Israel Discount Bank Investor Presentation, Annual Report 2011 - PowerPoint PPT Presentation

Israel Discount Bank Investor Presentation, Annual Report 2011 March, 2012 www.discountbank.co.il/IR TASE DSCT BLOOMBERG DSCT.IT REUTERS DSCT.TA

Net Income & ROE (NIS mm) 10.2% 918 8.2% 11.3% 9.4% 852 8.7% 7.0% 4.7% 278 231 222 121 704 Q1 11 Q2 11 Q3 11 Q411 2.6% 500 228 409 392 377 56 7 Retail (Household & SME) Corporate & Commercial Private Banking Finance -64 -121 2010 2011 2

Income Statement Highlights & Key Ratios (NIS mm) Q4 Q3 % FY FY % 2011 2011 Change 2011 2010 Change Interest Income 1,14 0 1,067 +6.8% 4,785 4,830 -0.9% before provision for Loan Losses Expense for credit losses 252 226 +11.5% 778 821 -5.2% Interest Income net 888 841 +5.6% 4,007 4,009 0% Operating & Other Income 658 718 -8.4% 2,690 2,660 +1.1% Operating & Other Expenses 1,461 1,478 -1.1% 5,838 5,659 +3.2% Net income 222 121 +83.5% 852 704 +21.0% ROE 8.7% 4.7% - 8.2% 7.0% - Capital / Total Assets 5.5% Capital Adequacy 14.1% Loans / Deposits 75.9% Adjusted Return on Risk Weighted Assets 8.1% 3

Managing The Transition In 2011 Goal Action Taken Benefits YE CT-1 of 8.1% , Exceeded YE 2011 target Allows for a return to moderate growth in Management of of 7.5%. RWA’s in 2012 (~3%), dependant on macro Core Tier-1 Capital conditions. 340 employees retired at cost of NIS 340m Launch Multiple Long term agreement reached with unions. Retirement program launched in Q3; closed Efficiency Initiatives Cost saving - NIS 150m in 2012. Q1/12; Lower replacement ratio will allow for material on-going cost savings. Additional cost- savings from reduction of temporary & outsourced employees. Merger of Mortgage Bank Merger to be completed by YE 2012. Additional HR & IT efficiencies. into Banking Division Better integrated & improved client service offering 4

Managing The Transition In 2011 Goal Action Taken Benefits Reduced volatility in Recognition by BOI of IDBNY as “Autonomous Changes in MTM value of capital invested in Business Entity” IDBNY from $/NIS fluctuation will pass financial performance through Capital Fund rather than P&L New management team assembled by Immediate Attention to Addressing Revenue Change in Management Q3/2011 & Cost-Related Issues “Discount Invest” platform launched Q1/12; Targeting additional NIS 120 m from Asset Management & Aimed at client retention & increased SOW. securities & capital market activity over Domestic Private Banking Improved marketing, service & IT platforms next 4 years. Division established Q3/2011 Re-allocation of assets in Diversification into corporate bonds (domestic Improved Yield on Securities Portfolio & off-shore) nostro portfolio 5

Management Focus Capital Adequacy (Basel 3) Ongoing Group-wide Efficiency Initiatives Improved Profitability From New Business Lines: From Existing Business Lines: Capital Markets Retail & SME Domestic Private Banking &Client Corporate Asset Management Credit Cards IDBNY Mercantile Mortgages Investment Banking 6

Q4 - Highlights Core Tier 1 reaches 8.1% Interest Income (Net of Expense for Credit Losses) up 5.6% over Q3 Expense for Credit Losses up NIS 26m over Q3 Operating & Other Income down 8.4% over Q3 due mostly to one-off’s in the previous quarter Salary & Related Costs down 5.2% over Q3; Total Operating & Other Expenses down 1.1% Trachtenberg Committee tax reforms lead to saving of NIS 177m on deferred tax assets 7

Macroeconomic Trends Components Of Growth In Israel (% change) Growth In Israel, USA & Eurozone 18% 16% 7.5% 14% 6.5% 5.5% 12% 4.5% 10% 3.5% 8% 2.5% 6% 1.5% 4% 0.5% 2% -0.5% 0% -1.5% GDP of GDP Import of Goods Export of Goods Gross Fixed General Private Business Sector and Services* and Services Capital Government Consumption Formation Consumption Expenditure Expenditure* Eurozone USA ISRAEL 2010 2011 2012 F Excluding Defence Imports* Quarterly Change in Sectors Annual Inflation (Y/Y) & BOI Interest Rate 4.50% 4.00% 6% 3.50% 3.00% 1% 2.50% 2.00% -4% 1.50% 1.00% -9% 0.50% 0.00% -14% Q4/2010 Q1/2011 Q2/2011 Q3/2011 Q4/2011 2010 2011 2012 BOI Interst Rate (End of quarter) Annual Inflation TA-100 Government Bonds Not Linked Government Bonds CPI Linked Corporate Bonds CPI Linked 8

Interest Income Before Provision for Loan Losses (NIS mm ) Margins 2.11% (2011) 2.87% (2010) Retail up 3.3%; Corporate up 4.9% Decrease in credit spreads during 2011 partly mitigated by widening of deposit spreads 1,289 1,289 1,140 1,067 Q1 11 Q2 11 Q3 11 Q4 11 2,383 2,306 1,764 1,681 508 335 343 295 Retail (Household & SME) Corporate & Commercial Private Banking Finance 2010 2011 9

Asset Quality (NIS m) Improvement during 2011 across all Credit Risk Categories; Continued positive momentum will depend on the intensity and duration of the economic slowdown Provision for loan losses Total Classified Credit Risk 821 9.6 bln 5.2% - 8.6 bln 0.85% 0.75% 2,544 -10.3% 2,086 778 965 0.63% 774 0.38% 6,098 5,755 252 226 188 112 Q1 11 Q2 11 Q3 11 Q4 11 31.12.10 31.12.11 Total Provisions LLP's as a % of Total Credit Special Mention Sub-Standard Impaired Delinquent Debt 90+ days/Total Credit Non Performing Assets 2.80% 0.70% 3,393 2.70% 36 0.59% 0.51% 0.50% 3,186 4 3,384 3,182 31.12.10 31.12.11 31.12.10 30.06.11 30.09.11 31.12.11 Other Non Performing Loans NPL/Loans Terminology on this slide is based on a convenience translation from the Hebrew, as prescribed by the Bank of Israel Impaired debt reporting figures are not comparable with previous year data 10

Credit Risk Problematic Credit Risk/ Total Credit Problematic Credit Risk 8.0% 7.3% Ex- Israel, 62% Israel, 38% 2010 2011 Total Credit Risk to the Public (By Sector)- NIS 176 bln Domestic R/E & Construction Credit Risk/ Total Domestic Credit Risk P 20.9% Private Individuals 19.0% R/ 19.1% R/E & Construction n 14.2% Industry M 11.4% Mortgages Co 17.8% Commerce 10.9% 17.5% 17.6% 17.6% i Financial Services 8.5% O Other 7.1% Tr Transport 2.3% 17.2% Ho Hotels & Tourism 1.7% Co Com. & IT 1.6% Ut Utilities 1.4% A Agriculture 0.8% 2007 2008 2009 2010 2011 11

Operating & Other Income (NIS m) Continued pressure on fees prevails; increases from credit cards, capital gains on shares sold; marked improvement in corporate sector 3,088 718 661 658 653 635 621 619 614 Q1 11 Q2 11 Q3 11 Q4 11 Fees Total 2,034 1,929 2,690 2,660 528 462 2,633 255 226 2,547 -22 -62 Retail (Household & SME) Corporate & Commercial Private Banking Finance 2011 2010 2,489 Distribution of Fees FX Trade Finance, 169 Capital Gain on ( 31.12.2011) Shares, 92 Other, 217 Loan Credit Cards, 922 Documentation, 258 Account Management, 617 Capital Markets, 415 Total Fees 12

Operating & Other Expenses (NIS m) Increase in OPEX of 3% YoY mostly from group companies (salaries/ bonuses) Q4 Salaries lowest level throughout 2011 Savings of NIS 150m from early retirement program to be reflected in Q1/12 1,478 1,459 1,461 1,440 903 873 855 828 Q1 11 Q2 11 Q3 11 Q4 11 Total Salary & Related Total Salaries & Related costs Cost/ Income Ratio Cost/ Avg. Assets Ratio Pressure on Revenues Slowing Progress Toward meeting CI target 3.1% 3.0% 3.0% 80.2% 78.1% Target 2.9% 69.4% 69% 75.6% 2008 2009 2010 2011 2008 2009 2010 2011 2013 13

Israel Discount Bank Balance Sheet Highlights 14

Balance Sheet Highlights (NIS mm) 31.12.11 31.12.10 Change Securities 42,898 37,176 +15.4% Net Loans 116,383 118,666 -1.9% Deposits 153,368 138,011 +11.1% Loan Deposit Ratio 75.9% 86.0% - Total Shareholders' Equity 11,115 11,152 -0.3% Total Assets 202,491 185,576 +9.1% Total Capital to Total Assets 5.5% 6.0% - 15

Capital Ratios and Total Shareholders Equity (NIS mm) CT-1 of 8.1% at YE 2011 exceeds target of 8% by YE 2012 (Despite ~ NIS 1.2bln charge due to Impaired Debts and Actuarial Severance Provisions Incurred During 2011) New Regulatory CT-1 Target Basel 3: 9% YE 2014 Risk Weighted Assets 14.1 13.2 13.3 13.3 12.9 141,768 -4.4% 8.8 2,907 135,549 1,875 8.3 13,233 8.2 8.2 8.1 8.0 13,418 7.6 7.6 7.6 125,628 120,256 7.4 31.12.10 31.12.11 31.12.10 31.03.11 30.06.11 30.09.11 31.12.11 Core Tier-1 Tier-1 Capital Capital Adequacy Ratio Credit Risk Operational Risk Market Risk 16

Capital Management Process for 2012 Business Plan- Determine Capital Targets Formalized Risk Appetite & Define Capital Cushions Derive Max. Growth in RWA’s Allocate Capital To Business Units In Accordance With ROE Maximization Ongoing Management & Monitoring At All Business Units & Group Companies 17

Securities Total Portfolio NIS 43bln at YE 2011 (growth mostly from IDBNY portfolio) During 2012, diversification of a small part into credit and interest rate risk, (Israel & Abroad) in order to improve yields AFS Portfolio Accrued Losses to Capital Fund – MTM of AFS Securities Gov. Of Israel 51.5% 196 35.9% MBS/ABS 129 6.3% 56 F.I'S (Ex. Israel) Acc Acc -1 3.0% Foreign Govts. 31.12.07 31.12.08 31.12.09 31.12.10 31.12.11 2.3% F.I'S (Israel) -197 1.0% Other Credit Risk to Foreign Financial Institutions 85.8% Acc Over A- 10.4% (including A-) Under A- 18