Earnings Call: Q2 2025

Aug 14, 2025

Summary

Q2 net profit was ILS 1,453m, ROE 17.8%, and cost-income 34.9%, as the balance sheet exceeded ILS 500bn. Management expects responsible credit growth and plans to distribute 50% of Q2 profit.

Ladies and gentlemen, thank you for standing by. Welcome to the Mizrahi Tefahot Bank Ltd. second quarter 2025 business 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. For operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded August 14, 2025. With us online today are Mr. Adi Shachaf, CFO, and Mr. Menahem Aviv, chief accountant. We would like to draw your attention to slide 2 of the financial statement to the second quarter 2025 presentation, which includes general comments regarding legal responsibility, including that the information contained in the presentation constitutes information from the bank's 2025 quarterly reports and/or immediate reports, as well as the periodic, quarterly, and annual reports and/or immediate reports published by the bank in previous years. Accordingly, the information contained in the presentation is only partial, is not exhaustive, and does not include the full details regarding the bank and its operations, or regarding the risk factors involved in its activity, and certainly does not replace the information included in the periodic annual and/or quarterly or immediate reports published by the bank. In order to receive the full picture regarding the bank's 2025 quarterly and annual reports, the aforesaid reports should be pursued fully as published to the public. The bank's results, in practice, may be significantly different from those included in the forecasting information as a result of a large number of factors, including inter alia, changes in the domestic and global equity markets, macroeconomic changes, geopolitical changes, legislation and regulation changes, and other changes that are not under the bank's control, which may lead to the estimations not realizing and/or to changes in the business plans. The forecasting information may change, subject to risks and uncertainties due to being based on management estimations regarding future events, which include, inter alia, global and local economic development forecasts, particularly regarding the economic situation in the market, including the effect of macroeconomic and geopolitical conditions, expectations for changes and developments in the currency and equity markets. Forecasts related to other various factors affecting exposure to financial risks. Forecasts with respect to changes to borrowers' financial strength, public preferences, changes in legislation and provisions of regulators, competitors' behavior, the status of the bank's perception, technological developments, and human resources developments. Mr. Shachaf, would you like to begin? Thanks, and welcome all to the Mizrahi Tefahot Q2 earnings call. As you all know, the last 20 months were very unusual for Israel. From the first day of the war, the bank has taken a pro-client approach, trying to offer immediate relief to its clients beyond the mandatory relief plan of the Bank of Israel. For the bank, it is much more boring, as you can see from the report and the results, and without any material one-offs. Actually, this is our first report published under the new strategic plan. Although the road to 2027 is still long, we are happy that we have been able to start on track. It is important to know that the results for this quarter also takes into account, for the first time, both the extra tax Israeli banks are paying in 2025 and the new aid program to clients initiated by the Bank of Israel. As you can see, provisioning reflects a solid credit portfolio. We have seen an increase in most of the major balance sheet items. We think that our credit metrics reflects a balanced credit portfolio with adequate risk management. Credit growth versus Q1 2025 is impressive to our opinion, and not just because of the total number, but also due to the diversified composition of the growth among many sectors and types of clients. We believe this growth should help us to create a nice starting point for the implementation of the new strategic plan. The net profit and the return on equity reflect the strong balance sheet and the good efficiency ratio. On the expense side, you can see the continuation of 2024 being a notch down compared to 2023 levels. As always, salaries are also affected from variable remuneration related to the bank's results. Our cost-income ratio for the quarter is 34.9%. Liquidity is very robust, with high share of core deposits and capital ratios are in tandem with profitability. Credit growth in the last quarter is healthy. Demand for mortgage is healthy, and we continue to follow our strategy to retain our market share in the market. We think that it is reasonable to assume that today's balance sheet growth will materialize in the coming quarters, and we do expect to see further responsible credit growth in coming quarters. We will distribute 50% of Q2 profits as dividends. To sum up, these are my key takeaways, I would say, for the quarter. We have witnessed strong financial results despite the geopolitical environment. Significant credit growth across all segments. Total balance sheet crossed ILS 500 billion for the first time, and deposits from the public crossed ILS 400 billion for the first time. Solid credit metrics can be seen from the provisioning. Expense side control enabled the cost-income ratio to reach 34.9%, and the 50% dividend distribution for the quarter is alongside a return on equity of 17.8%. All in all, I think we are following our boring yet effective path and accommodating to the new environment. I would like to thank you very much for your attention, and with that, I leave you with the hands of Mr. Menahem Aviv, our chief accountant. Thank you, Mr. Shachaf. I will review the main figures in the financial statements, and they are as follows. The net profits in Q2 reached ILS 1,453 million. The net profit in H1 2025 reached NIS 2,743 million. The return on equity in Q2 reached 17.8%, and in H1 reached 17%. The equity amounted ILS 33.1 billion. Cost-income ratio reached, in Q2 2025, 34.9%. The financing revenues from current operations in Q2 reached ILS 2,856 million. The total revenues reached ILS 3,791 million. Operating and other expenses totaled to ILS 1,323 million. The ratio of provisions for loans in Q2 reached 0.06%. The ratio of the CET1 reached 10.41%, but the total ratio reached 13.25%. Thank you very much. I think we can go to Q&A now. Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star one. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for your questions. The first question is from Chris Reimer of Barclays. Please go ahead. Yeah. Hi. Thanks for taking my questions, and congratulations on the strong results. On cost-income, I was wondering if you could talk about some of the savings initiatives that you're implementing, and specifically on salary, what are some of the variables there, the moving parts, the seasonality? How should we be looking at that line going through to the end of the year? Sure. There are a couple of vectors regarding the salaries. First of all, there is the autopilot for the unionized employees, which is unchanged as a core vector with the previous quarters because it's under the same agreement. Of course, there is always the variable remuneration, which depends, among other things, also on the return on equity of the bank. And there is the total headcount, which varies slightly from quarter to quarter. So these are the main factors. Any other initiatives leading to cost savings? We are taking a gradual approach, as we have stated in the strategic plan. There are, of course, some natural retirement. Currently, we do not have a big plan of changing, but it is accommodating with the implementation of the strategic plan, alongside optimization of certain internal operations that enable a gradual improvement there. Got it. Thanks. On the regulatory environment, how do you view the push to open up competition and the proposed legislation that may open deposits to competition? We are always. The strategy of competition is good for us. We think we have more to gain than to lose, at least in most of the areas. As you recall, our strategy on the mortgage side is to retain our market share and on the other credit and business sectors to increase our market shares. We would never oppose competition. We saw some in the last couple of years from the digital banks. I think it helps all the, let us call it, regular incumbent banks to sharpen their strategy, their digital offering. All in all, I think as a whole, we can benefit from it. Got it. Thanks. That is it from me. Thank you. There are no further questions at this time. This concludes the Mizrahi Tefahot Bank second quarter 2025 business results conference call. Thank you for your participation. You may go ahead and disconnect.