Summary
In 1Q, core net business profit (three banks combined, excluding gains/losses on investment trust cancellations) rose +27.2% YoY. Growth in domestic net interest income more than offset lower net fees and commissions and losses on bond sales. The primary focus for 2Q is whether loan yields keep rising faster than deposit yields, allowing the loan-deposit spread to widen further. The September 2026 policy rate hike came just before the end of 2Q, so its contribution to 2Q earnings should be limited. The full impact, including on deposit costs, should emerge from 3Q onward. 2Q will therefore show how long the benefit from earlier rate revisions persists. Three factors will drive interim Recurring Profit progress. The first is a recovery in net fees and commissions, which fell ▲9.4% in 1Q. The second is how losses on bond sales, booked to improve the portfolio, balance against gains on equities. The third is the trend in credit costs. Separately, the impact of SMTB Lease (formerly Sumitomo Mitsui Trust Panasonic Finance) becoming an equity-method affiliate on October 1 is a 3Q-onward issue and is treated separately.
Key Points for Next Quarter
| Key Points & Focus | Implications |
|---|---|
Net Interest IncomeQoQ trend in the three banks' combined loan-deposit spread and deposit yields | In 1Q, the loan-deposit spread was 1.22% (+0.16pt YoY) and the deposit yield 0.309% (+0.116pt). The rate hike has not yet fed into 2Q deposit costs. Whether the loan yield of 1.53% keeps rising is the starting point for gauging core earnings power. |
Net Fees and CommissionsYoY change in consolidated net fees and commissions; investment trust and insurance sales | 1Q came in at JPY 16,160M (▲9.4%). Investment trust sales rose +60.6%, but insurance sales fell ▲29.1%. Whether the decline bottoms out will determine the quality of core net business profit. |
Gains/Losses on SecuritiesCumulative gains/losses on bonds and on equities; securities yield | In 1Q, the three banks combined booked losses on bonds of ▲JPY 6,787M and gains on equities of +JPY 4,023M. We will assess one-off losses against the improvement in the securities yield to 2.10% (+0.64pt). |
Expenses & OHRYoY change in expenses; three-bank combined OHR | In 1Q, expenses rose +4.0%, but OHR improved to 43.1% (▲3.7pt) versus 49.0% for the previous full year. The focus is whether gross business profit growth continues to absorb higher personnel costs. |
Credit Costs & Profit ProgressInterim Recurring Profit progress against the full-year plan; credit cost trend | 1Q Recurring Profit progress was 23.7%, below the 24.7% achieved against full-year actual in the year-earlier period. Consolidated credit costs were JPY 2,741M (vs. JPY 74M a year earlier). How they build through the interim period will determine the likelihood of meeting the JPY 191,500M plan. |
Key Issues from Previous Results (FY3/2027 1Q Results)
1Q consolidated Recurring Profit was JPY 45,462M (+18.6%), and quarterly Net Income Attributable to Owners of Parent Company was JPY 32,028M (+18.4%). This marked the fourth consecutive year of 1Q profit growth, with Net Income at 24.8% of the full-year plan. Growth in core net interest income absorbed losses on bond sales and higher credit costs. 2Q will test the sustainability of this pattern. The earnings release does not disclose numerical targets under the medium-term management plan. We therefore use ROE (TSE basis, annualized) of 8.9% (+0.6pt) as the capital efficiency reference.
1. Sustained Widening of the Loan-Deposit Spread and Pace of Deposit Cost Increases
- Previous Quarter: The three banks' combined domestic net interest income was JPY 69,473M (+23.2%). The loan yield was 1.53% (+0.28pt) and the deposit yield 0.309% (+0.116pt). The loan-deposit spread widened to 1.22% (+0.16pt).
- This Quarter's Check: We will confirm whether average loan balances of JPY 16,706.8B (+3.3%) keep growing and loan yields keep rising. Deposit rate revisions following the September policy rate hike should hit deposit interest from 3Q onward. We also want management commentary on 3Q funding costs.
- Key Metrics: Interim loan-deposit spread (1Q 1.22%, previous full year 1.13%); YoY change in consolidated net interest income (1Q +20.0%); YoY change in consolidated deposit interest (1Q +43.4%).
2. Recovery in Net Fees and Commissions
- Previous Quarter: Consolidated net fees and commissions were JPY 16,160M (▲9.4%), and the three banks' combined domestic portion was JPY 11,579M (▲15.0%). Investment trust sales were JPY 37.9B (+60.6%), while insurance sales were JPY 29.2B (▲29.1%).
- This Quarter's Check: The decline reflected the absence of large corporate fee transactions booked in the prior year. We want to check 2Q progress. The group's balance of retail investment products has also grown to JPY 3,404.6B (+15.4% YoY at month-end), which may be supporting fee income.
- Key Metrics: YoY change in consolidated net fees and commissions (1Q ▲9.4%); YoY change in investment trust and insurance sales; balance of retail investment products (JPY 3,404.6B at end-June).
3. Bond Portfolio Rebalancing: Balancing One-Off Losses Against Yield Improvement
- Previous Quarter: The three banks' combined losses on bonds were ▲JPY 6,787M (vs. ▲JPY 3,453M a year earlier), including losses on sales of JPY 5,917M. Gains on equities of JPY 4,023M (+JPY 3,068M) provided a partial offset.
- This Quarter's Check: We will weigh the ongoing scale of JGB sales and investment trust cancellations against growth in interest and dividends on securities (consolidated +23.1%). Gains/losses on bonds are excluded from core net business profit. We therefore assess core earnings on core net business profit and bottom-line profit including one-off items. We also want to check changes in bond valuation gains/losses at end-2Q following the policy rate hike.
- Key Metrics: Interim gains/losses on bonds and on equities (previous full year, three banks combined: ▲JPY 30,451M/JPY 5,764M); securities yield (1Q 2.10%); valuation gains/losses on available-for-sale bonds (consolidated ▲JPY 41,193M at end-June).
4. Expense Control and OHR
- Previous Quarter: The three banks' combined expenses were JPY 33,824M (+4.0%). Base pay increases and the introduction of performance-linked bonuses lifted personnel costs by +JPY 615M, while non-personnel costs rose +JPY 658M. OHR was 43.1% (▲3.7pt).
- This Quarter's Check: We will confirm whether gross business profit growth (+12.9%) continues to outpace expense growth. Note that gross business profit, the OHR denominator, includes gains/losses on bonds. OHR therefore moves with the volume of bond sales.
- Key Metrics: Interim YoY change in expenses (1Q +4.0%); three-bank combined OHR (1Q 43.1%, previous full year 49.0%); consolidated OHR (1Q 45.8%, previous full year 48.7%).
5. Credit Costs and Interim Profit Progress
- Previous Quarter: Consolidated credit costs were JPY 2,741M (vs. JPY 74M a year earlier). The year-earlier reversal of loan loss reserves of JPY 1,374M did not recur, and the group booked JPY 2,174M in provisions for specific loan loss reserves. The NPL ratio was flat at 1.3%.
- This Quarter's Check: We will assess whether the increase in substandard loans to JPY 16,892M (+JPY 1,535M vs. end-March) is temporary or a sustained trend. Meeting the plan requires average Recurring Profit of JPY 48,679M per quarter over the remaining three quarters (our estimate).
- Key Metrics: Interim Recurring Profit progress against the full-year plan of JPY 191,500M (prior-year interim: 51.3% of full-year actual); consolidated credit costs (previous full year JPY 8,982M); loans past due three months or more (JPY 5,719M at end-June).
Key Timely Disclosures This Quarter
- 2026/10/14Notice on Status and Completion of Share Repurchase - The company announced completion of the share repurchase resolved on August 5. The EPS uplift from a lower average share count will appear from 2Q onward. Note that the company's EPS forecast of JPY 116.06 excludes the impact of this repurchase.
- 2026/08/14Equity Ratio as of End of 1Q FY3/2027 - The company disclosed its end-June Equity Ratio under international standards. We will check the impact of the increase in valuation difference on available-for-sale securities (+JPY 44,110M vs. end-March) and the share repurchase on the end-2Q ratio.
- 2026/08/05Notice on Determination of Share Repurchase - The cap is 16 million shares or JPY 20B in total, equivalent to approximately 1.43% of shares outstanding excluding treasury shares. Together with an interim dividend forecast of JPY 23 (vs. JPY 17 in the prior year), this signals a stronger commitment to shareholder returns.
Previous Quarter Results (FY3/2027 1Q Actual)
A financial group with a single banking segment, built around three banks: Bank of Yokohama, Higashi-Nippon Bank and Kanagawa Bank. Loans to SMEs and others account for 82.2% of total lending (three banks combined), and lending to SMEs and individuals underpins net interest income. In 1Q, the improving rate environment lifted interest on loans and deposits as well as interest and dividends on securities. Core net business profit (three banks combined) reached JPY 51,329M (+27.2%). Progress against the full-year plan was 23.7% for Recurring Profit and 24.8% for Net Income. The earnings release does not disclose medium-term plan targets; ROE was 8.9% (TSE basis, annualized).
| Item | Amount | YoY | vs. Company Plan | Notes |
|---|---|---|---|---|
| Ordinary Income | JPY 130,998M | +15.9% | - | Interest income rose, led by interest on loans (+21.5%) |
| Consolidated Gross Profit | JPY 81,135M | +10.7% | - | Net interest income (+20.0%) absorbed lower net fees and commissions (▲9.4%) and weaker other business income |
| Core Net Business Profit (Three Banks Combined, Excluding Gains/Losses on Investment Trust Cancellations) | JPY 51,329M | +27.2% | - | Net interest income growth outpaced expense growth (+4.0%); OHR at 43.1% |
| Recurring Profit | JPY 45,462M | +18.6% | - | 23.7% of the full-year plan of JPY 191,500M. Losses on bonds of ▲JPY 6,382M; gains on equities of +JPY 4,043M |
| Quarterly Net Income Attributable to Owners of Parent Company | JPY 32,028M | +18.4% | - | Extraordinary losses of ▲JPY 189M (mainly losses on disposal of fixed assets). 24.8% of the full-year plan |
| EPS | JPY 28.81 | +21.7% | - | Share repurchases reduced the average share count by ▲2.6% |
Guidance Achievement Rate (Recurring Profit Basis): 23.7% (year-earlier period: 24.7%, against full-year actual)
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