Bank of Jerusalem 2025: Profit Rose, but Capital Release Is Doing the Heavy Lifting

Getting To Know The Company

Bank of Jerusalem is no longer just a small niche bank that gathers deposits and writes mortgages. That is still the base, but by 2025 the picture is clearer: this is a credit platform trying to earn in two layers at once. The first layer is the familiar balance-sheet business, housing loans, consumer credit, construction finance, and business lending. The second layer is capital release, loan sales, syndication, securitization, and servicing fees on portfolios the bank no longer fully holds.

That matters because a quick read of the year can stop at one comfortable headline: net profit rose 26% to 194.6 million shekels, and return on equity rose to 12.6%. But that number does not tell the whole story. Net interest income was almost unchanged at 703.9 million shekels versus 703.6 million in 2024. In other words, the old engine of spread expansion did not really jump. What moved the year was lower credit-loss expense, a sharp rise in fees, and gains from transactions that take assets off the balance sheet or move part of the risk elsewhere.

What is actually working now? A few things. The credit book still grew, even if not at the pace the headline initially suggests. The retail deposit base remained broad. Capital and liquidity stayed strong. And even after dividends, equity still rose to 1.65 billion shekels. But what is still missing for a cleaner thesis is proof that earnings are not leaning too heavily on new capital-release transactions and the fee layers attached to them, while the retail core itself absorbs higher costs and more visible risk signals.

Put differently, 2026 is opening as a proof year. If Bank of Jerusalem can show that after the next securitization gain it is still preserving credit quality, controlling costs, and growing without eroding capital too aggressively, the read will improve. If not, the market will start asking whether the new model is producing durable earnings, or simply pushing the tension forward.

What matters right away:

• Profit rose, but net interest income barely moved. This is not a classic spread-expansion story.
• Gross credit rose only 5% on a reported basis, but excluding 1.07 billion shekels of loan sales and 712 million shekels of housing-loan syndication, growth was 16%.
• The household segment moved to a 5.9 million shekel loss, while the financial-management segment jumped to 134.5 million shekels of profit. That is a clue about where earnings really came from.
• The sold mortgage book looks cleaner than the one left on balance sheet. In the sold book, 51.5% of loans were originated at up to 45% LTV, versus only 32.0% in the retained book.

This short map helps organize the bank's economics:

Events And Triggers

The first trigger: the Isracard acquisition did not happen. At the start of 2025, the bank was still trying to pursue a transformational move. In February it said it would not improve its offer any further, and on February 20 Isracard approved the agreement with Delek Group. This is not just corporate noise. It matters because it leaves the Bank of Jerusalem story, at least for now, as a story of internal growth, partnerships, and smarter capital deployment, not of a step change through a large acquisition.

The second trigger: capital release became routine. On March 2, 2025, the bank sold 90% of a commercial credit portfolio of roughly 348 million shekels and recognized a pretax gain of about 12.6 million shekels in the first quarter. On June 24 it securitized 90% of a 470 million shekel housing-loan portfolio. On August 13 it sold 90% of another commercial credit portfolio of about 318 million shekels and recognized an 11.3 million shekel pretax gain in the third quarter. This is no longer a tactical one-off. It is a method.

The third trigger: mortgage syndication is becoming a standing operating layer. The syndication agreement was signed in June 2024 for three years. During 2025, jointly originated housing loans under that agreement reached about 790.6 million shekels, and the outstanding balance reached roughly 956 million at year end. The arrangement was initially sized at up to 1.8 billion shekels and was later increased to 2.1 billion. That means the bank is not just selling portfolios after the fact. It is building a credit pipeline where it remains the originator, manager, and servicer without keeping all of the risk on its own balance sheet.

The fourth trigger: first-quarter 2026 already comes with earnings effectively locked in. After the balance-sheet date, on February 23, 2026, the bank sold 90% of a mortgage-backed loan portfolio totaling around 680 million shekels and expects to recognize a gross pretax gain of roughly 38 million shekels in the first quarter of 2026. The implication is straightforward: even if spread conditions do not improve, the next report starts from a more supportive base.

The practical meaning of this transaction sequence is that Bank of Jerusalem is trying to turn the balance sheet from a place where credit simply accumulates into a distribution engine. Credit is originated by the bank, but it does not necessarily remain entirely at the bank. That improves capital flexibility, supports fees and servicing income, and can sustain growth. The other side is obvious too: what remains on balance sheet after cleaner assets are sold away.

Efficiency, Profitability, And Competition

The central point here is simple: Bank of Jerusalem earned more in 2025, but not because traditional core banking suddenly became much stronger. The mix shifted. This was a year in which the business model took another step away from a bank that earns mainly from net interest margin, toward a bank combining margin income with fees, servicing, and capital release.

The Interest Margin Is No Longer Carrying The Story By Itself

Net interest income came in at 703.9 million shekels, almost unchanged from 2024. The supporting ratios tell the same story. Net yield on interest-bearing assets fell to 3.28% from 3.32%. The credit margin fell to 2.5% from 2.9%, and the deposit margin fell to 0.9% from 1.0%.

That is especially interesting because the deposit base did grow, with public deposits rising to 18.25 billion shekels. But this is not a funding base built on a large pool of cheap current accounts. According to the investor presentation, non-interest-bearing deposits were only 9.1% of public deposits in 2025. So the bank does have relatively stable funding, but not especially cheap funding. That is one reason net interest income did not really move.

Fees Are What Drove The Year

Total non-interest income jumped 40% to 295.4 million shekels. Within that, fees surged 45% to 224.9 million. The filings break the increase down into three main drivers: 28.6 million shekels of syndication fees, 24.1 million from prepaid-card activity, and 9.5 million from securities activity.

That is a meaningful shift in earnings quality. On one hand, this is a lighter-capital income layer than keeping the entire credit book on balance sheet. On the other hand, a meaningful part of it depends on the bank continuing to originate transactions, find buyers or partners, and keep activity high in businesses that sit outside classic banking spread income. That is not necessarily a negative, but it does mean 2025 should not be read as if all of the earnings improvement came from ordinary margin expansion.

Where Earnings Actually Sit

The segment table exposes the most non-obvious point in the filings. The household segment ended 2025 with a 5.9 million shekel loss, versus a 6.9 million profit in 2024. At the same time, the financial-management segment rose to 134.5 million shekels of net profit from 78.4 million.

The bank explains why. Income from loan sales, securitization, and syndication is recorded in financial management, while the production costs sit in the household and business segments. In other words, the bank bears origination, marketing, operating, and underwriting costs in the core segments, but books much of the upside in financial management. That accounting split is legitimate, but anyone reading the consolidated profit line needs to understand that it can make the core look cleaner than it really is.

Prepaid cards tell the same story. Revenue from that activity rose to 65.6 million shekels from 41.5 million, but expenses also rose to 45.7 million from 33.3 million. The growth is real, but it is not free. The bank is buying volume through higher cost as well.

Efficiency Is Not Improving Yet

Operating and other expenses rose 12% to 662.0 million shekels. Salaries and related costs rose by 31.0 million, maintenance and depreciation rose by 17.6 million, and other expenses rose by 22.5 million. The filings say the main drivers were wage updates and variable compensation, employee-benefit obligations, software depreciation, and higher costs tied to prepaid cards, computing, and training.

The result was an efficiency ratio of 66.2%, versus 64.6% in 2024. That is not the profile of a bank that has suddenly stepped into a new operating-efficiency phase. It says the bank is earning more, but it is also spending more, and at a meaningful pace.

Cash, Debt, And Capital Structure

In a bank, financial flexibility is judged less through classic free cash flow and more through capital, liquidity, and funding. Even so, the cash-flow statement still shows how the model operates in practice. In 2025, the bank received 1.101 billion shekels from loan sales, issued 632.3 million shekels of bonds and subordinated notes, and paid 64.8 million shekels in dividends. At the same time, cash and deposits with banks fell by 632.8 million, partly because the securities book increased and lending continued to expand.

Capital Looks Comfortable, But It Is Not Endless

The CET1 ratio stood at 10.8% at year end, versus a 9.4% minimum requirement. Total capital stood at 13.4% versus a 12.5% minimum. The leverage ratio came in at 6.8% versus a 4.5% minimum. These are good numbers, and certainly not the numbers of a bank backed into a corner.

But the movement matters too. Equity rose to 1.6496 billion shekels, helped by 194.6 million of net profit, after 64.8 million of dividends paid during the year. So the bank is building capital, but it is also distributing capital, under a more generous payout framework. In December 2024 the dividend policy still called for at least 30% of profit. In August 2025 it was updated to allow up to 40%. After the balance-sheet date, another 33.48 million shekels of dividend was approved for the second half of 2025.

That is why capital release is not cosmetic. It is part of the way the bank is trying to keep growing, keep distributing capital, and still avoid capital pressure.

Regulation Also Gives The Bank Some Breathing Room

Two details matter for 2026. First, starting January 1, 2026, בעקבות an operational-risk rule update, the bank said CET1 and total capital rose by about 0.4% and 0.5%, respectively. That gives the capital story some near-term support. Second, on March 5, 2026, the board approved an increase in the internal CET1 target from 10.0% to 10.25%, effective April 1, 2026. So some of the regulatory relief is immediately offset by tighter internal discipline.

The result is that the headline 10.8% CET1 ratio looks comfortable, but in practice the bank still needs to keep working to preserve room, especially if it wants both growth and dividends.

Liquidity Is Strong, But Funding Is Not Especially Cheap

Alongside capital, liquidity remains strong. The average fourth-quarter LCR was 181%, and the year-end LCR was 200%. The NSFR stood at 133%. The board floor for LCR is 140%, so the bank is comfortably above it.

The funding mix supports that picture. Seventy-eight percent of public deposits come from individuals, 46% of total public deposits are below 1 million shekels, and 29% of deposits are redeemable early. On one side, that is a broad and relatively less concentrated funding base. On the other, it is still largely term-deposit funding rather than a large current-account franchise. That helps explain why liquidity looks strong while deposit margin still compressed.

Outlook And Forward View

This is the core section, because 2025 is already behind us. The real question is how to read 2026.

Four Points That Will Set The 2026 Read

• The first quarter already has a built-in tailwind: a roughly 38 million shekel pretax gain from the securitization signed in February 2026.
• On the other side, the fourth quarter of 2025 already hinted at softer underlying power: only 6.1% ROE, 19.1 million shekels of credit-loss expense, and continued cost growth.
• The 2026 capital story will be helped not just by business activity but also by the operational-risk rule change, which added roughly 0.4% to CET1.
• Still, credit-risk indicators are not moving in a perfect direction. Non-accrual loans or loans 90 days past due rose to 1.96%, from 1.38% at the end of 2024.

This Is A Proof Year, Not A Comfort Year

If the next year needs a label, it is not a breakout year and not a simple bridge year. It is a proof year. The bank has already shown that it can generate capital gains, fees, and servicing income from distributing credit. Now it needs to prove that alongside that it is also preserving the quality of the book that remains on balance sheet, and maintaining underlying profitability that does not depend mainly on transactions.

The positive side is clear. The bank enters the year with several visible anchors: a first report with a gain from a deal already signed, slightly more capital room, a stable deposit base, and a working syndication pipeline. The weaker side is also clear. The core still does not look clean enough. Households moved into loss, efficiency worsened, and risk indicators are creeping up.

What The Market Could Miss On First Read

A fast reader may look at net profit, ROE, and the February 2026 transaction and check the box. But the more interesting point is earnings quality and where it sits. If consolidated earnings look strong mainly because the financial-management segment is doing the heavy lifting while the retail core is weaker, then the key question for the coming year is not just how much the bank earns, but what kind of engine is producing that profit.

Another point that can easily be missed is the quality of the sold book. The table on sold housing-loan risk characteristics shows that the sold loans skew more heavily toward lower-LTV origination. That does not mean the retained book is weak, and the bank itself says the remaining average LTV is still relatively low. But it does mean the capital-release transactions are not completely neutral to the quality of what remains on balance sheet.

What Has To Happen Over The Next 2 To 4 Quarters

First, the bank needs to show that first-quarter 2026 is not just a transaction quarter. Even after stripping out the deal gain, the core needs to look reasonable. Second, credit-loss expense needs to stay under control. It fell to 52.4 million shekels in 2025, but the risk report is already flagging higher problematic and non-accrual loans, mainly in the mortgage and commercial books.

Third, the bank has to show that it can keep growing credit and fee-heavy activity without worsening the efficiency ratio again. If fees rise but every extra shekel of activity also pulls in a heavy cost base, the achievement is less attractive than the headline suggests. Fourth, capital room needs to remain comfortable against credit growth, dividends, and the higher internal target.

There Is A Real Counter-Argument

The strongest bullish case says this is not weak earnings quality at all. It is a smarter business model. The bank has learned to earn both when it originates credit and when it manages that credit afterward. It keeps 10% of each sold loan, stays in the game, earns servicing fees, and still shows strong capital, leverage, and liquidity. On that reading, the rise in fees and non-interest income is not decorative. It is a recurring earnings layer.

That argument is not unreasonable. It simply still needs a few more quarters of proof.

Risks

The Book Left On Balance Sheet Looks Slightly Less Clean Than The One Sold

This is one of the most important points in the filings. In the sold housing-loan book, 51.5% of loans were originally written at up to 45% LTV. In the housing-loan book that remained on balance sheet, only 32.0% were in that bucket, while 33.2% sat in the 60% to 75% LTV bucket, versus only 8.6% in the sold book. That is a clear indication that the sold portfolios are cleaner on average than the book that remains.

The bank is right to note that the average LTV left on balance sheet is still relatively low. But the analytical implication is clear: capital release is not just releasing capital. It is also changing the composition of what remains.

Losses Are Still Controlled, But Risk Indicators Are Rising

Credit-loss expense fell, and the credit-loss ratio dropped to 0.32% of public credit. But at the same time, the non-accrual or 90-days-past-due ratio rose to 1.96% from 1.38%. The risk report explicitly says that in both the mortgage book and the commercial book there has been an increase in the volume and rate of problematic credit, and in the commercial book also in non-accrual loans.

That does not mean the bank has lost control. It does mean the decline in 2025 credit-loss expense may not tell the full forward story.

Capital Room Is Decent, But It Still Depends On Continuing Capital Release

A 10.8% CET1 ratio is comfortable against the regulatory minimum, but the bank's own model is already leaning on transactions that reduce risk-weighted assets. Once the dividend policy moves up to 40% of profit, and the board raises the internal capital target, sales and syndication look less like upside and more like a core part of keeping growth going.

Funding Is Stable, But Not Cheap

A household deposit base is a strength, but it is not the same as a large pool of cheap current-account funding. The share of non-interest-bearing deposits is still relatively low, so if spread conditions remain competitive, the bank will struggle to lean only on deposit margin as the earnings engine.

Commercial Concentration Has Not Disappeared

Even though the bank correctly highlights a broad retail book, total credit risk of the ten largest borrowers stands at about 77% of equity. Three borrower groups with exposure above 10% of CET1 together amount to about 36% of CET1. The bank is within its limits, and most of the exposure is secured by real estate, but it is still a reminder that the system is not built only on thousands of small mortgages.

Conclusions

The right way to read Bank of Jerusalem in 2025 is not as just another bank benefitting from a rate backdrop. This is a bank that has started to build a meaningful earnings layer from capital release, syndication, securitization, and servicing fees, and it managed to lift profit even without a meaningful improvement in net interest income. That is the positive side. The less clean side is that the retail core itself looks weaker, efficiency worsened, and credit-risk indicators are moving up.

What will shape the market read over the short to medium term is not whether the first quarter of 2026 will look good, it probably will. The real question is whether, after the next deal gain, there is still a business underneath that can keep growing, earning, and preserving the quality of the retained book.

Current thesis in one line: Bank of Jerusalem is increasingly operating as a credit originator and distributor rather than a classic spread bank, and that has lifted earnings, but it still has not proved that the core has become cleaner.

What changed versus the older read: It used to be easier to read the bank through margin, mortgages, and capital alone. In 2025 it is much clearer that the engine is shifting toward fees, servicing, and capital management through loan sales and syndication.

Strongest counter-thesis: The new model is actually improving earnings quality, because it releases capital, generates recurring fees and servicing income, preserves high liquidity, and allows the bank to grow without carrying all of the risk on balance sheet.

What could change the market interpretation: A roughly 38 million shekel pretax gain already set up for the first quarter of 2026, together with a roughly 0.4% CET1 benefit from the operational-risk update, can support a constructive near-term read. On the other hand, if risk indicators and costs continue to rise, the tone will turn more critical.

Why this matters: This is a test of whether a small bank can scale not just by expanding the balance sheet, but by turning credit into a product that is originated, distributed, serviced, and monetized through fees.

What must happen now: Credit-loss expense has to stay controlled, the gap between the household segment and financial management has to narrow, operating costs need to calm down, and capital has to remain comfortable even after dividends and growth.