KBRA Affirms Ratings for Israel Discount Bank of New York

KBRA affirms the senior unsecured debt and deposit ratings of A-, the subordinated debt rating of BBB+, and the short-term debt and deposit ratings of K2 for New York, New York based Israel Discount Bank of New York (“IDB Bank” or “the bank”). The Outlook for all long-term ratings is Stable.

Key Credit Considerations

IDB Bank’s ratings are supported by a strong executive management team, a conservative earning asset mix, and a solid core capitalization profile. Despite the heightened tension and elevated geopolitical risk throughout the Middle East, the bank has been minimally impacted by the ongoing conflict between Israel and Palestine. KBRA continues to monitor the geopolitical risks and analyze any spillover effects that could impact the bank. Additionally, IDB Bank operates as a U.S. wholly owned subsidiary through Discount Bancorp, Inc. independent from the Israeli parent which we view as a reliable and favorable group ownership structure. IDB Bank’s balance sheet construction is considered conservative, and more specifically, reflects the maintenance of a profile that has historically exceeded minimum regulatory liquidity coverage ratio (LCR) requirements. Furthermore, IDB Bank operates with a comprehensive liquidity and stress testing infrastructure, which, in our experience, is comparatively well-developed. With historically strong asset quality performance, including consistently low problem asset levels and charge-offs, the bank has not experienced material migration into classified and criticized loan categories during recent periods. IDB Bank’s ratings are partially constrained by historically below-peer reported profitability; partially a by-product of the low-risk nature of the balance sheet. With that said, competition within the NYC deposit market contributes to a relatively higher cost deposit base that has been magnified in periods of tightening interest rate cycles or periods of higher rates. IDB Bank is a core subsidiary of IDB Ltd. and is considered strategically important to the group. Further, the Israeli parent organization was a key source of strength to IDB Bank during the GFC demonstrating parental support in the event of need. With that said, for the purposes of the development of IDB Bank’s ratings, KBRA does not incorporate external/parental support as a core factor. IDB Bank has independent corporate governance separate from its Israeli parent, though the bank benefits from synergies within the group, including access to strategy, treasury, information/cyber security, and risk management. The bank has historically maintained higher than peer levels of capital as evidenced by a CET1 ratio of ~14.5% as of 3Q23, and similar levels are expected over the medium term as the bank has not paid a dividend to the parent in recent years.

Rating Sensitivities

Given the Stable Outlook, a rating upgrade is not expected in the near term. However, sustained improvements in core earnings performance while maintaining similar risk and liquidity profiles could support positive rating momentum over time. Deterioration in asset quality, earnings, or capital (global conflict driven or otherwise), beyond KBRA's expectations, to below peer averages could result in negative rating action.

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Methodologies