IDB Annual Report 2014 It’s understanding the goals of our private and business clients and helping to achieve them. It’s banking done the right way for the last 60 years. It’s being more than a bank; it’s being a financial partner who is a close confidant to our clients. IDB, it’s personal. Leadership

04 INTRODUCTION 08 REPORT OF THE BOARD OF DIRECTORS 10 FINANCIALS

Services

14 U.S. PRIVATE BANKING 30 SOUTHERN Investment Management 32 SOUTH & Trust 34 TREASURY 18 INTERNATIONAL Foreign Exchange &  PRIVATE BANKING Interest Rate Derivatives 20 LENDING DIVISION 38 CASH MANAGEMENT Corporate Lending Factoring 40 IDB CAPITAL Commercial Real Estate Asset Based Lending

1 LEADERSHIP IDB Bank Annual Report 2014

Leadership

04 INTRODUCTION 08 REPORT OF THE BOARD OF DIRECTORS 10 FINANCIALS

2 3 LEADERSHIP Introduction IDB Bank Annual Report 2014

Introduction

Ehud Arnon Jacob Berman President & Chairman of the Board Chief Executive Officer

From customized investment strategies in our markets; we have a loyal client base, from which we derive a considerable portion of our new business and new customer referrals. We treasure and private banking to individualized business cultivate these long-standing relationships as we continue to attract new clients loans, IDB Bank looks beyond the numbers who desire a more personal approach to banking. to cultivate close personal relationships with We are especially proud that our Not-for-Profit and Healthcare group, which was established in 2012, has already been recognized as one of the leaders in that our clients. 2014 was no exception, with sector. It is a significant achievement for a recent venture to reach these heights contributions from the dedicated teams in a highly competitive marketplace, during a period of low interest rates. throughout the Bank. Our Lending Division, which includes the Corporate, Factoring and Asset Based Lending groups, also had a superb year. New clients are always welcome, and some have introduced us to new industries that diversify our mix of loans. We We brought in new clients, strengthened our relationships with long-time stayed the course with these clients, some of whom were weathering operational customers, added new products to serve our business and private banking and financial challenges and disruptions in their markets. Now that the New clients, invested in technology, improved our customer-facing online services York and national economies have regained their footing, the tide has turned for and strengthened our balance sheet. these companies, and they are geared up for recovery and even expansion.

We serve our clients best by providing them with access to funds and products The Real Estate group is performing well. We have provided our clients that will fuel their business success and preserve and increase their wealth for with creative financial solutions for even the most complex real estate deals. the next generation. We will not venture into unfamiliar products and services, We anticipate growth in the , , Los Angeles and Florida no matter how alluring the prospect of additional yield that comes with higher real estate markets, and our goal is to accommodate clients that are active in risk. At IDB, we actively pursue solutions that meet our clients’ needs, amid an these markets. economic environment characterized by uncertainty. In the international trade markets, we are one of the top 50 in the United 2014 represents a year of significant growth, a strong loan book and increased States in issuing Letters of Credit. This will continue to be an important part of income. Ours is an enterprise that is unique compared to other banks. We know our activity.

4 5 LEADERSHIP Introduction IDB Bank Annual Report 2014

Whether you are a client of long standing or are considering how our full-service bank may help you address your financing and investment needs, we thank you for your interest in IDB Bank.

By continuing to invest in online applications, we aim to provide our clients We are optimistic about the U.S. economy, particularly in the markets with superior services, such as traditional and electronic platforms to monitor where we operate: New York, New Jersey, Florida and California. We have their loan and depositary activity, cash management and other means to review an aggressive and achievable five-year plan for growth and expansion. We will trading activities and portfolios. do more of what we do every day, and what we do best: serve our clients with an excellent platform, maintain a strong capital base and retain our outstanding Recent strategic decisions and continuing realignment have resulted in an even professional staff. stronger balance sheet, which has a substantial core capital base. With the high credit quality of our loan book, we have one of the lowest non-performing loan We invite you to become better acquainted with IDB and our business units that, ratios among our peers. together, have contributed to a highly productive year. Whether you are a client of long standing or are considering how our full-service bank may help you address your financing and investment needs, we thank you for your interest in IDB Bank.

We will do more of what we do every day, and As a final comment, our Chairman of the Board, Mr. Michael Goldstein, stepped what we do best: serve our clients with an excellent down from his position. We wish to thank him for his contributions to the growth of the Bank and his years of outstanding service. platform, maintain a strong capital base and retain our outstanding professional staff.

As was noted last year, we have focused on our core activities and decided to Jacob Berman sell Discount Bank of Latin America, our retail-oriented subsidiary in Uruguay, as it no longer aligns with our strategic vision. The sale agreement was signed at the end of 2014 and is expected to be consummated in 2015. Another decision of bottom-line consequence was the sale of our entire Trust Preferred Securities (TRUPS) portfolio. Excluding these two transactions, which were both at a loss, Ehud Arnon 2014 would have been a record year for the Bank, with an adjusted net income of $58.6 million.

6 7 LEADERSHIP Report of the Board of Directors IDB Bank Annual Report 2014

Report of the Board of Directors

This year we continued to pursue market customer base is very loyal; many of our borrowers opportunities as a stronger U.S. economy helped are family-run businesses where, over time, we many of our customers regain momentum and develop close personal relationships with the founders grow their businesses. We supported their growth and the next generation, and, in some cases, even by offering them a host of financing and a third generation. investment solutions. In 2014, we added new products that have had IDB performed exceedingly well in 2014. Loans a positive impact on our growth and retention of List of the reached a record level, and new products were made clients, including insurance and special investment Board of Directors available to our customers. The balance sheet had vehicles for private banking clients as well as some almost $10 billion of assets and a strong capital additional cash management services for corporate base, consisting mostly of core Tier One capital. customers. We continue to enhance our customer- Jacob Berman Theresa Bischoff facing tools and improve our technology systems to We are confident The Bank reduced legacy issues and improved Chairman of the Board Director support our growth. This year we also revamped our Nov 2014 to Present Sept 2011 to Present credit quality (which is the highest among our the professionals website, which for the first time includes customer peers). We pursued efficiencies in our workflows, Ehud Arnon Samuel Gortler testimonials and mobile optimization. of IDB will promote moved to a team structure in all business areas President & CEO, Director Discount Bank of New York Sept 2014 to Present and improved customer-facing tools. We showed We continue to emphasize a strong compliance continued success Director, Jan 2011 to Present stability of income, despite the low interest rate culture, which is well-rooted in our organization, for their clients in Orit Alster environment and continued to increase earning and we remain committed to high levels of cyber Lilach Asher-Topilsky Director power, while maintaining high liquidity and strong security. These measures help protect our clients the years ahead. President & CEO, Feb 2013 to Present Discount Bank Ltd. capital ratios. against identity theft and also permit our professionals Director, Mar 2014 to Present Trevor S. Harris to scrutinize attempts at unauthorized activity. Director IDB Bank’s 2014 net income totaled $22.4 million. Following the lead of our parent company, we Michael Goldstein Mar 2014 to Present Excluding onetime events that include losses from exceed the domestic regulatory requirements for Chairman of the Board the sale of our subsidiary in Uruguay, DBLA, and Apr 2006 to Nov 2014 Gil Kurtz capital stress testing, loan provisions and other Director, Nov 2014 to Mar 2015 Director the sale of our entire Trust Preferred portfolio, our financial safeguards. Sept 2008 to Sept 2014 net income would have been a record $58.6 million. Maurice H. Hartigan II These onetime expenses will serve us in the coming Based on the strength of the Bank’s balance Director Darcy E. Bradbury years as we strive to become more profitable and sheet, the high quality of the assets and the array Jun 2009 to Present Director Sept 2012 to Nov 2014 capital efficient. of new products and services, we are confident the professionals of IDB will promote continued IDB is focused on two niche markets: private success for their clients in the years ahead. banking for domestic and international clients’ and lending to middle-market companies. Our

8 9 LEADERSHIP Financials IDB Bank Annual Report 2014

Discount Bancorp, Inc. & Subsidiaries As of December 31, 2014 IDB Bank & Subsidiaries (Dollars in thousands) assets capital ratios (%)

Cash and Due from Banks $52,356 $52,356 LEVERAGE RATIO 8.13% 8.02% Interest-Bearing Deposits with Banks 208,571 208,571 TIER 1 RISK-BASED CAPITAL RATIO 11.93% 11.77% Trading Account Assets, at market 15,494 15,494 TOTAL RISK-BASED CAPITAL RATIO 12.94% 12.78% Available-for-Sale Investment Securities, at market 2,126,955 2,126,955 Held-to-Maturity Investment Securities (market value $863,890) 838,507 838,507 Federal Home Loan Bank Stock, at cost 11,278 11,278 condensed consolidated statement of income Investment Securities 2,992,234 2,992,234 INTEREST & DIVIDEND INCOME Loans, net of unearned income 4,989,067 4,989,067 Loans and Deposits with Banks $159,728 $159,728 Less: Allowance for Loan Losses (64,672) (64,672) Investment Securities and Trading Account Assets 82,607 82,568 Loans, net 4,924,395 4,924,395 Total Interest and Dividend Income 242,335 242,296 Unrealized gain on derivatives 43,048 43,048 Premises and Equipment, net 17,205 17,205 INTEREST EXPENSE Accrued Interest and Accounts Receivable 54,919 54,919 Deposits 36,135 36,168 Bank-Owned Life Insurance 175,828 175,828 Borrowed Funds and Others 42,675 42,675 Customers’ liabilities under acceptances 5,093 5,093 Total Interest Expense 78,810 78,843 Deferred tax asset, net 40,340 40,340 Other Assets 18,865 18,865 Net Interest & Dividend Income 163,525 163,453 Assets of Discontinued Operations 1,250,611 1,250,611 Provision for Loan Losses 5,142 5,142 Total Assets $9,783,465 $9,783,465 Net Interest Income, after provision for loan losses 158,383 158,311

NON-INTEREST INCOME liabilities Commissions and Fees 42,316 42,316 Other-than-temporary impairment of securities (31,391) (31,391) Deposits Other Non-interest Income 19,459 18,804 Domestic Offices Total Non-interest Income 30,384 29,729 Non-interest-Bearing $828,769 $834,271 Interest-Bearing 5,029,483 5,034,343 NON-INTEREST EXPENSE Foreign Offices Salaries and Employee Benefits 79,752 79,752 Interest-Bearing 736,641 736,641 Occupancy, Equipment and Other Expenses 61,359 60,860 Total Deposits 6,594,893 6,605,255 Total Non-interest Expense 141,111 140,612 Securities Sold under Repurchase Agreements 1,021,215 1,021,215

Borrowed Funds 50,982 50,982 Net Income before Income Taxes 47,656 47,428 Total Borrowings 1,072,197 1,072,197 Income Tax Expense 4,784 4,764 Unrealized loss on derivatives 42,914 42,914 Loss from Discontinued Operations 20,443 20,443 Acceptances outstanding 5,093 5,093 Net Income $22,429 $22,221 Accounts Payable, Accrued Expenses and Other Liabilities 87,931 87,909 Liabilities of Discontinued Operations 1,196,092 1,196,092 IMPACT OF NON-RECURRING ITEMS Total Liabilities $8,999,120 $9,009,460 Add back loss on sale of TRUPS of $31,391, net of taxes $17,296 $17,296 Add back valuation allowance for DBLA sale of $23,936, net of taxes $18,907 $18,907 stockholder’s equity Pro-forma adjusted Net Income $58,632 $58,424

Common Stock $5,000 $75,259 Surplus 94,652 24,393 consolidated statement Retained Earnings 705,295 694,955 of comprehensive income Accumulated Other Comprehensive Loss, net of tax (20,602) (20,602) NET INCOME $22,429 $22,221 Total Stockholder’s Equity $784,345 $774,005 Net change in available-for-sale securities, net of taxes 48,808 48,628 Total Liabilities and Stockholder’s Equity $9,783,465 $9,783,465 Net unrealized gain on cash flow hedge, net of taxes 862 862 Funded status of pension and post-retirement benefits, net of taxes (7,163) (7,163) COMPREHENSIVE INCOME $64,936 $64,548

10 11 SERVICES IDB Bank Annual Report 2014

Services

14 U.S. PRIVATE BANKING Investment Management & Trust 18 INTERNATIONAL 30 SOUTHERN CALIFORNIA PRIVATE BANKING 32 SOUTH FLORIDA 20 LENDING DIVISION 34 TREASURY  Corporate Lending Foreign Exchange &  Factoring Interest Rate Derivatives Commercial Real Estate Asset Based Lending 38 CASH MANAGEMENT 40 IDB CAPITAL

12 13 SERVICES U.S. Private Banking IDB Bank Annual Report 2014

Our list of diverse clients value the long-term U.S. Private relationship and service from their IDB banker. Banking

James LoGatto and a family who owns and operates boutique hotels in . All are Executive Vice President, among the diverse clients who value the long-term relationship and service U.S. Private Banking from their IDB banker.

Many clients are motivated by the low interest rate environment to move their deposits into portfolios managed by the Investment Management & Trust group 2014 was an excellent year for U.S. Private Banking, with a $300 million (IM&T) for greater yield and preservation of capital. With their focus on increasing increase in deposits to $1.6 billion, representing a 23% growth over the prior returns and protecting assets, the portfolio managers advise clients on how to year. In addition, assets under management rose to $240 million and loans limit risk and also see their money grow. Indeed, the IM&T group has consistently to $140 million. There was also an impressive 57% increase in non-interest outperformed the indices in both equity and fixed income during a period of income, fueled in part by a high level of activity in wealth management, foreign volatility in the market. This shift from deposits to wealth management represents exchange services and Letters of Credit. an increase in non-interest fee income for the bank. Account officers are also Much of the increase in volume came from the close working relationships introducing insurance, annuities and estate planning services that complement with clients. The two-way flow of information between the Bank’s account the range of wealth management products and advisory services available to managers and commercial lenders, among other groups, makes for camaraderie these clients. and increased opportunities for our clients. Many of our clients refer others to To accommodate client interests, the Private Banking group now offers the Bank to learn more about IDB’s personal attention and tailored solutions. investments in other asset classes, such as commodities. It is our The clients in the group represent a broad spectrum of businesses and responsiveness to client requests combined with a high level of industries. These include, for example, a doctor who has launched several communication with our valued clients that enables us to maintain biotech companies, a family who operates an electrical contracting company a high level of new business growth and retention.

14 15 SERVICES Investment Management & Trust IDB Bank Annual Report 2014

Investment Clients often tell the group’s professionals they want someone watching the money Management & Trust they spent a lifetime making; the IM&T account managers listen and execute Posting a 13.4% increase in revenue, the Investment The group has registered growth in several areas, investment plans accordingly. Management & Trust (IM&T) group had a very including nonprofits seeking management of their successful year. The strong base of clients in endowment funds, healthcare companies and New York and New Jersey has steadily grown, apparel clients. IM&T is now managing the 401(k) with current clients adding to both their business pension plans and insurance trusts for several and personal investment holdings. Our dedicated corporate clients and looks to increase this account managers are also securing new accounts. client base. The teams in California and Florida are contributing In addition, an upgrade in technology systems as well, with greater activity in those regions and efficiencies in the back office area has improved expected in 2015. planning capabilities from the clients’ perspectives. Key to the growth of the individual portfolios is asset With new software applications, clients may allocation. In the fixed-income sector, managers evaluate their portfolio results in two formats: on placed an emphasis on high asset quality and short a performance basis and on a needs basis. maturities to allow for opportunistic re-investment New and innovative wealth management products as rates become more attractive. As for equities, also contribute to the group’s success. With full success has come from having the appropriate fiduciary powers, IM&T is authorized to act as allocations to all of the equity classes both within executor and trustee of clients’ estates in New York. the U.S. and outside. In general, client portfolios Plans are under way to offer this service to clients are well diversified by asset class, geography in New Jersey, Florida and California. and across all spectrums. As a result, IM&T has outperformed its benchmark indices for the past Looking ahead, the group will continue close four years. collaboration with counterparts in other areas of IDB, especially within both the U.S. Private Clients often tell the group’s professionals they Banking and the International Private Banking want someone watching the money they spent a groups. For the latter, many clients are changing lifetime making; the IM&T account managers their objectives from preserving capital to growth listen and execute investment plans accordingly. of their investments, for themselves and for the The stock market’s volatility, especially in recent next generation, supported by the strength of times, represented an opportunity to revisit relationships and solid communication with IDB. allocations. During that period, the IM&T team spoke directly with clients, both to keep in touch during those tumultuous months and to re-evaluate their individual objectives.

16 17 SERVICES International Private Banking IDB Bank Annual Report 2014

International Clients invite their sons and daughters to join them in meetings with their account Private managers, and this next generation often is interested in more sophisticated investments Banking and newer products.

The Account Officers of the International Private Banking group are licensed to sell securities in the U.S. They are particularly adept at introducing Chaya Rub clients to the broad array of investment Executive Vice President, opportunities and services of IDB. Naturally, International Private Banking they are familiar with Letters of Credit and foreign exchange services for their international clients, as well as the full spectrum of the Bank’s lending For the past two years, the International Private Banking group has grown operations for client businesses. significantly through the introduction of new products. These include an extensive array of structured time deposit products, mutual funds, investments Clients invite their sons and daughters to join in private equity funds and discretionary portfolio management. them in meetings with their account managers, and this next generation often is interested in more International Private Banking seeks out the most attractive investments in the sophisticated investments and newer products. marketplace and objectively recommends them to clients based on individual These discussions represent opportunities for investment goals, risk profiles and other appropriate factors. Many clients communication and education with these clients. have placed their investments in discretionary portfolios managed by the IM&T group of IDBNY. Market dynamics will undoubtedly play a role in the group’s future growth. The International Private The interest rate on traditional deposits declined; a number of clients, who Banking group, with contributions expected from are adding to their accounts, are shifting portions of their deposits into other colleagues in the Florida office, is prepared for products in order to achieve higher returns. another solid year.

18 19 SERVICES Lending Division IDB Bank Annual Report 2014

Some of the larger banks are Lending moving away from our traditional niches, leaving some of their Division customers feeling disenfranchised and searching for the personal attention and flexible approach of IDB.

Lissa Baum Executive Vice President, Chief Lending Officer Many not-for-profit clients who obtained loans the home furnishings and electronics markets are are adding to the services they use within the Bank. also becoming clients. They maintain active depository relationships, IDB is actively involved in transactions that require It was an exceptional year for the Lending Division, with a 10% growth in loans. use IDB Access®, the Bank’s online cash arranging credit facilities with two or more banks. In addition, activity in all segments of the group increased, reflecting the impact management service, and have engaged the These club deals are becoming more prevalent of an improving economy, with all our business lines currently performing well. Investment Management & Trust group to in the asset based, real estate, apparel and home manage their portfolios. Some of the larger banks are moving away from our traditional niches, leaving furnishings markets. By putting the deal together, some of their customers feeling disenfranchised and searching for the personal Client satisfaction is strong in the Trade and Finance IDB retains existing clients and provides for the attention and flexible approach of IDB. For example, several banks have left market, where an upgrade in the customer-facing customers’ needs for future growth. the diamond and jewelry industry, a market where IDB is traditionally strong. software will provide more efficient service and Looking ahead, lending officers are actively reaching We remain committed to serving these clients and have even expanded this better reporting capabilities. Through both internal out in the tri-state area for prospective clients. business to take on new clients. These new opportunities, together with strong development of technology and responses to The group anticipates additional market penetration ongoing client relationships, have made for a very good year. customer feedback, the Bank will continue to in other industries, such as pharmaceuticals, support and upgrade these services. One area that stands out as particularly strong in the past year is the nonprofit chemicals, business services companies and healthcare sector. Clients from social service organizations, educational Importers and wholesalers using the Letter of and electronics. and charitable organizations, and healthcare facilities took new loans. On Long Credit facility have long been loyal customers of Island, two of the largest not-for-profit Assisted Living Facilities worked with IDB. The majority of these clients are in the apparel IDB on financing to expand their facilities. and accessories industries, and now, companies in

20 21 SERVICES Corporate Lending IDB Bank Annual Report 2014

Flexibility and streamlining the Corporate loan approval process are what our clients value most when Lending seeking loans from IDB.

This was a very strong year for the Corporate The healthcare and not-for-profit sector Lending team, which booked about $400 million recorded substantial loans for social service in new credit facilities, including a large number agencies and for hospitals, which provide vital of new accounts. Due to the low interest rate services to the underserved in our communities. environment, it was a most competitive Projects we worked on provided housing and landscape; IDB monitored the credit quality of services for developmentally disabled individuals its loan book and produced solid returns. as well as a cardiac unit on the south shore of Long Island. There is a strong backlog in the healthcare About half of the loan portfolio consists of sector, which is promising for 2015. companies in the middle-market sector, with revenues from $10 million to $500 million, such as Working with the Interest Rate Derivatives team, consumer, apparel, diamonds and jewelry, food the Corporate Lending group offered clients interest distributors and light manufacturing businesses. rate swaps to mitigate risk and take advantage of the prevailing lower interest rates. The other half of the loan book balance is nearly equally represented among healthcare and not-for- Because many clients are entrepreneurs, they are profit groups, midsize corporate businesses and interested in investing in new products and trying U.S. subsidiaries of companies based in Israel. other services that IDB offers. These clients seek to diversify their assets via investments, insurance, real This spectrum of industries indicates the broad estate and other areas. This broadens and deepens knowledge base of the Account Officers; they their ties to the Bank. are able to penetrate many diverse sectors and creatively serve clients to meet their financing In 2015, the Corporate Lending group is focused needs. Flexibility and streamlining the loan approval on segmenting markets to seek out specialized process are what our clients value most when industries. These include industries such as seeking loans from IDB. They also benefit from beverage, pharmaceuticals and nutraceuticals. our ability to provide a quick turnaround on new requests.

22 23 SERVICES Factoring IDB Bank Annual Report 2014

Factoring

The Factoring loan book grew more than 40% Account Officers maintain IDB offers its Factoring clients customized products beverage industry, home furnishings, electronics over last year. Buoyed by increased activity, higher and service. The focus on developing a package for and other sectors. By maintaining a varied portfolio, volume and broader market dynamics, the group contact with clients and review companies that works for them today and tomorrow the Factoring group’s book of business is less also posted a substantial rise in non-interest the collateral daily. This high means the group’s professionals continually tailor vulnerable to swings in the consumer markets. revenue and deposits. that package to the lifecycle of the company. level of service permits IDB Anticipating volume growth among existing customers, As domestic manufacturers have increased offshore The key services and components in factoring are underscored by strong, long-term relationships, plus activity, their business models have changed in to maintain a keen awareness the interest rate on borrowed funds, commission on the addition of new products and clients, Factoring recent years. With lower infrastructure expenses of credit risk so that it may the face value of the invoices for the credit guaranty, is poised for another strong year. domestically, they need to re-direct their cash flows processing the remittances and monitoring the to accommodate overseas activities. Accordingly, comfortably pursue more maturity of the invoices and payments. Speed to these companies use their accounts receivable as market can often be critical in helping clients meet collateral for working capital loans and for opening leveraged deals elsewhere. their financing needs. Account Officers maintain Letters of Credit. contact with clients and review the collateral daily. This high level of service permits IDB to maintain Factoring has long been a source of working capital a keen awareness of credit risk so that it may for diverse industries and a cost-effective way to comfortably pursue more leveraged mitigate the payment risk of buyers. The deals elsewhere. improvements in the U.S. economy in 2014 continued to confirm Factoring’s role as a vital The clients of the Factoring group are highly source of funds. Increases in consumer spending diversified. Elsewhere in the industry, sales to the generated higher volumes relative to capital apparel sector may constitute as much as 80% of investment, which in turn, required more funds a factoring company’s volume. By comparison, the for working capital. As in the past, IDB provided apparel industry is merely 30% of the total at IDB. solutions to its clients to meet their funding needs. IDB Factoring services many clients in the food and

24 25 SERVICES Commercial Real Estate IDB Bank Annual Report 2014

Commercial The Bank’s clients include real estate companies and professional Real Estate real estate businesses, many with long-standing relationships.

Building a strong customer base has been the key to In October, CRE launched a new program to serve the success of the Commercial Real Estate Lending an interesting new client base, namely, Israeli group (CRE) at IDB. In 2014, the loan portfolio grew institutional clients, such as insurance companies by 18.5% compared to last year. This performance and pension funds. They wish to invest their excess continues a trend: since 2012, CRE loans have liquidity in the U.S. markets. The high-quality loan increased by 87%. Deposit accounts are another portfolio of the Bank’s real estate group represents growth engine for the team, up 25% compared to an attractive investment opportunity. last year. Another new target customer is the private equity IDB is known for responding quickly to a customer’s market. Here, participants are looking for unique needs. In one instance, a long time client wanted loan structures that make sense for their own to complete an acquisition and had less than 30 days investments as well as loans to their portfolio to close the financing for the transaction. Through companies. IDB develops transactions that meet the close relationship and understanding of the their specialized needs. company’s operations, the CRE team met the Working with IDB’s Treasury group, the real estate timeline to get the loan funded. team is able to offer interest rate derivative products Much of the Bank’s CRE loan portfolio collateral (e.g., interest rate swaps) to borrowing customers is concentrated in traditional property types, such and provide a win–win where the customer’s rate is as shopping centers, office buildings, warehouses, fixed and IDB’s rate is variable. This provides rate hotels and multi family apartment buildings. The protection to the customer without putting IDB Bank’s clients include real estate companies and portfolio liquidity at risk. professional real estate businesses, many of them Looking to 2015, new loan and derivative products, long-standing individual relationships. together with the deeper penetration of the Israeli Although IDB generally serves as the sole lender, institutional market, will add to the growth of the on occasion it will originate a larger loan to be number of customers and the loan portfolio. The shared with other banks. In those cases, the Bank very active real estate market in Metro New York, serves as an administrative agent. These loans together with the Southern California and Florida often finance office buildings and hotels in core markets, also bodes well for the Commercial Real geographic markets. Estate group in the year ahead.

26 27 SERVICES Asset Based Lending IDB Bank Annual Report 2014

Asset Based Lending

The results of the Asset Based Lending group reflect all the participating companies, IDB was able to Over the past year, the Sometimes these circumstances favor the borrower a transitional year. In 2014, loan activity remained speedily close the loan. who is merely in search of the least expensive rate. stable during a period when rates came down. At group has focused on the For many IDB clients, however, it’s not just about Over the past year, the group has focused on the the same time, market competition intensified as all the numbers. Clients tell their Account Officers that more traditional markets, working with clients in more traditional markets, participants sought to increase volume. In this more they value how IDB has always been there to support the manufacturing, wholesale, retail, distributor, intense environment, IDB maintained its focus on working with clients in the them, which testifies to the strength of ongoing beverage, apparel and specialty finance sectors. credit quality. The Asset Based Lending group stayed manufacturing, wholesale, relationships. The Asset Based Lending group will away from taking on more risk simply for the sake of Some more recent additions to the loan portfolio do its utmost to maintain that loyalty. adding to the loan portfolio. are staffing companies, a mobile phone distributor, retail, distributor, beverage, a health and beauty aids manufacturer, a sporting Asset Based loans are customized and are structured apparel and specialty goods company, educational distributors, a chemical as advances against an asset class. Terms include food additive distributor and an Internet retailer. This the frequency of reports to the lender and payment finance sectors. mix of businesses contributes to a highly diversified guarantees, as well as the range of interest rates, portfolio, making the business less vulnerable to consistent with the prevailing market rates and the changes in the broader economy. credit quality of the borrower. The market environment is becoming more The group prides itself on the fact that their long- competitive, as other commercial banks are lasting relationships permit the Account Officers entering the arena in search of asset growth. to give a quick approval if conditions are appropriate. Some alternative investment funds, which are For example, a private equity fund sought to borrow not subject to the same types of regulatory funds for the U.S. subsidiary of an Israeli company. oversight, are also moving into the asset based In less than three weeks, with cooperation from lending business.

28 29 SERVICES Southern California IDB Bank Annual Report 2014

Commercial real estate activity has been quite strong in the Southern California market, and IDB’s lending activity has also Southern experienced significant increase. The area in which the Bank was most active in 2014 was the secured bridge financing space, where the expertise and experience of the Bank’s employees resonate. Customized lending structures and swift turnaround California gives IDB a competitive advantage over many larger banks that have a slower approval process.

Deposits continued to grow in 2014, with an increase of 15% from the previous year. This represents new and expanded client relationships, many of whom use IDB’s cash management products. Private banking activity has also grown as IDB continues to expand its wealth management platform, which offers a full array of services, including investment management, brokerage, life insurance for estate and succession planning, and 401(k) management and administration services. IDB’s approach is highly customized and innovative, bringing added

Kiyoun Kim value to our clients, to help them achieve their goals for wealth Executive Vice President, management and preservation. Southern California With further anticipated growth in the California economy, the Southern California offices are highly engaged in the local market to find ways to bring value and solutions to businesses The Southern California offices had an impressive year, experiencing significant and their owners. growth in both business and private banking activities. The loan portfolio grew by 24% in 2014, demonstrating continued strengthening of the local economy and IDB’s ability to be a valued partner to local businesses and their principals. IDB’s approach is highly With robust new loan volume in both the Corporate and Real Estate lending areas, IDB is recognized in the local market for its ability to understand the customized and innovative, needs of clients and prospects, and provide quick and efficient responses while maintaining a high level of personal service. bringing added value to

Corporate lending activities have been well diversified in industries in which the our clients, to help them Bank has deep experience, including apparel, healthcare, food and beverage, achieve their goals for diamond and jewelry, health and beauty products, and non-predatory consumer finance. The Bank is also looking to expand into new industries as it continues to wealth management increase presence in the Southern California market. Asset based lending and and preservation. factoring are also offered.

30 31 SERVICES South Florida IDB Bank Annual Report 2014

IDB will be there, ready to provide financing for the development of the South infrastructure and office buildings, and to offer loans to new businesses to be Florida located at the port.

Because Miami is the gateway to Latin America, there are considerable opportunities for growth among domestic and international clients with business and family ties to that region. Moreover, the Bank’s traditional Moise Hillel focus on family-operated businesses, together with the broad mix of services Executive Vice President, South Florida offered to private banking clients, promotes planning for wealth retention and distribution over the longer term. IDB stands apart from the traditional retail banks and competitors with its personalized service, which in turn fosters strong customer retention. The loan portfolio of the South Florida office has significantly expanded in the past year. The focus on commercial real estate and corporate lending The professionals of the Florida office work closely with their counterparts is bringing loans of higher credit quality. in New York to help their clients transact business in the local market. For example, the team arranged for a developer in the Florida real estate market Some areas of significant growth in the corporate lending arena include to secure a loan through the asset based lending team in New York. The office service and distribution facilities, marine-related businesses, assisted expects to facilitate similar referrals going forward. living facilities and, for the first time, the airline industry. Loans in the Florida market usually are in the $5 million to $10 million range, and IDB Some observers forecast the investment in the transportation infrastructure develops very close working relationships with clients. Over the long term, and the projected expansion of the seaport of Miami will likely have a cascading that familiarity creates opportunities to deepen an understanding of the effect across multiple industry sectors. The need for increased storage facilities business, anticipate its needs and provide more services. will also spur construction of offices for the companies involved in trade activities centered in the maritime district, as well as employment opportunities The number of accounts in the U.S. Private Banking base is also steadily for these businesses. IDB will be there, ready to provide financing for the increasing. Among these clients, many individuals are shifting portions development of the infrastructure and office buildings, and to offer loans to of their funds from deposits to investments. Their focus is not only to new businesses. protect their assets, but also to grow them over time. Many of the newer accounts are of larger size, which creates additional opportunities to Looking to 2015, the South Florida office anticipates additional growth introduce the clients to the insurance and annuities products and in both loans and private banking, consistent with the local economy’s wealth management services. upward trajectory.

32 33 SERVICES Treasury IDB Bank Annual Report 2014

Treasury

The Treasury professionals have an in-depth understanding of the portfolio and each security’s characteristics. As a result, they are able to make quick decisions when opportunities present themselves.

David Cohen Changes in interest prompted profit-taking sales and the purchase of selected Executive Vice President, Treasury assets at favorable rates. The investment team is experienced at watching the market and interpreting economic data. The Treasury professionals have an in-depth understanding of the portfolio and each security’s characteristics. As a result, they are able to make quick decisions when opportunities The Treasury group serves the entire Bank’s operations, providing the necessary present themselves. liquidity for loans, aggregating deposits and managing investment growth. The Account Officers in this group brought in new business and created The Treasury group anticipates and forecasts interest rate developments and additional value for customers by marketing new products and services. conducts stress testing. Its professionals monitor how the assets and liabilities of the Bank’s balance sheet will perform in various circumstances, as well as Liquidity of funds within Treasury is of importance. With an emphasis on overall liquidity. high credit quality, the holdings are almost exclusively U.S. fixed-income securities, ranging from government agencies and municipal bonds to all Through a selection process on the portfolio management side, funds were issuers of mortgage-backed securities. moved into higher quality assets, and some legacy positions, such as the Trust Preferred Securities (TRUPS) and other assets, were sold. As a response to ongoing economic changes and Treasury’s forward-looking view of the economic landscape, the duration and average life of Treasury’s Looking ahead, the Treasury group is always alert to tracking risk-weighted fixed-income portfolio has been reduced. The current short average life is assets and making sure that the Bank’s capital is optimally deployed for greater consistent with the Bank’s perspective that it should be prepared for any income while maintaining credit quality and monitoring risk. By being attentive increase in interest rates. At a time when bond yields are expected to rise, it is to controlling the cost of funds and maintaining, and even increasing, margins best to keep to a shorter fixed income average life, allowing for an increased for products, whether loans or capital management, Treasury plans for another cash flow from which to re-invest into increasingly rising yields. successful year in 2015.

34 35 SERVICES Foreign Exchange & Interest Rate Derivatives IDB Bank Annual Report 2014

Foreign Exchange & Interest Rate Derivatives

The Foreign Exchange and Interest Rate Derivatives it is important for them to hedge the exposure group reported substantial revenue growth in this creates, and do so by utilizing IDB’s Foreign 2014. A significant portion of the increase in Exchange products. volume is directly attributable to an even closer With respect to interest rate products, in an working relationship with the Account Officers in A significant portion of the environment where rates are quite low, many the diverse lending groups, notably, Corporate businesses wish to hedge floating rate debt by increase in volume is directly Lending, Factoring, International Private Banking locking in very favorable fixed rates. There has been and the Florida office. This collaboration resulted attributable to an even closer a major pick up in the group’s activity in New York, in more business from existing IDB clients, as especially in the real estate market. It is likely there working relationship with the well as a large number of new lending and will be an increase in these interest rate products banking relationships. Account Officers in the diverse in California and Florida as well because of the lending groups. In 2014, the group shifted its focus from proprietary ongoing strength of their regional real estate trading in the foreign exchange markets to a markets activities. customer-centric business. The foreign exchange volatility in 2014 was a wake-up In some cases, the foreign exchange opportunities call and should encourage companies involved in can even serve as an attraction for a prospective international business to develop hedging strategies client, as was the case for a large produce company. to protect their profits and keep costs at a minimum in Because the company pays for produce in dollars 2015 and beyond. Companies with a large exposure and sells it to companies in Europe for Euros, they to floating interest rates also need to pay attention were very intrigued to learn what IDB could do to as the prospect of higher rates increases. These help them manage their currency exposure. businesses look to IDB’s expertise to help manage that exposure for them. Accordingly, the group can Another interesting new Foreign Exchange client is create custom hedging strategies for our clients, a U.S. engineering company whose building project based on their operational needs, appetite for risk in Israel is funded in U.S. dollars. They need to pay and type of exposure, to help ensure their success their local subcontractors in Shekels, so therefore, in the year ahead.

36 37 SERVICES Cash Management IDB Bank Annual Report 2014

Cash Management

From real estate to manufacturing to apparel to jewelry, IDB Access supports all of our clients’ collections and payments needs. Linda Weber Senior Vice President, Cash Management

IDB Access®, the Bank’s Cash Management platform, is a sophisticated set The IDB Access suite added a new, state-of-the-art lockbox product in late of online products and services that help our clients improve their financial 2014. This new product allows clients to expedite collection of their check-based operations across all types of industries. From real estate to manufacturing receivables. IDB Access Lockbox also has specific functionality geared to the to apparel to jewelry, IDB Access supports all of our clients’ collections and real estate/property management and healthcare/insurance sectors. The new payments needs. In addition, the Bank’s experienced Cash Management product adds easy-to-use and flexible viewing and reporting capabilities. professionals help clients take advantage of the efficiencies that our Of course, with IDB Access, our clients’ security is a priority. IDB Access leverages products offer. multi-factor authentication and implements some of the latest, most useful online The Bank’s Cash Management team works with clients to improve their security technology. internal processing as they move from more expensive, paper-based methods The Cash Management customer base increased by over 15% in 2014, proving of collections and disbursements to electronic and more automated processes. that existing and new clients see the advantages of moving their payment and As a result, clients can manage their operations more efficiently. deposit activity online. Many clients take advantage of the streamlined data upload and download Additional products and services are scheduled for release in 2015, helping our features, helping to significantly minimize, if not eliminate, errors. With their clients further improve their operational efficiencies so they can focus on their deep understanding of payment processes across multiple channels, our core businesses. professionals embody a client-friendly service approach. We freely offer advice to improve clients’ internal financial operations and provide both hands-on and web-based training.

38 39 SERVICES IDB Capital IDB Bank Annual Report 2014

needs. These new products include alternative investments and private placements, which in IDB some cases, offer attractive returns. In addition, the group signed a joint marketing agreement with KB Financial Partners to offer Capital a full range of insurance products and wealth transfer solutions, as well as executive benefit and retirement plan consulting services, to individuals and businesses.

Looking ahead, there is a focus on adding to the number of domestic clients from the U.S. Private Banking and Lending groups. This approach has already begun to produce results as clients seek to obtain more value-added services from their trusted banking relationships, a trend that suggests additional growth in 2015.

Matt Rozzi Executive Vice President, IDB Capital Because the Bank maintains relationships across multiple generations, we are

As the full-service brokerage subsidiary of the Bank, IDB Capital, member expanding our product base to meet FINRA/SIPC, provides brokerage and insurance services to customers of their diverse needs. IDBNY’s domestic and international private banking divisions. We offer a broad array of wealth management services, including investment management, retirement services, wealth transfer and business planning strategies.

Overall, we are promoting a migration of assets from a transactional brokerage business model to a wealth management model, which focuses on diversified asset allocation strategies and coordination with the Bank’s discretionary investment management services. This approach improves the quality of client portfolios and generates recurring fee income based on the growth of assets under management.

As ever, IDB Capital is engaged in developing new products for clients to meet their investment goals. Because the Bank maintains relationships across multiple generations, we are expanding our product base to meet their diverse

40 41 LOCATIONS

Main Office 511 Fifth Avenue New York, NY 10017 Tel: (212) 551-8500

Branch Offices Subsidiary Bank Representative Offices 201d Edwar Curry Avenue, Discount Bank Latin America PERU Suite 204 Rincón 390 Amador Merino Reyna 295, of. 701 Staten Island, NY 10314 Montevideo, Uruguay San Isidro, Lima, Peru Tel: (718) 698-4892 Tel: (511) 421-8384

Other Subsidiaries 400 Avenue U URUGUAY Brooklyn, New York, NY 11223 IDB Capital Corp.** General Venancio Flores 431 Tel: (718) 382-4987 511 Fifth Avenue Colonia del Sacramento, CP 70000 New York, NY 10017 Colonia, Uruguay 150. John F Kennedy Parkway Tel: (598) 4522-1123 Short Hills, NJ 07078 IDBNY Realty (Delaware), Inc. Tel: (973) 379-8699 1105 North Market Street, World Trade Center Suite 1446 Luiso Albert de Herrera 1248 9401 Wilshire Boulevard, Wilmington, DE 19899 Torre B Piso 4, of. 409 Suite 600 Montevideo, Uruguay Beverly Hills, CA 90212 IDB Realty, LLC Tel: (5982) 622-2257 Tel: (310) 860-6320 511 Fifth Avenue New York, NY 10017 MEXICO 888 South Figueroa Street, Av.o Homer 1804, of. 202 Suite 550 IDB Real Estate Holdings, Inc. Colonia Polanco, 11560 Los Angeles, CA 90017 511 Fifth Avenue, Mexico,., D.F Mexico Tel: (213) 861-6440 New York, NY 10017 Tel: (5255) 5395-0634

Harbour Centre IDB Leasing, Inc. ISRAEL 18851 NE 29th Avenue, 511 Fifth Avenue, Ofek House Suite 600 New York, NY 10017 8 Ha’Manofim Street, 3rd Floor Aventura, FL 33180 P.O.Box 12406 Tel: (305) 682-3700 IDB-HK Ltd. Herzliya Pituach, 46733 Israel Level 28 Three Pacific Place 1 Tel: (972) 9-773-7400 P.x O. Bo 694GT Queen’s Road East George Town Hong Kong CHILE Grand Cayman, Cayman Islands* Av. Vitacura 2771 of. 804 Las Condes, Santiago, Chile Tel: (562) 236-5600

*Non-FDIC insured branch **Member FINRA/SIPC IDB Bank is a registered service mark of of New York and a wholly-owned subsidiary of Discount Bancorp, Inc. Member FDIC. Other Discount Bancorp, Inc. subsidiaries: DB Properties, Inc.

42 IDB Bank is a registered service mark of Israel Discount Bank of New York. Member FDIC.