IOU FINANCIAL INC. (“IOU” or “the Company”) (TSXV: IOU), a leading online lender to small businesses (IOUFinancial.com), announced today its results for the three and nine-month period ended September 30, 2019.

“We continue to execute on our strategy of profitable growth given strong loan origination and revenue performance in the third quarter of 2019. This represents the Company’s seventh consecutive quarter of positive earnings” said Phil Marleau, CEO.

FINANCIAL HIGHLIGHTS

• Please refer to the table below for adjustments made to IFRS gross revenue and operating expenses in order to better reflect the actual operating performance of the business.
• In the third quarter of 2019, the Company funded US$41.4 million in loans (2018: US $36.1 million), representing an increase of 14.5% over Q3 2018. During the nine-month period ended September 30, 2019, the Company funded $112.7 million in loans (2018: US $89.9 million), representing an increase of 25.4% over the same period last year. This was driven by the introduction of new loan products, geographic expansion into Canada as well as the addition of several new strategic partnerships in line with the Company’s growth strategy. This was in line with the Company’s long-term outlook for annual loan origination growth of 25% to 30%.
• As at­ September 30, 2019, total loans under management amounted to $108.0 million (2018: $84.7 million), representing an increase of 27.4% year over year and is attributable to the growth in loan originations of 25.4% in the first nine months of 2019 compared to the same period in 2018. The principal balance of the loan portfolio amounted to $54.5 million (2018: $30.2 million), representing an increase of 80.5% and consistent with the Company’s strategy to retain more loans on its balance sheet. The principal balance of IOU Financial’s servicing portfolio (loans being serviced on behalf of third parties) amounted to $53.4 million (2018: $54.5 million), representing a decrease of 2.0%.
• Adjusted gross revenue increased 46.8% to $6.8 million for the three-month period ended September 30, 2019 compared to Q3 2018 ($4.6 million) due to an increase in interest revenue and servicing income.
• Interest revenue increased 58.7% to $5.2 million in Q3 2019 compared to the same period in 2018 as a result of the increase in the average commercial loans receivable balance of 67.5% in Q3 2019 compared to Q3 2018. The increase in the interest revenue will lag behind the increase in the average commercial loans receivable balance as loans originated in the latter part of the quarter do not contribute interest revenue for the full quarter. In addition to the timing of the loan origination, other factors can impact the calculation of the portfolio yield such as the number of business days in the period and currency translation.
• Servicing income increased 21.4% to $1.2 million in Q3 2019 compared to Q3 2018 as a result of the increase in the average servicing portfolio of 9.5% in Q3 2019 compared to Q3 2018 as well as a 0.9 percentage point increase in the servicing portfolio yield from 8.1% in Q3 2018 to 9.0% in Q3 2019. Quicker payoffs and other factors have had a positive effect on the servicing portfolio yield.
• Adjusted gross revenue increased to $17.4 million (2018: $13.3 million), representing an increase of 30.5% for the nine-month period ended September 30, 2019 compared to the same period in 2018.
• Interest expense during the three-month period ended September 30, 2019 increased 24.3% to $1.1 million (2018: $0.9 million). The increase is attributable to an increase in average borrowings of 40.7% in Q3 2019 compared to Q3 2018 and offset by a 1.3 percentage point decrease in the Cost of Borrowing Rate to 10.4%. In an effort to lower its Cost of Borrowing Rate, the Company closed a new credit facility in the first quarter of 2019 at a rate which is substantially lower than the current Cost of Borrowing Rate. Specifically, the rate on the new credit facility was 6.64% at September 30, 2019 or approximately 3.8 percentage points less than the current Cost of Borrowing Rate. As the company continues to increase borrowings from the new credit facility, the overall Cost of Borrowing Rate is expected to drop in the future. Interest expense during the nine-month period ended September 30, 2019 increased to $2.9 million (2018: $2.5 million), an increase of 16.4% compared to the same period last year.
• Provision for loan losses during the three-month period ended September 30, 2019 increased to $2.4 million (2018: $1.3 million). The increase is attributable to an increase in the average commercial loans receivable balance in the third quarter of 2019 of 67.5% compared to the same period last year and an increase in the Provisional Credit Loss Rate to 18.2% in Q3 2019 compared to 17.1% in Q3 2018 due to a slight increase in delinquencies related to loans originated in Q2 2019. The Company expects the Provisional Credit Loss Rate to vary from quarter to quarter. The Provisional Credit Loss Rate during the nine-month period ended September 30, 2019 was 17.0%. The Company expects the Provisional Credit Loss Rate to average approximately 16.5%. The Provisional Credit Loss Rate is a representation of the expected credit loss within the lifetime of the loan and includes a provision to all current loans (Stage 1 provision). The growth in the principal balance of the loan portfolio contributed approximately 1.0% to 2.0% to the Provisional Credit Loss Rate compared to the Net Credit Loss Rate. Provision for loan losses increased to $5.7 million for the nine-month period ended September 30, 2019 (2018: $3.3 million).
• The Net Credit Loss Rate increased from 11.1% in the third quarter of 2018 to 12.6% in the third quarter of 2019. The Company expects the Net Credit Loss Rate to vary from quarter to quarter. The Net Credit Loss Rate during the nine-month period ended September 30, 2019 was 13.2%. The Company expects the Net Credit Loss Rate to average approximately 15%. The Company uses the Net Credit Loss Rate as an alternative measure to the Provisional Credit Loss Rate as it excludes the effect of provisions (reductions) in the allowance for expected credit losses during the period which may not coincide with the actual timing of charge-offs and recoveries.
• Adjusted operating expenses increased 26.8% or $0.5 million to $2.6 million in Q3 2019 (2018: $2.1 million) due primarily to reinvestments in staff and technology, however the Adjusted Operating Expense Ratio, which is a measure of the Company’s operating efficiency, decreased to 10.1% in the third quarter of 2019 (2018: 10.5%) as the Company increased its loans under management at a greater rate than operating expenses. For the nine-month period ended September 30, 2019, adjusted operating expenses increased 23.8% to $7.4 million (2018: $6.0 million) and the Adjusted Operating Expense Ratio decreased to 9.9% in the first nine months of 2019 from 11.2% in the first nine months of 2018. Operating expenses remained relatively flat at $2.2 million for the three-month period ended September 30, 2019 compared to $2.1 million in the same period in 2018. The reinvestments in staff and technology were offset by the non-recurring gain relating to the revaluation of convertible debentures of $0.5 million in Q3 2019 following the extension of the convertible debentures from December 31, 2020 to December 31, 2023.
• IOU closed on its third quarter ended September 30, 2019 with adjusted net earnings of $769,906 compared to adjusted net earnings of $468,659 for the third quarter ended September 30, 2018. IOU closed on the nine-month period ended September 30, 2019 with adjusted net earnings of $1,544,843, compared to adjusted net earnings of $1,791,184 for the same period last year.
• IOU closed on its third quarter ended September 30, 2019 with IFRS net earnings of $1,000,614, or $0.01 per share, compared to IFRS net earnings of $600,593 or $0.01 per share for the same period in 2018. IOU closed on the nine-month period ended September 30, 2019 with IFRS net earnings of $1,305,740, or $0.01 per share, compared to IFRS net earnings of $2,250,580 or $0.03 per share for the same period last year.
• Since the establishment of the NCIB on May 1, 2019, IOU repurchased for cancellation 1,222,000 common shares in the market for a total cost of $253,421.

Adjusted and IFRS net earnings
	Three-Month		Nine-Month
For the period ended September 30	2019 $	2018 $ Advertisement	2019 $	2018 $
Interest revenue	5,165,303	3,254,520	12,663,112	9,926,771
Servicing & other income Advertisement	1,634,082	1,378,742	4,752,084	3,421,113
Adjusted Gross Revenue	6,799,385	4,633,262	17,415,196	13,347,884
Interest expense Advertisement	1,062,039	854,095	2,899,799	2,491,162
Provision for loan losses	2,367,101	1,327,017	5,712,484	3,323,455
Recoveries Advertisement	(41,640)	(129,058)	(169,913)	(256,840)
Cost of Revenue	3,387,500	2,052,057	8,442,370	5,557,777
Adjusted Net Revenue Advertisement
Adjusted operating expense	2,641,979	2,083,059	7,427,983	5,998,923
Income tax expense/(recovery)	–	29,487	–	– Advertisement
Adjusted Net Earnings	769,906	468,659	1,544,843	1,791,184
Adjusted Net Earnings per Share	0.01	0.01	0.02	0.02 Advertisement
Adjusted Net Earnings	769,906	468,659	1,544,843	1,791,184
Non-cash gain on sales of loans	734,264	1,088,475	2,356,397	2,490,685 Advertisement
Non-cash amortization of servicing asset	(938,051)	(850,415)	(2,844,177)	(1,890,664)
Non-cash stock-based compensation	(51,084)	(106,126)	(236,902)	(140,625) Advertisement
Non-recurring costs	485,579	–	485,579	–
Net Earnings per IFRS	1,000,614	600,593	1,305,740	2,250,580 Advertisement
Net Earnings per Share	0.01	0.01	0.01	0.03

OUTLOOK

IOU is committed to its strategy of profitable growth. IOU continues to closely monitor the performance of its loan portfolio, capture operational efficiencies and keep costs under control.  IOU is also committed to its strategy of building a resilient funding model. In line with this objective, IOU continues to maintain diversified sources of institutional capital.

The Company intends to grow loan originations by:

• • Identifying, recruiting and partnering with business loan brokers;
  • Forming new strategic partnerships with entities such as banks and small business suppliers and leveraging their relationships with small businesses to add new customers;
  • Expanding its product offering to allow it to serve small businesses whose needs are not met by its current products;
  • Investing in direct marketing and sales; and
  • Continuing its expansion into Canada.

These efforts are key to achieving the Company’s long-term outlook for loan origination growth of 25% to 30% annually.

IOU’s financial statements and management discussion & analysis for the quarter ended September 30, 2019 have been filed on SEDAR and are available at www.sedar.com.

CONFERENCE CALL

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The Company will hold a conference call at 4:30 (EDT) on November 18, 2019, to discuss its financial results. The dial-in number to access the conference call from Canada and the United States is 1 (888) 231-8191 (toll-free), conference ID: 1559245

CORPORATE UPDATE

The Company also announced today changes to its board of directors (the “Board”). Serguei Kozmine tendered his resignation as a director of the Company and the Board has appointed Lucas Timberlake to fill this Board vacancy.

Lucas Timberlake has been a Partner with Fintech Ventures Fund, LLLP, a financial technology-focused investment firm, since 2015. Since assuming his current role, Mr. Timberlake has held several board director positions with technology-enabled lending companies in the small business and real estate lending sectors, and currently serves on the board of directors for GROUNDFLOOR Finance. Previously, Mr. Timberlake was part of the investment team with Antarctica Capital, an international private equity firm focusing on real assets and insurance opportunities. Mr. Timberlake began his career as an investment banking analyst with Bank of America Merrill Lynch. Mr. Timberlake holds a Bachelor of Arts in Economics and Political Science from Columbia College of Columbia University.

“We thank Mr. Kouzmine for his services to the Board over these past years, and welcome Mr. Timberlake to IOU’s Board”, said Philippe Marleau, CEO.

SOURCE IOU Financial Inc.