Annual Report
2014
Year ended March 31, 2014

Hokuhoku Financial Group, Inc.

Company outline (as of March 31, 2014)
Company name: Hokuhoku Financial Group, Inc.
Date of establishment: September 26, 2003
Location of head office: 1-2-26 Tsutsumicho-dori, Toyama City
Purpose of business: Management and control of subsidiaries and affiliates and ancillary and related business
Capital: ¥70,895 million
Shares issued and outstanding:Common stock................................... 1,351,630,146
Preferred stock (Type 5)..................... 107,432,000
Exchange listings: Tokyo Stock Exchange (First Section)
Sapporo Securities ExchangeThis document contains forward-looking statements. Statements of this kind do not constitute guarantees of future performance, as factors such as changes in
the operating environment may cause actual performance to differ.
The figures stated in this document are, in principle, rounded down to the nearest whole unit.

CONTENTS

Profile................................................................................................... 1
Message from the Management........................................................... 2
Medium-term Management Plan.......................................................... 4
Performance Highlights........................................................................ 6
Corporate Governance......................................................................... 10
Approach to Compliance...................................................................... 13
Risk Management System.................................................................... 15
Corporate Social Responsibility............................................................ 20
Topics.................................................................................................. 23
Consolidated Financial Statements
Consolidated Balance Sheet............................................................. 26
Consolidated Statement of Income................................................... 27
Consolidated Statement of Comprehensive Income......................... 27
Consolidated Statement of Changes in Equity.................................. 28
Consolidated Statement of Cash Flows............................................ 30
Notes to Consolidated Financial Statements..................................... 31
Independent Auditor’s Report............................................................... 57
Non-consolidated Financial Statements
The Hokuriku Bank, Ltd.
Non-consolidated Balance Sheet (Unaudited)............................... 58
Non-consolidated Statement of Income (Unaudited)..................... 59
The Hokkaido Bank, Ltd.
Non-consolidated Balance Sheet (Unaudited)............................... 60
Non-consolidated Statement of Income (Unaudited)..................... 61
Corporate Information........................................................................... 62
Outline of Subsidiaries — Hokuriku Bank.............................................. 63
Outline of Subsidiaries — Hokkaido Bank............................................. 64
Board of Directors and Audit & Supervisory Board Members................ 65........................................................................ 66

Profile
Since its establishment in 1877, Hokuriku Bank hasdeveloped an extensive network of branches throughout
the Hokuriku district. On account of trade through the
Kitamae-bune or “Northbound Ships,” branches extended
to the major cities of Hokkaido, enabling the bank tomeet customers’ needs. The Hokkaido Bank, which wasestablished in 1951, has developed a network of branches
throughout Hokkaido, and built a firm business structure
centered on individuals and small and medium-sizedenterprises.
The Hokuriku Bank, Ltd. and The Hokkaido Bank, Ltd.
underwent management integration in September 2004 toform the Hokuhoku Financial Group Inc., which today operates a super-regional financial network that encompasses
the Hokuriku region, Hokkaido, and Japan’s three major
metropolitan areas (Tokyo, Osaka, and Nagoya areas).

May 2002

Comprehensive business alliance
between
Hokuriku Bank and Hokkaido BankMay 2003

Agreement on full integration ofmanagement of Hokuriku Bank andHokkaido Bank

The operations of the Hokuhoku Financial Groupextend beyond the limits of a single district.
Our extensive network is outlined below.
Hokuriku district......................................... 149 branches
Toyama prefecture....................................... 91 branches
Ishikawa prefecture...................................... 36 branches
Fukui prefecture............................................ 22 branches
Hokkaido..................................................... 159 branches
Three major metropolitan areas................
Tokyo and Yokohama...................................
Nagoya.........................................................
Osaka and Kyoto..........................................

16 branches
9 branches
3 branches
4 branches

Others (Sendai, Niigata, Nagano, Takayama)....

4 branches

Overseas.....................................................
9 offices
New York Representative Office (Hokuriku Bank)
Yuzhno-Sakhalinsk Representative Office (Hokkaido Bank)
Vladivostok Representative Office (Hokkaido Bank)
London Representative Office (Hokuriku Bank)
Singapore Representative Office (Hokuriku Bank)
Bangkok Representative Office (Hokuriku Bank)
Dalian Representative Office (Hokuriku Bank)
Shanghai Representative Office (Hokuriku Bank)
Shenyang Representative Office (Hokkaido Bank)(As of June 30, 2014)

LondonSeptember
2003

Vladivostok
YuzhnoSakhalinsk

Shenyang
DalianHokugin Financial Group, Inc.
established

New York

Shanghai

Hokuriku Bank Group comes undermanagement of Hokugin Financial
Group

Bangkok
Singapore

Management integration effected
through equity swap
September
2004

Hokkaido

Hokuhoku Financial Group, Inc. isborn.

Hokuriku district
Ishikawa

Toyama

Fukui

Tokyo
Osaka

NagoyaThree major metropolitan areas
Hokuhoku Financial Group, Inc. Annual Report 2014

1

MESSAGE FROM THE MANAGEMENT(from left)

2

Yoshihiro Sekihachi

Eishin Ihori

Chairman(concurrently serving as president of
The Hokkaido Bank, Ltd.)

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

Hokuhoku Financial Group, Inc. Annual Report 2014

We would like to express our sincere appreciation to all our customers for their continued patronage to the Hokuhoku
Financial Group.
The Hokuhoku Financial Group was formed on September 1, 2004, as the first wide-area financial group comprisingregional banks. Based on its networks in the Hokuriku area (Toyama, Ishikawa and Fukui prefectures), Hokkaido andJapan’s three metropolitan areas, the Group has contributed to the economic development of the areas in which it operates
and has supported the prosperity of local people in their daily lives. Over the last 10 years, the Group has completed repayment of public fund, a concern for management, and achieved shared use of core IT systems, enabling it to provide highquality efficient services. Having achieved our target of ¥10 trillion in deposits, we have made significant progress toward ourgoal of stabilizing our business foundation.
Turning to the current business environment in Hokuriku and Hokkaido, we see prospects of improved earnings at local
enterprises, as government growth strategies including financial easing by the Bank of Japan gradually take effect across theregion and the regional economy gears itself for launch of the Hokuriku Shinkansen (Bullet Train) line next spring. However,interest rates are expected to stay at low levels, and the earnings environment for financial institutions is set to remain
severe.
Against this backdrop, the Group is taking measures to strengthen marketing capabilities and improve management
efficiency under the “GO for IT!” medium-term management plan. In fiscal 2013, the first year of the plan, consolidated net
income was ¥27.3 billion, ahead of the target. In light of this achievement, we increased the term-end dividend by ¥0.25 to¥4.00 per common share.
Aiming to become a close and reliable financial group for local customers, we are committed to providing high-quality
financial services. Through these activities, we are working to bolster enterprise value by strengthening our profitability andfinancial position.
We ask for your continued support and encouragement in our future business endeavors.
July 2014

Yoshihiro Sekihachi

Eishin Ihori

ChairmanPresident

Hokuhoku Financial Group, Inc. Annual Report 2014

3

MEDIUM-TERM MANAGEMENT PLAN
In April 2014, the Group launched the “GO for IT!” medium-term management plan, and designated the three-year periodof the plan as a term for establishing an optimized business strategy for sustainable growth. We remain committed to theexisting management policies of “Strengthening Marketing Capabilities” and “Improving Management Efficiency” along with
“Cementing Management Foundation.” In addition, we will raise our corporate value by obtaining the trust of local customers
and contributing to the revitalization of the regional economy.

Overview of the Medium-Term Management PlanTitle

GO for IT!

Period3 Years (April 2013–March 2016)

Position

A term for establishing an optimized business strategy for sustainable growthTarget Corporate Profile

Close and Reliable Financial Group for Local Customers

Basic Policies
in Management Plan

1.	Establish solid management foundation for sustainable growth under changing businesscircumstances by constructing close relationship with regional customers and effective
internal control
2.	Keep on “Strengthening Marketing Capabilities” and “Improving Management Efficiency” and“Cementing Management Foundation”
3.	Raise our corporate value by obtaining the trust of local customers and contributing to therevitalization of the regional economy.

Basic Policies of Medium-Term Management Plan “GO for IT!”
Develop Proper Measures
Strengthening Marketing Capabilities■ Expand customer base

Improving Management Efficiency

Cementing Management Foundation■ Strengthen consultation service■	Consolidation and pooling ofoperation■	Improve quality of capital in line with
Basel III■	Take advantage of our extensive
network■	Take advantage of shared use ofbanking system■ Enhance asset quality■	Improve marketing strategy for
personal customer■ Enhance operational effectiveness	Reconsider resource allocation of
headquarters and branches■ Increase investment in securities■ Strengthen corporate revitalization

Establish Solid Internal Control
Training Employees

Reallocate management resource

Reorganize risk management framework

Accelerate Synergy
Strengthen Compliance

Fiscal 2015 Numerical Targets ( Total of 2 banks)

4

FY2013 (Result)

FY2014 (Result)

FY2015 (Target)

Deposits¥9,790.3 Bn¥10,129.2 Bn¥10,110.0 Bn

Loans¥7,277.8 Bn¥7,344.0 Bn¥7,480.0 Bn

Core net business profits¥50.3 Bn

¥48.2 Bn

¥47.0 Bn

Net income (Consolidated)¥18.1 Bn

¥27.3 Bn

¥18.5 Bn

Capital adequacy ratio (Consolidated)

11.88%

12.31%

10% or above

OHR (Core gross business profit basis)65.37%

66.08%

67%

NPL Ratio

3.11%

2.67%

Below 3%

Hokuhoku Financial Group, Inc. Annual Report 2014

Strengthening Marketing Capabilities▼ Strategies

Expand customer base

• Further increase customer accounts• Become the main bank and promote cross sale of various financial products

Strengthen consultation service•	Accumulate knowledge and promote sales in priority industries(Agriculture, Healthcare, Welfare, Environment, Renewable energy)• Private Banking, M&A, Business Succession

Take advantage of our extensive network•	Enhance business-matching information services and support of customers’
overseas business development

Improve marketing strategy for
personal customer• Effective sales promotion based on account-holder category• Activate service channels other than face-to-face transactions•	Review organizational structure and strengthen our sales system for investment
trust and insurance products

Increase investment in securities• Supplement decreased interest revenue from corporate loans

Improving Management Efficiency▼ Strategies

Consolidation and pooling of operation•	Establish more efficient cost structure as a top-level financial group among
regional banks (Consolidation of operation in headquarters, Shared back office,Collaboration in product development and advertising)•	Improve operational efficiency through integrated management

Take advantage of shared useof banking system•	Increase number of banks sharing use of banking system (3 banks >> 4 banks)and pursue additional cost reduction•	Joint development of subsystems and continuous integration of business process

Enhance operational effectiveness
Reconsider resource allocation of
headquarters and branches•	Optimize business process in branches and headquarters•	Redeploy strategically key personnel to priority areas

Cementing Management Foundation▼ Strategies

Capital management• Improve quality of capital in line with Basel III• Develop capital operations for higher equity value

Enhance asset quality• Raise proportion of asset with a low risk-weighting

Strengthen corporate revitalization• Alliance with external organizations• Active use of regional revitalization fund

Capital adequacy ratio
11.88%

12.31%

10.00%
Capital adequacy ratio

Control of amount of preferred stocks andsubordinated debts in line with Basel III

605.5

564.2

13/3 result

524.4

14/3 result

Increase core capital by internal reserve

Dividend Policy
Dividends forcommon equities

Steady increase individends

16/3 plan

Include following transitional capital• Subordinated capital : ¥72.5 Bn• Preferred stock :¥53.7 Bn(¥ billion)•	Maintain a 30% or above dividend payout ratio and aim forstep-by-step increase in dividend by increasing earnings.
•	Maintain an about 10% capital adequacy ratio by building up
internal reserves based on the reduced inclusion of preferredstocks, subordinate capitals and other items through gradualapplication of Basel III regulations.
Hokuhoku Financial Group, Inc. Annual Report 2014

5

PERFORMANCE HIGHLIGHTS
Summary of Operations (Hokuhoku Financial Group, Inc.; on a consolidated basis)(¥ billion)

FY2013
Ordinary income
Ordinary profits
Net income

190.9
49.4
27.3

Capital adequacy ratio*

12.31%FY2012
Change
(8.1)
20.1
9.2

199.1
29.3
18.1
11.88%* Calculation of capital adequacy ratio is based on Basel III for the year ended
March 31, 2014, and based on Basel II for the year ended March 31, 2013and years before that.

In the fiscal year ended March 31, 2014, Hokuhoku FG
recorded ordinary income (consolidated basis) of ¥190.9
billion, down ¥8.1 billion year-on-year, and ordinary profits
increased by ¥20.1 billion to ¥49.4 billion. Net income forthe year rose by ¥9.2 billion to ¥27.3 billion.
The capital adequacy ratio was 12.31% at the year-end
on a consolidated basis.
The Group paid a fiscal year-end dividend of the designated ¥7.5 per share for shareholders of preferred share(type 5). Although an interim dividend was not paid, a fiscal
year-end dividend of ¥4.00 per share was paid to commonshareholders, an increase of ¥0.25 from the previous year.

Summary of Operations (Hokuriku Bank and Hokkaido Bank)(¥ billion)

Ordinary income
Core gross business profits
Expenses
Core net business profits
Credit costs
Ordinary profits
Net income

Hokuriku Bank andHokkaido Bank
FY2013
FY2012
Change
178.0
(6.6)
184.6
142.2
(3.2)
145.5
94.0
(1.0)
95.1
48.2
(2.1)
50.3
(1.3)
(18.4)
17.0
48.5
18.5
30.0
27.5
7.9
19.5

Core gross business profits decreased by ¥3.2 billion to¥142.2 billion year-on-year, with the decrease of bothinterest income and fees and commissions. However, thedecline in core business profits was pegged at ¥2.1 billion,
for a total of ¥48.2 billion, due to a ¥1.0 billion decline in
expenses.
Ordinary profits increased by ¥18.5 billion to ¥48.5
billion year-on-year, reflecting a ¥18.4 billion decrease incredit cost.
As a result, net income for the year increased by ¥7.9
billion to ¥27.5 billion.

(¥ billion)(¥ billion)

Hokuriku Bank
FY2013
Ordinary income
Core gross business profits
Expenses
Core net business profits
Credit costs
Ordinary profits
Net income

97.7
77.0
50.5
26.4
(4.2)
30.4
17.8

Capital adequacy ratio*

12.40%

Hokkaido Bank
FY2012

Change
(5.2)
(5.2)
(0.3)
(4.9)
(13.6)
12.0
5.5

FY2013

103.0
82.3
50.9
31.4
9.3
18.3
12.3

80.2
65.2
43.4
21.7
2.8
18.0
9.6

11.78%

10.76%FY2012
Change
(1.4)
2.0
(0.7)
2.8
(4.7)
6.4
2.4

81.6
63.1
44.2
18.9
7.6
11.6
7.2
11.23%* Calculation of capital adequacy ratio is based on Basel III for the year ended March 31, 2014, and based on Basel II for the year
ended March 31, 2013 and years before that.

6

Hokuhoku Financial Group, Inc. Annual Report 2014

Core Gross Business Profits (Both banks)
Net interest income decreased by ¥2.6 billion year-on-yearto ¥121.7 billion, due to a decrease in interest on loans.

Net interest income

156.3
6.2
18.9

131.1

Net fees and commissions

145.5
2.7
18.3

124.3

Others

142.2
2.8
17.7

● Core gross business profits = net interest income + net fees andcommissions + other net operating income; Equivalent to gross profit
margin in the case of companies other than banks.
● Net interest income = income from interest on loans, receivable bonds
and dividends on equity shares, after deduction of interest on deposits

121.7● Net fees and commissions = fees and commissions received relating
to remittance, investment trust and insurance sales agency businesses
after deduction of corresponding expenses(¥ billion)

Years ended
March 31

2012

2013

Net fees and commissions decreased by ¥500 million
to ¥17.7 billion year-on-year, due chiefly to a decline incommissions on insurance sales.
Other income came in, at the same level as in the previous year, ¥2.8 billion.
As a result, core gross business profits fell by ¥3.2
billion to ¥142.2 billion.

● Other net operating income = income from foreign exchange transactions and derivatives transactions

2014Core Net Business Profits (Both banks)
Hokuriku Bank

Hokkaido Bank

ROA

Although core gross business profits fell by ¥3.2 billion
year-on-year, core net business profits declined by only
¥2.1 billion to ¥48.2 billion, due to a ¥1.0 billion decrease in
expenses.

0.44%● Core net business profits = core gross business profit minus expenses
Equivalent to operating income in the case of companies other thanbanks, this indicates a bank’s achievements in its core banking field.

0.53%
0.47%
55.7

50.3

48.2

31.4

26.4

21.4

18.9

21.7

2012

2013

2014

34.3

Years ended
March 31

● ROA = Core net business profits divided by total assets (average for the term)This figure indicates the effectiveness of employment of assets in thegeneration of profits; the higher the figure the better.

(¥ billion)

Net Income (Both banks)
Hokuriku Bank

Ordinary profits increased by ¥18.5 billion year-on-year to¥48.5 billion and net income rose by ¥7.9 billion to ¥27.5
billion, due to a ¥18.4 billion decrease in credit costs.

Hokkaido Bank

27.5

19.5
17.8

16.6
12.3
11.4

5.2
Years ended
March 31

2012

7.2

9.6
(¥ billion)

2013

2014

Hokuhoku Financial Group, Inc. Annual Report 2014

7

PERFORMANCE HIGHLIGHTS

Deposits (Including negotiable certificates of deposit) (Both banks)
Hokuriku Bank

9,700.8

5,545.1

Deposits increased by ¥163.8 billion to ¥10,172.0 billion
compared with the end of the previous term, due to anincrease mainly in individual customers.

Hokkaido Bank

10,008.1

5,726.2

10,172.0

5,909.0

4,155.7

4,281.9

4,262.9

2012

2013

2014

(¥ billion)
End of March

Loans and Bills Discounted (Both banks)
Hokuriku Bank

7,402.0

7,336.3

4,233.9

4,332.7

4,227.6

3,053.0

3,069.3

3,108.6

2012

2013

2014

7,287.0

Loans and bills discounted fell by ¥65.7 billion to ¥7,336.3
billion compared with the end of the previous term, due toa decline in corporate loans, which more than offsets anincrease in housing loans.

Hokkaido Bank(¥ billion)
End of March

Formerly, Hokuriku Bank included RMBS (residential mortgage-backed securities) in the general category ofloans and bills discounted, but with effect from fiscal 2005 these have been included in “call loans and bills
bought.” To enable comparisons, figures for prior years are shown after deduction of RMBS.

Outstanding Loans to SMEs (Both banks)
Hokuriku Bank

Lending to small and medium-sized enterprises declinedby ¥52.9 billion from the previous year-end to ¥4,639.6
billion. Despite our measures to act as the driver of regional
financial services, funding demand recovery was weak.

Hokkaido Bank

4,765.0

4,692.5

4,639.6

2,826.5

2,797.5

2,765.1

1,938.4

1,895.0

1,874.4

2012

2013

2014

(¥ billion)
End of March

8

Hokuhoku Financial Group, Inc. Annual Report 2014

Capital Adequacy Ratio (Hokuhoku Financial Group, Inc.; on a consolidated basis)
The capital adequecy ratio, an indicator of financial soundness, stood at 12.31%.

Capital adequacy ratio

Capital11.72%

11.88%

12.31%* Calculation of capital adequacy ratio is based on Basel III for the year ended
March 31, 2014, and based on Basel II for the year ended March 31, 2013and years before that.

570.5

564.2

2012

2013

● Capital adequacy ratio
This ratio indicates the proportion of the bank’s regulatory capital(capital stock, capital surplus, retained earnings and supplementaryelements) to its risk-weighted assets. The higher the ratio, the healthierits financial position.

605.5(¥ billion)
End of March

2014

Disclosed Claims under the Financial Reconstruction Law (Both banks)
Disclosed Claims under the Financial Reconstruction Law
fell by ¥35.3 billion to ¥201.3 billion, compared with the endof the previous fiscal year. The NPL ratio dropped by 0.44
percentage point to 2.67%.
Substandard claims
Bankrupt and substantially bankrupt claims

3.17%

3.11%

236.8

236.7

50.5

42.4

Doubtful claims
NPL ratio● Disclosed Claims under the Financial Reconstruction Law: The bankclassifies both loans and other assets in line with the stipulations of the
Financial Reconstruction Law.
● Claims subject to disclosure: loans, customers’ liabilities for acceptances and guarantees, foreign exchanges, accrued interest, suspense
payments, securities loaned, private bonds with the Bank’s own
guarantees (regarding claims on obligors requiring caution, loans andprivate bonds with the Bank’s own guarantees only).
Substandard
claimsThis category is defined as claims on borrowers
requiring caution under asset self-assessment.
This category comprises past due loans (threemonths or more) and restructured loans underthe Banking Law.

Doubtful claims

This category is defined as claims on potentiallybankrupt borrowers under asset self-assessment.
The execution of contracts on repayment of
the principal and payments of interest is highly
doubtful.

Bankrupt andsubstantiallybankrupt claims

This category is defined as the sum of claims
on bankrupt borrowers and effectively bankrupt
borrowers.

2.67%
201.3
36.4

146.6

157.6
134.5

End of March

39.7

36.6

30.5

2012

2013

2014

(¥ billion)● NPL ratio: Indicates NPLs (under the Financial Reconstruction Law) asa percentage of total credit. The lower the ratio, the sounder the credit
portfolio.

Ratings

Japan Credit Rating
Agency, Ltd.

Rating and Investment
Information, Inc.

A

A

JCR

R&I

“Ratings” are determined by ratings agencies, third-party
institutions with no vested interest in the companies theyrate, and indicate a company’s creditworthiness and ability
to fulfill obligations in concise signs.
Hokuhoku Financial Group Inc., Hokuriku Bank andHokkaido Bank have obtained “A (single A flat)” ratings fromboth Japan Credit Rating Agency, Ltd.(JCR) and Rating andInvestment Information, Inc.(R&I), and are considered as
being highly creditworthy.

Hokuhoku Financial Group, Inc. Annual Report 2014

9

CORPORATE GOVERNANCE
We will strengthen our system of corporate governance and increase
management transparency.
Basic approach
The holding company and all its member companies regard strengthening and upgrading corporate governance as one of its top
management priorities. We have drawn up a basic policy — our management philosophy — covering all our activities including
management strategy-setting and decision-making. We share basic values and philosophies through the Hokuhoku Financial
Group Code of Conduct, for the increase of corporate value and the further economic development of the Hokuriku and Hokkaido
regions.

Corporate governance
We have established a quick decision-making system with
the Shareholders’ Meeting and Board of Directors at thetop, and day-to-day operational authority delegated byinternal rules. Bodies such as the Management Committee
are able to respond quickly to specific and detailed mattersbased on basic policies set by the Board of Directors.
Furthermore, separately from the Management Committee,
a Business Promotion Committee, handling disseminationof business policy among Group companies, has been
established.
We employ a corporate auditor system and also appoint

one external director. Additionally, in order to strengthen ourgroup governance structure and, as a holding company,
to ensure that management is appropriately carried out,
directors from each of our principal subsidiaries, Hokuriku
Bank and Hokkaido Bank, are appointed to each others’
boards to promote mutual understanding and checks andbalances.
In this way, we have built a cyclic mechanism foreffective decision-making, implementation, evaluation, andimprovements. Additionally, the Board of Directors decides
basic policies on internal controls, and is taking the steps
needed to create an effective internal control system.

Hokuhoku Financial Group, Inc.
Shareholders’ Meeting

Business Promotion Committee
Members: Group directors + subsidiary presidents
Aim: Implementation of management policy, understand businessenvironment and give indication

Executionof
PDCA

Planning Group

Board of Directors

Administration Group

Risk Management Group

Other
Subsidiaries

Audit & Supervisory Board

Audit & Supervisory Group

Shareholders’ Meeting
Audit & Supervisory Board

Board of Directors

Board of Directors

Each bank sends an
executive tothe other’s Board.

1. Board of Directors
Responsible for decisions related to important management
policies involving the Group as a whole; and for overseeing
the general management, and risk management and auditing
conducted by the holding company and its subsidiaries.
2. Audit & Supervisory Board
Determines auditing policies and assigns specific duties toparticular statutory auditors, and monitors the performance of
duties by the directors.
Three of the four members of the board are external
auditors, ensuring a high degree of independence in auditing
activities.
Hokuhoku Financial Group, Inc. Annual Report 2014

1 external director

Hokkaido Bank

Shareholders’ Meeting

10

Audit & Supervisory Board

Management Committee

Hokuriku BankManagement Committee

3 external auditors

Internal Audit

Management Committee

3. Management Committee
Composed of full time directors of the Company, this bodymakes decisions — based on the basic policies laid down by
the Board of Directors — on matters relating to operational
policies involving the entire Group and on the implementation ofhighly important tasks by specific divisions.
4. Business Promotion Committee
Composed of the full-time directors and presidents ofsubsidiaries; is responsible for disseminating major issues andmanagement policies affecting the whole Group, as well as
keeping track of business results at each company, to ensure
appropriate conduct of business.

Basic policy on internal controls
1. Ensuring that Directors perform their duties in conformity
with the law and with our articles of incorporation
In addition to settling matters involving the law or the articles
of incorporation, the Board of Directors decides on basic
management policy and major issues affecting conduct ofoperations, sets up organizations and systems, and supervises
performance of duties by directors. It also recommends
external directors for appointment at Shareholders’ Meetings,
and ensures more rigorous checks and balances.
Audit & Supervisory Board Members attend important
meetings including those of the Board of Directors, investigate
the Company’s operations and financial position, and audit
the performance of duties by directors from an independent
standpoint.
2. Storage and management of information relating toperformance of duties by directors
Based on its own regulations and document management
rules, the Board of Directors creates systems for storage andmanagement of information regarding performance of duty bydirectors.
3. Setting up rules and other systems that ensure
management of risk of losses
The Board of Directors decides on basic risk management
policy and regulations, and establishes management systems,
based on an assessment of the degree of risk to which theCompany and Group companies are exposed, and of thesignificance of risk-control measures. We have compiled acontingency plan and established a crisis management system
for unexpected events and risks such as natural disasters.
Each company in the Group conducts due risk management in close partnership with risk management departmentsof other Group members, following the Group’s basic policy.
4. Ensuring efficient performance of duties by directors
The Board of Directors sets overall organizational standards forbasic tasks and assignment of duties to operational entities,
and the Company and all Group members have systems
enabling well-organized and efficient conduct of business
operations.
The Management Committee coordinates business operations in a prompt and effective way, based on delegation of
authority and assignment of duties by the Board of Directors.
To this end, it makes active use of teleconferencing andother telecommunications-based systems.
5. Ensuring that employees conform to the law and thearticles of incorporation in the performance of duties
The Board of Directors regards compliance as one ofmanagement’s most important tasks and recognizes that anincomplete compliance system could weaken our businessfoundation. In view of this, we have established a set of rules toserve as a basic policy and compliance charter.
Based on the above charter, the Company and Group
members carry out their business in partnership, and in a fairand honest way.
Additionally, the Board of Directors determines basic
customer protection management policies, and develops

management policies and structures for the protection ofcustomer interests.
The Company and Group members set up a whistleblower
and consultation hot line for executives and employees who
uncover unlawful and wrongful behavior.
The Company has no connections with anti-social elementsthat threaten public order or security, and avoids all businessdealings with such groups. In addition, the Company makes
every effort to prevent money laundering, ever mindful of thepossibility that monetary transactions conducted through financial institutions could be used for criminal or terrorist purposes.
6. Ensuring the appropriateness of operations within the Group
The Board of Directors is responsible for overall Groupmanagement, compiling the Group management regulations,preparing frameworks for agenda-setting and reporting for eachGroup company with regard to important matters, and receiving
reports from internal auditing departments on the findings ofaudits into the status of legal observance and risk management
and the propriety and effectiveness of business operations.
We also have in place mechanisms to ensure the propriety
of financial reporting, enabling accurate and clear statements ofour financial position and business results.
7. Deployment of employees as assistants to Audit &Supervisory Board Members
When receiving a request from a Audit & Supervisory Board
Members for help in the conduct of auditing duties, the Boardof Directors shall respect the auditor’s views and provide thenecessary personnel based on required expertise. In addition,
to ensure the independence of these employees vis a vis theBoard of Directors, prior agreement of the Audit & Supervisory
Board is required for personnel transfers and disciplinary
measures.
8. Reporting by the Board of Directors and employee
assistants to the Audit & Supervisory Board Members, andother reporting to the Audit & Supervisory Board Members
Board of directors sets reporting system to the Audit &Supervisory Board Members by directors as below.
(1) Directors shall report to the Audit & Supervisory Board
whenever matters that could cause significant losses to theCompany are discovered.
(2) An effective and flexible reporting system shall beestablished for reporting to the Audit & Supervisory Boardby directors and employees, on the matters designated inadvance by the Audit & Supervisory Board Members anddirectors.
(3) The Audit & Supervisory Board Members may request
reports from the directors or employees as needed.
9. Ensuring effective auditing by Audit & Supervisory Board
Members
The Board of Directors shall give due acknowledgement to
the importance and usefulness of auditing by the Audit &Supervisory Board Members, and if the Audit & Supervisory
Board Members request creation of a system for smoother andmore effective performance of auditing duties, they shall givethis due consideration. The Audit & Supervisory Board shallconduct regular meetings with representative directors andaccounting auditors.

Hokuhoku Financial Group, Inc. Annual Report 201411

CORPORATE GOVERNANCE

We are strengthen internal auditing to ensure sound management of theGroup
Basic philosophy
The Group believes that establishment of internal auditing mechanisms that effectively meet requirements according to thescale and nature of operations, regulations applied to the Group’s businesses and categories of risk, are indispensable fordue legal observance by the Group, protection of customers’ interest and risk management. Based on this conviction, theGroup and its subsidiary banks (The Hokuriku Bank, Ltd. and The Hokkaido Bank, Ltd.) have established an internal auditing
department.
The internal auditing department of each Group member is guaranteed to work independently from other departments,
with its mechanism of checks and balances.

Groupwide Measures
The Company has established an Audit Group to verify theappropriateness and effectiveness of the internal auditing ofeach Group member and to control its internal audit activities. In line with basic policy and rules on internal audits
compiled by the Board of Directors, the Audit Group carries
out internal audits on the Company and its (non-banking)subsidiaries and affiliates, and receives reports from
Hokuriku Bank and Hokkaido Bank on results of internal
audits and matters requiring improvement measures.
Furthermore, when necessary, it carries out integrated
assessment and management of the status of internal auditing for the whole Group through on-site bank investigations,guidance and reports.
Results of internal audits at Group companies are

12

Hokuhoku Financial Group, Inc. Annual Report 2014

periodically reported to the Board of Directors promptly whenneeded. In particular, mechanisms are in place for prompt
reporting to the Board of Directors of events that could havesignificant impact on the management of the Group.
Based on the basic policy and rules for internal auditingat each bank, audits are also carried out at Hokuriku Bankand Hokkaido Bank into the operations and assets of theirhead offices, branches and subsidiaries. In conducting
audits, internal audit plans are made (in terms of frequency
and depth) after assessments of legal observance, protection of customer interest and risk management at eachdepartment audited.
When necessary, the audit departments of both banks
and the Audit Group of the Company conduct joint audits,in order to strengthen and streamline overall Group auditing.

APPROACH TO COMPLIANCE
We ensure more rigorous observance of laws and social norms
Basic policy
The Company regards compliance as one of our most important management priorities and recognizes that an incomplete
compliance system could weaken our business foundation. Therefore, the Board of Directors established a basic compliance policy to ensure our business activities are fair and honest.

SystemTo establish a compliance system, the Group has established a compliance charter, put in place organizational
structures and arranged joint measures by the Group andeach member company.
The Risk Management Group has been designated as
the Compliance General Section responsible for overseeing
compliance within the Group, and the head of the Risk
Management Group leads the Compliance General Section.
Compliance officers are deployed to each branch ofsubsidiary banks and each Group member company, toimplement training and awareness-raising policies regarding
compliance in the workplace. Subsidiary banks haveestablished Compliance General Section and compliancecommittees, whose role is to assess progress in compliance measures and make improvements.

Basic policy on compliance
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 togain greater trust through the conduct of sound business
operations.
2. Providing quality financial services
By providing high-quality, integrated financial services,
the Group will contribute to the stable economic andsocial development of the operating regions and to abetter life for its customers.

3. Strict observance of laws and regulations
The Group strictly observes all relevant laws and regulations, and conducts business in a trustworthy and honest
way that conforms to its own standards of corporate
ethics and to social norms.
4. Elimination of ties with anti-social elements
The Group contributes to a healthy society by resolutely
refusing to associate or work with anti-social elementsthat threaten social peace and security.
5. Ensuring management transparency
The Group aims for a highly transparent management
and organizational culture through accurate disclosureand swift decision-making.

Compliance manual and compliance program
To ensure rigorous compliance, we have formulated acompliance manual (code of conduct) compiling all thefundamental issues which executives and employees
should observe. This manual is distributed to executives
and all staff members and in-house seminars and training
sessions are conducted to ensure thorough familiarity withthe content.
In addition, every year the Board of Directors decides
upon a Compliance Program which is a detailed action
plan implemented to maintain the compliance structure.
The Board receives regular reports on the state of theProgram’s execution, ensuring that compliance proceduresare put into practice.

Hokuhoku Financial Group, Inc.
Board of Directors
Audit & Supervisory Board Members,
Audit & Supervisory Board
Management Committee
Compliance General Section
Hokuriku Bank
Board of Directors
Audit & Supervisory Board Members,
Audit & Supervisory Board
Management Committee

Risk Management Group
Other subsidiaries
Board of Directors
Audit & Supervisory Board Member(s)Audit Group
Hokkaido Bank
Board of Directors
Audit & Supervisory Board Members,
Audit & Supervisory Board

President

Management Committee

Compliance OfficeCompliance General Department

Compliance Department

Compliance officers, etc.

Compliance officers, etc.

Compliance manager

Compliance Committee

Compliance Committee

Hokuhoku Financial Group, Inc. Annual Report 201413

APPROACH TO COMPLIANCE

Measures to accelerate customer protection
and customer convenience
To protect customers’ assets, information and otherinterests, the Group has established policies and basic rules
for the management of customer protection.
Furthermore, in order to provide pertinent explanations
to our customers in accordance with the Japanese Financial
Instruments and Exchange Act and other laws, and toproperly handle customer claims and consultations throughcustomer consultation office, which serves as points ofcontact, we have formulated protocols and an appropriate
response structure, based on five separate considerations.
The Compliance General Section of every Group
member is the office responsible for overall managementof customer protection. Compliance officials at eachGroup member work in partnership for ongoing review
Basic rules of management ofcustomer protection

Measures for protection of personal information
In the financial industry, ensuring the safety of information
assets is of absolute importance for gaining customer trust.
We are committed to rigorously protecting any and all customer information in our custody and preventing its leakage.
Especially in the area of personal information, the Grouphas formulated a personal information protection declaration, which is disclosed on our website, in order to comply
with the Personal Information Protection Act and other laws.
We endeavor to gain the maximized level of trust from ourcustomers as a financial institution that can contribute toregional society.

Policies for management of customer protection

Explaining to the customer

In line with the law and regulations, we will provide adequate explanation of financial products
and sufficient information to enable our customers to fully understand the nature of our products.

Customer service support

We will listen carefully to customer complaints and give advice in an appropriate way.

Protection of customer data

Information concerning customers shall be acquired in a lawful way and securely managed.

Outsourcing
Conflict of interest

In outsourcing operations relating to transactions with customers, we will duly supervise
suppliers to protect customer information and interests.
We will take measures to avoid prejudicing customer interests in transactions with us, and takedue measures where the risk of interest conflict arises.

Measures to deal with anti-social elements
To continue to justify the trust of the public, and offer appropriate and sound financial services, the Group has established a basic policy on dealing with anti-social elements.
In addition, each Group Company has deployed officers
to address the issue of organized crime syndicates. Whilecoordinating with law enforcement, we have implemented
firm measures for dealing with anti-social elements, and aredetermined to avoid all contact with groups that threaten
the peace and security of social order.

Whistleblower protection system
The Group has set up a whistleblower and consultation
hot line and developed a framework for strengthening thecompliance system including checks and balances in orderto promptly detect and counteract any unlawful and wrongful behavior.

Anti-money laundering and measures to deal
with financial crime
In recent years, bank card theft and “furikomi” (phishing)fraud cases have increased. Subsidiary banks havestrengthened security measures to nip this problem in thebud. The banks properly reimburse victims of such scams
based on legislation mandating their relief.

14

of management systems, problem resolution and data
analysis, through which various improvement policies may
be drawn up and implemented.

Hokuhoku Financial Group, Inc. Annual Report 2014

We, Hokuhoku Financial Group, position the measures
to prevent financial crimes, such as money laundering, as
an important management issue. By clarifying the divisionof internal roles on the basis of our anti-money laundering
policy, we have built the control system that enables us
to take effective measures at the right time with regard to
inspecting transactions, reporting suspicious transactions
and managing correspondent relationships. Moreover, while
educating the officers and employees through training, we
strive to improve the system by performing audits of theinternal compliance with our anti-money laundering policy.

Financial alternative disputes resolution (ADR) system
In order to promptly and properly respond to customer
opinions and complaints, our subsidiary banks have concluded agreements with the Japanese Bankers Association,
which is a designated dispute resolution organization.
This designated dispute resolution organization works toresolve disputes from a fair and neutral position.
Name of designated dispute resolution organization:
Japanese Bankers Association
Inquiries:
Japanese Bankers Association Customer Relations Center
Telephone number:
0570-017109 or 03-5252-3772

RISK MANAGEMENT SYSTEM
We strive to building a risk management system appropriate to the typeand scale of risk to which we are exposed.
Hokuhoku Financial Group’s general risk management system
Financial services are becoming more diversified and complex, and financial institutions are exposed to a wide range ofrisk. In order to protect customer deposits and justify the trust of our shareholders and creditors, we at Hokuhoku Financial
Group recognize that risk management — ensuring proper resource allocation and risk taking in balance with earnings
targets while keeping risk amounts within the range of the Group’s managerial capacity — is one of our most importantmanagement tasks, and as such have in put place a risk management system.
The parent company and each Group company have created its own basic risk management policy for various risks,established a risk management department, and prepared regulations, and are working as a whole toward integrated risk
management through close cooperation between these departments.
At our subsidiary banks, which have the highest risk exposure within the Group, we have categorized risk for management purposes as: credit risk, market risk, liquidity risk and operational risk, which we manage through our Asset Liability
Management Committees and Comprehensive Risk Management Committees. Operational risk is further divided into administrative and system risk, and micro-managed primarily by dedicated operating risk panels. Additionally, the audit department
conducts inspections to verify the appropriateness and effectiveness of the risk management system.
As the risk management general department for the entire Group, the Risk Management Group at the parent company,
bases its activities on the type and scale of risk faced by each Group member. After receiving risk management status
reports, the department duly issues instructions including for the improvement of regulations and system, to each Group
member, and delivers reports outlining response policies regarding risk status and issues faced by the Group to the Board of
Directors and other senior management. In this way, soundness of operations is assured.
Hokuhoku Financial Group, Inc.

Board of Directors
Audit & Supervisory Board Members,
Audit & Supervisory Board
Management Committee
Risk Management Group

Audit & Supervisory Group
Other Subsidiaries

Hokuriku Bank
Hokkaido Bank

Board of Directors

Audit & Supervisory Board Members,
Audit & Supervisory Board

Management Committee
ALM Committee

Comprehensive Risk Management Committee
Operational Risk Subcommittee

Market risk

Liquidity risk

Credit risk

Allocation of risk capital
The Group quantifies, in as integrated manner as possible,
the various types of risks that occur in its operations, andmanages the risks to ensure that the total amount of risk is
kept within the range of the Group’s management capacity.
After subsidiary banks numerically quantify credit risk,
market risk and operational risk and estimate maximum
potential loss for each of the risks, risk capital allocations
are undertaken using core capital as the source of funding.
Risk is thus controlled and managed within a range permissible in banking operations.

Exclusion
items

Operational risk

Exclusion items: Adjustments to deductions
due to transitional provisions
Excess: Provisions for other risk at subsidiaries
other than banks
ExcessCore
capitalMarket risk
Risk capital
allocation
at subsidiarybanks

Capital

Allocatedrisk capitalMarket risk
Credit risk

Credit risk

Operational risk

Operational risk

Risk capital
allocation at
subsidiary banks

Risk amount at
subsidiary bank

Hokuhoku Financial Group, Inc. Annual Report 2014

15

RISK MANAGEMENT SYSTEM

In addition to checking the risk capital allocation plans
for the subsidiary banks, the Group confirms that amounts
in excess of risk capital allocations are sufficient to coverrisk affecting subsidiaries other than the subsidiary banks,
and risks not included in our assumptions. Through thismeasure and by monitoring actual risk amounts, the Group
ensures that no inappropriately large risks are taken relative
to capital on a groupwide basis.

We carry out stress tests to calculate the extent of
expected losses under certain scenarios, such as unusually
deteriorating business conditions or excessive market
fluctuations. In this way, we periodically examine thesubstantiality of our capital position against risk that cannot
be easily perceived.

Credit risk management
Basic policy
Credit risk is the risk that, as a result of such factors as the deterioration of a customer’s business situation, it will become
impossible to recover principal or receive interest as initially contracted. For banks, whose role is to act as financial intermediaries, this is an unavoidable risk, but in Hokuhoku Financial Group, we endeavor to maintain and enhance asset soundness
through the development and strengthening of a management structure for credit risk.

16Management system

Internal ratings system

To maintain and enhance soundness of each asset
portfolio, we apply unified system of internal ratings andasset self-assessment at both subsidiaries. We promptly
and accurately appraise credit risk through the systems,
and, when necessary, carry out write-offs and provisions toreserves for possible loan losses.
Subsidiary banks each have their own credit risk
management systems, while the parent company manages
such risk on a Groupwide basis.
Subsidiary banks strictly separate business promotion
and credit screening both in organizational structure and thestaffing of executives responsible for them. This is done toensure that rigorous credit screening, provision and credit
management are independently operated from businesspromotion.
When making individual judgements on credit provision,
rigorous screening is carried out in accordance with standards and principles in our credit policy. For this purpose,screening systems are enhanced by improved computerized support and training and other policies are adopted for
improving credit-screening capabilities.
To explain more concretely, detailed analysis andscreening of individual loan applications is appropriately
undertaken at each bank branch, and if a manager
lacks the authority to give approval, further analysis andscreening is conducted by the head office credit screening
department. Officers specializing in particular industries andregions are deployed in the credit screening department,
ensuring a system of consultation and guidance tailoredto the needs of individual branches, based on borrower
characteristics.

To enable objective appraisal of credit risk in lending
operations, the subsidiary banks have introduced aninternal ratings system. Using 15 credit ratings based on
financial data and qualitative information regarding borrower
creditworthiness, the system enables ongoing monitoring ofchanges in rating.
Based on the ratings generated by the internal ratingssystem at the subsidiary banks, we compute credit risk andforecast loss rates for each individual borrower category,
and then ensure that interest rates duly match risk. In
conformity to Groupwide management rules for credit
limits, we seek to enhance credit risk management by suchmeans as curbing the risk of credit concentration in termsof the aggregate of on-balance-sheet and off-balance-sheet
credits.

Hokuhoku Financial Group, Inc. Annual Report 2014

Internal
rating
S
A
B
C
D
E
F
N
J
G
H
I
X
Y
Z

Borrower categorization by asset self-assessment—

Normal borrowers

Borrowers requiring caution
Substandard borrowers
Borrowers threatened with bankruptcy
Substantially bankrupt borrowers
Bankrupt borrowers

Asset self-assessment, write-offs andprovisions to reserves for possible loan losses
Based on preset standards, subsidiary banks conduct selfassessments of asset portfolios (primarily loans).
Self-assessment aims at more precise evaluation ofassets and enhancing asset soundness. Self-assessment
is a prerequisite for appropriate write-offs and provisions toreserves for possible loan losses, as required by businessaccounting principles in Japan.
The Group has unified standards for write-offs and provisions to reserves for possible loan losses. For loans otherthan those specified below (including loans to borrowers
requiring caution), provision is made to the reserves for possible loan losses based on the historical loan-loss ratio overa particular past period. For loans to borrowers threatenedwith bankruptcy, a provision is made to specific reserves, inthe amount deemed necessary, after exclusion of amounts
that may be recoverable through collateral and guarantees.
For loans to bankrupt and substantially bankrupt borrowers,
provision is made in the full amount at issue to the specificreserve, excluding amounts that may be recoverable
through collateral and guarantees.

Corporate rehabilitation
After making a loan to a corporate customer, we endeavor
to prevent defaults leading to bad debt through follow-up
reviews of the borrower’s business performance and plans,
and to ensure asset soundness through dedicated management for bad debt and strengthened support for corporate
rehabilitation.

Market risk management
Basic policy
Market risk is the risk of incurring losses due to fluctuations in the value of assets and liabilities held by the Group, or theearnings generated by the Group, that are caused by fluctuations in various risk factors in the market, such as interest rates,
stock prices, and foreign exchange rates.
At the subsidiary banks, where market risk is critical to transactions, we have created regulations for market risk
management and assets and liabilities are subject to asset-liability management (ALM), so that Hokuhoku Financial Group
controls such risk in order to ensure stable earnings.

Types of risk and management system(1) Interest-Rate Risk
Bonds and other marketable securities, deposits and loans
are exposed to the risks of declining profits or incurring
losses due to interest rate fluctuations in the operating
environment where there are different interest rates or time
structures between assets and liabilities. The subsidiarybanks have set regulations on interest rate management todisperse risk, and their ALM Committees control interestrate risk appropriately.
The sections in charge of risk management assess risk
level daily, using such indicators as value-at-risk (VaR), thelargest predicted loss that is possible given a fixed confidence interval, and others. They also periodically run gap
analysis and duration analysis (a measure for evaluating thesensitivity of the asset’s price to interest rate movements)
to monitor interest-rate risk. The results are reported andreviewed at ALM Committees for implementation of necessary measures.
To ensure that the subsidiary banks are not exposed toexcessive interest risk, we set various investment ceilings

for bonds and other securities based on risk capital allocation under VaR, and manage both the balance and risk levelof marketable securities. We have also set rules for whenlosses (unrealized and realized) are mounting.
We have established a system of checks on the business units in charge of transacting market-related business(front office), the processing departments (back office) andthe risk management group (middle office). The front officeconducts operations in strict observance of management
policies and ceiling amounts stipulated by the Management
Committee. The middle office continuously monitors risk
levels and observance of various rules and sets “trigger
points” to enable early defusing of risk issues. They discuss
measures to respond to these issues at ALM Committees
and regularly report to the Management Committee.
When market prices fluctuate significantly, making it
impossible to accurately assess risk levels or raising theprospect of unforeseen risk, we periodically carry out stresstests to calculate the extent of expected losses undercertain scenarios.

Hokuhoku Financial Group, Inc. Annual Report 2014

17

RISK MANAGEMENT SYSTEM(2) Stock Price Fluctuation Risk
Among securities, stock prices are exposed to the risk ofdeclining asset prices arising from fluctuations in market
prices. However, as with management of interest-rate risk,
we have set various ceilings and monitor at-risk amounts.
We conduct strict management by regularly reporting torelevant committees including the Management Committee.
We also review stock holdings, not only in pre-screening
them, but periodically monitoring the market conditions andfinancial positions of individual corporations after we haveacquired the holdings.
(3) Foreign Exchange Rate Risk
Foreign currency assets and liabilities are exposed to
the risk that losses will be incurred because the price of
exchange differs from the price that was initially planned.
To reduce such risk, we regularly monitor the internationalsituation and major forex indicators in Europe and the US,
and conduct risk management with due consideration of
the maturity of individual assets and liabilities. We also use
currency swaps.
(4) Derivative Transactions Risk
To meet the various needs of customers, and for ALM/
hedging purposes, the subsidiaries separately engage in
foreign currency derivative transactions such as swaps
and options, as well as interest rate swaps, caps, forward
interest-rate-related derivatives and other interest-rated
based derivatives.
Derivatives are exposed to various kinds of market risk.
Through daily management of the market value of our positions and risk evaluation, we ensure losses do not exceed
certain thresholds.

Liquidity risk management
Liquidity risk refers to the risk of incurring losses (fund procurement risk) when it becomes difficult to secure the requisite
funds or when it becomes necessary to procure funds at interest rate much higher than usual, or to risks incurred whentransactions cannot be conducted or must be conducted at prices that are much more disadvantageous than normal due tomarket disruptions or other factors (market liquidity risk).
The subsidiary banks, where liquidity risk originates, stipulate regulations on liquidity risk management, and maintainadequate levels of high-liquidity assets that are readily convertible into cash, such as government bonds, and monitor daily
with regard to liquidity risk based on benchmarks for various different categories. To prepare for sudden liquidity risk, wehave in place mechanisms for periodically reporting and discussing liquidity risk through the ALM Committees, at each stageof the event.
By precisely assessing management and procurement levels at subsidiary banks, We ensure smooth fund procurement.

18

Hokuhoku Financial Group, Inc. Annual Report 2014

Operational risk management
Basic policy
Operational risk refers to the risk of losses arising because operational processes, the conduct of executives and employees,
or computer systems are inappropriate, or because of external events.
The Group categorizes operational risk as follows. We take ongoing measures to correctly recognize, appraise and manage each type of risk, and avoid or reduce losses significantly affecting business activities.
Administrative risk

Risk of losses due to executives and employees neglecting to carry out accurate business processes,
causing an accident, or committing an illegal act

System risk

Risk of losses due to system failures such as the crashing and malfunction of computer systems, andmisuse of computers

Legal risk

Risk of losses due to breaches of obligations resulting from negligence toward customers

Personnel risk

Risk of losses due to unfair or discriminatory behavior in personnel management

Tangible asset risk

Risk of losses due to natural disasters damaging tangible assets

Reputational risk

Risk of losses due to a decline in trust in the Group caused by deterioration in its reputation or the
spreading of unjustified rumors

Management structure
We have compiled rules for management of operational risk.
In addition to categorization of risks, we have laid down
basic processes for the management of such risks.
At our subsidiary banks, operating risk panels meeteach month, to analyze the causes of and discuss solutions
for various operational risks based on data from actuallyoccurred or prevented incidents, such as administrative
errors and failings leading to customer complaints, dataleakage, computer system failures and phishing fraud.
Potential risks are then evaluated and risk reduction policies
taking account of all eventualities are discussed.
Status reports and results of discussions concerning
operational risk are reported to management of the subsidiary banks and to the parent company. By comparing actual
losses arising from operational risk and allocated risk capital,
we ensure our risk management system functions properly.
Through internal auditing, we likewise aim to ensure
effective checks and balances, and establish measures toprevent administrative errors from happening again, withevaluation of their effectiveness. With reporting of results tomanagement and related departments, we are establishinga Plan, Do, Check and Act (PDCA) cycle for business
improvement.

Risk management systems by major category• Administrative risk management
The Group has closely analyzed the cause of administrative
incidents and problems and discussed measures to prevent
recurrence, so as to prevent accidents and problems in
administrative operations and maintain quality of operationin terms of promptness and accuracy. At the same time,
we endeavor to raise administrative operation standards bysetting rules for proper processing, improving administrative
processing systems, dispatching advisory staff from thehead office, centralizing clerical work at branches andintroducing equipment to automate procedures.
• System risk management
With the increasing sophistication of financial business andthe growth in transaction volumes, it is becoming more
important to ensure that computer systems cannot fail andthat they always operate stably.
The Group has formulated basic rules for systemrisk management (System Risk Standards) and otherregulations, and has established a rigorous management
and operating structure with a variety of backup and othersecurity management measures in place.

Contingency plan
The Group has compiled crisis management manual(Contingency Plan) etc. to ensure that, in the unlikely eventof a large-scale disaster or other emergency, its impact
is minimized and business operations can be continued.
We now have a full response procedure in place, including
information-gathering and centralized crisis instruction andcommand mechanisms.
At subsidiary banks, we have drawn up a BusinessContinuation Plan (BCP), which enables us to continue toperform our required settlement function in the event of anearthquake, outbreak of a new strain of influenza or otherdisaster.

Hokuhoku Financial Group, Inc. Annual Report 2014

19

CORPORATE SOCIAL RESPONSIBILITY
Fundamental approach to group CSR
1. Basic stance
The Hokuhoku Financial Group has positioned the fulfillment of the Group’s corporate social responsibility as one of its highest
management priorities. Guided by our overall corporate philosophy, we aim always to comply with the law and observe
generally accepted principles of ethical behavior. The principal purpose of existence of the Group is to serve as a linchpin of
the communities in which it operates by fulfilling its role as a financial services group doing business across a wide area of thecountry. In addition, we take seriously our obligation to contribute to the realization of a thriving economy and a sustainable
society by means of active involvement in environmental preservation, as well as other activities that benefit society as a whole.

2. Definitions
1) CSR
The Hokuhoku Financial Group views its corporate social responsibilities not simply as the duty to pursue economic gains
for the good of the regional economy and to contribute to the development of a sustainable society. We see our social
responsibilities as also encompassing efforts to address the wide range of environmental and social issues affecting our
stakeholders.
2) Our Stakeholders
We define our stakeholders as being all persons and institutions whose interests are closely linked to those of the Group,
including our customers, shareholders, and employees, as well as the wider community of which we are all members.

To meet diversifying customer needs
While fostering close links between the Group and the regions we serve, we will listen to customer opinions
and take measures to make our branches more appealing and to offer better services.
Upgraded online banking services
With the addition of upgraded screen designs and newfunctionality in online banking services offered at the
Hokuriku Bank and the Hokkaido Bank, the Group has
expanded our services to make them even more convenient. We have also taken measures to strengthen security,
enabling customers to use our services in full confidence.
Further measures to improve customer convenience
have been taken by the Hokkaido Bank, which now allows
online opening of ordinary deposit accounts, while customers of the Hokuriku Bank can now make online provisional
applications for housing loans.

Upgrading of two sub-branches of the Hokuriku Bankand one of the Hokkaido Bank to full branch status.
The Hokuriku Bank YKK and Hakodate Higashi subbranches, as well as the Kitami Tonden sub-branch of the
Hokkaido Bank, have been upgraded into full branches.

In tandem with theupgrade, we are now able
to offer a more comprehensive range of services, asbranches take over a wider
range of roles.

Upgrading ceremony for YKK Branch

The new Otofuke branch
In December 2013, The Hokkaido Bank opened a new
branch at Otofuke, Hokkaido. In the Tokachi District, it isour first new branch opening since the Obihiro-Nishi branch
in December 1987.
We have upgraded consultation services, with the
installation of individualized
consultation booths anddeployment of consulting
specialists in asset management in the branch.
Opening ceremony

20

Hokuhoku Financial Group, Inc. Annual Report 2014

Support regional economic development through wide area networks
across Japan and some overseas locations
The Hokuhoku Financial Group aims to help spur regional economic growth by further strengthening wide-area networks spanning the Hokuriku, Hokkaido and three major metropolitan areas of Japan, as well as overseas networks.
■ Hokuhoku FG■ Hokuriku Bank

Agreements with overseas municipal andother government organizations
China

Other
Asian areas
Russia■ Hokkaido Bank

Alliances with overseas banks and other partners
China■ Shanghai■ Liaoning■ Guangdong■ Ningbo■ Dalian Sub-Council of CCPT*■ Yingkou■ Jinzhou New Area
■ Dalian■ Suzhou■ Wuxi■ Kunshan■ Shaoxing City
■ Shenyang■ Changchun■ Harbin■ Shenyang Sub-Council of CCPT*■ Shenyang Municipal Tourism Administration■ Liaoning Provincial Bureau of SMEs
■ Vietnam govt.
■ The Board of Investment of Thailand■ Indonesia Investment Coordinating Board■ Khabarovsk ■ Sakhalin■ Amur Oblast■ Yuzhno-Sakhalinsk■ ■ Bank of Communications, PRC■ Bank of China■ Bank of shanghai■ Liaoning Radio and Television

Other
Asian areas■ ■ KASIKORNBANK (Thailand)■ State Bank of India■ Vietcombank■ Bank Negara Indonesia■ Financial Information Service Co., Taiwan■ CTBC Financial Holding Co.,Ltd.

RussiaEuropeOthers■ Sberbank■ VTB 24 Bank

■ Standard Chartered Bank■ VTB Bank■ Deutche Bank■ ■ Nippon Export and Investment Insurance■ Mizuho Corporate Bank
■ Tokio Marine & Nichido Fire Insurance Co., Ltd.
■ The Yamaguchi Bank, Ltd.
■ Ernst & Young ShinNihon LLC■ Aioi Nissay Dowa Insurance Co., Ltd.

* CCPT: Council for the Promotion of International Trade■ Sompo Japan Insurance Inc.
■ Tokio Marine & Nichido Fire Insurance Co., Ltd.
■ NIPPONKOA Insurance Company, Limited■ Mitsui Sumitomo Insurance Company, Limited

Business-matching: Events held in fiscal 2013
Year

LocationMonth

No. ofexhibitors

Industry

No. ofsessions■ Hokuriku Bank
2013

6

London, UK

Food and beverage products

6

—

8

Singapore

Food and beverage products

6

89

9

Shanghai, China

General manufacturing

15

207

10

Dalian, China

Machinery, food and beverage products, everyday products

7

32

11

Dalian, China

Machinery, other industrial manufactures and food products

8

91

12

Wuxi, China

Machinery, autoparts and electronic components

20

122

106 companies

255■ Hokkaido Bank
2013
2014

6

Held 8 times around Hokkaido Food products

11

Sapporo, Hokkaido

The “Sixth Industrialization” industrial policy

2

Sapporo, Hokkaido

Food products

80 in total
14

Over 300
32

Association of bank clients (as of March 31, 2014)
No. of companies■ Hokuriku Bank
Hokuriku Choujou Association
Hokuhoku ASEAN Association
Shanghai Choujou Association
Dalian Choujou Association■ Hokkaido Bank
Hokkaido Choujou Association

1,122
150
356
70
242

Hokuhoku Financial Group, Inc. Annual Report 201421

CORPORATE SOCIAL RESPONSIBILITY

More dialog and better disclosure
We continuously communicate with investors and analysts for better disclosure.
IR meetings for investors and analysts

IR meetings for individual investors

November 2013: Fiscal 2013 interim results (Tokyo)
May 2014: F iscal 2013 results (Tokyo)

June 2014: Two cities in Hokuriku (Toyama and Kanazawa) andtwo cities in Hokkaido (Sapporo and Asahikawa)IR overseas roadshow

General meeting of shareholders

November 2013: E urope (London, Edinburgh, Dublin, Frankfurt)
North America (Boston, New York, Toronto, Montreal)

June 2014: 11th ordinary general meeting of shareholders( Toyama, with live broadcast to Sapporo)

Advancing with regional communities
We take part in social contribution activities.
Financial education• All-Japan high-school quiz in finance and economy “Economics
Koshien,” in Hokkaido, Toyama and Fukui prefectures• Management school for the managers who will form the next
generation of business leaders• Dispatch of lecturers to high schools and universities• Internships

Support for industry-academia cooperation
The Group has concluded cooperation agreements with universities
in the region, and is supporting industry-academia cooperation bytaking on an intermediary role in joint research and use of its resultswith local companies, and by promoting business matching basedon intellectual property assets.

Support for arts and culture• Arranging and supporting
concerts

Lilac Concert• Establishment of art galleries• The Hokkaido Bank Collection exhibition
The Hokkaido Bank Collection exhibit was held from November
29 to December 15, 2013 in Asahikawa. The purpose of thepresentation was to showcase the pictures and sculptures heldby the Hokkaido Bank in Asahikawa, the birthplace of the bank,and to enable the publicin the city and also theNorthern Hokkaido area toappreciate those artworks.

• The Etchu Owara dance in
the Toyama Festival
Every August, employees from the branches in Toyama city andalso the bank headquarters take part in the street dancing that
accompanies the Etchu Owara dance in the Toyama Festival,
the greatest festival of Toyama Prefecture. In fiscal 2013, 150
staff members took part,
winning the top prize.

The concert in
HOKUGIN GALLERIE MILLET

Etchu Owara danceHelping conserve the regional environment
Measures undertaken as a financial institution

Further environmental protection activities

Environmentally-friendly housing loans, intermediary role in carbonrights trading, lending based on environmental ratings.

• Establishment of rooftop garden systems• Forest campaign
At Hokkaido Bank, project members are taking the lead in thinking
about and working on environmental issues through the creationof forests.
In September 2013, the 5th treeplanting was held in “Dogin Forest.”
Branches also cooperated withlocal governments in tree-planting
activities.

Helping reduce greenhouse gases
Adoption of casual dress code for summer, introduction of solar
power generation and water-heating facilities, and reduction of
paper usage through a shift to electronic account record systems
and document management systems.

Forest campaign

22

Hokuhoku Financial Group, Inc. Annual Report 2014

TOPICS

Hokuriku Bank
1. Hokuriku product exhibition in London

3. T oyama-Nagano Business Exchange Meeting on Food

From June 10 to June 30, 2013, the bank organized a
produce exhibition in London in partnership with Japan
Centre, the largest Japanese food trader in Europe. At thisevent, Japan Centre sales staff handled marketing, including demonstration sales, in place of bank customers, withthe assistance of the London Representative Office of The
Hokuriku Bank.
Aiming to expand their marketing channels in Europe,
six food-producing companies from the three prefectures ofthe Hokuriku area operated booths at the event.

Ahead of the opening of the Hokuriku Shinkansen bullet
train line in March 2015, the Group helped organize the“Toyama-Nagano Business Exchange Meeting on Food”
under the sponsorship of Toyama Prefecture, as a showcase of the produce of Toyama and Nagano prefectures forbuyers of both prefectures, as well as from the Tokyo area.
The opening of the new line is expected to cut thejourney time between the two prefectures to 50 minutes.
As the resulting economic exchange is expected to greatly
revitalize the region, lively business negotiations took place.

Demonstration sale

2. Signing of partnership agreement with Hokkaido
Prefecture
On July 26, 2013, a partnership agreement was signed with
Hokkaido Prefecture in a joint initiative aimed at stimulating
industrial development in the island, thereby revitalizing theprefectural economy.
To commemorate the signing, the Otaru Product
Exhibition was jointly held in Korinbo Daiwa (Kanazawa,
Ishikawa Prefecture) with the aim of supporting marketing ofproduce from Hokkaido, under a partnership with Hokkaido
Prefecture, Otaru City and Association of Otaru Product.
Looking ahead, the bank will continue supporting local
companies expanding marketing channels overseas andentering overseas markets, and will support initiatives by the
Hokkaido International Business Center.

4. Wuxi Business Meeting
A business meeting was held with the Wuxi Municipal Bureauof Commerce, Jiangsu Province, China, with which an
economic cooperation agreement has been signed, enabling
the bank to play an intermediary role in transactions with ourclient companies and their business partners in China. Wuxi
City is a major producer of auto parts and electronic parts,
as well as machinery and related components. The aim of
the session was to help Japanese companies locate partsand equipment suppliers, and companies to which they canoutsource manufacturing. This was a particularly in-depth
meeting, including factory visits in China.

Hokuhoku Financial Group, Inc. Annual Report 201423

5. Operational alliance with the Indonesia Investment
Coordinating Board

6. C onclusion of the “Comprehensive Partnership andCooperation Agreement” with Toyama Prefecture

The bank has entered into an operational alliance with
the Indonesia Investment Coordinating Board (Badan
Koordinasi Penanaman Modal–BKPM), with the aim of supporting Japanese companies setting up operations within
Indonesia. Through this alliance, which follows a similar
agreement with the major Indonesian bank Bank Negara,
we have created Indonesia investment and financing
structures, and have further strengthened our support forcustomers expanding into Indonesia.

The bank has signed the “Comprehensive Partnership andCooperation Agreement” with Toyama Prefecture, covering
11 areas including industrial revitalization, stimulation of
tourism, culture, sports and disaster prevention. In the past,
the Bank only had operational alliances with individual overseas prefectural offices, but with relations further deepening
in the run-up to the opening of the Hokuriku Shinkansen line
in March 2015, our commitment to regional revitalization
has been stepped up.

Hokkaido Bank24

1. ”Thailand Business Seminar”

2. R ussian Business Study GroupIn June 2013, the Group organized the “Thailand Business
Seminar” jointly with the Office of Commercial Affairs
Royal Thai Embassy, Kasikorn Bank and Dogin Regional
Research Institute Co., Ltd. A total of 105 bank customers
with an interest in business in Thailand participated in theevent.
Many participants later expressed positive sentiments
about offshoring, after hearing talks on entering the Thai
market and pathways to success, suggesting a high level ofinterest in entering this market.

The bank organized a study meeting to make available
information regarding business in Russia to those of its customers with an interest in the Russian Far East. Lecturers
from the Japan Association for Trade with Russia & NIS
were invited. The lively exchanges of opinions in discussions
after the lectures suggested deep interest in business in
Russia.

Hokuhoku Financial Group, Inc. Annual Report 2014

3. “Special business meetings on food in Hokkaido”
held at various locations all over the prefecture

5. “ Challenge to Vietnam: Food export support seminarand business meeting”

Business meetings aimed at supporting the broadening ofmarketing channels for processed marine food, drawing on
the characteristic strengths of the region, were held on eightoccasions by the bank. In fiscal 2013, the Bank responded
to consultation needs of exhibiting companies by inviting
experts on food product development and design, an
area many participants sought information on, in addition
to arranging individual business talk between buyers andexhibiting companies.

The bank arranged seminars given by experts in
Vietnamese matters, and business meetings with invitedwholesale food buyers from Vietnam. Speakers gavevery meaningful advice, including points to bear in mind
when doing business in Vietnam, and what is expected ofJapanese companies in that country. Business talks werevery practical, showing effectiveness of food-tasting sessions held on the previous day.

At the seminar

Hakodate session

4. The “Sixth Industrialization” Business Forum in
Tohoku and Hokkaido.
This two-day forum on the themes of partnership between
Hokkaido and the Tohoku region, and on the “sixth
industrialization” was organized in partnership with 10
regional banks from the Tohoku region. On the first day,basic lectures were given to deepen awareness regarding
the “sixth industrialization” concept, with panel discussions.
On the second day, 80 companies from the Tohoku regionand Hokkaido engaged in lively business talks aimed at
identifying pathways to realization of the “sixth industrialization” concept.

At the meeting

6. E stablishment of a representative office in
Vladivostok, Russia
In March 2014, the bank opened the second representative office in the Far East and Russian coastal region of
Vladivostok.
Having clocked up remarkable growth as the hub of theRussian federal government’s Far East development drive,the city of Vladivostok is now regarded by enterprises in
Hokkaido as holding great potential in terms of expansionof business opportunity. By drawing on synergistic benefits
with the representative office established five years previously
in Yuzhno-Sakhalinsk, the Bank will continue to proactively
support customers with businesses in Russia.

Opening ceremony
At the Forum
Exterior of the officeHokuhoku Financial Group, Inc. Annual Report 2014

25

CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEET
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries
Thousands of
U.S. dollars (Note 1)
2014

Millions of yen
March 31

2014

2013

Cash and due from banks (Notes 3 and 30).......................................................

¥  844,182¥   553,744$ 8,202,320

Call loans and bills bought (Note 30)...................................................................

85,734135,426

833,017

Monetary claims bought (Note 30)......................................................................

80,16186,864

778,874

Trading assets (Note 4).......................................................................................

5,007

7,228

48,650

Money held in trust (Note 5)................................................................................

7,759

4,000

75,395

Securities (Notes 6, 12 and 30)...........................................................................

2,493,619

2,509,794

24,228,721

Loans and bills discounted (Notes 7, 12, 13 and 30)..........................................

7,323,290

7,387,934

71,155,170

Foreign exchanges (Note 8)................................................................................

14,506

10,616140,952

Other assets (Note 12)........................................................................................

98,254

109,182

954,671

Tangible fixed assets (Note 9).............................................................................

103,563

106,211

1,006,257

Intangible fixed assets (Note 10).........................................................................

32,90538,098319,717

Deferred tax assets (Note 27) ............................................................................

11,37824,141

110,552

Customers’ liabilities for acceptances and guarantees (Note 11).........................

73,661

79,728715,720

Allowance for loan losses...................................................................................

(59,218)(73,742)(575,386)

Total assets......................................................................................................

¥11,114,807¥10,979,231$107,994,630

Deposits (Notes 12, 14 and 30)..........................................................................

¥10,147,805¥ 9,982,864$ 98,598,964

Call money and bills sold (Note 12).....................................................................

57,27340,345556,488

Trading liabilities (Note 4)....................................................................................

1,434

2,052

13,936

Borrowed money (Notes 12, 15 and 30).............................................................

121,797

252,551

1,183,418

AssetsLiabilities and equity
Liabilities

Foreign exchanges (Note 8)................................................................................

151

123

1,471

Bonds payable (Note 16)....................................................................................

58,00033,000563,544

Other liabilities....................................................................................................

123,643

84,7031,201,353

Reserve for employee retirement benefits (Note 17)............................................

—

9,829

—

Liability for retirement benefits (Note 17).............................................................

14,961—

145,367

Reserve for directors’ and audit & supervisory board members’ retirement benefits....

328

684

3,187

Reserve for contingent losses.............................................................................

2,499

3,033

24,285Reserve for reimbursement of deposits...............................................................

1,252

1,256

12,172

Deferred tax liabilities for revaluation...................................................................

6,872

7,506

66,778

Acceptances and guarantees (Note 11)..............................................................

73,661

79,728715,720

Total liabilities...................................................................................................

10,609,681

10,497,680

103,086,683

Equity (Notes 18, 19 and 21)
Capital stock......................................................................................................

70,89570,895

688,836

Capital surplus....................................................................................................

148,193

148,197

1,439,891

Stock acquisition rights (Note 20).......................................................................

191

107

1,860

Retained earnings...............................................................................................

222,995

201,138

2,166,689

Treasury stock....................................................................................................

(1,529)(1,547)(14,859)

Valuation difference on available-for-sale securities........................................

61,301

52,630595,620

Deferred gains (losses) on hedges.................................................................

(194)

(301)

(1,894)

Revaluation reserve for land (Note 9).............................................................

8,182

9,340

79,501

Accumulated other comprehensive income

Defined retirement benefit plans....................................................................

(6,077)—(59,047)

Total..................................................................................................................

503,957

480,461

4,896,597

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

1,168

1,089

11,350Total equity.......................................................................................................

505,125

481,550

4,907,947

Total liabilities and equity................................................................................

¥11,114,807¥10,979,231$107,994,630

See notes to consolidated financial statements.

26

Hokuhoku Financial Group, Inc. Annual Report 2014

CONSOLIDATED STATEMENT OF INCOME
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries

2014

2013

Thousands of
U.S. dollars (Note 1)
2014

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.......................................................................................
Trading income...................................................................................................
Other ordinary income (Note 23).........................................................................
Other income (Note 25)......................................................................................
Total income.......................................................................................................

¥106,400
22,053
2819
992
37,067573
15,072
8,171
191,153¥112,396
21,0582352
1,063
37,396325
23,503
3,038
199,136$1,033,819
214,277
19
7,962
9,648
360,156
5,572
146,448
79,401
1,857,302

Expenses
Interest expense:
Interest on deposits.......................................................................................
Interest on payables under securities lending transactions.............................
Interest on borrowings and rediscounts.........................................................
Interest on bonds payable.............................................................................
Other interest expense..................................................................................
Fees and commissions.......................................................................................
Other ordinary expenses (Note 24).....................................................................
General and administrative expenses..................................................................
Provision of allowance for loan losses.................................................................
Other expenses (Note 26)...................................................................................
Total expenses...................................................................................................

5,359
0
2,114
655
744
14,342
8,753
105,212—
6,636
143,820

7,608
2
2,319
588
350
13,876
9,543
106,185
16,058
13,841
170,374

52,075
6
20,5496,371
7,235
139,355
85,0501,022,275—
64,484
1,397,400

47,33328,761459,902

5,875
14,062
27,39461¥ 27,332

4,119
6,467
18,17469¥ 18,105

57,093
136,634
266,175601$  265,574

Millions of yen
Year ended March 31

Income before income taxes and minority interests.............................................
Income taxes (Note 27):
Current..........................................................................................................
Deferred........................................................................................................
Net income before minority interests...................................................................
Minority interests in net income...........................................................................
Net income........................................................................................................

Yen

Per share of common stock (Notes 2-t and 22)
Basic net income...........................................................................................
Diluted net income........................................................................................
Cash dividends applicable to the year............................................................

¥19.2019.18
4.00

U.S. dollars¥12.19
12.19
3.75

$0.19
0.19
0.04

See notes to consolidated financial statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries

Year ended March 31

2014

2013

Thousands of
U.S. dollars (Note 1)
2014

Net income before minority interests...................................................................
Other comprehensive income (Note 28)..............................................................
Valuation difference on available-for-sale securities........................................
Deferred gains (losses) on hedges.................................................................
Share of other comprehensive income of associates accounted forusing equity method....................................................................................
Total comprehensive income..............................................................................
Comprehensive income attributable to owners of the parent.........................
Comprehensive income attributable to minority interests...............................

¥27,394
8,795
8,642
106

¥18,174
25,461
25,741(286)$266,175
85,46083,973
1,038

46¥36,190
36,11079

6¥43,635
43,55085449$351,635
350,863
772

Millions of yen

See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 201427

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries
Thousands
IssuedIssuednumber of
number ofshares ofshares ofcommon stock preferred stock

Capitalstock

CapitalsurplusStockacquisitionrightsRetainedearnings

Treasurystock

1,391,630

107,432¥70,895¥153,188¥   —¥189,845¥  (605)

Cash dividends.....................................................

—

—

—

—

—

(6,822)—

Net income...........................................................

—

—

—

—

—

18,105—Purchases of treasury stock..................................

—

—

—

—

—

—

(5,932)

Disposals of treasury stock...................................

—

—

—

(0)

—

—

0

Retirement of treasury stock.................................

(40,000)——(4,990)

—

—

4,990

Reversal of revaluation reserve for land.................

—

—

—

—

—

10

—

Net changes in the year........................................

—

—

—

—

107

—

—

1,351,630

107,432¥148,197¥107¥201,138¥(1,547)—

Balance as of April 1, 2012

Millions of yen

Changes during the period

Balance as of March 31, 2013

¥70,895

Changes during the period
Cash dividends.....................................................

—

—

—

—

—

(6,634)

Net income...........................................................

—

—

—

—

—

27,332—

Purchases of treasury stock..................................

—

—

—

—

—

—

(17)

Disposals of treasury stock...................................

—

—

—

(4)

—

—

35

Retirement of treasury stock.................................

—

—

—

—

—

—

—

Reversal of revaluation reserve for land.................

—

—

—

—

—

1,158

—

Net changes in the year........................................

—

—

—

—

83

—

—

Balance as of March 31, 2014.................................

1,351,630

107,432¥148,193¥191¥222,995¥(1,529)

Total

Minority
interests

Total
equity¥449,557¥1,003¥450,561¥70,895

Millions of yen
Accumulated other comprehensive income
Valuationdifference on
DeferredDefinedavailable-for-sale gains (losses)
Revaluation
retirement
securities
on hedges reserve for land benefit plans¥ 26,898¥ (15)¥9,351¥     —Cash dividends.....................................................

—

—

—

—

(6,822)—(6,822)

Net income...........................................................

—

—

—

—

18,105—

18,105Purchases of treasury stock..................................

—

—

—

—

(5,932)—(5,932)

Disposals of treasury stock...................................

—

—

—

—

0

—

0

Retirement of treasury stock.................................

—

—

—

—

—

—

—

Balance as of April 1, 2012
Changes during the period

Reversal of revaluation reserve for land.................

—

—

—

—

10

—

10

Net changes in the year........................................

25,731

(286)

(10)

—

25,54185

25,627¥ 52,630¥(301)¥9,340¥     —

¥480,461¥1,089¥481,550

Cash dividends.....................................................

—

—

—

—

(6,634)—(6,634)

Net income...........................................................

—

—

—

—

27,332—

27,332

Purchases of treasury stock..................................

—

—

—

—

(17)

—

(17)

Disposals of treasury stock...................................

—

—

—

—

30

—

30

Retirement of treasury stock.................................

—

—

—

—

—

—

—

Reversal of revaluation reserve for land.................

—

—

—

—

1,158

—

1,158

Balance as of March 31, 2013
Changes during the period

28

Net changes in the year........................................

8,671

106

(1,158)(6,077)

1,626

79

1,705

Balance as of March 31, 2014.................................

¥ 61,301¥(194)¥8,182¥(6,077)¥503,957¥1,168¥505,125

Hokuhoku Financial Group, Inc. Annual Report 2014

Thousands of U.S. dollars (Note 1)
Stock
Capitalacquisition
Retained
surplusrightsearnings

Capitalstock$688,836$1,439,933$ 1,044

Cash dividends.......................................................

—

—

—

(64,464)—

Net income.............................................................

—

—

—

265,574—

Purchases of treasury stock....................................

—

—

—

—

(166)

Disposals of treasury stock.....................................

—

(42)

—

—

341

Retirement of treasury stock...................................

—

—

—

—

—

Reversal of revaluation reserve for land...................

—

—

—

11,257—

Net changes in the year..........................................

—

—

816

—

—

Balance as of March 31, 2014...................................

$688,836$1,439,891$1,860$2,166,689$(14,859)

Balance as of March 31, 2013...................................

$1,954,322

Treasurystock$ (15,034)

Changes during the period

Thousands of U.S. dollars (Note 1)
Accumulated other comprehensive income
Valuationdifference on
DeferredDefinedavailable-for-sale gains (losses)
Revaluation
retirement
securities
on hedges reserve for land benefit plans

Total

Minority
interests

Total
equity$4,668,298$10,581$4,678,879$511,370$(2,931)$90,758$       —Cash dividends.......................................................

—

—

—

—

(64,464)—(64,464)

Net income.............................................................

—

—

—

—

265,574—

265,574

Purchases of treasury stock....................................

—

—

—

—

(166)

—

(166)

Disposals of treasury stock.....................................

—

—

—

—

299

—

299

Retirement of treasury stock...................................

—

—

—

—

—

—

—

Reversal of revaluation reserve for land...................

—

—

—

—

11,257—

11,257

Balance as of March 31, 2013...................................
Changes during the period

Net changes in the year..........................................

84,2501,037(11,257)(59,047)

15,799769

16,568

Balance as of March 31, 2014...................................

$595,620$(1,894)$79,501$(59,047)$4,896,597$11,350$4,907,947

See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 2014

29

CONSOLIDATED STATEMENT OF CASH FLOWS
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries

2014

2013

Thousands of
U.S. dollars (Note 1)
2014¥ 47,333
8,564
2,142
2,102
(1)
(14,523)(534)(9,829)14,961¥ 28,761
9,090
405
2,113
(0)
(5,710)59618—$  459,902
83,216
20,81920,426(17)(141,113)(5,191)(95,508)
145,367(356)(3)(130,268)
8,875(2,097)
41
(960)
154
2,221
(618)
64,644
94,16870,771(125,754)
14,34811(147)(134,872)
10,870(414)(67)(1,357)
164
774
(138)
(115,236)
250,620
61,982
77,765(14,706)(3,462)(33)(1,265,726)
86,235(20,382)407(9,337)
1,498
21,585(6,007)628,107914,971687,638(1,221,867)
139,419

56,395
16,928(3,890)27
110,504(10,814)42,505
257,038(5,753)
251,285(42,105)(23,928)74
51
113,605(12,600)
10,020215,703(4,506)211,196

547,956
164,480(37,800)
269
1,073,689(105,078)
412,999
2,497,462(55,905)
2,441,557(333,634)
169,289
193,526(13,719)
9,910
22,053(3,654)43(1,186)—
42,628(937,155)
695,672
255,911(51)—
21,126(3,176)29(1,096)(17)
31,242(3,241,689)
1,644,865
1,880,361(133,302)
96,296214,277(35,510)420(11,528)—
414,190

15,000(20,000)
25,000—(2,539)(6,634)(0)(17)
010,80864
304,786
439,187¥743,974—(12,500)—(1,500)(2,752)(6,822)(0)(5,932)
0(29,506)
74
213,006
226,181¥439,187

145,744(194,326)
242,907—(24,674)(64,464)
(4)
(166)
6
105,023625
2,961,395
4,267,274$7,228,669

Millions of yen
Year ended March 31
1. Cash flows from operating activities:
Income before income taxes and minority interests....................................................
Depreciation..............................................................................................................
Impairment losses......................................................................................................
Amortization of goodwill.............................................................................................
Equity in losses (gains) of affiliates..............................................................................
Increase (decrease) in allowance for loan losses........................................................
Increase (decrease) in reserve for contingent losses...................................................
Increase (decrease) in reserve for employee retirement benefits.................................
Increase (decrease) in liability for retirement benefits...................................................
Increase (decrease) in reserve for directors’ andaudit & supervisory board members’ retirement benefits .........................................
Increase (decrease) in reserve for reimbursement of deposits....................................
Interest income..........................................................................................................
Interest expense........................................................................................................
Losses (gains) on securities.......................................................................................
Losses (gains) on money held in trust........................................................................
Losses (gains) on foreign exchange...........................................................................
Losses (gains) on sales of fixed assets.......................................................................
Net decrease (increase) in trading assets...................................................................
Net 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 paperand other debt purchased.......................................................................................
Net increase (decrease) in call money and bills sold...................................................
Net decrease (increase) in foreign exchanges (assets)................................................
Net increase (decrease) in foreign exchanges (liabilities).............................................
Interest income-cash basis........................................................................................
Interest expense-cash basis......................................................................................
Other, net..................................................................................................................
Subtotal..........................................................................................................................
Income taxes paid.....................................................................................................
Net cash provided by (used in) operating activities....................................................
2. Cash flows from investing activities:
Purchases of securities..............................................................................................
Proceeds from sales of securities...............................................................................
Proceeds from redemption of securities.....................................................................
Purchases of money held in trust...............................................................................
Proceeds from sales of money held in trust................................................................
Proceeds from fund management..............................................................................
Purchases of tangible fixed assets.............................................................................
Proceeds from sales of tangible fixed assets..............................................................
Purchases of intangible fixed assets...........................................................................
Purchases of stocks of subsidiaries...........................................................................
Net cash provided by (used in) investing activities.....................................................
3. Cash flows from financing activities:
Proceeds from issuance of subordinated borrowed money........................................
Repayment of subordinated borrowed money...........................................................
Proceeds from issuance of subordinated bonds........................................................
Repayment of subordinated bonds............................................................................
Expenditures for fund procurement............................................................................
Dividends paid...........................................................................................................
Dividends paid to minority shareholders.....................................................................
Purchases of treasury stock.......................................................................................
Proceeds from disposals of treasury stock.................................................................
Net cash provided by (used in) financing activities.....................................................
4. Effect of exchange rate changes on cash and cash equivalents...............................
5. Net increase (decrease) in cash and cash equivalents...............................................
6. Cash and cash equivalents at beginning of the period...............................................
7. Cash and cash equivalents at end of the period (Note 3)............................................
See notes to consolidated financial statements.

30

Hokuhoku Financial Group, Inc. Annual Report 2014

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

1. Basis of Presentation
The accompanying consolidated financial statements havebeen prepared in accordance with the provisions set forth in theJapanese Financial Instruments and Exchange Act and its related
accounting regulations, the Enforcement Regulation for the
Banking Act and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different incertain respects as to the application and disclosure requirementsof International Financial Reporting Standards.
In preparing these consolidated financial statements, certain
reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan.
In addition, certain reclassifications have been made in the 2013
consolidated financial statements to conform to the classifications
used in 2014.
All Japanese yen figures in the consolidated financial statements
have been rounded down to the nearest million yen. Accordingly,
the total of each account may not be equal to the combined total of
the individual items. The U.S. dollar amounts are then rounded tothousand dollars.
The consolidated financial statements are stated in Japaneseyen, the currency of the country in which Hokuhoku Financial
Group, Inc. (the “Company”) is incorporated and operates. The
translations of Japanese yen amounts into U.S. dollar amounts
are included solely for the convenience of readers outside Japanand have been made at the rate of ¥102.92 to U.S. $1, the rate ofexchange at March 31, 2014. Such translations should not be construed as representations that the Japanese yen amounts could be
converted into U.S. dollars at that or any other rate.

exchange rates or market prices of securities and other marketrelated indices or from gaps among markets) are included in “Trading
assets” and “Trading liabilities” on a trade-date basis.
Trading securities and monetary claims bought for trading
purposes are stated at fair value at the balance sheet date. Tradingrelated financial derivatives, such as swaps, futures, and options arestated at amounts that would be received or paid for settlement if
such transactions were terminated at the balance sheet date.
Income and losses on trading purpose transactions are recognized on a trade-date basis and recorded as “Trading income” or“Trading losses.”
Trading income and losses include interest received and paid
during the fiscal year and unrealized gains and losses resulting fromthe change in the value of securities, monetary claims bought, andderivatives between the balance sheet dates.
d. Securities
Securities are classified and accounted for, based principally on theGroups’ intent, as follows: (a) held-to-maturity debt securities, which
are expected to be held to maturity with the positive intent and ability to hold to maturity, are stated at amortized cost computed by
the straight-line method and (b) available-for-sale securities, which
are not classified as trading purpose securities or held-to-maturity
securities, are stated at fair value with unrealized gains and losses,
net of applicable taxes, reported in a separate component of equity.
Available-for-securities for which fair value is not reliably determined
are stated at cost determined by the moving-average method.
For other-than-temporary declines in fair value, securities are
reduced to net realizable value by a charge to income.
Securities included in money held in trust are recorded in thesame manner as securities mentioned above.

2. Summary of Significant Accounting Policies
a. Consolidation
The consolidated financial statements as of March 31, 2014 include
the accounts of the Company and its 12 subsidiaries (together, the“Group”).
Under the control and influence concept, those companies inwhich the Company, directly or indirectly, is able to exercise control
over operations are fully consolidated, and those companies overwhich the Group has the ability to exercise significant influence areaccounted for by the equity method.
All significant intercompany balances and transactions have been
eliminated in consolidation. All material unrealized profit included in
assets resulting from transactions within the Group is also eliminated.
An investment in one associated company is accounted for by theequity method.
Assets and liabilities of newly consolidated subsidiaries are valued
at fair value at the respective dates of acquisition, and goodwill isamortized using the straight-line method over 20 years.
b. Cash and Cash Equivalents
For the purpose of reporting cash flows, “Cash and cash equivalents”
consists of “Cash” and “Due from the Bank of Japan.”c. Trading Purpose Transactions“Transactions for trading purposes” (for purposes of seeking to capture gains arising from short-term changes in interest rates, currency

e. Tangible Fixed Assets (excluding Lease Assets)
Tangible fixed assets are stated at cost less accumulated depreciation. The Company and its consolidated banking subsidiaries (thesubsidiaries hereafter referred to as the “Banks”) depreciate theirequipment based on the declining-balance method and their premises principally based on the straight-line method. The estimateduseful lives of major assets are as follows: (1) buildings: 6 to 50 years
and (2) equipment: 3 to 20 years.
Consolidated non-banking subsidiaries depreciate their equipment and premises principally based on the declining-balancemethod over their expected useful lives.
f. Intangible Fixed Assets (excluding Lease Assets)
Intangible fixed assets are depreciated based on the straight-line
method. Capitalized software for internal use owned by consolidated
subsidiaries is depreciated using the straight-line method over its
estimated useful life (mainly 5 years).
g. Lease Assets
Lease assets under non-transfer ownership finance lease contracts(in which the ownership of leased assets is not transferred to thelessee; included in tangible fixed assets and intangible fixed assets)are depreciated on a straight-line basis over the lease period with aresidual value of zero when contracted amounts for residual value are
specified.

Hokuhoku Financial Group, Inc. Annual Report 201431

h. Long-Lived Assets
The Group reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate the carrying amountof an asset or asset group may not be recoverable. An impairment
loss would be recognized if the carrying amount of an asset or
asset group exceeds the sum of the undiscounted future cash flows
expected to result from the continued use and eventual disposition of
the asset or asset group. The impairment loss would be measured
as the amount by which the carrying amount of the asset exceeds its
recoverable amount, which is the higher of the discounted cash flows
from the continued use and eventual disposition of the asset or the
net selling price at disposition.
i. Allowance for Loan Losses
The Banks provide an allowance for loan losses which is determinedbased on management’s judgment and an assessment of future
losses based on their self-assessment systems. These systems
reflect past experience of credit losses, possible credit losses,
business and economic conditions, the character, quality and performance of the portfolio, the value of collateral or guarantees, and otherpertinent indicators.
The Banks have implemented a self-assessment system to determine the quality of its assets. The quality of all loans is assessed bybranches and the credit supervisory division with a subsequent audit
by the asset review and inspection division in accordance with theBanks’ policy and guidelines for the self-assessment of asset quality.
The Banks have established a credit rating system under whichcustomers are classified into five categories. The credit rating system
is used in the self-assessment of asset quality. All loans are classified
into five categories for self-assessment purposes: “normal,” “in needof caution,” “possible bankruptcy,” “virtual bankruptcy,” and “legal
bankruptcy.”
For loans to borrowers classified as legal bankruptcy or virtual
bankruptcy, the Banks fully provide the net amount of loans andestimated collectible amounts by collateral or guarantees. Regarding
loans to borrowers classified as possible bankruptcy, a specificreserve is provided to the necessary extent for the net amount ofloans and estimated collectible amounts by collateral or guarantees.
For the borrower classified as possible bankruptcy or being withrestructured loans with a certain amount of the unsecured portion ofclaims or a certain amount of the credit, if cash flows from collectionof principals and interests can be reasonably estimated, the Banks
provided the difference between the present values of these cash
flows discounted at the initial contractual interest rate and the bookvalues of loans (the “DCF” method).
For other loans, a general allowance is provided based on thehistorical loan loss ratio.
The Company and its consolidated non-banking subsidiaries
determine the allowance for loan losses by a similar self-assessment
system as that of the Banks.
For collateralized or guaranteed claims to borrowers who are in“virtual bankruptcy” or “legal bankruptcy,” the amount exceeding
the estimated value of collateral or guarantees has been deducted
as deemed uncollectible directly from those claims. The deductedamounts were ¥84,264 million ($818,738 thousand) and ¥106,892
million at March 31, 2014 and 2013, respectively.

32

Hokuhoku Financial Group, Inc. Annual Report 2014

Change in accounting estimates
Effective from the year ended March 31, 2014, because of the elaboration of the estimate of the expected loss rate and the unification of
the allowance for loan losses calculation method, for the borrowerclassified as possible bankruptcy with a certain amount of the unsecured portion of claims, if cash flows from collection of principals andinterests can be reasonably estimated, the Banks provided the difference between the present values of these cash flows discounted
at the initial contractual interest rate and the book values (the “DCF”
method).
The effect of this change in accounting estimate was to decrease
income before income taxes and minority interests by ¥2,524 million($24,529 thousand).
j. Accounting Method for Retirement Benefits
In calculating retirement benefit obligations, the straight-line basis isused as a method of attributing expected retirement benefits to theperiod up to the end of this fiscal year.
The unrecognized prior service cost is amortized using thestraight-line method over eight years within the employees’ averageremaining service period at incurrence.
The unrecognized actuarial (gains) losses are amortized using thestraight-line method over eight or nine years within the employees’
average remaining service period, commencing from the next fiscal
year of incurrence.
The unrecognized transitional obligation from the initial applicationof the new accounting standard for employee retirement benefits of¥28,196 million ($273,967 thousand) is amortized primarily using thestraight-line method over 15 years.
k. Reserve for Directors’ and Audit & Supervisory Board
Members’ Retirement Benefits
A reserve for directors’ and audit & supervisory board members’
retirement benefits is provided for payment of retirement benefits
to directors and audit & supervisory board members in the amountdeemed accrued at the fiscal year end, based on the estimatedamount of benefits.
The Company and the Banks abolished their directors’ and audit& supervisory board members’ retirement benefits system at theboard of directors’ meeting on May 11, 2012, and resolved to provide
a lump-sum payment of retirement benefits of directors and audit &supervisory board members at the general meeting of shareholders
on June 26, 2012. According to these resolutions, the lump-sum
payment of retirement benefits of directors and audit & supervisoryboard members shall be effectuated upon the retirement of eachindividual director and audit & supervisory board member. Reservefor directors’ and audit & supervisory board members’ retirement
benefits was ended in June 2012, and the entire remaining amountis included in “reserve for directors’ and audit & supervisory board
members’ retirement benefits.”
l. Reserve for Contingent Losses
A reserve for contingent losses is provided for possible losses inaccordance with the Joint Responsibility System of Credit Guarantee
Corporations and possible losses from contingencies not covered byother specific reserves.

m. Reserve for Reimbursement of Deposits
A reserve for reimbursement of deposits which were not previously
recognized as liabilities under certain conditions is provided for possible losses on the future claims of withdrawal based on historicalreimbursement experience.
n. Stock Options
In December 2005, the Accounting Standards Board of Japan(the “ASBJ”) issued ASBJ Statement No. 8, “Accounting Standard
for Stock Options,” and related guidance. This standard requires
companies to recognize compensation expense for employee stock
options based on the fair value of the stock options at the date of
grant and over the vesting period as consideration for receiving
goods or services. The standard also requires companies to accountfor stock options granted to non-employees based on the fair valueof either the stock option or the goods or services received. In thebalance sheet, the stock options are presented as stock acquisition rights as a separate component of equity until exercised. The
standard covers equity-settled, share-based payment transactions,but does not cover cash-settled, share-based payment transactions.
o. Income Taxes
The provision for income taxes is computed based on pretax
income included in the consolidated statement of income. The asset
and liability approach is used to recognize deferred tax assets andliabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets
and liabilities. Deferred taxes are measured by applying currently
enacted income tax rates to the temporary differences.
p. Translation of Foreign Currencies
Assets and liabilities denominated in foreign currencies are translated
into Japanese yen mainly at the exchange rate prevailing as of thebalance sheet date.
q. Derivatives and Hedging Activities
Derivatives are stated at fair value. Derivative transactions that meethedge accounting criteria are primarily accounted for under thedeferral method whereby unrealized gains and losses are deferred
until maturity as deferred gains (losses) on hedges accounting in a
separate component of equity.
The Banks hedge interest rate risks 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.
The effectiveness of hedges is assessed as follows: the Banks
specify the hedged items according to their risk management regulations, with the aim of centralizing hedging instruments, and verify theextent to which the exposure of interest rate risks on hedged items is
mitigated.
The Banks hedge currency exchange fluctuation risks arising fromtheir foreign currency denominated financial assets and liabilities.
Such hedges are accounted for by the deferred method specified
in the “Accounting and Auditing Treatments in Banking Business inAccounting for Foreign Currency Denominated Transactions andOthers” (JICPA Industry Audit Committee Report No. 25).
The effectiveness of these hedges is assessed as follows: where
currency swap transactions and exchange swap transactions areused as hedging instruments to offset exchange fluctuation risks arising from foreign currency denominated financial assets and liabilities,
hedge effectiveness is assessed by verifying the agreement of theamounts of the designated hedging instruments corresponding to thehedged foreign currency financial assets and liabilities.
The Company and consolidated non-banking subsidiaries are notengaged in hedging operations using derivative transactions.
r. Consumption taxes
The Company and its domestic consolidated subsidiaries accountfor consumption tax and local consumption tax by the taxexclusion method whereby receipts and payments of consumption
taxes are not included in the transaction amounts and, accordingly,
consumption tax amounts do not affect the measurement of profit
or loss transactions. However, deducting off the subject to theconsumption tax to tangible fixed assets are summed up to thecost in this fiscal year.
s. Finance lease
Sales and cost of sales are accounted when lease payments are
paid.
t. Per Share Information
Basic net income per share is computed by dividing net income
available to common shareholders by the weighted-average numberof shares of common stock outstanding for the period, retroactively
adjusted for stock splits.
Diluted net income per share reflects the potential dilution that
could occur if securities were exercised or converted into common
stock. Diluted net income per share of common stock assumes
full conversion of the outstanding convertible notes and bonds atthe beginning of the year (or at time of issuance) with an applicableadjustment for interest expense, net of tax, and full exercise of outstanding warrants.
Cash dividends per share presented in the accompanying
consolidated statement of income are dividends applicable to therespective fiscal years including dividends to be paid after the end of
the fiscal year.
u. Changes in Accounting Policies
Accounting Standard for Retirement Benefits — In May 17, 2012,
the ASBJ issued ASBJ Statement No. 26, “Accounting Standard for
Retirement Benefits,” and ASBJ Guidance No. 25, “Guidance on
Accounting Standard for Retirement Benefits,” which replaced the
Accounting Standard for Retirement Benefits that had been issued
by the Business Accounting Council in 1998 with an effective dateof April 1, 2000, and the other related practical guidance, and were
followed by partial amendments from time to time through 2009.
Major changes are as follows:(a) Treatment in the balance sheet	Under the revised accounting standard, actuarial gains or losses
and past service costs that are yet to be recognized in profit or loss
are recognized within equity (accumulated other comprehensive

Hokuhoku Financial Group, Inc. Annual Report 201433

income), after adjusting for tax effects, and any resulting deficit or
surplus is recognized as a liability (liability for retirement benefits) or
assets (asset for retirement benefits).
(b) Treatment in the statement of income and the statement of comprehensive income
	The revised accounting standard does not change how to recognize actuarial gains and losses and past service costs in profit orloss. Those amounts are recognized in profit or loss over a certain
period no longer than the expected average remaining service
period of the employees. However, actuarial gains and losses andpast service costs that arose in the current period and have notyet been recognized in profit or loss are included in other comprehensive income and actuarial gains and losses and past service
costs that were recognized in other comprehensive income inprior periods and then recognized in profit or loss in the current
period shall be treated as reclassification adjustments.
(c) Amendments relating to the method of attributing expected benefit
to periods and relating to discount rate and expected future salary
increases	The revised accounting standard also made certain amendments relating to the method of attributing expected benefit toperiods and relating to the discount rate and expected futuresalary increases.
This accounting standard and the guidance for (a) and (b) above
are effective for the end of annual periods beginning on or after April

1, 2013, and for (c) above are effective for the beginning of annual
periods beginning on or after April 1, 2014, or for the beginning ofannual periods beginning on or after April 1, 2015, subject to certain
disclosure in March 2015, both with earlier application being permitted from the beginning of annual periods beginning on or after April 1,
2013. However, no retrospective application of this accounting standard to consolidated financial statements in prior periods is required.
The Group applied the revised accounting standard and guidance forretirement benefits for (a) and (b) above, effective March 31, 2014. As
a result, liability for retirement benefits of ¥14,961 million ($145,367
thousand) was recorded as of March 31, 2014, and deferred tax
assets for the year ended March 31, 2014, increased by ¥3,324
million ($32,303 thousand), and accumulated other comprehensive
income for the year ended March 31, 2014, decreased by ¥6,077
million ($59,047 thousand).
v. New Accounting Pronouncements
Accounting Standard for Retirement Benefits — Same as “u.
Changes in Accounting Policies” above.
The Group expects to apply (u. (c)) above from April 1, 2014, andretained earnings at the beginning of the annual period beginning on
April 1, 2014, are expected to decrease by ¥1,864 million ($18,118
thousand).

3. Cash and Cash Equivalents
The reconciliation of “Cash and cash equivalents” in the consolidated statement of cash flows and “Cash and due from banks” in the
consolidated balance sheet as of March 31, 2014 and 2013 consisted of the following:

2014

2013

Thousands of
U.S. dollars
2014¥844,182(100,208)¥743,974¥553,744(114,557)¥439,187$8,202,320(973,651)$7,228,669

Millions of yen

Cash and due from banks...................................................................................................................................
Due from banks except for deposits with the Bank of Japan.................................................................................
Cash and cash equivalents.................................................................................................................................

4. Trading Assets and Liabilities
Trading assets and liabilities as of March 31, 2014 and 2013 consisted of the following:

Trading Assets

2014

2013

Thousands of
U.S. dollars
2014

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

¥2,8352,171¥5,007¥3,971
3,257¥7,228$27,548
21,102$48,650

Millions of yen

Trading Liabilities

2014

2013

Thousands of
U.S. dollars
2014

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

¥1,434¥1,434¥2,052¥2,052$13,936$13,936

Millions of yen

5. Money Held in Trust
Money held in trust for trading purposes as of March 31, 2014 and 2013 consisted of the following:

2014

2013

Thousands of
U.S. dollars
2014¥ 7,75912¥ 4,000
27$ 75,395
120

Millions of yen

Amounts recorded in the consolidated balance sheet...........................................................................................
Valuation gain (loss) included in consolidated statement of income.......................................................................
There was no money held in trust for other purposes as of March 31, 2014 and 2013.
34

Hokuhoku Financial Group, Inc. Annual Report 2014

6. Securities
Securities as of March 31, 2014 and 2013 consisted of the following:

2014

2013

Thousands of
U.S. dollars
2014¥1,423,713
416,514337,568
182,149
133,674¥2,493,619¥1,463,775
460,528
338,492
145,237
101,760¥2,509,794$13,833,209
4,046,971
3,279,908
1,769,815
1,298,818$24,228,721

Millions of yen

Japanese national government bonds.................................................................................................................
Japanese local government bonds......................................................................................................................
Japanese corporate bonds.................................................................................................................................
Japanese corporate stocks.................................................................................................................................
Other securities.................................................................................................................................................
Total.................................................................................................................................................................

As of March 31, 2014 and 2013, securities included equity investments in non-consolidated subsidiaries that amounted to ¥669 million($6,508 thousand) and ¥740 million, respectively.
In the following description, in addition to “Securities,” also presented are trading account securities which are classified as “Trading
assets” in the consolidated balance sheet and beneficiary claims on loan trusts which are classified as “Monetary claims bought” in the
consolidated balance sheet.
Valuation gain or loss on trading account securities included in income before income taxes and minority interests was ¥3 million ($35
thousand) and ¥17 million as of March 31, 2014 and 2013, respectively.
The amounts on consolidated balance sheet, aggregate fair value and unrealized gains (losses) on held-to-maturity debt securities as ofMarch 31, 2014 and 2013 were as follows:
Millions of yen

March 31, 2014
Fair value exceeding amount on consolidated balance sheet:
Held-to-maturity debt securities:
Japanese government bonds........................................................................................................................
Japanese corporate bonds............................................................................................................................
Total.......................................................................................................................................................
Fair value below amount on consolidated balance sheet:
Held-to-maturity debt securities:
Japanese government bonds........................................................................................................................
Japanese corporate bonds............................................................................................................................
Total.......................................................................................................................................................
Grand total...........................................................................................................................................................

Amount on
consolidatedbalance sheet

Estimated
fair value

Net unrealized
gains (losses)¥ 75,114
43,904¥119,018¥ 78,372
44,243¥122,616¥3,257339¥3,597¥  2,504
25,56728,071¥147,090¥  2,498
25,461
27,960¥150,576

¥ (5)
(105)
(110)
¥3,486

Millions of yen

March 31, 2013
Fair value exceeding amount on consolidated balance sheet:
Held-to-maturity debt securities:
Japanese government bonds........................................................................................................................
Japanese corporate bonds............................................................................................................................
Total.......................................................................................................................................................
Fair value below amount on consolidated balance sheet:
Held-to-maturity debt securities:
Japanese government bonds........................................................................................................................
Japanese corporate bonds............................................................................................................................
Total.......................................................................................................................................................
Grand total...........................................................................................................................................................

Amount on
consolidatedbalance sheet

Estimated
fair value

Net unrealized
gains (losses)¥ 77,627
27,432¥105,060¥ 81,141
27,671¥108,812¥3,513238¥3,751¥     10
25,64825,658¥130,718¥     10
25,40725,417¥134,230¥   (0)(240)(240)¥3,511

Hokuhoku Financial Group, Inc. Annual Report 201435

Thousands of U.S. dollars

March 31, 2014
Fair value exceeding amount on consolidated balance sheet:
Held-to-maturity debt securities:
Japanese government bonds........................................................................................................................
Japanese corporate bonds............................................................................................................................
Total.......................................................................................................................................................
Fair value below amount on consolidated balance sheet:
Held-to-maturity debt securities:
Japanese government bonds........................................................................................................................
Japanese corporate bonds............................................................................................................................
Total.......................................................................................................................................................
Grand total...........................................................................................................................................................

Amount on
consolidatedbalance sheet

Estimated
fair value

Net unrealized
gains (losses)$  729,835
426,585$1,156,420$  761,489
429,887$1,191,376$31,654
3,302$34,956$   24,332
248,416
272,748$1,429,168$   24,276
247,394
271,670$1,463,046$   (56)(1,022)(1,078)$33,878

The amounts on consolidated balance sheet, acquisition or amortized cost and unrealized gains (losses) on available-for-sale securities as ofMarch 31, 2014 and 2013 were as follows:
Millions of yen

March 31, 2014
Amount on consolidated balance sheet exceeding acquisition or amortized cost:
Japanese corporate stocks................................................................................................................................
Bonds:
Japanese government bonds........................................................................................................................
Japanese local government bonds................................................................................................................
Japanese corporate bonds............................................................................................................................
Total bonds......................................................................................................................................................
Other securities................................................................................................................................................
Total.......................................................................................................................................................
Amount on consolidated balance sheet below acquisition or amortized cost:
Japanese corporate stocks................................................................................................................................
Bonds:
Japanese government bonds........................................................................................................................
Japanese local government bonds................................................................................................................
Japanese corporate bonds............................................................................................................................
Total bonds......................................................................................................................................................
Other securities................................................................................................................................................
Total.......................................................................................................................................................
Grand total...........................................................................................................................................................

36

Hokuhoku Financial Group, Inc. Annual Report 2014

Amount on
consolidatedbalance sheet

Acquisition/amortized cost

Net unrealized
gains (losses)¥  128,738¥   83,961¥44,777

1,339,592
393,063
241,696
1,974,352
153,601¥2,256,692

1,311,426
384,497
237,897
1,933,821
145,678¥2,163,461

28,166
8,565
3,798
40,531
7,922¥93,230¥   23,484¥   27,704¥  (4,220)

6,502
23,451
26,40056,35351,905
131,743¥2,388,435

6,503
23,49026,50456,49854,254
138,457¥2,301,919

(0)
(39)
(104)
(144)
(2,348)(6,714)¥86,516

Millions of yen

March 31, 2013
Amount on consolidated balance sheet exceeding acquisition or amortized cost:
Japanese corporate stocks................................................................................................................................
Bonds:
Japanese government bonds........................................................................................................................
Japanese local government bonds................................................................................................................
Japanese corporate bonds............................................................................................................................
Total bonds......................................................................................................................................................
Other securities................................................................................................................................................
Total.......................................................................................................................................................
Amount on consolidated balance sheet below acquisition or amortized cost:
Japanese corporate stocks................................................................................................................................
Bonds:
Japanese government bonds........................................................................................................................
Japanese local government bonds................................................................................................................
Japanese corporate bonds............................................................................................................................
Total bonds......................................................................................................................................................
Other securities................................................................................................................................................
Total.......................................................................................................................................................
Grand total...........................................................................................................................................................

Amount on
consolidatedbalance sheet

Acquisition/amortized cost

Net unrealized
gains (losses)¥   81,828¥   52,178¥29,650

1,288,858
449,000
268,7962,006,654
135,274¥2,223,757

1,257,305
437,607263,999
1,958,912
127,234¥2,138,325

31,553
11,392
4,796
47,742
8,039¥85,432¥   33,253¥   39,408¥   (6,155)

97,27911,527
16,614125,42244,740203,416¥2,427,174

98,113
11,534
16,772
126,419
46,478212,307¥2,350,632

(834)
(6)
(157)
(997)
(1,738)(8,891)¥76,541

Thousands of U.S. dollars

March 31, 2014
Amount on consolidated balance sheet exceeding acquisition or amortized cost:
Japanese corporate stocks................................................................................................................................
Bonds:
Japanese government bonds........................................................................................................................
Japanese local government bonds................................................................................................................
Japanese corporate bonds............................................................................................................................
Total bonds......................................................................................................................................................
Other securities................................................................................................................................................
Total.......................................................................................................................................................
Amount on consolidated balance sheet below acquisition or amortized cost:
Japanese corporate stocks................................................................................................................................
Bonds:
Japanese government bonds........................................................................................................................
Japanese local government bonds................................................................................................................
Japanese corporate bonds............................................................................................................................
Total bonds......................................................................................................................................................
Other securities................................................................................................................................................
Total.......................................................................................................................................................
Grand total...........................................................................................................................................................

Amount on
consolidatedbalance sheet

Acquisition/amortized cost

Net unrealized
gains (losses)$ 1,250,859$   815,792$435,067

13,015,863
3,819,113
2,348,392
19,183,368
1,492,435$21,926,662

12,742,190
3,735,884
2,311,482
18,789,556
1,415,456$21,020,804

273,673
83,22936,910393,81276,979$905,858$   228,178$   269,188$ (41,010)

63,180227,858
256,514547,552
504,328
1,280,058$23,206,720

63,190228,242
257,528
548,960
527,149
1,345,297$22,366,101

(10)
(384)
(1,014)(1,408)(22,821)(65,239)$840,619

Information on available-for-sale securities, which were sold during the years ended March 31, 2014 and 2013 was as follows:
Millions of yen

March 31, 2014
Japanese corporate stocks....................................................................................................................................
Bonds:
Japanese government bonds........................................................................................................................
Japanese local government bonds................................................................................................................
Japanese corporate bonds............................................................................................................................
Total bonds......................................................................................................................................................
Other securities................................................................................................................................................
Total....................................................................................................................................................................

Proceeds¥ 16,394

Realized gains¥1,242

Realized losses¥693

102,429
31,023
9,367
142,820
5,762¥164,977

1,295
0
43
1,339
380
¥2,962

31
5
—
37
—
¥730

Hokuhoku Financial Group, Inc. Annual Report 201437

Millions of yen

March 31, 2013
Japanese corporate stocks....................................................................................................................................
Bonds:
Japanese government bonds........................................................................................................................
Japanese local government bonds................................................................................................................
Japanese corporate bonds............................................................................................................................
Total bonds......................................................................................................................................................
Other securities................................................................................................................................................
Total....................................................................................................................................................................

Proceeds¥  4,509

Realized gains¥   335

Realized losses¥203

615,944
41,00019,090676,035
2,031¥682,576

8,104
1,371
378
9,854
94
¥10,284

525
2
0
528
1
¥733

March 31, 2014
Japanese corporate stocks....................................................................................................................................
Bonds:
Japanese government bonds........................................................................................................................
Japanese local government bonds................................................................................................................
Japanese corporate bonds............................................................................................................................
Total bonds......................................................................................................................................................
Other securities................................................................................................................................................
Total....................................................................................................................................................................

Proceeds$  159,290

Realized gains$12,068

Realized losses$6,736995,234
301,434
91,021
1,387,689
55,991$1,602,970

12,5867425
13,0183,700$28,786

308
58
—
366
—
$7,102Thousands of U.S. dollars

Impairment losses on available-for-sale securities amounted to ¥176 million ($1,714 thousand) and ¥9,024 million as of March 31, 2014
and 2013, respectively.
An impairment of securities is recognized if the decline in fair value is substantial and the decline is determined to be other than temporary.
To assess whether or not a decline in fair value but also the classification of the security issuer which is used in the self-assessment of asset
quality as follows:(1) For issuers who are classified as borrowers under “in need of caution,” “possible bankruptcy,” “virtual bankruptcy,” “legal bankruptcy.”
Stocks: where the fair value is lower than the acquisition cost.
Bonds: where the fair value declines by over 30% compared to the amortized cost or acquisition cost.
(2) For issuers who are classified as borrowers under “normal.”	Stocks and bonds: where the fair value declines by 50% or more compared to the amortized cost or acquisition cost, or the fair value
declines by over 30% but less than 50% compared to the amortized cost or acquisition cost and market prices remaining below
certain level.
Reconciliation of valuation difference on available-for-sale securities to the amounts included in “valuation difference on available-for-salesecurities,” presented as a separate component of net assets as of March 31, 2014 and 2013, in the consolidated balance sheet, was asfollows:

2014

2013

Thousands of
U.S. dollars
2014¥86,516(25,227)
61,288(60)
73¥61,301¥76,541(23,894)
52,646(43)
27¥52,630$840,619(245,118)
595,501(592)
711$595,620

Millions of yen

Valuation difference before taxes on available-for-sale securities..........................................................................
Deferred tax liabilities.........................................................................................................................................
Valuation difference on available-for-sale securities (before adjustment)................................................................
Amounts attributable to minority interests............................................................................................................
The Company’s portion of valuation difference on available-for-sale securities of equity method investees..............
Amounts recorded in the consolidated balance sheet...........................................................................................

38

Hokuhoku Financial Group, Inc. Annual Report 2014

7. Loans and Bills Discounted
Loans and bills discounted as of March 31, 2014 and 2013 consisted of the following:
Millions of yen
2014
2013

Bills discounted............................. ¥   52,979 ¥   61,971
Loans on bills................................
345,643355,627
Loans on deeds............................. 6,061,731 6,140,092
Overdrafts.....................................
862,935
830,243
Total............................................. ¥7,323,290 ¥7,387,934

Thousands of
U.S. dollars
2014$   514,762
3,358,367
58,897,510
8,384,531$71,155,170

Loans and bills discounted include loans to borrowers in bankruptcy, past due loans, past due loans (three months or more) and
restructured loans. The amounts of these loans were as follows:
Millions of yen
2014
2013

Loans to borrowers in bankruptcy.... ¥  8,475
Past due loans............................... 159,017
Past due loans(three months or more).................
585
Restructured loans.........................
35,814
Total............................................. ¥203,892

Thousands of
U.S. dollars
2014¥ 12,049
184,445$   82,347
1,545,057

101
42,310¥238,908

5,692
347,982$1,981,078

Loans to borrowers in bankruptcy represent nonaccrual loans
to debtors who are legally bankrupt, as defined in the Order for
Enforcement of the Corporation Tax Act.
Past due loans are nonaccrual loans which include loans classified as “possible bankruptcy” and “virtual bankruptcy.”
Nonaccrual loans are defined as loans (after the partial chargeoff of claims deemed uncollectible) which the Banks have stopped
accruing interest income due to substantial doubt existing about
the ultimate collection of principal and/or interest. Such loans areclassified either as “possible bankruptcy” or “virtual bankruptcy”
under the Banks’ self-assessment guidelines.
In addition to past due loans as defined above, certain otherloans classified as “in need of caution” under the Banks’ selfassessment guidelines include past due loans (three months ormore) which consist of loans which the principal and/or interest is
three months or more past due, but exclude loans to borrowers inbankruptcy and past due loans.
Restructured loans are loans where the Group relaxes lending
conditions by reducing the original interest rate or by forbearing
interest payments or principal repayments to support the borrower’s reorganization. Restructured loans exclude loans to borrowers
in bankruptcy, past due loans or past due loans (three months ormore).
These amounts represent the gross amounts before deductionof the allowance for loan losses.
Bills discounted are accounted for as financial transactions inaccordance with “Accounting and Auditing treatment of AccountingStandards for Financial Instruments in Banking Industry” (JICPA
Industry Audit Committee Report No. 24). The Banks have a rightto sell or repledge as collateral such discounted bills at their discretion. The total face value of bank acceptance bills, commercial bills,
documentary bills and foreign currency bills bought, which wereobtained at a discount, were ¥55,489 million ($539,151 thousand)and ¥63,561 million as of March 31, 2014 and 2013, respectively.

As of March 31, 2014 and 2013, loans and bills discounted
included the portion of loans extended to original borrowers basedon loan participation agreements, as permitted by the JICPA
Accounting Committee Report No. 3, in the amount of ¥1,500 million ($14,574 thousand) and ¥1,500 million, respectively.

8. Foreign Exchanges
Foreign exchanges as of March 31, 2014 and 2013 consisted of
the following:
Millions of yen
2014
2013

AssetsDue from foreign banks..................
Foreign exchange bills bought........
Foreign exchange bills receivable....
Total.............................................
Liabilities
Due to foreign banks......................
Foreign exchange bills sold.............
Foreign exchange bills payable.......
Total.............................................

Thousands of
U.S. dollars
2014¥10,2212,510
1,775¥14,506¥ 7,379
1,589
1,647¥10,616$ 99,314
24,38817,250$140,952¥    2293
35¥   151¥    2860
34¥   123$    218
904
349$  1,471

9. Tangible Fixed Assets
Tangible fixed assets as of March 31, 2014 and 2013 were as
follows:
Millions of yen
2014
2013

Buildings....................................... ¥ 33,637
Land.............................................
62,521
Lease assets.................................
774
Construction in progress.................
360
Other tangible fixed assets.............
6,269
Total............................................. ¥103,563¥ 34,449
64,443756
45
6,515¥106,211

Thousands of
U.S. dollars
2014$  326,828
607,475
7,530
3,504
60,920$1,006,257

Accumulated depreciation amounted to ¥103,784 million($1,008,400 thousand) and ¥101,975 million as of March 31, 2014
and 2013, respectively.
The book value of tangible fixed assets adjusted for gains onsales of replaced assets amounted to ¥3,875 million ($37,659
thousand) and ¥3,886 million as of March 31, 2014 and 2013,
respectively.
Under the “Act Concerning Land Revaluation,” Hokuriku Bank,
Ltd. revalued its own land for business operations as of March 31,
1998. The revaluation gain is included in net assets as “Revaluation
reserve for land.” The carrying amount of the land after the above
one-time revaluation exceeded the market value by ¥21,379 million($207,732 thousand) and ¥23,364 million as of March 31, 2014
and 2013, respectively.

Hokuhoku Financial Group, Inc. Annual Report 201439

10. Intangible Fixed Assets

13. Loan Commitments

Intangible fixed assets as of March 31, 2014 and 2013 were as
follows:

Overdraft facility and loan commitment contracts with customers
to lend up to prescribed limits response to customers’ applications
for a loan, as long as there is no violation of any condition within thecontracts. The unused amount of such contracts totals ¥2,244,753
million ($21,810,663 thousand) and ¥2,260,093 million as of March
31, 2014 and 2013, respectively, of which amounts with original
agreement terms of less than one year are ¥2,206,638 million($21,440,324 thousand) and ¥2,221,859 million as of March 31,
2014 and 2013, respectively.
Since many of the commitments expire without being drawn
upon, the unused amount does not necessarily represent a
future cash requirement. Most of these contracts have conditions
allowing the Group to refuse customers’ applications for a loan ordecrease the contract limits with proper reasons (e.g., changes infinancial situation, deterioration in customers’ creditworthiness).
At the inception of the contracts, the Group obtains collateralincluding real estate, securities, etc., if considered to be necessary. Subsequently, the Group performs a periodic review of thecustomers’ business results based on internal rules and takes necessary measures to reconsider conditions in contracts and require
additional collateral and guarantees.

Millions of yen
2014
2013

Software........................................ ¥ 9,960
Goodwill........................................ 21,898
Lease assets.................................
296
Other intangible fixed assets...........
749
Total............................................. ¥32,905¥12,877
24,000462
758¥38,098

Thousands of
U.S. dollars
2014$ 96,782
212,773
2,877
7,285$319,717

11. Customers’ Liabilities for Acceptances and Guarantees
All contingent liabilities arising from acceptances and guarantees
are reflected in acceptances and guarantees in liabilities on the
consolidated balance sheet. As a contra account, customers’
liabilities for acceptances and guarantees are also shown in assets,
which represent the Banks’ right of indemnity from the applicants.
Guarantee obligations on securities issued by private placement (pursuant to Article 2, Clause 3 of the Japanese Financial
Instruments and Exchange Act) amounted to ¥105,129 million($1,021,467 thousand) and ¥101,131 million as of March 31, 2014
and 2013, respectively.

14. Deposits

12. Assets Pledged
Assets pledged as collateral and their relevant liabilities as of March
31, 2014 and 2013 were as follows:
Millions of yen
2014
2013

Assets pledged as collateral:
Securities.................................. ¥386,711
Loans and bills discounted......... 150,249
Relevant liabilities to above assets:
Deposits................................... ¥ 26,962
Call money and bills sold............
30,000Borrowed money.......................
19,415

Thousands of
U.S. dollars
2014¥390,030
314,064$3,757,398
1,459,871¥ 27,139
30,000145,703$  261,973
291,489
188,647

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 ofMarch 31, 2014 and 2013:
Millions of yen
2014
2013

Securities...................................... ¥144,350
Other assets..................................
210¥157,563
210

Thousands of
U.S. dollars
2014$ 1,402,549
2,044

In addition to the above, initial margins for futures transactions,cash collateral paid for financial instruments and guarantee deposits are included in “Other assets” in the consolidated balance sheet.

Initial margins for
futures transactions.....................
Cash collateral paid forfinancial instruments....................
Guarantee deposits........................

40

Millions of yen
2014
2013

Thousands of
U.S. dollars
2014¥    6¥    6$    68

200
3,767

200
3,900

1,943
36,606

Hokuhoku Financial Group, Inc. Annual Report 2014

Deposits as of March 31, 2014 and 2013 consisted of the following:
Millions of yen
2014
2013

Current deposits, ordinary deposits,
saving deposits anddeposits at notice......................... ¥ 5,452,672
Time deposits andinstallment savings...................... 4,322,884
Negotiable certificates of deposits....
235,439
Other deposits...............................
136,808
Total............................................. ¥10,147,805

Thousands of
U.S. dollars
2014¥5,237,507$52,979,716

4,455,603
164,667
125,084¥9,982,864

42,002,379
2,287,599
1,329,270$98,598,964

15. Borrowed Money
As of March 31, 2014 and 2013, the weighted-average annualinterest rates applicable to borrowed money were 1.39% and0.85%, respectively.
Borrowed money includes borrowings from the Bank of Japanand other financial institutions. In addition, borrowed money
includes ¥100,500 million ($976,487 thousand) and ¥105,500 million of subordinated borrowed money as of March 31, 2014 and2013, respectively.
Annual maturities of borrowed money as of March 31, 2014
were as follows:Year ending March 31
Millions of yen
2015................................................................. ¥ 20,150
2016.................................................................
549
2017.................................................................
235
2018.................................................................
212
2019.................................................................
150
2020 and thereafter............................................ 100,500
Total.................................................................. ¥121,797

Thousands of
U.S. dollars$  195,789
5,334
2,283
2,068
1,457
976,487$1,183,418

16. Bonds Payable
Bonds payable as of March 31, 2014 and 2013 consisted of the following:
2014

2013

Thousands of
U.S. dollars
2014¥10,000¥10,000$ 97,163

8,000

8,000

77,73025,000—242,907

15,000¥58,000

15,000¥33,000

145,744$563,544

Millions of yen

Thousands of
U.S. dollars¥58,000$563,544

Millions of yen

Issued by the Company:
Unsecured fixed and floating subordinated bonds, payable in Japanese yen,
due January 2021, 1.27% interest...............................................................................................................
Unsecured fixed and floating subordinated bonds, payable in Japanese yen,
due December 2021, 1.50% interest..........................................................................................................
Unsecured fixed and floating subordinated bonds, payable in Japanese yen,
due October 2023, 0.75% interest..............................................................................................................
Issued by Hokkaido Bank, Ltd.:
Unsecured fixed and floating subordinated bonds, payable in Japanese yen,
due September 2019, 2.18% interest.........................................................................................................
Total.................................................................................................................................................................
Annual maturities of bonds payable as of March 31, 2014 were as follows:Year ending March 312020 and thereafter...........................................................................................................................................

17. Retirement Benefits
Overview of the Group’s retirement benefit plans
The Hokuriku Bank, Ltd. which had provided three defined benefit
retirement programs, corporate pensions, and tax qualified pension
and retirement bonuses, terminated the tax qualified pension andmigrated a portion of the retirement bonus to a defined contribution pension in March 2011. At the time of retirement, employees
may be issued a premium retirement grant that is not subject toinclusion in the actuarial computation of projected benefit obligations in conformity with the standards for accounting for retirement
benefits. The Minister of Health, Labour and Welfare approved on
February 17, 2003 that Hokuriku Bank Ltd. would be relieved of theobligation to administer the future payment service of the government mandated portion of its employee pension fund. The Hokuriku
Bank, Ltd. was further approved on March 1, 2005 to switch froman employee pension fund to a corporate pension fund.
The Hokkaido Bank, Ltd. provides defined benefit arrangements that combine a retirement lump sum grant and an employee
pension fund plan. The Hokkaido Bank, Ltd. was approved by the
Minister of Health, Labour and Welfare on March 26, 2004 to berelieved of the obligation to administer the future payment serviceof the government mandated portion of the employee pension
fund. The Hokkaido Bank, Ltd. was further approved on March 31,
2006 to switch from an employee pension fund to an employee
pension fund.
The consolidated 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 subsidiaries from which they each come.
The Banks have established benefit trust arrangements as apart of their plan assets.

(As of March 31, 2014)(a) Defined benefit plan(1) The changes in defined benefit obligations for the year ended
March 31, 2014, were as follows:

Balance at beginning of the period......................
Service cost..................................................
Interest cost..................................................
Actuarial (gains) losses..................................
Benefits paid.................................................
Others..........................................................
Balance at end of the period...............................

Millions of yen

Thousands of
U.S. dollars¥90,289
2,002
1,787
(412)
(4,926)
94¥88,836$877,283
19,461
17,365(4,009)(47,863)921$863,158(2) The changes in plan assets for the year ended March 31, 2014,
were as follows:

Balance at beginning of the period......................
Expected return on plan assets.......................
Actuarial (gains) losses..................................
Contributions from the employer.....................
Benefits paid.................................................
Others..........................................................
Balance at end of the period...............................

Millions of yen

Thousands of
U.S. dollars¥66,326
2,173
4,982
4,009
(3,711)
94¥73,875$644,446
21,122
48,40838,961(36,064)918$717,791

Hokuhoku Financial Group, Inc. Annual Report 201441

(3) Reconciliation between the liability recorded in the consolidatedbalance sheet and the balances of defined benefit obligationand plan assets

Funded defined benefit obligation.......................
Plan assets........................................................
Unfunded defined benefit obligation....................
Plan assets........................................................
Net liability (asset) arising fromdefined benefit obligation.................................

Liability for retirement benefits............................
Asset for retirement benefits...............................
Net liability (asset) arising fromdefined benefit obligation.................................

Millions of yen

Thousands of
U.S. dollars¥72,726(66,950)
5,776
16,109(6,924)
9,184$706,635(650,505)
56,130156,522(67,285)
89,237¥14,961$145,367

Millions of yen

Thousands of
U.S. dollars¥14,961—$145,367—¥14,961$145,367(4) The components of net periodic benefit costs for the year ended
March 31, 2014, were as follows:

Service cost.......................................................
Interest cost......................................................
Expected return on plan assets...........................
Recognized actuarial (gains) losses.....................
Amortization of prior service costs.......................
Amortization of transitional obligation..................
Others...............................................................
Net periodic benefit costs...................................

Millions of yen

Thousands of
U.S. dollars¥2,002
1,787(2,173)
3,082
(46)
1,939
119
¥6,712$19,461
17,365(21,122)
29,955(454)
18,8481,165$65,218(5) Accumulated other comprehensive income on defined retirement benefit plans as of March 31, 2014

Unrecognized prior service cost..........................
Unrecognized actuarial (gains) losses..................
Unrecognized transitional obligation....................
Total.................................................................

Millions of yen

Thousands of
U.S. dollars¥ (233)
7,942
1,693¥9,401$  (2,273)
77,16816,457$91,352(6) Plan assets• Components of plan assets
Bonds............................................................... 38.99%
Stocks............................................................... 48.42%
Cash and deposits.............................................
0.45%
General accounts...............................................
5.54%
Other................................................................
6.60%
Total................................................................. 100.00%
Note: 23.17% of retirement benefit trust is included in the plan assets.

• Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determined considering the long-term rates of return which are expected currently andin the future from the various components of the plan assets.

42

Hokuhoku Financial Group, Inc. Annual Report 2014(7) Assumptions used for the year ended March 31, 2014, were set
forth as follows:
Discount rate.....................................................
Expected rate of return on plan assets.................

2.0%
3.5%

(b) Defined contribution pension plan

Contribution.......................................................

Millions of yen

Thousands of
U.S. dollars¥ 277$ 2,698(As of March 31, 2013)(a) Retirement benefit
Millions of yen
2013

Projected benefit obligations.............................................
Plan assets at fair value...................................................
Projected benefit obligations in excess of plan assets.........
Unrecognized net transitional obligation ............................
Unrecognized net actuarial loss.........................................
Unrecognized prior service costs.......................................
Net projected benefit obligations recognizedon the consolidated balance sheet .................................
Prepaid pension costs......................................................
Reserve for employee retirement benefits..........................

¥(90,289)
66,326(23,963)3,633
16,419(280)(4,190)
5,638¥(9,829)(b) Retirement benefit expenses
Millions of yen
2013

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

¥1,987
1,801(1,986)
(463)
3,217
1,939
492
¥6,987(c) Assumptions for calculation of projected benefit obligations
2013

Discount rate...................................................................
2.0%
Expected rate of return on pension assets.........................
3.5%
Method of benefit attribution............................................. Straight-line method
Amortization period of prior service costs...........................
8 years
Amortization period of actuarial gain/loss...........................
8 or 9 years
Amortization period of net transitional obligation................. Mainly 15 years18. Equity

19. Capital StockJapanese banks are subject to the Banking Act and the Companies
Act of Japan (the “Companies Act”). The significant provisions in
the Companies Act that affect financial and accounting matters are
summarized below:(a) Dividends	
Under the Companies Act, companies can pay dividends
at any time during the fiscal year in addition to the year-end
dividend upon resolution at the shareholders meeting. For companies that meet certain criteria such as (1) having a Board of
Directors, (2) having independent auditors, (3) having an Audit &Supervisory Board and (4) the term of service of the directors isprescribed as one year rather than two years of normal term by
its articles of incorporation, the Board of Directors may declare
dividends (except for dividends-in-kind) at any time during the
fiscal year if the company has prescribed so in its articles ofincorporation. However, the Company cannot do so because it
does not meet all the above criteria.
		 Semiannual interim dividends may also be paid once a year
upon resolution by the Board of Directors if the articles of incorporation of the Company so stipulate. The Companies Act provides a certain limitation on the amounts available for dividends
or the purchase of treasury stock. The limitation is defined as
the amount available for distribution to the shareholders, but theamount of net assets after dividends must be maintained at noless than ¥3 million.
(b) Increases / decreases and transfer of common stock, reserveand surplus
	The Banking Act requires that an amount equal to 20% of dividends must be appropriated as a legal reserve (a component ofretained earnings) or as additional paid-in capital (a componentof capital surplus) depending on the equity account charged
upon the payment of such dividends until the total of the aggregate amount of the legal reserve and additional paid-in capitalequals 100% of common stock. Under the Companies Act,the total amount of additional paid-in capital and legal reserve
may be reversed without limitation. The Companies Act also
provides that common stock, legal reserve, additional paid-in
capital, other capital surplus and retained earnings can be

Information with respect to capital stock of the Company as ofMarch 31, 2014 and 2013 is as follows:transferred among the accounts under certain conditions upon
resolution of the shareholders.
(c) Treasury stock and treasury stock acquisition rights
	The Companies Act also provides for companies to purchasetreasury stock and dispose of such treasury stock by resolution of the Board of Directors. The amount of treasury stock
purchased cannot exceed the amount available for distribution
to the shareholders which is determined by a specific formula.
		 Under the Companies Act, stock acquisition rights are presented as a separate component of equity.
		 The Companies Act also provides that companies canpurchase both treasury stock acquisition rights and treasury
stock. Such treasury stock acquisition rights are presented asa separate component of equity or deducted directly from stockacquisition rights.

2014

Number of shares:
Authorized:
Common...................................... 2,800,000,000
Preferred (Type 1).........................
400,000,000
Preferred (Type 2).........................
200,000,000
Preferred (Type 3).........................
200,000,000
Preferred (Type 4).........................
90,000,000
Preferred (Type 5).........................
110,000,000
Issued and outstanding:Common...................................... 1,351,630,146
Preferred (Type 5).........................
107,432,000
Treasury stock:
Common......................................
12,067,668
Preferred (Type 5).........................
1,420

2013

2,800,000,000
400,000,000
200,000,000
200,000,000
90,000,000
110,000,000
1,351,630,146
107,432,000
12,266,448
710

Preferred stock (Type 5)
Preferred stock ( Type 5) is noncumulative and nonparticipating
for dividend payments. Shareholders of the preferred stock (Type5) are not entitled to vote at the general meeting of shareholders,
except when the proposal to pay the prescribed dividends toshareholders is not submitted to the general meeting of shareholders or is rejected at the general meeting of shareholders.
Annual dividends per share of preferred stock ( Type 5) are paid
to shareholders at ¥15.00.
The changes in the number of treasury stock for the fiscal year
ended March 31, 2014 and 2013 were as follows:
As of April
2014
1, 2013
Common................ 12,266,448
Preferred (Type 5)....
710

Changes during the fiscal year As of March
Increase*1
Decrease*2
31, 2014
82,606
281,386
12,067,668
710
—
1,420

*1	The increase of common and preferred (Type 5) represents the acquisition of odd-lot shares.
*2	The decrease of common represents the disposal of 1,686 shares of
odd-lot shares and 279,700 shares exercised of stock options.

2013
Common................
Preferred (Type 5)....

As of April Changes during the fiscal year As of March
1, 2012
Increase*1
Decrease*2
31, 2013
2,230,039 50,039,798 40,003,389 12,266,448
710
—
—
710

*1	The increase of common represents the purchases of treasury stock of
50 million shares and the acquisition of 39,798 shares of odd-lot shares.
*2	The decrease of common represents the retirement of treasury stock of
40 million shares and the disposal of 3,389 shares of odd-lot shares.

20. Stock Acquisition Right
Stock acquisition right as of March 31, 2014 and 2013 consistedof stock options.

21. Stock Options
The stock option plans grant options to the Company’s directors
and the Banks’ directors and executive officers to purchase certain
shares of the Company’s common stock in the respective exercise
periods. The exercise prices are subject to adjustments for stock
issuances below fair value and stock splits.

Hokuhoku Financial Group, Inc. Annual Report 201443

Stock option expenses in the amount of ¥114 million ($1,109
thousand) and ¥107 million were recorded under general andadministrative expenses for the year ended March 31, 2014 and2013, respectively.
The stock options outstanding as of March 31, 2014 were as
follows:

Stock option

Persons
grantedNumberof options
granted(Shares)

Date of
grant

19 directors
232012 Stock executive
November
Optionofficers
1,058,500 28, 201219 directors
222013 Stock executive
Optionofficers

629,500

August 13,
2013

22. Per Share Information(1) Net income per share of common stock
Reconciliation of the difference between basic and diluted net
income per share (“EPS”) for the years ended March 31, 2014 and2013 was as follows:Year ended
March 31, 2014

Exercise
price

Exercise period¥1

From November
29, 2012 toNovember 28,
2042

¥1

From August 14,
2013 to August
13, 2043

Basic EPS – Net income
available to common
stockholders
Effect of dilutive securities
Diluted EPS – Net income
for computation

Year ended
March 31, 2013

The stock option activity was as follows:Year ended March 31, 2014

Non-vested:
March 31, 2013–outstanding.........................
Granted.....................................................
Canceled...................................................
Vested.......................................................
March 31, 2014–outstanding.........................
VestedMarch 31, 2013–outstanding.........................
Vested.......................................................
Exercised...................................................
Canceled...................................................
March 31, 2014–outstanding.........................
Exercise price.....................................................
Average stock price at exercise............................
Fair value price at grant date...............................

2012 stock2013 stock
option (Shares) option (Shares)

—
—
—
—
—

—
629,500—
629,500—

995,400—
279,700—
715,700
¥1
$0.01
¥184
$1.79
¥108
$1.05

—
629,500—
2,200
627,300
¥1
$0.01
—
—
¥182
$1.77

The Assumptions Used to Measure the Fair Value of the 2013
Stock Options
Estimate method......................................... Black-Scholes option-pricing model
Volatility of stock price............................ 33.253%
Estimated remaining
outstanding period................................ Two years and nine months
Estimate dividend................................... ¥3.75 per share
Interest rate with risk free....................... 0.125%
In estimating the vested number of stock options, the Company
basically reflects only the actual forfeited number, since it is difficult
to make a reasonable estimate on the future forfeited number.

Basic EPS – Net income
available to common
stockholders
Effect of dilutive securities
Diluted EPS – Net income
for computation

Millions of yen

Thousands ofshares

Net income

Weightedaverage shares

Yen

U.S. dollars
EPS¥25,721

1,339,539
1,171¥19.20$0.19¥25,7211,340,710¥19.18$0.19

Millions of yen

Thousands ofsharesYen

Net income

Weightedaverage shares

EPS¥16,493

1,352,326354¥12.19¥16,493

1,352,680¥12.19(2) Net assets per share of common stock
Net assets per share of common stock as of March 31, 2014 and2013 were as follows:Yen

Net assets per shareof common stock.........................

2014

2013

U.S. dollars
2014¥335.36¥317.93$3.26

Net assets per share of common stock as of March 31, 2014 and2013 were calculated based on the following:
Millions of yen
2014
2013

Total equity.................................... ¥505,125
Deductions from total equity:
Stock acquisition rights..............
191
Minority interests.......................
1,168
Preferred stock..........................
53,715Preferred dividends....................
805
Net assets attributable tocommon stock at the end of
the fiscal year.............................. 449,245
Number of shares of common
stock at the end of the fiscal year
used for the calculation of
net assets per share of common
stock (shares in thousands).......... 1,339,562

Thousands of
U.S. dollars
2014¥481,550$4,907,947

107
1,089
53,715805

1,860
11,350521,913
7,829

425,832

4,364,995

1,339,363

Because of the change of the accounting standard for retirement
benefits, net assets per share of common stock decreased by¥4.54 ($0.04) (see “2u. Changes in Accounting Policies”).

44

Hokuhoku Financial Group, Inc. Annual Report 2014

23. Other Ordinary Income

27. Income Taxes

Other ordinary income for the years ended March 31, 2014 and2013 is as follows:

The Company and its domestic subsidiaries are subject toJapanese national and local income taxes which, in the aggregate,
resulted in a normal effective statutory tax rate of approximately
37.75% for the years ended March 31, 2014 and 2013.
The tax effects of significant temporary differences and tax loss
carryforwards which resulted in deferred tax assets and liabilities at
March 31, 2014 and 2013 are as follows:

Millions of yen
2014
2013

Gain on foreign exchangetransactions – net........................
Gains on sales and redemption ofbonds and other securities...........
Gains on derivatives.......................
Lease receipts...............................
Other............................................
Total.............................................

Thousands of
U.S. dollars
2014¥ 1,698¥ 1,391$ 16,502

1,547
809
6,742
4,274
¥15,072

9,998
1,086
7,016
4,011
¥23,503

15,035
7,865
65,51541,531$146,448

24. Other Ordinary Expenses
Other ordinary expenses for the years ended March 31, 2014 and2013 are as follows:
Millions of yen
2014
2013

Losses on sales, redemption anddevaluation of bonds andother securities............................
Lease costs...................................
Other............................................
Total.............................................

¥   47
5,902
2,803¥8,753¥  945
6,070
2,527¥9,543Thousands of
U.S. dollars
2014$   463
57,34827,239$85,050

25. Other Income
Other income for the years ended March 31, 2014 and 2013 is asfollows:
Millions of yen
2014
2013

Gains on sales of stocks.................
Reversal of allowance
for loan losses.............................
Gains on sales oftangible fixed assets.....................
Other............................................
Total.............................................

Thousands of
U.S. dollars
2014¥1,480¥  393$14,384

2,839—

27,594

5
3,845¥8,171—
2,645¥3,03858
37,365$79,401

26. Other Expenses
Other expenses for the years ended March 31, 2014 and 2013 are
as follows:

Losses on write-offs of loans andbills discounted............................
Losses on sales of stocks...............
Losses on impairments of stocks
and other securities.....................
Losses on sales of loans.................
Losses on impairments anddisposals of fixed assets...............
Other............................................
Total.............................................

Millions of yen
2014
2013

Thousands of
U.S. dollars
2014¥  616693¥   659205$ 5,992
6,736

189
512

8,824
725

1,838
4,976

2,302
2,322
¥6,636570
2,856¥13,841

22,376
22,566$64,484

Millions of yen
2014
2013

Deferred tax assets:
Allowance for loan losses...........
Depreciation..............................
Reserve for employee
retirement benefits..................
Liability for retirement benefits....
Loss on valuation of securities....
Other........................................
Operating loss carryforwards......
Subtotal................................
Less: Valuation allowance..........
Total deferred tax assets............
Deferred tax liabilities:
Valuation difference on
available-for-sale securities......
Book-value correction
for securities...........................
Land transfer through merger.....
Other........................................
Total deferred tax liabilities.........
Net deferred tax assets..............

Thousands of
U.S. dollars
2014¥40,874
1,186¥50,8421,320$397,145
11,527—
17,862
15,1094,936
6,702
86,672
34,861
51,811

14,419—14,9395,513
10,583
97,61836,501
61,117—
173,560
146,81247,965
65,125842,134
338,722503,41230,21826,795

293,608

4,593
3,212
2,409
40,433¥11,378

4,651
3,212
2,315
36,975¥24,141

44,62831,21523,409392,860$ 110,552

A reconciliation between the normal effective statutory tax rate
and the actual effective tax rate reflected in the accompanying
consolidated statement of income for the fiscal year ended March
31, 2014 is as follows:
2014
Normal effective statutory tax rate............................................... 37.75%
Change in valuation allowance...............................................
0.37
Permanently non-taxable income............................................
(1.42)Per capita portion of inhabitants’ taxes...................................
0.34
Permanently non-deductible expenses....................................
0.38
Decrease in deferred tax assets due to changes in tax rate......
1.75
Other....................................................................................
2.95
Actual effective tax rate.............................................................. 42.12%

A reconciliation between the normal effective statutory tax rate andthe actual effective tax rate reflected in the accompanying consolidated statement of income for the fiscal year ended March 31,
2013 is omitted since the difference between the normal effective
statutory tax rate and the actual effective tax rate is less than 5% of
the normal effective statutory tax rate.
New tax reform laws enacted in 2014 in Japan changed thenormal effective statutory tax rate for the fiscal year beginning on
or after April 1, 2014, from approximately 37.75% to 35.37%. The
effect of this change was to decrease deferred tax assets in the

Hokuhoku Financial Group, Inc. Annual Report 201445

consolidated balance sheet as of March 31, 2014, by ¥828 million($8,052 thousand) and to increase income taxes—deferred in the
consolidated statement of income for the year then ended by thesame amount.

28. Other Comprehensive Income
The components of other comprehensive income for the years
ended March 31, 2014 and 2013 are as follows:
Thousands of
U.S. dollars

Millions of yen
2014

Valuation difference on
available-for-sale securities:
Amount incurred
during the fiscal year................ ¥13,137
Reclassification adjustment........
(3,161)
Prior to deducting tax effect....
9,975
Tax effect.............................
(1,332)
Total....................................
8,642
Deferred gains (losses) on hedges:
Amount incurred
during the fiscal year................
Reclassification adjustment........
Prior to deducting tax effect....
Tax effect.............................
Total....................................

(477)
642
165
(58)
106

Share of other comprehensive
income of associates accounted
for using equity method:Amount incurred
during the fiscal year................
61
Reclassification adjustment........
(10)
Prior to deducting tax effect....
51
Tax effect.............................
(4)
Total....................................
46
Total othercomprehensive income................ ¥ 8,795

2013

2014

¥37,235(285)
36,949(11,207)
25,741$127,646(30,723)
96,923(12,950)
83,973

(668)
226
(442)
156
(286)

(4,639)
6,245
1,606
(568)
1,038

23
(11)
12
(5)
6

597
(101)
496
(47)
449

¥25,461$ 85,460

29. Leases(1) Finance lease transactions(Lessee)
The Group leases ATMs, computer equipment, software and otherassets.
(2) Operating lease transactions(Lessee)
The minimum rental commitments under noncancelable operatingleases as of March 31, 2014 and 2013 are as follows:
Millions of yen
2014
2013

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

¥2
5
¥7

¥ 2
7
¥10

Thousands of
U.S. dollars
2014

$24
51
$75

30. Financial Instruments and Related Disclosures(1) Group policy on financial instruments
The Group provides a wide variety of financial services, centeredon banking services such as deposit-taking and lending.
Our lending activities are aimed at achieving co-prosperity withthe regional economy and we endeavor to manage our lending ina sound and appropriate manner, while simultaneously working tostrengthen credit risk management.
Investments in securities are strictly managed based on theGroup’s risk management policies and regulations. Regarding
deposit-taking operations, the Group aims to ensure stable fundraising by the expansion and upgrading of financial services for all
customers in the region. Borrowed money and corporate bonds
are considered a means of medium- to long-term fundraising.
Given the different term structures of the Group’s financial
assets such as loans and financial liabilities such as deposits, it is
exposed to interest-rate fluctuation risk in the financial markets.
For this reason, the Group conducts comprehensive asset liability
management (“ALM”) to appropriately control such market risk andensure stable earnings.
(2) Nature and extent of risks arising from financial instruments
The financial assets held by the Group consist primary of securities and loans to domestic customers. Loans are subject to credit
risks that could cause financial loss to the Group, such as declines
or losses in asset value resulting from a possible deterioration in
the financial condition of borrowers. With regard to securities, theGroup is exposed to the credit risk of issuers, interest-rate risk, andmarket price volatility risk. However, the Group takes adequate
steps to mitigate these risks.
Financial liabilities, including deposits and borrowed money, areexposed to liquidity risk arising from the possibility that the Groupmay be obliged to procure funds at interest rates significantly higher
than normal owing to a sudden change in the market environment
or a deterioration in the Group’s financial position.
The Banks make use of currency-related derivatives suchas currency swaps, forward exchange contracts, and currency
options, as well as interest-related derivatives such as interest-rate
swaps, interest-rate futures, and interest-rate caps, to meet the
ALM needs of the Banks as well as the various needs of the Banks’customers. These derivatives are exposed to the following risks
among others: interest-rate risk, the risk of exchange rate fluctuations, price volatility risk, and credit risk.
However, none of the Group’s financial assets and liabilities
are attended by notably high risk levels, nor do they include any
particular derivatives with high market price volatility.
The Hokuriku Bank, Ltd. applies hedge accounting to hedge
the value of some of its assets and liabilities against interest-ratefluctuations. When applying hedge accounting, the Hokuriku Bank,
Ltd. adopts integrated management in both hedging instruments
and hedged items as long as hedging is installed and evaluates theeffectiveness of the hedges.
(3) Risk management for financial instruments
The Banks have established risk management departments
and have stipulated basic regulations for risk management andother regulations pertaining to risk. In addition, the Banks have46

Hokuhoku Financial Group, Inc. Annual Report 2014

established an ALM Committee and a Comprehensive Risk
Management Committee, where qualified risks and administration
matters are discussed regularly to ensure that all categories ofrisk are managed effectively. Changes in regulations and organizational structures of the Banks are revised or supervised by
the Company to ensure conformance to the Group’s policies andthe results of the above committees are reported to the Company.
(a) Credit Risk Management
The Group’s fundamental policy is to strive for improved earnings
and ensure sound business operations through the appropriate
management of credit risk. In line with this policy, the Company
and the Banks collaborated in establishing various regulations,
including Credit Risk Management Regulations, and also ensuring
the effective operation of internal checking functions by separating
business promotion departments from credit risk management
departments. Rigorous screening is also conducted and credit
ratings are granted based on their Credit Policy. Additionally, thesetting of credit limits is managed on an individual customer basis
to avoid the risk of an overconcentration of loans in particular sectors. Finally, the Banks carry out self-assessment and credit risk
quantification procedures and the risk situation is regularly reported
to the Banks’ Board of Directors.
As for loan screening process of the Banks, the branches concerned carefully analyze each separate loan application and screen
each customer involved. In the event that the decision exceeds
the limits of authority of the branch manager, the appropriate loan
screening departments at the headquarters of the Banks carryout their own analysis and screening. Specialized staff members
in place within the screening departments are responsible for particular industries and geographical areas. These specialists provide
the appropriate advice and guidance to the branches based on theparticular features of the customer.
Concerning the creditworthiness of security issuers and counterparty risk in derivative transactions, credit information and thestate of transactions are regularly monitored and managed by therisk management departments of the Banks.
(b) Market Risk Management
Having stipulated regulations such as Market Risk Management
Regulations and an arranged organizational structure including
ALM and other committees, the Banks appropriately control
market risk associated with lending and deposit-taking in order toensure stable earnings.
Interest Rate Risk Management
The risk management departments of the Banks regularly andcomprehensively monitor the interest rates and time-frames
involved in the Banks’ financial assets and liabilities and monitor
interest risk levels through methods such as gap analysis and sensitivity analysis of interest rates, based on the Banks’ Interest Rate
Risk Management Regulations and other related regulations where
the methods and procedures to be employed for risk management
are described in detail.
The Banks set ceiling amounts for each type of interest rate risk
to control it appropriately. Derivatives such as interest-rate swaps
and interest-rate caps are employed from an ALM perspective sothat the Banks reduce interest rate risk by hedging against interest
rate fluctuations.

Foreign Exchange Risk Management
Using measures such as currency swaps to reduce foreignexchange risk, the Banks manage exchange risk arising from fluctuations in foreign exchange rates that affect the values of assets
and liabilities denominated in foreign currencies.
Price Volatility Risk Management
Regarding investments in instruments such as securities, theBanks carry out prior screening and set investment ceilings, andthen constantly monitor the investment status to minimize pricevolatility risk. Every process above has to be strictly managed
under the supervision of the Banks’ Board of Directors and to bein line with policies laid down by Management Committees. A highpercentage of the stocks held by the Banks are acquired and held
for long-term strategic purposes. The Banks monitor the market
conditions and financial positions of the securities issuers. Valueat Risk (“VaR”) and other methods are used to determine theamount of market risk for each security held. The staff members of
the responsible departments provide regular reports to the Banks’
Board of Directors and Management Committees to confirm thatprice risk is controllable and all rules pertaining to market risk management are being followed correctly.
Derivatives
The Banks arrange their organizational structures securing theseparation and internal check-and-balance mechanisms among
front sections (specializing in market transactions), middle sections(engaging in risk management) and back sections (responsible forbook entries and settlements). Management sections confirm thevalidity of transactions, value the Banks’ daily derivative positions,and measure gains and losses as well as risk levels. Derivativetransactions are carefully managed in such a way that losses neverexceed a predetermined maximum.
Quantitative Information Related to Market Risk
Hokuriku Bank and Hokkaido Bank measure quantitative information related to market risk.
• Financial instruments in the trading accountIn calculating VaR for trading securities and a portion of currencyrelated and interest-related derivative transactions held in the
trading account, Hokuriku Bank adopts the historical simulation
method (a holding period of 1 business day, a confidence intervalof 99% and main observation period of 1,250 business days).
The market risk amounts (VaR) of the trading business of
Hokuriku Bank were ¥17 million ($165 thousand) and ¥80 million
as of March 31, 2014 and 2013, respectively.
Hokkaido Bank has no financial instruments in the trading
accounts.
• Financial instruments in the banking accountIn the Banks, the main financial instruments affected by interest rate risk are “Monetary claims bought,” “Loans and bills
discounted,” “Bonds,” “Deposits,” “Borrowed money,” andtransactions of interest rate swaps, interest swaptions and interest rate caps held in derivative transactions. The main financial
instruments affected by market value are listed stocks and investment trust. The Banks use VaR for integrated management ofthese financial instruments.
For calculating VaR, the Banks adopt the historical simulation
method (a holding period of 120 business days, a confidence
interval of 99% and main observation period of 1,250 business

Hokuhoku Financial Group, Inc. Annual Report 201447

days) and consider the correlations between interest and the fluctuation of prices of the listed stocks. In addition, Hokkaido Bank
has set a holding period of 10 business days for trading accountsecurities (including public bonds traded over the counter) andfor specified fund trust as investment securities. Hokkaido Bank
also considers the correlation between interest rates and thefluctuation of prices of the listed stocks in calculating VaR ofspecified fund trust as investment securities.
Hokuriku Bank’s VaR of the financial instruments in thebanking account were ¥30,730 million ($298,581 thousand) and¥66,928 million as of March 31, 2014 and 2013, respectively.
Hokkaido Bank’s VaR of the financial instruments in the banking account were ¥27,929 million ($271,366 thousand) and¥48,366 million as of March 31, 2014 and 2013, respectively.
Hokkaido Bank’s trading account securities totaled ¥8 million($78 thousand) and ¥19 million as of March 31, 2014 and 2013,
respectively. Hokkaido Bank’s specified fund trust totaled ¥5
million ($49 thousand) and ¥5 million as of March 31, 2014 and2013, respectively.
The Banks perform back testing of the VaR measurement
model at fixed intervals. VaR measures the amount of market risk
by certain occurrence probabilities that are statistically calculated
based on past markets movements. Therefore, there are cases
in which VaR cannot capture risk under sudden and dramaticchanges in markets beyond normal circumstances.
VaR shows the maximum loss during the holding period of
the financial instruments under the confidence interval (99%) thatis statistically calculated based on past market movements. In
particular, the Banks calculate 100BPV (100 Basis Point Value),as supplements, of the assets and liabilities and change in theirpresent value on the assumption that index interest rate rises by
1.00%.
Hokuriku Bank’s 100BPV was a ¥21,180 million decrease($205,791 thousand decrease) and a ¥24,241 million increase
as of March 31, 2014 and 2013, respectively. Hokkaido Bank’s
100BPV was a ¥18,116 million decrease ($176,020 thousand
decrease) and a ¥19,832 million increase as of March 31, 2014
and 2013, respectively.
For calculating 100BPV, the correlations between interest
rates and the other parameters are not considered because the
100BPV is measured on the assumption that risk parameters
except interest rate remain unchanged. Actual risk can exceed
the calculated 100BPV in the case of a drastic change in interest
rates beyond reasonable prior expectations occur.
(c) Liquidity Risk Management
In accordance with the Banks’ rules for management of liquidity
risk, the Banks form an accurate appraisal of fund operations andprocurement, and take measures to ensure smooth cash flows.
Specifically, the Banks set benchmarks in various different categories to check liquidity risk on a daily basis, and maintain adequatelevels of high-liquidity assets that are readily convertible into cash,
such as government bonds.
We have in place mechanisms for periodically assessing andmanaging liquidity risk through ALM committees, to prepare forevery possible scenario.

48

Hokuhoku Financial Group, Inc. Annual Report 2014(4) S upplementary explanation relating to fair values offinancial instruments
The fair values of financial instruments include, in addition to values
determined based on market prices, valuations calculated on areasonable basis if no market prices are available. Certain assumptions are used in the calculations of such amounts. Accordingly,
the result of such calculations may vary if different assumptions areused.
(5) Fair values of financial instruments
The fair value of the main financial instruments at March 31, 2014
and 2013 are as follows. These amounts do not include unlisted
stocks whose fair values are extremely difficult to determine (see(b) Financial instruments whose fair values are deemed to be
extremely difficult to determine).
(a) Fair value of financial instruments
Millions of yen
March 31, 2014

Carrying
amountFair value

Unrealized gains(losses)Cash and due from banks............... ¥   844,182 ¥  844,184
Call loans and bills bought..............
85,73485,734
Monetary claims bought *1..............
71,83571,835
Securities
Bonds classified as
held-to-maturity......................
147,090
150,576
Available-for-sale securities....... 2,316,600
2,316,600
Loans and bills discounted............. 7,323,290
Allowance for loan losses *1.......
(56,601)
7,266,688
7,339,354
Total assets................................... ¥10,732,130 ¥10,808,285¥     1——

Deposits........................................ ¥10,147,805 ¥10,148,619
Borrowed money............................
121,797
123,913
Total liabilities................................ ¥10,269,602 ¥10,272,533

¥ 814
2,116
¥ 2,930

Derivative transactions *2
Derivative transactions not
qualifying for hedge accounting.... ¥     3,733 ¥     3,733
Derivative transactions qualifying
for hedge accounting..................
(1,654)(1,654)
Total derivative transactions........... ¥     2,079 ¥     2,079

3,486
—

72,666¥76,154¥    ——*3¥    —

Millions of yen
March 31, 2013

Carrying amount

Fair value

Unrealized gains(losses)Cash and due from banks............... ¥   553,744 ¥   553,741
Call loans and bills bought..............
135,426
135,426
Monetary claims bought *1..............
78,25978,259Securities
Bonds classified as
held-to-maturity......................
130,718
134,230
Available-for-sale securities....... 2,348,917
2,348,917
Loans and bills discounted............. 7,387,934
Allowance for loan losses *1.......
(70,201)
7,317,733
7,404,733
Total assets................................... ¥10,564,800 ¥10,655,309

87,000¥90,508

Deposits........................................ ¥ 9,982,864 ¥ 9,984,708
Borrowed money............................
252,551
253,632
Total liabilities................................ ¥10,235,416 ¥10,238,341¥ 1,844
1,080¥ 2,924

Derivative transactions *2
Derivative transactions not
qualifying for hedge accounting.... ¥     4,879 ¥     4,879
Derivative transactions qualifying
for hedge accounting..................
(968)
(968)
Total derivative transactions........... ¥     3,911 ¥     3,911¥     (3)
—
—

3,511
—

¥     ——*3¥     —

Thousands of U.S. dollars
March 31, 2014

Carrying amount

Fair value

Unrealized gains(losses)$ 8,202,320 $  8,202,335
833,017
833,017
697,974
697,974$     15——

1,429,168
1,463,046
22,508,746 22,508,746
71,155,170(549,959)
70,605,211 71,311,258
Total assets................................... $104,276,436 $105,016,376

33,878—706,047$739,940

Deposits........................................ $ 98,598,964 $ 98,606,879
Borrowed money............................
1,183,418
1,203,978Total liabilities................................ $ 99,782,382 $ 99,810,857$ 7,915
20,560$ 28,475

Cash and due from banks...............
Call loans and bills bought..............
Monetary claims bought *1..............
Securities
Bonds classified as
held-to-maturity......................
Available-for-sale securities.......
Loans and bills discounted.............
Allowance for loan losses *1.......

Derivative transactions *2
Derivative transactions not
qualifying for hedge accounting.... $     36,272 $     36,272
Derivative transactions qualifying
for hedge accounting..................
(16,071)(16,071)
Total derivative transactions........... $     20,201 $     20,201$     ——*3$     —

*1.	Allowance for loan losses shown on this table represents the generalallowance and specific allowance for loan losses. Figures for allowance
for loan losses on monetary claims bought are directly deducted fromthe balance of monetary claims bought as the amount concerned isinsignificant.
*2.	Derivative transactions included in trading assets and liabilities and otherassets and liabilities are shown together. Assets and liabilities arisingfrom derivative transactions are shown within parentheses with respect
to net liabilities.
*3.	As interest-rate swaps subject to exceptional treatment are accounted
for together with the loans being hedged by the swaps, their fair value isincluded in the loans in question on the consolidated balance sheet.

Cash and due from banks
The fair values of due from banks with no maturity are considered
to be equal to the book value since the fair values of these items
approximate their book values. The fair values of due from bankswith maturity are calculated using the total cash flows from principal and interest discounted by current market interest rates, taking
into account the credit risk involved. This calculation is performed
separately for each maturity length. In the event that the terms ofdue from banks are one year or less, the book values are regarded
as approximate to the fair values and are therefore treated as such.
Call loans and bills bought
The fair values of call loans and bills bought are considered to beequal to the book value since the contractual terms are one year orless and fair values of these items approximate their book values.
Monetary claims bought
The fair values of trust beneficiary rights relating to mortgage loans
purchased by the Banks and relating to loan claims are determinedbased on the quoted prices obtained from counterparty financial
institutions. The fair values of small-lot monetary claims resulting
from asset liquidations are determined by discounting the cash
flows at the market interest rates, taking into account the credit
risk involved.
Securities
The fair values of stocks are calculated on the basis of the average
price of the stocks on the stock market for the one-month period
immediately preceding the last day of the accounting term. The
fair values of bonds are calculated using the price indicated on the
securities market or other officially announced prices. In the eventthat neither of these fair values are available, the price is basedon a reasonable estimate. For investment trusts, the fair value iscalculated on the basis of a publicly available benchmark price.
For privately-placed bonds guaranteed by one of the Banks,
the present value is separately calculated using the present value
discounted by the market interest rate where the credit risk of eachbond issuer and the remaining period of the bonds are considered.
For more detailed information regarding the different typesof securities classified according to holding purpose, see “5.
Securities.”
Loans and bills discounted
As loans with variable interest rates reflect short-term market
interest rates, the fair value will approximate the book value unlessthe creditworthiness of the borrower changes subsequent to thegrading of the loan. Because of this, the book value is employed
as the fair value.
For loans with fixed interest rates, the fair value is calculatedusing the total future cash flows from principal and interest discounted by current market interest rates, taking into account thecredit risk involved. This calculation is performed separately foreach different category of loans, classified by type of loan, internal
credit ratings and maturity length. For loans whose repayment
period is one year or less, the book value is a close approximationof the fair value and is therefore employed as such.
Regarding the fair value of claims on bankrupt borrowers,
substantially bankrupt borrowers, and potentially bankrupt borrowers, credit losses are estimated based on the present valueof estimated future cash flows or the estimated value recoverablefrom collateral and guarantees. Since the fair value is approximate

Hokuhoku Financial Group, Inc. Annual Report 201449

to the value stated on the consolidated balance sheet as of thesettlement date, minus the present value of estimated bad debt,
this figure is therefore treated as the fair value.
For the category of loans whose maturity is not fixed becauseof the loan ceiling set within the estimated value recoverable fromthe collateral, the book value is regarded as approximate to thefair value because of the expected period for repayment and theinterest rates applied. The book value is therefore employed as thefair value.
Deposits
For demand deposits, the amount payable on demand as of theconsolidated balance sheet date (i.e., the carrying amount) is considered to be the fair value. In addition, the fair value of time deposits is calculated by discounting the estimated future cash flows foreach of the specified periods. This calculation is performed separately as per the remaining maturity of time deposits. The discountrate employed is the interest rate that would be applied to newly
accepted deposits. In the event that the deposit term is one year
or less, the book value is regarded as approximate to the fair value
and is therefore treated as such.
Borrowed money
Borrowed money with floating interest rates reflect market interest
rates and because the credit standing of the Company and its
consolidated subsidiaries has changed little since the taking out of
those loans, the book value is regarded as approximate to the fairvalue and is therefore treated as such.
For money borrowed through loans carrying fixed rates, thecurrent value of these loans is determined by discounting the totalof their principal plus interest (separately for each specific period) at
the rate currently applied to other loans of the same duration andterms. For loans whose repayment period is one year or less, thebook value is regarded as being approximate to the fair value andis therefore treated as such.
Derivative transactions
Derivative transactions include interest rate-related transactions(futures, options, swaps and others), foreign exchange-relatedtransactions (futures, options, swaps and others) and commodityrelated transactions and are based on the prices on securities
exchanges, discounted value of future cash flows, option pricing
models and others.
(b) Financial instruments whose fair values are deemed to be
extremely difficult to determine
Financial instruments whose fair values are deemed to be extremely
difficult to determine are indicated below, and are not included in“Monetary claims bought” and “Available-for-sale securities” in thefair value information of financial instruments.
Consolidated balance sheet amounts
Millions of yen
2014
2013

March 31

Monetary claims bought(subordinated beneficiaryrights in securitization ofmortgage loans) *1..............
Unlisted stocks *1, 2...............
Unlisted
foreign securities *1.............
Total....................................

Thousands of
U.S. dollars
2014¥ 8,325
29,929¥ 8,604
30,157$ 80,890
290,8030¥38,255

0¥38,7624$371,697*1.	These items are excluded from “fair value information of financial
instruments” on the basis that no market price is available and adetermination of the fair value would be extremely difficult.
*2.	Unlisted stocks were written down by ¥22 million ($221 thousand) and¥217 million as of March 31, 2014 and 2013, respectively.

(6) Maturity analysis for financial assets and securities with contractual maturities

50

March 31, 2014

Due in 1 year
or less

Due after 1 year
through 3 years

Millions of yen
Due after 3 years
through 5 years

Due after 5 years
through 7 years

Due after
7 years

Due from banks................................................................................
Call loans and bills bought.................................................................
Monetary claims bought....................................................................
Securities.........................................................................................
Bonds classified as held-to-maturity..............................................
Japanese government bonds....................................................
Japanese corporate bonds........................................................
Available-for-sale securities with maturities....................................
Japanese government bonds....................................................
Japanese local government bonds............................................
Japanese corporate bonds........................................................
Other.......................................................................................
Loans and bills discounted................................................................
Total................................................................................................

¥  713,434
85,734
1,872
190,170
19,0697,000
12,069171,101
65,00061,57438,925
5,602
2,055,024¥3,046,235¥    4,000——
643,701
28,138
4,020
24,118615,563333,100
136,942
101,952
43,5691,481,807¥2,129,508¥      ——
—465,295
31,5122,500
29,012433,783
269,100
93,91941,39929,364
1,008,910¥1,474,205¥      —
—3,056553,716
6,627
2,520
4,107
547,089
437,800
92,113
13,9003,276
620,555¥1,177,328¥      —
—66,649370,396
61,85061,500350
308,546
205,500
22,462
68,027
12,556
1,954,943¥2,391,988

Hokuhoku Financial Group, Inc. Annual Report 2014

March 31, 2013

Due in 1 year
or less

Due after 1 year
through 3 years

Millions of yen
Due after 3 years
through 5 years

Due after 5 years
through 7 years

Due after
7 years

Due from banks................................................................................
Call loans and bills bought.................................................................
Monetary claims bought....................................................................
Securities.........................................................................................
Bonds classified as held-to-maturity..............................................
Japanese government bonds....................................................
Japanese corporate bonds........................................................
Available-for-sale securities with maturities....................................
Japanese government bonds....................................................
Japanese local government bonds............................................
Japanese corporate bonds........................................................
Other.......................................................................................
Loans and bills discounted................................................................
Total................................................................................................

¥  430,591
135,426
1,997
179,321
9,463
3,010
6,453
169,858
42,10058,21854,784
14,7552,213,331¥2,960,668¥    4,000——
495,583
28,625
8,520
20,105466,958
190,800
162,380
89,191
24,586
1,483,240¥1,982,824¥       ——
—549,225
24,7772,500
22,277524,448369,900
80,97152,00921,567
1,056,814¥1,606,039¥       —
—400457,197
4,151
—
4,151
453,046
328,900
102,402
17,613
4,129
568,593¥1,026,190¥       —
—75,351
604,245
63,87563,520355
540,370
415,600
44,12067,13013,5191,833,849¥2,513,446

March 31, 2014

Due in 1 year
or less

Due after 1 year
through 3 years

Due from banks................................................................................
Call loans and bills bought.................................................................
Monetary claims bought....................................................................
Securities.........................................................................................
Bonds classified as held-to-maturity..............................................
Japanese government bonds....................................................
Japanese corporate bonds........................................................
Available-for-sale securities with maturities....................................
Japanese government bonds....................................................
Japanese local government bonds............................................
Japanese corporate bonds........................................................
Other.......................................................................................
Loans and bills discounted................................................................
Total................................................................................................

$ 6,931,930
833,017
18,193
1,847,748
185,280
68,014
117,266
1,662,468
631,558598,271378,20754,432
19,967,207$29,598,095$    38,865——
6,254,386
273,397
39,060234,337
5,980,989
3,236,494
1,330,568
990,598
423,329
14,397,663$20,690,914

Thousands of U.S. dollars
Due after 3 years
Due after 5 years
through 5 years
through 7 years$       ——
—4,520,945
306,180
24,291
281,889
4,214,765
2,614,655
912,548402,251
285,3119,802,859$14,323,804$       —
—29,6955,380,067
64,39024,48539,9055,315,677
4,253,790
894,997135,056
31,834
6,029,495$11,439,257

Due after
7 years$       —
—647,5823,598,874
600,952
597,5513,401
2,997,922
1,996,697
218,250
660,976
121,999
18,994,790$23,241,246

Loans and bills discounted
Claims on bankrupt borrowers, substantially bankrupt borrowers, and potentially bankrupt borrowers amounted to ¥167,492 million ($1,627,404
thousand) and ¥196,495 million as of March 31, 2014 and 2013, respectively, and loans with no contractual maturities amounted to ¥34,555
million ($335,752 thousand) and ¥35,610 million as of March 31, 2014 and 2013, respectively. They are not included in the table above.
(7) Maturity analysis for financial liabilities with contractual maturities

March 31, 2014

Due in 1 year
or less

Due after 1 year
through 3 years

Millions of yen
Due after 3 years
through 5 years

Due after 5 years
through 7 years

Due after
7 years

Deposits...........................................................................................
Borrowed money...............................................................................
Total................................................................................................

¥8,766,223
20,150¥8,786,373¥1,096,413
784¥1,097,197¥277,865
362¥278,228¥ 2,586
61,000¥63,586¥ 4,71739,500¥44,217

March 31, 2013

Due in 1 year
or less

Due after 1 year
through 3 years

Millions of yen
Due after 3 years
through 5 years

Due after 5 years
through 7 years

Due after
7 years

Deposits...........................................................................................
Borrowed money...............................................................................
Total................................................................................................

¥8,473,114
146,408¥8,619,523¥1,173,962
513¥1,174,476¥329,555
130¥329,685¥ 2,076
50,000¥52,076¥ 4,154
55,500¥59,654

March 31, 2014

Due in 1 year
or less

Due after 1 year
through 3 years

Deposits...........................................................................................
Borrowed money...............................................................................
Total................................................................................................

$85,175,119
195,789$85,370,908$10,653,063
7,618$10,660,681

Thousands of U.S. dollars
Due after 3 years
Due after 5 years
through 5 years
through 7 years$2,699,818
3,525$2,703,343$ 25,131
592,693$617,824

Due after
7 years$ 45,833
383,793$429,626

Deposits
Demand deposits are included in “Due in 1 year or less.”
Hokuhoku Financial Group, Inc. Annual Report 201451

31. Derivatives(1) Derivative transactions to which hedge accounting is not appliedWith respect to derivatives to which hedge accounting is not applied, notional principal or contract amount, fair value at the balance sheet
date by transaction type and related unrealized gain or loss and computation method of fair value are as follows. Note that contract amounts
do not represent the market risk exposure of derivative transactions.
• Interest Rate-Related Transactions
Millions of yen
March 31, 2014

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

March 31, 2013

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

March 31, 2014

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

Notional or contract amountTotal
Due after 1 year

¥517,383
520,067
280,217285,9141,923
12/¥471,044
473,475
126,822
127,153707
12/Fair value

Unrealized gain (loss)¥9,346(5,776)(2,978)2,982(0)
0¥3,573¥9,346(5,776)
(799)
2,982
103
(4)
¥5,851Millions of yen
Notional or contract amountTotal
Due after 1 year
Fair value¥610,524
614,867
333,845339,287
4,088
462
/

¥559,504
562,325
266,332
266,9822,359
22/¥11,887(6,969)(3,868)3,869(1)
0¥ 4,918

Thousands of U.S. dollars
Notional or contract amountTotal
Due after 1 year
Fair value$5,027,046
5,053,123
2,722,673
2,778,026
18,692
121/$4,576,798
4,600,427
1,232,239
1,235,460
6,875
121
/

$90,814(56,129)(28,939)
28,984(6)
0$34,724

Unrealized gain (loss)¥11,887(6,969)(1,221)
3,869
189
(13)
¥ 7,742

Unrealized gain (loss)$90,814(56,129)(7,773)28,984
1,002(44)$56,854

Notes: 1. The above transactions are stated at fair value and unrealized gain or loss is charged to income or expenses in the consolidated statement of income.
2. The fair value is determined using the discounted value of future cash flows, option pricing models, etc.

• Foreign Exchange-Related Transactions

March 31, 2014

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

52

Hokuhoku Financial Group, Inc. Annual Report 2014

Millions of yen
Notional or contract amountTotal
Due after 1 year
Fair value¥  5,203
20,091
11,380250,439
250,439/¥    990
54
72
172,141
172,141/¥     7(236)
347
(10,130)
10,130¥   118

Unrealized gain (loss)¥     7(236)
347
16,304(13,431)¥ 2,992

March 31, 2013

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

March 31, 2014

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

Millions of yen
Notional or contract amountTotal
Due after 1 year
Fair value¥ 15,742
28,14819,677300,094
300,094/¥  4,984
141—
222,524
222,524/¥    21(827)
690(12,143)
12,142¥  (116)

Thousands of U.S. dollars
Notional or contract amountTotal
Due after 1 year
Fair value$ 50,557
195,214
110,575
2,433,343
2,433,343/$ 9,619533
705
1,672,576
1,672,576/$    76(2,297)
3,378(98,428)
98,426$ 1,155

Unrealized gain (loss)¥    21(827)
690
21,787(17,436)¥ 4,235

Unrealized gain (loss)$     76
(2,297)
3,378
158,418(130,501)$ 29,074

Notes: 1. The above transactions are stated at fair value and unrealized gain or loss is charged to income or expenses in the consolidated statement of income.
2. The fair value is determined using the discounted value of future cash flows.

• Commodity Related Transactions

March 31, 2014

Millions of yen
Notional or contract amountTotal
Due after 1 year
Fair value

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

¥749
749
/

March 31, 2013

Millions of yen
Notional or contract amountTotal
Due after 1 year
Fair value

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

¥1,407
1,407/

March 31, 2014

Thousands of U.S. dollars
Notional or contract amountTotal
Due after 1 year
Fair value

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

$ 7,281
7,281
/

¥519
519
/

¥(28)
68
¥ 40

¥1,4071,407/¥ (88)
166¥ 77$ 5,046
5,046/$(272)
665$ 393

Unrealized gain (loss)

¥(28)
68
¥ 40

Unrealized gain (loss)¥ (88)
166¥ 77

Unrealized gain (loss)$(272)
665$ 393

Notes: 1. The above transactions are stated at fair value and unrealized gain or loss is charged to income or expenses in the consolidated statement of income.
2. The fair value is determined using the price of the underlying asset, terms of contract and other factors which structure the contract.
3. The above derivative transactions consist of the oil, copper, aluminum, etc.

Hokuhoku Financial Group, Inc. Annual Report 201453

(2) Derivative transactions to which hedge accounting is appliedWith respect to derivatives to which hedge accounting is applied, notional principal or contract amount and fair value at the balance sheet
date by transaction type and hedge accounting method and computation method of the fair value are as follows. Note that contract amounts
do not represent the market risk exposure of derivative transactions.
• Interest Rate-Related Transactions
March 31, 2014
Hedge accounting method

Type

Hedged item

Swaps
Yen-based bondReceive/floating and pay/fixed
Swaps
Loans and bills discounted
Exceptional treatment forinterest swaps
Receive/floating and pay/fixed
Total........................................................................................................................................................
Accounting method
employed in principle

March 31, 2013
Hedge accounting method

Type

Hedged item

Swaps
Yen-based bondReceive/floating and pay/fixed
Swaps
Loans and bills discounted
Exceptional treatment forinterest swaps
Receive/floating and pay/fixed
Total........................................................................................................................................................
Accounting method
employed in principle

Millions of yen
Notional or contract amountTotal
Due after 1 year

Fair value¥50,000¥50,000¥(379)

15,934/

12,934/(Note)¥(379)

Millions of yen
Notional or contract amountTotal
Due after 1 year

Fair value¥50,000¥50,000¥(525)

24,522/

24,522/(Note)¥(525)March 31, 2014

Thousands of U.S. dollars
Notional or contract amount

Hedge accounting method

Type

Hedged item

Swaps
Yen-based bondReceive/floating and pay/fixed
Swaps
Loans and bills discounted
Exceptional treatment forinterest swaps
Receive/floating and pay/fixed
Total........................................................................................................................................................
Accounting method
employed in principle

Total

Due after 1 year

Fair value$485,814$485,814$(3,687)

154,825/

125,676/(Note)$(3,687)

Notes: 1. Deferred hedge accounting is mainly applied in accordance with JICPA Industry Audit Committee Report No. 24.
2. The fair value is determined using the discounted value of future cash flows, option pricing models, etc.
3. Amounts resulting from interest swaps with exceptional treatment are accounted for together with the financial instruments hedged. As a result, the fairvalue is included in the fair value of the loans stated in “30. Financial Instruments and Related Disclosures.”• Foreign Exchange-Related Transactions
March 31, 2014
Hedge accounting method

Type

Hedged item

Foreign loans
Call loans and due from banks(foreign currencies)
Total........................................................................................................................................................
Accounting method
employed in principle

Swaps
Forward contracts

March 31, 2013
Hedge accounting method

Type

Hedged item

Swaps
Forward contracts

Millions of yen
Notional or contract amountTotal
Due after 1 year¥630¥   (76)

119,469/—/(1,198)¥(1,274)

Millions of yen
Notional or contract amountTotal
Due after 1 year

Fair value

Foreign loans
Accounting method
employed in principle
Call loans and due from banks(foreign currencies)
Total........................................................................................................................................................

¥   534¥534¥(126)

58,275
/

—
/

(315)
¥(442)March 31, 2014

Thousands of U.S. dollars
Notional or contract amountTotal
Due after 1 year

Hedge accounting method

Type

Swaps
Forward contracts

Hedged item

Foreign loans
Call loans and due from banks(foreign currencies)
Total........................................................................................................................................................
Accounting method
employed in principle

Hokuhoku Financial Group, Inc. Annual Report 2014

Fair value$    6,122$6,122$   (743)

1,160,797/—/(11,641)$(12,384)

Notes: 1. Deferred hedge accounting is mainly applied in accordance with JICPA Industry Audit Committee Report No. 25.
2. The fair value is determined using the discounted value of future cash flows.

54

Fair value¥    630

32. Segment Information
Under ASBJ Statement No. 17, “Accounting Standard for Segment Information Disclosures,” and issued ASBJ Guidance No. 20, “Guidanceon Accounting Standard for Segment Information Disclosures,” an entity is required to report financial and descriptive information about its
reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria.
Operating segments are components of an entity about which separate financial information is available and such information is evaluatedregularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, segment
information is required to be reported on the same basis as is used internally for evaluating operating segment performance and deciding how
to allocate resources to operating segments.
(1) Outline of reportable segments
The Group’s reportable segment is defined as an operating segment for which discrete financial information is available and examined by the
Board of Directors and Management Committees regularly in order to make decisions about resources to be allocated to the segment andassess its performance.
The Group comprehensively conducts banking business as its core business and other financial services under the control of the Company.
The Company recognized each of its consolidated subsidiaries as an operating segment. Therefore, Hokuriku Bank and Hokkaido Bank
are reportable segments.
(2) Method of calculating ordinary income, profit (loss), assets, liabilities and other amounts by reportable segments
Method of calculation applied to the reported operating segments is the same as described in “Significant Accounting Policies.” Profits ofoperating segments are the same as net income. Ordinary income from intersegment transactions is based on transaction prices determinedin the same manner as ordinary income from outside customers.
Because of the change in accounting estimates of allowance for loan losses, the segment profit of Hokuriku Bank decreased by ¥2,578
million ($25,052 thousand) and the influence on Hokkaido Bank was negligible.
(3) Information on ordinary income, profit (loss), assets, liabilities and other amounts by reportable segments
Segment results for the years ended March 31, 2014 and 2013 are as follows:
Millions of yen
2014
Reportable segments
Hokuriku Bank Hokkaido Bank

Ordinary income
Ordinary income from outside customers...........................
Ordinary income from intersegment transactions................
Total...................................................................................
Segment profit.....................................................................
Segment assets...................................................................
Segment liabilities................................................................
OthersDepreciation....................................................................
Amortization of goodwill....................................................
Unamortized balance of goodwill.......................................
Increase in tangible fixed assets and intangible
fixed assets...................................................................

Subtotal

Othersegment

Total

Reconciliation

Consolidated¥   96,777
1,019
97,797
17,8336,460,371¥6,170,022¥   79,723
482
80,206
9,693
4,599,042¥4,415,948¥   176,501
1,501
178,003
27,527
11,059,414¥10,585,970¥16,263
5,207
21,471
2,465
79,765¥66,072¥   192,765
6,709
199,474
29,992
11,139,179¥10,652,043¥ (1,798)(6,709)(8,508)(2,660)(24,372)¥(42,361)¥   190,966—
190,966
27,332
11,114,807¥10,609,681¥    4,499——¥    3,720——¥     8,219——¥   301——¥     8,520——¥     43
2,102
21,898¥ 8,564
2,102
21,898¥    2,712¥    2,245¥     4,957¥   103¥     5,061¥     (1)¥     5,059

Millions of yen
2013
Reportable segments
Hokuriku Bank Hokkaido Bank

Ordinary income
Ordinary income from outside customers........................... ¥   101,908
Ordinary income from intersegment transactions................
1,177
Total...................................................................................
103,086
Segment profit.....................................................................
12,315
Segment assets................................................................... 6,276,045
Segment liabilities................................................................ ¥6,007,408
OthersDepreciation.................................................................... ¥    4,494
Amortization of goodwill....................................................
—
Unamortized balance of goodwill.......................................
—
Increase in tangible fixed assets and intangible
fixed assets................................................................... ¥    3,020

Subtotal

Othersegment

Total

Reconciliation

Consolidated¥   81,227
382
81,6097,270
4,647,435¥4,472,758¥   183,135
1,560
184,696
19,586
10,923,481¥10,480,167¥16,037
5,654
21,691
1,108
76,746¥65,380¥   199,173
7,215
206,388
20,695
11,000,228¥10,545,547¥    (36)(7,215)(7,251)(2,590)(20,997)¥(47,866)¥   199,136—
199,136
18,105
10,979,231¥10,497,680¥    4,078——¥     8,573——¥   331——¥     8,904——¥   185
2,113
24,000¥     9,090
2,113
24,000¥    1,218¥     4,239¥    99¥     4,338¥     1¥     4,340

Hokuhoku Financial Group, Inc. Annual Report 201455

Thousands of U.S. dollars
2014
Reportable segments
Hokuriku Bank Hokkaido Bank

Other
segment

Subtotal

Ordinary income
Ordinary income from outside customers........................... $   940,321 $   774,617 $  1,714,938
Ordinary income from intersegment transactions................
9,903
4,691
14,594
Total...................................................................................
950,224
779,308
1,729,532
Segment profit.....................................................................
173,280
94,183
267,463
Segment assets................................................................... 62,770,811 44,685,605 107,456,416
Segment liabilities................................................................ $59,949,692 $42,906,611 $102,856,303
OthersDepreciation.................................................................... $    43,714 $    36,153 $     79,867
Amortization of goodwill....................................................
———
Unamortized balance of goodwill.......................................
———
Increase in tangible fixed assets and intangible
fixed assets................................................................... $    26,359 $    21,814 $     48,173

Reconciliation

Total

Consolidated$158,024
50,596208,620
23,957775,024$641,978$  1,872,962 $ (17,478) $  1,855,484
65,190(65,190)—
1,938,152(82,668)
1,855,484
291,420(25,846)
265,574
108,231,440 (236,810) 107,994,630$103,498,281 $(411,598) $103,086,683$  2,925——$     82,792 $    424
—20,426—
212,773$  1,002$     49,175 $     (14) $     49,161$ 83,216
20,426
212,773(4) Information about services
Millions of yen
Deposit and Investment
loan operations operations

Ordinary income from outside customers
Year ended March 31, 2014.......................................... ¥117,792
Year ended March 31, 2013............................................ ¥123,612¥30,298¥35,882

Thousands of U.S. dollars

Other

Total

¥42,875¥39,641¥190,966¥199,136

Deposit and Investment
loan operations operations$1,144,502 $294,389

Other

Total

$416,593 $1,855,484(5) Geographic segment information
There is no geographic segment accounting for 10% or more of ordinary income.
(6) Information by major customer
There are no major customers individually accounting for 10% or more of ordinary income.

33. Related Party Transactions
Related party transactions as of March 31, 2014 and 2013 were as follows:• Officers and principal individual shareholders of the company submitting consolidated financial statements
March 31, 2014
Transaction amount *3
Related party

Account Classification

Nakamura-tome Precision Industry co., ltd. *2
NAKAMURA-TOME HOLDING CO., LTD. *2

Loans and bills discounted
Loans and bills discounted

Balance at end of year

Millions of yen

Thousands of
U.S. dollars

Millions of yen

Thousands of
U.S. dollars

¥950
¥783

$9,230$7,608¥950¥783$9,230$7,608March 31, 2013
Related party

Account Classification

Nakamura-tome Precision Industry co., ltd. *2
NAKAMURA-TOME HOLDING CO., LTD. *2

Loans and bills discounted
Loans and bills discounted

Transaction amount *3
Millions of yen

Balance at end of year
Millions of yen

¥950
¥431

¥950
¥783

Note: 1. Terms and conditions of the transactions are similar to those with unrelated parties.
2. A member of the Hokuriku Bank’s audit & supervisory board and his close relatives own the majority of the voting rights, and he is the president of thesecompanies.
3. Transaction amount was reported at the average balance for the period.

34. Subsequent Event(1) Appropriations of retained earnings
The following appropriations of retained earnings at March 31, 2014 were approved at the Company’s general stockholders’ meeting held on
June 25, 2014:

Cash dividends, ¥4.00 ($0.04) per share on common stock.......................................................................................................
Cash dividends, ¥7.50 ($0.07) per share on preferred stock (Type 5)..........................................................................................

56

Hokuhoku Financial Group, Inc. Annual Report 2014

Millions of yen

Thousands of
U.S. dollars¥5,358805$52,068
7,829

INDEPENDENT AUDITOR’S REPORT

Hokuhoku Financial Group, Inc. Annual Report 201457

NONCONSOLIDATED FINANCIAL STATEMENTS

NON-CONSOLIDATED BALANCE SHEET (UNAUDITED)The Hokuriku Bank, Ltd.

2014

2013

Thousands of
U.S. dollars
2014

AssetsCash and due from banks..................................................................................
Call loans and bills bought..................................................................................
Monetary claims bought.....................................................................................
Trading assets....................................................................................................
Securities...........................................................................................................
Loans and bills discounted.................................................................................
Foreign exchanges.............................................................................................
Other assets.......................................................................................................
Tangible fixed assets..........................................................................................
Intangible fixed assets........................................................................................
Deferred tax assets.............................................................................................
Customers’ liabilities for acceptances and guarantees........................................
Allowance for loan losses...................................................................................
Total assets......................................................................................................

¥  696,147
85,73480,1603,169
1,238,326
4,227,696
7,172
24,06578,867
5,784
749
36,148(23,651)¥6,460,371¥  394,219
45,42686,8604,499
1,269,622
4,332,774
5,594
31,571
81,257
7,345
11,48538,481(33,093)¥6,276,045$ 6,763,966
833,017
778,864
30,797
12,031,936
41,077,503
69,694
233,824
766,295
56,2087,285
351,229(229,807)$62,770,811

Liabilities and equity
Liabilities
Deposits.............................................................................................................
Call money and bills sold....................................................................................
Trading liabilities.................................................................................................
Borrowed money................................................................................................
Foreign exchanges.............................................................................................
Other liabilities....................................................................................................
Reserve for employee retirement benefits...........................................................
Reserve for directors’ and audit & supervisory board members’ retirement benefits....
Reserve for contingent losses.............................................................................
Reserve for reimbursement of deposits...............................................................
Deferred tax liabilities for land revaluation............................................................
Acceptances and guarantees.............................................................................
Total liabilities...................................................................................................

¥5,909,098
52,642
1,434
111,942
119
49,051
105
89
1,675
842
6,872
36,1486,170,022¥5,726,249
38,4642,052
165,06162
26,102
113
294
2,169
848
7,506
38,481
6,007,408$57,414,480
511,488
13,936
1,087,664
1,157
476,595
1,027
871
16,283
8,184
66,778351,22959,949,692

140,409
14,99880,377140,409
14,99864,632

1,364,259
145,733
780,973

46,576(194)
8,182
290,349¥6,460,371

39,557(301)
9,340
268,637¥6,276,045

452,548(1,894)79,5002,821,119$62,770,811

Millions of yen
March 31

EquityCapital stock......................................................................................................
Capital surplus....................................................................................................
Retained earnings ..............................................................................................
Valuation and translation adjustments
Valuation difference on available-for-sale securities........................................
Deferred gains (losses) on hedges.................................................................
Revaluation reserve for land...........................................................................
Total equity.......................................................................................................
Total liabilities and equity................................................................................

58

Hokuhoku Financial Group, Inc. Annual Report 2014

NON-CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)The Hokuriku Bank, Ltd.

2014

2013

Thousands of
U.S. dollars
2014

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 income...................................................................................................
Other ordinary income........................................................................................
Other income......................................................................................................
Total income.......................................................................................................

¥57,923
12,304710
800
16,220
309
2,738
6,795
97,802¥ 61,739
13,318298
860
17,712
152
7,452
1,551
103,086$562,799
119,558
6,904
7,781
157,600
3,008
26,60466,027950,281

Expenses
Interest expenses:
Interest on deposits.......................................................................................
Interest on borrowings and rediscounts.........................................................
Other interest expenses.................................................................................
Fees and commissions.......................................................................................
Other ordinary expenses.....................................................................................
General and administrative expenses..................................................................
Provision of allowance for loan losses.................................................................
Other expenses..................................................................................................
Total expenses...................................................................................................

3,222
1,460
740
7,097
5
53,974—
2,926
69,427

4,315
1,563
345
7,089
407
54,1438,487
8,803
85,15631,312
14,188
7,200
68,96058
524,431—
28,433
674,582

28,374

17,930275,699

1,106
9,434
¥17,833270
5,344¥ 12,315

10,747
91,672$173,280

Millions of yen
Year ended March 31

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

Hokuhoku Financial Group, Inc. Annual Report 2014

59

NON-CONSOLIDATED BALANCE SHEET (UNAUDITED)The Hokkaido Bank, Ltd.

2014

2013

Thousands of
U.S. dollars
2014

AssetsCash and due from banks..................................................................................
Call loans and bills bought..................................................................................
Trading account securities..................................................................................
Money held in trust.............................................................................................
Securities...........................................................................................................
Loans and bills discounted.................................................................................
Foreign exchanges.............................................................................................
Other assets.......................................................................................................
Tangible fixed assets..........................................................................................
Intangible fixed assets........................................................................................
Deferred tax assets.............................................................................................
Customers’ liabilities for acceptances and guarantees........................................
Allowance for loan losses...................................................................................
Total assets......................................................................................................

¥  146,774
—
1,837
7,759
1,243,120
3,108,677
7,333
38,19929,792
5,008
8,778
26,143(24,383)¥4,599,042¥  158,344
90,0002,728
4,000
1,228,276
3,069,307
5,021
40,51929,9006,497
13,836
26,533(27,531)¥4,647,435$ 1,426,107—
17,85375,395
12,078,516
30,204,797
71,258371,155
289,472
48,65985,295254,015(236,917)$44,685,605

Liabilities and equity
Liabilities
Deposits.............................................................................................................
Call money and bills sold....................................................................................
Borrowed money................................................................................................
Foreign exchanges.............................................................................................
Bonds payable...................................................................................................
Other liabilities....................................................................................................
Reserve for employee retirement benefits...........................................................
Reserve for directors’ and audit & supervisory board members’ retirement benefits....
Reserve for contingent losses.............................................................................
Reserve for reimbursement of deposits...............................................................
Acceptances and guarantees.............................................................................
Total liabilities...................................................................................................

¥4,262,953
4,631
51,00032
15,00045,169
9,659
124
823
410
26,143
4,415,948¥4,281,922
1,881
104,180
61
15,00032,414
9,317
176
864
408
26,5334,472,758$41,420,066
45,000495,531315
145,744438,884
93,854
1,212
8,002
3,988
254,015
42,906,611

93,524
16,79554,06093,524
16,79547,000908,706
163,186
525,270

18,714
183,094¥4,599,042

17,356
174,676¥4,647,435

181,832
1,778,994$44,685,605

Millions of yen
March 31

EquityCapital stock......................................................................................................
Capital surplus....................................................................................................
Retained earnings...............................................................................................
Valuation and translation adjustments
Valuation difference on available-for-sale securities........................................
Total equity.......................................................................................................
Total liabilities and equity................................................................................

60

Hokuhoku Financial Group, Inc. Annual Report 2014

NON-CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)The Hokkaido Bank, Ltd.

2014

2013

Thousands of
U.S. dollars
2014

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 ordinary income........................................................................................
Other income......................................................................................................
Total income.......................................................................................................

¥48,447
10,1042
108
192
16,944
1,317
3,276
80,393¥50,602
8,146
2
53
202
15,768
5,176
1,660
81,612$470,731
98,178
20
1,055
1,867
164,641
12,797
31,837781,126

Expenses
Interest expenses:
Interest on deposits.......................................................................................
Interest on payables under securities lending transactions.............................
Interest on borrowings and rediscounts.........................................................
Interest on bonds payable.............................................................................
Other interest expenses.................................................................................
Fees and commissions.......................................................................................
Other ordinary expenses.....................................................................................
General and administrative expenses..................................................................
Provision of allowance for loan losses.................................................................
Other expenses..................................................................................................
Total expenses...................................................................................................

2,142
0
961
327
1
8,321
51
45,2532,588
2,653
62,300

3,299
2
995
327
1
8,045
538
46,022
7,051
3,851
70,136

20,817
6
9,341
3,177
12
80,852497
439,696
25,14825,783605,329

18,093

11,476

175,797

3,916
4,483
¥ 9,6933,215
989¥ 7,270

38,05443,560$ 94,183

Millions of yen
Year ended March 31

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

Hokuhoku Financial Group, Inc. Annual Report 2014

61

CORPORATE INFORMATION(as of March 31, 2014)

The Hokuhoku Financial Group is composed of the holding company and 11 consolidated subsidiaries and one affiliate. Our core businessis banking, and we also provide a wider range of financial services including leases, credit cards, credit guarantees and venture capital. The
following is a diagram of our business.

Business diagram
Hokuhoku Financial Group, Inc.
The Hokuriku Bank, Ltd.

The Hokkaido Bank, Ltd.

Hokugin Lease Co., Ltd.
(Leasing)

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

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

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

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

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

Hokugin Software Co., Ltd.
(Software development)

Dogin Regional Research Institute Co., Ltd.
(Research on regional economy,
survey research services, consulting)

Hokuhoku Services Co., Ltd.
(Servicer)
Hokuhoku Capital Co., Ltd.*( Venture capital, IPO consulting)* Equity method-affiliated company

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

Address

Main business activities

Established

Capital

FG’s share of
voting rights

Dividend

The Hokuriku Bank, Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Banking

July 31, 1943

140,409100.003,247

The Hokkaido Bank, Ltd.

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

Banking

March 5, 1951

93,524100.002,633

Hokugin Lease Co., Ltd.

2-21 Aramachi, Toyama City

Leasing

July 21, 1983

100

70.25

—

Hokuriku Card Co., Ltd.

1-2-1 Shintomi-cho, Toyama City

Credit card operations,loan guarantees

March 2, 1983

36

87.39

3

Hokuriku Hosho Services Co., Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Credit guarantees

December 12, 1978

50

100.00—

Hokugin Software Co., Ltd.

1-5-25 Higashidenjigata, Toyama City

Software development

May 1, 198630

100.00—

Hokuhoku Services Co., Ltd.

1-6-8 Chuo-dori, Toyama City

Servicer

December 5, 2003

500

100.00—

Hokugin Business Services Co., Ltd.

1883 Hiyodorijima, Toyama City

Document management,
March 25, 1953
concentrated business processing,human resource solutions

30(100.00)—

Dogin Business Service, Ltd.

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

Document management,
June 8, 1979
cash management,
concentrated business processing

50(100.00)—

Dogin Card Co., Ltd.

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

Credit card operations,
June 13, 1977
loan guarantees, credit guarantees

120(100.00)—

Dogin Regional Research InstituteCo., Ltd.

Dogin Annex Building, 4-1
Odori Nishi, Chuo-ku, Sapporo City

Research on regional economy,
survey research services,
consulting

August 8, 2002

100

(100.00)—

Hokuhoku Capital Co., Ltd.

1-6-8 Chuo-dori, Toyama City

Venture Capital

January 11, 1985

250

5.00
(38.75)—( ) Indicates voting rights involving shares held by subsidiaries* Hokuriku International Cayman Limited completed liquidation procedures on July 19, 2013. The consolidated financial statement of FY2013 reflects only the
profit and loss of the company.

62

Hokuhoku Financial Group, Inc. Annual Report 2014

OUTLINE OF SUBSIDIARIES - HOKURIKU BANKThe Hokuriku Bank, Ltd..
http://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 Houseof Kaga-Maeda providing 70% of the financing. The Bank was thecreation of the family established by Maeda Toshiie, the founder ofthe Kaga clan.
Since its founding, the bank has worked in partnership with
regional customers and grown into a bank serving a wide area
comprising Hokuriku, Hokkaido and Japan’s three metropolitan
areas. Our philosophy is expressed in three phrases meaning“Prospering together with the region,” “Fair & Steady Management”
and “Progressive & Innovative Services.” Drawing fully on all ourresources, we provide high quality comprehensive lending services,aiming to become the bank preferred and relied on by the local
communities.

August 1877

Kanazawa 12th National Bank founded

February 1879

Toyama 123rd National Bank founded

January 1884 	Kanazawa 12th National Bank and Toyama 123rd 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 regional bank to
do so)
September 1961

Listed on the Tokyo Stock Exchange

November 1961

Present head office built

January 1971	Received blanket approval to engage in correspondentbanking services
November 1973	Completed first integrated online system linking all offices
March 1974	Received blanket approval to engage in foreign exchange
business

Company outline (as of March 31, 2014)
Company name:Business:
Incorporation:
Location of headquarters:
Total assets:
Deposits (including NCDs):
Loans:
Issued shares:

The Hokuriku Bank, Ltd.
Banking
July 31, 1943 (founded in 1877)
1-2-26 Tsutsumicho-dori, Toyama City, Toyama¥6,460.3 billion¥5,909.0 billion¥4,227.6 billion

Common stock
1,047,542,335
Capital adequacy ratio(non-consolidated):
12.40%
Employees:
2,877
Branches (as of June 30, 2014)
Domestic:
187 (145 branches, 42 sub-branches)
Overseas:
6 representative offices

July 1978	Received blanket approval to handle yen-denominated andforeign-denominated syndicated loans
October 1979

Launched second online system

November 1981

Launched online foreign exchange system

January 1984

Launched firm banking service

May 1987

Introduced VI (visual identification)

August 1990

Completed third online system

November 1993

Launched investment trust agent operations

December 1998	Launched over-the-counter sale of securities investment
trustsJune 2000	Launched Internet and mobile banking services
July 2000

Completed new computer center (Alps building)January 2001

Launched new computer system

April 2001	Launched over-the-counter sales of casualty insurance
February 2002	Third-party allocation worth ¥39.1 billion, brought newcapital to ¥140.4 billion
February 2002

Launched convenience store ATM service

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, Inc. through sharetransfer, then became subsidiary of the Hokugin Financial
Group, Inc.
September 2004	Integrated management with Hokkaido Bank, name of parent
company changed to Hokuhoku Financial Group, Inc.
December 2004

Launched securities agency operations

March 2006	Entered into a contract on joint system use with Hokkaido
Bank and the Bank of Yokohama
May 2011	Commenced use of joint IT system with Hokkaido Bank andthe Bank of Yokohama
December 2013	The head office building was registered as a Tangible
Cultural Property.

Hokuhoku Financial Group, Inc. Annual Report 2014

63

OUTLINE OF SUBSIDIARIES - HOKKAIDO BANKThe Hokkaido Bank, Ltd..
http://www.hokkaidobank.co.jp/

Establishment

History

On March 5, 1951, Hokkaido Bank was established based on
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 thepost-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 in which it was created and is moving
forward with its customers in Hokkaido.

March 1951

Hokkaido Bank established

April 1961

Launched foreign exchange operations

May 1962

Listed on the Sapporo Stock Exchange

August 1964

Present head office built

June 1971

Online system (first) launched

July 1976

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
June 1986

Launched online foreign exchange system

September 1987	Debuted on the first section of the Tokyo Stock Exchange

Company outline (as of March 31, 2014)
Company name:Business:
Incorporation:
Location of headquarters:
Total assets:
Deposits (including NCDs):
Loans:
Issued shares:

The Hokkaido Bank. Ltd.
Banking
March 5, 1951
4-1 Odori Nishi, Chuo-ku, Sapporo City
¥4,599.0 billion¥4,262.9 billion¥3,108.6 billion
Common stock:
Preferred stock (Type 2):

486,634,512
107,432,000

Capital adequacy ratio(non-consolidated):
10.76%
Employees:
2,295
Branches (as of June 30, 2014)
Domestic:
141 (135 branches, 6 sub-branches)
Overseas:
3 representative offices

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

Online system (third) launched

April 1994

Launched investment trust agent operations

December 1998

Started sales of investment trust accounts

July 1999	Issued preferred stock (Type 2) (issuance amount was¥53.716 billion)
November 1999

Launched 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, Inc.
parent of Hokuriku Bank; Hokuhoku Financial Group, Inc.
launched
April 2005

Launched securities agency operations

March 2006	Entered into a contract on joint system use with Hokuriku
Bank and the Bank of Yokohama
August 2006	Opened representative office in Shenyang, China
March 2009	Opened representative office in Yuzhno-Sakhalinsk, Russia
January 2010

Taiwan ATM/SmartPay Debit Service Started

May 2011	Commenced use of joint IT system with Hokuriku Bank andthe Bank of Yokohama
March 201464

Hokuhoku Financial Group, Inc. Annual Report 2014

Opened representative office in Vladivostok, Russia

BOARD OF DIRECTORS AND AUDIT & SUPERVISORY BOARD MEMBERS
Hokuhoku Financial Group, Inc.

Addresses

Chairman:
Yoshihiro Sekihachi

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

The Hokkaido Bank, Ltd.
International Division
4-1, Odori Nishi, Chuo-ku,
Sapporo City 060-8676, Japan
Telephone: +81-11-233-1093
Facsimile: +81-11-231-3133
E-mail: sckikaku@cello.ocn.ne.jp

The Hokuriku Bank, Ltd.
International Department
1-2-26, Tsutsumicho-dori Toyama
City, Toyama 930-8637, Japan
Telephone: +81-76-423-7815
Facsimile: +81-76-423-7561
E-mail: kokusaibu@hokugin.co.jp

Market andInternational Administration Center
2-33, Higashi Sapporo 3-jyo
1-chome, Shiroishi-ku,
Sapporo City, 003-0003, Japan
Telephone: +81-11-815-1315
Facsimile: +81-11-815-2237
SWIFT Address: HKDBJPJT

President:
Eishin Ihori

Directors:
Hidenori Mugino
Masahiro Sasahara
Takashi Nakano
Tsutomu Morita
Hirotaka Nikaido
Yuji Oshima
Audit & Supervisory
Board Members:
Junichi Inaba
Norikiyo Hayashi
Yozo Maeizumi
Tatsuo Kawada

The Hokuriku Bank, Ltd.
Chairman:
Hidenori Mugino

Director:
Hirotaka Nikaido

President:
Eishin Ihori

Audit & Supervisory
Board Members:
Satoshi Kikushima
Kenichi Nakamura
Isao Nagahara
Katsusuke Watanuki

Senior Managing
Directors:
Tetsuji Mitsuzuka
Takashi Nakano
Managing Directors:
Takafumi Nishida
Tsutomu Morita

The Hokkaido Bank, Ltd.
President:
Yoshihiro Sekihachi

Director:
Takashi Nakano

Deputy President:
Masahiro Sasahara

Audit & Supervisory
Board Members:
Hiroshi Sagayama
Tatsuhiro Ishikawa
Ken Ebina
Atsuhito Mito

Senior Managing
Director:
Tetsuya Kitani
Managing Directors:
Toshihiro Katayama
Noriyoshi Murakami
Makoto Uesugi

International Operations Center
3-2-10, Nihonbashi-muromachi,
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
3-2-10, Nihonbashi-muromachi,
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: newyork@hokugin.com• Shanghai Representative Office
Shanghai International Trade
Center, 602, Yan’an West Road
2201,
Changning, Shanghai 200336,
P.R. of China
Telephone: +86-21-6270-8108
Facsimile: +86-21-6270-8338
E-mail: shanghai@hokugin.net• Dalian Representative OfficeMori Building 7F, 147 Zhongshan,
Xigang District, Dalian, Liaoning,
P.R. of China
Telephone: +86-411-3960-8018
Facsimile: +86-411-3960-8019
E-mail: dalian@hokugin-zg.com

Treasury and Securities Department
3-2-10, Nihonbashi-muromachi,
Chuo-ku, Tokyo 103-0022, Japan
Telephone: +81-3-3241-3457
Facsimile: +81-3-3245-1779
Overseas Offices (Hokkaido Bank)• Shenyang Representative Office
Fangyuan Mansion, 11F, Room1106 Yuebin Street No. 1, Shenhe
District, Shenyang Liaoning
110013, P.R. of China
Telephone: +86-24-2250-5350
Facsimile: +86-24-2250-5351
E-mail: dogin_shenyang@yahoo.co.jp• Yuzhno-Sakhalinsk
Representative Office
Diplomat Office, Room 404 1a
Chekhov St., Yuzhno-Sakhalinsk,
693020, Russia
Telephone: 7-4242-46-1774
Facsimile: 7-4242-46-1775
E-mail: mikami@hbkys.ru• Vladivostok Representative OfficeFresh Plaza, Room 613 17
Okeanskiy Pr., Vladivostok,
690091, Russia
Telephone: 7-4232-65-8851
Facsimile: 7-4232-65-8852
E-mail: temma@hbvl.ru• Singapore Representative Office
6 Battery Road # 15-02 Singapore
049909
Telephone: +65-6534-0010
Facsimile: +65-6534-0070
E-mail: hokuriku@singnet.com.sg• London Representative Office
Level 12, City Tower, 40
Basinghall Street, London EC2V
5DE UK
Telephone: +44-20-7374-6028
Facsimile: +44-20-7374-6055
E-mail: london@hokugin.co.uk• Bangkok Representative Office
No.209, K-Tower A, 9th Floor, Unit
2/1, Sukhumvit 21 Road (Asoke),
Klongtoey Nua, Wattana Bangkok
10110, Thailand
Telephone: +66-2-261-8495
Facsimile: +66-2-261-8497
E-mail: bangkok@hokugin.asia

Hokuhoku Financial Group, Inc. Annual Report 201465

北北金融控股集团简要（截至 2014 年 3 月 31 日）

设立日期∶ 2003 年 9 月 26 日

北北金融集团的经营活动范围不是限于一个地域，而
是在广泛的地域内展开着。

总行地址∶富山县富山市堤町通 1 丁目 2 番 26 号

我们广泛的营业网点分布在下面所写的地区范围里 ：经营目的∶集团伞下的子公司的经营管理，以及连带的相关业务

北陆地区 ..................................................... 149 分行（或支行）资本金∶ 708 亿 9,500 万日元

富山县 ......................................................... 91 分行（或支行）发行股份∶ 普通股 ............................ 1,351,630,146 股

石川县 ......................................................... 36 分行（或支行）企业名称∶北北金融控股集团股份有限公司

第一次第 5 种优先股.......... 107,432,000 股
上市交易所∶ 东京证券交易所（第一部）札幌证券交易所简历
自从 1877 年北陆银行成立以来已经在北陆地区设立了广
域性的经营网点。
从“北前船”或者说“北航船（北上的经济圈）”的交易关
系和客户的需要出发还在北海道各个主要城市内设立了自己的经营网点。
北海道银行成立于 1951 年，以支援中小企业和个人业务为中心在北海道道内的各个地区都设有营业网点。
北陆银行和北海道银行于 2004 年 9 月进行了经营统合，成立了（控股公司）北北金融控股集团股份有限公司。现在，北北金融控股集团已经形成了覆盖日本北陆地区北海道以及日
本三大都市圈（东京，名古屋，大阪）的巨大的地方金融网络。

福井县 ......................................................... 22 分行（或支行）北海道地区.................................................. 159 分行（或支行）三大都市圈.................................................. 16 分行（或支行）东京、横滨..................................................

9 分行（或支行）

名古屋 .........................................................

3 分行（或支行）

大阪、京都..................................................

4 分行（或支行）

其他地区 ( 仙台、新泻、长野、高山 ) ...........

4 分行（或支行）

海外 ............................................................

9 代表处

纽约代表处

（北陆银行）

南萨哈林斯克代表处

（北海道银行）符拉迪沃斯托克代表处 （北海道银行）伦敦代表处（北陆银行）

新加坡代表处 （北陆银行）
曼谷代表处（北陆银行）

大连代表处（北陆银行）

上海代表处

（北陆银行）

沈阳代表处

（北海道银行）（2014 年 6 月 30 日）

2002 年 5 月 北陆银行和北海道银行缔结了全面业务协助协议符拉迪沃斯托克伦敦

2003 年 5 月 北陆银行和北海道银行对经营统合取得一致意见
2003 年 9 月

南萨哈林斯克

沈阳
大连

纽约

上海
曼谷

设立北银金融控股集团股份有限公司

新加坡

北陆银行成为北银金融控股集团伞下的银行通过股份交换实现经营统合
2004 年 9 月

北北金融控股集团股份有限公司诞生

北海道

注 ：北银金融控股集团股份有限公司改名为北北金融控股集团
股份有限公司。

北陆地区
石川

富山

福井

东京
大阪

名古屋

三大都市圈

66

Hokuhoku Financial Group, Inc. Annual Report 2014

北北金融控股集团 董事致辞

（相片左边）

董事长

堰八义博（北海道银行 总行长）
（右边）

总裁

庵 荣伸（北陆银行 总行长）承蒙大家平时对我公司以及集团公司的惠顾及提拔，不胜感谢。
本集团成立于 2004 年 9 月 1 日，在国内作为地方银行首个成为广区域金融集团，经营地盘覆盖了北陆、北海道、三大城市圈，为营业地区经济发展和当地居民生活物质水平的提高不懈努力作出了应有的贡献。在这 10 年里，本集团不仅偿还了所有的公共注入资金，
并且为了提供高效率的金融服务，实现了核心系统的共同化。全集团的存款额达到了 10 兆日元的预期目标，大踏步地向经营地盘稳定化的目标前进。
目前对北陆和北海道的经济环境，包括日本央行实行的金融宽松政策在内，政府成长战略的效果在地方经济也逐渐呈效。另外，明年年初即将迎来北陆新干线全线开通，由此，改善地方企业经济效益的环境也将逐渐完善 ；但另一方面，预计低息状态将会持续，金融机构也将持续面临严峻的收益环境。
在如此情况下，本集团实行中期经营计划“GO for IT !”推进强化营业力和经营效益化，第一年即 2013 年度集团公司合算实绩本期净利润达到 273 亿日元，超过了预期目标。由于这个原因，2013 年度的普通股股息将每股增加 25 钱，达到 4 日元。
本集团本着《为地区所信赖，能够依靠的金融集团》的目标，积极推进为地区提供更加优质的金融服务。并且，我们将通过这些努力，来提高企业的收益力，强化财务实力，
提高全企业的价值。今后，请各位一如既往的支持和惠顾本公司。

总裁

庵 荣伸
2014 年 7 月

Hokuhoku Financial Group, Inc. Annual Report 201467

中期经营计划
本集团将 2013 年 4 月份以后的未来 3 年定位为“朝着持续发展而奋斗的崭新的事业战略的最佳努力期间”，开始着手
了中期经营计划“GO for IT !”。坚持强力推进“强化营业力”，“经营效率化”的经营措施，并且同时“强化经营基础”，通过取得地方客户的信任，激活该地区经济来提高全企业的价值。

计划的概要
名 称

中期经营计划“GO for IT !”期 间

3 年（2013 年 4 月～ 2016 年 3 月）

定 位

朝着持续发展而奋斗的崭新的事业战略的最佳努力期间

集团的目标

成为地方可值得亲近和信赖的金融集团

基本方针

1. 加强与地方客户的关系，加强和重建内部管理，从而做好在不断变化的环境中可持续发展的准备。
2. 在进一步推行“强化营业力”、“经营效率化”措施的同时，坚持进行“强化经营基础”。
3. 通过取得地方社会的信任，激活该地区经济来提高企业的价值。

中期经营计划“GO for IT !”基本方针
展开措施方案
强化营业力

经营效率化

强化经营基础

■ 强化交易平台■ 强化业务集中化共同化■ 遵循巴塞尔协议Ⅲ提高资金的质量■ 强化咨询业务

■ 追求共用系统的优势■ 提高资产质量

■ 发挥广区域集团的优点■ 业务效率化改善总行和分行的运营■ 强化支援企业重组■ 加大个人交易市场
■ 强化运用有价证券加强和重建内部管理
人力资源开发

经营资源再分配风险管理系统的完善加速协同效应
加强企业社会责任

2016 年 3 月期的目标计数（2 行合算，联结）68

2013 年 3 月期（业绩）2014 年 3 月期（业绩）2016 年 3 月期（目标）总存款平均余额9兆7,903亿日元

10兆1,292亿日元

10兆1,100亿日元贷款平均余额

7兆2,778亿日元

7兆3,440亿日元

7兆4,800亿日元

主营业务净利润

503亿日元482亿日元470亿日元联结本期净利润

181亿日元273亿日元185亿日元联结资本充足率11.88%

12.31%

10%以上

OHR（以主营业务毛利润为基础）65.37%

66.08%

67%

不良贷款率

3.11%

2.67%

2%多

Hokuhoku Financial Group, Inc. Annual Report 2014强化营业力▼ 措施• 进一步增加客户数强化交易平台• 争取成为客户的首要交易银行，扩大金融产品的营销• 加强在重点领域的知识深度（农业，医疗，福利，环境和再利用能源领域）强化咨询业务

• 强化推行私人银行，收购，事业继承等业务• 创新商贸洽谈的内容，提高成交率

发挥广区域集团的优点• 提高支援海外投资业务的办公水平• 针对每个细节展开各种措施

加大个人交易市场

• 灵活运用非面对面的营销形势• 完善和强化投资信托和保险营销体系

强化运用有价证券

• 在对企事业资金需求冷缩而导致资金收益减少方面起到补充效果

经营效率化

▼ 措施

• 构建符合北北金融控股集团规模的成本体系

强化业务集中化（总行机能的集中化 , 后勤办公业务的共同化 , 商品和广告等共同化）

共同化• 强化集体化管理的基础• 从 3 行共同利用改为 4 行共同利用，从而降低成本

追求共用系统的优势• 继续推行集团内部的辅助系统和业务集体化

业务效率化• 合理调整总行和分行业务，实现有效运营改善总行和分行的运营• 战略性的把人员配置到重点营业地区

强化经营基础

▼ 措施• 遵循巴塞尔协议Ⅲ提高资金的质量资本政策• 实行为了提高股东价值的政策

提高资产质量• 积累风险比重较低的良好资产
• 与外部机构的协作

强化支援企业重组

• 灵活运用地方的重组基金资本充足率（北北金融控股集团联结）12.31%

11.88%

10.0%
资本充足率

依据预测的资本充足率，控制优先股和劣等资本

6,055

5,642

2013/3 业绩 2014/3 业绩

5,244

以积累收益来扩大主营业务资本

2016/3 计划包括过渡期的劣等资本 725 亿日元，优先股 537 亿日元

（亿日元）

还原方针
• 以股息达到 30% 以上为基本目标，扩大收益将阶段性的增发股息。

普通股股息阶段性的增发股息

• 考虑到巴塞尔协议Ⅲ过渡期算入的劣等资本金额较少，为了确保联结资本充足率达到 10% 左右，将调高储备净利润比率。

Hokuhoku Financial Group, Inc. Annual Report 2014

69

业绩精粹
营业概况（北北金融控股集团联结）（货币单位 ：亿日元）

2013 年度

2012 年度

经常收益

1,909

－ 81

1,991

经常利润

494

＋ 201

293

本期净利润

273

＋ 92

181

※

12.31％

与上年度相比减少了 81 亿日元，为 1,909 亿日元，联结经常利润与上年度相比增加了 201 亿日元，为 494 亿日

变动

资本充足率

我集团的本期联结会计年度的业绩 ：联结经常收益

11.88％※ 2013 年度以巴塞尔Ⅲ，2012 年度以巴塞尔Ⅱ为基础计算。

元。联结本期净利润与上年度相比增加了 92 亿日元，为
273 亿日元。
联结资本充足率达到了 12.31％。
2013 年度的期末股息 ：第 1 回第 5 种优先股按照规定发放，每股 7 日元 50 钱，虽然普通股的中期股息没
有发放，但是期末股息与去年相比每股增加了 25 钱，为
4 日元。

营业概况（北陆银行、北海道银行）（货币单位 ：亿日元）

2 行合算
2013 年度

主营业务毛利润 ：由于净利息收入和手续费收入的减少，主营业务毛利润与上年度相比减少了 32 亿日元，2012 年度

为 1,422 亿日元。主营业务净利润 ：由于经费比上年度
减少了 10 亿日元，因此主营业务净利润与上年度相比减

变动
经常收益

1,780

－ 66

1,846

主营业务毛利润

少了 21 亿日元，为 482 亿日元。

1,422

－ 32

1,455

经常利润 ：信贷相关成本比上年度减少了 184 亿日

经费（临时处理部分除外）

940

－ 10

951

元，因此经常利润与上年度相比增加了 185 亿日元，为主营业务净利润

482

－ 21

503

485 亿日元。

信贷相关成本

－ 13

－ 184

170

经常利润

485

＋ 185

300

本期净利润

275

＋ 79

195

这些结果显示，本期净利润与上年度相比增加了 79
亿日元，为 275 亿日元。

（货币单位 ：亿日元）（货币单位 ：亿日元）

北陆银行
2013 年度

北海道银行
2012 年度

2013 年度

变动
经常收益

977

－ 52

1,030

802

－ 14

816

主营业务毛利润

770

－ 52

823

652

＋ 20

631

经费（临时处理部分除外）

505

－3

509

434

－7

442

主营业务净利润

264

－ 49

314

217

＋ 28

189

信贷相关成本

－ 42

－ 136

93

28

－ 47

76

经常利润

304

＋ 120

183

180

＋ 64

116

本期净利润

178

＋ 55

123

96

＋ 24

72

11.78％

10.76％

资本充足率※12.40％※ 2013 年度以巴塞尔Ⅲ，2012 年度以巴塞尔Ⅱ为基础计算。

702012 年度
变动

Hokuhoku Financial Group, Inc. Annual Report 201411.23％

Hokuhoku Financial Group, Inc.

Printed in Japan