THE TOCHIGI BANK, LTD.

Business Details

This segment consolidates Tochigi Bank itself and two consolidated subsidiaries primarily engaged in trust operations. It conducts Deposit Business, Lending Business, Securities Investment Business, domestic and foreign exchange operations, and over-the-counter sales of investment trusts and life/non-life insurance products. Its main customers are individuals, small and medium-sized enterprises, mid-to-large enterprises, and local governments, primarily in Tochigi and Saitama Prefectures. For FY2026 (ending March 2026), this segment accounted for approximately 88% of consolidated ordinary income (ordinary income to external customers of ¥47,728 million).

Recent Overview

Banking Business segment profit turned sharply positive due to rising interest rates and the disappearance of losses on securities sales

For FY2026 (ending March 2026), Banking Business segment profit was ¥8,865 million, a significant improvement from △¥24,061 million in the prior fiscal year. Fund investment income expanded to ¥36,511 million (up ¥9,422 million from the prior fiscal year), driven by increases in interest on loans (non-consolidated ¥29,725 million, up ¥7,041 million from the prior fiscal year) and interest on deposits with banks (¥3,519 million, up ¥1,698 million from the prior fiscal year). Meanwhile, the ¥31,632 million loss on sales of government bonds and other bonds recorded in the prior fiscal year decreased sharply to ¥2,258 million in the current fiscal year, which was the primary factor behind the normalization of earnings. Funding costs increased significantly to ¥7,617 million (up ¥5,249 million from the prior fiscal year) due to higher interest on deposits, among other factors. Non-consolidated core net business profit (excluding gains/losses on cancellation of investment trusts) improved steadily to ¥9,742 million (up ¥1,253 million from the prior fiscal year).

Key Products

Growth Drivers

• With the arrival of a "world with interest rates" driven by the Bank of Japan's policy rate hikes, interest on loans and interest on deposits with banks increased: non-consolidated fund investment income rose to ¥36,511 million (up ¥9,422 million from the prior fiscal year), and the yield on fund investment rose to 1.06% (up 0.26 percentage points from the prior fiscal year)
• Expansion of loan balances: non-consolidated loan balance increased to ¥2,457,837 million (up ¥264,959 million from the end of the prior fiscal year), driven by growth in loans to individuals and small and medium-sized enterprises, mid-to-large enterprises, and local governments
• Completion of securities portfolio improvement: following the accelerated sale conducted in the prior fiscal year, losses on sales of government bonds and other bonds fell sharply to ¥2,258 million in FY2026 (ending March 2026) (from ¥31,632 million in the prior fiscal year), normalizing earnings
• Increase in fees and commissions income: non-consolidated fees and commissions income rose to ¥9,713 million (up ¥523 million from the prior fiscal year), driven by enhanced visiting sales activities and sales of insurance and investment trust products
• Expansion of assets under custody: non-consolidated assets under custody increased to ¥486,134 million (up ¥38,924 million from the end of the prior fiscal year), driven by enhanced sales of investment trusts and individual annuities
• Buildup of government bond holdings: non-consolidated government bond balance increased to ¥271,016 million (up ¥63,813 million from the end of the prior fiscal year), as the securities portfolio was rebuilt

Risks

• Sharp increase in deposit interest expenses amid rising interest rates: non-consolidated funding costs increased significantly to ¥7,617 million (up ¥5,249 million from the prior fiscal year), with continued risk of NIM compression. The yield on deposits and other rose to 0.19% (up 0.14 percentage points from the prior fiscal year)
• Increase in non-performing loan disposal costs: provision for allowance for loan losses in the Banking Business segment increased to ¥691 million (up ¥585 million from the prior fiscal year). Non-consolidated non-performing loans (disclosed claims under the Financial Reconstruction Act) totaled ¥50,867 million (2.04% of total credit exposure)
• Risk of valuation losses on securities: net unrealized gains/losses on other securities remained negative at △¥10,254 million (as of the end of March 2026), with continued risk of bond price declines due to rising interest rates. Of this, valuation losses on bonds totaled ¥14,845 million
• Increase in operating expenses: non-consolidated operating expenses increased to ¥22,277 million (up ¥1,971 million from the prior fiscal year), with expenses expected to continue rising due to ongoing branch investment, DX, and AI investment
• Risk of regional economic contraction: with its main business base in Tochigi and Saitama Prefectures, which face declining birthrates, aging populations, and population decline, there are concerns about a long-term decline in loan demand
• External environment risks such as U.S. tariff policy: potential increase in credit costs through effects on regional manufacturing and export-related businesses