Suruga Bank (8358) FY2026 FY Earnings Report

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Executive Summary

This earnings report shows substantial increases in both ordinary income and net income, driven by the expansion of fund-based income and cost containment. Ordinary revenue was ¥109.912B (+20.6% YoY), ordinary income was ¥35.518B (+35.7%), and net income attributable to owners of the parent was ¥34.728B (+71.9%). While the increase in interest on loans and a 3.1% decrease in general and administrative expenses contributed to earnings growth, the reduction in extraordinary losses and the low effective tax rate of 1.6% pushed net income above ordinary income growth. The sustainability of this level will be a key focus going forward.

Factors Affecting Earnings

【Revenue】Ordinary revenue was ¥109.912B (+20.6% YoY). By segment, Banking accounted for ¥100.870B (external customers, 91.7% of total), while Other accounted for ¥9.071B (8.3%), clearly indicating business concentration in banking. Interest on loans was ¥66.866B (+10.6%), while the balance of loans increased by ¥179.559B YoY to ¥2,398.794B, supporting revenue growth on the asset side. Meanwhile, interest on deposits surged to ¥7.685B, up +202.2% YoY, indicating that the pace of funding cost increases is beginning to outstrip growth in asset yields, a factor that will influence future net interest margin trends.

【Profit and Loss】Ordinary income was ¥35.518B (+35.7% YoY), and the ordinary income margin improved by 360bp to 32.3% from 28.7% in the previous year. The containment of general and administrative expenses at ¥36.539B (-3.1%) generated strong operating leverage in conjunction with revenue growth. Net extraordinary losses were limited to ¥0.238B, improving from a loss of ¥1.443B in the previous year. Combined with the low effective tax rate of 1.6%, net income increased 71.9% to ¥34.728B, substantially outpacing ordinary income growth. It should be noted that although this represents both revenue and profit growth, the increase in net income was supported by temporary factors, including lower extraordinary losses and the low tax rate.

Segment Analysis

The reporting segments consist of Banking, centered on banking operations, and Other, which includes lending, leasing, and credit card operations. The Banking segment generated ordinary revenue of ¥100.870B and segment profit of ¥34.528B, representing a profit margin of 34.2% and 96.9% of total consolidated segment profit. The Other segment generated ordinary revenue of ¥9.071B and segment profit of ¥1.109B, representing a profit margin of 12.2%. The earnings structure is therefore highly dependent on banking operations. This business concentration indicates a structure in which changes in the banking earnings environment, centered on deposits, loans, and foreign exchange, are likely to flow directly through to consolidated results.

Key Financial Indicators

【Profitability】The net income margin was 31.6%, up 940bp from 22.2% in the previous year, while the ordinary income margin was 32.3%, improving by 360bp. ROE reached 10.7%, exceeding the general benchmark of 10%. The EBITDA margin was 35.9%, a level sufficient to absorb depreciation expenses. 【Cash Flow Quality】Operating Cash Flow (OCF) was negative ¥148.142B, representing negative 4.27 times net income. However, this reflects the banking industry's distinctive structure, in which changes in the funding positions of deposits, loans, and securities influence cash flow, and therefore cannot be interpreted on the same basis as for general operating companies. 【Investment Efficiency】Capital expenditures were ¥1.357B compared with depreciation expenses of ¥3.931B, resulting in a capital expenditure-to-depreciation ratio of 0.35x. The sustainability of systems and digital investment levels will therefore require monitoring. 【Financial Soundness】The equity ratio was 9.1%, exceeding the minimum guideline of 8% but falling short of the soundness benchmark of above 12%. The loan-to-deposit ratio was 75.0% (loans of ¥2,398.794B ÷ deposits of ¥3,197.222B), within the generally accepted benchmark range.

Cash Flow Analysis

Operating Cash Flow (OCF) was negative ¥148.142B, investing cash flow was negative ¥81.687B, and financing cash flow was negative ¥24.126B. Free cash flow was negative ¥229.829B, while cash and cash equivalents decreased by ¥253.957B. In banking, changes in the funding and investment positions of deposits, loans, securities, and other assets significantly influence operating cash flow. Accordingly, an operating cash flow deficit largely reflects changes in asset allocation rather than a decline in earnings capacity. In fact, loans increased by ¥179.559B and securities increased by ¥90.123B, while cash and deposits decreased by ¥259.363B, indicating a shift of funds toward investment assets. Capital expenditures were ¥1.357B, only 0.35x depreciation expenses of ¥3.931B, and the level of future investment in systems infrastructure upgrades requires continuous monitoring.

Earnings Quality

The 35.7% increase in ordinary income was supported by recurring factors, namely the expansion of fund-based income and a 3.1% decrease in general and administrative expenses. Meanwhile, the 72.1% increase in net income was aided by the reduction in net extraordinary losses (from a loss of ¥1.443B in the previous year to a loss of ¥0.238B in the current period) and the extremely low tax burden represented by an effective tax rate of 1.6%. It therefore does not directly reflect the growth in recurring earnings power. Comprehensive income was ¥51.720B, exceeding net income by ¥16.992B. Increases of ¥12.215B in valuation differences on securities and ¥4.778B in adjustments related to retirement benefits were the primary contributors. The expansion of valuation differences on securities has increased the sensitivity of net assets to market and interest rate fluctuations, and the potential impact of movements in the opposite direction must be considered.

Earnings Forecast and Guidance

The company's forecast is ordinary income of ¥47.500B (+33.7% YoY), net income of ¥32.000B (-5.9%), EPS of ¥187.72, and annual dividends of ¥60.00. Current-period ordinary income of ¥35.518B represents a 74.8% progress rate against the forecast, while net income of ¥34.728B has already reached 108.5% of the forecast of ¥32.000B. While the ordinary income forecast assumes continued earnings growth, the net income forecast represents a decline from current-period actual results. This appears to incorporate the reversal of temporary earnings-boosting factors in the current period, such as the low tax rate and reduced extraordinary losses.

Shareholder Returns

Annual dividends totaled ¥60.00, comprising an interim dividend of ¥22.00 and a year-end dividend of ¥38.00. Dividing total dividends of ¥10.343B by net income of ¥34.728B results in a payout ratio of approximately 29.8% (disclosed figure: 30.2%). Including ¥17.623B in share repurchases, total shareholder returns amounted to ¥27.966B, resulting in a Total Return Ratio of approximately 80.5%. The payout ratio and Total Return Ratio differ substantially, indicating that share repurchases accounted for a significant portion of returns during the current period. The company's forecast annual dividend is ¥60.00, unchanged from the current-period actual dividend, resulting in a forecast payout ratio of approximately 32.0% based on forecast EPS of ¥187.72. The balance between proactive shareholder returns and capital headroom under an equity ratio of 9.1% will be a key area to monitor.

Risk Factors

1. Loan-Deposit Spread Contraction Risk: Interest on deposits surged +202.2% YoY, while interest on loans increased only +10.6%. If funding costs continue to rise faster than asset yields, this could lead to a contraction in the net interest margin.

2. Business Concentration Risk: The Banking segment accounts for 91.7% of ordinary revenue from external customers and 96.9% of segment profit. Changes in the banking earnings environment, centered on deposits, loans, and foreign exchange, will directly affect consolidated results.

3. Risk Related to Capital Headroom: Although the equity ratio of 9.1% exceeds the minimum guideline of 8%, the balance with capital accumulation will require monitoring in light of proactive shareholder returns, including share repurchases of ¥17.623B and a Total Return Ratio of approximately 80.5%.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Returns

The net income margin is substantially above the industry median and stands at a high level close to the upper bound of the IQR (35.4%).

Growth and Capital Efficiency

The revenue growth rate is approximately twice the industry median and indicates high growth above the upper bound of the IQR (12.1%).

※Source: Compiled by the Company

Key Earnings Highlights

1. Ordinary revenue increased +20.6%, ordinary income increased +35.7%, and net income increased +71.9%, indicating significant improvement across all metrics. However, the increase in net income includes the contribution of the low effective tax rate of 1.6% and reduced extraordinary losses, which must be distinguished from recurring profit growth.

2. The loan-to-deposit ratio of 75.0% is within an appropriate range, and the balance of lending operations based on deposits has been maintained. At the same time, the sharp increase in interest on deposits (+202.2%) is a key factor that will influence future net interest margin trends.

3. Although the equity ratio of 9.1% exceeds the minimum guideline, the ability to balance it with proactive shareholder returns, reflected in a Total Return Ratio of approximately 80.5%, is a key focus of capital policy.

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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. The 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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