The Bank of Nagoya (8522) FY2026 FY Earnings Report

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Executive Summary

Banking operations drove performance amid rising interest rates, resulting in higher revenue and profit growth that outpaced revenue growth. Ordinary revenue was ¥1,244.6B (+21.1% YoY), ordinary income was ¥280.8B (+34.4%), and net income attributable to owners of the parent was ¥202.7B (+39.6%). Profit growth was supported by the increase in investment income exceeding the increase in funding expenses, as well as general and administrative expenses growing more slowly than revenue.

Factors Affecting Performance

【Revenue】Ordinary revenue was ¥1,244.6B, up +21.1% YoY. Banking operations, which accounted for 77.1% of consolidated revenue, led overall performance at ¥960.5B (+28.5%), supported by expansion of the business base, including an 8.0% increase in loans and an 12.3% increase in deposits. In contrast, leasing operations were ¥229.3B (+2.7%), card operations were ¥22.7B (-1.0%), and other operations were ¥32.5B (-4.3%), reflecting limited growth.

【Profit and Loss】Ordinary income was ¥280.8B (+34.4%), while net income was ¥202.7B (+39.6%). Banking operations generated segment income of ¥272.4B (+36.4%, profit margin 28.4%), making a contribution exceeding the consolidated increase in profit, while leasing operations posted ¥7.5B (-10.8%, profit margin 3.3%), representing a decline in profit. Card operations generated ¥5.9B (+8.6%), reflecting improved profitability. Although investment income expanded by +39.8% YoY, funding expenses also surged by +103.5%, with rising deposit interest rates acting as a factor restraining profit growth. Extraordinary income and losses amounted to a net ¥2.7B, equivalent to approximately 1.0% of profit before tax, and profit was based primarily on ordinary income. In conclusion, the Company achieved both higher revenue and higher profit.

Segment Analysis

Banking operations formed the core of consolidated performance, with ordinary revenue of ¥960.5B (+28.5%) and segment income of ¥272.4B (+36.4%). Its profit margin of 28.4% exceeded the 3.3% for leasing operations and 26.1% for card operations. Leasing operations generated higher revenue but saw profit decline by 10.8%, potentially reflecting pressure on profitability from funding costs, residual value risk, and credit risk. Card operations experienced lower revenue but an 8.6% increase in profit, indicating improved cost efficiency. Other businesses, including medical systems and ICT support, were broadly flat, with ordinary revenue of ¥32.5B (-4.3%) and profit of ¥3.1B (-0.3%).

Key Financial Indicators

【Profitability】The ordinary income margin was 22.6%, improving by +230bp from 20.3% in the previous year, while the net profit margin also increased to 16.3% from 14.3%, up +200bp. ROE improved to 6.5% from 5.1% in the previous year, although evaluation should take into account the highly leveraged structure of banking operations.【Cash Quality】Operating CF was ¥1,401.9B, equivalent to 6.92 times net income, and the accrual ratio was negative 1.9%, indicating no excessive front-loading of accrual-based earnings. However, banks’ operating CF is strongly affected by fluctuations in funding transactions involving deposits, loans, and securities, and therefore cannot be evaluated mechanically using metrics for general operating companies.【Investment Efficiency】Capital expenditures were ¥35.5B compared with depreciation and amortization expense of ¥25.8B, resulting in capital expenditures/depreciation and amortization of 1.37 times, indicating an investment level exceeding maintenance and replacement needs.【Financial Soundness】The equity ratio was 5.0%, and the loan-to-deposit ratio was 80.1%, within the generally appropriate range of 70-90%. The debt-to-equity ratio was approximately 19 times, reflecting the structural characteristics of banking operations, in which deposits constitute the primary liabilities.

Cash Flow Analysis

Operating CF was ¥1,401.9B, investing CF was negative ¥752.5B, and financing CF was negative ¥50.8B. Cash and cash equivalents increased by ¥598.6B to ¥764.8B at the end of the period. Free CF was ¥649.4B, providing 4.87 times coverage of total dividends of ¥83.6B. Operating CF was 6.92 times net income of ¥202.7B; however, because it is strongly affected by changes in the period-end balances of funding transactions involving deposits, loans, and securities, it is not appropriate to interpret this multiple as a measure of earnings cash conversion quality in the same manner as for general operating companies. Operating CF decreased by 36.1% from ¥2,194.5B in the previous year, requiring continued monitoring as a change in the composition of funding transactions.

Quality of Earnings

The difference between extraordinary income of ¥3.4B and extraordinary losses of ¥0.7B, a net ¥2.7B, represented only approximately 1.0% of profit before tax of ¥283.5B, indicating that current-period profit was generally based on a recurring earnings structure. Investment income increased substantially to ¥709.9B (+39.8%), but funding expenses also rose to ¥206.0B (+103.5%), exceeding investment income growth in percentage terms. Accordingly, the pace of expansion in net interest income is constrained by rising funding costs. Comprehensive income was ¥422.6B, substantially exceeding net income of ¥202.7B, with securities valuation differences of ¥198.7B being the primary contributor to the difference. This divergence resulted from fluctuations in market prices, and should be noted as a potential factor affecting net assets when interest rates or equity markets move in the opposite direction.

Earnings Forecast and Guidance

The full-year forecast is ordinary revenue of ¥1,428.0B, ordinary income of ¥337.0B, and net income of ¥227.0B. Current-period results represent 87.2% of the forecast for ordinary revenue, 83.3% for ordinary income, and 89.3% for net income, indicating that the forecast assumes further accumulation during the remaining period. Ordinary income is progressing relatively slowly compared with the forecast, and future progress will be determined by trends in net interest income, fee and commission income, and credit costs.

Shareholder Returns

Total dividends were ¥83.6B, resulting in a payout ratio of 41.3% against net income of ¥202.7B. Share repurchases were small at ¥0.1B, resulting in a total return ratio of approximately 41.3% when combined with dividends. The interim dividend of ¥150 and year-end dividend of ¥120 include amounts from before and after the stock split; therefore, they should not be simply aggregated, and the payout ratio of 41.3% based on total dividends should be used as the basis for evaluation. Dividend coverage against free CF of ¥649.4B was 4.87 times, indicating that the dividend burden was not excessive from a cash flow perspective. The consistency of the full-year forecast dividend per share of ¥200 with the post-stock-split basis should be confirmed.

Risk Factors

1. Low NIM: NIM was 1.17%, while funding expenses increased by +103.5% YoY, outpacing the +39.8% increase in investment income. If rising deposit interest rates outpace improvements in lending and investment yields, the sustainability of net interest income growth will be constrained.

2. Concentration in Banking Operations: Banking operations account for 77.1% of consolidated ordinary revenue and the majority of segment income. Accordingly, fluctuations in the business’s interest margin and credit costs have a significant impact on consolidated performance.

3. Equity Ratio and Leverage: The disclosed equity ratio was 5.0%, and the debt-to-equity ratio was approximately 19 times. Although these figures reflect the structure of banking operations, in which deposits are the primary liabilities, continued monitoring of capital adequacy and the interest-rate sensitivity of assets and liabilities is necessary.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

The net profit margin is above the industry median.

Growth and Capital Efficiency

The revenue growth rate is substantially above the industry median and exceeds the upper bound of the IQR.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Ordinary revenue increased by +21.1%, while ordinary income and net income grew by +34.4% and +39.6%, respectively, achieving profit growth that outpaced revenue growth. The 28.4% profit margin of banking operations is driving consolidated profitability higher.

2. Investment income increased by +39.8%, but funding expenses expanded at a faster pace, increasing by +103.5%. The trend in NIM of 1.17% will determine future profitability.

3. Comprehensive income of ¥422.6B substantially exceeded net income, with securities valuation differences of ¥198.7B boosting net assets. Capital sensitivity during periods of market volatility will remain an ongoing area of monitoring.

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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. 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, and you should consult a professional as necessary.

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