Hokuhoku Financial Group (8377) FY2026 Q3 Earnings Report

Quick View

Executive Summary

The expansion of interest income and cost controls generated positive jaws, forming the core structure behind the increases in revenue and earnings. Ordinary income was ¥1,920.0B (+26.8% year on year), ordinary income was ¥620.0B (+55.8%), and quarterly net income attributable to owners of the parent was ¥447.0B (+43.3%). In addition to the increase in interest income exceeding the increase in interest expenses, general and administrative expenses were held to a +1.9% increase, driving the earnings growth rate higher. The gain on the generation of negative goodwill associated with the application of the equity method to Hokkaido Lease, which was included in the same period last year (¥24.9B), did not recur in the current period. The quality of earnings growth is therefore supported by recurring improvements in net interest income and expense efficiency.

Factors Affecting Earnings

【Revenue】Ordinary income was ¥1,920.0B (+26.8% year on year). By segment, Hokuriku Bank generated ¥1,061.6B (+32.4%), while Hokkaido Bank generated ¥689.3B (+23.6%); both banks secured double-digit revenue growth and drove the overall results. Other businesses, including securities, consulting, and leasing, generated ¥179.2B (+9.5%), representing relatively moderate growth. Interest income was ¥1,325.7B (+34.9%), with interest on loans of ¥898.2B (+28.9%) and interest and dividends on securities of ¥278.3B (+47.1%) both expanding. Loans outstanding increased to ¥10T 8,651.9B (+3.9%), while deposits increased to ¥14T 4,068.0B (+3.3%), with growth in both loans and deposits supporting the earnings base.

【Profit and Loss】Ordinary income was ¥620.0B (+55.8%), while net income was ¥448.9B (+43.3%). Interest expenses rose sharply to ¥321.2B (+83.3%), including a substantial increase in interest on deposits to ¥189.0B (+264.7%). However, the increase in interest income exceeded this rise, resulting in net interest income of ¥1,004.5B, approximately 24.4% higher than in the same period last year. General and administrative expenses were controlled at ¥658.7B (+1.9%), substantially below the growth rate of ordinary income. Extraordinary income was ¥0.4B, compared with extraordinary losses of ¥4.6B, including impairment losses of ¥2.0B, resulting in a limited impact on pretax income of ¥615.8B. The positive jaws generated by revenue growth exceeding the increase in expenses was the primary driver of earnings growth.

Segment Analysis

The reporting segments consist of Hokuriku Bank and Hokkaido Bank. Hokuriku Bank generated ordinary income from external customers of ¥1,061.6B (+32.4%) and segment income of ¥298.3B, accounting for approximately 68.5% of the combined segment income of the two banks (¥435.8B) and representing the core business. Hokkaido Bank generated ordinary income of ¥689.3B (+23.6%) and segment income of ¥137.5B, ranking behind Hokuriku Bank in both revenue growth and earnings scale. Neither bank recorded a material impairment loss on fixed assets or a material change in goodwill. The gain on the generation of negative goodwill associated with the acquisition of shares in Hokkaido Lease, which occurred in the same period last year (¥24.9B), did not recur in the current period. The high concentration of revenue and earnings in Hokuriku Bank means that economic trends in the region in which the bank operates have a relatively significant impact on group performance.

Key Financial Metrics

【Profitability】The ordinary income margin was 32.3%, improving by approximately 602bp from 26.3% in the same period last year, while the net income margin was 23.3%, improving by approximately 276bp from 20.5% in the same period last year. ROE was 6.3%. 【Cash Quality】The scale of extraordinary gains and losses was limited relative to pretax income of ¥615.8B, and earnings growth for the current period was supported by highly recurring factors, namely the expansion of net interest income and expense controls. The effective tax rate was 27.1%, indicating a generally stable conversion from pretax income to net income. 【Investment Efficiency】NIM was 0.92%. Net interest income increased by approximately 24.4% year on year as the growth in interest on loans and interest and dividends on securities exceeded the sharp increase in interest costs on deposits (+264.7% year on year); however, the level of the interest margin itself remains below the general industry benchmark. 【Financial Soundness】The loan-to-deposit ratio was 75.4%, within the 70–90% range generally considered a benchmark for the banking industry. Total assets were ¥17T 3,798.4B, net assets were ¥708.28B (+7.5%), and the equity ratio was 4.1%. Borrowings increased to ¥1T 2,805.9B (+16.9%), indicating a slight increase in reliance on funding sources other than deposits.

Cash Flow Analysis

Because individual line-item data from the statement of cash flows was not disclosed for these results, funding trends are assessed based on balance sheet movements. Cash and due from banks increased to ¥3T 7,843.0B, up ¥5,921.5B (+18.6%) from ¥3T 1,918.8B in the same period last year, expanding the liquidity buffer. Meanwhile, securities declined slightly to ¥2T 2,280.1B from ¥2T 3,187.3B in the same period last year. On the asset side, loans increased to ¥10T 8,651.9B (+3.9%). Supporting funding sources also expanded, with deposits increasing to ¥14T 4,068.0B (+3.3%) and borrowings increasing to ¥1T 2,805.9B (+16.9%). Borrowings, which represent funding other than deposits, grew faster than deposits, indicating a slight increase in reliance on market-based funding within the funding structure.

Earnings Quality

Earnings growth for the current period was driven by highly recurring factors, namely the expansion of net interest income and expense controls, with limited reliance on extraordinary gains and losses. Extraordinary income was ¥0.4B, while extraordinary losses were ¥4.6B, including impairment losses of ¥2.0B; these amounts were small relative to pretax income of ¥615.8B. In contrast, the same period last year included a one-time gain on the generation of negative goodwill of ¥24.9B associated with the application of the equity method to Hokkaido Lease, which was included in the adjustment to ordinary income. No similar factor occurred in the current period. The fact that ordinary income increased by 55.8% despite the disappearance of this one-time factor indicates that the quality of earnings in the current period was relatively high. Comprehensive income was ¥837.9B, exceeding net income of ¥448.9B by ¥390.9B. The primary factors were improvements in valuation differences on other securities of ¥268.6B (+75.8%) and deferred hedge gains and losses of ¥128.7B (+120.7%). While the expansion of these valuation differences boosts capital, a reversal in interest rates and market conditions could reduce net assets through the same channel. Accordingly, the factors underlying the divergence between net income and comprehensive income should be monitored continuously.

Earnings Forecasts and Guidance

Cumulative results through Q3 represented 86.1% of the full-year company forecast for ordinary income, with ordinary income of ¥620.0B against the forecast of ¥720.0B. Net income attributable to owners of the parent was ¥447.0B against the forecast of ¥500.0B, representing progress of 89.4%. These progress rates exceeded the standard quarterly progress rate of 75% by 11.1 percentage points and 14.4 percentage points, respectively, indicating that results are progressing at a pace above the full-year forecasts. While the full-year ordinary income forecast calls for growth of +39.5% year on year, cumulative ordinary income through Q3 increased by +55.8% year on year, exceeding the planned pace. Neither the earnings forecast nor the dividend forecast was revised during the quarter.

Shareholder Returns

The Q2 dividend was ¥45.0 per share. The full-year company dividend forecast is ¥90.0 per share, and the full-year EPS forecast is ¥410.5, implying a forecast payout ratio of approximately 21.9%. The calculated payout ratio based on cumulative Q3 net income (¥447.0B) is 12.3%; however, this is a reference figure using only the interim dividend in the numerator, and the periods represented by the numerator and denominator differ from those used for the full-year payout ratio. The forecast payout ratio of approximately 21.9% is below 60%, indicating substantial dividend capacity based on earnings. The dividend forecast was not revised during the quarter. As the available data does not allow confirmation of share repurchases, the payout ratio presented is based solely on dividends.

Risk Factors

1. Interest Margin Compression Risk: NIM was 0.92%, below the general industry benchmark of 1.5%. Interest on deposits surged by +264.7% year on year. If the pace of improvement in loan and securities investment yields falls below the increase in deposit costs, the growth of net interest income may decelerate.

2. Regional and Customer Base Concentration Risk: Hokuriku Bank accounts for approximately 68.5% of the combined segment income of the two banks and is the core business, also accounting for more than half of ordinary income from external customers. Economic trends and the credit environment in the Hokuriku region have a relatively significant impact on group performance.

3. Securities and Interest Rate Market Risk: Securities totaled ¥2T 2,280.1B, while valuation differences on other securities were ¥623.1B. Comprehensive income (¥837.9B) exceeded net income (¥448.9B) by ¥390.9B, and the expansion of valuation differences is boosting capital. However, if market conditions reverse, the same channel could work to reduce net assets.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

Growth and Capital Efficiency

※Source: Compiled by the Company

Key Points from the Financial Results

1. Cumulative ordinary income and net income through Q3 reached 86.1% and 89.4%, respectively, of the full-year forecasts, progressing at a pace above the standard quarterly progress rate of 75%. The ordinary income margin was 32.3% (+602bp year on year), while the net income margin was 23.3% (+276bp year on year), clearly demonstrating improved profitability.

2. The earnings increase was achieved through recurring factors, namely the expansion of net interest income and the control of general and administrative expenses (+1.9% year on year), without the one-time gain on the generation of negative goodwill of ¥24.9B related to Hokkaido Lease that was present in the same period last year.

3. Despite the improvement in profitability, NIM remained low at 0.92%, while the sharp increase in interest on deposits (+264.7% year on year) indicates higher funding costs. The sustainability of future earnings growth depends on the difference between the pace of repricing of loan and securities investment yields and the pace of increases in deposit interest rates, representing a key structural issue for monitoring.

---

This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional as necessary.

---End of Report---