#1THE HIROSHIMA BANK Investor relations presentation material President Isao Sumihiro October 2009 広島銀行#2Table of contents HIROSHIMA BANK I .Outlook/Financial highlights of The Hiroshima Bank II Hiroshima's economy 1. Outlook of The Hiroshima Bank 2. Financial highlights 3. Summary of the Mid-term business plan 4. Earning estimates and key points 1. Outlook 2. Recent conditions (Bank of Japan's regional economic report) 3. Expansion to Asia (by Hiroshima-based companies) 2 3 4 5 6 . . . . 7 8 Business style 1. Overall structure 9 2. Corporate business 10 3. Retail business 11 4. Diversification of profit sources 12 IV Balance sheet 1. Loans - 2 13-14 2. Deposits 15 3. Securities 16 V .Financial soundness 1. Indices 17 2. Non performing loans 18 3. Capital adequacy ratio 19 VI .Shareholder returns 1. Shareholder returns 20 1#31. Outlook of The Hiroshima Bank - Change in number of banks in Japan - Mega banks Trust banks 1st tier regional banks Hiroshima Bank 1990 2009 12 9 55 .. 64 64 2nd tier regional banks 69 69 44 Shinkin banks 426 279 Hiroshima Bank's Network branch (as of June 30, 2009 ) Matsue Himeji Kobe Ckayana Hiroshima Kitakyu Yamaguchi Fukuoka Tokyo Nagoya Osaka Hiroshima Bank Main operating area Foundation HIROSHIMA BANK I. Outlook/Financial highlights 1878 (130th Anniversary) ■Capitalized at ¥54.6 billion Deposits Loans Employees Offices ¥5,413.5 billion No.9 among 64 1st tier regional banks) ¥4,427.3 billion No.7 among 64 1st tier regional banks) 3,417 Domestic branches 166 Yamaguchi 7 Housing loan center 1 Hiroshima Bank has a broad network of branches, mainly located in Hiroshima and neighboring prefectures. Hiroshima 136 Okayama 9 Business loan center 2 Housing loan center 7 Housing loan center 1 Hiroshima City Ehime 6 (Numbers after the name of the prefectures are number of branches ) 2#42. Financial Highlights HIROSHIMA BANK I. Outlook/Financial highlights (PY billions) 60 50 40 30 20 10 44.8 1.0% 47.3 2.2% Real economic growth in Hiroshima 47.8 2.0% 49.9 3.3% 52.4 2.6% 52.8 2.5% 44.8 -3.1% LLLLLL 10.3 14.4 15.2 0 FY02 FY03 FY04 Core banking profit 20.2 18.3 FY05 FY06 Net income FY07 21.2 Real economic growth in Hiroshima FY08 7.4 Profitability < FY 2008 > Profit decreased mainly due deterioration of economy and market confusion. <Core banking profit > Decrease dprofit in retail asset management due to the weaker equity markets. Decrease dprofit in currency derivative transactions due to decrease in import-export transactions. < Net income > •Suffered from impairment losses on securitized products (CDO). Credit cost increased due to bankruptcy of large- sized companies (such as Urban Corp./Lehman Bros.) Risk of large credit costs and impairment loss on securities occurring in the future is limited (We have already taken such costs and loss in FY2008) 3#53. Summary of the Mid-term management plan (FY09 ~ FY2011) ✓ - HIROSHIMA BANK I. Outlook/Financial highlights In 2008, regional economy deteriorated due to deterioration of economy and market confusion Under our assumption that it will take time for the economy to recover, we have decided to revise our business strategies with consideration for the changes in the management environment. Finish the previous 3-year mid-term management plan (FY07 - FY09) in FY08 (2 years) New Mid-term Management Plan <STEPS > From FY 2009 to FY 2011) Establish strong operational base in region and profitability for achieving sustainable growth in future Build strong relationship with customers Strengthen capital base Establish solid operational base Enhance sustainable profitability Action Slogan of STEPS STEPS "Start Action" "Try Best" "Energize Persons" "Positive Thinking" "Satisfy Customers" 4#64. Earning estimate and key points Earning estimate Real economic growth in Hiroshima (forecast) (PY billions) -3.1% 50 40 40 44.8 30 20 20 10 10 0 35.6 -4.0% HIROSHIMA BANK ✓ I. Outlook/Financial highlights Achievement ratio to FY09 earning estimate Core banking profit Net income 0.0% PY billions) (PY billions) 35.6 30 7.5 8.3 45.0 20 20 3month achievement ratio to FY09 plan 5 17.7 10 26% 9.2 2.5 3month achievement ratio to FY09 plan 40% 3.3 7.4 8.3 FY08 actual Core banking profit FY09 estimate FY11 estimate 0 0 Net income Real economic growth in Hiroshima(forecast) FY09 estimate FY09 estimate 1Q FY09 1Q FY09 1. Strong regional economy • • Transport machinery, steel, and high-tech sector have accumulated and developed technologies while industrial structure has diversified. Hiroshima-based companies' aggressive expansion of business activities to Asia. Provision of speedy and convenient service to retail customers by following customer needs in each life stage. Increasing the number of corporate customers and enhance "fund intermediary function" by pursuing regional finance initiatives to strengthen profitability. Our market share in loans and deposits in Hiroshima prefecture has been expanding. • Aggressive enhancement of "fund intermediary" function as the leading bank in Hiroshima. Highly-evaluated 2. business style • · 3. High market share 4. Advanced system base • Establishment and sharing of sophisticated system with Fukuoka Financial Group 5#7HIROSHIMA BANK 1. Outlook of Hiroshima's economy II. Hiroshima's economy Hiroshima's population is 287 million, and GDP of Hiroshima is almost equivalent to Kuwait and New Zealand. In addition to the transport machinery and steel sectors, the high-tech sector has accumulated and developed technologies. (million people) Population of Hiroshima (2008) Breakdown of Manufacturing Industry in Hiroshima (Total value of shipped manufactured products: 1996 → 2006) 1996 77.9 $billion 2006 90.5 $billion 200 287 Others 30.4% Transport Machinery 24.6% Others 23.2% Transport Machinery 25.1% 100 196 Chemical Steel 143 149 8.6% Steel 14.5% Chemical General 14.8% 6.3% General Electric 0 Machinery Machinery Machinery Electric 13.8% Machinery Ehime Yamaguchi Okayama Hiroshima 15.8% 8.4 % 14.5% Economic Scale of Hiroshima (2006) Diversity of industries in Hiroshima Nations/Regions Nominal GDP ($ billion) Philippines 167.3 Hungary 160.0 Elpida Memory New Zealand 150.5 Mazda Hiroshima Prefecture 128.4 Kuwait 127.4 General Machinery Peru 125.2 Wooden furnitureo Chemical Vietnam 82.1 Mitsubishi Heavy Industry J FE Steel Hiroshima Electric Automobile Ship Machinery General Ship Fukuyama Machinery building Steel Electric Machinery Obuilding Electric Electric Machinery Machinery Steel Sharp Co. 6#82. Recent conditions HIROSHIMA BANK II. Hiroshima's economy According to the Bank of Japan's regional economic report, Hiroshima's production and exports are gradually increasing compared to other main regional prefectures in Japan. Report in April 2009 Hiroshima Sapporo Sendai Takamatsu Fukuoka : Deteriorating : Increase difficult situation : Deteriorating significantly Deteriorating significantly : Deteriorating significantly Sapporo Report in September 2009 Hiroshima : Bottoming out Sapporo : Sluggish Sendai : Continue difficult situation Takamatsu : Continue difficult situation Fukuoka : Slightly bottoming out Overall Production Business sentiment Export Consumer spending Hiroshima Sendai Sapporo Bottoming out Sluggish Increasing Slightly better Increasing Weakening slightly Deteriorating Plateau Decreasing greatly Difficult situation Sendai Difficult situation Bottoming out Plateau Decreasing Weakening Hiroshima Takamatsu Difficult situation Tokyo Bottoming out Plateau Bottoming out Weakening Fukuoka Takamatsu Fukuoka Slightly bottoming out Increasing Plateau Bottoming out Weakening 7#93. Expansion to Asia (by Hiroshima- based companies) HIROSHIMA BANK II. Hiroshima's economy Hiroshima-based companies are internationally expanding their activities and have opened 336 operating offices in East Asia. Consequently an increase in business for our bank can be expected along with the growth of the economy of East Asia. Hiroshima-based companies' expansion of activities China 168 Offices Automobile etc 32 offices General machinery 26 offices Shanghai Representative Office Shanghai Hiroshima Export counterpart nations of Hiroshima-based companies Hong Kong 11 Offices Proportion yoy change Food Clothing 2 offices 2 offices 1 China 14.1% +8.6% 2 Panama 12.6% +24.3% Thailand 38 Offices 3 America 12.1% -16.1% Breakdown of 336 offices Automobile etc 15 offices 4 Korea 9.8% +9.8% Electrical machinery 8 offices Hong Kong Number of offices 10 Thailand 5.6% +34.3% Bangkok Automobile etc. 60 General Machinery 44 6 Taiwan 4.6% - 11.4% Chemical 43 7 Singapore 2.9% +50.6% Bangkok Electric Machinery 26 2008 calendar year Representative Office Singapore 12 Offices Electrical machinery 2 offices General machinery Clothing 25 Others 138 Total 336 2 offices Singapore as of March 2008 8#101. Basic structure HIROSHIMA BANK III. Business style of Hiroshima Bank Leveraging key strengths: Funds / Information / Risk management Deposits Promotion of basic transactions with customers to increase "balance" Loans Promotion with consideration for well- managed "balance," "yield" and "risk" Securities Aggressive lending to regional small-sized companies based on stable funding (deposits) from region Establish portfolio with well-managed "profit" and "risk" Fund intermediation Regional customers Solution business Retail Asset management Enhance management support business based on solid know-how Offer wide range of products to meet customer's needs Offer sophisticated solution business to accommodate with customers' needs Information intermediation Risk management intermediation System sharing (Fukuoka Bank : 2003/1 ~) Alliances Network (In-store ATM : 25,600) Securities/Insurance International business (Hirogin Utsumiya Securities) (Alliance with 8 foreign banks) 9#11HIROSHIMA BANK 2. Corporate business III. Business style of Hiroshima Bank Establish a solid operating base in region and enhance "Fund intermediary function" by pursuing regional finance initiatives Large (Sales more than J PY 3.0 billion) 1,443 companies Middle (Sales between JPY 0.2 and 3.0 billion) 5,936 companies Hiroshima Develop solution business ■Offer order-made financial services to establish solid relations with customers as the main bank. Offering derivative product Syndicated loans Bond underwriting Business succession M&A Ehime/Okayama/Yamaguchi Develop business mainly focusing on corporate business Enhance corporate loans Increase the number of customers taking advantage of investment banking. Enhance the market share of corporate loans. Business matching Urban area Enhance corporate loans to developing industries ■Promote loans to mid- and small-sized companies. (by face-to-face activities) Small (Sales less than J PY 0.2 billion) 16,269 companies Establish solid customer base (Increase the number of customers) *Number of companies stands for our clients in each category. 10#12HIROSHIMA BANK 3. Retail business III. Business style of Hiroshima Bank Establish strong relationships with regional customers by following customers' needs in each life stage 20s 30s Age (Life event) Starting work Marriage/Children 40s 50s Children in school 60s 70s Retirement Opening account Asset ☐ formation Key transactions Salary receiving Credit card •Housing loan •Pension Educational loan •Retirement allowance Asset management Establish solid operational base Opening salary receiving account as a first step ) Enhance and deepen long-term relationship with regional customers Offering customers the widest range of innovative and valuable securities services Utsumiya Securities 50 55 % "Hirogin Utsumiya Securities Co., Ltd.," Started operation on Jan. 02 2008 ◆ Number of branches 25 (Hiroshima 15/Yamaguchi 6/Okayama :1/Others 3) ◆ Employees 240 (as of June 30, 2009) Hiroshima 50 % Bank 11#130 10 20 20 HIROSHIMA BANK III. Business style of Hiroshima Bank <Corporate > Number of transactions for investment banking 4. Diversification of profit sources High non-interest income ratio shows diversification of the Bank's sources of profits Comparison of non-interest income ratio Number of transactions) (%) 30 TI 82 Yamaguchi Chugoku Nishini hon Chiba Yokohama Hiroshima 400 8 104 87 13 300 67 36 32 34 200 ــمـ 69 271 268 100 219 31 25.1 95 Fukuoka Hokuhoku 0 FY 05 Derivative FY 06 Syndicated loans FY 07 Bond underwriting FY 08 □ M&A < Personal > Balance of retail customer assets (PY billions) 800 (769.8) (815.6) 43.7 28.8 (656.5) 179 188.6 219.9 600 144.7 (481.1) 55 96.2 275.8 276.3 400 229.3 169.5 200 264.6 276.6 275.7 209.9 0 06/3 Public bond 07/3 Investment trust 08/3 Annuity insurance 09/3 Securities brokerage Balance is acquisition basis 12#141. Loans ① HIROSHIMA BANK IV. Balance sheet Total loan balance (average balance) Total loan balance (average balance), both corporate and lancel both co personal loans, has steadily increased. Loans outstanding by bank in Hiroshima (09/3 term-end) Hiroshima Bank has the most loans outstanding and the highest market share in Hiroshima prefecture. The mega banks' position is weak. (PY billions) 4,000 (3,965.1) 2,808.0 (4,059.4) 2,857.8 (4,306.2) 3,058.0 3,000 2,000 1,000 965.0 1,005.3 1,041.9 +JPY 92.0 billion Voy +2.1%) (PY billions) (4,398.2) 3,188.7 3,106.9 3,000 30 Corporate +JPY 48.9billion Voy +1.6%) 1,066.5 Personal +JPY 24.6 billion Voy +2.4%) 20 20 Loan share in Hiroshima %) Hiroshima Bank Shinkin banks Momiji Bank 2,575.4 10 06/3 07/3 08/3 09/3 2,000 1,722.6 Mega banks 1,000 789.0 363.9 222.4 189.4 0 192.1 196.3 206.3 224.8 0 Hiroshima Bank Momiji Bank Hiroshima Shinkin S MFG Mizuho MUFG Others FY05 FY06 FY07 FY08 ☐ Regional government loans □ Personal loans ☐ Corporate loans Market share 35.2% 19.0% 8.7% 4.0% 2.5% 2.1% 13#15HIROSHIMA BANK IV. Balance sheet Loan portfolio High loan-deposit ratio Focus on small- and medium-sized companies ■Portfolio with stable profitability, mainly focused on small and medium-sized companies Breakdown of the loan portfolio 1. Loans ② (%) 50 45 Small and medium-sized company loan ratio 40 40 Loan interest rates Large companies 20% Large companies App. 1.2% Hiroshima Bank Personal 25% Med-sized companies App. 1.6% Med-sized companies 4% Regional government 5% Regional government App. 1.5% Small-sized companies App. 1.9% Small-sized companies Chiba 46% Fukuoka Personal App. 2.8% Chugoku Yamaguchi■ Gunma Focus on small- and medium-sized companies 35 30 60 82 22 Amount of new housing loans executed and balance of loans PY billions) Amount of housing loans executed for newly-built and secondhand houses Yokohama Joyo 738.2 77 700 707.3 Shizuoka: Average yoy +3.0% 772.0 746.6 Record level 82.6 69.8 61.2 60.1 70 Focus on loans 80 90 (%) Deposit-loan ratio Deposit - loan ratio = Outstanding loans/Outstanding deposits Small and medium sized company loan ratio = (Small and medium sized company loans - personal loans)/domestic loans 600 500 06/3 07/3 Balance of housing loans 08/3 Amount of new housing loans executed 09/3 14#162. Deposit Total deposit balance (term-end) Total deposit balance steadily increased, mainly in personal deposits. (PY billions) +JPY 103.7 billion Voy +2.0%) 5,000 (5,206.2) 1,755.0 (5,324.2) 1,860.8 (5,310.1) (5,413.8) 1,701.0 1,728.0 HIROSHIMA BANK IV. Balance sheet Deposits outstanding by bank in Hiroshima (09/3 term-end) Hiroshima Bank has the most deposits outstanding and the highest market share in Hiroshima prefecture. The mega banks' position is weak. PY billions) 35 4,542.8 Deposit share in Hiroshima Hiroshima Bank Shinkin banks 25 25 Momiji Bank 4,000 4,000 15 3,712.8 Mega banks 3,244.5 3,582.1 3,451.2 3,463.4 5 3,000 06/3 07/3 08/3 09/3 3,000 2,000 1,000 2,000 2,291.5 1,087.8 Personal deposit +JPY 130.7billion 1,000 yoy +3.6%) 413.9 353.8 326.1 0 0 FY05 FY06 Personal deposits FY07 FY08 Hiroshima Bank Momiji Bank Hiroshima MUFG Shinkin S MFG Mizuho Others □ Others Market share 37.1% 18.7% 8.9% 3.4% 2.9% 2.5% 15#17HIROSHIMA BANK IV. Balance sheet 3. Securities Established a soundness portfolio pursuing stable profitability not subject to impacts from interest rate risk and credit risk. Securities portfolio (term-end balance) PY billions) (1,744.5) Risk of impairment losses on securities occurring in the future is quite limited +JPY 238.6 billion 333.1 (1,530.5) 1,500 (1,454.9) Stocks The risk of impairment loss on stocks is limited even at the NIKKEI 8,000 yen level. (JPY billions) 101.7 368.9 336.2 (1,216.3) Unrealized gain(loss) 08/3 09/3 09/6 252.7 Stocks 23.8 116.5 - 10.1 7.0 change from09/3 17.1 336.1 117.7 1,000 109.1 79.3 92.6 95.6 88.6 129.4 Foreign Bonds No CDO and no other securitized bonds are included in our foreign bond portfolio. 91.5 25.8 (JPY billions) Balance 08/3 09/3 09/6 change from09/3 500 947.9 870.2 Government bond 0.0 10.4 27.1 16.7 819.8 Ginnie Mae 12.1 25.4 20.5 - 4.9 633.5 Fannie Mae 33.8 22.6 20.7 - 1.9 Freddie Mac 45.6 34.2 28.4 - 5.8 Total 91.5 92.6 96.7 4.1 0 06/3 07/3 08/3 09/3 Government bonds ☐ Regional Gov't bonds Foreign bonds ☐ Stocks Others Balance before fair value adjustment 16#18Chugoku 40 40 50 Joyo Gunma 60 (%) 1. Indices (FY09) Core OHR HIROSHIMA BANK High level of operating efficiency / Stable return from asset management / High profitability based on equity capital Core OHR) Core ROA) (ROE) 82 Hiroshima Iyo 57.6 Kyoto Shizuoka Chiba Yokohama 00 0.0 0.2 12 0.4 Chugoku Joyo 0.6 90 0.8 1.0 (%) e Gunma 82 Fukuoka Hiroshima Core ROA 0.72 lyo Shizuoka Chiba Yokohama 0.0 Shizuoka 1.0 20 2.0 Chugoku Chiba (%) V. Financial soundness ROE 3.01 3.0 Kyoto 77 Hiroshima Gunma Yamaguchi lyo Fukuoka 17#19HIROSHIMA BANK 2. Non performing Loans (NPLs) V. Financial soundness Still considering the downward trend in corporate performance, we have executed a conservative self-assessment for loans. Coverage to NPLs by mortgage and guarantee increased / Coverage ratio rose to 88.2%. NPLs (term-end balance) and NPL ratio Coverage to NPLs NPL ratio (PY billions) JPY billions) Coverage ratio 3.2% 88.2% 83.3% 2.7% 2.6% 2.8% 82.7% 150 77.4% (128.5) (128.4) 128.5 128.4 100 118.4 114.9 113.2 (118.4) 99.5 98.5 95.0 (114.9) 15.5 50 52.0 26.8 100 36.2 60.2 50 52.7 74.0 86.8 0 06/3 07/3 08/3 09/3 NPLs Coverage to NPLs Coverage ratio Coverage to NPLs = amount of mortgage and guarantee to NPLs (PY billions) 2,000 26.1 1,000 23.9 21.9 14.1 Comparison of NPLs (09/3) 1,284 0 0 06/3 07/3 08/3 Bankrupt etc. Doubtful Sub-standard 09/3 NPL ratio Yokohama Fukuoka Hokuhoku Shizuoka 82 Chiba 77 Hiroshima Kyoto Gunma 18#20HIROSHIMA BANK 3. Capital adequacy ratio V. Financial soundness ■Capital adequacy ratio has steadily increased through the accumulation of retained earnings. ■Capital adequacy ratio (Non-consolidated) reached 11%, Tier 1 ratio (Non-consolidated) reached 7%. Capital adequacy ratio and Tier 1 ratio (non-consolidated basis) (PY billions) Capital adequacy ratio Comparison of Capital adequacy ratio 09/3) (Non-consolidated) 9.53% 400.0 300.0 135.1 11.24% 10.66% 10.39% 150.3 Tier 1 ratio (Non-consolidated) 6.49% 200.0 5.73% 161.8 154.8 15.0% 10.0% 5.0% 7.00% 6.72% 0.0% 263.9 268.1 250.1 100.0 203.6 0.0 олт Yamaguchi Yokohama Gunma Fukuoka Chiba Hiroshima 11.24% Kyoto Enhancement of capital 82 Chugoku Joyo Shizuoka Tier 1 ... Enhance through accumulation of retained earnings 06/3 07/3 08/3 09/3 Tier 2 ... Tier Tier2 - Capital adequacy ratio - Tier1 ratio Ensure flexibility to cope with change in risk assets 19#211. Shareholder returns Shareholder returns in FY08 > Dividends Dividend per share (annual) FY08 HIROSHIMA BANK VI. Shareholders returns Dividend forecast in FY09 Expect dividend of 5 Yen per share (annual) in FY09 based on dividend policy and payout table Interim Year-end 3.5 Yen 3.5 Yen Dividend 7.0 Yen (memorial dividend 1 Yen) (memorial dividend 1 Yen) (A) > Share Buybacks (Aug. 08-Jul. 09) (B) (% 2.0 1.0 0.0 Actual Number of shares purchased Amount of shares purchased 6,000,000 shares JPY 2.3 billion Comparison of dividend yield (FY08) оло Hiroshima Chiba Yokohama Fukuoka como π suicides manchada smo martino citas mascara Piaceho ewung LL Hokuhoku Dividend policy and payout table Basic Dividend: Annual dividend of 5 yen per share Performance-based dividend: If our consolidated net income exceeds JPY 18.0 billion, 20% of the surplus will be returned to our shareholders as dividends Consolidated net Dividend per share Consolidated payout ratio income (A) Stable (B) Performance-based (A) + (B) a under 18 billion 5 yen 0 yen 5 yen 17.4% and over lb 18-21 billion 5 yen 1 yen 6 yen 17.9% and over and less than 20.8% 21-24 billion 5 yen 2 yen 7 yen 18.2% and over and less than 20.8% Dividend per share (annual) FY09 Interim Year-end Dividend forecast 2.5 Yen 2.5 Yen 5.0 Yen 20#22Reference for this material This material contains statements about future business performance. These statements do not guarantee future business performance and are subject to uncertainties. Please note that actual future business performance may differ from our goals depending on. changes in the business environment and other factors. Management Planning Division, The Hiroshima Bank, Ltd. Phone: 082-504-3823 FAX: 082-504-0171 URL: http://www.hirogin.co.jp/ 広島銀行