S.R. Accord in the First Quarter: Profit Improved, Collections Remain the Proof Point

S.R. Accord opened 2026 with a quarter that strengthens the profit side, but still does not close the collection question. Net profit rose to NIS 22.3 million, net financing income grew 21.1%, and the check-discounting core still carried most of the result. Still, the total credit portfolio grew only 1% from the end of 2025, so the profit improvement did not come from another jump in portfolio size. It came from a better financing spread, a non-core profit layer and reasonable control of credit-loss expenses. The real improvement is in the credit note: credit with a significant increase in risk declined from NIS 88.8 million at the end of 2025 to NIS 65.1 million, and debts more than 180 days overdue that were not classified as impaired fell from NIS 28.9 million to NIS 22.8 million. That is progress against the main follow-up question from last year, but it is not yet final cash collection. On the other side, operating cash flow was negative NIS 44.0 million, cash and cash equivalents fell to NIS 3.0 million, and the company continued to distribute cash after the balance-sheet date. The quarter therefore gives a more positive lean to the credit core, while leaving three proof points for the coming quarters: collection pace on overdue debts, preservation of short funding lines, and whether Arno and Salads Shamir avoid becoming new capital distractions.

Profit Improved Without a Portfolio Jump

S.R. Accord is a non-bank credit company that generates most of its profit from short-term credit to businesses, mainly through check discounting, alongside entrepreneurial real-estate credit through Arno. This is a spread and credit-quality machine: value is created when the company charges enough interest above funding cost, holds collateral, and turns overdue debts into cash without a large provision drag.

The internal split matters more than the consolidated headline. The check-discounting segment ended the quarter with customer credit of about NIS 1.487 billion, compared with about NIS 314.8 million in entrepreneurial credit. The prior annual analysis left three checkpoints: collateral and collection, short bank funding, and Arno. The first quarter advances mainly on the first one, but it still does not change the fact that the profit core is in check discounting rather than the non-core layers.

Net credit totaled NIS 1.802 billion, up 24.2% year over year, but only 1.0% above the end of 2025. Financing income rose to NIS 57.1 million, and net financing income rose to NIS 37.6 million. Financing expenses grew more slowly than revenue, so financing expenses fell to 34.3% of financing income, compared with 35.9% in the parallel quarter.

Still, pretax profit rose faster than operating profit. Operating profit increased from NIS 21.1 million to NIS 24.9 million, while pretax profit rose from NIS 21.5 million to NIS 29.0 million. The gap mainly came from other income and fair-value changes in financial instruments of NIS 2.9 million, together with a NIS 1.2 million share in profits of investees. These are not negative numbers, but they do mean the quarter is not entirely a clean credit-spread story.

The Risk Layer Fell, Overdue Debts Still Need Cash Collection

The most important finding in the quarter is not profit, but the movement inside the credit portfolio. At the end of 2025, the issue was not only impaired debts. It was the large layer of credit with a significant increase in risk. In the first quarter, that layer declined from NIS 88.8 million to NIS 65.1 million. Impaired debts rose modestly, from NIS 51.3 million to NIS 55.5 million, but the two layers combined fell from NIS 140.2 million to NIS 120.5 million.

This is real progress because it answers part of the question left open at the end of 2025: whether deeply overdue debts would remain stuck between collateral, legal process and management judgment, or start moving to a clearer place. Debts more than 180 days overdue that were not classified as impaired also fell from NIS 28.9 million at the end of 2025 to NIS 22.8 million. The progress is that the number fell, not that the risk disappeared.

The nuance sits in two places. Net debts more than 180 days overdue still stood at NIS 67.6 million, almost identical to the parallel quarter and lower than year-end 2025. In addition, within credit that is not overdue, there are about NIS 33.4 million of customers under debt arrangements, agreed repayment deferrals, or funds held by trustees after collateral realization. That is not an entirely normal current-credit layer. It means part of the portfolio looks current for accounting purposes but still requires collection monitoring.

The total provision rate is not a one-directional number either. It rose slightly to 2.0% from 1.9% at the end of 2025, but remains below 2.5% in the parallel quarter. In discounting transactions, the provision rate is 2.9%, while in loans and self-notes backed by tangible collateral it is 0.8%. That gap shows where the company pays for risk: not only in portfolio size, but in the type of credit and the quality of collateral supporting the provision.

The Dividend Relies on Short Funding Lines, Not a Clean Cash Quarter

In a quarter like this, profitability must be separated from all-in cash flexibility after actual cash uses. Net profit looks strong, but operating cash flow was negative NIS 44.0 million. The main reason was not a loss in the core activity. It was a NIS 47.2 million decline in bank credit alongside an NIS 18.2 million increase in customer credit. Then came a NIS 12 million dividend and NIS 9 million bond principal repayment, so cash and cash equivalents fell to NIS 3.0 million.

This is not an immediate distress signal. At quarter-end, the group had NIS 1.75 billion of bank facilities against NIS 1.194 billion actually used, meaning about NIS 556 million remained unused. The post-quarter presentation already shows approved bank facilities of about NIS 1.81 billion after a new Arno facility. Midroog also affirmed the A3.il rating with a stable outlook on May 25, 2026, and the company is compliant with its financial covenants.

But funding headroom is not only the headline facility number. Most bank credit is short-term or on call, and in some facilities the ratio of deferred checks to utilized credit stands at 128.7% against a 120% requirement. That is still compliant, but less spacious than the picture suggested by equity-to-balance ratios alone. That is why continuing distributions matter: after a NIS 12 million dividend paid in March, the company declared a NIS 6 million interim dividend on May 26, 2026. The NIS 10 million buyback plan has not yet been used, which is sensible while cash after all real uses is tighter than accounting profit.

The related-party layer also did not disappear from the quarter. Credit and discounting transactions with companies owned by the controlling shareholder, or transactions in which he may have a personal interest, totaled about NIS 105.9 million, and the company recognized about NIS 2.2 million of income from them in the quarter. In addition, under a credit agreement between a subsidiary and a company in which the controlling shareholder has a personal interest, the credit balance was about NIS 35.8 million and quarterly income was about NIS 0.9 million. This does not change the quarter's conclusion by itself, but it keeps portfolio-quality and governance filtering part of the follow-up.

Arno and Salads Shamir add the proof-year layer. Customer credit in entrepreneurial lending rose to NIS 314.8 million, but segment pretax profit declined to NIS 2.4 million, and the company notes a slowdown in several projects financed by Arno. The new Arno facility with Bank C adds NIS 60 million of sources, but includes covenants and restrictions, and the company guarantees 100% of Arno's obligations to the new bank. At Salads Shamir, the conditional transaction could repay NIS 25 million of credit and leave the company with a 49.99% equity-method holding, but as of publication the closing conditions had not been met. In both cases, value still needs to become cash, repayment or an accessible asset.

Conclusions

The first quarter of S.R. Accord supports a more positive view of the credit core than the end of 2025 did. Profit rose, financing spread improved, and the layer of credit with a significant increase in risk declined in a way that begins to answer one of the key questions from the prior cycle. But the conclusion still requires caution: part of the profit came from non-core credit layers, deeply overdue debts are still material, and cash flow after actual uses shows the company remains dependent on short funding management and real collection.

The market may quickly like the profit increase and continued dividend. What it may miss is that the dividend follows a quarter in which cash fell sharply, and that part of the improvement in credit quality still needs to become collection rather than only better classification. Over the next few quarters, the follow-up should be narrow and concrete: whether debts more than 180 days overdue keep falling, whether the debt-arrangement layer inside non-overdue credit does not grow, whether bank facilities remain accessible without collateral pressure, and whether Arno and Salads Shamir start releasing capital rather than tying it up. If these four points advance together, 2026 will look like a successful proof year. If profit keeps rising while cash, arrears or guarantees remain stretched, the improvement in profit will be less convincing.