Instabank

Interim Presentation Q2 – 2020 August 13th 2020

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 Q2-20

Profit before tax of 13.1 MNOK, after tax 9.9 MNOK

Interest income has decreased as volume has fallen. However, with still low costs and relatively low losses given the Covid-19 pandemic, profit after tax increased from 5.3 MNOK in the previous quarter to 9.9 MNOK this quarter

Launch of second priority mortgage loans

Instabank introduced mortgage loans during Q2 and is currently in a process of scaling up distribution. Mortgage loans will improve capital utilization and reduce credit risk

Coop and Instabank signed a long-term cooperation agreement

The parties will cooperate in developing new financing solutions for Obs Bygg and Coop Byggmix, to be launched in September.

Gross loans decreased by 201 MNOK in Q2-20

The decrease is a result of negative currency effects of 69.3 MNOK and limited new sales activities from mid-March. Volumes increased again from June, a development that continues into Q3.

Instabank is admitted to be listed at Merkur Market First day of trading will be 17th of August.

Key figures Q2-2020

Net profit before tax of 13.1 MNOK + 3 % vs Q2-19

Total income of 60.0 MNOK + 3 % vs Q2-19

Losses on loans 3.0 % vs 2.4 % Q2-19

Quarterly decrease in net loans of -204 MNOK vs +13 MNOK Q2-19

Outstanding net loans of 2,565 MNOK vs 2,617 Q2-19

Equity per share of 1.55 NOK vs 1.62 Q2-19

Return on Equity of 7.7 % vs 7.2 % in Q2-19

Towards a paytech partner position

Our ambition is to establish Instabank as a paytech partner for companies seeking to innovate and digitize their business models

– Potential growth as companies switch from selling products to selling product-as-a-service

– Increase profit through long-term integration with partners and clients, and lower acquisition cost

– Reduce risk due to smaller loans and potential for recurring revenue streams

– Reposition and differentiate the bank

New partner agreement with Coop

Coop and Instabank will cooperate in developing new financing solutions for Coop Norge's building warehouses Obs Bygg and Coop Byggmix.
New sales finance products will be distributed in-store, through the payment app Coopay and as a Coop branded credit card.
Coop has almost 1,8 million members in Norway, and the chains in Coop represent an annual turnover of more than fifty billion NOK. The payment app Coopay has more than 200 000 users.
The agreement strengthens Instabank´s position as a major paytech player, and could also represent a future opportunity for Instabank to deliver products to other parts of the Coop chain

Distribution channels

Present product portfolio

Unsecured consumer loans and mortgages Sales financing Deposit accounts

Net loan development

Net loan balance growth

MNOK

Net loans to customers MNOK 1 676 1 586 1 494 1 379 1 330 895 1 050 1 099 1 278 1 129 47 83 103 112 106 ² ⁶¹⁸ ² ⁷¹⁹ ² ⁶⁹⁷ ² ⁷⁶⁹ 2 565 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Norway Finland Sweden Series3

In mid-March, Instabank suspended all new loans sales, except for sales financing through paytech partners, in conjunction with risk associated with the Covid-19 outbreak
Through Q2-20, the strict credit policy introduced in March has gradually been lifted in line with the gradually recovery. The decrease in net loans has turned to an increase in volume from June.
Net loans decreased by 204 MNOK in Q2-20 as a result of low new sales as well as negative currency effects of 69.3 MNOK
Of the total net loan balance of 2,769 MNOK, 48 % was outside Norway at the end of the quarter down from 50 % at the end of Q1-20.

Total income

Total income detailed Total income

Interest income decreased by 3.5 MNOK from Q1-20 to 79.9 MNOK in Q2- 20 as a result of decreased loan balance and negative currency effects.
A growth in deposit volume of 241 MNOK in the quarter resulted in an increase in interest expenses of 0.6 MNOK while the funding cost remained at 1.5 %.

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.
Share of deposits outside Norway was at 45 %, down from 47 % by the end of Q1-20 as a result of high growth in Norway and a reduction in deposit volume in Sweden.
Liquidity yield came back high at 2.0 % in Q2-20 after a negative return in Q1-20 as a result of the Covid-19 economic impact on the bond market in March

Operating expenses

Operating expenses detailed

Cost/income ratio

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
Total operating expenses decreased by 1.5 MNOK from the previous quarter to 25.2 MNOK. Personnel expenses increased by 1.3 MNOK as a result of booked bonus provisions and an increase in number of employees
Cost/income level slightly higher than the two previous quarters as a result of the reduction in total income.

Credit risk

Impairment losses

Loans past due

Losses on loans came in at 21.7 MNOK/ 3.0 % of gross loans, down from 33.1 MNOK/ 4.6 % in the previous quarter when an extra provisions for loan losses related to Covid-19 of 5 MNOK was included.
The IFRS 9 impairment loss model have been updated in the quarter of future projection of macroeconomic indicators, including short and long term effects of COVID-19. The new projections reflect a worsening in all employment and consumption based indicators, especially in shorter term
Up until the reporting date, Instabank has not observed any worsening in customer's payment behaviour, rather the opposite. Share of volume past due is at its lowest levels for the categories up to 90 days compared to the previous quarters back to 2017
Volume of granted payments reliefs related to Covid-19 from represents 1.9 % of total loan volume at the end of Q2-20, down from 4.6 % by the end of the previous quarter.

IFRS 9 volume distribution and ECL %

IFRS 9 vs IAS 39

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 30-60 days or significant increase in credit risk
Stage 3: Defaulted

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, had a one off impact represented by an increase in impairment losses of 85.5 MNOK and reduced equity by 64.1 MNOK. The IFRS 9 transitional rules allow for a gradual phase-in of the 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

Net profit before tax 13.2 MNOK, up 6.1 MNOK from Q1-20
Q2-20 profit negatively affected by a reduction in interest income as a result of the decrease in loan volume

Capital adequacy

Developments in capital adequacy ratios

CET1 requirement per country and total

Instabank is well capitalised and has surplus capital of 83 MNOK above the minimum regulatory capital requirement
At the end of Q2-20, Common Equity Tier 1 capital ratio (CET1) was 19.7 % and the total capital ratio was 23.3 % at the end of Q2-20, 3.1 % points above the regulatory total capital requirement of 20.2 %.
The total capitol ratio increased by 1.2 % points form Q1-20 as a result of profit generation as well as a decrease in risk weighted assets

Outlook 2020

• Growth in net loans expected to be 250-300 MNOK for the second half of 2020

• Covid-19 pandemic has increased uncertainty and risk, although recovery has been better than expected

• Alongside growth from the paytech partner strategy, Instabank expects the new easy-to-use mortgage loan product introduced in Q2-20 to contribute to profitable growth and lowered credit risk going forward

• Paytech partner strategy strengthened with new agreement with Coop

• Cost and availability of capital could affect growth potential long term

Financial summary

Items	Q2-20	Q1-20	FY 2019	Q4-19	Q3-19	Q2-19
Operating income
Interest Income using the effective interest method	79 854	83 102	305 752	79 957	77 950	74 466
Other interest income	37	330
Interest expenses	13 164	12 531	53 158	12 952	13 360	13 376
Net interest income	66 727	70 901	252 594	67 006	64 590	61 090
Net commission fees and other income	-6 648 -3 900			-10 429 -5 269		-858 -2 742
Total income	60 079 67 001			242 165 61 737 63 732 58 348
Operating expenses
Salary and other personnel expenses			9 507 8 164 39 355 8 788 10 251 10 248
Other administrative expenses, of which			11 466 13 925 62 384 12 438		17 542	14 719
- direct marketing cost	1 105 3 136			18 231 1 664	5 751	4 513
Depreciation and amortisation			3 106 2 980 8 719 2 306		2 229	2 157
Other expenses			1 144 1 674 5 302 1 458		-1 143	2 695
Total operating expenses	25 223 26 743		0	115 761 24 989 28 879 29 818
Losses on loans			21 704 33 131 71 429 16 483 17 203 15 772
Operating (loss)/profit before tax			13 152 7 127 54 974 20 264 17 650 12 757 0
Tax			3 288 1 782 13 735 5 133 4 378 3 121
Profit/loss after tax			9 864 5 345 41 239 15 131 13 272 9 636

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

Items	Q2-20	Q1-20	Q4-19	Q3-19	Q2-19
Assets
Loans and deposits with credit institutions		165 812 229 380 183 014 155 611 185 466
Loans to customers, of which	2 644 120	2 859 294	2 696 724	2 718 861	2 617 991
- prepaid agent commissions	79 006	90 339
Certificates and bonds		863 415 328 138 516 194 534 400 640 642
Deferred tax assets	16 527	-	-		-
Other intangible assets	29 434	28 703	29 804	29 790	28 962
Fixed assets	9 740	10 414	563	657	777
Other receivables, of which:		50 504 101 827 114 520 116 060 101 665
- prepaid agent commissions			93 216	96 141	94 379
Total assets	3 779 552	3 557 756	3 540 819	3 555 379	3 575 503
Liabilities
Deposits from and debt to customers	3 129 285	2 887 298	2 848 737	2 891 435	2 934 575
Other debts	9 973	38 565	22 378	31 311	23 171
Accrued expenses and liabilities	26 279	26 780	21 177	15 065	13 631
Subordinated loans	56 000	56 000	80 900	65 000	65 000
Total liabilities	3 221 537	3 008 644	2 973 193	3 002 810	3 036 377
Equity
Share capital	510 834	510 834	510 834	510 834	510 834
Retained earnings	6 280	-2 622	56 792	41 734	28 291
Tier 1 capital	40 900	40 900
Total equity		558 014 549 113 567 626 552 568 539 125
Total liabilities and equity	3 779 552	3 557 756	3 540 819	3 555 379	3 575 503

Share price and ownership

#	Shareholders	# of shares	%
1	KISTEFOS AS	83 126 568	24,99%
2	HODNE INVEST AS	29 588 311	8,89%
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	LEIRIN HOLDING AS	4 333 333	1,30%
15	CAHE FINANS AS	3 500 000	1,05%
16	MAGDALENA HOLDING AS	3 203 241	0,96%
17	DOLPHIN MANAGEMENT AS	3 138 000	0,94%
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	248 382 321	74,67%
	Other shareholders	84 259 718	25,33%
	Total	332 642 039	100,00%

Position	Name	# of shares	% of total
CEO	Robert Berg (Sonsinvest AS)	5 217 195	1,57 %
CCO	Eivind Sverdrup (Leirin Holding AS)	4 403 833	1,32 %
CTO	Farzad Jalily	742 417	0,22 %
CFO	Per Kristian Haug	95 000	0,03 %
CRO	Kjetil Andre Welde Knudsen	70 000	0,02 %
COO	Anne Jørgensen	35 000	0,01 %
CMO	Jørgen Rui	34 110	0,01 %
	Sum management	10 597 555	3,19 %
	Other employees	1 435 934	0,43 %
	Board members	2 150 000	0,65 %
	Total	14 183 489	4,26 %