Export in the First Quarter: Credit Portfolio Sales Lift Profit, the Upstream Dividend Stays Measured

Export received better evidence in the first quarter that value at the bank can move up to the holding-company layer, and that evidence comes through profit that needs careful unpacking. Bank Jerusalem increased attributable net profit to NIS 51.3 million and delivered a 12.8% return on equity, while the parent company reported net profit of NIS 49.1 million. The main source of improvement was a credit portfolio sale that added NIS 37.5 million before tax, while net interest income fell and the interest spread narrowed. Cash access is the stronger part of the quarter: the parent received NIS 28.9 million from the bank, ended the quarter with NIS 144.8 million of cash, deposits and short-term investments, and reduced net financial debt to NIS 62.8 million. The shareholder dividend remained much more measured, at NIS 9 million approved in March and paid in April. The quarter therefore closes part of the checkpoint raised in the annual analysis: it shows that cash can move from the bank to the parent, and it leaves profit quality and the pace of shareholder distributions dependent on credit portfolio sales, credit quality and board discretion.

The Dividend Moved Up, the Shareholder Payout Stayed Smaller

The company is a holding company whose economics are driven almost entirely by its roughly 86.3% stake in the bank, so consolidated profit is not enough to read the quarter. A bank can report higher earnings while most of the value remains inside its regulated capital base. Shareholders at the parent receive cash only when the bank dividend moves up at a pace that covers parent debt service and distributions. In the first quarter, that happened only partly: the bank approved a NIS 33.48 million dividend in March, the parent's share was NIS 28.9 million, and later that month the parent approved a NIS 9 million dividend to shareholders, paid in April.

This is real progress against the question left open at the end of 2025. The parent company does not look near-term liquidity constrained. Covenant room is wide: the ratio between its share of the bank's equity and its financial debt was 21.29, compared with a 2.5 minimum, and financial debt to equity was 4.8%, compared with a 50% ceiling. The debt structure is also more comfortable after the Series B bond issue at a fixed 5.03% rate, with principal payments starting only at the end of 2027 and most of the principal due in 2031.

A holding company that owns a regulated banking asset should retain liquidity, and parent-level debt still needs to be serviced. The quarter proves cash access and shows that access is still governed by distribution policy. As long as only about one third of the bank dividend received by the parent is passed to shareholders, shareholder value depends not only on bank profitability but also on the parent company's willingness to release cash.

Bank Profit Came More From Credit Portfolio Sales Than From the Interest Spread

The bank's top-line earnings metrics look strong: attributable net profit of NIS 51.3 million, up 12% year over year, and a 12.8% return on equity. The source breakdown changes how much weight to place on that improvement. Net interest income fell to NIS 162.1 million from NIS 171.2 million, and the total interest spread fell to 2.51% from 2.79%. Pricing and spread pressure more than offset the benefit of credit-volume growth.

The support came from non-interest income. Non-interest financing income rose to NIS 33.8 million, mainly because of NIS 37.5 million of income from credit portfolio sales, compared with NIS 12.6 million in the parallel quarter. Fees also rose, mainly from prepaid cards and securities activity. This quarter's profit improved through a transaction and higher fee volume, not through the interest spread, deposits and ordinary credit activity.

The segment breakdown sharpens the same point. The household segment posted a NIS 2.1 million loss, while financial management contributed NIS 33.0 million. This is not only a classic mortgage weakness story. Income from mortgage portfolio sales, securitization and syndication is recorded in financial management, while mortgage origination costs are recorded in the household segment. That creates a gap between the place where the bank bears part of the cost and the place where it recognizes the gain from selling the portfolio.

There is also an accounting-quality point inside credit loss expenses. Purchased credit portfolios came with about NIS 5 million of allowance that was added to purchase cost instead of flowing through credit loss expense in the quarter. The profit is real, and that detail makes the split between ordinary banking earnings and credit portfolio management, purchases and sales more important.

Capital Release Is Getting Close to the Bank's Approved Limits

Credit portfolio sales are not a one-off event detached from the bank's strategy. In February 2026, the bank sold 90% of the rights and obligations in a roughly NIS 680 million mortgage portfolio through a private securitization, retained 10%, and continued servicing the buyer's portion for management fees. In addition, the syndication agreement signed in 2024 allows the bank to originate mortgages together with institutional investors, with the bank retaining 10% and the institutional group taking 90%.

The benefit is clear: the bank can convert credit volume into cash, income and servicing fees without holding all of the risk and all of the capital requirement on balance sheet. That helps explain why the common equity Tier 1 ratio rose to 11.0% and the average liquidity coverage ratio remained high at 183%. It also explains why first-quarter profit looked strong despite the decline in net interest income.

The part that is less visible in the headline profit is the repeatability limit. The bank received approval for mortgage portfolio sales of up to 25% of the managed mortgage portfolio, and up to 35% when syndication is included. At quarter-end, sold mortgage portfolios already represented about 24%, and about 33% including syndication. The tool remains active, but the approved headroom is no longer wide.

The quality of the portfolio that remains on the bank's balance sheet is also different from the portfolio that was sold. In the sold mortgage portfolio, 87.3% of credit has a loan-to-value ratio of up to 60%. In the mortgage portfolio retained on the balance sheet, the comparable figure is 62.6%. This stems from buyer restrictions on purchasing higher-LTV loans, and it does not mean the retained portfolio is impaired. It does mean that portfolio sales improve capital and earnings while leaving the bank with a mortgage book whose average LTV is higher than the sold portion.

One external signal supports the bank's ability to keep operating within this framework: in May 2026, S&P Maalot affirmed the bank's issuer rating at ilAA- with a stable outlook, citing resilience and strong operating performance. In addition, the Competition Authority's banking concentration decision and new deposit rules apply to the five largest banking groups, not to the bank. These are positives. The quantitative cap on mortgage portfolio sales and the need to show profit that does not require a new transaction every quarter remain open.

Credit Quality Will Decide How Much Dividend Can Move Up

The other side of credit portfolio sales is the quality of the credit that remains on the balance sheet. The ratio of nonaccrual loans or loans 90 days or more past due rose to 2.04%, from 1.89% at year-end 2025 and 1.49% a year earlier. Nonaccrual credit rose to NIS 311.6 million, mainly in mortgages and commercial credit. The credit loss expense rate remained relatively low at 0.31%, and allowance coverage of nonaccrual or 90-day-past-due credit fell to 67% from 70% at year-end 2025.

This is not a quarter showing sharp deterioration. The bank still has comfortable capital and liquidity ratios, the net charge-off rate declined versus 2025, and in consumer credit the problematic credit ratio fell to 1.6%. In construction finance, only about 1.7% of project exposures are in projects with absorption capacity below 30%.

The implication for the parent is direct. The first quarter improved parent liquidity and reduced net debt, and it still does not prove a full change in the bank's earnings quality. The next two quarters need to show whether bank dividends keep moving up, whether credit portfolio sales continue without consuming the approved headroom, and whether nonaccrual or deeply past-due credit stabilizes. That combination would make the first quarter look like the start of a move from accounting value to more accessible shareholder value. Profit that keeps depending on credit portfolio transactions while problematic credit rises would leave a more liquid parent company, with less clear recurring cash returns to shareholders.