1H FY2017 Earnings
Results Briefing
December 1, 2017

Summary of 1H FY2017 Earnings Results

FY2017 Forecasts and Major Initiatives

Summary

4

Earnings Forecasts

16

Change in net interest income

5

The Long-Term Vision

17

Major accounts (1) Deposits & Assets in Custody

6

Main Strategies of the Medium-Term
Management Plan

18

Major accounts (2) Loans

7

Improve the Quality of Services Provided

19

Major accounts (3) Securities

8

Expand Opportunities to Provide Services

22

Major yields and margins

9

Enhance Service Provision Capability

23

Change in fees and commissions

10

Change in assets in custody

11

Reform the Stance of Individual Employees
and the Corporate Culture

24

Securities Management Strategies

25

Shareholder Returns

26

Change in expenses

12

Credit cost trends/Non-performing loans

13

Capital adequacy ratio

14

For inquiries regarding this document, please contact:
Management Planning Department, The Chugoku Bank, Ltd.
Mr. Fumiyama / Mr. Umakoshi
TEL: +81-86-234-6519; FAX: +81-86-234-6587

Email: fvbs2960@mb.infoweb.ne.jp2Section I
Summary of 1H FY2017
Earnings Results

3

1H FY2017 Earnings Results–Summary–

1H FY2014

1H FY2015

1H FY2016

1H FY2017(100 million yen)Core business gross profit

YoY
439

436

409

401

-8

Vs. plan
14

Interest income
Fees and commissions
Other operating income
Expenses (-)

362
74
2
-289

358
74
3
-277

334
76
-1
-281

338
71
-7
-287

4
-5
-6
-6

7
-1
8
-0

Core business net profit
OHR (%)

150
65.8

158
63.6

127
68.8

114
71.4

-13
2.6

14
-2.6

Credit expense (+ is reversal(profit))Bond sales gains/redemption
Equity sales gains/redemption
Other

18

26

27

26

-1

5

2
15
10

4
26
12

7
9
2

-3
4
-2

-10
-5
-4

12
-7
-2

Recurring profit
Extraordinary gain/loss
Net income

196
-2
129

229
-1
155

173
-1
121

140
-1
98

-33
-0
-23

22
0
18

Consolidated recurring profit

213
135

242
160

184
125

153
105

-31
-20

27
22

Net income attributable to owners of parent• Interest on loans and discounts increased due to growth in average loan balance. Net interest income
increased 0.4 billion yen year on year.
• Core business net profit decreased 1.3 billion yen year on year due to a decrease in other operating income
owing to a rise in foreign-currency procurement costs, as well as an increase in expenses.
• Recurring profit decreased 3.3 billion yen year on year due to the sale of low yield foreign bonds and a drop in
gain on sale of shares.

4

1H FY2017 Earnings Results–Change in net interest income–

Impact from increase in security deposit spread

Impact fromincrease inaverage loanbalance

Impact fromincrease in average
foreign currency
denominated loanbalance, etc.

Investment trust redemption gain
¥700 million yen(+¥600 million yen YoY)

+13

Note: Calculated based on
margin with deposit yield
Unit: 100 million yen

Impact from increasein foreign currency
denominated loan
margins, etc.

+8+9Impact from increasein average short-term
asset managementbalance+2+0Impact fromreduction inloan deposit
spread-2
Impact from decline inaverage balance of
yen-denominatedsecurities

-13

-13

Impact fromdeterioration ofshort-term asset
management
margins and swap
balance, etc.

Yen loans

Yen securities

Short-term asset
management

Foreign currency dept.

-4

-0

-2

+10

Yen-based net interest income

Foreign currency-based
net interest income+4
Total net
interest income

51H FY2017 Earnings Results –Major accounts (1) Deposits & Assets in Custody–

Average balance of deposits and NCD

+2.0%

+2.5%

(100 million yen)

60,88260,000

Other

3,353

4,123

50,000

Domestic
corporateclients

13,80014,622

43,7281H FY2015

40,00064,476

62,846+5.9%

64,35963,044

4,107

4,096

3,785

+5.8%

15,487

14,724

44,10144,88244,22444,995

1H FY2016

1H FY2017

FY2016FY2017 Plan

15,57830,000
Domestic
private clients

20,000

+1.7%

+1.7%

10,0000
Ref: Balance of assets incustody

1H FY2015 1H FY2016(100 million yen)
Public bonds
Investment trusts (1)Financial instrument intermediary serv ices

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

1H FY2017
Change

3,012
1,878
1,821
761
3,358
10,069
2,639
851

2,864
1,574
2,061
862
3,447
9,946
2,436
830

-148
-304
240
101
89
-123
-203
-21

FY2016
Change

2,931
1,450
1,986
766
3,453
9,820
2,216
900

67
-124
-75
-96
6
-126
-220
70

FY2017
Plan

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

2,955
1,440
1,993
758
3,506
9,894
2,198
885

Change
75
-99
-52
-82
42
-34
-181
55

* Public bonds are based on the value of the average balance. Investment trusts are based on the average balance of net assets. Financial instrument 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.

• Both private client and corporate client deposits are growing steadily.

6

1H FY2017 Earnings Results
Average loan balance(100 million
yen)37,88144,85942,324

183

152

145
+6.2%

170

Other *4

45,305195+6.0%

10,472

10,375

9,873

9,433

3,521

2,044

5,082

4,952

6,857

7,170

18,131

19,134FY2016FY2017 Plan

3,783

1,454

Non-Japanese
SF centers

373
4,636

Local
government
loans

4,984

6,885

Urban
Development *2

7,217

+5.5%

16,382

17,746

18,8401H FY2015

1H FY2016

1H FY2017

Local
Development *1

5,051
-6.9%

-5.0%

+6.1%

10,000

+7.0%

9,762

Personal loans *3

20,000+8.5%

41,31040,00030,000–Major accounts (2) Loans–

6,669

0
*1 Local development: Regions other than Tokyo and Osaka*2 Urban development: Tokyo and Osaka*3 Part of the recording methods have been changed from 1H FY2017. (Some of the loans that were recorded under “Local development” were changed to “Personalloans.” Amount: 10.4 billion yen)
*4 Other: Hong Kong branch, credit cashing

Loan/deposit ratio
End of Sep. 2008

End of Sep. 2009

End of Sep. 2010

End of Sep. 2011

End of Sep. 2012

End of Sep. 2013

End of Sep. 2014

End of Sep. 2015

End of Sep. 2016

End of Sep. 2017

65.1%

64.8%

63.0%

61.5%

61.4%

59.7%

61.0%

63.6%

67.4%

70.5%

• In 1H FY2017, the annual growth rate of total loans was +8.5%, due to efforts to increase loans,mainly in local development.
• We will continue to strengthen loans by identifying and capturing fund demand.

7

1H FY2017 Earnings Results–Major accounts (3) Securities–

Average balance of securities(100 million
yen)

28,86830,000Equities
Other securities
Foreign-currency
denominatedforeignsecurities

1,210
1,737
5,038

-3,29529,042

29,0301,182

25,7471,840-3,386

1,155
1,875

25,644

1,042
1,653

5,393

5,839

-370

1,121
1,757
-1,027

5,023

20,000
Corporate
bonds
Municipal
bonds

4,079

3,969

-564

4,812
3,835

-449

3,405
4,801

5,504

+669

3,386
5,559

+641

6,173

6,200

10,000-2,704
JGBs

11,822

11,151

10,7658,447-2,3998,366

01H FY2015

1H FY2016

1H FY2017

FY2016FY2017 Plan

• The balance of securities decreased as we shifted from securities to loans.
• Although we will maintain the balance of equity assets, we intend to reduce investment indomestic and foreign bonds in consideration of interest rate risk.

8

1H FY2017 Earnings Results–Major yields and margins–

Loan/deposit spread, credit cost ratio, net margin

Securities yield and duration

2.50
(%)

(%)

(year)

5.8

6.0

2.00
1.35
1.50

1.15
0.07

Bond
duration

4.8

1.01
0.06

1.00

0.94

0.92

0.06

0.05

1.15

5.0

4.6

4.1
4.0

0.50

1.08

0.95

0.88

0.87
0.95

Securities
yield

1.07

1.04

0.00

1.02
0.95

3.0

-0.50
0.75

Credit cost ratio

-1.00

Bond
yield

Yen-based deposit-loan spread

2.0

0.72
0.68

0.68

1H
FY20161H
FY2017

Net margin ratio

0.65

0.55

-1.50
1H FY2015

1H FY2016

1H FY2017

FY2017Plan

1.0
1H
FY2015FY2017
Estimate• The drop in the loan/deposit spread was smaller than last year. For the full year of FY2017, weplan the ratio to be similar to that of 1H FY2017.
• We maintained a securities yield, which includes equity and investment trust yields, of around
1%, although the bond yield is on a declining trend. Bond duration shortened.

91H FY2017 Earnings Results –Change in fees and commissions–Fee and commission (revenue) trends
-981
-529
(Million yen)

(Million yen)

7,645

8,000

15,214
14,23315,000

7,431

7,116
4,217
2,130

6,000

Assets incustody

4,116

-160

2,237

1,970
10,0004,000

Investmentbanking
operations

862

-101

1,133

-155

2,459

-622

1,837
978

5,000
2,000

Other

4,332

4,382

1H FY2015

1H FY2016

-214

8,537

4,168

-257

8,280

0

0
1H FY2017

FY2016FY2017Plan• Fees and commissions revenue decreased, due to a drop in assets in custody and a decline ingains from investment banking operations.

101H FY2017 Earnings Results–Change in assets in custody–

Revenues related to assets in custody(Million yen)

(Million yen)

4,000Group total(bank parent)

3,654(2,237)

+39

8,000

3,293
（1,970）3,254(2,130)
3,000

2,000

Group
subsidiaries(securities,
assets)Financial
instrument
intermediaryservices

1,417

681

Bank
parentMunicipal
bonds

118

1,000

Life insurance

738

Investment
trusts697

6,709（4,217）+78

6,787（4,116）

2,491

+181

2,672

6,000

1,124

+199

577

+164

1,323

4,000

741

105

206

42
-385

895

510
+122

553

2,000

1,505

1,498
-120

86
-312

+178

675

0

+152

1,346

1,193

1,160

1,338

FY2016FY2017 Plan

0

1H FY2015

1H FY2016

1H FY2017• Group total revenue maintained last year’s level due to an increase in financial instrumentsintermediary revenue in cooperation with group subsidiaries, despite a decrease in insurance
revenue.

11

1H FY2017 Earnings Results–Change in expenses–

Expense trends+15(100 million
yen)

+6

300
Taxes
Other
property
expenses

200

Depositinsurance
premium

277
20

287

281
20

+5

25

(100 million
yen)

61

61

+5

36

+2

125

500

400

21

24
11

12

10

74

+3
Systemexpenses

31

123
59

563

548

37

39

42

+16

90

300

200
100
Personnel
costs

-7

-2

148

149

147

295

288

4

7

FY2016FY2017Plan

100
Retirement
expenseportion

0

2
1H FY2015

2
1H FY2016

3
1H FY20170• Expenses increased due to a rise in costs related to the launch of TSUBASA (tax, system
expenses) and structural reform costs.

12

1H FY2017 Earnings Results –Credit cost trends/Non-performing loans–
Credit cost trends

Non-performing loan (NPL) trends (100 million yen)(100 million yen)

*We do not implement partial direct write-offs.

50

（％）

Individual provisions for doubtful accounts
General provisions for doubtful receivables

1.81

NPL ratio

2.0

1.80

Other credit costs

1.63*NPL ratio afterpartial direct
write-offs

1.53

1.52
1.35
1.0

0
0

-0

-25

-22

0

0
-1

0

-24

-25

1,000

783

812

762

161

Substandard

172

Doubtful

411

444

199

206

213

1H FY2016

FY2016

1H FY2017

150

0.0

-4

-26

-27

-26

-25

Bankrupt-50

1H FY2015

1H FY2016

1H FY2017

FY2017
Estimate

398
-1.0

0

-2.0

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• Credit cost was reversed due to a decline in the loan loss ratio forecast.
• New loan loss remained at a low level due to clients’ business performance improvement andbusiness improvement support. NPL ratio also declined.

13

1H FY2017 Earnings Results–Capital adequacy ratio–

Capital adequacy ratio (Basel III)(consolidated) trends

Capital adequacy(consolidated)

16.0

FY2016

1H FY2017

YoY(100 million yen)(%)

Total equity

4,978

5,174

196

4,863

5,046

183

114

127

13

37,18138,642

1,461

Credit risks

35,49436,977

1,483

Operational risks

1,687

1,665

-22

FY2016

1H FY2017<Regulatory
standards>

Total capital adequacy ratio
Tier 1, including common shares

14.24
Tier II

14.0

13.38

13.39

13.48
13.08
12.0

Risk weighted assets, etc.

13.06

Tier 1 capital ratio,
including commonsharesOther Basel regulations

Consolidated leverage ratio

10.0
End-September
2016

End-March
2017

End-September
2017

Consolidated liquidity cov erage ratio (LCR)

5.70%

5.89% 3% or more from FY2017

114.9%

113.1% 80% and above• Total capital adequacy ratio and Tier 1 capital ratio, including common shares, remained atstable levels.

14

14

Section II
FY2017 Forecasts andMajor Initiatives

15

FY2017 Forecast
Parent–Earnings Forecasts–

FY2016 FY2017(100 million yen)

Plan

Vs. Initial
plan

YoY

Recurring profit and net income expected
to underperform YoY but outperform
initial plans

Core business gross profit

820

779

-41

19

Interest income

677

649

-28

3

Fees and commissions

152

142

-10

-3

YoY factors

Other operating income

-9

-12

-3

19

Expenses (–)

-548

-563

-15

-4

Core business net profit

271

215

-56

15

OHR (%)

66.9

72.3

5.4

-1.2

Credit expense (+ is reversal(profit))

2

25

23

3

(Negative factors)• Decline in loan interest• Decline in securities interest• Decline in fees and commissions
mainly due to a decrease in gains frominvestment banking operations• Increase in expenses (mainly
TSUBASA-related)

Bond sales gains/redemption

-20

17

37

17

Equity sales gains/redemption

43

10

-33

-14

Other

-7

-3

4

2

289

264

-25

23

-4

-3

1

1

190

180

-10

16

Recurring profit
Extraordinary gain/loss

Net income
Consolidated
Recurring profit

316

289

-27

28

Net income*

203

195

-8

20

*Consolidated net income is net income attributable to owners of parent.

(Positive factors)• Decline in credit cost (increase inreversal)

Factors versus initial plan
(Positive factors)• Increase in loan interest• Decline in foreign-currency
procurement costs(Negative factors)• Decline in fees and commissions
mainly due to a drop in assets incustody16

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
Consolidated net income:Our goal¥30.0 billion←The next medium-term plan period→

Growth strategy

Structural reform period

Enhanceefforts inassets incustody[¥4.2 billion]=
Sales enhancement
through strategic
investments and BPR(business process
re-engineering)

Cultivate new
domains[¥4.0 billion]

Without

Consolidated net income:¥20.3 billion

structural

Enhanceconsulting[¥2.3 billion]

Enhance local
developmentloans[¥5.3 billion]

reforms

BPR effect[¥2.4
billion]Complete
personal loan adenhancement
web[¥9.0 billion]

Consolidated net income:¥16.0 billion
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

Build-up on a corebusiness net profit
basis

FY2019 plan

FY2026 plan

Framework for achievement of the long-term vision
Initiatives to create a rich future- Improve the quality of services provided- Expand opportunities to provide services
Initiatives to create foundations of management- Enhance service provision capability- Reform the stance of individual employees and thecorporate culture17

Main Strategies of the Medium-Term Management Plan (FY2017–FY2019)

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

Enhance service provision capability

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

We will develop human resources that support
the Bank as well as enhance business
management functions

Advance local promotion activities
Strengthen sales activities based on life planning
Maximize group synergy
Cultivate new business domains

8. Strengthen development of human resources
9. Implement organizational reforms
10. Enhance ALM functions
11. Manage costs

Expand opportunities to provide services

Reform the stance of individual
employees and the corporate culture

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

This forms the basis for all directors andemployees of the Group to be as one and takeon challenges positively
12. Reform stance of Individual Employees andcorporate culture, improve customer and employee
satisfaction
13. Compliance

1.
2.
3.
4.

Initiatives to create a rich future

Through the four major
strategies

Initiatives to create foundations of management“Creating with Our Community, Customers andEmployees a Rich Future that We Can All Share”
18Improve the Quality of Services Provided
 Strengthen business assessment, which is the core of the local promotion project, at both the HQ andbusiness offices.
 Strive to advance consulting capabilities and enhance local promotion activities based on businessassessment.

Advance local promotion activities
Efforts in business assessment

Initiatives in local promotion activities

Establish a foundation for local promotion activities
by the R&C Center• Carry out external secondment of personnel to develop
experts in business assessment• Accumulate know-how through industry surveys
Strengthen negotiation abilities of business office
employees• Select targets and have the entire branch get actively
involved• Improve quality of business assessment based on
feedback from clients

Average local development capital balance andbusiness assessment targets
727

566

Business assessment
targets

602

350

Average local
development
capital balance(100 million yen)

18,51918,840

Revitalize the community by promoting innovation• Open an innovation school and hold contests in the
Okayama Innovation Project• Establish a Capital Dept. in the subsidiary and strengthenfund operation/management business that promotes
community revitalization
Advance consulting capabilities• Increase external secondment and training; appoint
dedicated personnel• Cooperate with external partners and support formulationof business improvement plan
• Establish a system for full-scale implementation of
consulting operations
 Image of consulting operations
Consulting growth support
E.g., Formulate management
plan
Establish managerial
accounting system
Establish personnel
system

17,746
17,283

Expand financial support
transactions(401K, derivatives, etc.)
Expand growthtransactions(Capex, businessmatching, etc.)

Targetcustomer base

16,383
1H 2015

Expand generation shifttransactions(Business successions,
M&As, etc.)

2H 2015

1H 2016

2H 2016

1H 2017

Started preparing business assessment sheets

Start-up phase

Growth phase

Maturity phase

Rehabilitation
phase

19

Improve the Quality of Services Provided
Improve power to offer assets in custody and personal loans, and conduct sales of totally
coordinated services according to customers’ life stages.
Enhance call centers and establish a system to address personal loan needs according to life plans.

Strengthen sales activities based on life planning
Conduct life plan support activities

Improve power to offer assets in custody• Custom-made proposals based on cross-selling according tolife stages• Strengthen discovery of needs concerning inheritance andproposals addressing inheritance-related issues

Increase depositors of five kinds of assets in custody• Continue sales activities by all staff based on an assessment
system that focuses on the number of depositors and balance• Further enhance product lineup• Continue to balance maintenance activities by offering adequate
aftersales follow-ups• Strengthen promotion of iDeCo, Tsumitate NISA, and level
premium insurance, etc.

Number of depositors and average balanceof assets in custody
Number of depositors
150,256
147,934

148,913152,000• Improve knowledge and skills through training plaza andeducation• Increase stores that offer financial instrument intermediary
operations as well as product lineup• Improve comprehensive proposal power with Hoken Plaza

Promote personal loans• Improve power to offer personal loans by strengthening
the training system• Address funding needs by enhancing call centers

Average balance of personal loans(100 million
yen)

10,473
9,873

10,000
Averagebalance (100million yen)
9,946

9,501
Other
Unsecured loans

9,913

9,820

9,970
Housing loans
Apartment loans
8,000

1H 2016

2H 2016

1H 2017

2H 2017 plan

FY2015FY2016FY2017 plan20

Improve the Quality of Services Provided
Strengthen Group strategy and consolidated management, and make efforts in maximizing groupsynergies and cultivating new business domains

Cultivate new business domains

Maximize group synergy●Establish a group management structure• Improve effectiveness of performance management and speed up decision
making by delegation of authority●Strengthen sales cooperation• Share know-how, revitalize personnel exchanges and allocate personnel instrategic domains●Purchase shares from shareholders outside the Group (completed in FY2016)• Incorporate profits of consolidated subsidiaries in their entirety andstrengthen governance●Study and gather information toward entry into new business<Priority businesses>• Business that can utilize existing sales platforms• Business that can expect synergetic effects with the main business• Business with high market growth and profitability●Consider partnership with different industries and other banks— Map of Group strategy —— Performance of consolidated subsidiaries —(Millions of yen)Company

Major initiatives during
Medium-Term Management
Plan period

FY2017 forecast
Recurring profit

Net income• Overseas projects, initiatives in new
areas such as auto lease business

768

503

Chugin Credit
Guarantee• Partnership in loan promotion• Increase in risk tolerance

1,191

782

Chugin Card

• Promotion of platinum corporate card
• Increase in credit card member stores

Chugin AssetManagement• Increase in publicly offered investment
trusts• Improvement in performance

32• Enhancement of product lineup• Promotion of introduction-type
intermediary business

441

Chugin Lease

ChuginSecurities

342

228

Note: New business proposals are examples

Corporateservices

New domains(example)
Consulting

Chugoku Bank
Group

Fund
business
Corporate
guarantee

OCM
ChuginLease

24

ChuginCard

301

ChuginSecurities

Chugin Operation
Center

183

117

25

13

2,982

1,968

• Promotion of BPR through increase incontracted business from the Bank

Seven consolidated subsidiaries’ total

In FY2018–FY2019, we will seek further expansion of performance while
securing recurring profit of three billion yen and net income of two billion yen.

Personal
guarantee

Chugin Card
(Guarantee)
Chugin Credit
Guarantee
ChugokuBank

CBS
ChuginOperation
CenterChugin AM
CBS

Personal loans
and credit

FinTechAdministrationconsignment

Payment
collection

Assets incustodyIT, system-related

OthersBack-officeoutsourcing 21

Expand Opportunities to Provide Services
 Carry out thorough structural reforms at the HQ and business offices to establish a customer-oriented
sales activity style.
 Clarify “offensive” and “defensive” areas according to the market environment and reallocate strategic
personnel.

Generating business hours and sales personnel

Increase sales personnel
Increase plan during FY2017[HQ]

Initiatives of HQ BPR• Consider introducing efficiency systems, such as RPA and electronic
work flows• Effective meeting operation, promotion of authority delegation,
thorough pursuit of efficiency
Plan to reduce around 70 personnel in the HQ during FY2017[Reallocation]

Increase by approx. 100

HQ Medium-Term
Plan measures
Approx. 30

Seconded,trainees
Approx. 30

Initiatives of sales BPR• To generate business hours, consider introducing various
systems that support efficient sales activities• Consider concentrating back-office work of business offices to
HQ

Initiatives in FinTech

UseserviceNew business examination,affiliates, development ofyoung staff

A further 80 will be
increased during the
Medium-Term Plan
periodNumber of increased personnel during Medium-Term Management Plan period
180

Establish Kurashiki and Hanshin Regional HQ
Commonplatform for
TSUBASAand FinTech

Creating the Future Together

TSUBASA
Alliance banks

Various apps

Customer

Consulting, assets incustody operations, etc.

Strengthening
strategic
regions, etc.

business office
Approx. 40

Re-allocate human resources

Restructure sales channels

FinTechproviderTSUBASA reduction
effectApprox. 30

BPR EffectApprox. 70

Increase share bycontinued strengtheningof sales power

Connection through open API
Start development of API platform

Hanshin
Chubi

Hiroshima

Establish regional HQ

Improve Internet convenience
Establish regional HQ• Start sales of web-contained level premium insurance• Advance marketaing by analyzing behavior on the web

Re-inject managerial
resources in importantareas

Establish a strong sales
platform

22

Enhance Service Provision Capability
Transform into a HQ organization that supports business offices’ local promotion activities and life
plan support activities from a customer’s perspective.
Thoroughly reduce recurring expenses and expand room for strategic investment.

Strengthen development of human resources

Implement organizational reforms(reorganization planned for April 2018)

Reorganization to advance local promotion activities

Strengthen business skills and expertise• Reestablish a development system that indicates theachievement of skills by age group, develops strong points,
and improves weaknesses• Enhance long-term trainee program, increase external
secondment for personnel development purpose

Overall corporate solution sales such as
business assessments, foundation assistance,business matching and consulting

Unify handling throughreorganization(Person in charge of solutions)• Improve customers’ corporate value by providing unified
solutions sales

Reorganization to strengthen life planning sales
Strengthen human capabilities and management skills• Introduce “360 degrees assessment” of management• Introduce a scheme that can objectively instruct and assess
superiors’ initiatives for subordinates in personnel
development such as thorough behavior management andOJT[Product strategy]
Card loans, housing loans,assets in custody, etc.
[Channel strategy]
business offices, housing loan centers,
Internet, etc.

Unify handling throughreorganization(Person in charge of life planchannels)• Unify channels and products to improve customer satisfaction

Enhance ALM functions

Manage costs

Strengthen the risk appetite framework

A balanced investment and cost strategy• Increase opportunities to discuss future direction of risk taking
and advance the risk appetite framework• Shift investment capacity to strategic projects throughreestablishment of IT governance and fundamental review
of recurring system expenses• Start trial introduction of RPA by HQ BPR

Consolidated capital adequacy ratio
FY2016
1H FY2017
Actual (preliminary)
ActualConsolidated capital
13.38 ％
13.39 ％
adequacy ratio (year on year)（-1.56 ％）（-0.85 ％）10-year strategic system investment project (investment basis)

FY2017
Estimate
Estimated tosecure 12%

FY2019Plan
Secure 12%level(100 million yen)This plan(vs. Medium-Term Plan)

FY2017
Estimate
4.1(0.9)

FY2018Estimate
17.4(-1.2)

Medium-Term Plan period
FY2019Estimate
Sum total
11.5
33.0
(0.3)
(0.0)

23

Reform the Stance of Individual Employees and the Corporate CultureShare the 10-year strategy plan among all directors and employees, and transform into a free andopen-minded corporate culture based on Chugin-no-kokoro (Philosophy of Chugoku Bank).

Reform stance and corporate culture, improve customer and employee satisfaction
Initiatives in the reform of stance and corporate culture
Introduce flat meetings*1

Initiatives to improve CS and ES
Priority policy of work style reforms• Seek to integrate top-down and bottom-up approaches
and to achieve diversity*1. A place within the workplace to discuss serious matters freely, outside of one’s position or status

Long-term vision: Creating with Our Community, Customers and Employees aRich Future that We Can All Share
Chugin-no-kokoro: “We will provide a place for fulfillment and growth.”

Sympathy toward reforms (build a sense ofunity among directors and employees)• Directors visit offices and continue communication
activities with employees in order to instill Chugin-nokokoro• Hold the Bank’s first rally of all employees to share thelong-term vision, “Vision 2027: Plan for Creating the
Future Together”[Individual]
Growth of employees
Gather strengths of employees[Customers]
Provide added value tocustomers
Mutual development withcustomers
Create avirtuous cycle[Company]
Provide a fulfilling workplace
Improve group organizational
power

Diversity

Work style reforms

Awareness reforms• Mindset: Ikuboss, promote work-life balance, etc.
• Revitalize communication:
Recruitment for the third term of Nijiiro Heart
Project, introduction of F Leader*2 system*2. New leaders that operate flat meetings

System establishment• Promote diverse work styles: Utilize staggered work
hours, etc.
• Review operations: Fundamental review of existing
operations through BPRPJ

Number of female supervisors
Note: Figures in brackets are the number of management
positions

102
(15)

106
(20)

111
(23)

End of Mar.
2016

End of Mar.
2017

End of Oct.
2017

Goal: 170

Chugin-no-kokoro

Compliance・・・

End of Mar.
2020

• Continue to remind all employees that compliance has priority over everything• Increase opportunities of training by level and meetings between management and employees to instill Chugin-no-kokoro
and strengthen governance functions

24

Securities Management Strategies –Asset Allocation Trends–
Premise:plans for average balance ofmarket operations （＋1,581）(100 million yen)Plan, estimate

35,30436,00033,723

Basic policy• Carry out flexible asset allocation operation336(-2,829)

32,997329

32,475416
32,000

6,026

1,861
4,512
1,206
[603]

1,206
28,000Investment policy for 2H 2017

1,215

1,155

[575]

[520]

1,354

1,499

Other*1
Yen-basedshort-term
investment(incl. excess
reserves in BoJ
current account)

Equities[net investment](Flat)

4,690

403

 In yen-based bonds, reduce reinvestment and retain
capacity for risk taking.
 In foreign bonds, seek to improve portfolio yield throughbond switching.

6,551

 In investment trusts, conduct risk taking mainly indomestic and foreign equity assets.
 In equities, improve stock selection abilities and invest
based on priority themes.

Yields by type of investment asset

1,121

Cover decline in domestic andforeign bond yields with gain fromequities and investment trusts[504]

24,000

5,199

5,839

Investment
trusts(Flat)

1,454
4.5%
4.0%

20,000Foreign-currency
based foreign
securities(Reduced)

23,61520,447

Yen-basedbonds*2(Reduced)

4,812

3.0%

2.0%

FY2016FY2017
Estimate*1: Other: Money held in trust, derivative time deposits, long-term beneficiary rights,
investment partnerships, etc.
*2: Includes yen-denominated foreign bonds.

3.56%

3.65%

3.71%

2.81%

3.24%

Investment
trustsForeign-currency based
foreign securities*3
1.57%

2.48%
1.44%

1.5%

18,131

16,000FY2015

3.44%

3.5%

1.0%
0.71%

FY2014Equities

3.75%

2.5%

21,112Plan,estimate

Yen-based
bonds

1.01%
0.69%

0.65%
0.72%

0.57%

0.5%
FY2014FY2015FY2016FY2017Plan*3: Management-procurement spread for foreign currency-based foreign securities

25

Shareholder Returns
 Annual per-share dividend of ¥20 and total payout ratio of 35%.

Dividend plan for FY2017
FY2017 earnings forecast

Dividend plan

Dividend policy based on current net
income forecast ¥20.0 (stable per-share
dividend of ¥18.0)

Share buyback

Nov. 13, 2017–Dec. 15, 2017
Plan to buy back up to 0.7 million
shares (up to ¥1.0 billion)

Net income: ¥18.0 billion(Vs. initial forecast: +¥1.6 billion)

Shareholder hospitality

Aim to achieve a total
payout ratio, including
dividends and sharebuybacks, of 35%

Offer regional products as perks via the five TSUBASA banks

Shareholder returns(1 billion yen)

Payout ratio

Share buybacks

Unreturned
portionPer-share dividend (interim)[2] ÷ [1]

[3]

[4]

([2] + [3] + [4]) ÷ [1]

Net income Total dividends
End-Mar2018 Est
End-Mar2017
End-Mar2016
End-Mar2015
End-Mar2014

Total payout
ratio

[1]

[2]

18.0

3.83

¥20.00(¥10.00)

21.3%

Announced amount¥1.0 billion¥1.5 billion

about 35%

19.0

3.85

¥20.00(¥10.00)

20.3%

2.9

0

35.5%

25.9

3.92

¥20.00(¥10.00)

15.1%

5.2

0

35.2%

20.9

3.56

¥18.00(¥8.00)

17.0%

3.3

0

32.8%

27.0

3.23

¥16.00(¥7.50)

12.0%

4.9

0

30.3%

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

26

This document includes forward-looking statements. These statements are not aguarantee 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.