Suruga Bank Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Benefiting from the rising interest rate environment, the Company reported strong results with higher revenue and income, driven by increased profitability in its core banking business and the normalization of credit- and market-related expenses. Revenue (ordinary revenues) was ¥371.1B, up +42.6% year on year, while ordinary income surged +207.7% to ¥205.2B. Net income attributable to owners of the parent increased +158.6% to ¥140.9B, and EPS expanded to ¥82.70 (¥29.88 in the same period of the previous year). The primary drivers of the increase in income were the expansion of net interest income resulting from higher interest on loans, together with a reduction in other ordinary expenses recorded in the previous year.

Factors Affecting Performance

【Revenue】Revenue (ordinary revenues) was ¥371.1B, up +42.6% year on year. External ordinary revenues from the Banking segment were ¥347.9B (+46.1%), accounting for 93.8% of the total and serving as the primary driver of revenue growth. Interest on loans increased to ¥187.6B (+15.8%), absorbing the increase in interest on deposits (¥27.9B, +84.1%), and net interest income expanded to ¥202.6B (+10.7%). Net fee income remained negative at -¥0.8B, but improved from -¥2.8B in the previous year.

【Profit and Loss】Ordinary income was ¥205.2B (+207.7% year on year), while net income was ¥140.9B (+158.6%). General and administrative expenses decreased -4.3% to ¥92.7B (¥96.9B in the previous year), and positive operating leverage emerged as expenses were contained relative to revenue growth. Extraordinary losses were limited to ¥0.8B, including an impairment loss of ¥0.2B, and there was virtually no gap between ordinary income and profit before tax (¥204.4B). In conclusion, these were results characterized by higher revenue and income, with the expansion of interest income and the normalization of expenses and other income and expenses both contributing simultaneously.

Segment Analysis

The reported segments consist of Banking and Other. External ordinary revenues from the Banking segment were ¥347.9B (¥237.9B in the previous year, +46.1%), while segment income was ¥202.3B (¥64.8B in the previous year, +212.3%), with the banking business driving both revenue and income. The Other segment, which includes lending operations, leasing, administrative outsourcing, credit cards, and guarantee services, among others, recorded ordinary revenues of ¥23.0B (+4.2%) and segment income of ¥3.2B (¥2.2B in the previous year), representing growth in income despite its small scale. The Banking segment accounted for approximately 98.6% of total income (before adjustments), indicating a high degree of reliance on the core banking business.

Key Financial Indicators

【Profitability】The net profit margin expanded significantly to 38.0% (20.9% in the previous year), while ROE was 4.3%. The improvement in ROE was largely attributable to the sharp increase in the net profit margin, while the total asset turnover ratio (approximately 1.0%) and financial leverage (approximately 10.8x based on total assets/net assets) remained largely unchanged. 【Cash Flow Quality】Although the statement of cash flows has not been disclosed, the allowance for loan losses declined to ¥671.7B (¥766.3B in the previous year), suggesting that the reversal or normalization of credit costs may have contributed to reported income. 【Investment Efficiency】There was no significant change in the asset composition, with tangible fixed assets of ¥283.5B and intangible fixed assets of ¥81.2B. The majority of capital was allocated to loans (¥2,410.9B) and securities (¥431.1B). 【Financial Soundness】The equity ratio was 9.3% (9.1% in the previous year), exceeding the regulatory minimum, while the loan-to-deposit ratio was approximately 75.6%, based on loans of ¥2,410.9B and deposits of ¥3,190.3B, representing a stable level from a liquidity perspective.

Cash Flow Analysis

As the statement of cash flows has not been disclosed, funding trends are assessed based on changes in the balance sheet. Cash and deposits increased to ¥4,491.6B (¥4,340.0B in the previous year), while call loans were reduced to ¥900B (¥1,300B in the previous year), indicating progress in reviewing short-term liquidity management. Loans increased +0.5% to ¥2,410.9B, while deposits decreased -0.2% to ¥3,190.3B. Quantitative growth in the balance sheet remained limited, suggesting that the increase in income during the period was driven more by improved yields and expense control than by expansion of the asset base. Treasury stock decreased to ¥292.9B (¥309.5B in the previous year), indicating movement in the Company’s capital policy.

Quality of Earnings

In addition to the expansion of recurring net interest income, the reduction in other ordinary expenses recorded in the previous year—a normalization factor—made a significant contribution to the increase in income for the period. Extraordinary income and expenses were limited to extraordinary losses of ¥0.8B, including an impairment loss of ¥0.2B, and profit before tax (¥204.4B) was largely in line with ordinary income (¥205.2B). Comprehensive income was ¥144.8B, with the difference from net income of ¥140.9B limited to +¥3.9B, primarily due to a +¥6.7B valuation difference on securities. The small difference between comprehensive income and net income indicates that fluctuations in asset valuations supporting income for the period were limited. However, the decrease in the allowance for loan losses suggests a reversal of credit costs, and attention is warranted because a portion of net income for the period may include a one-time normalization effect.

Earnings Forecast and Guidance

Against the full-year ordinary income forecast of ¥475.0B, ordinary income for Q1 was ¥205.2B, representing a progress rate of 43.2% and significantly exceeding the 25% implied by simple quarterly linear progression. Against the full-year net income forecast of ¥320.0B, net income for the period of ¥140.9B represented a progress rate of 44.0%. Forecast EPS is ¥187.72, while actual EPS for the period was ¥82.70, representing a progress rate of 44.1%. No revisions were made to either the earnings forecast or the dividend forecast during the quarter. If the expansion of net interest income resulting from higher interest rates and the normalization of expenses and credit costs continue, the full-year plan appears achievable. However, the sustainability of progress will depend on the extent of deposit repricing and the potential reversal of credit expenses in the second half of the fiscal year.

Shareholder Returns

The full-year dividend forecast is ¥60, and no revision was made to the dividend forecast for the quarter. Compared with the previous year’s annual dividend of ¥22 (based on disclosed figures), the full-year forecast of ¥60 represents an increased dividend. Based on the full-year net income forecast of ¥320.0B and the average number of shares outstanding during the period (approximately 1.703B shares after deducting treasury stock), total annual dividends are calculated at approximately ¥102B, implying a payout ratio of approximately 31.9%. Treasury stock decreased to ¥292.9B (¥309.5B in the previous year), indicating that capital policy measures involving changes in the number of shares outstanding are also underway.

Risk Factors

1. Interest Margin Compression Risk: While interest on loans increased to ¥187.6B (+15.8%), interest on deposits also rose sharply to ¥27.9B (+84.1%). As deposit repricing progresses, maintaining the spread may become a challenge.

2. Risk of Reversal Following Credit Cost Normalization: The allowance for loan losses declined to ¥671.7B (¥766.3B in the previous year), and net income for the period may include the effects of credit cost reversals and normalization. If this effect diminishes or reverses, it could become a factor slowing income growth.

3. Weak Fee Income: Net fee income remained negative at -¥0.8B, confirming an earnings structure with a high degree of reliance on interest income. Progress toward diversification requires monitoring.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Growth and Capital Efficiency

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The core Banking segment drove higher revenue and income, with segment income expanding sharply by +212.3% year on year. The earnings structure remains highly dependent on the banking business, and its performance continues to determine overall results.

2. The full-year progress rates for ordinary income and net income were both approximately 44%, significantly exceeding the 25% implied by simple quarterly linear progression. Q1 therefore represented a strong start to the year. In addition to the expansion of net interest income, this performance included the normalization effect of credit costs, as exemplified by the decline in the allowance for loan losses.

3. The difference between comprehensive income (¥144.8B) and net income (¥140.9B) was small, indicating limited fluctuations in asset valuations, including valuation differences on securities. Meanwhile, financial soundness remained broadly unchanged from the previous year, with an equity ratio of 9.3% and a loan-to-deposit ratio of approximately 75.6%.

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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 discretion and, where necessary, after consulting with a professional.

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