Link to an accessible report 2 Board of Directors and 61 Chapter "D" - Accounting policy Management Report and critical accounting estimates, controls and procedures 7 Board of Directors and Management 61 Critical Accounting Policies and Report - List of tables Critical Accounting Estimates 9 Chapter "A" - General overview, 62 Controls and Procedures goals and strategy 9 Condensed financial information Internal Control over regarding financial position and Financial Reporting operating results 11 Goals and business strategy 65 President & CEO's certification 12 Chapter "B" - Explication and 66 Chief Accountant's certification analysis of the financial results and business position Condensed Financial 12 Material trends, occurrences, Statements developments and changes 16 Material developments in income, 69 Review Report of the independent expenses and other comprehensive auditors to the shareholders of Israel income Discount Bank Ltd. 23 Structure and developments of 70 Condensed Consolidated statement assets, liabilities, capital and capital of profit and loss adequacy 71 Condensed Consolidated statement 29 Capital and capital adequacy of comprehensive Income 32 Activity of the Group according to 72 Condensed Consolidated Balance principal Segments of Operation - Sheet principal quantitative data and main 73 Condensed Statement of Changes in developments Equity 36 Main Investee Companies 74 Condensed Consolidated Statement 40 Chapter "C" - Risks review of Cash Flows 40 General description of the risks and 77 Notes to the Condensed Financial manner of management thereof Statements 41 Credit Risks 55 Market Risks 59 Liquidity and financing risks 60 Operational Risks 60 Compliance risks 61 Other risks Israel Discount Bank Limited and its Subsidiaries SECOND QUARTER OF 2019 Table of Contents 3 Corporate Governance, audit, Appendices to the Quarterly additional details regarding the Report business of the banking corporation and management 206 Appendix no. 1 - Rates of interest Income and Expenses on a consolidated thereof basis and analysis of the changes in interest Income and expenses 183 Corporate Governance and additional details - List of tables 214 Appendix no. 2 - Additional details - securities portfolio 184 Corporate governance and audit 216 Appendix no. 3 - Additional details 184 Board of Directors and Management 219 Appendix no. 4 - Glossary 184 Remuneration of Interested Parties and Senior Officers and Transactions with 221 Appendix no. 5 - Index Interested Parties 185 The Internal Audit in the Group 186 Additional details regarding the business of the banking corporation and management thereof 186 Discount Group Structure 186 Fixed Assets and Installations 186 The human capital 187 Rating of Liabilities of the Bank and some of its Subsidiaries 187 Activity of the Group according to regulatory operating segments - additional details 192 Credit Card Operations 192 Technological improvements and innovation 194 Main developments in the Israeli economy and around the world in the first half of 2019 199 Legislation and Supervision 201 Legal Proceedings 202 Proceedings regarding Authorities 7 Board of Directors and 36 Main Investee Companies Management Report - List 40 Chapter "C" - Risks of tables review 9 Chapter "A" - General 40 overview, goals and General description of the strategy risks and manner of management thereof 9 Condensed financial information regarding 41 Credit Risks financial position and 55 Market Risks operating results 59 Liquidity and financing risks 11 Goals and business strategy 60 Operational Risks 12 Chapter "B" - Explication 60 Compliance risks and analysis of the financial results and 61 Other risks business position 61 Chapter "D" - Accounting 12 Material trends, policy and critical occurrences, developments accounting estimates, and changes controls and procedures 16 Material developments in 61 Critical Accounting Policies income, expenses and other and Critical Accounting comprehensive income Estimates 23 Structure and 62 Controls and Procedures developments of assets, liabilities, capital and capital adequacy 29 Capital and capital adequacy 32 Activity of the Group according to principal Segments of Operation - principal quantitative data and main developments Israel Discount Bank Limited and its Subsidiaries SECOND QUARTER OF 2019 Board of Directors and Management Report 7 Board of Directors and Management Report - List of tables Page No. Condensed financial information and principal performance indices over a period of time -consolidated 10 Market share 10 Development of the Discount share 10 Developments in certain income statement items in the first half of 2019, compared with the first half of 2018 18 Developments in certain income statement items in the second quarter of 2019, compared with the first quarter of 2019 and 18 compared with the second quarter of 2018 Composition of the net financing income 19 Analysis of the total net financing income 19 Development of the interest income, net by regulatory operating segments 20 Distribution of the commissions 22 Condensed statement of comprehensive income 22 Developments in the principal balance sheet items 23 Data on the composition of net credit to the public by linkage segments 24 Review of developments in the balance of net credit to the public, by regulatory operating segments 24 Developments of total credit to the public risk, by main economic sectors 25 Overall credit risk and the rate of problematic credit risk in principal economic sectors 25 The distribution of expenses and the ratio of credit loss expenses in the different economic sectors in relation to the 26 outstanding balance of credit to the public in those sectors Composition of the securities portfolio by linkage segments 27 Composition of investments in securities according to portfolio classification in accordance with directives of the Supervisor 27 of Banks Data on the composition of deposits from the public by linkage segments 28 Review of developments in the balance of net credit to the public, by regulatory operating segments 29 Components of the regulatory capital as of June 30, 2019 30 Principal data regarding the household segment (Domestic operations) 32 Principal data regarding the Private Banking segment (Domestic operations) 33 Principal data regarding the Small and minute businesses segment (Domestic operations) 33 Principal data regarding the Medium businesses segment (Domestic operations) 34 Principal data regarding the Large businesses segment (Domestic operations) 34 Principal data regarding the Institutional bodies segment (Domestic operations) 35 Principal data regarding the Financial management segment (Domestic operations) 35 Principal data regarding the International operations segment 36 Discount Bancorp, Inc. – principal data 37 Mercantile Discount Bank – principal data 38 Israel Credit Cards – principal data 39 Discount Capital – principal data 40 Problematic credit risk and non performing assets 41 Changes in balances of impaired debts 41 Several financial ratios used to evaluate the quality of the credit portfolio 43 8 Board of Directors and Management Report - List of tables (continued) Page No. Details of present credit exposure to foreign financial institutions on a consolidated basis 48 Certain risk characteristics of the Group’s housing loans portfolio 49 Amount of loans and average financing ratios 49 Division of housing credit balances according to size of credit to borrowers 49 Volume of problematic debts in housing credit 49 Distribution of housing credit granted, according to financing ratios and as a ratio of credit granted 49 Data regarding developments in housing credit balances according to linkage segments 50 Composition of loans granted for housing purposes, divided by the ratio of repayments to earnings 50 Total credit and percentage of problematic credit in the construction and real estate sector 54 The Bank's exposure to leveraged finance according to economic sector of the acquired corporation 55 Deposits from the public 59 Deposits from Banks 60 Adjustments made to assets and liabilities in respect of derivative instruments 62 Israel Discount Bank Limited and its Subsidiaries SECOND QUARTER OF 2019 Board of Directors and Management Report 9 • CHAPTER "A" - GENERAL OVERVIEW, GOALS AND STRATEGY At the meeting of the Board of Directors held on August 14, 2019, the unaudited consolidated interim financial statements of Israel Discount Bank Ltd. and its subsidiaries for June 30, 2019 were approved (hereinafter: "the condensed financial statements"). The data presented in the report are consolidated data, unless explicitly stated otherwise. Condensed financial information regarding financial position and operating results Condensed financial information and principal performance indices over a period of time -consolidated First Half Year 2019 2018 2018 In % Principal performance indices: Return on equity 11.1 9.6 9.3 Return on assets 0.79 0.66 0.66 Ratio of credit to the public, net to deposits from the public 89.3 85.4 87.2 Ratio of common equity tier 1 to risk assets 10.37 9.82 10.24 Ratio of total capital to risk assets 13.31 13.31 13.67 Leverage ratio⁽¹⁾ 7.1 6.7 6.9 Liquidity coverage ratio⁽¹⁾ 133.3 135.0 124.8 Efficiency ratio 63.7 67.8 68.2 Principal credit quality indices: Ratio of balance of allowance for credit losses in respect of credit to the public, to balance of credit to the public 1.33 1.35 1.36 Ratio of the balance of impaired credit to the public together with the balance of credit to the public in arrears