1H FY2019
Earnings Results Briefing
December 2, 2019

Summary of 1H FY2019 Earnings Results

FY2019 Forecasts and Major Initiatives

For inquiries regarding this document, please contact:
Management Planning Department, The Chugoku Bank, Ltd.
Mr. Hisaki / Mr. Shimizu
TEL: +81-86-234-6519; FAX: +81-86-234-6582

Email: souki01@chugin.jp

2Section I
Summary of 1H FY2019
Earnings Results

3

1H FY2019 Earnings Results –Summary–[Non-consolidated](100 million yen)

1H FY2016

1H FY2017

1H FY2018

1H FY2019

YoY

vs. Published*

409
334

401
338

396
329

377
300

-19
-29

1
2

76
-1

71
-7

75
-8

75
1

-0
9

-3
2

281
127

287
114

272
124

273
103

1
-21

-8
9

126

107

120

102

-18

14

OHR (%)

68.8

71.4

68.6

72.6

4.0

-2.2

Credit expense (- is reversal (profit))
Bond sales gains/redemption

-27
7

-26
-3

2
-3

10
10

8
13

-2
8

9
2

4
-2

3
9

4
13

1
4

-10
10

Recurring profit
Extraordinary gain/loss

173
-1

140
-1

132
-1

122
-2

-10
-1

20
0

Net income[Consolidated]

121

98

94

84

-10

13

Consolidated recurring profit
Net income attributable to owners of parent

184
125

153
105

140
97

129
86

-11
-11

20
12

Core business gross profit
Interest income
Fees and commissions
Other operating income
Expenses
Core business net profit
Excluding profit/loss on cancellation of
investment trusts

Equity sales gains/redemption
Other* Forecast published on May 14, 2019

 Core business net profit decreased by 2.1 billion yen year on year due to a decline in interest income which is mostly
attributable to the decrease in yen-based securities interest.
 Recurring profit decreased by 1.0 billion yen year on year reflecting the increase in credit expenses despite securities-related
gains that offset them partially.

4

1H FY2019 Earnings Results –Change in Interest Income–[Loan yield][Factors behind changes in interest income] Yen-based (-1,700 million yen year on
year)• Loan interest:-100 million yen yoy• Securities interest: -1,500 million yen yoy• Decrease indeposit interest: +60 million yen yoy（％）

 Foreign currency-based (-1,100 million yen
year on year)• Loan interest:+200 million yen yoy• Securities interest: +500 million yen yoy• Increase in foreign
currency procurement: +1,600 million yen yoy(100 million yen)

4

-5

329

-6
-9

1

-1

0

2.5

2

2.5

Loan yield
Yen loan yield
1.08

1.06

1.05

0.89

0.86

0.84

0.84

1H FY2017

1H FY2018

1H FY2019

FY2019
plan

1.23

1.20

1.02

[Securities yield]

- 1.8

（％）

- 14.8-2300-2,900 million yen

1.31
1.07

1H FY2019

Foreign currency other

Fund procurement fromforeign exchange
marketForeign currency
deposit interest

Foreign currency
securities yield

Foreign currency
average securities
balance

Foreign currency loanyield

Foreign currency
averageloan balance

Yen other

Yen deposit interest

Yen securities yield

Yen average securities
balanceYen loan yield

Yen average loanbalance

1H FY2018

1.01

1.03
0.99

1.12

0.94
0.85
0.92

0.83

Securities yield
Yen securities yield
Yen securities yield (excl. investment trust redemption gain)
1H 2017

1H 2018

1H FY2019

FY2019plan Yen interest income

Decreased by 1,700 million yen year on year mainly due to a drop in securities interest (decreases inaverage balance and reinvestment yield) on the back of continued negative interest rates.
 Foreign currency interest income
Decreased by 1,100 million yen year on year mainly due to the narrowing of the spread of short- andlong-term loan rates.

5

1H FY2019 Earnings Results –Major Accounts (1) Deposits & Assets in Custody–[Average balance of deposits andassets in custody](100 million yen)

Total assets incustody(Deposits + NCD)

75,00065,00074,296(64,476)

+1.4％

1,986

2,923

Public bonds

2,931

3,619

Insurance

3,453

1,424

Investment trusts

1,450

5,195

Other
Deposits + NCD

4,107

Domestic corporateclients
Deposits + NCD

15,487

1,883

1,888

Financial instrument
intermediary services

55,00078,168(68,050)

77,040(67,187)

16,019

2,848
4,014
1,373
4,752

+2.4％

16,404+1.4％

77,095(67,155)

1,892

1,901

2,809

2,927

4,122

3,711

1,410

1,401

4,545

4,920

15,96078,192(67,959)+2.5％

16,37245,000
Domestic privateclients
Deposits + NCD

44,88245,973

1H FY2017

1H FY2018+2.0％

46,893

46,274

1H FY2019

FY201835,000+1.6％* Financial instrument intermediary services are based on the average balance of the acquisition value. Public bonds are based on the value of the average balance.
Insurance is based on the average balance taking into account cancellations. Investment trusts are based on the average balance of net assets.

47,041FY2019plan Both private and corporate client deposits are growing steadily due to the stable payment pipes (e.g. salary payment,
pensions) and robust corporate earnings.
 In assets in custody, insurance has grown significantly due to the effect of sales activities based on life planning centering onlife plan support activities.

61H FY2019 Earnings Results –Major Accounts (2) Loans–+1.8％[Average loan balance]
50,00044,859(100 million yen)Hong Kong Branch

40,00030,00020,000

Personal loans

173

47,78046,907216

227

47,344

48,139

218

242

4,444

4,762

4,596

4,911

4,999

4,818

4,932

4,764

5,827

6,209

18,84020,043

20,81920,3801H FY2017

1H FY2018

1H FY2019

FY2018

10,384

3,522

Local government
loans

5,082

Local
Development *1

11,413

11,006

6,857

10,903

6,289

+3.9％

-7.3％

+3.8％

10,000+3.7％

11,335

Non-Japanese
SF centers

Urban
Development *2

+1.6％

-7.6％

+3.4％

5,733

21,0740*1 Local development: Regions other than Tokyo and Osaka*2 Urban development: Tokyo and Osaka

FY2019Plan

 In 1H FY2019, the annual growth rate of total loans was + 1.8%, due to efforts to increase loans, mainly local development
and personal loans.
 Going forward, we will continue to strengthen loans by identifying and capturing fund demand mainly from local customers.

7

1H FY2019 Earnings Results –Major Accounts (3) Securities–[Average balance of securities]
Others*Equities
Investment
trust

109
1,042

1,310

[Appraisal profit and loss]-976

25,747(100 million
yen)

20,000End of Mar.
2019

End of Sep.
2019

Year on year

1,432

1,341

1,473

41

Held to maturity

3

4

4

1

Other securities

1,428

1,337

1,468

40

Total

23,939132
1,014

22,963

1,422
Foreigncurrencybonds

End of Sep.
2018(100 million yen)

5,023

23,187

158
936

159

Of which, stock

759

532

503

-256

993

Of which, investment trusts

415

353

455

40

1,597

-9

22

39

48

1,493

Of which, foreign-currency
denominated bonds

250

423

463

213

3,072

3,286

Of which, bonds

2,887[Duration of bonds](Year)-1,1805.0
Bonds

18,26318,48417,304

17,152

4.7

5.1

4.1

5.4

4.4

5.7

4.9

Bonds
Foreign currency bonds
10,0001H FY2017* Others: Investment partnerships, etc.

1H FY2018

1H FY2019

FY2019Plan

End of Sep. 2018

End of Mar. 2019

End of Sep. 2019

End of Mar. 2020

 In 1H FY2019, the balance decreased due to suppressed reinvestments of redeemed bonds.
 In the FY2019 plan, we will increase foreign-currency bonds and investment trusts under asset management by further focusing
on risk and return.

8

1H FY2019 Earnings Results –Change in Fees and Commissions–[Fee and commission (revenue) trends]+575(Million yen)

-43
(Million yen)

7,578

8,000

7,535

14,88615,000

7,116

+144

4,320

6,000

Assets in custody

1,970

2,291

-184

978

946

+189

4,464

2,107
10,000Investmentbanking
operations

15,461

+367

2,092

2,459

5,139

5,171

3,335

3,367

FY2018FY2019
Plan

1,135

4,000
2,556

2,576

1,609

1,786

1,717

1H FY2017

1H FY2018

1H FY2019

Remittance/collection fees

2,559

Other

5,000

2,000

0

0

 In 1H FY2019, fees and commissions remained flat as assets in custody recorded little growth, which was offset by revenue
from investment banking operations.
 We will continue to endeavor to increase fees and commissions mainly from investment banking operations and assets incustody.

9

1H FY2019 Earnings Results –Change in Assets in Custody–[Revenues related to assets in custody](Million yen)

4,000

8,000
Group total(bank parent)

3,293(1,970)Group
subsidiaries(securities, assets)

Bank parent

1,000

-545
（-184）

3,470(2,291)

2,925(2,107)

3,000

2,000

(Million yen)

Financial
instrument
intermediaryservices

1,179
1,323

Municipal bonds

42Life insurance

510

Investment trusts

675

6,000
2,060

-361

-164

63
981

688

-87

+56

4,000

1H FY2018

970

396
72

101

894

1,929

-34

2,026

-96

874
136

-2

2,000

744

0
1H FY2017

6,491(4,464)6,380(4,320)

818
560

741

+111
（+144）

1H FY2019

1,317

+210

1,927

1,527

0
FY2018FY2019Plan

 In 1H FY2019, revenues from financial instrument intermediary services and Group subsidiaries decreased due to thesluggish market environment.
 In the FY2019 plan, we will focus on achieving a year-on-year increase by enhancing customers’ asset formation andproposals for inheritance and business succession.

10

1H FY2019 Earnings Results –Change in Expenses–[Expense trends]+7(100 million
yen)(100 million
yen)

287

300
Taxes

200

25

Other property
expenses

61

Deposit insurance
premium

10

System expenses

42

273

18

18

60

60

10

10

42

43

549
32

31

+1

272

542

500
+5

121

126

20

20

90

90

400

300

200
100
Personnel costs(Retirement benefit
expense portion)

147
（3）

139
（2）

+2

141
（4）

0

100

278
（5）

+1

279
（9）

0
1H FY2017

1H FY2018

1H FY2019

FY2018FY2019Plan

 In 1H FY2019, expenses remained almost unchanged in general despite a slight increase in personnel costs reflecting theincrease in retirement benefit expense.
 In FY2019, we expect that expenses will increase 700 million yen year on year due to the increase in expenses relating tomeasures for sales activities to finish the current Medium-term Management Plan.

11

1H FY2019 Earnings Results –Credit Cost Trends/Non-performing Loans–[Non-performing loan (NPL) trends][Credit cost trends]*We do not implement partial direct write-offs.

(100
millionyen)

Individual
provisions for doubtful accounts
個別貸倒引当金繰入Generalprovisions for doubtful
一般貸倒引当金繰入
receivables

Other
credit costs
その他の与信コスト(100
millionyen)Calculation method of general provision for doubtful receivables:• Estimated loss ratio is calculated based on actual loan loss ratios of
three 3-year relevant periods, each of which is moved one year
forward.
• Estimated loss ratio is taken from the higher of either “the average ofthree relevant periods” or “the average of the most recent two
relevant periods.”• “Performing loans” and “Loans requiring attention I” are adjusted
considering the average number of remaining years of loans.

(%)

2.0
NPL ratio

1.45

1.40

1.41

1.21

1.14

1.15

704

693

694

*NPL ratio after partial
direct write-offs

1,000

0.0

10
-26
0
-1

2
0
5
-3

1.0

0

Substandard

173

Doubtful

200

204

343

279

274

188

213

215

End of Sep. 2018

End of Mar. 2019

End 0f Sep. 2019

14
-4

-1.0

-24
Bankrupt

1H FY2017

1H FY2018

1H FY20190-2.0

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 increased due to provisions for individual provision for doubtful receivables despite a reversal of general provision
for doubtful receivables relating to major customer factors.
 With the NPL ratio remaining flat, the quality of assets was maintained.

121H FY2019 Earnings Results –Capital Adequacy Ratio–[Capital adequacy (consolidated)][Capital adequacy ratio (Basel III) trends]

FY20181H
FY2019

5,267

5,397

130

5,265

5,395

130

40,86739,625-1,242Credit risks

39,28038,057-1,223Operational risks

1,586

1,568

-18

FY20181H
FY2019<Regulatory
standards>

Consolidated leverage ratio

6.20%

6.25%

3% or more

Consolidated liquidity coverage ratio(LCR)

151.7%

162.4% 100% or more

Consolidated stress test (IRRBB)

4.5%

16.0
（％）

(100 million yen)

Total equity

14.0

Of which, Tier 1, includingcommon shares

Consolidated capital
adequacy ratio

13.62

13.33
12.88

13.25

Risk weighted assests, etc.

YoY

12.96
12.0

12.56
Non-consolidated capital
adequacy ratio[Other Basel regulations]10.0
End of Sep. 2018

End of Mar. 2019

End of Sep. 20195.8%

15 % or less

 The total capital adequacy ratio improved mainly due to the decrease in risk assets.
13

13

Section II
FY2019 Forecasts
and Major Initiatives

FY2019 Forecast –Earnings Forecasts–[Parent]

FY2018FY2019(100 million yen)

ActualPlan

Vs. publishedforecast at beginningof term

YoY

Year on year

Core business gross profit

770

746

-24

-2

 Both core business gross profit and net income are

Interest income

630

588

-42

-3

Fees and commissions

148

154

6

-3

expected to fall short of the levels in the previous
year.

Other operating income

-8

3

11

4

Expenses (–)

542

549

7

-5

Core business net profit

228

197

-31

4

217

193

-24

11

70.3

73.6

3.3

-0.5

Credit expense (+ is reversal (profit))

41

57

16

20

Bond sales gains/redemption

11

13

2

7

Equity sales gains/redemption

14

16

2

-13

Other

6

10

4

12

219

180

-39

-8

-2

-4

-2

0

153

121

-32

-7

Consolidated recurring profit

236

200

-36

-7

Net income attributable to owners of parent

161

132

-29

-6

Excluding profit/loss on cancellationof investment trusts
OHR (%)

Recurring profit
Extraordinary gain/loss
Net income[Consolidated](Main factors)
Interest income: -4,200 million yen
 Yen-based interest income: -2,700 million yen(Of which, securities interest: -2,700 million yen)
 Foreign currencyinterest income: -1,400 million yen
Credit cost: +1,600 million yen

Vs. published forecast at
beginning of term Core business net profit is expected to
exceed the plan announced at the beginningof the fiscal year mainly due to cost
reduction.
 Net income is expected to fall short of theplan announced at the beginning of the
fiscal year mainly due to the increase incredit cost.
(Main factor)
Credit cost: +2,000 million yen
15

Progress of Medium-Term Management Plan “Plan for Creating the Future Together: Stage I”[Positioning of the current Medium-term Management Plan]

Consolidated
net income
20.3 billion
yen

Structural reform period
during the Long-term
Current Medium-term Management Plan (10 years)

30.0 billion
yenPlan period
Apr. 2017 – Mar. 2020
13.2 billion
yenWithout structuralreforms[Numerical targets of the current
Medium-term Management Plan]

In three years

In 10 years

Overall points of the local promotion project*1

15,000 pt

20,000 pt

Overall points of life plan support activities*2

Continuous improvement

Continuous improvement

Customer satisfaction survey

Continuous improvement

Continuous improvement

Net income attributable to owners of parent

16.0 billion yen

30.0 billion yen

Consolidated capital adequacy ratio (Basel III)

Stable at 12%

Stable at 12%(FY ending March 2027 Single year) 5% or more

Consolidated ROE

FY2016
Actual

FY2019Medium-term Plan
® Updated plan

FY2026Plan*1 Overall points of the local promotion project are activities that involve the provision of optimal solutions to theneeds and issues of the community and client companies by appropriately evaluating the client company’sbusiness content, managerial issues and growth potential (i.e., business assessment) that have beenstandardized in our original way.
*2 Overall points of life plan support activities involve the provision of precise information that suits the customer’slife plan and providing products and services that we think are the best through our understanding of eachcustomer’s life events.

[Structural reform (BPR measures)][Status of major items]
Average balance of local development loans

Average balance of personal loans
1,141.3 billion yen

2,107.4 billion yen
1,100 billion yen
2,000 billion yen

FY2019Medium-term Plan

FY2019Plan

FY2019Medium-term Plan

Target figures in the 10-year strategy(Vision 2027 “Plan for Creating the Future Together”)

FY2019Plan[Headquarters] - Implementing reduction of work andwork style reform- Loans (Concentration of loanadministration work)- Over-the-counter (Introduction of[Sales branches] store tablets, and over-the-counter
operation reform)- Sales (Introduction of tablets fornegotiation, etc.)
Securing
personnel

Target number of
personnel in the Mediumterm Plan(as of end of Mar. 2020):180

Forecast for the end of
Mar. 2020: Approx. 340(personnel relocation andnatural attrition of
employees)

 Main items exceeded the Medium-term Management Plan targets, and the structural reforms are also steadily in line withthe plan.
 We will implement the final process of the structural reform, and the relevant measures to prepare the next Medium-termManagement Plan.

16

Improve the Quality of Services Provided –Advance Local Promotion Activities–
 Contribute to the improvement of corporate value by deepening dialogues with customers and providing comprehensive
solutions that fit management challenges.
 Increase loans and fee business through the enhancement of proposal capability centering on consulting services.

[Initiatives to enhance local promotion activities]
Conduct interviews to grasp customers’ management
challenges and needs by deepening dialogues with them.

[Expansion of solutions][Business consulting services: since April 2018]
Since September 2019:

Organization

 Business process Industry trends, advantages anddisadvantages of the customer’s company
 Matters the president is concerned about, etc.

(Customers’ challenges)
Various• Increase in sales
needs• Consideration toward
overseas development• Building human resources systems, enhancing
internal welfare systems• Labor shortage, concerns over businesssuccession, etc.

Customers

Chugoku Bank

Discussion notes on management
challenges

Solutions (examples)
Startup support

Overseas assistance

Consulting

Finance

Management
improvement

M&A, Cultivation ofsales channels

Leasing, securities, etc.

Business succession

Recruitment service

Activities 13 staff members engaging insuch services at the
Headquarters
 Support for formulating the
Medium-term Plan Improvement of businessprocesses
 Support for human resources
and labor administration, etc.

 Commencement of sale of cloud-based
accounting software “Accounting freee
for Chugoku Bank”
Since October 2019:
 Establishment of Preparation Office forthe establishment of a consulting firm

[Enhancement of M&A and support for business succession(since October 2019)]
 Business platform for TSUBASA M&A
Establish a database which centralizes the customer needs ofthe member banks.
Examples Partnerships for Okayama Local Businesses
Enhance support for M&A and business succession of local
customers.

[Commencement of recruitment service (since August 2019)]
Recruitment  Human resources for executive management
service Identify customer needs through the discussion sheets for
managerial challenges.
(Change of generation, reorganization, and need for human
Activities
resources in new businesses, etc.)
 Resolve the managerial issues by appropriate personnel
recruitment.

17

Improve the Quality of Services Provided –Initiatives in Open Innovation–
 Cooperate with local governments and private operators to build a startup support system around Chugoku Bank.
 Foster future core companies of the local community by discovering entrepreneurs at an early stage andproviding hands-on support until commercialization.
[Startup support system][Chugin Startup Support Package]Founders & second founders, students, existing operators intending to carry out innovative businessOkayama Innovation Project
Hosted by: The Chugoku Bank,The Sanyo Shimbun
Special sponsor: Saintmarc Foundation

Okayama Tech Planter
Hosted by: The Chugoku Bank,
Leave a Nest
Special Sponsor: Kobashi
Industries, Co., Ltd.

Support entrepreneur development
Þ Acquire management skills

Support science technology ventures
Þ Foster specialized businesses

Okayama Innovation School
Okayama Innovation Contest

Okayama Tech Plan GrandPrix (Total no. of applicants in
FY2018: 20)

Received an award for “Startup School Contest
Top 10” organized by the Small and Medium
Enterprise Agency for two consecutive years!

Commenced Kagawa Tech Planter!
(November 2019)(Total no. of applicants in FY2019: 85)

Support base Momotaro Startup Café (Support for startups)
 Okayama Research Park Incubation Center (Exclusive Support for IT and Tech Ventures)

Commercialization support[Hands-on support, financial support (startup financing, investment in innovation funds)]
Establishment of a new ecosystem that fosters a startup momentum in the communityand develops local industries

To customers whose businesses are less than five years
old from establishment, we offer “Chugin Startup Support
Package” that contains tools necessary for starting
business and business growth.

Onlinebanking forbusiness

NEW!

ChuginBusinessClub

Risk
consultation
reportTotal support for startups
and business growth
Okayama
Economic
Credit cards
Research Institutefor business
Seminar

Software “Startup freee” was introduced in September 2019.

[Community-based crowdfunding]
Okayama-based dreams will come true withthe help of many.
 Branding of local products and developing
sales channels
 Initiatives contributing to the activation of
the local community Implementation of test marketing concerning startups and new businesses
Community-based support for the procurement of small amount projectfunds.
18

Improve the Quality of Services Provided –Enhancing Corporate Solution-related Earnings–
 Focus on the expansion of fee business by enhancing proposals for solutions that meet customer needs.
 As to the loans from the headquarters (to SF Center, non-Japanese customers), new lending areas shall be
proactively developed while identifying the risks.
 Expanding fee business centering on investment banking• Solutions shall be proposed by the headquarters together withsales branches based on the discussion sheets for managerial
challenges.
• New business areas such as consulting services and personnel
recruitment shall be proactively developed.

Trend of revenue from solutions for corporate customers (Million yen)(Interest income, fees and commissions, other operating income)
3,287
2,978
433
Other fees

Intermediary fees
(M&A, consulting, etc.)
Fees on derivatives

 New lending areas shall be developed by enhancing lending
from the headquarters (to SF Center, non-Japanesecustomers).
• Enhance arrangement businesses such as project finance.
• Select businesses that focus on returns from risk assets.

Keep and improve the top line by increasing loan interestand fees and commissions while paying attention to risk
and return.

22%
62%

16%
0%

September 30, 2019
Corporate
Marketable
10%
loans
Project
34%
assets

20%
CLO

385
82
321

36%

To be
increased.

170
189
232

341

422

395

Loan interest*(SF center, non-Japanesecustomers)

542* SP earnings in foreign
currency-denominatedloans.

1H FY2016

352
144
189
231
602

367

344
Fees on syndicated loans

1,541

1H FY2017

1,842

1,974

1H FY2018

1H FY2019

Trend of average balance of lending from the headquarters (SF Center, non-Japanesecustomers) (100 Million yen)
4,762
4,444
Average balance in nonJapanese

3,522

Average balance in SP
Center

Reference: Structure of loans from headquarters
September 30, 2016

Fees on corporate bonds

2,069

392
98
239

3,492

The full-scale initiatives have been
implemented since 2015.
(as an alternative for lending in
the urban areas)
We will continue to expand quality
assets by increasing personnel.

1,375

1,381

1,185

1,454
569

3,069

3,381

2,336

885

1H FY2016

1H FY2017

1H FY2018

1H FY201919

Improve the Quality of Services Provided –Strengthening Sales Activities Based on Life Planning– Customer-oriented sales activities will be implemented through life plan support activities.
 We will pursue the expansion of revenues through the enhancement of long-term relationships byreinforcing proposals that meet customer needs.
[Support for asset formation][Support for business succession]

Customer needs

Customer needs

 Provision of precise information that meets customer’slife plan.
 Medium- and long-term asset formation andimprovement of returns
 Increasing awareness of money for post-retirement life

Identify potential
needs throughcontacts withcustomers.

 Preparation for post-retirement life
(longevity risk)
Offer closest advice
 Inheritance measures and increasing
to customers withneeds for preparation for the end of life
warm attitude.
 How to leave properties behind (by will),etc.
 Proposals for asset succession using testamentary trust, etc.
 Increase transactions with future generations based on theinheritance measures as a starting point.

 Expand operations on holidays by the Life Plan Center.
 Support asset formation by proposing long-term diversified investments.

Increases opportunities for
proposals

Improves the quality of
proposals(No. of customers with assets in custody)
Commenced the life plan support activities in FY2017.

150,256
customers

148,913customers

156,069
customers

162,430
customers

Inheritance-related business
October 2016: We commenced testamentary trust and inheritanceprocedure support services as part of the banking business.
April 2018: The inheritance-related business was enhanced byincreasing personnel at the headquarters.
July 2019:
The trust business was expanded to all branches in Japan.
(Number of testamentary trusts received at the Headquarters)

113

103

120

78
57

1H FY2016

1H FY2017

1H FY2018

1H FY2019

Increasing steadily.

1H FY2017 2H FY2017 1H FY2018 2H FY2018 1H FY201920

Expand Opportunities to Provide Services –Store/Channel Strategy–
 Consulting services will be expanded under the branch/channel strategies according to changes in the environment andcustomer needs.
 Promote efficiency of branch office operation and counters while making up for the decrease in customer convenience.
[Expansion of Life Plan Center]

Changes incustomer needs• Decreases in population and visitors• Spread of IT channels (Bank transfer and application forloans are conducted via the Internet.)• A bank teller is expected to handle “inquiries” and“consulting.”

Environmental
changes[Improvement of efficiency and concentration byreorganizing branches] Expand the group sales system

28 groups

Group system

24 groups

LoanManagement

 The former Housing Loan Center was changed to Life
Plan Center by strengthening its functions. (The branch
offices informed customers of the holiday channels.) The cross-selling method is strengthened with theconsulting services in line with customers’ life plans
based on the needs for housing loans and various
insurances.

Number of insurance policies by annualized level premiums(handled by Hoken Plaza and Life Plan Center)

630

609

485
291

374

1H FY2017 2H FY2017 1H FY2018 2H FY2018 1H FY2019

25 groups
1 branch

Full-banking

32 branches

32 branches

128 branches

128 branches

Mar. 2017

Mar. 201833 branches

126 branches

Mar. 20196 branches

34 branches

121 branches

Mar. 2020 (Plan) Review of the full-banking function → Accelerate to shift to retail banking
branches We will continue to reorganize branches according to the market environment.

 The deteriorated convenience for customers is compensated for.
Integration by the branch-within-aEstablishment of a special officebranch method
 Account numbers and passbooks will not be changed due to transfer.
 The financial services for the customers of the reorganized areas will be
continued by establishing a special office.
Core branch

Insurance

24 groups

Branch-within-abranch
Retail banking
branches andoffices

Life Plan Center* Excluding overseas branches
and online branches

Branch A
Branch B(attachedbranch)Integration

Special office
The former branchsite is used.

Former Branch B

Business days:
Two days a week only
Business hours:
10:00 to 12:00,
13:00 to 15:00

21

Expand Opportunities to Provide Services –FinTech– Enhance new services of non-face-to-face channels by utilizing IT channels and AI.
[New services applying open API]TSUBASA
FinTechCommon platform

Customer

User registration
Log-inServices of partnercompanies

 Promote cashless payment
 J-coin Pay (started in March 2019)

API

Chugin• No. of users as of Sep. 30: Approx. 4,000

ID• No. of member branches: Approx. 700
 merpay (started in July 2019)API
 Digital passbook (Passbook app)
Jointlydeveloped by
TSUBASA Other (Bank pay, etc.): under consideration
Introduced in
May 2019

Expand settlement services by scanning QR
code with a smartphone toward a future
cashless society.

 Propose a passbook app to customers when an
account is opened or an old passbook is carried over.
 The use of digital passbook is assumed for informing
new products and services through smartphones in
the future.

Advantages for customers:• Real-time balance management and no
passbook entry needed• Deposit/withdrawal statement of up to 10 years• Keyword retrieval and memo functions• Easy login by fingerprint or face authentication
Advantages for us• Cost reduction of issuance of passbooks andstamp tax
• Proposals for new products through apps in
the future, etc.



Number of registered digital passbooks
Exceeded 20,000 in four months fromthe start of digital passbooks.
23,383

May 2019

Jul. 2019

Sep. 2019Local development loans using accountdynamics information

Loan product “New Type” (launched in October 2019)
Information on
accounts held by us(Balance, deposits
and withdrawals,etc.)

 Customers with lessbusiness experience

Lending Customers without
past record ofborrowing, etc.

 New loan appraisal models based on account information
rather than financial statements
 Lending completed through call center or on the Internet(non-face-to-face appraisal, in principle)
 Quick loans by shortening the appraisal period

22

Expand Opportunities to Provide Services –BPR– Generate sales personnel and time through thorough structural reforms, leading to enhancement of the top
line and reduction of OHR.
Counter reception & domestic exchange

Execution of teller operation
reforms

Business offices

 “New counter-reception style” will be expanded to all branches (slated for in FY2020)• Reduction of personnel in the high counter and business processing sections bysignificantly simplifying and centralizing business processes.
• Increase in sales personnel engaging in life planning services at the permanently
established low counters.
Þ Number of staff members to be secured during three years of the current
Medium-term Management Plan: Approx. 100 (70 persons more than planned).

Sales

Bank teller tablet“TSUBASA Smile”

Reduction ofoperations

Low-counter teller

Execution of sales activity reforms

The bank employees expand life
plan sales at the low counters.

Guiding customers
depending on theirrequirements.

High-counter teller
Handling deposits and withdrawals quickly
Optimizing the number of counters

Reception

Concentration and improvement of efficiency ofloan business at the Headquarters

 The operations of the loan center started.
• Since October 2018, the loan business has been concentrated. This system will be
expanded to all stores by the end of March 2020.
 Improve efficiency by restructuring loan-related systems.
Þ Number of staff members to be secured during three years of the current Mediumterm Management Plan: Approx. 90 (50 persons more than planned)

Headquarters

Business processing

Dispatch support members
only in the busy season.

 Introduce tablets for negotiation• This enables access to information and sale of assets in custody while working out of
the office, reducing the burden of administrative work upon returning to the office.
Installed with a map information system, the tablets allow more efficient sales activities.
Þ The no. of customer visits by external sales representatives is expected to increaseby 30–40%.

Loans

Image of “New Counter-reception Style”

Streamline operations of the headquarters, and promote workstylereforms
 Reduce operations by digital communication, and make swift decisions.
 Eliminate the use of paper by developing IT environment and improve productivity.
Þ Number of staff members to be secured during three years of the current Mediumterm Management Plan: Approx. 150 (40 persons more than planned)

Realizing both improvement of customer convenience andenhancement of sales activities at the counters.
[Image of personnel reassignment at the counters]

High-counter teller
Number of staff
members: 410
Percentage of the sales
activity: 5%
Traditional

Reduction of staff members: -20

Low-counter teller
Number of staff members: 140
Percentage of the sales activities: 50%

High-counter teller
Number of staff members: 250
Percentage of the sales
activities: 0%

New Counterreception Style23

Alliance Partnership Strategy
 Under the TSUBASA Alliance as the largest alliance of regional banks, we pursue synergy that exceeds management integration.
 The Partnership for Okayama Local Businesses contributes to further development of the local economy by sharing theknowledge of the member financial institutions.

TSUBASA ALLIANCETSUBASA Alliance was established in October 2015.


Initially established by Chugoku Bank, Chiba Bank andDaishi Bank followed by other banks.

The enhancement of cooperation has been promoted
towards the streamlining of back office operations and theincrease in the top line across the boundary of system fields.

For further cost reduction and improvement of services.

The Partnership for Okayama Local Businesses

The agreement of the Regional Revitalization Partnership wasconcluded in October 2019.


Cooperation in holding business meetings, seminars andother events
Cooperation in startup and venture capital, businesssuccession and M&A
Personnel exchange
Cooperation in financing

Contribute to further development of the local economy.

24Responses to SDGs and ESG (1) Aim for long-term and sustainable improvement of corporate value through responses to SDGs and ESG.
[10-year strategy; Long-term vision] Jointly develop affluent future life to be shared between
local community, customers and employees.

SamefutureEnvironment[SDGs (Sustainable Development Goals)] Realize “Sustainable society” by achieving the 17 goals.

Loans provided to small hydroelectric
power generation business Small hydroelectric power generation
business planned by Nishiawakura Village,
Okayama Pref.
 Abundant water resource of Yoshino River
which runs through the village is used.
 As a regional financial institution, we support
securing sustainable clean energy.

Local promotion activities

Social Started in October 2015
 Positioned as a core business of the Bank andadopted in performance assessments ofbranch offices.

SDGs private placement bonds
 The system was introduced to achieve the SDGs
together with our customers through the issuanceof private placement bonds.

Loans

Small hydroelectric
power generation plant
Scale of power
generation: 199 kW
Business expenditure:
480 million yen

Capitalcontribution,
managementof operation

Chugoku Bankand others
Nishiawakura
Village

CapitalGreen Financecontribution Promotion Organization

Diversified solutions
Regional
Startup support
revitalization
Business
Management
improvement succession, etc.

More than 40% of the electricity
consumed in Nishiawakura
Village is covered by this smallhydroelectric power plant
together with the existinghydroelectric power generation.

A win-win relationship
Increase in
Progress ofloans andcustomers
fees andand the local
commission
economyrevenue

Package of “SDGs Private Placement Bonds”: Part of the proceeds are used for the relevant
purposes of the SDGs
Local promotion type: Donation and gift to publicorganizations, etc.
Restoration support type: Contribution to relief moneyfor disaster victims
BCP type: BCP consulting is conducted.
Advertising type: The initiatives for the SDGs are
published in newspapers.

“Yamadorige Sword Homecoming Project”
 A project to bring the Yamadorige Sword, the notedsword reputedly owned by Uesugi Kenshin, back to
Setouchi City, Okayama Prefecture.
 Donations were collected by issuing SDGs private
placement bonds.
Regional revitalization was supported through finance.

25

Responses to SDGs and ESG (2)Strengthened and sophisticated governance Percentage of independent outside directors: 31.3% (as of Sep. 30, 2019)
Nomination and• Six outside directors (of them, five independent outside directors)
compensation committee
Strengthened
 Established a nomination and compensation committee (Dec. 22, 2017)
governance• Chaired by an outside director, the committee carries out appropriate deliberations.
Majority Performed assessment of effectiveness of the Board of Directors
Outside directors
 Formulated the “Plan for a Successor to the Representative Director and the Basic
Chairperson
Policy concerning the Nurturing Plan”
 Grasping appropriate cost of capital ⇒ To be used for the revision of crossshareholding Reinforcing countermeasures against financial crimes (Established “Money-laundering

GovernanceCountermeasure Center on Oct. 1, 2018)

Initiative for reduction of cross-held shares[Policy for cross-held shares]
 The relevant shares are held only when it is considered as necessary forsustainable growth of the issuers of the shares and the Group as well as for the
improvement of corporate value.
 From the perspectives of capital efficiency and the reduction of shareholding risks,
we will reduce the shares through the issuers.

[Judging whether or not the sharesshould be held]• Profitability taking cost of capital into
account• Relationship with local economy• Viewpoint on managerial strategy(Consolidated) comparison with
common stock, etc. Tier 1
11.54%

11.35%

11.28%
10.62%

60.6 billion
yen

60.6 billionyen

59.4 billion
yen[Shares not satisfying the shareholding
criteria]• Negotiations for improvement of
profitability in transactions• Negotiations for reducing the numberof shares held
The Board of Directors will verify thestatus on a regular basis.

57.3 billion
yen

Cross-held shares(book value)

Mar. 2018

Sep. 2018

Mar. 2019

Sep. 201926

Towards the Next Medium-term Management Plan

Under the current Medium-term Management Plan, we implemented securing of business hours and measures for structural reforms centeringon personnel relocation.
Under the next Medium-term Management Plan, we will respond to diversified customer needs by strengthening our consulting capability.
Furthermore, we will be flexible in addressing changes in the environment by promoting elimination/consolidation of branches, strengthening ofdigital functions and cooperation with the local community and TSUBASA Alliance.

Stage II: Strengthen sales force to respond to diversified needs
Strengthen proposal/sales capability[Corporate] Local support activity
Improvement of productivity;
Securing sales staff members

BPR measures implemented during the current Medium-termManagement Plan

Stage: Improvement of productivity and structural reform

Next Medium-term Management Plan (April 2020 to March 2023)•••

Enhance the loan business in local areas.
Strengthen the headquarters solution systems.
Establish joint sales systems by theheadquarters and sales offices.

[Individuals] Life plan support activity• Advance the proposal activity corresponding tocustomer’s life stage.
• Establish the system of opening on holidays.
• Strengthen the non-face-to-face channel using
ICT.
SupportPersonnel
systemTraining
systemAdditional measures to respond to thechanges of external environment
Channel strategy

Organizational
strategy

Elimination/
consolidationof branches

Reorganization

Small-sized
branches

Cost reduction

Improve the functions
on the Internet

Enhancementof digital functions

Alliance strategy

Performance
awardsLocal companies
Local financial
institutions

TSUBASA27

Shareholder Returns
 We will return profits at a total payout ratio of approximately 35%, calculated by the sum of dividends and share repurchases.
 The annual dividend for the fiscal year under review will be 22 yen per share (18 yen as stable dividend plus additional 4 yen).

[Shareholder returns]

FY2015FY2016FY2017FY2018FY2019(Plan)

Dividend per share

¥20

¥20

¥20

¥22

¥22

(interim dividend)

(¥10)

(¥10)

(¥10)

(¥10)

(¥11)

(Unit: 100 million yen)

Non-consolidated
net income

①

259

190

194

153

121

Total devidends

②

39

38

38

41

41

Payout ratio

②÷①

15.1%

20.2%

19.7%

27.1%

34.2%

Share buybacks

③

52

29

29

14

Total amount of
profit return

②＋③

91

67

68

55

Total payout ratio(②＋③)÷①

35.2%

35.5%

35.1%

36.2%

Total payout
ratio:
Estimated
at approx.
35%*Share buyback as a factor in calculating payout ratio: Calculated based on buybacks during one year from tim e of shareholders meeting.

28

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 fromthe goals and targets herein due to factors, including changes in the business environment.