THE BANK OF SAGA (8395) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results for the first three quarters of FY2026 recorded increases in both revenue and earnings, primarily due to growth in funds investment income, while profit progress against the full-year plan also remained high. Ordinary income was ¥44.19B (¥42.49B in the same period of the previous year, +3.9% YoY), ordinary income was ¥10.03B (¥8.82B, +13.6%), and net income was ¥7.18B (¥6.16B, +16.4%). The primary reasons profit growth exceeded the revenue growth rate were the expansion of funds investment income driven by a 27.9% increase in interest on loans and advances, and a 35.5% decrease in other ordinary expenses. Meanwhile, funds procurement expenses increased 102.9%, highlighting the rise in funding costs amid the rising interest-rate environment.

Factors Affecting Financial Performance

【Revenue】Ordinary income increased 3.9% YoY to ¥44.19B. By segment, banking operations generated ¥37.65B (¥36.14B in the same period of the previous year, +4.2%), leasing operations generated ¥5.82B (¥5.76B, +1.1%), and credit guarantee operations generated ¥0.32B (¥0.30B, +5.6%), with banking operations leading the expansion in revenue. Growth in banking operations was primarily attributable to an increase in interest on loans and advances, with the loan balance expanding by ¥64.56B YoY to ¥2,312.83B.

【Profit and Loss】Ordinary income increased 13.6% YoY to ¥10.03B, expanding at a pace that exceeded revenue growth. Ordinary expenses increased only 1.5% YoY to ¥34.16B; the 35.5% decline in other ordinary expenses contributed to cost containment, while funds procurement expenses surged 102.9% YoY to ¥5.34B. Segment profit was led by banking operations at ¥9.53B (¥8.17B in the same period of the previous year, +16.6%), while credit guarantee operations recorded a decline in earnings to ¥0.17B (¥0.35B, -50.7%). Extraordinary income and losses amounted to a net loss of ¥0.18B, including an impairment loss of ¥0.05B, resulting in a limited impact on profit before tax. Net income increased 16.4% YoY to ¥7.18B, resulting in higher revenue and earnings.

Segment Analysis

The reported segments comprise banking operations, leasing operations, and credit guarantee operations. Ordinary income from banking operations was ¥37.65B (85.4% of total), and segment profit increased 16.6% YoY to ¥9.53B, leading overall profit growth. Leasing operations generated ordinary income of ¥5.82B (13.2% of total) and segment profit of ¥0.26B (¥0.24B in the same period of the previous year, +4.9%), representing a modest increase in earnings. Credit guarantee operations generated ordinary income of ¥0.32B (0.7% of total); although small in scale, segment profit declined significantly by 50.7% YoY to ¥0.17B, indicating fluctuations in the profitability of guarantee-related operations. No significant impairment losses on fixed assets or significant changes in goodwill have been reported.

Key Financial Indicators

【Profitability】The net profit margin improved by approximately 1.7pt to 16.2%, from 14.5% in the same period of the previous year, while the ordinary income margin also increased by approximately 1.9pt to 22.7%, from 20.8%. Annualized ROE was 7.7%, remaining around the 8% level generally regarded as a cautionary threshold.【Cash Flow Quality】While interest on loans and advances increased by ¥5.41B, interest and dividends on securities declined 11.2%, indicating a rising dependence of funds investment income on lending operations. The net interest margin was 0.98%, which remains low for the earnings base of a regional bank.【Investment Efficiency】The loan balance increased 2.9% YoY to ¥2,312.83B, while securities declined 5.3% YoY to ¥548.37B, indicating a shift in asset allocation toward lending.【Financial Soundness】The equity ratio edged up to 3.9%, from 3.6% in the same period of the previous year. Total assets were ¥3,139.33B and net assets were ¥123.77B, with the loan-to-deposit ratio at approximately 81.6%, within the generally accepted guideline range.

Cash Flow Analysis

As no cash flow statement has been disclosed, funding trends are analyzed based on changes in the balance sheet. Deposits decreased ¥75.61B YoY to ¥2,836.00B, accompanied by a ¥78.31B YoY decline in cash and due from banks to ¥192.66B. Meanwhile, loans and advances increased ¥64.56B YoY, indicating that part of the decline in deposits was redirected to earning assets. On the funding side, negotiable certificates of deposit increased ¥36.64B YoY to ¥91.18B, indicating a shift toward large-scale and market-based funding. Borrowings declined ¥1.15B YoY to ¥5.28B, indicating a low dependence on external borrowings. Overall, the contraction in deposit liquidity, expansion in lending, and increase in market-based funding are occurring simultaneously, warranting continued monitoring of changes in the funding structure.

Quality of Earnings

The expansion in earnings during the period was supported by the recurring earnings factor of increased interest on loans and advances, while it is important to note that factors potentially having a temporary nature, including a 35.5% decrease in other ordinary expenses, also contributed. Extraordinary income and losses resulted in a net loss of only ¥0.18B, including an impairment loss of ¥0.05B; the difference between profit before tax of ¥9.85B and ordinary income of ¥10.03B was primarily attributable to these extraordinary losses. Comprehensive income was ¥9.04B, exceeding net income of ¥7.18B. The difference was attributable to increases of ¥1.36B in valuation differences on available-for-sale securities and ¥0.94B in deferred hedge gains and losses, representing a significant improvement from the comprehensive loss of ¥1.73B in the same period of the previous year. Adjustments related to retirement benefits amounted to -¥0.44B, negatively affecting net assets. Overall, earnings growth was achieved primarily through the core-business factor of expanded funds investment income, and the quality of earnings can generally be considered sound; however, the sharp increase in funds procurement expenses and the decline in earnings from credit guarantee operations could affect future sustainability.

Earnings Forecast and Guidance

Cumulative ordinary income for the first three quarters represented 87.2% of the full-year ordinary income plan of ¥11.50B, exceeding the standard progress rate of 75%. Progress toward the full-year ordinary income plan of ¥56.00B was 78.9%, while actual EPS of ¥424.70 indicated strong progress against the forecast EPS of ¥473.31. Given the high growth rate for the first three quarters, the full-year plan, which calls for ordinary income growth of +4.5% YoY, appears conservative. In Q4, the pace of increase in funds procurement expenses, reversals in credit-related expenses, and fluctuations in securities valuation will be factors affecting the full-year outcome.

Shareholder Returns

The Q2 dividend was ¥50.00 per share, and the payout ratio calculated against cumulative net income of ¥7.18B was 11.8%. The full-year forecast dividend is ¥100.00 per share, resulting in a forecast payout ratio of approximately 21.1% against the full-year net income plan of ¥8.00B. As ¥50.00 has already been paid through Q2, the year-end dividend is expected to be ¥50.00 if the plan proceeds as scheduled. Retained earnings have accumulated to ¥96.96B, indicating a certain degree of capacity to fund dividends based on the forecast payout ratio. The payout ratio presented in this report is calculated by dividing dividends only by net income and does not represent the total return ratio, which includes share repurchases.

Risk Factors

1. Downward pressure on the net interest margin: The net interest margin is 0.98%, below the 1.5% level generally regarded as a warning threshold. Although lending yields are trending upward, funds procurement expenses have surged 102.9% YoY, and spreads could come under pressure as deposit rates rise.

2. Changes in the funding structure: Deposits declined ¥75.61B YoY, and cash and due from banks also contracted by ¥78.31B, while negotiable certificates of deposit increased by ¥36.64B. If the shift toward market-based funding continues, the importance of funding costs and liquidity management will increase.

3. Profitability fluctuations in credit guarantee operations: Segment profit from credit guarantee operations declined 50.7% YoY to ¥0.17B. Although the segment is small, continued deterioration in the profitability of guarantee-related operations could have an increasing impact on consolidated earnings.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

Comparative industry data for the company’s net profit margin of 16.2% is limited, and a relative assessment against the median cannot currently be confirmed.

Growth and Capital Efficiency

Industry median data for the revenue growth rate of 3.9% is also limited, and the figure is therefore presented only as an absolute level.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Ordinary income increased 13.6% YoY and net income increased 16.4%, achieving profit growth that exceeded the revenue growth rate. Progress against the full-year plan was also high, at 87.2% for ordinary income and 89.7% for net income.

2. The primary driver of profit growth was the expansion of funds investment income resulting from increased interest on loans and advances. However, funds procurement expenses surged 102.9% YoY, making the trend in the 0.98% net interest margin a structurally important point to monitor, as it will determine future profitability.

3. The forecast payout ratio of approximately 21.1% represents a conservative level of shareholder returns relative to the earnings level, while the accumulation of retained earnings to ¥96.96B indicates capacity to fund dividends.

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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 disclosed earnings data. Investment decisions should be made at your own responsibility, and, where necessary, after consulting with a professional.

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