The Chikuho Bank, Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥10.75B
• Net Income: ¥504M
• EPS: ¥70.33

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 ordinary profit growth, but profitability remains constrained by a very low NIM and ROE; earnings quality skews to valuation-driven OCI gains rather than core cash earnings. Revenue rose 19.8% YoY to 107.47, outpacing the bank’s ordinary income growth of 28.9% to 5.96 and net income growth of 24.0% to 4.25. EPS came in at 70.33 yen for the half, with calculated ROE at 1.2% for the period (not annualized). Net income margin improved modestly to roughly 3.95% (4.25/107.47), up about 13 bps versus an estimated 3.82% in the prior-year period. Ordinary income margin expanded to 5.55% (5.96/107.47), an estimated +39 bps YoY versus ~5.16% previously. Cost efficiency remains a relative strength with a Cost-to-Income Ratio of 41.9%, comfortably below the 50% benchmark. However, Net Interest Margin is just 0.8%—well below the >2% healthy benchmark—indicating core profitability pressure. The Loan-to-Deposit Ratio is 71.5%, within the 70–90% optimal range, implying prudent liquidity deployment. Balance sheet leverage is high at D/E 24.28x (typical for banks financed by deposits), making capital adequacy and interest-rate risk management critical. Total comprehensive income surged to 42.37, roughly 10x net income, suggesting large unrealized gains (likely from investment securities) drove OCI; these are valuation-driven and volatile. Operating cash flow was not disclosed, so we cannot confirm cash conversion quality; this is a key limitation. Reported effective tax rate is 25.5%, broadly normal. Book value per share is calculated at 6,193 yen, underlining a solid capital base in absolute yen terms. With ROIC at 1.2%, capital efficiency is below the 5% warning threshold, reflecting low NIM and balance sheet structure. Near term, earnings trajectory hinges on the rate environment, securities valuation swings, and credit costs. Forward-looking, maintaining cost discipline and improving fee income, while managing duration risk in the securities book, will be central to sustaining earnings and the dividend policy.

Profitability Analysis

• DuPont decomposition (period): ROE ≈ Net Profit Margin × Asset Turnover × Financial Leverage = 4.0% × 0.012 × 25.28x ≈ 1.2% (matches reported).
• Component change: With revenue +19.8% and net income +24.0%, the margin component improved modestly (net margin +~13 bps YoY). Asset turnover is structurally low for banks and unlikely to be the key swing factor; leverage is broadly stable given deposit-funded assets.
• Business drivers: Margin improvement likely reflects better cost efficiency (CIR 41.9%) and potentially stronger non-interest income or security-related gains supporting ordinary income, partially offset by a very low NIM (0.8%).
• Sustainability: Cost discipline is repeatable, but the very low NIM limits sustainable margin expansion unless asset yields rise or funding costs are optimized; valuation gains (seen in OCI) are non-recurring/volatile.
• Watch-outs: If SG&A (not disclosed) were to grow faster than revenue, operating leverage would reverse; given CIR at 41.9%, there is limited room for further efficiency gains without revenue support.

Growth Assessment

Topline grew 19.8% YoY to 107.47, with ordinary income up 28.9% and net income up 24.0%, indicating positive operating leverage. The NIM at 0.8% underscores reliance on fee/other income and/or securities-related revenue to drive profit growth. Margin expansion was modest (net margin +~13 bps), suggesting earnings growth was not solely volume-driven but supported by efficiency and non-core contributions. Given total comprehensive income of 42.37 vs net income of 4.25, valuation effects in the securities portfolio are material to reported performance and introduce volatility. Revenue sustainability will depend on loan growth in the region and the rate path; with LDR at 71.5%, there is capacity to redeploy deposits into loans if risk-adjusted returns are adequate. Cost discipline is a tailwind (CIR 41.9%), but incremental gains may be limited without technology/process investments. Outlook: Stable to modest growth if loan demand and fee income improve; upside requires NIM recovery or durable fee growth; downside risk from rate volatility (securities marks) and credit costs.

Financial Health

Liquidity: LDR at 71.5% indicates ample deposit funding relative to loans; liquidity appears comfortable. Solvency/leverage: D/E is 24.28x—very high by industrial standards but typical for banks; capital adequacy ratios (CET1/Total Capital) were not disclosed, limiting solvency assessment granularity. Current ratio/quick ratio not meaningful for banks (and not reported). Maturity mismatch: Without detailed asset-liability maturity gaps, duration risk cannot be quantified; however, the large OCI suggests meaningful securities exposure and associated interest-rate sensitivity. Off-balance sheet: No disclosures provided; contingent liabilities, guarantees, or securitization exposures (if any) are unknown.

Cash Flow Quality

OCF and FCF were not disclosed; OCF/Net Income cannot be assessed (N/A). The large gap between total comprehensive income (42.37) and net income (4.25) indicates earnings heavily influenced by unrealized valuation gains—these are non-cash and volatile, reducing earnings quality visibility. Dividend and capex cash coverage cannot be evaluated without OCF/FCF data. Working capital dynamics for banks (loans/deposits) are adequate by LDR, but potential duration-related OCI volatility suggests cash earnings may diverge from reported comprehensive income in future periods.

Dividend Sustainability

Payout ratio (calculated) is 73.5%, which is above the <60% benchmark for comfort and could be stretched if core earnings soften. FCF coverage is N/A due to missing cash flow data. With ROE at 1.2% and NIM at 0.8%, organic capital generation looks modest; dividend capacity will depend on core profit resilience, securities valuation swings, and regulatory capital headroom (not disclosed). Policy outlook: Likely cautious; stability requires maintaining CIR discipline and avoiding spikes in credit costs amid rate normalization.

Risk Assessment

Business Risks:

• Sustained low NIM (0.8%) compressing core profitability
• Dependence on securities-related valuation impacts to support earnings (large OCI vs NI)
• Regional loan demand concentration and economic cyclicality in the service area
• Potential rise in credit costs if macro conditions weaken

Financial Risks:

• High balance sheet leverage (D/E 24.28x, albeit typical for banks)
• Interest-rate/duration risk in the securities book evidenced by large OCI swings
• Liquidity risk from potential deposit outflows (mitigated by LDR 71.5%)
• Capital adequacy visibility is limited (CET1/Total Capital ratios not disclosed)

Key Concerns:

• Earnings quality: comprehensive income outsized vs net income (42.37 vs 4.25)
• Very low ROE/ROIC (1.2%) indicating weak capital efficiency
• Dividend sustainability with a 73.5% payout ratio absent cash flow support
• Data limitations (no OCF, SG&A, credit cost details) constrain analysis

Investment Implications

Key Takeaways:

• Solid YoY profit growth with modest margin expansion, aided by strong cost control
• Core profitability remains weak given a 0.8% NIM and 1.2% ROE
• Performance is sensitive to securities valuation (OCI >> NI), increasing volatility
• Liquidity is prudent (LDR 71.5%), giving room to grow loans if risk-adjusted returns improve

Metrics to Watch:

• Net Interest Margin trajectory and loan yield vs funding cost
• CIR and progress on structural cost initiatives
• Credit costs/NPAs and reserve coverage (not disclosed this quarter)
• CET1/total capital ratios and unrealized gains/losses in AFS portfolio
• Fee and commission income growth to diversify away from NIM pressure
• Duration gap and sensitivity of OCI to rate moves

Relative Positioning: Operational efficiency (CIR 41.9%) compares favorably to peers, but capital efficiency (ROE/ROIC) lags due to a very low NIM; liquidity stance is conservative (LDR 71.5%), positioning the bank defensively but with limited earnings leverage absent a rate or fee-income tailwind.

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