1H FY2018
Earnings Results Briefing
December 3, 2018

Summary of 1H FY2018 Earnings Results

FY2018 Forecasts and Major Initiatives

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: souki01@chugin.jp

2Section I
Summary of 1H FY2018 Earnings
Results3

1H FY2018 Earnings Results –Summary–[Non-consolidated](100 million yen)Core business gross profit
Interest income
Fees and commissions
Other operating income
Expenses

1H FY2015

1H FY2016

1H FY2017

1H FY2018

436
358
74
3
277

409
334
76
-1
281

401
338
71
-7
287

396
329
75
-8
272

vs. Published*
-5
10
-9
20
4
-1
-1
-8
-15
-11

ＯＨＲ（％）

158
63.6

127
68.8

114
71.4

124
68.6

10
-2.8

22
-4.8

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

-26
4
26
12

-27
7
9
2

-26
-3
4
-2

2
-3
3
9

28
-0
-1
11

3
-3
-8
8

Recurring profit
Extraordinary gain/loss
Net income

229
-1
155

173
-1
121

140
-1
98

132
-1
94

-8
0
-4

16
0
15

[Consolidated]
Consolidated recurring profit
Net income attributable to owners of parent

242
160

184
125

153
105

140
97

-13
-8

20
18

Core business net profit

YoY* Forecast published on May 10, 2018

• Core business net profit increased by 1 billion yen year on year by covering the decrease in interest income with fees andcommissions and cost reductions.
• Recurring profit decreased by 0.8 billion yen year on year due to a reversal of provisions for credit expense (mainly generalprovisions for doubtful receivables).

4

1H FY2018 Earnings Results –Change in Net Interest Income–[Loan yield][Factors behind changes in net interest income] Foreign currency-based (-900 million yen
year on year) Yen-based (-10 million yen year on year)• Loan interest: +100 million yen yoy• Securities interest: -300 million yen yoy• Decrease in deposit interest: +100
million yen yoy

19

350
- 7

2

338

- 5

1

1

1.07

0.89

0.86

0.86

1H FY2017

1H FY2018

FY20181.00
0.97

1H FY2016plan

6[Securities yield]

- 3

1.31

(%)

- 12

330

2

329

1.23
1.12

1.07

1.01
1H
FY2018Foreign currency otherForeign currency procurement

Foreign currency depositinterest

Foreign currency securities
yield

Foreign currency average
securities balance

Foreign currency loan yield

Foreign currency averageloan balance

Yen other

Yen deposit interest

Yen securities yield

Yen average securities
balanceYen loan yield

Yen average loan balance

0.94
1H
FY20171.03

0.95-900 million yen
310

1.08

1.02

- 24

3

Loan yield
Yen loan yield• Loan interest: +2,200 million yen yoy• Securities interest: -1,800 million yen yoy• Increase in foreign currency
procurement: -1,200 million yen yoy(100
million
yen)

8

(%)

1.20

0.98

0.99
0.89

Securities yield
Yen securities yield
Yen securities yield (excl. investment trust redemption gain)
1H 2016

1H 2017

1H 2018

FY2018plan• Yen net interest income Loan interest: +100 million yen yoy since the drop in yield was covered by an increase in average balance
Securities interest: -300 million yen yoy mainly due to a drop in reinvestment yield• Foreign currency net interest income
Loan interest: +2,200 million yen yoy mainly due to a rise in yield on the back of a U.S. interest rate hike
Securities interest: -1,800 million yen yoy mainly due to a decrease in average balance owing to a reduction of balance5

1H FY2018 Earnings Results –Major Accounts (1) Deposits & Assets in Custody–[Average balance of deposits and NCD]
(100 million yen)

62,84664,476

4,123

4,107

Domestic
corporate clients

14,622

15,487

Domestic
private clients

44,10144,882

1H FY2016

1H FY2017

60,000Other

50,000

+4.2%

+4.5%

67,187
5,195+3.4%

67,53864,577

5,267

3,914

+3.5%

16,01915,47545,97345,187

1H FY2018

FY2017

16,02440,00030,00020,000

+2.4%

+2.3%

46,245

10,0000
Ref: Balance of assets in custodyPlan
1H FY2016

1H FY2017

2864
1574
2061
862
3447
9946
2436
830

2931
1450
1986
766
3453
9820
2216
900

(100 million yen)
Public bonds
Investment trusts (1)Financial instrument intermediary services

Investment tr ust por tion (2)Insurance
Bank parent
Total investment tr usts (1)+(2)Chugin Securities

FY20181H FY2018
Change
67
-124
-75
-96
6
-126
-220
70

FY2017
Change

2923
1424
1888
655
3619
9853
2079
939

-8
-26
-99
-111
166
33
-137
39

FY2018
Plan

2927
1444
1951
743
3471
9793
2187
897

2927
1472
1859
648
3664
9922
2120
940

Change
0
28
-92
-95
193
129
-67
43

* 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.

• Private client deposits are growing steadily, maintaining the growth trend due to stable payment pipes (e.g., salary payment,
pensions).
• Corporate client deposits continue to grow at a large pace on the back of robust corporate earnings.

6

1H FY2018 Earnings Results –Major Accounts (2) Loans–[Average loan balance]+4.5%

50,00044,859(100 million
yen)

40,00041,310
Other *3

Non-Japanese
SF centers
Local government
loans

20,000145
10,375

Personal loans

30,000183

Urban
Development *2

+5.0%

1,454
4,984

5,082
-8.2%

6,857

7,217

237

177

10,893

10,514

4,444

3,833

4,535

4,999

5,055

4,929

6,289

6,699

19,237FY 2017+6.3%

10,000Local
Development *1

47,23045,518

9,762
3,521

+3.7%

46,907

17,746

18,84020,043

1H FY2016

1H FY2017

1H FY2018

241
+4.7%

-8.5%

+5.9%

11,0136,130

20,3800*1 Local development: Regions other than Tokyo and Osaka

FY 2018Plan*2 Urban development: Tokyo and Osaka *3 Other: Hong Kong branch, credit cashing[Loan/deposit ratio (ending balance basis)]
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

End of Sep. 2018

64.8%

63.0%

61.5%

61.4%

59.7%

61.0%

63.6%

67.4%

70.5%

70.2%

• In 1H FY2018, the annual growth rate of total loans was +4.5%, due to efforts to increase loans, mainly in local development.
• We will continue to strengthen loans by identifying and capturing fund demand.

7

1H FY2018 Earnings Results–Major Accounts (3) Securities–[Average balance of securities](100 million
yen)

Measures for improvement in management gains◇ Implement asset allocation investment with risk and return inmind• Improve revenue by utilizing investment trusts (mainly
equity assets).
• For foreign currency bonds, increase the percentage ofvariable bonds while reducing the balance.

29,04230,00080
1,182

Others*1
Equities[547][Net investment
portion]

1,476

Investment
trust

25,747
109
1,042
[422]

Foreign-currency
denominatedforeignsecurities

5,393

1,310

-1,80823,93924,138

132
1,014

Flat

135
1,057

1,422

Increase

1,610

[400]

[450]

Yield and duration by type of investment asset
The drops in domestic and foreign bond yields werecovered by equity and investment trust yields.
Equities
3.44%

5,023
20,0002,887

Reduce

3,093

3.95%
3.88%

1.44%

Bonds

3.65%

Investment
trust

3.24%
Foreign-currency
denominatedforeign securities*2

3.98%

3.56%

2.48%

1.01%

Bonds

20,911

18,26318,484Flat

18,243

0.69%

0.72%

FY2015FY2016

1H FY2017

1H FY2018*1 Others: Investment partnerships, etc.
*2 Management-procurement spread for foreign-currency denominated foreign securities

FY2018
Plan

0.66%

0.61%
FY20170.59%
FY2018plan

Duration

1H
FY20161H
FY20171H
FY2018FY2018Plan

Bonds

5.8 years

4.8 years

5.0 years

4.9 years

Foreign currency bonds

5.1 years

3.8 years

4.7 years

4.4 years

10,0001H FY2016

0.63%• In 1H FY2018, the balance of foreign currency bonds was reduced to take interest rate risk into consideration when investing.
• We will continue to strengthen diversified investments and asset allocation investments while adjusting portfolios flexibly inaccordance with the market environment.

8

1H FY2018 Earnings Results –Change in Fees and Commissions–[Fee and commission (revenue) trends]+1,018+462(Million yen)

7,645

8,000

(Million yen)

7,578

14,61015,0007,116
Assets in custody

15,628

+641

4,900

4,259
2,130

+321

1,970

6,000

2,291
+115

10,000Investmentbanking
operations

1,133

Remittance/collection fees

2,575

Other

1,807

1,609

1,786

1H FY2016

1H FY2017

1H FY2018

-32

978

2,025

2,140

946

4,000

2,559

2,556

5,142

5,140

5,000

2,000

0

3,184

3,448

FY2017FY20180Plan• Fees and commissions revenue increased due to a rise in revenue related to assets in custody.

9

1H FY2018 Earnings Results–Change in Assets in Custody–[Revenues related to assets in custody](Million yen)

4,000Group total(bank parent)Group total

2,000

Group
subsidiaries(securities, assets)

Financial
instrument
intermediaryservices

1,124

8,000

-144

1,179

6,000

-181

560

3,293
(1,970)

1,323

577
105

741

Bank parent

Municipal bonds

1,000Life insurance

895

510

Investment trusts

553

675

42

+471

1,620

981

74

688

1H FY2017

1H FY2018

-528

2,429

-390

1,230

2,957

4,000

2,000

7,329
(4,900)

7,216(4,259)63

0
1H FY2016

+113

3,470
(2,291)(bank parent)

3,254(2,130)3,000(Million yen)

+177

111

+829

2,030

+168

1,530

1,201

1,362
0
FY2017FY2018Plan• Revenue from assets in custody increased due to a growth in life insurance revenue, despite a drop in financial instruments
brokerage revenue on the back of stagnation and uncertainties in the stock market.

101H FY2018 Earnings Results–Change in Expenses–[Expense trends]
556(100 million
yen)

-15

281

300

200

(100 million
yen)

287
25

Taxes

20

Other property
expenses

61

61

Deposit insurance
premium

12

10

System expenses

36
-7

272

39

122
400

60

42

552
-6

30

500

18

10

-4

21

+3

125

-1

20

87

+9

289
(7)

-11

96

300

42

200
100
Personnel costs(Retirement benefit
expense portion)

-8

149

147

(2)

(3)

139
(2)

0

100

278
(5)

0
1H 2016

1H 2017

1H 2018

FY2017FY2018plan• Personnel costs decreased significantly due to the spread of workstyle reforms as well as a reduction of and improved
efficiency in operations.
• Tax decreased due to a drop in consumption tax relating to a new accounting system.

11

1H FY2018 Earnings Results –Credit Cost Trends/Non-performing Loans–[Non-performing loan (NPL)*We do not implement partial direct write-offs.
trends][Credit cost trends](100
millionyen)

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

32

(100
million
yen)

(%)

1.63

0

その他の与信コスト
Other credit costs*NPL ratio after partial
direct write-offs

24

1.35

2
0

-22

0
-1

2.0

NPL ratio

0
5
-3

1.50

1.45

1.23

1.21

719

704

1.0

1,000
8

762
Substandard

-24

150

0.0
163

173

347

343

209

188

-4

-27

1H FY2016
2016中間-26

1H FY20172017中間1H
FY2018
2018中間1H
FY20182018年度Estimate

Doubtful

398

Bankrupt

213

0

-1.0

-2.0
End Sep. 2017 End Mar. 2018 End Sep. 2018

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 the reversal of general provisions for doubtful receivables, although individual allowances for
doubtful accounts continued to be reversed.
• With a continued decline in the NPL ratio, the quality of assets was maintained.

121H FY2018 Earnings Results–Capital Adequacy Ratio–[Capital adequacy ratio (Basel III)(consolidated) trends][Capital adequacy (consolidated)]

15.0

FY2017 1H FY2018(%)(100 million yen)

5,250

5,336

86

Tier 1, including commonshares

5,247

5,334

87

Risk weighted assests, etc.

39,69140,026335

Credit risks

38,054

38,413359

Operational risks

1,637

1,612

-25

Total equity

14.0

YoY

Total capital adequacy ratio

13.39
13.22

13.33

13.0

[Other Basel regulations]<Regulatory
FY2017 1H FY2018
standards>

12.0
End-September
2017

End-March
2018

End-September
2018

Consolidated leverage ratio

6.03%

6.18%

3% or more

Consolidated liquidity coverage
ratio (LCR)

142.9% 155.2%

90% or more

• The total capital adequacy ratio remained at a stable level.
1313Section II
FY2018 Forecasts
and Major Initiatives

14

FY2018 Forecast–Earnings Forecasts–[Parent]

FY2017FY2018(100 million yen)

ActualPlan

Vs. published forecast

YoY

atbeginning of termCore business gross profit

795

786

-9

19

Interest income

662

649

-13

38

Fees and commissions

146

156

10

-0

Other operating income

-12

-18

-6

-18

556

552

-4

-6

Expenses (–)

239

234

-5

26

OHR (%)

69.9

70.2

0.3

-2.6

Credit expense (+ is reversal (profit))

-17

32

49

12

Bond sales gains/redemption

-24

3

27

-7

Equity sales gains/redemption

44

15

-29

-8

Other

2

4

2

9

279

225

-54

10

-1

-3

-2

1

194

154

-40

7

Core business net profit

Recurring profit
Extraordinary gain/loss
Net income[Consolidated]
Consolidated recurring profit

309

242

-67

11

Net income attributable to owners of parent

212

162

-50

8

(Year on year)
Profits are expected to drop due to an expected
rise in credit cost.
(Vs. published forecast at beginning of term)
Profits are expected to increase from theforecast at the beginning of the term due to anincrease in loan interest and a drop in foreign
currency procurement cost.
■ Factors relating to changes in interest income, etc.
(100 million yen)

Change (Impact on profit)
Vs. publishedforecast at beginningof term

YoY

-0

+9

Loan interest+2+1

Securities interest & dividends-6+3

Others (e.g., swap cost)+4+5

Foreign currency interest income

-13

+28

Loan interest

+37

+8

Securities interest & dividends

-17

-8

Foreign currency procurement cost

-33

+29

T otal interest income

-13

+38

Foreign currency procurement cost included
in other business profit

+4

-15

Yen-based interest income

15

Improve the Quality of Services Provided —Advance Local Promotion Activities—
 Strengthen initiatives of “implementing business assessment” Þ “supporting through local promotion
activities” Þ “problem solving through consulting” to enhance local development loans and the fee business.
[Overall image of initiatives foradvancing local promotion activities][Commencement of business consulting operations]
Business officeConsulting
targetProvide charged consulting
service to solve clients’ problems

Established in April 2018 by integrating the sales divisionand the review division

Solution Sales Dept.

Sales division

Consulting

Staff member incharge of consulting

Review division
Business
Local researchassessment

Business succession

Nine staff members in charge of consulting

Local
promotion
activity target

Finance
Information sales

Carry out local promotion
activities based on businessassessment

Local development
International Dept.

(Main activities)• Assist formulation of medium-term management plan
• Assist the establishment of a personnel system and/or labor
management system in accordance with workstyle reforms
Etc.

[Number of main clients]

Overseas assistanceBusiness
assessment target

Loan Dept.

Expand the range of businessassessment with depth, mainly
among business loan targets

Management
improvement

8,848

9,030

8,461

Business loan targets
Approx. 21,500

End Mar. 2016

End Mar. 2017

End Mar. 201816

Improve the Quality of Services Provided —Initiatives in Open Innovation—
 Cooperate with local governments and private operators to build a startup support system around ChugokuBank.
 Foster future core companies of the local community by discovering entrepreneurs at an early stage andproviding hands-on support until commercialization.
[Startup support system](Initiatives in Innovation School/Contest)

Founders & second founders, students, existing operators intending to carry out innovative businessOpening of Innovation
School (10 courses in total)
Opened a school for students andpersons wishing to start a company.

Okayama Innovation Project
Hosted by: The Chugoku Bank,The Sanyo Shimbun
Special sponsor: Saintmarc Foundation

Support entrepreneur development
Þ Acquire management skills
Okayama Innovation School
Okayama Innovation Contest(Total no. of applicants in FY2018: 158)

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

Support science technology
venturesÞ Foster specialized businesses
Okayama Tech Grand Prix
(Total no. of applicants in FY2018:20)

The school offers management
courses by company managers andbusiness school lecturers throughlectures and dialogue.

Innovation Contest(Once a year)
A contest by participants selected
through screening.
Offers brush-up support ofbusiness models to participants ofthe contest.

[Track record of startup support financing]

Commercialization support

No. of loans

142

170

[Hands-on support, financial support (startup financing, investment in innovation funds)]
Support for ventures that play a key role inlocal industries

Creation of new business based on locallydeveloped technologies

Establishment of a new ecosystem that fosters a startup momentum in the community anddevelops local industries

216

Loan amount(100 million
yen)

39
FY2016FY201717

Improve the Quality of Services Provided —Strengthening Sales Activities Based on Life Planning— Contact with customers has increased due to the strengthening of “want to meet more, want to know more”
activities.
 Face-to-face sales channels on holidays will be enhanced by the establishment of the Life Plan Center.
[Life plan support activities][Establishment of Life Plan Center]
The Housing Loan Center is enhanced andrenamed the Life Plan Center (three Centers in
the prefecture).

Process

Established a new process assessment in FY2018
Cooperation between sales
Gathering customer information
channels
No. of contacts with customers

Housing loan

Holding seminars for customers

Achievements of 11 items were assessed(E.g., account openings by young people, housing loans,assets in custody)

Achievements

Life planning support
activity base<Life Plan Center> Consultation point for life planningÞ As the consultation point for loans, assetbuilding (e.g., iDeCo, installment-type NISA) andinsurance, the center supports the life planningof all types of customers.

Through “want to meet more, want to know more” activities,

Increases opportunities for
proposals[No. of contacts with customers]

Improves the quality of
proposals[No. of depositors](Thousand)(Thousand)+33,000 contacts(+24.5%)168
152+4,000 depositors(+2.6%)

activity base
<Housing Loan Center> Consultation point for housing loans
Þ Customers for housing loan contracts were themain visitors.

156

135

Examplesof activities

Main activity items

Catch phrase: “Want to meet more, want to know more”• Information provision and needs stimulation
through holiday seminars• Periodic review of household finance of housing
loan customers

The functions of the housing loan center will continue tobe re-examined according to the market situation.
Life Plan Center(three Centers)

Housing Loan
Center2H FY2017

1H FY2018

2H FY2017

1H FY2018(nine Centers)

Life Plan Center
Loan Center(promotion base for personalloans overall)

18

Expand Opportunities to Provide Services —FinTech— Enhance services of non-face-to-face channels by utilizing IT channels and AI.
[Establishment of an open AI platform]

October 29, 2018 Start of service

 Provides high value-added services in collaboration with fintech
companies
 Provides short-term, low-cost new services
T&I Innovation
Services of partner
CustomerCenter Co., Ltd.
companies
TSUBASA[Utilization of AI, digitalization]
 Promote personal loans using AI
Analyzes big data (transaction statements) using AI

Bank system

Determines the possibility of a deal and returns
the promotion list

Accounting system, etc.

Telemarkets from call centers

FinTechCommon platform Balance information
 Account activity
statement, etc.

API
Other services are also
being considered.

Preferentially approaches customers considered
to have high financing needs and supports life
planning

 Enables online completion of unsecuredloans (scheduled in Jan. 2019)[FinTech Business Contest]
2nd “TSUBASA Alliance Finovation Challenge” (Host: T&I Innovation Center Co., Ltd.)• Improving the convenience and safety of services for customers
through digitalization• Solving local issues and utilizing local resources with new technology
Þ To be held in March 2019; cooperation with participatingcompanies is being considered.

(Performance of the 1st Challenge)
No. of applications: 119 applications from110 companies
No. of companies for final presentation: 6

TSUBASA Alliance (co-host)Special sponsors

Improves the convenience of customers by not
requiring customers to visit a store or provide theirsignature/seal.

[Average balance of unsecured loans](100 million yen)

317

FY2016402

FY2017493

FY2018Plan

19

Expand Opportunities to Provide Services—Store/Channel Strategy—

 Formulate store/channel strategies according to changes in the environment and customer needs toincrease contact with customers and improve the efficiency of store operation and store counters.
[Review of store functions]
Environmental
changes

Decrease in no. of• Population decrease
visitors to stores• Spread of IT channels Þ Changes in customer needs(Money transfers, payments, loan applications carriedout online)

Re-establish channels in accordance with changes in the environment and customer
needs• Strengthen the positioning of stores as a face-to-face channel with customers(enhance consultation).
• Enhance non-face-to-face (e.g., IT) channels for customers whose needs aredeposit/foreign exchange and loans.
⇨ Achieve operation that combines “increased contact with customers” and“improved efficiency of store operation.”(Store/channel strategy)
Strengthen
sales

Improve CS
Improveefficiency
Concentrate• Review store functions according to market attributes[Review of stores]
Establish counter reception tablet, “TSUBASA Smile” (scheduled May 2019)
Joint development by three TSUBASA banks—The Chugoku Bank,
Chiba Bank and The Daishi Bank
Before establishment

Fill invoucher• Provide entry
instructions

Processing• Refer to processing
manual• Check entry contents• Pre-inquiry• Enter in transaction
screen• Ex post inquiry• Strategically allocate personnel (quality, quantity)• Strengthen the functions of holiday channels by Life Plan
Centers (review the functions of Housing Loan Centers)• Enhance IT channel strategies• Expand the group sales system (stores specializing in personalloans, lightweight stores)• Consider setting flexible business days and business hours• Relocate/integrate stores based on a store-within-a-store method• Integration based on a store-within-a-store method
A form of store integration where several branches carry out sales activities in one
building
Improve efficiency by relocating/integrating store functions without abolishing stores

Officerverification• Processing
verification• Transaction contents
verification• Registration
contents verification

Improved
convenience ofcustomers

After establishment
Dialogue-style customer service where thecustomer enters transaction contents in atablet device with assistance from a clerk

Reduces the time required forprocessing and enhances the time
for proposals (sales)

Improved valueof the services
provided throughimproved
efficiency

Realization of a “bank counter filled with smiles” of customer and clerks 20

Expand Opportunities to Provide Services —BPR—

Headquarters

 Generate sales personnel and time through thorough structural reforms, leading to enhancement of the top
line and reduction of OHR.
Reduce operations of the headquarters, and implement workstyle reforms
 Introduce an electronic workflow system
 Eliminate the use of paper by developing a wireless LAN environment anddistributing tablet devices
Increase in personnel during the current medium-term management plan period:
110 Þ Actual performance: Approx. 100

Loans
Operation of the Loan Administration Center The Loan Administration Center was established.
• Centralization of loan administration work started in October. The process ofcentralization will be expanded to all offices by end of March 2020.
Increase in personnel during the current medium-term management plan period: 40 (150 byend of March 2021) Þ Actual performance: Approx. 30

Image of the Loan Administration CenterWork process of business offices up to the execution of loans
Consolidate to the Loan Administration Center

Draft

Contract

Confirm
documents,
executeStoredocuments

Reduce personnel in charge of loan administration at businessoffices Þ Re-allocate to sales

Cost reduction effects

Business offices[Personnel cost and no. of employees]

Deposit & foreign exchange, store
Execution of store operation reforms

 Improve operations through introduction of store tablets and significant
simplification/centralization of administrative work
• Reduce employees’ administrative work at counters and have them concentrate on
financial services

No. of employees(As of end of term)

Execution of sales activity reforms
 Introduce tablets for negotiation• This enables access to information and sale of assets in custody during visits tocustomers, 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 increase by
30–40%.

3,073¥23.8 billion

Increase in personnel during the current medium-term management plan period: 30 Þ Actual
performance: Approx. 30

Sales

3,175

¥23.5 billion¥22.9 billion

Personnel cost
(Excl. bonuses)

FY2016FY2017FY2018 plan

The FY2018 plan expects personnel cost to be reduced by 0.6 billion yen year
on year, mainly due to personnel decrease (natural decrease) and reduction of
overtime work through the reduction and improved efficiency of work.

21

Initiatives in ESG
 Aim for the long-term and sustainable improvement of corporate value through ESG initiatives.

Environment

 Implement initiatives in environmental issues through conventional
corporate activities.
 Consider the rise in renewable energy and agribusiness-related
demand as a business opportunity and allocate personnel within theheadquarters.
 Solve environmental issues through financial solutions.
* Examples of solutions
Environment/energy-related loans, eco private placement bonds, sixth
industry support, Chugin Argi-Support Fund, hosting various seminars

Regional
development

SocialGovernance

Growth of regionalbanks Started local promotion activities in October 2015.
Local promotion activities : Positioned as a core business of the Bank andadopted in performance assessments
A win-win relationship
Regional
Progressof
Increase in loans
Startup support
revitalization
customers andand fees andthe local
commission
Business
Management
economyrevenuesuccession, etc.
improvement

 Percentage of outside directors: 35.3% (As of September 30, 2018)
 Established a nomination and compensation committee (December 22, 2017)• Chaired by an outside director, the committee carries out appropriatedeliberations.
 Respond to the corporate governance code
• Grasp capital costs ® Consider reviewing the possession ofstrategically held stocks

Environment/energy-related loans(100 million yen)
*Cumulative total since 2016

888

706

1,074

404

184
1H
FY20162H
FY20161H
FY20172H
FY20171H
FY2018

No. of business succession
consultations
453

480

500

FY2015FY2016Fy2017282

FY2014

Nomination andcompensation committee
Majority
Chairperson

Strengthened
governanceOutsidedirectors

22

Impact of the 2018 Japan Floods and Initiatives of the BankNo deaths or missing persons

Damage todwellings

DeathsMissing
Serious/mild injuries

Okayama Hiroshima
66
108
3
6
161
127

Okayama Hiroshima
Complete collapse 4,822
1,029
Half collapse
3,282
2,888
Partial damage
1,118
1,898

Inundation above
floor level
Inundation below
floor level

Okayama Hiroshima
2,731
2,926
6,116

5,009

* Published figures by Okayama and Hiroshima Prefectures as of Nov. 9, 2018

Store
damageDamage to the Bank

HumandamageDamage in
Okayama andHiroshima
Prefectures

HumandamageThe 2018 Japan Floods caused significant damage from floods and landslides in many regions, mainly in western Japan.
Local economies were also affected by heavy rainfall, with some companies and individual businesses forced to temporarily suspend business.
However, production activities recovered in general through swift restoration aid under cooperation between the government and the private sector.
Consumer spending and capital expenditure were also robust, bringing the economy on a mild recovery path.

Five stores (the Mabi Branch, Hirajima Branch, Oda Office, Konkou Branch, andYoshii Branch) were affected. Þ Four stores except for the Mabi Branch resumed
operation on the following business day.
The Mabi Branch operated at a temporary store but resumed operation at its original
store on October 1.

[Major initiatives of the Bank]
 Initiatives in restoration assistance financing (e.g., business loans, housing
loans, private placement bonds, etc.)

 Establishment of a syndicated loan system with the Japan FinanceCorporation
 Group subsidy application support
 Establishment of a new financing system, the Chugin Group Subsidy
Bridge Loan̶ Established a new bridge loan system to meet funding needs for theperiod between the decision of granting a Group subsidy and the
granting of the subsidy
 Providing donations
 Support for the sites affected by the disaster Established a 2018 Japan Floods recovery support center within theheadquarters
̶ Consolidated the functions of the headquarters and departments andprovided swift response to support early recovery and the restorationof customers

 Establishment of the 2018 Japan Flood Recovery Support Fund(establishment on Oct. 31, 2018)

Regional financial institutions
and guarantee associations

Okayama Revitalization Fund No. 2

Transaction introduction, etc.

(Establishment on Jun. 1, 2018)
Joint investment, cooperation“2018 Japan Flood Recovery Support Fund Investment Limited Partnership”
Total amount of funds at establishment: 2.08 billion yen (a final amount of 3 billion yen is expected)
Limited liability partner
Unlimited liability partner
Regional financial institutions in
11 prefectures(Investment by the Bank: 0.5 billion yen)
Credit holding/investment, etc.

REVIC Capital Co., Ltd.
Long Black Partners Co., Ltd.

Recovery, rehabilitation support,
management participation

Business operators affected by the disaster23

Shareholder Returns
Planning shareholder return of a 35% total payout ratio, which includes annual dividends (20 yen per share) andshare buybacks
FY2018 earnings
forecast
Non-consolidated net
incomeTotal payout ratio

Dividends(Around 35%)

¥15.4 billion

Dividends based on current profit forecasts¥3.78 billion (¥20 per share)
Nov. 12, 2018–Dec. 10, 2018

Share buybacks
announced atpresent¥5.4 billion¥0.5 billion (maximum),0.55 million shares (maximum)[Shareholder returns]
Non-consolidated net
income[1]

Per share(interim)

Total dividends

Payout ratio

Share buybacks

Total payout
ratio

[2]

[2] ÷ [1][3]([2] + [3]) ÷ [1]FY2018(Plan)

154¥20 (¥10)

37.8

24.5%

−

about 35％

FY2017194¥20 (¥10)

38.1

19.6%

30

35.1%

FY2016190¥20 (¥10)

38.5

20.3%

29

35.5%

FY2015259¥20 (¥10)

39.2

15.1%

52

35.2%

FY2014209¥18 (¥8)

35.6

17.0%

33

32.8%

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

24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.