THE SHIMIZU BANK,LTD. FY2026 FY Earnings Report

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Executive Summary

FY2026 results achieved revenue of ¥336.7B (YoY +¥45.3B +15.5%), Ordinary Income of ¥31.3B (YoY +¥8.3B +36.2%), and Net Income of ¥20.9B (YoY +¥2.9B +15.8%), reflecting top- and bottom-line growth. Under a business structure centered on banking, interest income increased significantly to ¥205.2B (prior year ¥158.4B), and fee income also remained firm at ¥115.9B (prior year ¥114.7B), converting topline growth steadily into profit. Operating margin improved to 9.3% (up +1.4pt from 7.9% prior year), while net margin was 6.2% (down -0.2pt), with efficiency gains driving profit growth at the ordinary level; however, a tax burden ratio of 33.6% tempered bottom-line expansion. Total assets were 1兆8,138B (YoY +¥66B +0.4%), net assets increased to 810B (YoY +¥78B +10.6%), and the Equity Ratio improved to 4.5% (prior year 4.0%). Comprehensive income was ¥83.4B, substantially exceeding net income; valuation gains on securities +¥29.9B, deferred hedge gains +¥19.0B, and pension adjustments +¥13.8B boosted other comprehensive income.

Drivers of Performance

[Revenue] Ordinary revenues of ¥336.7B rose ¥45.3B YoY (+15.5%). By segment, Banking accounted for ¥268.2B (79.7% share) as the core, Leasing & Credit Card ¥63.8B (19.0%), and Others ¥4.7B (1.4%). Banking revenue growth was mainly driven by a large increase in interest income (YoY +¥46.8B): loan interest rose to ¥161.5B (prior year ¥131.1B) and securities interest/dividends to ¥32.1B (prior year ¥20.8B), reflecting improved asset-side yields in a normalization of interest rates. Fee income was ¥115.9B (prior year ¥114.7B, +¥1.2B), a marginal increase, with non-interest income from investment trusts and insurance brokerage remaining steady but not substantially expanding.

[Profitability] Ordinary Income of ¥31.3B (YoY +¥8.3B +36.2%) grew faster than revenue. Operating expenses were ¥305.4B (prior year ¥268.4B, +¥37.0B +13.8%), growing moderately relative to revenue, and the approximate cost-to-income ratio (CIR) improved to 90.7% (prior year 92.1%). Breakdown: general and administrative expenses including personnel and occupancy decreased to ¥150.4B (prior year ¥155.7B), fee expenses were ¥65.3B (prior year ¥64.7B) marginally higher, and other operating expenses were ¥24.2B (prior year ¥21.6B). Provision for loan losses was newly recorded at ¥6.7B (no prior year amount), but the credit cost ratio against loan balance of ¥1,268.3B is about 0.05%, remaining low with credit quality intact. Pre-tax income of ¥31.2B was reduced by corporate taxes of ¥10.5B (effective tax rate 33.6%); after noncontrolling interests of ¥0.7B, net income attributable to owners of the parent was ¥20.0B. Extraordinary items were minor, limited to impairment losses of ¥0.1B. In conclusion, large interest income growth and maintained expense discipline drove revenue and profit increases.

Segment Analysis

Banking recorded external customer ordinary revenues of ¥268.2B (no prior year data shown) and segment profit of ¥29.8B, accounting for the majority of group profit. It operates deposit-taking, lending, securities investment, investment trust sales, and insurance agency businesses, showing interest income of ¥208.1B, funding costs of ¥42.8B, and net fee income (fees earned - fees paid) of ¥50.6B, indicating a stable revenue base. Leasing & Credit Card (Shimizu Lease & Card Co., Ltd.) posted external customer ordinary revenues of ¥63.8B and segment profit of ¥2.8B; both leasing and card businesses performed steadily but represented only 19.0% of the whole. Others (credit guarantee business, etc.) had external revenues of ¥4.7B and segment profit of ¥0.8B, small in scale. Consolidated Ordinary Income after intersegment adjustments was ¥31.3B, underscoring that the Banking segment drives the group’s earnings power.

Key Financial Metrics

[Profitability] Operating margin of 9.3% (improved +1.4pt from 7.9%) reflects continued expense discipline; net margin of 6.2% (down -0.2pt) saw limited improvement due to an effective tax rate of 33.6%. ROE of 2.6% (prior year 2.5%) remains low; financial leverage is 22.4x (Total assets / Equity), reflecting banking characteristics, yet low net margin suppresses capital efficiency. NIM (net interest margin) is approximately 1.28% (interest income - interest expense = ¥162.6B ÷ total loans & securities approximately ¥1.27T), below a general caution benchmark of 1.5%, and thin interest spreads constrain structural profitability. [Cash Quality] Operating Cash Flow (OCF) was -¥102.1B versus net income ¥20.9B, giving an OCF/Net Income of -4.88x, a large divergence. Pre-working-capital OCF subtotal was -¥96.6B, with stock changes in loans, deposits, and securities driving high cash flow volatility typical of banks. Free Cash Flow was -¥172.3B (OCF -¥102.1B + Investing CF -¥70.2B), indicating internal cash generation cannot cover dividends and investments, requiring supplementation from stock (cash & deposits balance ¥225.1B). [Investment Efficiency] CapEx was ¥10.2B versus depreciation of ¥15.6B, with CapEx/Depreciation at 0.65x, a restrained level that risks delayed mid-to-long-term efficiency and digitalization investments. [Financial Soundness] Equity Ratio improved to 4.5% (prior year 4.0%), above domestic minimums but below international benchmark of 8%, leaving limited capital buffer. Loan-to-deposit ratio was 77.7% (loans ¥1,268.3B ÷ deposits ¥1,631.5B), within a healthy range and short-term liquidity risk contained. Interest-bearing debt was borrowings of ¥77.18B (prior year ¥118.03B, -34.6%), compressing market funding and stabilizing funding structure.

Cash Flow Analysis

OCF turned sharply negative to -¥102.1B (prior year +¥738.5B, -113.8%), with OCF/Net Income at -4.88x indicating a large divergence from net income ¥20.9B. Pre-working-capital OCF subtotal was -¥96.6B (prior year +¥739.2B), showing that increases in loans +¥150.7B, securities portfolio adjustments, and deposits +¥365.0B drove cash declines during the period. Even after non-cash depreciation adjustment of ¥15.6B, cash generation was weak; corporate tax payments of ¥5.7B (refund ¥0.2B) among other items exposed volatility from stock changes unique to banks. Investing CF was -¥70.2B (prior year +¥47.4B): capital expenditures ¥10.2B (prior year ¥10.5B) and intangible asset investment ¥1.2B were partially offset by fixed asset sales proceeds ¥6.1B, but net outflows remained. Financing CF was -¥5.9B (prior year -¥11.2B), composed of dividend payments ¥6.8B (prior year ¥6.3B), proceeds from sale of treasury stock ¥1.0B (prior year ¥0.5B), and lease liability repayments ¥0.1B, maintaining shareholder returns. Cash and cash equivalents decreased ¥178.2B from opening ¥2424.8B to closing ¥2246.6B. EBITDA is approximated as Ordinary Income ¥31.3B + Depreciation ¥15.6B = ¥46.9B, yielding OCF/EBITDA of -2.18x and indicating weak cash conversion and insufficient fundamental cash generation excluding stock volatility.

Quality of Earnings

The difference between Ordinary Income ¥31.3B and Net Income ¥20.9B is mainly due to corporate taxes ¥10.5B (effective tax rate 33.6%); excluding noncontrolling interest ¥0.7B, one-off items are minimal. Extraordinary items were only impairment losses of ¥0.1B, so recurring profit reflects earnings quality. While detailed composition of non-operating income and expenses is not disclosed, one-off items included in other operating expenses ¥24.2B appear limited. Comprehensive income ¥83.4B substantially exceeds net income ¥20.9B; the ¥62.5B gap stems from Other Comprehensive Income (securities valuation gains +¥29.9B, deferred hedge gains +¥19.0B, pension adjustments +¥13.8B), with improved interest and market conditions boosting valuation gains. These are unrealized gains and will convert to realized gains/losses in the future. The large divergence between OCF and net income (OCF/Net Income -4.88x) is caused by stock changes in loans and deposits typical of banks, creating a material accrual vs cash accounting difference. The recurring revenue base is secured by both interest and fee income, indicating low dependence on one-off items, but stock volatility increases cash-flow volatility and is a consideration for earnings quality.

Forecasts & Guidance

Full-year guidance projects Ordinary Revenues ¥378.0B, Ordinary Income ¥38.0B, and Net Income ¥25.0B; progress rates against current results are Ordinary Revenues 89.1%, Ordinary Income 82.5%, and Net Income 83.6%. Ordinary Revenues plan implied YoY +21.2% growth while current period achieved +15.5% (below plan); Ordinary Income plan implied YoY +65.2% while current period achieved +36.2% (shortfall). Primary causes for underperformance are likely interest income failing to widen as planned and slower-than-expected expense reductions. EPS forecast is ¥220.87 versus current EPS ¥177.20 (progress 80.2%). Dividend forecast is ¥30.00 annual (interim & year-end each), with current period actual dividend ¥60.00 (interim ¥30.00 + year-end ¥30.00 forecast) expected to match plan. Achieving full-year guidance requires substantial outperformance in H2; based on current trends, achieving the plan appears difficult and downside guidance revision risk remains toward year end.

Shareholder Returns

Current period dividend is interim ¥30.00 and year-end forecast ¥30.00, totaling ¥60.00 per annum. This maintains the prior year dividend of ¥60.00 (interim ¥30.00, year-end ¥30.00). Payout Ratio is 36.8% (Net Income attributable to owners of the parent ¥20.0B ÷ shares outstanding 11,287k = EPS ¥177.20, dividend ¥60.00 ÷ ¥177.20) and is within a sustainable range. DOE (Dividend on Equity) is 0.9% (total dividends ¥0.69B ÷ year-end net assets ¥810.1B), indicating limited burden on shareholders’ equity. Free Cash Flow is -¥172.3B, but total dividends ¥0.69B are adequately covered by cash & deposits balance ¥225.1B (closing cash & deposits ¥225.1B), so practical sustainability of dividends is assured. No share buybacks were conducted (treasury stock acquisition ¥0), concentrating shareholder returns on dividends. Going forward, maintaining current dividend levels will be conditional on simultaneously increasing the Equity Ratio (from current 4.5% toward international standard 8%) and achieving profit growth.

Risk Factors

1. Structural constraints from low NIM and capital efficiency: NIM 1.28% is below caution threshold 1.5%, and ROE 2.6% and net margin 6.2% remain low. Thin interest spreads constrain profitability, and CIR improvement alone (current 90.7%) will likely be insufficient for substantial ROE improvement. If deposit rates rise with lag, NIM could compress further and capital efficiency may deteriorate.

2. Volatility of Operating Cash Flow and internal cash generation: OCF -¥102.1B, OCF/Net Income -4.88x, and FCF -¥172.3B indicate deeply negative cash flows during the period. While driven by bank-specific stock changes (loans, deposits, securities), fundamental cash generation (OCF/EBITDA -2.18x) is weak, and growth investment and dividends depend on cash stock (¥225.1B). If funding costs rise in a rate-up cycle, cash flow deterioration risk increases.

3. Limited Equity Ratio and capital buffer: Equity Ratio 4.5% exceeds domestic minimums but is far from the international benchmark 8%, so capital buffer is limited. Much of the comprehensive income ¥83.4B consists of Other Comprehensive Income (unrealized valuation gains); adverse interest or spread movements could reverse valuation gains, rapidly reducing net assets and the Equity Ratio. Off-balance contingent liabilities such as guarantees & accepted bills ¥4.63B also pose potential capital pressure.

Industry Benchmark (Reference, Company Analysis)

Profitability & Returns

Net margin is 5.7pt below the industry median, placing profitability in the lower peer group.

Growth & Capital Efficiency

Revenue growth rate is 5.4pt above the industry median, placing growth in the upper peer group.

※ Source: Company aggregation

Earnings Highlights

1. Sustainability of revenue and profit growth in a rate-normalization environment: This period’s revenue increase was mainly driven by +¥46.8B in interest income, and Ordinary Income rose +36.2% with operational leverage emerging. Despite low NIM 1.28%, there remains room to improve asset-side yields. The ability to reprice loans ahead of a broad deposit rate uptick and to sustain CIR improvement (from 90.7% toward low-80s) will be key to lifting ROE/ROIC and maintaining profit growth.

2. Simultaneous monitoring of capital buffers and cash flow stability is required: Equity Ratio 4.5% is acceptable domestically but far from 8% international benchmark, so stress resilience is limited. Most of the comprehensive income ¥83.4B is unrealized valuation gains, susceptible to reversal with market movements. OCF -¥102.1B and FCF -¥172.3B mean internal cash generation is weak and dividends/growth investments depend on cash stock ¥225.1B. Going forward, building up Equity Ratio (via retained earnings) while restoring positive OCF (normalizing stock changes) is essential to strengthen both capital and cash buffers for medium-to-long-term financial soundness.

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This report is an earnings analysis document automatically generated by AI from 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 from public financial statements. Investment decisions are your responsibility; please consult professionals as needed before making investment decisions.