Towards a historic merger in the banking sector? Numbers from the Mercantile reports

Mercantile Bank, owned by Discount Bank and managed by CEO Barak Nardi, published its second-quarter 2026 reports, a few days before Discount itself, which will report later this week.

The bank recorded a net profit of 205 million shekels for the quarter, compared to 230 million in the same quarter last year — a decrease of about 10.9%. For the entire half-year, the profit amounted to 384 million shekels compared to 436 million, a decrease of 11.9%.

Net interest income for the half-year fell to 1.052 billion shekels compared to 1.11 billion last year, a decrease of 5.2% that reflects the falling interest rate environment — the Bank of Israel lowered the interest rate to 3.5%, which reduces the financial margin of the banks.

Return on equity, the central indicator for bank profitability, eroded to 12.8% for the half-year compared to 14.9% last year. However, the business itself is growing: public deposits rose by about 12% to 60.9 billion shekels, and credit to the public rose by about 9.5% to 55.2 billion shekels.

Parallel to the reports, the board of directors approved an additional dividend of 102.5 million shekels, representing 50% of the second-quarter profits, subject to the approval of the general meeting. However, this is only one link in the chain: during the half-year, Mercantile distributed dividends totaling 809 million shekels, including two special distributions of 300 million shekels each.

The result — equity decreased by 6.6%, from 6.063 billion shekels at the end of 2025 to 5.663 billion, despite the profit recorded. The Tier 1 capital ratio stands at 11.5%, while if the last dividend had already been deducted, it would have dropped to 11.34%.

As part of the "Mercantile 2030" strategic plan, the board of directors approved in December 2025 an early retirement plan for up to 170 employees. As of the end of June, 105 employees had signed for retirement, of whom 55 had already retired. It is important to understand: the cost of 159 million shekels (104 million after tax) was fully recognized as an expense already in the 2025 reports, and therefore it does not burden the 2026 profits. The bank estimates that the economic payback period of the move will be two to three years, meaning a future reduction in the expense base.

And here perhaps lies the logic of the merger that Discount is examining these days, led by Chairman Dani Yamin. Since Mercantile is already fully owned, its profits are already consolidated in Discount's reports anyway — and therefore the merger will not "add" profit, but mainly save on duplications: two technological systems, two headquarters, and two banking licenses.

This is exactly the type of efficiency that Discount, a bank relatively weak in return on equity and on the stock market (the stock has lost 0.6% since the beginning of the year), is looking for to close gaps against competitors. The move is not yet certain and is subject to a series of approvals, but Mercantile's results illustrate why Discount wants it: a profitable subsidiary bank, but with double operating costs that can be reduced.