As we expected, the financial results of this quarter was impacted by our current exposure to the financial guarantee business in China and will continue to be impacted by such exposure in the coming quarters. One of our clients defaulted the payment of a $4.7 million loan, due to slow down of the Chinese economy and the cash flow difficulties for Chinese Small and Medium Enterprise (SME). We made a provision of $3.2 million for the potential loss, said Renhui Mu, Co-CEO and COO of Wins Finance. In response to the challenges we are encountering in our guarantee business, we are taking aggressive measures to control the exposure to current economic situation.
We remain optimistic in our long-term outlook. We are focusing our attention on development of our leasing business in the medical equipment and new energy sectors, both of which offer significant opportunities for investment. We expect these two sectors to continue to grow despite the economic slowdown and other macroeconomic factors. We also expect our pipeline of leasing opportunities to increase during in the first half year, with associated revenues to begin in the second half of 2016, added by Mr. Mu.
Quarter Ended March 31, 2016 Results
Wins Finances revenue for the quarter ended March 31, 2016 was $2.5 million, which consists of $1.5 million of commissions and fees generated from its financial guarantee services, and $1.0 million of direct financing lease interest income.
Commissions and fees on financial guarantee services generated from financial guarantee services the Company provides to customers decreased by $0.2 million, or 8.1%, to $1.5 million for the quarter ended March 31, 2016, compared to $1.7 million for the quarter ended March 31, 2015. The decrease was primarily attributable to the expiration of Wins Finances two largest contracts in March 2015. The two largest customers accounted for $0.61 million of revenue, or 37% of the total commissions and fees on financial guarantee services for the three months ended March 31, 2015. After the contracts for these two customers expired, Wins Finance was no longer able to provide guarantees for loans exceeding 10% of its net assets for any single customer in order to comply with the requirements of Interim Measures for Guarantee Business of the PRC. Provision on financial guarantee services was $3.1 million for the quarter ended March 31, 2016, an increase of $4.0 million from a reversal of $0.9 million for the quarter ended March 31, 2015. The increase was primarily due to a provision loss of $3.2 million due to a loan in default totaling $4.7 million (RMB30 million), with $0.9 million being written-off due to managements assessment.
Direct financing lease interest income generated from payments under direct financing leases with customers decreased by $0.2 million, or 19.4%, to $1 million for the quarter ended March 31, 2016, compared to $1.2 million for the quarter ended March 31, 2015. Provision for lease payment receivable decreased by $0.2 million to $0.1 million for the quarter ended March 31, 2015, from $0.3 million for the quarter ended March 31, 2015. The decrease was primarily attributable to the expired direct financing leases contracts were not fully replaced with new contracts.
Financial advisory and lease agency income decreased to nil for the quarter ended March 31, 2016, compared to $1.7 million for the quarter ended March 31, 2015. The decrease was primarily attributable to there being no new advisory and lease agency contracts in this quarter.
Interest on short-term investment
Interest on short-term investments decreased by $1.9 million to $3.5 million for the quarter ended March 31, 2016, compared to $5.4 million for the same period ended March 31, 2015. The decrease was primarily due to a decrease in the rate of return caused by decreased return in the local capital markets, partially offset by an increase in the average balances of the short-term investments.
Non-interest expenses increased by $1.8 million, or 248.1%, to $2.5 million for the quarter ended March 31, 2016, compared to $0.7 million for the same period ended March 31, 2015. The increase was primarily attributable to an increase of $1.2 million in share-based compensation to the companys directors and executive officers commencing on December 16, 2015 and increases in salaries, legal fees, auditing fees and consulting fees for investor relations in connection with being a public company.
Income tax expense decreased by $1.5 million, or 137.3%, to $0.4 million for the three months ended March 31, 2016, compared to $1.1 million for the three months ended March 31, 2015. The decrease was primarily attributable to a decrease in taxable income excluding interest on short-term investment, which is exempt from taxation.
Net income decreased by $8.3 million, or 97.3%, to $0.2 million for the quarter ended March 31, 2016, compared to $8.5 million for the same period ended March 31, 2015.
Other Significant Events
On March 21, 2016, JinzhongBank Co., Ltd. withdrew $0.9 million (RMB 6 million) for interest and penalties from the Companys deposit account for the default payment of a loan of $4.7 million (RMB 30 million) borrowed by Jinzhong Houfeng Trading Co., Ltd., one of the Companys clients in its guarantee business. The Company evaluated the potential default losses based on Jinzhong Houfeng Trading Co., Ltd.s financial position and counter-guarantee collateral and accrued about $3.2 million as provision of guarantee losses.
About Wins Finance
Wins Finance is a diversified investment and asset management company headquartered in New York and listed on NASDAQ. The company is focused on identifying value accretive investment opportunities and assets in China and the United States that can be enhanced through the strategic involvement of Wins established management team and its familiarity with the Chinese investment community to help generate long-term value for shareholders. Wins Finance is well positioned to leverage its expertise and existing operations in China to build a comprehensive platform for the provision of lending and other financing solutions to the under-served small and medium enterprise segment. For more information, please visit www.winsholdings.com.
Forward Looking Statements
This news release contains forward-looking statements within the meaning of Section27A of the Securities Act of 1933, as amended, and Section21E 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 terminology such as will, expects, anticipates, future, intends, plans, believes, estimates and similar statements. All statements other than statements of historical fact in this press release are forward-looking statements and involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These forward-looking statements are based on managements current expectations, assumptions, estimates and projections about the Company and the industry in which the Company operates, but involve a number of unknown risks and uncertainties. Further information regarding these and other risks are described in the Companys Current Report on Form 8-K dated October 26, 2015 and in the Companys other filings with the US Securities and Exchange Commission. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and actual results may differ materially from the anticipated results. You are urged to consider these factors carefully in evaluating the forward-looking statements contained herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by these cautionary statements.
Richard Xu, President
Wins Finance Holdings Inc.
590 Madison Avenue, 21st FL
New York, NY 10022