Fukuoka Financial Group,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥258.78B
• Net Income: ¥43.59B
• EPS: ¥230.50

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: Solid top-line and earnings growth in FY2026 Q2 with healthy efficiency, but profitability quality is tempered by a very low NIM and modest ROE. Revenue rose to 2,587.82 (100M JPY), up 15.1% YoY, indicating strong growth in core banking income lines. Ordinary income reached 628.14, up 12.9% YoY, and net income grew 11.2% YoY to 435.74, confirming broad-based earnings momentum. Net profit margin stands at 16.8%, and based on reported growth rates, we estimate a margin compression of roughly 60 bps YoY (from about 17.4% to 16.8%). Operating efficiency remains a bright spot with a cost-to-income ratio (CIR) of 32.9%, well below the 50% benchmark, signaling tight expense management. However, bank profitability fundamentals remain challenged, with NIM at 0.6%, substantially below the 1.5% warning threshold, limiting structural earnings power. ROE is 4.3%, matching the DuPont-derived figure, and remains modest relative to cost of equity norms for Japanese banks. Leverage is inherently high for a bank, with D/E at 31.62x, which is typical for the sector but a clear quantitative outlier versus non-financial benchmarks. The loan-to-deposit ratio (LDR) is 93.7%, sitting near the top of the optimal range, implying tighter liquidity headroom than peers with lower LDRs. Total comprehensive income of 1,023.64 significantly exceeds net income, implying sizable unrealized valuation gains (likely securities/OCI), which can be volatile as rates and equity markets move. Effective tax rate is 30.2%, broadly in line with expectations. Earnings quality cannot be cross-checked against cash flows because OCF is unreported, creating a limitation in assessing conversion. Dividend affordability appears reasonable with a calculated payout ratio at 59.2%, near but within the sustainability threshold. Balance sheet size is 332,122.13, with equity of 10,181.65, implying financial leverage of 32.62x per DuPont, consistent with the D/E observation. Forward-looking, maintaining revenue growth while lifting NIM and preserving CIR will be key to expanding ROE above mid-single digits. Risks include rate volatility affecting securities valuations (given large OCI), credit normalization as rates rise, and liquidity discipline with LDR near the upper bound.

Profitability Analysis

DuPont ROE decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 16.8% × 0.008 × 32.62 ≈ 4.3%. The dominant constraint on ROE is the very low asset turnover typical of Japanese banks under this accounting presentation and the extremely thin NIM, while high financial leverage partially offsets these. Change drivers: Using reported growth rates, net profit margin compressed by an estimated ~61 bps YoY (from ~17.4% to 16.8%) because net income growth (+11.2%) lagged revenue growth (+15.1%). We lack prior-period asset and leverage to quantify changes in asset turnover and financial leverage; we assume they were broadly stable. Business reason: Margin compression likely reflects pressure from low NIM (0.6%), potentially partially offset by strong fees or trading/other income, while credit costs and/or tax burden limited the passthrough of revenue growth to net income. Sustainability: The current margin level appears structurally constrained by low NIM; without a rate-driven NIM uplift or mix shift to higher-yield assets/fees, sustaining significant margin expansion is difficult. Operating leverage: CIR at 32.9% indicates disciplined cost control; however, with NI growth below revenue growth, non-operating items (credit costs, securities-related swings) and taxes likely absorbed operating gains. Watch for any period where SG&A (or bank OHR equivalents) grows faster than revenue; not observable this quarter due to data limits.

Growth Assessment

Revenue growth of +15.1% YoY is robust, likely driven by higher interest income (2,043.58) and potentially fee/trading contributions, despite the low NIM. Ordinary income up +12.9% and net income up +11.2% suggest operating momentum but some leakage to credit costs or lower spreads. The estimated 60 bps NPM compression indicates growth quality is volume-driven rather than spread-driven. Comprehensive income surged to 1,023.64, implying sizable unrealized gains; these are not core and may reverse with market moves. Outlook: Sustainability hinges on stabilizing or improving NIM, maintaining low CIR, and disciplined credit risk. With LDR at 93.7%, further loan growth may require competitive deposit gathering or higher wholesale funding reliance, which could pressure margins. Near term, earnings trajectory looks steady; medium term, profitability uplift likely requires interest rate normalization, asset mix shift to higher-yielding segments, or fee income expansion.

Financial Health

Liquidity: As a bank, traditional current/quick ratios are not informative. LDR at 93.7% is near the upper end of the optimal range (70–90%), implying tighter liquidity headroom; deposits of 210,673.34 fund loans of 197,391.34. Solvency/capital: D/E is 31.62x (warning versus non-financial benchmarks), but high leverage is structural for banks. Equity totals 10,181.65 against assets of 332,122.13 (financial leverage 32.62x). No explicit capital adequacy (CET1/Tier1) ratios disclosed; this is a key missing data point. Maturity mismatch: Elevated LDR suggests careful management of funding tenor is needed; no breakdown of short-term funding provided. Off-balance sheet: Not reported; contingent liabilities (guarantees/derivatives for hedging) may exist but are unquantified here.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income and FCF cannot be assessed. This limits our ability to validate earnings conversion and sustainability. The large gap between total comprehensive income (1,023.64) and net income (435.74) suggests OCI-driven valuation gains, which are non-cash and volatile; while positive for capital buffers, they do not evidence cash earnings quality. No signs of working capital manipulation can be assessed for a bank from available data.

Dividend Sustainability

Calculated payout ratio is 59.2%, near the <60% benchmark and thus tentatively sustainable if earnings remain stable. DPS and total dividends paid are unreported, and OCF coverage is not calculable, limiting confidence in cash coverage analysis. With NIM at 0.6% and ROE at 4.3%, room for dividend growth depends on improving spreads/fees or maintaining very low CIR and benign credit costs. Policy outlook cannot be inferred without management guidance or capital ratio data; absent capital metrics, we assume dividends will track earnings trajectory.

Risk Assessment

Business Risks:

• Sustained low NIM (0.6%) caps structural profitability and ROE.
• Credit cost normalization risk as interest rates evolve and macro slows.
• Revenue mix dependence on volume/fees if spreads remain thin.
• Regional concentration risk (Kyushu area) to local economies and demographics.

Financial Risks:

• High leverage (D/E 31.62x) inherent to banking magnifies shocks.
• Liquidity headroom tighter with LDR at 93.7%, near upper bound.
• Securities valuation volatility: large OCI gains this period may reverse with rate or equity market moves.
• Interest rate risk from duration in bond portfolios affecting both OCI and capital.

Key Concerns:

• Net margin compressed by ~60 bps YoY despite strong revenue growth.
• ROE remains modest at 4.3%, below typical cost of equity estimates.
• Absence of cash flow and capital adequacy disclosures limits assessment of resilience.
• Dependence on maintaining very low CIR to offset weak spreads.

Investment Implications

Key Takeaways:

• Top-line growth strong (+15.1% YoY) with double-digit earnings growth.
• Efficiency excellent: CIR 32.9% supports operating leverage.
• Profitability constrained by very low NIM (0.6%) and modest ROE (4.3%).
• Estimated ~61 bps net margin compression indicates volume-led, not spread-led, growth.
• Comprehensive income well above net income, pointing to non-core valuation gains exposure.
• Liquidity discipline needed with LDR at 93.7%.

Metrics to Watch:

• NIM trajectory and asset/liability duration positioning
• Credit costs (net credit expenses, NPL ratio, coverage)
• CIR/operating expense growth versus revenue growth
• Loan and deposit growth mix; LDR movement
• Securities portfolio duration and OCI sensitivity to rates
• Capital adequacy (CET1 ratio, leverage ratio) and dividend policy updates

Relative Positioning: Versus regional bank peers, FFG demonstrates stronger operating efficiency (CIR 32.9% is best-in-class territory) but faces similar structural headwinds on spreads (NIM 0.6%). Loan growth appears healthy given revenue expansion, yet an elevated LDR reduces funding flexibility. Overall profitability (ROE 4.3%) is in line with the sector’s muted returns and likely below top-tier urban banks; improvements hinge on NIM normalization and fee-income expansion.

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