ISRAEL CREDIT CARDS LTD.

TABLE OF CONTENTS

BOARD OF DIRECTORS AND MANAGEMENT REPORT

Report of the Board of Directors and Management - December 31, 2020 13 General Survey, Targets and Strategy 13 Summary description of the Company 13 Summary of main financial data 14 Holding structure 16 Organizational structure 17 Summary description of the main risks to which the Company is exposed 18 The outbreak of the Coronavirus 18 Business targets and strategy, and development expectations in the coming year 21 Explanations and Analysis of the Results and the Business Position 26 Trends, phenomena, developments and material changes 26 Changes in accounting policies 27 Material developments in income, expenses and other comprehensive income 27 The structure and development of assets, liabilities, capital and capital adequacy 34 Operating segments 42 Principal investee companies 46 Risk Review 48 General description of the risks and their management 48 Credit risk 54 Market and liquidity risks 64 Operational risk 69 Other risks 71 Critical Accounting Policy and Assessments, Controls and Procedures 77 Accounting policies on critical matters 77 Critical accounting assessments 77 Controls and procedures 82 Certification by the Chief Executive Officer 84 Certification by the Chief Accountant 85 Report of the Board of Directors and Management on the Internal Control over Financial

Reporting 86

ISRAEL CREDIT CARDS LTD.

FINANCIAL REPORT

Report of the Independent Auditors to the Shareholders of Israel Credit Cards Ltd. - In Accordance with the Public Reporting Directives of the Supervisor of Banks Regarding Internal Control over Financial Reporting 88 Statement of Profit and Loss for the Year Ended December 31 90 Consolidated Statement of Other Comprehensive Income for the Year Ended December 31 91 Balance Sheet 92 Statement of Changes in Equity 93 Statement of Cash Flows for the Year Ended December 31 94 Statement of Cash Flows for the Year Ended December 31 (Continued) 95 Notes to the Financial Statements as at December 31, 2020 96 Note 1 - General 96 Note 1 - General (Continued) 97 Note 2 - Reporting Principles and Accounting Policy 97 Note 3 - Income from Credit Card Transactions 122 Note 4 - Net Interest Income 122 Note 5 –Non-Interest Financing Income 123 Note 6 - Operating Expenses 123 Note 7 - Selling and Marketing Expenses 124 Note 8 - Administrative and General Expenses 124 Note 9 - Provision for Taxes on Profit 124 Note 10 - Cash and Bank Deposits 128 Note 11 - Credit Risk, Receivables on Credit Card Transactions and Allowance for Credit Losses on a Consolidated Basis 129 Note 12 - Receivables (1) on Credit Card Transactions and Off-Balance-Sheet Credit Risk by Size of Borrower’s Debts 140 Note 13 - Securities 141 Note 13 – Securities (Continued) 142 Note 14 - Investments in Investee Companies (Consolidated - Associates) and Details Thereof 143 Note 15 - Buildings and Equipment 146 Note 15 - Buildings and Equipment (Continued) 147 Note 16 - Other Assets 149 Note 17 - Credit from Banks 149 Note 18 - Payables on Credit Card Transactions 150 Note 19 - Subordinated Notes 150 Note 20 - Other Liabilities 151 Note 21 - Employee Benefits 151 Note 21 - Employee Benefits 152 Note 22 - Capital Adequacy and Leverage Pursuant to the Supervisor of Banks’ Directives 161 Note 23 - Contingent Liabilities and Commitments 166 Note 24 - Guarantees 185 Note 25 - Operating Segments 185 Note 26 - Assets and Liabilities According to Linkage Basis 189 Note 27 - Assets and Liabilities According to Linkage Basis and Maturity Period 191 Note 28 - Balances and Fair Value Estimates of Financial Instruments 195 Note 29 – Activity in derivative instruments extent, credit risks and repayment times 197 Note 29 – Activity in derivative instruments extent, credit risks and repayment times (Continued) 198 Note 30 - Interested and Related Parties of the Company and its Subsidiaries 199 Note 31 – The Outbreak of the Coronavirus 206

ISRAEL CREDIT CARDS LTD.

REPORT ON CORPORATE GOVERNANCE AUDIT AND OTHER DETAILS

Corporate Governance and Audit 210 The Board of Directors and Management 210 The Internal Auditor 215 Remuneration of External Auditors (1) (2) 218 Remuneration of Senior Officers 219 Transactions with Controlling Shareholders and Related Parties 220 Additional Details Regarding the Company’s Business and its Management 220 Fixed assets and Facilities 220 Intangible Assets 222 Human Capital 223 Material Agreements 224 Material Legislative and Regulatory Restrictions and Special Constraints Applicable to the Company 227 Directives issued by the Banking Supervision Department 228 Operating Segments - Additional Details 231 Legal Proceedings 236 Appendices to the Annual Report 238 Rates of Interest Income and Expenses of the Company and its Subsidiary and Analysis of Changes in Interest Income and Expenses 238 Consolidated Balance Sheet - Multi-Quarter Information 242 Consolidated Statement of Profit and Loss - Multi-Quarter Information 243 Consolidated Statement of Profit and Loss - Multi-Period Information 244 Consolidated Balance Sheet - Multi-Quarter Information 245 Glossary 246 Initials 250 Index 251

ISRAEL CREDIT CARDS LTD.

Members of the Board of Directors of the Company

Esther Deutsch, Chair Esther Einhorn Ilan Biran Keren Bar-Hava Yuval Gavish Eyal Hayardeny Moshe Cohen Nachman Nitzan Liliya Kaplan

ISRAEL CREDIT CARDS LTD.

BOARD OF DIRECTORS AND MANAGEMENT REPORT

Report of the Board of Directors and Management - December 31, 2020 13 General Survey, Targets and Strategy 13 Summary description of the Company 13 Summary of main financial data 14 Holding structure 16 Organizational structure 17 Summary description of the main risks to which the Company is exposed 18 The outbreak of the Coronavirus 18 Business targets and strategy, and development expectations in the coming year 21 Explanations and Analysis of the Results and the Business Position 26 Trends, phenomena, developments and material changes 26 Changes in accounting policies 27 Material developments in income, expenses and other comprehensive income 27 The structure and development of assets, liabilities, capital and capital adequacy 34 Operating segments 42 Principal investee companies 46 Risk Review 48 General description of the risks and their management 48 Credit risk 54 Market and liquidity risks 64 Operational risk 69 Other risks 71 Critical Accounting Policy and Assessments, Controls and Procedures 77 Accounting policies on critical matters \Critical accounting assessments 77 Controls and procedures 82 Certification by the Chief Executive Officer 84 Certification by the Chief Accountant 85 Report of the Board of Directors and Management on the Internal Control over Financial

Reporting 86

Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

Statement of the Chairman of the Board of Directors

Dear stakeholders,

On behalf of the Board of Directors and Management, I am honored to present the annual financial report for the year 2020. CAL has finished the year 2020 with results that reflect the continuation of the momentum of activity in the Company, together with the ongoing handling of the crisis caused by the spread of the Coronavirus, which has placed many challenges before the Company. The virus changed the global order very swiftly, and has had a sharp impact on lifestyles and consumer habits. These changes have has a direct impact on CAL's operating lines and had caused damage central revenue channels. The implications of the crisis are very apparent in these financial statements. Whereas in January and February the Company's trend of growth continued from previous years, from March onwards, following the outbreak of the virus and the imposition of restrictions by the government, a significant reduction occurred in the volume of activity. As a result, there has been a significant decrease in CAL's revenues, which derived primarily from a decrease in the volume of transactions executed abroad, which occurred in parallel to a jump in the Company's credit losses expenses, are a result of the assessment of the risk that is inherent in the portfolio.

When the crisis broke out, the Company dedicated itself to ensuring the health of its employees, which involved adopting the routine of working from afar, and it harnessed its resources to help its customers. Within this context, it established infrastructure for the deferral of payments pursuant to the directives issued by the Banking Supervision Department, and has also provided credit supported by a guarantee from the State for entitled businesses, pursuant to the criteria that have been set by the Ministry of Finance. All of this was done together with various benefits, which the Company has provided for its customers in periods of lockdown and compulsory isolation.

In tandem with the handling of the implications of the crisis, we have continued with a series of long-term strategic initiatives and technological and infrastructure projects, with an emphasis on the updating of the core systems, and have taken action to simplify and to improve processes and experiences from the customer's perspective.

Within this context, the Company has invested in the development of projects in order to provide advanced services in the field of credit card use, including TraffiCal, CalPay and the conversion of cards to contactless cards. Furthermore, a number of agreements have been signed with new and existing business partners during the year, including an agreement with Apple, for the embedding of the Apple-Pay App, a cooperation agreement with Bank Hapoalim for the issuance of cards for customers on the BIT app, and cooperations with Paybox and Shufersal.

The Company has proven that it is strong and has both financial stability and resilient people and even in this challenging period, it has continued to leverage its capabilities and its status among existing and potential customers, in combination with personal and qualitative expertise, professionalism and service orientation.

I would like to express my gratitude and appreciation, first and foremost, to the Company's employees, to the members of its management and its Board of Directors, for their exceptional contribution in supporting the Company's operations in what has been a challenging year, which they have done professionally, with dedication, creatively and responsibly, and all this with the objective of supporting our customers, in order to safeguard business continuity.

In light of the implications of the crisis, CAL has executed a non-recurring voluntary redundancy program this year. I would like to thank CAL's Workers' Committee for their cooperation throughout the formulation of this program and to the Company's employees who are leaving for their contribution to the Company over the many years in which they worked in CAL.

CAL is signing off the year 2020 in a state in which it is prepared for coping with the numerous challenges that it anticipates as the economy recovers from the crisis. In 2021, the Company will continue to take action in order to create and to provide innovative solutions and services for the Company's customers and partners and to solidify its status as a leading company in the fields of payments and non-banking credit.

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Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

We are publishing the report in which the first signs of an exit from the global crisis have started to appear and I am very hopeful that the Israel economy will recover speedily from the crisis. I and the members of the Board of Directors send our best wished for good health to our employees and to our customers.

Yours sincerely,

Esther Deutsch

Chair of the Board of Directors

March 10, 2021

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Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

Report of the Board of Directors and Management - December 31, 2020

At its meeting held on March 10, 2021, the Board of Directors resolved to approve and publish the Annual Report of Israel Credit Cards Ltd. (“CAL” or “the Company”) for the year ended December 31, 2020.

General Survey, Targets and Strategy

Summary description of the Company

CAL Group - General background and group structure

CAL was established in 1979 and is a private company under the Companies Law. CAL is engaged in the operation of credit cards and in the development of payment solutions and financial products. The Company is an "auxiliary corporation" and an "acquirer" under the Banking (Licensing) Law, 1981 and in accordance with a temporary license that has been given to it to use an acquirer by the Bank of Israel.

The two main areas of activity in which the Company is engaged are: the issuing of credit cards (including financing for private individuals) and the acquiring of credit card transactions.

The use of credit cards as a means of payment is facilitated by the existence of a combination of several parties, comprising the issuer, the acquirer, the merchant and the customer (cardholder), who are interconnected through a series of separate and independent agreements (both by direct agreements and also, indirectly, by virtue of the acquirers and the issuers’ membership in the international organization granting the franchise relating to the brand name of the credit card), with there being instances where the acquirer is also the issuer of the credit cards as well as instances where the identity of the acquirer and the identity of the issuer are not one and the same. The aforementioned relationships represent the basis for the transfer of relevant information relating to payment arrangements for credit card transactions.

The following diagram depicts the stages of a credit card transaction:

Interchange fees Issuer Acquirer

Consideration

Merchant Consideration Consideration fees

Products/services Cardholder Merchant

The Company’s revenues mainly consist of commissions derived from operating credit cards and providing payment solutions, as well as financing income from credit, which are paid by its customers: the cardholder and the merchant. The Company has holdings in a number of subsidiaries and an associate through which it operates in providing some of the services to its customers. In 2020, these services were provided by Diners Club Israel Ltd., CAL Financing Ltd., Diners Financing Ltd., Yatzil Finances Ltd. and CAL Deposits Ltd. - companies that are wholly controlled by the Company.

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Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

In addition, the Company has a 20% holding in the share capital of Shlomo CAL Ltd. and a 10% holding in the share capital of Casponet Ltd.

These companies provide services that supplement those provided by the Company, and are provided in cooperation with the Company, with the aim of supplying customers with a services platform that is as broad as possible.

The Company issues, markets and operates directly "VISA", "Diners" and "MasterCard" credit cards that are valid in Israel and abroad, and has entered into joint issuing agreements with co-brand banks. The Company acquires "VISA", "Diners" and "MasterCard" credit cards that are valid in Israel and abroad, and also “Isracard” credit cards (valid solely in Israel).

The Company's auditors since its establishment in 1979 are Somekh Chaikin, Certified Public Accountants.

According to statistics published by the Central Bureau of Statistics, more than 85% of the adult population in Israel uses credit cards as a means of payment, and that the Israeli consumer has an average of 2 credit cards in his wallet. It further estimates that as at December 31, 2020 there were approximately 12 million credit cards in Israel. Furthermore, approximately 80 thousand merchants and chains in Israel allow purchases to be made with credit cards.

Summary of main financial data

Condensed financial information - multi-period data

Year ended December 31 2020 2019 2018 2017 2016 Principal performance metrics Return on equity 6.2% 11.0% 9.0% 13.4% 21.3% Return on equity, excluding non-recurring events 4.8% 10.3% 9.0% 13.4% 14.2% Common equity Tier 1 ratio 13.8% 12.9% 14.8% 14.4% 14.4% Leverage ratio 8.7% 8.0% 9.5% 10.0% 10.1% Principal credit quality metrics Allowance for credit losses as percentage of credit to the public 2.17% 1.58% 1.63% 1.48% 1.28% Impaired debts as percentage of credit to the public 0.77% 0.31% 0.32% 0.20% 0.19% Accounting write-offs, net, as percentage of average credit to the public 0.63% 0.62% 0.63% 0.58% 0.45% Allowance for credit losses as percentage of credit to the public for which the Company is responsible 4.07% 2.84% 2.86% 2.78% 2.47% Impaired debts as percentage of credit to the public for which the Company is responsible 1.47% 0.58% 0.57% 0.38% 0.37% Accounting write-offs, net, as percentage of average credit to the public for which the Company is responsible 1.17% 1.13% 1.17% 1.24% 0.92% Principal profit and loss data for the reporting year Net profit attributable to equity holders of the Company (in NIS millions) 115 201 157 211 292 Net profit attributable to equity holders of the Company, excluding non-recurring events (in NIS millions) 90 188 157 211 195

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Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

Year ended December 31 2020 2019 2018 2017 2016 Income from credit card transactions (in NIS millions) 1,254 1,356 1,226 1,074 984 Net interest income (in NIS millions) 530 505 464 423 362 Expenses for credit losses (in NIS millions) 223 147 156 126 74 Operating expenses (in NIS millions) 657 617 557 483 540 Of which, salaries and related expenses (in NIS millions) 248 237 218 193 194 Operating expenses, excluding non-recurring events (in NIS millions) 636 634 557 483 441 Of which, salaries and related expenses, excluding non-recurring events (in NIS millions) 227 237 218 193 173 Basic and diluted earnings per ordinary share for the reporting year (in NIS) 104.8 183.1 143.0 192.2 266.0 Basic and diluted earnings per ordinary share for the reporting year, excluding non-recurring events (in NIS) 81.6 170.4 143.0 192.2 177.6 Principal balance sheet data for the reporting year (in NIS millions) Total assets 18,535 19,159 16,015 14,051 12,416 Of which: cash 52 67 46 52 49 Credit to the public 17,598 18,324 15,443 13,557 11,964 Total liabilities 16,605 17,338 14,177 12,371 10,912 Payables on credit card transactions 10,918 10,272 8,861 7,568 6,870 Equity attributable to equity holders of the Company 1,930 1,821 1,838 1,680 1,504 Additional data Number of valid cards as at December 31 (in thousands) 3,726 3,563 3,275 2,638 2,461 Transaction turnover (in NIS millions) 107,929 107,096 93,383 80,212 72,384 Number of full-time positions as at December 31 1,360 1,452 1,501 1,301 1,330

For disclosure regarding the Consolidated Statement of Profit and Loss - multi-period data and the Consolidated Balance Sheet – multi-period data, see page 244 in the Report on corporate governance, additional details and appendices.

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Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

Holding structure

Israel Credit Cards Ltd.

100% 100% 100% 100% 20% CAL 10% Diners Yatzil CAL Shlomo (Financing) Casponet Club Israel Finances (Deposits) CAL Ltd. Ltd. Ltd. Ltd. Ltd. Ltd.

100% Diners (Financing) Ltd.

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Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

Organizational structure

Board of Directors

Company Internal Secretariat Audit* Chief Executive Manager

Risks Technologies Credit and Strategy and Payment Legal Financial Finance Management and Partners Resources Counsel Control Division Operating Services Division Division Division Division Division Division Division

* Subordinate to the Chairman of the Board of Directors.

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* Under the Chairman of the Board of Directors

Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

Summary description of the main risks to which the Company is exposed CAL Group is active in a wide range of financial activities that involve the taking of risk. The Group’s business character exposes the Group to an environment with various different commercial and regulatory characteristics. Furthermore, by the very nature of their activities, acquirers are exposed to an array of risks, the principal of which are: credit risk, operational risk, compliance risk and IT risk. A description of these risks and their management are detailed in this chapter below (General description of the risks and their management), and in the report on the "Basel third pillar disclosures and additional information on risk" on the Company’s Hebrew website:

The outbreak of the Coronavirus In the first quarter of 2020, there was an outbreak of a new "Corona" type virus, which spread rapidly to most of the countries in the world, whilst causing widespread infection and a significant mortality rate. In March 2020, the World Health Organization declared the Coronavirus to be a "global pandemic". Following the outbreak of the virus, many governments across the globe, including in Israel, instituted protective measures, which included restricting movements between countries, enforcing isolation and lockdowns, restricting various types of business activities and etcetera. These steps have led to significant impairment of business activity, an increase in unemployment rates, damage to the ability of businesses to survive and impairment of revenues and consumption by householders (see the section on "principal economic developments", which follows). Following the marked reduction in the extent of the morbidity in Israel in the period from May to June 2020, there was an additional, broader outbreak of morbidity in the period from July to September 2020, following which there has been an additional significant outbreak, the third in number, in the period from December 2020 to January 2021. The additional outbreaks led to the imposition of additional lockdowns in Israel in the months of September – October 2020 and in the months of January – February 2021, which have led to a significant reduction of economic activity in Israel.

The Company's Board of Directors and its committees have been holding frequent meetings dealing with the outbreak of the Coronavirus on various aspects of its operations, including business continuity, the Company's preparations for various scenarios and preparations for "the day after". Furthermore, when the crisis broke out, the Company's management focused its full managerial attention on the crisis and the implications thereof. Work teams made up of people from across the organization, headed by the Company’s CEO, have managed the various sectors of the Company’s operations under the constraints imposed by the crisis, whilst monitoring developments closely and taking action to mitigate the various risks and the safeguard the business continuity. The business divisions have increased the monitoring and control activities over the state of the Company's credit portfolio.

The Company's operations are affected directly by the level of activity in the Israeli economy and accordingly the steps that have been taken by the government following the outbreak of the virus, as well as the change in consumer behavior, have had a significant impact on the size of the Company's transactions turnover and they are expected to continue to have an impact for the foreseeable future.

The Company is of the opinion that because of the implications deriving from the spread of the virus and the steps that have been taken as a result thereof, a significant decrease has been caused the Company's revenues and profitability will occur in 2020 and in the beginning of 2021.

Since March 2020, in light of the outbreak of the "Coronavirus", there has been a decrease in the volume of activity in the issuing and acquiring segments. The decrease was felt especially in the period from April 1 to April 19, 2020, when strict restrictions were imposed on activity in the Israeli economy ("the first lockdown").

The steps taken to provide reliefs after the first lockdown led to a recovery in the volume of activity in the months of May to August, and the additional restrictions, which were imposed in September and in the period from December 2020 to February 2021, have led to an additional reduction on the volume of activity, although to a more restrained extent than the reduction that was recorded in April.

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Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

The decrease in the volume of the use of the Company's cards has been most apparent regarding the use of the Company's cards outside of Israel in the tourism sector, which has been reduced by more than 90%.

Furthermore, there has been a significant decrease in the level of activity in the sectors of the economy on which restrictions have been imposed, primarily in the fields of restaurants, tourism and leisure, in accordance with the severity of the restrictions.

On the other hand, there has been an increase in the transactions turnover, primarily in the foods sector. In light of the aforesaid, the transactions turnover in the reporting period showed a moderate increase compared to the transactions turnover in 2019, whereas prior to the outbreak of the virus the Company had been enjoying a permanent increase in the transactions turnover.

The reported results have been affected primarily by an increase in the provision for credit losses, in order to reflect the increase in the credit losses that have been estimated for the period for borrowers who have been affected by the crisis but who have not been identified yet.

There is a risk, against a background of the considerable uncertainty, that there will be an increase in the actual credit losses in the future, even though it is not possible to determine the extent and the timing of the actual losses at this stage. This is, inter alia, in light of the government's supportive measures and those of the banking system, which may help the economy extract itself from the crisis, however in the event that they are no fruitful, this will only lead to a deferral in the realization of the credit risk.

Furthermore, the results have been adversely affected in the reporting period by a decrease in the collection of commissions from activity by Israelis aboard (and accordingly, the possibility that the targets set by the international organizations will not be met, which is dependent upon the extent of the negative impact), by a reduction in revenues from interchange commissions deriving from the extent of the activities in sectors that have been hit and by a reduction in acquiring income on tourists in Israel. At this stage, in light of the uncertainty regarding how long the recovery of the Israeli and other economies will take, it is not possible to estimate the time at which the Company will return to the level of activity and the profitability that it had prior to the outbreak of the crisis.

The outbreak of the virus and the implications thereof is likely to have a significant impact on the Company's operations in the customer clubs field in the tourism and aviation segment, and on the FlyCard club in particular.

The Company has been taking action to reduce noncrucial expenses, in order to reduce the expected impact on the Company's results.

The Company has a strong capital structure and in its assessment, the impact of the Coronavirus have not lead to the exceeding of the minimal capital and leverage ratio targets, which have been set by the Banking Supervision Department or the targets that have been set by the Company's Board of D

Proper Conduct of Banking Business Directives in the wake of the virus

The Company's operations since the outbreak of the Corona crisis are based, pursuant to the directives issued by the Banking Supervision Department, which includes, where necessary, in accordance with various regulatory reliefs that have been published on the matter of the way in which the banking system is to deal with the implications of the outbreak of the virus.

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Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

Most of the reliefs were published within the framework of Proper Conduct of Banking Business Directive 250 – Adjustments to Proper Conduct of Banking Business Directives for Dealing with the Coronavirus (Temporary Provision), and include, inter alia, the amendment of Proper Conduct of Banking Business Directive 367 on the subject of E-banking, Proper Conduct of Banking Business Directive 426 on the subject of the Provision of a Professional Human Telephone Response, Proper Conduct of Banking Business Directive 450 on the subject of Debt Collection Proceedings, Proper Conduct of Banking Business Directive 360 on the subject of Rotation and Uninterrupted Vacation, Proper Conduct of Banking Business Directive 411 on the subject of the Prohibition of Money Laundering and Financing of Terrorism and additional reliefs that have been published by the Supervision Department on the matter of the documentation of conversations when making a banking agreement, using telecommunications and agreements for the provision of credit.

Furthermore, the Law for the Provision of Crucial Services from a Distance (The Novel Coronavirus – Temporary Directive) Law, 5780 – 2020 has been published, the subject matter of which is the issuance of a charge card to a customer even without a physical signature on an agreement.

The disclosure controls and the internal controls over financial reporting have been conducted as usual, without change, except for the transition to "paperless documentation" in relation to the documentation of certain controls.

Expenses that are required in order to change the nature of the operations and significant changes in terms of employment and benefits for employees

In order to adapt the operations to the new situation, the Company has incurred computerization, communications and hygiene related expenses. These expenses have amounted to insignificant amounts and have been included in the expenses in this report.

During the course of the crisis, some of the Company's employees have been put on leave, the large majority of them on paid leave and a few of them on unpaid leave. The Company has allowed employees who have not accumulated sufficient vacation leave to accumulate negative balances of vacation leave. The bonuses for employees for the year 2019 has been paid in full.

During the crisis, on September 30, 2020, a voluntary redundancy agreement was signed with representatives of the employees, additional details of which appear on page 160.

Support for the community

Against the background of the crisis, the Company has harnessed itself to provide assistance as a result of various approaches that have been made to it. Inter alia, the Company, together with El Al, has contributed to returning travelers from South America, the Company and Discount Bank had launched an ambulance to move the elderly and people who find it hard to move around, who are restricted to wheelchairs. In tandem, in March 2020, the Company decided to bring forward payments to suppliers for services that had been supplied, in order to assist and support the Company's service providers.

In the shadow of the Corona crisis and the severe restrictions, the Company has provided benefits and reliefs that have enabled its customers (both business and private) to cope with the situation.

Within this context, small businesses have benefited from the advancement of credits without cost, and businesses that have taken out a loan have been able to reschedule and/or to defer payment, for a fixed period. In the private customers segment, the Company enables the deferral of payments for its customers and the rescheduling of charges, and has taken action in numerous cases to credit cardholders to whom products or services have not been provided during the period of the Corona crisis.

The outline for the deferral of loans, which has been adopted by the Company, is in conformity with the outline that was published by the Bank of Israel on October 1, 2020.

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Pursuant to the outline:

Consumer loans: The deferral is made for a period of 3 months and is not at the Company's discretion. In addition, there is an option, at the Company's discretion, for an additional deferral of 3 months for these loans (up to 6 months cumulatively). The deferral that is not at the Company's discretion is on the principal component of the loan. A credit .n addition to the deferral of the principalן card company is entitled to enable the deferral of the interest

Loans to businesses: Deferral for a period of up to 3 months has been made possible for a business with an annual operating turnover of up to NIS 25 million, which has been hurt as a result of the crisis, at the Company's discretion.

Furthermore, the Company has provided benefits and discounts to its customers on a range of services and products, which are adapted for staying at home with the objective of getting through the challenging period.

In addition, the Company has harnessed itself to social action within the framework of a number of associations, which are operating to provide relief for the implications of the crisis for weaker sections of the population.

Business targets and strategy, and development expectations in the coming year

The adoption of a strategic plan

In August 2020, the Company’s Board of Directors approved the multi-annual plan for the years 2019 – 2023, which constitutes the continuation of the updating of the strategic plan that was approved on May 23, 2017 for the years 2017 – 2021. The multi-annual plan was formulated taking into consideration the changes in the credit card industry globally, in general, and in Israel, in particular following the enactment of the Strengthening Competition and Reduction of Concentration and Conflicts of Interest in the Israeli Banking Industry Law, 2016 and additional regulatory initiatives.

The plan focuses on moves to continue the positioning of the Company as a leader in payment and non-banking credit activities where the Company's strategic focuses are:

− The maximizing of the potential revenues from the Company's broad customers base.

− The continuation of the growth in the credit activity.

− Expansion of the use of information and the leveraging of information in the decision-making processes.

− The promoting of advanced payment solutions both on the payment side and also on the beneficiary (merchant) side.

− Operational excellence whilst improving the customer experience in parallel to organizational effectiveness.

− The upgrading of the digital infrastructures in its main activities and providing an optimal experience for its customers on the digital platforms.

Against the background of the changes that are occurring in the financial world and the conditions in the market, the Company is continuing to refresh the multi-annual strategic plan, with the aim of giving expression in it to the challenges that derive from the conditions in the market on the one hands and the opportunities for realizing the targets that are included in the existing plan on the other hand.

The need to relate to the challenges placed by the Corona crisis and the significant impact that it will have in the coming years on the state of the economy in general and on the credit cards sector in particular, has come to light in the course of the abovementioned examination of the plans. This is examination was made, inter alia, with the objective of formulating initiatives that will help the Company to improve its performance over time and to support its customers during the challenging period. It is clarified that the plan’s success depends on several factors whose realization is uncertain.

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Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

New operations, acquisitions and strategic collaborations Joint issuance agreements with banks The Company has commitments with most of the banks in Israel under joint issuance and operating agreements for the issuance of charge cards. Pursuant to the agreements, the Company and/or the bank issue charge cards to the bank's customers, the operation of which will be performed by the Company. A mechanism for the division of the revenues for the operation of the cards between the Company and the banks has been determined pursuant to the agreements (including: revenues deriving from transactions in Israel and abroad, the service commissions that are collected from the cardholders) in addition to which the operating fees that the Company will be entitled to in respect of certain activities such as making banking credit available on cards. In certain agreements, the bank benefits from an increase in its share of the revenue that is derived from the volume of the joint activity and/or the quantity of cards issued pursuant to the agreement. Furthermore, bonuses are determined in some of the agreements, which are dependent upon the meeting of targets.

The exercise of discretion in the issuance, cancellation, suspension and the number of cards that may be issued (without there being any commitment to a minimal number of cards), including the level of the credit facilities and the interest rates that will be collected, has been afforded exclusively to the banks. It is further determined in the agreements, inter alia, that the banks will be responsible for all matters that are connected to the credit risks and that the party for its part will be responsible for risks relating to the misuse of the cards by the customers (except in relation to certain exceptions that have been determined in the agreements). In addition, the agreements arrange the manner of the use of information deriving from the use of the credit cards, the ownership of such information and the manner of the management of the commercial connection opposite the credit organizations.

The agreements have been signed for a period of several years and in some of them provisions have been set regarding the manner of their extension for an additional period.

Support agreement with Visa Europe

In February 2020, the Company and Visa Europe Limited ("Visa Europe") signed on a support agreement. The financial extent of the support is dependent upon various conditions that have been set in the agreement, and primarily on the scale of the Company's activity. This agreement was signed following Visa Europe's announcement of the raising of the tariff for the commissions that are paid to it. In the Company's assessment, the impact from the support agreement on the one hand and from the raising of the Visa tariffs on the other hand, is not expected to be significant. This assessment may change, in the event that the extent of the activity on the "Visa" brand is significantly different from the volumes at the time of the signing of the agreement.

See Page 224 in the corporate governance chapter that is included in these reports for details regarding additional material commitments.

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Technological improvements and innovations The launching of a new App. In May 2020, the Company launched a new App. The App enables an improved user experience on an institutive interface that is easy to use, while expanding the information on the use of the card and with possibilities for activity that can be executed by the user. During the third quarter of the year, the Company launched a contactless payment service, through which it will be possible to pay in businesses, which have smart payment (EMV) infrastructure, using a mobile phone, in a secure manner without the need to input secret code. Agreement with Apple On September 8, 2020, the Company and Apple Distribution International Ltd. ("Apple") signed on a commitment agreement, pursuant to which Apple will enable holders of the Company's cards to use the "Apple Pay" payments platform. The Apple Pay payments platform is intended for use by the Company's customers who use a range of Apple devices, which are based on Apple's IOS operating system. The Apple Pay payment system is used for executing credit card based transactions that are based transactions, both in the physical world, via smart EMV terminals that support contactless transactions, and also in the online world in Apps and on a wide range of websites. The agreement defines the commercial terms for the parties' commitment, including the commissions that Apple will be entitled to. Shufersal Discount Paybox agreement On `January 19, 2021, Israel Discount Bank Ltd. ("the Bank") and Shufersal Ltd. ("Shufersal") signed on a cooperation agreement for the establishment of a digital wallet for customers of all of the banks, based on the "Paybox" payments platform that is owned by the Bank. The cooperation will be executed by means of a new company, which will be established and which will be controlled by the Bank. This agreement is conditional upon the receipt of regulatory approval and at this stage; there is no certainty that these will be completed. The Company, the Bank and Shufersal are conducting negotiations, pursuant to which the Company will serve as the issuer of the virtual cards, which will form the basis for the said payments platform. At this stage, there is no certainty that the contacts will mature into a binding agreement. Agreement for the issuance of non-banking cards to customers of Bank Leumi and users of the "BIT" App On November 11, 2020, the Company and Bank Leumi Le'Israel Ltd. signed on an agreement for the distribution of non- banking credit cards to customers of Bank Leumi, which will be issued and operated by the Company and at its responsibility. The agreement will be in effect for a period of 24 months and will be renewed automatically for additional periods of 12 months each. On January 7, 2021, the Company and Bank Hapoalim Ltd. signed on a cooperation agreement, within the framework of which the Company will issue charge cards to users of the "BIT" App, which is owned by Bank Hapoalim, under the "Bitcard" brand, using which BIT users can make use of and benefit from special benefits and services. The Company has received approaches from various regulators in respect of these agreements, including the Competition Authority, in which it has been requested or relate to the status of each of the agreements from the perspective of the competition legislation and to additional issues. Some of the approaches have been responded to already by the Company and the handling of some of them has been completed. The Company's position is that the agreements do not involve difficulties from the competition perspective.

Updating the joint issuance agreement with First International Bank On December 29, 2020, the Company and the First International Bank of Israel Ltd., signed on a joint issuance agreement for credit cards for the bank's customers. The agreement anchors the parties' rights and duties in connection with the issuance of the credit cards, the consideration that the parties will be entitled to from the joint issuance of the cards,

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including a remuneration device that is based on the volume of the cards that are issued. This agreement replaces previous agreements that have been signed between the parties, and it will be in effect until December 31, 2024. The agreement will be renewed automatically for additional periods of two years each.

See page 224 in the chapter on corporate governance, which is included in these reports for details regarding additional material commitments. Changes that have occurred recently, or which may occur, and which affect the Company: Competition in the credit cards field The following companies operate in the field of the issuance and acquiring of the credit cards in Israel (in addition to banks which serve as issuers for banking charge cards): (1) the Company, which issues and acquires "Visa" and "MasterCard" charge cards and acquired charge cards bearing the "Isracard" brand, and which also issues and acquires exclusively charge cards bearing the "Diners" brand, through a subsidiary company, Diners Club Israel Ltd.; (2) Isracard Ltd., which to the best of the Company's knowledge issues (exclusively) and acquired credit cards bearing the "Isracard" brand, issues and acquires credit cards bearing the "MasterCard" brand, and which also and acquired credit cards bearing the "Visa" brand ("Isracard'); (3) Premium Express Ltd. (in its formed name: "Poalim Express"), a subsidiary company of Isracard, which to the best of the Company's knowledge, issues and acquires exclusively credit cards bearing the "American Express" brand; (4) Max IT Finance Ltd. (in its former name: Leumi Card. (hereinafter: "Max"), which to the best of the Company's knowledge issues and clears charge cards bearing the "Visa" and the "MasterCard" brands and acquired cards bearing the "Isracard" brand.

The competitive environment, which has been growing stiffer in recent years, is affected, inter alia, by the following factors:

(A) The competition between the acquirers has increased, inter alia, against the background of the separation of Isracard and Max from the banks, together with the impact of the regulatory steps that have been initiated by the Supervisor of Banks, and also in light of the steps that have been taken by the credit companies, have found expression in a decrease in the acquiring commissions.

(B) Banking corporations have launched payments solutions, which may operate outside of the charge cards scheme. We should mention in this connection the Paybox (Discount Bank), BIT (Bank Hapoalim) and Pay (Bank Leumi) Apps, as well as the progress of a system for immediate charges and credits from one account to another, which is being promoted by the Central Banking Clearing System, which may form an alternative to the charge cards scheme.

It should be mentioned that on July 9, 2019, the Governor of the Bank of Israel published a position paper on the subject of activity on the banks' payments application. Directives were determined in the position paper of which the main ones are:

− A restriction on turnover of NIS 2, 2.5 and 3 billion was set for each application, for the years 2019, 2020 and 2021, respectively. − The banking applications are not to operate on an immediate payment service basis, unless there will also be access to the immediate payment service interface for non-banking bodies as well. − As from 2021, the turnover restriction on the applications will not apply to merchants who execute transaction based on the international standard for executing smart transactions (EMV).

(C) The technology giants are expected to reach Israel gradually with the range of financial services, which they offer. Apple, which will launch its ApplePay payments app in Israel (as set forth above) is expected to arrive first, after which it is reasonable that the other technological giants will also come, gradually. The entry of the technological giants into the local payments market is expected to increase the competition and to form a catalyst for innovation and technology in this field.

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(D) In addition, there is fierce competition in the field of customers clubs recently, which has found expression, inter alia, in the commercial terms in a number of agreements that have been signed in the credit cards sector.

(E) The competition in the non-banking credit field in recent years has also grown in light of the significant increase in the number of financial bodies offering loans to households, such as provident funds, further training funds or person-to-person (P2P) loan platforms. The various regulatory steps that have been taken by the Supervision Department, such as the setting up of a database of credit data, are expected to further increase the strength of the competition, and to enable providers of non-banking credit (including the Company) to receive more reliable information on its current and potential customers.

(F) Proper Conduct of Banking Business Directive 368 on the subject of open banking, which was published on February 24, 2020, will force the banks and the credit card companies to share information on their customers (with the customer's agreement) and even to enable the initiation of payments, at a later stage. Open banking forms an opportunity for the Company, however it also enables additional bodies to receive the specific information that is held by the credit card companies and may even add competition in the payments field by means of initiating payments.

It should be mentioned that the Directive will enter force in a number of stages:

1. In the first stage – a duty to deliver information on current accounts and the possibility to be consumers of information. In this stage, the credit card companies will only be consumers of information, whereas the banks will be bound to be the source of information, however they may also be consumers of information. This stage will be effective as from April 18, 2021.

2. In the second stage – a duty to deliver information on charge cards as well as the possibility of initiating payments. Both the banks and the credit card companies will be sources and consumers of information. This stage will be effective as from October 10, 2021.

3. In the third stage – the delivery of information regarding credit, deposits and securities. This stage will become effective on March 31, 2022.

The Company has and is making preparations for these changes, and it has formulated a strategy, which are intended to enable it to cope optimally with these changes (see page 24 for additional details regarding the strategy that has been formulated). Additional changes that have occurred recently or that may occur and affect the Company:

− The impacts of the Coronavirus, which may lead to a decline in the Company's customers' solvency, and an increase in credit losses, see above and page 57 below.

− The entry into effect of the Law for Strengthening Competition and Reducing Concentration in the Israeli Banking Market (Legislative Amendments), 2017. The Law's entry into force has led to significant changes in the credit cards industry in Israel. (See also below in the chapter entitled "Legislation affecting the credit cards activity" in the "Corporate Governance, Audit and Additional Details Report”).

− Reduction of the interchange fee rate - see section F of Note 25 to the financial statements – contingent liabilities and commitments.

− Additional regulatory changes that may apply to the credit card sector in Israel, (see the "Material legislative and regulatory restrictions and special constraints applicable to the Company" section in the "Corporate Governance, Audit and Additional Details Report”).

− See the chapter on fixed assets and facilities on page 220 of the Corporate Governance Report regarding the upgrading of the core system.

− See the chapter on fixed assets and facilities on page 220 of the Corporate Governance Report regarding the transfer to Discount's Campus in Rishon Le'Zion in the future.

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Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

The implications of the crisis for the FlyCard club The Corona crisis and the restrictions on passengers that have been imposed by governments, across the globe and in Israel, have caused economic damage to many aviation companies, including El Al.

El Al published its financial statements as at September 30, 2020 on November 25, 2020, within the context of which it reported that agreement in principal had not been achieved with any financing body whatsoever regarding the terms for making a loan available for the purpose of coping with the implications of the Corona crisis, and that accordingly, it was continuing to take action in order to recruit debt by means of the issue of bond, most of which are supported by a guarantee from the State of Israel. It noted in its reports that since the recruitment of the debt is crucial in order to deal with the implications of the crisis, at that stage significant doubts existed regarding its continued existence as a going concern.

On February 16, 2021, El Al announced the completion of the issuance of option warrants, within the framework of which it received consideration amounting to NIS 250 million.

The Company has been examining these developments, and in accordance with the assessments that it has made, based inter alia on the club's performance and the revenues that are expected from the club, it has reached the conclusion that at this stage there is no justification recording impairment in respect of significant amounts that have been paid to El Al within the framework of the agreement are being amortized over the length of the economic lifetime. This conclusion is based on the information that exists in the Company at the reporting date, and on the Company's assessments, as aforesaid. It is possible that actual developments will be different from the Company's assessments. See Section E(4) of Note 23 to the financial statements – Contingent liabilities and commitments, for additional details on this matter.

Explanations and Analysis of the Results and the Business Position

Trends, phenomena, developments and material changes

Economic developments in Israel and in the credit card industry The economic activity in 2020 has been affected significantly by the outbreak of the Coronavirus and the implications thereof. The impact was felt primarily in the second half of March 2020, following directives issued by the government which restricted activity in the economy and which continued from April to December 2020.

In 2020, the Consumer Prices Index recorded a decrease of approximately 0.7%. In the Bank of Israel's assessment, the forecast inflation rate for the coming twelve months (January 2021 – December 2021) stands at 0.5%.

In January 2021, the Bank of Israel decided to leave the Bank of Israel's interest rate at a level of 0.1%. The dominant factors, which led to the decision to freeze the interest rate, were the impacts of the Coronavirus events on economic activity, including the contraction of activity in the economy and a decrease in inflation.

In addition, in the second quarter of the year, it was decided t0 extend monetary loans to banks for a term of 3 years, bearing interest at a fixed rate of 0.1%, conditional upon the provision of credit to small and micro-businesses, in order to increase the transmission of the low interest rate.

The Monetary Committee mentioned that the fast pace of the vaccination process in Israel increases the level of optimism regarding the swift return of the economy to a path of growth in the coming year. However, there are still high risks to the operations, and the damage done to the economy and to the labor market in particular are expected to be ongoing. Consequently, the Committee is continuing to act using a variety of tools in order to deepen the degree of the expansion of the monetary policy and to ensure the continuity of the proper functioning of the financial markets. The Committee will expand the use of the existing tools, including the interest tools, and it will operate additional tools, insofar as it may assess that this is necessary in order to achieve the monetary policy's targets, and to mitigate the economic damage that has arisen as a result of the crisis.

In 2020, the Shekel strengthened by 7.0% against the US Dollar and by 1.7% against the Euro.

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Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

It arises from reports by the Central Bureau of Statistics that after an ongoing period of time in which the unemployment rate was in perpetual decline (reaching a rate of 3.9% in February 2020), the unemployment rate stood at 13.2% in December 2020, after having reached 23.8% in May, following the implications of the outbreak of the virus.

Furthermore, it arises from reports by the Central Bureau of Statistics that an increase of 3.8% was recorded in the extent of purchases on credit cards in 2020, as compared with an increase of 7.9% in 2019. The lower rate of increase is attributed to the impacts of the Coronavirus.

Global economic developments

In January 2021 the International Monetary Fund published a global growth forecast, pursuant to which, as a result of the Coronavirus event, the global economy had shrunk by 3.5% in 2020, however, thanks to the approval of a number of vaccinations and the start of their distribution, the signs of the adjustment of economic activity to contactless activity and monetary policy that supports the significant economies, the Fund expected global growth of 5.5% in 2021 and growth of 4.2% in 2022.

The forecast growth rate in the United States is 5.1% in 2021 and 2.5% in 2022. The Euro bloc is expected to grow by 4.2% in 2021 and by 3.6% in 2022. The developing markets are expected to grow by 8.3% in 2021 and by 5.9% in 2022.

Significant updates to legislation in the credit cards field See Note 23I(2) to the financial statements on the subject of contingent liabilities and commitments for details regarding the outline for the reduction of acquiring commissions, which has been formulated by the Ministry of Finance, which includes restrictions on the level of acquiring commissions on brands that are cleared and issued exclusively.

See Note 23I(1) to the financial statements on the subject of contingent liabilities and commitments for additional details regarding the Law for the Strengthening of Competition and the Reduction of Concentration in the Banking Market in Israel.

On November 25, 2018, an Order was published for the reduction of the interchange fee in deferred charge transactions from a rate of 0.7% to a rate of 0.5% and for the reduction of the interchange fee on immediate debit cards from a rate of 0.3% to a rate of 0.25%. The reduction of the commission will be executed gradually, in a number of stages.

See Note 23F to the financial statements on the subject of contingent liabilities and especial commitments for additional details.

The matters to which the auditors have drawn attention in their opinion The auditors draw attention in their opinion to Note 23B concerning petitions for the approval of certain claims as class actions against the Company.

Changes in accounting policies There were no changes in the Company's accounting policies on critical matters in 2020, except as stated on page 77 below regarding critical accounting policies on critical matters

Material developments in income, expenses and other comprehensive income Profit and profitability The comparative experienced a decline in the volume of activity in Israel in the reporting period, primarily in the months of March- May 2020, as well as a significant decrease in the volume of activity by Israelis abroad.

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Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

The results for the period (primarily in the first quarter), were affected primarily by an increase in the allowance for credit losses, in order to reflect the increase in the estimated credit losses for the period for borrowers who have been hurt by the crisis, but which have not yet been identified. Furthermore, the results have been adversely affected in the period as a result of the reduction in the collection of commissions from activity by Israelis abroad (and accordingly, it is possible that in the future the targets set by the international organizations will not be met, which is dependent upon the extent of the damage), from a decrease in revenues from interchange fees deriving from the volume of activity and from a decrease in acquiring revenues in respect of tourists in Israel. In light of the uncertainty regarding the length of time that it will take for the economy to recover in Israel, it is not possible to estimate the time at which the Company will return to the level of activity and profit that it had before the outbreak of the crisis at this stage.

The financial results in the period have been affected by non-recurring revenues in an amount of NIS 64 million (before tax) from the sale of shares in Visa Inc., and on the other hand by non-recurring expenses of NIS 31 million (before tax) relating to the voluntary redundancy program. See Note 21G to the financial statements on the subject of employee benefits for details regarding the voluntary redundancy agreement and see page 141 to the financial statements for details regarding the sale of shares in Visa Inc. On the other hand, the operating expense in the comparative period were affected by the non-recurring cancellation of certain provisions, amounting to NIS 13 million net of tax.

Net profit attributable to the equity holders of the Company amounted to NIS 115 million in 2020, compared with a net profit of NIS 201 million in 2019, a decrease of 42.8%.

Net profit attributable to the equity holders of the Company after eliminating non-recurring impacts amounted to NIS 90 million in 2020, compared with a net profit of NIS 188 million in 2019, a decrease of 52.1%.

Return on equity was 6.2% in 2020, compared with11.0% in 2019.

Return on equity after eliminating non-recurring impacts was 4.8% in 2020, compared with 10.3% in 2019.

Net earnings per share amounted to NIS 104.8 in 2020, compared with NIS 183.1 in 2019.

Net earnings per share after eliminating non-recurring impacts amounted to NIS 81.6 in 2020, compared with NIS 170.4 in 2019.

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Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

Income and expenses

The following is a breakdown of the main components in the income, expenses and provision for taxes items (in NIS millions): Year ended December 31 2020 2019 2018 Total income 1,857 1,863 1,698 Credit card transactions 1,254 1,356 1,226 Net interest income 530 505 464 Non-interest financing income 73 2 8 Total expenses 1,716 1,587 1,485 Expenses for credit losses 223 147 156 Operating 657 617 557 Selling and marketing 508 485 439 Administrative and general 78 78 74 Payments to banks 250 260 259 Provision for taxes on profit 27 75 56 Profit after taxes 114 201 157 Company’s equity in profits of associate, net of tax effect 1 *- (*-) Net profit attributable to equity holders of the Company 115 201 157 * Represents an amount of less than NIS 1 million.

The Company’s income amounted to NIS 1,857 million in 2020, compared with NIS 1,863 million in 2019, a decrease of 0.3%. The Company’s income after eliminating non-recurring impacts amounted to NIS 1,793 million in 2020, compared with NIS 1,863 million in 2019, a decrease of 3.8%, which is explained as follows: 1. Income from credit card transactions amounted to NIS 1,254 million in 2020, compared with NIS 1,356 million in 2019, a decrease of 7.6%. 2. Net interest income amounted to NIS 530 million in 2020, compared with NIS 505 million in 2019, an increase 5.0%. Information on net interest income with a division by currency

For the year ended For the year ended December 31, 2020 December 31, 2019 Net Net Scope of interest Scope of interest the income in Interest the income in Interest activity as NIS gap as a activity as NIS gap as a a % millions % a % millions % In Israeli currency, unlinked 97% 526 6.7% 97% 497 6.7% In Israeli currency, linked 2% 4 1.1% 2% 8 2.3% In foreign currency 1% - - 1% - - Net interest income and interest gaps 100% 530 6.4% 100% 505 6.4% For the disclosure regarding the Company's interest income and expenses and those of its subsidiaries, as well as an analysis of the changes in interest income and expenses, see Appendix 1 in the Corporate Governance, Audit and Additional Details chapter on page 238 of the Annual Report. 3. Non-interest financing income amounted to NIS 73 million in 2020, compared with NIS 2 million in 2019. Non-interest financing income after eliminating non-recurring impacts amounted to NIS 9 million in 2020, compared with NIS 2 million in 2019.

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Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

The Company’s expenses amounted to NIS 1,716 million in 2020, compared with NIS 1,587 million in 2019, an increase of 8.1% The Company’s expenses after eliminating non-recurring impacts amounted to NIS 1,685 million in 2020, compared with NIS 1,604 million in 2019, an increase of 5.0%, which is explained as follows: 1. Expenses for credit losses amounted to NIS 223 million in 2020, compared with NIS 147 in the corresponding period last year, an increase of 51.8%.

Expenses relating to the allowance for credit losses were affected primarily by the following factors in the reporting period:

− Expenses relating to the allowance for private customers, in an amount of NIS 96 million, compared with NIS 35 million in the comparative period in the previous year, an increase, which was affected primarily, by the impacts of the Corona crisis, both as a result of the increasing of the factors in the allowance for credit losses, and also as a result of an allowance for high credit risk populations.

− Expenses relating to the allowance for business credit, in an amount of NIS 12 million, compared with NIS 4 million in the comparative period in the previous year, an increase that was affected primarily by the Company's expenses in respect of the collective allowance for businesses that operate in sectors that have been damaged by the crisis, from the increasing of the factors in the specific allowance on a relatively limited scale for a number of borrowers who have been harmed by the crisis.

See page 35 below on the subject of the development in the credit to the public.

See Note 11 to the financial statements on the subject of receivables for credit card activities and the allowance for credit losses on a consolidated basis for additional details.

2. The operating expenses amounted to NIS 657 million in 2020, compared with NIS 617 million in the corresponding period last year, an increase of 6.5%.

Operating expenses after eliminating non-recurring impacts amounted to NIS 636 million in 2020, compared with NIS 634 million in the corresponding period last year, an increase of 0.3%.

3. Selling and marketing expenses amounted to NIS 508 million in 2020, compared with NIS 485 million in the corresponding period last year, an increase of 4.8%.

Selling and marketing expenses after eliminating non-recurring impacts amounted to NIS 502 million in 2020, compared with NIS 485 million in the corresponding period last year an increase of 3.5%.

4. Administrative and general expenses amounted to NIS 78 million in 2020, which was similar to the comparative period last year.

Administrative and general expenses after eliminating non-recurring impacts amounted to NIS 74 million in 2020, compared with NIS 78 million in the corresponding period last year a decrease of 5.4%. 5. Payments to banks amounted to NIS 250 million in 2020, compared with NIS 260 million in the corresponding period last year, a decrease of 4.1%.

6. The provision for taxes amounted to NIS 27 million in 2020, compared with NIS 75 million in the corresponding period last year, a decrease of 64.3%. The effective tax rate for 2020 stood at .191% as compared with 27.2% in 2019. For information on the Statement of Profit and Loss - Multi-Quarter Information, see the Appendices to the Corporate Governance Report, in the chapter on Audit and Additional Details. Quantitative data relating to the company’s main activity:

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Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

Number of valid cards as at December 31, 2020 (in thousands): Active cards Inactive cards Total Bank cards 1,737 282 2,019 Non-bank cards 1,231 476 1,707 Total 2,968 758 3,726

Number of valid cards as at December 31, 2019 (in thousands): Active cards Inactive cards Total Bank cards 1,618 262 1,880 Non-bank cards 1,259 424 1,683 Total 2,877 686 3,563

Turnover of transactions using credit cards issued by the Company (in NIS millions): Year ended December 31 2020 2019 Bank cards 76,961 75,455 Non-bank cards 30,968 31,641 Total 107,929 107,096

“Turnover of transactions” - includes transactions made using the card and charges in respect of deferred payment transactions, net of amounts credited to the bank or its customers in respect of use of the credit card during the period and fees collected for the bank or for the Company. The turnover of transactions does not include cash withdrawals from ATMs in Israel.

"Credit card" –a means of payment that is a reusable card or other object that is intended for the purchase of assets from a supplier without the immediate payment of the consideration.

“Non-bank cards” - credit cards issued by the Company, not jointly with the banks.

“Bank card” - a credit card issued jointly with co-brand banks, and for which they are responsible.

“Valid card” - a valid credit card that has not been blocked.

“Active credit card” - a credit card that was used in at least one transaction in the last quarter.

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Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

Expenses and investments in respect of the information technology array

The expenses in respect of the IT array (as this term is defined the Proper Conduct of Banking Business Directives) include payroll and related expenses, outsourcing, acquisitions or usage licenses, depreciation of equipment and buildings, and other expenses - communication expenses, buildings and equipment maintenance expenses, etc. The amount of the expenses is split between software, hardware and other - which include administrative expenses, maintenance, etc.

The allocation of payroll costs and related expenses is done according their attribution to the secondary units.

It should be noted that the allocation of the various indirect costs and expenses related to the principal components (hardware and software) is done according to an estimate.

Year ended December 31, 2020: Expenses in respect of the IT array as included in the statement of profit and loss (in NIS millions) (1): Software Hardware Total Payroll and related expenses 32 25 57 Expenses in respect of acquisitions or usage licenses not capitalized to assets 30 - 30 Outsourcing expenses 24 - 24 Depreciation expenses 60 17 77 Other expenses - 2 2 Total 146 44 190

Additions to assets in respect of IT array expenditure not treated as an expense (in NIS millions) (2): Software Hardware Total Payroll and related costs 39 - 39 Outsourcing costs 49 - 49 Acquisition or usage license costs (3) 31 - 31 Equipment costs - 14 14 Total 119 14 133

As at December 31, 2020 Asset balances in respect of the IT array (in NIS millions) (54): Software Hardware Total Total depreciated cost 291 30 321 Of which: in respect of payroll and related expenses 228 - 228

(1) The expense amounts are included in the Company’s statement of profit and loss in the “Operating expenses” item. (2) Including prepaid expenses in respect of the IT array. (3) The costs include acquisition or usage license costs in respect of the IT array that have not been classified in the financial statements as equipment, but rather as a prepaid expense, as well as acquisitions and usage licenses of software and hardware for all the Company’s divisions. (4) Including prepaid expenses in respect of the IT array.

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Year ended December 31, 2019: Expenses in respect of the IT array as included in the statement of profit and loss (in NIS millions) (1): Software Hardware Total Payroll and related expenses 32 25 57 Expenses in respect of acquisitions or usage licenses not capitalized to assets 30 - 30 Outsourcing expenses 22 - 22 Depreciation expenses 53 16 69 Other expenses - 3 3 Total 137 44 181

Additions to assets in respect of IT array expenditure not treated as an expense (in NIS millions) (2): Software Hardware Total Payroll and related costs 32 - 32 Outsourcing costs 45 - 45 Acquisition or usage license costs (3) 31 - 31 Equipment costs - 17 17 Total 108 17 125

As at December 31, 2019 Asset balances in respect of the IT array (in NIS millions) (54): Software Hardware Total Total depreciated cost 243 33 276 Of which: in respect of payroll and related expenses 183 - 183

(1) The expense amounts are included in the Company’s statement of profit and loss under “Operating expenses”. (2) Including prepaid expenses in respect of the IT array. (3) Acquisition or usage license costs in respect of the IT array that have not been classified in the financial statements as equipment, but rather as a prepaid expense as well as acquisitions and usage licenses of software and hardware for all the Company’s divisions. (4) Including prepaid expenses in respect of the IT array.

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Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

Developments in other comprehensive income

The following are the main components of other comprehensive income:

Year ended 2020 2019 2018 in NIS millions Net profit attributable to equity holders of the Company 115 201 157 Changes in components of other comprehensive income (loss), attributable to equity holders of the Company: Adjustments in respect of employee rights, before taxes: (8) (23) 1 Of which: Actuarial gains (losses) (8) (23) 1 Related tax effect 2 5 (*-) Other comprehensive income (loss) attributable to equity holders of the Company, after taxes (6) (18) 1 Comprehensive income attributable to equity holders of the Company 109 183 158

* Represents an amount of less than NIS 1 million.

The change in other comprehensive income is due to changes in actuarial assumptions. For further details, see Note 21 to the financial statements on the subject of employee benefits.

The structure and development of assets, liabilities, capital and capital adequacy

The structure of assets and liabilities and material developments therein in the reporting period

Total assets amounted to NIS 18,535 million as at December 31, 2020, compared with NIS 19,159 million as at December 31, 2019 a decrease of 3.3%.

The following is a breakdown of the main balance sheet items as at December 31 (in NIS millions):

2020 2019 Total assets 18,535 19,159 Receivables on credit card transactions, net 17,598 18,324 Total liabilities 16,605 17,338 Credit from banks 5,156 6,594 Payables on credit card transactions 10,918 10,272 Equity attributable to equity holders of the Company 1,930 1,821 When a transaction is carried out using a credit card, the following are created:

1. For the acquiring company: an asset in respect of the debt from the card issuer or the cardholder, and a liability to the merchant. 2. For the issuing company, an asset is created in respect of the debt from the cardholder or the issuing bank and a liability is created to the acquiring company.

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Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

Year-on-year developments

The volume of transactions made using credit cards has been steadily growing every year. The increased use of credit cards is due both to an increase in transactions volume (due to population growth and to a greater tendency by the younger generation to use credit cards, as part of the consumer culture) and also to growth achieved at the expense of transactions carried out using other payment means. However, there was a decrease in receivables in 2020, which derived primarily from the implications of the Coronavirus.

Receivables on credit card transactions, net amounted to NIS 17,598 million as at December 31, 2020, compared with NIS 18,324 million as at December 31, 2019, a decrease of 4.0%.

The contraction of the volume of activity in the reporting period has led to a decrease in the volume of the consumer credit. The decrease derives primarily from non-interest bearing credit, in light of the contraction in operating turnover. The decrease in private consumption has led to a reduction in demand for interest-bearing credit as well, in the wake of which there has been a decrease in the volume of consumer credit.

The demand for business and consumer credit in the future is dependent upon the strength of the impact of the crisis, and at this stage, there is uncertainty regarding the scope thereof. On May 17, 2020, the Company received approval from the Ministry of Finance to participate in the provision of loans within the framework of the special fund for small and medium sized businesses, which has been established by the Ministry of Finance, to an extent of NIS 50 million. As at December 31, 2020, the Company has made credit of NIS 34 million available with guarantees from the State. This credit bears interest at an average rate of 3.1% and is for a period of 4 – 5 years.

For details on the Company’s credit risk, see the Risk Review section in this report.

Payables on credit card transactions amounted to NIS 10,918 million as at December 31, 2020, compared with NIS 10,272 million as at December 31, 2019, an increase of 6.3%.

Receivable on credit card transactions Credit to private individuals - amounted to NIS 8,698 million as at December 31, 2020, compared with NIS 9,113 million as at December 31, 2019, a decrease of 4.6%, of which:

1. Receivables on credit cards - amounted to NIS 3,539 million as at December 31, 2020, compared with NIS 3,653 million as at December 31, 2019, a decrease of 3.1%. 2. Interest bearing credit - amounted to NIS 5,159 million as at December 31, 2020, compared with NIS 5,460 million as at December 31, 2019, a decrease of 5.5%. Commercial credit - amounted to NIS 816 million as at December 31, 2020, compared with NIS 1,057 million as at December 31, 2019, a decrease of 22.8%, of which:

1. Receivables on credit cards - amounted to NIS 22 million as at December 31, 2020, compared with NIS 26 million as at December 31, 2019, a decrease of 15.4%. 2. Interest bearing credit - amounted to NIS 794 million as at December 31, 2020, compared with NIS 1,031 million as at December 31, 2019, a decrease of 23.0%. Receivables on credit cards guaranteed by banks - amounted to NIS 8,329 million as at December 31, 2020, compared with NIS 8,310 million as at December 31, 2019, an increase of 0.2%.

Allowance for credit losses –the balance of the allowance amounted to NIS 390 million as at December 31, 2020, compared with NIS 294 million as at December 31, 2019, an increase of 32.7%. The rate of the balance-sheet allowance for credit losses in relation to receivables on credit card transactions is approximately 2.2% as at December 31, 2020. The rate of the balance-sheet allowance for credit losses in relation to receivables on credit card transactions for which the Company is responsible is 4.1% as at December 31, 2020.

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Sensitivity analyses Pursuant to directives issued by the Banking Supervision Department, the Company has made an assessment of the impact of changes in the main macro-economic parameters, which can be estimated reasonably, on the credit loss expenses. The Company has prepared a number of scenarios for the impact of a macro-economic change on its results for the year 2021. The pessimistic scenario assumes, inter alia, an increase of 2.5% in the average unemployment rate for the year and a parallel decrease of 2% in the annual GDP compared to the base scenario for 2021, pursuant to which an increase of NIS 40 million would have been caused in the credit loss allowance expenses on an annual calculation relative to the base scenario for the year 2021. On the other hand, the optimistic scenario assumes a decrease of 2.5% in the average unemployment rate for the year and an increase of 2.5% in the annual GDP compared to the base scenario for 2021, pursuant to which a decrease of NIS 25 million would have been caused in the credit loss allowance expenses on an annual calculation, compared to the base scenario for 2021. It should be emphasized that the actual allowance is affected by many different variables, sectoral and macro- economic variables, governmental interference, as well as subjective assessments. In light of this, the ability to prophesy the calculation of the sensitivity of the allowance that may be required in practice on the assumption of the economic parameters that have been mentioned above is limited. IT should further be emphasized that these impacts are not linear and accordingly it is not possible to derive the impacts that a change in the main economic parameters that have been mentioned above from the assessments that have been presented above. Impacts of the Corona crisis During the course of the year 2020, the Corona crisis has caused the disruption of economic activity in the economy, which has included restrictions on movement, the closure of businesses, the closing of the skies and the prevention of economic activity, as existed before the crisis. The crisis had led to a significant contraction in private consumption, a sharp increase in the unemployment rate and households feeling uncertainty about how long the crisis will continue. As a result of this, there has been harm caused on both the demand side and on the supply side for products and services. In addition, as a result of the imposition of additional lockdowns, the damage to small and medium sized businesses and also to the consumer customers has increased, which may be expressed in damage to payment habits and as a derivative of this, the erosion of businesses' cash flows. In the wake of this situation, the probability of failure events in small and medium sized businesses, which may increase the risk indices for the quality of the assets and profitability. The Company has taken steps in order to reduce the exposure to companies in sectors that have suffered greater damage as a result of the Corona crisis and has hardened the underwriting policy and improving quality of the customers portfolio. The CAL Group has been impacted significantly by the crisis in all of its fields of activity, which are focused on the retail sector and it has experienced a significant decrease in the turnover from issuance (with an emphasis on turnover abroad) and acquiring. The decrease in the turnovers has resulted in both a direct impact on income as well as an indirect impact on the size of the credit balances. Uncertainty exists regarding the length of time in which the crisis will continue and the extent of the crisis, however a decline in the impairment of activity can already be been from the data that exists at present, and it is expected that these will continue in 2021, at least in the course of the first half of the year (such as the expectation that there will be an orderly renewal of flights in July 2021, which is expected to result in a recovery in the size of the turnover abroad, albeit not on the scale that existed before the crisis). The lack of employment security, the high unemployment rate and the uncertainty in the labor marker reduce the public's expectations regarding their future income, which has an adverse impact on private consumption and reduces the level of demand in the economy and the demand for credit. This raises the probability for the worsening of the credit risk in CAL's credit portfolio and has a negative impact on the expected increases in the turnover.

From the perspective of business continuity and the safeguarding of the continuous conducting of business during the crisis, CAL made preparations for the creation of business continuity in its core operations and invested considerable efforts and resources in this.

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In light of the significant damage to the Company's revenues, the Company has placed an emphasis on adapting its expenses to the new situation, in order to reduce the impact on profitability as far as possible.

Operations and business continuity

The Company has been defined as a "vital service provider" by the Israeli government and as such, it has continued to operate continuously, albeit in an emergency format, pursuant to the directives issued by the Ministry of Health and the directives issued by the Banking Supervision Department.

As a result of the aforesaid, since the middle of March 2020 there has been a gradual decrease in the volume of activity, with the focus having been placed on activities that have been defined as vital by the Company. At the beginning of May 2020, the Company started a gradual return to full activity.

The Company is taking action to ensure business continuity on several planes, including:

- Splitting the call centers and other vital employees between separate physical sites, including arrangements for working from the employees' homes.

- Stringent safety procedure have been instituted on the Company's sites, which include shift work with a rotation between employees working from home and employees working at the Company's site.

- Connecting most of the employees to working from home.

Information security controls have been defined in the wake of the multitude of arrangements for working from a distance, and a document has been written for the management of the risks deriving from these arrangements.

Disclosure regarding debts, whose terms have been changed

In light of the developments of the Coronavirus event and the possible implications thereof in the coming period both in Israel and globally, significant developments have occurred in the Company's credit risk and accordingly in the allowance for credit losses.

Furthermore, the Company is taking action in order to stabilize borrowers who are not meeting or may not meet their contractual payment commitments following the impacts of the Coronavirus event.

As of December 31, 2020, the Company has classified all of the deferrals of loans that are at the Company's responsibility, which have been provided to private individuals, as a result of the Coronavirus, as debts under "reorganization".

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Board of Directors and Management Report ISRAEL CREDIT CARDS LTD.

Changes in the terms of debts, within the context of coping with the Coronavirus, which have been executed up to the balance sheet date, which have not been reclassified in a reorganization of troubled debts, pursuant to the directives issued by the Banking Supervision department:

Debts for which the payment deferral period has Debts with deferred payments as of the ended, as of the reporting reporting date (1) Additional details of the recorded debt balance of debts that are in payment deferral date

Untroubled debts (3) (4)

Debts for which a deferred of more than 3 Debts not in a Debts in a credit and up to 6 Of which – Amount of credit performance Total months has in arrears Credit to the Number Recorded deferred Troubled performance rating, not in untroubled been made Recorded for 30 days public of loans debt balance payments debts rating arrears debts (2) debt balance or more

In NIS millions Private individuals 63 2 *- *- 1 1 2 - 32 *-

Commercial 46 13 3 2 1 10 11 8 87 - Total as at 31.12.20 109 15 3 2 2 11 13 8 119 *- Total as at 30.9.20 826 19 2 9 3 7 10 1 177 1 Total as at 30.6.20 1,722 140 18 31 8 101 109 82 61 1 Total as at 31.3.20 2,630 91 10 8 9 74 83 46 - -

* Represents an amount of less than NIS 1 million. (1) No significant change has occurred un the balances of debts for which payments are being deferred as of the reporting date. (2) The payments deferral period is the cumulative deferral period, which has been provided for a debt since the beginning of the handling of the Coronavirus, and it does not include a deferral that the borrower is entitled to under any legislation. (3) There are no debts in a credit performance rating, which are in arrears of 30 days or more, (4) The balance of debts for which a deferral has been made of more than 6 months is less than NIS 1 million.

Payables on credit card transactions

As at December 31, 2020, liabilities to merchants represented 95% of the payables on credit card transactions, amounting to NIS 10,395 million, compared with NIS 9,938 million as at December 31, 2019, an increase of 4.6%.

Liabilities to merchants are stated net of the balance of factored merchants’ vouchers acquired by the Group, in the amount of NIS 1,759 million as at December 31, 2020, compared with NIS 1,617 million as at December 31, 2019.

The liabilities to merchants are presented net of the advancing of payment dates to merchants in the amount of NIS 80 million as at December 31, 2020, compared with NIS 168 million as at December 31, 2019. Subordinated notes amounted to NIS 14 million as at December 31, 2020, compared with NIS 28 million as at December 31, 2019, a decrease of 50%, which derived from routine repayments of capital notes.

For information on the condensed consolidated balance sheet – multi-quarter information - see the Corporate Governance Report, Additional Details and Appendices in the Annual Report.

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Capital and capital adequacy Capital Structure December 31 2020 2019 in NIS millions Tier 1 Capital Equity attributable to equity holders 1,930 1,821 less - Goodwill (1) (1) Total Tier 1 capital 1,929 1,820 Lower Tier 2 capital Subordinated notes 1 4 Group allowances 147 149 Total Tier 2 capital 148 153 Total qualifying capital 2,077 1,973

The state of the Company’s Capital Resources and Changes Therein Equity, common equity Tier 1 and total equity General: The components of regulatory equity as at December 31, 2020, which are presented below, have been measured in accordance with the Basel III principles, which have become effective, gradually, since January 1, 2015. Total equity amounted to NIS 1,930 million as at December 31, 2020, compared with NIS 1,821 million as at December 31, 2019, an increase of 6.0%. Common tier 1 equity amounted to NIS 1,929 million as at December 31, 2020, compared with NIS 1,820 million as at December 31, 2019. The ratio of common tier 1 equity to risk components pursuant to the Basel III directives is 13.8% as at December 31, 2020, compared with 12.9% as at December 31, 2019. Total equity amounted to NIS 2,077 million as at December 31, 2020, compared with NIS 1,973 million as at December 31, 2019. The ratio of total equity to risk components pursuant to the Basel III directives is 14.8% as at December 31, 2020, compared with 14.0% as at December 31, 2019. Equity for the purpose of calculating capital adequacy December 31, December 31, 2020 2019 In NIS millions A. Capital adequacy according to the Banking Supervision Department (1) 1. Equity for the purpose of the calculation of capital adequacy: Tier 1 shareholders' equity, after deductions 1,929 1,820 Tier 2 equity, before and after deductions 148 153 Total overall capital 2,077 1,973 2. Weighted balances of risk assets: Credit risk 11,477 11,747 Market risk 68 26 Operational risk (2) 2,470 2,331 Total weighted balances of risk assets 14,015 14,104 3. Equity to risk components ratio (as percentages) Ratio of tier 1 equity to risk components 13.8% 12.9% Ratio of overall equity to risk components 14.8% 14.0% Minimal tier 1 shareholders' equity ratio that is required by the Banking Supervision Department 8.0% 8.0% Minimal overall equity ratio required by the Banking Supervision Department 11.5% 11.5% Investments in the Company’s capital and transactions in its shares

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During the two years preceding the date of the financial statements, no investments were made in the Company's share capital. In addition, no other material transaction was carried out in the Company's shares.

Dividend distribution The Company distributed a dividend of NIS 200 million in 2019.

No additional dividends have been distributed in the three years preceding the date of the financial statements. The main restriction on the Company’s ability to distribute a dividend is the capital ratio restriction. However, the Company's capital adequacy ratio is significantly higher than the minimum that is required.

Leverage ratio The leverage ratio as at December 31, 2020, calculated according to the rules that are detailed in the Banking Supervision Department’s directive on this topic, was 8.7%, high by comparison to the minimum leverage ratio required according to the new directives. See Note 22E to the financial statements on the subject of capital adequacy and leveraging pursuant to the directives issued by the Supervisor of Banks for further details. See also the tables “Summary comparison of accounting assets and the leverage ratio exposure measure” and “Leverage ratio common disclosure template”, on page 20 of the Internet document regarding Basel (the Hebrew version).

Material changes in equity

Tier 2 equity issuances. No Tier 2 equity has been raised in the past three years.

Derecognition of regulatory equity instruments in 2020. Subordinated notes that were recognized as Tier 2 equity under the Basel II instructions, do not qualify for recognition under the Basel III instructions. However, in accordance with the transition provisions, they will be recognized as Tier 2 capital and will be eliminated in stages in the years 2015- 2021. The regulatory capital instruments that are to be derecognized in accordance with the transition provisions during the course of 2021 amount to NIS 1 million.

Other material changes in equity See the section on significant developments in revenues, expenses and other comprehensive income in this report regarding the change in capital as a result of operating activities.

Capital Adequacy Assessment for the years 2019 – 2021

Capital planning process

Within the context of the process of the capital planning, the Group's capital targets for the Tier 1 shareholders' capital ratio and the Overall capital ratio whilst preserving capital cushions for the Tier 1 shareholders' equity and the overall equity, the objective of which is to enable compliance with the capital targets even in cases in which there is a divergence from the work plan, which affects the capital ratios.

Various parameters are taken into account in the outline for capital, which affect the capital ratios, such as: assumptions regarding profitability and changes in the risk assets, based on the Company's budget, the distribution of a dividend and etcetera. The Company routinely tests the ability to meet the capital targets that have been set by the Board of Directors for the Tier 1 capital and for the overall capital ratio in the work plan.

The setting of capital targets:

Within the framework of the capital planning process, the Group approved capital targets each year for the Tier 1 shareholders' equity and the overall capital ratio.

The capital targets are approved by the Board of Directors and the management and reflect the appropriate level of capital that is required, taking the Group's risk profile and the appetite for risk into account and based, inter alia, on the results of the internal capital adequacy assessment process (ICAAP) (See the chapter on additional information on

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capital and capital adequacy in the third facet of Basel disclosure report and additional information on risks for additional details) as well as the CRO's recommendation for the capital cushion, which is intended to ensure the Company's compliance with the capital requirements under unexpected shocks and the testing of extreme scenarios, which may occur in the short term and which affect the Company’s capital or the risk assets

The capital targets best facilitate the Company’s continued business development.

The Bank of Israel's directive for the adoption of the Basel III provisions requires the banking corporations in Israel to comply with a minimal overall capital ratio at a rate of 12.5% and a minimal tier 1 capital ratio of 9% as from January 1, 2015.

On May 2, 2016, the Banking Supervision Department published Proper Conduct of Banking Business Directive Number 472 regarding "Acquirers and the acquiring of transactions on charge cards". The directive includes reliefs on the matter of the shareholders equity requirements for an acquirer with receivable balances exceeding NIS 2 billion in its last annual financial statements, which is to be calculated in accordance with the provisions of Proper Conduct of Banking Business Directives 201 – 211, (measurement and capital adequacy), however despite what is stated in Section 40 of Proper Conduct of Banking Business 201, the tier 1 capital ratio may not be less than 8% and the overall capital ratio may not be less than 11.5%. This directive is effective as from June 1, 2016. See Note 22D to the financial statements on the subject of capital adequacy and leveraging in accordance with directives issued by the Supervisor of Banks for additional details.

On September 22, 2020, the Supervisor of banks published a circular - Adjustments to Proper Conduct of Banking Business Directives for the purpose of coping with the Coronavirus (Temporary Directive) (Proper Conduct of Banking Business Directive 250). Proper Conduct of Banking Business Directive 201 on the subject of measurement and capital adequacy was amended within the context of the circular, such that the minimal capital ratios that a banking corporation other than an acquirer is required to meet have been reduced by 1% from the minimal capital rations that are required in the regular course of business. The directive is in effect until March 31, 2021 ("The end of the period of the directive") and under certain conditions, up to 24 months from the end of the period of the directive. On March 7, 2021, the Supervisor of Banks announced the extension of the capital reliefs until September 30, 2021, as set forth in the draft circular bearing that date.

Sensitivity analysis of the capital adequacy to changes in the tier 1 shareholders' equity As at December 31, 2020 Tier 1 shareholders' equity Risk assets (in millions) 1,889 1,909 1,929 1,949 1,969 1,989 13,915 13.6% 13.7% 13.9% 14.0% 14.2% 14.3% 13,965 13.5% 13.7% 13.8% 14.0% 14.1% 14.2% 14,015 13.5% 13.6% 13.8% 13.9% 14.0% 14.2% 14,065 13.4% 13.6% 13.7% 13.9% 14.0% 14.1% 14,115 13.4% 13.5% 13.7% 13.8% 13.9% 14.1% The tier 1 shareholders' equity target

As of the reporting date, the tier 1 shareholders' equity stands at a rate of 9.7%. This target is intended to support the realization of significant internal and external events, which might have a significant impact of the Company's capital ratios, both on the capital side and also on the risks assets side.

The setting of a managerial capital buffer The total capital buffer the Company holds, beyond the capital targets set by the Board of Directors, is intended to ensure compliance with the capital targets under different market and profitability conditions. The Company has set a buffer

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based on an analysis of a range of sensitivity scenarios for a deviation from the work plan in regard to the Company’s risk assets and capital.

For situations in which the capital buffer has eroded, there is a contingency plan for the improvement of the capital adequacy in the short term (one month to three months) based on a reduction in risk assets.

Risk assets budget For the purpose of meeting the capital targets, a limit has been calculated for the overall increase in risk assets. The risk assets budget ensures that the Company meets the predetermined capital targets. The capital adequacy ratio and the ratio of the overall equity to risk components The following are details of the risk assets and the equity requirements in respect of them:

December 31, 2020 December 31, 2019 Risk Capital Risk Capital balances requirements balances requirements Risk assets and capital requirements for credit risk deriving from exposures of: Debts of government bodies - - - - Debts of public sector entities - - - - Debts of banking corporations 2,082 260 2,086 261 Debts of corporations 516 65 641 80 Retail exposures to individuals 7,035 879 7,280 910 Loans to small businesses 734 92 811 101 Other assets 1,110 139 929 116 Total risk assets and capital requirements for credit risk 11,477 1,435 11,747 1,468 Risk assets and capital requirements for market risk according to the standard approach 68 9 26 3 Risk assets and capital requirements for operational risk 2,470 309 2,331 291 Total risk assets and capital requirements 14,015 1,753 14,104 1,762

Monitoring the capital ratio Capital management includes current monitoring processes that permit the tracking of developments in the Company’s use of risk assets and an assessment of compliance with its capital targets. The capital ratio is monitored on a monthly basis.

Operating segments

The Group has two main operating segments: the credit card issuing segment and the credit card acquiring segment.

The issuing segment - this segment includes the Company's operations in its capacity as an issuer. In this capacity, the Company approves for acquirers the transactions made by means of customers’ credit cards, which are submitted by merchants to the various acquirers. Once the acquiring has been executed, the Company - in its capacity as and issuer - transfers the transaction consideration to the acquirer (net of the interchange fee) and collects the consideration for the transaction from the customer’s account. Furthermore, this segment includes the provision of credit on and off credit cards.

The acquiring segment - this segment includes the Company's operations in its capacity as an acquirer. In this capacity, the Company is obligated to credit the merchant for transactions that have been approved by it and checked with the issuer. This obligation is contingent on the merchant complying with the operating procedures prescribed in the agreement between the merchant and the Company. These operations include the provision of credit to merchants and

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the factoring of credit transaction vouchers under the various credit card brands, including brands that are not acquired by the Company.

Quantitative information regarding operating segments:

Consolidated

Year ended December 31, 2020 Acquiring Issuing Other Total segment segment (2) consolidated

In NIS millions

Profit and loss information: Income: Fee income from external parties 597 657 - 1,254 Inter-segment fee income (365) 365 - - Total 232 1,022 - 1,254 Net interest income 50 480 - 530 Non-interest financing income 5 4 64 73 Total income 287 1,506 64 1,857 Expenses: Expenses for credit losses 15 208 - 223 Operating expenses 204 453 - 657 Selling and marketing expenses 30 478 - 508 Administrative and general expenses 23 55 - 78 Payments to banks - 250 - 250 Total expenses 272 1,444 - 1,716 Profit before taxes 15 62 64 141 Provision for taxes on profit 4 8 15 27 Profit after taxes 11 54 49 114 Company’s share of the profits of an associated company, net of effect of taxation - 1 - 1 Net profit attributable to equity holders of the Company 11 55 49 115 Return on capital 5.6% 3.3% 6.2% Average balance of assets 1,154 16,966 18,120 Average balance of liabilities 11,616 4,692 16,308 Average balance of risk assets (1) 1,470 12,550 14,020

(1) Risk assets - as calculated for capital adequacy purposes, pursuant to Proper Conduct of Banking Business Directives 201-210.

(2) Revenues from a transaction for the sale of shares in Visa Inc.

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Consolidated

Year ended December 31, 2019 Acquiring Issuing Total segment segment consolidated In NIS millions Profit and loss information: Income: Fee income from external parties 612 744 1,356 Inter-segment fee income (370) 370 - Total 242 1,114 1,356 Net interest income 51 454 505 Non-interest financing income 5 (3) 2 Total income 298 1,565 1,863 Expenses: Expenses for credit losses 9 138 147 Operating expenses 180 437 617 Selling and marketing expenses 30 455 485 Administrative and general expenses 22 56 78 Payments to banks - 260 260 Total expenses 241 1,346 1,587 Profit before taxes 57 219 276 Provision for taxes on profit 13 62 75 Profit after taxes 44 157 201 Company’s share of the profits of an associated company, net of effect of taxation - *- *- 47Net profit attributable to equity holders of the Company 44 157 201 Return on capital 22.4% 9.6% 11.0% Average balance of assets 1,163 16,277 17,440 Average balance of liabilities 9,265 6,347 15,612 Average balance of risk assets (1) 1,404 11,587 12,991

* Represents an amount less than NIS 1 million.

(1) Risk assets - as calculated for capital adequacy purposes, pursuant to Proper Conduct of Banking Business Directives 201-210.

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Consolidated

Year ended December 31, 2018 Acquiring Issuing Total segment segment consolidated In NIS millions Profit and loss information: Income: Fee income from external parties 547 679 1,226 Inter-segment fee income (352) 352 - Total 195 1,031 1,226 Net interest income 41 423 464 Non-interest financing income 5 3 8 Total income 241 1,457 1,698 Expenses: Expenses for credit losses 9 147 156 Operating expenses 155 402 557 Selling and marketing expenses 28 411 439 Administrative and general expenses 21 53 74 Payments to banks - 259 259 Total expenses 213 1,272 1,485 Profit before taxes 28 185 213 Provision for taxes on profit 7 49 56 Profit after taxes 21 136 157 Company’s share of the profits of an associated company, net of effect of taxation - (*-) (*-) 47Net profit attributable to equity holders of the Company 21 136 157 Return on capital 9.9% 8.8% 9.0% Average balance of assets 1,245 13,102 14,347 Average balance of liabilities 8,099 5,143 13,242 Average balance of risk assets (1) 1,498 10,876 12,374

(1) Risk assets - as calculated for capital adequacy purposes, pursuant to Proper Conduct of Banking Business Directives 201-210.

See the chapter on "Segmental operations – additional details" in the Corporate Governance Report, which appears below for additional details regarding operating segments.

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Principal investee companies

Diners Club Israel Ltd. ("Diners Club")

Diners is the local franchise holder of the global Diners Club network and is engaged in issuing, marketing and operating “Diners” type credit cards, which are valid in Israel and abroad.

Total assets amounted to NIS 2,627 million as at December 31, 2020, compared with NIS 3,168 million at the end of 2019, a decrease of 17%.

Total equity amounted to NIS 396 million as at December 31, 2020, compared with NIS 379 million at the end of 2019, an increase of 4%.

Total revenues amounted to NIS 319 million in 2020, compared with NIS 346 million in 2019, a decrease of 8%.

Net income amounted to NIS 17 million in 2020, compared with NIS 34 million in 2019, a decrease of 49%.

The yield on equity amounted to 4.5% in 2020, as compared with 9.4% in 2019.

CAL (Financing) Ltd. ("CAL Financing")

CAL Financing was incorporated as a private company on April 4, 2000. It commenced operations in July 2001 as the Company's financing arm, for the purpose of extending credit to the cardholders of the Company and obtaining sources for its financing. Due to this characteristic, it has been approved by the VAT authorities as a “financial institution” for the purpose of the Value Added Tax Law, 1975. The Company extends most of the credit to its customers, whether or not they are holders of a credit card issued by the Company, through CAL Financing.

Total assets amounted to NIS 4,617 million as at December 31, 2020, compared with NIS 5,217 million at the end of 2019, a decrease of 10%.

Total equity amounted to NIS 101 million as at December 31, 2020, compared with NIS 105 million at the end of 2019, a decrease of 4%.

Total revenues amounted to NIS 410 million in 2020, compared with NIS 379 million in 2019, an increase of 8%.

Net income amounted to NIS 4 million in 2020, compared with NIS 35 million in 2019.

Diners (Financing) Ltd. ("Diners Financing")

Diners Financing is a wholly owned subsidiary of Diners Club. Diners Financing was established in 2005 and has been financing the credit for some of the Diners Club cards since June 2006. It has been approved by the VAT authorities as a “financial institution” for the purpose of the Value Added Tax Law, 1975 because of this characteristic.

Total assets amounted to NIS 548 million as at December 31, 2020, compared with NIS 629 million at the end of 2019, a decrease of 13%.

Total equity amounted to NIS 81 million as at December 31, 2020, compared with NIS 60 million at the end of 2019, an increase of 35%.

Total revenues amounted to NIS 68 million in 2020, compared with NIS 67 million in 2019, an increase of 1%.

Net income amounted to NIS 21 million in 2020, which was similar to the previous year.

Yatzil Finances Ltd. ("Yatzil Finances")

Yatzil Finances was established as a private company on June 20, 1979 and is engaged in the provision of financing services to merchants by factoring “Visa”, MasterCard”, “Diners”, “American Express”, and “Isracard” credit card vouchers.

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Total assets amounted to NIS 2,028 million as at December 31, 2020, compared with NIS 1,954 million at the end of 2019, an increase of 3.8%

Total equity amounted to NIS 96 million as at December 31, 2020, compared with NIS 79 million at the end of 2019, an increase of 22%.

Total revenues amounted to NIS 33 million in 2020, compared with NIS 32 million in 2019, an increase of 3.1%.

Net income amounted to NIS 17.4 million in 2020, compared with NIS 16.8 million in 2019, an increase of 3.6%

Other investments

The Company has no material investment in investee and/or associate companies, partnerships or joint ventures that are not subsidiaries, with the exception of the following:

. Shlomo CAL Ltd. - A company that extends credit to private customers that wish to buy a car. Shlomo CAL markets leasing transactions in which the customer leases a car for an average period of 30 months. The credit for the transaction is extended through CAL Financing. The Company holds 20% of Shlomo CAL Ltd.'s share capital.

. Casponet Ltd. - On March 15, 2004, the Company, Discount Bank and Lipman Electronic Engineering (“Lipman”) established Casponet Ltd., in accordance with the provisions of an agreement dated December 17, 2003 (“the Agreement” and “Casponet”, respectively). Casponet engages in the installation and operation of ATM machines on merchants’ premises. Discount Bank and the Company each hold 10% of the issued share capital of Casponet. Pursuant to the Agreement, Casponet's shareholders are given priority in providing services and products to Casponet, provided that the purchase terms thereof are at competitive market prices.

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Risk Review

General description of the risks and their management

The CAL Group ("The Group") is engaged in a large number of activities, which expose it to a range of financial and additional risks:

The Company is engaged in a broad number of activities, which expose it to a range of financial and additional risks:

Credit risk: risk that a borrower or counter party of the corporation will not to meet its commitments to the corporation, as has been agreed.

Market risk: risk of the impairment of the Group's equity, deriving from changes in interest rates, exchange rates, inflation, the prices of securities and similar risks. The Group's exposure to market risks derives primarily from interest and base exposures in the Group's banking portfolio.

Liquidity and financing risk: risk to the Group's profits and to its deriving from its inability to provide its liquidity needs. This risk includes: the risk that the Group will not meet its payment commitments on time (Funding Risk) and the risk that any credit whatsoever may cause banks to refuse to make credit available to the Company exceptionally.

Operational risk: risk of loss as a result of the inappropriateness or failure of internal processes, personnel and systems or as a result of external events. The operational risk is inherent in all of the products, the operations, the processes and the systems in the Group.

Business technology risk: deriving from the use or the non-use of information technology by a corporation, from a corporation's dependency thereon, including the making of adjustments to changes in the business environment.

This risk is divided into two attribution groups: Cross-organizational and infrastructure risks (ITGC and information security risks), which have implications for all of the organizational structure, and risks that apply to specific systems and infrastructure, opposite the business process that they support.

Cyber and information security risk: a cyber-event is an event in which an attack is made on computer systems and/or computer based infrastructure systems by external or internal parties.

The realization of cyber risk could disrupt the proper functioning of the Group's operations and cause damage such as the prevention of the provision of service exposure of private information, the deletion and disruption of data, a decrease in the level of the public's trust and damage to the Group's image and reputation.

Compliance risk – risk of non-compliance with directives and regulatory rules (including fairness aspects), the realization of which could lead to the imposition of sanctions and/or the incurrence of a monetary loss (as a result of class actions, the imposition of fines/ penalties and similar issues) and/or reputational damage.

Money laundering and financing of terrorism risk: the risk of losses and damage sourced in transgressions that are connected to the Prohibition of Money Laundering and the Financing of Terrorism Law and non-compliance of the provisions of the Order and the Proper Conduct of Banking Business Directive 411, as well as the exploitation of the Group by a third party to finance and/or execute unlawful activity. The realization of the risk creates an exposure to financial penalties, the placement of criminal liability on the Company and on senior officers and risks to reputation with significant implications.

Legal risk: pursuant to the Basel Directive and Proper Conduct of Banking Business Directive 350, legal risk is part of operational risk, which is defined as the risk of a loss, loss of income or business damage, inter alia, as a result of the absence of the possibility of legally enforcing compliance with an agreement or from a lack of knowledge of the provisions of the law or the erroneous interpretation hereof, including primary or secondary legislation, directives issued

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by supervisory authorities and etcetera, the Group's commitment to act in accordance therewith, or from exposure to legal proceedings against the Group and against any of its employees or officers (within the framework of their work in the Company and a transgression on the criminal, administrative or civil plains). Legal risk includes inter alia an exposure to penalties and fines or punitive measures, as a result of supervisory activity (punitive damages), enforcement activity or private settlements and etcetera/

Reputational risk: the risk of significant and ongoing damage to the Group’s business and its financial resilience as a result of damage to its reputation following various publications, whether intentional or erroneous, which have arisen for it among the Group's customers, employees suppliers, related parties, shareholders and investors (whether existing or potential) and supervisory bodies.

Strategic risk: business risk, which is created both in respect of an act (such as erroneous business decisions or improper implementations) or of an omission (such as the absence of a response to changes in competition), which if realized could lead to the non-meeting of the targets in the Group's strategic plan over time to a significant degree and which could also prevent the Group from retaining its status as a significant relevant player in the credit card and non-banking credit market.

The manner of the management of risks

The management of risk in the Group is managed in accordance with the directives issued by the Banking Supervision Department, with the risks management policy being based upon the Basel principles and with generally accepted global practice.

From time to time, the methods and the methodologies in the risks management field are tested and updated, in accordance with changes in the business, internal and regulatory environments. A member of the management has been appointed for each of the significant risks to which the Group is exposed, who bears ultimate responsibility for the management of the risk in the first line of defense.

The management of the risks is performed using qualitative and quantitative methodologies and tools (including a range of statistical models), which enable an orderly and systematic process for identifying risks, assessing and measuring the exposure to risks, monitoring exposures, controlling and reducing risk and reporting to the management and the Board of Directors.

The Group views orderly risks management as being a crucial component in its operations and accordingly it examines the various risks to which it is exposed in its operating activities and business decision making, whilst applying a collective and forward looking visions throughout the management chain.

The risks management framework is anchored in a series of policy documents, which constitute a framework that supports the corporate governance responsibility for risks management, which is comprised of three lines of defense, which create balance and proportionality.

This framework enables the Group to identify and to manage risks optimally, whilst maintaining appropriate supervisory and control mechanisms, in a manner that assures that the Group has appropriate and stable equity over time. The risks management culture encourages control, transparency and effective communication within the organization, with an appropriate flow of information.

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The Group's strategy and processes for managing, hedging and reducing risks is as follows:

Declaration on the appetite for risk in accordance with the guidelines issued by the Banking Supervision Department, a banking corporation’s risk appetite should reflect the risk preferences of the Board of Directors and should be consistent with the business strategy, liquidity planning, sources of finance and the corporation’s capital planning, and it should constitute one of the central tools at the disposal of the Board of Directors in supervising its risk profile.

The formulation of the risk appetite is a core process in managing the Group's risks that is executed in correlation with the strategic outline and the capital configuration, from a combined general corporate forward-looking overview.

The risk appetite declaration document, which is approved once a year by the management and the Board of Directors, complies with the Proper Conduct of Banking Business requirements on the subject of risks management and constitutes one of the infrastructure documents for enterprise risk management as defined in the Enterprise Risk Management Policy document. Restrictions have been determined in the document for the risk targets and/or the warning thresholds. When the limits are exceeded, an outline will be set for a reduction in the level of risk and a return to compliance with the limits.

The policy documents: form a framework for the central risks that are managed in the Group and define the limits on the appetite for risk, for the purpose of management that is effective and accords with the directives issued by the Bank of Israel. The policy documents are reviewed and approved periodically by the Board of Directors and senior management.

The internal control framework: is managed by the control functions and the lines of defense by means of the identification and assessment of the risk and the monitoring, reduction and correction of deficiencies. The objective of the control framework is to avoid, to minimize or to reveal failings that could cause financial damage, image to image or a breach of regulations or procedures. The control framework includes: supervision by management and the control culture, the identification and assessment of risks, monitoring, reduction and the correction of deficiencies.

The quarterly risks document: is presented quarterly to the plenum of the Board of Directors, to the Board of Directors' Risks Management Committee and to the management, and it includes the exposures and the significant changes that have occurred in the Group's risk profile, inter alia, based on changes in the business and in regulations, whilst examining the compliance with the risk restrictions and indicators (KRIs), central weaknesses and deficiencies that have been identified in the infrastructures, systems and procedures, including the manner in which they have been handled.

Information report on risks: processes for reporting on risks, form a central tool in the management of the risks at all levels in the Group, from the ground level and up to the level of the management and the Board of Directors. The reporting process include routine reports that are presented at a set and agreed frequency (such as the quarterly risks document) and immediate reports in accordance with what is defined in the various policy documents and procedures.

The new product process: pursuant to Proper Conduct of Banking Business Directive 310 (Risks management), prior to the operation of a new product, an orderly and systematic process is maintained in the Group, which is intended to ensure the correct identification and assessment of the risks that are inherent in the new product, whilst examining their impact on the Group's risk profile, inter alia, by verifying the appropriateness of the infrastructures and the controls supporting their operation.

The establishment of the process in the Group contributes to the ability to identify and to assess new risks as they arise, to verify the preparations and the appropriate hedging of the risks, by means of supportive work processes, infrastructures and controls. This process includes the approval of the products by the management and the Board of Directors.

The development and independent validation of models: a model presents various relationships between events, observations or data and an estimate of a risk in a simplified format. The model includes financial aspects and which

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expresses a theoretical connection between the data and the assessments of the risk and may have a significant impact on the management of the risks.

The process of the development of a new model is performed by a team that is qualified for the subject, which stringently observes the objectivity and the transparency of the process, whilst documenting the model, including the assumptions and the main decisions that have been made, in a manner that enables independent checking and the training of a new team. The development team is responsible for providing a clear description, which is not in technical language, of the theory that stands at the foundation of the overall model that relates to the business use of the model and its objectives.

The Group uses a number of models, such as statistical, actuarial and economic models. Prior to the operation of a model in the Group, a process is conducted in which the model is validated, which is intended to ensure that proper functioning of the model and the use thereof. The validation is performed by a team that has expertise in validation and which is independent of the development of the model. The process includes activity, the purpose of which is to verify that the model is operating as expected, in accordance with the objective and the uses for which it is intended. The Group is operating in accordance with policies that have been approved by the Board of Directors and it is strengthening the catalogue of models, including the formulation of a multi-annual work plan, which contains control processes that are determined in accordance with the risk profile in the model and the changes in the risk environment. These procedures are performed in accordance with the Bank of Israel's directives.

Strategy and the work plan: The Group operates in accordance with a strategic plan, which is determined in each period and which is approved by the management and the Board of Directors, from which the work plans are derived. As part of the strategic plan and the work plans, the changes that have occurred and which are expected to occur in the risk environment are taken into account. The Risks Management Department is responsible for the development of models, it is integrated structurally in these processes and it assesses their impact on the risk profile and that they correlate with the appetite for risk by means of challenging the strategic plan and the work plan.

In addition, a managerial focus is placed on the implementation of the strategic plan and the work plans, with risk based measurement targets, together with the business objectives.

Planning and performance of a risks survey and the mapping of risks: pursuant to the Proper Conduct of Banking Business Directive on the subject of the management of operational risks, the Company conducts surveys of operational risk in order to map the operational arrangements and the risks that are inherent therein, and tests for the existence of appropriate control mechanisms in relation to various business processes.

Gaps that arise from the reviews are passed for handling within the framework of the risks reduction plan, in accordance with an orderly methodology, which is implemented routinely in accordance with the prioritization of the risks. The status of the risks reduction plan for the significant risks is presented to the Board of Directors and the management within the framework of the quarterly risks report.

The risks culture and the embedding of usefulness in the risks management processes: The Company works ceaselessly to improve and to strengthen the risks management processes in the operating activities. The management, which outlines the tone at the top, integrates risks management processes as an integral part of the risks management processes.

The risks management function accompanies and is involved in the central processes, from the outset, in order to verify that risks management considerations are embedded as an integral part of the business activity.

The organizational culture encourages control, transparency and effective communications inside the organization, with an appropriate information flow and reporting on default events.

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Internal capital adequacy assessment process (ICAAP):

The internal capital adequacy assessment process, which is required in the second level of the Basel II framework and which is intended to ensure the that adequate capital will be held by the Group, which will support all of the risks that are inherent in the business activity, maintain financial stability and for the examination of the state of the capital in a range of extreme scenarios and for long periods of stress. The ICAAP process includes the examination of the array of management processes in the Group; corporate governance for the management of risks; the identification of significant risks to which the Group is exposed and the quality of their management; the quantification of the overall exposure to risk in terms of capital and a comparison between the extent of the exposure and the Group's capital resources, both at present and forward looking.

The additional risks that are included in the second level are comprised of risks that are not addressed within the framework of the first level, where the extent of the exposure to them and the allocation of capital that is required for them can be calculated, and of qualitative risks that are tested within the framework of the overall testing of the capital adequacy.

During the course of the year, changes in the risks profile are monitored and the capital adequacy is verified, whilst monitoring and testing developments in the risk assets and capital.

Stress tests

The Group uses forward looking stress tests as a supplementary tool to the risk management processes (mostly credit, market and liquidity risk). Stress testing is used for identifying and assessing focusses of risk and vulnerable areas, as part of the capital adequacy assessment (ICAAP) and challenging the planning of the equity, including compliance with the restrictions on the appetite for risk that have been set by the Board of Directors.

The stress tests are performed in according with the methodology that has been set by the parent company, with such adjustments are necessary for the CAL Group's operations. The Board of Directors and management approve the scenarios, including involvement in their definition, the determination of their objectives and the examination or the reasonability of their results

In 2020, in the wake of the Corona crisis, the Company performed extreme scenario testing pursuant to directives issued by the Bank of Israel. Furthermore, the Company has related to scenarios based on Discount Bank's economic forecast, when setting the work plan and targets for the year 2021.

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Significant risks

The following are details regarding the main risks and the most significant developments therein:

Cyber and information security risk: The risk of the realization of cyber and information security threats has been growing in recent years, both in Israel and globally, in light of the increase in the level of the sophistication, the regulation in open banking field and the complexity of the attacks and the range of methods used as well as from the business competition and the ambition of being at the forefront of the technological front, together with the growth in the extent of the spread of the computer based and cloud services. The exposure has even increased at a faster pace in light of the Corona crisis. Accordingly, supervisory attention has been turned to the subject in order to examine and improve the way in which the banking system is coping with this risk, inter alia, as a result of the need to work from home during the crisis by means of dedicated regulations. An emphasis has been placed in the Group on the management of the risk as a cross-organizational threat in light of its complexity, the extent of the potential damage and the difficulty of coping with the threats in the field.

Technology risks: Technological developments and the growth of digital banking, together with an increase in customers' expectations of maximizing value, comprehension and adapted products, which are available and immediate, create risks deriving from reliance on new technology and infrastructures, using outsourced services, which may increase the exposure to fraud and to the leaking of information.

Regulatory risks: In recent years there has been an increase in the volume of legislation and regulation in the banking and financial fields. The legislation and the regulations are changing the business environment and mandating complex changes in the work processes and in the computer system with relatively short periods of time being allowed for their implementation.

Among the main regulatory steps that have been implemented in 2020, it is important to mention the Payment Services Law, which is intended to encourage the use and development of advanced means of payment, in parallel to increasing certainty and fairness opposite the consumers and creating a legal infrastructure for the technological developments and creating innovative platforms, which will lead to the existence of "new players" in the payment services field, and for which a regulatory response was required.

Business model risks: There have been changes in the operating environment in recent years, which derive, inter alia, from the acceleration in technological developments, the erosion of sources of income and increasing competition in the banking system and from outside of the banking system. The dynamism and the pace of the changes are leading to an increase in business model risk (which forms part of the strategic risk) and which requires the Group to examine advanced, flexible solutions, from a forward looking perspective, which will ensure the continuation of the Group's positioning as a leading group in the future too.

Accordingly, the Group is concentrating significant efforts in the digital field, in the customer experience, in innovation and in the development of models and also in new projects. These changes, with an emphasis on projects involving innovation and technology, also lead by the very nature of things to an increase in third party risks, primarily from the aspect of the supply chain, quality assurance and controls, exposures to cyber risks and to the leaking of information.

The Group is taking action to ensure a continuing improvement in the tools that support the management of the risk, including updating the policy documents, creating standardization, processes and contractual arrangements as well as by performing new product processes for identifying risks and the reduction thereof in new products or activities.

Protection of privacy risks: The protection of privacy aspects have accelerated and increased importance both in Israel and globally, against a background of an increase in the use of digital and data solutions. The regulation of the field of the protection of privacy is undergoing changes and there has been much legislation, both locally and globally (GDPR).

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Protection of privacy aspects form an important component in the examination of new products and/or technologies and/or services and/or models, as a result of the need to verify that there is adequate protection of sensitive information.

For additional information on the risks and for information required according to the third pillar disclosure requirements, see the extended chapter on risks in the "Basel third pillar disclosure requirements report and additional information on risk" on the Company’s Hebrew website:

Credit risk

Risk that a borrower or a counter party of the corporation will not meet its commitments vis-à-vis the corporation, as agreed.

The credit risk in the Group is divided into two main types of operations:

Consumer credit: Non-banking credit, which is extended to private customers through a credit card (such as: current receivables in accordance with the credit facility, rolling credit products, loans, including a loan together with a facility) or without a credit card.

Upon the outbreak of Corona crisis, the Company took a number of steps in order to reduce the possible potential damage, primarily because of a more severe underwriting threshold and the reduction of the amounts of the exposure, the addition of security filters to the existing underwriting models, the continuation of the expansion of the use of a credit database and the integration of data in the Company's underwriting model and thus improving the identification of the customer's level of risk.

In 2020, including under the influence of the implementation of the Bank of Israel's directives regarding the approval of the deferral of payments on loans, no significant credit damage because of the impact of the Corona crisis has been identified as yet. The Company does anticipate an increase in credit damage in the wake of the crisis, which will find expression in 2021, when the deferral of payments ends and there is a reduction in unemployment pay and difficulties may be encountered in collections, which will lead to a reduction in the collection rates, and furthermore, it is expected that there will be high demand for high risk credit and stiff competition over low risk consumer credit.

In 2021, the Company is planning to improve and to expand the underwriting and rating model, including expanding the ability to identify at risk customers, leveraging the "open banking" regulation and providing credit based on broad information, expanding the distribution channels in cooperation with partners and thus leading to controlled growth in the consumer credit, whilst retaining the appetite for risk.

Commercial credit for merchants. The credit products include, inter alia, express loans, regular loans, advances and etcetera.

In the wake of the Corona crisis, there has been an increase in the risk profile, which is a trend that will become more severe if the crisis continues, as a result of the long period in which businesses have been closed or their activity has been reduced. This increase has led to steps being taken to reduce facilities, a more stringent process for extending credit and increased monitoring and supervisory processes.

The Credit and Partners Division is responsible for identifying credit risks among the private and commercial customers, measuring and assessing the risks, executing control, monitoring and reporting in accordance with the policies and the procedures.

Managed credit risk: with the objective of achieving a risk-adjusted yield. The risk is managed in accordance with the following aspects: (1) Proper Conduct of Banking Business Directives on the subject (2) the credit policy that is approved

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by the Board of Directors and management each year (3) the appetite for risk that has been defined (4) the Group's strategy (5) the Group's overall risk profile.

The appetite for risk is translated into terms of qualitative and quantitative restrictions, which relate to the characteristics of the risk in the credit portfolio, and the composition and quality thereof, exposures to sectors of the economy, operating segments and etcetera. The restrictions serve as an effective tool for supervision, control and other reporting, compliance with the Group's credit policy as well as estimating the credit risk in relation to the Group's overall risk policy.

The credit approval process: The Group maintains documented processes for the approval of new credit, and for the reorganization and refinancing of existing credit. During the course of the process, every credit application is analyzed by an authorized member of the business team who has expertise in relation to the size and complexity of the transaction, and all of the relevant documents are submitted for the evaluation of the risks that are inherent in the transaction.

When the person who gives the approval determines the yield, he takes the array of risks in the transaction and the allocation of the capital that is required against the expected and unexpected losses, both at the level of the transaction and at the level of the credit portfolio into account. This quantification is also performed by means of models that have been adapted for these needs.

Underwriting credit to private individuals

The process of underwriting the credit and rating the risk for individuals is based largely on advanced statistical models. This rating serves as the basis for decision support in respect of the extension of the majority of the credit, its size and the interest rate that is set for the customer. The models are subject to regular monitoring, quality testing and periodic calibration and are determined in accordance with the Group’s policy and regulatory requirements. The underwriting is performed in two ways: automatic underwriting, which is based on rating and business charter models, from the perspective of the customer’s overall activity; and manual underwriting, which is performed in instances where further checking, beyond that performed by the automatic underwriting process, is required.

Automatic underwriting

More than 90% of the credit decisions are taken by means of the automatic underwriting process. This process is based on rating new and existing customers on validated statistical models. The models are integrated within the business charter that examines the customer’s situation relying on data collected from the Group’s own information sources and from additional external information sources. The automatic underwriting process rates the customer’s risk level. Based on this rating, the customer is offered credit in a scope and amount and for a period that match his risk rating, as reflected in the Group’s systems and also based on the Group’s risk appetite. The customer’s risk rating is regularly updated and monitored throughout the term of the credit granted to the customer. The Group is constantly acting to broaden and improve the credit risk models in accordance with the most advanced, globally accepted practices.

Granting credit in a scope that exceeds the System’s recommendation necessitates implementing a detailed and stringent underwriting process that involves testing, among other things, the following:

- The customer’s solvency;

- The level of the customer’s income;

- The customer’s financial strength;

- The customer’s financial conduct history with the Group, if any;

- The receipt of financial data from other sources, if available, regarding the customer.

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Manual underwriting

The credit underwriting process in such exceptional situations is accompanied by justifying documentation, including the considerations upon which the decision to establish a credit facility were based. As part of the policy, a threshold has been set for the grant of credit to such customers and limits regarding the percentage of credit at a low rating in relation to the total portfolio of credit granted to individuals. In addition, in order to limit the risk in credit granted to individuals, the policy places restrictions on the powers of the credit parties to grant credit that deviates from the System recommendation (in accordance with the rating level set for the customer), and prohibits any deviation from these recommendations for customers with a low rating.

Furthermore, the policy for granting credit to individuals establishes principles that set standards of fair conduct in dealings with customers, including prescribing restrictions concerning the customer population for which unsolicited calls for the grant of credit may be made and the giving of proper disclosure regarding the credit terms and the degree to which receiving the credit is worthwhile to the customer.

Individual restrictions: The management of the credit portfolio establishes restrictions and principles, which define the levels of the risk that the Group is prepared to accept. The restrictions are defined from the level of the customer, through various divisions in the portfolio (risk levels, sectors and products) and up to the cumulative level of the portfolio.

Monitoring of the exposure: the Group operates measures the objective of which is to identify and to assess the level of the borrower's risk and the exposure by means of information systems, which indicate negative developments that have occurred in the customers' accounts, including: arrears in loans, the exceeding of credit facilities and alerts from external sources.

The monitoring is performed by means of the monitoring of the quality of the credit for specific exposures and for the credit portfolio as a whole, by collecting information from internal sources and from the customer's behavior, and by means of alerts and data from external sources of information, from the level of the individual transaction and up to the level of the portfolio as a whole, at various cut-offs.

The monitoring systematically includes the information that is received from monitoring transactions and enables the identification and development of trends that create an exposure to risk factors.

Credit databases: The Company makes use of the data in the database, both for underwriting needs and for monitoring needs. The credit database expands the information that is available for underwriting and monitoring credit for private customers. CAL has imbedded and is continuing to expand the use of databases in the provision and management of credit processes.

Systems for measuring credit risks: There are dedicated information systems in the Group for managing credit, which meet the regulatory demands and which enable the operation, management, monitoring, measurement and supervision of credit risk. In addition to the core operating activity, there are systems that support the management of the credit risk, such as systems for rating borrowers, systems for managing and reporting on troubled debts, allowances for credit losses and etcetera.

The management and the Board of Directors: test on a quarterly basis, by means of a collective risks document, the level of the exposure to credit risks, which includes compliance with the restrictions that have been set; the exceeding of restrictions and action plans for correcting cases where restrictions have been exceeded; trends in the credit portfolio; data on credit losses and allowances in respect thereof.

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Significant developments in the overall credit risk

The outbreak of the Coronavirus and the steps that Israeli government has taken in its wake, have led to a significant downturn in activity in the Israeli economy, to which the Company's operations are exposed. This downturn has had a negative impact on the Company's credit risk and on its customer's liquidity.

It is difficult to make a full assessment of the damage that is expected, in light of the uncertainty regarding the length of time that the crisis will last and the depth of the crisis. The Company has prepared the best estimates that can be made in these circumstances, based on the information that it has immediately before the time of the approval of the reports. In the Company's assessment, the Corona crisis may continue to affect the state of the borrows and their ability to make repayments. Against this background, in the reporting period (primarily in the first quarter) the Company decided to increase the collective allowance, in order to reflect the increase in the credit losses that are estimated for the period for borrowers who have been harmed by the crisis but have not been identified yet.

It should be emphasized that as at the time of the publication of the report, no actual deterioration in the Company's customers solvency has been identified and there has even been a decrease in the rate of debts that are not being settled on time.

In relation to the loans for businesses segment, in the Company's assessment there has been a decline in the quality of the credit, primarily the credit branches that have been harmed especially by the outbreak of the crisis, such as tourism, hostelry and aviation.

In light of the Corona crisis, an additional risk was added to the leading and developing risks, macro-environmental risk, in the first quarter of 2020, in light of the significant implications that the crisis is expected to have on the local economy, on the global economy and on the markets. The Corona crisis has led to an increase in the risk in most of the risk fields that managed and especially the credit risk, as mentioned above, and the operational risk. At this stage, considerable uncertainty exists regarding the depth of the crisis and the length of the period in which it is expected to affect activity in the global and market economies and on the credit card sector, including the Company.

Disclosure regarding debts for which the terms have been changed

In light of the development of the Coronavirus event and its possible implications in the near future on the economy on Israel and globally, there have been significant developments in the Company's credit risk and accordingly in the allowance for credit losses. Furthermore, the Company has taken action in order to stabilize borrowers who may not meet their contractual payment commitments following the outbreak of the Coronavirus event.

(See Page 21 regarding the outline for the deferral of loans, which has been published by the Bank of Israel regarding credit card companies).

Credit for private individuals

In recent years, the Company has presented a consistent trend of growth in the field of credit to private individuals. The Company views this field as one of its main engines for growth, provided there is sophisticated management of the risks. The expansion of the activity of making credit available to private individuals is executed by means of responsive and initiated activity, which is based on the customer's needs, offering the customers the range of the Company's existing credit products, such as loans that are based on the credit card facilities, loans together with credit facilities, credit loans, any purpose loans and loans based on cooperation in the vehicles field and in the any purposes loans field. The Company’s policy is based on ratings and it has procedures defining work processes and principles for an initiated approach for the sale of credit to private individuals.

As mentioned above, the work procedure on the subject of the extension of credit to private individuals, which is based on the policy, determines, inter alia, a definition of the script for conversations for selling credit, which include the

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provision of information to the customer regarding the terms of the credit, such as: the amount of the credit, the period of the credit, the nominal and adjusted interest rates, the estimated amount of the monthly repayment and also the ways in which to communicate in order to receive clarifications. Furthermore, the procedure relates to the customer's needs and their characteristics as well as to the documentation of the details of the approaches that have been made to customers. In addition, the procedures contains a definition of the population to which an initiated approach for the provision of credit is not to be made, which is done in order to comply with the regulatory principles. The making available of credit to private individuals is based on the customer's risk rating.

The Company has formulated policy and a working framework for the extension of credit to private individuals. Within this context, the Company is assisted by a decision support system, which tests activity indices and various risk indices for the private customer and which sets a risk rating for the customer as well as a ceiling for the maximum amount of credit that may be made available, which takes the risk rating and additional factors into account.

Quantitative data regarding credit to private individuals

In 2020, a decrease of 5.5% was recorded in the balance of credit to private individuals compared with an increase of 15.1% in 2019. This credit amounted to NIS 5,159 million as at December 31, 2020 as compared with NIS 5,460 million as at December 31, 2019. The interest bearing credit to private individuals constitutes 59.3% of the overall credit to private individuals that is at the Company's responsibility as at December 31, 2020, and it consists primarily of credit bearing variable interest on credit transactions, transactions on rollover credit cards, loans, designated credit for the purchase of vehicles and other transactions. The rest of the credit to private individuals amounts to NIS 3,539 million, compared with NIS 3,653 million as at December 31, 2019. This credit is non-interest bearing and reflects balances with respect to regular transactions, transactions in payment at the expense of the place of business and other transactions. The overwhelming majority of the credit losses derive from interest-bearing credit.

In 2020, there was an increase in the extent of the credit losses with respect to private individuals. Credit losses in respect of private individuals amounted to NIS 208 million, compared with NIS 137 million in 2019.

The increase in credit losses expenses in 2020 derived primarily from the expected implications of the outbreak of the Coronavirus on the quality of the credit portfolio. On the other hand, the impact was partially offset by a decrease in the scope of the debts in arrears.

For further details regarding the monitoring of the credit to individuals and the risk management embodied in the credit to individuals activity, see the "Basel third pillar disclosures and additional information on risks" report, which can be viewed on the Company’s Hebrew website.

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Credit quality and troubled credit risk

Analysis of the quality of the credit, troubled credit risk and non-performing assets

December 31, 2020 Debts Balance guaranteed by Private a bank and individuals Commercial other Total In NIS millions Credit risk with a rating of performing credit On-balance sheet credit risk (1) 8,126 794 8,526 17,446 Off-balance sheet credit risk 18,071 1 15,026 33,098 Total credit risk with a rating of performing credit 26,197 795 23,552 50,544

Credit risk without a rating of performing credit A. Not troubled 248 15 - 263 B. Total troubles (2) 324 7 - 331 1. Special supervision 151 3 - 154 2. Subordinated 38 - - 38 3. Impaired 135 4 - 139 Total on-balance sheet credit 572 22 - 594 Total off-balance sheet credit 59 *- - 59 Total credit risk without a rating of performing credit 631 22 - 653 Of which: unimpaired debts, in arrears of 90 days or more - - - - Total credit risk including the public's 26,828 817 23,552 51,197 Additional information on non-performing assets: Impaired debts 16 4 - 20 Total non-performing assets including the public's 16 4 - 20

(1) Risk relating to credit whose credit rating at the reporting date accords with the credit rating for new performing credit, in accordance with the Company's policy. (2) Risk relating to credit that is impaired, subordinated or under special supervision.

* Represents an amount less than NIS 1 million.

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December 31, 2019 Debts Balance guaranteed by Private a bank and individuals Commercial other Total In NIS millions Credit risk with a rating of performing credit On-balance sheet credit risk (1) 8,366 1,021 8,515 17,902 Off-balance sheet credit risk 16,870 23 14,533 31,426 Total credit risk with a rating of performing credit 25,236 1,044 23,048 49,328

Credit risk without a rating of performing credit C. Not troubled 444 24 - 468 D. Total troubles (2) 303 12 - 315 4. Special supervision 178 10 - 188 5. Subordinated 69 - - 69 6. Impaired 56 2 - 58 Total on-balance sheet credit 747 36 - 783 Total off-balance sheet credit 55 *- - 55 Total credit risk without a rating of performing credit 802 36 - 838 Of which: unimpaired debts, in arrears of 90 days or more - - - - Total credit risk including the public's 26,038 1,080 23,048 50,166 Additional information on non-performing assets: Impaired debts 34 2 - 36 Total non-performing assets including the public's 34 2 - 36

(1) Risk relating to credit whose credit rating at the reporting date accords with the credit rating for new performing credit, in accordance with the Company's policy. (2) Risk relating to credit that is impaired, subordinated or under special supervision.

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Changes in the balances of impaired debts

Consolidated Year ended December 31, 2020 Balance of impaired debts Credit risk not guaranteed by banks

Individuals Commercial Credit risk Receivable Receivables guaranteed s on credit on credit by banks cards Credit cards Credit and other Total In NIS millions Balance at the beginning of the period *- 56 - 2 - 58 Debts classified as impaired debts during the year *- 284 - 11 - 295 Accounting write-offs - (175) - (3) - (178) Collections - (30) - (2) - (32) Seized assets ------Other changes - - - (4) - (4) Balance of impaired debts at the end of the period *- 135 - 4 - 139 Of which: derive from troubled debts under restructuring Balance of troubled debts under restructuring at the beginning of the year - 27 - - - 27 Restructurings performed during the year - 117 - - - 117 Debts returned to an unimpaired classification because of subsequent restructuring ------Accounting write-offs - (11) - (*-) - (11) Collections - (11) - - - (11) Balance of impaired debts under reorganization at the end of the period - 122 - (*-) - 122

* Represents an amount of less than NIS 1 million.

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Consolidated Year ended December 31, 2019 Balance of impaired debts Credit risk not guaranteed by banks

Individuals Commercial Credit risk Receivable Receivable guaranteed s on credit s on credit by banks cards Credit cards Credit and other Total In NIS millions Balance at the beginning of the period *- 46 - 4 - 50 Debts classified as impaired debts during the year *- 193 - 6 - 199 Accounting write-offs - (158) - (3) - (161) Collections - (25) - (5) - (30) Seized assets ------Other changes ------Balance of impaired debts at the end of the period *- 56 - 2 - 58 Of which: derive from troubled debts under restructuring Balance of troubled debts under restructuring at the beginning of the year - 23 - 1 - 24 Restructurings performed during the year - 23 - 1 - 24 Debts returned to an unimpaired classification because of subsequent restructuring ------Accounting write-offs - (11) - (*-) - (11) Collections - (8) - (2) - (10) Balance of impaired debts under reorganization at the end of the period - 27 - *- - 27

* Represents an amount of less than NIS 1 million.

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The following are certain financial ratios that are used to assess the quality of the credit portfolio:

December 31, 2020 December 31, 2019 Credit risk Credit risk in respect in respect of Commercial of Commercial Total individuals credit risk Total individuals credit risk % Percentage of impaired receivables on credit card transactions out of the total receivables on credit card transactions 0.77% 1.56% 0.44% 0.31% 0.62% 0.21% Percentage of unimpaired receivables on credit card transactions in arrears for 90 days or more out of the total receivables on credit card transactions ------Percentage of the allowance for credit losses in respect of receivables on credit card transactions out of the total receivables on credit card transactions 2.17% 4.07% 3.80% 1.58% 2.96% 1.75% Percentage of the allowance for credit losses in respect of receivables on credit card transactions out of impaired receivables on credit card transactions * * * * * * Percentage of the allowance for credit losses in respect of receivables on credit card transactions out of impaired receivables on credit card transactions plus receivables on credit card transactions in arrears for 90 days or more * * * * * * Percentage of troubled credit risk out of total credit risk 0.65% 0.78% 0.78% 0.63% 0.75% 1.06% Percentage of expenses for credit losses out of the average balance of receivables on credit card transactions 1.22% 2.33% 1.61% 0.86% 1.61% 0.89% Percentage of net write-offs in respect of receivables on credit card transactions out of the average balance of receivables on credit card transactions 0.63% 1.25% 0.31% 0.62% 1.19% 0.54% Percentage of net write-offs in respect of receivables on credit card transactions out of the balance of the allowance for credit losses in respect of the average balance of receivables on credit card transactions 29.40% 31.58% 9.32% 36.44% 37.61% 29.35%

* Represents an amount of less than NIS 1 million. For details on credit with an “investment” rating as at December 31, 2020 and as at December 31, 2019, see Note 11C1 to the financial statements on the subject of receivables for activity on credit cards and the allowance for credit losses. For details on credit in arrears and credit in a restructuring, see Note 11C2(c) to the financial statements on the subject of receivables for activity on credit cards and the allowance for credit losses.

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For additional information on credit risk, see "The Basel third pillar disclosures and additional information on risks" report on the parent company’s Hebrew website:

Market and liquidity risks

Market and liquidity risks and the manner in which they are managed

The Financial Management and Analysis Department is responsible for the management of market and liquidity risks in the Group.

Market risk is defined as the risk of a loss deriving from changes in exchange rates, inflation, interest and etcetera.

The Group manages the following exposures relating to market risks:

Interest risk – the risk deriving from the gap between assets bearing interest at fixed rates and liabilities bearing interest at fixed rates. The exposure is divided into 3 linkage segments: The unlinked Shekel segment, the index-linked Shekel segment and the foreign currency segment. The Group does not have any other significant interest risk factors.

Index risk – the risk deriving from the gap between the extent of the index-linked assets and the index-linked liabilities.

Currency risk - currency risk in the Group derives from the following exposures:

Turnovers exposures (the amounts of money in "the pipeline") – which derives from the activity by tourists in Israel and by Israelis abroad, as detailed below:

• Transactions in which there is a conversion of currency in a process – transactions in which there is a conversion of currency in a process, such as transactions by tourists in Israel and by Israelis abroad create an exposure regarding the currency in which the accounting will be conducted opposite the international organization is different from the currency in which the merchant is credited/ the customer is charged. The exposure derives from the gap between the exchange rate in which the international organization executes the conversion of the currency for the purpose of charging / crediting the Company and the rate at which the Company executes the conversion of the currency for the purpose of crediting the merchant/ charging the customer.

• The routine management of dollar balances - the Company manages daily the Dollar cash flows deriving from accounting with international organizations less payments to merchants and with the addition of receipts from cardholders. The net accounting in dollars with the international organization reflects the difference between all of the activity by tourists in Israel and all of the transactions by Israelis abroad. Accordingly, the net receipt does not necessarily cover the balance of the payables in dollars in respect of activity by tourists. The excess of the balance of payables creates an exposure to a devaluation in the value of the shekel as compared with the dollar for a period of approximately two days.

It should be clarified that the Group is exposed to the balance of payables in additional currencies in which accounting is performed, however the extent of the activity is significantly lower than the activity in dollars.

Cash flows exposure (profit or loss) – the exposure derives from the gap between the total of the expenses and the investments and the total of the revenues in each type of currency each month.

Accounting exposure (balance sheet) – the exposure derives from the gap between the assets of a fixed nature, which are linked to or denoted in a currency that is different from the measurement currency and the liabilities of a fixed nature, which are linked to or denoted in a currency that is different from the measurement currency, which is in accordance with the Group's balance sheets.

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Sensitivity analysis for financial instruments for changes in the Consumer Prices Index Change in income December 31, December 31, 2020 2019 In NIS millions Parallel changes An immediate parallel increase of 3% 7 9 An immediate parallel decrease of 3% (7) (9)

Fair value of the financial instruments of the Company and its subsidiaries, other than nonmonetary items (before the effect of hypothetical changes in interest rates)

Israeli Foreign currency - currency - shekel dollar Total In NIS millions Net fair value of financial instruments as at December 31, 2020 841 74 915 Net fair value of financial instruments as at December 31, 2019 901 31 932

* Does not include balance-sheet amounts of derivative financial instruments and the fair value of off-balance-sheet financial instruments.

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The impact of hypothetical changes in interest rates on the net fair value of the financial instruments of the Company and its subsidiaries, other than nonmonetary items December 31, 2020 Israeli Foreign currency - currency - shekel dollar Total In NIS millions Change in interest rates Immediate parallel increase of 1% (11) (*-) (11) Immediate parallel decrease of 1% 12 *- 12 Increased curvature 4 *- 4 Flattening (6) (*-) (6) Short shock (10) (*-) (10) Long-shock (3) (*-) (3)

December 31, 2019 Israeli Foreign currency - currency – shekel dollar Total In NIS millions Change in interest rates Immediate parallel increase of 1% (10) (*-) (10) Immediate parallel decrease of 1% 10 *- 10 Increased curvature 4 *- 4 Flattening (6) (*-) (6) Short shock (9) (*-) (9) Long-shock (2) (*-) (2) * Represents an amount of less than NIS 1 million.

(1) Increased curvature – a decrease in interest in the short-term and an increase in interest in the long-term.

(2) Flattening – an increase in interest in the short-term and a decrease in interest in the long-term.

The impact of scenarios for changes in the interest rates on interest income, net and on financing income other than from interest:

Income Income other than other than Interest from Interest from income interest Total income interest Total December 31, 2020 December 31, 2019 NIS millions

Parallel changes Parallel increase of one percent 8 18 26 7 18 25 Parallel decrease of one percent (43) (18) (61) (41) (18) (59)

(1) The scenario includes an assumption that there is a restriction on negative interest.

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Liquidity and funding risk: The risk to the profits of the Group and its capital deriving from its inability to provide its liquidity requirements.

This risk includes: the risk that the Group will not meet its payment obligations on their due date (funding risk) and a risk that a crisis of some kind could cause the banks to refuse to provide the Group with exceptional credit.

The Group is exposed to liquidity risk (in Israeli currency only) deriving from the following exposures:

▪ A lack of correlation in respect of the average lifetime to maturity relating to the consumer and business credit creating fixed long-term liquidity needs.

▪ Cash management – acquiring and issuing activity create liquidity needs because of the timing differences between the time at which the customers are charged and the timing of the crediting of the merchants. The liquidity needs are primarily short-term and at fixed times in each month.

The manager of the management and the measurement

Market risk - The Group's policy on the subject of the management of business risks is based on the management of exposures to market risks, within a framework of quantitative limits that have been determined for these exposures as well as quantitative limits in hedging instruments. The means that are used for the purpose of complying with the limits that have been set, include the purchase of derivative financial instruments in all of the linkage segment; investment in and the recruiting of non-marketable financial instruments (deposits in / loans from banks in the linkage segments). The management of the market risk is performed whilst taking on controlling risks subject to the approved exposure limits, which form the Group's appetite for risk, in accordance with policy that is determined by the Board of Directors from time to time, using approved financial instruments.

Interest risks: The Group performs monthly measurement, which depicts the impact of a parallel change in the interest rates (repricing risk) on the economic value of the gap between the assets bearing interest at a fixed rate and the liabilities bearing interest at a fixed rate. This measurement is performed with a division being made according to the linkage segments.

In addition, the Group performs monthly measurement, which depicts the impact of a parallel change in the interest rate on the Group's profits (accounting risk). In light of the insignificance of the yield curve risk, base risk and options risk in the Group, these risks are not measured and no limits have been set in respect of them. The Group considers the need for measurement and the placement of limits in the event that the level of the risk changes and at least once a year. The head of the Finance Department in the parent company has the authority to execute full or partial hedging of the risk.

Index risks: The Group performs monthly measurement of the extent of the exposure to a change in the Consumer Prices Index. It is at the authority of the Head of the Finance Department to execute full or partial hedging of the risk.

Since the Group's financial statements are reported in unlinked shekels, the Group does not have an exposure to the unlinked shekel segment. Accordingly, no measurement of the exposure on the unlinked shekel segment is performed.

Management and measurement of the currency risks: turnover exposure in respect of transactions in which there is a conversion of currency in the course of transactions by tourists in Israel and Israelis abroad since the exposure is not significant from the perspective of the Group's profitability and because of the numerous inputs that are required in order to perform hedging and the technological changes that are required, no hedging activity is performed for turnover exposures.

The turnover exposure in expect of the routine management of the foreign currency balances – the Group strives to leave a balance of foreign currency in its accounts in an amount that is supposed to cover the balances of the payables in respect of activity by tourists in Israel in the currencies in which the exposure is significant and in the dollar in particular.

Cash flow exposure – The Group does not perform hedging for the cash flow exposure in respect of operating activities because:

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▪ The high level of uncertainty in the cash flows in foreign currency (most of which derive from payments/ receipts from international organizations, which are settled on the basis of turnover in a large number of different currencies);

▪ A lack of significance from the perspective of the Group's profitability;

▪ The large complexity involved in the execution of hedge accounting (without which the hedging will be presented as speculative from an accounting perspective;

▪ Not inconsiderable hedging costs and the numerous inputs that are required for the purpose of executing hedging'

Despite the aforesaid, taking cost-benefit considerations into account, the head of the Finance Department has the authority to execute specific hedging for foreign currency cash flows that are known in advance and are in a significant amount (such as: the purchase of a computer system). Partial or full hedging will be executed using approved financial instruments and subject to the restrictions in the policy document. The Group tests for preliminary signs, which might indicate an increase in the market risk by means of various indicators.

Accounting exposure in respect of the Group's balance sheets

The Company conducts quarterly measurement of the exposure in accordance with the data in the financial statements. In accordance with the state of the exposure, full or partial hedging is executed of the risk, using approved financial instruments and subject to the restrictions in the policy.

Management and measurement of liquidity risk

In April 2019, the Banking Supervision Department published amendments to Proper Conduct of Banking Business Directive 470 ("Debut cards") and 221 ("Liquidity coverage ratio"). These amendments include the following changes:

▪ A banking corporation will be required to transfer the monies in respect of the monthly charges on charge cards, which have been issued by it or which have been jointly issued by it and by the operating group for its customers no later than the time at which the operating group is required to transfer them to an acquirer for that month, without dependency on the identity of the acquirer;

▪ Credit card companies will be exempt from complying with the liquidity requirements that are stated in Proper Conduct of Banking Business Directive 221, however they will be required to maintain an internal liquidity management model and to maintain liquid assets to cover their liquidity needs at all times;

The Group maintains an internal liquidity model for measuring the liquidity risk by means of a number of liquidity indices that have been determined by the Board of Directors. The liquidity model provides a response to the Group's liquidity needs in times of routine and in various extreme scenarios that are appropriate for the nature and the type of the Group's operations, whilst being based on a sufficient liquidity buffer.

The Group performs measurement for a set of indicators for identifying liquidity pressures.

The Group reduces the liquidity risk, inter alia by:

▪ Ensuring the existence of approved banking credit facilities, which are significantly larger than the Group's actual maximal utilization of credit in banks;

▪ Ensuring the existence of secured credit facilities/ a liquidity buffer;

▪ Examining the possibility for receiving non-banking financing from time to time in order to diversify the sources of financing;

▪ Diversifying the banking sources of financing by maintaining bank accounts in all of the large banks in Israel;

▪ The routine management of a cash flows management system;

▪ The maintenance of stables sources of financing such that the structure of the Company's balance sheet will support the management of the liquidity risk with a long-term vision.

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Every measurement in reliance on the results of which risk management decisions are made is checked by an additional person.

The Management Forum, in which, inter alia, the Chief Risks Officer, the Head of the Finance Division and the Chief Accountant participate, meets to manage the market and liquidity risks and to discuss, inter alia, the appropriateness and the reliability of the measurement tools, the models and the limits, for the measurement of the market and liquidity risks.

Sources of financing and the liquidity situation

The Company monitors the liquidity situation daily and is in ongoing contact with the business managers in banks. As at the reporting date, the Company is in conformity with all of the liquidity indices and restrictions that have been defined by the Board of Directors.

None of the banks has announced the cancellation or the reduction of the credit facilities, which have been allocated to the Company, in the wake of the Corona crisis.

The Company has taken up a number of medium-term loans during the course of the crisis, instead of short-term "on- call" loans, with the objective of strengthening aspects of its liquidity.

As a result, an increase in the price of the Company's sources of financing was recorded at the time that the crisis broke out. In the months that follows the price of the sources of financing decreased and as of the time of the publication of the report, it close to the level it was at before the start of the crisis.

Operational risk

Risk of a loss caused by impropriety or by the failure of internal procedures, individuals and systems or as a result of external events.

There are situations in which as a result of the realization of an operational risk, other risks, which are part of the types of risk, are realized. Operational risk is inherent in all the Company’s business lines, products, systems and work processes.

The Group operates in accordance with Proper Conduct of Banking Business Directives on the subject of operational risk, whilst maintaining appropriate corporate governance supporting risk. The operational risks management policy defines principles for the management of operational risks in all units in the Company, with the objective of ensuring the effectiveness of the management, the auditing and the control of the significant risks that are inherent in all of the types of activities, processes, products, systems and business lines.

The various divisions take operational risks upon themselves as an integral part of their operating activities. Accordingly, the divisional heads are responsible for the management of the operational risks in their divisions.

The Overall Risks Management Unit constitutes a second line of defense and is responsible for the independent management of the operational risks, including the formulation of the risks management policies, methodologies, tolls and systems for managing the identification, assessments and risks analysis processes, and the assessment of the effectiveness of the controls.

Divisional risks controllers have been appointed in every division, in coordination with the Risks Management Divisions, who assist the Divisional Manager to manage the risks and perform corporate governance tasks.

A survey of operational risks is performed one every three years or over a period of three years, by the Manager of the focus of the risks, with the assistance of the divisional risks controller and under professional guidance from the Overall Risks Management Unit.

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Within the context of the survey, the work processes in the relevant unit are identified and a reexamination is made of the mapping of the risks, for the purpose of updating them as a result of exposure to new operational risks, changes in the characteristics of the risks that have been defined and/or the realization of operational and other risks. Further to the identification of the risks, an assessment is made of the root level of the risk and the residual level for each risk. The assessment of the risks is performed in accordance with an orderly methodology, which relates to the assessment of the including the impact of the תexposure to the risk, in accordance with the experience that has accumulated in respect of it findings of audit reports, failure events and the results of the measurement of indicators for risk, and including relating to structured risk and residual risk, taking the effectiveness of the control that is implemented in relation to the operational risk into account. The responsibility for identifying and assessing the operational risk applies to the Manager of the focus of the risk and the Overall Risks Management Unit has the authority to decide within the framework of the challenging and validation of the mapping of the Group risks.

A process of identifying operations risks is also performed in the Group as a matter of routine and in particular where there is a change in the existing work processes, a change in the organizational structure, when new products and activities are launched as well as within the context of investigating events.

The formulation of risks reduction programs

A risks reduction program is formulated pursuant to the methodology for identifying and assessing risks, with an order of priorities being set for handling in accordance with cost-benefit considerations that relate to two situations:

▪ Risks that can be reduced: the addition of new controls (recommended controls), the improvement of existing controls, an improvement in the work processes, the addition and refreshment of procedures and training.

▪ Risks that cannot be reduced: The Manager of the focus of the risk, after having examined the possibilities for reduction, is entitled to decide to take the risk upon himself, where these risks require the approval of the Deputy CEO. In addition, routine, focused monitoring is to be conducted in respect of significant risks that cannot be reduced, and there is to be periodic examination at least once a quarter.

Furthermore, the Manager of the focus of the risk can recommend the cessation of activity in which there is significant risk, which cannot be reduced.

Reporting and investigation of lesson-learning events

Within the framework of the Group's business activity, a failure event may occur, which would require reporting and investigation so that lessons can be learned which forms part of the optimal management of the operational risks that is inherent in all of the products, the operations, the processes and the systems, and in accordance with the directives issued by the Bank of Israel. Lesson-learning events and operational risk studies are fed into the designated data system for operational risk management to create an overall picture of the level of operational risk within the Group. Risks of fraud

The Company's operations expose it to damages caused by various types of fraud and constitutes a significant exposure to operational risks.

The Fraud Risks Management Department in the Risks Management Division is responsible for the management and hedging of the exposure to fraud both on the aspect of the credit card and also on the aspect of acquiring in merchants and the minimization of the damages that are inherent in fraud in this activity.

In the credit cards aspect, there are risks fraud, which include, inter alia: theft, forgery, the use of card numbers by someone who does not hold the card in online transactions, identity theft and etcetera. There is a monitoring center in

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the Company, which is manned 24 hours a day, seven days a week, which makes use of a fraud prevention system for monitoring transactions that are executed on the Group's credit cards in Israel and abroad. The system blocks transactions and cards where there is a suspicion of fraud in real time, by means of business rules and a statistical model, which are embedded in the frauds prevention system.

In the acquiring aspect, there are risks, which include, inter alia: cooperation by merchants with criminals, the use by a merchant of a credit card belonging to a customer for their personal benefit, defrauding of customers such as the transfer of a card without the customer's authorization from one merchant to another, illegal activity in electronic trading and etcetera. The Group monitors the acquiring activity for merchants and where merchants are found to be engaged in fraud vis-à-vis the Group and/or vis-à-vis the card holders, are disconnected from the acquiring system. In the event of the seepage of information from a business that is acquired by the Group, the Fraud Risks Management Department takes immediate action to hedge the population.

For additional information on operational risk, see the report on the Basel third pillar disclosure and additional information on risk on the Company’s Hebrew website:

Other risks Information technology risks including data protection and cyber Information technology risks- risks deriving from the Group's use or the absence of its use of information technology or from the Group's dependence thereon, including the non-execution of adjustments to changes in the business environment.

These risks are divided into two reference groups: cross-organizational and infrastructure risks that have consequences for all the organization’s systems; and risks that apply to specific systems and infrastructure, in respect of the business process supported by them. Information security and cyber protection risks - a cyber-event is an event in the course of which an attack is made on computer systems and/or computer based infrastructure systems, by external or internal persons. The occurrence of a cyber-event could disrupt the proper functioning of the Group and cause various types of damages, such as preventing the provision of service, the exposure of information, the deletion and disruption of data, a loss in the public's trust and impairment of the Group's image and reputation.

Cyberspace relates to all the systems, communications networks and databases that contain, inter alia, data that is crucial to the Group, the possibilities for direct action through the Group's information technology systems and the operational systems that support the activities of the Group, all of which are independent of the geographical location of those who have access thereto. The information security objectives are realized through the implementation of a series of protection and control measures, extending from the policy and procedures, through determination of spheres of responsibility and authority, installation of protective technology and culminating with the monitoring and handling of security events. Moreover, the Group conducts cyber-attack exercises in order to test the robustness of the controls. The data protection reviews and penetration testing of the Group's systems are undertaken by independent external companies that specialize in the fields of data protection and information technology risks. The frequency for conducting a study is determined in accordance with how critical the system is and the risk inherent therein. In addition, the Group holds exercises that contend with cyber-attacks as an integral part of its operational routine.

The cyber risk is growing in light of advanced, sophisticated threats. The Corona crisis has led to an increase in attempts at cyber fraud (phishing and impersonation). The Company is continuing to implement tools in order to improve the processes in the cyber field, whilst pro-actively identifying and neutralizing cyber threats.

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Compliance risks (including the prohibition of money laundering and the financing of terrorism) Compliance risks - the risk of non-compliance with directives and the regulatory rules (including the fairness aspects), the realization of which might lead to the imposition of sanctions and/or the incurring of a financial loss (as a result of class actions, the imposition of fines/ penalties and similar results) and/or reputational damage. Compliance risk is typifies by contact points with operational risk, legal risk and reputational risk.

The Compliance Officer is the main professional person who assists the Board of Directors and the management in managing the overall compliance risk in the Group and who is responsible for performing an assessment of the effectiveness of the management of this risk.

In addition to the Compliance Officer, Compliance Risk Managers have been appointed in the Group, who are responsible for managing compliance risks with specific directives in their field of expertise, as a second line of defense.

The Compliance Officer is also responsible for the management of conduct risk and for minimizing the exposures deriving from that risk, inter alia, by means of the management of an organizational culture, which promotes values of fairness and decent conduct. Money laundering and financing of terrorism risk is the risk of the imposition of a financial penalty and/or criminal liability on the corporation and on the officers therein and/or damage to the Company's reputation and/or the damaging of its connections with other financial institutions, in light of non-compliance with the provisions of the law and the regulations that apply to the Company, which deal with the prohibition of the financing of terrorism and the prohibition of money laundering.

As part of the management of this risk, the Compliance Officer, who is responsible for the fulfillment of the Company's duties under the force of the prohibition of money laundering laws, leads processes to strengthen the control environment, whose role is to reduce the risk of the Company being exploited for money laundering and the financing of terrorism. This control environment is comprise of an array of defense lines in the organization, including:

The business lines, which form the first line of defense, which undergo professional training in the field. In addition, compliance trustees operate, who serve as a focus of knowledge operate in the business lines and they exercise controls and maintain a tight interface with the staff in the Prohibition of Money Laundering Department.

The Prohibition of Money Laundering Department forms the second line of defense, and its role is to assess, measure and monitory the risk.

The department takes action to perpetually improve the control environment and the computerized infrastructures in it, including updating policy documents and procedures, support systems, conducting training, reports to the authorized authorities, monitoring developments in the risk, including monitoring updates to regulations and the exposure deriving from new products and activities.

All of this is together with an orderly work interface with the internal audit function and the Legal Counsel's Office, which is done in accordance with the prohibition of money laundering policy, which has been approved by the Board of Directors.

The Corona crisis has brought new risks with it in the field of the prohibition of money laundering, which require ongoing monitoring of trends and increased monitoring of sectors in which they may be an impact on operations.

Legal and regulatory risks Legal risk forms part of the operational risk, which is defined as a risk of loss a of income or business damage, inter alia, as a result of the absence of the possibility of legally enforcing compliance with an agreement or from a lack of knowledge of the provisions of the law or the erroneous interpretation thereof, including primary or secondary legislation, directives issued by regulatory authorities and etcetera, which require the Group to operate in accordance with it, or from an exposure to legal proceedings against the Group, against any of its employees or its officers. Legal risk

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includes, inter alia, exposure to fines or penalties as a result of supervisory enforcement activities, as well as from individual arrangements. The legal risk includes regulatory risk deriving from changes in legislation and various regulatory developments in the field of case law, standards and legislation, under which duties are imposed upon the Group.

Regulatory risk is risk deriving, inter alia, from the non-implementation or the faulty implementation of various regulatory provisions, under which duties are imposed upon the Group. Within the context of the management of the legal risks, the Group acts to collect and to concentrate information in connection with legal risks, including information in respect of a change in legislation and/or updates to case law, having a significant impact on the Group's operations, and it also monitors significant lawsuits and legal proceedings in which the Group is involved.

Within this context, routine monitoring is conducted of changes in the law and regulations, having a significant impact on the Group's operations, in order to make preparations for the implementation thereof and to reduce the impact that might derive from non-compliance therewith.

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Risk factors table This table refers to the assessment of risks at the CAL Group level, as approved by the Group's Board of Directors and management in the ICAAP process for the year 2020.

The assessment of the risks and their impact, as presented in the table below, is therefore a subjective assessment by the Group's Management. For the purpose of this assessment, the impact of the risks was defined, including by weighting the likelihood of their realization, as follows: - The impact has been defined as high if its realization could materially harm the Group's operations; - The impact has been defined as medium if its realization could harm the Group's business goals; - The impact has been defined as low if its realization could only harm the Group's business results to an immaterial extent. Risk factors Impact of the risk Description of the risk 1. Overall impact of credit Medium -high Risk of the incurring of losses as a result of the inability of a risks borrower or a counter party to meet their obligations, whether partially or wholly, vis-à-vis the Group and subject to the terms that have been agreed. The Group mitigates this risk by means of the implementation of the requirements of the Proper Conduct of Banking Business Directive on the subject of the management of credit risks, by setting a credit and credit risk management policy, including exposure limits that relate, inter alia, to borrower types, operating segments, collateral, credit controls and a process involving the receipt of a second opinion.

1.1 Borrower and collateral Medium -high quality risk

1.2 Sector concentration risk Low - medium

1.3 Individual borrower Low - medium /group of borrowers concentration risk

2. Overall impact of market Low - medium Risk of damage to the Group's equity deriving from changes risks in the interest rates, exchange rates, inflation prices of securities and similar factors. The Group’s exposure derives primarily from the exposure to interest and that basis in the ץGroup's banking portfolio

2.1 Interest risk Low

3. Liquidity risk Low-medium Risk to the Group’s profits and capital deriving from the inability to provide its liquidity needs. This risk includes the risk that the Group will not be able to meet its payment commitment as they fall due and the risk that any crisis whatsoever would cause banks to refuse to make exceptional credit to the Group.

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Risk factors Impact of the risk Description of the risk

4. Operational risk Medium - high The risk of a loss as a result of the inappropriateness or the failure of internal processes, persons and systems or as a result of external events. There are situations in which as a results of the realization of an operational risks, other risks are realized out of the array of the types of risk. The operational risk is inherent in all of the Group's products, operations, processes and system. The Group routinely examines both the exposure to operational risk and the events that have occurred, it implements controls over the various processes and it takes action to ensure its ability to survive and recover. The Group takes action to map and fully quantify all of the operational risks.

5. Legal, legislative and Medium regulatory risk Risk of a loss from loss of earnings or business-related damage, inter alia, as a result of the absence of the possibility of legally enforcing compliance with an agreement or from a lack of knowledge of the provisions of the law or erroneous interpretation thereof, including primary and secondary legislation, directives from supervisory authorities and etcetera, the Group's obligation to operate in accordance with them or from the exposure to legal proceedings against the Group or its officers. The legal risk includes, inter alia, exposure to fines or to punitive measures, as a result of supervisory enforcement action, as well as specific arrangements and so on. The legal risk includes regulatory risk deriving from changes in legislation and various regulatory developments in the field of case law regulations and legislation, under which duties are imposed upon the Group.

In the Group's assessment, its monitoring of anticipated legislation changes and its preparedness for their implementation mitigate this risk.

6. Reputational risk Low - medium Risk of significant and ongoing harm to the Group's business and its financial resilience, resulting from damage to its image following the publication of various matters, whether intentional or erroneous, that have arisen for it among the Group's customers, employees, suppliers, related parties shareholders and investors (existing or potential) and supervisory bodies. The Group strives to mitigate this risk by means of implementing a reputational risk management policy at the Group, monitoring risk indicators and, in addition, through regular supervision and control over the implementation of directives and procedures vis-à-vis customers, suppliers and employees.

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Risk factors Risk impact Risk description

7. Information technology Medium - high Risks deriving from the use or the non-use of information risk technology in a corporation, from the corporation's dependency thereon, including the non-performance of adjustments for changes in the business environment. These risks are divided into two attribution groups: cross- organizational and infrastructure risks (ITGC and information security risks), that have implications on all of the organization's systems, and risks that apply to specific systems and infrastructures, opposite the business process that is supported by them. The Group regularly examines both its exposure to risk and it applies controls over the various processes and strives to ensure its survivability and recovery capabilities. The Group takes action to fully map and quantify all of the information technology risks and to perform penetration testing and cybernetic risk studies.

8. Strategic risk Medium-high Business risk arising both in respect of an act (such as erroneous business decisions or improper implementation) or in respect of an omission (such as the absence of a response to changes in competition), the occurrence of which might lead to significant non-meeting of the targets in the Company's strategic plan over time and even prevent the Company from retaining its status as a relevant and significant player in the credit cards and non-banking credit market.

9. Compliance risk Medium-high Risk of non-compliance with regulatory directives and rules (including fairness aspects), the realization of which might lead to the imposition of sanctions or the incurring of a financial loss (as a result of a class action, the imposition of fines or penalties and similar issues) and/or damage to reputation. The compliance risk is typified by meeting points with operational risk, legal risk and risk to reputation.

10. Money laundering risk Medium The risk of losses and damage, which are sourced in transgressions that are connected to the Law for the Prohibition of Money Laundering and the Financing of Terrorism and non-compliance with the provisions of Proper Conduct of Banking Business 411 as well as the exploitation of the Company by a third party for financing or execution of illegal activity. The realization of the risk gives rise to exposure to financial penalties, the imposition of criminal responsibility on the Company and on senior officers and risks to reputation, with significant implications.

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Critical Accounting Policy and Assessments, Controls and Procedures

Accounting policies on critical matters The Company’s financial statements are prepared in accordance with the policies that are detailed in Note 2 to the financial statements.

The level of financial reporting regulation for banking corporations is among the highest in the financial reporting sphere in Israel. The directives and guidelines of the Supervisor of Banks are comprehensive and detailed and sometimes go as far as to dictate the actual wording the banking corporation is to use in implementing them. Nevertheless, there are areas where the implementation of the accounting policy is subject to a considerable degree of assessment and estimation, which is performed by the management of the banking corporation during the process of preparing the financial statements.

The implementation of generally accepted accounting principles and the directives and guidelines of the Supervisor of Banks by the Company’s Management may thus sometimes require making various assumptions, assessments and estimates that affect the reported amounts of the Company’s assets and liabilities, including contingent liabilities, and its reported financial results. Such assessments and estimates may differ in practice from those used when preparing the financial statements.

Some of the estimates and assessments used entail considerable uncertainty or sensitivity to various variables. Such estimates and assessments, a change in which could have a material effect on the financial results presented in the financial statements, are deemed estimates and assessments on “critical” matters.

The Company's Management believes that the estimates and assessments used in preparing the financial statements are reasonable and were made to the best of its knowledge and professional judgment.

Critical accounting assessments A. Allowance for credit losses The Company applies the directive, Measurement and Disclosure of Impaired Debts, Credit Risk and Allowance for Credit Losses, and in accordance therewith has established procedures for categorizing the credit and for measuring the allowance for credit losses so as to create an allowance of sufficient scope to cover anticipated credit losses.

The allowance required to cover anticipated credit losses in relation to the credit portfolio is assessed based on one of the following: "allowance examined on a group basis" or "allowance examined on a specific basis".

Furthermore, the Company examines the overall adequacy of the allowance for credit losses.

Within this framework, it has been determined that debts examined on a group basis will be subject to accounting write-off when they become debts in arrears for 150 days or more.

The group allowance for credit losses reflects the impairment allowances in respect of credit losses not specifically identifiable, which are inherent in large groups of small debts with homogeneous risk characteristics. The rate of the allowance is based is based on historical loss rates, differentiating between troubled credit and not troubled credit, since 2012 (“Rate of past losses”). In addition, for the purpose of determining the proper allowance rate, the Company also takes environmental factors that are relevant to the prospects of collection, including trends in the scope of the credit, macroeconomic data, an assessment of the overall quality of the credit, changes in the volume and trend of balances in arrears and balances of impaired debts, and the impact of changes in credit concentration (“Adjustment for environmental factors”) into account.

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The rate of the adjustment for environmental factors in respect of credit to individuals will not be less than 0.75% of the balance of not troubled credit at each reporting date, other than credit pertaining to receivables on bank credit card transactions, without any interest charge.

The collective allowance for off-balance-sheet credit instruments is based on the allowance rates determined for the balance-sheet credit (as detailed above), taking the expected credit realization rate of the off-balance-sheet credit risk into account.

In addition, in accordance with the directives of the Banking Supervision Department, the Company recognizes an allowance for credit losses in respect of customers that are assessed on a specific basis, based on the capitalization of cash flows expected from those customers.

The process of assessing the loss inherent in the credit portfolio (mainly credit loss, which is examined on a group basis), as described above, is based on significant estimates which are subject, to considerable uncertainty. Changes in the aforesaid estimates or assessments could have a material effect on the allowance for credit losses presented in the Company's financial statements. It should also be noted that the principles on which the new directive is based has led to the formulation of a methodology on various subjects, making use of assumptions, estimates and judgment. It is possible that certain changes will occur in the future in the aforesaid methodology, assumptions and estimates. For details regarding the accounting policy in regard to the allowance for credit losses, see Note2C(4) to the financial statements on the subject of reporting principles and the principal accounting policies.

The assessment process has become a complex and challenging one in the period in light of the uncertainty regarding the depth of the Corona crisis and the length of time in which it is expected to have an impact. This is especially so in relation to the collective allowance, in light of the need to access the credit losses that are inherent in borrowers who have been harmed by the crisis, but which have not yet been identified – by way of updating the adjustment factor, such that it will reflect an assessment of the damage, under exceptionally uncertain circumstances.

The parameters that are used in the calculation have been made more stringent within the context of the assessment, pursuant to updated assessments of macro-economic data (an unemployment rate of 11.5% and an increase of 4% in GDP1) and conversion factors that are based on an assessment of the risk for the various risk indicators. Furthermore, the allowance has been determined in accordance with an assessment that there will be a deterioration, inter alia, in the extent, the volume and the trends of troubled debts and of write-offs and collections, and also because of the expected deterioration in the economic and regional trends and conditions. Subsequently, there has been a significant increase in the collective allowance for credit losses, which has been recorded in these financial statements.

It is emphasized that the process of the determination of the collective allowance for credit losses, particularly in the circumstances that are described above, is sensitive to possible changes in the subjective estimates or assessments, such that a possible variance in those factors could alter the amount of the collective allowance for credit losses significantly.

Over time, as the level of uncertainty is reduced and as further information becomes available to the Company regarding the chances of collecting from borrowers, these estimates will be adjusted accordingly.

B. Contingent liabilities and law suits Legal actions on various issues, including class actions and petitions to certify claims as class actions, are pending and in process against the Company and its subsidiaries.

The accounting treatment of contingencies is implemented in accordance with the American Standard FAS 5, Accounting for Contingencies, and its related guidelines, and in accordance with the guidelines and clarifications of

1 The data are based primarily on the pessimistic scenario, as published by the Bank of Israel's Research Unit on January 4, 2021

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the Banking Supervision Department, including the Reporting to the Public Directive, Accounting for Pending Claims. In assessing the required allowance, it is necessary to examine the probability of a loss and to assess its amount. These evaluations affect both the actual obligation of having to create an allowance in respect of the claim and the manner and scope of the disclosure in the financial statements.

The US Standard prescribes that, if the risk cannot be assessed, no allowance should be created in respect thereto, but the matter should be disclosed if it might be material.

For the purpose of assessing possible losses as a result of the claims filed against the Company, the Company’s Management relies on opinions of the legal counsel representing them in these matters. By their nature, such opinions are subjective and face objective evaluation difficulties. These difficulties become immensely greater when dealing with class actions. Accordingly, it is possible that the actual results of some of the claims will be different from those estimated based on the opinions of the legal counsel. In view of the scope of the actions pending against the Company, it may transpire that the non-materialization of such estimates would have a significant effect on its financial results.

The Company’s Management examines the claims once every quarter and update, where necessary, the provisions created therefore in the light of developments.

The Reporting to the Public Directive, Accounting for Pending Claims, prescribes that, in evaluating the pending legal actions, the management of a banking corporation is to rely on the opinions of its legal counsel, which should determine the probability of the exposure to the risk involved in such actions materializing.

The claims have been classified according to the probability range of the risk exposures materializing, as set forth in Note 2D(13) to the financial statements. The financial statements include appropriate provisions for claims in respect of which the probability of materialization of the related risk exposure is evaluated as “probable”.

The disclosure in the financial statements regarding the material legal proceedings being conducted against the Company is presented according to the criteria set forth in Note 2D(13) to the financial statements. In addition, in Note 23 to the financial statements, a disclosure is presented regarding the total exposure in respect of claims that are evaluated as being, wholly or partly (for the relevant part), “reasonably possible”.

The Company is exposed to demands/unasserted claims, with this being, inter alia, when doubt exists concerning the interpretation of an agreement/legal provision and/or the manner of its implementation. This exposure is brought to the Company’s attention in a number of ways, including: by means of communications or complaints from third parties to parties within the Company. In assessing the risk arising from demands or unasserted claims, the Company relies on the assessments of the internal parties dealing with the matter and of Management, as well as of the Company’s legal counsel, weighting the assessment for the prospects of the claim being filed, for the prospects of the claim succeeding (if it should in fact be filed) and for compromise settlement payments if such should arise. The assessment is based on the experience gained in relation to the filing of claims and on an analysis of the merits of the demands. Due to the nature of this matter and in light of the preliminary stage reached in examining the legal argument, the actual outcome could be different from the assessment made at the stage prior to the claim being filed.

C. Provision for gift offers When performing transactions, certain holders of the Company’s cards accumulate points to their credit in which a benefit is inherent that may be realized in the future. In accordance with generally accepted accounting principles, the Company is required to calculate the total liability it has incurred in respect of the aforesaid benefit.

The parameters that affect the provision for gift offers are the quantity of points to be utilized and the price of each point. The price of the point is set once a month based on the average weighted value of each point in the preceding 12 months. The number of points to be utilized is determined based on economic analyses and on the considerable experience accumulated by the Company in regard to actual utilization rates. The actual utilization rate of points

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accumulated by the Company’s customers as at December 31, 2020 out of the total remaining points available for utilization, which was used to estimate the provision for points, is 90%.

The provision policy in respect of gift offers is reviewed once a year, or more frequently in the event of indications of significant changes during the year.

D. Employee rights The Company implements US accounting principles on the subject of employee rights. Within this framework, inter alia, the Company recognizes amounts relating to pension and severance plans and other post-retirement plans on the basis of computations that include actuarial and other assumptions, as detailed below:

For additional details regarding the implementation of US accounting principles relating to employee rights, see Note 2D(12) to the financial statements regarding accounting principles and principal accounting policies.

Calculation of the capitalization coefficient. The discount rate in respect of employee benefits is calculated based on the yield on Israeli government debentures with the addition of an average spread on AA and above (international) rating of corporate debentures as at the reporting date.

For practical reasons, it has been determined that the spread will be fixed according to the difference between the rates of the yield to maturity, according to periods to maturity, on corporate debentures in the US with an AA and above rating, and the rates of yield to maturity, for the same periods to maturity, on US government debentures, and all as at the reporting date.

Certain aspects regarding the implementation of the accounting policy on actuarial matters. The use of actuarial computations requires use of statistical tools and assessments regarding the future.

The actuarial computation is based on several parameters, including: life expectancy, age of employees retiring prior to pensionable retirement age, the rate of increase in the real salary anticipated (between 1.1% and 1.6% a year) and the discount rate.

These parameters were determined, inter alia, based on forecasts prepared by the actuary and the experience accumulated in the Company. The actuarial computation is based on a computed discount rate, as detailed above. The computation is also based on the average retirement rates, according to age categories, in accordance with actual retirement rates in the past.

In addition, the implementation of the new accounting policy involves assessments and judgment concerning the following:

• The definition of the yield to maturity of Israeli government debentures relevant to determining the discount rate, taking into consideration, among other things, the duration of the liability in respect of which the actuarial computation is prepared;

• The definition of the spread to be added to the aforementioned base yield, as estimated for the degree of risk, will be based on relevant US securities data, as defined in the directive (see above);

The forecasted return on the plan assets is required to be assessed each year for the following year. The difference between the computation based on the last assumption of return and that based on the actual return in the reported period, will be included in other comprehensive income and recognized in the statement of profit and loss in accordance with the assessed average period of service. (In regard to this, it should be noted that the format of this treatment may result in certain fluctuations in the reported annual profit, including in respect of changes in the assessment of the average service period)

Long service (Jubilee) awards and post-retirement benefits. Some employees of the Company are entitled to long- service awards ("Jubilee awards") in a fixed amount, at the end of 20, 30 and 40 years of employment with the Company These liabilities depend on several conditions that have to materialize in the future.

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In accordance with the directives issued by the Supervisor of Bank the Company is required to base the provision for these liabilities on an actuarial computation and to present it at present value. The actuarial computation is based on the parameters referred to above.

E. Deferred taxes Deferred taxes are recorded in respect of temporary differences between the value of assets and liabilities in the balance sheet and their value for tax purposes. Deferred tax assets in respect of timing differences are recorded only if it is probable that a tax saving will accrue upon a reversal of the difference and deferred tax assets in respect of losses that are available to be carried forward for tax purposes are recorded only if the realization of the tax asset in the foreseeable future is more likely than not.

Accordingly, when deferred tax assets are being recorded, the Company is required to perform assessments and estimates as to the probability and timing of the realization of these assets in the future. For additional details, see Note 9 to the financial statements on the subject of the provision for taxes on income.

F. Provision for bonuses for meeting targets The Company has commitments under agreements with various business partners, some of which include a bonus component, which are dependent upon meeting long-term performance targets. The forecasting of the probability of the meeting of many of the targets is performed in accordance with the best estimates that the Company has at the time of the publication of the report. As a result of the limitations that are inherent in the making of these estimates, which derive primarily from the lengthy periods of time between the time of the publication of the financial statements and the time set for the issue of the determination of the meeting of the target, differences may arise between the expected payments of the bonuses, as determined at the time of the preparation of the financial statements and the actual payment.

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G. Testing for impairment in value of non-financial assets From time to time, the Company's management tests whether circumstances exist that require the recording of a provision for impairment in value of non-financial assets, which are owned by the Company. Such an assessment, by its very nature, involves assumptions and estimates that may be seen to be distorted in hindsight.

Impairment in the value of self-development costs of computer software. Testing for impairment in value for self- development costs of computer software will also be performed if signs exist that have been mentioned in generally accepted accounting principles for banks in the United Stated. See Section D(10) of Note 2 – Reporting principles and principal accounting policies for additional details regarding such signs.

Controls and procedures Disclosure controls and procedures. In the spirit of Section 302 of the Sarbanes-Oxley Act of 2002 and the instructions published in accordance therewith by the SEC in the United States, the Supervisor of Banks issued a directive regarding a declaration as to disclosure in quarterly and annual reports of banking corporations.

In order to establish these declarations, the Company - with outside assistance - has examined the principal processes of production and delivery of information related to the financial statements by the Company’s various units, as well as the controls applying to these processes. As part of this review, the processes of data communication have been mapped and documented in detail, including the controls implemented in these processes. Additional new controls have been formulated, and have been absorbed in the work processes.

Proper Conduct of Banking Business Directive 309. On September 28, 2008, the Bank of Israel issued Proper Conduct of Banking Business Directive 309, in the spirit of Section 404 of the Sarbanes-Oxley Act of 2002, which requires the Company’s Management to comply with the following requirements: assuring the establishment of controls and procedures regarding disclosure and internal control over financial reporting; evaluation of the effectiveness of the controls and procedures as to disclosure at the end of each quarter; evaluation of the internal control on the financial reporting at the end of each year, as well as evaluation at the end of each quarter of the changes that have occurred in internal control during the quarter, which have had or might have had a material effect on the internal control over financial reporting.

In 2020, the Company conducted a process of validation and updating of existing processes and effectiveness testing of the system of internal control over financial reporting, by means of the SOX Unit that operates within the framework of the Accounting Division.

Based on the findings of the aforementioned effectiveness testing of internal control, the Company's Management, together with the Chief Executive Officer and the Chief Accountant, has evaluated the effectiveness of the controls in the reported period over the Company's financial reporting. On the basis of this evaluation, the Company's Chief Executive Officer and its Chief Accountant arrived at the conclusion that, at the end of the reported period, the controls and procedures regarding the Company’s financial reporting are effective in order to: record, process, summarize and report the information included in the annual financial statements, in accordance with the Public Reporting Directives of the Supervisor of Banks and on the date prescribed by those directives.

Internal control over financial reporting was based on criteria formulated within the integrated COSO 2013 model.

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Changes in the internal control

During the fourth quarter that ended on December 31, 2020, no change occurred in the Company’s internal control over financial reporting that materially affected, or that might reasonably have been expected to materially affect the Company’s internal control over financial reporting

Esther Deutsch Levy Halevy

Chairperson of the Board of Directors Chief Executive Officer

March 10, 2021

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Certification by the Chief Executive Officer

I, Levy Halevy, certify that:

1. I have reviewed the annual report of Israel Credit Cards Ltd. ("The Company") for 2020 ("The Report”). 2. Based on my knowledge, the Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made therein, in light of the circumstances under which such statements were made, not misleading in respect of the period covered by the Report.

3. Based on my knowledge, the annual financial statements and other financial information included in the Report fairly present, in all material respects, the financial position, results of operations, changes in equity and cash flows of the Company as at and for the periods presented in the Report.

4. I and other persons in the Company making this certification are responsible for establishing and maintaining controls and procedures in regard to the Company's disclosure and internal control over financial reporting, and have accordingly:

a) Established such controls and procedures, or caused such controls and procedures to be established under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within the Company and those entities, particularly during the period of preparing the Report;

b) Established such internal control over financial reporting, or caused such internal control over financial reporting to be established under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and with the directives and guidelines of the Supervisor of Banks;

c) Evaluated the effectiveness of the Bank’s controls and procedures and presented in the Report our conclusions regarding the effectiveness of the controls and procedures, as at the end of the period covered by the Report based on such evaluation; and

d) Disclosed in the Report any change in the Company’s internal control over financial reporting that occurred in the fourth quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

5. I and other persons in the Company making the statement have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s Auditors, to the Board of Directors and to the Audit Committee of the Board of Directors:

a) All significant deficiencies and material weaknesses in the establishment or operation of internal control over financial reporting, which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Nothing in the aforesaid detracts from my responsibility or from the responsibility of any other person under any law

March 10, 2021 Levy Halevy Chief Executive Officer

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Certification by the Chief Accountant

I, Shaul Mizrachi, certify that:

1. I have reviewed the annual report of Israel Credit Cards Ltd. ("The Company") for 2020 ("The Report"). 2. Based on my knowledge, the Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made therein, in light of the circumstances under which such statements were made, not misleading in respect of the period covered by the Report.

3. Based on my knowledge, the annual financial statements and other financial information included in the Report fairly present, in all material respects, the financial position, results of operations, changes in equity and cash flows of the Company as at and for the periods presented in the Report.

4. I and other persons in the Company making this certification are responsible for establishing and maintaining controls and procedures in regard to the Company’s disclosure and internal control over financial reporting, and have accordingly:

a) Established such controls and procedures, or caused such controls and procedures to be established under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within the Company and those entities, particularly during the period of preparing the Report;

b) Established such internal control over financial reporting, or caused such internal control over financial reporting to be established under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and with the directives and guidelines of the Supervisor of Banks;

c) Evaluated the effectiveness of the Bank’s controls and procedures and presented in the Report our conclusions regarding the effectiveness of the controls and procedures, as at the end of the period covered by the Report based on such evaluation; and

d) Disclosed in the Report any change in the Company’s internal control over financial reporting that occurred in the fourth quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

5. I and other persons in the Company making the statement have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s Auditors, to the Board of Directors and to the Audit Committee of the Board of Directors:

a) All significant deficiencies and material weaknesses in the establishment or operation of internal control over financial reporting, which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Nothing in the aforesaid detracts from my responsibility or from the responsibility of any other person under any law.

March 10, 2021 Shaul Mizrahi Vice President, Chief Accountant

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Report of the Board of Directors and Management on the Internal Control over Financial Reporting

The Board of Directors and Management of Israel Credit Cards Ltd. ("The Company") are responsible for establishing and maintaining effective internal control over financial reporting (as defined in the Public Reporting Directives regarding "The Report of the Board of Directors"). The Company's internal control system has been designed to provide reasonable assurance to the Board of Directors and Management of the Company regarding the preparation and the fair presentation of financial statements published in accordance with generally accepted accounting principles in Israel and with the directives and guidelines of the Supervisor of Banks. Regardless of the quality of their level of design, all internal control systems have inherent limitations. Therefore, even if these systems are determined to be effective, they can only provide a reasonable degree of assurance regarding the preparation and presentation of a financial report.

Management, under the supervision of the Board of Directors, maintains a comprehensive system of controls that is intended to ensure that transactions are made in accordance with Management authorizations, assets are protected and the accounting records are reliable. In addition, Management, under the supervision of the Board of Directors, takes the necessary actions to ensure that communication and information channels are effective and monitor performance, including the performance of internal control procedures.

Management of the Company, under the supervision of the Board of Directors, evaluated the effectiveness of the Company’s internal control over financial reporting as at December 31, 2020, based on the criteria set forth in the Internal Control Model of the Committee Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, Management believes that as at December 31, 2020, the Company’s internal control over financial reporting is effective.

The effectiveness of the Company’s internal control over financial reporting as at December 31, 2020 has been audited by the Company's auditors, Messrs. Somekh Chaikin, as stated in their report presented on page78, which includes an unqualified opinion regarding the effectiveness of the Company’s internal control over financial reporting as at December 31, 2020.

Esther Deutsch Levy Halevy Shaul Mizrahi Chairperson of the Board Chief Executive Officer Vice President, of Directors Chief Accountant

Date of the approval of the report: March 10, 2021.

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FINANCIAL REPORT

Note 1 - General 96 Note 1 - General (Continued) 97 Note 2 - Reporting Principles and Accounting Policy 97 Note 3 - Income from Credit Card Transactions 122 Note 4 - Net Interest Income 122 Note 5 –Non-Interest Financing Income 123 Note 6 - Operating Expenses 123 Note 7 - Selling and Marketing Expenses 124 Note 8 - Administrative and General Expenses 124 Note 9 - Provision for Taxes on Profit 124 Note 10 - Cash and Bank Deposits 128 Note 11 - Credit Risk, Receivables on Credit Card Transactions and Allowance for Credit Losses on a Consolidated Basis 129 Note 12 - Receivables (1) on Credit Card Transactions and Off-Balance-Sheet Credit Risk by Size of Borrower’s Debts 140 Note 13 - Securities 141 Note 13 – Securities (Continued) 142 Note 14 - Investments in Investee Companies (Consolidated - Associates) and Details Thereof 143 Note 15 - Buildings and Equipment 146 Note 15 - Buildings and Equipment (Continued) 147 Note 16 - Other Assets 149 Note 17 - Credit from Banks 149 Note 18 - Payables on Credit Card Transactions 150 Note 19 - Subordinated Notes 150 Note 20 - Other Liabilities 151 Note 21 - Employee Benefits 151 Note 21 - Employee Benefits 152 Note 22 - Capital Adequacy and Leverage Pursuant to the Supervisor of Banks’ Directives 161 Note 23 - Contingent Liabilities and Commitments 166 Note 24 - Guarantees 185 Note 25 - Operating Segments 185 Note 26 - Assets and Liabilities According to Linkage Basis 189 Note 27 - Assets and Liabilities According to Linkage Basis and Maturity Period 191 Note 28 - Balances and Fair Value Estimates of Financial Instruments 195 Note 29 – Activity in derivative instruments extent, credit risks and repayment times 197 Note 29 – Activity in derivative instruments extent, credit risks and repayment times (Continued) 198 Note 30 - Interested and Related Parties of the Company and its Subsidiaries 199 Note 31 – The Outbreak of the Coronavirus 206

Somekh Chaikin Telephone 972 3 684 8000 KPMG Millennium Tower Fax 972 3 684 8444 17 Ha'arba'a Street, PO Box 609 Internet www.kpmg.co.il Tel Aviv 61006 Israel

Report of the Independent Auditors to the Shareholders of Israel Credit Cards Ltd. - In Accordance with the Public Reporting Directives of the Supervisor of Banks Regarding Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Israel Credit Cards Ltd. and subsidiaries (collectively, “the Company”) as at December 31, 2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The Company’s Board of Directors and Management are responsible for maintaining effective internal control over financial reporting and for their assessment of the effectiveness of internal control over financial reporting, included in the accompanying Directors’ and Management’s reports on internal control over the attached financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audits in accordance with the standards of the United States Public Company Accounting Oversight Board (PCAOB), regarding audit of internal control over financial reporting as adopted by the Institute of Certified Public Accountants in Israel. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. The internal control of a credit card company over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in Israel (Israeli GAAP) and directives and guidelines of the Supervisor of Banks. The internal control of a credit card company over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets (including disposal thereof); (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in Israel (Israeli GAAP) and directives and guidelines of the Supervisor of Banks, and that the Company’s receipts and expenditures are being made only in accordance with the authorizations of the Company’s Management and Directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition (including disposal) of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as at December 31, 2020, based on criteria established in Internal Control - Integrated Framework issued by COSO. We also have audited, in accordance with accepted auditing standards in Israel and certain auditing standards applied in the audit of credit card companies as determined by directives and guidelines of the Supervisor of Banks, the consolidated financial statements of the Company as at December 31, 2020 and 2019 and for each of the three years in the period ended December 31, 2020, and our report, dated March 10, 2021, expressed an unqualified opinion on these financial statements as well as a referral, drawing attention to the contents of Note 23B to the financial statements regarding contingent liabilities.

Somekh Chaikin Certified Public Accountants (Isr.)

March 10, 2021

Somekh Chaikin, an Israeli partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. 88

Somekh Chaikin Telephone 972 3 684 8000 KPMG Millennium Tower Fax 972 3 684 8444 17 Ha'arba'a Street, PO Box 609 Internet www.kpmg.co.il Tel Aviv 61006 Israel

Report of the Independent Auditors to the Shareholders of Israel Credit Cards Ltd. - Annual Financial Statements

We have audited the attached balance sheets of Israel Credit Cards Ltd. (“the Company”) as at December 31, 2020 and 2019 and the consolidated balance sheets as at the same dates and the statements of profit and loss, statements of changes in equity and statements of cash flows - of the Company and consolidated - for each of the three years in the period ended December 31, 2020. These financial statements are the responsibility of the Company’s Board of Directors and Management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of an associate, the investment in which is NIS 12 million as at December 31, 2020 and 2019. The financial statements of the aforesaid company were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to amounts included for that company, is based on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards in Israel, including those prescribed under the Israeli Auditors’ Regulations (Auditor’s Mode of Performance), 1973 and certain auditing standards applied in the audit of banking corporations as determined by directives and guidelines of the Supervisor of Banks. Those standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examination, on a test basis, of evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Company’s Board of Directors and Management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position - of the Company and consolidated - as at December 31, 2020 and 2019, and the results of operations, the changes in equity and cash flows - of the Company and consolidated - for the three years in the period ended December 31, 2020, according to generally accepted accounting principles in Israel (Israeli GAAP). Furthermore, in our opinion, the abovementioned financial statements were prepared in accordance with the directives and guidelines of the Supervisor of Banks. Without qualifying our above opinion, we draw attention to that stated in Note 23B regarding petitions to certify certain claims as class actions against the Company. We have also audited, in accordance with standards prescribed by the United States Public Company Accounting Oversight Board (PCAOB) regarding the audit of internal control over financial reporting, as adopted by the Institute of Certified Public Accountants in Israel, the internal control over financial reporting of the Company as at December 31, 2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report, dated March 10, 2021, included an unqualified opinion on the effectiveness of internal control over financial reporting of the Company.

Somekh Chaikin Certified Public Accountants (Isr.)

March 10, 2021

Somekh Chaikin, an Israeli partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. 89 Financial Report ISRAEL CREDIT CARDS LTD.

Statement of Profit and Loss for the Year Ended December 31

Consolidated Company 2020 2019 2018 2020 2019 2018 Note In NIS millions Income Credit card transactions 3 1,254 1,356 1,226 995 1,070 965 Net interest income 4 530 505 464 27 24 12 Non-interest financing income 5 73 2 8 72 8 11 Total income 1,857 1,863 1,698 1,094 1,102 988 Expenses For credit losses (2) 11 223 147 156 16 10 9 Operating (1) (3) 6 657 617 557 591 551 497 Selling and marketing (1) (3) 7 508 485 439 345 324 297 Administrative and general (1) 8 78 78 74 72 72 68 Payments to banks 250 260 259 228 237 237 Management fees - - - (255) (240) (222) Total expenses 1,716 1,587 1,485 997 954 886 Profit before taxes 141 276 213 97 148 102 Provision for taxes on income 9 27 75 56 14 36 23 Profit after taxes 114 201 157 83 112 79 Company’s equity in profits of investee companies (consolidated - associates), net of tax effect 14 1 *- (*-) 32 89 78 Net profit: Attributable to equity holders of the Company 115 201 157 115 201 157 Basic and diluted earnings per ordinary shares in NIS: Net earnings attributable to equity holders of the Company 104.8 183.1 143.0 104.8 183.1 143.0

* Represents an amount of less than NIS 1 million. (1) Of which: in respect of salaries and social benefits in the amounts of NIS 374, 356 and 328 million in the years 2020, 2019 and 2018, respectively. It should be clarified that these amounts only include the service account, which is pursuant to amendment 2019-07 to the Codification regarding the improvement of the presentation of pension and other post-employment benefit expenses. (2) See Section B(2) of Note 2 to the financial statements – Principal reporting principles and principle accounting policies regarding the impact of the development of the Coronavirus event on the results of the Company's operations and on the allowance for credit losses, material that has been published by the Banking Supervision Department regarding supervisory emphases for the treatment of debts and reporting to the public and regarding emphases for disclosures in reporting to the public. (3) The Company has been implementing ASU 2016-02 on the subject of leases (ASC 842) since January 1, 2020. This item includes expenses in respect of operating leases in which the Company is the lessee. See Section B(1) of Note 2 to the financial statements – Principal reporting principles and principle accounting policies for details.

The notes to the financial statements form an integral part thereof.

Esther Deutsch Levy Halevy Shaul Mizrahi Chairperson of the Board of Directors Chief Executive Officer Vice President, Chief Accountant

Date of approval of the financial statements: March 10, 2021

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Consolidated Statement of Other Comprehensive Income for the Year Ended December 31

2020 2019 2018 In NIS millions Net profit attributable to equity holders of the Company 115 201 157 Other comprehensive income (loss) before taxes: Adjustments to liabilities in respect of employee rights** (8) (23) 1 Other comprehensive income (loss) before taxes (8) (23) 1 Related tax effect 2 5 (*-) Other comprehensive income (loss) attributable to equity holders of the Company, after taxes (6) (18) 1 Comprehensive income attributable to equity holders of the Company 109 183 158

* Represents an amount of less than NIS 1 million. ** Reflects primarily adjustments in respect of year-end actuarial estimates of defined benefit pension plans and the write-down of amounts recorded in prior periods in other comprehensive income.

The notes to the financial statements form an integral part thereof.

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Balance Sheet

Consolidated Company December December December December 31 31 31 31 2020 2019 2020 2019 In NIS millions Note

Assets: Cash and bank deposits 10 52 67 1 2 Receivables on credit card transactions 11 17,988 18,618 10,372 10,178 Allowance for credit losses 11 (390) (294) (35) (22) Receivables on credit card transactions, net 17,598 18,324 10,337 10,156 Securities 13 27 53 27 53 Investments in investee companies (consolidated - associates) 14 13 12 636 618 Buildings and equipment 15 460 375 460 375 Other assets (2) 16 385 328 3,803 3,067 Total assets 18,535 19,159 15,264 14,271 Liabilities and equity: Credit from banks 17 5,156 6,594 2,923 2,971 Payables on credit card transactions 18 10,918 10,272 9,959 9,081 Subordinated notes 19 14 28 14 28 Other liabilities (3) 20 517 444 438 370 Total liabilities 16,605 17,338 13,334 12,450 Total equity 22 1,930 1,821 1,930 1,821 Total liabilities and equity 18,535 19,159 15,264 14,271

(1) See Section B(2) of Note 2 to the financial statements – Principal reporting principles and principle accounting policies and Note 31 to the financial statements - The outbreak of the Coronavirus , regarding the impact of the development of the Coronavirus event on the results of the Company's operations and on the allowance for credit losses, material that has been published by the Banking Supervision Department regarding supervisory emphases for the treatment of debts and reporting to the public and regarding emphases for disclosures in reporting to the public. (2) The Company has been implementing ASU 2016-02 on the subject of leases (ASC 842) since January 1, 2020. This item includes a right of use asset in respect of operating leases. See Section B(1) of Note 2– Principal reporting principles and principle accounting policies for details. (3) The Company has been implementing ASU 2016-02 on the subject of leases (ASC 842) since January 1, 2020. This item includes liabilities for operating leases. See Section B(1) of Note 2 to the financial statements – Principal reporting principles and principle accounting policies for details.

The notes to the financial statements form an integral part thereof.

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Statement of Changes in Equity

Paid-up Other share Retained comprehensive Total capital earnings income equity In NIS millions Balance as at January 1, 2018 *- 1,700 (20) 1,680 Changes in 2018 Other comprehensive loss, net, after tax effect - - 1 1 Net profit for the accounting year - 157 - 157 Balance as at December 31, 2018 *- 1,857 (19) 1,838 Changes in 2019 Dividend - (200) - (200) Other comprehensive loss, net, after tax effect - - (18) (18) Net profit for the accounting year - 201 - 201 Balance as at December 31, 2019 *- 1,858 (37) 1,821 Changes in 2020 Other comprehensive income, net, after tax effect - - (6) (6) Net profit for the accounting year - 115 - 115 Balance as at December 31, 2020 *- 1,973 (43) 1,930

* Represents an amount of less than NIS 1 million.

The notes to the financial statements are an integral part thereof.

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Statement of Cash Flows for the Year Ended December 31

Consolidated Company 2020 2019 2018 2020 2019 2018 In NIS millions Cash flows from operating activities:

Net profit for the year 115 201 157 115 201 157 Adjustments: Company’s equity in profits of investee companies (consolidated - associates) (1) (*-) *- (32) (89) (78) Depreciation of buildings and equipment 86 77 61 86 77 61 Expenses for credit losses 223 147 156 16 10 9 Deferred taxes, net (46) (12) (21) (10) *- (1) Realized gain from available-for-sale securities (64) - - (64) - - Severance pay - (increase in excess of amount funded over liability) *- 3 (1) *- 3 (1) Revaluation of credit from banks and subordinated notes - - (*-) - - (*-) Dividend from an investee companies - - - - 73 - Changes in current asset: Increase in receivables on credit card transactions, net 92 (2,095) (1,164) (356) (1,596) (970) Effect of exchange rate fluctuations on cash balances (1) 1 10 6 2 11 Other asset (9) (173) (3) (724) 180 (470) Changes in current liabilities: Decrease (increase) in receivables on credit card transactions, net 646 1,411 1,293 877 1,200 1,140 Other liabilities 61 24 62 69 (45) 116 Net cash flows provided by (used in) operating activities 1,102 (416) 550 (17) 16 (26) Cash flows from investment activities: Proceeds from sale of available-for-sale securities 82 - - 82 - - Repayment of capital note in a subsidiary company - - - 14 88 - Credit to cardholders and merchants, net** 423 (930) (878) 159 (82) (147) Acquisition of buildings and equipment (171) (129) (122) (171) (129) (122) Net cash flows provided by (used in) investing activities 334 (1,059) (1,000) 84 (123) (269)

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Statement of Cash Flows for the Year Ended December 31 (Continued)

Consolidated Company 2020 2019 2018 2020 2019 2018 In NIS millions Cash flows from financing activities: Dividend paid to equity holders - (200) - - (200) - Short-term credit from banks, net (1,438) 1,710 517 (48) 317 355 Redemption of subordinated notes (14) (13) (63) (14) (13) (63) Net cash flows provided by (used in) financing activities (1,452) 1,497 454 (62) 104 292

Increase (decrease) in cash and cash equivalents (16) 22 4 5 (3) (3) Effect of exchange rate fluctuations on cash balances 1 (1) (10) (6) (2) (11) Cash and cash equivalents at beginning of year 67 46 52 2 7 21 Cash and cash equivalents at end of year 52 67 46 1 2 7 Interest received 564 539 487 32 32 25 Interest paid (38) (40) (30) (20) (20) (16) Dividend received 3 2 2 3 75 2 Taxes on income received 32 12 50 31 11 43 Taxes on income paid (117) (98) (114) (57) (34) (43)

* Represents an amount of less than NIS 1 million.

The notes to the financial statements form an integral part thereof.

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Notes to the Financial Statements as at December 31, 2020

Note 1 - General A. The reporting entity

Israel Credit Cards Ltd. (“the Company” or “CAL”) is an Israel corporation. The consolidated financial statements of the Group as at December 31, 2020 comprise those of the Company and its subsidiaries (“the Group”), as well as the Group’s rights in an associate. The financial statements have been prepared in accordance with generally accepted accounting principles in Israel (“Israeli GAAP”) and also in accordance with the directives and guidelines of the Supervisor of Banks.

The notes to the financial statements relate to the financial statements of the Company and to the consolidated financial statements of the Company and its subsidiary, except in instances where it is stated in the note that it relates solely to the Company or solely to consolidated.

The Company is controlled by Israel Discount Bank Ltd. (“Discount Bank"). The First International Bank of Israel Ltd. (“FIBI”) also holds shares in the Company.

The Company has operated in the credit card field(under the “Visa” brand, since the day of its establishment, under the “Diners” brand since 1991, under the “MasterCard” brand, since 2002 and under the “Isracard brand”, since 2012). In respect of the “Isracard” brand, the Company is only active in the acquiring segment.

The Company is an auxiliary corporation under the Banking (Licensing) Law, 1981.

The financial statements were approved for publication by the Company’s Board of Directors on March 10, 2020. B. Definitions In these financial statements:

International Financial Reporting Standards (“IFRS”) - the standards and interpretations adopted by the International Accounting Standards Board (IASB), which comprise International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS), including interpretations of these standards determined by the International Financial Reporting Interpretations Committee (IFRIC) or interpretations determined by the Standing Interpretations Committee (SIC), respectively.

Accounting principles generally accepted in US banks - the accounting principles that US banks listed in the United States are required to implement. These principles are prescribed by the US banking regulatory authorities, the US Securities and Exchange Commission, the US Financial Accounting Standards Board and additional US bodies, and are implemented in accordance with the hierarchy determined in FAS 168 (ASC 105-10), The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. In addition to the aforesaid, as determined by the Banking Supervision Department, despite the hierarchy prescribed in FAS 168, it has been clarified that any position made public by the banking supervisory authorities in the United States or by the staff of the banking supervisory authorities in the United States, regarding the manner in which US generally accepted accounting principles (“US GAAP”) are to be implemented, is to be considered "an accounting principle generally accepted by US banks".

The Company - Israel Credit Cards Ltd. (“the Company” or “CAL”).

The Group - CAL and its subsidiaries - Diners Club Israel Ltd., CAL (Financing) Ltd., CAL (Deposits) Ltd., Diners (Financing) Ltd. and Yatzil Finances Ltd.

Subsidiaries - companies whose statements are fully consolidated, directly or indirectly, with the financial statements of the Company.

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Note 1 - General (Continued) B. Definitions (Continued)

Associates - companies, other than subsidiaries, the Company’s investment in which, directly or indirectly, is presented in the Company’s financial statements by the equity method.

Investee companies - subsidiaries and associates.

Functional currency - the currency of the primary economic environment in which the Company operates; normally, this is the currency of the environment in which the corporation primarily generates and expends cash.

Presentation currency - the currency in which the financial statements are presented.

Related parties and interested parties - as defined in Section 80 of the Public Reporting Directives.

CPI - the Consumer Price Index as published by the Israeli Central Bureau of Statistics.

Note 2 - Reporting Principles and Accounting Policy A. Basis of preparation of the financial statements

The Company’s financial statements are prepared according to Generally Accepted Accounting Principles in Israel (Israeli GAAP) and according to the Public Reporting Directives of the Supervisor of Banks.

In most of the subjects, these directives are based on accounting principles generally accepted by US banks. As regards other matters, of lesser materiality, the directives are based on International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles in Israel (Israeli GAAP).

Where the International Financial Reporting Standards (IFRS) allow several alternatives, or where they do not include a specific reference to a particular situation, these directives state specific implementation guidelines, based mostly on the accounting principles generally accepted by US banks.

(1) Functional currency and presentation currency

The consolidated financial statements are presented in new Israeli shekel (“NIS”), which is the functional currency of the Company, and are rounded to the nearest million, unless stated otherwise. The NIS is the currency that represents the primary economic environment in which the Company operates.

(2) Measurement basis

The financial statements have been prepared on the basis of historical cost, apart from the assets and liabilities that are detailed below:

- Financial instruments and other derivative financial instruments that are measured at fair value through profit or loss; - Deferred tax assets and liabilities; - Provisions; - Assets and liabilities for employee benefits; - Investments in associates.

(3) Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles in Israel (Israeli GAAP) and with the directives and guidelines of the Supervisor of Banks requires the Company’s Management to make judgments, assessments, estimates and assumptions that affect policy implementation and the amounts of assets and liabilities, income and expenses.

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Note 2 - Reporting Principles and Accounting Policy (Continued) A. Basis of preparation of the financial statements (Continued) (3) Use of estimates (Continued) Actual results may differ from such estimates. At the time of formulating the accounting estimates that are used in preparing the financial statements, the Company’s Management is required to make assumptions regarding circumstances and events that entail considerable uncertainty. The Company’s Management uses its judgment in making the estimates based on past experience, various facts, external factors, and reasonable assumptions appropriate to the relevant circumstances of each estimate. The estimates and the assumptions on which they are based are regularly reviewed. Changes in accounting estimates are recognized in the period in which the estimates are amended and in every affected future period. (4) Changes in estimates Changes in the estimate for the collective allowance The Company is implementing the directive regarding "The measurement and disclosure of impaired debts, credit risks and the allowance for credit losses" and accordingly it has set procedures for the classification of credit and the measurement of credit losses, in order to maintain an allowance at an appropriate level to cover expected credit losses. The allowance for covering expected credit losses relating to the credit portfolio is asssed on one of two paths: "The specific allowance" and "The collective allowance". Furthermore, the Company tests the overall fairness of the allowance for credit losses. Within this context, it has been determined that the debts that are tested collectively are to be written off for accounting purposes where they become debts that are 150 days or more in arrears. The collective provision for credit losses reflects provisions for impairment in value in respect of credit losses that are not identified individually, which are inherent in large groups of small debts having similar risk characteristics. The rate of the provision is based on the historical loss rates, with a division between troubled credit and untroubled credit (hereinafter: "The past losses rate"). In addition, for the purpose of determining the appropriate rate of the provision, the Company also takes environmental factors that are relevant to the chances of collection into account, including trends in the volume of the credit, macro-economic data, an assessment of the general quality of the credit, changes in volume and in the trends of balances in arrears and impaired balances and the impact of changes in the concentration of the credit (hereinafter: "The adjustment in respect of environmental factors"). Following the outbreak of the Corona virus and the implications thereof, the Company has prepared estimates that reflect a significant worsening in these environmental factors. The change in the estimates has been determined in accordance with an assessment that there will be a worsening, inter alia, in the volume and in the trend of troubled debts and of write offs and collection, and also because of the expected worsening in the economic and regional conditions. Consequently, there has been a significant increase in the collective provision for credit losses, which has been recorded in these financial statements. The adjustment rate in respect of the environmental factors in respect of credit to private individuals is at least 0.75% of the balance of the untroubled credit at each reporting date, except for credit deriving from borrowers on banking credit cards without an interest charge. The collective provision in respect of off-balance sheet credit is based on the rate of the provision that has been set for on-balance sheet credit (as detailed above), whilst taking the expected rate of exercise of the credit for the off-balance sheet credit into account.

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Note 2 - Reporting Principles and Accounting Policy (Continued) A. Basis of preparation of the financial statements (Continued)

(4) Changes in estimates (Continued)

Changes in the estimate for the collective allowance (Continued)

In addition, pursuant to the directive issued by the Banking Supervision Department, the Company recognizes a provision for credit losses in respect of customers who are tested individually, in accordance with the discounted cash flows that are expected to be received from those customers.

The process of the assessment of the loss that is inherent in the credit portfolio (primarily the credit loss that is tested collectively), as described above, is based on significant estimates that involve a significant degree of uncertainty, in particular insofar as relates to estimates that have been prepared with the objective of forecasting the impact of the Corona virus on the environmental factors. A change in the estimates or the assessments, which have been described above, could have a significant impact on the provision for credit losses that is presented in the Company's financial statements. It should further be mentioned that the principals at the basis of the directive have led to the formulation of methodology on various issues, using assumptions, estimates and judgments. It is possible that certain changes will occur in the methodology, the assumptions and the estimates in the future.

B. Initial implementation of accounting standards, accounting standards, updates and directives of the Supervisor of Banks

As from periods commencing on January 1, 2020, the Company has been implementing new directives and accounting standards on the issues that are set forth below:

- Reporting by banking corporations and of credit card companies in Israel pursuant to general accepted accounting principles in the United States on the subject of leasing.

- Supervisory emphases regarding the accounting treatment of debts and reporting to the public in the wake of the Corona virus crisis.

The following is a summary description of the substance of the changes that have been made in the accounting policy in these consolidated financial statements and a description of the manner and the impact of the initial implementation, if any:

(1) Reporting by banking corporations and of credit card companies in Israel pursuant to general accepted accounting principles in the United States on the subject of leasing

On July 1, 2018, the Banking Supervision Department published a circular on the subject of reporting by banking corporations and credit card companies in Israel in accordance with generally accepted accounting principles in the United States on the subject of leasing, which adopts generally accepted accounting principles in the United States on the subject of leasing, and inter alia, the presentation, measurement and disclosure principles, which were set in Topic 842 of the Codification regarding "Leasing".

In brief, the main changes that are expected in the accounting treatment in the financial statements of banking corporations following the implementation of Topic 842 of the Codification in the Circular are, inter alia: banking corporations that lease assets for periods exceeding 12 months are to recognize them in their balance sheets, even if the leasing is classified as operating leasing; a right of use asset is to be recorded in the balance sheet in operating leasing transactions, reflecting the corporation's right to use the leased assets, against which a liability is to be recognized for amounts payable in respect of the lease; transactions in which a banking corporation sells an asset and leases it back may also be deemed to be accounting leasing transactions in certain situations, subject to certain conditions being met, which are detailed in Topic 842 of the Codification.

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Note 2 - Reporting Principles and Accounting Policy (Continued) B. Initial implementation of accounting standards, accounting standards, updates and directives of the Supervisor of Banks (Continued)

(1) Reporting by banking corporations and of credit card companies in Israel pursuant to general accepted accounting principles in the United States on the subject of leasing (Continued)

The new provisions are to be implemented as from January 1, 2020 by way of adjusted retrospective implementation, whilst reflecting the cumulative impact in the opening balance of retained earnings at the time of the initial implementation.

At the time of the initial implementation, a banking corporation is to act in accordance with the transition provisions that have been set in generally accepted accounting principles in banks in the United States, in those topics, mutatis mutandis. The aforesaid includes the retrospective correction of the comparative figures, of this is required in accordance with those topics.

The Company has adopted the new provisions as from January 1, 2020 in accordance with the adjusted retrospective approach.

Pursuant to the new provisions, for agreements in which the Company is a lessee, at the time of the initial recognition, the Company has recognized a liability in an amount that is equal to the present value of the future lease payments over the course of the period of the lease (these payments do not include variable leasing payments that are not dependent on an index or interest), and in parallel it has recognized a right of use asset at the level of the leasing liability, which has been adjusted in respect of leasing payments that have been paid in advance or which have accumulated, less leasing incentives and with the addition of direct costs that have been incurred on the lease.

Furthermore, as is permitted in the provisions of the Standard, the Company has elected to implement the following reliefs:

- To use the practical relief pursuant to which short-term leases of up to one year are treated such that the leasing fees are reflected in profit and loss under the straight-line method, over the period of the lease, without recognizing a right of use asset and/or a leasing liability in the statement of financial position. - To implement the provisions of the Standard on a portfolio of leases having similar characteristics (from the perspective of size and composition), for which the Company reasonably expects that the implementation of the leasing model to the portfolio will not be significantly different from the implementation of the model for each lease that is included in the portfolio separately.

The implementation of the new directives have led to an increase of approximately NIS 33 million in the balance of the right of usage assets and an increase of approximately NIS 33 million in the balance of leasing liabilities as of January 1, 2020.

At the time of the initial implementation, there was no cumulative impact deriving from the recognition of deferred taxes on sale and lease back transactions and therefore no change was recognized in the balance of retained earnings as of January 1, 2020.

Pursuant to the reporting format as determined in the public reporting directives, the Company has recognized a right of usage asset in respect of operating leases under "other assets" and leasing liabilities (financing and operating) under "other liabilities". The implementation of the Standard did not have a significant impact on the Company's capital ratios.

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Note 2 - Reporting Principles and Accounting Policy (Continued) B. Initial implementation of accounting standards, accounting standards, updates and directives of the Supervisor of Banks (Continued)

(2) Publications by the Banking Supervision Department in the wake of the Coronavirus event and the implications thereof:

On April 21, 2020, the Bank of Israeli published a letter on the subject of "The Coronavirus – supervisory emphases in respect of the treatment of debts and reporting to the public".

Furthermore, further to the additional outline for the deferral of payments of mortgages and consumer loans, which was adopted by the Banking Supervision Department on November 30, 2020, and also further to the additional outline, which was adopted by the banking system for the provision of assistance to small and micro businesses regarding the repayment of loans on December 10, 2020, on December 3, 2020 and on December 10, 2020 the Banking Supervision Department published letters on the subject of "The Coronavirus crisis –emphases on the subject of the additional outline for the deferral of payments and on the subject of "The Coronavirus crisis – emphases on the subject of the additional outline for the deferral of payments for small businesses". A number of guidelines regarding accounting treatment have been included within the framework of the supervisory letters on the subhect of emphases on the subject of the additional outlines for the deferral of payments, including:

Changes in the terms of loans

Where a banking corporation takes action in order to stabilize borrowers that are not in arrears on their existing loans, whether the activity is performed opposite an individual borrower and whether it is performed within the framework of a plan for borrowers that are in order, which have encountered financial or operational difficulties in the short-term as a result of the events surrounding the Corona virus, as a rule, this activity is not to be deemed to be a restructuring of troubled debts. In light of this, debts whose debts whose terms have been altered, such as: the deferral of the timings of payments, and waivers of arrears interest and extensions of repayment periods have not been classified as debts under restructuring of troubled debts where the following conditions have been met:

- A change has been made as a result of the Corona virus event; - The borrower was not in arrears at the time at which the plan to change the terms was implemented; - The change is for a short period of time (up to 6 months).

It is clarified on this subject that borrowers are deemed to be borrowers that are not in arrears if they are less than 30 days in arrears by comparison with the contractual terms at the time of the implementation of the changes plan. Furthermore, where the change in the terms of the debt has led to a delay in payment, which is not a short-term delay, the debt will not be debt under the restructuring of a troubled debt if it has been renewed at an interest rate that is identical to the interest rate that has been debt for a new debt bearing similar risk.

In addition to this, is was determined within the framework of the letters from the Banking Supervision Department in December 2020 that a banking corporation is entitled not to reclassify housing loans, other loans to private individuals and loans for small businesses that were not in arrears of 30 days or more at the time of the deferral of the payments for which a deferral of payment was made up to March 31, 2021 within the framework of the additional outlines for the deferral of payments, even if the cumulative deferral exceeds 6 months, in a reorganization of troubled debt.

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Note 2 - Reporting Principles and Accounting Policy (Continued) B. Initial implementation of accounting standards, accounting standards, updates and directives of the Supervisor of Banks (Continued)

(2) Publications by the Banking Supervision Department in the wake of the Coronavirus event and the implications thereof (Continued)

The determination of the state of the arrears

On the matter of debs that were not previously in arrears and which have been given a deferral as a result of the Corona virus event, the Company is not required to classify such debts as debts in arrears because of a deferral. Furthermore, where a deferral of payments has been made because of the Corona virus event, for debts that were in arrears before the deferral, an adjustment has been made in the state of the arrears back to the situation as it was before the deferral was made and in effect the situation has been frozen for the period of the deferral of the payment.

The classification of troubled debts, including impaired debts that do not accumulated interest income and accounting write offs

Despite the abovementioned the letter from the Bank of Israel, the Company has classified consumer credit debts for which a deferral has been given as a reorganization of debts. This is except where the credit risk in respect of them is at the responsibility of a third party.

Disclosure in reports to the public

Within the context of the letter of December 3, 2020 from the Banking Supervision Department on the subject of "The Coronavirus crisis – emphases on the subject of the additional deferral of payments" it was determined that a banking corporation that has elected not to reclassify loans that were not in arrears for 30 days or more at the time of the deferral of payments, for which a deferral of payments until March 31, 2021 has been made within the framework of the additional outline for the deferral of payments, in a reorganization of troubled debt, is to include pro-forma disclosure in its quarterly and annual reports to the public in 2021, which will show the main impacts or the implementation of this election on the financial statements.

C. Accounting policy applied in the preparation of the financial statements

(1) Foreign currency and linkage

Foreign currency transactions

Transactions in foreign currencies are translated to the functional currency of the Company at the exchange rate in effect at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate in effect at that date.

The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortized cost in foreign currency translated at the exchange rate at the end of the year. Foreign currency differences arising on retranslation are recognized in profit or loss.

CPI-linked assets and liabilities not measured at fair value

CPI-linked assets and liabilities are included in accordance with the linkage terms prescribed for each balance.

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Note 2 - Reporting Principles and Accounting Policy (Continued) C. Accounting policy applied in the preparation of the financial statements (Continued)

(1) Foreign currency and linkage (Continued)

The following are details of the representative exchange rates of the US dollar and the consumer price index (2010 base), and the percentage change therein:

December 31 Percentage change in year 2020 2019 2018 2020 2019 2018 Exchange rate in NIS of: US dollar 3.215 3.456 3.748 (7.0) (7.8) 8.1 Consumer Price Index in points: For December 107.3 108.0 107.4 (0.7) 0.6 0.8

(2) Basis of consolidation

Subsidiaries

Subsidiaries are entities controlled by the Group, the financial statements of which are consolidated with those of the Group from the date of obtaining control until control ceases.

Investments in associates

Associates are entities in which the Group has a significant influence over their financial and operational policies, but in which it has not gained control. There is an assumption that a holding at a rate of between 20%-50% in an investee company confers significant influence.

Investments in associates are accounted for under the equity method and are initially recognized at cost. The cost of the investment includes transaction costs. The consolidated financial statements include the Group's share of income and expenses and of the profit or loss of investee entities accounted for under the equity method. Investments in associates are tested for impairment in value when events or changes in the circumstances indicate that the carrying value of the investment in the accounting records is not recoverable, impairment in value is impaired with it is of a non-temporary nature.

Transactions eliminated on consolidation

Intercompany balances within the Group and unrealized income and expenses deriving from intercompany transactions have been eliminated upon consolidation of the financial statements. Unrealized profits resulting from transactions with associates have been eliminated against the investment in accordance with the rights of the Group in these investments.

(3) Income and expenses recognition basis

(a) Income from merchant discount fees and issuing fees are recognized on an accrual basis at the time that the transaction is recorded by the Company (mainly close to receipt of the data on the vouchers from Automatic Banking Services Ltd.). For payment transactions, which are financed by the merchant, income in respect of each payment is credited as a separate transaction.

(b) Financing income and expenses are included on an accrual basis, except for interest accrued on troubled debts that have been classified as non-interest bearing impaired debts and recognized on a cash basis.

(c) Income from fees for rendering services is recognized in profit or loss upon the Company becoming entitled to receive such fees.

(d) Other income and expenses - recognized on an accrual basis.

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Note 2 - Reporting Principles and Accounting Policy (Continued) C. Accounting policy applied in the preparation of the financial statements (Continued)

(4) Impaired debts, credit risk and allowance for credit losses

In accordance with the Supervisor of Banks’ directive, Measurement and Disclosure of Impaired Debts, Credit Risk and Allowance for Credit Losses, the Company applies the US accounting standard (ASC 310) and the positions of the US banking supervisory authorities, as well as of the US Securities and Exchange Commission, as adopted in the Public Reporting Directives and in the positions and guidelines of the Banking Supervision Department. Furthermore the Company implements the Banking Supervision Department’s guidelines, Treatment of Troubled Debts. Likewise, the Company implements the Banking Supervision Department’s directives, Updating the Disclosure Concerning the Credit Quality of Debts and Concerning the Allowance for Credit Losses.

In addition, from time to time, the Banking Supervision Department updates the Public Reporting Directives and the FAQ file regarding the manner of implementing the provisions regarding impaired debts and the allowance for credit losses, in order to integrate therein the provisions that apply to the banks in the United States, including guidelines of the US regulatory authorities.

Receivables on credit card transactions and other debit balances

The directive is applied to all debit balances, such as, bank deposits, receivables on credit card transactions, etc. Credit to the public and other debt balances for which no specific rules on the topic of the measurement of the allowance for credit losses have been prescribed in the Public Reporting Directives(for example: bank deposits, etc.) are included in the Company’s books at “recorded debt balance”. The “recorded debt balance” is defined as the debt balance, net of accounting write-offs, but before deducting the allowance for credit losses in respect of that debt. The recorded debt balance does not include accrued interest that has not been recognized, or that was previously recognized and was subsequently reversed.

Identification and classification of impaired debts

The Company has determined procedures for identifying troubled credit and for classifying impaired debts. In accordance with these procedures, the Company classifies all its troubled debts and the off-balance-sheet troubled credit items into the following categories: special supervision, substandard or impaired. A debt is classified as impaired when, based on the latest information and events, it is expected that the Company will be unable to collect all the amounts due to it pursuant to the contractual terms of the debt agreement.

The decision regarding the classification of the debt is taken based, inter alia, on the extent to which the debt is in arrears, an assessment of the financial position and solvency of the borrower, the existence and state of the collateral, the financial position of guarantors, if any, and their undertakings to participate in the debt, and the ability of the borrower to obtain third-party financing.

In every case, a debt is classified as impaired when the principal or interest in respect thereto is in arrears for 90 days or more, except when the debt is also properly secured and when debt recovery procedures are also being implemented. To this end, the Company monitors the number of days the debt is in arrears, which is determined in accordance with the debt’s contractual repayment terms. Debts (including “Other assets”) are in arrears when the principal or the interest in respect thereto has not been paid on its due date. From the date of being classified as impaired, the debt is treated as a debt that does not accrue interest income (such a debt is referred to as a “non- performing debt”). Likewise, any debt whose terms are changed within the framework of a troubled debt restructuring will be classified as an impaired debt.

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Note 2 - Reporting Principles and Accounting Policy (Continued) C. Accounting policy applied in the preparation of the financial statements (Continued)

(4) Impaired debts, credit risk and allowance for credit losses (Continued)

Troubled debt restructuring

A debt that has undergone a formal troubled debt restructuring is defined as a debt regarding which the Company, for economic or legal considerations related to the financial difficulties of the debtor, has made concessions in regard to the terms of the debt, with the aim of relieving the burden of the debtor’s short-term cash repayments (by reducing or deferring the cash repayments that the debtor is required to make) or by means of accepting other assets as settlement of the debt (partly or completely).

For the purpose of determining whether a debt arrangement made by the Company constitutes the restructuring of a troubled debt, the Company conducts a qualitative examination of all the terms of the arrangement and the circumstances within the setting of which the arrangement was made, with the aim of determining: (1) whether the debtor is in financial difficulties, and (2) whether the Company has granted concessions to the debtor as part of the arrangement. For the purpose of determining whether the debtor is in financial difficulties, the Company examines whether there are indications pointing to the borrower being in financial difficulties at the time of the arrangement or whether there is a reasonable possibility that the borrower would encounter financial difficulties were it not for the arrangement. Inter alia, the Company checks whether one or more of the following situations exist:

- If the debtor is in default, at the time of the debt arrangement, including where any another debt of the borrower is in default;

- For debts that are not in arrears at the time of the arrangement, the Company evaluates whether, based on his present solvency, the borrower is likely to find himself in the foreseeable future in a default situation and be unable to comply with the original contractual terms of the debt;

- Whether the debtor has been declared bankrupt, is in receivership or significant doubts have arisen as to whether the borrower is able to continue as a going concern; and

- Whether, without a change in the terms of the debt, the debtor will be unable to raise debt from other sources at the customary market rate applicable to debtors that are not in default.

The Company concludes that concessions have been granted to the debtor as part of the arrangement, even if an increase has been made to the contractual interest within the framework of the arrangement, if one or more of the following situations exist:

- As a result of the restructuring, the Company does not expect to collect the full amount of the debt (including accrued interest in accordance with the contractual terms);

- The up-to-date fair value of the collateral in regard to collateral-dependent debts does not cover the balance of the contractual debt and indicates inability to collect all the debt amounts;

- It is not possible for the debtor to raise funds at the customary market rate for a debt with terms and characteristics such as those of the debt that is being provided within the framework of the arrangement.

Furthermore, the Company does not classify a debt as a restructured troubled debt if, within the framework of the arrangement, the debtor has been granted a payments deferral, which is not material taking into account the frequency of the payments, the contractual repayment term and the average expected duration of the original debt.

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Note 2 - Reporting Principles and Accounting Policy (Continued) C. Accounting policy applied in the preparation of the financial statements (Continued) (4) Impaired debts, credit risk and allowance for credit losses (Continued) For this purpose, if several arrangements have been made that involve a change in the terms of the debt, the Company takes into account the cumulative effect of the previous restructurings for the purpose of determining whether the payment deferral is not material. Debts whose terms were changed in a troubled debt restructuring, including those that prior to restructuring were examined on a group basis, will be classified as an impaired debt. In light of the fact that the debt regarding which the troubled debt restructuring was carried out will not be repaid in accordance with its original contractual terms, the debt will continue to be classified as an impaired debt even if the debtor adheres to the repayment schedule under the new terms. Allowance for credit losses The Company has determined procedures for the classification of credit and for the measurement of allowances for credit losses in order to maintain an appropriate level of allowance to cover anticipated credit losses as regards its credit portfolio. In addition, the Company has determined procedures necessary to maintain an appropriate level of allowance to cover anticipated credit losses in connection with off-balance-sheet credit instruments (for example: commitments to grant credit, unutilized credit facilities and guarantees). The allowance required to cover anticipated credit losses in relation to the credit portfolio is assessed based on one of the following: "allowance examined on a group basis" or "allowance examined on a specific basis". Furthermore, the Company examines the overall adequacy of the allowance for credit losses. Such examination of debt for the purpose of determining the allowance and treatment of the debt is applied on a consistent basis as regards all debts in accordance with a minimum quantitative level and the Company’s credit management policy. Debts are not transferred from being examined on a specific basis to being examined on a group basis during the lifetime of the debt, unless a troubled debt restructuring takes place - as referred to above. Specific allowance for credit losses - for the purpose of the examination on a specific basis, the Company has elected to identify debts with a contractual balance in excess of NIS 500 thousand. A specific allowance for credit losses is recognized for every debt classified as “impaired”. A debt is classified as impaired when, based on the latest information and events, it is expected that the Company will be unable to collect all the amounts due to it pursuant to the contractual terms of the debt agreement. In any case, a debt is classified as impaired when the principal or interest in respect thereto is in arrears for 90 days or more. Likewise, any debt whose terms are changed within the framework of a troubled debt restructuring will be classified as an impaired debt. The specific allowance for credit losses is computed based on the anticipated future cash flows, discounted at the debt’s original effective interest rate. Collective allowance for credit losses basis - is computed in order to reflect impairment allowances for credit losses that are not specifically identifiable, which are inherent in large groups of small debts with homogeneous risk characteristics, as well as for debts examined on a specific basis and found to not be impaired. The collective allowance for credit losses is calculated in accordance with the rules prescribed in FAS 5 (ASC 450), Accounting for Contingencies, on the basis of the guidelines set forth in the Public Reporting Directives. The formula is based on historical loss rates in the various economic sectors, differentiating between troubled credit and not troubled credit, in the years between 2012 and the year ended on the reporting date.

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Note 2 - Reporting Principles and Accounting Policy (Continued) C. Accounting policy applied in the preparation of the financial statements (Continued)

(4) Impaired debts, credit risk and allowance for credit losses (Continued)

Allowance for credit losses (Continued)

Past loss rates represent net accounting write-offs that were actually recorded in those years.

The Company uses a loss rate that represents an average of the past loss rates in the timeframe referred to above. In addition to the average historical loss rates in the various economic sectors referred to above, for the purpose of determining the suitable allowance rates in connection with credit to the public, the Company takes into account additional data (qualitative adjustments), including trends in the scope of credit, macroeconomic data, an assessment of the overall quality of the credit for an economic sector, changes in the volume and trend of balances in arrears and balances of impaired debts, and the impact of changes in credit concentration.

For this purpose, in regard to not troubled credit to individuals, excluding credit risk pertaining to debtors in respect of bank credit cards that are free of interest charges, it has been decided that the percentage of qualitative adjustments in respect of the qualitative factors that are relevant to the collection risks will not be less than 0.75% of the balance of untroubled credit to private individuals at the reporting date taking into consideration the average loss rates over the time range. The estimate for the collective allowance is tested from time to time and adjusted where necessary.

Furthermore, in light of the outbreak of the Coronavirus crisis, and in light of the considerable uncertainty that is inherent in the estimation of credit losses in each of the credit portfolios that have been adversely affected by the crisis, the Company has made an additional adjustment to the factor for the allowance, with the objective of reflecting the crisis' negative impact on the borrowers' solvency.

Off-balance-sheet credit

The provision required in relation to off-balance-sheet credit instruments is assessed in accordance with the rules prescribed in FAS 5 (ASC 450). The allowance that is assessed on a group basis for the off-balance-sheet credit instruments is based on the allowance rates determined for the balance-sheet credit (as described above), taking into consideration the expected credit realization rate of the off-balance-sheet credit risk. The credit realization rate is computed by the Company based on the credit conversion factors (CCFs) specified in Proper Conduct of Banking Business Directive 203, Measurement and Capital Adequacy - Credit Risk - the Standardized Approach.

In addition, the Company evaluates the overall adequacy of the allowance for credit losses. Such an adequacy assessment is based on Management’s judgment taking into consideration the risks embodied in the credit portfolio and the assessment methods used by the Company to determine the allowance.

Accounting write-offs

The Company makes an accounting write-off for any debt or part thereof that is examined on a group basis based on the period that the debt is in arrears (in most cases, a consecutive period exceeding 150 days in arrears) and on other parameters indicating financial difficulties. For debts that are examined on a specific basis, the Company makes an accounting write-off for any debt (or part thereof) that is considered uncollectible and having a very low value, to the extent that leaving it as an asset would be unjustified, or a debt that would require Management of the Company to engage in long-term collection efforts (which, in most cases, are defined as extending over a period exceeding two years). It should be noted that accounting write-offs do not require legal waiver and they reduce the balance of the reported debt solely for accounting purposes, while creating a new cost basis for debt in the Company’s books.

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Note 2 - Reporting Principles and Accounting Policy (Continued) C. Accounting policy applied in the preparation of the financial statements (Continued)

(4) Impaired debts, credit risk and allowance for credit losses (Continued)

Accounting write-offs

The Company makes an accounting write-off for any debt or part thereof that is examined on a group basis based on the period that the debt is in arrears (in most cases, a consecutive period exceeding 150 days in arrears) and on other parameters indicating financial difficulties.

For debts that are examined on a specific basis, the Company makes an accounting write-off for any debt (or part thereof) that is considered uncollectible and having a very low value, to the extent that leaving it as an asset would be unjustified, or a debt that would require Management of the Company to engage in long-term collection efforts (which, in most cases, are defined as extending over a period exceeding two years). It should be noted that accounting write-offs do not require legal waiver and they reduce the balance of the reported debt solely for accounting purposes, while creating a new cost basis for debt in the Company’s books.

Recognition of income

At the time of classifying the debt as impaired, the Company defines the debt as a debt that does not accrue interest income and it ceases to accrue interest income on the debt. Likewise, at the time of classifying the debt as impaired, the Company reverses all the interest income accrued and recognized as income in the statement of profit and loss, but not yet collected. The debt will continue to be classified as a debt that does not accrue interest, so long as its classification as an impaired debt has not been cancelled. Debts that have been examined and provided for on a group basis, which are found to be 90 days or more in arrears, do not accrue interest income.

Disclosure requirements

The Company implements the provisions of the Banking Supervision Department’s circular, Updating the Disclosure Concerning the Credit Quality of Debts and Concerning the Provision for Credit Losses as determined within then the context of the update of Accounting Standard ASU 2010-20, which requires broader disclosure regarding the balance of debts, movement in the balance of the allowance for credit losses, any material acquisitions and sales of debts during the reporting period and disclosure regarding the quality of credit.

(5) Securities

(a) Securities in which the Company has invested are classified as securities that are not for trading.

Shares that are not for trading – shares for which the fair value is available are presented in the balance sheet in accordance with the fair value on the reporting date.

Shares for which no fair value is readily available are presented in the balance sheet at cost, less impairment in value and less observed price changes in regular transactions in similar investments or identical investments of the same issuer. Unrealized gains or losses from adjustments for such changes in quoted process, are reflected in the statement of income.

(b) Dividend income, accrued interest, linkage and exchange differences, amortization of premium or discount (according to the effective interest method) as well as impairment losses not of a temporary nature are recognized in the statement of profit and loss.

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Note 2 - Reporting Principles and Accounting Policy (Continued) C. Accounting policy applied in the preparation of the financial statements (Continued) (6) Derivative financial instruments, including hedge accounting Economic hedges

Hedge accounting is not applied to derivative instruments as part of the Company’s assets and liabilities management (ALM). Changes in the fair value of such derivatives are recognized in profit or loss as they occur.

(7) Determination of fair value of financial instruments Fair value is defined as the price that would be received on the sale of an asset or the price that would be paid on the transfer of a liability in an orderly transaction between market participants at the measurement date. Inter alia, the amendment requires, for fair value assessment purposes, that maximum possible use be made of observable inputs and minimum use made of unobservable inputs. Observable inputs represent available market information that is obtained from independent sources, while unobservable inputs reflect the bank's assumptions of the Company. Sub- topic 820-10 in the Codification details a hierarchy of measurement techniques based on the question of whether the inputs used in determining the fair value are observable or unobservable. These types of inputs create a fair value scale as detailed below:

- Level 1 inputs: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date.

- Level 2 inputs: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

- Level 3 inputs: unobservable inputs for the asset or liability. Other non-derivative financial instruments No "market price" can be quoted for most of the financial instruments in this category (such as: receivables for credit card activity, bank deposits and subordinated notes), since there is no active market on which they are traded. Accordingly, the fair value is assessed using accepted pricing models, such as the present value of future cash flows discounted at a discount rate reflecting the risk level inherent in the financial instrument. For this purpose, future cash flows in respect of impaired debts and other debts have been computed after eliminating the effect of accounting write-offs and allowances for credit losses in respect of the debts.

(8) Setting-off of assets and liabilities The Company sets off assets and liabilities deriving from the same counterparty and presents their net balance in the balance sheet, when the following cumulative conditions exist:

- Where there is a legally enforceable right of set-off of liabilities against assets for such liabilities; - Where there is an intention to settle the liabilities and realize the assets on a net basis or simultaneously;

- Where both the Company and the counterparty owe determinable amounts to one another.

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Note 2 - Reporting Principles and Accounting Policy (Continued) C. Accounting policy applied in the preparation of the financial statements (Continued)

(9) Fixed assets (buildings and equipment)

Recognition and measurement

Fixed asset items are measured at cost net of accumulated depreciation and accumulated impairment losses. Cost includes expenditure that may be directly attributed to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials, direct labor costs and any additional costs that may be directly attributed to bringing the asset to the location and condition necessary for it to be able to function in the manner intended by Management. The cost of acquired software being an integral part of the operation of the related equipment is recognized as part of the cost of such equipment. Furthermore, in accordance with the Public Reporting Directives, the Company classifies within the fixed assets item the cost of purchased software assets or capitalized costs of software developed internally for its own use.

Gains or losses on the disposal of a fixed assets item are determined by comparing the proceeds from disposal of the asset to its carrying value, and are recognized net in the “Other income” item in the statement of profit and loss.

Depreciation

Depreciation is recognized in the statement of profit and loss on a straight-line basis over the estimated useful life of each part of a fixed asset item, since this method best reflects the predicted pattern for the consumption of future financial benefits inherent in the asset. Leasehold improvements are depreciated over the lease period, including the option held by the Company to extend the lease period, which does not exceed the economic useful life of the asset. Land owned by the Group is not depreciated.

An asset is depreciated from the time at which it is ready for use, meaning the time at which it has reached the location and state that are required for it to operate in the manner intended by Management.

The annual depreciation rates are as follows:

% Building 2 Equipment and furniture 6-15 Software costs 20-25 Computer and peripheral equipment 25-33 The estimates regarding the depreciation methods, useful lives and residual values are retested where events or changes in circumstances indicate that the current estimates are no longer appropriate and they are adjusted where necessary.

The Company tests non-current assets for impairment in value when events or changes in circumstances occur, which indicates that the net book value may not be recoverable. Impairment losses are only recognized if the carrying value of a non-current asset in the accounting records is not recoverable and exceeds its fair value. The carrying value in the accounting records is not recoverable if it exceeds the total of the undiscounted cash flows that are expected to derive from the use of the non-current asset and from its disposal.

Impairment losses at the level of the difference between the carrying value of the non-current asset in the accounting records and its fair value are reflected in the statement of profit and loss. Where impairment in value is recognized, the carrying value in the non-current asset constituted a new cost basis. These losses are not cancelled in subsequent periods even if there is an increase in value.

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Note 2 - Reporting Principles and Accounting Policy (Continued) C. Accounting policy applied in the preparation of the financial statements (Continued)

(10) Intangible assets Intangible assets, having defined lifetimes are amortized to profit and loss under the straight-line method over the useful lifetimes of the intangible assets, as from the time at which the assets are available for use.

The Company tests intangible assets having a defined lifetime for impairment in value where events or changes in circumstances occur, indicating that the amortized cost may not be recoverable. Impairment losses are only recognized if the carrying value of the intangible asset in the accounting records is not recoverable and exceeds its fair value. The carrying value in the accounting records is not recoverable if it exceeds the undiscounted amount of the cash flows that are expected to derive from the use of the asset and from its ultimate disposal. Impairment losses are recognized at the level of the difference between the carrying value of the intangible asset in the accounting record and its fair value and are reflected in the statement of profit and loss. Where an impairment loss is recognized, the adjusted carrying value of the intangible asset in the accounting records constitutes the new cost basis. These losses are not cancelled in subsequent periods even if there is an increase in value.

Software costs for self-use Software is measured at cost less accumulated amortization and accumulated impairment losses.

Capitalization of costs relating to the development of software for self-use: The Company only capitalizes costs that are connected to the development of software for self-use when: (1) the first stage of the project has been completed; and (2) Management has approved and committed to directly or indirectly finance the software development project and it is also expected that the development will be completed.

The Company capitalizes the following costs: the direct costs of material and services required, the labor costs of the employees directly associated with the development activity or the obtaining of the software. Other costs in respect of development activity and costs at the first stage of the project are recognized in profit or loss as incurred.

Amortization Amortization is recognized in the statement of profit and loss on a straight-line basis over the estimated useful life of the intangible assets, including software assets, commencing from the period in which the assets are ready for use. The Company tests self-use software assets where events or changes in circumstances occur, which indicate that the net book value may not be recoverable. Impairment losses are recognized only if the carrying value of the asset in the accounting records is not recoverable and exceeds the fair value. The carrying value in the accounting records is not recoverable if it exceeds the cash flows in non-discounted amounts, which are expected to derive from the use of the asset and from its ultimate disposal.

Subsequent costs Costs of upgrades and improvements to software for internal use are capitalized only if it is expected that the costs incurred will lead to additional functionality. Other subsequent costs are recognized as an expense as incurred.

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Note 2 - Reporting Principles and Accounting Policy (Continued) C. Accounting policy applied in the preparation of the financial statements (Continued) (10) Intangible assets (Discontinued) Guide lines regarding the capitalization of self-development software costs In light of the accounting complexity of the process of capitalizing self-development software costs and in light of the materiality of the amount of the software costs that have been capitalized, the Banking Supervision Department has set guide lines on the subject of the capitalization of software costs. The guide lines that the company has implemented are: - A materiality threshold of NIS 300,000 has been set for capitalization. A software development project for which the total software costs that may be capitalized is lower than the materiality threshold that has been set is to be reflected as an expense in profit and loss; - The amortization period of the software development costs may not exceed 5 years; - Capitalization facts have been set for hours of work, which are lower than 1, such that the potential for a variance in the calculation of the hours of work and economic inefficiency will be taken into account. - The grade of employees whose cost are capitalized to assets is to be restricted, such the upper grade will at the most be that of a manager, where it can be shown that most of his time is spent being engaged in actual development, they are responsibly for a considerable number of employees, and the quantity of hours that they have actually invested in each development project can be measured accurately. - Costs that have not been attributed to a project in accordance with a specific report on hours worked, in which the employee declared, on the basis of a daily report, that he invested those costs specifically in a project, are to be recorded as an expense. (11) Leases Contracts that afford the Company control over the use of an asset within the framework of a lease for a period of time for consideration, are treated as leases. A liability is recognized at the time of the initial recognition, in an amount equivalent to the present value of the future lease payments during the course of the period of the lease (these payments do not include variable lease payments (these payments do not include variable leasing payments), with a right of use asset being recognized in parallel at the level of the leasing liability, adjusted for leasing payments that have been paid in advance or accrued and less leasing incentives, and with the addition of direct costs that have been incurred on the lease. The leasing period is determined to be the period in which the lease in non-cancellable, together with periods that are covered by an option to extend or to cancel the lease, if it is reasonably certain that the lessee will exercise or will not exercise the option, respectively, and together with periods that are covered by an option to extend or to cancel the lease where the right to exercise is controlled by the lessor. The Company has elected to implement the practical relied pursuant to which short-term leases of up to one year are treated such that the lease fees are reflected to profit and loss under the straight-line method, over the period of the leases, without recognizing a right of use asset and/or a leasing liability in the statement of financial position. In a lease of land and buildings, the land component and the buildings component are tested separately for the purpose of classification and measurement, with a significant measure of judgment being involved in the classification of the land component because of the fact that land generally has an indefinite lifetime. The Company has elected to implement the practical relied not to separate non-leasing components, such as services or maintenance, from the leasing component, but rather to treat them as a single leasing component.

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Note 2 - Reporting Principles and Accounting Policy (Continued) C. Accounting policy applied in the preparation of the financial statements (Continued) (11) Leases (Continued) Subsequent measurement Following the initial recognition, the leasing liability (operating and financing) is measures at amortized cost under the effective interest method, furthermore, the Company tests the right of use asset (for operating and financing leases) for impairment in value pursuant to the provisions of sub-topic 360-10-35 in the Codex regarding impairment in value for fixed assets.

Leasing payments Operating leases

Leasing payments, except for variable leasing payments, are reflected in profit and loss under the straight-line method, over the length of the period of the lease. Leasing incentives, which have been received, are recognized as an integral part of the total leasing expenses under the straight-line method, over the period of the lease. Variable leasing payments, which are dependent on an index or interest rate are recognized in profit or loss in the period of the change. Variable leasing payments that are not dependent on an index or interest rate are recognized in profit or loss in the period in which it is expected that the specific objective that has led to the changing of the leasing payments will be achieved and will be cancelled in the period in which it is not longer expected that the specific objective will be achieved.

At every subsequent reporting date, the right of use asset is recognized at the level of the amortized cost of the leasing liability, as adjusted for leasing payments that have been paid in advance or which have accrued and less the balance of the leasing incentives, with the addition of direct costs that have not yet been amortized and less accumulated impairment losses in respect of the right of use asset.

(12) Employee rights Post-retirement benefits - pension, severance pay and other benefits (“Pension”) - defined benefits plans The Pension benefit is part of the remuneration paid to an employee in return for his services. In a defined benefits pension plan, the Company guarantees to provide, in addition to the current salary, retirement income payments in future years after the employee has retired or has terminated his service. Generally, the amount of the benefit to be paid depends on certain future events that are included in the plan’s benefit formula, which sometimes includes the length of the employee’s life, or that of his heirs, the number of years of service provided by the employee and the employee’s remuneration in the years immediately preceding his retirement or termination.

In most instances, the services are provided over several years prior to the employee retiring and receiving or beginning to receive the pension. Even though the services that are provided by an employee have ended and the employ has gone on pension, the amount of the overall benefit that the Company has promised and the cost to the Company of the services that have been provided cannot be determined exactly, but rather they can only be measured by means of the benefit formula and estimates regarding the relevant future events, most of which are outside of the bank's control.

The net pension cost for the period is the amount recognized in the Company’s financial statements as the cost of a pension plan for a specific period. The components of the pension cost for a specific period, in accordance with the Public Reporting Directives are: the service cost, the interest cost, the actual return on plan assets, and the gain or loss.

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Note 2 - Reporting Principles and Accounting Policy (Continued) C. Accounting policy applied in the preparation of the financial statements (Continued)

(12) Employee rights (Continued)

The term “net pension cost for the period” is used instead of “net pension expense for the period” since part of the cost recognized in a period could be capitalized, together with additional costs, as part of an asset, such as software for internal use.

For this purpose, gain or loss is the amount of (1) the difference between the actual yield on plan assets and the predicted yield on plan assets and of (2) the write-down of the gain or loss, net recognized in cumulative other comprehensive income.

Pension benefits are usually attributed to an employee’s service periods based on the plan’s benefit formula, where attribution is specified in the formula or is alluded to therein.

The Company calculates the forecasted long-term rate of return on the plan assets using historical rates of return over the long term in a portfolio having a similar assets composition.

To this end, the Company is aided by data available on the market regarding each of the significant categories of the assets in the portfolio, and assigns weightings to them in accordance with the composition of the plan assets.

The obligation in respect of the anticipated benefit reflects the actuarial present value of all the benefits attributable to the employee’s service provided prior to the balance-sheet date. Measurement of this obligation is based on the appropriate actuarial assumptions as at the Company’s balance-sheet date (e.g., employee turnover, mortality rates, discount rates, and so forth) and data from the latest population census at said date.

If the obligation for the anticipated benefit exceeds the fair value of the plan assets, the Company recognizes a liability in its balance sheet equal to the unfunded portion of the anticipated benefit. If the fair value of the plan assets exceeds the obligation for the anticipated, the Company an asset in its balance sheet equal to the over- funded portion of the anticipated benefit. The Company groups the state of all the under-funded plans and recognizes this amount as a liability in the balance sheet. The Company reviews its assumptions on a periodic basis and updates these assumptions accordingly.

A change in the value of the obligation in respect of the anticipated benefit or of the plan assets, due to actual experience differing from that predicted, or due to changes in an actuarial assumption, is a “gain or loss” (“Actuarial Gain or Loss”). At the time of their occurrence, Actuarial Gains or Losses are not recognized in net pension cost for the period, but in other comprehensive income. In subsequent periods, such actuarial gains or losses are recognized thereafter in the Statement of Profit and Loss as a component of net pension cost for the period, using the straight- line method over the average remaining service period of the employees expected to receive benefits under the plan.

The discount rate in respect of employee benefits is computed on the basis of the yield on Israeli government debentures with the addition of an average spread on AA and above (international) rating of corporate debentures as at the reporting date.

For practical reasons, it has been determined that the spread will be fixed according to the difference between the rates of the yield to maturity, according to periods to maturity, on corporate debentures in the US with an AA and above rating, and the rates of yield to maturity, for the same periods to maturity, on US government debentures, and all as at the reporting date.

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Note 2 - Reporting Principles and Accounting Policy (Continued) C. Accounting policy applied in the preparation of the financial statements (Continued)

(12) Employee rights (Continued)

The Company applies the guidelines issued by the Banking Supervision Department concerning internal control over the financial reporting process in the matter of employee rights, including in regard to examining the "obligation in substance" of the Company to grant its employees benefits in respect of increased severance pay and/or early pension.

Post-retirement benefits - defined contribution plans

A defined contribution plan is a plan that provides post-retirement benefits in return for services provided, that assigns a personal account to every plan participant and that defines how the contributions to the employee’s account will be determined (rather than determining the benefit amount that the employee will receive). In a post- retirement defined contribution plan, the benefits that a plan participant will receive depend solely and exclusively on the amount deposited in the plan participant’s account, on the accumulated yield from the investments made from these contributions and on the benefit forfeitures of other plan participants that might be allocated to the account of said participant.

Should it be necessary for the defined plan contributions to a person’s account to be made for periods during which that person is providing services, the net Pension cost or the net post-retirement other benefit cost for the period will be the required contribution for said period.

The Company’s liability to pay severance pay pursuant to Section 14 of the Severance Pay Law is accounted for as a defined contribution plan.

Non-recurring redundancy benefits

The Company makes a distinction between the payments that are paid within the framework of the routine benefits (both under a written benefits agreement and also in a substantive plan) and non-recurring events. This distinction requires the exercise of judgment in accordance with the facts and circumstances that are relevant.

In the event that the benefits are considered to be non-recurring benefits in respect of the redundancy or employees, the accounting treatment is in accordance with the provisions of Topic 420 of the Codification.

Non-recurring benefits in respect of the termination of employees will only be accumulated as from the time of the notification (i.e., the time at which notification of the redundancy program was delivered to the employees) and subject to compliance with a number of criteria that are set forth in Topic 420 of the Codification, and may be recognized over the future service period until the time of the termination of employment.

The basis for the recognition of a liability in the management's commitment to an arrangement and notification of the promise to provide a non-recurring benefit for employees being made redundant, which created an "implicit" obligation at the time of the notification. Accordingly, as mentioned above, the Company recognizes a liability where all of the following criteria are met:

- The management, which has the authority to approve the activity, is committed to the redundancy program.

- The program mentions the number of the employees who will be made redundant, the classification of their positions, functions and locations, as well as the expected time of the completion of the program.

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Note 2 - Reporting Principles and Accounting Policy (Continued) C. Accounting policy applied in the preparation of the financial statements (Continued) (12) Employee rights (Continued)

- The program determines the terms of the benefits arrangement, including the benefits that the employees will receive at the time of their departure (including inter alia, payments in cash), with sufficient details such that the employees can determine the type and the amount of the benefits that they will receive if they are dismissed involuntarily.

- The activity that is required in order to complete the program indicate that it is unlikely that significant changes will be made in the program or that the program will be cancelled.

The timing of the recognition – if the employees are required to provide service until the end of their employment beyond a minimal service (based on a collective agreement or other contracts, and which may not exceed the legal period of notice, which for the most part is a period not exceeding 60 days), the recognition of the benefit will be spread over the future service period, otherwise the expense is to be recognized immediately.

Other post-retirement benefits - gifts for religious holidays The Company recognizes the un-capitalized amount of the current benefit at the time of providing the service. In addition, the Company accrues the liability over the relevant period, this being determined in accordance with the rules pertaining to other post-retirement benefits.

Vacation The Company accrues the liability over the relevant period, as determined. For the purpose of calculating the liability, actuarial assumptions and discount rates are not taken into account. The liability for vacation leave is recognized routinely in profit and loss.

Sick leave The Company does not accrue a liability for sick-leave days.

Other long-term benefits for active employees - Jubilee awards The Company accrues the liability over the period giving entitlement to the benefit. For the purpose of computing the liability for such benefits, the actuarial assumptions and discount rates are taken into consideration. All the components of the benefit cost for the period, including actuarial profits or losses, are recognized immediately in the Statement of Profit and Loss.

(13) Contingent liabilities The financial statements include appropriate provisions for claims, based on Management’s assessment and relying on opinions from legal counsel. The disclosure format is in accordance with the Supervisor of Banks’ directives, pursuant to which the claims filed against the Company are classified into three categories: (1) Probable risk - where the probability of the risk exposure materializing is in excess of 70%. For claims falling within this risk category, a provision is included in the financial statements. (2) Reasonably possible risk - where the probability of the risk exposure materializing is in excess of 20% but less than, or equal to, 70%. For claims falling within this risk category, a provision is not included in the financial statements but disclosure is provided. (3) Remote risk - where the probability of the risk exposure materializing is less than 20%. For claims falling within this risk category, a provision is not included in the financial statements and no disclosure is provided.

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Note 2 - Reporting Principles and Accounting Policy (Continued) C. Accounting policy applied in the preparation of the financial statements (Continued) (13) Contingent liabilities (Continued) A claim, for which it has been determined that the Company is required to make a monetary refund, is classified as “probable” and a provision is created in respect thereto in the amount of the refund that the Company is required to make. Quantitative disclosure is included on Note 23, “Contingent Liabilities and Commitments”, regarding the amount of the exposures, which have a probability of materializing that is not remote, for which no provision has been made. In accordance with the Supervisor of Banks’ directives, only in rare cases may a banking corporation state in its financial statements that it is not possible to assess the prospects of a risk exposure materializing in respect of an ordinary claim and a claim certified as a class action, in four financial statements (including one annual financial statements) that are published subsequent to the filing of a claim together with a petition to have it certified as a class action; such period is not to include a period in which the Court has decided to stay the proceedings. The Company has described material legal proceedings being conducted against the Company and Group companies. In this respect, the Company has determined that, as a general rule, a legal proceeding will be disclosed where the amount claimed exceeds 0.5% of the capital of the Company and it is not possible to assess the prospects of the risk exposure materializing and exceeds 1% of the capital where there are reasonably possible prospects of the risk exposure materializing or where the prospects of the risk exposure materializing are remote. The Company is exposed to unasserted claims or suits due, inter alia, to doubts in regard to interpretation of agreements and/or statutory provisions and/or their application. The Company is made aware of such exposure in several ways, including: applications or complaints by third parties to Company parties. In assessing the risk associated with unasserted claims/suits, the Company relies on internal assessment by the handling parties and by Management, and of the Company’s legal counsel, who weigh the assessed risk of a claim being made, the prospects of such claim, if made, to prevail and any settlement payments. Such assessment is based on past experience in regard to the claims filed and on an analysis of the merits of the allegations. Naturally, in view of the preliminary stage of the inquiry into the legal allegation, the actual outcome may differ from the assessment made prior to filing the claim. (14) Income tax expenses The Company's financial statements included current and deferred taxes. The provision for taxes on income for the Company's subsidiaries, which are financial institutions for Value Added Tax purposes, include profits tax, which is imposed on income pursuant to the Value Added Tax Law. Current taxes Current tax is the expected tax that has been paid or that will be paid (or refunded) for the current period, as determined by the implementation of the tax laws that have been enacted on the chargeable income. Current tax expenses also include changes in tax payments relating to previous years. Deferred taxes Deferred tax liabilities and deferred tax assets represent the future impact on taxes on income deriving from timing differences and losses that are available to be carried forward at the end of the period. The Company recognizes deferred tax liabilities with respect to all of the timing differences that are chargeable to taxation, expect for timing differences with respect to undistributed earnings of subsidiary companies, which are substantially permanent. The Company recognizes deferred tax assets with respect to all of the deductible timing differences and losses that are available to be carried forward, and in parallel it recognizes a separate provision (valuation allowance) for the amount that is included in the asset that it is more likely than not will be realized.

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Note 2 - Reporting Principles and Accounting Policy (Continued) C. Accounting policy applied in the preparation of the financial statements(Continued) (14) Income tax expenses (Continued) The Company reduces the deferred tax asset by the amounts of any tax benefits whatsoever that are not expected to be realized based on the available evidence – both positive evidence that supports the recognition of a deferred tax asset and also negative evidence, which supports the creation of a provision with respect to a deferred tax asset, in order to test whether it is possible to recognize a net deferred tax asset. A deferred tax liability or a deferred tax asset is measured using the legislated tax rates, which are expected to apply to sufficient taxable income in periods in which it is expected that the deferred tax liability will be settled or the deferred tax asset will be realized. The Company classifies interest income and expenses with respect to taxes on income under "taxes on income". Furthermore, fines to the tax authorities are classified under "taxes on income".

The setting-off of deferred tax assets and liabilities The Company sets off deferred tax assets and liabilities, as well as the entire related "valuation allowance" (provision for a deferred tax asset), for a particular taxpayer component and within the boundaries of a particular tax jurisdiction.

Uncertain tax positions The Company recognizes the effect of tax positions only if it is more likely than not that these positions would be accepted by the tax authorities or by the courts. Recognized tax positions are measured according to the highest amount having a realization probability in excess of 50%. Changes in recognition or in measurement are reflected in the period in which changes in the circumstances that led to the change in considerations occurred.

(15) Earnings per share The Group presents earnings per share data, basic and diluted, in respect of its ordinary share capital. The basic per share earnings is computed by dividing the profit or loss attributable to the Company’s ordinary equity holders by the weighted average number of ordinary shares outstanding during the period. No adjustments to the basic earnings per share are required in calculating the Company’s diluted earnings per share.

(16) Segmental reporting An operating segment is a component in a company that is engaged in activities from which the operating segment is likely to derive income and bear expenses, the results of whose operations are regularly examined by management and the board of directors in order to make decisions regarding resource allocation and performance evaluation, and in regard to which separate financial information exists. The format for reporting on operating segments of the Company is established in the Public Reporting Directives issued by the Supervisor of Banks.

(17) Transactions with controlling interests The Company implements US GAAP in accounting for transactions between a banking corporation and its controlling shareholder and with a company under the control of a banking corporation. In situations not covered by the aforesaid principles, the Company applies the principles prescribed in Standard 23 of the Israel Accounting Standards Board, on the subject of the accounting treatment of transactions between a corporation and a controlling interest therein. Assets and liabilities for which a transaction has been executed with a controlling interest are measured in accordance with the fair value at the time of the transaction.

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Note 2 - Reporting Principles and Accounting Policy (Continued) C. Accounting policy applied in the preparation of the financial statements (Continued)

(18) Financial assets transfers and servicing and the extinguishment of liabilities

The Company applies the measurement and disclosure rules prescribed Topic 860-10 in the Codification, on the subject of transfers and servicing of financial assets and extinguishments of liabilities, for the purpose of the treatment of transfers of financial assets and extinguishment of liabilities. The transfer of financial assets in which the transferor waives control of those financial assets, are recorded as a sale or purchase, if and only if the following conditions are met:

1. The financial assets that have been transferred have been separated from the transferor and they are beyond the transferor and its creditors’ reach even in the case of bankruptcy or some other receivership.

2. Every recipient has the rights to charge or to replace the assets that it has received and there is no condition that also restricts the recipient from utilizing its right to charge or to replace and also grants the transferor a benefit that is more than trivial.

3. The transferor does not retain effective control over financial assets that have been transferred.

If the transfer meets the conditions that are detailed above, the Company derecognizes the assets that have been transferred and recognizes assets that have been received at fair value.

The Company only de-recognizes a liability if the liability has been extinguished, namely that one of the following conditions has been fulfilled: (a) the Company has paid its creditor and has been released from its obligations in regard to the liability, or (b) the Company has been legally released through legal proceedings or, with the consent of the creditor, from being the principal debtor for the liability.

(19) Provision for losses

The financial statements include provisions for losses arising from forgery or theft. Such provisions are made when the misuse of a credit card is suspected. The rate of the provision is based on past experience in relation to the rates of actual losses.

(20) Receivables/payables on credit card transactions

When a credit card transaction takes place, an asset is created for the acquirer that acquires the transaction, in respect of the card issuer’s or cardholder’s debt; concurrently, a liability in favor of the merchant is created. Furthermore, an asset is created for a credit card company that is an issuer in respect of the cardholder’s or the issuing bank’s debt, while a liability is concurrently created opposite the acquiring acquirer.

The balances of receivables and payable on credit card transactions represent the movements processed up to the morning of the reporting date (or the business day preceding the reporting date, if the reporting date is not a business day).

(21) Provision for gift offers

The financial statements include a provision for gift offers for credit cardholders. In determining the adequacy of the provision, Management bases its assessment on past experience gathered in regard to the future realization rates and in accordance with the projected cost, as updated from time to time, and in accordance with the code of rules for the offers.

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Note 2 - Reporting Principles and Accounting Policy (Continued) C. Accounting policy applied in the preparation of the financial statements (Continued) (22) Issuing agreements with customer clubs The Company's issuing agreements with various customer clubs arrange, inter alia, the manner of the division of the revenues between the parties as well as aspects relating to expenses, including marketing and advertising budgets that will be made available by the parties and the division of the costs. In relation to the Company's commitments with customer clubs, the Company's revenues in respect of interchange fees from transactions that have been executed on the club cards as well as revenues from interest from transactions on such cards are reflected in the Company's financial statements under revenues (under revenues from transaction on credit cards and under interest income, net, respectively). The amount to which the customer clubs are entitled in respect of their share of such revenues, as well as the Company's share of such expenses, are recorded under selling and marketing expenses. Furthermore, for some of the Company's agreements with customer clubs bonuses are included, which are dependent upon the meeting of performance targets, in relation to which the Company makes an estimate each period regarding the entitlement to such bonuses, and accordingly are reflected in the financial statements (which are spread over the relevant period).

D. New accounting standards and directives of the Supervisor of Banks in the period prior to their implementation The adoption of updated to generally accepted accounting principles in banks in the United Stated – allowances for credit losses and additional directives On March 28, 2018, the Banking Supervision Department published a letter on the subject of "The adoption of updates to generally accepted accounting principles in Banks in the United States – allowances for credit losses and additional directives. Pursuant to the letter, there is a requirement to implement the generally accepted accounting principles in Banks in the United States on the following topics: allowance for credit losses; financial instruments, including derivative instruments and hedging activity; and leasing. The initial implementation is to be performed in accordance with the transition provisions, which were set in the American principles. General guidelines and timings for the initial implementation of the new provisions have been set within the context of the letter, as detailed below: The letter adopts the generally accepted accounting principles in the United States on the subject of the allowance for expected credit losses, which was published within the framework of the updating of the ASU 2016-13 Standard. The objective of the new principles is to improve the quality of the reporting on the banking corporation's financial position, by means of advancing the recording of the allowances for credit losses in a manner that strengthens the anti-cyclical nature of the behavior of the allowances for credit losses, which supports a faster response by the banks to a deterioration in the quality of the borrower's credit, and to strengthen the connection between the management of the credit risks and the manner in which those risks are reflected in the financial statements, based on the existing methods and processes. The main changes that are expected in the accounting treatment in the financial statements of banking corporations following the implementation of these principles are, inter alia: the allowance for credit losses is to be calculated in accordance with the loss that is expected over the lifetime of the credit, instead of estimating the loss that has been caused and has not yet been identified; the estimate of the allowance for credit losses is to be made making significant use of forward looking information that will reflect reasonable forecasts in respect of future economic events; the disclosure on the impact of the time at which the credit is extended on the quality of the credit portfolio is to be expanded; and new principles for the calculation of the allowance for credit losses will apply to credit, and certain off-balance sheet credit exposures.

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Note 2 - Reporting Principles and Accounting Policy (Continued) D. New accounting standards and directives of the Supervisor of Banks in the period prior to their implementation (Continued) On December 1, 2020, the Banking Supervision Department published a circular on the subject of "Supervisory Capital – the impact of the change in accounting principles on the subject of expected credit losses". Transition provisions were set within the framework of the circular, which will apply to the impact of the initial adoption of new principles on the subject of expected credit losses, which is in order to reduce unexpected impacts of the implementation of the principles on the supervisory capital, pursuant to the directives issued by the Basel Committee on Banking Supervision and the banking supervisory authorities in the United States and in other countries across the globe. The Standard is to be implemented by banking corporations as from January 1, 2020 and thereafter, and by acquirers as from January 1, 2023 and thereafter. At the time of the initial implementation, a banking corporation and a clearer are to act in accordance with the transition provisions that have been set in generally accepted accounting principles in banks in the United States, mutatis mutandis. The Company has made preparations for implementing the letter. The Company's preparations include, inter alia,: mapping the new directives and the possible implications thereof for the Company; reviewing the practice that is generally accepted today for the management of credit risks and for estimating the allowance for credit losses in order to identify processes that can be used for the purpose of implementing the new principles; identifying the challenges and the ways in which those challenges can be dealt with; and examining the changes that are required in order to adapt the credit loss assessment models. The Company does not have a reasonable estimate of the expected implementation of the new principles. Update to the ASU 2018 -14 standards regarding changes in the disclosure requirements for a defined benefit plan On August 28, 2018, the American Accounting Standards Board ("FASB") published ASU 2020-14, regarding the disclosure framework – changes in the disclosure requirements for a defined benefit plan, which constitutes an update to Sub-Topic 715-20 in the Codification regarding Remuneration – retirement benefits – defined benefits plans – general (hereinafter: "The update"). The substance of the amendment is to improve the effectiveness of the disclosures in the notes to the financial statements and also to reduce the costs that are involved in the preparation of the notes that are required. The amendments within the framework of the update cancel disclosures which have no value, they clarify specific disclosure requirements and they add disclosure requirements that have been identified as being relevant. The main points of the amendments are, inter alia: the requirement to present an estimate of the amounts that are recorded under other comprehensive income that are expected to be deducted from cumulative other comprehensive income to the statement of profit and loss as an expense in the following year has been cancelled; the requirement to present the amount of the future annual benefits that are covered by insurance contracts, including annuity contracts, as well as any significant contracts whatsoever between the entity or related parties and the plan, has been cancelled, a requirement has been added pursuant to which there is a requirement to provide details regarding the probability of significant profits or losses that are connected to a change in the commitment in respect of a defined benefit during the course of the period; in addition to which disclosure requirements have been clarified for entities in which there are two or more plans. Pursuant to the Banking Supervision Department's circular regarding “The improvement of the usefulness of reports to the public by banking corporations for the years 2019 – 2020”, which was formulated based on the updated to Standard 2018 -14 in the Codex, the provisions of the amendment will apply to reports to the public as at January 1, 2021 and thereafter. The implementation of the Standard is not expected to have a significant impact on the financial statements.

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Note 3 - Income from Credit Card Transactions

Consolidated Company Year ended December 31 Year ended December 31 2020 2019 2018 2020 2019 2018 In NIS millions Income from merchants: 847 895 837 651 679 640 Other income 22 19 13 9 9 4 Total income from merchants - gross 869 914 850 660 688 644 Less - fees to other issuers (272) (302) (304) (271) (301) (303) Total income from merchants - net 597 612 546 389 387 341 Income from credit cardholders: Issuer fees 336 376 357 331 366 350 Service fees 258 229 202 216 185 161 Fees on overseas transactions 53 128 109 50 122 103 Other income 10 11 12 9 10 10 Total income from credit cardholders 657 744 680 606 683 624 Total income from credit card transactions 1,254 1,356 1,226 995 1,070 965

Note 4 - Net Interest Income

Consolidated Company Year ended December 31 Year ended December 31 2020 2019 2018 2020 2019 2018 In NIS millions A. Interest income in respect of assets From credit to cardholders 512 485 442 1 1 1 From credit to merchants 20 21 15 20 21 15 From factoring 31 33 31 3 3 3 From subordinated notes - - - 1 1 2 From credit to investee companies - - - 16 11 2 From other assets 1 1 1 5 7 5

Total interest income 564 540 489 46 44 28 Interest expenses in respect of B. liabilities To banking corporations 32 32 22 17 18 13 On subordinated notes 1 1 2 1 1 2 On other liabilities 1 2 1 1 1 1 Total interest expenses 34 35 25 19 20 16 Total net interest income 530 505 464 27 24 12

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Note 5 –Non-Interest Financing Income

Consolidated Company Year ended December 31 Year ended December 31 2020 2019 2018 2020 2019 2018 In NIS millions Exchange differences, net 2 4 6 2 4 8 Gains from investment in shares (1) 64 *- (1) 64 *- (1) Dividend 3 2 2 3 2 2 Other 4 (4) 1 3 2 2 Total non-interest financing income 73 2 8 72 8 11 * Represents an amount of less than NIS 1 million. (1) In September 2020, the first tranche of the preference shares in Visa Inc., which were held by the Company was converted into marketable shares with an overall value of NIS 121 million (the Company's share of which is NIS 82 million), subsequent to which the Company recognized income of NIS 64 million (NIS 49 million net of tax) in the year.

Note 6 - Operating Expenses

Consolidated Company Year ended December 31 Year ended December 31 2020 2019 2018 2020 2019 2018 In NIS millions

Salaries and related expenses 248 237 218 248 237 218 Data processing and computer maintenance 32 33 34 32 33 33 Payments to international credit card organizations 89 108 87 68 88 71 Depreciation and amortization 86 77 61 86 77 61 Communications 4 4 3 4 3 3 Issuing cards and mailing 46 43 44 39 34 36 Losses arising from misuse of credit cards 18 11 8 17 11 7 Building rental and maintenance 22 22 21 22 23 21 Vehicle maintenance 8 8 8 8 8 8 Operating commissions 31 29 24 28 26 21 Other* 73 45 49 39 11 18 Total operating expenses 657 617 557 591 551 497

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Note 7 - Selling and Marketing Expenses

Consolidated Company Year ended December 31 Year ended December 31 2020 2019 2018 2020 2019 2018 In NIS millions Salaries and related expenses 80 76 71 74 70 65 Advertising, recruitment of customers (1) 391 359 317 248 221 196 Gift offers to credit cardholders 22 34 36 17 26 29 Vehicle maintenance 5 5 5 5 5 5 Other 10 11 10 1 2 2 Total selling and marketing expenses 508 485 439 345 324 297 (1) Including royalties to customer clubs.

Note 8 - Administrative and General Expenses

Consolidated Company Year ended December 31 Year ended December 31 2020 2019 2018 2020 2019 2018 In NIS millions Salaries and related expenses 45 43 39 45 43 39 Professional services 17 19 20 14 16 17 Insurance 2 1 1 2 1 1 Other 14 15 14 11 12 11 Total administrative and general expenses 78 78 74 72 72 68

Note 9 - Provision for Taxes on Profit A. Composition

Consolidated Company Year ended December 31 Year ended December 31 2020 2019 2018 2020 2019 2018 In NIS millions Current taxes for the accounting year 74 87 77 27 36 24 Current taxes for prior years (1) *- *- (3) *- *- Total current taxes 73 87 77 24 36 24 Add (less) Deferred taxes for the accounting year (39) (12) (21) (5) *- (1) Deferred taxes for prior years (7) - - (5) - - Total provision for taxes on income 27 75 56 14 36 23 * Represents an amount of less than NIS 1 million. The above table does not include the tax exposure in respect of certain items, which are recognized under other comprehensive income. The tax impact of the items that have been recognized under other comprehensive income amounted to a decrease of approximately NIS 2 million in 2020, a decrease of approximately NIS 5 million in 2019 and an increase in an amount of less than NIS 1 million in 2018.

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Note 9 - Provision for Taxes on Profit (Continued) B. Reconciliation between the theoretical amount of tax, for which the Company would have been liable had the profit been taxed at the statutory tax rate applicable to banking corporations in Israel, and the provision for taxes on profit, charged in the statement of profit and loss:

Consolidated Company Year ended December 31 Year ended December 31 2020 2019 2018 2020 2019 2018 Rate of tax applicable in Israel on the Company (in %) 23% 23% 23% 23% 23% 23% In NIS millions Amount of tax based on statutory tax rate 32 63 49 22 34 23 Tax expense (tax saving) in respect of Differences due to subsidiary’s different tax rate 3 10 7 - - - Exempt income and at reduced tax rates (*-) (1) (*-) (*-) (1) (*-) Depreciation differences (*-) (*-) (*-) (*-) (*-) (*-) Other nondeductible expenses *- 3 *- *- 3 *- Taxes in respect of prior years (8) *- *- (8) *- *- Other - - *- - - *- Provision for taxes on income 27 75 56 14 36 23

* Represents an amount of less than NIS 1 million.

C. Final tax assessments

The Company has final tax assessments up to and including the 2017 tax year. The subsidiary company Diners Club has final tax assessments up to and including the 2018 tax year. The subsidiary companies Diners Finance, CAL Deposits and Yatzil Finances have assessments that are deemed to be final up to and including the 2015 tax year.

On August 25, 2020, the Company and the Assessing Officer for Large Enterprises signed on a tax assessments agreement for the 2015 – 2017 tax years. Furthermore, an assessments agreement has been signed between Diners Club Ltd. and the Assessing Officer for Large Enterprises for the 2015 – 2018 tax years.

D. VAT assessments

On December 14, 2016, the Director of Value Added Tax ("the Director") issued assessments for periods from January 2012 to August 2016. The amount charged in these assessments, including interest and linkage, stands at NIS 48 million. The Company is disputing the position of the Director, and is of the opinion that it has good arguments in support of its position. Accordingly, the Company filed an appeal on March 9, 2017. To the best of the Company's knowledge, assessments on this issue have also been received by the Company's competitors.

On March 8, 2018, the Company received a decision from the Director of Value Added Tax. In the decision, the objection was dismissed, and the amount of the charge in the assessment was increased to NIS 75 million (including interest and linkage). In the event that the Company's position is not accepted by the Court, the Company may be charged in respect of the issues in the assessment in respect of later periods than the period covered by the assessment as well.

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Note 9 - Provision for Taxes on Profit (Continued) D. VAT assessments (Continued)

On January 31, 2019, the Company submitted an appeal against the said decision.

On November 3, 2019, the Supreme Court approved an agreed petition for the consolidated of the hearings on the appeal with the appeals submitted by the Company’s competitors. A pre-trial hearing was held on March 5, 2020. The Company assesses the amount of the impact for which no provision has been recorded in the financial statements at approximately NIS 156 million. An additional pre-trial meeting has been set for May 19, 2021.

E. Unrecognized tax liabilities

Pursuant to the transition provisions that have been determined in directives issued by the Supervisor of Banks, the Company has not recognized a deferred tax liabilities for certain timing differences that are connected the Company's investments in subsidiary companies. The said amount will only be taxes at the time of the sale or liquidation of the subsidiary company. The said timing difference amounts to NIS 8 million as at December 31, 2020 (NIS 8 million as at December 31, 2019). If the Company were required to recognize deferred tax liability for the abovementioned undistributed profits, that liability would amount to NIS 3 million as at December 31, 2020 (NIS 3 million as at December 31, 2019).

F. Balances of deferred tax assets and liabilities:

Consolidated Deferred tax assets (liabilities) Average tax rate 2020 2019 2020 2019 In NIS millions From provision for credit losses 145 109 33.5% 33.5% From losses arising from misuse of cards 4 1 23.0% 23.0% From provision for vacation pay and bonuses 6 5 23.0% 23.0% From excess of liabilities for employee benefits over plan assets 10 8 23.0% 23.0% From adjustment of depreciable non-monetary assets (8) (8) 23.0% 23.0% Other 11 5 23.0% 23.0% Total 168 120

Company Deferred tax assets (liabilities) Average tax rate 2020 2019 2020 2019 In NIS millions From allowance for credit losses 8 5 23.0% 23.0% From losses arising from misuse of cards 4 1 23.0% 23.0% From provision for vacation pay and bonuses 6 5 23.0% 23.0% From excess of liabilities for employee benefits over plan assets 10 8 23.0% 23.0% From adjustment of depreciable non-monetary assets (8) (8) 23.0% 23.0% Other 8 5 23.0% 23.0% Total 28 16

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Note 9 - Provision for Taxes on Profit (Continued) F. Movement in deferred taxes:

Losses Excess of arising Provision liabilities Adjustment from for for of Allowance misuse vacation employee depreciable for credit of pay and benefits nonmonetary losses cards bonuses over assets Other Total In NIS millions Consolidated Balance of deferred tax assets (liabilities) as at January 1, 2020 109 1 5 8 (8) 5 120 Changes carried to profit and loss 36 3 1 - (*-) 6 46 Changes carried to other comprehensive income - - - 2 - - 2 Balance of deferred tax assets (liabilities) as at December 31, 2020 145 4 6 10 (8) 11 168 Company Balance of deferred tax assets (liabilities) as at January 1, 2020 5 1 5 8 (8) 5 16 Changes carried to profit and loss 3 3 1 - (*-) 3 10 Changes carried to other comprehensive income - - - 2 - - 2 Balance of deferred tax assets (liabilities) as at December 31, 2020 8 4 6 10 (8) 8 28 Consolidated Balance of deferred tax assets (liabilities) as at January 1, 2019 97 5 4 2 (8) 3 103 Changes carried to profit and loss 12 (4) 1 1 (*-) 2 12 Changes carried to other comprehensive income - - - 5 - - 5 Balance of deferred tax assets (liabilities) as at December 31, 2019 109 1 5 8 (8) 5 120 Company Balance of deferred tax assets (liabilities) as at January 1, 2019 5 5 4 2 (8) 3 11 Changes carried to profit and loss *- (4) 1 1 (*-) 2 *- Changes carried to other comprehensive income - - - 5 - - 5 Balance of deferred tax assets (liabilities) as at December 31, 2019 5 1 5 8 (8) 5 16 Consolidated Balance of deferred tax assets (liabilities) as at January 1, 2018 75 5 4 3 (8) 3 82 Changes carried to profit and loss 22 *- *- (1) (-*) *- 21 Changes carried to other comprehensive income - - - (-*) - - (-*) Balance of deferred tax assets (liabilities) as at December 31, 2018 97 5 4 2 (8) 3 103 Company Balance of deferred tax assets (liabilities) as at January 1, 2018 3 5 4 3 (8) 3 10 Changes carried to profit and loss 2 *- *- (1) (*-) *- 1 Changes carried to other comprehensive income - - - (-*) - - (-*) Balance of deferred tax assets (liabilities) as at December 31, 2018 5 5 4 2 (8) 3 11

* Represents an amount of less than NIS 1 million.

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Note 9 - Provision for Taxes on Profit (Continued) G. Taxes on income

Changes in tax legislation

The corporate income tax rate that applies to the Company has been 23% in the years 2018-2020.

On December 22, 2016, the Knesset Plenum approved the second and third readings of the Economic Efficiency Law (Legislative Amendments for Achieving the Budget Targets for the Years 2018 and 2019), 2016. Within the framework of the law, a reduction in rate of corporate tax, from 25% to 23%, in two stages was approved: in the first stage, to a rate of 24%, with effect from January 2017, and in the second stage, to a rate of 23%, with effect from the year 2018 and thereafter. In light of this, the statutory tax rate for the subsidiaries in the Group fell to 35% in 2017 and to 34.2% in 2018 and thereafter.

The deferred tax balances have been calculated in accordance with the new tax rates as set in the Economic Efficiency Law (Legislative Amendments for Achieving the Budget Targets for the Years 2018 and 2019), in accordance with the tax rate that is expected to apply at the time of the reversal.

The current taxes for the reported periods have been calculated in accordance with the tax rates that are presented above.

Note 10 - Cash and Bank Deposits

The balance is comprised of cash and bank deposits with original maturities of up to three months.

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Note 11 - Credit Risk, Receivables on Credit Card Transactions and Allowance for Credit Losses on a Consolidated Basis A. Receivables and credit on credit card transactions

Consolidated Company December 31 December 31 2020 2019 2020 2019 2020 average In NIS millions annual interest rate On transactions On closing in last balance month % % Credit risk not guaranteed by banks: Individuals: (1) 8,698 9,113 2,977 2,829 Of which: receivables in respect of credit cards (2) - - 3,539 3,653 2,977 2,829 Of which: credit (2) (3) 10.4 10.3 5,159 5,460 - -

Commercial: 816 1,057 423 587 Of which: receivables in respect of credit cards (2) - - 22 26 17 19 Of which: credit (2) (4) 2.6 18. 794 1,031 406 568 Total credit risk not guaranteed by banks 9,514 10,170 3,400 3,416

Credit risk guaranteed by banks and others: Receivables in respect of credit cards - - 8,329 8,310 6,885 6,693 Credit 6.1 5.9 6 11 - - International credit card companies and organizations - - 9 26 9 26 Income receivable - - 122 92 78 43 Other - - 8 9 - - Total receivables on credit card transactions 17,988 18,618 10,372 10,178 (1) Individuals as defined on pages 621-5 in the Public Reporting Directives(in Hebrew),Total Credit Risk According to Economic Sectors on a Consolidated Basis. (2) Receivables in respect of credit cards - free of interest charges: includes balances in respect of regular transactions, transactions paid in installments on merchants’ accounts and other transactions. Credit to cardholders - with interest charges: includes credit transactions, transactions on revolving credit cards, direct credit, and other transactions. (3) Includes secured credit for vehicles totaling NIS 347 million and NIS 378 million as at December 31, 2020 and as at December 31, 2019, respectively. (4) Credit to merchants. This amount includes vouchers discounted for merchants totaling NIS 384 million and NIS 481 million as at December 31, 2020 and as at December 31, 2019, respectively, which did not meet merchant liability extinguishment terms, pursuant to FAS 166. The Company purchased commercial credit in the years 2020 and 2019 in the amounts of NIS 2,181 million and NIS 2,421 million, respectively. This credit is untroubled. No transactions have been executed for the purchase of off-balance sheet credit, credit sales, syndications and participation in the syndication of loans.

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Note 11 - Credit Risk, Receivables on Credit Card Transactions and Allowance for Credit Losses on a onsolidated Basis (Continued) B. Debts** and off-balance-sheet credit instruments:

(1) Movement in the balance of the allowance for credit losses: Consolidated Year ended December 31, 2020 Allowance for credit losses Credit risk not guaranteed by banks Individuals Commercial Credit risk Receivables Receivables guaranteed in respect in respect by banks to credit Credit to credit Credit and cards (2) cards (2) others (3) Total In NIS millions Balance at the beginning of the year 68 234 *- 19 6 327 Expenses for credit losses 17 191 - 15 - 223 Accounting write offs - (175) - (4) - (179) Collection of debts subject to accounting write-offs in prior years - 63 - 1 - 64 Accounting write-offs, net - (112) - (3) - (115) Balance of the allowance at the end of the year 85 313 *- 31 6 435 1 Of which: In respect of off-balance-sheet credit instruments - 44 - *- 1 45 In respect of deposits in banks - - - - *- *- In respect of receivables for credit cards guaranteed by banks - - - - 5 5

Consolidated Year ended December 31, 2019 Allowance for credit losses Credit risk not guaranteed by banks Individuals Commercial Credit risk Receivables Receivables guaranteed in respect in respect by banks to credit Credit to credit Credit and cards (2) cards (2) others (3) Total In NIS millions Balance at the beginning of the year 58 209 *- 15 5 287 Expenses for credit losses 10 127 - 9 1 147 Accounting write offs - (158) - (6) - (164) Collection of debts subject to accounting write-offs in prior years - 56 - 1 - 57 Accounting write-offs, net - (102) - (5) - (107) Balance of the allowance at the end of the year 68 234 *- 19 6 327 1 Of which: In respect of off-balance-sheet credit instruments - 32 - *- 1 33 In respect of deposits in banks - - - - *- *- In respect of receivables for credit cards guaranteed by banks - - - - 5 5 * Represents an amount of less than NIS 1 million. ** Receivables on credit card transactions, bank deposits and other debts. *** See Section B(2) of Note 2 – reporting principles and principal accounting policies and Note 31 – the outbreak of the Coronavirus, regarding the impact of the development of the Coronavirus event and the implications thereof for the allowance for credit losses, publications by the Banking Supervision Department regarding supervisory emphases in respect of the treatment of debts and reporting to the public and regarding emphases for disclosure in reports to the public.

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See the comments on the tables on the next pge. Note 11 - Credit Risk, Receivables on Credit Card Transactions and Allowance for Credit Losses on a Consolidated Basis (Continued) B. Debts** and off-balance-sheet credit instruments (Continued): (1) Movement in the balance of the allowance for credit losses (Continued):

Consolidated Year ended December 31, 2018 Allowance for credit losses Credit risk not guaranteed by banks Individuals Commercial Credit risk Receivables Receivables guaranteed in respect in respect by banks to credit Credit to credit Credit and cards (2) cards (2) others (3) Total In NIS millions Balance at the beginning of the year 41 168 *- 10 5 224 Expenses for credit losses 17 130 - 9 *- 156 Accounting write offs - (136) - (7) - (143) Collection of debts subject to accounting write-offs in prior years - 47 - 3 - 50 Accounting write-offs, net - (89) - (4) - (93) Balance of the allowance at the end of the year 58 209 *- 15 5 287 1 Of which: In respect of off-balance-sheet credit instruments - 30 - *- 1 31 In respect of deposits in banks - - - - *- *- In respect of receivables for credit cards guaranteed by banks - - - - 4 4

(2) Interest bearing credit. This credit includes credit transactions, transactions on revolving credit cards, credit to cardholders, credit not to cardholders and other transactions. (3) Receivables and credit in respect of credit cards guaranteed by banks, bank deposits, international credit card companies and organizations, income receivable and other receivables.

* Represents an amount of less than NIS 1 million. ** Receivables on credit card transactions, bank deposits and other debts.

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Note 11 - Credit Risk, Receivables on Credit Card Transactions and Allowance for Credit Losses on a Consolidated Basis (Continued) B. Debts** and off-balance-sheet credit instruments (Continued): (2) Additional information regarding the calculation of the allowance for credit losses on debts** and regarding the debts** for which it was calculated:

Consolidated December 31, 2020 Allowance for credit losses Credit risk not guaranteed by banks Individuals Commercial Credit risk Receivables Receivables guaranteed in respect of in respect of by banks credit cards Credit credit cards Credit and others Total In NIS millions

Recorded debt balance of debts**:

Examined on a specific basis 30 312 15 794 62 1,213 Examined on a group basis 3,509 4,847 7 - 8,464 16,827 Total debts** 3,539 5,159 22 794 8,526 18,040 Allowance for credit losses in respect of debts**: Examined on a specific basis - 77 - 31 *- 108 Examined on a group basis 85 192 - - 5 282 Total allowance for credit losses 85 269 - 31 5 390

Consolidated December 31, 2019 Allowance for credit losses Credit risk not guaranteed by banks Individuals Commercial Credit risk Receivables Receivables guaranteed in respect of in respect of by banks credit cards Credit credit cards Credit and others Total In NIS millions

Recorded debt balance of debts**:

Examined on a specific basis 13 219 22 1,031 94 1,379 Examined on a group basis 3,640 5,241 4 - 8,421 17,306 Total debts** 3,653 5,460 26 1,031 8,515 18,685 Allowance for credit losses in respect of debts**: Examined on a specific basis - 16 - 19 *- 35 Examined on a group basis 68 186 - - 5 259 Total allowance for credit losses 68 202 - 19 5 294 * Represents an amount of less than NIS 1 million. ** Receivables on credit card transactions, bank deposits and other debts.

Note 11 - Credit Risk, Receivables on Credit Card Transactions and Allowance for Credit Losses on a Consolidated Basis (Continued) C. Debts (1):

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(1) Credit quality and arrears: Consolidated December 31, 2020 Not Unimpaired debts - troubled (7) Troubled (2) additional information 90 days or 30 days- Not Impaired more in 89 days in impaired (3) Total arrears (4) arrears (5) In NIS millions Debts not guaranteed by banks Individuals Receivables in respect of credit cards 3,529 10 *- 3,539 - - Credit 4,845 179 135 5,159 - 20 Commercial Receivables in respect of credit cards 22 - - 22 - - Credit 787 3 4 794 - - Debts guaranteed by banks and others (6) 8,526 - - 8,526 - - Total 17,709 192 139 18,040 - 20

Consolidated December 31, 2019 Not Unimpaired debts - troubled (7) Troubled (2) additional information 90 days or 30 days- Not Impaired more in 89 days in impaired (3) Total arrears (4) arrears (5) In NIS millions Debts not guaranteed by banks Individuals Receivables in respect of credit cards 3,638 15 *- 3,653 - 1 Credit 5,172 232 56 5,460 - 34 Commercial Receivables in respect of credit cards 26 - - 26 - - Credit 1,019 10 2 1,031 - - Debts guaranteed by banks and others (6) 8,515 - - 8,515 - - Total 18,370 257 58 18,685 - 35

(1) Receivables on credit card transactions, bank deposits and other debts. (2) Impaired debts, substandard, or under special supervision. (3) Generally, impaired debts do not accrue interest income. For information regarding certain impaired debts that have been restructured in a troubled debt restructuring - see Note 11C(2)(c) below. (4) Reclassified as troubled debts that are not impaired and that accrue interest income. (5) Do not accumulate interest income. (6) Cardholders guaranteed by banks, bank deposits, international credit card companies and organizations, income receivable and other receivables. (7) Of which: NIS 17,446 million as at December 31, 2020 and NIS 17,902 million as at December 31, 2019 relate to debts whose credit rating on the date of the report corresponded to the credit rating for the granting of new credit in accordance with Company policy.

* Represents an amount of less than NIS 1 million.

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Note 11 - Credit Risk, Receivables on Credit Card Transactions and Allowance for Credit Losses on a Consolidated Basis (Continued) C. Debts (1) (Continued): (2) Additional information regarding impaired debts (1): (a) Impaired debts and specific allowance: Consolidated December 31, 2020 Balance (2) Balance (2) of impaired of impaired debts for debts for which Total Balance of which a Balance of a specific balance contractual specific specific allowance (2) of principal of allowance allowance does not impaired impaired exists (3) (3) exist debts debts In NIS millions Debts not guaranteed by banks Individuals Receivables in respect of credit cards - - *- *- *- Credit 122 72 13 135 135 Commercial Receivables in respect of credit cards - - - - - Credit 4 1 *- 4 4 Debts guaranteed by banks and others (4) - - - - - Total (5) 126 73 13 139 139 (5) Of which: Measured at present value of cash flows 126 73 13 139 Debts in troubled debt restructuring 122 72 *- 122

Consolidated December 31, 2019 Balance (2) Balance (2) of impaired of impaired debts for debts for which Total Balance of which a Balance of a specific balance contractual specific specific allowance (2) of principal of allowance allowance does not impaired impaired exists (3) (3) exist debts debts In NIS millions Debts not guaranteed by banks Individuals Receivables in respect of credit cards - - *- *- *- Credit 27 12 29 56 56 Commercial Receivables in respect of credit cards - - - - - Credit 2 *- *- 2 2 Debts guaranteed by banks and others (4) - - - - - Total (5) 29 12 29 58 58 (5) Of which: Measured at present value of cash flows 29 12 29 58 Debts in troubled debt restructuring 27 12 *- 27 (1) Receivables on credit card transactions, bank deposits and other debts. (2) Recorded balance of debt examined on a specific basis. (3) Specific allowance for credit losses. (4) Cardholders guaranteed by banks, bank deposits, international credit card companies and organizations, income receivable and other receivables.

* Represents an amount of less than NIS 1 million.

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Note 11 - Credit Risk, Receivables on Credit Card Transactions and Allowance for Credit Losses on a Consolidated Basis (Continued) C. Debts (1) (Continued): (2) Additional information regarding impaired debts (Continued): (b) Average debt balance and interest income: Consolidated Year ended December 31, 2020 Recorded debt balance Average balance Interest Of which: of income recorded on impaired debts (2) recorded (3) a cash basis In NIS millions Debts not guaranteed by banks Individuals Receivables in respect of credit cards *- - - Credit 96 3 3 Commercial Receivables in respect of credit cards - - - Credit 3 - - Debts guaranteed by banks and others (4) - - - Total 99 3 3

Consolidated Year ended December 31, 2019 Recorded debt balance Average balance Interest Of which: of income recorded on impaired debts (2) recorded (3) a cash basis In NIS millions Debts not guaranteed by banks Individuals Receivables in respect of credit cards *- - - Credit 51 2 2 Commercial Receivables in respect of credit cards - - - Credit 3 - - Debts guaranteed by banks and others (4) - - - Total 54 2 2

* Represents an amount of less than NIS 1 million. See the comments on the table on the next page.

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Note 11 - Credit Risk, Receivables on Credit Card Transactions and Allowance for Credit Losses on a Consolidated Basis (Continued) C. Debts (1) (Continued): (2) Additional information regarding impaired debts (Continued): (b) Average debt balance and interest income (Continued): Consolidated Year ended December 31, 2018 Recorded debt balance Average balance Interest Of which: of income recorded on impaired debts (2) recorded (3) a cash basis In NIS millions Debts not guaranteed by banks Individuals Receivables in respect of credit cards *- - - Credit 35 2 2 Commercial Receivables in respect of credit cards - - - Credit 4 *- *- Debts guaranteed by banks and others (4) - - - Total 39 2 2

(1) Receivables on credit card transactions, bank deposits and other debts. (2) Average recorded debt balance of impaired debts in the reporting period. (3) Interest income recorded in the reporting period, in respect of the average balance of impaired debts, during the time they were categorized as impaired. (4) Cardholders guaranteed by banks, bank deposits, international credit card companies and organizations, income receivable and other receivables. (5) Had the impaired debts been accruing interest under the original terms, interest income would have been recorded in an amount of approximately NIS 7 million in 2020, an amount of approximately NIS 5 million in 2019 and an amount of approximately NIS 4 million in 2018.

* Represents an amount of less than NIS 1 million.

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Note 11 - Credit Risk, Receivables on Credit Card Transactions and Allowance for Credit Losses on a Consolidated Basis (Continued) C. Debts (1) (Continued): (2) Additional information regarding impaired debts (Continued): (c) Debts in troubled debt restructuring (Continued): Consolidated Year ended December 31, 2020 Recorded debt balance Not accruing Accruing (2) - interest income not in arrears Total (3) In NIS millions Debts not guaranteed by banks Individuals Receivables in respect of credit cards - - - Credit 3 119 122 Commercial Receivables in respect of credit cards - - - Credit *- - *- Debts guaranteed by banks and others (4) - - - Total 3 119 122

Consolidated Year ended December 31, 2019 Recorded debt balance Not accruing Accruing (2) - interest income not in arrears Total (3) In NIS millions Debts not guaranteed by banks Individuals Receivables in respect of credit cards - - - Credit 5 22 27 Commercial Receivables in respect of credit cards - - - Credit *- - *- Debts guaranteed by banks and others (4) - - - Total 5 22 27

* Represents an amount less than NIS 1 million

(1) Receivables on credit card transactions, bank deposits and other debts. (2) Accruing interest income. (3) Included in impaired debts. (4) Cardholders guaranteed by banks, bank deposits, international credit card companies and organizations, income receivable and other receivables.

As at December 31, 2020 and 2019, there are no commitments to grant further credit to debtors for whom a troubled debt restructuring was performed, in the course of which changes were made to the terms of the credit

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Note 11 - Credit Risk, Receivables on Credit Card Transactions and Allowance for Credit Losses on a Consolidated Basis (Continued) C. Debts (1) (Continued): (2) Additional information regarding impaired debts (Continued): (c) Debts in troubled debt restructuring (Continued):

Consolidated Year ended December 31, 2020 Restructurings performed in Restructurings the reporting period that failed (2) Recorded Recorded Recorded Number debt balance debt balance Number debt balance of before after of before contracts restructuring restructuring contracts restructuring In NIS In NIS millions millions Debts not guaranteed by banks Individuals Receivables in respect of credit cards - - - - - Credit 5,925 117 117 1,802 8 Commercial Receivables in respect of credit cards - - - - - Credit - - - - - Debts guaranteed by banks and others (3) - - - - - Total 5,925 117 117 1,802 8

Year ended December 31, 2019 Restructurings performed in Restructurings the reporting period that failed (2) Recorded Recorded Recorded Number debt balance debt balance Number debt balance of before after of before contracts restructuring restructuring contracts restructuring In NIS millions In NIS millions Debts not guaranteed by banks Individuals Receivables in respect of credit cards - - - - - Credit 2,181 23 23 2,120 9 Commercial Receivables in respect of credit cards - - - - - Credit 3 1 1 - - Debts guaranteed by banks and others (3) - - - - - Total 2,184 24 24 2,120 9

See the comments on the table on the following page.

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Note 11 - Credit Risk, Receivables on Credit Card Transactions and Allowance for Credit Losses on a Consolidated Basis (Continued) C. Debts (1) (Continued): (2) Additional information regarding impaired debts (Continued): (c) Debts in troubled debt restructuring (Continued): Consolidated Year ended December 31, 2018 Restructurings performed in Restructurings the reporting period that failed (2) Recorded Recorded Recorded Number debt balance debt balance Number debt balance of before after of before contracts restructuring restructuring contracts restructuring In NIS In NIS millions millions Debts not guaranteed by banks Individuals Receivables in respect of credit cards - - - - - Credit 2,037 25 25 1,792 8 Commercial Receivables in respect of credit cards - - - - - Credit 5 1 1 - - Debts guaranteed by banks and others (3) - - - - - Total 2,042 26 26 1,792 8

* Represents an amount of less that NIS 1 million. (1) Receivables on credit card transactions, bank deposits and other debts. (2) Debts that became impaired debts during the reporting year, which were restructured in a troubled debt restructuring in the course of the 12 months preceding the time at which the debts became debts in arrears. (3) Cardholders guaranteed by banks, bank deposits, international credit card companies and organizations, income receivable and other receivables.

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Note 12 - Receivables (1) on Credit Card Transactions and Off-Balance-Sheet Credit Risk by Size of Borrower’s Debts

Consolidated Year ended December 31, 2020 Receivables on credit card transactions No. of Of which: Off-balance Borrowers guaranteed sheet (2) Total by banks credit risk (3) In NIS millions Credit ceiling (in NIS thousands) (4) Borrower balances up to 5 1,113,072 1,511 1,371 351 Borrower balances above 5 up to 10 417,407 2,155 1,796 974 Borrower balances above 10 up to 15 244,795 1,805 1,304 1,412 Borrower balances above 15 up to 20 242,205 1,654 889 3,060 Borrower balances above 20 up to 30 309,788 2,680 1,007 5,557 Borrower balances above 30 up to 40 131,390 2,106 494 2,553 Borrower balances above 40 up to 80 152,101 3,775 661 3,680 Borrower balances above 80 up to 150 7,910 543 304 244 Borrower balances above 150 up to 300 1,585 240 183 94 Borrower balances above 300 up to 600 529 161 109 62 Borrower balances above 600 up to 1,200 208 125 63 51 Borrower balances above 1,200 up to 2,000 83 87 39 46 Borrower balances above 2,000 up to 4,000 56 149 43 21 Borrower balances above 4,0000 up to 8,000 22 99 40 23 Borrower balances above 8,000 up to 20,000 11 134 32 - Borrower balances above 20,000 up to 40,000 2 67 - 3 Borrower balances above 40,000 up to 200,000 2 288 - - Borrower balances above 200,000 up to 400,000 1 279 - - Total 2,621,167 17,858 8,335 18,131 Income receivable and other receivables 130 - - Total 17,988 8,335 18,131

(1) The receivables on credit card transactions and off-balance-sheet credit risk are presented before the effect of the allowance for credit losses and before the effect of deductible collateral for the purpose of the debts of a borrower. (2) The total number of borrowers according to the total receivables and off-balance-sheet credit risk. (3) Credit risk on off-balance-sheet financial instruments, as calculated for the purpose of restrictions on the borrower’s debts (excluding credit facilities guaranteed by banks). (4) The borrowers are classified according to the relevant credit ceilings, in accordance with the total amount of the Company’s credit facilities and the balances of credit guaranteed by banks.

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Note 12 - Receivables (1) on Credit Card Transactions and Off-Balance-Sheet Credit Risk by Size of Borrower’s Debts (Continued)

Consolidated Year ended December 31, 2019 Receivables on credit card transactions No. of Of which: Off-balance Borrowers guaranteed sheet (2) Total by banks credit risk (3) In NIS millions Credit ceiling (in NIS thousands) (4) Borrower balances up to 5 1,100,689 1,446 1,259 399 Borrower balances above 5 up to 10 414,379 2,126 1,746 986 Borrower balances above 10 up to 15 248,442 1,825 1,293 1,446 Borrower balances above 15 up to 20 239,482 1,703 898 2,936 Borrower balances above 20 up to 30 304,500 2,845 1,044 5,184 Borrower balances above 30 up to 40 128,696 2,213 532 2,316 Borrower balances above 40 up to 80 145,474 3,983 730 3,181 Borrower balances above 80 up to 150 7,263 529 307 213 Borrower balances above 150 up to 300 1,571 256 191 67 Borrower balances above 300 up to 600 536 169 108 58 Borrower balances above 600 up to 1,200 229 134 58 61 Borrower balances above 1,200 up to 2,000 74 86 29 34 Borrower balances above 2,000 up to 4,000 49 108 30 30 Borrower balances above 4,0000 up to 8,000 24 121 53 15 Borrower balances above 8,000 up to 20,000 15 168 43 21 Borrower balances above 20,000 up to 40,000 3 85 - 1 Borrower balances above 40,000 up to 200,000 4 372 - - Borrower balances above 200,000 up to 400,000 1 348 - - Total 2,591,431 18,517 8,321 16,948 Income receivable and other receivables 101 - - Total 18,618 8,321 16,948 (1) The receivables on credit card transactions and off-balance-sheet credit risk are presented before the effect of the allowance for credit losses and before the effect of deductible collateral for the purpose of the debts of a borrower. (2) The total number of borrowers according to the total receivables and off-balance-sheet credit risk. (3) Credit risk on off-balance-sheet financial instruments, as calculated for the purpose of restrictions on the borrower’s debts (excluding credit facilities guaranteed by banks). (4) The borrowers are classified according to the relevant credit ceilings, in accordance with the total amount of the Company’s credit facilities and the balances of credit guaranteed by banks.

Note 13 - Securities

On November 2, 2015, Visa Inc. and Visa Europe Ltd. ("Visa Europe") informed the Company of a commitment under an agreement, pursuant to which Visa Inc. would acquire Visa Europe ("The transaction") from the principal members who held its shares.

On June 21, 2016, the consideration for the transaction, which included, inter alia, blocked preference shares for periods of 4 to 12 years, which are convertible into shares in Visa Inc, was received.

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Note 13 – Securities (Continued)

The consideration for the transaction is divided between the Company (approximately 68% of the transaction) and Discount Bank and First International Bank (hereinafter: "The parties"), all of whom have the status of principal member in Visa.

In September 2020, the first tranche of preference shares was converted in consideration for marketable shares with an overall value of NIS 121 million (the Company's share of which was NIS 82 million), subsequent to which the Company recognized income of NIS 64 million (NIS 49 million net of tax). This income has been classified as "nonrecurring income". The Company remains holding nonmarketable preference shares with an overall value (including the share of the banks that own CAL) as of the reporting date is estimated at approximately NIS 124 million ("Naïve value"). The equity value of these shares, which are presented at cost, is NIS 27 million. It is clarified that the conversion ratio for the preference shares may reduce in the future, depending upon the clarification of pending and outstanding lawsuits against Visa, which relate to Visa Europe's operations.

The distribution is performed and will be performed in the future in accordance with an agreed distribution mechanism that has been formulated by the parties, pursuant to which the Company’s share of the shares and the future consideration that will derive from them will be 68%. The distribution mechanism has been approved by the parties' authorized bodies.

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Note 14 - Investments in Investee Companies (Consolidated - Associates) and Details Thereof A. Composition:

December 31, 2020 December 31, 2019 Associates Subsidiaries Total Associates Subsidiaries Total In NIS millions Investments in shares according to the equity method (including goodwill) 13 623 636 12 606 618 Including - Profits accumulated since acquisition 13 505 518 12 474 486 Details concerning goodwill: Original amount - 3 3 - 3 3 Amortized balance - 1 1 - 1 1 B. Company’s equity in profits or losses of investee companies: Year ended December 31, 2020 December 31, 2019 December 31, 2018 Associates Subsidiaries Total Associates Subsidiaries Total Associates Subsidiaries Total In NIS millions Company’s equity in profits of investee companies 1 44 45 (*-) 128 128 (*-) 111 111 Provision for taxes: Current taxes - 47 47 - 51 51 - 53 53 Prior year taxes - 2 2 - (*-) (*-) - (*-) (*-) Deferred taxes - (36) (36) - (12) (12) - (20) (20) Total provision for taxes *- 13 13 - 39 39 - 33 33 Company’s equity in profits of investee companies, net of tax effect 1 31 23 (*-) 89 89 (*-) 78 78 * Represents an amount of less than NIS 1 million.

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Note 14 - Investments in Investee Companies (Consolidated - Associates) and Details Thereof (Continued) C. Balance of goodwill in respect of subsidiaries: December 31 2020 2019 In NIS millions Consolidated Cost 3 3 Accumulated amortization 2 2 Amortized balance 1 1 The balance of goodwill in respect of subsidiaries is included in the consolidated balance sheet under “Other assets”.

D. Details of principal investee companies:

Contribution Interest in to net profit capital Investment in attributable to conferring Interest in Other shares Balance equity holders rights to voting equity according to of of the Dividend Company name Activity of company receive profits rights investments equity method goodwill Company recorded 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Percentages In NIS millions 1. Subsidiaries: Diners Club Israel Ltd. Credit cards 100 100 100 100 - - 315 319 1 1 (4) 13 - - CAL (Financing) Ltd. Provision of credit 100 100 100 100 14 28 101 105 - - (4) 35 - 73 Discounting credit card Yatzil Finances Ltd. vouchers 100 100 100 100 - - 107 89 - - 18 17 - - Cal (Deposits) Ltd. Prepaid cards 100 100 100 100 - - 5 5 - - - 3 - - 2. Investee company of Diners Club Israel Ltd. Diners (Financing) Ltd. (1) Provision of credit 100 100 100 100 - - 81 60 - - 21 21 - 40 (1) Wholly owned (100%) subsidiary of Diners Club (Israel) Ltd.

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Note 14 - Investments in Investee Companies (Consolidated - Associates) and Details Thereof (Continued) E. Details of principal associates

Interest in Investment in Contribution capital shares to net profit conferring Interest in according to of operating rights to voting Company name Activity of company equity method activities receive profits rights 2020 2019 2020 2019 2020 2019 2020 2019 באחוזים In NIS millions Shlomo C.A.L. Ltd. Leasing to individuals 13 12 1 *- 20 20 20 20

* Represents an amount of less than NIS 1 million.

F. See Note 24(C) for details regarding guarantees that have been provided to affiliated companies.

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Note 15 - Buildings and Equipment

Computers Office Installations and furniture Buildings and leasehold peripheral Software and Other and land improvements equipment costs (1) equipment equipment Total In NIS millions A. Consolidated: Cost: At January 1, 2020 119 29 138 604 89 1 980 Additions 49 - 14 107 1 *- 171 Disposals - - (2) - (*-) - (2) At December 31, 2020 168 29 150 711 90 1 1,149 Accumulated depreciation: At January 1, 2020 42 16 105 372 69 1 605 Additions 2 3 17 60 4 *- 86 Disposals - - (2) - (*-) - (2) At December 31, 2020 44 19 120 432 73 1 689 Net book value: At December 31, 2020 124 10 30 279 17 460 Weighted average depreciation rate in 2020 (%) 2.2 19.5 26.2 23.1 11.0

Computers Office Installations and furniture Buildings and leasehold peripheral Software and Other and land improvements equipment costs (1) equipment equipment Total In NIS millions A. Consolidated: Cost: At January 1, 2019 109 27 135 514 86 1 872 Additions 10 2 17 97 3 *- 129 Disposals - - (14) (7) (*-) - (21) At December 31, 2019 119 29 138 604 89 1 980 Accumulated depreciation: At January 1, 2019 41 13 103 326 65 1 549 Additions 1 3 16 53 4 *- 77 Disposals - - (14) (7) (*-) - (21) At December 31, 2019 42 16 105 372 69 1 605 Net book value: At December 31, 2019 77 13 33 232 20 *- 375 Weighted average depreciation rate in 2019 (%) 2.2 18.4 26.3 23.0 11.6

* Represents an amount of less than NIS 1 million. (1) Including capitalized software cost for software developed for internal use that amounted to NIS 249 million as at December 31, 2020 (2019 - NIS 206 million). See Note 2C regarding the policy on the capitalization of software costs policy.

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Note 15 - Buildings and Equipment (Continued)

Computers Office Installations and furniture Buildings and leasehold peripheral Software and Other and land improvements equipment costs (1) equipment equipment Total In NIS millions B. Company: Cost: At January 1, 2020 119 29 138 603 89 1 979 Additions 49 - 14 107 1 *- 171 Disposals - - (2) - (*-) - (2) At December 31, 2020 168 29 150 710 90 1 1,148 Accumulated depreciation: At January 1, 2020 42 16 105 371 69 1 604 Additions 2 3 17 60 4 *- 86 Disposals - - (2) - (*-) - (2) At December 31, 2020 44 19 120 431 73 1 688 Net book value: At December 31, 2020 124 10 30 279 17 *- 460 Weighted average depreciation rate in 2020 (%) 2.2 19.5 26.2 23.1 11.0

Computers Office Installations and furniture Buildings and leasehold peripheral Software and Other and land improvements equipment costs (1) equipment equipment Total In NIS millions Cost: At January 1, 2019 109 27 135 513 86 1 871 Additions 10 2 17 97 3 *- 129 Disposals - - (14) (7) (*-) - (21) At December 31, 2019 119 29 138 603 89 1 979 Accumulated depreciation: At January 1, 2019 41 13 103 325 65 1 548 Additions 1 3 16 53 4 *- 77 Disposals - - (14) (7) (*-) - (21) At December 31, 2019 42 16 105 371 69 1 604 Net book value: At December 31, 2019 77 13 33 232 20 *- 375 Weighted average depreciation rate in 2019 (%) 2.2 18.4 26.3 23.0 11.6 - * Represents an amount of less than NIS 1 million.

(1) Including capitalized software costs for software developed for internal use that amounted to NIS 249 million as at December 31, 2020 (2019 - NIS 206 million). See Note 2C for the policy on the capitalization of software costs policy.

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Note 15 - Buildings and Equipment (Continued) The building in which the Company’s offices are located is registered in the Company’s name in the Land Registry Office. The lease for the land (two parcels) on which the Company’s building, from the Israel Lands Administration, is for periods ending in 2018 and 2058. On October 28, 2019, a ruling was handed down on the subject of the part for which the lease ended in 2018, on which some of the stores that are adjacent to the site on which the Company's building is located in Givatayim are located, and also dismissing the Company's claim for the extension of the leasing agreement for the said plot of land. On December 12, 2019, the Company submitted an appeal in the Supreme Court against the ruling.

In 2016, the Company made a commitment with Discount Leasing Ltd., a subsidiary company of Discount Bank, under an agreement for the construction of the CAL building on the Discount Campus, which is intended to be occupied in the future by Discount's head office and the head offices of its main subsidiary companies in Israel – the Company and Mercantile Discount. The Company's share of the project is approximately 23%. The extent of the rights deriving from the project as a whole stands at approximately 135 thousand Sq., both primary and service areas, on the land. In addition, an option was exercised for the acquisition of the commercial rights, which was afforded within the framework of the contract for the acquisition of the land. An amount of approximately NIS 20 million was paid in consideration for the acquisition of the land.

Within the framework of the contract for the acquisition of the land in Rishon Le'Zion, it was determined that at least 25 thousand Sq. m would be built by the purchaser for self-use and that such construction would take place within 5 years from the time that the conditions that had been set are met, which is expected to occur in June 2021. The Group has a right under the agreement to return part of the construction rights that exist on the plot of land to the Municipality and to receive the consideration that it paid for it.

In the years 2016 – 2018, various processes were advanced to realize the establishment of the campus, including the completion of the definition of the vision for the Discount Campus, the selection of the project manager, the recruitment of an architect and the planning team. The shoring up, excavation and foundation works were completed in 2019 and the construction of all of the underground area, the basements and the computer rooms was completed in 2020.

At the end of the process of the receipt of proposals for the receipt of main contractors for the construction of the campus project, the partners in the project, Discount Leasing Ltd., Israel Credit Cards Ltd. And Mercantile Discount Bank Ltd., decided to enter a commitment with Shikun U'Binui –Solel Boneh Infrastructures Ltd. as contractor, which will execute the work as the main contractor for the shell, systems and development. The extent of the commitment is estimated at NIS 500 million, of which the Company's share is approximately NIS 120 million.

In the Company's assessment, its share in the estimated project expenses in the Group's campus is expected to stand at approximately NIS 450 million. As at December 31, 2020, the Company has invested approximately NIS 84 million of this. The balance of the commitments in respect of the project stands at approximately NIS 149 million as at December 31, 2020. The construction work started in 2019 and is expected to continue for a further two years. C. The replacement of the infrastructure for the core system:

On April 5, 2017, the Company and HPE Software Israel Ltd. ("HPE") signed on an agreement for the provision of computer services to the Company within the context of a multi-year project for the replacement of the infrastructure for the Company's core system. The objective of the project is to improve business continuity in the core activity, taking note of the time of the end of the lifetime of the existing technological infrastructure and its replacements with advanced infrastructure with a long-term horizon.

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Note 15 - Buildings and Equipment (Continued) C. The replacement of the infrastructure for the core system (Continued):

The extent of the project as a whole, including internal inputs that will be invested in it, is estimated at NIS 200 million. The project is forecast to be completed in 2023.

The support for the existing operating system for the Company's core operating system ended at the end of 2020. The Company and HPE have signed on an agreement in order to provide support for the existing system for the coming years, until the infrastructure for the core system is replaced.

Furthermore, the Company has signed on a hosting agreement and the building of a fill program for the transfer of the main computer facility, which is located in Givatayim, to a hosting site in Modi'in is being put together, with the project for the transfer of the facility expected to end in 2021.

Note 16 - Other Assets Consolidated Company December 31 December 31 2020 2019 2020 2019 In NIS millions Deferred tax assets, net (see Note 9E) 168 120 28 16 Surplus of advance payments for income tax over current provisions 26 19 - - Goodwill 1 1 - - 195 140 28 16 Other receivables and debit balances: Investee companies - - 3,637 2,936 Operating leasing asset 32 - 32 - Loans to employees 1 1 1 1 Prepaid expenses 139 168 89 96 Other 18 19 16 18 Total other receivables and debit balances 190 188 3,775 3,051 Total other assets 385 328 3,803 3,067

Note 17 - Credit from Banks Consolidated Company 2020 average annual December 31 December 31 interest rate (in %) 2020 2019 2020 2019 On trans On actions closing in last balance month In NIS millions Credit on current account facilities 0.42 0.42 5,156 6,594 2,923 2,971

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Note 18 - Payables on Credit Card Transactions

Consolidated Company December 31 December 31 2020 2019 2020 2019 In NIS millions Merchants (1) (3) 10,395 9,938 9,512 8,827 Liabilities for deposits (2) 16 18 - - International credit card companies and organizations 321 160 320 155 Income received in advance 32 33 1 1 Provision for points 43 42 37 35 Accrued expenses 111 81 89 63 Total payables on credit card transactions 10,918 10,272 9,959 9,081 (1) Bet of the balance of vouchers for merchants discounted totaling NIS 1,759 million and NIS 1,617 million at December 31, 2020 and 2019, respectively, which have complied with the merchant liability extinguishment terms in accordance with FAS 166. (2) All the deposits were raised in Israel and are non-interest bearing. Furthermore, all of the deposits are held for private individuals and do not exceed an amount of NIS 1 million, for a single deposit. (3) Net of balances for the advancement of payments to merchants in the amounts of NIS 80 million and of NIS 168 million as at December 31, 2020 and 2019, respectively,

Note 19 - Subordinated Notes A. Composition:

Consolidated and Company Average lifetime** Internal Consolidated and Company December 31 rate of 2020 return* December 31 December 31 Years % 2020 2019 In NIS millions In unlinked NIS 2.0 2.3 14 28 Total 14 28 * The internal rate of return is the interest rate used to discount the anticipated cash outflows to the balance-sheet amount included in the financial statements. ** The duration is the average weighted payment periods of the discounted cash flows at the internal rate of return.

B. The rights of the subordinated notes are subordinate to the claims of all other creditors of the Company, whether or not secured.

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Note 20 - Other Liabilities Consolidated Company December 31 December 31 2020 2019 2020 2019 In NIS millions Excess of current income tax provisions over advances paid 15 48 12 45 Excess of amount provided for severance pay 36 29 36 29 Allowance for credit losses on unutilized credit facilities 45 33 1 1 Other payables and credit balances: Accrued salaries and related expenses 89 65 89 65 Operating leasing liabilities 32 - 32 - Trade payables 77 80 76 80 Provision for losses arising from misuse of credit cards 21 8 14 3 Accrued expenses 137 104 118 76 Institutions 23 24 20 19 Other 42 53 40 52 Total other payables and credit balances 421 334 389 295 Total other liabilities 517 444 438 370

Note 21 - Employee Benefits A. Employee benefits comprise short-term benefits, post-retirement benefits, other long-term benefits and benefits upon dismissal

Labor laws and the Severance Pay Law in Israel obligate the Company to pay severance pay to an employee upon his dismissal or retirement or to make regular contributions to a defined contribution plan, pursuant to Section 14, as described below. The Group’s liabilities due to this are treated as post-retirement benefits.

The Group’s liability for post-retirement benefits is calculated in accordance with the employee’s valid employment agreement and is based on the Group’s forecast of the employee’s salary at the time of his dismissal or retirement.

Post-retirement benefits are usually funded by depositing amounts in suitable insurance policies and in central severance pay funds and are classified as a defined contribution plan or as a defined benefit plan, as set forth below:

Defined benefit plan

The Company’s obligation to pay severance pay to employees, on the basis of one month’s salary for each year of work, as is normal practice, is partly covered by contributions to the severance pay funds, insurance policies and pension funds, and by a provision recorded in the Company’s books. That part of the severance pay payments that is not covered by contributions to defined contribution plans, as referred to above, is treated by the Group as a defined benefit plan pursuant to which a liability is recorded in respect of employees’ rights.

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Note 21 - Employee Benefits A. Employee benefits comprise short-term benefits, post-retirement benefits, other long-term benefits and benefits upon dismissal

Defined contribution plan

Part of the severance pay payments are subject to the provisions of Section 14 of the Severance Pay Law, 1963, pursuant to which the Group’s regular contributions to insurance policies and/or pension funds exempt it from any additional liability toward the employees, in respect of whom the aforementioned amounts were contributed. Such contributions, as well as contributions in respect of benefits, constitute defined contribution plans.

Plan assets

The plan assets include assets held long-term by the benefits fund for the employee (employees provident funds and pension funds), as well as appropriate insurance policies.

Some of the Company’s employees are entitled to Jubilee (long-term) awards in a set amount at the end of 10, 20, 30 and 40 years work with the Company. In accordance with the directives of the Supervisor of Banks, the provision in respect of this liability is calculated on an actuarial basis and is presented at present value.

The Company’s employees are entitled to annual leave in accordance with existing labor agreements, and subject to the provisions of the Annual Leave Law, 1951. The obligation for leave is recognized during the work period in which the entitlement to leave is accrued. The obligation is determined on the basis of the last salary in the reporting period, with the addition of related payments.

The Company’s employees are entitled to certain benefits after leaving to go on pension. The aforesaid liability is calculated on an actuarial basis and is recognized during the course of the employee’s period of employment.

B. Composition: December 31, 2020 December 31, 2019 In NIS millions Post-retirement benefits: Amount of the liability 209 198 The fair value of the plan assets 173 169 Excess of the liability over plan assets (excess of plan assets over the liability) 36 29 Jubilee awards: Amount of the liability 2 2 Excess of the liability over the plan assets 2 2 Excess of the liabilities recorded under “Other liabilities” 2 2

Other benefits 6 6 Total excess of the liabilities recorded under “Other liabilities” 44 37

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Note 21 - Employee Benefits (Continued) C. Defined benefit pension plans (1) Commitments and funding status

Other post- Other post- Pension retirement Pension retirement plans benefits plans benefits December 31, 2020 December 31, 2019 In NIS Millions 1.1 Change in commitment in respect of anticipated benefits Commitment in respect of anticipated benefits at the beginning of the year 198 6 161 5 Service cost 12 *- 11 *- Interest cost 6 *- 7 *- Actuarial (gain) loss 7 - 25 1 Benefits paid (14) (*-) (6) (*-) Commitment in respect of anticipated benefits at the end of the year 209 6 198 6 Commitment in respect of accumulated benefits at the end of the year 148 6 137 6

* Represents an amount of less than NIS 1 million.

Other post- Other post- Pension retirement Pension retirement plans benefits plans benefits December 31, 2020 December 31, 2019 In NIS Millions 1.2 Change in fair value of the plan assets and the funding status of the plan Fair value of the plan assets at the beginning of the year 169 - 157 - Actual return on the plan assets 3 - 6 - Deposits by the Company to the plan 10 - 11 - Benefits paid (9) - (5) - Fair value of the plan assets at the end of the year 173 - 169 -

Funding status - liability (asset), net, recognized at the end of the year 36 6 29 6

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Note 21 - Employee Benefits (Continued) C. Defined benefit pension plans (1) Commitments and funding status

December 31, December 31, 2020 2019 In NIS Millions 1.3 Amounts recognized in the consolidated balance sheet Amounts recognized under the “Other assets” item - - Amounts recognized under the “Other liabilities” item 42 35 Asset (liability), net, recognized at the end of the year (42) (35)

Other post- Other post- Pension retirement Pension retirement plans benefits plans benefits December 31, 2020 December 31, 2019 In NIS Millions 1.4 Amounts recognized in accumulated other comprehensive income, before tax effect Actuarial loss, net 48 5 40 5 Closing balance in accumulated other comprehensive income 48 5 40 5

(2) Expense for the period Other post- Other post- Pension retirement Pension retirement plans benefits plans benefits December 31, 2020 December 31, 2019 In NIS Millions 2.1 Components of net benefit cost recognized in profit and loss Service cost 12 *- 11 *- Interest cost 6 *- 7 *- Anticipated return on plan assets (7) - (6) - Amortization of unrecognized amounts: Actuarial loss (gain), net 3 *- 3 *- Total net benefit cost 14 *- 15 *-

2.2 Changed in the plan assets and in the commitment for benefits recognized in other comprehensive income (loss), before the tax effect Net actuarial loss (gain) 11 (*-) 25 1 Amortization of actuarial gain (loss) (3) (*-) (3) (*-) Total recognized in other comprehensive income 8 (*-) 22 1 Total net benefit cost 14 *- 15 *- Total recognized in net benefit cost and in comprehensive income 22 *- 37 1

* Represents an amount of less than NIS 1 million.

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Note 21 - Employee Benefits (Continued) C. Defined benefit pension plans (Continued) (3) Assumptions 3.1 Assumptions on a weighted average basis used in determining the commitment in respect of the benefits and in measuring the net benefit cost for the years ended December 31 Pension plans and other post-retirement benefits December 31, December 31, 2020 2019 In NIS Millions 3.1.1 Principal assumptions used in determining the commitment in respect of the benefits Discount rate 0.55% 0.77% CPI increase rate 0.2.0%-0% 2.0%-1.0% Retirement rate 30%-3% 30%-3% Real remuneration growth rate 1.6%-1.1% 1.6%-1.1%

Other post- Other post- Other post- Pension retirement Pension retirement Pension retirement plans benefits plans benefits plans benefits December 31, 2020 December 31, 2019 December 31, 2018 In NIS Millions 3.1.2 Principal assumptions used in measuring the net benefit cost for the period Discount rate 0.77% 1.19% 2.31% 2.69% 1.46% 1.46% Anticipated long-term return on plan assets 3.90% .390% 3.60% 3.60% 5.50% 5.50% Real remuneration growth rate 1.60% 1.60% 1.60% 1.60% 1.50% 1.50%

Pension plans Increase of one Decrease of one percentage point percentage point December 31 December 31 2020 2019 2020 2019 In NIS millions 3.2 Effect of one percentage point change on the commitment in respect of the anticipated benefits , before tax effect Discount rate (17) (17) 23 25 Retirement rate (1) (1) 2 3 Real remuneration growth rate 18 24 (17) (17)

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Note 21 - Employee Benefits (Continued) C. Defined benefit pension plans (Continued) (4) Plan assets December 31, 2020 Level 1 Level 2 Level 3 Total In NIS millions 4.1 Composition of the fair value of the plan assets Type of asset - Cash and bank deposits 14 - - 14 Shares 69 - - 69 Bonds - Government 18 25 - 43 Corporate 24 3 - 27 Total bonds 42 28 - 70 Other - 20 - 20 Total 125 48 - 173

December 31, 2019 Level 1 Level 2 Level 3 Total In NIS millions 4.1 Composition of the fair value of the plan assets Type of asset - Cash and bank deposits 14 - - 14 Shares 53 - - 53 Bonds - Government 24 23 - 47 Corporate 25 3 - 28 Total bonds 49 26 - 75 Other 8 19 - 27 Total 124 45 - 169

Allocation target % of plan assets December 31 2020 2020 2019 4.2 Fair value of the plan assets by type of assets and allocation target Type of asset - Cash and bank deposits 9% 8% 8% Shares 37% 40% 35% Bonds - Government 17% 25% 28% Corporate 26% 16% 24% Total bonds 43% 41% 52% Other 11% 11% 4% Total 100% 100% 100%

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Note 21 - Employee Benefits (Continued) C. Defined benefit pension plans (Continued) (5) Cash flows Actual deposits For the year ended December 31 2020 forecast* 2020 2019 In NIS millions 5.1 Contributions Contributions 11 10 11 * Estimate of expected contributions with defined benefit pension plans during the next financial year.

Pension plans In NIS millions 5.2 Benefits expected to be paid by the Company in the future 2021 11 2022 8 2023 7 2024 7 2025 8 2026-2030 38 2031 and thereafter 178 Total 257

D. Remuneration plans for the CEO and for the Company’s employees and managers (1) General

On August 30, 2020, following the decision of the Board of Directors’ Remuneration Committee, the Company’s Board of Directors approved a remuneration plan for the Chief Executive Officer of the Company and a variable remuneration plan for the employees of the Company and its managers for the year 2020.

The remuneration plans adopt the principles of the group remuneration policy of the Discount Group, with the necessary changes, and these conform with the Supervisor of Banks’ guideline, Remuneration Policy in a Banking Corporation.

The objectives at the basis of the plan include: supporting realization of the Company’s strategy, objectives and goals; motivating the managers and employees to work toward creating long-term economic value for the Company; encouraging striving toward excellence and professionalism and to provide differential remuneration accordingly; supporting compliance with laws, regulatory directives and the Company’s procedures; aligning remuneration with the risk appetite and the risk management framework; forming a link between the remuneration and the Company’s performance and personal performance; creating a fair and proper balance between the variable (performance- dependent) remuneration components and the fixed remuneration components; and ensuring fair and proper remuneration for employees at the various grades, in accordance with their contribution, level of responsibility and relative impact on the Company’s activity.

Several formats are determined in the remuneration plan, in accordance with the different grades. In any event, the total of the variable remuneration for all the employees in respect of a bonus year may not exceed a ceiling of 12.5% of the total net profit for the bonus year, after eliminating the bonuses and the tax effect in respect thereto.

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Note 21 - Employee Benefits (Continued) D. Remuneration plans for the CEO and for the Company’s employees and managers (Continued)

(1) General (Continued) In addition, the total variable remuneration for all the officers will not exceed 2.5% of the net profit for the bonus year, without eliminating the bonuses and the tax effect in respect thereto.

The Board of Directors, following the recommendation of the Remuneration Committee and at its sole discretion and for whatever reason it deems to be correct, may reduce the amount of the bonuses and even cancel them altogether in a given year.

(2) Adjustments to the Remuneration Law on the subject of officers in financial corporations (special confirmation and disallowance of an expense for tax purposes for exceptional remuneration) - 2016 The Company's CEO’s total annual remuneration may not exceed the amount of the annual remuneration of Discount Bank Ltd. (exclusive of payments and contributions for the payment of pensions and severance pay pursuant to the law). Officers (other than the CEO), may not be entitled to part of a bonus that will result in the total annual remuneration exceeding NIS 2.5 million (index linked pursuant to the Remuneration Law and exclusive of payments and contributions for the payment of pensions and severance pay pursuant to the law). However, an exception from the abovementioned ceiling will be permitted in the case of nonrecurring contributions in the terms of employment (such as for a non-competition/ acclimatization bonus and/or accounting adjustments of a similar nature.

(3) Threshold goals for entitlement to annual bonus Entitlement to the annual bonus in respect of a particular calendar year (“the Bonus Year”) will be contingent upon the fulfillment of all the cumulative minimum terms prescribed in the plan, which define quantitative goals in the spheres of the net profit, the Company’s indices, as prescribed by the Board of Directors each year for the purpose of calculating the bonus and compliance with risk management limits and qualitative metrics (Company indices and a personal index).

(4) Company indices The Company’s indices and weightings are derived from the Company’s work plan and are presented to the Remuneration Committee and the Board of Directors each year for approval.

(5) The annual bonus The annual bonus for the CEO will comprise a formula-based bonus, computed according to attainment of the Company’s indices and a management quality index in accordance with the Board of Directors’ assessment based on particular criteria set forth in the remuneration policy.

The annual bonus for vice presidents will comprise a formula-based bonus, computed according to attainment of the Company’s indices (see above) and indices of the division for which the vice president is responsible, and an additional bonus that will be distributed at the discretion of the CEO, the size of which will be determined in accordance with a format that is defined in the plan.

The indices pertaining to the division’s goals will be prescribed at the beginning of the Bonus Year, based on the Company’s annual work plan.

The annual bonus for key employees and department managers will comprise a formula-based bonus, computed according to attainment of the Company's indices, the division’s indices and the department’s indices, and an additional bonus that will be distributed at the discretion of the head of the division.

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Note 21 - Employee Benefits (Continued) D. Remuneration plans for the CEO and for the Company’s employees and managers (Continued) (5) The annual bonus (Continued) The annual bonus for the rest of the employees will be computed in accordance with the total bonus budget, the organizational grade of the employee and his personal assessment score. The risk management, control and internal audit functions will be entitled to a bonus in a different format. The bonus will be determined in accordance with the degree to which the Company meets the remuneration targets (see above), with the degree to which the division that the manager is responsible for meets the targets, in the assessment of the Board of Directors, the assessment of the parallel function in the parent company and the superior’s assessment. The personal indices will be presented to the Remuneration Committee at the beginning of the Bonus Year.

Spreading the annual bonus for officers and key employees over installments - Payment of the annual bonus for a particular Bonus Year will be made in four installments: an amount equivalent to 50% of the annual bonus will be paid with the April salary in the distribution year. Three deferred bonus installments, each at a rate of 33%, will be paid after publication of the financial statements for each of the three years following the Bonus Year.

On January 23, 2017, (in accordance with the relief afforded in the Proper Conduct of Banking Business Directives) the Board of Directors gave its approval that as from the bonus for 2019, no spreading will take place in a year in which the total variable remuneration for officers (including the CEO) and key employees is less than 40% of the total fixed remuneration.

Payment of the deferred bonus will be contingent on the percentage attainment of the net profit target in the Bonus Year preceding the date of paying the deferred bonus, and to the percentages prescribed in the plan. (6) Special bonuses Special contribution bonus - the Company’s CEO, with the approval of the Remuneration Committee and the Board of Directors, will be entitled to grant, from time to time, an additional bonus to a vice president for exceptional performance and/or for a special contribution, from a special comprehensive budget, which will not exceed the amount prescribed in the plan.

Special circumstances bonus - the Remuneration Committee and the Board of Directors will be entitled to grant an annual bonus, from time to time, where the Company has not attained the minimum terms for the payment of the bonus and subject to the Remuneration Committee and the Board of Directors having found that special circumstances existed during that year at the Company or in the business environment or in the macroeconomic situation and also subject to the Company not sustaining a net loss after the payment of the aforesaid bonuses. The aforesaid annual bonus will not exceed the limit prescribed in the plan. The Remuneration Committee and the Board of Directors will approve the criteria for distributing the bonus to the officers.

The amount of the annual grant for a Deputy CEO may not exceed 8 salaries.

Mechanism for reconciliation to Discount Bank's expenses:

No bonus may be paid to officers and employees in a year in which Discount Bank has recorded a loss in its annual financial statements. Despite the aforesaid, the Board of Directors will be entitled, after receiving the recommendation of the Remuneration Committee, to refer to Discount's Remuneration Committee, in order to recommend a bonus as it may recommend.

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Note 21 - Employee Benefits (Continued) E. Collective labor agreement On December 21, 2011, a special collective agreement was signed between the Company and the New General Federation of Labor and the National Committee of the Company's Workers, which determined the terms of employment, the rights and the duties of the Company's employees (apart from certain employees who have been defined in the agreement). The labor agreement was in force until December 31, 2014, and over the years additional agreements were signed between the parties, the effectiveness of which expired on December 31, 2018. On June 11, 2019, the parties agreed on a special collective agreement, which is effective from January 1, 2019 and until December 31, 2022. It is determined in the agreement that in each of the years 2019 – 2022, an average salary increment of 3.1% will be awarded. In addition, for employees with the status of "permanent employee", an increment for seniority will be awarded at a rate of 0.5% in each of the said years. The agreement arranged certain economic benefits, which the Company's employees will be entitled to, as well as various aspects that are related to the employment arrangements in the Company. The parties undertook in the agreement that industrial peace will be maintained in the Company until December 31, 2022, insofar as regards the issues that were arranged in the agreement. On June 29, 2020, the Company's management reached agreements with the employees' representatives regarding remuneration for the period of the Corona crisis. Within this context, an agreement was signed with the Workers' Committee regarding the Company's participation in financing half of the vacation days of employees who have been forced to stay at home and not to come to work as a result of the Corona pandemic. It was also agreed that the Company will allow employees to slip into negative balances on account of future holidays, and not to offset their salary in respect of this period.

F. Employment agreement for the Company’s CEO The Board of Directors has approved terms of employment, which include a fixed salary, contributions for social benefits, an appropriate motor vehicle, variable remuneration in accordance with the Company's remuneration policy, mutual notice in advance, and an acclimatization grant, which will be given at the time of the conclusion of his employment, for the Company’s CEO. Furthermore, the CEO is committed to a period of non-competition.

G. Voluntary redundancy program On September 30, 2020, the Company's Board of Directors approved a non-recurring redundancy program, after the Company's management had formulated an outline, against the background of the Corona crisis and the wish to increase the number of people leaving the Company significantly beyond the number of people who are expected to leave the Company in regular circumstances. In light of the aforesaid, it was decided to change the outline for termination of employment in the Company exceptionally and on a nonrecurring basis, and to offer those leaving preferential terms by comparison with the regular termination terms. The following are the main points of the early retirement program: - Pursuant to the terms of the program, some 80 permanent employees in the Company, who belong to the target populations that have been defined will be enables to take early retirement under preferential terms. - Those leaving will be offered increased severance pay at a rate of 200%. - The overall cost of the program is estimated at approximately NIS 31 million, before the impact of taxation. This cost has been recognized as a non-recurring expense in the current year. As at December 31, 2020, 20 employees had completed the termination of employment process. A further 5 employees are expected to complete the termination of employment process in the first quarter of 2021.

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Note 22 - Capital Adequacy and Leverage Pursuant to the Supervisor of Banks’ Directives A. Share capital Details regarding the Company’s share capital are presented below:

December 31, 2020 and 2019 Issued Authorized and paid-up In NIS millions Management A shares of NIS 0.0001 each 0.0098 0.0098 Management B shares of NIS 0.0102 each 0.0102 0.0102 Ordinary shares of NIS 0.0001 each 9,999.98 109.78 Total share capital 10,000 109.8 The 98 Management A shares, each with a par value of NIS 0.0001, confer on their holders 49% of the voting rights at general meetings of the Company. The Management B share, with a par value of NIS 0.0102, confers 51% of the voting rights at general meetings of the Company and the right to appoint a majority of the Company’s directors.

B. Dividend distributions Presented below is information regarding the dividend distributions in the three years preceding that balance-sheet date: Declaration date Total dividend Dividend per share by the General Meeting Distribution date (in NIS millions) (in NIS)

December 20, 2019 December 31, 2019 50 45.5 May 12, 2019 May 13, 2019 150 136.6

The main limitation affecting the Company's ability to distribute dividends is the capital ratio limitation. C. Capital adequacy pursuant to the Supervisor of Banks' directive The Company implements the Proper Conduct of Banking Business Directives 201-211 in regard to the measurement of capital adequacy in order to align them with the Basel III guidelines. The Basel III instructions prescribe significant changes in the calculation of the regulatory capital requirements, inter alia, in matters relating to

- The components of regulatory capital - Deductions from capital and regulatory adjustments - Treatment of exposures to credit risk in respect of impaired debts The directives are being implemented in stages, in accordance with the transition provisions prescribed in Proper Conduct of Banking Business Directive 299, Capital Measurement and Adequacy - Regulatory Capital - Transition Provisions, so as to enable compliance with the new regulatory capital requirements within the framework of implementing Basel III and prescribing a transition period for their full implementation. In addition to other matters, the transition provisions relate to the regulatory adjustments and the deductions from the capital, as well as to equity instruments that do not qualify for inclusion in the regulatory capital in accordance with the new criteria prescribed in the Basel instructions.

In particular, pursuant to the transition provisions, equity instruments that no longer qualify as regulatory capital will be recognized up to a ceiling of 80% on January 1, 2014, and in every subsequent year this ceiling will be reduced by a further 10% through January 1, 2022. The ceiling for the recognition of qualifying instruments as regulatory capital stands at 200% as from January 1, 2020. The ceiling will stand at 10% as from January 1, 2021.

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Note 22 - Capital Adequacy and Leverage Pursuant to the Supervisor of Banks’ Directives (Continued) C. Capital adequacy pursuant to the Supervisor of Banks' directive (Continued)

Capital adequacy target

As part of the gradual process of adopting the Basel III instructions in Israel, the Banking Supervision Department issued a guideline letter on March 28, 2013, Basel III Framework - Minimum Core Capital Ratio” that requires the banks and acquirers to meet a common equity Tier 1 (core capital) ratio of 9% and a total capital ratio of 12.5% by January 1, 2015.

On May 2, 2016, the Banking Supervision Department published Proper Conduct of Banking Business Directive No. 472, Acquirers and Acquiring Charge Card Transactions. The directive includes a relief in regard to the equity required of an acquirer with receivables in excess of NIS 2 billion in its last annual financial statements, which is to be calculated in accordance with Proper Conduct of Banking Business Directives 201-211, Capital Measurement and Adequacy; pursuant to the relief, regardless of that stated in Section 40 of Proper Conduct of Banking Business Directive 201, the common equity Tier 1 ratio is not to be less than 8% and the total capital ratio is not to be less than 11.5%. The Directive went into effect on June 1, 2016.

On September 22, 2020, the Banking Supervision Department published a circular – Adjustments to Proper Conduct of Banking Business Directives for Dealing with the Coronavirus (Temporary Provision) (Proper Conduct of Banking Business Directive 250). Within the framework of the Circular, Proper Conduct of Banking Business Directive 201 on the subject of the management of capital adequacy was amended, such that the minimal capital ratio for a banking corporation that is not an acquirer has been reduced by a rate of 1% from the minimal capital ratios that are required in the regular course of business. The directive is in effect until March 31, 2021 ("The end of the period of the directive") and under certain conditions, until the end of 24 months from the end of the period in which the directive is in effect. On March 7, 2021, the Supervisor of Banks announced the extension of the capital reliefs until September 30, 2021, as set forth in the draft circular bearing that date.

The Group has a policy, which has been approved by the Board of Directors and Management, to maintain a level of capital adequacy commensurate with the capital target, which is higher than the required minimum ratio as defined by the Supervisor of Banks. The capital target set by the Board of Directors and Management reflects, in the opinion of the Group, the level of capital adequacy required, taking into account its risk profile and risk appetite. As at the reporting date, the core capital ratio restriction and the total capital ratio stand at 9.7% and 13.2%, respectively. The specific profit that will be used as a "safety blanket" to ensure the Company's compliance with the capital restrictions that have been defined was also set.

The following are data regarding the risk assets, the regulatory capital and the capital ratios, which have been calculated in accordance with Proper Conduct of Banking Business Directives 201 – 211, regarding "Capital measurement and adequacy " and in accordance with Directive 299 regarding "Supervisory capital -transition provisions":

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Note 22 - Capital Adequacy and Leverage Pursuant to the Supervisor of Banks’ Directives (Continued) C. Capital adequacy pursuant to the Supervisor of Banks' directive (Continued)

Consolidated December 31 2020 2019 In NIS millions a. Capital adequacy pursuant to the Supervisor of Banks' directives 1. Capital for the purpose of calculating the capital ratio: Common equity Tier 1, after deductions 1,929 1,820 Tier 2 capital, before and after deductions 148 153 Total capital 2,077 1,973 2 . Weighted balance of risk assets: Credit risk 11,477 11,747 Market risk 68 26 Operational risk (1) 2,470 2,331 Total weighted balances of risk assets 14,015 14,104 . 3 Ratio of capital to risk components (in %): Ratio of common equity Tier 1 to risk components 13.8% 12.9% Ratio of total capital to risk components 14.8% 14.0% Minimum common equity Tier 1 ratio required by the Supervisor of Banks (2) 8.0% 8.0% Minimum total capital ratio required by the Supervisor of Banks (2) 11.5% 11.5% b. Significant subsidiaries (in %) Diners Club Israel Ltd. Ratio of common equity Tier 1 to risk components 19.9% 16.1% Ratio of total capital to risk components 20.9% 17.1% Minimum common equity Tier 1 ratio required by the Supervisor of Banks (2) 8.0% 8.0% Minimum total capital ratio required by the Supervisor of Banks (2) 11.5% 11.5%

See the comments on the table on the following page.

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Note 22 - Capital Adequacy and Leverage Pursuant to the Supervisor of Banks’ Directives (Continued) C. Capital adequacy pursuant to the Supervisor of Banks' directive (Continued) Consolidated December 31 2020 2019 In NIS millions Capital components for the purpose of calculating the capital ratio c. (consolidated data) 1. Common equity Tier 1 Equity attributable to equity holders of the Company 1,930 1,821 Differences between equity and common equity Tier 1 - - Total common equity Tier 1, before regulatory adjustments and deductions 1,930 1,821 Regulatory adjustments and deductions Goodwill and intangible assets (1) (1) Total regulatory adjustments and deductions - Tier 1 capital (1) (1) Total common equity Tier 1, after regulatory adjustments and deductions 1,929 1,820 2. Tier 2 capital Tier 2 capital: instruments, before deductions 1 4 Tier 2 capital: provisions, before deductions 147 149 Total Tier 2 capital, before deductions 148 153 Deductions: Total deductions - Tier 2 capital - - Total Tier 2 capital 148 153 (1) The operational risk assets are calculated according the standardized approach. (2) Tier 1 shareholders' equity requirements at a rate of 8% and the comprehensive equity ratio at a rate of 11.5% apply as from June 1, 2016. D. Leverage ratio pursuant to the Supervisor of Banks’ directives

The Company implements Proper Conduct of Banking Business Directive 218, Liquidity Ratio (“the Directive”). The Directive prescribes a leverage ratio that is simple, transparent and not risk-based. The liquidity ratio is to serve as a supplementary, reliable measure to the risk-based capital requirements and is intended to limit the amassment of leverage by a banking corporation.

The leverage ratio is expressed as a percentage and is defined as the ratio between the capital measure and the exposure measure. Capital for the purpose of the leverage ratio is the Tier 1 capital, as defined in Proper Conduct of Banking Business Directive No. 202, taking into account the transition arrangements prescribed. The total exposure measure is equal to the amount of the balance-sheet exposures, exposures to derivatives and off-balance-sheet items. Generally, the measure is consistent with the accounting values and does not take risk weightings into account.

Furthermore, the Company is not permitted to make use of physical or financial collateral, guarantees or other techniques to reduce credit risk for the purpose of decreasing the exposures measure, except where specifically allowed by the Directive.

Balance-sheet assets deducted from Tier 1 capital (in accordance with Directive 202) are deducted from the exposures measure. Pursuant to the Directive, the Company calculates the exposure in respect of derivatives in accordance with Appendix C of Proper Conduct of Banking Business Directive 203, and the exposures in respect of off-balance-sheet items by converting the notional amount of the items using credit conversion factors as prescribed in Proper Conduct of Banking Business Directive 203.

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Note 22 - Capital Adequacy and Leverage Pursuant to the Supervisor of Banks’ Directives (Continued) D. Leverage ratio pursuant to the Supervisor of Banks’ directives (Continued)

In accordance with the Directive, a banking corporation is to maintain a leverage ratio of not less than 5%, on a consolidated basis. A banking corporation whose total balance-sheet assets, on a consolidated basis, constitute 20% or more of the banking systems’ total banking assets is to maintain a leverage ratio of not less than 6%.

A banking corporation that, on the date of the Directive’s publication, was in compliance with the minimum leverage ratio applicable to it, is not to let this ratio fall below the threshold that was set by the Directive.

Pursuant to Proper conduct of Conduct of Banking Business Directive 250 regarding Adjustments to Proper Conduct of Banking Business Directives for Dealing with the Coronavirus, which includes, inter alia, a temporary directive, which was published on November 15, 2020, pursuant to which a banking corporation is to comply with a leverage ratio that may not be less than 4.5% on a consolidated basis. A banking corporation, whose total balance sheet assets on a consolidated basis constitutes 24% of more of the total balance sheet assets in the banking system is to comply with a leverage ratio that may not be less than 5.5%. Pursuant to the aforesaid, the minimum leverage ratio that is required of the Company is 4.5%.

It has been determined regarding the reduction of the leverage requirements, that the relief will apply until the end a period of 24 months from the end of the effectiveness of the directive (March 31, 2021) and solely that the banking corporation's leverage ratio may not be less than the lower of the leverage ratio at the time of the end of the period of the effectiveness of the directive or the minimal leverage ratios that apply to the banking corporation before the temporary directive.

Calculated in accordance with Proper Conduct of Banking Business Directive 218, Leverage Ratio:

December 31 2020 2019 In NIS millions a. Consolidated data Tier 1 capital 1,929 1,820 Total exposures 22,290 22,721

In percentages

Leverage ratio 8.7% 8.0% Minimum leverage ratio required by the Supervisor of Banks 4.5% 5.0%

b. Significant subsidiaries Diners Club Israel Ltd. Leverage ratio 12.2% 9.8% Minimum leverage ratio required by the Supervisor of Banks 4.5% 5.0%

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Note 23 - Contingent Liabilities and Commitments Consolidated and Company December 31 December 31 2020 2019 2020 2019 Allowance for credit losses In NIS millions A. Off -balance-sheet financial instruments Unutilized facilities on credit cards Credit risk for which the Company is responsible 18,130 16,925 44 32 Credit risk for which the bank is responsible 15,026 14,533 1 1 Other credit facilities 1 23 *- *- * Represents an amount of less than NIS 1 million.

B. Pending claims

Various claims and demands are pending or are in process against the Company and subsidiaries. As assessed by the Managements of the Company and the subsidiaries, relying on the opinions of their legal counsel, appropriate provisions are included in the financial statements, where necessary.

The amount of the exposure to claims filed against the Company, the likelihood of whose materialization, in whole or in part, is reasonably possible amounts to approximately NIS 150 million.

(1) Claims relating to breaches of acquiring agreements

In the years 2015 and 2016, five claims- of a similar nature, each of which was in an amount of NIS 2.5 million, were filed against the Company by merchants whose operations were in the past acquired by CAL International (a subsidiary of the Company, which has been merged with and within the Company). The allegation on which the claims are based is that the Company unlawfully imposed penalties on the merchants. On November 7, 2016, it was decided to consolidate the hearing on the five claims.

The parties have conducted a mediation process, which was unsuccessful. A pre-trial hearing was held on July 8, 2019. Evidential hearings have been set for July 2021.

(2) Petition for the approval of a class action regarding immediate charge cards

On June 8, 2016, an amended petition for the approval of a lawsuit as a class action was submitted in the Central Region District Court against three acquirers, including the Company ("The amended petition"). The amended petition replaced a previous petition, which had been submitted on April 28, 2014. The subject matter of the Petition is two alleged restrictive arrangements in relation to immediate charge (“debit”) cards and regarding rechargeable (“prepaid”) payment cards. The first restrictive arrangement, as alleged by the petitioners, is the rate of the interchange fee on transactions carried out with “debit” and “prepaid” cards. The second restrictive arrangement, as alleged by the petitioners, is the unlawful delay of approximately 20 days in transferring the money due to the merchant after it has been received by the acquirers.

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Note 23 - Contingent Liabilities and Commitments (Continued) B. Pending claims (Continued)

(2) Petition for the approval of a class action regarding immediate charge cards (Continued)

A review of the economic opinion, to which the amended petition refers, reveals that the amount of the claim comprises the following primary damages: an amount of NIS 13.5 million per year, for the years 2007-2015, in respect of the damages resulting from the existence of an alleged restrictive arrangement regarding the interchange fee on immediate charge card transactions; an amount of NIS 5.3 million per year, for the years 2007-2015, in respect of the damages resulting from the existence of an alleged restrictive arrangement regarding the timing of the funds transfer to the merchants for immediate charge card transactions; an amount ranging between NIS 418 million and NIS 683 million per year, for the years 2007-2015, in respect of the damages resulting from use of immediate charge cards due to the two alleged restrictive arrangements referred to above.

On March 12, 2017, a pre-hearing was held on the petition. The Court determined in a decision that the matter of the interchange fees in connection with the debit cards and the prepaid cards, is included, prima facie, in a ruling that was handed down by the Competition Tribunal (in its previous name – the Anti-Trust Tribunal) and therefore any claim that arises against the setting of the interchange fee has to be brought up in the appropriate proceedings relating to the said ruling. In light of this, a deferral was awarded for the conducting of the proceedings in the class action until the exhaustion of the proceedings before the Competition Tribunal.

On October 16, 2017, a claim for the granting of a declaratory remedy was filed in the Competition Tribunal, within the context of which the Court was requested to determine that at the time of the handing down of the ruling, within the context of which the interchange fee arrangement was approved, immediate charge cards and prepaid cards were not included in the arrangement. The acquirers, including the Company, filed a petition for the dismissal of the claim out of hand and on October 16, 2019, the Court rules that the petition for dismissal out of hand of the petition for the granting of a declaratory remedy should be accepted.

On November 29, 2018, an appeal was submitted in the Supreme Court against the ruling by the Competition Tribunal and on June 18, 2019, the Supreme Court instructed that the appeal be dismissed.

On December 23, 2018, the petitions submitted an appeal against the Competition Commissioner (in her previous name: the Anti-Trust Commissioner) in the Supreme Court, sitting as the High Court of Justice. In the appeal, the Court is requested to instruct the Competition Commissioner to take action so as to clarify or cancel or change the Competition Tribunal's ruling.

The State submitted its response on May 22, 2019. On July 16, 2020, a hearing was held on the appeal, within the framework of which the parties claims were heard at length.

On that same day, the Tribunal instructed the dismissal of the appeal, without handing down an order regarding expenses. It was also stated in the ruling that the Tribunal does not express any positive on the question that stands at the center of the petition for the approval of the lawsuit as a class action. Accordingly, the proceedings in the class action will continue in the District Court. A pre-trial hearing has been set for April 12, 2021.

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Note 23 - Contingent Liabilities and Commitments (Continued) B. Pending claims (Continued) (3) Class action on the subject of the charging of an acquiring commission on transactions that have been cancelled On March 27, 2017, the Company received a lawsuit, which was submitted in the Central Region District Court in Lod, to which a petition for the recognition thereof as a class action ("The petition for approval") was attached. The petitioner alleges that in accordance with the language of the agreement between her and the Company, the Company is not entitled to collect the full amount of the acquiring commission from the business in the event that a transaction has been cancelled before the merchant has been credited, that the Company is only entitled to collect the full amount of the acquiring commission in cases in which the transaction has been executed by means of a manual voucher and not in cases in which the transaction has been executed by means of an electronic POS device.

Alternatively, the petitioner alleges that a contractual provision that enables the Company to collect a full amount of the acquiring commission even where the acquiring service has not been provided fully (since the transaction has been cancelled), is "a discriminatory term in a standard contract", which should be cancelled or altered. The petitioner estimates the damage to the generality of the members of the group at an amount of NIS 45 million.

A mediation process was conducted between the parties, in which the parties were unable to end the dispute in an agreed manner. Accordingly, the parties have submitted their summations to the Court.

On May 25, 2020, a ruling was handed down by Court approving the petition to conduct the lawsuit as a class action.

On June 24, 2020, a petition was submitted to the Supreme Court on behalf of the Company for the extension of the time of the submission of a petition for permission to appeal against the ruling by the Central Region District Court, in light of the parties' intention to refer to mediation process. On June 25, 2020, the Supreme Court's decision was received permitting an extension of the timing for the submission of a petition for leave to appeal until the earlier of September 6, 2020 or 30 days from the end of the mediation proceedings. On July 8, 2020, the Company submitted a petition for the extension of the time of the submission of a petition for permission to appeal against the ruling by the Central Region District Court, on the same grounds. On July 9, 2020, a ruling was handed down by the District Court permitting the extension of the time of the submission of a statement of Defense until December 15, 2020, with a request to update the Court regarding the status of the mediation process by October 15, 2020 and such notification was submitted and the parties were to submit an additional updating notification by December 15, 2020. Pursuant to the decisions by the Supreme Court and the District Court, the timings for submission of an appeal and a statement of defense were extended until March 2, 2021. The parties have submitted agreed petitions for the extension of the timings until April 4, 2021.

(4) Petition for the approval of a class action on the subject of fair disclosure regarding the collection of interest On May 6, 2018, the Company received a claim and a petition for the approval thereof as a class action, which had been submitted in the District Court in Tel-Aviv-Jaffa. It is alleged in the claim, which has been submitted against the Company, against another company and against the bank that holds it, that the Company did not provided fair disclosure regarding all matter relating to the collection of interest by it. The petitioner has estimated his personal damage at NIS 38.54 and the amount for the collective damage at NIS 181 million. The Company responded to the petition for approval on March 5, 2019. On June 7, 2020, the Court approved the petition for removal on the matter of the bank being sued. A pre-trial hearing has been set for April 9, 2021.

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Note 23 - Contingent Liabilities and Commitments (Continued) B. Pending claims (Continued)

(5) Petition for the approval of a class action on the subject of the cost of commissions on transactions in foreign currency

On May 1, 2018, the Company received a lawsuit and a petition for the approval thereof as a class action, which had been submitted in the District Court in Tel-Aviv-Jaffa.

In accordance with the claims made, the Company has acted in a forbidden manner and with a lack of good faith regarding informing customers regarding the raising of the rate of the commissions. The petitioner is alleging that instead of a separate clear and emphasized notification (such as one that would ensure that the customers would know and understand about the raising of the commission), the Company elected to provide the notification in a misleading, confusing and unclear manner, within the context of the detailed monthly statement. He alleges, in reliance on a ruling that was handed down in the District Court in Tel-Aviv, in which a petition for the approval of a class action was approved, that giving notification in this way does not meet the requirements of the law.

The petitioner has estimated his personal damage at NIS 28.75 and has not denoted an amount for the collective damage. The Company has submitted its response to the petition for approval and the petitioner has submitted his response to the Company's response

A pre-trial hearing was held on February 27, 2019. The Court has made an approach in order to receive the Banking Supervision Department’s position on the subject and accordingly the Supervision Department presented its position in July 2019.

Within the framework of a pre-trial hearing, which was held on November 4, 2019, the Court recommended to the parties that they refer to a mediation process. On February 19, 2019, the parties announced their agreement for the transfer of the proceedings to mediation. The parties are to update the Court regarding the arbitration process by March 15, 2021.

(6) Petition for the approval of a class action on the subject of the raising of the tariff for the acquiring commission

On May 2, 2018, the Company received a claim and a petition for the approval thereof as a class action, which had been submitted in the District Court in Tel-Aviv-Jaffa.

According to what has been alleged in the lawsuit, the Company unlawfully raised the tariff for the acquiring commission for merchants. The petition for approval relies, inter alia, on a ruling that was handed down in the District Court in Tel-Aviv, in which a petition for the approval of a class action was approved against another company on a similar issue.

The petitioners have estimated their personal damage at NIS 4,036 and have not denoted an amount for the collective damage, which they have estimated at "tens of millions of shekels". The Company has submitted its response to the petition for approval and the petitioners have submitted a response to the Company's response. A pre-trial hearing was held on January 15, 2020. In the meantime, the parties have accepted the recommendation of the Court to conduct mediation proceedings. On October 28, 2020, the petitioners informed the Court that the mediation proceedings had been unsuccessful and accordingly they were requesting to continue the proceedings in the petition in the court. A pre-trial meeting was held on December 17, 2020.

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Note 23 - Contingent Liabilities and Commitments (Continued) B. Pending claims (Continued)

(7) Petition for the approval of a class action on the subject of the collection of card fees for cards that have not yet been operated

On May 8, 2018, the Company received a claim and a petition for the approval thereof as a class action ("the petition for approval".

Within the framework of the lawsuit, it is alleged that when the period of validity of a charge card has expired, the Company sends the customer a new card by post and it does not wait for the customer to confirm the receipt of the card and to operate it, but rather it charges the customer with a card fee even if it has not been operated by the customer. The petitioner bases the grounds for his lawsuit on allegations of breaches of the provisions of the Charge Card Law, a lack of good faith in compliance with a contract, misleading, and unlawful enrichment.

The petitioner does not have a claim for personal damage and the amount of the collective claim is estimated by him at an amount of approximately NIS 5 million. A pre-trial hearing was held on December 23, 2019. A petition for the approval of a compromise arrangement was submitted on August 17, 2020. An objection to the compromise arrangement was submitted on behalf of the Attorney General on January 28, 2021. The petitioner and the Company have submitted their position, pursuant to which the Attorney General's objection should be dismissed and the compromise arrangement should be approved. The case has been set for a pre-trial hearing on March 15, 2021.

(8) Petition for the approval of a class action on the subject of the approval of direct marketing transactions

On July 22, 2018, a lawsuit and a petition for the approval thereof as a class action was submitted in the District Court in Tel-Aviv, against the Company and against two additional acquirers. The subject matter of the action is transactions that were executed by the members of the group as missing documentation transactions (primarily telephone transactions) in merchants that are engaged in "direct marketing field". It is alleged in the petition for approval that the merchants took advantage of the population of senior citizens and unlawfully charged their credit cards in respect of numerous transactions, and also charged them with additional charges that had not been approved by them. The petitioner alleges that the acquirers entered into an acquiring agreement with the "direct marketing" companies and in this way they enabled their activities. The petitioner alleges that the amount of the damage for all of the members of the group is approximately NIS 900 million. The Company submitted its response to the petition on March 25, 2019. A pre-trial hearing was held on January 7, 2020.

(9) Petition for the approval of a class action on the subject of "Adif" transactions

On January 7, 2019, a lawsuit was submitted against the Company in the District Court in Tel-Aviv-Jaffa to which a petition for recognition as a class action ("The petition for approval") was attached. The petitioner alleges that where a customer who holds a credit card asks that a particular charge not be charged at the coming charge time for the execution of the transaction but rather that it be deferred by a month, the charge is attributed without the customer being informed to an "Adif payment" credit arrangement, which bears interest. The petitioner alleges that this arrangement is set on a card as the default choice and if the customer requests to change this arrangement they have to make an approach and demand this. The petitioner claims that the Company has hidden this information from its customers.

The petitioner bases the grounds for his lawsuit on claims of a breach of the provisions of the Protection of the Consumer Law, a breach of a legislated duty, negligence, a breach of contract law, misleading, unlawful enrichment and fraud.

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Note 23 - Contingent Liabilities and Commitments (Continued) B. Pending claims (Continued)

(9) Petition for the approval of a class action on the subject of "Adif" transactions (Continued)

The petitioner has estimated the monetary damage for the group at an amount of approximately NIS 40 million and the non-monetary damage at an amount of approximately NIS 26 million.

A pre-trial hearing was held on November 6, 2019, in which the Court suggested to the parties that they end the dispute on an outline of removal from the case, which was suggested to them. After the parties announced that they had been unable to reach an arrangement, the Court determined that the petition will be held on December, 2021.

(10) Monetary claim on the subject of an agreement for the sale of shares in Diners

On November 29, 2015, the Company and Diners, on the one hand and Dor Alon Finances Ltd. ("Dor Alon") with Alon Blue Square Israel Ltd. ("Blue Square") on the other hand, On November 29, 2015, the Company and Diners entered into a commitment with Dor Alon Finances Ltd. ("Dor Alon") on the one hand, entered a commitment under an agreement pursuant to which the Company would acquire Dor Alon's and Blue Square's entire holdings in Diners (49%) (hereinafter, jointly: "The shares being sold"), such that upon the completion of the transaction the Company will hold all of the rights (100%) in Diners.

The transaction was completed on December 15, 2015. At that time, the Company paid consideration in an overall amount of NIS 130 million to Blue Square and Dor Alon against the transfer of the shares. Disputed have become known between the parties regarding the sellers' entitlement to additional consideration, which was conditional upon crucial conditions. The parties referred to mediation proceedings on the subject, which were unsuccessful.

On September 24, 2019, a monetary claim was submitted in the Tel-Aviv-Jaffa District Court against the Company, within the context of which the Court is being requested to charge the Company to pay the plaintiffs (Alon Blue Square Israel Ltd. and Dor Alon Finance Ltd.) an amount of approximately NIS 21 million. On February 9, 2020, the Company submitted a statement of defense in respect of the claim. Together with the submission of a statement of defense, the Company submitted a counter-suit within the context of which the Court was requested to charge the counter-respondents to pay an amount of approximately NIS 33 million to the Company. On June 15, 2020, the plaintiffs submitted a statement of response in which they repeated their claims, and on the same day, they submitted a counter statement of defense, in which they rejected the Company's claims in the counter claim. A pre- trial hearing has been set for May 5, 2021. Petitions for the approval of certain lawsuits against the Company as class action and other lawsuits, the chances of which in the Company's opinion, based on the opinion of its legal counsel, cannot be assessed at this stage and accordingly no provision has been recorded in respect of them:

(11) Petition for the approval of a class action on the subject of the termination of a card fee benefit

On May 14, 2020, a lawsuit was submitted against the Company in the Central Region District Court, to which a petition for recognition as a class action was attached. According to what is being alleged in the lawsuit, faults occurred in the notification that was sent to the petitioner regarding her future charge with a card fee, which require a determination that the notification does not fulfil the duty to notify that is set in law. The petitioner has estimated her personal financial damage at an amount of NIS 13.5 and her non-financial damage at an amount of NIS 100, however she has not denoted an amount of the damage for the group.

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Note 23 - Contingent Liabilities and Commitments (Continued) B. Pending claims (Continued)

(12) Class action on the subject of the end of the validity of benefits

On November 15, 2020, a lawsuit was submitted in the District Court in Tel-Aviv against the Company and against an additional company, to which a petition for the recognition thereof as a class action was attached ("The petition for approval").

The group in whose name the petition for approval against the Company is being requested is the holders of the Company’s credit cards, who purchased benefits for products and services for exercise in various businesses within the framework of a benefits program run by the respondents in consideration for a monetary payment, and where the validity of the benefits expired before they were used in a business, and the respondents forfeited them and retained the entire consideration from the transaction during the course of the period covered by the lawsuit.

The petitioner is demanding that the Court charge the Company and the additional company to return the monies that the members of the group paid for vouchers that were purchased by them and which were not actually used in businesses to them.

The petitioner estimates the personal monetary damage at an amount of NIS 126 and the damage for all of the members of the Group at an amount of NIS 9.6 million

(13) Class action on the subject of a breach of privacy

On December 8, 2020, a lawsuit and a petition for the approval of the lawsuit as a class action was submitted in the District Court in Tel-Aviv-Jaffa against Isracard Ltd., Europay (Eurocard) Israel Ltd., Premium Express Ltd., the Company and Diners Club Israel Ltd. Injunctions, restraining orders and a monetary remedy in a cumulative amount that is estimated at approximately NIS 150 million, were requested in the lawsuit.

The subject matter of the lawsuit is an allegation that the Company makes unacceptable and prohibited usage of the databases that it holds (both as an issuer of credit cards and also in its role as acquirer), and this without receiving its customers' informed agreement.

The Company is required to submit its response to the petition for the approval of the lawsuit as a class action by May 31, 2021.

Legal proceedings that have ended in the reporting period

(14) Appeal on the subject of interchange commissions

On December 9, 2018, a petition was submitted in the Supreme Court, sitting as the High Court of Justice, against the Bank of Israel, the Competition Commissioner and three acquirers, including the Company, in which the remedy of the cancellation of the Banking Order (Service for a customer) (Supervision over interchange acquiring services for charge card transactions and for immediate charge transactions) – 2018. The petitioners claim that the Order should be cancelled and that it should be determined that the acquirers are forbidden to generate a profit from the interchange commissions that are supposed to cover the issuer's costs alone. The Company submitted its response on August 19, 2019. On July 27, 2020, the Court instructed the dismissal of the appeal.

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Note 23 - Contingent Liabilities and Commitments (Continued) C. Concessions from international organizations

The Company is engaged in the operation of the credit cards of brands that are registered in the name of the international organizations Visa International, the international MasterCard organization and Diners Club International and it is committed under an array of document with each of those international organizations. The license to operate the "Visa" and "MasterCard" the brands is not for a pre-determined period of time and is non- exclusive. The license is conditional upon compliance with directives from those organizations. The period of validity of the concession to operate the "Diners" brand exclusively in Israel, which has been given to it by Diners Club International is until December 31, 2029.

D. Special commitments

Long-term leases - building rental fees, computer agreements, operating leases in respect of vehicles and maintenance agreements. Consolidated and Company

December 31 December 31 2020 2019 In NIS millions First year 27 40 Second year 19 24 Third year 7 17 Fourth year and thereafter 12 8 Commitment for investment in buildings and equipment 149 18 (1) The Company has entered into operating lease agreements in respect of vehicles. The leasing fees are linked to the consumer price index and amount to approximately NIS 9 million a year. The agreements are for periods of 30-36 months. (2) The Company has entered into lease agreements for the rent of buildings until the years 2022 - 2023. The rental fees are mainly linked to the consumer price index and amount to approximately NIS 5.5 million a year. The Company has an option to extend the lease period in some of the agreements.

E. Agreements with banking corporations, international organizations and business partners

1. Issuance agreement with co-brand banks

The Company has commitments with most of the banks in Israel under joint issuance and operation agreements for the issuance of charge cards. Pursuant to the agreements, the Company and/or the Bank issued a charge card to the bank's customers and the operation of the cards will be performed by the Company. Pursuant to the agreements, a mechanism has been set for the division of the revenues between the Company and the banks in respect of the operation of the cards (including: revenues deriving from transactions in Israel and abroad, the service commissions that are collected from the card holders) in addition to which the operating fees to which the Company will be entitled in respect of certain activities such as the making available of banking credit on cards, were determined. In certain agreements, the bank has enjoyed an increase in its share of the revenues that are derived from the volume of the joint activity and/or the quantity of the cards that are issued pursuant to the agreement. Furthermore, bonuses have been determined in some of the agreements, which are dependent on the meeting of targets.

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Note 23 - Contingent Liabilities and Commitments (Continued) E. Agreements with banking corporations, international organizations and business partners (Continued) 1. Issuance agreement with co-brand banks (Continued) The exercise of judgment in the issuance of the credit cards, the cancellation thereof, the suspension thereof, the number of cards that will be issued (without a commitment to a minimal number of cards), including the level of the credit facility and the interest rates that will be collected, have all been afforded exclusively to the banks. It is further determined in the agreements, inter alia, that the banks will be responsible for all matters connected to the credit risk and the Company for its party will be responsible for the misuse of the credit cards by the customers risks (except in relation to exceptions that have been determined in the agreements). The agreements further arrange the manner of the use of information that derives from the use of the credit cards and the ownership of the said information and the manner of the management of the commercial connection opposite the credit organizations. The agreements have been signed for a period of several years and provisions have been set in some of them in respect of the manner of their extension for an additional period.

On June 13, 2019, the Company and Bank Discount signed on an agreement for the joint issuance of debit cards bearing the "Visa" and the "MasterCard" brands, which will be operated by the Company. At the same time, Diners signed on a joint issuance agreement for debit cards bearing the "Diners" brand, which will be operated by it.

The agreements include, inter alia, mechanisms for dividing the income, which entered force retrospectively from January 1, 2019, as well as a remuneration mechanism for the Bank, in respect of the meeting of targets. The agreements are in effect until December 31, 2022. In certain circumstances, involving a decrease in the Bank's holding rate in the Company, the Bank will be entitled to inform the Company of the termination of the effectiveness of the agreement and the agreement will come to an end nine months from the time of the Bank's notification. On January 29, 2020 the Company, Diners and Mercantile Discount Bank signed on agreements for the joint issuance of charge cards. The agreements were in effect until December 31, 2022.

On December 29, 2020, the Company and the First International Bank of Israel Ltd. signed on a joint issuance agreement for credit cards for the bank's customers. The agreement anchors the parties' rights and duties in connection with the issuance of the credit cards and the consideration that the parties are entitled to from the joint issuance activity, including a remuneration mechanism, which is based on the number of cards issued. This agreement replaces the previous agreements that had been signed between the parties and it is in effect until December 31, 2024. The agreement will be renewed automatically for additional periods of two years each.

On February 24, 2019, the Company and Bank Mizrahi Tefahot Ltd. signed on an agreement for the extension of the period of the previous agreement between the parties, whilst updating the commercial terms. The agreement is effective until December 31, 2024.

In 2018, the Company entered into a commitment for the first time with Bank Hapoalim and with Bank Leumi under agreements for the issuance and the operation of the issuance, the main points of which are similar to what is described above, for a period of six years, where in relation to one of the agreements, an option has been determined for the bank to terminate the agreement after five years.

Discount Bank has informed the Company that in the wake of the Law for Strengthening Competition and Reducing Concentration in the Banking Market in Israel (Amendments to Legislation) – 2017, the Bank and Max (in its former name – Leumi Card) have reached commercial agreements pursuant to which the joint issuance of credit cards has begun. The agreement accords with the requirements of the Law for the Improvement of Competition in the Banking System and it is expected to lead to a decrease in the Company's market share in the Bank's cards.

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Note 23 - Contingent Liabilities and Commitments (Continued) E. Agreements with banking corporations, international organizations and business partners (Continued) (2) Joint distribution agreement with Shufersal On November 2, 2017, the Company and Diners (together – "The Company") and Shufersal Ltd. and Shufersal Finances Limited Partnership (together-("Shufersal") signed on a Memorandum of Understanding ("The Memorandum of Understanding") for the issuing and operation of non-banking credit cards to Shufersal's customers ("The Credit Club" and "The Cards", respectively).The parties launched the Credit Club on January 18, 2018, in accordance with the provisions of the Memorandum of Understanding.

The agreement will be in force from the time that it is signed and until December 31, 2027, where this period will be extended by additional periods of two years each, unless one of the parties has given notice of its desire not to extend the agreement for an additional period, which will be done by mean of notification that is given 12 months before the end of each period.

Inter alia, the Memorandum of Understanding arranges the benefits that will be provided to customers who will hold the Credit Club cards, by the parties to the agreement, provisions relating to the recruitment of customers to the Credit Club, the making available of marketing and advertising budgets by the parties, the allocation of costs, as well as provisions relating to commissions that will be collected from the card holders. All of the commitments that apply to an issuer under the law will apply to the Company.

The Company will be the sole issuer that will be authorized to issue charge cards and to offer loans to Shufersal's customers. The Memorandum of Understanding also arranges the possibility that the cards, insofar as Shufersal may request this and subject to the receipt of the relevant approvals and licenses, will be registered under Shufersal's Bank Identification Number (BIN).

The Memorandum of Understanding determines the division of the income between the parties in respect of the interchange fees for transactions that will be executed on the cards, for interest-bearing credit balances from the Credit Club's operations, and for card fees that will be collected from the holders. Monthly membership fees will be collected by Shufersal from the holders for membership in the Credit Club, under the terms that have been set.

It is further determined within the framework of the Memorandum of Understanding that CAL will pay an amount of NIS 30 million Shufersal in connection with the benefits that Shufersal will provide to the members of the credit club.

It has also been determined that subject to the achievement of significant targets for the credit club that have been set, Shufersal will be entitled to two bonuses of NIS 35 million each at the end of the fourth year and the eighth year of the agreement.

Furthermore, the Memorandum of Understanding arranges the payments between the parties after the end of the agreement, where, as a rule, in the event that the Company will continue to operate the cards until the end of their period of validity the provision of the agreement will continue to apply in relation to the division of the income between the parties, whereas in the event that Company were to cease to operate the cards and they were to be operated by Shufersal, or by a third party the Company will be entitled to receive royalties that will be derived from the Company's share of the income from the cards in the year preceding the end of the agreement, all of which under the terms and at the rates that have been set in the agreement.

On November 26, 2019, a tripartite agreement was signed between the Company, Shufersal and El Al regarding the establishment of the "Shufersal Aviation" club, the subject matter of which is the accelerated accumulation of points on FlyCard cards in the Shufersal change.

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Note 23 - Contingent Liabilities and Commitments (Continued) E. Agreements with banking corporations, international organizations and business partners (Continued) (3) The non-renewal of the agreement with the "You" Club On September 2, 2019, the agreement between the Company and the Blue Square – Dor Alon (Registered Partnership), customers club, under which the "You" club operated, expired.

(4) Agreement with El Al

On June 11, 2014, the Company and Diners signed on an agreement with El Al Israel Airlines Ltd. ("El Al"), for the issuance of branded credit cards to the members of El Al's Frequent Flyers Club, ("The branded credit cards"). On December 1, 2018, a memorandum of understanding was signed for a new commitment by the Company with El Al on the subject of the issuance and operation of the branded cards, for a period of ten years commencing on September 1, 2019, with each of the parties having a right to exit after seven years ("The period of the commitment").

Pursuant to the agreement, all of the credit cards that will be issued to the members of the club will be "FlyCard" type and will be attributed to the "Bronze" family of cards or to the "Premium" family of cards (as defined in the agreement). These cards will be offered as banking credit cards or as non-banking credit cards. The branded credit cards will afford their holders unique value offers by means of a range of benefits, in accordance with the type of card and the extent of the activity on it.

El Al will be required to refund an insignificant amount Company if El Al exercises the right for an early exist after seven years, or in the event of the early termination of the period of the commitment following a fundamental breach by El Al.

Furthermore, El Al has been awarded a "Phantom" type option, which affords it economic rights in Diners (equivalent to 8.75% of any increase in CAL's value) or in Diners (equivalent to 35% of any increase in Diners' value), or a combination of a relative part of the phantom rights in Diners and of the phantom rights in CAL. The option will be exercisable during the period that has been set in the agreement, but only on the occurrence of the sale or floatation of either of them, in accordance with the terms that were set in the agreement in connection with this, and it will be cleared in cash. This option constitutes the awarding of economic rights alone, which are parallel to the economic value of shares in CAL or in Diners, and does not afford any right to receive actual shares or any right that is attached to the shares under the law.

In addition, El Al will be entitled to the payment of current royalties from the Company (and under certain conditions, it will be entitled to enlarged royalties, which are conditional upon the reaching of operating targets that have been set), for the use of the branded credit cards, which will be derived from the various revenues from the operation of the branded credit cards, which relate to the division of the revenues between the parties in respect of interchange fees on transactions that will be executed on the cards, in respect of revenues from credit that may be taken on the cards, in respect of card fees that may be collected from cardholders and in respect of revenues from the conversion of foreign currency. If certain conditions are met, El Al will be entitled to continue to receive current royalties even after the end of the period of the commitment, in respect of revenues from credit that has been taken up on the cards.

It was agreed that the Company would pay EL AL a non-recurring signing bonus in an overall amount of NIS 75 million, which was paid at the time that the memorandum of understanding entered force.

An advance payment of NIS 60 million was paid to El Al when the memorandum of understanding entered force on account of part of the abovementioned current royalties, which will be repaid in full over the course of the first seven years of the commitment, by means of offsetting against the current royalties alone.

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Note 23 - Contingent Liabilities and Commitments (Continued) E. Agreements with banking corporations, international organizations and business partners (Continued)

(4) Agreement with El Al (Continued)

The memorandum of understanding also determines provisions in relation to marketing and sales promotion of the branded agreement, including marketing and advertising budgets from the Company over the length of the period of the commitment.

The memorandum of understanding entered force upon the meeting of certain conditions, which were set in the agreement.

It has been agreed that when the memorandum of understanding enters force, it will bind the parties for all intents and purposes.

On September 26, 2019, the Company and Diners signed on a tripartite agreement with MasterCard Europe SA ("MasterCard") and El Al ("The tripartite agreement"), which is concerned primarily with arranging cooperation with MasterCard in the implementation of the FlyCard agreement: the issuance of FlyCard cards (premium and bronze) under the MasterCard brand and the Diners brand. The agreement is for a period of ten years commencing on September 1, 2020, with each of the parties having a mutual right to exit after seven years. In accordance with the agreement's operational program is expected that the Company's profitability will be impaired because of expenses that are connected to the operation of the club in the first years of its operations.

The Corona crisis and the restrictions on passengers that have been imposed by governments, across the globe and in Israel, have caused economic damage to many aviation companies, including El Al.

El Al published its financial statements as at September 30, 2019 on November 25, 2020, within the context of which it reported that no agreement in principle whatsoever had been achieved with Maman regarding the terms for making a loan available in order to deal with the implications of the Coronavirus and that consequent it intended to take action to raise debt by means of the issuance of bonds to the public, which would be supported by a guarantee from the State of Israel. It noted in its reports that since the recruitment of the bonds is crucial in order to deal with the implications of the crisis, at that stage significant doubts existed regarding its continued existence as a going concern. On February 6, 2021, El Al announced the completion of the issuance of option warrants, for which consideration of NIS 250 million was received.

The Company has been examining these developments, and in accordance with the assessments that it has made, based inter alia on the club's performance and the revenues that are expected from the club, it has reached the conclusion that at this stage there is no justification recording impairment in respect of significant amounts that have been paid to El Al within the framework of the agreement, which are being amortized over their economic lifetimes. This conclusion is based on the information that exists in the Company at the reporting date, and on the Company's assessments, as aforesaid. It is possible that actual developments will be different from the Company's assessments.

(5) Extension of the agreement with H&O

On May 23, 2019, the Company and Diners signed on an Agreement with H and O Fashion Chains Ltd. The agreement constitutes an addition to the array of agreements that have been signed between the parties in the past, and it will be in effect until May 31, 2025. It is determined in the agreement that the Carters' chain will join the parties' joint customers' club.

The agreement arranged the considerations that will be paid by CAL and Diners in respect of the costs of launching the club, and in respect of the routine operation in the period of the updated agreement.

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Note 23 - Contingent Liabilities and Commitments (Continued) E. Agreements with banking corporations, international organizations and business partners (Continued)

(6) Extension of the Diners concession

In September 2019, Diners and Diners Club International signed on an agreement, pursuant to which the Diners concession will be extended until December 31, 2029. It is determined in the agreement that Diners will be entitled to an incentive in 2019 and in 2020.

Additional incentives were also set, which are conditional upon honoring targets and the volume of activity, as well as additional marketing incentives.

(7) Extension of CAL and Diners' acquiring license

On March 4, 2020, letters were received by the Company, extending the Company's and Diners' temporary acquiring licenses, with effect until March 31, 2021.

(8) Support agreement with Visa Europe

In February 2020, the Company and Visa Europe Limited ("Visa Europe") signed on a support agreement. The financial extent of the support is dependent upon various conditions that have been set in the agreement, and primarily on the scale of the Company's activity. This agreement was signed after Visa Israel's announcement of the raising of the tariff for the commissions that are paid to it. In the Company's assessment, the impact from the support agreement on the one hand and from the raising of the Visa tariffs on the other hand, is not expected to be significant. This assessment may change, in the event that the extent of the activity on the "Visa" brand is significantly different from the current volumes.

F. Arrangement between the credit card companies and between them and the banks

Arrangement between the credit card companies – Visa cards.

At the beginning of September 2001, CAL, The First International bank, Discount Bank , Bank Leumi Le'Israel Ltd. and Leumi Card Ltd. (all of which together, "The petitioners") submitted petitions to the Competition Tribunal ("The Tribunal"), for the approval of a restrictive arrangement between them regarding the interchange acquiring of visa cards. Over the course of the years, the Tribunal has granted the petitioners temporary permits permitting them to collect issuer's commissions at the agreed rates. In parallel, the validity of the general exemption has been extended from time to time,

Tripartite interchange acquiring agreement On October 30, 2006, an agreement was signed between the Competition Commissioner (“The Commissioner”) and the credit card companies and the banks that are the shareholders of the credit card companies for the interchange acquiring of MasterCard and Visa cards (“The Agreement”). The Agreement became effective upon the granting of a temporary permit for the Agreement by the Anti-Trust Tribunal. This permit has been extended from time to time by the Tribunal.

Amended cross interchange acquiring arrangement - reduction of the rate of the issuer's commission. On March 7, 2012, the Anti-Trust Tribunal approved a compromise arrangement to which an amended interchange clearing arrangement was attached – ("The amended acquiring arrangement"). The compromise agreement determines, inter alia, that an issuer's commission at a rate of 0.7% is an appropriate commission for the amended agreement and that the said reduction of the issuer's commission is to be executed gradually, as detailed in the amended arrangement.

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Note 23 - Contingent Liabilities and Commitments (Continued) F. Arrangement between the credit card companies and between them and the banks (Continued) There are five stages, as detailed in the arrangement, which are to be implemented at set times. From July 1, 2014 and until the end of the period of the arrangement (December 31, 2019), the issuer's commission has reduced and it stood at an average rate of 0.7% as of December 31, 2018.

The terms of the exemption for local acquiring

April 25, 2018, the Competition Commissioner published his decision to exempt the cross acquiring arrangement between the credit card companies under conditions.

The interchange arrangement between the credit card companies was approved by the Competition Tribunal in March 2012, within the framework of a petition for the approval of a restrictive arrangement. The Tribunal adopted the compromise arrangement that had been formulated then between the three credit card companies and the Commissioner ("The amended arrangement").

Pursuant to the provisions of the amended arrangement, the parties submitted a request for an exemption for the operating arrangement on March 21, 2012. The current exemption has been given until December 31, 2023 and is subject to the conditions that are detailed in the decision.

The terms of the clearing exemption

The provisions of the exemption apply to the memorandum of understanding, which was signed between the banks and credit card companies on May 9, 2007 and also to the appendices and the changes thereto.

The provisions of the exemption also apply to an acquirer who is not an issuer (or vice versa) who may join the agreement, since they will then be viewed as a credit card company pursuant to the definition that is determined therein.

The attachment of new players to the memorandum of understanding

The credit card companies are to attach any issuer or clearer or body operating on their behalf, whose operates relate to the agreement and who wishes to join the agreement ("A new player), with equality and without cost. The credit card companies are to make all of the information that the new player requires in order to join the agreement and to operate pursuant to it available to it, and also to make reasonable adjustments, if necessary, that will enable the new player to join the agreement and to operate pursuant to its provisions.

There is a prohibition on the exploitation of market power on the part of the issuer or on the part of the acquirer in order to create difficulties for competitors. An issuer with widespread activities may not discriminate between acquirers or between customers in accordance with the identity of the merchant's acquirer with which the transaction is executed, and they may not take action, the intention or the reasonable result of which is such discrimination.

A credit card company with widespread activities may not discriminate between issuers and they may not take action, the intention or the reasonable result of which is discrimination between issuers. The directive determines that differences between the terms of a commitment, which derive from differences in the payments that the acquirer is required to transfer to the issue pursuant to the law for different types of transactions, will not be viewed as discrimination. A credit card company that is an acquirer with widespread activity may not enter a connection between acquiring charge card transaction in a merchant and a commitment with that merchant within the framework of its operations as an issuer.

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Note 23 - Contingent Liabilities and Commitments (Continued) F. Arrangement between the credit card companies and between then and the banks (Continued)

Prohibition on the exploitation of power in the market opposite a merchant

It is forbidden for a credit card company to be a party to an agreement, the intention or the reasonable result of which is the making of a connection between the acquiring of charge cards that are issued by a party to the agreement and the acquiring of charge cards that are issued by an issuer that is not a party to the agreement. Furthermore, a credit card company may not make a connection between the types of charge card transactions that are acquired by it.

A credit card company that is an acquirer with widespread activity is forbidden to be party to agreements with a merchant that prevent the merchant or restrict the merchant from giving discounts to its customers, which is dependent upon the means of payment that the customer uses.

Daily accounting – There is a prohibition on delaying the transfer of payments from the issuer to the acquirer. As from July 1, 2021, the transfer of funds between an issuer and an acquirer for transactions that are executed in a single payment are to be executed no later than the day following the time on which the transaction was transmitted from the merchant.

Changes in the exemption decision

The main change in the new decision is a provision mandating daily acquiring. In addition, the new conditions also include reliefs, including the removal of the all-encompassing prohibition on exclusive agreements with a business and the granting of target discounts.

The granting of an exemption is conditional upon the daily transfer to the acquirer of deferred charge transactions. This condition will be in effect as from July 1, 2021, and it will apply to single charge transactions. In these transactions, the issuer will be required to transfer the consideration to the acquirer no later than the day after the time of the transmission of the transaction from the merchant. This condition will not apply to transactions in payments.

The reduction of the rate of the interchange commission.

On February 25, 2018, the Bank of Israel published an outline for reduction the interchange fee in deferred charge transactions from the current rate of 0.7% to a rate of 0.5% in five tranches.

The level of the interchange fee in the new outline has been calculated based on the methodology that was approved in 2006 by the Competition Tribunal, as mentioned above.

The reduction of the issuer's commission on immediate charge cards to a level of 0.5% will be executed gradually, as follows:

− As from January 1, 2019, the time of the end of the previous arrangement, and until December 31, 2019, the issuer's commission is to stand at an average rate that may not exceed 0.6%. − As from January 1, 2020 and until December 31, 2020, the issuer's commission is to stand at an average rate that may not exceed 0.575%. − As from January 1, 2021 and until December 31, 2021, the issuer's commission is to stand at an average rate that may not exceed 0.55%. − As from January 1, 2022 and until December 31, 2022, the issuer's commission is to stand at an average rate that may not exceed 0.525%. − As from January 1, 2023, the issuer's commission is to stand at an average rate that may not exceed 0.5%.

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Note 23 - Contingent Liabilities and Commitments (Continued) F. Arrangement between the credit card companies and between then and the banks (Continued)

In addition, an outline has been determined for the reduction of the interchange commission in respect of immediate charge cards from a rate of 0.3% to a rate of 0.25% in two tranches, over the course of the coming years/ this reduction will be executed gradually, as follows:

− As from January 1, 2021 and until December 31, 2022, the issuer's commission is to stand at an average rate that may not exceed 0.275%. − As from January 1, 2023, the issuer's commission is to stand at an average rate that may not exceed 0.25%. On November 25, 2018, these rates were anchored in the Banking Order (Service to a customer (Supervision of Interchange Acquiring of charge card transactions and immediate charge transactions) – 2019.

It should be mentioned that the reduction in the rate of the interchange fee affects various parameters, including: the volume of the commissions that are collected from the businesses, the volume of the royalties to the banks with which the Company is committed under a joint issuance agreement, various operating commissions, the volume of the acquiring activity, the impacts of changes in the credit card sector in the wake of the "Strum Law" and other parameters. It is difficult to assess each of the said parameters individually and cumulatively, in particular in light of the fact that their impact will have expression over time and this will be gradual. In light of the aforesaid, the Company is of the opinion that it is not possible to assess the extent of the impact of the reduction in the rate of the interchange fee on its business results. However, in the Company's assessment) significant damage could be caused to its business results as a result of the reduction of the commission rate, as aforesaid.

Exemption for a restrictive arrangement for the acquiring of Isracard cards.

On May 14, 2012, a licensing agreement was signed between Isracard Ltd. and the Company, pursuant to which a non- exclusive license was granted to the Company for the acquiring of transactions that have been executed on "Isracard" cards in Israel.

On May 16, 2018, the Company received an exemption for a restrictive arrangement for the acquiring of Isracard cards. This exemption was given following the extension of the agreement between the Company and Isracard on the subject of the acquiring of credit cards bearing the "Isracard" brand for a period of two years, i.e. until May 15, 2020.

Generally, the exemption is given for the period of the agreement, but in the event that the parties may extend the agreement without making significant changes, the exemption will be valid until December 31, 2023, further to previous exemptions that have been given on this matter.

1. The Strengthening Competition and Reducing Concentration in the Israeli Banking Market Law, 2017

The Strengthening Competition and Reducing Concentration in the Israeli Banking Market Law, 2017 was passed on January 23, 2017.

The main provisions of the law are as follows: a) the major banks (banks whose asset value exceeds 20% of the asset value of all the banks in Israel; for this purpose, a bank’s “asset value” - the value of the bank’s assets that appears in the bank’s balance sheet in the last annual financial report, drawn up on a consolidated basis in conformity with the generally accepted accounting principles applicable to it) will be divested from the credit card companies that they own, within three years of the law taking effect or within four years, should the credit card company issue a certain proportion of its shares to the public.

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Note 23 - Contingent Liabilities and Commitments (Continued) G. Significant changes in the regulatory environment in which the Company operates 1. The Strengthening Competition and Reducing Concentration in the Israeli Banking Market Law, 2017

The Strengthening Competition and Reducing Concentration in the Israeli Banking Market Law, 2017 was passed on January 23, 2017.

The main provisions of the law are as follows: a) the major banks (banks whose asset value exceeds 20% of the asset value of all the banks in Israel; for this purpose, a bank’s “asset value” - the value of the bank’s assets that appears in the bank’s balance sheet in the last annual financial report, drawn up on a consolidated basis in conformity with the generally accepted accounting principles applicable to it) will be divested from the credit card companies that they own, within three years of the law taking effect or within four years, should the credit card company issue a certain proportion of its shares to the public.

During a period of between four and six years from the date of the law taking effect, the question of the Company's separation from Bank Discount will be examined, taking note of how competition has developed in the market; b) the major banks will not be able to engage in charge card issuing operations nor in acquiring charge card transactions. However, they will be allowed to enter into agreements with an operating company for the purpose of issuing charge cards and to enter into an agreement with an acquirer, solely as a supplier; c) all the banks will be required to distribute the non-bank cards of credit card companies with which they have signed a distribution agreement; d) all the banks will be required to provide, at the customer’s request, information regarding transactions conducted using charge cards; e) the banks are prohibited from making detrimental changes to the terms of their engagement with the customer, due to the customer having entered into an agreement with another financial entity.

During the transition period (the interim period from the date of the law taking effect through the end of five years, or three years in the case of a major bank, from the date of the credit card company's separation, or through the end of five years - whichever is the later), a major bank will not be able to contact a customer with a proposal to renew the credit card, other than in the 45-day period from the end of the card’s validity. Commencing two years after the date of the law taking effect through the end of the transition period, a bank that controlled, or held means of control of, a credit card company will conduct credit card issuing operations through at least two operating companies in accordance with a split mechanism, whereby a bank of this kind will be allowed to conduct more than 52% of its issuing operations through one operating company.

From the end of one year from the time of the law taking effect through the date set by the Minister of Finance, a credit card company may not unreasonably refuse to enter into an agreement with a bank or with the holder of a license under the Supervision of Financial Services (Regulated Financial Services) Law in order to operate the issuance of charge cards. From the end of four years from the date of the law taking effect through the end of seven years from the date of the law taking effect, the credit facilities on the credit cards of the major banks’ customers are not to exceed 50% of the total credit facilities of those banks as these were in 2015.

It is also determined that an acquirer is to allow a “guest acquirer” to conduct acquiring under its auspices and that an acquirer is not to unreasonably refuse to engage with a consortium. In addition, the law includes provisions regarding the establishment of an interface for the comparison of financial costs (Read Only).

As stated above, in the immediate term, divestment of the acquirers’ ownership from the banks does not apply to the Company, but only to its competitors (Isracard and Max). Only at the end of four years will the issue of divestment of the Company's ownership be re-examined.

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Note 23 - Contingent Liabilities and Commitments (Continued) G. Significant changes in the regulatory environment in which the Company operates (Continued) 1. The Strengthening Competition and Reducing Concentration in the Israeli Banking Market Law, 2017 (Continued)

Moreover, if by then, the major banks (Hapoalim, Leumi and Discount) will have issued their customers with credit cards of the acquirers that they own (Isracard, Max and CAL), competition now exists between the companies. In parallel, every bank that holds the means of control in an acquirer is required to divert some of the issuance of new cards to their customers to at least one other acquirer with which it did not work in the past.

From the Company’s perspective, there is indeed a decrease in the issuance of new cards to Discount's customers but, at the same time, an opportunity has been created to compete over the issuance of new cards to the customers of Hapoalim and Leumi. In the era following the new law taking effect, the various players in the credit card market, banks and acquirers alike, are faced with a range of courses of action and opportunities that will need to be decided upon by each of them and by each of the other players. The aforesaid is likely to have far-reaching ramifications for the banking sector and for the credit card industry in general and for the Company in particular. At this preliminary stage, prior to the clarification of the nature, character, scope and timing of the measures to be taken, the aforementioned affects cannot be assessed - either in terms of materiality or in quantitative term.

Measurement tests for examining the success in strengthening competition in the banking market

On October 25, 2017, the Committee for Examining Competition in the Credit Market published measurement tests for examining the success in strengthening competition in the banking market, as required by the Strum Law. The tests will constitute the basis for a semi-annual analysis and a report that the Committee will deliver to the Knesset’s Economics Committee and that are expected to serve the Committee in drafting recommendations for measures to improve and strengthen market competition, including in regard to the exercise of the Minister of Finance’s powers under the Strum Law to change the definition of a “bank with an extensive scope of activity”. The Committee has retained the right to alter, add to or reduce the tests. A series of general tests have been prescribed, as well as an additional test that relates to Discount Bank and the Company.

The general tests - various types of tests have been prescribed, including: tests relating to the removal of entry barriers and obstacles to customer transition (which include tests regarding regulatory measures, for which implementation timetables have been set, and the reporting of market developments); tests that examine the entry of new competitors and customer activity; and tests that relate to means of payment.

Test for Discount Bank and the Company - The Committee determined that it would examine whether the cumulative rate of change in the Discount Group's credit balances (excluding large transactions and excluding overseas transactions) at the end of 2020 were to be in the range of 2.5 to 4.5 percentage points above the cumulative rate of change of the other four large banking groups and the two credit card companies that have been separated. The monitoring of this test will be conducted semi-annually. It has been clarified that this test, just like the other tests, will constitute an indication or the Committee for the purpose of decision making regarding the separation of the Company from Discount Bank, but in any event the Committee retains its discretion on this issue. The test will be examined finally after the publication of the banks' and the credit card companies' financial statements for the year 2020.

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Note 23 - Contingent Liabilities and Commitments (Continued) G. Significant changes in the regulatory environment in which the Company operates (Continued) 1. The Strengthening Competition and Reducing Concentration in the Israeli Banking Market Law, 2017 (Continued)

The second report by the Committee for Examining Competition in the Credit Market The report, which has been prepared before the implications of the Corona virus, was published on April 7, 2020. Pursuant to the report, there has been significant progress in the removal of barriers to competition and certain pro- competition indications have been recorded in the consumer credit market in recent years. The report also related to the testing in respect of Discount Bank and CAL. The testing will only be tested finally in 2020 and in any event, it will serve only as an indication for the committee, which has the discretion to make a decision on the subject. Draft Order for Increasing Competition and Reducing Concentration in the Banking Market in Israel (Amendments to Legislation) (Change in the rate and the Amounts for the Purpose of the Reduction of Credit Facilities Pursuant to Section 9(C) of the Law) (Temporary Provision), 2020 On November 17, 2020, the above-captioned order was published. The main points of the order are: 1. The temporary provision will be restricted to one year alone, from January 31, 2021 to January 31, 2022; after the end of the period, the provisions that exist in the Law in the previous version of the Law will apply. 2. The amount of the credit card facilities of the customers of the large banks, as defined in the Law, may not exceed 55%, instead of 50%, of their balances in 2015. I.e., instead of the credit facilities being reduced by 50%, the large banks, as defined in the Law, will be required to reduce 45% of the credit facilities. 3. The minimal threshold for the matter of the level of the credit facilities on charge cards that will not be taken into account for the purpose of the abovementioned reduction has been increased and it will stand at NIS 7,500 instead of NIS 5,000. 2. Determination by the Ministry of Finance on the subject of the open brand for exclusive acquiring and issuing On July 24, 2017, the Ministry of finance announced that, insofar as the maximum merchant’s discount fee, on local transactions, for a brand with exclusive acquiring and issuing, was to be reduced in four major steps over the years 2017- 2020, such that it will stand at a rate of not more than 2.95% by the end of December 2017, not more than 2.45% by the end of December 2018, not more than 2.10% by the end of December 2019 and not more than 1.99% by the end of June 2020, at which time the Minister of Finance does not see a need at the present time to exercise his powers pursuant to Section 36M(a) of the Banking Licensing Law, 1981, or to support bills whose intention is the same as the exercise of the aforesaid powers or directly interfere with the brand fee beyond that outlined in the aforementioned reduction. The Company has acted in accordance with the aforesaid outline. 3. Demand for data regarding the collection of acquiring commissions

On February 6, 2020, the Company received a demand for data from the Competition Authority, under the force of Section 46(B) of the Economic Competition Law – 1988.

Within the context of the demand, the Company was requested to provide certain data in relation to merchants receiving charge card acquiring services from the Company or a person that is related to it. The Company has provided the data that are required, as well as additional data, the provision of which was requested afterwards.

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Note 24 - Guarantees

A. In order to secure the Company’s activities, Discount Bank has given guarantees in an unlimited amount to the VISA International organization. The Company has signed a letter of indemnity in favor of Discount Bank, against this guarantee.

B. In order to secure the Company’s activities, Discount Bank has given guarantees totaling approximately $3 million to the MasterCard International organization.

C. The Company has granted an indemnification for all liabilities of the subsidiaries CAL Financing, CAL Deposits and Yatzil Finances. Diners has granted an indemnification for all liabilities of Diners Financing.

D. In May 2017, the general meeting of the Company and of Diners approved the grant of an undertaking of indemnification and exemption for directors and officers serving at the Company and at Diners, respectively, with effect from 2011 in CAL and with effect from 2015 in Diners. The aforesaid indemnification and exemption undertaking was granted in accordance with the Group principles and limits approved by Discount Bank’s Board of Directors in May 2017.

Note 25 - Operating Segments A. General

The issuing segment - this segment includes the Company's operations in its capacity as an issuer. In this capacity, the Company approves for acquirers the transactions made by means of customers’ credit cards, which are submitted by merchants to the various acquirers. Once the acquiring has been executed, the Company - in its capacity as an issuer - transfers the transaction consideration to the acquirer (net of the interchange fee) and collects the consideration for the transaction from the customer’s account. Furthermore, this segment includes the provision of credit to cardholders and the provision of credit without a card.

The acquiring segment - this segment includes the Company's operations in its capacity as an acquirer. In this capacity, the Company is obligated to credit the merchant for transactions that have been approved by it and checked vis-à-vis the issuer. This obligation is contingent on the merchant complying with the operating procedures prescribed in the agreement between the merchant and the Company. These operations also include the factoring of credit transaction vouchers under the various credit card brands, including brands that are not acquired by the Company.

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Note 25 - Operating Segments (Continued) B. Quantitative information regarding operating segments

Consolidated Year ended December 31, 2020 Acquiring Issuing Total segment segment Other (3) consolidated In NIS millions Profit and loss information: Income: Fee income from external parties 597 657 - 1,254 Inter-segment fee income (365) 365 - - Total 232 1,022 - 1,254 Net interest income 50 480 - 530 Non-interest financing income 5 4 64 73 Total income 287 1,506 64 1,857 Expenses: Expenses for credit losses 15 208 - 223 Operating expenses 204 453 - 657 Selling and Marketing expenses 30 478 - 508 Administrative and general expenses 23 55 - 78 Payments to banks - 250 - 250 Total expenses 272 1,444 - 1,716 Profit before taxes 15 62 64 141 Provision for taxes on income 4 8 15 27 Profit after taxes 11 54 49 114 Company’s share of profits of an associated company, net of the tax effect - 1 - 1 Net profit attributable to equity holders of the Company 11 55 49 115 Return on capital 5.6% 3.3% 6.2% Average balance of assets (2) 1,154 16,966 18,120 Average balance of liabilities (2) 11,616 4,692 16,308 Average balance of risk assets (1) 1,470 12,550 14,020 (1) Risk assets - as calculated for capital adequacy purposes, pursuant to Proper Conduct of Banking Business Directives 201-210.

(2) Average balance calculated based on balances at the beginning of the month. (3) Income from the transaction for the sale of shares in Visa Inc. * Represents an amount less than NIS 1 million.

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Note 25 - Operating Segments (Continued) B. Quantitative information regarding operating segments (Continued)

Consolidated Year ended December 31, 2019 Acquiring Issuing Total segment segment consolidated In NIS millions Profit and loss information: Income: Fee income from external parties 612 744 1,356 Inter-segment fee income (370) 370 - Total 242 1,114 1,356 Net interest income 51 454 505 Non-interest financing income (expenses) 5 (3) 2 Total income 298 1,565 1,863 Expenses: Expenses for credit losses 9 138 147 Operating expenses 180 437 617 Selling and Marketing expenses 30 455 485 Administrative and general expenses 22 56 78 Payments to banks - 260 260 Total expenses 241 1,346 1,587 Profit before taxes 57 219 276 Provision for taxes on income 13 62 75 Profit after taxes 44 157 201 Company’s share of profits of an associated company, net of the tax effect - *- *- Net profit attributable to equity holders of the Company 44 157 201 Return on capital 22.4% 9.6% 11.0% Average balance of assets (2) 1,163 16,277 17,440 Average balance of liabilities (2) 9,265 6,347 15,612 Average balance of risk assets (1) 1,404 11,587 12,991 (1) Risk assets - as calculated for capital adequacy purposes, pursuant to Proper Conduct of Banking Business Directives 201-210.

(2) Average balance calculated based on balances at the beginning of the month. * Represents an amount less than NIS 1 million. ** Reclassified

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Note 25 - Operating Segments (Continued) B. Quantitative information regarding operating segments (Continued)

Consolidated Year ended December 31, 2018 Acquiring Issuing Total segment segment consolidated In NIS millions Profit and loss information: Income: Fee income from external parties 547 679 1,226 Inter-segment fee income (352) 352 - Total 195 1,031 1,226 Net interest income 41 423 464 Non-interest financing income 5 3 8 Total income 241 1,457 1,698 Expenses: Expenses for credit losses 9 147 156 Operating expenses 155 402 557 Selling and Marketing expenses 28 411 439 Administrative and general expenses 21 53 74 Payments to banks - 259 259 Total expenses 213 1,272 1,485 Profit before taxes 28 185 213 Provision for taxes on income 7 49 56 Profit after taxes 21 136 157 Company’s share of profits of an associated company, net of the tax effect - (*-) (*-) Net profit attributable to equity holders of the Company 21 136 157 Return on capital 9.9% 8.8% 9.0% Average balance of assets (2) 1,245 13,102 14,347 Average balance of liabilities (2) 8,099 5,143 13,242 Average balance of risk assets (1) 1,498 10,876 12,374 (1) Risk assets - as calculated for capital adequacy purposes, pursuant to Proper Conduct of Banking Business Directives 201-210.

(2) Average balance calculated based on balances at the beginning of the month. (3) Income and expenses from the VISA Europe transaction and other non-recurring provisions.

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Note 26 - Assets and Liabilities According to Linkage Basis

Consolidated December 31, 2020 Israeli currency Foreign currency** Non- CPI- monetary Unlinked linked Dollar Euro Other items Total In NIS millions Assets Cash and bank deposits 46 - 2 4 *- - 52 Receivables on credit card transactions, net 17,086 380 69 63 - - 17,598 Securities - - - - - 27 27 Investment in associate - - - - - 13 13 Buildings and equipment - - - - - 460 460 Other assets 18 27 - - - 340 385 Total assets 17,150 407 71 67 *- 840 18,535 Liabilities Credit from banks 5,166 - (2) (4) (4) - 5,156 Payables on credit card transactions 10,749 38 92 3 4 32 10,918 Subordinated notes 14 - - - - - 14 Other liabilities 503 12 2 *- - - 517 Total liabilities 16,432 50 92 (1) *- 32 16,605 Difference 718 357 (21) 68 *- 808 1,930 Effect of derivative instruments 189 (189) - - - - - Total 907 168 (21) 68 *- 808 1,930 * Represents an amount of less than NIS 1 million. ** Includes balances linked to foreign currency.

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Note 26 - Assets and Liabilities According to Linkage Basis (Continued) Consolidated December 31, 2019 Israeli currency Foreign currency** Non- CPI- monetary Unlinked linked Dollar Euro Other items Total In NIS millions Assets Cash and bank deposits 45 - 18 3 1 - 67 Receivables on credit card transactions, net 17,791 414 121 (2) - - 18,324 Securities - - - - - 53 53 Investment in associate - - - - - 12 12 Buildings and equipment - - - - - 375 375 Other assets 18 20 - 1 - 289 328 Total assets 17,854 434 139 2 1 729 19,159 Liabilities Credit from banks 6,587 - 6 1 *- - 6,594 Payables on credit card transactions 10,042 42 147 4 4 33 10,272 Subordinated notes 28 - - - - - 28 Other liabilities 396 45 3 *- - - 444 Total liabilities 17,053 87 156 5 4 33 17,338 Difference 801 347 (17) (3) (3) 696 1,821 Effect of derivative instruments 216 (216) - - - - - Total 1,017 131 (17) (3) (3) 696 1,821 * Represents an amount of less than NIS 1 million. ** Includes balances linked to foreign currency.

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Note 27 - Assets and Liabilities According to Linkage Basis and Maturity Period

Consolidated December 31, 2020 Anticipated future contractual cash flows* On demand From From 3 From From to 1 to 3 months 1 to 2 2 to 3 1 month months to 1 year years years In NIS millions Israeli currency (including linked to foreign currency) Assets1 8,660 2,509 3,614 1,789 1,007 Liabilities2 12,748 1,432 1,607 532 157 Difference (4,088) 1,077 2,007 1,257 850 Foreign currency*** Assets1 138 - - - - Liabilities2 90 - - - - Difference 48 - - - - Of which: dollar difference (21) - - - - Derivative instruments (excluding options) - - - - - Difference after effect of derivative instruments 48 - - - - Nonmonetary items Assets1 13 24 37 12 12 Liabilities2 - - - - - Difference 13 24 37 12 12 Total Assets1 8,811 2,533 3,651 1,801 1,019 Liabilities2 12,838 1,432 1,607 532 157 Difference (4,027) 1,101 2,044 1,269 862 1 Of which: receivables on credit card transactions 8,701 2,509 3,614 1,789 1,007 2 Of which: payables on credit card transactions 7,732 1,430 1,377 262 77 * Presented in this note are the anticipated future contractual cash flows in respect of asset and liability items according to currencies and according to the period remaining until the contractual maturity date of each cash flow. The data is presented net of the effect of accounting write-offs and allowances for credit losses. ** Assets with no fixed maturity date include assets in an amount of NIS 10 million whose maturity date has already passed. *** Excludes Israel currency linked to foreign currency. **** As included in Note 26, “Assets and Liabilities According to Linkage Basis”, including inter-segment off-balance- sheet amounts that are not subject to netting arrangements. ***** The contractual rate of return is the interest rate used to discount the anticipated future contractual cash flows presented in this note in respect of a monetary item to its balance-sheet amount.

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Note 27 - Assets and Liabilities According to Linkage Basis and Maturity Period (Continued)

Balance -sheet amount****

From From From Total With no fixed Contractual rate 3 to 4 4 to 5 5 to 10 cash maturity of return in years years years flows date** Total percentages*****

492 320 - 18,391 10 17,557 6.70 11 2 1 16,490 - 16,482 1.43 481 318 (1) 1,901 10 1,075

- - - 138 - 138 - - - 90 - 91 - - - 48 - 47 - - - (21) - (21) ------48 - 47

10 10 21 139 700 840 - - - - 32 32 10 10 21 139 668 808

502 330 21 18,668 710 18,535 6.63 11 2 1 16,580 32 16,605 1.43 491 328 20 2,088 678 1,930 492 320 - 18,432 10 17,598 8 - - 10,886 32 10,918

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Note 27 - Assets and Liabilities According to Linkage Basis and Maturity Period (Continued)

Consolidated December 31, 2019 Anticipated future contractual cash flows* On demand From From 3 From From to 1 to 3 months 1 to 2 2 to 3 1 month months to 1 year years years In NIS millions Israeli currency (including linked to foreign currency) Assets1 8,704 2,785 3,838 1,857 1,069 Liabilities2 13,490 1,595 1,506 481 68 Difference (4,786) 1,190 2,332 1,376 1,001 Foreign currency*** Assets1 142 - - - - Liabilities2 164 1 - - - Difference (22) (1) - - - Of which: dollar difference (17) - - - - Derivative instruments (excluding options) - - - - - Difference after effect of derivative instruments (22) (1) - - - Nonmonetary items Assets1 11 18 43 33 15 Liabilities2 - - - - - Difference 11 18 43 33 15 Total Assets1 8,857 2,803 3,881 1,890 1,084 Liabilities2 13,654 1,596 1,506 481 68 Difference (4,797) 1,207 2,375 1,409 1,016 1 Of which: receivables on credit card transactions 8,740 2,785 3,838 1,857 1,069 2 Of which: payables on credit card transactions 6,853 1,595 1,477 238 68 * Presented in this note are the anticipated future contractual cash flows in respect of asset and liability items according to currencies and according to the period remaining until the contractual maturity date of each cash flow. The data is presented net of the effect of accounting write-offs and allowances for credit losses. ** Assets with no fixed maturity date include assets in an amount of NIS 5 million whose maturity date has already passed. *** Excludes Israel currency linked to foreign currency. **** As included in Note 26, “Assets and Liabilities According to Linkage Basis”, including inter-segment off-balance- sheet amounts that are not subject to netting arrangements. ***** The contractual rate of return is the interest rate used to discount the anticipated future contractual cash flows presented in this note in respect of a monetary item to its balance-sheet amount.

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Note 27 - Assets and Liabilities According to Linkage Basis and Maturity Period (Continued)

Balance -sheet amount****

From From From Total With no fixed Contractual rate 3 to 4 4 to 5 5 to 10 cash maturity of return in years years years flows date** Total percentages*****

630 320 - 19,203 10 18,288 6.60 8 - - 17,148 - 17,140 1.60 622 320 - 2,055 10 1,148

- - - 142 - 142 - - - 165 - 165 - - - (23) - (23) - - - (17) - (17) ------(23) - (23)

14 13 31 178 550 729 - - - - 33 33 14 13 31 178 517 696

644 333 31 19,523 560 19,159 6.50 8 - - 17,313 33 17,338 1.60 636 333 31 2,210 527 1,821 630 320 - 19,239 10 18,324 8 - - 10,239 33 10,272

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Note 28 - Balances and Fair Value Estimates of Financial Instruments A. Fair value of financial instruments

This note includes information regarding the assessment of the fair value of financial instruments.

Most of the Company’s financial instruments do not have a ready "market price" because there is no active market on which they are traded. Accordingly, the fair value is assessed using accepted pricing models, such as the present value of future cash flows discounted at a discount rate reflecting the risk level inherent in the financial instrument. The estimation of the fair value by means of evaluating future cash flows and the determination of the discount rate are subjective. Therefore, for most of the financial instruments, the attached fair value assessment does not necessarily serve as an indication of the realization value of the financial instrument on the reporting date. The fair value was assessed using discount rates in effect at the reporting date, without taking into account fluctuations in interest rates. Using different discount rate assumptions may result in significantly different fair value amounts. This is particularly the case in regard to financial instruments that bear a fixed rate of interest or that are non-interest bearing. In addition, when determining the fair values, no account is taken of commissions receivable or payable as part of the business activity and nor do they include the tax effect. Moreover, the difference between the book value of the financial instrument and the value presented as its fair value may never be realized, as the Company usually holds the financial instrument to maturity. As a result of the above, it should be stressed that the data included in this note is no indication of the Company's value as a going concern. Furthermore, due to the wide range of valuation techniques and possible assessments used in determining the fair value, care should be taken when comparing the fair value data of various banking corporations. B. Methods and main assumptions used in estimating the fair value of the financial instruments

Cash and bank deposits - by discounting future cash flows using interest rates at which the Company transacted similar transactions at the reporting date.

Receivables on credit card transactions, net - the fair value of the balance of receivables on credit card transactions, net is determined according to the present value of future cash flows using an appropriate discount rate. The balance is segmented into homogeneous categories. The cash flows from future receipts (principal and interest) are calculated for each category. These receipts are discounted using an interest rate that reflects the risk level inherent in the credit in each such category.

This rate of interest is usually determined according to the interest rate at which the Company transacted similar transactions at the reporting date.

The fair value of impaired debts is calculated using discount rates that reflect the high credit risk inherent therein. In no event will such discount rates be less than the highest interest rate used by the Company in transactions at the reporting date.

The future cash flows for impaired debts and other debts are calculated net of the effects of accounting write-offs and allowances for credit losses in respect of the debts.

Payables on credit card transactions–the discounted future cash flows method using the interest rates at which the Company recruits similar credit at the reporting date.

Subordinated notes - by discounting future cash flows at a rate at which the Company may pay interest on the issuance of similar notes (if no quoted price on an active market is available), at the reporting date.

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Note 28 - Balances and Fair Value Estimates of Financial Instruments (Continued) C. The fair value hierarchy is presented in the following table: Consolidated December 31, 2020 Fair value measurement using - Quoted Significant prices in other Significant an active observable unobservable Balance- market inputs inputs sheet (Level 1) (Level 2) (Level 3) Total amount In NIS millions Financial assets: Cash and bank deposits 52 - - 52 52 Receivables on credit card transactions, net - - 17,260 17,260 17,598 Securities (1) - - 27 27 27 Other financial assets - - 46 46 45 Total financial assets 52 - 17,333 17,385 *17,722 Financial liabilities: Credit from banks - 5,159 - 5,159 5,156 Payables on credit card transactions - - 10,857 10,857 10,886 Subordinated notes - - 14 14 14 Other financial liabilities - - 440 440 441 Total financial liabilities - 5,159 11,311 16,470 *16,497

* Includes: assets totaling NIS 52 million, whose balance in the balance sheet is identical to their fair value (instruments that are presented in the balance sheet at fair value). The amount of the liabilities that are presented in the balance sheet at their fair value on a recurring basis is approximately NIS 1 million.

(1) Shares for which no fair value is available, which are presented at cost.

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Note 28 - Balances and Fair Value Estimates of Financial Instruments (Continued) C. The fair value hierarchy is presented in the following table: (Continued) Consolidated December 31, 2019 Fair value measurement using - Quoted Significant prices in other Significant an active observable unobservable Balance- market inputs inputs sheet (Level 1) (Level 2) (Level 3) Total amount In NIS millions Financial assets: Cash and bank deposits 67 - - 67 67 Receivables on credit card transactions, net - - 18,009 18,009 18,324 Securities (1) - - 53 53 53 Other financial assets - - 39 39 39 Total financial assets 67 - 18,101 18,168 *18,483 Financial liabilities: Credit from banks - 6,597 - 6,597 6,594 Payables on credit card transactions - - 10,208 10,208 10,239 Subordinated notes - - 28 28 28 Other financial liabilities - - 403 403 407 Total financial liabilities - 6,597 10,639 17,236 *17,268

* Includes: assets totaling NIS 67 million, whose balance in the balance sheet is identical to their fair value (instruments that are presented in the balance sheet at fair value). The amount of the liabilities that are presented in the balance sheet at their fair value on a recurring basis is approximately NIS 5 million.

(1) Shares for which no fair value is available, which are presented at cost.

Note 29 – Activity in derivative instruments extent, credit risks and repayment times A. The extent of the activity on a consolidated basis 1. The denoted amounts of the derivative instruments Consolidated December 31 December 31 2020 2019 Total derivatives that are not held for trading In NIS millions Denoted amount of derivative instruments Interest contracts Forward and future contracts 189 216 Swaps (1) 1,265 1,301 Total (2) 1,454 1,517

(1) The Company pays interest at a fixed rate in all of the swap transactions. (2) Of which: a shekel – Index swap in an amount of NIS 189 million (NIS 216 million in 2019). (3) All of the transactions are opposite banks.

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Note 29 – Activity in derivative instruments extent, credit risks and repayment times (Continued) 2. The fair value of the derivative instruments Consolidated Assets in respect of Liabilities in respect of derivatives that are not held derivatives that are not held for trading, gross for trading, gross December December December December 31, 2020 31, 2019 31, 2020 31, 2019 In NIS millions

Interest contracts 4 1 (5) (6) Amounts offset in the balance sheet - - - Balance in the balance sheet 4 1 (5) (6) Of which: Not subject to a net accounting or similar arrangements - - - -

B. Details of the repayment times – denoted amounts: balances at the end of the year on a consolidated basis Consolidated December 31, 2020 More than 3 More than 1 Up to 3 months and year and up More than 5 months up to 1 year to 5 years years Total In NIS millions Interest contracts Shekel - index 13 83 93 - 189 Other 143 388 734 - 1,265 Total 156 471 827 - 1,454

Consolidated December 31, 2019 More than 3 More than 1 Up to 3 months and year and up More than 5 months up to 1 year to 5 years years Total In NIS millions Interest contracts Shekel - index 35 69 112 - 216 Other 169 426 706 - 1,301 Total 204 495 818 - 1,517

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Note 30 - Interested and Related Parties of the Company and its Subsidiaries A. Balances Consolidated December 31, 2020

Interested parties (3)

Controlling Other shareholders(4) shareholders (5) Officers (6) (1) (2) (1) (2) (1) (2) In NIS millions Assets: Cash and bank deposits 43 54 6 6 - - Receivables on credit card transactions, net 3 3 1 1 5 5 Investment in associate ------Other assets 1 1 *- 1 - - Liabilities: Credit from banks 2,240 4,210 500 500 - - Payables on credit card transactions 162 162 1 1 *- *- Subordinated notes 14 20 - - - - Other liabilities 14 44 6 13 3 4 Credit risk on off-balance sheet financial instruments 14 14 2 2 18 18

(1) Balance at balance-sheet date. (2) The highest balance during the year, based on the balance at the end of each quarter. (3) An interested party, related party, related person - as defined in Section 80.D. of the Public Reporting Directives. (4) Controlling shareholders and their relative - as defined in Section 80.D.(1) of the Public Reporting Directives. (5) Other shareholders - including any person holding 5% or more of the Company’s means of control, and any person who may appoint one or more of the directors of the Company or its Chief Executive Officer - in accordance with Section 80.D.(2) of the Public Reporting Directives. (6) Officers - in accordance with Section 80.D.(3) of the Public Reporting Directives. (7) In accordance with Section 80.D.(4) of the Public Reporting Directives. (8) Associate - in accordance with Section 80.D.(7) of the Public Reporting Directives.

* Represents an amount of less than NIS 1 million.

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Note 30 - Interested and Related Parties of the Company and its Subsidiaries (Continued) A. Balances (Continued) Consolidated December 31, 2020 Related parties in which the Company Interested parties has holdings (3) Persons who were interested parties at time transaction Others (7) Associate (8) was performed (1) (2) (1) (2) (1) (2)

1 1 - - - - - 1 191 205 - - - - 13 13 - - 5 14 - - - -

------3,163 3,163 *- *------5 5 18 18 - -

- - 1 1 - -

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Note 30 - Interested and Related Parties of the Company and its Subsidiaries (Continued) A. Balances (Continued) Consolidated December 31, 2019

Interested parties (3)

Controlling Other shareholders(4) shareholders (5) Officers (6) (1) (2) (1) (2) (1) (2) In NIS millions Assets: Cash and bank deposits 63 63 4 5 - - Receivables on credit card transactions, net 3 4 *- *- 3 3 Investment in associate ------Other assets *- 1 *- *- - - Liabilities: Credit from banks 3,633 3,633 597 720 - - Payables on credit card transactions 93 110 1 1 *- *- Subordinated notes 28 34 - - - - Other liabilities 25 28 6 8 6 6 Credit risk on off-balance sheet financial instruments 13 13 - - 21 21

See the comments on the following page.

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Note 30 - Interested and Related Parties of the Company and its Subsidiaries (Continued)

Consolidated December 31, 2019 Related parties in which the Company Interested parties has holdings (3) Persons who were interested parties at time transaction Others (7) Associate (8) was performed (1) (2) (1) (2) (1) (2)

*- 2 - - - -

1 1 194 194 - - - - 12 12 - - 11 11 - - - -

------**2,706 **2,706 *- *------4 4 15 15 - -

- - 1 1 - -

(1) Balance at balance-sheet date. (2) The highest balance during the year, based on the balance at the end of each quarter. (3) An interested party, related party, related person - as defined in Section 80.D. of the Public Reporting Directives. (4) Controlling shareholders and their relative - as defined in Section 80.D.(1) of the Public Reporting Directives. (5) Other shareholders - including any person holding 5% or more of the Company’s means of control, and any person who may appoint one or more of the directors of the Company or its Chief Executive Officer - in accordance with Section 80.D.(2) of the Public Reporting Directives. (6) Officers - in accordance with Section 80.D.(3) of the Public Reporting Directives. (7) In accordance with Section 80.D.(4) of the Public Reporting Directives. (8) Associate - in accordance with Section 80.D.(7) of the Public Reporting Directives.

* Represents an amount of less than NIS 1 million.

** Restated.

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Note 30 - Interested and Related Parties of the Company and its Subsidiaries (Continued) B. Condensed business results with interested and related parties Consolidated Year ended December 31, 2020 Interested parties (1) Shareholders Persons who were interested Controlling parties at time shareholders Others Officers Others transaction (2) (3) (4) (5) Associate was performed In NIS millions Income from credit card transactions 56 8 - 150 - - Net interest income (expenses) (10) (3) - *- 2 - Non-interest financing income (expenses) (1) - - - - - Operating expenses (1) - - (7) - - Selling and marketing expenses - - - (*-) - - Administrative and general expenses (2) - (13) - - - Payments to banks (4) (98) (25) - (33) - - Company’s equity in operating profits of investee companies, net of tax effect - - - - 1 - Total (56) (20) (13) 110 3 -

Consolidated Year ended December 31, 2019 Interested parties (1) Shareholders Persons who were interested Controlling parties at time shareholders Others Officers Others transaction (2) (3) (4) (5) Associate was performed In NIS millions Income from credit card transactions 55 8 - **144 - - Net interest income (expenses) (13) (4) - *- 3 - Non-interest financing income (expenses) (3) (2) - - 1 - Operating expenses (2) - - (7) - - Selling and marketing expenses (1) - - (*-) - - Administrative and general expenses (2) - (16) - - - Payments to banks (4) (122) (25) - (37) - - Company’s equity in operating profits of investee companies, net of tax effect - - - - *- - Total (88) (23) (16) 100 4 -

* Represents an amount of less than NIS 1 million.

See the comments on the table on the following page.

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Note 30 - Interested and Related Parties of the Company and its Subsidiaries (Continued) B. Condensed business results with interested and related parties (Continued) Consolidated Year ended December 31, 2018 Interested parties (1) Shareholders Persons who were interested Controlling parties at time shareholders Others Officers Others transaction (2) (3) (4) (5) Associate was performed In NIS millions Income from credit card transactions 52 8 - 13 - - Net interest income (expenses) (10) (4) - - 5 - Non-interest financing income (expenses) (1) - - - - - Operating expenses (1) - - (5) - - Selling and marketing expenses (1) - - - - - Administrative and general expenses (1) - (16) - - - Payments to banks (4) (127) (27) - (32) - - Company’s equity in operating profits of investee companies, net of tax effect ------Total (89) (23) (16) (24) 5 - (1) An interested party, related party, related person - as defined in Section 80.D. of the Public Reporting Directives. (2) Controlling shareholders and their relative - in accordance with Section 80.D.(1) of the Public Reporting Directives. (3) Other shareholders - including any person holding 5% or more of the Company’s means of control, and any person who may appoint one or more of the directors of the Company or its Chief Executive Officer - in accordance with Section 80.D.(2) of the Public Reporting Directives. (4) Officers - in accordance with Section 80.D.(3) of the Public Reporting Directives. (5) In accordance with Section 80.D.(4) of the Public Reporting Directives.

* Represents an amount of less than NIS 1 million.

** Restated.

C. Remuneration and any other benefit to interested parties Year ended December 31 2020 2019 2018 Officers (1)

No. of No. of No. of Total benefit Total benefit Total benefit benefits recipients benefits recipients benefits recipients In NIS millions Interested party employed by the Company or on its behalf* 12 12 15 12 15 13 Directors not employed by the Company or on its behalf 1 5 1 5 1 4 Total 13 17 16 17 16 17 (1) An interested party, related party, related person - as defined in Section 80.D. of the Public Reporting Directives.

* Of which: short-term employee benefits - NIS 10 million; post-retirement benefits -an amount of less than NIS 1 million; other long-term benefits –an amount less than NIS 1 million; dismissal benefits - an amount of less than NIS 1 million.

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Note 30 - Interested and Related Parties of the Company and its Subsidiaries (Continued) D. Inter-company service agreement with CAL Financing Ltd. Expenses are allocated between the Company and CAL Financing based on the ratio of the Company’s revenues to CAL Financing’s revenues. Inter-company service agreement with Yatzil Finances Ltd. In accordance with an agreement between the Company and Yatzil Finances Ltd., pursuant to which the Company is to provide Yatzil Finances with management services, including software and computer services, legal services, and controllership services, Yatzil Finances pays the Company the cost of the services, including overheads and related expenses. Inter-company service agreement with Diners Club Ltd. In March 2012, an agreement was signed between the Company and Diners Club, which has been amended from time to time, with the last amendment having been made in July 2020, within the context of which certain parameters were determined for calculating the payments that Diners makes to the Company in consideration for the services that the Company provides to Diners. E. See Note 24 above, regarding indemnity in favor of Discount Bank and various guarantees provided by the Bank. F. Undertaking to indemnify directors and officers - the Company has undertaken to exempt in advance the directors and officers of the Company (as defined in the resolution) from being held liable for damage caused to the Company due to a breach of the duty of care by a director or officer. In addition, the Company has undertaken to indemnify the directors and officers for a financial obligation that could be imposed upon them, and for reasonable litigation expenses in respect of certain types of events that are listed in the text of the resolution. The exemption from liability and the indemnification undertaking, as referred to above, are subject to the following principles and stipulations: (1) The exemption from liability and the indemnification undertaking will only apply to directors and officers who have held office from 2011 onwards and to anyone who may be an officer in the future. (2) The exemption from liability and the indemnification undertaking is not to apply to the following acts of commission or omission: - A breach of the duty of trust. - A breach of the duty of care committed intentionally and rashly (unless committed due to negligence alone). - An act committed for personal, unlawful gain. - A fine or forfeit imposed on an officer. The maximum amount of indemnification to be granted to all the Company’s officers and directors is not to exceed 25% of the Company’s capital, with the added proviso that use of the indemnification is not to result in the Group indemnification limits, as set by the parent company, being exceeded. This undertaking will also apply in respect of an action performed by the officer prior to the undertaking being given and will be available to the officer even subsequent to the termination of his service. G. Among the agreements with banking corporations, as described in Note 23E above, the Company has entered into agreements with banking corporations that are interested parties of the Company, which are members of the Discount Group and the First International Group. H. As detail in Note 15B above, the Company has a commitment with Discount Leasing Ltd., a company that is wholly owned by Discount Bank, under an agreement for the establishment of the operations campus at the Elef site in Rishon Le'Zion, on which the Company's offices will be located.

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Note 30 - Interested and Related Parties of the Company and its Subsidiaries (Continued) I. The Company has agreements with Discount Bank and the First International Bank for the allocation of credit lines for the financing of its operating activities.

Note 31 – The Outbreak of the Coronavirus

A. The impact of the Coronavirus

The outbreak of the Coronavirus and the spread of the virus across the globe has resulted in a global health and economic crisis. The outbreak of the virus in January 2020 began to affect most of the countries in the world during the first quarter of 2020. In response to this, many governments, including the government of Israel took defensive steps such as restricting cross—border movement, self-isolation and reducing gathers and traffic, lockdowns, restrictions on private business activity and government and municipal services and other measures.

Already at the beginning of the crisis, sharp falls in the prices of securities were identified on numerous stock exchanged across the globe, together with increased fluctuation in the prices of commodities, various assets and exchange rates. In light of the considerable uncertainty that exists regarding the crisis and the accumulation of negative long-term implications, many countries, including Israel, may enter a recession.

At the beginning of December 2020, the emergency use of two vaccination against the Coronavirus. As a result of the emergency approval, widespread vaccination programs began across the globe at the end of the fourth quarter, which found expression in the fast pace of vaccination in Israel among medical teams and at risk populations. However, because of the sharp rise in the number of people testing positive for the Coronavirus in the fourth quarter, a third lockdown was declared in Israel and the severe restrictions on movement and activity were reimposed.

The spread of the virus has led to a significant downturn in activity in the Israeli economy, to which the Company's operations are exposed, and it has had additional impacts on the Company's operations, including an additional increase in the credit risk and liquidity difficulties for borrowers, in both the business segment and also in the private segment and in a slowdown in economic activity. The Company has recognized expenses of NIS 223 million in 2020 in respect of credit losses, most of which were in respect of the crisis that has resulted from the outbreak of the coronavirus. In addition, the lowering of interest rates by the central banks and the additional lowering of rates that may be made have had an impact on the Company's interest income and expenses.

The Company’s Board of Directors and its committees have been holding frequent discussions on the subject of the spread of the Coronavirus and the implications of various aspects of the situation on the Company, including on the business continuity of the Company's operations, the Company's preparations for various scenarios and preparations for the "day after". Furthermore, when the crisis broke out, the Company's management focused all of its managerial attention on the crisis and its implications. Under the leadership of the Company's CEO, work teams across the organization have managed the various segments of the Company's operations under the crisis, with close monitoring of the developments and action being taken to mitigate the various risks and the maintain business continuity.

The business divisions have increased their monitoring and control activity over the state of the Company's credit portfolio.

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Note 31 – The Outbreak of the Coronavirus (Continued) B. Voluntary redundancy program On September 30, 2020, the Company’s Board of Directors approved a non-recurring redundancy program, after the Company's management had formulated an outline, against the background of the Corona crisis and the desire to increase the number of people leaving the Company significantly beyond the number of employees who are expected to leave naturally. It was decided, in light of the previously mentioned, to change the outline for leaving the Company, exceptionally and in a non-recurring fashion, and to offer preferential terms to those leaving by comparison to the regular terms on the termination of employment.

See Note 21 – employee benefits, for additional details regarding the redundancy program.

C. Adjustments to the nature of the operations and significant changes in the terms of employment and employee benefits The Company has taken action in order to ensure business continuity on a number of planes, including: - Splitting the call centers and other vital employees between separate physical sites, including arrangements for working from the employees' homes. - Stringent safety procedure have been instituted on the Company's sites, which include shift work with a rotation between employees working from home and employees working at the Company's site. - Connecting most of the employees to working from home. Information security controls have been defined in the wake of the multitude of arrangements for working from a distance, and a document has been written for the management of the risks deriving from these arrangements. In order to adapt the operations to the new situation, the Company has incurred computerization, communications and hygiene related expenses. These expenses have amounted to insignificant amounts and have been included in the expenses in this report.

During the course of the crisis, some of the Company's employees have been put on leave, the large majority of them on paid leave and a few of them on unpaid leave. The Company has allowed employees who have not accumulated sufficient vacation leave to accumulate negative balances of vacation leave. The bonuses for employees for the year 2019 has been paid in full.

On June 29, 2020, the Company's management reached agreements with the employees' representatives regarding remuneration for the period of the Corona crisis. Within this context, an agreement was signed with the Workers' Committee regarding the Company's participation in financing half of the vacation days of employees who have been forced to stay at home and not to come to work as a result of the Corona pandemic. It was also agreed that the Company will allow employees to slip into negative balances on account of future holidays, and not to offset their salary in respect of this period. As mentioned in sub-section B above, as a result of the crisis, on September 30, 2020, an agreement was signed with representatives of the employees regarding a voluntary redundancy program at a cost of approximately NIS 31 million (before tax), within the framework of which increased severance pay has been offered to employees leaving the Company. In the shadow of the Corona crisis and the severe restrictions, the Company has provided benefits and reliefs that have enabled its customers (both business and private) to cope with the situation.

Within this context, the Company enables small businesses to benefit from the advancement of credits without cost, and businesses that have taken out a loan to reschedule and/or to defer payment, for a fixed period.

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Note 31 – The Outbreak of the Coronavirus (Continued) C. Adjustments to the nature of the operations and significant changes in the terms of employment and employee benefits (Continued)

In the private customers segment, the Company enables the deferral of payments for its customers and the rescheduling of charges, and has taken action in numerous cases to credit cardholders to whom products or services have not been provided during the period of the Corona crisis.

Furthermore, the Company has provided benefits and discounts to its customers on a range of services and products, which are adapted for staying at home with the objective of getting through the challenging period.

The outline for the deferral of loans, which has been adopted by the Company, is in conformity with the outline that was published by the Bank of Israel on October 1, 2020. Pursuant to the outline:

Consumer loans: The deferral is made for a period of 3 months and is not at the Company's discretion. In addition, there is an option, at the Company's discretion, for an additional deferral of 3 months for these loans (up to 6 months cumulatively). The deferral that is not at the Company's discretion is on the principal component of the loan. A credit card company is entitled to enable the deferral of the interest in addition to the deferral of the principal.

Loans to businesses: Deferral for a period of up to 3 months has been made possible for a business with an annual operating turnover of up to NIS 25 million, which has been hurt as a result of the crisis, at the Company's discretion.

In addition, the Company has harnessed itself to social action within the framework of a number of associations, which are operating to provide relief for the implications of the crisis for weaker sections of the population. The Company even took action to bring forward payments to suppliers with the objective of making it easier for them to cope with the economic burden that the Company's suppliers were facing at the beginning of the Passover festival.

D. The implications of the crisis for the FlyCard club

The Corona crisis and the restrictions on passengers that have been imposed as a result of it by many governments across the globe and in Israel have caused economic damage to many aviation companies, including El Al.

See Section E(4) of Note 23 – contingent liabilities and commitments for additional details.

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REPORT ON CORPORATE GOVERNANCE AUDIT AND OTHER DETAILS

Corporate Governance and Audit 210 The Board of Directors and Management 210 The Internal Auditor 215 Remuneration of External Auditors 218 Remuneration of Senior Officers 219 Transactions with Controlling Shareholders and Related Parties 220 Additional Details Regarding the Company’s Business and its Management 220 Fixed assets and Facilities 220 Intangible Assets 222 Human Capital 223 Material Agreements 224 Material Legislative and Regulatory Restrictions and Special Constraints Applicable to the Company 227 Directives issued by the Banking Supervision Department 228 Operating Segments - Additional Details 231 Legal Proceedings 236 Appendices to the Annual Report 238 Rates of Interest Income and Expenses of the Company and its Subsidiary and Analysis of Changes in Interest Income and Expenses 238 Consolidated Balance Sheet - Multi-Quarter Information 242 Consolidated Statement of Profit and Loss - Multi-Quarter Information 243 Consolidated Statement of Profit and Loss - Multi-Period Information 244 Consolidated Balance Sheet - Multi-Quarter Information 245 Glossary 246 Initials 250 Index 251

Report on Corporate Governance, Audit and Other Details ISRAEL CREDIT CARDS LTD.

Corporate Governance and Audit

The Board of Directors and Management Changes in the Company’s Management On March 19, 2020, Mr. Assaf Zimmerman was appointed to the position of Manager of the Finance Department (CFO), Vice President and a member of management.

On July 26, 2020, Ms. Lilach Zilber Tal, the Manageress of the Internal Audit Department in the Company was appointed as Internal Auditor, with the status of a member of the management. On January 24, 2020, Ms. Liliya Kaplan was appointed as a director in the Company. Ms. Kaplan replaced Mr. Aviel Sternschuss, who ended his period of office as a director in the Company. On March 23, 2020, approval was received from the Supervisor of Banks for the permanent appointment of adv. Esther Deutsch as the Chairwoman of the Company's Board of Directors. On March 24, 2020, Mr. Yair Avidan ended his period of office in the Company, in light of his appointment to hold office as the Supervisor of Banks. On June 8, 2020, Mr. Ilan Biran was appointed as director in the Company. On February 7, 2021, Mr. Eyal Hayardeny was appointed as an external director in the Company. On February 23, 2021, Mr. Moshe Cohen ended his period of office as an external director in the Company. On December 23, 2020, Mr. Achiya Fried, the Deputy Chief Executive Officer and the Head of the Payment Services Division, announced his wish to terminate his period of office in the Company.

The Board of Directors and Management thank the retiring members of the Board of Directors and Management for their work and contribution to the Company during their years of service, and wish the newly appointed members of the Board of Directors and Management success in their new positions. Board of Directors

Adv. Esther Serves as a Director of the Company since March 26, 2019 and as Chairperson of the Board of Deutsch Directors since August 4, 2010. Holds officer as a members of the Strategy Committee and the Remuneration Committee. Possesses accounting and financial expertise as well as professional qualifications. Ms. Deutsch is a qualified Attorney and has an academic education – she holds a BA in Law from the Hebrew University of Jerusalem. She serves as a Senior V.P., the Head of the Collective Management and Regulation Division in Israel Discount Bank Ltd. (since April 2019). She holds office as the Chairperson of the Board of Directors of Mercantile Discount Bank Ltd. (since April 2019) and as a Director of Discount Reinsurance International Ltd. (since 2017). She served as the Chief Legal Counsel and Head of the Legal Counsel and Regulation Division in Israel Discount Bank Ltd. (2006 – 2019), as a Director of IDB (Swiss) Bank Ltd. (2014 -2017), as Chairperson of the Board of Directors of Discount Trust Ltd. (2007 – 2010), as Chairperson of the Board of Directors of Discount Capital (a director from 2013 and as Chairperson from 2017 – 2020),as a member of the Board of Directors of the Tel-Aviv Stock Exchange on behalf of Discount Bank (2007 – 2009) and as an Alternate Director on the Board of Directors of the Tel-Aviv Stock Exchange on behalf of Discount Bank (2013 -2015).

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Prof. Esther Serves as a Director of the Company since April 29, 2015. Einhorn Serves as a member of the Audit Committee, the Risks Management Committee the Information Technology and the Technological Innovation Committee and the Ad-Hoc Committee for the Examination of Commitments Under Joint-Issuance Agreements. Serves as an external director pursuant to Directive 301 of the Proper Conduct of Banking Business Directives and possesses accounting and financial expertise, as well as professional qualifications. Prof. Einhorn is a qualified accountant and has an academic education - Ph.D. in Accounting and Financing from Tel Aviv University, BA in Accounting from Tel Aviv University and B.Sc. in Mathematics and Computer Sciences from Tel Aviv University. Serves as Professor of Accountancy and as Head of the Accountancy Faculty at Tel Aviv University (since 2016). Serves as a member of the Advisory Committee of the Auditors Council and as a member of the Professional Council of the Institute of Certified Public Accountants in Israel (Since 2016). Served as a member of the Israel Securities Authority plenum (2009-2016).

Ilan Biran Serves as a Director in the Company since June 8, 2020. Serves in the Company as Chairman of the Information Technology and Technological Innovation Affairs Committee, as a member of the Risks Management Committee, the Audit Committee and the Ad-Hoc Committee for the Examination of Commitments Under Joint-Issuance Agreements. Possesses accounting and financial expertise, as well as professional qualifications. Mr. Biran has an academic background – A BA in Economics and Business Management from Bar Ilan University, a Certificate in Strategic Studies in the field of Strategy and Economics from Georgetown University and an Honorary Doctorate from the Technion for his contribution to industry and defense. He serves as Chairman of Palsan Sasa Ltd., Chairman of Melodia Ltd. and Director of Itamar Medical Ltd. He served as a Director in Israel Discount Bank Ltd. (2008 - 2017), as Chairman of Rafael Advanced Defense Systems Ltd. (2007 – 2013), as Chairman of the Management Committee of Kinneret College in the Sea of Galilee (2008 – 2020, Chairman of D.B.S. – Yes Satellite Services (1998) Ltd. (2004 – 2005), Chairman of Bet Shemesh Engines Holdings Ltd. (2004 – 2007) and as a Director in Israel Aircraft Industries Ltd. (2005 – 2007), Netafim Ltd. (2004 – 2007) and in Bank Massad Ltd. (2005 – 2007). Served as Director General of the Ministry of Defense (1996 – 1999) and as CEO of Bezeq – The Israel Telecommunications Corporation Ltd. (1993 – 2003).

Dr. Keren Bar- Serves as a Director of the Company since June 1, 2016. Hava Serves as Chairperson of the Remuneration Committee, as a member of the Audit Committee, the Strategy Committee and the Ad-Hoc Committee for the Examination of Commitments Under Joint- Issuance Agreements. Serves as an external director pursuant to Directive 301 of the Proper Conduct of Banking Business Directives and possesses accounting and financial expertise, as well as professional qualifications.

Ms. Bar-Hava is a qualified accountant and has an academic education - PhD in Business Administration from Tel Aviv University, MA in Economics from Tel Aviv University and BA in Economics and Accounting from Tel Aviv University. Serves as a senior lecturer and head of the Accounting Faculty at the Hebrew University (since 2014). Serves as a member of the Auditors Council (representing the institutions of higher learning) (since October 2016) and as a Director in Ravd Ltd. (since 2019).

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Served as Director of Alon Blue Square Ltd. (2015-2016), as a member of the Israel Securities Authority plenum (2010-2015), as an external Director of Halman-Aldubi Mutual Funds Ltd. (2006- 2009), and external Director of Edri-El Ltd. (2007-2008).

Yuval Gavish Served as Chairman of the Company's Board of Directors from June 17, 2013 to April 10, 2018, since when he continues to serve as a Director of the Company. Serves as Chairman of the Strategy Committee. Mr. Gavish has an academic education - BA in Humanities and Social Sciences from the Open University. Serves as Head of the Banking Division at Israel Discount Bank Ltd. (since January 2011). Served as Chairman of the Board of Directors of Discount Mortgage Bank Ltd. (2011-2012) and as Chairman of the Board of Directors of Diners Club Israel Ltd. (2012-2013). Served as Chairman of Ace Auto Depot (2009-2010), CEO of Prisma Capital Markets Ltd. (2008-2009), Chairman of Maalot Insurance Agency (2006-2008) and CEO of Leumi Mortgage Bank Ltd. (2006- 2008).

Eyal Hayardeny Serves as a Director of the Company since February 7, 2021. Serves as a member of the Audit Committee and the Risks Management Committee. Serves as an External Director pursuant to Directive 301 of the Proper Conduct of Banking Business Directives and possesses accounting and financial expertise, as well as professional qualifications. Mr. Hayardeny is a qualified Certified Public Accountant and has an academic education – he holds a BA in Economics and Accountants from Bar Ilan University, and an MBA in Business Administration and Finance from Bar Ilan University. He serves as the founder and CEO of Reblaze Technologies Ltd. and CEO in the Lardan Group. Served as a Director in Mercantile Discount Bank Ltd. (2009 – 2018), as Deputy CEO and CEO of Shamir Optical Industries Ltd. (2004 – 2009) and as Manager and Director of Peamey Tikva Ltd. (2004 – 2019).

Moshe Cohen Serves as a Director of the Company since February 23, 2012. Chairman of the Risks Management Committee, Chairman of the Audit Committee and Chairman of the Ad-Hoc Committee for the Examination of Commitments Under Joint-Issuance Agreements. Serves as a member of the Information Technology Committee, the Risks Management Committee, the Remuneration Committee and the Strategy Committee. Serves as an External Director pursuant to Directive 301 of the Proper Conduct of Banking Business Directives and possesses accounting and financial expertise, as well as professional qualifications. Mr. Cohen has an academic education - MA in Social Sciences from the Hebrew University, Jerusalem and BA in Humanities from Hebrew University, Jerusalem. Academic lecturer in the field of economics and banking. Served as a Director of Leumi Mortgage Bank Ltd. (2006-2010), of Bank Leumi le-Israel Trust Company Ltd. (2005-2009) and of Arab Israel Bank Ltd. (2002-2005). Served as Head of the Senior Division of Head Office Management at Bank Leumi le-Israel Ltd. (1999- 2009).

Nachman Nitzan Serves as a Director of the Company since May 16, 2020. Serves as a member of the Strategy Committee. Possesses accounting and financial expertise, as well as professional qualifications. Mr. Nitzan is a qualified accountant and has an academic education – BA in Economics majoring in Accounting from Bar Ilan University and an EMBA in Business Administration from Bar Ilan

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University. Serves as Chairman of the Board of Directors and CEO of First International Bank Issues Ltd., as Chairman of the Board of Directors of Fibi (Switzerland) Ltd. in liquidation and as a Director in Mataf Computing and Financial Operations Ltd., The Assets Company of Bank Otzar Ha'Hayal Ltd., Stockupin Israel Ltd. and Ubank Investments and Holdings Ltd.. Serves as Deputy CEO and as Chief Accountant and a member of management in the First International Bank of Israel Ltd. (since 2011). Served as acting and as Deputy CEO and Manager of the Finance Division in the Bank of Jerusalem (2010 – 2011).

Liliya Kaplan Serves as a Director of the Company since January 24, 2020. Serves as a member of the Information Technology Committee and the Risks Management Committee. Possesses accounting and financial expertise, as well as professional qualifications. Ms. Kaplan is a qualified accountant and has an academic education - BA in Accounting, Statistics and Performance Research from Tel Aviv University and M.Sc. in Computer Sciences from Colorado State University in the USA. Serves as the Manageress of the Planning, Efficiency and Data Array in The First International Bank of Israel Ltd. (Since November 2019).

Report on Directors Possessing Accounting and Financial Expertise Pursuant to the amendment to Directive 301, which took effect from January 1, 2013, at least five of the total number of directors and at least two of the members of the Audit Committee have to possess accounting and financial expertise. These conditions are met both by the Company’s Board of Directors and also by its Audit Committee. The directors who possess accounting and financial expertise, and the factual background that leads to their being viewed as possessing such expertise, are as detailed below. Adv. Esther Deutsch, Professor Esther Einhorn, Ilan Biran, Dr. Keren Bar-Hava, Eyal Hayardeny, Moshe Cohen, Nachman Nitzan and Liliya Kaplan. See the section on the Company's Board of Directors, which appears above, for details regarding their professional backgrounds and education, as evidence of their said expertise:

Meetings of the Board of Directors The Board of Directors held 23 meetings in 2020 and the committees of the Board of Directors held 49 meetings.

Senior Officers

Levy Halevy Serves as the Company's Chief Executive Officer since June 10, 2018. Mr. Levy has an academic education - EMBA from Bar-Ilan University and LLB in Law from the School of Law of the Interdisciplinary Center, Herzliya. Served as Executive Vice President and Head of the Technologies and Operations Division at Israel Discount Bank Ltd. (2014 -2018). Served as Chairman of the Board of Directors of Badal Computer and Management Services Ltd. (from 2014 to 2018), as a director of Discount Provident Ltd. (from 2014 to 2018) and in the Company (from 2016 to 2018) Served as Deputy CEO and Head of the IT and Technologies Division at Menora Mivtachim Ltd. (2011- 2014), Head of the Development Division at Bank Hapoalim Ltd (2009-2011) and as Joint-CEO and Deputy CEO of Malam-Team Ltd. (2004-2008)

Alex Serves as Vice President, CRO and Head of the Risk Management Division since July 2013. Mr. Baltusch has an academic education - MBA from Tel Aviv University and BA in Electrical Engineering

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Baltusch from Technion - Israel Institute of Technology, Haifa. Served as Head of the Credit Risks Management Department of Bank Hapoalim Ltd. (2006-2013).

Naomi Serves as Vice President and as Chief Legal Counsel and Head of the Legal Consultancy Division as from Zandhaus June 2019. Ms. Zandhaus is an attorney and has an academic education – LLb. from Tel-Aviv University. Served as Deputy CEO and as Legal and Regulation Counsel and as Company Secretary in Partner Communications Ltd. (2015 – 2017) and as Chief Legal Counsel of Bank Leumi and as Legal Risks Manageress of the Leumi Group (2009 – 2014).

Sarit Kafri Serves as Vice President and Head of the Human Resources Department as from March 2019. Ms. Kafri has an academic education- BA in Education from the Levinsky College of Education. Served as Head of the Human Resources, Training and Organizational Development Department in Union Bank (2014 – 2019) and as Manageress of the Training and Organizational Development Department with responsibility for social affairs in the Cellcom Israel Group (2009 – 2014).

Shaul Serves as Vice President, Chief Accountant and Head of the Accounting Division since January 2008. Mizrahi Mr. Mizrahi is a CPA and has an academic education - MBA in Business Administration from the College of Management, an MA in Accounting from Bar Ilan University and a BA in Accounting and Management from the College of Management. Serves as Chief Accountant of Diners Club Israel Ltd. (since January 2008). Severs as a Director in Shlomo C.A.L. (as from 2019)

Irena Portnik Serves as Head of the Technology and Operations Division as from June 2016 and served as Vice President and Head of Operating, Planning and Development (from 2006)

Ms. Portnik has an academic education - MBA in Business Administration from Ramat Gan College and BA in Industrial and Mechanical Engineering from the Polytechnic Institute, Belarus. Served as a Director of Yatzil Finances Ltd. (2009-2011) and Diners Club Israel Ltd. (2010 – 2012).

Ya'acov Serves as Vice President and Head of the Credit and Partners Division since June 2019. Peled Mr. Peled is a CPA and has an academic education –An MBA from the Hebrew University of Jerusalem and a BA in Economics and Accountancy from the Hebrew University of Jerusalem. Served as Manager of the Commercial Department in Discount Bank (2016 – 2019), as Manager of the Risks Management Department in Discount Bank (2011-2016) and as Manager of the Institutions Evaluation Unit in the Banking Supervision Department (2008 – 2011).

Achiya Fried Serves as Head of the Payment Services Division since August 2018 and served as Vice President and Head of the Business Customers Division from April 2013. Mr. Fried has an academic education - BA in International Relations and Political Science, from Hebrew University, Jerusalem and an MBA from Bar Ilan University. Served as VP Marketing and as VP Trade of the “Haaretz” Group (2010-2012) and as VP Marketing and Business Development of AIG Israel (2008 - 2009).

Assaf Serves as Deputy CEO and Head of the Finance Division as from March 2020. Zimmerman Mr. Zimmerman is a Certified Public Accountant and has an academic education – he has an MBA from Tel-Aviv University and a BA in Accountancy and Economics from Tel-Aviv University. He serves in his previous positions in the Company (2008 – 2020) as Head of the Finance Unit, Manager of the Strategy and Business Development Department, Manager of the Economics and Analysis Department and Manager of the Finance and Economics Department.

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The Internal Auditor Internal audit in 2020 Details of the internal auditor The Internal Auditor of the Company and the subsidiaries is Ms. Lilach Zilber Tal who was appointed to the position on July 26, 2020. Her appointment was approved by the Bank of Israel on September 23, 2020. Up to that time, Mr. Nir Abel served as the Company’s internal auditor.

The internal auditor is not an interested party of the Company, she is not an officer of the Company, she is not related to any of these and she is not the external auditor and neither is anyone acting on its behalf.

The Internal Auditor and the internal audit employees comply with the provisions of Section 146(b) of the Companies Law and with Section No. 8 of the Banking (Internal Audit) Rules and do not serve in any position other than internal audit.

Ms. Lilach Zilber Tal hold a Master's Degree in Internal and Public Auditing from Bar Ilan University and has more than 25 years of experience in internal auditing.

The manner of appointment The appointment of the Internal Auditor was approved by the Audit Committee at its meeting on July 22, 2020 and by the Board of Directors at its meeting on July 27, 2020. Furthermore, the Bank of Israel approved the appointment on September 23, 2020.

The appointment was approved in light of Ms. Lilach Zilber Tal's professional experience of many years in internal auditing and her role as Manageress of the Internal Audit Department in the Company.

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Letter of appointment

The letter of appointment is presented for approval by the Audit Committee and the Board of Directors once every three years. In light of the appointment of the internal auditor, the letter of appointment has been updated and approved by the Audit Committee and the Board of Directors most recently in November 2020.

Identity of the Internal Auditor's superior

The Chairman of the Board of Directors is the Internal Auditor's superior.

Work program The internal audit operates according to an annual work program derived from a multi-year work program (the multi-year work plan covers a four-year period). The annual and multi-year work plans (“the Work Program”) are prepared in accordance with the Internal Audit Law, 1992 and in accordance with the Proper Conduct of Banking Business Directive No. 307 on the subject of the internal audit function.

The Work Program is derived from assessment of risks that has been prepared for the audited entities. Prior to the Work Program being submitted for approval, it is forwarded to the Company’s independent auditors, to the Chairman of the Board of Directors, to the Chairman of the Board of Directors’ Audit Committee and to the Chief Executive Officer for the lodging of comments and elucidations.

The Board of Directors’ Audit Committee discusses the Work Program and, on the basis of its recommendations, the Work Program is brought before the Board of Directors for approval.

The Board of Directors and the Audit Committee, which has examined the internal audit Work Program and the actual performance thereof, are of the opinion that the Company’s internal audit fulfills the requirements determined by professional standards and by the directives of the Supervisor of Banks.

The annual and multi-year work programs for 2020 was discussed and approved by the Board of Directors on January 19, 2020.

Scope of engagement The internal auditor is engaged in a full time position. The internal audit inputs for the Company and for the subsidiaries in 2020 were at a scope of 6.5 positions (including outsourcing). The scope of positions is derived from the annual work plan that was approved by the Board of Directors.

It should be mentioned that the internal audit work was frozen for a period of two months in March 2020, in the wake of the Corona crisis and the first lockdown.

Conduct of the audit The internal audit is conducted in accordance with the provisions of the Internal Audit Law, 1981, Proper Conduct of Banking Business Directives and accepted internal auditing principles.

In the opinions of the Board of Directors’ Audit Committee and the Board of Directors, the Internal Auditor and the previous internal auditor who served up to the time of her appointment have complied with all the requirements set in the aforesaid standards and in the directives.

Access to information The Internal Audit has been furnished with all the documents and information that it required for the audit, and it was also given constant and unrestricted access to the Company's and the subsidiary companies' IT systems, including to financial data.

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Report of the Internal Auditor All the reports of the Internal Auditor are submitted in writing and are circulated to the Chairman of the Board of Directors, the Chairman of the Board of Directors’ Audit Committee, the Chief Executive Officer, the Chief Risk Officer, the external auditors and the relevant members of Management.

The audit reports are graded based on the audit findings.

The internal auditor submits periodic activity reports, which are submitted to the Chairman of the Board of Directors, to the Chairman of the Board of Directors, to the Chief Executive Officer, to the external auditors and to the Company's management. The following are the reports that are submitted: A quarterly summary report, detailing the significant findings in the audit reports that have been submitted in the quarter under review, a semi-annual activity report and an annual report, in the format required pursuant to Proper Conduct of Banking Business Directive 307, Internal Audit.

The periodic reports are discussed by the Company's management and thereafter by the Board of Directors’ Audit Committee. The annual report is also discussed at the Board of Directors.

The reports that are presented for discussion:

The Audit Committee of the Board of Directors conducts discussions on specific audit reports of Company units, if, in light of the findings included in the report or due to the material issues it addresses, as decided by the Chairman of the Audit Committee and as recommended by the Internal Auditor.

The periodic reports have been submitted and discussed as follows:

- The report regarding internal audit activities for 2019 was submitted on March 5, 2020 and was discussed by the Board of Directors' Audit Committee on April 2, 2020 and by the Board of Directors on May 17, 2020. - The report regarding internal audit activities for the first quarter of 2020 was submitted on April 20, 2020 and was discussed by the Board of Directors' Audit Committee on May 13, 2020. - The report regarding internal audit activities for the first half of 2020 was submitted on July 20, 2020 and was discussed by the Board of Directors' Audit Committee on July 22, 2020. - The report regarding internal audit activities for the third quarter of 2020 was submitted on October 12, 2020 and was discussed by the Board of Directors' Audit Committee on November 4, 2020.

Board of Directors' assessment of the Internal Auditor's activity In the opinion of the Board of Directors and the Board of Directors’ Audit Committee, the scope, nature, and consistency of the Internal Auditor's activity and his Work Program are reasonable given the circumstances of the situation, and suffice to realize the Company's internal audit goals.

Remuneration Ms. Zilber Tal is employed under a personal employment agreement for an indeterminate period, which either of the parties may terminate by giving notice in advance in accordance with the Company's remuneration policy.

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Remuneration of External Auditors (1) (2) The Company's external auditors are Somekh Chaikin. The external auditors have served in their position since the establishment of the Company in 1979.

The external auditors’ fees are as follows (in NIS thousands):

Consolidated and the Company Year ended December 31 2020 2019 For audit services: For the external auditors (3) 2,066 1,875 For additional services: Audit-related services (4) 50 493 Tax services (5) 20 80 Total fees paid to the external auditors 2,136 2,448

(1) The Board of Directors' report to the annual general meeting, on the external auditor's fee for audit services and for additional services, in accordance with Sections 165 and 167 of the Companies Law, 1999. (2) Comprising paid and accrued remuneration. (3) Combined audit of the annual financial statements and review of the interim financial statements. (4) Audit-related fees relate primarily to statutory reports that require the auditor’s signature. (5) Includes tax adjustment reports, assessment deliberations and tax consultancy.

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Remuneration of Senior Officers Following are details of all benefits and amounts that were paid or for which provisions were included, for the five highest paid officers of the Company (in NIS thousands):

2020 Loans % of a Total granted full Provisions salary and under time for social related regular Name Position position Salary Bonus benefits expenses terms (1) Levy Chief Executive Officer 100% 1,520 - 408 1,928 339 Halevy Head of the Payment Achiya 100% Fried Services Division 910 - 256 1,166 157 Ya'acov Head of the Credit and 100% 901 - 256 1,157 64 Peled Partners division Head of the Legal Naomi 100% 841 - 247 1,088 20 Diesenhaus Counsel Division Head of the Technologies Irena 100% 870 - 211 1,081 39 Portnik and Operations Division

2019 Loans % of a Total granted full Provisions salary and under time for social related regular Name Position position Salary Bonus benefits expenses terms (1) Former Chairman of the 60% 963 - 174 1,137 71 Ran Oz Board of Directors Levy Chief Executive Officer Halevy 100% 1,545 767 373 2,685 169 Deputy CEO and Head of Barak the Strategy and 100% 990 472 297 1,759 34 Nardi Resources Division Head of the Payment Achiya 100% 890 402 242 1,534 172 Fried Services Division Head of the Technologies Irena 100% 867 384 232 1,483 4 Portnik and Operations Division Head of the Risks Alex 100% 824 259 149 1,232 21 Baltush Management Division

(1) The data represent credit card balances as at December 31 incurred during the normal course of business. The employment agreement of the Company's Chief Executive Officer On June 10, 2018, Mr. Levy Halevy took up his position as the Company's CEO. The Board of Directors has approved terms of employment, which include a fixed salary, contributions for social benefits, an appropriate motor vehicle, variable remuneration in accordance with the Company's remuneration policy, mutual notice in advance, and an acclimatization grant, which will be given at the time of the conclusion of his employment, for the Company’s CEO. Furthermore, the CEO is committed to a period of non-competition. See Section D of Note 21 to the financial statements on the subject of employee benefits for details regarding the bonus plan for the Chief Executive Officer.

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The members of the Board of Directors The external members of the Board of Directors are entitled to annual remuneration and remuneration for participation, which are paid in accordance with the Companies Regulations (Principles regarding remuneration for an external director)- 2000. The Chairman of the Board of Directors is not entitled to annual remuneration and remuneration for participation. The cost of the remuneration for all of the directors amounted to NIS 807 thousand in 2020 (2019: NIS 1,024 thousand).

Indemnification of directors and officers For details of an undertaking to indemnify directors and officers, see Note 30F to the financial statements on the subject of interested parties and related parties of the Company and of its consolidated companies.

For additional information on remuneration that is presented in conformity with the Basel third pillar disclosure requirements, see the "Basel third pillar disclosure and additional information on risks" report on the Company’s Hebrew website:

Transactions with Controlling Shareholders and Related Parties See Note 30 to the financial statements on the subject of interested parties and related parties of the Company and of its consolidated companies.

Additional Details Regarding the Company’s Business and its Management

For information on the Company’s holding structure, see page 16 of the Board of Directors and Management Report. Control of the Company Immediately before the publication of the financial statements, Israel Discount Bank Ltd. (“Discount Bank”) controls the Company and holds 788,561 ordinary shares of NIS 0.0001 par value each of the Company, which confer it rights to 71.83% of the Company's profits, 56 Management A shares of NIS 0.0001 par value each, which confer 28% of the rights to vote at the Company's General Meeting, and a Management B share of NIS 0.0102 par value, which confers it 51% of the rights to vote at the Company's General Meeting and the right to appoint the majority of the directors of the Company.

Furthermore, First International Bank of Israel Ltd. (“FIBI”) holds 309,239 ordinary shares of NIS 0.0001 par value each of the Company, which confer it to 28.17% of the Company's profits and 42 Management A shares of NIS 0.0001 par value each, which confer it 21% of the rights to vote at the Company's General Meeting.

Fixed assets and Facilities Buildings and real estate The investment in land and real estate amounted to NIS 166 million at the end of 2020, compared with NIS 119 million at the end of 2019.

The building in which the Company’s offices are situated is registered in the name of the Company with the Israel Land Registry Office. The lease of the land (two plots) on which the Company's building stands, from the Israel Lands Administration is for periods that end in 2018 and 2058.

On October 28, 2019, a ruling was handed down regarding the plot of land in respect of which the lease had ended in 2018, on which some of the stores that are adjacent to the site on which the Company's building is located in Givatayim are located, and also dismissing the Company's claim for the extension of the leasing agreement for the said plot of land. On December 12, 2019, the Company submitted an appeal in the Supreme Court against the ruling.

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In addition, to the offices that are owned by the Company, the Company leases offices in Givatayim, in Median Elite and in Ashdod. Furthermore, the Company uses additional outsourcing and sales services across the Country.

The Discount Campus

In 2016, the Company made a commitment with Discount Leasing Ltd., a subsidiary company of Discount Bank, under an agreement for the construction of the CAL building within the framework of the "Discount Campus", which is intended to be occupied in the future by Discount's head office and the head offices of its main subsidiary companies in Israel – the Company and Mercantile Discount. The Company's share of the project is approximately 25%.

The extent of the rights deriving from the project as a whole stands at approximately 135 thousand Sq., both primary and service areas, on the land. In addition, an option was exercised for the acquisition of the commercial rights, which was afforded within the framework of the contract for the acquisition of the land. An amount of approximately NIS 20 million was paid in consideration for the acquisition of the land. Within the framework of the contract for the acquisition of the land in Rishon Le'Zion, it was determined that at least 25 thousand Sq. m would be built by the purchaser for self-use and that such construction would take place within 5 years from the time that the conditions that had been set, which are expected to be met in June 2021. The Group has a right under the force of the agreement to return of some of the construction rights that exist on the plot of land to the municipality and to receive the consideration that was paid for them.

In the years 2016 – 2018, various processes were advanced to realize the establishment of the campus, including the completion of the definition of the vision for the Discount Campus, the selection of the project manager, the recruitment of an architect and the planning team. The shoring-up, excavation and foundation work was completed in 2019 and the construction of the underground areas, the basements and the computer rooms was completed in 2020.

At the end of the process of the receipt of proposals for the receipt of main contractor services for the Campus construction project, the partners in the project, Discount Leasing Ltd., Israel Credit Cards Ltd. And Mercantile Discount Bank Ltd., decided to enter a commitment with Shikun U'Binui –Solel Boneh Infrastructures Ltd. as contractor, which will execute the work as the main contractor for the shell, systems and development. The extent of the commitment is estimated at NIS 500 million, of which the Company's share is approximately NIS 120 million.

In the Company's assessment, its share in the estimated project expenses in the Group's campus is expected to stand at approximately NIS 450 million. As at December 31, 2020, the Company has invested approximately NIS 84 million of this amount. The balance of the commitments in respect of the project stands at approximately NIS 149 million as at December 31, 2020. The construction work began in 2019 and is expected to continue for a further two years.

IT and computer systems General

The IT and control systems are at the heart of the operations and constitute the backbone for the Company’s operations.

The core systems are based on the VMS platform and run on Itanium architecture (Tequila).

Direct customer services are provided by means of: an interactive voice response (“IVR”) system, a visual voice response system, a chat service, customers' service on WhatsApp, the customers’ and merchants’ activity website, a customer- oriented application for mobile devices and CalSale terminals at sale points. These services interface with the Company's core systems for data input and update purposes.

The Company’s systems have a high level of information security and cyber defense to protect them from external access.

In recent years, the Company has been engaged in a range of technological field: Digital databases, modeling customers, big data management, open banking, business continuity, availability and survivability.

The body of the information and computer systems provides an all-inclusive technological response for the Company's strategic targets with the objective of achieving business leadership. Massive investment is being made in innovation – the establishment of digital and online infrastructure for supporting the business strategy.

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. Pay – The development of a platform and infrastructures for implementing advanced digital payment solutions for CAL and its partners.

. DATA – The establishment and development of robust infrastructures to ensure the availability of information, to ensure that it is up to data and advances capabilities for presenting analyzing and backing up content from the information that is stored in CAL.

. Digital – The development and condensation of advanced infrastructure for progressing and leveraging CAL's digital transformation, including onboarding processes.

. Open Banking – the expansion of the Open APIO and open banking infrastructures and capabilities as a basis for a response to regulation and for leveraging CAL's data and services opposite business partners.

. The launching of an innovative service orientated App, which provides access to information that is relevant to the customer.

. The establishment of robotic process automation (RPA) infrastructure leading to the saving of resources and increasing productivity in the performance of organizational work processes, together with the reduction of operational risks.

. Improving the infrastructures for the core systems, with the objective of enabling the Company to cope with an increase in business, based on the VMS operating system.

Furthermore, the Company is gradually implementing open source based technology and both private clouds and public clouds in a gradual transition, with focused risk management.

In addition, the Company is conducting a project for the conversion of the core system, with the objective of establishing a new, modern infrastructure having a long-range technological horizon. The conversion project is planned to be completed in 2023.

The Company has completed a process of strengthening the DR site and has replaced old computer equipment with new equipment.

The Company has signed on a hosting agreement and a full plan has been put together for the relocation of its main computer facility, which is currently located, in Givatayim to a hosting site in Modi'in. The project for the relocation of the facility is expected to end in 2021.

A wide range of local and overseas suppliers are assisting the Company with various matters associated with the IT systems and also their development. The Company has no material dependence on any of its suppliers in this sphere, except for four suppliers in the spheres of servers, storage, communications and the authorizations system.

Intangible Assets Brands and trademarks

The Company has numerous trademarks that are registered in Israel in its name. Inter alia, the Company owns trademarks that are registered in Israel under the brand names "CAL" (in both Hebrew and English), "ICC" and "Cal Choice”.

Licenses and franchises The Company is a “Principal Member” of the international VISA organization, which has granted it a license to use the “Visa” trademark in Israel, as well as the right to issue and acquire credit cards under this brand in Israel. The Company is also a "Principal Member” of MasterCard International Inc., which has granted it licenses to use the “MasterCard”, “Cirrus” and “Maestro” trademarks in Israel, as well as the right to issue and acquire credit cards under these brands in Israel.

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In addition, the Company has a nonexclusive license, with conditions, to acquire transactions executed with “Isracard” brand cards in Israel.

Moreover, Diners Club International Ltd. has granted Diners the exclusive franchise in Israel to use the “Diners” brand and to operate issuing and acquiring services for Diners cards in Israel.

Databases The Company has a number of registered customer databases of Visa, MasterCard and Diners cardholders (through Diners), as well as of merchants who honor these cards and Isracard cards.

Human Capital Workforce status

The number of full-time positions(1) at the end of the year and at the end of the previous year, and the average on a monthly basis: December 2020 December 2019 1-12/2020 Total 1,360 1,452 1,412 (1) The number of positions includes translation of overtime positions, with the addition of the positions of the employees of software firms that provide labor services to the Company, less the positions of employees whose salaries have been capitalized to fixed assets.

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Remuneration policy at a banking corporation The Directive, Remuneration Policy at a Banking Corporation

On November 19, 2013, the Supervisor of Banks issued the Proper Conduct of Banking Business Directive, Remuneration in a Banking Corporation ("the Directive"). In accordance with the Directive, the Company’s Board of Directors has to approve a Group remuneration policy, which is to be formulated by the Remuneration Committee and also to determine principles for remuneration in the Group, which are to meet the requirements that were set in the directive, at least once every three years.

The remuneration policy for officers in the Company. On August 30, 2020, following a decision by the Board of Directors' Remuneration Committee, the Company's Board of Directors approved a variable remuneration plan for the Company's employees and managers for the year 2020.

The remuneration plans adopt the principles of the group remuneration policy of the Discount Group, with the necessary changes, and these conform to the Supervisor of Banks’ guideline, Remuneration Policy in a Banking Corporation.

The objectives at the heart of the plan include: supporting realization of the Company’s strategy, objectives and goals; motivating the managers and employees to work toward creating long-term economic value for the Company; encouraging striving for excellence and professionalism and differential remuneration accordingly; supporting compliance with laws, regulatory directives and the Company’s procedures; aligning remuneration with the risk appetite and the risk management framework; forming a link between the remuneration and the Company’s performance and personal performance; creating a fair and proper balance between the variable (performance-dependent) remuneration components and the fixed remuneration components; and ensuring fair and proper remuneration for employees at the various grades, in accordance with their contribution, level of responsibility and relative impact on the Company’s activity.

For further details regarding the terms of service and employment of the company’s officers, see Note 21 to the financial statements on the subject of employee benefits.

Material Agreements

Consortium Agreement with Gama On July 6, 2017, CAL and the Company and Diners signed on an agreement with Gama Management and Clearing Ltd. and Gama Personal Direct Financing Ltd. ("Gama"), within the framework of which Gama serves as a "Concentrator", with the objective of enabling transactions to merchants who will be interested in acquiring credit cards through the Company's acquiring services. The Company will be entitled to operating fees for the acquiring services, and also to a variable consideration, which will be dependent upon the merchants' turnover and which will be on a scale that has been determined by the parties. The provision of the acquiring services to the merchants is at the Company's discretion alone and is subject to the provisions of the law. A process has also been set in the agreement for training Gama's employees for the purpose of the provision of the services, including for the purpose of the Company meeting its regulatory obligations in the work with the consortium. Furthermore, Gama has undertaken not to commit itself under a consortium agreement with another acquirer on the brands that are acquired by the company.

The agreement is effective for a period of 5 years, following which it will be renewed automatically for additional periods of 12 months each, unless either of the parties has announced its desire to terminate the agreement (subject to exceptions that have been set in the agreement, which afford the Company the right to terminate the agreement immediately).

The signature of the agreement accords with the provisions of the Law for the Strengthening of Competition and the Reduction of Concentration in the Banking Market in Israel, which includes provisions, whose objective is to increase the competition in acquisition, and in the Company's management's assessment, the agreement is improving the offering of value to small and medium sized businesses.

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In 2020, the period of the agreement was extended until January 5, 2025.

Memorandum of understanding with Shufersal

On November 2, 2017, the Company and Diners (together – "The Company") and Shufersal Ltd. ("Shufersal") signed on a Memorandum of Understanding ("The Memorandum of Understanding") for the issuance and operation of non-banking credit cards to Shufersal's customers ("The Credit Club" and "The Cards", respectively).

See Note 23E(2) to the financial statements on the subject of contingent liabilities and commitments for additional details.

Agreement with El Al

On June 11, 2014, the Company and Diners signed on an agreement with El Al Israel Airlines Ltd. ("El Al"), for the issuance of branded credit cards to the members of El Al's Frequent Flyers Club, ("The branded credit cards").

On December 11, 2018, a memorandum of understanding was signed for a new commitment by the Company with El Al on the subject of the issuance and operation of the branded cards, for a period of ten years commencing on September 1, 2019, with each of the parties having a right to exit after seven years. Furthermore, on September 26, 2019, additional agreements were signed between the Company, El Al and MasterCard, see Note 23E(4) to the financial statements on the subject of contingent liabilities and commitments for additional details.

Agreement in the field of the distribution of credit terminals

On November 27, 2018, the Company and Diners signed on a cooperation agreement with a third party, which operates in the field of the marketing and distribution of terminals for merchants ("The supplier of the terminals"), pursuant to which the Company and Diners will offer their customers a commitment with the supplier of the terminals for the purchase or hiring of the supplier of the terminals' payment system, whereas the supplier of the terminals will offer its customers a commitment with the Company for the receipt of acquiring services.

Cooperations with customer clubs The Company has commitments under agreements in connection with the, H&O, PowerCard and Family 365 clubs as well as with additional clubs. Pursuant to these agreements, the Company issues and operates non-banking credit cards for the members of the club, which afford benefits for customers in merchants that are connected to the club. The agreements define the mechanism for accounting between the Company and the clubs, which is a derivative of the revenues deriving from the club cards and/or the clubs marketing and advertising budgets in support of the joint activity and/or various bonuses, such as signing bonuses and/or bonuses for meeting targets. Furthermore, the agreements arrange additional commercial terms such as the bearing of customer recruitment costs.

The exercise of discretion in the issuance of the credit cards, the cancellation an suspension thereof, including the level of the credit facilities and the interest rates that will be collected is afforded to the Company exclusively.

It is further determined in the agreement, inter alia, that the Company will bear all of the responsibility for credit risks and risks associated with the misuse of the credit cards by the customers (except in relation to exceptions that were set in the agreement).

The agreements further arranges the manner of the use of information deriving from the use of the credit cards and the ownership of such information as well as the manner of the management of the commercial connection opposite the credit organizations. In accordance with the agreements with the clubs, the clubs are responsible primarily for offering value to their customers in merchants that are connected to the clubs and also for enabling the acquisition of customers in the merchants. Exclusivity for the Company in the issuance of credit cards to the members of the clubs is set in the agreements.

The agreements have been signed for a period of several years, with provisions having been set in some of them regarding extension for an additional period. See Note 23E to the financial statements on the subject of contingent liabilities and commitments for additional information regarding the YOU club.

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In addition, the Company has commitments with business companies in various segments of the economy, directly and also through High Biz Ltd. (the "Hi-tech Zone" club), which affords benefits to employees of companies in using and holding charge cards that are issued within the framework of those commitments.

There are payments arrangements in some of these commitments, in which the Company bears amounts that are not material to the Company in respect of the cards that are issued to the companies' employees.

Cooperation agreement with Direct Finance

On October 18, 2015, the Company and Direct Finance of Direct Group (2006) Ltd. ("Direct Finance") signed on an agreement for cooperation in the making available of loans by the Company to Direct Finance's customers. Credit terms (amounts, interest rates and payments) were set in the agreement, which will be offered by the Company to Direct Finance's customers within the framework of the cooperation. Pursuant to the agreement, the decision on whether to make credit available is at Direct Finance's discretion, subject to the customer passing the tests that are performed by the Company prior to the provision of the credit. Furthermore, the credit risk (up to a particular ceiling, which is set in the agreement) lies with Direct Finance.

On March 15, 2020, Direct Finance decided to discontinue the marketing of loans in this joint venture with the Company in light of the Corona crisis.

Cooperation agreement with Shlomo CAL

Shlomo C.A.L. Ltd. ("Shlomo CAL") was established pursuant to an agreement between the Company and New Kopel Shlomo Ltd. on October 9, 2005. Shlomo CAL is engaged in the purchase of fleets of vehicles for sale to individuals. As at the reporting date, the Company holds 20% of the Shlomo CAL's share capital., It has been determined within the context of the agreement that New Kopel Shlomo Ltd. will be responsible for the purchase of the vehicles and their preparation for delivery to the customers, whereas the Company for its part will be committed to making credit available to private customers who are interested in purchasing a vehicle and for performing the discounting of the periodic payments that are paid by the private customers. The credit is actually made available for average periods of 30 months through CAL Finance. In addition, the Company has undertaken to institute collection proceedings in connection with the credit that it has provided, subject to its right to endorse the debts to Shlomo CAL under the terms that have been set in the agreement and subject to the guarantee that has been provided by New Kopel Shlomo Ltd. in respect of failures in the collection of debts from customers. The parties are entitled to give notice at any time regarding the discontinuation of the operations of Shlomo CAL and solely that they cause all of Shlomo CAL's commitments that have been given prior to the giving of notification of the discontinuation of the operations will be met.

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Service call centers and outsourcing

The Company has commitments with a main supplier for the operation of service and sales call centers for the Company's private customers. The agreement with this supplier is for a fixed period of 12 months and is renewed automatically for two additional periods of 12 months each, with the parties having the right to bring the agreement to an end by giving notification 6 months in advance. These service and sales call centers have interfaces to the Company's systems, which enable their operations.

The Company has commitments with additional suppliers for the outsourced operation of customer service and sales call centers.

See Note 23 to the financial statements on the subject of contingent liabilities and commitments and well as Page 22 of the report of the Company's Board of Directors. for details regarding additional significant agreements.

Material Legislative and Regulatory Restrictions and Special Constraints Applicable to the Company Payment Services Law, 2019

The Payment Services Law, 2019 entered force on October 14, 2019.

The Law will replace the Charge Cards Law, and it arranges all of the payment services, to differentiate from the situation prior to the implementation of the Law, in which the arrangement was only between the customer and the issue of the charge card. There are a number of changes in the Law compared with the Charge Card Law, both in the consumer protections that are set in it and also in the sanctions in respect of consumer breaches (sanctions including criminal fines and monetary penalties).

Strengthening Competition and Reducing Concentration in the Israeli Banking Market Law, 2017

See Section G(1) of Note 23 to the financial statements – contingent liabilities and commitments for details regarding this law.

Draft Provision of Financial Information Services Law, 2020

A draft of the law was published on June 24, 2020. The draft law, deals with the subject of "Open Banking" and it is supposed to apply, on the one hand, to a wide range of consumers of information and on the other hand to a limited number of sources of information: banks, credit card companies and credit and deposit unions.

The Banking Order (Customer Services) (Supervision of Debit Card Service Fees, Letter of Warning from an Attorney and Activity by a Clerk on a Telephone Call Center (Temporary Provisions) – 2020

On September 14, 2020, the final version of the Order was published, within the framework of which temporary supervision was imposed on debit card commissions and on the fee charged for a warning letter from an attorney. The Order will expire on April 13, 2021.

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Directives issued by the Banking Supervision Department Proper Conduct of Banking Business Directives that will enter force in the future and which have an impact on the Company's operations:

Proper Conduct of Banking Business Directives following the outbreak of the Corona Virus

The Company's activity since the outbreak of the Corona virus has been based in accordance with the directives issued by the Banking Supervision Department, which includes, where necessary, pursuant to the various regulatory reliefs that have been published on the subject of the banking system's coping with the implications of the outbreak of the virus. Among these, one can mention the provisions of Proper Conduct of Banking Business Directive No. 367 on the subject of E-banking, the provisions of Proper Conduct of Banking Business Directive No. 426 on the subject of Provision of a professional human telephone response , the provisions of Proper Conduct of Banking Business Directive No. 450 on the subject of Debt collection proceedings, the Emergency Regulations([The Novel Coronavirus) (Accessibility of Financial Services) – 2020 on the subject of the possibility of issuing charge cards to a customer even without physical signing on the agreement has been published as well as additional relief letters that have been published by the Supervision Department on the subject of the documentation of conversations when making e-banking agreements and agreements for the provision of credit.

Furthermore, the Law for the Provision of Vital Services from a Distance (The Novel Coronavirus), 2020 has been published on the subject of the possibility of issuing charge cards to a customer even without physical signing on the agreement.

Amendment to Proper Conduct of Banking Business Directive 450 "Debt Collection Proceedings"

On October 1, 2020, the final version of an amendment to Proper Conduct of Banking Business Directive No. 450, which includes three main changes: the publication of details of the commitment with the debt collection function on the Company's website; a relief on the subject of signing the customer on a debt arrangement – documents of the agreement instead of signing on the agreement; a change in the duty regarding the duty to notify the customer on reporting to a credit database, was published.

Draft Proper Conduct of Banking Business Directive 411

On January 3, 2021, the Company received a draft revision of Proper Conduct of Banking Business Directive 411, within the framework of which it has been proposed to promote uniform supervisory arrangement of all the issues relating to duties under the prohibition of money laundering and financing of terrorism laws, which will apply to a range of payment services.

The Company is studying the implications of the draft on the Company's operations, when it is issued as a binding directive, at present.

Proper Conduct of Banking Business Directive A311 on the subject of the management of consumer credit

On February 4, 2021, the Banking Supervision Department published a Proper Conduct of Banking Business Directive on the subject of the management of consumer credit. The Directive was published in tandem with the publication of a similar directive by the Capital Market, Insurance and Savings Authority and as a joint step by the two regulators.

In accordance with the explanatory words, the need for the Directive arose in light of the significant increase in the credit that is provided to households, inter alia, against the background of the low interest rates, the increase in private consumption and the availability of credit by non-banking sources.

It is further mentioned that improper conduct towards customers is at the center of public and regulatory discourse in Israel and globally, and could cause the realization of legal and regulatory risks, reputational damage and significant losses for the banking corporations.

A series of provisions were set in the Directive, which are connected to the management and marketing of credit for private individuals, including the setting of policy, procedures and strategy, and the roles of the Board of Directors and the Management that are connected to the responsibility for the implementation of those determinations. The Directive has placed an emphasis on three main principles: the granting of credit based on information, fairness and decency and the

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management of the credit risk and compliance risks at the level of the customer and at the level of the borrower's overall credit.

Principles are determined in the Directive, which prohibit aggressive marketing of credit, and principles are also included, which include fair disclosure, underwriting, monitoring and control.

The Company is unable to assess the impact of the Directive.

Circular on the Subject Proper Conduct of Banking Business Directives No. 472 – Liability Shift Mechanism and EMV

On January 15, 2020 the final version of Proper Conduct of Banking Business Directives on the subject, which relates to the promotion of the EMV standard in Israel and including, inter alia, an outline for the execution of a sunset, which will gradually discontinue the execution of transactions under the old credit/ fake EMV protocol ( execution of transactions with a smart card but without using a secret code) and a transition to the execution of full EMV transactions as well as a duty to issue contactless cards.

Draft Proper Conduct of Banking Business Directive No. 368 on the subject of "Implementation of an open banking standard in Israel"

On February 26, 2020, the Banking Supervision Department published a Draft Proper Conduct of Banking Business Directive on the subject of the implementation of a standard of open banking in Israel. The objective of the Directive, as published in it, is the strengthening of the customer's control over financial information about himself and the manner of the execution of activity on his payment account, by means of sharing banking information that is held by banking corporations acquirers with third party suppliers.

The directive determines the requirements from banks and from credit card companies in their role as payment account managers, as a source of information and as third party suppliers.

On April 7, 2020, an amendment to the Proper Conduct of Banking Business Directive was published, deferring its gradual entry into effect in relation to the duty of credit card companies to constitute a source of information until October 10, 2021, which was done in light of the Corona crisis.

Draft new Proper Conduct of Proper Banking Business Directive on the subject of "A banking corporation's contacts with providers of costs comparison services"

On December 11, 2020, the Company received a draft on this subject. The objective of the draft is to arrange the manner of a commitment by a banking corporation (including the Company) with a provider of costs comparison services,. The draft differentiates between such a provider of services that is an agent of a customer and a provider of services that operates as a broker.

The allocation of an identifier code from the Bank of Israel

On May 11, 2020, the Company received an identifier code from the Bank of Israel, which will enable the Company to participate as a direct participant that is not a member of the clearing system in the payments market.

The Bank of Israel's position regarding payments and activity via digital wallets

On February 14, 2021, a press release was published, containing the Governor of the Bank of Israel's position in light of developments in the field of payments and activity via digital wallets.

Pursuant to the press relief, the Bank of Israel's policy regarding developments in the payments market is directed at creating infrastructure, which will enable the players in the market to create innovation in the payments field and thus to expand the range of possibilities for consumers and merchants in Israel for executing payments in a manner that will strengthen the customer experience, improve the consumer's sense of wellbeing and at the same time contribute to encouraging and developing competition for the benefit of the public.

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It is further stated in the press release that the Bank of Israel has been examined new projects in the payments market recently, including activity in the field of digital warrants in existence and which are expected to be developed in the near future. One of the significant issued that has arisen within the framework of the testing was the transfer and accumulation of information by bodies in the payment instruction chain regarding financial activity by customers and the uses that may be made of the said information ; the Bank of Israel mentioned that it intends to examine this issue, together with other relevant bodies, and that it will promote regulation on the issue if necessary.

Meanwhile the Bank of Israel has formulated its position, pursuant to which the new projects encourage competition, develop the payments world and lead to increased value for the Israeli consumer and accordingly it does not see fit to delay the bodies that are involved, and solely that at this stage of the developments in the payments market:

1. No use may be made of information that has been collected within the framework of the digital wallet in order to provide financial services or the sale of other financial products to customers having a charge card that has been issued to them by issuers who are not the owners of the wallet. This will be the case until all aspects of the issue have been examined;

2. Within a short period of time the wallet is to be be open to the possibility of a multitude of cards issued by various issuers, such that customers can make use of a number of cards, which they have selected, easily and conveniently;

3. The restriction that has been imposed on the two largest banks in the Increasing of Competition and Reduction of Competition in the Banking System Law, regarding card facilities, which apply to credit cards that have been issued or which may be issued within the framework of cooperation projects in which the two largest banks are involved, whether these are special cards for use in an electronic wallet and whether they are other cards, unless the Bank of Israel may announce, at the end of the examination that it is conducting, that such cooperation does not lie within the bounds of a joint issue to which the abovementioned restrictions apply.

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Operating Segments - Additional Details

The Group has two main operating segments: the credit card issuing segment and the credit card acquiring segment.

The issuing segment

General The Company issues credit cards to its customers (credit cardholders) who use them to pay for products and services that are purchased from various merchants.

A customer wishing to obtain a credit card must sign a contract with the issuing acquirer.

The issuing company collects various fees from the parties involved in a transaction: the company charges the cardholder a fee for issuing the card and for its ongoing operation, while the company charges the acquirer, once the transactions conducted using the company’s card have been approved, with an interchange fee that is deducted from the total transaction consideration that is transferred from the company to the acquirer.

At the present time, CAL issues the following brands of credit cards: “Visa", "Diners” (exclusively), and “MasterCard”.

The credit cards issued by the Company are divided into two main categories:

1. Bank cards - issued to customers of banks with which the Company has entered into a joint issuing arrangement. These cards are issued and operated by the Company and it bears the cost of damages resulting from forgery and theft in respect thereto. On the other hand, the banks extend credit to the customer and bear the full credit risk and all that is implied thereby.

2. Non-bank cards: issued directly to customers by the Company. Accordingly, it is the Company, through its subsidiaries, is the party that extends credit to the customer and that bears all the risks arising from activity on such cards.

The credit granted by the Company includes loans, the spreading of payments for past transactions (for example: through a deferred charge or a credit transaction), cash withdrawals and so forth.

Products and services As mentioned above, the Company issues and operates the following brands of credit cards: “Visa”, “MasterCard” and “Diners”. Some of the cards issued are bank cards, while others are non-bank cards. The cards are used to purchase products and services and also to withdraw cash.

In addition, the Company offers its customers various all-purpose loans, including “cardless loans” and vehicle purchase loans through Shlomo CAL Ltd., debt spreading plans (for example: deferred charges, credit transactions, revolving credit, fixed monthly charges, a monthly charge according to the customer’s instructions - Cal Choice, and so on) as well as prepaid cards.

Primary markets and means of distribution The Company’s customers in this segment are credit cardholders, including private customers, employees of large corporations and businesses.

The Company has striven to increase the proportion of non-bank cardholders, primarily within the framework of customer clubs, subject to checking the solvency of each potential customer.

As at the time of the publication of this report, no customer in this segment had segment income constituting 10% or more of the total segment income.

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Marketing and distribution in the issuing sector are primarily performed through strengthening cooperation with the co- brand banks and also with customer clubs. The first of these constitutes a “recruitment platform” for the Company through which it adds bank customers to those receiving its services, while the second adds non-bank customers.

Adding customer club customers confers, in most cases, discounts and benefits from a variety of merchants on those becoming cardholders.

Currently the main clubs are: Shufersal, FlyCard, Cal 365, Cal - H&O, Powercard and High-tech Zone.

For the purpose of issuing bank cards, the Company enters into agreements with various banks in order for them to offer their customers the Company’s credit cards. Apart from the above, the Company forms alliances with leading businesses in Israel and makes use of various media advertising and marketing channels, as well as sales stands.

The Company has an active Internet site whose address is www.cal-online.co.il, which provides information regarding the Company’s products and services, offers, discounts and benefits and enables access to the accounts of the cardholders so that they can track and control their purchases. In addition, the Company has launched a smart phone application that lets a customer keep track of his transactions and provides him with information regarding the Company’s various services, benefits and discounts. Income and expenses The Company allocates to the issuing segment the whole of the income and expenses arising from the issue of cards (bank and non-bank), from the addition of new customers and their ongoing handling and from transactions performed with credit cards, at all stages of the transaction - from the time of purchasing the product or service through to the transfer of the consideration to all the parties connected with the transaction.

The main sources of income are:

1. An interchange fee that is paid to the Company, in its role as an issuer, by an acquirer that acquires a transaction performed with a card issued by the Company.

2. Fees that are collected from cardholders, such as: card fees, deferred charge fees and currency conversion fees for purchases made in foreign currency.

3. Financing income that the Company derives from granting credit, in various forms, to customers.

4. Income from issuing prepaid credit cards.

The main expenses attributable to this sector are operating expenses relating to the issued cards, selling, marketing and advertising expenses, gift offer expenses, expenses of mailing information to customers, expenses for credit losses, payments to banks, depreciation expenses and salary expenses.

Competition The Company’s competitors in the acquiring sector are the Isracard group and Max IT Finance.

Within the context of competition in this sector, the Company competes to recruit new customers, who either do not have a credit card or who hold a credit card of a rival company. The Company also takes measures to retain existing customers and to prevent them leaving and switching to the Company’s competitors.

In addition, the Company is active and invests considerable resources in marketing and providing discounts and benefits to its cardholders so that they will use the Company’s cards to make most of their purchases. The Company also offers its cardholders diverse credit services as an alternative to or in addition to normal bank credit.

Furthermore, the extent of the use of credit cards in Israel is perpetually increasing (except for a certain slow-down that began in 2020 with the outbreak of the Coronavirus). In particular, there has been an increase in E-commerce activity in

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previous years on the internet, where the turnover of purchases that are made on-line, including on smart-phones, has undergone significant growth in recent years.

The principal actions that the Company takes vis-à-vis its competitors are spread over several fields, including:

1. Improving the service to existing customers so as to keep them with the Company.

2. Marketing and sales promotion measures, including advertising, granting various benefits, discounts and offers to holders.

3. Developing new products and services in answer to various requests from customers (individuals and merchants) and to changing market needs.

See Page 20 above for additional details regarding competition in the issuance segment.

Critical success factors: There are a number of factors that positively affect the Company’s competitive position in the issuing segment, the principal of which are: products and services aimed at a diverse customer base, the Company’s image and its brands, high-quality and experienced human capital, an effective and developed risk management set-up, advanced IT systems and infrastructure, the long-term card issuing agreements entered into with co-brand banks, the ability to issue leading brand credit cards (“Visa”, “MasterCard” and “Diners”), a wide-ranging system of agreements with customer clubs covering a broad range of customer segments, a strong capital structure, and the ability to borrow money from financial institutions under convenient terms.

On the other hand, there also a number of factors that negatively affect the Company’s competitive position, the principal of which are: the development of alternative payment means that could reduce the demand for the issue of credit cards, the entry of retail parties into the card issuing segment and frequent and significant regulatory changes, primarily by the Supervisor of Banks and the Competition Commissioner (formerly: the Anti-Trust Commissioner), such as the reduction of the interchange fee rate, arrangements for issuing immediate charge cards and so on.

Entry barriers A body that is interested in commencing operations in the issuing sector is confronted with a number of barriers, the principal of which are: fulfilling certain eligibility conditions in order to receive a license from an international organization to issue branded cards; the existence of an extensive, costly set-up, including advanced IT and customer service systems; major, ongoing investment in marketing, distribution and selling channels with a nationwide coverage, and in particular distribution channels with banks and customer clubs; the financial strength to be able to raise credit at preferential market terms; having an issuer controlled by a stable corporation in order to be recognized by international organizations and for membership therein; receipt of guarantees from the controlling corporation; establishing an efficient and developed system for rating credit risks; and the necessity to have a minimum capital amount in order to comply with the directives of the Supervisor of Banks regarding the ratio of capital to risk assets.

Alternative products There are many alternative products to credit cards ranging from the traditional alternative products (such as: cash, checks, bank transfers, standing orders, purchase vouchers, prepaid cards and credit cards from banks and non-bank credit companies) to available and convenient high-tech alternative products, such as: payments by smartphone (including, inter alia, payment applications that are operated by banking corporations in Israel) and “digital wallet” services.

Legislative restrictions, regulations and special constraints The Company operates within the framework of laws, regulations and regulatory guidelines applicable to the banking sector in Israel, alongside various supervisory agencies, including: The Banking Supervision Department, the Competition Commissioner, etc. The principal restriction to which the segment is subject is Limitations for an individual borrower, a group of borrowers and the indebtedness of all of the six largest groups of borrowers. Under the Proper Conduct of Banking

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Business Directives, a limit is imposed on the amount of debt permitted to a borrower, a group of borrowers and the total amount of indebtedness of the Company’s six largest groups of borrowers. These limits could have implications on the level of activity in the segment and the way that such activity is conducted with those customers.

As at December 31, 2020, none of the aforesaid limits had been exceeded.

Goals and business strategy Being the leading player in the issuing market both by means of fully utilizing the banking channel, by offering solutions tailored to the customer’s needs, and also by means of recruiting cards in the non-banking channel, with the existing customer clubs and by creating alliances with various bodies to establish additional customer clubs.

Moreover, the Company is taking measures to transform itself into a major player in the consumer credit sector, with the recruitment of non-banking cards constituting the infrastructure for recruiting consumer credit and for positioning the Company as a body that provides a range of credit services (including by means of credit cards).

The acquiring segment

General In its acquiring activities, an acquirer guarantees to the merchant with whom it is the acquirer, subject to an agreement between them, that it will settle the charges in respect of transactions for the purchase of a product or service conducted by cardholders with the merchant, where such transactions are approved by the acquirer and checked with the issuer. The acquiring company collects a “merchant discount fee” for acquiring the aforementioned transaction charges.

An acquiring company is an organization that is a member of an international organization that grants the franchise use of a certain credit card brand and is usually also a financial institution.

The competition in the Israeli acquiring segment is strong and encompasses the three Israeli credit card groups: CAL (including Diners), Isracard (including American Express) and Max.

The Company has entered into acquiring agreements with businesses in various economic sectors and offers, in addition to acquiring services, inter alia through a subsidiary, financial services such as: granting loans, providing advances on account of the balance of future credits that they are expecting to receive in respect of regular transaction vouchers; factoring services to merchants (i.e., crediting the business with an immediate single payment net of commission, against vouchers for regular transaction and for installment transactions); and also various plans for advancing the regular credit date of the business in return for a fee.

Markets and means of distribution The customers of the Company in this segment are merchants in the various fields, including national chains, who enter into acquiring agreements with the Company. These merchants accept credit cards from one or more of the following brands: “Visa”, “MasterCard” and “Diners”.

Other customers in this segment are businesses seeking voucher factoring services, the receipt of loans, the advancing of payment dates and the receipt of advances.

As at the time of the publication of this report, no single customer in the acquiring segment had segment income constituting 10% or more of the total segment income.

Marketing efforts in the acquiring segment are directed primarily at merchants (in most cases, a chain engages a single acquirer for all its branches), with particular focus on their needs.

Acquiring services are marketed primarily to businesses by the Company’s salespersons, who serve as the liaison with those businesses even after they have been recruited. Moreover, the Company operates a unique Internet site for merchants that, inter alia provides detailed information regarding past and future credits and debits, a facility to order reports and invoices

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at the individual merchant level and at the chain level and to receive them in a secure drop box, etc. The marketing of the acquiring services is also done though Gama (see the chapter on “Significant agreements”, which appears above, for details regarding the agreement with Mega) and it is also expected that they will be performed through a company that provides credit terminals (see the chapter on significant agreements in this report for details regarding the agreement with it).

The main objectives of the Company’s marketing activities are: the retention of existing merchants as customers; enhancing and maintaining the Company’s image; recruiting new businesses to the ranks of the Company’s customers and expanding the basket of services that it offers.

Income and expenses All the income received from merchants is allocated to this segment, as are all the expenses associated with recruiting businesses and dealing with them on an ongoing basis.

The segment’s main sources of income are:

1. Income from the acquiring margin, namely the merchant discount fee, net of the interchange fee (which is credited to the issuing segment).

2. Income from service fees that are collected from merchants, such as: joining fees, fees for the authentication of particulars, management fees, loan set-up fees, etc.

3. Income in respect of factoring services and the advancing of payment dates for merchants.

The principal expenses that are allocated to the segment are the interchange fee paid to the card issuer, expenses for the recruitment and retention of businesses, ongoing advertising expenses with merchants, expenses for the production and delivery of credit advices, operating fees to banks and Automatic Bank Services Ltd., employee salaries, etc.

Competition

The acquiring segment is characterized by a high level of competition between the acquirers.

The players in the credit card acquiring segment are: the CAL group that acquires cards of the “Visa”, “MasterCard”, “Diners” (exclusively) and “Isracard” brands; the Isracard group that acquires cards of the “Isracard”, “MasterCard”, “Visa”, and “American Express” (exclusively) brands; and Max that acquires cards of the “Visa”, “MasterCard” and “Isracard” brands.

Various regulatory changes, as set forth in the “Material Legislative and Regulatory Restrictions and Special Constraints Applicable to the Company” section (page 210), may introduce into the market additional acquirers, leading to increased competition in this sector.

The Company competes in order to expand its portfolio of businesses to which it provides acquiring services and complementary services and focuses on signing acquiring agreements with new businesses and on retaining existing merchants as customers through investing in significant marketing and sales efforts.

Another aspect of the competition in the segment relates to the development of financial and operational products and services for the merchants, which can result in raising the scope of those merchants’ turnover with the Company (see the “Products and services” section).

In order to contend with the competition in the segment and to strengthen the merchants’ loyalty to the Company, the Company implements the following measures: a competitive pricing policy; investment in resources to improve service to merchants and to retain them, while tailoring the products and services to the needs of the business; strengthening alliances with merchants; operating an efficient service set-up and a marketing and selling set-up that can provide solutions for merchants and respond to their various needs; marketing a comprehensive basket of products to merchants, while growing the Company’s market share in the segment.

Critical success factors:

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There are a number of factors that positively affect the Company’s competitive position in the acquiring segment:

Experience gained in the credit card acquiring sector; an effective service set-up to provide suitable solutions for merchants; advanced IT systems and infrastructure; a professional and effective risk management set-up; high-quality and experienced human capital; an extensive and effective marketing and selling set-up at enabling the recruitment of new customers and the retention of existing customers; a strong, well-respected brand; continual development and expansion of the basket of products and services; the existence of interchange acquiring agreements between all the acquirers in the country; obtaining a license from the international organizations to acquire their brands; establishing and deploying a communications set-up that enables acquiring or communication with the Automatic Bank Services Ltd.; a stable capital structure and positive cash flows.

The factors that negatively affect the Company’s competitive position are: technological improvements that create alternative payment means that could reduce the use of credit cards; regulatory guidelines relating to the acquiring interface and the opportunity available to merchants, should they so desire, for them to switch to another acquirer of the leading brands: “Visa”, “MasterCard” and “Isracard”.

Entry barriers The principal barriers confronting a company wishing to enter the acquiring segment are: receiving a license from the international organization that owns the credit card brand that it is desired to acquire. Receipt of such a license necessitates meeting business and financial standards that will assure the company’s operations; deploying an extensive communications set-up enabling online acquiring, or alternatively entering into an agreement with Automatic Bank Services Ltd., which has a set-up of this kind; establishing a reliable and stable IT system for billing management; financial resources, experience and expertise for the purpose of investing in technology, operational, advertising and marketing set- ups; conducting large-scale acquiring operations in order to pay back the investment in the acquiring infrastructure; minimal capital requirements; extensive and effective customer service, sales and customer recruitment set-ups.

Alternative products There are numerous payment means that provide an alternative to credit cards ranging from cash, standing orders, bank transfers, purchase vouchers and checks, to payments by smartphone and “digital wallet” services with a special purpose App.

Bank and non-bank credit, as well as check discounting services, constitute alternative products to credit and other financial services provided by the Company.

Goals and business strategy The Company’s main goal is to market a comprehensive basket of products for merchants, while increasing its share of the market in the acquiring segment. The Company is also acting to develop and market additional products that it will offer to merchants, in addition to the products it currently offers.

Seasonality The seasonality in the issuing segment and in the acquiring segment results from the seasonality of private consumption in Israel, on which credit card transactions are based. As a result of this, an increase in consumption and in the use of debit cards can be seen, primarily in the periods of the Jewish New Year, the Passover festival and other holidays.

Legal Proceedings Pending claims against the Company Various claims are pending or are in process against the Company and its subsidiaries, including class actions and petitions to certify claims as class actions, that have been filed against them by customers of the Company and its subsidiaries, former

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customers and various third parties, who see themselves as having suffered harm or damage from the actions of the Company and its subsidiaries during the normal course of their business. Such proceedings include claims regarding unlawful charges and/or charges not in accordance with agreements and the illegal charging of accounts. In the opinion of the Company’s Management, based inter alia on legal opinions, adequate provisions have been included in the financial statements, where necessary.

The material claims pending and in process against the Company and its subsidiaries are described in Note 23B to the financial statements.

Debt recovery procedures As part of the Company’s and its subsidiaries’ debt collection policy, legal proceedings are instituted in the ordinary course of business for the recovery of debts from the debtors or from the guarantors for such debts, including the realization of collateral provided by the debtors or by any third parties. Included in such proceedings are proceedings for receiverships, liquidations, the foreclosure of pledged assets, etc.

Material legal proceedings that ended in 2020 See Note 23 on the subject of contingent liabilities and commitments regarding legal proceedings that ended in 2020.

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Appendices to the Annual Report

Rates of Interest Income and Expenses of the Company and its Subsidiary and Analysis of Changes in Interest Income and Expenses

Year ended December 31, 2020 Year ended December 31, 2019 Year ended December 31, 2018 Financing Income Financing Income Financing Income Average income (expense) Average income (expense) Average income (expense) balance (1) (expenses) rate balance (1) (expenses) rate balance (1) (expenses) rate In NIS millions In % In NIS millions In % In NIS millions In % Interest bearing assets Receivables on credit card transactions (2) 7,990 562 7.03 7,624 538 7.06 6,862 489 7.13 Cash and bank deposits 64 - - 70 - - 43 - - Other assets 1 *- - 1 *- - 1 *- - Total interest bearing assets 8,055 562 6.98 7,695 538 6.99 6,906 489 7.08 Receivables on credit card transactions - non- interest bearing 9,621 - 9,315 - - 7,824 - Other non-interest bearing assets (3) 492 - 430 - - 269 - Total assets 18,168 562 17,440 538 - 14,999 489

Interest bearing liabilities Credit from banks (5,768) (31) 0.54 (5,731) (32) 0.57 (4,595) (24) 0.52 Subordinated notes (21) (1) 3.22 (34) (1) 3.58 (52) (1) 3.34 Other liabilities *- - - *------Total interest bearing liabilities (5,789) (32) 0.55 (5,765) (33) 0.58 (4,647) (25) 0.55 Payables on credit card transactions (10,043) - (9,446) - (8,243) - Other non-interest bearing liabilities (475) - (401) - (361) - Total liabilities (16,307) (32) (15,612) (33) (13,251) (25)

Total capital resources 1,861 1,828 1,748 Total liabilities and capital resources 18,168 17,440 14,999 Interest margin 6.43 6.41 6.53

* Represents an amount of less than NIS 1 million.

See the comments on the table on page 230.

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Year ended December 31, 2020 Year ended December 31, 2019 Year ended December 31, 2018 Financing Income Financing Income Financing Income Average income (expense) Average income (expense Average income (expense) balance (1) (expenses) rate balance (1) (expenses) ) rate balance (1) (expenses) rate In NIS millions In % In NIS millions In % In NIS millions In % Unlinked Israeli currency Total interest bearing assets (2) 7,675 558 7.27 7,310 530 7.25 6,520 476 7.30 Total non-interest bearing assets (3) 9,922 - - 9,522 - - 7,860 - - Total interest bearing liabilities (5,792) (32) 0.55 (5,767) (33) 0.58 (4,649) (25) 0.55 Total non-interest bearing liabilities (10,307) - - (9,588) - - (8,347) - Interest margin 6.72 6.67 6.75 CPI-linked Israeli currency Total interest bearing assets (2) 369 4 1.09 374 8 2.26 370 13 3.49 Total non-interest bearing assets (3) 64 - - 75 - - 80 - - Total interest bearing liabilities ------(3) - - Total non-interest bearing liabilities (100) - - (98) - - (91) - - Interest margin 1.09 2.26 3.49

See the comments on the table on the following page

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Year ended December 31, 2020 Year ended December 31, 2019 Year ended December 31, 2018 Financing Income Financing Income Financing Income Average income (expense) Average income (expense) Average income (expense) balance (1) (expenses) rate balance (1) (expenses) rate balance (1) (expenses) rate In NIS millions In % In NIS millions In % In NIS millions In %

Foreign currency (including Israeli currency linked to foreign currency) Total interest bearing assets (2) 11 *- - 11 *- - 16 *- - Total non-interest bearing assets (3) 127 - - 148 - - 153 - - Total interest bearing liabilities 3 (*-) - 2 (*-) - 5 (*-) - Total non-interest bearing liabilities (111) - - (161) - - (166) - - Interest margin - - - Total activity Total interest bearing assets (2) 8,055 562 6.98 7,695 538 6.99 6,906 489 7.08 Total non-interest bearing assets (3) 10,113 - - 9,745 - - 8,093 - - Total interest bearing liabilities (5,789) (32) 0.55 (5,765) (33) 0.58 (4,647) (25) 0.55 Total non-interest bearing liabilities (10,518) - - (9,847) - - (8,604) - - Interest margin 6.43 6.41 6.53

Net return (4) on interest bearing assets 6.58 6.56 6.71

* Represents an amount of less than NIS 1 million.

See the comments on the table on the following page

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2020 compared with2019 2019 compared with 2018 Increase (decrease) due Increase (decrease) due to change in to change in Net Net Amount Price change Amount Price change Analysis of changes in interest income Interest bearing assets Receivables on credit card transactions 26 (2) 24 54 (5) 49 Cash and bank deposits ------Other assets (*-) (*-) (*-) (*-) (*-) *- Total interest income 26 (2) 24 54 (5) 49

Analysis of changes in interest expenses Interest bearing liabilities Credit from banks - 1 1 (6) (3 ) (9) Subordinated notes - (*-) - 1 (*-) 1 Other liabilities ------Total interest expenses - 1 1 (5) (3) (8) Total interest income, net 26 (1) 25 49 (8) 41

1. Based on monthly opening balances (in the unlinked Israeli currency segment - based on daily balances). 2. Before deduction of the average book balance of allowances for credit losses. Includes balances in respect of transactions on credit cards issued by the Company for which factoring has been performed; also includes impaired debts that do not accrue interest income. 3. Including other non-interest bearing assets and net of allowance for credit losses. 4. Net return - net interest income divided by total interest bearing assets.

* Represents an amount of less than NIS 1 million.

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Consolidated Balance Sheet - Multi-Quarter Information

Year 2020 2019 Quarter 4 3 2 1 4 3 2 1 In NIS millions Assets: Cash and bank deposits 52 55 51 55 67 121 44 47 Receivables on credit card transactions, net 17,598 17,376 16,967 17,461 18,324 17,966 16,571 16,365 Securities 27 47 53 53 53 53 53 53 Investment in an associate 13 12 12 12 12 12 12 12 Buildings and equipment 460 420 392 384 375 352 339 331 Other assets 385 521 410 394 328 333 337 325 Total assets 18,535 18,431 17,885 18,359 19,159 18,837 17,356 17,133 Liabilities: Credit from banks 5,156 5,450 5,617 6,468 6,594 6,398 5,783 5,546 Payables on credit card transactions 10,918 10,498 9,928 9,581 10,272 10,175 9,363 9,272 Subordinated notes 14 20 20 20 28 34 34 34 Other liabilities 517 555 485 467 444 404 404 412 Total liabilities 16,605 16,523 16,050 16,536 17,338 17,011 15,584 15,264 Total equity 1,930 1,908 1,835 1,823 1,821 1,826 1,772 1,869 Total liabilities and equity 18,535 18,431 17,885 18,359 19,159 18,837 17,356 17,133

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Consolidated Statement of Profit and Loss - Multi-Quarter Information

Year 2020 2019 Quarter 4 3 2 1 4 3 2 1 In NIS millions Income

Credit card transactions 323 315 286 330 352 358 333 313 Net interest income 128 134 134 134 130 125 130 120 Non-interest financing income (1) 68 (2) 8 2 2 (1) (1) Total income 450 517 418 472 484 485 462 432

Expenses For credit losses 33 25 60 105 30 54 29 34 Operating 169 175 146 167 161 146 156 154 Selling and marketing 127 139 111 131 135 118 116 116 Administrative and general 20 23 15 20 20 20 18 20 Payments to banks 66 68 55 61 66 70 66 58 Total expenses 415 430 387 484 412 408 385 382 Profit before taxes 35 87 31 (12) 72 77 77 50

Provision for taxes on profit 8 16 8 (5) 20 19 23 13 Profit after taxes 27 71 23 (7) 52 58 54 37 Company’s equity in profits of associate, net of tax effect 1 *- *- *- *- *- *- *- Net earnings attributable to equity holders of the Company 28 71 23 (7) 52 58 54 37 Basic and diluted earnings per ordinary share (in NIS): Net profit attributable to equity holders of the Company 25.9 63.9 20.8 (6.2) 47.4 52.4 49.4 33.4 Par value of weighted share capital (in NIS) 109.8 109.8 109.8 109.8 109.8 109.8 109.8 109.8

* Represents an amount of less than NIS 1 million.

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Consolidated Statement of Profit and Loss - Multi-Period Information

For the year ended December 31 2020 2019 2018 2017 2016 In NIS millions Income

Credit card transactions 1,254 1,356 1,226 1,074 984 Net interest income 530 505 464 423 362 Non-interest financing income 73 2 8 14 276 Total income 1,857 1,863 1,698 1,511 1,622

Expenses For credit losses 223 147 156 126 74 Operating 657 617 557 483 540 Selling and marketing 508 485 439 313 278 Administrative and general 78 78 74 65 69 Payments to banks 250 260 259 234 219 Total expenses 1,716 1,587 1,485 1,221 1,180 Profit before taxes 141 276 213 290 442

Provision for taxes on profit 27 75 56 80 150 Profit after taxes 114 201 157 210 292 Company’s equity in profits of associate, net of tax effect 1 *- (*-) 1 *- Net earnings attributable to equity holders of the Company 115 201 157 211 292 Basic and diluted earnings per ordinary share (in NIS): Net profit attributable to equity holders of the Company 104.8 183.1 143.0 192.2 266.0 Par value of weighted share capital (in NIS) 109.8 109.8 109.8 109.8 109.8 * Represents an amount of less than NIS 1 million.

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Consolidated Balance Sheet - Multi-Quarter Information

December 31 2020 2019 2018 2017 2016 In NIS millions Assets: Cash and bank deposits 52 67 46 52 49 Receivables on credit card transactions, net 17,988 18,618 15,699 13,760 12,119 Allowance for credit losses (390) (294) (256) (203) (155) Receivables on credit card transactions, net 17,598 18,324 15.443 13,557 11,964 Securities 27 53 53 53 53 Investment in an associate 13 12 12 12 11 Buildings and equipment 460 375 323 262 226 Other assets 385 328 138 115 113 Total assets 18,535 19,159 16,015 14,051 12,416 Liabilities: Credit from banks 5,156 6,594 4,883 4,366 3,614 Payables on credit card transactions 10,918 10,272 8,861 7,568 6,870 Subordinated notes 14 28 41 104 110 Other liabilities 517 444 392 333 318 Total liabilities 16,605 17,338 14,177 12,371 10,912 Equity attributed to equity holders in the Company 1,930 1,821 1,838 1,680 1,504 Total liabilities and equity 18,535 19,159 16,015 14,051 12,416

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Glossary

Acquiring - Part of the process of conducting a credit card transaction, within the framework of which the acquirer is required to credit the payment recipient in respect of transactions approved by it after these have been checked by the payee’s credit card issuer.

Acquiring Margin - The difference between the merchant discount fee received from the merchant and the interchange fee paid to the issuing company.

Anticipated Return - Reflects interest, dividends and other income derived from plan assets, together with losses/ realized and unrealized gains in respect of plan assets less plan management costs and taxes payable by the plan.

Auxiliary Banking Corporation - A corporation that is not itself a banking corporation whose business is solely in the sphere of operations permitted to the banking corporation that controls it, other than business that is unique to banking corporations pursuant to the law.

Bank Credit Card - A card issued by the bank (through a credit card company), where the credit facility on the card is subject to the credit facility on the customer’s current account.

Basel II/Basel III Instructions - The instructions for the management of bank risks that have been prescribed by the Basel Committee on Banking Supervision that deals with the supervision and the setting of standards for the supervision of the world’s banks. The instructions of the Basel Committee constitute a benchmark for leading standards intended to ensure the stability of financial institutions.

Capital Adequacy - The ratio between the Company’s total risk assets and the Company’s equity in accordance with the directives of the Supervisor of Banks.

Capital Adequacy Ratio - The ratio between the regulatory capital at the Company’s disposal and the risk-weighted assets in respect of credit risk, market risk and operational risk, calculated according to the directives of the Bank of Israel and expressing the risk reflected in the exposures assumed by the Company in the course of its activities.

Capital to Risk Components Ratio - The ratio between the capital and the risk assets, calculated according to the recommendations of the Basel Committee.

Commercial Credit - Loans to merchants, balances of factored merchants’ vouchers for merchants that did not comply with liability extinguishment terms and balances in respect of regular transactions and/or payments with credit cards of customers classified as corporations in accordance with the provisions of Proper Conduct of Banking Business Directives Nos. 201-210.

Common Equity Tier 1 - The accounting equity, viz., the issued and paid-up share capital, with the addition of retained earnings and net capital reserves, as well as deferred “perpetual” bonds issued by the corporation.

Compliance Risk - The risk of the Group failing to interpret and implement directives, laws, rules and the regulatory standards applicable to its operations and, as a consequence, incurring fines and penalties that will cause it business harm.

Counterparty Credit Risk - A credit risk in respect of a counterparty is a risk that the counterparty to a transaction might become insolvent before final settlement of the cash flows relating to the transaction.

Credit Card - A reusable card or other object intended for the purchase of goods and services from a supplier without the immediate payment of the consideration.

Credit Guaranteed by Banks - Balances in respect of regular transactions and/or payments with cards issued by the Company to customers of banks with which the Company has entered into a joint issuing arrangement. Such banks bear the credit risk of the aforementioned balances.

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Credit Risk - The risk of harm to the value of the Company and its profits due to deterioration in borrowers’ ability to meet their obligations or due to deterioration in the quality of the borrowers and the value of the collateral provided by them to the Company.

Credit Risk Mitigation - A technique for mitigating the credit risk associated with the exposure by implementing risk reduction instruments, such as, guarantees, charges, collateral and credit protection.

Credit to Individuals - Credit to individuals who are not corporations (registered or unregistered) and are not engaged in business activity.

Debt - A contractual right to receive money on demand or at set or determinable dates, which is recognized as an asset in the balance sheet of the banking corporation.

Debt in Arrears - The total debt if part of it has not been settled within 90 days of the date set for the repayment of such part, other than a debt temporarily in arrears.

Debt Restructuring - An arrangement pursuant to which a banking corporation, due to economic or legal considerations relating to the financial position of the borrower, grants the borrower, either through an agreement or under the law, special terms that would not be granted in other circumstances and which are intended to enable the customer to meet the debt repayment under the new terms, apart from an arrangement to alter the terms of a debt that largely reflects changes in the credit terms in Israel.

Debt Write-off - At the time of writing off or writing down a financial asset, the debt recorded on the customer’s account is also wholly or partly eliminated, when it is assessed that there is no real possibility of collecting the debt.

Deferred Charge Card - A card on which all the transactions conducted by the customers are deferred to a date chosen by him.

Defined Contribution - A defined contribution plan includes contributions for benefits. In addition, part of the severance payments is subject to the provisions of Section 14 to the Severance Pay Law, 1963 (“Section 14”), pursuant to which the regular deposits of the Group in pension funds and/or insurance policies exempt it from any additional liability to the employees for which such amounts are deposited.

Duration - The average time span until the maturity of assets and liabilities, measured in years.

EMV Standard - An assemblage of specifications developed by the international credit card organizations with the objective of providing a uniform and secure format for transactions paid for with charge cards with a chip (smart cards), made by means of an ATM or by means of a terminal at the point of sale (POS) that support the standard.

Exchange Rate Risk - The risk of loss as a result of changes in foreign currency exchange rates or in the consumer price index.

Exposure - A demand, ongoing claim or position that carries with it a risk of financial loss.

Group Allowance - An allowance in respect of debts examined on a specific basis and found not to be impaired, as well as an allowance in respect of large groups of small homogenous debts. A group allowance will be calculated for each group of debts with similar risk characteristics, on the basis of the rate of credit losses recognized in the past for such group, with this being adjusted for the latest economic circumstances as at the reporting date.

Immediate Charge Card - A bank card as defined in the Charge Cards Law, 1986, where the amount of a transaction conducted using it is charged immediately.

Immediate Charge Transaction - A transaction on an immediate charge card or on a prepaid card, other than a payment in respect of a cash withdrawal from ATMs.

Impaired Debt - A debt, in respect of which the Company expects, based on the latest information and events, to be unable to collect the amounts due to it under the debt agreement.

Interchange Fee - A fee paid to the issuer by the acquirer as part of the merchant discount fee.

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Interest Cost - Reflects the increase during the period in the present value of the liability for defined benefit, which arises because the benefits are one period closer to settlement.

Interest Risk - The risk to profits or capital arising from interest rate movements.

Internal Capital Adequacy Assessment Process (ICAAP) - A capital adequacy assessment process used in order to examine the scope of the capital required to support the various risks to which the Group is exposed, so as to ensure that the Group’s actual capital is sufficient to meet the aforesaid capital requirements at any time.

Internal Rate of Return (IRR) - The interest rate used to discount the anticipated cash flows from a financial instrument to the fair value presented in relation thereto

Issuing - Part of the process of conducting a credit card transaction, within the framework of which the card issuer undertakes to credit the acquirer for transactions approved by it.

Key Management Person - In accordance with Section 80.D (4) of the Public Reporting Directives.

Legal Proceedings - Civil court, arbitration or tribunal proceedings being conducted against the Group or a civil dispute which, in the event of no settlement being reached, might result in court, arbitration or tribunal proceedings.

Legal Risk - Legal risk is part of the operational risk, which is defined as the risk of loss as a result of improper or faulty internal processes and systems or human errors, or as a result of external events, while legal risk is defined as including, but not limited to, exposure to fines or penalties as a result of supervisory activities, as well as from individual arrangements.

Leverage - Use of external financing for the Company’s operations.

Leverage Ratio - The ratio between the capital measurement and the exposure measurement. The capital for the purpose of measuring the leverage ratio is common equity Tier 1, as defined in Proper Conduct of Banking Business Directive No. 202, taking into account the prescribed transition arrangements. The amount of the exposure measurement is equal to the total of the balance sheet exposures, derivative exposures and off-balance-sheet items.

Liability for Defined Benefits- The present value of the anticipated future payments required to settle the liabilities arising from the defined benefits plan in respect of employee services.

Liquidity Risk - The risk to the Company’s profits and capital as a result of the inability to satisfy liquidity needs. This risk includes: the risk that the Company will not meet its payment obligations on their due date (funding risk) and a risk that a crisis of some kind could cause the banks to refuse to provide the parent company with exceptional credit.

Market Risk - The risk that movements in market risk factors, including foreign currency exchange rates, the rate of inflation, interest rates, credit allocation and costs of capital will reduce the Company’s income or the value of its assets.

Merchant Discount Fee - The fee charged by the acquirer for providing acquiring services.

Net Interest/Financing Income - Net interest received or receivable on asset, after deducting interest paid or payable on liabilities.

Non-bank Credit Card - A card issued by a credit card company that does not have an agreement with the bank, where the credit facility is separate from that on the customer’s current account and the charges are collected from the current account by means of an authorization to charge the account.

Nonperforming Assets - Impaired debts that do not accrue interest income.

Operational Risk - The risk of loss as a result of improper or faulty internal processes and systems or human errors, or as a result of external events.

Prepaid Card - A card on which an amount has been prepaid up to which transactions can be conducted using the card.

Allowance for Credit Losses - Management’s most accurate estimate of the future credit losses, as at the reporting date.

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Regulatory Matters - Investigations, audits and other measures carried out following actions of regulators and law enforcement organs in connection with unlawful transactions.

Reputational Risk - The risk of harm to the Company's business position, resulting from damage to its image due to the publication of various matters, whether true or false, as perceived by its customers, banks, investors, supervisory authorities and others.

Return on Equity - The ratio of earnings attributed to the ordinary equity holders to the average equity attributed to the ordinary equity holders.

Revolving Credit Card - A card that allows the customer to choose the monthly amount that he wishes to be charged, with the debit balance being deferred to the following month and accruing interest.

Risk appetite - The total of all the types of the various risks that the Company is prepared to assume in order to attain its strategic goals and to realize the business plan.

Service Cost - Reflects the increase in the present value of a defined benefit obligation resulting from employee service in the reporting period.

Smart Card - A card containing a chip that meets the EMV standard.

Special Supervision Debt - A debt that has potential weaknesses for which Management’s special attention is required, and which, if not attended to, might adversely affect the prospects of repayment, the balance-sheet credit risk or the position of the banking corporation as a creditor.

Specific Allowance - An allowance that is required to cover anticipated credit losses in respect of debts examined on a specific basis and found to be impaired. This allowance is assessed on the basis of the future anticipated cash flows from the debt, capitalized at the original effective interest rate of the debt, or in accordance with the fair value, net of selling costs of the collateral charged to secure said credit, when collection of the debt is contingent on the collateral.

Substandard Debt - A debt that is inadequately safeguarded by collateral or by the solvency of the debtor, and in respect of which there is a distinct possibility That the banking corporation will sustain a loss, if the deficiencies are not rectified.

Systems Risk - Risks arising from the Company’s use of IT or from its dependence thereon.

Troubled Debt - A debt under special supervision, a debt temporarily in arrears, a debt that has not yet been restructured, a debt that does not bear income, or a debt that has been determined to be wholly or partly doubtful.

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Initials

ALM Asset Liability Management

ASU Accounting standards update

ATM Automated teller machine

BIN Bank identification number

COSO Committee of sponsoring organizations

CRO Chief risk officer

EMV Europay MasterCard Visa

FAS Financial accounting standards

GAAP Generally accepted accounting principles

IAS International accounting standards

IASB International accounting standards board

ICAAP Internal capital adequacy assessment process

IFRIC International financial reporting interpretations committee

IFRS International financial reporting standards

NIS New Israeli shekels

POS Point of sale

SEC Securities and exchange commission

SIC Standard interpretations committee

SOX Sarbanes Oxley

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Index

Chief Accountant Accounting Company management, 215 Accounting assessments, 97, 98, 99 Chief Executive Officer Accounting policies, 102, 103 Company management, 214 New accounting standards in the period prior to Employment agreement, 220 their implementation, 120, 121 Remuneration, 158, 161 Accounting assessments, 77 Collective agreement, 179, 181, 182 Accounting policies, 27, 77 Compliance risk, 72 Active cards, 30 Compliance risk, 76 Actuarial assessments Consolidated financial statements Assumptions, 156 Consolidated balance sheet, 92 Notes to the financial statements, 152, 153 Consolidated statement of cash flows, 94 Actuarial assumptions, 80 Consolidated statement of other comprehensive Agreements, 21 income, 91 Collective agreement, 161 Consolidated statement of profit and loss, 90 Direct Finance, 227 Notes to the financial statements, 96 Appetite for risk, 50 Statement of changes in equity, 93 Assets Corona, 36, 37, 56, 78, 98, 99, 101, 102, 207, 229 Deferred tax assets, 126 Credit for private individuals, 57 Fixed assets, 146 Credit risk, 54 Intangible assets, 223 Credit risk, 48 Other assets, 150 Credit risk, 74 Receivables, 129 Credit to private individuals, 35 Auditors Internal auditor, 216 Diners Club, 16, 172, 175, 177, 178 Remuneration of external auditors, 219 Diners Financing, 16, 46 Discount Bank, 179 Bank cards, 30 Dividends, 40 Bank Discount, 175 Notes to the financial statements, 162 Bank Hapoalim, 175 Bank Leumi, 175, 179 Early retirement, 161 Bank Mizrahi, 175 El Al, 177, 178, 209 Basel Employee benefits, 208, 209 Notes to the financial statements, 162 Employees Board of Directors, 11 Human capital, 224 Board of Directors of the Company, 211 Notes to the financial statements, 152, 153 Directors possessing accounting expertise, 214 Meetings of the Board of Directors, 214 Fair value Accounting policies, 109 CAL Financing, 16 Notes to the financial statements, 196 Capital Financial instruments Capital adequacy, 162, 163, 164 Accounting policies, 109 Leverage, 40, 165 Notes to the financial statements, 196 Return on equity, 28 First International Bank of Israel, 175 Cash and cash equivalents Flycard, 177, 178 Notes to the financial statements, 128 Certification, 83, 84, 86 Goodwill Chairman of the Board of Directors, 11 Notes to the financial statements, 144 Statement of the Chairman of the Board of Directors, 11 Holdings Chairperson of the Board of Directors, 211 Notes to the financial statements, 143 Change in the terms of debts, 37, 57 Changes in the terms of debts, 101 Impaired debt, 59

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Income, 29 Notes to the financial statements, 123 Accounting policies, 103, 108 Operating segments Notes to the financial statements, 122 Notes to the financial statements, 186 Information technology, 32 Operating segments, 42, 232 Information technology and cyber risk, 71 Operational risk, 75 Information technology risk, 76 Operational risk, 48, 69 Intangible assets Other comprehensive income, 34 Accounting policies, 111, 112 Interest income Profit Notes to the financial statements, 122, 123 Earnings per share, 118 Interested and related parties Provisions Notes to the financial statements, 198, 199, 200 Accounting policies, 106, 107, 119 Investee companies, 46 Notes to the financial statements, 130 Investee Companies, 16 IT Regulatory risk, 72 IT and computer systems, 222 Remuneration Remuneration plans, 158, 161 Legal and regulatory risk, 75 Risk review, 48 Legal proceedings Pending and ongoing claims and other Securities proceedings, 237 Notes to the financial statements, 141, 142 Legal risk, 48, 72 Sensitivity analyses, 66 Legislation, 27 Sensitivity analysis, 65 Material legislative and regulatory restrictions Strategy, 21 and special constraints applicable to the Company, 228 Taxes Liabilities Accounting policies, 117, 118 Commitments, 174 Changes in tax rates, 128 Contingent liabilities, 167 Notes to the financial statements, 124 Employee benefits, 152, 153 The Corona virus event, 101, 102 Other liabilities, 152 The Coronavirus event, 36, 37, 56, 78, 98, 99, 207, Payables on credit card transactions, 151 229 Liquidity and finance risk, 48 The Discount Campus, 149 The First International Bank, 175 Management The Strum Law, 182, 185 Changes, 211 Troubled debt, 59 Remuneration of senior officers, 220 Troubled debts, 101 Senior officers, 214 Turnover, 30 Market and liquidity risk, 74 Market risk, 48 Visa organization, 22, 179 Marketand liquidity risk, 64 Voluntary redundancy, 161, 208

Non-bank cards, 30 Yatzil Finances, 16, 46

Operating expenses

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