THE BANK OF SAGA LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥29.80B
• Net Income: ¥4.80B
• EPS: ¥297.22

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 FY2026 Q2 with double-digit profit growth driven by strong ordinary income and tight cost control, despite structurally low NIM. Revenue rose 2.5% YoY to 298.0, while ordinary income increased 15.2% YoY to 69.61 and net income climbed 16.4% YoY to 50.22. Ordinary income margin expanded to 23.4%, up roughly 270 bps from ~20.7% last year on modest revenue growth and disciplined expenses (CIR 34.6%). Net margin improved to 16.9% versus ~14.8% a year ago, a c.210 bps expansion, confirming improved operating leverage. Interest income of 185.35 and interest expense of 34.21 indicate net interest income around 151.1, but the reported NIM is low at 0.7%, underscoring continued margin pressure in a low-rate environment. The Loan-to-Deposit Ratio (81.5%) sits comfortably within the 70–90% benchmark, supporting liquidity resiliency. Cost efficiency remains a clear strength with CIR at 34.6% (well below the <50% benchmark), offsetting weak asset yields. ROE is 4.1% (DuPont: 16.9% net margin × 0.009 asset turnover × 26.01x leverage), aligning with reported figures, but still modest versus typical cost of equity for regional banks. Balance sheet scale is substantial at ¥3.203 trillion in assets and ¥123.1 billion in equity, implying an equity-to-assets ratio of about 3.8% and high financial leverage (D/E 25.01x), which is standard for banks but merits continuous capital monitoring. Effective tax rate is 26.0%, consistent with normalized taxation. Total comprehensive income of 75.62 outpaced net income, implying positive other comprehensive income, likely from securities valuation gains, which also contribute to capital buffers. Earnings quality assessment is constrained by unreported cash flow data; however, margin expansion and CIR strength suggest underlying operational improvements. Dividend payout ratio is a conservative 30.4%, which appears manageable given current earnings momentum, though cash flow coverage is unassessable due to missing OCF/FCF. Forward-looking, earnings trajectory will hinge on asset yield trends, deposit beta management, credit cost normalization (not disclosed), and fee income durability. Overall, the bank demonstrates improved profitability and strong cost discipline, but strategic challenges remain around low NIM and capital efficiency.

Profitability Analysis

ROE decomposition: Net Profit Margin (16.9%) × Asset Turnover (0.009) × Financial Leverage (26.01x) = ~4.1% ROE, matching reported. The most impactful driver QoQ/YoY appears to be margin improvement: ordinary income up 15.2% versus revenue up 2.5% implies positive operating leverage and a c.270 bps expansion in ordinary income margin (to 23.4%). Business drivers likely include stable net interest income despite low NIM, coupled with strong cost control (CIR 34.6%) and potentially resilient fee/non-interest income supporting top line. The change looks partly sustainable if CIR discipline continues; however, sustainability of margin gains will depend on maintaining fee momentum and managing deposit costs should rates normalize. Watch for any divergence where SG&A-type costs (personnel/IT) grow faster than revenue; while detailed SG&A is unavailable, the CIR signal indicates no current cost drift above revenue growth.

Growth Assessment

Top-line growth is modest at +2.5% YoY, appropriate for a regional bank with subdued loan growth and low rates. Profit growth is robust (+15–16% YoY for ordinary income and net income), reflecting improved mix and operating leverage. With NIM at 0.7%, profit expansion likely hinges on fee income stability and stringent cost control rather than spread expansion. The LDR at 81.5% suggests capacity to judiciously grow loans without stretching liquidity. Absent disclosure on credit costs and provisioning, profit quality could be influenced by benign credit conditions; any normalization could temper growth. Outlook: incremental revenue gains are achievable via selective loan growth and fee initiatives, but structural NIM pressure limits upside; continued cost discipline remains the key profitability lever.

Financial Health

Liquidity: Bank-specific liquidity appears sound with LDR at 81.5% (within the 70–90% benchmark), implying healthy deposit funding and room to expand loans without liquidity stress. Solvency/Capital: Total equity is 1,231.44 against assets of 32,033.27, implying an equity-to-assets ratio of ~3.8%; leverage is high (D/E 25.01x), typical for banks but flagged by generic thresholds. No explicit current ratio is applicable for banks; focus remains on funding structure and regulatory capital (not disclosed). Maturity mismatch: Not quantifiable from current data; deposit-heavy funding base mitigates but does not eliminate interest rate and duration risks. Off-balance sheet obligations: Not disclosed; contingent liabilities (guarantees/derivatives) could be material in banking but are unreported here.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow are unreported, so OCF/NI and FCF coverage cannot be assessed. For banks, accrual earnings quality often tracks credit cost recognition and realized securities gains/losses; both are undisclosed. Positive comprehensive income relative to net income suggests valuation gains in OCI, supportive for capital but inherently market-sensitive. No clear signs of working capital manipulation can be inferred for a bank given the absence of cash flow and credit cost detail.

Dividend Sustainability

Payout ratio is 30.4%, comfortably below the <60% benchmark and conservative for a regional bank. With net income at 50.22 for the period, current earnings should cover dividends; however, FCF coverage is not assessable due to missing OCF/FCF. Capital adequacy ratios are not disclosed; sustained distributions depend on regulatory capital headroom and unrealized securities valuation. Baseline view: dividend appears sustainable under current profitability and cost discipline, but sensitive to NIM pressure, credit cost normalization, and market valuation swings in the securities book.

Risk Assessment

Business Risks:

• Structural NIM compression (reported NIM 0.7%) limiting spread income growth
• Reliance on fee/non-interest income resilience to offset low spreads
• Regional economic concentration risk affecting loan demand and credit quality

Financial Risks:

• High financial leverage inherent to banking (D/E 25.01x)
• Interest rate risk from duration mismatch between loans, securities, and deposits (undisclosed ALM profile)
• Securities portfolio valuation risk (OCI-driven capital sensitivity)
• Potential credit cost normalization from currently benign levels (credit cost data not disclosed)

Key Concerns:

• Sustaining cost efficiency (CIR 34.6%) amid inflationary pressures on personnel and IT
• Deposit beta management if policy rates rise, which could further pressure NIM
• Limited disclosed capital adequacy metrics; equity-to-assets ~3.8% requires careful capital management

Investment Implications

Key Takeaways:

• Profits grew double-digit (ordinary income +15.2%, net income +16.4%) on modest +2.5% revenue growth
• Margins expanded materially: ordinary income margin +~270 bps; net margin +~210 bps
• Cost discipline is a standout with CIR at 34.6%
• NIM remains structurally weak at 0.7%, capping organic earnings power
• Balance sheet leverage is high but typical for banks; liquidity looks sound with LDR at 81.5%

Metrics to Watch:

• Net interest margin trajectory and deposit beta
• Credit costs/provisioning and NPL trends (not disclosed here)
• Fee/non-interest income growth to sustain top line
• Capital adequacy (CET1/Tier 1) and OCI sensitivity of the securities book
• Cost-to-income ratio sustainability as investments in IT/branches progress

Relative Positioning: Within Japanese regional banks, Saga Bank exhibits strong cost efficiency and healthy funding structure, but profitability is constrained by a very low NIM and moderate ROE, positioning it as operationally disciplined yet capital-efficiency challenged versus peers with higher asset yields.

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