Daishi Hokuetsu Financial Group (7327) FY2026 Q3 Earnings Report

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Executive Summary

The Company posted earnings growth exceeding revenue growth, primarily driven by an expansion in interest income. Ordinary revenue was ¥2,001.0B (+39.5% YoY), Ordinary Income was ¥489.4B (+64.5%), and quarterly Net Income attributable to owners of the parent was ¥339.0B (+59.8%). The expansion in net interest income, primarily due to an increase in interest on loans, combined with restrained growth in expenses, resulted in an improvement in the Ordinary Income margin from the same period of the previous year. Progress against the full-year Ordinary Income forecast of ¥523.0B was 93.6%, substantially exceeding the standard progress rate.

Factors Affecting Performance

【Revenue】Ordinary revenue increased by 39.5% YoY to ¥2,001.0B. By segment, the Banking Business led growth, with revenue of ¥1,736.7B (+46.9%), accounting for 86.8% of the total. The Leasing Business generated ¥167.3B (+5.8%), the Securities Business ¥42.6B (+6.2%), and Other Businesses ¥63.9B (+8.9%), all representing modest revenue increases. Growth in the Banking Business was primarily attributable to a 26.6% increase in interest on loans, with the loan balance expanding to ¥5 trillion 8,367.7B.

【Profit and Loss】Ordinary Income increased 64.5% YoY to ¥489.4B, achieving profit growth exceeding the revenue growth rate. While net interest income expanded by 22.8% YoY, expenses (General and Administrative Expenses) increased only 3.9% to ¥487.98B, and the fact that expenses did not keep pace with revenue growth contributed to margin improvement. Extraordinary losses of ¥13.9B included impairment losses of ¥12.5B; however, the amount was small, and there was no significant divergence in the conversion from Ordinary Income to Net Income. Net Income attributable to owners of the parent was ¥339.0B, up 59.8% YoY. Both revenue and profit increased.

Segment Analysis

The Banking Business is the core business, with Ordinary revenue from external customers of ¥1,736.7B (+46.9%) and segment profit of ¥462.5B (+78.1%), accounting for 72.3% of total segment profit before adjustment of ¥640.1B. The Leasing Business generated Ordinary revenue of ¥167.3B (+5.8%) and profit of ¥8.8B (+13.7%), with a relatively low profit margin of 5.3%. The Securities Business generated Ordinary revenue of ¥42.6B (+6.2%) and profit of ¥17.4B (+7.3%), maintaining a high profit margin of 40.6%. Other Businesses (including credit guarantee and credit card operations) generated Ordinary revenue of ¥63.9B (+8.9%) and profit of ¥151.4B (+52.1%), indicating a high profit margin and making a significant contribution to consolidated profit. However, given the nature of these businesses, their performance drivers require ongoing monitoring.

Key Financial Metrics

【Profitability】The Ordinary Income margin was 24.5%, improving from 20.7% in the same period of the previous year, while the Net Income margin also improved to 16.9% from 14.8%. Net interest income increased 22.8% YoY to ¥683.1B, driven by growth in interest on loans (+26.6%).【Cash Flow Quality】Comprehensive income was ¥815.4B, exceeding Net Income of ¥339.0B by ¥476.3B. The primary factor was the reversal of valuation losses on securities valuation differences from ¥349.4B in the same period of the previous year (more precisely, valuation losses of ¥309.5B) to valuation gains of ¥349.4B.【Investment Efficiency】Annualized ROE was 8.3%, supported by high financial leverage (total assets/equity of approximately 19.7x). However, total asset turnover was low, indicating that expansion of interest margins, rather than asset efficiency, was the primary driver of profit growth.【Financial Soundness】The Equity Ratio was 5.1%, while deposits of ¥8 trillion 4,191.6B against loans of ¥5 trillion 8,367.7B resulted in a loan-to-deposit ratio of 69.3%. Total assets decreased 1.8% YoY to ¥10 trillion 7,829.1B, while equity increased 14.2% to ¥547.11B.

Cash Flow Analysis

Although data from the consolidated statement of cash flows has not been disclosed, fund movements can be assessed from changes in the balance sheet. Cash and due from banks decreased 6.0% from ¥2 trillion 1,472.9B in the same period of the previous year to ¥2 trillion 184.9B, while deposits decreased 1.2% to ¥8 trillion 4,191.6B and loans increased 4.6% to ¥5 trillion 8,367.7B. Securities decreased 11.1% to ¥2 trillion 5,825.8B, suggesting that a portion of deposits and cash was shifted toward lending. Equity increased by ¥682.4B YoY, reflecting both the accumulation of retained earnings and an improvement in other comprehensive income resulting from the reversal of valuation losses on securities valuation differences to valuation gains.

Earnings Quality

The current-period profit increase was centered on the recurring earnings factor of expanded interest on loans, while the impact of extraordinary items was limited. Extraordinary income of ¥4.0B and extraordinary losses of ¥13.9B (including impairment losses of ¥12.5B) were both small, and the difference between Ordinary Income of ¥489.4B and Profit Before Tax of ¥479.5B was limited to ¥9.9B. Interest and dividend income corresponding to non-operating revenue increased 18.2% YoY to ¥1,031.8B, with interest on loans showing the largest increase at ¥510.8B (+26.6%). Meanwhile, comprehensive income of ¥815.4B substantially exceeded Net Income of ¥339.0B, primarily due to the reversal of valuation losses on securities valuation differences to valuation gains. These valuation gains resulted from fluctuations in market prices and should be distinguished from recurring earnings-generation capability.

Earnings Forecast and Guidance

Against the full-year Ordinary Income forecast of ¥523.0B, cumulative Q3 Ordinary Income of ¥489.4B represented progress of 93.6%, substantially exceeding the standard progress rate of approximately 75%. Against the forecast Net Income attributable to owners of the parent of ¥360.0B, cumulative Net Income of ¥339.0B represented progress of 94.2%. The full-year forecast assumes profit growth will decelerate toward Q4, with the forecast YoY profit growth rate of +27.2% compared with cumulative Q3 growth of +64.5%. There were no revisions to the earnings forecast or dividend forecast.

Shareholder Returns

The Q2 dividend was ¥81 per share. Based on quarterly Net Income of ¥339.0B, the Payout Ratio was approximately 65.9%, exceeding the generally regarded sustainability benchmark of 60%. In addition, due to the stock splits conducted in October 2024 and October 2025 (a 1-for-2 split followed by a 1-for-3 split), a simple comparison of annual dividends across periods is not appropriate. This Payout Ratio is based solely on dividends and differs from the Total Return Ratio, which includes share repurchases.

Risk Factors

1. Sustainability of the net interest income margin: Net interest income increased 22.8% YoY, but there is a risk that the loan-deposit spread could narrow due to rising deposit interest rates and intensifying competition for lending. The interest-rate environment from Q4 onward will determine the sustainability of the profit margin.

2. Business concentration risk: The Banking Business accounts for 72.3% of total segment profit before adjustment of ¥640.1B, creating a structure in which regional economic trends and changes in the credit environment could significantly affect consolidated performance.

3. Volatility in securities valuation differences: Comprehensive income reached ¥815.4B following the reversal of valuation losses in the same period of the previous year to valuation gains of ¥349.4B. However, because this improvement depends on market price movements, volatility in equity and comprehensive income may increase during periods of rising interest rates or falling stock prices.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

The Company’s Net Income margin of 16.9% is presented only as an absolute-level reference because sufficient comparative data within the industry is not available.

Growth and Capital Efficiency

The Revenue growth rate of 39.5% is presented only as an absolute-level reference because sufficient comparative data within the industry is not available.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Ordinary revenue increased 39.5%, while Ordinary Income increased 64.5% and Net Income increased 59.8%, achieving profit growth exceeding revenue growth. The Ordinary Income margin improved from 20.7% in the same period of the previous year to 24.5%, with restrained expense growth supporting the margin improvement.

2. Progress against the full-year Ordinary Income and Net Income forecasts was 93.6% and 94.2%, respectively, representing a high level of progress substantially exceeding the standard progress rate. However, the full-year forecast assumes YoY profit growth of +27.2%, incorporating a slowdown from the cumulative performance growth rate.

3. Comprehensive income of ¥815.4B exceeded Net Income by ¥476.3B, primarily due to the reversal of valuation losses on securities valuation differences to valuation gains. This improvement depends on market conditions and must be distinguished from the improvement in recurring earnings capacity (net interest income +22.8%; expenses restrained to +3.9%).

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

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