Hokkoku Financial Holdings, Inc. (hereafter the company) is a holding company (wholly-owning parent company) established on October 1, 2021 by core subsidiary Hokkoku Bank, Inc. through a simple share transfer. The company's subsidiaries include Hokkoku General Leasing Co., Ltd., Hokkoku Credit Service Co., Ltd., Hokkoku Management, Ltd., Digital Value, Ltd., CC Innovation, Ltd., QR Investment, Ltd., and FD Advisory. The following information relates to the core subsidiary, Hokkoku Bank (hereafter referred to as the bank). The bank was delisted as of September 29, 2021.
Hokkoku Bank is a mid-tier regional bank with a lending share of 42.5% in Ishikawa Prefecture. The bank is one of the 62 regional banks classified by the Financial Services Agency (FSA), among 189 Japanese banks licensed to operate in Japan under the Banking Act. Its loans outstanding in the prefecture now stand at JPY4.3tn. The bank raises short-term funds through individual deposits and invests in long-term assets such as corporate loans and securities, earning the yield spread between long- and short-term interest rates in the form of interest income, its main source of profit. Against the backdrop of a sustained decline in its deposit-lending margins, Hokkoku Bank considers reducing general and administrative expenses and expanding noninterest income as top priorities for its Banking business. It has scaled down its branch network by just under 40%, and in May 2021 became the first Japanese bank to launch the cloud-based operation of its backbone system (core banking system that manages customer accounts). The bank is digitalizing its banking operations ahead of rivals, and strengthening its cost competitiveness in an effort to support sustainable operations.
Hokkoku Bank has been focusing on expanding noninterest income businesses (Consultation services, Bank cards, and Leasing) to offset a decline in its interest income attributable to a contraction in deposit-lending margins. At present, its net noninterest income accounts for 16.3% of core gross profit (equivalent to gross profit for companies; total of net interest income and net noninterest income), exceeding the average of 14.8% for the 62 regional banks as of FY03/20. Non-consolidated core gross profit has shown a CAGR of -1.7% over the last 10 years. Non-consolidated core operating profit (equivalent to operating profit for companies) CAGR has been -3.6%, which as of FY03/21 was still declining at a rate slower than at rivals (Hokuriku Bank: -4.1%, Fukui Bank: -9.0%).
Hokkoku Bank commenced a drastic overhaul of its business model in 2000. The objective was to create a virtuous cycle by enhancing productivity through the adoption of information and communications technology (ICT). This was expected to fuel changes in work styles, drive reforms of the personnel evaluation system, and ultimately give rise to a mindset change of employees that would further accelerate productivity improvements. The bank adopted groupware to visualize its operations and enhance productivity. It also revamped its personnel evaluation system, discarding the traditional sales quotas imposed by supervisors and introducing a system that assesses employees based on whether they achieved objectives in collaboration with their colleagues and organizations. These reforms have virtually eliminated overtime work and contributed to a change in employee mindset from the previous emphasis on meeting quotas individually to a commitment to resolving customer problems collaboratively as a team.
The reforms that started with a review of the bank’s IT systems (extending to banking office work) have been underway for two decades. They have resulted in reduction of just under 40% in branches, simplified screening processes, a transition from outsourced to in-house systems development, a move of its backbone system to an open system, and the migration of online banking (customer services) to the cloud (a banking industry first in Japan). The bank completed migration of its backbone system to a public cloud service in May 2021 (another industry first). Its labor productivity (core gross profit/number of employees) has been at a CAGR of -0.4% over the last 10 years in part due to contraction in core gross profit, but the decline has still been modest compared with rivals (Hokuriku Bank: -1.0%, Fukui Bank: -3.2%, as of March 2021).
Hokkoku Bank aims to provide additional customer value through Consultation services, leveraging its experience from its own operational reforms and implementation of ICT solutions. It has shifted its focus from ad-hoc lending to a lending stance rooted in an understanding of the potential and future prospects of customer businesses and has started leveraging its screening expertise in Consultation services. Drawing on its experience in digitalizing business processes, it has begun offering ICT and productivity improvement consultation services through a team of 100 members (mainly excess personnel due to branch network reduction). In addition, the bank is a licensed Visa debit card issuer. It not only issues debit cards but also acts as an acquirer, providing a cashless payment method to consumers in the Hokuriku area—where adoption of cashless payments has been slow—and creating earnings opportunities for affiliated merchants. In 2016, Hokkoku Bank became the first Japanese regional bank to launch an overseas branch in Southeast Asia (Singapore) to provide support for business transactions in the region. Through its Singapore branch, the bank provides overseas support to Hokuriku-based companies seeking to expand their sales channels overseas.
Hokkoku Bank’s non-consolidated earnings (core gross profit) comprise net interest income (over 80% of core gross profit) and net noninterest income (fee income). Its income, mainly generated from lending and deposit transactions, is calculated by multiplying loans outstanding by deposit-lending margins, and interest margins are yield on loans minus yield on deposits and general and administrative expenses. While the Bank of Japan (BOJ) has maintained its negative interest rate policy, the bank’s yield on deposits has hovered around zero. As yield on deposits has no room to decline further, the ongoing contraction in deposit-lending margins can be partly attributed to an inexorable decline in the yield on loans. The bank’s fee income (i.e., noninterest income) is a product of the customer count and fees per customer. Income in the Consultation services business is calculated as the hourly rate multiplied by the number of staff deployed, income in the Bank cards business corresponds to affiliated merchant fees (including card issuance fees), and income in the Leasing business is the product of the lease balance and lease rate.
Hokkoku Bank’s strategic decisions are dictated by the Basel III capital adequacy ratio requirements (minimum of 10.5%) specified by the Basel Committee on Banking Supervision (BCBS). To keep its capital adequacy ratio above a certain level, the bank must expand its capital at a faster pace than its assets. At the same time, increases in its capital adequacy ratio lead to a decline in ROE (because ROE = ROA x financial leverage). This means the bank needs to improve ROA to a greater extent than just what is necessary to offset the decline in ROE. To expand ROA (≂ profit/assets ≂ (gross profit/assets) x 1 - overhead ratio [OHR = general and administrative expenses/gross profit]), the bank can pursue two strategies: increase ROA itself or reduce OHR. To strengthen ROA, Hokkoku Bank is focusing on expanding income from its Consultation services, Bank cards, and Leasing businesses. To reduce OHR, it has scaled back its branches and undertaken measures to reduce costs such as migrating its backbone system to the cloud.
On a consolidated basis, FY03/22 ordinary income was JPY84.7bn, ordinary profit was JPY19.2bn, and profit attributable to owners of parent was JPY9.4bn. The consolidated capital adequacy ratio (international standard) was 12.61%. Core gross profit of consolidated subsidiary Hokkoku Bank came to JPY41.8bn (+2.2% YoY), core operating profit to JPY13.0bn (+10.7% YoY), and ordinary profit to JPY18.1bn (+60.3% YoY). Cost of credit increased 4.4% YoY to JPY11.8bn (ratio of cost of credit: 45.4bps).
For FY03/23, the company forecasts consolidated ordinary profit of JPY16.5bn (-13.9% YoY) and profit attributable to owners of parent of JPY10.0bn (up 6.5% YoY). On a non-consolidated basis, consolidated
subsidiary Hokkoku Bank expects ordinary profit of JPY14.5bn (-19.8%
YoY), profit attributable to owners of parent of JPY9.0bn (-0.5% YoY), and core operating profit of JPY11.5 bn (-11.8% YoY).
The previous medium-term business plan was updated to "Medium-Term Business Plan 2022" (disclosed on
April 28, 2022). The company designates the three-year period from April 2022 to March 2025 a period of concentration for its efforts to enhance
corporate value for growth, and accordingly, it has established the following: 1)
Improving capital efficiency (e.g., total return ratio of at least 40%, share
repurchasing up to the highest price book value ratio among regional banks, no cross-shareholdings, and the sale of 50% of cross-shareholdings within three years), 2)
Equalizing incentives for management, employees, and shareholders to achieve
ROE of 5.0% in two years and 8.0% in 10 years, and 3) Supporting growth through
Hokkoku Bank’s strengths are 1) distinct measures to stay ahead of rivals through the early adoption of digital and cloud solutions to streamline operations, 2) growth in noninterest income businesses driven by Consultation services, and 3) successfully avoiding labor productivity decline by consistently enhancing productivity and strengthening noninterest income. Its weaknesses are 1) its vulnerability to structural declines in demand as the population contracts in its core market, the three Hokuriku prefectures, 2) a certain amount of time required to confirm that its customer-focused strategy is working and its ROA in the customer category exceeds that of its competitors, and 3) a conservative management approach, including ample allowances for loan losses, has tended to delay the development of an appropriate credit risk management framework.
|Consolidated ordinary income||69,314||66,573||74,109||74,686||67,413||68,633||67,114||74,740||79,098||84,730||-|
|Non-consolidated ordinary income||58,248||55,409||63,162||64,125||56,729||57,693||56,610||64,050||68,414||73,918||-|
|Non-consolidated core gross profit||46,951||46,384||47,162||46,414||43,949||45,041||41,509||41,584||40,954||41,836||-|
|Non-consolidated core operating profit||17,098||16,606||16,856||17,974||15,142||16,694||13,253||12,162||11,778||13,033||11,500|
|Consolidated ordinary profit||14,123||16,798||18,941||17,601||15,867||16,367||14,165||13,181||12,890||19,167||16,500|
|Profit attributable to owners of parent||6,994||7,855||7,989||9,569||10,851||10,163||8,583||7,310||6,752||9,387||10,000|
|Per-share data (split-adjusted|
|No. of shares outstanding at end of period ('000 shares )||31,740||31,460||31,460||29,990||29,990||29,990||29,110||29,110||28,115||27,909|
|EPS (fully diluted)||216.5||249.2||254.8||313.6||361.3|
|Dividend per share||60.0||70.0||70.0||80.0||90.0||90.0||80.0||70.0||80.0||90.0||100.0|
|Book value per share||6,657.5||6,835.4||7,829.4||7,524.0||8,138.8||9,029.6||9,106.3||8,361.4||9,954.4||9,576.5|
|Consolidated balance sheet (JPYmn)|
|Cash and due from banks||77,445||160,303||544,907||467,351||748,544||1,094,772||1,221,400||1,389,813||1,483,423||1,607,871|
|Loans and bills discounted||2,322,999||2,350,504||2,355,374||2,328,285||2,315,444||2,402,114||2,567,333||2,599,328||2,614,865||2,585,262|
|Lease receivables and investment assets||21,495||22,812||21,672||21,741||25,160||29,602||33,335||36,532||35,846||35,195|
|Property, plant and equipment||33,551||37,368||38,301||36,923||35,223||34,155||32,804||31,414||31,428||31,388|
|Call money and bills sold||195||12,659||324,605||67,916||293,334||696,969||847,399||981,819||718,694||618,824|
|Adjusted shareholders' equity||175,276||180,620||182,882||188,353||198,706||201,734||207,876||210,266||215,077||218,960|
|Total net assets||218,492||223,438||247,730||235,020||252,358||268,777||271,215||240,765||286,269||264,258|
|Total liabilities and net assets||3,487,404||3,513,777||4,179,790||3,904,020||4,320,364||4,772,893||5,029,226||5,097,268||5,524,513||5,712,233|
|Consolidated equity ratio||6.1%||6.1%||5.7%||5.8%||5.6%||5.5%||5.2%||4.6%||5.0%||4.5%|
|Cash flow statement(JPYmn)|
|Cash flows from operating activities||-8,211||73,257||637,701||-218,579||324,491||290,627||140,604||110,694||191,877||294,117|
|Cash flows from investing activities||34,841||12,420||-247,118||143,804||-41,647||63,755||-12,320||61,370||-127,274||-149,137|
|Cash flows from financing activities||-5,133||-3,249||-5,791||-3,945||-3,243||-8,884||-2,627||-5,852||18,342||-5,700|
|Financial ratios (non-consolidated)|
|Deposits and negotiable certificates of deposit||3,164,634||3,174,562||3,155,196||3,188,655||3,306,839||3,452,266||3,614,553||3,712,689||4,052,046||4,272,735|
|Loans and bills discounted||2,331,905||2,358,615||2,363,132||2,335,593||2,324,495||2,412,919||2,582,965||2,617,944||2,633,905||2,603,927|
|Dependency on securities investment||21.05%||21.01%||25.03%||26.90%||26.94%||33.23%||31.95%||24.83%||22.47%||26.99%|
|Cash reserve ratio||5.63%||5.53%||17.27%||14.65%||23.54%||33.29%||33.79%||37.43%||36.61%||37.63%|
|Overhead ratio (core gross profit-based)||63.58%||64.20%||64.26%||61.27%||65.54%||62.94%||68.07%||70.75%||71.24%||68.84%|
|ROA (ordinary profit-based)||0.35%||0.42%||0.45%||0.41%||0.34%||0.33%||0.26%||0.24%||0.21%||0.32%|
|Profit ratio of customer services||0.29%||0.25%||0.18%||0.20%||0.14%||0.11%||0.11%||0.07%||0.04%||0.00%|
|Credit cost ratio||0.25%||0.07%||0.32%||0.25%||0.05%||0.06%||0.12%||0.37%||0.43%||0.45%|
|Lending margin (after credit costs)||1.17%||1.27%||0.96%||1.03%||1.16%||1.04%||0.89%||0.63%||0.52%||0.47%|
|Yield on loans (year-end balance-base)||1.42%||1.34%||1.28%||1.27%||1.21%||1.10%||1.02%||1.00%||0.95%||0.92%|
|Total capital adequacy ratio (consolidated)||13.69%||13.06%||11.72%||12.98%||12.60%||12.32%||11.78%||10.30%||13.04%||12.61%|
|Tier 1 ratio (consolidated)||11.62%||11.79%||11.76%||11.24%||9.65%||11.41%||10.81%|
|CET1 ratio (consolidated)||11.61%||11.78%||11.76%||11.23%||9.65%||11.40%||10.79%|
Gross profit = Net interest income + Net fees and commissions + Net trading income + Net other operating income
Core gross profit = Net interest income + Net fees and commissions + Net trading income + Net other operating income - Net gains/losses on bonds
Net interest income: The difference between interest income generated by investing funds (interest on loans and discounts and interest and dividends on securities generated by investing deposits and other funds in loans and securities), and interest expenses paid to raise funds (e.g. interest on deposits).
Net fees and commissions: Fees and commissions minus fees and commissions payments. Net fees and commissions, earned when the bank provides services, are the difference between fees and commissions collected for services offered by the bank (such as fund transfer, investment trust sales, insurance sales, and arrangement of syndicated loans), and the expenses needed to provide such services. It includes fees and commissions on domestic and foreign exchanges (the largest component), fees and commissions on fund transfers for individuals or companies (including syndicated loan arrangement fees and ATM usage fees), fees and commissions earned in the investment banking business (including for M&A), and fees and commissions on sale of investment trusts and insurance products at bank branches.
Net trading income: Net income from trading accounts (designated for trading purposes) that aim to generate capital gains from short-term fluctuations in securities or currency exchange market prices (including derivatives transactions and foreign exchange transactions such as forward foreign exchange contracts) or from variation among markets. Net trading income is the difference between income and expenses directly related to transactions in trading accounts. This is a separate account to record results from transactions that are distinct from non-trading operations such as lending and deposits. Trading income mainly comes from gains realized through operations with trading accounts such as market transactions (such as securities) and derivatives transactions. Trading expenses, which are expenses incurred in trading account operations, roughly correspond to losses incurred on market transactions of securities and derivatives transactions. Hokkoku Bank does not operate trading accounts, so it does not record trading income or trading expenses.
Net other operating income: Profits other than net interest income or net fees and commissions. This includes gains/losses on sale of bonds such as government bonds held for investment purposes (net gains/losses on bonds) and gains/losses from foreign exchange and bonds trading (sales/purchase of foreign currencies). Net gains/losses on bonds are generated from sale of government bonds and other bonds held. In other word, net gains/losses on bonds can be considered unusual gains/losses.
Net noninterest income = Net fees and commissions + Net trading income + Net other operating income
Core operating profit = Core gross profit - General and administrative expenses
Cost of credit = Provision of allowance for general loan losses + Non-performing loans (NPL) disposal amount - Reversal of allowance for loan losses - Recoveries of written-off claims
On April, 28, 2022, Hokkoku Financial Holdings, Inc. announced an update to its medium- to long-term business strategy and changes to its shareholder return policy.
Update on medium- and long-term business strategies
The company updated "Medium- to Long-term Business Strategy 2021" formulated on April 28, 2021 to "Medium- to Long-term Business Strategy 2022".
The company designates the three-year period from April 2022 to March 2025 a period of concentration for efforts to enhance corporate value for the company's growth, and will implement the following measures.
Change in shareholder return policy
|Before revision||After revision|
|The company aimed to achieve a total returns ratio of 40%, including a stable dividend of JPY70 per share and share buybacks.||The company aims to achieve a total returns ratio of 40% or more, which is the sum of dividends and share buybacks.|
On the same day, the company announced its decision on the repurchase of treasury shares and the cancellation of treasury shares.
Outline of the repurchasing scheme
Class of shares to be acquired: common stock
Total number of shares to be acquired: Up to 2.5mn shares (9.33% of outstanding shares, excluding treasury stock)
Total acquisition price: Up to JPY9.0bn
Acquisition period: May 9, 2022–April 28, 2023
Outline of shares to be cancelled
Class of shares to be cancelled: common stock
Total number of shares to be cancelled: 1.0mn shares (3.58% of outstanding shares before cancellation [including treasury stock])
Planned date of cancellation: May 13, 2022
On April 25, 2022, Hokkoku Financial Holdings, Inc. announced upward revisions to its full-year FY03/22 earnings forecast and year-end dividend forecast.
The revised consolidated ordinary profit forecast is JPY19.0bn, an upward revision of JPY6.0bn from the previous forecast (released on October 29, 2021). The company revised the forecast of profit attributable to owners of parent upwardly by JPY2.3bn to JPY9.3bn, and EPS to JPY335.84 from the previous forecast of JPY251.93.
The revision primarily reflected the fact that gains on securities are expected to exceed the previous forecast, while costs of NPL disposal are expected to be lower than expected, at a subsidiary, Hokkoku Bank.
The company also revised up its year-end dividend forecast from JPY40.0 per share to JPY50.0 per share. Combined with Hokkoku Bank's interim dividend of JPY40.0 per share, which has already been paid, the annual dividend is expected to be JPY90 per share.
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Act.(Hokkoku Bank)||2H Est.||FY Est.||FY Est.||FY Est.(Prior to the shift to HD)||FY Est.|
|Consolidated ordinary income||42,451||36,647||79,098||44,736||-|
|Consolidated ordinary profit||9,049||3,841||12,890||15,817||3,183||19,000||13,000||12,500||47.4%|
|Core gross profit (non-cons.)||20,255||20,699||40,954||21,064||-|
|Core operating profit (non-cons.)||5,722||6,056||11,778||6,344||12,000||-|
|Ordinary profit (non-con.)||8,279||3,004||11,283||15,255||2,745||18,000||12,000||11,500||59.5%|
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||(% of Est.)||HD est.|
|BK cons.||BK cons.||BK cons.||BK cons.||BK cons.||BK cons.||HD cons.||HD cons.|
|BK cons.||BK cons.||BK cons.||BK cons.||BK cons.||BK cons.||HD cons.||HD cons.|
|BK cons.||BK cons.||BK cons.||BK cons.||BK cons.||BK cons.||HD cons.||HD cons.|
|Net interest income||26,368||34,339||26,805||35,593|
|Net fees and commissions||4,848||6,583||4,613||5,908|
|Net other operating income||1,776||-273||4,777||3,760|
|Loan-loss provision and expenses||8,003||11,300||8,178||11,658|
|Provision of allowance for general Particular||6,115||8,144||6,198||8,260|
|Provision of allowance for general loan losses||1,711||2,862||1,819||3,096|
|Written-off of loans||13||22||5||9|
|Losses on the sale of loans||163||270||154||291|
|Net stock-related gains/losses||12,264||13,253||9,405||15,324|
|Extraordinary income (losses)||-664||-897||-450||-3,220|
|Profit before income taxes||14,852||11,993||14,469||15,946|
|Net income attributable to non-controlling interests||232||324||179||238|
|Profit attributable to owners of parent||9,310||6,752||8,438||9,387|
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||(% of Est.)||Non-consolidated est.|
|Gross profit (A)||11,718||21,316||31,711||38,727||12,591||24,097||34,716||43,190|
|Core gross profit (A)-(B)||10,915||20,255||30,819||40,953||11,186||21,065||31,550||41,837|
|Net interest income||9,337||17,163||26,305||34,259||9,586||17,747||26,739||35,509|
|Net fees and commissions||1,432||2,829||4,195||5,737||1,398||2,824||3,920||4,918|
|Net other operating income||948||1,322||1,210||-1,269||1,607||3,524||4,056||2,761|
|Net bond-related gains (losses) (B)||803||1,061||892||-2,226||1,405||3,032||3,166||1,353|
|General and administrative expenses (C)||7,287||14,532||21,850||29,175||7,401||14,720||21,925||28,802|
|Net OP (before provision for general loan loss) (A)-(C)||4,431||6,783||9,860||9,551||5,190||9,377||12,790||14,387|
|Core operating profit (A)-(B)-(C)||3,627||5,722||8,967||11,778||3,784||6,344||9,624||13,033|
|Core OP (ex. gains [losses] on trust cancellation)||3,627||5,699||8,776||11,587||3,566||5,968||9,249||12,658|
|Provision for general loan loss  (D)||312||1,653||1,834||3,060||503||1,425||1,787||3,074|
|Operating profit (A)-(C)-(D)||4,118||5,130||8,026||6,491||4,687||7,951||11,003||11,312|
|Net bond-related gains (losses) (B)||803||1,061||892||-2,226||1,405||3,032||3,166||1,353|
|Nonrecurrent gains (losses)||2,825||3,149||6,255||4,792||8,428||7,304||3,085||6,778|
|Net stock-related gains||3,400||8,317||12,249||13,239||8,871||10,483||9,402||15,246|
|Nonperforming loan disposal ||1,409||5,515||6,150||8,335||878||3,588||6,498||8,772|
|Reversal of provision for loan-loss ||0||0||0|
|Gain on recovery of written-off claims ||2||4||68||72||1||8||9||27|
|Extraordinary income (losses)||-58||-637||-664||-897||-54||-241||-451||-3,203|
|Profit before income taxes||6,885||7,642||13,617||10,385||13,061||15,014||13,637||14,887|
|Credit cost (+--)||1,720||7,164||7,916||11,322||1,379||5,005||8,276||11,819|
|Securities-related gains (incl. stock and bonds)||4,203||9,378||13,141||11,013||10,276||13,515||12,568||16,599|
|Gross profit (A)||11,718||9,598||10,395||7,016||12,591||11,506||10,619||8,474|
|Core gross profit (A)-(B)||10,915||9,340||10,564||10,134||11,186||9,879||10,485||10,287|
|Net interest income||9,337||7,826||9,142||7,954||9,586||8,161||8,992||8,770|
|Net fees and commissions||1,432||1,397||1,366||1,542||1,398||1,426||1,096||998|
|Net other operating income||948||374||-112||-2,479||1,607||1,917||532||-1,295|
|Net bond-related gains (losses) (B)||803||258||-169||-3,118||1,405||1,627||134||-1,813|
|General and administrative expenses (C)||7,287||7,245||7,318||7,325||7,401||7,319||7,205||6,877|
|Net OP (before provision for general loan loss) (A)-(C)||4,431||2,352||3,077||-309||5,190||4,187||3,413||1,597|
|Core operating profit (A)-(B)-(C)||3,627||2,095||3,245||2,811||3,784||2,560||3,280||3,409|
|Core OP (ex. gains [losses] on trust cancellation)||3,627||2,072||3,077||2,811||3,566||2,402||3,281||3,409|
|Provision for general loan loss  (D)||312||1,341||181||1,226||503||922||362||1,287|
|Operating profit (A)-(C)-(D)||4,118||1,012||2,896||-1,535||4,687||3,264||3,052||309|
|Net bond-related gains (losses) (B)||803||258||-169||-3,118||1,405||1,627||134||-1,813|
|Nonrecurrent gains (losses)||2,825||324||3,106||-1,463||8,428||-1,124||-4,219||3,693|
|Net stock-related gains||3,400||4,917||3,932||990||8,871||1,612||-1,081||5,844|
|Nonperforming loan disposal ||1,409||4,106||635||2,185||878||2,710||2,910||2,274|
|Reversal of provision for loan-loss ||0||0||0||-||-||-||-||-|
|Gain on recovery of written-off claims ||2||2||64||4||1||7||1||18|
|Extraordinary income (losses)||-58||-579||-27||-233||-54||-187||-210||-2,752|
|Profit before income taxes||6,885||757||5,975||-3,232||13,061||1,953||-1,377||1,250|
|Credit cost (+--)||1,720||5,444||752||3,406||1,379||3,626||3,271||3,543|
|Provision for general loan losses||312||1,341||181||1,226||503||922||362||1,287|
|Amount of NPL disposal (△)||1,409||4,106||635||2,185||878||2,710||2,910||2,274|
|Securities-related gains (incl. stock and bonds)||4,203||5,175||3,763||-2,128||10,276||3,239||-947||4,031|
We have not provided YoY coefficients and rates of change, because the company was established on October 1, 2021.
FY03/22 results were consolidated ordinary income of JPY84.7bn, ordinary profit of JPY19.2bn, and profit attributable to owners of parent of JPY9.4bn. Ordinary income was broken down by
segment as follows: JPY73.0bn (85.9% of total before
adjustments) for the Banking business; JPY11.9bn (14.1% of total) for the Leasing business; and
adjustments of -JPY145mn. Ordinary profit consisted
of JPY18.4bn (96.2% of total before adjustments) in the Banking business and JPY727mn (3.8%) in the Leasing business. On a consolidated basis, the company posted a loss on disposal of intangible assets of JPY2.5bn as consolidated subsidiary Hokkoku Bank no longer expects to use
some software for its Internet banking service for corporate customers.
Consolidated subsidiary Hokkoku Bank posted non-consolidated core operating profit of JPY41.8bn (+2.2% YoY), core operating profit of JPY13.0bn (+10.7% YoY), and ordinary profit of JPY18.1bn (+60.3% YoY). Cost of credit increased 4.4% YoY to JPY11.8bn (ratio of cost of credit ratio: 45.4 bps).
Core operating profit (= gross operating profit -
gains/losses on bond transactions (5 accounts) - expenses) increased JPY1.3bn YoY to JPY13.0bn (+10.7% YoY). Core gross profit
increased by JPY884mn YoY and expenses fell by JPY373mn YoY. OHR was 68.8% (-2.4pp YoY).
Ordinary profit increased JPY6.8bn (+60.3%) YoY to JPY18.1bnen. Operating profit rose JPY4.8bn YoY, and
net bond-related gains increased JPY2.0bn YoY, resulting in non-recurring gains rising by JPY2.0bn.
Gains on securities (net stock-related gains and net bond-related gains) were up JPY5.6bn YoY to JPY16.6bn (+50.7% YoY), and the cost of credit increased JPY497mn YoY to JPY11.8bn (+4.4% YoY). As a result, the cost credit rate on loans outstanding was 45.4bps, up 2.4bps YoY.
The non-consolidated equity ratio fell 1.07pp YoY to 11.66% and the Common Equity Tier 1 (CET1) ratio was 9.86% (-1.25pp YoY).
For FY03/23, the company forecasts
consolidated ordinary profit of JPY16.5bn (-13.9% YoY) and profit attributable
to owners of parent of JPY10.0bn (+6.5% YoY), taking into account the impact of
COVID-19 on the overall economy. On a non-consolidated basis, the company expects consolidated subsidiary Hokkoku Bank to post ordinary profit of JPY14.5bn (-19.8%
YoY), profit of JPY9.0bn (-0.5% YoY), and core operating profit of JPY11.5bn
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Act.(Hokkoku Bank)||2H Act.||FY Act.||1H Est.||2H Est.||FY Est.||FY Est.|
|Consolidated ordinary income(FHD)||84,730|
|Consolidated ordinary profit(FHD)||19,167||12,500||4,000||16,500||-13.9%|
|Consolidated ordinary income(Hokkoku Bank on a cons. basis)||42,451||36,647||79,098||44,736|
|Consolidated ordinary profit(Hokkoku Bank on a cons. basis)||9,049||3,841||12,890||15,817|
|Consolidated profit(Hokkoku Bank on a cons. basis)||5,054||1,698||6,752||9,875|
|Core gross profit(Hokkoku Bank on a non-cons. basis)||20,255||20,699||40,954||21,064||20,772||41,836|
|Core operating profit (non-cons.)||5,722||6,056||11,778||6,344||6,689||13,033||8,000||3,500||11,500||-11.8%|
|Ordinary profit (non-con.)||8,279||3,004||11,283||15,255||2,836||18,091||5,000||9,500||14,500||-19.8%|
Shared Research plans to update the details of the FY03/23 forecast following the interviews with the company.
The company updated its medium-term business plan to "Medium-Term Business Plan 2022" as of April 28, 2022. It designates the three-year period from April 2022 to March 2025 a period of intensive efforts to enhance corporate value for growth, and will implement the following measures.
Creation of surplus capital through conversion to a domestic standard bank (closure of Singapore branch)
Total returns ratio of more than 40% and share repurchasing up to the highest price book value ratio of any regional bank
Elimination of cross-shareholdings and selling 50% within three years
The company aims to achieve ROE of 5.0% in two years and 8.0% in 10 years, and will introduce a compensation system linked to ROE.
The company will actively invest capital through its wholly owned subsidiary, QR Investment.
The following statements are current as of December 2021. We plan to update the descriptions following the interviews with the company.
On April 28, 2021, the bank announced its medium- to long-term strategy. The bank announced as its current medium-term business plan “Communication x Collaboration x Innovation 2024” in November 2019. However, it has changed to a format of visualizing five- and ten-year targets and updating annually its strategies and implementation policies to attain them.
The bank formulated the medium- to long-term business strategy based on the need to have an awareness of its medium- to long-term direction. In addition, the bank will take into account rapidly changing social and environmental conditions to implement and regularly update the strategy for increased flexibility and to ensure that it is in line with actual conditions.
Profit and other numerical targets for five and ten years ahead are as follows.
|(JPYmn)||FY03/21||FY03/26||FY03/31||CAGR (FY03/21–FY03/26)||CAGR (FY03/21–FY03/31)||CAGR (FY03/26–FY03/31)|
|Act.||Five years ahead||Ten years ahead|
|Recurring profit (cons.)||12,800||16,000||21,000||4.6%||5.1%||5.6%|
|Net interest income||34,600||33,500||33,000||-0.6%||-0.5%||-0.3%|
|Net fees and commissions||8,100||12,000||15,500||8.2%||6.7%||5.3%|
|Other new businesses||0||200||500||-||-||20.1%|
|Core system costs||5,800||6,300||4,800||1.7%||-1.9%||-5.3%|
|Income from new businesses (cons.)||3,900||7,500||11,000||14.0%||10.9%||8.0%|
|Overhead ratio (core gross profit-based||70.7%||65.0%||55–60%|
Expand business bases: augment business bases/areas through new businesses and expand customer base through strengthening of existing businesses
Make credit risk management and support system more sophisticated: management improvement support by understanding business feasibility and strengthening consulting functions
Maximize group synergies: improve the quality of services provided to the local communities by speeding up decision making and ensuring the efficient operation of business
Train people able to contribute toward improving regional quality: increase mobility of group personnel and train next-generation management team
In November 2019, Hokkoku Bank extended its original three-year medium-term business plan covering through FY03/21, until FY03/24 (now effectively a six-year plan), rebranding it as “Communication x Collaboration x Innovation 2024” (the current medium-term business plan).
The medium-term business plan calls for FY03/24 consolidated ordinary profit of JPY16.0bn and profit of JPY10.0bn. It targets JPY4.0bn in non-consolidated income from new businesses, which include Bank cards, Leasing, and Consultation services. As for management indicators, it looks to maintain a capital adequacy ratio in the 11% range, and targets OHR of 60-65% and ROE in the 4.0% range. Over the long term, it aims to bring down non-consolidated OHR to the 50% range and raise non-consolidated ROE to over 5.0%.
The FY03/21 briefing materials show a slight adjustment in the current medium-term business plan, with the non-consolidated profit target lowered from JPY9.5bn to JPY8.0bn. The bank expects net interest income below target of JPY35.0bn on an increase in low-interest loans, including COVID-19 countermeasure loans. Moreover, it expects non-personnel costs of JPY14.5bn, exceeding the target of JPY12.5bn, as it expects DX initiatives and the strengthening of in-house systems development to increase systems-related costs from JPY5.7bn in the plan to JPY7.5bn.
|(JPYmn)||Year 1||Year 2||Year 3||Year 4||Year 5||Year 6|
|Previous medium-term plan|
|Communication x Collaboration x Innovation 2024: Current medium-term plan (three year extension of the previous plan)|
|Ordinary profit (consolidated)||14,165||13,181||12,500||12,890||16,000|
|Net interest income (non-consolidated)||35,556||34,876||35,000||34,259||35,000||34,000|
|Net fees and commissions (non-consolidated)||5,603||5,937||6,500||5,736||9,000|
|Income from new businesses (non-consolidated)||1,224||1,756||2,500||1,912||4,000|
|General and administrative expenses (non-consolidated||28,256||29,422||25,000–25,500||29,175|
|Core system costs||5,700||7,500|
|Core system costs (depreciation, upgrades, operation, and maintenance)||2,600||2,700||3,100||3,100||3,000||2,300||1,600|
|Capital adequacy ratio (consolidated)||11.78%||10.30%||12.5–13.0%||13.04%||Maintain 11.0–12.0%|
|Overhead ratio (non-consolidated; core gross profit-based)||68.1%||70.75%||71.24%||60–65%|
|Number of employees||1,787||1,759||1,764||1,800|
|Number of branches applying the branch-in-branch approach||5||8||11||10–15|
The medium-term business plan does not include a numerical target for core gross profit. Assuming the BOJ will maintain its negative interest rate policy for the foreseeable future, net interest income is likely to remain in a downtrend. The medium-term plan envisages noninterest income businesses will offset the decline in net interest income, while reducing expenses such as depreciation of systems by migrating the core banking system to the cloud.
Accounting for more than half of core gross profit, net interest income CAGR over the past five years has stood at -3.5%. Net interest income tends to follow trends in outstanding of loans and yields on loans. Even if the outstanding of loans CAGR matches that of the past five years (2.4%), a decline in net interest income appears all but inevitable given lower yields on loans.
The medium-term plan calls for non-consolidated income of JPY4.0bn from new businesses, breaking down into JPY2.0bn for the Bank cards business, JPY1.5bn for the Consultation services business, and JPY500mn for the Leasing business. The bank is particularly focusing on income growth in the Bank cards business, which expanded from JPY762mn in FY03/20 to JPY2.0bn. Bank card business income reached to just JPY941mn in FY03/21 due to the impact of the COVID-19 pandemic. The Bank cards business has already been profitable on a single-year basis, and the bank expects the promotion of cashless payment solutions to contribute to increases in affiliated merchants and in the number of debit cards issued.
Hokkoku Bank aims to expand its Leasing business share by achieving an optimal mix of lending and leasing services. However, it has lowered its numerical target from JPY600mn in the previous medium-term plan to JPY500mn in recognition of fierce price competition from major leasing companies. To shore up its group-wide sales capabilities, in April 2020 Hokkoku Bank established a new leasing division to oversee leasing business across the group. The bank has consolidated its credit decisions and response policies, and set up an operating structure that covers all aspects from lease consultations to execution. Shared Research understands that the bank will emphasize cooperation with Hokkoku General Leasing as the bank shifts to a holding company structure.
In the Consultation services business, the bank aims to cultivate professional personnel who can handle a large number of complex challenges and provide new value from a top management perspective. By expanding target customers beyond individual companies and providing comprehensive consultation services for corporate groups and industries as a whole, the bank will develop programs that contribute to the development of regional ecosystems.
Hokkoku Bank’s IT system strategy is a critical part of its overall management strategy. Its Hokkoku Cloud Banking system, released in 2019, has mainly supported individual customer transactions but will have support for corporate customer transactions in 2021. This will provide cloud banking support for nearly all of the transactions handled by Hokkoku Bank’s physical branches today. Because the system runs on a public cloud service, the bank will be able to rapidly respond to customer needs while keeping costs down. The bank in May 2021 launched the operation of its cloud-based core banking system. It expects to leverage the resulting data to qualitatively enhance its sales activities from 2022. The bank is also striving to bring the development of subsystems in-house. The in-house development of subsystems is expected to reduce maintenance costs and system upgrade investment.
Hokkoku Financial Holdings, Inc. is a holding company (wholly-owning parent company) established on October 1, 2021 by core subsidiary Hokkoku Bank, Inc. via a simple share transfer. The company's subsidiaries include Hokkoku Bank, Hokkoku General Leasing, Hokkoku Credit Service, Hokkoku Management, Digital Value, CC Innovation, QR Investment and FD Advisory. The following information relates to the core subsidiary, Hokkoku Bank (hereafter referred to as the bank). The bank was delisted as of September 29, 2021.
Hokkoku Bank is a mid-tier regional bank operating out of Ishikawa Prefecture. It was formed out of a merger of Kano Godo Bank, Kashu Bank, and Nowa Bank in December 1943. It became the only regional bank headquartered in Ishikawa Prefecture when former rival Ishikawa Bank filed for bankruptcy in 2001. The bank has no ties with megabanks or conglomerate-controlled banks, and therefore has a strong independent character.
It had total assets of JPY5.3tn as of end-September 2020 (putting it in 31st position among the 64 regional banks nationwide; non-consolidated basis) and had the highest lending share (at 42.5%) in Ishikawa Prefecture in FY03/20 (according to the “Financial Map for 2021” special issue of the monthly magazine “Financial Journal”). Hokkoku Bank has a traditional banking business model centered on deposit and lending transactions. It raises short-term funds through deposits and invests in long-term assets such as loans and securities, earning the yield spread between short and long-term interest rates.
In addition, the bank collects fees from noninterest income transactions (currency transactions such as the transfer of funds between distant areas, and noninterest income businesses including consulting, cards, and leasing operations). In recent years, the bank has focused on Consultation services, Bank cards, and Leasing as new businesses, and its fee-based businesses are expanding steadily.
Hokkoku Bank is headquartered in Ishikawa Prefecture, but it has expanded its presence into neighboring Toyama and Fukui Prefectures. Collectively referred to as the “three Hokuriku prefectures,” these three prefectures form an industrialized zone along the Sea of Japan nearly equidistant from Japan’s three largest metropolitan areas—the Tokyo, Tokai, and Kinki metropolitan areas. By shipment value, the top industries in the region are chemicals (Toyama ranked top among 47 prefectures, Ishikawa 6th, and Fukui 2nd), industrial machinery and equipment (Toyama 4th, Ishikawa 1st, and Fukui 8th), and electronic components, devices, and electric circuits (Toyama 5th, Ishikawa 2nd, and Fukui 1st) (based on the 2014 Census of Manufacture by Ministry of Economy, Trade and Industry [METI]).
Other characteristics common in the three prefectures are high education standards, a high ratio of women in the workforce, and a low employee turnover rate. Access to female labor has contributed to the development of the textile, electronic component, and other industries that require meticulous workmanship. Between 2015 and 2040, the population in these three prefectures is expected to fall 7.1% in Toyama Prefecture, 5.4% in Ishikawa Prefecture, and 5.6% in Fukui Prefecture, exceeding the average national decline of 4.8%. However, the area is expected to attract a growing number of domestic and international tourists once the Hokuriku Shinkansen route—which opened in 2015 and currently runs from Tokyo to Kanazawa (Ishikawa Prefecture)—is extended to Tsuruga (Fukui Prefecture) at the end of FY2023 (The Ministry of Land, Infrastructure, Transport and Tourism on March 31, 2021 revised the expected completion date for the project from end-FY2022 to end-FY2023).
In FY03/21, non-consolidated core operating profit declined YoY due to a rise in cost of credit. However, the bank continues to make steady progress with the transformation of its business model through operational reforms that started in 2000. Its reforms aimed at achieving a low-cost structure began with a shift to paperless operations, and the resulting productivity gains have allowed employees to reduce overtime work and increase time spent interacting with customers. Putting work rationalization via IT systems at the heart of its reforms, the bank has realized a backbone system (core banking system mainly centered on account management) based on open standards and brought systems development and maintenance in-house under a self-reliance policy. It is also working to move its core banking system to the cloud (an industry first), and started operating the cloud-based system in May 2021. It has also leveraged its expertise (accumulated in its own operational restructuring) in paid consultation services aimed at resolving customer problems, and this has contributed to its earnings.
The bank established a holding company, Hokkoku Financial Holdings Co., Ltd., through a simple transfer of shares, effective October 1, 2021. After the establishment of the holding company, all subsidiaries and subsidiary corporations (excluding three non-consolidated subsidiaries) were reorganized as companies directly held by the holding company, using methods such as paying distribution-in-kind to the holding company for all shares held by Hokkoku Bank.
With the goal of accelerating the realization of the “next generation of integrated regional companies,” the bank will consolidate group management functions in the holding company and improve management efficiency in the group as a whole by allowing the subsidiaries, starting with the bank, to specialize in the promotion of their businesses. The bank also aims to expand the range of businesses in which it operates as well as its business lines. For existing subsidiary Digital Value, the focus is on expanding the customer base to other financial institutions and general businesses. For servicer Hokkoku Servicer, the focus is on strengthening the purchasing of receivables from other financial institutions that do not have a servicer function.
Newly established subsidiaries of the company in 2021 include 1) CC Innovation, derived from the Hokkoku Bank consulting department and launched in June 2021, 2) QR Investment, which was launched in June 2021 and provide capital support to a wide range of business partners, including business revitalization companies, business succession companies, and regional revitalization companies, and 3) FD Advisory, which was launched in May 2021 and develops the investment advisory business for individuals and corporations.