North Pacific Bank (8524) FY2026 FY Earnings Report

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Executive Summary

Revenue and profit increased, primarily driven by the expansion of income from funds invested, but the increase in funding costs kept pace with the growth in income, resulting in lower profit margins than in the previous year. Ordinary revenue was ¥2,359.3B (+56.6% YoY), ordinary income was ¥375.3B (+33.7%), and net income was ¥256.4B (+24.9%). The ordinary income margin declined from the previous year, making this an earnings result that requires monitoring from the perspective of the quality of revenue growth.

Factors Driving Earnings Changes

【Revenue】Ordinary revenue increased substantially by +56.6% YoY to ¥2,359.3B. The core Banking Business segment totaled ¥2,049.1B (+69.2%), accounting for 86.8% of consolidated revenue and driving growth. Within the Banking Business, interest on loans increased to ¥885.9B (+32.5% YoY), supported by growth in the outstanding balance of loans. The Leasing Business totaled ¥244.2B (+5.0%), while Other Businesses totaled ¥66.5B (+6.1%); both recorded more modest growth than the Banking Business.

【Profit and Loss】Ordinary income increased to ¥375.3B (+33.7%), while net income increased to ¥256.4B (+24.9%). However, funding costs, including interest on deposits, surged to ¥253.8B, an increase of +191.5% YoY, partially offsetting the growth in income from funds invested. The profit margin of the Banking Business declined from the previous year, indicating that revenue expansion was not fully reflected in profit growth. Extraordinary gains and losses were limited in scale, resulting in a net loss of ¥4.2B (including an impairment loss of ¥0.7B), and the impact of temporary factors on profit was limited. Accordingly, the current period can be concluded to have delivered higher revenue and profit despite a decline in profit margins.

Segment Analysis

The Banking Business generated ordinary revenue of ¥2,049.1B (+69.2% YoY) and ordinary income of ¥359.4B (+35.0%), serving as the core contributor to consolidated profit. However, its profit margin declined from approximately 21.9% in the previous year to 17.5%, as the expansion in revenue was partially offset by higher funding costs. The Leasing Business generated ordinary revenue of ¥244.2B (+5.0%), ordinary income of ¥8.6B (+0.9%), and a profit margin of 3.5%, significantly below that of the Banking Business. Other Businesses, including the credit guarantee business, generated ordinary revenue of ¥66.5B (+6.1%), ordinary income of ¥16.4B (+6.2%), and maintained a high profit margin of 24.7%. Both consolidated revenue and profit are highly dependent on the Banking Business, making concentration in a single business a defining characteristic of the segment composition.

Key Financial Indicators

【Profitability】The ordinary income margin was 15.9%, down from 18.6% in the previous year, while the net profit margin was 10.8%, down from 13.7%. Income from funds invested increased to ¥1,184.9B (+36.9% YoY), but margin improvement was constrained by the sharp increase in funding costs to ¥253.8B (+191.5%). 【Cash Flow Quality】Operating Cash Flow (OCF) was negative ¥3,751.3B, a substantially negative figure relative to net income; however, in banking, changes in period-end balances of deposits, loans, securities, and other items are reflected, so its interpretation differs from cash flow evaluation for general operating companies. 【Investment Efficiency】ROE improved to 6.5% from 5.0% in the previous year. Basic EPS was ¥68.05 (+26.2%), and BPS was ¥1,035.74. 【Financial Soundness】The Equity Ratio was 3.0%, and the loan-to-deposit ratio was 72.2%, both within benchmark ranges, indicating that the Bank maintains a stable funding structure in which deposits exceed loans.

Cash Flow Analysis

Operating Cash Flow (OCF) was negative ¥3,751.3B, representing a significant divergence from net income of ¥256.4B. This reflects the characteristic of banking whereby changes in the balances of deposits, loans, securities, interbank funds, and other items are reflected in OCF; its nature therefore differs from a deterioration in working capital at a general operating company. In fact, loans increased by ¥1,808.8B YoY, and the expansion of funds invested was a factor weighing on OCF. Investing Cash Flow was an inflow of ¥199.7B, including ¥70.7B in capital expenditures, while Financing Cash Flow was negative ¥146.7B, including ¥24.3B in share repurchases. Free Cash Flow (OCF + Investing Cash Flow) was negative ¥3,551.5B, but this level is strongly dependent on changes in period-end balances of deposits and loans. Accordingly, the assessment of the source of dividends should be made together with the deposit base and capital level. Cash and cash equivalents decreased by ¥3,698.2B YoY to ¥2兆2,637.6B, representing a substantial change in the funding position.

Quality of Earnings

Against ordinary income of ¥375.3B for the current period, income before taxes was ¥371.1B. Net extraordinary gains and losses were limited to a loss of ¥4.2B (extraordinary income of ¥0.3B, extraordinary losses of ¥4.5B, including an impairment loss of ¥0.7B), indicating limited dependence on temporary factors. In the conversion from ordinary income to net income, corporate income taxes and other taxes amounted to ¥114.7B, resulting in an effective tax rate generally in the 30% range. Comprehensive income was ¥217.3B, below net income of ¥256.4B, primarily because valuation differences on other securities were negative ¥54.0B. The impact of interest rate and market price fluctuations on capital makes it necessary to continuously monitor trends in securities valuations. General and administrative expenses were ¥726.6B, up +6.3% YoY and substantially below the growth rate of income from funds invested. Meanwhile, other ordinary expenses increased significantly, and together with the rise in funding costs, this was a primary factor behind the decline in profit margins.

Earnings Forecast and Guidance

The Company forecasts full-year ordinary income of ¥444.0B (+18.2% YoY) and net income of ¥293.0B (+16.6%). Current-period ordinary revenue of ¥2,359.3B has already exceeded the full-year revenue forecast of ¥2,252.0B, representing progress of 104.8%. Meanwhile, progress toward the ordinary income target was 84.5%, and progress toward the net income target was 87.1%, indicating that profit progress is somewhat slower than revenue progress. This is consistent with a situation in which rising funding costs are constraining the conversion of revenue into profit, making trends in funding costs an important variable in achieving the full-year profit forecasts.

Shareholder Returns

The annual dividend for the current period was ¥28.0 per share (¥6.5 per quarter for 3 quarters and ¥8.5 at fiscal year-end), resulting in a Payout Ratio of 41.1% based on net income of ¥256.4B. Including share repurchases of ¥24.3B, the Total Return Ratio was approximately 50.7%; both the Payout Ratio and Total Return Ratio were below general sustainability benchmarks of 60% and 80%, respectively. The Company forecasts a full-year dividend of ¥32.0, implying an increase from the current-period actual dividend of ¥28.0. The forecast Payout Ratio based on forecast EPS of ¥78.58 is approximately 40.7%, broadly in line with the current-period actual level.

Risk Factors

1. Business concentration risk: The Banking Business accounts for 86.8% of consolidated ordinary revenue and the majority of segment ordinary income. This structure means that sensitivity to the regional economy, the credit conditions of borrowers, and interest rate fluctuations directly affects consolidated performance.

2. Net interest margin compression risk: While income from funds invested increased +36.9% YoY, funding costs expanded sharply by +191.5%. If the increase in deposit costs exceeds the pace of improvement in lending and securities investment yields, further pressure on the net interest margin may arise.

3. Securities valuation and capital fluctuation risk: Valuation differences on other securities were negative ¥54.0B, and comprehensive income of ¥217.3B was below net income of ¥256.4B. Securities account for approximately 19% of total assets, and interest rate and market price fluctuations may affect valuation differences and shareholders’ equity.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

The net profit margin is slightly below the industry median, placing profitability at a mid-range level within the industry.

Growth and Capital Efficiency

The revenue growth rate substantially exceeds the industry median, indicating exceptionally strong revenue growth within the industry.

※Source: Compiled by the Company

Key Earnings Highlights

1. Ordinary revenue recorded exceptionally strong growth of +56.6% YoY within the industry, but the ordinary income margin and net profit margin declined from the previous year. The fact that revenue growth did not fully translate into profit growth is a key point of focus in the earnings results.

2. ROE improved to 6.5% from 5.0% in the previous year, while the loan-to-deposit ratio of 72.2% indicates a stable funding structure in which deposits exceed loans. Securing the net interest margin against rising funding costs will be key to achieving sustained improvement in capital efficiency.

3. The Payout Ratio of 41.1% and Total Return Ratio of approximately 50.7% remained within the range of current-period profit, while the full-year dividend forecast of ¥32.0 implies an increase from the current-period actual dividend of ¥28.0.

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

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