Instabank — Investor Presentation 2019

Feb 11, 2020

Instabank

Interim Presentation Q4 – 2019 February 12th 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 Q4-19

Record high Q4 net profit before tax of 20.3 MNOK

Driven by increased margins, low losses on loans and operational efficiency improvements

Net loans decreased by 22 MNOK in Q4 Temporarily decreased new loan volume to limit growth

Strengthened capital adequacy by issuance of T1 & T2 capital T1 capital of 15,9 MNOK and additional T2 capital of 16 MNOK in in Q1/20

Impairment losses according to IFRS 9 from 01.01.20 One off impact on impairment losses of 85.5 MNOK and equity reduced by 64.1 MNOK.

Key figures Q4-2019

Net profit before tax of 20.3 MNOK + 96 % vs Q4-18

Total income of 61.7 MNOK + 14 % vs Q4-18

Losses on loans 2.4 % vs 2.9 % Q4-18

Quarterly decrease in net loans of 22 MNOK vs +271 MNOK Q4-18

Outstanding net loans of 2,697 MNOK + 9 % vs Q4-18

Equity per share of 1.71 NOK vs 1.59 Q4-18

Return on Equity of 10.8 % vs 7.5 % in Q4-18

Present product portfolio

Unsecured consumer loans Sales financing Deposit accounts

KEY METRICS NOK 77m in net loans 5,871 customers 18.6 % avg. loan yield NOK 13k in avg. loan size

Point of sale financing have never been easier

Distribution channels

Brand distribution Agent distribution Partner distribution

Brand distribution volume as of Q4-19

24 %

Strategic core MARKETS

Capital as a critical factor

A clear strength for the bank

Key conditions

• Capital for growth is scarce
• Earnings must be strengthened
• Further focus on credit risk optimization
• Return on equity must go up
• Continued moderate focus on
• growth
• = Focus on low risk products
• = Focus on products that require
• less capital
• = Focus on purses in countries with lower capital requirements

Still uncertainty but…

• Effects of IFRS9 are known (NOK 85 million)
• Changed system risk buffer is cleared
• Developments in defaults and losses with IFRS9 continue to cause uncertainty

…and many banks with the same offer and communication

CAPABILITIES CAPITAL

STRATEGIC INSIGHT

Borrowing for specific purposes is natural and an accepted thing to do in today's society

9

Ambition

Distinguish Instabank from traditional consumer loan banks by creating a new position through a focus on target financing, payment solutions and a network of commercial partners that contribute to profitable growth and off-balance sheet revenues.

Deliveries 2020

• 1. Mortgage loan (reduces risk and capital cost)
• 1. Point of sales (small ticket, reduced risk)
• 1. Mobile platform (CRM, cross-selling)

Net loan development

Net loan balance growth

MNOK

Net loans to customers MNOK 1 826 1 776 1 676 1 586 1 494 655 803 895 1 050 1 099 25 47 83 103 2 482 ^{2 605 2 618 2 719 2 697} ( 300) 200 700 1 200 1 700 2 200 2 700 3 200 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19 Norway Finland Sweden Series3

Key comments

Finland

Reduced marketing spending and increased offered interest rates to limit growth short term resulted in a lower net loans growth of 50 MNOK vs 155 MNOK the previous quarter

Norway

Except for the strengthened sales finance efforts, consumer loan sales are limited as other markets are more attractive both when it comes to margins and capital adequacy requirements.

Sweden

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

Total income

Total income detailed Total income

Net gains/loss on forex and securities

Key comments

• Net interest income increased despite lower loan volume due to improved margins
• Declined growth in expenses commission and fees
• Total income down from previous quarter as Q3-19 included high currency gains

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 40 %, up from 14 % by year end 2018
• Liquidity yield slightly down in Q4-19 as the share of liquidity portfolio for LCR purposes with lower return has increased

Operating expenses

Cost/income ratio

Operating expenses detailed

Key comments

• 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
• Salary and personnel expenses were positive impacted by no additional bonus provisions were booked in the quarter.
• Low direct marketing costs as a result of managing volume growth
• Cost/income level hits lowest level since inception reflecting improved operational efficiency as well as economy of scale

Credit risk developing well

Impairment losses

Loans past due

Key comments

• Losses on loans stable at a relatively low level the last three quarters
• So far no significant negative impact from the introduction of the debt register have been observed for the Norwegian portfolio, losses on loans remain relatively stable for the Norwegian portfolio
• Share of loans past due of gross lending in each category have increased slightly from the previous quarter reflecting seasonal effects as there are very few working days between the due date and month end in December
• Instabank has forward flow agreements for sale of defaulted loans in all three countries:
  • For Norway, Instabank have entered into a 12 months agreement from February 2020 at a sales price slightly lower than the previous agreement
  • For Finland, Instabank are in process of entering into a new agreement as the current agreement ends in February 2020
  • For Sweden, Instabank has a two year agreement ending December 2020

Transition to impairment losses according to IFRS 9 per 01.01.20

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 will 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

• 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 will, at the date of changeover 01.01.2020, have a one off impact represented by an increase in impairment losses of 85.5 MNOK and reduce 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.

LGD = Loss given default

Solid profit development

Net profit before tax Key comments

MNOK

• 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
• Although total income decreased from Q3-19 to Q4-19, net profit before tax increased as a result of good cost control resulting in decreased operating cost as well as loan losses that were slightly down from the previous quarter
• Due to capital requirements and cost of capital, Instabank will continue to priorities 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
• It can be expected that the transition to calculation of impairment losses according to IFRS 9 will increase losses on loans as well as cause some volatility in losses on loans.

Capital adequacy

Developments in capital adequacy ratios Key comments

CET1 requirement per country and total

• CET 1 was 20.5 %, 2.8 % above the capital requirement, while the total capital ratio was 23.5 %
• The issuing of Tier 1 capital of 15.9 MNOK increased the total capital ratio by 0.5 % points
• The capital requirement the Finnish loan portfolio was 16.2 %, 1.5 % points below Norway and Sweden, and Instabank will as a consequence continue to prioritise growth in Finland.
• The countercyclical buffer requirement for Norway increased by 0.5 % to 2.5 % by 31.12.19, while the proposed increase in the systemic risk buffer and reciprocity was postponed until 31.12.22

Outlook 2020

Risk reduced		The Norwegian debt register have reduced risk of new loan volume and any negative effect as increased loans losses or lock in effects of customers with low credit quality, has not been observed	Updated outlook for growth and net loans (MNOK)
		The IFRS 9 one off impact of 85,5 MNOK are now known to the market
		Instabank have successfully issued Tier 1 and Tier 2 capital, representing loan growth capacity of approximately 180 MNOK	Total growth	2017 1,128	2018 1,163	2019 215		2020 200-250
		Presence in three countries gives Instabank the strategic opportunity to focus its efforts where the most profitable growth can be achieved
Profitability and scalability		The business setup is able to handle significantly higher volumes in all three countries without further investments or an increase in fixed costs	Net loans	2017 1,318	2018 2,482	2019 2,697		2020 2,900-2,950
				= CONTINUED PROFITABLE GROWTH
Growth limited short term		The bank considers Finland and Sweden to represent the best growth opportunities and attractiveness going forward, while volumes in Norway are expected to continue to decrease
		Instabank is committed to continuing its profitable growth story, but the current cost of capital limits growth short term
		Market conditions have changed considerably in Norway over the last year which we believe will drive innovation in the sector
Product innovation		Instabank will continue its innovation efforts and are committed to further develop the sales finance offering to the best of the customers and retail partners as well as

introduce other new innovative loan product offerings

Financial summary

Items	FY 2019	Q4-19	Q3-19	Q2-19	Q1-19	FY 2018	Q4-18
Operating income
Interest income	305 725	79 957	77 950	74 466	73 351	222 546	70 207
Interest expenses	53 158	12 952	13 360	13 376	13 470	46 344	14 472
Net interest income	252 567	67 006	64 590	61 090	59 881	176 202	55 735
Net commission fees and other income		-10 433 -5 269				-858 -2 742 -1 563 13 230 -1 475
Total income		242 133 61 737 63 732 58 348 58 317				189 432 54 261
Operating expenses
Salary and other personnel expenses		39 355 8 788 10 251 10 248 10 069 30 871 8 304
Other administrative expenses, of which 62 366 12 438			17 542			14 719 17 667 66 153 14 584
- direct marketing cost		18 231 1 664	5 751		4 513 6 303		38 330 6 695
Depreciation and amortisation	8 719 2 306		2 229			2 157 2 027 6 138 1 923
Other expenses	5 183 1 458		-1 143			2 695 2 174 5 085 1 548
Total operating expenses	0	115 624 24 989 28 879 29 818 31 937				108 246 26 358
Losses on loans		71 429 16 483 17 203 15 772 21 972 47 189 17 540
Operating (loss)/profit before tax	0	55 080 20 264 17 650 12 757 4 408 33 996 10 363
Tax		13 735 5 133 4 378 3 121 1 102 7 945 2 038
Profit/loss after tax		41 345 15 131 13 272 9 636 3 306 26 051 8 326

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

Items	Q4-19	Q3-19	Q2-19	Q1-19	Q4-18
Assets
Loans and deposits with credit institutions				183 014 155 611 185 466 150 497 142 298
Loans to customers	2 696 724	2 718 861	2 617 991	2 604 823	2 481 880
Certificates and bonds				516 194 534 400 640 642 488 971 647 128
Deferred tax assets	-		-	-	89
Other intangible assets	29 804	29 790	28 962	29 438	27 339
Fixed assets	563	657	777	912	1 035
Other receivables, of which:				114 520 116 060 101 665 104 737 115 692
- prepaid agent commissions	93 216	96 141	94 379	92 027	86 381
Total assets	3 540 819	3 555 379	3 575 503	3 379 379	3 415 461
Liabilities
Deposits from and debt to customers	2 848 737	2 891 435	2 934 575	2 751 149	2 832 361
Other debts	22 378	31 311	23 171	19 941	14 313
Accrued expenses and liabilities	21 177	15 065	13 631	14 070	20 056
Subordinated capital	55 900	40 000	40 000	40 000	40 000
Tier 1 Capital	25 000	25 000	25 000	25 000	25 000
Total liabilities	2 973 193	3 002 810	3 036 377	2 850 160	2 931 729
Equity
Share capital	510 834	510 834	510 834	510 834	468 651
Retained earnings	56 792	41 734	28 291	18 385	15 081
Total equity				567 626 552 568 539 125 529 219 483 732
Total liabilities and equity	3 540 819	3 555 379	3 575 503	3 379 379	3 415 461

Share price and ownership

#	Shareholders	# of shares	%
1	KISTEFOS AS	83 126 568	25,0%
2	HODNE INVEST AS	28 889 765	8,7%
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	MAGDALENA HOLDING AS	3 150 001	0,9%
18	VELDE EIENDOM INVEST AS	3 050 000	0,9%
19	GRUNNFJELLET AS	3 010 000	0,9%
20	VENADIS FORVALTNING AS	3 000 000	0,9%
	Sum Top20	250 760 535	75,4%
	Other shareholders	81 881 504	24,6%
	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 31.01.2020 Share price development since OTC listing in October 2016

Thank You

www.instabank.no instabank.no