Israel Discount Bank Announces First Quarter Financial Results for 2014

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%

News provided by

Israel Discount Bank

May 22, 2014, 04:53 ET

TEL-AVIV, Israel, May 22, 2014 /PRNewswire/ -- Israel Discount Bank (TASE: DSCT) today announces its financial results for the first quarter of 2014.

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%.
Continued improvement in asset quality reflected in a substantial decrease in Loan Loss Provisions out of Total Credit (LLP ratio) to 0.25% (0.41% in Q4).
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.
Total operating expenses in Q1 were NIS 1,494 m, due to a decline of 4% during Q4-13. The quarterly decrease was mainly due to a decrease in legal expenses. Salary Expenses were 1.6% higher than Q4-13, as a result of the wage agreement which was signed on March 2014, in which it was agreed to pay a 1% inflation related increase in advance for 2014.
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.
The Basel III capital adequacy ratio at the end of Q1 was 9.1%. The Bank's plan is to achieve a CT-1 target of 9.3%-9.4% by the end of 2014, in order to maintain a cushion for unexpected events while at the same time allowing for growth in the Bank's target business segments.

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:

Israel & Other International Dial-in Number                                 +972 3 918 0650
United Kingdom Dial-in Number                                                   +0 800 917 9141
United States Dial-in Number                                                        +1 888 407 2553

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

DEVELOPMENTS IN CERTAIN INCOME STATEMENT ITEMS IN THE FIRST QUARTER OF 2014
(Compared with Q4- 2013 and Q1-2013)

In NIS millions	2014	2013		Change in % compared to
	Q1	Q4	Q1	Q4-13	Q1-13
Interest income⁽⁴⁾	1,324	1,531	1,668	(13.5)	(20.6)
Interest expenses	306	460	624	(33.5)	(51.0)
Interest income, net	1,018	1,071	1,044	(4.9)	(2.5)
Credit loss expenses	75	123	145	(39.0)	(48.3)
Net interest income after credit loss expenses	943	948	899	(0.5)	4.9
Non-interest Income
Non-interest financing income	124	116	190	6.9	(34.7)
Commissions⁽⁴⁾	631	684	668	(7.7)	(5.5)
Other income	52	61	37	(14.8)	40.5
Total non-interest income	807	861	895	(6.3)	(9.8)
Operating and other Expenses
Salaries and related expenses	936	921	876	1.6	6.8
Maintenance and depreciation of buildings and equipment	298	316	307	(5.7)	(2.9)
Other expenses	260	320	289	(18.8)	(10.0)
Total operating and other expenses	1,494	1,557	1,472	(4.0)	1.5
Income before taxes	256	252	322	1.6	(20.5)
Provision for taxes on income	97	51	118	90.2	(17.8)
Income after taxes	159	201	204	(20.9)	(22.1)
Bank's share in income (loss) of affiliated companies, net of tax effect	⁽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 the 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.

COMPOSITION OF CREDIT TO THE PUBLIC BY SEGMENTS OF OPERATION

	March 31, 2014		December 31, 2013
In NIS millions		% of total credit to the public	In NIS millions	% of total credit to the public	Rate of change in %
Retail - household segment	39,801	34.3	40,056	34.6	(0.6)
Of which - housing loans	20,190	17.4	19,753	17.0	2.2
Retail - small business segment	13,108	11.3	13,000	11.2	0.8
Corporate banking segment	40,035	34.6	40,807	35.2	(1.9)
Middle market banking segment	19,384	16.7	18,612	16.1	4.1
Private banking segment	3,543	3.1	3,384	2.9	4.7
Total	115,871	100.0	115,859	100.0	-

BALANCE SHEET

	March 31, 2014	March 31, 2013	December 31, 2013	Change in % compared to
In NIS millions				March 31, 2013	December 31, 2013
Total assets	197,996	200,135	200,507	(1.1)	(1.3)
Credit to the public, net	115,871	116,155	115,859	(0.2)	-
Securities	39,541	48,140	41,325	(17.9)	(4.3)
Deposits from the public	147,779	151,933	148,928	(2.7)	(0.8)
Equity attributed to the Bank's shareholders	12,534	11,948	12,233	4.9	2.5
Total equity	12,842	12,253	12,538	4.8	2.4