Instabank — Investor Presentation 2022

Aug 11, 2022

Instabank

Interim Presentation Q2 – 2022 August 11th, 2022

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 Q2-22



Record-high net loans growth of 398 MNOK Adjusted for positive currency effects, growth was 307 MNOK

Record-high mortgages volume growth of 290 MNOK Mortgages now represents 33 % of total net loans and ss 51 % of net loans in Norway

Profit before tax of 23.7 MNOK, after tax 17.8 MNOK Impacted by high marketing cost

Lunar has difficulty raising the necessary capital to complete the transaction

Net loan development

Net loan balance growth

Key comments

• Record-high quarterly growth both for total net loans of 398 MNOK and for mortgages of 290 MNOK
• Adjusted for positive currency effects, growth was 307 MNOK

Net loans to customers

MNOK

Key comments

▪ The mortgages volume represents one third of total net loans and half of net loans in Norway

Diversified loan portfolio

*) Includes accounts with zero balance with an available credit limit 5

Diversified funding volume

*) Up to NOK 1,000', 1,20 % for deposits between NOK 1,000' – 2,000'

**) Does not include partner margin 6

Development in yields and funding cost

Development in yields and funding cost Key comments

• Pressure on margins continued in Q2-22 as yield for unsecured loans and mortgages continued a downward path
• Interest rates on deposits increased in Norway following the rate hike by the Norwegian Central Bank as well as increased market rates
• Liquidity yield was, as in in the previous quarter, negatively impacted by the market turmoil and increased interest rates. The latter influence yield on securities negatively short term, but has a longterm positive effect on yield

Total income

• Total interest income increased to 94.5 MNOK, up by 18.6 MNOK/ 24 % from the same quarter last year following the growth in net loans.
• Interest expenses increased because of increases deposit rate in Norway as well as a one off related to a higher than expected contribution to the Norwegian Banks guarantee fund
• Net other income was negatively impacted by an unrealised loss on securities of 0.7 MNOK 8

7,7 10,0 9,8 7,1 8,4

Operating expenses

Operating expenses breakdown

Cost/income ratio

Key comments

• Personnel expenses where positively impacted by a reversal of provisions for social security cost on warrants following the decrease in share price by the end of the quarter
• A marketing campaign, contributing to the strong growth in mortgages, led to an increase in marketing cost to 8.1 MNOK from 3.2 MNOK in the previous quarter
• The cost/income ratio exclusive of marketing cost came down to 37 % from 40 % the same quarter last year

Credit risk

5,0 %

-30,0 %

-20,0 %

-10,0 %

0,0 %

Impairment losses

Loans past due

% of gross lending

0,0

0,0 %

10,0 %

20,0 %

30,0 %

10,0

20,0

30,0

Key comments

• Losses on loans came in at 24.0 MNOK or 2.2 % of gross loans to customers, versus 17.1 MNOK/ 2.1 % in the same quarter last year 10,0 %
  • Losses on loans for the mortgage product remained at the same level as previous quarters measured in percentage and was only 1.6 MNOK or 0.5 % of gross loans
• By the end of Q2-22, 9.9 % of total loans were 1-30 days past due, versus 10.6 % same quarter last year. There was also a reduction in 30-60 days past due to 2.4 % versus 2.5 % by the end of the same quarter last year. 0,0 %
  • Non-performing loans (NPL) volume was 404 MNOK at the end of the quarter, only 8.9 % of total gross loans. Instabank does not currently have any forward flows agreement as we find it more attractive to make one-off NPL sales. In Q3-22, Instabank will complete a sale of a NPL portfolio in Norway representing a gross value of about 85 MNOK.

Profit development

MNOK

Net profit Key comments

• Instabank reports a profit before tax of 23.7 MNOK, and after-tax profit of 17.8 MNOK in Q2-22, versus 20.6 MNOK after-tax profit in Q1-22 and 19.5 MNOK in the same quarter last year.
• A high marketing cost explains the decrease in profits in the quarter, which typically will vary from quarter to quarter

Capital adequacy

Developments in capital adequacy ratios

CET1 requirement per country and total

Key comments

• Common equity Tier 1 Capital ratio was 18.9 %, and the total capital ratio was 21.7 % at the end of Q2-22, 1,1 % points above the total regulatory capital requirement of 20.6 %.
• The countercyclical buffer requirement increased 0.5 % points to 1.50 % for exposure in Norway per the end of the quarter.
• The Norwegian Ministry of Finance has decided to increase the countercyclical capital buffer to 2.0 per cent as of 31st December 2022 and to 2.5 per cent as of 31st March 2023

Financial summary

P&L	Q2-22	Q1-22	FY 2021	Q4-21	Q3-21	Q2-21
Total income:
Interest Income using the effective interest method	94 818		90 492 320 034	90 444	85 705	75 886
Interest expenses	15 234	12 248	38 608	10 474	9 451	9 096
Net interest income	79 584		78 244 281 426	79 970	76 254	66 791
Net other income	8 395	7 138	39 684	9 786	9 969	7 695
Total income	87 979		85 382 321 110	89 756	86 223	74 486
Operating expenses:
Salary and other personnel expenses	12 567	17 291	50 324	12 345	13 136	12 516
Other administrative expenses, of which	21 965	17 775	57 311	14 732	14 848	13 371
- direct marketing cost	8 057	3 228	8 154	1 868	2 044	1 849
Other expenses	2 347	1 562	6 315	1 374	1 644	1 785
Depreciation and amortisation	3 366	3 082	14 102	3 406	3 545	3 662
Total operating expenses	40 244		39 711 128 052	31 856	33 174	31 335
Losses on loans	24 043	20 476	80 882	23 020	20 463	17 143
Operating profit before tax	23 692		25 195 112 177	34 879	32 586	26 009
Tax	5 923	4 548	28 726	9 402	8 147	6 502
Profit and other comprehensive income	17 769	20 647	83 451	25 478	24 440	19 507

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

Balance Sheet	30.06.22	31.03.22	31.12.21	30.09.21	30.06.21
Assets
Loans and deposits with credit institutions		288 835 191 450 281 279 226 519 212 392
Loans to customers		4 389 273 3 988 389 3 832 071 3 659 766 3 366 753
Certificates and bonds		842 237 933 611 679 759 682 558 632 290
Other intangible assets	22 904	25 064	25 098	25 848	27 441
Fixed assets	4 791	5 390	5 909	6 512	7 175
Derivatives	1 644	4 105	1 213	1 116	65
Other receivables	16 030	7 793	6 323	5 590	10 672
Total assets		5 565 713 5 155 801 4 831 653 4 607 910 4 256 788
Liabilities
Deposits from and debt to customers		4 741 687 4 344 527 4 047 128 3 852 877 3 540 343
Other debts	1 706	11 123	10 942	18 034	14 627
Accrued expenses and liabilities	16 154	18 729	17 941	15 817	13 754
Derivatives	2 643	1 231	338	483	593
Deferred tax	2 957	2 957	2 957	3 569	3 569
Tax payable	40 712	34 789	30 241	20 227	11 178
Subordinated loan capital	56 000	56 000	56 000	56 000	56 000
Total liabilities		4 861 859 4 469 356 4 165 546 3 967 008 3 640 064
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	152 120	134 710	114 373	89 167	64 989
Additional tier 1 capital	40 900	40 900	40 900	40 900	40 900
Total equity		703 854 686 445 666 107 640 901 616 723
Total liabilities and equity		5 565 713 5 155 801 4 831 653 4 607 910 4 256 788

The acquisition of Instabank by Lunar

Timeline

• 28th March: Lunar Bank launched an offer to acquire all shares of Instabank under the conditions of 90 % acceptance by shareholders and regulatory approval
• 12th April: Lunar announced that the minimum 90% acceptance condition was met
• 29th June: Lunar informed Instabank that it is looking increasingly difficult to be able to complete a transaction raising the necessary capital to meet the Norwegian FSA and the Danish FSA's requirements in time to be able to file a new application and receive approval ahead of long-stop date of 30 September 2022
• 4 th August: Lunar informed Instabank that Lunar's management deems it unlikely that Lunar will be able to raise the required capital and complete the regulatory approval process before the long-stop date for the offer of 30 September 2022

Instabank's assessment of the situation

• Instabank notes that there are no conditions in Lunar's offer relating to Lunar's capitalization or any capital raise by Lunar
• Instabank will continue to assess the situation and any steps to be taken by Instabank to protect the interests of Instabank and its shareholders
• Instabank operation throughout 2022 has been impacted by the acquisition process by Lunar primarily, Instabank has not been able to execute the capital plans for 2022 and all other aspects of such a process. The result is limited excess capital by the end of Q2-22, restraining the ability to continue the strong growth in net loans in the third quarter.
• Instabank expects Lunar to use all efforts to obtain the required approvals from the Norwegian FSA and the Danish FSA within the long-stop date

Thank You

www.instabank.no instabank.no