The Hyakugo Bank (8368) FY2026 Q3 Earnings Report

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Executive Summary

The cumulative results for the third quarter resulted in increases in both revenue and income; however, income growth has slowed relative to revenue growth, making the decline in profit margins the most important point. Ordinary revenue was ¥110.13B (+22.9% YoY), ordinary income was ¥22.30B (+9.1%), and net income was ¥16.14B (+10.4%). The primary factor was that increases in interest on loans and interest and dividends on securities in the banking business boosted funds investment income, while an increase in funding costs associated with higher deposit interest rates partially offset this benefit. As a result, the ordinary income margin declined by approximately 260bp, from 22.8% in the same period of the previous year to 20.2%.

Factors Affecting Results

【Revenue】Ordinary revenue increased substantially to ¥110.13B (+22.9% YoY). By segment, the Banking Business accounted for the majority at ¥93.10B (+26.4%, 84.5% of total), followed by the Leasing Business at ¥12.86B (+4.5%) and Other Businesses at ¥4.17B (+13.5%). Growth in the Banking Business was primarily driven by increases in interest on loans of ¥4.67B (+22.3%) and interest and dividends on securities of ¥2.37B (+30.7%), confirming an improvement in yields on the asset management side.

【Profit and Loss】Ordinary income increased 9.1% YoY to ¥22.30B, while net income increased 10.4% to ¥16.14B, resulting in increases in both revenue and income. However, the ¥1.86B increase in ordinary income was modest compared with the ¥20.49B increase in ordinary revenue. The key factor was a 55.1% YoY increase in funding costs to ¥16.94B, including a sharp increase in interest on deposits from ¥2.36B to ¥9.05B, which pressured the benefit of improved yields on the asset side. Expenses increased 8.7% YoY to ¥33.53B, below the revenue growth rate, indicating that operating leverage on the cost side has been maintained. Extraordinary losses were limited to ¥0.12B, including impairment losses of ¥0.02B, and there was no significant factor causing a divergence in the conversion from ordinary income to net income. In conclusion, although the Company achieved increases in both revenue and income, it is in a monitoring phase in which there remains room for improvement in terms of profit margins.

Segment Analysis

The Banking Business generated ordinary revenue of ¥93.10B (+26.4% YoY, 84.5% of total), segment income of ¥21.43B (+7.5%), and a segment margin of 23.0%, making it the core contributor to consolidated income. The Leasing Business generated ordinary revenue of ¥12.86B (+4.5%), segment income of ¥0.50B (+9.6%), and a margin of 3.9%, a low level compared with the Banking Business. Other Businesses, including credit card operations and financial instruments business, generated ordinary revenue of ¥4.17B (+13.5%), segment income of ¥1.04B (+58.0%), and a margin of 25.0%, demonstrating strong growth. Revenue concentration in the Banking Business is high, creating a structure in which regional economic trends and changes in the interest rate environment have a significant impact on consolidated results.

Key Financial Indicators

【Profitability】The ordinary income margin was 20.2%, down approximately 260bp from 22.8% in the same period of the previous year, while the net income margin was 14.7%, down approximately 165bp from 16.3%. ROE was 3.2% and ROIC was 4.3%, indicating that the improvement in capital efficiency has not kept pace with revenue growth.【Cash Flow Quality】Extraordinary losses were limited to ¥0.12B, and the conversion from profit before tax of ¥22.17B to net income of ¥16.14B resulted in an effective tax rate of approximately 27.2%, within a normal range. The impact of temporary factors on the increase or decrease in net income was therefore limited.【Investment Efficiency】Loans increased 1.5% YoY to ¥512.94B, while securities increased 6.3% to ¥158.14B, expanding the scale of asset management and contributing to improved asset yields.【Financial Soundness】The equity ratio was 6.6%, improving from 5.9% in the same period of the previous year, although it remains below the level generally used as a benchmark. Net assets increased 15.8% YoY to ¥504.40B, primarily due to an increase in valuation differences on other securities.

Cash Flow Analysis

As individual data from the statement of cash flows is not included in the disclosed information, funding trends are analyzed based on changes in the balance sheet. Deposits totaled ¥6,102.61B, an increase from the same period of the previous year, and remained larger than loans of ¥5,129.39B, indicating the continuation of a deposit-based funds investment structure. Cash and due from banks totaled ¥753.68B, while securities totaled ¥1,581.42B, resulting in highly liquid assets totaling ¥2,335.09B. Meanwhile, negotiable certificates of deposit increased 45.9% YoY to ¥242.44B, and collateral received for bond borrowing and lending transactions increased 27.0% to ¥195.05B, indicating greater reliance on market-based funding. The impact of changes in the interest rate environment on funding costs will therefore require close monitoring going forward.

Quality of Earnings

Net income of ¥16.14B for the current period was calculated by deducting income taxes and other taxes of ¥6.03B from profit before tax of ¥22.17B, resulting in an effective tax rate of 27.2%, within a normal range. Extraordinary losses were small at ¥0.12B, including impairment losses of ¥0.02B, and the impact of temporary factors on net income was limited. Recurring business activities therefore constituted the primary source of net income. Meanwhile, comprehensive income of ¥77.54B substantially exceeded net income of ¥16.14B, with the primary factor behind the difference being an increase of ¥59.97B in valuation differences on other securities. These valuation gains could reverse due to fluctuations in interest rates and market prices, meaning that comprehensive income is more volatile than net income. Considering also that the increase in funding costs is restraining ordinary income growth, the quality of earnings indicates that while asset management income continues to expand, margin compression resulting from upward pressure on funding costs remains a structural issue.

Earnings Forecast and Guidance

The full-year earnings forecast is ordinary income of ¥28.80B (+12.0% YoY), net income of ¥20.60B, forecast EPS of ¥84.88, and forecast dividend of ¥26.00. There has been no revision to the earnings forecast or dividend forecast for the current quarter. The cumulative progress rates through Q3 were 77.4% for ordinary income and 78.4% for net income, exceeding the standard progress rate of 75% by 2.4pt and 3.4pt, respectively. Ordinary income of ¥6.50B and net income of ¥4.42B will be required in Q4. Current progress is at a level that supports the full-year plan, although rising deposit interest rates and fluctuations in securities-related gains and losses will be factors affecting the Q4 profit margin.

Shareholder Returns

The Q2 dividend was ¥13.00 per share, and the full-year dividend forecast is ¥26.00. Based on forecast full-year net income of ¥20.60B and an average number of shares outstanding during the period of 243.54 million shares, the payout ratio is approximately 30.7%. This payout ratio uses dividends only as the numerator. Retained earnings have accumulated to ¥308.82B, and the dividend burden is small relative to retained earnings. Meanwhile, treasury stock increased to ¥7.18B, up 49.9% from ¥4.79B in the same period of the previous year. When evaluating the total amount of shareholder returns, the policy regarding the acquisition and cancellation of treasury stock should also be reviewed.

Risk Factors

1. Revenue concentration risk in the Banking Business: The Banking Business accounts for 84.5% of consolidated ordinary revenue. Regional economic trends, loan competition, and changes in deposit inflows and outflows could have a significant impact on consolidated results.

2. Net interest margin compression risk: Interest on deposits increased substantially from ¥2.36B in the same period of the previous year to ¥9.05B, while funding costs increased 55.1% YoY to ¥16.94B. This partially offset increases in interest on loans and interest and dividends on securities, resulting in an approximately 260bp decline in the ordinary income margin.

3. Monitoring of capital adequacy: The equity ratio was 6.6%, improving from 5.9% in the same period of the previous year but remaining below generally accepted capital benchmarks. The primary reason for the increase in net assets was the expansion of valuation differences on other securities, and capital headroom could change during periods of market volatility as valuation gains decline.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

Comparison data for net income margins is limited, and there is insufficient information to determine the Company's relative position within the industry.

Growth and Capital Efficiency

Industry median data for revenue growth rates is also limited, making a clear relative comparison difficult.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Ordinary revenue increased substantially by 22.9%, while ordinary income increased only 9.1%, resulting in an approximately 260bp decline in the ordinary income margin. The financial results indicate a structural characteristic whereby the increase in funding costs in the Banking Business is limiting the efficiency with which revenue growth is converted into income growth.

2. Progress rates against the full-year forecast were 77.4% for ordinary income and 78.4% for net income, exceeding the standard progress rate of 75%, confirming steady progress toward the full-year plan.

3. Comprehensive income of ¥77.54B substantially exceeded net income of ¥16.14B, and the increase in valuation differences on other securities boosted net assets. As these valuation gains fluctuate with changes in market conditions, this item warrants monitoring as a component of net assets.

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

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