Bank Leumi Le Israel

Ladies and gentlemen, thank you for standing by. Welcome to LUMI's second quarter 2024 results conference call. All participants are present in listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded August 14th, 2024. I'd like to remind everyone that forward-looking statements for the respected company's business, financial condition, and results of its operations are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated. Such forward-looking statements include but are not limited to product demand and the effect of the company's accounting missing market acceptance, changing economic conditions, risks in product and technology development 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. I would now like to turn over the call to Mr. Michael Klar, Head of Investor Relations. Mr. Klar, please go ahead.

Thank you, Operator. Ladies and gentlemen, we thank you for taking the time to join us for Bank Loomis' Second Quarter 2024 Results Conference School. Joining me today is Ms. Chagit Agor, CFO and the Head of the Finance Division, and Mr. Omer Ziv, Deputy CEO and Head of the Capital Markets Division. We are also joined by our colleague, Dr. Gil Bussman, Chief Economist. The presentation can be found on the IR section of our website and on the TAS website. I would like now to turn the call over to Chagit.

Thank you, Michael. Good day, everyone. I'm happy to be here with you all. Before we delve into the financials of a strong second quarter, I would like to say a few words about the macro backdrop in the second quarter which after nine months of war showed the modest recovery, which began in the first quarter of the year, and this continuing positively contributed to our results. Sales of new and secondhand apartments continue to pick up, and for the three-month period to May 2024, were up significantly on the corresponding period last year. Consumer confidence remains low affected by the war, but retail sales continued to increase in March to May, following the recovery in the first quarter. Wages continued to rise, and the unemployment rate continued to fall. Foreign trade data indicate an increase in the volume of the exports in the second quarter, with an emphasis on the export of IT goods and services. While geopolitical risks to remain high, Bank Lumi estimates a 1.4% GDP growth in 2024 and a rebound in 2025, provided that the war ends by then and does not extend, with growth driven by domestic demand, investments in fixed assets, and private consumption. Returning to the bank's performance in Q2 2024, let me pinpoint three key takeaways and we will go into the details later in the presentation. Firstly, the bank continues to report strong profits. Second quarter 2024 ROE was 15.9% and would have been 20.2% excluding the 0.6 billion shekel impairment of the Valley Bank stake versus 19.4% in the second quarter of 2023. Since the end, of the second quarter, value stock has increased and the value of Leumi's 14.2% stake is above the value recorded on our books. Secondly, our improved credit position. The quarter saw a meaningful decrease in trouble debts and NPLs, which combined with recoveries on specific loans and lower collective provisions resulted in much lower loan loss expenses. And finally, the continuing improvement of our cost-income ratio, which continues to be the best in the sector. Now let us turn to slide three for the highlights of the quarter. The second quarter was another strong quarter with net income of 2.3 billion shekels and ROE of 15.9%. Reported ROE for the first half of 2024 was 18% and was similar on normalized basis to the value impairment in the quarter, more or less offsetting the profits from the sale of Leomi's headquarters building in the first quarter. The cost income ratio declined to 28.7% from 39.5% a year ago. Credit losses were almost zero as collections offset lower collective provisions. Credit growth was up 1.2% on the previous quarter, but was up 2.4% when excluding capital markets as economic activity continued to recover. Credit to capital markets can be volatile on a quarterly basis. Core deposits were up 1.4% and are up 3.4% year-to-date. Slide 4 shows a snapshot of income and expenses in the second quarter. Net interest income and fee income increased by 2% compared to the parallel quarter last year, mainly as a result of the increase in the credit portfolio and activity offset by lower NIMS on lower rates and higher funding costs. Total expenses declined by 2%, mainly due to lower bonuses. On slide five, you can see the same snapshot for the first half of the year. Financing income was up 7%, while the 5% increase in operating and other expenses year on year was mainly due to higher employee bonuses on higher profits. In slide six, we can see the development of net interest income supported by credit growth and helped by higher CPI in the second quarter. Turning to slide seven, fees increased by 2.2% as economic activity continued to recover supported by financing transactions and security activity, and also a year-on-year increase in credit card income. Slide 8 shows the continued improvement in the bank's multi-year cost-income ratio, which improved further to 28.7% in the second quarter. Slide 9 shows the quarter-on-quarter and year-on-year decline in loan loss expenses, which were close to zero due to a lower collective provision and also due to income from specific provisions due to recovery. Note the decline in the collective provision to 68 million shekels was despite an increase in macro related provision due to higher macro uncertainty. Net provisions in the first half of the year was 0.09%. The next slide, slide 10, presents the high quality of our credit portfolio. The NPL improved to a level of 0.56% at the end of the second quarter, and trouble deaths decreased to a level of 1.5%. At the same time, as can be seen on the right-hand side, the bank's total provision remains stable at 6.7 billion shekels, covering almost 270% of the bank's NPLs. Despite the fact that we increased our credit portfolio at a faster rate than our peers in recent years, Leumi continued to present low NCL and trouble debt ratios. Slide 11 shows that the bank continues to grow credit in its target segment of mortgages and corporate, including real estate, and middle markets. Demand for credit in mortgages and corporate in particular rebounded in the first half of the year. The next slide, slide 12, shows the bank's diversified deposit base and robust liquidity ratios. Core deposits grew by healthy 3.4% since the start of the year, continuing the strong growth recorded in 2023. I'm moving ahead now to slide 13, which shows our very healthy capital and leverage ratios. The core T1 ratio has increased by almost 40 basis points in the first half of the year to 12.04% despite the higher 40% total payout. The total capital ratio rose to a level of 15.04%. Turning to slide 14, the strong profitability and large capital buffer allowed us to declare a cash dividend of 681 million shekels for the second quarter in addition to the second range of our 1 billion shekel share buyback plan reflecting a 40% total payout and equal to around a 7.5% annualized yield. Together, this brings the total capital return for the first half of the year to more than 2 billion shekels. In conclusion, and turning to slide 15, the bank continues to present consistent and strong financial performance with high ROE despite the challenging economic backdrop. Long-term asset growth is driving higher revenues and profitability, supported by best-in-class cost-income ratio and strong credit quality indicators. The bank's strong profitability and healthy capital buffer enable us to continue to grow in our target segment while also allowing us to share higher returns with shareholders through dividends and our buyback program. With that, I will now open the call for questions. Operator?