FY2016

Earnings Results
Briefing
June 1, 20171

Summary of FY2016 Earnings Results

New Medium-Term Management Plan

Summary

4

Earnings forecasts

17

Change in net interest income

5

Deposits & assets in custody

6

Upon formulating the Medium-Term
Management Plan

18

Loans

7

The Long-term vision

19

Securities

9

Outline of the Medium-Term Management Plan

20

Major yields and margins

10

Numerical targets

21

Change in fees and commissions

11

Improve the Quality of Services Provided

22

Change in assets in custody

12

Expand Opportunities to Provide Services

23

Change in expenses

13

Enhance Service Provision Capability

24

Credit cost trends

14

Reform the Stance of Individual Employees andthe Corporate Culture

25

Capital adequacy ratio

15

Securities management strategy

26

Shareholder returns

27

For inquiries regarding this document, please contact:

Management Planning Department, The Chugoku Bank, Ltd.
Mr. Ohara / Mr. Umakoshi
TEL: +081-86-234-6519; FAX: +081-86-234-6587

Email: fvbs2960@mb.infoweb.ne.jp2Section I

Summary of FY2016
Earnings Results

3

—Summary —FY2016 Earnings Results
FY2013(100 million yen)Core business gross profit

FY2014FY2015FY2016
YoY

vs. Plan

869
721

882
724

855
700

820
677

-35
-23

15
4

137
11

148
9

150
5

152
-9

2
-14

4
6

Expenses (-)

-565

-572

-554

-548

6

5

Core business net profit

304
65.0

309
64.9

301
64.8

271
66.9

-30
2.1

20
-1.8

108

-2

37

2

-35

-21

-16

0

17

-20

-37

-37

Equity sales gains/redemption
Other

26
19

37
12

33
16

43
-7

10
-23

37
-6

Recurring profit

441

357

406

289

-117

-8

Extraordinary gain/loss
Net income

-2
270

-3
209

-3
259

-4
190

-1
-69

-1
-13

Consolidated recurring profit

481
287

391
247

434
272

316
203

-118
-69

-4
-11

Interest income
Fees and commissions
Other operating income

OHR (%)
Credit expense (+ is reversal(profit))Bond sales gains/redemption

Consolidated net income

Rise in foreign-currency
procurement costs(-¥1.5 billion)

Profit results released on Nov. 11, 2016

▪ Core business gross profit decreased ¥3.5 billion year on year, mainly due to the drop in loan yield and the rise inforeign-currency procurement costs, despite an increase in fees and commissions.
▪ Core business net profit decreased ¥3.0 billion year on year, due to the decrease in core business gross profit,
despite a drop in expenses.

4

FY2016 Earnings Results —Change in net interest income—+51

Impact from increase in
security deposit spread

Impact fromincrease inaverage loanbalance

Investment trust redemption gain
¥500 million yen(-¥800 million yen YoY)

+27

[Asset management]
Impact from anincrease in averagebalance of foreign
currency denominatedloans and bonds, andmanagement yields

+0

-2

-5

-47

Unit: 100 million yen

Impact from increasein average short-term
asset managementbalance+2

Impact fromreduction inloan deposit
spreadNote: Calculated based on margin withdeposit yield

Other impact,
including narrower
short-term
asset management
margins

Impact from decline inaverage balance of
yen-denominatedsecurities[Procurement]
Impact from increased
procurement from foreign
currency market and rise infunding expense-49

Yen loans

Yen securities

Short-term
asset
management

-20

-3

-2

Yen-based net interest income

Foreign currency dept.

+2Foreign currency-based
net interest income-¥23
Total net interest
income5

FY2016 Earnings Results —Major accounts (1) Deposits & assets in custody—
Average balance of deposits and NCD(100 million yen)
60,000Other

40,000

Domestic
corporateclients

20,000

Domestic
private clients＋3.5％

57,90959,54160,863

3,379

3,470

3,121

13,192

13,916

12,635

＋5.8％

＋0.9％

＋0.1 ％

63,044

63,138

4,096

3,443

14,724＋4.3％

15,359＋0.2％

41,89542,87843,82544,22444,334FY2103

FY2014FY2015FY2016FY2017 Plan

0
Ref: Balance of assets in custody( 100 mi l l i on y en)
Public bonds
Investment trusts (1)Financial instrument intermediary serv ices

Investment trust portion (2)Insurance
Bank parent
Total investment trusts (1)+(2)Chugin Securities

FY2013
4,013
2,137
1,441
478
3,388
10,9792,615
674

FY2014
3,486
1,968
1,734
652
3,423
10,611
2,620
931

FY2015
Cha ng e
-527
-169
293
174
35
-368
5
257

2,965
1,814
1,867
806
3,402
10,0482,620
795

FY2016
Cha ng e
-521
-154
133
154
-21
-563
0
-136

2,880
1,539
2,045
840
3,464
9,928
2,379
830

Cha ng e
-85
-275
178
34
62
-120
-241
35

FY2017
Pl a n
2,955
1,565
2,135
855
2,420
885

Cha ng e
75
26
90
15
41
55

* Public bonds are based on the value of the average balance. Investment trusts are based on the average balance of net assets. Financial product intermediaryservices are based on the average balance of the acquisition value. Insurance is based on the average balance taking into account cancellations.
Chugin securities are based on the ending balance of bonds, equities and investment trusts.

▪ In FY2016, the growth of private client deposits weakened. Corporate client deposits grew steadily.
▪ In FY2017, deposits are expected to continue to grow steadily, but the overall annual rate of growth is likely to be slightly
sluggish.

6

FY2016 Earnings Results—Major accounts (2) Loans —
＋5.6％

＋9.2％

Average loan balance

44,69342,324(100 million
yen)
40,000＋4.2％

38,74834,86636,351＋3.9％

10,2899,873

9,501
30,00020,00010,000

Personal loans

9,026

Local
government
loans

3,826

Urban
Development *3

6,103

9,253
4,093
6,609

-7.1％

4,688
＋1.8％

6,655

7,170

7,040

＋7.7％

Local
Development *2

4,935

4,952

15,783

16,172

16,832126
FY2013222
FY2014685
FY201519,004＋4.8％

18,131Other *10

*1 Other: Hong Kong branch, non-Japanese, structured financecenter, credit cashing*2 Local development: Regions other than Tokyo and Osaka*3 Urban development: Tokyo and Osaka

2,196

3,808

FY2016FY2017 Plan

Average loan balance at non-Japanese & structured finance center
FY2015FY2016FY2017
YoY(100 miilion yen)

Plan

YoY

SF Center

317
206

786
1,258

469
1,052

1,263
2,341

477
1,083

Total

523

2,044

1,521

3,604

1,560

Non-Japanese▪ In FY2016, the annual rate of growth for local development capital rose 7.7%, mainly due to growth in financing for SMEs.
▪ In FY2017, we plan an annual rate of growth of 5.6% driven by further build-up, mainly in local development capital.

7

—Major accounts (2) Loans —FY2016 Earnings Results
Breakdown of average loan balance(100 million
yen)

38,74840,000
Other
Local
government
loans

35,000161＋3,576-11

42,324

Breakdown of average loan balance for SMEs (by size)(100 million yen)150

15,0004,952

FY2015

＋264

9,501

10,0004,688

Personal
loans

25,00020,00010,0005,000

Local development

15,000

NonJapanese

317

Urban
development

7,040

4,245

1,534
1,491 1,635
1,148 1,320＋1,052
＋469

1,258

＋130

7,170

786

1,589
1,792
4,872

＋213

1,802

＋138

1,930

＋349

5,221

Okayama＋599

Kagawa &Hyogo &
Urban
Personal loans
Ehime
Tottoridevelopment*Other: Non-Japanese, structured finance (SF) center, local government(100 miilion yen)Domestic branch total
Manufacturing
Agriculture, forestry, fishery
Mining, stone-quarrying, gravel-gathering

Telecommunications
Postal and transportation
Wholesale and retail
Finance and insurance
Real estate, and rental and leasing

0
FY2015FY2016

Other*

Ending balance by industry (domestic branch basis)

Construction

9,177

985
250

Hiroshima

Electricity, gas, heat, water supply

8,578

1,604

0

FY2015Hiroshima
prefecture
Okayamaprefecture

3,881

9,501
206

Kagawa andEhime
prefectures

5,000

＋372

SF center

Hyogo and
Tottoriprefectures

9,873

6,5587,203

9,873
30,000FY2016

Various service businesses
Local government
Other

40,206
7,108
41
22
1,159
965
294
1,460
5,105
1,964
4,917
2,693
4,836
9,637

FY2016
43,835
6,911
59
21
1,214
1,392
301
1,719
5,106
3,474
5,623
2,966
4,847
10,195

YoY
3,629
-197
18
-1
55
427
7
259
1
1,510
706
273
11
558

8

FY2016 Earnings Results—Major accounts (3) Securities—

Average balance of securities(100 million yen)
35,00030,773Equities

30,00025,00020,000

1,178
1,260

Foreign-currency
denominated foreign
securities

4,115

Corporate bonds

28,95029,261Other securities (incl.
foreign securities)

＋80

1,206
1,615

1,215
1,714

Municipal bonds

26,630

＋161

1,155
1,875

4,690

＋45
＋255

＋640

5,839

-1,339

4,754
4,116

15,000-2､400

-60

5,199
5,324

29,030

-281

3,835

-435

5,559

+141

10,765-1,065

1,200
2,130

4,500
3,400

5,628
6,166

4,988

＋571

5,700

10,000JGBs

5,000

11,214

12,878

11,715

-950

9,700

0
FY2013

FY2014FY2015FY2016FY2017 Plan

▪ In FY2016, the average balance of securities rose ¥8.0 billion year on year, due to an increase in investment trusts,
etc.
▪ In FY2017, we intend to increase the balance of investment trusts and equities while reducing the balance ofJapanese government bonds and foreign bonds, and continue to shuffle our portfolio according to the market
environment in an effort to enhance diversification.

9

FY2016 Earnings Results—Major yields and margins—
Securities yield and duration

Loan/deposit spread, credit cost ratio, net margin
2.00
(%)

1.58
1.50

Yen-based depositloan
spreadNet margin ratio

0.31

1.16

1.5
6.0

5.4
1.3

0.10

0.01

0.92

Bond
duration

0.05

1.17
0.50

4.2

0.93

0.87

-0.01

0.97

0.9

0.7

4.2
0.98

Securities
yield

1.06

5.0

4.5
4.2

1.1

1.27

0.00

(years)

1.16
0.94

1.00

7.0

（％）

Credit cost ratio

4.0

0.97

0.97

0.95
3.0

Bond
yield

0.76
0.71

0.70

2.0

0.72
0.63

0.5

-0.50
FY2013

FY2014FY2015FY2016FY2017Plan

1.0
FY2013

FY2014FY2015FY2016FY2017Plan▪ The loan/deposit ratio is likely to continue to fall.
▪ The bond yield is expected to trend downward, but we anticipate the securities yield, which includes equity yield, willremain at a 0.9% level.

10

FY2016 Earnings Results —Change in fees and commissions—Fee and commission (revenue) trends(Million yen)

14,83415,00015,21415,024

14,502

13,709-296

Assets incustody

10,000-712＋190

Investmentbanking
operations

4,513

4,217

＋101

4,318

5,235
4,440
-644

＋411

2,459

2,048
1,077

-14

Remittance&collection

4,108

Other

1,815

1,288

-74

4,114

4,098

4,084

4,081

4,196

4,365

4,454

4,358

FY2013

FY2014FY2015FY2016FY2017
Plan

4,010

5,000

0

▪ In FY2016, fees and commissions revenue rose ¥200 million year on year, due to gains from investment banking
operations, despite a drop in assets in custody.

11

FY2016 Earnings Results—Change in assets in custody—

Revenues related to assets in custody(Million yen)

8,015
（5,235）8,000
Group total(bank parent)

7,053（4,513）

6,871（4,440）

＋260

-344

6,969
（4,318）

6,709（4,217）

2,780
6,000
Group
subsidiaries

2,540

2,431

＋160

-49

2,491

(securities, assets)

2,651(securities, assets)

1,490
4,000

Financial instrument
intermediary services

1,125

Municipal bonds

289Life insurance

1,232

＋117

1,229
294
190

＋16

1,346

1,753

-248

1,505

(sales commission portion)

＋101

206

1,766

2,000

Investment trustsGroupsubsidiaries

1,794
（622）

1,683
（604）

1,341
（323）

FY2013

FY2014FY2015-180

Bank parent
4,318

1,160
（283）

0
FY2016FY2017Plan▪ In FY2016, sales were sluggish due to unstable market trends. Total group revenue related to assets in custody declined ¥300
million year on year.
▪ In FY2017, we expect total group revenue related to assets in custody to rise ¥200 million, reflecting in part the strengthening ofbonds and investment trusts in the financial instruments intermediary business.

12

—Change in expenses—

FY2016 Earnings Results
Expense trends(100 million yen)

600
Taxes

500
400

572

565
24

27

Other property
expenses

122

120

Deposit insurance
premium

36

37

70

73

System expenses

554

＋11

-6

30

548

559

31

30
＋7

＋2

121
23
81

130

123
-7

24
74

＋18

22

92

300
200

-2
Personnel costs

100
Retirement expense
portion

310

312

(24)

(20)

297
(4)

¥400 million

-11

295
（＋0）

Strategic
investment
project
costs:

(4)

284
（＋3）

(7)

0
FY2013

FY2014

Ref. TSUBASA portion of expenses
FY2014 FY2015 FY2016(100 million yen)
Of f ice relocation expenses*1(Other property expenses)
Sy stem-related expenses(Sy stem expense)
Amortization of intangibles(Sy stem expense)

Total

YoY

FY2017Plan

FY2015FY2016FY2017 Plan

YoY

0.4

1.5

1.3

-0.2

1.1

-0.2

11.2

21.4

15.7

-5.7

5.0

-10.7

0.0

0.0

0.0

0.0

12.1

12.1

11.5

22.8

17.0

-5.8

18.2

1.2

*1 Expenses for office supplies and advertising- In FY2016, expenses decreased ¥600 million year on year, primarily due to declines in system expenses and personnel costs.
- In FY2017, we expect expenses to increase ¥1.1 billion year on year due to a rise in system expenses, including strategic investment
projects, despite a drop in personnel costs.

13

FY2016 Earnings Results—Credit cost trends—

Credit cost trends(100 millionyen)

Non-performing loan (NPL) trends *We do not implement partial direct write-offs.

2

Other credit costs

5

General provisions for doubtful receivables(100 million yen)

*NPL ratio afterpartial direct write-offs

1
-2

0
-1
-1

Substandard

156

176

161

Doubtful

543

458

444

200

207

206

FY2014FY2015FY2016

Bankrupt

0

FY2015

1.0
0.0
-1.0
-2.0

Substandard
Doubtful
Virtually bankrupt-80
FY2017

Estimate

Legally bankrupt

Total

FY2016
Ratio(100 million yen)
Healthy accounts

FY20162.0

Outstanding balance by debtor (self-assessment)-37

FY2015

1.52

812

-22

FY2014

1.74

843

5

-2

-61

1.80

900

-27

-36

2.04

2.06

1,000

20

3.0

2.36

2,000

Individual provisions for doubtful accounts

57

NPL ratio

38,222
2,422
459
165
43
41,310

92.5%
5.9%
1.1%
0.4%
0.1%
100.0%

Ratio

42,358
2,140
444
160
46
45,150

93.8%
4.7%
1.0%
0.4%
0.1%
100.0%

Credit cost = general provisions for doubtful receivables + individual provisions for doubtful accounts + loan write-offs + specific foreign borrowers +provisions for loss on claim sales + loss on claim sales — gain on reversal to loan loss account
Other credit costs = Loan loss write-offs, specific foreign borrowers, provisions for loss on claim sales, loss on claim sales▪ The loan loss ratio forecast remains on a downward trend.
▪ In FY2017, we also expect a reversal due to a decline in loan loss ratio forecast.

14

FY2016 Earnings Results—Capital adequacy ratio—

Capital adequacy ratio (Basel III) (parent) trends

Capital adequacy ratio (parent)

18.0

（％）

FY2015FY2016(100 million yen)

YoY

Total capital adequacy ratio

16.0

Total equity

14.73

4,864

4,817

-47

4,595

4,712

117

269

105

-164

33,40736,8803,473

Credit risks

31,76535,267

3,502

Operational risks

1,641

1,612

-29

Tier 1, including commonshares

14.56

TierⅡ

14.0

13.75

13.06

Risk weighted assets, etc.

13.34
12.0

12.77

Tier 1 capital ratio,
including commonsharesOther Basel regulations

10.0

8.0
End-March 2015

End-March 2016

End-March 2017

FY2015FY2016

Consolidated leverage ratio

5.91%

5.70%

Parent liquidity coverageratio(LCR)

143.9%

116.1%<Regulatory
standards>
Trial preriod 3%
and above

80% and above▪ The common equity Tier 1 ratio maintained a 12% level.
▪ Risk assets increased due to aggressive loan enhancement measures.

15Section II

New Medium-Term Management Plan

16

FY2017 Forecasts —Earnings forecasts—(100 million yen)Core business gross profit

FY2016FY2017

ActualPlan

YoY

Core business net profit and recurring profit
expected to decline year on year

820

760

-60

Interest income

677

646

-31

Fees and commissions

152

145

-7

Other operating income

-9

-31

-22

Expenses (–)

-548

-559

-11

Core business net profit

271

200

-71

OHR(%)

66.9

73.5

6.6

Negative catalysts• Decline in loan interest• Decline in securities interest• Increase in foreign-currency procurement costs

Credit expense (+ is reversal(profit))

2

22

20

Bond sales gains/redemption

-20

0

20

Equity sales gains/redemption

43

24

-19

Other

-7

-5

2

(Con. 316)

(Con. 261)

289

241

-48

-4

-4

0

(Con. 203)

(Con. 175)

190

164

Recurring profit
Extraordinary gain/loss
Net income**Consolidated net income is net income attributable to owners of the parent• Increase in foreign-currency procurement costs:(-¥1.7 billion)

YoY catalysts[ROE forecast](-55)

FY20161-yearConsolidated ROE (%)

3.9

FY20171-year3.4

3-yr avg. 5-yr avg.

4.1

4.7

(-28)

-26
17

Medium-Term Management Plan: “Plan for Creating the Future Together: Stage I”—Upon formulating the Medium-Term Management Plan—
Review of the previous Medium-Term Management Plan

Target figures of the previous Medium-Term Management Plan and final
fiscal year results
Initial plan

Final fiscal
year results

Difference
from plan● In the previous Medium-Term Management Plan that started in April 2014, we set a target
consisting of total assets of ¥8 trillion, deposits of ¥7 trillion and loans of ¥4.5 trillion as along-term indicator.

Total average deposit(+NCD) balance¥6.1 trillion¥6.3 trillion+¥0.2 trillion● By making aggressive efforts in new loans under a positive risk-taking policy, we achieveda total average loan balance that significantly exceeded our initial plan.

Total average loanbalance¥3.7 trillion¥4.2 trillion+¥0.5 trillion

Core business net profit¥27.0 billion¥27.1 billion+¥100 million

Recurring profit¥22.0 billion¥28.9 billion+¥6.9 billion

OHR

68% or less

66.9%

Achieved

Upper 13% level12.77%-1% level● By covering the reduction in margin by expanding loan volume, we were able to achieve ourrevenue targets in excess of our initial targets.
● However, the business environment surrounding the Chugoku Bank is expected to be
increasingly severe, with the further drop in domestic interest rate levels owing to anaccommodative monetary policy and a slowdown in economic growth caused by changes
in the social structure, such as a declining population.

Background of the formulation of the Long-Term Management Plan
(10-year strategy)● In order to survive the population decline and drop in profitability, and establish asustainable business model, we formulated a 10-year Long-Term Management Plan basedon a long-term vision of “Creating with Our Community, Customers and Employees aRich Future that We Can All Share,” and announced it in March 2017. (Vision 2027: Plan
for Creating the Future Together)

Aim of the Medium-Term Management Plan
● In the 10-year strategy (Vision 2027: Plan for Creating the Future Together), our aim is tocreate foundations of management as well as for all of the Group’s directors and employees
to make efforts in Creating a Rich Future based on Chugin-no-kokoro.
● We position this Medium-Term Management Plan as a three-year starting period to establish
our footing.

Common equity Tier 1
ratio

Chugin-no-kokoro:Standards and values that form the basis of the actions and decisionsof directors and employees of the Chugoku Bank Group● To our customers: We aim to achieve a win-win situation with ourcustomers.
(Added value) We deliver satisfaction and inspiration to customers with services that show
we care.
(Attitude) We aim for mutual growth with our customers.

● As individuals: We achieve our dreams through work.
(Growth) We hold high aspirations and make efforts in our own growth.
(Consolidating strengths) We understand, respect and collaborate with one another.

● As a company: We will provide a place that offers job satisfaction andgrowth.
(Culture) The Chugoku Bank Group provides a workplace that offers job satisfaction.
(Organizational strength) The Chugoku Bank Group gathers diverse strengths to improve
the organization’s abilities.

18Medium-Term Management Plan: “Plan for Creating the Future Together: Stage I”—The Long-Term Vision—Vision 2027: Plan for Creating the Future Together—● Although a drop in revenues is expected due to the interest environment and changes in social structures, we will aim to increase revenues byaccomplishing a growth strategy through structural reforms
Our goal←The next medium-term plan period→

Growth strategy

Structural reform period=
Sales enhancement throughstrategic investments and BPR(business process re-engineering)

Without structuralreforms

Consolidated net income:¥20.3 billion

Enhanceconsulting[¥2.3 billion]

Enhance local
developmentloans[¥5.3 billion]

Cultivate new
domains[¥4.0 billion]

BPR effect[¥2.4 billion]

Consolidated net income:¥16.0 billion

Enhance efforts
in assets incustody[¥4.2 billion]

Complete
personal loan adenhancement
web[¥9.0 billion]

Build-up on a corebusiness net profit basis

We will establish our foothold for growth through structural reforms and aim
to increase revenue by using each strategy as an engine for growth

FY2016

Consolidated net income:¥30.0 billion

FY2026 plan

FY2019 plan

Status of initiatives to achieve the Vision  How customers and shareholders evaluated us based on such initiatives will be turned into KPI (key performance indicators).

Status of initiatives to achieve the Vision
Overall points of the local promotion project: 20,000 points
Life plan support activities

Evaluation from customers’ perspective
Customer satisfaction survey

Continuous improvement

Continuous improvement

Evaluation from shareholders’ perspectives
Consolidated net income: ¥30.0 billion

Consolidated capital adequacy ratio (Basel III):
Remain stable at 12%

Consolidated ROE: 5% or more
19

Medium-Term Management Plan: “Plan for Creating the Future Together: Stage I”—Outline of the Medium-Term Management Plan—
Name: “Plan for Creating the Future Together: Stage I” Period: April 2017 – March 2020 (three years)● The name “Plan for Creating the Future Together: Stage I” indicates that it is the first stage of the 10-year strategy (Vision 2027: Plan for Creating the Future
Together).
● The main theme of the new Medium-Term Management Plan is “Creating with Our Community, Customers and Employees a Rich Future that We Can
All Share.” It is the same as the long-term vision stipulated in the 10-year strategy (Vision 2027: Plan for Creating the Future Together).

Four major strategies to be implemented in the three-year period of Plan for Creating the Future Together: Stage I
Improve the quality ofservice provided

Expand opportunities toprovide services

Enhance service provision
capability

We will focus on the “customer comes
first” concept to provide better services

We will create a structure that enables us toprovide services anywhere and anytime, with theaim of becoming a bank that is the most familiar
to and convenient for customers.

We will develop human resources that
support the Bank as well as enhancebusiness management functions
8. Strengthen development of humanresources
9. Implement organizational reforms
10. Enhance ALM functions
11. Manage costs

1. Advance local promotion activities
2. Strengthen sales activities basedon life planning
3. Maximize group synergy
4. Cultivate new business domains

5. Restructure sales channels
6. Generate business hours and sales
personnel
7. Re-allocate human resources

Initiatives to create a rich future

Through the four major
strategies

Reform the stance ofindividual employees andthe corporate culture
This forms the basis for all directors andemployees of the Group to be as one
and take on challenges positively
12. Reform stance of Individual
Employees and corporate culture,
improve customer and employee
satisfaction
13. Compliance

Initiatives to create foundations of management“Creating with Our Community,
Customers and Employees a Rich
Future that We Can All Share”
20Medium-Term Management Plan: “Plan for Creating the Future Together: Stage I”—Numerical Targets of the Medium-Term Management Plan—
Numerical targets of the MediumTerm Management Plan

* Target figures of the 10-year strategy (Vision 2027: Plan for Creating the Future Together) will be the numericaltargets of the Medium-Term Management Plan

Overall points of the local promotion projectIn three years

In ten years

15,000 pt

20,000 pt

Overall points of the local promotion project are activities that involve providing optimal solutions to the needs and issues of the communityand client companies by appropriately evaluating the client company’s business content, managerial issues and growth potential (i.e. businessassessment) that have been standardized in our original way.

Overall points of life plan support activities

Continuous improvement

Continuous improvement

Overall points of life plan support activities involve providing precise information that suits the customer’s life plan and providing products
and services that we think are the best through our understanding of each customer’s life events.

Continuous improvement

Continuous improvement

Net income attributable to owners of parent¥16.0 billion¥30.0 billion

Consolidated capital adequacy ratio (Basel III)

Stable at 12%

Stable at 12%

Customer satisfaction survey
Based on the business satisfaction item of our customer questionnaire

Consolidated ROE(FY ending March 2027 single-year) 5% or more
21

Medium-Term Management Plan:“Plan for Creating the Future Together: Stage I”

Expand Opportunities toProvide Services

Improve the Quality ofServices Provided

Enhance Service
Provision Capability

Reform the Stance ofIndividual Employees andthe Corporate Culture—I. Improve the Quality of Services Provided—
2. Strengthen sales activities based on life planning

1. Advance local promotion activities
 Advance consulting that focuses on business assessment and the local
promotion project•

Improve power to offer loans through deeper understanding of customers’ business
contents and growth potential, systemization of solutions for each managerial issue andprovision of diverse consulting menus

 Revitalize the community through initiatives in open innovation and growthindustry development support••

Strengthen assistance of founding through the Okayama innovation project and promote theuse of local tourist attractions
Revitalize the community through aggressive support of local infrastructure development andgrowth industries

Three year KPI Average local development loan balance ¥1.8 trillion  Increase to ¥2.0 trillion
Three year KPIOverall points of the local promotion project  15,000 points[Overall points of the local promotion project]
2H FY2015

1H FY2016

2H FY2016

1H FY2017 target

1,185 points

5,040 points

5,544 points

7,112 points

・・・

FY2019 target
15,000 points

 Become a trusted partner that customers want to consult with by providing
customer-oriented services••

 Solve customers’ problems and promote lifelong support for each individual
customer••••

Improve skills and motivation, and revitalize the workplace by implementing personnel
measures and creating human resource development systems according to the actual situationof each company
Deepen mutual understanding and business partnership between the Bank and affiliates
through personnel exchanges

 Advance the group management control structure•

Develop an awards system and evaluation method that encourage the Bank and affiliates tocarry out activities as one

Improve customers’ recognition of unsecured loans by strengthening promotion
Promote the use of AI and cash-less transactions

Three year KPI Average balance of five kinds of assets in custody: ¥1.0 trillion  Increase to ¥1.1 trillion
Three year KPI

Personal loan balance: ¥1.0 trillion  Increase to ¥1.1 trillion

Three year KPIOverall points of the life plan support activities  Continuous improvement

4. Cultivate new business domains

3. Maximize group synergy
 Strengthen the Group’s collaboration and maximize synergy

Support customers in achieving their dreams by providing comprehensive financial
services according to each customer’s family structure, life stage, income andfinancial assets (Consulting sales)
Assist customers’ asset formation, asset management and asset succession based on
fiduciary duty

 Evolve services that the Group can provide to customers(Quality improvement + line-up expansion)•••

Become a group that is chosen by customers for our expansive product line-up and highquality
Take on challenges in new domains by establishing new companies and starting new
businesses at each company
Formulate strategies and establish systems for business domain expansion (including
collaboration of different industries and the use of the TSUBASA Alliance)

22Medium-Term Management Plan:“Plan for Creating the Future Together: Stage I”

Enhance Service
Provision Capability

Expand Opportunities toProvide Services

Improve the Quality ofServices Provided

Reform the Stance ofIndividual Employees andthe Corporate Culture—II. Expand Opportunities to Provide Services —6. Generating business hours and sales personnel

5. Restructure sales channels
 Operate on weekends and enhance fintech services with the aim of
becoming the most convenient, familiar bank to customers• Increase business on weekends and holidays, and respond to customers’
consultation and account openings on holidays• Switch from a housing loan center to a retail center to address broad range ofneeds from various loans to asset management• Utilize life plan simulations and fintech to provide services that support
customers’ future planning• Enhance online services such as online bank transfers (bank transfers
completed online) and advance marketing

7. Re-allocate human resources Appropriately allocate managerial resources (personnel & stores)
according to the market environment

 Transform sales offices from a place for administrative processing to aplace for consulting• Carry out examinations and trials for the introduction of next-generation-type
consulting stores Promote BPR such as systemization and centralization at HQ, generatesales personnel and expand sales activities[BPR project (From April 2017)]
BPR project
Deposits &exchange, stores

Sales

Business reforms• Simplify business• Centralize administration
work at HQ• Clarify areas to be proactive and defensive in accordance with the market
environment, and allocate personnel in the appropriate number and quality
according to each area.
• Establish district headquarters for the strengthening of local relations andexpansion of strategic areas (Kurashiki, Hanshin)• Restructure the store network according to the market environmentLoans

HQ operations[Utilization of IT]• Improve efficiency with tablets(Systems investment of morethan ¥3.0 billion)

Generate sales personnel, improve productivity

In threeyears

BPR effect
190 staff
members

Ten years
later

BPR effect
700 staff
members

Personnel reduction (decrease hiring): 90
Administration personnel  Strategic allocation(sales, etc.): 100

Personnel reduction (decrease hiring): 400
Administration personnel  Strategic allocation(sales, etc.): 300

23

Medium-Term Management Plan:“Plan for Creating the Future Together: Stage I”

Improve the Quality ofServices Provided

Expand Opportunities
to Provide Services

Enhance Service
Provision Capability

Reform the Stance ofIndividual Employees andthe Corporate Culture—III. Enhance Service Provision Capability—
8. Strengthen development of human resources Voluntary human resource development and improvement of management
abilities through creating visual representations of skills• Indicate the level of achievement by job level and work, self-acknowledge
insufficient items (creating visual representations of skills) and establish a plan
to make efforts in improving abilities• Introduce long-term training for new employees immediately after they join
and restructure the in-store OJT program• Introduce a 360-degree evaluation for senior level posts and above with theaim of improving management abilities and overcoming indicated points for
improvement through continuous training Further advance professionalism by increasing long-term training andcreating a system that supports the acquisition of difficult qualifications• Advance professionalism by increasing external loans of young staff, longterm trainings and trainee dispatch, as well as acquiring difficult qualifications

9. Implement organizational reforms
 Improve ability to act by restructuring HQ organization• Restructure the sales division into corporate and individual in order to improvesales offices’ and customer support’s ability to act• In order to strengthen business assessment and consulting functions (local
promotion activities), integrate the research and consulting divisions, andestablish a sales office support system• Examine integrating the individual sales division to promote comprehensive
sales activities based on life planning Resolve the dispersion of functions and overlap of operations to achievesmooth operation of HQ• Unify stores, non-face-to-face sales channels and the marketing division todevelop the optimal sales channels for customers

10. Enhance ALM functions

11. Manage costs

 Advance revenue and profitability management, and optimize risk/return
management

 Expand strategic investment capacity by reducing recurring expenses• Evaluate risks and returns appropriately, and create the optimal portfolio• Further deepen discussions at the ALM Committee, and discuss future
revenue on a medium-to-long term

 Maximize securities investment that takes into account various risks andregulations, as well as profit or loss for the period and profit or loss fromvaluation• Optimize interest risk-taking through flexible shuffling between Japanese
government bonds and foreign bonds, and within the term, as well as byutilizing various means of hedging• Diversify and advance investment and financing measures• Utilize job rotation, external training and job challenges

Three year KPI• Restructure the IT governance system and re-invest in strategic areas by
reducing recurring systems expenses• Establish investment standards based on the overhead ratio and a system toverify the effect(Achieve a balanced cost management that is conscious of costeffectiveness) Improve managerial efficiency by formulating an appropriate long-term
personnel plan
• Create a long-term personnel plan to carry out appropriate and flexible
allocation of personnel

Consolidated capital adequacy ratio: Secure 12% level24Medium-Term Management Plan:“Plan for Creating the Future Together: Stage I”

Improve the Quality ofServices Provided

Expand Opportunities
to Provide Services

Enhance Service
Provision Capability

Reform the Stance ofIndividual Employees andthe Corporate Culture—IV. Reform the Stance of Individual Employees and the Corporate Culture—
12. Reform stance and corporate culture, improve customer andemployee satisfaction
 Improve employee satisfaction through career support, diversity promotion
and implementing workstyle reforms• Formulate workstyle reform policies, make efforts in reducing long work hours
and examine the introduction of various workstyles

 Improve organizational strength by practicing Chugin-no-kokoro(Philosophy of Chugoku Bank)and revitalizing communication

13. Compliance Continuously practice the prioritization of compliance and morals• Create a culture that does not generate corporate scandals

 Create better sales offices through internal audits• Strengthen consulting functions for sales offices (process audit)• Implement problem-solving measures based on the customer satisfaction
questionnaire and its results Achieve a high dimension of customer satisfaction mainly through local
promotion activities and sales activities based on life planning Revitalize the community with participation-type CSR
Three year KPI

Result of the customer satisfaction survey: Continuous improvement

25Securities management strategy —Asset allocation trends—
Premise: plans for average balance of market operations(100 million yen)

33,72335,000336

32,997329
30,229

462
533
1,178

【563】

27,50030,790416

32,50030,000

1,861
1,206

6,026
4,512

【603】

1,206

1,215

【575】

892

1,354

1,155

【520】

1,499

(incl. excess reservesin BoJ current account)

Equities[net investment]

4,115
5,199

Investment trusts

5,839

22,500

326
3,964
1,200

 Optimize interest risk-taking by flexibly shifting JGBs andforeign bonds as well as utilizing hedging instruments.
・In yen-based bonds, utilize various hedging instruments tosuppress excessive risk-taking.
・In foreign bonds, consider reducing the balance of low-yieldbonds and raising the percentage of variable bonds.
 In equity assets, build up balance mainly in domestic equity
that is expected to be robust.

【587】

1,800

Yields by type of investment assets(increase)
4.5%

Foreign currencybased foreign
securities

20,00017,500

Other*1
Yen-based shortterm investment

4,690
25,000Measure to improve department earnings

35,30423,046

4,500

4 . 4 0%

4.0%
3.5%

3 . 7 5%

21,112

20,4473 . 5 6%2 . 8 1%

3 . 2 4%2 . 5 3%

Yen-basedbonds*2

2.5%

19,00015,0003 . 4 4%3 . 3 3%Equities

3.0%

23,615

Cover decline in domestic and foreign
bond yields with gain from equities andinvestment trusts

Investment trust

3 . 1 1%

Foreign-currency based foreign
securities*3

2.0%
1 . 4 3%

1 . 5 7%2 . 4 8%

1 . 4 4%1.5%
1 . 0 1%

Yen-based bonds

1.0%

12,5000.5%

FY2013

FY2014FY2015FY2016*1 Other: money held in trust, derivative time deposits, long-term beneficiary rights, investment
partnerships, etc.
*2 Includes yen-denominated foreign bonds

0 . 7 5%

0 . 7 1%

0 . 6 3%0 . 6 9%0 . 7 2%FY2017Plan

0 . 5 1%0.0%
25年度
FY2013

26年度
FY201427年度
FY2015

28年度
FY201629年度計画FY2017 Plan

*3 Management-procurement spread for foreign currency-based foreign securities

26

Shareholder returns■Annual per-share dividend of ¥20 and total payout ratio of 35%

Dividend plan for FY2016

Dividend plan for FY2017
Dividend policy based on
current profit forecast

Stable per-share dividend of ¥18.0

Shareholder hospitality

Annual dividend ¥20.0/share
Annual dividend ¥20.0

Offer regional products as perks
via the five TSUBASA banks

Total payout ratio 35%* As originally estimatedShareholder returns(1 billion yen)

Net income

Total dividends

Payout ratio

Share buybacks

Unreturned portion

Total payout ratio

[1]

[2]

Per-share dividend (interim)[2] ÷ [1]

[3]

[4]

([2] + [3] + [4]) ÷ [1]End-Mar2018 Est

16.4

3.85

¥20.00 (¥10.00)

23.5%

-

1.9

about 35%

End-Mar2017 Est

19.0

3.85

¥20.00 (¥10.00)

20.3%(of w hich ¥0.6 billion is
being acquired)

0

35.4%

End-Mar
2016

25.9

3.92

¥20.00 (¥10.00)

15.1%

5.2

0

35.2%

End-Mar
2015

20.9

3.56

¥18.00 (¥8.00)

17.0%

3.3

0

32.8%

End-Mar
2014

27.0

3.23

¥16.00 (¥7.50)

12.0%

4.9

0

30.3%

2.9

*Share buyback as a factor in calculating payout ratio: Calculated based on buybacks during one year from time of shareholders meeting.

27

This document includes forward-looking statements. These statements are not a guarantee of future performance,
and involve risks and uncertainties. Note that future performance could possibly differ from the goals and targets
herein due to factors, including changes in the business environment.

28