The Nanto Bank (8367) FY2026 Q3 Earnings Report

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Executive Summary

The Company delivered higher revenue and earnings, primarily driven by the expansion of interest income, resulting in a high-quality earnings performance in which the earnings growth rate exceeded the revenue growth rate. Ordinary revenue was ¥849.4B (+12.5% YoY), ordinary income was ¥189.7B (+14.2%), and quarterly net income attributable to owners of the parent was ¥132.9B (+23.2%), substantially exceeding the growth in ordinary income. The improvement in operating leverage, as indicated by the contrast between the increase in interest on loans (+27.7%) and the increase in general and administrative expenses (+4.5%), together with the limited impact of extraordinary gains and losses, supported net income growth.

Factors Affecting Earnings

【Revenue】Ordinary revenue of ¥849.4B increased +12.5% YoY. Banking operations amounted to ¥731.2B (+12.7% YoY; 86.1% of total), serving as the core of consolidated growth. Interest on loans increased significantly to ¥403.5B (+27.7%), while funding costs also rose to ¥121.0B (+55.8%), and interest on deposits surged from ¥21.1B in the previous year to ¥81.7B. Leasing operations increased revenue to ¥90.6B (+12.2%), while other businesses increased revenue to ¥27.2B (+13.5%).

【Profit and Loss】Ordinary income was ¥189.7B (+14.2% YoY), followed by profit before tax of ¥189.5B and income taxes of ¥56.6B (effective tax rate: 29.9%), resulting in net income of ¥132.9B (+23.2% YoY). Extraordinary gains of ¥0.5B and extraordinary losses of ¥0.7B resulted in a slight net loss, and net income growth was primarily attributable to improved recurring earning capacity. By segment, banking operations drove earnings growth, with segment profit of ¥183.9B (+14.8% YoY; profit margin: 25.1%), whereas leasing operations saw segment profit plunge to ¥0.2B (△86.5% YoY) despite higher revenue, reducing the profit margin to 0.3%. On a consolidated basis, both revenue and earnings increased.

Segment Analysis

Banking operations are the core business supporting consolidated performance, with ordinary revenue of ¥731.2B (+12.7% YoY), segment profit of ¥183.9B (+14.8%), and a profit margin of 25.1%. Growth in the loan balance and improvement in loan yields contributed to higher earnings, while the sharp increase in interest on deposits has begun to put pressure on the margin of net interest income. Leasing operations increased revenue to ¥90.6B (+12.2% YoY), but segment profit plunged to ¥0.2B (△86.5% YoY), resulting in a profit margin of 0.3%. Possible factors include delays in passing higher funding costs through to pricing and an increase in credit-related expenses, warranting close monitoring as a deterioration in the profitability of non-banking businesses. Other businesses—including credit guarantees, real estate leasing and management, software development, credit cards, and securities—maintained high profitability, with ordinary revenue of ¥27.2B (+13.5% YoY), profit of ¥13.3B (+12.5%), and a profit margin of 48.7%; however, their scale remains limited to 3.2% of consolidated ordinary revenue.

Key Financial Metrics

【Profitability】The net profit margin was 15.6%, up from 14.3% in the same period of the previous year, while the ordinary income margin improved slightly to 22.3% from 22.0% in the previous year. The effective tax rate was 29.9%, and the tax burden coefficient of 0.701 was within a normal range, indicating that distortions in earnings from taxes and extraordinary gains and losses were limited. 【Cash Quality】General and administrative expenses increased +4.5% YoY to ¥334.2B, below the +12.5% growth in ordinary revenue, and the ratio of general and administrative expenses to ordinary revenue declined to 39.4%, indicating improving cost efficiency. 【Investment Efficiency】ROE was 4.3%, reflecting the low total asset turnover typical of a bank that relies primarily on deposits as a funding source (approximately 0.013) and high leverage (approximately 22.1x). 【Financial Soundness】The equity ratio was 4.5%, while the loan-to-deposit ratio was 76.9%, calculated as loans of ¥4兆5,790.3B ÷ deposits of ¥5兆9,555.0B, within the range of general benchmarks. Although the equity ratio improved from 4.0% in the previous year, it remains below generally accepted Basel III soundness benchmarks, necessitating monitoring of capital headroom.

Cash Flow Analysis

As no cash flow statement has been disclosed, funding trends are analyzed based on changes in the balance sheet. Cash and due from banks increased +9.2% YoY to ¥740.99B, expanding the liquidity buffer, while securities decreased △17.1% YoY to ¥1,283.94B, suggesting that portfolio rebalancing progressed in response to the interest-rate environment. Deposits increased +1.5% YoY to ¥5兆9,555.0B, maintaining a stable funding base, while loans increased +2.5% YoY to ¥4兆5,790.3B, indicating that the trend of deploying growth in deposits toward expanding lending operations continued. Collateral received for bond lending transactions decreased △57.7% YoY, reducing reliance on market-based funding. Net assets increased +¥281.6B YoY to ¥3,059.6B, with improvements in valuation difference on other securities, in addition to accumulated profits, strengthening the capital base.

Quality of Earnings

Net income growth was primarily supported by the expansion of recurring interest-based investment income. The impact of extraordinary gains and losses was limited to a slight net loss, with extraordinary gains of ¥0.5B and extraordinary losses of ¥0.7B, and there was no earnings uplift from temporary factors. Among non-operating revenue components, fee income amounted to ¥203.8B (+3.6% YoY), but fee expenses increased +10.5%, exceeding the growth in fee income, and net fees and commissions income therefore became a slight source of pressure. Meanwhile, comprehensive income was ¥346.4B, substantially exceeding net income of ¥132.9B, with the difference attributable to a ¥214.5B improvement in valuation difference on other securities. Since comprehensive income in the same period of the previous year was negative ¥23.4B, the improvement in market conditions made a significant contribution to the increase in capital, which should be evaluated separately from recurring earning capacity.

Earnings Forecast and Guidance

Cumulative ordinary income through Q3 represented 88.2% of the full-year ordinary income forecast of ¥215.0B, while net income of ¥132.9B represented 88.6% of the full-year net income forecast of ¥150.0B. Both significantly exceeded the standard Q3 progress benchmark of 75%. No revisions were made to the earnings forecast or dividend forecast during the quarter. The full-year ordinary income growth forecast is +9.2% YoY, suggesting an assumption that the earnings growth rate will decelerate from the cumulative Q3 rate of +14.2% toward Q4. The rise in funding costs and fluctuations in securities-related gains and losses will be key factors determining the Q4 outcome.

Shareholder Returns

The Q2 dividend was ¥95 per share, and the full-year dividend forecast is ¥190. Based on the full-year net income forecast of ¥150.0B and forecast EPS of ¥477.54, the forecast payout ratio on the full-year dividend forecast of ¥190 is approximately 40%. No share repurchases have been confirmed, and shareholder returns consist solely of dividends; accordingly, returns are evaluated based on the payout ratio. Retained earnings are substantial at ¥2,248.9B, providing sufficient internal reserves to support the ¥190 dividend forecast. In the banking industry, fluctuations in the equity ratio and securities valuation affect dividend capacity. Accordingly, changes in equity through comprehensive income will be a key point for assessing future dividend sustainability.

Risk Factors

1. Interest Rate and Deposit Cost Increase Risk: Funding costs increased +55.8% YoY, while interest on deposits increased approximately 3.9-fold, from ¥21.1B to ¥81.7B. Although the growth in interest on loans (+27.7%) remains higher, continued increases in deposit rates could reduce the scope for further improvement in the margin of net interest income.

2. Profitability Deterioration Risk in the Leasing Business: While ordinary revenue in leasing operations increased +12.2%, segment profit declined △86.5%, reducing the profit margin to 0.3%. If delays in passing higher funding costs through to pricing and increases in credit-related expenses continue, the contribution of non-banking businesses to earnings diversification may weaken.

3. Securities and Market Price Volatility Risk: The valuation difference on other securities turned from △¥152.7B in the same period of the previous year to +¥214.5B, accounting for a substantial portion of comprehensive income of ¥346.4B. A reversal in interest rates or market conditions could once again cause volatility in securities valuation and equity.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

Growth and Capital Efficiency

※Source: Compiled by the Company

Key Points in the Earnings Results

1. Cumulative Q3 ordinary revenue increased +12.5%, ordinary income increased +14.2%, and net income increased +23.2%, confirming a structure in which earnings growth exceeded revenue growth. This was supported by improved operating leverage, as the increase in general and administrative expenses (+4.5%) remained below revenue growth.

2. Progress against the full-year forecast was 88.2% for ordinary income and 88.6% for net income, exceeding standard progress levels. However, the full-year ordinary income growth forecast (+9.2%) is lower than the cumulative actual result (+14.2%), making fluctuations in funding costs and securities-related gains and losses during Q4 a key structural point to watch in determining the final outcome.

3. The segment profit margin of leasing operations declined sharply to 0.3%. Together with the dependence on banking operations, which account for 86.1% of ordinary revenue, changes in the profit structure of the business portfolio will be an important structural point to monitor over the medium to long term.

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

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