Israel Discount Bank Ltd.

Earnings Release • Aug 27, 2020

2Q 20 REVIEW

FINANCIAL AND STRATEGIC HIGHLIGHTS

Investor Relations

August 27, 2020

Disclaimer:

This document has been prepared by Israel Discount Bank Ltd. (the "Bank") solely for use by the Bank in its presentation of its Q2 2020 report, as well as in strategic updates referred to in the Bank's reports.

This presentation does not substitute the Bank's second quarter 2020 financial statements which include the full financial information including Forward-Looking Information. The English version of the Financial Statements are available on the Bank's investor relations website at www.investors.discountbank.co.il

This presentation includes forward-looking information, as defined in the Israeli Securities Law, 5728- 1968. Such information as found on page 17 and 18 of the presentation includes, among other things, projections, objectives, estimates and assessments of the Bank, which relate to future events or issues, the occurrence of which is not certain and is outside of the control of the Bank. Forward-looking information does not constitute proven, factual information, and it is based solely on the viewpoint of the Bank's management, which is based, among other things, on analysis of general information that is known to the Bank's management as of the date of this slideshow. Forward-looking information, by definition, is subject to the substantial risk of not coming to fruition, and such information is not definite and cannot be estimated in advance and is at times even beyond the Bank's control. The fulfillment of forward-looking information is impacted by risk factors that are characteristic of the Bank's activities and also by developments in the general environment and external factors that affect the Bank's operations, which cannot be estimated in advance and that by their nature are beyond the control of the Bank. Therefore, readers of this presentation are hereby warned that the results and achievements of the Bank in the future may be significantly different than those presented in the forward-looking information included in this presentation. Similarly, forward-looking projections and estimations are based on assumptions and information in the possession of the Bank as of the time of the presentation, and the Bank shall not be required to update or revise any such projection or estimation in order to reflect events or conditions that transpire after the date of the presentation.

Disclaimer regarding unsponsored American Depository Receipt (ADR):

U.S. depository institutions or banks may establish ADR programs in respect of the shares of certain non-U.S. issuers without the consent or participation of such issuers (the so called "Unsponsored ADRs"(. An ADR or American Depositary Receipt, which is issued by a U.S. bank or depository to evidence a share of a non-U.S. issuer that has been deposited with the U.S. bank or depository. An Unsponsored ADR program is set up without the cooperation of the non-U.S. issuer or even without its consent. Israel Discount Bank does not support or encourage the creation of Unsponsored ADR programs in respect of its securities and, in any event, disclaims any liability in connection with an Unsponsored ADR.

Israel Discount Bank makes no representation regarding its compliance with Rule 12g3-2(b) of the U.S. Securities Exchange Act of 1934, as amended.

WHAT WE ARE SEEING – MARKET TRENDS

Growth in credit by segments (BOI data)			The change in credit card spending, vs. Jan '20 (BOI data) 40%
		March-July (annualized)		30% 20% 10%
Total Credit		5%		0%
Consumer		(9%)		-10% -20%
Commercial & Corporate		5%		-30% -40%
SME		6%		-50%
Mortgages		9%
Loan deferrals in the Banking sector, March-August 14	(BOI data)						Mortgages in grace as % of total (BOI data)
	Number of loans deferred	Payment deferrals in NIS m	% of total loans	30% 25% 20%			17.9%	24.7%
Total	690,016	8,769	15.7%	15%				11.5%
Commercial & Corporate	6,366	1,695	6.6%	10%			3.4%
SME	148,877	2,928	20.7%	5%	3.2%
Mortgages	168,266	2,713	25.0%	0%

WHAT WE ARE SEEING – DISCOUNT GROUP

Balance of loans for which the deferral period ended and payments resumed, in millions

(Discount Bank and Mercantile Bank)

	As of June 30	% of total deferred	As of August 21	% of total deferred
Mortgages	719	9.2%	5,089	61.5%
SME	950	14.6%	4,310	64.1%
Consumer	139	7.5%	1,118	54.4%
Corporate & Medium enterprises	235	11.0%	1,401	60.9%
Total Credit	2,043	11.1%	11,918	61.6%

Balance of total requested deferrals, in millions, as of June 30

(Discount Bank and Mercantile Bank)

	Total balances deferred	% of total credit
Mortgages	7,849	19.8%
SME	6,500	17.6%
Consumer	1,862	6.2%
Corporate & Medium enterprises	2,130	3.8%
Total Credit	18,341	10.0%

Increase in digital usage

Growth in digital

^X5

Increase in scheduled meetings with bankers

As of June 2020 vs. June 2019 As of June 2020 vs. March 2020 As of June 2020 vs. March 2020

ROBUST CAPITAL AND LIQUIDITY POSITION PREPARING US FOR THE FUTURE

2Q 2020 HIGHLIGHTS

• The COVID-19 shut-down had a substantial impact on our business across the Group.
• Loan book growth of 0.3% QoQ, 7.0% YoY, driven by 3.4% growth in mortgages and 4.4% in medium enterprises vs. 1Q20.
• Continued reserve build that includes over NIS 1 Bn in COVID-19 related expenses, while write offs are still stable.
• NII growth of 0.5% supported by volume growth, mitigated by lower NIM due to declining interest rates and CPI.
• Total expenses increased by 3.4% QoQ and 0.8% YoY, mainly due to an increase in a provision for legal proceedings and a change in the discount rate impacting long-term employee awards.
• Introduced an early retirement plan for ~ 300 employees to retire by the end of 2020.

CREDIT GROWTH MAINLY IN OUR FOCUS SEGMENTS

* Regulatory segments, in Israel

** Balance of household credit excluding mortgages and credit cards

DESPITE THE IMPACTS OF COVID-19 WE DEMONSTRATED RESILIENT NET INTEREST INCOME

IMPROVED COST INCOME RATIO DESPITE CERTAIN NON-REPRESENTATIVE EXPENSES

LOAN LOSS PROVISIONS HIGHLIGHT RESERVE BUILD WHILE WRITE OFFS ARE STILL STABLE

SUBSIDIARIES

12

RESULTS REFLECT THE ECONOMIC SLOWDOWN

• Reduction of the credit book and the growth in deposits, reflect the current economic environment of drop-off in activity.
• A decline in interest income, due to lower interest rate, was off-set by lower funding costs on deposits, resulting in a 5.1% increase in net interest income vs. 1Q20.
• Provisions for loan losses decreased vs. 1Q20 where we saw a significant increase in our reserve build due to COVID-19.
• Cost-income ratio of 56.1% in 1H20 vs. 57.5% in 1H19.

BENEFITTING FROM THE RECENT MERGER WITH SUBSTANTIAL CREDIT GROWTH

• Credit growth of 2.3% QoQ and 20.8% YoY, driven mainly by mortgages and medium enterprises.
• Increase of 1.9% in total income driven by growth in both net interest income and non-interest financing income.
• Loan loss provision similar to previous quarter at 1.23%, mainly due to reserve build.
• Cost-income ratio of 55.6%, vs. 58.1% in 1Q20 and 55.9% in 2Q19.
• Loan deferrals of NIS 5.3 Bn, of which NIS 2.5 Bn to SME.

DESPITE MATERIAL IMPACT OF THE SLOWDOWN OUTPERFORMED THE MARKET

• Transaction turnover, domestically and abroad, was negatively impacted by the reduction in global economic activity. However, transaction turnover and active cards growth in CAL, was higher than peers.
• Additional group provision due to the uncertainty in the market led to a 1.37% credit loss expenses ratio. The balance of provision for credit losses amounted to 2.2% of total credit.
• Decrease of 13.5% in total expenses, mainly driven by a reduction in activity-related expenses as a result of the slowdown in transaction volumes.
• Cost-income ratio of 79.5% in 1H20 vs. 78.7% in 1H19.

STRATEGY

CRISIS IS ACCELERATING TRENDS

Accelerated migration, first adoption and day-by-day usage of digital channels

Reduced usage of branches on account of usage of virtual channels

Change in "the way we work" – remote working, lean and agile operations and quick execution of tasks

Increased importance of proactive approach to customer interaction and meeting their needs

FOCUSED ON ACHIEVEING OUR POTENTIAL

ACCELERATING OUR COST CUTTING PLAN

Early retirement plan

Targets 300 employees aged 50-66

• Preferred terms of up to 200% severance pay (on top of mandatory severance pay) and special bonus for employees aged 56-60.
• Total cost of the plan NIS 553 m (including mandatory severance pay), of which NIS 253 will be added to OCI
• Expected impact on P&L NIS 210 m in 4Q20
• Expected impact on CET-1 ratio 0.1% over 5 years.
• ~ 300 FTE through early retirement plan, by 2020 ~ 60 FTE through natural retirement, by 2020
• ~ 90 FTE through natural retirement by 2021

APPENDICES

PROFIT & LOSS AND SELECTED RATIOS

NIS m	2Q20	1Q20	2Q19	Vs. 1Q20	Vs. 2Q19
Net interest income	1,463	1,455	1,595	0.5%	(8.3%)
Credit loss expenses	532	656	136	(18.9%)	291.2%
Non-interest financing income	276	417	230	(33.8%)	20.0%
Commissions	650	739	729	(12.0%)	(10.8%)
Other income	8	-	1	-	N/A
Total non-interest income	934	1,156	960	(19.2%)	(2.7%)
Total income	2,397	2,611	2,555	(8.2%)	(6.2%)
Salaries and related expenses	794	824	857	(3.6%)	(7.4%)
Maintenance & depreciation	274	285	269	(3.9%)	1.9%
Other expenses	515	422	444	22.0%	16.0%
Total operating and other expenses	1,583	1,531	1,570	3.4%	0.8%
Income before taxes	282	424	849	(33.5%)	(66.8%)
Provision for taxes on income	105	151	300	(30.5%)	(65.0%)
Income after taxes	177	273	549	(35.2%)	(67.8%)
Net income attributable to shareholders	174	279	545	(37.6%)	(68.1%)
ROE	3.7%	6.0%	12.8%
Cost income ratio	66.0%	58.6%	61.4%
CET-1 ratio	10.08%	9.99%	10.37%
NIM	2.35%	2.47%	2.96%
Rate of credit loss expenses	1.14%	1.42%	0.32%
NPL ratio	0.77%	0.92%	0.60%
Dividend per share (in Agurot)*	-	-	7.02

* Dividend in respect of the relevant period

SELECTED BALANCE SHEET ITEMS

NIS m	30.6.20	31.3.20	30.6.19
Cash and deposits with banks	39,608	29,392	21,245
Securities	40,037	42,605	35,470
Credit to the public	186,841	186,215	174,553
Provision for credit loss	(3,405)	(3,028)	(2,318)
Credit to the public, net	183,436	183,187	172,235
Credit to governments	4,219	4,406	3,495
Investment in investee companies	154	152	173
Buildings and equipment	2,648	2,641	2,467
Intangible assets and goodwill	164	164	160
Assets in respect of derivative instruments	5,856	7,757	4,263
Other assets	5,146	5,612	4,122
Total Assets	282,100	276,404	244,313
Deposits from the public	222,048	213,667	192,814
Deposits from banks	7,717	7,339	6,416
Bonds and subordinated debt notes	11,377	13,069	8,158
Liabilities in respect of derivative instruments	6,064	7,878	4,345
Other liabilities	14,965	13,880	13,186
Total liabilities	262,577	256,960	225,645
Equity capital attributed to the Bank's shareholders	19,004	18,929	18,168
Non-controlling rights in consolidated companies	519	515	500
Total equity	19,523	19,444	18,668
Total Liabilities and Equity	282,100	276,404	244,313

FINANCIAL PERFORMANCE

Main P&L and Balance Sheet metrics and selected ratios

USD m	2Q20	1Q20	2Q19	Vs. 1Q20	Vs. 2Q19	1H-20	1H-19	Change
Net interest income	62	59	63	5.1%	(1.6%)	121	127	(4.7%)
Credit loss expenses	3	15	1	(80.0%)	200%	18	4	350.0%
Non-interest income	11	32	16	(65.6%)	(31.3%)	43	33	30.3%
Total income	73	91	79	(19.8%)	(7.6%)	164	160	2.5%
Operating & other expenses	45	47	45	(4.3%)	0.0%	92	92	-
Net income	21	22	26	(4.5%)	(19.2%)	43	49	(12.2%)
Return on equity	7.6%	8.1%	10.2%			7.9%	10.1%
Cost-income ratio	61.6%	51.6%	57.0%			56.1%	57.5%
Rate of credit loss expenses	0.15%	0.88%	0.04%			0.51%	0.12%
NIM	2.59%	2.51%	2.83%			2.54%	2.85%
USD Bn
Total assets	10,336	10,998	9,909	(6.0%)	4.3%
Loans, net	6,639	6,945	6,401	(4.4%)	3.7%
Securities	2,637	2,672	2,384	(1.3%)	10.6%
Deposits from the public	8,661	8,365	8,191	3.5%	5.7%
Total equity	1,132	1,081	1,030	4.7%	9.9%

FINANCIAL PERFORMANCE

Main P&L and Balance Sheet metrics and selected ratios

NIS m	2Q20	1Q20	2Q19	Vs. 1Q20	Vs. 2Q19	1H-20	1H-19	Change
Net interest income	299	317	290	(5.7%)	3.1%	616	583	5.7%
Credit loss expenses	99	98	53	1.0%	86.8%	197	91	116.5%
Non-interest income	124	98	111	26.5%	11.7%	222	188	18.1%
Total income	423	415	401	1.9%	5.5%	838	771	8.7%
Operating & other expenses	235	241	224	(2.5%)	4.9%	476	454	4.8%
Net income	58	49	82	18.4%	(29.3%)	107	149	(28.2%)
Return on equity	7.5%	6.5%	12.0%			6.9%	10.9%
Cost-income ratio	55.6%	58.1%	55.9%			56.8%	58.9%
Rate of credit loss expenses	1.23%	1.22%	0.79%			1.22%	0.69%
NIM	2.81%	2.99%	3.34%			2.89%	3.43%
NIS Bn
Total assets	47.1	44.8	37.6	5.3%	25.4%
Credit to the public, net	32.5	31.8	27.0	2.1%	20.4%
Securities	4.4	4.7	4.7	(5.9%)	(5.5%)
Deposits from the public	38.0	35.8	31.7	6.1%	19.9%
Total equity	3.2	3.13	2.9	1.5%	9.2%

FINANCIAL PERFORMANCE

Main P&L and Balance Sheet metrics and selected ratios

NIS m	2Q20	1Q20	2Q19	Vs. 1Q20	Vs. 2Q19	1H-20	1H-19	Change
Income from credit card transactions	286	330	333	(13.3%)	(14.1%)	616	646	(4.6%)
Net interest income	133	134	130	(0.7%)	2.3%	267	250	6.8%
Credit loss expenses	59	105	29	(43.8%)	103.4%	164	63	160.3%
Non-interest financing income	(2)	8	(1)	-	-	6	(2)	-
Total income	417	472	462	(11.7%)	(9.7%)	889	894	(0.6%)
Total expenses (excluding credit loss expenses)	328	379	356	(13.5%)	(7.9%)	707	704	0.4%
Net income	23	(7)	54	-	(57.4%)	16	91	(82.4%)
Return on equity	5.1%	(1.5%)	12.4%			1.8%	10.1%
Cost-income ratio	78.7%	80.3%	77.1%			79.5%	78.7%
NIS Bn
Total assets	17.9	18.4	17.4	(2.6%)	3.0%
Interest bearing credit	6.4	6.6	6.0	(3.9%)	6.5%
Consumer credit	5.5	5.6	5.1	(3.2%)	8.3%
Total equity	1.8	1.8	1.8	0.7%	3.6%