Yokohama Financial Group, Inc. 1Q Earnings Preview

Virtuous cycle of rising interest rates and loan growth gaining full momentum; focus on L&F Asset Finance's full-year contribution and progress in funding diversification

PublishedAugust 3, 2026 at 15:30 GMT+9

Summary

Yokohama Financial Group achieved consolidated net income of JPY 106.5B (+28.6% YoY) for FY2026/3, marking five consecutive years of profit growth. For FY2027/3, the company targets net income of JPY 129B (+21.1%) and ROE of 9.0%. The central issues for 1Q this fiscal year are whether the expansion momentum in the deposit-lending rate spread amid a rising interest rate environment is sustained, and whether L&F Asset Finance—consolidated partway through the prior fiscal year—can maintain stable profit contribution in its second year. Also noteworthy is the extent to which funding diversification, symbolized by the company's inaugural unsecured straight bond issuance, enhances balance sheet flexibility to support strong loan growth (+4.2% at prior fiscal year-end). As a group that positions itself as a "Solutions Company," the quality of its earnings will be measured by growth in non-interest income such as corporate fee income and syndicated loans, as well as progress in securities portfolio restructuring.

Key Points for Next Quarter

Key Points & Focus	Implications
Sustainability of Net Interest IncomeYoY trend in deposit-lending rate spread for domestic banking operations	Whether the FY2026/3 deposit-lending spread of 1.13% (+0.13pt YoY) widens further at the 1Q stage will determine the credibility of the full-year plan. Timing of short-term prime rate pass-through is key
L&F Asset Finance Earnings StabilityProfit contribution after amortization of goodwill, etc., and credit costs	Prior year saw JPY 4.9B in profit contribution (after amortization of goodwill, etc.). Monitoring whether 1Q achievement rate tracks ~25% against this year's JPY 5.3B target. Delinquency rate trends in real estate-backed loans are critical
Corporate Solutions RevenueChanges and breakdown in net fees and commissions (domestic banking)	Three-bank aggregate was JPY 47B (+JPY 2.4B) in the prior year. Syndicated loans surged +JPY 3B YoY; pipeline sustainability needs confirmation
Funding CostsPace of increase in deposit interest/CP interest and shifts in funding structure	Deposit interest of JPY 57.7B in the prior year surged +JPY 27.1B YoY. Including the inaugural straight bond issuance (JPY 12B), diversification of funding sources and total cost management are prerequisites for margin preservation
Capital Efficiency & Shareholder ReturnsProgress on share buybacks and CET1 ratio trajectory	Prior year saw JPY 41.7B in share buybacks with CET1 ratio at 14.42%. Whether additional returns beyond the JPY 47 dividend (40.4% payout ratio) materialize will impact valuation
Securities Portfolio RestructuringJGB/bond gains/losses and changes in unrealized gains/losses	Prior year recorded JPY -30.4B in JGB/bond gains/losses (portfolio rebalancing/loss-cutting), while unrealized gains improved by JPY 114.5B. Need to assess how 1Q interest rate and equity market conditions affect shareholders' equity through comprehensive income

Key Issues from Previous Results (FY2026/3 Full-Year Results)

FY2026/3 saw consolidated recurring profit of JPY 155B (+26.2%) and net income attributable to owners of parent of JPY 106.5B (+28.6%), both record highs. Three-bank aggregate core banking profit (excluding investment trust redemption gains/losses) reached JPY 169.6B (+JPY 35.8B), demonstrating that deepening the solutions business is delivering results in both volume and quality. The FY2027/3 plan calls for net income of JPY 129B (+21.1%) and ROE of 9.0%, projecting continued profit growth. The following issues will be focal points in 1Q.

1. Changes in the Interest Rate Environment and Room for Deposit-Lending Spread Expansion

Prior Year:
Three-bank aggregate domestic deposit-lending spread was 1.13% (+0.13pt YoY). Loan yield improved to 1.35% (+0.28pt), accelerating the pace of improvement, while deposit yield rose to 0.221% (+0.153pt), reflecting higher funding costs
This Quarter Checkpoint:
Degree of pass-through from short-term prime rate hikes to loan yields. Whether the rate reset effect on floating-rate mortgage loans (outstanding balance JPY 4.2T) materializes from 1Q
Key Metrics:
Whether loan yield (domestic banking) tracks above 1.35%. Balance against the pace of deposit yield increases (maintaining total net interest margin of 0.43% as the benchmark)

2. L&F Asset Finance Integration Benefits and Risk Management

Prior Year:
Consolidated as 85%-owned subsidiary in April 2025 (acquisition cost JPY 54.4B). Recorded goodwill of JPY 7.4B (10-year straight-line amortization) and customer-related intangible assets of JPY 2.5B. Profit contribution after amortization of goodwill, etc. was JPY 4.9B
This Quarter Checkpoint:
Credit quality trends for a specialist real estate-backed lender. Delinquency rates in niche segments including foreign nationals, elderly borrowers, and aged properties. Whether intra-group loan cannibalization is occurring
Key Metrics:
1Q achievement rate against this year's JPY 5.3B plan (+JPY 0.3B). Trends in L&F's portion of the consolidated allowance for loan losses (JPY 87.1B at prior year-end)

3. Sustainability of Corporate Solutions Revenue Growth

Prior Year:
Domestic net fees and commissions were JPY 47B, of which syndicated loans and structured finance reached JPY 20.6B, a record high. FX-related revenue was also solid at JPY 10.7B (+JPY 0.6B)
This Quarter Checkpoint:
Syndicated loan arrangement fees have been driven by larger, more complex deal sizes pushing up unit economics; pipeline sustainability is the key question. Room for recovery in insurance-related revenue of JPY 2.9B (-JPY 0.6B)
Key Metrics:
Whether the three-bank aggregate fee income plan maintains prior-year growth rates. 1Q actual results for Yokohama Bank standalone syndicated loans (JPY 18.8B)

4. Securities Portfolio Restructuring and Unrealized Gains/Losses

Prior Year:
Three-bank aggregate securities balance of JPY 3.089T (+JPY 152.3B). JGB/bond gains/losses were JPY -30.4B (yen bond rebalancing and investment trust loss-cutting), but unrealized gains on available-for-sale securities improved to JPY 171.2B (vs. JPY 56.7B at prior year-end)
This Quarter Checkpoint:
Whether additional loss-cutting occurs on investment trust holdings of JPY 515.1B (unrealized losses of JPY -65.1B). Direction of JGB duration strategy (maturities over 5 years up to 10 years declined to JPY 295.4B at prior year-end)
Key Metrics:
Change in equity unrealized gains of JPY 175.6B at 1Q-end. Sustainability of bond portfolio yield improvement (prior year securities yield 1.74%, +0.06pt)

5. Cost Control and OHR Improvement Trend

Prior Year:
Three-bank aggregate expenses of JPY 134.2B (+JPY 7B), OHR 49.0% (-3.0pt). Personnel costs of JPY 62B (+JPY 2.6B) were driven primarily by headcount increases (consolidated 6,313, +372). Non-personnel costs of JPY 61.3B (+JPY 3.6B) reflected system investments
This Quarter Checkpoint:
Of the planned expenses of JPY 142.6B (+JPY 8.4B) this fiscal year, what is the organic increase excluding the full-year cost impact of L&F Asset Finance. Cost-effectiveness of digital investments (AI voicebot deployment, etc.)
Key Metrics:
Where the three-bank aggregate OHR lands against plan (continued improvement from 49.0% in the prior year is expected). Investment efficiency of software assets at JPY 20.8B (+JPY 3B)

Timely Disclosure & Industry Trends

2026/06/25
Yokohama FG's Inaugural Unsecured Straight Bond Issuance — Pricing finalized for approximately JPY 12B in unsecured straight bonds. Diversifying funding beyond deposits in a rising rate environment enhances balance sheet flexibility to support loan growth. Yokohama FG leads wave of regional bank straight bond issuances amid funding diversification in a world with interest rates
2026/05/26
Business Alliance with Market Enterprise — Launched one-stop purchasing service for pre-death asset organization and estate liquidation. Addressing aging population and inheritance-related needs overlaps with L&F Asset Finance's business domain, with group synergies expected. Market Enterprise and Yokohama Bank partner to launch one-stop purchasing for pre-death and estate organization
2026/05/22
AI Agent Voicebot Deployment — Approximately 90% automated processing for loan-related certificate issuance applications, with an estimated ~445 hours of annual operational savings. Expected to contribute to expense ratio improvement through digital investment. Yokohama Bank deploys "MOBI VOICE" AI agent voicebot

Previous Quarter Results (FY2026/3 Full-Year Actuals)

Yokohama Financial Group is a regional financial group centered on Yokohama Bank, operating broad-based retail and corporate banking across the greater Tokyo metropolitan area, primarily in Kanagawa Prefecture, through a three-bank structure comprising Yokohama Bank, Higashi-Nippon Bank, and Kanagawa Bank. Under its long-term vision of becoming "a Solutions Company rooted in the community, chosen as a partner that walks alongside it," the group consolidated L&F Asset Finance in April 2025, integrating specialized real estate-backed lending expertise into the group. In FY2026/3, normalization of the interest rate environment provided a tailwind as deepening and expanding the solutions business drove consolidated net income to a record JPY 106.5B. As demonstrated by ROE improving to 7.9% (+1.5pt), the group's transformation from quantity-driven to quality-driven growth is well underway.

Item	Amount	YoY	vs. Guidance	Notes
Recurring Revenue	JPY 490,724M	+22.9%	-	Driven by loan interest income +JPY 65.7B and fees and commissions +JPY 7.3B
Recurring Profit	JPY 155,018M	+26.2%	-	Three-bank aggregate core banking profit of JPY 169.6B (+JPY 35.8B) as profit growth engine
Net Income Attributable to Owners of Parent Company	JPY 106,523M	+28.6%	-	Includes L&F Asset Finance profit contribution of JPY 4.9B (after amortization of goodwill, etc.)
EPS	JPY 94.02	+31.2%	-	Weighted average shares of 1.13B (reflecting JPY 41.7B in share buybacks)

FY2027/3 Full-Year Guidance: Recurring profit JPY 191,500M (+23.5%), net income attributable to owners of parent JPY 129,000M (+21.1%), EPS JPY 116.06, annual dividend JPY 47 (payout ratio 40.4%)

Yokohama Financial Group, Inc.