THE TOCHIGI BANK (8550) FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, the Company returned to profitability from the significant loss recorded in the previous fiscal year, with substantial improvements in both ordinary revenue and profit. Ordinary revenue amounted to ¥545.5B (+21.0% YoY), ordinary income was ¥100.2B (an improvement of ¥336.6B from the previous year's loss of ¥-236.4B), and net income was ¥84.1B (recovering from the previous year's loss of ¥-222.7B). The primary driver of revenue growth was the expansion of funds investment income accompanying a 12.2% increase in loans, while the sharp reduction in other ordinary expenses, which had been recorded at a significant level in the previous fiscal year, also made a substantial contribution to the recovery in profit. Progress against the full-year company forecast (ordinary income of ¥108.0B and net income of ¥87.0B) reached 92.8% and 92.1%, respectively (96.7% based on consolidated net income).

Factors Affecting Performance

【Revenue】Ordinary revenue increased by +21.0% YoY to ¥545.5B. The Banking Business segment accounted for ¥477.3B (+20.5% YoY), representing 87.5% of the total, and led the expansion of funds investment income, which amounted to ¥364.7B (+34.6% YoY). The Financial Instruments Business generated ¥28.0B (+22.2% YoY), while Other Businesses, including leasing and card services, generated ¥40.2B (+25.9% YoY); both contributed to revenue growth. Although interest on loans expanded to ¥296.9B (+30.8% YoY), interest on deposits surged to ¥62.5B (+234.2% YoY), partially offsetting the expansion in funds investment income through higher funding costs.

【Profit and Loss】Ordinary income was ¥100.2B, representing a return to profitability from the previous year's loss of ¥236.4B. General and administrative expenses increased only +10.1% YoY to ¥249.7B, below the +21.0% growth in ordinary revenue, resulting in positive operating leverage. In addition, other ordinary expenses, which had been recorded at ¥318.4B in the previous fiscal year, declined substantially to ¥26.2B in the current fiscal year, becoming a major factor behind the improvement in profit. Net income was ¥84.1B (¥82.9B attributable to owners of the parent), with the decrease from ordinary income attributable to income taxes of ¥13.5B and extraordinary losses of ¥5.7B, including impairment losses of ¥1.1B. The Company recorded higher revenue and higher profit.

Segment Analysis

The Banking Business segment was the core contributor to the recovery in consolidated profit, with ordinary revenue of ¥477.3B (+20.5% YoY) and ordinary income of ¥88.7B (compared with a loss of ¥240.6B in the previous year). The Financial Instruments Business recorded higher revenue and higher profit, with ordinary revenue of ¥28.0B (+22.2% YoY) and ordinary income of ¥6.0B (+100.0% YoY). Other Businesses, including leasing and card services, also expanded significantly, with ordinary revenue of ¥40.2B (+25.9% YoY) and ordinary income of ¥5.8B (+293.9% YoY). The Banking Business accounts for the majority of consolidated ordinary income, and growth in the other segments has a limited impact on consolidated performance.

Key Financial Indicators

【Profitability】The ordinary income margin was 18.4% (compared with △52.4% in the previous year), while the net income margin was 15.4% (compared with △49.4% in the previous year); both improved substantially from the loss-making position in the previous year. 【Cash Flow Quality】Operating Cash Flow (OCF) was △1,711.8B, significantly below net income; however, this reflects the characteristics of the banking business, in which movements in deposits, loans, securities, and other funds are directly reflected in OCF. Accordingly, caution is required when applying cash conversion metrics for general operating companies without adjustment. 【Investment Efficiency】ROE was 5.1%, and BPS was ¥1,567.66 (up from ¥1,461.32 in the previous year). 【Financial Soundness】The Equity Ratio was 4.8%, improving from 4.5% in the previous year; however, the relatively thin capital base remains a structural feature, with net assets of ¥1,649.5B against total assets of ¥34,193.4B. Total assets increased +2.6% YoY, while net assets increased +7.7%.

Cash Flow Analysis

Operating Cash Flow (OCF) was △1,711.8B, representing a larger outflow than the previous year's △976.99B. Investing CF was △501.5B, including capital expenditures of △71.3B. Financing CF was a relatively small △15.1B. Free cash flow was △2,213.3B, and cash and cash equivalents at the end of the period declined to ¥4,616.4B (△¥2,228.3B YoY). These substantial cash outflows reflect changes in fund management, whereby loans increased +12.2% YoY while deposits increased only +1.7%, requiring the expansion of lending to be funded through sources other than deposits. In the banking business, changes in deposits, loans, and securities are directly reflected in OCF; therefore, it is not appropriate to assess cash flow quality mechanically using the standards applied to general operating companies. Nevertheless, the trend in cash and liquid asset balances requires continued monitoring.

Quality of Earnings

The recovery in profit for the current fiscal year includes temporary factors in addition to fundamental earnings growth. While the increase in funds investment income (+34.6%) and expansion in net fee income (+11.3%) indicate an improvement in recurring earnings power, the substantial decline in other ordinary expenses from ¥318.4B in the previous fiscal year to ¥26.2B in the current fiscal year was a major factor behind the improvement in profit. Because this reversal effect is non-recurring in nature, it cannot be concluded that ordinary income of ¥100.2B in the current fiscal year will represent the base level for subsequent periods. Extraordinary income was ¥3.1B and extraordinary losses were ¥5.7B, including impairment losses of ¥1.1B, resulting in a limited impact on net income. Comprehensive income was ¥133.7B, exceeding net income of ¥84.1B; the primary factors behind the difference were adjustments related to retirement benefits of +¥26.8B and deferred hedge gains or losses of +¥26.1B.

Earnings Forecasts and Guidance

The full-year company forecast calls for revenue (ordinary revenue) of ¥608.0B, ordinary income of ¥108.0B (+7.8% YoY), and net income of ¥87.0B (+8.5% YoY). Based on current-period results (ordinary revenue of ¥545.5B, ordinary income of ¥100.2B, and net income of ¥84.1B), progress rates are 89.7% for ordinary revenue, 92.8% for ordinary income, and 96.7% for net income. Progress on the profit front is close to the full-year targets, leaving limited room for further upside. Forecast EPS is ¥86.43, and forecast dividend is ¥30.00.

Shareholder Returns

The annual dividend totals ¥26.00, comprising an interim dividend of ¥12.00 and a year-end dividend of ¥14.00, resulting in a Payout Ratio of 33.0%. No share repurchases were confirmed, and shareholder returns are evaluated solely on the basis of dividends. The full-year forecast dividend is ¥30.00 (a Payout Ratio of approximately 34.7% based on forecast EPS of ¥86.43), implying a return policy broadly at the same level as the current-period results. While the Payout Ratio is within a sustainable range based on earnings, given the Equity Ratio of 4.8%, the capacity to distribute dividends requires continued assessment from both the perspectives of earnings stability and capital adequacy.

Risk Factors

1. Concentration of earnings in the Banking Business segment: The Banking Business accounts for 87.5% of ordinary revenue, creating a structure in which fluctuations in net interest margins, credit costs, and gains or losses on securities have a direct and significant impact on consolidated performance.

2. Downward pressure on net interest margins (NIM): Funding expenses surged +216.8% YoY to ¥76.79B, with the increase in funding costs exceeding the increase in interest on loans (+30.8%). Managing the balance between asset management and funding during a period of rising deposit rates will be a key challenge.

3. Capital adequacy: Although the Equity Ratio improved YoY to 4.8%, there is an asymmetry in scale, with net assets of ¥1,649.5B against total assets of ¥34,193.4B. Continued monitoring is required regarding loss-absorbing capacity and the scope for future capital policy.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

Growth and Capital Efficiency

※Source: Compiled by the Company

Key Points from the Financial Results

1. The return to profitability, with ordinary income of ¥100.2B and net income of ¥84.1B, represents a clear recovery from the significant loss in the previous fiscal year (ordinary income of △¥236.4B). However, part of the recovery reflects the reversal effect from the decline in other ordinary expenses of ¥318.4B recorded in the previous fiscal year, and the repeatability of profit levels in subsequent periods will depend on trends in expenses and credit costs.

2. Loans increased +12.2% YoY, outpacing the +1.7% increase in deposits, contributing to the increase in funds investment income. At the same time, management of future credit costs and the funding balance will be important considerations.

3. Progress rates for ordinary income and net income against the full-year company forecast reached 92.8% and 96.7%, respectively, indicating that the recovery in current-period performance is generally proceeding smoothly toward achievement of the Company's plan.

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not constitute a recommendation to invest 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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