Instabank — Investor Presentation 2019

Aug 15, 2019

Instabank

Interim Presentation Q2 – 2019 August 16th 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 & developments Q2-19

Record high Q2 net profit of 12.7 MNOK

Losses on loans came down to 15.7 MNOK or 2.4 % of gross loan balance

Net loan growth of 13 MNOK

Finland performed well with a net loan growth of 92 MNOK, net loans in Norway decreased by 99 MNOK, while net loans in Sweden grew by 21 MNOK

Improved credit quality

Changes in credit assessment over the past year and improved precollection processes have had a positive impact on share of loans past due, resulting in decreased loan losses in the quarter

Operational focus

Strong operational focus on adapting to the new consumer finance by-law and both deliver and utilise data from the debt registers

Key figures Q2-2019

Net profit before tax of 12.8 MNOK + 43 % vs Q2-18

Total income of 61.1 MNOK + 30 % vs Q2-18

Losses on loans 2.4 % vs 2.3 % Q2-18

Quarterly growth in net loans of 13 MNOK - 95 % vs Q2-18

Outstanding net loans of 2,618 MNOK + 43 % vs Q2-18

Total equity of 539 MNOK + 52 % vs Q2-18

Return on Equity of 7.2 % vs 8.4 % in Q2-18

Net loan development

Norway Finland Sweden Series3

Consumer Loans Sales finance Series3

Funding costs and yields

Development in yields and funding costs Key comments

• Attractive interest rate, affected by mix of products, distribution channel, and risk assessment
• Interest rate on deposits decreased as deposit mix changed in favor of EUR and SEK deposits at lower deposit rate than in Norway
• Liquidity yield up in 2019 compared to last year

Total income

Income commissions and fees Expenses commissions and fees

Net gains/loss on forex and securities

Operating expenses

Operating expenses detailed Cost/income ratio

MNOK MNOK

Credit risk development

0,0 % 1,0 % 2,0 % 3,0 % 4,0 % 5,0 % 6,0 % 7,0 % 8,0 % 9,0 % 10,0 %

0,0 % 5,0 % 10,0 % 15,0 % 20,0 % 25,0 % 30,0 % 35,0 % 40,0 % 45,0 %

0

5

10

15

20

25

Impairment losses Losses on loans % of avg. gross lending (annualised)

-3,5 %

-2,5 %

-1,5 %

-0,5 %

0,5 %

1,5 %

2,5 %

Net profit

Net profit after tax Key comments

MNOK

6,7 7,0 8,3 3,3 9,6 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19

• Net profit after tax increased from the previous quarter primarily as Q1 19 included a one-time adjustment of 5 MNOK in loan loss provisions
• While total income remained the same as in the previous quarter, operating cost decreased by 2 MNOK mainly as a result of reduced marketing cost

Balance sheet structure

50%

Assets and liabilities & equity Key financial ratios

MNOK

-4200

-3200

-2200

-1200

-200

800

1800

2800

3800

0%

20%

40%

60%

80%

100%

120%

140%

Product portfolio

Unsecured consumer loans Deposit accounts Point of sales financing

• Structured as either a revolving credit facility or an amortizing loan
• Upper credit limit of NOK 500,000 in Norway, EUR 50,000 in Finland and SEK 500,000 in Sweden

• Offered to private individuals in Norway, Finland and Sweden.
• Deposits in Finland and Sweden at attractive margins of 0.8 % and 0.9 %
• Deposits guaranteed by the Norwegian Banks' Guarantee Fund

• Complete offering already in place:
  • − Web payment solutions
  • − In-shop payment solutions
  • − Closed loop solutions
  • − Hybrid leasing solutions
• JV profit split agreement negotiated on a partner-to-partner basis

Distribution channels

Brand distribution Agent distribution Partner distribution Brand distribution volume as of Q2-19 27 %

Agent distribution volume as of Q2-19 63 % Partner distribution volume as of Q2-19 10 % + potential new partners

Outlook

Profitability and scalability

• 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

Growth limited short term

• 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 last year and Instabank will continue driving innovation in the sector as we have done with POS financing
• 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

Updated outlook for growth and net loans (MNOK) Total growth Net loans 2016 190 2017 1,128 2018 1,163 2019 250-300 2016 190 2017 1,318 2018 2,482 2019 2,750-2,800

= CONTINUED PROFITABLE GROWTH

Financial summary

Items	Q2-19	Q1-19	FY 2018	Q4-18	Q3-18	Q2-18
Operating income
Interest income	74 466	73 351	222 546	70 207	60 090	49 926
Interest expenses	13 376	13 470	46 344	14 472	11 931	10 231
Net interest income	61 090	59 881	176 202	55 735	48 159	39 695
Net commission fees and other income	-2 742 -1 563			13 230 -1 475	4 187	5 099
Total income	58 348 58 317		0	189 432 54 261 52 346 44 793
Operating expenses
Salary and other personnel expenses	10 248 10 069		30 871	8 304	8 652	6 287
Other administrative expenses, of which		14 719 17 667		66 153 14 584	18 858	17 251
- direct marketing cost	4 513	6 303	38 330	6 695	11 971	10 178
Depreciation and amortisation	2 157	2 027	6 138	1 923	1 557	1 415
Other expenses	2 695	2 174	5 085	1 548	1 345	1 067
Total operating expenses	29 818 31 937			108 246 26 358 30 413 26 019
Losses on loans	15 772 21 972			47 189 17 540 12 600		9 831
Operating (loss)/profit before tax	12 757	4 408		33 996 10 363	9 333	8 943
Tax	3 121	1 102	7 945	2 038	2 333	2 235
Profit/loss after tax	9 636	3 306	26 051	8 326	7 000	6 708

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

Items	Q2-19	Q1-19	Q4-18	Q3-18	Q2-18
Assets
Loans and deposits with credit institutions	185 466	150 497	142 298	145 110	116 521
Loans to customers		2 617 991 2 604 823 2 481 880 2 210 903			1 834 682
Certificates and bonds	640 642	488 971	647 128	595 383	349 391
Deferred tax assets	-	-	89	1 722	4 055
Other intangible assets	28 962	29 438	27 339	25 516	22 613
Fixed assets	777	912	1 035	1 031	1 066
Other receivables, of which:	101 665	104 737	115 692	80 360	65 972
- prepaid agent commissions	94 379	92 027	86 381	74 098	57 823
Total assets		3 575 503 3 379 379 3 415 461 3 060 024 2 394 299
Liabilities
Deposits from and debt to customers	2 934 575	2 751 149	2 832 361	2 546 928	1 944 615
Other debts	23 171	19 941	14 313	24 844	18 896
Accrued expenses and liabilities	13 631	14 070	20 056	12 954	11 466
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	3 036 377	2 850 160	2 931 729	2 649 726	2 039 977
Equity
Share capital	510 834	510 834	468 651	402 717	354 161
Retained earnings	28 291	18 385	15 081	7 581	161
Total equity	539 125	529 219	483 732	410 298	354 322
Total liabilities and equity	3 575 503	3 379 379	3 415 461	3 060 024	2 394 299

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	9 025 000	2,7%
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	2 807 500	0,8%
	Sum Top20	249 446 629	75,0%
	Other shareholders	83 195 410	25,0%
	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	1 789 522	0,5 %
	Board members	2 150 000	0,6 %
	Total	14 678 178	4,4 %

Top 20 shareholders as of 13.08.2019 Share price development since OTC listing in October 2016

Thank You

www.instabank.no instabank.no