Hokuhoku Financial Group, Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥8.13B
• Operating Income: ¥7.74B
• Net Income: ¥7.71B
• EPS: ¥249.46

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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 earnings momentum in FY2026 Q2 with robust ordinary profit growth and exceptionally strong cash generation, albeit with structurally low NIM typical of Japanese regional banks and very high reported leverage inherent to the banking model. Revenue rose 28.2% YoY to 81.31, while operating income increased 4.2% YoY to 77.35, and ordinary income surged 63.5% YoY to 417.69, signaling broad-based profit recovery beyond core operating lines. Net income climbed 63.3% YoY to 303.85, with EPS at 249.46 yen, indicating significant bottom-line leverage versus top-line growth. Banking efficiency remains solid with a Cost-to-Income Ratio at 34.5%, comfortably better than the <50% benchmark. However, Net Interest Margin at 0.6% underscores the structurally thin spread environment in Japan and remains a key profitability headwind. Cash flow quality is excellent: operating cash flow reached 3,646.74, about 12.0x net income, providing ample balance sheet liquidity and funding for shareholder returns. The group executed share repurchases of 254.96 and capex of 99.66, while the calculated payout ratio of 20.3% suggests a conservative dividend stance with room for continuity or selective enhancement. Balance sheet leverage is optically high (D/E 23.56x) as expected for banks; liquidity comfort is evidenced by a healthy loan-to-deposit ratio of 74.6%. ROE stands at 4.4%; while improved, it remains modest versus global peers and reflects low-yield domestic conditions. ROIC at 0.8% is not a meaningful KPI for banks and should not be over-interpreted. Margin comparisons in basis points cannot be precisely quantified due to lack of prior-period margin disclosures (e.g., operating margin, NIM trend), but the jump in ordinary income versus revenue indicates favorable operating leverage this quarter. Earnings quality appears high given OCF substantially exceeding net income, with no apparent reliance on one-offs in the provided data. The effective tax rate is 26.5%, broadly normal for the sector. Forward-looking, sustaining profit growth hinges on NIM stabilization, fee income growth, credit cost discipline, and continued efficiency. Overall, FY2026 Q2 demonstrates a solid earnings rebound with strong cash backing, offset by the structural challenge of a sub-1% NIM.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage. Net Profit Margin (reported) is 373.7%, which is inflated and not economically comparable due to bank accounting presentation where reported 'revenue' excludes key banking income items; Asset Turnover is not calculable (missing denominator detail under banking presentation); Financial Leverage is 24.56x. The component that changed the most versus typical norms is the effective margin proxy (ordinary profit and net profit relative to the narrow revenue base), which surged as ordinary income rose 63.5% YoY against a 28.2% revenue rise. Business reason: improved core banking income (interest income 870.88 vs interest expense 204.82) and strong operating efficiency (CIR 34.5%) likely lifted pre-provision profitability; securities gains and fee income detail are unreported. Sustainability: efficiency gains (low CIR) are more sustainable than spread-led gains given NIM remains just 0.6%; absent a rate tailwind, margin expansion is likely limited. Concerning trends: none evident in SG&A since not disclosed; however, persistently low NIM constrains structural ROE. Overall, ROE of 4.4% is primarily supported by high leverage and efficiency rather than true margin strength, and improvement sustainability depends on credit costs and fee/NII mix rather than further leverage.

Growth Assessment

Top-line growth of 28.2% YoY alongside a 63.5% YoY increase in ordinary income indicates positive operating leverage. Net income up 63.3% YoY suggests limited dilution from below-the-line items, with a normal tax rate of 26.5%. Banking metrics show NIM at 0.6% (structurally low), but efficiency is strong (CIR 34.5%), implying growth is driven by volume, fees, and costs rather than spreads. Revenue quality is acceptable but difficult to assess fully due to missing fee/other operating income breakdown. With LDR at 74.6%, there is room to deploy deposits into loans without pressuring liquidity. Outlook: sustaining growth will likely rely on loan growth, fee income expansion, and continued cost control; NIM upside is limited without broader rate normalization. Near-term, earnings trajectory appears stable, supported by conservative payout and excess cash flow.

Financial Health

Leverage: D/E is 23.56x, which triggers a formal warning threshold (>2.0) but is typical for banks given deposit-funded balance sheets. Liquidity: LDR of 74.6% signals ample funding liquidity; deposits (140,567) exceed loans (104,919.84) by a comfortable margin. Current ratio and quick ratio are not applicable/available for banks (unreported). Solvency: Total equity of 6,873.34 supports assets of 168,825.86; regulatory capital ratios (e.g., CET1) are not disclosed here, limiting solvency assessment. Maturity mismatch: Not directly assessable; however, deposit surplus vs loans reduces near-term funding risk; ALM duration gap risk remains unquantified. Off-balance sheet obligations: Not reported in the data provided. Overall, financial health appears adequate from a liquidity standpoint, with the caveat of missing regulatory capital metrics.

Cash Flow Quality

OCF/Net Income is 12.0x, indicating very strong cash conversion; for banks, OCF can be volatile due to loan/deposit flows, but this level supports earnings quality this period. Free cash flow is not fully calculable due to missing investing CF; however, capex is modest at 99.66, and OCF comfortably covers capex and buybacks (254.96), implying headroom for dividends. No signs of working capital manipulation are evident, but standard working capital metrics are not applicable to banks. Cash backing for shareholder returns looks ample in this quarter.

Dividend Sustainability

Calculated payout ratio is 20.3%, indicating a conservative dividend relative to earnings. With strong OCF this period and modest capex, dividends appear well covered; FCF coverage cannot be precisely computed due to missing investing CF, but qualitative coverage is strong. Share repurchases of 254.96 were executed alongside low payout, suggesting capacity for continued shareholder returns if earnings hold. Dividend policy specifics (DOE, targets) are unreported; absent changes, sustainability is high barring a sharp profit downturn.

Risk Assessment

Business Risks:

• Structural NIM compression at 0.6% limits earnings power in a low-rate environment.
• Regional concentration risk typical of Japanese regional banks (economic/demographic headwinds in core markets).
• Fee income and market-related revenue volatility (breakdown unreported).
• Credit cost normalization risk if macro conditions weaken (NPL and provision data not provided).

Financial Risks:

• High reported leverage (D/E 23.56x), inherent to banking models, amplifies shocks.
• Interest rate risk from securities/ALM duration gap (portfolio and sensitivity not disclosed).
• Liquidity repricing risk if deposit betas rise faster than asset yields.
• Capital adequacy uncertainty as CET1 and regulatory ratios are not provided.

Key Concerns:

• Very low NIM (<1%) constraining sustainable ROE.
• Data gaps on credit quality (NPL ratio, coverage) and capital ratios.
• Profit optical margins distorted by revenue definition, complicating comparability.

Investment Implications

Key Takeaways:

• Earnings momentum is strong with ordinary income +63.5% YoY and net income +63.3% YoY.
• Operational efficiency is a strength: CIR 34.5% versus a <50% benchmark.
• NIM at 0.6% remains the primary structural headwind to ROE expansion.
• Liquidity is comfortable with LDR at 74.6%; deposit base supports growth.
• Cash flow is very strong this quarter (OCF/NI 12x), funding buybacks and dividends.
• ROE at 4.4% improved but remains modest; leverage, not spreads, is the main ROE driver.

Metrics to Watch:

• NIM trend and loan/deposit repricing dynamics
• Credit costs (NPL ratio, coverage, net credit cost rate)
• Fee and trading income contribution to stabilize earnings
• CIR trajectory and cost initiatives
• Capital ratios (CET1, total capital, leverage ratio) and shareholder return policy
• Loan growth vs deposit growth to maintain LDR in the 70–90% range

Relative Positioning: Within Japanese regional banks, Hokuhoku shows above-average efficiency (low CIR) and solid liquidity (LDR ~75%), but faces a very low NIM consistent with peers; ROE is in the mid-single-digit range, broadly in line to slightly below the best-in-class regionals absent fee/credit differentiation.

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