Initiatives to enhance corporate value

Initiatives to enhance corporate value (1) - Present state analysis
Amid changes in the business environment for the financial industry, the current PBR remains low despite efforts to enhance ROE by transforming the revenue andcost structure. To improve PBR, it is necessary to further enhance ROE and lower the cost of shareholders' capital.

Trends in ROE and PBR

Linkage between PBR, ROE and PER

Amidst the business environment that continues to be a headwind for the financial industry, including
the collapse of Lehman Brothers and prolonged monetary easing, the company has worked on
various transformations, such as centralizing operations, optimizing the sales structure, anddeveloping new profit drivers, and ROE is on an improving trend, but PBR remains at a low level.

PBR Formula
PBR ＝ ROE × PER

Sep. 2008
Collapse of Lehman Brothers

Jan. 2016
Introduction of negative interest rates

PBR ＝ ROE ÷ cost of shareholders’ capital - expected growth rate

The global financial crisis triggered by the collapse of Lehman
Brothers led to a slump in stock prices, particularly for
financial stocks.

In addition to prolonged monetary easing, interest
rates are falling further. The headwind for thefinancial industry is increasing against a backdrop ofdeclining interest income.

ROE ≧ cost of shareholders’ capital - expected growth rate ⇒PBR of 1.0 or more

5.9%

5.7%
5.1%

ROE

4.7%

4.6%
3.8%

We aim to improve PBR by working to raise ROE through sustainable profit growth while
lowering the cost of shareholders’ capital.

3.1%
10th – 12th MBP

1.23

1.17

➢ Consolidate back-office operations
at sales branches into groupcompanies through thorough BPR.
➢ Move back-office personnel to thefront office to increase productivity
and expand revenue.

PBR (times)

0.67

13th – 14th MBP➢ Develop new business areas, like credit market
investment, and become a profit driver.
➢ Build a productive and profitable sales structure
while consolidating and optimizing branchfunctions and human resources.

FY2007FY2010ROE

Cost ofshareholders’capital

Expected
growth rate

Furtherenhancement of ROE

Lowering the cost ofshareholders’ capital

Sustainableprofit growth

0.78
0.58

FY2004

Towards a Higher PBR

FY2013

FY20160.38

0.46

FY2019FY20222Initiatives to enhance corporate value (2) - Efforts to improve ROE and lower the cost of shareholders' capital
Lower the cost of shareholders' capital by Improving the probability of SFG's growth strategy through enhanced information disclosure and appropriate market dialog.
Enhance ROE both by increasing profitability through expansion of the top line and appropriate control of expenses, and by maintaining appropriate control of the level ofcapital.

Lowering the cost of shareholders’ capital

Approach to enhancing ROE

Recognition of current cost of shareholders’ capital

Enhance ROE by increasing profitability and managing capital adequacy levels.

SFG recognizes cost of shareholders’ capital as 6-10% as follows

Cost of shareholders’ capital at the 1st MBP.
(Calculated independently by the company based on the CAPM)

Calculated values based on current PBR and ROE(Calculated by dividing BPS multiplied by ROE by share price)

Approx.

Setting ROE targets basedon the cost of shareholders’capital6%

Enhancementof profitability(Improve RORA)

Strengtheningof the Top LineNet income

Control ofexpenses

Risk assets(Consolidated OHR)

8-10%

* BPS JPY 1,873 × ROE 4.2% / Stock price JPY 837 = The cost of shareholders’ capital 9.4% (Average of last 5 years)

Initiatives to Lower the Cost of shareholders’ Capital
Fuller Disclosure of Information
Including Non-Financial Information

Proactive Communication withShareholders and Investors (IR Activities)✓ Reduce the uncertainty of businessperformance✓ Increase understanding of thesustainability of the region and theGroup✓ Increase understanding of our strategies,
including progress on the Medium-term
Business Plan✓ Share information of interest to the market in atimely manner and reflect it as appropriate in thepromotion of management strategy

We aim to lower the cost of capital through deeper dialogue with the market, and by increasing
the probability of success of our growth strategies while reducing information asymmetry.

Enhancementof ROE

Optimal Asset
Allocation

Net income

CapitalControl of thelevel of capital
Risk assets

Capital
Allocation

CapitalFurtherenhancementof shareholder
returns3

Initiatives to enhance corporate value (3)- Increase profit levels, Control the level of capital adequacyAchieve the profit targets of the 1st Mid-Term Business Plan by promoting the basic strategies of the plan. And, beyond that, we aim to reach the goal of JPY 100 bn inconsolidated ordinary profit.
Achieve ROE targets based on the cost of shareholders’ capital by accumulating risk-weighted assets with RORA in mind in order to improve capital profitability.

Direction for increasing profit levels

Increasing profit levels（Consolidated）
Ordinary profit (JPY bn)

52.4

FY2022（Actually）

Expand the top line in the following business fields by JPY 26.0 bn in the 1st Medium-term Business Plan*

56.0

80.064.0

Final profit toJPY 80 bn scale

FY2023(Planned)(1) Core businesses (loans and deposits, fees) +6.0 to 8.0 billion yen; ALM & market investment, SF, overseas
JPY +6.0 to 8.0 bn

100.0-

90.0

80.0

74.0

Strengthen profitability through our basic strategies （The 1st MBP Presentation P13～17）

Net income (JPY bn)

Revitalize the region (business base) through regional problem-solving and achieve sustainable profit
growth throughout the 1st Medium-term Business Plan and beyond
FY2027(Planned)

Medium-to long-term
goals

ROE（％）
8.0

4.6

5.0

1.0

1.0 - 1.1

6.0
1.0 – 1.1

1.0 – 1.1

Control
at FY2022 level

FY2022(actually)

FY2023(Planed)(3) New business fields JPY +3.0 to 4.0 bn*The level without taking account of the increase in Profits due to rising interest rates

Enhance ROE and control capital adequacy levels (Consolidated)
Capital adequacy (JPY tn)(2) Venture businesses, wealth businesses
JPY +6.0 to 8.0 bn

FY2027(Planed)Medium-to long-term
goals

Transform the structure of investment and expenses （The 1st MBP Presentation P20）
Reduce current expenses by at least JPY 15.0 bn by curbing existing system costs
and achieving more efficient back-office operations, etc. At the same time,
expand aggressive investment in key fields based on the level of profits

Approach to Capital Policy
Management of capital allocation for overall optimization of the Group （The 1st MBP Presentation P24）
Accumulate an additional JPY 1.8 tn in risk assets during the term of the 1st Medium-term Business
Plan with an awareness of RORA and enhance the profitability of capital through the overall optimizationof capital allocation based on RAF

Shareholder returns and strategic shareholdings (The 1st MBP Presentation P25-26）• In addition to progressively increasing the dividend payout ratio to 40% or more, aiming tosustainably enhance ROE, EPS and BPS with an awareness of total returns, including the flexible
implementation of purchases of treasury stock• Aim to reduce strategic shareholdings to JPY 87.0 bn on an acquisition cost basis to enhancecapital efficiency.
Utilize the gain on sales of these shareholdings for growth investment(systems, human resources, new businesses, etc.)4