Bank Leumi Le Israel

Ladies and gentlemen, thank you for standing by. Welcome to Lou Mee's first quarter 2025 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 May 20, 2025. 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 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, pricing, market acceptance, changing economic conditions, risks 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 filing 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 Lumi's first quarter 2025 results conference call. Joining me today is Ms. Chagita Gov, CFO and Head of the Finance Division, and Mr. Omer Ziv, Deputy CEO and the Head of the Capital Markets Division. The presentation that we will be using is available on the bank's website. I would now like to turn the call over to Hagi.

Thank you, Michael. Good day, everybody. I'm very happy to be here with you today and to present our first quarter 2025 financial results. Before we discuss this, a few words on the macro situation and some key messages. Let's start with slide three that shows some key macro indicators. Firstly, the recovery of the Israeli economy continued in the first quarter of 2025 with annualized GDP growth of 3.4% compared with 1.9% growth in the previous quarter with GDP now above pre-war levels. Secondly, indicators of household conditions such as credit card purchases and consumer confidence, point to year-over-year improvement. And moreover, export of high-tech services, an important component of the local economy, accelerated in recent months. The labor market remains tight. And finally, the Bank of Israel estimates the real GDP will grow by 3.5% this year, with an emphasis on domestic demand and fixed investments. Turning to slide four, this shows our consistently high ROE and profitability. Bank Lumi continues to present high and stable ROE and net profit already for many quarters. Third quarter 2025 net profit of 2.4 billion shekels was up 12% year-on-year when excluding the one-time profits from the sale of the bank's headquarter buildings in the third quarter of 2024. And despite the buildup of excess capital over the period, the bank is consistently delivering ROE above 15% in line with our strategic plan. Slide five shows a snapshot of the quarter's performance. Net income for 2024 was 2.4 billion shekels. ROE was 15.4%. Cost income ratio was 32.1% and was down from 33.4% in Q1, 2024 when excluding proceeds from Headquarters real estate sales. The cost income ratio at Headquarters was negatively impacted by the low CPI and the P&L impact of the . Let me stress that our cost income ratio continues to be the best in class and one of the best in the world. Credit loss expenses improved to 0.05% from 0.21% in the first quarter of 2024 due to negligible specific provisions and due to the lower collective provisions, which is consistent with the low NPL ratio and the improvement in problematic debt. Credit growth was 1.6% in the quarter and up 8% year-on-year. When we exclude capital markets credit, which is more volatile, credit was up 2.2% in the quarter. Moreover, we have a very strong pipeline, which is reflected in the growth of risk-weight assets and credit risk, which was up by 2.7%. Book value per share increased 3.6% in the quarter and has increased by almost 15% over the last year. All in all, quite an impressive, consistent and strong performance. Slide 6 shows a snapshot of income and expenses in Q1. Net interest income increased 7% year-on-year to 4 billion shekels, mainly due to the increase in volumes. non-interest financing income was down due mainly to losses from derivatives that age our securities portfolio. Actually, the bank securities portfolio recorded gains in the quarter. However, for accounting reasons, the cost of the derivatives is recorded in the P&L, while the gains of 240 million shekels are recorded directly to the equity account. Fees were up strongly, up 9% year-on-year, due to higher securities activity, higher fees from financial transactions, and higher fees from credit cards. Total expenses were down by 5.2% year-on-year, due to lower salary expenses, and despite the significant increase in the bench activity. In slide seven, we can see the quarterly development of net interest income and margin. Mean increased in the first quarter to 2.35% from 2.21% in the previous quarter, mainly due to the higher CPI and the more favorable deposits and credit mix. Slide eight shows the year-on-year increase and breakdown of fee and commission income. Fees were very strong a record 9.2% in the first quarter compared with the corresponding quarter last year, mainly due to higher securities and financing transactions and higher credit card activity. Slide nine shows the development of loan loss expenses as mentioned before. Credit loss expenses improved to 0.05% from 0.21% in Q1 2024 due to negligible specific provisions and due to the lower collective provisions, it consisted with the low NPL ratio and the improvement in problematic debt. Turning to slide 10, shows the continuing high quality of our credit portfolio. We can see that despite the war, a tough macroeconomic backdrop and high interest rates, NPS remains stable at 0.5%. Trouble debts declined further to 1.4%. Both measures are at historically low levels and are among the lowest in the Israeli banking system. At the same time, the bank's provision for bed debts stood at 6.8 billion shekels, covering NPS by almost three times. Let's move ahead now to slide 11, our loan book. The bank's loan book increased in the quarter to 463 billion shekels, up 1.6% and 8% year-on-year. When we exclude capital markets credit, credit was up 2.2% in the quarter. Corporate credit was especially strong, held by infrastructure and project finance. Moreover, we have a very strong pipeline which is reflected in the growth of risk-weighted assets and credit risk, which was up by 2.7% in the quarter. Slide 12 shows deposit rent. Total deposits fell in the quarter to a little under 600 billion shekels, mainly due to the volatility of capital market deposits. Our deposit base on the right is well diversified and our liquidity ratios remain strong. Moving ahead now to slide 13, we chose our very healthy capital ratios. This remains stable in the quarter. Our CT1 ratio was 12.15% at the end of the quarter, similar to year-end levels and remains the highest in the sector. The total capital ratio was stable at 14.83%. The bank's capital buffer which is the difference between the 51 ratio and the minimum regulatory requirement, stands at almost 10 billion shekels. Turning to slide 14, talking about payouts. The bank will distribute a cash dividend for the first quarter of 0.72 billion shekels, together with the buyback of 0.24 billion shekels, bringing the total payout to about one billion shekels, or 40% of quarterly earnings. The bank's continued strong profitability, combined with the very healthy capital buffer, give us confidence that we can increase our payout ratio to at least 50%, of course, as soon as the Bank of Israel permits. In conclusion, slide 15, let us summarize. The bank continues to present consistent and strong financial performance with high HROE despite the ongoing economic uncertainty. The bank's strong profitability and healthy capital buffer enable us to continue growing in our target segments while also allowing us to share higher returns with shareholders through dividends and buybacks, as I mentioned earlier. With that, I will now open the call for questions. Operator?