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| Metric | Current Period | Same Period of Previous Year | YoY |
|---|---|---|---|
| Revenue | ¥8.21B | ¥7.72B | +6.4% |
| Operating Income | - | - | - |
| Ordinary Income | ¥0.47B | ¥0.81B | −42.1% |
| Net Income | ¥0.48B | ¥0.64B | −24.7% |
| ROE (Annualized) | 4.8% | 5.7% | - |
Executive Summary
Despite an increase in ordinary revenue, earnings declined due to a sharp increase in funding costs and expenses. Ordinary revenue (equivalent to revenue) was ¥8.210B (+6.4% YoY), ordinary income was ¥0.468B (▲42.1% YoY), and net income was ¥0.478B (▲24.7% YoY; attributable to owners of the parent was at the same level as the previous year). Funds investment income increased 18.6% due to higher interest income on loans, while funding costs surged 146.8% and expenses also increased 22.5%, which were the primary factors weighing on earnings.
Factors Affecting Earnings
【Revenue】Ordinary revenue increased 6.4% YoY to ¥8.210B. Funds investment income was ¥5.689B (+18.6% YoY), of which interest income on loans expanded to ¥4.613B (+17.8% YoY). Loans outstanding increased 1.5% YoY to ¥394.117B, while deposits increased 1.1% YoY to ¥532.660B, indicating moderate growth in both loans and deposits. Meanwhile, net fees and commissions declined 31.4% YoY to ¥0.048B, suggesting that revenue sources other than interest income remain weak.
【Profit and Loss】Ordinary income declined 42.1% YoY to ¥0.468B. The primary factors were a sharp increase in funding costs to ¥1.187B (+146.8% YoY), including interest on deposits of ¥1.174B (¥0.476B in the previous year), and a 22.5% increase in expenses to ¥4.253B, significantly outpacing the 6.4% growth in revenue. Net interest income remained limited to ¥4.502B (+4.3% YoY), as higher funding costs restrained the expansion of the interest margin. The ordinary income margin declined from 10.5% in the same period of the previous year to 5.7%. Net income was ¥0.478B, supported by extraordinary income of ¥0.016B and a low effective tax rate (income taxes and other taxes of ¥0.005B against profit before tax of ¥0.485B); therefore, the decline was not as pronounced as that in ordinary income. In conclusion, the Company achieved revenue growth but experienced an earnings decline.
Key Financial Indicators
【Profitability】Annualized ROE was 4.8%, and the net income margin was 5.8%. Net interest margin (NIM) remained at 1.14%, a low level as a profitability indicator reflecting the spread between lending and deposit rates. The cost-to-income ratio was 51.8%, with expense growth (+22.5%) exceeding ordinary revenue growth (+6.4%).【Cash Quality】Extraordinary income of ¥0.016B and an effective tax rate of 1.0% boosted net income, creating a divergence from earnings power based on ordinary income. The general allowance for loan losses was ¥2.858B, down from ¥3.252B in the same period of the previous year.【Investment Efficiency】ROIC was 4.6%, indicating a low level of earnings-generating capacity relative to invested capital. Securities increased 15.9% YoY to ¥13.634B, indicating an expansion in the composition of investment assets.【Financial Soundness】The consolidated equity ratio was 2.3%, down from 2.6% in the same period of the previous year. Net assets were ¥13.294B against total assets of ¥573.906B, and the loan-to-deposit ratio was 74.0%.
Cash Flow Analysis
As no cash flow statement has been disclosed, funding trends are assessed based on changes in the balance sheet. Cash and due from banks declined sharply to ¥25.776B from ¥46.561B in the same period of the previous year, while securities increased 15.9% YoY to ¥13.634B and loans increased 1.5% YoY to ¥39.412B. This suggests that funds shifted from liquid assets to investment assets and loans. Deposits increased 1.1% YoY to ¥53.266B, indicating expansion in the deposit base supporting funding. Borrowings were ¥20.148B, almost flat at +0.9% YoY, indicating no significant change in dependence on external funding.
Quality of Earnings
Profitability at the ordinary income level declined significantly due to increases in funding costs and expenses, and it should be noted that net income does not fully reflect the deterioration at the ordinary income level. Extraordinary income of ¥0.016B contributed to net income of ¥0.478B, while the effective tax rate was only 1.0%, with income taxes and other taxes limited to ¥0.005B. As a result, the reduction from profit before tax of ¥0.485B to net income was small. These factors are one-off and tax-related, and attention should be paid to the divergence from ordinary income of ¥0.468B (▲42.1% YoY), which reflects the profitability of the core business. Comprehensive income was negative ¥1.452B, creating a gap of approximately ¥1.9B from net income of ¥0.478B. This divergence was attributable to the deterioration in the valuation difference on other securities (negative ¥1.915B), indicating that an expansion in unrealized losses on securities amid rising interest rates is impairing earnings quality.
Earnings Forecast and Guidance
Against the full-year Company forecast, cumulative Q3 ordinary income had reached 104.0% and net income 129.2%, significantly exceeding the standard progress rate of 75%. The full-year forecast for net income attributable to owners of the parent of ¥0.370B is below cumulative Q3 actual net income of ¥0.478B. The Company’s forecast may therefore be conservative or may incorporate plans for future gains and losses on securities, credit costs, and seasonal factors. While the progress rate for ordinary revenue was 77.7%, a standard level, progress rates for ordinary income and net income were notably high. Expense recognition and trends in valuation gains and losses from Q4 onward will determine the final results.
Shareholder Returns
The Q2 dividend was ¥5.00 per share, and the full-year Company forecast for the annual dividend is ¥10.00. Based on forecast full-year net income of ¥0.370B, the payout ratio is approximately 22.2%, below the generally regarded sustainable level. The Company holds 19.45 thousand treasury shares. As no new information regarding share repurchases has been disclosed, only the payout ratio is evaluated here.
Risk Factors
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Risk of margin contraction: NIM remained at 1.14%, while funding costs surged 146.8% YoY. If increases in deposit rates cannot be sufficiently passed through to lending and securities yields, ordinary income may come under further pressure.
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Risk of rising expenses: Expenses increased 22.5% YoY, substantially exceeding the 6.4% growth in ordinary revenue. If this situation persists, operating leverage is likely to deteriorate even during periods of revenue growth.
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Risk to capital stability: The consolidated equity ratio declined to 2.3% from 2.6% in the same period of the previous year. The valuation difference on other securities deteriorated to negative ¥11.187B, comprehensive income was negative ¥1.452B, and net assets declined 11.0% YoY.
Industry Benchmark (Reference; Compiled by the Company)
Industry Benchmark (bank)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Net Income Margin | 5.8% | – | – |
Comparative data against the industry median for net income margin is insufficient; therefore, the analysis is limited to assessing the Company’s own level.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 6.4% | – | – |
Similarly, comparative data against the industry median for revenue growth rate is insufficient; therefore, the analysis is limited to confirming the Company’s own performance.
※Source: Compiled by the Company
Key Takeaways from the Financial Results
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Ordinary revenue maintained growth, but ordinary income declined 42.1% YoY due to sharp increases in funding costs and expenses. NIM of 1.14% is a key point for monitoring margin management, and the balance between funding costs and investment yields amid rising interest rates will determine future earnings trends.
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The consolidated equity ratio declined 30bp YoY to 2.3%, while net assets decreased 11.0% YoY against a backdrop of deterioration in the valuation difference on other securities. Whether the negative comprehensive income continues will be a key point in assessing capital stability.
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Against the full-year Company forecast, the progress rate for cumulative Q3 ordinary income reached 104.0%, while that for net income reached 129.2%, representing a significant divergence from the Company’s plan. Trends in valuation gains and losses on securities and expense recognition in Q4 will be the focus in assessing the full-year outcome.
This report is an earnings analysis document automatically generated by AI based on XBRL financial results summary data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly available financial results data. Investment decisions should be made at your own discretion and responsibility, with consultation with a professional as necessary.
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