The Hyakugo Bank,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥72.94B
• Net Income: ¥10.14B
• EPS: ¥41.70

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 topline and profit growth, but profitability quality is mixed with margin compression and structurally low NIM; balance sheet leverage is typical for a bank but remains a key sensitivity. Revenue rose 21.8% YoY to 729.4 (100M JPY), indicating strong growth in earnings drivers (likely net interest income and fees). Ordinary income (経常利益) grew 9.8% YoY to 140.85, and net income increased 10.7% YoY to 101.75, highlighting resilient core profitability. Effective tax rate was 27.4%, consistent with a stable tax burden. Net profit margin stands at 13.9% versus an estimated 15.3% a year ago, implying about 140 bps compression as revenue outpaced net income growth. Cost efficiency appears strong with a cost-to-income ratio at 30.7% (well below the 50% benchmark), suggesting good expense discipline despite the lack of reported SG&A detail. Banking spreads remain thin with NIM at 0.7% (below the 1.5% warning threshold), underscoring structural earnings pressure from low-yield assets and pricing competition. Loan-to-deposit ratio is a healthy 83.9%, indicating prudent funding and liquidity positioning. Total comprehensive income surged to 501.58, far exceeding net income, implying substantial OCI gains (likely from investment securities valuation), which boosts equity but may be volatile. DuPont ROE is 2.1% (Net margin 13.9% × Asset turnover 0.010 × Leverage 15.74x), underscoring that leverage is compensating for low asset turnover and thin margins. Reported D/E is 14.74x—normal for banks but still a leverage risk to monitor in stress scenarios. With operating cash flow unreported, earnings quality via OCF/NI cannot be assessed this quarter. Forward-looking, higher domestic rates could gradually support NIM, but mark-to-market volatility on securities and credit costs remain key swing factors. Deposit stability looks solid given LDR in the optimal range, but liability repricing could pressure funding costs. Dividend payout ratio is calculated at 52.4%, appearing broadly sustainable if earnings hold, though FCF coverage cannot be verified. Overall, the quarter shows healthy growth and cost control, but structurally low NIM and ROE below cost of equity temper the quality of the beat and keep sensitivity to rate and credit cycles elevated.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.1% = Net Profit Margin 13.9% × Asset Turnover 0.010 × Financial Leverage 15.74x. The most notable change vs last year appears in the margin component: net income rose 10.7% while revenue rose 21.8%, implying margin compression of roughly 141 bps (current 13.9% vs implied prior ~15.3%). Business drivers likely include stronger top line (interest income + fees) offset by higher interest expense and possibly higher credit- or market-related costs, consistent with a low NIM environment. Asset turnover is inherently low for banks given large balance sheets relative to revenue, and likely did not change materially. Leverage remains high (15.74x assets/equity), typical for a bank and the primary support for ROE given modest margins and turnover. Sustainability: cost efficiency (CIR 30.7%) appears defensible near term, but margin expansion depends on NIM improvement and credit cost stability; current margin compression suggests headwinds from funding cost repricing. Concerning trends: revenue growth outpacing profit growth signals operating deleverage at the margin; NIM at 0.7% is structurally weak, and ROE at 2.1% remains below typical cost of equity.

Growth Assessment

Topline growth of 21.8% YoY is robust for a regional bank, implying stronger interest income (482.69) and possibly fee-related gains; ordinary income (+9.8%) and net income (+10.7%) confirm positive earnings momentum. However, the lower NIM (0.7%) indicates growth may be volume- or market-driven rather than spread-driven, limiting quality. Margin compression (~141 bps YoY on net margin) suggests funding cost catch-up or a less favorable asset mix. Total comprehensive income of 501.58 far exceeds net income, indicating substantial unrealized gains—this is non-cash and volatile, thus not a reliable earnings driver. Outlook: if rate normalization continues, gradual NIM improvement is possible, but mark-to-market on securities and credit costs could offset. With LDR at 83.9% and CIR at 30.7%, the bank has capacity to grow prudently, but sustained profit growth likely requires either spread expansion or mix shift toward higher-margin products/fees.

Financial Health

Liquidity: LDR at 83.9% sits in the optimal range (70–90%), implying a comfortable funding buffer from deposits. Current and quick ratios are not meaningful for banks and are unreported. Solvency: D/E at 14.74x is high and triggers a warning (>2.0), though typical for banks; capital adequacy metrics (e.g., CET1) are not disclosed here—data gap noted. Maturity mismatch: not directly disclosed; deposit-funded profile and moderate LDR mitigate near-term liquidity risk, but low NIM increases sensitivity to liability repricing. Off-balance sheet obligations: none reported in the provided data. Intangible assets are minimal (50.98), suggesting limited goodwill risk. Equity rose on strong OCI, but the sustainability of these gains is uncertain given market volatility.

Cash Flow Quality

OCF is unreported, so OCF/Net Income cannot be assessed this quarter, and we cannot conclude on accruals quality. Free cash flow and capex are not relevant primary drivers for a bank; core cash generation depends on deposit/loan flows and realized earnings. The large positive OCI implies equity uplift from unrealized gains, not cash earnings. No evident working capital manipulation signals can be assessed given the absence of cash flow and detailed balance sheet movement disclosures.

Dividend Sustainability

Calculated payout ratio is 52.4%, within typical sustainable ranges (<60%) if earnings remain stable. FCF coverage is not calculable due to missing cash flow data; for banks, sustainability should also reference regulatory capital buffers, which are not disclosed here. Given low ROE (2.1%), dividend growth capacity may be constrained unless profitability improves or capital is considered excess relative to regulatory minimums. Policy outlook cannot be inferred without management guidance; however, earnings growth (+10.7% YoY) supports baseline dividend maintenance.

Risk Assessment

Business Risks:

• Persistently low NIM at 0.7% constraining spread income
• Margin compression as funding costs reprice faster than asset yields
• Reliance on securities-related OCI gains, which are volatile
• Potential credit cost normalization not disclosed in the data
• Competition for deposits and loans in the regional banking market

Financial Risks:

• High leverage (D/E 14.74x) amplifies shocks, even if typical for banks
• Interest rate risk on the investment securities portfolio (duration and basis risk)
• Maturity mismatch risk between deposits and loans (term structure not disclosed)
• ROE at 2.1% below cost of equity, limiting internal capital generation

Key Concerns:

• Net profit margin compressed by ~141 bps YoY despite strong revenue growth
• NIM below 1.5% benchmark flags structural profitability weakness
• Earnings quality: inability to verify OCF/NI and heavy contribution from OCI to comprehensive income
• Capital adequacy (e.g., CET1) not disclosed; limits assessment of dividend and growth headroom

Investment Implications

Key Takeaways:

• Strong revenue (+21.8% YoY) and net income (+10.7% YoY) growth, but with margin compression
• Excellent cost discipline (CIR 30.7%), partially offsetting weak spreads
• ROE remains low at 2.1%, supported primarily by leverage rather than high returns on assets
• Large positive OCI inflates comprehensive income and equity but is non-recurring and volatile
• Funding profile sound (LDR 83.9%), but NIM at 0.7% constrains earnings power

Metrics to Watch:

• Net Interest Margin trajectory and asset/liability repricing gap
• Credit costs, NPL ratio, and coverage (not disclosed here)
• Unrealized gains/losses on securities and portfolio duration
• Cost-to-Income Ratio and fee income contribution
• Capital adequacy metrics (CET1 ratio) and RWA trends
• Loan-to-Deposit Ratio and deposit beta sensitivity
• Dividend policy updates and payout guidance

Relative Positioning: Operational efficiency appears strong versus peers given a low CIR, and funding structure is prudent with an LDR in the optimal range; however, profitability metrics (NIM, ROE) trail healthy benchmarks, implying below-average earnings quality and lower internal capital generation absent spread improvement or mix shift.

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