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Bank Leumi beat forecasts with a smaller-than-expected decline in quarterly net profit on Thursday despite setting aside a provision to settle a U.S. tax probe.

Net profit at Israel's second-largest bank fell 39% to 290 million shekels ($82 million) from 474 million shekels a year earlier, but beat the 161 million shekels expected by analysts polled by Reuters.

In June, Leumi said it was close to reaching a deal with the U.S. Department of Justice, which has been investigating possible tax evasion by the bank's American clients. It is unclear when a settlement will be reached.

The bank set aside 460 million shekels to bring its total provision for the impending settlement to 950 million.

Excluding the provision, profit in the April-June period was 765 million shekels, Leumi said.

Bank Leumi has urged U.S. clients to disclose information about their accounts to U.S. authorities, who are investigating Leumi and other foreign banks in a wide-ranging campaign to crack down on Americans using offshore banks to evade taxes.

Leumi said the investigation covered the period between 2002 and 2010.
Despite falling interest rates as policymakers try to boost a weakening economy, Leumi said net interest income rose 3.6% in the second quarter to 1.9 billion shekels.

Its Tier 1 ratio, which measures equity capital as a proportion of total risk-weighted assets, slipped to 9.3% from 9.43$ at the end of 2013.

Like its peers, Leumi said it was focusing more on higher margin loans. In the first half of 2014, credit to small businesses grew 3.4% while credit to mid-sized companies rose 5.9%.

Last week, Hapoalim, Israel's largest bank, beat expectations with a quarterly profit of 783 million shekels.