Bank Leumi Le Israel

Ladies and gentlemen, thank you for standing by. Welcome to LUMID Fourth Quarter 2025 Results Conference Call. All participants are at present in a listen-only mode. Following the management of the presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded March 4, 2026. I would like to remind everyone with forward-looking statements for their respective companies' business financial conditions and results of its operations are subject to risk 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 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 Clare, Head of Investor Relations. Mr. Clare, please go ahead.

Ladies and gentlemen, thank you for joining Bank Loomis' fourth quarter and full year 2025 financial results webcast. Joining me today are Loomis' CEO, Mr. Hanan Friedman, and Loomis' CFO, Ms. Chagit Argov. Following their remarks, we will open the session for a Q&A. Hanan, please go ahead. The floor is yours.

Thank you, Irith. Good afternoon and thank you for joining the OMI's Annual Results Conference Call. Before turning to our strategy and reviewing our 2025 financial results, let me briefly address the current situation in our region. Five days ago, the United States and Israel initiated a coordinated military operation against Iran. Bank Lumi entered this war from a position of strength, with solid capital buffers and high liquidity. The bank continues to operate almost as usual, supported by robust business continuity plans and disciplined risk management. At this stage, we do not see any material impact on the bank's financial position. we continue to closely monitor developments and ready to deal with any request of our customers. Now, allow me to turn to our strategy and the key drivers of our 2025 performance and our plans for 2026 and ahead. For many years, The prevailing belief in the banking sector was that growth strategy requires a continuous expansion of the workforce, great risk-taking, and inevitable rising credit losses. We at Lumi fundamentally challenged this paradigm. Over the past few years, we have redefined what disciplined growth means. Leveraging technology enabled us to execute sustainable and healthy growth. We did this while keeping strict risk management and did much more with fewer resources, even much fewer resources. We also got much better results in all aspects, credit portfolio quality, efficiency, and customer satisfaction. We are accelerating our strategy by leveraging innovative AI tools that have the potential to reshape our cost structure and our business and technology capabilities. We view AI not as a temporary efficiency tool, but as a long-term strategic asset. We have benefited from the rapid journey we held over the last years to the cloud and from the transformation of many of our technology platforms. To ensure execution and fast execution, we established a dedicated AI center last year. Looking ahead, we are focused on the transition towards agentic AI systems that are capable to ensure proactive real-time execution rather than just data analysis. This shift is aimed at providing hyper-personalized products and a proactive real-time service model. It will accelerate the service shift the bank has led in recent years. Furthermore, we'll integrate AI tools into high-impact core functions, including underwriting, credit portfolio management, product management, and customer journeys, and probably with even more powerful impact, to rapid and effective software development with much less resources and much shorter time to market, and with, of course, much greater product innovation. Lumi holds several structural advantages in this field. First, our AI leadership report directly to me, ensuring that development is a top-down strategic priority. Second, our advanced cloud and data architecture provide the necessary foundation for scaling these tools efficiently. Finally, our access to Israeli premier technology talent is a critical advantage in our ability to execute and to execute fast. We intend to lead this transformation and not to follow, just as we have led the digital revolution of the Israeli banking system in recent years. Our financial results for 2025 validate this approach once again. Despite the significant challenges Israel has faced over the past year, we delivered record profits, the highest in our history. This performance reflects the strengths of a strategy built on structural efficiency, technological transformation, and effective risk management. I am proud to share that we met and in several areas even exceeded the ambitious strategic targets we set and published a year ago. Our net profit reached to 10.3 billion shekels within the 9 to 11 billion shekels range we defined. Ahoy was 15.8% fully aligned with our 15-16% target that we published a year ago. In addition, we achieved a responsible credit growth of 14% above our 8-10% target, leveraging opportunities we picked during the year. More importantly, this accelerated growth was achieved while further strengthening our credit quality. Our NPL, the non-performing loan ratio, declined to 0.4%, positioning us at a strong level by international standards. In other words, we are spreading above market pace while becoming structurally more resilient. Today, we also announced a 1.7 billion shekel payout, mostly cash and partially buyback, in respect of fourth quarter earnings. The total payout for 2025 summed to 5.9 billion shekels, almost 6 billion shekels. This brings a full-year capital return of 58% of net income, fully consistent with our strategic capital framework that was above 15% payout. E-minimum yield reached 6.5% in 2025. Our efficiency ratio improved further to 29.3%, placing us among the most efficient banks globally. This is the direct result of our multi-year technological transformation and our clear strategy to do much more with fewer resources, and as I mentioned, even with much fewer resources. Our AI center will enable us to accelerate this transformation over the coming years and to do even better. The consistent execution of our strategy and the strengths of our results are reflected in continued investor confidence. Several months ago, we became the first Israeli company traded on Tel Aviv Stock Exchange to surpass a market cap of 100 billion shekels. Earlier this year, we also became the first Israeli bank to issue covered bonds in the European market, raising 750 million euros. These bonds were rated above Israel's sovereign credit rating and were priced at a lower interest rate, reflecting sustained confidence in the bank among international investors, many of them our first time investing in Bank Lumi and in Israel. This transaction further diversified our funding base and strengthened our access to global capital markets. Looking forward to 2026, Bank of Israel recently revised its growth focus to the Israel economy upward to 5.2%. As Israel's leading bank, we expect to play a meaningful role in supporting this economic expansion and to be benefited from that. Today, alongside our financial results, we also released our updated financial targets for 2026 and now for 2027 as well, including raising of our net profit forecast to 10 to 12 billion shekels per year. Accordingly, we have adjusted our ROE targets for 2026 and for 2027 to 14.5 to 16% in line with our capital surplus. Despite the expectation of declining interest rates and diminishing inflation, we are confident in our ability to maintain high profitability. The positive macro environment combined with our ongoing integration of advanced AI and technology provides a strong foundation for continued acceleration, growth, and value creation for our shareholders. Our targets are to a capital return of 50% to 65% on an annual basis and annual credit growth of 8% to 10%. A meaningful portion of credit expansion will come from infrastructure financing, project finance, an important segment supported by a visible and growing multi-year pipeline. At Bank Lumi, we have identified this sector as a strategic growth engine. Accordingly, we have allocated the necessary resources and intend to continue leading the financing in this field. In addition, we'll continue to focus our growth on strategic segments such as real estate, retail mortgages, and retail banking. And I want to comment, as we have proved in the past, growth will not come at the expense of returns or credit quality. We'll do both of them. Discipline remains the foundation of our business model. I would like to take this opportunity and thank our board members, my colleagues in the management team of Ben Klumi, our dedicated employees, our customers, and of course you, our investors, for your continued trust and support. I will now ask Mrs. Chagit Algov, our CFO, to walk us through the financial results in more details. Please, Chagit.

Thank you, Hanan. And as you mentioned, we are living in very challenging and dynamic times. Good day, everyone. I'm very pleased to be here with you today and to present our strong results for the first quarter and an excellent full year 2025. Before we dive into the numbers, I'd like to share a few words on the macroeconomic environment, which relates mainly to 2025 and our last forecast for 2026, which was made before the outbreak of the present conflict. As Hanan mentioned, we are continuing to monitor the situation closely. For this, let's move to the next slide, which highlights the very positive key macro indicators. Economic activity continued to expand in Q4 2025. Throughout 2025, Israel's market-based risk indicators improved all across the board. This includes a decline of Israel's CDS spread Israel's yield differentials, the strengthening of the shekel, and strong performance of the Tel Aviv Stock Exchange. The labor market remains tight, with the 2025 unemployment rate at 2.9%, a historically low level. Inflation stabilized in 2025 at 2.6% year-over-year and declined to 1.8% in January 2026 in annual terms. It is expected to remain within the Bank of Israel price stability target range of 1-3% throughout 2026. In January this year, the Bank of Israel updated its estimation on the real GDP growth to 5.2% for 2026, in light of the continued economic recovery in the last two quarters of 2025. Regarding the latest events with Iran in the macro environment, as Hanan mentioned, this event will have both short-term and long-term economic impacts. We are monitoring them closely and remain optimistic. Moving on to the next slide, which provides our financial highlights for the especially strong full year and first quarter results. First, as mentioned earlier by Hanan, we successfully achieved the targets we set at the beginning of the year and exceeded our annual net loan growth target. Net income for 2025 was 10.3 billion shekels, an all-time high performance for the bank. ROE was 15.8%. Our excess capital remains high, amounting to 10 billion shekels. I must point out that if the excess capital were reduced to the bank's internal 31 target, the ROE for 2025 would have been 17.9%. Driven by effective cost management and our advanced digital technology and AI, Our cost-to-income ratio was 29.3%. It continues to lead the Israeli banking sector and is among the best globally. Net loans grew nicely and were up 14.1% in 2025, exceeding the annual target as mentioned earlier. This was supported by continued demand, mainly from the corporate sector, including infrastructure and real estate, as well as mortgages, commercial and capital market segments. At the same time, it is important to note that we continue to improve our credit quality metrics, and they have been consistently among the best in the sector for several years. Credit loss expenses ratio was 0.09%, reflecting the positive development in the geopolitical and macro environment and the improvement of our credit quality metrics. The book value per share increased impressively by 12% year over year to almost 46 shekels. Looking at the first quarter on the right, net income was 2.55 billion shekels. ROE was 15.1%, and when normalized to our CT1 internal target, the ROE would stand at 16.8%. The credit portfolio increased by 5% over the previous quarter, mainly driven by continued demand from the corporate real estate and capital market segment. Now, let me elaborate on breakdown of income and expenses for the full year. Net interest income increased by 2.1% year over year, supported by higher volumes. This was partly offset by lower CPI effects. Non-interest income was down mainly due to lower income from derivatives that age our securities portfolio. As a reminder, for accounting grievance, the cost of the derivatives is recorded in the P&L, while the gains in the bank securities portfolio are recorded directly in the equity account. Overall, finance income was up 0.9% year over year. Fees grew strongly by 6.8%. Excluding customer benefits provided under the Bank of Israel program launched in April 2025, fee income increased 10.7% year over year. Expenses declined mainly due to a decrease in salary cost of 7.4%. This was partly offset by higher expenses related to capital market activity due to higher volumes. As a result of the above, profit after tax, bottom right, increased year over year by 5%. A brief view of the next slide that summarizes our results for the quarter. Net interest income in the first quarter was similar to the same period last year. The impact of lower CPI was offset by strong growth in both loans and deposits. Non-interest income decreased due to a lower income from derivative year-over-year, while the gains of the portfolio were recorded directly to equity, as I mentioned before. Fees increased by 7.8% year-over-year and excluding benefit to customer by 9.7%, mainly driven by financial transactions and securities fees. Salary costs were down 5.7% and overall expenses decreased by 0.8% compared with Q4 2024. Profit after tax increased by 5.5% year over year. Moving to the quarterly development of net interest income and NIM. In the first quarter, net interest income and NIM were affected by a negative CPI, as well as by reductions in the Bank of Israel and the Fed interest rates. Excluding CPI impact, NIM improved over the previous quarter. This was driven by lower costs of deposits due to their favorable mix. Now let's turn to another key metric, highlighting our fee and commission income. Fee were up 6.8% for the full year in 2025, and excluding benefits to customers were up 10.7%. In the first quarter, fees were up 7.8% compared with Q4 2024, and excluding benefits to customers were up 9.7%. This was mainly due to higher financial and securities transactions. Turning to the next slide, where we clearly see the bank's continuing improvement in our excellent multi-year cost income ratio. In 2025, once again, we proudly delivered among the strongest cost income ratios in the sector of 29.3%. It was driven by an ongoing cost control, reflecting the impact of our sustained multi-year investment in technology. Turning to the development of credit loss provisions. For the past eight quarters, we have recorded an income from specific provisions which reflects our high-quality credit portfolio. Collective provisions reflect an improvement in the macro environment and in our credit quality indicators. Overall, on an annual basis, total loan loss expenses were 0.09% of gross loans compared with 0.16% in the previous year, while maintaining our strong coverage ratio. Next slide presents the high quality of our credit portfolio. Despite strong credit growth, asset quality improved further. Non-performing loans declined to 0.4% and travel debts decreased to 1.24% of gross loans. We maintain a strong coverage ratio, while the bank's provisions for bad debts covers MPLs by 3.2 times. These parameters remain the strongest in the banking sector. Now we turn to our strong credit growth. In 2025, net loans increased by 14.1%, outperforming our strategic annual target. Main growth engines this year were the corporate sector, consisting mainly of infrastructure, real estate, and commercial credit, along with capital market and mortgages. In Q4, the credit grew by 5%, with growth coming from corporate, including real estate, and capital markets. The next slide shows the bank's diversified deposit base. Total deposits were up 11.1% in 2025, while deposits from private individuals grew by 0.5%. Liquidity ratios remain robust with the liquidity coverage ratio at 127%, well above the regulatory requirements of 100%. We also maintain a healthy loan-to-deposit ratio of 75.7%. Let's now move on to our strong capital and leverage ratios. The Corti-1 ratio was 12.05%, compared with 12.33% in the previous quarter, mainly due to higher activity. The bank's capital buffer now stands at 10 billion shekels. The total capital ratio was at 14.08% above the bank's minimum requirement of 13.5% after making an early redemption of Tier 2 subordinated notes in the US dollar. Turning to the next slide, we see the bank's capital return. In the first quarter, Lumi declared a total payout of 1.7 billion shekels, of which 1.3 billion is a cash dividend and the rest in buyback. This represents 65% of the quarterly net profit. The total capital return for the full year of 2025 was 5.9 billion shekels. reflecting 58% of the annual net profit and the dividend yield of 6.5% based on the average share price. Furthermore, the Board approved an updated dividend policy of the bank, according to which the total payout ratio would be between 50 and 65% of the quarterly net profit, while up to 50% of the profit is a cash dividend. In conclusion, let me just summarize our presentation. The band continues to present consistent and strong financial performance with high ROE. We are very proud to state that our digital transformation powered by advanced AI capabilities continues to drive structural efficiency gains. In fact, above 90% of all our customer transactions are carried out through digital platforms. Our best cost-to-income ratio is a direct outcome of our advanced technology and AI, along with our strict discipline on costs, and is the leading cost-to-income ratio among Israeli banks and probably among the most efficient globally. The bank's strong profitability and healthy capital buffer enable us to continue growing in our target segment, and also allow us to share our returns with shareholders through dividends and our buyback program. Let me conclude with one final point. We are more than sure that going forward, we will continue achieving our targets and leading the AI transformation in the banking sector. With that, I will now open the calls for questions. Operator?

Thank you. Ladies and gentlemen, at this time will be the question and answer session. In order to ask the question, use the red hand button located at the bottom of your screen. Please state your full name and your company's name before asking the question. The first question is from Chris Reimer. Please go ahead.

Chris, can you hear us? Yes, can you hear me? Yes. Hard to hear you.

Thanks for taking my questions. I was wondering if you could talk a little bit about what's driving your confidence around the strong loan growth targets.

All right, thank you, Chris, for the question. The main factor is, of course, our ability to continue our growth strategy and our growth with keeping the right margins, the right ROE, and, of course, the right limited risk appetite that we have. In the coming years, as I mentioned in my notes, In our pipeline, we have many infrastructure projects that we are financing, large and maybe even huge project finance, so we know well what we have in our pipeline for the coming years. And the top of it, as we know, and we have deep knowledge of the Israeli economy, in the coming years, there will be huge investments in the infrastructure in Israel, power stations, data centers, destination centers, and Of course, the largest is huge transportation projects, and the largest ever is the metro of the Tel Aviv area. We have the confidence that we will be able to increase our loan book even greater, and then the growth of the Israeli GDP. It's also worth to mention that the 5.2% focus of Bank of Israel is in real terms. If you add to that the expected inflation, so it's at least 2% above it, and we are aiming to grow even greater. mainly from the segments that I mentioned, you know, the infrastructure is maybe the largest opportunity, but we have many others like real estate for residential projects and the mortgages.

Thanks. That's a great color. On expenses, you touched on the benefits from AI. Given the potential advantages, could we then potentially see year-on-year declines in expenses?

So, firstly, we declined our expenses this year, despite all the challenges that we have and, you know, the run the bank with all the chances that we experienced cost money, and even though we decreased our expenses. I want also to mention that in our long-term plans, we aimed to close our operational division by mid-2027. Since we successfully already implemented some AI projects and we finished it on time, we decided to close this division. It was a quite large division of the bank at the end of 2025. So the impact of that will be mainly in the coming years. Now, the AI for us, as Hagith and I mentioned, is not just for cost saving. It's mostly on top of the cost saving for having better business advantage among the competition. And on top of it, to be much more efficient in our technology investments. We already experienced in a few cases, yet not many, but enough to get the confidence that with AI tools we could launch new technology projects and renovate our platforms much faster than in the past. And then in the past, you know, projects that were planned For a year, we finished two projects that were planned for over a year. We finished within a matter of a month. And this is just the beginning. I strongly believe that we could do much better in our technology investments to reduce the expenses in one end and to have much more outcome in the other end.

Thanks very much. That's great color. That's it for me.

The next question is from David Taranto. Please go ahead.

Good afternoon. This is David Taranto with Bank of America. Thanks very much for the opportunity. I have four questions, please. The first one is on net interest margin. Core NIM, excluding the CPI, improved in this quarter. Could you please elaborate a bit on the key drivers here? During the presentation you mentioned the positive dynamics on the deposit side, but what exactly drove the better loan spreads in this quarter? Was it the mix or repricing or any other thing? What I'm trying to understand is which of the drivers were structural rather than timing related.

Regarding the name, in the first quarter, as I mentioned in my presentation, it was the mix of the deposits. As Hanan mentioned, we issued the covered bond and we improved our deposits. It's also the interest rate that decreased in the first quarter. And the addition driver is our growth in credit that give us higher margin than other assets in the balance sheet.

Thank you, that's clear. Second question is also on NEM for 2026. Should we assume relatively stronger NIM in the first half and somewhat softer in the second half as rates fall? How deposit competition and loan repricing shape the quarter to the path for this year?

Okay, so going forward we believe that at least we can maintain our NIM in the same level and even improve them thanks to the decrease in the deposit cost and also We believe that as Bank of Israel eases the limits of the dividend payout, the capital excess will be lower, so I think that we can even improve the margins in the market.

And maybe one additional comment. In the last year, we... onboard much more new customers than we onboard in previous years. It's a matter of timing until we receive their deposits and their current account, which is also the best way. passive tool that we could receive from them. And we are aiming to continue with this process. We invested a lot in order to become the bank with the highest customer satisfaction. According to the Bank of Israel survey that was published three weeks ago, we became the number one in customer satisfaction among the large banks in Israel, and we are aiming to collect the fruits of these investments. We already collect some of the fruits, but we are aiming to collect much more fruits, and I mean mostly to have much more deposits and balances in the current account from these customers. So this is an additional component. It's a matter of timing alongside with the topics that Hagith mentioned and alongside other initiatives that we are going to launch in order to win the competition in the deposit segments.

Thank you. And the third question is on the macro expectations. Your 26-27 guidance assumes an average policy rate of 3.2 to 3.7%, according to presentation. Does that imply a trough around 3% end of this year and move back towards mid-3 to 4% levels by the end of next year? If not, what year-end rates are you assuming in your guidance, please?

We include all these assumptions in our targets, and we think that we took into account all the assumptions that you just mentioned, and we monitor it closely in 2026 and 2027. We include those parameters.

We give in the notes to the presentation and in our financials all the assumptions that we took in our calculation.

there so you could you could review it easily and if you have any other questions regarding that of course we could elaborate all right thank you and last question is on asset quality with coverage ratio still well above historical norms and credit quality holding firm is there a realistic scope for provision reversals over the coming quarters and would such reversals require explicit regulator approval or is it up to the management decision

About the provisions, we still have large buffers in our collective provision due to the war that we had during the last two years. It really depends what happened going forward. Now we don't see any significant impact that we need to increase these provisions, but we will monitor it. The regulator, I believe, will not intervene if it will not be something significant. But it really depends what happens.

Okay, thank you very much. Thank you.

The next question is from David Kaplan. Please go ahead.

David, we cannot hear you.

David, can you press the unmute button? And the next question.

is from kendrick burning please go ahead hello can you hear me okay yes yeah uh hello so this is jan benning from city um just a couple of questions so thank you for taking them uh first one is on the large excess capital amount i'm just wondering um obviously it's 10 billion and i know you have a normalized roe um ratio on your presentation, but I'm just wondering what are you going to do with this large excess capital amount? Is that included in the 50% to 65% distribution target that you've given, or is there going to be an extraordinary dividend perhaps in the next year?

So, thank you for the question. It's an important question. So, first of all, when we announced the new dividend policy of 50% to 65%, it will It was partially based on the fact that we have the 10 billion shekels surplus. But assuming we will continue to produce around 15 and above percent ROE and distribute, let's say, a bit above half of it, it supports a growth of greater than 10%. because, you know, 30% of our loan book is mortgages with a much lower ROWA, and therefore we expect that the 10 billion shekels will still be a large buffer that will have in one end adverse effect on our ROE, but in the other end give us the confidence that we will be able to pick opportunities along the way. Now, Of course, we will have to deal with that, but we have to pick the right time and approach Bank of Israel with the relevant request to release this large amount. But in the meantime, I think, in the current macro environment that could create Very, very nice opportunities for us. I think it's a bit too early. Maybe along the year we will find the right time to deal with Bank of Israel and receive their approval to distribute at least the majority of it.

That's brilliant. Thank you. And then the second question is on credit growth. So you've obviously got similar targets to the previous year. I'm just wondering, is there any specific areas of credit growth you're looking at in particular? So, for instance, in the last year, you've had strong credit growth in the corporate segment. I'm wondering if that's an area you're targeting again, or are you looking at mortgages or retail loans?

So I think that the largest opportunity and the largest credit of potential will come from the project finance. As I mentioned in my notes earlier, we established a dedicated, very experienced team that deals with this very complicated project. deals and the fact that the deals are a bit complicated with a need to have a deep understanding of the Israeli regulation and the mechanism of the market and the governmental requirements give us an advantage because, as you've seen, all of the large project finance deals that were launched in the last five years, I think, none of the international banks act as the leader of the syndication. In the last year, in the vast majority of the cases, we were the leader of the syndication. And, of course, it gives us an advantage quite large opportunity to continue with our rapid growth and the risk here is quite remote because at the end of the day most of the projects are based by a governmental guarantee or governmental minimum request, minimum demand on the day that the project will be launched. And therefore the risk is quite remote and we have the experience and the capabilities how to underwrite it well and how to run the portfolio well. So this is one major segment. The other, I believe, will continue to be the retail mortgages, the residential projects, the real estate residential projects that continue to be quite a nice component of our loan book. And I remind you that our... credit portfolio in this segment is very, very good. The Observation, we have no project with Observation rate of less than 25% and the majority, 56% of the projects are above 50%, which give you some, very strong color regarding how we manage the risk. And I think that the results speaks for themselves. The NPL in the real estate is very low, far lower than the competition. So this will be the main focus growing segments for us for the coming years.

Brilliant. And then my final question is actually on fees. So I noticed that you had sort of a fee growth year on year of around 6.8 to 7%. And I think in a lower rate environment with lower CPI, that actually could be quite beneficial. I'm just wondering what sort of you think the run rate of fees is going forward? So is it going to be around the same number, 7% year on year or higher or lower than that?

Maybe I will start and Hagite will elaborate. The main driver for the fees increase derived from the capital markets activity, mainly with institutional investors and foreign banks that became more and more active in the Israeli capital markets. So, of course, we all benefited from that. And the Israeli student investors, AUM is increasing dramatically every year, about 70 billion shekels. The majority of the increase in these fees are not from the retail. But we also do quite a good job in the retail segment. The other main component of the fees increase is from our credit business. When we are leading syndication and other stuff, of course we collect fees. And since the transactions that we are leaving are becoming greater and greater, we have benefited from that in the bottom line of our fees collection.

This is the main drivers for the fees, and we believe that it will be at least in the same level and even greater in the next years.

Perfect. Thank you so much, guys.

David Kaplan.

Hi, can you hear me this time around?

Yes.

Okay, good. I have a quick question on NIM. In the fourth quarter, as you show on slide 13, interestingly enough, the excluding CPI was higher than the reported NIM as opposed to how it is over most quarters. Can you explain exactly what happened there, I guess on the liability side or maybe on the asset side that made that

Yes, so as I mentioned in my presentation, thank you for the question, the name affected excluding the CPI from the mix of our deposit that were bettered in the first quarter. thanks to the mix of the deposits and also the decrease in the interest rates, and also from the significant growth in our credit portfolio.

It's both from the liability side and from the asset side.

From the both sides.

Okay. So if we're talking about the – let's talk about deposits for a second. And on that side of the balance sheet, I see that the non-interest-bearing – Sorry, non-interest-bearing deposits are currently at around 28% of your total deposit base. Given that the interest rates have been relatively high over the last year, year and a half, as opposed to where we were at zero interest rates a couple of years ago, I would have expected that number to be lower as a percentage of your base. And I think as we're heading now into potentially another lower interest rate environment. How do you see that playing out? Do you see people moving deposits out of the bank, looking for other areas of investing other than deposit-based? Because, again, it doesn't seem that either the growth of deposits or the percentage of deposits that are being put in interest-bearing is actually quite that high.

So thank you for that question. It's a very important point. So from a past experience and also from the experience of the last period and also from what we see from other banks in the state that already published figures regarding that, when the interest rates decrease, the balances in the current accounts increase. So the non-bearing interest deposits become a greater percentage of our total deposit portfolio. So you're right, when the interest rate was quite high, it shrank to about 20%, but the expectation from past experience is that now it will increase step by step.

Okay, and if we're talking about non-interest-bearing, I'll move over to the asset side for a second. And I see you also had about 9% growth in non-interest-bearing assets year on year. Where is that growth coming from? Which growth? Non-interest-bearing assets. We can talk. We can take it offline. It should be in the appendix one in the back. Anyway, we can get back to it. We can discuss it offline. My other question just really is more housekeeping question has to do with your normalized ROE of 17.9%, which you said, which in the notes you write here is based on the bank's internal CET1 target. Is that a target that you've published or discussed so that we can kind of think more broadly about generally the what I like to call capital inefficiency that we see in the Israeli banks?

It's internal targets which consist of the regulatory requirements plus the internal buffers that we decided to add to the regulatory requirements. You know, we have a conservative approach. In this matter, we also prefer to be conservative and to have a quite large buffer.

Okay. So, Joseph, if I'm understanding correctly, though, you talk about a normalized ROE, which takes into account the bank's internal CET1 target. Yes. And that ROE is higher than the reported ROE.

Yes.

So – I'm missing where that delta is coming from. In other words, are you at your internal target or are you even above your internal target because you're being conservative, I guess is the question.

No, it's above our – the $10 billion is above our internal buffers. The fact that it's still there, you know, it's because we are not allowed to distribute it as a one-time large dividend. We are During the war, we were kept to 40% of the quarterly net income. Now, we got the permission last quarter to 75%. Now, we got the permission to 65%. And we are aiming to continue with this journey. But as I mentioned, the surplus above our capital requirements plus the The internal buffer is expected to remain as long as we will not make a one-time large dividend.

Okay, great. Thanks very much.

The next question is for Mike Mayo. Please go ahead. Hi.

Could you give, it's Mike Mayer with Wells Fargo Securities. Could you give an update on your thinking about AI and the impact on headcount? There's certainly a big debate about the ability of AI to, you know, free up the no joy jobs or the no joy part of jobs. Thank you.

Thank you for that question. We already have a very good experience in AI that replaces people, mainly in the back office, but now also in the front office. As I mentioned, we closed our operational division. And we took the decision about a year and a half before the initial plan because we realized that with the power of AI that we already implemented part of the initiatives and placed many people, we will be able to continue with this journey even in a more effective way. And as I said, we have quite good examples. We have subdivisions or departments that we entirely close. We keep just one or two people just to run controls. And AI replaced dozens of people that run this back office job for many years. So from our experience and in our perspective looking forward, we will be able to leverage AI for cost saving and for doing much better in our business segments.

And you and the country are going through very trying times. How is your cybersecurity performing relative to your expectations?

So the cybersecurity, the CISO and this team are involved in each and every project from beginning. And the way that we build the platforms and we build the capabilities is totally monitored and designed together with our cybersecurity people.

All right, thank you.

The next question is from Valentina. Please go ahead.

Valentina, we cannot hear you.

Valentina, can you press the unmute button? There are no further questions at this time. This concludes Le Umin's fourth quarter 2025 results conference call. Thank you for your participation. You may go ahead and disconnect.