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Leumi, with a market capitalization of $7.7 billion, reported a strong financial performance for Q1 2025, with net profit rising 12% year-over-year to NIS 2.4 billion. The bank’s return on equity reached 15.4%, reflecting its robust operational efficiency. The stock saw a 3% rise, closing at 5,562, driven by investor optimism following the positive earnings announcement. According to InvestingPro analysis, the bank is currently trading at a low P/E ratio relative to its near-term earnings growth, suggesting potential value opportunity. InvestingPro subscribers have access to 10+ additional exclusive insights about Leumi’s valuation and growth prospects.
Key Takeaways
- Leumi’s net profit increased by 12% YoY, reaching NIS 2.4 billion.
- The bank’s return on equity was 15.4%, indicating strong profitability.
- Stock price rose 3% following the earnings announcement.
- Net interest income grew by 7% to NIS 4 billion.
- Cost-to-income ratio improved to 32.1%.
Company Performance
Leumi demonstrated significant growth in Q1 2025, with impressive revenue growth of 27.45% over the last twelve months. The bank’s increased net interest income and focus on credit portfolio expansion have yielded results, supported by a healthy current ratio of 1.88. The bank’s strategic emphasis on securities and financing transactions has contributed to its strong financial standing, reflected in its "GOOD" Financial Health Score of 2.81 from InvestingPro. Compared to its peers, Leumi maintains a competitive edge with the highest CET1 ratio in the sector at 12.15%.
Financial Highlights
- Revenue: NIS 5.39 billion
- Net Profit: NIS 2.4 billion, up 12% YoY
- Earnings per share: 1.6
- Return on Equity: 15.4%
- Net Interest Margin: Increased to 2.35% from 2.21%
- Cost-to-Income Ratio: 32.1%
Earnings vs. Forecast
Leumi reported an EPS of 1.6, aligning with market expectations. The bank’s revenue of NIS 5.39 billion also met forecasts, underscoring its steady financial performance.
Market Reaction
Following the earnings release, Leumi’s stock price increased by 3%, reflecting investor confidence in the bank’s strong financial results. The stock’s current price of 5,562 is near its 52-week high, indicating positive market sentiment.
Outlook & Guidance
Leumi plans to increase its dividend payout to at least 50% as it anticipates easing of dividend distribution restrictions by the Bank of Israel. The bank remains confident in sustaining loan growth despite geopolitical challenges, with a focus on expanding its target market segments.
Executive Commentary
"The bank continues to present consistent and strong financial performance with high ROE despite the ongoing economic uncertainty," said Hagib Ghorf, CFO. He expressed optimism about future dividend distribution, stating, "We expect that when there will be a significant reduction of this uncertainty, the Bank of Israel will lift these limitations." InvestingPro data shows the bank has maintained dividend payments for 9 consecutive years, with a current dividend yield of 0.89%. The bank’s strong financial position is further supported by an Altman Z-Score of 6.04, indicating low bankruptcy risk. For detailed analysis of Leumi’s financial health and future prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
Risks and Challenges
- Geopolitical Uncertainty: Potential impacts on financial operations and regulatory restrictions.
- Volatility in Capital Markets: Shifts in deposits could affect liquidity.
- Economic Conditions: Changes in the Israeli economy might influence growth prospects.
Q&A
During the earnings call, analysts inquired about the impact of geopolitical uncertainty on dividend restrictions and loan growth. Leumi’s management assured minimal impact on loan demand and anticipated a relaxation of distribution limitations in the future.
Full transcript - Leumi (LUMI) Q1 2025:
Conference Operator: Ladies and gentlemen, thank you for standing by. Welcome to Lumi’s First Quarter twenty twenty five Results Conference Call. All participants are at 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, 05/20/2025.
I would like to remind everyone that forward looking statements for the 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, 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 now like to turn over the call to Mr. Michael Klar, Head of Investor Relations. Mr.
Klar, please go ahead.
Michael Klar, Head of Investor Relations, Banclumi: Thank you, operator. Ladies and gentlemen, we thank you for taking the time to join us for Banclumi’s first quarter twenty twenty five results conference call. Joining me today is Ms. Hagitta Ghorf, CFO and Head of the Finance Division and Mr. Omez Ziv, Deputy CEO and Head of the Capital Markets Division.
The presentation that we will be using is available on the bank’s website. I would now like to turn the call over to Hagib. Thank you, Michael. Good day, everybody. I am very happy to be here with you today and to present our first quarter twenty twenty five financial results.
Before we discuss this, a few words on the macro situation and some key messages. Let’s start with Slide three that shows some key macro indicators. Firstly, the recovery of the Israeli economy continued in the first quarter of twenty twenty five with annualized GDP growth of 3.4% compared with 1.9% growth in the previous quarter with GDP now above pre war levels. Secondly, indicators of household conditions such as credit card purchases and consumer confidence point to year over year improvement. And moreover, export of IPEC services, an important component of the local economy, accelerated in recent months.
Labor market remains tight. And finally, the Bank of Israel estimates that drilling GDP will grow by 3.5 this year with an emphasis on domestic demand and fixed investment. Turning to Slide four. This shows our consistently high ROE and profitability. Dank Lomi continues to present high and stable ROE and net profit already for many quarters.
Third quarter twenty twenty five net profit of NIS two point four billion was up 12% year on year when excluding the onetime profits from the sale of the bank’s headquarter buildings in the third quarter of twenty twenty four. And despite the buildup of excess capital over the period, the bank is consistently delivering ROE above 15%, in line with our strategic plan. Slide five shows a snapshot of the quarter’s performance. Net income for 2024 was 2,400,000,000.0. ROE was 15.4%.
Cost income ratio was 32.1% and was down from 33.4% in Q1 twenty twenty four when excluding proceeds from headquarters real estate sales. The cost income ratio in the quarter was negatively impacted by the low CPI and the P and L impact of the. Let me stress that our cost income ratio continues to be the best in class and one of the best in the world. Credit loss expenses improved to 0.05% from 0.21% in the first quarter of twenty twenty four due to negligible specific provisions and due to the lower collective provisions, which is consistent with the low NPL ratio and the improvement in problematic debt. Credit growth was 1.6% in the quarter and up 8% year on year.
When exclude capital markets credit, which is more volatile, credit was up 2.2% in the quarter. Moreover, we have a very strong pipeline, which is reflected in the growth of risk weight assets and credit risk, which was up by 2.7%. Book value per share increased 3.6% in the quarter and has increased by almost 15% over the last year. All in all, quite an impressive, consistent and strong performance. Slide six shows a snapshot of income and expenses in Q1.
Net interest income increased 7% year on year to 4,000,000,000, mainly due to the increase in volumes. Noninterest financing income was down in Q1 due mainly to losses from derivatives that age our securities portfolio. Actually, the bank securities portfolio recorded gains in the quarter. However, for accounting reasons, the cost of the derivatives is recorded in the P and L, while the gains of million are recorded directly to the equity accounts. Fees were up strongly, up 9% year on year due to higher securities activity, higher fees from financing transactions and higher fees from credit cards.
Total expenses were down by 5.2% year on year due to lower salary expenses and despite the significant increase in the bench activities. Slide seven, we can see the quarterly development of net interest income and margin. NIM increased in the first quarter to 2.35% from 2.21% in the previous quarter, mainly due to the higher CPI and a more favorable deposits and credit mix. Slide eight shows the year on year increase and breakdown of fee and commission income. Fees were very strong, a very strong gap, a record 9.2% in the first quarter compared with the corresponding quarter last year, mainly due to higher securities and financing transactions and higher credit card activity.
Slide nine shows the development of loan loss expenses, as mentioned before. Credit loss expenses improved to 0.05% from 0.21% in Q1 twenty twenty four due to negligible specific provisions and due to the lower collective provision, which is consistent with the low NPL ratio and the improvement in problematic debt. Turning to Slide 10, shows the continuing high quality of our credit portfolio. We can see that despite the world, a tough macroeconomic backdrop and high interest rates, NPLs remained stable at 0.5%. Travel debt declined further to below 1.4.
Both measures are at historically low levels and are among the lowest in the Israeli banking system. At the same time, the bank’s provision for bad debt stood at 6,800,000,000.0, covering NPLs by almost 3x. Let’s move ahead now to Slide 11, our loan book. The bank’s loan book increased in the quarter to $463,000,000,000, up 1.68% year on year. When we exclude capital markets credit, credit was up 2.2% in the quarter.
Corporate credit was especially strong, helped by infrastructure and project finance. Moreover, we have a very strong pipeline, which is reflected in the growth of risk weighted assets and credit risk, which was up by 2.7% in the quarter. Slide 12 shows deposit rents. Total deposits fell in the quarter to a little under 600,000,000,000, mainly due to the volatility of capital markets deposits. Our deposit base on the right is well diversified, and our liquidity ratios remain strong.
Moving ahead now to Slide 13, which shows our very healthy capital ratios. This remained stable in the quarter. Our CET1 ratio was 12.15 at the end of the quarter, similar to year end levels and remains the highest sector. The total capital ratio was stable at 14.83%. The bank’s capital buffer, which is the difference between the CET1 ratio and the minimum regulatory requirement, stands at almost 10,000,000,000.
Turning to Slide 14, talking about payout. The bank will distribute a cash dividend for the first quarter of 720,000,000.00, together with a buyback of NIS 240,000,000.00, bringing the total payout to about 1,000,000,000 or 40% of quarterly earnings. The bank’s continued strong profitability, combined with a very healthy capital buffer, give us confidence that we can increase our payout ratio to at least 50%, of course, as soon as the Bank of Israel permits. In conclusion, Slide 15, let us summarize. The bank continues to present consistent and strong financial performance with high ROE despite the ongoing economic uncertainty.
The bank’s strong profitability and healthy capital buffer enable us to continue growing in our target segments while also allowing us to share higher returns with shareholders through dividends and buybacks, as I mentioned earlier. With that, I will now open the call for questions. Operator?
Conference Operator: Thank you. Ladies and gentlemen, at this time, we will begin the question and answer The first question is from Chris Reimer of Barclays. Please go ahead.
Chris Reimer, Analyst, Barclays: Yes, hi. Thanks for taking my questions and congratulations on the strong results. First off, what do you think needs to happen for the Bank of Israel to give approval for higher dividends?
Hagib Ghorf, CFO and Head of Finance Division, Banclumi: Chris, good afternoon. I would say a follow-up. I believe the Bank of Israel decided this quarter to remain its limitation about the distribution of dividend due to the uncertainty of the geopolitical circumstances, which are still around. We expect that when there will be a significant reduction of this uncertainty, And the best two will lift these limitations.
Chris Reimer, Analyst, Barclays: Got it. Yes. And also touching on the geopolitical situation, the military situation here. Do believe you can continue to deliver the same pace of loan growth over the coming quarters?
Hagib Ghorf, CFO and Head of Finance Division, Banclumi: Yes. So as Sandeep mentioned in the first quarter, the pace of growth of our credit portfolio, when I put aside the negative effect of the institutional credit, which is very volatile throughout the year due to margins. So the pace of growth in the first quarter was 2.2%. Moreover, the risk weighted assets the credit risk weighted asset base of growth was nearly 3%, which reflects the full pipeline that we have which will be reflected in the following quarter. I don’t think that the current situation had a significant effect on the demand for loan.
I think the I believe the opposite can mean that mainly in the northern border, but also in the southern border, we start to see the rebound, the effect of the world in different infrastructure projects. And the current situation doesn’t really have a significant effect on the demand for long because it’s focusing the southern border. The situation in the northern border is much better than it was before. And the effect of the war in Gaza on the day to day activity is a little bit low.
Chris Reimer, Analyst, Barclays: Got it. Got it. Yes. Thanks for the color. That’s it for me.
Conference Operator: Next question is from Borja Ramirez of Citigroup. Please go ahead.
Borja Ramirez, Analyst, Citigroup: Hello. Thank you very much for your time and for taking my questions. I have two. Firstly, is regarding the provisions. Was the low collective provisions a one off?
Or should we expect a low level to continue in the coming quarters? And my second question will be on the fees. There was a strong growth fees in the quarter. I would like to ask if you could provide more color on the main drivers.
Hagib Ghorf, CFO and Head of Finance Division, Banclumi: As for the collective provision, so as Sagit pointed out, we continue to see very low NPL, 0.5%. We continue to see a decline in the problematic debt ratio, not only in the ratio itself, the total problematic debt declined despite the fact that we increased significantly our portfolio. The provision is currently 3x the NPL. So all the parameters that reflect the quality of the credit portfolio remain strong. And this is in addition to the significant increase in the collective provision that we have made at the beginning when the world broke out.
And till now, the situation is much better than the scenario we’ve taken into account when we create this provision in 2023. So we expect that the total credit loss expense ratio in the following quarter will remain at a low level. Now as for the main driver of the credit portfolio, so consistent with our strategy, the main as for the fees, I thought you asked about the credit portfolio. As for the fees, the main driver for the fees were the credit fees. We increased significantly the credit portfolio, so it reflects also in fees.
The second driver were the exchange differential fees. And the third component was related to securities fees due to higher security. Actually, the fees year on year increased by 9%, very strong increase, very healthy increase with zero equity requirement.
Borja Ramirez, Analyst, Citigroup: The
Conference Operator: next question is from Vinod Chattelani
Vinod Chattelani, Analyst: I I have one question regarding the Eurobonds that are outstanding. You have one $750,000,000 subordinate debt that is callable in 2026, January, I understand. So any plans to come to the market to refinance them in the near term? And on just on the call on this on the calling of the bonds, how should we see you approaching the sub debt?
Hagib Ghorf, CFO and Head of Finance Division, Banclumi: First of all, our total capital ratio is currently at a level of 14.8%, significant buffer above our equity requirement, which are 13.5%. So actually, there is no specific need or urgent to come to the market and to refinance it in 2025. We might do it, but there is no specific need currently. As for the call date, so as we mentioned, we have a series in which the call date is in January 2026. I believe that we will take the final decision in the second half of twenty twenty five.
What I can share with you at this stage is that we had a few series of Q2 that their call date were in the last two years, and we called them on the call date. As for the series that the call date is in January 2026, As I pointed out, we will take the final decision, I believe, the second half of twenty twenty five.
Vinod Chattelani, Analyst: Sorry, could you it wasn’t clear. Could you repeat the last sentence in terms of the call dates earlier? I’m so sorry, the line is not clear.
Hagib Ghorf, CFO and Head of Finance Division, Banclumi: So what I mentioned is that for this year that the call date is January 2026, we will take the decision in the second half of this year. I just mentioned that we had a few local bonds that are called they came into effect in the last two years, and we called them on the call date. We didn’t extend the period of this Q2 local bonds. Thank you.
Conference Operator: The next question is from Priya Rasud of Jefferies. Please go ahead.
Priya Rasud, Analyst, Jefferies: Hi. Thanks for taking my question. Just one on deposits. So I noticed a decrease this quarter and it seems to a common theme in the sector as well. I also noticed there was a decrease in deposits or you noted that there’s a decrease in deposits by capital market customers.
So I guess two parts to the question. The first is, what is the competition like in the deposit market at the moment? And two, where are the deposits of the capital market customers going? Like are they staying within Lumi or are they going elsewhere?
Michael Klar, Head of Investor Relations, Banclumi: Okay.
Hagib Ghorf, CFO and Head of Finance Division, Banclumi: The line wasn’t so good, so I hope I answered your question. As for the deposit, so as I mentioned, there was a decline in the capital market deposit. The capital market deposits are very volatile. It depends on there was a movement for money from deposit to the capital market to off balance sheet items. So on the one hand, we saw a decrease in the capital market deposit.
On the other hand, we saw significant increase in the off balance sheet items. The competition in the capital market, of course, is strong, but we are a very strong player in this area. As a matter of fact, there was in all of not only in the capital markets, but also in other segment around the deposits in the first quarter, movement of money from on balance sheet items, I mean deposit to all balance sheet items. This is one of the reasons for the significant increase in our fees in our securities from fees. As I pointed out earlier, we increased our fees year on year by 9%, and a significant driver of that was increase in our securities fees.
And this is due to the movement from on balance sheet deposits to off balance sheet deposits. Did it answer your question?
Conference Operator: This concludes LUMI’s first quarter twenty twenty five results conference call. Thank you for your participation. You may go ahead and disconnect.
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