KBRA Affirms Ratings for Israel Discount Bank of New York

KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for New York City-headquartered, 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 remain supported by its conservative balance sheet profile—most notably, its earning asset mix and solid core capitalization (with the CET1 ratio tracking between 13%–14% in recent years)—as well as historically favorable asset quality performance. IDB Bank was established over forty years ago as a core, wholly owned subsidiary of Tel Aviv–based Israel Discount Bank Limited (“IDB Ltd.”), following decades of operation as its New York branch. In 2024, IDB Ltd. sold a 15% stake in IDB Bank’s U.S. holding company, Discount Bancorp, Inc., to investment firm Gallatin Point Capital (“Gallatin”). While IDB Bank has been, and continues to be, managed independently under U.S. regulation, the Gallatin investment—which includes board membership—adds an independent, domestic strategic perspective that supports the bank’s operating profile.

Given its ownership structure, with IDB Bank’s Israeli parent operating under the Bank of Israel’s Basel III regulatory capital and liquidity framework, the New York subsidiary integrates key elements of these standards into its own risk management practices, including adherence to the Liquidity Coverage Ratio (LCR) and active management of High-Quality Liquid Assets (“HQLA”). As a result, the bank’s balance sheet is constructed more conservatively than that of most peers within its rating category. This conservative approach, combined with rigorous stress testing—maintaining the core framework of Dodd-Frank Act Stress Tests (“DFAST”), despite no regulatory requirement to do so—has consistently supported strong asset quality measures. IDB Bank reported modest charge-off activity during 2025; while higher than in 2023 and 2022, net charge-offs remain well below historical levels and slightly below the peer average. Moreover, these charge-offs have been driven by idiosyncratic problem loans currently in liquidation and are not viewed as indicative of broader underwriting weaknesses or systemic asset quality concerns.

Historically, IDB Bank’s ratings have been somewhat constrained by below-peer reported profitability, partially reflecting the low-risk nature of its balance sheet. Additionally, returns—particularly during the recent period of elevated interest rates—have been pressured by intense deposit competition in the New York City and other urban markets served by the bank’s branch-lite business model, resulting in relatively high aggregate deposit costs. More recently, the bank has undergone leadership changes that have introduced new strategic initiatives aimed at improving the net interest margin and overall profitability, primarily through reducing deposit costs and improving the funding mix over time. While KBRA does not expect a material improvement in earnings power in the near term, management’s focus on enhancing structurally lower NIM and ROA metrics is viewed positively, as successful execution could support gradual convergence toward peer averages over the medium term.

While IDB Bank remains a core and strategically important subsidiary of its Israeli parent, KBRA does not incorporate external or parental support as a core factor in the development of the bank’s ratings. The bank maintains independent corporate governance separate from its parent; however, it is considered to benefit from certain group synergies, including access to strategy, treasury, information and cybersecurity resources, and risk management expertise.

Rating Sensitivities

Given the Stable Outlook, a rating upgrade is not expected over the near to medium term. However, sustained improvement in core earnings performance while maintaining comparable risk and liquidity profiles, could support positive rating momentum over time. Conversely, deterioration in asset quality, earnings, or capital—beyond KBRA’s expectations and to levels below peer averages—could result in negative rating action.

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Methodologies