The Toho Bank (8346) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period of the fiscal year ending March 2026, revenue and earnings increased, primarily due to the expansion of banking-sector fund-based income. Profit growth outpaced revenue growth, accompanied by improved profitability. Ordinary revenue was ¥68.28B (+35.2% YoY), Ordinary Income was ¥14.56B (+48.5%), and Net Income was ¥9.97B (+51.9%). Banking Business segment profit led consolidated earnings, increasing +49.6% YoY, while General and Administrative Expenses increased only +7.3%, substantially below revenue growth, resulting in operating leverage. Meanwhile, Interest Expenses surged +351.6% YoY, making the rise in funding costs a key focus for maintaining future net interest margins.

Factors Affecting Performance

【Revenue】Ordinary revenue was ¥68.28B, up +35.2% YoY. The Banking Business led overall performance at ¥59.87B (87.6% of total revenue, +41.1% YoY), supported by increases of +37.1% in interest on loans and +64.1% in interest and dividends on securities. The Leasing Business increased revenue to ¥6.54B (+13.4%), while Other Businesses declined to ¥1.27B (▲30.8%). The Credit Guarantee Business posted ¥0.70B (+1.9%), representing only modest revenue growth.

【Profit and Loss】Ordinary Income was ¥14.56B, up +48.5% YoY. Banking Business profit improved to ¥14.61B (+49.6%, 24.4% margin), while the Leasing Business declined to ¥0.55B (▲8.8%, margin down to 8.4%), and Other Businesses also declined to ¥0.28B (▲65.7%). The non-banking divisions therefore did not contribute to profit growth. Net extraordinary gains and losses were a minor △¥0.072B, including an impairment loss of ¥0.023B (approximately ¥0.023B in the same period last year), and remained limited in scale, indicating that the earnings increase was not dependent on temporary factors. The gap between Ordinary Income and Net Income (¥9.97B) reflects a normal tax burden (Income Taxes and Other Taxes of ¥4.51B, effective tax rate of 31.2%), and the difference from Profit Before Tax of ¥14.49B was also small. In conclusion, the Company achieved higher revenue and earnings led by the Banking Business, while declines in the non-banking segments partially offset the increase in consolidated earnings.

Segment Analysis

The Banking Business recorded higher revenue and profit, with Ordinary Revenue of ¥59.87B (+41.1% YoY) and profit of ¥14.61B (+49.6%); its profit margin improved to 24.4% from 23.0% in the same period last year. The Leasing Business increased Ordinary Revenue to ¥6.54B (+13.4%) but reported lower profit of ¥0.55B (▲8.8%), with its profit margin declining by 200bp from 10.4% to 8.4%. The Credit Guarantee Business reported Ordinary Revenue of ¥0.70B (+1.9%) and profit of ¥1.15B (+10.8%), maintaining a high profit margin of 164.9%—a specialized revenue structure that includes reversals of provisions for guarantee payments and related items against guarantee fees—and contributing to profit growth. Other Businesses experienced substantial declines in both revenue and profit, with Ordinary Revenue of ¥1.27B (▲30.8%) and profit of ¥0.28B (▲65.7%). Overall, profit growth is highly concentrated in the Banking Business, while the contribution of the non-banking divisions to profit growth remains limited.

Key Financial Indicators

【Profitability】Net profit margin was 14.6%, expanding by 160bp from 13.0% in the same period last year. Ordinary Income margin also increased to 21.3% from 19.4%, up 190bp. The Banking Business profit margin improved to 24.4% from 23.0%. The primary drivers of improved profitability were the expansion of the Banking Business’s net interest margin and investment income, together with restrained growth in expenses (General and Administrative Expenses +7.3%). 【Cash Quality】Comprehensive Income was ¥17.87B, ¥7.89B above Net Income of ¥9.97B. Improvement in deferred hedge gains and losses (+¥97.38B, based on the period-end balance) was a contributing factor, while Valuation Difference on Other Securities deteriorated to △¥1.64B, indicating that the impact of market fluctuations remains. 【Investment Efficiency】ROE was 4.7%, comprising a net profit margin of 14.6%, total asset turnover of approximately 0.010x, and financial leverage of approximately 31.3x, reflecting the high-leverage, low-turnover business model characteristic of the banking industry. 【Financial Soundness】The Equity Ratio was 3.2%, and the loan-to-deposit ratio was 73.4% (¥413.58B in loans ÷ ¥563.34B in deposits), both within appropriate ranges. However, deposits, which account for the majority of liabilities, declined by △2.2% YoY, while funding supplementation through negotiable certificates of deposit (+13.3%) and borrowings (+8.0%) progressed.

Cash Flow Analysis

As Cash Flow Statement data has not been disclosed, funding trends are analyzed based on changes in the balance sheet. Cash and Due from Banks declined to ¥96.90B, down △21.6% YoY, while Securities increased to ¥136.83B, up +13.1%, indicating a shift in allocation from liquid assets to investment assets. Loans increased modestly to ¥413.58B, up +2.4%, but the growth in interest income substantially exceeded the increase in balances, indicating that improved yields were the primary driver of expanded fund-based income. On the liabilities side, deposits declined to ¥563.34B, down △2.2%, while negotiable certificates of deposit (+13.3%) and borrowings (+8.0%) increased, indicating a shift toward replacing deposit outflows with wholesale funding. Net assets increased to ¥212.16B, up +7.6%, as accumulated profits and improved Comprehensive Income lifted capital.

Earnings Quality

The current period’s earnings growth was supported by a substantive expansion in interest income in the Banking Business and restrained expense growth, with a substantial portion attributable to improvement in the recurring earnings structure. Interest income increased to ¥45.42B (+45.8%), while Interest Expenses surged to ¥12.19B (+351.6%). Nevertheless, Net Interest Income increased to ¥33.23B (+16.9%), indicating that net income expansion has been maintained even in a rising interest-rate environment, supporting earnings quality. Net extraordinary gains and losses were small at △¥0.07B, improving from △¥0.35B in the same period last year, demonstrating that earnings growth did not depend on temporary extraordinary gains. Meanwhile, Comprehensive Income of ¥17.87B substantially exceeded Net Income of ¥9.97B. This difference was primarily attributable to improved valuation of deferred hedge gains and losses, and the substantial impact of market-related factors on capital that are not reflected in Net Income warrants attention from an accrual perspective.

Earnings Forecast and Guidance

The full-year forecast is Ordinary Revenue of ¥89.80B, Ordinary Income of ¥16.10B (+43.8% YoY), and EPS of ¥44.83. The cumulative Q3 progress rate for Ordinary Revenue was 76.0%, nearly a standard level, while the progress rate for Ordinary Income was 90.4% (¥14.56B ÷ ¥16.10B), substantially ahead of schedule. Net Income was also at a high progress level of 89.1%, with cumulative Net Income of ¥9.97B against the full-year forecast of ¥11.20B. Both the earnings forecast and dividend forecast have been revised, reflecting a plan incorporating improved profitability. The fact that profit progress is outpacing revenue progress suggests potential upside on the profit side relative to the full-year plan; however, credit costs and gains or losses related to securities in Q4 will determine the final outcome.

Shareholder Returns

The Q2 dividend was ¥7.00 per share, and the full-year forecast dividend is ¥16.00. Based on forecast full-year Net Income of ¥11.20B, the forecast Payout Ratio is 35.7%; this figure is based solely on dividends and does not represent the Total Return Ratio, which includes share repurchases. Retained earnings increased by ¥7.00B YoY to ¥171.25B, indicating room to balance the accumulation of internal reserves with dividend payments. However, dividend capacity in the Banking Business depends not only on current-period earnings but also on trends in credit costs, valuation differences on securities, and the Equity Ratio (3.2%).

Risk Factors

1. Interest Rate and Funding Cost Risk: Interest Expenses surged +351.6% YoY, and expansion in Net Interest Income could reverse if this exceeds the +45.8% growth in interest income. NIM, a key quality indicator, remains low, making the maintenance of net interest margins during a period of rising deposit rates a key focus.

2. Revenue Concentration in the Banking Business: The Banking Business accounts for 87.6% of Ordinary Revenue. The Leasing Business experienced lower profit and a decline in its profit margin from 10.4% to 8.4%, while Other Businesses also recorded substantial declines of ▲30.8% in Ordinary Revenue and ▲65.7% in profit. Diversification of profit sources through the non-banking divisions has not progressed.

3. Securities and Capital Volatility Risk: Securities increased to ¥136.83B, up +13.1% YoY, while Valuation Difference on Other Securities deteriorated to △¥1.64B. With the Equity Ratio at 3.2%, fluctuations in interest rates and market prices may have a relatively substantial impact on capital.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

As comparative data is limited, it is difficult to reach a definitive assessment of the Company’s relative position within the industry.

Growth and Capital Efficiency

Revenue growth of 35.2%, driven by the expansion of interest income, can be considered a high rate of growth for a regional bank.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The progress rates for Ordinary Income and Net Income were 90.4% and 89.1%, respectively, substantially exceeding the standard 75% progress level, with improved profitability serving as the primary driver of the full-year plan.

2. Earnings growth is concentrated in the Banking Business, while declines continue in the Leasing Business and Other Businesses, limiting diversification of profit growth across businesses.

3. The sharp increase in Interest Expenses (+351.6% YoY) indicates rising funding costs accompanying changes in the interest-rate environment. Future net interest margin trends will therefore be a key structural focus in determining the sustainability of the profitability trend.

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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 available earnings data. Investment decisions should be made at your own responsibility, after consulting a professional as necessary.

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AI Financial Analysis

Executive Summary

Toho Bank delivered a strong FY2026 Q3 cumulative earnings performance, with ordinary income and net income materially outpacing revenue growth. Ordinary revenue increased 35.2% year on year to ¥68.28bn. Ordinary income rose 48.5% to ¥14.56bn. Net income attributable to owners increased 51.9% to ¥9.97bn. The ordinary-income margin expanded by approximately 190 basis points to 21.3%, from 19.4% a year earlier. The net-profit margin improved by approximately 160 basis points to 14.6%, from 13.0%. Interest income grew 45.9% to ¥45.42bn, supported by a 37.1% increase in interest on loans to ¥30.24bn and a 64.1% increase in interest and dividends on securities to ¥9.35bn. Fees and commissions income rose 2.4% to ¥11.65bn, providing modest non-interest-income growth. General and administrative expenses increased 7.3% to ¥28.37bn, substantially below the growth rate of ordinary revenue, demonstrating favorable operating leverage. Interest expense increased sharply to ¥12.19bn from ¥2.70bn, reflecting the higher-rate environment and a rising cost of deposits and market funding. Nevertheless, the increase in asset yields and securities income more than offset higher funding costs. The reported NIM of 0.80% remains below the 1.5% warning benchmark and indicates that underlying intermediation margins remain structurally thin despite the earnings improvement. Annualized ROE was 6.3%, an improvement in earnings capacity but still below the 8% general profitability benchmark. Net income reached 89.1% of the full-year forecast, while ordinary income reached 90.4%, both above the standard 75% Q3 progress rate. Revenue progress was 76.0%, broadly aligned with the normal Q3 run rate. This combination suggests that management's full-year outlook embeds a pronounced slowdown in earnings in the final quarter, or retains conservatism around rates, securities income, expenses, and credit costs. Comprehensive income was ¥17.87bn, well above net income, aided by improvements in accumulated other comprehensive income. The balance sheet remains deposit-funded and highly leveraged by nature, requiring continued monitoring of capital adequacy, funding costs, and asset quality.

Profitability Analysis

The reported annualized DuPont ROE of 6.3% decomposes into a 14.6% net-profit margin, 0.014x asset turnover, and 31.26x financial leverage. For a bank, low asset turnover and high leverage are inherent to the deposit-taking model, making margin resilience, credit costs, and regulatory capital more decision-useful than comparisons with non-financial companies. The principal positive driver of profitability was margin expansion: the net-profit margin rose to 14.6% from approximately 13.0% in the prior-year period, while the ordinary-income margin increased to 21.3% from approximately 19.4%. Ordinary income grew 48.5%, faster than ordinary revenue growth of 35.2%, because expenses were contained relative to income growth. General and administrative expenses rose only 7.3%, producing clear positive operating leverage. The rise in loan interest income to ¥30.24bn and securities interest and dividend income to ¥9.35bn was the main earnings driver. However, interest expense increased 351.6% year on year to ¥12.19bn, far faster than loan growth, highlighting sensitivity to further deposit-rate and wholesale-funding repricing. The 0.80% NIM quality alert is material: it indicates that the current earnings uplift has not yet translated into a high underlying intermediation margin by banking-sector standards. The tax burden was 0.688, equivalent to a 31.2% effective tax rate, modestly below the 0.70 reference level but not a major distortion. The interest burden was 0.995, as profit before tax of ¥14.49bn was close to ordinary income of ¥14.56bn. Extraordinary items were immaterial overall, with ¥0.18bn of extraordinary income and ¥0.90bn of extraordinary loss, including ¥0.23bn of impairment loss. Accordingly, the improvement in ordinary income and net income appears predominantly recurring rather than dependent on extraordinary gains.

Growth Assessment

Revenue growth was broad enough to support a favorable near-term earnings trajectory, led primarily by banking operations. Banking-segment external ordinary revenue increased 41.1% year on year to ¥59.87bn, and segment profit increased 49.6% to ¥14.61bn. Leasing external revenue grew 13.4% to ¥6.54bn, although leasing segment profit declined 8.8% to ¥0.55bn, indicating margin pressure in that business. Credit-guarantee external revenue increased 1.9% to ¥0.70bn, while segment profit rose 10.8% to ¥1.15bn. Other businesses, including credit-card operations and securities activities following the reporting-segment reclassification, recorded a 30.8% decline in external revenue to ¥1.27bn and a 65.7% decline in segment profit to ¥0.28bn. The banking business is therefore clearly the core business by profit contribution and the principal determinant of consolidated earnings. Loans and bills discounted increased 2.4% year on year to ¥4,135.82bn, providing a moderate volume base for interest-income growth. Securities increased ¥158.89bn year on year to ¥1,368.35bn, which supported the increase in securities-related interest income but also adds market-value and reinvestment sensitivity. Full-year forecast progress is ahead of schedule: ordinary income is at 90.4% of the ¥16.10bn forecast and attributable net income is at 89.1% of the ¥11.20bn forecast, versus a standard 75% at Q3. Revenue is at 76.0% of the ¥89.80bn forecast, close to the standard pace. The difference between strong profit progress and normal revenue progress implies that the final-quarter forecast assumes lower margins, higher costs, higher credit costs, or more conservative securities-related assumptions. The announced forecast revision warrants particular attention because it indicates management has updated expectations during the year.

Financial Health

Total assets were ¥6,631.62bn, down 0.3% year on year, while total equity increased 7.6% to ¥212.16bn. The increase in equity was supported by cumulative profit and a recovery in valuation and translation adjustments, which improved to a positive ¥4.69bn from negative ¥3.17bn a year earlier. Deposits declined ¥129.14bn year on year to ¥5,633.43bn, while loans increased ¥96.42bn to ¥4,135.82bn. The resulting calculated loan-to-deposit ratio was approximately 73.4%, within the 70-90% banking benchmark and indicative of a deposit-funded lending base. Negotiable certificates of deposit increased ¥51.81bn to ¥441.90bn, while borrowings increased ¥17.31bn to ¥233.65bn, suggesting some greater reliance on non-deposit funding alongside the reduction in deposits. Cash and due from banks declined ¥266.44bn, or 21.6%, to ¥969.04bn, and should be monitored together with deposit flows and securities liquidity. The reported debt-to-equity ratio of 30.26x triggers the high-leverage quality alert because it is well above the 2.0x generic corporate threshold. In banking, however, this ratio principally reflects deposits and other funding liabilities rather than discretionary corporate leverage, so it should not be interpreted using industrial-company leverage standards alone. Its practical implication is that a relatively small percentage change in asset values, credit losses, or funding conditions can have a meaningful effect on the ¥212.16bn equity base. The reported capital adequacy ratio was 3.1%, up from 2.9%; relative to the supplied Basel III reference range, this is below the 8% minimum benchmark. The regulatory definition, consolidation scope, and applicability of this reported ratio should be considered when assessing capital strength, but the disclosed level makes capital adequacy a key monitoring item. Intangible assets were only 0.2% of total assets, limiting balance-sheet dependence on acquired intangible value.

Notable B/S Changes

Cash and due from banks: -¥266.44bn (-21.6%) to ¥969.04bn - lower immediately available liquidity should be assessed alongside deposit outflows and funding composition. Securities: +¥158.89bn (+13.1%) to ¥1,368.35bn - supports securities interest income but increases sensitivity to interest-rate and market-valuation movements. Deposits: -¥129.14bn (-2.2%) to ¥5,633.43bn - deposit attrition may raise funding-cost and liquidity-management pressure if sustained. Loans and bills discounted: +¥96.42bn (+2.4%) to ¥4,135.82bn - moderate loan growth expands earning assets while requiring continued credit-quality discipline. Total equity: +¥149.29bn (+7.6%) to ¥212.16bn - stronger capital base reflects profit retention and improved accumulated other comprehensive income. Negotiable certificates of deposit: +¥51.81bn (+13.3%) to ¥441.90bn - indicates increased use of non-deposit funding and potential funding-cost sensitivity.

Cash Flow Quality

Dividend Sustainability

The full-year dividend forecast is ¥16.00 per share, compared with ¥7.00 per share paid at Q2, implying an expected year-end dividend of ¥9.00 per share. Against forecast EPS of ¥44.83, the implied full-year dividend payout ratio is approximately 35.7%. This is below the 60% sustainability benchmark and leaves a meaningful portion of earnings available for capital accumulation. The interim dividend of ¥7.00 per share represented 17.7% of FY2026 Q3 cumulative EPS of ¥39.92. Given the bank's reported capital adequacy ratio and the balance-sheet sensitivity inherent in banking, dividend capacity should be assessed principally against regulatory capital generation as well as earnings.

Risk Assessment

Business risks include Net interest margin risk: the reported NIM of 0.80% is below the 1.5% warning benchmark. Although interest income rose strongly, the margin remains thin and could be pressured if deposit and market funding costs reprice faster than loan yields., Interest-rate and securities-market risk: securities totaled ¥1,368.35bn, and accumulated other comprehensive income improved sharply during the period. Changes in interest rates and market valuations can affect unrealized gains or losses, capital, and future securities income., Regional banking franchise risk: loan balances grew only 2.4% year on year, making sustained earnings growth dependent on pricing discipline, fee income, and securities income as well as loan-volume expansion., Leasing profitability risk: leasing segment revenue increased 13.4%, but segment profit declined 8.8%, indicating that higher funding costs or pricing pressure may be compressing returns..

Financial risks include Capital adequacy risk: the disclosed capital adequacy ratio was 3.1%, below the supplied 8% Basel III minimum reference. The measurement basis should be monitored closely, as limited capital headroom would constrain loss absorption and shareholder distributions., Funding mix risk: deposits declined ¥129.14bn while negotiable certificates of deposit rose ¥51.81bn and borrowings rose ¥17.31bn. A continued shift toward higher-cost funding could reduce earnings sensitivity to rising asset yields., High balance-sheet leverage: the 30.26x debt-to-equity ratio is structurally typical for a bank but means that credit losses, securities valuation declines, or deposit outflows can have an amplified effect on equity., Liquidity management risk: cash and due from banks decreased 21.6% year on year to ¥969.04bn, requiring monitoring against future deposit movements and funding-market conditions..

Key concerns include The quality-alert NIM of 0.80% is the clearest operating concern: its root cause is a still-narrow spread between earning-asset yields and funding costs; the impact is that continued increases in deposit costs could materially slow earnings momentum., The high-leverage alert reflects a 30.26x D/E ratio. This is normal in context for deposit-funded banking, but it reinforces the importance of capital ratios, asset quality, and liquidity rather than constituting evidence of aggressive corporate borrowing., Q3 ordinary-income and net-income progress of 90.4% and 89.1%, respectively, exceeds the normal 75% run rate. The impact is elevated sensitivity to the assumptions embedded in the revised full-year forecast for the final quarter., The bank recorded impairment loss of ¥0.23bn in the banking segment, associated with reduced cash flows, changes in asset use, or lower land values. The amount is small relative to earnings, but it underscores exposure to property values and branch-related fixed assets..

Investment Implications

Key takeaways include FY2026 Q3 earnings showed strong positive operating leverage, with ordinary income up 48.5% and net income up 51.9%., The core banking segment generated ¥14.61bn of segment profit and accounted for the overwhelming majority of consolidated segment profitability., NIM of 0.80% remains below the warning threshold despite the substantial increase in interest income., The calculated loan-to-deposit ratio of 73.4% is within the banking-sector target range, but deposit balances fell year on year., The implied full-year dividend payout ratio of approximately 35.7% is moderate relative to forecast earnings..

Metrics to watch include NIM and the relative repricing of loan yields, securities yields, deposit rates, and wholesale funding costs, Deposit trends, negotiable certificates of deposit, borrowings, and cash and due-from-bank balances, Capital adequacy ratio and the capital effect of securities valuation movements, Loan growth, credit costs, non-performing-loan indicators, and allowance coverage, Full-year forecast delivery given Q3 ordinary-income progress of 90.4% and net-income progress of 89.1%, Leasing segment margin recovery and the profitability trend in other businesses.

Regarding relative positioning, The company combines a deposit-funded regional-bank balance sheet and moderate loan growth with unusually strong year-on-year earnings momentum in FY2026 Q3. Its revenue and profit margins compare favorably with general corporate benchmarks, but bank-specific positioning is constrained by a sub-1% NIM and the disclosed low capital-adequacy ratio relative to the supplied Basel reference.