THE FIRST BANK OF TOYAMA (7184) FY2027 Q1 Earnings Report

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Executive Summary

Both ordinary revenue and ordinary income increased substantially, indicating strong Q1 earnings momentum. Ordinary revenue was ¥213.06億 (+57.0% YoY), ordinary income was ¥109.07億 (+62.4%), and quarterly net income attributable to owners of the parent was ¥76.92億 (+56.5%). The primary drivers of revenue growth were the expansion of interest income and fees and commissions in the Banking segment. As the growth in ordinary income exceeded the growth in ordinary revenue, profitability also improved. Meanwhile, the sharp increase in interest on deposits (+110.5% YoY) and deterioration in valuation differences on securities are key issues that will determine future earnings stability.

Factors Affecting Performance

【Revenue】Ordinary revenue was ¥213.06億, up +57.0% YoY. By segment, Banking generated ¥187.46億 (+56.5%), accounting for 88.0% of the total, followed by Leasing at ¥21.91億 (+52.6%) and Other Businesses at ¥3.69億 (+136.5%). Within Banking, interest income increased to ¥93.02億 (+26.2%; interest on loans +24.0% and interest and dividends on securities +22.0%), while fees and commissions increased to ¥6.91億 (+16.7%). In contrast, funding costs surged to ¥16.02億 (+106.7%), with the increase in interest on deposits particularly notable.

【Profitability】Ordinary income was ¥109.07億, up +62.4% YoY, exceeding the growth rate of ordinary revenue. SG&A expenses remained limited to ¥34.00億, up +1.7%, and the containment of expenses relative to revenue growth contributed to an improvement in the profit margin (ordinary income margin of 51.2%, up +170bp from 49.5% in the previous-year period). Banking segment profit was ¥112.83億 (+58.3%; profit margin of 60.2%), making it the core contributor to consolidated profit. No extraordinary gains or losses were recorded. The difference between ordinary income and net income (profit before tax of ¥109.07億 and income taxes of ¥32.15億) was attributable to the tax burden, with an effective tax rate of approximately 29.5%, within a normal range. Overall, the Company achieved higher revenue and profit, with profit growth exceeding revenue growth.

Segment Analysis

The Banking segment generated ordinary revenue of ¥187.46億 (+56.5%) and segment profit of ¥112.83億 (+58.3%), with a profit margin of 60.2%, making it the primary contributor to consolidated profit. Leasing recorded ordinary revenue of ¥21.91億 (+52.6%) and segment profit of ¥0.62億 (+148.0%), representing substantial profit growth, although its profit margin remained low at 2.8%. Other Businesses, including credit card operations, generated ordinary revenue of ¥3.69億 (+136.5%) and segment profit of ¥1.43億 (+217.8%), improving its profit margin to 38.8%. Consolidated profit remains highly dependent on Banking, while the scale of Leasing and Other Businesses is limited.

Key Financial Metrics

【Profitability】The ordinary income margin was 51.2%, improving from 49.5% in the previous-year period, while the net profit margin was 36.1%, essentially flat versus 36.2% in the previous-year period and remaining at a high level.【Cash Flow Quality】Comprehensive income was ¥26.24億, significantly below net income of ¥76.92億, primarily due to a ¥49.94億 loss on valuation differences on other securities. When evaluating the quality of net income and cash flows, it is necessary to distinguish market-related factors in these valuation differences.【Investment Efficiency】Annualized ROE was 16.0%. Based on a DuPont decomposition of net profit margin × total asset turnover × financial leverage, the primary driver of the improvement was an increase in total asset turnover, with the contribution from expansion in earnings scale greater than that from margin expansion.【Financial Soundness】The consolidated equity ratio was 11.4%, down 30bp from 11.7% in the previous-year period, while the loan-to-deposit ratio was 70.5%, near the lower end of the appropriate range. Cash and due from banks increased substantially to ¥1,460.06億 (+76.2%), strengthening the liquidity buffer, while securities declined to ¥4,902.98億 (-11.8%).

Cash Flow Analysis

Although a cash flow statement was not disclosed, an analysis of fund movements based on balance sheet trends shows that cash and due from banks increased substantially to ¥1,460.06億, up +76.2% YoY, indicating an asset allocation focused on liquidity. In contrast, securities declined to ¥4,902.98億, down -11.8%, reflecting a shift from investment assets toward highly liquid assets. Loans decreased to ¥1兆173.58億, down -1.5%, while deposits increased to ¥1兆4,437.78億, up +1.1%, resulting in a loan-to-deposit ratio of 70.5% and indicating ample capacity on the funding provider side. Borrowings decreased to ¥37.75億, down -35.6%, reducing dependence on external borrowing.

Earnings Quality

Profit for the quarter consisted of earnings from recurring operations, with no extraordinary gains or losses recorded and no evidence of an uplift from temporary factors. However, comprehensive income was limited to ¥26.24億 versus net income of ¥76.92億, and this substantial divergence is important when evaluating earnings quality. The primary cause of the divergence was a ¥49.94億 loss on valuation differences on other securities. Market price fluctuations in securities held affected capital without being included in net income. Interest income, which corresponds to non-operating income, consisted of highly recurring earnings from interest on loans and interest and dividends on securities. Meanwhile, funding costs, namely interest on deposits, surged +110.5%, making the ability to maintain the spread a key determinant of the sustainability of ordinary revenue.

Earnings Forecast and Guidance

The full-year ordinary income forecast is ¥180.00億 (-14.2% YoY), and Q1 ordinary income of ¥109.07億 represents progress of 60.6%, substantially exceeding the standard 25%. Q1 net income of ¥76.92億 also represents a high progress rate of 59.2% against the full-year net income forecast of ¥130.00億. As the Company plans for a year-on-year decline in full-year profit, the high Q1 progress rate may reflect seasonality in market-related gains and losses or net interest income and does not immediately imply an upward revision to the full-year outlook. No revisions were made to the earnings forecast or dividend forecast during the quarter.

Shareholder Returns

The full-year dividend forecast is ¥75.00 per share, and the forecast payout ratio based on the full-year EPS forecast of ¥212.83 is approximately 35.2%. This is a payout ratio covering dividends only and is not a total return ratio including share repurchases. Q1 net income of ¥76.92億 reached 59.2% of the full-year net income forecast of ¥130.00億, ensuring sufficient earnings coverage for dividends. Meanwhile, treasury stock amounted to ¥37.92億, an increase of ¥27.05億 from ¥10.87億 in the previous-year period. As a change in capital policy, this should be assessed separately from dividends when evaluating capital returns.

Risk Factors

1. Low NIM and rising funding costs: NIM was 0.76%, below the industry alert level of 1.5%. Interest on deposits surged +110.5% YoY, and if improvements in yields on loans and securities investments do not exceed the increase in funding costs, the spread on net interest income may come under pressure.

2. Capital fluctuations through valuation differences on securities: Valuation differences on other securities resulted in a ¥49.94億 loss, and comprehensive income of ¥26.24億 was significantly below net income of ¥76.92億. This demonstrates the sensitivity of capital and the equity ratio to fluctuations in interest rates and market prices.

3. Decline in the equity ratio: The consolidated equity ratio was 11.4%, down 30bp from 11.7% in the previous-year period and below the 12% level generally regarded as an indicator of soundness. Although it remains above the regulatory minimum, trends in risk-weighted assets and valuation differences require ongoing monitoring.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

The Company's net profit margin of 36.1% is at a high level; however, because industry median data is limited, no definitive conclusion should be drawn regarding its relative position.

Growth and Capital Efficiency

The Company's ordinary revenue growth rate of +57.0% represents exceptionally strong growth. However, because median data for comparison is scarce, a definitive assessment of its position within the industry is reserved.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Ordinary income of ¥109.07億 (+62.4% YoY) and a progress rate of 60.6% against the full-year forecast indicate strong earnings momentum for Q1. However, the Company's plan itself assumes a 14.2% year-on-year decline in full-year profit, necessitating monitoring of the volatility of market-related gains and losses and net interest income in subsequent quarters.

2. The improvement in annualized ROE of 16.0% was driven not by expansion of the net profit margin but by an increase in total asset turnover, with expansion in earnings scale serving as the primary factor. Meanwhile, NIM of 0.76% was below the industry alert level, and, together with the sharp increase in interest on deposits (+110.5% YoY), resilience to rising funding costs will be a key focus going forward.

3. Comprehensive income was limited to ¥26.24億 versus net income of ¥76.92億, primarily due to a ¥49.94億 loss on valuation differences on other securities. This divergence indicates the sensitivity of capital to market fluctuations in securities held, and ongoing monitoring alongside the equity ratio (11.4%, -30bp YoY) would be useful.

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional adviser as necessary.

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