Bank Hapoalim Announces Fourth Quarter and Full Year 2017

Net Profit of NIS 2,660 million, return on equity of 7.5%

Net Profit excluding special provisions totaled NIS 3,348 million and return on equity stood at 9.4%

Dividend payment in respect of 2017 profits totaled NIS 1,065 million

TEL AVIV, Israel, March 26, 2018 (GLOBE NEWSWIRE) -- Bank Hapoalim (TASE:POLI) (ADR:BKHYY), Israel's leading financial group, today announced its financial results for the fourth quarter and full year ended December 31, 2017.

Key highlights:

Net profit in 2017 totaled NIS 2,660 million compared with a profit of NIS 2,628 million in 2016. Excluding provision in connection with the Bank Group’s business with American clients in the amount of NIS 557 million, and costs associated with the discontinuation of the Bank's activity in Switzerland in the amount of NIS 131 million, net profit in 2017 totaled NIS 3,348 million.
Return on equity reached 7.5% in 2017, compared with 7.7% in 2016. Excluding provision in connection with the Bank Group’s business with American clients and costs associated with the discontinuation of the Bank's activity in Switzerland, return on equity in 2017 stood at 9.4%.
Net profit in the fourth quarter totaled NIS 612 million and return on equity stood at 7.0%. Excluding provision in connection with the Bank Group’s business with American clients, and costs associated with the discontinuation of the Bank's activity in Switzerland, net profit for in the fourth quarter of 2017 totaled NIS 908 million and return on equity stood at 10.4%.
Total income from regular financing activity was the highest in the local banking sector and totaled NIS 9,010 million in 2017, compared with NIS 8,574 million in 2016, an increase of 5.1%.
Credit growth in Israel: Credit to the public grew by 2.5% in 2017. The Bank continued to grow according to its strategic framework delivering 4.0% increase in consumer credit, 7.7% increase in housing loans, 7.4% increase in credit to small businesses, and 5.2% growth in its commercial segment.
Improvement in asset quality: Total problematic debts declined by 10.0% in 2017, with NPL ratio (impaired credit to the public not accruing interest income) as a percentage of total credit stood at only 0.75%. The Bank manages a diversified credit portfolio with a high diversification of credit segments (individuals, mortgages, small businesses, commercial and corporate).
Deposits from the public increased by 2.6%.
Efficiency: Employee headcount in 2017 was reduced by approximately 450 employees, in addition to more than 2,000 employees who retired from the Bank as part of prior efficiency programs.
Cost-income ratio excluding special provisions totaled 61%, similar to 2016.
Tier 1 capital ratio: The Bank exceeded the capital adequacy targets required by the Bank of Israel and the Bank's Capital Plan. Tier 1 Capital Ratio stood at 11.26% as at December 31, 2017, compared with 11.01% as at December 31, 2016.
Dividend payments: Total dividend payments in respect of 2017 profits totaled NIS 1,065 million, representing a 40% payout ratio.

"Bank Hapoalim presented impressive financial results for 2017," said Oded Eran, Chairman of the Board of Directors. "These results were hampered, once again, by a provision recorded for the investigation of the Bank Group's business with American clients. This year, we continued to strengthen our capital base, improve its composition and maintain profitability, and we continued to enhance our digital offering to our customers. The Bank continued its leadership in financing of infrastructures and corporations, and the positive momentum in revenues and number of customers in the commercial banking segment. The Bank's deep commitment to the small-business sector is reflected in the strengthening of its value offering, the development of innovative and tailor-made products, and continuous support for this customer segment through financing and advising.

"The Bank is looking forward," continued Mr. Eran. "It is dependent on the powerful prowess of its employees. Perseverance, commitment and willingness to compete are core qualities of the Bank and are our biggest competitive advantage. We understand that the continued success of the Bank depends on our human capital and the ability to move forward while regenerating. I would like to express my deep gratitude to our customers who continue to express their confidence in us every day."

Commenting on the results, Arik Pinto, President and CEO of Bank Hapoalim said: "Bank Hapoalim has concluded another year of outstanding business results that testify to its position as Israel's leading financial institution. Excluding the provisions for the American investigation and for the closure of the Bank's activity in Switzerland, return on equity for the year reached 9.4%, and net profit total NIS 3,348 million.

These results were achieved through intensive and focused efforts, as reflected in our financing profit, the highest in the local banking sector, which increased by 5.1% this year due to the growth in the Bank's activity across our strategic focus segments.

"In 2017, we continued to grow and solidify the Bank's leadership in the household banking sector, while expanding our market share in housing loans. We continued to lead in banking for small businesses, and presented another year of responsible growth in credit and deposits, with diligent risk management. Accelerated growth continued in our commercial banking business, with successful openings of new banking centers serving small and mid-sized business clients. We improved the quality of our credit portfolio in the area of large corporate clients, while building infrastructures for significant growth in financing of corporate clients and leadership in financing of the major projects in the Israeli economy. We were resolute in reducing our international operations, alongside the successful realization of our growth plans for activity in the middle-market sector in the United States.

"We enhanced our capital base to more than NIS 47 billion, surpassing the capital targets required by the Bank of Israel and our own planned objectives. This year, we continued our journey of enhancing operational excellence, and successfully completed another stage of our long-term efficiency plan. Growth in activity coupled with scrupulous management of expenses were reflected in an impressive efficiency ratio of 61%.

"In light of the improved business results and our attainment of the planned capital framework, the Board of Directors of the Bank approved an increase in dividend distribution to 40% of net profits.

"Over the last year, we successfully developed the leading payment application in Israel, Bit; we improved our value offering for business clients, with the launch of a new business website, a business application, and an advanced cash-management system; we built the most advanced infrastructure in Israel for big-data applications; and we improved the technological infrastructures of the Bank, with an emphasis on information security and cyber defense, and made progress in preparing for a significant upgrade of the Bank's core IT systems.

"Several months ago, we introduced a new marketing concept: 'Poalim – with you in every decision,' reflecting our promise and commitment to be customers' most significant resource at important crossroads. In the last few weeks, we opened the Financial Growth Center, which offers essential financial tools and knowledge, free of charge, to customers of all banks.

As Israel's leading financial institution, we are determined to undertake a leading role in the growth of the economy and of society; to continue to implement our strategic plan, which will enable us to cope successfully with the challenges of the future and live up to our commitment to present excellent business results; and to act transparently and fairly, demonstrating social responsibility."

Key developments in the financial statements for the full year 2017:

Profit from regular financing activity totaled NIS 9,010 million in 2017 compared with NIS 8,574 million in 2016, an increase of 5.1%. The increase is mainly attributed to the growth in the Bank's business activity as part of its strategic framework.
Fees and other income in Israel – totaled NIS 5,056 million in 2017 compared with NIS 5,027 million in 2016.
Net provision for credit losses totaled NIS 323 million in 2017, 0.12% of the average credit to the public, compared with NIS 269 million, 0.10% of the average credit to the public, in 2016.
Gross provision for credit losses, before recoveries, stood at 0.57% in 2017, compared with 0.51% in 2016.
Operating and other expenses, excluding provision in connection with the Bank Group’s business with American clients and costs associated with the discontinuation of the Bank's activity in Switzerland, totaled NIS 8,982 million in 2017, compared with NIS 8,962 million in 2016.
Social responsibility - The Bank continues to lead in contribution to the community in the form of financial donations, especially in the field of education, culture and welfare. Bank Hapoalim’s donation for 2017 was expressed in a financial value of approximately NIS 43 million. During this period over 3,500 of the Bank's employees engaged in volunteer work.

Key developments in Balance Sheet Items:

Consolidated balance sheet as at December 31, 2017 totaled NIS 454.4 billion, compared with NIS 448.1 billion at the end of 2016, an increase of 1.4%.
Net Credit to the public totaled NIS 278.7 billion, compared with NIS 272.0 billion at the end of 2016, an increase of 2.5%. Retail credit, housing loans, and credit to small business and commercial customers increased while corporate lending decreased.
Consumer credit in Israel totaled NIS 40.3 billion compared with NIS 38.7 billion at the end of 2016, an increase of 4.0%.
Housing loans in Israel totaled NIS 74.1 billion compared with NIS 68.8 billion at the end of 2016, an increase of 7.7%.
Credit to small businesses in Israel totaled NIS 31.2 billion compared with NIS 29.1 billion at the end of 2016, an increase of 7.4%.
Credit to the commercial segment in Israel totaled NIS 33.9 billion compared with NIS 32.2 billion at the end of 2016, an increase of 5.2%.
Credit to the corporate segment in Israel totaled NIS 65.5 billion compared with NIS 68.0 billion at the end of 2016, a decrease of 3.7%.
Deposits from the public totaled NIS 347.4 billion compared with NIS 338.5 billion at the end of 2015, an increase of 2.6%.
Shareholders' equity totaled NIS 35.9 billion as at December 31, 2017, compared with NIS 34.0 billion at the end of 2016, an increase of 5.3%.
Total capital ratio stood at 14.64% as at December 31, 2017, compared with 15.11% as at December 31, 2016.
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 7.37% at the end of 2017.
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 122% at the end of 2017.

Conference Call Information

Bank Hapoalim will host a conference call today at 5:00 p.m. Israel Time/ 10:00a.m. Eastern Time to discuss the results. The call will be accompanied by a slide presentation.

In order to participate, please dial the following numbers (at least ten minutes ahead of the scheduled start time): United States 1-888-281-1167; United Kingdom 0-800-051-8913; International (972) 3-9180685. No password is required.

The slide presentation, earnings release and the full year 2017 financial statements will be available on the Bank's website, www.bankhapoalim.com, under Investor Relations, Financial Information.

Following the conclusion of the call, a replay will also be available by audio playback on Bank Hapoalim's website. The replay of the conference call can also be accessed until April 2, 2018 by calling (972) 3-9255918 (international).

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 Securities Law, 1968.

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

Principal Data of the Bank Hapoalim Group
Main profit and loss data (NIS millions)	For the year ended Dec. 31
	2017	2016	2015	2014	2013
Net profit attributed to shareholders of the Bank	2,660	2,628	3,082	2,713	2,537
Net profit attributed to shareholders of the Bank excluding extraordinary items⁽¹⁾	3,348	3,146	3,082	3,264	3,021
Net financing profit*	9,334	9,345	8,929	8,684	8,423
Fees and other income	5,296	5,376	5,433	5,338	5,241
Total income	14,630	14,721	14,362	14,022	13,664
Provision for credit losses	323	269	475	425	874
Operating and other expenses	9,616	9,490	8,790	9,183	9,041

	As at Dec. 31
Main balance sheet data (NIS millions)	2017	2016	2015	2014	2013
Total assets	454,424	448,105	431,638	408,033	380,201
Net credit to the public	278,663	271,957	278,497	263,980	251,600
Securities	65,442	71,449	62,884	58,778	60,912
Deposits from the public	347,351	338,502	321,727	297,230	276,525
Bonds and subordinated notes	29,058	33,560	34,475	33,671	33,980
Shareholders’ equity	35,863	34,047	33,032	30,966	28,534
Net problematic credit risk	7,092	7,600	9,311	12,721	16,279
Net impaired balance sheet debts	2,121	3,110	4,265	5,389	6,817

		For the year ended Dec. 31
	Main performance indicators	2017		2016		2015		2014		2013
	Return of net profit on equity attributed to shareholders of the Bank	7.50	%	7.72	%	9.61	%	9.10	%	9.30	%
	Return of net profit on equity attributed to shareholders of the Bank excluding extraordinary items⁽¹⁾	9.44	%	9.24	%	9.61	%	10.90	%	11.10	%
	Return on average assets	0.59	%	0.60	%	0.73	%	0.71	%	0.68	%
	Efficiency ratio – cost-income ratio	65.73	%	64.47	%	61.20	%	65.49	%	66.17	%
	Efficiency ratio – cost-income ratio excluding extraordinary items⁽¹⁾	61.03	%	60.95	%	61.20	%	61.56	%	62.60	%
	Financing margin from regular activity⁽²⁾	2.16	%	2.09	%	2.09	%	2.27	%	2.12	%
	Ratio of common equity Tier 1 capital to risk components according to Basel 3⁽⁴⁾	11.26	%	11.01	%	9.63	%	9.29	%	-
	Ratio of total capital to risk components according to Basel 3⁽⁴⁾	14.64	%	15.11	%	14.36	%	14.60	%	-
	Leverage ratio⁽⁴⁾	7.37	%	7.25	%	7.10	%	-		-
	Liquidity coverage ratio⁽³⁾	122	%	124	%	99	%	-		-
	Main credit quality indicators
	Allowance for credit losses as a percentage of credit to the public	1.36	%	1.49	%	1.56	%	1.56	%	1.54	%
	Provision for credit losses as a percentage of average credit to the public	0.12	%	0.10	%	0.17	%	0.16	%	0.34	%
	Additional data
	Share price at end of year (in NIS)	25.6		22.9		20.1		18.4		19.5
	Total dividend per share (in agorot)**	64.53		51.44		42.87		33.83		21.00
	Average number of employee positions	11,506		11,893		12,395		13,964		13,492
	Ratio of fees to average assets	1.14	%	1.18	%	1.26	%	1.37	%	1.37	%
	Net earnings per ordinary share ( in NIS )
	Basic net earnings per share in NIS attributed to shareholders of the Bank	2.00		1.98		2.32		2.05		1.92

* Net financing profit includes net interest income and non-interest financing income (expenses).
** According to the actual date of payment.
(1) Does not include expenses in respect of the efficiency plan, 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.
(2) 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.
(3) For additional information, see the section "Liquidity and refinancing risk," in the Consolidated Financial Statements. The Bank has applied the liquidity coverage ratio directive as of April 1, 2015.
(4) For additional information, see the section "Capital, capital adequacy, and leverage," in the Consolidated Financial Statements. The Bank has applied the Basel 3 directives as of January 1, 2014, and the leverage ratio directives as of April 28, 2015.

Bank Hapoalim Announces Fourth Quarter and Full Year 2017 Financial Results