THE TOWA BANK,LTD. FY2026 FY Earnings Report

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Executive Summary

Although revenue increased this fiscal year, ordinary income and net income fell sharply from profits in the previous year into significant losses, resulting in financial results characterized by higher revenue but lower earnings (losses recorded). Ordinary revenue (revenue) was ¥435.0B, an increase of +15.0% from ¥378.1B in the previous year, while ordinary income swung from a profit of ¥63.9B in the previous year to a loss of ¥298.4B. Net income attributable to owners of the parent also shifted from a profit of ¥45.2B in the previous year to a loss of ¥245.0B. Basic EPS deteriorated from +¥122.36 in the previous year to -¥687.18, indicating that the earnings structure deteriorated substantially despite top-line expansion.

Factors Affecting Performance

【Revenue】Ordinary revenue was ¥435.0B, representing a year-on-year increase of +15.0%. Although segment-level disclosure is not provided, expansion in core business revenue, including lending and fee-based transactions, is believed to have contributed.

【Earnings】Ordinary income shifted from a profit of ¥63.9B in the previous year to a loss of ¥298.4B, while net income also shifted from a profit of ¥45.2B in the previous year to a loss of ¥245.0B. As the net loss of ¥245.0B was narrower than the ordinary loss of ¥298.4B, the impact of tax effects and other factors can be inferred. Despite higher revenue, the Company recorded a substantial loss at the earnings level, leading to the conclusion that the financial results reflected higher revenue but lower earnings (losses recorded).

Key Financial Indicators

【Profitability】Net profit margin was -56.3% (previous year +12.0%), ROE was -27.2% (previous year +4.3%), and ROA was -1.2% (previous year +0.2%), all representing substantial deterioration from the previous year. A DuPont decomposition of ROE yields net profit margin of -56.3% × total asset turnover of 0.018x × financial leverage of 26.69x. Asset turnover and leverage showed no major changes from the previous year (0.016x and 26.14x, respectively), and the sharp decline in net profit margin was the primary cause of the deterioration. 【Cash Flow Quality】Operating Cash Flow (OCF) remained positive at ¥13.9B, but its ratio to the net loss of ¥245.0B was -0.06x, indicating that cash generation was not commensurate with the scale of the current-period loss. 【Investment Efficiency】BPS increased +3.0% year on year to ¥2,532.72 (previous year ¥2,458.71), indicating that the per-share metric held up relatively well compared with the decline in net assets. 【Financial Soundness】The Equity Ratio was 3.7%, remaining at the same level as the previous year, while financial leverage rose slightly to 26.69x (previous year 26.14x), indicating that the level of equity capital requires continued monitoring.

Cash Flow Analysis

Operating Cash Flow (OCF) was positive at ¥13.9B, representing a substantial improvement from -¥159.0B in the previous year. Investing Cash Flow (ICF) was significantly positive at +¥1,148.8B, primarily believed to reflect the recovery of funds through the sale and redemption of securities and other assets. Financing Cash Flow (FCF) was -¥23.0B, with the size of the outflow narrowing from -¥179.8B in the previous year. Free cash flow, calculated as the sum of OCF and ICF, was +¥1,162.6B. As a result, cash and cash equivalents at the end of the period accumulated to ¥2,810.4B (previous year ¥1,670.8B, +68.4%), indicating that the liquidity buffer had increased compared with the previous year. However, the level of OCF itself remained below the net loss of ¥245.0B, and it should be noted that the expansion in free cash flow resulted from asset repositioning rather than core business earnings.

Earnings Quality

The net loss of ¥245.0B was approximately 18% narrower than the ordinary loss of ¥298.4B, suggesting that tax effects and temporary earnings factors partially offset the loss at the net income level. Comprehensive income turned positive at +¥16.2B from -¥95.0B in the previous year, with other comprehensive income (OCI), including valuation differences on other securities, partially offsetting the net loss. Meanwhile, OCF (¥13.9B) was substantially below the net loss (¥245.0B), indicating a clear divergence between the income statement figures for the current period and cash-generating capacity. This divergence is considered to reflect the substantial impact on earnings of non-cash items such as credit costs and valuation gains and losses. These factors must therefore be taken into account when assessing earnings quality.

Earnings Forecasts and Guidance

For the following fiscal year, the Company’s plan calls for ordinary income of ¥50.0B (down -17.1% year on year), net income of ¥55.0B (down -19.7% year on year), EPS of ¥155.20, and a dividend of ¥50.00. The projected recovery from the current-period ordinary loss of ¥298.4B and net loss of ¥245.0B is substantial, and achievement of the plan assumes normalization of credit costs and market-related gains and losses. The Company has noted that its earnings forecasts are “based on assumptions judged to be reasonable,” explicitly indicating that actual results may differ from these assumptions.

Shareholder Returns

The Company paid a year-end dividend of ¥35.00 for the current period. As the previous year’s annual dividend was ¥0 (no dividend), the dividend amount itself increased; however, because the Company recorded a net loss of ¥245.0B for the current period, the Payout Ratio was equivalent to -5.1%, making interpretation as a conventional metric difficult. Meanwhile, coverage of total dividends of ¥12.4B by free cash flow of ¥1,162.6B was high, indicating a low dividend burden from a cash flow perspective. The Company plans to increase the dividend to ¥50.00 in the following fiscal year, but given that the Equity Ratio has not improved from the previous year, future dividend policy may be linked to the recovery of earnings and the level of capital.

Risk Factors

1. Monitoring of capital levels: The Equity Ratio was 3.7%, remaining at the same level as the previous year, with no improvement evident even after the recognition of a substantial net loss in the current period. Financial leverage rose slightly to 26.69x (previous year 26.14x), indicating a high sensitivity to fluctuations in equity capital.

2. Earnings volatility: Ordinary income swung sharply year on year from a profit of ¥63.9B in the previous year to a loss of ¥298.4B. The sharp fluctuation in earnings amid continued revenue growth suggests that earnings may be strongly affected by non-cash items such as credit costs and market-related gains and losses.

3. Low cash conversion: Against OCF of ¥13.9B, the net loss was ¥245.0B, leaving the OCF/net income ratio at approximately -0.06x. The expansion in free cash flow was primarily attributable to asset repositioning through ICF, while cash generation from the core business itself remained limited.

Industry Benchmark (Reference, Compiled by the Company)

Industry Benchmark (bank)

Growth and Capital Efficiency

The revenue growth rate exceeded the industry median of 10.1% by 4.9 points, placing the Company in a relatively high position within the industry in terms of revenue growth.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Coexistence of revenue growth and a sharp earnings reversal: Ordinary revenue increased +15.0%, while ordinary income and net income shifted substantially from profits in the previous year to losses. The inability of top-line expansion to offset deterioration at the earnings level is a key point regarding the earnings structure.

2. Sustainability of capital levels: The Equity Ratio of 3.7% remained at the same level as the previous year, with no change even after the recognition of a substantial loss. The accumulation of retained earnings going forward will remain an ongoing monitoring item when assessing financial soundness.

3. Divergence between cash flow and earnings: OCF was positive at ¥13.9B but remained below the net loss of ¥245.0B, while the expansion in free cash flow was primarily attributable to ICF (asset sales and redemptions). The degree of recovery in OCF during the process of achieving the following fiscal year’s planned net income of ¥55.0B will serve as an indicator for assessing earnings quality.

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This report is an automatically generated earnings analysis document produced 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.

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