Mizrahi Tefahot Bank Ltd. (MZTF) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. Welcome to the Mizrahi Tefahot Bank Ltd. Second Quarter 2025 Business Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, August 14, 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 2 of the financial statement for 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's estimations regarding future events, which include inter alia, global and local economic development forecast, 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. Welcome all to the Mizrahi Tefahot Second Quarter Analyst 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. As 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. And though the road to 2027 is still long, we are happy that we have been able to start on track. It's important to note that the result for this quarter also takes into account for the first time both the relative 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 reflect a balanced credit portfolio with adequate risk management. Credit growth vis-a-vis Q1 2025 is impressive to our opinion, not just because of the total number but also due to the diversified composition of the growth along 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 reflects 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. And as always, salaries are also affected from variable remuneration related to the bank's results. Our cost-to-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 would materialize in the coming quarters, and we do expect to see further responsible credit growth in coming quarters. We will distribute 50% of Q2 profit as dividends. To sum up, these are my key takeaways I take 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, as can be seen from the provisioning. Expense control enabled the cost-to-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 profit in Q2 reached ILS 1.453 billion. The net profit in H1 2025 reached ILS 2.743 billion. The return on equity in Q2 reached 17.8% and in H1 reached 17%. The equity amounted [ ILS 33.1 billion ]. Cost-to-income ratio reached in Q2 2025 34.9%. The financing revenues from current operations in Q2 reached ILS 2.856 billion. The total revenues reached ILS 3.791 billion. Operating and other expenses totaled to ILS 1.323 billion. The ratio of provisions for loans in Q2 reached 0.06%. The ratio of the Q1 reached 10.41% and the total ratio reached 13.25%.

Thank you very much. I think we can go to Q&A now.

[Operator Instructions] The first question is from Chris Reimer of Barclays.

Congratulations on the strong results. On cost-to-income, I was wondering if you could talk about some of the savings initiatives that you're implementing? And specifically on salaries, what are some of the variables there, the moving parts, the seasonality? And how should we be looking at that line going through to the end of the year?