FY2020 Earnings Results Briefing

May 31, 2021

I. Earnings Results for FY2020 and Numerical
Targets for FY2021

II. Management Strategies of The Chugoku Bank Group

Summary

4

Change in Net Interest Income

5

Major Accounts (1) Deposits & Assets in Custody

6

Major Accounts (2) Loans

7

Long-term Management Plan “Vision 2027: Plan for Creating
the Future Together”
Positioning of Medium-term Management Plan “Plan for
Creating the Future Together: Stage II”

18
19

Five Pillars

20

KPI

21

Major Accounts (3) Securities

8

Net Fee Income

9III. Major Initiatives

Corporate Solution-related Revenues

10

1. Enhancement of Initiatives for Regional Revitalizationand the SDGs

Revenues Related to Assets in Custody11

2. Deepening of Customer-oriented Sales Activities

26

Expenses12

3. Vitalization of the Organization

27

Credit Costs and Non-performing Loans

13

4. Enhancement of the Digitalization Strategy

28

Capital Adequacy

14

5. Establishment of a Sustainable Growth Model

29

Earnings Forecasts

15

Corporate Governance30

Shareholder Return Policy

16

Alliance/Partnership Strategies

31

23 - 25

For inquiries regarding this document, please contact:
Management Planning Department, The Chugoku Bank, Ltd. (Shimizu or Matsuo)
TEL: +81-86-234-6519 Email: souki01@chugin.jp
2Section I
Earnings Results for FY2020
andNumerical Targets for FY2021

FY2020 Earnings Results –Summary–(biillion yen)

FY2017FY2018FY2019FY2020[Consolidated]

YoY

vs. Plan*

Consolidated ordinary income

30.9

23.6

17.4

21.2

3.8

3.7

Profit attributable to owners of parent

21.2

16.1

11.9

14.4

2.5

2.4

Core business gross profit

79.5

77.0

74.7

76.3

1.6

1.1

Net interest income

66.2

63.0

58.2

58.8

0.6

0.4

Net fee income

14.6

14.8

15.8

15.6

-0.2

0.3

Net other operating profits

-1.2

-0.8

0.6

1.8

1.2

0.5

Expenses (-)

55.6

54.2

54.0

52.7

-1.3

-1.1

OHR (%)

69.9

70.3

72.2

69.1

-3.1

-2.5

Core business net profit
Excl. gains or losses on cancellationof investment trusts

23.9

22.8

20.7

23.5

2.8

2.2

22.2

21.7

20.6

23.4

2.8

2.6

Credit cost (-)

-1.7

4.1

5.6

8.0

2.4

-0.9

Bond trading loss, write-off

-2.4

1.1

-0.5

-0.5

-0.0

-1.7

Equity trading and evaluation loss

4.4

1.4

0.0

5.5

5.5

3.2

Other

0.2

0.6

0.7

-1.5

-2.2

-1.0

Ordinary profit

27.9

21.9

15.4

19.0

3.6

3.5

Extraordinary gain/loss

-0.1

-0.2

-0.6

-0.3

0.3

0.1

Net income

19.4

15.3

10.8

13.0

2.2

2.0

[Non-consolidated]*Forecast published on Nov. 13, 2020.

 Core business net profit

Increased by 2.8 billion yen year on year due to growth of net interest income and net otheroperating profits (derivative transactions for clients, etc.), and a decrease in expenses.

 Ordinary profit

Increased year on year both on a consolidated and non-consolidated basis due to an increasein gains/losses related to securities, despite an increase in credit costs.

4

FY2020 Earnings Results –Supplementary Information on Net Interest Income–[Loan yield][Factors behind change in net interest income]（％）

 Yen-based: ¥51 billion (-¥0.9 billion YoY) Interest on loans and discounts:+¥0.7 billion YoY

 Interest on securities: -¥1.8 billion YoY
 Decrease in interest on deposits:+¥0.1 billion YoY(billion yen)

 Foreign currency-based:¥7.8 billion (+¥1.5 billion YoY) Interest on loans and discounts:-¥5.3 billion YoY
 Interest on securities: -¥4.6 billion YoY
 Decrease in interest on deposits:+¥1.6 billion YoY
 Decrease in foreign currency
procurement:+¥9.8 billion YoY

Loan yield
Loan yield (yen)

1.08

1.03

0.90
0.89

0.86

FY2017

1.7 -1.0 0.2

58.2

-2.0

0.1

0

-0.1

1.4

58.8

FY20180.84

FY20190.81
FY20200.87

0.80
FY2021
Plan[Return on securities]
（％）

-6.7

1.04

1.24
1.17

9.8

1.10

0.5
-5.1

+0.6 billion yen

1.6

1.03

0.81
0.95

外
貨
そ
の
他

FY2020

外
貨
市
場
調
達

Foreign currency other

外
貨
預
金
利
息

Fund procurement fromforeign exchange market

外
貨
有
証
利
回

Interest on foreign
currency deposits

外
貨
有
証
平
残

Return on foreign
currency securities

外
貨
貸
出
利
回

Avg. foreign currency
securities balance

外
貨
貸
出
平
残

Loan yield (foreign
currency)

邦
貨
そ
の
他

Avg. foreign currency
loan balance

邦
貨
預
金
利
息

Yen other

邦
貨
有
証
利
回

0.85

Foreign currency +1.5
Interest on yen deposits

邦
貨
有
証
平
残

Return on yen securities

邦
貨
貸
出
利
回

Avg. yen securities
balance

邦
貨
貸
出
平
残

Loan yield (yen)

年度

Avg. yen loan balance

FY2019Yen -0.9

0.78

年
度

0.75

Return on securities

0.69

Return on yen securities

FY2017FY2018FY2019FY2020

FY2021Plan

 Net interest income increased by 0.6 billion yen year on year due to growth in interest on yen loans and discounts and anincrease in foreign currency net interest income due mainly to a drop in foreign currency procurement expenses.

5

Major Accounts (1) Deposits & Assets in Custody[Average balance of deposits and assets in custody]

8,373.4(7,409.3)(billion yen)

8,500

Total assets incustody(Deposits + NCD)
Financial instrument
brokerage

7,437.0(6,457.7)

7,500
Municipal bonds

195.1
292.7

Insurance

6,500

Investment trusts
Other
Deposits + NCD

5,500+2.9 ％（+3.0％）+6.9％（+8.5%）

Domestic corporateclients
Deposits + NCD

347.1
144.4

7,709.5(6,715.5)

190.1
292.7
371.1
140.1
492.0

7,827.0(6,826.0)

144.0
275.0

174.9
282.0

420.5

407.0

586.1

8,616.6(7,632.1)

149.0
267.0

440.0
128.5

124.6

539.1

137.0
465.1

391.4
+6.4％
+13.3％

1,547.5

1,596.0

1,986.0

1,866.0

1,645.9

+3.0％

4,500

+5.1％
Domestic retailclients
Deposits + NCD

4,518.7

4,627.4

4,715.0

FY2017FY2018FY20194,957.0

5,106.9

FY2020

FY2021

3,500* Financial instrument brokerage is based on acquisition price. Municipal bonds are based on face value. Insurance is based on the averagebalance that takes into account cancellations. Investment trusts are based on net assets.

Plan

 In FY2020, deposits + NCD increased significantly for both corporate and retail clients due to payment of
COVID-19-related benefits and securing funds on hand.
 A continued inflow of funds related to COVID-19 is expected mainly for corporate and retail clients in FY2021.

6

Major Accounts (2) Loans[Average loan balance]

+3.7％

+5.0％

5,242.7

5,053.1（billion yen）

4,734.4

4,811.6

21.8

23.3

23.9
24.4

4,551.8

5,000

16.7

1,199.7

1,170.6

Hong Kong Branch

4,000

Personal loans

1,052.3

1,100.6

1,141.9+12.1％

Loans to theheadquarters*3

3,000

2,000

1,000

0

Local government
loans

Urban
development*2

383.3
505.5
669.9

459.6
493.2
620.9

657.5

542.9

484.0
445.0

467.5

477.0

+5.4％

657.4

+6.6％

623.2

+5.8％

2,224.0

2,258.9

FY2020

FY2021
Plan

584.4

+1.5％

Local
development*1

1,923.7

2,038.0

2,100.8

FY2017FY2018FY2019*1 Local: Regions other than Tokyo and Osaka *2 Urban: Tokyo and Osaka *3 Loans to the headquarters: Non-Japanese loans and SF centers

 In FY2020, total loans grew significantly by 5.0% year on year mainly due to the aggressive financial support
during the COVID-19 pandemic.

 In FY2021, we will continue to provide aggressive financial support mainly in the local communities.

7

Major Accounts (3) Securities[Average balance of securities][Unrealized gains/losses]+88.1

End of Mar.
2020

End of Mar.
2021

89.8

136.6

46.8

Held to maturity

0.3

0.2

-0.1

Other securities

89.5

136.4

46.9

Equity

36.4

62.2

25.8

Investment trusts

21.6

53.4

31.8

Foreigncurrency bonds

2.3

-0.2

-2.5

Yen bonds

30.4

20.0

-10.4

+47.5

(billion yen)

2,440.5(billion yen)

2,352.4

16.0

Total

15.4
84.7

89.0

2,304.9
Others*1
Equity

16.0
91.6

+37.2

187.4

150.2
Investment
trusts

150.8

2,000

+78.2

+19.1
Foreign currency
bonds*2

329.8

YoY

408.0

310.7

[Duration of bonds]+36.3

1,772.1
Yen bonds

1,735.8

1,740.0

5.1

4.1

5.5

3.7

5.8

4.2

Yen bonds
Foreign currency bonds

1,000

FY2019FY2020*1: Investment partnerships*2: Includes foreign currency investment trusts

FY2021

End of Mar. 2019

End of Mar. 2020

End of Mar. 2021

Plan

 In FY2020, the total balance increased by 47.5 billion yen year on year due to an increase in yen bonds on the back of thegrowth of deposit/loan balance due to an increase in deposits. Unrealized gains/losses improved significantly due to therecovery of the stock market.
 In FY2021, we will take positions flexibly in foreign currency bond investments and equity-type assets (including
investment trusts).

8

Net Fee Income[Net fee income]

+862

-185

16,53415,857(million yen)

14,61015,672

14,88615,000-148

4,467
Assets in custody*

10,000

4,287

+286

4,605

4,319

4,375

-142
Investment banking
business

2,025

2,092

Remittance/collection fees

5,141

5,139

2,903

3,074

2,932

5,155

5,444

5,276

5,000

+773
Other

0

3,157

3,280

3,161

2,977

FY2017FY2018FY2019FY20203,750

FY2021Plan*Four products in custody (investment trusts, insurance, municipal bonds, financial instrument brokerage) + inheritance-related business In FY2020, the impact of the decrease in revenue due to refraining from face-to-face sales activities in 1H
remained minor, helped by the utilization of remote meetings.
 In FY2021, we will strive to increase revenue mainly from assets in custody (including inheritance-related
business).

9Corporate Solution-related Revenues[Revenues from solutions for corporate customers](Net interest income, net fee income, net other+224
operating profits)+1,476

7,870
Other
Fees onderivatives
Other investmentbanking

Fees on corporate
bonds

657.4

(billion yen)

183
325

Intermediary fees

9,570

9,346

(million yen)

(M&A, consulting, etc.)[Average balance of loans to the headquarters]

1,222

564

535

611

756

380

572

1,100

499

+116

+103

160.4

484.0

820

366
352

640
Investmentbankingbusiness
recorded in
net feeincome

+870

542.9

Non-Japanese

148.0
139.7

859
497.0
SF Center

344.3

FY2019

1,066

394.9

FY2020

FY2021Plan

1,322[Breakdown of loans to the headquarters](Balance at end of Mar. 2021)

Fees onsyndicated loans
Interest on loans*

5,663(SF, non-Japaneseloans)

4,865

Corporate loans

13%Marketable
loans

4,076

29%

* Foreign currency
loans areextraordinary profit.

36%
23%
FY2019FY2020

FY2021
Plan

Project finance
Asset finance

CLO In FY2020, corporate solution-related revenues increased significantly, reflecting the growth of intermediary fees and theexecution of large-volume derivatives transactions.
 In FY2021, we will expand the provision of solutions in response to diversified customer needs and further take risks andreturns into consideration in loans to the headquarters by paying close attention to changes in the market environment.

10

Revenues Related to Assets in Custody[Breakdown of revenues related to assets in custody](million yen)Group total(Bank parent)+121（+286）+186（-148）

7,244(4,287)
6,435(4,375)

6,846(4,605)

6,725(4,319)6,539(4,467)Group
subsidiaries(Securities, asset
mgmt.)

Inheritance-related

2,957

28

+334

2,060

2,072

55

119

1,620

230
207

970
Financial instrument
brokerage

101

1,023

1,144
1,119

128

31

Bank parent

Municipal bonds

-523

74
1,929

Life insurance

2,241

2,406

1,074

1,597

52
+485

1,559

1,201
+287

Investment trusts

1,362

1,317

FY2017FY20181,599

FY20191,886

FY20201,620

FY2021Plan

 In FY2020, the group total increased year on year due to an increase in investment trusts that captured the recovery of
the market and revenue improvement at group subsidiaries, despite the negative impact of refraining from face-to-facesales activities during the pandemic.
 In FY2021, we will aim to increase life insurance and inheritance-related revenue by strengthening consulting sales
according to customers’ life plans.

11Expenses[Expenses](billion yen)

60

55.6
Taxes

3.6

-1.3

54.2

54.0

3.1

3.0

50
Other property
expenses

40

Deposit insurance
premium
System expenses

+0.2

52.7

52.9

3.0

3.0

11.6

11.9

2.0

2.1

8.3

8.1

-0.4

12.2

12.1

12.0

2.1

2.0

2.0
-0.4

8.7

9.0

8.7

30

20
Personnel expenses(Retirement benefit
cost portion)

10

0

-0.5

28.9

（0.7）

27.8
（0.5）

28.2

27.7

27.7

（1.0）

（1.3）

（0.9）

FY2017FY2018FY2019FY2020

FY2021Plan

 In FY2020, expenses decreased significantly by 1.3 billion yen year on year due to a decrease in business trip travel
expenses and training expenses, as well as a reduction in personnel expenses due to the streamlining of operations.
 In FY2021, we expect to see expenses unchanged from FY2020 overall due to further streamlining, despite increases inpersonnel system-related costs and branch-related costs.

12Credit Costs and Non-performing Loans[Non-performing loans (NPL)][Credit costs](billion yen)

Other credit costs*(Loans disclosed under the Financial Revitalization Law) (billion yen)
*The Chugoku Bank does not carry out partial direct write-offs.

Provision of general allowance for loan losses
Provision of specific allowance for loan losses
1.73％* Writing-off of loans, allowance for credit to specific foreign borrowers,
allowance for loss on sales of loans, loss on sales of loans

8.0
0.0

NPL ratio

1.40％* NPL ratio after partial
direct write-offs
1.14％

0.1

0.0

2.9

69.3

3.7

2.3
4.2

1.50％
1.18％
91.6

5.6
4.1

1.45％

72.9
31.1

Substandard

20.0

22.9

Doubtful

27.9

28.1

Bankrupt

21.3

21.8

22.0

FY2018FY2019FY2020

38.3

3.2
1.0
FY2018FY2019FY2020(Reference) Calculation method of general allowance for loan losses Expected loss rate is calculated based on the actual loan loss rates for three consecutive calculation periods, with one period being
three years and each moved one year forward.
 The expected loss rate shall be either the “three-period average” or the “most recent two-period average,” whichever is larger.
 Loans to healthy accounts and substandard I accounts are adjusted by taking into consideration the average remaining period of thereceivables.

 General allowance for loan losses increased on the back of an increase in loans. Specific allowance for loan
losses also increased year on year, resulting in an increase of 2.4 billion yen in the total allowance.
 Although the NPL ratio has risen, it remains low (1% level).

13

Capital Adequacy[Capital adequacy ratio][Capital adequacy (consolidated)](%)
FY2019FY2020Change(billion yen)
Total equity

Consolidated capital
adequacy ratio

13.50

Valuation difference on
available-for-sale securities

13.04
12.88
13.01
12.56

Common equity Tier 1 capital

12.70

Risk-weighted assets, etc.
Credit risks
Operational risks

Non-consolidated
capital adequacy ratio

502.1

561.1

59.0

501.9

550.9

49.0

44.3

84.9

40.6

3,848.5

4,155.6

307.1

3,693.7

4,002.5

308.8

154.7

153.0

-1.7

[Other Basel regulations]
FY2019FY2020<Regulatory
standards>

Consolidated leverage ratio

5.99%

6.52%

3% or more

Consolidated liquidity coverage ratio(LCR)

165.3%

201.8%

100% or more

Consolidated stress test (IRRBB)

3.6%

5.9%

15% or less

End of Mar. 2019 End of Mar. 2020 End of Mar. 2021

 The total capital adequacy ratio rose on the back of increases in valuation difference on available-for-salesecurities and in Tier 2 capital through financing by subordinate bonds (social bonds), while risk-weighted assets
grew due to an increase in loans, etc.

14Earnings Forecasts[Earnings forecasts]

Consolidated(billion yen)

[Impact of COVID-19]
FY2020

FY2021ResultForecast<Net interest income>The loan balance increased significantly due to aggressive financing
Changesupport for customers during the pandemic.
0.3  We expect robust growth of net interest income in FY2021 throughcontinued financing support.

Consolidated ordinary profit

21.2

21.5

Consolidated net income

14.4

14.7

Core business gross profit

76.3

77.0

0.7  We do not expect a negative impact from COVID-19 in FY2021 as

Net interest income

58.8

59.4

0.6  Considering customers’ new needs and managerial issues thatNet fee income

15.6

16.5

Net other operating
profits

1.8

1.1

became apparent during the pandemic as an opportunity for
consulting, we will provide further financial and non-financial-0.7 support.

Expenses (-)

52.7

52.9

0.2 <Expenses>

Core business net profit

23.5

24.0

0.5  We expect to carry out strategic investments as planned as sales

Credit cost (-)

8.0

8.5

0.5

3.7

3.8

and business activities recover. We will seek to acceleratemeasures that contribute to the streamlining of operations, whichwere implemented during the pandemic, in an effort to perpetuate a
0.1 low-cost structure.

4.2

4.6

0.4

5.0

4.2

-0.8  Currently, there is no major impact of the pandemic in the local

Other

-1.5

-0.2

1.3  For FY2021, while there is no deterioration factor in particular at

Ordinary profit

19.0

19.5

0.5

Net income

13.0

13.5

0.5

0.3

<Net fee income>Non-consolidated

we have established a sales system adapted to the pandemic.

Provision of generalallowance for loan
Provision of specificallowance for loan
Securities-related
gains/losses

0.9<Credit costs>
areas.

present, we have incorporated credit costs equivalent to those of
FY2020 into the forecast to prepare for unexpected events.

 We will continue to aggressively respond to customers’ financing needs and problem-solving needs, as well as
ensuring thorough streamlining and cost management. Through such efforts, we expect profit increases on botha consolidated and non-consolidated basis.

15

Shareholder Return Policy[Shareholder return policy for FY2021]* In the calculation of the payout ratio, share buybacks are those carried out within ayear from the general meeting of shareholders.

Shareholder return ratio of at least 35% throughdividends and share buybacks

Shareholder return ratio of approx. 35%

Shareholder return
ratio of at least 35%

FY2017FY2018FY2019FY2020

FY2021(Plan)

Dividend per share

20 yen22 yen22 yen23 yen23 yen(Interim dividend)(10 yen)(10 yen)(11 yen)(11 yen)(11.5 yen)

①

19.4

15.3

10.8

14.4

14.7

Total dividends ②

3.8

4.1

4.1

4.3

4.3

19.7%

27.1%

38.2%

30.0%

29.2%
Consolidated
shareholder
return at least
35%(billion yen)

Net income

Payout ratio

②÷①

Share
buybacks
Shareholder
return amount
Shareholder
return ratio

③

2.9

1.4

-

1.0

②+③

6.8

5.5

4.1

5.3

35.1%

36.2%

38.2%

36.9%

(②+③)÷①

Non-consolidated
 FY2020

 FY2021

Consolidated (from FY2020)

 We increased dividends by 1 yen per share to 23 yen (22+1 yen) to commemorate the Bank’s 90th
anniversary.
Share buybacks worth 1 billion yen are currently implemented.
 We will revise the dividend per share to 23 yen and the shareholder return policy to “at least 35% ofconsolidated net income.”
We will continue to seek to maximize shareholder returns through stable dividend payment and flexible sharebuybacks.

16Section II

Management Strategies of
The Chugoku Bank GroupLong-term Management Plan “Vision 2027:
Plan for Creating the Future Together” as the Basis In March 2017, we formulated our 10-year Long-term Management Plan “Vision 2027: Plan for Creating the Future Together”
based on our long-term vision to “Create with Our Community, Customers and Employees a Rich Future that We Can All Share”
with the aim of establishing a sustainable business model by overcoming the declines in population and profitability.

Corporate
principles

Long-term vision

Create with Our Community, Customers and Employees
Corporate visiona Rich Future that We Can All Share

[Framework for achieving the long-term vision]

Initiatives for creating a rich future Improve the quality of the services we provide Increase opportunities to provide services

Initiatives for creating the foundation of management

 Enhance our capabilities to provide services
 Reform the mindsets of individuals and the organizational culture18

Positioning of the Medium-term Management Plan
“Plan for Creating the Future Together: Stage II”
 Based on the achievements of the structural reforms (strategic investments and streamlining operations and enhancing sales capabilities
through BPR measures) under the previous Medium-term Management Plan, we will establish “our proprietary business model,” which
can quickly respond to changes of the external environment and enables the Group and local communities to grow together.
 To that end, we will strengthen our organizational power and human resources development under the new Medium-term Management
Plan.
FY2017

3 years

FY20203 years

FY20234 years

FY2026Long-term Management Plan “Vision 2027: Plan for Creating the Future Together”
Previous Medium-term Management Plan
“Plan for Creating the Future Together:
Stage I”

HOP Enhance tangible aspects
ThoroughstructuralreformSecurepersonnel andtime for sales
activities

Domestic exchange & counterreception

New Medium-term Management Plan “Plan for
Creating the Future Together: Stage II”

STEP Enhance intangible aspects(organization and human resources)

Sales offices

Sales activity reforms

Enhancement ofinitiatives for regional
revitalizationand theSDGs

Headquarters

Reduction of HQ operations
Workstyle reforms

2

Deepening ofcustomer-oriented
sales activities

Five
Pillars3

Vitalization of theorganization

4

Loans
Concentration of loan administration
to HQ and streamlining

JUMP Culmination of efforts

1

Teller operation reforms
Sales“Plan for Creating the Future
Together: Stage III”

5

Enhancement of
the digitalization
strategy

Establish a businessmodel that enables theGroup and local
communities to growtogether
The Chugoku Bank
Group will become theregional platform

Establishment of asustainable growth
model

19

Five Pillars of the Medium-term Management Plan
“Plan for Creating the Future Together: Stage II”

1Enhancement of initiatives for regional revitalization and the SDGs
 Confront the various issues surrounding the local areas and aim to solve the issues, create new businesses and work
toward the SDGs.
 Solve social and environmental issues by providing our know-how to customers, forming various partnerships, andworking toward the SDGs.

2

Deepening of customer-oriented sales activities As The Chugoku Bank Group, provide new value to customers and solve their various issues.
 Strengthen integrated sales by sales offices and the HQ, enhance services including non-financial services, enter new
business areas including personnel placement, local trading companies and business consulting services, andstrengthen synergies within the Group.

3

Vitalization of the organization
 Position employees as the Group’s important stakeholder and raise their job satisfaction and offer support in selffulfillment and development.
 Establish an organizational system where employees can work with greater job satisfaction than before by reforming
the personnel system, reviewing the performance commendation system, and further delegating authority to blocks
and sales offices.

4

Enhancement of the digitalization strategy
 The rapid progress of digitalization of finance provides a significant business opportunity for the Group.
 Aim to increase customer contact points and create new customer experience using digital technologies throughincreasing/improving smartphone apps for retail customers and opening a portal website for corporate customers.
Further streamline banking operations through digitalization.

5

Establishment of a sustainable growth model To respond to the harsh market environment, such as sustained negative interest rates, strive to stabilize revenue inthe core business, including new business areas, and fundamentally review the cost structure to achieve sustainableprofit growth.

20Key Performance Indicators (KPIs) of the Medium-term Management
Plan “Plan for Creating the Future Together: Stage II”
 We have set the value we can provide stakeholders as the KPIs of the Medium-term Management Plan “Plan for Creating the Future
Together: Stage II.”
 We will aim to increase the regional (East Setouchi Economic Zone*1) population and GDP in the long run by achieving the KPIs.

Stakeholder

KPI
Number of projects addressing local issues andcontributing to the SDGs

Local community

FY2020 Result

Final year of theMedium-term Plan
(FY2022)

Final year of the Longterm Plan (FY2026)

Continuous improvement Continuous improvement－(1) Sum of the number of startups for which we
provided support*2 and the number ofcompanies we provided support in businesssuccession*3

65

200 companies over 3
years

－

(2) Activities contributing to the improvement offinancial literacy*4

195(More than 3,000
participants to lectures)

Continuous improvement－

Customers

Customer satisfaction*5 (Retail and corporate)

FY2020 Corporate
questionnaire
74% satisfaction(FY2018: 70%)

Employees

Labor share in core business net profit before
payment of personnel cost*6

54.03％At least 54%－

Profit attributable to owners of parent

14.4 billion yen(Close to final-yeartarget)15.0 billion yen

30.0 billion yen

Consolidated total capital adequacy ratio (Basel III)13.50％

Consolidated ROE

2.68％

Shareholders, etc.
(All stakeholders)Continuous improvement Continuous improvement

Maintained stably at 12% Maintained stably at 12%－

At least 5%(single-year basis)*1 East Setouchi Economic Zone: Okayama Prefecture, Kagawa Prefecture, eastern Hiroshima Prefecture (Bingo region), western Hyogo Prefecture (Harima region)*2 Number of startups for which we provided support: Number of startups as a result of our event for startup support, etc.
*3 Number of companies we provided support in business succession: Number of companies to which we provide business succession consulting services*4 Activities contributing to the improvement of financial literacy: Number of event and study sessions that contribute to the improvement of financial literacy and business skills, etc.
*5 Customer satisfaction: Sum of “Satisfied” and “Somewhat satisfied” replies in customer questionnaires (corporate and retail customer questionnaires are conducted every other year)*6 Labor share in core business net profit before payment of personnel cost: Personnel expenses divided by the sum of core business net profit and personnel expenses

21Section III

Major Initiatives

1. Enhancement of Initiatives for Regional Revitalization and the SDGs

Human resources,
information, funds

Mutualcooperation

Mutualcooperation
Information on
industries andcompanies<Entrepreneur support and fostering> Okayama Innovation ProjectStartup support comprising a “School,”where participants learn theory,knowledge, passion and mind frame,and “Contest,” which discovers andawards talented persons

Partner companies forrealization

Establish a place forco-creation(a platform)

Local
governments

The Chugoku Bank Group

Universities,
research
institutes, etc.

 We will proactively support the realization of regional revitalization and the SDGs through the provision of “humanresources,” “information,” “funds” and “know-how.”
Spread of theSDGs inOkayama Pref.

Okayama×<Partnership with a university> Okayama Future Co-creation
Alliance
Contributes to the development of theregion by sharing information andknow-how to achieve the SDGs

×

<Science technology venture support><Introduction of core human resources> Tech Planter (Okayama, Kagawa))
Creates industries and incubates
ventures by developing science
technologies that support societyof the next generation<Business creation, disseminationof know-how> Chugin Open Lab (internal venture)
A program that calls for projects and ideas forsolving regional issues and new
businesses within the Group,
which the originators themselves
work toward realizing Personnel placement
Introduces personnel thatclient companies require,especially “senior management”
personnel, thereby contributing
to the growth and developmentof the companies

231. Enhancement of Initiatives for Regional Revitalization and the SDGs
–Local Trading Company
 We will establish a business model that enables the Group and local communities to grow together by using the knowhow, information and networks of the Group.
 By establishing a local trading company, we will accelerate our support for customers’ main businesses and contribute to
the development of the local economy.
Local trading company “Setonowa”

Number of consultations and proposals
8675

No. of consultations (cumulative total)
No. of proposals (cumulative total)(Local newspaper)(Local department store)
Analysis, strategy
Product planning, development
Branding
Channel development
Promotion

38

0(Advertising and producing)

Synergies

2
Dec.

26

9
Jan.

Feb.

Mar.

Project No. 1: Ogura Shoten“Assisting the development of new product using wild sea bream”(Branding, design)

Strengths

20

6Nov. 2020

Purpose60

 Creates economic value within the region by discovering theregional resources that customers have and disseminating
information within and outside the region and supporting sales
increase A new product using fish meat typically discarded as misshapen or
disfigured Assisted in product concept planning, package design, price settings,
sales channels, etc.

 Complements knowledge that banks lack, such as indistribution, promotion, design and marketing, through joint
ventures with companies representing the region
 Disseminates the region’s appeal by making the most of theknow-how and networks of the five participating companies andthe bank’s managerial resources Creates synergies with banking operations, such as
consulting, personnel placement, business matching andfinance, through the local trading businessWild Red Sea Bream Flakes

Wild Red Sea Bream for Tea on Rice24

1. Enhancement of Initiatives for Regional Revitalization and the SDGs
–SDGs and ESG through Our Core Business We expressed our support for the recommendations of the TCFD (Task Force on Climate-related Financial Disclosures).
 We will accelerate responding to the SDGs and ESG through our core business and aim to improve our corporate value
continuously over the long term.

We expressed our support for the TCFD recommendations tocontribute to the realization of a carbon-free society while
understanding and evaluating the risks and opportunities thatclimate change provides customers and the Bank.

SDGs and ESG through our core business“Chugin Sustainable Loan”
Loan

Rating and Investment
Information, Inc.
Third-party opinion
on the lending scheme Increase information disclosure Actively take the initiative in addressing climate change inthe region as the leading bank of the region (A hugebusiness opportunity)

Customer(Future initiatives)
Set environmental targets, report

Check environmental targets and the reports

Okayama Economic
Research Institute

Policy for Responsible Financing and Investment
Activity (Apr. 2021)
As a provider of funds, we clarified that we will carefully
examine financing and investment activities that pose a risk ora negative impact on the environment or society and makeefforts to reduce or avoid the impact of such elements.

The Chugoku Bank

Support for TCFD recommendations (May 2021)“Chugin SDGs Support”
The Chugoku Bank will support
your efforts toward the SDGs.

Illustration of Chugin SDGs Support
Sorting of efforts toward the SDGs

Assisting preparation of an
SDGs declaration document

Assisting PR of efforts toward
the SDGs(Industries and sectors of particular attention)
 Weapons Coal fired power generation
 Palm oil plantation development, logging business25

2. Deepening of Customer-oriented Sales Activities Corporate solution: Sales offices and the HQ unite to propose the optimal solution for the customer.
 Retail solution: We provide life plan support from both financial and non-financial aspects depending on the customer
segment and channel.
Local support activities (corporate solution)

Life plan support activities (retail solution)

 Assigned a Relationship Management rep in HQ(1H 2020)
High-quality
sales offeredby salesoffices and
HQ in unison

 Carries out sophisticated solution sales that link
information of the sales sites and professional
knowledge of HQ to establish a deeper relationshipwith large-volume clients

 Established the Ship Finance Center (Nov. 2020)
 Consolidates lending operations for ocean-going ships
in the Bingo district of Hiroshima Pref.
 Offers high-quality sales by professionals in charge ofships

Face-toface
channels
Non-face-toface
channels

Non-financial
services Strengthening consulting business through external
partnerships (since Oct. 2020)
 Provides consulting services to customers withmanagerial issues on business succession, M&A,
business plan formulation, etc.

Optimalsolutionfor thecustomer

Capital contribution,
human resources

The Chugoku
BankOkayama CapitalManagement
SMEs withmanagerial
issuesCapital contribution,
human resources Startup support “Chugin Infinity Fund”
 Business succession support “Succession Japan Fund”(measure of the TSUBASA alliance) Improve customer convenience throughdigitalization
 Remote consultation, completing transactions
online, partnerships with fintech companies

 “Chugin Okomarigoto Kaiketsu (Problemsolving) Support” (Since Feb. 2021)
 Inheritance, end-of-life preparations, real estate,housework, nursing care, etc.

Maximization of group synergies
Strategic
group
companies

Long Black
Partners Co., Ltd.

 Assisting through investment in funds (since Oct. 2020)

 Increase number of branches that conductbusiness on holidays (Life Plan Center, sales
offices) Develop an optimal branch network

 Strategic assignment of active bank
employees (secondment) Lease, credit card, securities, asset
management, etc.

 Consideration of
new business areas

Expandingthe workareas New lease areas
 Utilization of real estate Strengthening of equity
investment by the use of funds26

3. Vitalization of the Organization
 We overhauled our personnel system for the first time in approx. 17 years to vitalize the organization and seek further
progress of diversity.
 We will create an environment where employees can maximize their potential in order to provide high-quality services
that further supports customers.

Become a human resources group requiredin and outside the bank

External environment
Change in customer needs

Revision of laws andsystems
 Act for Stabilization etc. of
Employment of Elderly
Persons
 Equal pay for equal work

Foster a culture of autonomy andchallenge

Increase work fields

 Sophistication of corporate
activities Diversification of lifestyles

Provide a wide range of work fields not bound by gender or age
Career path

Remove career path
restrictions

Change in views toward
employment

Establish a partner staff system

Achieve work-life balance and improve productivity

 Diversity & inclusion Work-life balance

Establish a professionalcourse(scheduled Oct. 2021)

Workstyles

Optional personnel transfer
requiring a change of residence

Selective work area

Introduction of flextime system

Internal environment
Changes in people indemandAdvancement offinancial DX and BPR

Autonomy

Qualitative
assessment

Problems in personnel
composition
Issues of personnel
system
Employee satisfaction

Foster a culture in which employees autonomously aim for greater expertiseby engaging in duties that suit their aptitude

Challenge

Selective skills training

Lifting of ban on side jobs

Actively support positive actions of taking on challenges that contributeto the region and customers
Enhance the career
challenge program

Internal venture program

Promotion by selection27

4. Enhancement of the Digitalization Strategy
 Digital strategy vision of The Chugoku Bank: “Pursue comprehensive services business to serve every aspect ofcustomers’ lives and businesses”
 We will powerfully promote digitalization by using people (sales), products (sales offices) and information as a regional
financial institution.
Step 1 (This Medium-term Plan)
Improve user convenience ofexisting services

Step 2 (Next Medium-term Plan)
New financial services

Expand digitalization

Combination of physical anddigital business

Retail clients

 Digitalize sales offices(Less back office and manager
operations)(Completion of transactions ontablets at sales offices) Improve convenience ofretail app

Highly convenient
smartphone app

Next-generationtype sales office Sophisticationof proposals

Café

Hospital(Omni-channel)(Utilization of AI)

U
s
e
r
n
a
m
Pe
a:
s
s
w
o
r
d
:

TravelSUBM
IT

Shoppingmall

Expansion ofdigitalization on the backof technology evolution

Development of digital channel
 Provision of corporate portal services(Non-face-to-face loan application)(Indication of financeable amount) Corporate platform(Digitalization of loan agreements)
業績予測

 Sophistication and one-stop
service on a corporate portal

All external sales reps will shift toconsultants who support local companies’
important decision-making

各種情報提供業務サービス(Web, app)

A partner for business &management consulting

Network of experts

 Enhanced online
meetings

Drugstore

Coordination with crossindustrial coordination channel

July 1, 2020
Establishment of Digital Innovation
Promotion Center

Corporate

Introduce and provide physical and digital
services beyond finance on a daily basis(Remote consultation
booth)

 Used all the time Optimal proposals
 Liaison with realtransactions

Sales office tablet“TSUBASA Smile”

 Next-generationtype sales office

Step 3 (2030)
Comprehensive services, incl.
non-financial
Provision of services for every
aspect of life

資金調達 営業支援
会計

受発注
生産管理

 Provision of online financing andpersonalized information, etc.
(using AI)

In-houseknowledge
database

AI
Quickly provides appropriate data according to
the proposal from among a vast sea of data

Bank’s customer
base network

Industry and region
information28

5. Establishment of a Sustainable Growth Model We have succeeded in thoroughly streamlining operations due to the digitalization and BPR that we promoted under theprevious Medium-term Plan.
 We will carry out fundamental cost reductions toward a sustainable growth model while maintaining and improving
customer convenience.
Reduction
target-3.2 billion yen vsExpenses (billion yen)

[Reference] Expected improvement of BOJ standard OHR(% change vs FY2019)-1% (BOJ’s improvement standard)

FY2019

-3%
-4%
-3.5%

55.6

54.2

54.0

-4.4%
52.7

-5.8%

Strive to achieve the standard by improving
profitability and reducing costs
FY2017FY2018FY2019FY2020

FY2021FY2019FY2022

FY2020

FY2021

FY2022* The reduction target includes the end of the 1.4 billion yen per year
amortization of the TSUBASA mission-critical system.

Number of employees

Reduce to a 2,800 level overthe medium to long term

Number of sales offices
No. of offices
in Japan

3,077

160

Reduce to a 145 office level during the
Medium-term Plan period

159

155

2,983
2,919

2,878

 Productivity improvement

Retail banking
offices andsubbranches Reduction of workforce by restricting new employment,
etc.

(Previous Medium-term Plan)
BPR period
Mar. 2018

Mar. 2019

Mar. 2020

Branch-withina-branch(Current
Medium-term Plan)
Emergence of effects

Mar. 2021*Non-consolidated number of employees (excluding part-time and contract employees)

Full-banking
services

151

1
33

6

10

32

34

30

128

126

121

121

Mar. 2018

Mar. 2019

Mar. 2020

Mar. 2021*Excludes overseas and internet branches

29Corporate Governance We pursue sound and sustainable growth concurrently with medium- to long-term improvement of corporate value byenhancing and enriching corporate governance.
 We pursue improvement of capital efficiency by constantly reducing cross-held shares.
Strengthening of governance Percentage of independent outside directors: 37.5%

Nomination andCompensation
Committee(arbitrary committee)

Board of Directors(6 of 16 directors; 1 is female) Established a Nomination and Compensation Committee(Executive) Directors(Dec. 22, 2017)

 Chaired by an outside director, it carries out appropriatedeliberations.
 Continuously assess the effectiveness of the Board of Directors
 Formulated the “Basic Policy for Successor Plan and Development
Plan of Representative Director”
 Appropriate measurement of cost of capital → Use in reviewing
cross-shareholding, etc.
Initiatives toward reducing cross-held shares The relevant shares are held only when it is considered asnecessary for continuous growth and corporate value
improvement of the issuers of the shares and the Group.
 From the perspectives of capital efficiency and the reduction ofshareholding risks, we will reduce the shares throughcommunication with the issuers.

Audit & Supervisory
Committee Members(Directors)

Outside director

Outstanding cross-held shares
14.1

13.3

Year-end book value (billion yen)Comparison with consolidated Tier 1 (%)

12.6
11.5

63.1

63.0

11.3

10.7
9.7

61.3

60.6

59.4
53.9

[Judging whether or not theshares should be held][Shares not satisfying theshareholding criteria]

 Profitability, taking cost of capital
into account Relationship with local economy
 Viewpoint on managerial strategy

 Negotiate improvement of transaction
profitability Negotiate reduction of the number ofshares held
The Board of Directors will examine
the status on a regular basis.

53.3

Mar. 2015 Mar. 2016 Mar. 2017 Mar. 2018 Mar. 2019 Mar. 2020 Mar. 2021

30

Alliance/Partnership Strategies
 Under the TSUBASA Alliance, we pursue scale advantage and synergies in this broad and large-scale alliance.
 The Okayama Co-creation Partnership contributes to further development of the local economy by sharing theknowledge of the member financial institutions.

TSUBASA Alliance

New initiatives born out of the Alliance“Remote Finance Consulting Service”*Considerations are being made for theestablishment of a joint venture(Image)Characteristics: Neutrality, service completing remotely, specializing in advising

Head office location

Customer

Branch location

Joint venture
Membership registration,
signing of agreement

Investment advice andagencyFinancial
institutions
Banks
Securities
Insurance

Comprehensive advice on
finance

Advisor dedicated toeach customer(Remote)Does not broker financial instruments or services.

Total assets of member banks: 90 trillion yen
 The largest regional bank alliance Cost reduction, streamlining of operations

Okayama Co-creation Partnership(As of Mar. 2021)

Sharing the mission-critical system

Sharing operation departments

TSUBASA FinTech foundation

Sharing sub-systems

Sophisticating AML operations

TSUBASA Smile

Coordinated finance

Effective use of group companies

M&A business platform

Inheritance-related business

Personnel exchange Enhancing the top line Cooperative measures

Further cost reduction and service improvement by
establishing TSUBASA Alliance Co., Ltd.

Joint business meetings

Co-financing

COVID-19 consultation desk

Personnel exchange

Startup, ventures

Business succession, M&A

Contributes to further development of
the local economy.

31

This material contains forward-looking statements. These statements do not guarantee our futurebusiness performance and include risks and uncertainties. It should be noted that future
performance may differ from the targets mentioned herein due to changes in the management
environment and other factors.