The mix of owned capital and third-party capital has been pretty much the same, as the amount of capital that we've been generating every quarter has been pretty similar to the amount of capital that we have returned to shareholders every quarter through buybacks—so I'm excluding here the extraordinary effect of linked dividends.
As to levers for the following quarters, if any, I would be more cautious on it, basically because we expect assets to grow faster than deposits until the end of the year. Let's see how that dynamic will evolve. Hopefully, assets will keep growing faster and therefore there may be pressure on financial expenses.
Pedro Leduc — Analyst at Itaú BBA
Thank you.
OPERATOR
Our next question comes from Mr. Guilherme Grespon from J.P. Morgan, please. Mr. Guilherme, you may now proceed.
Guilherme Grespon — Analyst at J.P. Morgan
Hi. Hello. Can you hear me? Hi, sorry. Yeah. So my question is specifically on the credit and the government programs. And sorry I couldn't ask before, but on the government programs, of course, it seems to be a very important point of growth to the business nowadays. So I have twofold questions here. Number one, if you can explain a little bit in more detail what is the risk waterfall of the programs—how much the government guarantees in terms of NPLs especially.
I think PEAC is the one that is most relevant to you—correct me if I'm wrong, but I think it is. And the second one is just how you're going to treat provisions. Diego mentioned that part of the lower coverage would be natural to be driven by the government programs. How do you handle provisions in this case? Like, if you have the guarantee of the government, do you provision at all, or no? How does it work this time—mismatch between when you have the default and when you receive the honor of the government?
Thank you.
Diego Salgado — Chief Financial Officer
Awesome question, Guilherme, and that's precisely why we added page 11 in the materials. The waterfall of the programs are similar in their objectives, but each one of them has its own nitty-gritty detail depending on who you're lending to, what's the size of the company, and so on and so forth. But on average, especially on PEAC, the government guarantees roughly 75% of the defaulted amount. So the loss given default for a credit under PEAC, on average, is about 25%, which is materially lower than what we have in our overall portfolio.
That's the reason why we have to provision less upfront when underwriting that credit. Other programs—not only the SEBRAE facility that we have here in the material that we didn't talk very much about, but others that we've been working on—will have different risk profiles, but the rationale is similar. Because of that guarantee upon a loss, we provision less upfront. So whenever one of those credits rolls into default, the coverage—especially on Stage 2—will drop, and the coverage for the loans between 15 and 90 days will drop, because we have the right to collect the guarantee from the government on the 91st day after the default.
So it doesn't affect that much the coverage for Stage 3 or for over-90-day credits, but it does affect significantly the coverage for Stage 2 and for short-term NPLs.
Guilherme Grespon — Analyst at J.P. Morgan
That's super clear. Thank you, Diego.
OPERATOR
Our next question comes from Mr. Caio Prato from UBS, please. Caio, you may now proceed.
Caio Prato — Analyst at UBS
Hello everyone. Good evening. Thanks for the opportunity. I have two on my side, please. The first one is a follow-up on the credit portfolio. Could you comment about your current appetite on both the dedicated and the automated desk, given the current credit landscape that you talked about? Now today we already noticed some contraction month over month on your portfolio under the FIDICs as of July. So just wondering if this scenario implies a reduction in the pace of growth at this point, specifically on these two fronts, please.
And the second one is in terms of your D&A. We noted a reduction on your D&A this quarter allocated both in costs and SG&A expenses. If you can share a little bit more color on the drivers behind that and what we can expect in terms of D&A going forward as well? Thank you.
Mateus Scherer Schwening — CEO
Thanks for the question. I'll take the first one around credit growth appetite and then hand it over to Diego for the second one. In terms of appetite for growth, we are very mindful that the macro environment has been very tough, especially for Brazilian MSMBs, with rates being very high for so long—probably now over three years of high rates. And this, of course, weighs a lot on our clients. That said, we continue to see a lot of room for profitable growth because when we look at our share of wallet within our own client base, it is still really small.
We estimate that our share of wallet within our own client base at credit is still at around mid-single digits. So the opportunity remains large, and we feel that we are in a strong position of lending to clients whose daily sales flow through our platform as well. In terms of how we navigate this environment that is tough while having a share of wallet that is still low: if you remember, a couple of quarters ago we started by proactively raising prices through the second half of last year in anticipation of this tougher macro environment.
And now what we are increasingly doing is shifting the portfolio mix towards lower-risk exposure, focusing on government-backed programs that, like Diego mentioned in the previous question, have a risk-sharing profile built into themselves. And in terms of the dedicated desk, I think I approached this in a previous question as well, but we're taking a more conservative approach, especially in regards to ticket size. Overall, I think the message is that we still have appetite to grow the book.
And the second thing that I would mention—you mentioned the FIDIC data as well—I wouldn't read too much into the FIDIC data, especially now that we have not only many other products but also the facilities from the government. Not necessarily every disbursement will go through a FIDIC itself. So I think the FIDIC data becomes a read or a proxy that is not as good going forward. So, in summary, we remain comfortable growing the portfolio. We are taking a cautious approach because we think the environment is tough.
But again, there's a lot of room going forward.
Diego Salgado — Chief Financial Officer
Caio, on the D&A, it's fairly simple. We can take it offline if you want, but basically this is just an improvement in our accounting practice that has no effect on the P&L. Basically, we had a provisioning mechanism for POS of inactive clients that was fully provisioned but existed with a positive value in one line of the balance sheet and the same negative value in another line. So what we're doing now is merging these two effects on the P&L. So it's really just a mix effect between lines.
Caio Prato — Analyst at UBS
Okay, got it. Thank you.
OPERATOR
The questions and answers section is concluded. We would like to hand the floor back to CEO Mateus Scherer Schwening for the company's final remarks.
Mateus Scherer Schwening — CEO
Thank you all for the support, and we see you in the next earnings call.
OPERATOR
This conference call is now closed. We thank you for your participation and wish you a very nice day.
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