By Brazil Stock Guide – PagSeguro Digital Ltd. (NYSE: PAGS), the Brazilian fintech behind PagBank, reported net income of R$502 million in the fourth quarter of 2025, a 16% decline from the same period a year earlier, after a tax adjustment tied to changes in Brazil’s fiscal rules weighed on earnings.
The company said results were affected by the recognition of R$142 million in deferred CSLL tax charges, linked to new legislation that reduces certain federal tax incentives beginning in 2026. The one-off accounting impact masked what management described as a quarter of strong operational performance and improving profitability trends.
Banking Becomes the Growth Engine
PagBank’s banking operations continued to expand rapidly, becoming a larger share of the company’s business model. Banking revenue jumped 47.4% year-over-year to R$757 million, driven by stronger engagement from customers using digital accounts, higher fee generation and the expansion of lending products.
The fintech’s credit portfolio reached R$4.6 billion, an increase of 32.8% compared with a year earlier, reflecting the acceleration of lending initiatives aimed at small merchants and consumers. Working-capital loans — a key product for micro and small businesses — surged more than 170% year-over-year, reinforcing the company’s strategy to deepen financial services within its ecosystem.
Customer activity also remained robust. Cash inflows into PagBank accounts totaled R$90.7 billion during the quarter, rising 11.3% year-over-year, while total deposits climbed to R$40.7 billion, up 12.6%, supported by higher adoption of financial products such as investments and insurance.
Payments Business Faces Macro Headwinds
The payments segment, historically PagBank’s core activity, showed signs of pressure amid Brazil’s challenging macroeconomic environment.
Total payment volume reached R$142.4 billion in the quarter, a 2.5% decline from the previous year, as high interest rates and weaker economic activity affected smaller merchants. Still, volumes improved sequentially compared with the previous quarter, suggesting stabilization toward the end of the year.
Despite softer transaction volumes, revenue excluding interchange fees rose 12.4% year-over-year to R$3.55 billion, supported by pricing adjustments implemented across acquiring services and the growing contribution from banking operations.
High Interest Rates Raise Funding Costs
Higher interest rates remained the main pressure point on profitability. Financial costs increased 26% year-over-year to R$1.38 billion, reflecting the elevated level of Brazil’s benchmark Selic rate.
As a result, gross margin declined to 58% from 61.6% a year earlier, even though gross profit rose modestly to R$2.06 billion.
Adjusted profitability remained stronger. Non-GAAP net income reached R$678 million, up 7.4% year-over-year, while adjusted return on average equity rose to 18.4%, signaling improved operating leverage and efficiency gains.
Capital Returns Remain a Priority
PagBank also continued to return capital to shareholders. The company repurchased more than 27 million shares in 2025, equivalent to roughly R$1.33 billion, and distributed dividends during the quarter as part of its broader capital optimization strategy.
Management said the fintech remains focused on expanding its credit portfolio, increasing cross-selling within the banking platform and improving operational efficiency through technology and artificial intelligence as it enters the next phase of growth.