"To the best of the bank's management's estimation, the negative developments in the global and Israeli telecommunications sector, which impacted very substantially on the bank's financial results, are not indicative regarding the scope of doubtful debt provision over the year." Optimistic, that assessment, even though it hardly inspired a desire to rush out and buy First International Bank of Israel (TASE:FIBI) shares. That statement emanated from the bank's chairman, Shlomo Piotrkowsky, and its CEO, David Granot. Thing is, it appeared in the bank's board of directors report appended to the first quarter financial statement, which showed the bank losing a net NIS 70 million. If you missed buying FIBI stock, don't weep. The bank did no better in the second quarter not did the quality of its borrowers improve. It ended the second quarter with a massive loss of NIS 148 million from regular operations. One is forced to conclude that Piotrkowsky and Granot were dead wrong: the negative developments were indicative of FIBI's bad-debt allowances down the line. Fine. Now what? The second-quarter report didn't offer any more rosy statements, maybe because Piotrkowsky and Granot don't want to state that the bank has hit rock-bottom, and that the worst is behind it. Yet the bank's press release, which is not as binding as its financial statements, did state: "In light of the relative drop in the growing trend of problem debt at the bank, and relative stabilization of the financial markets in Israel, the bank's management expects an improvement in financial results in the second half of the year, compared with the first half." Moreover, analysts working with the bank say its management really does believe the worst is behind them, and that FIBI will reach the black in the second half making enough to eradicate its losses of the first half. They say the bank exploited the terrible situation of the banking sector to "clean out its stables" in the first half, and that the second-quarter results were diminished by accounting "noises" totaling NIS 80 million, that should not recur in the second half. Bang! Indeed, a deeper look at FIBI's statement shows that these "noises" did have a deleterious influence on its report. One major bang came from the direction of the Bank of Israel and treasury: their misguided policies resulted in a steep rise on shekel interest rates. That led FIBI to set aside NIS 28 million during the first half for the dropping value of bonds. It also lost NIS 23 million on its negotiable stocks portfolio, because of the jumping interest rates. Another ear-shattering noise was the abolishment of interest income on bad debts, which reduced FIBI's financing income. These are debts for which FIBI registered interest income, but decided, at one stage or another, that it couldn't collect. Canceling that income cost it NIS 42 million in the second quarter, and may portend a new trend among the banks namely, that bad borrowers will show up not only in doubtful debt provisions, but in financing income too. FIBI, and the other banks too, also suffered from the gap between the "known" and "actual" consumer price indexes a gap that cost it NIS 25 million in the second quarter. The bank also noted that the method of booking activity in financial instruments also contributed to NIS 25 million financing costs in the first half. Whimper! Another intriguing datum is the NIS 3.5 billion slide in public deposits, or in percent, 5.5%. The bank blames that on erosion in the public's financial assets and on intensifying interbank competition over deposits from major customers. We shall know who won the competition when the other banks file their reports. But, beyond the recession and the various one-time bangs and other noises, one must not forget FIBI's unique characteristics, which do not necessarily play in its favor these days. One is its reliance on the business sector, and low level of activity among households. The reports from Hapoalim and Leumi, Israel's biggest banks, show how important households are to a bank's bottom line these days. Another is its high exposure to telecommunications. FIBI shares exposure with the other banks to dignitaries such as Starband, Gilat Satellite Networks (Nasdaq:GILTF), tycoon Gad Zeevi, and the Tevel cable TV company none of which are star-quality borrowers. But it alone bears another burden: an NIS 250 million loan to United Pan-European Communications (Nasdaq:UPCOY, ASE:UPC). And it is sweating bullets. Investors seem unmoved by the bank's second-quarter statement, judging by the fact that they aren't dumping its shares. The bank sank all of 0.9% on the day of publication, on low turnover. Does that mean that shareholders, analysts and the banks management are right, that rock-bottom has been and gone? Judging from FIBI's experience in the first quarter, they'd be wise not to make any such assumption.