X Financial American Depositary Shares, each representing six Class A Ordinary Shares 2026 Q2 Earnings Call

Please go ahead. Thank you, operator.

Hello, everyone, and thank you for joining today's call. Our financial results for the second quarter ended June 30, 2026, were released earlier today and are available on the company's investor relations website at ir.xiaoyinggroup.com. On the call today from X Financial are Mr. Kent Li, President, Mr. Frank Fuya Zheng, Chief Financial Officer, and Mr. Noah Kauffman, Chief Financial Strategy Officer. Mr. Li will begin with an overview of our business performance and the key operational developments. Mr. Kauffman will then review the second quarter financial performance, followed by Mr. Zheng, who will cover the detailed financial results, capital position, and outlook. After the prepared remarks, Mr. Li, Mr. Zheng, and Mr. Kauffman will be available to answer your questions during the Q&A session.

I remind you that this call may contain forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and involve known or unknown risks, uncertainties, and other factors. These factors are difficult to predict, and many are beyond the company's control, which may cause actual results, performance, and achievements to differ materially from those described in these statements. Further information on these and other risks can be found in our SEC filings. The company undertakes no obligation to update any forward-looking statements as a result of new information, future events, or otherwise, except as required by law. It is my pleasure to introduce Mr. Kent Li.

Thank you, Victoria, and hello, everyone. In the second quarter of 2026, we maintained the disciplined operating posture that has defined our approach over the past several quarters. Conditions remain challenging, and we continue to place credit quality, liquidity, and the balance sheet strength ahead of near-term origination volume. During the quarter, we facilitated and originated RMB 11.63 billion in loans, a decline of 70.2% year-over-year and 20.5% sequentially from the first quarter. The pace of contraction moderated meaningfully from the first quarter, consistent with our measured approach to originating in the current environment. Operationally, we continue to concentrate origination in our internally operated channels, where borrower quality and unit economics are strongest. Underwriting criteria for newer vintages were refined further. Automation was extended across servicing and collections, and discretionary spending remained tightly controlled.

The average loan amount per transaction rose to RMB 12,712, up 8.3% from the prior quarter and 21.3% year-over-year, reflecting a shift in transaction mix toward higher-quality borrowers. From a volume standpoint, we served approximately 720,258 active borrowers in the quarter, down 74.8% year-over-year and 24.7% from the prior quarter. We facilitated approximately 0.91 million loans during the period. Outstanding loan balance at quarter end stood at RMB 24.97 billion, a decline of 61.5% from the same period of 2025 and 29.2% from the end of the first quarter. Credit quality. Credit trends showed encouraging sequential improvement in the second quarter, although overall conditions remain challenging. As of June 30, our 31- to 60-day delinquency rate was 1.73%, compared with 2.61% at the end of Q1 2026 and 1.16% as of the same period of 2025.

Our 91- to 180-day delinquency rate improved to 9.09%, compared with 9.95% at the end of Q1 2026 and 2.91% as of the same period of 2025. Both rates improved from the prior quarter, the first sequential improvement we have recorded in several quarters, which we attribute to the tighter underwriting standards applied to recent vintages and the additional resources deployed in collections. That said, both rates remain well above prior year levels, and the 91- to 180-day rate, in particular, remains elevated as earlier delinquency balances continue to season through the portfolio. We are not declaring victory on credit. We are maintaining the same conservative stance until the improvement proves durable.

With that, I'll turn the call over to Noah, who will take you through the financial results for the second quarter.

Thank you, Kent. Hello, everyone. It's great to speak with you again. Kent covered the operational and credit developments, so I'll take you through the financial performance for the second quarter. In the second quarter of 2026, total net revenue was RMB 993.6 million or $146.4 million, representing a 56.3% decline year-over-year and a 15.5% decline sequentially from Q1 2026. The year-over-year decline primarily reflects substantially lower loan facilitation volumes, partially offset by higher guarantee income. Total operating costs and expenses came in at RMB 798.6 million, or $117.7 million, down 22.9% sequentially and 50% year-over-year. Borrower acquisition and marketing expense was RMB 149.5 million, or $22 million, down from RMB 219.8 million in the first quarter and RMB 556.3 million in the same period last year, as we continued to prioritize capital efficiency over volume growth.

Aggregate credit-related provisions were 183.1 million RMB or $27 million, down 35.3% sequentially from 282.9 million RMB in the first quarter and 36.4% below the same period last year. Within that, the provision for contingent guarantee liabilities declined to 57.6 million RMB, with the guaranteed loan portfolio broadly unchanged from both comparison periods. The decrease primarily reflected the reversal of a portion of provisions recognized in prior periods as the loan loss rate declined during the quarter. Provision for credit losses for deposits and other financial assets increased to 95.3 million RMB. Income from operations was 194.9 million RMB or $28.7 million, a 71.1% decrease year-over-year, but an increase of 38.6% sequentially. Operating margin improved to 19.6%, up from 12% in the first quarter, though still below the 29.7% recorded in the prior year period. Income before income taxes was 220 million RMB or $32.4 million.

Net income was 47 million RMB or $6.9 million in the second quarter, compared with 37.9 million RMB in Q1 2026 and 528 million RMB in the same period last year, with income tax expense and investment-related items below the operating line accounting for the difference from pre-tax income. Net profit margin was 4.7%, compared with 3.2% in the prior quarter and 23.2% a year ago. Return on equity was 2.4% for the quarter, reflecting the reduced earnings base. Taken together, the second quarter represents a second consecutive quarter of sequential improvement and operating performance. Revenue is still finding its floor, but margins, provisions, and net income all moved in the right direction. On the regulatory front, the environment continued to evolve during the quarter. We are monitoring developments closely and have nothing new to report beyond the disclosure in our 6-K.

With that, I'll hand things over to Frank to take you through the detailed results per ADS metrics, non-GAAP adjustments, and the balance sheet.

Go ahead, Frank. Thank you, Noah, and hello everyone.

I will walk through the key financial highlights for the second quarter and then cover the balance sheet, capital returns, and our outlook. Please note that all numbers stated are in RMB and rounded. Full details are available in the 6-K filed with the SEC. Financial results. Total net revenue for the second quarter was approximately 994 million RMB, down around 56% from the same period last year and about 16% from the prior quarter. The decline continues to reflect the deliberate reduction in origination activity we have been pursuing, partially offset by growth in the guarantee income. Net income for the quarter was 47 RMB, up 23.8% from 38 million RMB in the first quarter and down substantially from 528 million RMB in the same period last year.