<Contents> The Business Environment in Okinawa Outline of Business Results for FY2015 Business Strategies 1976, 2016 SANRIO CO., LTD. APPROVAL No.G 570237 1
Contents The Business Environment in Okinawa Competitive Advantage of Okinawa s Ideal Location Okinawa Asia Economic Strategy Initiative Key Strategies Leveraging the Advantages of Okinawa (1) Key Strategies Leveraging the Advantages of Okinawa (2) Population of Okinawa (Future Prospects) Number of Visitors to Okinawa Housing Market in Okinawa Recent Economic Trends 1 (Official land prices, BOJ Tankan) Recent Economic Trends 2 (Economic growth rate, Unemployment rate) Outline of Business Results for FY2015 Highlights for FY2015 Profits Deposits (Average Balance) Loans (Average Balance) Loans to Individuals (Term-End Balance) Fees and Commissions (Excluding Trust Fees) Loan / Deposit Interest Margin (Domestic) Loan / Deposit Spreads (Domestic) Securities (Term-End Balance) Securities Allocation Expenses Capital Ratio (Basel III Standard) Risk Management - Capital Allocation - Credit Cost Mandatory Disclosure of Bad Debt under the Financial Reconstruction Law Our Share of the Market Served by the Three Okinawan Regional Banks (FY2015) 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Business Strategies 17th Medium-Term Business Plan (From Customer Focused Operational Reforms to New Value Creation) 17th Medium-Term Business Plan (-Step towards New Value Creation-) 17th Medium-Term Business Plan (Clarifying the Top Priorities to Address) 17th Medium-Term Business Plan (Management Indicators for the First year of Medium-Term Business Plan) 17th Medium-Term Business Plan (Second year (FY2016) of Medium-Term Business Plan) Business Performance Forecasts for FY2016 Strategy for Consumer Loans Strategy for Assets in Custody Measures for Revitalization of Regional Communities (Business Start-up, Growth and Improvement) Branch Network Strategy Shareholder Returns Supplemental Materials Business Performance Term-End Balance, Average Balance, Yield, and Loan Balance by Industrial Segment Participant President : Yoshiaki Tamaki 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 2
The Business Environment in Okinawa 3
Competitive Advantage of Okinawa s Ideal Location With major Asian cities within range of 4 hours, located in the heart of East Asia Seoul 2h 10min Beijing DalianSeoul Tianjin Tsingtao Shanghai Busan Narita Haneda Kansai Nagoya Tsingtao Shanghai Taipei 2h 50min 2h 5min 1h 30min Bangkok Phnom Penh Ho Chi Minh Hangzhou Okinawa Taipei Amoy Hanoi Hong Kong Macau Locations within 4- Vientiane hour flight from Okinawa Manila Okinawa Hong Kong Bangkok Singapore Amoy (From October 2015) Narita 2h 35min 4h 25min 5h 2h 2h 25min Kuala Lumpur Singapore Haneda Nagoya 2h 20min 2h 15min Kansai 1h 50min 4
Implement five key strategies leveraging the advantages of Okinawa and four industrial growth strategies utilizing the characteristics of Okinawa. With the promoting function that supports these strategies, Okinawa aims to become a strategic hub connecting Asia and Japan by capturing Asian market needs that are becoming increasingly sophisticated and diversified. Promoting goods distribution Promoting people s communication Key strategies Industrial growth strategies Promoting function Connecting seamless traffic system in Asia (sea, air and land) a Transmit Information on Okinawa (sightseeing, investment, etc.) Establish Platform Okinawa, a business networking hub in Asia Establish Okinawa as a Business Concierge Capture needs from Asian market Forming an internationally competitive logistics hub that connects Asian countries Realizing worldclass tourist resort destination Forming an aviation industry cluster Forming Smart Hub, an Asia s leading international telecommunications hub Promoting new manufacturing industry that connects Okinawa and Asian countries Strengthen competitive edge through collaboration Agriculture, forestry fisheries and livestock industries b Advanced medical, healthcare and bio industries c Environmental and energy industries d Local and local infrastructure industries Promote Japanese economy s development in Asia Supply human resources Nurture global human resources capable of performing across Asia Liberalized corporate activities Deregulation and system reform to capture the dynamic growth in Asia Local industry: industry expected to grow leveraging the characteristics of Okinawa Local infrastructure industry: industries related to construction, mining, wholesale and retailing, financial, insurance and real estate, education, restaurant and services Source: Okinawa Asia Economic Strategy Initiative Plan 5
Five Key Strategies Leveraging the Advantages of Okinawa (1) 1. Forming a logistics hub that connects Asian countries (1) Expand aircraft parking aprons at Naha Airport and further enhance logistics function through the mitigation of aviation fuel tax and other measures (2) Establish logistics platform and accumulate the related industries to enable quick delivery of Japanese specialty goods to Asian countries Naha Umi-Sora Tunnel Naha port (International container terminal) 2. Realizing world-class tourist resort destination Naha Airport (1) Prepare large-scale MICE facilities (2) Prepare reception facilities for large cruise ships Basic functions of the facility Multi-purpose hall Approx. 7,500 m 2 Foyer Approx. 2,500 m 2 Exhibition hall 30,000 m 2 Multistory parking 4 floors and 5 stories for 2,000 vehicles Mid- and small-sized meeting rooms (2-storied) Approx. 7,500 m 2 Truck yard For company meetings For trainings / incentive travels Delivery entrance Exhibition hall Foyer For domestic / international meetings For exhibitions / trade fairs Multipurpose hall Delivery entrance Mid- and small-sized meeting rooms (2- storied) Layout image This map is a diagram to show the function and scale of each facility in accordance with the actual shape of the property. Basic functions and other necessary functions of facilities are placed effectively to design at the stage of development. Source: Naha Port Authority, Okinawa prefecture 6
Five Key Strategies Leveraging the Advantages of Okinawa (2) 3. Forming an aviation industry cluster IT industry ripple effect to related industries Manufacturing and processing industry (1) Secure industrial premises, conduct investigation and invitation necessary for forming an aviation industry cluster centered around aircraft maintenance business (2) Public and private sectors come together to establish a hub for nurturing aviation industry human resources such as aircraft maintenance technicians Energy industry Logistics industry Engine maintenance Aircraft maintenance Parts distribution center MRO provider Engineering/consulting Maintenance system attraction of enterprises Fostering human recourses Sightseeing industry Advanced technology R&D Expand JV with foreigncapitalized companies 4. Forming Smart Hub, an Asia s leading international telecommunications hub Cloud environment completed (1) Establish Okinawa IT Industry Strategies Center (tentative name) charged with formulating IT industry s mid- to long-term strategies under the industry-government-academia partnership (2) Foster human resources capable of contributing to business alliances across IT companies in the prefecture and their business development in Asia Okinawa cloud network (prefectural infrastructure) GIX line Hong Kong and Singapore Okinawa international communication network (overseas infrastructure) Tokyo 5. Promoting new manufacturing industry (1) Encourage manufacturing industry through promoting industrygovernment-academia alliance and business collaborations, and facilitating the development of advanced technology and strategic products (2) Encourage new manufacturing industry based on sophistication of supporting industry and development of EV-related industry Source: Okinawa Asia Economic Strategy Initiative Plan 7
Population of Okinawa (Future Prospects) The population of Okinawa is expected to take a downward turn in and after 2025. Population is on the increase at this stage, but active steps towards population growth are being taken now. (in thousands) (2100) 2,030 (2024) 1,440 (2035) 1,540 (2050) 1,610 Efforts to facilitate natural increase in population (Creation of a society that allows people to marry, give birth to and raise children without undue worries) Elimination of childcare waining list Promotion of health and longevity in Okinawa campaign Efforts to enhance growth of society (Creation of a dynamic society that is open to the world) (2100) 840 Job creation and securing diverse human resources Addressing to increase tourists and visitors Projected population Aims to resolve challenges faced by isolated islands and depopulated regions (Creation of a society that delivers well-balanced and sustainable population growth) Improvement of conditions for long-term residence Industrial development by demonstrating attractive regional characteristics 8
Number of Visitors to Okinawa FY2015 marked a record 7.93 million tourists visiting Okinawa The number of overseas tourists was 1.67 million (up 69% YoY), renewing a record high (in thousands) Trends in the 入域観光客数と観光収入の推移 number of visitors and tourism revenues ( billion) 10,000 28 年度計画 8,000,000 800 万人 Target for FY2016 6,000 600.0 5,000 500.0 8,000 6,000 Target for 33 年度計画 FY2021 1,000 10,000,000 万人 4,000 400.0 3,000 300.0 4,000 2,000 Number of visitors in H27 年度 FY2015 入域観光客数 7,930,000793 万人 ((up 前年度比 by 77,000 万人増 YoY) ) 2,000 200.0 1,000 100.0 0 0 2003 H15 04 H16 05 H17 H18 06 H19 07 08 H20 H21 09 10 H22 11 H23 H24 12 13 H25 14 H26 15 H27 H28 2016 2021 H33 (fiscal( 年度 year) ) Number of port call by cruise ships in 2015: 219 Source: Tourism ( 出所 ) Handbook, 沖縄県 観光要覧 Okinawa Prefecture Japanese visitors (left axis) Overseas visitors (left axis) Tourism revenues (right axis) 国内客 ( 左軸 ) 外国人客 ( 左軸 ) 観光収入 ( 右軸 ) Scheduled number of port call in 2016: 457 (up 108%) 9
Housing Market in Okinawa Housing market in Okinawa remains strong According to the national census 2015, growth rate of population and number of households are both the highest in Japan Number of new housing starts by housing type Consumption tax rate raised to 8% in April 2014 1440 1430 1420 Population and number of households in Okinawa 600 1410 550 1400 1390 人口世帯数 No. of Population households 1380 500 1370 1360 1350 2008 2009 2010 2011 2012 2013 2014 2015 450 Owneroccupied House for rent Company -owned Condominiums and detached housing 10
Recent Economic Trends 1 Official land prices BOJ Tankan ( 単位 (%) :%) Residential land prices Highest value on record 220,000/sqm BOJ Tankan Business Confidence DI Okinawa Fukuoka Kumamoto National average 2012 2013 2014 2015 2016 Highest value ( 単位 (%) :%) Commercial land prices on record 855,000/sqm Okinawa Fukuoka 2012 2013 2014 2015 2016 Kumamoto National average Source: Ministry of Land, Infrastructure, Transport and Tourism (10) Okinawa National average Mar. 2013 Sep. 2013 Mar. 2014 Sep. 2014 Mar. 2015 Sep. 2015 Mar. 2016 Source: BOJ Naha Branch Land prices in the prefecture have been increasing for three consecutive years. The growth rate is also higher than the national average. Business Confidence DI has been positive for 16 consecutive periods, renewing the record-high for three consecutive periods. 11
Recent Economic Trends 2 Economic growth rate (actual) Unemployment rate (%) 4.0 Comparison of economic growth rate - Okinawa vs. National average (%) 8.0 7.0 Trends 完全失業率の推移 in unemployment rates 3.0 6.0 2.0 5.0 1.0 4.0 3.0 0.0 (1.0) 1.0 The prefecture s economic growth rate under the 県振興計画は平成 33 年まで Okinawa Promotion Plan is expected to run at an 年平均 annual average +2.0% を展望値としている of +2.0% until 2021 2.0 1.0 (2.0) 2.0 2010 2011 2012 2013 2014 forecast H22 H23 H24 H25 H26 見込み 0.0 2012 H24 2013 H25 2014 H26 Mar. H27.3 2015 Mar. H28.3 2016 H33 2021 Okinawa Source: Okinawa Prefecture, Cabinet Office, Government of Japan National average Okinawa National average Source: Okinawa Prefecture, Ministry of Internal Affairs and Communications Difference Okinawa has maintained higher rates of economic growth than the national average In the past, Okinawa suffered nearly twice the unemployment rate of the national average, but the rates have steadily fallen, becoming closer to the national level. 12
Outline of Business Results for FY2015 13
Highlights for FY2015 Ordinary income increased due to an increase in interest and dividends on securities, despite a decrease in interest on loans and bills discounted (increased revenues). Ordinary profit increased mainly due to an increase in gains and losses on securities and a decrease in credit costs (increased earnings) Non-consolidated FY15 FY14 ( billion) YoY change Ordinary income 37.8 36.4 +1.3 Gross business profit 30.9 30.5 +0.3 Interest income 27.8 27.8 +0.0 Fees and commissions 2.6 2.3 +0.3 Fees and commissions (excluding trust fees) 2.2 2.0 +0.2 Trust account services 0.4 0.3 +0.0 Other business profit 0.3 0.3 (0.0) Gains (losses) on bond trading 0.3 0.2 +0.0 Expenses (excluding non-recurrent items) 20.6 19.7 +0.9 Business profit on core banking operations 9.9 10.6 (0.6) Provision of general allowance for possible loan losses 0.9 (0.3) +1.3 Net business profit 9.3 11.2 (1.9) Non-recurrent tems 1.4 (1.2) +2.6 Net gains (losses) on equity securities 0.6 0.1 +0.5 Bad debt disposal (non-recurrent items) (0.0) 1.9 (1.9) Ordinary profit 10.7 9.9 +0.7 Extraordinary gains (losses) 0.0 (0.1) +0.1 Net income 7.1 6.7 +0.3 Credit costs 0.9 1.6 (0.6) Non-performing loan ratio 1.66% 1.61% +0.05pt Capital ratio 10.88% 11.13% (0.25)pt Year-on-year changes Loans and bills discounted Decrease 0.9 1.4 0.5 Average balance 0.0 0.0 Interest on loans and bills discounted Interest on securities Interest paid on deposits Fees and commissions Others Expenses Trust account services Yield Net gains on securities are posted as + 0.5 billion YoY comparison of business profit on core banking operations Increase 0.6 0.0 0.3 Total 0.9 ( billion, %) Interest +65.4 (0.14) (0.5) Securities +15.8 +0.08 +0.6 Deposits +76.6 (0.00) (0.0) Others - - +0.0 Total - - +0.0 14
Profits Business profit on core banking operations decreased mainly due to increase in expenses ( billion) 30.0 300 25.0 250 26.9 269 273 27.3 278 27.8 278 27.8 Interest income 20.0 200 15.0 150 10.0 100 5.0 50 0 10.3 10.1 10.6 103 101 106 6.7 99 9.9 71 545.4 67 7.1 45 4.5 25/3 期 26/3 期 27/3 期 28/3 期 FY12 FY13 FY14 FY15 Business profit on core banking operations Net income 15
Deposits (Average Balance) Deposits by corporations rose by 45.0 billion (+8.5%) Deposits by individuals rose by 15.5 billion (+1.3%) Total deposits rose by 76.0 billion (+4.1%) to 1,889.2 billion ( billion) 1,800.0 18,000 1,600.0 16,000 1,400.0 14,000 1,200.0 12,000 1,000.0 10,000 800.0 8,000 600.0 6,000 400.0 4,000 200.0 2,000 0 18,892 17,065 17,456 1,745.6 18,131 1,813.1 1,706.5 1,287 1,405 70 73 7.3 140.5 7.0 1,582 1,346 159 158.2 134.6 128.7 15.9 4,411 4,795 5,271 5,721 572.1 479.5 527.1 441.1 Corporations 法 11,000 1,100.0 11,242 1,124.2 11,414 1,141.4 11,568 1,156.8 個 25/3 FY12 期 26/3 FY13 期 FY14 27/3 期 28/3 FY15期 1,889.2 Financial institutions Individuals 融 197 19.7 Public 公 funds Deposits by corporations Increased liquidity in deposits due to enhanced function to trace funds by Strong Relations Plan Deposits by individuals Increased liquidity due to continued efforts for opening of new salary payment and pension accounts * Including trust accounts 16
Loans (Average Balance) Business loans rose by 34.8 billion, loans to individuals rose by 26.2 billion Total loans and bills discounted rose by 64.7 billion (+4.9%) to 1,319.6 billion ( billion) 1,200.0 12,000 1,000.0 10,000 800.0 8,000 600.0 6,000 400.0 4,000 200.0 2,000 0 11,547 1,154.7 12,020 1,202.0 1,013 101.3 6,247 6,494 6,748 674.8 624.7 649.4 4,286 1,008 100.8 4,518 12,549 1,254.9 996 99.6 4,806 428.6 451.8 480.6 13,196 1,319.6 1,032 103.2 709.6 7,096 法人 Corporations 5,068 506.8 個人 Individuals 25/3 FY12 期 26/3 FY13 期 27/3 FY14期 28/3 FY15期 * Including trust accounts Local 地公体 government bodies and other public organizations Business loans Factors for increase in loans: real estate and medical Loans to individuals Factors for increase in loans: Mortgage loans 17
Loans to Individuals (Term-End Balance) Mortgage loans rose by 29.1 billion, other loans rose by 1.2 billion Loans to individuals rose by 30.3 billion (+5.4%) year on year to 587.1 billion ( billion) 6,000 600.0 5,000 500.0 4,968 496.8 5,298 635 63.5 529.8 652 65.2 556.8 5,568 657 65.7 5,871 587.1 66.9 669 Other loans 4,000 400.0 3,000 300.0 2,000 200.0 4,333 433.3 4,646 464.6 4,910 491.0 5,202 520.2 Mortgage loans 1,000 100.0 0 * Including trust accounts 25/3 期 26/3 期 27/3 期 28/3 期 FY12 FY13 FY14 FY15 18
Fees and Commissions (Excluding Trust Fees) ( billion) 2.5 25 2.0 20 1.8 18 2.0 2.0 20 20 2.2 22 0.2 billion increase YoY Increased fees due to increased assets in custody 1.5 15 1.0 10 0.55 0 FY12 FY13 FY14 FY15 25/3 期 26/3 期 27/3 期 28/3 期 19
Loan / Deposit Interest Margin (Domestic) Loan / Deposit Interest Margin (%) 3.50 3.00 2.50 2.32 2.17 Yield on loans 2.03 1.89 1.79 2.00 1.50 1.04 0.94 Loan / Deposit Interest Margin 0.85 0.68 0.56 1.00 Expense ratio 1.14 1.12 1.13 1.16 1.09 0.50 0.14 Yield on deposits 0.11 0.09 0.08 0.07 0.00 25/3 FY12 期 26/3 FY13 期 27/3 FY14 期 28/3 FY15 期 29/3 FY16 期計画 Plan 20
Loan / Deposit Spreads (Domestic) Loan / Deposit Spreads (%) 当行 Bank of Average of 地銀平均差異 Okinawa regional banks Difference 3.00 2.50 2.00 1.50 1.00 2.17 2.06 1.94 1.80 1.52 1.44 1.35 1.26 0.65 0.62 0.59 0.54 Average of regional banks is for Sep. 2015 1.72 0.50 0.00 25/3 FY12期 26/3 FY13期 27/3 FY14期 28/3 FY15期 29/3 FY16 計画 Plan 21
Securities (Term-End Balance) Term-end balance and average duration Yield on securities ( billion) 700.0 7,000 600.0 6,000 5,000 500.0 4,000 400.0 3,000 300.0 Duration 605.5 6,055 600.2 6,002 577.3 5,773 3.64 25.1 251 258 20.9 209 25.8 691 3.28 69.1 21.6 769 216 Others 76.9 27.5 275 2.87 95.3 953 Stocks 95.8 958 114.6 1,146 Bonds 123.5 1,235 120.2 1,202 Prefectural / municipal bonds 5,994 599.4 3.46 56.6 566 26.0 260 1,095 109.5 126.2 1,262 4.00 3.50 3.00 2.50 2.00 1.50 (%) 1.400 1.200 1.000 0.800 0.600 0.400 0.82% 2,000 200.0 1,000 100.0 0 3,625 362.5 3,111 311.1 292.7 2,927 JGBs 2,318 231.8 FY12 FY13 FY14 FY15 25/3 期 26/3 期 27/3 期 28/3 期 1.00 0.50 0.00 0.200 0.000 Bank of Okinawa Average of regional banks FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 Plan * The value of duration includes floating rate JGBs 22
Securities Allocation Pursuing higher yields through rebalancing from yen bond holdings (such as JGBs) 100% 80% 60% 有価証券構成比率 ( 期末簿価 ) Securities composition percentage (carrying value at term-end) 0.9% 2.9% 0.8% 3.1% 3.3% 6.2% 3.3% 3.0% 1.1% 2.9% 8.4% 10.5% 6.1% 4.9% 13.0% 2.9% 9.4% 16.8% 3.1% 17.5% 20.1% 16.2% 19.1% 18.6% 3.1% 21.5% 20.2% 16.7% Investments to be emphasized in the future Foreign securities Other securities Stocks Bonds Measures to improve yield against the negative interest rate policy Control reinvestment of domestic bonds Purchase foreign securities and investment trust (foreign bond fund, REIT, etc.) 21.1% Prefectural / municipal bonds 40% 18.9% 20% 66.8% 61.1% 54.4% 49.4% 39.4% 33.3% JGBs 0% Mar. H24/3 2012 末 Mar. H25/3 2013 末 Mar. H26/3 2014 末 Mar. H27/3 2015 末 Mar. H28/3 2016 末 Mar. H29/3 2017 末計画 Plan 23
Expenses Increase due to increase in expenses (+ 0.9 billion YoY) Core OHR was 67.4%, up 2.5 points 28.0 280 24.0 240 20.0 200 16.0 160 12.0 120 ( billion) (%) 8.0 80 40 4.0 0 65.1 19.2 9 コア Core OHR OHR 87 9.3 93 89 8.9 94 95 66.1 192 199 19.9 9 0.9 0.9 8.7 9.5 96 64.9 197 19.7 10 1.0 9.6 9.6 96 67.4 206 20.6 1.5 15 25/3 FY12 期 26/3 FY13 期 27/3 FY14 期 28/3 FY15 期 9.4 Non-personal expenses 9.6 96 Personnel expenses 70 60 50 40 30 20 10 0 Increase in consumption tax due to capital investment Increase in factor based tax (up 0.4 billion) Increase in business consignment expenses Increase in depreciation and amortization expenses (up 0.4 billion) Personnel expenses was flat 24
Capital Ratio (Basel III Standard) Capital ratio (domestic standard) at 10.88% (%) 14.00 12.00 10.00 11.88 11.66 11.66 11.13 10.88% Full application based capital ratio (Non-consolidated) 10.75% 8.00 6.00 4.00 2.00 0.00 25/3 FY12 期 26/3 FY13 期 27/3 FY14 期 28/3 FY15期 Calculated by 新基準で算出 new standard Core capital <Reference> End of March 2015 Outlier Ratio Total interest rate risk Outlier ratio 5,321 million 4.44% Capital ratio Tier I ratio Average capital ratio of regional banks in the term ended September 2015 (domestic standard): 10.65% Yen: 1 percentile, Foreign currencies: 99 percentile Core deposits are assumed to be 50% of the termend balance of liquid deposits. The average maturity is assumed to be 2.5 years. Source: Regional Banks Association of Japan 25
Risk Management - Capital Allocation - Controlling risks within the scope of core capital ( billion) 120.0 1200 100.0 1000 80.0 800 60.0 600 40.0 400 20.0 200 0 115.9 1,159 43.0 430 10.8 108 62.0 620 配賦可能資本 Allocated economic (Tier1 資本 capital ) Buffer Unallocated capital Allocated risk capital Basis for risk calculation Holding period Confidence interval Observation period 620 62.0 50 5.0 120 12.0 290 29.0 160 16.0 Credit risk 1 year Market risk Strategic share holdings:1 year Others:1 month 294 29.4 4.5 45 29 2.9 13.8 138 80 8.0 Breakdown 27 年度リスク資本内訳 of risk Risk 27 年度末リスク量 amount capital in FY15 (end of FY15) Loan / deposit interest risk 1 year 99% 99% 99% 1 year 1 year 1 year Operational risk Loan / deposit interest risk Market risk Credit risk Operational risk Basic indication approach (BIA) 26
Credit Cost Bad debt disposal decreased due to debtors upgrades in rank, etc. Total credit costs amounted to 0.9 billion (down 0.7 billion YoY) ( billion) 3.0 30 2.5 25 2.0 20 15 1.5 10 1.0 0.5 5 0 (0.5) -5 28 2.8 (2.2+0.6) (22+6) 0. 6 0.23 22. Credit cost ratio Bad debt disposal 0.12 19. (0.3) 3 16 1.6 (1.9-0.3) (19 3) 90.9 (-0.0+0.9) ( 0+9) 0.07 0. 9 Reversal of general allowance for possible loan losses Provision of general allowance for possible loan losses 0. 4 0.11 26/3 FY13期 27/3 FY14期 28/3 FY15 期 29/3 FY16 期計画 Plan 11. (%) 0.30 0.25 0.20 0.15 0.10 0.05 0.00 27
Mandatory Disclosure of Bad Debt under the Financial Reconstruction Law 23.3 billion (1.66%) Remained at low level, below the regional bank average of 2.3% ( billion) 30.0 300 20.0 200 100 10.0 0 NPL ratio (regional bank average, source: Bank of Okinawa) 10.9 109 1.64 64 2.95 9.9 99 1.72 82 3.0 30 3.6 36 3.04 20.5 21.7 217 205 6.4 8.2 214 21.4 5.8 58 1.61 103 10.3 52 5.2 2.3 Bankrupt and quasibankrupt assets Doubtful assets Assets requiring supervision 23.3 233 67 1.66 86 79 NPL ratio 計画 Plan 234 23.4 1% 1.00- 台 1.99% 25/3 期 26/3 期 27/3 期 28/3 期 29/3 期 FY12 FY13 FY14 6.7 8.6 7.9 FY15 FY16 (%) 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 28
Our Share of the Market Served by the Three Okinawan Regional Banks (FY2015) Increase both in shares of loans and shares of deposits Loans: 42.25% (up 0.01 points YoY) Deposits: 42.25% (up 0.15 points YoY) Loans (average balance) Deposits (average balance) (%) (%) 43.00 42.50 42.00 42.49 42.74 42.24 42.25 43.00 42.50 42.00 42.46 41.97 42.10 42.25 41.50 41.50 41.00 25/3 FY12 期 26/3 FY13 期 27/3 FY14 期 FY15 28/3 期 41.00 25/3 FY12 期 26/3 FY13 期 27/3 FY14 期 28/3 FY15 期 29
Business Strategies 30
From Customer Focused Operational Reforms to New Value Creation 1. Outline of Medium-Term Business Plan CHANGE FOR VALUE Three Years of New Value Creation (1) 17th Medium-Term Business Plan CHANGE FOR VALUE - Three Years of New Value Creation - April 2015 to March 2018 (3 years) - From Customer focused operational reforms (change) to Customer focused new value creation - We will continue to grow together with regional customers as the PEOPLE S BANK, most loved by people in Okinawa, by materializing operational reforms (change) for the new era with our customer focused attitude that we have built to create and offer customer focused new value based on the well-established attitude. Three basic strategies to undertake in Three Years of New Value Creation Customer focused operational reforms Customer focused new value creation Productivity improvement using strategic information - Operational reforms materializing customer s point of view (Delegation of power, downsizing, streamlining) - Initiative toward fundamental improvement of customer waiting time - Establishing sales structure which customers can feel the attraction - Establish and put into practice the PDCA cycle for high quality human resource development - Expand service value at customer contact point (sales base) - Materialize new services combined with our brand strategy - Materialize PDCA that is backed by information - Build strategies to utilize IT, whose value will be acknowledged by customers (Shift from using IT for streamlining to value creation) Materialization of a new sustainable business model whose value will be recognized by customers Contribute to revitalization of regional communities as the No.1 bank in the region 31
3. Customer Focused Operational Reforms -Step towards New Value Creation- Thorough operational reforms and challenge for services beyond customers expectation Steadily implement operational reforms without exceptions towards the 60th anniversary of the Bank s founding on July 10, 2016, the second year of the Plan, based on customer focused attitude Thoroughly reform operation to the highest level achievable by each employee (beyond branches expectation) during the first and second year of the Plan. Establish system to focus on new services beyond customers expectation for the third year of the Plan. Year Target Measures Expected outcome Year 1 (FY2015) Elimination of the causes of customers discontent (customer focused operational reforms) Realization of operational reforms through authority delegation, HQ reforms and branch operational reforms (operational reform project) Customer focused thorough operational reforms (review on operational process) Establish PDCA cycle (result verification based on specific numerical targets) Year 2 (FY2016) Meet customers expectation (establish new operational process) Set up and establish the PDCA cycle (inc. KPI measurement system) that supports the continuous operational reforms for higher customer satisfaction Establish system for continuous operation of the PDCA cycle built during Year 1 Materialize Okigin Brand Strategy Year 3 (FY2017) Surpass customers expectation (customer focused new value creation) Health Supporting Bank From Shinryo to Bankoku Shinryo Bank Further utilization of information and IT Offer new service (non-interest raterelated value) 32
Medium-Term Business Plan - CHANGE FOR VALUE - Priority 1. Customer satisfaction 2. Employee satisfaction 3. Profitability Basic concept The significance of our existence is customer satisfaction through implementation of management philosophy (deeply rooted in the community/contribution to the community), and we define this as the top priority in order to survive the era of great competition. We will realize the PEOPLE S BANK, loved by people in Okinawa, filled with motivation and dynamics of our employees, by putting into practice that customer satisfaction is the true reward for working Complete operational reforms to strengthen the top line revenue backed by customer satisfaction 4. Soundness Maintain the No.1 soundness within the prefecture and contribute to continued development of Okinawa 5. Scale / share in prefecture Steadily expand our customer base by being chosen by the customers, through increasing customer satisfaction level 33
Review on the first year of the Plan During the first year of the Medium-Term Business Plan, we worked to materialize the operational reforms through (1) delegation of authority, (2) branch operational reforms and (3) HQ reforms, aiming to eliminate the causes of customers discontent. Progress on management numerical targets was also favorable. Management numerical targets Profitability (1) ROE for consolidated net income (2) Business profit on core banking operations FY14(Result) FY15(Result) FY17(Target) 6.08% 10.6 billion 6.16% 9.9 billion 6.00% - 6.99% Around 11.0 billion Growth potential (3) 25% increase in the number of major corporate customers (4) 25% increase in the number of major individual customers 5,735 278,955 5,868 291,402 7,000 350,000 (5) Non-performing loan ratio 1.61% 1.66% Around 2% Soundness (6) Capital ratio 11.13% 10.88% Around 11% 34
The second year (FY2016) of the Medium-Term Business Plan 1. Business environment Establishment of new business models in light of the future population decline Quantitative and qualitative monetary easing with negative interest rates pushing down yields on investment of funds Fierce competitive environment with financial institutions in other regions expanding into Okinawa 2. Key initiatives Introduction of tablets 750 tablets to be introduced in FY16 Business operation utilizing tablets Sale of financial products(may 2016) Individual loan application (June 2016) Proposal for assets in custody (planned in July 2016) CIPS linkage (planned in January 2017) Sale of insurance (during FY2016) Filing and inheritance (during FY2016) Centralize administrative task Further centralize branch administrative task at HQ Centralize financing, deposit and common administrative task at the administrative division Strengthen non-over-the-counter channel Introduce app for opening smartphone accounts (planned in July 2016) Introduce ATMs at convenience stores (planned in July 2016) Set up Direct Banking Office (centralize non-over-thecounter channels) Expected outcomes Reduce customers burden Ease burden of branches and HQ Strengthen sales and proposal capacities Strengthen product development capabilities Reduce administrative processing time Relieve branches from administrative task Improve customers convenience Increase business opportunities Strengthen customer contact Offer non-interest rate-related value 35
Business Performance Forecasts for FY2016 ( billion) Non-consolidated FY15 FY16 YoY change Ordinary income 37.8 37.7 (0.1) Gross business profit 30.9 31.4 +0.5 Interest income 27.8 28.4 +0.6 Fees and commissions 2.6 2.9 +0.3 Fees and commissions (excluding trust fees) 2.2 2.6 +0.4 Trust account services 0.4 0.3 (0.1) Other business profit 0.3 (0.0) (0.3) Gains (losses) on bond trading 0.3 (0.0) (0.3) Expenses (excluding non-recurrent items) 20.6 21.9 +1.3 Business profit on core banking operations 9.9 9.2 (0.7) Provision of general allowance for possible loan losses 0.9 0.3 (0.6) Net business profit 9.3 9.1 (0.2) Non-recurrent items 1.4 (0.0) (1.4) Net gains (losses) on equity securities 0.6 0.7 +0.1 Bad debt disposal (non-recurrent items) (0.0) 1.1 +1.1 Ordinary profit 10.7 9.0 (1.7) Extraordinary gains (losses) 0.0 0.0 +0.0 Net income 7.1 5.9 (1.2) Credit costs 0.9 1.5 0.6 Year-on-year changes forecast Loans and bills discounted 1.3 Average balance Yield Interest +85.4 (0.11) +0.1 Securities +26.7 (0.03) +0.1 Deposits +54.0 (0.03) (0.4) Others - - +0.0 Total - - +0.6 Decrease 1.7 0.3 0.1 Interest on loans and bills discounted Interest on securities Interest paid on deposits Fees and commissions Others Increase 0.1 0.1 0.4 0.4 ( billion, %) YoY comparison of business profit on core banking operations Expenses Trust account services Total 1.0 36
Strategy for Consumer Loans Mortgage loans 30.0 billion, Other loans 6.0 billion Consumer loans 629.7 billion (+4.2% YoY) ( billion) 7,000 700.0 6,000 600.0 5,000 500.0 4,000 400.0 3,000 300.0 2,000 200.0 1,000 100.0 0 4,968 496.8 63.5 635 5,298 5,568 529.8 65.2 652 556.8 65.7 657 5,871 587.1 66.9 669 520.2 4,333 4,646 4,910 5,202 433.3 464.6 491.0 Plan 計画 6,231 623.1 72.9 729 Other loans 520.2 5,502 Mortgage 25/3 期 26/3 期 27/3 期 28/3 期 29/3 期 FY12 FY13 FY14 FY15 FY16 Market environment Solid housing demand (growth in population and number of households) Higher personal spending on the back of improving economic outlook Okigin s strategies Strengthen the sales of small scale and high-yield products Cross-sell to housing loan clients (Card Loan Select) Strengthen the sales of card loans (Plus-one Check-it) Strengthen the use of LFPS Open Itoman Branch (February 2016) *Record eight bases in the prefecture Strengthen collaboration with housing manufacturers Services available on tablet and smartphones Individual loan application available on tablets (June 2016) Individual loan application available on smartphones (planned in December 2016) 37
Strategy for Assets in Custody Boost sales focusing mainly on pension insurance and investment trusts ( billion) 300.0 250.0 200.0 150.0 100.0 50.0.0 139.4 1,394 150.7 1,507 Pension insurance 174.4 1,744 193.2 1,932 110.8 1,108 131.9 1,319 69.7 697 90.1 901 Investment trusts Plan 計画 243.2 2,432 157.9 1,579 45.2 452 40.3 403 46.7 467 50.9 509 74.9 749 JGBs 24.4 244 20.1 201 16.8 168 10.3 103 10.4 104 FY12 25/3 期 26/3 FY13 期 27/3 FY14 期 FY15 28/3 期 FY16 29/3 期 Sales plan Pension insurance: 26.0 billion Investment trust: 24.0 billion JGBs: 0.1 billion Okigin s strategies Enhancement of dedicated staff Place dedicated staff for assets in custody at 16 areas in the prefecture Acceptance of seconded staff to the Bank from securities and insurance companies / Mid-career recruitment Introduction of tablets Financial instrument sales available on tablets (May 2016) Introduction of proposal tools via tablets (planned in July 2016) Handling of life insurance for corporate customers Handling products for corporate managers (May 2016) Annual sales forecast: approximately 50 contracts * Pension insurance totals are cumulative sums sold. * Sales target added to the balance as of the end of the previous fiscal year for the fiscal year ending March 31, 2017 excludes contract and other cancellations. 38
Measures for Revitalization of Regional Communities (Business Start-up, Growth and Improvement) Initiatives for business start-ups Support application for Manufacturing Subsidies Support through Manufacturing Development Funds Support business start-up using business succession FY2015 Results Work item 1. Support business start-up and growth of SMEs (support formulating business/financing plan) No. of cases 32 Initiatives for business growth (assisting sales channel cultivation) Participated in The second Great Okinawa Trade Fair For the sake of successful Okigin Churashima Business Meeting, the Bank participated in the Great Okinawa Trade Fair, a large-scale international business exhibition, as a regular member. Held on November 26-27, 27, 2015 at Okinawa Convention Center About 2,200 individual meetings were held during the two-day fair The Bank s s 120 employees supported operation of the fair 2. Support medical business start-up 13 3. Dispatch experts 12 Initiatives for business improvement and rehabilitation Provide business improvement support utilizing CIPS (Consulting & Communication Improve management Proposal Sales), the Bank s proprietary consulting tool Support business improvement and rehabilitation by utilizing SME Business Rehabilitation Support Co-operative and other external organizations Utilization of SME Business Rehabilitation Support Co-operative Utilization of Business improvement schedule formulation support program by certified supporting institution FY03-FY12 FY13 FY14 FY15 Total No. of case handled by Co-operative 84 20 22 15 141 (of which, cases 50 12 10 9 81 involving the Bank) Ratio 59.5% 60.0% 45.5% 60.0% 57.4% Held seminars regarding the certified supporting institution and all-branch explanatory meeting by inviting lecturer from SME Section, Economy and Industry Department of Okinawa General Bureau. Of 214 applications of all Okinawa, 131 applications (61.2%) were handled by the Bank. 39
Branch Network Strategy Efficient branch allocation through area marketing Setting up branches focusing on customer convenience April 2015 July 2015 Haebaru Branch relocated, newly built and re-opened for business Newly built Nago Branch relocated, newly built and re-opened for business [Schedule for newly building/relocating] November 2017 Motobu Branch February 2016 Itoman Branch relocated and re-opened for business August 2018 Yaeyama Branch Haebaru Branch Nago Branch Itoman Branch 40
Shareholder Returns Commemorating the 60th anniversary of the Bank s founding, dividend for the fiscal year ended March 31, 2016 is 85 per share, an increase of 15. (dividend yield: 2.30%). Additionally, the Bank will implement a share split (1.2 shares for 1 share). FY11 FY12 FY13 FY14 FY15 Share price (yen) 3,690 3,955 4,355 5,040 3,695 Dividend (yen) 65 65 65 70 85 Dividend yield (%) 1.76% 1.64% 1.49% 1.38% 2.30% Share buy back (million yen) 498 700 602 1,055 467 Outline of the share split: To be split in the ratio of 1.2 shares for each share held by shareholders. Schedule: Record date: June 30, 2016 / Effective date: July 1, 2016 Shareholder benefits: (1) Dividend will virtually increase as no adjustment is made to the dividend. (2) Shares become more affordable due to share price adjustment following the share split.(minimum purchase price will go down by about 20%.) (3) Dividend yield will be improved. (increase by approx. 0.4% before tax.) * On the assumption of the share price of 3,600 Number of shares held Annual dividend expected Before share split 100 shares 7,000 After share split 120 shares 8,400 (dividend increase by 20%) Minimum purchase price Dividend yield Before share split 360,000 (as of May 9) 1.94% After share split Approx. 300,000 2.33% 41
Supplemental Materials 42
Business Performance ( billion) Non-consolidated FY12 FY13 FY14 FY15 YoY change Ordinary income 36.8 37.1 36.4 37.8 +1.3 Gross business profit 30.2 30.0 30.5 30.9 +0.3 Interest income 26.9 27.3 27.8 27.8 +0.0 Fees and commissions 2.4 2.5 2.3 2.6 +0.3 Fees and commissions (excluding trust fees) 1.8 2.0 2.0 2.2 +0.2 Trust account services 0.5 0.4 0.3 0.4 +0.0 Other business profit 0.8 0.1 0.3 0.3 (0.0) Gains (losses) on bond trading 0.7 (0.0) 0.2 0.3 +0.0 Expenses (excluding non-recurrent items) 19.2 19.9 19.7 20.6 +0.9 Business profit on core banking operations 10.3 10.1 10.6 9.9 (0.6) Provision of general allowance for possible loan losses (0.0) 0.6 (0.3) 0.9 +1.3 Net business profit 11.0 9.4 11.2 9.3 (0.9) Non-recurrent items (1.7) (0.9) (1.2) 1.4 +2.6 Net gains (losses) on equity securities (0.5) 1.0 0.1 0.6 +0.5 Bad debt disposal (non-recurrent items) 1.6 2.2 1.9 (0.0) (1.9) Ordinary profit 9.3 8.5 9.9 10.7 +0.7 Extraordinary gains (losses) (0.0) (0.0) (0.1) 0.0 +0.1 Bad debt disposal (amounts posted under extraordinary gains (losses) ) - - - - - Net income 5.4 4.5 6.7 7.1 +0.3 Credit costs 1.6 2.8 1.6 0.9 (0.6) Non-performing loan ratio 1.64% 1.72% 1.61% 1.66% 0.05%pt Capital ratio (calculated under Basel III Standard for FY13) 11.88% 11.66% 11.13% 10.88% (0.25)pt 43
Term-End Balance, Average Balance, Yield, and Loan Balance by Industrial Segment Term-end balance / Average balance / Yield Loan balance by industrial segment ( billion, %) ( billion) FY12 FY13 FY14 FY15 Term-end balance 1,236.2 1,251.4 1,313.8 1,392.3 FY12 FY13 FY14 FY15 Loans Average balance 1,154.7 1,202.0 1,254.9 1,319.6 Manufacturing 37.9 36.6 37.0 36.9 Agriculture and forestry 0.4 0.5 0.8 1.0 Yield 2.32 2.17 2.03 1.89 Fishery 0.5 0.5 0.5 0.5 Mining and quarrying of stone and gravel 1.5 1.9 1.7 3.7 Securities Term-end balance Average balance 600.2 577.3 605.5 599.4 581.8 583.6 567.7 583.5 Construction 47.3 44.7 42.0 43.2 Electricity, gas, heat and water supply 2.5 3.5 6.8 7.2 Telecommunications 7.9 7.2 8.9 9.9 Transport and postal activities 15.0 14.8 16.6 18.9 Yield 0.56 0.62 0.76 0.85 Wholesaling and retailing 115.7 114.8 107.1 104.9 Term-end balance 1,789.8 1,755.1 1,865.4 1,880.1 Finance and insurance 22.1 25.0 26.3 29.9 Real estate, and goods rental and leasing 261.9 294.8 326.3 363.5 Deposits Average balance 1,706.5 1,745.6 1,813.1 1,889.2 Miscellaneous services 137.2 129.5 142.9 155.0 Local government bodies 127.3 98.3 99.9 102.0 Yield 0.14 0.11 0.09 0.08 Others 458.4 478.6 496.4 515.2 Total 1,236.2 1,251.4 1,313.8 1,392.3 * Term-end and average balances are calculated on the basis of loan/deposit balances of the banking and trust accounts. * Yields on loans and deposits are those used for domestic operations only. * Including trust accounts 44
Statements contained in these materials regarding forecasts of future events are based on information known to the management at the time of writing, and do not constitute any form of guarantee of the business performance of the Bank of Okinawa. These materials have been prepared to serve as a report on the settlement of accounts of the Bank for the fiscal 2015 term, ended March 2016, as well as to provide an explanation of the Bank s future management vision; they are not intended as a solicitation of business. For further details, please contact: The Bank of Okinawa, Ltd. General Planning Division, Management Planning Administrative Group Tel: 81-98-869-1253 / Fax: 81-98-869-1464 45