Israel Discount Bank : Announces Q2 2014 Financial Results

20.8.2014

Press Release

 Q2 Net Income of NIS 192 m, ROE of 6.3%

 Excluding the provision for severance pay of NIS 195 million: Net income would have totaled NIS 313 million with an ROE of 10.3%

 Basel III Capital Adequacy Ratio reached 9.2%

Main Highlights of Q2-14 compared to Q1-14:

 Asset Quality - The group continued to improve asset quality, reflected in a substantial decrease in

Loan Loss Provisions out of total credit (LLP ratio) to a negative ratio of -0.12%.

 Retail growth - Consumer credit and SME credit recorded a 4.7% and 1% growth respectively.

 Expenses - Excluding the change in the provision for severance pay, primarily due to a provision of

NIS 306 million for early retirement of ~250 employees, total expenses decreased by 3.8%.

 Subsidiaries - presented robust performance and continued to contribute substantially to the group's net income.

Key Factors impacting Q2-14 results:

 Negative provision of NIS 35 million for Loan losses due to several recoveries.

 Positive CPI (0.5% compared to -0.7% in Q1-14) contributed 58 NIS million to Interest

Income.

 Reduction of 6% in salary expenses, excluding provision for severance pay.

 Reduction in Net Interest Income, due to lower Interest rate.

 Non Interest financing income reduced by 8.1% mainly due to TRUPS sale by IDB NY.

 Other Income decreased by 48% due to weaker performance of the employees severance fund.

 Provision of NIS 195 million for severance pay.

Strategic Plan:

On August 20, 2014, the Board of Directors approved the Discount Group's strategic plan for the years 2015 -
2019. The plan encompasses all of Discount Group's spheres of activity, taking a pragmatic view of the group's strengths and challenges. In the opinion of the Bank's management, implementation of the plan will lead to a double digit CAGR in net income, during the 5 year program, placing the Discount Group at the forefront of the banking system in Israel by the end of the plans' period.
The plan has been constructed on three central pillars:

 Reducing the size of the Discount Group's workforce by more than 1,000 employees, some 700 of whom will leave by the end of 2017. This reduction is based on the natural retirement of approximately 600 employees during the period of the plan, and on an early retirement program, under which some 250 employees will retire from the Bank during the coming year. The financial statements include a provision for the planned retirement program;

 Reducing the group's real estate holdings in light of the downsizing of the workforce. In addition, a

comprehensive examination will be carried out to ensure the most suitable and effective use of the group's real estate assets, as well as to identify savings in procurement costs and other expenses.

 Accelerating the process of transferring operational functions from the branches to the back-office. Growth:

 Growing the retail segment, placing emphasis on private customers and small businesses, at the

Bank and at its subsidiaries - Mercantile and CAL;

 Strengthening and expanding relationship with existing clients leveraging low share of wallet

 Creating a change-enabling organization, focused on customer centric strong performance management

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 the strategic plan and be available to answer

questions.

 Israel : 1 809 216057

 International: +44 1452 555566

 USA: 1 866 966 9439

 U.K: 0 800 694 0257

The conference call will be accompanied by a WEBEX presentation, which can be accessed through our IR website-

www.discountbank.co.il/IR

In NIS millions

2014 2013

Change in %

compared to

Q2 Q1 Q2 Q1-14 Q2-13

In t ere st in co me⁽⁴ ⁾ 1,581 1,324 1,758 19.4 (10.1) Interest expenses 481 306 717 57.2 (32.9)

Interest income, net 1,100 1,018 1,041 8.1 5.7

Non-interest Income

Non-interest financing income 114 124 236 (8.1) (51.7)

Commissio n s⁽⁴⁾ 637 631 668 1.0 (4.6)

Operating and other Expenses

Salaries and related expenses 1,072 936 933 14.5 14.9

Maintenance and depreciation of buildings and equipment 299 298 303 0.3 (1.3)

Income before taxes 281 256 320 9.8 (12.2) Provision for taxes on income 83 97 89 (14.4) (6.7)

Income after taxes 198 159 231 24.5 (14.3)

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

net of tax effect 5 ⁽ ¹ ⁾ ⁽² ⁾ 15 42 (66.7) (88.1) Net income attributed to the non-controlling rights holders

in consolidated companies (11) (9) (10) 22.2 10.0

Net income attributed to Bank's shareholders 192 165 263 16.4 (27.0) Net return on equity attributed to the Bank's shareholders

in %⁽³⁾ 6.3 5.4 9.0

Net income attributed to Bank's shareholders -

disregarding the provision for impairment in value of the

investment in the FIBI 313 ⁽¹⁾191 263 63.9 19.0

Net return on equity attributed to the Bank's shareholders in % - disregarding the provision for impairment in value of

investment in the FIBI⁽³⁾ 10.3 ⁽¹⁾6.3 9.0

(1) RECLASSIFIED, SEE NOTE 12 B (2) TO CONDENSED FINANCIAL STATEMENT

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