Yokohama Financial Group, Inc. 2Q Earnings Flash
A wider loan-deposit spread lifted core net business profit by +30.0%. The company raised guidance and increased the annual dividend to JPY 58. A recovery in fee income and a stronger deposit base are the next areas to watch.
Key Positives From The 2Q Results
Loan yields rose faster than deposit costs, so the profit growth came from core banking and was anchored by net interest income. Three-bank aggregate recurring profit rose by +JPY 30.6B. Higher core net business profit contributed +JPY 25.3B, or roughly 80% of the increase (our estimate). Reliance on one-off items such as equity sale gains was limited. Gross profit growth more than absorbed higher expenses, and profitability has moved up a notch.
- Domestic Loan-Deposit Spread: 1.27% (+0.18pt YoY). Loan yields rose +0.32pt versus +0.142pt for deposit yields, lifting net loan-deposit interest by +JPY 14.9B
- Loan Repricing: Of Bank of Yokohama's JPY 26.6B increase in loan interest, JPY 23.9B came from yield effects. Loan repricing is the core driver of the earnings improvement
- Cost Discipline: Gross business profit grew +19.1% while expenses rose only +3.0%. OHR improved to 41.4% (-6.5pt), absorbing higher personnel costs from base pay increases
- Securities Yields: Domestic securities yield reached 2.28% (+0.82pt). Interest and dividends on securities rose +JPY 10.2B, confirming that rising rates are also benefiting the investment portfolio
- Corporate-Led Loan Growth: Domestic loan balances grew +4.6% for SMEs and +3.6% for apartment loans. Corporate lending led the expansion, supporting net interest income through both volume and yield
Key Concerns From The 2Q Results
Rising rates are starting to weigh on funding costs and securities valuations. Consolidated interest on deposits rose +50.5%, while the deposit balance fell by -JPY 467.0B versus the prior fiscal year-end. The depth of the funding base will determine how sustainable margins are. Fee income declined, mainly in corporate business, leaving earnings more dependent on net interest income.
- Volatile Corporate Fees: Domestic net fees and commissions fell -16.3%. Syndicated loan and related fees dropped -JPY 4,564M (-36.0%), exposing the volatility of deal-driven corporate revenue
- Deposit Outflows: Retail deposits fell -0.1% YoY, and retail liquid deposits declined -JPY 112.4B versus the prior fiscal year-end. Funding costs could overshoot as deposit competition intensifies
- Bond Losses: Gains/losses on bonds came to a loss of -JPY 13.1B. The full-year plan implies -JPY 27.1B (our estimate), so roughly -JPY 14.0B of further losses are built into 2H
- Unrealized Bond Losses: Three-bank aggregate unrealized losses on bonds stood at -JPY 52.5B for available-for-sale securities and -JPY 66.9B for held-to-maturity securities. Unrealized losses are widening as rates rise
- Higashi-Nippon Bank Profitability: OHR stood at 68.8% and the overall interest margin at a thin 0.25%. Credit costs also rose by +JPY 387M, and the profitability gap within the group persists
Focus Areas / Items To Monitor Going Forward
- Deposit Beta Versus Repricing: The pace of deposit yield increases must be weighed against remaining room to reprice loans. The key question is whether the loan-deposit spread keeps widening in the next rate hike cycle
- Fee Income Diversification: We want to see syndicated loans and other corporate fees recover, and recurring fees such as investment trust income (+JPY 500M) continue to build. This would ease the heavy reliance on net interest income
- Bond Portfolio and Credit Costs: We will monitor 2H bond loss realization and the yield pick-up from portfolio rebalancing. Credit costs were only JPY 0.5B in 1H against a full-year plan of JPY 10.0B, and we want to track how much of the plan is used
- Why the full-year plan for bond losses was expanded, and the scale, timing and expected yield improvement of the securities portfolio restructuring
- Measures to address the decline in retail liquid deposits, and the stance on passing through future deposit rate increases
- The pipeline for syndicated loans and other corporate fee business, and the outlook for a 2H recovery
- SMTB Lease's recurring earnings contribution excluding negative goodwill from equity-method accounting, and quantification of synergies with Hamagin Finance
- Specific measures to improve Higashi-Nippon Bank's OHR, and progress on functional integration within the group
- The target CET1 ratio (around 11.5% on a Basel III finalization basis) and room for additional shareholder returns
Key Financial Highlights
| Item | Value | YoY |
|---|---|---|
| [Consolidated] Ordinary Revenue | JPY 283,530M | +19.0% |
| └Interest Income | JPY 214,468M | +26.7% |
| └└Of Which Interest on Loans | JPY 158,849M | +23.2% |
| └Fees and Commissions Income | JPY 40,198M | -9.5% |
| [Consolidated] Consolidated Gross Profit | JPY 177,363M | +16.5% |
| └Net Interest Income | JPY 152,855M | +23.1% |
| └Net Fees and Commissions | JPY 32,057M | -11.4% |
| [Consolidated] Interest Expenses | JPY 61,613M | +36.5% |
| └Of Which Interest on Deposits | JPY 40,929M | +50.5% |
| [Consolidated] Operating Expenses | JPY 74,795M | +1.9% |
| [Consolidated] OHR | 42.1% | -6.1pt |
| [Consolidated] Credit Costs | JPY 1,252M | +JPY 212M |
| [Consolidated] Gains/Losses on Equities | JPY 6,695M | +JPY 5,419M |
| [Consolidated] Recurring Profit | JPY 108,624M | +36.5% |
| [Consolidated] Interim Net Income Attributable to Owners of Parent Company | JPY 74,982M | +36.2% |
| [Consolidated] EPS | JPY 67.53 | +40.0% |
| [Consolidated] ROE (TSE Basis, Annualized) | 10.4% | +2.2pt |
| [Three-Bank Aggregate] Gross Business Profit | JPY 164,955M | +19.1% |
| └Domestic Net Interest Income | JPY 146,466M | +25.7% |
| └Domestic Net Fees and Commissions | JPY 22,796M | -16.3% |
| └Gains/Losses on Bonds (Net of Five Accounts) | -JPY 13,182M | -JPY 936M |
| [Three-Bank Aggregate] Expenses (Excl. Non-Recurring Items) | JPY 68,359M | +3.0% |
| [Three-Bank Aggregate] Core Net Business Profit (Excl. Gains/Losses on Investment Trust Cancellations) | JPY 109,778M | +30.0% |
| [Three-Bank Aggregate] Net Business Profit (Actual) | JPY 96,596M | +33.8% |
| [Three-Bank Aggregate] Interim Net Income | JPY 75,407M | +40.5% |
| [Three-Bank Aggregate] Domestic Overall Interest Margin | 0.61% | +0.21pt |
*YoY percentages not disclosed by the company are our estimates. EPS grew faster than net income because share buybacks reduced the average number of shares outstanding from 1,140,499 thousand to 1,110,342 thousand. Three-bank aggregate interim net income was a record high for an interim period (company disclosure).
Performance By Business Segment
The company operates a single segment, so we review the non-consolidated results of its three subsidiary banks. Most of the profit growth came from higher net interest income at Bank of Yokohama. Kanagawa Bank grew core earnings, but its bottom line declined as prior-year one-off gains dropped out.
Segment Performance Table
| Segment | Gross Business Profit | YoY | Core Net Business Profit (Excl. Gains/Losses on Investment Trust Cancellations) | YoY | OHR |
|---|---|---|---|---|---|
| Bank of Yokohama (Non-Consolidated) | JPY 146,978M | +20.9% | JPY 103,297M | +31.4% | 38.2% |
| Higashi-Nippon Bank (Non-Consolidated) | JPY 13,082M | +3.0% | JPY 4,753M | +6.4% | 68.8% |
| Kanagawa Bank (Non-Consolidated) | JPY 4,894M | +14.6% | JPY 1,727M | +28.6% | 64.7% |
| Three-Bank Aggregate | JPY 164,955M | +19.1% | JPY 109,778M | +30.0% | 41.4% |
- Bank of Yokohama: Domestic net interest income rose +JPY 28,799M. Loan yields rose +0.33pt while deposit yields rose only +0.140pt, widening the loan-deposit spread to 1.25% (+0.19pt)
- Corporate and SME Lending: Domestic corporate loans grew +4.1%. By sector, real estate and finance/insurance led the expansion, up +JPY 203.5B and +JPY 120.6B YoY, respectively
- Asset Building Business: Investment trust sales reached JPY 73.1B, up +32.4% from JPY 55.2B in 1H of the prior year. The group's retail investment product balance rose +7.1% versus the prior fiscal year-end
- Kanagawa Bank: A +JPY 30.8B increase in average loan balance and a loan yield of 2.10% (+0.24pt) drove results. OHR improved by -7.3pt, the largest improvement among the three banks
- Corporate Fees (Syndicated Loans, etc.): Three-bank aggregate corporate fee income fell -JPY 4.3B. This likely reflects a payback from large deals concentrated in the prior-year period. The deal-dependent revenue structure remains a challenge
- Bancassurance: Insurance-related fees fell -JPY 305M (-18.0%). Insurance sales came to JPY 64.4B, below JPY 76.9B in 1H of the prior year
- Higashi-Nippon Bank: The average deposit balance fell -JPY 79.6B, and deposit yields rose +0.165pt, so higher funding costs came first. The overall interest margin of 0.25% improved only slightly
- Public Sector: Public sector loans fell -11.2% and public funds deposits fell -10.1%. Public funds deposits saw an outflow of -JPY 599.2B versus the prior fiscal year-end, the main driver of the decline in total assets
Progress Versus Full-Year Guidance
Consolidated net income reached 51.7% of the revised full-year plan. This matches the prior-year share of interim net income in full-year results (51.7%, our estimate), indicating a typical pace. Three-bank aggregate credit costs were only JPY 0.5B in 1H against a full-year plan of JPY 10.0B, which implies about JPY 9.5B in 2H (our estimate). Credit costs below plan would create upside to earnings.
| Item | Value (2Q Cumulative) | Full-Year Forecast | Progress Rate |
|---|---|---|---|
| Consolidated Recurring Profit | JPY 108,624M | JPY 206,000M | 52.7% |
| Net Income Attributable to Owners of Parent Company | JPY 74,982M | JPY 145,000M | 51.7% |
| EPS | JPY 67.53 | JPY 130.97 | 51.6% |
| Three-Bank Aggregate Gross Business Profit | JPY 164,955M | JPY 324,500M | 50.8% |
| Three-Bank Aggregate Expenses | JPY 68,359M | JPY 143,000M | 47.8% |
| Three-Bank Aggregate Net Business Profit (Actual) | JPY 96,596M | JPY 181,500M | 53.2% |
| Three-Bank Aggregate Core Net Business Profit (Excl. Gains/Losses on Investment Trust Cancellations) | JPY 109,778M | JPY 208,600M | 52.6% |
| Three-Bank Aggregate Recurring Profit | JPY 105,036M | JPY 186,200M | 56.4% |
| Three-Bank Aggregate Net Income | JPY 75,407M | JPY 132,700M | 56.8% |
| Three-Bank Aggregate Credit Costs | JPY 525M | JPY 10,000M | 5.3% |
- In the prior fiscal year, 1H accounted for 51.3% of full-year consolidated recurring profit (our estimate), showing little skew between halves
- In 2H, the company expects to book roughly JPY 6.0B in gains equivalent to negative goodwill related to SMTB Lease, which became an equity-method affiliate on October 1 (company disclosure)
- The full-year plan implies bond losses of -JPY 27.1B, versus -JPY 13.1B realized in 1H. This means a similar level of bond loss realization is built into 2H
Changes To Guidance
The company raised its full-year guidance. Three-bank aggregate core net business profit was lifted by +JPY 23.5B versus the previous plan, driven mainly by higher net interest income. The +JPY 16.0B upgrade to net income attributable to owners of the parent includes roughly JPY 6.0B of negative goodwill. Excluding this, the underlying upgrade is about +JPY 10.0B (our estimate).
- Consolidated Recurring Profit: Previous JPY 191,500M → New JPY 206,000M
- Net Income Attributable to Owners of Parent Company: Previous JPY 129,000M → New JPY 145,000M
- Three-Bank Aggregate Core Net Business Profit (Excl. Gains/Losses on Investment Trust Cancellations): Previous JPY 185,100M → New JPY 208,600M
- Three-Bank Aggregate Net Business Profit (Actual): Previous JPY 177,000M → New JPY 181,500M
- Reasons for Revision: Three-bank aggregate gross business profit was raised from JPY 319.7B to JPY 324.5B, mainly on higher net interest income. Consolidated figures include roughly JPY 6.0B in gains equivalent to negative goodwill from applying the equity method to SMTB Lease. Credit costs were left unchanged at JPY 10.0B. The company targets ROE of 10.0%
Commentary On Shareholder Returns
- Annual Dividend: Forecast raised from JPY 47 to JPY 58, comprising an ordinary dividend of JPY 53 and a 10th anniversary commemorative dividend of JPY 5. The prior-year dividend was JPY 38
- Interim and Year-End Dividends: The interim dividend is JPY 23 (JPY 17 in the prior-year period). The year-end dividend is forecast at JPY 35, including the JPY 5 commemorative dividend
- Payout Ratio: Planned at around 44% (40.4% in the prior fiscal year)
- Share Buybacks: Treasury shares at period-end rose from 33,138 thousand to 40,848 thousand. On October 14, the company announced completion of a JPY 20,000M buyback, of which JPY 15,157M was acquired in 1H
Financial Position
The total capital ratio of 15.59% remains well above international standards, and the NPL ratio is stable at a low level. The decline in total assets reflects outflows of public funds deposits and reduced market funding. It does not signal any liquidity concern.
- Key Figures
- Leverage Metrics
| Item | Value | Additional Information |
|---|---|---|
| Cash and Due From Banks | JPY 3,259,819M | -21.5% vs. prior fiscal year-end |
| Securities | JPY 2,998,187M | -2.6% vs. prior fiscal year-end |
| Loans | JPY 17,832,046M | +0.9% vs. prior fiscal year-end |
| Deposits | JPY 20,410,243M | -2.2% vs. prior fiscal year-end |
| └Negotiable Certificates of Deposit | JPY 152,886M | -44.4% vs. prior fiscal year-end |
| Borrowed Money | JPY 1,783,448M | -9.8% vs. prior fiscal year-end |
| Bonds Payable | JPY 62,000M | +77.1% vs. prior fiscal year-end |
| Shareholders' Equity | JPY 1,469,487M | +4.7% vs. prior fiscal year-end |
| Valuation Difference on Available-for-Sale Securities | JPY 154,199M | +25.1% vs. prior fiscal year-end, driven by unrealized gains on equities |
| NPL Ratio (Consolidated, FRA Basis) | 1.3% | Flat vs. prior fiscal year-end; 1.2% for three-bank aggregate |
| Metric | Value | Notes |
|---|---|---|
| Total Capital Ratio (International Standard) | 15.59% | +0.65pt vs. prior fiscal year-end; preliminary company disclosure |
| CET1 Ratio | 14.93% | +0.51pt vs. prior fiscal year-end; preliminary company disclosure |
| CET1 Ratio (Basel III Finalization, Fully Loaded, Excl. Unrealized Gains) | Around 11.5% | Around 11.4% at prior fiscal year-end; company estimate |
| Loan-to-Deposit Ratio (Loans ÷ Deposits) | 87.4% | 84.6% at prior fiscal year-end; our estimate |
Disclosures Released Alongside The Earnings Announcement
- 2026/11/11Full-year net income guidance raised from JPY 129.0B to JPY 145.0B, and the year-end dividend forecast raised to JPY 35. Including a JPY 5 commemorative dividend for the 10th anniversary, the annual dividend of JPY 58 passes earnings growth through to shareholder returns (Notice Regarding Revision of Full-Year Earnings Forecast and Revision of Year-End Dividend Forecast (Dividend Increase and 10th Anniversary Commemorative Dividend))
Major Announcements During The Quarter
- 2026/08/14Disclosed capital adequacy ratio as of the end of 1Q FY3/27
- 2026/09/03Disclosed progress on the ongoing share buyback
- 2026/10/05Disclosed share buyback progress as part of ongoing capital efficiency measures
- 2026/10/14Disclosed completion of the share buyback; 1H acquisitions totaled JPY 15,157M
Large-Shareholding Filings / Material Proposals Over The Past Year
- Fidelity Investments Japan: New → 5.0% (2025/12/31; amended report filed 2026/06/04) - Held to manage client assets under investment trust agreements and discretionary investment contracts
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