Earnings call transcript: Israel Discount Bank Q1 2025 reports solid growth

Israel Discount Bank (TASE:DSCT) reported robust financial performance in its Q1 2025 earnings call, showcasing a net income of 1,036 million shekels and a return on equity of 13%. With a market capitalization of $10.17 billion and an impressive InvestingPro Financial Health Score of 3.01 (rated as "GREAT"), the bank’s strategic focus on operational efficiency and cost reduction appears to be paying off. The bank’s stock experienced a slight decline of 0.37% in the wake of the earnings release.

Key Takeaways

• Net income reached 1,036 million shekels, with a strong return on equity of 13%.
• Fee income increased significantly by 15.5% year-over-year.
• The bank plans to divest from its Card (Cal) business as part of strategic realignment.
• Credit portfolio grew by 9.3% year-over-year, driven by corporate segment expansion.

Company Performance

Israel Discount Bank’s performance in Q1 2025 reflects its steady growth trajectory. Trading at a P/E ratio of 8.49 and offering a dividend yield of 3.54%, the bank’s net interest income rose by 2.6% quarter-over-quarter, while fee income surged 15.5% year-over-year, indicating a healthy diversification of revenue streams. The bank’s efficiency ratio stands at 53.4%, with a more competitive 45.3% for its Israeli banking operations. InvestingPro data reveals the bank has raised its dividend for 4 consecutive years, with a 22.81% dividend growth in the last twelve months.

Financial Highlights

• Net income: 1,036 million shekels
• Return on equity: 13%
• Efficiency ratio: 53.4%
• Net interest income: +2.6% quarter-over-quarter
• Fee income: +15.5% year-over-year

Market Reaction

Following the earnings announcement, Israel Discount Bank’s stock price saw a minor decline of 0.37%. The stock has delivered an impressive 66.53% return over the past year and is currently trading near its 52-week high. Despite the slight dip, investor sentiment appears cautiously optimistic, supported by the bank’s solid financial metrics and strategic initiatives. According to InvestingPro analysis, the stock appears to be fairly valued based on its proprietary Fair Value model.

Outlook & Guidance

Looking ahead, Israel Discount Bank is focused on cost containment and operational efficiency. The bank is preparing to divest its Card (Cal) business, with multiple offers under consideration. The Israeli economy is projected to grow by 3.5% in 2025, providing a favorable backdrop for the bank’s continued expansion efforts.

Executive Commentary

"We delivered solid results with net income of 1,036 million shekels and return on equity of 13%," said Asaf Pasternak, Executive VP. The bank’s strategic initiatives and focus on efficiency are expected to drive future growth. Pasternak also noted the ongoing process for the Cal business sale, indicating progress with creating a shortlist of potential buyers.

Risks and Challenges

• Potential pressure on Net Interest Margin due to credit spread compression.
• Monitoring macroeconomic trends amid ongoing geopolitical tensions.
• Regulatory approval pending for expanded dividend policy.
• Decline in apartment sales and stagnation in private consumption may impact growth.

Q&A

During the earnings call, analysts inquired about the bank’s dividend policy expansion and the potential impact of the current geopolitical situation on credit risk. Executives reassured that no significant credit risk is perceived and highlighted the ongoing sale process of the Cal business, which has garnered multiple offers.

Israel Discount Bank’s Q1 2025 results underscore its resilience and strategic foresight, positioning the bank well for future challenges and opportunities in the evolving economic landscape. With revenue growth of 4.83% and strong financial health metrics, the bank continues to demonstrate solid performance. Investors seeking deeper insights can access comprehensive analysis, including 8 additional ProTips and detailed financial metrics, through an InvestingPro subscription, which includes exclusive access to the bank’s detailed Pro Research Report.

Full transcript - Israel Discount Bank Ltd (DSCT) Q1 2025:

Conference Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Israel Discount Bank First Quarter twenty twenty five 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 05/19/2025.

If you have not yet done so, please access the presentation on the bank’s website, investors.discountbank.co.il. I would like to remind everyone that forward looking statements for the respective 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 filings with the various securities authorities. I would like to move first to mister Asaf Pasternak, executive vice president, head of strategy and finance. Mister Pasternak, would you like to begin?

Asaf Pasternak, Executive Vice President, Head of Strategy and Finance, Israel Discount Bank: Yes. Thank you very much. Thank you all for joining us today. I extend I extend my warm welcome to this investor call. As we mark the passing the passing of five hundred ninety one days since the onset of this conflict, we long deeply for the release of our 58 hostages and looking for the moment they are free again, and in the passage to today’s agenda.

Our financial report for the first quarter indicate the continuous momentum in growing our loan book, demonstrating stability and high quality asset metrics as evidenced by consistently delivering throughout this time robust results. Starting with slide three. Diskan Group delivered delivered strong financial results, achieving a net income of 1,036,000,000 shekels and return of on equity of 13%. Banking operations in Israel, comprising discount and mercantile banks, recorded return on equity of 14.9%. Efficiency ratio stood at four 53.4%, where banking where banking activity in Israel at 45.3%.

Credit grew by 2.1%, accompanying accompanied by solid credit quality metrics, and our net interest income grew by 2.6% quarter over quarter. In light of these results, the board of directors has approved an update to the dividend policy according to which the maximum dividend would be 50% of net income as we continue our long term journey to increase value for our shareholders. In the fourth quarter in the first quarter, we declared a dividend payout of 30% that combined with our 10% share buyback program sums up to 40% of net profits. Before jumping into the numbers, I would like to briefly touch on the macroeconomic environment. At slide four, after seventeen months months of the military conflict, it is evident that the Israeli economy is resilient and the fundamentals are strong.

On the left side, projected growth for 02/2025 is at 3.5% after a modest 0.9% growth in 2024. The economy is returning to a growth trajectory. On the right side, the job market remains resilient throughout this time, maintaining healthy unemployment rate below 3%. Moving to slide five. And, yes, despite the stability and resilience demonstrated by the economy throughout this period, the last the last quarter reveals indicators that could point a potential shift in the trend.

On the left, a decline in apartment sales following December peak. On the right, the stagnation in the growth of private consumption. We are monitoring the macro trends in our loan book closely. Slide six shows the most relevant macroeconomic parameters for the banking sector, Bank of Israel rates and the CPI. Contrary contrary to early market expectations of two rate cuts till the end of the year, the outlook has shifted after the last reported elevated CPI, and market now anticipates only one rate cut to $4.25 by year end following the stabilization at 3.75% towards the end of twenty twenty six.

On the right side, following year year of high inflation and the last CPI, the market anticipates CPI to decline in the next twelve months and aligned with Bank of Israel’s two percent mid target range. We believe that the weakness in the private spending as presented in the forward slide will be offset by an increase in government spending and investments. Now I will delve into the bank results. Slide seven provides an overview of the group performance for the first quarter. I will elaborate on each area in the next slide.

At slide eight slide eight summarizes our credit portfolio growth and structure. In the first quarter, it continued its stable growth across all sectors and segments with 2.1 growth quarter over quarter and 9.3 year over year. The corporate segment continues to show strength with 3.2% quarter over quarter and 14.5% year over year. SMEs with 1.65.9% respectively. Households and mortgages grew by one point four percent and one point three percent quarter over quarter respectively respectively.

Switching to slide nine. Overall credit loss was 16 basis points driven mainly mainly by collective allowances. The total provision in the group without Carl stands at eight basis points. NPL ratio increased to 0.69% of total credit due specific due to classifications of of a few borrowers across the banking group, but remained at low levels. As economy remains stable, we continue to gradually release the the total allowances down to 1.42% of total credit.

Moving to slide 10 to discuss our income. Total income remained stable quarter over quarter while increasing by 5.5% year over year. Net interest income increased by 2.5% quarter over quarter, mainly due to the support of the CPI that contributed 60,000,000 shekel in comparison with minus 20 million shekels in the fourth quarter. NIM maintained stable at 2.65%. Fee income grew by six 3.8% quarter over quarter and 15.5% year over year, mainly from credit card fees in card, securities operation fees, and credit and financing fees.

Noninterest financing income decreased from 389,000,000 shekels to 280, mainly due to the very strong q four performance and gains from stock realization evaluation and valuation adjustments in different capital. At the right side, the income from regular financing activities, what we define as financing income from current operations, decreased by 2.3% from the fourth quarter due to the spread compression in loans and deposits as well as a decrease of 2,500,000,000.0 in nonbearing interest deposits. I will move to slide 11 to discuss expenses and cost information. As we presented in our strategic strategic review in March, our managerial focus on reducing costs is in the heart of our multiyear strategic plan. Total expenses increased by 6.7 year over year, and efficiency ratio has increased slightly by 0.6%.

The primary factor behind the rise is expenses in expenses in the other costs category, mainly driven by clearing fees associated with clearing income in car. Salary expenses are contained and maintenance depreciation expenses are stable following the completion of our migration to to our new campus. As we prepare to to divest of card, we mentioned the efficiency ratio will drop from 53.4% to 48.8% after the separation. Moving now to slide 12, you can observe our ample liquidity and diversified deposit base. On the left, you can see the 50% of our of our deposits are from our retail segment, 18 from large corporates, and 14% are from local institutional.

On the right hand side, our tier one capital ratio stands at 10.53%, well above the 9.19% re requirement of Bank of Israel. Our liquidity ratios are well above the regulatory demand, presenting a solid LCR of 131% and NSFR of 121%. Moving to slide 13, I will briefly briefly touch on our main subsidiaries, starting with Mercantile Bank that presents a net income of 206,000,000 shekels and return on equity of 14.2%. The cost to income ratio stands at 40.2%. Mercantile grew its loan book by 7.7% year over year by a well balanced portfolio.

Carly is presenting strong results with a net income of 97,000,000 shekels and return on equity of 14.5% as consumer credit continues to grow at 7.4% and transaction turnover by 13.9% year over year. IDB New York Bank has presented net income of $22,000,000 and return on equity of 6.6%. The bank grew its loan book by 16.5% year over year with total assets growth of 13.9 per of 13% year over year to $13,900,000,000. With the new management and with our partners from Gallatin Fund, we are dedicated on enhancing the bank’s performance and overall efficiency while continuing the growth. The future of operation of card is expected to have a limited impact on this one group, ongoing profitability, and almost no impact on the group on the group’s return on equity.

To summarize my overview on slide 14, I would like to emphasize the key takeaways from this quarter results. First, we delivered solid results with net income of 1,036,000,000 shekels and return on equity of 13%. Second, we present a continuous and solid credit growth of 2.1% quarter over quarter and 9.3% year over year as the economy remains strong. Third, as macroeconomic factors remain strong, provisions are kept low at 16 basis points. We have kept our asset quality strong, and n NPL ratio stands at 0.69%.

Fourth, we remain focused on containing our costs. Salary expenses are contained, but this is not enough. We would see a gradual improvement in the coming quarters. And lastly, given our continued strong performance and the confidence we have in our ongoing profitability, we have raised the dividend policy to up to 50% of net profit. At this point, actual dividend payout and share buybacks remain at 40% of net income.

With this, I will finish and would like to open to q and a.

Conference Operator: Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press 1. If you wish to cancel your request, please press 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers.

The first question is from Tavy Rosner of Barclays. Please go ahead.

Asaf Pasternak, Executive Vice President, Head of Strategy and Finance, Israel Discount Bank: Good afternoon. Thanks for taking my question, and thank you for the presentation. You talked about the increase of the dividend policy to 50%. Currently, the Bank of Israel has a 40% limit. I’m just wondering what’s the timing around the resumption of the 50%.

I do you have a conversation with the the Bank of Israel? And what is your stance about what needs to happen in order for you guys to be allowed to execute on the 50% policy? Thank you, Toby. So, unfortunately, right now, I I could not say what is the forecast for that. I could say that the bank has the self confidence to get to up to 50% of profit.

We think the profits are are are with us for for a long time. And we will have to wait for a bank of Israel approval. They are looking at the total economy, of course. And my personal belief is that so long as we still have the the war situation, it will be difficult for them to change the policy, but this is my personal view. Right.

Thanks for that. And maybe just a broader question. Thinking about the how do you see the outlook going forward, let’s say, next twelve months? Assuming the war doesn’t end or stays in the same kind of magnitude, are you confident you can continue to deliver the same pace of growth that we’ve been seeing for the the past couple of quarters? I think from a matter of of income, the the risk of the credit risk.

So long I mean, in the current situation, we don’t see much risk coming from the from there in the in the current war status. As for the market, I think interest rates will be difficult to to be it will be difficult for Bank of Israel to reduce interest rates so long as we are in in this situation. Like, credit spread of Israel bonds, they are are high and the and the the the pressures on on on the budget are high. So I don’t think we’ll see interest reduced. That will that will be good for our profitability.

So I think, yes, in the in if the situation continues like this, I don’t see a risk for the bank for the bank’s result. The only thing is that all the banks have excess capital, and we see the credit spreads are shrinking. So the the pressure on NIM will will stay with us in the in the coming quarters at this situation. Thanks. I appreciate the color.

Get back to the queue.

Conference Operator: The next question is from Priyatud of Jefferies. Please go ahead.

Priyatud, Analyst, Jefferies: Hi there. Just a couple of questions from me. So first is on the credit loss expense. Can we get a bit more color on the increase quarter on quarter, especially with the higher collective allowance? Like, what was the drive behind that increase?

For example, have you changed any of the macroeconomic assumptions behind that allowance? And my second question, it’s more around the strategy. So, obviously, we’ve recently those news about the sale a potential sale of Cal, and there’s a non non binding offer submitted. What are the next stages to this? Are you still open to other buyers?

Are you conducting your own due diligence? And with the current offer, how confident are you that the competition authority will allow the deal to go through? Many thanks.

Asaf Pasternak, Executive Vice President, Head of Strategy and Finance, Israel Discount Bank: Okay. So I will start with the first one. So first of all, I don’t think we have the the change between this quarter and last quarter is is less than twenty million seconds. I mean, in in if I look at the percentages, it’s it’s a shift from 12 basis point to 15 basis point. In general, this is a steady I I look at it as a steady place.

There are always fluctuation between quarter and quarter, so I can’t put a finger to anything specific that changed. I can’t say that we have done a major change in our model. But I think between ten and twenty points, this is good numbers in general for the long term. So this is where we are right now. As for the call offer, we’ve I guess, it’s all it’s all in the papers.

So I can’t really give you new information, but with five offers. We will we are working now on creating a short list. We have good good players who who I think all of all of the offers are coming from from very good and strong player. I think all of them will get the approval of the authority. And I believe that we will be able to complete the the process, at least the the choosing process in a matter of of months, and then it will go to the authorities to approve it, which will take some more time.

But in general, I think we have seen very good very good demand, and we are happy with that.

Priyatud, Analyst, Jefferies: Thank you. Can I just ask one follow-up question if if you are able to? I guess, presale, how easy is it for you to divest from Cal? Like, for like, for example, presale, would you be able to prevent it from, like, cross selling products through Cannes, or is this a complete separation from the business?

Asaf Pasternak, Executive Vice President, Head of Strategy and Finance, Israel Discount Bank: We are already working not only with Cannes, but we are working with the with other players as well. So in general, it would not change our our business model. It’s the the only thing that it will create is excess capital, of course, that we will have to to handle. And this is the big question that we have. How much how much of it can we deploy?

Priyatud, Analyst, Jefferies: Perfect. Thank you.

Conference Operator: If there are any additional questions, please press 1. If you wish to cancel your request, please press 2. Please stand by while we poll for more questions. There are no further questions at this time. This concludes the Israel Discount Bank first quarter twenty twenty five results conference call.

Thank you for your participation. You may go ahead and disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.