CEO Statement

DEAR INVESTOR
The results of 2018 reflect the continued growth of the Group while maintaining an appropriate risk level, a growth which is reflected in income, in the credit portfolio and in the public assets portfolio.
“2018 was a year of significant strategic steps, the most prominent of which was the move made at the end of the year - merging Otzar Hachayal Bank, while maintaining its old established and leading brand name with the security forces personnel in Israel. This merger, coming after the successful mergers in the past of other banks in the Group, contributed to our efficiency measures and enables the First International Bank to be a bank that enjoys both a size advantage, and the strength of its leading brand names, each in its own field. The costs of the merger, as well as the cost of the other steps we have taken, such as early retirement plans in the Group, are included in the expenses of 2018, while the fruit of these actions will be reflected in the coming years.”
“In the past year, we continued and also accelerated the development of tools and new services in the digital field, improving the user experience, and introducing advanced tools in the capital markets segment. We have upgraded the communication channels of the Bank with its customers, so that the combination of the professional service with the digital field contributes to the level of service, professionalism and value offered by the Bank to its customers,” concluded Ms. Barber Tsatik.

2018 Financial Highlights
• Growth of 8.1% in net earnings to NIS 733 million;
• Return on equity of 9.3%;
• Growth of 13.9% in earnings from financing operations;
• The average balance of credit to the public increased by 6.3%;
• The average balance of customer assets increased by NIS 40 billion amounting to NIS 441 billion;
• Ratio of Tier I equity to risk asset ratio on December 31, 2018 reached: 10.51%;

Summary of the Results

Profitability
Net earnings of the First International Bank Group in 2018 increased by 8.1%, amounting to NIS 733 million. Return on equity reached 9.3% in comparison with a return of 9.1% in 2017. Net earnings after elimination of certain components in 2018 amounted to NIS 675 million, a growth of 10.8% and return on equity, after the above-mentioned elimination, reached 8.6%, compared with 8.2% in 2017.
In the fourth quarter of the year, net earnings increased by 4.4% in comparison to the corresponding quarter last year, amounting to NIS 165 million. The return on equity in the fourth quarter reached 8.4%, similarly to that of the corresponding quarter last year. Earnings in the fourth quarter include a number of exceptional expenses for the quarter, primarily due to unusual payroll related expenses due to an agreement reached with employees of subsidiary companies, from employees' bonuses and from expenses due to a retirement plan.

Growth
Financing income in 2018 increased by 13.9% in comparison to 2017, amounting to NIS 2,717 million. Financing income from current operations increased by 11.1%, the growth was primarily due to an increase in the volume of operations. Commission income increased by 1.5%.The growth of the Group is also apparent in the balance sheet data, both on the credit side and on the deposit side. The Bank's average customer assets portfolio grew by 10% (which is approximately NIS 40.4 billion) reaching NIS 441 billion. The average balance of credit to the public grew by 6.3% in 2018.The growth in credit is characterized by the continuing diversification of the credit portfolio, and is noted in the private customer segment, which grew by 7.6%, in the small and middle market business segment, which grew by 7.2%, and in the corporate segment, which grew by 1.3%. Net credit to the public as of December 31, 2018 totaled NIS 84,292 million, in comparison to NIS 80,378 million at the end of 2017, representing growth of 4.9%.The growth in the credit portfolio was achieved while maintaining an appropriate risk level: the ratio of credit loss expenses to total credit to the public in 2018 amounted to 0.20%.

Efficiency
The First International Bank continued to improve efficiency in accordance with its strategic outline, and the efficiency ratio improved to 68.4% in 2018, from 69.5% in 2017. The efficiency trend is noted both in terms of the decrease in the number of positions, which declined in 2018 by 3.7% (which represents approximately 160 positions), as well as in a decrease in office space in use by the Group by 7%. It is noted that the decrease in the number of positions as of the end of 2018, is a result of the efficiency measures and the early retirement plans introduced by the Group, most of which were offered to employees towards the end of 2018 , such that most of the retirement will take place in 2019.  
Operating and other expenses in 2018 amounted to NIS 2,819 million, an increase of 8.1% in comparison to 2017. The growth in expenses is mainly due to the growth in Payroll and related expenses, which amounted to NIS 1,696 million representing an increase of 7.4%. This increase was mainly due to payments to employees for early retirement plans, other awards and the updating of payroll amounts due to agreements with employees of subsidiary companies. When excluding the expense in respect of awards to employees, payroll and other expenses saw a decline of 1.1%.
The increase in expenses was also due to a 9.2% increase in operating and other expenses primarily due to expenses in respect of the merger of Otzar Hachayal Bank with and into the Bank, and to the increase in additional expenses for efficiency measures taken within the Group. The increase in these expenses during 2018, is expected to result in future expense savings .

Financial Stability and Dividend
The upward trend of the equity attributed to the shareholders of the Bank continued, and grew by 4.3% (NIS 337 million) to NIS 8,093 million. Tier I equity capital ratio increased to 10.51% from 10.38% as at December 31, 2017, and the comprehensive capital ratio amounted to 13.94% at year-end 2018.

In 2018, the Bank distributed dividends totaling NIS 355 million, comprising of approximately 50% of net earnings, in accordance with the policy of the Bank for a dividend distribution of up to 50% of net earnings. The return on dividend amounted to 4.5%.
The Board of Directors of the Bank resolved an additional dividend distribution to shareholders of NIS 105 million.
 

Smadar Barber-Tsadik