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Bank Hapoalim Announces Annual and Fourth Quarter 2020 Results

TEL AVIV, Israel, March 11, 2021 (GLOBE NEWSWIRE) — Bank Hapoalim (TASE: POLI) (ADR: BKHYY), today announced its financial results for the fourth quarter and full year ended December 31, 2020. Key financial highlights: Net profit in 2020 totaled NIS 2,056 million, compared with NIS 1,799 million in 2019, an increase of 14.3%. Note, the comparative net profit in 2019 included exceptional expenses associated with the investigation of the US authorities and other related items. Net profit represents a return on equity of 5.3% in 2020, compared with 4.6% in 2019.Quarterly net profit totaled NIS 915 million, representing a return on equity of 9.6% for the fourth quarter.The Bank continued to demonstrate strong capital and liquidity resilience: Shareholders equity grew by 4.4% to NIS 39.9 billion or NIS 29.85 per share.Common Equity Tier 1 (CET1) capital ratio stood at 11.52%, well above both regulatory (9.24%) and internal (9.5%) capital targets.Liquidity Coverage Ratio (LCR) stood at 140%, compared with 121% at the end of 2019.Loans to Deposit Ratio (LDR) stood at 69% at the end of the reporting period. Provisions for credit losses in 2020 totaled NIS 1,943 billion, or 0.64%, compared with NIS 1,276 billion in 2019, or 0.44%, on the back of increase in the Bank’s collective allowance provisioned to address the potential adverse impact of COVID-19.Quarterly provisions for credit losses recorded a net income of NIS 187 million, or -0.25%, in the fourth quarter of 2020, mostly on the back of recoveries from several large corporate clients, compared with a provision of NIS 876 million, or 1.19%, in the fourth quarter of 2019.Loan book – net credit to the public at the end of 2020 totaled NIS 301.8 billion, representing a 3% growth of the total loan book, compared with 2019 credit balances of NIS 292.9 billion. Notably, the Bank grew its mortgage book by 10.5% and commercial middle market credit by 5.4%. Off-balance sheet credit grew by 10.5%.Retail deposits increased 17.1% since year-end and totaled NIS 274.8 billion.The bank continues to implement various cost efficiency measures, amongst them the acceleration of its fifth efficiency program. In 2020, the Bank reduced its employee roster by a net of 400 employees. The Bank also reduced its branch reach by 26 branches, representing 12.1% of its network.Cost income ratio excluding special items stood at 56.7% in 2020, compared with 58.1% in 2019. Leadership comments: Ruben Krupik, Chairman of the Board of Directors: “This past year has taught us that the unexpected can and will happen, but has also shown that financial robustness, sound judgment, and good leadership can overcome any crisis. Bank Hapoalim, in keeping with its strong standing in the financial industry, responded to the new realities with speed and precision, maintaining a high level of service for its customers and attaining its objectives in the areas of efficiency, growth, and corporate strategy. In what has become a tradition, “Poalim in the Community” has continued in its social mission during this extraordinary year, and has expanded its work mainly in the field of employment and assistance to job seekers. The ramifications of the crisis and the continually evolving conditions in the business environment in general, and in banking in particular, have created significant challenges which we must still confront. I am confident that the Bank is prepared for the future, with its talented and dedicated management, as it upholds its commitment to growth and service through innovative, fair banking for its customers. I would like to extend my deep gratitude and appreciation to the Bank’s employees, who in such a complex year have recruited extraordinary dedication, commitment and character, and to the Bank’s management led by Dov Kotler for the talent, quality and dedication in running the Bank’s business.” Mr. Dov Kotler, President and CEO: “A year has now passed since the outbreak of the coronavirus pandemic in Israel, and of the subsequent economic crisis, which is still ongoing. A year ago, we saw uncertainty on the horizon, but we did not have a clear perception of the crisis yet. While there is much optimism about the recovery of the Israeli economy after the pandemic, uncertainty is still prevalent and many challenges lie ahead. This was not an easy year for our customers – households and businesses alike. But in this challenging time, we stood by them, helping them cope with the hardships: we deferred loan and mortgage payments, granted state-backed loans to businesses, founded a loan fund for self-employed people, enhanced service at the branches of the Bank, and, of course, enabled thousands of employees to provide full service while working from home. Despite this difficult year, we continued to demonstrate high financial robustness; we grew our credit portfolio, driven by housing credit and commercial credit, adapting to the latest developments; we continued the progress of our efficiency plan; we entered the digital wallet space and developed new collaborations; and we created platforms for our customers to do business in the United Arab Emirates and Bahrain. On the organizational level, we streamlined and shortened processes, sharpened our focus on our goals, and adopted a new organizational culture adapted to the challenges of today’s banking universe. As the leading financial institution in Israel, we have a responsibility to set an example of corporate conduct during a prolonged period of uncertainty, and I believe the bank will continue to serve as a role model. I would like to thank the Chairman of the Board, Ruben Krupik, the members of the board of directors, and the dedicated employees of the bank, who have resolutely pursued their mission even during challenging times, and who are there for our customers, driven by a sense of commitment and responsibility.” Recent mentions: Sale of the Bank’s Holdings in Bank Pozitif: In February 2021, the Bank entered into an agreement for the sale of the entire holdings of the parties in Bank Pozitif for a total consideration of approximately NIS 40 million (no payment of tax is anticipated). The transaction is subject to obtaining regulatory approvals in Turkey and Israel by June 2021.COVID-19: The Bank continues its commitment to support its employees, customers and the community through the COVID-19 crisis. Among its many initiatives: Deferral of loan payments: The bank has continued to expand measures for its customers who affected by COVID-19. Among other efforts, the bank is allowing customers to defer loan and mortgage payments, in order to provide cash-flow relief. The total cumulative balance of loans in respect of which payments were deferred is NIS 42.5 billion as at 31 December 2020. As at end of January 2021, the credit balance in respect of which payments have been deferred declined materially and totaled approximately NIS 11.2 billion.Participation in government guarantee scheme: The bank continues to offer loans to businesses under the scheme. As at the end of 2020, the bank has provided loans to its customers in an amount of approximately NIS 5.7 billion. Approximately 77% of which have been granted to small businesses and microbusinesses, and the balance to mid-sized and large businesses. Digital wallets: In February 2021, the bank entered the digital wallet universe with its launch of Bit Wallet, an advanced payment platform open to customers of all banks, and the Bitcard, a credit card offering special benefits. This enhanced Bit’s service offering, which now encompasses all forms of payment: person-to-person transfers, receiving rebates, online shopping, and contactless payment at any EMV-enabled point of sale in Israel or overseas.Business collaborations in the GCC: Following the historic signing of the Abraham Accord, the bank has taken a leadership role in advancing the economic ties between Israel and the GCC. In addition to corresponding agreements signed with peer banks on the UAE, in January 2021 the Bank signed a memorandum of understanding with the National Bank of Bahrain, Bahrain’s leading bank. Key developments in the 2020 annual financial statements: Income from regular financing activity totaled NIS 9,422 million in 2020, compared with NIS 9,756 million in 2019, a decrease of 3.4%. The decrease was due to a decrease in the financial spreads on deposits, mainly due to a decrease in dollar and shekel interest rates and a decrease in income from linkage differences (due to changes in the known index rate between periods) and a decrease in consumer credit balances.Fees and other income, totaled NIS 3,291 million in 2020, compared with NIS 3,330 million in 2019, a decrease of 1.2%, due to reduced economic activity. This decrease is mainly due to a decline in commission income of 2.6% due to the reduction of economic activity during COVID-19, and is mainly attributed to a decrease in income from account management fees and income from credit cards.Net provision for credit losses totaled NIS 1,943 million in 2020, or 0.64% of the average total credit to the public (annualized), compared with a net income for credit losses in an amount of NIS 1,276 million in 2019, or 0.44% of the average total credit to the public (annualized).Operating and other expenses totaled NIS 7,501 million in 2020, compared with NIS 8,776 million in 2019, a decrease of 14.5%. The decrease in expenses mainly resulted from exceptional expenses recorded in 2019 in respect of the update of the provision in connection with the investigation of the Bank Group’s business with American customers and FIFA, and the related legal expenses, and from a decrease in salary expenses due to the continued implementation of the Bank’s efficiency plan. Excluding the expenses in connection with the provision for the investigation of the United States authorities, and the revaluation of this provision, as well as the closure of the private-banking activity in Switzerland, operating and other expenses totaled NIS 7,442 million in 2020, compared with NIS 7,882 million in 2019, a decrease of 5.6%.Cost income ratio stood at 56.9% in 2020, compared with 66.4% in 2019. Excluding exceptional expenses in respect of the update of the provision in connection with the investigation of the Bank Group’s business with American customers and FIFA, and associated expenses, cost income ratio stood at 56.7% in 2020, compared with 58.1% in 2019. Key developments in balance sheet items: Consolidated balance sheet, totaled NIS 539.6 billion as at December 31, 2020, compared with NIS 463.7 billion at the end of 2019, an increase of 16.4%. Net credit to the public, totaled NIS 301.8 billion, compared with NIS 292.9 billion at the end of 2019, an increase of 3.0%. .Consumer credit in Israel, totaled NIS 37.2 billion, compared with NIS 41.5 billion at the end of 2019, a decrease of 10.2%.Housing loans in Israel, totaled NIS 98.7 billion, compared with NIS 89.3 billion at the end of 2019, an increase of 10.5%.Credit to small businesses in Israel, totaled NIS 31.4 billion, compared with NIS 31.0 billion at the end of 2019, an increase of 1.1%.Credit to the commercial segment in Israel, totaled NIS 42.3 billion, compared with NIS 40.1 billion at the end of 2019, an increase of 5.4%.Credit to the corporate segment in Israel, totaled NIS 78.1 billion, compared with NIS 77.3 billion at the end of 2019, an increase of 1.0%.Deposits from the public, totaled NIS 435.2 billion, compared with NIS 361.6 billion at the end of 2019, an increase of 20.3%.Deposits from consumers in Israel, totaled NIS 218.5 billion, compared with NIS 188.8 billion at the end of 2019, an increase of 15.7%.Deposits from small businesses in Israel, totaled NIS 56.3 billion, compared with NIS 46.0 billion at the end of 2019, an increase of 22.5%.Shareholders’ equity, totaled NIS 39.9 billion, compared with NIS 38.2 billion at the end of 2019, an increase of 4.4%.Total capital ratio, as at December 31, 2020 stood at 14.6%, above the capital thresholds required by the Bank of Israel. 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. Eastern time. To access the conference call, please dial: 1-888-281-1167 toll free from the United States; 0-800-917-5108 toll free from the United Kingdom; or 972-3-9180610 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’s 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 does not replace the need to peruse the immediate reports and the Financial Statements of the Bank, including all the forward-looking information included therein in accordance with Section 32A of the Israeli Securities Law, 1968. -xxx- About Bank Hapoalim: Bank Hapoalim is Israel’s leading financial group. In Israel, the Bank Hapoalim operates 189 full-service retail branches, regional business centers and specialized industry relationship managers for major corporate customers. The Bank Hapoalim Group includes holdings in financial companies involved 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: Karen Mazor, Head of Investor RelationsT: +972 3 5673440 E: [email protected] Table 1-1: Condensed financial information and principal performance indicators over time For the year ended December 31 2020 2019 2018 2017 2016 Main performance indicators Return of net profit on equity attributed to shareholders of the Bank5.35%4.62% 7.06% 7.50% 7.72% Return of net profit on equity attributed to shareholders of the Bankexcluding extraordinary items(1)5.74%7.13% 9.74% 9.44% 10.04% Return of net profit from continued operations on equity attributed to shareholders of the Bank5.63%3.86% 6.07% 6.61% 6.92% Return of net profit from continued operations on equity attributed to shareholders of the Bank excluding extraordinary items(2)5.74%6.72% 8.75% 8.55% 9.23% Return on average assets0.41%0.39% 0.57% 0.58% 0.60% Ratio of income to average assets1.99%2.17% 2.29% 1.99% 2.07% Efficiency ratio – cost-income ratio from continued operations56.9%66.4% 65.1% 64.6% 63.2% Efficiency ratio – cost-income ratio excluding extraordinary items from continued operations(2)56.7%58.1% 57.8% 59.1% 59.2% Financing margin from regular activity(3)1.98%2.26% 2.31% 2.13% 2.05% Liquidity coverage ratio(4)140%121% 120% 122% 124% December 31 2020 2019 2018 2017 2016 Ratio of common equity Tier 1 capital to risk components(5)11.52%11.53% 11.16% 11.26% 11.01% Ratio of total capital to risk components(5)14.60%14.64% 14.39% 14.64% 15.11% Leverage ratio(5)6.78%7.61% 7.51% 7.37% 7.25% (1) Does not include expenses in respect of the update of the provision in connection with the investigation of the Bank Group’s business with American customers and FIFA, the effect of the closure of the private-banking activity overseas, net profit or loss from the separation from Isracard, and loss from impairment in respect of the Bank’s investment in Bank Pozitif. (2) Does not include expenses in respect of the update of the provision in connection with the investigation of the Bank Group’s business with American customers and FIFA, the effect of the closure of the private-banking activity overseas, and loss from impairment in respect of the Bank’s investment in Bank Pozitif. (3) Financing profit from regular activity (see the Report of the Board of Directors and Board of Management, in the section “Material developments in income, expenses, and other comprehensive income”) divided by total financial assets after allowance for credit losses, net of non-interest bearing balances in respect of credit cards. (4) For additional information, see the section “Liquidity and refinancing risk”, in the Report of the Board of Directors and Board of Management. (5) For additional information, see the section “Capital, capital adequacy, and leverage”, in the Report of the Board of Directors and Board of Management. Condensed financial information and principal performance indicators over time (continued) For the year ended December 31 2020 2019 2018 2017 2016 Main credit quality indicators Allowance for credit losses as a percentage of credit to the public2.00%1.58% 1.31% 1.36% 1.50% Impaired debts and debts in arrears of 90 days or more as a percentage of credit to the public1.52%1.80% 1.23% 1.31% 1.83% Net charge-offs as a percentage of average credit to the public0.09%0.12% 0.20% 0.21% 0.18% Provision for credit losses as a percentage of average credit to the public0.64%0.44% 0.22% 0.08% 0.07% Main profit and loss data NIS millions Net profit attributed to shareholders of the Bank2,056 1,799 2,595 2,660 2,628 Net profit attributed to shareholders of the Bank excluding extraordinary items(1)2,205 2,778 3,579 3,348 3,417 Net profit from continued operations attributed to shareholders of the Bank2,165 1,503 2,231 2,346 2,354 Net profit from continued operations attributed to shareholders of the Bank excluding extraordinary items(2)2,205 2,619 3,215 3,034 3,143 Net interest income8,797 9,319 8,906 8,424 7,958 Provision for credit losses1,943 1,276 613 202 179 Net financing profit*9,885 9,878 10,351 9,076 9,121 Non-interest income4,379 3,889 4,868 4,153 4,917 Of which: fees3,155 3,240 3,318 3,338 3,617 Operating and other expenses7,501 8,776 8,960 8,121 8,142 Of which: salaries and related expenses3,836 4,108** 4,188** 4,300** 4,328** Total income13,176 13,208 13,774 12,577 12,875 Net earnings per ordinary share (in NIS) Basic net earnings per share in NIS attributed to shareholders of the Bank from continued operations1.62 1.13 1.68 1.76 1.77 * Net financing profit includes net interest income and non-interest financing income (expenses).** Reclassified.(1) Does not include expenses in respect of the update of the provision in connection with the investigation of the Bank Group’s business with American customers and FIFA, the effect of the closure of the private-banking activity overseas, net profit or loss from the separation from Isracard, and loss from impairment in respect of the Bank’s investment in Bank Pozitif.(2) Does not include expenses in respect of the update of the provision in connection with the investigation of the Bank Group’s business with American customers and FIFA, the effect of the closure of the private-banking activity overseas, and loss from impairment in respect of the Bank’s investment in Bank Pozitif. Condensed financial information and principal performance indicators over time (continued) December 31 2020 2019 2018 2017 2016 NIS millions Main balance sheet data Total assets539,602 463,688 460,926 454,424 448,105 Of which: Cash and deposits with banks138,711 88,122 84,459 86,093 80,367 Securities71,885 59,486 56,116 65,416 71,429 Net credit to the public301,828 292,940 282,507 265,853 259,878 Net problematic credit risk9,754 8,787 6,944 6,822 7,358 Net impaired balance sheet debts2,517 3,034 2,158 2,121 3,094 Total liabilities499,703 425,467 423,270 418,420 413,880 Of which: Deposits from the public435,217 361,645 352,260 347,344 338,494 Deposits from banks6,591 3,520 4,528 3,649 4,077 Bonds and subordinated notes23,490 26,853 30,024 29,058 33,560 Shareholders’ equity39,873 38,181 37,544 35,863 34,047 Credit to the public not accruing interest income (NPL)3,208 3,867 2,178 2,073 3,480 Additional data Share price at end of year (in NIS)22.0 28.7 23.7 25.6 22.9 For the year ended December 31 2020 2019 2018 2017 2016 Total dividend per share (in agorot)*(1)53.94 74.90 37.17 64.53 51.44 Average number of employee positions9,027 9,392** 9,846** 10,351** 10,676** Ratio of net interest income to average assets1.77%2.05% 1.97% 1.87% 1.80% Ratio of fees to average assets0.63%0.71% 0.73% 0.74% 0.82% * According to the date of declaration.** Restated.(1) Paid as a dividend in kind, in shares; calculated based on the value of Isracard shares on March 8, 2020 (NIS 10.91).

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