The Nanto Bank (8367) FY2026 FY Earnings Report

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Executive Summary

Banking operations expanded on the tailwind of rising interest rates, resulting in higher revenue and earnings. Ordinary income was ¥1,156.7B (+12.2% YoY), ordinary income was ¥248.2B (+26.1%), and net income was ¥170.6B (+24.0%), securing earnings growth that exceeded revenue growth. While the increase in interest on loans and the restraint of expense growth lifted the ordinary income margin from 19.1% in the prior year to 21.5%, interest on deposits also increased significantly, making future net interest margin trends a key focus.

Factors Affecting Earnings

【Revenue】Ordinary income increased 12.2% YoY to ¥1,156.7B. Banking operations accounted for the majority at ¥999.4B (86.5% of the total), mainly due to an increase in interest on loans to ¥548.9B. Leasing operations amounted to ¥119.0B, while other operations amounted to ¥37.0B; both remained stable despite their relatively small scale.

【Profit and Loss】Ordinary income increased 26.1% YoY to ¥248.2B, while net income increased 24.0% to ¥170.6B, representing earnings growth exceeding revenue growth. The banking operations segment posted a high profit margin of 23.7%, substantially exceeding the 0.6% recorded by leasing operations. Extraordinary gains and losses were limited, at a gain of ¥0.5B and a loss of ¥1.7B, indicating that earnings growth resulted from expansion in core profitability rather than temporary factors. In conclusion, the Company achieved higher revenue and earnings.

Segment Analysis

Banking operations are the core business, generating the majority of consolidated profit with ordinary income of ¥999.4B, segment profit of ¥237.2B, and a profit margin of 23.7%. Leasing operations generated ordinary income of ¥119.0B but segment profit of only ¥0.7B, resulting in a profit margin of 0.6%; their contribution to profit is limited. Other businesses, including credit guarantees, real estate leasing and management, and securities operations, generated ordinary income of ¥37.0B and achieved a high profit margin of 47.7%, although they accounted for only 3.2% of the consolidated scale.

Key Financial Indicators

【Profitability】The ordinary income margin of 21.5% (19.1% in the prior year) and net income margin of 14.8% (13.1% in the prior year) both improved year on year. Funds investment income was ¥775.4B, and after deducting funds procurement expenses of ¥165.3B, funds income increased 9.3% YoY to ¥610.2B.【Cash Flow Quality】Operating Cash Flow (OCF) was negative ¥4,362.1B, a level characteristic of banks that reflects funding transactions involving deposits, loans, and securities; its nature differs from the OCF/net income ratio of general operating companies.【Investment Efficiency】ROE improved to 5.7% from 4.6% in the prior year, but remained below the general capital efficiency benchmark of 8%. EPS was ¥108.64 (¥85.80 in the prior year, +26.6%), while BPS was ¥1,910.83.【Financial Soundness】The equity ratio was 4.5%. The loan-to-deposit ratio, calculated from loans of ¥46,012.7B and deposits of ¥59,119.3B, was approximately 77.8%, indicating a stable funding structure based on deposits.

Cash Flow Analysis

Operating Cash Flow (OCF) was negative ¥4,362.1B, deteriorating from negative ¥1,679.0B in the prior year. This reflects bank-specific funding and investment transactions, including a ¥1,361.4B YoY increase in loans, and therefore cannot be evaluated on the same basis as a profit-to-cash conversion indicator for general operating companies. Investing CF generated proceeds of ¥1,998.7B due to reductions in securities holdings and other factors, but this was insufficient to offset the OCF outflow. Cash and cash equivalents decreased by ¥2,428.1B to ¥43.38B at the end of the period. Financing CF was negative ¥64.7B, reflecting share repurchases of ¥10.1B and dividend payments. Capital expenditures of ¥44.1B were broadly in line with depreciation and amortization of ¥43.6B, generally maintaining the level of reinvestment in the existing operating platform.

Earnings Quality

The expansion in earnings during the period resulted from an increase in recurring funds income. Extraordinary income of ¥0.5B and extraordinary loss of ¥1.7B, including an impairment loss of ¥0.6B, were both limited in scale, indicating limited reliance on temporary factors. Net fee and commission income declined slightly from the prior year to ¥114.1B, meaning that revenue growth was primarily driven by interest income. Comprehensive income improved significantly to ¥288.0B from negative ¥153.9B in the prior year, mainly due to a ¥137.2B change in valuation differences on securities. The structure under which net assets are affected by market fluctuations therefore remains unchanged. The gap between net income of ¥170.6B and comprehensive income of ¥288.0B was primarily attributable to changes in valuation differences on other securities.

Earnings Forecast and Guidance

The forecast for the next fiscal year is ordinary income of ¥325.0B (+30.9% versus the prior fiscal year) and net income of ¥215.0B (+30.1%), anticipating further growth above the earnings growth rate in the 26% range achieved during the current period. Forecast EPS is ¥140.07 (after the stock split). The key issue in achieving these targets will be whether the improvement in loan yields can continue to outpace the increase in deposit costs.

Shareholder Returns

The payout ratio was 39.5%, implying total dividends of approximately ¥68.4B against net income of ¥170.6B. Including share repurchases of ¥10.1B, the total return ratio was approximately 46%. A 1-for-5 stock split was implemented effective April 1, 2026, and attention is required because the current-period dividend (on a pre-split basis) and the forecast dividend of ¥56.00 for the next fiscal year (on a post-split basis) use different presentation bases. The forecast payout ratio based on forecast EPS of ¥140.07 is approximately 40.0%, indicating a plan to broadly maintain the current level of shareholder returns.

Risk Factors

1. Concentration of earnings in banking operations: Banking operations account for 86.5% of ordinary income, meaning that fluctuations in regional economic conditions and the credit environment directly affect consolidated earnings.

2. Net interest margin: NIM remained at 1.33%, while interest on deposits increased from ¥37.6B in the prior year to ¥118.0B. Continued increases in deposit rates could constrain growth in funds income.

3. Significant OCF outflow: Operating Cash Flow (OCF) was negative ¥4,362.1B, and cash and cash equivalents decreased by ¥2,428.1B. Although these figures reflect bank-specific funding transactions, the funding position requires ongoing monitoring.

Industry Benchmarks (Reference; Compiled by the Company)

Profitability and Returns

The net income margin is 2.9pt above the industry median.

Growth and Capital Efficiency

The revenue growth rate is 2.1pt above the industry median and is close to the upper limit of the IQR.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Both ordinary income and net income increased by approximately 26% YoY, confirming that positive operating leverage from the expansion of interest income and expense control contributed to the improvement in profit margins.

2. NIM of 1.33% remains low in absolute terms, and the fact that the rate of increase in interest on deposits is approaching the rate of increase in interest on loans warrants close attention as a potential factor slowing the growth of funds income going forward.

3. The forecast for the next fiscal year incorporates growth exceeding current-period results, with ordinary income of +30.9% and net income of +30.1%. The relative relationship between loan and deposit rates and trends in credit costs will be the key areas for monitoring progress.

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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 responsibility, and you should consult a professional as necessary.

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