X Financial (NYSE:XYF) reported a sharp drop in first-quarter loan volume and profitability as management said it continued to prioritize credit quality, regulatory compliance and balance sheet stability over growth in a difficult operating environment.
On the company’s first-quarter 2026 earnings call, President Kent Li said X Financial “continued to operate with a high degree of discipline” as conditions remained challenging. He said the company carried forward a conservative approach adopted in the second half of 2025 and further reduced activity in the quarter ended March 31.
Loan Volume and Borrower Activity Decline
X Financial facilitated and originated RMB 14.63 billion in loans during the first quarter, down 58.4% from a year earlier and 35.8% from the fourth quarter of 2025. The company served about 956,520 active borrowers, a decline of 60.6% year over year and 43.5% sequentially.
The company facilitated approximately 1.25 million loans in the quarter, with an average loan size of RMB 11,741 per transaction. Outstanding loan balance at quarter-end was RMB 35.3 billion, down 39.6% from the same period in 2025.
Li said X Financial continued shifting its origination mix toward internally operated channels to deepen borrower relationships and reduce reliance on higher-cost third-party traffic. He also said the company tightened underwriting criteria, strengthened compliance infrastructure and expanded process automation across servicing and collections.
Credit Conditions Remain Under Pressure
Management said credit conditions continued to weigh on the business. X Financial’s 31-to-60-day delinquency rate was 2.61% as of March 31, down from 2.9% at the end of the fourth quarter but up from 1.25% a year earlier.
The 91-to-180-day delinquency rate rose to 9.95%, compared with 6.31% at the end of the prior quarter and 2.73% in the year-earlier period.
Li said the data reflected “a borrower base under continuous financial strain,” consistent with conditions across the broader consumer credit industry. He said the company has responded by narrowing approval criteria, adding resources to collections and reducing originations in segments where repayment risk has increased most sharply.
“Higher credit costs weighed on quarter’s financial results,” Li said. “We accepted that trade-off knowingly. Protecting the integrity of the portfolio matters more to us than defending short-term earnings.”
Revenue and Profitability Fall From Prior Year
Chief Financial Strategy Officer Noah Kauffman said total net revenue for the quarter was RMB 1.18 billion, or $170.5 million, down 39.3% year over year and 19.9% from the fourth quarter of 2025. Total operating costs and expenses were RMB 1.04 billion, or $150.1 million, down 28.5% sequentially and 24.1% from a year earlier.
Kauffman said the year-over-year reduction in costs was driven by a sharp pullback in borrower acquisition and marketing spending, which fell to RMB 219.8 million from RMB 709 million in the first quarter of 2025.
Total provisions were RMB 282.9 million, or $41 million, down from RMB 669.3 million in the fourth quarter but above RMB 135.5 million in the prior-year period. Kauffman said provisions continued to weigh on profitability compared with historical levels.
Income from operations was RMB 140.7 million, or $20.4 million, down 75.4% year over year but higher than the fourth-quarter level. Operating margin improved to 12% from 1.4% in the fourth quarter, while remaining below 29.6% a year earlier.
Net income was RMB 37.9 million, or $5.5 million, compared with RMB 57.2 million in the fourth quarter of 2025 and RMB 458.1 million in the first quarter of 2025. Net profit margin was 3.2%, down from 23.6% a year earlier.
Chief Financial Officer Frank Fuya Zheng said non-GAAP adjusted net income was RMB 81 million. Basic earnings per American depositary share were RMB 0.96, or $0.14, compared with RMB 10.92 a year earlier. Non-GAAP adjusted basic earnings per ADS were RMB 2.8, or $0.30.
Regulatory Uncertainty Remains a Key Issue
Kauffman said the regulatory environment for internet-based lending in China continued to evolve during the quarter, with authorities strengthening oversight across the consumer credit business chain. He said 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,” Kauffman said.
He described the first-quarter results as reflecting “a business in transition,” with revenue and profitability well below prior-year levels amid elevated credit costs and lower origination activity, but with early signs of sequential stabilization in operating performance.
Balance Sheet, Buybacks and Outlook
Zheng said X Financial ended the quarter with total assets of approximately RMB 13.6 billion and shareholders’ equity of approximately RMB 7.8 billion, giving the company an equity-to-assets ratio of about 57%. Total cash, including restricted cash, was approximately RMB 2.4 billion.
The company continued its share repurchase program during the quarter. From Jan. 1 through May 15, X Financial repurchased approximately 1.8 million ADS for about $8.2 million. Zheng said approximately $39.8 million remained under the existing program, which runs through Nov. 30, 2026.
For the second quarter of 2026, X Financial expects total loan origination of RMB 11.5 billion to RMB 12.5 billion. Zheng said the outlook remains cautious as regulatory developments continue to affect industry pricing, funding conditions and origination activity.
No analysts asked questions during the call’s question-and-answer session.
About X Financial (NYSE:XYF)
X Financial (NYSE:XYF) is a Beijing-based online credit marketplace focused on providing diversified financing solutions to individuals and small- and medium-sized enterprises (SMEs) in China. The company was established in 2014 and completed its initial public offering on the New York Stock Exchange in 2016. Since inception, X Financial has built a technology-driven platform that connects borrowers with a network of institutional investors, banks and other funding sources, aiming to streamline access to credit and improve lending efficiency.
The company’s core offerings include consumer loans, SME loans, real estate-secured financing and wealth management products.
