Israel Discount Bank : Announces Q1 2014 Financial Results

22.5.2014

Press Release

 Q1 Net Income was NIS 165 m, ROE was 5.4%

Disregarding the impact of FAS91 and the provision for the impairment of the FIBI shares: Net Income would have been NIS 205 m with an ROE of 6.7%

 Basel III Capital Adequacy Ratio reached 9.1%

Main highlights of the Q1 results, compared to Q4‐13:
 Met capital adequacy milestones ahead of plan. Presenting a Basel III CT‐1 ratio of 9.1%.

 Dynamic management of the investment portfolio led to capital gains of NIS 105 m.

 Total Expenses decreased by 4%, mostly due to a decline in Legal Costs and other expenses.

 Decrease of NIS 53 m in Net Interest Income, mainly due to negative CPI & low interest rate.

 A provision for Mark‐To‐Market of the holdings in FIBI amounted to NIS 26 m in Q1‐14.

 Implementation of FAS91 reduced Net Income by NIS 14 m.

Lilach Asher Topilsky, CEO of Discount Group commented: "Against the backdrop of several external factors which negatively affected our results, such as the declining interest rate, the negative CPI, the implementation of FAS91, and the change in the accounting presentation of the investment in FIBI's shares, coupled with restrained credit growth and labor sanctions, the Discount Group succeeded in achieving several important objectives.

First, after a very long and challenging process, we present today a Core Tier 1 ratio of

9.1% in terms of Basel III, ahead of plan and above the regulatory demand.

Second, we continued to improve our asset quality and present a ratio of Loan Loss

Provisions to Total Credit of 0.25%, in line with the Israeli banking sector's average.

Looking forward, we continue to prudently manage our capital and intend to meet our Basel III Core Tier 1 ratio of 9.3%‐9.4% by the end of 2014. Meeting this year‐end target, together with those already achieved, will allow us to return to Risk Weighted Assets growth in 2015.

At the same time, our main challenge was and remains improving our Cost/Income ratio and restraining our costs. The cost program will be the main focus of our strategic plan, which will be presented at the end of August".

Main metrics from the financial statements:

 Net interest income for Q1 decreased by 5% during Q4‐13 to NIS 1,018 m, mainly due to lower interest rates and a negative CPI.

 Non‐interest income for Q1 decreased by 6% to NIS 807 m, mainly due to the negative impact of

FAS91 on commissions. Disregarding FAS91, non‐interest income would have amounted to NIS
863 m, similar to the non‐interest income in Q4‐13.

 Commissions declined substantially, by 8% to NIS 631 m, due to the implementation of FAS91.

Disregarding FAS91, commissions would have amounted to NIS 687 m, almost the same as commissions in Q4‐13, which amounted to NIS 684 m.

 Non‐interest financing income increased by 5% to NIS 124 m, mainly as a result of the dynamic management of the Bank's portfolio which led to capital gains, coupled with gains recognized from the Mark‐To‐Market of available‐for‐sale bonds.

 Loan loss provisions (LLP) out of total credit declined substantially to 0.25%, compared to 0.41%

in the previous quarter.

 Non‐recurring items in Q4 were a tax benefit and a non‐recurring provision for the MTM of the holdings in FIBI, in the amount of NIS 158 m.

Main metrics from the balance sheet:

 Total credit to the public stayed flat, in the amount of NIS 115.9 bln.

 Total deposits from the public decreased by 0.8% to NIS 147.8 bln.

Conference call Information ‐ The Bank will be hosting a conference call today at 16:00 (Israel); 14:00 (UK);

09:00 (EDT), during which management will review the results and be available to answer questions:

Presentation material will be available on our IR website prior to the call, accessible at www.discountbank.co.il/IR

(COMPARED WITH Q4‐ 2013 AND Q1‐2013)

In NIS millions

2014 2013

Change in %

compared to

Q1 Q4 Q1 Q4‐13 Q1‐13

Interestincome⁽⁴⁾ 1,3241,5311,668(13.5)(20.6)

Interest expenses 306 460 624 (33.5) (51.0)

Interestincome,net1,0181,0711,044(4.9)(2.5)

Non‐interestIncome

Non‐interestfinancingincome1241161906.9(34.7)

Commissions⁽⁴⁾ 631684668(7.7)(5.5)

OperatingandotherExpenses

Salariesandrelatedexpenses9369218761.66.8

Maintenanceanddepreciationofbuildingsandequipment298316307(5.7)(2.9)

Incomebeforetaxes2562523221.6(20.5)

Provision for taxes on income 97 51 118 90.2 (17.8)

Incomeaftertaxes159201204(20.9)(22.1)

Bank's share in income (loss) of affiliated companies,

netoftaxeffect⁽¹⁾⁽²⁾15⁽¹⁾(121)68‐ (77.9)

Net income attributed to the non‐controlling rights holders

in consolidated companies (9) (8) (9) 12.5 ‐ Net income attributed to Bank's shareholders 165 72 263 129.2 (37.3) Net return on equity attributed to the Bank's shareholders

in %⁽³⁾ 5.4 2.4 9.2

Net income attributed to Bank's shareholders -

disregarding the provision for impairment in value of the

investment in the FIBI ⁽¹⁾191 ⁽¹⁾230 263 (17.0) (27.4) Net return on equity attributed to the Bank's shareholders

in % ‐ disregarding the provision for impairment in value of

investment in the FIBI⁽³⁾ ⁽¹⁾6.3 ⁽¹⁾7.7 9.2

Footnotes:

(1) For details regarding the provision for impairment in value of the investment in FIBI, see Note 14 C and D to the condensed financial statements.

(2) For details as to the elimination of the Bank's share in the reserves of FIBI, previously recognized in other comprehensive income, see Note 14E to the condensed financial statements.

(3) On an annual basis.

(4) For details regarding the effect of the implementation of the instruction regarding the measurement of interest income

(classification of certain commission income), see Note 1E(1) to the condensed financial statements.

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