Investor Relations Meeting Presentation Material. November 2018

Transcription

1 Investor Relations Meeting Presentation Material November

2 Table of Contents I. Summary of Financial Report for the Six Months Ended September 30, 1. Summary of Earnings for the Six Months Ended September 30, 2. Interest Income 3. Average Loan Rate for New Loans to Corporate Borrowers by Region 4. Deposits and Loans 5. Securities 6. Redemptions of Yen-denominated Bonds/ Interest Rate Risk 7. Net Fees and Commissions 8. Credit Costs and NPLs 9. Earnings Forecasts for FY 10. Income from Services for Customers II. Management Strategies 1. Long-term Targets 2. Basic Strategies 3. Enhancing the Competitiveness of Regional Industries Improving the Corporate Value of Our Clients 4. Implementing Relationship Banking (Case Study) 5. Enhancing the Competitiveness of Regional Industries Support by Industry and Business Category 6. Enhancing Measures for Medium-risk Borrowers (in Shimane and Tottori) 7. Strategies by Region (Sanyo, Hyogo, Osaka) 8. Upgrading Consulting Services for Individual Customers 9. Enhancing Individual Loan Business 10. Loans for Investment Property 11. Credit Card Business 12. Gogin s Structural Reform Project 13. Personnel Strategy to Keep Each Employee Highly Motivated 14. Orchestrating the Comprehensive Power of the Group 15. Capital Policy and Shareholder Return 16. ESG (Environment) 17. ESG (Society) 18. ESG (Governance)

3 I. Summary of the Financial Report for the Six Months Ended September 30,

4 1. Summary of Earnings for the Six Months Ended September 30, Summary of Earnings (Non-consolidated) Six months ended September 30, 2017 YoY change Six months ended September 30, Gross banking profit 28.3 (3.0) 25.2 Net interest income 26.7 (0.3) 26.3 Net fees and commissions 2.9 (0) 2.9 Net loss related to bond transactions (1.5) (2.5) (4.0) Gross core banking profit 29.8 (0.5) 29.3 Expenses Personnel expenses Non-personnel expenses 8.2 (0) 8.1 Transfer to the general loan loss reserve (1) Net banking profit 9.6 (3.9) 5.6 Adjusted net banking profit 9.6 (3.1) 6.4 Net core banking profit 11.1 (0.6) 10.5 Nonrecurring gains Bad debt disposals (2) Gains on reversals from loan loss reserve (3) 0 (0) - Gains on stocks Ordinary profit 10.2 (1.0) 9.1 Extraordinary profit (loss) (0) (0) (0) Net income (loss) 7.1 (0.9) 6.2 Credit costs (1)+(2)-(3) A B C D E 3 Summary of Earnings (Consolidated) Financial Highlights for Six Months Ended September 30, (Non-consolidated) Net interest income Decreased by 300 million yen year on year due to a fall in interest and dividends received on securities, although interest on loans increased for the first time in 10 years reflecting an increase in the balance of loans. Net fees and commissions Remained almost flat as in the same period last year, which is attributable to an increase in commissions relating to business support, despite a slight decrease in commissions relating to assets under management. Credit costs Increased by 1.3 billion yen year on year due to an addition of 1.8 billion yen in accordance with a partial revision of the criteria for provision in the future. Gains (losses) on securities Six months Six months ended ended September YoY change September 30, , Ordinary income Ordinary profit 10.5 (0.8) 9.6 Profit attributable to owners of parent 7.3 (0.6) 6.6 A B E C D The net loss related to bond transactions increased by 2.5 billion yen year on year due to a rise in loss on sales, as we systematically sold U.S. treasury securities with low yields. Gains on stocks expanded by 2.8 billion yen year on year due to sales of ETF, etc.

5 2. Interest Income (5.0) 2.0% 1.5% 1.0% Net interest income Net interest income (2.4) (2.4) (2.3) (2.8) (0.8) (1.5) (1.0) 1H/FY2015 1H/FY2016 1H/FY2017 1H/FY Yields on yen-denominated loans and securities 1.37% 1.25% 1.22% Yen-denominated loans Yen-denominated securities 1.25% 1.23% Other interest income Interest and dividends on securities Interest on loans Interest on deposits Bond lending transactions Other interest expenses Plan 1.16% 1.14% 1.12% 1.07% 1.06% 1.0% 0.8% Factors affecting net interest income (Million yen, %) Average loan rate for loans to new corporate customers (yen denominated) 0.86% Year-on-year change 0.81% Balance factors 0.70% Increased for the first time in a decade Yield factors <Reference> Spread Interest income (208) 702 (910) (3) Of which, interest on loans (829) (5) Of which, interest and dividends on securities (1,745) (466) (1,278) (0.14) Fund-raising expense Of which, interest on deposits Of which, interest paid on bond lending transactions (469) 159 (628) (0.21) Foreign currency deposits increased. 0.67% 0.67% 0.5% 0.6% Drop rate has been shrinking. Remains almost unchanged % FY2015 FY2016 FY2017 1H/FY FY 4 0.4% FY2014 FY2015 FY2016 FY2017 1H/FY * Weighted average of loans performed during the period

6 3. Average Loan Rate for New Loans to Corporate Borrowers by Region Shimane and Tottori Sanyo Region 1.6% 1.4% 1.2% 1.0% 1.37% 1.27% 1.10% 1.01% 1.04% 0.8% 0.6% 0.67% 0.62% 0.53% 0.52% 0.53% 0.8% 0.6% Drop rate has been shrinking. Remains almost unchanged 0.4% Remains almost unchanged 0.4% 0.2% 0.2% % FY2014 FY2015 FY2016 FY2017 1H/FY % FY2014 FY2015 FY2016 FY2017 1H/FY Hyogo and Osaka Tokyo 0.8% 0.66% 0.64% 0.8% 0.6% 0.4% 0.2% 0.56% 0.56% 0.55% Remains almost unchanged 0.6% 0.4% 0.2% 0.40% 0.38% 0.39% 0.41% Bottomed out Upward trend 0.45% % FY2014 FY2015 FY2016 FY2017 1H/FY % FY2014 FY2015 FY2016 FY2017 1H/FY * Weighted average of loans performed during the period 5

7 4. Deposits and Loans 4,00 3,00 Deposits and NCDs (average balance) Individuals Corporates Local public organizations and financial institutions Full-year plan 3, , , , , , , , , ,00 2,00 Total Loans (average balance) Individuals Corporates Local public organizations Full-year plan and financial institutions 3, , , , , ,00 1,00 2, , , , , ,00 1, , , , ,752.8 FY2015 FY2016 FY2017 1H/FY FY FY2015 FY2016 FY2017 1H/FY FY Our Share of Total Deposits in Shimane and Tottori Loan deposit ratio * Including NCD 65.5% 69.6% 73.5% 75.4% 75.9% Our Share of Total Loans in Shimane and Tottori 50% 40% 30% 20% 10% 0% 46.5% 46.5% 46.8% 47.6% 23.0% 22.6% 22.3% 21.6% 11.4% 11.3% 11.4% 11.7% /3 末 16/3 末 17/3 末 18/3 末 San-in Godo Bank 当行 Japan Post Bank ゆうちょ銀 Shinkin Banks and 信金 信組 credit associations Source: The Japan Financial News Nikkin, and the website of Japan Post Bank * Excluding Japan Agricultural Cooperatives and the National Association of Labour Banks 6 60% 50% 40% 30% 20% 10% 0% 54.0% 54.6% 55.7% 56.2% 20.6% 20.8% 20.7% 20.8% 16.0% 15.6% 15.2% 15.5% San-in Godo 当行 Bank Regional banks (excl. 地銀 San-in Godo ( Bank). 除く当行 ) Shinkin Banks 信金 信組 and credit associations 15/ 末 16/ 末 17/ 末 18/3 末 Source: The Japan Financial News Nikkin * Excluding Japan Agricultural Cooperatives and the National Association of Labour Banks

8 5. Securities Billion yen) 2,00 1,50 1,00 50 Government bonds Municipal bonds Corporate bonds Foreign securities Stocks Investment trusts September 30, FY2015 FY2016 FY2017 1H/FY Government bonds 1.26% 1.27% 1.22% 1.22% Municipal bonds 0.96% 0.85% 0.76% 0.63% Corporate bonds 0.77% 0.72% 0.62% 0.55% Foreign securities 2.36% 2.32% 2.28% 2.14% Stocks 3.82% 3.49% 4.60% 4.07% Investment trusts, etc. Total securities Balance of Securities (Acquisition cost-based) Yields on Securities Foreign bond funds Stock funds REIT Other 1.96% 2.00% 1.95% 1.49% 1.43% 1.47% 1.48% 1.37% Foreign currency denominated foreign securities U.S. treasury bond 60.6 European bonds Other % 2% 0% 7 Breakdown of Interest and Dividends on Securities USD Government bonds Municipal bonds Corporate bonds Foreign securities Stocks Investment trusts % 0.89% 2% 0% 23.9 Plan for the 2H FY2015 FY2016 FY2017 FY Foreign currency denominated foreign securities 3.0 U.S. treasury bond 1.3 European bonds 0.6 Other 0.6 Results for the 1H 11.7 Investment and Funding Environment for U.S. Treasury Bond and European Bonds Yield in bond investment Spread Yield on fund procurement in the market Average in the 1H of FY Plan EUR A spread exceeding the coupon yield was secured due to fund procurement at negative interest rates. Yield in bond investment Foreign bond funds Stock funds REIT Other Average in the 1H of FY 1.45% Fund procurement 16/3 期 17/3 期 18/3 期 18/9 期 FY2015 7/3 期 yield 18/3 期 rose. 1H/FY FY /3 期 Yield on 18/3 fund 期 1H/FY procurement in the market (2%) (2%)

9 6. Redemptions of Yen-denominated Bonds / Interest Rate Risk Composition of Redemptions of Yen-denominated Bonds (As of ) Government bonds Municipal bonds Others Yield 1.29% % % % % % FY FY2019 FY2020 FY2021 FY2022 FY2023 and thereafter (234.6 billion yen was redeemed during the 1H of FY.) Interest Rate Risk Duration BPV (domestic bonds including funds) 100 BPV (foreign bonds including funds) (Year) Duration (domestic bonds) Duration (foreign bonds) September 30, September 30,

10 7. Net fees and commissions Fees and Commissions Assets under management Business support Credit card Others H/FY2015 1H/FY2016 1H/FY2017 1H/FY * Credit card and other fees and commissions are net of expenses. (Million yen) 2,000 (Million yen) 4, ,500 1, ,000 2,000 1,000 0 Business Support Fees and Commissions , ,887 Coupon swaps 計画 合計 5 Bank 1, ,013 Gogin Securities 2, ,144 3,112 1,285 1,621 1,827 Plan 1,848 1,900 Plan for the 2H FY2015 FY2016 FY2017 FY 2, FY2015 FY2016 FY2017 FY 2 1H/FY Business 64 matching Syndicate loan 246 M&A 45 Private placement bond 218 commissions Consulting 18 Other 69 Results for the 1H 879 * Expected profits for the entire periods for private placement bond guarantee fees and coupon swaps are included. Group s Assets under Management Commissions Plan Plan for the 2H Brokerage commissions (including introduction commissions) Investment trust sales commission (including trust fees) Insurance product sales commissions (including renewal fees) Results for the 1H 1,389 Year-on-year change: H/FY Year-onyear change: 319

11 8. Credit Costs and NPLs 10 Credit Costs Ratio of reserve for debtors at risk of bankruptcy (Doubtful Loans) (1.5) 4.5 billion yen was added. 0.13% 3.4 (1.2) Criteria of reserve were revised. Credit cost ratio [Credit cost / Term-end balance of loans and bills discounted] (1)% (0.2) 2% 0.6 4% 1.3 (0.5) FY2015 FY2016 FY2017 1H/FY Revision to Criteria of Reserve 0.2% 0.1% % 1.8 billion yen was added. 90% 60% 30% 0% Criteria of reserve -0.1% were revised. Ratio of reserve Estimated loss rate Actual loan loss ratio 73.75% 79.14% 52.48% 51.95% 33.48% 24.68% 73.13% 74.67% 47.11% 44.45% 16.40% 18.57% September 30, Loans Based on the Financial Reconstruction Act Sufficient reserve 1 Estimated loss rate at substandard debtors and debtors at risk of bankruptcy Calculation period: from three periods to seven periods (Parts subject to the SME Finance Facilitation Act) 2 Expansion of application of DCF standards to borrowers at risk of bankruptcy Shortage of guarantee: from 100 million yen or more to 50 million yen or more Ratio of reserve for debtors at risk of bankruptcy (doubtful loans) 64.76% (before revision) 74.67% (after revision) Substandard loans Bankrupt or de facto bankrupt 2.49% Doubtful loans NPL balance ratio 2.02% 1.73% 1.73% September 30, 3% 2% 1% 0%

12 9. Earnings Forecasts for FY 11 (Consolidated) Ordinary income Ordinary profit Profit attributable to owners of parent FY2017 1H of FY YoY change FY Forecast Change from the initial forecast for FY Initial forecast for FY (0.7) (0.5) (0.4) Non-interest income ratio ROE (Shareholders equity basis) (Non-consolidated) 16.93% 15.62% (1.01)% 15.92% (1.43)% 17.35% 4.51% 4.27% (0.28)% 4.23% 4% 4.19% FY2017 1H of FY YoY change FY Forecast Change from the initial forecast for FY Initial forecast for FY Gross core banking profit () Net interest income Net fees and commissions Expenses Personnel expenses Non-personnel expenses (0.5) Net core banking profit (0.3) Losses on securities (1.6) () 1.1 (0.5) 0.2 (0.7) Credit costs Net income () OHR 61.75% 64.00% 0.49% 62.24% (1.07)% 63.31%

13 10. Income from Services for Customers 12 Drastic revisions to services for customers will be implemented to move into the black in the final fiscal year of the Medium-term Management Plan. Plan 1.0 (1.0) (0.1) 0.6 Results for the 1H (0.8) (0.9) 0.4 Income from services for customers = Average balance of loans (Yield on loans Yields on deposits, etc.) + Net fees and commissions - Operating expenses (including retirement benefit expenses in extraordinary profit and loss) (2.0) (1.9) (1.7) FY2013 FY2014 FY2015 FY2016 FY2017 FY FY2020 * Yields on deposits, etc.: Actual yields corrected from foreign currency deposits with forex contracts 1H of 0.14% (before correction) 5% (after correction) FY Present issues Measures to be taken Improvement of loan income Increase in loan balance Limit the decrease in yields on loans. Loans for corporate customers Loans for individual customers Enhance measures for medium-risk borrowers. Diversification of profit sources Increase net fees and commissions. Business support fees and commission-related income Assets in custody Credit card Reform of cost structure Drastic review of expenses Structural reform project Promotion of digitalization

14 II. Management Strategies

15 1. Long-term Targets 14 Realize sustainable growth for both the region and the Bank itself by resolving issues that our region and our customers face. Establish a sustainable business model to assist in making a sustainable region. Target Vision San-in Godo Bank Initiatives Boost added value for San-in Godo Bank Medium-term Management Plan Core business initiatives Regional economic revitalization Provide sophisticated financial services Fees, commissions and interest Create the future with the region and customers Regional environmental preservation Regional contribution activities Fundamental support Boost added value for the region and customers Region development and improvement Business opportunities Resilient management structure Governance Risk management Information disclosure Regional Issues and Risks Issues Today Regional revitalization Population decline and aging Startup support/ Business succession Fewer business establishments Productivity enhancement Labor shortages Forest regeneration Educational and cultural initiatives Regional resource depletion

16 2. Basic Strategies 15 Establish business models to develop together with customers by improving customer-oriented added value. Jointly creating customer-oriented added value Corporate customer Realize the growth of both our customers and San-in Godo Bank through our relationship banking activities aimed at deepening our long-term business partnerships. Provide unified services of business support and finance to improve the value added of our customers. Pursue inter-region synergies by expanding the range of our customer base. Individual customer Strive to become the main bank by enhancing convenience and expertise while considering diversifying financial needs as business opportunities. Enhance transactions through various channels by utilizing IT. Establish long-term trust relationships by providing advanced consulting services. Structural reform Reconstruct service infrastructure aiming to radically improve efficiency in the operational process and enhance productivity in line with the changes in IT and customer behavior. Human resources Cultivate specialized personnel capable of satisfying diversified and advanced customer needs. Improve organizational operations to maximize employees capabilities.

17 16 3. Enhancing the Competitiveness of Regional Industries Improvement of the Corporate Value of Our Clients Endeavor to realize both improvement of the added value of our clients and increased transactions with San-in Godo Bank by practicing relationship banking activities. Reinforce the trust relationships with our clients. FY2015 to FY2017 One-personone-company program 430 companies FY and thereafter Added value improvement activity Number of clients we declared to support business: 1,218 (as of Sep. 30, ) Enhance consulting service Business consulting Contingency fee-type consulting Support for business plans Support for business succession Business matching M&A 8,000 2,000 6, ,571 14,571 9,796 8,912 6,954 6,146 4,378 2,608 6,219 7,313 3,327 4,720 FY2015 FY2016 FY2017 1H/FY Approximately half of all corporate clients Total number of clients whose management challenges are known to us Total number of clients needs which are known to us Total number of business matching negotiations Financial consulting Financing based on business evaluations Syndicate loans Private placement bonds One-person-one-company program Added value improvement activity

18 4. Implementing Relationship Banking (Case Study) 17 Consulting by our employee stationed at the client s office Contingency fee-type consulting service The 2nd case Honda Shoten LLC (a manufacturer of Izumo soba noodles) Our initiatives were highly evaluated by the client, which requested our consulting service by a dispatched bank employee. Contingency fee-type consulting service Launched in August We offer support for improving sales and operating income, etc. and receive commissions for results that were predetermined according to the results. The amount of commission is determined according to the degree of difficulty of the case, and the profit of the relevant company, etc. Honda Shoten [Management challenges and needs] Expansion of sales channels by expanding the scope of business and enhancing the brand power. Improving the internal organizations San-in Godo Bank Continuously implementing business support activities such as making proposals and follow-ups for the solution of challenges. Since April A bank employee has been stationed at the client s office to provide paid consulting services. 1st case Establishment of a trust relationship A contingency fee-type consulting service agreement was concluded based on a trust relationship established by supporting business establishment. Food manufacturer 1st year of foundation Import and sale of olive oil from overseas Plans to manufacture and process olive oil in the future Improvement of internal organization Assisted eight negotiations as a support service for business establishment Our service was highly evaluated by the client, resulting in a loan made by us as the sole lender. 3rd case Since October Ryutsu Co., Ltd. (Transportation and postal service) Support for the development of the existing business domain and entry into new businesses Support for the establishment of solid organization systems by improving internal organizations and developing human resources, etc. Cultivating needs Structuring a contract Shortage of personnel for sales activities and know-how A wide range of business support including the development of new sales channels was required. A contingency fee was fixed by multiplying a certain ratio by the portion we contributed to net sales.

19 18 5. Enhancing Competitiveness of Regional Industries Support by Industry and Business Category The business establishment support program has developed steadily. We implemented revitalization measures for major regional industries and groups of companies. SAN-IN Innovation Program Background: In the San-in region, a low rate of establishment and a high rate of exit were notable. Revitalization to energize the local economy was necessary. Status of progress Innovative entrepreneurs across the nation Stimuli San-in Godo Bank and Nomura Research Institute, Ltd. Supports Business creation session Generating business projects to develop and deepen them into crazy ideas. 16 teams were organized as of October 18. Highly motivated human resources for start-ups and business establishments in the region Commercialization support session Establishing partnerships toward the realization of business projects Final presentations on December 18 Create the seeds of business that are Unique to San-in and Made in San-in. Regional support organizations including San-in Godo Bank, industry, government, academia and media agencies support commercialization. Accommodation and tourism Support for higher profitability and promoting the improvement of corporate value Ryokan and hotels Ryokan and hotels Labor shortage Needs for cost reduction San-in Godo Bank Support for improvement of operation introduction of IT Outside consultants Focusing on improvement of service Food manufacturing Small-scale business conventions were held. Each relevant branch office held a business convention that met its clients needs. Gogin s Business Convention for Food Ingredients Case in Hiroshima examples 42 sellers from Shimane, Tottori and Hyogo Support for expansion of sales channels 43 buyers from Hiroshima 11 deals were concluded

20 19 1. リレーションシップバンキング 6. Enhancing Measures for Medium-risk Borrowers (in Shimane and Tottori) Business activities will be reinforced by improving our risk-taking system and for higher yields. Select target borrowers. Fully understand the prospects and challenges of clients through dialogues (business evaluation). (1) Proposal for offering support for core operations to improve added value Supply of funds necessary for their realization (2) Proposal for restructuring of funding structure Designed to provide companies with an environment where they can focus on core operations, by eliminating concerns over shortage of cash flow Balance of loans to target borrowers Balance of loans to 2,082 target borrowers September 30, 2017 Risk-adjusted gross business income September 30, Target borrowers: 0.62% (Compared to average of Gogin*: +0.26%) (1H/FY) * Business evaluation-based loans for borrowers requiring attention and lower-risk borrowers Average interest rate Borrowers requiring attention and higher-risk borrowers 1.75 % (786) Normal debtors 1.17% (1,296) Growth and improvement of earnings of clients Increase in loans and yields Utilization of proprietary loans Setting flexible repayment conditions (including long-term lumpsum repayment) (September 30, ) Balance Average interest rate Risk-adjusted gross business income 13.8 billion yen 2.15% 1.09%

21 1. 7. リレーションシップバンキング Strategies by Region (Sanyo, Hyogo, Osaka) Average Balance of Loans for Corporate Borrowers by Region Hyogo and Osaka 2,00 20,000 1,50 15,000 1,00 10,000 5, , , , , /3 期 17/3 期 18/3 期 18/9 期 Sanyo Region June 30, 2017 両県内 Shimane Sanyo 山陽 兵庫大阪 Hyogo 東京 Tokyo and Region and Tottori Osaka FY2015 FY2016 FY2017 1H/FY Develop new clients and further cultivate transactions with existing clients. Initiatives for loans to local industries Shimane and Tottori Sanyo Region Hyogo and Osaka Balance of ship finance September 30, September 30, 20 (Clients) 3,000 2,000 1,000 0 Number of corporate clients in Hyogo and Osaka Gogin as the main bank 1,936 1,583 2,280 1, Expand our customer base. 2,508 2,553 1,938 1,972 FY2015 FY2016 FY2017 1H/FY Encourage our clients to do business with Gogin as their main bank through relationship banking activities. Play the role of a bridge to Shimane and Tottori through business matching, etc. Kobe West Branch was newly opened. The 10th branch in Hyogo We will strive to become the main bank of small- and medium-sized enterprises based in local communities, and to pursue relationship banking activities.

22 28. プライベートバンキング部門の立上げ Upgrading Consulting Services for Individual Customers Private Advisory Department Enhance customer-oriented consulting services, and shift to a stock-based profit model. (Million yen) Accumulation-type investment trusts 2,500 (actual accumulation balance) 2,000 1,500 1, Enhance Consulting Services Collect customer s attribute information using an inquiry sheet. A fund wrap was introduced. (April ). Make proposals on the most appropriate asset management course based on customer needs. Long-term management and diversified investments Stable asset formation Professional asset managers adjust the asset allocation according to the environment. Feel secure Enhance contacts with asset-forming customers Contacts to busy working age groups 1,369 1,556 Plan 2,321 Plan for the 2H 1,000 Make proposals to meet each customer s needs. 40% 30% 20% 10% 16.2 % Balance of fund wrap (as of September 30, ) 3.5 billion yen (Total of Gogin and Gogin Securities) Ratio of application for investment trusts online (on an amount basis) 19.0 % 28.5 % 31.9 % Balance of assets under management by the Group Established at the Head Office in November Brokerage of financial instruments Gogin Securities Approach to a high-income class Total consulting from the viewpoint of preservation of assets and asset succession Custom-made products and services Cooperation with personnel in charge of business succession of the Head Office Advice provided by outside professional partners September 30, Customer Optimal asset allocation Secure asset succession 0 FY2015 FY2016 FY2017 FY 0% FY 2015 FY 2016 FY H/ FY 21 Long-term trust relationship

23 9. Enhancing Individual Loan Business Balance of housing loans (by region) Shimane and Tottori Other regions September 30, Card loan (excl. education loans) Consumer loan Loans to individuals 2017 Card loan (education loans) September 30, Enhance loans for employees of partner companies. Enhance contacts with employees of partner companies Face-to-face basis Non-face-to-face basis (online) (Companies) 700 Numbers of both partner companies and employees have increased steadily. Number of partner companies Number of employees of partner companies 118, , ,740 (Persons) 140,000 Trust relationships with partner companies Explain the products and services by visiting the workplaces. Increase advertisements. Improve dedicated websites for employees of partner companies Increase the lineup for online application ,000 Secure individual customers after loan transactions. 0 FY2016 FY2017 1H/FY 0

24 10. Loans for Investment Property We select loan properties based on careful credit assessments. The percentage of loans for investment property to total loan amount remains low. 3,50 35,000 3,00 30,000 2,50 25,000 Balance of loans for investment property Loans for investment property Total loan amount 2,605.7 Loans for property to be purchased by an individual for investment purposes or for residence. 2, , ,036.3 Credit assessment and management system Credit is assessed based on business evaluation considering stress tolerance. Location and profitability Background assets Preservation Verify the earning plan of the property by applying stresses such as a decline of rent income or a rise in the interest rate. Check the income and financial assets, etc. of the borrower that can cover the risk of fluctuations in income from the property. Conservatively assess the collateral value. The upper limit of loans is not elevated irrespective of the collateral price. 2,00 20,000 Appropriate management by periodic monitoring 1,50 15,000 Enhance the management system and fiduciary duty (FY). 1,00 10,000 5, Amount of loans for investment property 0 Percentage of total loan amount 4.2% 4.3% 4.5% 4.6% September 30, 23 Establishment of a guideline for examination (by clarifying the key points for examination) Ensure to confirm the customer s understanding of the business risks. Implement internal audits concerning Gogin s internal systems.

25 11. Credit Card Business (Million yen) 1,200 1,000 Large card share in the region Expand the infrastructure for the use of credit cards and promote their use Income from credit cards 964 1,051 1,064 Plan 1,196 Plan for the 2H 485 FY2015 FY2016 FY2017 FY Shopping amount by credit card Plan 67.2 Plan for the 2H 31.4 FY2015 FY2016 FY2017 FY Corporate credit card Increase shopping amounts by promoting the use of corporate credit cards. Shopping amount Number of card members 9,869 9,886 9,990 10, Plan Affiliate stores (The Gogin Credit Co., Ltd.) Increase the number of affiliated stores by unifying Group-wide efforts. Net sales of affiliated stores Number of affiliated stores 10,426 10,637 10, ,412 Plan FY2015 FY2016 FY2017 FY FY2015 FY2016 FY2017 FY 24

26 12. Gogin s Structural Reform Project 25 Enhancing cost management In-house development in the Group companies Integration of San-in Economics & Management Institute Co., Ltd. Establishment of the Industry Research Group Partial in-house development of San-in Office Services Establishment of the General Administrative Group Integration of Gogin s agencies Establishment of local offices. Cost reduction activities Scrutiny and selection of proposed investments Drastic revision of operations Non-personnel expenses Plan 16.2 Plan for the 2H 8.1 Efforts for digitalization FY2015 FY2016 FY2017 FY Measures for digitalization Improve the efficiency of paperwork. Visualization of sales activities Visualization of customers Diversification of channels Establishment of the Digitalization Department Alliances with FinX DIGITAL Co., Ltd. and Japan Digital Design, Inc. Actual achievements The introduction of RPA enabled the reduction of 4,100 hours of paperwork (equivalent to the working hours of 2 employees). Promote BPR Proposal list of investment trusts by AI Application for loans online Apps for opening a bank account Future efforts The structural reform project will reduce paperwork by 100,000 hours (equivalent to the working hours of 50 employees). Improve proposals by using tablet terminals. Utilization of various proposal lists created by AI Increase the variety of applications online and through apps. Increase dedicated websites for employees of partner companies. Increase interaction with customers. Face-to-face channel Trust Non-face-to-face channels Convenient

27 13. Personnel Strategy to Keep Each Employee Highly Motivated San-in Godo Bank 26 Strategic personnel relocation Branch offices Headquarters Group companies Promote efficiency and cooperation. 54 employees were relocated based on strategic personnel management. Participation by women Diversified career paths Held for the firsttime Corporate sales training for limited-area employees Attended by a total of 140 interested and motivated limited-area employees Strategic fields Number of staff increased (in the 1H of FY) Loan and corporate sales (Hyogo and Osaka) 8 Business support 5 Industry research 13 Private advisory 2 Transfer of system, promotion of digitalization, etc. 26 Relocated 10 employees to the finance and corporate sales divisions (in Shimane and Tottori) Appointment as managers Local major IT companies Consulting firm Certified public accountants Securities companies IT companies, etc. Utilize expert personnel Receive dispatched workers. Mid-career employment Sending to trainings Getting know-how Buyout fund Trust bank IT company External trade supporting organization Maritime investment fund Accelerate appointment as managers The first female general manager was appointed. 30% 20% 10% 0% 17.7% 2016 Percentage of female managers 19.6% % 22.0% September 30, 25.0% 2021 Target

28 14. Orchestrating the Comprehensive Power of the Group Customer Bank 27 Provide comprehensive financial services with the aim of meeting diversified customer needs by reinforcing our cooperation among the Group companies. Provision of comprehensive financial services Provide highly professional and one-stop services to meet customer needs. Maximization of Group synergy Lease brokerage Brokerage of financial instruments Personnel exchange (to increase expertise) Group companies The San-in General Lease Co., Ltd. Gogin Securities Co., Ltd. Earnings of the major Group companies <Net income for the six-month period> The San-in General Lease Co., Ltd. 1H of FY2017 1H of FY (Million yen) YoY change Gogin Securities Co., Ltd. 220 (29) (249) The Gogin Capital Co., Ltd. (5) The Gogin Credit Co., Ltd * The figures of the above companies were adjusted for consolidated accounting purposes (before the offsetting). In-house development in the Group companies Introduction of funds The Gogin Capital Co., Ltd. Transfer the Group companies businesses into Gogin in order to improve the service content and efficiency of operations. Group company Subject business Purposes of reorganization Introduction of affiliated stores The Gogin Credit Co., Ltd. San-in Economics & Management Institute San-in Office Services Gogin s agencies Investigations and research Central paperwork Banking agent To provide highly value-added services Rationalization of operations and promotion of efficiency

29 15. Capital Policy and Shareholder Return 28 ROE (Consolidated and shareholders equity basis) Trend of shareholder return Profit attributable to owners of parent (shareholders equity basis) ROE = Average balance of shareholders equity (Average of balance at beginning and end of the term) x % 6.0% 4.0% 2.0% % Plan 4.64% 4.61% 4.51% 4.27% 4.23% FY2015 FY2016 FY2017 1H/FY FY Annual dividend per year FY2015 FY2016 FY2017 FY (Estimate) 15 yen 15 yen 26 yen 26 yen Payout ratio 18.00% 17.50% 30.48% About 30% Number of shares repurchased Number of shares of treasury stock retired Shareholder return ratio 1,300,000 2,250,000 - Flexibly implemented 1,300,000 2,250,000 - in response to situations 28.80% 30.60% 30.48% Slightly over 30% Levels of profit (consolidated basis) Stable dividend 1 Dividend table Performance-linked dividend Annual dividend Payout ratio Over yen 16 yen 30 yen 31.2% or less More than 14.0 to yen 14 yen 28 yen 29.2% to 31.2% More than 13.0 to yen 12 yen 26 yen 29.0% to 31.2% More than 12.0 to yen 10 yen 24 yen 28.8% to 31.2% More than 11.0 to yen 8 yen 22 yen 28.6% to 31.2% More than 1 to yen 6 yen 20 yen 28.4% to 31.2% More than 9.0 to 1 14 yen 4 yen 18 yen 28.1% to 31.2% More than 8.0 to yen 2 yen 16 yen 27.8% to 31.2% Less than yen 0 yen 14 yen 27.3% or more

30 16. ESG (Environment) Intermediary Support for emissions trading Aggressively promote proposals for carbon offsetting In 2009, Tottori Prefecture consulted with us about the outline of the Offset Credit (J-VER) scheme, the acquisition of J-VER certification, and sales promotion. We made a proposal for the scheme using our paid business matching service. We are positively involved in the creation of the Tottori Prefecture J- VER Local Coordinator Program (currently referred to as the J-credit Local Coordinator Program ). We have been certified as a J-credit Local Coordinator by Tottori Prefecture, Nichinan Town of Tottori Prefecture, and Yabu City of Hyogo Prefecture. Through this scheme, we endeavor to realize sustainable local communities by disseminating the importance of environmental conservation and methods to reduce environmental burdens through the J-credit system. Total quantity offset by our intermediary: 2,555 t-co 2 As of November 21, Initiatives by Gogin as the J-credit local coordinator Compensation (Offsetting) Since 2010 Forest conservation activity Since 2006 Activities to save and grow forests to pass them on to the next generation San-in Godo Bank s forest conservation activities: Three pillars Gogin Forests of Hope: Save the Forest! Sanin Network Conference: A group of volunteer regional banks for saving forests: (GOGIN GREEN PROJECT) Forest conservation activities are conducted by directors, employees and their family members in six forests located in Shimane and Tottori. Established with volunteer groups and non-profit organizations based in Shimane and Tottori as its members The 64 regional banks nationwide cooperate with each other in exchanging information and sharing know-how of forest conservation in their hometowns. Save the Forest! San-in Network Conference: The Friendship Store system has been launched. Assuming the role of secretariat, San-in Godo Bank takes the initiative in expanding forest conservation activities in Shimane and Tottori by holding events, etc. Number of members: 52 groups (as of August ) (29 groups in Tottori; 23 groups in Shimane) Clients Propose effective use of J-credit Conclusion of the J-credit Selling and Purchase Agreement San-in Godo Bank Advantages of purchasing J-credit Offsetting CO 2 emissions from corporate activities Differentiation of products and services Improvement of the company s image as one that positively addresses environmental and social issues Certify the J-credit local coordinator Municipal governments, etc. Introduce companies considering using J-credit Sustainable forestation Advantages of selling J-credit Using the revenue from J-credit for forest maintenance Establishment of a network with companies with high environmental awareness Publicity and dissemination of the creation of sustainable and healthy forests 29 The Friendship Store system was launched as a revitalization measure for the activities of the members amid various challenges including aging members, and lack of contact with local communities after more than 10 years of establishment. Purpose: A sales branch that is closest to the member will be the office in charge. Through mutual cooperation and friendship, the purposes of the Conference s activities and the importance of the forest conservation activities will be promoted to the residents of Shimane and Tottori, thereby raising consciousness of environmental conservation including that of forests, etc. San-in Godo Bank s specific initiatives: Cooperation with the member s public relation activities Cooperation with participation in events, etc. held by members

31 17. ESG (Society) 30 Supporting the independence and participation in society of people with disabilities Supporting the independence of people with disabilities by positively employing them. Gogin Challenged Matsue (Since September 2007) Gogin Challenged Tottori (Since September 2017) People with intellectual disabilities work in specific jobs. Supports the employment of people with disabilities in communities based on Yumeiku Work Support Services Mainly mentally challenged people and people with developmental disorders are hired. By engaging in clerical work at our bank, they can expand the future scope of their work. Number of employees: presently, 6. To be increased to approx. 20. Since 2007 Operation of a private school Shofukan Since 2012 Cultivating human resources capable of making decisions from a broad perspective with cogitative and visionary functions. Operated by the Gogin Shimane Cultural Promotion Foundation Aiming at cultivating highly motivated human resources capable of participating in future society. The third generation students entered the school in April. Private placement bonds contributing to the local community together with our clients Donation-type private placement bonds Donation to educational organizations-type Donations are given under the joint signature of the issuer and Gogin to a group designated by the issuer. Books and sports gear, etc. are presented to educational organizations. Since 2015 Total number of issues 251 Total amount of issuance 22.2 billion yen (as of October ) Regional revitalizationtype Sports promotion-type Activity funds are donated to non-profit organizations, etc. engaged in solving local issues in Shimane and Tottori. Since 2017 Activity funds are donated to local sports teams billion yen 2.1 billion yen Company benefit-type private placement bonds Support the improvement of company benefits of our clients. Increase the value added of the accommodation and tourism businesses as the main industry of Shimane and Tottori. The issuer of private placement bonds provides subsidies for the hotel expenses of tourists who use the subject ryokan and hotels in Shimane and Tottori. Since billion yen

32 18. ESG (Governance) 31 Enhancing our corporate governance system with the aim of responding to stakeholders expectations and realizing the sustainable improvement of our corporate value Governance system Separation of functions by introducing an executive officer system Board of Directors (Directors) Decision-making function concerning management and supervisory function of execution of operations Executive Officer Function of business execution System for revitalizing the Board of Directors Sufficient number of directors for holding full discussions Structure of four executive officers contending with four non-executive officers(*) * Chairman of the Board (Chairperson) + three Outside Directors Highly transparent compensation system for directors Compensation of fixed amount (an incentive for stable management) Performance-based compensation (an incentive for higher performance) Stock-linked compensation (an incentive for improving medium- to long-term shareholder value) Establishment of nominating and compensation committees For the purpose of improving the effectiveness of corporate governance, voluntary Nominating and Compensation Committees were established as consultative bodies to the Board of Directors. (June ) Purposes (1) Highly transparent and objective process of selecting directors and officers (2) Compensation system for directors and officers as an incentive to improve corporate value Discussing matters Selection of candidates for directors, corporate auditors and executive officers, selection of directors with special titles, and compensation of directors, etc. Composition of the Committee Chairperson Outside Director No. of Outside Directors No. of Inside Directors Total 3 2 5

33 For inquiries relating to this material, please contact: Planning Group Management Planning Development The San-in Godo Bank, Ltd. Phone: Fax : soki@gogin.co.jp Forward-looking statements are including in this material. These statements do not provide a guarantee of the San-in Godo s future performance, and actual results are subject to risks and uncertainties. Please note that future performance may differ from the views presented herein owing to changes in the operating environment and other factors.