THE BANK OF SAGA (8395) FY2026 FY Earnings Report

Quick View

Executive Summary

The company reported higher revenue and earnings, primarily due to an increase in interest income, although rising funding costs are placing downward pressure on profit margins. Ordinary income was ¥718.5B (+30.0% YoY), Ordinary income was ¥123.1B (+11.8%), and net income attributable to owners of the parent was ¥85.8B (+15.5%). While funds investment income in the banking business increased 17.3% YoY, funding expenses expanded sharply by 100.7%, limiting the increase in net interest income to 6.2%.

Factors Affecting Performance

【Revenue】Ordinary income was ¥718.5B, up +30.0% YoY. The banking business accounted for the majority at ¥630.1B (87.7% of the total, +34.7% YoY), driving the increase in revenue. The leasing business generated ¥77.9B (+2.4%), the credit guarantee business generated ¥4.3B (+6.9%), and other businesses generated ¥6.2B (+31.1%); all remained small in scale. Loans outstanding expanded +4.8% YoY, supporting the increase in funds investment income.

【Profit and Loss】Ordinary income was ¥123.1B (+11.8% YoY), while net income was ¥85.8B (+15.5%), resulting in higher revenue and earnings. However, the Ordinary income margin declined to 17.1% from 19.9% in the previous year, indicating that expense growth has not kept pace with revenue expansion. Extraordinary losses of ¥2.8B, including impairment losses of ¥0.5B, exceeded extraordinary gains of ¥0.3B, resulting in a temporary downward impact of ¥2.4B. However, the gap between Ordinary income and income before taxes remained limited to approximately 2.0%, and the impact was limited. In conclusion, the company achieved higher revenue and earnings.

Segment Analysis

The banking business remained the core contributor to consolidated earnings, generating Ordinary income of ¥630.1B (+34.7% YoY), segment profit of ¥114.6B (+13.0%), and a profit margin of 18.2%. The banking business profit margin was approximately 21.7% in the previous year, representing a decline of approximately 350bp in the current period; this is the segment in which the impact of higher funding costs is most pronounced. The leasing business had a profit margin of 4.1%, while the credit guarantee business had a high profit margin of 80.0%, although both businesses were small in scale. Ordinary income from the credit guarantee business declined 22.3% YoY to ¥3.5B. Other businesses expanded, with Ordinary income of ¥6.2B (+31.1%) and profit of ¥1.4B (+32.7%). Consolidated earnings continue to be structurally dependent on the banking business’s net interest margin and credit costs.

Key Financial Indicators

【Profitability】The Ordinary income margin was 17.1%, down from 19.9% in the previous year, while the net profit margin was 11.9%, down from 13.6%. ROE improved to 6.8% from the previous year’s estimated 6.4%; however, this was attributable to an increase in total asset turnover rather than an improvement in the net profit margin, and therefore cannot be considered a qualitative improvement in profitability.【Cash Flow Quality】Operating cash flow (OCF) was negative ¥754.5B, and the OCF multiple relative to net income of ¥85.8B was a significantly divergent negative 8.79x. The outflow expanded from negative ¥237.3B in the previous year. However, in the banking business, changes in deposits, loans, and securities balances influence OCF, and therefore there are limitations to assessing it using the same criteria as for general operating companies.【Investment Efficiency】NIM was 1.28%. While funding expenses surged +100.7% YoY, funds investment income increased only +17.3%, indicating that the expansion of interest income has not translated directly into improved net interest margins.【Financial Soundness】The equity ratio was 3.9%, and the loan-to-deposit ratio was 79.4%, both within an appropriate range. Net assets expanded to ¥1,265.0B (+8.7% YoY), while comprehensive income of ¥117.7B strengthened the capital base.

Cash Flow Analysis

Operating cash flow (OCF) was negative ¥754.5B, with the outflow expanding from negative ¥237.3B in the previous year. The divergence from net income of ¥85.8B was a negative multiple of 8.79x. This reflects the characteristics of the banking business, in which changes in the balances of loans, deposits, securities, and other items are significant, and cannot be interpreted on the same basis as the cash recovery capacity of general operating companies. Investing cash flow was positive ¥845.3B, mainly reflecting a reduction in securities holdings (△14.2% YoY), resulting in positive free cash flow of ¥90.9B when combined with OCF. Financing cash flow was negative ¥16.9B, primarily due to dividend payments and other items. Capital expenditures were ¥35.5B, or 2.40 times depreciation expense of ¥14.8B, indicating expanding investment in the operating infrastructure and digital initiatives. Cash and cash equivalents at the end of the period were ¥2,778.2B, an increase of +¥74.0B from the end of the previous year.

Quality of Earnings

The difference between Ordinary income of ¥123.1B and income before taxes of ¥120.6B was ¥2.4B, reflecting extraordinary losses of ¥2.8B, including impairment losses of ¥0.5B and losses on disposal of fixed assets, among other items, compared with extraordinary gains of ¥0.3B. This gap was limited to approximately 2.0% of Ordinary income and did not represent a material uplift or decline caused by temporary factors. Meanwhile, the fact that OCF was substantially below net income is a point requiring attention regarding accrual quality. However, the accrual ratio itself was limited, and the quality of earnings for the current period is best evaluated primarily in terms of fluctuations in OCF arising from changes in asset and liability balances specific to the banking business, rather than from accounting estimation factors. Comprehensive income was ¥117.7B, exceeding net income of ¥85.8B, with other comprehensive income items such as valuation differences on securities and adjustments related to retirement benefits contributing positively.

Earnings Forecasts and Guidance

Against the full-year forecast, actual Ordinary income of ¥718.5B exceeded the forecast of ¥660.0B, representing progress of 108.9%. On the other hand, actual Ordinary income of ¥123.1B represented 83.7% of the forecast of ¥147.0B, while net income of ¥85.8B represented approximately 98.6% of the forecast of ¥87.0B (92.3% against the forecast of ¥93.0B on an attributable-to-owners-of-the-parent basis). In both cases, earnings progress was below revenue progress. Despite the upside in Ordinary income, the delay in earnings progress was attributable to the sharp increase in funding expenses and the rise in other Ordinary expenses. The actual annual dividend of ¥110 was in line with the forecast of ¥110, and the dividend plan was achieved.

Shareholder Returns

The annual dividend totaled ¥110, comprising an interim dividend of ¥50 and a year-end dividend of ¥60, while the payout ratio remained low relative to the earnings level at 21.6%. Share repurchases were negligible, and the total return ratio, including dividends, also remained at a similar level. Retained earnings reached ¥983.7B, and there is little concern regarding dividend sustainability at the current earnings level. Nevertheless, going forward, capital allocation decisions, taking into account fluctuations in Ordinary income resulting from a decline in NIM and the level of the equity ratio, will be a key focus.

Risk Factors

1. Risk of net interest margin compression: NIM was 1.28%, while funding expenses surged +100.7% YoY and funds investment income increased only +17.3%. If the rise in deposit interest rates outpaces improvements in investment yields, the banking business profit margin may decline further.

2. Risk of concentration of earnings in the banking business: The banking business accounts for 87.7% of Ordinary income and more than 93% of segment profit, while the diversification benefits provided by the leasing and credit guarantee businesses are limited. The structure makes consolidated performance highly susceptible to fluctuations in regional loan demand and credit conditions.

3. Considerations regarding capital adequacy: The disclosed equity ratio was 3.9%, below the generally applicable Basel III standard of 8%. Although net assets increased +8.7% YoY, the relationship between regulatory capital levels and risk-weighted assets may influence future capital policy.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

The net profit margin was approximately in line with the industry median, indicating an average relative position within the industry.

Growth and Capital Efficiency

The revenue growth rate significantly exceeded the industry median, representing an outstanding pace of revenue growth within the industry.

※Source: Compiled by the Company

Key Points of the Earnings Report

1. Ordinary income showed an outstanding increase of +30.0% YoY within the industry, while the Ordinary income margin declined to 17.1%. The fact that revenue expansion has not translated directly into improved profit margins is noteworthy when assessing the quality of the results.

2. NIM remained at 1.28%, while the growth rate of funding expenses (+100.7%) significantly exceeded the growth rate of funds investment income (+17.3%). Net interest margin trends amid rising interest rates are an important factor to monitor, as they will influence future profitability.

3. The payout ratio of 21.6% was low relative to the earnings level, and the dividend plan was achieved as forecast. The equity ratio of 3.9% is below generally applicable regulatory benchmarks and will require ongoing monitoring in assessing the sustainability of capital allocation.

---

This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

---End of Report---