#1Growing to be the "Comprehensive Financial Service Group" together with entire local communities — "True First Call Bank Group" is our mission Overview of Financial Results for FY2019 - IR Presentation - The Hiroshima Bank Ltd. 広島銀行 June 2020#2Table of Contents 1. Summary of Business Performance Overview of profit/loss in FY2019 Balances, deposits, and other management indicators in FY2019 . . . 2. Policy on Returns to Shareholders Policy on returns to shareholders Appendix 1 SDGs Initiatives, Living with COVID-19 3 Principal SDGs initiatives Customer service in the age of COVID-19 Appendix 2 Overview of Financial Results for FY2019 ... 6 Net interest income 3. Business Forecast for FY2020 FY2020 performance and dividend forecasts 4. Transformation to a Holding Company Structure Background and purposes of the transformation to a holding company structure (establishment of Hirogin Holdings, Inc.) Hirogin Holdings' management philosophy Group structure Management system (governance system) of the Hirogin Holdings Business model of the Hirogin Holdings Approaches toward expansion of income Realization of group synergy Target interest levels and management indicators under the holding company structure ... 8 10 ... 11 ... 12 ... 13 14 ... 15 567 16 ... ... 17 Net fees and commissions income Expenses (Reference) Comparison with other banks Balance of loans, deposits, etc. (deposits + NCD) Loans to SMEs and personal loans Securities Credit costs and non-performing loans Capital adequacy ratio and ROE ... 19 20 20 23 24 25 26 27 28 29 222222222 ... ... ... . . . ... ... ... ... ... 30 1#31. Summary of Business Performance 2#4Overview of profit/loss in FY2019 Overview of profit/loss (Billion yen) FY2019 YoY change (Change rate) Net interest income 68.3 0.2 Interest on loans 61.9 0.2 Interest and dividends on 12.7 0.1 securities Deposits NCD interest (-) 1.9 -0.3 External procurement costs, etc. 4.5 0.5 (-) Net fees and commissions 15.4 -1.8 income Investment banking business 3.4 -0.3 Asset management business 6.1 -0.5 Personal loan-related -5.0 -0.6 Foreign exchange 1.5 0.2 Traditional fees and 9.4 -0.5 commissions income Gross income from core businesses 83.7 -1.6 Expenses (-) 52.7 0 Net income from core businesses 31.0 -1.6 ( -4.7%) Net income from core businesses (not including gains/losses from cancellation of investment trusts) 31.0 -1.6 -4.7%) Gains/losses related to government 3.6 1.8 bonds and other bonds Effective business gains/losses 34.7 0.3 Gains/losses related to equities, etc. 5.6 1.9 Credit costs (-) 4.2 1.1 Other temporary gains/losses 1.3 0.4 Ordinary profit 37.4 1.5 4.3%) Extraordinary gains/losses -3.3 -3.1 Net income 24.1 -1.2 -4.8%) -1.8%) -0.1%) . • Key points Despite increased interest on loans, net income from core businesses fell by 1.6 billion yen on a year-on-year basis to 31 billion yen, due mainly to decreases in net fees and commissions income. Despite increased securities-related gains, net income fell by 1.2 billion yen on a year-on-year basis to 24.1 billion yen due to various factors, including the recording of impairment losses on property, plant, and equipment marked for disposal. Profit attributable to owners of the parent fell by 1.3 billion yen on a year-on- year basis to 24.2 billion yen. Net interest income Net interest income rose by 200 million yen year-on-year to 68.3 billion yen due to factors such as an increase in interest on loans accompanying an increase in loan balances. Net fees and commissions income . • • • Net fees and commissions income fell by 1.8 billion yen year-on-year to 15.4 billion yen due to various factors, including decreased gains on the asset management business resulting mainly from lower commissions on sales of insurance. Expenses Expenses were largely unchanged year-on-year (down slightly), at 52.7 billion yen. Personnel expenses fell, due mainly to lower retirement benefit costs, although non- personnel expenses and taxes increased as a result of factors including increased depreciation costs and the consumption tax increase. Other (credit costs, etc.) Gains/losses related to equities, etc. rose by 1.9 billion yen year-on-year to 5.6 billion yen due to the sale of cross-shareholdings. This was despite the recording of 1.7 billion yen in losses on devaluation of stocks and other securities (impairment) following the decline in equities markets due to COVID-19. Credit costs, including provision of defensive reserves (approx. 1.5 billion yen) in preparation for future business conditions and other factors, rose by 1.1 billion yen on a year-on-year basis to 4.2 billion yen. Impairment losses on property, plant, and equipment marked for disposal (3.2 billion yen in total) were recorded as extraordinary losses. Consolidated ordinary profit 38.9 1.9 5.3% Profit attributable to owners of the 24.2 -1.3 -5.1%) parent Dividends/share (yen) 22.5 2.5 Consolidated payout ratio 28.8% 4.5%pt Dividends (Annual) dividends of 22.5 yen/share are planned as the result of revisions to the payout table in February 2020 (see p. 6 for details). 3#5Balances, deposits, and other management indicators in FY2019 Overview of assets, liabilities, etc. (average balances) Key points (Billion yen) Loan balances FY2019 YoY change (Annual rate) Loan balances 6,317.9 329.9 ) • 5.5% ) Loans to local governments 977.6 132.2 ( 15.6% ) Business loans 3,757.6 126.3 ( 3.5% ) SME loans included in above 2,604.0 96.1 ( 3.8% ) Personal loans 1,582.7 71.4 ( 4.7% ) Securities, etc. 1,129.5 -69.7 Yen bonds, etc. 861.5 -94.2 Equities 75.0 -4.5 Foreign bonds 193.0 28.9 Other 1,885.5 79.4 Total assets 9,332.9 339.5 Balance of deposits, etc. 7,707.8 239.5 3.2% ) Personal deposits 4,933.6 146.6 ) 3.1% ) +329.9 billion yen yoy +5.5% (Billion yen) 6,317.9 5,988.0 5,757.6 Corporate deposits 2,318.5 79.3 ( 3.5% ) 5,431.5 Public sector, financial deposits 455.6 13.6 ) 3.1% ) 811.7 628.6 Other 1,625.1 100.0 1,582.7 Total liabilities and net assets 9,332.9 339.5 1,372.5 Overview of management indicators • Business loans rose by on a year-on-year basis 126.3 billion yen, or 3.5%, to 3.7576 trillion yen, thanks to proactive lending to SMEs through efforts to strengthen the consulting business. Personal loans rose on a year-on-year basis by 71.4 billion yen, or 4.7%, to 1.5827 trillion yen, due to efforts to strengthen the business centered on home loans, including Hirogin Home Loan Flat 35 (Guaranteed). Balance of deposits, etc. • The balance of deposits, etc. rose on a year-on-year basis by 239.5 billion yen, or 3.2%, to 7.7078 trillion yen, as personal deposits, corporate deposits, and municipal, financial deposits all increased. [Trend in loan balances] 1,447.8 845.4 1,511.3 977.6 [Trend in balance of deposits, etc.] Loans to local governments* Personal loans 2,199.5 2,246.1 +239.5 billion yen yoy +3.2% (Billion yen) 7,707.8 455.6 Municipal, financial deposits deposits ШЕШЕ 3,430.7 3,498.2 3,631.2 3,757.6 Business loans 4,584.6 4,719.4 4,787.0 4,933.6 2,604.0 2238.4 2 368.7 2.507.9 loans Personal deposits 7,309.1 524.9 7,484.3 7,468.3 518.8 442.0 2,239.2 2,318.5 Corporate FY2019 FY2016 FY2017 FY2018 FY2019 FY2016 FY2017 FY2018 FY2019 YoY change Consolidated ROE Consolidated capital adequacy ratio Non-interest income ratio* Non-interest income* (billion yen) 5.0% 10.89% 34.9% 30.7 -0.3%pt -0.12%pt -0.3%pt -0.8 Contributions of consolidation 7.9% 1.2%pt of Group companies Adjusted overhead ratio 62.9% 1.2%pt *Loans to local governments: Loans to local public organizations and public corporations Consolidated capital adequacy ratio Despite capital increases due to factors such as buildup of internal reserves, increased lending and other factors swelled assets at risk and similar accounts, reducing the consolidated capital adequacy ratio by 0.12 points year-on-year to 10.89%. Credit cost ratio 0.07% 0.02%pt • NPL ratio 1.06% -0.09%pt We maintain levels well above the standard regulatory requirement for banks in Japan (4%). *Including Hirogin Securities 4#62. Policy on Returns to Shareholders 5#7Policy on returns to shareholders ◆ To clarify our stance on returning gains to shareholders, we revised the payout table to reflect a consolidated payout ratio of roughly 31-36%. We will increase dividends accordingly from FY2020. ☐ Revisions to the payout table After Before Dividends per share Dividends per share Net income attributable to owners of the parent 2 Performance- 1Fixed 1 +② Consolidated payout ratio 1Fixed 2 Performance- based Consolidated payout ratio % Change 1+2 based 18 yen 36 yen Less than 34.1% +11.4%pt or less More than 33 billion yen 12 yen 24 yen Less than 22.7% More than 30 and not 10 yen 22 yen exceeding 33 billion yen More than 27 and not 8 yen 20 yen 20.8% or more and less than 22.9% 20.8% or more and less than 23.1% 15 yen 33 yen 31.2% or more and less than 34.4% 12 yen 30 yen 31.2% or more and less than 34.7% exceeding 30 billion yen More than 24 and not exceeding 27 billion yen More than 21 and not exceeding 24 billion yen 12 yen 6 yen 18 yen 20.8% or more and less than 23.4% 18 yen 9 yen 27 yen 31.2% or more and less than 35.1% 4 yen 16 yen 20.8% or more and less than 23.8% 6 yen 24 yen 31.2% or more and less than 35.7% 20.8% or more and 3 yen 21 yen 31.2% or more and less than 36.4% +10.4-11.5%pt +10.4-11.6%pt +10.4-11.7%pt +10.4-11.9%pt +10.4-12.1%pt More than 18 and not 2 yen 14 yen less than 24.3% exceeding 21 billion yen 0 yen 18 yen 31.2% or more +10.4%pt or more 18 billion yen or less 0 yen 12 yen 20.8% or more [Trends in consolidated payout ratio] (%) 35.0 30.0 24.3% 25.0 20.0 15.0 10.0 FY2018 28.8% 33.2% Payout table referred to starting with year-end dividends for FY2019 FY2019 Consolidated payout ratio 11.0% 10.8% FY2020 (planned) 10.7% The amount of dividends/share (payout) is projected to increase based on the revised payout table. We expect to be able to maintain a consolidated capital adequacy ratio of 10%, our medium- to long-term target. We will also reconsider capital policies with the capital adequacy ratio in mind. 6#83. Business Forecast for FY2020 7#9FY2020 performance and dividend forecasts For FY2020, we forecast profit attributable to owners of the parent of 22.5 billion yen, down 1.7 billion yen from the previous year. We project annual dividends of 24 yen per share in FY2020, based on the new payout table, up 1.50 yen from the previous year. FY2020 performance and dividend forecasts [Business forecast] (Billion yen) Forecast for FY2020 YOY change Net interest income 68.0 -3.0 Net fees and commissions income 16.7 1.3 Gross income from core businesses 84.7 1.0 Expenses (-)* 54.3 1.6 Net income from core businesses 30.4 -0.6 Gains/Losses related to securities 6.7 -2.6 Credit costs (-) 4.5 0.3 Ordinary profit 33.5 -3.9 Net income 24.0 -0.1 Profit attributable to owners 22.5 -1.7 of the parent [Projected dividends] Dividend per share Profit attributable to owners of the parent 1 Fixed 2 Performance- based 1+2 Consolidated payout ratio 22.5 billion yen 18 yen 6 yen 24 yen 33.2% Market scenarios used in performance forecasts JPY TIBOR3M: 0.07%; 10-year JGBS: -0.02%; exchange rate (USD/JPY): 107.0 yen; Nikkei Average: 18,500 yen *: Performance forecasts for FY2020 include 1.5 billion yen (up 1.5 billion yen year-on-year) in costs of rebuilding the Head Office building. • • • <Environmental conditions of FY2020 performance forecasts> We assume interest rate, exchange rate, and stock market scenarios within the same range over recent years. The projected impact of COVID-19 is based on the information available to us at this time. However, these forecasts are subject to vary sharply due to the following factors if the slowdown in economic activity and other results of the pandemic extend for longer than anticipated. (1) Further increases in credit costs These forecasts call for an increase in credit costs due to worsening business conditions for customer firms impacted by COVID-19 of roughly 50% of the anticipated maximum cost (approx. 2 billion yen) in the restaurant/bar and lodging industries, the industries of greatest concern with regard to COVID-19. Credit costs may increase still further due to changes in borrower categories or other developments if the impact expands to manufacturing and other industries. (2) Impairment due to falling stock prices • Stock markets have been remarkably unstable since the outbreak of COVID-19. A future drop in stock prices could lead to the impairment of issues held. Any necessary revisions to performance forecasts will be disclosed promptly. 8#104. Transformation to a Holding Company Structure 9#11Background and purposes of the transformation to a holding company structure (establishment of Hirogin Holdings, Inc.) ◆ By transforming to a holding company structure in October 2020, we seek to build a regional comprehensive services group that meets all the needs of its customers, with a focus on finance, based on our evolution toward a new Group management structure. ☐ Background and purposes of the transformation to a holding company structure Changing management environment Population decrease, low birth rate, societal aging transformation • Continuing progress with digital • Continued low interest rates . • • Easing of regulations under the Banking Act etc. Entry from other industries Increasingly diverse, complex, and advanced needs Aiming to become a regional comprehensive services group High potential for four local prefectures The Bank's four local prefectures Okayama Hiroshima that meets all the needs of its customers, with a focus Yamaguchi on finance Ehime Population Approx. 7.51 million Rivals Aichi Prefecture Source: Ministry of Internal Affairs and Communications, Basic Resident Register Populations (January 2019) GDP Approx. 31 trillion yen Rivals Kanagawa Prefecture Source: Cabinet Office (FY2016) Initiatives Enhance group synergy Further expand the operation axis Strengthen group governance ☐ Future timetable for transformation to holding company structure H1, FY2020 H2, FY2020 June 25 Annual Shareholders Meeting to approve the share transfer plan Oct. 1 Date on which the incorporation of the Holding Company will be registered Date on which the shares of the Holding Company will be listed Date on which our shares will be delisted Sept. 29 Start of holding company structure 10#12Hirogin Holdings' management philosophy Hirogin Holdings' management philosophy will be as described below, aiming to realize "further contribution to the regional community and customers” and “our group's sustainable growth and improvement of corporate value." ☐ Management philosophy (Management vision + Code of conduct) Management Philosophy (Management Vision + Code of Conduct) Management vision Contribute to the creation of a prosperous future for the regional community as a trusted regional comprehensive services group by closely offering thorough support to customers Code of conduct Hirogin Holdings will endeavor to create the shared values with the regional community and realize a sustainable society, based on five items of the code of conduct. 1 Contribution to the regional community 2 Contribution to customers 3 Improvement of corporate value 4 Enhancement of "employee satisfaction" 5 Compliance Work in step with the regional community to actively contribute to its development Think and act from the customer's point of view to contribute to their prosperous life and business development Continuously improve the corporate value Create a cheerful, rewarding corporate group where everyone works healthfully Exercise a high level of compliance 11#13Group structure After the incorporation of Hirogin Holdings, to further enhance group cooperation and synergy, the four companies consisting of the Bank, Hirogin Securities, Shimanami Servicer, and Hirogin Capital Partners and our equity method affiliate Hirogin Lease will become direct investment companies of Hirogin Holdings. In addition, a series of new subsidiaries will be established to expand the operation axis still further, including commencement of studies on establishing an advanced banking service company in connection with IT-related businesses with a January 2021 target date, as announced this May 22. Current After incorporation of the holding company Lines of business The Hiroshima Bank Hirogin Business Service HIROGIN Hirogin Securities Hirogin HOLDINGS Holdings (100%) The Hiroshima Bank Banking (100%) Hirogin Business Service Printing, etc. Head office Shimanami Servicer 1-1-7, Nishikaniya, Minami-ku, Hiroshima-shi (100%) Hirogin REIT Management Asset management Stated capital 60,000 million yen Hirogin REIT Management Hirogin Capital Partners Incorporation date October 1, 2020 (100%) Hirogin Card Service Credit card business Fiscal year end March 31 (100%) Stock exchange for listing First Section of the Tokyo Stock Exchange Hirogin Guarantee Hirogin Card Service Credit guarantee business Share units 100 shares Hirogin Guarantee Non-consolidated subsidiaries (three companies)*1 Hirogin Lease Non-consolidated subsidiaries (three companies)*1 *1 Nonconsolidated subsidiaries: One factoring company and two investment limited liability partnerships *2 Study on establishing advanced banking service company MN| Mighty Net IT-related businesses New spin-off Investment Hirogin Holdings Advanced banking service company (100%) Hirogin Securities Financial instruments trading (100%) Claims management Shimanami Servicer Proactive independent and servicing marketing leveraging the Bank's customer base (100%) Hirogin Capital Partners Investment (20%) Leasing Plans for establishment in January 2021 Study on establishing new subsidiaries to expand the operation axis Hirogin Lease Advanced banking service company*2 Consulting company 12#14Affiliates Management system (governance system) of the Hirogin Holdings Hirogin Holdings Hirogin Holdings will be a company with an audit and supervisory committee. In addition to strengthening governance and swift and efficient decision-making, Hirogin Holdings will establish effective group governance by focusing on managing and supervising group management. ☐ Chart of the corporate governance system under the holding company structure Shareholders Meeting Board of Directors Audit & Supervisory Committee Group Management Board Nominating & Compensation Advisory Committee Comprehensive Risk Management Committee Compliance Committee Secretarial Office Management Planning Division Business Management Division Business Audit Division Group Business Strategy Division Digital Innovation Division Business Supervisory Division etc. Hirogin Holdings will be a company with an audit and supervisory committee, and will establish a mechanism of swift decision-making and efficient business operation by delegating the authority to execute important duties, in addition to strengthening governance. ➤ By having the Hirogin Holdings specialize in managing and supervising the group management and separating management supervision and execution of duties, business management of the group will be strengthened and effective group governance will be established. Instruct Manage⚫ Supervise Discuss⚫ Report • Consult The Hiroshima Bank (incl. its subsidiaries) Hirogin Capital Partners Hirogin Securities Hirogin Lease Shimanami Servicer Advanced banking service company (Plans for establishment in January 2021) ➤ Specific business plans and measures will be formulated and implemented based on the whole group's management policy and strategy formulated by the Hirogin Holdings. 13#15Business model of the Hirogin Holdings While deepening and expanding the operation axis and customer axis in the market of four local prefectures (Okayama, Yamaguchi, and Ehime) centering on Hiroshima, which has potentials (such as economic scale and growth opportunities), Hirogin Holdings will thoroughly work on solving every issue faced by the regional community and customers and actively commit itself to the development of the region, thereby realizing its management philosophy and achieving the group's sustainable growth. ☐ Business model of the Hirogin Holdings Differentiation with other companies (Source of competitive advantage) Management Philosophy (Management Vision) By closely offering thorough support to customers and be trusted Relations with the regional community and customers Deepening and expanding the customer axis Business assessment Corporate customers Family asset Individual management As a regional comprehensive services group • . Provision of Solutions Deepening and expanding of the operation axis • Building platforms for regional economic development Expanding business domains leveraging Group functions and alliances (finance + non-finance) customers (incl. asset building / investment) Ascertaining needs Accumulation of past information Percentage of users of business potential evaluation services of our main target of customers with sales of 200 million yen or more ➤ Number of business succession/asset succession needs questionnaires prepared Approx. 35% (Users of service: approx. 3,000 customers/borrowers: approx. 9,000 customers) Approx. 25,000 Contribute to the creation of a prosperous future for the regional community Development of the region and growth of customers 1 Contribution to achieving SDGS Further risk-taking in the region High evaluation from the regional community and customers Sustainable growth of the • group Strengthening profitability Establishment of a stable management base Improvement of corporate value (fulfilling shareholder return) High evaluation from the market (investors and shareholders) 14#16Approaches toward expansion of income While strengthening the existing approach in relation to the financial sector, centering on loan and deposit services as well as support for services for which the needs are expected to increase, such as inheritance and business succession as well as equity operations, etc., Hirogin Holdings will proceed to provide solutions for the sectors including non-financial sectors by utilizing various functions of the group and alliances with other companies and business categories Vision for future income expansion Provision of various solutions to solve customers' issues Contribution to regional development and growth of customers Group's sustainable growth <<FY2019>> 1.8 billion yen Excl. Bank Income of the group company, etc. 10.8 Income from consulting business for corporate and individual billion yen customers, etc. [Specific approaches] Utilization of group company's functions Utilization of alliances with other companies and business categories □ Support for measures regarding inheritance and business succession □ Equity operations Urban redevelopment support and tourism campaigns <<FY2023) 16 billion yen or more Corporate Business customer assessment Relations Family asset Individual Understanding needs customer management (incl. asset building / investment) Bank Income regarding traditional financial services (Interest from money lending and disbursement, etc.) Solution Provide solutions for the sectors including non-financial sectors by utilizing various functions of the group and alliances 15#17Realization of group synergy We aim to maximize the group's synergy by further strengthening group-integrated operation and in-group cooperation under the new group management structure, and also utilizing the features and strengths of each group company. ☐ Realization of group synergy in a holding company structure Hiroshima Bank Company name Direct investment company of Hirogin Holdings. *In the black: Bank subsidiaries Hirogin Capital Partners Advanced banking service company *Plans for establishment in January 2021 Hirogin Card Service Settle- ment IT Shimanami Servicer Credit manage- ment Bank Equity invest- ment "Regional comprehensive services group" that meets all the needs of its customers Regional Hirogin Securities Securities Leasing Hirogin Lease develop- Hirogin REIT Management ment Credit guarantee Operation stream lining Hirogin Guarantee Hirogin Business Service 16#18Target interest levels and management indicators under the holding company structure We will aim to achieve over 27 billion yen of profit attributable to owners of the parent and 12% or more of contribution to the consolidated group companies during FY2023 by effectively implementing the management policies and the management strategies to fully utilize the group synergies through the transformation to a holding company structure. ☐ Target interest levels and management indicators (FY2020, FY2023 planned) profit attributable to owners of the parent Total of revenues from consulting businesses for corporate and individual customers and Group company net income*1 Contribution to the consolidated group companies"2 24.2 22.5 More than 27 billion yen 12.6 12.3 FY2019 FY2020 actual planned FY2023 planned Consolidated capital adequacy ratio 16 billion yen or more 8.5% 7.9% 12% or more FY2019 actual FY2020 planned FY2023 planned *1 Net income of the group companies = Total of net income of consolidated subsidiaries, excluding the bank, and the amount of net income of equity method affiliate multiplied by investment ratio FY2019 actual FY2020 planned *2 Contribution to the consolidated group = companies FY2023 planned Net income of the group companies (*1) Net profit attributable to owners of the parent Consolidated ROE 10% or more 5% or more 5.0% 4.5% 10.8% 10.7% FY2019 actual FY2020 planned FY2023 planned FY2019 actual FY2020 planned FY2023 planned 17#19Appendix ① SDGs Initiatives, Living with COVID-19 18#20Principal SDGs initiatives. ◆ Aiming to increase corporate value by creating shared value, including proactive support for the SDGs initiatives of local businesses and efforts to stimulate local industries through the creation of new businesses in the four prefectures The Hirogin Group SDGs statement (announced September 2019) SUSTAINABLE DEVELOPMENT GOALS 17 GOALS TO TRANSFORM OUR WORLD 1 2- 5 13 ACTION 14 15 16 (11 11 AB PARERUPS SUSTAINABLE DEVELOPMENT GOALS Community Ageing of society Human rights Environmental To achieve the Sustainable Development Goals (SDGs) adopted by the United Nations, the Hirogin Group will contribute to solutions to social and environmental challenges in our community and to sustainable growth by providing high value added financial services. Environmental protection initiatives Declaration of support for TCFD recommendations 13 CLIMATE ACTION We declared our support for TCFD recommendations in order to strengthen responses to climate change and enhance disclosure of information related to the risks and opportunities of climate change TCFD TASK FORCE CLIVATE-RELATED FNANCIAL DISCLOSURES TCFD recommendations: Published in June 2017 by the TCFD, a framework for appropriate evaluation by investors of corporate risks and opportunities related to climate change *1 Task Force on Climate-related Financial Disclosures 4 QUALITY DECENT WORK AND EDUCATION ECONOMIC GROWTH 11 SUSTAINABLE CITIES AND COMMUNITIES Creating shared value with local industries Launching the Hiroshima Open Accelerator 2019 project Investment in Hiroshima University's first authorized investment fund DECENT WORK AND INDUSTRY, INNOVATION ECONOMIC GROWTH AND INFRASTRUCTURE An initiative aiming to create new businesses among participating firms through open innovation linking management resources of companies in Hiroshima Prefecture with the services of startups nationwide Creating new businesses Local companies Platform provision Operation Startups Hiroshima Prefecture, Hiroshima Bank, Creww Inc. Investing in a fund intended to support startups rooted in results of research by Hiroshima University and other universities in Hiroshima Prefecture General partner HIROSHIMA VC Venture Capital GP investment Hiroshima University's first authorized investment fund Limited partners Hiroshima Bank and others Cooperation LP investment An investment fund to support startups from Hiroshima University and other universities in Hiroshima Prefecture Support Partner venture capitalists Investment Startups from universities in Hiroshima Prefecture Authori- zation Authorizing universities Hiroshima University and others Support for local firms' SDGs initiatives Bank-guaranteed private placement bonds (SDGs bonds) Introducing services to support SDGS initiatives Donations and contributions of up to 0.2% of the issued amount of private placement bonds, intended to contribute to local communities, and public relations concerning issuing firms' SDGs initiatives 37 issues/ Number of cases/amount (Actual results for November 2019 - March 2020) approx. 4.4 billion yen Checking on customer SDGs initiatives, providing returns, and publishing information on initiatives if so requested Number of cases (Actual results for January - March 2020) 40 [Reference: MSCI ESG rating*2] MSCI C BBB BB BB 2017 2018 2019 In recognition of the Bank's efforts, our ESG rating from MSCI rose one tier since last year to BBB. *2 MSCI ESG rating: Rating by MSCI of corporate ESG risk and related risk management on a scale from AAA to CCC 19#21Customer service in the age of COVID-19 The growth of impersonal channels is expected to accelerate in the age of COVID-19. The Bank plans to restructure its channel strategies and to strategically reallocate management resources by reviewing numbers of branches, branch functions, and other matters. ☐ Channel strategies and employee working modes in the age of COVID-19 Existing channel strategies High value added Personal channels Key customers Branch (in-branch) External (visitation) Mass market Retail banking value Channel strategies in the age of COVID-19 Review of branch channels (cost cutting) Turning away from face-to-face marketing activities COVID-19 pandemic Convenience Impersonal channels (Internet banking, smartphones, ATMs, etc.) Head Office channels Direct Mail Center Accelerating deployment of services based on digital technologies Personal Loan Center Business Loan Center Segment-based channel strategies Methods of providing Providing value in branches (Ways of working) Shifting to more flexible ways of working Functional enhancement Building new modes of customer contact (for example, online meetings) while maintaining added value Strategically investing the results of review of branch channels (cost cutting) Further enhancements of channels and services leveraging digital technologies Pursuit of user interface (UI) and user experience (UX) Smartphone apps Social media Payment services, etc. Restructuring channel strategies in response to changing modes of life Review of ways of working Providing value unconstrained by branches (e.g., promoting remote working) 20#22Appendix 2 Overview of Financial Results for FY2019 21#23Net interest income Net interest income was up 200 million yen from the previous year due to factors such as increased interest on loans accompanying increased loan balances and decreased interest paid on deposits, despite an increase in foreign currency procurement costs, etc. Breakdown of net interest income Details of each item in net interest income (Average balance and interest rate) (Billion yen) (Billion yen) FY2019 Interest on loans. +0.2 YoY change Interest on loans 61.9 0.2 Interest and dividends on securities 12.7 0.1 Deposits + NCD interest (-) 1.9 Δ 0.3 External procurement costs, etc. (-) 4.5 0.5 Average Interest balance rate +3.2 -3.0 Deposits NCD interest -0.3 Net interest income 68.3 0.2 Changes in loan interest Increased for third consecutive year 79.7 74.3 70.5 68.2 66.1 64.8 63.9 60.9 61.0 61.7 61.9 FY2009 FY2010 FY2011 FY2012 FY213 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2018 68.1 billion (Billion yen) yen Average Interest balance -0.8 rate +0.9 Interest and dividends on securities +0.1 +0.5 FY2019 68.3 billion yen Average Interest balance rate ±0 -0.3 External procurement costs,etc. +0.2 billion yen 22#24Net fees and commissions income Net fees and commissions income fell 1.8 billion yen year-on-year due mainly to decreased gains on sales of insurance Growth in revenues from businesses related to inheritance and business succession, a priority issue, proceeded steadily Breakdown of net fees and commissions income Growth in revenues from businesses related to inheritance and business succession (Billion yen) Inheritance-related revenues and contracts 400 Revenues and contracts involving business succession FY2019 million yen YoY change 302 325 million yen Corporate solutions 3.4 -0.3 Business succession 0.3 0.0 191 185 159 209 114 Syndicated loans, etc. 1.1 -0.1 (million yen) (million yen) Sales of derivatives to customers 1.0 0.0 FY2016 FY2017 FY2018 FY2019 FY2016 FY2017 FY2018 FY2019 Asset management business 6.1 -0.5 Contracts 1,262 1,963 1,402 1,529 Contracts 36 45 63 58 Trust 0.4 0.2 Financial instrument intermediary services 0.7 0.1 Investment trusts 1.5 -0.1 Progress of financial instrument brokerage business 18,584 accounts (Accounts) Insurance products 2.4 -0.9 Personal loan-related -5.0 -0.6 10,698 14,777 200.7 (29.0%) 232.6 billion yen (37.4%) 8,690 Domestic exchange, etc. 9.4 -0.5 141.9 (19.7%) Net fees and commissions income 15.4 -1.8 87.6 (13.6%) Reference: Equity business 1.3 1.3 End of March 2017 End of March 2018 End of March 2019 Brokerage revenues as a share of Hirogin Securities' FY2017 FY2018 FY2019 30.8% net operating revenues 50.1% 57.5% End of March 2020 Number of active financial instrument brokerage accounts Hirogin Securities brokerage balance Share of Hirogin Securities total balance [Ending balance (MTM basis), billions yen] 23#25Expenses While non-personnel expenses and taxes increased, personnel expenses fell due mainly to lower retirement benefit costs; expenses remained largely unchanged year-on-year at 52.7 billion yen (down slightly) The adjusted overhead ratio rose by 1.2 points to 62.9% on a year-on-year basis, due to decreased gross income from core businesses. Trends in expenses and adjusted overhead ratio Breakdown of expenses (Billion yen) (Billion yen) 62.5% 62.9% 61.4% 61.7% Personnel expenses Adjusted overhead ratio +1.2 points Major factors YoY change Retirement benefit expenses -0.4 -0.7 Bonus -0.2 etc. 54.7 53.7 52.7 52.7 28.5 27.8 27.3 26.6 22.1 22.2 22.0 22.5 3.9 3.6 FY2016 FY2017 3.2 FY2018 Personnel -0.7 billion Non-personnel +0.5 billion Taxes +0.3 billion 3.5 FY2019 *Adjusted overhead ratio = Expenses/Gross income from core businesses Non-personnel expenses Major factors Expenses related to smartphone app development, etc. +0.2 Upgrading of business PCs +0.2 Impact of consumption tax increase +0.2 etc. YoY change +0.7 24#26(Reference) Comparison with other banks*1 (FY2019) (*1) Target... Top 16 first-tier regional banks, including FG and FH, in terms of amount of funds (deposits + NCD) and first-tier regional banks in Hiroshima, Yamaguchi, Ehime, Okayama, and Shimane prefectures Mebuki FG, Kyushu FG, Concordia FG, Nishi-Nippon FH, Kansai Mirai FG, Chiba Bank, 77 Bank, Fukuoka FG, Shizuoka Bank, Hachijuni Bank, Bank of Kyoto, Hokuhoku FG, Daishi Hokuetsu FG, San-in Godo Bank, Chugoku Bank, lyo Bank, and Yamaguchi FG Note: Data from calculations performed by Hiroshima Bank based on earnings briefings from each bank. FG/FH figures are simple aggregates of figures for banks under FG/FH control. Banking profit margins and changes therein Non-interest income ratio and its increase/decrease rate 0.35% 0.30% 0.25% 0.20% 0.15% Profit ratio Hiroshima Bank (Profit ratio: 0.28%, rate of change: -0.02%) 0.10% Average of top 16 banks 0.05% 0.00% -0.05% -0.10% -0.05% Banking profit margin = on customer service 0.00% 0.05% 37.0% Non-interest income ratio Hiroshima Bank (non-consolidated) 35.0% (Ratio: 31.5%, increase/decrease rate: -0.4%) 33.0% 31.0% Average of the 29.0% neighboring five banks 27.0% 0.10% 25.0% 23.0% YOY increase/ 21.0% decrease rate (% pt) 19.0% Loan balance x (loan interest rate - deposit rate) + fees and commissions income - operating expenses Average balance of deposits, etc. *2 (*2) Our bank uses the formula given below to calculate average deposit balances for banks that do not publish figures for average deposit balances. Average deposit balance + (beginning balance of NCDD + ending balance of NCD)/2 17.0% 15.0% -2.0% Non-interest income ratio = -1.0% 0.0% Including income from Hirogin Securities (Ratio: 34.9%, increase/decrease rate: -0.3%) 1.0% Average of top 16 banks Average of the neighboring five banks 2.0% YOY increase/ decrease rate (% pt) 3.0% Fees and commissions income + segregated trading income + other banking income (excluding bonds-related gains/losses) Core gross banking profit 25#27Balance of loans, deposits, etc. (deposits + NCD) The average balance of loans increased in business, personal, and municipal sectors by 329.9 billion yen (+5.5% YoY). The average balance of deposit assets increased in the personal, corporate, and municipal and financial sectors by 239.5 billion yen (+3.2% YoY). Trends in the average balance of loans Trends in the average balance of deposits, etc. (deposits+NCD) +329.9 billion yoy +5.5% (Billion yen) (Billion yen) 6,317.9 5,988.0 +239.5 billion yoy +3.2% 7,707.8 7,484.3 5,757.6 7,468.3 977.6 5,431.5 845.4 Loans to local governments* +132.2 billion (yoy +15.6%) 7,309.1 455.6 518.8 442.0 Municipal and financial sectors' deposits +13.6 billion (yoy +3.1%) 811.7 524.9 628.6 2,318.5 1,582.7 1,511.3 1,447.8 Personal loans +71.4 billion (yoy +4.7%) 2,246.1 2,239.2 2,199.5 1,372.5 Corporate deposits +79.3 billion (yoy +3.5%) Business loans +126.3 billion (yoy +3.5%) 3,631.2 3,757.6 3,430.7 3,498.2 4,584.6 4,719.4 4,787.0 4,933.6 Personal deposits +146.6 billion (yoy +3.1%) FY2016 FY2017 FY2018 FY2019 *Loans to local governments: Loans to local public organizations and public corporations FY2016 FY2017 FY2018 FY2019 26#28Loans to SMEs and personal loans The average balance of loans to SMEs continued to increase at a steady pace, supported by factors including enhancements in consulting sales based on evaluations of business potential. Due to efforts to strengthen the business centered on home loans, including Hirogin Home Loan Flat 35 (Guaranteed), personal loans increased by 71.4 billion yen (YoY +4.7%). In the apartment loan sector, we assumed loans judged to have sufficient stress tolerance based on a recognition of these loans as effective inheritance tax shelters or reliable property investments. Trends in the average balance of and number of business loans Trends in the number of business loans Number of business loan borrowers Trends in the average balance of personal loans +71.4 billion yoy +4.7% Yield on lending (stock rate) 30,840 31,091 30,365 29,948 +251 FY2019 H2 26,580 26,942 27,345 27,544 Major companies 0.34% 1,582.7 8.5 Mid-sized 1,511.3 +199 0.58% companies Number of retail clients (Less than 1 billion yen in sales) SMES 1.04% (Customers) End of March End of March 2017 2018 Total 1.03% 1,372.5 1,447.8 7.2 88.2 7.2 101.6 114.4 End of March End of March 2019 2020 8.0 71.1 450.7 3,757.6 3,631.2 3,430.7 3,498.2 427.2 402.6 Loans to major and 1,123.3 1,153.7 371.1 mid-sized 1,192.3 1,129.5 companies +30.4 billion yen (YOY +2.7%) 2,238.4 2,368.7 2,507.9 2,604.0 Loans to SMEs +96.1 billion yen (YOY +3.8%) 949.7 975.2 1,009.1 922.3 Other +1.3 billion (yoy +18.1%) Consumer loans +12.8 billion (yoy +12.6%) Apartment loans +23.4 billion (yoy +5.5%) Surpassed 1 trillion yen Housing loans +33.9 billion (yoy +3.5%) FY2016 FY2017 FY2018 FY2019 (Billion yen) Ratio of loans to SMEs in business 65.2% 67.7% 69.1% 69.3% FY2016 FY2017 FY2018 FY2019 (Billion yen) loans 27#29Securities The average balance of securities decreased by 69.7 billion yen due to the redemption of government bonds. Interest rate risk (interest rate delta) declined on a year-on-year basis. ◆ The balance of cross-shareholdings was reduced by 4.1 billion yen on a year-on-year basis through dialogue with issuing entities. Trends in the average balance of securities Trends in the interest rate delta *The amount of change in fair value when interest rate declines by 10bp (Billion yen) 1,942.4 377.3 1,564.5 83.1 Reference: Breakdown of multi-asset investment trusts (end of March 2020) (Billion yen) Japan Deposits, 30% etc. North America Europe 3% 4% 1% 8% Stocks Japan 7% Government bonds, etc. 41% Others Bonds 51% 1.9 1.8 11% Exchange 13% Europe 31% North America 1.5 1.3 Foreign securities 1.7 in foreign currencies 1.0 1.0 0.9 End of March 2017 End of March 2018 End of March 2019 End of March 2020 394.7 384.6 1,199.2 -69.7 billion yen 1,129.5 Corporate bonds, investment trusts, Trends in the term-end balance of cross-shareholding 82.3 (including private REITs) etc. 135.9 -28.1 billion 264.7 438.4 (Billion yen) 410.3 Stocks -4.4 billion 73.4 73.0 71.9 -4.1 billion yen 126.7 79.4 75.0 1.7 Foreign securities 2.2 67.8 2.2 Private REITS 165.3 +29.5 billion +0.3 billion 2.5 194.8 13.3 13.4 13.4 Shares of 961.5 116.5 Municipal bonds affiliates 13.3 -0.1 billion 131.0 696.1 +14.5 billion 4.2 4.1 4.2 Non-listed shares 4.3 +0.1 billion 399.6 Government bonds, 318.4 54.2 53.3 etc. 52.1 47.7 Listed shares -81.2 billion -4.4 billion End of March FY2016 FY2017 FY2018 FY2019 2017 End of March 2018 End of March 2019 End of March 2020 28#30Credit costs and non-performing loans. Credit costs increased by 1.1 billion yen on a year-on-year basis due mainly to an increase in the disposal of non-performing loans, though the credit cost ratio remained at a low level The NPL ratio remained at a historically low 1.06%, thanks to a year-on-year decrease of 0.3 billion yen in the claims disclosed under the Financial Reconstruction Act, to 69.8 billion yen. 0.05% Trends in credit costs 0.00% (Billion yen) Trends in NPLs (term-end balance) and NPL ratio (Billion yen) 1.28% 1.20% 1.15% 0.07% 0.05% Credit cost ratio +0.02 points 1.06% NPL ratio -0.09 points Reference: Average loan balance of top banks 1.28% 72.6 71.4 70.1 69.8 14.7 16.8 18.5 17.6 Sub- standard Doubtful 52.6 48.3 45.7 46.1 4.2 3.1 Credit costs Bankrupt, etc. 2.7 0.2 FY2016 FY2017 FY2018 FY2019 5.3 6.3 5.9 6.1 T T T End of March End of March 2017 2018 End of March 2019 End of March 2020 * Subject banks: The top 10 in terms of loan balances among 103 regional banks in Japan (as of March 31, 2020): Bank of Yokohama, Chiba Bank, Fukuoka Bank, Shizuoka Bank, Nishi-Nippon City Bank, North Pacific Bank, Joyo Bank, Hiroshima Bank, Bank of Kyoto, Gunma Bank 29#31Capital adequacy ratio and ROE The consolidated capital adequacy ratio remained acceptable at 10.89%. Against the backdrop of a steady increase in net assets, consolidated ROE maintained at the 5% level. Trends in consolidated capital adequacy ratio and the balance of subordinated financing Trend in consolidated ROE 11.10% 11.07% 11.01% 10.89% Consolidated capital adequacy ratio -0.12 points 6.9% 5.5% 5.3% 5.0% Reference: BIS Standard 11.54% Consolidated ROE -0.3 points 482.3 484.5 462.1 Net assets (consolidated) 447.2 15.0 15.0 15.0 15.0 Balance of subordinated financing * (Billion yen) (Billion yen) End of March End of March End of March End of March 2019 2017 2018 End of March End of March End of March End of March 2017 2020 2018 2019 Net income attributable to owners of the parent [Total term-beginning balance of net assets (excluding share acquisition rights) + Total term-ending balance of net assets (excluding share acquisition rights)] /2 2020 *Redemption date: December 2021 Consolidated ROE = 30#32Reference 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. Tel.: 082-504-3823 Fax: 082-504-0171 URL: https://www.hirogin.co.jp/