The Howa Bank, Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.79B
• Net Income: ¥408M
• EPS: ¥62.27

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: FY2026 Q2 was a weak quarter for The Howa Bank, with earnings under pressure despite modest top-line growth. Revenue rose 6.6% YoY to 57.92, but ordinary income fell 36.3% YoY to 6.39 and net income declined 54.0% YoY to 4.08, indicating significant profit compression. The bank’s reported net interest margin (NIM) is 0.9%, well below healthy levels (>2%), signaling subdued core profitability in a low-rate, competitive environment. Cost efficiency deteriorates relative to best practice with a cost-to-income ratio (CIR) of 61.1% (>60% warning threshold), suggesting operating leverage worked against earnings. ROE is only 1.5%, derived from a 7.0% net margin, 0.010x asset turnover, and 21.54x financial leverage—highlighting that even with high leverage typical of banks, weak margins and low turnover cap returns. Total assets stand at 5,942.15 and equity at 275.87, implying 21.5x leverage, which is structurally high for banks but consistent with the sector; solvency appears stable, but returns are subpar. The loan-to-deposit ratio (LDR) is 76.7%, a comfortable liquidity position that reduces funding stress risk. The effective tax rate is unusually low at 7.7%, suggesting the presence of deferred tax effects or temporary items supporting after-tax profit. Operating income equals ordinary income at 6.39 in the disclosure, but the YoY drop in ordinary income signals core profit erosion likely driven by low NIM and rising operating costs; credit costs are not disclosed, which is a key uncertainty. Basis-point comparisons for margins (NIM, CIR) are directionally negative vs benchmarks, but exact YoY bps changes are not derivable due to missing prior-period granular data. Cash flow data were not disclosed, preventing a reconciliation of earnings quality via OCF/NI; this is an important limitation. Dividend affordability appears adequate with a low calculated payout ratio of 14.6%, but sustainability should be judged against cash generation and capital needs, which are not disclosed. ROIC is 2.1%, far below typical targets (>7–8% for general corporates), and for banks underscores low capital efficiency relative to risk taken. Forward-looking, the key swing factors are NIM stabilization, cost discipline to bring CIR below 60%, and credit cost normalization; without improvement, ROE is likely to remain depressed. Overall, the quarter underscores weak core profitability tempered by sound liquidity, with forward momentum dependent on margin management and expense control.

Profitability Analysis

ROE decomposition (DuPont): ROE (1.5%) = Net Profit Margin (7.0%) × Asset Turnover (0.010) × Financial Leverage (21.54x). The most binding constraint is asset turnover at 0.010 and a compressed net margin given a very low 0.9% NIM. The business drivers appear to be (1) compressed asset yields and/or deposit pricing pressure keeping NIM at 0.9%, and (2) operating expenses keeping CIR at 61.1%, limiting operating leverage. Ordinary income fell 36.3% YoY while revenue grew 6.6%, implying negative operating leverage (expenses and/or credit costs outpaced revenue growth). Given the structural rate environment and competitive pressure in regional banking, the margin compression looks more structural than one-off unless asset mix or pricing improves. Without a detailed breakdown, there is a risk that credit costs increased, further pressuring profit; sustainability hinges on maintaining asset quality and tightening cost control. Flag: Expense growth likely exceeded revenue growth (as evidenced by CIR >60% and ordinary income decline), a concerning trend for profitability quality.

Growth Assessment

Revenue growth of 6.6% YoY (to 57.92) did not translate into profit growth, as ordinary income declined 36.3% and net income fell 54.0%. This indicates negative operating leverage and/or higher credit costs outweighing top-line gains. Core earnings power is weak given NIM at 0.9%; unless pricing, asset mix (e.g., higher-yield SME/retail lending), or fee income expand, revenue growth may not sustainably lift profits. The LDR of 76.7% suggests capacity to grow loans without stressing liquidity, but profitability of incremental lending is the constraint. Absent disclosures for fee income, trading gains, or credit cost detail, profit quality appears vulnerable to small changes in margin or provisions. Outlook: Stabilization requires cost discipline to move CIR toward <60%, focus on higher-spread assets while managing risk, and potential balance sheet optimization. Near-term earnings trajectory is likely to remain subdued unless margin or cost catalysts materialize.

Financial Health

Total assets are 5,942.15 and total equity is 275.87, implying a leverage ratio of 21.54x and a D/E of 20.50x; while high, this is typical for banks and not directly comparable to industrials. Liquidity appears sound with deposits at 5,596.61 and loans at 4,293.03 (LDR 76.7%), indicating a solid deposit funding base with room to support lending without wholesale reliance. No current ratio or quick ratio is available for a bank context; maturity mismatch risk cannot be fully assessed without asset/liability duration data, but a sub-80% LDR is generally conservative. No off-balance sheet obligations, contingent liabilities, or capital adequacy ratios were disclosed, limiting solvency assessment precision. Explicit warning per generic thresholds: D/E > 2.0 (20.50x) is flagged, but sector norms mitigate the concern; still, low ROE makes capital generation slow.

Cash Flow Quality

Operating cash flow was not disclosed, so OCF/Net Income and free cash flow cannot be assessed; earnings quality thus cannot be validated via cash conversion metrics. The combination of low NIM and high CIR suggests limited underlying cash earnings buffer against shocks. With no working capital or credit cost detail, potential timing effects or manipulation cannot be evaluated. Dividend coverage by FCF cannot be judged, though the low payout ratio implies modest cash requirements if earnings are stable.

Dividend Sustainability

Calculated payout ratio is 14.6%, indicating low distribution intensity relative to current earnings. Without OCF and capex data, FCF coverage is not assessable, but banks typically have low capex needs; the binding constraint is capital adequacy and earnings stability, not capex. Given low ROE (1.5%) and weak NIM, dividend growth capacity is limited unless profitability improves; however, the current low payout looks sustainable if credit costs remain contained and capital ratios (not disclosed) are adequate.

Risk Assessment

Business Risks:

• Persistent margin compression with NIM at 0.9%, limiting core earnings.
• Negative operating leverage with CIR at 61.1%, indicating cost pressure.
• Potential credit cost uptick (not disclosed) could further depress profits.
• Limited fee income visibility increases reliance on net interest income.
• Regional concentration risk typical of regional banks (customer/geographic concentration).

Financial Risks:

• High financial leverage (D/E 20.50x) is structural for banks but reduces error tolerance.
• Interest rate risk and duration mismatch risk not disclosed; rising rates could pressure securities valuations or funding costs.
• Liquidity risk is moderated by LDR 76.7%, but deposit stickiness is unverified.
• Low ROE (1.5%) slows internal capital generation, constraining growth or buffers.
• Tax rate volatility (effective rate 7.7%) suggests potential one-off tax effects.

Key Concerns:

• Ordinary income down 36.3% YoY and net income down 54.0% YoY despite revenue growth.
• NIM below 1.5% warning threshold signals structurally weak profitability.
• CIR above 60% indicates suboptimal efficiency; cost control is a priority.
• ROIC 2.1% and ROE 1.5% imply weak capital efficiency.
• Absence of cash flow, credit cost, NPL ratio, and capital adequacy disclosures limits risk visibility.

Investment Implications

Key Takeaways:

• Earnings deterioration with ordinary income -36.3% YoY and net income -54.0% YoY.
• Core profitability weak: NIM 0.9% (below healthy range) and CIR 61.1%.
• ROE of 1.5% constrained by low margin and turnover despite high leverage.
• Liquidity is adequate (LDR 76.7%), offering capacity for loan growth if profitable opportunities arise.
• Low payout ratio (14.6%) provides flexibility, but dividend growth hinges on profit recovery.

Metrics to Watch:

• NIM trend and loan yield/deposit cost mix.
• CIR trajectory and cost initiatives to push below 60%.
• Credit costs, NPL ratio, and coverage (currently not disclosed).
• Fee income contribution and non-interest revenue growth.
• Capital adequacy ratios (CET1/Total capital) and retained earnings growth.

Relative Positioning: As a regional bank with subdued NIM and CIR slightly above the warning threshold, Howa Bank appears profitability-constrained versus best-in-class peers (higher NIM, CIR <50%), but maintains conservative liquidity (LDR ~77%).

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