Bank of The Ryukyus (8399) FY2026 Q3 Earnings Report

Quick View

Executive Summary

This earnings period achieved higher revenue and profits, as well as significant profit growth, driven by the expansion of interest income and improved profitability centered on the banking business. Ordinary revenues were ¥60.004B (¥51.593B in the same period of the previous year, +16.3%), ordinary income was ¥11.544B (¥7.307B in the previous year, +58.0%), and net income was ¥8.134B (¥5.072B in the previous year, +60.4%). The ordinary income margin improved to 19.2% from 14.2% in the same period of the previous year. Profit growth exceeding the revenue growth rate was primarily attributable to increases in interest on loans and interest and dividends on securities, as well as restrained growth in ordinary expenses.

Factors Driving Performance Changes

【Revenue】Ordinary revenues were ¥60.004B, up +16.3% year on year. The Banking Business accounted for the largest share at ¥40.803B (68.0% of total revenue, +23.6% YoY), serving as the main driver of revenue growth. The Leasing Business posted modest revenue growth to ¥14.323B (+5.1%), while the IT Business increased to ¥2.345B (+3.7%). Meanwhile, the Credit Card Business declined to ¥2.272B (-2.2%), and the Credit Guarantee Business decreased to ¥0.255B (-28.0%).

【Profit and Loss】Ordinary income was ¥11.544B (+58.0% YoY), and net income was ¥8.134B (+60.4%). Segment profit in the Banking Business was ¥10.647B (+64.8% YoY), accounting for 87.2% of total consolidated segment profit and representing the primary driver of profit growth. Net interest income expanded to ¥25.717B (+17.8%), as the increase in interest on loans (+22.8%) exceeded the increase in interest on deposits. Operating leverage was achieved because the increase in general and administrative expenses was limited to +4.3%, below the growth rate of ordinary revenues. The IT Business deteriorated to a segment loss of ¥0.029B, compared with a profit of ¥0.116B in the same period of the previous year. Extraordinary gains and losses resulted in a net loss of ¥0.023B, with a negligible impact. Overall, the Company achieved higher revenue and profits, and the quality of profit growth can be assessed as high, supported by cost controls.

Segment Analysis

The Banking Business was the segment with the most pronounced improvement in profitability, reporting external ordinary revenues of ¥40.803B (+23.6% YoY), segment profit of ¥10.647B (+64.8%), and a segment profit margin of 26.1% (up approximately +6.5pt from 19.6% in the previous year). The Leasing Business improved its segment profit to ¥0.648B (+66.6% YoY) and its profit margin to 4.5% from 2.8% in the previous year. Although the Credit Card Business experienced lower revenue, it secured higher profit with segment profit of ¥0.625B (+39.2%) and a profit margin of 27.5%. The Credit Guarantee Business saw declines in both external ordinary revenues and profit (revenue -28.0%, profit -15.5%), but maintained a high profit margin of 121.6%. Although the IT Business increased external ordinary revenues to ¥2.345B (+3.7%), segment results fell into a loss of ¥0.029B, deteriorating from a profit of ¥0.116B in the same period of the previous year.

Key Financial Indicators

【Profitability】The ordinary income margin improved to 19.2% from 14.2% in the same period of the previous year, while the net income margin improved to 13.6% from 9.8%. Annualized ROE was 7.4%, supported by the improvement in the net income margin and high financial leverage (total assets/net assets, approximately 21.3x). 【Cash Flow Quality】As no statement of cash flows has been disclosed, support for net income from Operating Cash Flow (OCF) cannot be verified. However, the changes in deposits, loans, and securities determine fund flows through the balance sheet structure. 【Investment Efficiency】Annualized ROA is estimated at approximately 0.36%, reflecting the low return on assets and high-leverage structure characteristic of the banking business model. 【Financial Soundness】The Equity Ratio was 4.7%, at the same level as in the same period of the previous year. The loan-to-deposit ratio was 71.5%, within an appropriate range; however, the valuation difference on securities was negative ¥7.159B, raising concerns regarding the impact on capital if interest rates rise.

Cash Flow Analysis

As no statement of cash flows was disclosed for this earnings period, fund flows are analyzed based on changes in the balance sheet. Total assets expanded to ¥3,107.181B, up +4.4% year on year, while deposits increased to ¥2,872.868B (+3.7%) and loans increased to ¥2,055.444B (+3.8%). Deposits increased at a faster pace than loans, and the loan-to-deposit ratio remained stable at 71.5%. Securities expanded to ¥727.339B (+5.8%), contributing to fund management. Meanwhile, negotiable certificates of deposit increased significantly to ¥26.792B (+112.7%), indicating a slight increase in reliance on market-based funding. Net assets increased to ¥146.101B (+4.5%), although the negative valuation difference on securities partially restrained capital growth.

Quality of Earnings

The profit increase for the current period resulted from improved ordinary earning power rather than reliance on extraordinary gains and losses. Extraordinary gains were nearly zero, while extraordinary losses were also limited to ¥0.023B, including impairment losses of ¥0.01B, indicating that earnings quality is considered sound. Net interest income, equivalent to non-operating income, was supported by increases in interest on loans (+22.8%) and interest and dividends on securities (+58.8%), expanding at a faster pace than interest on deposits, which increased from ¥0.996B in the previous year to ¥3.776B in the current period. General and administrative expenses increased by +4.3%, substantially below the +16.3% growth in revenues, indicating improved cost efficiency. Comprehensive income was ¥8.553B, and the gap from net income of ¥8.134B was relatively small. However, it should be noted that changes in the valuation difference on securities (current-period increase of +¥0.45B; cumulative balance of negative ¥7.159B) could become a source of volatility in future comprehensive income.

Earnings Forecast and Guidance

The full-year earnings forecast consists of ordinary income of ¥11.500B and net income attributable to owners of the parent of ¥8.000B. The progress rates for the nine months ended Q3 have reached 100.4% and 101.7%, respectively. These figures substantially exceed the standard progress benchmark of 75%, with the cumulative results already exceeding the full-year plan. As the Company has not revised either its earnings forecast or dividend forecast, the key point going forward will be how this progress exceeding the plan is reflected in Q4.

Shareholder Returns

The Q2 dividend was ¥27.00 per share, and the full-year dividend forecast is ¥54.00. Based on forecast full-year net income of ¥8.000B and the average number of shares outstanding during the period of 41.016 million shares, the forecast Payout Ratio is approximately 27.7%; this is a Payout Ratio based solely on dividends. The forecast Payout Ratio is below 60%, indicating available capacity for dividends on an accounting profit basis. Nine-month cumulative net income of ¥8.134B has already exceeded forecast full-year net income, and earnings coverage of the current dividend forecast is favorable. However, as no statement of cash flows has been disclosed, dividend coverage based on free cash flow cannot be verified.

Risk Factors

1. Low NIM and rising deposit costs: NIM was 1.25%, below the cautionary level of 1.5%. Interest on deposits increased significantly from ¥0.996B in the previous year to ¥3.776B in the current period. If deposit rates continue to rise, the expansion of net interest income driven by higher interest on loans may slow.

2. Capital adequacy and valuation losses on securities: The Equity Ratio was 4.7%, below the generally applicable Basel III benchmark of 8%. The valuation difference on securities was negative ¥7.159B, equivalent to approximately 4.9% of net assets, creating a risk that rising interest rates or fluctuations in market prices could pressure capital through other comprehensive income.

3. Profitability of non-bank businesses: The IT Business deteriorated to a segment loss of ¥0.029B, compared with a profit of ¥0.116B in the same period of the previous year. The Credit Guarantee Business also experienced lower revenue and profit, with external ordinary revenues down -28.0% and segment profit down -15.5%, indicating variability in the earnings base outside the Banking Business.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

The net income margin of 13.6% is provided for reference as an absolute level, as industry median data is unavailable.

Growth and Capital Efficiency

Similarly, the revenue growth rate of 16.3% is provided for reference as the Company’s performance, as median data is unavailable.

※Source: Compiled by the Company

Key Points in the Earnings Results

1. The increases in ordinary income of +58.0% and net income of +60.4% were primarily driven by operating leverage resulting from the expansion of net interest income and restrained growth in general and administrative expenses (+4.3%). The improvement in the Banking Business’s segment profit margin from 19.6% to 26.1% indicates a structural improvement in profitability.

2. By the nine-month cumulative period, ordinary income and net income had already exceeded 100% of the full-year forecast, while the earnings forecast had not been revised. Whether credit costs or market-related gains and losses are recognized in Q4 will be a key point in determining consistency with the full-year plan.

3. The low NIM of 1.25% and the negative valuation difference on securities of ¥7.159B are structural considerations in assessing the sustainability of earnings improvement. The impact of changes in the interest rate environment on both net interest income and capital will be a key focus going forward.

---

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 securities. 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 professionals as necessary.

---End of Report---