Annual Report
2005
Year ended March 31, 2005

Hokuhoku Financial Group, Inc.

CONTENTS

To Our Shareholders .............................................................................
Performance Highlights ........................................................................
Plan For Sound Management ...............................................................
Corporate Governance ..........................................................................
Compliance System ..............................................................................
Risk Management System ...................................................................
Topics ....................................................................................................
Consolidated Financial Statements
Consolidated Balance Sheets ...........................................................
Consolidated Statements of Operations ..........................................
Consolidated Statements of Stockholders’ Equity ...........................
Consolidated Statements of Cash Flows .........................................
Notes to Consolidated Financial Statements ...................................
Independent Auditors’ Report ..............................................................
Nonconsolidated Financial Statements
The Hokuriku Bank, Ltd.
Nonconsolidated Balance Sheets (Unaudited) .............................
Nonconsolidated Statements of Operations (Unaudited).............
The Hokkaido Bank, Ltd.
Nonconsolidated Balance Sheets (Unaudited) .............................
Nonconsolidated Statements of Operations (Unaudited).............
Corporate Information...........................................................................
Outline of Subsidiaries — Hokuriku Bank.............................................
Outline of Subsidiaries — Hokkaido Bank ............................................
Board of Directors and Corporate Auditors ..........................................

1
4
9
12
13
14
15
18
19
20
21
23
36

38
39
40
41
42
43
44
45

TO OUR SHAREHOLDERS

The Hokuhoku Financial Group provides quality financial
services that increase customer convenience by making
the best of the competitive advantages provided by its
extensive regional network.
We would like to begin by sincerely thanking you for your support. We deliver
this publication to serve as the Hokuhoku Financial Group’s annual report for
the fiscal year ended March 31, 2005.
With the consolidation of the management of its two constituent banks
on September 1, 2004, the Hokuhoku Financial Group became an extensive
regional financial group. We possess 146 branches in the three prefectures ofthe Hokuriku region (Toyama, Ishikawa, and Fukui), 152 branches in Hokkaido,
and 17 branches in the three major metropolitan areas of Japan, Tokyo, Nagoya,(From left)

and Osaka. We have established an organization that makes it possible to pro-

Shigeo Takagi

vide quality financial services that add to the convenience of our customers. In

President(concurrently serving as president of the Hokuriku Bank, Ltd.)

addition, we can provide integrated financial services that meet our customers’

Yoshihiro Sekihachi

opment. We are working to increase our enterprise value by realizing synergistic

Deputy President(concurrently serving as president of the Hokkaido Bank, Ltd.)

needs in such areas as leases, credit cards, venture capital, and software develbenefits from the recent merger and by combining the strength of each Group
member.
Regional economies are transforming themselves into borderless economies
and societies, not limited to a single prefecture. Regional firms are extending
their activities into major metropolitan areas and into East and Southeast Asia,
particularly China. By expanding and complementing the operational and customer bases of the two banks and making the most of its extensive network,
which is a competitive advantage, the Group is meeting the broad expectations
and needs of its customers. We are building closer relationships with customers through our customer-first attitude, and by contributing to the developmentof local economies. We do this by leveraging our extensive network to actively
support small- and medium-size firms with financial services, including problem-solving, proposals, and business-matching, and by helping them expand
overseas.
All our executives and other staff members are committed to a sustained effort
to meet customers’ expectations. We call on you for your continued support.
November 2005

Shigeo Takagi

Yoshihiro Sekihachi

President

Deputy President

Hokuhoku Financial Group, Inc. Annual Report 2005

1

An extensive financial network linking three large metropolitan areas andthe Hokuriku and Hokkaido districts of Japan has been born.

Management integration
Since its establishment in 1877, Hokuriku Bank has developed an extensive network ofbranches throughout the Hokuriku district. On account of trade through the Kitamae-buneor “Northbound Ships,” branches extended to the major cities of Hokkaido, enabling thebank to meet customers’ needs. The Hokkaido Bank, which was established in 1951, hasdeveloped a network of branches throughout Hokkaido, and built a firm business structure
centered on individuals and small and medium-sized firms.
Since 2002, when they entered into a business alliance centered on Hokkaido, the area
both were active in, the two banks have worked to increase customer convenience byimplementing various measures such as the free use of either bank’s ATMs. Furthermore,in order to meet more diversified and sophisticated customer needs and to establish amore stable business foundation, the two banks agreed that pursuing a common businessstrategy would strengthen operations and make management more efficient. This realization led to the decision to merge the management of the two banks.
In September 2003, the Hokuriku Bank Group moved to a holding company management system, and management of the Hokkaido Bank was consolidated under thisarrangement in September 2004 to form the Hokuhoku Financial Group, Inc.

May 2002

Comprehensive business alliance between
Hokuriku Bank and Hokkaido BankMay 2003

Agreement on full integration of management of
Hokuriku Bank and Hokkaido Bank

September 2003

Hokugin Financial Group, Inc. established
Hokuriku Bank Group comes under management of
Hokugin Financial GroupManagement integration effected through equity swap

September 2004

2

Hokuhoku Financial Group, Inc. Annual Report 2005

Hokuhoku Financial Group, Inc. is born.

The operations of the Hokuhoku Financial Groupextend beyond the limits of a single district.
Our extensive network is outlined below.
Hokuriku district ............................................. 146 branches
Toyama prefecture..............................................

90 branches

Ishikawa prefecture ............................................

34 branches

Fukui prefecture..................................................

22 branches

Hokkaido............................................................ 152 branches
Three major metropolitan areas of Japan ...

17 branches

Tokyo and Kanagawa..........................................

10 branches

Kinki (Osaka) and Nagoya...................................

7 branches

Other ..................................................................

4 branches

Overseas (Hokuriku bank)

Hokkaido

Shanghai Representative Office
Singapore Representative Office
New York Representative Office(As of June 30, 2005)

Hokuriku district
Ishikawa

Toyama

Fukui

Tokyo
Osaka

NagoyaThree major metropolitan areas

Hokuhoku Financial Group, Inc. Annual Report 2005

3

PERFORMANCE HIGHLIGHTS
Summary of operations (Hokuhoku Financial Group, Inc.)
In the fiscal year ending March 31, 2005 the Hokuhoku Financial Group, Inc. recorded ¥7.8 billion in operating revenue, ¥6.9 billion in ordinary income, and ¥6.9 billion in net income.
On a consolidated basis, the Group posted ordinary revenue of ¥203.2 billion, ordinary income of ¥27.2 billion, and net incomeof ¥11.2 billion. The Group’s capital ratio stood at 8.33% as of the term-end.
During the term under review, Hokkaido Bank was included in the scope of consolidation, and 7-month results of HokkaidoBank, beginning from September 1, 2004, were incorporated in the consolidated financial statements.
Business Indicators for the Hokuhoku Financial Group (consolidated)(units: ¥ million)

FY2004203,200
27,226
11,248
380,750
9,398,673¥159.75
¥6.86
¥5.67
8.33%
4.88%

Ordinary revenue
Ordinary income
Net income
Stockholders’ equity
Total assets
Net assets per share
Basic earnings per share
Diluted earnings per share
Capital ratio (standard for banks with domestic operations only)
ROE

FY2003
179,445
7,074
5,031
193,692
5,675,209¥119.86
¥3.94
¥3.55
8.20%
3.53%

Summary of Operations (Hokuriku Bank and Hokkaido Bank)
Deposits and Loans
The balance of total deposits held by the two banks increased¥34.1 billion to ¥8.3 trillion. Although there were numerous
factors slowing down growth in deposits, including the promotion of sales of such products as investment trusts, pension
insurance, and public bonds in order to meet the more diversified asset management needs of our customers, the popularity of our time deposits with jumbo lottery tickets contributed
to the increase.
The balance of total loans and bills discounted provided by
the two banks and a subsidiary, Hokugin Corporate, which
was established to strengthen Hokuriku Bank’s support forcorporate rehabilitation, fell ¥166.1 billion to ¥6.7 trillion.
Although consumer loans increased favorable, business loans
decreased, mainly due to the shrinkage of financial demand.
Dividend policy
Considering the public nature of a bank holding company,
the Group has a policy of paying stable dividends. This isbased on the various factors such as business performanceand the need to build up retained earnings to ensure soundmanagement.
On the basis of this policy, for fiscal 2004, a dividend of¥1.50, an increase of ¥.50, was paid for ordinary shares ofcommon stock, ¥3.85 for 1st-issue class 1 shares of preferredstock, ¥3.31 for 1st-issue class 4 shares of preferred stock,and ¥7.50 for 1st-issue class 5 shares of preferred stock.

Profits and losses
Core business profit for Hokuriku Bank decreased ¥3 billion
to ¥51.9 billion. While a fall in interest income stemming fromstagnant demand for corporate loans weighed down core business profits, measures to cut costs and improve profitability
by increasing consumer loans and personal assets in custody,
such as investment trusts and annuity insurance, boosted
profits. For Hokkaido Bank, core business profit increased ¥1billion compared to the previous fiscal year to ¥33.8 billion.
This was due to various factors including continued progressin streamlining business and an increase in fees and commissions stemming from aggressive measures to expand into
new businesses.
For Hokuriku Bank, the amount of credit costs decreased¥24.8 billion compared to FY 2003 to ¥42.7 billion. For Hokkaido Bank, the same figure fell ¥7 billion to ¥16.8 billion.
This is attributable to numerous reasons. First, a recovery incorporate performance resulted in fewer new non-performing
loans and large-scale bankruptcies. Furthermore, the recovery
in customers’ businesses and improved borrowers’ creditworthiness in the borrower classifications made it possible toreverse reserves for possible loan losses.
For Hokuriku Bank, deferred income taxes amounted to¥10.4 billion, and for Hokkaido Bank, it was ¥6 billion. This
reflects our efforts to reduce deferred tax assets.
In summary, for Hokuriku Bank, ordinary income increased¥10.1 billion to ¥16.7 billion, and net income decreased ¥0.8 billion to ¥4 billion; for Hokkaido Bank, ordinary income increased¥6.5 billion to ¥17.3 billion, and net income increased ¥0.2 billion to ¥11.1 billion.

4

Hokuhoku Financial Group, Inc. Annual Report 2005

Business Indicators for Hokuriku Bank and Hokkaido Bank (total for the two banks combined)(unit: ¥ billion)

FY 2004
175.0
85.8
34.0
15.2

Core gross business profit
Core business profit
Ordinary income
Net income (loss)

FY 2003
176.5
87.8
17.3
15.7

FY 2002
170.5
78.5(46.7)(52.3)FY 2001
170.5
74.2(143.4)(131.1)

FY 2000
173.0
72.7
17.3
11.8

* Core gross business profit = Gross business profit – gains/losses on bonds* Core business profit = Core gross business profit – expenses

Core business profit (combined figures of the two banks)(Billion ¥)100
80

Expenses (combined figures of the two banks)

1.00

(%)
1.0

0.98

0.89
0.78

0.80

72.7

74.2

87.8

85.8

(Billion ¥) 57.98
120
100

0.8

78.5

60

0.6

40

0.4

20

0.2

56.49

100.3

53.91

96.3

50.25

50.95

88.7

89.1

91.9

80

(%)
60

40

60

0

FY2000FY2001

Core business profit

FY2002

FY200340
20

0FY20040

ROA (core business profit basis)

600

9.51

676.2

668.8

658.3

FY2002

FY2003

FY20040

OHR (core gross business profit basis)

Capital ratio (FG consolidated)

(%)
10.0

8.56

FY2001

OHR (core gross business profit basis) = Expenses / Core gross business profit

Current Status of Problem Assets (combined figures of the two banks + Hokugin Corporate)
9.44

FY2000
Expenses

ROA (core business profit basis) = Core business profit / (Average balance of total assets –Average balance of customers’ liabilities for acceptances and guarantees)(Billion ¥)
800

20

(%)
10
8.20

8.33

End of March 2004

End of March 2005

8.01
6.83

8

7.5

569.4
6

474.9

400

5.0
4

200

0

2.5

End of March 2001

End of March 2002

End of March 2003

Balance of problem assets basedon the Financial Reconstruction Law

End of March 2004

End of March 2005

2

0.0

0

Ratio of problem assets based on the
Financial Reconstruction Law

Capital ratio

September 2003
established

Progress in rationalization (total for the four companies: holding company, Hokuriku Bank, Hokkaido Bank, Hokugin Corporate)
The Group has worked to streamline operations and raise efficiency by developing strategic partnerships, outsourcing work, andeffectively allocating management resources by reviewing the operation of branches, personnel, and organizations.
(¥ billion)

Domestic branches (Note 1)
Employees (Note 2)
Personnel costs (Note 3)
Operating expenses
Personnel costs and operating expenses

End of FY 2004
(March 2005)

End of FY 2003
(March 2004)

End of FY 2002
(March 2003)

End of FY 2001
(March 2002)

End of FY 2000
(March 2001)

249
4,506
40.2
43.3
83.5

255
4,832
40.5
43.4
84.0

262
5,347
43.4
43.2
86.7

271
5,655
46.6
44.1
90.8

293
5,974
51.0
43.5
94.6

(Notes)(1) Excluding sub-branches, international operations center, loan direct centers, payment branches, and shared ATM branches.
(2) Includes branch staff, general affairs staff, and staff on loan. Excludes contract, part-time, and temporary staff.
(3) Includes expenses for staff dispatched to the holding company that the holding company pays to its subsidiaries.
Hokuhoku Financial Group, Inc. Annual Report 2005

5

Hokuriku Bank (non-consolidated):
In comparison with FY2003
Core business profit fell ¥3 billion to ¥51.9 billion. Interest income decreased to ¥82.3 billion due to a shrinkage in the volume
of business loans and a reduction by the Bank of its securities’ balance in order to reduce interest risk. Fees and commissions
increased to an historic high of ¥15.1 billion due to strong efforts made on various fronts, including the sale of investment trusts
and insurance, private placement of bonds, and syndicated loans.
Ordinary income increased ¥10.1 billion to ¥16.7 billion, mainly due to a decrease in non-performing loans, and net income
decreased ¥0.8 billion to ¥4 billion as a result of a reduction in deferred tax assets.

(unit: ¥ billion)

FY 2004
103.6
51.9
16.7
4.0

Core gross business profit
Core business profit
Ordinary income
Net income (loss)

FY 2003
107.0
55.0
6.5
4.9

FY 2002
101.3
48.0
9.5
2.7

FY 2001
101.7
44.7(155.9)(135.6)

FY 2000
101.8
41.3
10.4
5.7

* Core gross business profit = Gross business profit – gains/losses on bonds* Core business profit = Core gross business profit – expenses

Core business profit

Expenses
1.02(Billion ¥)
60

45

0.98

0.90
0.72

0.79

55.0

(%)
1.00

(Billion ¥) 59.41
80

51.9

48.0

56.01

60.5

52.56

57.0

(%)
60
48.61

49.85

52.0

51.6

0.75

60

30

0.50

40

30

15

0.25

20

15

0

0

41.3

0

FY200044.7

FY2001

FY2002

Core business profit

FY2003

FY2004

405.9

7.87

7.46

420.9

7.5
363.6

400

354.2

FY2003

FY2004

Capital ratio
(%)
10.0

9.15

FY2002

OHR (core gross business profit basis)

OHR (core gross business profit basis) = Expenses / Core gross business profit

Current Status of Problem Assets (combined figures of the Hokugin Corporate)

8.15

FY2001

Expenses

ROA (core business profit basis) = Core business profit / (Average balance of total assets –Average balance of customers’ liabilities for acceptances and guarantees)(Billion ¥)
600
8.80

FY2000ROA (core business profit basis)

53.2

326.5

(%)
10

9.55

7.07

8

7.50

8.04

8.42

End of March 2004

End of March 2005

6
5.0
4

200
2.5

0

End of March 2001

End of March 2002

End of March 2003

Balance of problem assets basedon the Financial Reconstruction Law

6

Hokuhoku Financial Group, Inc. Annual Report 2005

End of March 2004

End of March 2005

Ratio of problem assets based on the
Financial Reconstruction Law020

End of March 2001

End of March 2002

Capital ratio

End of March 2003

45

0

Hokkaido Bank (non-consolidated):
In comparison with FY2003
Core business profit increased ¥1 billion to ¥33.8 billion. Interest income was flat. Yields on loans decreased and the amount ofcorporate loans declined due to stagnant demand for funds, but this decrease was covered by a stronger performance in mortgage loans and improved yields on marketable securities, as well as increased investments in marketable securities. Fees andcommissions increased ¥1 billion due to a growth in fees resulting from aggressive efforts related to private placement of bonds
and syndicated loans as well as sales of insurance and investment trusts.
Ordinary income increased ¥6.5 billion to ¥17.3 billion due to a decline in credit costs, and net income increased ¥0.2 billion to¥11.1 billion. This modest increase is mainly attributable to efforts to reduce the amount of deferred tax assets.

(unit: ¥ billion)

FY 2004
71.3
33.8
17.3
11.1

Core gross business profit
Core business profit
Ordinary income
Net income

FY 2003
69.4
32.8
10.7
10.8

FY 2002
69.1
30.5(56.3)(55.0)FY 2001
68.7
29.4
12.4
4.5

FY 2000
71.1
31.3
6.9
6.1

* Core gross business profit = Gross business profit – gains/losses on bonds* Core business profit = Core gross business profit – expenses

Core business profit(Billion ¥)40

30

Expenses
0.98

0.97
0.87

0.88

0.82

31.3

30.5

29.4

33.8

32.8

(%)
1.00

0.75

(Billion ¥)
55.93
50

57.19

39.8

39.3

40

55.89
38.6

52.78

52.56

36.6

37.5

(%)
60

45

30
20

0.50

30
20

10

0

0.25

FY2000FY2001

FY2002

Core business profit

FY2003

FY200400FY2001

Expenses

FY2002

FY2003

FY20040

OHR (core gross business profit basis)

OHR (core gross business profit basis) = Expenses / Core gross business profit

Current Status of Problem Assets

Capital ratio(Billion ¥)
400

(%)
12

11.59

(%)
10

9.95

8.19
305.2

8.15

8.26

9

255.3
219.3

215.2

8.18
7.28

8
6.07

6.47

6

5.76

200

6
148.3

100

0

FY2000ROA (core business profit basis)

ROA (core business profit basis) = Core business profit / (Average balance of total assets –Average balance of customers’ liabilities for acceptances and guarantees)

300

15

10

4
3

End of March 2001

End of March 2002

End of March 2003

Balance of problem assets basedon the Financial Reconstruction Law

End of March 2004

End of March 2005

Ratio of problem assets based on the
Financial Reconstruction Law020

End of March 2001

End of March 2002

End of March 2003

End of March 2004

End of March 2005

Capital ratio

Hokuhoku Financial Group, Inc. Annual Report 2005

7

Share of regional deposits and loans for the Hokuhoku Financial Group
Share of deposits:
Three prefectures in Hokuriku district(banks + Shinkin banks)

Share of loans:Three prefectures in Hokuriku district(banks + Shinkin banks)

Share of deposits:
Hokkaido(banks + Shinkin banks)

Share of loans:
Hokkaido(banks + Shinkin banks)(27%)• Hokuhoku FG
A top competing bank in the region (18%)• Other(31%)• Shinkinbanks
banks
(24%)
•

(28%)
• Hokuhoku FG
A top competing bank in the region (20%)• Other(31%)• Shinkinbanks
banks
(21%)
•

(21%)
• Hokuhoku FG
top competing bank in the region (34%)• AOther(13%)• Shinkinbanks
banks
(32%)
•

(26%)
• Hokuhoku FG
top competing bank in the region (36%)• AOther(12%)• Shinkinbanks
banks
(26%)
•

As of September 30, 2004
Share for “A top competing bank in the region” and “other banks” are estimates
Breakdown of deposits by region

Breakdown of loans by region(Billions of yen)

2005

4,942.7
4,300.3(Billions of yen)
Total deposits (Hokuriku Bank)

3,383.3

Total deposits (Hokkaido Bank)

3,357.7

4,181.7

2005

Total loans (Hokuriku Bank)

2,539.4

3,075.6

Total loans (Hokkaido Bank)

2,412.8

Deposits in the region (Hokuriku Bank)

2004

2003

5,100.3
4,386.2
5,193.5

4,325.2

2004

3,165.8
3,089.4

4,424.5

Loans in the region (Hokuriku Bank)

Deposits in the region (Hokkaido Bank)

3,191.6

3,130.4

2,463.0
4,292.6

2003

3,063.7

Loans in the region (Hokkaido Bank)

2,562.1

3,144.2

2,511.6
2,405.7
Notes: 1. Loans of Hokuriku Bank include loans of Hokugin Corporate
2. Includes RMBS (Residential Mortgage-Backed Securities)

Loans to SMEs

Number of loans to SMEs
(Billions of yen)

2005

2,286.3
1,662.4(Numbers)
Loans to SMEs (Hokuriku Bank)

1,106.6

Loans to SMEs (Hokkaido Bank)

1,071.7

31,0902005

26,562

Number of loans to SMEs (Hokuriku Bank)

10,649Number of loans to SMEs (Hokkaido Bank)

10,543Loans to SMEs in the region(Hokuriku Bank)

2004

2003

2,447.3
1,791.6

1,157.7
1,125.4

2,625.5
1,913.0

Loans to SMEs in the region(Hokkaido Bank)

1,152.8

Number of loans to SMEs in the region(Hokuriku Bank)
31,223

2004

26,564

Number of loans to SMEs in the region(Hokkaido Bank)

11,39532,192

2003

1,126.7

11,51527,346

12,207
12,080Note: Loans of Hokuriku Bank include loans to Hokugin Corporate

Note: Loans of Hokuriku Bank include loans of Hokugin Corporate

As of March 31

Lending in the region by industry (as of March 31, 2005)(¥ billion)

Hokuriku Bank
Manufacturing
Agriculture
Forestry
Fisheries
MiningConstruction
Electric/Gas/Heating/Water Supply
Communications
Transportation
Wholesale and retail
Finance and insurance
Real Estate
Miscellaneous Services
Municipalities
OthersTotal

Hokkaido Bank

Hokuhoku Financial Group, Inc. Annual Report 2005

Domestic (total)%

Amount%Amount%Amount

%

484.7
12.7
2.8
18.4
2.3
256.6
31.6
17.0
98.0
401.9
39.6
208.3
365.7
257.4
878.0
3,075.6

15.7
0.4
0.0
0.5
0.0
8.3
1.0
0.5
3.1
13.0
1.2
6.7
11.8
8.3
28.5
100.0

177.1
6.5
0.2
2.6
2.0
152.2
22.1
4.6
55.7
373.0
63.4
148.3
273.3
282.3
848.8
2,412.8

7.3
0.2
0.0
0.1
0.0
6.3
0.9
0.1
2.3
15.4
2.6
6.1
11.3
11.7
35.1
100.0

661.8
19.2
3.1
21.0
4.3
408.8
53.7
21.6
153.8
775.0
103.1
356.6
639.0
539.8
1,726.9
5,488.5

12.0
0.3
0.0
0.3
0.0
7.4
0.9
0.3
2.8
14.1
1.8
6.4
11.6
9.8
31.4
100.0

877.4
19.4
3.1
23.0
4.4
489.4
56.3
36.2
184.3
1,021.9
199.2
508.0
768.4
693.4
1,836.0
6,721.2

13.0
0.2
0.0
0.3
0.0
7.2
0.8
0.5
2.7
15.2
2.9
7.5
11.4
10.3
27.3
100.0

Notes 1. Loans of Hokuriku Bank include loans of Hokugin Corporate
2. Includes RMBS (Residential Mortgage-Backed Securities)

8

Total (region)

AmountPLAN FOR SOUND MANAGEMENT

We will strive for stable earnings with the goal of repaying public funds.
Based on the Law on Emergency Measures to Revitalize the Functions of the Financial System (referred to below as
the Emergency Revitalization Law), the company issued a total of ¥120.03 billion in preferred stock (First-issue class 1
preferred shares ¥75 billion, First-issue class 4 preferred shares ¥45.03 billion), which was placed to specified banks.
(In addition, based on the Financial Reconstruction Law, Hokuriku Bank borrowed ¥20 billion in perpetual subordinatedloans from the said banks.)
Accompanying the management consolidation of the two banks in September 2004, a plan covering the period toMarch 31, 2008 was adopted based on the Financial Reconstruction Commission’s Basic Finding on the Rehabilitation
Plans issued on September 30, 1999, and the provisions of Article 1-2 of the Emergency Revitalization Law.
According to the plan, the Group will strive to ensure stable profitability with the goal of repaying public funds, byutilizing its unique extensive regional network to realize the goals of integration, which include “strengthening sales
promotion,” “increasing management efficiency,” and “stabilizing the business foundation.”

Goals and Strategy of the Management Integration
1. Strengthening Sales Promotion
The Group will substantially improve its operations, particularly in Hokkaido, by linking the Hokuriku Bank’s extensive
network encompassing both the Hokuriku district and the three major metropolitan areas of Japan, with the Hokkaido
Bank’s customized financial service in Hokkaido.
• Strengthening efforts to match businesses using its extensive regional network• Engaging in transactions with corporations’ trading partners and employees, using the customer bases of the two banks• Strengthening its solution and proposal ability by sharing the know-how of the two banks

2. Increasing Management Efficiency
The Group will strive to create a highly profitable and efficient operation system that more efficiently utilizes management resources by integrating and reorganizing redundant infrastructure in Hokkaido, while stressing the maintenanceand strengthening of excellent relationships with customers of both banks.
• Rebuilding an efficient and effective network of branches• Combining back-office operations and mail delivery services of the two banks within Hokkaido• Concentrating management activity for the entire group, including planning and risk management under the holding company

3. Stabilizing the Business Foundation
The Group is working to create a stable asset portfolio by utilizing an operating base that extends over two geographical areas with different economic environments to become a regional financial group supported by customers andhighly trusted by the market.
• Building an asset portfolio diversified across a wide area and a wide range of industries by utilizing extensive regional operations• Implementing stable capital and dividend policies by having the holding company absorb fluctuations in the profits of its subsidiary banks
and companies• Strengthening its capabilities in corporate rehabilitation and M&A by sharing know-how and engaging in broad regional banking activity

Hokuhoku Financial Group, Inc. Annual Report 2005

9

We set the following five items as targets in the plan for restoring management soundness to further improve profitability, efficiency, and soundness. The plan will be implemented through March 2008.
In fiscal year 2004, the first year under the revised plan, core business profits reached ¥85.8 billion due to the steady
implementation of restructuring measures and measures to strengthen earnings included in the plan.
In addition, ordinary income and net income were greater than expected, although the cost of disposing of nonperforming loans was greater than expected due to stricter collateral valuations and an additional provision toreserves for loan losses.
We will continue to work to win the trust of customers and the market by ensuring stable earnings.

Further strengthening our top-level profitability among regional banks
Target by March 2008
Net business profit (excluding provision for general reserve for possible loan losses): ¥100.5 billion
Net income: ¥42.1 billion

Securing sufficient retained earnings to repay public funds
Target by March 2010
Balance of retained earnings of ¥192.8 billion(Repayment due date of July/August 2010 for public funds in the form of ¥120.0 billion in preferred stock)Pursuing greater efficiency and reducing expenses
Target by March 2008
OHR 46.48%

Establishing a financial foundation trusted by the market
Target by March 2008
Capital ratio of 9.18%(Reduce the percentage of deferred tax assets as Tier I capital to 20%)

Accelerating disposal of non-performing loans and support for corporate rehabilitation
Target by March 2008
Reducing the percentage of non-performing loans up to 5.99%

Income (Hokuriku Bank + Hokkaido Bank)(¥ billion)

Gross business profit
Expenses(OHR [Expenses/Gross business profit])
Net business profit (excluding provision for general reserve for possible loan losses)
Core business profit
Total credit cost
Ordinary income
Net income

March 2005
(Target)March 2005

Difference

March 2006
(Target)March 2007
(Target)March 2008
March 2008
(Target) and March 2005

173.6
90.0
(51.83%)

180.2
89.1
(49.49%)

+6.5
(0.8)
(-2.34%)

176.7
88.7
(50.19%)

181.5
87.9
(48.46%)

187.9
87.3
(46.48%)

+7.7
(1.8)
(-3.01%)

83.6
82.8
53.5
28.7
14.1

91.0
85.8
59.5
34.0
15.2

+7.3
+3.0
+6.0
+5.3
+1.0

88.0
87.2
39.0
47.6
25.9

93.5
92.7
31.0
60.7
36.1

100.5
98.9
31.0
67.3
42.1

+9.5
+13.1
(28.5)+33.3+26.9

Balance of retained earnings (Hokuhoku Financial Group + Hokuriku Bank + Hokkaido Bank)

Balance of retained earnings

March 2005
(Target)March 2005

Difference

March 2006
(Target)March 2007
(Target)

45.0

46.3

+1.3

64.7

94.0

March 2005
(Target)March 2005

Difference

March 2006
(Target)March 2007
(Target)

7.82%
5.91%

8.33%
5.95%

+0.51%+0.04%

8.12%
6.34%

8.58%
6.89%

March 2008
March 2008
(Target) and March 2005

129.9

+83.6

Consolidated capital ratio (Hokuhoku Financial Group)

Consolidated capital ratio
Tier I capital ratioCore business profit = Net business profit (excluding provision for general reserve for possible loan losses) – Gains (losses) on bonds
Credit cost includes transfer to general reserve for possible loan losses
Balance of retained earnings = Retained earnings – Legal reserve

10

Hokuhoku Financial Group, Inc. Annual Report 2005

March 2008
March 2008
(Target) and March 2005

9.18%
7.57%

+0.85%+1.62%

By implementing our Plan for Sound Management, we are working tostrengthen our management systems and develop various operational measures to become more useful to both corporate and individual customers.
For corporate customers
Increasing loans:• Focus on corporations with ¥1 billion or more in sales; work to increase share, and expand transactions withsmaller corporations
Appropriate interest rates:• Set interest rates that reflect risk
Develop solutions business:• Make full use of the extensive regional network to aggressively make proposals in such areas as businessmatching

For individual customers
Increase loans to individuals (raise percentage of consumer loans to 30% of total loans from the two banks):• Strengthen operations based on Loan Plazas; Increase card loans
Increase accounts for salary and pension payments:• Expand preferential services
Strengthen promotion of products in custody:• Strengthen sales of investment trusts, insurance and other new products

Strengthening the management system
1. Headquarters and network of branches
Headquarters: Strengthen support for branches and headquarters’ marketing ability
Branches:
Review services to meet customer needs (regional operation system, loan plaza, establish new types ofbranch, collaborating with other business enterprises, such as convenience stores)
2. Strategy for other channels
Expand ATM network (including those at convenience stores)
Strengthen direct banking capability (including those over Internet)

We will make continuing efforts following the management integration to
implement low-cost operations.
Restructuring plans (Total for two banks)
Number of Employees
Reduce employees by 552 from 4,832 in March 2004 to 4,280 by March 2008; a reduction of 2,956 people (-40.9%)
compared to March 1997.
Number of Branches:
Reduce branches by 10 from 255 in March 2004 to 245 by March 2008; a reduction of 68 branches (-21.7%) comparedto March 1997.
(Please refer to the “Plan for Sound Management” for details.)

Hokuhoku Financial Group, Inc. Annual Report 2005

11

CORPORATE GOVERNANCE

We will strengthen our system of corporate governance and increase
management transparency.
Basic Approach
We are working to strengthen our system of corporate governance and increase management transparency. We have established a business management system by consolidating administrative departments and strengthening the planning department
in order to enhance the checking function related to the appropriateness of business implementation of subsidiary banks.
Our efforts also include obtaining opinions from outside the Group, including those of customers.

Corporate Governance
We have established a decision-making system with the Shareholders’ Meeting and Board of Directors at the top, enabling quick
decision-making since day-to-day operational authority has been delegated. Bodies such as the Management Committee areable to respond quickly to specific and detailed matters based on basic policies set by the Board of Directors. Furthermore, in
addition to the Management Committee, a Market Strategy Committee, which works to disseminate information on the operation
policy throughout the company, and a Management Advisory Committee, which is composed of independent specialists and is
responsible for checks and follow-up of the “plan for sound management,” have been established. In this way we have built asystem for decision-making, implementation, evaluation, and improvements.
The following are the main bodies in this system:(1) Board of Directors: responsible for decisions related to business implementation, critical policies, and important management matters, and monitoring implementation.
(2) Board of Auditors: audits the legal appropriateness of business implementation by the Board of Directors by attending
Board of Director meetings and providing detailed reports.
(3) Management Committee:
Directors.

makes decisions on important business matters based on basic policies set by the Board of(4) Management Advisory Committee (in general, meets four times a year): responsible for improving the transparency ofGroup management and increasing the precision implementation of the “plan for sound management” by reflecting proposals made from a specialist’s point of view in management(5) Market Strategy Committee (as a rule meets once a month): composed of the executive directors and presidents ofsubsidiaries; is responsible for disseminating important management policies and similar items throughout the Group andfor ensuring that business policy implementation reflects executive decisions by verifying the each member’s management
situation.

Hokuhoku Financial GroupManagement Advisory Committee

Shareholders’ Meeting

Members: 4 external experts, 2 group auditors
Aim: Check and follow the execution of plan for soundmanagement, advise to management

Execution

Market Strategy Committee(Coordication: some members takemore than one position at a time)Members: Group directors + subsidiary presidents
Aim: Implementation of management policy, understandbusiness environment and give indication

Planning Group

of
PDCA

Management Committee

Administration Group

Risk Management Group

Shareholders’ Meeting

Other
subsidiaries

Internal audit

Shareholders’ Meeting
Internal audit

Board of Directors

Board of Directors

Management Committee

Management Committee
Each bank sends
executives to serveon the other’s Board.

12

Audit Group

Hokkaido Bank

10 external members
Advises to theManagement

1 external director

Board of Directors

Hokuriku BankManagement Advisory
Committee

Board of Auditors

Internal audit

Hokuhoku Financial Group, Inc. Annual Report 2005

Management Advisory
Committee
7 external members
Advises to theManagement

COMPLIANCE SYSTEMThe Group rigorously adheres to all laws and corporate regulations.
Philosophy on Compliance (adherence to laws and regulations)
We position compliance as our most important management task and recognize that an incomplete compliance system canweaken our business foundation. Therefore, we are implementing a basic compliance policy as described below, and are striving
to conduct fair and honest corporate activity.
To establish a compliance system for the entire Group, we have worked in cooperation with each member company to establish various compliance regulations and organizational systems to ensure that each member company has a compliance policy inplace.
We have created the positions of General Compliance Manager, as the executive in charge of implementing all compliancemeasures within the Group, and a General Manager for Eliminating the Influence of Organized Crime, as the person responsible
for the Group’s resolute response to all organized crime issues and for ensuring that the Group has no connections with criminal
elements.
In addition, we have established a Compliance Program, a concrete plan to realize our compliance goals, and are systematicallyworking to create a compliance system and to raise management and employees’ awareness of compliance issues.
We have also created a compliance office at each Hokuriku Bank and Hokkaido Bank branch, and at each Group company, toaggressively work to implement measures to educate employees about and develop awareness of the need for compliance.

Hokuhoku Financial Group

Board of Directors
Auditors and Board of Auditors, independent audits of importantmatters related to compliance throughout the GroupManagement Committee
Risk Management Group (Compliance General Department)
Integration and Planning related to compliance issues throughout the Group

Hokuriku Bank

Hokkaido Bank

Subsidiaries, etc.

Basic Compliance Policy
1. Recognition of the Group’s basic mission and social responsibilities
As a regional financial institution, the Group recognizes its public duties and social responsibilities and strives to gain
greater trust through the conduct of sound business operations.
2. Providing quality financial services
By providing quality integrated financial services, the Group will contribute to the stable economic and social development of the region and to a better life for its customers.
3. Strict adherence to laws and rules
The Group strictly adheres to laws and regulations, and conducts business in a trustworthy and honest fashion that
conforms to corporate ethics and social norms.
4. Elimination of ties with criminal elements
The Group contributes to a healthy society by resolutely refusing to associate or work with persons known to be connected with organized crime.
5. Ensuring management transparency
The Group aims for a highly transparent management and organizational culture, and strives for accurate disclosure andswift decision-making.

Hokuhoku Financial Group, Inc. Annual Report 2005

13

RISK MANAGEMENT SYSTEMThe Group is striving to build a risk management system appropriate for thetypes and scale of risks to which the Group is exposed.
The Hokuhoku Financial Group Risk Management System
Amid financial liberalization and globalization, finance services are becoming more diversified and complex, and financial institutions are exposed to various risks, including credit risk, market risk, liquidity risk, and operational risk.
We recognize that risk management is one of our most important management tasks, and work to improve profitability, ensure
sound management, and to strengthen our risk management system in order to win the trust of shareholders and creditors andto protect customers’ deposits.
In particular, while each Group company has created a risk management department, the Group as a whole is working toward
integrated risk management through close cooperation between these departments. Serving as an overall risk management unit,
the Risk Management Group has drawn up the “Risk Management Rules” and a “Basic Risk Management Policy.” In addition,
based on this basic policy, each member company has established a risk management system corresponding to the scope andtype of risk that it is exposed to, and works to manage risk in an appropriate manner.
We have strengthened corporate governance, and ensure sound management by having each group company submit reports
on risk management, by giving appropriate instructions on risk management issues, and by reporting on risk management matters and problems for discussion to the Board of Directors and other management units.

Hokuhoku Financial Group• Report on risks,
problems, andresponses toproblems• Set basic policies• Offers guidanceon matters related
to establishing thesystemBoard of Directors
Management Committee

Risk Management Group

Creditrisk

Marketrisk

Liquidity
risk• Report on the state ofrisk management

Operationalrisk• Determine basic policy andinstructing on items such assystem creation

Group members
Hokuriku Bank

Hokkaido Bank

Subsidiary Bank
Board of Directors
Management Committee
Risk management department

14

Hokuhoku Financial Group, Inc. Annual Report 2005

Subsidiaries, etc.

TOPICS

Hokuhoku Financial Group
1. Launch of the holding company, Hokuhoku
Financial Group, Inc.
On September 1, 2004, the Hokkaido Bank came under the
management of the holding company, the Hokugin Financial
Group, Inc., the parent company of Hokuriku Bank. At thattime the parent company’s name was changed to Hokuhoku
Financial Group, Inc. An integrated financial services group,with the Hokuriku Bank and Hokkaido Bank as the two core
brands was formed under the management of the holding
company.

3. Restructuring both banks’ branch networks
The Hokkaido Bank’s Tokyo branch, and the Treasury andSecurities Group moved to the Hokuriku Bank’s branch (in the
Muromachi Chuo Building in Tokyo) on February 14, 2005.
Operations of the Hokuriku Bank’s Kitami branch in Hokkaido
were absorbed by the Hokkaido Bank’s Kitami branch on
March 22, 2005, and on April 18, 2005 operations of the
Hokuriku Bank’s Abashiri branch(also in Hokkaido) were moved to
Hokkaido Bank’s Abashiri branch.
Operations at Hokkaido Bank’s
Osaka branch were taken over by
Hokuriku Bank’s Osaka branch.

4. Issuance of ¥20.0 billion in subordinated bonds

2. Full business cooperation between Hokuriku Bankand Hokkaido Bank
Starting in May 2004, the Hokuriku Bank’s internal bank mailing service in the city of Sapporo and the remittance and cash
reserves operations for Hokkaido were entrusted to Hokkaido
Bank’s Dogin Business Service. (“Dogin” is an abbreviation of
the Japanese for “Hokkaido Bank.”) In September and Octoberof 2004, Business Forums, which customers from both banks
took part in, were held in Toyama and Sapporo. Numerous
corporate representatives from customer firms attended,
which resulted in lively business discussions. In October 2004,
the Hokuhoku Financial Group Business Matching Task Force,
which consists of 24 employees from the two banks, 16 from
Hokuriku Bank and 8 from Hokkaido Bank, was established.
Using a TV-conference system, the task force provides business information, connecting the Hokuriku region, Hokkaido,
and three major metropolitan areas of Japan.
A cooperative system between the two banks has gradually
been created for product development. The two banks jointly
developed the Hokuhoku Fund 2004, and Hokkaido Bank
developed products using asset securitization systems utilizing
the Hokuriku Bank’s know-how. Conversely, Hokuriku Bank
developed time deposits with lottery tickets utilizing Hokkaido
Bank’s know-how.

On March 1, 2005, ¥20.0 billion issue of uncollateralized
subordinated bonds with an early redemption clause wasconducted by the holding company. The funds were used for
subordinated loans to Hokuriku Bank and Hokkaido Bank.

5. First participation in the Yosakoi Soran Festival
We took part for the first time in the 14th Yosakoi SoranFestival, which started on June 8, 2005, in Sapporo.
We joined forces with the Hokkai Ahondara group, one ofthe oldest groups, which has taken part in the festival ninetimes, to form a Hokkai Ahondara Group & Hokuhoku FG
team, which put on an elegant dance with 150 members. The
group was one of the largest of the 334 participating teams.
The festival was thoroughly enjoyed by all participants fromthroughout Japan as well as the spectators, producing a senseof shared community and achievement.

Hokuhoku Financial Group, Inc. Annual Report 2005

15

Hokuriku Bank
1. Business in China
Hokuriku Bank has established a membership club, the“Hokuriku Choujou-Kai,” consists of 471 corporate customers that have needs related to operations in China. The Club,
which has been highly praised by its members, acts as aforum to provide and exchange information.
In October 2004, an economic exchange agreement was
concluded with the municipal authorities of the Chinese cityof Dalian, and the Bank will continue to actively support economic interaction between regional corporations and the cityof Dalian.
In the same month, the bank established China businessservice counters in 32 of its branches that have a strong
demand for advice related to doing business in that country,
so as to quickly and precisely meet the diverse needs of firms
entering the Chinese market, which is expected to continue toexpand. Around 100 employees with work experience in China
are engaged in providing these services.

2. Expansion of business partnership with Lawson
Convenience Stores
Following the opening of a Lawson convenience store as anin-branch store in our Tokyo and Kyoto branches, Lawson
stores were introduced into our Toyama Minami Chuo (May2004), Shinjuku (May 2005), and Ueno (June 2005) branches.
In July 2004, a new service was launched using Lawson
ATMs in partnership with Lawson ATM Networks. The service makes it possible to apply for Hokuriku Bank products
through Lawson “Loppi” communication terminals. This has
expanded the channels for providing Hokuriku Bank services
through Lawson. For customers with 700 points or more in
the Hokugin Point Club, and in combination with convenience
store ATMs provided through a partnership with E-net, which
was initiated in February 2002, extended service hours andoff-hours free-of-charge cash dispensers are available at evenmore locations, 9,012 as of June 2005.

16

Hokuhoku Financial Group, Inc. Annual Report 2005

3. Strengthening the partnership between industries, universities, and financial institutions
In response to the transformation of public universities into
independent administrative corporations in April 2004, wehave become the designated financial institution for four
universities and three National Colleges of Technology in the
Hokuriku district and Hokkaido. On account of this, in March
2005, a memorandum related to a comprehensive partnershipwas signed with Toyama University in order to strengthen the
bank’s role as an intermediary in partnerships among industry,
university, and financial institutions. The aim of the partnership is to promote transfers of technology, human resource
exchange/education, and international interchange with East
Asia. Furthermore, efforts have been made to match businessdevelopment needs of regional firms with producer- driven
solutions in the field of research and development. Examplesof this include three presentations for regional corporations
related to new technology. These presentations were conducted in cooperation
with KUTLO (Kanazawa
University Technology
Licensing Organization)
and Kanazawa University Office of Intellec tual Property.

4. Corporate rehabilitation business
In March 2005, we established a wholly owned subsidiary,
Hokugin Corporate, by transferring the debt of customers in
the Tokyo area who need help related to restructuring andrehabilitation through a corporate split in order to strengthen
our supporting service for corporate rehabilitation.
We have also concluded a business partnership agreementin the field of corporate rehabilitation with Mizuho Securities,
which will strengthen our ability to aid corporate rehabilitationby combining the know-how of the two companies.

Hokkaido Bank
1. Full lineup of products for individuals

3. Promotion of business matching

We have introduced various new loan products. On October
1, 2004, we launched the “Environment-Friendly Mortgage
Loan,” a mortgage loan with a preferential interest used forthe purchase of an environmentally friendly house. Theseloans were initially offered for houses that incorporate
Hokkaido Gas Co.’s “ECO WILL” or “Fact” natural gas heating systems. In December 2004, the program was expanded
to include Hokkaido Electric Power’s All Electric Houses andSolar Systems, and the program will gradually be expanded toinclude other types of houses. On June 1, 2005, the “Dogincancer-rider mortgage loan” was launched in partnership with
CARDIF. This mortgage loan includes traditional group credit
life insurance with an attached cancer rider. This reduces concerns about taking out a mortgage loan, whose repayment
stretches over a long period.
We also introduced a series of
new deposit products. Between
October 1 and November 30 of
2004, we offered a time depositwith an attached year-end jumbolottery ticket. This product, whichtargets individuals who purchasea five -year automatic roll - overtime deposit, has been popularsince it includes a set of ten lottery tickets each year for each
two million yen deposited.

On October 25, 20 0 4 we co - sponsored the Hokkaido
Business Forum 2004 with Nikkei BP and the Sapporo IT City
Promotion Committee. After the keynote speech by Tokyo
University Graduate School Professor Motoshige Ito, fourbusiness seminars, each with a different topic. A Hokkaido
Business Exchange meeting (the sixth such) was also held,
attracting around 1,800 visitors. At the Business Exchange, 70
firms, including 7 Hokuriku Bank customers, put on displays,
which were visited by around 800 people. The site bustledwith activity, and over 200 business consultations were held.
On May 11, 2005, the Hokkaido Food Special Business
Conference was held to support the expansion of sales routes
for food and drink producers. Buyers and managers for supermarkets from the Tokyo area were invited. The business conference included food tasting and information exchange with
33 producers based in Hokkaido. We plan to provide a more
effective venue for business matching to meet customers’
needs.

2. Strengthened lending services for corporations
On November 24, 2004, a memorandum on business cooperation was concluded with the Agriculture Forestry and
Fisheries Finance Corporation of Japan with the goal of supporting sales networks, mutual training, promoting syndicatedfinancing, and the exchange of information among the agricultural, livestock, and fisheries industries. We will contrib ute to the development of these industries in Hokkaido, andstrengthen mutual partnerships through financing activities
and information-sharing among the agriculture, livestock, andfisheries industries and related industries.
On December 10, 2004, at the first Business Loan Plaza, abranch that specializes in financing for SMEs and sole proprietorships, we commenced a loan business for new borrowers.
Based on the concepts of quick, easy, and convenient services, we are actively responding to customers’ demands forfunds by utilizing direct channels such as phones and faxes.

4. Efforts to improve market liquidity of debt andreal estate
The Customer Debt Securitization Program was launched on
February 3, 2005. The program, a unique scheme to increaseliquidity, was launched with the goal of improving financing
efficiency and providing new fund-raising methods for customers, and is the first in the prefecture. On March 8, 2005,
the program was expanded to include accounts receivable forcompleted projects for the Hokkaido Regional Development
Bureau.
On March 29, 2005, a real estate securitization fund, thefirst of its kind in Hokkaido, was created in cooperation with
Sumitomo Trust and Banking to meet customers’ needs related
to financing and removing assets from the balance sheet.
Securitization of debt and real estate is expected to becomea more important new method of raising funds as firms moveaway from indirect financing with such loans to direct financing
such as capital infusions. We expect the use of this method toincrease in response to corporations’ need to improve financial
efficiency.

Hokuhoku Financial Group, Inc. Annual Report 2005

17

CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS
Hokuhoku Financial Group, Inc. and Subsidiaries
Thousands of
U.S. dollars (Note 1)

Millions of yen

2005

2004

2005

AssetsCash and due from banks (Note 22) .....................................................................
Call loans and bills bought ....................................................................................
Commercial paper and other debt purchased .......................................................
Trading assets (Note 4) ........................................................................................
Money held in trust (Note 27) ................................................................................
Securities (Notes 5, 10, 27) ..................................................................................
Loans and bills discounted (Notes 6, 10) ..............................................................
Foreign exchanges (Note 7) .................................................................................
Other assets (Note 10) ..........................................................................................
Premises and equipment (Notes 8, 10, 14) ..........................................................
Deferred tax assets (Note 21) ...............................................................................
Goodwill ................................................................................................................
Customers’ liabilities for acceptances and guarantees (Note 9) ...........................
Reserve for possible loan losses ..........................................................................
Total assets ..........................................................................................................

¥ 498,350
80,02022,367
9,611
23,964
1,559,963
6,682,643
19,835
101,490
120,221
124,444
40,413
277,471(162,123)¥9,398,673¥ 199,306
50,00013,832
3,803
2,414
739,442
4,287,399
10,87889,343
100,480
96,492—
198,247(116,431)¥5,675,209$ 4,640,568
745,141
208,279
89,499223,151
14,526,151
62,227,797
184,703
945,068
1,119,483
1,158,805
376,3222,583,776(1,509,666)$87,519,077

Liabilities, minority interests and stockholders’ equity
Liabilities
Deposits (Notes 10, 11) ........................................................................................
Call money and bills sold (Note 10) ......................................................................
Payables under securities lending transactions (Note 10) ....................................
Trading liabilities (Note 4) .....................................................................................
Borrowed money (Note 12) ...................................................................................
Foreign exchanges (Note 7) .................................................................................
Bonds (Note 13) ....................................................................................................
Other liabilities ......................................................................................................
Reserve for employee bonuses ............................................................................
Reserve for employee retirement benefits (Note 26) ............................................
Deferred tax liabilities for land revaluation ............................................................
Negative goodwill ..................................................................................................
Acceptances and guarantees (Note 9) .................................................................
Total liabilities .....................................................................................................

¥8,311,812
124,900
109,148
1,010
52,647228
52,73068,67323
11,241
7,596—
277,471
9,017,483¥5,091,026
13,80031,051
946
56,723176
32,75047,059
21
711
8,204
622
198,247
5,481,341$77,398,381
1,163,051
1,016,371
9,406
490,2492,132
491,014
639,473223
104,678
70,733—
2,583,776
83,969,487

Minority interests ................................................................................................

439

175

4,092

Stockholders’ equity
Capital stock (Note 15) .........................................................................................
Capital surplus ......................................................................................................
Retained earnings (Note 16) .................................................................................
Land revaluation excess (Note 14) .......................................................................
Net unrealized gain on available-for-sale securities (Note 27) .............................
Treasury stock ......................................................................................................
Total stockholders’ equity .................................................................................
Total liabilities, minority interests and stockholders’ equity .........................

50,000272,41235,586
11,192
11,825(264)
380,750¥9,398,673

50,000105,408
27,22812,088370(1,402)
193,692¥5,675,209

465,5932,536,663
331,372
104,219
110,115(2,464)
3,545,498$87,519,077

March 31

See notes to consolidated financial statements.

18

Hokuhoku Financial Group, Inc. Annual Report 2005

CONSOLIDATED STATEMENTS OF OPERATIONS
Hokuhoku Financial Group, Inc. and Subsidiaries
Thousands of
U.S. dollars (Note 1)

Millions of yen

2005

2004

2005

IncomeInterest income:Interest on loans and discounts .......................................................................
Interest and dividends on securities .................................................................
Interest on receivables under resale agreements ............................................
Interest on deposits with other banks ..............................................................
Other interest income .......................................................................................
Fees and commissions (Note 18) .........................................................................
Trading income (Note 19) .....................................................................................
Other operating income ........................................................................................
Other income ........................................................................................................
Total income .........................................................................................................

¥111,470
12,1092
305
1,093
33,2503,215
30,165
11,741
203,354¥ 86,073
11,558—298
698
19,582
2,327
36,07623,433
180,048$1,037,995
112,76227
2,843
10,185
309,62129,941
280,901
109,335
1,893,610

Expenses
Interest expenses:
Interest on deposits ..........................................................................................
Interest on payables under securities lending transactions .............................
Interest on borrowings and rediscounts ...........................................................
Interest on bonds .............................................................................................
Other interest expenses ...................................................................................
Fees and commissions (Note 18) .........................................................................
Other operating expenses .....................................................................................
General and administrative expenses ...................................................................
Provision for reserve for possible loan losses .......................................................
Other expenses (Note 20) .....................................................................................
Total expenses ......................................................................................................

5,716
439
1,349
829
1,578
8,511
17,17578,69748,192
16,177
178,667

6,425
924
1,538
799
1,437
4,339
18,922
56,69335,71949,076
175,875

53,235
4,094
12,5697,727
14,696
79,257
159,933
732,817448,760
150,640
1,663,728

24,687

4,173

229,882923
12,42689¥ 11,248

366(1,314)89¥ 5,0318,601
115,710829$ 104,742

Year ended March 31

Income before income taxes and minority interests ..............................................
Income taxes (Note 21):
Current .............................................................................................................
Deferred ...........................................................................................................
Minority interests in net income ............................................................................
Net income ...........................................................................................................
See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 2005

19

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Hokuhoku Financial Group, Inc. and Subsidiaries
Thousands

Millions of yen

Issuednumber ofshares ofcommon stock

Issuednumber ofshares ofpreferred stock

Net unrealized
gain (loss) on
Land revaluation available-for-sale
excesssecurities

Capitalstock

CapitalsurplusRetainedearnings

Balance at March 31, 2003 ............... 987,146
Net income ...................................
Cash dividends ............................
Treasury stock transactions .........
Transfer from land
revaluation excess .....................
Changes during the year..............
Stock transfer ...............................
Balance at March 31, 2004 ............... 987,146
Net income ...................................
Cash dividends ............................
Treasury stock transactions .........
Transfer from land
revaluation excess .....................
Stock exchange ........................... 299,483
Changes during the year..............
Increase in the number ofaffiliates accounted for by
the equity method.......................
Balance at March 31, 2005 ............... 1,286,630

150,000¥140,409¥ 14,998¥20,675
5,031(1,155)(92)¥14,858

2,769(2,769)¥(14,103)

Treasurystock¥(1,086)(316)

14,473150,000(90,409)50,00090,409105,408

27,228
11,248(3,786)

12,088370

190

186,432(1,402)

1,138
896
2

166,813(896)
11,454

336,432¥ 50,000(2)¥35,586¥272,412¥11,192¥11,825¥ (264)

Thousands of U.S. dollars (Note 1)

Capitalstock

Capitalsurplus

Balance at March 31, 2004 ......................................................... $465,593 $ 981,548
Net income .............................................................................
Cash dividends.......................................................................
Treasury stock transactions ...................................................
1,772
Transfer from land revaluation excess ...................................
Stock exchange......................................................................
1,553,343
Changes during the year........................................................
Increase in the number of affiliates
accounted for by the equity method .....................................
Balance at March 31, 2005 ......................................................... $465,593 $2,536,663
See notes to consolidated financial statements.

20

Hokuhoku Financial Group, Inc. Annual Report 2005

Retainedearnings

Net unrealized
gain onLand revaluation available-for-sale
excesssecurities$253,548
104,742(35,261)$112,565

8,346
21(8,346)$

3,448

Treasurystock$(13,061)

10,597

106,667(24)$331,372$104,219$110,115$ (2,464)

CONSOLIDATED STATEMENTS OF CASH FLOWS
Hokuhoku Financial Group, Inc. and Subsidiaries
Thousands of
U.S. dollars (Note 1)

Millions of yen
Year ended March 31

1.Cash flows from operating activities:
Income before income taxes and minority interests ...................................
Depreciation ................................................................................................
Amortization of goodwill ..............................................................................
Equity in earnings of affiliates .....................................................................
Increase in reserve for possible loan losses ...............................................
Increase in reserve for losses on loans sold ...............................................
Increase in reserve for employee bonuses .................................................
Increase in reserve for employee retirement benefits .................................
Interest income ...........................................................................................
Interest expenses .......................................................................................
Losses (gains) on securities .......................................................................
Losses (gains) on money held in trust ........................................................
Losses (gains) on foreign exchange ...........................................................
Losses (gains) on sales of premises and equipment ..................................
Decrease (increase) in trading assets ........................................................
Increase (decrease) in trading liabilities .....................................................
Net decrease (increase) in loans and bills discounted ...............................
Net increase (decrease) in deposits ...........................................................
Net increase (decrease) in negotiable certificates of deposit .....................
Net increase (decrease) in borrowed money(excluding subordinated borrowed money) ...............................................
Net decrease (increase) in due from banks(excluding deposits with the Bank of Japan) ............................................
Net decrease (increase) in call loans, bills bought,
commercial paper and other debt purchased ...........................................
Net increase (decrease) in call money and bills sold ..................................
Net increase (decrease) in payables
under securities lending transactions ........................................................
Net decrease (increase) in foreign exchanges (assets) .............................
Net increase (decrease) in foreign exchanges (liabilities) ..........................
Issuance and redemption of bonds (excluding subordinated bonds) .........
Interest received .........................................................................................
Interest paid ................................................................................................
Other, net ....................................................................................................
Subtotal .....................................................................................................
Income taxes paid .......................................................................................
Net cash provided by operating activities ...................................................

2005¥ 24,687
15,3521,085(0)(31,241)—0
181(124,981)
9,914(3,489)
(129)
191
2,674
809
63
16,205(39,646)
5,730

2004
¥

4,173
15,316(155)—
61,077(1,094)(3)(883)(98,630)
11,124(9,175)88
32
3,204(1,383)441(82,375)(106,468)
12,9802005$

229,882
142,957
10,113(2)(290,919)—
8
1,690(1,163,812)
92,321(32,493)(1,211)
1,780
24,9057,540
590
150,908(369,183)
53,357

(75)

2,151

(704)

7,299

2,797

67,976122,006
111,100

94,97213,8001,136,108
1,034,547

62,666(5,149)24(20)
119,725(9,214)
11,423
297,193(1,020)296,172

31,051
2,027
48—
86,334(8,622)(20,285)
12,544(102)
12,442

583,542(47,956)
230(186)
1,114,868(85,808)
106,371
2,767,419(9,503)2,757,916

Hokuhoku Financial Group, Inc. Annual Report 2005

21

(Continued)
Thousands of
U.S. dollars (Note 1)

Millions of yen

2005

2004

2005

2.Cash flows from investing activities:
Purchases of securities ...............................................................................
Proceeds from sales of securities ...............................................................
Proceeds from maturity of securities ..........................................................
Purchases of money held in trust ...............................................................
Proceeds from sales of money held in trust ................................................
Proceeds from fund management ..............................................................
Purchases of premises and equipment ......................................................
Proceeds from sales of premises and equipment .......................................
Purchases of stocks of subsidiaries ............................................................
Net cash provided by (used in) investing activities ...................................

¥(524,663)
257,822
126,765(1,420)2,000
8,170(2,081)
1,149—(132,256)¥(490,181)
424,548
58,393——
11,735(3,513)
4,546
(942)
4,587

$(4,885,594)
2,400,810
1,180,426(13,223)
18,62476,082(19,382)
10,706—(1,231,551)

3.Cash flows from financing activities:
Repayment of subordinated borrowed money ............................................
Proceeds from issuance of subordinated bonds .........................................
Expenditures for fund procurement ............................................................
Dividends paid ............................................................................................
Dividends paid to minority stockholders .....................................................
Purchases of treasury stock .......................................................................
Proceeds from sales of treasury stock ........................................................
Net cash provided by (used in) financing activities ...................................

(4,000)20,000(1,984)(3,786)
(53)
(176)
1,571
11,570——(2,089)(1,155)
(153)
(75)
482
(2,990)(37,247)
186,237(18,479)(35,261)(499)(1,647)
14,636
107,740

Year ended March 31

4.Effect of exchange rate changes on cash and cash equivalents ..............

(1)

(32)

(11)

5.Net increase in cash and cash equivalents .................................................

175,485

14,006

1,634,094

6.Cash and cash equivalents at beginning of year ........................................

184,308

170,301

1,716,250

7.Increase in cash and cash equivalents due toincrease in consolidated subsidiaries .......................................................

130,175—

1,212,178

8.Cash and cash equivalents at end of year (Note 22) ..................................

¥ 489,969¥ 184,308$ 4,562,522

See notes to consolidated financial statements.

22

Hokuhoku Financial Group, Inc. Annual Report 2005

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hokuhoku Financial Group, Inc. and Subsidiaries

1. Basis of Presentation
The accompanying consolidated financial statements havebeen prepared in accordance with the provisions set forth in
the Japanese Securities and Exchange Law and its related
accounting regulations, and in conformity with accounting
principles generally accepted in Japan, which are different incertain respects as to application and disclosure requirements of International Financial Reporting Standards.
The accompanying consolidated financial statements havebeen restructured and translated into English (with some
expanded descriptions and the inclusion of consolidated
statements of stockholders’ equity) from the consolidated
financial statements of Hokuhoku Financial Group, Inc.
(the “Company”).
Some supplementary information included in the statutory
Japanese language consolidated financial statements, but notrequired for fair presentation, is not presented in the accompanying consolidated financial statements.
Amounts less than one million yen have been omitted. As aresult, the totals in Japanese yen shown in the consolidated
financial statements do not necessarily agree with the sum of
the individual amounts. The translation of the Japanese yenamounts into U.S. dollars is included solely for the convenienceof readers outside Japan, using the prevailing exchange rate at
March 31, 2005, which was ¥107.39 to US$1. The U.S. dollar
amounts are then rounded to thousands. The conveniencetranslations should not be construed as representations that
the Japanese yen amounts have been, could have been, or
could in the future be, converted into U.S. dollars at that rate.
2. Scope of Consolidation
On September 26, 2003, the Company was formed as a holding company for the Hokuriku Bank Ltd. by way of stocktransfers (“kabushiki-iten”), and on September 29, Hokugin
Lease Co., Ltd., Hokuriku Card Co., Ltd., Hokuriku Hosho
Services Co., Ltd. and Hokugin Software Co., Ltd. cameunder the control of the Company. Nihonkai Services Co.,
Ltd. was formed as wholly-owned subsidiary of the Company
on December 25, 2003.
On September 1, 2004, Hokkaido Bank, Ltd. and Dogin
Business Service, Ltd., its consolidated subsidiary, became
the Company’s consolidated subsidiaries by a way of stockto-stock exchange (“kabushiki-kokan”).
The consolidated financial statements as of March 31, 2005
include the account of the Company and its 14 (12 in 2004)
subsidiaries (together, the “Group”). The consolidated subsidiaries are listed below.
Under the control or influence concept, those companies inwhich the Company, directly or indirectly, is able to exercise
control over operations are fully consolidated, and those companies over which the Group has the ability to exercise significant influence are accounted for by the equity method.
Investments in 2 (0 in 2004) associated companies areaccounted for by the equity method. The associated companies are also listed below.

All significant intercompany balances and transactions havebeen eliminated in consolidation. All material unrealized profit
included in assets resulting from transactions within theGroup is eliminated.
Consolidated subsidiaries
Capital (¥mil) Ownership (%)
Hokuriku Bank, Ltd.
140,409100.00
Hokkaido Bank, Ltd.
93,524100.00
Hokugin Lease Co., Ltd.
100
70.25
Hokuriku Card Co., Ltd.
36
87.39
Hokuriku Hosho Services Co., Ltd.
50
100.00
Hokugin Software Co., Ltd.
30
100.00Nihonkai Services Co., Ltd.
500
100.00
Hokugin Business Services Co., Ltd.
30
(100.00)
Hokugin Office Services Co., Ltd.
20
(100.00)
Hokugin Real Estate Services Co., Ltd.
100
(100.00)
Hokugin Shisankanri Co., Ltd.
100
(100.00)
Hokuriku International Cayman Ltd.
US$1,000(100.00)
Hokugin Corporate Co., Ltd.
100
(100.00)
Dogin Business Service, Ltd.
50
(100.00)
Notes: 1. Ownership figures in parentheses are inclusive of cross-shareholdings.
2. The two subsidiaries whose balance sheet differs from the date of
the consolidated settlement of accounts are consolidated using theirfinancial statements based on their tentative settlement of accounts
at the consolidated settlement date.
Associated companies
Capital (¥mil) Ownership (%)
Hokuriku Capital Co., Ltd.
250
(42.50)
Dogin Card Co., Ltd.
122
(39.97)
Note: Ownership figures in parentheses are inclusive of cross-shareholdings.

The Group applies business combination procedures basedon JICPA Accounting System Committee Research Report No.
6, “Capital Consolidation Procedure for Establishment of Entire
Parent and Subsidiary Relationship using Stock-to-Stock
Exchange and Stock-Transfer Methods”. The business combination by a way of stock transfers on September 26, 2003
mentioned above was accounted for by the pooling-of-interests
method and the business combination by a way of stock-tostock exchange on September 1, 2004 mentioned above was
accounted for by the purchase method.
Assets and liabilities of consolidated subsidiaries are valued
at fair value at the respective dates of acquisition, and goodwill and negative goodwill is amortized using the straight-line
method over 20 years and 5 years, respectively.
Consolidated Statement of Stockholders’ Equity is preparedbased on the profit appropriation effected during the consolidated fiscal year.
3. Significant Accounting Policies(1) Trading assets/liabilities and trading profits/losses
Transactions for trading purposes (seeking gains arising fromshort-term changes in interest rates, currency exchange rates,or market prices of securities and other market related indicesor from variation among markets) are included in “Trading
assets” or “Trading liabilities” on the consolidated balance
sheet on a trade date basis. Profits and losses on trading purpose transactions are recognized on a trade date basis, andrecorded as “Trading profits” and “Trading losses”.
Securities and monetary claims purchased for trading purposes are stated at the fiscal year-end market value, andfinancial derivatives such as swaps, futures and options arestated at amounts that would be settled if the transactions
were terminated at the consolidated balance sheet date.
Hokuhoku Financial Group, Inc. Annual Report 2005

23

“Trading profits” and “Trading losses” include interest
received or paid during the fiscal year, the year-on-year valuation differences of securities and monetary claims and theyear-on-year valuation difference of the derivatives assumingthat the settlement will be made in cash.
Hokuhoku Financial Group accounts for foreign currencytranslation differences arising from currency swaps for trading
purposes as “Trading assets” or “Trading liabilities” on agross basis, pursuant to the “Treatment of Accounting and
Auditing Concerning Accounting for Foreign Currency
Transactions in Banking Industry” (JICPA Industry Audit
Committee Report No. 25).
(2) Securities
As for securities other than trading purposes, debt securities
that consolidated subsidiaries have the positive intent andability to hold to maturity are classified as held-to-maturity
securities and are carried at amortized cost (straight-line
method) using the moving-average method.
Securities other than trading purpose securities and heldto-maturity securities are classified as available-for-salesecurities. Stocks in available-for-sale securities that havemarket prices are carried at their average market prices during the final month of the fiscal year, and bonds and others
that have market prices are carried at their fiscal year-end
market prices (cost of securities sold is calculated using primarily the moving-average method). Available-for-sale securities with no available market prices are carried at cost or
amortized cost using the moving-average method. Net unrealized gains (losses) on available-for-sale securities, net ofincome taxes, are included in “Stockholders’ equity”.
Securities included in money held in trust are carried in thesame method as for securities mentioned above.
(3) Derivative transactions
Derivative transactions, excluding those classified as trading
derivatives, are carried at fair value.
(4) Depreciation method
a. Premises and equipment
The Company and the consolidated banking subsidiaries
depreciate their equipment on the declining-balance method
and their premises principally on the straight-line method.
The estimated useful lives of major items are as follows:
Buildings: 6 to 50 years
Equipment: 3 to 20 years
Consolidated non-banking subsidiaries depreciate theirequipment and premises principally on the declining-balancemethod over their expected useful life.
b. Lease assets
Lease assets are depreciated on the straight-line method overthe number of years until their lease expires, and their estimated disposal value at that time serves as their residual value.
An additional depreciation is expensed in order to provide
for any possible contingency involving customers, and such
expense in the year ended March 31, 2005 is ¥7 million andcomes to ¥185 million on an accumulated basis.

24

Hokuhoku Financial Group, Inc. Annual Report 2005

c. Software costs
Capitalized software for internal use owned by consolidated
subsidiaries is depreciated using the straight-line method
over its estimated useful life (mainly six years).
(5) Reserve for possible loan losses
Reserve for possible loan losses of consolidated banking
subsidiaries is provided as detailed below in accordance with
the internal standards for write-offs and provisions.
For claims on borrowers that have entered into bankruptcy,
special liquidation proceedings or similar legal proceedings(“bankrupt borrowers”) or borrowers that are not legally or formally insolvent but are regarded as substantially in the same
situation (“effectively bankrupt borrowers”), a reserve is provided based on the amount of claims, after the write-off statedbelow, net of the expected amount of recoveries from collateraland guarantees.
For claims on borrowers that are not currently bankrupt but
are perceived to have a high risk of falling into bankruptcy, areserve is provided in the amount deemed necessary basedon an overall solvency assessment of the claims, net of the
expected amount of recoveries from collateral and guarantees.
For other claims, after classification, a reserve is provided
based on the historical loan-loss ratio.
Sales departments assess all claims in accordance with theinternal rules for self-assessment of assets, and the credit
review department, independent from these operating sections, audits their assessment. The reserves are provided
based on the results of these assessments.
The Company and its non-banking consolidated sub sidiaries also carry out asset self-assessment utilizing thesimilar methods to those employed by the consolidated subsidiaries engaging in banking operations to make provisions
for doubtful accounts in the amounts deemed necessary.
For collateralized or guaranteed claims on bankrupt borrowers and effectively bankrupt borrowers, the amount exceeding
the estimated value of collateral and guarantees is deemed to
be uncollectible and written off against the total outstanding
amount of the claims. The amount of write-off was ¥205,143
million at March 31, 2005.
(6) Reserve for employee bonuses
Reserve for employee bonuses is provided for payment ofbonuses to employees, in the amount of estimated bonuses,
which are attributable to the respective fiscal year.
(7) Reserve for employee retirement benefits
Reserve for employee retirement benefits is provided for payment of retirement benefits to employees, in the amountdeemed accrued at the fiscal-year end, based on the projected retirement benefit obligation and the fair value of plan
assets at the fiscal year-end.
Unrecognized prior service cost is amortized using thestraight-line method, over nine years within the employees’
average remaining service period at incurrence.
Unrecognized net actuarial gain (loss) is amortized using
the straight-line method, over nine years within the employees’ average remaining service period, commencing from thenext fiscal year of incurrence.
Unrecognized net transitional obligation from the initial
application of the new accounting standard for employee
retirement benefits (¥28,464 million) is amortized primarily
using the straight-line method over 15 years.
(8) Translation of foreign currency assets and liabilities
Assets and liabilities denominated in foreign currencies aretranslated into Japanese yen mainly at the exchange rate
prevailing at the consolidated balance sheet date.
(9) Lease transactions
Financing leases excluding those in which the ownership of
the property is transferred to the lessee, are accounted for in
the same method as operating leases.
(10) Accounting for significant hedges
a. Interest risk hedges
The consolidated banking subsidiaries hedge interest raterisks arising from their financial assets and liabilities by
employing the technique known as “individual hedging” that
establishes a specific position to directly hedge a particular
item. Such hedges, limited to certain assets and liabilities, areaccounted for by the deferred method or, where appropriate
interest rate swaps are involved, by the special rule method.
“Macro hedges” employed for holistic management of interest rate risks arising from varied portfolios of financial assets
and liabilities, including loans and deposits, through derivatives arrangements, ceased to benefit from the hedge
accounting standards in April 2002. The appraisal differenceor unrealized gain/loss on the hedging positions (a net loss of¥5,088 million) whose recognition had been deferred under
the standards until the discontinuation of hedge accounting isscheduled to be prorated and credited/charged to income
over the remaining life (4.5 years) of the hedging instruments.
This step is taken in accordance with the “Accounting and
Auditing Treatments in Application to Banking Business ofStandards for Accounting for Financial Instruments” (JICPA
Industry Audit Committee Report No. 24).
b. Exchange fluctuation risk hedges
The consolidated banking subsidiaries hedge their foreign
currency denominated financial assets and liabilities against
exchange fluctuation risks. Such hedges are accounted for by
the deferred method specified in the “Accounting and Auditing
Treatments in Banking Business in Accounting for Foreign
Currency Denominated Transactions and Others” (JICPA
Industry Audit Committee Report No. 25).
The effectiveness of hedges is assessed as follows: where
currency swap transactions and exchange swap transactions
are used as hedges to offset exchange fluctuation risks arising from foreign currency denominated financial assets andliabilities, by verifying the agreement of the amounts of thehedging foreign currency positions outstanding and thehedged foreign currency financial assets and liabilities.
Consolidated non-banking subsidiaries are not engaged in
hedging operations using derivative transactions.

(11) Per share information
Basic earnings per share is computed by dividing net income
available to common stockholders by the weighted-average
number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that
could occur if preferred stocks were exercised into common
stock.
(12) Accounting for consumption tax
National and local consumption taxes are accounted for by
the tax exclusion method.
However, a range of consumption taxes on equipment andpremises that cease qualifying for exclusion is included in
expenses in the accounting year it is incurred.
(13) Accounting for surplus appropriations
The Consolidated Statements of Stockholders’ Equity is prepared on the basis of surplus appropriations finalized during
the fiscal year it covers.
(14) Range of cash and cash equivalents in consolidated statements ofcash flows
Cash and cash equivalents consist of cash on hand anddemand deposits with the Bank of Japan.
4. Trading Accounts
Trading accounts as of March 31, 2005 and 2004 are as
follows:
Millions of yen

Thousands of
U.S. dollars

Assets

2005

2004

2005

Trading securities .........................
Trading-related
financial derivatives ....................
Total .............................................

¥6,201¥1,741$57,7443,410¥9,611

2,061¥3,80331,755$89,499

Millions of yen

Thousands of
U.S. dollars

Liabilities

2005

2004

2005

Trading-related
financial derivatives ....................
Total .............................................

¥1,010¥1,010¥946¥946$9,406$9,406

5. Securities
Securities as of March 31, 2005 and 2004 are as follows:
Millions of yen
2005

Japanese government bonds ........ ¥ 570,389
Japanese local
government bonds ......................
148,153
Japanese corporate bonds ............
451,018
Japanese stocks ...........................
186,541
Other securities ............................
203,859
Total ............................................. ¥1,559,963

Thousands of
U.S. dollars

2004

2005

¥193,471$ 5,311,385

105,505
223,956
126,498
90,010¥739,442

1,379,583
4,199,823
1,737,048
1,898,312$14,526,151

Hokuhoku Financial Group, Inc. Annual Report 2005

25

6. Loans and Bills Discounted
Loans and bills discounted as of March 31, 2005 and 2004
are as follows:
Millions of yen
2005

2004

Bills discounted ............................ ¥ 148,515 ¥ 116,658
Loans on bills................................
965,869
740,171
Loans on deeds ............................ 4,546,398 2,763,988
Overdrafts..................................... 1,021,860
666,580
Total ............................................. ¥6,682,643 ¥4,287,399

Thousands of
U.S. dollars

Loans to borrowers underbankruptcy proceedings..............
Overdue loans...............................
Loans overdue for atleast three months......................
Restructured loans........................
Total .............................................

Thousands of
U.S. dollars

2005

2004

2005

¥ 41,832
295,960¥ 50,795
202,049$ 389,536
2,755,942

632
132,142¥470,567

1,566
98,642¥353,053

5,885
1,230,488$4,381,851

Assets that arepledged as collateral:
Securities................................
Loans and bills discounted......
Obligations corresponding tocollateral assets:
Deposits .................................
Payables under securities
lending transactions..............
Call money and bills sold.........

Thousands of
U.S. dollars

2005

2004

2005

¥289,847
151,803¥ 98,576
184,147$2,699,021
1,413,567¥ 61,889¥ 42,564$ 576,307

109,148
124,900

31,05113,8001,016,371
1,163,051

In addition to the assets presented above, the following assets
were pledged as collateral relating to transactions on
exchange settlements or as substitutes for futures transaction
margins as of March 31, 2005 and 2004.
Millions of yen
2005

Securities .....................................
Other assets .................................

¥181,657
19

2004¥75,816
12

Thousands of
U.S. dollars
2005$1,691,563
177

These amounts represent the amount before deduction of thereserve for possible loan losses.

Premises and equipment included guarantee deposits of¥5,845 million ($54,435 thousand) and ¥2,898 million as ofMarch 31, 2005 and 2004, respectively.

7. Foreign Exchanges
Foreign exchanges as of March 31, 2005 and 2004 are as
follows:

11. Deposits
Deposits as of March 31, 2005 and 2004 are as follows:

Millions of yen
AssetsDue from foreign banks ................
Foreign exchange bills bought.......
Foreign exchange bills receivable ....
Total .............................................

2005¥10,163
2,728
6,943¥19,835

2004¥ 2,752
2,259
5,866¥10,878

Millions of yen

Thousands of
U.S. dollars
2005$ 94,641
25,40964,653$184,703
Thousands of
U.S. dollars

Liabilities

2005

2004

2005

Due to foreign banks.....................
Foreign exchange bills sold...........
Foreign exchange bills payable .....
Total .............................................

¥100
94
33
¥228

¥ 0
116
59
¥176

$ 937
882
313
$2,132

8. Premises and Equipment
The accumulated depreciation as of March 31, 2005 and 2004
amounted to ¥100,174 million ($932,806 thousand) and¥67,372 million, respectively.
9. Customers’ Liabilities for Acceptances and Guarantees
All contingent liabilities arising from acceptances and guarantees are reflected in acceptances and guarantees. As a contra
account, customers’ liabilities for acceptances and guarantees
is also shown on the assets side, which represents the Bank’s
right of indemnity from the applicants.

26

Millions of yen

2005$ 1,382,953
8,994,036
42,335,395
9,515,413$62,227,797

Loans and Bills Discounted include loans to borrowers underbankruptcy proceedings, overdue loans, loans overdue for atleast three months and restructured loans.
The amounts of these loans are as follows:
Millions of yen

10. Pledged Assets
Assets that are pledged as collateral as of March 31, 2005 and2004 are as follows:

Hokuhoku Financial Group, Inc. Annual Report 2005

Millions of yen
2005

2004

Current deposits, ordinary deposits,
saving deposits and deposits at notice .... ¥3,968,624 ¥2,175,636
Time deposits and installment savings...... 3,979,665 2,742,676
Other deposits ..............................
341,731
157,153
Subtotal ........................................ ¥8,290,022 ¥5,075,466
NCDs ............................................
21,79015,560Total ............................................. ¥8,311,812 ¥5,091,026

Thousands of
U.S. dollars
2005$36,955,256
37,058,068
3,182,152$77,195,476
202,906$77,398,382

12. Borrowed Money
Borrowed money includes ¥41,000 million ($381,786 thousand) and ¥45,000 million in subordinated borrowed money
as of March 31, 2005 and 2004, respectively.
13. Bonds
Bonds include ¥51,900 million ($483,285 thousand) and¥31,900 million of subordinated bonds as of March 31, 2005
and 2004, respectively.
14. Land Revaluation Excess
Under the “Law Concerning Land Revaluation”, Hokuriku
Bank, Ltd. revaluated its own land for business operation as ofMarch 31, 1998. The revaluation gain is included in stockholders’ equity as “Land revaluation excess”, net of taxes. The carrying amount of the land after the above one-time revaluation
exceeded the market value by ¥20,395 million ($189,920
thousand) and ¥20,030 million as of March 31, 2005 and2004, respectively.

15. Capital Stock
Information with respect to capital stock of the Company as ofMarch 31, 2005 and 2004 are as follows:
Number of shares:
Authorized:
Common ..................................
Preferred (Type 1).....................
Preferred (Type 2).....................
Preferred (Type 3).....................
Preferred (Type 4).....................
Preferred (Type 5).....................
Issued and outstanding:Common ..................................
Preferred (Type 1).....................
Preferred (Type 4).....................
Preferred (Type 5).....................

2005

2004

2,800,000,000
400,000,000
200,000,000
200,000,000
90,000,000
110,000,000

1,700,000,000
200,000,000
50,000,000
50,000,000——

1,286,630,146
150,000,000
79,000,000
107,432,000

987,146,185
150,000,000——

1. Preferred Stock (Type 1 and Type 4)
Preferred stocks (Type 1 and Type 4) are noncumulative and nonparticipating
for dividend payments, and stockholders of the preferred stock are not entitledto vote at a general meeting of stockholders except when the proposal to pay
the prescribed dividends to stockholders is not submitted to the general meeting of stockholders or is rejected at the general meeting of stockholders.
Annual dividends per share of preferred stock (Type 1 and Type 4) are paid
to stockholders by ¥7.70 and ¥6.62, respectively.
In cases of liquidation distribution, stockholders of preferred stock (Type 1
and Type 4) will receive ¥500 and ¥570 per share, respectively, and will nothave the right to participate in any further liquidation distribution.
The Company may, at any time, purchase and retire preferred stocks out of
earnings available for distribution to the stockholders.
Stockholders of preferred stock (Type 1 and Type 4) may request the Company
to convert their preferred stocks into common stocks. The period during which
the conversion may be requested (the “conversion period”) and the terms andconditions of conversion with respect to preferred stock (Type 1 and Type 4) were
determined by the resolution made in accordance with the provisions of Article
365 of the Commercial Code, of a stockholders meeting of the Company. The
conditions of conversion of preferred stock (Type 1 and Type 4) were determinedby the resolution of the board of directors relating to the issuance of the relevant
preferred stocks. The conversion period and conversion price* of each type ofpreferred stock are as follows:
Preferred stock (Type 1): September 1, 2004 to July 29, 2010¥250.90
Preferred stock (Type 4): September 1, 2004 to July 31, 2010
¥254.50* Conversion prices are reset and adjusted pursuant to the appointed rules
governing conversion of the preferred stocks.
Any preferred stock (Type 1 and Type 4) with respect to which conversion
has not been requested during the conversion period shall be mandatorily
converted, as of the date immediately following the last day of the conversion
period (the “mandatory conversion date”), into such number of common
stocks as is obtained by dividing the corresponding amount set forth below by
the average of the daily closing prices per share of common stock in regulartransactions at the Tokyo Stock Exchange on each of the 30 consecutive trading days (excluding any day on which the closing price is not available) commencing on the 45th trading day preceding the mandatory conversion date. Ifsuch average price is less than ¥150 and ¥137.50, in the case of preferredstock (Type 1 and Type 4), respectively, then the preferred stock shall be converted into such number of common stocks as is obtained by dividing the corresponding amount set forth below by the relevant amount described above:
Preferred stock (Type 1): ¥500 per share
Preferred stock (Type 4): ¥570 per share

16. Retained Earnings
Japanese banks are subject to the Japanese Commercial
Code (the “Code”) and the Banking Law.
The Code requires that all shares of common stock arerecorded with no par value and at least 50% of the issue priceof new shares is required to be recorded as common stock andthe remaining net proceeds as additional paid-in capital, whichis included in capital surplus. The Code permits Japanesecompanies, upon approval of the Board of Directors, to issue
shares to existing stockholders without consideration as astock split. Such issuance of shares generally does not giverise to changes within the stockholders’ accounts.
The Banking Law also provides that an amount at least
equal to 20% of the aggregate amount of cash dividends andcertain other appropriations of retained earnings associatedwith cash outlays applicable to each period shall be appropriated as a legal reserve (a component of retained earnings)
until such reserve and additional paid-in capital equals 100%of stated capital. The amount of total additional paid-in capitaland legal reserve that exceeds 100% of the stated capital may
be available for dividends by resolution of the stockholders. In
addition, the Code permits the transfer of a portion of additional paid-in capital and legal reserve to the stated capital byresolution of the Board of Directors.
The Code allows Japanese companies to repurchase treasury stock and dispose of such treasury stock by resolution of
the Board of Directors. The repurchased amount of treasury
stock cannot exceed the amount available for future dividendplus amount of stated capital, additional paid-in capital or
legal reserve to be reduced in the case where such reduction
was resolved at the stockholders meeting.
In addition to the provision that requires an appropriation fora legal reserve in connection with the cash payment, the Codeimposes certain limitations on the amount of retained earnings
available for dividends. The amount of retained earnings available for dividends under the Code was ¥7,828 million($72,899 thousand) as of March 31, 2005, based on theamount recorded in the Company’s general books of account.
Dividends are approved by the stockholders at a meeting
held subsequent to the fiscal year to which the dividends areapplicable. Semiannual interim dividends may also be paid
upon resolution of the Board of Directors, subject to certain
limitations imposed by the Code.
17. Per Share Information
Net assets per share ............................
Basic earnings per share......................
Diluted earnings per share ...................

2005

2004

¥159.75¥ 6.86¥ 5.67¥119.86¥ 3.94¥ 3.55

2. Preferred stock (Type 5)
Preferred stock (Type 5) is noncumulative and nonparticipating for dividend
payments, and stockholders of the preferred stock (Type 5) are not entitled tovote at a general meeting of stockholders except when the proposal to pay theprescribed dividends to stockholders is not submitted to the general meetingof stockholders or is rejected at the general meeting of stockholders.
Annual dividends per share of preferred stock (Type 5) are paid to stockholders by ¥15.00.

Hokuhoku Financial Group, Inc. Annual Report 2005

27

18. Fees and Commissions
Fees and commissions for the years ended March 31, 2005
and 2004 are as follows:
Millions of yen
2005

Fees and commissions (income)
Deposits and loans..................
Remittances and transfers ......
Securities-related business.....
Others.....................................
Total .............................................

¥ 6,131
11,5801,835
13,703¥33,250

2004¥ 4,508
7,599
752
6,721
¥19,582

Millions of yen

Fees and commissions (expenses)
Remittances and transfers ......
Others.....................................
Total .............................................

Thousands of
U.S. dollars
2005$ 57,097
107,832
17,091
127,601$309,621
Thousands of
U.S. dollars

2005

2004

2005

¥1,942
6,568¥8,511¥1,251
3,087¥4,339$18,092
61,165$79,257

19. Trading Income and Losses
Millions of yen

Thousands of
U.S. dollars(a) Trading income

2005

2004

2005

Income from trading securities ........
Income from trading derivatives ......
Total .............................................

¥ 936
2,279
¥3,215¥ 81
2,245¥2,327$ 8,717
21,224$29,941

Millions of yen

Thousands of
U.S. dollars(b) Trading losses

2005

2004

2005

Losses on trading securities ............
Total................................................

—
—

—
—

—
—

20. Other Expenses
Included in other expenses for the fiscal years ended March
31, 2005 and 2004 were write off of loans and bills discountedof ¥2,813 million ($26,194 thousand) and ¥35,344 million, valuation losses on sales of stocks and other securities of ¥2,541
million ($23,663 thousand) and ¥290 million, respectively.
21. Income Taxes
The Company and its domestic subsidiaries are subject toJapanese national and local income taxes which, in theaggregate, resulted in normal effective statutory tax rates ofapproximately 40.43% and 41.74% for the years ended
March 31, 2005 and 2004, respectively.
On March 31, 2003, a tax reform law concerning enterprise
tax was enacted in Japan which changed the normal effective
statutory tax rate from 41.74% to 40.43%, effective for years
beginning on or after April 1, 2004. The deferred tax assets
and liabilities which will realize on or after April 1, 2004 aremeasured at the effective tax rate of 40.43% as of March 31,
2004.

28

Hokuhoku Financial Group, Inc. Annual Report 2005

The tax effects of significant temporary differences and tax
loss carryforwards which resulted in deferred tax assets andliabilities at March 31, 2005 and 2004 are as follows:
Millions of yen

Thousands of
U.S. dollars

2005

2005

Deferred tax assets
Reserve for possible loan losses.................
Depreciation...............................................
Reserve for employee retirement benefit ....
Loss on valuation of securities ...................
Other..........................................................
Operating loss carryforwards......................
Subtotal ...............................................
Less: Valuation allowance ..........................
Total deferred tax assets..................................

¥121,370
2,387
14,364
12,5082,800
57,916211,348
72,122
139,226$1,130,185
22,232
133,760
116,480
26,081
539,306
1,968,044
671,591
1,296,453

Deferred tax liabilities:
Net unrealized gains onavailable-for-sale securities .....................
Other..........................................................
Total deferred tax liabilities ..............................
Net of deferred tax assets ................................

¥ 14,076
705
14,782¥124,444$ 131,080
6,568
137,648$1,158,805

Millions of yen
2004

Deferred tax assets
Reserve for possible loan losses.................
Depreciation...............................................
Reserve for employee retirement benefit ....
Other..........................................................
Operating loss carryforwards......................
Subtotal ...............................................
Less: Valuation allowance ..........................
Deferred tax assets ..........................................
Deferred tax liabilities ......................................
Net of deferred tax assets ................................

¥ 91,423
1,477
10,547
11,59338,234
153,278
55,89897,379887¥ 96,492

22. Cash and Cash Equivalents
The reconciliations of “Cash and cash equivalents” in the consolidated statements of cash flows and “Cash and due frombanks” in consolidated balance sheets as of March 31, 2005
and 2004, are as follows:
Millions of yen

Cash and due from banks inbalance sheet .............................
Due from banks except for
deposits with the Bank of Japan....
Cash and cash equivalents inthe statements of cash flows ......

Thousands of
U.S. dollars

2005

2004

2005

¥498,350¥199,306$4,640,568(8,381)(14,998)(78,046)¥489,969¥184,308$4,562,522

23. Commitment Lines
Loan agreements and commitment line agreements relating toloans are agreements, which oblige the Group to lend funds up
to a certain limit agreed in advance. The Group makes theloans upon the request of an obligor to draw down funds undersuch loan agreements, as long as there is no breach of the various terms and conditions stipulated in the relevant loan agreement. The unused commitment balance relating to these loan
agreements amounted to ¥2,146,119 million ($19,984,348 thousand) and ¥1,180,313 million as of March 31, 2005 and 2004,
respectively. Of this amount, ¥2,143,273 million ($19,957,847
thousand) and ¥1,178,593 million as of March 31, 2005 and2004, respectively, relates to loans where the term of the agreement is one year or less, or unconditional cancellation of theagreement is allowed at any time.
In many cases the term of the agreement runs its course
without the loan ever being drawn down. Therefore, theunused loan commitment will not necessarily affect future
cash flows. Conditions are included in certain loan agreements which allow the Group either to decline the request fora loan draw down or to reduce the agreed limit amount where

there is due cause to do so, such as when there is a change infinancial condition, or when it is necessary to do so in order toprotect the Group’s credit. The Group takes various measures
to protect its credit. Such measures include having the obligor
pledge collateral to the Bank and its consolidated subsidiaries
in the form of real estate, securities etc. on signing the loan
agreement, or in accordance with the Group’s establishedinternal procedures confirming the obligor’s financial condition
etc. at regular intervals.

24. Segment Information(a) Segment information by business
For the fiscal years ended March 31, 2005 and 2004 on consolidated results are as follows:
Millions of yen
2005

Banking

Lease

Other
business

I Ordinary revenue(1) Ordinary revenue from outside customers..................
(2) Ordinary revenue from intersegment transactions ......
Total ..............................................................................
Ordinary expenses ..........................................................
Ordinary income (loss) ....................................................

¥ 178,680
2,679
181,359
154,309¥ 27,050¥18,253
1,030
19,283
18,129¥ 1,154¥ 6,267
5,289
11,557
11,324¥232¥ 203,200
8,999
212,200
183,763¥ 28,436¥—(8,999)(8,999)(7,788)¥ (1,210)¥ 203,200—
203,200
175,974¥ 27,226

II Identifiable assets...........................................................
Depreciation expenses....................................................
Capital expenditures .......................................................

¥9,333,369
3,685
1,914

¥49,879
11,324
15,390¥193,400
342
165¥9,576,650
15,352
17,470¥(177,976)——¥9,398,673
15,352
17,470Eliminationor corporate

Consolidated

Total

Eliminationor corporate

Consolidated

Millions of yen
2004

Banking

Lease

Other
business

I Ordinary revenue(1) Ordinary revenue from outside customers..................
(2) Ordinary revenue from intersegment transactions ......
Total ..............................................................................
Ordinary expenses ..........................................................
Ordinary income (loss) ....................................................

¥ 153,705
4,185
157,890
151,303¥
6,587¥18,786812
19,59818,659¥ 939¥ 6,954
10,47017,424
10,154¥ 7,269¥ 179,445
15,468
194,914180,117¥ 14,797¥—(15,468)(15,468)(7,746)¥ (7,722)¥ 179,445—
179,445
172,370¥
7,074

II Identifiable assets ..........................................................
Depreciation expenses....................................................
Capital expenditures .......................................................

¥5,643,046
2,960
2,628

¥49,937
11,976
14,981¥353,166378
884¥6,046,149
15,316
18,494¥(370,940)——¥5,675,209
15,316
18,494

Eliminationor corporate

Consolidated

Total

Thousands of U.S. dollars
2005

Other
business

Total

Banking

Lease

I Ordinary revenue(1) Ordinary revenue from outside customers..................
(2) Ordinary revenue from intersegment transactions ......
Total ..............................................................................
Ordinary expenses ..........................................................
Ordinary income (loss) ....................................................

$ 1,663,847
24,9501,688,797
1,436,910$ 251,887$169,973
9,593
179,566
168,816$ 10,750

58,35849,259107,617
105,456$
2,161$ 1,892,178
83,802
1,975,980
1,711,182$ 264,798$—(83,802)(83,802)(72,530)(11,272)$ 1,892,178—
1,892,178
1,638,652$ 253,526

II Identifiable assets ..........................................................
Depreciation expenses....................................................
Capital expenditures .......................................................

$86,910,972
34,322
17,824$464,474
105,450
143,312$1,800,921
3,185
1,542

$89,176,367
142,957
162,678$(1,657,290)——$87,519,077
142,957
162,678$$(b) Segment information by location
As operations in Japan, in terms of all segments and total assets for all segments, accounted for more than 90% of total ordinary
income, information by location has been omitted.
(c) Segment information about the ordinary income from international operations
As ordinary income from international operations accounted for less than 10% of total ordinary income, information about theordinary income from international operations has been omitted.
Hokuhoku Financial Group, Inc. Annual Report 200529

25. Lease Transactions
Finance lease transactions that do not transfer ownership ofthe leased property to the lessee for the year ended March
31, 2005 and 2004 are as follows:(Lessor)
Acquisition cost, accumulated depreciation and balance at
March 31, 2005 and 2004 are as follows:
Millions of yen(Lessee)
Pro forma information with respect to the leased property,
such as acquisition cost, accumulated depreciation and net
book value at March 31, 2005 and 2004 are as follows:
Millions of yen

Acquisition cost ............................
Accumulated depreciation.............
Net book value..............................

Thousands of
U.S. dollars

2005

2004

2005

¥1,530360¥1,169¥23
3¥20$14,251
3,358$10,893

Pro forma amounts of obligations under finance lease at
March 31, 2005 and 2004 are as follows:
Millions of yen

Within one year.............................
Over one year ...............................
Total .............................................

Thousands of
U.S. dollars

2005

2004

2005

¥ 259
909
¥1,169¥ 5
14¥20$ 2,420
8,473$10,893

Acquisition cost ............................
Accumulated depreciation.............
Balance at year-end......................

Thousands of
U.S. dollars

2005

2004

2005

¥55,288
27,040¥28,247¥57,045
27,668¥29,376$514,837
251,797$263,040

The pro forma amounts of lease receivable under financelease at March 31, 2005 and 2004 are as follows:
Millions of yen

Within one year.............................
Over one year ...............................
Total .............................................

Thousands of
U.S. dollars

2005

2004

2005

¥11,157
19,989¥31,147¥11,614
20,821¥32,435$103,899
186,141$290,040

Lease payment received and depreciation expenses for theyears ended March 31, 2005 and 2004 are as follows:
Millions of yen

Lease payments received..............
Depreciation expenses..................

Thousands of
U.S. dollars

2005

2004

2005

¥13,061
11,323¥13,932
11,976$121,624
105,440

Pro forma information concerning lease payment and depreciation expenses for the years ended March 31, 2005 and2004 are as follows:
Millions of yen

Lease payments............................
Depreciation expenses..................

Thousands of
U.S. dollars

2005

2004

2005

¥152
152

¥3
3

$1,419
1,419

The method of calculating the pro forma amounts of depreciation expenses for the years ended March 31, 2005 and 2004
are as follows:
Depreciation is computed based on the straight-line method
over the period of lease, with no residual value.

26. Retirement Benefits(a) Overview of retirement benefit system
The Hokuriku Bank, Ltd., provides the defined benefit programs that are a corporate pension plan, a qualified retirement pension
plan and a retirement lump sum grant. At the time of retirement, employees may be issued a premium retirement grant that is
not subject to inclusion in the actuarial computation of projected benefit obligations in conformity to the standards for accounting
for retirement benefits. The Hokuriku Bank, Ltd., was approved by the Minister of Health, Labor and Welfare on February 17,
2003, to be relieved of the obligation to administer the future payment service of the government mandated portion of its
employees pension fund. The Bank was further approved on March 1, 2005, to switch from the employees pension fund to a
corporate pension fund.
The Hokkaido Bank, Ltd., provides defined benefit arrangements that combine a retirement lump sum grant and an employees
pension fund plan. The Hokkaido Bank, Ltd., was approved by the Minister of Health, Labor and Welfare on March 26, 2004, tobe relieved of the obligation to administer the future payment service of the government mandated portion of the employees
pension fund.
The consolidate domestic subsidiaries other than the two noted above provide retirement lump sum grants.
The Company’s employees are all on loan from its subsidiaries, and are covered by the retirement benefit program of the subsidiary from which they each come.
The Hokuriku Bank, Ltd., has established benefit trust arrangements.

30

Hokuhoku Financial Group, Inc. Annual Report 2005

(b) Retirement benefit
Thousands of
U.S. dollars

Millions of yen

Projected benefit obligations (A) ............................................................................................................................
Pension assets (B) .................................................................................................................................................
Projected benefit obligations in excess of pension assets (C) = (A) + (B) ...............................................................
Unrecognized transitional obligation (D) ................................................................................................................
Unrecognized actuarial differences (E) ...................................................................................................................
Unrecognized prior service costs (F) ......................................................................................................................
Net projected benefit obligations recognized on consolidated balance sheets (G) = (C) + (D) + (E) + (F) ................
Prepaid pension costs (H) ......................................................................................................................................
Reserve for employee retirement benefit (G) – (H) .................................................................................................

2005

2004

2005

¥(88,240)
61,503(26,737)
18,957
7,034(10,496)(11,241)—¥(11,241)¥(54,196)
39,421(14,775)
12,392
3,910(2,239)(711)—¥ (711)$(821,682)
572,708(248,974)
176,52965,508(97,741)(104,678)—$(104,678)(c) Retirement benefit expenses
Thousands of
U.S. dollars

Millions of yen

Service costs .........................................................................................................................................................
Interest costs on projected benefit obligations........................................................................................................
Expected return on pension assets.........................................................................................................................
Amortization of unrecognized prior service costs....................................................................................................
Amortization of unrecognized actuarial differences ................................................................................................
Amortization of transitional obligation.....................................................................................................................
Other (additional payments, including premium retirement benefits) ......................................................................
Net periodic retirement benefit expenses ...............................................................................................................

2005

2004

2005

¥1,7891,903(1,008)(1,023)
969
1,577
858
¥5,066¥1,329
1,613
(658)
(373)
1,379
1,126
945
¥5,362$16,667
17,725(9,392)(9,528)
9,025
14,685
7,996$47,178(d) Basis for calculation of projected benefit obligations(1) Discount rate .........................................................................................................
(2) Expected rate of return on pension assets ..............................................................
(3) Method of benefit attribution ..................................................................................
(4) Period of amortization of unrecognized prior service costs .....................................
(5) Period of amortization of unrecognized actuarial differences ..................................
(6) Period of amortization of transitional obligation ......................................................

2005

2004

2.5%
2.5% – 4.0%
Straight-line method
9 years
9 years
15 years

2.5%
2.5%
Straight-line method
9 years
9 years
15 years

27. Market Value of Securities and Money Held in Trust(1) Securities
The market value of securities at March 31, 2005 and 2004 was as follows:
1. The amounts shown in the following tables include trading securities classified as “Trading assets”, negotiable certificates ofdeposit bought classified as “Cash and due from banks”, and commercial papers and beneficiary claims on loan trusts classified as “Commercial paper and other debt purchased”, in addition to “Securities” stated in the consolidated balance sheets.
2. Investments in subsidiaries and affiliates have no market quotations.
(a) Securities classified as trading purposes
Thousands of
U.S. dollars

Millions of yen
March 31

2005

2004

2005

Consolidated balance sheet amount...........................................................................................
Valuation gains (losses) included in the earnings for the fiscal year ............................................

¥6,20114¥1,741(4)$57,744136

Hokuhoku Financial Group, Inc. Annual Report 200531

(b) Bonds classified as held-to-maturity with market value
Millions of yen

March 31, 2005

Japanese government bonds...............................................................
Japanese corporate bonds...................................................................
Other...................................................................................................
Total....................................................................................................

Consolidatedbalance sheet
amountMarket value

Net unrealized
gains (losses)

Unrealized
gains

Unrealized
losses¥ 4,901
2,021
29,425¥36,348¥ 5,162
2,007
29,741¥36,910

¥260
(13)
315
¥561

¥260
1
407
¥669

¥ —
15
92
¥107

Millions of yen

March 31, 2004

Japanese government bonds...............................................................
Japanese corporate bonds...................................................................
Other...................................................................................................
Total....................................................................................................

Consolidatedbalance sheet
amountMarket value

Net unrealized
gains (losses)

Unrealized
gains

Unrealized
losses

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

Unrealized
lossesThousands of U.S. dollars

March 31, 2005

Consolidatedbalance sheet
amountMarket value

Net unrealized
gains (losses)

Unrealized
gains

Japanese government bonds...............................................................
Japanese corporate bonds...................................................................
Other...................................................................................................
Total....................................................................................................

$ 45,646
18,819274,007$338,472$ 48,068
18,693276,944$343,705$2,422(126)
2,937$5,233$2,422
17
3,795$6,234

March 31, 2005

Acquisition
cost

Consolidatedbalance sheet
amountNet unrealized
gains (losses)

Unrealized
gains

Unrealized
lossesStocks .................................................................................................
Bonds..................................................................................................
Japanese government bonds .........................................................
Japanese local government bonds.................................................
Japanese corporate bonds.............................................................
Other...................................................................................................
Total....................................................................................................

¥ 131,526
1,069,403
564,993
147,391
357,017
185,506¥1,386,436¥ 153,023
1,071,373
565,487
148,153
357,732
181,495¥1,405,893¥21,497
1,970
493
761
714
(4,010)¥19,457¥25,471
6,598
2,548
1,922
2,127
940
¥33,010¥ 3,973
4,628
2,055
1,160
1,412
4,950
¥13,552

March 31, 2004

Acquisition
cost

Consolidatedbalance sheet
amountNet unrealized
gains (losses)

Unrealized
gains

Unrealized
lossesStocks .................................................................................................
Bonds..................................................................................................
Japanese government bonds .........................................................
Japanese local government bonds.................................................
Japanese corporate bonds.............................................................
Other...................................................................................................
Total....................................................................................................

¥ 96,496
487,797
197,968
106,455
183,372
97,521¥681,815¥107,668
480,510
193,471
105,505
181,533
94,281¥682,460¥11,172(7,287)(4,497)(950)(1,839)(3,240)¥ 645¥16,832
3,600
488
1,478
1,633
175
¥20,608¥ 5,660
10,887
4,985
2,428
3,473
3,415
¥19,963

March 31, 2005

Acquisition
cost

Consolidatedbalance sheet
amountNet unrealized
gains (losses)

Unrealized
gains

Unrealized
lossesStocks .................................................................................................
Bonds..................................................................................................
Japanese government bonds .........................................................
Japanese local government bonds.................................................
Japanese corporate bonds.............................................................
Other...................................................................................................
Total....................................................................................................

$ 1,224,758
9,958,127
5,261,140
1,372,489
3,324,498
1,727,406$12,910,291$ 1,424,937
9,976,477
5,265,738
1,379,583
3,331,155
1,690,061$13,091,475$200,179
18,350
4,599
7,094
6,657
(37,345)$181,184$237,184
61,44723,735
17,902
19,8108,755$307,386$ 37,005
43,097
19,136
10,80813,153
46,100$126,202

$

—
143
858
$1,001

Note: Market value is calculated by using market prices at the fiscal year-end.

(c) Available-for-sale securities with market value
Millions of yen

Millions of yen

Thousands of U.S. dollars

Note: Consolidated balance sheet amount is calculated as follows:
StocksAverage market prices during one month before the fiscal year-end
Bonds and otherMarket prices at the fiscal year-end

32

Hokuhoku Financial Group, Inc. Annual Report 2005

(d) Available-for-sale securities sold during the years ended March 31, 2005 and 2004
Thousands of
U.S. dollars

Millions of yen
Year ended March 31

Sales amount.............................................................................................................................
Gains on sales ...........................................................................................................................
Losses on sales .........................................................................................................................

2005

2004

¥259,492
6,322
339¥501,912
20,537
7,759

2005$2,416,357
58,8753,159(e) Securities with no available market value
Thousands of
U.S. dollars

Millions of yen
Consolidated balance sheet amountMarch 312005

Bonds classified as held-to-maturity ..........................................................................................
Privately placed bonds .........................................................................................................
Available-for-sale securities.......................................................................................................
Unlisted stocks (excluding OTC stocks) ................................................................................
Unlisted foreign securities....................................................................................................
Other ...................................................................................................................................

¥ 26,532
26,532
102,395
33,161
1
69,232

¥

2004

2005

—
—
61,141
18,701
16
42,423$247,066
247,066
953,488308,7939644,686(f) Change of classification of securities
Not applicable.
(g) Redemption schedule of available-for-sale securities with maturities and held-to-maturity bonds
Millions of yen
Within 1 year

After 1 year
through 5 years

After 5 years
through 10 years

After 10 years¥114,673
22,602
5,071
87,00017,462¥132,136¥489,396
172,460
65,217
251,718
74,580¥563,977¥324,481
136,845
77,864
109,771
55,894¥380,376¥241,009
238,481—
2,528
26,637¥267,646

Within 1 year

After 1 year
through 5 years

After 5 years
through 10 years

After 10 years¥44,975
6,426
5,490
33,0586,473¥51,449¥238,150
82,31443,508112,327
56,326¥294,476¥215,828
80,75256,50578,56926,913¥242,741¥23,978
23,978——16¥23,995

March 31, 2005

Within 1 year

After 1 year
through 5 years

After 5 years
through 10 years

After 10 years

Bonds ...............................................................................................................................
Japanese government bonds.......................................................................................
Japanese local government bonds ..............................................................................
Japanese corporate bonds ..........................................................................................
Other ................................................................................................................................
Total .................................................................................................................................

$1,067,826
210,468
47,221
810,137
162,613$1,230,439$4,557,191
1,605,926
607,299
2,343,967
694,484$5,251,675$3,021,528
1,274,287
725,063
1,022,178
520,478$3,542,006$2,244,245
2,220,704—
23,541
248,042$2,492,287

March 31, 2005

Bonds ...............................................................................................................................
Japanese government bonds.......................................................................................
Japanese local government bonds ..............................................................................
Japanese corporate bonds ..........................................................................................
Other ................................................................................................................................
Total .................................................................................................................................

Millions of yen
March 31, 2004

Bonds ...............................................................................................................................
Japanese government bonds.......................................................................................
Japanese local government bonds ..............................................................................
Japanese corporate bonds ..........................................................................................
Other ................................................................................................................................
Total .................................................................................................................................

Thousands of U.S. dollars(2) Money Held in Trust(a) Money held in trust classified as trading purposes
Thousands of
U.S. dollars

Millions of yen
March 31

2005

2004

2005

Consolidated balance sheet amount...........................................................................................
Valuation gains included in profit/loss during the year ................................................................

¥7,46025¥2,414—$69,474
239

Hokuhoku Financial Group, Inc. Annual Report 200533

(b) Money held in trust classified as held-to-maturity
Not applicable(c) Other money held in trustThousands of
U.S. dollars

Millions of yen
March 31

Acquisition cost .........................................................................................................................
Consolidated balance sheet amount...........................................................................................
Net unrealized gains ..................................................................................................................
Unrealized gains ..................................................................................................................
Unrealized losses .................................................................................................................

2005

2004

2005

¥16,400
16,503
103
106
3

¥—
—
—
—
—

$152,714
153,678964
996
32

Note: Consolidated balance sheet amount is calculated by using market prices at the fiscal year-end.

(3) Net Unrealized Gains on Available-for-Sale Securities and Other Money Held in Trust
Thousands of
U.S. dollars

Millions of yen
March 31

Net unrealized gains ..................................................................................................................
Available-for-sale securities.................................................................................................
Other money held in trust.....................................................................................................
Net deferred tax liabilities ..........................................................................................................
Net unrealized gains (before following adjustment) ....................................................................
(–) Minority interests..................................................................................................................
(+) Hokuhoku’s interest in net unrealized gains on
valuation of available-for-sale securities
held by affiliates accounted for by the equity method .........................................................
Net unrealized gains ..................................................................................................................

2005

2004

2005

¥19,560
19,457103(7,917)
11,643
16

¥645
645
—
(262)
382
12

$182,148
181,184964(73,723)
108,425
155

197¥11,825

—
¥370

1,844
$110,114

28. Derivatives
The Hokuriku Bank, Ltd. and the Hokkaido Bank, Ltd. (together, the “Banks”) use swaps, futures, forward and option contracts, andother similar types of contracts based on either interest rates, foreign exchange rates or securities prices.
The purpose for using derivative finance products are 1) to respond to the hedging needs of customers, 2) to reduce market risks
related to the assets and liabilities and 3) for trading purposes under the strict risk management structure.
Derivative transactions are accompanied by losses arising from credit risk and losses resulting from market risk.
Derivatives transactions entered into by the Banks have been made in accordance with its risk management policies and procedures, and positions, gain- and-loss amounts, risk amounts and other information regarding the status of trading transactions arereported to the management board.
· Interest Rate-Related Transactions
Millions of yen
2005

Over-the-counter transactions
Swaps
Receive/fixed and pay/floating ............................................................................................................
Receive/floating and pay/fixed ............................................................................................................
Options/sell ..............................................................................................................................................
Options/buy ..............................................................................................................................................
Others/sell ................................................................................................................................................
Others/buy................................................................................................................................................
Total...............................................................................................................................................................

Contract
Value

MarketValue

RecognizedGain (Loss)¥157,811
164,174
18,17018,170102,517
67,208/¥2,970
(544)
(65)
65
(162)
265
¥2,529¥3,346
(544)
116
(15)
3,008
(569)
¥5,341Millions of yen
2004

Over-the-counter transactions
Swaps
Receive/fixed and pay/floating ............................................................................................................
Receive/floating and pay/fixed ............................................................................................................
Others/sell ................................................................................................................................................
Others/buy................................................................................................................................................
Total...............................................................................................................................................................

34

Hokuhoku Financial Group, Inc. Annual Report 2005

Contract
Value

MarketValue

RecognizedGain (Loss)¥47,72040,88979,35846,323/¥1,014
(103)
(326)
398
¥ 983

¥1,014
(103)
2,014
(167)
¥2,757

Thousands of U.S. dollars
2005

Over-the-counter transactions
Swaps
Receive/fixed and pay/floating ............................................................................................................
Receive/floating and pay/fixed ............................................................................................................
Options/sell ..............................................................................................................................................
Options/buy ..............................................................................................................................................
Others/sell ................................................................................................................................................
Others/buy................................................................................................................................................
Total...............................................................................................................................................................

Contract
Value

MarketValue

RecognizedGain (Loss)$1,469,516
1,528,765
169,196
169,196954,632
625,837/$27,661(5,069)(611)
611(1,516)
2,474$23,550$31,162(5,069)1,086(147)
28,013(5,305)$49,740· Foreign Exchange-Related Transactions
Millions of yen
2005

Over-the-counter transactions
Swaps ......................................................................................................................................................
Forward contracts/sell ..............................................................................................................................
Forward contracts/buy..............................................................................................................................
Options/sell ..............................................................................................................................................
Options/buy ..............................................................................................................................................
Total...............................................................................................................................................................

Contract
Value

MarketValue

RecognizedGain (Loss)¥100,821
25,16017,017
226,892
226,851
/

¥ 138
(600)
280
(8,618)8,617¥ (181)

¥ 138
(600)
280
3,159
(481)
¥2,497

Millions of yen
2004

Over-the-counter transactions
Swaps ......................................................................................................................................................
Forward contracts/sell ..............................................................................................................................
Forward contracts/buy..............................................................................................................................
Options/sell ..............................................................................................................................................
Options/buy ..............................................................................................................................................
Total...............................................................................................................................................................

Contract
Value

MarketValue¥102,974
15,16952,90094,523
94,523
/

¥ 131
436
(718)
(4,338)4,336¥ (152)

RecognizedGain (Loss)

¥131
436
(718)
47
910
¥808

Thousands of U.S. dollars
2005

Over-the-counter transactions
Swaps ......................................................................................................................................................
Forward contracts/sell ..............................................................................................................................
Forward contracts/buy..............................................................................................................................
Options/sell ..............................................................................................................................................
Options/buy ..............................................................................................................................................
Total...............................................................................................................................................................

Contract
Value

MarketValue

RecognizedGain (Loss)$ 938,831
234,289
158,468
2,112,786
2,112,406/$ 1,289(5,591)
2,616(80,254)
80,247$ (1,693)$ 1,289(5,591)
2,616
29,419(4,479)$23,254

At March 31, 2005 and 2004, the Group had no outstanding contracts in stock related transactions, bond related transactions, commodity related transactions and credit derivative transactions.
29. Subsequent Events
Appropriations of Retained Earnings
The following appropriations of retained earnings at March 31, 2005 were approved at the Company’s general stockholders meeting
held on June 29, 2005:

Cash dividends, ¥1.50 per share on common stock.....................................................
¥3.85 per share on preferred stock (Type1) .......................................
¥3.31 per share on preferred stock (Type4) .......................................
¥7.50 per share on preferred stock (Type5) .......................................

Millions of yen

Thousands of
U.S. dollars¥1,928577
261
805$17,953
5,373
2,430
7,496

Hokuhoku Financial Group, Inc. Annual Report 2005

35

INDEPENDENT AUDITORS’ REPORT

36

Hokuhoku Financial Group, Inc. Annual Report 2005

INDEPENDENT AUDITORS’ REPORT

Hokuhoku Financial Group, Inc. Annual Report 2005

37

NONCONSOLIDATED FINANCIAL STATEMENTSNONCONSOLIDATED BALANCE SHEETS (UNAUDITED)The Hokuriku Bank, Ltd.
Thousands of
U.S. dollars

Millions of yen

2005

2004

2005

AssetsCash and due from banks......................................................................................
Call loans and bills bought .....................................................................................
Commercial paper and other debt purchased........................................................
Trading assets .......................................................................................................
Money held in trust.................................................................................................
Securities ...............................................................................................................
Loans and bills discounted.....................................................................................
Foreign exchanges ................................................................................................
Other assets...........................................................................................................
Premises and equipment .......................................................................................
Deferred tax assets................................................................................................
Customers’ liabilities for acceptances and guarantees..........................................
Reserve for possible loan losses ...........................................................................
Total assets ..........................................................................................................

¥ 198,403
80,00022,3646,336
2,469
815,650
4,139,458
13,16632,791
72,69380,732
174,654(87,368)¥5,551,353¥ 197,957
50,00013,8323,803
2,414
763,559
4,325,230
10,87838,316
77,233
95,917160,155(110,696)¥5,628,601$ 1,847,503
744,948
208,254
59,00622,994
7,595,220
38,546,036
122,603305,350
676,909751,772
1,626,355(813,558)$51,693,392

Liabilities and stockholders’ equity
Liabilities
Deposits .................................................................................................................
Call money and bills sold .......................................................................................
Payable under securities lending transactions.......................................................
Trading liabilities ....................................................................................................
Borrowed money....................................................................................................
Foreign exchanges ................................................................................................
Other liabilities .......................................................................................................
Reserve for employee retirement benefits .............................................................
Deferred tax liabilities for land revaluation .............................................................
Acceptances and guarantees ................................................................................
Total liabilities ......................................................................................................

¥4,964,016
88,2005,848
1,010
78,974197
36,005512
7,596
174,654
5,357,015¥5,115,901
13,80031,051
946
76,963
176
31,341
558
8,204
160,155
5,439,099$46,224,192
821,306
54,458
9,406
735,402
1,842
335,280
4,768
70,733
1,626,355
49,883,742

Stockholders’ equity
Capital stock ..........................................................................................................
Capital surplus .......................................................................................................
Retained earnings..................................................................................................
Land revaluation excess ........................................................................................
Net unrealized gain on available-for-sale securities ..............................................
Total stockholders’ equity ..................................................................................
Total liabilities and stockholders’ equity...........................................................

140,409
14,99821,588
11,192
6,149
194,338¥5,551,353

140,409
14,99823,18412,088(1,178)
189,502¥5,628,601

1,307,473
139,667
201,026
104,219
57,265
1,809,650$51,693,392

March 3138

Hokuhoku Financial Group, Inc. Annual Report 2005

NONCONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)The Hokuriku Bank, Ltd.
Thousands of
U.S. dollars

Millions of yen

2005

2004

2005

IncomeInterest income:Interest on loans and discounts ........................................................................
Interest and dividends on securities..................................................................
Interest on deposits with other banks ...............................................................
Other interest income........................................................................................
Fees and commissions ..........................................................................................
Trading profits ........................................................................................................
Other operating income .........................................................................................
Other income .........................................................................................................
Total income ..........................................................................................................

¥ 80,599
9,435
305
847
21,006
3,169
8,002
10,253
133,620¥ 86,143
13,240298
698
17,932
2,327
16,41921,412
158,473$ 750,535
87,863
2,844
7,890
195,61129,51874,514
95,4791,244,254

Expenses
Interest expenses:
Interest on deposits...........................................................................................
Interest on payables under securities lending transactions ..............................
Interest on borrowings and rediscounts ............................................................
Other interest expenses....................................................................................
Fees and commissions ..........................................................................................
Other operating expenses......................................................................................
General and administrative expenses....................................................................
Provision for reserve for possible loan losses........................................................
Other expenses......................................................................................................
Total expenses.......................................................................................................

4,710
437
2,084
1,575
5,873
313
53,73840,814
9,486
119,034

6,425
924
2,057
1,437
4,781
1,515
55,12034,93247,515
154,708

43,8604,070
19,407
14,67554,6972,919
500,404
380,063
88,334
1,108,429

14,586

3,764

135,82592
10,402¥ 4,092

97(1,272)¥ 4,939856
96,863
38,106

Year ended March 31

Income before income taxes..................................................................................
Income taxes:
Current ..............................................................................................................
Deferred ............................................................................................................
Net income............................................................................................................

$

Hokuhoku Financial Group, Inc. Annual Report 2005

39

NONCONSOLIDATED BALANCE SHEETS (UNAUDITED)The Hokkaido Bank, Ltd.
Thousands of
U.S. dollars

Millions of yen

2005

2004

2005

AssetsCash and due from banks......................................................................................
Call loans and bills bought .....................................................................................
Commercial paper and other debt purchased........................................................
Trading account securities .....................................................................................
Money held in trust.................................................................................................
Securities ...............................................................................................................
Loans and bills discounted.....................................................................................
Foreign exchanges ................................................................................................
Other assets...........................................................................................................
Premises and equipment .......................................................................................
Deferred tax assets................................................................................................
Customers’ liabilities for acceptances and guarantees..........................................
Reserve for possible loan losses ...........................................................................
Total assets ..........................................................................................................

¥ 299,322
20
2
3,274
21,494
790,8902,539,494
6,668
22,93929,28345,15832,318(51,919)¥3,738,950¥ 235,328
353
3
4,073
20,903622,3122,562,179
4,086
14,00929,47455,41937,325(81,296)¥3,504,173$ 2,787,250
193
25
30,493200,158
7,364,656
23,647,405
62,100213,609
272,682
420,512300,945(483,464)$34,816,564

Liabilities and stockholders’ equity
Liabilities
Deposits .................................................................................................................
Call money and bills sold .......................................................................................
Payable under securities lending transactions.......................................................
Borrowed money....................................................................................................
Foreign exchanges ................................................................................................
Other liabilities .......................................................................................................
Reserve for employee retirement benefits .............................................................
Acceptances and guarantees ................................................................................
Total liabilities ......................................................................................................

¥3,383,826
36,700103,299
14,00031
17,373
10,53032,3183,598,079¥3,195,110
52,20070,219—102
13,068
10,17537,325
3,378,203$31,509,697
341,745
961,914130,366
289
161,779
98,057300,945
33,504,792

Stockholders’ equity
Capital stock ..........................................................................................................
Capital surplus .......................................................................................................
Retained earnings..................................................................................................
Net unrealized gain on available-for-sale securities ..............................................
Treasury stock .......................................................................................................
Total stockholders’ equity ..................................................................................
Total liabilities and stockholders’ equity...........................................................

93,524
16,795
19,46911,082—140,871¥3,738,950

93,524
16,795
10,8514,827(28)
125,970¥3,504,173

870,882
156,394
181,300
103,196—
1,311,772$34,816,564

March 3140

Hokuhoku Financial Group, Inc. Annual Report 2005

NONCONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)The Hokkaido Bank, Ltd.
Thousands of
U.S. dollars

Millions of yen
Year ended March 31

2005

2004

2005

IncomeInterest income:Interest on loans and discounts ........................................................................
Interest and dividends on securities..................................................................
Interest on receivables under resale agreements.............................................
Interest on deposits with other banks ...............................................................
Other interest income........................................................................................
Fees and commissions ..........................................................................................
Other operating income .........................................................................................
Other income .........................................................................................................
Total income ..........................................................................................................

¥53,246
6,780
5
0
358
16,446
2,425
2,822
82,085¥54,900
5,295
5
0
277
14,9272,009
7,350
84,765$495,820
63,13553
0
3,343
153,146
22,586
26,281
764,364

Expenses
Interest expenses:
Interest on deposits...........................................................................................
Interest on payables under securities lending transactions ..............................
Interest on borrowings and rediscounts ............................................................
Other interest expenses....................................................................................
Fees and commissions ..........................................................................................
Other operating expenses......................................................................................
General and administrative expenses....................................................................
Provision for reserve for possible loan losses........................................................
Other expenses......................................................................................................
Total expenses.......................................................................................................

1,682
3
25
2
5,236
494
38,124
13,8395,460
64,871

1,830
5
6
2
4,768
204
38,674
21,436
4,919
71,84815,66935
241
27
48,763
4,607
355,011
128,868
50,849604,070

17,213

12,917160,294

64
6,022¥11,12664
2,001¥10,851598
56,085$103,611

Income before income taxes..................................................................................
Income taxes:
Current ..............................................................................................................
Deferred ............................................................................................................
Net income............................................................................................................

Hokuhoku Financial Group, Inc. Annual Report 2005

41

CORPORATE INFORMATIONThe Hokuhoku Financial Group is composed of the holding company and 14 consolidated subsidiaries and two affiliates. Our
core business is banking, and we also provide a wider range of services including leases, credit cards, financing, and venture
capital. The following is a diagram of our business.
Business Diagram

Hokuhoku Financial Group, Inc
The Hokuriku Bank, Ltd.

Hokugin Lease Co., Ltd.
(Leasing)

The Hokkaido Bank, Ltd.

Hokugin Business Services Co., Ltd.
(document management, cash management,
concentrated business processing)

Hokuriku Card Co., Ltd.
(Credit card operations, loan guarantees)

Dogin Business Service, Ltd.
(Document management, cash management,
concentrated business processing)

Hokugin Office Services Co., Ltd.
(Human resource solutions)

Hokuriku Hosho Services Co., Ltd.
(Credit guarantees)

Dogin Card Co., Ltd.*(Credit card operations, loan guarantees)

Hokugin Real Estate Services Co., Ltd.
(Property management)

Hokugin Software Co., Ltd.
(Software development)

Hokugin Shisankanri Co., Ltd.
(Auctioning pledged properties)

Nihonkai Services Co., Ltd.
(Servicer)

Hokuriku International Cayman Limited(Finance)

Hokuriku Capital Co., Ltd.*(Venture capital, IPO consulting)* Affiliated company

Hokugin Corporate Co., Ltd.
(Corporate rehabilitation)

Major subsidiaries(units: millions of yen, %)Company name

AddressThe Hokuriku Bank, Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

The Hokkaido Bank, Ltd.

4-1 Odori Nishi, Chuo-ku, Sapporo City

Hokugin Lease Co., Ltd.

2-21 Aramachi, Toyama City

Hokuriku Card Co., Ltd.

1-2-1 Shintomi-cho, Toyama City

Established

Capital

FG’s share of
voting rights

Dividend

Banking

July 31, 1943

Banking

March 5, 1951

140,409100.006,584

93,524100.00

Leasing–

July 21, 1983

100

70.25

126

Credit card operations,loan guarantees

March 2, 1983

36

87.39

–

Hokuriku Hosho Services Co., Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Credit guarantees

December 12, 1978

50

100.00200

Hokugin Software Co., Ltd.

1-5-25 Higashidenjigata, Toyama City

Software development

May 1, 198630

100.00–Nihonkai Services Co., Ltd.

2-1-14 Chuo-dori, Toyama City

Servicer

December 5, 2003

500

100.00–

Hokugin Business Services Co., Ltd.

1883 Hiyodorijima, Toyama City

Document management,
cash management, ATM/CD
maintenance/operation,
concentrated businessprocessing

March 25, 195330

(100.00)–

Hokugin Office Services Co., Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Human resource solutions

March 3, 1986

20

(100.00)–

Hokugin Real Estate Services Co., Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Property Management

September 26, 1988

100

(100.00)–

Hokugin Shisankanri Co., Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Auctioning pledged properties

March 7, 2000

100

(100.00)–

Hokuriku International Cayman Limited P.O. Box 309 Grand Cayman, Cayman Islands,
British West Indies

Finance

April 27, 1993

US$1,000(100.00)–

Hokugin Corporate Co., Ltd.

3-2-10 Nihonbashi-Muromachi, Chuo-ku, Tokyo

Corporate rehabilitation

December 1, 2004

100

(100.00)–

Dogin Business Service, Ltd.

4-1 Odori Nishi, Chuo-ku, Sapporo City

Document management,
cash management, ATM/CD
maintenance/operation,
concentrated businessprocessing

June 8, 1979

50

(100.00)–

Hokuriku Capital Co., Ltd.*

1-8-10 Marunouchi, Toyama City

Venture Capital

January 11, 1985

250

5.00
(42.50)–

Dogin Card Co., Ltd.*

2-2-14 Chuo-ku Minami, Sapporo City

Credit card operations,loan guarantees

June 13, 1977

122

(39.97)–* Equity method-affiliated company( )Indicates voting rights involving shares held by subsidiaries

42

Main business activities

Hokuhoku Financial Group, Inc. Annual Report 2005

OUTLINE OF SUBSIDIARIES - HOKURIKU BANKThe Hokuriku Bank, Ltd..
Web site: www.hokugin.co.jp
Establishment

History

The origin of the Hokuriku Bank is the Kanazawa 12th
National Bank, which was established on August 26, 1877
with the House of Kaga-Maeda providing 70% of the financing. The Bank was the creation of the family established by
Maeda Toshiie, the founder of the Kaga clan.
A unique, extensive regional bank, Hokuriku Bank worked
with leading industries, and was a leader in areas such as
international operations, securities, and electronic banking.
The Bank provides high-quality integrated financial services
that precisely and quickly meet the needs of local customers.
It will continue to contribute to regional development.

August 1877

Kanazawa 12th National Bank founded

February 1879

Toyama 123th National Bank founded

January 1884

Kanazawa 12th National Bank and Toyama 123th National
Bank merged to form Toyama 12th National Bank with
headquarters in Toyama City

July 1897

Toyama 12th National Bank changed name to 12th Bank

July 1943

Four banks, 12th, Takaoka, Chuetsu, and Toyama Bank,
merged to form Hokuriku Bank

January 1950

Launched foreign exchange operations (first regionalbank to do so)

Company outline (as of March 31, 2005)
The Hokuriku Bank, Ltd.
Business:
Banking
Incorporation:
July 31, 1943 (founded in 1877)
Location of headquarters: 1-2-26 Tsutsumicho-dori,
Toyama City Toyama
President:
Shigeo Takagi
Total assets:¥5,551.3 billion
Deposits (including NCDs): ¥4,964.0 billion
Loans:¥4,139.4 billion
Issued shares:
Common stock
987,146,185
Class 1 preferred shares 150,000,000
Capital ratio(non-consolidated):
8.42%
Employees:
2,744
Branches (as of June 30, 2005)
Domestic:
185(131 branches, 54 sub-branches)
Overseas:
3 representative offices
Non-branch ATMs
205

September 1961

Listed on the Tokyo Stock Exchange

November 1961

New head office built

July 1968

Received permission to conduct correspondent transactions with foreign banks

January 1971

Received blanket approval to engage in correspondentbanking services

November 1973

Completed first integrated online system linking all
officesMarch 1974

Received blanket approval to engage in foreign exchange
business

July 1978

Received blanket approval to handle yen-denominatedand foreign-denominated syndicated loans

October 1979

Launched second online system

November 1981

Launched online foreign exchange system

January 1984

Launched firm banking service

November 1986

Become the first regional bank to guarantee foreign
bonds not issued through public placement

May 1987

Introduced VI (visual identification)

August 1990

Completed third online system

November 1993

Launched investment trust agent operations

June 1998

Established Hokugin Loan Plaza

December 1998

Launched over-the-counter sale of securities investment
trustsJune 2000

Launched Internet and mobile banking services (Hokugin
Direct A (Ace)

July 2000

Completed new computer center (Alps building)January 2001

Launched new computer system

April 2001

Launched over-the-counter sales of casualty insurance

November 2001

Launched defined contribution pension operations

February 2002

Third-party allocation worth ¥39.1 billion, brought newcapital to ¥140.4 billion.

February 2002

Launched convenience store ATM service (E-net)

October 2002

Launched over-the-counter sales of life insurance

March 2003

Took over part of the Ishikawa Bank’s operations

September 2003

Established Hokugin Financial Group through stock swap,
then became subsidiary of the Hokugin Financial Group

September 2004

Integrated management with Hokkaido Bank, name ofparent company changed to Hokuhoku Financial Group,Inc.

December 2004

Launched securities agency operations
Established corporate rehabilitation company Hokugin
Corporate
Hokuhoku Financial Group, Inc. Annual Report 2005

43

OUTLINE OF SUBSIDIARIES - HOKKAIDO BANKThe Hokkaido Bank, Ltd..
Web site: www.hokkaidobank.co.jp
Establishment

History

On March 5, 1951, Hokkaido Bank was established basedon the strong demand from small and medium-sized corporations in Hokkaido for funds accompanying the sudden
increase in population and development of new industries in
Hokkaido during the post-war recovery period.
Based on this background and as a Bank deeply rooted in
Hokkaido, Hokkaido Bank considers its mission to be contributing to regional economic growth by smoothly providing
funds and full financial services to its customers in
Hokkaido. Hokkaido Bank has not forgotten the spirit inwhich it was created and is moving forward with its customers in Hokkaido.

March 1951

Hokkaido Bank established

April 1961

Launched foreign exchange operations

Company outline (as of March 31, 2005)
The Hokkaido Bank. Ltd.
Business:
Banking
Incorporation:
March 5, 1951
Location of headquarters: 4-1 Odori Nishi, Chuo-ku,
Sapporo City
President:
Yoshihiro Sekihachi
Total assets:¥3,738.9 billion
Deposits (including NCDs): ¥3,383.8 billion
Loans:¥2,539.4 billion
Issued shares:
Common shares:
374,355,952
Class 1 preferred shares: 79,000,000
Class 2 preferred shares: 107,432,000
Capital ratio(non-consolidated):
7.28%
Employees:
1,762
Branches (as of June 30, 2005)
Domestic:
134(125 branches, 9 sub-branches)
Non-branch ATMs
318

44

Hokuhoku Financial Group, Inc. Annual Report 2005

May 1962

Listed on the Sapporo Stock Exchange

August 1964

Present head office built

June 1971

Online system (first) launched

July 1976

Integrated online system (second) launched

December 1980

Received blanket approval to engage in correspondentbanking services

April 1981

Hokkaido Small and Medium Corporation Human
Resource Development Fund established

April 1983

Launched sales of public bonds

June 1985

Launched trading operations

June 1986

Launched online foreign exchange system

September 1987

Debuted on the first section of the Tokyo Stock Exchange

October 1990

Constructed the Higashi Sapporo Dogin Building

March 1991

Established Dogin Cultural Foundation

October 1991

Launched a new foreign exchange online system

November 1991

Constructed Dogin Building Annex

January 1993

Launched new integrated online system (third)

April 1994

Launched investment trust agent operations

December 1998

Started sales of investment trust accounts

July 1999

Issued No. 1 class 2 preferred shares (issuance amountwas ¥53.716 billion)

November 1999

Launched Dogin telephone banking service

June 2000

Launched Internet mobile banking

April 2001

Started sales of casualty insurance accounts

October 2002

Started sales of life insurance accounts

December 2003

Opened Business Loan Plaza

April 2004

Launched convenience store ATM service

September 2004

Came under management of Hokugin Financial Group,parent of Hokuriku Bank; Hokuhoku Financial Grouplaunched

April 2005

Launched securities agency operations

BOARD OF DIRECTORS AND CORPORATE AUDITORS
Hokuhoku Financial Group
President:
Shigeo Takagi

Deputy President:
Yoshihiro Sekihachi

Directors:
Satoshi Kawai
Mitsuhiro Tokuno

Masamichi Kondo
Toshihiko Kobayashi

Hideaki Haoka
Yuji Oshima

Yoshihiro Minami

Yasuhiro Ishiguro

Corporate Auditors:
Toshitsugu Kawakami
Norikiyo Hayashi

The Hokuriku Bank
President:
Shigeo Takagi

Deputy President:
Satoshi Kawai

Senior Managing Director:
Hideaki Haoka

Managing Directors:
Mitsuhiro Tokuno

Directors:
Toshihiko Kobayashi

Masato Matsumoto

Corporate Auditors:
Tatsuro Ishikuro

Kumakichi Yagi

Osamu Komuro

Akihiko Furuta

Kenichi Nakamura

The Hokkaido Bank
President:
Yoshihiro Sekihachi
Directors:
Masamichi Kondo

Akihiro Sasahara

Akihiko Soma

Satoshi Kawai

Corporate Auditors:
Hisae Goto

Tatsuhiro Ishikawa

Yutaka Hayakawa

Akira Ibayashi

Addresses
Hokuhoku Financial Group, Inc.
1-2-26, Tsutsumicho-doriToyama City
Toyama 930-8637, Japan
Telephone: +81-76-423-7331
http://www.hokuhoku-fg.co.jp
E-mail: honsha2@hokuhoku-fg.co.jp

The Hokuriku Bank, Ltd.
International Department
1-2-26, Tsutsumicho-doriToyama City,
Toyama 930-8637, Japan
Telephone: +81-76-423-7815
Facsimile: +81-76-423-7561
E-mail: kokusaibu@hokugin.co.jp
International Operations Center
2-10, Nihonbashi-muromachi 3-chome,
Chuo-ku,
Tokyo 103-0022, Japan
Telephone: +81-3-3231-7329
Facsimile: +81-3-3270-5028
E-mail: b.office@hokugin.co.jp
SWIFT Address: RIKBJPJTTreasury and Securities Department
2-10, Nihonbashi-muromachi 3-chome,
Chuo-ku
Tokyo 103-0022, Japan
Telephone: +81-3-3231-7360
Facsimile: +81-3-3246-1255
E-mail: shikintky@hokugin.co.jp
Overseas Offices (Hokuriku Bank)New York Representative Office
780 Third Avenue, 28th Floor,
New York, NY 10017, U.S.A
Telephone: +1-212-355-3883
Facsimile: +1-212-355-3204
E-mail: nyrep@hokugin.com

The Hokkaido Bank, Ltd.
Foreign Business Support Center
4-1, Odori Nishi, Chuo-ku,
Sapporo 060-8676, Japan
Telephone: +81-11-233-1093
Facsimile: +81-11-231-3133
E-mail: schikaku@cello.ocn.ne.jp
SWIFT Address: HKDBJPJTTreasury and Securities Department
2-10, Nihonbashi- muromachi 3-chome,
Chuo-ku,
Tokyo 103-0022, Japan
Telephone: +81-3-3241-3457
Facsimile: +81-3-3245-1779

Shanghai Representative Office
Shanghai International Trade Center, 602,
Yan’an west Toad 2201,
Changning, Shanghai 200336
Telephone: +86-21-6270-8108
Facsimile: +86-21-6270-8338
E-mail: hokugin@online.sh.cn
Singapore Representative Office
6 Battery Road # 17-04 Shigapore 049909
Telephone: +65-6534-0010
Facsimile: +65-6534-0070
E-mail: hokuriku@singnet.com.sg

Hokuhoku Financial Group, Inc. Annual Report 2005

45

Hokuhoku Financial Group, Inc.

Printed in Japan
Printed on recycled paper