Juroku Financial Group (7380) FY2026 Q3 Earnings Report

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Executive Summary

This earnings period secured higher revenue and earnings growth, as the expansion in ordinary revenue exceeded the sharp increase in funding costs, although profit margins declined. Revenue (ordinary revenue) was ¥1,130.6B (+20.0% YoY), ordinary income was ¥263.9B (+11.5%), and net income attributable to owners of the parent was ¥181.16B (+16.5%). Revenue growth exceeded ordinary income growth by 8.5pt, with the increase in funding costs (+85.6%) surpassing the increase in funds investment income (+23.2%), which was the primary factor pressuring profitability. Meanwhile, the increase in general and administrative expenses was contained at +6.7%, maintaining cost efficiency below ordinary revenue growth.

Factors Affecting Performance

【Revenue】Ordinary revenue was ¥1,130.6B, up +20.0% YoY. Ordinary revenue from external customers in the banking business was ¥860.8B (+28.7%), driving the overall result and accounting for 76.1% of total ordinary revenue. The leasing business recorded ¥204.8B (-2.9%), representing a decline in revenue, while other businesses (securities transactions, credit cards, etc.) recorded ¥65.0B (+5.2%), representing modest revenue growth.

【Profit and Loss】Ordinary income was ¥263.9B (+11.5%), and net income was ¥181.16B (+16.4%). Segment profit in the banking business was ¥242.3B (+10.2%), significantly below its revenue growth rate of 28.7%, confirming a decline in profit conversion. This was primarily because the sharp increase in funding costs (+85.6%) pressured NIM, while the growth in net interest income (+13.4%) failed to keep pace with the growth in ordinary revenue. Although the leasing business experienced a revenue decline, segment profit increased substantially to ¥7.47B (+99.2%), while other businesses also made a significant contribution to consolidated profit, with ¥93.03B (+10.8%). Extraordinary losses of ¥8.19B, including impairment losses of ¥7.70B, represented 3.0% of profit before tax and had a limited impact. Overall, the Group recorded higher revenue and earnings, but both the ordinary income margin, at 23.3% (25.1% in the previous year), and the net income margin, at 16.0% (16.5% in the previous year), declined, indicating a structure in which revenue growth was accompanied by deteriorating profit margins.

Segment Analysis

The banking business recorded ordinary revenue of ¥860.8B (+28.7%) and segment profit of ¥242.3B (+10.2%), indicating slower profit growth relative to revenue expansion, as the increase in funding costs reduced profit conversion. The leasing business experienced a decline in ordinary revenue to ¥204.8B (-2.9%), but segment profit doubled to ¥7.47B (+99.2%), suggesting improvements in the cost structure and a shift toward more profitable contracts. Other businesses (securities transactions, credit cards, etc.) recorded ordinary revenue of ¥65.0B (+5.2%) and segment profit of ¥93.03B (+10.8%). Its profit margin of 143.1% reflects the fact that segment profit is measured on an ordinary income basis and therefore cannot be directly compared with the operating profit margin on revenue of a general business.

Key Financial Metrics

【Profitability】The net income margin was 16.0% (based on net income attributable to owners of the parent), down from 16.5% in the previous-year period, while the ordinary income margin also declined to 23.3% (25.1% in the previous year). Net interest margin (NIM) was 0.92%, below the general banking soundness benchmark of 2%, reflecting a situation in which the increase in funding costs exceeded improvements in yields.【Cash Flow Quality】Comprehensive income was ¥567.5B, significantly exceeding net income of ¥181.16B. Most of the difference represented other comprehensive income from valuation differences on securities of ¥378.6B, indicating substantial dependence on market price fluctuations.【Investment Efficiency】ROE was 3.9% (simple calculation), equivalent to approximately 10.8% on an annualized basis. The DuPont decomposition consisted of a net income margin of 16.0%, total asset turnover of 0.015x, and financial leverage of 16.37x, with the high-leverage structure characteristic of the banking industry supporting ROE.【Financial Soundness】The equity ratio was 6.1%, below the general Basel III benchmark of 8%, requiring monitoring of capital headroom. The loan-to-deposit ratio was 78.6%, within the desirable range of 70~90%, while liquid assets comprising cash and deposits and securities amounted to ¥2 trillion 4,274B.

Cash Flow Analysis

As the available data do not include detailed items from the cash flow statement, funding trends are analyzed based on changes in the balance sheet. Cash and deposits accumulated by +¥1,589.5B (+14.8%) from the end of the previous-year period, and liquid assets were expanded primarily through deposits of ¥6,403.6B (¥6,354.9B in the previous year). Meanwhile, securities stood at ¥1,192.0B, down -8.8% from ¥1,307.0B in the previous year, indicating that portfolio reduction or replacement progressed. Borrowings were ¥497.6B, slightly down from ¥508.0B in the previous year, with no evidence of increased reliance on wholesale funding. Property, plant and equipment amounted to ¥694.8B, up +25.7% from ¥552.6B in the previous year, potentially reflecting increased investment in branches, systems, and other assets. Overall, against a backdrop of steady expansion in the deposit base, the Group appears to have increased liquid assets while shifting from securities toward cash and deposits.

Quality of Earnings

The current-period earnings increase was based on the expansion of ordinary income. Extraordinary income was zero, while extraordinary losses of ¥8.19B, including impairment losses of ¥7.70B, had only a limited impact equivalent to 3.0% of profit before tax, indicating low dependence on temporary factors. The effective tax rate was 28.0%, within the normal range, and distortion of earnings due to the tax burden was limited. Meanwhile, comprehensive income of ¥567.5B substantially exceeded net income of ¥181.16B, primarily due to valuation differences on securities of ¥378.6B. The increase in valuation differences on securities represents an accounting-based increase in capital resulting from fluctuations in market interest rates and share prices and must be evaluated separately from improvements in recurring earning power generated by operating activities. In addition, the increase in funding costs (+85.6%) was significantly greater than the increase in funds investment income (+23.2%), while growth in recurring net interest income (+13.4%) was below overall revenue growth (+20.0%), warranting attention to upward pressure on funding costs in assessing earnings quality.

Earnings Forecasts and Guidance

The full-year forecast remains unchanged at ordinary income of ¥348.0B (+11.4% YoY), forecast net income attributable to owners of the parent of ¥235.0B, forecast EPS of ¥654.65, and forecast dividend of ¥200.00. The Q3 cumulative progress rates were 75.8% for ordinary income and 77.1% for net income, slightly exceeding the standard progress rate of 75%, indicating generally steady progress toward achieving the full-year forecasts. Annualized net income attributable to owners of the parent is calculated at ¥241.55B, slightly exceeding the full-year forecast of ¥235.0B; however, as net interest income, securities-related gains and losses, and credit costs fluctuate from quarter to quarter, it will be necessary to confirm in future quarterly data whether this pace of progress can be maintained.

Shareholder Returns

The Q2 dividend was ¥100.00 per share, and the full-year dividend forecast remains unchanged at ¥200.00, with no revision. The forecast payout ratio based on forecast full-year EPS of ¥654.65 (dividends only) is 30.6%, below the level of 60% generally considered sustainable. Q3 cumulative net income attributable to owners of the parent of ¥181.16B is approximately 2.6 times the forecast full-year total dividend of (approximately ¥70.8B), indicating that dividends are sufficiently covered by earnings. Treasury shares increased compared with the end of the previous-year period, but as detailed information on the acquisition amount and timing is unavailable, this should be viewed as reference information separate from the payout ratio.

Risk Factors

1. Pressure on net interest income from declining NIM: Net interest margin was 0.92%, below the 2% benchmark for banking-sector soundness. Funding costs increased +85.6% YoY, significantly exceeding the +23.2% increase in funds investment income, suggesting that the pass-through of higher deposit rates is preceding improvements in lending and investment yields.

2. Equity ratio level: The equity ratio was 6.1%, below the general Basel III benchmark of 8%. Although the increase in valuation differences on securities (¥378.6B, +134.0% YoY) lifted net assets, valuation differences may contract when market prices fluctuate, requiring continuous monitoring of capital headroom.

3. Slowing earnings growth and business concentration in banking: Segment profit growth was limited to +10.2%, compared with ordinary revenue growth of +28.7% in the banking business, indicating a decline in the profit conversion rate from revenue expansion. As the banking business accounts for 76.1% of total ordinary revenue, changes in regional economic conditions and funding demand could have a significant impact on consolidated performance.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

As comparable median data for the net income margin within the industry are not provided, the assessment is limited to the absolute level.

Growth and Capital Efficiency

Similarly, industry median data for the revenue growth rate are not provided; in absolute terms, strong revenue growth of +20.0% was confirmed.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The Group secured higher revenue and earnings, with ordinary revenue up +20.0% and net income up +16.5%; however, the ordinary income margin declined 178bp YoY due to the sharp increase in funding costs (+85.6%). This illustrates the structure of margin changes during a period of revenue growth.

2. While the funding base was stable, with a loan-to-deposit ratio of 78.6% and liquid assets of ¥2 trillion 4,274B, the equity ratio of 6.1% was below the Basel III benchmark of 8%, making developments in capital a key area of focus.

3. Of comprehensive income of ¥567.5B, ¥383.4B represented an increase attributable to valuation differences on securities, indicating that much of the expansion in net assets depends on market price fluctuations. This is an important consideration when assessing the quality of capital.

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment 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 responsibility, after consulting with a professional as necessary.

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