Yokohama Financial Group (7186) FY2026 Q3 Earnings Report

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Executive Summary

For the nine months ended Q3 FY2026, the Company reported higher revenue and profit, primarily due to the expansion of fund-based income, while profit progress against the full-year plan also exceeded expectations. Ordinary income was ¥356.76B (+23.4% YoY), ordinary income was ¥123.20B (+32.0%), and net income attributable to owners of the parent was ¥85.01B (+35.4%). Net interest income increased due to growth in the outstanding balance of loans and improved loan yields. Profit margins improved as the revenue growth rate exceeded the increase in general and administrative expenses (+12.1%).

Factors Affecting Performance

【Revenue】Ordinary income increased 23.4% YoY to ¥356.76B. Interest on loans grew significantly to ¥197.99B (+32.3%), while the outstanding balance of loans expanded to ¥17,640.86B (+5.9%). Fee income also increased to ¥62.49B (+9.9%), with non-fund-based income contributing to revenue growth. Meanwhile, deposits declined slightly to ¥20,323.52B (▲0.4% YoY), but the loan-to-deposit ratio of 86.8% remains within an appropriate range for the banking industry.

【Profit and Loss】Ordinary income was ¥123.20B (+32.0% YoY), while net income attributable to owners of the parent was ¥85.01B (+35.4%). General and administrative expenses were ¥110.04B (+12.1%), below the growth rate in ordinary income, resulting in operating leverage. The ordinary income margin improved to 34.5% from 32.3% in the same period of the previous year, while the net profit margin improved to 23.8% from 21.7%. Extraordinary losses were limited to ¥0.54B, including impairment losses of ¥0.04B, and had a limited impact on performance. Overall, the Company achieved higher revenue and profit, with profit growth exceeding revenue growth.

Key Financial Indicators

【Profitability】The ordinary income margin improved to 34.5% from 32.3% in the same period of the previous year, while the net profit margin also improved to 23.8% from 21.7%. Net interest income was ¥186.92B (+27.1% YoY), with higher loan yields serving as the primary driver of revenue expansion. NIM was 1.06%, below the general banking industry benchmark of 1.5%, representing a level that requires monitoring from the perspective of fund-based earning power.【Cash Quality】Comprehensive income was ¥156.59B, significantly exceeding net income of ¥86.08B, primarily due to a ¥71.83B improvement in valuation differences on securities. This uplift effect could reverse during periods of market volatility.【Investment Efficiency】Annualized ROE was 8.2%, with the improvement in the net profit margin serving as the primary driver. Asset turnover relative to total assets is low, and the structure is supported by high financial leverage, which underpins ROE.【Financial Soundness】The equity ratio was 5.6%, below the general benchmark of 8% for bank capital adequacy. The loan-to-deposit ratio was 86.8%, within an appropriate range, indicating that the balance between the deposit base and lending has been maintained.

Cash Flow Analysis

Although a statement of cash flows was not disclosed, fund movements can be assessed from changes in the balance sheet. Cash and due from banks was ¥3,594.35B, down 19.1% from ¥4,445.66B in the same period of the previous year, suggesting that funds were increasingly allocated to loans and securities. Loans increased to ¥17,640.86B (+5.9% YoY), while securities increased to ¥3,248.01B (+11.2%), indicating a shift in allocation from liquid assets to earning assets. Meanwhile, deposits declined slightly from the same period of the previous year to ¥20,323.52B, while market-based funding, including borrowings of ¥1,993.19B and negotiable certificates of deposit of ¥466.46B, was also utilized. Overall, the expansion of fund allocation to lending and securities investment is supporting revenue growth.

Quality of Earnings

The current increase in profit was supported not by extraordinary gains or losses, but by recurring revenue drivers, namely the expansion of net interest income and fee income. Extraordinary losses were limited to ¥0.54B, including impairment losses of ¥0.04B, while the gap between ordinary income and net income was primarily attributable to the ¥36.57B tax burden, resulting in an effective tax rate of approximately 29.8%, a normal level. Comprehensive income of ¥156.59B significantly exceeded net income of ¥86.08B, with the primary cause of the difference being a ¥71.83B improvement in valuation differences on securities. Because these valuation differences depend on price fluctuations in marketable assets, when evaluating the quality of current-period earnings, it is necessary to distinguish between growth in recurring income, such as net interest income and fee income, and the increase in comprehensive income arising from valuation differences.

Earnings Forecasts and Guidance

The full-year forecast for ordinary income is ¥151.00B (+23.0% YoY), and Q3 cumulative ordinary income of ¥123.20B represents progress of 81.6%, exceeding the standard progress benchmark of approximately 75%. For profit attributable to owners of the parent, Q3 cumulative profit of ¥85.01B represents progress of 82.5% against the full-year forecast of ¥103B. Forecast EPS is ¥90.70, and actual Q3 cumulative EPS of ¥74.73 represents progress of 82.4%. Unless there is a significant deterioration during the quarter, progress toward achieving the full-year plan is at a favorable level.

Shareholder Returns

The Q2 dividend was ¥17.00 per share, and the full-year dividend forecast is ¥37.00. The payout ratio against forecast full-year EPS of ¥90.70 is approximately 40.8%, within a range considered sustainable based solely on the dividend level. Retained earnings have accumulated to ¥886.86B, securing a source of dividend funding. Meanwhile, treasury shares increased from ¥1.65B in the same period of the previous year to ¥15.73B, suggesting that capital policy measures in addition to dividends may be progressing. When evaluating the level of shareholder returns including share repurchases, confirmation based on the total return ratio, separately from the payout ratio, is required.

Risk Factors

1. Interest Margin Compression Risk: NIM was 1.06%, below the general warning level of 1.5% for the banking industry. If the rise in deposit interest rates accelerates in response to improving loan yields, the growth momentum of net interest income may slow.

2. Securities Price and Interest Rate Risk: Valuation differences on securities amounted to ¥71.83B and contributed significantly to the increase in comprehensive income of ¥156.59B. If valuation differences reverse due to rising interest rates or fluctuations in market prices, this could reduce net assets and capital headroom.

3. Equity Capital Adequacy Risk: The equity ratio was 5.6%, below the general benchmark of 8% for bank capital adequacy. Accumulation of profits, dividends and share repurchases, and fluctuations in valuation differences on securities need to be considered together.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

Comparable industry data available for the Company’s net profit margin is limited, but profitability of approximately 23.8–24.1% can be confirmed in absolute terms.

Growth and Capital Efficiency

The Company’s revenue (ordinary income) growth rate was +23.4%, driven primarily by the expansion of interest on loans and fee income.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Net income attributable to owners of the parent was ¥85.01B, up +35.4% YoY, and progress against the full-year forecast of ¥103B was 82.5%, exceeding the standard progress level. The increase in general and administrative expenses (+12.1%) was below the growth rate in ordinary income (+23.4%), and improved cost efficiency supported profit growth.

2. The ordinary income margin improved to 34.5% from 32.3%, and the net profit margin improved to 23.8% from 21.7%; however, NIM was 1.06%, below the general warning level of 1.5% for the banking industry, leaving room for improvement in fund-based earning power itself.

3. Comprehensive income significantly exceeded net income, primarily due to the improvement in valuation differences on securities. The fact that this uplift effect could reverse due to market fluctuations is an important consideration when evaluating the quality of current-period earnings and capital.

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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 discretion and responsibility, after consulting a professional as necessary.

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