The Hyakugo Bank (8368) FY2026 FY Earnings Report

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Executive Summary

This was an earnings period of higher revenue and income, primarily driven by the expansion of interest income, with profitability also showing a clear improvement. Ordinary revenue was ¥162.40B (+30.4% YoY), ordinary income was ¥37.03B (+44.1%), and net income attributable to owners of the parent was ¥26.84B (+47.6%). In addition to growth in loans and deposits, the Company was able to contain the increase in operating expenses relative to the growth in ordinary revenue, improving the ordinary income margin to 22.8% from the previous year. Meanwhile, funding costs are increasing at a faster pace than interest income, making future margin trends an area to monitor.

Factors Affecting Earnings

【Revenue】Ordinary revenue was ¥162.40B, up +30.4% YoY. By segment, Banking accounted for the majority at ¥139.58B (85.9% of total), driven by growth in interest income (interest income of ¥101.606B, up +24.2% YoY). Leasing was ¥17.08B, while Other Businesses were ¥5.73B; both were smaller in scale than Banking. Net fees and commissions was ¥13.45B, down -7.0% YoY, indicating sluggish non-interest income.

【Profit and Loss】Ordinary income was ¥37.03B (+44.1% YoY), while net income was ¥26.84B (+47.6%). The Banking segment led overall performance with a segment profit margin of 25.4%, whereas Leasing remained at 4.2%. Extraordinary losses were small at ¥0.16B, and the impact of temporary factors was limited; profit before tax of ¥36.87B was therefore broadly in line with ordinary income of ¥37.03B. The effective tax rate was 27.2%, with no special factors identified on the tax burden side. Revenue and income both increased, and operating leverage was achieved as the increase in operating expenses (+10.1%) remained below the growth rate of ordinary revenue.

Segment Analysis

Banking is the core earnings segment, with ordinary revenue of ¥139.58B (85.9% of total), segment profit of ¥35.39B, and a profit margin of 25.4%. Leasing generated ordinary revenue of ¥17.08B, segment profit of ¥0.72B, and a profit margin of 4.2%, lower than that of Banking. Other Businesses, including credit card operations, generated ordinary revenue of ¥5.73B, profit of ¥1.61B, and a high profit margin of 28.1%, although its scale is small. The Group has a high dependence on Banking within consolidated ordinary revenue, creating a structure in which trends in lending and deposit spreads and gains on securities investments influence consolidated performance.

Key Financial Indicators

【Profitability】The ordinary income margin was 22.8%, improving from 20.6% in the previous year, while the net income margin was 16.5%, improving from 14.5%. ROE rose to 5.2% from 3.9% in the previous year, but remained below the general benchmark for capital efficiency. The EBITDA margin was 25.3%, indicating sound underlying earnings power.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥28.96B, or 1.08 times net income of ¥26.84B, indicating generally sound cash backing for earnings. However, the OCF/EBITDA ratio was only 0.71 times, leaving room to improve the conversion of EBITDA into cash.【Investment Efficiency】Capital expenditures of ¥2.47B were below depreciation and amortization of ¥4.04B, resulting in a CapEx/depreciation ratio of 0.61 times. Intangible assets increased to ¥5.87B (+25.4% YoY), indicating increased software investment, while investment in tangible assets remained restrained.【Financial Soundness】The Equity Ratio improved to 6.8% from 5.9% in the previous year, but remained below the 8% benchmark. The loan-to-deposit ratio was 84.6%, within an appropriate range, with both loans of ¥514.10B and deposits of ¥607.45B increasing.

Cash Flow Analysis

Operating CF was ¥28.96B, a substantial improvement from the previous year (-¥710.17B, a significant negative figure due to intra-period changes in deposits and loans), and exceeded net income in the current period. Investing CF was -¥27.62B, of which capital expenditures were a small -¥2.47B; investment activities such as securities investments appear to have been the primary components of investing CF. Financing CF was -¥8.59B, mainly due to dividend payments and the acquisition of treasury shares amounting to ¥2.50B. Free CF (operating CF + investing CF) was limited to ¥1.34B. Although dividends and treasury share acquisitions were not funded solely by FCF after investing CF, caution is required when interpreting this as a measure of capacity for capital expenditures at a general operating company, as investing CF at a bank includes changes in assets held for fund management purposes.

Quality of Earnings

The increase in ordinary income was primarily attributable to recurring factors, particularly the expansion of interest income (+24.2% YoY), while extraordinary losses were small at ¥0.16B, including impairment losses of ¥0.03B, limiting the impact of temporary factors. Interest income and fee income are included as non-operating-type revenue, but net fees and commissions declined -7.0% YoY, indicating some weakness in non-interest income. Comprehensive income was ¥89.79B, substantially exceeding net income of ¥26.84B, and improvements in other comprehensive income (OCI), primarily the ¥50.53B valuation difference on securities, made a significant contribution to the increase in net assets. This divergence indicates that the increase in capital during the period was supported not only by recurring profit generation but also by OCI factors arising from market price fluctuations. The embedded risk of a reversal in valuation differences during periods of rising interest rates should therefore be considered when assessing earnings quality.

Earnings Forecast and Guidance

The full-year forecast is ordinary income of ¥41.20B (+11.3% YoY) and net income of ¥27.70B (+7.2%), with current-period progress rates of 89.9% for ordinary income and 92.9% for net income. Forecast EPS is ¥119.09, leaving a gap versus current-period EPS of ¥110.30 that will need to be filled through additional earnings over the remaining period. The dividend forecast is ¥42.00, representing a planned increase from the current-period dividend of ¥34.00.

Shareholder Returns

The annual dividend was ¥34.00, representing a Payout Ratio of 30.8%; the full-year forecast calls for an increase to ¥42.00. The Payout Ratio remains within the range of earnings, and total dividends, estimated at approximately ¥8.25B against net income of ¥26.84B, are sufficiently covered. The Company repurchased ¥2.50B of treasury shares, resulting in a Total Return Ratio of approximately 40.1% when combined with dividends. The Payout Ratio, which includes dividends only, and the Total Return Ratio, which includes dividends and treasury share repurchases, are distinct concepts and have been differentiated to avoid confusion. Although total returns exceeded free CF of ¥1.34B, operating CF exceeded total dividends, indicating capacity for shareholder returns on an operating cash flow basis.

Risk Factors

1. Concentration of the earnings structure in Banking: Banking accounts for 85.9% of ordinary revenue, creating a structure in which fluctuations in lending and deposit spreads and gains on securities investments have a significant impact on consolidated performance.

2. Rate of increase in funding costs: Funding costs increased +56.7% YoY, exceeding the +24.2% growth in interest income. If increases in funding costs, such as deposit interest rates, outpace improvements in lending and investment yields, growth in net interest income could slow.

3. Equity Ratio level: The disclosed Equity Ratio was 6.8%, improving from 5.9% in the previous year but remaining below the general reference level of 8%. The balance between asset growth, shareholder returns, and capital levels will continue to require monitoring through fluctuations in OCI, including the ¥50.53B valuation difference on securities.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

The net income margin exceeded the industry median by 4.6pt, demonstrating relatively high profitability within the industry.

Growth and Capital Efficiency

The revenue growth rate substantially exceeded the industry median, recording particularly strong revenue growth within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The ordinary income margin and net income margin improved by approximately 215bp and approximately 201bp, respectively, as operating leverage was achieved through expense control that outpaced revenue growth. ROE also improved to 5.2%, but remained below the general benchmark of above 8%, making improvements in capital efficiency a future area of focus.

2. The rate of increase in funding costs (+56.7%) exceeded the rate of increase in interest income (+24.2%), meaning that changes in the interest rate environment could affect the sustainability of future net interest income.

3. The increase in net assets was supported not only by net income but also by improvements in OCI, primarily the valuation difference on securities. Although the Equity Ratio of 6.8% is trending upward, the risk of a reversal in valuation differences through market price fluctuations should be noted as a factor that could cause capital levels to fluctuate.

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not constitute a recommendation to invest 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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