Explanatory Meeting of Financial Results for the First Half of the Fiscal Year Ending March 2019 1. About the Bank 2. Outline Of Financial Statements 3. Loans 4. Securities Investment 5. Management Strategy 6. Corporate Governance 7. Increasing Equity and Return of Profits to Shareholders
1 Corporate Profile
Corporate Profile Branch Network
Branches in metropolitan Name The Hokkoku Bank, Ltd. areas and overseas Tokyo 1 8363 Stock code (First Section, Tokyo Stock Exchange) Ishikawa Osaka 1 87 Toyama Location of 2-12-6 Hirooka, 11 Nagoya 1 Headquarters Kanazawa, Ishikawa Singapore 1 Fukui Overseas representative Founded December 18, 1943 3 office Shanghai 1 Total Assets 4,801.0 billion yen
Loans 2,471.0 billion yen Plaza Base ATM Network Deposits (Excluding negotiable 3,395.1 billion yen ATM networks in three Hokuriku prefectures certificate of deposit) Loan Center 11
S&P : A- (Long term) The Convenience stores Rating Hokkoku Bank (Lawson, Enet, Seven-Eleven) R&I : A+ (Long term) About 1,000 ATMs Money Plaza 5 400 ATMs Total outstanding 29,990 shares thousand shares ＋ The Hokkoku General Leasing Co., Ltd. The Hokkoku Credit Service Co., Ltd. Insurance Plaza 5 Affiliates The Hokkoku Credit Guarantee Co., Ltd. The Hokkoku Management, Ltd. 1 The Hokkoku Servicer, Ltd. 2 1. About the Bank 2. Outline Of Financial Statements 3. Loans 4. Securities Investment 5. Management Strategy 6. Corporate Governance 7. Increasing Equity and Return of Profits to Shareholders
3 Financial Statements for the First Half of the Fiscal Year Ending March 2019 (Overall)
• Ordinary income 29,308 million yen (down 845 million yen YOY) • Ordinary profit 8,380 million yen (down 1,363 million yen YOY) • Profit 5,569 million yen (down 1,117 million yen YOY) • Consolidated capital adequacy ratio (global standard) 12.56% (up 0.24% YOY)
(1) Outline of profit and loss [Non-consolidated] (Millions of yen) FY2017 FY2018 Change Change (%) first half first half Ordinary income 30,153 29,308 △ 845 △ 2.8% Ordinary profit 9,743 8,380 △ 1,363 △ 13.9% Profit 6,686 5,569 △ 1,117 △ 16.7% Net business profit 8,824 7,356 △ 1,468 △ 16.6%
[Consolidated] (Millions of yen) FY2017 FY2018 Change Change (%) first half first half Ordinary income 35,497 34,544 △ 953 △ 2.6% Ordinary profit 10,715 9,088 △ 1,627 △ 15.1% Profit* 7,107 5,814 △ 1,293 △ 18.1% * Profit attributable to owners of parent (2) Capital adequacy ratio End of End of End of Change Sept. 2017 Mar. 2018 Sept. 2018 Consolidated capital 12.84% 12.32% 12.56% 0.24% adequacy ratio 4 Financial Results for the First Half of the Fiscal Year Ending March 2019 (Non-consolidated)
• Gross business profit 21,446 million yen (down 1,366 million yen YOY) • Expenses 14,090 million yen (up 102 million yen YOY) • Net business profit 7,356 million yen (down 1,468 million yen YOY) • Ordinary profit 8,380 million yen (down 1,363 million yen YOY) • Profit 5,569 million yen (down 1,117 million yen YOY)
（Millions of yen） FY2017 FY2018 Change first half first half Net business profit Down 1,468 million yen YOY Gross business profit 22,812 21,446 △ 1,366 • Gross business profit decreased by 1,366 million yen YOY Net interest income 19,936 18,572 △ 1,364 to 21,446 million yen, despite an increase in fees & Interest on loans and discounts 13,386 13,062 △ 324 commissions, due to decreases both in interest on loans Interest and dividends on securities 7,596 7,161 △ 435 and discounts, and interest and dividends on securities. Interest on deposits, etc. (△) 222 195 △ 27 • Expenses increased 102 million yen YOY to 14,090 million Interest associated with short-term investment yen, mainly due to an increase in non-personnel cost. and fund-procurement, etc. △ 824 △ 1,456 △ 632 Fees & commissions 2,709 2,845 136 Other business profit (Excluding gain/loss on bonds) 167 28 △ 139 Ordinary profit Down 1,363 million yen YOY Expenses (△) 13,988 14,090 102 • Loss (gain) related to securities increased by 511 million Personnel cost (△) 7,242 7,182 △ 60 yen YOY to 1,995 million yen, due to an increase in loss Non-personnel cost (△) 5,772 5,865 93 (gain) on sales of shares. Net business profit 8,824 7,356 △ 1,468 • Amount of credit costs increased by 592 million yen YOY to Loss (gain) related to securities 1,484 1,995 511 1,033 million yen. Amount of credit costs (△) 441 1,033 592 Ordinary profit 9,743 8,380 △ 1,363 Profit Down 1,117 million yen YOY Extraordinary gain/loss △ 406 △ 85 321 • Profit decreased by 1,117 million yen YOY to 5,569 million Income taxes (△) 2,650 2,726 76 yen, due to a decrease in ordinary profit. Profit 6,686 5,569 △ 1,117
5 Forecast of Results for the Fiscal Year Ending March 2019
• Forecast results announced in May 2018 (the “initial forecast”) have been revised upward considering the first half results. • We estimate interim dividend of 40 yen per share and year-end dividend of 40 yen per share.
[Non-consolidated] (Full year) （Millions of yen) FY2018 FY2018 (Reference) Difference revised forecast initial forecast FY2017 actual result Ordinary profit 12,000 11,000 1,000 14,741 Profit 8,000 7,000 1,000 9,479 Net business profit 13,000 12,000 1,000 16,694
[Consolidated] (Full year) FY2018 FY2018 (Reference) Difference revised forecast initial forecast FY2017 actual result Ordinary profit 13,500 12,500 1,000 16,367
Profit *1 8,500 7,500 1,000 10,163 *1: Profit attributable to owners of parent ○ Dividend per share (Forecast) FY2015 FY2016 FY2017 *2 FY2018
Annual dividends 8.00 yen 9.00 yen － 80.00 yen Interim dividends 4.00 yen 4.50 yen 4.00 yen 40.00 yen Year-end dividends 4.00 yen 4.50 yen 50.00 yen 40.00 yen *2: On October 1, 2017, the Bank conducted consolidation of shares at the ratio of ten shares of its common stock into one share. The impact of this stock consolidation is taken into consideration in the amount presented for FY2017, and the amount for the annual dividend per share for the same fiscal year is shown as a dash. 1 6 1. About the Bank 2. Outline Of Financial Statements 3. Loans 4. Securities Investment 5. Management Strategy 6. Corporate Governance 7. Increasing Equity and Return of Profits to Shareholders
7 Loans – Balance by Segment –
• Total loan balance at the end of the first half increased 101.5 billion yen YOY to 2,471.0 billion yen, reflecting efforts to increase loans to SMEs and individuals in the Bank’s home area of Hokuriku. • Loans to SMEs, etc. increased by 131.2 billion yen YOY and made up 72% of total loans.
Yield of loans and loan balance at end of fiscal year Breakdown by area
(Billions of yen)
End of Sept. End of Mar. End of Sept. Change (from Change (from 2017 2018 2018 Sept. 2017) Sept. 2017) 2,324.4 2,369.5 2,471.0 Total of 3 prefectures 2,134.9 2,194.2 2,242.3 107.4 5.0% in Hokuriku area
Ishikawa 1,705.9 1,732.7 1,743.4 37.5 2.1%
Toyama 355.1 381.6 407.8 52.7 14.8%
Fukui 73.9 79.8 91.0 17.1 23.1%
Others 234.6 218.7 228.7 △ 5.9 △ 2.5%
Breakdown by company size Breakdown by type
(Billions of yen) (Billions of yen)
End of Sept. End of Mar. End of Sept. Change (from Change (from End of Sept. End of Mar. End of Sept. Change (from Change (from 2017 2018 2018 Sept. 2017) Sept. 2017) 2017 2018 2018 Sept. 2017) Sept. 2017)
Total loans 2,369.5 2,412.9 2,471.0 101.5 4.2% Business loans 1,142.9 1,179.6 1,198.7 55.8 4.8%
SMEs, etc. 1,667.7 1,738.7 1,798.9 131.2 7.8% Consumer loans 807.6 850.1 898.4 90.8 11.2% Housing loans (Ratio of SMEs, etc.) 70.3% 72.0% 72.7% 2.4% － 765.3 807.1 855.3 90.0 11.7% Middle market and large Other loans 42.2 43.0 43.1 0.9 2.1% 282.8 291.1 298.2 15.4 5.4% companies, etc. Local governments and Local governments and 419.0 383.1 373.9 △ 45.1 △ 10.7% 419.0 383.1 373.9 △ 45.1 △ 10.7% public corporations public corporations 8 Loans – Status of Activities in Toyama Prefecture –
• First branch opened in Nanto City, Toyama Prefecture in March 2017 • 11 branches opened in Toyama Prefecture ⇒ Wide operational coverage of all areas in Toyama Prefecture • Annual growth in loans continues to exceed 10%
Branch Network Number of business loan customers
2,743 Uozu Branch 2,8002,800 2,743 Takaoka Branch Opened in July 2013 2,530 Ekinan Branch 2,600 Himi Branch 2,600 2,4002,400 2,2902,290 Shinminato Isurugi 2,1472,147 Branch Branch 2,2002,200
2,0002,000 End of End of End of End of Sept.H27.9 2015末 Sept.H28.9 2016末 Sept.H29.9 2017末 H30.9Sept. 2018末 Total loan balance
(Billions of yen) Toyama Branch Toyama Minami Branch Tonami Branch Toyama Tobu Branch
Nanto Branch Opened in March 2017
9 Loans – Status of Activities in Fukui Prefecture –
• The Tannan Branch opened in August 2018 as the third branch in Fukui Prefecture • In recent years, the number of loan customers and the total loan balance have growth rapidly due to the development of consulting operations and personnel increases
Branch Network Number of business loan customers
Kanazu Branch 550550 512512
450450 403403 Fukui Branch 328328 350350 277
Tannan Branch 250250 Opened in August H27.9End of末 H28.9End of末 H29.9End of末 H30.9End of末 2018 Sept. 2015 Sept. 2016 Sept. 2017 Sept. 2018 Total loan balance
(Billions of yen)
10 Loans – Lending Interest Rate –
• Lending rates for loans for business appear to stop • 90% of housing loan customers select short-term fixed interest rates (2 years fixed, 3 years fixed)
Ratio of customers selecting Lending interest rates by loan type fixed interest rate housing loans *Average contracted interest rate at the end of the period * New loans executed in September 2018
(%) [Reference] Rate for new housing loans End of End of Mar. End of Change (from (prime interest rate as of November 2018) Sept. 2017 2018 Sept. 2018 Mar. 2018) Business loans 1.32 1.31 1.27 ▲ 0.04 2 years fixed 0.50% Large companies 0.41 0.41 0.44 0.03 3 years fixed 0.60% SMEs, etc. 1.56 1.53 1.50 ▲ 0.03 5 years fixed 0.90% Consumer loans 1.08 0.99 0.92 ▲ 0.07 10 years fixed 1.20% Housing loans 0.92 0.83 0.76 ▲ 0.07
Other loans 3.00 3.00 3.00 0.00 20 years fixed 2.00% Local governments and 0.64 0.63 0.60 ▲ 0.03 Floating rate 1.325% public corporations 11 Loans – Coverage of Non-Performing Loans (NPLs) –
• The Banks coverage ratio of total NPLs through collateral, guarantees, and reserves at the end of the first half was 94.9% (up 0.9% YOY), one of the best among regional banks
Coverage of Total NPLs (DCF Method)
Collateral Credit Reserve Not and amount guarantees amount covered Total credit Reserve 55.9 billion yen 23.6 Not Borrowers past due for 3 months or covered 1.7 0.6 0.0 1.0 2.9 more and borrowers of restructured loans
Collateral and Likely to become 48.1 26.1 20.1 1.8 guarantees bankrupt borrowers 29.4 Coverage ratio Substantially 94.9% 4.2 1.7 2.4 - bankrupt borrowers
Legally bankrupt 1.8 0.8 1.0 - borrowers
Total 55.9 29.4 23.6 2.9
12 1. About the Bank 2. Outline Of Financial Statements 3. Loans 4. Securities Investment 5. Management Strategy 6. Corporate Governance 7. Increasing Equity and Return of Profits to Shareholders
13 Securities Investment – Initiatives and Policy to Date –
• Worked to increase profitability and quality through diversified investment strategy with a long-term perspective • Respond flexibly to changes in the investment environment ⇒ Main focus on foreign bonds and investment trusts Change in portfolio due to diversified investment strategy
FY2013 FY2017 * Ratios are calculated on fair value basis
(Millions of yen)
14 Securities Investment – Balance, Gain and Loss –
• Balance of securities increased by 45.5 billion yen to 1,011.8 billion yen. • Valuation gain on securities for the first half increased by 11.0 billion yen YOY to 89.5 billion yen, mainly due to an increase in gain on valuation of stocks
Balance of securities Valuation gain on securities
1,037.7 1,011.8 966.3 973.4
Remaining balance of securities (based on acquisition cost) (Billions of yen) End of End of Mar. End of Change (from Change (from Sept. 2017 2018 Sept. 2018 Sept. 2017) Sept. 2017) Securities total 966.3 973.4 1,011.8 45.5 4.7%
Yen-denominated 601.1 618.7 633.4 32.3 5.3% bonds
Foreign bonds 197.3 168.3 198.4 1.1 0.5%
Stocks and 167.8 186.3 179.8 12.0 7.1% investment trusts 15 1. About the Bank 2. Outline Of Financial Statements 3. Loans 4. Securities Investment 5. Management Strategy 6. Corporate Governance 7. Increasing Equity and Return of Profits to Shareholders
16 Management Strategy – Vision for Hokkoku Bank – Amid an adverse environment for regional economies, Hokkoku Bank will deepen its “commitment to customers” Market contraction due Labor shortages due Negative interest Worsening financial situation Diversifying values to falling population to falling population at the national level rates Business environment surrounding regional economies ② Realize a fee business ① Constructing a Vision for resilient operating • Strengthen initiatives on finance structure the Bank leases as well as credit card and affiliated store operations • Achieve strategic streamlining Next Regional and productivity enhancement ③ Consulting (finance + (e.g.) Branch consolidation Commercial Bank added value) Headquarters centralization • Headquarters consulting team of Mission to double our over 90- members responses to A main bank productivity. needs of corporations at different that progresses Transition to paperless life stages (enterprise start-up, environment with the Comprehensive, medical, nursing care, overseas regions, multifaceted expansion, ICT, M&A, resilient against solutions management improvement, the impacts of business continuity, revitalization the economy funds, etc.)
Resilience of a commercial bank able to weather economic downturns (Revenue and costs)
17 Management Strategy – Efforts to Improve Productivity –
Changes FY1997 FY2007 FY2017 (FY1997→FY2017)
Gross business profit 55.2 billion yen 51.8 billion yen 45.0 billion yen △10.2 billion yen
Net interest income 50.7 billion yen 44.0 billion yen 39.1 billion yen △11.5 billion yen
Fees & commissions 4.2 billion yen 7.3 billion yen 5.3 billion yen 1.1 billion yen
Expenses 35.4 billion yen 33.5 billion yen 28.3 billion yen △7.0 billion yen
Net business profit 19.8 billion yen 18.3 billion yen 16.6 billion yen △3.1 billion yen
Deposits 2,376.6 billion yen 2,730.2 billion yen 3,368.5 billion yen 991.9 billion yen
Loans 2,003.8 billion yen 数値最終確認2,146.0 billion yen 2,412.9 billion yen 409.1 billion yen
Yields of loans 2.48% 2.00% 1.13% △1.35%
Yields of securities 3.93% 1.50% 1.52% △2.41%
Yields of deposits 0.53% 0.26% 0.01% △0.52%
Expense ratio 1.50% 1.21% 0.84% △0.66%
Number of 150 branches 124 branches 105 branches △43 branches branches and 4 agencies Number of employees 2,496 1,939 1,802 △694 (Number of business staff) (460) (623) (453) (△7)
• Substantial changes in the earnings environment over the last 20 years • Cost reduction to make up for decrease in the net interest income
18 Management Strategy – Fees & commissions, Expenses and OHR –
• Steady increase in profit from new business • Commissions, including leasing services, increased by 187 million yen from the previous fiscal year.
Break down of commissions (fees & commissions, etc.) Breakdown of expenses (Millions of yen) (Millions of yen) FY2017 FY2018 FY2017 FY2018 Change Change first half first half first half first half
Expenses 13,988 14,090 102 Fees & commissions 2,709 2,845 136 Personnel 7,242 7,182 △60 Bank cards cost 170 243 73 business Non- personnel 5,772 5,865 93 Consultation cost 152 187 35 services
Gain from leasing 83 134 51 OHR services FY2018 first FY2019 first Total (Fees & Change half half commissions + gain 2,792 2,979 187 from leasing Core OHR 61.3% 65.7 4.4% services) 19 Management Strategy – Income from new business – FY2020 Target (Final year of the Medium- Consultation services for individuals Term Business Plan) 2.5 billion yen • Strengthening trust services and asset Consultation services inheritance services for individuals 0.2 billion yen Corporate consultation services, etc. Consultation • Support customer’s management services for capability improvement from various FY2017 corporations, aspects Actual result etc. Leasing business Approx. 1.0 billion yen 0.9 billion yen • Develop a stronger business framework that provides an optimal mixture of Consultation services for corporations, etc. Leasing financing and leasing services Approx. 0.6 billion yen 0.3 billion yen Bank cards business Leasing Approx. • Increase in number of debit card 0.2 billion yen members and card affiliated stores Bank cards Number of members: 109 thousands Bank cards → To 280 thousands Approx. 0.7 billion yen Number of merchant terminals: 3,410 → To 9,000 0.4 billion yen • Increase in capacity utilization of card terminals 20 Management Strategy – Corporate consultation services –
– The Bank’s approach to consulting – • Supporting customers to improve their problem solving capabilities leads to “increased management capabilities for customers ⇒ contribution to revitalize regions” • Understand customer’s business, share the challenges, and support resolutions • Over 90-dedicated employees work with branches, supporting them to realize rapid, high quality service Understanding of Identifying and Solutions to challenges business feasibility sharing challenges Number and amount of consulting contracts Main consulting services
(Number of contracts) Business (Millions of yen) Management succession and M&A strategy capital strategy Operation Strengthening of ICT streamlining management Human resources Retirement bonus HR systems development systems Business Overseas Real estate matching development Medical and Enterprise start-up Subsidies nursing care 21 Management Strategy – Overseas business support –
• In January 2019, Bangkok Representative Office established to strengthen customer support system in Thailand • In June 2019, trainees dispatched to Silicon Valley on the U.S. West Coast (Stanford University) • Provide financial services and consulting utilizing the Bank’s strengths in having overseas offices
Overseas network of Hokkoku Bank Overseas business support by Hokkoku Bank
Support for expansion in Consulting Customer Southeast Asia centered on Hokkoku Bank Singapore Branch Introduction phase Growth phase Mature phase Formulation of Local overseas Establish office subsidiary expansion plan management Develop sales Market survey channels
Overseas Singapore Branch procurement (15 staff members) Bangkok Representative Visit to trading partners by specialist Office (2 staff members) Overseas Business personnel from headquarters Bangkok Bank Strategy Department (1 staff member seconded) (12 staff members) FY2018 FY2016 FY2017 Joint Stock Commercial first half Bank for Investment and Stanford University Development of Vietnam (1 trainee) Number of trading (1 staff member seconded) 280 636 419 partners visited Shanghai Representative Office (3 staff members) 22 Management提言チャート Strategy – Leasing Business –
• Strengthen system that attracts customer consultations by proposing an “optimum mixture of finance and leasing services” • Entry into leasing services by the Bank itself allows for competitive pricing to challenge major leasing companies and expand revenue opportunities • Streamlined Group operations by restructuring and strengthening links with the Group’s leasing service system Gain from leasing services Initiatives of Hokkoku Bank (Non-consolidated) (Millions of yen) Customers
Enable one-stop administrative process The • Finance • Finance leases that do not Bank transfer ownership Lease investment assets (Group total) Leasing • Finance leases that transfer ownership (Billions of yen) 32.0 company • Specified residual value 29.0 (Affiliates of leases 23.0 the Bank) • Maintenance leasing
Relationship managers of the Bank propose the optimal mixture as the finance and lease liaison 23 Management Strategy – Enterprise Start-Up Support Initiatives –
• Enterprise start-up support = Bank’s social responsibility and investment into region’s growth • Cultivated interest in starting up enterprises in the Hokuriku area and set up the Enterprise Start-up Support Team in August 2015 to revitalize the regional economy • Flexibly provide funds through the “Enterprise Start-up Account Overdraft (Proper account)” product for supporting entrepreneurs until the third year of business 【Previously】 【Enterprise start-up support system】 Enterprise Consultation Consultation Branch Introduction Customers Branch Customers Start-up Support Response Enterprise start-up consulting Team 【Support】・・・Mainly guidance with applications through to loan execution 【Support】・・・ Continue supporting business growth after start-up. Build trust with customer Fund Sales Business Problem Application procure- channel Fund Sales plan solving Business Problem ment expansion Application procure- channel plan solving Support ment expansion Loan Total support 【 】 balance Loan 【Loan】 Use of system loans Initial Enterprise Start-up Loan loan No problem as long as Account balance Account Overdraft overdraft limit Equal there are no late payments ⇒Deferment and repayment of ☞Loan system from bank’s principal and additional Additional interest perspective Equal loan borrowings possible repayment Contract Initial Monthly consultation Repayment period determined at loan of principal 【創業融資の実績the time of the contract】※創業サポートチーム設立以後（H27.8～） and interest ☞Creating a system Contract that is in tune with Account overdraft Cash flow-based period repayment period customers (Maximum 36 months 322 from contract)
Achieve the function of venture capital (Enterprise Start-up Account Overdraft + consulting) 24 Management Strategy – Card Strategy and Initiatives toward Creating a Cashless Society –
• Aim to revitalize regional economies by supporting the drive towards cashless communities • Providing affiliated store terminals and debit cards from the Bank itself enables rapid business development ⇒ Contribute to productivity increase for affiliated stores and greater convenience for cardholders ⇒ Contribute to regional productivity increase and bank revenues
Consolidate shopping and payment Accelerate spread of cashless Promote circulation of money functions in the customer’s hand transactions to realize increased within the community to activate (smartphone) productivity the regional economy Present Future (After 3-5 years)
Hokkoku Bank
EC
Hokkoku Bank
25 Management Strategy – Status of Bank Cards Business Initiatives –
• By undertaking card affiliate store services, the Bank can offer small businesses cost benefits and will steadily expand the local cashless environment
Card affiliated stores of Hokkoku Bank Gain from card service
VISA (Millions of yen)
Commissioned Hokkoku Commissioned service fees Bank service fees Card issuing Affiliated store company management company Purchase Sales payment payment Consumers Card affiliated stores
Number of debit cards issues (aggregate) Number of card affiliated stores (aggregate)
(Thousands) (Number of stores) (4,719 machines)
1 26 Management Strategy – Consultation Services for Individuals –
• Provide one-stop asset transfer support services in addition to asset management • Aim to secure contact points with the next generation and build new customer base and long-term relationship
Investment Family trust trusts (From October 2017) Financial Asset management, product brokerage Insurance asset preservation Share life plan Support smooth asset transfer Legacy planning Support asset Secure contact Ascertain inheritance point with overall assets (From May 2018) Testamentary successor Gift inter vivos trust Testamentary (From October 2018) substitute trust Testamentary trust Expand transactions with
the next generation 1 27 Management Strategy – IT Strategy –
• Rebuilding our business model is essential to turning this into reality • Digital transformation to differentiate ourselves from the competitors are crucial • Modernizing our existing IT framework as a backbone to supporting these aims Achieved paperless Work style innovation by introducing Surface and mobile work style Completed Introduced Windows for core banking system Acceleratetegy development and (Introduction of BankVision) reduce costs
Bring Internet banking Introducing cloud services for services in-house and improve customer Internet banking services experience
Developing a cloud services access Enhance bank’s In internal and external progress environment using Surface communications
Enhance data Introducing various systems cloud services utilization and further reduce costs
Digital transformation and IT modernization with foundation of cloud services 1 28 Management Strategy – Hokkoku Bank’s Policy for Introducing Cloud Services –
• Introduction of cloud services for almost all of the systems
■Implementation of cloud services will ■Purpose of migration result in...
Realization Shorter lead ・Enhanced collaboration • ・Construction of new Cost of sales times for Availabili of online and physical • business models drawing reductions strategy at system ty and Security • ・Diversification of introduction operations • on cloud-based services early stage flexibilit revenue structure ・Collaboration with FinTech• ・Provision of banking y ・Shift to platformer ・Data analysis • platform as a service by Artificial Intelligence • (BaaS) features
■Image of data sharing Customers Core Internet banking banking FinTech systems services Internet banking Provide new ⇒ Provide APIs for Distributed services services handling transaction system ⇒ Provide full inquiries and bank Data Lake Electronic transfers ・CRM commerce functionality ・Groupware (EC) malls ・Lease, etc.
AI Enhanced Biometrics collaboration Data analysis by AI Marketing Physical bank locations ⇒ Specialize in 29 1 consulting services 29 Management Strategy – 10 Year Vision –
Contact points with customers Bank channel (operation) Currently, branch visits have declined by around 30% Internet banking will evolve into the main channel for while internet banking transactions have increased by transactions (clerical work) around 60% The face-to-face channel will become more sophisticated Introduction of next-generation internet banking to and focus mainly on consulting services promote shift to virtual banking channel transactions Virtual banking Virtual banking channels Face-to-face banking channels Face-to-face banking (Over-the-counter, etc.) (Internet banking) (Over-the-counter, etc.) 5 (Internet banking) 5 (Number of Clerical (Operation years years Sales customers) work volume) ago ago ＋60％ ▲30％ Decline in face-to-face clerical work Start of consulting services
Clerical Present Present Sales Consulting Introduce next-generation internet banking work (Planned for summer of 2019) Internet banking becomes
the main transaction Increase ＋120％ ±0% channel sophistication of face- Hokkoku Expand consulting services to-face sales Cloud Banking Hokkoku Cloud Banking After 10 Clerical After 10 Sales Consulting years work years 1 30 1. About the Bank 2. Outline Of Financial Statements 3. Loans 4. Securities Investment 5. Management Strategy 6. Corporate Governance 7. Increasing Equity and Return of Profits to Shareholders
31 Corporate Governance – Response to Cross- Shareholdings (Financial Institution Shares) –
• We are already working to reduce cross-held shares and have finished selling shares of insurance companies • Shareholdings of regional banks are mainly system partner banks
Regional banks (Mar. 2009) (Mar. 2018) 9,924 26,538 ⇒ (Thousand shares) thousand thousand 26,538 shares shares Mega banks Sold Insurance companies Sold
(Thousand shares) Others 9,924 The Bank of Toyama, Ltd. FIT partner banks The Fukui Bank, Ltd., The First ～ Bank of Toyama, Ltd. TSUBASA partner banks The Iyo Bank, Ltd., The Toho Bank, Ltd., The Daishi Bank, Ltd. BankVision partner banks Kyushu Financial Group, Inc., The Hyakugo Bank, Ltd., The Eighteenth Bank, Limited, Suruga Bank Ltd., The Kiyo Bank, Ltd. * The above does not include securities companies. 32 Corporate Governance – Corporate Governance Structure –
• The Bank has improved the transparency of the business execution process as a result of the participation in management by outside directors. Corporate governance structure Composition of outside directors
Inde- Significant concurrent Some business execution decision-making Name Reasons for nomination pendent positions outside the Bank assigned to directors Hideo Representative Director His experience and ➡ Aim for constructive discussion of management Nakashima and President, Nakashima broad discernment as strategy at Board of Directors [Reelection] Shouten Co., Ltd. and corporate manager others Board of Masahiro ○ Chief Executive Officer His experience and Directors Kijima and President, Meiji broad discernment as [Reelection] Yasuda Institute of Life corporate manager (Executive) Audit and Audit and and Wellness, Inc. supervise Supervisory directors Ichiro Sasaki ○ Corporate Advisor, Wealth of experience Committee [Reelection] Komatsu Ltd. inside and outside of 11 directors 2 internal directors Japan and discernment 4 outside directors based on his career Masako ○ Professor, Kanazawa International experience Osuna Institute of Technology and discernment based Discuss Instruction [Reelection] on many years at Japan remuneration and External Trade Nomination direction Organization of directors Voluntary Advisors and Corporate Advisors Nomination and Compensation Audit Department No advisors or corporate advisors since Committee July 2017 1 33 Corporate Governance – Remuneration Plan for Directors –
• Selected a system that clarifies the link between the share value of the Bank and the remuneration for Directors.
Directors Base salary + bonuses to officers + Audit and Supervisory Board Members -2009 Executive Officers retirement benefit
Directors Base salary + performance-linked payment + Executive Officers share options 2009- Audit and Supervisory Board Members Only base salary 2015 Directors who are not Audit and Base salary + performance-linked payment + Supervisory Committee Members Executive Officers share options 2015- Directors who are Audit and 2017 Supervisory Committee Members Only base salary Directors who are not Audit and Base salary + performance-linked payment + Supervisory Committee Members Executive Officers stock distribution trust Present Directors who are Audit and Supervisory Committee Members Only base salary
Current executive remuneration ratio (6:2.4:1.6) Performance- Share Sum certain payment remuneration 1linked payment 34 1. About the Bank 2. Outline Of Financial Statements 3. Loans 4. Securities Investment 5. Management Strategy 6. Corporate Governance 7. Increasing Equity and Return of Profits to Shareholders
35 Increasing Equity and Return of Profits to Shareholders – Capital Adequacy Ratio and ROE –
• Capital adequacy ratio (global standard, consolidated) of 12.56% is an adequate level even without subordinated bond • Aim to increase ROE while placing emphasis on striking a balance with the capital adequacy ratios.
Return on equity (ROE)・・・based on profit 5.00%
12.84% 12.56% 12.32% 4.50% 4.33% 12.02% 4.27% 118 115 4.17% 20411.82% 11.76% 4.00% 3.81%
2,591 2,364 2,503 3.50% 3.32%
3.00%
End of Sept. 2017 End of Mar. 2018 End of Sept 2018 2.50% Tier1 Tier2 Capital adequacy ratio Tier1 ratio End of Mar. End of Mar. End of Mar. End of Mar. End of Sept. 2015 2016 2017 2018 2018
Domestic standard Global standard
End of Mar. 2014 End of Mar. 2015 End of Mar. 2016 End of Mar. 2017 End of Mar. 2018 End of Sept. 2018
Capital (consolidated) 1,991 2,006 2,321 2,411 2,621 2,707
Tier1 － － 2,080 2,256 2,503 2,591
Tier2 － － 241 155 118 115
Risk assets 15,249 17,112 17,886 19,123 21,267 21,555 36 Increasing Equity and Return of Profits to Shareholders – Capital Adequacy Ratio and ROE – • Stable dividend(60yen p.a.) + Performance-linked dividend • The dividend payout ratio is expected to be 25 to 30% • Purchase and cancellation of treasury stock is a continuous implementation policy
Yield of dividends Amount of dividends, etc.
(Millions of yen) 8,000 3.00% 79.6% 71.1% 75.0% 2.70% 6,000 2.50% 2.17% 4,122 50.0% 2.12% 4,000 3,780 40.7% 2.00% 1,510 0 25.0% 26.6% 1.67% 2,000 2,414 2,694 2,619 1.50% 2,159 0 0.0% Mar.2015 Mar.2016 Mar.2017 Mar.2018 1.00% Total amount of annual dividends Mar.2015 Mar.2016 Mar.2017 Mar.2018 Total amount of perchase of treasury stock Total retum ratio Yield of dividents Average ok regional banks Mar. 2015 Mar. 2016 Mar. 2017 Mar. 2018 Mar. 2019 Forecast Annual dividends per share 7.00yen 8.00yen 9.00yen 90.00yen 80.00yen
Purchase of treasury stock(thousand shares) 10,000 5,000 - 850※ Cancellation of treasury stock - 14,700 - - (thousand shares) Yield of dividends(Dividends/Stock price as of the 1.67% 2.70% 2.12% 2.17% end of the fiscal year) Net assets per share 775.53yen 754.42yen 803.92yen 8,857.72yen※ - Price book value ratio(PBR) 0.54 0.39 0.52 0.46 - 1 37 ※As of October 1, 2017, the Bank has consolidated one share for each 10 shares of common stock. Reference 1. Initiatives on SDGs 2. Deposits and Client Assets 3. Changes in Key Figures of Hokkoku Bank 4. Integrated Risk Management
1 38 Initiatives on SDGs – Basic CSR Policies–
• Initiatives implemented in line with our three Basic CSR Policies also align with the sustainable development goals (SDGs) • As we evolve and develop our initiatives going forward, we will strive to realize sustainable local communities Basic CSR Policies Major initiatives ① Financial services that meet the needs of the times • Financial services closely tailored to local needs • Provide financial services that lead to the (Leveraging consulting capabilities) creation of shared value with local ⇒ Please refer to pages 21 to 25. communities • Asset formation and life planning support ② Able to provide support into the ⇒ Please refer to page 26. future • Strengthening of corporate governance structure • Cultivate an organizational stance and ⇒ Please refer to pages 29 to 31. corporate culture that can respond flexibly to • Diversity management changes in the times • Work-life balance ③ Committed to local communities • Supporting improved financial literacy for local • Support the environment and education for the communities next generation • Environmental measures • Strengthen contact points with the local • Strengthen points of contact with local community communities through social contributions 1 39 Initiatives on SDGs – Able to Provide Support into the Future –
Numbers of workers taking childcare leave Number of women in management and reduced working hours for childcare (As of April 1 each year)
(Number of persons) (Number of persons)
32 25
16 9
June 2011 November 2014 October 2017 Designated a “Company Participated in formulating Designated as an “Ishikawa Supporting Childcare” under the the Declaration on Action Company Declaring Promotion Act on Advancement of of the “Regional Bank of Joint Participation by Men Measures to Support Leaders Association for and Women” Raising Next- Accelerating Activities by Generation Children Talented Women” by the Ministry of Health, Labour and Welfare 1 40 Initiatives on SDGs – Committed to Local Communities –
Supporting improved financial literacy for Strengthen contact points with the local local communities community through social contribution Financial education for all generations CSR activities at branches FY2016 FY2017 Number of 355 389 activities
Happy! Concerts FY2016 FY2017 Number of 20 29 concerts held Environmental measures Creation of environmentally considerate branches Hokkoku no Mori forest care activities • Energy-saving initiatives at new Amount of CO₂ absorbed in FY2017: 1.2 tons branches, such as exterior heat insulation and LED lighting • The headquarters building (photograph on right) was awarded as a next-generation “Eco Office” by Ishikawa 1 Prefecture (2017) 41 Deposits and Client Assets
• As for deposits, both individual deposits and corporate deposits are showing firm results, having increased by 140.7 billion yen from the end of the previous fiscal year. • With respect to client assets under management, the number of contracts of installment investment trusts has increased by over 1,800 per year
Balance of deposits Balance of deposits
2,608.6 2,640.8 2,541.9 3,365.4 3,452.2 3,506.1 3,306.8
Number of contracts of installment investment trusts
(Billions of yen) End of End of Mar. End of Change (from Change (from Sept. 2017 2018 Sept. 2018 Sept. 2017) Sept. 2017) 16,662 18,485 Deposits, etc. total 3,365.4 3,452.2 3,506.1 140.7 4.1% 13,151 Individual deposits 2,284.5 2,324.7 2,362.5 78.0 3.4%
Corporate deposits 860.2 875.0 905.1 44.9 5.2% End of Sept. 2016 End of Sept. 2017 End of Sept. 2018 Public / Fin'l deposits 220.7 252.4 238.4 17.7 8.0% 42 Changes in Key Figures of Hokkoku Bank ①
(Millions of yen）
Changes in gain/loss (Non-consolidated) FY2013 FY2014 FY2015 FY2016 FY2017 YOY Change Gross profit 45,925 52,403 48,043 44,004 43,911 △ 93 〈Excluding gain/loss on bonds〉 (46,384) (47,162) (46,414) (43,949) (45,041) 1,092 Net interest income 40,011 40,887 40,881 38,457 39,197 740 Fees & commissions 6,114 5,957 5,186 5,071 5,332 261 Other business profit △200 5,558 1,975 475 △ 618 △ 1,093 Gain/loss on bonds △459 5,240 1,628 55 △ 1,129 △ 1,184 Expenses （△） 29,778 30,306 28,439 28,806 28,346 △ 460 Personnel cost 15,524 14,748 14,445 14,284 14,441 157 Non-personnel cost 12,629 13,376 12,131 12,702 11,958 △ 744 Taxes 1,625 2,181 1,862 1,819 1,946 127 Net business profit 16,606 16,856 17,974 15,142 16,694 1,552 Provision of reserve for possible loan losses ① （△） △252 2,871 335 1,037 △ 469 △ 1,506 Net business profit (after reserve) 16,399 19,225 19,267 14,160 16,034 1,874 Expenses related to portfolio problems △ 1,611 △ 2,070 △ 2,628 △ 140 △ 1,293 △ 1,153 Gain/loss on equity 806 2,841 2,841 378 1,636 1,258 Amount of credit costs ② （△） 4,019 5,995 5,949 754 2,095 1,341 Recoveries of written off claims ③ 2,147 1,216 555 692 63 △ 629 Ordinary profit 14,787 17,155 16,638 14,020 14,741 721 Extraordinary gain/loss △ 1,312 △ 2,764 △ 770 △ 333 △ 629 △ 296 Profit before income taxes 13,475 14,390 15,868 13,687 14,112 425 Profit 7,254 7,459 9,629 10,107 9,479 △ 628 43 Changes in Key Figures of Hokkoku Bank ②
(Billions of yen: ％）
Average balance, yield, FY2013 FY2014 FY2015 FY2016 FY2017 YOY Change etc. Average Average Average Average Average Average balance Yield balance Yield balance Yield balance Yield balance Yield balance Yield Loans 23,138 1.36 23,599 1.28 23,208 1.27 22,867 1.23 23,456 1.13 589 △ 0.10 Securities 8,596 1.13 10,224 1.15 10,299 1.21 9,899 1.19 9,803 1.52 △96 0.33 Call loans, etc. 799 837 5,090 5,441 7,752 2,311 Total interest-earning assets 32,535 1.27 34,660 1.22 38,597 1.10 38,208 1.06 41,012 1.03 2,804 △ 0.03 Deposits 29,788 0.03 30,325 0.02 30,326 0.02 31,135 0.01 32,507 0.01 1,372 0.00 Negotiable certificates of deposit 1,305 0.07 1,296 0.05 1,189 0.04 1,031 0.02 1,036 0.02 5 0.00 Call money, etc. 442 3,182 5,971 5,161 7,528 2,367
Total interest-bearing liabilities 31,536 0.04 34,803 0.04 37,486 0.05 37,327 0.05 41,071 0.07 3,744 0.02
(％）
FY2013 FY2014 FY2015 FY2016 FY2017 YOY Change Interest margin for total fund interest rate 0.28 0.31 0.30 0.24 0.27 0.03 Gap on yields of deposits and loans 1.33 1.26 1.25 1.22 1.12 △ 0.10 Expense ratio 0.95 0.95 0.90 0.89 0.84 △ 0.05 OHR 64.19 64.25 61.27 65.54 62.93 △ 2.61 ROA (based on net business 0.47 0.44 0.44 0.36 0.36 0.00 profit) ROE (based on net 7.89 7.50 7.78 6.49 6.72 0.23 business profit)
44 Integrated Risk Management
Allocated Amount used Integrated Value at Risk (As of the end of March 2018) Use rate capital (VaR) (Billions of yen) Market risk 82.2 Interest rate risk 15.8 Share price 8.2 73.1 7.1 fluctuation risk 105.1 78% 150 Investment trust 19.5 price fluctuation risk
Correlation effect ▲26.3 47.9 3.2 6.9 Credit risk 47.9 35.1 73% Operational risk 7.1 6.9 100 35.1 Total risk subject to 168.3 127.5 76% 183.5 allocation 【Calculation of Value at Risk (VaR)】 •Interest rate risk: 6 month holding period, 99.9% confidence interval (liquid deposits use an internal model method) •Share price fluctuation risk: 6 month holding period, 99.9% confidence interval 50 105.1 •Investment trust price fluctuation risk: 6 month holding period, 99.9% confidence interval •Credit risk: 1 year holding period, 99.9% confidence interval 82.2 •Operational risk: Basic indicator approach
【Ratio to interest risk on banking accounts (As of March 31, 2018)】 Amount of interest risk on ① 16.6 billion yen 0 banking accounts Upper allocation Allocated capital Amount used limit (VaR) Tier 1 capital ② 245.2 billion yen
Upper allocation limit Market risk Credit risk Operational risk Other risk Ratio to IRRBB ① / ② 6.78%
* Upper allocation limit: Tier 1 capital such as common stock after deducting 【Other indicators (As of March 31, 2018)】 ・Consolidated liquidity coverage ratio 149.4% (90% or higher required) valuation gain on securities, etc. 45 About This Material