Earnings Call: Q1 2025

May 21, 2025

Summary

Q1 net profit was ILS 1.29bn, with 16.2% ROE and a 37.8% cost-income ratio. Healthy credit and mortgage demand support expectations for responsible growth, while geopolitical uncertainty remains.

Ladies and gentlemen, thank you for standing by. Welcome to the Mizrahi Tefahot Bank's first 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 Q&A session. For operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded May 21st, 2025. With us on the line today are Mr. Adi Shachaf, CFO, and Mr. Menahem Aviv, Chief Accountant. We would like to draw your attention to slide number 1 of the financial statement for the first 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 fully perused as published to the public. The bank 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 regulations 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 plan. The forecasting information may change subject to risks and uncertainty due to being based on the management's estimations regarding future events, which include inter alia, global and local economic development forecasts, partially 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 the 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? Welcome all to the Mizrahi Tefahot Q1 2025 analyst call. As you all know, the last 18 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, while adapting the COVID experience and best practice to the current situation. As for the bank, it is much more boring, as you can note from the report and the results, and without any material one-offs. As you can see, provisioning was similar to the previous quarter, and as for the other items, I would like to use this call to further highlight a couple of points. We have seen an increase in most of the major balance sheet items. We think that our credit metrics reflect the balanced credit portfolio with adequate risk management. Credit growth vis-à-vis Q1 2024 is impressive to our opinion, not just because of the total number, but also due to the diversified composition. This growth should help us to create a nice starting point for 2025. You can see that the CPI contribution to financing revenue is traditionally low in Q1, and that was also the case this time. The net profit and the return on equity reflect the strong balance sheet and the good efficiency ratio, and our cost-income ratio for the quarter is well below 40%. 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. The results also takes into account the relative extra tax Israeli banks are paying in 2025. 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, we think. Demand for mortgages is healthy, and we continue to follow our strategy to retain our market share in the mortgage 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 40% of Q1 profits as dividends according to our dividend policy. All in all, I think we are following our boring yet effective path and accommodating to the new environment. 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. Adi Shachaf. The main figures in the financial statements for the first quarter of 2025 are as follows. Net profit in Q1 2025 reached ILS 1,290,000,000, compared with ILS 1,272,000,000 in Q1 2024. The return on equity in Q1 2025 reached 16.2%. The equity amounted ILS 32.1 billion. Total revenues reached ILS 3,546,000,000. Financial revenues from current operations in Q1 2025 reached ILS 2,835,000,000. Provisions to the public, the ratio is 0.11%. Operating and other expenses in Q1 2025 totaled ILS 1,339,000,000. The cost-income ratio reached 37.8%, and ratio of Tier 1 capital to risk-adjusted reached 10.37%, and the total ratio reached 13.33%. Thank you, Mr. Aviv. 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 wish to cancel your request, please press star two. If you're using speaker equipment, kindly lift the handset before pressing the numbers. Please stand by while we poll for your question. The first question is from Tavy Rosner of Barclays. Please go ahead. Hi. Good afternoon. Thank you for the presentation, and thanks for taking my questions. I only have two brief ones. First one is regards to your capital adequacy requirement. Are you comfortable with the current excess that you have compared to the Bank of Israel requirement? As a follow-up, when do you anticipate the Bank of Israel to allow banks to distribute more than 40% of their net income? Thanks for the question. As for the first one, yes, we do feel very comfortable with this ratio. It is actually relative to the test in the higher areas, vis-à-vis the Bank of Israel demand of 9.6 to 10. I'll also remind you that capital allocation in Israel, specifically for mortgages, is stricter than the case in most European countries. Of course, for us, the mortgage portfolio is very meaningful. As for the second question, again, I could not speak on behalf of the Bank of Israel and the Supervisor of Banks. They said that they're looking at things combined with the geopolitical situation, and when they feel comfortable, they will make it publicly. Great. My second question is about the outlook for 2025, and you alluded in your remarks that you expect it to be a strong year. How do you think of loan growth going forward? Do you see the current pace as sustainable, given the current geopolitical context? Of course, we cannot give forward guidance and be sure what will happen in the future. But given what we have seen so far, we see that the resiliency of the Israeli market to the war is actually very strong. Yes, we do see room for more responsible growth and healthy growth. We do see demand. Great. I appreciate it. I will go back to the queue. Thanks. Thank you. There are no further questions at this time. This concludes the Mizrahi Tefahot Bank Ltd. first quarter 2025 business results conference call. Thank you for your participation. You may go ahead and disconnect.