The Gunma Bank, Ltd
Interim Financial Results Briefing Session for the First Half of 2023
– November 22, 2023
Principal Questions and Answers
Q

Do you have a message for the market regarding the dividend increase and share buybacks announced in November?

A ・We recorded favorable first-half results and accelerated bonds disposal for the second halfscheduled as credit costs have remained stable and at low levels. Based on these
conditions, we want to share with you that we are confident in achieving the net income of28 billion yen indicated in our guidance.
・In the second half of the year, we will continue to make management efforts to achieve thegoals set in the guidance and consider further returns.
QRegarding the probability of achieving the net income of 47 billion yen forecast for FY2027
and the impact interest rates rising above the scenario would have:

A ・We determined the net income level of 47 billion yen from the ROE target of 7-8% based on
optimal capital structure and assumed RORA. Needless to say, we will achieve the goalsof our mid-term business plan, which ends next fiscal year, and we will continue to takeevery possible measure to achieve our goals over the next four years. From a mid- to longterm perspective, we believe that this is an achievable level if we further develop ourstrengths and improve in areas where we could be more competitive.
・The sensitivity analysis in the event of a rise in interest rates shows that the effects ofincreased interest on loans as of the fifth year, starting at the current point in time, are 2.7
billion yen if the policy rate is +10 bp, and 6.8 billion yen if the policy rate is +25 bp. In termsof lending, we are building an interest-rate-sensitive portfolio by increasing loans linked tomarket interest rates, so a rise in interest rates will have the positive effect of increasing net
interest income.
Q

Regarding the reasoning behind the decision to sell yen bonds in the first half of the year
instead of holding them to maturity:

A ・When I travelled overseas for IR, I realized that there was a high level of investor interest in
the SVB bankruptcy, so I explained that our bank is not concerned in regard to that due tothe majority of highly sticky core deposits. However, we now feel that we do not want todraw unnecessary attention to the widening valuation losses on yen bonds. Leveraging thetiming of the financial crises in the US and Europe and the temporary decline in interest
rates, we continued to sell JGBs and reduced both our position and duration so that wewould have sufficient capacity to purchase additional bonds. We have reduced interest raterisk within the scope of the guidance while leveraging gains from the sale of policy
investment shares and other assets. Therefore, it can be said that we have conducted thisoperation based on a management decision to control risk. We will consider investing again
in the future if yields exceed 1%.
1Q

Regarding the effects of comprehensive collaborations such as with the TSUBASA Alliance
as well as individual partnerships with Daishi Hokuetsu Bank and Ashikaga Bank:

A ・The TSUBASA Alliance is a collaboration of the region’s top banks and is comparable in size
to a megabank. As a result, thanks to the TSUBASA Alliance, we are now able to handle
even large-scale renewable energy and other projects that would be difficult to handle
independently, which leads to a stronger top line.
・Furthermore, the TSUBASA Alliance has advantages that we lack in that it is fully aligned,
which allows us to proactively work on what we deem positive for our own bank. We havechosen to work on developing apps, API common infrastructure, and other projects and havebeen able to reduce costs compared to developing them independently.
・On the other hand, as an example of an individual partnership, we have partnered withAshikaga Bank. Our banks cooperate in the Ryomo area, the business base of both of ourcompanies, and we have been able to work together on initiatives that could not be achievedin the past, which has led to effective financial support such as syndicated loans.
・I feel that it is important for top management to build a relationship of trust with each otherand to communicate their messages clearly in order to increase the effectiveness of thesealliances.
QDoes the plan to grow risk-weighted assets significantly by FY2027 mean that the current
lack of risk-taking is the flip side of that strategy?

A ・Either can be said about risk-taking. We aim to establish a firm capital policy and set theCET1 ratio to a lower limit of 10.5% while taking into account dividend restrictions. We will
strive to improve ROE as much as possible by setting this lower limit level. In order to doso, we will need to take on more risk, and it can be said that up to now we haven’t been
taking such risks with that mindset. However, there are areas where the balance is growing,such as cross-border loans, and we intend to further increase risk-weighted assets by taking
on risk in new areas, such as mezzanine and venture debt, which will lead to higherearnings.
QThe consolidated core net business profit forecast for FY2027 has increased by 22 billion
yen. On the other hand, non-interest business profit has increased by only 5 billion yen. Are

there any factors that could cause a further increase in non-interest business profit?
A ・The plan is conservative in regard to the profit level of Gungin Securities. If Gungin
Securities’ earnings grow more than expected, non-interest business profits could growsignificantly.

2Q

It appears that RORA on mortgages is increasing due to the growth of loan-fee-based
interest rate plan. In calculating this, is the up-front fee not prorated over the term of theloan?

A ・Currently, the fees are not prorated over the term of loan but are included in full at the timethey are recorded. As we continue to promote mortgage loans and strive to maintain ourmarket share, the plan is that we are expecting to continue to handle a certain amount oftransactions each quarter. The increase in the current term should be discounted due to theincrease in commissions, but we believe that the increase will smooth out over the longterm.
QConsidering the target level of Core CET1 in FY2027, shareholder returns are expected toincrease appropriately in the future, but would it not be acceptable to change the return
policy at this point?

A ・If everything goes smoothly and as planned, returns will continue to increase. However, thenext mid-term business plan is being formulated now, so we appreciate your valuablecomments regarding changes to the return policy.
QFor the calculation of the total return ratio, the period of acquisition of treasury shares is set
at one year starting from the date of the general meeting of shareholders. I would appreciate
it if it were changed to be calculated over the same accounting period (from April 1 to March31) as other banks.

A ・We adopted this approach because of the importance we place on the level of return on
profit. However, if a change to the accounting period of the calculation would be moreconsistent with other banks, we will consider it.
QRegarding measures to improve the profitability of low RORA clients:

A ・To make it easier to understand for the staff at sales branches, we are working to secure a“standard profit margin,” which is presented as an internal indicator of the target RORA
converted on an RA gross margin basis. If the profit margin falls below the standard profit
margin, we allow them to negotiate to make improvements in each of the three stages.
Furthermore, if the profit margin falls below the lower limit, the branch manager may
negotiate directly with the client to improve profitability. In addition to negotiating higher
interest rates, we are also promoting comprehensive transactions that include non-interest
business profit and improving profitability by raising credit ratings through improved
management. We also incentivize these results by linking performance rewards to them.
We have continued these measures for nearly five years, and they have been reasonably
effective in contributing to improvements to the ROE level and RORA.

3