Market Overview

Bank Hapoalim Announces Second Quarter 2018 Financial Results

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- Net Profit totaled NIS 920 million; Return on Equity of 10.5% -
- The Bank's credit portfolio grew by 2.5% compared with year end 2017-

TEL AVIV, Israel, Aug. 16, 2018 (GLOBE NEWSWIRE) -- Bank Hapoalim (TASE: POLI) (OTC:BKHYY), Israel's leading financial group, today announced its financial results for the second quarter ended June 30, 2018.

Key highlights: 

  • Net Profit - totaled NIS 920 million, compared with a net profit of NIS 812 million in the corresponding quarter of 2017.
  • Return on Equity - reached 10.52%, compared with 9.51% in the corresponding quarter.
  • In view of the progress made in the separation processes of the Bank from its holdings in the Isracard Group, the activity of the Isracard Group has been classified as a "discontinued operation." Accordingly, the statements for comparative periods included in these statements have been restated such that balance sheet balances of assets and liabilities and results attributed to the discontinued operation are presented separately from the continued operations. Net profit from continued operations totaled NIS 827 million this quarter.
  • Credit growth - total credit portfolio grew by 2.5% totaling NIS 272.5 billion compared with NIS 265.9 billion at the end of 2017.
  • Retail Deposit base in Israel - increased by 3.1% totaling NIS 176.9 billion compared with NIS 171.5 billion at the end of 2017.
  • Total income from regular financing activity - totaled NIS 2,470 million compared with NIS 2,274 million in the corresponding quarter of 2017, an increase of 8.6%.
  • Cost income - totaled 58.0% for the second quarter of 2018, compared with 58.4% in the same quarter last year.
  • Tier 1 capital ratio - stood at 11.16% as at June 30, 2018, surpassing regulatory and internal capital targets.
  • The Bank made no further provisions in the quarter with respect to the investigation of the Bank Group's business with American clients. To date, the Bank provisioned a total of $365 million with respect to the said investigation. Yet, for reasons of conservatism and in coordination with the Bank of Israel, the Board of Directors did not declare a distribution of dividend from second quarter 2018 net profits at the date of the approval of the financial statements. This, without changing the Bank's dividend distribution policy of up to 40% of quarterly net profit.

Key developments in the financial statements for the second quarter of 2018:

  • Total income from regular financing activity totaled NIS 2,470 million in the second quarter of 2018 compared with NIS 2,274 million in in the same period last year, an increase of 8.6%. The increase is mainly attributed to the growth in business activity in all segments.
  • Fees and other income totaled NIS 903 million in the second quarter of 2018 compared with NIS 897 million in the same period last year.
  • Net provision for credit losses totaled NIS 90 million in the second quarter of 2018, 0.13% of the average credit to the public, compared with NIS 138 million, 0.21% of the average credit to the public, in the same period last year.
  • Operating and other expenses, totaled NIS 2,068 million in the second quarter of 2018, compared with NIS 1,869 million in same period last year. The increase is mainly attributed to expenses in connection with the investigation of the Bank Group's business with American clients (including expenses of exchange rate differentials in respect of revaluation of provision).

Key developments in Balance Sheet items for the second quarter of 2018:

  • Consolidated balance sheet as at June 30, 2018 totaled NIS 451.4 billion, compared with NIS 454.4 billion at the end of 2017, a decrease of 0.7%.
  • Net Credit to the public totaled NIS 272.5 billion, compared with NIS 265.9 billion at the end of 2017, an increase of 2.5%, caused mainly by the increase in corporate lending, commercial customers and housing loans.
  • Consumer credit in Israel totaled NIS 45.4 billion compared with NIS 45.9 billion at the end of 2017, a decrease of 0.9%.
  • Housing loans in Israel totaled NIS 77.5 billion compared with NIS 74.1 billion at the end of 2017, an increase of 4.5%.
  • Credit to small businesses in Israel totaled NIS 31.8 billion compared with NIS 32.4 billion at the end of 2017, a decrease of 1.7%.
  • Credit to the commercial segment in Israel totaled NIS 34.7 billion compared with NIS 33.9 billion at the end of 2017, an increase of 2.5%.
  • Credit to the corporate segment in Israel totaled NIS 69.4 billion compared with NIS 65.5 billion at the end of 2017, an increase of 6.0%.
  • Deposits from the public totaled NIS 345.7 billion compared with NIS 347.3 billion at the end of 2017, a decrease of 0.5%.
  • Retail Deposits in Israel totaled NIS 176.9 billion compared with NIS 171.5 billion at the end of 2017, an increase of 3.1%.
  • Small businesses Deposits in Israel totaled NIS 39.4 billion compared with NIS 38.2 billion at the end of 2017, an increase of 3.1%.
  • Shareholders' equity totaled NIS 36.7 billion as at June 30, 2018, compared with NIS 35.9 billion at the end of 2017, an increase of 2.2%.
  • Total capital ratio stood at 14.64% as at June 30, 2018, as at December 31, 2017.
  • Leverage ratio representing the ratio of the capital measurement (Tier 1 capital) to the exposure measurement (total balance sheet exposures, derivatives exposures and securities financing transactions, and off-balance sheet items), stood at 7.39% at the end of the second quarter of 2018.
  • Liquidity coverage ratio representing the ratio between the supply of "high-quality liquid assets" to the net expected outgoing cash flow in a stress scenario, stood at 123% at the end of the second quarter of 2018.

Conference Call Information

Bank Hapoalim will host a conference call today to discuss the results at 4:00 p.m. Israel time/ 2:00 p.m. UK time/ 9:00 a.m. Eastern time. To access the conference call, please dial: 1-888-281-1167 toll free from the United States; 0-800-051-8913 toll free from the United Kingdom; or 972-3-9180685 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 replay of the conference call will be available approximately three hours following the completion of the call. To access the replay, please dial 1-888-254-7270 toll free from the United States, 0-800-917-4256 from the United Kingdom, or 972-3-9255918 internationally. The replay will be accessible through August 23, 2018, and an archive of the call will be available on the Bank's website at the above address.

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.

 
Condensed financial information and principal performance indicators over time(6)
                 
  For the three months
ended
  For the six months
ended
  For the year ended
December 31
  June 30,
 2018
June 30,
2017
  June 30,
 2018
June 30,
2017
  2017  2016 
Main performance indicators                
Return of net profit on equity attributed to shareholders of the Bank(1) 10.52 % 9.51 %   8.74 % 9.26 %   7.50 % 7.72 %
Return of net profit on equity attributed to shareholders of the Bank excluding extraordinary items(1)(2) 10.52 % 9.51 %   9.09 % 9.26 %   9.44 % *10.04%
Return of net profit from continued operations on equity attributed to shareholders of the Bank(1)(7) 9.42 % 8.28 %   7.76 % 8.20 %   6.61 % 6.92 %
Return of net profit from continued operations on equity attributed to shareholders of the Bank excluding extraordinary items(1)(2)(7) 9.42 % 8.28 %   8.11 % 8.20 %   8.55 % 9.23 %
Return on average assets(1) 0.81 % 0.72 %   0.69 % 0.71 %   0.59 % 0.60 %
Efficiency ratio - cost-income ratio from continued operations 57.99 % 58.39 %   60.15 % 59.18 %   64.96 % 63.42 %
Efficiency ratio - cost-income ratio excluding extraordinary items from continued operations(2) 57.99 % 58.39 %   59.26 % 59.18 %   59.55 % 59.42 %
Financing margin from regular activity(1)(3) 2.40 % 2.22 %   2.28 % 2.12 %   2.13 % 2.05 %
Liquidity coverage ratio(4) 123 % 127 %         122 % 124 %
                 
        As at   December 31
        June 30,
 2018
June 30,
2017
  2017  2016 
Ratio of common equity Tier 1 capital to risk components(5)       11.16 % 11.35 %   11.26 % 11.01 %
Ratio of total capital to risk components(5)       14.64 % 14.99 %   14.64 % 15.11 %
Leverage ratio(5)       7.39 % 7.36 %   7.37 % 7.25 %

* Restated for inclusion of the effects of the reduction of corporate tax as part of profit excluding extraordinary items in 2016. In the Periodic Report for 2017 (and the subsequently published presentation for 2017), net profit and return on equity for 2016 and 2017 were presented excluding expenses in respect of the update of the provision in connection with the investigation of the Bank Group's business with American clients and the discontinuation of activity in Switzerland only. In 2016, net profit and return on equity for 2016 were presented also excluding the effects of the reduction of corporate tax (in addition to the exclusion of the update of the provisions in respect of the investigation, as noted).Within the process of preparation for filing a shelf prospectus of Hapoalim Hanpakot Ltd. (the issuance arm of the Bank, which is a company under full ownership), the Israel Securities Authority requested that the Bank present these data for 2016 in a manner that consistently applies the aforesaid excluded components.
(1) Calculated on an annualized basis.
(2) Does not include expenses in respect of the update of the provision in connection with the Bank Group's business with American clients, and costs in respect of the discontinuation of activity in Switzerland.
(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 Condensed Financial Statements.
(5) For additional information, see the section "Capital, capital adequacy, and leverage," in the Condensed Financial Statements.
(6) Comparative figures, including credit of the Isracard Group, were restated in order to present a discontinued operation separately from continued operations. For further details, see Note 1E to the Condensed Financial Statements
(7) The return of net profit from continued operations, after separation from Isracard, may be influenced by processes of adjustment of capital in respect of the subtraction of risk-adjusted assets in the amount of approximately NIS 12 billion, as a result of the separation, and additional adjustments.

 
Condensed financial information and principal performance indicators over time(3) (continued)
  For the three months
ended
  For the six months
ended
  For the year ended
December 31
  June 30,
 2018
June 30,
2017
  June 30,
 2018
June 30,
2017
  2017  2016 
Main credit quality indicators                
Allowance for credit losses as a percentage of credit to the public 1.34 % 1.41 %   1.34 % 1.41 %   1.36 % 1.50 %
Impaired debts and debts in arrears of 90 days or more as a percentage of credit to the public 1.41 % 1.54 %   1.41 % 1.54 %   1.31 % 1.83 %
Net charge-offs as a percentage of average
credit to the public(1)
0.25 % 0.34 %   0.18 % 0.36 %   0.21 % 0.18 %
Provision for credit losses as a percentage
of average credit to the public(1)
0.13 % 0.21 %   0.22 % 0.17 %   0.08 % 0.07 %
                 
Main profit and loss data                
  NIS million
Net profit attributed to shareholders of the Bank 920   812     1,548   1,579     2,660   2,628  
Net profit attributed to shareholders of the Bank excluding extraordinary items(2) 920   812     1,608   1,579     3,348   *3,417
Net profit from continued operations attributed to shareholders of the Bank 827   710     1,378   1,402     2,346   2,354  
Net profit from continued operations attributed to shareholders of the Bank excluding extraordinary items(2) 827   710     1,438   1,402     3,034   3,143  
Net interest income 2,302   2,165     4,388   4,172     8,424   7,958  
Provision for credit losses 90   138     306   221     202   179  
Net financing profit*** 2,663   2,304     4,977   4,496     9,076   9,121  
Non-interest income 1,264   1,036     2,375   2,170     4,292   4,982  
Of which: fees 878   840     1,739   1,748     3,477   3,682  
Operating and other expenses 2,068   1,869     4,068   3,753     8,260   8,207  
Of which: salaries and related expenses 1,062   **1,050   2,106   **2,147   **4,209 **4,239
Total income  3,566   3,201     6,763   6,342     12,716   12,940  
                 
Net earnings per ordinary share (in NIS)                
Basic net earnings per share in NIS attributed to shareholders of the Bank from continued operations 0.62   0.53     1.03   1.05     1.76   1.76  

* Restated for inclusion of the effects of the reduction of corporate tax as part of profit excluding extraordinary items in 2016. In the Periodic Report for 2017 (and the subsequently published presentation for 2017), net profit and return on equity for 2016 and 2017 were presented excluding expenses in respect of the update of the provision in connection with the investigation of the Bank Group's business with American clients and the discontinuation of activity in Switzerland only. In 2016, net profit and return on equity for 2016 were presented also excluding the effects of the reduction of corporate tax (in addition to the exclusion of the update of the provisions in respect of the investigation, as noted). Within the process of preparation for filing a shelf prospectus of Hapoalim Hanpakot Ltd. (the issuance arm of the Bank, which is a company under full ownership), the Israel Securities Authority requested that the Bank present these data for 2016 in a manner that consistently applies the aforesaid excluded components.
** Reclassification of certain actuarial cost components of employee benefits from salary expenses to other expenses. For further details, see Note 1C(3) to the Condensed Financial Statements.

*** Net financing profit includes net interest income and non-interest financing income (expenses).

(1) Calculated on an annualized basis.
(2) Does not include expenses in respect of the update of the provision in connection with the Bank Group's business with American clients, and costs in respect of the discontinuation of activity in Switzerland.
(3) Comparative figures, including credit of the Isracard Group, were restated in order to present a discontinued operation separately from continued operations. For further details, see Note 1E to the Condensed Financial Statements.

 
Condensed financial information and principal performance indicators over time(1) (continued)
                 
        As at   For the year ended
December 31
        June 30,
 2018
June 30,
2017
  2017  2016 
        NIS million
Main balance sheet data                
Total assets       451,366   449,734     454,424   448,105  
Of which: cash and deposits with banks       83,261   81,948     86,093   80,367  
Securities       59,616   70,479     65,416   71,429  
Net credit to the public       272,458   260,249     265,853   258,691  
Net problematic credit risk       6,900   7,212     6,822   7,358  
Net impaired balance sheet debts       2,388   2,499     2,097   3,094  
Total liabilities       414,586   414,105     418,420   413,880  
Of which: deposits from the public       345,717   340,761     347,344   338,494  
Deposits from banks       3,846   3,979     3,649   4,077  
Bonds and subordinated notes       29,949   30,736     29,058   33,560  
Shareholders' equity       36,654   35,458     35,863   34,047  
Impaired credit to the public not accruing interest income (NPL)   2,269   2,571     2,073   3,480  
Additional data                
Share price at end of period (in NIS)       24.8   23.5     25.6   22.9  
                 
  For the three months ended   For the six months ended   For the year ended
December 31
  June 30,
 2018
June 30,
2017
  June 30,
 2018
June 30,
2017
  2017  2016 
Total dividend per share (in agorot)* 18.83   22.98     37.17   26.08     64.53   51.44  
Ratio of fees to average assets 0.19 % 0.28 %   0.39 % 0.39 %   1.14 % 1.18 %

* According to the date of declaration.
(1) Comparative figures, including credit of the Isracard Group, were restated in order to present a discontinued operation separately from continued operations. For further details, see Note 1E to the Condensed Financial Statements.

Contact:
Karen Mazor, SVP
Head of Investor Relations
Bank Hapoalim
T: +972 54 228 8039
E:  Karen.mazor@poalim.co.il

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