Bank of The Ryukyus (8399) FY2026 FY Earnings Report

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Executive Summary

Revenue and profit increased substantially, driven by expanded interest income and restrained cost growth. Ordinary revenue was ¥803.2B (+16.1% YoY), ordinary income was ¥130.6B (+56.8%), and net income was ¥90.8B (+69.1%; +58.0% on a basis attributable to owners of the parent). As the growth in ordinary expenses (+10.5%) remained below the growth in ordinary revenue, the ordinary income margin expanded to 16.3%, resulting in profit growth exceeding revenue growth.

Factors Affecting Performance

【Revenue】Ordinary revenue of ¥803.2B increased by +16.1% YoY. By segment, the Banking Business was the largest contributor at ¥541.9B (67.5% of total), driven by an increase in interest and dividends on securities and loans, including a +22.3% increase in interest on loans. This was followed by the Leasing Business at ¥195.3B (24.3%), the Credit Card Business at ¥31.8B (4.0%), the IT Business at ¥30.0B (3.7%), and the Credit Guarantee Business at ¥4.2B. Net fee and commission income also increased by 6.0%, indicating diversification of revenue sources.

【Profit and Loss】Ordinary income of ¥130.6B (+56.8%) reflected ordinary expense growth of 10.5%, which was below revenue growth of 16.1%. The Banking Business’ segment profit margin of 21.8% led overall performance, while the Leasing Business (4.0%) and IT Business (2.7%) recorded relatively low margins. Extraordinary items were limited, with extraordinary income of ¥0.0B versus extraordinary losses of ¥1.1B, including impairment losses of ¥0.1B. The difference between ordinary income and profit before tax was also limited to ¥1.1B, indicating that earnings were primarily generated by the core business. Accordingly, the results can be characterized as higher revenue and higher profit.

Segment Analysis

The Banking Business accounted for the core of overall profit, with ordinary revenue of ¥541.9B (external-customer basis; 67.5% of total), segment profit of ¥117.9B, and a profit margin of 21.8%. The Leasing Business generated ordinary revenue of ¥195.3B (24.3%) but had a profit margin of only 4.0%, indicating a substantial profitability gap versus the Banking Business. The Credit Card Business maintained high profitability, with revenue of ¥31.8B and a profit margin of 22.3%, while the Credit Guarantee Business was small in scale, with ordinary revenue of ¥4.2B, but recorded an extremely high profit margin of 92.4%. The IT Business had revenue of ¥30.0B and a low profit margin of 2.7%, making its contribution to earnings limited. Overall, the company appears to have a high degree of profit dependence on the Banking Business.

Key Financial Indicators

【Profitability】The net profit margin improved to 11.3% (8.3% in the previous year), while the ordinary income margin expanded to 16.3% (12.0% in the previous year). ROE improved to 6.2% from 4.1% in the previous year, but remained below the 8% benchmark generally used for non-financial operating companies. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥217.2B, equivalent to 2.39 times net income of ¥90.8B, while the accrual ratio was negative 0.4%, indicating that current-period profit was supported by cash generation. 【Investment Efficiency】Capital expenditures were ¥91.7B, or 2.59 times depreciation and amortization expense of ¥35.4B, indicating an active investment phase exceeding replacement investment. However, free cash flow, calculated as OCF less capital expenditures, was negative ¥76.1B. 【Financial Soundness】The equity ratio was 4.7% and the deposit-to-loan ratio was 72.2%; the debt-to-equity ratio was therefore high, reflecting a funding structure centered on deposits. BPS increased to ¥3,548.01 from ¥3,380.50 in the previous year.

Cash Flow Analysis

OCF was ¥217.2B, a significant improvement from negative ¥1,515.5B in the previous year, reflecting increased interest income and a stabilization in changes in working capital. Investing Cash Flow was an outflow of ¥293.3B, including capital expenditures of ¥91.7B. Free cash flow, calculated by deducting capital expenditures from OCF, was negative ¥76.1B, indicating that current-period investment expenditures could not be fully funded through operating activities alone. Financing Cash Flow was an outflow of ¥25.8B, mainly due to dividend payments and the repurchase of treasury shares (¥5.0B). As a result, cash and cash equivalents decreased by ¥101.5B during the period, leaving an ending balance of ¥1,606.3B. In the Banking Business, fluctuations in investing cash flow tend to be significant due to investment in securities and lending operations; accordingly, it is important to continue monitoring the scale of investment expenditures and the level of liquid assets.

Earnings Quality

The difference between ordinary income of ¥130.6B and profit before tax of ¥129.5B was limited to ¥1.1B (0.8% of ordinary income), indicating that most earnings were derived from recurring core business operations. Extraordinary items were small, consisting of extraordinary income of ¥0.0B and extraordinary losses of ¥1.1B, including impairment losses of ¥0.1B, indicating limited reliance on non-recurring factors. OCF of ¥217.2B was 2.39 times net income of ¥90.8B, confirming cash generation exceeding accounting profit and indicating good earnings quality from an accrual perspective. Meanwhile, comprehensive income of ¥79.8B was ¥11.1B below net income of ¥90.8B, primarily because valuation differences on securities deteriorated by negative ¥16.9B. In a rising interest-rate environment, attention should be paid to the potential for net assets to fluctuate through valuation differences on other securities.

Earnings Forecast and Guidance

The full-year forecast calls for ordinary income of ¥149.0B (+14.1% YoY), net income of ¥95.0B (+12.9%), and a dividend of ¥98. Current-period results—ordinary income of ¥130.6B and net income of ¥90.8B—represented 87.7% and 95.6%, respectively, of the forecasts (based on net income of ¥90.8B ÷ ¥95.0B). The company achieved a solid landing while maintaining high growth rates in both ordinary income and net income. Looking ahead to the next period, continued expansion in interest income and cost management will be the key factors in achieving the full-year plan.

Shareholder Returns

The annual dividend was ¥88 per share (¥27 interim and ¥61 year-end), resulting in a payout ratio of 39.7%. Total dividends amounted to ¥36.1B, and the company additionally repurchased ¥5.0B of treasury shares, resulting in a Total Return Ratio of 45.2% when dividends and share repurchases are combined. OCF of ¥217.2B exceeded total dividends, but free cash flow after capital expenditures was negative ¥76.1B. Thus, current-period shareholder returns were supported by accounting profit and OCF, but were not fully covered by FCF after investment expenditures. The full-year dividend forecast is ¥98, implying a ¥10 increase from the previous year’s actual dividend of ¥88.

Risk Factors

1. Concentration of profits in the Banking Business: The Banking Business accounts for 67.5% of external ordinary revenue and more than 85.7% of segment profit, creating a structure in which fluctuations in the regional economy and loan demand directly affect consolidated performance.

2. Increase in funding costs: Interest on deposits increased by +222.7% to ¥55.4B from ¥17.2B in the previous year. If improvements in lending and securities investment yields fail to keep pace, this could lead to compression of the interest income margin.

3. Capital adequacy and valuation differences on securities: The equity ratio was 4.7%, while valuation differences on securities were negative ¥93.0B, deteriorating from negative ¥76.1B in the previous year. The impact of interest-rate and market fluctuations on equity should therefore be monitored continuously.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Returns

The net profit margin was slightly below the industry median but exceeded the lower bound of the IQR (7.2%), placing the company in the middle range of the industry.

Growth and Capital Efficiency

The revenue growth rate exceeded both the industry median and the upper bound of the IQR, indicating a high growth rate within the industry.

※Source: Company analysis

Key Takeaways from the Financial Results

1. The ordinary income margin expanded to 16.3% (12.0% in the previous year), confirming that ordinary expense growth (+10.5%) remained below revenue growth (+16.1%), thereby supporting profit growth.

2. OCF/net income was 2.39 times and the accrual ratio was negative 0.4%, indicating that current-period profit was supported by cash generation. However, the negative free cash flow of ¥76.1B due to capital expenditures exceeding OCF is a notable feature of the company’s investment phase.

3. The 4.7% equity ratio and deterioration in valuation differences on securities warrant continued monitoring of capital adequacy and interest-rate sensitivity.

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This report is an automatically generated earnings analysis document produced by AI based on XBRL earnings summary 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, after consulting with professionals as necessary.

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