Bank Hapoalim B.M. S/Adr

and thank you for standing by. Welcome to the Banco Pualim fourth quarter and full year of 2025 results conference call webinar. For your convenience, this call will be accompanied by a PowerPoint presentation. May we suggest, if you have not yet done so, that you access the presentation on the bank's website, www.BancoPualim.com, by clicking on financial information on the homepage and then click on the annual report presentation. All participants are at present in listen-only mode. Following management formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded March 5th, 2026. With us on the line today are Mr. Yadin Antebi of Bank Apoalim, Mr. Ram Gev, CFO, Mr. Victor Baha, Chief Economist, and Mr. Mark Koblenz, Head of Investor Relations. I would like to remind everyone that forward-looking statements for the respective company's business, financial condition, and results of its operations are subject to risk and uncertainty that could cause actual results to differ materially from those contemplated. Such forward-looking statements include but are not limited to product demand, pricing, market acceptance, change in economic conditions, risk in product and technology development, and the effect of the company's accounting policies, as well as certain other risk factors, which are detailed from time to time in the company's filings with the various security authorities. In the event of a siren in Israel, we will pause briefly and resume the call as soon as possible. Mr. Antebi, would you like to begin?

Thank you. Good afternoon, and thank you for joining us for our view of the Bank's 2025 results. We are publishing our financial statements and holding this call at a time when the geopolitical environment in the Middle East and around the world is undergoing material change. We continue to witness Israel's unique resilience and its ability to adapt rapidly. Throughout its history, Israel has consistently emerged stronger from periods of adversity, and we believe that after the current conflict, the economy is positioned to regain strength and to continue to grow. With this environment, Banker Podium will continue to play a meaningful role in supporting the recovery and growth of the economy. Let us now turn to the results. We ended 2025 with very strong results. Net profit of 9.8 billion, return on equity of 15.9%, loan growth of 13.4%. These results reflect the disciplined execution of our strategy, which I will touch on shortly. Alongside these strong financial results, this was a year of significant activity across the bank. We advanced a number of innovative and impactful initiatives, including growth across all business centers. the introduction of two-year financial targets, the distribution of bank shares to our customers under the Bank of Israel outline, the launch of an AI bot that supported the share distribution process, a new marketing strategy of proactive banking, and a major step forward in the development of Build Our Payment Pack. All these efforts led us to deliver results that exceeded the targets we published a year ago. Net profit of $9.4 billion, excluding income for insurance, versus a target of $8.5 to $9.5 billion. Return on equity of 15.3%, excluding that income, versus a target of 14 to 15%. credit growth of 13.4%, compared with a target of 7%. Dividend payout of 50% for the year, or 53% from the moment the Bank of Israel permitted the distribute more, versus a target of at least 50%. Looking ahead, it is clear that the macroeconomic environment has changed compared with a year ago. When we publish a target, our targets for 2025 and 2026. GDP growth assumptions have improved, but market implied interest rate and inflation are lower for the next two years than they were a year ago. Nevertheless, most of the updated two-year targets we are publishing today are higher than the previous ones. For 2026 to 2027, we expect net profit of 9 to 10 billion, return on equity of 14 to 15%, accelerated loan growth of 59%, and a higher payout ratio of 50 to 60%. It is important to note that towards the end of the year, we will begin the relocation to the new Torim Center building. As part of this transition, we intend initiated steps to realize and enhance our own real estate assets. Accordingly, starting in 2027, we expect to recognize free tax gains of between 800 to 900 million, which we have reflected in the updated targets. Regarding the special tax on banks, our assumptions reflect an impact similar to that of the past two years. I would like to briefly review the progress we have made in executing the strategic focus areas we approved about a year ago. As a reminder, our strategic focus areas are sales growth, leadership in service and fairness, BIT as an innovation engine, operational efficiency, Gen AI and data. In our retail activity, the focus is on strengthening sales capabilities across all channels, branches, call centers, and digital. To support this, the division underwent an organization restructuring designed to enhance sales effectiveness and customer service. We adopt a proactive service model and introduce new service standards. Naturally, many of these processes intersect with technology, and here, too, we made a substantial leap forward with the implementation of an AI bot as a foundation for future automation. In mortgages, we made a major improvement in SLA, which also helped us improve pricing. Here as well, we are already seeing results. including an increase in our marginal market share. In corporate banking, our goal is to accelerate growth with maintaining excellent portfolio quality and healthy markets. One of our key achievements this year was a significant reduction in the end-to-end credit approval process, benefiting both our customers and our growth objectives. We also enhance our digital offering for corporate clients, and today we provide fully digital end-to-end services. In our capital markets activity, we are the number one player in Israel, both the country's largest brokerage and exceeding trading. On inequity, our real assets investments continue to grow at an average pace of about $1 billion per year. This year, it also recorded substantial realizations, resulting in strong profitability. Bait is a success story, I am extremely proud of. With 3.5 million active customers and an annual P2P transaction volume of 30 billion shekels, Notably, two-thirds of our BIT customers conduct their primary banking activity with other banks, representing a major growth opportunity for us. Over the past year, BIT reached an important milestone with the launch of new products and services that generate revenue and or reduce costs. We intend to continue expanding our offering to provide BIT users with solutions that simplify and enhance their financial management. We are already a highly efficient bank with a cost-income ratio of below 35%, but we still see room for further improvement. We have a retirement program under which about 10% of our workforce will retire by 2028. In addition, we are making There are no shortcuts here, just vigorous management. We are already seeing solid results with a nearly 8% reduction in other expenses this year. Alongside this potential as described, I would like to highlight several strengths as we enter 2026. We have accumulated the largest credit loss reserves in the system, which I believe will decline in a more stable geopolitical and economic environment. We have the highest financial margin in the industry, reflecting profitability-oriented growth and disciplined balance sheet management. We hold significant gains in the available for sale portfolio, while competitors carry losses. And as noted, we intend to sell our real estate assets, similar to steps already taken by FUSE, and recognize pre-tax gains of $800 to $900 million starting 2027. Today, nearly every bank or company speaks about Gen AI and data. We're not only talking, we have made substantial progress in this area. Our goal is to extend the use of capabilities to support operational and business processes, reduce SLA, and more. One of our successful use cases is Danit, our AI bot, which handled thousands of customer calls during the shared distribution campaign we conducted. The bot handled most calls and completed the process end-to-end. Before I hand it over to Ram to review the quarterly and annual results, I would like to reiterate our targets for 26 and 27. Net profit of 9 to 10 billion, return on equity of 14 to 15%, accelerated loan growth of 8 to 9%, and higher payout ratio of 50 to 60%. Thank you, and Ram, please go ahead.

Thank you, Yadin. and good afternoon to everyone on the call. I'm happy to walk through the bank's fourth quarter and full year 2025 results in the next few minutes and discuss the key drivers behind what we consider an exceptional year for the bank. A year marked by a high return on equity, nearly $10 billion in net profit, strong business momentum, and all supported by excellent capital strength and high-quality credit metrics. Let's dive into the numbers and start with slide 20, where we are showing the continuous growth in profitability. This morning, we reported a 15.9% return on equity for the full year, with net profit of 9.8 billion shekels and an NPS of 7.43 shekels. Adjusted for the 380 million shekel income, we recorded from insurance reimbursement in the third quarter, ROE is 15.3% and the net profit is 9.4 billion shekel, both completely above our financial targets. The fourth quarter profitability was impacted by a negative CPI and a one-time 200 million shekel provision made in respect of the labor dispute As a result, the reported ROE of 13% for the quarter does not fully reflect the bank's underlying profitability. Next, let's talk about our credit book. We continued to deliver strong and high-quality growth throughout the year. In 2025, total credit increased by 13.4%, of which 4.9% in the last quarter. to a balance of more than 500 billion shekel. Another important key quality of our portfolio is its diversification across segments. This is a key parameter not only from a growth and risk balancing perspective, but also because it gives a greater flexibility to be selective in how we grow and to allocate growth to areas where we see stronger profitability profile. growth was recorded across all segments in 2025 and in various economic sectors. This is a reflection of our ability as a leading bank to translate the strengths of the remarkable Israeli economy into growth in our activity. Corporate credit grew 25.8%. For merchant credit, essentially middle market businesses grew 11.3%. In retail activity, consumer mortgages and small businesses grew roughly 7 to 12%. The next slide, slide 23, present our financing income. The consistent growth trend in our financing income and margins reflects two key factors. Increased business activity combined with government bond portfolio repositioning. As a reminder, as part of this process, we realized losses on legacy securities, mostly in 2024, and we invested in higher yield and longer duration assets. This resulted in 9.6% growth in total financing income and a slight increase in the financial margin. This was achieved despite a lower contribution from the CPI and ongoing competitive pressure on margins, and unlike all our peers. On the right-hand side, we show the income from regular financing activity excluding the CPI, which is consistently growing, and further highlights the aforementioned key strengths. In this slide, we take a quarterly view of financing income. The volatility of the CPI resulted in a gap of over 650 billion shekels between the fourth and third quarters. This is the reason for the decrease in income from regular financing activity and margin. Here as well, we show the income from regular financing activity excluding the CPI, which, due to the growth in activity, continued to grow nicely. On fees, the positive trend continues across various types of fees, as our business activity continues to expand. Total fees grew 11.3% in 2025, driven by most fee types, such as securities, conversion differences, and account management fees. The increase in credit card fees is mainly attributed to one-off revenues received from the international card organizations. Let's move to present our disciplined cost management. The takeaway here is that even alongside the impressive growth in our activity, total expenses are down. Or if we adjust for one-off, total expenses remain flat year on year. Looking at the cost-income ratio in both presented years, there were one-offs. In 2024, we provisioned for an early retirement plan, almost 600 million shekels. And on the other hand, 2025 income included the insurance reimbursement. So if we look at the adjusted figures, the cost-income ratio is down to the mid to low 30s. This is among the lowest efficiency ratios globally. In the fourth quarter, expenses increased due to several non-recurring items, primarily the provision related to labor dispute at the bank. Just to give you some color, we are currently working on structural changes to the bank's employment framework, changes that will yield benefits for many years to come. While no agreements have been finalized yet, we have recognized a provision in anticipation for a future settlement. On slide 27, our productivity ratios, which have been improving over time. Both income per employee and credit per employee support the positive Joe's effect. Moving on to discuss provision for credit losses and the quality of our book on slides 28 and 29. Provision for credit losses amounted to 421 million shekel, or 0.31%, of our credit book, driven completely by the collective allowance and net automatic charge-offs. Increasing the collective allowance reflects our prudent approach and is due to the growth of the credit portfolio and the continued uncertainty in the economic environment. Individual provision, however, saw income due to recoveries. It's important to highlight that this prudent approach places us in the strongest position entering 2026 relative to peers, with high reserve levels and the highest reserve ratio across a range of scenarios. On credit quality metrics, on the left-hand side, we see the NPLs continue to drop, now at 0.48%. while the NPL coverage ratio continued to rise to more than triple the NPL's as we continue to increase the collective allowance. On the right hand side, the allowance to loans ratio remained high at 1.72% and over 95% of the total allowance is collected. The next slide. The bank has the largest retail deposit base in the sector, which provides a significant competitive advantage. Our deposit base continued to grow in 2025, 3.2% in the last 12 months. Retail deposits decreased this year, but still represent 54% of total deposits. Liquidity ratios, NCR and NSFR, continue to be well above the minimum requirement. Now, let's move to present our capital position, which continues to benefit from strong organic generation capabilities, leading to 11.2% growth in the last year. The CD1 capital ratio rose 11.98%, and you can see in the waterfall graph the contribution of our strong profitability, and to a lesser extent, the positive OCI, allowing for substantial growth in activity, as well as substantial profit distribution to our shareholders. On dividends, our strong capital position allowed us to increase our profit distribution, where in addition to the 50% payout, we declared a distribution of additional 200 million shekels. This sums up to 60% distribution for the fourth quarter, 48% by cash dividend, 0.79 shekels per share, and the rest through share buyers. So for 2025, total shareholder distribution amounted to 50% of net profit, consistent with our financial target, driven by a 4.1 billion shekel cash dividend, reflecting a 4.6% yield, and 4.9 billion shekel total distribution. Before we move to briefly discuss microeconomics, I'm moving to slide 33 for a quick update on our expected real estate asset set. As you know, and as some of you have noticed when passing bank, we are currently constructing the bank's next headquarters building in Tel Aviv, called Poaling Center. Beyond the financial significance of this move, it will allow us to further align our organizational culture with our future plans, including by bringing all headquarters employees together under one roof, rather than being scattered across several buildings as we are today. The planned relocation will start at the end of this year and we expect to sell existing properties from 2027 onward. As this event is approaching, and we are already progressing with the development of assets and sale processes, we have provided disclosure in the financial statements regarding initial estimates for the expected property from the sale of our main properties, estimated at 800 to 900 billion shekels before tax. Let's now talk briefly about macro situation in Israel. While each reiterate conflict is unique past episodes, offer a useful framework for assessing the current operation's economic impact. We expect a temporary slowdown in activity, broadly similar to the second quarter of 2025 contraction, and dependent mainly on the operation's duration, followed by a partial rebound. The economy entered the year with solid momentum, and assuming the operation remains short, GDP growth is still expected to exceed 4% this year. Shown on the right-hand chart, the checker has strengthened as markets view geopolitical risk as moderating, supported by another strong year in high-tech, including several large acquisitions. Headline inflation has eased to 1.8% year-on-year, partly due to currency operations. Our base case assumes no persistent inflationary impulse from the current operation, keeping near-term inflation contained. The policy rate has been cut to 4%, with inflation expectations well anchored, and market pricing implies roughly three additional cuts by year-end. So, to summarize, 2025 saw very strong performance across all metrics, well above our financial targets. Return on equity was 15.9% or 15.3% adjusted for the income from insurance. Financing income and margins continue to be strong, driven by the growth in activity and assets for all over. The strong growth in credit of 13.4% during 2025 was broad-based across all segments and economic sectors. This was achieved with no compromise on the quality of the book, as reflected in the NPL ratio of only 0.48% and allowance to NPL ratio of 310%. In the fall quarter, we declared on a 50% distribution plus 200 million shekels from existing capital sub-assets, So the overall payout ratio in 2025 was 15%. And lastly, we introduced updated financial targets for 2026 and 2027. 9 to 10 billion shekel net profit. ROE target remains 14 to 15%. Credit growth target base increased to 8 to 9%. And profit is To conclude, we are proud of the strong performance this year and of the clear, ambitious targets we have set for the next two years. We are well positioned to continue delivering substantial fun. We will now be happy to take your questions. So back to you, operator.