Okinawa Financial Group (7350) FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, the Group achieved higher revenue and earnings, primarily due to the expansion of interest income. A key feature was that earnings growth outpaced revenue growth. Ordinary revenue was ¥704.2B (¥587.6B in the previous year, +19.8%), Ordinary Income was ¥158.0B (¥104.9B in the previous year, +50.6%), and Net Income attributable to owners of the parent was ¥113.0B (¥79.4B in the previous year, +42.3%). The increase in interest income exceeded the rise in interest expenses, while the increase in general and administrative expenses (+3.3%) remained well below revenue growth, allowing revenue expansion to translate efficiently into higher earnings.

Factors Affecting Financial Performance

【Revenue】Ordinary revenue was ¥704.2B, up +19.8% year on year. The Banking Business accounted for 73.4% of ordinary revenue (¥517.1B), led by increases in interest on loans (¥331.1B, +22.8%) and interest and dividends on securities (¥88.2B, +49.3%). The Leasing Business generated ¥123.0B, while Other Businesses generated ¥64.2B, representing 17.5% and 9.1% of the revenue mix, respectively.

【Profit and Loss】Ordinary Income increased to ¥158.0B, up +50.6% year on year, outpacing revenue growth. The increase in interest income to ¥434.2B (+¥95.5B) absorbed the increase in interest expenses (+¥32.5B), resulting in net interest income of ¥378.0B (+20.0%). General and administrative expenses were ¥254.3B, with the increase limited to 3.3%, resulting in operating leverage against revenue expansion. Net extraordinary income was +¥3.2B, and its impact on Profit Before Tax was limited; earnings growth was based on an improvement in recurring earning power. In conclusion, the Group achieved higher revenue and earnings.

Segment Analysis

The Banking Business is the core of the Group, with ordinary revenue of ¥517.1B (73.4% of the total), segment profit of ¥138.7B (84.6%), and a profit margin of 26.8%. The Leasing Business generated ordinary revenue of ¥123.0B and segment profit of ¥3.9B, with a profit margin of 3.2%, indicating lower profitability than the Banking Business. Other Businesses, including the financial instruments business, credit card business, and credit guarantee business, generated ordinary revenue of ¥64.2B and segment profit of ¥22.5B, representing the highest profit margin at 35.1%, although their scale is limited. Group earnings are highly dependent on the Banking Business, making the interest rate environment and regional credit conditions the primary drivers of performance fluctuations.

Key Financial Indicators

【Profitability】The Ordinary Income margin was 22.4%, improving by approximately 450bp from 17.8% in the previous year, while the Net Income margin also improved to 16.0% from 13.5% in the previous year, an improvement of approximately 250bp. ROE rose to 7.0% from 5.1% in the previous year, an increase of 190bp, primarily due to the improvement in the Net Income margin. 【Cash Flow Quality】Operating Cash Flow (OCF) was negative ¥1,017.0B; however, in the Banking Business, changes in deposits, loans, securities, and cash and deposits are included in OCF, limiting the applicability of evaluations based directly on the standards used for general operating companies. The accrual ratio was 3.9%, below the benchmark of 5%, indicating no excessive accumulation of accrual-based earnings. 【Investment Efficiency】Capital expenditures were ¥13.3B, compared with depreciation and amortization expenses of ¥23.2B, resulting in a capital expenditures/depreciation and amortization ratio of 0.57x, below the 0.7x benchmark for underinvestment. 【Financial Soundness】The Equity Ratio was 5.5%, while the loan-to-deposit ratio was 76.2%, calculated by dividing loans of ¥2,011.1B by deposits of ¥2,639.0B, within the benchmark range of 70–90%. Net assets were ¥1,623.9B against total assets of ¥29,372.3B, increasing +5.8% year on year due to the accumulation of Net Income.

Cash Flow Analysis

OCF was negative ¥1,017.0B, Investing Cash Flow was negative ¥483.5B, and Free Cash Flow was negative ¥1,500.4B. This reflected changes in the asset composition, with cash and deposits declining by ¥1,527.2B, while loans increased by ¥669.2B and securities increased by ¥416.0B. In the Banking Business, changes in deposits, loans, securities, and deposits with the Bank of Japan directly affect OCF; therefore, this negative figure must be interpreted in a different context from a deterioration in earnings quality at a general operating company. Financing Cash Flow was negative ¥27.6B, mainly due to dividend payments and a decrease in borrowings. Cash and cash equivalents stood at ¥1,966.7B, down ¥1,527.2B from the end of the previous year, apparently reflecting the active allocation of funds to earning assets. The trend in the liquidity buffer requires continued monitoring.

Earnings Quality

The increase in earnings for the current period was primarily attributable to an improvement in recurring earning power. The net contribution from extraordinary income of ¥9.2B and extraordinary losses of ¥6.0B was ¥3.2B, representing only approximately 2.0% of Profit Before Tax of ¥161.2B. Interest income, the main component of non-operating income, was ¥434.2B (+28.2%), driven by increases in interest on loans and interest and dividends on securities. Meanwhile, interest expenses also increased sharply to ¥56.2B (+137.5%), with interest on deposits expanding nearly threefold from ¥17.2B in the previous year to ¥51.0B. Net interest income (interest income − interest expenses) was ¥378.0B (+20.0%), and the fact that revenue expansion exceeded the increase in funding costs supported the quality of earnings in the current fiscal year. The accrual ratio was 3.9%, below the benchmark of 5%, indicating that the accumulation of accrual-based earnings was limited. Going forward, if an increase in deposit interest rates outpaces improvements in lending and securities investment yields, growth in net interest income may slow.

Earnings Forecast and Guidance

For the full-year forecast, the Company expects ordinary revenue of ¥800.0B, Ordinary Income of ¥175.0B (+10.7% year on year), and EPS of ¥562.14. Progress against current-period results was 88.0% for ordinary revenue and 90.3% for Ordinary Income, with earnings progress exceeding standard levels. In particular, the fact that progress toward the Ordinary Income and Net Income targets exceeds progress toward the ordinary revenue target suggests that improvements in cost efficiency are continuing. Future progress will depend on the balance between higher funding costs resulting from rising deposit interest rates and improvements in lending and securities investment yields.

Shareholder Returns

The annual dividend was ¥170 per share (¥70 interim and ¥100 year-end), with total dividends of ¥3.72B. The Payout Ratio was 32.9% against Net Income attributable to owners of the parent of ¥112.9B, within the generally sustainable range of below 60%. Share repurchases were ¥0.0B and immaterial, and the Total Return Ratio was approximately the same as the Payout Ratio. DOE was 2.3%, up from 1.4% in the previous year. The Company forecasts an annual dividend of ¥200, indicating a policy of increasing the dividend by ¥30 from the current-period actual dividend of ¥170. Retained earnings of ¥136.67B represent sufficient accumulation relative to total dividends and provide a source for the dividend increase.

Risk Factors

1. Interest Margin Compression Risk: Interest income increased +28.2% year on year, but interest expenses increased +137.5%, while interest on deposits increased approximately threefold. If the increase in deposit interest rates outpaces improvements in investment yields, growth in net interest income may slow.

2. Profit Concentration in the Banking Business: The Banking Business accounts for 73.4% of ordinary revenue and 84.6% of segment profit. Regional economic trends, business conditions in the real estate and construction sectors, and fluctuations in funding demand from regional companies could materially affect Group earnings.

3. Considerations Regarding Financial Leverage and Capital Levels: The reported Equity Ratio was 5.5%. Although this reflects the structure of the Banking Business, which has deposits as its primary liabilities, the applicable regulatory standards require confirmation, and the Group’s capital capacity should be continuously monitored if loans and securities holdings continue to expand.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

The Net Income margin is 4.2pt above the industry median, representing a relatively high level within the industry.

Growth and Capital Efficiency

The Revenue growth rate is 9.8pt above the industry median, indicating high growth within the industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Ordinary Income increased +50.6%, substantially outpacing the +19.8% increase in ordinary revenue. The expansion of net interest income and the containment of growth in general and administrative expenses (+3.3%) generated operating leverage, representing a key structural feature of the current fiscal year.

2. While cash and deposits declined by ¥1,527.2B, loans (+¥669.2B) and securities (+¥416.0B) increased, indicating more active deployment of funds. This change in asset composition is a key factor to monitor for its impact on both future net interest income and market risk.

3. The Payout Ratio of 32.9% is within a sustainable range relative to earnings, and the Company has indicated a policy of increasing the annual dividend to ¥200. Progress toward the earnings targets (90.3% for Ordinary Income and 88.0% for ordinary revenue) exceeds standard levels, indicating solid progress toward achieving the full-year plan.

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not constitute a recommendation to invest in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional adviser as necessary.

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