With the increasing severity of climate change and the frequent occurrence of extreme weather events, climate risk has gradually become a significant threat to financial stability. In the context of building a sound financial stability guarantee system to prevent systemic risks, examining the impact of climate risk on bank operations is crucial for understanding how financial institutions respond to climate-related risks. However, existing literature largely analyzes the impact of climate risk from macroeconomic or corporate perspectives, with relatively limited attention paid to the banking sector. In particular, few studies examine earnings management behavior from the perspective of banks’ internal operational decisions. This study focuses on local commercial banks. It constructs a climate physical risk index using meteorological data from the National Oceanic and Atmospheric Administration (NOAA) and combines this index with micro-financial data from the CSMAR database to create panel data. Using a two-way fixed-effects regression model, it systematically analyzes the impact of climate physical risk on banks’ real earnings management behavior. Empirical findings reveal that climate physical risk significantly promotes upward real earnings management in local commercial banks. Specifically, when facing climate risk shocks, banks tend to improve their current financial performance by adjusting real operating activities to increase profits. Mechanism analysis shows that climate risk strengthens management’s motivation to engage in real earnings management by increasing banks’ risk-taking level. Comprehensive information disclosure and sound disaster resilience can, to some extent, curb banks’ short-term opportunistic behavior. Further analysis reveals that the superposition of physical and transition risks further promotes banks’ real earnings management behavior. While this behavior improves financial performance in the short term, it can cause significant short-term fluctuations in future bank profits. Finally, banks’ risk exposure, local dependence, and liquidity all exhibit heterogeneous effects. Compared with existing research, this paper makes two contributions. First, it explores the theoretical mechanism by which climate risk affects banks’ real earnings management behavior, thereby contributing to the existing literature on the impact of climate risk on banks from a new perspective. Second, unlike existing studies that focus on accrual-based earnings management, this paper attempts to reveal the “black box” of real earnings management by local commercial banks. It examines the economic consequences of this behavior and how different bank characteristics moderate its effects, thereby providing a more comprehensive understanding of the internal logic of bank earnings management behavior. This research enriches the micro-perspective of existing climate studies and addresses the contemporary challenge of preventing and mitigating major risks during the high-quality development stage. It also has important implications for understanding bank operations under climate risk. First, it helps regulators identify potential hidden earnings manipulation by banks in the context of climate change, providing empirical evidence for improving climate finance regulatory frameworks. Second, it offers guidance for banks to optimize their risk management and information disclosure mechanisms, thereby enhancing the financial system’s resilience to climate risk shocks and promoting the sound operation of the financial system.