Quick View
| Metric | Current Period | Previous Year Period | YoY |
|---|---|---|---|
| Revenue | ¥371.1B | ¥260.2B | +42.6% |
| Operating Income | - | - | - |
| Ordinary Income | ¥205.2B | ¥66.7B | +207.7% |
| Net Income | ¥140.8B | ¥54.5B | +158.6% |
| ROE | 4.3% | 1.7% | - |
Executive Summary
Benefiting from the rising interest rate environment, the core banking business achieved substantial increases in revenue and profit through the normalization of credit-related and market-related expenses. Revenue (ordinary revenue) was ¥371.1B, up +42.6% year on year; ordinary income was ¥205.2B, up +207.7%; and net income was ¥140.8B, up +158.6%. The primary drivers of profit growth were the increase in interest on loans, together with the reduction in other ordinary losses recorded in the previous year.
Factors Affecting Financial Results
【Revenue】Revenue (ordinary revenue) was ¥371.1B, an increase of +42.6% year on year. External ordinary revenue from the Banking segment accounted for the majority at ¥347.9B (+46.1%), driven by interest on loans of ¥1,875.9B (an increase from the previous year). Interest on deposits also increased to ¥279.4B, but the growth in interest on loans outpaced this increase, and net interest income remains on an upward trend.
【Profit and Loss】Ordinary income increased substantially to ¥205.2B (+207.7% year on year), while net income rose to ¥140.8B (+158.6%). In addition to general and administrative expenses declining to ¥927.2B year on year, indicating disciplined cost management, the substantial reduction in other ordinary losses recorded in the previous year boosted profit. Extraordinary losses were limited at ¥0.8B, including impairment losses of ¥0.2B, and the difference between ordinary income and net income was limited to the recognition of income taxes and other taxes of ¥63.5B. The Company concluded the period with increases in both revenue and profit.
Segment Analysis
The reported segments comprise Banking and Other. External ordinary revenue in the Banking segment was ¥347.9B (+46.1% year on year), while segment profit was ¥202.3B (+212.2%), accounting for the majority of total profit (approximately 98.6%). The Other segment, comprising money lending, leasing, administrative outsourcing, and other businesses, generated ordinary revenue of ¥23.0B (+4.2%) and profit of ¥3.2B (+48.8%). Although small in scale, its profit margin improved. Profit growth in the current period was largely dependent on the expansion of interest income and cost normalization at the core banking business.
Key Financial Indicators
【Profitability】The net profit margin improved substantially to 37.9% (20.9% in the previous year), while the ordinary income margin expanded to 55.3% (25.6% in the previous year). The primary reasons for the improvement were the increase in interest on loans and the reduction in other ordinary losses recorded in the previous year.【Cash Flow Quality】Although no cash flow statement has been disclosed, the allowance for loan losses declined to ¥671.7B from ¥766.3B in the previous year, suggesting that a reversal of credit costs may have contributed to a portion of profit.【Investment Efficiency】ROE was 4.3%, and the equity ratio was 9.3%. Against total assets of ¥35,611.3B, net assets were ¥3,304.7B, indicating that equity capital is thin relative to the asset scale. The banking industry’s characteristic leverage structure, funded by deposits, is reflected in the level of ROE.【Financial Soundness】Deposits stood at ¥3,190.3B, while loans stood at ¥2,410.9B, resulting in a loan-to-deposit ratio of approximately 75.6% and a stable funding structure. The equity ratio rose slightly to 9.3% from 9.1% in the previous year.
Cash Flow Analysis
As no cash flow statement has been disclosed, fund movements are reviewed based on changes in the balance sheet. Cash and due from banks increased to ¥4,491.6B from ¥4,339.9B in the previous year, indicating improved liquidity. Meanwhile, call loans declined to ¥900.0B from ¥1,300.0B in the previous year, suggesting a review of the composition of short-term investment assets. The allowance for loan losses declined to ¥671.7B, indicating that a reversal of credit costs may have contributed positively to net income for the period. Treasury stock decreased substantially to ¥292.9B from ¥309.5B in the previous year, indicating that the cancellation or disposal of treasury stock affected the capital structure.
Quality of Earnings
The factors lifting profit for the period consisted of both the expansion of recurring interest income and the normalization of other ordinary income and expenses, which include temporary factors. Net interest income expanded primarily due to the increase in interest on loans, which is expected to be sustainable as an improvement in the business’s underlying earnings power. On the other hand, other ordinary losses recorded in the previous year declined substantially in the current period, and part of this improvement is believed to include highly volatile factors such as reversals of credit costs and the normalization of market-related gains and losses. Extraordinary losses were limited at ¥0.8B, and the gap between income at the ordinary income stage and net income was limited. Comprehensive income was ¥144.8B, almost at the same level as net income of ¥140.8B. A positive contribution of ¥6.7B from valuation differences on securities was offset by a negative ¥2.7B adjustment related to retirement benefits, resulting in a limited divergence from net income.
Earnings Forecast and Guidance
The full-year forecast is ordinary income of ¥475.0B (+33.7% year on year), net income of ¥320.0B, EPS of ¥187.72, and dividends of ¥60.00, with no revisions to the earnings or dividend forecasts during the quarter. As of Q1, the progress rate was approximately 43.2% for ordinary income and approximately 44.0% for net income, substantially ahead of the simple seasonal allocation of 25%. This reflects the expansion of interest income and the rebound from temporary losses in the previous year. The sustainability of the progress rate throughout the full year will depend primarily on future trends in credit costs.
Shareholder Returns
The full-year dividend forecast is ¥60.00, with no revision. Based on the Company’s net income plan 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 an estimated payout ratio of approximately 31.9%. Treasury stock declined to ¥292.9B from ¥309.5B in the previous year, indicating progress in the cancellation or disposal of treasury stock. The Company’s approach to shareholder returns can be observed through both dividends and treasury stock, but the amount of share repurchases necessary to calculate the total return ratio has not been disclosed.
Risk Factors
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Interest Margin Compression Risk: NIM is estimated at a low level of approximately 0.84%, and if deposit repricing progresses, interest margins may come under further pressure due to higher funding costs.
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Reversal Risk for Credit Costs: The allowance for loan losses declined to ¥671.7B from the previous year, and current-period profit is believed to include the effects of reversals and normalization of credit costs. If this effect diminishes or reverses, the pace of profit growth in subsequent periods could slow.
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Capital Buffer Risk: Although the equity ratio of 9.3% exceeds the regulatory minimum, net assets remain at ¥3,304.7B against total assets of ¥35,611.3B. The capital capacity to absorb the simultaneous materialization of interest rate and credit risks is moderate.
Industry Benchmark (Reference; Compiled by the Company)
Industry Benchmark (bank)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Net Profit Margin | 37.9% | – | – |
Although comparable data for net profit margins is limited, 37.9% represents a substantial improvement from 20.9% in the previous year.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (Year on Year) | 42.6% | – | – |
The revenue growth rate of 42.6% indicates strong growth reflecting the rising interest rate environment.
※Source: Compiled by the Company
Key Points in the Financial Results
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The progress rates for both ordinary income and net income against the full-year forecast are around 44%, substantially ahead of the pace implied by simple seasonal allocation, making this a key point in the financial results.
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Profit growth comprises both the recurring factor of expanded interest on loans and the normalization factor of reduced other ordinary losses recorded in the previous year. Whether this normalization effect reverses in subsequent periods will influence the profit trend.
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Treasury stock declined substantially from the previous year, indicating a change in the capital structure and the Company’s approach to shareholder returns.
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, and you should consult a professional as necessary.
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AI Financial Analysis
Executive Summary
Suruga Bank delivered a very strong FY2027 Q1 earnings result, with profitability materially ahead of the prior-year pace and already well advanced against full-year guidance. Ordinary income rose 207.7% YoY to ¥20.52bn, while profit attributable to owners increased 158.5% to ¥14.09bn. Ordinary revenue grew 42.6% to ¥37.11bn. The reported net profit margin expanded to 38.0% from 20.9% a year earlier, an improvement of approximately 1,710bp. Ordinary income margin expanded to 55.3% from 25.6%, an improvement of approximately 2,970bp. Net interest income increased 10.7% YoY to ¥20.26bn, supported by a 16.4% rise in interest income to ¥23.07bn. Interest expense rose more rapidly, by 85.2% to ¥2.81bn, reflecting a higher funding-cost environment. Nevertheless, lower ordinary expenses were the larger driver of the earnings acceleration, with total ordinary expenses declining 14.3% to ¥16.58bn. Other ordinary expenses fell 65.6% to ¥1.53bn, providing a substantial boost to ordinary income. The banking segment, the core business, generated ¥34.79bn of external ordinary revenue and ¥20.23bn of segment profit. The banking segment accounted for approximately 98.5% of consolidated segment profit before adjustments. The reported annualized ROE was 17.1%, placing profitability above the 15% benchmark generally viewed as excellent. Annualized ROA was approximately 1.6%, calculated using Q1 profit annualized against average total assets, which is a solid outcome for a deposit-funded regional bank. Q1 ordinary income represented 43.2% of the ¥47.50bn full-year forecast, materially ahead of the 25% seasonal reference level. Q1 profit attributable to owners represented 44.0% of the ¥32.00bn full-year forecast, also substantially ahead of the normal Q1 pace. The result therefore creates meaningful upside flexibility versus the current forecast, although the sustainability of the sharp decline in other ordinary expenses is central to the full-year earnings trajectory. The principal earnings-quality consideration is that a ¥0.14bn reversal of allowance for loan losses was recognized in revenue, while the large reduction in other ordinary expenses also warrants close monitoring in subsequent quarters. Capital strength remains adequate rather than strong, with a 9.2% capital adequacy ratio only modestly above the 8% regulatory benchmark. The 0.84% NIM remains below the 1.5% warning threshold and limits the durability of earnings expansion if funding costs continue to reprice upward.
Profitability Analysis
The reported annualized 17.1% ROE decomposes into a 38.0% net profit margin, 0.042 annualized asset turnover, and 10.78x financial leverage. The principal YoY change was margin expansion rather than balance-sheet turnover, as net margin rose by approximately 1,710bp and ordinary margin rose by approximately 2,970bp. Financial leverage is structurally high because the balance sheet is predominantly funded by deposits, with liabilities representing 90.7% of total assets. Annualized asset turnover remains low at 0.042x, which is structurally consistent with banking, where large earning-asset and liquidity portfolios support comparatively modest revenue relative to assets. The 5-factor analysis shows a 55.3% EBIT margin, a 0.996 interest burden, and a 0.689 tax burden. The near-1.0 interest burden indicates that pre-tax income was closely aligned with operating-level profitability during the quarter. The tax burden was slightly below the 0.70 normal reference point, consistent with the 31.1% effective tax rate. Interest income increased by ¥3.25bn YoY, while interest expense increased by ¥1.29bn, leaving a ¥1.95bn increase in net interest income. Fees and commissions income was broadly stable at ¥2.31bn, while fees and commissions expense declined to ¥2.32bn from ¥2.58bn. General and administrative expenses declined 4.3% YoY to ¥9.27bn despite revenue growth of 42.6%, demonstrating substantial positive operating leverage. The sustainability of the margin uplift depends on whether lower other ordinary expenses, down ¥2.91bn YoY, can be maintained and whether loan yields continue to offset deposit-cost repricing. JGAAP goodwill amortization was only ¥0.032bn in the segment adjustment, immaterial relative to Q1 ordinary income of ¥20.52bn.
Growth Assessment
Revenue growth was broad but heavily concentrated in the banking segment. Banking-segment external ordinary revenue increased 46.1% YoY to ¥34.79bn, while segment profit rose 212.2% to ¥20.23bn. Other businesses recorded 4.2% revenue growth to ¥2.30bn and 48.8% profit growth to ¥0.32bn. The banking segment is clearly the core business, contributing approximately 93.8% of segment revenue and 98.5% of segment profit before consolidated adjustments. Loan balances increased 0.5% YoY to ¥2.411tn, whereas deposits declined 0.2% to ¥3.190tn. The loan-to-deposit ratio was approximately 75.6%, within the 70-90% benchmark range, indicating that loan growth remains supported by a substantial deposit base. Securities increased 2.9% YoY to ¥431.11bn, and cash and due from banks increased 3.5% to ¥449.16bn. Full-year guidance calls for ordinary income growth of 33.7% to ¥47.50bn and owner-attributable profit of ¥32.00bn. The Q1 progress rates of 43.2% for ordinary income and 44.0% for owner-attributable profit are 18.2 percentage points and 19.0 percentage points, respectively, above the standard 25% Q1 reference. This implies either conservative guidance, favorable early-year conditions, or a Q1 benefit from lower credit-related and other ordinary expenses. The full-year outlook should be assessed against the trajectory of deposit rates, funding costs, credit-cost normalization, and the ability to retain the Q1 cost base.
Financial Health
Total assets increased 0.5% YoY to ¥3.561tn and total equity increased 2.2% to ¥330.47bn. Owners' equity was ¥330.37bn, equivalent to a book value per share of ¥1,943.04. The reported debt-to-equity ratio was 9.78x, triggering the high-leverage quality alert. The root cause is the bank's deposit-funded operating model: deposits of ¥3.190tn account for the overwhelming majority of liabilities and are used to fund loans, securities, and liquidity assets. This level of leverage is common in banking and is not directly comparable with leverage at non-financial corporates, but it leaves equity capital more sensitive to credit losses, securities valuation changes, and deposit outflows. The impact on the investment profile is that capital preservation and regulatory capital generation are more important than the headline ROE alone. The capital adequacy ratio improved slightly to 9.2% from 9.1% YoY and remains above the 8% minimum benchmark, but is below the 12% level typically viewed as strong. Deposit funding of ¥3.190tn exceeded loans of ¥2.411tn by approximately ¥779bn, and the 75.6% loan-to-deposit ratio indicates no apparent loan-funding mismatch. Cash and due from banks plus securities totaled ¥880.27bn, equivalent to 27.6% of deposits, providing a meaningful on-balance-sheet liquidity buffer. Acceptances and guarantees were limited at ¥1.09bn. Treasury stock improved from negative ¥30.95bn to negative ¥2.93bn, a ¥28.02bn reduction in the contra-equity balance; this materially supported the increase in shareholders' equity and should be considered when assessing underlying capital generation. Intangible assets were only 0.2% of total assets, indicating no material balance-sheet dependence on acquired intangible value.
Notable B/S Changes
Treasury stock: negative ¥30.95bn to negative ¥2.93bn, a ¥28.02bn reduction (90.5%) - materially increased reported shareholders' equity; capital analysis should distinguish this from internally generated retained earnings. Allowance for loan losses: negative ¥76.63bn to negative ¥67.17bn, a ¥9.47bn reduction (12.4%) - lower reserve balance is consistent with Q1 credit-cost benefits and raises the importance of monitoring subsequent provisioning. Cash and due from banks: ¥434.00bn to ¥449.16bn, up ¥15.16bn (3.5%) - supports liquidity alongside a deposit-funded balance sheet. Securities: ¥419.08bn to ¥431.11bn, up ¥12.03bn (2.9%) - increases exposure to interest-rate and market valuation movements.
Cash Flow Quality
Q1 reported profit attributable to owners was ¥14.09bn and comprehensive income attributable to owners was ¥14.48bn, indicating that recognized OCI movements were modestly positive on a net basis. Securities valuation difference increased to ¥27.52bn from ¥26.85bn YoY, while accumulated other comprehensive income increased to ¥32.59bn from ¥32.20bn. The difference between profit before tax of ¥20.44bn and ordinary income of ¥20.52bn was only ¥0.08bn, reflecting limited extraordinary charges. Extraordinary loss was ¥0.84bn, including an impairment loss of ¥0.21bn and fixed-asset disposal loss of ¥0.63bn. These items were immaterial relative to ordinary income and do not alter the view that Q1 profitability was predominantly recurring at the reported level. However, the earnings increase benefited from a ¥0.14bn reversal of allowance for loan losses recognized in external revenue and from a ¥2.91bn decline in other ordinary expenses. The allowance for loan losses balance was negative ¥67.17bn versus negative ¥76.63bn a year earlier, consistent with a lower reserve balance. Consequently, the persistence of Q1 earnings should be judged partly on whether credit-related benefits and lower other ordinary expenses normalize. The increase in net interest income and the reduction in general and administrative expenses provide the more durable components of the quarter's profit improvement.
Dividend Sustainability
The company forecasts FY2027 dividend per share of ¥60. Based on forecast EPS of ¥187.72, the implied dividend payout ratio is approximately 32.0%. This is below the 60% sustainability benchmark and leaves substantial forecast earnings retention capacity. Q1 EPS was ¥82.70, equal to 44.1% of forecast full-year EPS, supporting the earnings base underlying the planned dividend. Retained earnings were ¥270.66bn, equivalent to approximately 81.9% of total equity. The capital adequacy ratio of 9.2% means that retained earnings remain important for capital accumulation even though the forecast payout ratio is moderate. The dividend outlook is therefore supported by the stated forecast earnings and a conservative payout ratio, while its durability remains linked to sustaining the improved earnings base and maintaining regulatory capital headroom. No dividend revision was announced.
Risk Assessment
Business risks include Net interest margin risk: NIM of 0.84% is below the 1.5% warning threshold. The root cause is a narrow spread between loan yields and funding costs in a competitive, deposit-funded banking model. Interest expense rose 85.2% YoY, much faster than interest income growth of 16.4%, so further deposit-rate repricing could compress recurring profitability despite the strong Q1 result., Credit-cost normalization risk: Q1 results included a ¥0.14bn reversal of allowance for loan losses and a ¥2.91bn YoY decline in other ordinary expenses. A reversal in borrower conditions or a return of credit-related expenses would reduce the unusually high 55.3% ordinary income margin., Regional banking competition risk: modest loan growth of 0.5% YoY and a 0.84% NIM underscore continued competitive pressure for quality lending opportunities and deposits. Sustained revenue growth requires loan-yield discipline without weakening underwriting standards., Securities valuation risk: securities totaled ¥431.11bn and valuation differences on securities were ¥27.52bn. Interest-rate and market-price movements can affect OCI, capital resilience, and realized investment results..
Financial risks include High leverage: the 9.78x D/E ratio exceeds the 2.0x quality-alert threshold. Although deposit leverage is customary for banks, the impact is heightened sensitivity of equity and capital ratios to credit losses, valuation losses, or funding stress., Capital headroom risk: the 9.2% capital adequacy ratio is above the 8% minimum but below the 12% strong benchmark. The limited buffer reinforces the importance of earnings retention and disciplined risk-weighted asset management., Funding-cost risk: deposits were ¥3.190tn and interest on deposits increased to ¥2.79bn from ¥1.52bn. Rising deposit pricing can erode earnings unless loan and securities yields reprice at least as quickly..
Key concerns include The Q1 earnings run rate is substantially above full-year guidance, but the scale of the improvement is partly linked to lower other ordinary expenses; quarterly persistence is the key determinant of whether guidance proves conservative., The 0.84% NIM quality alert is the principal recurring-profitability constraint despite the 17.1% annualized ROE., The ¥28.02bn reduction in treasury stock materially aided reported equity growth; assessment of capital strengthening should distinguish this balance-sheet change from retained-profit accumulation., The banking segment generated approximately 98.5% of segment profit before adjustments, creating substantial earnings concentration in the core bank..
Investment Implications
Key takeaways include Q1 ordinary income of ¥20.52bn and owner-attributable profit of ¥14.09bn were exceptionally strong, rising 207.7% and 158.5% YoY, respectively., Q1 progress against full-year guidance was high: 43.2% for ordinary income and 44.0% for owner-attributable profit versus a 25% Q1 reference., Margin improvement was substantial, with net margin up approximately 1,710bp to 38.0% and ordinary income margin up approximately 2,970bp to 55.3%., The forecast ¥60 DPS implies a moderate 32.0% dividend payout ratio based on forecast EPS, while regulatory capital retention remains relevant given the 9.2% capital adequacy ratio., The main counterweight to the strong earnings result is the subscale 0.84% NIM and the possibility that lower other ordinary expenses do not recur..
Metrics to watch include Net interest margin and the relative pace of loan-yield versus deposit-cost repricing, Quarterly net interest income, interest on loans, and interest on deposits, Other ordinary expenses and allowance for loan-loss movements, Capital adequacy ratio and the contribution of retained earnings to capital growth, Loan growth, deposit trends, and the loan-to-deposit ratio, Securities valuation differences and accumulated OCI, Progression of ordinary income and owner-attributable profit relative to the ¥47.50bn and ¥32.00bn full-year forecasts.
Regarding relative positioning, Suruga Bank's Q1 annualized ROE of 17.1% and 38.0% net margin are strong profitability outcomes, particularly relative to the provided ROE benchmark. However, relative positioning for a bank is moderated by a 0.84% NIM below the warning threshold and capital adequacy of 9.2%, which is compliant but not at the level generally characterized as strong. Its 75.6% loan-to-deposit ratio is within the preferred 70-90% range and reflects a balanced deposit-funded liquidity profile.