Mebuki Financial : Financial Results for FY2023 / Initiatives for Enhancing Corporate Value（IR Presentation Material）

Mebuki Financial Group, Inc.

IR Presentation

～Financial Results for FY2023 /

Initiatives for Enhancing Corporate Value～

1. Financial Results for FY2023 / Forecast for FY2024

Highlights / Main Points of FY23 Financial Results	3-4
Ordinary Profit (Bank Total) / Profit from Customer Services	5-6
Loans Term-end Balance	7
Securities (Portfolio overall / Domestic bonds/ Foreign bonds/ Interest rate risks)	8-11
Forecast for FY2024	12-14
Impact of domestic interest rates rising	15

2. Initiatives for Enhancing Corporate Value

Initiatives for Enhancing Corporate Value	17-18
Development of Specific Measures
Core Business in Local Regions	19-23
Strengthening market investments / financing	24
Investments / Expenses	25-29
Capital Management	30
ESG (Environment)	31-32
ESG (Society)	33-34
ESG (Governance)	35
【Reference】 Details of Financial Results for FY2023	37-45
【Reference】 Basic Data of Ibaraki and Tochigi Prefectures	47-53
【Data】 Breakdown of Banking subsidiaries	55-59

*Unless otherwise mentioned, figures are based on banking subsidiaries (non consolidated-basis). *The number used for the year is based on western calendar.

1

1. Financial Results for FY 2023 / Forecast for FY 2024

2

Highlights

Results for FY23

Results for FY23	YoY Change	Compared to forecast

Net income attributable to owners of	(Consolidated )	43.3bn	+11.1bn	+3.3bn
the parent
	Profit from customer services*1			47.9bn	+3.5bn	-
	Securities Income				24.8bn	- 12.5bn	-
	（Banks' total）
	Credit related costs			3.4bn	-5.6bn	-
		-
	Gains/losses on securities			11.2bn	+ 15.7bn	-
ROE (on shareholders equity basis)	(Consolidated )			4.5%	+1.1%pt	-

• Net income attributable to owners of the parent increased by ¥11.1bn YoY to ¥43.3bn and exceeded forecast of ¥40.0bn by ¥3.3bn.
• Securities income (interest margin) decreased significantly due to an increase in foreign currencies funding cost by the rise in US interest rates. However, profit from customer services, the core business, maintained an increasing trend and credit related costs and gains/losses on securities improved.

*1 Difference of interests between loans and deposits＋Fees from Customers＋Expenses（-）

Forecast for FY24

		Forecast for FY24	YoY Change
Net income attributable to owners of		52.0bn	+8.6bn
the parent	(Consolidated )
ROE (on shareholders equity basis)		5.3%	+0.8%pt

Shareholder Returns

• We will increase annual dividends per share to ¥14.0 (+¥2.0 from the previous year).
• We decided to repurchase own shares up to ￥10.0bn (maximum amount).
• Total return ratio will be 46.0% (scheduled).
  (Total return amount of ¥23.9bn= Dividends payout of ¥13.9bn + Share repurchase of ¥10.0bn ).

3

Main Points of FY23 Financial Results

【Mebuki FG (Consolidated)】

Gross Business profit

Net interest income

(o/w Deference of interests betw een loans and deposits)

FY23

Results

155.4

140.8

(113.4)

	(bn)
YoY	Compared to
Chg	forecast

+37.0 -

-8.0-

(+5.9) -

						(bn)
		FY23		YoY		Compared
【Joyo + Ashikaga (Non-consolidated)】
	Results
		chg		to forecast
Gross business profit	147.9	+35.0	-
Net interest income	142.3	-8.6	-
(o/w Gains/losses on cancellation of investment trusts)(1)	(5.2)	(-1.8)	-
Net interest income	137.0	-6.7

Net fees and commissions	45.4	+2.7	-
Net trading income	0.5	-1.3	-
Net other business income	-31.4	+43.7	-
Expenses	107.6	+0.5	-
Credit related cost	5.5	-5.2	-
Gains/losses related to stocks	18.6	-25.1	-
Ordinary profit	63.0	+16.4	+5.5
Extraordinary income/losses	-1.1	-0.5	-
Net income attributable to owners of	43.3	+11.1	+3.3
the parent

FY23
Results	YoY

	Bank Total Net income (a)	40.5	-2.9
	Group Companies Net income (b)	4.9	+0.1
	Mebuki Lease	1.1	+0.2
	Mebuki Securities	0.4	+0.0
	Mebuki Credit Guarantee	2.5	-0.1
	Mebuki Card	0.4	-0.0
	Total of banking subsidiaries	0.3	+0.0
	Consolidation Adjustment*1 （c）	-2.1	+2.1
Net income attributable to owners of	43.3	+11.1
the parent （a）+（b）+（c）

		(excl.Gains/losses on cancellation of investment trusts)
		(o/w Deference of interests between loans and deposits(2))	(112.2)	(+5.7)	-
		(o/w Securities Income)	(24.8)	(-12.5)	-
		Net fees and commissions(3)	36.5	+1.0	-
		Net other business income	-30.9	+42.5	-
		(o/w gains/losses on bond transactions) (4)	(-39.2)	(+48.1)	-
		(o/w gains/losses on futures and options) (5)	(3.9)	(-4.1)	-
		(o/w other income related to customers) (6)	(4.3)	(-1.4)	-
	Expenses(7)	105.2	+1.8	-
	Net business income	42.7	+33.2	-
	(before general allowance for loan losses)
	Core net business income	81.9	-14.9	-
	(excl. gains/losses on cancellation of investment trusts)	76.6	-13.0	-
	Core net business income	72.7	-8.9	-
	(excl. gains/losses on cancellation of investment trusts and futures
	and options)
	Net transfer to general allowance for loan losses (8)	-5.8	-5.2	-
	Net business income	48.5	+38.4	-
	Net non-recurrent gains/losses	9.9	-25.1	-
		(o/w Disposal of non-performing loans (9))	(9.3)	(-0.3)	-
		(o/w Gains/losses related to stocks, etc. (10))	(18.7)	(-26.3)	-
	Ordinary profit	58.5	+13.3	+3.5
	Extraordinary income/losses	-1.1	-12.5
	Net income	40.5	-2.9	+2.0
	Profit from customer services (2)+(3)+(6)-(7)	47.9	+3.5
	Credit related cost (8)+(9)	3.4	-5.6
	Gains/losses on securities (1)+(4)+(5)+(10)	-11.2	+15.7	4

Change of Ordinary Profit (Bank Total non-consolidated)

Although securities' income (interest margin) decreased significantly due to an increase in foreign currencies funding cost, etc., ordinary profit (bank total) increased significantly, driven by an increase of profit from customer services and an improvement of credit related costs and gains / losses on sales of securities.

Year -on-Year Changes of Ordinary Profit (Bank total) (bn)

Profit from Customer Services*1

YoY ¥3.5bn

Deference of

Gains

interests

Fee from

/losses on

between loans

Expenses

securities*2

customers

and deposits

（-）

Security

+15.7

+5.7

-0.3

+1.8

margins

Ordinary

-12.5

profit

	Net non-
Credit related	recurrent
gains
costs （-）	/losses
-5.6	+0.8

¥45.2bn

(Breakdown）

Fee from corporate customer +0.4

(including derivatives CVA)
Customer assets related	-0.2
Remittance fee etc.	+0.5

Dividends related to mortgage group credit insurance, etc. -0.9

（Breakdown）

Yen denominated loans +3.2 Foreign currency

denominated loans +4.0 Yen denominated

deposits(-)-0.0 Foreign currency denominated deposits(-) +1.6

（Breakdown）

Gains/losses on

bond transactions ＋48.1

related to stocks	-26.3
investment trusts	-1.8
futures and options	-4.1

（Breakdown）
Interest and dividend on securities
(Yen denominated)	-3.1
(Foreign currency denominated)	+10.4
Market Procurement Cost
（Yen denominated） （-）	-0.1
（Foreign currency denominated ）（-）	+18.6

Special Funds-Supplying Operations by Bank of Japan -1.2

Increase Decrease

Ordinary

profit YoY

¥58.5bn +13.3bn

FY2022	*1	Difference of interests between loans and deposits＋Fees from Customers＋Expenses（-）	FY2023	5
*2	Gains/losses on "Bond transactions +Related to stocks + Cancellation of investment trusts + Futures and options

Growth of Profit from Customer Services

Profit from customer services maintained an increasing trend after bottoming out in FY 2019.

Regarding securities' income (interest margin), the maintenance of our portfolio, mainly in bonds, is expected to be completed soon, and we will increase the balance and expect a reversal in securities' income for FY2024.

Changes of Profit from customer services, Core net business income and Securities' income	(bn)

Annual

63.0

Core net business

income(*2)

36.5

Securities' income(*3)

Profit from Customer
26.5
Services*(1)

			84.7	81.6
	71.0		69.5	72.7
68.1
	65.5
			51.4	47.9
	42.6	40.8	40.6	44.3
39.3
			33.2	37.3
28.7	28.3	24.6	28.9	24.8

+¥3.5bn (YoY)

o/w Interest on loans +¥5.7bn

FY16	FY17	FY18	FY19
Business			System
Integration			Integration

	FY20	FY21	FY22	FY23
*1	Difference of interests between loans and deposits＋Fees from Customers＋Expenses（-）
*2	Excluding gains/losses on cancellation of investment trusts and futures and options	6
*3	Excluding gains/losses on cancellation of investment trusts

(¥bn)

Loans Term-end Balance

Amount of loans increased by 523.3bn YoY.

The growth rate of loans was +4.4% and remained at the 4% level.

Interests between domestic loans and deposits in FY23 turned to an increase for the first time since our business integration.

Term-end Balance (Joyo+Ashikaga) (bn)

＊Not including borrow ing from special account of MoF

Year on Year Changes

(bn)

										（＋4.4%）
						（＋4.5%）		（＋523.3）
			（＋0.2%）	（＋511.3）
			（＋30.6）
							12,343.4
							11,820.1
10,852.3	10,957.5	11,278.1	11,308.8
		5,369.6	5,347.4	5,694.8	6,099.4
5,139,1	5,181.3

Corporate

Individual

		FYE21	FYE22	FYE23
	Total	+30.6	+511.3	+523.3
	+0.2%	+4.5%	+4.4%
	Corporate	-22.2	+347.4	+404.5
	-0.4%	+6.4%	+7.1%
	Individual	+120.5	+91.3	+77.5
	+2.4%	+1.8%	+1.5%
	Public	-67.7	+72.5	+41.1
	-6.8%	+7.9%	+4.1%

（Reference) YoY changes of interests of domestic loans since the business integration

4,674.8

4,795.9

4,924.8

5,045.4

5,136.7

5,214.3

1,038.2	980.2	983.7	915.9	988.5	1,029.6
	FYE18	FYE19	FYE20	FYE21	FYE22	FYE23
(Reference) Loans to 'borrowing from special account of MoF
	(FYE18)	(FYE19)	(FYE20)	(FYE21)	(FYE22)	(FYE23)
	¥ 399.4bn	¥ 519.8bn	¥ 521.5bn	¥ 586.7bn	¥ 768.4bn	¥ 466.2bn

			Average balamce factor		Yield factor		YoY
								+5.1	Average
Public			+3.2					+3.2
						balance
			+2.1
	+1.5	+1.8	+1.0	+1.6			+¥ 563.5bn

				-1.3	-0.7
	-1.6	-1.8	-1.6		-1.8	Yield
	-2.3	-2.3
				- 1.6bp
-3.2		-3.7
	-3.8
-4.7	-4.9
FY17	FY18	FY19	FY20	FY21	FY22	FY23	7

Securities (1) Portfolio Overall

Taking into consideration domestic and foreign monetary policy and stock markets' conditions, we have continued to restructure our portfolio. We have sold yen and foreign currency denominated fixed bonds, domestic stocks and other securities, resulting in -11.2bn loss on securities (improved by 15.7bn YoY).

Balance(Carrying amount) (Mebuki FG)

(¥bn)

Unrealized valuation gains/losses on available for sales securities	(¥bn)
(Mebuki FG)

			4,682.3							210.7
		4,333.2				Investment trusts,		33.1	128.9		108.6	Investment
	4,076.1			4,133.5
		715.5	3,662.3	etc.		99.1		32.9		4.6	trusts, etc.
		597.2					24.9
	658.9	254.1	654.8				Stocks
			Stocks
	265.8	622.2				139.4
	226.0	967.3	278.7
	959.5				86.9		131.5		151.9
	831.6		211.3	836.0					101.7	Foreign bonds
			Foreign bonds
			622.8
							24.3	35.6
									9.2				Domestic bonds
									2.4	(21.3)	(34.4)	(33.3)
							Domestic bonds	(21.3)
	2,359.4	2,510.6	2,745.1	2,205.9	2,363.8					(14.2)	(13.9)	(14.6)
									(28.4)		*1 Unrealized valuation
								FYE19	FYE20	FYE21	FYE22	FYE23	gains/losses on interest rate
								swap to hedge fluctuations in
	FYE19	FYE20	FYE21	FYE22	FYE23			（Reference）Deferred gains(losses) on hedges*1			the fair value of domestic
					bonds
			-¥0.8bn	¥1.5bn	¥3.3bn	¥3.5bn	¥1.8bn
Strategic Shareholdings*2			(¥bn)	Gains and losses on securities*3 (bank total)	(¥bn)
				Reduction target								*3 Gains/losses on
				Reduction of ¥30.0bn in 5 years from							"cancellation of investment trusts
	23.1%	22.9%		the end of Mar.2023									+ bond transactions
	20.0%							8.0		+ related to stocks
					Compared to FYE22						+ futures and options"
												Gains/losses on futures and
				16.6%	16.6%		＋￥13.7bn						3.9
							6.8		7.1	options
		229.1				(breakdown)		0.5		5.2
	204.0				Reduction - ￥21.8bn					Gains/losses on cancellation of
		191.9			Change in market							investment trusts
			150.9	164.6	value	＋¥35.5bn		7.3	10.0	1.7	45,0	18.7	Gains/losses related to stocks
	113.0							0.4		3.5
	98.8					Ratio to net					Gains/losses on bond
	79.1					(2.0)	(6.2)	(7.1)
		64.9			assets			(39.2)
			57.5				transactions
								(0.1)	(0.4)
							Fair value			(87.3)		●Gains/losses on
							Book value							bond transactions
	FYE19	FYE20	FYE21	FYE22	FYE23								（Breakdown）
									Domestic bonds
	Number of Issues (companies)					Gains/losses	FY19	FY20	FY21	FY22	FY23		-¥32.1bn
	321	299	266	253	234			on securities	Foreign currency
			Total	¥6.1bn	¥10.4bn	-¥2.3bn	-¥27.0bn	-¥11.2bn	bonds	-¥7.0bn	8
*2	Figures are strategic shareholdings (including listed or non- listed stocks) held by Joyo Bank,
which owns more	than two-thirds stocks owned by Mebuki FG and subsidiaries.

Securities (2) Domestic Bonds

Taking into account the possibility of changes in monetary policy, we restarted to purchase domestic bonds in stages, while keeping the risk amount (BPV) and duration to a certain level. New investments during a period of rising interest rates helped increase the yield .

Overview of Domestic Bonds

*1

(Bank Total)

(bn)

*1 Including bear funds and hedged swaps, etc.

FY23

1H23

2H23

FYE23

Change

FYE21

FYE22

(Apr.-Sep.)

(Oct.-Mar.)

cumulative

②

②－①

①

Purchase

+approx. 180.0

+approx.680.0

+approx.860.0

Balance

2,412.4

+161.9

Balance

2,779.2

2,250.4

Sale

-approx.190.0

-approx.240.0

-approx.430.0

Valuation

Valuation

-26.6

-7.1

-3.9

-19.4

gains/losses

gains/losses

Redemption

-approx.105.0

-approx.160.0

-approx.265.0

Yield

0.43％

0.42％

Yield

0.45％

+0.02％p

Total

-approx.115.0

+approx.280.0

+approx.165.0

10bpv

-17.6

-11.4

10bpv

-9.5

+1.9

Gains/losses

Duration

7.4 years

5.3 years

on securities

-14.8

-17.2

-32.1

Duration

3.9 years

-1.3 years

(incl. cancellation of

investment trust)

Status of Domestic Bond's Ladder*2 (Bank Total) (￥bn)

600.0

400.0

200.0

*2 Excluding asset swaps and private bonds

FYE21

FYE22

FYE23

0.0
1 year	2 years	3 years	4 years	5 years	6 years	7 years	8 years	9 years	10 years 10-15years16-20years

Investment

stance

• Keeping the risk amount (BPV) and duration to a certain level and capturing the opportunity of yield increase by the changes in monetary policy, we will proceed to rebalance our portfolio.

9