ir presentation - the 77 bank · • expansion of counters dedicated to insurance (jun. 2014,...

Materials were prepared for the Bank’s presentation of its results for the fiscal year ended March 31, 2015 held on June 2, 2015.

IR Presentation Results for Fiscal Year Ended March 31, 2015

June 2, 2015

1. Financial Results for FY2015 2. Outline of the Medium-term Management Plan

ContentsContents

3. Projected Performance

Summary of profits and losses 1

Interest income 2

Loans and bills discounted 3

Deposits and certificates of deposits 4

Securities 5

Assets in custody 6

Credit-related expenses/capital adequacy ratio/ credits disclosed under the Financial Reconstruction Law 7

Summary of the previous Medium-term Management Plan “POWER for the Future” 8

Business environment and management issues 9

Outline of the Medium-term Management Plan “VALUE UP: Challenge Value Creation” 10

Basic objectives and long-term vision 11

Priorities 1: Strengthen earthquake recovery support 12

Priorities 2: Reinforce the earnings base 14

Priorities 3: Enhance the value of the region 17

Priorities 4: Smooth migration to and utilization of MEJAR 20

<For reference> Numerical targets 21

Projected performance for FY2016 23

Summary of profits and lossesSummary of profits and losses

1

<Core operating income>

Interest income was basically unchanged YoY owing to the increase in interest and dividends on securities, but core operating income declined, mainly due to the higher IT expenses following the migration to MEJAR.

Both ordinary and net incomes rose, mainly due to the decline in credit-related expenses and gains on money held in trust, mainly due to the rise in stock prices, etc.

<Ordinary income/Net income>

Summary of profits and losses(Non-consolidated) FY2014 FY2015

YoY changeIncrease/decrease

Rate of change %

Gross operating income 77.9 80.1 2.2 2.9[Core gross operating income] [ 80.3 ] [ 80.3 ] 0.0 ] [ 0.0 ]

Interest income 70.0 70.2 0.2 0.2Fees and commissions 10.2 10.3 0.1 1.1Other operating income (2.3) (0.4) 1.9

Gains (losses) on bonds (2.4) (0.2) 2.2Expenses 55.3 57.1 1.8 3.2Operating income before provision of general reserve for possible loan losses 22.6 23.0 0.4 1.9

[Core operating income] [ 25.0 ] [ 23.2 ] [ (1.8) ] [ (7.0) ]Provision of general reserve for possible loan losses — — —

Operating income 22.6 23.0 0.4 1.9Special income and losses 2.9 7.5 4.6

Bad debt disposals (-) 1.3 0.8 (0.5)Gains on reversal of reserve for possible loan loss 2.0 4.6 2.6

Gains (losses) on stocks 0.6 1.0 0.4Gains (losses) on investments in money held in trust 1.2 2.9 1.7

Ordinary income 25.5 30.5 5.0 19.6Extraordinary income 0.2 — (0.2)Extraordinary loss 0.1 0.2 0.1Income taxes (incl. deferred taxes) 10.9 13.4 2.5Net income 14.7 16.9 2.2 14.4

Credit-related expenses (0.7) (3.8) (3.1)

(JPY bn, %)

1. 1. Financial Results for FY2015Financial Results for FY2015

(4.1)

(0.1)

+0.2+1.5

(0.4)

+2.7

+0.4

<Change factors in interest income>

FY2014Interest income70.0

Factors in loans (1.4)

Other

FY2015Interest income70.2

(JPY bn)

Average balances

Yield

Factors in securities +1.9

Yield

<Reference> Trends of market interest rates

<FY2015 summary>

Interest incomeInterest income

2

Factors in deposits+0.1

Interest income was basically unchanged YoY, as the increase in interest and dividends on securities offset the decrease in interest on loans and bills discounted due to lower yields.

FY2014 FY2015YoY change

Interest income 70.0 70.2 0.2Investment income 73.5 73.9 0.4(Interest on loans and bills discounted) 46.8 45.4 (1.4)

(Interest and dividends on securities) 26.3 28.2 1.9

Fund procurement costs 3.5 3.7 0.2

(Interest on deposits) 3.0 2.9 (0.1)

FY2016(Plan) YoY change

69.5 (0.7)

(JPY bn)

(JPY bn)

(%)

* Figures in YoY change (increase/decrease) show percentage points.

Major accounts (average balances) FY2014 FY2015

YoY changeLoans and bills discounted 3,835.4 4,054.5 219.1Securities 3,554.4 3,616.9 62.5Deposits and certificates of deposits 7,431.2 7,544.6 113.4

Interest rates/ Interest margin FY2014 FY2015

YoY change

Loans and bills discounted interest rate 1.21 1.11 (0.10)

Securities interest rate 0.73 0.78 0.05Interest rate on deposits 0.04 0.03 (0.01)Interest rate spread 0.90 0.88 (0.02)Net interest margin 0.17 0.13 (0.04)

FY2014 FY2015 YoY changeJPY TIBOR (3 months) 0.22% 0.20% (0.02) %5-year JGBs 0.24% 0.13% (0.11) %10-year JGBs 0.69% 0.48% (0.21) %


Average balances Yield

Average balances

2,070.8 2,281.0 2,442.5 2,580.1

759.4 755.8 810.9 865.8675.6734.0

754.4 781.8

0.0

1,000.0

2,000.0

3,000.0

4,000.0

H23/3 H25/3 H26/3 H27/3

Corporate Retail Public, etc.

3,770.84,007.8

<Loans and bills discounted balances>(JPY bn)

<FY2015 summary>

3,505.8

4,227.7

Loans and bills discountedLoans and bills discounted

3

<Earthquake disaster-related loan performance>

Cumulative total of earthquake disaster-related loans

(after the earthquake to end-Mar. 2015)19,981 cases / JPY 498.2 billion

Mar. 2011 Mar. 2013 Mar. 2014 Mar. 2015(Immediately after the earthquake)

Average balance of loans and bills discounted increased 5.7% YoY, as housing loans and loans to SMEs and loans to large corporations each increased.

Loans and bills discounted

(average balances)FY2014 FY2015

YoY change

Loans and bills discounted 3,835.4 4,054.5 5.7Corporate loans 2,372.6 2,485.2 4.7[Excl. spread loans] 1,227.0 1,266.9 3.2[Spread loans] 1,145.6 1,218.3 6.3Retail loans 774.9 833.2 7.5[Housing loans] 734.5 794.3 8.1Loans for local governments 687.9 736.1 7.0

FY2016 (Plan) YoY change

4,117.5 1.5

(JPY bn, %)

Operating Capital expenditure Total

Cases 5,265 1,870 7,135

Amount 205.6 102.7 308.3

Unsecured Housing Total

Cases 3,790 9,056 12,846

Amount 6.6 183.3 189.9

(cases, JPY bn)

(cases, JPY bn)


Corporate

Retail

3,778.04,363.6 4,454.0 4,555.9

1,378.71,550.9 1,602.9 1,587.3479.7

1,835.6 1,819.6 1,711.7

0.0

2,000.0

4,000.0

6,000.0

8,000.0

H23/3 H25/3 H26/3 H27/3

Retail Corporate Public, etc.

<Deposits and certificates of deposits balances>(JPY bn)

<Background of an increase in deposits after the earthquake>

<FY2015 summary>

Deposits and certificates of depositsDeposits and certificates of deposits

Approx. JPY 560.0 billion

Insurance payouts, etc. (Miyagi Pref. portion)

• Earthquake insurance payouts ......(Source: The General Insurance Association of Japan HP)

• Relief funds ......................................(Source: Japanese Red Cross Society HP)

Recovery grants from the government (Miyagi Pref. portion) (as of end-Mar. 2015)

• Recovery grants ............................. (Source: Reconstruction Agency HP)

• Special local allocation tax grants for recovery from earthquake disaster ........... (Source: Ministry of Internal Affairs and Communications HP)

Approx. JPY 1,500.0 billion

Approx. JPY 1,070.0 billion


4

Mar. 2011 Mar. 2013 Mar. 2014 Mar. 2015(Immediately after the earthquake)

7,854.97,876.57,750.1

5,636.4

• Average balance of deposits rose 1.5% YoY, as retail deposits and corporate deposits increased.

• Term-end balance decreased 0.2% YoY, mainly due to the decline in public deposits, etc.

(as of May 31, 2012)

(as of Jul. 7, 2014)

Deposits and certificates of deposits

(average balances)FY2014 FY2015

YoY change

Deposits and certificates of deposits 7,431.2 7,544.6 1.5

Retail deposits 4,429.8 4,517.9 1.9Corporate deposits 1,561.8 1,594.9 2.1Public deposits 1,415.5 1,407.8 (0.5)

FY2016 (Plan) YoY change7,327.0 (2.8)

(JPY bn, %)


3.47 3.473.27 3.13

2.70

0.98 0.80 0.58 0.53 0.47

0.0

1.0

2.0

3.0

0.0

1.0

2.0

3.0

4.0

Mar. 2011 Mar. 2012 Mar. 2013 Mar. 2014 Mar. 2015

Modified duration

Yields (%)

* Yen-dominated bonds other than investment trusts

<Yields and modified duration of yen-denominated bonds>

Excluding impact of increase in securities after the earthquake

<Balance of securities (based on market value)>

<Additional investment accompanying the significant increase in deposits following the earthquake>

2.84

0.57

SecuritiesSecurities

5

<FY2015 summary>

• Continued investments mainly in short- and medium-term public bonds in light of the decrease in public deposits and the interest rate risk.

• Increase in valuation gains on stocks and investment trusts, mainly due to the rise in stock prices, etc.

End-Mar. 2014 End-Mar. 2015Investment balance Approx. JPY 940.0 billion Approx. JPY 810.0 billion

Yield 0.30% 0.31%Modified duration 2.48 2.35

End-Mar. 2011 End-Mar. 2012 End-Mar. 2013 End-Mar. 2014 End-Mar. 2015Gains (losses)

from revaluation end-Mar. 2015

Change from end-Mar. 2014YoY change YoY change, %

Securities 2,118.0 2,849.4 3,402.9 3,716.5 3,683.6 (32.9) (0.9) % 183.6 69.0 Bonds 2,024.1 2,764.3 3,304.6 3,603.7 3,541.1 (62.6) (1.7) % 103.3 39.3 (Yen-denominated bonds) 1,780.9 2,552.6 2,966.0 3,177.0 3,036.4 (140.6) (4.4) % 39.1 (0.2)

National gov. bonds 864.8 1,577.1 1,993.1 2,152.4 2,003.3 (149.1) (6.9) % 22.5 (0.2)Floating-rate national gov. bonds 365.5 319.6 315.5 318.1 317.4 (0.7) (0.2) % 5.0 (0.7)

Local gov. bonds 107.9 82.2 87.9 76.5 75.6 (0.9) (1.2) % 0.9 0.3Corporate bonds 760.7 865.7 865.7 933.9 950.7 16.8 1.8% 15.7 (0.2)Others 290.7 239.3 357.9 440.9 511.5 70.6 16.0% 64.2 39.4

Investment trusts, etc. 125.1 129.2 190.3 214.6 274.7 60.1 28.0% 63.8 36.5 Foreign bonds 165.6 110.1 167.6 226.3 236.8 10.5 4.6% 0.4 2.9

Stocks 93.9 85.1 98.3 112.8 142.5 29.7 26.3% 80.3 29.7

(JPY bn)


195 139 242 234

944 847 770 758

684 741986 1,141

0

1,000

2,000

H23年度 H24年度 H25年度 H26年度

421.7 409.9330.3

91.199.1 91.7 100.2

385.0

149.3 188.6 224.3255.9

0.0

200.0

400.0

600.0

800.0

H23年度 H24年度 H25年度 H26年度

6

Assets in custodyAssets in custody

(JPY bn)

662.1

<Balance of assets in custody>

Strengthened sales of investment trusts and insurance Sales structure

• Cooperation between HQ money advisors and branch representatives, visiting customers together

• Expansion of counters dedicated to insurance (Jun. 2014, Opening of the 77 Nagamachi Minami Insurance Plaza)

<Current status of assets in custody>

Responding to NISA

Number. of tax-exempt accounts opened: 16,943

• Introduction of wrap funds (Jan. 2015, cultivating inexperienced investors)

• Obtaining resident cards on behalf of customers (heightened customer convenience)

Funds sold: 463 /approx. JPY 700 million

<Sales commissions of assets in custody>

Mar. 2012 Mar. 2013 Mar. 2014 Mar. 2015

<FY2015 summary>

Investment trusts Insurance Public bonds

697.6 701.0 686.4

(JPY mn)

1,823 1,7291,999

2,135

FY2012 FY2013 FY2014 FY2015

Expansion of product line-up

Fees and commissions increased due to the steady sales of investment trusts and insurance that offset the decline in sales of public bonds owing to lower yields.

Sales of assets in custody FY2014 FY2015

YoY changeTotal 185.4 180.7 (2.5)

Investment trusts 32.6 44.1 35.2Insurance 46.3 47.6 2.8Public bonds 106.5 89.0 (16.4)

(JPY bn, %)


Investment trusts Insurance Public bonds

56.9

8.8 (1.4) (0.7) (3.8)

1.64

0.24

(0.03) (0.01) (0.08)

(0.5)

0.0

0.5

1.0

1.5

2.0

(20.0)

0.0

20.0

40.0

60.0

80.0

FY2011 FY2012 FY2013 FY2014 FY2015

Credit-related expenses

Credit-related expense rate

29.0 39.9 38.9 32.5 31.8

56.5

96.7 77.1

73.4 74.7

27.3

37.6

28.1 28.8 18.3

3.16

4.71 3.77 3.31 2.91

-22

-20

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

0.0

40.0

80.0

120.0

160.0

200.0

240.0

280.0

Mar. 2011 Mar. 2012 Mar. 2013 Mar. 2014 Mar. 2015

Credit-related expenses Credits disclosed under the Financial Reconstruction Law

* The balance of credits disclosed under the Financial Reconstruction Law as of Mar. 2011 shown above indicates the balance before we carried out self-assessments in consideration of the effect of the earthquake.

(%)

Credit-related expenses and credit-related expense rate trends

Capital adequacy ratio

Capital adequacy ratio

Credits disclosed under the Financial Reconstruction Law

CreditCredit--related expenses/capital adequacy ratio/related expenses/capital adequacy ratio/ credits disclosed under the Financial Reconstruction Lawcredits disclosed under the Financial Reconstruction Law

Loans to bankrupt and quasi-bankrupt

Doubtful loans

Substandard loans

Ratio of credits disclosed under the Financial Reconstruction Law

(JPY bn)

(%)

7

* We are looking to discuss the subordinated loans (public funds) with the authorities around the end of June 2015 to discuss a repayment schedule.

(JPY bn)

112.8

174.2

144.0134.7

124.8End-Mar. 2014 End-Mar. 2015

Capital adequacy ratio (non-consolidated/ domestic standards) (a/c) 12.33 12.19

Capital (a) 359.6 373.8[Core capital: instruments and reserves] 359.6 373.8

[Subordinated loans] * (b) 20.0 20.0[Core capital: regulatory adjustments] — 0.0

Risk assets (c) 2,916.1 3,065.9(Ref.) Capital adequacy ratio [excluding subordinated loans] (a –

b) / c 11.64 11.53

(JPY bn, %)


471 498

468 583

Mar. 2012 Mar. 2015

15,482

17,074

323

675

FY2012 FY2015

8

Summary of the previous MediumSummary of the previous Medium--term Management Planterm Management Plan ““POWER for the FuturePOWER for the Future””

Outcome and assessment of priority measuresOutcome and assessment of priority measures

Support earthquake recovery and revitalize the regional economy

Strengthen loan and consulting capabilities

Further improve productivity

Continue to develop the financial services platform

Ability to build relationships with customers Ability to ascertain needs for funds Ability to enhance productivity Ability to solve problems

Number of customer visits, net number of business loan customers

Increase in the number of loan officers and sales representatives

Promoting business matching

939

Time creation through BPR at branches

• Over an average of 5 hours per branch per day • Trade fairs (after the earthquake to end-Mar. 2015)

Number of business matching contracts total

Approx. 3,000 casesLoan performance related to the business matching


1,081(In thousand)

POWER (abilities) to be enhanced(Problems)• Decline in the share of loans in Miyagi Pref.

• Decline in yield on loans (FY2015: 1.11%) • Active attempts to identify problems and needs of customers

• More extensive use of the network inside and outside of the bank

ちから

Establishment of over1,000

+362+1,592

Earnings power (profitability) Proposal capabilities

Japan 20 meetings(668 customers attended)

Overseas 12 meetings(98 customers attended)

POWER (abilities) that has been acquired: (achievement)

Outcome and assessment of basic objectivesOutcome and assessment of basic objectives

Net number of business loan customers

Visits

7691,131

Mar. 2012 Mar. 2015

Loan officers Sales representatives

Basic targets FY2012 FY2013 FY2014 FY2015 vs. Basic targetsBalance of retail loans and bills discounted (at the end of FY2015) JPY 2,150 billion or more 2,093.3 2,138.3 2,261.3 2,410.3 Achieved

+260.3Balance of retail loans and bills discounted in Miyagi Pref. (at the end of FY2015)

JPY 2,000 billion or more 1,931.1 1,969.9 2,086.3 2,214.6 Achieved+214.6

Sales of investment trust, insurance, and public bond (total during Medium-term Management Plan)

JPY 450 billion or more ― 144.5 329.9 510.6 Achieved+60.6

Net income In mid-years: JPY 11 billion or moreFinal year: JPY 13 billion or more

10.6 12.1 14.7 16.9 Achieved every year

Core OHR (core gross operating income expense ratio) (FY2015) Less than 67% 67.18% 68.52% 68.87% 71.07%

Unachieved+4.07%

2. Outline of the Medium2. Outline of the Medium--term term Management PlanManagement Plan

(JPY bn)

Note: Balance of loans and bills discounted excluding local government and other public authority, Tokyo, Osaka, and Nagoya areas branches as well as head office accounts

(Customers)

Deployment of part-time staff(People)

(People)

Business environment and management issuesBusiness environment and management issues

9

Intensifying competition due to more banks entering the market in expectation of loan demand

Ongoing management integration and wide- area alliances for survival

1. Socioeconomic environment

Regional banks

2. Financial environment

Ultra-low rates to continue on the back of monetary easing

Rise of online and retailer-affiliated banks

Move away from deposits toward investments

Uncertainty in the international financial markets

1.92.4THE Aomori BANK Michinoku Bank

3.3

THE BANK OF IWATE

1.4

0.8The Tohoku Bank

Kita-Nippon Bank

2.6The Akita Bank

Hokuto Bank

7.9 77 BANK

THE SENDAI BANK

Distribution of regional banks in Tohoku and total deposits

Eight management issues that need to be resolved in light of the achievements and reflection of the previous Medium-term Management Plan and changes to the business environment

Accelerating earthquake Accelerating earthquake reconstruction reconstruction

Growth and development of theGrowth and development of theregion (regional revitalization)region (regional revitalization) Strengthening profitabilityStrengthening profitability Maintaining and improving Maintaining and improving

financial soundnessfinancial soundness

Differentiation from competitorsDifferentiation from competitors ActivatingActivatingintraintra--bank communicationsbank communications

Training of personnel andTraining of personnel andraising motivationraising motivation

Migration to and effectiveMigration to and effectiveuse of MEJARuse of MEJAR

• Disaster prevention mass relocation business, etc.

* Numbers stand for total deposits as of end- Mar. 2015 (JPY trillion)

1.1

• Trends in infrastructure improvements accompanying the reconstruction and regional developments, etc.

Infrastructure improvements in the reconstruction

Complete opening of JOBAN EXPRESSWAY (Mar. 2015)

Reopening of JR Senseki Line (May 2015)

Extension of SANRIKU EXPRESSWAY (as far as Hachinohe)

Trends in regional developments, etc.

Redevelopment of Sendai Station East Exit

Relocation of the campus of TOHOKU UNIVERSITY

(TOYOTA MOTOR EAST JAPAN, INC.)Automotive industry, IED industry, etc.


Globalization and hollowing-out of domestic industry

• Progressing earthquake reconstruction (A new approach to town planning)

• Industrial transformation through agglomeration of manufacturing industries (Ex. TOYOTA MOTOR EAST JAPAN, INC.)

Miyagi Pref.

1.2

1.3

1.3

2.1The Yamagata Bank

THE SHONAI BANK

Kirayaka Bank

5.60.80.7

THE DAITO BANKFUKUSHI

MA-BANK

Progress of the regional development project in the Sendai Economic Zone• Sendai Umino-mori Aquarium (to open in Jul. 2015)• Sendai Subway Tozai Line (to open in Dec. 2015)• Privatization of Sendai Airport etc.

Aging and decreasing population

Two developments

• 195 planned zones• Approx. 15,500 houses are

planned to be built as public housing for victims

• Approx. 10,500 housing lots planned to be developed as land lease/lots for sale

THE TOHO BANK

• Vitality

• Activity （Action）

• Low-cost（Improved productivity）

• Utility （Contribution）

• Effort

Bank Image Sought by The 77 Bank

“Value-creating bank that grows together with and is the most trusted by the region”““ValueValue--creating bank that grows together with and is the most trusted bcreating bank that grows together with and is the most trusted by the regiony the region””

Name

Medium-term Management Plan “VALUE UP: Challenge Value Creation”MediumMedium--term Management Plan term Management Plan ““VALUE UP: Challenge Value CreationVALUE UP: Challenge Value Creation””

PeriodThree years Three years （（from April 1, 2015 to March 31, 2018from April 1, 2015 to March 31, 2018））

Basic policies

We will take action with vitality, undeterred by changes, and further improve productivity. At the same time, in order to contribute to the region, we will make our best efforts and unceasingly take on challenges of value creation.

Code of Conduct of Officers and EmployeesCode of Conduct of Officers and Employees

10

1. Strengthen earthquake recovery support

2. Reinforce the earnings base

3. Enhance the value of the region

4. Smooth migration to and utilization of MEJAR

Outline of the MediumOutline of the Medium--term Management Planterm Management Plan ““VALUE UP: Challenge Value CreationVALUE UP: Challenge Value Creation””


Enhancement of profitability

• Net income (*) JPY 20.0 billion or more• Increase of interest on loans and discounted [compared with FY2015] JPY 1.5 billion or more• Fees and commissions JPY 10.5 billion or more

• Core OHR (core gross operating income expense ratio) Less than 65%

• Increase of loans and bills discounted in Miyagi Prefecture JPY 250.0 billion or more(balance as of March 31,2018) [compared with the balance as of March 31,2015] Increase of loans and bills discounted in Sendai JPY 150.0 billion or more(balance as of March 31,2018) [compared with the balance as of March 31,2015]

Targets for the final year of the Plan (FY2018)

*When net income of JPY20.0 billion or more is achieved, ROE (net income basis) is expected to be around 5%.

Basic objectives and longBasic objectives and long--term visionterm vision

11

Basic objectivesBasic objectives

The BankThe Bank’’s Configuration in 10 Years (Longs Configuration in 10 Years (Long--term vision)term vision)“Leading bank in the Tohoku region with scale and earnings power ranked within the top 10 regional banks based on the established earnings base capable of coping with any change in the business environment through creation of new value in the region”

1.Total of deposits, loans and assets in custody: around JPY 15 trillion —Achieve deposits of JPY 8 trillion and loans of JPY 5 trillion—

2. ROE (net income basis): around 7%

(as of March 31,2015: JPY 12.8 trillion)

(FY2015: 4.0%)

Pursuit of efficiency

Increase of the market shares

FY2005(10 years ago)

FY2012(3 years ago) FY2015

Net income 8.9 10.6 16.9

Interest on loans and bills discounted 54.9 52.7 45.4

Fees and commissions 10.4 9.5 10.3

Core OHR 66.20% 67.18% 71.07%

Loan balance in Miyagi Pref. 2,425.7 2,657.5 2,917.7

(ref.) ROE 2.71% 3.51% 4.00%

(ref.) Market capitalization 297.8 139.9 260.6

FY2018 Target

JPY 20.0 billion or more



Less than 65%

JPY 3,170.0 billion

(ref.) around 5%

—


Ear

ning

s po

wer

Pro

posa

l ca

pabi

litie

s

(JPY bn)

0.6 2.3 7.2

12.0 16.0

0.0

5.0

10.0

15.0

FY2014 FY2015 FY2016 FY2017 FY2018

PrioritiesPriorities 1:1: Strengthen earthquake recovery support (1)Strengthen earthquake recovery support (1)

Active provision of risk money

ABL performance (after the earthquake to end-Mar. 2015)

Strengthening support for business reconstruction and for operations improvement

12

Assessment by resident credit officer (presence of locally-based credit officer)

90 cases / JPY 15.0 billion

Redoubled efforts to provide more funds

Use of reconstruction support fund

Use of guidelines for Individual Debtor Out-of-Court Workouts

Support (to be) provided: 219 cases(after the earthquake to end-Mar. 2015)

Agreements :192 cases

We will continue to deal squarely with business reconstruction and operations improvement

External specialists in the Credit Supervision Division (Mar. 2015: six experts) (on an on-going basis)

Cooperation with the Regional Economy Vitalization Corporation of Japan (REVIC)

Housing loans dedicated for borrowers subject to mass relocation for disaster prevention

• Swift credit response in earthquake-affected areas (trial in Apr. 2015)

• Miyagi Reconstruction and Regional Revitalization Support Fund (established in Dec. 2014 with REVIC and DBJ) Executed the first loan in Mar. 2015

Follow-ups for businesses that used credit purchase corporations

• Provision of funds, business matching, introduction of public support schemes, etc.

• Specialized support in coordination with the Enterprise Assistance Dept (12 members)

• Honing of bank employee skills by visiting customers together with external specialists

• Dispatching specified experts (on contracts dated Aug. 2014)• Learning expertise through personnel exchanges (From Mar. 2015, one employee

dispatched to REVIC)

With reconstruction support according to the stage, we will support the reconstruction from the earthquake.

Recovery development assistance projects for SME group facilitiesRelated loans (after the earthquake to end-Mar. 2015)

• Bridging finance performance

• Portion of own funds performance



<Plans for housing loans dedicated for borrowers subject to mass relocation for disaster prevention>

(JPY bn)

(Plan) (Forecast) (Forecast)

(after the earthquake to end-Mar. 2015)

Earthquake disaster-related loan (after the earthquake to end-Mar. 2015)

19,981 cases / JPY 498.2 billion

Respond to housing loan needs in accordance with the reconstruction stage

• Aiming to accelerate mass relocation for disaster prevention

（*）

(*) No cases of disagreement so far

Business operations improvement support

2,709 customers

(FY2015)

• Number of business operations improvement support plans developed

294 customers• Of which, upgraded to higher borrower category

Use of credit purchase corporations


(The Great East Japan Earthquake SME Reconstruction Support Fund, Organization for Industry Promotion)

Support

Priorities 1:Priorities 1: Strengthen earthquake recovery support (2)Strengthen earthquake recovery support (2)

Contribution to the reconstruction and development of the region

13

Help in applications for start-up subsidies and promotion of related loan schemes

Industry-academia-government cooperation and use of other organizations

• Cooperation with other support organizations Support for start-ups and new operations

Accumulation and use of support expertise Organizational structure for support (Apr. 2015)

• Thirty-three branch managers dealing with local public entities assigned as regional revitalization officers

• Establishment of the “Regional Revitalization Desk” (Three members of the Regional Development Dept.)

• Sendai Startup Support Network (Jul. 2014)

• Japan Finance Corporation (Jul. 2014)

• General Incorporated Association MAKOTO (Aug. 2014)

• SHOKO CHUKIN BANK (Dec. 2014)

• Approach to PPP/ PFI

<77> Community-building College

• Providing local government workers with information on problems relating to the aging public infrastructure and the use of PFI for solutions.

• Creation of regional comprehensive strategy, active involvement for promotion

Support for the growth of local industry

Promoting regional revitalization

Focus on growth fields

Refining support expertise through cooperation with outside experts

Helping local manufacturers expand into new operations

Expansion of loan product line-up for growth fields

Active involvement as a regional bank

Comprehensive strategy for revitalizing the community, people, and work

• Realizing self-supportive and sustainable local communities• Using local resources, creating jobs, revitalizing the regional economy

Entrepreneurial seminar for women (Oct. 2014)

Renewable energies

Medical and nursing care Manufacturing

Agriculture, the sixthindustrialization

• Dedicated staff in the Regional Development Dept.

Use of the sixth industrialization fund

<Headquarters>Regional Revitalization Desk

<Branches>Regional Revitalization OfficersCollaboration

Local Public Entities Other entitieslike REVIC,

etc.

Local industry- academia-

governmentnetwork

Support Support

77 BANK


CooperationCooperation

2,766.3 2,917.7

1,918.0 2,031.2

0.0

1,000.0

2,000.0

3,000.0

734.5 794.3

600.0

700.0

800.0

900.0

28.7 28.5

0.0

10.0

20.0

30.0

40.0

Priorities 2:Priorities 2: Reinforce the earnings base (1)Reinforce the earnings base (1)

14

Concerted efforts to address low profitability

• Strengthening SME lending in the region

• Identifying high-yielding loan deals

• Closer cooperation between HQ public relations, Credit, and branch offices

• Promoting cross-border loans and structured financing, etc.

• Promoting unsecured loans• Enhancing sales and contract response capabilities• Ensuring that cross-sale opportunities are taken

• Promoting housing loans

<Plans for year-end loan balance in Miyagi Pref. and Sendai City>

(JPY bn)

(JPY bn) <Plans for average balance in housing loans>

<Plans for average balance in unsecured loans>(JPY bn)

• Information-based marketing tailored to customer needs

• Proposal-based marketing from the perspective of experts

• Targeting housing manufacturers through closer cooperation withloan centers (seven in the prefecture) and branch offices

Corporate loans

Retail loans

FY2014 FY2015 FY2017 FY2018FY2016(Plan) (Forecast) (Forecast)

Mar. 2014 Mar. 2015 Mar. 2018(Forecast)

Medium-term Target

Total loans in Miyagi: Increase of JPY +250 billion or more

(vs. end of FY2015)

• Redoubling efforts to deal with sub-performing loans

• Region-wide marketing targeting prime customers

• Ascertaining fund needs with an eye on community building developments, such as the promotion of mass relocation for disaster prevention and the opening of the Tozai subway line

• Capturing renovation deals

Miyagi Pref. Sendai City

Mar. 2016 Mar. 2017(Forecast)(Plan)

Rebalancing of loan assets—Aiming to increase interest income by shifting to high-profitability assets



Mar. 2011 Mar. 2012 Mar. 2013 Mar. 2014 Mar. 2015 Mar. 2016 Plan

National gov. bonds 40.6% 55.4% 59.5% 59.1% 56.6% 50.3%

Local gov. bonds 5.1% 2.8% 2.6% 2.1% 2.1% 3.7%

Corporate bonds 36.0% 30.3% 25.5% 25.5% 26.7% 28.0%

Stocks 3.4% 2.4% 1.9% 1.7% 1.8% 1.8%

Others 14.9% 9.1% 10.5% 11.6% 12.8% 16.2%

Investment trusts, etc. 6.9% 5.2% 5.4% 5.2% 6.0% 7.6%

Foreign bonds 8.0% 3.9% 5.1% 6.4% 6.8% 8.6%

3,312.03,601.9 3,500.0

59.5% 59.1%56.6%

50.3%

0

0.3

0.6

0.0

2,000.0

4,000.0

H24年度 H25年度 H26年度 H27年度 H28年度 H29年度

Securities (amortized) JGB ratio


Reinforcing income sources through diversificationof investment targets

Securing income through responsive trading

Shift from a JGB-centered portfolio

Continuing to invest and source yen and foreign currencies in a stable and efficient manner

<Composition ratio by type > (on an amortized cost base)

<Plans for balance of securities and JGB ratio>

(JPY bn)

FY2014 FY2015FY2013 FY2017 FY2018FY2016(Forecast)

15

(%)

30%

60%

Rebalancing securities portfolio —Rebalancing the portfolio response to changes in the investment environment and reinforcing income sources

Efficient use of securities holdings through repo and other transactions

Sophistication of risk management(Proactive management of the risk of rising interest rates)

(Plan) (Forecast)


Sales of assets in custody

Previous mid-term 3 years

New mid-term 3 years Change

Total 236.2 270.0 14.3Investment trusts 97.9 120.0 22.6Insurance 138.3 150.0 8.5

(JPY bn, %)

FY2014 FY2015 FY2016 (Plan) FY2017 (Forecast)

FY2018 (Forecast)

68.8 71.0 79.5 68.6 64.9

(%)

28.8 28.2

23.9 25.8

2.6 3.1

0.0

20.0

40.0

60.0

Personnel expenses Non-personnel expenses Tax

Boosting non-interest income

Expenses

Pursuit of further productivity

(JPY bn)

16

55.3


Ascertaining customer needs, responding to cuts in market interest rates

Reinforcing efforts to market assets-in-custody services

Target for investment trusts and insurance sales (during the mid-term plan): JPY 270 billion

• Opening of NISA accounts (17,000 (Mar. 2015) 35,000 (Mar. 2018 target))

Diversification of sources of income

Cultivation of new business fields

• Reinforced measures for business succession• Identifying latent needs for M&A

• Achievement of the previous medium-term target: investment trusts,insurance, public bonds sales JPY 450 billion

• Proposal-based marketing for the wealthy through cooperation between the HQ and branches

Creation of new business opportunities through measures for business succession and inheritance• Ascertaining fund needs and promoting assets in custody services

through proposal-based marketing Boosting the M&A business

• Cooperation with Nihon M&A Center (one employee dispatched)

• Costs related to the migration to MEJAR will peak in FY2016 when it goes live, and are then expected to decrease

Further pursuit of operating efficiency

Use of MEJAR

HQ operation BPR: Review day-to-day operations Loan operation BPR: Electronic credit application

Strengthening the sales organization, creating more time for dealing with customers

• BPR applied to more operations

• Ongoing efforts to reduce costs through the use of outside consultants (From May 2013)


57.162.8

55.0 54.0

Reinforcement of the securities business• All branches in Tohoku and Hokkaido now handle securities (public structured bonds) (Mar. 2015)

Decrease in hours during previous mid-term planOver 5 hours (Average of per day per branch)

Targets for Core OHR (FY2018): Less than 65%

JPY 510.6 billion sold

355 proposalsduring FY2015


Priorities 3:Priorities 3: Enhance the value of the region (1)Enhance the value of the region (1)

Demonstrating a marked presence in the region

17

Realizing sustainable growth through enhancing of the values of the region and 77 bank

Reinforcing the customer base and sales power

Increasing the number of effective meetings (improving the quality of meetings)

• Closer cooperation between HQ public relations and branches

Reinforcing and utilizing the information network

Identifying customer issues and needs and proposing solutions

Expansion of non-face-to-face channels

• Measures to attract younger customers• Effective use of MEJAR, a shared system

• Enhanced functionality of ATMs and online banking

支援

Branch and ATM network that reflects regional development and demographics

Sendai Station

Subway Nanboku Line

Subway Tozai LineTo open in Dec. 2015

Expansive use of the flow of commerce, goods, people and information, centered around the Sendai Economic Zone

Effectively utilizing the network with outside organizations, experts, and other banks

• Our second eco-friendly branch has solar panels and high-functionality window panes

Opening of newly rebuilt Izumi Branch (Feb. 2015)

Tourism

Fishery

Agriculture

• Located in East Sendai where a land readjustment project is ongoing

Opening of Roku-Chonome loan center (Apr. 2015)• The branch has a loan center and

dedicated insurance counter, enabling it to provide a one-stop service

Opening of Nagamachi Minami Branch (Jun. 2014)

Manufacturing

Regional banks present a manufacturing enterprise business matching fair

International Linear Collider


International projects

• Currency risk hedge

• Trade

• Support in overseas expansion

• Providing local information

• Financing

75200151

388

0

200

400

Number of clients w ith an overseas presence Number of overseas business locations

0.7

3.2

1.8

2.8

719

4049

0

30

60

0.0

1.0

2.0

3.0

4.0Number of loans executedNumber of loans


18

上海上海

香港香港

大連大連

【合計7名】

ｱｼﾞｱ地域への行員派遣数

【1名】

【4名】

【1名】

ﾏﾆﾗﾏﾆﾗ

ｲﾝﾄﾞｽﾃｲﾄ銀行(2013/2～)

ｱｼﾞｱﾋﾞｼﾞﾈｽ支援室ｱｼﾞｱﾋﾞｼﾞﾈｽ支援室（（2011/32011/3～）～）

上海駐在員事務所上海駐在員事務所（開所（開所1010周年）周年）

香港貿易発展局(2010/11～)

ﾒﾄﾛﾎﾟﾘﾀﾝ銀行(2013/6～)

ﾊﾞﾝｸﾈｶﾞﾗｲﾝﾄﾞﾈｼｱ(2012/11～)ｼﾞｬｶﾙﾀｼﾞｬｶﾙﾀ

ﾑﾝﾊﾞｲﾑﾝﾊﾞｲ

ﾍﾞﾄｺﾑﾊﾞﾝｸ(2014/1～)

ﾕﾅｲﾃｯﾄﾞ・ｵｰﾊﾞｰｼｰｽﾞ銀行（2014/6～）

ﾊﾉｲﾊﾉｲ

ｼﾝｶﾞﾎﾟｰﾙｼﾝｶﾞﾎﾟｰﾙ

【1名】

中國信託HD(2014/12～)

ﾊﾞﾝｺｸﾊﾞﾝｺｸ

台湾台湾

ﾊﾞﾝｺｯｸ銀行(2011/4～)ﾊﾞﾝｺｸ・ｺﾝｻﾙﾃｨﾝｸﾞ・ﾊﾟｰﾄﾅｰｽﾞ(2013/6～)

ﾊﾉｲ

Support tools in JapanLocal public entities, JETRO,

seminars, etc.

Support tools overseasPartner banks, trade fairs, etc.

• Cultivation of overseas markets

Customer needs

Reinforced support for overseas business

Providing specialized help through the “Asia Business Support Dept.”

Promoting new and comprehensive deals prompted by overseas business

*10 years since the opening of the Shanghai Representative Office (Jul. 2015)

Mar. 2015Mar. 2005

The number of clients with an overseas presence and

corresponding bases has increased 2.5-times in 10 years.

<The overseas expansion of our clients >

ASIA Business Exchange 2015 (Feb. 2015)

<Overseas business support tools>

Expanding the overseas network

<Loans related to overseas business support>

FY2014 FY2015FY2012 FY2013

(JPY bn)(case)

77 BANKAsia Business Support Dept.

Shanghai Representative Office

Bank employees dispatched overseas


Number of employees sent on detachment to Asia

[7 in total] Asia Business Support Dept.(from Mar. 2011)

Shanghai Representative Office (10 years since the opening)

Dalian [1 person]

Mumbai Hong Kong Trade Development Council(from Nov. 2010)

Hong Kong Taiwan

Shanghai [4 persons]

CTBC HD (from Dec. 2014)HanoiState Bank of India (from Feb. 2013)Vietcombank (from Jan. 2014)

Bangkok Bank (from Apr. 2011)Bangkok Consulting Partners Co., Ltd. (from Jun. 2013)

Bangkok [1 person] ManilaMetropolitan Bank(from Jun. 2013)

United Overseas Bank Limited (from Jun. 2014)

Singapore [1 person]

Bank Negara Indonesia (from Nov. 2012)Jakarta

(Customers)


Enhance the 77 Bank Brand

19

Boosting of the value of the 77 BANK Group

Individual commendation in the area of sales

Increasing the value of human resources

Developing personnel with specialized knowledge

Enhancing loan and consulting abilities

• Now that we have over 1,000 employees in loan and sales, we are continuing with the focus points of the previous medium-term plan.

• Overseas trainees (investment, supporting overseas business), studying overseas for short periods, dispatching to REVIC, etc.

Boosting organizational and employee motivation

Promoting diversity (promoting the activities of women employees, etc.)

* Promoting female employees

Provision of comprehensive financial services

Improving shareholder value

Increased IR events (during previous medium-term plan)

Responding properly to the corporate governance code

Continuing to provide stable dividend payouts

Streamlining document requirements

Improving customer convenience

Providing “heartwarming,” customer services

Increase in paperless, non-seal-based transactions

Decreasing waiting time

七十七

事務代行

七十七

カード

七十七

ビジネス

サービス

七十七

信用保証

七十七

リース

七十七

銀行

七十七

コンピューター

サービス

7 occasions for individuals (835 people attended), 25 occasions by region (1,526 people attended)

77 Card

77 BANK

77 Outsourcing

77 Credit

Guarantee

77 Leasing

77 Business Services

77Computer Services

Wheelchairs at the ready in all branches in Miyagi

Pref. (Dec. 2014)

<Ref.> Recent case of a share buy-back

• Period: Feb.–Apr. 2011 •Number of shares acquired: 5,563,000

• Total value of shares acquired: Approx. JPY 2.5 billion

* Apr. 2011: Suspended due to the effects of the earthquake

Promoting BPR through streamliningand the centralizationof operations

Realizing synergies through cross-introduction ofdeals

Providing solutions through the use of group functions

Reinforcing retail loans through closer cooperation with credit guarantee companies

Ratio of female employees

End-Mar. 2009

End-Mar. 2015

Increase from end-Mar. 2009

Managerial position 7% 10% Approx. 40

Loan officers/sales rep. 9% 24% Approx. 190

Mar. 2010 Mar. 2011 Mar. 2012 Mar. 2013 Mar. 2014 Mar. 2015(Estimate)

Mar. 2016(Forecast)

Annual dividends 7.0 6.0 7.0 7.0 7.5 8.5 9.0

Dividend ratio 22.7% － 24.6% 21.5% 19.0% 18.8% 23.2%


(JPY)

Priorities 4:Priorities 4: Smooth migration to and utilization of MEJARSmooth migration to and utilization of MEJAR

20

With the concerted efforts of the bank and the group, we are aiming to realize a smooth migration to MEJAR on Jan. 4, 2016

MEJARMost Efficient Joint Advanced Regional

banking-system

Cooperation between different channels (counter, ATM, online banking)

• Boosting ability to provide proposals tailored to customer attributes

• Presenting optimal products and promotional messages through direct channels

• Improvement of customer convenience and marketing targeted at younger customers through enhancing online banking functions

• Improved profit opportunities through enhancing the functions of ATMs

• Electronic handling of loan operations with a loan support system

• Further centralization of operations

Hokuhoku FG

77 BANK

The Hokkaido Bank

THEHOKURIKU

BANK

The Bank of Yokohama

Sharing of expertise

<Systems to be shared>• Core systems (including deposits, exchange, loans, etc.)• ATM, online banking• Divisional system, other

• Reducing system-related expenses through the joint development and operation of systems and the joint procurement of equipment, etc.

Expe

cted

effe

cts

of m

igra

tion

App

rox.

7 m

onth

s to

go

Creation of sales power through operational efficiency

Enhanced functionality in non-face-to-face channels

Rapid presentation of attractive new products and services

Reduction and leveling out of system expenses

Our handling of the migration to MEJAR• 46 dedicated employees were deployed and

are preparing for the migration (conducting tests, etc.)

• Training at all branches (testing at all branches starting in Jun. 2015)

• Working to explain to customers the changes in products and services, etc. due to the migration


<For reference> Numerical targets (1)<For reference> Numerical targets (1) (The targets are formulated and reviewed every year)(The targets are formulated and reviewed every year)

21

FY2015 results FY2016 plan

Loans and bills discounted 4,054.5 4,117.5

Corporate loans 2,485.2 2,541.0

Retail loans 833.2 863.5

Deposits and certificates of deposits (notes) 7,538.9 7,322.0

Retail deposits 4,507.5 4,577.0

FY2017 forecast FY2018 forecast Change vs. FY2015

Change4,250.5 4,397.0 342.5 8.4

2,626.0 2,710.0 224.8 9.0

891.5 927.0 93.8 11.2

7,220.0 7,159.0 (379.9) (5.0)

4,645.0 4,708.0 200.5 4.4

1. Average balances of major accounts

2. Term-end balances

(JPY bn, %)


Loans and bills discounted 4,227.7 4,193.0

Balance of loans in Miyagi Pref. 2,917.7 2,880.0

Deposits and certificates of deposits (notes) 7,851.0 7,321.0

Sales of investment trusts and insurance 91.7 74.0

Balance of investment trusts and insurance 356.1 384.5


Change4,375.0 4,551.0 323.3 7.6

3,030.0 3,170.0 252.3 8.6

7,259.0 7,195.0 (656.0) (8.3)

96.0 100.0 8.3 9.0

430.5 485.0 128.9 36.1

Note: We are expecting a decrease in the amount of deposits, mainly due to the outflow of public deposits in conjunction with the progress of the earthquake reconstruction.

(JPY bn, %)


22

<For reference> Numerical targets (2)<For reference> Numerical targets (2) (The targets are formulated and reviewed every year)(The targets are formulated and reviewed every year)

3. Incomes and losses (JPY bn, %)


Core gross operating income 80.3 79.0

Interest income 70.2 69.5

Interest on loans and bills discounted 45.4 44.1

Fees and commissions 10.3 9.9

Expenses 57.1 62.8

Core operating income 23.2 16.2

Net income 16.9 14.5

Core OHR 71.0 79.5

Capital adequacy ratio (domestic standard) 12.2 12.2


80.1 83.1 2.8

71.1 74.5 4.3

45.0 47.1 1.7

10.2 10.6 0.3

55.0 54.0 (3.1)

25.1 29.1 5.9

Target for the final year of the medium-term plan: JPY 20 billion or more

68.6 64.9 (6.1)

12.2 12.3 0.1

(Forecasts for main interest rates)

FY2015 (results) FY2016

Unsecured call rate O/N 0.07 0.07JPY TIBOR (3 months) 0.20 0.185-year JGBs 0.13 0.0810-year JGBs 0.48 0.45Exchange rate (JPY/USD) 110 123

Nikkei Average (At the term-end) 19,206 18,000

FY2017 FY2018

0.07 0.070.18 0.180.18 0.280.65 0.85127 131

18,500 19,000


(%, JPY)

Projected performance for FY2016Projected performance for FY2016

23

<Interest rates and other assumptions underlying the projection>

<Annual dividends>

Projected performance (non-consolidated)

FY2015(Results)


Gross operating income[Core gross operating income]

80.1[ 80.3]

78.0[ 79.0]

(2.1)[ (1.3)]

Interest income 70.2 69.5 (0.7)Fees and commissions 10.3 9.9 (0.4)Other operating income (0.4) (1.4) (1.0)

Gains (losses) on bonds (0.2) (1.0) (0.8)Expenses 57.1 62.8 5.7Operating income before provision of general reserve for possible loan losses

23.0 15.2 (7.8)

[Core operating income] [ 23.2] [ 16.2] [ (7.0)]Provision of general reserve for possible loan losses — — —

Operating income 23.0 15.2 (7.8)Special income (losses) 7.5 6.8 (0.7)

Bad debt disposals (-) 0.8 0.5 (0.3)Gains on reversal of reserve for possible loan losses 4.6 5.5 0.9

Gains (losses) on stocks 1.0 1.3 0.3Ordinary income 30.5 22.0 (8.5)Extraordinary losses (0.2) (0.2) 0.0Income taxes (incl. deferred taxes) 13.4 7.3 (6.1)Net income 16.9 14.5 (2.4)

(JPY bn)

Major accounts(average balances)

FY2015(Results)


Loans and bills discounted 4,054.5 4,117.5 1.5

Securities 3,616.9 3,434.6 (5.0)Deposits and certificates of deposits 7,544.6 7,327.0 (2.8)

Investment trusts and insurance (term-end balances)

356.1 384.5 7.9

(JPY bn, %)

(%)

Interest rates/ Interest margin

FY2015(Results)


Loans and bills discounted interest rate 1.11 1.07 (0.04)

Securities interest rate 0.78 0.85 0.07Interest rate on deposits 0.03 0.03 0.00Interest rate spread 0.88 0.90 0.02Net interest margin 0.13 0.05 (0.08)

FY2015(Results)

FY2016(Forecast)

Unsecured call rate O/N 0.07% 0.07%

JPY TIBOR (3 months) 0.20% 0.18%

5-year JGBs 0.13% 0.08%10-year JGBs 0.48% 0.45%Exchange rate (JPY/USD) ¥110 ¥123

Nikkei Average (At the term-end) ¥19,206 ¥18,000

FY2010 (Results)

FY2011 (Results)

FY2012 (Results)

FY2013 (Results)

FY2014 (Results)

FY2015 (Estimate)

FY2016 (Forecast)

7.0 6.0 7.0 7.0 7.5 8.5 9.0

Ref.

Note: Figures in YoY change shows percentage points.

(JPY)

3. Projected Performance3. Projected Performance

Credit-related expenses (3.8) (5.0) (1.2)

This is a Japanese-English translation of the presentation material for your convenience. In the case that there is any discrepancy between the Japanese and English versions, the Japanese version is assumed to be correct. Please note that the projections described in this document do not guarantee future performance. Future performance projections may differ from actual results due to uncertainty caused by factors such as changes in the business environment.

ir presentation - the 77 bank · • expansion of counters dedicated to insurance (jun. 2014,...

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