The Kiyo Bank,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥52.93B
• Net Income: ¥8.44B
• EPS: ¥139.43

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 with strong cost efficiency, but profitability remains constrained by a very low NIM and ROE below peer targets. Revenue rose 15.5% YoY to 529.26, indicating firm growth in core banking income and/or securities-related gains. Ordinary income increased 40.7% YoY to 146.69, demonstrating strong operating leverage and expense discipline (CIR 34.0%). Net income grew 17.6% YoY to 89.33, translating to a net profit margin of 16.9%. Based on reported growth rates, the operating margin (ordinary income/revenue) likely expanded by roughly 500 bps YoY to about 27.7%. Net margin improved modestly by an estimated ~30 bps (from ~16.6% to 16.9%), suggesting better efficiency but still constrained by a low NIM. The effective tax rate stood at 30.2%, broadly in line with expectations. Despite the profit growth, ROE is 3.6%, which is subpar for a regional bank and reflects structural margin pressure. NIM is 0.7%, far below the healthy benchmark (>2%), indicating heavy reliance on volume, securities income, and/or cost control to drive profits. The gap between ordinary income (146.69) and profit before tax (128.13) implies around 18.6 in non-operating/valuation losses or additional expenses, pointing to earnings volatility from credit costs or securities-related losses. The balance sheet shows assets of 60,382.84 and equity of 2,475.80, implying high financial leverage typical for banks; LDR at 89.6% is within a prudent range, supporting liquidity. Cost efficiency is a bright spot with a CIR of 34.0%, providing a buffer against NIM weakness. Dividend payout ratio is elevated at 82.9%, which looks aggressive relative to earnings growth and low ROE, raising questions about long-term payout sustainability absent stronger OCF or retained earnings growth. Cash flow data is unreported, limiting assessment of earnings-to-cash conversion and FCF coverage for dividends. Forward-looking, the key swing factors are rate environment (deposit beta and loan repricing), credit cost normalization, and securities valuation volatility; cost discipline provides resilience, but improving ROE will likely require either a higher NIM or greater fee/other recurring income.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 16.9% × 0.009 × 24.39 ≈ 3.6%, consistent with reported ROE. The largest driver of change versus typical regional bank targets is the extremely low asset turnover (revenue/assets ~0.9%) and very low NIM, which depresses margins, while high leverage amplifies the result but cannot offset weak core yields. Business reason: a suppressed interest rate environment, intense competition for quality borrowers, and possibly a sizable securities portfolio with low yields keep NIM at 0.7%. Operating leverage improved meaningfully (ordinary income +40.7% vs revenue +15.5%), implying better cost efficiency (CIR 34%) and possibly improved non-interest income; this lifted operating margin by an estimated ~500 bps YoY. Sustainability: cost efficiency gains can be sticky if structural, but NIM-driven margin improvement is less certain and may be sensitive to deposit repricing and securities valuation; non-operating losses between ordinary income and PBT hint at volatility risk. Concerning trends: ROE at 3.6% remains below even conservative regional bank hurdle rates; payout ratio at 82.9% is high given low ROE; and net margin improvement (+~30 bps) is modest relative to the strong ordinary income growth, suggesting drag from non-operating or valuation items.

Growth Assessment

Revenue growth of +15.5% YoY to 529.26 is robust for a regional bank and likely reflects a mix of higher interest income (348.59) and possibly securities-related or fee income. Ordinary income growth of +40.7% shows strong operating leverage, likely driven by expense control (CIR 34%) and/or better non-interest income. Net income growth of +17.6% is solid but trails the growth in ordinary income, reflecting non-operating/valuation losses or higher credit costs between ordinary income and PBT. The revenue base remains sensitive to NIM at 0.7%, so sustainability depends on the rate path and deposit beta. Loan growth appears healthy with LDR at 89.6%, but incremental growth at current spreads may not substantially lift ROE. Outlook: near-term trajectory hinges on credit cost normalization, securities valuation swings (OCI/other comprehensive income was strong at 155.18 total comprehensive income), and the speed of loan repricing relative to funding costs. Absent a clear rise in NIM or fee income, earnings growth may moderate from this quarter’s pace.

Financial Health

Total assets are 60,382.84 against total equity of 2,475.80, implying high leverage typical for banks and producing a reported D/E of 23.39x; while this exceeds generic corporate thresholds, it is normal for the sector. Current ratio and quick ratio are not meaningful for banks; liquidity assessment relies on the deposit base and LDR. Deposits are 47,329.28 and loans are 42,385.65, resulting in an LDR of 89.6%, within the 70–90% comfort zone and indicating balanced funding with room to grow loans without excessive wholesale funding reliance. No explicit maturity breakdowns are provided; however, the moderate LDR suggests limited near-term maturity mismatch risk. No off-balance sheet obligations were disclosed in the provided data. Equity of 2,475.80 provides a thin but sector-typical capital cushion; reported equity ratio is not available. Given the gap between ordinary income and PBT, valuation losses or credit cost upticks may impact capital accumulation if persistent.

Cash Flow Quality

Operating cash flow, investing cash flow, and financing cash flow are unreported; OCF/NI and FCF cannot be assessed. Consequently, we cannot confirm earnings-to-cash conversion quality or working capital dynamics. For banks, OCF is often noisy due to balance sheet flows; thus, recurring income quality is better assessed via core margin stability and credit costs. The sizable difference between ordinary income (146.69) and PBT (128.13) suggests non-operating losses or valuation hits that reduce cash earnings quality in the period, but detail is unavailable. Without OCF and capex/dividend cash data, FCF coverage of dividends cannot be evaluated.

Dividend Sustainability

The calculated payout ratio is 82.9%, which is high versus a typical sustainable target (<60%) and elevated relative to ROE of 3.6%. With OCF and FCF unreported, we cannot confirm cash coverage of dividends; reliance on retained earnings and stable profits would be necessary to maintain payouts. Given low NIM and sub-4% ROE, sustaining a near-83% payout likely requires continued strong cost control and stable credit costs; any adverse securities valuation or credit event could pressure distributable profits. Policy-wise, regional banks often prioritize stable dividends, but incremental increases look constrained unless ROE improves.

Risk Assessment

Business Risks:

• Structural margin pressure from very low NIM (0.7%), limiting earnings capacity.
• Credit cost normalization risk as macro conditions evolve; potential uptick would compress profits.
• Securities portfolio valuation volatility impacting P/L and OCI (gap between ordinary income and PBT suggests sensitivity).
• Demographic headwinds in regional markets limiting loan growth and fee income expansion.
• Competition for quality borrowers compressing spreads.

Financial Risks:

• High leverage inherent to banking (D/E 23.39x), magnifying shocks to capital.
• IRRBB (interest rate risk in the banking book): deposit beta and duration mismatch can pressure NIM.
• Potential unrealized losses on fixed-income holdings if yields rise further.
• Dividend payout ratio at 82.9% reduces retained earnings capacity to absorb shocks.
• Funding concentration risk if deposit growth slows (though LDR 89.6% currently comfortable).

Key Concerns:

• Persistently low ROE (3.6%) relative to cost of equity.
• Non-operating losses between ordinary income and PBT (~18.6) indicating earnings volatility.
• Data gaps (cash flows, credit cost disclosure, securities gains/losses) limit transparency.
• Dependence on cost efficiency (CIR 34%) to offset weak NIM; sustainability must be monitored.

Investment Implications

Key Takeaways:

• Strong profit growth with operating leverage: ordinary income +40.7% on revenue +15.5%.
• Excellent cost efficiency (CIR 34.0%) is a key support to earnings.
• NIM at 0.7% remains a structural drag on profitability and ROE.
• ROE at 3.6% is below peer targets; improvement requires higher core margins or fee growth.
• Dividend payout ratio of 82.9% looks high relative to earnings quality and low ROE.

Metrics to Watch:

• NIM trajectory and deposit beta behavior as rates evolve.
• Credit costs and NPL trends (not disclosed here).
• Securities valuation gains/losses (gap between ordinary income and PBT).
• Cost-to-income ratio sustainability around low-30s.
• LDR stability (70–90% range) and reliance on wholesale funding.
• ROE progression toward mid-single digits or better.
• Total comprehensive income versus net income to gauge OCI volatility.

Relative Positioning: Versus Japanese regional bank peers, Kiyo Bank shows superior cost efficiency (CIR 34%) and solid growth in ordinary income, but profitability quality is constrained by a very low NIM and resulting ROE below peer aspirations; balance sheet funding appears sound (LDR 89.6%), yet dividend policy looks aggressive relative to earnings power.

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