(Adds share price reaction, analyst's comment)
JERUSALEM Aug 20 (Reuters) - Israel Discount Bank , the country's third-largest lender, reported a 27 percent drop in second-quarter profits on Wednesday and said it would cut the size of its workforce by more than 10 percent in the coming five years as it seeks to boost its profitability.
As part of a new strategy, Discount said it would eliminate more than 1,000 jobs, including 700 by the end of 2017, most of them via an early retirement scheme. The bank currently has 9,800 employees.
Discount said it would also reduce its real estate holdings, cut expenses and close a number of the 225 branches it has in Israel. In the first stage, it plans to shut 10 outlets.
"Implementation of the plan will lead to a double-digit CAGR (compound annual growth rate) during the five-year programme," Discount said on Wednesday.
Another part of the new strategy will involve expanding lending to consumers and small businesses, the bank said.
Earlier in the year Discount had said it would unveil a new strategic plan in August.
"The plan seems to include most of our expectations," said Tavy Rosner, an analyst at Barclays, who views Discount as a "deep restructuring story" given that its costs are high.
He noted that the bank's shares trade at a 54 percent discount to their historical average, and have an 18 percent upside to Barclays' target price of 7 shekels.
Discount's shares rose 1.4 percent to 6 shekels. The bank was the best performer of the blue-chip Tel Aviv 25 index , which fell 0.5 percent and just three shares gained on the day.
In the second quarter the bank said it earned 192 million shekels ($54.4 million), down from 263 million in the same period last year and below the 224 million shekels average of forecasts given by analysts in a Reuters poll.
The results included a 195 million-shekel provision for severance pay and excluding the charge Discount said it made a quarterly profit of 313 million shekels.
Net interest income rose 5.7 percent to 1.1 billion shekels, while salary expenses gained 14.9 percent.
The bank recovered 35 million shekels in the quarter after credit loss charges of 75 million shekels a year ago.
Its core Tier 1 capital adequacy ratio, which measures equity capital as a percentage of total risk-weighted assets, rose to 9.2 percent from 8.9 percent at the end of 2013, slightly above regulator the Bank of Israel's requirement of 9 percent by the start of 2015. (1 US dollar = 3.5286 Israeli shekels) (Reporting by Steven Scheer; Editing by Greg Mahlich)