X Financial - ADR Stock

Good day, and welcome to the X Financial Second Quarter 2026 Earnings Conference Call. [Operator Instructions] 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. 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. 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. Kaufman 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. Kaufman 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.

And it is my pleasure to introduce Mr. Kan Li.

Thank you, Victoria, and hello, everyone. In the second quarter of 2026, we maintained the disciplined operating approach that has defined our approach over the past several quarters. Conditions remain challenging, and we continue to place credit quality, liquidity and 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 origination 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 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 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 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 additional resources deployed in collections. That said, both rates remained well above prior year levels, and the 91- to 180- day rates, in particular, remained 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, Kan. Hello, everyone. It's great to speak with you again. Kan 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 USD 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 USD 117.7 million, down 22.9% sequentially and 50% year-over-year. Borrower acquisition and marketing expense was RMB 149.5 million or USD 22 million, down from RMB 219.8 million in the first quarter and RMB 756.3 million in the same period last year, as we continue to prioritize capital efficiency over volume growth. Aggregate credit-related provisions were RMB 183.1 million or USD 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. 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 RMB 95.3 million. Income from operations was RMB 194.9 million or USD 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 RMB 220 million or USD 32.4 million. Net income was RMB 47 million or USD 6.9 million in the second quarter, compared with RMB 37.9 million in Q1 2026 and RMB 528 million in the same period last year, with income tax expense and investment-related items below the operating line accounting for the difference from pretax 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 in 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 Form 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 you 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 RMB 994 million, 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 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. Non-GAAP adjusted net income was RMB 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. On a per ADS basis, basic earnings were RMB 1.26 or USD 0.19, compared with RMB 0.96 in the prior quarter and RMB 12.6 a year ago. Non-GAAP adjusted basic earnings per ADS were RMB 4.44 or USD 0.65.

Revenue mix. Across our business lines, loan facilitation service fees declined 85.5% year-over-year to RMB 199 million, in line with low origination volumes. Post-origination service fee decreased 41.2% to RMB 160 million, consistent with the smaller outstanding portfolio. Guarantee income more than doubled year-over-year to RMB 225 million, reflecting continued recognition of revenue from our existing guaranteed loan portfolio. Finance income was RMB 278 million, 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 RMB 12.1 billion, and shareholders' equity was approximately RMB 7.8 billion, giving us an equity-to-asset ratio approximately 64%, up from around 57% at the end of the first quarter. So total cash, including restricted cash, were approximately RMB 2 billion. Liquidity remained ample for the current environment.

Capital return to the shareholders. We continue to repurchase shares during the period. From January 1, 2026, through August 14, we repurchased approximately 2.63 million ADSs for a total consideration of approximately USD 12.49 million. We have approximately USD 35.5 million remaining under the existing USD 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 semiannual dividend policy, the Board has approved a cash dividend of USD 0.28 per ADS, which is equivalent to approximately USD 0.0467 per ordinary share. Shareholders of record as of September 10, 2026, will be entitled to receive the dividend, and the payments are expected to be distributed on and around September 28, 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 third quarter at this time. 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'll now take the questions. Operator, please go ahead.

[Operator Instructions] The first question today comes from [ Brian Guard ] with Warburg Asset Management.

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 tangible book value is over USD 20 per ADS. Why don't you just take this company private?

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. If we privatize, we might lose the opportunity for 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. And based on our current industry situation, as least for our industry, is not going to be a list. So that's probably the main reason you will rarely see the Chinese-listed company in the U.S. go private. Many years ago, some companies did this kind of thing, and they tried to change venue and tried to be listed in Hong Kong or in China, but it's not -- in generally, everyone don't see -- still prioritize or prefer to be listed in the U.S. That's why.

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, U.S. style valuations?

U.S., compared with U.S. valuations is probably kind of our rich goal. And based on the current business and the current regulation environment, and I think the best way to -- for us and also from investor perspective, as we find new revenue sources, basically reengineer the company to -- other than facilitation business as we are, that probably is the best way. And 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 buybacks though -- and still preserve enough capital to explore new business opportunity, even though those new venture opportunities are far, not very clear at this point.

Yes, this is Noah Kauffman. Just to add kind of to what like Frank was saying. So we have had 2 consecutive quarters of sequential credit improvements. And so the credit metrics, at least over the last couple of quarters, have moved a bit in the right direction. And so the cost base is also getting a bit leaner. 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 the Chinese headquartered fintech, is very difficult. And so I think with a couple of quarters kind of moving in the right direction, we're 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 like 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. So certainly, we have the ability to continue to pay quite a healthy dividend. But I think on the back of maybe, call it, like a rough year, really rough year, we're not quite ready to throw in the towel. I think things are going in a little bit better direction, and we're obviously watching it.

[Operator Instructions] The next question comes from [ Kenning Zhao ] with [ Norton Andrews ].

I'm from [ Norton Andrews ]. My first question is that there's a significant decrease in provision for contingent guarantee liabilities, down from like RMB 200 million in the first half in 2025 to RMB 57.6 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, is there some evidence from the most recent vintages? Yes, that's my first question.

Yes. [ Kenning ], this is Noah. Thanks for your question. Yes, 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 in our estimate was the average loss rate on the book, which came down during the quarter. And because a portion of that we 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 lower run rate for the provision.

On your second point, you're right that the 2 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 it's actually -- 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, 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 like RMB 700,000 before. May I ask what's in that item?

That involved from the institutional...

From the comprehensive income....

Yes, yes. That involved with one funding institution, and the business with them is already basically gone -- finish, and they haven't returned to our guarantee money yet. So that guarantee money is kind of in real. So it doesn't mean it will eventually will not return to us. But I think for whatever reason, it's behind schedule. So we took a cautious 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. Yes, that's -- yes, if I may, one more question, but actually, it's 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 particular buyback or prioritization plan at this moment.

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.

Hello, and welcome to the X Financial First Quarter 2026 Earnings Conference Call. [Operator Instructions] 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. Our financial results for the first quarter ended March 31, 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. 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 discuss the regulatory environment and the first quarter financial performance, followed by Mr. Zheng, who will review the 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 the 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 or 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's now my pleasure to introduce Mr. Kan Li.

Thank you, Victoria, and hello, everyone. In the first quarter of 2026, we continue to operate with a high degree of discipline as the operating environment remained challenging. Carrying forward the more conservative posture we adopted in the second half of 2025, we further reduced the pace of activity in Q1, keeping our business closely aligned with evolving supervisory expectations while maintaining an unwavering focus on credit quality and risk management.

During the quarter, we facilitated and originated RMB 14.63 billion in loans, a decline of 58.4% year-over-year and 35.8% sequentially from the fourth quarter. This pullback was deliberate as we continue to place greater priority on portfolio integrity and long-term balance sheet stability over near-term origination volume. Operationally, we made further progress on a number of key initiatives during the quarter. We continued shifting our origination mix toward internally operated channels to deepen borrower relationships and reduce reliance on higher cost third-party traffic. Underwriting criteria were further tightened, compliance infrastructure was strengthened and we continued rolling out process automation across servicing and collections, all with the goal of improving operational efficiency while keeping our cost base lean.

From a volume standpoint, borrower activity continued to contract in the first quarter. We served approximately 956,520 active borrowers, down 60.6% year-over-year and 43.5% from the prior quarter. We facilitated approximately 1.25 million loans during the period with an average loan size of RMB 11,741 per transaction. Outstanding loan balance at the quarter end stood at RMB 35.3 billion, a decline of 39.6% from the same period of 2025.

Credit quality. Credit conditions remained under pressure in the first quarter, consistent with the broader stress we and other across the industry have been observing. As of March 31, our 31- to 60-day delinquency rate was 2.61% compared with 2.9% at the end of Q4 2025 and 1.25% as of the same period of 2025. Our 91- to 180-day delinquency rate increased to 9.95% compared with 6.31% at the end of Q4 2025 and 2.73% as of the same period of 2025. The data reflects a borrower base under continued financial strain, consistent with what we are seeing across the broader consumer credit industry. We have addressed this by further narrowing our approval criteria, deploying more resources into collections and pulling back on our origination in segments where repayment risk has risen most sharply. Higher credit costs weighed on quarter's financial results, and we accepted that trade-off knowingly. Protecting the integrity of the portfolio matters more to us than defending short-term earnings. Looking ahead, our focus is on keeping credit quality stable, managing liquidity carefully and running the business with the same level of discipline we have maintained throughout this period.

With that, I'll turn the call over to Noah, who will cover the key financial results for the first quarter as well as the regulatory environment.

Great. Thank you, Kan. Hello, everyone. It's great to speak with you again. Kan walked through the operational and credit developments, so I'll take you through the financial results for the quarter and then provide an update on the regulatory landscape.

In the first quarter of 2026, total net revenue was RMB 1.18 billion or USD 170.5 million, representing a 39.3% decline year-over-year and a 19.9% decline sequentially from Q4 2025. Total operating costs and expenses came in at RMB 1.04 billion or USD 150.1 million, down 28.5% sequentially and 24.1% year-over-year. The year-over-year cost reduction was driven by the sharp pullback in borrower acquisition and marketing spend, which fell from RMB 709 million in Q1 2025 to RMB 219.8 million this quarter. Total provisions were RMB 282.9 million or USD 41 million, down substantially from RMB 669.3 million in Q4 2025, which was a meaningful sequential improvement, but still well above the RMB 135.5 million we recorded in the same period last year, continuing to weigh on profitability relative to prior year levels.

On the discretionary spending side, we maintained tight control. Borrower acquisitions and marketing expense was RMB 219.8 million or USD 31.9 million in the first quarter, significantly below the RMB 709 million we spent in Q1 2025 as we continue to prioritize capital efficiency over volume growth.

Income from operations recovered to RMB 140.7 million or USD 20.4 million, a 75.4% decrease year-over-year, but a meaningful rebound from the depressed Q4 2025 level. Operating margin improved to 12%, up from 1.4% in Q4 2025, that is still well below the 29.6% recorded in the prior year period.

Income before income taxes was RMB 136.8 million or USD 19.8 million as the sequential improvement in operating results was partially offset by investment-related items below the operating line. Net income was RMB 37.9 million or USD 5.5 million in the first quarter compared with RMB 57.2 million in Q4 2025 and RMB 458.1 million in Q1 2025. Net profit margin was 3.2% compared with 3.9% in the prior quarter and 23.6% a year ago. Return on equity was 1.9% for the quarter, reflecting the substantial reduced earnings base.

On the regulatory environment, the regulatory environment governing Internet-based lending in the People's Republic of China continued to evolve during the first quarter of 2026 with authorities further strengthening oversight across the consumer credit business chain. The company continues to monitor these developments closely. However, management has limited visibility into the ultimate scope and direction of implementation. If current and emerging regulatory requirements are implemented as currently understood, the company's operating results may be materially and adversely affected and historical levels of profitability should not be assumed to be indicative of future performance.

The first quarter results reflect a business in transition, revenue and profitability well below prior year levels as we work through a period of elevated credit costs and reduced origination activity, but with early signs of sequential stabilization and operating performance. We are managing carefully through this environment.

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

Thank you, Noah, and hello, everyone. I will walk through the key financial highlights for the first quarter, then cover the balance sheet, capital returns and our outlook. Please note that all numbers stated are in RMB and rounded up. Full details are available in the 6-K filed with the SEC.

Financial results. The total net revenue for the first quarter was approximately RMB 1.2 billion, down around 39% from the same period of last year and about 20% from the prior quarter. The decline was driven primarily by the significant reduction in loan origination activity we have been deliberately pursuing and was partially offset by growth in guarantee income and financing income. Operation income was RMB 141 million with an operation margin of 12%, well below 29.6% we recorded a year ago, with a meaningful recovery from the 1.4% we reported in the fourth quarter of 2025. The improvement sequentially reflects the benefit of the lower origination-related provisions as our credit tightening measures took hold.

Net income for the quarter was RMB 38 million compared with RMB 458 million in the same period of last year. The sharp year-over-year decline reflects substantially higher credit provisions and the substantially lower revenue base. Non-GAAP adjusted net income was RMB 81 million. On a per ADS base, basic earnings were RMB 0.96 or USD 0.14 compared with RMB 10.92 a year ago and non-GAAP adjusted basic earnings per ADS were RMB 2.8 or USD 0.30.

Revenue mix. Across our business lines, the pattern was consistent with the overall volume pullback. Facilitation fees fell sharply as origination volume dropped. Post-origination fee declined more modestly, in line with the smaller outstanding portfolio. On the positive side, guarantee income more than tripled year-over-year, reflecting continued recognition of revenue from our existing guaranteed loan portfolio. Financing income was broadly stable. For the full breakdown by line item, please refer to the 6-K.

Balance sheet and liquidity. Our balance sheet remains well capitalized at the end of the quarter. Total assets were approximately RMB 13.6 billion and the shareholders' equity was approximately RMB 7.8 billion, giving us an equity-to-asset ratio of around 57%. We remain in a solid liquidity position and with total cash, including restricted cash of approximately RMB 2.4 billion and the balance sheet is in good shape to navigate the current environment.

Capital return to the shareholders. We continued our share repurchase program during the quarter. From January 1 through May 15, 2026, we repurchased approximately 1.8 million ADS for the total approximately USD 8.2 million. We have approximately USD 39.8 million remaining under the existing program, which runs through November 30, 2026. This reflects our ongoing commitment to returning value to the shareholders while maintaining balance sheet strength.

Business outlook. Our near-term outlook remains cautious. The regulatory environment continues to evolve quickly, and we have limited visibility into the full scope and timing of the implementations. We expect these dynamics to continue to influence our industry pricing, funding conditions and origination activity for the foreseeable future. For the second quarter of 2026, we expect total loan origination to be in the range of RMB 11.5 billion to RMB 12.5 billion, consistent with our continued focus on quality over volume. We remain focused on capital preservation, disciplined origination and cost control. We will keep investors updated as the regulatory picture becomes clear.

That concludes our prepared remarks. We will now take questions. Operator, please go ahead.

[Operator Instructions] We are showing no questions at this time. 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. Thank you. Operator, back to you.

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

Hello, and welcome to the X Financial Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] 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. Our financial results for the fourth quarter and fiscal year ended December 31, 2025, 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. 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 discuss the regulatory environment and the fourth quarter financial performance, followed by Mr. Zheng, who will review the full 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 or 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 now my pleasure to introduce Mr. Kan Li.

Thank you, Victoria, and hello, everyone. In the fourth quarter of 2025, we continue to operate with heightened discipline as the external environment became more demanding. Following a strong first half, we deliberately moderated activity in Q4 to remain aligned with evolving supervisory expectations and to prioritize credit quality and prudent risk management.

During the quarter, we facilitated and originated RMB 22.77 billion in loans, representing a 29.5% decline year-over-year and a 32.3% decline sequentially from the previous quarter. This moderation was intentional, reflecting our focus on protecting portfolio health and maintaining long-term stability rather than pursuing near-term volume expansion.

For the full year 2025, we facilitated and originated RMB 130.6 billion in loans, up 24.5% from RMB 104.9 billion in 2024. This full year performance reflects the scale we achieved earlier in the year and our ability to operate with discipline as market and regulatory conditions involved. During the quarter, we focused on strengthening the stability of our core operations through disciplined channel management, tighter risk controls and the continued efficiency improvements.

We increased the proportion of activity on internal operated platforms to enhance customer stability and reduce dependence on higher cost external traffic sources. We also further tightened underwriting standards, strengthened the compliance processes, optimized operational workflows and expanded automation across services and the collection functions to improve efficiency without increasing headcount. From an operational standpoint, borrower activity moderated meaningfully in the fourth quarter.

We served approximately 1.69 million active borrowers, down 20.2% from a year ago and down 30.7% sequentially. We facilitated approximately 2.47 million loans in the quarter with an average loan amount per transaction of RMB 9,226. We ended the quarter with RMB 50.5 billion in outstanding loan balance, down 3.6% from the same period of 2024.

Credit quality. We did observe continued credit pressure during the quarter, consistent with broader market trends and a more cautious industry-wide risk posture. As of December 31, our 31- to 60-day delinquency rate increased to 2.9% compared with 1.85% at the end of Q3 and 1.17% a year ago. Our 91 to 180 days delinquency rate increased to 6.31% compared with 3.52% at the end of Q3 and 2.48% a year ago.

These movements reflect rising repayment stress among certain segments as well as a more conservative approach to risk. In response, we tightened underwriting criteria, enhanced the collection strategies and adjusted capital deployment to preserve balance sheet resilience. As credit costs increased, we chose to prioritize stability and risk management, which affected short-term earnings but strengthens the foundation of the business.

We believe this more cautious stance is appropriate given current conditions. Our near-term priorities remain clear: safeguard portfolio quality, preserve liquidity and maintain discipline in operations. With that, I'll now turn the call to Noah, who will walk through key fourth quarter financial performance and the profitability trends, along with a brief regulatory update.

Thank you, Kan. Hello, everyone. It's great to speak with you again. Kan covered the operational and credit picture for the quarter, so I'll focus on the financial performance and our profitability profile in Q4. On the regulatory environment, the regulatory environment governing Internet-based lending in China continued to evolve meaningfully during 2025 with authorities increasingly refining and strengthening oversight across the entire consumer credit chain.

The most significant development was Notice 9 issued by the National Financial Regulatory Administration on April 1, 2025, which requires commercial banks to strictly control total borrowing costs.

While Notice 9 does not explicitly stipulate a hard cap, in practice, a 24% annum ceiling on total borrowing costs for a single loan is generally being implemented and enforced across the industry. Importantly, 24% may not represent the outer boundary of that pricing pressure. Regulatory authorities have continued to tighten borrowing cost caps applicable to micro credit and consumer finance companies, and those entities may face de facto requirements set below that level.

The pace and manner of implementation across different institution types and jurisdictions remain highly uncertain, and we currently have no reliable basis on which to predict the ultimate scope or trajectory of these limitations. If current and emerging requirements are implemented as we currently understand them, our operating results will be adversely and materially affected relative to prior years.

The magnitude of that impact is subject to significant uncertainty and investors should not assume our historical profitability levels are indicative of future performance, including the possibility of operating losses in future periods. Notice 9 also requires commercial bank head offices to implement white list management systems for loan facilitation platform operators, prohibiting cooperation with institutions not on those lists.

This has introduced additional uncertainty around our funding relationships and implementation practices vary across banking groups and their subsidiaries. Future regulatory guidance could alter how those determinations are made in ways that affect our authorized funding relationships. And this is just one example of the broader unpredictability we are navigating.

Separately, payment institution rating measures issued by the People's Bank of China in December 2025 extend regulatory oversight further across the lending chain, adding to compliance burdens and operational costs for industry participants. We are closely monitoring all of these developments as they continue to evolve in 2026. At this stage, management has limited visibility into the ultimate scope, pace and direction of implementation and the potential impact on our business, financial condition and results of operations cannot be determined with any degree of certainty.

On fourth quarter financial performance. In the fourth quarter of 2025, total net revenue was RMB 1.47 billion or USD 209.9 million, representing a 14.1% decrease year-over-year and 25.1% decrease sequentially from Q3. Total operating costs and expenses were RMB 1.45 billion or USD 207 million, down 9.5% sequentially, but up 22.3% year-over-year.

The year-over-year increase was driven primarily by materially higher credit-related provisions, while operating expenses also reflected our continued efforts to align spending with a more measured pace of activity. Credit-related provisions were the primary factor weighing on the fourth quarter results.

Total provisions were RMB 669.3 million or USD 95.7 million, reflecting higher expected credit losses and a more conservative provisioning across -- in response to elevated risk indicators during the period. We also continue to take a disciplined approach to discretionary spending.

For example, borrower acquisition and marketing expense was RMB 212.2 million or USD 30.3 million in Q4, reflecting a substantial reduction compared with both the prior quarter and the same period last year as we prioritized efficiency and risk discipline. As a result, income from operations was RMB 20.2 million or USD 2.9 million, a 96.2% decrease year-over-year and a 94.4% decrease sequentially.

Operating margin decreased to 1.4% compared with 18.5% in Q3 and 30.7% in the same period last year. Below operating income, the quarter remained profitable, but at a level that underscores the degree of near-term credit pressure.

Income before income taxes was RMB 31.2 million or USD 4.5 million, reflecting the cumulative effect of lower revenue and elevated provisioning. Net income was RMB 57.2 million or USD 8.2 million in Q4 compared with RMB 421.2 million in Q3 and RMB 385.6 million in Q4 of last year. Net profit margin was 3.9% compared with 21.5% in the prior quarter and 22.6% a year earlier. Return on equity decreased to 2.9%, reflecting substantially lower net income during the quarter.

Taken together, Q4 reflects a materially different earnings profile compared with earlier periods, driven primarily by higher credit costs and a more measured level of activity.

We are managing through this phase with a conservative financial posture and maintaining flexibilities as conditions evolve.

With that, I'll now hand the call over to Frank to discuss the full year financial results per ADS metrics, non-GAAP profitability and our balance sheet and liquidity position.

Thank you, Noah, and hello, everyone. I will walk through our full year financial results and then discuss our balance sheet, liquidity and outlook. And full year financial highlights.

For the full year 2025, total net revenue was RMB 7.64 billion or USD 1.09 billion, representing a 30% -- 30.1% increase from RMB 5.87 billion in 2024. Income from operations was RMB 1.63 billion or USD 233.1 million compared with RMB 1.87 billion in 2024. Our full year operation margin was 21.3% compared with 31.9% in the prior year, reflecting a higher credit-related provisions and a more cautious operation posture in the second half.

Net income for the full year was RMB 1.46 billion or 209.4 million compared with RMB 1.54 billion in 2024. Full year GAAP net profit margin was 19.2% compared with 26.2% in 2024. On a non-GAAP basis, adjusted net income was RMB 1.56 billion or USD 223 million for the fiscal year 2025 compared with RMB 1.54 billion in 2024. Per ADS and the non-GAAP metrics.

On a per ADS basis for the full year, net income per ADS was RMB 36 or $5.15 and RMB 35.22 or $5.04 on a basic and diluted basis, respectively, compared with RMB 31.98 basic and RMB 31.50 diluted in 2024. Non-GAAP adjusted net income per ADS was RMB 38.34 USD 5.48 and RMB 37.50 or USD 5. 36 on a basic and diluted basis, respectively, compared with RMB 31.98 basic and RMB 31.44 diluted in 2024.

For additional Q2 context, non-GAAP adjusted net income in the fourth of -- quarter was RMB 31.3 million and USD 8.8 million. Non-GAAP adjusted earnings per ADS was RMB 1.56 or USD 0.22 on both a basic and diluted basis. Balance sheet and liquidity. Our balance sheet remains solid as of December 31, 2025. Total assets were RMB 14.67 billion or USD 2.1 billion. Total liability was RMB 6.83 billion or USD 976.5 million or total equities -- total shareholder equities was RMB 7.84 billion or USD 1.12 billion.

We ended the year with RMB 987.6 billion or USD 141.2 billion in cash and cash equivalents and RMB 1.15 billion and USD 133.9 billion in restricted cash. And for total cash, including restricted cash of approximately RMB 2.13 billion or USD 305.1 million. Capital return to shareholders. As of March 15, 2026, under the company's USD 100 million share repurchase program, the company had repurchased an aggregate of approximately 3.79 million ADS, including approximately 3.37 million ADS and 2.53 million Class A ordinary shares for a total consideration of approximately USD 53.85 million. The company now has approximately USD 46.15 million remaining under the share repurchase program, which is effective through November 30, 2026. This program underscores the company's confidence in its long-term growth outlook and its commitment to enhancing shareholder value.

The purchases in the program remain subject to market conditions and other factors and may be modified or suspended at management's discretion. Business outlook. Given evolving regulatory developments and the limited visibility into how recent policy measures will be implemented across different jurisdictions, our near-term outlook remains cautious.

The full impact of these changes on funding availability, pricing dynamics and the overall industry activity is still uncertain and may take time to become clear. We are highly recognized asset quality, disciplined risk management, cost control and the preservation of liquidity and operational flexibility. As the regulatory expectations continue to develop, we are adapting our operation approach to maintain compliance while safeguarding the long-term stability of the business.

While we believe our platform is well positioned to navigate a more stringent environment, additional policy adjustments or implementation actions could further affect industry economics and growth perspectives. We will continue to monitor developments closely and will update our outlook as greater clarity emerges. This concludes our prepared remarks, and we will now open the call for questions. Operator, please go ahead.

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

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.

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

Hello, and welcome to the X Financial Third Quarter 2025 Earnings Conference Call. [Operator Instructions] 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. The company's financial results were released earlier today and are available on our Investor Relations website at ir.xiaoyinggroup.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 start with a brief overview of our business progress and financial performance. Then Mr. Kauffman will go over some Q3 metrics and highlights after that, Mr. Zheng will share updates on financial, regulatory insights and our 2025 outlook. Afterwards, 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 provision 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 mining are beyond the company's control, which may cause actual results, performance or achievements to differ materially from those described in these statements. Further information on these and the 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 now my pleasure to introduce Mr. Kan Li.

Thank you, Victoria, and hello, everyone. The third quarter of 2025 marked a very different phase for our business. compared with the strong momentum we experienced in the first half of the year. After a record performance in Q2, we deliberately moderated our growth pace to navigate a more regulated and disciplined operating environment. During the quarter, we facilitated and originated RMB 33.64 billion in loans representing an 18.7% increase year-over-year but a 13.7% decline sequentially from the previous quarter. This moderation was intentional as we prioritized asset quality and risk management over near-term volume expansion.

Our team remains focused on maintaining prudent risk discipline while serving qualified borrowers and protecting portfolio health, enhancing our technology platform, data analytics and underwriting precision to improve decision-making and efficiency, strengthening partnerships and operational process to support long-term scalability on the evolving regulatory standard. We also continued improving borrower experiences by simplifying application flows, accelerating approval times and expanding transparency across our credit and repayment channel. At the same time, we refined our collective infrastructure and monitoring system to proactively managing credit risk and improve repayment outcomes. These initiatives allow us to better serve customers while protecting the platform's long-term stability.

Despite a softer operating backdrop, backdrop, we maintained solid profitability and positive earnings. Total net revenue reached RMB 1.96 billion, reflecting a 23.9% increase year-over-year though down 13.7% sequentially from Q2 record level. This performance demonstrates our ability to adapt quickly and maintain resilience through disciplined execution and operational control. Credit quality. We did observe early signs of credit pressure during the quarter, consistent with broader market share as of September 30, our 31- to 60-day delinquency rate rose to 1.85% compared with 1.16% at the year of Q2 and 1.02% a year ago. Our 91 to 180-day delinquency rate increased to 3.52%, up from 2.91% in Q2 and 3.22% in Q3 2024. This movement reflects a more cautious borrower environment and rising repayment stress among certain segments.

In response we lightened our underwriting criteria reinforced collection effectiveness and expanded borrower engagement. While we expect conditions to remain challenging in the short term, these steps position us well to preserve asset quality and protect the long-term stability of our platform.

With that, I'll now turn the call over to Noah, who will walk through additional financial and operational highlights from the third quarter. Noah?

Hello, everyone. It's great to speak with you again. As Kent mentioned, the third quarter required a measured approach following a very strong first half. We deliberately tempered origination growth to ensure prudent risk management and operational stability amid an evolving regulatory environment. I'll begin with an update on that context and then discuss our operational and financial positioning. On the regulatory environment, China's fintech sector remains under close supervision with regulators continuing to prioritize consumer protection, transparency and responsible lending practices. During the quarter, authorities reiterated these objectives and discussed further measures of lower borrowing costs for consumers and promote more sustainable development across the online lending industry.

We fully support these efforts and continue to operate with a compliance-first mindset. While these changes may continue to exert pressure on industry pricing and profitability, we believe that a clearer and more consistent framework will ultimately favor disciplined, well-capitalized and transparent platforms. Our long-standing commitment to regulatory alignment and strong internal controls remains a core foundation of our business.

On the operational overview, during the quarter, we facilitated RMB 33.64 billion in loans, up 18.7% year-over-year and ended the period with RMB 62.83 billion in outstanding loan balance, up 37.3% from last year. We facilitated approximately 3.48 million loans, representing a 32% increase year-over-year with an average loan size of RMB 9,654. Our active borrower base was approximately 2.44 million, 14.4% lower sequentially but 24.2% higher year-over-year. These figures demonstrate the resilience of our franchise even as we moderated new origination activity to preserve credit quality.

We refined our risk models, reduced exposure to lower tier channels and focused more heavily on established higher-quality borrower sources. We also continued to strengthen our AI-driven analytics to improve borrower identification and early delinquency detection. On financial positioning, from a financial perspective, the third quarter reflected the necessary adjustment phase following our record first half. Profitability remained positive but contracted sequentially as overall activity normalized. Year-over-year, revenue and earnings growth was supported by the scale achieved earlier in the year that we recognize that the operating environment will likely remain challenging for several quarters.

Our focus now is on cost efficiency and disciplined execution, ensuring that every aspect of our expense structure reflects today's more measured pace of activity. We also maintained a conservative capital position and ample liquidity. Our balance sheet continues to generate healthy cash flow and remains a source of strength for the organization. We are managing funding and capital deployment with caution, maintaining flexibility to adapt to any future regulatory or market adjustments. Our financial strategy remains centered on capital efficiency and long-term value preservation.

We continue to deliver returns on equity above 20%, supported by tight cost management and share repurchases and that have reduced our outstanding share count [indiscernible] industry conditions soften, we remain focused on stability, liquidity and financial discipline rather than pursuing growth at the expense of prudence. Looking ahead, our priorities remain clear: safeguard asset quality, strengthen liquidity and maintain financial resilience. The external environment may stay uncertain but our disciplined financial management and focus on operational control position X Financial to navigate continued volatility and adjust responsibly as the market evolves.

With that, I'll now hand the call over to Frank to discuss our financial performance in greater detail. Go ahead, Frank.

Thank you, Noah. Hello, everyone. I will walk through our third quarter financial results and discuss our capital position and outlook. The financial highlights. In the third quarter of 2025, total net revenue was RMB 1.96 billion, representing a 23.9% increase year-over-year [indiscernible] decline from Q2. The year-over-year growth was supported by higher average loan balances and the carryover effect of price facilitation activity. With a sequential decline reflect our intentional reduction in loan volumes.

Income from operations was RMB 331.9 million down 29.9% year-over-year and 46.4% sequentially, primarily due to higher provision for credit losses and a guarantee liability. Our operation margin was 18.5% compared with 29.7% in Q2 and 32.2% a year ago. Net income came in at RMB 421.2 million, up 12.1% year-over-year, but down 2.2% sequentially. Non-GAAP adjusted net income was RMB 438.2 million, up 1% from last year and down 26.1% from Q2 basically. [indiscernible] diluted earnings per ADS were RMB 10.56 and RMB [indiscernible] respectively, while the China equity stood at 21.5%. These results reflect the impact of higher provision and lower volume, but also show that our core business remains profitable and cash generative despite a more cautious operational environment.

Balance sheet [indiscernible]. Our balance sheet remains strong total assets stood at RMB 14.69 billion, up 26.4% year-over-year and the total shareholders' equity was RMB 7.93 billion, up 15% year-over-year. We ended the quarter with approximately RMB 1.55 billion in cash under the [indiscernible] cash, providing ample to support operations and capital returns. Capital returned to the shareholders. From January 1, 2025, through November 20, 2025, X Financial repurchase aggregate of approximately RMP 4.26 billion million ADS, including approximately 3.8 million ADS and 2.676 million Class A [indiscernible] for a total consideration of approximately USD 67.9 million under its share repurchase program. The company now has approximately [indiscernible] remaining under existing USD 100 million share repurchase plan, which was effective through November 30, 2026. This program understood the company's confidence in its long-term growth outlook and its commitment to enhancing the shareholder value. The purchases under the program remains subject to market conditions and other facts and may be modified or suspended at the management discretion.

Outlook for Q4 2025. Based on current trends, X Financial expects the total loan amount facility and originated in the fourth quarter of 2025 to be in the range of RMB 21 billion to RMB 23 billion. The total loan amount of facilitated and originated for the full year 2025 is expected to be in the range of RMB [indiscernible] this guidance reflects a [indiscernible] to support sustained long-term growth.

With that, I hand the call back to our President, Kan Li for closing remarks.

Thank you, Frank. The third quarter marked a period of recalibrating for our company, we made the deliberate choice to prioritize quality and discipline over near-term growth, ensuring our platform remains resilient amid a changing operating landscape. While we expect challenges to persist in the coming quarters, we remain confident in our ability to navigate them with prudence, maintain profitability and position it financial for steady, sustainable performance over time.

Okay. This concludes our prepared remarks. We will now open the call for questions. Operator, please go ahead.

[Operator Instructions] The first question today comes from Chen Yang with [indiscernible].

So my first question is around the take rate guidance. So the management has provided guidance on the fourth quarter loan origination volume, which is quite 30% lower than prior levels. What would be the expected take rate for the fourth quarter given the current risk situation which may be stabilizing or deteriorating in the past week or so over the past 2 months.

And my second question is around the capital allocation. So given the business volume is already lower since the third quarter and maybe even further reduced in the coming years, the return on equity will -- may drop significantly in the future. So is the company considering returning more capital to shareholders and keep the company running on their smaller book while higher capital efficiency. So I will also translate my question in Chinese if that would help.

[Foreign Language].

Thank you for the question. This is Frank. I'll answer your take rate question and let Kan answer your return on capital question -- Noah will take a capital return question. You start to see the effect of impact of this so-called new regulation in the third quarter a little bit. But I think the full impact will not be fully realized in another quarter or so. So I think at this time, whatever talking about next year regarding even take rate is very premature, and we'll be very [indiscernible]. But we also do not ever disclosure to take rate before. So we are not going to do that.

But I will say that, I think that this new regulatory regime will have a material negative impact on everything, our volume, our margin, our profitability, and take rate is part of a effect of profitability. So you will -- you will -- you can assume the take rate will have a material negative impact in the future. That's the best I can discuss with you. Noah, do you want to have a second question to answer.

Thanks, Zheng, for the question. So on capital return. Capital return remains an important part of our strategy. We've been making active share repurchases, buying approximately [indiscernible] through November 20. And as Frank mentioned before, we still have about $48 million remaining under the $100 million authorization, which runs through November 2026. We'll continue to use the program in a disciplined manner subject to market conditions, and we view repurchases at current valuation levels and attractive investment in our own business.

On the dividends, of course, we maintain a recurring dividend and based on the current profitability profile, even with the industry-wide margin pressure that Frank just spoke to. We expect to be able to maintain and sustain the dividend at the current level. We believe having sufficient -- we believe we have sufficient earnings power and balance sheet strength to support that commitment.

And more broadly, just in terms of how we think about capital allocation, the Board regularly evaluates optimal capital allocation, including balancing organic growth, share repurchases and dividends. And so today's share price buybacks, I think, still remain a compelling use of capital, but we remain open-minded and focused on whichever option delivers the highest long-term value for shareholders.

In summary, we intend to continue executing the buyback program prudently, maintain the current dividend and allocate capital in the way that best supports sustainable growth for shareholders.

The next question comes from Joseph Martelli with Spark Capital.

As the team view the regulatory environment going ahead into early 2026? And maybe have more color on the uptick in delinquencies?

I'll take that question. I think again, it's very difficult to forecast what the regulators will do in the future. So our approach has always been just be compliant with whatever regulation specified. So that being said, what we saw right now is regulators is very focused -- very focused on the consumer protection. So our approach has considering that we have lowered our nonvolume that we are not aggressive growing our portfolio in the sense that we are trying to shrink our portfolio a bit in order to making sure that we are not generally a lot of complaints from our side. I think that's a problem with what we can do at this moment. Sorry, what's your -- I think you have the -- can you [indiscernible] second part of [indiscernible].

I was asking about the delinquencies, the uptick in them and how we might see that continuing?

Yes. I think whenever there's a huge impact on the industry and especially considering that the overall economy in China right now is -- it's not as the greatest time. So I think it's a natural for us to see an uptick in the portfolio delinquency. I think that's what we're experiencing [indiscernible] our forecast, again, the forecast future is very difficult for us, but we do think that with the delinquency rate will continue to climb. So Frank mentioned that we think it's going to take 1 or 2 quarters for it to stabilize. So even though that we are not sure when it's going to stabilize. And our approach can only be that we are trying to be very stringent in our credit policy. That is why you see our portfolio scale begin to drop.

Let me say a few more words on the disclosure of 91 days and 108 days [indiscernible] rate for the Q3 is like 3.52%, which is higher than previous quarter 2.91% and the previous 3.22%. So it's higher than the previous quarter, higher than last year. Whether we have been -- everyone is having tried to everyone's best -- we expect to control them. It -- by the time we -- the [indiscernible] is still developing, is still not stabilized yet. But we believe maybe in a month or 2, it should be stabilized. Unless there's more negative impact from [indiscernible] new measures were coming down. Otherwise, we fully anticipate within like 1 or 2 months [indiscernible] will be stabilized very soon in 1 or 2 months. I hope I will add some color to your question.

[Operator Instructions]...

Joseph, if I could just add a little bit to what Frank and Kan have already said just on the delinquency side. So -- of course, we see higher delinquencies in Q3 consistent with the broader industry environment. The macro backdrop has been challenging, and that's affected borrower repayment behavior across multiple segments in response. Of course, we've tightened the underwriting standard and shifted further towards higher-quality borrowers and intensified our collection and verification process. These actions basically give us confidence that we can appropriately -- will be appropriately reserved for current delinquencies and potential losses.

But I think a key point that both Frank and Kan were pointing to is that -- the loans typically have a duration of 10 to 12 months. And so when delinquencies rise in a particular period, those vintages generally run off within a few quarters and the newer vintages originated under the tighter underwriting become a larger share of the book. The result is a natural credit cycle effect where you have elevated delinquencies from prior vintages working through the system. And then performance gradually reverts towards historical norms as the tightened vintages season.

The entire industry is, of course, in a contractionary phase with most platforms tightening risk criteria and pulling back from higher-risk segments. While this environment temporarily put pressure on borrowers and repayment behavior, it also sets the foundation for better quality vintages going forward. So as the older weaker vintages mature and exit the portfolio, we expect credit metrics to gradually normalize over the medium term. The near-term volatility is still possible and presumably likely.

Our focus remains on prudent underwriting and disciplined portfolio management and strong collections and we will continue to provision conservatively and manage the book to ensure losses remain within our tolerance. That's all for me, but thanks for the question, Joseph.

[Operator Instructions] The next question comes from [indiscernible] with NPS Trading.

Hello, everyone. Thank you for the call today. I have 2 questions. Well, the first 1 is given the concerns around the credit quality, I'm curious if any of the funding partners have reduced their funding commitments or changed or structured their terms. And then the second question, which I think, Noah, you did go over, but I want to know if management -- or what would it take for management to consider being more aggressive on the share buyback program? Just given the depressed price? And have you guys ever considered anything such as an accelerated share purchase program. That is all yes.

[indiscernible] this is Noah. Thanks very much for your question. So I guess, first -- to the first part on the funding and liquidity. Our funding and liquidity position remains stable. As of September, we held about RMB 1.5 billion in total cash and restricted cash which provides a solid liquidity buffer for our operations. We manage liquidity conservatively and maintain sufficient cash to support near-term needs across servicing, collection and platform operations.

On the funding side, we work with a diverse network of institutional partners, including banks and licensed consumer finance companies that originate loans through the platform. And these relationships have been built over many years, and the vast majority of our partners have completed the required regulatory white listing and continue to operate with us normally.

Regarding our actual funding costs, we did see a general rise in funding rates from 2024 into 2025, in line with the broader industry trends. However, on a quarter-to-quarter basis, funding costs have been relatively stable, and we've not experienced any material just in accessing funding. And so looking ahead, as regulatory implementation becomes clear and both banks and platforms adapt fully to the new framework. We're hopeful that the funding costs will gradually normalize from the elevated levels seen this year.

Basically, clarity and consistency in the regulatory environment should also help reduce risk premiums over time. So we'll continue to maintain prudent liquidity management, keeping adequate cash reserves and coordinating closely with funding partners and ensuring our platform remains compliant and attractive from a risk management standpoint. As far as what would motivate us to do a more aggressive buyback. I don't know, Frank, do you have any comments on that?

Yes. We have almost continuously to do the buyback in this year from May 2025, all the way down to late November. And we did most of buybacks from open market. We still believe the buyback is the best way to return shareholder value. But the result is not as great. And clearly, our stock is a little bit higher, maybe 50%, 60% higher than the same period last year. But a lot of our peers, [indiscernible] is already below last year's period. But almost everyone, the balance sheet is more strong than -- at this time, the balance sheet is more strong than the same time last year.

So I think the market will [indiscernible] we're not just -- don't have the stock price tells us the market believe us probably though we will have a future. And also, we will [indiscernible] money in our hand and just waste it. Otherwise, not make anything new. But I think that is not believe we have. We think we have -- we can -- we believe we can do both. We can take care of the shareholder return and maybe do something new. And whether Chinese cash loan market is totally dead or not. Once again, we will have that judgment to maybe a little bit of maybe another quarter to.

But I think even with our new regulatory regime, I think we are -- we still have -- at least we still have cash to do something new, right, to try something new. So that's regarding the buyback. And also, I'd say it again, we are -- as Noah already said, we are determined to maintain the current dividend rate which is [ 0.28 ] for 2x a year. So based on current stock price, $9 is a 6% yield. So I think even without buyback is a decent return for the shareholder. It's better than you put the money in the best, right? And so that's our [indiscernible]. We will continue to do and we will maybe rely on more next year, rely more on the dividend side instead on the buyback side. And that's what I try to say -- thank you.

[indiscernible], just to add on really quickly. I think as the valuation became deeply disconnected from the fundamentals of the stock trades at levels that imply excessive credit or regulatory risk relative to our performance or buybacks would become the highest return on capital. But I think as it stands, historically, it's always a trade-off between ROIC from organic growth versus share repurchases versus dividends? Hope that answers your question.

We can say too now. Right now, the markets are pricing that isn't the case. But -- it's just a matter of what makes the most sense for XY.

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

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.