Aichi Financial Group (7389) FY2026 FY Earnings Report

Quick View

Executive Summary

The banking business’s profitability improved significantly amid rising interest rates, resulting in higher revenue and earnings, with ordinary income nearly tripling. Ordinary revenue was ¥125.14B (+23.9% YoY), ordinary income was ¥30.91B (+200.6% YoY), and net income was ¥21.81B (+45.1% YoY; equivalent to substantially higher growth of approximately +139.7% on a net income attributable to owners of the parent basis compared with the previous year’s ¥9.10B). The primary drivers of earnings growth were the expansion of interest income in the banking business, the reversal of allowance for loan losses, and reductions in general and administrative expenses, which more than offset the increase in funding costs and significantly improved profitability.

Factors Affecting Earnings Performance

【Revenue】Ordinary revenue of ¥125.14B (+23.9% YoY) was driven by the banking business. Banking revenue was ¥113.10B (+23.8% YoY), accounting for 90.4% of the total, primarily due to the expansion of interest income to ¥73.78B (+26.3% YoY). The leasing business and other businesses also recorded higher revenue, although on a smaller scale, at ¥6.86B (+10.6% YoY) and ¥5.51B (+60.6% YoY), respectively.

【Profit and Loss】Ordinary income increased substantially to ¥30.91B (+200.6% YoY). Segment profit in the banking business expanded sharply to ¥30.74B (+199.0% YoY), while its profit margin improved to 27.2% (equivalent to 11.5% in the previous year). Although funding costs increased significantly to ¥21.18B (+165.5% YoY), earnings were boosted by a net reversal of ¥1.77B in the provision for allowance for loan losses and a decline in general and administrative expenses to ¥45.00B (-5.8% YoY). The leasing business recorded higher revenue but deteriorating profitability, with segment profit of ¥0.04B (-77.5% YoY). Net income increased only to ¥21.81B (+45.1% YoY), below the growth rate of ordinary income, because the tax burden normalized following the low effective tax rate in the previous year. Revenue and earnings increased.

Segment Analysis

The banking business is the core operation, accounting for 90.4% of ordinary revenue and 99.4% of segment profit (on an ordinary income basis), and significantly outperforming the other segments with a profit margin of 27.2%. The leasing business recorded higher ordinary revenue of ¥6.86B (+10.6% YoY), but segment profit plunged to ¥0.04B (-77.5% YoY), reducing its profit margin to 0.6%. This was likely attributable to higher funding costs and deterioration in the profitability of individual transactions. Other businesses, including credit card operations, recorded ordinary revenue of ¥5.51B (+60.6% YoY) and profit of ¥0.29B (+3.2% YoY), representing a profit margin of 5.2%; profit growth was limited relative to revenue growth. Consolidated performance remains highly dependent on the banking business, and the diversification benefits of the other segments are limited.

Key Financial Indicators

【Profitability】The ordinary income margin expanded significantly to 24.7% from 10.2% in the previous year, while the net profit margin also improved to 17.4%. ROE was 5.1%, reflecting the low total asset turnover and high financial leverage characteristic of the banking industry.【Cash Flow Quality】Operating cash flow (OCF) was ¥182.21B, 8.4 times net income, representing a significant improvement from the net outflow recorded in the previous year. However, in the banking industry, changes in deposits, loans, and securities significantly affect OCF; therefore, caution is required when interpreting this metric at the same level as for nonfinancial companies.【Investment Efficiency】Capital expenditures of ¥3.10B remained within depreciation and amortization expense of ¥3.24B, indicating a restrained investment posture. Basic EPS was ¥89.42 (+141.1% YoY), while BPS increased to ¥1,767.23, reflecting growth in net assets.【Financial Soundness】The equity ratio improved to 6.0% from 5.2% in the previous year, but remained below the generally accepted banking soundness benchmark of 8%. The loan-to-deposit ratio was 82.5%, within an appropriate range, indicating stable lending operations supported by the deposit base.

Cash Flow Analysis

OCF was a ¥182.21B inflow, a significant reversal from the ¥105.08B outflow in the previous year. Investing cash flow was a ¥3.93B inflow, including ¥3.10B in capital expenditures, resulting in free cash flow of ¥186.13B. Financing cash flow was a ¥6.58B outflow, mainly attributable to ¥1.12B in share repurchases and dividend payments. In the banking industry, changes in period-end balances of deposits, loans, and securities have a significant impact on the scale of OCF. Accordingly, it is necessary to assess, including trends in deposits and loans, whether the substantial cash inflow during the current period is structurally sustainable. Cash and cash equivalents accumulated to ¥787.85B, with on-hand liquidity increasing significantly from the previous year.

Earnings Quality

Both recurring and temporary factors contributed to earnings growth during the current period. The increase in interest income (¥73.78B, +26.3% YoY) represents recurring improvement consistent with the business structure. In contrast, the net reversal of ¥1.77B in the provision for allowance for loan losses reflects temporary normalization of credit costs and is difficult to regard as a sustainable source of earnings. Extraordinary losses of ¥0.97B, including impairment losses of ¥0.13B, had a limited impact. Comprehensive income was ¥83.63B, substantially exceeding net income of ¥21.81B, primarily due to a ¥46.92B increase in valuation differences on securities. As this item may move in the opposite direction depending on market interest rates and price fluctuations, the divergence between net income and comprehensive income should be viewed as dependent on the asset price environment. OCF substantially exceeded net income, and there are no indications that reported accounting earnings are excessively dependent on noncash items.

Earnings Forecast and Guidance

Against the full-year company forecast of ¥28.00B for ordinary income, actual ordinary income was ¥30.91B, representing a progress rate of 110.4% and exceeding the forecast. On the other hand, actual net income was ¥21.81B against the company forecast of ¥23.00B, resulting in a progress rate of only 94.8%; the upside in ordinary income did not fully flow through to bottom-line profit. Actual EPS of ¥89.42 was slightly below the company forecast of ¥94.37. The difference between the progress rates for ordinary income and net income was likely affected by normalization of the tax burden and the recording of extraordinary losses.

Shareholder Returns

Annual dividends totaled ¥135.00, comprising an interim dividend of ¥50.00 and a year-end dividend of ¥85.00, representing an increase from ¥85.00 in the previous year. The payout ratio based on XBRL reporting was 30.2%. The Company also conducted share repurchases of ¥1.12B; total shareholder returns including dividends therefore exceeded the level represented by dividends alone. In addition, the Company effected a 1-for-5 stock split on April 1, 2026. The forecast dividend of ¥30.00 for the following period is presented on a post-split basis and is equivalent to ¥150.00 on a pre-split basis. Comparisons should take into account the difference in presentation standards before and after the stock split.

Risk Factors

1. High concentration of profits in the banking business: The banking business accounts for 90.4% of ordinary revenue and the majority of profit, creating a structure in which fluctuations in net interest income and credit costs directly affect consolidated performance.

2. Equity ratio level: The equity ratio of 6.0% improved from 5.2% in the previous year but remains below the generally accepted soundness benchmark of 8%. Growth in unrealized gains, including the ¥46.92B increase in valuation differences on securities, supports part of the capital base and could have the opposite effect during periods of market volatility.

3. Risk of reversal in credit costs: During the current period, the ¥1.77B net reversal in the provision for allowance for loan losses contributed to earnings growth. However, this factor is strongly temporary in nature, and if credit expenses normalize or begin to increase, earnings could experience a reversal.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Return

The Company’s net profit margin exceeds the industry median but does not reach the upper-tier group within the industry when compared with the IQR upper bound of 35.4%.

Growth and Capital Efficiency

The revenue growth rate substantially exceeded the industry median and also surpassed the upper bound of the IQR.

※Source: Compiled by the Company

Key Takeaways from the Earnings Report

1. Ordinary income reached ¥30.91B (+200.6% YoY), driven by the expansion of interest income in the banking business, the reversal of allowance for loan losses, and reductions in general and administrative expenses. The ordinary income margin expanded by 1,452bp to 24.7%.

2. While the loan-to-deposit ratio remained stable at 82.5%, within an appropriate range, the equity ratio was 6.0%, below the generally accepted soundness benchmark of 8%, making developments in capital policy a key area of focus.

3. Segment profit in the leasing business declined 77.5% YoY, indicating deteriorating profitability despite higher revenue. Given the high concentration of profits in the banking business, the diversification benefits of nonbanking operations remain limited.

---

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. Industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional adviser as necessary.

---End of Report---