UPDATE 1-Israel's Bank Hapoalim Q1 profit falls on U.S. tax probe provision

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JERUSALEM, May 24 (Reuters) - Bank Hapoalim, Israel’s largest lender, reported on Thursday a drop in quarterly net profit that missed analysts’ forecasts due to a provision related to an ongoing U.S. tax evasion investigation.

The bank set aside an additional provision of 60 million shekels ($17 million) to cover a possible future settlement in the U.S. probe, bringing its total provision to $365 million.

It also booked a legal expense of 87 million shekels related to the investigation by the U.S. Department of Justice and New York State authorities.

Hapoalim, which had legal expenses of 89 shekels in all of 2017, said talks were ongoing and could not give a timetable for a resolution, although it is hoping for a conclusion in 2018.

It earned 628 million shekels in the first quarter, down from 767 million a year earlier and compared with the 799 million forecast in a Reuters poll of analysts.

Net interest income rose to 2.16 billion shekels in the quarter from 2.07 billion a year earlier, while credit loss expenses jumped to 250 million shekels from 107 million.

The bank said the increase in credit loss expenses stemmed from a 3 billion shekel rise, or 4.8 percent, in corporate lending.

The gain in lending also pushed its core Tier 1 capital ratio to risk-weighted assets, a key measure of financial strength, down to 11.05 percent from 11.26 percent at the end of 2017.

Its non performing loan ratio declined to 0.7 percent in the quarter from 0.75 percent in 2017 and 2.8 percent in 2013.

Hapoalim said it would pay a quarterly dividend of 251 million shekels, or 18.35 per share, representing a payout of 40 percent of net profit.

The bank’s shares were 1.5 percent lower in morning trade in Tel Aviv.

Its main rival, Leumi, reported net profit of 730 million shekels in the quarter, up from 622 million a year earlier but below expectations for 769 million.

$1 = 3.5655 shekels Reporting by Steven Scheer; Editing by Ari Rabinovitch and Mark Potter