Financial Reports 3rd Quarter 2008

Major factors which had a positive impact on operating profit in the first 9 months:

• A NIS 131 million increase in profit from financing operations before provision for doubtful debt, due to an increase in current operations, excludes the impact of initial consolidation of Bank Yahav financial statements (excluding impact of accounting treatment, provision for impairment and other factors compared to the corresponding period last year, an 8.7% increase.
• A NIS 40 million increase in operating commission revenues in the first 9 months of 2008 compared to the corresponding period last year. Excluding the impact of consolidation of Bank Yahav financial statements, operating commission revenues increased by NIS 16 million.

Major factors which caused a decline in Group operating profit: 

• A NIS 107 million increase in provision for doubtful debt and other credit instruments. The increase is primarily due to a NIS 35 million increase in current provision for doubtful debt, due, inter alia, to implications of the financial crisis on the business sector, and to a NIS 96 million provision in the first 9 months of the year (of which NIS 77 million in the 3rd quarter) for impairment of Bank investments in securities primarily exposed to fluctuations due to the financial crisis, or total provision of NIS 131 million in the first 9 months of the year. This compares to a NIS 24 million provision (all in the 3rd quarter last year) for investment in instruments exposed, directly or indirectly, to the US mortgage market or to leveraged funds of any type.
• Operating and other revenues, excluding operating commissions, excluding impact of consolidation of Bank Yahav financial statements, increased in the first 9 months by NIS 6 million, or 10.3%, over the corresponding period. Bank Yahav revenues amounted to NIS 8 million, loss of provident fund management fee revenues amounted to NIS 22 million, and the decrease in dividend revenues amounted to NIS 21 million - so that these revenues were NIS 29 million lower than in the corresponding period.
• A NIS 28 million increase in provision for taxes on operating profit net of the impact of consolidation of Bank Yahav financial statements, primarily due to the lower provision for taxes in the corresponding period last year due to impact of the application of the Adjustment Act, which was cancelled starting in 2008.
• Payroll expenses in the 2nd and 3rd quarters of 2008, excluding the impact of consolidation of Bank Yahav financial statements, declined by comparison to the 1st quarter. In the first 9 months of 2008, payroll and associated expenses, excluding consolidation of Bank Yahav financial statements, grew by NIS 25 million compared to the corresponding period last year - a 2.8% increase.
• Operating and other expenses, excluding payroll expenses, net of the impact of consolidation of Bank Yahav, in the first 9 months of 2007 were only -1.2% higher than the annual average last year. These expenses rose in the first 9 months of 2008 by NIS 35 million over the corresponding period last year, primarily due to higher depreciation expenses for computers, buildings and equipment.

Net profit in the first 9 months of this year: NIS 506 million, compared to NIS 761 million (including NIS 233 million from extraordinary items - capital gain from of provident funds) in the corresponding period last year. Return on equity: 12.1%

Net profit in 3rd quarter: NIS 140 million, compared to NIS 184 million in the corresponding period in 2007.

Return on equity: 10.0%

Eli Yones:

Improvement continues in current operations "If not for the impact of the financial crisis, primarily reflected by provision for doubtful debt, the Bank would have finished the 3rd quarter recording its highest ever operating profit. Improvement in current banking operations is reflected by many parameters: A 14.3% increase in profit from financing operations before provision for doubtful debt; a 3.7% increase in operating and other revenues; and a 4.2% increase in operational commission revenues. Other revenues have also grown - by over 7% - evidence that the Bank was successful in finding alternative revenue sources for provident fund management fees, after the sale of these funds due to the Bachar reform. On the expense side, the Bank shows stability with a minor 1.7% increase in operating and other expenses, and a mere 1% increase in payroll and associated expenses. Strict control of expenses and appropriate efficiency-improving measures taken in any condition, and especially in times of financial crisis and severe slow-down. Against this back drop, the decision was made to merge Bank Adanim which would result, when the process is concluded, to cost savings both for redundant headquarter expenses and jobs, by assigning Adanim employees to current and future vacant positions at the Bank. Along with efficiency-improving measures, the Bank continues to intensively expand its business operations. This trend is reflected, inter alia, by the impressive growth on both the active and passive sides: Year to date, deposits from the public rose by 12.5%, whereas growth of credit, excluding impact of consolidation of Bank Yahav financial statements, was at 8% - a NIS 6 billion growth, the majority of this amount - about NIS 5.5 billion - being growth in credit to households. Bank Yahav joined the Group and increased credit to private customers by a further NIS 3.6 billion, which demonstrated Bank Yahav's contribution to stronger retail operations of Mizrahi-Te says President of Mizrahi-Tefahot, Mr. Eli Yones.

Mizrahi-Tefahot Bank Ltd. Summary financial statement data

As of September 30, 2008 - NIS in millions

Major balance sheet items

Profit and Profitability

Financial ratios