Opal Balance in the first quarter: profit grew, but the credit book needs new proof

Opal Balance opened 2026 with strong-looking numbers: financial-services revenue rose 26.6%, net profit increased to NIS 10.6 million, and the average credit book grew 38%. But this quarter does not close the questions that followed 2025. It sharpens them. Expected-credit-loss expense stayed low, at only NIS 0.4 million, while debts more than 181 days past due and impaired-credit balances grew faster than the credit book. The mortgage segment already holds NIS 101 million of segment assets and contributes about 12% of revenue, but its segment profit in the quarter was only NIS 0.34 million. Funding sources are available and covenants are far from pressure, but dividends approved from the start of the year through the report-approval date make capital ratio, collection quality, and cost of money the next tests. The current read is therefore positive on execution, but less clean on quality of growth: the company is proving that it can grow the book and profit, but it still needs to prove that this growth is not being bought through late-emerging credit risk or through a mortgage business that is balance-sheet-heavy and still light on profit contribution.

The credit book is the engine, mortgages are the new test

The company is still mainly a non-bank lender to small and medium-sized businesses, centered on deferred-check discounting and related financial services. At quarter-end, the discounting activity generated about 88% of group revenue, while the mortgage segment generated about 12%. That is a simpler operating map than the balance sheet now suggests: discounting remains the profit engine, and mortgages are the new leg that consumes more balance sheet before changing the bottom line.

That is why the first quarter should be read as a continuation of the tests opened after the 2025 annual analysis, especially the follow-up questions around allowance quality and mortgage funding. The company did not only need to grow profit. It needed to show that the low allowance is still justified, that mortgages are beginning to contribute more profit, and that capital ratios are not eroding while cash continues to be distributed.

The market screen adds another layer. Based on the trading data prepared for this analysis, the company trades at a market value of about NIS 320 million. A quarterly profit of NIS 10.6 million can make the earnings run rate look optically inexpensive. But that denominator is highly sensitive to two points: how much of the low credit-loss line can really repeat, and how quickly the mortgage segment can earn an adequate return on the balance sheet it uses.

The allowance stayed low while deep delinquencies moved higher

The positive datapoint is that profit grew almost in line with revenue: net profit of NIS 10.6 million versus NIS 8.7 million in the comparable quarter, up 22.5%. Financial-services revenue rose to NIS 28.6 million, and net financial-services revenue after financing expense increased to NIS 22.9 million. Even after a 48.6% rise in net financing expense, the company maintained high profitability.

The credit-loss line is where the quarter becomes less clean. Expected-credit-loss expense was NIS 0.4 million, versus NIS 0.2 million in the comparable quarter and NIS 0.4 million for all of 2025. That is still very low relative to a gross credit book of NIS 614.9 million. The issue is that the book mix moved in a less comfortable direction: Stage B and Stage C balances, meaning credit with a significant increase in risk and credit-impaired balances, rose to NIS 91.4 million, compared with NIS 79.9 million at the end of 2025. Their share of the book rose to 14.9%, from 13.3% at year-end.

The sharper number sits in impaired credit. Stage C rose to NIS 54.8 million, up 25.6% from year-end 2025, while gross credit grew only 2.7%. Debts more than 181 days past due also rose to NIS 55.8 million, from NIS 44.6 million at year-end. At the same time, the total expected-credit-loss allowance barely moved: NIS 30.0 million versus NIS 29.8 million at year-end.

Part of that gap may be explained by collateral. The company states that impaired debts for which no separate allowance was recognized are mainly debts secured by tangible collateral. That is not a technical detail. It means the test shifts from the accounting line to collateral quality, collection speed, and realization value. If the collateral works, the low allowance can continue to look reasonable. If late delinquencies keep rising or collateral realization takes longer, the allowance line of 2025 and the first quarter of 2026 may prove too low for the new risk pace.

Mortgages are heavier on the balance sheet before they matter in profit

The mortgage segment is where it is easiest to confuse size with contribution. Segment assets reached NIS 101.1 million at quarter-end, up 7.3% from the end of 2025 and more than double the comparable-quarter level. Segment revenue rose to NIS 3.3 million. But segment profit declined to NIS 0.34 million, compared with NIS 0.58 million in the comparable quarter, and financing expense in the segment rose faster than revenue.

This gap matters because mortgages are not just another activity. They change the duration of part of the credit book and the dependence on matched funding. Ninety-one percent of the mortgage book consists of loans with one-to-four-year terms, and the book's average life was about two years. On the funding side, the activity relies on equity, bonds, and bank credit lines, some of which renew every 12 months and carry prime-linked interest. The company reduces the gap by focusing on relatively short loans, but the quarter still does not prove that this segment can earn enough relative to the balance sheet it requires.

The right read is not that mortgages are a problem. They open a larger credit market for the company, with tangible collateral and a path to expand beyond short-term check discounting. The more cautious read is that the profit has not yet arrived. When the segment holds about 17% of net credit assets but contributes only NIS 0.34 million of segment profit in the quarter, the market should treat the balance-sheet growth as only partial proof.

Funding is available, but distributions leave less room for error

There is no immediate funding-pressure signal. The company had short-term bank credit lines of about NIS 707 million, of which it used NIS 277 million at the end of March and NIS 315 million near the report date. It also has about NIS 74.7 million par value of bonds outstanding, and Series D's rating remained A3.il with a negative outlook after an additional review on May 5, 2026.

Covenants are also far from breach. Against the bank tests, tangible equity stood at about NIS 226 million and at 37.3% of tangible assets, versus a 20% or NIS 45 million threshold. Debt to tangible equity was 1.55x versus a 4.7x ceiling. Under the bond deed, equity stood at about NIS 242 million versus a NIS 105 million floor, and the equity-to-balance-sheet ratio was about 39% versus a 15.5% threshold. Bond distribution limits also require, among other conditions, an equity-to-balance-sheet ratio of at least 20%, so there is room there as well.

Still, distribution is part of the thesis, not a side note. The company paid a NIS 5.0 million dividend during the quarter, recognized another NIS 5.05 million dividend payable, and after the report date approved an additional NIS 5.2 million dividend. The distributions approved from the start of the year through the report-approval date exceed first-quarter net profit. That does not mean the distribution is unlawful or unsupported by retained earnings, but it does sharpen the rules of the game: as long as credit quality holds and the financial spread remains stable, the distribution signals confidence. If deep delinquencies continue to rise, the same distribution pace will look less like surplus cash and more like capital consumption while the book needs support.

On an all-in cash-flexibility view, the quarter was less impressive than the accounting profit. Operating cash flow was NIS 4.7 million, after credit-book growth that was partly funded through higher bank-credit usage. After a small negative investing cash flow and NIS 5.3 million of negative financing cash flow, cash declined by NIS 0.8 million to NIS 10.1 million. This is not a distress picture, but it is a reminder that a growing lender needs capital and funding before profit becomes free cash.

Conclusion

The first quarter of 2026 strengthens the company's operating side: demand for credit exists, the book grew, profit rose, and access to bank and bond funding remains open. But the conclusion is not that risk has declined. The proof points moved to delinquency quality, collateral realization without higher allowances, and whether mortgages can become a profit engine rather than mainly a balance-sheet engine.

The next-quarter test is clear. If debts more than 181 days past due stabilize, the allowance ratio remains reasonable, and funding costs do not absorb the new revenue, the market can treat the quarterly profit as a more credible run rate. If impaired credit keeps growing faster than the book, or if mortgages remain heavy on the balance sheet without a meaningful profit contribution, first-quarter net profit will look more like a starting point that still needs proof than a full step-change.