San ju San Financial Group (7322) FY2026 Q3 Earnings Report

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Executive Summary

The Company reported higher revenue and higher earnings, with Ordinary Revenue, Ordinary Income, and Net Income all posting double-digit growth, driven by the expansion of interest income. Ordinary Revenue was ¥690.4B (¥545.8B in the same period of the previous year, +26.5%), Ordinary Income was ¥127.2B (¥97.8B in the previous year, +30.1%), and Net Income was ¥96.5B (¥65.9B in the previous year, +46.3%). Earnings growth exceeded revenue growth, indicating that revenue expansion translated efficiently into profit growth. The primary factors were positive operating leverage resulting from improved lending yields in the banking business and General and Administrative Expenses growth (+3.9%) remaining significantly below the growth in Ordinary Revenue.

Factors Affecting Performance

【Revenue】Ordinary Revenue increased 26.5% YoY to ¥690.4B. The banking business accounted for the core share at ¥552.8B (80.1% of the total, YoY +28.0%), followed by the leasing business at ¥129.3B (18.7% of the total, YoY +19.7%) and other businesses at ¥13.2B (1.9% of the total, YoY +0.4%). Growth in the banking business was primarily attributable to a +32.4% increase in interest on loans, which significantly exceeded the +3.4% growth in the outstanding balance of loans, indicating that yield improvement contributed more than quantitative expansion.

【Profit and Loss】Ordinary Income increased 30.1% YoY to ¥127.2B, while Net Income increased 46.3% to ¥96.5B. Segment profit in the banking business increased 26.9% to ¥127.1B; however, its profit margin declined slightly to 23.0% from 23.2% in the previous year, against a backdrop of a sharp increase in interest on deposits (¥14.5B→¥58.6B), which pushed up funding costs. Meanwhile, the leasing business reported a substantial decline in earnings, with segment profit falling 54.1% YoY to ¥1.6B, indicating deteriorating profitability despite higher revenue. Extraordinary gains and losses were largely offset, comprising gains of ¥2.4B and losses of ¥2.5B (including ¥1.5B in impairment losses related to the consolidation and closure of branches), and the divergence between Ordinary Income and Net Income was primarily attributable to the effective tax rate of 24.1%. Overall, the Company achieved higher revenue and higher earnings, with the expansion of interest income driving profit growth, while improving the profitability of non-bank businesses remains an issue going forward.

Segment Analysis

The banking business generated Ordinary Revenue of ¥552.8B (+28.0% YoY) and segment profit of ¥127.1B (+26.9% YoY), with a profit margin of 23.0%, serving as the core of the Group’s revenue and earnings. The leasing business increased Ordinary Revenue by 19.7% YoY to ¥129.3B, but segment profit declined 54.1% to ¥1.6B, with the profit margin falling to 1.2%, indicating that revenue expansion has not translated into earnings. Other businesses, including the credit card and credit guarantee businesses, generated Ordinary Revenue of ¥13.2B (+0.4% YoY) and profit of ¥38.7B (+12.5% YoY), maintaining a high profit margin of 292.7%. The concentration of revenue in the banking business has reached approximately 80%, leaving Group performance highly dependent on regional financial markets and trends in lending and deposit interest rates.

Key Financial Indicators

【Profitability】The Ordinary Income margin improved by approximately 50bp to 18.4% from 17.9% in the same period of the previous year, while the Net Income margin improved by approximately 190bp to 14.0% from 12.1%. The effective tax rate was 24.1% (Profit Before Tax of ¥127.1B and Corporate Income Taxes and Other Taxes of ¥30.6B), indicating that the tax burden did not significantly impede profit growth.【Cash Flow Quality】Comprehensive Income was ¥261.4B, substantially exceeding Net Income of ¥96.5B. Other Comprehensive Income of ¥164.9B, primarily comprising ¥165.5B in valuation differences on securities, contributed to the increase, indicating that part of the increase in net assets depends on unrealized valuation gains.【Investment Efficiency】ROE was 4.2%. The primary factor was the low Total Asset Turnover relative to the 14.0% Net Income margin, reflecting the large-asset, low-turnover structure characteristic of a bank holding company. Net Interest Margin was low at 1.01%, while the loan-to-deposit ratio was 81.7%, within the indicative range.【Financial Soundness】The Equity Ratio was 5.0%. Net assets were ¥2,286.6B against total assets of ¥45,722.0B, increasing 11.0% YoY. The debt-to-equity ratio was approximately 19x, significantly exceeding the level typically observed for general operating companies; however, this should be understood as a structure characteristic of the deposit-based banking business.

Cash Flow Analysis

As the cash flow statement has not been disclosed separately, funding trends are analyzed based on changes in the balance sheet. Cash and deposits declined by ¥631.4B (-14.7%) from ¥4,282.2B in the same period of the previous year to ¥3,650.8B, while securities increased by ¥238.1B (+2.5%) from ¥9,497.6B to ¥9,735.7B, and loans also increased from ¥31,437.0B to ¥31,169.9B. This suggests that a portion of liquid assets was allocated to operating assets such as loans and securities. Deposits declined slightly from ¥38,591.6B to ¥38,157.4B, indicating changes in the funding structure as well. Net assets increased by ¥226.4B, primarily due to Net Income of ¥96.5B and an increase in valuation differences on securities, strengthening the capital base through both retained earnings and Other Comprehensive Income.

Quality of Earnings

The quality of current-period earnings is supported by the expansion of recurring net interest income. At the standalone bank level, interest income on funds invested increased 33.9% to ¥382.2B, while interest expenses on funds raised also surged to ¥68.4B (¥16.8B in the previous year, approximately 4.1x), resulting in net interest income of ¥313.8B (+16.8%), below the growth rate of interest income on funds invested. General and Administrative Expenses remained limited to ¥289.5B (+3.9%), significantly below the growth in Ordinary Revenue (+26.5%), allowing positive operating leverage to contribute to profit growth. Extraordinary gains and losses were largely offset, comprising gains of ¥2.4B and losses of ¥2.5B (including ¥1.5B in impairment losses related to the temporary factor of branch consolidation and closure), resulting in only a minimal difference between Ordinary Income and Profit Before Tax. Meanwhile, the ¥164.9B gap between Comprehensive Income of ¥261.4B and Net Income of ¥96.5B largely comprises unrealized elements in the form of valuation differences on securities. Accordingly, recurring trends in net interest income should be emphasized when evaluating actual earnings power.

Earnings Forecast and Guidance

Against the Full-Year Ordinary Income forecast of ¥157.0B, the progress rate for cumulative Q3 results was 81.1%, exceeding the standard progress benchmark of 75% by 6.1 percentage points. The progress rate against the Full-Year Net Income forecast of ¥111.0B (forecast EPS of ¥426.50) was 86.9%, exceeding standard progress by 11.9 percentage points. Neither the earnings forecast nor the dividend forecast has been revised. The fact that progress in Net Income exceeded that of Ordinary Income may be attributable to extraordinary gains and losses being largely offset and the effective tax rate tracking as expected. In the final quarter, trends in deposit interest rates, gains and losses related to securities, and credit costs may affect progress toward the full-year forecasts.

Shareholder Returns

The Q2 dividend was ¥64.00 per share, while the Full-Year dividend forecast is ¥128.00. Based on the Full-Year Net Income forecast of ¥111.0B and the average number of shares outstanding during the period of 2,603.4万 shares, the forecast Payout Ratio is approximately 30.0%, remaining conservative relative to the earnings level. Treasury stock increased by ¥1.78B from ¥2.80B in the same period of the previous year to ¥4.58B, suggesting an increase in holdings through share repurchases or share-based compensation programs; however, the details of the purpose of the acquisition have not been disclosed, so this should be evaluated separately from the Payout Ratio. The dividend forecast has been increased from the previous year’s actual Q2 dividend of ¥37, indicating an approach of strengthening shareholder returns in line with profit growth.

Risk Factors

1. NIM Compression Risk: Net Interest Margin is low at 1.01%, while interest on deposits surged to ¥58.6B from ¥14.5B in the same period of the previous year. If the pace of increase in funding costs exceeds the improvement in investment yields, this could pressure net interest income.

2. Revenue Concentration in the Banking Business: The banking business accounts for approximately 80% of Ordinary Revenue from external customers, creating a structure in which fluctuations in regional financial markets, lending rates, and credit costs affect overall consolidated performance. Funding demand among regional companies and individuals, as well as trends in commercial real estate, could affect credit costs associated with loans of ¥31,169.9B.

3. Deterioration in Leasing Business Profitability and Market Risk: Segment profit in the leasing business declined substantially by 54.1% YoY, with the profit margin falling to 1.2%. In addition, the Company holds securities of ¥9,735.7B, and valuation differences on other securities affect Comprehensive Income and net assets, creating a risk of reversal of valuation gains when interest rates or stock prices fluctuate.

Industry Benchmark (For Reference; Compiled by the Company)

Key Takeaways from the Earnings Results

1. Ordinary Revenue increased 26.5%, while Ordinary Income and Net Income increased 30.1% and 46.3%, respectively, exceeding the revenue growth rate. The restraint in the General and Administrative Expenses growth rate (+3.9%) supported margin improvement, with the Ordinary Income margin increasing by approximately +50bp and the Net Income margin by approximately +190bp.

2. Progress against the Full-Year forecasts exceeded standard progress, at 81.1% for Ordinary Income and 86.9% for Net Income. However, given the low NIM of 1.01% and the pace of increase in interest on deposits, trends in funding costs during the final quarter will be key to achieving the Full-Year targets.

3. Despite revenue growth in the leasing business (+19.7%), profit declined by 54.1%, indicating that the diversification benefit from non-bank revenue sources was limited during the current period, a structural point of observation.

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional adviser as necessary.

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AI Financial Analysis

Executive Summary

FY2026 Q3 earnings were strong, led by higher banking revenue and a substantial improvement in net profit. Consolidated ordinary revenue increased 26.5% YoY to ¥69.04bn. Ordinary income rose 30.1% to ¥12.73bn, exceeding revenue growth and demonstrating positive operating leverage. Net income attributable to owners increased 46.3% to ¥9.65bn, outpacing ordinary-income growth. The net profit margin improved to 14.0%, an expansion of approximately 190bp from the prior-year 12.1% level. Ordinary income margin rose to 18.4% from approximately 17.9%, a 50bp improvement. Banking segment external revenue grew 27.9% to ¥55.28bn and segment profit increased 26.9% to ¥12.71bn. Leasing external revenue rose 19.7% to ¥12.94bn, although segment profit fell 54.1% to ¥0.16bn. The core banking business therefore accounted for virtually all reportable-segment profit and was the principal earnings driver. Interest income increased 33.9% to ¥38.22bn, supported by loan interest of ¥30.63bn and securities interest and dividends of ¥6.22bn. Interest expense rose sharply to ¥6.84bn from ¥1.68bn, reflecting higher funding costs in a rising-rate environment. Nevertheless, net interest income expanded 38.5% to ¥31.38bn. General and administrative expenses increased 3.9% to ¥28.95bn, materially below the growth in ordinary revenue, underpinning earnings leverage. The 1.01% NIM remains below the 1.5% warning threshold, indicating that the group remains exposed to deposit-cost repricing despite the current income expansion. The reported annualized ROE was 5.6%, below the conventional 8% threshold, although it improved through stronger profitability and a high asset base relative to equity. Comprehensive income was ¥26.14bn, substantially above net income, principally reflecting a ¥14.71bn positive valuation difference on securities. Full-year ordinary-income progress is 81.1% and net-income progress is 86.9%, both above the standard 75% Q3 pace versus the company forecast. This leaves a modest implied Q4 net-income requirement of ¥1.45bn to achieve the ¥11.10bn full-year forecast. The unchanged forecast and dividend plan indicate management has not formally raised guidance despite the favorable nine-month progress. The central forward issue is whether asset yields can continue to rise faster than deposit and wholesale funding costs while credit costs remain controlled.

Profitability Analysis

The reported annualized 5.6% ROE decomposes into a 14.0% net profit margin, 0.020x annualized asset turnover, and 20.00x financial leverage. Profitability is the principal positive contributor: the net margin expanded by about 190bp YoY as net income grew 46.3%, faster than the 26.5% increase in ordinary revenue. The low annualized asset turnover is structurally consistent with a bank balance sheet carrying ¥4.57tn of assets, rather than evidence of weak revenue execution in isolation. Financial leverage is inherently high for a deposit-funded bank, but the 20.00x asset-to-equity multiplier means modest changes in asset values, credit losses, or earnings can have an outsized effect on shareholder returns. Banking segment profit of ¥12.71bn is the core earnings source, compared with leasing segment profit of ¥0.16bn and other-business profit of ¥3.87bn before consolidation adjustments. Banking segment margin on total segment revenue was approximately 22.7%, versus approximately 1.2% for leasing, highlighting the sharply different earnings contribution. Group ordinary income expanded faster than revenue because general and administrative expenses rose only 3.9%, compared with 26.5% revenue growth. Interest income increased ¥9.69bn, while interest expense rose ¥5.17bn; the net interest income gain of ¥8.14bn was therefore the dominant operating improvement. Fees and commissions income declined 3.4% to ¥10.84bn, making the earnings mix more dependent on interest-sensitive income. The five-factor DuPont tax burden was 0.759, consistent with the 24.1% effective tax rate and supportive of conversion from pretax profit to net income. The 0.999 interest burden indicates that ordinary earnings were largely retained through the pretax line. Extraordinary items were near-neutral overall, with ¥0.24bn of gains offset by ¥0.25bn of losses. The ¥0.15bn impairment loss on bank premises was small relative to ordinary income, but reflects branch relocation or closure decisions. The current profitability uplift appears operationally meaningful, although its sustainability depends on preserving loan and securities yields relative to funding-cost increases.

Growth Assessment

Revenue growth was broad-based across the two reported operating segments, with banking external revenue up ¥12.08bn and leasing up ¥2.13bn. Banking income growth was underpinned by a ¥7.50bn increase in loan interest and a ¥1.49bn increase in interest and dividends on securities. Loans and bills discounted increased 3.4% YoY to ¥3.12tn, providing a larger earning-asset base. Securities increased 2.5% to ¥973.57bn, while the positive securities valuation movement also strengthened comprehensive income and equity. Deposits declined 1.1% to ¥3.82tn, but the funding base remains substantially larger than loans. The loan-to-deposit ratio is approximately 81.7%, within the conventional 70-90% operating range. Leasing revenue growth did not translate into profit growth, with segment profit declining from ¥0.34bn to ¥0.16bn; segment-level cost and funding discipline warrant attention. Fee and commission income declined ¥0.38bn YoY, representing a headwind to diversification away from spread income. The full-year ordinary-income forecast of ¥15.70bn implies ¥2.98bn in Q4, while the net-income forecast of ¥11.10bn implies ¥1.45bn in Q4. Nine-month earnings progress above the seasonal 75% benchmark provides forecast headroom, though it does not eliminate sensitivity to market rates, securities valuations and credit costs. Management maintained both earnings and dividend forecasts, suggesting its formal outlook remains cautious. The positive result is supported by recurring banking income rather than material extraordinary gains.

Financial Health

Total assets increased 1.4% YoY to ¥4.57tn, while total equity increased 11.0% to ¥228.66bn. Equity growth was supported by ¥9.65bn of net income and ¥16.49bn of accumulated other comprehensive income, including a ¥14.71bn valuation difference on securities. Total liabilities were ¥4.34tn, equivalent to 95.0% of total assets, which is structurally typical for a deposit-funded bank but leaves the capital base sensitive to asset-quality and market-value movements. The stated debt-to-equity ratio of 19.00x exceeds the general 2.0x warning threshold and should be interpreted in the context of banking liabilities rather than industrial-company leverage. Its root cause is the group’s large deposit and funding liabilities relative to a ¥228.66bn equity base. The investment implication is that high balance-sheet leverage amplifies both returns and downside from credit, liquidity and securities-price shocks. Deposits of ¥3.82tn remain the predominant funding source, while loans of ¥3.12tn result in an approximately 81.7% loan-to-deposit ratio. Borrowed money declined 8.0% YoY to ¥279.78bn, while negotiable certificates of deposit increased materially to ¥168.29bn from ¥73.99bn, indicating a shift within the funding mix toward market-sensitive instruments. Cash and due from banks declined 14.7% to ¥365.08bn, while securities rose to ¥973.57bn. The reported capital adequacy ratio was 5.0%, up from 4.5% in the prior year but below the 8% general Basel benchmark; regulatory capital adequacy and buffer requirements are therefore a key balance-sheet monitoring issue. Treasury stock increased in absolute negative balance from ¥0.28bn to ¥0.46bn, a ¥0.18bn increase in repurchased-share carrying value. This movement is immaterial relative to equity, but is consistent with modest capital return or share-related activity. Intangible assets were only 0.1% of total assets, limiting balance-sheet dependence on intangible-value retention.

Notable B/S Changes

Treasury stock: -¥0.46bn from -¥0.28bn, an increase of ¥0.18bn in the negative carrying balance (-63.6% on the reported change basis); immaterial versus ¥228.66bn equity but consistent with modest share-related capital activity. Accumulated other comprehensive income / valuation and translation adjustments: increased to ¥16.49bn, principally including a ¥14.71bn securities valuation gain; strengthened equity but increases sensitivity to market-value reversals. Negotiable certificates of deposit: increased to ¥168.29bn from ¥73.99bn (+127.4%); indicates greater use of certificate-of-deposit funding and requires monitoring alongside funding-cost trends.

Cash Flow Quality

Reported net income was supported primarily by ordinary banking earnings, with extraordinary gains and losses broadly offsetting each other. The pretax-to-net-income conversion was solid, as the 24.1% effective tax rate produced a 75.9% tax burden ratio. Net income of ¥9.65bn was lower than comprehensive income of ¥26.14bn because the latter included ¥16.49bn of other comprehensive income. The largest identified comprehensive-income contributor was the ¥14.71bn securities valuation difference. This strengthens reported equity in the current period but is market-value sensitive and should not be treated as recurring distributable earnings. The group recorded a ¥0.15bn impairment loss related to banking locations designated for relocation or closure; the amount was limited relative to nine-month ordinary income. Credit-related provisions included a ¥9.82bn provision for contingent losses and a ¥18.86bn allowance for loan losses on the balance sheet, underscoring the importance of credit-risk management in assessing earnings resilience.

Dividend Sustainability

The company forecasts FY2026 dividend per share of ¥128.0, comprising the reported ¥64.0 interim dividend and an implied ¥64.0 year-end dividend. Based on forecast EPS of ¥426.5, the forecast dividend payout ratio is approximately 30.0%. This is below the 60% sustainability benchmark and provides meaningful earnings retention capacity. The nine-month dividend equivalent of ¥64.0 per share represents 17.4% of nine-month EPS of ¥370.61. Forecast net income of ¥11.10bn exceeds the implied full-year cash dividend commitment of approximately ¥3.35bn based on 26.17 million issued shares. The planned dividend is therefore covered by forecast earnings by roughly 3.3x. Retained earnings increased to ¥154.03bn from ¥147.70bn in the prior-year period, further supporting capital retention. Given the reported 5.0% capital adequacy ratio, the balance between shareholder distributions and regulatory capital accumulation remains important. The absence of a dividend revision alongside above-standard Q3 earnings progress suggests the announced ¥128.0 DPS is currently the relevant policy reference.

Risk Assessment

Business risks include Interest-rate and deposit-repricing risk: NIM is 1.01%, below the 1.5% warning threshold. Interest expense increased more than fourfold YoY to ¥6.84bn, demonstrating sensitivity to rising deposit and market funding costs., Credit-cycle risk: the ¥3.12tn loan book is the principal earning asset, and deterioration in regional corporate or household borrower conditions could increase provisions and depress earnings., Regional-bank competition and demographic risk: competition for deposits and loans in the group’s operating markets can constrain loan spreads and fee income growth., Fee-income diversification risk: fees and commissions income declined 3.4% YoY to ¥10.84bn, increasing reliance on interest income., Leasing execution risk: leasing revenue rose 19.7%, but segment profit fell 54.1%, indicating weaker conversion of growth into profitability..

Financial risks include High reported D/E of 19.00x: the ratio is structurally influenced by deposit-funded banking operations, but it magnifies the effect of asset-price, credit and earnings volatility on equity., Capital adequacy risk: the reported capital adequacy ratio of 5.0% is below the 8% general Basel benchmark despite improving from 4.5%., Securities valuation risk: ¥14.71bn of positive securities valuation gains supported other comprehensive income; reversals in bond prices or market conditions could reduce equity., Funding-mix risk: negotiable certificates of deposit rose to ¥168.29bn while deposits declined modestly and cash balances fell, increasing the importance of managing market-sensitive funding costs..

Key concerns include Priority high: sustaining net interest income growth as deposit costs normalize upward., Priority high: maintaining capital resilience given the low reported capital adequacy ratio and high balance-sheet leverage., Priority medium: preserving credit quality through regional economic cycles and higher debt-service burdens for borrowers., Priority medium: restoring leasing segment profit conversion and stabilizing fee and commission income., Priority medium: monitoring unrealized securities gains, which materially lifted comprehensive income but can reverse with market movements..

Investment Implications

Key takeaways include Nine-month ordinary income increased 30.1% YoY to ¥12.73bn and net income increased 46.3% to ¥9.65bn., Q3 progress is ahead of the normal seasonal pace: 81.1% of full-year ordinary-income guidance and 86.9% of net-income guidance have been achieved., Banking is the core business, generating ¥12.71bn of segment profit, while leasing profit declined to ¥0.16bn., Net interest income increased 38.5% YoY, but the 1.01% NIM and rapid increase in interest expense highlight margin-repricing risk., The FY2026 forecast DPS of ¥128.0 implies a moderate 30.0% payout ratio based on forecast EPS..

Metrics to watch include NIM and the pace of interest expense relative to loan interest income, Deposit trends, loan-to-deposit ratio and negotiable certificate of deposit funding, Reported capital adequacy ratio and equity sensitivity to securities valuations, Loan-loss provisions, allowance coverage and borrower credit trends, Leasing segment profit margin and fees and commissions income, Q4 ordinary income and net income relative to the ¥2.98bn and ¥1.45bn implied requirements for full-year guidance.

Regarding relative positioning, The group delivered strong nine-month profit growth and above-plan forecast progress, supported by banking net interest income and disciplined administrative-expense growth. Relative positioning is tempered by a sub-1.5% NIM, high bank balance-sheet leverage, a reported 5.0% capital adequacy ratio, and a weaker leasing profit contribution. Its approximately 81.7% loan-to-deposit ratio is a relative balance-sheet positive, remaining within the conventional banking operating range.