Financial Statements of the Leumi Group for the First Half of 2005.

TEL AVIV, Israel -- The Leumi Group:

--Net Profit for the First Half of 2005: NIS 1,106 Million ($241.8 Million), an Increase of 12.9% Compared with the Corresponding Period Last Year

--Net Profit for the Second Quarter of 2005: NIS 578 Million ($126.4 Million), an Increase of 4.9% Compared with the Corresponding Period Last Year

--Net Return on Equity in the First Half of 2005: 15.3%, Compared with 14.3% in the Corresponding Period Last Year

--Net Return on Equity in the Second Quarter of 2005: 15.8%, Compared with 16.1% in the Corresponding Period Last Year

--Ratio of Shareholders' Equity to Risk Assets: 11.92%

--Total Assets of the Leumi Group on June 30, 2005 Amounted to NIS 263.6 Billion ($57.6 Billion), Compared with NIS 255.8 Billion ($55.9 Billion) at the End of 2004, an Increase of 3.1%

The Leumi Group announces its unaudited consolidated financial statements for the first half of 2005.

The net profit of the Leumi Group in the first half of 2005 amounted to NIS 1,106 million ($241.8 million), compared with NIS 980 million ($214.3 million) in the corresponding period last year, an increase of 12.9%.

The net profit of the Leumi Group in the second quarter of 2005 amounted to NIS 578 million ($126.4 million), compared with NIS 551 million ($120.5 million) in the corresponding period last year, an increase of 4.9%.

Net return on equity in the first half of 2005 reached 15.3%, compared with 14.3% in the corresponding period last year.

The increase in the net profit of the Group in the first half of 2005 compared with the same period in 2004 is explained mainly by the following factors(a):

--An increase of NIS 29 million ($6.3 million) in net interest income before provision for doubtful debts, before the effect of tax.

--An increase of NIS 102 million ($22.3 million) in operating and other income, before the effect of tax, mainly due to the increase in income from customers' activity in the capital market.

--A net increase of NIS 78 million ($17.1 million) in the Group's share in profits of companies included on the equity basis.

--In the second quarter of 2004, the effect of the gradual decrease of corporation tax from 36% to 30% was recorded. This effect was reflected in an increase of NIS 122 million ($26.7 million) in the Group's tax expenses as a result of revising the deferred taxes according to the new rates and calculation of the current tax at a lower rate. As a result, net profit in the first half of 2005 increased compared with the same period last year, when the aforesaid amount was deducted.

--An increase of NIS 37 million ($8.1 million) in income from extraordinary items.

--In the first half of 2004 the aggregate negative effect of a change in an accounting method in the amount of NIS 32 million ($7.0 million), in respect of the implementation of Accounting Standard No. 19, "Taxes on Income", for the first time was recorded.

On the other hand, the following factors partially offset the increase:

--An increase of NIS 277 million ($60.6 million) in the provision for doubtful debts, an increase of 41.8%, before the effect of tax.

--An increase of NIS 187 million ($40.9 million) in operating and other expenses (including salaries and voluntary retirement), an increase of 7%, before the effect of the tax.

Net interest income before provision for doubtful debts of the Leumi Group in the first half of 2005 amounted to NIS 3,197 million ($699.0 million), compared with NIS 3,168 million ($692.6 million) in the corresponding period last year, an increase of 0.9%.

In the second quarter of 2005, net interest income before provision for doubtful debts of the Leumi Group amounted to NIS 1,605 million ($350.9 million), compared with NIS 1,623 million ($354.8 million) in the corresponding period last year, a decrease of 1.1%.

The interest spread (excluding derivative transactions) in the first half of 2005 was 2.57%, compared with 2.30% in the same period in 2004. The interest spread including derivative transactions was 1.60% in the first half of 2005, compared with 1.74% in the same period in 2004 and compared with 1.76% in the whole of 2004.

(a) Before minority rights in consolidated companies.

Provision for doubtful debts of the Leumi Group in the first half of 2005 amounted to NIS 939 million ($205.3 million), compared with NIS 662 million ($144.7 million) in the corresponding period last year, an increase of 41.8%. In the second quarter of 2005, the provision for doubtful debts amounted to NIS 494 million ($108.0 million), compared with NIS 261 million ($57.1 million) in the corresponding period in 2004, an increase of 89.3%.

The total rate of the provision for doubtful debts in the first half of 2005 was 1.11% of total credit to the public (in annual terms), compared with 0.78% in the corresponding period last year and compared with 0.89% in all of 2004.

The aggregate balance of the general provision and the additional provision for doubtful debts (according to risk characteristics defined by the Supervisor of Banks) at the Bank and its consolidated companies, amounted to NIS 1,071 million ($234.1 million) on June 30, 2005 (constituting 0.63% of total credit to the public), compared with NIS 1,041 million ($227.6 million) at the end of 2004.

Net interest income after provision for doubtful debts of the Leumi Group in the first half of 2005 amounted to NIS 2,258 million ($493.7 million), compared with NIS 2,506 million ($547.9 million) in the corresponding period in 2004, a decrease of 9.9%. In the second quarter of 2005, net interest income after provision for doubtful debts amounted to NIS 1,111 million ($242.9 million), compared with NIS 1,362 million ($297.8 million) in the second quarter of 2004, a decrease of 18.4%.

Operating and other income of the Leumi Group in the first half of 2005 amounted to NIS 1,793 million ($392.0 million), compared with NIS 1,691 million ($369.7 million) in the corresponding period last year, an increase of 6.0%. In the second quarter of 2005, operating and other income amounted to NIS 906 million ($198.1 million), compared with NIS 846 million ($185.0 million) in the corresponding period last year, an increase of 7.1%.

The increase in operating and other income derives mainly from an increase in customer activities in the capital market.

The ratio of operating and other income to total income (i.e. net interest income before provision for doubtful debts and operating and other income) was 35.9%, compared with 34.8% in the corresponding period last year and compared with 34.9% in all of 2004.

Operating and other income covered 62.9% of operating and other expenses, compared with 63.5% in the corresponding period last year and compared with 62.0% in all of 2004.

Operating and other expenses of the Leumi Group in the first half of 2005 amounted to NIS 2,849 million ($622.9 million), compared with NIS 2,662 million ($582.0 million) in the corresponding period last year, an increase of 7.0%. In the second quarter of 2005, operating and other expenses amounted to NIS 1,429 million ($312.4 million), compared with NIS 1,302 million ($284.7 million) in the corresponding period last year, an increase of 9.8%.

Salary expenses (including the cost of voluntary retirement) increased in the first half of 2005 by NIS 138 million ($30.2 million). The costs of voluntary retirement increased by NIS 4 million ($0.9 million), and salary and related expenses increased by NIS 134 million ($29.3 million) (8.5%). In the second quarter of the year, salary expenses increased by 14.5% compared with the corresponding period in 2004.

Operating and other expenses (building and equipment maintenance, depreciation and other expenses) increased in the first half of 2005 by NIS 49 million ($10.7 million), an increase of 4.5% compared with the corresponding period last year.

Operating expenses constituted 57.1% of total income, compared with 54.8% in the corresponding period last year and compared with 56.2% in all of 2004.

Operating profit before taxes of the Leumi Group in the first half of 2005 amounted to NIS 1,202 million ($262.8 million), compared with NIS 1,535 million ($335.6 million) in the corresponding period in 2004, a decrease of 21.7%. In the second quarter of the year, operating profit before taxes amounted to NIS 588 million ($128.6 million), compared with NIS 906 million ($198.1 million) in the corresponding period in 2004, a decrease of 35.1%.

Provision for tax on operating profit of the Leumi Group in the first half of 2005 amounted to NIS 405 million ($88.5 million), compared with NIS 697 million ($152.4 million) in the corresponding period last year. The rate of the provision for tax in the period was approximately 33.7% of pre-tax profit, compared with 45.4% in the corresponding period last year.

The low rate of the provision for tax in the first half of 2005 was influenced mainly by the following factors:

--Recording receivable deferred taxes pursuant to an arrangement with the tax authorities in the first quarter of 2005.

--The reduction of the corporate tax rate from 35% in the first half of 2004 to 34% in 2005.

Operating profit after tax in the first half of 2005 amounted to NIS 797 million ($174.2 million), compared with NIS 838 million ($183.2 million) in the corresponding period last year, a decrease of 4.9%. In the second quarter of the year, operating profit after tax amounted to NIS 416 million ($90.9 million), compared with NIS 433 million ($94.7 million) in the corresponding period last year, a decrease of 3.9%.

The Group's share in the profits of companies included on the equity basis in the first half of 2005 amounted to NIS 261 million ($57.1 million), compared with NIS 183 million ($40.0 million) in the corresponding period in 2004, an increase of 42.6%. In the second quarter of the year, the Group's share in the profits of companies included on the equity basis amounted to NIS 120 million ($26.2 million), compared with NIS 122 million ($26.7 million) in the corresponding period in 2004, a decrease of 1.6%.

Profit from extraordinary items after taxes in the first half of 2005 amounted to NIS 34 million ($7.4 million), compared with a loss of NIS 3 million ($0.7 million) in the corresponding period in 2004. The profit derives from the sale of 0.5% of holdings in Africa Israel Investments Ltd. and the sale of options to purchase shares of The Israel Corporation Ltd.

Operating profit before tax to net shareholders' equity(b) in annual terms in the first half of 2005 reached 18.6%, compared with 24.8% in the corresponding period last year.

Net operating profit per NIS 1 par value of share capital in the first half of 2005 reached NIS 0.758, compared with NIS 0.718 in the corresponding period last year.

Net profit per NIS 1 par value of share capital in the first half of 2005 reached NIS 0.782, compared with NIS 0.693 in the corresponding period last year.

Shareholders' equity of the Group on June 30, 2005 amounted to NIS 16,086 million ($3,516.8 million), compared with NIS 14,986 million ($3,276.3 million) at the end of 2004, an increase of 7.3%.

The ratio of shareholders' equity to total assets on June 30, 2005 was 6.1%, compared with 5.9% on December 31, 2004.

The ratio of shareholders' equity to risk assets on June 30, 2005 was 11.92%, compared with 11.25% on December 31, 2004. This ratio is higher than the minimum rate of 9% mandated by the Supervisor of Banks. The ratio of Tier I capital to risk assets on June 30, 2005 reached 7.81%, compared with 7.53% at the end of 2004.

Total assets of the Leumi Group on June 30, 2005 amounted to NIS 263.6 billion ($57.6 billion), compared with NIS 255.8 billion ($55.9 billion) at the end of 2004, an increase of 3.1%, and compared with June 30, 2004, an increase of 6.2%.

Credit to the public on June 30, 2005 amounted to NIS 169.7 billion ($37.1 billion), compared with NIS 169.4 billion ($37.0 billion) on December 31, 2004, an increase of 0.2%, and a similar increase to June 30, 2004.

Deposits from the public on June 30, 2005 amounted to NIS 216.4 billion ($47.3 billion), compared with NIS 209.7 billion ($45.8 billion) on December 31, 2004, an increase of 3.2%, and compared with June 30, 2004, an increase of 5.8%.

Mutual fund assets under the management of the Leumi Group on June 30, 2005 amounted to NIS 34.4 billion ($7.5 billion), compared with NIS 29.4 billion ($6.4 billion) at the end of 2004. These assets as at the end of June 2005 represent 27.93% of mutual funds in the system.

The value of the provident and supplementary training fund assets managed by the Leumi Group as at June 30, 2005 amounted to some NIS 43.7 billion ($9.6 billion), compared with some NIS 43.0 billion ($9.4 billion) at the end of 2004.

The data in this Press Release have been converted into dollars solely for convenience at the representative rate of exchange published by the Bank of Israel prevailing on June 30, 2005 of NIS 4.574.

(b) Shareholders' equity together with minority interests, less capital in investments in companies included on the equity basis. The profit does not include the profit of companies included on the equity basis.