The Bank of Iwate (8345) FY2026 FY Earnings Report

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Executive Summary

The Company posted increases in revenue and earnings during the current period, primarily due to the expansion of funds investment income; however, the sharp increase in funds procurement costs caused the earnings growth rate to fall significantly below the revenue growth rate. Ordinary revenue was ¥775.0B (+57.5% year on year), ordinary income was ¥128.5B (+31.3%), and net income was ¥89.2B (+30.6%; +27.8% on an attributable-to-owners-of-parent basis). While ordinary revenue in the Banking Business increased 65.0%, funds procurement costs expanded sharply by 182.1%, resulting in lower profit margins than in the previous year.

Factors Affecting Business Performance

【Revenue】Ordinary revenue increased substantially to ¥775.0B (+57.5% year on year). The Banking Business accounted for ¥713.6B (+65.0%, 92.0% of total revenue), serving as the core driver of the increase. Interest on loans was ¥276.6B, while interest and dividends on securities were ¥160.0B; funds investment income increased 33.0%, underpinned by a 5.3% increase in loans. The Leasing Business generated ¥47.7B (+3.8%), Other Businesses generated ¥7.0B (+14.0%), while the Credit Card and Credit Guarantee Business declined to ¥7.1B (-12.8%).

【Profit and Loss】Ordinary income increased to ¥128.5B (+31.3%), while net income rose to ¥89.2B (+30.6%), securing higher earnings; however, the ordinary income margin declined to 16.6% from 19.9% in the previous year. Funds procurement costs surged to ¥80.4B (+182.1%), offsetting the growth in funds investment income and serving as the primary cause of margin compression. General and administrative expenses increased 3.9% to ¥257.5B, substantially below revenue growth, indicating that expense controls have been maintained. The Credit Card and Credit Guarantee Business turned to a segment loss of ¥0.4B, weakening the earnings diversification effect of the non-bank businesses. Extraordinary losses of ¥0.6B, including impairment losses of ¥0.1B, were immaterial, and the divergence between ordinary income and net income was primarily attributable to corporate income taxes and other factors. In conclusion, the Company achieved increases in both revenue and earnings.

Segment Analysis

The Banking Business led overall performance, with ordinary revenue of ¥713.6B (+65.0% year on year) and segment profit of ¥127.1B (+33.1%). The Leasing Business recorded ordinary revenue of ¥47.7B (+3.8%), while segment profit declined to ¥1.4B (-16.8%); its profit margin remained low at 2.9%. The Credit Card and Credit Guarantee Business recorded ordinary revenue of ¥7.1B (-12.8%) and fell into the red, reporting a segment loss of ¥0.4B, compared with a profit of ¥2.0B in the previous year. Other Businesses generated ordinary revenue of ¥7.0B (+14.0%) and segment profit of ¥1.5B (-25.8%), representing a relatively high profit margin of 21.0%. A concentration of earnings in the Banking Business was confirmed, accounting for the majority even on a profit basis, while the declining earnings power of the non-bank businesses remains a structural area for monitoring.

Key Financial Metrics

【Profitability】The ordinary income margin declined to 16.6% from 19.9% in the previous year, while the net profit margin declined to 11.5% from 14.2%. Although funds investment income increased 33.0%, funds procurement costs rose substantially faster, by 182.1%, limiting the growth in net interest income to 19.4%. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥225.7B, approximately 2.5 times net income of ¥89.2B, indicating strong cash backing for earnings. Capital expenditures of ¥7.5B were 0.44 times depreciation and amortization of ¥17.0B, with investment remaining below depreciation and amortization. 【Investment Efficiency】ROE improved to 4.6% from 3.6% in the previous year, primarily due to an increase in asset turnover; however, it remains low by the standards of general operating companies. 【Financial Soundness】The Equity Ratio was 5.0% (4.9% in the previous year), total assets were ¥39,137.1B, and net assets were ¥1,947.5B (+5.5%). Loans expanded, funded by increases in deposits and negotiable certificates of deposit, with the loan-to-deposit ratio generally ranging from approximately 67–72%.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥225.7B, approximately 2.5 times net income of ¥89.2B, indicating that current-period earnings were sufficiently supported by cash generation. However, as OCF includes ¥394.3B in cash flow from other operating activities, reflecting the significant impact of changes in assets and liabilities in the banking accounts, caution is warranted in simply extrapolating this level as recurring cash-generating capacity. Investing Cash Flow was an inflow of ¥496.7B, presumably reflecting cash movements from the sale and redemption of securities and other transactions, while capital expenditures were modest at ¥7.5B. Financing Cash Flow was an outflow of ¥26.8B, primarily attributable to dividend payments of ¥28.1B; share repurchases were immaterial at ¥0.03B. Free cash flow, calculated by aggregating these items, reached ¥722.4B; however, banks’ FCF is readily affected by securities transactions and changes in funding composition and should not be overvalued as a recurring indicator of capacity for shareholder returns. Cash and cash equivalents increased by ¥695.7B, reaching ¥3,876.1B at period-end.

Earnings Quality

The increase in earnings during the current period was primarily attributable to recurring factors, namely the expansion of funds investment income, while the impact of extraordinary gains and losses was extremely limited, with extraordinary losses of ¥0.6B, including impairment losses of ¥0.1B. Meanwhile, funds procurement costs surged 182.1%, making this the primary factor behind the 331bp decline in the ordinary income margin; this is an important observation point in assessing earnings quality. OCF was approximately 2.5 times net income, and no accrual-related concerns were identified. Comprehensive income was ¥127.4B, exceeding net income of ¥89.2B. The difference comprised a ¥-44.6B valuation difference on securities, a ¥+56.8B deferred hedge gain or loss, and a ¥+26.0B adjustment related to retirement benefits. The impact of fluctuations in securities market prices on equity requires continued monitoring.

Earnings Forecast and Guidance

For the next fiscal year ending March 2027, the Company forecasts ordinary income of ¥145.0B (+12.8% versus the current-period results) and net income of ¥99.0B (+10.3%; ¥100.0B on an attributable-to-owners-of-parent basis), assuming earnings growth from the current-period results. Forecast EPS is ¥144.85 (on a post-split basis). Achieving the next-period forecast will depend on securing investment income and net interest income growth exceeding the increase in funds procurement costs, the sustainability of loan growth, and trends in credit costs.

Shareholder Returns

The current-period dividend was ¥96 per share for the interim period, ¥112 per share for the year-end period, and ¥208 per share in total for the full year, all on a pre-stock-split basis. The Payout Ratio was 40.1%; relative to net income of ¥89.2B, the Total Return Ratio also remained broadly at the same level, as share repurchases were immaterial at ¥0.03B. Following the 1-for-4 stock split effective April 1, 2026, the forecast dividend for the fiscal year ending March 2027 is ¥58 per share on a post-split basis, equivalent to ¥232 per share on a pre-split basis, representing a planned effective dividend increase of +11.5% from ¥208 per share in the current period. The forecast Payout Ratio is approximately 40%, consistent with the current-period result.

Risk Factors

1. Funding Cost Increase Risk: Funds procurement costs surged +182.1% year on year, exceeding the +33.0% growth in funds investment income. In a rising interest-rate environment, if the pace of increase in funding costs exceeds the improvement in investment yields, pressure on net interest income and NIM may persist.

2. Business Concentration Risk: The Company relies on the Banking Business for 92.0% of ordinary revenue, making performance susceptible to the direct effects of changes in regional economic conditions and the interest-rate environment. The Credit Card and Credit Guarantee Business turned to a segment loss of ¥0.4B, weakening the earnings diversification effect of the non-bank businesses.

3. Capital Adequacy Monitoring Item: The Equity Ratio is 5.0%, below the level generally regarded as a benchmark for financial soundness. Borrowings increased +29.2% year on year to ¥2,187.2B, indicating expanding funding sources other than deposits; continued monitoring of capital headroom and funding composition is therefore required.

Industry Benchmark (For Reference; Company Research)

Profitability and Returns

Growth and Capital Efficiency

※Source: Company research

Key Takeaways from the Financial Results

1. The Company secured increases in revenue and earnings, driven by the expansion of funds investment income and a +5.3% increase in loans. However, the sharp increase in funds procurement costs (+182.1%) caused the ordinary income margin and net profit margin to decline from the previous year, indicating that the benefits of rising interest rates have not been an unqualified earnings driver.

2. ROE improved to 4.6% from 3.6% in the previous year, but the primary driver of the improvement was an increase in asset turnover, while the level of capital efficiency itself remains limited. Capital expenditures/depreciation and amortization was 0.44 times, below depreciation and amortization, making investment trends an ongoing area for monitoring.

3. The actual dividend was ¥208 per share, and an effective dividend increase is planned for the next period, equivalent to ¥232 per share on a pre-split basis. The Payout Ratio is in the 40% range and broadly consistent with the earnings level. Meanwhile, the concentration of earnings in the Banking Business and the Credit Card and Credit Guarantee Business’s shift into losses remain structural areas for monitoring in the business portfolio.

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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. 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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