Instabank — Investor Presentation 2019

Oct 28, 2019

Instabank

Interim Presentation Q3 – 2019 October 28th 2019

www.instabank.no instabank.no instabank.no

Important information and disclaimer

THIS PRESENTATION (THE "PRESENTATION") HAS BEEN PRODUCED BY INSTABANK ASA (THE "COMPANY" OR "INSTABANK"), SOLELY FOR USE AT THE PRESENTATION TO INVESTORS AND IS STRICTLY CONFIDENTIAL AND MAY NOT BE REPRODUCED OR REDISTRIBUTED, IN WHOLE OR IN PART, TO ANY OTHER PERSON. TO THE BEST OF THE KNOWLEDGE OF THE COMPANY AND ITS BOARD OF DIRECTORS, THE INFORMATION CONTAINED IN THIS PRESENTATION IS IN ALL MATERIAL RESPECT IN ACCORDANCE WITH THE FACTS AS OF THE DATE HEREOF, AND CONTAINS NO MATERIAL OMISSIONS LIKELY TO AFFECT ITS IMPORT.

THIS PRESENTATION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS RELATING TO THE BUSINESS, FINANCIAL PERFORMANCE AND RESULTS OF THE COMPANY AND/OR THE INDUSTRY IN WHICH IT OPERATES. FORWARDLOOKING STATEMENTS CONCERN FUTURE CIRCUMSTANCES AND RESULTS AND OTHER STATEMENTS THAT ARE NOT HISTORICAL FACTS, SOMETIMES IDENTIFIED BY THE WORDS "BELIEVES", EXPECTS", "PREDICTS", "INTENDS", "PROJECTS", "PLANS", "ESTIMATES", "AIMS", "FORESEES", "ANTICIPATES", "TARGETS", AND SIMILAR EXPRESSIONS. THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PRESENTATION, INCLUDING ASSUMPTIONS, OPINIONS AND VIEWS OF THE COMPANY OR CITED FROM THIRD PARTY SOURCES ARE SOLELY OPINIONS AND FORECASTS WHICH ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE ACTUAL EVENTS TO DIFFER MATERIALLY FROM ANY ANTICIPATED DEVELOPMENT. NONE OF THE COMPANY OR ANY OF THEIR PARENT OR SUBSIDIARY UNDERTAKINGS OR ANY SUCH PERSON'S OFFICERS OR EMPLOYEES PROVIDES ANY ASSURANCE THAT THE ASSUMPTIONS UNDERLYING SUCH FORWARD-LOOKING STATEMENTS ARE FREE FROM ERRORS NOR DOES ANY OF THEM ACCEPT ANY RESPONSIBILITY FOR THE FUTURE ACCURACY OF THE OPINIONS EXPRESSED IN THIS PRESENTATION OR THE ACTUAL OCCURRENCE OF THE FORECASTED DEVELOPMENTS. THE COMPANY ASSUMES NO OBLIGATION, EXCEPT AS REQUIRED BY LAW, TO UPDATE ANY FORWARD-LOOKING STATEMENTS OR TO CONFORM THESE FORWARD-LOOKING STATEMENTS TO OUR ACTUAL RESULTS.

AN INVESTMENT IN THE COMPANY INVOLVES INHERENT RISKS AND IS SUITABLE ONLY FOR INVESTORS WHO UNDERSTAND THE RISKS ASSOCIATED WITH THIS TYPE OF INVESTMENT AND WHO CAN AFFORD A LOSS OF ALL OR PART OF THE INVESTMENT. SEVERAL FACTORS COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS THAT MAY BE EXPRESSED OR IMPLIED BY STATEMENTS AND INFORMATION IN THIS PRESENTATION, INCLUDING, AMONG OTHERS, RISKS OR UNCERTAINTIES ASSOCIATED WITH THE COMPANY'S BUSINESS, ITS DEVELOPMENT, GROWTH MANAGEMENT, FINANCING, MARKET ACCEPTANCE AND RELATIONS WITH CUSTOMERS, AND, MORE GENERALLY, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN DOMESTIC AND FOREIGN LAWS AND REGULATIONS, TAXES, CHANGES IN COMPETITION AND PRICING ENVIRONMENTS AND OTHER FACTORS. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALISE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED IN THIS DOCUMENT. THE COMPANY DOES NOT INTEND, AND DOES NOT ASSUME ANY OBLIGATION, TO UPDATE OR CORRECT THE INFORMATION INCLUDED IN THIS PRESENTATION.

NO REPRESENTATION OR WARRANTY (EXPRESS OR IMPLIED) IS MADE AS TO, AND NO RELIANCE SHOULD BE PLACED ON, ANY INFORMATION, INCLUDING PROJECTIONS, ESTIMATES, TARGETS AND OPINIONS, CONTAINED HEREIN, AND NO LIABILITY WHATSOEVER IS ACCEPTED AS TO ANY ERRORS, OMISSIONS OR MISSTATEMENTS CONTAINED HEREIN, AND, ACCORDINGLY, NONE OF THE COMPANY OR ANY OF THEIR PARENT OR SUBSIDIARY UNDERTAKINGS OR ANY SUCH PERSON'S OFFICERS OR EMPLOYEES ACCEPTS ANY LIABILITY WHATSOEVER ARISING DIRECTLY OR INDIRECTLY FROM THE USE OF THIS DOCUMENT.

THERE MAY HAVE BEEN CHANGES IN MATTERS WHICH AFFECT THE COMPANY SUBSEQUENT TO THE DATE OF THIS PRESENTATION. NEITHER THE ISSUE NOR DELIVERY OF THIS PRESENTATION SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THE AFFAIRS OF THE COMPANY HAVE NOT SINCE CHANGED, AND THE COMPANY DOES NOT INTEND, AND DOES NOT ASSUME ANY OBLIGATION, TO UPDATE OR CORRECT ANY INFORMATION INCLUDED IN THIS PRESENTATION. BY ATTENDING OR RECEIVING THIS PRESENTATION, YOU ACKNOWLEDGE THAT YOU WILL BE SOLELY RESPONSIBLE FOR FORMING YOUR OWN VIEW OF THE POTENTIAL FUTURE PERFORMANCE OF THE COMPANY.

THIS PRESENTATION SPEAKS AS OF 31 DECEMBER 2016. NEITHER THE DELIVERY OF THIS PRESENTATION NOR ANY FURTHER DISCUSSIONS OF THE COMPANY WITH ANY OF THE RECIPIENTS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.

Key highlights Q3-19

Positive experiences from the new debt register

Having complete and "real time" information about the unsecured debt of applicants has improved the credit assessments significantly

Launch of Instapay Mastercard in additional distribution channels Distribution extended from partner distribution to the direct and agent channel

Record high Q3 net profit before tax of 17.6 MNOK Driven by volume growth, increased margins and low costs

Quarterly net loan growth of 101 MNOK

Finland performed well with a net loan growth of 155 MNOK, net loans in Norway decreased by 90 MNOK, while net loans in Sweden grew by 36 MNOK

Key figures Q3-2019

Net profit before tax of 17.6 MNOK + 89 % vs Q3-18

Total income of 63.7 MNOK + 22 % vs Q3-18

Losses on loans 2.5 % vs 2.4 % Q3-18

Quarterly growth in net loans of 101 MNOK - 73 % vs Q3-18

Outstanding net loans of 2,719 MNOK + 23 % vs Q3-18

Equity per share of 1.66 NOK vs 1.56 Q3-18

Return on Equity of 9.7 % vs 7.3 % in Q3-18

Product portfolio

Unsecured consumer loans Deposit accounts Point of sales financing

INSTORE	Credit cards
	Direct Financing Mobile – QR code
	UPGRADE Hybrid leasing
ONLINE	Credit Cards
	Invoice
	"Handlekonto"
	Deferred payment

Distribution channels

26 %

Partner distribution volume as of Q3-19

+ potential new partners

Brand distribution volume as of Q3-19

DRAFT 6

9 %

Instapay Mastercard

Instabank launched the Instapay Mastercard credit card in Q1-19 as a payment instrument on top of the flexible loan product for POS finance customers at Skeidar

Instabank has on October 15th launched the Instapay Mastercard in the direct and agent distribution channels

Net loan development

Net loan balance growth MNOK

Net loans to customers

MNOK

Key comments

Finland

Increased growth in Finland driven by direct marketing efforts as well as optimised pricing and process improvements. Finland is the most attractive market with the highest margins and lowest capital requirements

Norway

Relatively low new volume as a result of decreased direct marketing and the new consumer finance by-law introduced in May. The stress test with a 5 % increase in interest rate on all debt has had the most significant impact

Sweden

Slow growth as a result of a cautious approach, highly competitive market and less attractive margins 8

Funding cost and yields

Development in funding cost and yields Key comments

• Attractive interest rate, affected by mix of products, distribution channel, and risk assessment
• Interest rate on deposits decreased as the deposit mix has changed in favor of EUR and SEK deposits at lower deposit rate than in Norway
• Share of deposits outside Norway has increased to 37 % from 14 % by year end 2018
• Liquidity yield up in 2019 compared to last year

Solid profit development

Net profit before tax Key comments

• Instabank has been operative for three years this September and has a history of increased profit quarter by quarter, except for Q1-19 profit affected by a one-time adjustment of 5 MNOK in loan loss provisions
• In Q3-19, net profit before tax was positively impacted by one offs amounting to 2,7 MNOK
• Due to increased capital requirements, Instabank will continue to prioritise growth in profits above growth in volume in the near future:
• Volume growth based on access to capital at an acceptable cost, growth capacity from capital surplus and profit generation
• Operation efficiency and cost control
• Credit risk and processes
• Improving margins

Total income

Total income detailed Total income

Q3-18 Q4-18 Q1-19 Q2-19 Q3-19

Interest Income Interest expenses

Income commissions and fees Expenses commissions and fees

Net gains/loss on forex and securities

Key comments

• Increased total income in Q3 driven by increased margins, volume growth and one off currency gains
• Increase in expenses commissions and fees a result of accrued agent commissions

Operating expenses

Operating expenses detailed

Cost/income ratio

Key comments

• As in the previous quarter, Q3-19 administrative costs include one off advisory costs of approximately 1.4 MNOK
• Q3-19 Other expenses positively impacted by one offs amounting to 2,7 MNOK
• The increase in "Other administrative expenses" from the previous quarter was mainly driven by high credit information expenses in the Swedish market. This was significantly reduced by the end of the quarter.

Credit risk developing well

Impairment losses

Key comments

• Losses on loans in Q3-19 increased slightly from a low level in the previous quarter

• Loan losses have decreased significantly over the past two quarters compared to Q4-18 and Q1-19. This decrease is partly due to seasonal variations and partly due to the introduction of new payment methods for Norwegian customers as well as decreased credit risk as a result of credit assessment changes over the last year.

• Share of loans past due of gross lending in each category are at the same levels in Q3-19 as Q3-18, except > 90 days.

• Past due 1-30 days increased from previous quarter du to seasonal variation

Capital adequacy

Developments in capital adequacy ratios Key comments

• Total capital ratio was 23,6 % by the end of Q2, 2,6 % above the regulatory capital requirement of 21 %
• Instabank is committed to continuing its profitable growth story, but the cost of capital may limit growth short term
• As of Q3-19 the bank has excess total capital of 52 MNOK representing a growth capacity in net loans of about 300 MNOK
• Capital requirements will increase by year-end as the countercyclical buffer will increase for the Norwegian loan portfolio. There is also a proposal to change the systemic risk buffer requirement based on buffer rates applicable to exposures in different countries. If this proposal was to be implemented, the systemic risk buffer requirement for Instabank would decrease

Systemic risk buffer reciprocity would have a positive impact on the CET1 requirement

• Instabank already benefits from reciprocity rules for the countercyclical buffer

• If reciprocity rules also apply for the systemic risk buffer, Instabank will further benefit from having an increasing share of lending outside Norway, with a blended decrease in CET1 requirement of 0,6 % point

• However, an increased systemic risk in Norway, without reciprocity rules would increase the CET 1 requirement by 0,5 % point

• A decision from the Ministry of Finance is expected late in Q4

Outlook

Profitability and scalability

Growth limited short term

• Presence in three countries gives Instabank the strategic opportunity to focus its efforts where the most profitable growth can be achieved
• The business setup is able to handle significantly higher volumes in all three countries without further investments or an increase in fixed costs
• The bank considers Finland and Sweden to represent the best growth opportunities going forward, while volumes in Norway are expected to remain at current levels or decrease slightly
• Instabank is committed to continuing its profitable growth story, but the current cost of capital limits growth short term, thus we have updated the outlook for net loan growth in 2019 to 250-300 MNOK

Regulatory risk reduced

• The new consumer finance by-law was introduced on the 15th of May 2019 and the market is now characterised by competition on more equal terms, except for the capital requirement gap between Norwegian and foreign banks operating in Norway

• The debt register is expected to reduce the number of fraudulent applications and to provide more informed and accurate credit assessments of loan applicants

• Product innovation

• Market conditions have changed considerably in Norway over the last year. Instabank will continue driving innovation in the sector, as shown in recent POS financing product launches and partnerships
• We believe mass distribution of generic consumer loans competing on interest rate only is history in Norway and that competing on other factors in the future is key

Financial summary

Items	YTD 2019	Q3-19	Q2-19	Q1-19	FY 2018	Q4-18	Q3-18
Operating income
Interest income	225 767	77 950	74 466	73 351	222 546	70 207	60 090
Interest expenses	40 206	13 360	13 376	13 470	46 344	14 472	11 931
Net interest income	185 561	64 590	61 090	59 881	176 202	55 735	48 159
Net commission fees and other income -5 164						-858 -2 742 -1 563 13 230 -1 475 4 187
Total income		180 397 63 732 58 348 58 317				189 432 54 261 52 346
Operating expenses
Salary and other personnel expenses						30 568 10 251 10 248 10 069 30 871 8 304 8 652
Other administrative expenses, of which 49 928		17 542			14 719 17 667 66 153 14 584		18 858
- direct marketing cost	16 566	5 751			4 513 6 303 38 330 6 695		11 971
Depreciation and amortisation	6 413	2 229			2 157 2 027 6 138 1 923		1 557
Other expenses	3 726	-1 143			2 695 2 174 5 085 1 548		1 345
Total operating expenses		90 635 28 879 29 818 31 937				108 246 26 358 30 413
Losses on loans						54 947 17 203 15 772 21 972 47 189 17 540 12 600
Operating (loss)/profit before tax						34 816 17 650 12 757 4 408 33 996 10 363 9 333
Tax						8 601 4 378 3 121 1 102 7 945 2 038 2 333
Profit/loss after tax						26 214 13 272 9 636 3 306 26 051 8 326 7 000

P&L (NOK '000) Balance sheet (NOK '000)

Items	Q3-19	Q2-19	Q1-19	Q4-18	Q3-18
Assets
Loans and deposits with credit institutions				155 611 185 466 150 497 142 298 145 110
Loans to customers	2 718 861	2 617 991	2 604 823	2 481 880	2 210 903
Certificates and bonds				534 400 640 642 488 971 647 128 595 383
Deferred tax assets		-	-	89	1 722
Other intangible assets	29 790	28 962	29 438	27 339	25 516
Fixed assets	657	777	912	1 035	1 031
Other receivables, of which:				116 060 101 665 104 737 115 692	80 360
- prepaid agent commissions	96 141	94 379	92 027	86 381	74 098
Total assets	3 555 379	3 575 503	3 379 379	3 415 461	3 060 024
Liabilities
Deposits from and debt to customers	2 891 435	2 934 575	2 751 149	2 832 361	2 546 928
Other debts	31 311	23 171	19 941	14 313	24 844
Accrued expenses and liabilities	15 065	13 631	14 070	20 056	12 954
Subordinated capital	40 000	40 000	40 000	40 000	40 000
Tier 1 Capital	25 000	25 000	25 000	25 000	25 000
Total liabilities	3 002 810	3 036 377	2 850 160	2 931 729	2 649 726
Equity
Share capital	510 834	510 834	510 834	468 651	402 717
Retained earnings	41 734	28 291	18 385	15 081	7 581
Total equity				552 568 539 125 529 219 483 732 410 298
Total liabilities and equity	3 555 379	3 575 503	3 379 379	3 415 461	3 060 024

Share price and ownership

#	Shareholders	# of shares	%
1	KISTEFOS AS	83 126 568	25,0%
2	HODNE INVEST AS	28 054 360	8,4%
3	VELDE HOLDING AS	23 775 000	7,1%
4	BIRKELUNDEN INVESTERINGSSELSKAP AS	18 305 911	5,5%
5	KAKB 2 AS	12 612 021	3,8%
6	HJELLEGJERDE INVEST AS	9 161 000	2,8%
7	KRISTIAN FALNES AS	9 000 000	2,7%
7	LEIKVOLLBAKKEN AS	8 500 000	2,6%
9	MOROAND AS	8 500 000	2,6%
10	APOLLO ASSET LIMITED	6 562 741	2,0%
11	NYE IDE HOLDING AS	6 276 000	1,9%
12	ALTO HOLDING AS	5 900 000	1,8%
13	SONSINVEST AS	5 108 195	1,5%
14	ENZIAN AS	5 000 000	1,5%
15	LEIRIN HOLDING AS	4 333 333	1,3%
16	CAHE FINANS AS	3 500 000	1,1%
17	VELDE EIENDOM INVEST AS	3 050 000	0,9%
18	GRUNNFJELLET AS	3 010 000	0,9%
19	VENADIS FORVALTNING AS	3 000 000	0,9%
20	MAGDALENA HOLDING AS	2 887 406	0,9%
	Sum Top20	249 662 535	75,1%
	Other shareholders	82 979 504	24,9%
	Total	332 642 039	100,0%

Position	Name	# of shares	% of total
CEO	Robert Berg (Sonsinvest AS)	5 108 195	1,5 %
CRO	Eivind Sverdrup (Leirin Holding AS)	4 343 833	1,3 %
CMO	Lauren Pedersen	610 871	0,2 %
CTO	Farzad Jalily	675 757	0,2 %
	Sum management	10 738 656	3,2 %
	Other employees	1 529 622	0,5 %
	Board members	2 150 000	0,6 %
	Total	14 418 278	4,3 %

Top 20 shareholders as of 24.10.2019 Share price development since OTC listing in October 2016

Thank You

www.instabank.no instabank.no