Kyushu Financial Group (7180) FY2026 FY Earnings Report

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Executive Summary

The key feature of the current results was that profit growth exceeded the increase in ordinary revenue, resulting in higher revenue and profit accompanied by improved margins. Ordinary revenue was ¥2,632.5B (up +4.7% YoY), ordinary income was ¥537.7B (up +25.0%), and net income attributable to owners of the parent was ¥377.1B (up +24.0%). The primary driver was increased profit at both Higo Bank and Kagoshima Bank, with Kagoshima Bank in particular recording substantial growth in segment income of +35.7% YoY.

Factors Affecting Performance

【Revenue】Ordinary revenue increased by +4.7% YoY to ¥2,632.5B. Ordinary revenue from the Banking segment was ¥2,150.7B (up +4.8%), accounting for the majority of total revenue. Higo Bank generated ¥1,199.5B (up +2.5%), while Kagoshima Bank generated ¥951.2B (up +7.9%), with Kagoshima Bank recording the stronger growth. The Leasing business also increased revenue to ¥407.1B (up +4.7%), while Other businesses recorded strong growth of +11.8% to ¥93.0B.

【Profit and Loss】Ordinary income increased by +25.0% YoY to ¥537.7B, while net income increased by +24.0% to ¥377.1B. Banking segment income was ¥531.6B (up +27.6%), driving consolidated profit. Both banks recorded higher profit, with Kagoshima Bank generating ¥264.3B (up +35.7%, margin 27.8%) and Higo Bank generating ¥267.2B (up +20.4%, margin 22.3%). Meanwhile, segment income from the Leasing business declined by -18.2% to ¥13.9B, with its margin also falling to 3.4%. Net extraordinary gains and losses amounted to only ¥1.7B, indicating that the profit increase was primarily attributable to recurring earning power. In conclusion, the company achieved higher revenue and profit.

Segment Analysis

The Banking segment accounted for ¥531.6B of consolidated ordinary income (up +27.6%) and formed the core of earnings. Kagoshima Bank generated ordinary revenue of ¥951.2B (up +7.9%) and segment income of ¥264.3B (up +35.7%), with a margin of 27.8%, exceeding Higo Bank’s margin of 22.3% and making a relatively larger contribution to profit growth during the period. The Leasing business recorded segment income of ¥13.9B (down -18.2%) and a margin of 3.4%, indicating a substantial profitability gap compared with the Banking business and highlighting the need to improve the profitability of non-banking businesses. Other businesses, including credit card operations, secured high profitability, with segment income of ¥19.6B (up +38.5%) and a margin of 21.1%.

Key Financial Indicators

【Profitability】The ordinary income margin was 20.4%, improving by 330bp from 17.1% in the previous year, while the net income margin was 14.3%, improving by 220bp from 12.1% in the previous year. NIM, a bank-specific indicator, remained at 1.23%. The fact that interest expense increased by +34.2% YoY, exceeding the +15.1% growth in interest and dividend income, will influence future spread trends.【Cash Flow Quality】Operating Cash Flow (OCF) was negative at ¥587.3B, representing a substantial divergence from net income of ¥377.1B. However, in the Banking business, changes during the period in deposits, loans and bills discounted, and securities are directly reflected in OCF; therefore, mechanically applying standards used for general operating companies is not appropriate.【Investment Efficiency】ROE was 5.0%, improving by 80bp from 4.2% in the previous year. This reflects the structural characteristics unique to banks, including low total asset turnover and high financial leverage.【Financial Soundness】The equity ratio (net assets/total assets) was 5.6%, while the loan-to-deposit ratio was 87.5%, within the 70〜90% range generally considered a benchmark for the banking industry. Deposits were ¥10,570.85B (up +2.4% YoY), while borrowed money was ¥1,187.75B (down -5.3%), indicating a strengthening of a funding structure centered on deposits.

Cash Flow Analysis

OCF was negative at ¥587.3B. Although this represented an improvement from the ¥3,921.3B deficit in the previous year, the divergence from net income of ¥377.1B remained substantial. Investing Cash Flow was negative at ¥2,570.6B, primarily due to an increase of +¥2,791.0B YoY in the balance of securities, while capital expenditures remained limited to ¥83.5B. Financing Cash Flow was negative at ¥206.0B, with the primary outflows being ¥100.0B in treasury stock acquisitions and dividend payments. Free Cash Flow was negative at ¥3,157.9B; however, in the Banking business, it includes changes in securities investment and fund management, and therefore differs in nature from FCF assessments for general operating companies. Cash and cash equivalents decreased by ¥3,363.9B during the period, apparently reflecting the impact of expanding and reallocating the fund management portfolio. It is necessary to review funding trends together with changes in deposits, loans and bills discounted, and securities balances.

Earnings Quality

Profit improvement during the period was primarily supported by recurring Banking business earnings. Extraordinary income was ¥2.6B and extraordinary losses were ¥0.9B, resulting in a net contribution of only ¥1.7B. Interest and dividend income was ¥1,556.5B (up +15.1% YoY), contributing to profit growth, while interest expense was ¥423.5B (up +34.2%), recording a higher growth rate. A decline in other ordinary expenses (down -25.6%) also supported the improvement in profit margins. Comprehensive income attributable to owners of the parent was ¥778.3B, substantially exceeding net income of ¥377.1B, with OCI contributions including ¥141.7B in valuation differences on available-for-sale securities and ¥217.3B in deferred hedge gains and losses. Since this excess of comprehensive income led by OCI may reverse due to changes in market conditions, it should be distinguished from recurring earning power.

Earnings Forecasts and Guidance

The full-year ordinary income forecast is ¥650.0B, representing expected growth of +20.8% YoY. First-half results of ¥537.7B (up +25.0% YoY) represent a progress rate of 82.7% against the full-year forecast, indicating a high level of progress as of the first half. The EPS forecast is ¥104.56, also indicating steady progress compared with first-half EPS of ¥87.54.

Shareholder Returns

Annual dividends were ¥29 per share (¥13 interim and ¥16 year-end), each including a ¥1 commemorative dividend for the 10th anniversary of the company’s founding in addition to the regular dividend. The payout ratio was 33.1% based on the company’s disclosed figures, and total dividends paid were ¥12.42B. The company also conducted ¥10.0B in treasury stock acquisitions during the period, resulting in a Total Return Ratio of approximately 59.5% when dividends and share repurchases are combined. Although the payout ratio alone indicates room for additional shareholder returns, given that OCF was negative, it is advisable to assess the sustainability of returns together with the deposit funding base and level of regulatory capital.

Risk Factors

1. Low NIM and rising funding costs: NIM remained at 1.23%, while deposit interest expense surged by +236.0% YoY. If increases in lending and securities investment yields fail to keep pace, net interest income could come under pressure.

2. Declining profitability of the Leasing business: Segment income from the Leasing business declined by -18.2% YoY, with its margin remaining at 3.4%, and the profitability gap with the Banking business has widened. This represents a challenge for earnings diversification in non-banking businesses.

3. Securities and OCI volatility: The balance of securities increased to ¥21,435.1B (up +¥2,791.0B YoY), and fluctuations in interest rates and market prices could affect valuation differences on available-for-sale securities, deferred hedge gains and losses, and capital levels.

Industry Benchmark (Reference; Compiled by Our Company)

Profitability and Return

The net income margin exceeded the industry median, indicating that profitability was relatively high within the industry.

Growth and Capital Efficiency

The revenue growth rate was below the industry median, indicating relatively moderate top-line growth.

※Source: Compiled by Our Company

Key Points in the Financial Results

1. Ordinary income of ¥537.7B and net income of ¥377.1B both increased by approximately 25% YoY, while both the ordinary income margin and net income margin improved. Profit growth was driven primarily by both Higo Bank and Kagoshima Bank, with Kagoshima Bank showing the strongest growth, recording a margin of 27.8% and profit growth of +35.7%.

2. NIM of 1.23% was below the 1.5% benchmark for bank profitability. The extent to which investment yields keep pace with the sharp increase in deposit interest expense (+236.0% YoY) is a key structural factor that will determine future net interest income.

3. The Total Return Ratio, combining a payout ratio of 33.1% with share repurchases, was approximately 59.5%. While the company is maintaining capacity for shareholder returns, OCF was negative, making it useful to continuously monitor the funding position together with trends in deposits, loans, and securities balances.

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by our company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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