Bank Hapoalim B M : Announces First Quarter 2022 Results

23 May, 2022

Bank Hapoalim Announces First Quarter 2022 Results

Net profit in 1Q22 totaled NIS 1,654 million. Return on equity 15.6%.

In line with strategy, the credit portfolio grew by 3.3%, while credit quality remained sound.

Total income increased by 5.9% vs. 4Q21, due to the growth in the bank's core activity and a high CPI. The cost-incomeratio decreased to 50.9%.

CET-1ratio at 11.17%. Current solid capital position and balanced credit growth are important milestones

supporting possible dividend resumption in respect of 2Q22 and onward.

Tel Aviv, Israel - May 23, 2022 - Bank Hapoalim (TASE: POLI) (ADR: BKHYY) today announced its financial results for the first quarter ended March 31, 2022.

Key highlights

Net profit in the first quarter of 2022 totaled NIS 1,654 million, compared with NIS 934 million in the preceding quarter and NIS 1,354 million in same quarter last year. The results in the quarter as compared to the previous quarter were supported by strong growth in business activity and a high contribution of the CPI (1.2% vs. 0.2% in the preceding quarter), as reflected in a 6.9% increase in net financing profit, coupledwith income from credit losses. Compared to the corresponding quarter last year, the main drivers were an increase in net financing profit and fees coupled with disciplined expenses.

Profit before provisions and tax amounted to NIS 1,890 million, an increase of 9.3% compared with the last quarter and of 13.7% compared with the corresponding quarter last year.

Return on equity (ROE) for the quarter stood at 15.6%, compared with 9.1% in the previous quarter and 13.5% in the same quarter last year.

The Common Equity Tier 1 (CET1) capital ratio as at March 31, 2022, stood at 11.17%, an increase of 21 bps during the quarter. The total capital ratio as at March 31, 2022, stood at 14.44%.

LCR and NSFR are at 123% and 134%, respectively.

Credit quality indicators continued to improve; the NPL ratio declined to 0.92% in the quarter from 1.11% as at December 31, 2021.

Balance sheet

Net credit to the public in the first quarter of 2022 totaled NIS 364.3 billion, compared with NIS 352.6 billion in the preceding quarter, an increase of 3.3%. Compared to March 31, 2021, net credit to the public grew by 19.0%.

The growth in the credit portfolio was recorded in most segments of operations, in line with the bank's strategy. Corporate credit increased by 2.7% and commercial credit increased by 3.7% in the first quarter, completing 26.7%

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and 24.8% growth year-on-year, respectively. The housing loan portfolio grew by NIS 4.7 billion in the first quarter to NIS 119.3 billion, reflecting growth of 4.1% compared to the end of 2021. Consumer credit decreased slightly by 1.2% compared with the preceding quarter, but increased by 3.8% versus the corresponding quarter last year. Small business credit grew by 1.4% and 10.3%, quarter-on-quarter and year-on-year, respectively.

Total deposits reached NIS 519.8 billion, a slight decrease of 1.0% compared with the preceding quarter and a 14.1% increase compared to the same quarter last year. Retail deposits totaled NIS 295.8 billion, constituting 81% of loans. Non-interestbearing deposits accounted for 47% of total deposits, well positioned for an interest-rate hike.

The Bank has implemented the current expected credit losses (CECL) accounting principles as of January 1, 2022, prospectively. Allowance for credit losses totaled NIS 5.9 billion as at March 31, 2022. The impact of the adoption of the CECL standard on the allowance for credit losses balance was an increase of NIS 546 million. NPL balances declined by 14.2% to NIS 3.4 billion, and the NPL ratio decreased to 0.92% of total credit to the public.

Shareholders' equity grew by 1.2% versus the end of 2021, to NIS 43.2 billion. The main factor offsetting the increase in equity due to the strong net profit, was a net NIS 798 million loss adjustment in respect of bonds available for sale (AFS) due to a sharp increase in the shekel and dollar interest rate curves. This includes a partial mitigation of an increase in the adjustment of employee benefit liabilities. Note that the increase in shekel and dollar interest- rate curves continued in the early second quarter of 2022. To mitigate the effect of these changes on the shareholders' equity of the bank, bonds in the amount of approximately NIS 3.5 billion were transferred from the AFS portfolio to the held-to-maturity portfolio. The continued increase in rates on one hand, and the aforementioned mitigation on the other, led to a decrease of approximately NIS 0.4 billion (before tax) in adjustments of government bonds, in the second quarter (as of the first quarter report publication date).

The board continued to prioritize the implementation of our long-term growth strategy and therefore resolved to refrain from dividend distribution this quarter. This cautious approach is supported by the market volatility and rising uncertainty in the economic environment including in connection with a possible deceleration in global activity. The Bank aspires to return to a trajectory of ongoing dividend distribution soon, and estimates that the solid capital position and balanced growth are important milestones on the path towards potentially renewing dividend distribution in respect of the second quarter of 2022 and onward.

Income statement

Income from regular financing activity in the first quarter totaled NIS 2,910 million, an increase of 14.9% versus the last quarter and 24.5% compared to the corresponding quarter, driven by the consistent growth in credit volumes and the effect of the increase in the CPI.

The financial margin increased by 0.19% mainly as a result of the effect of changes in the rate of the known CPI between the periods on financing income. In comparison to the corresponding quarter, the effect of the CPI was

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partially offset by an increase in the average balance of interest-bearing assets, including an increase in the volume of liquid assets.

Fee income totaled NIS 889 million in the first quarter, compared with NIS 898 million in the previous quarter, mainly impacted by some seasonality. Compared to the corresponding quarter, fees grew by 8.8%. The growth derived from most areas of activity, with an emphasis on an increase in account-management fees and an increase of approximately 25% in fees from financing transactions, mainly due to an increase in business activity.

Operating and other expenses totaled NIS 1,958 million in the first quarter, compared with NIS 1,905 million in the previous quarter and NIS 1,919 million in the same quarter last year. The increase in expenses was mainly due to an increase in salary expenses, as a result of an increase in performance-based bonuses and a provision for vacations. The cost-incomeratio for the first quarter of 2022 stood at 50.9%, compared with 54.2% in full-year 2021.

The bank's credit portfolio quality continued to be resilient, as reflected in all credit quality indicators and in the low volume of credit losses. Credit loss provision amounted to income of NIS 600 million for the quarter, due to approximately NIS 550 million of net individual provision, resulting from recoveries from a low number of borrowers. An income, of NIS 50 million was also recorded in the collective provision, mainly as a result of an improvement in risk indicators in the portfolio.

Recent developments

Appointment of Chief Risk Officer: the Board of Directors approved the appointment of Ms. Merav Ben Shushan Cohen, presently Head of the Asset and Liabilities Management Unit of the Financial Markets and International Banking Division, to the position of Chief Risk Officer and Head of Risk Management, replacing Dr. Amir Bachar, who was appointed Chief Internal Auditor of the Bank. Dr. Bachar will replace Mr. Zeev Hayo, who was appointed as Head of the Banking Services. These appointments are effective June 1, 2022.

The Bank signed principles of agreement with Electra Consumer Products (1970) Ltd. (ECP) and CAL Ltd. pursuant to which the parties would enter into an agreement for a triple collaboration to found a joint customer club based on non-bank credit cards. The collaboration is subject to a number of suspending conditions, including receipt of a permit from the Competition Authority and signing of a detailed agreement.

Strategic Plan

The strategic plan of the bank, adopted in late 2021, aspires to realize the bank's vision - "Committed to growth through innovative and fair banking for our customers." The performance of the bank this year reflects consistent, resolute execution of its strategy, key elements of which are:

• Growth in banking activity - The bank will work to grow the volume of its activity with retail, commercial, and corporate banking customers, while continually improving its value proposition for customers.
• Development of new banking - The bank will promote the development of new distribution channels for banking services and products, with an emphasis on new digital distribution channels based on advanced data- analysis capabilities and an outstanding user experience.
• Building a growth-supportingorganizational infrastructure - The bank will work to drive processes encouraging a customer-centric,growth-supporting organizational culture, enabling it to improve its delivery and time to market.

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Conference-call information

Bank Hapoalim will host a conference call today to discuss the results. The call will take place at 5:00 p.m. Israel time / 3:00 p.m. UK time / 10:00 a.m. US Eastern time. To access the conference call, please dial: [phone]toll-free from the United States, +0-800-917-9141toll-free from the United Kingdom, or [phone] internationally. No password is required. The call will be accompanied by a slide presentation, which, together with the financial statements, will be available on the Bank Hapoalim website at www.bankhapoalim.com, under Investor Relations > Financial Information. A recording of the conference call will be available on the bank's website at the above address one business day following the completion of the call.

Please note: The conference call is not a substitute for perusal of the immediate reports and the financial statements of the bank, including all of the forward-looking information included therein, in accordance with Section 32A of the Israeli Securities Law, 1968.

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About Bank Hapoalim

Bank Hapoalim is Israel's leading financial group. In Israel, Bank Hapoalim operates 174 retail branches, regional business centers, and specialized industry relationship managers for major corporate customers. The Bank Hapoalim Group includes holdings in financial companies engaged in investment banking, trust services, and portfolio management. Internationally, commercial banking services are provided in North America by the New York branch. Bank Hapoalim is listed on the Tel Aviv Stock Exchange (TASE: POLI) and holds a Level-1 ADR program. For more information about Bank Hapoalim, please visit us online at www.bankhapoalim.com.

Please note: This press release was prepared for convenience only. In case of any discrepancy, the bank's

reported financial statements in Hebrew will prevail.

Contact

Tamar Koblenz

Head of Investor Relations

T: [phone]

1. [e-mail]

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Table 1-1: Condensed financial information and principal performance indicators over time

	For the three months ended	For the year ended
	March 31, 2022	March 31, 2021	December 31,2021
Main performance indicators
Return of net profit on equity attributed to shareholders of the Bank*(1)	15.6%	13.5%	11.8%
Return of net profit attributed to shareholders of the Bank on equity excluding	15.6%	13.5%	11.9%
extraordinary items*(1)(2)
Return on average assets(1)	1.05%	0.99%	0.85%
Ratio of income(3) to average assets(1)	2.43%	2.63%	2.48%
Ratio of net interest income to average assets(1)	1.72%	1.64%	1.68%
Ratio of fees to average assets(1)	0.56%	0.60%	0.58%
Efficiency ratio - cost-income ratio	50.9%	53.6%	54.2%
Efficiency ratio - cost-income ratio excluding extraordinary items(2)	50.9%	53.6%	51.0%
Financing margin from regular activity(1)(4)	1.91%	1.80%	1.79%
Liquidity coverage ratio (LCR)	123%	139%	124%
Net stable financing ratio (NSFR)(5)	134%	-	**136%
		As at
	March 31, 2022	March 31, 2021	December 31, 2021
Ratio of common equity Tier 1 capital to risk components(6)	11.17%	11.67%	10.96%
Ratio of total capital to risk components(6)	14.44%	14.65%	14.22%
Leverage ratio(6)	6.12%	6.65%	6.03%

• Pursuant to the directives of the Banking Supervision Department, the method for the conversion of quarterly return into annualized terms was changed beginning in 2022, from exponential calculation to linear calculation. Comparative figures have been restated for adjustment to the calculation method in 2022.
• Restated.

1. Calculated on an annualized basis.
2. Does not include expenses in respect of provisions in connection with the investigation of the Bank Group's business with American customers.
3. Total income - net interest income and non-interest income.
4. Financing profit from regular activity (see the section "Material developments in income, expenses, and other comprehensive income," in the Report of the Board of Directors and Board of Management) divided by total financial assets after allowance for credit losses, net of non-interest bearing balances of debtors in respect of credit-card activity.
5. The net stable financing ratio (NSFR) is calculated beginning with the financial statements as at December 31, 2021. For additional information, see the section "Liquidity and refinancing risk," in the Report of the Board of Directors and Board of Management.
6. Capital ratios and the leverage ratio as at March 31, 2022, take into account the transitional directives for implementation of the accounting standards concerning expected credit losses. For additional information, see the section "Capital, capital adequacy, and leverage," in the Report of the Board of Directors and Board of Management.

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