Annual Report
2017
Year ended March 31, 2017

Hokuhoku Financial Group, Inc.

Company outline (as of March 31, 2017)
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…………………………

132,163,014

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
Business commencement of Hokuhoku Tokai Tokyo Securities………… 6
Performance Highlights…………………………………………………… 8
Corporate Governance……………………………………………………… 12
Measures for Compliance………………………………………………… 15
Measures for Risk Management…………………………………………… 17
Characteristics of Our Main Business Area……………………………… 22
Corporate Social Responsibility…………………………………………… 24
Topics………………………………………………………………………… 26
Consolidated Financial Statements
Consolidated Balance Sheet…………………………………………… 29
Consolidated Statement of Income…………………………………… 30
Consolidated Statement of Comprehensive Income………………… 30
Consolidated Statement of Changes in Equity………………………… 31
Consolidated Statement of Cash Flows……………………………… 33
Notes to Consolidated Financial Statements………………………… 34
Independent Auditor’s Report……………………………………………… 62
Non-consolidated Financial Statements
The Hokuriku Bank, Ltd.
Non-consolidated Balance Sheet (Unaudited)……………………… 63
Non-consolidated Statement of Income (Unaudited)……………… 64
The Hokkaido Bank, Ltd.
Non-consolidated Balance Sheet (Unaudited)……………………… 65
Non-consolidated Statement of Income (Unaudited)……………… 66
Corporate Information……………………………………………………… 67
Outline of Subsidiaries — Hokuriku Bank………………………………… 68
Outline of Subsidiaries — Hokkaido Bank………………………………… 69
Directors……………………………………………………………………… 70
简单的本集团中文简要…………………………………………………… 72

Profile
Since its establishment in 1877, Hokuriku Bank has

The operations of the Hokuhoku Financial Groupextend beyond the limits of a single district.

developed an extensive network of branches throughout

Our extensive network is outlined below.

the Hokuriku district. On account of trade through the

Hokuriku district……………………………… 150 branches
Toyama prefecture……………………………… 92 branches
Ishikawa prefecture…………………………… 36 branches
Fukui prefecture………………………………… 22 branches

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

Hokkaido……………………………………… 159 branches

throughout Hokkaido, and built a firm business structure

Three major metropolitan areas…………… 16 branches
9 branches
Tokyo and Yokohama…………………………
Nagoya…………………………………………
3 branches
Osaka and Kyoto………………………………
4 branches

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 oper-

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

ates a super-regional financial network that encompasses

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)

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

(As of June 30, 2017)

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

4 branches

Hokkaido

Hokuhoku Financial Group, Inc. wasborn.

Hokuriku district
Ishikawa

Toyama

Fukui

Tokyo
Osaka

NagoyaThree major metropolitan areas
Hokuhoku Financial Group, Inc. Annual Report 2017

1

MESSAGE FROM THE MANAGEMENT

2

Left: Eishin Ihori

Right: Masahiro Sasahara

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

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

Hokuhoku Financial Group, Inc. Annual Report 2017

We would like to express our sincere appreciation to all of you for your continued support of the Hokuhoku Financial Groupand its group companies. We are pleased to present this report for the Hokuhoku Financial Group for the fiscal year ended
March 31, 2017. The report covers our operating performance in the fiscal year ended March 31, 2017, and introduces thevarious initiatives that we are undertaking.
There continues to be a trend of recovery for the regional economy in the three Hokuriku prefectures and Hokkaido,
which are the Group’s primary operating regions. This includes an increase in the number of visitors and an ongoing trend ofincreasing tourists from overseas, both the result of the Shinkansen’s launch, in addition to the expansion of production
focused on pharmaceuticals, electronic components, etc. in Hokuriku, and stable public construction and capital investment
in Hokkaido. On the other hand, the operating environment surrounding financial institutions such as the Group continues tobe severe mainly due to ongoing unprecedented low interest rates backed by monetary easing policies, particularly “negativeinterest rates.”
Amid such circumstances, the Group is working to contribute to its customers and local communities by providing theNo.1 financial services for the region. In January 2017, “Hokuhoku Tokai Tokyo Securities Co., Ltd.” was established througha joint capital investment with Tokai Tokyo Financial Holdings, Inc. In doing so, the Group has strengthened the structure formeeting its customers’ broad range of fund management needs. The Group continues to put effort into business model
reform, overcome changes to the operating environment, and aim to be a financial group that achieves growth and development together with local communities.
We ask for your continued support and patronage.
July 2017

Eishin Ihori
President

Masahiro Sasahara
Deputy President

Hokuhoku Financial Group, Inc. Annual Report 20173

MEDIUM-TERM MANAGEMENT PLAN
Hokuhoku Financial Group is treating the three years from April 2016 as the “period to develop an efficient and sustainablebusiness model and pursue group synergy effect to contribute to the growth of regional economy in the changing businessenvironment” and has launched its Medium-term Management Plan “BEST for the Region.” Using our widespread network
and improving management efficiency, we contribute to customers and local communities by providing No.1 financial service
and solution, and achieve growth and development together with them.

Overview of the Medium-Term Management Plan
Title

BEST for the Region

Period3 Years (April 2016 — March 2019)

Position

We will develop an efficient and sustainable business model and pursue group synergy effect tocontribute to the growth of regional economy in the changing business environment

Target Corporate Profile

We contribute to customers and local communities by providing No.1 financial service and solution,
and achieve growth and development together with them

Hokuhoku
Financial Group

Basic Policies
in Management Plan

No.1 Service & Solution

Customers
Communities

Trust & Patronage

1. Strengthening Marketing Capabilities ~Exceed customers’ expectations
2. Improving Management Efficiency ~Enhance competitiveness by establishing efficient operations
3. Strengthening Management Foundation ~Earn trust from local communities and customers

Targets of the Medium-term Management Plan (Total of 2 banks, consolidated)
FY2015 Result

FY2016 Result

FY2018 Plan

Ave.balance of deposits¥10,163.4 Bn¥10,409.6 Bn¥10,560.0 Bn

Ave.balance of loans¥7,545.7 Bn¥7,684.8 Bn¥7,760.0 Bn

Core gross business protits¥143.0 Bn¥132.9 Bn¥134.5 Bn

Expenses¥90.9 Bn

¥89.8 Bn

¥93.0 Bn

Core net business profits¥52.0 Bn

¥43.0 Bn

¥41.5 Bn

Credit costs¥3.7 Bn¥(0.6) Bn¥6.0 Bn

Net income attributable to owners of the parent¥28.8 Bn

¥28.1 Bn

¥23.0 Bn

OHR*

63.57%

67.58%

69.14%(Consolidated) Capital adequacy ratio

10.30%

9.43%

9.55%

*Core gross business profits basis

4

Hokuhoku Financial Group, Inc. Annual Report 2017

Strategies based on basic policies of the Plan
Strengthening Marketing Capabilities ~Exceed customers’ expectations(1) Consumer
1. ‌Provide useful information and introduce related services such as consulting in accordance with the life stage ofeach customers and support for inheritance and succession.
2. ‌Improve loan products and user convenience to meet various needs of customers.
3. ‌Improve function of both face-to-face channels and non-counter channels to be familiar and reliable bank that
customers choose as their main bank.
(2) Corporate
1. ‌Contribute to the growth and development of the regional industry by improving ability to assess customers’
business potential, sharing their needs and problems and thus offering various solutions.
2. ‌Provide business-matching opportunities using our widespread domestic network in Hokkaido, Hokuriku and 3
metropolitan areas, and provide support for oversea businesses using our oversea offices and partnership
institutions.
(3) Investment in securities
Flexibly increase investment in investment trust and/or foreign bonds in accordance with changes in market
environment to improve gains on investment in securities, while basically maintaining our portfolio mainly consisted of
yen-bonds.
Improving management efficiency ~Enhance competitiveness by establishing efficient operations(1)	Improve productivity and efficiency by enhancing back-office functions and integrating business within our group in
addition to creating paperless environment and simplifying work process through information technologies.
(2)	Offer sufficient financial services and convenient access through reorganizing branch groups in which several
branches work together and relocating branches with functions suitable for each local environment as well as
enhancing non-counter channels.
Strengthening Management Foundation ~Earn trust from local community and customers
Put the first priority on maintaining sound financial position to provide stable financial services for the region, while making
effort to increase shareholder returns by improving profit.

Hokuhoku Financial Group, Inc. Annual Report 20175

Business commencement of Hokuhoku Tokai Tokyo Securities

Hokuhoku Tokai Tokyo Securities

commenced business on January 4, 2017
Head Office opening ceremony

Sapporo Branch opening ceremony

On January 4, Hokuhoku Tokai Tokyo Securities, a joint
investment between Hokuhoku Financial Group and Tokai
Tokyo Financial Holdings Co., Ltd., commenced businessas the first regional-bank affiliated securities company in
the Hokuriku and Hokkaido regions.
Kanazawa Branch opening ceremony

Company profiles

Board Members

Company name:Hokuhoku Tokai Tokyo Securities Co., Ltd.

President (Representative Director)

Takashi Nakano

Incorporation:

April 21, 2016

Deputy President (Representative Director)

Masaru Kato

Location of headquarters:

Toyama Marunouchi Building, 1-8-10 Marunouchi,
Toyama City, Toyama 930-0085

Deputy President (Representative Director)

Ikuo Takada

Audit & Supervisory Board Member

Hitoshi Kurosawa

Telephone:+81-76-471-8277

Audit & Supervisory Board Member

Yoshihiko Takizawa

Facsimile:+81-76-432-7181

Audit & Supervisory Board Member

Takayuki Kaji

Capital:¥1,250 million

Shareholders andshareholding ratio:

Hokuhoku Financial Group, Inc.: 60%
Tokai Tokyo Financial Holdings, Inc.: 40%

Date of business
commencement:

January 4, 2017

Employees:

103 (as of June 28, 2017)

Branches:

Head Office, Sapporo Branch and Kanazawa Branch

Association membership:

Japan Securities Dealers Association

Investor protection fund membership:

Japan Investor Protection Fund

Financial instruments business operator:

Hokuriku Local Finance Bureau (FIBO) No. 24

History
April 2016
October 2016
January 2017
January 2017

Establishment of the company (with initial capital of ¥50 million)
Registered as a Financial Instruments Business Operator
Joined the Japan Securities Dealers Association
Increased capital to ¥1,250 million
Commenced operation by taking over the Financial
Instrument Business from Tokai Tokyo Securities
Co., Ltd. conducted until then at Toyama, Kanazawa,
Sapporo Branches and Sapporo Corporate Section
as well as those dedicated to Tokai Tokyo’s
corporate customers in the Hokuriku Region.

Organization
Shareholders’ Meeting
Audit & Supervisory Board
Board of Directors

President (Representative Director)

6

Compliance Department

Hokuhoku Financial Group, Inc. Annual Report 2017

Planning and
Administrative Department

Compliance Committee

Sales Headquarters

Administrative Headquarters

Audit Department

Management Committee

Product Administration
Department

Sales Administration
Department

BranchesProducts
Hokuhoku Tokai Tokyo Securities offers a wide range of financial instruments to meet customers’ needs.
It also provides specialist advice in asset management and consulting services.
It offers services not only to well-experienced customers, but also to customers who are not familiar with investment products
and to customers who wish to start investing with a small amount.

Japanese andforeign bonds

Japanese andforeign stocks
In addition to offering stocks listed on
financial instruments exchanges in Japan,
Hokuhoku Tokai Tokyo Securities alsooffers a wide range of foreign stocks listed
on overseas financial instruments
exchanges.

In addition to offering yen-denominated bonds
such as government bonds, local government
bonds and corporate bonds, Hokuhoku Tokai
Tokyo Securities also offers a wide range of
foreign-currency-denominated bonds issued invarious countries ranging from developed countries
like the United States to emerging countries.

For experienced investors, Hokuhoku Tokai
Tokyo Securities provides bonds, etc.
whose investment principal and interest
payment are linked to a stock index,
foreign exchange index, etc. or to pricefluctuations of individual stocks.

Japanese andforeign investment trusts

Fund wraps
Hokuhoku Tokai Tokyo Securities provides
high quality discretionary investment
services and products based on global
asset management model, customized tomeet the investment policy and risk
allowance of individual customers.

Structured bonds

Hokuhoku Tokai Tokyo Securities offers adiverse lineup including yen-denominatedand foreign-currency-denominated stock
investment trusts, bond investment trusts,
REIT, etc.

ETF/REITETFs and REITs are listed on Financial
Instruments Exchanges. Like stocks, they
can be traded real time and on limit pricebasis.

Branches
Hokuhoku Tokai Tokyo Securities operates in three branches: Head Office, Sapporo Branch and Kanazawa Branch. In addition,customers who have accounts at Hokuriku Bank or Hokkaido Bank may request at the branches of these banks to receivenecessary information from the staff of Hokuhoku Tokai Tokyo Securities. (This service is currently only available to customers
living in Toyama, Ishikawa and Hokkaido Prefectures.)

Sapporo Branch

Statio

n

ation

ailw
ay C
ou R
Chih
ma
Toya

Kencho-Mae

Head OfficeKencho-Mae
Park
Toyama Prefectural
Government OfficeToyama Castle
Park

Marunouchi

Hokkaido
Government
Building
FormerHokkaido
Government
OfficeBuilding
Odori Park

City
Sapporo ay Linew
Toho Sub

Sapporo St
Daimaru

Shintomicho

awa

tatio

ity T
r

am

ma S

Kozenji Temple

Kanazawa
HikosoPost Office

SapporoClock
Tower
Sapporo TV
Tower

way Line

Tozai Sub

Sapporo Branch
City Tram
SapporoSuwanokawara Station

6th Floor, Toyama Marunouchi
Building, 1-8-10 Marunouchi,
Toyama City, Toyama 930-0085
Telephone: +81-76-471-8164

Meisei Elementary School

Kana
z

Toya

Kanazawa BranchnHead Office

Shin-Odori Bldg., 4-1 Odori Nishi,
Chuo-ku, Sapporo City, Hokkaido
060-0042
Telephone: +81-11-231-7101

Tamagawa
Park

Ozaki Shrine

Kanazawa Branch

5-28 Minami-cho, Kanazawa City,
Ishikawa 920-0919
Inside Kanazawa Branch, Hokuriku
Bank
Telephone: +81-76-254-1811
Hokuhoku Financial Group, Inc. Annual Report 2017

7

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

FY2016FY2015
Y-o-Y Change
(5.1)
(6.9)

Ordinary income
Ordinary profits
Net income attributable toowners of the parent

187.4
39.4

192.5
46.4

28.1

(0.6)

28.8

Capital adequacy ratio

9.43%(0.87)%

10.30%

With regard to the Company’s operating performance in thefiscal year ended March 31, 2017, consolidated ordinary
income fell by ¥5.1 billion year-on-year to ¥187.4 billion,
while consolidated ordinary profits declined by ¥6.9 billion
to ¥39.4 billion and net income attributable to owners of theparent decreased by ¥0.6 billion to ¥28.1 billion.
The capital adequacy ratio was 9.43% on a consolidated basis at the end of the fiscal year.
With regard to the payment of dividends for the fiscal
year ended March 31, 2017, dividends for common stock
were ¥44.00 per share, marking an increase of ¥1.50 fromthe previous year, paid once as the year-end dividends, anddividends for preferred stock (Type 5) were the designated¥7.50 per share (¥15 annually) paid respectively as theinterim and year-end dividends.

Summary of Operations (Hokuriku Bank and Hokkaido Bank) <Total of both banks>
Total of both banks

(¥ billion)

FY2016
Ordinary income
Core gross business profits
Expenses (excluding
temporarily processed
portion)Core net business profits
Credit costs
Ordinary profits
Net income

171.0
132.9

FY2015
Y-o-Y Change(7.8)(10.0)

178.9
143.0

89.8

(1.0)

90.9

43.0
(0.6)
40.2
29.6

(8.9)
(4.3)
(6.5)
(0.2)

52.0
3.7
46.7
29.9

Total ordinary income for both banks was ¥171.0 billion,
down ¥7.8 billion year-on-year, while net income decreasedby ¥0.2 billion to ¥29.6 billion.
At Hokuriku Bank, ordinary income fell by ¥0.3 billion to¥92.9 billion and net income increased by ¥2.2 billion
year-on-year to ¥18.7 billion.
At Hokkaido Bank, ordinary income decreased by ¥6.5
billion to ¥78.9 billion and net income decreased by ¥2.4
billion year-on-year to ¥10.9 billion.

(¥ billion)(¥ billion)

Hokuriku Bank
FY2016

Hokkaido Bank
FY2015FY2016FY2015

93.3
75.3

78.9
60.8

Y-o-Y Change
(6.5)
(6.8)

(0.4)

48.6

41.5

(0.6)

42.2

24.7
(0.6)
24.8
18.7

(1.9)
0.4
(1.9)
2.2

26.6
(1.1)
26.7
16.5

19.2
(0.0)
15.3
10.9

(6.1)
(4.8)
(4.6)
(2.4)

25.3
4.8
20.0
13.4

8.74%

(1.04)%

9.78%

9.34%

(0.89)%

10.23%

Ordinary income
Core gross business profits
Expenses (excluding
temporarily processed
portion)Core net business profits
Credit costs
Ordinary profits
Net income

92.9
72.9
48.2

Capital adequacy ratio

Y-o-Y Change
(0.3)
(2.3)

85.5
67.6

Core Gross Business Profits <Total of both banks>
Net interest income

Net fees and commissions

Other income

144.8
2.7
19.9

143.0
2.0
20.0

122.1

120.9

115.2

FY2014FY2015FY2016

Total

132.9
17.8

(0.2)

(¥ billion)

8

Hokuhoku Financial Group, Inc. Annual Report 2017

‌Net interest income……¥115.2 billion
Due to falls in interest on loans and interest and dividends
on securities, net interest income declined by ¥5.6 billion
year-on-year.
‌Net fees and commissions……¥17.8 billion
Due to a fall in commissions on sales of investment trusts
and insurance, net fees and commissions declined by¥2.1 billion year-on-year.
‌Other income……¥(0.2) billion
Other income fell by ¥2.2 billion year-on-year due to a
decline in gain on foreign exchange transactions.
‌Core gross business profits……¥132.9 billion
As a result of the above, core gross business profits
decreased by ¥10.0 billion year-on-year.

Expenses <Total of both banks>
Hokuriku Bank

Hokkaido Bank

‌Expenses……¥89.8 billion
There was a decline in non-personnel expenses, leading
to an overall fall of ¥1.0 billion year-on-year.

OHR

67.58%
64.64%

63.57%

93.6

90.9

50.4

48.6

48.2

43.1

42.2

41.5

FY2014FY2015FY2016

Total

89.8

(¥ billion)

Core Net Business Profits <Total of both banks>
Hokuriku Bank

Hokkaido Bank

0.45%

0.45%

‌Core net business profits……¥43.0 billion
Expenses declined but core gross business profits alsofell, causing core net business profits to decrease by ¥8.9
billion year-on-year.

ROA

0.36%
51.2

52.0
Total

26.0

43.0

26.6
24.7

25.1

25.3

FY2014FY201519.2(¥ billion)

FY2016Net Income <Total of both banks>
Hokuriku Bank

28.2

‌Net income……¥29.6 billion
Net gains related to bonds declined, but credit costs andincome taxes also fell, leading to a decrease in net incomeof ¥0.2 billion year-on-year.

Hokkaido Bank

29.9

14.6

16.5

13.5

13.4

FY2014FY2015

Total

29.6

18.7

10.9
(¥ billion)

FY2016

Hokuhoku Financial Group, Inc. Annual Report 2017

9

PERFORMANCE HIGHLIGHTS

Loans and Bills Discounted <Total of both banks>
Hokuriku Bank

7,561.7

7,599.6

Total

7,788.3

4,383.4

4,467.6

3,196.4

3,216.1

3,320.7

2015

2016

2017

4,365.3‌Loans and bills discounted……¥7,788.3 billion
Due to rises in corporate loans and housing and consumer
loans, there was an increase of ¥188.7 billion comparedwith the end of the previous fiscal year.

Hokkaido Bank(¥ billion)
End of March

Loans to Small- and Medium-sized Enterprises (SMEs) <Total of both banks>
Hokuriku Bank

4,767.8

4,845.0

Total

4,972.2

2,918.1

2,969.7

1,909.5

1,926.8

2,002.5

2015

2016

2017

2,858.3‌Loans to SMEs……¥4,972.2 billion
Due to actively working on initiatives related to regional
demand for financing, loans to SMEs increased by ¥127.2
billion compared with the end of the previous fiscal year.

Hokkaido Bank(¥ billion)
End of March

Deposits (Including negotiable certificates of deposit) <Total of both banks>
Hokuriku Bank

‌Deposits (including negotiable certificates ofdeposit)……¥10,731.0 billion
Deposits increased by ¥228.4 billion compared with theend of the previous fiscal year due to the steady increasein both individual deposits and corporate deposits.

Hokkaido Bank

Total 10,731.0

10,651.3

10,502.6

6,076.0

6,117.6

6,243.3

4,575.3

4,384.9

4,487.6

2015

2016

2017

(¥ billion)
End of March

10

Hokuhoku Financial Group, Inc. Annual Report 2017

Capital Adequacy Ratio <On a consolidated basis>
Capital‌Capital adequacy ratio……9.43%
The capital adequacy ratio fell by 0.87 percentage points
compared with the end of the previous fiscal year, as theaccumulation of profits was offset by the repayment ofsubordinated loans, etc.

Capital adequacy ratio

11.13%
10.30%
9.43%

576.0

548.0

531.0

2015

2016

2017

(¥ billion)
End of March

Disclosed Claims under the Financial Reconstruction Law <Total of both banks>‌Disclosed claims under the Financial Reconstruction
Law……¥156.2 billion
Disclosed claims under the Financial Reconstruction Law
fell by ¥12.4 billion compared with the end of the previous
fiscal year.
‌NPL ratio……1.94%
The NPL ratio fell by 0.21 percentage points comparedwith the end of the previous fiscal year.
Substandard claims
Bankrupt and substantially bankrupt claims

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 acceptance 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
claimsDoubtful claims

2.43%
2.15%

1.94%

189.2
29.4

136.2

End of March

168.6
20.1

125.7

Total

156.2

Bankrupt andsubstantiallybankrupt claims

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

119.8

23.6

22.8

17.7

2015

2016

2017

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

(¥ billion)

Ratings
Rating and Investment
Information, Inc.

R&I

A

“Ratings” are determined by ratings agencies, third-party institutions with no vested
interest in the companies they rate, and indicate a company’s creditworthiness and ability
to fulfill obligations in concise signs.
Hokuhoku Financial Group Inc., Hokuriku Bank and Hokkaido Bank have obtained“A” ratings from Rating and Investment Information, Inc. (R&I), and are considered as
being highly creditworthy. Hokuriku Bank also has obtained “A-” rating from Standard &Poor’s Ratings Japan K. K. and Hokkaido Bank also has obtained “A” rating from Japan
Credit Rating Agency Ltd.

Hokuhoku Financial Group, Inc. Annual Report 201711

CORPORATE GOVERNANCE
We will increase management transparency and enhance our corporate
governance.
Basic approach
The Company and all group companies regard strengthening and enhancing corporate governance as one of the mostimportant management priorities. We have drawn up a basic policy — our management philosophy — covering all our
activities including the formulation of management strategies and making management decisions. We share basic values anda sense of ethics through the Hokuhoku Financial Group Code of Conduct, and endeavor to increase corporate value andrealize solid management aimed at contributing to the development of the Hokuriku and Hokkaido regions.

Corporate governance
We have established a framework that enables quick decision-making, with the Shareholders’ Meeting and Board of
Directors at the top of the framework, and day-to-day
operational authority delegated in accordance with internal
rules. Bodies such as the Management Committee are able
to respond quickly to specific and expert matters based on
basic policies established by the Board of Directors. Furthermore, separate from the Management Committee, wehave established a Business Promotion Committee which
ensures that business policies are correctly carried out
among group companies.

We use a company with Audit and Supervisory Committee
system and also appoint external Director. Additionally, inorder to bolster our group governance framework and, as aholding company, to ensure that operations are managed
appropriately, people from each of our principal subsidiaries,
Hokuriku Bank and Hokkaido Bank, are appointed as
Directors at the other bank to promote mutual understanding and mutual checks and balances.
In this way, in addition to having established this framework to cyclically enable effective decision-making, implementation, evaluation, and improvements, the Board of
Directors decides the basic policy on internal controls, tocreate an effective internal control system.

Hokuhoku Financial Group, Inc.
Shareholders’ Meeting
Business Promotion Committee
Members: Full-time Hokuhoku FG Directors
and subsidiary presidents
Purpose: To ensure sound management
policy implementation, ascertain
the status of business and provide
instructions

Planning Group

Board of Directors
Executionof
PDCA

Audit and Supervisory
Committee

Appointment of 4 external Directors

Corporate Governance Committee
Management Committee

Administration Group

Risk Management Group

Audit Group

Hokkaido Bank

Hokuriku Bank
Shareholders’ Meeting

Shareholders’ Meeting

Audit & Supervisory Board

Other
Subsidiaries

Board of Directors
Management Committee

Audit & Supervisory Board
Board of Directors
Management Committee

Each bank appoints a person from the other bank as its Director

Overview of key bodies
1. Board of Directors
Responsible for decisions related to important policies for
management of the Group as a whole, and for overseeing thebusiness management, risk management and auditing carriedout by the holding company and its subsidiaries. Four Directors
are appointed and oversight is strengthened by incorporating
perspectives that are independent from management.
2. Audit and Supervisory Committee
Determines matters related to auditing policies, plans andmethods, and matters related to the execution of duties of theappointed Director serving as Audit and Supervisory
Committee Member. Also, monitors the performance of duties
by Directors, and carries out determinations of opinions related
to the nomination, compensation, etc., of Directors who are
not serving as Audit and Supervisory Committee Members.
3. Corporate Governance Committee
The Committee, which is composed of four external Directors
and one full-time Director serving as Audit and Supervisory
12

Hokuhoku Financial Group, Inc. Annual Report 2017

Committee Member, aims to secure sustainable growth andboost long-term corporate value of the Group through exchanging information and sharing perceptions among external Directors and by offering advice on the Company’s important issues.
4. Management Committee
Comprising full-time Directors of the Company, this bodymakes decisions — in accordance with the basic policies laid
down by the Board of Directors — on matters relating tobusiness execution policies for the entire Group and mattersrelated to the implementation of particularly important tasks by
specific divisions.
5. Business Promotion Committee
Comprising full-time Directors of the Company and presidents
of subsidiaries, this body is responsible for making sure thatimportant issues and management policies for the entire Groupare widely known and understood, as well as for keeping trackof business results at each company to ensure that business iscarried out appropriately.

Basic policy on internal controls
The Company shall, based on the Companies Act and theOrdinance for Enforcement of the Companies Act, put in place asystem to ensure the appropriateness of the Company's
operations, as follows.
1. ‌System to ensure that executives and employees of theCompany and group companies perform their duties inconformity with laws and ordinances, as well as inconformity with our articles of incorporation‌In addition to setting matters pertaining to laws andordinances, or the articles of incorporation, the Board of
Directors decides on basic management policies andimportant issues related to the execution of operations,establishes organizations and systems, and supervises
performance of duties by Directors.
‌It also recommends external Directors for appointment at
Shareholders’ Meetings, to ensure a stronger system ofchecks and balances.
‌Corporate Governance Committee shall be established so thatexternal Directors are in a position to work in concert toengage in appropriate ways with the important issues facing
the Company and to offer suitable advice on them.
‌The Audit and Supervisory Committee monitors the executionof duties of Directors based on attendance at important
meetings by Director serving as Audit and Supervisory Committee Member appointed by the committee (hereinafter“appointed Director serving as Audit and Supervisory Committee Member”), the result of investigation etc. concerning thestatus of company operations and assets, and reports, etc.
received from the internal audit division, etc.
‌The Board of Directors views compliance as one of the mostimportant management issues, and fully recognizes the factthat a lack of compliance can weaken the management base.
Based on this understanding, the Board of Directors
formulates the rules that form the foundation of compliance,such as the basic compliance policy and the compliancecharter. In addition, by establishing Compliance General
Departments, the Board of Directors works to maintain andfurther reinforce the compliance measures of the Company
and group companies.
‌Every fiscal year the Board of Directors draws up a Compliance
Program that acts as a detailed action plan and, in accordancewith the aforementioned basic rules and this Compliance
Program, executives and employees of the Company andgroup companies work together to ensure honest and faircorporate activities.
‌Every fiscal year the Board of Directors draws up an Audit
Policy. The internal audit department, in accordance with this,conducts audits of the state of compliance to laws and regulations, etc. of the Company and group companies, and reports
these results to the Board of Directors, etc. and the Audit andSupervisory Committee.
‌A whistleblower system is put in place whereby an executive
or an employee who discovers illegal or inappropriate actions
can report to a whistleblower contact point established inadvance.
‌The Company is determined to avoid relationships with antisocial forces which threaten order and safety in society, andworks to prevent doing business with such groups.
‌The Company is aware that money transacted throughfinancial institutions may be used for various crimes or acts ofterrorism, and is therefore committed to the prevention ofmoney laundering.
2. ‌System related to the storage and management of information related to the performance of duties by Directors‌Based on the Board of Directors rules as well as document
management rules and other regulations, the Board of
Directors creates systems for the storage and management of

information related to performance of duties by Directors.
3. ‌Rules and other systems related to the management of riskof losses‌Recognizing the existence of various risks surrounding theCompany and group companies, and fully aware of the importance of controlling such risks, the Board of Directors decides
the basic risk management policy and risk management
regulations. By accurately recognizing the various risks
accompanying group company management and by carryingout appropriate management and operations, the Board of
Directors establishes systems to ensure the soundness ofgroup management.
‌A contingency plan has been formulated, and a crisis management system has been established to prepare for unexpected
events and risks such as natural disasters.
‌Each group company carries out appropriate risk management in close partnership with each group company’s risk
management department, following the Group’s basic policy.
‌Every fiscal year the Board of Directors draws up an Audit
Policy. The internal audit department, in accordance with this,conducts audits of the state of risk management, etc. of theCompany and group companies, and reports these results to
the Board of Directors, etc. and the Audit and Supervisory
Committee.
4. ‌System to ensure that Directors, etc. of the Company andgroup companies perform duties efficiently‌The Board of Directors sets overall organizational standards
for basic tasks, operational entities, and assignment of duties,
and ensures a system in which the Company and all groupcompanies perform well-organized and efficient business
operations.
‌The Management Committee executes business operations
promptly and efficiently, based on the delegation of authority
by the Board of Directors with regard to the execution ofbusiness operations, and on the predetermined assignment of
duties.
‌Teleconferencing systems and other IT tools are proactively
utilized.
5. ‌System to ensure the appropriateness of operations within
the corporate group‌The Board of Directors is responsible for overall groupmanagement. It establishes the group management regulations,prepares frameworks for agenda-setting and reporting foreach group company with regard to important matters, andreceives reports from internal audit departments on the findings of audits into the status of legal compliance, risk management, and the appropriateness and effectiveness of business
operations at the Company and all group companies.
‌We also have in place mechanisms to ensure the propriety offinancial reporting, ensuring honest and clear statements of
the Group’s financial position and business results.
‌The Board of Directors draws up Regulations for Intra-Group
Transactions with the aims of clarifying the control system for
intra-group transactions, etc. and of carefully maintaining thesoundness of management practices for the Group as awhole. The Board of Directors performs its duties of management and administration based on these regulations.
6. ‌Matters related to employees required to assist with dutiesof the Audit and Supervisory Committee‌In order to assist the Audit and Supervisory Committee in the
conduct of their duties, the Board of Directors shall place
employees who carry out this work only and to whom each
Director serving as Audit and Supervisory Committee Member
may directly give directions and orders based on their independence and effectiveness etc.
Hokuhoku Financial Group, Inc. Annual Report 201713

CORPORATE GOVERNANCE‌Prior consent from the Audit and Supervisory Committee isrequired for personnel transfers and disciplinary measures
regarding such employees.
7. ‌System for Company and group company executives andemployees to report to the Audit and Supervisory Committee and other systems related to reporting to the Audit andSupervisory Committee‌If executives and employees discover matters that could
cause significant losses to the Company or group companies,
they shall directly or indirectly report such matters to the Audit
and Supervisory Committee.
‌The Audit and Supervisory Committee and Directors shalldesignate matters which should be reported to the Audit andSupervisory Committee by executives and employees inadvance and establish a reporting system to the Audit andSupervisory Committee.
‌Either the Audit and Supervisory Committee or appointed
Director serving as Audit and Supervisory Committee Member
may request reports from executives and employees as needed.
‌A system shall be established to ensure that executives andemployees of the Company or group companies are not
mistreated as a result of having consulted with or reported to
the Audit and Supervisory Committee.

8. ‌Other systems to ensure effective auditing by the Audit andSupervisory Committee‌The Board of Directors shall give due acknowledgement to theimportance and usefulness of auditing by the Audit andSupervisory Committee, and shall give due consideration if the
Audit and Supervisory Committee request creation of a system
for smoother and more effective performance of auditing
duties.
‌Either the Audit and Supervisory Committee or appointed
Director serving as Audit and Supervisory Committee Member
shall regularly meet with the representative Directors andoutside accounting auditors, in addition to which it shallmaintain close collaboration and cooperative relations withinternal audit departments and other departments with internal
control functions, receiving reports both on a regular basis andas required, and requesting explanations as and when necessary.
‌Directors serving as Audit and Supervisory Committee Members may invoice the Company for any expenses deemednecessary in order to perform duties of the Audit and Supervisory Committee.

We are strengthening internal auditing mechanisms to ensure soundmanagement of the Group
Basic approach
The Group believes that establishment of internal auditing mechanisms that effectively meet requirements according to thescale and nature of operations, laws and regulations applied to the Group’s businesses and categories of risk, is
indispensable for enabling due legal and regulatory compliance by the Group, customer protection and risk management.
Based on this conviction, the Company and its subsidiary banks, Hokuriku Bank and Hokkaido Bank have establishedinternal auditing departments.
The internal auditing departments of each Group company develop mechanisms of checks and balances, which thereby
ensure that those departments function independently of other departments.

Group-wide measures
The Company verifies the appropriateness andeffectiveness of Group company internal management
mechanisms, and has accordingly established the Audit
Group, tasked with overseeing the internal audit function of
those companies. In line with basic policy and rules oninternal 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 also receives
reports from Hokuriku Bank and Hokkaido Bank that include results of internal audits and progress made on
matters requiring improvement. Furthermore, when necessary, the Audit Group centrally assesses and manages theimplementation of internal audits within Group companies
through on-site bank investigations, guidance and reports.
Results of internal audits at Group companies are
periodically reported to the Board of Directors promptly

14

Hokuhoku Financial Group, Inc. Annual Report 2017

when needed. In particular, mechanisms have been put inplace for prompt reporting to the Board of Directors withrespect to events that could significantly impact management of the Group.
Also at Hokuriku Bank and Hokkaido Bank, operational
and asset audits are performed involving head offices,branches and subsidiaries of each bank, based on thepolicy and rules for internal audits of the respective banks.
Conducting these audits involves assessing legal andregulatory compliance, customer protection, and risk
management at each entity subject to audit, and thenmaking efficient and effective internal audit plans taking into
account factors such as the frequency and extent of suchaudits.
When necessary, the audit departments of both banks
and the Audit Group of the Company conduct joint audits inorder to strengthen and streamline overall Group auditing.

MEASURES FOR COMPLIANCE
The Group rigorously ensures compliance with laws, regulations and social norms.
Basic policy
At Hokuhoku Financial Group, we regard compliance as one of our most important management priorities, thereby fullyrecognizing that shortfalls with respect to compliance could weaken our business foundations. Therefore, the Board of
Directors has established basic compliance policies which underpin our efforts to engage in business activities in a fair andhonest manner.

Systems

3. Strict observance of laws, regulations and rules

To establish compliance systems, the Group has established acompliance charter, put in place organizational structures andarranged joint measures by involving the Company and eachGroup company.
The Risk Management Group acts as the Compliance
General Department responsible for overseeing compliancewithin the Group, and the head of the Risk Management Group
acts as the officer in charge of compliance.
Compliance officers and other such managers are deployed
to each branch of subsidiary banks and each Group company inorder to aggressively implement training and awareness-raising
initiatives regarding compliance in the workplace. Subsidiarybanks have established Compliance General Departments andCompliance Committees, which work to assess progress incompliance measures and make improvements.

Basic compliance policy
1. ‌Recognition of the Group’s basic mission and social
responsibilities	‌As a regional financial institution, the Group recognizes its
public duties and social responsibilities, and accordingly
strives to gain greater trust through the conduct of soundbusiness operations.

2. Providing quality financial services
	‌By providing high-quality, integrated financial services, theGroup will contribute to enabling stable economic and social
development of its operating regions, while facilitating better
lives for its customers.
Hokuhoku Financial Group, Inc.

	‌The Group strictly observes all relevant laws, regulations andrules, and conducts business in a fair and prudent manner, in
adherence with its own standards of corporate ethics andsocial norms.

4. Rejection of all ties with anti-social elements	‌The Group contributes to a healthy society by resolutely
refusing to associate or work with anti-social elements thatthreaten social peace and security.

5. Ensuring management transparency	‌The Group aims to achieve a highly transparent management
and organizational culture through accurate and swift
disclosure and decision making.

Compliance manual and compliance programs
To ensure rigorous compliance, we have formulated acompliance manual (code of conduct) compiling all fundamental
considerations which executive officers and employees need toobserve. The manual is distributed to all executive officers andemployees, and in-house seminars and training sessions are
conducted to ensure thorough familiarity with its content.
In addition, every year the Board of Directors decides on the
Compliance Program which acts as a detailed action plan
implemented to maintain the compliance structure. The Board
also receives regular reports on the state of the Program’s
execution, and ensures that compliance procedures are put into
practice.

Board of Directors
Audit and Supervisory
Committee

Management Committee

Compliance General Department

Subsidiaries, etc.

Management Committee

Risk Management Group

Board of Directors

President

Audit Group

Audit & Supervisory Board Members,
Audit & Supervisory Board
Management Committee
Compliance Committee

Compliance Committee
Compliance Department

Compliance General Department

Compliance Department

Compliance officers, etc.

Compliance officers, etc.

Compliance manager

Hokuriku Bank

Other Subsidiaries, etc.

Hokkaido Bank

Hokuhoku Financial Group, Inc. Annual Report 201715

MEASURES FOR COMPLIANCE

Measures for better customer protection andgreater customer convenience
To protect customer assets, information and other interests, theGroup has established policies for management of customer
protection within its basic rules for management of customer
protection.
Furthermore, we have formulated protocols and appropriate
response structures based on five separate considerations, inorder to provide pertinent explanations to our customers inaccordance with the Japanese Financial Instruments andExchange Act and other laws, and to properly handle customer
grievances and inquiries through a customer consultation office
set up to serve as a point of customer contact.
Moreover, the Compliance General Departments of respective Group companies act as offices responsible for overallcustomer protection management, and in partnership with eachdepartment in charge, they operate through a framework that

Basic rules for management ofcustomer protection

Measures for protection of personal information
In the financial industry, ensuring the safety of information assets
is of utmost importance in terms of gaining customer trust. As
such, we are committed to rigorously protecting and using any
and all customer information in our custody and preventing its
leakage.
Especially in the area of personal information, the Group has
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, and to gain
the full trust of our customers in acting as a financial institutionthat contributes to local communities.

Policies for management of customer protection

Explaining to the customer

In line with laws and regulations, we will adequately and sufficiently explain financial products
and provide information when carrying out transactions with our customers.

Customer service support

We will listen carefully to customer grievances and give advice in an appropriate manner.

Protection of customer data

We will lawfully acquire and securely manage all information concerning our customers.

Outsourcing
Conflict of interest

When outsourcing operations relating to transactions with customers, we will duly supervise
service providers to protect customer information and interests.
We will appropriately manage transactions involving customers where conflict of interest could
be an issue so as to prevent customer interests from becoming unduly impaired.

Measures for dealing with anti-social elements
The Group has established basic policies for dealing with
anti-social elements, with the aim of earning the public’s trust
and maintaining appropriate and sound financial services.
Our initiatives in this regard also involve deploying officers to
respective Group companies in order to address issues
regarding organized crime syndicates, coordinating with law
enforcement, implementing firm measures for dealing with
anti-social elements, and severing all relations with anti-social
elements that threaten the peace and security of social order.

Whistleblower protection systems
The Group has set up a whistleblower and consultation hot line
and developed a framework for strengthening the compliancesystem by incorporating checks and balances in order topromptly 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 “Furikome” fraud (banktransfer scams) have been on the rise. As such, our subsidiarybanks have bolstered security measures to prevent such occurrences, while taking proper action with respect to victims ofsuch scams, such that includes reimbursing them in accordancewith Japan’s Furikome Fraud Relief Act.
16

enables them to draft and implement various improvement
measures through efforts that involve ongoing review geared
toward ensuring proper functioning of management systems,
problem resolution and data analysis.

Hokuhoku Financial Group, Inc. Annual Report 2017

The Group regards its pursuit of measures for preventing
money laundering and other financial crimes as an importantmanagement challenge. Accordingly, we have been working toclarify divisions of internal roles on the basis of our anti-money
laundering policy, while building a control system that enables us
to implement effective measures at the right time with regard toverifying transactions, reporting suspicious transactions andmanaging correspondent relationships. Moreover, we have been
educating our executive officers and employees through training, and striving to improve relevant mechanisms throughinitiatives that include performing audits to evaluate complianceof our anti-money laundering policies.

Measures for financial alternative dispute
resolution (ADR) system
In order to promptly and properly respond to customer feedback
and grievances, our subsidiary banks have concluded agreements with the Japanese Bankers Association, which is a
designated dispute resolution organization that works to resolve
disputes from a fair and impartial position.
Name of designated dispute resolution organization:
Japanese Bankers Association
Inquiries:
Japanese Bankers Association Customer Relations Center

MEASURES FOR RISK MANAGEMENT
We are upgrading our risk management systems to ensure that they
properly address the type and scale of risk to which we are exposed.
General risk management system
Financial services are becoming increasingly diversified and complex, as financial institutions remain exposed to a wide rangeof risk. As such, the Group recognizes that risk management — ensuring proper resource allocation and risk taking inbalance with earnings targets while keeping overall levels of risk within the Group’s managerial capacity to address such risk
— is one of our most important management tasks. As such, the Group is working to upgrade risk management systems inorder to protect customer deposits and earn the trust of our shareholders and creditors.
The Company and companies of the Group have each taken steps that include creating basic risk management policies
that address various risks, establishing risk management departments, and preparing regulations. The companies are also
working closely together to ensure integrated risk management within the Group.
At our subsidiary banks, which have the highest risk exposure within the Group, we categorize risk for management
purposes as: credit risk, market risk, liquidity risk and operational risk, which we manage through our Asset Liability Management (ALM) Committees and Comprehensive Risk Management Committees. Meanwhile we further divide operational risk
into administrative and system risk, and engage in fine-tuned management of such risk through our Operational Risk
Subcommittees. Additionally, the audit departments conduct inspections to verify the appropriateness and effectiveness of
the risk management systems.
The Company’s Risk Management Group handles risk management oversight for the entire Hokuhoku Financial Group,
and accordingly ensures sound operations. To that end, the Risk Management Group aims to manage risk in line with thetype and scale of risk encountered by each Group company, through operations that involve receiving risk management
status reports, then issuing Group companies appropriate instructions such as for improvement of regulations and systems,
and also discussing and reporting to the Board of Directors and other senior management with respect to details on risk
facing the Group and points of concern in that regard, along with policies for addressing such risk.
Hokuhoku Financial Group, Inc.

Board of Directors
Audit and Supervisory
Committee

Management Committee

Hokuriku Bank

Hokkaido Bank

Risk Management Group

Audit Group

Board of Directors

Audit & Supervisory Board Members,
Audit & Supervisory Board

Other
Subsidiaries

Management Committee
ALM Committee

Comprehensive Risk Management Committee
Operational Risk Subcommittee

Market risk

Liquidity risk

Credit risk

Operational risk

Allocation of risk capital
The Group’s risk management practices involve taking aunified approach to the extent possible in terms of quantifying
the various risks that emerge with respect to its operations,and then taking steps to ensure that overall levels of risk are
kept within the Group’s capacity to take on such risk.
The subsidiary banks control and manage risk with theaim of ensuring that levels of risk remain within a range
permissible for banking operations. To that end, they
estimate maximum potential loss through a process thatinvolves quantifying credit risk, market risk and operationalrisk. They then allocate risk capital by using core capital as
allocation source, with the aim of making effective use ofcapital resources.

Deductions: Adjustments to included amounts
due to transitional provisions
Excess: Provisions for other risk at subsidiaries
other than subsidiary banks

Deductions

ExcessCore
capitalMarket risk
Risk capital
allocation
at subsidiarybanks

Capital

Allocation
sourceMarket 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 201717

MEASURES FOR RISK MANAGEMENT

Meanwhile, the Company ensures that excessively large

In addition, we perform stress tests to calculate therisks are not taken relative to capital on a Group-wide basis,

extent of potential losses that would be anticipated in thethrough initiatives that include checking risk allocation planscase of normally inconceivable deterioration of businessof subsidiary banks, verifying that amounts in excess of risk

conditions, excessive market fluctuations and other suchcapital allocations are sufficient to cover risk conceivably

scenarios. In this way, we periodically examine the substan-affecting subsidiaries other than the subsidiary banks astiality of our capital position against risk that cannot bewell as risk not included in the risk assumptions, and moni-

easily perceived.

toring actual levels of risk.

Credit risk management
Basic approach
Credit risk involves, for instance, the threat that deterioration of a customer’s financial health might make it impossible torecover principal or receive interest of loans and bills discounted, etc. as initially contracted. Although this is an unavoidable
risk when it comes to banks whose role is to act as financial intermediaries, the Group endeavors to maintain and enhance
asset soundness by developing and strengthening its credit risk management systems.

18

Credit risk management systems

Internal ratings systems

To maintain and enhance asset integrity, the Group applies
a unified system of internal ratings and asset self-assessment, promptly and accurately appraises credit risk, andperforms write-offs and provisions to reserves for possible
loan losses as appropriate.
Subsidiary banks each have their own credit risk
management systems, while the Company manages suchrisk on a Group-wide basis.
Subsidiary banks divide duties such that executive
officers and organizational units that handle credit screening
are not involved in business promotion, thereby helping toensure that credit decisions and management are made on
an individual basis, with credit screening and management
carried out rigorously and in a manner not influenced bybusiness promotion.
When making individual judgements on granting credit,
rigorous screening is carried out in accordance withstandards and principles stated in our credit policy. For thispurpose, we actively work to upgrade screening systems,
such as through efforts to fortify our screening capabilities
by enhancing system support and providing training in thatregard.
More specifically, we perform detailed analysis andscreening of individual loan applications at each bankbranch, and in cases where a manager lacks the authority
for approvals, further analysis and screening is conductedby the head office credit screening department. Officers
specializing in particular industries and regions are deployedin the credit screening departments, thereby ensuring asystem of consultation and guidance tailored to the needsof individual branches, based on borrower characteristics.

To enable objective appraisal of credit risk of loans and bills
discounted, etc., our subsidiary banks have introduced
internal ratings systems. Using 15 credit ratings based on
financial data and qualitative information regarding borrower
creditworthiness, the system enables ongoing monitoring ofchanges in ratings.
Based on the ratings generated by the internal ratingssystems at the subsidiary banks, we compute credit risk
and forecast loss rates for each individual borrower category, and then ensure that interest rates duly match risk. In
conformity to Group-wide management rules for credit
limits, we seek to enhance credit risk management by suchmeans as curbing risk on a Group-wide basis of credit
concentration in terms of the aggregate of marketable andoff-balance-sheet credits.

Hokuhoku Financial Group, Inc. Annual Report 2017

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
The Group has established asset self-assessment standards bywhich it performs assessments of loans and bills discounted,
and other assets.
The self-assessments are performed in order to gain a true
picture of the assets and to enhance asset integrity. Self-assessment is a prerequisite for appropriate write-offs and provisions toreserves for possible loan losses, as required by corporate
accounting principles in Japan.
Under unified Group standards established for write-offs andprovisions to reserves for possible loan losses, provisions are
made to the general reserve for possible loan losses withrespect to loans to normal borrowers and borrowers requiringcaution, based on the historical loan-loss ratio over a particular
past period. For loans to borrowers threatened with bankruptcy,
a provision is made to specific reserves for possible loan losses,

in the amount deemed necessary, excluding amounts that may
be recoverable through collateral and guarantees. For loans tosubstantially bankrupt and bankrupt borrowers, we either
amortize amounts in full or recognize a provision of the fullamount in the specific reserve for possible loan losses,
excluding amounts that may be recoverable through collateraland guarantees.

Corporate rehabilitation
After making a loan to a corporate customer, we endeavor toprevent such loans from becoming designated as bad debt byassessing business conditions faced by our borrowers andperforming follow-up reviews of the borrower’s business plans.
Meanwhile, we strive to ensure asset integrity through creationof a framework for dedicated management of bad debt andenhanced support for corporate rehabilitation.

Market risk management
Basic approach
Market risk involves the threat of incurring losses due to fluctuations in the value of assets and liabilities held by the Group, orin the earnings generated by the Group, such that may be caused by fluctuations in various market risk factors, such as
interest rates, stock prices, and foreign exchange rates.
The Group endeavors to properly control market risk and manage operations in a manner that ensures stable earnings.
To that end, at the subsidiary banks that mainly handle transactions involving market risk, we have created regulations formarket risk management and comprehensively manage assets and liabilities by employing asset-liability management (ALM)
practices.

Main types of risk and management systems(1) Interest-rate risk
Bonds, other securities, deposits and loans and bills discounted are exposed to the risk of declining profits orlosses due to interest rate fluctuations amid situations
involving interest rate asset-liability mismatch or duration
mismatch. Our subsidiary banks have established regulations on interest rate management to diversify risk, and their
ALM Committees appropriately control interest-rate risk.
The risk management departments assess risk level
daily, using such indicators as value-at-risk (VaR), whichmeasures the largest conceivable loss possible given fixedprobabilities, and also periodically run gap analysis andinterest rate sensitivity analysis to monitor interest-rate risk.
The results are reported and reviewed at ALM Committees
for implementation of necessary measures.
To ensure that the subsidiary banks are not exposed toexcessive interest-rate risk, we set various investment ceilings
for bonds and other securities under risk capital allocation
based on VaR, etc., and manage both balances and risk
levels of securities. We have also set rules for taking action
when faced with mounting losses (unrealized and realized).

For market transactions, we have established a system
of mutual checks and balances on the departments carryingout transactions (front office), the processing departments(back office) and the risk management departments (middle
office). The front office conducts operations in strict observance of policies and ceiling amounts stipulated by theManagement Committee. The middle office continuously
monitors risk levels and the status of compliance withvarious rules. It also sets “alarm points” to enable early
diffusion of risk issues, discusses measures to respond tothese issues at ALM Committees, and regularly reports
such matters to the Management Committee.
Furthermore, we periodically perform stress testing todetermine the extent of conceivable losses under certain
scenarios in cases where it is not possible to accurately
measure levels of risk due to substantial market fluctuations,and given the threat that an unforeseen risk may materialize.
(2) Price fluctuation risk
Among marketable securities, stocks are exposed to therisk of declining asset prices arising from fluctuations inmarket prices. However, as with interest-rate risk
management, we stringently manage risk of stock price

Hokuhoku Financial Group, Inc. Annual Report 201719

MEASURES FOR RISK MANAGEMENT

fluctuations through efforts that include setting ceilings,
monitoring at-risk amounts, and regularly reporting suchmatters to the Management Committee and other relevantbodies.
We also perform pre-acquisition screening with respect
to shareholdings, monitor market conditions and financial
positions of individual corporations after acquiring stocks,
and hold regular discussions regarding our shareholdings.
(3) Foreign exchange rate risk
Foreign currency assets and liabilities are exposed to risk
involving the threat of losses incurred due to a foreignexchange price being different to that initially planned for. To
reduce such risk, we regularly monitor the international
affairs and major indicators in Europe and the US, conduct
risk management with due consideration to the maturity of

individual assets and liabilities, and mitigate forex risk
through currency swaps and other such transactions.
(4) Derivative transactions risk
To meet the various needs of customers, as well as those of
our respective banks for ALM and risk hedging, our subsidiary banks engage in currency swaps and options, currency
forward contracts and other currency-related derivativetransactions, as well as interest rate swaps, caps, forward
interest-rate-related derivatives and other interest-rated
based derivatives.
Meanwhile, because derivatives are exposed to various
kinds of market risk, we manage such risk on a daily basis
to ensure that losses remain within certain thresholds, byperforming fair value assessments of our positions andmeasuring risk levels.

Liquidity risk management
Liquidity risk refers to fund procurement risk involving the threat of losses that may be incurred due to a fall in creditworthiness or the like diminishing an entity’s financing availability and forcing it to procure funds at significantly higher interest rates
than normal. Liquidity risk also refers to market liquidity risk involving the threat of losses that may be incurred due to market
disruptions or the like preventing an entity from engaging in transactions and forcing it to engage in transactions on considerably less favorable terms than normal.
The subsidiary banks, which account for a majority of the Group’s liquidity risk, stipulate regulations on liquidity risk
management and maintain adequate levels of government bonds and other payment reserve assets that are readily convertible into cash. They also set various control indices pertaining to liquidity risk and monitor those on a daily basis. Developments regarding liquidity risk are regularly reported in meetings of the ALM Committees and other such bodies, and discussions are held in that regard, to ensure that we will be able to take action to address any crisis, should one emerge,
appropriate to the stage of the particular situation.
By precisely assessing management and procurement levels at subsidiary banks, we ensure that fund procurement canproceed smoothly.

20

Hokuhoku Financial Group, Inc. Annual Report 2017

Operational risk management
Basic approach
Operational risk refers to the threat of losses arising from inappropriate operational processes, improper conduct of executive
officers and employees, unsuitable computer systems, or adverse external events.
The Group categorizes operational risk as follows. We take ongoing measures to correctly recognize, appraise andmanage each type of risk, while avoiding or reducing losses that could significantly affect business operations.
Administrative risk

Risk of losses due to executive officers and employees failing to carry out administrative work
correctly, causing an accident, or committing an illegal act

System risk

Risk of losses due to computer system downtime, malfunction or other system deficiencies, or illicit
computer use

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 or other such events damaging tangible assets

Reputational risk

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

Management structure
The Company has established rules for management ofoperational risk stipulating categories of risk and setting
forth basic processes for the management of such risk.
Upon compiling instances of various operational risks
having materialized in the form of administrative errors,grievances, leaked information, system failures and“Furikome” fraud, operating risk panels at our subsidiarybanks meet on a monthly basis to analyze the causes ofsuch incidents and to review measures for preventing
recurrence. They also anticipate potential risk, identify
preventative measures and otherwise review means of
reducing risk.
Whereas management teams of our subsidiary banks
and the Company are provided with reports on the status ofoperational risk and outcomes of reviews in that regard, theCompany also maintains a framework for enabling properrisk management by comparing actual losses incurred as aconsequence of operational risk and allocated risk capital.
In performing internal audits, we ensure mutual checks
and balances, establish measures to prevent administrative
errors from reoccurring and verify the effectiveness of suchmeasures, and also report results of audits to management
and relevant departments. In that way, we strive to establish
Plan, Do, Check and Act (PDCA) cycle frameworks that will
help improve operations.

Risk management systems by major category• Administrative risk management
The Group painstakingly analyzes causes of administrative
errors and other incidents, and discusses measures toprevent recurrence, with the aims of preventing accidents,

grievances and other issues involving administrative operations and maintaining swift and accurate office operations.
At the same time, we endeavor to raise administrative
standards by developing sets of rules, improving administrative processing systems, dispatching advisory staff from thehead office, centralizing clerical work at branches andintroducing equipment to automate procedures.
• System risk management
Increasingly sophisticated financial business operations andthe growth in transaction volumes mean that it is becoming
ever more crucial that computer systems which are essential to business operate reliably.
As such, the Group has formulated rules for system risk
management, established a robust management andoperating structure, and implements a variety of security
management measures that include backup systems.

Crisis management
To minimize the impact of any large-scale disaster or otheremergency, should one occur, the Group has compiled acrisis management manual with contingency plans andother such content, and has also established a contingency
framework that includes mechanisms for information-gathering as well as centralized crisis instruction and command.
In particular, at our subsidiary banks, we have drawn up
a Business Continuity Plan (BCP), which enables us tocontinue to perform our settlement functions and otheroperations required of financial institutions in the event of anearthquake, outbreak of a new strain of influenza or othersuch crisis, and have otherwise established a frameworkthat enables a full-scale response to crisis situations.

Hokuhoku Financial Group, Inc. Annual Report 201721

CHARACTERISTICS OF OUR MAIN BUSINESS AREA
Population and Square Measure*1

Number of businesses*1

ToyamaPrefecture aIshikawa
Prefecture b

Fukui
Prefecture c

Total
a+b+c

1.07Mn(37th)

1.15Mn(34th)

0.79Mn(43rd)

3.01Mn4,248(33rd)

4,186(35th)

4,190(34th)

Population(Ranking)
Square Measure(Ranking) km2

Hokkaido—

5.38Mn(8th)
83,424(1st)Gross Prefectural Product*1,2

Hokkaido

242

Hokuriku

161

Toyama54

Ishikawa

63

Fukui

43

(JPY Bn)

ToyamaaIshikawa
b

Fukui
c

Total
a+b+c

4,356.5(0.86%)(32nd)

4,544.8(0.89%)(28th)

3,127.0(0.61%)(42nd)

12,028.5(2.36%)

GPP(Proportion)(Ranking)(Thousand)

Hokkaido
18,268.7(3.59%)(8th)

Industrial Structure*2
Primary
1.0%

Primary
4.0%
Secondary
29.6%

Primary
1.1%
Secondary
16.6%

Secondary
24.2%

Hokuriku

Hokkaido

All Japan

Tertiary
69.4%

Tertiary
79.4%

Tertiary
74.7%

Data source : *1 Ministry of Internal Affairs and Communications,*2 Cabinet Office

Hokkaido• ‌With vast expanses of land and ample fishing areas in the ocean surrounded on all sides, Hokkaido has thriving  primary industries such as
agriculture and fisheries compared to the rest of Japan. As a result, Hokkaido is called the largest food supply base of Japan.
• It is also popular as a tourist destination, and receives many visitors both from Japan and overseas.

Abundant Natural Resources
Hokkaido
25%

Agricultural
land

75%

Hokkaido
21%

Agricultural
products*On a calorie
supply basis

Hokkaido
26%

Fishery
products

79%74%

Wheat / Potato / Onion /Milk etc.

Atka mackerel / Tangle /Salmon / Cod / Scallops etc.

Data source : ‌Ministry of Agriculture, Forestry and Fisheries / Ministry of Land, Infrastructure, Transport and Tourism Hokkaido Regional Development Bureau /Department of Agriculture, Hokkaido Government

22

Hokuhoku Financial Group, Inc. Annual Report 2017

Increasing Numbers of Tourists Visiting Hokkaido

Renewable Energy
Hydroelectric power / Geothermal energy / Wind power / Solar power

Data source : ‌Bureau of Tourism, Department of Economic Affairs,
Hokkaido Government
Inbound tourists

Total tourists

7.8

(Mn)
7.2

6.8
6.2

2.0
0.7
2012

1.1

2013

1.5

2014

2015

Hokuriku• ‌The Hokuriku region is bordered by the Japan Sea to its front, and flanked by steep mountains, such as the Tateyama mountain range, toits back. This creates a topography in which massive amounts of meltwater from snow flow into rivers, and this water is used for hydroelectric power generation, and also plays a role in attracting manufacturing companies to the region. ( The Hokuriku region has a higher ratio of
secondary industries compared to Japan as a whole.)• ‌The 3 prefectures of Hokuriku have each developed industries that match their distinctive characteristics.

Toyama Prefecture’s Pharmaceutical Product Production
Data source: Ministry of Health, Labour and Welfare, Statistics of Production by Pharmaceutical Industry(¥ billion)

732.5
608.3

608.9

No. 1
in Japan

616.2

Fukui Prefecture’s Eyeglasses Production
Fukui Prefecture (Sabae City in particular) has more than a 100-year
history as a manufacturing base for eyeglasses, and boasts the top
share in the eyeglasses manufacturing industry (including frames) inJapan. The prefecture is a global hub for frame manufacturing inparticular, on par with Italy and China. Leveraging its excellent
technological capabilities, the prefecture is working to increasevalue-added, including enhancing its brand power, with an eye
towards capturing demand in the growing Asian market.

Many Global Niche Top Companies in Ishikawa Prefecture

2012

2013

2014

2015

Toyama Prefecture, which forms the medicine capital known as
Medicine city Toyama, is home to a diverse range of pharmaceutical companies, from the allocated drug sales industry of the past,
to new drug developers, generic drug manufacturers, and over-thecounter drug manufacturers. In addition, peripheral industries, suchas plastic container packaging and printing, are well developed in
the prefecture. Toyama Prefecture is home to highly-distinctive
pharmaceuticals companies, such as a pioneer company in thefield of transdermal absorption-type medications, and the firstcompany in the world to develop intraoral film-type medications.

Ishikawa Prefecture has a developed industrial sector, centered on
the textile and machinery industries. In 2014, the Ministry of Economy, Trade and Industry’s Manufacturing Industries Bureau selected
4 machinery and processing-related companies, and 2 textilesrelated companies from Ishikawa Prefecture to be included in the“Global Niche Top Companies.” Companies were selected basedon a determination that they were strong in such areas as: [i]Compatibly achieving both global share and profits; [ii] Having
unique and independent characteristics; [iii] Addressing approaches
to risk of losing out to competitors; and [iv] Maintaining sustainability of their global share.

Hokuhoku Financial Group, Inc. Annual Report 201723

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.

Introduction of investment trust advisory
tools that utilize FinTech (Hokkaido Bank)
Hokkaido Bank was the first regional bank to introduce
PORTSTAR, a tool that utilizes financial technology (FinTech)
to advise on investment trusts.
PORTSTAR prompts customers to answer five simple
questions (investment term, policy, actions, etc.), and basedon these results, it proposes the one fund out of five possible funds that matches the customer’s risk allowancelevel. This is a highly convenient and easy-to-use tool forcustomers who think “choosing an individual fund is anordeal,” or “it is difficult to rebalance to match the market
trends.”Introduction of overseas-card compatible
ATMs (Hokuriku Bank, Hokkaido Bank)
Hokuriku Bank and Hokkaido Bank have installed an ATM at
TOYAMA KITOKITO AIRPORT that allows foreign tourists towithdraw Japanese yen using their foreign credit cards. In
light of the growth in foreign
tourists, the banks support
initiatives to cater the inbounddemand by improving theirfinancial services.

24

Hokuhoku Financial Group, Inc. Annual Report 2017

Commencement of e-money charging function for LINE Pay Corporation (Hokuriku
Bank, Hokkaido Bank)
Hokuriku Bank and Hokkaido Bank have added a new function that enables their customers to transfer funds from abank account of Hokuriku Bank or Hokkaido Bank tocharge LINE Pay, which is operated by LINE Pay Corporation on the communication application LINE.
LINE Pay is a service that people use via LINE to sendmoney to friends to split bills, etc. or make payments onelectronic commerce websites that have an alliance with
LINE. Individual customers with a savings account and acash card at either Hokuriku Bank or Hokkaido Bank, canuse the service straight away free of charge without aninternet banking account contract.

New offering of Hokugin JCB Debit (Hokuriku
Bank)
Hokuriku Bank has started the JCB Debit Card, whichenables the holder to make a cashless purchase at any JCB
merchant store in the world through a real-time withdrawal
within the limit of the balance of the holder’s bank account.
Hokuriku Bank is the first financial institution in the Hokuriku
area to handle the JCB Debit Card.

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 2016: Fiscal 2016 interim results (Tokyo)
May 2017: Fiscal 2016 results (Tokyo)

May 2017: ‌Two cities in Hokuriku (Toyama and Kanazawa)
July 2017: ‌Two cities in Hokkaido (Sapporo and Asahikawa)IR overseas roadshow

General meeting of shareholders

June 2017: ‌Europe (London, Zurich)North America (New York, Boston, San Francisco)

June 2017: ‌14th 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 “EconomicsKoshien,” 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• ‌Establishment of art galleries

Lilac Concert

GALERIE MILLET

Entry in the YOSAKOI Soran Festival 2016 (Hokuriku
Bank, Hokkaido Bank)
Hokuriku Bank and Hokkaido Bank combined with a citizen group to enter in the
YOSAKOI Soran Festival 2016 as the
combined team “Hokkai Ahondara-Kai &Hokuhoku Financial Group.” This time was
the twelfth year of participation and 57
volunteers from Hokuriku Bank and Hokkaido Bank participated as dancers and flag
wavers, and with vigorous performances,
they livened up the festival.

Cooperation in holding Toyama Marathon and
Kanazawa Marathon (Hokuriku Bank)The Toyama Marathon 2016 and the
Kanazawa Marathon 2016, both
following routes of local scenic nature,
famous landmarks and town streets,
were held. Employees of Hokuriku
Bank cooperated in both these eventsby volunteering as event personnel, or by participating as runners,
thereby raising the atmosphere of the event.

Holding of Hokkaido Bank MATCH DAY (Hokkaido Bank)
Hokkaido Bank held a futsal match
entitled Hokkaido Bank Match Day.
Espolada Hokkaido, which wassponsored by Hokkaido Bank competed against SHRIKER OSAKA. The
match drew a crowd of 2,426, whowere treated to a guest performanceby saxophonist Shinji Takeda.

Helping conserve the regional environment
Measures undertaken as a financial institution

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

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.

Volunteer cleanup held at Sapporo Odori Park (Hokkaido Bank)

Participating in Forest Building in Nanto (Hokuriku Bank)

Hokuriku Bank jointly participated in “Forest Building in Nanto”
initiative, which is promoted by the residents’ association of Asobu
in Nanto City, Toyama Prefecture, andonce again this year helped to plant
kogaya (thin-stemmed thatchinggrass). The participants decided toname the kayaba (thatching grass field)“Dream 100 Years-Forest of Fellowship.”

Hokkaido Bank conducted volunteer cleanups at Odori Park on May 30, June 22, andJuly 13.

Hokuhoku Financial Group, Inc. Annual Report 201725

TOPICS

Hokuhoku Financial Group“Hokkaido Restaurant Fair” held in Bangkok,
Thailand(Hokuriku Bank, Hokkaido Bank)“Hokkaido / Tohoku / Hokuriku Business Matching inTokyo” held (Hokuriku Bank, Hokkaido Bank)A restaurant fair was held in cooperation with local Japanese-

The business meeting was held aiming to boost the added value of

owned restaurants in Bangkok to support the expanded exports of

Hokkaido, Hokuriku, and Tohoku regional specialties and to sup-Hokkaido-made ingredients to Bangkok.

port business matching that envisions the sixth industrialization.

This event facilitated the establishment of the entire flow needed

Going forward, we will continue to utilize regional cooperation

to expand exports such as identifying which food ingredients toamong Hokkaido, Hokuriku, and Tohoku to support customers

export based on the needs of local restaurants and bars, choosing

development of new products and their new business.

the shipping methods to Bangkok, and using social media inadvertising, and it supported activities geared at continued future
export transactions.

“Regional Bank Food Selection 2016” Held (Hokuriku
Bank, Hokkaido Bank)

Comprehensive Partnership Agreements Concluded
with Local Authorities (Hokuriku Bank, Hokkaido Bank)
We are concluding comprehensive partnership agreements with

“Regional Bank Food Selection 2016” was held nationwide in

local authorities to enhance mutual cooperation in regional eco-partnership with 52 regional banks.

nomic development.

At this business meeting, we provided a venue for food-related

As of fiscal 2016, with the new addition of five at Hokuriku Bank

companies and groups wishing to expand their sales channels toand the 13 at Hokkaido Bank, the entire Group has concluded

talk business with buyers looking for safe and delicious regional

agreements with 42 local authorities.

foods.

Going forward, we will proactively cooperate with the promotionof the “Regional Comprehensive Strategies” formulated by the local
authorities, as well as businesses related to “Vitalizing Local Economy.”

26

Hokuhoku Financial Group, Inc. Annual Report 2017

Hokuriku Bank
“Nationwide Regional Bank Joint Business Meeting in
Ho Chi Minh City” Held (Hokuriku Bank)“Japan-China Manufacturing Business Meeting” Held
(Hokuriku Bank)

Six regional banks and the consulting company Forval Corporation

Factory Network China Inc., which provides business matchingco-hosted Vietnam’s first regional bank joint business meeting.

support services to the Chinese manufacturing industry, hosted a

On the day of the event, Japanese companies searching forjoint business meeting with regional banks and local authorities.

manufacturing contractors and materials and component suppliersThis business meeting was held at the same time as China’s

in Vietnam gave exhibitions, and individual business meetings

Ministry of Commerce held a massive trade show at which many

between the Japanese companies and Vietnamese companies

local Chinese companies gave exhibitions, providing an excellent

selected by Forval Corporation based on the exhibiting companies’

opportunity for customers to promote sales to Chinese companies

needs were held.

and to build partnerships.

“Business Summit 2016 - Food Discovery BusinessMeeting” Held (Hokuriku Bank)“2016 Dalian - Regional Bank Joint Business Meeting”
Held (Hokuriku Bank)

We held a business meeting on the theme of “food” in Nagoya with

A joint business meeting was held among 17 regional banks

The Ogaki Kyoritsu Bank, Ltd. The goal of the business meeting

including Hokuriku Bank, Dalian City, Liaoning Province, and Bank

was to vitalize local economies. The event has been held regularlyof China. This is the largest business meeting for Japanese compa-

since 2007 jointly with the local governments and regional financial

nies in Dalian, and this year marks the seventh time it has been

institutions of the Hokuriku and Tokai regions. With the special

held. On the day of the event, companies looking to sell their

participation of the Hokkaido Government, this year’s event featured

products in China, as well as companies looking for materials

numerous exhibitions from Hokkaido companies.

suppliers, fabricating contractors, and investors gave exhibitions,and active business talks were held.

Hokuhoku Financial Group, Inc. Annual Report 201727

TOPICS

Hokkaido Bank
Partnership Agreement between morimoto Co., Ltd andNiki-cho, Japan (Hokkaido Bank)“X-Tech Innovation 2016” Held (Hokkaido Bank)
Focusing on the birth of a variety of unique and novel services

With Hokkaido Bank acting as the broker, major Hokkaido confec-

utilizing information and communication technology (ICT), Hokkaido

tionery maker Morimoto Co., Ltd and Niki-cho, which produces

Bank held a business contest to collect a range of new cross-some of the best fruit in Hokkaido, concluded a comprehensive

industry and cross-category services and business ideas in partner-

regional partnership agreement.

ship with Fukuoka Financial Group, Inc. This was the first domesticMorimoto has used suimon cherries, a product of Niki known for
their unique tartness, to develop a new product, “Northern Trail”

initiative featuring a co-hosted business contest with a regionalbank.

(kita no sanpomichi), leading to expanded sales channels andincreased name recognition.

Award Received for “Distinctive Initiative” by Financial
Institutions and Others Contributing to Vitalizing Local
Economy in 2016 (Hokkaido Bank)
Hokkaido Shinkansen Launch Commemoration “Hakodate and Southern Hokkaido Local Specialty Food
Products Exhibition and Business Meeting” Held (Hokkaido Bank)28

One of our initiatives for vitalizing local economies, “Expanded
Exports of Hokkaido Brands through Regional General Trading
Companies,” was recognized as a “Distinctive Initiative” by the

As an initiative for regional vitalization in conjunction with the launchgovernment of Japan, and we received an award from the Ministerof the Hokkaido Shinkansen, we invited food product buyers fromof State for the Promotion of Overcoming Population Decline andinside and outside the region and held an exhibition and business

Vitalizing Local Economy in Japan. The award recognized themeeting featuring a wide range of local specialties from aroundestablishment of commercial distribution to mainly Far East Russia,

Hokkaido. This year’s exhibition and business meeting, which was

our involvement in the establishment of “HOKKAIDO CORPORA-

themed “Hokkaido Shinkansen Launch Commemoration” was a

TION” as a community-based trading company, and our initiatives

scaled-up version of the regular business meeting.

to realize the export of Hokkaido brands.

Hokuhoku Financial Group, Inc. Annual Report 2017

CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEET
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries

2017

2016

Thousands of
U.S. dollars (Note 1)
2017

Millions of yen
March 31

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

¥ 1,753,743¥ 1,235,499$ 15,631,903

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

89,41565,016

797,000

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

62,58562,034

557,857

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

4,646

4,631

41,416

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

10,001

8,344

89,150

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

2,449,455

2,406,589

21,833,103

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

7,771,338

7,582,954

69,269,437

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

16,26014,771

144,933

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

132,969

108,066

1,185,221

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

101,192

101,080

901,978

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

24,35823,974217,115

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

4,632

7,244

41,289Customers’ liabilities for acceptances and guarantees (Note 11).........................

60,55165,044

539,724

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

(51,725)¥12,429,425(54,925)¥11,630,328(461,054)$110,789,072$ 95,385,256

Total assets.......................................................................................................
Liabilities and equity
Liabilities
Deposits (Notes 12, 14 and 30)..........................................................................

¥10,701,271¥10,475,416

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

36,267

20,845323,269

Payables under securities lending transactions (Note 12)....................................

534,362

92,954

4,763,015

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

861

1,129

7,680

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

325,331207,252

2,899,829

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

103

226

923

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

25,00033,000222,836

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

123,335

126,529

1,099,344

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

15,026

20,459133,936

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

204

230

1,823

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

1,492

1,957

13,302

Reserve for reimbursement of deposits...............................................................

1,590

1,419

14,173

Reserve under the special laws...........................................................................

0

—

2

Deferred tax liabilities (Note 27)...........................................................................

13,102

11,883

116,786

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

5,686

5,724

50,686

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

60,551
11,844,188

65,044
11,064,076

539,724
105,572,584

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

70,89570,895

631,919

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

144,587

148,211

1,288,770

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

367

319

3,278

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

284,896

263,959

2,539,408

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

(1,398)(1,489)(12,465)

Valuation difference on available-for-sale securities (Note 6)...........................

81,406

83,834

725,609

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

(1,208)(1,596)(10,774)

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

8,993

9,079

80,161

Defined retirement benefit plans (Note 17).....................................................

(5,773)582,764(8,340)564,873(51,460)
5,194,446

Accumulated other comprehensive income........................................................

Total...................................................................................................................
Non-controlling interests.....................................................................................

2,472

1,378

22,042

Total equity.......................................................................................................

585,237

566,251

5,216,488

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

¥12,429,425¥11,630,328$110,789,072

See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 201729

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

2017

2016

Thousands of
U.S. dollars (Note 1)
2017

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.......................................................................................................

¥ 94,033
25,174(1)914
666
38,221319
15,192
13,005
187,525¥ 98,693
26,339—1,138
897
39,486279
14,30812,199193,343$  838,161
224,389
(18)
8,149
5,941
340,683
2,845
135,420
115,927
1,671,497

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....................................................................................................

1,839
1,483
686
276
1,956
14,194
17,271
101,411—9,850
148,972

3,648
468
1,214
412
1,083
13,754
9,536
100,883
3,125
13,299147,425

16,396
13,227
6,119
2,468
17,443
126,525
153,947
903,928—
87,806
1,327,859

38,55245,918343,638

7,312
3,047
28,19234¥ 28,157

10,543
6,437
28,93699¥ 28,837

65,17827,167251,293310$  250,983

Millions of yen
Year ended March 31

Income before income taxes...............................................................................
Income taxes (Note 27):
Current..........................................................................................................
Deferred........................................................................................................
Net income.........................................................................................................
Net income attributable to non-controlling interests............................................
Net income attributable to owners of the parent............................................

Yen

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

U.S. dollars¥203.19202.9342.50¥201.36201.04
44.00

$1.79
1.79
0.39

Per share figures have been restated, as appropriate, to reflect a one-for-ten stock consolidation effected October 1, 2016.
See notes to consolidated financial statements.

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

Year ended March 31

2017

2016

Thousands of
U.S. dollars (Note 1)
2017

Net income.........................................................................................................
Other comprehensive income (Note 28)..............................................................
Valuation difference on available-for-sale securities........................................
Deferred gains (losses) on hedges.................................................................
Revaluation reserve for land...........................................................................
Defined retirement benefit plans.....................................................................
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 non-controlling interests.....................

¥28,192547(2,466)
387
—
2,567

¥28,936(28,458)(17,175)(751)
302(10,814)$251,293
4,876(21,986)
3,458—
22,885

58¥28,739
28,68455(19)¥   478
376
102

519
$256,169
255,676
493

Millions of yen

See notes to consolidated financial statements.

30

Hokuhoku Financial Group, Inc. Annual Report 2017

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries
Thousands
IssuedIssuednumber of
number ofshares ofshares ofcommon stock preferred stock
BALANCE, APRIL 1, 2015........................................

135,163

107,432

Millions of yen

Capitalstock

CapitalsurplusStockacquisitionrightsRetainedearnings

Treasurystock¥70,895¥148,197¥266¥242,701¥(1,514)

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

(7,305)

Net income attributable to owners of the parent....

28,837Purchases of treasury stock..................................

(18)
14

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

43

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

(274)

Net changes in the year........................................
BALANCE, MARCH 31, 2016...................................

53
135,163

107,432¥70,895¥148,211¥319¥263,959

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

(7,307)

Net income attributable to owners of the parent....

28,157Purchases of treasury stock..................................

(3,608)

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

(3,000)22

52(3,647)

3,647

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

86

Net changes in the year........................................
BALANCE, MARCH 31, 2017...................................

¥(1,489)47
132,163

107,432¥70,895¥144,587¥367¥284,896¥(1,398)

Total

Noncontrollinginterests

Total
equity¥571,710¥1,276¥572,987

Millions of yen
Accumulated other comprehensive income
Valuation
Deferred
Revaluation
Defineddifference on
reserve forretirement
available-for-sale gains (losses)on hedges
landbenefit planssecurities
BALANCE, APRIL 1, 2015........................................

¥101,033¥  (845)¥8,502¥ 2,473

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

(7,305)(7,305)

Net income attributable to owners of the parent....

28,837

28,837(18)

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

(18)

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

58

58

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

(274)

(274)

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

(17,198)

(751)

577

(10,814)(28,133)101(28,031)

BALANCE, MARCH 31, 2016...................................

¥ 83,834¥(1,596)¥9,079¥ (8,340)¥564,873¥1,378¥566,251

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

(7,307)(7,307)

Net income attributable to owners of the parent....

28,15728,157Purchases of treasury stock..................................

(3,608)(3,608)

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

75

75

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

——

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

86

86

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

(2,428)

387

(86)

2,567

488

1,094

1,582

BALANCE, MARCH 31, 2017...................................

¥ 81,406¥(1,208)¥8,993¥ (5,773)¥582,764¥2,472¥585,237

Shares of common stock have been restated, as appropriate, to reflect a one-for-ten stock consolidation effected October 1, 2016.

Hokuhoku Financial Group, Inc. Annual Report 201731

Capital
stock
BALANCE, MARCH 31, 2016...................................

$631,919

Thousands of U.S. dollars (Note 1)
Stock
Capitalacquisition
Retained
surplusrightsearnings$1,321,077$2,851$2,352,788

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

(65,132)

Net income attributable to owners of the parent.....

250,983

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

Treasurystock$(13,277)(32,168)

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

204

469

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

(32,511)32,511

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

771

Net changes in the year..........................................
BALANCE, MARCH 31, 2017...................................

427$631,919$1,288,770$3,278$2,539,408$(12,465)

Thousands of U.S. dollars (Note 1)
Accumulated other comprehensive income
Valuation
Deferred
Revaluation
Defineddifference on
reserve forretirement
available-for-sale gains (losses)on hedges
landbenefit planssecurities
BALANCE, MARCH 31, 2016...................................

$(14,233)$80,931$(74,345)

Total
equity$5,034,969$12,288$5,047,257

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

(65,132)(65,132)

Net income attributable to owners of the parent.....

250,983

250,983

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

(32,168)(32,168)

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

673

673

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

——

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

771

771

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

(21,649)

3,459

(770)

22,885

4,352

9,754

14,106BALANCE, MARCH 31, 2017...................................

$725,609$(10,774)$80,161$(51,460)$5,194,446$22,042$5,216,488

See notes to consolidated financial statements.

32$747,258

Total

Noncontrollinginterests

Hokuhoku Financial Group, Inc. Annual Report 2017

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

2017

2016

Thousands of
U.S. dollars (Note 1)
2017¥   38,552
5,881
610
2,943
(6)
(3,199)(464)—(5,433)¥   45,918
8,330
782
2,102
(1)
(365)
(13)
2,069
11,529$   343,638
52,421
5,446
26,234(58)(28,518)(4,144)—(48,432)(26)
170(120,786)
6,243
879
(10)
(891)
314
(15)
(267)
(187,716)
329,363(103,508)
141,91222,858(46)
52(127,069)
6,826
(230)
2
5,330
479
(123)
(55)
(36,135)
91,008(243,339)
112,572
19,837(234)
1,519(1,076,622)
55,653
7,838(98)(7,945)2,800(136)(2,385)(1,673,201)
2,935,764(922,617)
1,264,927
203,750(24,950)
15,421
441,407(1,488)(123)
95,954(6,111)(28,835)
618,678(9,808)608,869

40,072(37,608)
65,145(238)
47
100,776(6,354)(14,875)
46,427(8,338)38,088(222,392)
137,461
3,934,466(13,268)(1,099)855,282(54,473)(257,020)
5,514,557(87,427)
5,427,130(971,447)
700,130
235,058(20,476)
19,56725,185(5,630)703(4,365)(2,399)(23,676)(836,287)
577,480
295,603(16,128)
15,72026,339(4,321)36(2,219)—56,223(8,658,949)
6,240,575
2,095,178(182,518)
174,414
224,487(50,186)
6,271(38,916)(21,391)(211,035)(24,500)(8,000)(662)(7,307)(0)(3,608)0(44,078)(12)
541,102
1,193,798¥1,734,901(31,000)(10,000)(1,215)(7,305)(0)(18)
0(49,540)(42)
44,7291,149,068¥1,193,798(218,380)(71,308)(5,907)(65,132)(4)(32,168)7(392,892)(110)
4,823,093
10,640,865$15,463,958

Millions of yen
Year ended March 31
1. Cash flows from operating activities:
Income before income taxes.......................................................................................
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....................................................
Decrease (increase) in asset for 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 increase (decrease) in payables under securities lending transactions..................
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 shares of subsidiaries resulting in change in scope of consolidation.......
Net cash provided by (used in) investing activities.....................................................
3. Cash flows from financing activities:
Repayment of subordinated borrowed money............................................................
Repayment of subordinated bonds.............................................................................
Expenditures for fund procurement.............................................................................
Dividends paid............................................................................................................
Dividends paid to non-controlling 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.

Hokuhoku Financial Group, Inc. Annual Report 201733

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

1. Basis of Presentation
The accompanying consolidated financial statements have been
prepared in accordance with the provisions set forth in the Japanese
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 in certain respects as to theapplication and disclosure requirements of 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 2016 consolidated financial statements to conform to the classifications usedin 2017.
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 areincluded solely for the convenience of readers outside Japan andhave been made at the rate of ¥112.19 to U.S. $1, the rate of exchange at March 31, 2017. 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.

2. Summary of Significant Accounting Policies
a. Consolidation
The consolidated financial statements as of March 31, 2017 include
the accounts of the Company and its 12 subsidiaries (together, the“Group”).
Under the control and influence concepts, 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 havebeen 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
the equity method.
Assets and liabilities of newly consolidated subsidiaries are valued at fair value at the respective dates of acquisition, and goodwill
is amortized 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 cap34

Hokuhoku Financial Group, Inc. Annual Report 2017

ture gains arising from short-term changes in interest rates, currency 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 recognizedon 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 theGroup’s 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 thestraight-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, netof applicable taxes, reported in a separate component of equity.
Available-for-sale 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.
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 aresidual value of zero, excepting when contracted amounts for residual value are specified.
h. Long-Lived Assets
The Group reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate the carrying amount ofan 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 determined based 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, andother pertinent indicators.
The Banks have implemented a self-assessment system to determine the quality of their assets. The quality of all loans is assessed by branches and the credit supervisory division with a subsequent audit by the asset review and inspection division inaccordance with the Banks’ 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 areclassified into five categories for self-assessment purposes: “normal,” “in need of 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 specific reserve is provided as necessary for the net amount of loans and estimated collectible amounts by collateral or guarantees.
For borrowers classified as possible bankruptcy or holding restructured loans with which the unsecured portion of claims or
credit exceeds a certain amount, if cash flows from collection ofprincipal and interest can be reasonably estimated, the Banks provide the difference between the present values of these cash flows
discounted at the initial contractual interest rate and the book values of the 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 ¥49,739 million ($443,355 thousand) and ¥61,483
million at March 31, 2017 and 2016, respectively.
j. Accounting Method for Retirement Benefits
In calculating retirement benefit obligations, the benefit formula basis is used as a method of attributing expected retirement benefits
to the period 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
the straight-line method over eight or nine years within the employees’ average remaining service period, commencing from the next
fiscal year of incurrence.
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 todirectors 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 andaudit & supervisory board members at the general meeting ofshareholders on June 26, 2012. According to these resolutions, thelump-sum payment of retirement benefits of directors and audit &supervisory board members shall be effectuated upon the retirement of each individual director and audit & supervisory board
member. Reserve for directors’ and audit & supervisory board
members’ retirement benefits was ended in June 2012, and theentire remaining amount is included in “reserve for directors’ andaudit & 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 coveredby other 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. Reserve under the Special Laws
A reserve under the special laws is a reserve for contingent liabilities
and provided for compensation for losses from securities relatedtransactions or derivative transactions in accordance with Article
46-5 of the Japanese Financial Instruments and Exchange Act.
o. Stock Options
The companies are required to recognize compensation ex-

Hokuhoku Financial Group, Inc. Annual Report 201735

pense for employee stock options based on the fair value of thestock options at the date of grant and over the vesting period as
consideration for receiving goods or services. The companies arealso required to account for stock options granted to non-employees based on the fair value of either the stock option or the goods
or services received. In the consolidated balance sheet, the stock
options are presented as stock acquisition rights as a separate
component of equity until exercised.
p. Income Taxes
The provision for income taxes is computed based on the pretax
income included in the consolidated statement of income. The asset and liability approach is used to recognize deferred tax assets
and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases ofassets and liabilities. Deferred taxes are measured by applying currently enacted income tax rates to the temporary differences.
The Company applied ASBJ Guidance No.26, “Guidance on
Recoverability of Deferred Tax Assets,” effective April 1, 2016. There
was no impact from this for the year ended March 31, 2017.
q. Translation of Foreign Currencies
Assets and liabilities denominated in foreign currencies are translated into Japanese yen mainly at the exchange rate prevailing as of
the balance sheet date.
r. Derivatives and Hedging Activities
Derivatives are stated at fair value. Derivative transactions that meethedge accounting criteria are primarily accounted for under the deferral method whereby unrealized gains and losses are deferred until maturity as deferred gains (losses) on hedge 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, are accounted 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
the extent to which the exposure of interest rate risks on hedged
items is mitigated.
The Banks hedge currency exchange fluctuation risks arisingfrom their 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 in Accounting for Foreign Currency DenominatedTransactions and Others” (The Japanese Institute of Certified Public
Accountants (“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 agreementof the amounts of the designated hedging instruments corresponding to the hedged foreign currency financial assets and liabilities.
36

Hokuhoku Financial Group, Inc. Annual Report 2017

The Company and consolidated non-banking subsidiaries are
not engaged in hedging operations using derivative transactions.
s. Consumption Taxes
The Company and its domestic consolidated subsidiaries accountfor consumption tax and local consumption tax by the tax exclusion
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 orloss transactions. However, consumption taxes on tangible fixed
assets that are not tax-deductible are expensed in the fiscal year
under review.
t. Finance Lease
Sales and cost of sales are accounted for when lease payments arepaid.
u. Per Share Information
Basic net income per share is computed by dividing net income attributable to common shareholders by the weighted-average number of 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 fullconversion of the outstanding convertible notes and bonds at the
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 the respective fiscal years including dividends to be paid after the end of
the fiscal year.
The Company implemented a common stock consolidation at aratio of ten stocks to one stock on October 1, 2016. All prior year
share and per share figures have been restated to reflect the impactof the stock consolidation, and to provide data on a basis comparable to the year ended March 31, 2017. Such restatements include
calculations regarding the Company’s weighted-average number ofcommon shares, basic net income per share, diluted net income
per share, net assets per share, cash dividends per share, andstock option data of shares.

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, 2017 and 2016 consisted of the following:

2017

2016

Thousands of
U.S. dollars
2017¥1,753,743(18,841)¥1,734,901¥1,235,499(41,700)¥1,193,798$15,631,903(167,945)$15,463,958

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, 2017 and 2016 consisted of the following:

Trading Assets

2017

2016

Thousands of
U.S. dollars
2017

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

¥3,572
1,073¥4,646¥3,2001,430¥4,631$31,843
9,573$41,416

Millions of yen

Trading Liabilities

2017

2016

Thousands of
U.S. dollars
2017

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

¥861
¥861

¥1,129¥1,129$7,680$7,680Millions of yen

5. Money Held in Trust
Money held in trust for trading purposes as of March 31, 2017 and 2016 consisted of the following:

2017

2016

Thousands of
U.S. dollars
2017¥9,251
18¥8,34434$82,465
164

Millions of yen

Amounts recorded in the consolidated balance sheet...........................................................................................
Valuation gain (loss) included in consolidated statement of income........................................................................

Money held in trust for other purposes as of March 31, 2017 and 2016 consisted of the following:

2017

2016

Thousands of
U.S. dollars
2017

¥750
—

¥—
—

$6,685
—

2017

2016

Thousands of
U.S. dollars
2017¥  905,920
329,301
308,378
244,460
661,394¥2,449,455¥1,184,635
331,114297,379
235,500
357,959¥2,406,589$ 8,074,882
2,935,208
2,748,719
2,178,985
5,895,309$21,833,103

Millions of yen

Amounts recorded in the consolidated balance sheet...........................................................................................
Valuation gain (loss) included in consolidated statement of income........................................................................

6. Securities
Securities as of March 31, 2017 and 2016 consisted of the following:
Millions of yen

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

Hokuhoku Financial Group, Inc. Annual Report 201737

As of March 31, 2017 and 2016, securities included equity investments in non-consolidated subsidiaries that amounted to ¥885 million($7,895 thousand) and ¥763 million, respectively.
In the following description, in addition to “Securities,” also presented are trading account securities which are classified as “Trading assets”
in the consolidated balance sheet and beneficiary claims on loan trusts which are classified as “Monetary claims bought” in the consolidatedbalance sheet.
Valuation gain or loss on trading account securities included in income before income taxes was ¥(1) million ($(13) thousand) and ¥24 million
as of March 31, 2017 and 2016, respectively.
The amounts on the consolidated balance sheet, aggregate fair value and unrealized gains (losses) on held-to-maturity debt securities asof March 31, 2017 and 2016 were as follows:
Millions of yen
March 31, 2017

Amount on
consolidatedbalance sheet

Estimated
fair value

Net unrealized
gains (losses)

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

¥ 68,059
1,500
107,137¥176,696¥ 78,929
1,506
108,054¥188,489¥10,869
6
916¥11,792¥     ——
21,397
21,397¥198,094¥     ——
21,32821,328¥209,818¥    ——(68)(68)¥11,723

March 31, 2016

Amount on
consolidatedbalance sheet

Estimated
fair value

Net unrealized
gains (losses)

Millions of yen

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

¥ 70,572—
96,420¥166,993¥ 83,391—
97,631¥181,023¥12,818—
1,211¥14,030¥     ——
10,393
10,393¥177,386¥     ——
10,32910,329¥191,352¥    ——(64)(64)¥13,966

March 31, 2017

Amount on
consolidatedbalance sheet

Estimated
fair value

Net unrealized
gains (losses)$  606,644
13,370954,964$1,574,978$  703,530
13,425963,138$1,680,093$ 96,886
55
8,174$105,115$       —
—190,725
190,725$1,765,703$       —
—190,111
190,111$1,870,204$     —
—
(614)
(614)
$104,501

Thousands of U.S. dollars

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

38

Hokuhoku Financial Group, Inc. Annual Report 2017

The amounts on the consolidated balance sheet, acquisition or amortized cost and unrealized gains (losses) on available-for-sale securities asof March 31, 2017 and 2016 were as follows:
Millions of yen
March 31, 2017

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:
Foreign securities......................................................................................................................................
Other.......................................................................................................................................................
Total 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:
Foreign securities......................................................................................................................................
Other.......................................................................................................................................................
Total other securities.......................................................................................................................................
Total...................................................................................................................................................
Grand total...........................................................................................................................................................

Amount on
consolidatedbalance sheet

Acquisition/amortized cost

Net unrealized
gains (losses)¥   184,247¥   91,727¥ 92,519

813,790
295,442
147,387
1,256,619

794,335
290,368
143,940
1,228,645

19,454
5,073
3,446
27,97479,08598,184
177,269¥1,618,136

76,83891,332
168,171¥1,488,545

2,246
6,851
9,097
¥129,591¥   32,262¥   34,397¥   (2,134)

24,07132,35832,456
88,88624,09032,47732,75389,322

(19)
(119)
(297)
(435)

318,186
220,733
538,920
660,069¥2,278,206

326,466
231,356
557,823
681,543¥2,170,088(8,280)(10,623)(18,903)(21,473)¥108,118

Millions of yen
March 31, 2016

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:
Foreign securities......................................................................................................................................
Other.......................................................................................................................................................
Total 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:
Foreign securities......................................................................................................................................
Other.......................................................................................................................................................
Total other securities.......................................................................................................................................
Total...................................................................................................................................................
Grand total...........................................................................................................................................................

Amount on
consolidatedbalance sheet

Acquisition/amortized cost

Net unrealized
gains (losses)¥  153,077¥   79,285¥ 73,792

1,100,025
319,818
186,502
1,606,346

1,072,904
312,160
181,562
1,566,627

27,121
7,657
4,940
39,718205,436
103,317
308,753¥2,068,177

200,032
95,120295,152¥1,941,066

5,403
8,197
13,600¥127,111¥   54,575¥   61,558¥  (6,983)

14,036
11,296
4,063
29,396

14,13011,2994,083
29,513

(94)
(3)
(20)
(117)

21,39081,879103,270
187,241¥2,255,419

21,48990,659112,149
203,221¥2,144,287(99)(8,779)(8,879)(15,979)¥111,131

Hokuhoku Financial Group, Inc. Annual Report 201739

Thousands of U.S. dollars
March 31, 2017

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:
Foreign securities......................................................................................................................................
Other.......................................................................................................................................................
Total 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:..............................................................................................................................................
Foreign securities......................................................................................................................................
Other.......................................................................................................................................................
Total other securities.......................................................................................................................................
Total.........................................................................................................................................................
Grand total...........................................................................................................................................................

Amount on
consolidatedbalance sheet

Acquisition/amortized cost

Net unrealized
gains (losses)$ 1,642,280$   817,612$  824,668

7,253,678
2,633,413
1,313,728
11,200,819

7,080,273
2,588,189
1,283,008
10,951,470

173,405
45,22430,720249,349

704,923875,161
1,580,084$14,423,183

684,900
814,091
1,498,991$13,268,073

20,02361,07081,093$1,155,110$   287,571$   306,598$   (19,027)

214,560
288,426
289,302792,288

214,733
289,487
291,950
796,170(173)(1,061)(2,648)(3,882)

2,836,140
1,967,497
4,803,637
5,883,496$20,306,679

2,909,946
2,062,186
4,972,132
6,074,900$19,342,973(73,806)(94,689)(168,495)(191,404)$  963,706

Information on available-for-sale securities, which were sold during the years ended March 31, 2017 and 2016 is as follows:

40

March 31, 2017

Proceeds

Millions of yen
Realized gains

Realized losses

Japanese corporate stocks....................................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities:
Foreign securities......................................................................................................................................
Other.......................................................................................................................................................
Total other securities.......................................................................................................................................
Total.....................................................................................................................................................................

¥121,469¥ 7,835¥ 4,734

163,329—168
163,498

172
—
1
173

393
—
—
393

158,390
80,123
238,514¥523,482

321
2,161
2,483
¥10,492

5,986
91
6,077
¥11,206

March 31, 2016

Proceeds

Millions of yen
Realized gains

Realized losses

Japanese corporate stocks....................................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities:
Foreign securities......................................................................................................................................
Other.......................................................................................................................................................
Total other securities.......................................................................................................................................
Total.....................................................................................................................................................................

¥142,735¥7,371¥6,514

16,522
4,051
4,976
25,551

77
1
28
106

—
—
2
2

218,315
33,773
252,088¥420,375

526
297
823
¥8,302208
64
273¥6,789Hokuhoku Financial Group, Inc. Annual Report 2017

March 31, 2017

Japanese corporate stocks....................................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities:
Foreign securities......................................................................................................................................
Other.......................................................................................................................................................
Total other securities.......................................................................................................................................
Total.....................................................................................................................................................................

Proceeds

Thousands of U.S. dollars
Realized gains
Realized losses$1,082,714$69,844$42,201

1,455,831—
1,503
1,457,334

1,535
—
10
1,545

3,510
—
—
3,510

1,411,808
714,180
2,125,988$4,666,036

2,866
19,26922,135$93,524

53,357818
54,175$99,886

Impairment losses on available-for-sale securities amounted to ¥96 million ($859 thousand) and ¥642 million as of March 31, 2017 and2016, 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.
The assessment of whether or not a decline in fair value is other-than-temporary by classification of the security issuer which is used in the
self-assessment of asset quality is 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 acertain 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, 2017 and 2016, in the consolidated balance sheet, was asfollows:

2017

2016

Thousands of
U.S. dollars
2017¥108,118(26,744)
81,373(114)
147¥ 81,406¥111,131(27,291)
83,839(93)
88¥ 83,834$963,706(238,390)
725,316(1,019)1,312$725,609

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 non-controlling interests.................................................................................................
The Company’s portion of valuation difference on available-for-sale securities of equity method investees...............
Amounts recorded in the consolidated balance sheet...........................................................................................

Hokuhoku Financial Group, Inc. Annual Report 201741

7. Loans and Bills Discounted

8. Foreign Exchanges

Loans and bills discounted as of March 31, 2017 and 2016 consisted of the following:

Foreign exchanges as of March 31, 2017 and 2016 consisted of thefollowing:

Millions of yen
2017
2016

Bills discounted............................. ¥   36,656 ¥   43,584
283,743
307,425
Loans on bills................................
Loans on deeds............................. 6,486,652 6,288,875
964,285
943,068
Overdrafts.....................................
Total.............................................. ¥7,771,338 ¥7,582,954

Thousands of
U.S. dollars
2017$   326,735
2,529,129
57,818,460
8,595,113$69,269,437

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
2017
2016

Loans to borrowers in bankruptcy..... ¥  4,099
Past due loans............................... 134,625
Past due loans
295(three months or more).................
18,316
Restructured loans.........................
Total.............................................. ¥157,336

Thousands of
U.S. dollars
2017¥  4,774
144,418$    36,543
1,199,974

376
19,731¥169,300

2,631
163,265$1,402,413

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) on which the Banks havestopped accruing interest income due to substantial doubt existing
about the ultimate collection of principal and/or interest. Such loans
are classified 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’ self-assessment guidelines include past due loans (three months or more)which consist of loans for which the principal and/or interest is threemonths or more past due, but exclude loans to borrowers in bankruptcy 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 inbankruptcy, 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 right tosell 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 were obtained at a discount, were ¥39,025 million ($347,853 thousand) and¥45,905 million as of March 31, 2017 and 2016, respectively.

42

Hokuhoku Financial Group, Inc. Annual Report 2017

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..............................................

Millions of yen
2017
2016

Thousands of
U.S. dollars
2017¥12,298
2,369
1,592¥16,260¥11,096
2,320
1,353¥14,771$109,621
21,11914,193$144,933¥    25
26
52¥   103¥    25
48
153¥   226$    224235
464$    923

9. Tangible Fixed Assets
Tangible fixed assets as of March 31, 2017 and 2016 were as
follows:
Millions of yen
2017
2016

Buildings....................................... ¥ 33,046
60,499Land.............................................
526
Lease assets..................................
Construction in progress..................
197
6,922
Other tangible fixed assets...............
Total.............................................. ¥101,192¥ 32,999
61,293
657
241
5,887
¥101,080

Thousands of
U.S. dollars
2017$294,561
539,259
4,694
1,758
61,706$901,978Accumulated depreciation amounted to ¥103,976 million($926,792 thousand) and ¥104,871 million as of March 31, 2017and 2016, respectively.
The book value of tangible fixed assets adjusted for gains onsales of replaced assets amounted to ¥3,871 million ($34,512 thousand) and ¥3,885 million as of March 31, 2017 and 2016, 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 ¥19,641 million($175,072 thousand) and ¥19,978 million as of March 31, 2017 and2016, respectively.

10. Intangible Fixed Assets

13. Loan Commitments

Intangible fixed assets as of March 31, 2017 and 2016 were as
follows:

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 ¥151,947 million($1,354,376 thousand) and ¥131,164 million as of March 31, 2017and 2016, respectively.

Overdraft facility and loan commitment contracts with customers tolend up to the prescribed limits in response to customers’ applications for a loan, as long as there is no violation of any condition
within the contracts. The unused amount of such contracts totaled¥2,412,551 million ($21,504,159 thousand) and ¥2,336,084 million
as of March 31, 2017 and 2016, respectively, of which amounts
with original agreement terms of less than one year are ¥2,328,971
million ($20,759,176 thousand) and ¥2,284,348 million as of March
31, 2017 and 2016, 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 or decrease
the contract limits with proper reasons (e.g., changes in financial
situation, deterioration in customers’ creditworthiness). At the inception of the contracts, the Group obtains collateral including realestate, securities, etc., if considered to be necessary. Subsequently,
the Group performs a periodic review of the customers’ businessresults based on internal rules and takes necessary measures toreconsider conditions in contracts and require additional collateraland guarantees.

12. Assets Pledged

14. Deposits

Assets pledged as collateral and their relevant liabilities as of March
31, 2017 and 2016 were as follows:

Deposits as of March 31, 2017 and 2016 consisted of the following:

Software.........................................
Goodwill........................................
Lease assets..................................
Other intangible fixed assets............
Total..............................................

Millions of yen
2017
2016

Thousands of
U.S. dollars
2017¥ 7,770
15,591
56
939¥24,358$ 69,263
138,977
501
8,374$217,115¥ 5,413
17,694
94772¥23,974

11. Customers’ Liabilities for Acceptances and Guarantees

Millions of yen
2017
2016

Assets pledged as collateral:
Securities................................... ¥949,935
Loans and bills discounted........... 170,435
Relevant liabilities to the above assets:
Deposits.................................... ¥ 28,863
Call money and bills sold.............
34,584
Payables under securities lendingtransactions.............................. 534,362
Borrowed money........................ 306,350

Thousands of
U.S. dollars
2017¥444,040
111,032$8,467,207
1,519,166¥ 27,848—$  257,272
308,269

92,954
161,990

4,763,015
2,730,639

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, 2017 and 2016:
Millions of yen
2017
2016

Securities....................................... ¥106,168
25,313
Other assets..................................

¥140,922
219

Thousands of
U.S. dollars
2017$946,324
225,627

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.
Millions of yen
2017
2016

Initial margins for futurestransactions.................................
Cash collateral paid forfinancial instruments....................
Guarantee deposits........................

Thousands of
U.S. dollars
2017¥    8¥    8$    77

5,857
4,004

1,277
3,986

52,20635,690Millions of yen
2017
2016

Current deposits, ordinary deposits,
saving deposits anddeposits at notice.......................... ¥ 6,612,279 ¥ 6,167,421
Time deposits and installment
savings......................................... 3,816,965 3,929,382
Negotiable certificates of deposit......
140,499
244,008
Other deposits................................
131,526
134,604
Total.............................................. ¥10,701,271 ¥10,475,416

Thousands of
U.S. dollars
2017$58,938,228
34,022,332
1,252,339
1,172,357$95,385,256

15. Borrowed Money
As of March 31, 2017 and 2016, the weighted-average annual interest rates applicable to borrowed money were 0.11% and 0.27%,
respectively.
Borrowed money includes borrowings from the Bank of Japanand other financial institutions. In addition, borrowed money
includes ¥15,000 million ($133,702 thousand) and ¥39,500 millionof subordinated borrowed money as of March 31, 2017 and 2016,
respectively.
Annual maturities of borrowed money as of March 31, 2017
were as follows:
Millions of yen

Thousands of
U.S. dollars

2018.................................................................. ¥136,804657
2019..................................................................
2020.................................................................. 152,806
19,3602021..................................................................
268
2022..................................................................
15,4352023 and thereafter.............................................
Total................................................................... ¥325,331$1,219,397
5,860
1,362,029
172,569
2,392
137,582$2,899,829

Year ending March 31

Hokuhoku Financial Group, Inc. Annual Report 201743

16. Bonds Payable
Bonds payable as of March 31, 2017 and 2016 consisted of the following:

2017

2016

Thousands of
U.S. dollars
2017¥    —¥ 8,000$     —

Millions of yen

Issued by the Company:
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..............................................................................................................
Total..................................................................................................................................................................

25,00025,000222,836¥25,000¥33,000$222,836

Millions of yen

Thousands of
U.S. dollars¥25,000$222,836

Annual maturities of bonds payable as of March 31, 2017 were as follows:Year ending March 312023 and thereafter...........................................................................................................................................

17. Retirement Benefits
Overview of the Group’s retirement benefit plans
The Hokuriku Bank, Ltd. which previously provided three defined
benefit retirement programs, corporate pensions, and tax qualified
pension and retirement bonuses, terminated the tax qualified pension and migrated 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 to inclusion 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 the obligation to administer the future payment service ofthe government mandated portion of its employee pension fund.
The Hokuriku Bank, Ltd. was further approved on March 1, 2005 to
switch from an employee pension fund to a corporate pension fund.
The Hokkaido Bank, Ltd. provides defined benefit arrangementsthat combine a retirement lump sum grant and an employee pension fund plan, and also provides a defined contribution pension
since fiscal year 2016. 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 service ofthe 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 a partof their plan assets.

44

Hokuhoku Financial Group, Inc. Annual Report 2017(a) Defined benefit plan(1) ‌The changes in defined benefit obligations for the years ended
March 31, 2017 and 2016 were as follows:
Millions of yen
2017
2016

Balance at beginning of year............ ¥102,615
2,448Service cost................................
631
Interest cost................................
1,062
Actuarial (gains) losses................
(5,308)Benefits paid...............................
90
Others.........................................
Balance at end of year..................... ¥101,540¥ 92,378
2,037
1,378
12,035(5,287)73¥102,615

Thousands of
U.S. dollars
2017$914,663
21,823
5,627
9,468(47,314)806$905,073(2) ‌The changes in plan assets for the years ended March 31, 2017and 2016 were as follows:
Millions of yen
2017
2016

Balance at beginning of year............ ¥82,156
2,474
Expected return on plan assets....
1,457
Actuarial (gains) losses................
4,310
Contributions from the employer....
(3,973)
Benefits paid...............................
90
Others.........................................
Balance at end of year..................... ¥86,513¥85,5172,478(6,619)4,562(3,869)87¥82,156

Thousands of
U.S. dollars
2017$732,294
22,052
12,98738,418(35,421)807$771,137

(3) ‌Reconciliation between the liability recorded in the consolidatedbalance sheet and the balances of defined benefit obligation andplan assets was as follows:
Millions of yen
2017
2016

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

¥85,348(79,944)
5,403
16,191(6,569)9,622¥86,086(74,957)
11,12916,529(7,198)9,330$760,747(712,580)
48,167
144,326(58,557)
85,769¥15,026¥20,459$133,936

Millions of yen
2017
2016

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

Thousands of
U.S. dollars
2017

Thousands of
U.S. dollars
2017¥15,026—¥20,459—$133,936—¥15,026¥20,459$133,936(4) ‌The components of net periodic benefit costs for the years
ended March 31, 2017 and 2016 were as follows:
Millions of yen
2017
2016

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

¥2,448631(2,474)
3,342
(46)
52
¥3,953¥2,0371,378(2,478)
3,073
(46)
66
¥4,030Thousands of
U.S. dollars
2017$21,823
5,627(22,052)
29,790(417)
465$35,236(7) ‌Plan assets• Components of plan assets
Bonds.....................................................................
Stocks.....................................................................
Cash and deposits...................................................
General accounts....................................................
Other......................................................................
Total........................................................................

2017

2016

33.26%
43.99%
4.00%
3.80%
14.95%
100.00%34.20%
45.40%
3.13%
3.95%
13.32%
100.00%Note: ‌Plan assets include retirement benefit trusts of 21.72% and 22.34%
as of March 31, 2017 and 2016, respectively.

• ‌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 and in
the future from the various components of the plan assets.
(8) ‌Assumptions used for the years ended March 31, 2017 and2016 were set forth as follows:
2017

2016

Discount rate........................................................... 0.61%-0.63% 0.61%-0.63%
Expected rate of return on plan assets...................... 3.0%-3.5% 3.0%-3.5%(b) Defined contribution pension plan
Millions of yen
2017
2016

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

¥369

¥273

Thousands of
U.S. dollars
2017$3,292(5) ‌Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement benefit plans forthe years ended March 31, 2017 and 2016 were as follows:
Millions of yen
2017
2016

Prior service cost.............................
Actuarial gains (losses)....................
Total................................................

¥   (46)
3,736¥3,690¥     (46)(15,581)¥(15,628)

Thousands of
U.S. dollars
2017$   (417)
33,309$32,892(6) ‌Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement
benefit plans as of March 31, 2017 and 2016 were as follows:
Millions of yen
2017
2016

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

¥    (93)8,392¥8,298¥   (140)
12,129¥11,989

Thousands of
U.S. dollars
2017$    (834)74,806$73,972

Hokuhoku Financial Group, Inc. Annual Report 201745

18. Equity
Japanese 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. Additionally, forcompanies that meet certain criteria including (1) having a Boardof Directors, (2) having independent auditors, (3) having an Audit& Supervisory Board and (4) the term of service of the directors
being prescribed as one year rather than the normal two-year
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
of incorporation. The Company meets all the above criteria, andaccordingly, the Board of Directors may declare dividends (except for dividends-in-kind) at any time during the fiscal year.
	‌   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 theamount available for distribution to the shareholders, but theamount of net assets after dividends must be maintained at noless than ¥3 million.
(b)	‌Increases / 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 aggregate amountof the legal reserve and additional paid-in capital equals 100% ofcommon stock. Under the Companies Act, the total amount ofadditional 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 capitalsurplus and retained earnings can be 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 resolutionof 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 can purchase both treasury stock acquisition rights and treasury stock.
Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.

46

Hokuhoku Financial Group, Inc. Annual Report 2017

On October 1, 2016, the Company implemented a common stock
consolidation at a ratio of ten stocks to one stock based on the
resolution of the General Shareholders’ meeting held on June 24,
2016.

19. Capital Stock
Information with respect to capital stock of the Company as ofMarch 31, 2017 and 2016 is as follows:
Number of shares:
Authorized:
Common........................................
Preferred (Type 1)..........................
Preferred (Type 2)..........................
Preferred (Type 3)..........................
Preferred (Type 4)..........................
Preferred (Type 5)..........................
Issued and outstanding:Common........................................
Preferred (Type 5)..........................
Treasury stock:
Common........................................
Preferred (Type 5)...........................

2017

2016

280,000,000————
110,000,000

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

132,163,014
107,432,000

1,351,630,146
107,432,000

1,131,632
2,160

11,607,137
2,160

Preferred stock (Type 5)
Preferred stock (Type 5) is noncumulative and nonparticipating for
dividend payments. Shareholders of the preferred stock (Type 5) arenot entitled to vote at the general meeting of shareholders, except
when the proposal to pay the prescribed dividends to shareholders
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 years
ended March 31, 2017 and 2016 were as follows:
As of April Changes during the fiscal year As of March
1, 201631, 2017
Decrease*2
Increase*1
2017
Common................... 11,607,137 30,036,137 40,511,642 1,131,632
Preferred (Type 5)......
2,160
—
—
2,160
*1 ‌The increase of common represents the acquisition of 30,000,000 sharesof treasury stock and 36,137 shares of odd-lot shares.
*2 ‌The decrease of common represents the retirement of 30,000,000 sharesof treasury stock, 10,181,446 shares of stock consolidation, the disposalof 2,966 shares of odd-lot shares and 327,230 shares exercised of stock
options.

As of April Changes during the fiscal year As of March
1, 201531, 2016
Decrease*2
Increase*1
2016Common................... 11,887,214
67,494
347,571
11,607,137
Preferred (Type 5)......
1,420
740
—
2,160
*1 ‌The increase of common and preferred (Type 5) represents the acquisitionof odd-lot shares.
*2 ‌The decrease of common represents the disposal of 2,171 shares of
odd-lot shares and 345,400 shares exercised of stock options.

20. Stock Acquisition Rights
Stock acquisition rights as of March 31, 2017 and 2016 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.
   Stock option expenses in the amount of ¥124 million ($1,108
thousand) and ¥110 million were recorded under general and administrative expenses for the years ended March 31, 2017 and2016, respectively.
   The stock options outstanding as of March 31, 2017 were as
follows:

Stock options

Persons
grantedNumberof options
granted(Shares)

Date of
grant

Exercise
price

19 directors
2012 Stock 23 executive
November
Optionofficers
105,850 28, 201219 directors
August 13,
2013 Stock 22 executive
62,9502013
Optionofficers
19 directors
2014 Stock 21 executive
July 11,
Optionofficers
55,4002014
18 directors
2015 Stock 24 executive
July 14,
Optionofficers
41,7302015
19 directors
2016 Stock 25 executive
August 12,
Optionofficers
106,200
2016

¥1
¥1
¥1
¥1
¥1

Exercise period

From November
29, 2012 toNovember 28,
2042
From August 14,
2013 to August
13, 2043
From July 12,2014 to July 11,
2044
From July 15,
2015 to July 14,
2045
From August 13,
2016 to August
12, 2046

The stock option activity was as follows:Year ended
March 31, 2017

Non-vested:
March 31, 2016
–outstanding.....
Granted...........
Canceled.........
Vested.............
March 31, 2017
–outstanding.....
Vested:March 31, 2016
–outstanding.....
Vested.............
Exercised........
Canceled.........
March 31, 2017
–outstanding.....
Exercise price...........
Average stock priceat exercise..............
Fair value priceat grant date...........

2012 stock2013 stock2014 stock2015 stock
2016 stock
option (Shares) option (Shares) option (Shares) option (Shares) option (Shares)

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

—
106,200—
106,200

—

—

—

—

—

The Assumptions Used to Measure the Fair Value of the 2016 Stock
Options
Estimate method.......................................... Black-Scholes option-pricing model
Volatility of stock price.............................. 34.722%
Estimated remaining outstanding period.... Two years and two months
Estimate dividend..................................... ¥4.25 per share
Interest rate with risk free......................... (0.201)%
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.

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, 2017 and2016 was as follows:Year ended
March 31, 2017

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

Year ended
March 31, 2016

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

Thousands ofMillions of yen
shares
Net income
attributable to
Weightedowners of parent average shares¥26,546¥26,546

40,570—8,480—

42,900—10,040—41,730—8,990——
106,200
1,320
1,310

32,800¥1$0.01

32,090¥1$0.01

32,860¥1$0.01

32,740¥1$0.01

103,570¥1$0.01¥1,347$12.01¥1,347$12.01¥1,347$12.01¥1,347$12.01¥2,050$18.27¥1,080$9.64¥1,820$16.22¥2,010$17.92¥2,650$23.62¥1,170$10.43

U.S. dollars
EPS

131,831211¥201.36$1.79

132,042¥201.04$1.79

Thousands ofsharesYen

Millions of yen
Net income
attributable to
Weightedowners of parent average shares

EPS¥27,226

133,993166¥203.19¥27,226

134,160¥202.93(2) Net assets per share of common stock
Net assets per share of common stock as of March 31, 2017 and2016 were as follows:
Yen
2017

45,540—12,740—Yen

Net assets per shareof common stock.......................... ¥4,028.62

2016

U.S. dollars
2017¥3,806.14$35.91

Shares and per share figures have been restated, as appropriate, toreflect a one-for-ten stock consolidation effected October 1, 2016.

Hokuhoku Financial Group, Inc. Annual Report 201747

Net assets per share of common stock as of March 31, 2017 and2016 were calculated based on the following:
Millions of yen
2017
2016

Total equity.................................... ¥585,237
Deductions from total equity:
Stock acquisition rights..............
367
Non-controlling interests............
2,472
Preferred stock..........................
53,714Preferred dividends....................
805
Net assets attributable tocommon stock at the end of
the fiscal year.............................. 527,876
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).......... 131,031

Thousands of
U.S. dollars
2017¥566,251$5,216,488

319
1,378
53,714805

3,278
22,042478,785
7,182

510,032

4,705,201

134,002

Other ordinary income for the years ended March 31, 2017 and2016 is as follows:
Millions of yen
2017
2016

Thousands of
U.S. dollars
2017¥    —¥ 1,045$     —

2,468—
10,4792,244¥15,192

1,037
808
6,511
4,904
¥14,308

22,000—93,411
20,009$135,420

24. Other Ordinary Expenses
Other ordinary expenses for the years ended March 31, 2017 and2016 are as follows:
Millions of yen
2017
2016

48

Hokuhoku Financial Group, Inc. Annual Report 2017

Millions of yen
2017
2016

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

Thousands of
U.S. dollars
2017¥ 8,065¥ 7,373$ 71,890

511

—

4,562

104
4,323
¥13,005

4
4,821¥12,199936
38,539$115,927

Other expenses for the years ended March 31, 2017 and 2016 are
as follows:

23. Other Ordinary Income

Losses on foreign exchangetransactions – net......................... ¥   259Losses on sales, redemption anddevaluation of bonds and othersecurities.....................................
6,403
Losses on derivatives......................
15
Lease costs....................................
9,558
1,034
Other.............................................
Total.............................................. ¥17,271

Other income for the years ended March 31, 2017 and 2016 is asfollows:

26. Other Expenses

Shares and per share figures have been restated, as appropriate, toreflect a one-for-ten stock consolidation effected October 1, 2016.

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

25. Other Income

Thousands of
U.S. dollars
2017

¥   —

$  2,317

213
—
5,795
3,526
¥9,53657,075138
85,196
9,221$153,947

Millions of yen
2017
2016

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..............................................

Thousands of
U.S. dollars
2017¥  5294,807¥   517
6,576$ 4,72242,848

202
213

1,390
267

1,805
1,899

1,030
3,068
¥9,8501,266
3,280¥13,299

9,182
27,350$87,806

27. Income Taxes
The Company and its domestic subsidiaries are subject to Japanesenational and local income taxes which, in the aggregate, resulted in
the normal effective statutory tax rates of approximately 30.69%
and 32.82% for the years ended March 31, 2017 and 2016, respectively.
The tax effects of significant temporary differences and tax loss
carryforwards which resulted in deferred tax assets and liabilities at
March 31, 2017 and 2016 are as follows:
Millions of yen
2017
2016

Thousands of
U.S. dollars
2017

Deferred tax assets:
Allowance for loan losses............. ¥26,268
Depreciation................................
898
Liability for retirement benefits..... 14,124
Loss on valuation of securities...... 12,558
5,637
Other..........................................
Operating loss carryforwards........
59
Subtotal.................................
59,546
Less: Valuation allowance............ 26,259
Total deferred tax assets.............. 33,287¥28,447
973
17,28812,981
5,910
66
65,66827,65938,008$234,144
8,006
125,899
111,942
50,246531
530,768
234,063296,705

Deferred tax liabilities:
Valuation difference on
available-for-sale securities....... 36,834
Land transfer through merger......
2,765
Other.........................................
2,157
Total deferred tax liabilities.......... 41,757
Net deferred tax assets............... ¥ (8,470)

37,6622,765
2,219
42,647¥ (4,638)

328,320
24,652
19,230372,202$ (75,497)

A reconciliation between the normal effective statutory tax rates andthe actual effective tax rates reflected in the accompanying consolidated statement of income for the years ended March 31, 2017 and2016 is as follows:
2017

2016

Normal effective statutory tax rate.................................... 30.69%
Change in valuation allowance.................................... (3.63)
Permanently non-taxable income................................ (1.41)
Per capita portion of inhabitants’ taxes......................... 0.41
Permanently non-deductible expenses......................... 0.32
Decrease in deferred tax assets due to changes in tax rate....
—Other........................................................................ 0.49
Actual effective tax rate................................................... 26.87%

32.82%
1.39(0.71)
0.35
0.30
2.24
0.59
36.98%

28. Other Comprehensive Income
The components of other comprehensive income for the years ended March 31, 2017 and 2016 are as follows:
Millions of yen
2017
2016

Thousands of
U.S. dollars
2017

Valuation difference on
available-for-sale securities:
Amount incurred
during the fiscal year.................
Reclassification adjustment..........
Prior to deducting tax effect....
Tax effect...............................
Total.......................................

¥(5,512)2,498(3,013)546(2,466)¥(25,646)(102)(25,749)
8,573(17,175)$(49,132)
22,271(26,861)
4,875(21,986)

Deferred gains (losses) on hedges:
Amount incurred during
the fiscal year............................
Reclassification adjustment..........
Prior to deducting tax effect....
Tax effect...............................
Total.......................................

(1,386)
1,944
557
(169)
387

(2,067)1,015(1,051)
300(751)(12,362)
17,332
4,970(1,512)
3,458

Revaluation reserve for land:
Amount incurred during
the fiscal year............................
Reclassification adjustment..........
Prior to deducting tax effect....
Tax effect...............................
Total.......................................

—
—
—
—
—

—
—
—
302
302

—
—
—
—
—

Defined retirement benefit plans:
Amount incurred during
the fiscal year............................
Reclassification adjustment..........
Prior to deducting tax effect....
Tax effect...............................
Total.......................................

394
3,295
3,690
(1,122)
2,567(18,655)
3,026(15,628)
4,813(10,814)

3,519
29,37332,892(10,007)22,885

(27)
(7)
(34)
15
(19)

756
(10)
746
(227)
519

¥(28,458)$  4,876

Share of other comprehensive
income of associates accounted
for using the equity method:Amount incurred during
the fiscal year............................
84
Reclassification adjustment..........
(1)
83
Prior to deducting tax effect....
Tax effect...............................
(25)
58
Total.......................................
Total othercomprehensive income.................. ¥   547

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, 2017 and 2016 are as follows:
Millions of yen
2017
2016

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

¥1
6
¥8

¥2
0
¥2

Thousands of
U.S. dollars
2017

$15
57
$72

30. Financial Instruments and Related Disclosures(1) Group policy on financial instruments
The Group provides a wide variety of financial services, centered onbanking 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 in asound 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 areused mainly for medium- to long-term fundraising.
Given the different term structures of the Group’s financial assets suchas loans and financial liabilities such as deposits, the Group is exposed tointerest-rate fluctuation risk in the financial markets. For this reason, theGroup conducts comprehensive asset liability management (“ALM”) toappropriately control such market risk and ensure stable earnings.
(2) Nature and extent of risks arising from financial instruments
The financial assets held by the Group consist primarily of securities
and loans to domestic customers. Loans are subject to credit risks
that could cause financial loss to the Group, such as declines orlosses in asset value resulting from a possible deterioration in thefinancial 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 such as
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 fluctua-

Hokuhoku Financial Group, Inc. Annual Report 2017

49

50

tions, price volatility risk, and credit risk.
However, none of the Group’s financial assets and liabilities areattended 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 thevalue of some of its assets and liabilities against interest-rate fluctuations. When applying hedge accounting, the Hokuriku Bank, Ltd.
adopts integrated management in both hedging instruments andhedged items as long as hedging is managed and evaluates theeffectiveness of the hedges.
(3) Risk management for financial instruments
The Banks have established risk management departments andhave stipulated basic regulations for risk management and otherregulations pertaining to risk. In addition, the Banks have established an ALM Committee and a Comprehensive Risk Management
Committee, where qualified risks and administration matters are
discussed regularly to ensure that all categories of risk are managed

Interest Rate Risk Management
The risk management departments of the Banks regularly and comprehensively 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 themethods and procedures to be employed for risk management aredescribed in detail.
The Banks set ceiling amounts for each type of interest rate risk
to control such risk appropriately. Derivatives such as interest-rate
swaps and interest-rate caps are employed from an ALM perspective so that the Banks reduce interest rate risk by hedging againstinterest rate fluctuations.
Foreign Exchange Risk Management
Using measures such as currency swaps to reduce foreign exchange risk, the Banks manage exchange risk arising from fluctua-

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 and the 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 andthe Banks collaborated in establishing various regulations, including
Credit Risk Management Regulations, and also ensuring the effective operation of internal checking functions by separating businesspromotion departments from credit risk management departments.
Rigorous screening is also conducted and credit ratings are granted
based on their Credit Policy. Additionally, the setting 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 the loan screening process of the Banks, the branches
concerned carefully analyze each separate loan application andscreen 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 inplace within the screening departments are responsible for particular industries and geographical areas. These specialists provide theappropriate advice and guidance to the branches based on the particular 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 to ensure stableearnings.

tions in foreign exchange rates that affect the values of assets andliabilities denominated in foreign currencies.
Price Volatility Risk Management
Regarding investments in instruments such as securities, the Banks
carry out prior screening and set investment ceilings, and then constantly monitor the investment status to minimize price volatility risk.
Every process above has to be strictly managed under the supervision of the Banks’ Board of Directors and to be in line with policies
laid down by Management Committees. A high percentage of thestocks 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. Value at Risk (“VaR”) andother methods are used to determine the amount of market risk foreach security held. The staff members of the responsible departments provide regular reports to the Banks’ Board of Directors andManagement Committees to confirm that price risk is controllable
and all rules pertaining to market risk management are being followed correctly.
Derivatives
The Banks arrange their organizational structures securing the separation 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 ¥166 million ($1,480 thousand) and ¥177
million as of March 31, 2017 and 2016, respectively.

Hokuhoku Financial Group, Inc. Annual Report 2017

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,” and transactions 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 of thesefinancial instruments.
For calculating VaR, the Banks adopted the historical simulation method (a holding period of 120 business days, a confidence
interval of 99% and main observation period of 1,250 businessdays) 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) and forspecified fund trust as investment securities. Hokkaido Bank also
considers the correlation between interest rates and the fluctuation of prices of the listed stocks in calculating VaR of specified
fund trust as investment securities.
Hokuriku Bank’s VaR of the financial instruments in the banking account was ¥38,002 million ($338,729 thousand) and¥41,464 million as of March 31, 2017 and 2016, respectively.
Hokkaido Bank’s VaR of the financial instruments in the banking
account was ¥16,314 million ($145,414 thousand) and ¥20,182
million as of March 31, 2017 and 2016, respectively. Hokkaido
Bank’s trading account securities totaled ¥6 million ($53 thousand) and ¥11 million as of March 31, 2017 and 2016, respectively. Hokkaido Bank’s specified fund trust totaled ¥19 million($169 thousand) and ¥28 million as of March 31, 2017 and 2016,
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 inwhich VaR cannot capture risk under sudden and dramaticchanges in markets beyond normal circumstances.
VaR shows the maximum loss during the holding period of thefinancial instruments under a confidence interval (99%) that is
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 their present value on the assumption that index interest rate rises by
1.00%.
Hokuriku Bank’s 100BPV was a ¥5,574 million decrease($49,684 thousand decrease) and a ¥5,517 million decrease as ofMarch 31, 2017 and 2016, respectively. Hokkaido Bank’s 100BPV
was a ¥33,352 million decrease ($297,281 thousand decrease)and a ¥15,656 million decrease as of March 31, 2017 and 2016,
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 thecalculated 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 for every possible scenario.
(4) ‌Supplementary 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, theresult of such calculations may vary if different assumptions areused.
(5) Fair value of financial instruments
The fair values of the main financial instruments at March 31, 2017and 2016 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, 2017

Carrying
amountFair value

Unrealized
gain (loss)

Cash and due from banks................ ¥ 1,753,743 ¥ 1,753,743 ¥     —89,41589,415
Call loans and bills bought...............
—
Monetary claims bought *1..............
54,79754,797—
Securities
Bonds classified as
held-to-maturity......................
198,094
209,818
11,723Available-for-sale securities........ 2,223,408
2,223,408—
Loans and bills discounted............... 7,771,338
Allowance for loan losses *1........
(49,755)
7,721,582
7,808,998
87,416
Total assets.................................... ¥12,041,041 ¥12,140,181 ¥ 99,140
Deposits........................................ ¥10,701,271 ¥10,701,687 ¥    415Payables under securities lending
534,362
534,362transactions.................................
—
Borrowed money............................
325,331
325,073(258)
Total liabilities................................. ¥11,560,966 ¥11,561,123 ¥    157Derivative transactions *2
Derivative transactions not
qualifying for hedge accounting.... ¥     (2,901) ¥     (2,901) ¥     —Derivative transactions qualifying
1,341
1,341
—*3
for hedge accounting...............
Total derivative transactions............. ¥     (1,559) ¥     (1,559) ¥     —Hokuhoku Financial Group, Inc. Annual Report 201751

Millions of yen
March 31, 2016

Carrying
amountFair value

Unrealized
gain (loss)

Cash and due from banks............... ¥ 1,235,499 ¥ 1,235,499 ¥     —Call loans and bills bought..............
65,01665,016—
Monetary claims bought *1.............
54,06654,066—
Securities
Bonds classified as
177,386
191,352
13,966held-to-maturity......................
Available-for-sale securities....... 2,201,352
2,201,352—
Loans and bills discounted............. 7,582,954
Allowance for loan losses *1.......
(52,705)
7,530,249
7,658,038 127,788
Total assets................................... ¥11,263,571 ¥11,405,325 ¥141,754
Deposits........................................ ¥10,475,416 ¥10,476,167 ¥    751Payables under securities lendingtransactions.................................
92,954
92,954 ¥     —Borrowed money............................
1,559
207,252
208,812
Total liabilities................................ ¥10,775,624 ¥10,777,935 ¥  2,310
Derivative transactions *2
Derivative transactions not
qualifying for hedge accounting.... ¥     6,639 ¥     6,639 ¥     —Derivative transactions qualifying
1,784
1,784
—*3
for hedge accounting...............
Total derivative transactions............ ¥     8,424 ¥     8,424 ¥     —Thousands of U.S. dollars
March 31, 2017

Carrying
amountFair value

Unrealized
gain (loss)

Cash and due from banks................ $ 15,631,903 $ 15,631,903 $     —Call loans and bills bought...............
797,000
797,000—
Monetary claims bought *1..............
488,438
488,438—
Securities
Bonds classified as
held-to-maturity......................
1,765,702
1,870,204 104,502
Available-for-sale securities........ 19,818,241 19,818,241—
Loans and bills discounted............... 69,269,437
Allowance for loan losses *1........
(443,496)
68,825,941 69,605,123 779,182
Total assets.................................... $107,327,225 $108,210,909 $883,684
Deposits........................................ $ 95,385,256 $ 95,388,961 $  3,705
Payables under securities lendingtransactions.................................
4,763,015
4,763,015—
Borrowed money............................
2,899,829
2,897,527(2,302)
Total liabilities................................. $103,048,100 $103,049,503 $  1,403
Derivative transactions *2
Derivative transactions not
qualifying for hedge accounting... $     (25,863) $     (25,863) $     —Derivative transactions qualifying
11,958
11,958—*3
for hedge accounting.................
Total derivative transactions............. $     (13,905) $     (13,905) $     —*1. ‌Allowance for loan losses shown in this table represents the general allowance and specific allowance for loan losses. Figures for allowance forloan losses on monetary claims bought are directly deducted from thebalance of monetary claims bought as the amount concerned is insignificant.
*2. ‌Derivative transactions included in trading assets and liabilities and otherassets and liabilities are shown together. Assets and liabilities arising fromderivative 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.

52

Hokuhoku Financial Group, Inc. Annual Report 2017

Cash and due from banks
The fair values of due from banks with no maturity are considered tobe equal to the book value since the fair values of these items approximate their book values. The fair values of due from banks withmaturity are calculated using the total cash flows from principal andinterest 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 of duefrom 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 fairvalues of bonds are calculated using the price indicated on the securities market or other officially announced prices. In the event thatneither of these fair values are available, the price is based on areasonable estimate. For investment trusts, the fair value is calculated on the basis of a publicly available benchmark price.
For privately-placed bonds guaranteed by one of the Banks, thepresent value is separately calculated using the present value discounted by a market interest rate where the credit risk of each bondissuer and the remaining period of the bonds are considered.
For more detailed information regarding the different types of
securities classified according to holding purpose, see “6.
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 unless thecreditworthiness of the borrower changes subsequent to the grading of the loan. Because of this, the book value is employed as thefair value.
For loans with fixed interest rates, the fair value is calculated using the total future 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 different
category of loans, classified by type of loan, internal credit ratingsand maturity length. For loans whose repayment period is one year
or less, the book value is a close approximation of the fair value andis 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 value of estimatedfuture cash flows or the estimated value recoverable from collateraland guarantees. Since the fair value approximates the value stated

on the consolidated balance sheet as of the settlement date, minus
the present value of estimated bad debt, this figure is treated as thefair value.
For the category of loans whose maturity is not fixed because of
the loan ceiling set within the estimated value recoverable from thecollateral, the book value is deemed to approximate the fair value
because of the expected period for repayment and the interest
rates applied. The book value is therefore employed as the fair 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

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 deemed to approximate the fair value and is therefore
treated as such.
Derivative transactions
Derivative transactions include interest rate-related transactions (futures, options, swaps and others), foreign exchange-related transactions (futures, options, swaps and others) and commodity-relatedtransactions and are based on the prices on securities exchanges,
discounted value of future cash flows, option pricing models andothers.
(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 theaccepted deposits. In the event that the deposit term is one year or
less, the book value is deemed to approximate the fair value and istherefore treated as such.
Payables under securities lending transactions
The fair values of Payables under securities lending transactions are
considered to be equal to the book value since the contractual
terms are one year or less and fair values of these items approximate their book values.
Borrowed money
Borrowed money with floating interest rates reflects market interest
rates and because the credit standing of the Company and its consolidated subsidiaries has changed little since taking out suchloans, the book value is deemed to approximate the fair value andis therefore treated as such.
For money borrowed through loans carrying fixed rates, the current value of such loans is determined by discounting the total offair value information of financial instruments.
Consolidated balance sheet amounts
Millions of yen
2017
2016

March 31

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

¥ 7,787
27,952
0¥35,740¥ 7,967
27,8490¥35,817

Thousands of
U.S. dollars
2017$ 69,411
249,1563$318,570*1. ‌These items are excluded from “fair value information of financial instruments” on the basis that no market price is available and a determinationof the fair value would be extremely difficult.
*2. ‌Unlisted stocks were written down by ¥106 million ($946 thousand) and¥747 million as of March 31, 2017 and 2016, respectively.

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

March 31, 2017

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 local 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.................................................................................................

¥1,630,534
89,415
1,314
276,478
29,4881,000—
28,488
246,990
170,600
49,82024,8581,711
2,227,413¥4,225,156¥       ——
—632,836
55,7703,000—
52,770577,066
330,400
136,367
36,156
74,143
1,394,576¥2,027,413¥       —
—6,326465,564
43,2282,520—
40,708422,336
263,900
77,79331,39549,2481,025,589¥1,497,480¥     ———
163,243
7,541
1,500
—
6,041
155,70252,00014,46812,52676,707
740,834¥904,077¥       —
—46,683532,244
62,28060,0001,500
780
469,964—
44,316
71,738353,908
2,216,375¥2,795,304

Hokuhoku Financial Group, Inc. Annual Report 201753

March 31, 2016

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 local 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.................................................................................................

¥1,114,007
65,016
1,805
322,507
20,5162,500—
18,016
301,991
205,300
35,60938,706
22,3762,221,245¥3,724,582¥       ——
—523,656
47,8683,000—
44,868475,788
293,600
88,90340,06753,217
1,408,001¥1,931,657¥       —
—2,168756,168
41,8703,520—
38,350714,298
425,800
153,767
37,482
97,2481,016,797¥1,775,133¥     ——
5,000
205,169
6,403
1,000
—
5,403
198,766
156,500
12,722
11,14818,394
666,858¥877,028¥       —
—44,697
240,868
60,97060,500—470
179,898
3,000
32,18758,22386,4872,090,621¥2,376,187

March 31, 2017

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 local 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.................................................................................................

$14,533,687
797,000
11,7142,464,381
262,840
8,914—
253,926
2,201,541
1,520,635
444,070
221,578
15,25819,853,940$37,660,722$        —
——5,640,757
497,103
26,740—470,363
5,143,654
2,945,007
1,215,501
322,275
660,871
12,430,493$18,071,250

Thousands of U.S. dollars
Due after 3 years
Due after 5 years
through 5 years
through 7 years$        ——56,387
4,149,791
385,311
22,462—362,849
3,764,480
2,352,260
693,405
279,843438,972
9,141,540$13,347,718$       ——
—1,455,060
67,216
13,370—53,846
1,387,844
463,500
128,963
111,655
683,726
6,603,390$8,058,450

Due after
7 years$        ——416,116
4,744,135
555,130
534,807
13,370
6,953
4,189,005—
395,015
639,440
3,154,550
19,755,557$24,915,808

Loans and bills discounted
Claims on bankrupt borrowers, substantially bankrupt borrowers, and potentially bankrupt borrowers amounted to ¥138,724 million($1,236,517 thousand) and ¥149,192 million as of March 31, 2017 and 2016, respectively, and loans with no contractual maturities amounted
to ¥27,823 million ($248,000 thousand) and ¥30,238 million as of March 31, 2017 and 2016, respectively. They are not included in the table
above.
(7) Maturity analysis for financial liabilities with contractual maturities

54

March 31, 2017

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...........................................................................................
Payables under securities lending transactions...................................
Borrowed money...............................................................................
Total.................................................................................................

¥ 9,652,479
534,362
136,804¥10,323,646¥799,765—
153,463¥953,229¥240,192—
19,628¥259,821¥ 3,607—
15,340¥18,947¥5,226—95¥5,321March 31, 2016

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...........................................................................................
Payables under securities lending transactions...................................
Borrowed money...............................................................................
Total.................................................................................................

¥9,281,807
92,954
13,145¥9,387,907¥990,188—
1,419¥991,608¥194,798—
152,917¥347,716¥ 3,491—
24,769¥28,261¥ 5,131—
15,000¥20,131

Hokuhoku Financial Group, Inc. Annual Report 2017

March 31, 2017

Due in 1 year
or less

Due after 1 year
through 3 years

Deposits...........................................................................................
Payables under securities lending transactions...................................
Borrowed money...............................................................................
Total.................................................................................................

$86,036,895
4,763,015
1,219,397$92,019,307$7,128,674—
1,367,889$8,496,563

Thousands of U.S. dollars
Due after 3 years
Due after 5 years
through 5 years
through 7 years$2,140,947—
174,961$2,315,908$ 32,155—
136,735$168,890

Due after
7 years$46,584—847$47,431

Deposits
Demand deposits are included in “Due in 1 year or less.”

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 dateby 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

March 31, 2017

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

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

¥224,449
224,700————/

March 31, 2016

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

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

¥285,172
284,072
106,409106,579
70—/

March 31, 2017

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

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

$2,000,616
2,002,858
—
—
—
—
/

¥218,883
219,512————/¥262,613
262,014
67,30067,831——/$1,951,010
1,956,611
—
—
—
—
/

¥4,915(3,271)————¥1,643¥8,882(6,429)(1,516)1,513(0)—¥2,450$43,812(29,161)————$14,651

Unrealized gain (loss)¥5,041(3,271)————¥1,769Unrealized gain (loss)¥8,882(6,429)
(705)
1,513
4
—
¥3,265

Unrealized gain (loss)$44,935(29,160)————$15,775

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.

Hokuhoku Financial Group, Inc. Annual Report 201755

• Foreign Exchange-Related Transactions

March 31, 2017

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

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

¥     21
149,424
43,76680,91680,916/

March 31, 2016

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

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

¥     42
116,275
58,960134,150
134,150/

March 31, 2017

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

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

$     189
1,331,891
390,114721,242
721,242/¥    —
258
168
38,91738,917/¥    21221
18
71,252
71,252/$     —
2,300
1,500
346,886
346,886/¥     0(4,794)208(2,649)2,650¥(4,584)¥    04,404(257)(4,725)
4,725¥4,147$      4
(42,732)
1,860(23,620)
23,627$(40,861)

Unrealized gain (loss)¥     0(4,794)208
6,243(5,570)¥(3,911)

Unrealized gain (loss)¥    0
4,404
(257)
8,429
(7,209)¥5,366

Unrealized gain (loss)$      4
(42,732)
1,860
55,655(49,651)$(34,864)

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, 2017

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

March 31, 2016

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

March 31, 2017

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

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

¥708
708
/

¥691
691
/

¥(26)
65
¥ 38

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

¥652
652
/

¥615
615
/

¥82
(40)
¥42

Thousands of U.S. dollars
Notional principal or contract amountTotal
Due after 1 year
Fair value$6,314
6,314/$6,1636,163/$(241)
587$ 346

Unrealized gain (loss)

¥(26)
65
¥ 38

Unrealized gain (loss)

¥82
(40)
¥42

Unrealized gain (loss)$(241)
587$ 346

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 those for oil, copper, aluminum, etc.

56

Hokuhoku Financial Group, Inc. Annual Report 2017

(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 dateby 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, 2017
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, 2016
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, 2017
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 principal or contract amountTotal
Due after 1 year

Fair value¥55,000¥55,000¥(1,748)

6,250
/

6,239
/

(Note)¥(1,748)

Millions of yen
Notional principal or contract amountTotal
Due after 1 year

Fair value¥55,000¥55,000¥(2,445)

716
/

716
/

(Note)¥(2,445)

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

Fair value$490,240$490,240$(15,586)

55,712/

55,612/(Note)$(15,586)

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, 2017
Hedge accounting method

Type

Hedged item

Foreign loans and foreignSwaps
securities
Accounting method
employed in principle
Call loans and due from banks
Forward contracts(foreign currencies)
Total.........................................................................................................................................................
March 31, 2016
Hedge accounting method

Type

Hedged item

Foreign loans and foreignSwaps
securities
Accounting method
employed in principle
Call loans and due from banks
Forward contracts(foreign currencies)
Total.........................................................................................................................................................
March 31, 2017
Hedge accounting method

Type

Hedged item

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

Millions of yen
Notional principal or contract amountTotal
Due after 1 year

Fair value¥50,598¥22,452¥2,362

63,189/—/728¥3,090Millions of yen
Notional principal or contract amountTotal
Due after 1 year

Fair value¥36,241¥32,701¥1,73249,898
/

—
/

2,497
¥4,229Thousands of U.S. dollars
Notional principal or contract amountTotal
Due after 1 year

Fair value$451,005$200,133$21,054563,235
/

—
/

6,490
$27,544

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.

Hokuhoku Financial Group, Inc. Annual Report 201757

32. Business Combination
Year ended March 31, 2017
Business combination by acquisition(1) Overview of business combination(a) Name and outline of business of acquired company
Name of acquired company: Hokuhoku Tokai Tokyo Securities Co., Ltd.
Outline of business: Financial instruments business(b) Primary reason for business combination
Hokuhoku Financial Group has been trying to raise our corporate value by contributing to the revitalization of the economy in the Group’s
primary operating region, Hokuriku and Hokkaido area. By making Hokuhoku Tokai Tokyo Securities Co., Ltd as our subsidiary company, theGroup judged that we’re able to provide highly specialized as well as diversified financial instruments and services in the asset management
field and meet a wide range of customer needs accurately.
(c) Date of business combination
4th January, 2017(d) Legal form of business combination
Stock acquisition(e) Name of the company after business combination
Hokuhoku Tokai Tokyo Securities Co., Ltd.
(f) Acquired percentage of voting rights
60%(g) Primary reason for decision of the company acquired
The Company intends to provide financial instruments and services which are highly specialized as well as diversified to meet a wide range ofcustomer needs accurately by utilizing advanced capabilities and know-how developed by Tokai Tokyo Securities Co., Ltd. as an independent
full-line securities company and the Group’s large customer base and brand equity in the primary base area.
(2) Business period of acquired company included in the consolidated financial statements
4th January, 2017 to 31st March, 2017(3) Acquisition cost for acquired company and cost breakdown
Acquisition cost: ¥2,400 million ($21,392 thousand)Cost for stock acquisition (cash) : ¥2,400 million ($21,392 thousand)(4) Description and amount of major acquisition related costs
Due diligence fee¥10 million ($95 thousand)
Stock value calculation cost ¥ 1 million ($9 thousand)(5) Amount of goodwill recognized, recognition factors and amortization method and period(a) Amount of goodwill recognized¥840 million ($7,495 thousand)(b) Recognition factors
The amount recognized is the difference between the amount of the Company’s equity in the acquired company and the acquisition cost.
(c) Amortization method and period
It’s recognized as expense in a lump sum.
(6) Value of assets received and liabilities assumed on business combination date and major breakdown
Assets: ¥1,214 million ($10,830 thousand)Current assets : ¥1,091 million ($9,726 thousand), Fixed assets : ¥123 million ($1,104 thousand)Liabilities: ¥1,016 million ($9,061 thousand)Current liabilities : ¥1,006 million ($8,971 thousand), Fixed liabilities : ¥10 million ($90 thousand)(7) ‌Estimated effect on the consolidated statements of income assuming that the business combination were completed on the­first day of the year ended 31st March, 2017
Not applicable because it’s difficult to calculate estimated effect on the assumed condition.

58

Hokuhoku Financial Group, Inc. Annual Report 201733. Segment Information
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 evaluated regularly 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 forevaluating operating segment performance and deciding how to allocate resources to operating segments.
(1) Outline of reportable segments
A 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 and assess 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
The method of calculation applied to the reportable segments is the same as that described in “Significant Accounting Policies.” Profits ofreportable 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.
(3) Information on ordinary income, profit (loss), assets, liabilities and other amounts by reportable segments
Segment results for the years ended March 31, 2017 and 2016 are as follows:
Millions of yen
2017
Reportable segments
Hokuriku Bank Hokkaido Bank

Ordinary income
Ordinary income from outside customers.......................... ¥   92,072
Ordinary income from intersegment transactions...............
923
Total....................................................................................
92,995
Segment profit.....................................................................
18,732
Segment assets................................................................... 7,329,338
Segment liabilities................................................................ ¥6,991,212
OthersDepreciation.................................................................... ¥    3,357
Amortization of goodwill...................................................
—
Unamortized balance of goodwill.......................................
—
Increase in tangible fixed assets and intangible
fixed assets................................................................... ¥    6,405

Other
segment

Total¥   78,220 ¥   170,292
754
1,678
78,974
171,970
10,94329,6755,051,619 12,380,957¥4,841,517 ¥11,832,730¥18,849
4,485
23,334
2,193
88,167¥66,359¥   189,141
6,163
195,304
31,86812,469,124¥11,899,089¥  (1,721) ¥   187,420(6,163)—(7,884)
187,420(3,711)
28,157(39,698) 12,429,425¥(54,901) ¥11,844,188¥    2,273 ¥     5,631————¥   261——¥     5,893——¥    (11) ¥     5,881
2,943
2,943
15,591
15,591¥    3,184 ¥     9,590¥   408¥     9,999¥     15¥    10,015

Other
segment

Total

Reconciliation

Consolidated¥   84,791 ¥   177,149
738
1,768
85,530178,917
13,442
29,9454,701,456 11,581,950¥4,497,657 ¥11,045,220¥17,045
4,578
21,624
1,715
82,335¥64,943¥   194,194
6,347
200,542
31,66011,664,285¥11,110,163¥  (1,610) ¥   192,584(6,347)—(7,957)
192,584(2,822)
28,837(33,957) 11,630,328¥(46,087) ¥11,064,076¥    3,479 ¥     8,066————¥   263——¥     8,330——¥      02,10217,694¥     8,330
2,102
17,694¥    3,018 ¥     6,619¥   158¥     6,777¥      0¥     6,778

Subtotal

Reconciliation

Consolidated

Millions of yen
2016
Reportable segments
Hokuriku Bank Hokkaido Bank

Ordinary income
Ordinary income from outside customers.......................... ¥   92,357
Ordinary income from intersegment transactions...............
1,029
Total....................................................................................
93,387
Segment profit.....................................................................
16,503
Segment assets................................................................... 6,880,493
Segment liabilities................................................................ ¥6,547,563
OthersDepreciation.................................................................... ¥    4,587
Amortization of goodwill...................................................
——
Unamortized balance of goodwill.......................................
Increase in tangible fixed assets and intangible
fixed assets................................................................... ¥    3,600

Subtotal

Hokuhoku Financial Group, Inc. Annual Report 201759

Thousands of U.S. dollars
2017
Reportable segments
Hokuriku Bank Hokkaido Bank

Other
segment

Subtotal

Ordinary income
Ordinary income from outside customers.......................... $   820,679 $   697,212 $  1,517,891 $168,011
Ordinary income from intersegment transactions...............
8,233
6,724
14,95739,983
Total....................................................................................
828,912703,936
1,532,848 207,994
Segment profit.....................................................................
166,968
97,546
264,514
19,548Segment assets................................................................... 65,329,696 45,027,357 110,357,053 785,873
Segment liabilities................................................................ $62,315,830 $43,154,625 $105,470,455 $591,488
OthersDepreciation.................................................................... $    29,925 $    20,268 $     50,193 $  2,335
Amortization of goodwill...................................................
————
Unamortized balance of goodwill.......................................
————
Increase in tangible fixed assets and intangible
fixed assets................................................................... $    57,097 $    28,389 $     85,486 $  3,645

Total

Reconciliation$  1,685,902
54,9401,740,842
284,062
111,142,926$106,061,943

Consolidated$ (15,341) $  1,670,561(54,940)—(70,281)
1,670,561(33,079)
250,983(353,854) 110,789,072$(489,359) $105,572,584$     52,528 $    (107) $     52,421—
26,234
26,234—
138,977
138,977$     89,131$     140 $     89,271(4) Information about services

Year ended March 31, 2017

Deposit andloan operations

Millions of yen
Investment
operations
Other

Ordinary income from outside customers........................................................................

¥105,420¥40,630

Year ended March 31, 2016

Deposit andloan operations

Millions of yen
Investment
operations
Other

Ordinary income from outside customers........................................................................

¥109,881¥40,133

Year ended March 31, 2017

Deposit andloan operations

Thousands of U.S. dollars
Investment
operations
Other

Ordinary income from outside customers........................................................................

$939,663$362,157

Total¥41,369¥187,420

Total¥42,568¥192,584

Total$368,741$1,670,561(5) Geographic segment information
There is no geographic segment accounting for 10% or more of ordinary income and tangible fixed assets.
(6) Information by major customer
There are no major customers individually accounting for 10% or more of ordinary income.

34. Related Party Transactions
Related party transactions as of March 31, 2017 and 2016 were as follows:• Officers and principal individual shareholders of the company submitting consolidated financial statements
March 31, 2017

Related party

Account Classification

Nakamura-Tome Precision Industry co., ltd. *2
NAKAMURA-TOME HOLDING CO., LTD. *2
YUGEYA Inc.*3
Kimito Tsurui *4Loans and bills discounted
Loans and bills discounted
Loans and bills discounted *6
Loans and bills discounted *6

Transaction amount *5
Thousands ofMillions of yen
U.S. dollars

¥950
¥783
¥400
¥ 18

$8,468$6,979$3,565$  160

Balance at end of year
Thousands ofMillions of yen
U.S. dollars

¥950
¥783
¥377
¥ 16

$8,468$6,979$3,360$  143

March 31, 2016
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 *5

Balance at end of year

Millions of yen

Millions of yen

¥950
¥783

¥950
¥783

Notes: 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 ofthese companies.
3. A close relative of a member of the Hokuriku Bank’s directors owns the majority of this company’s voting rights.
4. Mr. Tsurui is a close relative of a member of the Hokuriku Bank’s directors.
5. Transaction amount was reported at the average balance for the period.
6. Land and buildings were pledged as collateral for the loans.

60

Hokuhoku Financial Group, Inc. Annual Report 201735. Subsequent Events
Appropriations of retained earnings
The following appropriations of retained earnings at March 31, 2017 were approved at the Company’s general shareholders’ meeting held on
June 27, 2017:

Cash dividends, ¥44.00 ($0.39) per share of common stock.....................................................................................................
Cash dividends, ¥7.50 ($0.07) per share of preferred stock (Type 5)..........................................................................................

Millions of yen

Thousands of
U.S. dollars¥5,766805$51,395
7,182

Hokuhoku Financial Group, Inc. Annual Report 2017

61

INDEPENDENT AUDITOR’S REPORT

62

Hokuhoku Financial Group, Inc. Annual Report 2017

NON-CONSOLIDATED FINANCIAL STATEMENTS

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

2017

2016

Thousands of
U.S. dollars
2017

Millions of yen
March 31

AssetsCash and due from banks..................................................................................

¥1,108,739¥  892,747$ 9,882,697

Call loans and bills bought..................................................................................

89,41565,016

797,000

Monetary claims bought.....................................................................................

62,58562,034

557,849

Trading assets....................................................................................................

1,804

2,206

16,081

Securities...........................................................................................................

1,457,677

1,343,914

12,992,935

Loans and bills discounted.................................................................................

4,467,623

4,383,442

39,821,939

Foreign exchanges.............................................................................................

9,496

8,850

84,646

Other assets.......................................................................................................

36,43625,652

324,773

Tangible fixed assets...........................................................................................

77,15977,219687,754

Intangible fixed assets........................................................................................

4,920

3,278

43,862Customers’ liabilities for acceptances and guarantees........................................

31,54735,074

281,194

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

(18,066)¥7,329,338(18,944)¥6,880,493(161,034)$65,329,696$55,650,219

Total assets.......................................................................................................
Liabilities and equity
Liabilities
Deposits.............................................................................................................

¥6,243,398¥6,117,671

Call money and bills sold....................................................................................

36,267

20,845323,269

Payables under securities lending transactions...................................................

394,220

92,954

3,513,861

Trading liabilities..................................................................................................

861

1,129

7,680

Borrowed money................................................................................................

207,747

200,758

1,851,745

Foreign exchanges.............................................................................................

57

175

513

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

53,50155,431

476,885

Reserve for employee retirement benefits...........................................................

1,608

1,924

14,340Reserve for directors’ and audit & supervisory board members’ retirement benefits.....

43

57

387

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

925

1,393

8,248

Reserve for reimbursement of deposits...............................................................

1,075

965

9,585

Deferred tax liabilities..........................................................................................

14,272

13,456

127,218

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

5,686

5,724

50,686

Acceptances and guarantees.............................................................................

31,547
6,991,212

35,074
6,547,563

281,194
62,315,830

Total liabilities...................................................................................................
EquityCapital stock......................................................................................................

140,409140,4091,251,533

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

14,99814,998

133,692

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

108,584

100,974

967,863

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

66,34869,064

591,391

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

(1,208)(1,596)(10,774)

Revaluation reserve for land...........................................................................
Total equity.......................................................................................................

8,993
338,125

9,079
332,930

80,161
3,013,866

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

¥7,329,338¥6,880,493$65,329,696

Valuation and translation adjustments.................................................................

Hokuhoku Financial Group, Inc. Annual Report 201763

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

2017

2016

Thousands of
U.S. dollars
2017

Millions of yen

IncomeInterest income:Interest on loans and discounts.....................................................................

¥49,944¥52,717$445,182

Interest and dividends on securities...............................................................

17,033

13,827

151,826

Interest on deposits with other banks............................................................

627

824

5,596

Other interest income....................................................................................

509

732

4,538

Fees and commissions.......................................................................................

15,934

17,493142,031

Trading income...................................................................................................

71

166

638

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

1,879

1,516

16,752Other income......................................................................................................

7,099
93,1006,10893,38863,285
829,848

Total income.......................................................................................................
Expenses
Interest expenses:
Interest on deposits.......................................................................................

1,308

2,094

11,666

Interest on payables under securities lending transactions.............................

1,421

342

12,675Interest on borrowings and rediscounts.........................................................

628

1,110

5,603

Other interest expenses.................................................................................

1,951

1,079

17,39961,555

Fees and commissions.......................................................................................

6,905

6,868

Other ordinary expenses.....................................................................................

4,075

15

36,331

General and administrative expenses..................................................................

50,096

51,342446,537

Other expenses..................................................................................................
Total expenses...................................................................................................

2,575
68,965

4,631
67,484

22,953
614,719

Income before income taxes...............................................................................

24,13525,903215,129

Current..........................................................................................................

3,947

4,601

35,185

Deferred........................................................................................................

1,455¥18,732

4,799¥16,503

12,976$166,968

Income taxes:

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

64

Hokuhoku Financial Group, Inc. Annual Report 2017

NON-CONSOLIDATED FINANCIAL STATEMENTS

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

2017

2016

Thousands of
U.S. dollars
2017

Millions of yen
March 31

AssetsCash and due from banks..................................................................................

¥  644,373¥  342,340$ 5,743,594

Trading account securities..................................................................................

2,842

2,424

25,335

Money held in trust.............................................................................................

9,251

8,344

82,465

Securities...........................................................................................................

981,696

1,051,981

8,750,300
29,599,204

Loans and bills discounted.................................................................................

3,320,734

3,216,184

Foreign exchanges.............................................................................................

6,763

5,920

60,287

Other assets.......................................................................................................

49,722

39,630443,197

Tangible fixed assets...........................................................................................

29,23529,144

260,592

Intangible fixed assets........................................................................................

3,407

2,742

30,368Deferred tax assets.............................................................................................

5,326

7,084

47,475

Customers’ liabilities for acceptances and guarantees........................................

24,181

22,955215,545

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

(25,916)¥5,051,619(27,298)¥4,701,456(231,005)$45,027,357

Total assets.......................................................................................................
Liabilities and equity
Liabilities
Deposits.............................................................................................................

¥4,487,666¥4,384,929

40,000,596

Payable under securities lending transactions.....................................................

140,142—

1,249,154

Borrowed money................................................................................................

139,792

37,704

1,246,034

Foreign exchanges.............................................................................................

45

51

409

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

40,99642,801

365,417

Reserve for employee retirement benefits................................................................

7,504

8,092

66,895Reserve for directors’ and audit & supervisory board members’ retirement benefits.....

104

104

933

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

567

563

5,054

Reserve for reimbursement of deposits...............................................................

514

454

4,588

Acceptances and guarantees.............................................................................

24,181
4,841,517

22,955
4,497,657

215,545
43,154,625

Total liabilities...................................................................................................
EquityCapital stock......................................................................................................

93,524

93,524

833,622

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

16,795

16,795

149,702

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

81,25074,838724,224

Total equity.......................................................................................................

18,531
210,101

18,641
203,799

165,184
1,872,732

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

¥5,051,619¥4,701,456$45,027,357

Valuation and translation adjustments.................................................................
Valuation difference on available-for-sale securities........................................

Hokuhoku Financial Group, Inc. Annual Report 201765

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

2017

2016

Thousands of
U.S. dollars
2017

Millions of yen

IncomeInterest income:Interest on loans and discounts.....................................................................

¥44,214¥46,077$394,102Interest and dividends on securities...............................................................

9,637

13,11585,906

Interest on receivables under resale agreements............................................

(1)

—

(18)

Interest on deposits with other banks............................................................

285

313

2,549

Other interest income....................................................................................

157

164

1,403

Fees and commissions.......................................................................................

17,341

17,496

154,570

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

1,738

1,389

15,494

Other income......................................................................................................

5,601
78,974

7,731
86,28849,930703,936

4,755

Total income.......................................................................................................
Expenses
Interest expenses:
Interest on deposits.......................................................................................

533

1,558

Interest on payables under securities lending transactions.............................

61

125

552

Interest on borrowings and rediscounts.........................................................

311

490

2,778

Other interest expenses.................................................................................

2

1

24

Fees and commissions..................................................................................

8,543

8,121

76,151Other ordinary expenses.....................................................................................

4,549

197

40,550General and administrative expenses..................................................................

43,17742,785384,859

Provision of allowance for loan losses.................................................................

—

4,531

—

Other expenses..................................................................................................
Total expenses....................................................................................................

6,621
63,801

8,075
65,88859,020568,689

Income before income taxes...............................................................................

15,173

20,400135,247

Current..........................................................................................................

2,605

5,197

23,227

Deferred........................................................................................................

1,623¥10,943

1,760¥13,442

14,474$ 97,546

Income taxes:

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

66

Hokuhoku Financial Group, Inc. Annual Report 2017

CORPORATE INFORMATION(as of March 31, 2017)

Business activities
The Hokuhoku Financial Group is composed of the holding company and 12 consolidated subsidiaries and one affiliate. Our core business isbanking, and we also provide a wider range of financial services including leases, credit cards, loan guarantees and venture capital. The following is a diagram of our business.

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

Hokuhoku Tokai Tokyo Securities Co., Ltd.
(Financial instruments business)

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

The Hokkaido Bank, Ltd.

Hokugin Lease Co., Ltd.
(Leasing)

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

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

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

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

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

Hokugin Software Co., Ltd.
(Software development)
Hokuhoku Services Co., Ltd.
(Servicer)* Equity method-affiliated company

Hokuhoku Capital Co., Ltd.*(Venture capital)

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

140,409100.00

11,208The Hokkaido Bank, Ltd.

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

Banking

March 5, 1951

93,524100.00

4,531

Hokuhoku Tokai Tokyo Securities
Co., Ltd.

1-8-10 Marunouchi, Toyama City

Financial instruments business

April 21, 2016

1,250

60.00

—

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

March 2, 1983

36

87.39

3

Hokuriku Hosho Services Co., Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Loan 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

30(100.00)—

Dogin Business Service, Ltd.

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

Document management, cash
management, concentrated
business processing

June 8, 1979

50

(100.00)—

Dogin Card Co., Ltd.

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

Credit card operations, loan
guarantees

June 13, 1977

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

Hokuhoku Financial Group, Inc. Annual Report 201767

OUTLINE OF SUBSIDIARIES - THE HOKURIKU BANK, LTD.
The Hokuriku Bank, Ltd.
http://www.hokugin.co.jp/

Establishment

History

The Hokuriku Bank has its origins as the Kanazawa 12th National
Bank, which was established on August 26, 1877, with the Houseof Kaga-Maeda providing 70% of the capital. The bank was thecreation of the family established by Maeda Toshiie, the founder ofthe Kaga clan. The bank celebrated its 140th anniversary this year.
Since its founding, the bank has worked hand-in-hand withcustomers in the region, and grown into a bank with a wide branch
network covering Hokuriku, Hokkaido, as well as Japan’s threemajor metropolitan areas. Based on the bank’s management
philosophy of “Prospering Together with the Region,” “Fair &Steady Management” and “Progressive & Innovative Services,”
Hokuriku Bank draws fully on its management resources toprovide high-quality comprehensive financial services, aiming tobecome the bank preferred and relied on by 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

Completed present head office

January 1971 	‌Received blanket approval to engage in correspondentbanking services
November 1973

Launched first online system

March 1974	‌Received blanket approval to engage in foreign exchange
business

Company outline (as of March 31, 2017)
Company name:
The Hokuriku Bank, Ltd.
Business:
Banking
Incorporation:
July 31, 1943 (founded in 1877)
Location of headquarters:
1-2-26 Tsutsumicho-dori, Toyama City, Toyama
Total assets:¥7,329.3 billion
Deposits (including NCDs):¥6,243.3 billion
Loans and bills discounted:¥4,467.6 billion
Issued shares:
Common stock:
1,047,542,335
Capital adequacy ratio(non-consolidated):
8.74%
Employees:
2,770
Branches (as of June 30, 2017)
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 identity)

August 1990

Launched third online system

November 1993

Launched investment trust agent operations

December 1998	‌Launched over-the-counter sales 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 a 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 (structures)
October 2015

68

Hokuhoku Financial Group, Inc. Annual Report 2017

Opened an individual consulting base “Hokugin Plaza”

OUTLINE OF SUBSIDIARIES - THE HOKKAIDO BANK, LTD.
The Hokkaido Bank, Ltd.
http://www.hokkaidobank.co.jp/

Establishment

History

Hokkaido Bank was established on March 5, 1951, in response to
the strong demand for financing from small and medium-sized corporations in Hokkaido 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 it its mission to contribute toregional economic growth by smoothly providing financing andquality financial services to its customers in Hokkaido. Going forward, Hokkaido Bank will never abandon the spirit with which it was
created, and will continue to move forward together 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

Completed present head office

June 1971

Launched first online system

July 1976

Launched second online system

Company outline (as of March 31, 2017)
Company name:
The Hokkaido Bank, Ltd.
Business:
Banking
Incorporation:
March 5, 1951
Location of headquarters:
4-1 Odori Nishi, Chuo-ku, Sapporo City
Total assets:¥5,051.6 billion
Deposits (including NCDs):¥4,487.6 billion
Loans and bills discounted:¥3,320.7 billion
Issued shares:
Common stock:486,634,512
Preferred stock (Type 2): 107,432,000
Capital adequacy ratio(non-consolidated):
9.34%
Employees:
2,249
Branches (as of June 30, 2017)
Domestic:
142 (136 branches, 6 sub-branches)
Overseas:
3 representative offices

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

Listed on the first section of the Tokyo Stock Exchange

October 1990

Completed the Higashi Sapporo Dogin Building

March 1991

Established Dogin Cultural Foundation

October 1991

Launched a new foreign exchange online system

November 1991

Completed Dogin Building Annex

January 1993

Launched third online system

April 1994

Launched investment trust agent operations

December 1998 	‌Launched over-the-counter sales of securities investment
trustsJuly 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

Launched over-the-counter sales of casualty insurance

October 2002

Launched over-the-counter sales of life insurance

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 2014

Opened representative office in Vladivostok, Russia

Hokuhoku Financial Group, Inc. Annual Report 2017

69

DIRECTORS
Hokuhoku Financial Group, Inc.
President:
Eishin Ihori
Deputy President:
Masahiro Sasahara

Directors:
Hidenori Mugino
Yuji Kanema
Takeshi Yoshida
Takashi Asabayashi
Takashi Ogura
Directors serving as
Audit and Supervisory
Committee Members:
Satoshi Kikushima
Tatsuo Kawada
Ryoji Nakagawa
Masaaki Manabe
Nobuya Suzuki

The Hokuriku Bank, Ltd.
Chairman:
Hidenori Mugino
President:
Eishin Ihori
Senior Managing
Director:Takeshi Yoshida

Directors:
Hiroaki Ishida
Hiroshi Nakazawa
Audit & Supervisory
Board Members:
Keiichi Akai
Kenichi Nakamura
Isao Nagahara
Katsusuke Watanuki

Managing Directors:
Takashi Asabayashi
Takashi Ogura

The Hokkaido Bank, Ltd.
Chairman:
Yoshihiro Sekihachi

Director:
Tsuneaki Yoshida

President:
Masahiro Sasahara

Audit & Supervisory
Board Members:
Takayuki KajiKen Ebina
Shuji Iwamura
Satoshi Chiba

Senior Managing
Directors:
Toshihiro Katayama
Makoto Uesugi
Managing Directors:
Yuji Kanema
Atsushi Uchiyama

Addresses
Hokuhoku Financial Group, Inc.

The Hokkaido Bank, Ltd.

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

International Division
4-1, Odori Nishi, Chuo-ku,
Sapporo City, Hokkaido 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
International Operations Center
2-1-1, 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
2-1-1, 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 Office
7F Senmao Building, 147 Zhongshan
Road, Xigang District, Dalian,
Liaoning, 116011 P.R. of China
Telephone: +86-411-3960-8018
Facsimile: +86-411-3960-8019
E-mail: dalian@hokugin-zg.com• 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
23rd Floor Unit 2314, Bhiraj Tower
at EmQuartier, 689 Sukhumvit
Road, North Klongton, Wattana
Bangkok 10110, Thailand
Telephone: +66-2-261-8495
Facsimile: +66-2-261-8497
E-mail: bangkok@hokugin.asia

70

Hokuhoku Financial Group, Inc. Annual Report 2017Markets and International
Administration Center
2-33, Higashisapporo 3-jo
1-chome, Shiroishi-ku,
Sapporo City, Hokkaido 003-0003,
Japan
Telephone: +81-11-815-1315
Facsimile: +81-11-815-2237
SWIFT Address: HKDBJPJTTreasury and Securities Division
2-1-1, Nihonbashi-muromachi,
Chuo-ku, Tokyo 103-0022, Japan
Telephone: +81-3-3241-3457
Facsimile: +81-3-3242-3588
Overseas Offices (Hokkaido Bank)• Shenyang Representative Office
Room 1118, Office Tower 1,
Forum 66, No. 1-1 Qingnian
Da jie, Shenhe District,
Shenyang 110063, China
Telephone: +86-24-3185-7008
Facsimile: +86-24-3185-7018
E-mail: dogin_shenyang@yahoo.co.jp• Yuzhno-Sakhalinsk
Representative Office
18 Kommunisticheskiy Av.,
Office 44, Yuzhno-Sakhalinsk,
693000, Russia
Telephone: +7-4242-45-7523
Facsimile: +7-4242-45-7524
E-mail: tatsuta@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: nakagawa@hbvl.ru

Hokuhoku Financial Group, Inc. Annual Report 201771

北北金融控股集团简要设立日期∶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.................................................... 150分行（或支行）资本金∶708亿9,500万日元

富山县 ....................................................... 92分行（或支行）企业名称∶北北金融控股集团股份有限公司发行股份∶ 普通股 ...........................

132,163,014股

石川县 ....................................................... 36分行（或支行）第一次第5种优先股 ........

107,432,000股福井县 ....................................................... 22分行（或支行）

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。

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）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。

2002年5月

北海道地区 ................................................ 159分行（或支行）（北海道银行）南萨哈林斯克代表处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）（2017年6月30日）
伦敦

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南萨哈林斯克沈阳大连

2003年5月

纽约北陆银行和北海道银行对经营统合取得一致意见

上海
曼谷
新加坡

2003年9月

设立北银金融控股集团股份有限公司
北陆银行成为北银金融控股集团伞下的银行
北海道

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

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

72

Hokuhoku Financial Group, Inc. Annual Report 2017

北北金融控股集团 董事致辞

（相片左边）董事长

庵

荣伸（北陆银行 总行长）

（右边）
董事副社长

笹原晶博（北海道银行 总行长）大家好！深深感谢各位对北北金融集团的特别惠顾。
在这里向各位呈上本集团2017年的年度报告。报告中列出了2016年的年度业绩和本集
团采取多种经营努力的措施，敬请各位过目。
本集团的主要营业地区为北陆三县和北海道，自新干线开通以来，除了来往人流增加
和外国观光游客持续增加之外，北陆地区以医药产品、电子零部件为中心的生产有所扩大，
北海道内公共设施的建设和设备投资持续进行，维持着地区经济恢复的基调。另一方面，
我们金融机构的周围环境由于金融宽松政策“负利率”为背景，呈现出未曾有的长期间的
低利率，严峻的经营环境还将持续。

在此前提下，本金融集团采取各种措施为客人提供地区NO.１的金融服务为地方作出
贡献。2017年1月，本集团与东海东京金融控股株式会社共同出资成立了“北北TT证券株
式会社”，强化体制来应对客人的资金运用需求。然后对商务模式采取变革措施，克服环境变化带来的困难，努力实现“和区域共同成长，共同发展的金融集团”的目标。今后请各位继续予以支持和惠顾。

董事长

庵

荣伸

2017年7月

Hokuhoku Financial Group, Inc. Annual Report 201773

中期经营计划
本公司集团将从2016年4月开始的未来3年定位为“为了在预期的环境变化中支援地域经济，进一步追求商业模式的变
革和集团的协同效果的期间”，并且开始了中期经营计划“BEST for the Region”。
在发挥广域网优势的同时，通过构建高效的集团经营体制，努力为地区提供No.1的金融服务，通过为客户和地域社会作贡献来担负“地方再生”的任务，努力成为与地域共同成长和发展的金融集团。

■ 计划的概要
名称

中期经营计划 “BEST for the Region”期间

3年（2016年4月～2019年3月）

定位为了在预期的环境变化中支援地域经济，进一步追求商业模式的变革和集团的协同效果的期间

目标姿态

通过向地域提供最强的金融服务，为客户和地域社会作贡献来担负“地方再生”的任务，成为与地域共同发展和成长的金融集团。

基本方针

北北FG

No.1服务和解决方案北陆银行 北海道银行
其他相关公司信赖和选择

①营业力的强化～超出顾客期望的建议能力、服务能力的实现②

经营的效率化～在竞争中胜出的功能性组织的追求③

经营基础的坚韧化～为地域信赖的稳定的财务基础的构建

客户
地域社会

■ 中期经营计划中作为目标的计数（2家银行合算·联结）
2016年3月期（业绩）

2017年3月期（业绩）

2019年3月期（目标）存款平均余额

10兆1,634亿日元

10兆4,096亿日元

10兆5,600亿日元贷款平均余额

7兆5,457亿日元

7兆6,848亿日元

7兆7,600亿日元

1,430亿日元

1,329亿日元

1,345亿日元

经费

909亿日元898亿日元930亿日元主营业务净利润

520亿日元430亿日元415亿日元信贷相关成本

37亿日元

−6亿日元

60亿日元

归属于母公司股东的净利润

288亿日元281亿日元230亿日元联结资本充足率10.30%

9.43%

9.55%

OHR
（以主营业务毛利润为基础）

63.57%

67.58%

69.14%

主营业务毛利润

74

Hokuhoku Financial Group, Inc. Annual Report 2017

根据计划基本方针对策的展开营业力的强化～超出顾客期望的建议能力、服务能力的实现

(1) 致力于个人市场
① 通过致力于针对资产形成层和资产运用层的生命阶段的建议和以遗产为首的针对资产继承支援，为地域客户提供
有用的信息和相关商品以及服务的向导。
② 为了让更多的客户选择，通过提高贷款的商品性和便利性以及强化宣传来对应各种各样的借款需求。
③ 通过提高面对面、非面对面渠道的功能，目标成为身边值得信赖的主要交易银行。
(2) 致力于法人市场
① 磨砺事业性评价和鉴定力，通过与企业之间的密切关系，共享经营课题和需求，并且提供本集团所拥有的各种解决方案，贡献于地域产业的成长和发展。
② 发挥本公司集团的强项即北海道，北陆，3大城市圈的广区域国内网络，支援商务对接，并且利用丰富的海外网
点来支援海外商务活动。
(3) 强化有价证券的运用
以日元债券为中心的证券投资组合作为基本，根据市场环境机动地通过强化投资信托和外债的运用来提高收益力。
经营的效率化～在竞争中胜出的功能性组织的追求(1) 投资于通讯技术促使了无纸化和业务处理简捷化，再加上通过强化后勤办公室在集团内的共同化和集中化，提高生产性和构建高效的业务营运体制。
(2) 通过现有店铺的区域运营体制的改变以及引进各种营业方式的店铺、重新配置适合地域和市场的店铺，强化非面对
面渠道，致力提供能够满足地域的客户需求的金融功能和方便使用的环境。
经营基础的坚韧化

～为地域信赖的稳定的财务基础的构建为了向地域提供稳定的金融服务，将必要而健全的财务基础的维持放在首位，根据经济环境和收益情况，尽可能地回馈股东。

Hokuhoku Financial Group, Inc. Annual Report 2017

75

业绩精粹
营业概况（北北金融控股集团联结）（单位：亿日元）

2016年度

2015年度
变动

经常收益

1,874

－51

1,925

经常利润

394

－69

464

281

－6

288

9.43％

－0.87%

10.30％

归属于母公司股东的净利润资本充足率我集团本期联结会计年度的业绩 ：本期经常
收益与上年度相比减少了51亿日元，为1,874亿日
元。联结经常利润与上年度相比减少了69亿日元，
为394亿日元。归属于母公司股东的净利润减少了
6亿日元，为281亿日元。
联结资本充足率达到了9.43%。
2016年度的股息 ：普通股于期末每股支付了44.00日元股息，与上年度相比每股增加了1.50日
元，对第1回第5种优先股按照原定计划分别于期
中和期末每股支付了7.50日元（即年度股息为15
日元）。
※2016年10月1日实行了10股合为1股的并股。

营业概况（北陆银行，北海道银行）（单位：亿日元）

2行合算
2016年度

2015年度
变动

经常收益

1,710

－78

1,789

主营业务毛利润

1,329

－100

1,430

经费（临时处理部分除外）

898

－10

909

主营业务净利润

430

－89

520

信贷相关成本

－6

－43

37

经常利润

402

－65

467

本期净利润

296

－2

299

2行合算的经常收益与上年度相比减少78亿日
元，为1,710亿日元。本期净利润与上年度相比减
少2亿日元，为296亿日元。
北陆银行的经常收益与上年度相比减少3亿日
元，为929亿日元。本期净利润与上年度相比增加
22亿日元，为187亿日元。
北海道银行的经常收益与上年度相比减少65亿日元，为789亿日元。本期净利润与上年度相比减少24亿日元，为109亿日元。

（单位：亿日元）（单位：亿日元）

北陆银行

2016年度北海道银行

2015年度

2016年度变动

76

2015年度
变动

经常收益

929

－3

933

789

－65

855

主营业务毛利润

729

－23

753

608

－68

676

经费（临时处理部分除外）

482

－4

486

415

－6

422

主营业务净利润

247

－19

266

192

－61

253

信贷相关成本

－6

＋4

－11

－0

－48

48

经常利润

248

－19

267

153

－46

200

本期净利润

187

＋22

165

109

－24

134

资本充足率

8.74％

－1.04%

9.78％

9.34％

－0.89%

10.23％

Hokuhoku Financial Group, Inc. Annual Report 2017

Hokuhoku Financial Group, Inc.

Hokuhoku Financial Group, Inc.

Annual Report 2017

Printed in Japan