Yaakov Finance in the first quarter: bank headroom improved, but the credit book still needs proof

The first quarter at Yaakov Finance answers part of the questions left open after 2025, but it also shifts the burden of proof to credit quality. Approved bank lines rose to NIS 2.95 billion, utilized bank credit declined, and the unused line buffer looks better than it did at year-end. At the same time, net customer credit declined from the end of 2025, real-estate exposure rose to 70.56%, and balances more than 120 days past due increased to NIS 11.9 million, even though they remain small relative to the overall book. This is therefore not a clean proof that the company is simply continuing to grow fast. It shows that the company bought itself more funding room, but now has to prove that this room will not be absorbed by renewed leverage growth or by higher credit losses. The first dividend, NIS 11 million, adds a layer of management confidence, but it also makes the cash and bank-line test more concrete: the cash is not sitting idle on the balance sheet, it relies on earnings, retained surplus, and credit lines that must remain available. Over the next few quarters, the market is likely to focus less on the headline increase in income and more on whether a larger, more real-estate-heavy book can remain short, clean, and funded without lifting the allowance cushion.

The book did not grow in the quarter, but earnings improved

Yaakov Finance is a non-bank lender to businesses, mainly through deferred checks and solo transactions. This is not a normal growth machine where a sale ends with a profit. Each shekel of growth requires funding, short underwriting duration, quick collection, and enough capital for the banks. The key number is therefore not only how much the credit book grew versus the same quarter last year, but what happened versus year-end and what is required to renew growth.

Against the first quarter of 2025, the picture still looks strong: finance income rose 20.78% to NIS 62.8 million, net finance income rose 16.99% to NIS 32.4 million, and net profit rose 9.83% to NIS 22.4 million. Sequentially, versus the fourth quarter of 2025, finance income rose 4.5%, net finance income rose 13.12%, and net profit rose 8.41%. Annualized return on equity for the quarter was 19.23%.

But the improved profit did not come from a quarter of loan-book expansion. Net customer credit was NIS 2.968 billion at the end of March, compared with NIS 3.031 billion at the end of 2025. On a gross checks-receivable basis, the book declined from NIS 3.180 billion to NIS 3.114 billion. Deferred income stood at about NIS 136 million, so part of the income is already embedded in the book and will be recognized over the coming months, but the future growth question still requires the book to expand again.

This is the difference versus the previous annual analysis. Back then, the question was whether a rapidly growing book was still supported by bank lines and an appropriate allowance cushion. In the first quarter, the funding lines improved while the book declined slightly. That is positive for flexibility, but it does not yet prove that the company can continue to grow quickly while keeping credit quality, the net finance spread, and liquidity headroom intact.

More bank room is not full freedom

The good news in the quarter is on the funding side. Bank C increased its credit line in January 2026 to NIS 750 million from NIS 650 million, and by the end of March total approved bank lines stood at NIS 2.95 billion. Against utilized bank credit of NIS 2.447 billion, this implies unused bank lines of about NIS 503 million. That is a clear improvement from about NIS 319 million at the end of 2025.

This improvement matters, but it should be decomposed carefully. Part of it came from the NIS 100 million increase at Bank C. Another part came from an approximately NIS 85 million decline in utilized bank credit versus year-end, alongside a decline in the credit book. Funding room improved also because the company did not keep expanding the book during the quarter. If the credit book resumes growth toward the NIS 3.06 billion gross balance reported near the publication date, the test will be whether the lines remain wide enough, not only whether they looked comfortable on the balance-sheet date.

The subordinated shareholder loan, NIS 43 million at prime plus 0.3%, was renewed in March 2026 for another year. Equity stood at NIS 476.7 million at quarter-end, and the investor presentation presents total capital including the subordinated loan at about NIS 520 million. That is an important support layer for the banks, but it also reminds investors that flexibility is not fully self-generated. In a non-bank lender, this capital buys growth capacity only as long as banks continue to roll short lines and view the book quality as stable.

The first dividend makes this point more practical. After the balance-sheet date, the board approved an NIS 11 million distribution, against quarterly net profit of NIS 22.4 million and retained earnings of NIS 302.2 million. On paper, the distribution looks reasonable relative to earnings and surplus, and it fits the message of a management team more comfortable with the balance sheet. But the all-in cash picture for the quarter is much tighter: cash was only NIS 855 thousand, and operating cash flow was NIS 228 thousand after customer credit declined and bank credit declined by a larger amount. The dividend is therefore not a story of excess cash sitting in the company, but of confidence that earnings, bank lines, and short collection cycles will keep working together.

The allowance stayed low while the arrears tail grew

The credit test in the first quarter is more complicated than the headline suggests. The general allowance ratio remained 0.27% of credit extended, the same as at the end of 2025 and below 0.38% in March 2025. Total expected credit loss allowance was NIS 9.8 million, almost unchanged from year-end. The income statement credit-loss line was only a NIS 64 thousand expense, after the company recorded income from allowance releases in 2025 and in the same quarter last year.

At first, this looks reassuring. In practice, it deserves closer tracking. Balances more than 120 days past due rose to NIS 11.9 million from NIS 2.8 million at the end of 2025. Past-due balances in the 31 to 60 day bucket also reappeared, at NIS 5.3 million. These numbers are still small relative to a book of nearly NIS 3 billion, but they change the quality of the question: it is no longer enough to ask whether the allowance ratio stayed low. Investors need to ask whether the new arrears close quickly or become a real increase in credit losses.

The table below captures the three tests that the quarter pushed forward:

This connects directly to the previous follow-up work. The allowance analysis argued that the lower allowance coefficient made earnings quality a key checkpoint. The real-estate concentration analysis stressed that the risk is not a single customer, but sector correlation. In the first quarter, the two points meet: the largest customer and largest drawee each fell to only 3.52%, but exposure to the real-estate sector rose to 70.56%. Single-name diversification improved, while economic concentration in the main sector increased.

The company still benefits from a short duration book. 71.84% of the book matures within 180 days, and 96.40% within 365 days. Performing balances above 365 days were only NIS 110.8 million. Short duration is the company's main defense, because it lets it roll the book quickly and correct underwriting mistakes relatively early. Still, when real estate rises above 70% and past-due balances widen, short duration is no longer enough as a standalone argument. It needs confirmation through actual collection, allowance stability, and continued reduction in single-name concentration.

The proof points moved into the next few quarters

The first quarter at Yaakov Finance looks better on funding than on growth. Unused lines are wider, profitability remains high, and the first dividend signals that management is prepared to start returning cash to shareholders. On the other hand, the book declined from year-end, the allowance stayed low despite an increase in past-due balances, and real-estate exposure rose to a level that requires more than a general statement about short duration.

The current conclusion is that the company passed the first liquidity test of 2026, but not yet the quality-of-growth test. If the credit book resumes growth in the next few quarters, unused lines remain in the hundreds of millions, and past-due balances move back down without a higher allowance coefficient, this quarter will look like a healthy transition after a strong growth year. If renewed growth comes with more arrears or with a renewed decline in bank-line headroom, the interpretation will become more cautious. The market is likely to measure the company through four simple numbers: unused lines, allowance ratio, past-due balances, and the real-estate share of the book. Those will determine whether the first dividend is the start of a more stable cash-return equity, or mainly an early signal from a company that still needs to prove its larger credit book is clean enough.