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CCCR > SEC Filings for CCCR > Form 10-Q on 16-May-2014All Recent SEC Filings

Show all filings for CHINA COMMERCIAL CREDIT INC

Form 10-Q for CHINA COMMERCIAL CREDIT INC


16-May-2014

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 March 31, 2014 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 included in our prospectus filed on May 9, 2014 and Note Regarding Forward-Looking Statements in this report.

Overview

We are a financial services firm operating in China. Our current operations are mainly conducted through Wujiang Luxiang, a fully licensed microcredit company which we control through our subsidiaries and certain contractual arrangement, and consist of 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 March 31, 2014, we have built a $89.3 million portfolio of direct loans to 210 borrowers and a total of $42.3 million in loan guarantees for 53 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 ("PBOC") (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, and our loans provide capital at more favorable terms and sustainable interest rates.

On September 5, 2013, our wholly owned subsidiary, CCC International Investment Holding Ltd. ("CCC HK"), established Pride Financial Leasing (Suzhou) Co. Ltd. ("PFL") in Jiangsu Province, China. PFL is expected to offer financial leasing of machinery and equipment, transportation vehicles, and medical devices to municipal government agencies, hospitals and SMEs in Jiangsu Province and beyond. During the three month ended March 31, 2013, PFL did not have any operations except for initial organizational activities.

On February 19, 2014, WFOE entered into certain contractual arrangements with Mr. Huichun Qin and Suzhou Pride Information Technology Co. Ltd. ("Pride Online"), a domestic entity established on February 19, 2014 and 100% owned by Mr. Qin. Pursuant to these contractual arrangements, WFOE shall have the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Pride Online, including absolute control rights and the rights to the assets, property and revenue of Pride Online and as a result, approximately 100% of the net income of Pride Online will be paid as a service fee to WFOE. Pride Online operates an online platform (www. pridelendingclub.com) to match prospective borrowers with lenders. As of the date of this quarterly report, Pride Online is in the beginning stages of operation.

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 microcredit industry in the PRC.

Due to changes in the applicable microcredit lending regulations in Jiangsu Province, starting August 2012 we elected 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 decrease 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 micro lending industry. Due to PRC legal restrictions on foreign equity ownership of and investment in the micro lending sector in China, we rely on contractual arrangements with Wujiang Luxiang, and its shareholders to conduct most of our current 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.


Results of Operations

Three Months Ended March 31, 2014 as Compared to Three Months ended March 31,2013

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