THE BANK OF KOCHI (8416) FY2026 Q3 Earnings Report

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Executive Summary

The most important point is that, despite higher revenue, profit declined substantially, indicating an ongoing deterioration in profitability and capital efficiency beneath the revenue growth. Ordinary revenue increased to 206.7億円 (177.8億円 in the same period of the previous year, +16.2%), while ordinary income decreased to 11.2億円 (19.9億円 in the same period of the previous year, -43.8%). Net income attributable to owners of the parent was 5.0億円, down -62.1% from 13.3億円 in the same period of the previous year. Corporate income taxes and other taxes of 4.8億円 were imposed against profit before tax of 10.6億円, resulting in a high effective tax rate of approximately 45.4%. The primary driver of revenue growth was an increase in interest income associated with the expansion of loans and deposits; however, higher funding costs and credit-related expenses weighed on profit.

Factors Affecting Performance

【Revenue】Ordinary revenue increased 16.2% year on year to 206.7億円, with all three segments recording higher revenue. Banking accounted for the largest share at 155.1億円 (75.0% of total, +14.3%), followed by leasing at 48.6億円 (23.5%, +23.8%) and the credit card business at 3.0億円 (1.5%, +5.7%). While growth in the banking business was supported by an increase in interest income (from 101.9億円 in the previous year to 116.1億円), funding expenses (interest expenses) also increased substantially from 4.5億円 to 18.6億円.

【Profit and Loss】Ordinary income declined substantially by 43.8% year on year to 11.2億円. By segment, banking income contracted to 9.1億円 (-48.6% year on year, 5.9% margin), driving the overall decline in profit. Leasing income was 2.0億円 (-7.4%, 4.1% margin), remaining broadly flat, while the credit card business recorded income of 0.1億円 (±0% year on year), with a limited impact. An extraordinary loss of 0.6億円 (loss on disposal of fixed assets) was recorded as a temporary factor, but its scale was small, and the deterioration in the core business margin is considered the primary cause. The decline in net income to 5.0億円 (13.3億円 in the previous year) was exacerbated not only by the decrease in ordinary income but also by the increase in the effective tax rate (from 28.3% in the previous year to 45.4%). In conclusion, the company recorded higher revenue but lower profit.

Segment Analysis

The banking business recorded ordinary revenue of 155.1億円 (75.0% of total, +14.3% year on year) and ordinary income of 9.1億円 (-48.6%), with its margin declining significantly to 5.9% from the previous year. Although loan growth and increased income from securities investments contributed to performance (interest and dividend income of 32.2億円, compared with 27.5億円 in the previous year), the sharp increase in deposit interest expenses (from 4.1億円 in the previous year to 15.8億円) weighed on profit. The leasing business recorded ordinary revenue of 48.6億円 (23.5%, +23.8%) and income of 2.0億円 (-7.4%, 4.1% margin); while revenue increased, its margin declined slightly. Despite its small scale, the credit card business maintained performance broadly in line with the previous year, with ordinary revenue of 3.0億円 (+5.7%) and income of 0.1億円. Overall, pressure on the banking business’s net interest margin was the largest factor behind the decline in consolidated earnings.

Key Financial Indicators

【Profitability】The ordinary income margin was 5.4% (down from approximately 11.2% when calculated based on the previous year’s 9.9億円), while the net income margin deteriorated substantially to 2.4% from 7.5% in the previous year.【Cash Flow Quality】Although detailed disclosure of operating cash flow is limited, daily fund management appears to have remained stable given the scale of deposits at 10,255.3億円 and loans at 7,358.4億円.【Investment Efficiency】ROE (annualized) was 1.4%, and capital efficiency based on profit before tax remained low. The equity ratio improved slightly to 4.5% from 4.3% in the previous year; however, financial leverage remains high, with net assets of 532.2億円 against total assets of 11,771.4億円.【Financial Soundness】The BIS-based capital adequacy indicator (CapitalAdequacyRatio) was 4.2%, slightly down from 4.3% in the previous year. The allowance for doubtful accounts increased to 128.4億円 from 122.5億円 in the previous year, indicating that provisions against credit risk have been increased.

Cash Flow Analysis

As detailed disclosure of the statement of cash flows is limited, fund movements are analyzed based on changes in balance sheet items. Deposits increased to 10,255.3億円 (9,987.4億円 in the previous year, +2.7%), while loans declined slightly to 7,358.4億円 (7,455.4億円 in the previous year, -1.3%). As a result, securities increased to 3,240.0億円 (2,839.2億円 in the previous year, +14.1%), suggesting that part of the increase in deposits was allocated to securities investments. Cash and deposits decreased to 885.0億円 (957.6億円 in the previous year, -7.6%), suggesting that part of the funds may have been allocated to lending, securities investments, repayment of borrowings, and other uses. Borrowings increased to 587.1億円 (544.6億円 in the previous year, +7.8%), indicating the use of external funding as well.

Earnings Quality

Of the current-period ordinary income of 11.2億円, the extraordinary loss of 0.6億円 (loss on disposal of fixed assets) can be distinguished as a temporary factor; however, its scale was small and its impact on overall earnings was limited. In the operating revenue structure, interest and dividend income and fee income form the core of ordinary revenue, while the sharp increase in funding expenses (interest expenses of 18.6億円, compared with 4.5億円 in the previous year) significantly pressured core business profitability. This is a structural factor requiring attention with respect to sustainability. Comprehensive income was -6.0億円 (-7.2億円 attributable to owners of the parent), representing a significant divergence from net income of 0.5億円 (attributable to owners of the parent), primarily due to the valuation difference on securities of -11.4億円. This divergence resulted from fluctuations in the market prices of securities held and should be evaluated separately from realized gains and losses.

Earnings Forecast and Guidance

The full-year ordinary income forecast is 12.5億円 (+2.0% year on year), and cumulative ordinary income through Q3 of 11.2億円 has reached approximately 89.5% of the full-year forecast. Against the full-year net income forecast of 7.0億円, cumulative net income of 5.0億円 represents progress of approximately 71.6%. Against the EPS forecast of 57.30円, cumulative basic EPS was 43.74円, representing a progress rate of approximately 76.3%. No revisions were made to either the earnings forecast or the dividend forecast during the current quarter, and management has maintained its full-year plan.

Shareholder Returns

The company plans to pay an interim dividend of 10円 and a year-end dividend of 15円, for a total full-year dividend of 25円. This is expected to represent an increase from the previous year’s annual dividend (including the interim dividend of 10円). Based on cumulative net income attributable to owners of the parent of 5.0億円 and the full-year net income forecast of 7.0億円, the payout ratio is calculated at approximately 36.2%: total dividends (25円 × approximately 1,014万 shares outstanding excluding treasury shares, based on approximately 1,024.5万 shares outstanding = approximately 2.53億円) ÷ full-year net income forecast of 7.0億円. No revision has been made to the dividend forecast, and the shareholder return policy in line with the full-year plan has been maintained.

Risk Factors

1. Net interest margin compression risk: Deposit interest expenses in the banking business increased sharply from 4.1億円 in the previous year to 15.8億円, while funding costs are rising at a faster pace than the growth in interest on loans (from 73.4億円 to 81.1億円). Depending on future interest rate conditions, this could place further pressure on profit.

2. High financial leverage: Net assets amount to 532.2億円 against total assets of 11,771.4億円, leaving the equity ratio at 4.5%. Although this is an unavoidable characteristic of the banking business model, the thin capital cushion affects resilience in the event of deteriorating market conditions.

3. Increase in the effective tax rate: Corporate income taxes and other taxes of 4.8億円 were recorded against profit before tax of 10.6億円, resulting in an effective tax rate of approximately 45.4% (28.3% in the previous year). This significantly pressured net income. Fluctuations in the tax burden are increasing the volatility of bottom-line profit.

Industry Benchmark (Reference—Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

Comparative data for the company’s net income margin against the industry median is limited, and its absolute level has declined from the previous year.

Growth and Capital Efficiency

The revenue growth rate indicates a high level of growth within the industry.

※Source: Compiled by the Company

Key Points in the Earnings Results

1. Ordinary revenue increased 16.2%, but ordinary income declined 43.8% and net income declined 59.0%, with the magnitude of the profit decline widening. The gap between revenue growth and profitability is a key point in the earnings results.

2. The sharp increase in interest expenses in the banking segment (from 4.5億円 in the previous year to 18.6億円) was the primary cause of net interest margin compression. The balance between deposits and loans and trends in funding costs will determine future performance.

3. While the effective tax rate increased from 28.3% in the previous year to 45.4%, pressuring net income, neither the full-year earnings forecast nor the dividend forecast was revised, and the company expects to achieve its full-year plan.

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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. Industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional as necessary.

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