Quick View
| Metric | Current Period | Same Period of Previous Year | YoY |
|---|---|---|---|
| Revenue | ¥799.0B | ¥676.6B | +18.0% |
| Operating Income | - | - | - |
| Ordinary Income | ¥265.1B | ¥223.1B | +18.8% |
| Net Income | ¥238.9B | ¥183.6B | +30.1% |
| ROE | 7.8% | 6.2% | - |
Executive Summary
For the nine months ended Q3 of FY2026, revenue and profit increased, driven by growth in loans and the rising interest rate environment, while the lower tax burden pushed up net income. Ordinary revenue was ¥799.0B (+18.0% YoY), ordinary income was ¥265.1B (+18.8%), and net income was ¥238.9B (+30.1%). The primary reason net income growth exceeded ordinary income growth was the decline in the effective tax rate from approximately 16.8% in the same period of the previous year to 8.9%; this should be evaluated separately from any improvement in core earnings power.
Factors Affecting Performance
【Revenue】Ordinary revenue was ¥799.0B, up +18.0% YoY. Ordinary revenue from external customers in the Banking segment was ¥732.7B (+18.7%), driving the increase in consolidated revenue and accounting for 91.6% of the total. The loan balance expanded to ¥2,310.77B (+5.4%), while interest on loans increased to ¥494.5B (+9.5%). Meanwhile, interest on deposits rose substantially to ¥52.7B from ¥15.6B in the same period of the previous year, partially offsetting the growth in net interest income through higher funding costs.
【Profit and Loss】Ordinary income was ¥265.1B (+18.8%), and the ordinary income margin was 33.2%, broadly unchanged from 33.0% in the same period of the previous year. General and administrative expenses were ¥276.7B, down 0.5% YoY, indicating that fixed costs were contained and contributing to operating leverage during the revenue growth phase. Extraordinary losses of ¥2.9B, including impairment losses of ¥1.0B, were recorded as temporary factors and reduced profit before tax to ¥262.3B. However, income taxes decreased to ¥23.4B from ¥37.0B in the same period of the previous year, resulting in net income of ¥238.9B (+30.1%). Revenue and profit increased.
Segment Analysis
The Banking segment posted ordinary revenue of ¥732.7B (+18.7% YoY) and segment profit of ¥257.8B (+17.4%), representing increases in both revenue and profit. However, its profit margin declined to 35.2% from approximately 35.6% in the same period of the previous year, suggesting the impact of rising deposit interest rates. Other segments, including money-lending, leasing, and credit card operations, recorded ordinary revenue of ¥67.6B (+8.1%) and profit of ¥8.2B (+79.1%), representing a substantial increase in profit. Their profit margin improved significantly to 12.1% from approximately 7.3% in the same period of the previous year. However, these segments accounted for only 8.4% of consolidated revenue, and their impact on consolidated performance remains limited.
Key Financial Indicators
【Profitability】The ordinary income margin was 33.2%, broadly unchanged from 33.0% in the same period of the previous year, while the net income margin increased to 29.9% from 27.1%. However, much of the increase was attributable to the lower tax burden. 【Cash Flow Quality】The allowance for loan losses was ¥922.3B, a decrease of ¥95.3B from the same period of the previous year. It should be noted that additional provisions may be required if the credit environment deteriorates. 【Investment Efficiency】ROE was 7.8%, and annualized ROA was approximately 0.9%; asset turnover remains low relative to the large balance sheet, with net assets of ¥3,460.68B. 【Financial Soundness】The equity ratio improved to 8.8% from 8.5% in the same period of the previous year. The loan-to-deposit ratio was 74.0%, within the banking industry guideline range of 70–90%, while deposits accounted for 99.1% of liabilities, indicating a deposit-centered funding structure.
Cash Flow Analysis
As cash flow statement data have not been disclosed, this analysis is based on funding trends identified from the balance sheet. Cash and due from banks decreased by ¥213.60B, from ¥693.36B in the same period of the previous year to ¥479.76B, while securities increased to ¥395.53B (+¥66.57B) and loans increased to ¥2,310.77B (+¥117.93B). This indicates that a portion of cash-like assets was allocated to loans and securities investments, representing a shift in funds toward improving asset profitability. Liquid assets, calculated as the sum of cash and due from banks, securities, and call loans, were equivalent to approximately 32.8% of the deposit balance, indicating that a certain level of liquidity was maintained.
Quality of Earnings
Relative to ordinary income of ¥265.1B, extraordinary income was ¥0.2B and extraordinary losses were ¥2.9B, including impairment losses of ¥1.0B, resulting in a limited impact on profit before tax. The primary reason net income growth (+30.1%) exceeded ordinary income growth (+18.8%) was the decrease in income taxes to ¥23.4B and the resulting decline in the effective tax rate to approximately 8.9%. This includes the effect of a temporary reduction in the tax burden, and caution is warranted when assessing sustainability. Comprehensive income was ¥337.3B, up +86.0% YoY, while the increase of ¥9.92B in valuation difference on securities created a divergence from net income of ¥238.9B. This divergence resulted from market price fluctuations and could reverse in a rising interest rate environment; therefore, the quality of accruals requires close monitoring.
Earnings Forecast and Guidance
The full-year plan calls for ordinary income of ¥310.0B (+18.5% YoY), net income of ¥250.0B, and EPS of ¥143.05. The progress rates for the nine months ended Q3 were 85.5% for ordinary income and 95.6% for net income, both representing progress ahead of the standard 75% level. In particular, the high progress rate for net income includes the contribution from the lower tax burden. If the effective tax rate normalizes in Q4, the pace of achievement relative to the full-year plan may change. No revisions have been made to the earnings forecast.
Shareholder Returns
The Q2 dividend was ¥22.00 per share, and the full-year forecast dividend is ¥44.00. Based on forecast EPS of ¥143.05, the forecast payout ratio is 30.8%, below the general benchmark level of 60%. Treasury stock increased by ¥17.156B YoY, increasing the scale of the deduction item. However, the amount of treasury stock repurchases during the current period cannot be identified solely from changes in the balance, and the total return ratio, combining dividends and treasury stock repurchases, has not been calculated. Dividend sustainability depends on achievement of the full-year net income plan and maintenance of the 8.8% equity ratio.
Risk Factors
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Segment concentration risk: The Banking segment accounts for 91.6% of consolidated ordinary revenue, creating a structure in which changes in loan yields, deposit interest rates, and credit costs have a concentrated impact on consolidated performance.
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Rising funding cost risk: Interest on deposits surged 237.3% YoY. If this increase exceeds the growth in income from loans and securities investments, net interest margins could be pressured. The Banking segment profit margin has already shown a declining trend, falling to 35.2% from approximately 35.6% in the same period of the previous year.
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Capital buffer risk: Although the equity ratio of 8.8% improved from 8.5% in the same period of the previous year, it remains below the 12% financial soundness benchmark. The allowance for loan losses decreased by ¥95.3B YoY, and deterioration in the credit environment could place pressure on capital through additional provisions.
Industry Benchmark (Reference; Company Analysis)
Industry Benchmark (bank)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Net Income Margin | 29.9% | – | – |
The company’s net income margin of 29.9% is positioned at a relatively high level within the industry.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 18.0% | – | – |
The company’s ordinary revenue growth rate of 18.0% represents a solid level of growth within the industry, driven by the expansion of the loan balance and rising interest rates.
※Source: Company compilation
Key Points from the Earnings Results
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Ordinary income increased +18.8% and net income increased +30.1%, securing increases in both revenue and profit. Progress rates against the full-year plan exceeded standard levels, although the high progress rate for net income includes the contribution from the lower effective tax rate.
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The Banking segment maintained profit growth, but its segment profit margin has been trending downward due to the sharp increase in interest on deposits. The ability to absorb funding costs will be a key focus going forward.
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The equity ratio improved to 8.8%, but given the highly leveraged, deposit-centered structure, fluctuations in valuation differences on securities and trends in credit costs will affect capital stability.
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 discretion and responsibility, after consulting with professionals as necessary.
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AI Financial Analysis
Executive Summary
Suruga Bank delivered a strong FY2026 Q3 cumulative earnings outcome, led by higher lending income and a materially lower tax burden. Ordinary revenue rose 18.0% year on year to ¥79.90bn. Ordinary income increased 18.8% to ¥26.51bn. Profit attributable to owners rose 30.1% to ¥23.90bn, materially outpacing ordinary-profit growth. The reported ordinary-income margin improved by 21bp to 33.2% from 33.0% in the prior-year period. Net profit margin expanded by approximately 276bp to 29.9% from 27.1%. The faster growth in net income primarily reflects the effective tax rate declining to 8.9% from approximately 16.8% a year earlier. The tax burden factor was 0.911, indicating that 91.1% of pre-tax profit was retained as net income. Interest income increased 13.7% to ¥58.07bn, while interest on loans rose 9.5% to ¥49.45bn. Deposit interest expense increased sharply to ¥5.27bn from ¥1.56bn as the interest-rate environment raised funding costs. Nevertheless, annualized loan yield was approximately 2.85% and the annualized loan-deposit spread was approximately 2.62%, supporting core earnings. The banking segment remained the core business, generating ¥25.78bn of segment profit, or almost all consolidated segment profit before adjustments. The other-business segment showed particularly strong profit growth, although it remains much smaller than the banking operation. The bank's capital adequacy ratio improved to 8.8% from 8.5%, remaining above the stated 8% minimum but with a narrower buffer than strongly capitalized peers. The balance sheet shifted toward loans and securities while cash and due from banks declined materially. Treasury stock increased by ¥17.16bn in carrying amount, indicating substantial capital return or share repurchases. The FY2026 full-year ordinary-income forecast of ¥31.0bn is 85.5% achieved after nine months, while the ¥25.0bn profit forecast is 95.6% achieved. This creates a high probability that final-quarter earnings will be substantially lower than the Q1-Q3 run rate or that the current forecast is conservative. The full-year DPS forecast of ¥44 implies a moderate forecast dividend payout ratio of approximately 31%.
Profitability Analysis
The reported annualized ROE was 10.4%, which is within the 10-15% range generally considered good, although it is supported by high balance-sheet leverage inherent in banking. The DuPont decomposition is net profit margin of 29.9% multiplied by annualized asset turnover of 0.031x and financial leverage of 11.31x. Financial leverage is the main factor allowing a sub-1% annualized ROA of approximately 0.9% to translate into a 10.4% annualized ROE. Margin improvement was meaningful: the ordinary-income margin rose to 33.2%, while the net margin rose to 29.9%. The principal driver of net-income outperformance versus ordinary income was the lower 8.9% effective tax rate rather than operating-margin expansion alone. The five-factor DuPont tax burden of 0.911 was favorable, while the interest burden of 0.990 indicates that earnings before tax were only modestly below the operating-income proxy used in the calculation. Banking segment revenue rose 18.7% to ¥73.27bn and segment profit rose 17.4% to ¥25.78bn. Banking segment profit margin therefore eased by roughly 43bp to 35.1%, as profit growth slightly lagged revenue growth. Other businesses increased revenue by 8.1% to ¥6.76bn, while segment profit increased 79.1% to ¥0.82bn. The other-business segment margin improved to 12.1% from 6.5%, but its absolute contribution remains limited. General and administrative expenses declined 0.5% to ¥27.67bn despite 18.0% revenue growth, demonstrating positive operating leverage. The implied cost-to-income ratio was approximately 34.6%, indicating a highly efficient cost base. JGAAP goodwill amortization was ¥0.10bn, immaterial relative to ¥26.51bn of ordinary income and not a material distortion to reported profitability. Extraordinary losses of ¥0.29bn, including ¥0.10bn of impairment losses, were small relative to earnings. The impairment charge declined from ¥0.25bn in the prior-year period, reducing the drag from branch and idle-asset rationalization.
Growth Assessment
Revenue growth was broad-based, with banking external revenue rising ¥11.57bn year on year and other-business revenue rising ¥0.51bn. Interest income rose ¥7.01bn, driven mainly by a ¥4.29bn increase in interest on loans and a ¥1.02bn increase in interest and dividends on securities. Fee and commission income also increased 7.6% to ¥6.86bn, supporting diversification beyond interest income. Loans and bills discounted increased 5.4% year on year to ¥2,310.77bn, indicating that asset growth contributed to interest-income expansion. Securities increased 20.2% to ¥395.53bn, adding to interest and dividend income potential but increasing exposure to market-value fluctuations. Funding costs are rising rapidly: interest expense increased ¥3.71bn, with interest on deposits up ¥3.71bn year on year. Sustaining earnings growth will therefore depend on the bank's ability to preserve loan-deposit spreads as deposit repricing continues. Deposits declined 0.8% to ¥3,123.40bn but remained substantially above loans. The full-year ordinary-income forecast implies Q4 ordinary income of ¥4.49bn, versus ¥26.51bn booked in the first nine months cumulatively. The full-year net-income forecast implies Q4 profit attributable to owners of only ¥1.10bn. The forecast therefore embeds a pronounced sequential deceleration, potential prudential costs, or conservatism. Management has not revised either earnings or dividend guidance. The favorable Q3 cumulative tax rate was a significant contributor to profit growth and should be monitored for normalization in the final quarter.
Financial Health
Total assets were broadly stable year on year at ¥3,459.09bn, while total equity increased 3.4% to ¥305.90bn. Owners' equity rose to ¥305.79bn, supported by retained earnings of ¥281.20bn and higher accumulated other comprehensive income. The capital adequacy ratio improved 30bp year on year to 8.8%, above the stated regulatory minimum of 8.0%. However, the 8.8% ratio is below the 12% level generally associated with a strong capital cushion, leaving capital management and risk-weighted-asset discipline important. The quality alert of a 10.31x debt-to-equity ratio requires explicit context. A D/E ratio above 2.0x would be aggressive for a non-financial company, and 10.31x indicates that the balance sheet is funded predominantly by liabilities. For a deposit-taking bank, this measure largely reflects customer deposits rather than conventional corporate borrowing, so it should not be interpreted in isolation as a distress signal. Its impact is nevertheless material because a modest decline in asset values or increase in credit costs can have an amplified effect on common equity and regulatory capital. Deposits of ¥3,123.40bn funded a loan book of ¥2,310.77bn, producing a calculated loan-to-deposit ratio of 74.0%. This is within the 70-90% range generally viewed as balanced and indicates no apparent dependence on loans exceeding deposit funding. Cash and due from banks of ¥479.76bn and call loans of ¥150.00bn provide substantial liquid asset holdings alongside the deposit base. Acceptances and guarantees were ¥1.11bn, which represents a limited off-balance-sheet credit exposure relative to total assets. Intangible assets were only 0.3% of total assets, indicating no material intangible-asset concentration. Treasury stock expanded materially and reduced the reported equity base; this improves per-share capital metrics but also reduces capital retained for loss absorption. Deferred tax assets declined to ¥2.01bn from ¥6.42bn, reducing the reliance on deferred tax assets within the balance sheet.
Notable B/S Changes
Treasury stock: -¥30.50bn versus -¥13.35bn, an increase of ¥17.16bn in the negative balance (128.5%) - indicates substantial treasury-share accumulation and reduces equity available for capital buffers. Cash and due from banks: -¥213.60bn (-30.8%) to ¥479.76bn - a substantial liquidity allocation shift, partly offset by increased loans and securities. Loans and bills discounted: +¥117.93bn (+5.4%) to ¥2,310.77bn - supports lending-income growth but increases exposure to borrower credit performance. Securities: +¥66.57bn (+20.2%) to ¥395.53bn - enhances interest and dividend income potential while increasing market-value and interest-rate sensitivity. Valuation difference on securities: +¥9.92bn to ¥24.55bn - strengthened accumulated OCI and equity, but this component is exposed to future market-price volatility. Deferred tax assets: -¥4.42bn (-68.7%) to ¥2.01bn - reduces deferred-tax-asset dependence within total equity.
Cash Flow Quality
Dividend Sustainability
The Q2 DPS was ¥22, and the company forecasts FY2026 DPS of ¥44. Based on forecast EPS of ¥143.05, the forecast dividend payout ratio is approximately 30.8%. Based on forecast profit attributable to owners of ¥25.0bn and average shares of 176.35 million, the payout ratio is approximately 31.0%. This is below the 60% sustainability benchmark and leaves a significant proportion of earnings available for capital retention. The reported interim payout calculation of 18.1% also indicates that the first-half distribution was readily covered by nine-month earnings. Treasury stock carrying value increased by ¥17.16bn year on year, suggesting substantial share repurchase activity or other treasury-share transactions. Using that movement as an indicative buyback amount, dividends plus treasury-share accumulation could approach the forecast annual profit amount; this should be assessed as a total return ratio rather than a dividend payout ratio. For a bank with an 8.8% capital adequacy ratio, the balance between shareholder distributions and capital accumulation remains important. The unchanged ¥44 full-year dividend forecast signals management confidence in earnings and capital capacity, but the high Q1-Q3 progress toward full-year net-income guidance means final-quarter capital and distribution developments warrant attention.
Risk Assessment
Business risks include Interest-rate and deposit-repricing risk: deposit interest expense rose to ¥5.27bn from ¥1.56bn, and continued funding-cost increases could compress the current annualized loan-deposit spread of approximately 2.62%., Credit-cycle risk: the ¥2,310.77bn loan portfolio is the main earnings asset, and economic weakness or borrower stress could raise provisions and reduce ordinary income., Securities-market risk: securities increased ¥66.57bn year on year to ¥395.53bn, while valuation differences on securities increased to ¥24.55bn; interest-rate or market-price movements could affect OCI and capital., Regional-bank competition risk: competition for deposits and quality borrowers may pressure both loan yields and deposit pricing., Branch and fixed-asset utilization risk: impairment losses on banking locations and idle assets continued, albeit at a lower ¥0.10bn, showing that physical-network optimization remains relevant..
Financial risks include High leverage alert: D/E of 10.31x reflects the deposit-funded banking model, but it also means earnings volatility, asset losses, or valuation declines can have a magnified effect on equity., Capital-buffer risk: the capital adequacy ratio of 8.8% is above the 8% minimum but below the 12% strong-capital benchmark., Capital-return risk: the ¥17.16bn increase in treasury stock may constrain the pace of organic capital accumulation if repurchases remain substantial., Tax-rate normalization risk: the 8.9% effective tax rate materially supported net income and may not recur at the same level..
Key concerns include Highest priority: whether rising deposit costs can be offset by loan repricing and asset-yield improvement., Highest priority: maintenance of regulatory capital headroom while executing dividends and potential buybacks., Medium priority: credit costs and loan-loss reserve movements as lending assets expand., Medium priority: the extent to which unrealized securities gains remain resilient under changes in market interest rates., Medium priority: the large difference between Q1-Q3 earnings progress and the comparatively modest full-year forecast..
Investment Implications
Key takeaways include Nine-month ordinary income increased 18.8% to ¥26.51bn and profit attributable to owners increased 30.1% to ¥23.90bn., Cost control was strong, with general and administrative expenses declining 0.5% while revenue rose 18.0%., The core banking segment produced ¥25.78bn of segment profit and remains the dominant earnings driver., The annualized ROE of 10.4% is solid for a regional bank but is dependent on 11.31x financial leverage., The 8.8% capital adequacy ratio is compliant but offers less surplus capacity than banks operating with double-digit capital ratios., The FY2026 DPS forecast of ¥44 implies an approximately 31% dividend payout ratio, which is moderate on an earnings basis..
Metrics to watch include Interest on deposits and the annualized loan-deposit spread, Loan growth, deposit balance trends, and the 74.0% loan-to-deposit ratio, Capital adequacy ratio and changes in treasury stock, Loan-loss provisions, allowance for loan losses, and credit costs, Valuation differences on securities and accumulated other comprehensive income, Q4 ordinary income and net income relative to the ¥31.0bn and ¥25.0bn full-year forecasts, Effective tax rate normalization.
Regarding relative positioning, Suruga Bank shows strong earnings momentum, a low implied cost-to-income ratio, and a balanced deposit-funded loan book. Relative to well-capitalized banking peers, its capital adequacy position is more modest, while its profitability is supported by a favorable tax rate, improving asset yields, and high structural banking leverage.