Altshuler Shaham Finance in the First Quarter: Credit Is Growing Fast, Funding Remains Short Term

Altshuler Shaham Finance opened 2026 with higher profit, but the main friction has not disappeared: Gemel is shrinking, while credit is growing quickly and still relies mostly on short-term, non-committed bank facilities. Profit attributable to shareholders rose to NIS 28.7 million and operating profit rose to NIS 40.5 million, but Gemel and pension management-fee revenue declined and assets under management contracted faster than the market. At the same time, the credit portfolio reached NIS 453.7 million after growing 28.1% in one quarter, and total bank facilities expanded to NIS 750 million. The more important signal came after the balance-sheet date: the quarterly management-fee covenant threshold at Altshuler Gemel was lowered from NIS 200 million to NIS 175 million, while first-quarter fee revenue itself was only NIS 210.3 million. That gives the company more formal headroom, but it also shows that the new growth still needs both the Gemel base and bank appetite. Alternatives are progressing in assets, but still do not replace Gemel as a recurring profit source. The next quarters need to show a credit portfolio that keeps growing without a jump in delinquencies or high LTV exposure, and Gemel fees stabilizing after the AUM decline.

Gemel still funds the platform, and the covenant explains why

The company already operates in three segments, but in the first quarter only one remained the core profit source. Gemel and pension generated NIS 210.3 million of net management-fee revenue and NIS 47.6 million of segment profit. Credit generated NIS 10.1 million of financing income, but ended with a NIS 1.3 million segment loss. Alternatives generated NIS 6.1 million of revenue and NIS 1.7 million of equity-method profit from associates, but segment profit was only NIS 15 thousand. The prior annual analysis framed this tension, and the first quarter confirms it: Gemel still carries profit, credit is building scale, and alternatives are building assets.

The problem is that the Gemel base itself fell. Provident-fund assets managed by Altshuler Gemel declined from NIS 125.3 billion at the end of 2025 to NIS 114.1 billion at the end of March 2026, down 9.0%. Pension assets fell from NIS 38.5 billion to NIS 36.9 billion, down 4.1%. Over the same period, the Israeli provident-fund market grew 0.9% and the pension market grew 1.94%, so the decline was not only a weak-market effect. The company attributes the decline to client transfers to competitors and negative returns, and notes that assets rose in April after positive returns.

Until the end of the quarter, Altshuler Gemel's bank covenant required at least NIS 200 million of management-fee revenue per quarter. First-quarter revenue was NIS 210.3 million, only NIS 10.3 million, or about 5.2%, above the threshold. After the balance-sheet date, the banks agreed to lower the threshold to NIS 175 million. Altshuler Gemel also met the other covenants, with equity net of capital reserves of NIS 443.6 million versus a NIS 245 million minimum, debt coverage of 1.89 versus a 2.8 ceiling, and debt-service coverage of 2.91 versus a 1.5 minimum. There is no immediate pressure here, but there is an important change: Gemel management fees are not only revenue. They are part of the funding base on which the company is building credit and alternatives.

Credit is running on short facilities

Net customer credit reached NIS 453.7 million at the end of March 2026, compared with NIS 354.1 million at the end of 2025 and NIS 104.4 million in March 2025. Business credit rose to NIS 371.3 million, and construction credit rose to NIS 82.4 million. In one quarter, the construction portfolio grew 69.2%. This is clear business progress, but it requires funding almost alongside the portfolio growth: in quarterly cash flow, customer credit growth consumed NIS 96.9 million, while bank loans used to fund non-bank credit increased by NIS 90.5 million.

After the balance-sheet date, Altshuler Shaham Credit for Businesses signed a non-committed on-call facility with Bank B for NIS 200 million, at prime minus 0.20% to 0.25%. In practice, NIS 100 million is a new facility for the credit subsidiary and NIS 100 million was removed from a facility previously provided to the parent and used to fund the activity. Total facilities reached NIS 750 million, supporting the growth path. Still, the nature of the funding did not change: the facility is non-committed, and the actual loan amount and terms can change at the bank's discretion.

The new facility also adds a control layer. Altshuler Shaham Credit for Businesses committed to minimum tangible equity of NIS 25 million, a tangible equity to tangible balance-sheet ratio of at least 20%, and a credit loss rate not above 2.5%, with temporary room up to 3.5% until June 30, 2026. At the end of March, tangible equity was NIS 376 million, tangible equity to tangible balance sheet was 99.6%, and the credit loss rate was 1.44%. Headroom is wide today. The question is how it looks when the portfolio moves closer to the facilities the company wants to use.

Accounting credit quality did not deteriorate during the quarter, but the risk mix moved. Real estate or equipment-backed credit with LTV above 70% already stands at NIS 200.8 million, about 63% of total real estate or equipment-backed credit. In construction credit, part of the collateral consists of second-ranking liens and the rest consists of project surpluses whose value depends on future scenarios. The issue is therefore not only whether collateral exists, but how quickly it can be realized and what happens if asset values or project cash receipts weaken.

Alternatives and cash flow still do not change the center of gravity

Alternatives are growing, but not yet enough to change the profit center. Assets managed and distributed by Altshuler Real Estate, Altshuler Alternative Investment Funds, and iFunds reached USD 841 million, compared with USD 758 million at the end of 2025. Management-fee revenue from the activity rose to NIS 3.6 million from NIS 2.5 million in the comparable quarter, and total segment revenue rose to NIS 6.1 million. Still, the segment ended with only NIS 15 thousand of profit. That is an improvement from a NIS 1.8 million loss in the comparable quarter, but still far from a recurring profit source that offsets Gemel erosion.

Future performance fees remain a meaningful option, not certain profit. At Altshuler Real Estate, the expected performance-fee range is USD 22 million to USD 36 million, of which USD 8 million has already been recognized and USD 17 million to USD 28 million remains unrecognized. At Altshuler Alternative Investment Funds, the range is USD 4 million to USD 6 million, all still unrecognized. The company cannot estimate when those amounts will be recognized, what the final amount will be, or whether they will be recognized at all. For now, alternatives look better as an asset base than as a stable earnings source for the coming quarters.

Cash flow also sends a mixed message. Operating cash flow was NIS 33.0 million, after NIS 15.6 million used in investing activity and NIS 14.2 million used in financing activity. All-in cash flexibility after actual cash uses during the period amounted to a NIS 3.2 million increase in cash, to NIS 90.7 million. That frame does not include the NIS 17 million dividend declared in March and paid on April 13, or the additional NIS 22 million dividend declared after the balance-sheet date. The second dividend alone equals about 78% of first-quarter net profit. The distribution is not a problem by itself, but in a quarter when credit growth consumes cash and bank funding, it reduces room for error if the company needs to inject more capital into credit or if Gemel management fees keep falling.

Conclusion

The first quarter strengthens the case that the company can build a broader platform around Gemel, but it still does not make the company balanced across three profit engines. Gemel and pension continue to generate most of the profit, while the asset base declined and the bank covenant was adjusted downward. Credit is growing rapidly, but growth is funded mostly through short, non-committed on-call facilities, with rising exposure to real estate and equipment-backed credit above 70% LTV. Alternatives are progressing in assets and distribution channels, but still do not generate recurring profit that offsets the erosion in Gemel management fees.

The current read is that the company received time and funding this quarter to keep building its growth engines, not that those engines already stand on their own. A better read over the next two to four quarters would require stabilization in Gemel assets, credit growth without rising delinquencies, and an improvement in alternative-investment segment profit that is not driven mainly by revaluations and possible future performance fees. A weaker read would come from continued Gemel outflows, a jump in problematic credit, or more growth that has to be converted into short bank funding instead of more stable sources. This is therefore not only a story of higher quarterly profit. It is a story of a company that can obtain funding and grow, but still needs to prove that the growth is not being bought at the expense of balance-sheet quality and cash flexibility.