THE TOHOKU BANK (8349) FY2026 Q3 Earnings Report

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Executive Summary

Tohoku Bank’s cumulative results for the current Q3 period showed higher revenue and higher earnings, driven by increases in loans and deposits, clearly indicating an improving earnings trend. Revenue (ordinary revenue) was ¥133.3B (¥111.8B in the same period of the previous year, YoY+19.2%), Ordinary Income was ¥22.0B (¥15.5B, YoY+41.9%), and Net Income attributable to owners of the parent was ¥15.4B (¥10.4B, YoY+48.3%). The primary drivers of the revenue increase were interest on loans (+20.2% YoY) and higher fee income, while on the earnings front, the growth in ordinary revenue exceeded the increase in expenses, resulting in a wider earnings increase. Progress toward the full-year Ordinary Income forecast of ¥26.0B was 84.5%, indicating steady progress.

Factors Affecting Financial Performance

【Revenue】Ordinary revenue was ¥133.3B (YoY+19.2%). By segment, Banking Operations led the overall result with ¥119.9B (90.0% composition ratio, YoY+19.2%), while Leasing Operations posted strong growth at ¥10.0B (7.5% composition ratio, YoY+25.8%). Other Businesses, including credit card operations, remained at ¥3.5B (2.6% composition ratio, YoY+3.9%). The growth in Banking Operations was primarily attributable to interest on loans (¥75.65B, +20.2% YoY) and the expansion of funds investment income.

【Profit and Loss】Ordinary Income was ¥22.0B (YoY+41.9%), with the Banking Operations segment driving the earnings improvement at ¥21.4B (YoY+45.6%, profit margin 17.8%). Meanwhile, Ordinary Income from Leasing Operations declined to ¥0.3B (YoY-25.6%), and Other Businesses also declined to ¥0.3B (YoY-23.1%), with higher expenses putting pressure on profit margins. Extraordinary gains and losses were minimal, consisting only of an extraordinary loss of ¥0.03B, and the impact of temporary factors was limited. The difference between Ordinary Income and Net Income was limited to the normal level of difference attributable to income taxes and other taxes (¥6.5B, effective tax rate approximately 29.8%). In conclusion, the Bank achieved higher revenue and higher earnings, with wider spreads and loan growth in its core Banking Operations driving the overall earnings increase.

Segment Analysis

The Banking Operations segment recorded ordinary revenue of ¥119.9B (90.0% composition ratio) and Ordinary Income of ¥21.4B (profit margin 17.8%, improved from 16.1% in the previous year), achieving higher revenue and higher earnings and accounting for the majority of total profit (97.2% composition ratio). Leasing Operations grew to ordinary revenue of ¥10.0B (YoY+25.8%), but Ordinary Income declined to ¥0.3B (YoY-25.6%, profit margin 3.2%), indicating an adjustment phase in profitability despite higher revenue. Other Businesses (credit card operations) generated ordinary revenue of ¥3.5B and Ordinary Income of ¥0.3B (profit margin 8.7%); while small in scale, the segment maintained a stable level of earnings. An impairment loss on fixed assets occurred in the Banking Operations segment, but was disclosed as immaterial, and its impact on financial performance was limited.

Key Financial Indicators

【Profitability】Net profit margin improved to 11.6% (9.3% in the same period of the previous year), while the Ordinary Income margin increased to 16.5% (13.9% in the previous year). Annualized ROE was 5.8%, and the Equity Ratio was 3.4%; both reflect the high-leverage structure of a deposit-based banking business. 【Cash Flow Quality】With extraordinary gains and losses virtually zero, the difference between Ordinary Income and Net Income was attributable solely to the tax burden, indicating stable earnings quality. 【Investment Efficiency】Basic EPS was ¥161.84 (¥109.50 in the previous year, YoY+47.8%), while diluted EPS was ¥92.40, confirming the potential dilutive impact of preferred shares. 【Financial Soundness】Against total assets of ¥10,491.9B, net assets were ¥356.1B. It should be noted that the Equity Ratio of 3.4% is an accounting indicator distinct from the regulatory capital ratios applicable to banks. Deposits of ¥940.6B compared with loans of ¥717.7B resulted in a loan-to-deposit ratio of approximately 76.3%, indicating a stable balance between funds deployment and funding.

Cash Flow Analysis

As the disclosures in the statement of cash flows are limited for these results, fund flows are analyzed based on changes in the balance sheet. Cash and deposits increased to ¥79.0B (¥63.4B in the same period of the previous year, +24.6%), while deposits also expanded to ¥940.6B (¥921.7B in the previous year, +2.1%). Loans increased to ¥717.7B (¥694.8B in the previous year, +3.3%), indicating that loan growth funded by the increase in deposits is progressing. Securities were nearly flat at ¥218.2B (¥215.4B in the previous year, +1.3%), suggesting that funds were primarily allocated to loans. Intangible fixed assets increased significantly to ¥5.6B (¥3.4B in the previous year, +63.3%), possibly indicating increased investment in systems and other areas.

Earnings Quality

Current-period profit resulted from the growth of recurring Banking Operations, while both extraordinary gains and extraordinary losses were immaterial, consisting only of an extraordinary loss of ¥0.03B, with virtually no contribution from temporary factors. Funds investment income, equivalent to non-operating income (interest income of ¥92.9B), and fee income (¥22.6B) were the primary earnings drivers, with no significant change in their composition from the previous year. Meanwhile, comprehensive income was ¥7.0B, ¥8.4B below Net Income of ¥15.4B, primarily because valuation differences on securities declined by ¥8.0B. Although this divergence is an accounting factor attributable to changes in the fair value of securities held and does not represent realized gains or losses, it should be noted that an expansion in unrealized losses accompanying changes in interest rates and market conditions could become a factor contributing to future earnings volatility.

Earnings Forecast and Guidance

The full-year earnings forecasts are Ordinary Income of ¥26.0B (YoY+31.7%), Net Income of ¥17.0B, forecast EPS of ¥177.26, and annual dividends of ¥50, with no revisions reported in any case. Quarterly results were Ordinary Income of ¥22.0B, representing progress of 84.5%, and Net Income of ¥15.4B, representing progress of 90.6%, indicating steady progress against the full-year forecasts. In particular, the progress rate for Net Income exceeds that for Ordinary Income, suggesting potential upside to the full-year plan depending on the tax burden and extraordinary gains and losses in the second half.

Shareholder Returns

The annual dividend forecast is ¥50 per share of common stock (¥25 actual dividend at the end of Q2), with no revision. The Payout Ratio against forecast EPS of ¥177.26 is calculated at 28.2% (¥50 ÷ ¥177.26), which is a conservative level. No share buyback has been disclosed, and shareholder returns are evaluated based solely on dividends. Separately, annual dividends of ¥5.75 per share (forecast) have been set for Class 1 preferred shares, which have different rights.

Risk Factors

1. High financial leverage: With an Equity Ratio of 3.4% and total assets of ¥10,491.9B compared with net assets of ¥356.1B, the Bank has a highly leveraged structure resulting from its deposit-based business model. The thin capital buffer may create vulnerability in the event of a sharp increase in credit costs.

2. Risk of fluctuations in securities valuation losses: Valuation differences on securities expanded from -¥69.5B in the same period of the previous year to -¥77.5B, reducing comprehensive income by ¥8.4B compared with Net Income. Unrealized losses may expand further in an environment of rising interest rates.

3. Risk of expensing associated with the increase in intangible fixed assets: Intangible fixed assets increased +63.3% year on year (¥3.4B→¥5.6B), and it is necessary to monitor developments regarding future amortization expenses and the occurrence or non-occurrence of impairment losses.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Growth and Capital Efficiency

※Source: Compiled by the Company

Key Points from the Financial Results

1. The Ordinary Income margin of the Banking Operations segment increased to 17.8% (16.1% in the previous year), confirming that loan growth and the increase in funds investment income were the primary drivers of higher earnings. This fact suggests a qualitative improvement in the earnings structure.

2. Comprehensive income was only ¥7.0B compared with Net Income of ¥15.4B, with the negative ¥8.0B valuation difference on securities being the primary cause of the gap. The financial results show a divergence between realized gains and fair value movements, which is an important consideration when assessing earnings volatility.

3. Intangible fixed assets increased +63.3% year on year, confirming an expansion in the scale of investment. In future results, the ability to continuously monitor amortization expenses and the occurrence or non-occurrence of impairment losses will provide a basis for evaluating the effectiveness of these investments.

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This report is an earnings analysis document automatically generated by AI through analysis of 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 disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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