The Kiyo Bank (8370) FY2026 FY Earnings Report

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Executive Summary

As interest rates rose, funds investment income grew, resulting in increases in ordinary income, ordinary profit, and net income. Ordinary income was ¥114.87B (+16.4% year on year), ordinary income was ¥32.37B (+38.9%), and net income was ¥21.86B (+30.2%; net income attributable to owners of the parent was ¥21.82B, +23.8%). The expansion in net interest income, primarily driven by an increase in interest on loans, achieved a profit growth rate exceeding the growth in ordinary income. However, interest on deposits also increased significantly, making trends in funding costs a key focus going forward.

Factors Affecting Business Performance

【Revenue】Ordinary income was ¥114.87B, up +16.4% year on year. Funds investment income of ¥74.31B, including interest on loans of ¥55.15B (+29.2% year on year), was the main driver, while the balance of loans expanded to ¥4,344.66B, up +4.8% from the end of the previous year. Fee income also increased from the previous year to ¥19.07B, and loan growth supported the expansion in revenue against the backdrop of a 3.4% increase in the deposit base.

【Profit and Loss】Ordinary income was ¥32.37B, up +38.9% year on year, and the ordinary income margin improved to 28.2% from 23.6% in the previous year, an improvement of approximately 4.6pt. Expenses (general and administrative expenses) increased only +4.5% to ¥36.54B, below the rate of revenue growth, resulting in positive operating leverage. Meanwhile, interest on deposits surged to ¥9.59B from ¥2.80B in the previous year, indicating upward pressure on funding costs. Although extraordinary losses of ¥2.43B were recorded, including ¥1.58B in provision for losses related to the rebuilding of the head office and ¥0.55B in impairment losses, net income increased to ¥21.86B (+30.2%). Revenue and profit both increased.

Segment Analysis

The Company has a single banking segment, and its only reportable segment is “Banking.” Ordinary income from external customers was ¥10.23B for the Banking segment and ¥1.29B for Other businesses, including administrative outsourcing, leasing, and credit guarantees, which accounted for approximately 11.2% of the total. Segment profit was ¥30.65B for Banking and ¥1.75B for Other businesses. The 13.6% profit margin of the Other businesses provides a complementary contribution to the core business.

Key Financial Indicators

【Profitability】ROE improved to 8.8% from 7.5% in the previous year, but remained below the 10% benchmark generally considered indicative of high profitability for general companies. Both the ordinary income margin, at 28.2% (23.6% in the previous year), and the net income margin, at 19.0% (17.8% in the previous year), expanded.【Cash Flow Quality】Operating Cash Flow (OCF) was negative ¥8.26B, and its ratio to net income was negative 0.38x. However, OCF improved significantly from negative ¥186.18B in the previous year, and given the asset and liability fluctuations characteristic of the banking industry, it is not appropriate to judge deterioration solely based on the sign.【Investment Efficiency】Loans increased +4.8% from the end of the previous year, and the loan-to-deposit ratio rose to approximately 90.0%, indicating more efficient asset deployment.【Financial Soundness】The Equity Ratio was 4.1%, total assets were ¥6,118.93B, and net assets were ¥248.57B (+5.2% from the end of the previous year). As deposits account for the majority of liabilities, it is not appropriate to apply financial leverage indicators used for general companies without adjustment.

Cash Flow Analysis

Operating Cash Flow (OCF) was negative ¥8.26B, a significant improvement from negative ¥186.18B in the previous year. Investing Cash Flow was an inflow of ¥46.19B, apparently reflecting contributions from the sale and redemption of securities. Financing Cash Flow was negative ¥7.25B, primarily due to a reduction in borrowings, down ¥360.00B from the end of the previous year, and dividend payments. As a result, cash and cash equivalents increased by ¥30.72B to ¥837.74B. Free cash flow, calculated as the sum of OCF and Investing Cash Flow, was positive at ¥37.93B. However, in the banking industry, Investing Cash Flow reflects adjustments to the securities portfolio, and therefore differs in nature from FCF at general companies. Capital expenditures were ¥2.82B, within depreciation and amortization of ¥3.38B, indicating that equipment renewal has continued steadily.

Quality of Earnings

The increase in profit for the current period was primarily attributable to the expansion of recurring net interest income, centered on the increase in interest on loans (+29.2% year on year), with limited reliance on one-time factors. Of the ¥2.43B in extraordinary losses, the ¥1.58B provision for losses related to the rebuilding of the head office and ¥0.55B in impairment losses can be classified as temporary factors; excluding these items, profit before tax would have been further elevated. Funds investment income and fee income, corresponding to non-operating income, form a recurring earnings base, while net fee income increased to ¥13.19B from ¥12.73B in the previous year. Comprehensive income was ¥19.38B, below net income of ¥21.86B, primarily because valuation differences on available-for-sale securities deteriorated to negative ¥4.50B. The divergence between net income and comprehensive income resulted from market factors, namely changes in the fair value of securities, and analysis based on net income is more appropriate for evaluating recurring earnings power.

Earnings Forecast and Guidance

The progress rate against the full-year company forecast was 88.4% for ordinary income (¥32.37B/¥36.60B) and 87.3% for net income (¥21.86B/¥23.40B; differences in definitions apply, and the figure is calculated strictly based on net income attributable to owners of the parent). These levels significantly exceed the standard progress rate of 75%. The company forecasts ordinary income to increase +13.1% year on year and net income to increase +13.4%; however, the current-period growth rates (ordinary income +38.9%, net income +23.8–30.2%) exceed these forecasts, indicating progress that leaves room for an upside revision to the full-year forecast.

Shareholder Returns

The annual dividend totaled ¥137, consisting of an interim dividend of ¥58 and a year-end dividend of ¥79, representing an increase from the previous year’s equivalent total of ¥86 for the interim and year-end dividends. The Payout Ratio was 40.3%, below the 60% level generally considered a benchmark for sustainability. Share repurchases were minimal at ¥0.01B, and the Total Return Ratio was approximately at the same level as the Payout Ratio. A 3-for-1 stock split of common shares is scheduled to take effect on October 1, 2026. On a pre-split basis, the company’s forecast annual dividend for the following fiscal year is ¥156, indicating a policy of increasing the dividend from ¥137 in the current period.

Risk Factors

1. Net interest margin compression risk: Interest on loans increased +29.2% year on year, but interest on deposits also surged from ¥2.80B in the previous year to ¥9.59B. If deposit rates and market funding costs continue to rise, the expansion of net interest margins could stagnate or reverse.

2. Securities valuation fluctuation risk: The balance of securities decreased by ¥368.11B from the end of the previous year, while valuation differences on available-for-sale securities deteriorated in the negative direction. Changes in interest rates and stock prices affect comprehensive income and equity through valuation gains and losses.

3. Credit and asset quality risk: Loans increased +4.8% from the end of the previous year, and the loan-to-deposit ratio rose to approximately 90.0%. During a period of loan expansion, it is necessary to monitor the risk of future increases in credit costs and concentration in specific industries or regions.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

The net income margin exceeds the industry median by +7.1pt, placing it at a high level within the industry.

Growth and Capital Efficiency

The revenue growth rate exceeds both the industry median and the upper bound of the interquartile range, demonstrating strong growth within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The ordinary income margin improved by approximately 4.6pt from 23.6% in the previous year to 28.2%, confirming positive operating leverage from increased interest on loans and cost control. The progress rate against the full-year forecast also exceeded the standard level at 88.4%.

2. The NIM level and sharp increase in interest on deposits (+242.1% year on year) indicate rising funding costs accompanying the normalization of the interest-rate environment. Whether improvements in loan yields can continue to exceed this increase is a structural point requiring attention in assessing future profit trends.

3. The deterioration in valuation differences on securities and the recognition of extraordinary losses related to the rebuilding of the head office are items requiring ongoing monitoring as factors behind the divergence between net income and comprehensive income.

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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, where necessary, after consulting with a professional.

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