Bank of The Ryukyus,Limited FY2027 Q1 Earnings Report

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Executive Summary

The Bank of the Ryukyus, Ltd.’s Q1 of the fiscal year ending March 2027 reported higher revenue and higher profit, driven by improved earnings power in its banking business. Revenue (ordinary income) was ¥226.97B, up +16.6% YoY; ordinary income was ¥43.65B, up +24.9%; and net income attributable to owners of the parent was ¥29.81B, up +16.0%. Growth in net interest income and net fee income exceeded the increase in expenses, improving profitability, while the increase in the effective tax rate limited net income growth relative to ordinary income growth.

Factors Driving Earnings Changes

【Revenue】Ordinary income increased 16.6% YoY to ¥226.97B. By segment, the core Banking Business posted the largest increase, rising to ¥157.9B (+20.2%), and led overall revenue growth. Leasing at ¥51.4B (+10.8%) and IT at ¥9.0B (+6.9%) also maintained an upward revenue trend, while Credit Cards at ¥7.7B (+1.7%) and Credit Guarantee at ¥0.9B (+3.3%) showed slower growth.

【Profit and Loss】Ordinary income increased 24.9% YoY to ¥43.65B, while net income rose 16.0% to ¥29.81B, resulting in higher revenue and higher profit. Banking Business segment profit was ¥40.37B (+29.3%), accounting for the majority of total profit. In contrast, Credit Cards (¥1.72B, -21.8%), Credit Guarantee (¥0.75B, -30.6%), and IT (-¥0.11B, compared with +¥0.35B in the previous year, resulting in a shift into the red) experienced declining or deteriorating profit. The gap between ordinary income and net income was attributable to the increased burden of income taxes and other taxes of ¥13.68B (effective tax rate of approximately 31.5%, compared with approximately 26.4% in the previous year); the higher tax burden was the primary factor limiting the net income growth rate to approximately 9pt below the ordinary income growth rate. Extraordinary losses were minor at ¥0.15B, and the impact of temporary factors was limited. In conclusion, the Company reported higher revenue and higher profit.

Segment Analysis

The Banking Business is the core business, generating segment profit of ¥40.37B (approximately 92% of total profit). It led both revenue and profit growth, with ordinary income of ¥157.9B (+20.2%) and profit growth of +29.3%. Leasing posted ordinary income of ¥51.4B (+10.8%) and profit of ¥2.63B (+31.5%), demonstrating a high profit growth rate. In contrast, Credit Cards generated ordinary income of ¥7.72B (+1.7%) but profit of ¥1.72B (-21.8%), while Credit Guarantee generated ordinary income of ¥0.95B (+3.3%) but profit of ¥0.75B (-30.6%), with both reporting lower profit. The IT Business generated ordinary income of ¥8.97B (+6.9%), but profit was -¥0.11B, shifting into the red from +¥0.35B in the previous year. While the Banking and Leasing businesses performed well, declining profitability in the non-banking segments is observed as an issue in the overall portfolio composition.

Key Financial Indicators

【Profitability】The net profit margin was 13.1%. Net income growth of +16.0% was slightly below ordinary income growth of +24.9%. This difference was attributable to the increase in the income tax burden rate from the previous year. Basic EPS was ¥72.71, an increase of +16.1% from ¥62.62 in the previous year. 【Cash Quality】Loans were ¥2,078.6B, essentially flat from the previous year (-0.1%), while deposits increased +1.2% to ¥2,913.5B, maintaining a stable funding structure with a loan-to-deposit ratio of approximately 71%. 【Investment Efficiency】ROE was 2.0% and the equity ratio was 4.7%, levels reflecting the capital efficiency and leverage structure of the banking sector. Total assets increased +1.0% YoY to ¥3,151.3B. 【Financial Soundness】Net assets increased only +0.7% from the previous year to ¥146.61B. The equity ratio of 4.7% does not provide substantial headroom over the regulatory minimum, making continued accumulation of retained earnings important.

Cash Flow Analysis

As this financial report does not provide detailed disclosure of the statement of cash flows, funding trends are analyzed based on changes in the balance sheet. Cash and deposits increased substantially, while securities declined, suggesting a shift in the portfolio toward highly liquid assets amid the interest-rate environment. The increase in certificates of deposit (CDs) indicates expanded use of market-based funding, while deposits continued to increase steadily, keeping the core funding base stable. In the earnings composition of the banking business, net interest income accounts for the majority of total net customer business profit, and net fee income also increased from the previous year, indicating an improving underlying capacity to generate funds.

Earnings Quality

The majority of profit consists of recurring financial and fee income, while extraordinary losses were minor at ¥0.15B, limiting the impact of temporary factors. Net interest income accounts for the core of banking business earnings. Net fee income, calculated as fee income of ¥38.71B less fee expenses of ¥17.76B, was approximately ¥20.95B and increased from the previous year, with the strengthening of non-interest income contributing to earnings stability. The gap between ordinary income and net income was primarily attributable to the ¥13.68B income tax burden. Although the effective tax rate increased from the previous year, no unusual adjustment items were identified, and earnings quality can generally be assessed as stable. Comprehensive income was ¥35.85B, exceeding net income of ¥29.81B, with an improvement of ¥6.2B in valuation differences on securities contributing to the result.

Earnings Forecast and Guidance

The full-year plan calls for ordinary income of ¥149.0B (+14.1% YoY), EPS of ¥243.87, and DPS of ¥98. As of Q1, progress rates were approximately 29.3% for ordinary income and approximately 29.8% for net income, exceeding the pace implied by a simple seasonal assumption (Q1=25%). Growth in net interest income and improved expense efficiency are believed to be behind the accelerated progress; however, it will be necessary to monitor the possibility that increases in deposit funding costs and expenses toward the second half of the fiscal year could compress progress. As of the current quarter, there were no revisions to the earnings forecast or dividend forecast.

Shareholder Returns

The Company’s projected DPS is ¥98 (annual), while projected EPS is ¥243.87, implying a payout ratio of approximately 40.2%. Actual DPS in the previous year was ¥27 (for the interim period or a partial period), and the appropriateness of the full-year dividend level must be assessed based on annual figures. Treasury stock totaled 2,102 thousand shares (approximately 4.9% of issued shares), and no large-scale share repurchase activity has been identified. With the equity ratio at 4.7% and limited headroom, dividends appear to be managed with an emphasis on balancing performance-linked distributions with retained earnings.

Risk Factors

1. Structural thinness of the net interest margin: While interest income in the banking business increased substantially YoY, the interest burden on deposits also increased concurrently, creating a structure in which spread compression is likely during periods of rising deposit interest rates.

2. Limited capital headroom: The equity ratio was 4.7%, unchanged from the previous year. With limited headroom over regulatory levels, the Company may face constraints on its ability to absorb increased risk-weighted assets or losses when they arise.

3. Declining profitability in non-banking segments: Profit in the Credit Cards, Credit Guarantee, and IT businesses all deteriorated YoY, further increasing dependence on the Banking Business for earnings.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

Comparative data for the net profit margin within the industry is limited, but the Company has secured profitability in the 13% range on an absolute basis.

Growth and Capital Efficiency

The revenue growth rate was +16.6%, representing relatively high growth for a regional bank.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Both ordinary income and net income grew by double digits, with earnings expansion in the Banking Business driving overall performance. However, the increase in the income tax burden limited net income growth relative to ordinary income growth, which should be noted when assessing earnings quality.

2. By segment, the Banking and Leasing businesses secured higher profit, while Credit Cards, Credit Guarantee, and IT reported lower profit or shifted into the red, increasing the concentration of the earnings structure in the Banking Business. The recovery trend in the profitability of non-banking businesses will be a key area of focus going forward.

3. The equity ratio was 4.7%, unchanged from the previous year. While full-year progress is running ahead of the seasonal assumption, the balance between capital levels and earnings growth will be a focus of medium-term financial management.

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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 disclosed earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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