Bank Hapoalim B.M. S/Adr

Ladies and gentlemen, thank you for standing by. Welcome to the Banco Hapoalim second quarter of 2026 results conference call webinar. For your convenience, this call will be accompanied by a presentation. May we suggest, if you have not yet done so, that you access the presentation on the Bank's website www.BancoHapoalim.com by clicking on financial information on the homepage and then click on the second quarter 2026 report presentation. All participants are as present in listen-only mode. Following management's formal presentation, we will open the question and answer session. You may send questions via chat. Please type your name and company before your questions. Or you can use the raise hand button on the bottom of your screen. As a reminder, this conference is being recorded August 11, 2026. With us on the line today are Mr. Ram Gev, CFO, and Mr. Mark Koblenz, Head of Investor Relations. I would like to remind everyone that forward-looking statements for the respected company's business, financial condition and results of its operations are subject to risk and uncertainties that would 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 securities authorities. Mr. Gev, would you like to begin?

Good afternoon to you all and thank you for joining us today. I'm pleased to review the Bank's 2026 second quarter and first half results. Let's start with the highlights of slide 3. We delivered an excellent This brought our first hard return on equity to a strong 14%, or roughly 15.4%, excluding the special bank tax, reflecting continued strong business momentum, cost restraints, and of course, the positive impact The last point to highlight is capital. Alongside our continuous growth, we remain committed to distributing a meaningful portion of our earnings with a 50% payout ratio, generating an attractive dividend yield while maintaining strong capital ratios. Net profit in the quarter stood at 2.5 billion shekels, a 17.1% increase for our board, adding the share is up to 1.9 shekels. ROE for the past two quarters have been affected by the special tax. which on an annual basis will have a 1.3 to 1.4% impact on ROE terms. Next, let's talk about our credit book. Total credit with a balance of 536 billion shekels grew impressively by 14.3% in the last 12 months, of which 3.3% in the last quarter. Growth was diversified across all segments and in various economic sectors. This reflects the strength and unique characteristics of the Israeli economy, which continues to expand and develop despite ongoing security and other challenges. It also demonstrates a continued confidence of Israeli households and businesses in the long-term prospects of the Israeli economy. Alongside continued growth in retail trades, mortgages, and mid-market lending, we saw strong growth in our corporate credit portfolio. A portion of this growth consists of balances attributed to securities lending and derivatives transactions. Slide 7 presents our financing income. Income from regular financing activities grew 13.7% for our report. mainly due to high contribution of 431 million shekel of the CPI in the quarter, as well as the growth in banking activity, including lending, deposits, and dealing rooms. Scrolling the CPI, income from regular financial activity grew 3.4%. Impacted growth was achieved despite a headwind from lower interest rates. With the average Bank of Israel rate during the quarter being 11 basis points lower than in the previous quarter. For non-regular financing activity, we recorded a high income of 325 billion shekels, mainly thanks to income from shares derived by our nostro investments as well as Hualim Equity, our investment platform. The financial margin remains a key strength of the Bank It is substantially up from 2.49% to 2.70%, affected mostly by the CPI, while being adversely affected by the aforementioned rate cuts and lower credit marches. The positive trend continues as our business activity continues to expand. Fees grew 2.7% in the quarter and stayed unchanged versus the corresponding quarter last year. As in the second quarter of 2025, we recorded special income from the international credit card companies. The growth in fees in the second quarter was recorded mostly in credit card securities and corporation differences. Moving on to present our discipline, cost management. The benefits of our continued expense management efforts are clearly evident in these quarter results. Expenses stayed flat quarter-on-quarter and were down 4.4% versus the second quarter last year. This decrease is mainly attributable to salary expenses which were down 7.3% year-on-year, mainly due to a decrease in performance-based costs. Underlying salary expenses stayed stable. The cost-income ratio is down to 30.6%, 33.3% for the first half. Moving on to discuss provision for credit losses and the quality of our book on slide 10 and 11. Provision for credit losses, or cost of risk, amounted to 298 million shekels, a 0.22% ratio. We recorded a collective provision that primarily protected portfolio growth and other standard provisioning effects. As uncertainty still resists. On the individual side, there were no exceptional recoveries during the quarter. Other results as shown on slide number 11, while the allowance balance increased in absolute terms, the allowance ratio actually declined slightly to 1.65%. On the left-hand side, we see the NPLs marginally increasing this quarter, but still at a very low level of 0.5%. This change primarily reflects normal quarter-to-quarter variations related to routine classifications. Against the NPL balance, our allowance coverage remains robust at close to 3 times, providing a significant caution. On slide 12, our deposit base continued to grow by 2.5% in the last quarter and 7.1% in the last 12 months. Return deposits decreased slightly due to customer preferences to move funds to capital markets products, but still represent 52% of total deposits. The credit union ratios LCR and NSFR continue to be well above the minimum required. Now let's move on to present our capital position. On slacks of 13, shareholders' equity grew by 8.1% in the last 12 months, and the CT1 capital ratio is 11.83% versus a mean internal target of 11%. On the left-hand side, you see the CT1 ratio development. The bank continues to demonstrate strong organic capital generation, alongside the effects of forecast growth and a high payout ratio, which led to a decrease in the capital ratio and a reduction in capital profits. Total distribution continues to be high at 50% of net profit, being 1.2 billion shekel in respect of the second quarter, of which 995 billion shekel in cash dividends, or 0.36 shekel per share. The remaining amount is the buyback of shares The 20% of the total distribution. Slide 15 Bits Our unique financial app has gained 3.5 million active customers. Two-thirds of them conduct their primary banking activity with other banks. B2B transaction volume continues to grow, outstanding at 2.9 billion shekels per month. On slide 16 Our future headquarters, Hualim Center, construction is progressing and we are simultaneously advancing, facilitating and selling the current properties. Before we conclude, a quick reminder of our financial targets and a brief micro-update. For 2026, we are targeting net profits in the range of 8.5 to 9.5 billion chequered with return on equity between 13 to 14%. Looking ahead to next year, we return to our original productivity target of 14 to 15%, with net profits increasing to 9.5 to 10.5 billion shekels. Across both years, we are planning growth of 8 to 9% on average, and we continue to target a balance ratio of 50 to 60%. The underlying assumptions, including the impacts of the special bank tax, Our outline in slide 18. On the macroeconomic environment, even though the contraction in economic activity in the first quarter was moderate, we witnessed a major rebound in the second quarter in almost all sectors, exports, private consumption, and investments. The labor market is tight, and the broadening of growth probably relies on improved productivity. Inflation, besides rain, was affected by the strength, the shaker, and its year-on-year level decreased to 1.6%. Markets now blind at 25 basis points rate cuts for this year, and some probability for one more cut next year. The worldwide steepening in yield curves ticked Israel, and the 10-year bond is trading 8 basis points below So, to summarize, we are concluding a strong second quarter with robust profitability and continuous business momentum. ROE was 15%, roughly 16.4%, excluding the impact of special bank tax. This quarter, ROE was actually above our target over the year. We delivered strong growth both this quarter and over the past year, while maintaining very low NPLs. Financing income and margin were boosted by the CPI as well as activity growth mitigated by lower interest rates. Expenses continued to be well controlled, supporting an efficiency ratio in the low 30s. And we returned 50% of net profit to shareholders through cash dividends and buybacks. With that, we will now open the call for your questions. Thank you.

Thank you. Ladies and gentlemen, at this time we will begin the question and answer session. In order to send the question, use the check button located at the bottom of your screen. Please type your full name and your company's name before the question. Or use the raise hand button at the bottom of your screen and the option for speaking will be given at the right time. The first question, this quarter you provided 0.22% cost of risk following the first quarter in which credit loss expenses were very low. Can you walk us through what drove the increase and looking ahead when we can expect some provision release?