Israel Discount Bank : Announces Financial Results for Third Quarter 2022

Date: November 23, 2022

Discount Group Reports Record Results in 3Q 2022

3Q22 Net Income of NIS 893 million and ROE of 15.0% driven by 37.6% YoY Growth in Net

Interest Income and Increase in NIM

9M22 Net Income of 2,556 million, 13.9% YoY increase and ROE of 15.0%

Discount Group reported record quarterly results completing the third quarter of 2022 with net income of NIS 893 million and ROE of 15.0%. In this quarter, average Bank of Israel interest rate was 1.5% compared with 0.1% in 3Q21, leading to material 37.6% increase in net interest income from core banking business. Fee income increased by 7.9% YoY. As a result, cost to income ratio improved to 55.2% in 3Q22, closer to the strategic target of 55%.

Total credit grew by 16.0% YoY, with continued focus on targeted segments, with 26.0% YoY growth in mortgage balance and 18.1% YoY growth in credit to medium enterprises. Credit growth in 3Q slowed down compared with previous quarter, to 1.9% QoQ, aligned with market conditions. Asset quality is robust with credit loss expenses of 0.18% in 3Q22 and 0.1% for 9M.22.

Discount announced a dividend of NIS 178.6 million in respect of 3Q22 earnings, in line with its distribution policy.

Uri Levin, Discount Group CEO, said: "This is another quarter in which Discount Group displays excellent performance, which reflects the Bank's and the Group's resilience. Discount Group continues to successfully execute its 5 years strategic plan. Discount's strength is particularly important in these times, where we see signs of economic slowdown. Looking forward, we will continue to pursue competition in the banking sector and create significant value to our customers."

3Q 2022 Main highlights:

• Net income of 893 and ROE of 15.0% supported by increase in revenues from core banking activity, which outpace the growth in operating expenses, leading to improving cost income ratio of 55.2%.
• 16.0% YoY credit growth, focusing on targeted segment, QoQ growth was 1.9%.
• Continued focus on key segments: Mortgage balance grew by 26.0% YoY and medium enterprises balance grew by 18.1% YoY.
• Total Income grew by 23.8% YoY to NIS 3.3 billion. Net interest income grew by 37.6% YoY and NIM improved to 2.74%. Fee income grew by 7.9% YoY.
• Credit Loss Expenses Ratio for 3Q22 was 0.18% largely due to worsening macro assumptions, partially offset by lower specific provision due to improvement in borrowers' classification.
• Dividend payout of NIS 178.6m; 20% of 3Q 22 net income

Main highlights of P&L, Balance Sheet and Selected Ratios

Discount Group P&L and Selected Ratios

	NIS m		3Q22		2Q22		3Q21		Vs. 2Q22		Vs. 3Q21
	Net interest income	2,280		2,073		1,657		10.0%		37.6%
	Credit loss expenses (expenses release)	106		131		(126)		(19.1%)		--
	Non-interest financing income	151		(27)		198		--		(23.7%)
	Commissions	871		851		807		2.4%		7.9%
	Other income	5		0		10		100.0%		(50.0%)
	Total non-interest income	1,027		824		1,015		24.6%		1.2%
	Total income			3,307			2,897			2,672			14.2%			23.8%
	Salaries and related expenses	881		844		867		4.4%		1.6%
	Maintenance & depreciation	309		307		292		0.7%		5.8%
	Other expenses	637		565		497		12.7%		28.2%
	Total operating and other expenses			1,827			1,716			1,656			6.5%			10.3%
	Income before taxes	1,374		1,050		1,142		30.9%		20.3%
	Provision for taxes on income	472		371		401		27.2%		17.7%
	Income after taxes	902		679		741				21.7%
				32.8%
	Net income attributable to			893			680			722			31.3%			23.7%
	shareholders
	ROE			15.0%			11.8%			13.8%
	Cost income ratio			55.2%			59.2%			62.0%
	CET-1 ratio	10.17%		10.16%		10.29%
	NIM	2.74%		2.63%		2.36%
	Rate of credit loss expenses	0.18%		(0.02%)		(0.25%)
	NPL ratio	0.67%		0.84%		0.87%
	Dividend per share (in Agurot)*	14.43		10.99		12.41

9M22	9M21	Change
6,153	4,846	27.0%
177	(683)	--
169	585	(71.1%)
2,547	2,316	10.0%
421	22	1813.6%
3,137	2,923	7.3%
9,290	7,769	19.6%
2,580	2,498	3.3%
919	894	2.8%
1,751	1,527	14.7%
5,250	4,919	6.7%
3,863	3,533	9.3%
1,290	1,247	3.4%
2,573	2,286	12.6%
2,556	2,244	13.9%
15.0%	14.9%
56.5%	63.3%
10.17%	10.29%
2.58%	2.35%
0.10%	(0.46%)

0.67% 0.87%

41.33 --

* Dividend in respect of the relevant period

Discount Group Selected Balance Sheet Items

	NIS m	30.09.22		31.12.21		30.09.21
	Cash and deposits with banks	71,510		59,638		46,334
	Securities*	43,904		45,076		47,104
	Credit to the public	240,032		216,196		206,944
	Provision for credit losses	-3,151		-3,040		-3,117
	Credit to the public, net	236,881		213,156		203,827
	Credit to governments	2,574		2,664		3,217
	Investment in investee companies	502		462		392
	Buildings and equipment	3,724		3,401		3,203
	Intangible assets and goodwill	163		163		163
	Assets in respect of derivative instruments	13,601		5,522		4,367
	Other assets	6,215		5,006		4,894
	Total Assets	379,074		335,088		313,411
	Deposits from the public	290,646		260,907		245,393
	Deposits from banks and governments	16,839		12,880		13,920
	Securities borrowed or sold via repo agreements*	3,038
	Bonds and subordinated debt notes	13,491		15,071		11,170
	Liabilities in respect of derivative instruments	11,718		6,323		4,570
	Other liabilities	18,624		17,759		16,352
	Total liabilities	354,356		312,940		291,405
	Equity capital attributed to the Bank's shareholders	24,112		21,483		21,346
	Non-controlling rights in consolidated companies	606		665		660
	Total equity	24,718		22,148		22,006
	Total Liabilities and Equity	379,074		335,088		313,411

* Including securities borrowed or purchased under agreements to resell

Overview of Subsidiaries

Mercantile:

Strong ROE of 19.3% and net income of NIS 185 million at Mercantile were driven by increase in net interest income, due to higher interest rates and higher inflation. 17.4% YoY Loan book growth was mainly driven by significant growth across all segments. On YoY basis, mortgages increased by 30.4%, corporates increased by 26.6% and medium enterprises by 18.4%. Total income from core banking activity grew by 31.7% YoY leading to improvement in cost income ratio to 49.3% for 9M.22

	NIS m		3Q22		2Q22		3Q21		Vs.		Vs.			9M22		9M21		change
					2Q22		3Q21
	Net interest income	452	414	341		9.2%	32.6%			1,225		982		24.7%
	Credit loss expenses (expenses release)	16	36	7		(55.6%)	128.6%			77		(75)		--
	Non-interest income			89	79				27.8%			279		375
	101		13.5%					(25.6%)
	Total income	553	503	420		9.9%	31.7%			1,504		1,357		10.8%
	Operating & other expenses	253	247	228		2.4%	11.0%			741		712		4.1%
	Net income		185		144		120			28.5%		54.2%				450			471			(4.5%)
	Return on equity	19.3%	15.5%	13.4%								15.9%		18.5%
	Cost-income ratio	45.8%	49.1%	54.3%								49.3%		52.5%
	Rate of credit loss expenses		0.36%	(0.29%)								0.25%		(0.29%)
	0.25%
	NIM	2.90%	2.86%	2.67%								2.76%		2.65%
	Total assets	65,485	63,081	54,058		3.8%	21.1%
	Credit to the public, net	42,325	41,306	36,035		2.5%	17.5%
	Securities		7,001	6,431			7.5%
	6,911		(1.3%)
	Deposits from the public	51,507	49,466	42,924		4.1%	20.0%
	Total equity		3,777	3,650			7.6%
	3,928		4.0%

IDB NY:

IDBNY solid quarterly net income of $25.0 million is largely driven by 72.7% increase in total interest and dividend income. Net interest income increased by 42.3% YoY driven primarily by 69 bps increase in net interest margin, following a series of Fed rate hikes. 3Q22 provision for credit losses was $5.0 million, or 0.23% from total credit, reflecting the shifting economic conditions. Credit quality remains strong with further reduction in impaired loans and improvement of classified loans.

	USD m		3Q22		2Q22		3Q21		Vs.	Vs.
					2Q22	3Q21
	Net Interest Income	92	79	64		16.5%	43.8%
	Credit Loss Expenses (Expenses Release)	5	-2	-9		--	--
	Non-Interest Income	17	20	21		(15.0%)	(19.0%)
	Total Income	109	99	85		10.1%	28.2%
	Operating & Other Expenses	71	62	57		14.5%	24.6%
	Net Income		25		29		27			(13.8%)	(7.4%)
	Return on Equity	8.9%	10.8%	9.3%
	Cost-Income Ratio	65.1%	62.6%	67.1%
	Credit Loss Expenses ratio (Expenses	0.2%	(0.1%)	(0.5%)
	Release)
	NIM	3.1%	2.6%	2.4%
	Total Assets	12,369	12,604	11,725		(1.9%)	5.5%
	Loans, net	8,455	8,608	7,840		(1.8%)	7.8%
	Securities	2,571	2,607	2,716		(1.4%)	(5.3%)
	Deposits from the Public	10,462	10,821	10,225		(3.3%)	2.3%
	Total Equity	1,081	1,094	1,145		(1.2%)	(5.6%)

9M22	9M21	change
243		186		30.6%
-4		--		--
55		65		(15.4%)
298		251		18.7%
191		168		13.7%
82		62		32.3%
9.8%		7.1%
64.1%		66.9%
(0.1%)		--
2.7%		2.4%