Bank of The Ryukyus,Limited FY2027 Q1 Earnings Report

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Executive Summary

In Q1 of the fiscal year ending March 2027, the Company reported increases in both revenue and income, primarily due to higher earnings in the banking business, with revenue growth translating into profit growth. Revenue (ordinary revenues) was ¥22.70B (+16.6% YoY), ordinary income was ¥4.36B (+24.9%), and net income was ¥2.98B (+16.0%). Ordinary income growth exceeded revenue growth, and the ordinary income margin rose to 19.2% of ordinary revenues. However, net income growth was slightly below ordinary income growth due to an increase in the effective tax rate.

Factors Affecting Performance

【Revenue】Revenue (ordinary revenues) increased 16.6% YoY to ¥22.70B. By segment, Banking led revenue growth, accounting for ¥15.79B (+20.2%) and the largest revenue share (approximately 70%). Leasing generated ¥5.14B (+10.8%), IT generated ¥0.90B (+6.9%), CreditCard generated ¥0.77B (+1.7%), and CreditGuarantee generated ¥0.09B (+3.3%), with each posting revenue growth but remaining relatively small in scale.

【Profit and Loss】Ordinary income increased 24.9% YoY to ¥4.36B, achieving profit growth above the rate of revenue growth. Banking segment profit was ¥4.04B (+29.3%), driving overall profit growth. Meanwhile, IT turned to a loss of ¥0.01B (compared with a profit in the same period of the previous year), while CreditCard and CreditGuarantee declined 21.8% and 30.6%, respectively, indicating broadly lower profits across the non-banking segments. Profit before tax was ¥4.35B (+24.5%), but the effective tax rate increased from approximately 26% in the same period of the previous year to approximately 31%; consequently, net income growth (+16.0%) fell below profit-before-tax growth. In conclusion, the Company achieved higher revenue and profit as growth in the core banking business absorbed declines in the non-banking segments.

Segment Analysis

Banking is the core business, accounting for approximately 70% of revenue and approximately 89% of segment profit among the six segments. Banking generated ordinary revenues of ¥15.79B (+20.2%), profit of ¥4.04B (+29.3%), and a profit margin of 25.6%, the highest levels in both profitability and growth. Leasing generated ordinary revenues of ¥5.14B (+10.8%) and profit of ¥0.26B (+31.5%), demonstrating profit growth above revenue growth; its profit margin was 5.1%, lower than that of Banking. Meanwhile, CreditGuarantee, despite a profit margin of 78.9%, reported a 30.6% decline in profit; CreditCard reported a 21.8% decline; and IT incurred a loss of ¥0.01B, compared with a profit in the same period of the previous year. Restoring profitability in the non-banking segments remains a key challenge.

Key Financial Metrics

【Profitability】The net income margin was 13.1%, nearly unchanged from 13.2% in the same period of the previous year, while the ordinary income margin rose by approximately 128bp to 19.2%. Annualized ROE was 8.1% and annualized ROA was approximately 0.38%, reflecting the banking industry’s characteristic structure of offsetting low asset profitability with high financial leverage.【Cash Flow Quality】Interest and dividend income increased 25.8% YoY, including a 17.4% increase in interest on loans and a 62.8% increase in interest and dividends on securities. Meanwhile, funding costs increased substantially by 80.2%, including an 81.4% increase in interest on deposits, indicating that funding costs are rising behind the expansion in revenue.【Investment Efficiency】The loan-to-deposit ratio, calculated based on loans of ¥278.55B and deposits of ¥2,913.46B, was 71.3%, within the generally observed benchmark range. The securities balance was ¥655.19B (-7.6% YoY), indicating a shift in asset allocation toward cash and deposits.【Financial Soundness】Total assets were ¥3,151.30B, net assets were ¥146.61B, the equity ratio was 4.7%, and the debt-to-equity ratio was high at approximately 20.5x, reflecting the structural characteristics of the banking industry, in which deposits constitute core liabilities.

Cash Flow Analysis

Because the Company did not disclose a statement of cash flows for this reporting period, funding trends are assessed based on changes in the balance sheet. Cash and deposits increased from ¥26.41B to ¥264.10B, rising substantially by ¥102.56B (+63.5%) YoY, while securities declined by ¥53.95B (-7.6%) YoY to ¥655.19B. Deposits increased by ¥42.55B (+1.5%) YoY to ¥2,913.46B, and negotiable certificates of deposit also increased by ¥9.70B (+42.8%) YoY to ¥32.38B, indicating an expansion of the funding base. Borrowings declined by ¥1.33B YoY to ¥14.42B, with no evidence of increased reliance on external borrowing. Overall, the additional funding obtained through deposits and negotiable certificates of deposit was deployed by shifting asset allocation from securities toward cash and deposits, increasing the depth of liquid assets.

Earnings Quality

The increase in ordinary income was driven by expansion in recurring revenue sources, including interest and dividend income (+25.8%) and fees and commissions (+16.4%). Special losses were limited to ¥0.01B, indicating a limited contribution from temporary factors. However, funding costs increased 80.2%, outpacing the growth in interest and dividend income; going forward, changes in the quality of ordinary revenues resulting from higher deposit interest rates should be monitored closely. Comprehensive income was ¥3.59B, exceeding net income of ¥2.98B, but declined 28.3% from ¥4.99B in the same period of the previous year. This was attributable to a smaller improvement in the valuation difference on other securities, resulting in a divergence between trends in net income and OCI. The valuation difference on other securities remained negative at -¥7.09B, and the continuing impact of market price fluctuations in securities on the quality of equity capital warrants attention when evaluating earnings quality.

Earnings Forecast and Guidance

Against the full-year ordinary income forecast of ¥14.90B, Q1 results of ¥4.36B represent progress of 29.3%, exceeding the standard quarterly progress rate of 25%. Q1 results of ¥2.98B also represent progress of 29.8% against the full-year net income forecast of ¥10.00B, similarly ahead of schedule. Q1 ordinary income growth of +24.9% substantially exceeded the full-year forecast growth rate of 14.1%, and no revisions were made to the earnings or dividend forecasts. Going forward, trends in funding costs associated with rising deposit interest rates will be the key factor determining whether full-year results outperform or fall short of the plan.

Shareholder Returns

The full-year dividend forecast is ¥98.0 per share, implying a forecast payout ratio of approximately 40.2% based on the full-year EPS forecast of ¥243.87. The annual total dividend, calculated based on the average number of shares outstanding during the period of 41.006 million shares, is approximately ¥4.02B, providing sufficient dividend coverage from earnings against the full-year net income forecast of ¥10.00B. Q1 net income attributable to owners of the parent of ¥2.98B reached 29.8% of the full-year forecast, indicating steady progress in the earnings support for dividends. There was no revision to the dividend forecast, and retained earnings continued to increase, reaching ¥84.66B, up ¥0.48B YoY.

Risk Factors

1. Risk of margin compression: Interest on loans increased 17.4% YoY, while interest on deposits increased substantially by 81.4%, indicating that the pace of increase in deposit funding costs is exceeding the improvement in lending yields. If the rising interest rate environment continues, this could place pressure on profitability.

2. Declining profitability in non-banking segments: The credit card business declined in profit by 21.8%, the credit guarantee business declined by 30.6%, and the IT business turned to a loss of ¥0.01B. Since the banking business accounts for approximately 89% of segment profit, the scope for offsetting earnings fluctuations in non-banking businesses through other businesses is limited.

3. Valuation and market fluctuation risk related to securities: The securities balance was ¥655.19B, accounting for approximately 20.8% of total assets, while the valuation difference on other securities remained negative at -¥7.09B. Comprehensive income declined 28.3% YoY despite growth in net income, requiring continued monitoring of the impact of interest rate and market price fluctuations on equity capital.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Because comparable data is limited, it is difficult to clearly assess the Company’s relative position within the industry.

Growth and Capital Efficiency

Because comparable data is limited, it is difficult to clearly assess the Company’s relative position within the industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Q1 ordinary income increased 24.9% YoY, and progress against the full-year ordinary income forecast was 29.3%, exceeding the standard quarterly progress rate of 25%. The structure in which segment profit from the core banking business, accounting for approximately 89% of total segment profit, drove earnings growth was confirmed.

2. While interest on loans increased 17.4%, interest on deposits increased 81.4%. The rise in funding costs behind revenue expansion is an important point to monitor when assessing the sustainability of profitability.

3. All non-banking segments—the credit card business, credit guarantee business, and IT business—either reported lower profit or turned to a loss, indicating that the benefits of revenue-source diversification have temporarily declined.

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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. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investors should make investment decisions at their own responsibility and, where necessary, consult with professionals.

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