Shizuoka Financial Group (5831) FY2026 FY Earnings Report

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Executive Summary

Against the tailwind of rising interest rates, net interest income in the banking business expanded, resulting in higher revenue and earnings. However, deterioration in extraordinary gains and losses pushed down the final profit margin. Ordinary revenue was ¥438.55B (+28.5% YoY), ordinary income was ¥130.30B (+27.7%), and net income attributable to owners of the parent was ¥90.47B (+21.2%). The ordinary income margin was 29.7%, nearly flat from 29.9% in the previous year, while the net income margin declined to 20.6% from 21.9%, affected by temporary factors such as impairment losses and losses related to step acquisitions.

Factors Driving Performance Changes

【Revenue】Ordinary revenue increased 28.5% YoY to ¥438.55B. The banking business accounted for 88.9% of the total and was the primary growth driver, with interest on loans increasing to ¥175.468B (¥150.072B in the previous year, +16.9%). Net fees and commissions also increased 10.1% YoY to ¥54.077B, indicating resilient non-interest revenue. The leasing business generated ordinary revenue of ¥32.32B and a profit margin of 5.0%, making a limited contribution to earnings.

【Profit and Loss】Ordinary income increased 27.7% YoY to ¥130.30B in line with higher revenue. However, extraordinary gains and losses shifted from a net contribution to profit in the previous year to a net loss of ¥3.20B. Impairment losses of ¥4.95B and a loss of ¥1.37B related to step acquisitions were the primary sources of extraordinary losses, partially offset by a gain on the occurrence of negative goodwill of ¥2.74B. As a result, profit before tax was ¥127.10B, while net income attributable to owners of the parent was limited to ¥90.47B, and the net income margin declined by approximately 130bp YoY. Overall, revenue and earnings increased, but earnings quality was affected by temporary gains and losses.

Segment Analysis

The reportable segments comprise the banking business and the leasing business. The banking business is the core earnings contributor, generating ordinary revenue from external customers of ¥389.69B (88.9% of the total), segment profit based on ordinary income of ¥122.76B, and a profit margin of 31.5%. The leasing business generated ordinary revenue of ¥32.32B (7.4% of the total), segment profit of ¥1.62B, and a profit margin of 5.0%, reflecting a substantial profitability gap versus the banking business. Other businesses, including domestic financial instruments business operations, generated ordinary revenue from external customers of ¥16.54B; however, segment profit including intersegment transactions was calculated at ¥63.14B, reflecting a different calculation structure and making a simple profit-margin comparison inappropriate. In July 2025, Shizugin Saison Card was additionally acquired and included in the banking business, creating room for further expansion of non-interest revenue.

Key Financial Indicators

【Profitability】The ordinary income margin was 29.7%, nearly flat from 29.9% in the previous year, while the net income margin declined to 20.6% from 21.9%. ROE improved to 7.3% from 6.3% in the previous year, but the primary driver was an increase in total asset turnover; since the net income margin declined, the improvement cannot necessarily be considered qualitative. 【Cash Flow Quality】Operating CF was negative ¥272.71B, resulting in a substantially negative ratio to net income. However, this reflects the structure specific to banks, which incorporates changes in deposits, loans, and securities balances, and represents an improvement from negative ¥521.03B in the previous year. Comprehensive income was ¥134.39B, exceeding net income by ¥43.92B, with OCI, including valuation differences on securities, boosting capital. 【Investment Efficiency】Capital expenditures of ¥9.31B were limited to 0.72 times depreciation and amortization expense of ¥12.88B, while acquisitions of intangible assets amounted to ¥11.097B, indicating continued investment in software. 【Financial Soundness】The equity ratio was 7.7%, and the loan-to-deposit ratio was 91.6%. Against total assets of ¥16,160.2B, net assets were ¥1,231.90B. Most liabilities consisted of deposits of ¥12,210.04B, reflecting the structure specific to deposit-taking financial institutions.

Cash Flow Analysis

Operating CF was negative ¥272.71B, and free cash flow, calculated as the sum of operating CF and investing CF of positive ¥219.58B, was negative ¥53.14B. In the banking business, changes in the balances of deposits, loans, securities, and other items have a significant impact on operating CF. Accordingly, it is inappropriate to assess cash conversion quality through a simple comparison with net income as would be done for a general operating company. Nevertheless, operating CF improved from negative ¥521.03B in the previous year. The positive investing CF is believed to reflect a decline in securities balances of ¥272.19B YoY. Financing CF was negative ¥70.07B, with dividend payments of ¥40.07B and treasury stock repurchases of ¥30.00B representing the primary cash outflows. Cash and cash equivalents totaled ¥755.94B, a decrease of ¥123.21B from the previous year, indicating substantial fluctuations in cash flows.

Earnings Quality

Current-period profit comprises both recurring expansion in net interest income and temporary extraordinary gains and losses. As a recurring earnings base, net interest income expanded, calculated as interest income of ¥255.60B less interest expenses of ¥86.05B. This represents a structural improvement in earnings resulting from the improved interest-rate environment. Conversely, extraordinary gains totaled ¥3.36B, including a gain on the occurrence of negative goodwill of ¥2.74B, while extraordinary losses totaled ¥6.56B, including impairment losses of ¥4.95B and a loss of ¥1.37B related to step acquisitions, resulting in a net loss of ¥3.20B. In the previous year, extraordinary gains exceeded ¥72.57M and contributed to net profit, whereas in the current period they became a factor depressing profit. This reversal led to the decline in the net income margin. Comprehensive income was ¥134.39B, exceeding net income of ¥90.47B by ¥43.92B, with OCI, primarily valuation differences on securities of ¥20.93B, boosting capital. However, these gains are subject to market price fluctuations.

Earnings Forecast and Guidance

The full-year forecast calls for ordinary income of ¥152.00B (+16.7% YoY), net income attributable to owners of the parent of ¥105.00B, forecast EPS of ¥196.94, and forecast dividends of ¥98.00. Current-period ordinary income of ¥130.30B represents 85.7% of the full-year forecast, while net income of ¥90.47B represents 86.2% of the forecast, indicating solid progress. EPS was also ¥167.66, representing 85.1% of the forecast ¥196.94.

Shareholder Returns

The annual dividend for the current period was ¥80 per share, resulting in a payout ratio of 47.7% against EPS of ¥167.66. The full-year dividend forecast is ¥98.00, implying an increase from the current-period actual dividend of ¥80. Treasury stock repurchases of ¥30.00B were executed. Combined with total dividend payments of ¥42.94B, total shareholder returns amounted to ¥72.94B, resulting in a total return ratio of approximately 80.6% against net income of ¥90.47B. Although the payout ratio itself remains below 50%, total shareholder returns, including share repurchases, are high. Given the equity ratio of 7.7%, balancing shareholder returns with the capital buffer will be an issue going forward.

Risk Factors

1. Concentration risk in the earnings structure: The banking business accounts for 88.9% of ordinary revenue from external customers, resulting in a high degree of dependence on the interest-rate environment and regional demand for funds. Trends in the spread between interest on loans of ¥175.47B and interest on deposits of ¥50.90B will have a significant impact on performance.

2. Risk related to capital levels: The consolidated equity ratio is 7.7%, below the generally used benchmark of 8%. Continued attention will be required regarding the balance between shareholder returns, including a total return ratio of approximately 80.6%, and the capital buffer.

3. Risk of valuation fluctuations in marketable assets: Securities balances are substantial at ¥2,997.54B, and rising interest rates and price fluctuations could affect profit and loss as well as capital through valuation differences of ¥20.93B. In addition, temporary acquisition-related losses, including impairment losses of ¥4.95B and a loss of ¥1.37B related to step acquisitions, were recorded.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

The net income margin exceeds the industry median by 8.7pt, placing the company in the upper tier among the comparison banks.

Growth and Capital Efficiency

The revenue growth rate substantially exceeds the industry median and represents exceptional growth, also exceeding the upper bound of the IQR (12.1%).

※Source: Compiled by the company

Key Takeaways from the Earnings Release

1. While higher earnings driven by the improved interest-rate environment are evident, with ordinary revenue up +28.5% and ordinary income up +27.7%, the net income margin declined by approximately 130bp YoY due to deterioration in extraordinary gains and losses. A notable feature is that temporary factors are included in the breakdown of the earnings increase.

2. The improvement in ROE to 7.3% was primarily attributable to an increase in total asset turnover, while the net income margin declined. An important takeaway from the earnings data is how the company will balance the increase in the full-year forecast dividend to ¥98 with treasury stock repurchases of ¥30.0B under an equity ratio of 7.7%.

3. Both loans outstanding and deposits increased, resulting in a loan-to-deposit ratio of 91.6% and strengthening the operating foundation for the expansion of net interest income. Meanwhile, securities balances are substantial at ¥2,997.54B, making the impact on capital through fluctuations in valuation differences a structural point of observation.

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not constitute a recommendation to invest in any specific security. The industry benchmark is reference information compiled by the company based on publicly available earnings data. Investment decisions should be made at your own responsibility and, where necessary, after consulting with a professional advisor.

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