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CCCR > SEC Filings for CCCR > Form 10-Q on 27-Aug-2013All Recent SEC Filings

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Form 10-Q for CHINA COMMERCIAL CREDIT INC


27-Aug-2013

Quarterly Report


ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations for the three months ended June 30, 2013 should be read in conjunction with the Financial Statements and corresponding notes included in this Quarterly Report on Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors and Note Regarding Forward-Looking Statements in this report. We use words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," "target", "forecast" and similar expressions to identify forward-looking statements.

Overview

We are a small business lender, providing short-term direct loans and loan guarantees to SMEs located in Wujiang City, Jiangsu Province of China. Since our inception in October 2008, we have developed a large and growing number of borrowers in Wujiang City. As of June 30, 2013, we have built a $90.0 million portfolio of direct loans to 243 borrowers and a total of $74.9 million in guarantees for 106 borrowers. We were established under the 2008 Guidance on the Small Loan Company Pilot of the China Banking Regulatory Commission and the People's Bank of China (No.23) ("Circular No. 23") to extend short-term loans and loan guarantees to SMEs, a class of borrowers that we believe have been underserved in the Chinese lending market. The loans that we provide bridge the gap between Chinese-state run banks that have not traditionally served the capital needs of SMEs and high interest rate "underground" lenders to provide capital at more favorable terms and sustainable interest rates.

The Company, through its wholly-owned subsidiary, Wujiang Luxiang Information Technology Consulting Co. Ltd ("WFOE"), a limited liability company formed under the laws of the PRC, controls our operating entity, Wujiang Luxiang, through a series of variable interest entity ("VIE") contractual arrangements. The VIE contracts provide us with management and control of Wujiang Luxiang and entitle the Company to receive the net income and control the assets of Wujiang Luxiang.


Key Factors Affecting Our Results of Operation

Our business and operating results are affected by China's overall economic growth and market interest rate. Unfavorable changes could affect the demand for the services that we provide and could materially and adversely affect our results of operations. Our results of operations are also affected by the regulations and industry policies related to the lending industry in the PRC.

Due to changes in the PRC government's monetary policy, the PBOC Benchmark Rate was reduced and starting August 2012 we are restricted to charge no more than three times the PBOC Benchmark Rate. Prior to August 2012, we were allowed to charge up to four times the PBOC Benchmark Rate. The decreases in the PBOC Benchmark Rate and the new restriction on the allowable points above PBOC Benchmark Rate have slowed our growth in net interest income.

Our results of operations are also affected by the provision for loan losses which is a noncash item and represents an assessment of the risk of future loan losses. Increases in the allowance for loan losses are achieved through provision for loan losses that are charged against net interest income.

Although we have generally benefited from China's economic growth and the policies to encourage lending to farmers and SMEs, we are also affected by the complexity, uncertainties and changes in the PRC regulations governing the small loan industry. Due to PRC legal restrictions on foreign equity ownership of and investment in the lending sector in China, we rely on contractual arrangements with our PRC operating entity, Wujiang Luxiang, and its shareholders to conduct most of our business in China. We face risks associated with our control over our variable interest entity, as our control is based upon contractual arrangements rather than equity ownership.


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