Instabank — Investor Presentation 2020

Oct 29, 2020

Instabank

Interim Presentation Q3 – 2020 October 29th 2020

www.instabank.no instabank.no instabank.no

Importantinformation 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 Q3-20

Profit before tax of 17.6 MNOK, after tax 13.2 MNOK Total income increased and loan losses decreased from the previous quarter

Net loans increased by 222 MNOK

The Norwegian market with a strong comeback, while Finland has temporarily become less attractive

Mortgages loan balance reached 56 MNOK Successful launch, disbursed volume increased throughout Q3-20

First Coop product launched

The Coop branded credit card has already reached its first customers. Additional sales finance products will follow and will be made available in the Coopay app

Key figures Q3-2020

Net profit before tax of 17.6 MNOK + vs 17.6 Q3-19

Total income of 65.9 MNOK + 3 % vs Q3-19

Losses on loans 2.6 % vs 2.5 % Q3-19

Quarterly increase in net loans of 222 MNOK vs +101 MNOK Q3-19

Outstanding net loans of 2,787 MNOK vs 2,718 Q3-19

Equity per share of 1.59 NOK vs 1.66 Q3-19

Return on Equity of 10.1 % vs 9.7 % in Q3-19

Diversified loan portfolio

Diversified high funding volume

*) Implemented before 30.09.20. Two months notice period in Norway and Finland

Net loan development

Norway Finland Sweden Series3

Key comments

• Instabank introduced second priority mortgage loans at the end of Q2-20. Through Q3-20, the distribution has been strengthened by agreements with several agents. The disbursed volumes of mortgages increased reached 56 MNOK at the end of the quarter
• In Finland, a temporary COVID-19 related interest cap law came into force July 1st along with restrictions on consumer loans marketing which resulted in decreased new volume in Q3-20
• The Swedish market remains very competitive with larger risk and rate span and as a consequence Instabank finds Sweden less attractive than other markets

Total income

Key comments

• Interest income increased by 2.5 MNOK from Q2-20 to 82.4 MNOK in Q3-20 as a result of increased loan balance as well as increased loan yield.
• Income commission and fees was up 2.8 MNOK to 11.4 MNOK hitting its highest level ever as a result of increased sale of insurances.

Total income Total income detailed

MNOK MNOK

Net gains/loss on forex and securities

Funding cost and yields

Development in funding cost and yields Key comments

• Although loan yield vary across markets and products and the mix among them changes, the total yield remains relatively stable.
• The deposit rates have dropped in all currencies, especially in Norway. Since Q2-20, Instabank has had three rate cuts from 2.03 % to 1.15 % that will take effect for existing customers in November following the two months notice period. This will decrease funding costs over the near term

Operating expenses

Cost/income ratio

Operating expenses breakdown

Key comments

• Instabank maintain a strong focus on cost control and operational efficiency and had lower operating expenses in Q2-20 compared to the same quarter in both 2019 and 2018
• Personnel expenses increased by 1.5 MNOK as a result of increased employee bonus provisions and an increase in number of employees.
• Administrative expenses increased 2.4 MNOK from the previous quarter as a result of one-off expenses for the Merkur Market listing of 1.1 MNOK as well as increased credit expenses related to increased new sales volume.

Credit risk

0,0 %

-80,0 %

-60,0 %

-40,0 %

0,0 %

5,0 %

10,0 %

Impairment losses

Loans past due

0,0 10,0 20,0 30,0 40,0

-5,0 % 5,0 % 15,0 % 25,0 % 35,0 % 45,0 %

Key comments

• Instabank has not observed any negative effects in the customer's payment behaviour as a consequence of the Covid-19 outbreak
• The relatively low loan losses provisions of 18.8 MNOK / 2.6 % is a result of good performance in the Norwegian portfolio in terms of loans past due
• Normally, loans past due increase in the third quarter. This year we have seen a decline
• Share of loans past due 1-30 days at the end of Q3-20 was 13.7 % of total volume, down from 16.7 % a year ago
• The growth in loans past due > 90 days in previous quarters have flattened and turned to a decrease from 11.2 % at the end of Q2-20 to 10.4 % at the end of Q3-20 -20,0 %

IFRS 9 volume distribution and ECL %

In 2020, the bank transitioned from IAS 39 to IFRS 9

• Whereas IAS 39 is an incurred loss model based on objective evidence, the standard IFRS 9 includes an expected credit loss model
• IFRS 9 produce higher losses on loans for the total portfolio compared to IAS 39 as impairments are also recognized for the loans in Stage 1 and Stage 2 in addition to those in Stage 3

Expected credit losses (ECL)

• ECL is the probability-weighted estimate of credit losses over the expected life of the financial instrument

• ECL = PD x EAD x LGD

  • PD = Probability of default EAD = Exposure at default LGD = Loss given default

• Stage 1: Performing loans, past due <30 days

• Stage 2: Past due 30-90 days or significant increase in credit risk
• Stage 3: Defaulted

73,5 %

IFRS 9 Impairment losses Volume distribution % Expected Credit Losses (ECL) %

• Stage 1: ECL next 12 months
• Stage 2: ECL lifetime
• Stage 3: ECL lifetime

The transition from IAS 39 to IFRS 9 at the date of changeover 01.01.2020 increased loan loss provisions by 85.5 MNOK. The effect was treated as a balance sheet transaction which also reduces equity by 64.1 MNOK (the after tax effect of the increased provisions). The IFRS 9 transitional rules allow for a gradual phase-in of this "one-off" IFRS 9 effect on the Bank's capital adequacy over a three year period with 30 % in 2020..

Profit development

Net profit before tax Key comments

MNOK

• The increase in total income and relatively low losses on loans had a positive effect, while increased operating expenses partly due to one-offs had a negative effect on the net profit
• Net profit after tax was 13.2 MNOK, up from 9.9 MNOK in the previous quarter
• Return on equity was 10.1 %, up from 7.7 % in the previous quarter.

Capital adequacy

Developments in capital adequacy ratios

CET1 requirement per country and total

Key comments

• Common equity Tier 1 Capital ratio was 18.8 % and the total capital ratio was 22.2 % at the end of Q3-20, 1.9 % points above the total regulatory capital requirement of 20.2 %.
• The total capital ratio was reduced from last quarter due to high growth in lending as well as growth in other financial assets as a result of an high increase in deposits
• The surplus capital above the total regulatory capital requirement was 60 MNOK at the end of Q3-20

From startup to economies of scale

START UP 2016 | 2017

Establish core capabilities Ensure profitability Focus on loans and deposits

EXPANSION 2018 | 2020

Build and develop capabilities to enable product- and geographical expansion

ECONOMIES OF SCALE 2021 | 2023

Capitalize on strategic and operational platform; Economies of scale, profitability & solidity

Instabank strategy chart

We ensure our clients full transparency and predictability We offer a wide range of financial services; customized for each clients financial situation and needs We are pay-tech experts enabling We create valuable services development of high-value services Our promises Our personality Vision Strategic position A goal-oriented bank developing smarter financial - and payment services COMPETENT We always strive to build our competency TRANSPARENT We are open and transparent GOAL-ORIENTED We realize plans CREATIVE We always search for smarter solutions We work with our partners to strengthen their digital transformation and help them realize their business potential Mission We are a partner in developing product-as-a-service business models. Our expertise within pay-tech enable services giving added value for our partners and their customers

Markets and products

Target growth in markets with highest ROE at any given time

Unsecured	Mortgage	Deposits	Retail	Online	Cards
Q3-2016	Q2-2020	Q3-2016	Q4-2017	Q4-2018	Q2-2019
Q4-2017	Tbd	Q3-2018	Q2-2020	Q2-2020	Tbd
Q4-2018	Tbd	Q1-2019	Tbd	Tbd	Tbd
na	na	Q3-2020	na	na	na

Our target is to achieve a more diversified portfolio by prioritizing mortgage loans going forward. This will reduce risk and improve profits.

Instabank`s distribution model

Multi-brand strategy will be continued. Growth supported by Instapay (POS)

▪ Core products

Loans, POS/Sales financing, Credit cards, Savings

▪ Instapay (POS)

A profitable business area in itself and a core recruitment channel

▪ Payment services and POS

Core to our distribution strategy

Financials

ROE Strong improvement in profits

Net loans Growth is necessary to improve profits

10 % Heading in the right direction 15-20 % Proof of success ~ 6.0 Bn. Proof of growth capacity 3.5 Bn. Growth shows direction ~30 % Compares with industry leaders < 40 % Among the better Outlook Strategic ambitions

Cost to income Economies of scale reduce cost

Financial summary

	Q3-20	Q2-20	Q1-20	FY 2019	Q4-19	Q3-19
Total income:
Interest Income using the effective interest method	82 478	79 854	83 102	305 752	79 957	77 950
Other interest income	0	37	330
Interest expenses	13 598	13 164	12 531	53 158	12 952	13 360
Net interest income	68 880	66 727	70 901	252 594	67 006	64 590
Net commission fees and other income		-2 951 -6 648 -3 900			-10 429 -5 269	-858
Total income		65 929 60 079 67 001			242 165 61 737 63 732
Operating expenses:
Salary and other personnel expenses					11 019 9 507 8 164 39 355 8 788 10 251
Other administrative expenses, of which				13 644 11 466 13 925 62 384 12 438		17 542
- direct marketing cost		880 1 105 3 136			18 231 1 664	5 751
Depreciation and amortisation				3 271 3 106 2 980 8 719 2 306		2 229
Other expenses				1 608 1 144 1 674 5 302 1 458		-1 143
Total operating expenses		29 542 25 223 26 743		0	115 761 24 989 28 879
Losses on loans					18 794 21 704 33 131 71 429 16 483 17 203
Operating profit before tax				0	17 593 13 152 7 127 54 974 20 264 17 650
Tax					4 398 3 288 1 782 13 735 5 133 4 378
Profit and other comprehensive income					13 195 9 864 5 345 41 239 15 131 13 272

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

	Q3-20	Q2-20	Q1-20	Q4-19	Q3-19
Assets
Loans and deposits with credit institutions				222 177 165 812 229 380 183 014 155 611
Loans to customers, of which	2 869 717	2 644 120	2 859 294	2 696 724	2 718 861
- prepaid agent commissions	82 557	79 006	90 339
Certificates and bonds				1 035 261 863 415 328 138 516 194 534 400
Deferred tax assets	12 129	16 527	-	-
Other intangible assets	30 227	29 434	28 703	29 804	29 790
Fixed assets	9 067	9 740	10 414	563	657
Other receivables, of which:	57 128			50 504 101 827 114 520 116 060
- prepaid agent commissions				93 216	96 141
Total assets	4 235 706	3 779 552	3 557 756	3 540 819	3 555 379
Liabilities
Deposits from and debt to customers	3 548 363	3 129 285	2 887 298	2 848 737	2 891 435
Other debts	28 122	9 973	38 565	22 378	31 311
Accrued expenses and liabilities	32 840	26 279	26 780	21 177	15 065
Subordinated loans	56 000	56 000	56 000	80 900	65 000
Total liabilities	3 665 326	3 221 537	3 008 644	2 973 193	3 002 810
Equity
Share capital	332 642	332 642	332 642	332 642	332 642
Share premium reserve	178 192	178 192	178 192	178 192	178 192
Retained earnings	178 192	6 280	-2 622	56 792	41 734
Tier 1 capital	40 900	40 900	40 900
Total equity				729 927 558 014 549 113 567 626 552 568
Total liabilities and equity	4 395 253	3 779 552	3 557 756	3 540 819	3 555 379

Share price and ownership

Top 20 shareholders as of 27.10.2020 Share price development last year

#	Shareholders	# of shares	%
1	KISTEFOS AS	83 126 568	24,99%
2	HODNE INVEST AS	30 588 311	9,20%
3	VELDE HOLDING AS	23 775 000	7,15%
4	BIRKELUNDEN INVESTERINGSSELSKAP AS	18 305 911	5,50%
5	KAKB 2 AS	12 612 021	3,79%
6	HJELLEGJERDE INVEST AS	9 161 000	2,75%
7	KRISTIAN FALNES AS	9 000 000	2,71%
7	LEIKVOLLBAKKEN AS	8 500 000	2,56%
9	MOROAND AS	8 500 000	2,56%
10	APOLLO ASSET LIMITED	6 562 741	1,97%
11	ALTO HOLDING AS	5 770 000	1,73%
12	SONSINVEST AS	5 108 195	1,54%
13	ENZIAN AS	5 000 000	1,50%
14	VENDETTA AS	4 397 632	1,32%
15	LEIRIN HOLDING AS	4 333 333	1,30%
16	MAGDALENA HOLDING AS	3 529 000	1,06%
17	CAHE FINANS AS	3 503 000	1,05%
18	TVEDT INVESTERING AS	3 138 000	0,94%
19	VELDE EIENDOM INVEST AS	3 050 000	0,92%
20	GRUNNFJELLET AS	3 010 000	0,90%
	Sum Top20	250 970 712	75,45%
	Other shareholders	81 671 327	24,55%
	Total	332 642 039	100,00%
Position	Name	# of shares	% of total
CEO	Robert Berg (Sonsinvest AS)	5 217 195	1,6 %
CCO	Eivind Sverdrup (Leirin Holding AS)	4 403 833	1,3 %
CTO	Farzad Jalily	742 417	0,2 %
CFO	Per Kristian Haug	95 000	0,0 %
CRO	Kjetil Andre Welde Knudsen	70 000	0,0 %
COO	Anne Jørgensen	35 000	0,0 %
CMO	Jørgen Rui	234 011	0,1 %
	Sum management	10 797 456	3,2 %
	Other employees	1 547 548	0,5 %
	Board members	2 150 000	0,6 %
	Total	14 495 004	4,4 %

Share price (NOK)

21

Thank You

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