The Ogaki Kyoritsu Bank,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥72.41B
• Net Income: ¥7.80B
• Earnings per Unit (EPU): ¥186.08

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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: Strong rebound in profitability with solid top-line growth, but quality and sustainability hinge on low NIM, securities valuation gains, and credit-cost discipline. Revenue rose 14.8% YoY to 724.06 (100M JPY), and ordinary income surged 85.4% YoY to 111.69, indicating substantial operating leverage and/or lower credit costs and securities-related gains. Net income increased 78.5% YoY to 77.47, driving a net margin of 10.7% and an ordinary income margin of about 15.4%. The effective tax rate was 28.2%, broadly in line with typical domestic bank ranges. Comprehensive income was 329.03 versus net income of 77.47, implying large unrealized OCI gains (likely on investment securities), which are inherently volatile. ROE calculated via DuPont was 2.2%, supported primarily by high financial leverage (18.91x) rather than robust margins or asset turnover. NIM is 0.6%, well below healthy benchmarks (>2%), underscoring structural margin pressure in the current rate environment. Cost discipline appears strong with a cost-to-income ratio at a very low 30.0%, which mitigates revenue headwinds from a thin NIM. Balance sheet leverage is high (D/E 17.91x), typical for banks but still a risk flag per standard thresholds. Liquidity positioning looks prudent with an LDR of 79.6%, within the 70–90% comfort range for banks. Equity stands at 3,491.38 against total assets of 66,023.93 (equity-to-asset ~5.3%), limiting capital buffers for shocks relative to global peers. The ROIC proxy at 2.3% is below the 5% warning threshold, reflecting subdued capital efficiency. Earnings quality is difficult to verify due to unreported operating cash flows; the large gap between comprehensive income and net income suggests market-sensitive valuation uplift rather than recurring operating strength. Forward-looking, earnings durability depends on sustaining low credit costs, managing duration/valuation risk in the securities portfolio, and improving fee income to offset a structurally low NIM. Overall, this was a better-than-expected half on headline profits, but underlying banking fundamentals (NIM, capital efficiency, OCI reliance) remain key watchpoints.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin 10.7% × Asset turnover 0.011 × Financial leverage 18.91x = ROE 2.2%. The largest driver of ROE remains leverage, as asset turnover is structurally low for banks and the NIM is thin. The sharp YoY jump in ordinary income (+85.4%) alongside revenue growth (+14.8%) suggests margin effects (credit cost normalization, trading/securities gains, or improved fee/spread) rather than asset turnover changes. Business rationale: low NIM (0.6%) implies core spread income remains constrained; thus, the profit rebound likely reflects non-core or cyclical items (lower credit costs, securities-related gains) and tight operating costs (CIR 30%). Sustainability: cost control is more sustainable; securities gains and valuation uplifts are not, and credit costs can revert. Concerning trend flags: none determinable for SG&A vs revenue due to unreported SG&A; however, reliance on OCI gains (comprehensive income far exceeding net income) is a caution for earnings quality and volatility.

Growth Assessment

Top-line grew 14.8% YoY to 724.06, a strong outcome for a regional bank. Ordinary income growth of 85.4% YoY outpaced revenue, indicating significant positive operating leverage and/or non-recurring drivers (credit cost recovery, securities results). Net income grew 78.5% YoY to 77.47, with net margin at 10.7%. NIM at 0.6% indicates core spread growth remains constrained; sustainability hinges on fee income and cost management rather than rate spread. Loan and deposit balances (Loans: 45,433.75; Deposits: 57,051.69) support steady balance sheet-driven revenue, with LDR 79.6% indicating prudent liquidity that may limit the need for expensive wholesale funding. The large positive comprehensive income (329.03) points to material unrealized gains in the securities portfolio—supportive for capital and AOCI but vulnerable to rate moves. Without segment or non-interest income breakdowns, we cannot isolate recurring versus one-off growth components precisely. Outlook: absent a structural NIM improvement, further earnings progress likely depends on maintaining low credit costs, fee income expansion, and avoiding mark-to-market reversals in the securities book.

Financial Health

Leverage: D/E is 17.91x (warning per threshold >2.0), typical for banks but still a risk indicator in stress scenarios. Capital: Equity/Assets ~5.3% (3,491.38 / 66,023.93), modest by global standards; regulatory capital ratios were not disclosed, limiting a full solvency view. Liquidity: LDR at 79.6% is within the healthy 70–90% range, suggesting a favorable funding structure predominantly via deposits. Maturity mismatch: Specific current vs long-term breakdowns are unreported; as a bank, maturity transformation risk exists but appears mitigated by the deposit-funded profile and moderate LDR. Interest-bearing debt details are unreported; for banks, deposit liabilities dominate. No off-balance sheet obligations were disclosed; guarantees/commitments may exist but are unreported here. We explicitly warn: D/E > 2.0 is a flagged risk per benchmark, despite being normal for the sector.

Cash Flow Quality

Operating cash flow was not disclosed, so OCF/Net Income cannot be assessed (N/A). Free cash flow is unreported, limiting our ability to test dividend coverage from cash generation. The disparity between comprehensive income (329.03) and net income (77.47) indicates a large contribution from unrealized valuation gains (likely AFS/OCI securities), which do not translate into operating cash flow unless realized. Working capital manipulation indicators are not applicable in a conventional sense for banks; instead, we monitor loan loss provisions and securities realization—both not disclosed here. Conclusion: Earnings quality is uncertain due to missing cash flow data and significant reliance on valuation gains.

Dividend Sustainability

The calculated payout ratio is 48.6%, which falls within the <60% benchmark for sustainability. However, DPS and total dividends paid were unreported, and OCF/FCF coverage cannot be assessed. Given ROE at 2.2% and ROIC at 2.3%, internal capital generation is modest; dividend sustainability therefore depends on stable profits (credit cost control, steady non-interest income) and avoidance of OCI reversals that could pressure capital. Without regulatory capital ratios, we cannot judge buffer adequacy; if unrealized gains reverse, payout policy may require adjustment. Policy outlook: likely stable-to-cautious, aligned with regional bank peers prioritizing capital preservation under low NIM conditions.

Risk Assessment

Business Risks:

• Structural low NIM at 0.6% constraining core earnings power.
• Credit cost normalization risk if the regional economy weakens (Gifu/Aichi exposure).
• Securities portfolio valuation risk; large OCI gains could reverse on rate increases or spread widening.
• Fee income reliance unclear; limited disclosure of non-interest income breakdown.
• Competition for deposits potentially pressuring funding costs.

Financial Risks:

• High leverage (D/E 17.91x) increases sensitivity to asset quality and market shocks.
• Capital buffer appears modest (equity/assets ~5.3%); regulatory ratios not disclosed.
• Interest rate risk (duration mismatch) could impair both earnings and OCI.
• Liquidity risk is moderate but present; stability depends on deposit base behavior despite LDR of 79.6%.
• Earnings quality ambiguity due to missing OCF and reliance on valuation gains.

Key Concerns:

• OCI-driven comprehensive income (329.03) far exceeds net income (77.47), highlighting volatility risk.
• Sustainability of the sharp YoY profit increase (+85.4% ordinary income) without a NIM recovery is uncertain.
• ROE at 2.2% and ROIC at 2.3% signal low capital efficiency versus typical cost of equity.

Investment Implications

Key Takeaways:

• Strong H1 profit rebound with ordinary income +85.4% YoY and net income +78.5% YoY.
• Core profitability remains thin with NIM at 0.6%; CIR at 30% shows strong cost control.
• Balance sheet is conservatively funded (LDR 79.6%), but leverage is high (D/E 17.91x).
• Comprehensive income materially exceeds net income, indicating significant mark-to-market gains.
• ROE 2.2% and ROIC 2.3% remain subdued, highlighting ongoing capital efficiency challenges.

Metrics to Watch:

• Net interest margin (target improvement from 0.6%).
• Cost-to-income ratio sustainability around 30%.
• Credit costs and NPL ratio (not disclosed here).
• Securities portfolio duration and OCI sensitivity; realized vs unrealized gains.
• Loan and deposit growth trends; funding cost stability.
• Regulatory capital ratios (CET1/Total capital) and buffer to requirements.

Relative Positioning: Versus domestic regional banks, the bank exhibits a very low NIM (typical for Japan) but superior cost efficiency (CIR ~30% vs peers often 50–60%). Liquidity stance is prudent with an LDR near 80%. However, capital efficiency (ROE ~2%) lags even low-return peers, and earnings appear more sensitive to securities valuation swings, elevating volatility 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