Bank Leumi Le Israel

Ladies and gentlemen, thank you for standing by. Welcome to Lumi's third quarter 2025 Results Conference Call. All participants are at present in a 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 November 18, 2025. The presentation that we will be using is available on the IR section of the Bank's website. I would like to remind everyone that forward-looking statements for a 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, risk in product and technology development, and the effect of the company's accounting policies as well as certain other risk factors, which are details from time to time in the company's filing with the various security authorities. I would now like to turn the call over to Ms. Chagit Ergov, CFO and Head of Finance Division. Please go ahead.

Good day, everyone. I'm very pleased to be here with you today and to present our strong third quarter 2025 financial results. So let's get started with slide three. First, some key takeaways. Bank Lumi continues to present high and stable results over many quarters. This quarter, ROE was 16.3% and net profit was 2.7 billion shekels. It is worth noting that if the excess capital were reduced to the dense internal C31 target of 10.6%, the ROE would stand at 19 in the third quarter. In addition, we continue to manage costs effectively while maintaining a strong efficiency ratio. Credit quality metrics further improved and they have been consistently among the best in the sector over a number of years. We continue to present significant excess capital and healthy liquidity ratios. Following the Bank of Israel approval to increase the payout ratio up to 75% of the net profit in the South Water, Leumi announced a combined dividend and buyback of 2 billion shekels. So all in all, we delivered strong, consistent and high-quality performance. Let's take a quick look at slide 4. Here we can see our financial targets for 2025 and 2026, published as a strategic plan in our 2024 annual report. So far, Lumi is well on track to meet our financial targets. Before we dive into the details, Let me start with a brief overview of the macroeconomic environment. For this, we move to slide 5, which highlights the key macro indicators. In Q3, the economic indicators showed an expansion. The Bank of Israel estimates real GDP growth of 2.5% for 2025, mainly impacted by the implications of the military conflict against Iran and 4.7% GDP growth in 2026. The GDP growth is driven by domestic demand and fixed investment. In addition, export of high-tech services, which is the key growth engine of the Israeli economy, have accelerated in recent months. And recently, inflation got back to the target range of Bank of Israel, between 1% to 3%. In October 2025, a ceasefire agreement with Hamas, including the return of the Israeli hostages, was achieved. If fully implemented, this development would have positive implications for the Israeli economy and global sentiment. Moving to slide 6, which provides a snapshot of our quarterly performance. I will let the numbers speak for themselves. As mentioned, net income from Q3 2025 was 2.7 billion shekels and ROE was 16.3%. The cost-to-income ratio was especially strong, at 27% down from 31.1% in Q3 2024. This was supported by higher income and lower costs thanks to our advanced technology. Our cost-to-income ratio continues to lead the Israeli banking sector and is among the best globally. Credit loss expenses were 0.03% in Q3, reflecting, among other factors, a positive development in the geopolitical environment. Credit portfolio grew by 1.3% quarter-on-quarter, supported by continued demand, mainly from the corporate and mortgaged segments. The book value per share of the bank increased by 2.7% in the quarter and is up 12.7% over the past 12 months to 45 shekels. Quarterly earnings per share were up almost 20% year-on-year. Now let's drill down to some key numbers on slide 7. We chose the breakdown of income and expenses. Net interest income decreased 1.6% year-on-year, mainly driven by a lower CPI compared with Q3 2024. Overall, finance income grew strongly by 10.5% year-on-year, supported by higher non-interest income, mainly from capital markets, compared with the parallel quarter last year. Expenses declined, reflecting our tight spot control. As a result of the above, free provision and revenues increased year-on-year by 14.3%. In addition, as part of the Bank of Israel program to distribute benefits to customers that was launched in April 2025, Leonid continues to benefit its customers. This totals 172 million shekels in the third quarter. A brief view of slide 8. summarizes our 9 months 2025 results. As you can see, 9 months results followed a similar trend to those for the 3 months period in the previous slide. Another brief metric on slide 9 highlights our fee. Fee income was partly affected by the benefits granted to customers in the Bank of Israel program. Excluding these benefits, fees grew strongly by 11.4% quarter-on-quarter, driven mainly by securities activity and credit growth. Nine months 2025 over nine months 2024 displayed similar trends. On slide 10, we clearly see the bank's continued improvement in our multi-year cost-income ratio. Our cost-income ratio continues to be strong at 27% in the third quarter and 28.6% in the nine months. Turning to slide 11, the development of credit loss expenses in Q3, which shows us that specific provisions reflect our high-quality credit portfolio, with an income of 74 million shekels coming from net recovery. That means collections minus provision increases. Collected provisions were lower than in the parallel quarter, reflecting an improvement in the macro environment in light of a positive development in the geopolitical situation. Overall, total credit loss expenses in the quarter were 0.03% of gross loans, compared with 0.28% in Q3 2024, and maintain our coverage ratio. Slide 12. presents a significant metric. It is the high quality of our credit portfolio. Credit quality further improved in Q3, with trouble deaths declining to 1.34% of gross loans. NPL was also at the low level of 0.41%. The coverage ratio, as I mentioned before, remained stable, while the rate of provisions to NPLs increased 3.3 times. These parameters are among the lowest in the banking sector. Now we turn to slide 13. This shows our strong credit growth. Credit growth over nine months was in line with our target and stood at 8.8% with the 1.3% rise in Q3. This was supported by the ongoing resilience of the economy. with growth coming from corporates, including real estate, infrastructure, mortgages, and middle markets. The next slide, slide 14, shows the bank's diversified deposit base. Total deposits were up 3.7% in nine months, 2025, while deposits from private individuals grew by 1.4%. Liquidity ratios remain robust with the FTI ratio at 1,228%. Let's now move on. Slide 15 shows our LC capital and leverage ratios. The Core T1 ratio increased by 5 basis points in the quarter to 12.33% with the bank's capital buffer now standing at more than 2% or 11 billion shekels. The total capital ratio was stable at 14.3% 87%, which is also well above the Bank of Israel minimum requirements of 13.5%. Going on to slide 16, we see the bank's capital return. Because the limitation on the capital return was partly eased by the Bank of Israel, Leumi declared a total payout of 2 billion shekels, of which 1.5 billion is a cash dividend and the rest is in buybacks. This represents 75% of the quarterly net profit and an annualized return of 8.2% at the current share price. In conclusion, we turn to slide 17. Let me just summarize our presentation. The bank continues to present consistent and strong financial performance with high HROE even during macroeconomic and geopolitical uncertainty. We remain highly disciplined on cost, resulting in consistent efficiency improvement and the best cost-to-income ratio among Israeli banks and probably one of the best globally. Our technology transformation doesn't stop. Nearly 90% of our private customers carry out their activity through digital platforms. The banks from profitability and healthy capital buffer enable us to continue growing in our target segment and also allow us to share higher returns with shareholders through dividends and our buyback program. With that, I will now open the call for questions. Operator?

Thank you. Ladies and gentlemen, at this time we will begin the question and answer session. In order to send the question, use the chat button located in the bottom of your screen. Please type your full name and your company's name before the question. The first question, funding plans. Do you plan to come to the market in the near term to issue USD senior bonds or AT1s or TR seconds?

Okay, thank you for the question. Regarding the senior, we constantly issue a senior bond, depending on our liquidity ratio, and if it will be in US dollar, it depends in the price and in the conditions, so we consider it when we issue. Regarding the Tier 2, let me point out that our total capital ratio is significantly above the requirement, so there is no specific need to refinance it in the near future. As for the bond series in US dollar with a call date in January 2026, the final decision will be during 2026, depends on our capital ratio. Okay, thank you.

The next question, what are your refinancing plans for the tier seconds callable in January 2026?

The same question, I covered it in my answer.

The next question, could you provide some color on the trajectory of net interest income and net interest margins as we approach the end of this year and look ahead to next year?

Okay, so about this quarter, the NIM was affected mainly by the higher share of institutional in our deposit portfolio. These deposits carry lower margins. They are usually short term, so the current level of the NIM will not necessarily remain the same in the coming quarter. And of course, affected by the competition. About the future, we expected the Bank of Israel to announce an interest rate reduction, and according to our financial statement, a 1% decrease in interest rate would affect our result by around 8 million shekels, which is approximately 0.8% in ROE terms. So we believe that this will be the effect in our... financial statement.

The next question. I'd appreciate your perspective on the normalized cost of risk. There was a noticeable decline this quarter with COR at 9 BP for the first nine months compared to 16 BP last year. Any insights on the drivers behind this change and any guidance going forward would be very valuable.

Okay, thank you for the question. First of all, it is important to note that during the war, we accumulated a large excess provision due to concern about the geopolitical situation. Secondly, in this quarter, there is an improvement in the geopolitical situation. And as I mentioned in my presentation, in our credit quality parameters, And finally, our specific provision, we continue to record income from recovery, net recovery, which means we have more recovery than write-off. So consequently, total credit loss provision were low, amounting to 3 million shekels. I want to mention that our NPL coverage is about three times and is one of the highest in the system. And also we maintain our coverage ratio, which means our provisions to our credit. So if I have to appreciate what will be in the future, it's of course depending the geopolitical situation and our credit quality parameters. So if the situation will continue to improve, And there will not be any deterioration, so I believe that it will be in the same level of provisions.

The next question.

Yes.

A question on regulatory risk. There have been media headlines about an increased tax rate on the banks and separately by the finance minister to subsidize mortgage. Does the bank have any take on that?

Actually, we heard about this plan at the same time as you did, and we don't have any further information. Such a process would require, of course, a legislation, and yet we don't see any official document. So if the issue develops further, we will be able to respond accordingly.

The next question. How much more operating leverage is there, and how should we be looking at expenses going into next year?

Okay, so as you know, Loomi has continued year after year to increase its income and decrease its expenses. Our motto has been doing more with less, and this is reflected in our financial parameters, in our cost-income ratio. We have achieved and will continue to do this, mainly by advanced technology. By the way, to the best of my knowledge, It is the best of all the Israeli banks and probably in the world, and we are very proud of it. We continue our tight controls expenses, and we continue with our technology, and I believe we can maintain it at least in the same level.

I repeat, in order to send a question, use the chat button located at the bottom of your screen. Please type your full name and your company's name before the question. There are no further questions at this time. This concludes LUMI third quarter 2025 results conference call. Thank you for your participation. You may go ahead and disconnect.