THE TOCHIGI BANK,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥25.13B
• Net Income: ¥4.18B
• EPS: ¥41.83

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: Strong rebound in profitability in FY2026 Q2, driven by a sharp improvement in ordinary and net income despite structurally thin NIM. Revenue rose 13.5% YoY to 251.34, while ordinary income surged 142.2% YoY to 49.34 and net income jumped 195.4% YoY to 43.44. Operating margin is estimated at 19.6% (49.34/251.34), up meaningfully versus last year’s approximate 9.2%, indicating double-digit margin expansion. Net profit margin expanded to 17.3% from an estimated 6.6% a year ago, a roughly 1,066 bps improvement. The effective tax rate was low at 11.3%, amplifying bottom-line growth relative to pre-tax profit. Banking efficiency looks solid with a Cost-to-Income Ratio of 47.1%, below the 50% benchmark and supportive of operating leverage. Balance sheet scale remains large (total assets 33,842.90) with equity of 1,590.07, implying high leverage that is typical for banks but still notable (D/E 20.28x). Liquidity positioning is prudent with an LDR of 76.6%, suggesting ample deposit funding relative to loans. However, core bank profitability is structurally weak with a NIM of 0.6%, well below the 1.5% warning threshold and industry benchmarks, implying reliance on fees, cost control, and securities income to sustain earnings. ROE is modest at 2.7%, restrained by low net interest returns despite better margins this quarter. ROIC at 2.8% also indicates subdued capital efficiency relative to management targets typical in financials. Operating cash flow was not disclosed, limiting assessment of earnings quality; we cannot validate the conversion of net income into cash. The payout ratio is a conservative 17.7%, implying room to maintain or increase dividends if earnings hold, though FCF coverage is unassessable. The sharp YoY earnings expansion likely reflects a combination of better spreads, fee momentum, lower credit costs, or securities-related gains; without disclosures, durability is unclear. Forward-looking, maintaining sub-50% CIR while stabilizing NIM and managing securities and credit risks will be key to sustaining the current earnings trajectory.

Profitability Analysis

ROE decomposition: ROE 2.7% = Net Profit Margin 17.3% × Asset Turnover 0.007 × Financial Leverage 21.28x. The largest change driver YoY appears to be net margin expansion (from ~6.6% to 17.3%), supported by a step-up in ordinary income and a low effective tax rate (11.3%). Business context: despite a very low NIM (0.6%), ordinary income rose sharply, implying contributions from non-NII sources (fees, securities gains) and/or lower credit costs plus disciplined costs (CIR 47.1%). Sustainability: margin gains tied to non-core items or unusually low taxes can be volatile; ongoing cost discipline is more sustainable, but securities/credit cost tailwinds may normalize. Watch for adverse operating leverage if expenses re-accelerate; with revenue +13.5% YoY and no SG&A detail, we cannot confirm whether cost growth stayed below revenue beyond the CIR indication.

Growth Assessment

Top-line growth of 13.5% YoY is strong for a regional bank context. Ordinary income +142.2% YoY and net income +195.4% YoY suggest powerful operating leverage and/or one-off tailwinds. NIM at 0.6% signals that core spread income remains constrained; thus, growth likely benefited from fee income, securities results, and/or reduced credit costs. Without non-operating breakdown or credit cost disclosure, revenue sustainability is uncertain. The low effective tax rate amplified net income growth; normalization could temper EPS growth. With CIR at 47.1%, cost efficiency is a positive structural driver if maintained. Outlook hinges on rate environment, securities portfolio marks, deposit pricing dynamics, and regional loan demand; LDR at 76.6% leaves capacity to grow loans if credit quality allows.

Financial Health

Leverage is high with D/E 20.28x (warning threshold >2.0), consistent with bank balance sheets but still a risk factor if asset quality deteriorates. Equity/asset ratio is roughly 4.7%, typical for Japanese regional banks but leaves limited loss-absorbing capacity versus shocks; regulatory capital ratios were not disclosed. Liquidity appears sound: deposits 31,522.95 vs loans 24,131.73 (LDR 76.6%), indicating funding stability and a cushion against deposit outflows. Current ratio and quick ratio are not applicable/not disclosed for banks; no maturity ladder provided, so we cannot fully assess short-term mismatch. No off-balance sheet obligations were reported in the dataset; contingent liabilities (guarantees, derivatives, securitizations) may exist but are undisclosed here.

Cash Flow Quality

Operating cash flow, investing, and financing cash flows were not reported, so OCF/Net Income and FCF cannot be assessed. As such, we cannot validate cash conversion or working capital effects. In banking, loan growth, credit cost accruals, and securities marks can materially affect OCF; absent disclosure, earnings quality assessment is limited. No evidence of working capital manipulation is observable from the provided data.

Dividend Sustainability

Calculated payout ratio is 17.7%, comfortably below the 60% benchmark, implying a conservative distribution. FCF coverage cannot be calculated due to missing OCF and capex data, although capex is typically modest for banks. With strong YoY profit, the bank appears to have headroom to sustain dividends, subject to earnings normalization, capital requirements, and regulatory guidance. Equity remains adequate for a regional bank; absent CET1/total capital ratio disclosures, we cannot gauge proximity to regulatory constraints that might influence shareholder returns.

Risk Assessment

Business Risks:

• Structural low NIM (0.6%) compressing core profitability.
• Regional demand headwinds and demographic decline potentially limiting loan growth in the service area.
• Earnings sensitivity to securities portfolio valuations and gains/losses.
• Potential normalization of an unusually low effective tax rate (11.3%) reducing net profit.

Financial Risks:

• High leverage (D/E 20.28x) magnifies losses if credit quality weakens.
• Interest rate risk in the banking book (duration and OCI sensitivity not disclosed).
• Credit cost rebound risk from low current levels (not disclosed).
• Liquidity and funding repricing risk if deposit competition increases, given very low NIM.

Key Concerns:

• Sustainability of the sharp YoY profit surge absent supporting disclosure (non-interest income, credit costs).
• Thin core margins increase reliance on fees and securities results.
• Lack of disclosed regulatory capital ratios (e.g., CET1) to assess buffer strength.

Investment Implications

Key Takeaways:

• Earnings inflected strongly with ordinary income +142% YoY and net income +195% YoY.
• Operating efficiency solid (CIR 47.1%), aiding margin expansion.
• Core spread profitability remains weak (NIM 0.6%), capping sustainable ROE (2.7%).
• Balance sheet leverage high but liquidity sound (LDR 76.6%).
• Low payout ratio (17.7%) affords flexibility for dividends, contingent on earnings durability.

Metrics to Watch:

• NIM trajectory and deposit beta as rate environment evolves.
• Fee income and securities-related gains/losses contribution to ordinary income.
• Credit costs, NPL ratio, and coverage ratio trends.
• CET1/total capital ratios and interest rate risk (duration gap, OCI sensitivity).
• Cost-to-Income Ratio sustainability and digital efficiency initiatives.

Relative Positioning: Within Japanese regional banks, Tochigi Bank shows better-than-benchmark cost efficiency (CIR <50%) and healthy LDR, but lags on core profitability (NIM 0.6%) and capital efficiency (ROE ~2.7%, ROIC ~2.8%). The quarter’s strong earnings rebound is positive, yet durability is uncertain without detail on non-interest drivers and credit costs.

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