Nishi-Nippon Financial Holdings,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥110.24B
• Operating Income: ¥8.53B
• Net Income: ¥8.21B
• EPS: ¥152.49

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: FY2026 Q2 was mixed for Nishi-Nippon Financial Holdings—headline revenue and ordinary/net profits grew solidly, but operating income contracted sharply and structural profitability (ROE, NIM, ROIC) remains subdued. Revenue rose 16.2% YoY to 1,102.36, indicating healthy topline momentum in core banking income and fees. Ordinary income increased 31.0% YoY to 309.09, signaling strong contributions from non-operating drivers (e.g., securities-related gains and/or lower credit costs). Net income climbed 29.3% YoY to 212.39, with EPS of 152.49 JPY, underscoring resilient bottom-line delivery despite rate pressure. In contrast, operating income fell 39.7% YoY to 85.25, showing pronounced compression at the operating level within the reporting framework. Operating margin compressed from roughly 14.9% to 7.7% (about 720 bps deterioration), while ordinary income margin expanded from ~25.0% to 28.1% (~310 bps), and net margin improved from ~17.3% to 19.3% (~200 bps). The margin picture implies that profit growth was driven by non-operating items and improved below-the-line dynamics rather than core operating leverage. Banking KPIs are mixed: NIM of 0.6% is very low (sector warning threshold <1.5%), but the cost-to-income ratio is efficient at 40.1% (well below the 50% benchmark). Balance sheet leverage is structurally high (D/E 21.7x; financial leverage 22.7x), typical for banks but it caps ROE at a modest 3.6%. Total comprehensive income of 414.98 substantially exceeds net income, suggesting large unrealized OCI gains (likely from securities valuation) that may reverse with rate volatility. Loan-to-deposit ratio is 94.6%—below 100% but above the 70–90% comfort range—implying tighter on-balance-sheet liquidity than peers with lower LDRs. Effective tax rate is approximately 30.1%, consistent with normal levels and not a driver of volatility. ROIC is 1.0%, signaling low capital efficiency in the current rate environment. From an earnings quality lens, the divergence between operating income and ordinary/net income raises questions about sustainability if non-operating supports fade. With payout ratio at 51.7%, distributions appear covered by earnings, but cash flow coverage is unverified due to unreported OCF. Forward-looking, profitability hinges on stabilizing NIM, disciplined credit cost management, and controlling securities portfolio duration/OCI sensitivity amid BOJ policy normalization. Overall, the quarter shows solid bottom-line growth aided by non-operating factors but leaves core banking profitability challenges unresolved.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.6% = Net Profit Margin (19.3%) × Asset Turnover (0.008x) × Financial Leverage (22.70x). The components indicate strong reported net margin (helped by non-operating items), extremely low asset turnover typical for banks, and very high financial leverage. Change driver: The most notable movement appears in net margin, which expanded from ~17.3% to ~19.3% given revenue up 16.2% and net income up 29.3%; asset turnover and leverage likely moved marginally. Business reason: Higher ordinary income (up 31.0%) versus sharply lower operating income suggests securities-related gains, valuation effects, or lower credit costs supported profitability—while core spread earnings remain constrained by a 0.6% NIM. Sustainability: Gains tied to markets (OCI/AFS) and credit-cost normalization can be transitory; without NIM recovery or fee growth, sustaining elevated net margin is uncertain. Warning signs: Operating income fell 39.7% YoY despite revenue growth, indicating negative operating leverage in the reported framework; cost/income efficiency (40.1%) remains strong but may mask pressure from narrowing spreads. Additional concern: With ROIC at 1.0% and ROE at 3.6%, capital efficiency is weak, and leverage is doing most of the work in ROE. Conclusion: Profitability is currently dependent on non-operating tailwinds; core earnings power (spread + fees) needs reinforcement to improve durable ROE.

Growth Assessment

Revenue grew 16.2% YoY to 1,102.36, a solid acceleration in a low-rate environment. Ordinary income increased 31.0% and net income 29.3%, outpacing revenue and implying margin expansion at and below the ordinary line. Operating income declined 39.7%, showing that headline growth did not translate into operating leverage under the reported categorization. Net interest dynamics remain a constraint: NIM is 0.6%, indicating limited spread expansion contribution. Fee and other income likely supported topline, and securities-related/valuation items likely boosted ordinary income; these tend to be more volatile. CIR at 40.1% is a bright spot, signaling tight cost control and discipline. The LDR at 94.6% suggests active loan deployment but leaves less deposit liquidity buffer than peers with lower LDRs, potentially moderating growth flexibility. Outlook: Sustained growth will depend on stabilizing or modestly improving NIM (if loan yields reprice faster than deposit costs), maintaining benign credit costs, and growing stable fee income. Given the large gap between comprehensive and net income, OCI-linked tailwinds may not persist if rates rise and bond valuations decline. Near term, earnings trajectory appears supported, but medium-term visibility hinges on rate path, credit cycle in the regional economy, and securities portfolio risk management.

Financial Health

Leverage: D/E of 21.70x and financial leverage of 22.7x are structurally high but typical for banks; nonetheless, this heightens sensitivity to asset quality and market valuation swings. Liquidity: LDR at 94.6% sits above the 70–90% optimal range but remains below 100%, indicating loans are mostly deposit-funded with limited excess liquidity cushion. Efficiency: CIR at 40.1% reflects good operating efficiency, providing some buffer against NIM pressure. Capital: Reported equity is 5,931.26 against total assets of 134,645.72, implying an equity/assets ratio of ~4.4%; formal regulatory capital ratios (e.g., CET1, total capital) were not disclosed in the data and are key missing inputs. Maturity mismatch: As with most banks, there is inherent maturity transformation risk; absent a detailed breakdown of current assets/liabilities, we infer typical exposure to deposit repricing and securities duration. Off-balance sheet: No specific disclosures in the provided data; contingent liabilities (guarantees/derivatives) may exist but are unreported here. Explicit warning: D/E > 2.0 (21.7x) flagged; while normal for banks, it amplifies shocks from credit or market losses.

Cash Flow Quality

OCF was unreported; thus OCF/Net Income and FCF cannot be assessed—this limits earnings quality verification. Earnings composition signals risk: operating income fell sharply while ordinary and net income rose, implying reliance on non-operating items (securities gains or valuation effects, and/or lower credit costs). Total comprehensive income (414.98) is nearly 2x net income (212.39), indicating sizable OCI gains—beneficial now but reversible with rate moves, suggesting volatility in equity. Working capital manipulation is less applicable to banks; instead, focus is on credit cost accruals and securities valuation—neither detail is disclosed. Sustainability: Without OCF or credit cost detail, we cannot confirm cash conversion; monitor realized gains versus unrealized OCI and stability of core NII.

Dividend Sustainability

Payout ratio (calculated) is 51.7%, within the <60% benchmark for sustainability. Given net income growth of 29.3%, dividends appear covered by earnings in this period. However, FCF coverage cannot be assessed due to missing OCF/FCF data. With ROE at 3.6% and ROIC at 1.0%, long-term dividend growth may be constrained absent improvement in core profitability or capital optimization. The large gap between comprehensive and net income underscores potential equity volatility, which could influence capital management under stress scenarios. Policy outlook: The bank likely targets stable or gradually increasing dividends; sustainability depends on maintaining ordinary income (notably credit costs and securities gains) and avoiding OCI-driven capital pressure.

Risk Assessment

Business Risks:

• Persistently low NIM at 0.6% limits core earnings power in a low/volatile rate environment.
• Regional economic exposure (Kyushu) concentrates credit and growth risk to local industries.
• Revenue dependence on non-operating items (securities gains/valuation) introduces earnings volatility.
• Competition for deposits could raise funding costs as rates normalize.

Financial Risks:

• High leverage (D/E 21.7x) magnifies sensitivity to asset quality and market valuation shocks.
• LDR at 94.6% indicates tighter liquidity buffer than peers with lower LDRs.
• OCI sensitivity: comprehensive income far above net income implies material AFS/OCI exposure to rate moves.
• Potential interest rate risk from duration in the securities book amid BOJ policy normalization.
• Credit cost normalization risk if delinquencies rise; no credit cost detail provided.

Key Concerns:

• Operating income down 39.7% YoY despite 16.2% revenue growth, reflecting negative operating leverage in reported figures.
• ROE 3.6% and ROIC 1.0% indicate low capital efficiency.
• Data gaps (no OCF, no capital ratios, no credit cost disclosure) hinder full risk assessment.

Investment Implications

Key Takeaways:

• Bottom-line strength (ordinary/net income up 31%/29%) contrasts with a 40% drop in operating income, highlighting reliance on non-operating supports.
• Core profitability remains challenged with NIM at 0.6%, though CIR at 40.1% is a positive offset.
• Balance sheet leverage is high (typical for banks) and LDR of 94.6% reduces liquidity headroom.
• Comprehensive income far exceeds net income, pointing to securities valuation tailwinds that may reverse.
• ROE of 3.6% suggests limited intrinsic returns absent NIM improvement, fee growth, or capital actions.

Metrics to Watch:

• NIM trajectory and deposit beta as BOJ policy evolves
• Credit cost ratio/NPL trends and coverage
• Regulatory capital (CET1, leverage ratio) and OCI sensitivity
• LDR and liquidity buffers (HQLA) dynamics
• Fee income growth and stability
• Duration of securities portfolio and unrealized gains/losses
• Cost-to-income ratio sustainability

Relative Positioning: Operational efficiency (CIR ~40%) is better than many domestic peers, but ultra-low NIM and modest ROE place profitability below top-tier regional banks; liquidity tightness (LDR ~95%) and OCI sensitivity warrant a more cautious stance relative to peers with stronger NIM and lower duration risk.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis