ir presentation - the 77 bank · ir presentation results for fiscal year ended march 31, 2012...

June June 55, , 20122012

IR PresentationIR Presentation Results for Fiscal Year Ended March Results for Fiscal Year Ended March 3131, , 20122012

Materials were prepared for the Bank’s presentation of its results for the fiscal year ended March 31, 2012 held on June 5, 2012.

1. Current state of Miyagi Prefecture

○Activities toward Reconstruction at 15 coastal towns and cities in Miyagi 1

2. Results for FY2012

○Summary of profits and losses 2 ○Major accounts / Interest rates / Interest margin 3 ○Credit-related expenses and credits disclosed under the Financial Reconstruction Law 4 ○Capital adequacy 5 ○Securities 6

3. Results of the Previous Medium-term Management Plan

○Results of the previous Medium-term Management Plan: “SSS Improvement Plan (Apr. 2009 – Mar. 2012)

8

4. Overview of the Medium-term Management Plan

○Business environment / Challenges for management 9 ○Overview of the Medium-term Management Plan:

“POWER for the Future” – 36 Months of Renewal and Growth – 10

○Positioning of the Medium-term Management Plan with an eye to the future 11

○Basic objectives 12 ○Priority measures 1 13 ○Priority measures 2 16

○Priority measures 3 19 ○Priority measures 4 20 <Reference> Numerical plan 21 5. Projected performance for FY2013 ○Profits and losses 23 ○Major accounts / Interest rates / Interest margin 24

ContentsContents

Activities toward reconstruction at Activities toward reconstruction at 1515 coastal towns and cities in Miyagicoastal towns and cities in Miyagi

Town or city name

Budgeted restoration and reconstruction

amount Principal objectives of the reconstruction plan

Reconstruction subsidy

allocation amount

(1) Sendai 154.4 Promote the development of agriculture into sixth-order industries along the east coastal region 78.1

(2) Ishinomaki 209.7 Promote the introduction of solar photovoltaic, algal biomass and other new energies 37.7

(3) Shiogama 9.4 Strengthen the fish market function and expand the types of fish handled beyond tuna 7.3

(4) Kesennuma 106.6 Establish a new fish processing complex through cooperation between the public and private sectors 9.4

(5) Natori 18.1 Develop the area surrounding Sendai Airport 7.5

(6) Tagajo 4.8 Evaluate and consider the establishment of a national earthquake and tsunami disaster museum 4.4

(7) Iwanuma 18.9 Establish a “hill of hope to last for a millennium ” to provide protection against future tsunami damage 17.5

(8) Higashi-matsushima 33.0 Attract large-scale solar (mega-solar) photovoltaic power

generation plants and facilities 20.3

(9) Watari 51.6 Revitalize local strawberry production, which has historically led the Tohoku region and promote local production expansion 29.8

(10) Yamamoto 34.9 Relocate two railway stations to inland areas and promote urban development in surrounding areas 14.4

(11) Matsushima 0.7 Cooperate with local government authorities along the Sanriku coast and help develop the Sanriku Reconstruction National Park 1.1

(12) Shichigaha-ma 7.7 Identify operating areas and promote the development of the

fishery and agriculture sectors into sixth-order industries 7.0

(13) Rifu 0.6 Establish a facility to provide protection against future tsunami damage while taking into consideration the scenic beauty of the Matsushima area

0.6

(14) Onagawa 16.6 Relocate such facilities as public offices and police stations that serve as the town’s nerve center to places with a higher elevation 10.2

(15) Minamisanri-ku 28.9

Repair and upgrade industrial and tourist facilities along coastal areas and relocate residential areas to places with a higher elevation

6.5

Total 695.9 251.8

1

11.. Current state of Miyagi PrefectureCurrent state of Miyagi Prefecture

((11))

((1515))

((44))

((1414)) ((22))

((55))

((1010))

((88))

((99))

((66)) ((1313)) ((33))

((1212))

((77))

((1111))

15 coastal towns and cities: Finalized reconstruction plan ⇒ Full-fledged implementation of the plan going forward

(JPY bn)

<Overview of the Miyagi Prefecture Reconstruction Plan>

<Overview of the reconstruction plan of 15 coastal towns and cities>

(Notes) 1. Budgeted restoration and reconstruction amounts for FY2013 2. The first and second stage portions of finalized subsidies (including joint-business portions with Miyagi Prefecture) included in reconstruction subsidies granted by the national government based on reconstruction subsidy business plans formulated by affected local government authorities

<Restoration period> FY2012 to FY2014

Period for restoring public facilities and providing basic infrastructure focusing mainly on earthquake victim support

<Rehabilitation period> FY2015 to FY2018

Period for upgrading and expanding support not only to those who were directly affected by the disaster, but also those individuals and businesses whose daily lives and activities have been adversely affected; period for restoring and improving infrastructure as a part of efforts to ensure the prefecture’s complete rehabilitation

<Development period> FY2019 to FY2021

Period for promoting strategic initiatives designed to boost the prefecture’s strengths and resources

FY2011 FY2012

YoY change

Increase/ decrease

Rate of change %

Gross operating income 83.0 [ 82.6]

82.0 [ 82.1]

(1.0) [ (0.5)]

(1.1) [ (0.6)] [Core gross operating income]

Interest income 73.1 72.5 (0.6) (0.8)

Fees and commissions 9.2 9.5 0.3 4.3

Gains (losses) on bonds 0.4 (0.1) (0.5)

Foreign exchange transaction income 0.3 0.1 (0.2)

Expenses 56.5 55.2 (1.3) (2.4) Operating income before provision of general reserve for possible loan losses

26.5 26.8 0.3 1.5

[Core operating income] [ 26.1] [ 26.9] [ 0.8] [ 3.3] Provision of general reserve for possible loan losses

3.1 2.5 (0.6)

Operating income 23.4 24.3 0.9 4.6

Special income and losses (7.2) (7.8) (0.6)

Gains (losses) on stocks 0.4 0.1 (0.3)

Losses on bad debt written-off 5.7 6.4 0.7

Reversal of reserve for contingent losses

— 0.1 0.1

Ordinary income 16.1 16.5 0.4 3.1

Extraordinary income 7.4 11.4 4.0

Transfer of the substitutional portion of the government pension program fund 7.4 11.4 4.0

Extraordinary loss 51.1 1.6 (49.5)

Loss on disaster 49.4 — (49.4)

Provision of reserve for possible loan loss 48.1 — (48.1)

Fixed assets related loss 1.0 — (1.0)

Income taxes (incl. deferred taxes) 3.0 15.7 12.7

Net income (Net loss) (30.6) 10.6 41.2 —

Credit-related expenses 56.9 8.8 (48.1)

Summary of profits and lossesSummary of profits and losses

22. . Results for FYResults for FY20122012

2

Ordinary income Increase after two consecutive years of decline

Interest income Decreased because of a fall in interest on loans and bills discounted due to declining interest rates

Net income Return to the black

(JPY bn, %)

Core operating income Despite a decrease in interest income, increase attributable mainly to successful cost saving efforts

JPY 4.0 billion attributable to the reversal of deferred tax assets resulting from a decrease in the income tax rate

Major accounts Major accounts / / Interest rates Interest rates / / Interest marginInterest margin

3


■ Major accounts (average balances) FY2011 FY2012 YoY change

Loans and bills discounted 3,455.5 3,525.8 2.0

Corporate loans 1,990.5 2,085.9 4.8

[excl. spread loans] [ 1,180.3] [ 1,179.7] [ (0.1)]

[Spread loans] [ 810.2] [ 906.2] [ 11.8]

Consumer loans 756.1 751.6 (0.6)

[Housing loans] [ 702.8] [ 704.3] [ 0.2]

Loans for local governments

708.9 688.3 (2.9)

Securities 2,045.9 2,537.0 24.0

National government bonds

834.8 1,244.4 49.1

Local government bonds 114.3 95.1 (16.8)

Corporate bonds 726.2 836.8 15.2

Stocks 69.7 69.3 (0.6)

Others 300.9 291.4 (3.2)

Deposits and certificates of deposits

5,370.9 6,370.0 18.6

Retail deposits 3,716.4 4,259.9 14.6

Corporate deposits 1,250.1 1,428.7 14.3

Assets in custody (Term-end balance) 650.3 681.2 4.8

FY2011 FY2012 YoY change

Loans and bills discounted interest rate

1.62 1.49 (0.13)

Corporate loans 1.56 1.42 (0.14)

[excl. spread loans] [ 2.16] [ 2.08] [ (0.08)]

[Spread loans] [ 0.68] [ 0.58] [ (0.10)]

Consumer loans 2.36 2.22 (0.14)

[Housing loans] [ 2.09] [ 1.99] [ (0.10)]

Loans for local governments

1.25 1.16 (0.09)

Securities interest rate 1.11 0.92 (0.19)

Interest rate on deposits 0.09 0.05 (0.04)

Interest rate spread 1.29 1.10 (0.19)

Net interest margin 0.24 0.23 (0.01)

■ Interest rates / Interest margin (%)

* Ref.

(Note) Figures of “Assets in custody” are total of investment trusts, individual annuity insurance, public bonds and foreign-currency deposits

(JPY bn, %)

46.0 46.6 37.4 27.0 26.0 39.9

63.8 63.7 71.9 67.9

52.1 56.5

96.7

61.0 38.7

26.2 34.2

27.0 27.3

37.6

29.0

4.71 3.00

3.73 4.20 4.66 5.43 3.16

0

40.0

80.0

120.0

160.0

200.0 (JPN bn)

-22

-20

-18

-16

-14

-12

-10

-8

-6

-4

-2 0

2

4

6

8 (%)

破産更生債権及びこれらに準ずる債権

危険債権

要管理債権

金融再生法開示債権比率

112.8 105.2

135.5 148.9

129.2

174.2 170.7

FY2011 FY2012

Provision of general reserve for possible loan losses 3.1 2.5

Loss on bad debt written-off 5.7 6.4

Provision of specific reserve for possible loan losses Loss on sale of NPLs, etc.

4.4

1.3

5.2

1.2

Gains on provision of reserve for contingent losses – 0.1

Gains (losses) on provision of reserve for possible loan losses (Extraordinary loss) 48.1 –

Total 56.9 8.8

<Credits disclosed under the Financial Reconstruction Law>

Loans to bankrupt and quasi-bankrupt loans

Doubtful loans

Substandard loans

Ratio of credits disclosed under the Financial Reconstruction Law

■Credit-related expenses

(JPY bn)

CreditCredit--related expenses and credits disclosed under the Financial Recorelated expenses and credits disclosed under the Financial Reconstruction Lawnstruction Law

4

FY2013 Forecast

・・FYFY20122012 credit credit--related expensesrelated expenses ⇒⇒ A large proportion of credit A large proportion of credit--related expenses were related expenses were incurred in nonincurred in non--disaster stricken areasdisaster stricken areas

<Balance of reserve for possible loan losses>

Of which, disaster–related expenses

JPY 55.0 billion

Adequate reserves despite the rising Adequate reserves despite the rising ratio of nonratio of non--performing loansperforming loans


(JPY bn)

8.4

17.3 6.0 8.8 0.7

56.9

0.16 0.24 0.27

1.64

0.02

0.53

0

20.0

40.0

60.0

FY2008 FY2009 FY2010 FY2011 FY2012

0.0

0.5

1.0

1.5

(%)

Credit-related expenses Credit-related expense rate

Mar. 2010 Mar. 2011 Mar. 2012 Mar. 2008 Mar. 2009 Mar. 2006 Mar. 2007

<Credit-related expenses and credit-related expense rate trends>

(JPN bn)

6464..99 5656..66 4545..33 5050..66 4343..00 9595..66 100100..77

リス

ク資

本配

賦原

資

リス

ク資

本配

賦額

リス

ク資

本使

用量

<Management of risk capital>

2H FY2012 1H FY2013

Tier ITier I 275275..44 Tier ITier I 283283..11

Not used 56.8

64.2

40.0

139.0

58.0

90.0

12.2

120.0

Capital adequacyCapital adequacy

5

40.9 49.8

34.3

20.0

Allocated capital 222.2

12.3 12.3

○Credit Risk Credit rating downgrade due mainly to the impact of the earthquake disaster and increase in allocated capital after taking into consideration such factors as the provision of funds for restoration and reconstruction

○Market Risk Allocation of capital commensurate with such factors as the projected increase in investment in securities

Allocated capital 191.3

Total Total amount of amount of

riskrisk 134134..55

((As of the end As of the end of Marof Mar. . 20122012))

< Capital adequacy ratio / Tier I ratio >

○As of the end of Mar. 2012 Capital adequacy ratio (non-consolidated): 12.33% Vs. end of Mar. 2011 +0.89 Impact attributable to public funds (subordinated loans: JPY 20.0 billion): +0.77 ○As of the end of Mar. 2012 Tier I ratio (non-consolidated): 10.97% Vs. end of Mar. 2011 +0.12

<Capital adequacy ratio>

Secured an appropriate capital adequacy ratio levelSecured an appropriate capital adequacy ratio level


Mar. 2009 Mar. 2010 Mar. 2011 Mar. 2012

Capital adequacy ratio 12.84 13.04 11.44 12.33

Tier I Ratio 12.35 12.50 10.85 10.97

Tier I ratio excluding tax effect 10.42 10.72 8.89 9.38

(Reference) Capital adequacy ratio (BIS standard)

12.31 13.69 12.08 12.89

(%)

* When the internal model is not applied to liquid deposits: 2.09%

Amount of interest rate risk Tier I + Tier II Outlier ratio

JPY 18.0 billion JPY 319.2 billion * 5.66%

○ Reference: Outlier ratio (as of the end of Mar. 2012)

(JPY bn)

Allocation source

Used risk capital

Allocation source

Deferred tax assets Non–allocated capital Credit risk Market risk Operational risk

(50.0)

0

50.0

100.0

Mar. 2012

National gov. bonds

Corporate bonds, Short-term corporate bonds

Stocks

Others

Mar. 2011 Mar. 2010 Mar. 2009

Mar, 2013 Plan

0

1,000.0

2,000.0

3,000.0

0.0

10.0

20.0

30.0

National gov. bonds

Stocks

Rate of flotation

◆ Balance of direct loans and investments in Europe: JPY 21.8 billion (Valuation loss of JPY 0.4 billion)

Amount of above in PIIGS nations: JPY 2.1 billion (Valuation loss of JPY 0.3 billion) ◆ Impairment loss of securities: JPY 1.7 billion

(JPY bn)

(14.0)

57.3

35.1 38.1

68.5

(JPY bn) (%) <Securities portfolio>

1,717.0

Securities Securities ((11))

6

1,875.0 2,083.0

2,811.4


■Balance of securities

Local gov. bonds

Mar. 2008

Local gov. bonds Corporate bonds, Short-term corporate bonds

Others

Mar. 2011 Mar. 2010 Mar. 2009 Mar. 2012 Mar. 2013 Plan

(JPY bn) < Gains (losses) from valuation of securities >

End of Mar.

2012

Gains (losses) from

revaluation Change from Mar. 31, 2011

Securities 2,849.4 38.1 3.0

Bonds 2,764.3 19.9 8.3

National gov. bonds 1,577.1 19.9 0.0

Floating-rate national gov. bonds

319.6 7.3 (6.4)

Local gov. bonds 82.2 1.6 0.0

Corporate bonds 865.7 14.7 4.6

Others 239.3 (16.3) 3.7

Yen-denominated foreign bonds

27.6 0.1 (0.4)

Foreign-currency bonds

82.5 (0.8) 1.9

Investment trusts

129.2 (15.6) 2.2

Stocks 85.1 18.2 (5.3)

* Excluding revaluation gains (losses), after impairment

2.28 2.70

3.47 3.47

1.10 0.99 0.98 0.80

0.0

1.0

2.0

3.0

4.0

5.0


0.0

1.0

2.0

3.0

Modified duration

Interests (%)

*Yen-dominated bonds other than investment trusts

Mar. 2011 Mar. 2012 Change Within 1 year 9.0% 5.8% (3.2)

1 – 3 years 18.9% 26.0% 7.1

3 – 5 years 23.0% 33.8% 10.8

Within 5 years 50.9% 65.6% 14.7

5 – 7 years 15.0% 12.7% (2.3)

7 – 10 years 29.3% 20.5% (8.8)

Over 10 years 4.8% 1.2% (3.6)

0

200.0

400.0

600.0

800.0

1,000.0

Within 1 year

1-3 years 3-5 years

5-7 years

7-10 years

Over 10 years

Others

Corporate bonds

Local gov. bonds

National gov. bonds

(JPY bn)

MarMar. . 20122012

MarMar. . 20112011

<Interests and modified duration of yen-denominated bonds>

■ Diverse and efficient investment in securities ◆Improve profitability and investment efficiency Secure stable profits through asset portfolio diversification Maintain and improving profitability through transactions that

involve the replacement of portfolio assets ◆Upgrade and expanding sources of profit

Expanding and diversifying investment methods and vehicles Secure periodic income through flexible investment

management

7

・After absorbing the Bank’s fund position, maintain the current level of investment management while preserving liquidity and soundness

・Rebalance the portfolio including investment in medium- and long-term bonds in line with interest rate levels and trends

<<Balance by maturity period>> <Composition of securities>


Securities Securities ((22))

<<Composition ratio by maturity period>>

(%)

The SSS Improvement Plan basic objectives FY2009 Status of objectives achieved

FY2010 FY2011 FY2012 Vs. Basic objectives

Total deposits, loans and assets held in custody (as of the end of FY2012) More than 10,000 9,084.6 9,434.8 9,772.1 11,475.1 +1,475.1

Balance of loans and bills discounted to SMEs (as of the end of FY2012) More than 1,200 1,112.9 1,147.3 1,166.6 1,222.1 +22.1

Sales of investment trusts and individual annuity insurance for the period (for the period of the Medium-term Management Plan)

More than 200 – 43.1 90.6 162.1 (37.9)

Core OHR (FY2012)

Less than 65％ 66.49% 69.27% 68.42% 67.18% +2.18%

Results of the previous MediumResults of the previous Medium--term Management Planterm Management Plan: : ““SSS Improvement Plan SSS Improvement Plan ((AprApr. . 20092009 –– Mar Mar. . 20122012))

33. . Results of the Previous MediumResults of the Previous Medium-term Management Planterm Management Plan

8

■Results against basic objectives stipulated under the previous Medium-term Management Plan: SSS Improvement Plan Achieved two of the four basic objectives (objectives achieved indicated by the shaded portion)

■ Results

(1) “Sales”: Enhance operating capabilities

・Increase the number of Relationship Managers (RMs) ⇒ increased the number of RMs from 300 to 450 or more (1.5 times or more) ・Promote the use of female employees ⇒ assigned female employees to such positions as head office money advisors (MAs); positive effect through operation branch

support in such areas as assets in custody sales

(2) “Speed-up”: Improve productivity

・Reduce expenditure ⇒ implemented measures resulting in reductions in expenditures of approximately JPY 1.1 billion on an average year basis compared with FY2009

・Review operating processes ⇒ effects resulting from operation branch BPR (business process reengineering): around nine hours (one day per operation branch) ・Introduce a new personnel system ⇒ took steps to more accurately evaluate individual skills and performance; introduced a personnel system that more appropriately

links benefits and compensation with performance

・Activities aimed at implementing a joint banking system ⇒ resolved to participate in the MEJAR integrated banking system

(3) “Service”: Contribute to stakeholders

・Returning profits to shareholders ⇒ undertook the acquisition of own shares (February 2011 to April 2011); increase in cash dividends despite a decrease immediately after the earthquake disaster; continue to the payment of stable cash dividends going forward

・Upgrade and expand IR activities ⇒ implemented IR meeting for individuals and regional communities (14 meetings during the period of the Medium-term Management Plan )

・Promote activities that contribute to local communities and help address environmental issues ⇒ adhered strictly to an energy-saving policy (among a number of initiatives, successfully reduced the level of head office electricity consumption during the summer period by approximately 25%)

AchievedAchieved

AchievedAchieved

(JPY bn)

Business environment Business environment / / Challenges for managementChallenges for management

9

1. Business environment (1) Economic and social environment ・Ongoing steps to rebuild both social and economic

platforms following the enormous damage caused by the earthquake disaster

・Continued decline in birthrates and the aging of society resulting in steady population contraction

・Increase in the volume of information and shifts in information quality due to the development of an Internet-based society

・Globalization and deindustrialization in Japan ・Change in the structure of industry within the prefecture ・Intense competition reflecting concentration in the Sendai

area (2) Financial environment ・ Continued operations under conditions where interest

rates are extraordinarily low due to ongoing financial deregulation

・ Slump in the demand for finance owing mainly to prolonged weak economic conditions

・ Heightened market risk attributable to the debt crisis in Europe

・ Response to wide-ranging systems and regulations including IFRS and Basel III

2. Ideal scenario

(1) Four key criteria of management ・ Place the utmost importance on trust ・ Contribute to the development of local

communities

・ Build an increasingly robust operating platform

・ Engage in activities with a strong sense of energy and vitality

(2) Provide strong reconstruction and development support following the earthquake disaster

(3) Respond appropriately to customer needs

(4) Respond effectively to changes in the environment and promoting growth potential

(5) Build high earning capacity, risk management capabilities, and a sound financial position

(6) Foster close ties with stakeholders

3. Pending issues

(1) Widespread uncertainty surrounding earthquake disaster reconstruction and growing credit risk

(2) Declining top line and prolonged low profitability

(3) Weakening loan capability

(4) Lack of high-quality human resources with strong consulting and interpersonal skills

Challenges to be addressed based on achievements and pending issues following completion of the previous Medium-term

Management Plan as well as the status of the Bank’s future operating platform

Enhance loan and Enhance loan and consulting consulting capabilitiescapabilities

Foster human Foster human resources and resources and expand human expand human

resource investmentresource investment

Invest in growth Invest in growth areas and foster areas and foster specialist fieldsspecialist fields

Improve profitability Improve profitability to ensure the early to ensure the early

repayment of public repayment of public fundsfunds etc.

44. . Overview of the MediumOverview of the Medium--term Management Planterm Management Plan

Focus on earthquake Focus on earthquake recovery support recovery support

Address reconstruction Address reconstruction demanddemand

■Bank Image Sought by The 77 Bank

“Best creative bank” that creates a new era together with the region

■Name

Medium-term Management Plan: “POWER for the Future”

— 36 Months of Renewal and Growth —

■Period The three-year period from April 1, 2012 to March 31, 2015

Overview of the MediumOverview of the Medium--term Management Planterm Management Plan: : ““POWER for the FuturePOWER for the Future”” —— 3636 Months of Renewal and Growth Months of Renewal and Growth ——

10

1. Support earthquake recovery and revitalize the regional economy

■Basic policies

2. Strengthen loan and consulting capabilities

3. Further improve productivity


Medium-term Management Plan

“POWER for the Future”

Period: Three years

◇Foster human resources and expand human resource investment

◇Bolster relationships with the region and customers

◇Foster human resources and expand human resource investment

◇Bolster relationships with the region and customers

Current status and pending issues

Creative reconstruction of the regional community Entry and concentration by the manufacturing industry Focus on broad-based business rehabilitation

Continued decline in birthrates and the aging of society Concentration in the Sendai area Increasing sophistication of sales channel strategies Shift toward a joint banking system

Interpersonal skills Management capabilities Motivation

Interpersonal skills Management capabilities Motivation

○ Attract a concentration of manufacturing and next-generation industries that bring to fruition a prosperous Miyagi (toward gross prefecture production of JPY 10 trillion) ○ Build and restore a world-class primary industry base ○ Promote global business development ○ Establish compact cities and smart communities

A revitalized Miyagi and a new Tohoku era

○ A bank that harnesses its ○ A bank that harnesses its overwhelming presence in Miyagi and the Tohoku region with: ・the unwavering support of customers (bank of preferred choice) ・robust relationships, and ・a strong and warm-hearted 77 Bank brand image ○ A bank that provides comprehensive financial services with: ・its loan and consulting capabilities (abilities to promote dialog, put forward proposals, resolve problems), and ・optimal solutions ○ An institution that engages in activities with a strong sense of energy and vitality

Future image of the 77 Bank

Increasing sophistication and diversification of needs Increasing sophistication of solutions Intensifying competition

Support earthquake recovery and revitalize the regional economy

Support earthquake recovery and revitalize the regional economy

Strengthen loan and consulting capabilities

Strengthen loan and consulting capabilities

Further improve productivity

Further improve productivity

Continue to develop the financial services platform

Continue to develop the financial services platform

Positioning of the MediumPositioning of the Medium--term Management Plan with an eye to the futureterm Management Plan with an eye to the future

11


reconstruction

Earthquake

Rehabilitation

Growth

Basic objectivesBasic objectives

12

・Restore capital adequacy damaged by the effects of the earthquake disaster by building up retained earnings ⇒ Aim for the early repayment of public funds

*1 Balance of loans and bills discounted excluding local government and other public authority, Tokyo, Osaka, and Nagoya area branches as well as head office accounts *2 Balance of loans and bills discounted excluding local government and other public authority as well as head office accounts

・Utilize the sales structure established during the previous Medium-term Management Plan and accurately target customer needs ⇒ Strive for total sales that exceed the previous three-years during the period of the Medium-term Management Plan

・Amid a mixed and uncertain operating environment characterized on the one hand by rising reconstruction funding demand and, on the other hand, the repayment in advance of loans from money received from insurance claims and others, promote new lending for regional and local communities focusing mainly on Miyagi and target a growth rate of around 3% or more throughout the three-year period of the Medium-term Management Plan

11..

22..

33..

44..


Balance of retail loans and bills discounted *1

Result FY2010 FY2011 FY2012 2,070.9 2,084.4 2,093.3

Balance of retail loans and bills discounted in Miyagi Pref. *2 1,922.6 1,936.1 1,931.1

Sales of investment trust, insurance, and public bond sales

Result

FY2010 FY2011 FY2012

145.1 150.8 144.1

Net income

Result

FY2010 FY2011 FY2012

11.6 (30.6) 10.6

Core OHR

Result

FY2010 FY2011 FY2012

69.3 68.4 67.2

Objective As of Mar 31. 2015 (final year of the Plan)

JPY 2.15 trillion or more JPY 2 trillion or more

Objective

FY2015

Less than 67%

Objective Cumulative total for the period of the Medium-term

Management Plan JPY 450.0 billion or more

Objective FY2013 and FY2014

respectively FY2015, final year

of the Plan JPY 11.0 billion or more JPY 13.0 billion or more

(Fiscal year end, JPY bn)

(JPY bn)

(%)

(JPY bn)

・Bolstering the top line (revenues) while promoting cost savings

Corporate

Operating fund

Case 3,578

Individuals

Unsecured loan

Case 1,692

Amount 108.9 Amount 3.0

Capital expenditure fund

Case 801 Housing loan

Case 1,370


Total Case 4,379

Total Case 3,062


Priority measures Priority measures 11 ((Support earthquake recovery and revitalize the regional economySupport earthquake recovery and revitalize the regional economy))

13

Fulfill the Bank’s financial intermediation function

■Diversify methods with respect to the provision of funds ■Earthquake disaster-related loan performance (to March 31, 2012) ○ Operating funding needs account for roughly 75% ⇒ Demand for capital expenditure funding expected to follow

(Case, JPY bn)

○ Promote loans that do not overly rely on collateral and guarantees

■ Address reconstruction stage funding needs

◆77 Bank reconstruction private placement bonds

(Handling commenced from March 2012) <Private placement bond underwriting performance> 13 issues totaling JPY 1.5 billion (of this total 77 Bank private placement

bonds account for five issues amounting to JPY 0.8 billion)

◆ Recovery development assistance projects for SME group facilities ・75% of total business expenses provided through national and prefectural assistance ・Assistance in the preparation of application-related documents <<Bridging finance performanceBridging finance performance> > ((Miyagi portion Miyagi portion / / to March to March 3131, , 20122012) ) 7070 loans totaling JPY loans totaling JPY 44,,671671 million million <<Portion of own funds performancePortion of own funds performance> > ((Miyagi portion Miyagi portion / / to March to March 3131, , 20122012) ) 3333 loans totaling JPY loans totaling JPY 44,,185185 million million ○Actively respond to funding demand in the period after business set up going forward


◆ Promote ABL (asset based lending) (FY2012)

<ABL performance > 15 loans totaling JPY 3.5 billion

Examples: large-scale cranes, dairy cattle, electronically recorded and medical fee monetary claims

Increase loan activity through restoration and reconstruction sIncrease loan activity through restoration and reconstruction support upport by the smooth facilitation and provision of fundsby the smooth facilitation and provision of funds

14

■ Business rehabilitation and business operations improvement support

Strengthen business rehabilitation and management improvement support for customers

■ Use of reconstruction support and other funds

Business rehabilitation and business operations Business rehabilitation and business operations improvement support by the Enterprise Assistance improvement support by the Enterprise Assistance DepartmentDepartment ・Increase in responsible personnel from five ⇒ nine

(an increase of four staff) ・Rehabilitation plan formulation party performance 67 parties (FY2012)

Promote the use of DDS and DESPromote the use of DDS and DES ⇒ Work in progress to introduce to disaster-stricken companies along coastal regions in June 2012

Miyagi Reconstruction Bridge FundMiyagi Reconstruction Bridge Fund Established in August 2011 Established jointly with the Development Bank of Japan Scale: JPY 5.0 billion Determined fund (investment) recipients: three

The Great East Japan Earthquake SME The Great East Japan Earthquake SME Reconstruction Support FundReconstruction Support Fund Established in January 2012 Established jointly with several parties including Daiwa Corporate Investment Co., Ltd. Scale: JPY 7.4 billion (as of March 2012) Determined fund (investment) recipients: one

■ Use of public institutions

Miyagi Organization for Industry Promotion Miyagi Organization for Industry Promotion (established in December 2011)

The Great East Japan Earthquake Business The Great East Japan Earthquake Business Operator Rehabilitation Assistance Organization Operator Rehabilitation Assistance Organization ((commenced operations in March commenced operations in March 20122012))

Put in place a wide range of support tools Put in place a wide range of support tools including factoringincluding factoring, , debt guarantee and bridging debt guarantee and bridging financefinance

Operation branch visits by head office personnel responsible for assessments as well as proposal assessment and approval Smooth and timely provision of funds

Use of visiting and long Use of visiting and long--term onterm on--site assessmentssite assessments

■ Status of customers


<Visiting and long-term on-site assessment performance> (to March 31, 2012) Visiting assessments: cumulative total 746 branches Long-term on-site assessments: cumulative total of 57 days

Enterprise Turnaround Initiative Corporation of JapanEnterprise Turnaround Initiative Corporation of Japan ・Use in the rehabilitation of leading local shipbuilding

companies, ・Coordination of transacting financial institutions by the

Corporation, etc.

・ Accelerate business rehabilitation ・ Business rehabilitation by strengthening core businesses , etc.

[Facilitation of financing] (Overlapping loans) [Loans for affected companies]


Reduce credit costs by improving the borrower category ranking of customers and providing rehabilitation support

15

Support customers in pursuing overseas business by taking full advantage of the existing network

Contribute to regional reconstruction and development (Boost the support for local companies)

◆ Promote lending to the agricultural sector ・Use of individuals (16) who have acquired qualifications as agricultural management advisors ・Business alliance with Nomura Agri Planning & Advisory Co., Ltd. (July 2011)

○Support for local companies for Asia business

(Agreement concluded in Nov. 2010 and after)

○Promote the business matching initiative ・Promote the business matching initiative by holding food and other trade fairs

<Number of contracts> 1,030 contracts (FY2012) ・Published Mi ya Gi Hajimemashite (Meet Miyagi’s

flavor and art), a catalogue of local products produced in Miyagi

⇒Provide national exposure to local products produced in Miyagi; provide customers with sales channel expansion support

○ Strengthen collaboration with local governments ・Strengthen support using PFI and PPP

PFI performance within the Prefecture: Nine (as of March 31, 2012) ・Gather information on and participate in reconstruction projects

<Overseas business support partners, etc.>

Operation branches and head office working in unison to swiftly and accurately address varied and

diverse needs while providing optimal solutions


Alliance date Partners

Nov. 2010 Hong Kong Trade Development Council

Feb. 2011 Miyagi Prefecture Apr. 2011 Bangkok Bank

Jun. 2011 DBJ Asia Financial Assistance Center

Aug. 2011 Factory Network China Dec. 2011 NEXI Jan. 2012 Nippon Express Sendai Branch Apr. 2012 Tohoku Economic Federation

○Strengthen activities in growth fields ◆ Strengthen activities in medical / welfare / nursing fields ・March 2012: increase specialized staff by one (currently four staff) ・Targeted increase in annual medical and welfare loans JPY 10.0 billion or more

ShanghaiShanghai

Hong KongHong Kong

BangkokBangkok

SingaporeSingapore

Dalian Dalian

Asia Business Support Dept. (Assigned four specialized staff)

Shanghai Shanghai Representative Office Representative Office

<Develop human resources with strong international business skills>

Cities where personnel are sent for training in Asia Dalian, Shanghai, and Hong Kong, with plans to

include Bangkok


16

[Plan during the period of the Medium-term Management Plan]

[Achievements under the previous Medium-term Management Plan]

○Increase in the number of relationship managers

470470 ⇒⇒ 550550

○Increase in the number of loan officers

300300 ⇒⇒ 450450 or moreor more

Issues

Develop human resources who are capable of engaging in heartfelt dialogue and

are extremely helpful to customers

○ Strengthen speaking ability, communication skills, the ability to extract information, as well as perceptiveness and the ability to handle any and all situations

○Expand investment in human resource development

・Increase the number of personnel dispatched for training outside the Bank by around 40; upgrade and expand training, etc.

○ Enhance the ability to nurture personnel and foster leadership

○ Recognize and cater for discrepancies between generations

○ Provide head office OJT support

○ Respond to globalization

○ Competition and appropriate assessment

○ Improve evaluation systems and visualization

○ Provide incentives, etc. ・Revise commendation

systems ⇒Implement individual and

other commendations

Interpersonal skills Interpersonal skills Management capabilities

Management capabilities Motivation Motivation

Expand investment in human resource development

Priority measures Priority measures 22 ((Strengthen loan and consulting capabilitiesStrengthen loan and consulting capabilities))


Increase by Increase by 8080 or moreor more

1,112.9

1,147.3 1,166.6

1,222.1

14,261 14,471 14,735 14,854

1,000.0

1,100.0

1,200.0

13,000

11,000

12,000

13,000

14,000

15,000 Balance Customers

637.6 661.9 694.3 708.0 702.8

400.0

600.0

Second half FY2013 plan

33.1 27.7 28.5 29.9

12.2 10.3 10.0 7.2

6,074 4,078 3,943 3,992

0

20.0

40.0

60.0

800

1,000

-12,000

-8,000

-4,000

0

4,000

8,000 (Case)

Takeovers

Number of Housing loans (new) Housing starts

3,525.8

3,455.5

3,429.3

3,260.0

3,000.0

3,200.0

3,400.0

3,600.0

Mar. 2012 Mar. 2013 Plan

(JPY bn)

17

○ Implement appropriate initiatives ・Operation branches and head office to work in unison to uncover latent needs;

promote timely loan proposals

< Loans (average balance) >

■ Promote an increase in the balance of loans and bills discounted

Increase the balance of retail loans and bills discounted focusing mainly on Miyagi

<Number of customers and loan balance to SMEs> (JPY bn) (Customers)

■ Enhance housing loans

<Balance of housing loans>

1,747 cases

<Number of housing loans granted and housing starts in Miyagi>

・Increase in repayments finance by money received from insurance claims, etc. ・Actively promote Japan Housing Finance Agency disaster restoration housing

loans ⇒ Year-on-year decrease in the balance of housing loans

Capture restoration and reconstruction demand and shift to a growth trajectory

<Disaster restoration housing loans handled>

1,370 cases

1,663 cases

1,677 cases

Number of new housing loans

Priority measures Priority measures 22 ((Strengthen loan and consulting capabilitiesStrengthen loan and consulting capabilities))


Mar. 2011 Mar. 2010 Mar. 2009


(JPY bn)

First half FY2011

Second half FY2011

First half FY2012

Second half FY2012

Second half FY2013 plan

First half FY2013 plan

(JPY bn)

Mar. 2008 Mar. 2009 Mar. 2010 Mar. 2011 Mar. 2012 Mar. 2013 Plan

11,,844844 casescases / / JPY JPY 2929..66 billion billion ((based on acceptance by Japan Housing Finance Agency in FYbased on acceptance by Japan Housing Finance Agency in FY20122012))

Increase the balance of loans and bills discounted and expand the Bank’s customer base (1)

693 692 701 684

433 539 657 944

232 240 263 195 0

500

1,000

1,500

2,000

FY2009 FY2010 FY2011 FY2012 FY2013 Plan

(JPY mn)

Insurance

Investment trusts

Public bonds

○Strengthen assets in custody sales capabilities through collaboration with money advisors (MAs)

・ Continue accompanies sales visits 2nd half of FY2012: number of insurance product, investment trust, and

public bond proposals: over 1,400 proposals ・ Promote the shaft from liquid deposits to assets in custody in line with

the increase in money received from insurance claims, etc. ・ Strengthen follow-up initiatives toward customers holding assets in

custody ○Capture and retain individual customers using life consulting services ・Utilize the 77 Akaishidai Insurance Plaza (opened in November 2011) ・Upgrade and expand the products handled

Growing evidence of ripple effects from full-fledged operations

■Efforts for companies new to Miyagi and Tohoku

■Promote growth in the assets in custody base

18

<Change in sales commissions of assets in custody>

Favorable trends in sales of investment trusts and insurance products after the earthquake disaster

Further attract customers and strengthen salesFurther attract customers and strengthen sales

・Promote efforts for companies new to Miyagi and their related local companies

・Promote workplace banking for the employees of companies new to Miyagi

・Jan. 2012: Kanto Auto Works Ltd. newly established “a local procurement promotion center in Tohoku” in Ohira Village

⇒ Lift the rate of local procurement from the current level of 40% to 80%

・Jul. 2012: Management integration of three Toyota Group companies (Kanto Auto Works Ltd., Central Motor Co., Ltd., and Toyota Motor Tohoku Corporation)

⇒ Plans to launch TOYOTA MOTOR EAST JAPAN, INC. (head office: Ohira Village)

･ End of 2012: The first engine factory in Tohoku scheduled to come fully online

The north of Sendai City (Taiwa Town, Ohira Village)

MiyagiMiyagi

Head Office Yoshioka

branch (Assigned 2 RMs from

headquarters)

Morioka branch

IwateIwate

The southern part of Iwate Pref. (Kitakami City, Kanegasaki Town)

Kitakami branch (Scheduled to be opened in Jun. 2012)

Toward automobile production of 500,000 vehicles in Tohoku

<Recent activities by the Toyota Group in Tohoku>

Priority measures Priority measures 22 ((Strengthen loan and consulting capabilitiesStrengthen loan and consulting capabilities)) 44. . Overview of the MediumOverview of the Medium--term Management Planterm Management Plan

Increase the balance of loans and bills discounted and expand the Bank’s customer base (1)

19

⇒ Consider expanding the scope of system joint use going forward

■Adhere strictly to a policy of low-cost operations

Create loan and sales manpower and time

○Review head office operational processes

○ Consider reductions in expenditure by analyzing cost structures

○ Reduce administrative operations and operation branches through continued use of BPR

・Undertake a comprehensive review of administrative procedures

・ Consolidate operation branch administrative operations at head office

<Reference> BRP effect during the period of the previous Medium-term Management Plan (reduction achieved)

Around nine hours (one day per operation branch)

○Enhance the ability to carry out business tasks and duties through human resource development

○ Effectively use part-time employees Increase the number of employees by 250 or

more compared with the current level ⇒ Work toward a structure of 1,000 part-time

employees

Promote thoroughgoing cost reduction

■Take preparatory steps toward a joint banking system <Basic agreement details>

◆Scope of system joint use ・Backbone system (deposits, transaction, loans, other), ATMs, Internet banking, other ◆Commencement of system joint use: January 2016

○ Participate in the MEJAR joint banking system ・ Execute a basic agreement allowing use of the joint banking system in May 2012 *MEJAR (Most Efficient Joint Advanced Regional banking system) The industry’s largest joint system use group Participating banks: 77 Bank, Bank of Yokohama, Hokuhoku Financial Group (The Hokuriku Bank, The Hokkaido Bank)

Expected benefits

Promote efficiency

Priority measures Priority measures 33 ((Further improve productivityFurther improve productivity)) 44. . Overview of the MediumOverview of the Medium--term Management Planterm Management Plan

・Control medium- to long-term system expenses (apportionment of system development and operating expenses to participating banks) ・ Better response to the growing diversification and sophistication of financial services (upgrade and expansion of product and service details as well as timely response) ・Greater operational efficiencies through cooperation between the four banks (timely response to planning, development, and legal system requirements through participating bank cooperation; common sharing of operational tasks and duties)

Priority measures Priority measures 44 ((Continue to develop the financial services platformContinue to develop the financial services platform))

20

<Improve the branch and sales systems>

○ Improve the branch network ・Restore of branches damaged by the disaster; rebuild the external branch ATM network ・Establish branches that reflect changes in the market ○ Raise the overall strength of the 77 Bank Group

<Strengthen the Bank’s ability to address the needs of the elderly and young people>

○Strengthen efforts to attract customers and marketing capabilities

・ Attract customers according to their life stage ○Take into consideration customer convenience and

security ・ Redouble efforts to prevent financial fraud including

bank transfer scams

Strengthen the organization and human resources taking into consideration the need to better respond to Japan’s aging society and falling birthrate as well as

the growing sophistication and diversification of customers’ needs

<Strengthen investment securities management> ○Improve response systems for periods of disaster and other emergency

<Reinforce statutory and regulatory compliance and enhance internal control systems>

○Reinforce statutory and regulatory compliance and bolster response to antisocial forces

○Strengthen customer explanation, support, and other related management structures and systems

○Promote robust information asset management

<Enhance 77 Bank brand> ○ Reinforce the Bank’s emphasis on warm-hearted customer service ・ Improve the level of customer service Implement mystery shopper surveys and award commendations to operation branches that exhibit outstanding customer service ・ Participate in local community contribution activities: financial education, community events, cultural and educational promotion support, social welfare and other activities

○ Contribute toward an environment conscious society ・ Put in place environmentally conscious branches and facilities ・ Upgrade and expand environmentally conscious finance products ○ Improve shareholder value ・ Upgrade and expand IR activities for local communities as well as individual and overseas investors


FY2012

result FY2013

plan

FY2014

forecast

FY2015 forecast

Vs. FY2012

Change Change (%)

Loans and bills discounted 3,525.8 3,575.0 3,592.0 3,624.0 98.2 2.8

Corporate loans 2,085.9 2,136.0 2,172.0 2,197.0 111.1 5.3

Consumer loans 751.6 755.0 764.0 776.0 24.4 3.2

Actual deposits and certificates of deposits

6,365.4 6,392.0 6,365.0 6,353.0 (12.4) (0.2)

Retail deposits 4,259.9 4,211.0 4,194.0 4,202.0 (57.9) (1.4)

FY2012

result FY2013

plan

FY2014

forecast FY2015 forecast

Vs. FY2012

Change Change (%)

Balance of retail loans and bills discounted 2,093.3 2,110.0 2,133.0 2,157.0 63.7 3.0

Balance of retail loans and bills discounted in Miyagi Pref. 1,931.1 1,947.0 1,967.0 1,987.0 55.9 2.9

Balance of retail loans and bills discounted outside of Miyagi Pref. 162.2 163.0 166.0 170.0 7.8 4.8

Actual deposits and certificates of deposits 7,163.9 6,351.0 6,399.0 6,373.0 (790.9) (11.0)

Amount of investment trust, insurance, and public bond sales 144.1 131.5 148.5 170.0 25.9 18.0

Accumulated amount during the Plan 131.5 280.0 450.0

<<ReferenceReference> > Numerical plan Numerical plan ((numerical plans are formulated and reviewed each fiscal yearnumerical plans are formulated and reviewed each fiscal year))

44.. Overview of the MediumOverview of the Medium--term Management Plan term Management Plan

21

I. Average balances of major accounts (JPY bn, %)

II. Term-end balances, etc. (JPY bn, %)

JPY 2.15 tn or more

JPY 2 tn or more

JPY 450 bn or more

(Note) Figures in represent the target at the end of the Medium-term Management Plan.

FY2012

result FY2013

plan

FY2014

forecast FY2015 forecast

Unsecured call rate O/N 0.08 0.08 0.08 0.08

JPY TIBOR (3 months) 0.34 0.34 0.34 0.35

5-year JGBs 0.37 0.35 0.40 0.50

10-year JGBs 1.05 1.08 1.15 1.25

Exchange rate (JPY/ USD) 79 81 82 84

Nikkei Average (At the term-end) 10,083 9,750 10,000 10,500

22

44.. Overview of the MediumOverview of the Medium--term Management Plan term Management Plan

FY2012

result FY2013

plan

FY2014

forecast

FY2015 forecast

Change from FY2012

Core gross operating income 82.1 80.5 81.8 84.6 2.5

Interest income 72.5 71.3 72.3 75.1 2.6

Fees and commissions 9.5 9.2 9.4 9.4 (0.1)

Expenses 55.2 57.0 56.7 56.6 1.4

Core operating income 26.9 23.5 25.0 28.0 1.1

Ordinary income 16.5 18.0 19.7 21.2 4.7

Net income 10.6 11.0 12.0 13.0 2.4

Core OHR 67.2 70.8 69.3 66.9 (0.3)

Capital adequacy ratio (Domestic standards) 12.3 12.4 12.6 12.9 0.6

III. Profits and losses

[Forecast on the major interest rates, etc.] (JPY, %)

(JPY bn , %)

JPY 13 bn or more

67 % or less

<<ReferenceReference> > Numerical plan Numerical plan ((numerical plans are formulated and reviewed each fiscal yearnumerical plans are formulated and reviewed each fiscal year))

(Note) Figures in represent the target at the end of the Medium-term Management Plan.

Profits and lossesProfits and losses

55. . Projected performance for FYProjected performance for FY20132013

23

FY2012 result

FY2013 plan

YoY change YoY change

Gross operating income 82.0 (1.0) 80.0 (2.0)

[Core gross operating income] [ 82.1] [ (0.5)] [ 80.5] [ (1.6)]

Interest income 72.5 (0.6) 71.3 (1.2)

Fees and commissions 9.5 0.3 9.2 (0.3)

Gains (losses) on bonds (0.1) (0.5) (0.5) (0.4)

Foreign exchange transaction income 0.1 (0.2) 0.0 (0.1)

Expenses 55.2 (1.3) 57.0 1.8

Operating income before provision of general reserve for possible loan losses

26.8 0.3 23.0 (3.8)

[Core operating income] [ 26.9] [ 0.8] [ 23.5] [ (3.4)]

Provision of general reserve for possible loan losses

2.5 (0.6) 0.0 (2.5)

Operating income 24.3 0.9 23.0 (1.3)

Special income (losses) (7.8) (0.6) (5.0) 2.8

Gains (losses) on stocks 0.1 (0.3) 0.8 0.7

Losses on bad debt written-off 6.4 0.7 6.0 (0.4)

Reversal of reserve for contingent losses 0.1 0.1 – (0.1)

Ordinary income 16.5 0.4 18.0 1.5

Extraordinary income 11.4 4.0 – (11.4)

Extraordinary losses 1.6 (49.5) 0.5 (1.1)

Income taxes (incl. deferred taxes) 15.7 12.7 6.5 (9.2)

Net income (Net loss) 10.6 41.2 11.0 0.4

Credit-related expenses 8.8 (48.1) 6.0 (2.8)

(JPY bn)

FY2012 results

FY2013 plan

YoY change YoY change

Major accounts (average balances)

Loans and bills discounted 3,525.8 2.0 3,575.0 1.4

Securities 2,537.0 24.0 2,939.7 15.9

Deposits and certificates of deposits 6,370.0 18.6 6,398.0 0.4

Interest rates / Interest margin

Loans and bills discounted interest rate 1.49 (0.13) 1.42 (0.07)

Securities interest rate 0.92 (0.19) 0.79 (0.13)

Interest rate on deposits 0.05 (0.04) 0.04 (0.01)

Interest rate spread 1.10 (0.19) 1.07 (0.03)

Net interest margin 0.23 (0.01) 0.18 (0.05)

Reference (term-end balances)

Balance of retail loans and bills discounted 2,093.3 0.4 2,110.0 0.8

Balance of assets in custody 681.2 4.8 712.0 4.5

Major accounts Major accounts / / Interest rates Interest rates / / Interest marginInterest margin

24

55. . Projected performance for FYProjected performance for FY20132013

(JPY bn, %)

(Note) Figures in the “YoY change” column of major accounts (“Loans and bills discounted,” “Securities” and “Deposits and certificates of deposits” accounts) , “Balance of retail loans and bills discounted,” “Assets in custody” and “Total deposits, loans and assets in custody” show the rate of changes, and figures in the “YoY change” column of interest rates / interest margin show percentage points.

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 · ir presentation results for fiscal year ended march 31, 2012...

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