IOU Financial Inc. Corporate presentation November 2019 Forward - - PowerPoint PPT Presentation

IOU Financial Inc.

Corporate presentation November 2019

Certain information set forth in this presentation may contain forward-looking statements. Forward-looking statements are statements, other than statements of historical fact, that address or discuss activities, events or developments that IOU Financial expects or anticipates may occur in the future. These forward-looking statements can be identified by the use of words such as "anticipates", "believes", "estimates", "expects", "may", "plans", "projects", "should", "will", or the negative thereof or other variations thereon. These forward-looking statements reflect management's current views and are based on certain assumptions including assumptions as to future economic conditions and courses of action, as well as other factors management believes are appropriate in the circumstances. Such forward-looking statements are subject to risks and uncertainties and no assurance can be given that any of the events anticipated by such statements will occur or, if they do occur, what benefit IOU Financial will derive from them. A number of factors could cause actual results, performance or developments to differ materially from those expressed

• r implied by such forward looking statements, including, but not limited to risks inherent in growing a new business,

dependence on third-party service providers, competition, regulatory risk, dependence on key personnel, risks related to rapid growth of IOU Financial, security and confidentiality risk, risk related to inability to attract borrowers and lenders, technological development risk, IT disruptions, maintenance of client relationships, litigation risk, volatility of stock price, and other factors that are beyond its control. Additional information concerning these and other factors can be found beginning on page 22 under the heading "Risks and Uncertainties" in IOU Financial's Q3 2019 MD&A dated November 13, 2019, which is available under IOU Financial's profile on SEDAR at www.sedar.com. IOU Financial does not undertake any obligation to update publicly or to revise any such forward-looking statements, unless required by applicable legislation or regulation.

Forward looking statements

2

Q3 19 $747 $- $100 $200 $300 $400 $500 $600 $700 $800 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Cumulative loans originated Shareholder summary

• US$740+ million – of total loans originated since inception.
• 10,000+ loans made to merchants and small businesses across the US and Canada.
• 6 consecutive years on the PROFIT 500 List of Canada’s fastest growing companies.
• Proprietary, fully integrated technology platform.
• 3-5 minute application process with approved loans funded in as little as 24 hours.

A leading online lender to small businesses

in millions (US$)

87.7M total shares outstanding ~37% insider ownership

3

$5.0 $12.0 $0 $5 $10 $15 2015 2017

Estimated total loan originations by

• nline lenders to US small businesses

Online lending to small businesses

4 in billions (US$)

As banks have exited the SMB lending market, there has been significant growth in online lending to small

• businesses. SMB loans as a percentage of total bank

loans decreased from 6.7% to 3.5% from 2002 to 2017.

Note: TTM refers to “Trailing Twelve Months” as of Q3 18.

Online lenders will continue to increase their share of the small business lending market.

Small business loans as a share of total US bank loans

Sources: Harvard Business School, Board of Governors of the Federal Reserve Source: Pang, H 2018, Information Technology Improvement and Small Business Lending utilizing data from FDIC reports on US depository institutions

$12 $14 $27 $42 $33 $35 $55 $15 $43 $65 $28 $29 $61 $53

$0 $20 $40 $60 $80 $100 2011 2012 2013 2014 2015 2016 2017 2018 Q3 19

Total loans under management

Servicing portfolio Principal portfolio $0.4 $2.4 $11.5 $49.5 $99.5 $146.4 $107.6 $91.3 $125.0 $147.7 $- $25 $50 $75 $100 $125 $150 2010 2011 2012 2013 2014 2015 2016 2017 2018 TTM

Loans originated

Loan originations & Loans under management

IOU intends to ramp up loan origination growth to 25%-30% per annum

• ver the long-term.

in millions (US$) 5 in millions (C$)

IOU will grow loan originations by:

• Increasing the number of quality loan brokers

working with IOU.

• Investing in direct marketing and sales.
• Expanding product offering to serve more SMBs.
• Further geographic expansion into Canada.
• Continuing to add new strategic partners such as

banks and payment processors.

$26.5 $56.9 $92.7 $70.3 $61.7 $5.6 Note: TTM refers to Trailing Twelve Months as of Sept. 30, 2019. $95.9 $108.0 $1.9

Adjusted & IFRS net earnings

6 Note: TTM refers to Trailing Twelve Months as of Sept. 30, 2019. Net earnings under IFRS are calculated by adding to adjusted net earnings: (i) gain recognized on sale of loans, and subtracting (ii) amortization of servicing asset, (iii) stock-based compensation, and (iv) non-recurring costs/(gain) listed above. These four items are adjusted for as they are either non-cash or non-recurring and do not reflect on the actual operating performance of the business.

2017 2018 TTM Interest revenue $14,386,265 $13,464,475 $16,200,816 Servicing & other revenue $2,838,453 $4,979,791 $6,310,762 Adjusted gross revenue $17,224,718 $18,444,266 $22,511,578 Interest expense $3,680,425 $3,355,496 $3,764,133 Provision for loan losses $8,614,664 $5,004,324 $7,393,353 Recoveries ($381,927) ($322,000) $235,073 Cost of revenue $11,913,161 $8,037,820 $10,922,413 Adjusted net revenue $5,311,557 $10,406,446 $11,589,165 Adjusted operating expense $8,875,682 $8,369,410 $9,798,470 Income tax expense/(recovery) $101,110 ($115,676) ($115,676) Adjusted net earnings/(loss) ($3,665,235) $2,152,712 $1,906,371 Non-cash gain on sale of loans $1,856,237 $3,466,884 $3,332,596 Non-cash amortization of servicing assets ($1,665,859) ($2,743,101) ($3,696,614) Non-cash stock-based compensation ($160,672) ($166,277) ($262,554) Non-recurring gain/(costs) ($819,753) $0 $485,579 Net earnings/(loss) (IFRS): ($4,455,282) $2,710,218 $1,765,378

$20.8 $34.9 $40.2 $33.0 $42.1 32.6% 38.1% 35.8% 40.8% 38.5% 0% 9% 18% 27% 36% 45% $0 $10 $20 $30 $40 $50 $60 2015 2016 2017 2018 TTM

Average commercial loans receivable balance and portfolio yield

$6.8 $13.3 $14.4 $13.5 $16.2 $0 $3 $6 $9 $12 $15 $18 2015 2016 2017 2018 TTM

Interest revenue

Interest revenue

7 Note: “Average net interest margin” is calculated as the average of four quarterly data points in a TTM period, with each data point calculated by subtracting interest expenses over the period from the portfolio yield (as defined on the Revenues slide) of such period. Note: TTM refers to Trailing Twelve Months as of Sept. 30, 2019. The average commercial loans receivable balance considers the average of five quarterly points-in-time, including the beginning and end of such period. Portfolio yield is calculated by dividing TTM interest revenues by the average commercial loans receivable balance over the period in millions (C$) in millions (C$)

Interest revenue increased in 2016 as IOU brought on MidCap as a new source of financing. As IOU seeks to maximize its new US$50M credit facility with Credit Suisse, the commercial loans receivable balance should increase, thereby driving increased interest revenues.

$56.1

$45.9 $26.0 $44.1 $47.2 9.0% 8.8% 8.3% 8.2% 10.5% 0% 3% 6% 9% 12% $0 $20 $40 $60 $80 2015 2016 2017 2018 TTM

Average servicing portfolio balance and servicing yield

$5.6 $4.7 $2.8 $5.0 $6.3 $0 $3 $6 $9 $12 2015 2016 2017 2018 TTM

Servicing & other revenue

Servicing & other revenue

8 Note: “Average net interest margin” is calculated as the average of four quarterly data points in a TTM period, with each data point calculated by subtracting interest expenses over the period from the portfolio yield (as defined on the Revenues slide) of such period. Note: TTM refers to Trailing Twelve Months as of Sept. 30, 2019. The average servicing portfolio balance considers the average of five quarterly points-in-time, including the beginning and end of such period. Servicing & other revenue exclude certain non-cash items such as gain on sale of loans & amortization of servicing assets. Servicing fees amounted to $5.0M; and other fees amounted to $1.3M over TTM period ended 9/30/19. in millions (C$) in millions (C$)

IOU’s servicing portfolio decreased from 2015 to 2017 as IOU tightened its underwriting criteria, sold less loans to hedge funds, and shifted more loans to its balance sheet. From 2017 onwards, servicing revenue increased, driven by an increasing servicing portfolio.

$12.6 $26.6 $34.2 $29.5 $34.6 13.8% 12.0% 10.8% 11.4% 10.9% 0% 3% 6% 9% 12% 15% $0 $10 $20 $30 $40 $50 $60 2015 2016 2017 2018 TTM

Average debt outstanding and cost of borrowing rate (%)

$1.7 $3.2 $3.7 $3.4 $3.8 $0 $1 $2 $3 $4 $5 2015 2016 2017 2018 TTM

Interest costs

Interest expense

9 Note: “Average net interest margin” is calculated as the average of four quarterly data points in a TTM period, with each data point calculated by subtracting interest expenses over the period from the portfolio yield (as defined on the Revenues slide) of such period. Note: The average balance of debt outstanding considers the average of five quarterly points-in-time, including the beginning and end of such

• period. Cost of borrowing rate is calculated as interest expense divided by the average balance of debt outstanding over such period. Interest

expenses and the average balance of debt outstanding includes both convertible debenture and credit facility interest expenses and balances. in millions (C$) in millions (C$)

Interest expense increased in 2016 as IOU brought on MidCap as a new source of financing to grow its book of commercial loans receivable. From 2017

• nwards, interest expense has

remained relatively flat, in-line with the average amount of debt outstanding. In Q1 19, IOU closed a US$50M credit facility with Credit Suisse, which is at a substantially lower rate vs. its current cost of borrowing rate. Going forward, IOU expects its cost of borrowing rate to decrease as it leverages this new facility.

22.9% 21.4% 15.2% 17.6% 13.9% 22.2% 13.4% 13.8% 0% 5% 10% 15% 20% 25% 2016 2017 2018 TTM

Net credit loss and provisional credit loss rate

$34.9 $40.2 $33.0 $42.1 22.9% 21.4% 15.2% 17.6% 0% 5% 10% 15% 20% 25% $0 $10 $20 $30 $40 $50 $60 2016 2017 2018 TTM

Average commercial loans receivable balance and provisional loss rate

$8.0 $8.6 $5.0 $7.4 $0 $2 $4 $6 $8 $10 2016 2017 2018 TTM

Provisional losses

Credit performance & quality

10 Note: “Average net interest margin” is calculated as the average of four quarterly data points in a TTM period, with each data point calculated by subtracting interest expenses over the period from the portfolio yield (as defined on the Revenues slide) of such period. in millions (C$) Note: TTM refers to Trailing Twelve Months as of Sept. 30, 2019. The average commercial loans receivable balance considers the average of five quarterly points-in-time, including the beginning and end of such period. Provisional credit loss rates and net credit loss rates are calculated by dividing provisional losses and net credit losses as defined in IOU’s financial statements, by the average commercial loans receivable balance.

Credit performance has improved since 2016 as evidenced by the declining provisional credit loss and net credit loss rates.

in millions (C$)

$76.6 $80.2 $65.1

$76.1 $97.2

14.5% 14.1% 13.6% 11.0% 10.1% 0% 5% 10% 15% $0 $20 $40 $60 $80 $100 $120 $140 2015 2016 2017 2018 TTM

Average loans under management and adjusted operating expense ratio

$11.1 $11.3 $8.9 $8.4 $9.8 $0 $2 $4 $6 $8 $10 $12 2015 2016 2017 2018 TTM

Adjusted operating expenses

Adjusted operating expenses

11 Note: “Average net interest margin” is calculated as the average of four quarterly data points in a TTM period, with each data point calculated by subtracting interest expenses over the period from the portfolio yield (as defined on the Revenues slide) of such period. Note: TTM refers to Trailing Twelve Months as of Sept. 30, 2019. IOU utilizes an adjusted operating expense ratio as a measure of the Company’s

• perating efficiency. The adjusted operating expense ratio has decreased over time as the Company has increased loans under management at a

greater rate than operating expenses, demonstrating solid operating leverage. in millions (C$) in millions (C$)

IOU has demonstrated increasing operating leverage, as adjusted operating expenses as a percentage of loans under management continue to decline.

$687,643 $634,882 $468,659 $361,528 $475,692 $299,245 $769,906 $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19

Adjusted earnings

$797,198 $852,789 $600,593 $459,638 $85,870 $219,256 $1,000,614 $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19

Net earnings (IFRS)

IFRS & adjusted net earnings

12 Note: IOU uses adjusted net earnings as a measure of financial performance. Beginning in Q1 19, the calculation of adjusted net earnings was revised and is defined as net earnings for the period less gain on sale of loans, plus: amortization of servicing assets, stock-based compensation and non-recurring costs/(gain). Prior to Q1 19, 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 & amortization, income tax expense and non-recurring costs/(gain). As a result, the prior comparative periods have been calculated to reflect the revised definition. EPS figures are rounded to two decimal places and totals may not add due to rounding. EPS $0.01 $0.01 $0.01 $0.01 $0.00 $0.00 $0.01

• Adj. EPS

$0.01 $0.01 $0.01 $0.00 $0.01 $0.00 $0.01

Trading comparables

Source: Company reports, Yahoo! Finance, TMXMoney.com. TTM refers to Trailing Twelve Months as of Sept. 30, 2019 for ONDK, CRWN, LC, ENVA, GSY, GSKY, CURO, ELVT, IOU. All

• ther companies refer to Q2 2019 TTM data due to unavailability of information. Share prices reflect closing prices on 11/12/19.

13 Fintech & Specialty finance companies Valuation Measures Financial Highlights Company Ticker Share price Shares o/s Market cap Book value per Share P/BV TTM Earnings (millions) TTM EPS Trailing P/E ROE ROA Commercial lenders On Deck Capital (US$) NYSE:ONDK $4.43 74.6 $330.3 $4.23 1.0x $32.5 $0.44 10.2x 10.8% 2.7% Funding Circle Holdings (£) LSE:FCH £0.99 271.3 £269.4 £1.39 0.7x

• £49.3
• £0.18

n/a n/a n/a Chesswood Group (C$) TSX:CHW $10.81 16.3 $175.8 $8.95 1.2x $18.3 $1.13 9.6x 12.4% 2.3% Accord Financial (C$) TSX:ACD $9.13 8.4 $77.1 $10.70 0.9x $11.3 $1.33 6.8x 13.0% 3.1% Crown Capital (C$) TSX:CRWN $7.50 9.5 $70.9 $10.38 0.7x $1.1 $0.12 n/m 1.1% 0.4% Flow Capital (C$) TSXV:FW $0.15 77.7 $11.7 $0.39 0.4x

• $3.7
• $0.05

n/a n/a n/a Commercial lenders avg

• 0.8x
• 8.9x

12.1% 2.7% Commercial lenders median

• 0.8x
• 9.6x

11.6% 2.5% Consumer lenders LendingClub (US$) NYSE:LC $14.16 88.1 $1,247.9 $10.07 1.4x

• $44.4
• $0.50

n/a n/a n/a Enova International (US$) NYSE:ENVA $24.65 34.5 $849.7 $12.59 2.0x $95.8 $2.78 8.9x 25.0% 6.9% Goeasy Corp. (C$) TSX:GSY $62.50 14.3 $896.5 $23.53 2.7x $73.6 $5.13 12.2x 24.3% 6.7% Greensky Inc. (US$) NASD:GSKY $7.47 66.4 $496.2 n/a n/a $36.6 $0.55 13.5x n/m 4.4% Curo Group Holdings (US$) NYSE:CURO $15.57 41.5 $646.0 $0.84 n/m $67.0 $1.61 9.6x n/m 6.6% Elevate Credit (US$) NYSE:ELVT $4.10 44.1 $180.9 $3.30 1.2x $28.0 $0.64 6.5x 11.1% 3.8% Mogo Finance Tech (C$) TSXV:MOGO $3.68 27.3 $100.4 $0.51 7.2x

• $9.5
• $0.35

n/a n/a n/a Axis Auto Finance (C$) TSXV:AXIS $0.38 97.1 $36.9 $0.35 1.1x

• $6.6
• $0.07

n/a n/a n/a Rifco (C$) TSXV:RFC $0.80 21.6 $17.3 $1.35 0.6x

• $0.4
• $0.02

n/a n/a n/a Dealnet Captial (C$) TSXV:DLS $0.07 284.0 $19.9 $0.12 0.6x

• $2.0
• $0.01

n/a n/a n/a Inspira Financial (C$) TSXV:LND $0.125 39.4 $4.9 $0.29 0.4x

• $0.7
• $0.02

n/a n/a n/a Consumer lenders avg

• 1.9x
• 10.1x

20.1% 5.7% Consumer lenders median

• 1.2x
• 9.6x

24.3% 6.6% Overall average

• 1.5x
• 9.7x

14.0% 4.1% Overal median

• 1.0x
• 9.6x

12.4% 3.8% IOU Financial (C$) TSXV:IOU $0.21 87.7 $18.4 $0.15 1.4x $1.8 $0.02 10.4x 14.7% 3.6%

• Focused on profitable growth

– IOU originated US$125M of small business loans in 2018 and US$147.7M over the TTM period ended September 30, 2019. – IOU expects to profitably grow originations by 25%-30% per annum, over the long-term.

• Unique, proprietary technology platform

– Allows for industry-leading operating efficiency.

• Alignment of interests with management and insiders

– Insiders own approximately 37% of Company’s stock.

• Unique exposure to a growing online lending industry

– IOU is a compelling option for investors seeking exposure to the rapidly growing SMB lending industry. – One of the only pure-play publicly-traded online lenders to small businesses.

Investment highlights

14

Proven & experienced management team

15

Phil Marleau, CFA Chief Executive Officer

Former equity research analyst at Merrill Lynch, CSFB, and Scotia Capital

Robert Gloer President & COO

Former SVP East Region at First Franklin Financial

Madeline Wade VP, Operations

Formerly underwriting at First Franklin Financial

David Kennedy, CPA, CA Chief Financial Officer

Former CFO at Dale Parizeau Morris Mackenzie CFO at Mirabaud Canada

Benjamin Yi, CFA Capital Markets & Corp. Dev.

Former Investor at Dundee Corporation and 1832 Asset Management L.P.

Jeff Turner VP, Credit & Compliance

Former VP & Branch Manager at First Franklin Financial

Joshua Zickefoose, MBA VP, Sales & Strategy

Former VP at Equifax, Sun Trust, PNC, US Bank, and Infantryman, US Army

Christophe Choquart VP, Strategic Partnerships

Former institutional equity sales at Bear Stearns and Lehman Bros

Stewart Yeung, CPA, CA VP, Finance & Controller

Former VP Finance at i2C Inc., Quadbridge Inc., and Sr. Accountant at KPMG

Richard Zapata Engineering & Technology

Former Instructor at TTS, Data Engineer & Data Architect at BioIQ and Cotiviti

IOU Financial Inc.

Corporate presentation November 2019

For more information, please contact:

Benjamin Yi, MFin, CFA Capital Markets & Corporate Development Email: byi@ioufinancial.com www.ioufinancial.com