Summary
In 1Q FY3/27, recurring profit reached JPY 20,014M (+48.7% YoY), consuming 65.6% of the company's 1H plan of JPY 30,500M in a single quarter. However, the composition was heavily shaped by securities portfolio restructuring, with gains on termination of interest rate swaps of JPY 9,371M sitting alongside losses on JGBs and other bonds of JPY -16,027M. At the 2Q results, we want to separate out the underlying trajectory: the build-up in consolidated core business net income (excluding gains/losses on cancellation of investment trusts and on termination of interest rate swaps) of JPY 17,868M, and the true run-rate of net interest income driven by the JPY 397.6B increase in average loan balances. The company guides 1H Quarterly Net Income Attributable to Owners of Parent Company at JPY 20,000M (-7.1% YoY), so the key issue is how management explains recurring profit growth coexisting with a decline in net income. On the capital side, the focus is the combination of JPY 10,338M in share buybacks with a CET1 ratio of 12.48%, and the sustainability of gains on equity securities of JPY 7,928M that underpin the JPY 96 annual dividend forecast. On asset quality, the direction of the NPL ratio at 1.68% (+0.10pt vs. end-FY3/26) is now at a juncture requiring close monitoring.
Key Points for Next Quarter
| Key Points & Focus | Implications |
|---|---|
Plan ProgressProgress of 1H recurring profit and Quarterly Net Income Attributable to Owners of Parent Company versus company plan | Company plan is recurring profit of JPY 30,500M and net income of JPY 20,000M. With JPY 20,014M of recurring profit already booked in 1Q (65.6% of plan, our estimate), the incremental contribution in 2Q standalone will determine confidence in the full-year plan of JPY 67,500M. |
Underlying Net Interest IncomeSpread between loan interest income and deposit interest expense; trend in average loan balances | In 1Q, loan interest income was JPY 34,359M (+JPY 5,332M) against deposit interest expense (including NCDs) of JPY 10,225M (+JPY 3,136M). The key is whether the three-bank combined average loan balance of JPY 9,003.4B (+JPY 397.6B YoY) is sustained. |
Securities RestructuringGains/losses on JGBs and other bonds, gains on termination of interest rate swaps, valuation gains/losses on held-to-maturity securities | 1Q saw losses on JGBs and other bonds of JPY -16,027M alongside gains on termination of interest rate swaps of JPY 9,371M. We will assess the stage of restructuring together with the trend in held-to-maturity valuation losses of JPY -39,962M (-JPY 4,011M vs. end-FY3/26). |
Capital Policy / Equity-Related GainsGains on equity securities, buyback progress, CET1 ratio | 1Q gains on equity securities were JPY 7,928M (+JPY 6,702M), share buybacks JPY 10,338M, and CET1 ratio 12.48% (+0.14pt vs. end-FY3/26). We will assess the balance between funding the JPY 96 annual dividend forecast and maintaining capital buffers. |
Asset QualityCredit costs and Financial Reconstruction Act disclosed claims ratio | 1Q credit costs were a net reversal of JPY -1,126M. However, the consolidated NPL ratio rose to 1.68%, up 0.10pt vs. end-FY3/26, with bankrupt and substantially bankrupt claims at JPY 29.2B (+JPY 8.4B vs. end-FY3/26). The direction at end-2Q is the focus. |
Key Issues from Previous Results (1Q FY3/27)
1Q delivered a sharp increase in profits, with recurring income of JPY 73,229M (+28.5% YoY) and recurring profit of JPY 20,014M (+48.7% YoY). However, consolidated gross business profit rose only to JPY 28,477M (+JPY 695M), and the profit growth was driven primarily by non-recurring and market-driven factors: gains on termination of interest rate swaps, gains on equity securities, and a reversal of credit costs. At 2Q results, the task is to separate the underlying strength of net interest income from the pace of loss recognition associated with securities restructuring.
1. Progress Versus 1H Plan and the Divergence Between Recurring and Net Profit
- Previous Quarter: Against 1Q recurring profit of JPY 20,014M, the company's 1H plan calls for recurring profit of JPY 30,500M (+14.1% YoY) and Quarterly Net Income Attributable to Owners of Parent Company of JPY 20,000M (-7.1% YoY). As of 1Q, 65.6% of the recurring profit plan has been consumed (our estimate).
- This Quarter's Checkpoints: Explanation of why recurring profit is guided up while net income is guided down. The prior-year 1H included extraordinary gains of JPY 2,702M; we will check the breakdown of extraordinary items and total income taxes.
- Key Metrics: Achievement versus the 1H recurring profit plan of JPY 30,500M; achievement versus the Quarterly Net Income Attributable to Owners of Parent Company plan of JPY 20,000M; progress rate against the full-year plan of JPY 67,500M.
2. Loan Balance Build-Up and Loan-Deposit Spreads
- Previous Quarter: Three-bank combined total loan balance was JPY 9,068.9B (+JPY 393.0B YoY, +JPY 61.9B vs. end-FY3/26), with average loan balance of JPY 9,003.4B (+JPY 397.6B YoY). Loan interest income was JPY 34,359M (+JPY 5,332M) against deposit interest expense (including NCDs) of JPY 10,225M (+JPY 3,136M).
- This Quarter's Checkpoints: With period-end deposits and NCDs declining to JPY 10,912.3B (-JPY 328.3B vs. end-FY3/26), how the balance between loan growth and rising funding costs evolves. Net fees and commissions diverged between consolidated JPY 4,041M (-JPY 63M) and three-bank combined JPY 1,995M (+JPY 215M), so the group breakdown also requires scrutiny.
- Key Metrics: Three-bank combined average loan balance and loan interest income; deposit interest expense (including NCDs); momentum in retail assets under custody of JPY 622.4B (+JPY 88.6B YoY) and Wai Emu Securities assets under custody of JPY 438.1B (+JPY 105.6B YoY).
3. Progress of Securities Portfolio Restructuring
- Previous Quarter: Other operating profit was JPY -15,072M (-JPY 12,642M YoY), of which losses on JGBs and other bonds accounted for JPY -16,027M (-JPY 13,846M YoY). Meanwhile, gains on termination of interest rate swaps included in net interest income were JPY 9,371M (+JPY 9,132M YoY), with Momiji Bank alone accounting for JPY 9,450M.
- This Quarter's Checkpoints: Consolidated core business net income was JPY 27,311M (+JPY 13,944M), but excluding gains/losses on cancellation of investment trusts and on termination of interest rate swaps, it was JPY 17,868M (+JPY 4,741M). The build-up on this ex-items basis indicates the true earnings power of the underlying franchise excluding restructuring effects. We also want to track held-to-maturity valuation losses of JPY -39,962M (-JPY 4,011M vs. end-FY3/26) and other securities of JPY 35,184M (+JPY 35,276M vs. end-FY3/26).
- Key Metrics: 1H gains/losses on JGBs and other bonds and gains on termination of interest rate swaps; YoY change in consolidated core business net income (excluding gains/losses on cancellation of investment trusts and on termination of interest rate swaps); trend in OHR of 49.03% (-6.80pt YoY).
4. Capital Policy and Shareholder Returns, Including Equity-Related Gains
- Previous Quarter: Of non-recurring gains/losses of JPY 8,771M, gains on equity securities accounted for JPY 7,928M (+JPY 6,702M YoY). During 1Q, the company repurchased 3,706 thousand shares for JPY 10,338M, bringing end-1Q treasury shares to 32,436,285. The consolidated CET1 ratio was 12.48% (+0.14pt vs. end-FY3/26) and the total capital ratio 13.42%.
- This Quarter's Checkpoints: The FY3/27 dividend forecast is JPY 48 interim and JPY 48 year-end, for JPY 96 annually (versus JPY 64 in FY3/26); we will monitor execution of the interim dividend and the sustainability of equity-related gains. Compatibility with the pace of risk-weighted asset growth to JPY 5,135.0B (+JPY 131.8B vs. end-FY3/26) is also at issue.
- Key Metrics: 1H gains on equity securities; progress of share buybacks; consolidated CET1 ratio and total capital ratio versus end-FY3/26.
5. Credit Costs and Asset Quality
- Previous Quarter: Consolidated credit costs were JPY -1,126M (net reversal; JPY -818M in the prior-year period). Meanwhile, Financial Reconstruction Act disclosed claims totaled JPY 153.1B on a consolidated basis, for an NPL ratio of 1.68% (+0.10pt vs. end-FY3/26), with bankrupt and substantially bankrupt claims at JPY 29.2B (+JPY 8.4B) and doubtful/special attention claims at JPY 24.5B (+JPY 6.3B).
- This Quarter's Checkpoints: Whether net reversals continue, and whether the deterioration in claim classifications reflects isolated single-name factors or a broader trend. Consolidated loan loss reserves declined to JPY 62,238M from JPY 63,432M at end-FY3/26, so the direction of provisioning levels warrants attention.
- Key Metrics: 1H credit costs; consolidated NPL ratio of 1.68% versus end-FY3/26; trend in the balance of bankrupt and substantially bankrupt claims.
Key Timely Disclosures During the Period
- 2026/10/02Establishment of the "YMFG Dosyu Kyomei Fund" — Established on 9/30 with a maximum total commitment of JPY 10B and a 15-year term. The fund will invest in regional companies and support them in formulating growth strategies. Over the medium to long term, the group may also benefit from investment returns as portfolio companies grow.
- 2026/10/02Launch of the "YMFG 20th Anniversary Campaign Time Deposit" — A JPY 110B offering frame across the three banks, featuring a 3-year time deposit at 2.0% p.a., among others. This will affect funding costs, but as the launch is in October, the P&L impact will come from 3Q onward.
- 2026/09/30Launch of "BEST GOALS," a goal-based discretionary investment management service — As the service starts on October 1, 2026, the contribution will come from 3Q onward. We will assess the upside potential for net fees and commissions and assets under custody.
- 2026/09/29Revision of deposit rates and the short-term prime rate — JPY ordinary deposit rate raised from 0.400% to 0.500%, and the short-term prime rate up 0.250%. As this affects both the lending and funding sides, we want to confirm the effective timing and the respective impact on 2Q and 3Q.
Previous Quarter Results (1Q FY3/27 Actuals)
A regional financial group based in Yamaguchi, Hiroshima, and Fukuoka prefectures, with Yamaguchi Bank, Momiji Bank, and Kitakyushu Bank under its umbrella; it operates in a single banking segment. In 1Q, recurring income rose sharply on higher loan interest income and gains on sales of equity securities, while recurring expenses also swelled on larger losses from sales of JGBs and other bonds — a picture of securities portfolio restructuring and core earnings expansion proceeding simultaneously. The company left unchanged its full-year plan announced on May 8, 2026 (recurring profit of JPY 67,500M and Net Income Attributable to Owners of Parent Company of JPY 45,000M).
| Item | Amount | YoY | vs. Company Plan | Notes |
|---|---|---|---|---|
| Recurring Income | JPY 73,229M | +28.5% | - | Higher loan interest income and gains on sales of equity securities |
| Consolidated Gross Business Profit | JPY 28,477M | +2.5% | - | Net interest income +JPY 13,226M; other operating profit -JPY 12,642M |
| Consolidated Net Business Income (before general reserve provision) | JPY 11,284M | +0.9% | - | Expenses JPY 17,193M (+JPY 597M), OHR 49.03% |
| Recurring Profit | JPY 20,014M | +48.7% | - | Gains on equity securities JPY 7,928M; credit costs JPY -1,126M |
| Net Income Attributable to Owners of Parent Company | JPY 14,149M | +46.4% | - | Extraordinary items JPY -87M; total income taxes JPY 5,754M |
| EPS | JPY 69.48 | +51.7% | - | Average shares outstanding 203,640 thousand (210,985 thousand a year earlier) |
Progress Rate Against Full-Year Plan (Recurring Profit Basis): 29.7% (our estimate; the prior-year 1Q recurring profit of JPY 13,461M equated to 29.9% of the FY3/26 full-year actual of JPY 45,026M)
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