The Leumi Group Financial Statements for 2011 Net Profit of NIS 1.891 billion ($495 million) for the Leumi Group in 2011 March 29, 2012 Net return on equity for the year 2011-8.3% Net operating profit in 2011 amounted to NIS 1.889 billion ($494 million) Net interest income from current activities increased by 14.2%, and amounted to NIS 7.49 billion ($1.96 billion) There was a further increase in balance sheet items: total assets (increase of 11.4%), net credit to the public (increase of 7.7%), and deposits of the public (increase of 11.9%). The Bank s capital adequacy ratio reached 14.34%, of which the core capital ratio was 8.07% In 2011, Leumi Group contributions and sponsorships for community and social causes amounted to NIS 32.4 million ($8.5 million) Marketing Division
David Brodet, Chairman of the Board: The " Israeli economy in recent months has experienced a slowdown resulting from the world economic recession, especially in the Euro bloc, the effects of the social protest, the regulatory burden and geo-political risks. These factors will continue to overshadow our economic environment in the near future, and they do not make it easy for the activities of the Israeli banking system and Leumi in particular. Leumi's strategic plan takes these elements into account, and consequently the Board of Directors approved the decision by Bank Management to carry out a comprehensive efficiency program in 2012-2014, including the merger of Leumi Mortgage Bank to be carried out this year, and implemented the "Advancing Together" project to enhance the customer experience. This year Leumi became the first bank in Israel that is managed with no controlling core. This situation places a large burden on the shoulders of the Board of Directors of the Bank, and we will monitor the work of the Bank in the future as part of our great responsibility and loyalty to our customers, employees, and the general public holding shares in the Bank". Group: Galia Maor, President & CEO of the Leumi philosophy, Over " the past 17 years I have led Leumi with a clear management based on the profound understanding that we have been entrusted with managing other people's money, and that puts a weighty responsibility on our shoulders. A true understanding of this, instantaneously translates into a customer-centric approach, coupled with a prudent risk culture and commitment to maintaining and protecting a high quality balance sheet., Moreover we are an organization committed to long-term vision and strategy - more like marathon runners and not sprinters on the basis of which we have established very clear policies and guidelines for our business, and for the do's and don'ts. These policies and guidelines help keep us focused, and save a lot of dilemmas and wasted energy. Looking forward, I have no doubt that Leumi will remain loyal to our long-lasting management philosophy; we strive to enhance the customer experience so that our customers benefit from banking services of the highest quality, we are focused on improving our risk management capability, and we will continue to strengthen our unique and leading position within the Israeli banking system". 02
The Leumi Group today published its audited financial statements for 2011. etn Profit of the Leumi Group in 2011 amounted to NIS 1,891 million Net Profit of the Leumi Group in 2011 amounted to NIS 1,891 million ($495 million), compared with a profit of NIS 2,334 million ($611 million) in 2010. The decline in net profit resulted mainly from the global and domestic economic slowdown, which caused a fall in the prices of securities traded on the Tel Aviv Stock Exchange, and as a result, a decline in operating and other revenue and an increase in salary expenses (provisions to cover losses in severance pay and provident funds). It should be noted that the net profit for 2010 included an extraordinary profit of NIS 183 million ($48 million), deriving almost entirely from the sale of the Bank's holding of shares in Paz. Net operating profit in 2011 amounted to NIS 1,889 million ($494 million), compared with NIS 2,151 million ($563 million) in 2010. Net return on equity in 2011 was 8.3%, compared with 10.3% in 2010. Return on net operating profit in 2011 was 8.3%, compared with 9.5% in 2010. Increase in balance sheet parameters: Total assets of the Leumi Group on December 31, 2011 amounted to NIS 365.9 billion ($95.7 billion), compared with NIS 328.3 billion ($85.9 billion) on December 31, 2010 (an increase of 11.4%). Credit to the public net on December 31, 2011 amounted to NIS 241.3 billion ($63.2 billion), compared with NIS 224.0 billion ($58.6 billion) on December 31, 2010 (an increase of 7.7%). Deposits of the public on December 31, 2011 amounted to NIS 279.4 billion ($73.1 billion), compared with NIS 249.6 billion ($65.3 billion) on December 31, 2010 (an increase of 11.9%). Shareholders' equity on December 31, 2011 amounted to NIS 23.4 billion ($6.1 billion), compared with NIS 23.3 billion ($6.1 billion) (an increase of 0.3%). Total financial assets under management of the Leumi Group, balance sheet and off-balance sheet, totaled some NIS 898 billion ($235 billion) on December 31, 2011, compared with NIS 889 billion ($233 billion) on December 31, 2010 (an increase of 1%). The ratio of total equity to risk assets (capital adequacy) at Leumi was 14.34% on December 31, 2011, compared with 14.96% on December 31, 2010. The ratio of core capital to risk assets on December 31, 2011 was 8.07%, compared with 8.43% on December 31, 2010. 03
The decrease in net profit in 2011 compared with 2010 is explained mainly by the following factors: An increase in expenses in respect of credit losses of NIS 150 million ($39 million), before the effect of tax. A decrease in operating and other income of NIS 375 million ($98 million), before the effect of tax. An increase in operating and other expenses (including salaries) of NIS 396 million ($104 million), before the effect of tax. A decrease in the Group s share in the profits of companies included on equity basis of NIS 272 million ($71 million), net. A decrease in profit from extraordinary activities of NIS 181 million ($47 million), net. Net profit for 2010 included an extraordinary profit of NIS 183 million ($48 million), deriving almost entirely from the sale of the Bank's holding of shares in Paz. On the other hand, the following factors partially offset the decrease in profit in 2011: An increase in net interest income before expenses in respect of credit losses of NIS 117 million ($31 million), before the effect of tax. A decrease in the effective tax rate following the passing of the Law for Change in the Tax Burden (Legislative Amendments), which canceled the tax reduction outline plan of Companies Tax rate and fixed the rate of Companies Tax at 25% from 2012. As a result, an increase was reported in the tax assets of Leumi for the reduction in deferred tax expenses of NIS 326 million ($85 million). This decrease came about as in 2009, after approval of the tax reduction outline plan by the Government of Israel, Leumi increased its deferred tax expenses by about NIS 146 million ($38 million). As of 2012, the Bank will pay Companies Tax at the new rate. Contribution of principal operating segments of Leumi to the net operating profit in 2011: The Corporate Banking Segment contributed about 40.2% of Leumi s net operating profit, amounting to about NIS 760 million ($190 million), of which some NIS 209 million ($55 million) was from construction and real estate activities. The Household Segment contributed about 18.9% of Leumi s net operating profit, amounting to about NIS 357 million ($93 million). The Commercial Banking Segment contributed about 23.1% of Leumi s net operating profit, amounting to about NIS 436 million ($114 million). The Small Businesses Segment contributed about 16.8% of Leumi s net operating profit, amounting to about NIS 318 million ($83 million). The Private Banking Segment contributed about 9.2% of Leumi s net operating profit, amounting to about NIS 173 million ($45 million). The Financial and Other Management Segment lost NIS 155 million ($41 million), as a result of impairment, mainly to the investment in the shares of Partner Communications of NIS 268 million ($70 million), and provisions to cover losses in severance pay and provident funds of NIS 296 million ($77 million), net. 04 Contribution of operating segments to the net operating profit (NIS millions): Corporate Banking Commercial Banking Households Small Businesses Private Banking Financial and Other Management
Summary of the 2011 results of the subsidiaries in the Leumi Group Leumi Mortgage Bank: Leumi Mortgage Bank ended 2011 with a net profit of NIS 203 million ($53.1 million), compared with NIS 176 million ($46.1 million) in 2010, an increase of about 15%. Credit to the public amounted to NIS 56.3 billion ($14.7 billion) at the end of 2011, compared with NIS 51.1 billion ($13.4 billion) at the end of 2010, an increase of about 9.8%. In 2011 the Bank granted new loans amounting to some NIS 11.1 billion ($2.9 billion), compared with NIS 13.3 billion ($3.5 billion) in 2010. The capital adequacy of the Bank at the end of 2011 was 12.88%. At the beginning of 2012, Leumi announced the merger of Leumi Mortgage Bank with Leumi, and the establishment of a mortgage department in the Banking Division of the Bank. The merger is expected to be completed by the end of this year. Leumi Card: Leumi Card ended 2011 with a net profit of about NIS 177 million ($46.3 million), an increase of about 12%. The company s return on equity in 2011 amounted to 18%. The company s revenues amounted to NIS 938 million ($245.5 million) in 2011, compared with NIS 876 million ($229.3 million) in 2010, an increase of about 7%. The number of valid credit cards held by customers amounted to some 2.04 million at the end of 2011, compared with some 1.9 million at the end of 2010. Arab Israel Bank: Arab Israel Bank ended 2011 with a net profit of about NIS 109 million ($28.5 million), compared with about NIS 75 million ($19.6 million) in 2010, an increase of about 45.3%. The net return on equity in 2011 was 30.2%. The Bank s total revenues amounted to about NIS 379 million ($99.2 million) in 2011, compared with about NIS 345 million ($90.3 million) in 2010. The capital adequacy of the Bank at the end of 2011 was 15.6% and the Tier 1 ratio to risk assets was 11.3%. Leumi Partners: Leumi Partners manages the non-banking investment portfolio of the Leumi Group, which is valued at about NIS 6.5 billion ($1.7 billion). The portfolio includes significant holdings in a list of companies as well a range of private equity funds in Israel and abroad. In 2011 the company reported a net loss of NIS108 million ($28 million) compared with a profit of NIS160 million ($41.9 million) in 2010. Bank Leumi USA: Bank Leumi USA ended 2011 with a net profit of $20.1 million, compared with $15.8 million in 2010, an increase of about 27.2%. The Bank s total assets amounted to $5.7 billion at the end of 2011, compared with $5.2 billion at the end of 2010, an increase of about 10%, and shareholders equity amounted to some $517 million at the end of 2011, compared with $501 million at the end of 2010, an increase of about 3%. The capital adequacy of the Bank at the end of 2011 was 13.26%. 05
Bank Leumi (UK): Bank Leumi UK ended 2011 with a net profit of 12.1 million, compared with 6.4 million in 2010. The Bank s total assets increased by about 2% and amounted to about 1.5 billion at the end of 2011, and shareholders equity amounted to 119 million at the end of 2011, compared with 109 million at the end of 2010. The capital adequacy of the Bank at the end of 2011 was 13.87%. Bank Leumi Switzerland: Bank Leumi Switzerland ended 2011 with a profit of CHF 3.6 million, compared with CHF 6.5 million in 2010. Total assets under management of the Bank amounted to CHF 3.6 billion at the end of 2011, compared with CHF 4.2 billion at the end of 2010. The Bank s total assets amounted to CHF 1.1 billion at the end of 2011, compared with CHF 1.3 billion at the end of 2010. Bank Leumi Switzerland recently completed the acquisition of Banque Safdié and its merger with Bank Leumi Switzerland under the name Leumi Private Bank. Bank Leumi Romania: Bank Leumi Romania ended 2011 with a net loss of $7.2 million, compared with a net loss of $16.5 million in 2010. The Bank s total assets amounted to $337 million at the end of 2011, compared with $358 million at the end of 2010, and shareholders equity amounted to $59 million at the end of 2011, compared with $69 million at the end of 2010. Bank Leumi Luxembourg: Bank Leumi Luxembourg ended 2011 with a net profit of 5.0 million, compared with a profit of 5.0 million in 2010. Total assets under management of the Bank amounted to 663 million at the end of 2011, compared with 705 million at the end of 2010. Total assets of the Bank amounted to 611 million at the end of 2011, compared with 515 million at the end of 2010. 06
Contribution to the community, Leumi established in 1902 as the financial arm of the Zionist movement, has always made a point since its formation of being an active partner in the society and community in which it operates. As part of its corporate culture, the Bank contributes to various institutions and organizations in the areas of education, society, culture, the arts, and health. In recent years, the Bank has accentuated its support of education, encouraging entrepreneurship and cultivating leadership amongst young people in the periphery. Leumi is ranked in the Platinum Group of companies that are rated by the Ma ale Social Responsibility Index. The Ma ale rating examines the economy s leading companies in terms of their compliance with social responsibility criteria. The rating is based on detailed criteria in seven key areas of social responsibility for businesses: environmental quality, business ethics, the work environment, human rights, community involvement, corporate governance, and socio-environmental reporting. As part of its overall commitment to society, Leumi encourages its employees to become involved with the community, and provides them with the infrastructure and the opportunity to volunteer and contribute. Thousands of employees are involved in volunteer activities carried out in the framework of Leumi Tomorrow - The Centennial Fund for Endowing Israel's Future Generations, "Young Entrepreneurs," and other projects initiated by the Bank. These employees serve as role models for young people. Thanks to the increasing awareness of community activism, branches and units initiate independent local projects, with the support of Leumi s management. In 2011, the Leumi Group s contributions and sponsorships for social and community causes amounted to about NIS 32.4 million ($8.5 million), of which about NIS 24.5 million ($6.4 million) was in the form of contributions. In the last five years (2007-2011), the Leumi Group s contributions and sponsorships for social causes amounted to NIS 138.3 million ($36.2 million). Distribution of donations and sponsorships in 2011 by category (in NIS millions), Education children and youth Health Culture and art Community and society 2.1 10.6 14.4 5.3 Total NIS 32.4 million ($8.5 million) 07
Leumi Group Principal Data from the Financial Statements Profit and profitability (in NIS millions) Net interest income before expenses for credit loss Year ended December 31 Three months ended December 31 2011 2010 % Change 2011 2010 % Change 7,550 7,433 1.6 1,968 2,141 8.1 Expenses for credit losses 734 584 25.7 385 212 81.6 Operating and other income 3,736 4,111 (9.1) 915 1,090 (16.1) Operating and other expenses 8,347 7,951 5.0 2,122 2,295 (7.5) Net operating profit 1,889 2,151 (12.2) 618 499 23.8 Net profit for the period 1,891 2,334 (19.0) 618 496 24.6 Return on net operating profit 8.3% 9.5% Return on net profit 8.3% 10.3% Development of principal balance sheet items (in NIS billions) As of Dec. 31, 2011 As of Dec. 31, 2010 Rate of change Total assets 365.9 328.3 11.4 Credit to the public 241.3 224.0 7.7 Deposits of the public 279.4 249.6 11.9 Shareholders' equity 23.4 23.3 0.3 Principal financial ratios (in %) Year ended December 31 2011 2010 Credit to the public to total assets 66.0 68.2 Deposits of the public to total assets 76.4 76.0 Total shareholders' equity to risk assets (capital adequacy ratio) 14.34 14.96 Tier I capital to risk assets 8.07 8.43 Credit loss expense to credit to the public 0.30 0.26 Financial margin 1.00 1.22 Operating expenses to total income (efficiency ratio) 74.0 68.9 Total operating expenses after neutralizing the effect of special salary expenses to total income 69.8 66.8 * The data for 2011 in this Press Release has been converted into dollars solely for convenience, at the representative rate of exchange published by the Bank of Israel prevailing on December 31, 2011, which was NIS 3.821. 08