THE TOWA BANK, LTD.

Business Details

The Towa Bank Group consists of the Bank itself and two consolidated subsidiaries. The Group provides comprehensive financial services including deposits, lending, domestic and foreign exchange, and fee-based transactions, with Gunma and Saitama Prefectures as its main operating areas. The leasing and credit card businesses are disclosed within a single segment (banking business) as they are deemed immaterial. Under the medium-term management plan "TOWA Future Plan I," launched in April 2024, the Bank is promoting enhanced support activities for regional customers and improved corporate value.

Recent Overview

Large loss due to en-masse securities disposal, but core business profitability improved to record-high levels

As announced in the revised full-year earnings forecast on March 13, 2026, with the aim of reducing future interest rate risk and improving profitability, bonds with an average remaining maturity of over three years (book value of ¥224.4 billion and unrealized loss of ¥35.6 billion as of end-February 2026) were disposed of en masse, resulting in a non-consolidated loss on sales of bonds such as JGBs of ¥37,147 million. As a result, the Bank recorded a consolidated ordinary loss of ¥29,837 million and net loss of ¥24,499 million. On the other hand, core net business profit, which reflects core business profitability, improved significantly to ¥8,846 million (up ¥3,002 million from the prior period). Unrealized gains/losses on other securities improved by ¥23.7 billion year on year, narrowing to an unrealized loss of ¥4.2 billion. For FY2027 (ending March 2027), the Bank forecasts ordinary profit of ¥5,000 million and net income of ¥5,500 million, and plans to increase the dividend to ¥50 per share (up from ¥35 in the prior period).

Key Products

Growth Drivers

• Rise in loan yield (1.49%, up 0.22 points from the prior period) and substantial expansion of interest income (from ¥24,779 million to ¥31,401 million) accompanying normalization of the Bank of Japan's monetary policy (interest rate hikes)
• Improved yield through reinvestment following the en-masse disposal of securities (securities yield rose from 0.76% to 1.18%) and significant reduction in interest rate risk
• Continued growth in loan balance (consolidated ¥1,646,482 million, up ¥39,782 million from the end of the prior period), supporting fund income
• Strengthening of the fee business through expansion of assets under custody (investment trusts ¥87.3 billion, life insurance and related products ¥70.3 billion, public bonds ¥9.6 billion)
• Stabilization of credit costs due to improvement in the non-performing loan ratio (consolidated 2.39%, down 0.14 points from the prior period)
• Recording of gain on disposal of fixed assets of ¥1,691 million (from sale of owned real estate as part of branch strategy)

Risks

• Risk of pressure on fund income due to a sharp increase in deposit interest costs (from ¥1,314 million to ¥4,403 million) associated with additional Bank of Japan rate hikes
• Risk of further losses from remaining unrealized losses even after the en-masse securities disposal (total non-consolidated unrealized loss of ¥11.3 billion) and unrealized losses on held-to-maturity bonds (¥7.0 billion)
• Risk of shrinking capital buffer and stricter regulatory constraints due to a significant decline in the capital adequacy ratio (non-consolidated, from 9.71% to 6.68%)
• Risk of pressure on profitability due to an increase in credit costs (non-consolidated, from ¥573 million to ¥3,282 million) and an increase in the allowance for doubtful accounts (non-consolidated, from ¥6,137 million to ¥7,534 million)
• Risk of deteriorating corporate performance and increased credit costs due to the impact of U.S. tariff policy and other factors in the main operating area (Gunma Prefecture), where the automobile industry is prominent
• Risk of impaired internal reserves and impact on future dividend resources due to a significant decrease in retained earnings (non-consolidated, from ¥58,650 million to ¥32,018 million)