Isracard in the first quarter: profit is back, but the bridge year is only starting

Isracard opened 2026 in better shape than its reported 2025 bottom line suggested, but the first quarter does not clear the quality question left after the annual report. Net profit recovered to NIS 45 million, the CET1 ratio remained 10.7%, and credit-loss expenses did not jump beyond the comparable-quarter level. Still, group profit was almost entirely supported by the business-customer segment, while the private-customer segment contributed only NIS 5 million. Credit growth continues at a high pace, but the interest appendix shows that net interest income grew mainly from volume, not pricing: volume added NIS 15 million and price erosion reduced it by NIS 6 million. At the same time, secured credit-line utilization rose sharply after the balance-sheet date, and FLY CARD is expected to turn 2026 into an investment year with a NIS 110-150 million pre-tax drag. This quarter therefore does not say the problem is solved. It says Isracard bought itself a stable quarter to prove that credit growth, customer acquisition and strategic expansion are not consuming earnings and capital too quickly.

What The Business Is, And Why Profit Is Narrow

Isracard is no longer just a credit-card company earning issuer and acquirer fees. It now functions as a payments infrastructure, issuer, acquirer and non-bank lender, so its economics sit in three places at once: card transaction volumes, consumer and business credit, and the funding and capital needed to carry that credit.

That structure explains why the first quarter matters. In the previous annual analysis, the question was whether 2026 would be a proof year rather than a harvest year: capital ratios eroded in 2025, credit yields fell, and the moves around Esh and eOS raised the concern that the company was expanding while its capital headroom was already narrower. The first quarter calms part of that concern because the CET1 ratio did not fall versus year-end 2025. But the other part of the question became sharper: growth still comes with yield erosion, and private-customer profitability remains too weak relative to its role in the growth plan.

The economic map is simpler than the financial statements. The business-customer segment is currently the main profit source, including acquiring, merchant credit and services to businesses. The private-customer segment is larger by brand, card base and consumer credit, but it barely generated profit this quarter. That changes the reading of FLY CARD: the agreement can bring hundreds of thousands of new customers in the first two years, but it lands in the layer where acquisition and retention costs are already visible.

Net profit of NIS 45 million looks strong against reported net profit of NIS 7 million in the comparable quarter, but the cleaner comparison is adjusted net profit of NIS 55 million in that quarter. On that basis, profit actually declined by about 18%. Total revenue barely moved, NIS 850 million versus NIS 846 million, while total expenses rose to NIS 790 million from NIS 776 million.

The more important gap is between segments. The private-customer segment generated NIS 644 million of revenue, more than three times the business-customer segment, but only NIS 5 million of net profit. The business-customer segment generated NIS 206 million of revenue and NIS 40 million of net profit. First-quarter group profit depended on merchants, while the consumer activity that is supposed to absorb the FLY CARD customer-acquisition effort starts the year with very low profitability.

Card transaction volume rose 2.6% to NIS 62.7 billion, and off-bank cards where the group carries the risk grew 5.3%. Activity did not stop, despite the hit to inbound and outbound tourism during Operation Lion's Roar. But activity is growing only moderately, wages, club costs and customer-retention expenses are rising, and in the private segment the increase in interest income is not enough to create meaningful profit.

Credit Keeps Growing, Pricing Still Erodes

Credit remains the clear growth engine for Isracard. Consumer credit reached NIS 8.929 billion, up 17.3% year over year and 4.0% versus year-end 2025. Commercial credit reached NIS 3.453 billion, up 27.6% year over year and 6.0% versus year-end 2025. That is fast growth, especially during a period with some slowdown in consumer credit during Operation Lion's Roar and timing changes in credit-data reporting.

The issue is not demand. The issue is the price at which the growth comes in. In consumer credit, the average balance rose to NIS 8.604 billion from NIS 7.290 billion, but the interest-income yield fell to 10.13% from 11.03%, and the spread above prime fell to 4.61% from 5.03%. In commercial credit, the yield declined to 5.14% from 5.20%, and excluding voucher discounting and a subsidiary balance it fell to 7.45% from 7.97%.

The interest appendix shows this better than any revenue table. Net interest income increased by NIS 9 million, but the move was built from a positive NIS 15 million volume effect and a negative NIS 6 million price effect. In other words, Isracard is collecting more interest shekels because the book is larger, not because credit pricing is improving.

Credit quality has not broken. Credit-loss expenses were NIS 71 million versus NIS 69 million in the comparable quarter, and the expense ratio on average consumer receivables fell to 1.97% from 2.22%. But the absolute figures are less comfortable: non-accrual debt rose to NIS 148 million from NIS 121 million, and total problematic credit rose to NIS 529 million from NIS 449 million. Compared with year-end 2025, problematic credit was nearly unchanged, so this is not yet a sharp deterioration signal. It is a reminder that the newer vintages still need several quarters without a sharp rise in delinquencies and charge-offs.

Capital Stabilized, Funding Became More Active

The CET1 ratio remained 10.7%, unchanged from year-end 2025, and the total capital ratio remained 12.4%. That partly answers the main checkpoint from the annual report: capital did not continue eroding in the first quarter. But this stabilization does not create wide headroom. Against the internal 9.75% CET1 target, regulatory capital of NIS 3.071 billion and risk-weighted assets of NIS 28.789 billion leave about NIS 264 million of room. Against the internal 11.75% total-capital target, the room is about NIS 187 million.

That is why the important number is not only the March-end capital ratio, but how much funding is needed to support the growth pace. External funding liabilities rose from NIS 3.966 billion at year-end 2025 to NIS 4.411 billion at the end of March, and near May 10 they already stood at NIS 7.891 billion. Secured credit-line utilization increased from NIS 886 million at year-end 2025 to NIS 1.852 billion at the end of March and NIS 5.406 billion near the report signing date.

The all-in cash picture, meaning cash after credit expansion, investments, repayments and actual debt financing, shows the same pressure. Operating cash flow was NIS 160 million, but growth in credit to customers and merchants consumed NIS 606 million, property and equipment investments consumed NIS 65 million, and bond and commercial-paper repayments totaled NIS 519 million. A NIS 975 million increase in bank and other credit financed most of the gap, and cash still declined by NIS 55 million. This does not mean liquidity is weak, but credit growth requires active, rolling funding.

FLY CARD Turns 2026 Into A Bridge Year

The FLY CARD agreement is the major business trigger of the quarter, and it is also the reason first-quarter profit is not a simple annual run rate. The agreement was signed in late March 2026 for a 10-year period starting April 1, 2026. It includes club card issuance, signing grants, marketing and support budgets, and revenue sharing from club cards and credit sales. The company estimates potential additions at hundreds of thousands of customers in the first two years.

The immediate cost is clearer than the future contribution. The agreement is expected to reduce 2026 profitability by NIS 110-150 million before tax, mainly because in the first years direct expenses, customer acquisition and conversion of existing customers exceed direct revenues. Management expects that excess to moderate in 2027 and the full-period average annual contribution to be positive, NIS 120-160 million before tax. But 2026 starts with cost, while the economic proof will arrive only if new customers remain, use the cards and take credit at a price that does not keep eroding.

There is also a legal and operating bottleneck to monitor. A dispute between a competing credit-card company, the club and the airline currently delays issuance of bronze cards and use of information on existing cardholders from the previous arrangement. The company cannot yet estimate the impact of that process. FLY CARD is therefore still a plan with a wide range, not a contribution that has already been secured.

Against that, there is one near-term offset: after Aiplanet, in which the company holds 20%, sold BuyMe, the company received a dividend of about NIS 72 million, and the second quarter is expected to include a net gain of NIS 55-70 million. This is real capital relief, but it is one-off. It can soften the bridge year, not replace the profitability test of FLY CARD or the capital test around continued credit growth and the negotiations to acquire Esh, which were extended to June 17, 2026.

Two risks are not the center of the quarter, but they can change how the market interprets 2026. The first is VAT exposure. Following the VAT assessment ruling, the company and Premium Express recorded provisions, but they still estimate unprovided exposure of about NIS 270 million before tax, mainly if the Tax Authority appeals and its appeal is fully accepted. This is not the base case, but relative to the capital room above the internal target it is too large to ignore.

The second is the security situation and tourism activity. During Operation Lion's Roar, activity volumes were lower than in the comparable period, especially in inbound and outbound tourism, and the company also cited slower consumer credit. By quarter-end there was no material impact from customer relief, deferred payments or loan modifications for borrowers in difficulty, but the company still cannot estimate the full effect on transaction volumes, credit demand and borrowers' repayment capacity. That leaves credit quality as a proof point for the coming quarters, not only a historical data point.

Conclusions

The first quarter of Isracard provides only a partial answer to the questions left open after 2025. Capital stopped eroding, credit grew, and credit-loss expenses did not jump. But profitability is still supported by a strong business segment, while the private segment contributes very little profit, and that is exactly where the company is starting an expensive customer-acquisition move through FLY CARD. 2026 therefore looks less like a clean recovery year and more like a bridge year: part of earnings will be helped by a one-off Aiplanet gain, part will be consumed by FLY CARD investment, and capital will need to absorb both credit growth and decisions around Esh.

Over the next two to four quarters, the market will not need more proof that the company can grow. It will need to see that the price of growth stops eroding, that non-accrual debt and charge-offs do not accelerate, that credit-line utilization normalizes without raising funding costs, and that the capital ratio remains above the internal target after the strategic moves. If that happens, FLY CARD can look like an expensive but reasonable customer investment. If not, the first quarter will look in hindsight like the moment profit returned before the real cost of the bridge year reached the income statement.