The Gunma Bank (8334) FY2026 FY Earnings Report

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Executive Summary

This earnings period recorded double-digit growth in Ordinary Income, Ordinary Revenue, and Net Income, primarily driven by the expansion of interest income. Ordinary Revenue amounted to ¥2649.7B (+20.2% YoY), Ordinary Income was ¥848.9B (+36.8%), and Net Income attributable to owners of the parent was ¥588.6B (+35.3%). In addition to growth in loans outstanding and funds investment income, profit growth exceeded revenue growth because the increase in expenses was kept below the revenue growth rate.

Factors Affecting Earnings

【Revenue】Ordinary Revenue was ¥2649.7B, up +20.2% YoY. The banking business accounted for the majority at ¥2226.4B (84.0% of total), followed by the leasing business at ¥352.8B and other businesses at ¥70.5B. Funds investment income was ¥1655.8B, while interest on loans increased by +26.7% YoY to ¥1017.1B, driven by a 5.3% increase in loans outstanding. Meanwhile, interest on deposits increased by +105.2% YoY to ¥256.6B, indicating that funding costs are also rising.

【Profit and Loss】Ordinary Income was ¥848.9B (+36.8% YoY), and Net Income was ¥588.6B (+35.3%). The banking business segment generated Ordinary Income of ¥788.3B, with a profit margin of 35.4%, serving as the core contributor to consolidated earnings. General and administrative expenses were ¥571.8B, an increase of only +10.2% YoY, below the +20.2% growth in Ordinary Revenue, resulting in operating leverage. Extraordinary losses amounted to ¥10.6B, including impairment losses of ¥3.4B, while extraordinary income was limited to ¥0.3B; consequently, the impact on profit before tax was limited. The Company achieved both revenue and profit growth, supported by the dual drivers of expanding net interest income and improving expense efficiency.

Segment Analysis

The banking business is the main contributor to consolidated earnings, with Ordinary Revenue of ¥2226.4B (84.0% of total), Ordinary Income of ¥788.3B, and a profit margin of 35.4%. The leasing business (Gungin Lease) generated Ordinary Revenue of ¥352.8B and Ordinary Income of ¥16.7B, with a profit margin of 4.7%; although low-margin, it contributes to the diversification of revenue sources. Other businesses (including transportation, maintenance, securities, guarantees, and consulting) generated Ordinary Revenue of ¥70.5B and Ordinary Income of ¥44.4B, representing a high profit margin of 63.1%, although the scale of the business is small. It should be noted that segment profit is calculated on an Ordinary Income basis, not an Operating Income basis.

Key Financial Indicators

【Profitability】The Ordinary Income margin was 32.0%, improving by approximately 3.9pt from 28.1% in the previous year, while the Net Income margin also improved by approximately 2.3pt, from 19.9% in the previous year to 22.2%. ROE rose to 9.5% from 7.7% in the previous year, indicating improved capital efficiency.【Cash Flow Quality】Operating Cash Flow (OCF) was negative ¥1679.2B, equivalent to negative 2.85x Net Income. However, for banks, changes in balances of deposits, loans, securities, and other items determine OCF, making it difficult to apply the same interpretation used for general operating companies.【Investment Efficiency】Capital expenditures were ¥53.8B, while depreciation and amortization was ¥64.7B. Capital expenditures remained within the level of depreciation and amortization, indicating a light capital expenditure burden.【Financial Soundness】The Equity Ratio was 5.7%, and net assets increased by +10.0% YoY to ¥6193.2B. The loan-to-deposit ratio, calculated from loans outstanding of ¥7.12674T and deposits of ¥8.55454T, was approximately 83.3%, indicating that the funds investment balance is generally stable.

Cash Flow Analysis

OCF was negative ¥1679.2B, representing a substantial improvement from negative ¥5971.1B in the previous year, although it remained significantly negative. This was attributable to the buildup of funds investment assets, including a ¥3394.0B increase in loans outstanding. Since changes in the balances of deposits, loans, and securities significantly affect OCF in the banking business, it is not appropriate to apply the OCF evaluation criteria used for general operating companies without modification. Investing Cash Flow was positive ¥2538.4B, supported by the reduction in securities holdings (down 8.7% YoY), among other factors. This absorbed the OCF deficit, resulting in positive Free Cash Flow of ¥859.3B. Financing Cash Flow was negative ¥67.5B, primarily due to the ¥60.0B share repurchase. Cash and cash equivalents increased by ¥791.8B, and the balance at the end of the period was ¥13352.3B, indicating ample on-hand liquidity.

Quality of Earnings

Current-period profit was generally supported by recurring banking business revenue. Extraordinary income was ¥0.3B, compared with extraordinary losses of ¥10.6B, including impairment losses of ¥3.4B. The net impact on profit before tax was approximately ¥10.3B, equivalent to only 1.2% of profit before tax. Funds investment income and net fee income (¥237.5B, +19.9% YoY) were recurring sources of revenue, and reliance on temporary factors was limited. Comprehensive income was ¥831.9B, exceeding Net Income of ¥588.6B by ¥243.3B. Securities valuation differences of ¥115.3B and adjustments related to retirement benefits of ¥124.2B contributed to the increase. This divergence was primarily attributable to fluctuations in market prices and should be distinguished from recurring business revenue.

Earnings Forecast and Guidance

Against the full-year Company plan, Ordinary Income reached a progress rate of 89.4% against the ¥950.0B plan, while Net Income reached a progress rate of 98.1% against the ¥600.0B plan (90.6% against the ¥650.0B plan for profit attributable to owners of the parent). Both figures are at high levels. They significantly exceed the standard progress pace of 75%, suggesting that the initial full-year plan may have been conservative. Based on first-half results, the likelihood of achieving the full-year plan is considered high; however, the interest-rate environment and trends in deposit costs may affect second-half performance.

Shareholder Returns

The annual dividend was ¥62 (¥30 interim and ¥32 year-end), representing a substantial increase from ¥20 in the previous year. The Payout Ratio based on Net Income was 40.0%, within the guideline of less than 60%. The Total Return Ratio, including the ¥60.0B share repurchase, is estimated at approximately 51.9%. The Company plans to further increase the annual dividend to ¥70. Based on forecast EPS of ¥171.73, the Payout Ratio is approximately 40.8%, indicating that the Payout Ratio is expected to remain broadly flat even after the dividend increase.

Risk Factors

1. Risk of a low NIM: NIM was 1.48%, slightly below the benchmark level of 1.5%. Interest on deposits increased by +105.2% YoY, substantially exceeding the +26.7% growth in interest on loans. Rising funding costs could slow the growth of net interest income.

2. Concentration of earnings in the banking business: The banking business accounts for 84.0% of Ordinary Revenue and the majority of Ordinary Income, while the diversification benefits from the leasing and other businesses are limited. Earnings are highly sensitive to regional interest-rate conditions and loan demand.

3. Highly leveraged structure and fluctuations in fund flows: The debt-to-equity ratio is approximately 16.5x, reflecting a deposit-funded business model. OCF was negative ¥1679.2B, requiring continued monitoring of fund flows associated with changes in loan, deposit, and securities balances.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

The Net Income margin is substantially above the industry median.

Growth and Capital Efficiency

The Revenue growth rate also exceeds the industry median, indicating a high growth pace among peers.

Source: Compiled by the Company

Key Earnings Highlights

1. Ordinary Income increased by +36.8% YoY, while Net Income increased by +35.3%, securing a high rate of profit growth. This was driven by the expansion of net interest income and improved operating leverage resulting from the restraint of expense growth. ROE also rose to 9.5%, confirming an improvement from 7.7% in the previous year.

2. NIM remained slightly below the benchmark level at 1.48%. The sharp increase in interest on deposits exceeded the growth in interest on loans, making funding cost management in a rising interest-rate environment an important focus regarding the sustainability of future earnings.

3. Progress rates against the full-year plan were high, at 89.4% for Ordinary Income and 98.1% for Net Income. The Company has indicated plans to increase the dividend from ¥62 in the previous year to ¥70. The Payout Ratio is expected to remain broadly in the 40% range even after the dividend increase.

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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 responsibility, and you should consult a professional advisor as necessary.

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