Good day and welcome to the ex-financial second quarter 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.

Thank you, operator. Hello, everyone, and thank you for joining today's call. All financial results for the second quarter ended June 30, 2026, were released earlier today and are available on the company's investor relations website, 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 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 take proper 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 IPC filings. The company undertakes no obligation to update any forward-looking statements as a result of new information. future events and all otherwise except as required by law. It is my pleasure to introduce Mr. Kan Li.

Thank you Victoria and hello everyone. In the second quarter of 2026 we maintained the discipline operating that has defined our approach over the past several years. Conditions remain challenging and we continue to place credit quality, 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 measure 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 the 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. 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 ended stood at RMB 24.97 billion, a decline of 61.5% from the same period of 2025 and 29.2% from the year of the first quarter, from the end of the first quarter. Credit quality. Credit trends showed encouraging sequential improvement in the second quarter, although overall conditions remained challenging. As of June 30th, our 31-60 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 91-180 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 advantages and the additional resources deployed in collections. That said, both rates remain well above prior year levels and the 91 to 183 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 due. With that, I'll turn the call over to Noah, who will take you through the financial results for the second quarter.

Thank you, Ken. Hello, everyone. It's great to speak with you again. can cover 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 993.6 million RMB, or 146.4 million US dollars, 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 US dollars, down 22.9% sequentially and 50% year-over-year. Borrower acquisition and marketing expense was 149.5 million RMB, or 22 million U.S. dollars, 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 US dollars 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. 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 US dollars, 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 US dollars. Net income was 47 million RMB or 6.9 million US dollars 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 were monitoring developments closely and have nothing new to report beyond the disclosure in our 6K. 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 work 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 in RMB and around it. Full details are available in the 6K slide 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 guaranteed income. Net income for the quarter was 47 RMB, up 23.8% from 38 million RMB in the first quarter, down substantially from 528 million RMB in the same period last year. 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 19% U.S. compared with 96 RMB in the prior quarter and 12.6 RMB a year ago. Non-GAAP adjusted basic earnings per ADS were $4.44 IMB, all $0.65 US. Revenue Mixed. 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 increased 41.2% to 160 million RMB. consisting with the smaller outstanding portfolio. Guarantee income more than double year-over-year to 225 million RMB reflected continued recognition of the revenue from our existing guaranteed loan portfolio. Finance income was 278 million RMB down 13.2%. For the full breakdown by line items, please refer to the 6K. and the 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 equity to asset ratio approximately 64% up from around 57% at the end of the first quarter. So total cash, including restricted cash, was approximately 2 billion RMB. Recruiting remain at Apple for the current environment. After return to the shareholder, we continue repurchase shares during the period. From January 1st, 2026 through August 14th, we repurchased approximately 2.6 for the total consideration of approximately US$12.49 million. We have approximately US$35.5 million remaining under the existing US$100 million program, which runs through November 30, 2026. Returning capital to shareholders remains an important part of our capital allocation framework. Dividend Update. As a part of our 7th annual dividend policy, the Board has approved a cash dividend of $0.28 U.S. per ADS, which is equivalent to approximately $0.0467 U.S. per ordinary share. Shareholders of a record as of September 10, 2026, will be entitled to receive the dividend and the payment are expected to be distributed on and around September 28, 2026. AES holders will receive their dividend payments through our depository at the Bank of New York, Maryland 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 third quarter at this time. Our priorities are unchanged, capital preservation, discipline 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.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone 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 2. 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.

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 to the company. I want to understand theoretically why this company is publicly traded given that Your tangible book value is over $20 US per ADS. Why don't you just take this company private?

Let me try to answer that question again. I think a previous investor asked a similar question before. In China, you know, being a list company is kind of a are all privileged and a special status. If we privatize, we might lose the opportunity for current business to be listed again because if you want a Chinese-based company try to be listed overseas, you need to get approval from the government. Based on our current industry situation, as long as for our industry is not going to be a list. So that's probably the main reason, you know, you will rarely see the Chinese company in the US go private. You know, many years ago, some company did this kind of thing and they are trying to, you know, change the venue and try to be listed in Hong Kong or in China. But it's not, in general, everyone don't see, still, you know, prioritize or prefer to be listed in the US. That's why.

Given that there's such a large gap, what's going to be your process for may be returning more cash to shareholders or driving the company towards a much higher valuation that's much more close to, say, U.S.-style valuations.

U.S., compared with U.S. valuation, is probably kind of an all-rich goal. And based on the current business and the current regulation and environment, and 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. We are doing the best we can and basically, based on the very low volume right now, we are doing almost the maximum buyback in the normal buyback cruise and still preserve enough capital to explore new business opportunity, even though those new venture opportunities are far but not very clear at this point.

All right.

Thank you very much.

Appreciate it.

Yeah, Brian. Yeah, this is Noah Kauffman. Yeah, just to add kind of to what like Frank was saying, you know, so we have had two consecutive quarters of, you know, sequential credit improvements. And so, you know, the credit metrics at least over the last couple of quarters have moved, you know, a bit in the right direction. and so the cost base is, you know, also getting a bit leaner. So, you know, I think certainly what Frank says is true. You know, 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, you know, very difficult. And so, you know, I think with a couple quarters kind of moving in the right direction, you know, were very focused on what are the operational efficiencies that we can add. 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 that as the loan book comes down, cash is freed up. So certainly, we have the ability to continue to pay quite a healthy dividend. but I think, you know, on the back of, you know, maybe we'll call it like a, you know, rough year, a really rough year, we're not, you know, quite ready to throw in the towel. You know, I think things are going, you know, in a little bit better direction and, you know, we're obviously watching it.

Okay, again, thank you. Thank you for your answer. I much appreciate it.

Thanks, Brian.

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

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 like 200 million in the first half in 2025 to 57 million this half year. I see there's a significant decrease in loan balance, outstanding loan balance, but the delinquency rate has jumped as well. So I wonder why did you make such adjustment, like if there's some evidence from the most recent vintages

Yeah, that's my first question.

Yeah, hi, Kenning. This is Noah. Thanks for your question. Hi. Yeah, the main driver is the loss rate assumption. So the guaranteed portfolio itself was broadly unchanged against both the comparison period. So I don't believe it's a size effect. And what moved and our estimate was the average loss rate on the book, which came down during the quarter. And because a portion of that we've 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. So the elevated delinquencies that you're seeing are concentrated in older paper that's seasoning through the portfolio. That's 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. And so 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?

Yes. There's another item, like probation 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 95 million, I think, 95 million RMB from only like and 700,000 before. May I ask what's in that item?

Oh, that involved from the institutional. From the comprehensive income. Yeah, yeah, yeah. That involved with one funding institution and the business we are in is already, you know, basically gone and finished and they haven't returned to You know, our guaranteed money yet. So, you know, that can guarantee money is kind of in real. So it doesn't mean it will eventually will, you know, will not return to us. But I think for whatever reason, you know, it's behind schedule. And so we took precautions to accounting wise to write them off at this time. That's about it. So only involve one institution funding partner.

Right, I understand. Okay, thank you. Thank you. Yeah, that's, yeah, if I may, one more question, but actually quite similar to the previous one, like if you have any further capital return plans apart from the existing ones given the current market.

At this point, we are doing all we can under the normal buyback circumstances and rules. We don't have a particular, at this time, we don't have a particular buyback or prioritization plan at this moment.

Thank you. Thank you very much.

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

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.

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