Fincera Reports Second Quarter 2019 Financial Results

SHIJIAZHUANG, HEBEI PROVINCE, CHINA / ACCESSWIRE / October 3, 2019 / Fincera Inc. ("Fincera" or the "Company") (OTCQB:YUANF), a leading provider of internet-based financing and ecommerce services for small and medium-sized businesses ("SMBs") and individuals in China, today reported financial results for the three-month period ended June 30, 2019.

2019 Second Quarter Financial Highlights

• Income (revenue) for the three months ended June 30, 2019, was RMB348.9 million (US$50.8 million), a 27.9% decrease from RMB484.0 million in the prior-year period, as a result of a lack of debt assignment income being generated during the quarter.
• Net income was RMB61.0 million (US$8.9 million) in the three months ended June 30, 2019, or RMB1.20 (US$0.18) per diluted share, compared to RMB132.0 million, or RMB2.59 per diluted share, in the prior-year period, primarily as a result of lower revenue being generated during the quarter ended June 30, 2019.

Operational Highlights

Loan transaction volume across all loan types for the second quarter of 2019 totaled approximately RMB6.86 billion (US$1.00 billion), compared to approximately RMB7.0 billion in the second quarter of 2018. The year-over-year decrease was primarily caused by pressure from Chinese regulators on lending platforms to decrease lending volume.

Operating Review

CeraVest, known as Qingyidai (轻易贷) in China, is the Company's proprietary peer-to-peer ("P2P") lending platform through which it offers individuals and small and medium-sized businesses ("SMBs") short-term financing at competitive interest rates. Fincera offers three loan types to its customers via its CeraVest platform: 180-day term loans (the Company's primary focus), 30-day lines of credit, and installment loans.

180-Day Term Loans ("Qingying")

Fincera facilitates 180-day term loans that accrue interest at 4.25% (or 8.62% on an annualized basis) and are branded as Qingying. Fincera charges a facilitation fee between 2.5-5% depending on the type of the loan. The facilitation fee is collected by the Company while the investor holding the loan at maturity receives the entirety of the principal and interest payments. In addition, the borrower remits 10.0% of the principal loan balance to the Company as a security deposit that is refunded to the borrower upon timely repayment of principal and interest. In the event of delinquency, the Company keeps the security deposit as a one-time penalty fee and may assess additional penalties.

As of June 30, 2019, the Company has facilitated an aggregate of RMB33.49 billion (US$4.87 billion) in Qingying 180-day term loans.

During the second quarter of 2019, Fincera facilitated RMB4.6 billion (US$0.67 billion) in Qingying 180-day term loans.

30-day Lines of Credit ("Yueying")

Fincera facilitates revolving credit lines that are interest-free to SMBs to help them fund their short-term working capital needs. Branded as Yueying, these credit lines have a 30-day billing cycle. Outstanding balances after the bill due date are considered delinquent and subject to certain penalties.

Similar to credit cards, Fincera's credit lines assess no fees on borrowers as long as any outstanding balances are paid in full each month. A fee of between 1.6%-2.2% is charged to the merchants where the credit lines are used. When the credit line is successfully facilitated by the P2P lending platform, Fincera collects a portion of this fee as facilitation fee income. The remainder of the fee goes to the investor in the loan.

Credit line users are subject to an application and credit approval process and are required to provide guarantees and collateral. Merchants may use funds received from users to make payments to other users or merchants, or to cash out the funds via transfer to a bank account.

As of June 30, 2019, the Company has facilitated an aggregate of RMB63.99 billion (US$9.31 billion) in Yueying 30-day lines of credit transactions.

During the second quarter of 2019, Fincera facilitated RMB2.2 billion (US$0.32 billion) in Yueying 30-day lines of credit transactions.

Installment Loans ("Zhongying")

Fincera facilitates installment loans, branded as Zhongying, that are utilized by borrowers primarily to fund purchases of trucks and consumer discretionary goods and services, with the borrowed purchase funds being transferred directly to the merchant via Fincera's payment network. Based on the term of the loan and the type of purchase, Fincera charges a fee between 3.5%-8.9% to the merchants receiving the funds. Similar to Yueying, when the loan is successfully facilitated by the Company's online P2P platform, Fincera collects a portion of this fee as facilitation fee income. The remainder of the fee goes to the investor of the loan in the form of interest payments. The loans require some borrowers to provide collateral to partially secure their obligations.

As of June 30, 2019, the Company has facilitated an aggregate RMB7.04 billion (US$1.02 billion) in Zhongying installment loans.

During the second quarter of 2019, Fincera facilitated RMB11.2 million (US$1.6 million) in Zhongying installment loans.

Update on Recent Business Disruptions

As previously announced in a press release on August 14, 2019, Fincera and other peer-to-peer lending businesses in the Hebei Province of China received requests from the Hebei provincial government to cease all P2P lending operations. Fincera has been extensively examined by the Hebei financial bureau since January 2018, which to this day has not shared findings or reports of any kind with the Company. Fincera is the largest Hebei-based company operating in the P2P lending industry, comprising over 90% of the province's market with approximately RMB9.0 billion in unpaid principal balance. The Company continues to operate its business as usual but has found it difficult to expand its platform over the past 18 months since Chinese regulators began pressuring businesses to decrease lending volume.

Fincera's core competency is to provide financial services nationwide to small and medium-sized private enterprises, primarily in the transportation and logistics industry. The Company plans to continue this core business regardless of the underlying funding model.

At present, the Company believes its P2P platform is in line with national regulatory requirements, but is taking precautionary steps to potentially transform from a P2P funding model into an institutionally funded model due to the government's recent regulatory actions on the P2P lending industry. The Company has already begun to conduct business negotiations with a number of financial institutions in this regard. The government has also encouraged banks to work with eligible enterprises. For example, the Company is working with XinWang Bank to explore funding alternatives.

The Company also previously announced a contingency plan to raise funds by selling the Kaiyuan Finance Center, which has an estimated value of over RMB4.0 billion. Mr. Yong Hui Li, Fincera's Chairman and CEO, has publicly reaffirmed his intention to utilize his personal assets to support the Company, if necessary.

Management Commentary

Mr. Jason Wang, CFO of Fincera, stated, "Despite the industry headwinds caused by the government's more stringent regulations on the peer-to-peer lending industry in China, we achieved over RMB6.86 billion in overall loan transactions in the second quarter of 2019 as Fincera's online lending platform continues to serve investors, individuals, and small and medium-sized businesses in China. We remain confident in the long-term viability of our business and are committed to providing financial services nationwide to small and medium-sized private enterprises, primarily in the transportation and logistics industry. Fincera is competitive because it has developed a nationwide, mature service micro-enterprise model and a team that has 25 years of accumulated risk and management experience. This experience is a significant competitive advantage for Fincera and has proven itself over the years. We believe we can continue to operate our core business regardless of what underlying funding model is utilized and have taken steps to appropriately position the Company to adapt to whatever regulatory events may come to pass."

Currency Conversion

This release contains approximate translations of certain RMB amounts into US$ for convenience. Unless otherwise noted, all translations from RMB to US$ are made at a rate of US$1.00 = RMB6.8747 on June 30, 2019, representing the certificated exchange rate published by the People's Bank of China's Monetary Policy Division. No representation is intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into US$ at such rate, or at any other rate.

Second Quarter 2019 Financial Results

Income (Revenues)

The table below sets forth certain line items from the Company's Unaudited Consolidated Statement of Income as a percentage of income:

• Total income for the three months ended June 30, 2019, was RMB348.9 million (US$50.8 million), a 27.9% decrease from RMB484.0 million in the prior-year period, as a result of a decrease in debt assignment income and interest income, which was partially offset by an increase in facilitation fees.
• Facilitation fees, which represent fees charged for matching borrowers with investors on the CeraVest platform, totaled RMB207.1 million (US$30.1 million) in the three months ended June 30, 2019, a 30.1% increase from RMB159.2 million in the prior-year period mainly due to transaction volume growth in the Company's Qingying 180-day term loan product.
• Interest income, which mainly represents interest earned on loans to CeraVest borrowers and loans to other borrowers, totaled RMB30.3 million (US$4.4 million) in the three months ended June 30, 2019, compared to RMB57.6 million in the prior-year period, mainly due to certain offline borrowers defaulting on loans with large outstanding balances since the prior-year period. The Company stops accruing interest income for subsequent periods once a loan is in default.
• The Company recorded no service charges, which represent CeraPay transaction fees, in the three months ended June 30, 2019, which compares to RMB19.2 million in the prior-year period. Since July 2017, CeraPay loan transactions have been facilitated through the P2P lending platform; as a result, the service charges under the previous transaction process are now allocated as facilitation fees to the Company and as interest payable to investors of each loan once the facilitation is successful. Thus, the Company has not had this revenue item to report since the third quarter of 2018.
• Property lease and management revenues, consisting of revenue derived from the Kaiyuan Finance Center, which includes the Shijiazhuang Hilton Hotel and office leasing operations, totaled RMB52.6 million (US$7.6 million) in the three months ended June 30, 2019, compared to RMB51.9 million in the prior-year period. The slight increase was primarily due to higher occupancy rates and revenue from the Hilton Shijiazhuang Hotel. The Kaiyuan Finance Center's occupancy rate was 88.8% during the three months ended June 30, 2019, compared to 89.0% in the prior-year period, as a result of increased competition in the leasing market in Shijiazhuang. The occupancy rate of the hotel was 61.0% for the three months ended June 30, 2019, compared to 56.0% in the prior-year period.
• Debt assignment income, which represents the receipt of fees when delinquent loans are sold to third parties, totaled zero in the three months ended June 30, 2019, compared to RMB166.6 million in the prior-year period, because the sales of delinquent loans to third parties during the second quarter resulted in a RMB12.0 million net loss that was instead classified to selling and marketing expense.
• Other income, which mainly consists of penalty and late fees across all loan types and is reduced by redeemed cash incentives that the Company provides to investors, totaled RMB59.0 million (US$8.6 million) in the three months ended June 30, 2019, an increase of 100.0% compared to the prior-year period, due to an increase in penalty and late fees collected from overdue loans as the Company continued strengthening its collection efforts.

Operating Costs and Expenses

• The Company's operating costs and expenses decreased approximately 15.1% to RMB260.6 million (US$37.9 million) for the three months ended June 30, 2019, from RMB307.0 million in the prior-year period, mainly due to a significant decrease in provision for credit losses, which was partially offset by increases in marketing expense and selling and marketing expense. The provision for credit loss was lower compared to the prior-year period due to provision being taken for certain loans to some large offline borrowers that became delinquent during the prior-year period. Marketing expense did not see a reversal as it did during the three months ended June 30, 2018, during which time large amounts of underperforming loans were sold to third parties, resulting in the portion of provision for credit losses allocated to marketing expense being reversed. As a result, during the prior-year period, RMB54.3 million in marketing expense was reversed. In contrast, marketing expense totaled RMB1.2 million during the three months ended June 30, 2019. Selling and marketing expense increased approximately 178.9% to RMB101.5 million from RMB36.4 million in the prior-year period, due to increased expenses incurred from the new brokerage business model that was launched in April 2018 and losses from the sale of delinquent loans to third parties.

Income from Continuing Operations Before Income Taxes

• Income from continuing operations before income taxes totaled RMB88.3 million (US$12.8 million) during the three months ended June 30, 2019, compared to RMB177.0 million in the prior-year period, primarily as a result of the increased operating costs and expenses mentioned above.

Income from Discontinued Operations, Net of Taxes

• Income from discontinued operations, net of taxes, totaled RMB0.1 million (US$7,000) in the three months ended June 30, 2019, compared to income of RMB1.0 million in the prior-year period. The Company continues the winding down of its legacy truck-leasing business, which is classified as discontinued operations.

Net Income

• Net income was RMB61.0 million (US$8.9 million) in the three months ended June 30, 2019, or RMB1.20 (US$0.18) per diluted share, compared to RMB132.0 million, or RMB2.59 per diluted share, in the prior-year period.

Balance Sheet Data / Highlights

At June 30, 2019, Fincera's cash and cash equivalents (not including restricted cash) were RMB545.3 million (US$79.3 million), compared to RMB994.5 million at December 31, 2018.

Other financing receivables were RMB3.1 million (US$0.4 million) at June 30, 2019, compared to RMB11.9 million at December 31, 2018. As Fincera continues selling its old CeraPay loan products to CeraVest investors through its P2P lending platform or collecting payments from borrowers that have defaulted on those loans, the balance for other financing receivables will continue to decrease.

Total liabilities were RMB4.4 billion (US$641.0 million) and stockholders' equity was RMB350.2 million (US$50.9 million) at June 30, 2019, compared to RMB4.6 billion and RMB363.6 million, respectively, at December 31, 2018. The decrease in liabilities was primarily due to a decrease of RMB150.6 million in financing payables to related parties. The decrease in stockholders' equity was primarily a result of the Company paying a dividend during the second quarter of 2019. On May 22, 2019, the Company paid its first semi-annual dividend of $0.30 per share, which resulted in a total of US$14.7 million paid to shareholders.

About Fincera Inc.

Founded in 2005, Fincera Inc. (OTCQB: YUANF) provides innovative internet-based financing and ecommerce services for small and medium-sized businesses and individuals in China. The Company works with a network of brokers in 31 provinces, municipalities, and autonomous regions across China. Fincera's primary service offerings include a credit advance/online payment-processing network and a web-based small business lending platform. The Company's website is http://www.fincera.net. Fincera trades on the OTCQB venture stage marketplace for early stage and developing U.S. and international companies. OTCQB companies are current in their reporting and undergo an annual verification and management certification process.

Safe Harbor Statement

This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about the Company. Forward-looking statements are statements that are not historical facts. Such forward-looking statements, based upon the current beliefs and expectations of the Company's management, are subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements. The following factors, among others, could cause actual results to materially differ from those set forth in the forward-looking statements:

• legislation or regulatory environments, requirements, policies or changes affecting the financial services industry in China, including in the Hebei province, where Fincera is currently headquartered;
• outcomes of any government or government-related reviews, inquiries, investigations, and related litigation, including the current inquiries by the Hebei financial bureau;
• changes in government policy generally, both in China and in the U.S. at both national and local levels;
• continued compliance with government regulations and policies;
• the Company's ability to obtain sufficient resources to continue providing access to capital for its customers;
• changing principles of generally accepted accounting principles;
• fluctuations in consumer demand;
• management of rapid growth;
• general economic conditions;
• fluctuations in sales of commercial vehicles in China;
• China's overall economic conditions and local market economic conditions;
• the Company's business strategy and plans, including its ability to expand through strategic acquisitions, the establishment of new locations, the discontinuance of certain products and services, and the introduction of new products and services;
• the Company's ability to successfully integrate acquisitions;
• credit risk affecting the Company's revenue and profitability, including its ability to manage the default risk of customers;
• the results of future financing efforts; and
• geopolitical events.

The information set forth herein should be read in light of such risks. The Company does not assume any obligation to update the information, including forward looking statements, contained in this press release.

CONTACT
At the Company

Jason Wang
Chief Financial Officer
(858) 997-0680 / [email protected]

Investor Relations

The Equity Group Inc.
Carolyne Y. Sohn
Vice President
(415) 568-2255 / [email protected]

Adam Prior
Senior Vice President
(212) 836-9606 / [email protected]

FINCERA INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share and per share data)

FINCERA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)

FINCERA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
(in thousands except share and per share data)

SOURCE: Fincera Inc.