Bank Leumi earns NIS 981m in 1st quarter, down 39%, after US bank value writedown

Bank Leumi earned NIS 981 million ($271 million) in the first quarter of the year even after recording a one-time deduction of more than NIS 1 billion in the value of its investment in New Jersey-based Valley National Bancorp (Valley Bank).

Leumi, one of the two largest banks in Israel, said Tuesday that net income in the first three months of the year dropped 39% to NIS 981 million from NIS 1.6 billion during the same quarter last year. Earlier in May, Leumi issued a profit warning after shares in Valley Bank, in which Leumi owns a 14.2% stake, lost 33% of their value this year following the collapse of a string of US banks led by Silicon Valley Bank and Signature Bank, and as analysts downgraded the bank’s stock.

Were it not for the NIS 1.1 billion one-off accounting deduction in the valuation of the US bank stake, Leumi would have earned NIS 2.1 billion in the quarter propelled by growing income from higher interest rates and borrowing costs, the lender said.

Net interest income in the first quarter of 2023 surged 36% to NIS 3.9 billion compared to NIS 2.7 billion in the corresponding quarter last year. Return on equity, a measure of a bank’s profitability, stood at 7.8% in the reported period and at 17% excluding the one-off US bank stake writedown, versus 15.6% in the same quarter last year.

“The increase in the interest income stems from the increase in the bank’s loan portfolio and from differences in the interest rates from one period to another,” Leumi said in the earnings statement.

Leumi continues to benefit from successive interest rate hikes and rising inflation after earning a record NIS 7.7 billion in 2022, the biggest profit among Israel’s largest lenders.

Since hitting a low of 0.1% in April 2022, the Bank of Israel has steadily hiked the benchmark interest rate to 4.75% on Monday to try and cool inflationary pressure. This in turn has allowed banks to raise rates for borrowers and has rapidly fueled the costs of mortgage holders. The average cost of monthly mortgage payments has gone up by more than NIS 1,000 over the past year. Israel’s Bank Hapoalim on Monday reported a net profit of NIS 2.01 billion for the first quarter bolstered by a 49% surge in net interest income year-on-year.

Leumi said it will continue to focus growth on its credit and loan operations. In the first quarter of 2023, Leum’s credit portfolio grew by a total of 4.9% year-on-year. The corporate credit portfolio rose at a rate of 10.4%, the commercial portfolio was up 3.6% and the mortgage portfolio grew 2%.

In addition, Leumi said its board of directors approved a NIS 294 million dividend distribution, representing 30% of first-quarter net income, as well as a share buyback of NIS 800 million.

Over the past year, Leumi inked agreements to sell its two main buildings in Tel Aviv as part of the bank’s plans to move its headquarters to Lod during 2023. As a result of the sale, the lender expects to generate a pre-tax capital gain of about NIS 800 million in late 2023, it said.