Good morning and welcome to CNFinance First Quarter 2021 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note that this event is being recorded. Now I'd like to turn the conference over to Mr. Matthew Lou. Please go ahead.

Good morning everyone and welcome to the CNFinance First Quarter 2021 Financial Results Conference Call. In today's call, our CEO Mr. Zhai will walk us through the operating results followed by the financial results from our CFO, Mr. Li. And after that we will have a Q&A section. Before we start, I would like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended. And as defined in the US Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminologies such as will, expects, anticipates, future, intends, plans, beliefs, estimates, target, going forward, outlook and similar statements. Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks uncertainties and other factors all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the US Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise except as required under law. Now please welcome our CEO Mr. Zhai. Sorry, our CEO is a little blurry. We're trying to reach him. We are still trying to reach our CEO, Mr. Zhai. Mr. Li will walk us through the financial part first followed by the operational results from Mr. Zhai. Please welcome our CFO, Mr. Li Ning.

Okay. Thank you everyone for joining us today. I will first walk you through our first quarter of 2021 financials. We believe year-over-year comparison is the best way to review our performance. Unless otherwise stated all percentage changes I'm going to give will be on that basis. Also unless otherwise stated, all numbers I'm going to give will be in RMB. First, total loan origination volume was RMB 2,841.8 million during the first quarter of 2021, among which 37% was first lien and 63% were second lien. Total outstanding loan principal was RMB 10.3 billion as of March 31st, 2021 with RMB 8.7 billion under collaboration model and RMB 1.6 billion under the traditional facilitation model. Interest and financing service fees on loans decreased by 13.7% to RMB 422 million from RMB 489.2 million, primarily due to lowered interest rates on loan facilitated in an effort to comply with the rules and regulations issued by relevant PRC regulatory authorities, including the decisions of the Supreme People's Court to amend the provisions on several issues concerning the application of law in the trial of private lending cases issued in August 2020. Interest and fees expenses decreased by 22.2% to RMB156.3 million, compared to RMB200.9 million primarily due to the lower average interest rate of the borrowings under agreement to repurchase and other borrowings in the first quarter of 2021. Collaboration costs for sales partners, representing sales incentive paid to sales partners increased by 4% to RMB98.1 million compared to RMB94.3 million, attributable to the increased loan balance under the collaboration model. Provision for credit losses decreased by 93.8% to RMB13.7 million from RMB220.7 million. The decrease was mainly attributed to the combined effect of the first the increase in outstanding loan principal under the collaboration model that was guaranteed by the Credit Risk Mitigation Position put up by the sales partners. And the second lower profitability of default under the current expected credit loss model, which takes into account the outlook of a more positive economic growth of China in the first quarter of 2021 as compared to that of the same period of 2020 under the impact of COVID-19 pandemic. Net gains on sales of loans increased by 35.2% to RMB40.3 million from RMB29.8 million primarily attributable to the increase of NPLs transferred to third-party purchasers and repurchased by sales partners. Total operating expenses decreased by 6.3% to RMB94.2 million compared to RMB100.5 million. Other expenses increased by 50% to RMB29.7 million from RMB19.8 million, primarily due to the recovery of COVID-19 pandemic, which led to the increase of promotion and advertising expenses and expenses associated with business trips of the employees. Income tax expenses was RMB29.2 million compared to income tax benefit of RMB16.5 million primarily due to the fact that we recorded an income before income tax expenses for the first quarter of 2021 as compared to a loss before income tax expenses for the same period of 2020. Net income was RMB85.6 million compared to the net losses of RMB65.7 million in prior year. As of March 31, 2021, the company had cash, cash equivalents and restricted cash of RMB2.2 billion, including RMB1.3 billion from structured fund, which could only be used to grant new loans and activities. The actual delinquency rate for loans originated by the company was 21.3% as of March 31, 2021. Under the collaboration model the actual delinquency rate was 16.5%. The actual NPL rate for loans originated by the company was 10.9% as of March 31, 2021. Under the collaboration model the actual NPL rate was 6%. Okay, that's for my part.

And now please welcome our CEO, Mr. Zhai Bin to introduce our operational results for the first quarter of 2021. Mr. Zhai can start. Mr. Zhai? Sorry will be a couple of minutes. Our CEO is having a bad connection.

Go ahead, please.

[Foreign Language] Thank you operator and thank you everyone for joining us in the conference call. On today's call, we will introduce the company's -- I will be introducing the company's operational results of Q1 2021. And then I will take your questions with our CFO. And I -- sorry, I had a better connection just now. And please, I will be elaborating our operational results now. We were able to record solid results for Q1, 2021, and achieved a loan origination volume beyond our expectations. We originated loans of RMB 2.8 billion, representing an increase of 143% from RMB 1.2 billion from the same period of last year. Our revenue, provision for credit losses and net income during the quarter was RMB 425 million, RMB 14 million and RMB 86 million respectively. The recovery of national economy and the efficiency of our collaboration model were the main drivers for our growth. Please let me elaborate with details. Firstly, since the second half of 2020, China has effectively contained COVID-19 and production have resumed nationwide. In Q1, 2021, China's GDP grew 18.3% from Q1 2020 and 0.6% from Q4 2020. The rapid rebound of China's economy brings confidence in the future recovery of the world's economies. We are seeing that the Chinese MSE owners demand for capital surged as their business recovered from the pandemic. Also in the quarter, we noticed that commercial banks revised their qualification standards for loan applications, made it even more difficult for the MSE owners to meet. To seize this opportunity, our sales partners gathered across over 40 cities in China proactively reached out to the MSE owners and provided them with our affordable and accessible products in a timely manner. Secondly, the strong growth in loan origination volume was a proof of the efficiency of the collaboration model. Since 2019, we have kept refining the collaboration model and optimizing our terms with the sales partners. As a result, the outstanding loan principal under the collaboration model has reached RMB 9 billion and we are confident that the scale will continue to grow in the future. In addition, our growth was also attributable to the long-standing support from our trust company partners. We have built long-term and mutually beneficial relationships with our trust company partners throughout the year. Even the trust companies have been reducing the total size of the non-standard trust products to comply with the regulations. We were still able to secure sufficient funding from our trust company partners to satisfy the growing needs of our customers in this quarter. Thirdly, in order to maintain healthy liquidity, we accelerated the disposal of delinquent loans. Under the collaboration model, the sales partners are obliged to guarantee the loans they sourced with the Credit Risk Mitigation Positions. As a result, CNF's risk exposure to losses became even lower. Moreover, we have designed mechanism for the sales partners to buy back the respective defaulted loans. These options increased the efficiency in the liquid loan disposals under the collaboration model. During the first quarter we had RMB 440 million recovered by disposing delinquent loans, representing an overall recovery rate of over 100%. As discussed, we recorded outstanding results in this quarter and we plan to carry out this momentum to tackle the challenges that may rise in the year of 2021. By reviewing our daily operations we have prioritized the following tasks. [Foreign Language] First, we will continue to expand funding sources. We are currently relying on trust company partners to provide majority of our funding. Although our needs were met during the quarter, the regulations are limiting non-standard trust products are bringing risks to match our growth demand for the year. We plan to strengthen our collaborations with our trust partners. Meanwhile, we are diversifying our funding sources to secure sufficient funds to support our rapid growth. At this moment we are proactively meeting with commercial banks to enhance our funding sources. We hope the collaborations with the new founding partners will fulfill the working capital demands of the MSE owners in China and enable us to meet our set goal for 2021 in terms of loan origination. [Foreign Language] At the same time, we are actively adopting new approaches in collaborating with funding partners. We started direct cooperation with Blue Ocean Bank as a service provider. We also set up a parallel structured trust plan with Zhonghai Trust. We will continue to explore different collaborating approaches in the future. [Foreign Language] Second, we will continue to improve the service and optimize management mechanism in the collaboration model. Our collaboration model has been widely recognized by the market. The loan origination volume has been going up almost each quarter since inception. In order to achieve high retention rate of sales partners, we plan to refine our incentive plans and provide various terms to our sales partners based on the volume and the quality of the assets they introduced. We will also invest in technology to provide sales partners with more specialized and custom-made services in every loan origination step. [Foreign Language] Third, we will continue to invest in technology. We are aware as the collaboration model keeps spending deploying technology to optimize our loan approval efficiency and credit assessment ability and achieve detail oriented management will be the key to our future development. We plan to invest more on technology to first upgrade the approval procedure with smart technologies and then achieve higher data integration and a more advanced process visualization. From the customer perspective, we will improve the service quality and efficiency of document signing and post loan management. In 2020, the company experienced many challenges, but delivered solid results to the shareholders. We believe 2021 will be another year of challenges. We will devote ourselves to securing more funding sources and lowering the funding costs to seize the opportunity of increasing market demand and create higher value for our shareholders.

And that was the operational results by our Vice President of Capital Market Department on behalf of CEO, Mr. Zhai Bin. Now, we would like to open the Q&A session. Operator? Operator, we would like to open the Q&A session please.

We'll now begin the question-and-answer session. [Operator Instructions] First question comes from William Gregozeski with Greenridge Global. Please go ahead.

Hey guys. Great quarter. Can you disclose what the total number of transactions were in the quarter? And what the duration of the loans are that you're seeing right now?

[Foreign Language] Mr. Li will take your questions.

During the first quarter the total number of transactions was over 5,000 nearly -- over 5,000. And the total loan origination volume was RMB 2.8 billion just as we noticed and it was a significant increase compared to the same quarter of last year. And the average duration of the loans we have facilitated during the quarter was a bit shorter than we expected, primarily due to the regulation changes last year, especially the limit on the APR. So, we are focusing on facilitating loans with a duration of one year during the quarter.

Okay. And then the interest expense you guys reported was quite a bit lower than what I was looking at. What was the -- can you give the average rate you guys were paying on your loans in the quarter?

So, the interest expense mainly consists of the interest we paid to our trust partners. And if you are speaking of the 12-month duration capital from the trust companies, it is around 5.5% to 9%. For capital that's duration is longer than the year is around 9.5% to 10%.

Okay. All right. And then the -- with the forfeited sales partner position income that you reported, do you think it's fair to look at that and say that shows how derisked you guys are on these loans through your platform?

It was a little blurry. Could you repeat the question again?

Yeah. With how high the forfeited sales partner position income was in this quarter. Is it fair to look at that and think that it shows how derisked you guys are as a company for loans that go through your platform?

So if you look at a measure on our financial statements, there is a provision for credit losses. And if we look at -- if you separate the collaboration model and the traditional facilitation model, you will see the provision -- the provision for credit losses as a percentage of the revenue. Under the collaboration model, it was around 0.8% to 1%, which is way lower than that under the traditional facilitation model. So I think it is fair to say we are derisked.

Okay. And last question, do you have expectations you can provide for origination volume for all of 2021 and 2022?

First of all, the year-over-year growth of loan origination in the first quarter of 2021 was mainly because Q1 last year China was heavily -- under heavily effect of the pandemic. So there was a significant increase in this quarter year-over-year. But as compared to the fourth quarter of 2020, when we -- during which we facilitated RMB2.7 billion and this quarter we recorded RMB 2.8 billion.

[Foreign Language]

So considering that if we don't see huge market fluctuations and we are able to securing sufficient fund as we are doing now I'm projecting, CNY3 billion loan origination every quarter go.

Okay.

And that's the bottom-line.

Okay, great. Thank you, guys.

Thanks.

Thank you. [Operator Instructions] Our next question comes from Rongrong Zhang of Cathay Capital. Please go ahead.

[Foreign Language]

Hello Mr. Lee. I noticed that in your balance sheet you have around $330 million of cash and that number is actually higher than your market -- market cap. So is that number could you -- is that number -- could you elaborate that number on the balance sheet of cash?

[Foreign Language]

So we had cash-on-cash and cash equivalents if we present that in renminbi it is around RMB2.2 billion. And that's the number you said in dollar.

[Foreign Language]

So in my part of introducing the financial results of the quarter, I also had a part mainly introducing the, cash and cash equivalents and restricted cash. So among that RMB2.2 billion of cash, we had RMB1.3 billion actually was under -- was from structured funds, which could only be used to grant new loans. So yeah, that's the -- that's what consisting in our balance of cash.

[Foreign Language]

I appreciate it. Thank you.

At this time, we have no further questions. I'd now like to turn the call back over to management for closing remarks.

Thank you everyone again for joining us in this conference call. If you have any further questions please feel free to reach us at IR at cashchina.cn. Thank you. Thank you everyone.

I appreciate it.

Thank you.