where

A     is the monthly cost calculated as follows: income (expense) during the month divided by the
   average balance;
DP  is the number of days in the computation period, calculated as follows: for credit in overdraft
   accounts, term credit (not on-call), the discount-window loan, current accounts with credit
   balances, and deposits with the Bank of Israel, DP is the number of days in the quarter; for
   on-call credit, pahak, and inter-bank deposits, DP equals 7; for time deposits, and Treasury
   bills, DP is calculated each month according to data from the Supervisor of Banks and the
   Monetary Department of the Bank of Israel;
DM   is the number of days in that month;
DY   is the number of days in the year.

The cost is based on actual debits and credits of customers’ accounts.

Equity – paid-up share capital, reserves, surpluses, and share subscriptions
(only when there is an irrevocable obligation to buy and issue the shares).

Equity-holders’ loans – loans which are subordinated to other claims, and
other loans of a capital nature.

Exchange counter – a branch whose activities are confined to
foreign-exchange transactions, mostly in hotels and at conventions or fairs, and
where no customer accounts are maintained.

onds – including interest, indexation and exchange-rate
differentials, and issue expenses, relative to the annual balance (less
reimbursement of issue expenses).

Extraordinary income and expenses – including income and expenses
arising from other than normal banking activities, and which are not undertaken
on a regular basis; these include provision for a fall in the value of shares in the
investment portfolio and for expected losses on assets which the bank’s
management has decided to sell or which are not in use.

Fair value of a financial instrument – the amount receivable or payable by
the banking corporation on the exchange of the financial instrument on the
reporting date during the ordinary course of business, in a transaction between
a buyer and seller at arm’s length –
i. Where an active market exists in which a market price may be quoted for the financial
instrument, the fair value will be calculated by multiplying the number of units measured at
such market price. Where a number of markets exist in which the financial instrument is
traded, the market price quoted will be determined according to the rate in the most active
market.
For this purpose:
“active market” – a stock exchange and any over-the-counter market in which regular trading
carries on in the financial instrument;
“over-the-counter market” – dealer market in which the dealers buy ands sell for their own
account or on a broker market on which dealers broker and liaise between buyers and sellers.
ii. Where no active market exists in which a market price can be quoted, the fair value of the
financial instrument will be determined by the management as a value according to a model. A
value according to a model will be determined through customary pricing models: a
comparison with the market price of a similar financial instrument, the current value of future
cash flow capitalized by appropriate discount interest, models for estimating option values, etc.
iii. In applying the current value method of future cash flows, the banking corporation will use
an interest rate reflecting the risk level inherent in the financial instrument (market risk, interest
risk, credit risk, etc.); for this purpose, the banking corporation will apply an interest rate in
which similar transactions are carried out on the reporting date.
For this purpose, similar transactions are those having similar contracting features, repayment
terms and risk features.
iv. With respect to derivative financial instruments: the existence of an active market is
conditional upon there being regular daily trading volume significantly higher than the volume
of exposure of the banking corporation in the derivative financial instrument.
v. For the purpose of shares: the existence of a readily determinable fair value is conditional
upon the existence of a market price determined on an exchange, or, with respect to shares
traded on over-the-counter markets, conditional on the publication of a market price of the
share as follows: In the US, on Nasdaq, or by the National Quotation Bureau. In other
countries: in markets where the activity therein is comparable to the foregoing.

Fees on financial transactions – including fees for acceptances, credit
guarantees, and documentary credits.

Financial capital – the surplus of financial assets over financial liabilities.

Financial institution – as defined in the Banking (Licensing) Law, 5741–1981.

Financial instrument – cash, evidence of an entity’s ownership or contract
fulfilling the two cumulative conditions:
i. imposes on one party a contractual (including a contingent) obligation:
 1. To transfer cash or another financial instrument to the other party,
or
 2. To exchange financial instruments with the other party on conditions which are potentially
unfavorable.
ii. Confers upon the other party a contractual (including a contingent) right:
 1. To receive cash or another financial instrument from the first party,
or
 2. To exchange financial instruments with the first party on conditions which are potentially
favorable.

Foreign banks (in the return on deposits in overseas offices) – all banks
whose head offices are abroad (including banks in the host country of the
overseas office), excluding banking subsidiaries of Israeli banks, which for
purposes of this return are considered Israeli banks.

Foreign-currency liquid assets – foreign-currency deposits with the Bank of
Israel considered liquid assets under the Liquidity Regulations.

General provision for loan losses – the provision made during 1985–92 as a
percentage of all customer obligations and which served as a reserve for
unidentified risks implicit in all customer obligations. Banking corporations
continue to maintain the balance of the provision to an amount not in excess of
1 percent of all customer obligations on December 31st, 1991.

Gold – gold coins, gold bars, and certificates conferring rights to gold, held for
the bank’s own account. Gold is included at its market value on the
balance-sheet date.

Gross weighted capital – equity at the beginning of the year, plus issues
weighted according to the time of issue during the year.

Guaranteed intermediation transaction – a transaction which is not defined
as a pure intermediation transaction and which is either a purchase transaction
or a derivative financial instrument written by the banking corporation with a
second party, when on its implementation, and no later than on the same
business day, a reverse identical transaction of writing or purchasing a
derivative financial instrument is performed with a third party. (The banking
corporation is not exposed to any risk in the transaction it carried out, other
than credit risk and its responsibility as an agent).
Assets and liabilities deriving from a guaranteed intermediation transaction shall be measured
according to their fair value on the reporting date, in such a way that the balance of the asset
deriving from the transaction shall equal the balance of the liability deriving from the reverse
transaction. Financing income from a guaranteed intermediation transaction shall be spread over
the period of the transaction and recorded under Fees from guaranteed intermediation
transactions.
Guarantees and other liabilities – all types of credit guarantees, and all other
types of liabilities on behalf of customers, which are not otherwise defined,
excluding forward and futures transactions in currencies and commodities.

Hedging transaction – a transaction in a derivative financial instrument which
is not classified as an intermediation transaction and which has all of the
following characteristics: earmarking, correlation, reduction of transaction risk,
total exposure management, and reduction of corporate risk. These
characteristics are explained in detail in the guidelines for preparing reports to
the public.
Assets, liabilities, income, and expenses in a derivative financial instrument shall be measured as
an adjustment to the measurement of the defined item in accordance with its measurement base in
the books. Income from/expenses on the hedging transaction shall be registered in the same period
as the financing expenses or financing income are recorded for the same item, and under the same
category as that under which income and expenses for the defined item are registered. The
purpose of this requirement is that these categories should reflect the combined result of the
hedged and the hedging transactions.
The above notwithstanding, assets and liabilities deriving from changes in the market value of a
futures contract shall be recognized as an adjustment to the balance-sheet balance of the defined
item.
Income from or expenses on a derived financial instrument which serves as a hedge against a
future commitment of the banking corporation covering which there is a signed contract, about
the implementation of which there is no doubt, and the results of which have not yet been
recorded in the profit and loss account, shall be deferred, and included in the measurement of the
transaction which results from that commitment. The results of the derivative financial instrument
which served as a hedge as described above shall not be deferred beyond the time when the future
transaction is carried out.

Held-to-maturity debt securities – bonds which the banking corporation has
positive intent and ability to hold until their redemption dates.

Income from bonds – including accrued interest, indexation and
exchange-rate differentials on bonds, and amortization of discounts and
premiums. Profits and losses from the sale of investments in bonds and from
adjustments to the fair value of trading bonds will be shown under Other
financing income and expenses.
(Profits from the sale of bonds available for sale not within sixty days after the date of purchase
of bonds with identical properties are recorded in the profit and loss statement at the time of sale.
Losses from the sale of bonds available for sale are recorded in the profit and loss statement at
the time of sale).

Income from credit – including income from interest, and from indexation and
exchange-rate differentials; a nonrecurring commission which is charged in
addition to interest and not for a specific service or as repayment of special
expenses; allocation fees for credit facilities which refer to the reporting period.
Individual – a person who is not a registered corporation, unregistered
corporation, or recognized entity.

Interest – interest, indexation differentials (including exchange-rate indexation
differentials), and exchange-rate differentials on foreign-currency denominated
balances.

Internal rate of return – the interest rate which discounts the expected flow of
receipts (payments) from total assets (liabilities) in the specific sector to the
balance-sheet balance included for them.

Investment shares – including shares and warrants of companies which are
not subsidiaries or affiliated companies, and which are held for purposes of
investment, not trade.
This definition applied up to and including returns for 1996.

Investments in subsidiaries and affiliated companies – including shares,
payments on account of shares, warrants, convertible securities, subordinated
letters of liability, and equity-holders’ loans in subsidiaries and affiliated
companies for investment and not for trading.

Joint services company – as defined in the Banking Law.

Labor force and salaries – annual average, based on the number of
employees/employee posts at the end of each month for the twelve months of
the year which has ended.

Liquidity month – the period beginning on the last Thursday of each calendar
month and ending on the last Wednesday of the following month, unless the
last Wednesday falls on the last day of the month, in which case the
subsequent period begins on the Thursday after it (i.e., the first of the next
month), and ends on the last Wednesday of that month.

Liquidity surplus/deficit – the difference between liquid assets held and the
total net reserve requirement.

Loan-loss provision – see Provision for loan losses.

Loans from the Bank of Israel – discount-window (monetary) loans in local
currency and other loans.

Loans with variable interest rates –
1. When the future interest rate is not known, classification is according to the date at which the
interest rate changes.
2. When the future interest rate is known, classification is according to the final payment date,
and the interest is the effective interest rate.

Local-currency liquid assets – local-currency deposits with the Bank of Israel
considered liquid assets under the Liquidity Regulations, banknotes and coins.
Up to December 28, 1994, Treasury Bills could be held against 10 percent of
the reserve requirement.

Maintenance of buildings and equipment – including rent, property taxes,
security and insurance expenses and repairs (all these for assets used by the
banking corporation).

Means of control in a corporation (as defined in the Banking (Licensing)
Law) – all of the following:
1. Voting rights at a company’s General Meeting or in the equivalent body of another
corporation;
2. The right to appoint a corporation’s directors. In this respect (a) whoever appointed a director
of the corporation is regarded as having the right to do so, and (b) a corporation which
appoints one of its officials as director of another corporation is presumed to have the right to
make the appointment.
3. The right to participate in a corporation’s profits;
4. The right to a corporation’s residual assets when it is being liquidated, after its obligations
have been met.

New savings scheme - a scheme with a reserve requirement of 4 percent or
less.

Nonresident - anyone who is not defined as a resident.

Number of accounts – see Accounts.

Number of employee posts – full-time positions. Part-time employees are
counted on a proportional basis; overtime is not included in the calculation. All
employees are included except those on unpaid leave. Employees on loan from
another bank in the group or another branch are reported by the branch to
which they are on loan, and not by the bank or branch from which they have
been seconded.

Off-balance-sheet credit risk – as calculated for purposes of setting the limit
of a borrower’s indebtedness as defined below-the sum of the following:
a. Guarantees, acceptance of notes, rediscounting of notes, documentary credit, and liability to
  pay money on behalf of a third party.
b. Future transactions-the sum of the following:
 (1) 10 percent of the balance of forward transactions.
Forward transaction-each of the following, whether the banking corporation is a party to
the contract or a guarantor:
a. A future or forward transaction in a currency which is legal tender or in the currency
basket, in goods, securities, or rights; unless there is another forward transaction of the
same type with the same customer which will be offset against the first contract or
settlement;
b. Swap transaction with interest or other yields, including indexation or exchange-rate
differentials;
c. A future rate agreement or forward rate agreement;

d. Purchase of an option by the banking corporation to buy or sell one of the assets in this
clause;
excluding:
e. A contract traded on the stock exchange, in which the exchange clearing-house is
responsible to the customer for settlement, and there must be daily adjustment of the
margin.
 (2) The balance of a future transaction with a customer, of the type specified in sub-clause
b(1)a above, which on settlement will be offset against an opposite future transaction of
the same type with the same customer, in the amount due from the customer after it has
been offset.
c. The amount of the banking corporation’s liability to the Maof (Futures and Financial
Instruments) clearing-house for securities which the customer pledged, as set out in the
bylaws of the Maof clearing-house.
d. Commitments (including contingent liabilities) of the banking corporation to grant
credit or to issue a guarantee, excluding such a commitment, the realization of which is
contingent on the receipt of collateral recognized as a reduction of the indebtedness-in the
amount of the credit or the guarantee.
This is subject to the following:
1. If a commitment to grant credit or to issue a guarantee is contingent on the repayment
of another credit or guarantee, the amount of the indebtedness shall not exceed the
amount of the highest of either form of indebtedness, provided that the banking
corporation ascertained that the obligation could not be realized without reducing the
existing credit or guarantee by the same amount;
2. The commitment to accept indebtedness shall not be weighted higher than the final
indebtedness if realized.
3. A commitment to extend credit or to issue a guarantee, about which it is specifically
stated in the agreement with the borrower that it will be realized only if it does not
result in the borrower’s or group of borrowers’ limitation being exceeded, shall not
be considered an indebtedness provided that the banking corporation ascertained that
the commitment could not be realized if it results in the borrower’s or group of
borrowers’ limitation being exceeded by the same amount.
This subsection has been in effect since January 1999, but during 1999 the
commitments were weighted at only 50 percent; since January 1999 the weighting
has been 100 percent.
e. 50 percent of all the underwriting liabilities as defined in Regulation No. 321 (Proper
       Conduct of Banking Business) dealing with underwriting securities issues.
This section is has been applicable since January 1999.

Office – premises at which banking business is transacted-head office or
branch.

Offices of the bank in Israel – including offices in Judea and Samaria.

On-call credit – credit granted for several days and repaid on call, in
accordance with the conditions of the agreement between the bank and the
customer.

Operating fees – fees for services.

Ordinary interest rate – basic rate plus risk premium (according to the bank’s
assessment of the customer).

Other assets – including
1. Deferred taxes receivable (less deferred taxes payable);
2. Severance, retirement, pension, and vacation funds (less appropriate provisions);
3. Intangible assets;
4. Assets received as credit repayment;
5. Balance of amortization expenses (for debenture issues, subordinated notes, long-term and
other deposits);
6. Surplus of advance income tax payments over current provision for income tax;
7. Debit balances for derivative financial instruments.
8. Other debtors and debit balances (see definition).

Other credit (in return on effective cost) – see Overdraft and current accounts
with debit balances, and other credit (in return on effective cost).

Other creditors and credit balances – including
1. Creditors for expenses payable;
2. Current interest on subordinated notes accrued by the balance-sheet date;
3. Loan-loss provision (specific) for customers’ liabilities not included in the balance sheet (e.g.,
guarantees);
4. Excess of market value over book value of securities loaned before loan ;
5. Difference between market value of securities sold short and proceeds received from sale of
securities borrowed.

Other debtors and debit balances – including
1. Debtors for income receivable (excluding interest included in the relevant balance-sheet item);
2. Expenses paid in advance;
3. Gold (see definition);
4. Amounts in transit.

Other financing expenses – including penalties or interest to the Bank of
Israel for deviations from the Liquidity Regulations arising from deficits in the
reserve requirement.

Other financing income – including
1. The banking corporation’s profits on transactions in derivative financial instruments;
2. Fees on financing transactions where the amount is not material;
3. Fees for repayment of credit; the banking corporation’s income from prepayment fees after
deduction of the proportion related to financing capital (amortized and included in the profit
and loss statement over the period remaining to the repayment date, or within three years of the
repayment date, whichever is shorter);
4. Reduction of loan loss provision;
5. Interest collected on problem debts.
6. Interest collected on arrears of home loan repayments.

Other liabilities – including
1. Provision for deferred taxes (offset by deferred taxes receivable);
2. Provision for pensions, severance, and vacation pay (offset by funds earmarked for these
purposes);
3. Current provision for income tax (offset by advances paid);
4. Income received in advance, excluding income to be deducted from the relevant credit items;
5. A dividend declared or proposed up to the date of confirmation of the reports;
6. Returnable receipts for shares not yet allocated;
7. Returnable receipts for options not yet allocated;
8. Negative goodwill on consolidation;
9. Amounts in transit;
10. Other creditors and credit balances (see definition).

Other transaction – a transaction in a derivative financial instrument which is
not classified as an intermediation transaction or as a hedge.
Assets and liabilities deriving from other transactions will be measured by fair value on the date
of the report. Changes in the fair value of such derivative financial instruments will be recorded
under Income from other financing transactions or Expenses on other financing transactions, after
offsetting the results of interest-rate contracts with the same instrument, and after offsetting the
results of exchange-rate contracts with the same instrument. The above notwithstanding, the
results of transactions for which there is daily adjustment of margins shall not be offset against
the results of other transactions.

Overdraft account credit (in return on effective cost) – current account for
which an overdraft facility has been arranged in advance and on which
credit-allocation fees are paid.

Overdraft and current accounts with debit balances, and other credit (in
return on effective cost) – not including
1. Credit to specialized banking corporations;
2. Credit from earmarked deposits;
3. Credit for which loan-loss provision has been made.

Overseas banking office – overseas representative office, agency, branch, or
banking subsidiary.

Parent company – a company of which the reporting banking corporation is a
subsidiary.

Payments into savings schemes – amounts actually deposited in savings
schemes during the month. Deposits in continuation schemes are included in
the period and the amounts released from savings schemes which ended.

Person with an interest – anyone holding 5 percent or more of the bank’s
share capital or of its voting rights, anyone who is entitled to appoint one or
more of the bank’s directors or its ceo, a person who is the bank’s director or
ceo, or a corporation in which the aforementioned person has a controlling
interest. In this respect:
1. The manager of a mutual fund is regarded as the holder of the securities included in the fund’s
assets;
2. If securities are held in trust, the trustee is also regarded as the holder of the securities.

Principal industries – classification
1. Based on Central Bureau of Statistics definitions (1970).
2. Credit to the public by principal industries is classified according to the borrower’s main field
of activity. (Until 1996, inclusive, credit was classified according to its intended usage.)

Private persons – individuals who are not corporations (registered or
unregistered) and who are not engaged in business activity.

Problem borrower – a borrower with a problem debt.

Problem debt – indebtedness under special supervision, an overdue debt, a
rescheduled debt or one which it has been decided to reschedule but the
rescheduling has not yet been implemented, a non-performing debt, or a debt
which is considered doubtful, either in part or in total.

Provision for loan losses – specific additional and general provisions. The
specific provision for loan losses on off-balance-sheet items (e.g., guarantees)
is included in the balance sheet under ‘other liabilities (other creditors and credit
balances)’, and not deducted from credit. Furthermore, when portions of the
general provision and the additional provision for loan losses calculated on the
basis of the off-balance-sheet items of customer obligations are material, they
are also recorded as ‘other liabilities’ instead of being deducted from credit. The
amount of these provisions is deducted from the off balance sheet liabilities of
customers for guarantees, etc.

Public – individuals and corporations, excluding the government, foreign
governments and banks, (up to 1994 including special banking corporations;
previous years’ data reclassified).
Pure intermediation transaction – a transaction in a derivative financial
instrument in which the banking corporation is not a party in the transaction (the
banking corporation is not exposed to any risk as a result of the transaction it
performed apart from its responsibility as an agent). Income from a pure
intermediation transaction shall be recorded under Operating fees when the
transaction is performed.

Rate of interest on credit – the yield received by the bank. For example, for
loans subsidized by building contractors, the full interest rate received by the
bank is reported, i.e., the rate of interest collected directly from the customer
plus the rate of interest which the bank receives from the contractor.

Refused check – a check submitted for payment on or after its date, and which
the bank refuses to honor because of insufficient funds in the account and
which it is not required to honor on the basis of an agreement with the drawer,
regardless of whether there was an additional reason for the refusal or whether
a cancellation order was issued.

Registered corporation – a company, partnership, cooperative society,
Ottoman society, or private nonprofit association registered in Israel.

Related company – a parent company, subsidiary company, affiliated
company, and a corporation controlled by these companies.

Related parties – including
1. Parent company, subsidiary or affiliated companies;
2. Directors, general managers and members of their families (spouses and children);
3. Corporations controlled by related parties as per sections 1 and 2 above.;
4. Others with an interest.

Representative office – overseas office at which one or more persons
represent the bank in the host country; the activities of such an office are
restricted to establishing contacts with customers and transmitting information;
it is not authorized to conduct banking business.

Reserve requirements –
Gross local currency reserve requirement – the amount of liquid assets that a banking corporation
is required to hold under the Liquidity Regulations against local-currency deposits of the public,
and since 1999 also against foreign-currency deposits; nonresident local-currency deposits;
negotiable banking liabilities; unutilized balances of earmarked deposits; investment shortfall in
approved investments in connection with savings schemes (shortfall in bonds or approved
Treasury deposits); until 1999, also surplus foreign-currency assets over liabilities under Section
18A(a) of the Liquidity Regulations.


Net local-currency reserve requirement – gross reserve requirement less reserve exemptions
and recognized differences.

Other local-currency reserve requirement – gross reserve requirement excluding the requirement
on deposits.

Secondary foreign-currency reserve requirement – foreign-currency assets, other than the
primary reserve requirement which an ordinary banking corporation is required to hold. This
reserve may be invested in approved investments abroad (deposits in banks, government or
international bonds) or in a special interest-bearing deposit at the Bank of Israel.

Resident –
1. an Israeli citizen, or anyone who is in Israel or in the area by dint of an immigrant visa,
immigrant certificate, or permanent resident certificate, excluding an Israeli citizen who is
permanently resident abroad. Hence, an Israeli citizen who spent a period of no more than sixty
days in Israel or the area during the twelve months prior to any activity as defined in the
Currency Control Law is defined as a nonresident for purposes of the currency control
provisions.
2. A corporation which according to any law in Israel or the area is registered or which must be
registered in an official registry, or anyone who is not an individual and whose main activity is
in Israel or the area.
In this definition ‘the area’ refers to Judea, Samaria, and the Gaza Strip, excluding the areas
under Palestinian civil responsibility.

Restricted account – (see also ‘restricted customer’ and ‘customer restricted
in aggravated circumstances,’) a local-currency checking account on which
checks may not be drawn. (An account is restricted for one year if ten or more
checks drawn on it within one year have not been honored because of
insufficient funds.)

Restricted customer – an individual or corporate entity who has a restricted
account. (A restricted customer may not open a local-currency checking
account.)

Rights of minority shareholders – including rights in capital, funds, and
surpluses of consolidated subsidiaries.

Salaries and related expenses – including
1. Salaries and pensions;
2. Related expenses, including national insurance contributions, current provision for retirement
and severance compensation, retirement and vacation pay, and compensation payments for
which no provision was made in the past;
3. Payments to employees who are not on the regular payroll, those on loan from another
company in the group, and payments for labor services made directly to companies that supply
personnel;
4. Payroll tax and employers’ tax;
5. The difference between supplementary provisions related to past periods for severance,
retirement, and vacation pay and income from the appropriate funds.
6. Benefits to employees arising from issues of shares, warrants, and rights, or from a sale offer
made by a controlling shareholder in the banking corporation.

Savings – see Balance of savings.

Savings schemes, balance - see Balance of savings.

Securities – including bonds and shares.

Securities available for sale – securities not classified as bonds held to
maturity or as trading securities.

Settlement movements – kvutzot (collective farms worked as cooperatives),
kibbutzim, and moshavim, regional and country-wide purchasing organizations,
national financing funds, regional factories owned by purchasing organizations,
country-wide marketing companies, etc.

Shares – up to 1996, inclusive, shares were divided into two categories-
investment and trading. Since 1997, the categories are shares available for
sale, and investment shares (see definitions). The method of valuation was
changed at the same time.

Shares available for sale – see Securities available for sale.

Specialized banking corporation – mortgage bank, investment finance bank,
or financial institution, as defined in the Banking Law.

Specific provisions for loan losses – these are calculated in accordance with
Regulation 314 of Proper Conduct of Banking Business. A mortgage bank
determines the provision for housing loans in accordance with the extent to
which borrowers are in arrears.

Subordinated notes – letters of liability the rights and obligations of which are
subordinate to the claims of all the other creditors of the banking corporation,
except for letters of liability of the same kind.

Subsidiary – a company, 50 percent or more of whose voting rights or nominal
issued share capital, or the right to appoint 50 percent or more of its directors,
or the right to appoint its ceo, are vested in a banking corporation.

Subsidiary and affiliated company – a consolidated company or company
included on an equity basis.