Q2 2026 X Financial Earnings Call

August 24, 2026

Speaker #1: Good day, and welcome to the X Financial Q2 2026 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero.

Operator: Good day, and welcome to the X Financial Q2 2026 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Victoria Yu. Please go ahead.

Speaker #1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touchtone phone.

Speaker #1: To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Victoria Yu.

Speaker #1: Please go ahead.

Speaker #2: Please go ahead.

Speaker #3: Thank you, operator. Hello everyone, and thank you for joining today's call. Our financial results for Q2 ended June 30, 2026, were released earlier today and are available on the company's investor relations website at ir.xiaoyingroup.com.

Victoria Yu: Thank you, operator. Hello, everyone, and thank you for joining today's call. Our financial results for Q2 ended 30 June 2026 were released earlier today and are available on the company's investor relations website at ir.xiaoyingroup.com. On the call today from X Financial are Mr. Kan 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 Q2 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.

Speaker #3: On the call today from X Financial are Mr. Kan Li, President; Mr. Frank Fuya Zheng, Chief Financial Officer; and Mr. Noah Kauffman, Chief Financial Strategy Officer.

Speaker #3: Mr. Li will begin with an overview of our business performance and the key operational developments. Mr. Kauffman will then review the Q2 financial performance, followed by Mr. Zheng, who will cover the detailed financial results, capital position, and outlook.

Speaker #3: 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 and is a safe harbor provisions of the private securities litigation reform act of 1995.

Victoria Yu: 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. Kan Li.

Speaker #3: 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.

Speaker #3: 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 ICC filings.

Speaker #3: The company undertakes no obligation to update any forward-looking statements as a result of new information, due to events and/or otherwise, except as required by law.

Speaker #3: It is my pleasure to introduce Mr. Kan Li.

Speaker #4: Thank you, Victoria. And hello, everyone. In Q2 of 2026, we maintained the discipline of operating goals that has defined our approach over the past several quarters.

Kan 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.

Speaker #4: Conditions remain challenging, and we continue to place great quality, equity, and benefit 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.

Speaker #4: 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.

Speaker #4: Underwriting criteria for newer vintages were refined further, and automation was extended across servicing and collections. Discretionary spending remained tightly controlled. The average known 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.

Kan Li: 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 the 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 30 June, our 31-to-60-day delinquency rate was 1.73%, compared with 2.61% at end of Q1 2026 and 1.16% as of the same period for 2025.

Speaker #4: 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.

Speaker #4: 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 first quarter.

Speaker #4: From the end of the first quarter, credit quality. Credit trends showed encouraging sequential improvement in Q2, 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 in 2025.

Speaker #4: 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 in 2025.

Kan Li: 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 remain 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.

Speaker #4: Both rates improved from the prior quarter, marking the first sequential improvement we have recorded in several quarters. We attribute this to the tighter underwriting standards applied to recent vintages.

Speaker #4: And the additional resources deployed in collections. That said, both rates remained well above prior year levels, and the 91-to-180-day rate in particular remained elevated, as earlier delinquency balances continued to season through the portfolio.

Speaker #4: We are not declaring victory on credit. We are maintaining the same conservative stance until the improvement has proved durable. With that, I'll turn the call over to Noah, who will take you through the financial results for Q2.

Speaker #5: Thank you, Ken. Hello, everyone. It's great to speak with you again. Ken covered the operational and credit developments, so I'll take you through the financial performance for Q2.

Noah Kauffman: Thank you, Ken. Hello, everyone. It is great to speak with you again. Ken covered the operational and credit developments, so I will take you through the financial performance for Q2. In Q2 2026, total net revenue was 993.6 million RMB, 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 798.6 million RMB, or $117.7 million, down 22.9% sequentially and 50% year over year.

Speaker #5: In Q2 of 2026, total net revenue was $993.6 million. R&D was $146.4 million, representing a 56.3% decline year over year and a 15.5% decline sequentially from Q1 2026.

Speaker #5: 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.

Speaker #5: Borrower acquisition and marketing expense was $149.5 million RMB, or $22 million USD, down from $219.8 million RMB in the first quarter and $756.3 million RMB in the same period last year, as we continued to prioritize capital efficiency over volume growth.

Noah Kauffman: Borrower acquisition and marketing expense was 149.5 million RMB, or $22 million, down from 219.8 million RMB in the first quarter and 756.3 million RMB 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 a guaranteed loan portfolio broadly unchanged from both comparison periods.

Speaker #5: Aggregate credit-related provisions were RMB 183.1 million, or $27 million, down 35.3% sequentially from RMB 282.9 million in the first quarter and 36.4% below the same period last year. Within that, the provision for contingent guarantee liabilities declined to RMB 57.6 million, with the guaranteed loan portfolio broadly unchanged from both comparison periods.

Speaker #5: 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 R&D.

Noah Kauffman: 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.

Speaker #5: Income from operations was RMB 194.9 million, 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.

Speaker #5: Income before income taxes was 220 million R&D, or 32.4 million US dollars, net income was 47 million R&D, or 6.9 million US dollars in the Q2, compared with 37.9 million R&D in Q1 2026 and 528 million R&D 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.

Noah Kauffman: Net income was 47 million RMB, or $6.9 million in Q2, 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, Q2 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.

Speaker #5: 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.

Speaker #5: Taken together, the Q2 represents a second consecutive quarter of sequential improvement in operating performance. Revenue is still finding its floor, but margins, provisions, and net income all moved in the right direction.

Speaker #5: On the regulatory front, the environment continued to evolve during the quarter. We were monitoring developments closely and have nothing new to report beyond the disclosure in our 6-K.

Noah Kauffman: 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.

Speaker #5: 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.

Speaker #3: Thank you, Noah. And hello, everyone. I will work through the key financial highlights for Q2, and then cover the balance sheet, the returns, and our outlook.

Frank Fuya Zheng: 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 are 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, but down substantially from 528 million RMB in the same period last year.

Speaker #3: Please note that all numbers stated refer to R&D and related categories. Full details are available in the 6-K filing with the SEC. Financial results: Total net revenue for Q2 was approximately $994 million, down around 56% from the same period last year, and about 16% from the prior quarter.

Speaker #3: The decline continues to reflect the deliberate reduction in origination activity we have been pursuing, partially offset by growth in guarantee income. Net income for the quarter was RMB 47 million, up 23.8% from RMB 38 million in the first quarter and down substantially from RMB 528 million in the same period last year.

Speaker #3: Non-GAAP adjusted net income was $166 million, up 104.3% sequentially and down 72% year over year. We view the sequential improvement in both measures as an early indication that our credit and cost actions are taking hold.

Frank Fuya Zheng: Non-GAAP adjusted net income was 166 million RMB, up 104.3% sequentially and down 72% year over year. We view the sequential improvement in both measures as an early indication that our credit and cost actions are taking hold. On a per ADS basis, basic earnings were 1.26 RMB or $0.19, compared with 0.96 RMB in the prior quarter and 12.6 RMB a year ago. Non-GAAP adjusted basic earnings per ADS were 4.44 RMB or $0.65. Revenue mix across our business lines, loan facilitation service fees declined 85.5% year over year to 199 million RMB, in line with low origination volumes. Post origination service fee decreased 41.2% to 160 million RMB, consistent with the smaller outstanding portfolio.

Speaker #3: On a per ADS basis, base earnings were $1.26 RMB, or 19% year-over-year, compared with $0.96 RMB in the prior quarter and $1.26 RMB a year ago.

Speaker #3: Non-GAAP adjusted base earnings per ADS were RMB 4.44, or $0.65 US. Revenue was mixed: across our business lines, loan facilitation service fees declined 85.5% year over year to RMB 199 million, in line with low origination volumes.

Speaker #3: Post-origination service fee decreased 41.2% to 160 million RMB, consistent with the smaller outstanding portfolio. Guarantee income more than doubled year over year to 225 million RMB, reflecting continued recognition of the revenue from our existing guarantee loan portfolio.

Frank Fuya Zheng: Guarantee income more than doubled year over year to 225 million RMB, reflected continued recognition of the revenue from our existing guarantee loan portfolio. Finance income was 278 million RMB, down 13.2%. For the full breakdown by line item, please refer to the 6-K. Balance sheet and liquidity. Our balance sheet remains strongly capitalized at the end of the quarter. Total assets were approximately 12.1 billion RMB, and shareholders' equity was approximately 7.8 billion RMB, giving us an equity to asset ratio approximately 64%, up from around 57% at the end of first quarter. Total cash, including restricted cash, were approximately 2 billion RMB. Liquidity remain ample for the current environment. Capital return to the shareholder. We continue to purchase shares during the period from 1 January 2026 through 14 August, we repurchased approximately 2.63 million ADS for the total consideration of approximately $12.49 million.

Speaker #3: Finance income was $278 million RMB, down 13.2%. For the full breakdown by line item, please refer to the 6K. Balance sheet and the liquidity.

Speaker #3: Our balance sheet remains strongly capitalized at the end of the quarter. Total assets were approximately R&D 12.1 billion, and shareholders' equity was approximately R&D 7.8 billion.

Speaker #3: Giving us an equity-to-asset ratio of approximately 64%, up from around 57% at the end of Q1. Total cash, including restricted cash, was approximately $2 billion. R&D liquidity remained ample for the current environment.

Speaker #3: Capital return to the shareholder: we continued to repurchase shares during the period. From January 1, 2026 through August 14, we repurchased approximately 2.63 million ADS for a total consideration of approximately $12.49 million USD.

Speaker #3: We have approximately $35.5 million U.S. remaining under the existing $100 million U.S. program, which runs through November 30, 2026. Returning capital to shareholders remains an important part of our capital allocation framework.

Frank Fuya Zheng: We have approximately $35.5 million remaining under the existing $100 million program, which runs through 30 November 2026. Returning capital to shareholders remains an important part of our capital allocation framework. Dividend update. As a part of our semi-annual dividend policy, the board has approved a cash dividend of $0.28 per ADS, which is equivalent to approximately $0.0467 per ordinary share. Shareholders of record as of 10 September 2026, will be entitled to receive the dividend, and the payments are expected to be distributed on and around 28 September 2026. ADS holders will receive their dividend payments through our depository, at the Bank of New York Mellon, shortly thereafter, with timing subject to the brokerage processing. Business outlook. Turning to the outlook, given the material uncertainties in the current operation environment, we are not providing quantitative guidance for the Q3 at this time.

Speaker #3: Dividend update: as a part of our semi-annual dividend policy, the board has approved a cash dividend of 28 cents US per ADS, which is equivalent to approximately 0.0467 cents US per ordinary share.

Speaker #3: Shareholders of record as of September 10, 2026, will be entitled to receive the dividend, and the payments are expected to be distributed on or around September 28, 2026.

Speaker #3: ADS holders will receive their dividend payments through our depository, the Bank of New York Mellon, shortly thereafter, with the timing subject to brokerage processing.

Speaker #3: Business outlook: Planning to the outlook, given the material uncertainties in the current operational environment, we are not providing quantitative guidance for the third quarter at this time.

Speaker #3: Our priorities are unchanged: capital preservation, disciplined origination, rigorous cost control, and protecting the balance sheet. We will resume providing guidance when visibility improves. That concludes our prepared remarks, and we will now take questions.

Frank Fuya Zheng: Our priorities are unchanged: capital preservation, disciplined origination, rigorous cost control, and protecting the balance sheet. We will resume providing guidance when visibility improves. That concludes our prepared remarks, and we now take questions. Operator, please go ahead.

Speaker #3: Operator, please go ahead.

Speaker #2: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Brian Gard with Warburg Asset Management. Please go ahead.

Speaker #2: If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2.

Speaker #2: At this time, we will pause momentarily to assemble our roster. The first question today comes from Brian Guard with Warburg Asset Management. Please go ahead.

Speaker #4: Good morning. I'm very pleased to see that the results have been improving in the last quarter. My question is quite a broad one. I'm a relatively new shareholder of the company.

Brian Gard: Good morning. I am very pleased to see that the results have been improving from the last quarter. My question is quite a broad one. I am a relatively new shareholder to the company. I want to understand theoretically why this company is publicly traded, given that tangible book value is over $20 per ADS. Why don't you just take this company private?

Brian Guard: Good morning. I am very pleased to see that the results have been improving from the last quarter. My question is quite a broad one. I am a relatively new shareholder to the company. I want to understand theoretically why this company is publicly traded, given that tangible book value is over $20 per ADS. Why don't you just take this company private?

Speaker #4: I want to understand, theoretically, why this company is publicly traded given that tangible book value is over $20 U.S. per ADS. Why don’t you just take this company private?

Frank Fuya Zheng: Let me try to answer that question again. I think a previous investor asked a similar question before. In China, being a listed company is kind of a privilege and a special status. If we privatize, we might lose the opportunity for current business to be listed again because if a Chinese-based company try to be listed overseas, you need to get approval from the government. Based our current industry situation, as long as for our industry is not going to be a list. That's probably the main reason you will rarely see the Chinese listed company in the US go private. Many years ago, some company did this kind of thing, and they try to change the venue and try to be listed in Hong Kong or in China, but it's not. In general, everybody still prioritize or prefer to be listed in the US.

Speaker #3: Let me try to answer that question again. I think the previous investor asked a similar question before. In China, being a listed company is kind of a privilege and a special status.

Speaker #3: If we privatize, we might lose the opportunity for the current business to be listed again, because if you want, if a Chinese-based company tries to be listed overseas, you need to get approval from the government.

Speaker #3: And based on our current industry situation, as long as for our industry, it's not going to be a list. So that's probably the main reason you rarely see Chinese listed companies in the US go private. Many years ago, some companies did this kind of thing, and they tried to change the venue and tried to be listed in Hong Kong or in China.

Speaker #3: But in general, not everybody still prioritizes or prefers to be listed in the US. That's why.

Frank Fuya Zheng: That's why.

Speaker #4: Given that there's such a large gap, what's going to be your process for maybe returning more cash to shareholders or driving the company toward a much higher valuation that's much closer to, say, US-style valuations?

Brian Gard: Given that there's such a large gap, what's going to be your process for maybe returning more cash to shareholders or driving the company towards a much higher valuation that's much more close to, say, US style valuations?

Brian Guard: Given that there's such a large gap, what's going to be your process for maybe returning more cash to shareholders or driving the company towards a much higher valuation that's much more close to, say, US style valuations?

Speaker #3: U.S. compared with U.S. valuation is probably kind of an outreach goal. Based on the current business and the current regulation and environment, I think the best way for us—and also from the investor perspective—as we find new revenue sources, is basically to re-engineer the company to be more than just a facilitation business, as we are.

Frank Fuya Zheng: Compared with US valuation is probably is kind of a rich goal and based on the current business and the current regulation environment. I think the best way for us and also from investor perspective, as we find new revenue sources basically re-engineer the company to other than facilitation business as we are. That probably is the best way it could. We are doing the best we can and basically based on the very low volume right now, we are doing the almost maximal buyback in the normal buyback crews and still preserve enough capital to explore new business opportunity, even though those new venture opportunities are far, is not very clear at this point.

Speaker #3: That probably is the best way, and we are doing the best we can. Basically, based on the very low volume right now, we are doing almost the maximum buyback under the normal buyback rules and still preserving enough capital to explore new business opportunities, even though those new venture opportunities are not very clear at this point.

Speaker #4: All right. Thank you very much. I appreciate it. Yeah, Brian.

Brian Gard: All right. Thank you very much.

Brian Guard: All right. Thank you very much.

Noah Kauffman: Yeah, Brian, just-

Brian Gard: Appreciate it.

Brian Guard: Appreciate it.

Noah Kauffman: Yeah, Brian.

Brian Gard: Go ahead.

Brian Guard: Go ahead.

Noah Kauffman: Yeah, Brian. This is Noah Kauffman. Just to add to what Frank was saying, we have had two consecutive quarters of sequential credit improvements, and the credit metrics, at least over the last couple of quarters, have moved a bit in the right direction. The cost base is also getting a bit leaner. I think certainly what Frank says is true. Going private is sort of like a one-way door, and coming back to the public market, especially as a Chinese headed quarter Fintech, is very difficult. I think with a couple quarters kind of moving in the right direction, we are very focused on what are the operational efficiencies that we can add. Obviously, as APRs have come down, and beyond that, what are areas of organic growth?

Speaker #1: Yeah, this is Noah Kauffman. Yeah, just to add kind of to what Frank was saying, we have had two consecutive quarters of sequential credit improvements.

Speaker #1: And so the credit metrics, at least over the last couple of quarters, have moved a bit in the right direction. Also, the cost base is getting a bit leaner.

Speaker #1: So, I think certainly what Frank says is true. Going private is sort of like a one-way door, and so coming back to the public market, especially as a Chinese-headquartered fintech, is very difficult.

Speaker #1: And so, I think with a couple of quarters moving in the right direction, we're very focused on what operational efficiencies we can add.

Speaker #1: Obviously, as APRs have come down, and then beyond that, what are areas of organic growth? And certainly, with the strength of the balance sheet, we have the ability to, as the loan book comes down, cash is freed up.

Noah Kauffman: Certainly with the strength of the balance sheet, we have the ability to, as the loan book comes down, cash is freed up. Certainly we have the ability to continue to pay quite a healthy dividend. I think on the back of maybe we will call it like a rough year, really rough year, we are not quite ready to throw in the towel. I think things are going in a little bit better direction, and we are obviously watching it.

Speaker #1: So, certainly, we have the ability to continue to pay quite a healthy dividend. But I think, on the back of—maybe we’ll call it—a rough year, a really rough year, we’re not quite ready to throw in the towel.

Speaker #1: I think things are going in a little bit better direction, and we're obviously watching it.

Speaker #4: Okay. Again, thank you. Thank you for your answer. I really appreciate it.

Brian Gard: Okay. Again, thank you. Thank you for your answer. I much appreciate it.

Brian Guard: Okay. Again, thank you. Thank you for your answer. I much appreciate it.

Speaker #1: Thanks, Brian.

Noah Kauffman: Thanks, Brian.

Speaker #2: As a reminder, if you would like to ask a question, please press star then 1 to join the question queue. The next question comes from Kenning Zhao with Norton Andrews.

Operator: As a reminder, if you would like to ask a question, please press star then 1 to join the question queue. The next question comes from Kenning Zhao with Norton Andrews. Please go ahead.

Speaker #2: Please go ahead.

Speaker #5: Hi, thanks for taking my call. I'm Kenning from Norton Andrews. My first question is that there's a significant decrease in provision for contingent guarantee liabilities, down from about $200 million in the first half of 2025 to $57 million this half year.

Kenning Zhao: Hi. Thanks for taking my call. I am Kenning from Norton Andrews. My first question is that there is a significant decrease in provision for contingent guarantee liabilities down from like RMB 200 million in H1 2025 to RMB 57 million this half year. I see there is a significant decrease in loan balance, outstanding loan balance, but the delinquency rate has jumped as well. I wonder why did you make such adjustment, like if they are from some evidence from the most recent vintages. That is my first question.

Speaker #5: I see there's a significant decrease in outstanding loan balance, but the delinquency rate has jumped as well. So I wonder, why did you make such an adjustment?

Speaker #5: Is there some evidence from the most recent vintages? Yeah, that's my first question.

Speaker #1: Yeah. Hi, Kenning. This is Noah. Thanks for your question.

Noah Kauffman: Yeah. Hi, Kenning. This is Noah. Thanks for your question.

Speaker #5: Hi.

Kenning Zhao: Hi.

Speaker #1: Yeah, the main driver is a loan loss rate assumption. So the guaranteed portfolio itself was broadly unchanged against both the comparisons, so I don't believe it's a size effect.

Noah Kauffman: Yeah. The main driver is the loan, is the loss rate assumption. The guaranteed portfolio itself was broadly unchanged against both the comparison periods, so I don't believe it's a size effect. What moved in our estimate was the average loss rate on the book, which came down during the quarter. Because a portion of that we'd reserved in prior periods, we were no longer required at that level to reverse it. So that reversal is what makes the line look as low as it does. So I treat that way rather than as a new overrun rate for the provision. On your second point, you're right that the two things sit somewhat uncomfortably next to one another, and the distinction that I draw is between the stock and the flow.

Speaker #1: What moved in our estimate was the average loss rate on the book, which came down during the quarter. And that's because a portion of that was reserved in prior periods.

Speaker #1: We were no longer required at that level to reverse it. So, that reversal is what makes the line look as low as it does.

Speaker #1: So I treat it that way, rather than as a new, lower run rate for the provision. On your second point, you're right that the two things sit somewhat uncomfortably next to one another, and the distinction that I draw is between the stock and the flow.

Speaker #1: So the elevated delinquencies that you're seeing are concentrated in older paper that's working through the portfolio. That's roughly the 91 to 180 bucket.

Noah Kauffman: The elevated delinquencies that you're seeing are concentrated in older paper that's oozing through the portfolio.

Noah Kauffman: The elevated delinquencies that you're seeing are concentrated in older paper that's oozing through the portfolio. That's the roughly like 91 to 180 bucket, and it's still very high. Whereas the recent vintages originated under the materially tighter criteria are performing better than what preceded them. Both delinquency buckets improved sequentially for the first time in several quarters. So, the reserve reflects where we think losses on the book are, and where it's composed of today, which is increasingly newer vintages rather than the old book as it looked a year ago. Did you have a second question?

Noah Kauffman: That's the roughly like 91 to 180 bucket, and it's still very high. Whereas the recent vintages originated under the materially tighter criteria are performing better than what preceded them. Both delinquency buckets improved sequentially for the first time in several quarters. So, the reserve reflects where we think losses on the book are, and where it's composed of today, which is increasingly newer vintages rather than the old book as it looked a year ago. Did you have a second question?

Speaker #1: And it's still very high, whereas the recent vintages, originated under the materially tighter criteria, are performing better than what preceded them. And so, both delinquency buckets improved sequentially for the first time in several quarters.

Speaker #1: So the reserve reflects where we think losses on the book are, and it's actually composed of, as of today, increasingly newer vintages rather than the old book as it looked a year ago.

Speaker #1: Did you have a second question?

Speaker #5: Yes. If I may, there's another item—like provision for credit losses for deposits and other financial assets. It wasn't material before, but it jumped. It's quite big now.

Kenning Zhao: Yes, if I may. There's another item, like provision for credit losses for deposits and other financial assets. It wasn't material before, but it jumped from It's quite big now. It's like RMB 95 million, I think. RMB 95 million from only 700,000 before. May I ask what's in that item?

Speaker #5: It's like RMB 95 million, I think—RMB 95 million from only like RMB 700,000 before. May I ask what's in that item?

Speaker #3: Oh, did you write from the institutional side?

Frank Fuya Zheng: Oh, that involved one funding institutional.

Speaker #5: From the comprehensive income.

Kenning Zhao: From the comprehensive income.

Speaker #3: Yeah, yeah, yeah. It's that you wrote with one from the institution and the business where them is already basically gone and finished. And they haven't returned our guarantee money yet.

Frank Fuya Zheng: Yeah.

Kenning Zhao: Yeah.

Frank Fuya Zheng: That involved with one funding institution, and the business with them is already basically gone and finished, and they haven't returned to our guarantee money yet. So, that guarantee money is kind of in arrears. So, it doesn't mean it eventually will not return to us. But I think for whatever reason, it's behind schedule, and so we took a cautious to, accounting-wise, to write them off at this time. That's about it. So only involved one institution funding partner.

Speaker #3: So that can guarantee money is kind of in arrears. So it doesn't mean it will, eventually, not return to us. But I think, for whatever reason, if it's behind schedule, we took a cautious approach, accounting-wise, to write them off at this time.

Speaker #3: That's about it. So, only involve one institution funding partner.

Speaker #5: Right, I understand. Okay, thank you. Thank you. Yeah, that's—yeah. If I may, one more question, actually, quite similar to the previous one.

Kenning Zhao: Right. I understand. Okay. Thank you. Yeah, if I may, one more question, but actually quite similar to the previous one. If you have any further capital return plans apart from the existing ones given the current market?

Speaker #5: Do you have any further capital return plans, apart from the existing ones, given the current market?

Frank Fuya Zheng: At this point, we are doing all we can under the normal buyback circumstances and rules. At this time, we do not have a particular buyback or privatization plan at this moment.

Speaker #3: At this point, we are doing all we can under the normal buyback circumstances and rules. We don't have a particular plan at this time; we don't have a specific buyback or privatization plan at this moment.

Speaker #5: Right. Thank you. Thank you very much.

Kenning Zhao: Right. Thank you. Thank you very much.

Speaker #2: This concludes our question-and-answer session. I would like to turn the conference back over to Victoria Yu for any closing remarks.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Victoria Yu for any closing remarks.

Speaker #6: Okay, thank you, everyone, for joining us today. If you have additional questions, please reach out to our Investor Relations team directly. We appreciate your interest and look forward to speaking with you again soon.

Victoria Yu: Okay. Thank you everyone for joining us today. If you have additional questions, please reach out to our investor relations team directly. We appreciate your interest and look forward to speaking with you again soon. Operator, back to you.

Speaker #6: The pleasure is ours. Back to you.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.