Instabank

Interim Presentation Q1 – 2020 May 7th 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 Q1-20

No negative effects on payments related to Covid-19 observed No observation of changed payment behavior following Covid-19, however Profit before tax of 7.1 MNOK negatively affected by an increase in loan loss allowance related to Covid-19 of 5 MNOK

Strategy transition towards a paytech partner position We aim to establish Instabank as a paytech partner for companies seeking to innovate and digitize their business models leveraging our existing core competences in paytech and sales financing

Gross loans increased by 186 MNOK in Q1-20 as a result of positive currency effects Net loans increased by 72 MNOK, one off IFRS 9 impact of 85.5 MNOK

One new partner agreement signed and a new sales finance solution launched

Conecto AS is signed and pilot launch already executed – full launch in Q2. Launched sales finance solution at Elektroimportøren

Key figures Q1-2020

Net profit before tax of 7.1 MNOK + 62 % vs Q1-19

Total income of 67.0 MNOK + 15 % vs Q1-19

Losses on loans 4.6 % vs 3.4 % Q1-19

Quarterly increase in net loans of 72 MNOK vs +122 MNOK Q1-19

Outstanding net loans of 2,768 MNOK vs 2,604 Q1-19

Equity per share of 1.53 NOK vs 1.59 Q1-19

Return on Equity of 4 % vs 2.6 % in Q1-19

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

This leverage our existing expertise within paytech and sales financing

Paytech partner levels

Benefits of a paytech partner strategy

– 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

Status partner agreements

One new partner signed and piloted during Q1

One new partner launched

Ongoing discussion with several potential partners

Distribution channels

Present product portfolio

Unsecured consumer loans Sales financing Deposit accounts

Net loan development

Net loans to customers

MNOK

Instabank suspended all new loans sales, except for sales financing through paytech partners, in mid-March in conjunction with risk associated with the Covid-19 outbreak and the possible economic consequences for the loan applicants.
Gross loans increased by 186 MNOK in Q1-20 as a result of positive currency effects of approximately 180 MNOK
Net loan balance increase of 72 MNOK, affected by one off impact of IFRS 9 implementation of 85.5 MNOK and other changes in loan loss provisions.
Of the total net loan balance of 2,769 MNOK, 50 % was outside Norway at the end of the quarter up from 45 % at the end of 2019.

Total income

Total income detailed Total income

A new principle for calculating interest on loans in debt collection was implemented in Q1-20 replacing the principle of only booking paid interests on loans in debt collection, resulting in a net increase in interest income of 4.7 MNOK in the quarter.
The Covid-19 impact resulted in a loss on bonds of 2.1 MNOK in March and a loss of 0.5 MNOK in the quarter. Gains on foreign exchange amounted to 4.9 MNOK.

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 stable.
Interest rate on deposits has decreased during 2019 as the deposit mix has changed in favor of EUR and SEK deposits at lower deposit rates than in Norway
Share of deposits outside Norway has increased to 47 %, up from 40 % by year end 2019
Liquidity yield negative 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 have succeed in bringing costs down by decreasing the use of external advisory as well as operational efficiency improvements mainly related to reduced credit assessment costs in Sweden and Finland where cost per application is quite expensive compared to Norway
Cost/income level hits lowest level since inception reflecting improved operational efficiency as well as economy of scale

Credit risk

Impairment losses

Loans past due

The increase in losses on loans is mainly due to extra provisions for loan losses related to Covid-19 of 5 MNOK, as well as a new principle of calculating interest on loans in debt collection amounting to 4.7 MNOK. The latter has no impact on net profit as the interest are also added to interest income
Up until the reporting date, Instabank has not observed any worsening in customer's payment behaviour and share of loans past due 1-30 days were lower per Q1-20 than the two past quarters which is also the case per April 30th
Volume of granted payments reliefs related to Covid-19 from mid March until the reporting date represents 4.6 % of total loan volume.

IFRS 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

MNOK

Net profit before tax 7,1 MNOK, up 2,7 MNOK from Q1-19
Q1-20 profit strongly affected by Covid-19 related loan loss provisions
Although operational cost increased slightly from the previous quarter, the operational costs were still below the quarterly average both in 2019 and 2018 as a result of the operational efficiency, economies of scale as well as cost control

Capital adequacy

Developments in capital adequacy ratios

CET1 requirement per country and total

Instabank issued Tier 2 capital of 16 MNOK in the quarter, strengthening the capital adequacy ratio
Common equity Tier 1 Capital ratio was 18.7 % and the total capital ratio was 22.1 % at the end of Q1-20, 1.9 % points above the total regulatory capital requirement of 20.2 %, making Instabank well capitalised
The capital requirement was reduced by 0.9 % points as a result of the decision to reduce the countercyclical buffer requirement by the Norwegian and Swedish governments from 2.5 % to 1 % in Norway and from 2.5 % to 0 % in Sweden

Outlook 2020

• Growth in net loans expected to be 200-250 million for remainder of year

• Covid-19 pandemic increases uncertainty and risk

• Paytech partner strategy strengthened with new agreements signed

• Cost and availability of capital will continue to limit growth potential

• Mortgage loan to be introduced Q2 for better capital utilization and lower risk

• Mobile platform to be introduced with deliverables through Q2 to Q4 to increase CRM possibilities and cross-selling

Financial summary

Items	Q1-20	FY 2019	Q4-19	Q3-19	Q2-19	Q1-19
Operating income
Interest income	83 432	305 725	79 957	77 950	74 466	73 351
Interest expenses	12 531	53 158	12 952	13 360	13 376	13 470
Net interest income	70 901	252 567	67 006	64 590	61 090	59 881
Net commission fees and other income -3 900			-10 433 -5 269		-858 -2 742 -1 563
Total income	67 001		242 133 61 737 63 732 58 348 58 317
Operating expenses
Salary and other personnel expenses			8 164 39 355 8 788 10 251 10 248 10 069
Other administrative expenses, of which 13 925 62 366 12 438				17 542		14 719 17 667
- direct marketing cost	3 136		18 231 1 664	5 751		4 513 6 303
Depreciation and amortisation		2 980 8 719 2 306		2 229		2 157 2 027
Other expenses		1 674 5 183 1 458		-1 143		2 695 2 174
Total operating expenses	26 743	0	115 624 24 989 28 879 29 818 31 937
Losses on loans			33 131 71 429 16 483 17 203 15 772 21 972
Operating (loss)/profit before tax		0	7 127 55 080 20 264 17 650 12 757 4 408
Tax			1 782 13 735 5 133 4 378 3 121 1 102
Profit/loss after tax			5 345 41 345 15 131 13 272 9 636 3 306

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

Items	Q1-20	Q4-19	Q3-19	Q2-19	Q1-19
Assets
Loans and deposits with credit institutions				229 380 183 014 155 611 185 466 150 497
Loans to customers, of which	2 859 294	2 696 724	2 718 861	2 617 991	2 604 823
- prepaid agent commissions	90 339
Certificates and bonds				328 138 516 194 534 400 640 642 488 971
Deferred tax assets	-	-		-	-
Other intangible assets	28 703	29 804	29 790	28 962	29 438
Fixed assets	10 414	563	657	777	912
Other receivables, of which:				101 827 114 520 116 060 101 665 104 737
- prepaid agent commissions		93 216	96 141	94 379	92 027
Total assets	3 557 756	3 540 819	3 555 379	3 575 503	3 379 379
Liabilities
Deposits from and debt to customers	2 887 298	2 848 737	2 891 435	2 934 575	2 751 149
Other debts	38 565	22 378	31 311	23 171	19 941
Accrued expenses and liabilities	26 780	21 177	15 065	13 631	14 070
Subordinated loans	56 000	80 900	65 000	65 000	65 000
Total liabilities	3 008 644	2 973 193	3 002 810	3 036 377	2 850 160
Equity
Share capital	510 834	510 834	510 834	510 834	510 834
Retained earnings	-2 622	56 792	41 734	28 291	18 385
Tier 1 capital	40 900
Total equity				549 113 567 626 552 568 539 125 529 219
Total liabilities and equity	3 557 756	3 540 819	3 555 379	3 575 503	3 379 379

Share price and ownership

#	Shareholders	# of shares	%
1	KISTEFOS AS	83 126 568	25,0%
2	HODNE INVEST AS	29 208 636	8,8%
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	ALTO HOLDING AS	5 770 000	1,7%
12	SONSINVEST AS	5 108 195	1,5%
13	ENZIAN AS	5 000 000	1,5%
14	LEIRIN HOLDING AS	4 333 333	1,3%
15	CAHE FINANS AS	3 500 000	1,1%
16	MAGDALENA HOLDING AS	3 154 001	0,9%
17	DOLPHIN MANAGEMENT AS	3 138 000	0,9%
18	TVEDT INVESTERING AS	3 138 000	0,9%
19	VELDE EIENDOM INVEST AS	3 050 000	0,9%
20	GRUNNFJELLET AS	3 010 000	0,9%
	Sum Top20	247 953 406	74,5%
	Other shareholders	84 688 633	25,5%
	Total	332 642 039	100,0%

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	34 110	0,0 %
	Sum management	10 597 555	3,2 %
	Other employees	1 435 934	0,4 %
	Board members	2 150 000	0,6 %
	Total	14 183 489	4,3 %