Daishi Hokuetsu Financial Group (7327) FY2027 Q1 Earnings Report

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Executive Summary

The Group achieved higher revenue and higher profit, with profit growth outpacing revenue growth, primarily driven by expanded interest income and expense control. Ordinary revenue was ¥69.66B (+20.6% YoY), Ordinary Income was ¥25.24B (+44.1%), and Net Income was ¥17.68B (+38.3%). The Ordinary Income margin improved to 36.2% from 30.3% in the same period of the previous year, confirming that revenue expansion had a strong positive impact on profit.

Factors Affecting Performance

【Revenue】Ordinary revenue was ¥69.66B (+20.6% YoY). Ordinary revenue from external customers in the Banking Business rose to ¥60.13B (+22.7%), driving the overall result, while the Securities Business also grew substantially to ¥1.82B (+46.5%). The Leasing Business generated ¥5.88B (+6.1%), while Other Businesses declined slightly to ¥1.96B (-4.6%). In the Banking Business, although the balance of loans outstanding increased by only 0.1% YoY, interest on loans increased to ¥20.26B (+25.9%), indicating that improved yields, rather than quantitative expansion, was the primary driver of revenue growth.

【Profit and Loss】Ordinary Income was ¥25.24B (+44.1% YoY), and Net Income was ¥17.68B (+38.3%). Segment profit in the Banking Business was ¥23.46B (+40.3%), serving as the core contributor to Group profit. Expenses corresponding to costs declined to ¥16.15B (-2.4%), and expense control during the revenue growth phase supported the improvement in profit margins. Extraordinary income and losses were limited to an impairment loss of ¥0.01B, and the divergence between Ordinary Income and Net Income was primarily attributable to income taxes and other taxes of ¥7.53B (effective tax rate of approximately 29.9%). This was a structure of both revenue and profit growth, with revenue expansion and improved expense efficiency contributing together.

Segment Analysis

The Banking Business generated Ordinary revenue of ¥60.13B (86.3% of total, +22.7% YoY) and segment profit of ¥23.46B (+40.3%, 39.0% margin), serving as the core contributor to Group profit. The Securities Business showed strong growth, with Ordinary revenue of ¥1.82B (+46.5%) and profit of ¥0.89B (+132.5%), although its scale remains small. The Leasing Business generated Ordinary revenue of ¥5.88B (+6.1%) and profit of ¥0.34B (+142.9%); while its profit growth was substantial, its profit margin of 5.8% was lower than that of the other segments. Other Businesses experienced a revenue decline, with Ordinary revenue of ¥1.96B (-4.6%), but profit increased significantly to ¥11.63B (+63.3%), reflecting substantial contributions from credit guarantee and credit card operations, among others. Although the Group’s high dependence on the Banking Business remains unchanged, profit growth in the Securities Business and Other Businesses is contributing to an improvement in the consolidated profit margin.

Key Financial Indicators

【Profitability】The Ordinary Income margin was 36.2%, improving from 30.3% in the same period of the previous year, while the Net Income margin also rose to 25.4% from 22.1%. Annualized ROE was 11.8%, indicating an improving trend in both profitability and margins.【Cash Quality】Comprehensive income was ¥38.21B, exceeding Net Income of ¥17.68B by ¥20.52B. Valuation difference on securities of ¥11.01B and deferred hedge gains and losses of ¥10.24B increased equity. In the Banking Business, it is important to note that, in addition to income statement profit, capital movements through other comprehensive income have a significant impact.【Investment Efficiency】Total assets were ¥10,657.27B and net assets were ¥598.38B, representing changes of -1.7% and +5.1%, respectively, compared with the same period of the previous year. While asset growth was constrained, capital accumulated, indicating an improving trend in capital efficiency.【Financial Soundness】The Equity Ratio was 5.6%, deposits were ¥8,639.13B (+1.5%), and loans outstanding were ¥5,879.99B (+0.1%). The loan-to-deposit ratio was approximately 68.1%, indicating a stable funding structure centered on deposits.

Cash Flow Analysis

As a standalone statement of cash flows was not disclosed for this earnings period, the Group’s funding position is assessed based on fund movements in the balance sheet. Deposits were ¥8,639.13B, increasing steadily by +1.5% YoY and indicating growth in stable customer-based funding, while loans outstanding were ¥5,879.99B, up only +0.1%, and securities declined to ¥2,395.58B, down -4.7%. Borrowings decreased to ¥690.20B, down -12.0%, indicating reduced dependence on market-based funding. Collateral received for bond lending and borrowing transactions also declined significantly by -56.7%, reflecting changes in the scale of short-term market transactions. The conversion rate from Ordinary Income to Net Income was 70.1%. While core operating revenue supporting profit remained solid due to increases in interest on loans and fee income, together with lower expenses, the structure in which Comprehensive Income significantly exceeds Net Income indicates that market-driven factors, including securities and hedge valuations, have a strong impact on capital movements.

Quality of Earnings

Profit growth during the quarter was supported by highly recurring factors, including an increase in interest on loans (+25.9% YoY), an increase in fee income (+13.1%), and a decrease in expenses (-2.4%). Extraordinary income and losses were limited to an impairment loss of ¥0.01B, indicating virtually no impact from temporary factors. Meanwhile, Comprehensive Income of ¥38.21B exceeded Net Income of ¥17.68B by ¥20.52B, primarily due to valuation difference on securities of ¥11.01B and deferred hedge gains and losses of ¥10.24B. Because these items are linked to fluctuations in market interest rates and securities prices, they are less stable in nature than Net Income. The improvement in the Ordinary Income margin accompanied by expense control is positive from an earnings-quality perspective; however, funding costs increased by +12.0%, so the sustainability of net interest income in a rising deposit-rate environment warrants close monitoring.

Earnings Forecast and Guidance

The Full-Year forecast is Ordinary Income of ¥78.00B (+27.6% YoY), Net Income of ¥53.00B, EPS of ¥201.44, and a dividend of ¥80.00. During the quarter, the earnings forecast and dividend forecast were revised. Q1 progress rates were 32.4% for Ordinary Income and 33.4% for Net Income, exceeding the standard quarterly progress rate of 25%. The Company raised its forecasts, reflecting revenue and profit growth above the assumptions made at the beginning of the fiscal year. Going forward, the balance between growth in interest income and rising deposit costs will be key to achieving the Full-Year plan.

Shareholder Returns

The Full-Year forecast dividend is ¥80.00 per share, and the forecast was revised upward toward an increased dividend during the quarter. Based on forecast EPS of ¥201.44, the Payout Ratio is approximately 39.7%, within the generally regarded sustainability benchmark of less than 60%. A 3-for-1 stock split was implemented effective October 1, 2025, and the total annual dividend for FY2026, after taking the stock split into account, will be ¥63.00. As the disclosed data do not allow confirmation of actual share repurchases during the period, this report uses a dividend-only Payout Ratio.

Risk Factors

1. Deposit Cost Increase Risk: Interest on deposits was ¥5.55B, a significant increase of +68.9% YoY. Total funding costs also increased to ¥12.50B, up +12.0%, creating the possibility that growth in funding costs could offset growth in fund investment income during future periods of rising interest rates.

2. Sluggish Loan Growth: Loans outstanding were ¥5,879.99B, increasing only +0.1% YoY. A substantial portion of the profit growth during the period was attributable to improved yields, and if regional demand for funds remains weak, the scope for quantitative revenue expansion may be limited.

3. Fluctuations in Securities Valuations and Equity Ratio: Securities of ¥2,395.58B accounted for 22.5% of total assets, and changes in interest rates and prices affect accumulated other comprehensive income of ¥109.11B within net assets through valuation gains and losses. The disclosed Equity Ratio of 5.6% is below generally used soundness benchmarks, requiring ongoing verification of capital adequacy.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Return

The Company’s Net Income margin of 25.4% is the actual result for the period, while median data for assessing its relative position within the industry have not yet been compiled.

Growth and Capital Efficiency

The Company’s Revenue growth rate of 20.6% is the actual result for the period, while median data for assessing its relative position within the industry have not yet been compiled.

Source: Compiled by the Company

Key Points from the Earnings Results

1. Ordinary Income increased +44.1% YoY and Net Income increased +38.3%, representing profit growth that outpaced revenue growth (+20.6%). Expenses declined by -2.4%, confirming a structure in which expense efficiency during the revenue growth phase contributed to improved profit margins.

2. The core Banking Business led Group profit growth, with segment profit of ¥23.46B (+40.3%), while growth in loans outstanding remained limited to +0.1%. Profit growth was driven substantially by improved lending yields and securities- and fee-based income, while the sustainability of quantitative expansion will depend on future trends in demand for funds.

3. Q1 progress rates against the Full-Year forecast were 32.4% for Ordinary Income and 33.4% for Net Income, exceeding standard progress rates, and the Company raised both its earnings and dividend forecasts. The forecast Payout Ratio is approximately 39.7%, indicating a certain level of dividend capacity assuming the earnings plan is achieved.

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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. Industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.