IOU Financial Inc. Releases Financial Results for the Three and Six- Month Period Ended June 30, 2019

• Loan originations increased 31.8% to US$38.5 million in Q2 2019 compared to Q2 2018.
• Total loans under management increased 36.4% to $101.0 million as at June 30, 2019 compared to the same period in 2018.
• Adjusted gross revenue increased 25.1% to $5.5 million in Q2 2019 compared to Q2 2018.
• Adjusted Operating Expense Ratio decreased to 10.0% in Q2 2019 compared to 11.9% in Q2 2018.
• Adjusted net earnings amounted to $0.3 million in the second quarter of 2019, representing the sixth consecutive profitable quarter. Adjusted net earnings amounted to $0.8 million year-to-date.

MONTRÉAL, Aug. 23, 2019 /PRNewswire/ - IOU FINANCIAL INC. ("IOU" or "the Company") (TSX-V: IOU), a leading online lender to small businesses (IOUFinancial.com), announced today its results for the three and six-month period ended June 30, 2019.

"IOU delivered strong loan origination and revenue growth in the second quarter of 2019 and continued to post positive earnings. We remain committed to our strategy of profitable growth which continues to deliver consistent and favorable results since its implementation," 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 second quarter of 2019, the Company funded US$38.5 million in loans (2018: US$29.2 million), representing an increase of 31.8%. For the first half of 2019, the Company funded $71.3 million in loans (2018: US$53.7 million), representing an increase of 32.7%. 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 above the Company's long-term outlook for annual loan origination growth of 25% to 30%.
• As at­ June 30, 2019, total loans under management amounted to $101.0 million, compared to $74.1 million in 2018, representing an increase of 36.4% year over year and is attributable to the growth in loan originations in the first half of 2019 of 32.7% compared to the same period in 2018. The principal balance of the loan portfolio amounted to $46.5 million (2018: $30.0 million), representing an increase of 54.9% 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 $54.5 million compared to $44.1 million in 2018, representing an increase of 23.8%.
• Adjusted gross revenue increased 25.1% to $5.5 million for the three-month period ended June 30, 2019 compared to Q2 2018 ($4.4 million) due to an increase in interest revenue and servicing income.
• Interest income increased 18.7% in Q2 2019 compared to the same period in 2018 as a result of the increase in the average commercial loans receivable balance of 36.5% in Q2 2019 compared to Q2 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 67.2% in Q2 2019 compared to Q2 2018 as a result of the increase in the average servicing portfolio of 48.9% in Q2 2019 compared to Q2 2018 as well as a 12.7% increase in the servicing portfolio yield from 7.9% in Q2 2018 to 8.9% in Q2 2019. Quicker payoffs and other factors have had a positive effect on the servicing portfolio yield.
• Adjusted gross revenue increased to $10.6 million for the six-month period ended June 30, 2019 versus $8.7 million in 2018, representing an increase of 21.8%.
• Interest expense during the three-month period ended June 30, 2019 increased 17.3% to $1.0 million (2018: $0.8 million). The increase is attributable to an increase in borrowings under the financing credit facilities of 14.4% in Q2 2019 compared to Q2 2018. The Cost of Borrowing Rate remained relatively unchanged at approximately 11.0%. 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 6.82% at June 30, 2019 or approximately 37.0% 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 six-month period ended June 30, 2019 increased $1.8 million (2018: $1.6 million), an increase of 12.3% compared to the same period last year.
• Provision for loan losses during the three-month period ended June 30, 2019 increased to $1.8 million (2018: $1.0 million). The increase is attributable to an increase in the average commercial loans receivable balance in the second quarter of 2019 of 36.5% compared to the same period last year and an increase in the Provisional Credit Loss Rate to 16.8% in Q2 2019 compared to 12.2% in Q2 2018. The Company expects the Provisional Credit Loss Rate to vary from quarter to quarter. On a trailing twelve-month (TTM) basis, the Provisional Credit Loss Rate has averaged 17.8%. The Company expects the Provisional Credit Loss Rate to average approximately 16.5%. Provision for loan losses increased to $3.3 million for the six-month period ended June 30, 2019 (2018: $2.0 million).
• The Net Credit Loss Rate increased from 12.3% in the second quarter of 2018 to 15.1% in the second quarter of 2019. The Company expects the Net Credit Loss Rate to vary from quarter to quarter. On a TTM basis, the Net Credit Loss Rate has averaged 13.8%. 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 21.3% or $0.4 million to $2.5 million in Q2 2019 (2018: $2.1 million) due to reinvestments in staff and technology, however the Adjusted Operating Expense Ratio, which is a measure of the Company's operating efficiency, decreased to 10.0% in the second quarter of 2019 (2018: 11.9%) as the Company increased its loans under management at a greater rate than operating expenses. For the six-month period ended June 30, 2019, adjusted operating expenses increased 22.2% to $4.8 million (2018: $3.9 million) and the Adjusted Operating Expense Ratio decreased to 9.8% in the first half of 2019 from 11.7% in the first half of 2018.
• IOU closed on its second quarter ended June 30, 2019 with adjusted net earnings of $299,245 compared to adjusted net earnings of $634,882 for the second quarter ended June 30, 2018. IOU closed on the six-month period ended June 30, 2019 with adjusted net earnings of $774,937, compared to adjusted net earnings of $1,322,525 for the same period last year.
• IOU closed on its second quarter ended June 30, 2019 with IFRS net earnings of $219,256, or $0.00 per share, compared to IFRS net earnings of $852,789 or $0.01 per share for the same period in 2018. IOU closed on the six-month period ended June 30, 2019 with IFRS net earnings of $305,126, or $0.00 per share, compared to IFRS net earnings of $1,649,987or $0.02 per share for the same period last year.

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.

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 June 30, 2019 have been filed on SEDAR and are available at www.sedar.com.

CONFERENCE CALL

The Company will hold a conference call at 4:30 (EDT) on August 26, 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: 6698372

About IOU Financial Inc.

IOU Financial Inc. provides small businesses throughout the U.S. and Canada access to the capital they need to seize growth opportunities quickly. In a unique approach to lending, IOU Financial's advanced, automated application and approval system accurately assesses applicants' financial realities, with an emphasis on day-to-day cash flow trends. IOU Financial allows these businesses to apply for six, nine, twelve, fifteen and eighteen-month term loans of up to US$500,000 to qualified U.S. applicants ($150,000 in Canada) within a few business days, with affordable charges favorable to cash-flow management. Its speed and transparency make IOU Financial a trusted alternative to banks. To learn more visit: IOUFinancial.com.

Forward Looking Statements

Certain information set forth in this news release may contain forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond the control of IOU including, but not limited to, the impact of general economic conditions, industry conditions, dependence upon regulatory and shareholder approvals, the execution of definitive documentation and the uncertainty of obtaining additional financing. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. IOU does not assume any obligation to update or revise its forward-looking statements, whether as a result of new information, future events, or otherwise.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release

Definitions

• Adjusted gross revenue is defined as gross revenue prepared in accordance with IFRS, plus amortization of servicing assets less gain on sale of loans. The Company uses adjusted gross revenue as it eliminates items that do not necessarily reflect how the Company is performing. Specifically, it eliminates the non-cash gain on sale of loans and the non-cash amortization of servicing assets which influence operating results depending on the timing and amount of the loan sales.
• Portfolio Yield is calculated as follows: interest revenue divided by the average commercial loans receivable for the period presented on an annualized basis. The six-month ratios are calculated on a three-point basis, using December, March and June period end balances, presented on an annualized basis.
• Servicing Portfolio Yield is calculated as follows: servicing income divided by the average servicing portfolio for the period presented on an annualized basis. The six-month ratios are calculated on a three-point basis, using December, March and June period end balances, presented on an annualized basis.
• The Cost of Borrowing Rate is calculated as follows: interest expense divided by the average borrowings for the period, presented on an annualized basis. The six-month ratios are calculated on a three-point basis, using December, March and June period end balances, presented on an annualized basis.
• The Provisional Credit Loss rate is calculated as follows: provision for loan losses divided by the average commercial loans receivable for the period, presented on an annualized basis. The six-month ratios are calculated on a three-point basis, using December, March and June period end balances, presented on an annualized basis.
• The Net Credit Loss rate is calculated as follows: charge offs net of recoveries divided by the average commercial loans receivable for the period, presented on an annualized basis. The six-month ratios are calculated on a three-point basis, using December, March and June period end balances, presented on an annualized basis. 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 is calculated as follows: total operating expenses prepared in accordance with IFRS for the period less stock-based compensation and non-recurring costs. The six-month ratios are calculated on a three-point basis, using December, March and June period end balances, presented on an annualized basis. The Company uses adjusted operating expenses as it eliminates items that do not necessarily reflect how the Company is performing. Specifically, it eliminates non-cash stock-based compensation which is given at different times and prices and non-recurring costs which affects operating results only periodically.
• The Adjusted Operating Expense Ratio is calculated as follows: adjusted operating expenses divided by the average loans under management for the period, presented on an annualized basis. The six-month ratios are calculated on a three-point basis, using December, March and June period end balances, presented on an annualized basis.
• Beginning in the first quarter of 2019, the calculation of adjusted net earnings was revised and is defined as net earnings for the period prepared in accordance with IFRS less gain on sale of loans, plus: amortization of servicing assets, stock-based compensation and non-recurring costs. Prior to the first quarter of 2019, the calculation of adjusted net earnings (net loss) was defined as net earnings (net loss) for the period less: gain on sale of loans and income tax recovery, plus: amortization of servicing assets, stock-based compensation, amortization of transactions costs-credit facility, depreciation and amortization, income tax expense and non-recurring costs. As a result, the prior comparative periods have been calculated to reflect the revised definition.

SOURCE IOU Financial Inc.