Bank Leumi Le-Israel B.M.

Ladies and gentlemen, thank you for joining Bank Leumi's Fourth Quarter and Full Year 2025 Financial Results Webcast. Joining me today are Leumi's CEO, Mr.

Hanan Friedman; and Leumi's CFO, Ms. Hagit Argov.

Following their remarks, we will open the session for a Q&A. Hanan, please go ahead.

The floor is yours.

Thank you, [indiscernible]. Good afternoon, and thank you for joining Leumi's annual results conference call.

Before turning to our strategy and reviewing our 2025 financial results, let me briefly address the current situation in our region. 5 days ago, the United States and Israel initiated a coordinated military operation against Iran.

Bank Leumi entered this war from a position of strength, with a solid capital buffers and high liquidity. The bank continues to operate almost as usual, supported by robust business continuity plans and disciplined risk management.

At this stage, we do not see any material impact on the bank's financial position. We continue to closely monitor developments and ready to deal with any request of our customers.

Now allow me to turn to our strategy and the key drivers of our 2025 performance and our plans for 2026 and ahead. For many years, the prevailing belief in the banking sector was that growth strategy requires a continuous expansion of the workforce, great risk taking and inevitable raising credit losses.

We at Leumi fundamentally challenged this paradigm. Over the past few years, we have redefined what disciplined growth means, leveraging technology enabled us to execute sustainable and healthy growth.

We did this while keeping strict risk management and did much more with fewer resources, even much fewer resources. We also got much better results in all aspects, credit portfolio quality, efficiency and customer satisfaction.

We are accelerating our strategy by leveraging innovative AI tools that have the potential to reshape our cost structure and our business and technology capabilities. We view AI not as a temporary efficiency tool, but as a long-term strategic asset.

We have benefited from the rapid journey we held over the last years to the cloud and from the transformation of many of our technology platforms. To ensure execution and fast execution, we established a dedicated AI center last year.

Looking ahead, we are focused on the transition towards agentic AI systems that are capable to ensure proactive real-time execution rather than just the data analysis. This shift is aimed at providing hyper-personalized products and the proactive real-time service model.

It will accelerate the service shift the bank has led in recent years. Furthermore, we'll integrate AI tools into high-impact core functions, including underwriting, credit portfolio management, product management and customer journeys, and probably with even more powerful impact to rapid and effective software development with much less resources and much shorter time to market, and with, of course, much greater product innovation.

Leumi holds several structural advantage in this field. First, our AI leadership report directly to me, ensuring that the development is a top-down strategic priority.

Second, our advanced cloud and data architecture provide the necessary foundation for scaling these tools efficiently. Finally, our access to Israeli premier technology talent is a critical advantage in our ability to execute and to execute fast.

We intend to lead this transformation and not to follow, just as we have led the digital evolution of the Israeli banking system in recent years. Our financial results for 2025 validates this approach once again.

Despite the significant challenges Israel has faced over the past year, we delivered record profits, the highest in our history. This performance reflects the strength of a strategy built on structural efficiency, technological transformation and effective risk management.

I am proud to share that we met and in several areas even exceeded the ambitious strategic targets we set and published a year ago. Our net profit reached to ILS 10.3 billion within the ILS 9 billion to ILS 11 billion range we defined.

ROE was 15.8%, fully aligned with our 15% to 16% target that we published a year ago. In addition, we achieved a responsible credit growth of 14%, above our 8% to 10% target, leveraging opportunities we picked during the year.

More importantly, this accelerated growth was achieved while further strengthening our credit quality. Our NPL, the nonperforming loans, ratio declined to 0.4%, positioning us at a strong level by international standards.

In other words, we are expanding above market pace while becoming structurally more resilient. Today, we also announced a ILS 1.7 billion payout, mostly cash and partially buyback in respect of fourth quarter earnings.

The total payout for 2025 summed to ILS 5.9 billion, almost ILS 6 billion. This brings full year capital return of 58% of net income fully [ consistent ] with our strategic capital framework that was above 15% payout.

Dividend yields reached 6.5% in 2025. Our efficiency ratio improved further to 29.3%, placing us among the most efficient banks globally.

This is the direct results of our multiyear technological transformation and our clear strategy to do much more with fewer resources. And as I mentioned, even with much fewer resources.

Our AI center will enable us to accelerate this transformation over the coming years and to do even better. The consistent execution of our strategy and the strength of our results are reflected in continued investor confidence.

Several months ago, we became the first Israeli company traded on Tel Aviv Stock Exchange to surplus a market cap of ILS 100 billion. Earlier this year, we also became the first Israeli bank to issue covered bonds in the European market, raising EUR 750 million.

These bonds were rated above Israel's sovereign credit rating and were priced at a lower interest rate, reflecting sustained confidence in the bank among international investors, many of them are first time investing in Bank Leumi and in Israel. This transaction further diversified our funding base and strengthened our access to global capital markets.

Looking forward to 2026, Bank of Israel recently revised its growth focus to the Israel economy upward to 5.2%. As Israel's leading bank, we expect to play a meaningful role in supporting this economic expansion and to be benefited from that.

Today, alongside our financial results, we also released our updated financial targets for 2026 and now for 2027 as well, including raising of our net profit forecast to ILS 10 billion to ILS 12 billion per year. Accordingly, we have adjusted our ROE targets for 2026 and for 2027 to 14.5% to 16%, in line with our capital surplus.

Despite the expectation of declining interest rates and diminishing inflation, we are confident in our ability to maintain high profitability. The positive macro environment, combined with our ongoing integration of advanced AI and technology provides a strong foundation for continued acceleration growth and value creation for our shareholders.

Our targets are to a capital return of 50% to 65% on an annual basis and annual credit growth of 8% to 10%. A meaningful portion of credit expansion will come from infrastructure financing, project finance, an important segment supported by a visible and growing multiyear pipeline.

At Bank Leumi, we have identified this sector as a strategic growth engine. Accordingly, we have allocated the necessary resources and intend to continue leading the financing in this field.

In addition, we'll continue to focus our growth on strategic segments such as real estate, retail mortgages and retail banking. And I want to comment as we have proved in the past, growth will not come at the expense of returns or credit quality.

We'll do both of them. Discipline remains the foundation of our business model.

I would like to take this opportunity and thank our Board members, my colleagues in the management team of Bank Leumi, our dedicated employees, our customers and, of course, you, our investors, for your continued trust and support. I will now ask Ms.

Hagit Argov, our CFO, to walk us through the financial results in more details. Please, Hagit.

Thank you, Hanan. And as you mentioned, we are living in a very challenging and dynamic times.

Good day, everyone. I'm very pleased to be here with you today and to present our strong results for the fourth quarter and an excellent full year 2025.

Before we dive into the numbers, I'd like to share a few words on the macroeconomic environment, which relates mainly to 2025 and our last forecast for 2026, which was made before the outbreak of the present conflict. As Hanan mentioned, we are continuing to monitor the situation closely.

For this, let's move to the next slide, which highlights the very positive key macro indicators. Economic activity continued to expand in Q4 2025.

Throughout 2025, Israel's market-based risk indicators improved all across the board. This includes a decline of Israel's CDS spread, Israel's yield differentials, the strengthening of the shekel and strong performance of the Tel Aviv Stock Exchange.

The labor market remains tight with the 2025 unemployment rate at 2.9%, a historically low level. Inflation stabilized in 2025 at 2.6% year-over-year and declined to 1.8% in January 2026 in annual terms.

It is expected to remain within the Bank of Israel price stability target range of 1% to 3% throughout 2026. In January this year, the Bank of Israel updated its estimation on the real GDP growth to 5.2% for 2026 in light of the continued economic recovery in the last 2 quarters of 2025.

Regarding the latest events with Iran in the macro environment, as Hanan mentioned, this event will have both short-term and long-term economic impacts. We are monitoring them closely and remain optimistic.

Moving on to the next slide, which provides our financial highlights for the especially strong full year and first quarter results. First, as mentioned earlier by Hanan, we successfully achieved the targets we set at the beginning of the year and exceeded our annual net loan growth target.

Net income for 2025 was ILS 10.3 billion, an all-time high performance for the bank. ROE was 15.8%.

Our excess capital remains high, amounting to ILS 10 billion. I must point out that if the excess capital were reduced to the bank's internal CET1 target, the ROE for 2025 would have been 17.9%.

Driven by effective cost management and our advanced digital technology and AI, our cost-to-income ratio was 29.3%. It continues to lead the Israeli banking sector and is among the best globally.

Net loans grew nicely and were up 14.1% in 2025, exceeding the annual target as mentioned earlier. This was supported by continued demand mainly from the corporate sector including infrastructure and real estate as well as mortgages, commercial and capital market segment.

At the same time, it is important to note that we continue to improve our credit quality metrics and they have been consistently among the best in the sector for several years. Credit loss expenses ratio was 0.09%, reflecting the positive development in the geopolitical and macro environment and the improvement of our credit quality metrics.

The book value per share increased impressively by 12% year-over-year to almost ILS 46. Looking at the fourth quarter on the right, net income was ILS 2.55 billion.

ROE was 15.1% and when normalized to our CET1 internal target, the ROE would stand at 16.8%. The credit portfolio increased by 5% over the previous quarter mainly driven by continued demand from the corporate real estate and capital market segment.

Now let me elaborate on breakdown of income and expenses for the full year. Net interest income increased by 2.1% year-over-year, supported by higher volumes.

This was partly offset by lower CPI effects. Noninterest income was down mainly due to lower income from derivatives that age our securities portfolio.

As a reminder, for accounting reasons, the cost of the derivatives is recorded in the P&L while the gains in the bank securities portfolio are recorded directly in the equity account. Overall, finance income was up 0.9% year-over-year.

Fees grew strongly by 6.8%, excluding customer benefits provided under the Bank of Israel program launched in April 2025, fee income increased 10.7% year-over-year. Expenses declined mainly due to a decrease in salary cost of 7.4%.

This was partly offset by higher expenses related to capital market activity due to higher volumes. As a result of the above, profit after tax, bottom right, increased year-over-year by 5%.

A brief view of the next slide that summarizes our results for the quarter. Net interest income in the fourth quarter was similar to the same period last year.

The impact of lower CPI was offset by strong growth in both loans and deposits. Noninterest income decreased due to a lower income from derivative year-over-year, while the gains of the portfolio were recorded directly to equity, as I mentioned before.

Fees increased by 7.8% year-over-year and excluding benefit to customer by 9.7%, mainly driven by financial transactions and securities fees. Salary costs were down 5.7%, and overall expenses decreased by 0.8% compared with Q4 2024.

Profit after tax increased by 5.5% year-over-year. Moving to the quarterly development of net interest income and NIM.

In the first quarter, net interest income and NIM were affected by a negative CPI as well as by reductions in the Bank of Israel and the Fed interest rates. Excluding CPI impact, NIM improved over the previous quarter.

This was driven by lower costs of deposits due to the favorable mix. Now let's turn to another key metric, highlighting our fee and commission income.

Fees were up 6.8% for the full year in 2025 and excluding benefits to customers, were up 10.7%. In the fourth quarter, fees were up 7.8% compared with Q4 2024, and excluding benefits to customer, were up 9.7%.

This was mainly due to higher financial and securities transactions. Turning to the next slide, where we clearly see the bank's continuing improvement in our excellent multiyear cost-income ratio.

In 2025, once again, we proudly delivered among the strongest cost-income ratios in the sector of 29.3%. It was driven by an ongoing cost control, reflecting the impact of our sustained multiyear investment in technology.

Turning to the development of credit loss provisions. For the past 8 quarters, we have recorded an income from specific provisions, which reflects our high-quality credit portfolio.

Collective provisions reflect an improvement in the macro environment and in our credit quality indicators. Overall, on an annual basis, total loan loss expenses were 0.09% of gross loans compared with 0.16% in the previous year, while maintaining our strong coverage ratio.

Next slide presents the high quality of our credit portfolio. Despite strong credit growth, asset quality improved further, nonperforming loans declined to 0.4% and troubled debts decreased to 1.24% of gross loans.

We maintained a strong coverage ratio, while the bank's provisions for bad debts covers NPLs by 3.2x. These parameters remain the strongest in the banking sector.

Now we turn to our strong credit growth. In 2025, net loans increased by 14.1%, outperforming our strategic annual target.

Main growth engines this year were the corporate sector, consisting mainly of infrastructure, real estate and commercial credit, along with capital market and mortgages. In Q4, the credit grew by 5% with growth coming from corporate, including real estate and capital markets.

The next slide shows the bank's diversified deposit base. Total deposits were up 11.1% in 2025, while deposits from private individuals grew by 0.5%.

Liquidity ratios remained robust with the liquidity coverage ratio at 127%, well above the regulatory requirement of 100%. We also maintained a healthy loan-to-deposit ratio of 75.7%.

Let's now move on to our strong capital and leverage ratios. The core Tier 1 ratio was 12.05% compared with 12.33% in the previous quarter mainly due to higher activity.

The bank's capital buffer now stands at ILS 10 billion. The total capital ratio was at 14.08%, above the bank minimum requirement of 13.5% after making an early redemption of Tier 2 subordinated notes in U.S.

dollar. Turning to the next slide.

We see the bank's capital return. For the fourth quarter, Leumi declared a total payout of ILS 1.7 billion, of which ILS 1.3 billion is a cash dividend and the rest in buyback.

This represents 65% of the quarterly net profit. The total capital return for the full year of 2025 was ILS 5.9 billion, reflecting 58% of the annual net profit and a dividend yield of 6.5% based on the average share price.

Furthermore, the Board approved an updated dividend policy of the bank, according to which the total payout ratio would be between 50% and 65% of the quarterly net profit, while up to 50% of the profit is a cash dividend. In conclusion, let me just summarize our presentation.

The bank continues to present consistent and strong financial performance with high ROE. We are very proud to state that our digital transformation powered by advanced AI capabilities continues to drive structural efficiency gains.

In fact, above 90% of all our customer transactions are carried out through digital platforms. Our best cost-to-income ratio is a direct outcome of our advanced technology and AI, along with our strict discipline on costs, and is the leading cost-to-income ratio among Israeli banks and probably among the most efficiency globally.

The bank's strong profitability and healthy capital buffer enable us to continue growing in our target segment, and also allow us to share higher returns with shareholders through dividends and our buyback program. Let me conclude with one final point.

We are more than sure that going forward, we will continue achieving our targets and leading the AI transformation in the banking sector. With that, I will now open the call for questions.

Operator?

[indiscernible] From Barclays.

Hardly hear you.

I was wondering if you could talk a little bit about what's driving your confidence around the strong loan growth targets?

All right. Thank you, Chris, for the question.

The main factor is, of course, our ability to continue our growth strategy and our growth with keeping the right margins, the right ROE and, of course, the right limited risk appetite that we have. In the coming years, as I mentioned in my notes, in our pipeline, we have many infrastructure projects that we are financing largely and maybe an even huge project finance.

So we know well what we have in our pipeline for the coming years. And on top of it, as we know, and we have deep knowledge of the Israel economy, in the coming years, there will be huge investments in the infrastructure in Israel, power stations, data centers, destination centers, and of course, the largest is a huge transportation projects and the largest ever is the metro of the Tel Aviv area, we have the confidence that we will be able to increase our loan book even greater [ even than ] the growth of the Israeli GDP.

It's also worth to mention that the 5.2% forecast of Bank of Israel is in real terms. If you add to that the expected inflation, so it's a -- at least 2% above it.

And we are aiming to grow even greater, mainly from the segments that I mentioned, the infrastructure is -- maybe is the largest opportunity, but we have many others like real estate for residential projects and mortgages.

That's great color. On expenses, you touched on the benefits from AI, given the potential advantages, could we then potentially see year-on-year declines in expenses?

So firstly, we declined our expenses this year. Despite all the challenges that we have and the -- to run the bank with all the challenges that we experienced, cost money.

And even though we decreased our expenses, I want also to mention that in our long-term plans, we aim to close our operational division by mid-2027 since we successfully already implemented some AI projects, and we finished it on time. We decided to close this division.

It was a quite a large division of the bank at the end of 2025. So the impact of that will be mainly in the coming years.

Now the AI for us, as Hagit and I mentioned, it's not just for cost saving. It's mostly on top of the cost saving for having better business advantage among the competition and on top of it to be much more efficient in our technology investments.

We already experienced in a few cases, not -- yet not many, but enough to get the confidence that with AI tools we could launch new technology projects and renovate our platforms much faster than in the past. Projects that were planned for a year, we finished -- 2 projects that we have planned for over a year, we finished within a matter of a month.

And this is just the beginning. I strongly believe that we could do much better in our technology investments to reduce the expenses in one end and to have much more outcome in the other end.

This is David Taranto with Bank of America. I have 4 questions, please.

The first 1 is on net interest margin. Core NIM, excluding the CPI improved in this quarter.

Could you please elaborate a bit on the key drivers here. During the presentation, you mentioned the positive dynamics on the deposit side, but what exactly drove the better loan spreads in this quarter?

Was it a mix or repricing or any other thing? What I'm trying to understand is which of the drivers were structural rather than timing related?

So regarding the NIM in the fourth quarter, as I mentioned in my presentation, it was the mix of the deposits. As Hanan mentioned, we issued the covered bond and we improved our deposits.

It's also the interest rate, the decrease in the fourth quarter. And the additional driver is our growth in credit that gives us a higher margin than other assets in the balance sheet.

Okay. That's clear.

Second question is also on NIM. For 2026, should we assume relatively stronger NIM in the first half and somewhat softer in the second half as rates fall, of deposit competition and loan repricing shape the quarterly path for this year?

Okay. So going forward, we believe that at least we can maintain our NIM in the same level and even improve them, thanks to the decrease in the deposit cost.

And also, we believe that as Bank of Israel is the limits of the dividend payout, the capital access will be lower. So I think that we can even improve the margins in the market.

And maybe one additional comment. In the last year, we onboard much more new customers than we onboard in previous years.

It's a matter of timing until we receive their deposits and their current account, which is also is the best passive tool that we could receive from them. And we are aiming to continue with this process.

We invested a lot in order to become the bank with the highest customer satisfaction. According to Bank of Israel survey that was published 3 weeks ago, we became the #1 in customer satisfaction among the large banks in Israel.

And we are aiming to collect the fruits of these investments. We already collect some of the fruits, but we are aiming to collect much more fruits.

And I mean, mostly to have much more deposits and the balances in the current account from these customers. So this is the additional component.

It's a matter of timing. Alongside with the topics that Hagit mentioned and alongside other initiatives that we are going to launch in order to win the competition in the deposit segment -- deposits segments.

And the third question is on the macro expectations. Your '26, '27 guidance assumes an average policy rate of 3.2% to 3.7% according to the presentation.

Does that imply a trough around 3% end of this year and pull back towards 3% to 4% levels by the end of next year? If not, what year-end rates are you assuming in your guidance, please?

We include all these assumptions in our targets, and we think that we took into account all the assumptions that you just mentioned. And we monitor it closely in 2026 and 2027.

So it include those parameters.

We detailed in the notes to the presentation and in our financials, all the assumptions that we took in our calculation. It's there, so you could review it easily.

And if you have any further questions regarding that, of course, we could elaborate.

All right. And last question is on asset quality.

With coverage ratio still well above historical norms and credit quality holding firm. Is there a realistic scope for provision reversals over the coming quarters?

And would such reversals require explicit regulatory approval? Or is it up to the management decision?

About the provisions, we still have a large buffers in our collective provision due to the war that we had in -- during the last 2 years. It really depends what happened for going forward.

No, we don't see any significant impact that we need to increase these provisions, but we will monitor it. The regulator, I believe, will not [ intervening ], if it will not be something significant to [indiscernible].

But it really depends what happens.

Can you hear me okay?

Yes.

This is Can Benning from Citi. Just a couple of questions.

First one is on the large excess capital amount. I'm just wondering, obviously, it's ILS 10 billion and I know you have a normalized ROE ratio on your presentation, but I'm just wondering what you're going to do with this large excess capital amount.

Is that included in the 50% to 65% distribution target that you've given? Or is there going to be an extraordinary dividend perhaps in the next year?

So thank you for the question. It's an important question.

So first of all, when we announced the new dividend policy of 50% to 65%. It will -- it was also -- it was partially based on the fact that we have the ILS 10 billion surplus.

But assuming we will continue to produce around 15% and above that percent ROE and distribute, let's say, a bit above the half of it. It supports a growth of greater than 10% because 30% of our loan book is mortgages with much lower RWA.

And therefore, we expect that the ILS 10 billion will still be a large buffer that we'll have on one hand, adverse effect on our ROE. But in the other way, give us the confidence that we will be able to pick opportunities along the way.

Now we -- of course, we will have to deal with that, but we have to pick the right time and approach Bank of Israel with the relevant request to release this large amount. But in the meantime, I think in the meantime in the current macro environment that could create very, very nice opportunities for us.

I think it's a bit too early. Maybe along the year, we will find the right time to deal with -- that way with Bank of Israel and get and receive their approval to distribute at least the majority of it.

And then the second question is on credit growth. So you've obviously got similar targets to the previous year.

I'm just wondering, is there any specific areas of credit growth if you're looking at in particular? So for instance, in the last year, you've had strong credit growth in the corporate segment.

I'm wondering if that's an area you're targeting again? Or are you looking at mortgages or retail loans?

So I think that the largest opportunity and the largest credit growth potential will come from the project finance. As I mentioned in our -- my notes earlier, we established dedicated, very experienced team that deal with this very complicated deals.

And the fact that the deals are a bit complicated with -- we need to have a deep understanding of the Israeli regulation and the mechanism of the market and the governmental requirements, it gives us an advantage because as you see in the -- all of the large project finance deals that were launched in the last 5 years, I think, none of the international banks act as the leader of the syndication. In the last year, the vast majority of the cases, we were the leader of the syndication.

And of course, it gives us a quite large opportunity to continue with our rapid growth and the risk here is quite remote because at the end of the day, most of the projects are based by governmental guarantee or governmental minimum request, minimum demand on the day that the project will be launched. And therefore, the risk is quite remote, and we have the experience and the capabilities how to underwrite it well and how to run the portfolio well.

So this is one major segment. The other, I believe, will continue to be the retail mortgages, the residential projects, the real estate residential projects that continue to be quite a nice component of our loan book, and I remind you that our credit portfolio in this segment is very, very good.

The absorption -- we have no projects with absorption rate of less than 25%. And the majority, 56% of the of the projects are above 50%, which gives you some very strong color regarding how we manage the risk.

And I think that the results speak for themselves, the NPL in the real estate is very low, far lower than the competition. So this will be the main focus growing segments for us for the coming years.

And then my final question is actually on fees. So I noticed that you had sort of a fee growth year-on-year of about 6.8% to 7%.

And I think in a lower rate environment with lower CPI, that actually could be quite beneficial. I'm just wondering what sort of you think the run rate of fees is going forward.

So is it going to be around the same number, 7% year-on-year or higher or lower than that?

So maybe I will start, and Hagit will elaborate. The main driver for the fees increase derived from the capital markets activity mainly with institutional investors and the foreign banks that became -- become more and more active in the Israeli capital markets.

So of course, we have benefited from that. And the Israeli institutional investors AUM is increasing dramatically every year about ILS 70 billion.

It's -- the majority of the increase in these fees are not from the retail. But we also do quite a good job in the retail segment.

The other main component of the fees increase is from our credit business. When we are leading syndication and other stuff, of course, we collect fees.

And since the transactions that we are leaving are becoming greater and greater, we have benefited from that in the bottom line of our fiscal action.

This is the main drivers for the fees, and we believe that it will be at least in the same level and even greater in the next years.

Can you hear me the time around?

Yes.

Yes. Yes.

Go ahead, David.

Okay. Good.

I had a quick question on NIM. In the fourth quarter, as you show on Slide 13, interestingly enough, the excluding CPI was higher than the reported NIM as opposed to how it is over the -- most quarters.

Can you explain exactly what happened there, I guess, on the liability side or maybe on the asset side that made that happen?

Yes. So as I mentioned in my presentation, thank you for the question.

The NIM affected -- excluding the CPI from the mix of our deposit that were better in the fourth quarter. Thanks to the mix of the deposits and also the decrease in the interest rate and also from the significant growth in our credit portfolio.

It's both from the liability side and from the...

From the both side.

Okay. So if we're talking about -- let's talk about deposits for a second.

And on that side of the balance sheet, I see that the noninterest-bearing -- sorry, on the -- sorry, noninterest-bearing deposits are currently at around 28% of your total deposit base. Given that the interest rates have been relatively high over the last 1 year, 1.5 years as opposed to where we were at 0 interest rates a couple of years ago, I would have expected that number to be lower as a percentage of your base.

And I think as we're heading now into potentially another lower interest rate environment, how do you see that playing out? Do you see people moving deposits out of the bank, looking for other areas of investing rather than deposit base?

Because that -- again, it doesn't seem that either the growth of deposits or the percentage of deposits that are being put in interest-bearing is actually quite that high.

So thank you for that question. It's a very important point.

So from past experience and also from the experience of the last period and also from what we seen from other banks in the state that already published figures regarding that, when the interest rates decrease, the balances in the current accounts increase. So the nonbearing interest deposits become a greater percentage of our total loan -- our total deposit portfolio.

So you're right, when the interest rate was quite high, it shrink to about 20%, but the expectation from a past experience is that now it would increase step by step.

Okay. And then if we're talking about noninterest bearing, I'll move over to the asset side for a second.

And I see you also had about 9% growth in noninterest-bearing assets year-on-year. Where is that growth coming from?

Which growth?

Noninterest-bearing assets. We can talk -- we can take it off-line if we can -- it should be in the Appendix 1 in the back.

Anyway, we can get back to it. I can -- we can discuss it offline.

My other question, just really more housekeeping question has to do with your normalized ROE of 17.9%, which you said -- which in the notes you write here is based on the bank's internal CET1 target. Is that a target that you published or discussed so that we can kind of think more broadly about generally, the -- what I like to call capital inefficiency that we see in Israeli banks.

It's the internal targets, which consists of the regulatory requirements plus the internal buffers that we decided to add to the regulatory requirements. We are -- we have a conservative approach.

So in this matter, we also prefer to be conservative and to have a quite large buffer.

Okay. So just if I'm understanding correctly, though, you talked about a normalized ROE which takes into account the bank's internal CET1 target and that ROE is higher than the reported ROE.

Yes.

Yes.

So I'm missing what -- where that delta is coming from? It's in -- are you at your internal target?

Or are you even above your internal target because you're being conservative, I guess, is the question?

No, it's above our -- the ILS 10 billion, it's above our internal buffers. The fact that it's still there, it's because we are not allowed to distribute it as a onetime large dividend.

We are -- during the war, we were kept to 40% of the quarterly net income. And now we got the permission last quarter to 75%.

Now we got the permission to 65%. And we are aiming to continue with this journey.

But as I mentioned, the surplus above our capital requirements plus the internal buffer is expected to remain as long as we will not make a onetime large dividend.

Can you give -- it's Mike Mayo with Wells Fargo Securities. Can you give an update on your thinking about AI and the impact on head count and there's certainly a big debate about the ability of AI to free up the no joy job or the no joy part of jobs.

So thank you for that question. We already have quite a very good experience in AI that replace people, mainly in the back office, but now also in the front office.

As I mentioned, we closed our operational division. And we took the decision about 1.5 years before the initial plan because we realized that with the power of AI that we already implemented part of the initiatives and replaced many people.

We will be able to to continue with this journey even in a more effective way. And as I said, we have quite good examples.

We have subdivisions or departments that we entirely closed. We keep it to just 1 or 2 people just to run controls.

And the AI replaced dozens of people that run this back-office job for many years. So in -- from our experience and our perspective looking forward, we will be able to leverage AI cost saving and for doing much better in our business segments.

And you and the country are going through very strong times, how is your cybersecurity performing relative to your expectations?

So the cybersecurity, the CSO and this team are involved in each and every project from beginning and the way that we build the platforms and we build the capabilities are -- it's totally monitored and designed together with our cybersecurity people.

Valentina, we cannot hear you.