Financial reports 3rd Quarter 2010
22 November, 2010
Net profit in third quarter: NIS 209 million
Compared to NIS 156 million in the corresponding period last year
34.0% growth
Return on equity in third quarter: 12.7% Net profit for first nine months: NIS 582 million
Compared to NIS 416 million in the corresponding period last year
39.9% growth
Return on equity for the first nine months: 11.6%
Profit from financing operations in the third quarter: NIS 735 million
An increase of 26.3% over the corresponding period last year
Net profit from financing operations for first nine months: NIS 2,079 million
An increase of 20.2% over the corresponding period last year
Ratio of total capital to risk elements: 14.04%
Tier I capital ratio: 7.95%
Target core capital ratio to be no less than 7.5%
Pursuant to directives of the Supervisor of Banks dated June 30, 2010, whereby the Bank should adopt a target core capital ratio as of December 31, 2010, in reference to core capital net of all deductions required under Tier I, the Bank Board of Directors resolved on October 25, 2010 that the target core capital ratio (original Tier I capital adequacy ratio) shall be no less than 7.5%.
Further, the Board of Directors directed Bank management to act so as to maintain appropriate safety margins, in order to ensure that the core capital ration shall be no less than the specified target. The Board of Directors further resolved that the overall capital adequacy ratio shall be no less than 12.5%.
Bank's Strategic Plan updated
The Bank's 2008-2013 Strategic Plan called for a target return on equity at 18% in 2013. The Strategic Plan was based, inter alia, on the principle that during the Plan term, the Bank would maintain a capital adequacy ratio (excluding upper Tier II capital) of no less than 10% (which arithmetically leads to original Tier I capital ratio, excluding upper Tier II capital and excluding subordinated capital notes, of 6.67%).
The resolution by the Board of Directors to set the target core capital ratio at no less than 7.5% increases the average shareholders' equity basis used in Bank operations, and arithmetically results in a given profit yielding a lower return. The outcome of the foregoing is a lower rate of return on equity.
Accordingly, the Board of Directors decided to update the Bank's Strategic Plan so that the target return on equity rate in 2013 would be 15%. Other than the change in target return on equity, no other changes were made to components of the Strategic Plan.
Increase in mortgage operations and in loans to households
Due to the expanded activity in Israel's housing market over the past year, mortgage origination by the Bank increased significantly year over year. In the first nine months of 2010, Mizrahi-Tefahot originated housing loans and general-purpose loans amounting to NIS 12.3 billion, compared to NIS 9.8 billion in the corresponding period last year - an increase of well over 28%.
This increase is on top of the increase year-to-date in other components of loans to households in Israel extended by the Bank. As of the end of the third quarter, loans to households account for 69% of the Bank's total loan portfolio - which reiterates the Bank's low risk profile.
Eli Yones:
Third quarter results reflect continued expansion of Bank business, in line with targets we have set for ourselves in the Strategic Plan
"Financial results for the first nine months of this year reflect continued improvement in Bank operations, as well as our success in executing on our Strategic Plan targets, quarter in and quarter out, while consistently increasing net income and return on equity.
Net income of NIS 209 million and return on equity at 12.7% in the third quarter of this year - both reflect a significant 34% year-over-year increase and are a further step up - even relative to our good performance in the second quarter of 2010.
Continued expansion of operations is most visibly reflected in profit from financing operations. In the third quarter we saw a 26.3% year-over-year increase in profit from financing operations before provision for doubtful debts, to NIS 735 million. Year to date, this profit amounted to NIS 2,079 million, a 20.2% year-over-year increase.
Evolution of balance sheet items reveals a similar picture: Thus, for example, in September the balance of loans to the public by the Bank reached NIS 103,493 million - an increase of over 10% year-over-year. This item also speaks to the impressive progress made by the Bank in recent years, when it has grown its share of loans to the public extended by Israel's banking system - to over 15% share today.
Mizrahi-Tefahot continues to maintain its leadership position in housing loans - despite increased competition in this sector. According to Bank of Israel data, the Bank's average market share in the third quarter was 33.5%, while maintaining a relatively high financial margin - in line with the current risk level associated with the residential real estate sector.
This is a remarkable achievement, especially in view of the fact that the Bank, in principle, does not engage in pricing wars or in various subsidizing campaigns, and consistently offers its clients appropriate loans composed of a balanced, responsible mix of options which account for current interest rates - but most importantly to the risk potential for clients in each of these tracks throughout the loan term", said Bank President, Eli Yones.
Major balance sheet items
|
|
September 30 |
Rate of change |
|
|---|---|---|---|
|
|
2010 |
2009 |
in % |
|
Securities |
8,273 |
7,878 |
5.0 |
|
Loans to the public |
103,493 |
93,972 |
10.1 |
|
Deposits from the public |
101,204 |
93,405 |
8.3 |
|
Shareholders' equity |
6,965 |
6,438 |
8.2 |
|
Balance sheet total |
126,371 |
116,523 |
8.5 |
Profit and Profitability
|
|
First 9 months of |
Rate of change |
|
|---|---|---|---|
|
|
2010 |
2009 |
in % |
|
Profit from financing operations before provision for doubtful debts |
2,079 |
1,730 |
20.2 |
|
Provision for doubtful debts |
281 |
268 |
4.9 |
|
Operating and other revenues |
1,017 |
1,047 |
(2.9) |
|
Operating and other revenues, excluding gain from investment in shares |
1,017 |
988 |
2.9 |
|
Operating and other expenses |
1,875 |
1,855 |
1.1 |
|
Net profit |
582 |
416 |
39.9 |
|
Net return on equity |
11.6% |
9.1% |
|
Financial ratios
|
|
September 30 |
|
|
|
2010 |
2009 |
|
Credit to the public to balance sheet total |
82% |
81% |
|
Deposits from the public to balance sheet total |
80% |
80% |
|
Shareholders' equity to balance sheet total |
5.51% |
5.53% |
|
Provision for doubtful debts out of credit to the public |
0.36% |
0.38% |
|
Operating expenses to total revenues |
60.6% |
66.8% |
|
Ratio of Tier I capital to risk elements |
7.95% (1) |
7.00% (2) |
|
Total ratio of capital to risk elements |
14.04% (1) |
12.48% (2) |
|
Basle II (1) |
Basle I (2) |
|
