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IEG Holdings (IEGH) Reports 1Q 2017 Results

05/04/2017
By Steven Ralston, CFA

OTC:IEGH

On May 2, 2017, after the close, IEG Holdings (OTC:IEGH) reported financial results for the quarter ending March 31, 2017. Total revenues decreased 11.0% to $467,383 from $524,972 in the comparable quarter in 2016, primarily due to a decrease in the average interest-earning loan book size of consumer receivables.
 
Cumulative loan volume increased to $14,249,023. This represents 26.1% YOY growth in cumulative loan originations.

However, cumulative loan volume growth increased only 1.0% on a sequential quarter basis. Net loan receivables declined 13.7% to $5,808,029 compared to $6,731,101 as of the end of the first quarter of 2016, due to lower loan originations versus repayment of loan principal by customers.

As of March 31, 2017, the company had 103 loans with a total balance of $454,452 that were in default or delinquent (as defined as over 90 days past due), which represented an unsecured personal loan delinquency rate of 6.6%, which is at the high-end of the company’s 3-year history since the inception of its online platform. The increase was due to both a decline in the size of the loan portfolio (loans receivable) and increases in the number and the dollar amount of loans defined as in default or delinquent.

During the quarter, management focused on implementing substantial cost cuts the company’s operating business and on completing the tender offer for shares of OneMain Holdings.
 
Salaries and compensation expenses decreased 70.2% (or $282,728) to $120,278 versus $403,006 in the first quarter of 2015, primarily due to the CEO’s annual base compensation being reduced from $1.0 million to $1. The provision for credit losses expense decreased 42.1% (or $163,031) to $224,488 due to the decrease in the size of the loan portfolio. Advertising expenses decreased 98.2% (or $46,944) to $880 versus $47,824 due to a decrease in customer acquisition costs, including those for online advertising, direct mail and lead generation.  Rent expense decreased 80.1% (or $43,830) to $16,817 versus the comparable period in 2016, primarily due to termination of leases in Florida, Illinois and Arizona during 2016. Overall, total operating expenses declined 34.7% (or $515,257).
 
However, public company and corporate finance expenses increased to 21.8% (or $88,272) to $498,191 compared to $409,919 due to the significant costs incurred related to the OneMain tender offer. This new expense item appears to include expenses previously reported as consulting & professional fees and travel, meals & entertainment (both of which are not being reported separately in the income statement) as well as a large portion of expenses heretofore having been reported as other operating expenses.
 
Concurrent with the year-end financial results, IEG Holdings declared its inaugural cash dividend of $0.005 per common share (record date June 5 and on August 21, 2017). The company expects to pay quarterly dividends going forward. Though during the first quarter, operating expenses were in excess of net revenue, management expects that net revenue will exceed budgeted cash operating expenses over the ensuing 12 months. However, capital will be required before operating results are expected to improve.
 
IEG Holdings Corp. is a consumer finance company that offers unsecured consumer loans (under the brand name “Mr. Amazing Loans”) to individuals in 19 states via an online platform (mramazingloans.com). The company provides $5,000 and $10,000 personal consumer loans over a term of five years in Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah and Virginia.
 
IEG Holdings is still in an early phase of its life cycle with the loan originations volume on a high growth trajectory. The company should trade at a much higher multiple reflecting the company’s potential. Our price target is now $5.50 after adjusting for the lower loan originations during the first quarter.

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