Annual Report
2011
Year ended March 31, 2011

Hokuhoku Financial Group, Inc.

Company outline (as of March 31, 2011)
Company name: Hokuhoku Financial Group, Inc.
Date of establishment: September 26, 2003
Location of head office: 1-2-26 Tsutsumicho-dori, Toyama City
President: Shigeo Takagi (President, Hokuriku Bank)
Deputy President: Yoshihiro Sekihachi (President, Hokkaido Bank)
Purpose of business: Management and control of subsidiaries and affiliates and ancillary and related business
Capital: ¥70,895 million
Shares issued and outstanding:Common stock.................................. 1,391,630,146
Preferred stock ( Type 5) .................... 107,432,000
Exchange listings: Tokyo Stock Exchange (First Section)
Sapporo Securities ExchangeThis document contains forward-looking statements. Statements of this kind do not constitute guarantees of future performance, as factors such as changes in
the operating environment may cause actual performance to differ.
The figures stated in this document are, in principle, rounded down to the nearest whole unit.

CONTENTS

Profile .................................................................................................. 1
Message from the Management .......................................................... 2
Mid-Term Management Plan ............................................................... 4
Performance Highlights ....................................................................... 6
Corporate Governance ........................................................................ 10
Approach to Compliance ..................................................................... 13
Risk Management System ................................................................... 15
Corporate Social Responsibility ........................................................... 20
Topics ................................................................................................. 23
Consolidated Financial Statements
Consolidated Balance Sheets .......................................................... 26
Consolidated Statements of Income ................................................ 27
Consolidated Statements of Comprehensive Income ....................... 27
Consolidated Statements of Changes in Net Assets ........................ 28
Consolidated Statements of Cash Flows ......................................... 30
Notes to Consolidated Financial Statements .................................... 31
Independent Auditors’ Report .............................................................. 53
Nonconsolidated Financial Statements
The Hokuriku Bank, Ltd.
Nonconsolidated Balance Sheets (Unaudited) ............................. 54
Nonconsolidated Statements of Income (Unaudited).................... 55
The Hokkaido Bank, Ltd.
Nonconsolidated Balance Sheets (Unaudited) ............................. 56
Nonconsolidated Statements of Income (Unaudited).................... 57
Corporate Information.......................................................................... 58
Outline of Subsidiaries — Hokuriku Bank ............................................. 59
Outline of Subsidiaries — Hokkaido Bank ............................................ 60
Board of Directors and Corporate Auditors .......................................... 61........................................................................ 62

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

May 2002

May 2003

Comprehensive business alliance
between
Hokuriku Bank and Hokkaido Bank

The operations of the Hokuhoku Financial
Group extend beyond the limits of a single
district.
Our extensive network is outlined below.
Hokuriku district......................................... 149 branches
Toyama prefecture....................................... 91 branches
Ishikawa prefecture...................................... 36 branches
Fukui prefecture............................................ 22 branches
Hokkaido..................................................... 156 branches
Three major metropolitan areas................
Tokyo and Kanagawa...................................
Kinki (Osaka) and Nagoya.............................

17 branches
10 branches
7 branches

Others.........................................................

4 branches

Overseas.....................................................
7 offices
Dalian Representative Office (Hokuriku Bank)
Shanghai Representative Office (Hokuriku Bank)
Shenyang Representative Office (Hokkaido Bank)
Singapore Representative Office (Hokuriku Bank)New York Representative Office (Hokuriku Bank)
London Representative Office (Hokuriku Bank)
Yuzhno-Sakhalinsk Representative Office (Hokkaido Bank)(As of June 30, 2011)

Agreement on full integration ofmanagement of Hokuriku Bank andHokkaido Bank

LondonShenyang
DalianSeptember
2003

Hokugin Financial Group, Inc.
established

New York

ShanghaiSingapore

Hokuriku Bank Group comes undermanagement of Hokugin Financial
Group

Management integration effected
through equity swap
September
2004

YuzhnoSakhalinsk

Hokkaido

Hokuhoku Financial Group, Inc. isborn.

Hokuriku district
Ishikawa

Toyama

Fukui

Tokyo
Osaka

NagoyaThree major metropolitan areas
Hokuhoku Financial Group, Inc. Annual Report 2011

1

MESSAGE FROM THE MANAGEMENT(from left)

2

Shigeo Takagi

Yoshihiro Sekihachi

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 2011

We would like to express our deepest condolences to everyone who has suffered in the Great East Japan
Earthquake and hope that the afflicted region is able to recover as quickly as possible.
In fiscal 2010, the Japanese economy continued to stage a moderate recovery due to a pick up in
production activities and sustained personal consumption resulting from government stimulus packages.
However, employment conditions remained harsh, with economic activity slowing down substantially at theend of the term due to the impact of the earthquake disaster in March. On the financial side, the appreciation of the yen continued from the summer onwards, exerting an especially strong impact on export industries. The Japanese government intervened in the foreign exchange market for the first time in six and a halfyears, and successively implemented additional monetary easing measures in response to the earthquake
disaster.
Under these circumstances, we positioned the three years from April 2010 to March 2013 as the time to“Renew endeavor to achieve sustainable growth,” and in order to steadily achieve our goal of being a financial group with ¥10 trillion in deposits we have been implementing our Mid-term Management Plan “Road to10.” The Plan is based on the following three policies: “Strengthening Marketing Capabilities,” “Increasing
Management Efficiency,” and “Cementing Customer Loyalty.”
In May 2011, we migrated to the new banking system (MEJAR), which was jointly developed by threebanks including the Bank of Yokohama. By strategically leveraging this new system, we will pursue further
Group synergies by increasing customer convenience, integrating business processes, standardizing backoffice work, reducing development costs, and strengthening marketing capabilities through more efficientuse of personnel.
The outlook is for economic uncertainty due to the earthquake disaster, restrictions on electric power
supply, and other factors. However, through additional management efforts, we will fulfill our mission as aregional financial institution, and in the spirit of our management philosophy of “prospering together withthe region” we will aim to achieve greater success together with our customers.
We therefore ask for your continued support and loyal patronage.

July 2011

Shigeo Takagi
President

Yoshihiro Sekihachi
Deputy President

Hokuhoku Financial Group, Inc. Annual Report 20113

MID-TERM MANAGEMENT PLAN
The Hokuhoku Financial Group has positioned the three years beginning April 2010 as the time to “renew endeavor toachieve sustainable growth” and we have started our Mid-term Management Plan “Road to 10.”In order to further promote “Strengthening Marketing Capabilities,” “Increasing Management Efficiency” and “Cementing
Customer Loyalty,” the three key management policies since the integration of the two banks, we are working steadily
toward achieving Group deposits of JPY 10 trillion by tackling the new management challenges that have arisen after we had
fully repaid the public funds.

Overview of Management Plan
Title

Mid-Term Management Plan, “Road to 10”

Period3 years (April 2010 to March 2013)

Position

Renew endeavor to achieve sustainable growth ~Achieve JPY 10 trillion in deposit~

Target corporate profile Close and reliable financial group for local customers
1. Establishing a stable earnings base to deal with uncertainty over economy
Main theme

2. Smooth migration and strategic utilization of joint banking system (MEJAR*), and upgrading human resources
and service delivery channels
3. Accumulating capital surplus to meet new rules of regulatory capital, increase in dividends and redemption ofpreferred stock*MEJAR = Most Efficient Joint Advanced Regional banking-system

Basic Policies in Management Plan
We will keep on three key policies and implement proper measures after full repayment of public funds to achieve JPY 10
trillion in deposit.
Mid-Term
Management Plan
“Road to 10”

Renew endeavor to achievesustainable growth

I. Strengthening Marketing Capabilities II. Increasing Management Efficiency III. Cementing Customer Loyalty■ Expansion of earnings base
■ Client-focused consulting
services■ Expansion of investment insecurities■ Smooth migration and strategic
utilization of joint banking system■ Pursuit of further synergy■ Increasing sales force■ Improvement in quality of capital■ Stable increase of common stock
dividends

Target Figures for Fiscal Year ending March 31, 2013 (Hokuriku Bank and Hokkaido Bank)‘10/3 result‘13/3 plan

JPY 8,934.8 bn

JPY 9,277.6 bn

JPY 9,550.0 bn

Loans (avg. balance)

JPY 7,096.7 bn

JPY 7,113.3 bn

JPY 7,200.0 bn

JPY 66.4 bn

JPY 56.7 bn

JPY 70.0 bn

Core net business profit
Net income*

JPY 19.2 bn

JPY 18.4 bn

JPY 25.5 bn

10.83% (7.05%)

11.29% (7.45%)

Above 11.5% (Above 7.5%)

OHR

58.68%

63.47%58%

ROA (Core net business profit basis)

0.68%

0.56%

0.68%

ROE* (Core net income basis)

5.12%

4.60%

Above 6%

NPL ratio

2.98%

2.96%

Around 3%

Capital adequacy ratio* (Tier 1 capital ratio*)*FG consolidated

4‘11/3 result

Deposits (avg. balance)

Hokuhoku Financial Group, Inc. Annual Report 2011

I. Strengthening Marketing Capabilities
Our aim is to become a “Close and reliable financial group for local customers” through “Triple R” strategies
Retail ~Close to Customers~
Increasing contact with customers and diversify
transactions of each account
Enhancing segment marketing
Expanding business to SMEs (Maruho loan* etc.)*Loans guaranteed by credit guarantee
corporations
Promotion of housing loan
Increase in salary deposit and pension transfer
accounts

Region ~Contribution to local community~
Establishing branch network focused on customer
convenience
Initiating strategic realignment of branch network
Establishing business center and consultation lounge
Beefing up collaboration with academic institutions and local
governments
Attracting new business to our region
Enhancing CSR initiatives
Supporting local growing industries (agriculture, medicine,environment)

Relation ~Dependable Service~
Offering the best solutions to customers
Advisory fit to customers’ life cycle
Corporate customers:
Start-up Growth Expansion Succession
Personal customers:
Solutions in line with client’s life stage
Offering private banking services
Capitalizing on overseas representative offices

Strategic allocation of Human Resources

Strengthen alliance

Improvement of negotiation skills
Know-how shared through communication within the Group

Working closely with Hokuhoku Services Co., Ltd.
Shoring up collaboration with other banks / Shinkin banks and convenience stores

II. Increasing Management Efficiency
Smooth migration and strategic utilization of joint banking system
Migration (Started in May 2011)

Acceleration of synergy

Bank of Yokohama
Started advanced operations
from Jan. 2010

Cutback on future expenses

Joint Use of Banking System(MEJAR)
Hokuriku Bank

Two brand operation

Hokkaido Bank
Reallocation of human resources andincrease in sales force

Decrease in R&D cost

Integration of business process

Joint procurement of business forms & equipments

Shared administrative manuals &numerical tables

Extensive consolidated useof back office

Joint employee training &audit programs

Joint preparation for regulation changes:
Mark-to-market accounting · IFRS
New regulations for capital adequacy
ratio

Hokuhoku Services
Hokkaido Dept. (Mar. 2010)

Enhancement of management andgovernanceToyama Dept. (Sep. 2010)

III. Cementing Customer Loyalty
Ensuring stable earnings to improve quality of capital
Capital adequacy ratio/Tier 1 capital ratio <FG consolidated>
Capital adequacy
ratio

Tier 1 capital ratio

10.83%

7.05%

Above 11.5%

11.29%

Aiming at capital adequacy ratio of
12% and Tier 1 capital ratio of 8%

Above 7.5%

7.45%

Improving quality of capital
Raising Tier 1
by incomeDeferred tax assets toTier 1 capital

21.03%

17.14%
Below 10.0%’10/3 result’11/3 result

Stable increase ofcommon stock dividends’13/3 plan

Hokuhoku Financial Group, Inc. Annual Report 2011

5

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

FY2010FY2009Ordinary income
Ordinary profits
Net income

214.6
37.2
18.4

Change(12.0)
1.8
(0.8)

226.7
35.4
19.2

Capital adequacy ratio

11.29%+0.46%

10.83%In the fiscal year ended March 31, 2011, Hokuhoku FG
recorded ordinary income of ¥214.6 billion, a decrease of¥12.0 billion year on year on a consolidated basis. Ordinary
profits, on the other hand, increased ¥1.8 billion year on
year to ¥37.2 billion, and net income fell ¥0.8 billion to¥18.4 billion.
Our capital adequacy ratio stood at 11.29% at theterm-end on a consolidated basis, an increase of 0.46 of apercentage point from the previous term-end.

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

Ordinary income
Core gross business profit
Expenses
Core net business profit
Credit costs
Income (loss) on marketable securities
Ordinary profits
Net income

Hokuriku Bank andHokkaido Bank
FY2010FY2009Change195.8(11.5)
207.4
155.4
(5.5)
160.9
98.6
4.2
94.4
56.7
(9.7)
66.4
14.5
(10.9)
25.5
(1.0)
(1.3)
0.2
37.0
0.1
36.8
19.6
(6.3)
26.0

Owing to a decline in net fees and commissions and otherordinary income, as well as an increase in expenses for the
renewal of the IT system used jointly by the three banks,
core net business profit, the key measure of a bank’s
mainstay operating profitability declined ¥9.7 billion year on
year to ¥56.7 billion.
Ordinary profits were ¥37.0 billion, largely in line with theprevious term’s level, due to the large year-on-year fall incredit costs.
Net income came to ¥19.6 billion, due to the absence ofthe extraordinary income recorded in the previous term, andother factors.

(¥ billion)(¥ billion)

Hokkaido Bank

Hokuriku Bank
FY20106

FY2009Ordinary income
Core gross business profit
Expenses
Core net business profit
Credit costs
Ordinary profits
Net income

108.8
88.5
53.8
34.6
7.1
22.9
11.9

Change
(4.8)
(1.5)
2.0
(3.6)
(6.3)
2.9
(3.7)

Capital adequacy ratio

11.32%+0.52%

Hokuhoku Financial Group, Inc. Annual Report 2011

113.7
90.1
51.8
38.3
13.4
19.9
15.6
10.80%FY2010FY2009

87.0
66.8
44.7
22.1
7.4
14.1
7.7

Change
(6.7)
(3.9)
2.1
(6.0)
(4.5)
(2.8)
(2.6)

93.7
70.8
42.6
28.1
12.0
16.9
10.3

10.59%+0.40%

10.19%

Core Gross Business Profit (Both banks)
Net interest income increased ¥0.3 billion year on yearto ¥130.7 billion, due to our accumulation of securities
centered on Japanese government bonds.
Net fees and commissions decreased ¥1.3 billion to¥20.8 billion, due to the fall in income from remittance fees,
and an increase in payments of loan insurance premiums

housing loans.
Other net operating income decreased ¥4.5 billion fromthe previous term to ¥3.8 billion, due mainly to the fall inincome from foreign exchange transactions affected bystagnation of the real economy.
As a result of the above, core gross business profit felland guarantee commissions resulting from our promotion of¥5.5 billion to ¥155.4 billion.

Net interest income

168.3
11.0
23.8

Net fees and commissions

160.9
8.3
22.1

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

155.4
3.8
20.8

● Net fees and commissions = fees and commissions received relating
to remittance, investment trust and insurance sales agency businesses
after deduction of corresponding expenses● Other net operating income = income from foreign exchange transactions and derivatives transactions

133.4

130.3

130.7

2009

2010

2011

(¥ billion)
Years ended
March 31Core Net Business Profit (Both banks)
Hokuriku Bank

Hokkaido Bank

ROA

Expenses increased ¥4.2 billion, due primarily to anincrease in migration costs for the switch to the three-bankjoint IT system launched in May 2011. Core net businessprofit declined ¥9.7 billion to ¥56.7 billion, due also to alower level of core gross business profit.

0.80%
0.68%
76.8
66.4

0.56%
56.7

43.4

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

38.3
34.6

33.3

● ROA = Core net business profit divided by total assets (average for the term)This figure indicates the effectiveness of employment of assets in thegeneration of profits; the higher the figure the better.
28.1

22.1
(¥ billion)

Years ended
March 31

2009

2010

2011

Net Income (Both banks)
Hokuriku Bank

Hokkaido Bank

Ordinary profits were largely in line with the previous term’slevel, due to the large fall in credit costs which was partly
the result of the corporate rehabilitation support initiatives
the Group has been working on. Net income declined ¥6.3
billion to ¥19.6 billion, partly because gains on liquidation ofits subsidiaries were recorded under extraordinary incomein the previous term, and because income taxes-deferredincreased in the reporting term.

37.9

26.0
26.4

19.6
15.6
11.9

Years ended
March 31

11.4

10.3

7.7

2009

2010

2011

(¥ billion)

Hokuhoku Financial Group, Inc. Annual Report 2011

7

PERFORMANCE HIGHLIGHTS

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

8,742.4

Hokkaido Bank

9,120.3

5,306.7

In the term under review, deposits (including negotiablecertificates of deposit) continued to increase primarily fromindividual customers, reaching ¥9,523.8 billion, ¥403.5
billion higher than at the end of March 2010.

9,523.8

5,439.9

5,092.5

3,649.9

3,813.6

4,083.9

2009

2010

2011

(¥ billion)
End of March

Loans and Bills Discounted (Both banks + Hokugin Corp.)
Hokuriku Bank (+ Hokugin Corp.)

Hokkaido Bank

Due to an increase in loans to local governments andhousing loans, loans and bills discounted came to ¥7,241.1
billion, ¥247.4 billion higher than at the end of March 2010.

7,241.1

7,156.7

6,993.6

4,293.3

4,142.6

2,863.4

2,851.0

2,988.8

2009

2010

2011

4,252.3(¥ billion)
End of March

Outstanding Loans to SMEs (Both banks + Hokugin Corp.)
Hokuriku Bank + Hokugin Corp.

Hokkaido Bank

5,050.5

4,890.6

4,826.3

3,013.7

2,882.2

2,871.3

2,036.8

2,008.3

1,955.0

2009

2010

2011

Outstanding loans to SMEs stood at ¥4,826.3 billion, ¥64.2
billion lower than at the end of March 2010.
We actively pursued our initiatives to facilitate regional
finance because we believe this is an important role forthe bank, but outstanding loans decreased due to thestagnation in business funding needs resulting from weakeconomic recovery.

(¥ billion)
End of March

8

Hokuhoku Financial Group, Inc. Annual Report 2011

Capital Adequacy Ratio (Hokuhoku Financial Group, Inc.; on a consolidated basis)
Regulatory Capital
Capital adequacy ratio

10.81%

Tire 1 capital
Tier 1 capital ratio

10.83%

7.58%
7.05%

584.1

11.29%

7.45%

561.6

546.7
410.0

Our capital adequacy ratio, which indicates financial
soundness, rose 0.46 of a percentage point from the end of
March 2010 to reach 11.29%.
Retained earnings increased due to the accumulationof earnings, and as a result Tier 1 capital increased ¥14.8
billion from the end of March 2010 to ¥370.8 billion, andregulatory capital also increased ¥14.8 billion to reach¥561.6 billion.

370.8

356.0

(¥ billion)

2009

End of March

2010● Capital adequacy ratio
This ratio indicates the proportion of the bank’s regulatory capital(capital stock, capital surplus, retained earnings and supplementaryelements) to its risk-weighted assets. The higher the ratio, the healthierits financial position.
● Tier 1 capital ratio
This ratio indicates the proportion of a bank’s Tier 1 capital (the basic
element of regulatory capital; basically capital stock, capital surplus,
and retained earnings) to its risk-weighted assets (principally loans).
The higher the ratio, the healthier its core banking operations.

2011* Calculated in accordance with the current BIS standards (Basel II).

Disclosed Claims under the Financial Reconstruction Law (Both banks + Hokugin Corp.)
As the slump in the economy continued, Disclosed Claims
under the Financial Reconstruction Law came to ¥220.5 billion, an increase of ¥5.3 billion from the previous term-end.
The NPL ratio under the Law remained at a low level, atjust 2.96%.
.
Substandard claims
Doubtful claims
Bankrupt and substantially bankrupt claims

3.07%
227.5
17.1

140.3

End of March

NPL ratio

2.98%

2.96%

215.2
16.8

220.5

142.6

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

Doubtful claims

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

Bankrupt andsubstantiallybankrupt claims

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

38.0

133.7

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

70.0

55.8

48.9

2009

2010

2011

(¥ billion)

Ratings
Japan Credit Rating
Agency, Ltd.

Rating and Investment
Information, Inc.

JCR

R&I

A

A

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

Hokuhoku Financial Group, Inc. Annual Report 20119

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

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

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

Hokuhoku Financial Group, Inc.
Shareholders’ Meeting

Business Promotion Committee

3 external auditors

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

Internal Audit
ExecutionofBoard of Directors

Board of Auditors

1 external director

PDCA

Management Committee
Planning Group

Administration Group

Risk Management Group

Hokuriku Bank

Audit Group

Hokkaido Bank
Other
Subsidiaries

Shareholders’ Meeting
Board of Auditors

Shareholders’ Meeting
Board of Auditors

Board of Directors

Board of Directors

Management Committee

Management Committee
Each bank sends an
executive tothe other’s Board.

1. Board of Directors
Responsible for decisions related to important management
policies involving the Group as a whole; and for overseeing
the general management, and risk management and auditing
conducted by the holding company and its subsidiaries.
2. Board of Auditors
Determines auditing policies and assigns specific duties toparticular statutory auditors, and monitors the performance of
duties by the directors.
Three of the four members of the board are external
auditors, ensuring a high degree of independence in auditing
activities.
10

Hokuhoku Financial Group, Inc. Annual Report 2011

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

Basic policy on internal controls
1. Ensuring that Directors perform their duties in conformity
with the law and with our articles of incorporation
In addition to settling matters involving the law or the articles
of incorporation, the Board of Directors decides on basic
management policy and major issues affecting conduct ofoperations, sets up organizations and systems, and supervises
performance of duties by directors. It also recommends
external directors for appointment at Shareholders’ Meetings,
and ensures more rigorous checks and balances.
Corporate Auditors attend important meetings including
those of the Board of Directors, investigate the Company’s
operations and financial position, and audit the performance of
duties by directors from an independent standpoint.
2. Storage and management of information relating toperformance of duties by directors
Based on its own regulations and document management
rules, the Board of Directors creates systems for storage andmanagement of information regarding performance of duty bydirectors.
3. Setting up rules and other systems that ensure
management of risk of losses
The Board of Directors decides on basic risk management
policy and regulations, and establishes management systems,
based on an assessment of the degree of risk to which theCompany and Group companies are exposed, and of thesignificance of risk-control measures. We have compiled acontingency plan and established a crisis management system
for unexpected events and risks such as natural disasters.
Each company in the Group conducts due risk management in close partnership with risk management departmentsof other Group members, following the Group’s basic policy.

for the management of customer protection, and develops
management policies and structures for protection of customer
interests.
The Company and Group members set up a whistleblower
and consultation hot line for executives and employees who
uncover unlawful and wrongful behavior.
The Company has no connections with anti-social elementsthat threaten public order or security, and avoids all businessdealings with such groups.
6. Ensuring the appropriateness of operations within theGroup
The Board of Directors is responsible for overall Groupmanagement, compiling the Group management regulations,preparing frameworks for agenda-setting and reporting foreach Group company with regard to important matters, andreceiving reports from internal auditing departments on thefindings of audits into the status of legal observance and risk
management and the propriety and effectiveness of business
operations.
We also have in place mechanisms to ensure the propriety
of financial reporting, enabling accurate and clear statements ofour financial position and business results.
7. Deployment of employees as assistants to Corporate
Auditors
When receiving a request from a Corporate Auditor for help
in the conduct of auditing duties, the Board of Directors
shall respect the auditor’s views and provide the necessary
personnel based on expertise required. In addition, to ensure
the independence of these employees vis a vis the Board of
Directors, prior agreement of the Board of Auditors is requiredfor personnel transfers and disciplinary measures.

4. Ensuring efficient performance of duties by directors
The Board of Directors sets overall organizational standards forbasic tasks and assignment of duties to operational entities,
and the Company and all Group members have systems
enabling well-organized and efficient conduct of business
operations.
The Management Committee coordinates business operations in a prompt and effective way, based on delegation of
authority and assignment of duties by the Board of Directors.
To this end, it makes active use of teleconferencing andother telecommunications-based systems.

8. Reporting by the Board of Directors and employee
assistants to the Corporate Auditors, and other reportingto the Corporate Auditors
Directors shall submit reports to the Corporate Auditors as
follows.
(1) Directors shall report to the Board of Auditors whenevermatters that could cause significant losses to the Company
are discovered.
(2) An effective and flexible reporting system shall be established for reporting to the Board of Auditors by directors andemployees, on the matters designated in advance by the
Corporate Auditors and directors.
(3) The Corporate Auditors may request reports from the directors or employees as needed.

5. Ensuring that employees conform to the law and thearticles of incorporation in the performance of duties
The Board of Directors regards compliance as one ofmanagement’s most important tasks and recognizes that anincomplete compliance system could weaken our businessfoundation. In view of this, we have established a set of rules toserve as a basic policy and compliance charter.
Based on the above charter, the Company and Group
members carry out their business in partnership, in a fair andhonest way.
Additionally, the Board of Directors determines policies

9. Ensuring effective auditing by Corporate Auditors
The Board of Directors shall give due acknowledgement to
the importance and usefulness of auditing by the Corporate
Auditors, and if the Corporate Auditors request creation of asystem for smoother and more effective performance of auditing duties, they shall give this due consideration. The Board
of Auditors shall conduct regular meetings with representative
directors and accounting auditors.

Hokuhoku Financial Group, Inc. Annual Report 201111

CORPORATE GOVERNANCE

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

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

12

Hokuhoku Financial Group, Inc. Annual Report 2011

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

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

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

Basic policy on compliance
1. Recognition of the Group’s basic mission and social
responsibilities
As a regional financial institution, the Group recognizes
its public duties and social responsibilities and strives togain greater trust through the conduct of sound business
operations.

2. Providing quality financial services
By providing high-quality, integrated financial services,
the Group will contribute to the stable economic andsocial development of the operating regions and to abetter life for its customers.
3. Strict observance of laws and regulations
The Group strictly observes all relevant laws and regulations, and conducts business in a trustworthy and honest
way that conforms to its own standards of corporate
ethics and to social norms.
4. Elimination of ties with anti-social elements
The Group contributes to a healthy society by resolutely
refusing to associate or work with anti-social elementsthat threaten social peace and security.
5. Ensuring management transparency
The Group aims for a highly transparent management
and organizational culture through accurate disclosureand swift decision-making.

Hokuhoku Financial Group, Inc.
Board of Directors
Corporate Auditors, Board of Auditors
Management Committee
Compliance General Section

Hokuriku Bank

Risk Management Group

Other subsidiaries

Board of Directors

Management Committee

Hokkaido Bank

Board of Directors

Corporate Auditors
Board of Auditors

Audit Group

Corporate
Auditor(s)President

Compliance Committee

Board of Directors
Corporate Auditors
Board of Auditors
Management Committee
Compliance Committee

Compliance OfficeCompliance General Department

Compliance Department

Compliance officers, etc.

Compliance officers, etc.

Compliance manager

Hokuhoku Financial Group, Inc. Annual Report 201113

APPROACH TO COMPLIANCE

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

Measures to accelerate customer protection
and customer convenience
To protect customers’ assets, information and otherinterests, the Group has established policies and basic rules
for the management of customer protection.
Furthermore, in order to provide pertinent explanations
to our customers in accordance with the Japanese Financial
Instruments and Exchange Act and other laws, and toproperly handle customer claims and consultations throughBasic rules of management ofcustomer protection

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

Policies for management of customer protection

Explaining to the customer

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

Customer service support

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

Protection of customer data

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

Outsourcing
Conflict of interest

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

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

Whistleblower protection system
The Group has set up a whistleblower and consultation
hot line and developed a framework for strengthening the14

customer consultation office, which serves as points ofcontact, we have formulated protocols and an appropriate
response structure, based on five separate considerations.
The Compliance General Section of every Group
member is the office responsible for overall managementof customer protection. Compliance officials at each Group
member work in partnership for ongoing review of management systems, problem resolution and data analysis,through which various improvement policies may be drawn
up and implemented.

Hokuhoku Financial Group, Inc. Annual Report 2011

compliance system including checks and balances in orderto promptly detect and counteract any unlawful and wrongful behavior.

Measures to deal with financial crime
In recent years, bank card theft and “furikomi” (phishing)fraud cases have increased. Subsidiary banks havestrengthened security measures to nip this problem in thebud. The banks properly reimburse victims of such scams
based on legislation mandating their relief.
Additionally, we are working to prevent money laundering by properly confirming the identification of individuals as
mandated by the Act on Prevention of Transfer of Criminal
Proceeds.

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

Board of Directors
Corporate Auditors, Board of Auditors
Management Committee
Risk Management Group

Audit Group
Other Subsidiaries

Hokuriku Bank
Hokkaido Bank

Board of Directors
Corporate Auditors, Board of Auditors
Management Committee

ALM Committee

Comprehensive Risk Management Committee
Operational Risk Subcommittee

Market risk

Liquidity risk

Credit risk

Allocation of risk capital
Tier 2The Group quantifies, in as integrated manner as possible,
the various types of risks that occur in its operations, andmanages the risks to ensure that the total amount of risk is
kept within the range of the Group’s management capacity.
After subsidiary banks numerically quantify credit risk,
market risk and operational risk and estimate maximum
potential loss for each of the risks, risk capital allocations
are undertaken using Tier 1 portions of the banks’ regulatory capital as the source of funding. Risk is thus controlled
and managed within a range permissible in banking
operations.

Exclusion
items

Operational risk

Exclusion items: Partial deferred tax assets
expected losses – reserves
Excess: Provisions for other risk at subsidiaries
other than banks

ExcessMarket risk

Tier 1
Risk capital
allocation
at subsidiarybanks

Regulatory
capital

Source offunding

Market risk
Credit risk
Credit risk
Operational risk

Operational risk

Risk capital
allocation at
subsidiary banks

Risk level at
subsidiary banks

Hokuhoku Financial Group, Inc. Annual Report 2011

15

RISK MANAGEMENT SYSTEM

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

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

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

16Management system

Internal ratings system

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

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

Hokuhoku Financial Group, Inc. Annual Report 2011

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

Borrower categorization by asset self-assessment

Normal borrowers

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

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

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

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

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

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

Hokuhoku Financial Group, Inc. Annual Report 201117

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

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

18

Hokuhoku Financial Group, Inc. Annual Report 2011

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

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

System risk

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

Legal risk

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

Personnel risk

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

Tangible asset risk

Risk of losses due to natural disasters damaging tangible assets

Reputational risk

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

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

Risk management systems by major category• Administrative risk management
The Group has closely analyzed the cause of administrative
incidents and problems and discussed measures to prevent
recurrence, so as to prevent accidents and problems in
administrative operations and maintain quality of operationin terms of promptness and accuracy. At the same time,

we endeavor to raise administrative operation standards bysetting rules for proper processing, improving administrative
processing systems, dispatching advisory staff from thehead office, centralizing clerical work at branches andintroducing equipment to automate procedures.
• System risk management
With the increasing sophistication of financial business andthe growth in transaction volumes, it is becoming more
important to ensure that computer systems cannot fail andthat they always operate stably.
The Group has formulated basic rules for systemrisk management (System Risk Standards) and otherregulations, and has established a rigorous management
and operating structure with a variety of backup and othersecurity management measures in place.
Additionally, the subsidiary banks successfully completed
the migration to the new MEJAR system in May 2011 andcontinue to ensure its stable operation.

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

Hokuhoku Financial Group, Inc. Annual Report 201119

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.

Response to the Great East Japan Earthquake
In order to help the people affected by the recent major earthquake and tsunami, Hokuriku Bank and Hokkaido Bank and theother companies in the Group had given ¥70 million in relief money by the end of March 2011.
We also distributed emergency relief supplies such as drinking water, blankets, and medical kits to the affected people,
and donated complimentary towels for customers to the Northern Army of the Japan Ground Self-Defense Force participatingin recovery operations.
In addition, in our branches we set up counters for consultations about financing and opened bank accounts for donationsof relief money. On behalf of 12 banks in the disaster-hit region, we are offering deposit withdrawal services and conducting
other banking operations.

To meet diversifying customer needs
Enhancing Branch Appeal• Enhancement of consultation spaces“Hokugin Point Club Salon” (Takaoka) “Odori Personal Lounge” (Sapporo)

20

Hokuhoku Financial Group, Inc. Annual Report 2011

• Upgrade sub-branches into branches
In fiscal 2010, Hokuriku Bank upgraded five sub-branches into
branches and Hokkaido Bank upgraded one sub-branch into a
branch.
Equipped with full banking functions and offering a service
specialized in retail services mainly to individuals and family businesses, the new branches will aim to help their banks to become
an even closer and more reliable partner for local customers intheir respective regions.

Support regional economic development through wide area networks
across Japan and some overseas locations
The Hokuhoku Financial Group aims to help spur regional economic growth by further strengthening widearea networks spanning the Hokuriku, Hokkaido and three major metropolitan areas of Japan, as well as
overseas networks.
Agreements with overseas municipal and othergovernment organizations
Oct. 2004
Nov. 2005
Apr. 2006
Sep. 2006
Nov. 2006
Mar. 2007
Jun. 2007
Feb. 2008
Jun. 2008
Feb. 2009
Nov. 2009
Dec. 2009
Feb. 2010
Apr. 2010
Jun. 2010

Jan. 2011
Mar. 2011
Jun. 2011

DalianShenyang
Shanghai
Liaoning
Vietnam govt.
ChangchunSuzhouGuangdong
HarbinNingboKhabarovsk
Wuxi
Sakhalin
KunshanDalian Sub-Council of China
Council for the Promotion ofInternational Trade (CCPT)
Yingkou
Jinzhou New Area
Shenyang Sub-Council of CCPT

Hokuriku Bank
Hokkaido Bank
Hokuhoku FG
Hokuhoku FG
Hokuriku Bank
Hokkaido Bank
Hokuriku Bank
Hokuhoku FG
Hokkaido Bank
Hokuhoku FG
Hokkaido Bank
Hokuriku Bank
Hokkaido Bank
Hokuriku Bank
Hokuhoku FG

Hokuhoku FG
Hokuhoku FG
Hokkaido Bank

Business-matching events (fiscal 2010-2011)
Date

Location

Industry

Jun. 2010
Aug.
Sep.
Sep.
Oct.

NagoyaShenyang
SapporoShanghai
DalianFood, the environment
Food
Food
Manufacturing
All industry types

Oct.

Exhibiting
companies(No. of business meetings)
215 (1,100)
92 (100)
392 (350)
3,200 (8,500)
15,000 people(7,800)41 (132)

Asahikawa Agriculture
etc.
Oct.
Toyama and Food
51 (158)
Kanazawa
Nov.
Singapore Food
166 (576)
Nov.
Thailand
Manufacturing
120 (200)
Nov.
SapporoTourism61 (270)
Nov.
Tokyo
Food
660
Nov.
Fukui
Food
35
Feb. 2011 TokyoFood
54 (170)
Jun.
SapporoAgriculture, Construction 1,000 people
Jun.
Hakodate
Marine product processing 35 (100)

Association of bank clients (as of March 31, 2011)
Hokuriku Choujou Association
Hokkaido Choujou Association
Shanghai Choujou Association
Hokuhoku ASEAN Association
Dalian Choujou Association(inaugurated July, 2011)

No. of companies
1,071
240
197
150
—

Alliances with overseas banks and other partners
Oct. 2002
Dec. 2005
Jul. 2006
Sep. 2007
Sep. 2008
Dec. 2008
Apr. 2009
Sep. 2009
Dec. 2009
Apr. 2011
Jun. 2011

Bank of ChinaKASIKORNBANK ( Thailand)Standard Chartered Bank
State Bank of India
Mizuho Corporate Bank
Bank of Communications, PRC
Financial Information Service Co.,
TaiwanDeutche Bank
Vietcombank
Bank Negara Indonesia
KASIKORNBANK (Thailand)

Hokuriku Bank
Hokuriku Bank
Hokuriku Bank
Hokuriku Bank
Hokuriku Bank
Hokuriku Bank
Hokkaido Bank
Hokuriku Bank
Hokuriku Bank
Hokuriku Bank
Hokkaido Bank

• Manufacturing business conference in Shanghai 2010
(September 2010)
The conference was jointly held by our subsidiaries Hokuriku Bankand Hokkaido Bank with 26 regional banks and local governments, and hosted by NC Network China and Nikkei Business
Publications Asia. It was the largest international manufacturingbusiness conference we have ever held in Shanghai, China, with
334 companies exhibiting, and the sixth conference in Shanghai
held by our Group.
According to an announcement by the secretariat, 3,200
companies participated over the two days, with a total of 5,300
visitors and 8,500 business meetings held. There were cases inwhich negotiating companies
entered price talks from the start,
as the needs of both sides had
been identified in advance. Goingforward, concrete results are
expected.
• Holding of Sales Channel Expansion Seminars Utilizing the China
UnionPay Official On-Line Shopping Mall
In China, which is continuing to achieve high growth, there isincreasing demand for the purchase of high-quality Japanese
products through the Internet. This demand is being driven
primarily by the rapidly-increasing wealthy segment of the population. Given this, our subsidiaries Hokuriku Bank and Hokkaido
Bank held these seminars in a total of seven venues including thethree prefectures in Hokuriku as well as Hokkaido.
In these seminars, simple presentations about the Japan section of the official online shopping mall of China UnionPay, which
has more than 600 million members, were given to businesses
considering the possibility of
expanding sales channels fortheir own products. The seminars
were very well received at each of
the venues.

Hokuhoku Financial Group, Inc. Annual Report 201121

CORPORATE SOCIAL RESPONSIBILITY

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

IR meetings for individual investors

November 2010: Fiscal 2010 interim results (Tokyo)
May 2011: Fiscal 2010 results ( Tokyo)

June 2011: Two cities in Hokuriku ( Toyama and Kanazawa) andtwo cities in Hokkaido (Sapporo and Asahikawa)IR overseas roadshow

General meeting of shareholders

June 2011: Europe (Paris, London, Edinburgh)

June 2011: Eighth ordinary general meeting of shareholders( Toyama, with live broadcast to Sapporo)

Advancing with regional communities
We take part in social contribution activities.
Financial education

Support for arts and culture• All-Japan high-school quiz in finance and economy “Economics
Koshien,” in Hokkaido, Toyama and Fukui prefectures• Management school for the managers who will form the next
generation of business leaders• Dispatch of lecturers to high schools and universities• Internships• Arranging and supporting concerts• Establishment of art galleries
Hokuriku Bank has established the Hokugin Art Gallery, a network of exhibition spaces for artworks using the outside wallsof bank branches, and provides venues for local artists andstudents studying arts and crafts at local universities to present
their works. All of the venues use environmentally-friendly LED
lighting and have been
carefully designed
to make the works
stand out. They havebecome familiar to the
local people as “miniart museums in the
middle of town.”
Establishment of art galleries

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.

Helping conserve the regional environment
Measures undertaken as a financial institution

Further environmental protection activities

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

• Establishment of rooftop garden systems• Forest campaign
At Hokkaido Bank, project members are taking the lead in thinking
about and working on environmental issues through the creationof forests.
In September 2010, the second tree-planting was held in“Dogin Forest.” Branches also cooperated with local governments
in tree-planting activities.

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

Establishment ofrooftop garden
systems

22

Hokuhoku Financial Group, Inc. Annual Report 2011

Forest campaign

TOPICS

Hokuriku Bank
1. Business Summit 2010: from Tokai and Hokuriku!
Huge Gathering of Food and Environmental
Businesses
In June 2010, the bank held a business conference on thetheme of food and the environment in Nagoya jointly with
Ogaki Kyoritsu Bank. A total of 134 companies and organizations exhibited, and from Hokuriku 31 companies set
up booths and promoted their products in order to expand
their sales channels. On the day approximately 2,600
people visited the venue and approximately 1,100 businessmeetings were held between the exhibiting companies andbuyers for 81 companies from throughout Japan, including
department stores and convenience stores.

2. Kanazawa Toiyamachi Branch Reopened in a New
Building at a New Location
In October 2010, the Kanazawa Toiyamachi Branch wasreopened in a new building at a new location. The newbranch is designed with an exterior that fits in with theold town of Kanazawa, and is inspired by a traditional soy
sauce warehouse in its Ono district featuring a tiled roof
and plaster walls. It promotes the concept of local production for local consumption with a wooden deck made ofJapanese Cyprus from Noto, flooring made of cedar from
Ishikawa Prefecture and lobby and reception room walls
using diatomaceous earth produced in Noto. The branchincorporates one of our Hokugin Art Galleries, exhibiting
works from students of the Kanazawa College of Art.

3. Chinese Buyers Summit Held in Toyama andKanazawa
In October 2010, the bank held the Chinese Buyers Summitin Toyama and Kanazawa. At the business conference,
lively business meetings were held in which representativesof food manufacturers aiming to open up sales channels
to China promoted their best products to buyers who had
been invited from food-related companies in Shanghai andDalian. In China, interest in the security and safety of food isincreasing, particularly among the wealthy segment of the
population, so Hokuriku Bank is providing backup support
to increase contact between local companies and Chinesecompanies, and expand Chinese sales channels. In conjunction with this business conference, the bank held seminars
offering practical advice
about trade with China
and seminars about
economic trends foruniversity students.

4. Japanese Food Trade Fair in Singapore 2010
In November 2010, a business conference was held byfive Japanese regional banks over two days in the Suntec
Singapore International Convention and Exhibition Center.
This was the first ever business conference in Singapore
hosted by regional banks.
The objective of this business conference was toexpand sales channels to Singapore and the ASEAN region.
From Japan, 35 companies presented exhibits, offering
a wide range of food products including fresh fish, othermarine products, processed mountain vegetable products,
local delicacies, miso and soy sauce, sake, and ice cream.
Buyers from more than 160 food-trading companies, supermarkets, andrestaurants inside
Singapore visitedthe exhibition,
holding a total ofnearly 600 business meetings.

Hokuhoku Financial Group, Inc. Annual Report 201123

5. Dalian Representative Office Opened

6. Hokugin Point Club Salon Opened

In January 2011, Hokuriku Bank opened a representative
office in Dalian, China, the bank’s fifth overseas office.
The areas handled by the Dalian Representative Officewill include the northeast region centered on Dalian, andnorthern China including Beijing and Tianjin. It will provide
economic and financial information of those regions toour business clients, and support the business growth ofcompanies that have already entered the local market or areplanning to enter the local market. It will also offer businessmatching andstrengthen
cooperation
with government
agencies.

In March 2011, the bank opened the Hokugin Point Club
Salon facility for its member customers, in contribution toa project to create a lively atmosphere in central Takaoka
City. The salon contains a community space in which themembers can relax, and a seminar room for holding thevarious seminars. The bank also incorporated another
Hokugin Art Gallery in the facility as a small town-center art
museum, providing a space for relaxation for visitors to thesalon.

Hokkaido Bank
1. Business Matching in Shenyang
In August 2010, the bank held individual business
conferences and the Hokkaido Economic Forum for local
companies in Shenyang, Liaoning Province, in China.
In the individual business conferences lively businessmeetings were held between 16 Japanese companies andapproximately 70 Chinese companies with the cooperationof the Shenyang Foreign Trade and Economic Cooperation
Bureau and the China Council for the Promotion ofInternational Trade.
At the forum, ten Japanese companies gave lectures onthemes including construction techniques for cold regions,the environment, tourism, and IT.

24

Hokuhoku Financial Group, Inc. Annual Report 2011

2. Business Alliance with Liaoning Television Stationand Hokkaido Broadcasting
In August 2010, Hokkaido Bank concluded a businessalliance with Liaoning Radio and Television (Shenyang) andHokkaido Broadcasting (Sapporo). The objective of theparties to the alliance is to encourage greater economic
exchanges between China’s northeast and Hokkaido bycarrying out business matching centered on those tworegions and providing economic information to each other.
In China, Hokkaido is gaining in popularity, and thedemand for tourism and economic information about theisland is increasing.

3. Seventh Hokkaido Food Special Business
Conference Held

5. 60th Anniversary Project: Support for the Women’s
Curling Team Commenced

In September 2010, the seventh Food Special Business
Conference was held.
This business conference helps expand sales channels
for food made by manufacturers in Hokkaido to reachdepartment stores and supermarkets in Tokyo and Kansaiarea, and 42 companies participated offering products inthe areas of processed marine products, agricultural andlivestock products and beverage production. Individual
business meetings were held with the participation ofbuyers from 32 companies, including leading department
stores, luxury supermarkets, mail-order companies andrestaurant chains.
On this day, there were 350 business talks, in which
manufacturing methods and points that need improvement(including marketing)were discussed withthe buyers of companies from outside
Hokkaido.

Previously Hokkaido Bank was involved in the establishmentof the Hokkaido Curling Association and the Japan Curling
Association, and then bank president Takeyoshi Morihana
was the first chairman of both associations. The bank has a
deep connection with curling, and has endeavored to makecurling more popular.
Since last November, as a CSR activity based on the
promotion of sports, the bank has been supporting the
HOKKAIDO BANK FORTIUS women’s curling team comprised of four athletes: Ayumi Ogasawara (maiden name
Onodera) and Yumie Funayama (maiden name Hayashi),
who have both competed at the Winter Olympics, with
Chinami Yoshida and Kaho Onodera.

4. Russian Far East (Coastal Provinces) Agricultural
Inspections Held
In October 2010, Hokkaido Bank, which has a representative office in Yuzhno-Sakhalinsk, Sakhalin Province, Russia,
the only office of a Japanese bank in the Russian Far
East, held this inspection tour to enable companies within
Hokkaido to develop their agribusiness overseas.
During the three days of inspections, participants
went on a tour of the Russian Academy of Agriculture,
Far East Branch, held talks with the dean of the academy,
and inspected eight locations including coastal province
vegetable cultivation testing grounds and sugar processing
plants. On the final day, they held a meeting with Russian
distributors, and were able to establish a foothold for
opening up theagribusinessmarket in the
Russian coastal
provinces.

6. Cooperative and Collaborative Agreement Concluded
with the Hokkaido University Center for Advanced
Tourism Studies
In March 2011, the bank held the signing ceremony for acooperative and collaborative agreement with the Center
for Advanced Tourism Studies at Hokkaido University. The
agreement is an attempt to deepen mutual cooperation todevelop this region in the tourism field, a key industry for
Hokkaido, and we concluded this agreement in order toorganically promote concrete cooperation based on thespirit of mutual benefit, in the areas of academia, regional
development, culture and education.

Hokuhoku Financial Group, Inc. Annual Report 201125

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

Millions of yen
March 31

2010

AssetsCash and due from banks (Notes 23 and 28).....................................................
Call loans and bills bought .................................................................................
Monetary claims bought (Note 28) .....................................................................
Trading assets (Note 4) ......................................................................................
Money held in trust (Note 29) .............................................................................
Securities (Notes 5, 10, 28 and 29) ....................................................................
Loans and bills discounted (Notes 6, 10 and 28) ...............................................
Foreign exchanges (Note 7) ...............................................................................
Other assets (Note 10) .......................................................................................
Tangible fixed assets (Notes 8 and 14) ..............................................................
Intangible fixed assets .......................................................................................
Deferred tax assets (Note 21) ...........................................................................
Customers’ liabilities for acceptances and guarantees (Note 9) ..........................
Allowance for loan losses ..................................................................................
Total assets .....................................................................................................

¥

406,848
87,056
111,451
9,303
3,994
2,326,508
7,224,636
13,234
168,565
112,167
36,42563,572102,240(80,950)¥10,585,054¥

390,229
78,423
131,760
9,657
4,400
2,013,505
6,981,201
11,178235,069
112,453
38,24674,906114,235(88,060)¥10,107,208

4,892,949
1,046,984
1,340,367
111,888
48,03827,979,660
86,886,786
159,1702,027,240
1,348,982
438,066
764,549
1,229,586(973,553)$127,300,712

Liabilities and net assets
Liabilities
Deposits (Notes 10, 11 and 28) .........................................................................
Call money and bills sold (Note 10) ....................................................................
Trading liabilities (Note 4) ...................................................................................
Borrowed money (Notes 10, 12 and 28) ............................................................
Foreign exchanges (Note 7) ...............................................................................
Bonds payable (Note 13) ...................................................................................
Other liabilities ...................................................................................................
Reserve for employee retirement benefits (Note 27) ...........................................
Reserve for directors’ and corporate auditors’ retirement benefits......................
Reserve for contingent loss................................................................................
Reserve for reimbursement of deposits..............................................................
Deferred tax liabilities for revaluation ..................................................................
Acceptances and guarantees (Note 9) ...............................................................
Total liabilities ..................................................................................................

¥ 9,491,744
20,0002,690
327,738
131
41,500150,519
7,779
529
2,771
1,850
8,901
102,240
10,158,395¥ 9,083,392—
2,719
248,175
142
59,500
164,046
8,153
1,273
2,152
2,121
8,969
114,235
9,694,883$114,152,063
240,529
32,352
3,941,527
1,578
499,098
1,810,215
93,561
6,368
33,333
22,257
107,050
1,229,586
122,169,517

Net assets
Capital stock (Note 15) ......................................................................................
Capital surplus...................................................................................................
Retained earnings (Note 16) ..............................................................................
Treasury stock ...................................................................................................
Total shareholders’ equity ..............................................................................
Valuation difference on available-for-sale securities (Note 29).............................
Deferred gains (losses) on hedges .....................................................................
Revaluation reserve for land (Note 14)................................................................
Total accumulated other comprehensive income .........................................
Minority interests ...............................................................................................
Total net assets ...............................................................................................
Total liabilities and net assets ........................................................................

70,895
153,188
182,131(600)
405,614
11,4193
8,683
20,105938
426,658¥10,585,054

70,895
153,189
170,100(589)
393,595
9,180
(17)
8,784
17,947781
412,324¥10,107,208

852,616
1,842,317
2,190,395(7,220)4,878,108
137,33737
104,426
241,800
11,287
5,131,195$127,300,712

See notes to consolidated financial statements.

26

2011

Thousands of
U.S. dollars (Note 1)
2011

Hokuhoku Financial Group, Inc. Annual Report 2011$

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

2011

2010

Thousands of
U.S. dollars (Note 1)
2011

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

¥123,043
22,962
45
—
780
1,644
39,045
1,225
22,464
3,530
214,741¥131,287
18,991
16
3
1,265
2,027
39,863
1,518
27,655
4,372
227,002$1,479,772
276,159541—
9,384
19,776
469,580
14,740270,173
42,4582,582,583

Expenses
Interest expense:
Interest on deposits ......................................................................................
Interest on borrowings and rediscounts ........................................................
Interest on bonds payable ............................................................................
Other interest expense .................................................................................
Fees and commissions (Note 18) .......................................................................
Other ordinary expense .....................................................................................
General and administrative expenses.................................................................
Provision of allowance for loan losses ................................................................
Other expenses (Note 20) ..................................................................................
Total expenses ..................................................................................................

13,417
2,261
1,279
553
12,414
14,962
109,580
13,349
11,624
179,443

18,765
2,105
1,785
583
11,98715,019106,126
23,18014,576
194,131

161,367
27,19815,385
6,655
149,306
179,947
1,317,866
160,549
139,799
2,158,072

35,29832,871

424,511

5,727
829
(51)
10,234
18,557
152¥18,404

9,024
779
(104)
3,866
19,30492¥ 19,212

68,884
9,977(615)
123,088
223,177
1,831$ 221,346

Millions of yen
Years ended March 31

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

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

Year ended March 31

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

Millions of yen
2011

Thousands of
U.S. dollars (Note 1)
2011¥18,557
2,163
2,277
20
(101)

$223,177
26,022
27,388251(1,216)(33)¥20,720
20,563157(401)$249,199
247,305
1,894

See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 201127

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries
Thousands
IssuedIssuednumber of
number ofshares ofshares ofcommon stock preferred stock
Balance as of March 31, 2010 ................................ 1,391,630
107,432
Changes during the period
Cash dividends ....................................................
——Net income ..........................................................
——
Purchase of treasury stock ..................................
——
Disposal of treasury stock ....................................
——
Reversal of revaluation reserve for land ................
——Net changes of items
other than shareholders’ equity ..........................
——
Total changes during the period...........................
——
Balance as of March 31, 2011 ................................ 1,391,630
107,432

Millions of yen

Capitalstock¥70,895

Capitalsurplus¥153,189

Retainedearnings¥170,100

Treasurystock¥(589)

Total
shareholders’equity¥393,595

—
—
—
—
—

—
—
—
(0)
—

(6,475)
18,404
—
—
101

—
—
(13)
2
—

(6,475)
18,404
(13)
1
101

—
—
¥70,895—(0)¥153,188—
12,030¥182,131—(10)¥(600)—
12,018¥405,614

Minority
interests
¥781

Total
net assets¥412,324

—
—
—
—
—
157
157
¥938

(6,475)
18,404
(13)
1
101
2,315
14,334¥426,658

Millions of yen
Valuation
Total accumulateddifference on
otherDeferredavailable-for-sale gains (losses)
comprehensive
Revaluation
securities
incomeon hedges reserve for land
Balance as of March 31, 2010 .........................................................
¥ 9,180¥(17)¥8,784¥17,947
Changes during the period
Cash dividends .............................................................................
————Net income ...................................................................................
————
Purchase of treasury stock ...........................................................
————
Disposal of treasury stock .............................................................
————
Reversal of revaluation reserve for land .........................................
————Net changes of items other than shareholders’ equity ...................
2,238
20
(101)
2,158
Total changes during the period....................................................
2,238
20
(101)
2,158
Balance as of March 31, 2011 .........................................................
¥11,419¥ 3¥8,683¥20,105

Thousands
IssuedIssuednumber of
number ofshares ofshares ofcommon stock preferred stock
Balance as of March 31, 2009 ................................ 1,391,630
218,832
Changes during the period
Cash dividends ....................................................
——Net income ..........................................................
——
Purchase of treasury stock ..................................
——
Disposal of treasury stock ....................................
——
Retirement of treasury stock ................................
—(111,400)
Reversal of revaluation reserve for land ................
——Net changes of items
other than shareholders’ equity ..........................
——
Total changes during the period...........................
—(111,400)
Balance as of March 31, 2010 ................................ 1,391,630
107,432

28

Hokuhoku Financial Group, Inc. Annual Report 2011

Millions of yen

Capitalstock¥70,895

Capitalsurplus¥223,098

Retainedearnings¥156,942

Treasurystock¥ (470)Total
shareholders’equity¥450,466

—
—
—
—
—
—

—
—
—
(6)
(69,903)—(6,178)19,212
—
—
—
124

—
—
(70,039)17
69,903—(6,178)19,212(70,039)
11
—
124

—
—
¥70,895—(69,909)¥153,189—
13,158¥170,100

—
(119)
(589)

—
(56,870)¥393,595¥

Millions of yen
Valuation
Total accumulateddifference on
otherDeferredavailable-for-sale gains (losses)
comprehensive
Revaluation
securities
incomeon hedges reserve for land
Balance as of March 31, 2009 .........................................................
¥(18,341)¥(45)¥8,908¥ (9,478)
Changes during the period
Cash dividends .............................................................................
————Net income ...................................................................................
————
Purchase of treasury stock ...........................................................
————
Disposal of treasury stock .............................................................
————
Retirement of treasury stock .........................................................
————
Reversal of revaluation reserve for land .........................................
————Net changes of items other than shareholders’ equity ...................
27,52127(124)
27,425
Total changes during the period....................................................
27,52127(124)
27,425
Balance as of March 31, 2010 .........................................................
¥ 9,180¥(17)¥8,784¥17,947

Minority
interests
¥676

Total
net assets¥441,664

—
—
—
—
—
—
104
104
¥781

(6,178)19,212(70,039)
11—
124
27,530(29,340)¥412,324

Thousands of U.S. dollars (Note 1)

Balance as of March 31, 2010 .........................................................
Changes during the period
Cash dividends .............................................................................
Net income ...................................................................................
Purchase of treasury stock ...........................................................
Disposal of treasury stock .............................................................
Reversal of revaluation reserve for land .........................................
Net changes of items other than shareholders’ equity ...................
Total changes during the period....................................................
Balance as of March 31, 2011 .........................................................

Capitalstock$852,616

Capitalsurplus$1,842,327

Retainedearnings$2,045,709

Treasurystock$(7,088)

Total
shareholders’equity$4,733,564

—
—
—
—
—
—
—
$852,616

—
—
—
(10)
—
—
(10)
$1,842,317(77,875)
221,346——
1,215—
144,686$2,190,395

—
—
(158)
26
—
—
(132)
$(7,220)(77,875)
221,346
(158)
16
1,215
—
144,544$4,878,108

Thousands of U.S. dollars (Note 1)
Valuation
Total accumulateddifference on
otherDeferredavailable-for-sale gains (losses)
comprehensive
Revaluation
Minority
securities
incomeon hedges reserve for landinterests
Balance as of March 31, 2010 ......................................................... $110,413$(213)$105,641$215,841$ 9,398
Changes during the period
Cash dividends .............................................................................
—
—
—
—
—
Net income ...................................................................................
—
—
—
—
—
Purchase of treasury stock ...........................................................
—
—
—
—
—
Disposal of treasury stock .............................................................
—
—
—
—
—
Reversal of revaluation reserve for land .........................................
—
—
—
—
—
Net changes of items other than shareholders’ equity ...................
26,924250(1,215)25,9591,889
Total changes during the period....................................................
26,924250(1,215)25,9591,889
Balance as of March 31, 2011 ......................................................... $137,337$ 37$104,426$241,800$11,287

Total
net assets$4,958,803(77,875)
221,346
(158)
16
1,215
27,848172,392$5,131,195

See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 201129

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

Millions of yen
Years ended March 31
1. Cash flows from operating activities:
Income before income taxes and minority interests ...................................................
Depreciation .............................................................................................................
Impairment losses .....................................................................................................
Amortization of goodwill ............................................................................................
Equity in losses (gains) of affiliates .............................................................................
Increase (decrease) in allowance for loan losses .......................................................
Increase (decrease) in reserve for contingent loss .....................................................
Increase (decrease) in reserve for employee retirement benefits ................................
Increase (decrease) in reserve for directors’ andcorporate auditors’ retirement benefits ...................................................................
Increase (decrease) in reserve for reimbursement of deposits ...................................
Interest income .........................................................................................................
Interest expenses......................................................................................................
Losses (gains) on securities ......................................................................................
Losses (gains) on money held in trust .......................................................................
Losses (gains) on foreign exchange ..........................................................................
Losses (gains) on sales of fixed assets ......................................................................
Net decrease (increase) in trading assets ..................................................................
Net increase (decrease) in trading liabilities ...............................................................
Net decrease (increase) in loans and bills discounted ................................................
Net increase (decrease) in deposits...........................................................................
Net increase (decrease) in negotiable certificates of deposit ......................................
Net increase (decrease) in borrowed money (excluding subordinated borrowed money) ...
Net decrease (increase) in due from banks (excluding deposits with the Bank of Japan) ...
Net decrease (increase) in call loans, bills bought, commercial paperand other debt purchased ......................................................................................
Net increase (decrease) in call money and bills sold ..................................................
Net decrease (increase) in foreign exchanges (assets) ...............................................
Net increase (decrease) in foreign exchanges (liabilities) ............................................
Interest income-cash basis .......................................................................................
Interest expenses-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 ....................................................................
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..........................................................................
Net cash provided by (used in) investing activities ....................................................
3. Cash flows from financing activities:
Proceeds from issuance of subordinated borrowed money.......................................
Repayment of subordinated borrowed money ..........................................................
Proceeds from issuance of subordinated bonds .......................................................
Repayment of subordinated bonds ...........................................................................
Expenditures for fund procurement ...........................................................................
Dividends paid ..........................................................................................................
Dividends paid to minority shareholders ....................................................................
Purchases of treasury stock ......................................................................................
Proceeds from sales 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 23) .........................................
See notes to consolidated financial statements.

30

Hokuhoku Financial Group, Inc. Annual Report 20112011¥

35,298
9,042
358
2,405
(1)
(7,109)
619
(373)

2010
¥

32,871
8,231
331
2,405
(1)
(7,336)593(806)

Thousands of
U.S. dollars (Note 1)
2011$

424,511
108,752
4,308
28,932(15)(85,498)
7,451(4,497)

(744)
(270)
(148,475)
17,511
1,149
(10)
833
215
354
(29)
(243,434)
335,569
72,781
61,06235,721

1,208(75)(153,592)
23,241
(639)
(49)
92
548
(938)
456
151,947
420,913940(171,883)
35,590(8,951)(3,254)(1,785,632)
210,604
13,827(132)
10,026
2,589
4,261
(358)
(2,927,659)
4,035,715
875,302734,362
429,605

11,67520,000(2,056)(11)
125,462(12,614)
68,321
383,251(9,125)374,126

5,373(10,000)
2,202
87
134,202(17,913)(92,383)
365,618(11,581)354,037

140,418
240,529(24,732)(139)
1,508,867(151,703)
821,668
4,609,157(109,745)
4,499,412(1,544,444)
983,386
234,826400
22,973(6,004)42(3,758)(312,577)(1,849,490)
1,302,641
257,227500
19,041(7,233)54(2,952)(280,212)(18,574,193)
11,826,661
2,824,133
4,811
276,291(72,208)511(45,206)(3,759,200)

31,000(12,500)
10,000(28,000)(3,159)(6,475)(0)(13)
1(9,147)(60)
52,340261,766¥ 314,107

30,000(5,500)15,000(20,000)(3,656)(6,178)(0)(70,039)11(60,363)(19)
13,442
248,324¥ 261,766

372,820(150,331)
120,264(336,741)(37,998)(77,875)
(5)
(158)
16
(110,008)(731)
629,473
3,148,129$ 3,777,602

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hokuhoku Financial Group, Inc. and 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, and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different incertain respects as to application and disclosure requirements ofInternational Financial the Reporting Standards.
Under Japanese GAAP, a consolidated statement of comprehensive income is required from the fiscal year ended March 31,
2011 and has been presented herein. Accordingly, total accumulated other comprehensive income is presented in the consolidatedbalance sheet and the consolidated statement of changes in net
assets.
The accompanying consolidated financial statements havebeen restructured and translated into English (with some expanded
descriptions) from the consolidated financial statements of
Hokuhoku Financial Group, Inc. (the “Company”) prepared under
the Japanese Financial Instruments and Exchange Act and its
related accounting regulations.
Some supplementary information included in the statutory
Japanese language consolidated financial statements, but notrequired for fair presentation, is not presented in the accompanying
consolidated financial statements.
Amounts less than one million yen have been omitted. As
a result, the totals in Japanese yen shown in the consolidated
financial statements do not necessarily agree with the sum of theindividual amounts. The translation of the Japanese yen amounts
into U.S. dollars is included solely for the convenience of readers
outside Japan, using the prevailing exchange rate at March 31,
2011, which was ¥83.15 to US$1. The U.S. dollar amounts arethen rounded to thousands. Such translation should not be construed as representations that the Japanese yen amounts havebeen, could have been, or could in the future be, converted into
U.S. dollars at that rate.

2. Scope of Consolidation
The consolidated financial statements as of March 31, 2011 include
the accounts of the Company and its 11 subsidiaries (together, the“Group”). The consolidated subsidiaries are listed below.
Under the control or influence concept, those companies inwhich the Company, directly or indirectly, is able to exercise control
over operations are fully consolidated, and those companies overwhich the Group has the ability to exercise significant influence areaccounted for by the equity method.
Investment in one associated company is accounted for by theequity method. The associated company is also listed below.
All significant intercompany balances and transactions have been
eliminated in consolidation. All material unrealized profit included in
assets resulting from transactions within the Group is eliminated.

Consolidated subsidiaries
Hokuriku Bank, Ltd.
Hokkaido Bank, Ltd.
Hokugin Lease Co., Ltd.
Hokuriku Card Co., Ltd.
Hokuriku Hosho Services Co., Ltd.
Hokugin Software Co., Ltd.
Hokuhoku Services Co., Ltd.
Hokugin Business Services Co., Ltd. (Note 1)
Hokuriku International Cayman Ltd. (Note 1)
Dogin Business Service, Ltd. (Note 1)
Dogin Card Co., Ltd. (Note 1)

Capital (¥mil)
140,40993,524
100
36
50
30
500
30
US$1,000
50
120

Ownership (%)
100.00100.0070.25
87.39
100.00100.00100.00100.00100.00100.00100.00Notes: 1. Ownership figures are inclusive of indirect ownership.
2. The one subsidiary whose balance sheet date differs from the date of the Company
is consolidated using the financial statements based on the tentative settlement ofaccounts at the consolidated balance sheet date.
3. Hokugin Office Service Co., Ltd. and Hokugin Corporate Co., Ltd. were removed
from the list of consolidated subsidiaries owing to liquidation. Hokugin Real Estate
Service Co., Ltd. was removed from the list of consolidated subsidiaries owing toabsorption by Hokuriku Bank, Ltd.

Associated company
Hokuhoku Capital Co., Ltd.

Capital (¥mil)
250

Ownership (%)
38.75

Note: Ownership figure is inclusive of indirect ownership.

Assets and liabilities of consolidated subsidiaries are valued at fairvalue at the respective dates of acquisition, and goodwill is amortizedusing the straight-line method over either 5 years or 20 years.

3. Significant Accounting Policies(1) Trading assets/liabilities and trading income/losses
Transactions for trading purposes (seeking gains arising fromshort-term changes in interest rates, currency exchange rates,or market prices of securities and other market related indices orfrom variation among markets) are included in “Trading assets” or“Trading liabilities” on the consolidated balance sheet on a tradedate basis. Income and losses on trading purpose transactions
are recognized on a trade date basis and recorded as “Trading
income” or “Trading losses.”
Securities and monetary claims purchased for trading purposes
are stated at the fiscal year-end market value and financial derivatives such as swaps, futures and options are stated at amounts
that would be settled if the transactions were terminated at theconsolidated balance sheet date.
“Trading income” and “Trading losses” include interest received
or paid during the fiscal year, the year-on-year valuation differencesof securities and monetary claims and the year-on-year valuationdifference of the derivatives assuming that the settlement will bemade in cash.
The Group presents foreign currency translation differences arising from currency swaps for trading purposes as “Trading assets”
or “Trading liabilities” on a gross basis, pursuant to the “Treatmentof Accounting and Auditing Concerning Accounting for Foreign
Currency Transactions in Banking Industry” (JICPA Industry Audit
Committee Report No. 25).
(2) Securities
As for securities other than trading purposes, debt securities that
consolidated subsidiaries have the positive intent and ability tohold to maturity are classified as held-to-maturity securities and are
carried at amortized cost (straight-line method) using the movingaverage method.

Hokuhoku Financial Group, Inc. Annual Report 201131

Securities other than trading purpose securities and held-tomaturity securities are classified as available-for-sale securities.
Stocks in available-for-sale securities that have market prices arecarried at their average market prices during the final month of the
fiscal year and bonds and other securities that have market prices
are carried at their fiscal year-end market prices (cost of securities
sold is calculated using primarily the moving-average method).
Available-for-sale securities for which quoted market prices are
difficult to obtain are carried at cost using the moving-averagemethod. Valuation difference on available-for-sale securities, net ofincome taxes, is included in “Net assets.”
Securities included in money held in trust are carried in the samemanner as for securities mentioned above.
(3) Derivative transactions
Derivative transactions, excluding those classified as trading derivatives, are carried at fair value.
(4) Depreciation method
a. Tangible fixed assets (excluding lease assets)
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 estimated useful lives of major assets are as follows:
Buildings: 6 to 50 years
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.
b. Intangible fixed assets (excluding lease assets)
Intangible fixed assets are depreciated based on the straight-line
method and capitalized software for internal use owned by consolidated subsidiaries is depreciated using the straight-line method
over its estimated useful life (mainly 5 years).
c. Lease assets
Lease assets under non-transfer ownership finance lease contracts (inwhich the ownership of leased assets is not transferred to the lessee;
included in tangible fixed assets and intangible fixed assets) are depreciated on a straight-line basis over the lease period with a residual valueof zero when contracted amounts for residual value are specified.
(5) Long-lived assets
The Group reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate the carrying amountof an asset or asset group may not be recoverable. An impairment
loss would be recognized if the carrying amount of an asset or
asset group exceeds the sum of the undiscounted future cash
flows expected to result from the continued use and eventual
disposition of the asset or asset group. The impairment loss would
be measured at the amount by which the carrying amount of theasset 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.
(6) Allowance for loan losses
Allowance for loan losses of the Banks is provided as detailed

32

Hokuhoku Financial Group, Inc. Annual Report 2011

below in accordance with the internal standards for write-offs andprovisions.
For claims on borrowers that have entered into bankruptcy, special liquidation proceedings or similar legal proceedings (“bankrupt
borrowers”) or borrowers that are not legally or formally insolvent
but are regarded as substantially in the same situation (“effectively
bankrupt borrowers”), a reserve is provided based on the amountof claims, after the write-off stated below, net of the expectedamount of recoveries from collateral and guarantees.
For claims on borrowers that are not currently bankrupt but areperceived to have a high risk of falling into bankruptcy, a reserve
is provided in the amount deemed necessary based on an overall
solvency assessment of the claims, net of the expected amount ofrecoveries from collateral and guarantees.
For other claims, after classification, an allowance is provided
based on the historical loan-loss ratio.
Branches and credit supervisory departments assess all claimsin accordance with the internal rules for self-assessment of assets,
and the credit review department, independent from these operating sections, audits their assessment. The allowance is provided
based on the results of these assessments.
The Company and its non-banking consolidated subsidiaries
also carry out asset self-assessment utilizing similar methods as
those employed by the consolidated subsidiaries engaged inbanking operations to make provisions for doubtful accounts in theamounts deemed necessary.
For collateralized or guaranteed claims on bankrupt borrowers
and effectively bankrupt borrowers, the amount exceeding the estimated value of collateral and guarantees is deemed to be uncollectible and written off against the total outstanding amount of theclaims. The amount of write-offs was ¥120,936 million ($1,454,437
thousand) and ¥124,484 million at March 31, 2011 and 2010,
respectively.
(7) Reserve for employee retirement benefits
Reserve for employee retirement benefits is provided for paymentof retirement benefits to employees in the amount deemed accruedat the fiscal-year end, based on the projected retirement benefit
obligation and the fair value of plan assets at the fiscal year-end.
Unrecognized prior service costs are amortized using thestraight-line method over eight years within the employees’ averageremaining service period at incurrence.
Unrecognized net actuarial gain (loss) is amortized using thestraight-line method over eight or nine years within the employees’
average remaining service period, commencing from the next fiscal
year of incurrence.
Unrecognized net transitional obligation from the initial application of the new accounting standard for employee retirement benefits of ¥28,196 million ($339,106 thousand) is amortized primarily
using the straight-line method over 15 years.
(8) Reserve for directors’ and corporate auditors’ retirement
benefits
Reserve for directors’ and corporate auditors’ retirement benefits isprovided for payment of retirement benefits to directors and corporate auditors in the amount deemed accrued at the fiscal-year end,
based on the estimated amount of benefit.

(9) Reserve for contingent loss
Reserve for contingent loss is provided for possible losses in accordance with the Joint Responsibility System of Credit Guarantee
Corporations and possible losses from contingencies not coveredby other specific reserves.
(10) Reserve for reimbursement of deposits
Reserve for reimbursement of deposits which were not previously
recognized as liabilities under certain conditions is provided forpossible losses on the future claims of withdrawal based on thehistorical reimbursement experience.
(11) Translation of foreign currency assets and liabilities
Assets and liabilities denominated in foreign currencies are translated into Japanese yen mainly at the exchange rate prevailing at
the consolidated balance sheet date.
(12) Lease transactions
In March 2007, the Accounting Standards Board of Japan (the“ASBJ”) issued ASBJ Statement No.13, “Accounting Standard
for Lease Transactions,” which revised the previous accounting
standard for lease transactions issued in June 1993. The revised
accounting standard for lease transactions is effective for fiscal
years beginning on or after April 1, 2008.
(Lessee)
Under the previous accounting standard, finance leases that weredeemed to transfer ownership of the leased property to the lessee were to be capitalized. However, other finance leases werepermitted to be accounted for as operating lease transactions if
certain “as if capitalized” information is disclosed in the notes tothe lessee’s financial statements. The revised accounting standard
requires that all finance lease transactions should be capitalized torecognize lease assets and lease obligations in the balance sheet.
In addition, the accounting standard permits leases which existed
at the transition date and do not transfer ownership of the leased
property to the lessee to be accounted for as operating leasetransactions.
The Group applied the revised accounting standard effective
April 1, 2008. In addition, the Group accounted for leases which
existed at the transition date and did not transfer ownership of theleased property to the lessee as operating lease transactions. The
effect of this change was not material.
(13) Accounting for significant hedges
a. Interest risk hedges
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 aparticular item. Such hedges, limited to certain assets and liabilities,
are accounted for by the deferred method or, where appropriates
interest rate swaps are involved, by the special rule method.
The effectiveness of hedges is assessed as follows: the subsidiaries specify hedges items according to their risk management
regulations, with the aim of centralizing of hedge instruments, andverify the extent to which exposure of interest rate risks on hedged
items is mitigated.

b. Foreign currency risk hedges
The Banks hedge currency exchange fluctuation risks arising fromtheir foreign currency denominated financial assets and liabilities.
Such hedges are accounted for by the deferred method specified
in the “Accounting and Auditing Treatments in Banking Businessin Accounting for Foreign Currency Denominated Transactions andOthers” (JICPA Industry Audit Committee Report No. 25).
The effectiveness of hedges is assessed as follows: where currency swap transactions and exchange swap transactions are usedas hedging instruments to offset exchange fluctuation risks arisingfrom foreign currency denominated financial assets and liabilities, it
is assessed by verifying the agreement of the amounts of the designated hedging instruments corresponding to the hedged foreign
currency financial assets and liabilities.
c. The Company and consolidated non-banking subsidiaries are
not engaged in hedging operations using derivative transactions.
(14) Per share information
Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number ofshares of common stock outstanding for the period.
Diluted earnings per share reflects the potential dilution that
could occur if preferred stock were converted into common stock.
(15) Accounting for consumption taxes
National and local consumption taxes are accounted for by the tax
exclusion method.
However, a part of consumption taxes on equipment and premises that no longer qualifying for exclusion is expensed as incurred.
(16) Accounting for income taxes
The provision for income taxes is computed based on pretax
income included in the consolidated statements 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 basesof assets and liabilities. Deferred taxes are measured by applying
currently enacted tax laws to the temporary differences.
(17) Cash and cash equivalents in consolidated statements ofcash flows
Cash and cash equivalents consist of cash on hand and demand
deposits with the Bank of Japan.

4. Trading Accounts
Trading accounts as of March 31, 2011 and 2010 are as follows:

AssetsMillions of yen
2011
2010

Thousands of
U.S. dollars
2011

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

¥3,7445,559¥9,303¥4,027
5,630¥9,657$ 45,029
66,859$111,888

Liabilities

Millions of yen
2011
2010

Thousands of
U.S. dollars
2011

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

¥2,690¥2,690$32,352$32,352¥2,719¥2,719Hokuhoku Financial Group, Inc. Annual Report 201133

5. Securities

8. Tangible Fixed Assets

Securities as of March 31, 2011 and 2010 are as follows:
Millions of yen
2011
2010

Japanese government bonds ......... ¥1,234,236 ¥ 943,420
Japanese local government bonds ...
463,044415,213
Japanese corporate bonds.............
397,141
428,380
Japanese stocks ...........................
137,478
138,915
Other securities ............................
94,607
87,576
Total ............................................ ¥2,326,508 ¥2,013,505

Thousands of
U.S. dollars
2011$14,843,499
5,568,786
4,776,205
1,653,376
1,137,794$27,979,660

Accumulated depreciation amounted to ¥100,270 million($1,205,899 thousand) and ¥96,929 million as of March 31, 2011
and 2010, respectively.
The book value of tangible fixed assets adjusted for gains on salesof replaced assets amounted to ¥3,896 million ($46,865 thousand)and ¥3,898 million as of March 31, 2011 and 2010, respectively.
Tangible fixed assets as of March 31, 2011 and 2010 are as
follows:
Millions of yen
2011
2010

6. Loans and Bills Discounted
Loans and bills discounted as of March 31, 2011 and 2010 are as
follows:
Millions of yen
2011
2010

Bills discounted............................. ¥ 64,990 ¥ 68,519
Loans on bills ...............................
421,681444,820Loans on deeds ............................ 5,783,554 5,539,629
Overdrafts ....................................
954,410928,231
Total ............................................ ¥7,224,636 ¥6,981,201

Thousands of
U.S. dollars
2011

781,601
5,071,336
69,555,677
11,478,172$86,886,786

Loans to borrowers
under bankruptcy proceedings ..... ¥ 13,246
Overdue loans .............................. 172,668
Loans overdue
for at least three months .............
719
Restructured loans ........................
37,235
Total ............................................ ¥223,869

Thousands of
U.S. dollars
2011¥ 17,732
184,050$ 159,306
2,076,587

746
16,083¥218,612

8,650
447,812$2,692,355

These amounts represent the gross amounts before deductionof the allowance for loan losses.

7. Foreign Exchanges
Foreign exchanges as of March 31, 2011 and 2010 are as follows:
Millions of yen
2011
2010

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

Thousands of
U.S. dollars
2011¥10,134
1,584
1,515¥13,234¥ 8,167
1,104
1,905¥11,178$121,887
19,06018,223$159,170

¥

¥

$

¥

29
81
19
131

¥

34
104
3
142

¥ 37,001
65,282
1,059
441
8,382
¥112,167¥ 37,754
64,744
835
527
8,591
¥112,453$ 445,001
785,118
12,7395,308
100,816$1,348,982$

Loans and bills discounted include loans to borrowers underbankruptcy proceedings, overdue loans, loans overdue for at least
three months and restructured loans.
The amounts of these loans are as follows:
Millions of yen
2011
2010

Buildings ......................................
Land.............................................
Lease assets ................................
Construction in progress................
Other tangible fixed assets ............
Total ............................................

Thousands of
U.S. dollars
2011

360
983
235
$ 1,578

9. Customers’ Liabilities for Acceptances and Guarantees
All contingent liabilities arising from acceptances and guarantees
are reflected in acceptances and guarantees in liability on the
consolidated balance sheets. As a contra account, customers’
liabilities for acceptances and guarantees is also shown in asset,
which represents the Bank’s 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 ¥100,028 million($1,202,989 thousand) and ¥101,465 million as of March 31, 2011
and 2010, respectively.

10. Pledged Assets
Assets that are pledged as collateral as of March 31, 2011 and2010 are as follows:
Millions of yen
2011
2010

Assets that are pledged as collateral:
Securities ................................. ¥410,794
Loans and bills discounted ........ 311,962
Other assets.............................
—
Obligations corresponding
to collateral assets:
Deposits .................................. ¥60,334
Call money and bills sold...........
20,000Borrowed money ...................... 212,600

Thousands of
U.S. dollars
2011¥313,342
307,429130$4,940,399
3,751,798—¥ 51,212—
151,718$ 725,607
240,5292,556,825

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, 2011 and 2010:
Millions of yen
2011
2010

Securities ..................................... ¥298,481
Other assets .................................
210¥242,041
210

Thousands of
U.S. dollars
2011$3,589,681
2,527

Other assets included guarantee deposits of ¥4,266 million($51,317 thousand) and ¥4,446 million as of March 31, 2011 and2010, respectively.

34

Hokuhoku Financial Group, Inc. Annual Report 2011

11. Deposits

16. Shareholders’ Equity

Deposits as of March 31, 2011 and 2010 are as follows:
Millions of yen
2011
2010

Thousands of
U.S. dollars
2011

Current deposits, ordinary deposits,
saving deposits
and deposits at notice ................. ¥4,651,502 ¥4,365,974 $ 55,941,102
Time deposits
and installment savings.................. 4,521,653 4,482,285
54,379,479
173,900
163,227
2,091,412
Other deposits ...................................
Subtotal .............................................. ¥9,347,057 ¥9,011,487 $112,411,993
NCDs ...................................................
144,686
71,905
1,740,070
Total .................................................... ¥9,491,744 ¥9,083,392 $114,152,063

12. Borrowed Money
Borrowed money includes ¥113,500 million ($1,365,003 thousand)and ¥95,000 million of subordinated borrowed money as of March
31, 2011 and 2010, respectively.

13. Bonds Payable
Bonds payable includes ¥41,500 million ($499,098 thousand) and¥59,500 million of subordinated bonds as of March 31, 2011 and2010, respectively.

14. Revaluation Reserve for Land
Under the “Act Concerning Land Revaluation,” Hokuriku Bank,
Ltd. revaluated its own land for business operation as of March 31,
1998. The revalued 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 ¥23,800 million($286,240 thousand) and ¥23,432 million as of March 31, 2011
and 2010, respectively.

15. Capital Stock
Information with respect to capital stock of the Company as ofMarch 31, 2011 and 2010 are as follows:
2011

Number of shares:
Authorized:
Common ..................................... 2,800,000,000
Preferred (Type 1) ........................
400,000,000
Preferred (Type 2) ........................
200,000,000
Preferred (Type 3) ........................
200,000,000
Preferred (Type 4) ........................
90,000,000
Preferred (Type 5) ........................
110,000,000
Issued and outstanding:Common ..................................... 1,391,630,146
Preferred (Type 5) ........................
107,432,000

2010

2,800,000,000
400,000,000
200,000,000
200,000,000
90,000,000
110,000,000
1,391,630,146
107,432,000

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

Since May 1, 2006, Japanese banks have been subject to the
Banking Act and the Companies Act. The significant provisions in
the Companies Act that affect financial and accounting matters are
summarized below:
a. Dividends
Under the Companies Act, companies can pay dividends at any
time during the fiscal year in addition to the year-end dividend upon
resolution at the shareholders meeting. For companies that meetcertain criteria such as: (1) having a Board of Directors, (2) having
independent auditors, (3) having a Board of Corporate Auditors,and (4) the term of service of the directors is prescribed as one year
rather than two years of normal term by its articles of incorporation,
the Board of Directors may declare dividends (except for dividendsin-kind) at any time during the fiscal year if the company has prescribed so in its articles of incorporation. However, the Company
cannot do so because it does not meet all the above criteria.
Semiannual interim dividends may also be paid once a year upon
resolution by the Board of Directors if the articles of incorporationof the company so stipulate. The Companies Act provides certain
limitations on the amounts available for dividends or the purchaseof treasury stock. The limitation is defined as the amount available
for distribution to the shareholders, but the amount of net assets
after dividends must be maintained at no less than ¥3 million.
b. Increases/decreases and transfer of common stock, reserve and surplus
The Banking Act requires that an amount equal to 20% of dividends
must be appropriated as a legal reserve (a component of retained
earnings) or as additional paid-in capital (a component of capitalsurplus) depending on the equity account charged upon the payment of such dividends until the total of 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 capital surplus andretained earnings can be transferred among the accounts undercertain conditions upon resolution of the shareholders.
c. Treasury stock and treasury stock acquisition rights
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of theBoard of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders
which is determined by specific formula.
Under the Companies Act, stock acquisition rights, which werepreviously presented as a liability, are now 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 acquisitionrights.

Hokuhoku Financial Group, Inc. Annual Report 201135

17. Per Share Information

20. Other Expenses
Yen

Net assets per share .............................
Basic earnings per share .......................
Diluted earnings per share .....................

2011

2010

¥267.15¥ 12.08¥—¥256.94¥ 12.66¥ 12.14

Reconciliation of the differences between basic and diluted
earnings per share for the years ended March 31, 2011 and 2010
are as follows:
Millions ofyen
Net income

Thousands ofshares
Weighted
average shares

Yen
Earnings
per share

For the year ended March 31, 2011:
Basic earnings per share
Net income available
to common stockholders .......... ¥16,793

1,389,467¥12.08For the year ended March 31, 2010:
Basic earnings per share
Net income available
to common stockholders .......... ¥17,600
Effect of dilutive securities
Preferred stock..........................
—
Diluted earnings per share
Net income for computation ....... ¥17,600

1,389,936¥12.66

59,642
1,449,578¥12.14

Fees and commissions for the years ended March 31, 2011 and2010 are as follows:
Millions of yen
2011
2010

¥11,128
11,4605,241
11,214¥39,045¥10,904
11,702
5,826
11,430¥39,863

Millions of yen
2011
2010

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

¥ 1,943
10,471¥12,414

21. Income Taxes
The Company and its domestic subsidiaries are subject to Japanesenational and local income taxes which, in the aggregate, resulted ina normal effective statutory tax rate of approximately 40.43% for
the years ended March 31, 2011 and 2010, respectively.
The tax effects of significant temporary differences and tax loss
carryforwards which generated deferred tax assets and liabilities at
March 31, 2011 and 2010 are as follows:
Millions of yen
2011
2010

18. Fees and Commissions

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

Included in other expenses for the fiscal year ended March 31, 2011
and 2010 were write-offs of loans and bills discounted of ¥1,038
million ($12,488 thousand) and ¥3,941 million, impairment losses
on stocks and other securities of ¥2,762 million ($33,220 thousand)and ¥2,151 million, and losses on sales of loans of ¥1,341 million($16,130 thousand) and ¥1,223 million, respectively.

¥ 1,985
10,002¥11,987

Thousands of
U.S. dollars
2011$133,833
137,835
63,040134,872$469,580
Thousands of
U.S. dollars
2011$ 23,375
125,931$149,306

Deferred tax assets:
Allowance for loan losses .......... ¥ 64,484
Depreciation .............................
1,885
Reserve for employee
retirement benefits .................
17,422
Loss on valuation of securities ...
14,545
Other .......................................
6,410
Operating loss carryforwards .....
20,641
Subtotal............................... 125,389
Less: Valuation allowance .........
43,302
Total deferred tax assets ...............
82,086
Deferred tax liabilities:
Valuation difference on
available-for-sale securities..... ¥ 5,916
Book-value correction
for securities ..........................
5,061
Land transfer through merger....
3,672
Other .......................................
3,864
Total deferred tax liabilities ............
18,514
Net deferred tax assets ................. ¥ 63,572¥ 68,614
1,783$ 775,518
22,675

17,291
13,695
5,599
27,405
134,390
42,38892,002

209,529
174,930
77,091
248,248
1,507,991
520,781987,210¥ 4,900

$

5,122
3,672
3,401
17,096¥ 74,906

60,86644,164
46,474
222,661$ 764,549

For the year ended March 31, 2010
Other comprehensive income for the year ended March 31, 2010
consisted of the following:
Millions of yen
2010(a) Trading income

Millions of yen
2011
2010

Thousands of
U.S. dollars
2011

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

¥ 161
1,064
¥1,225¥ 180
1,338¥1,518$ 1,937
12,803$14,740(b) Trading losses

Millions of yen
2011
2010

Thousands of
U.S. dollars
2011

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

——

Hokuhoku Financial Group, Inc. Annual Report 2011

71,157

22. Comprehensive Income

19. Trading Income and Losses

36

Thousands of
U.S. dollars
2011

—
—

—
—

Valuation difference on available-for-sale securities ....................
Deferred gains (losses) on hedges..............................................
Revaluation reserve for land.......................................................
Share of other comprehensive income of associates
accounted for using equity method...........................................
Other comprehensive income ....................................................

¥27,438
27(124)
96¥27,438

Total comprehensive income attributable to:Millions of yen
2010

Owners of the parent.................................................................
Minority interests ......................................................................
Total comprehensive income .....................................................

¥46,637
105¥46,74223. Cash and Cash Equivalents
The reconciliation of “Cash and cash equivalents” in the consolidated statements of cash flows and “Cash and due from banks” inthe consolidated balance sheets as of March 31, 2011 and 2010
are as follows:
Millions of yen
2011
2010

Cash and due from banks
in balance sheet ......................... ¥406,848
Due from banks except for
deposits with the Bank of Japan... (92,741)
Cash and cash equivalentsin the statements of cash flows.... ¥314,107

Thousands of
U.S. dollars
2011¥390,229$4,892,949(128,462)(1,115,347)¥261,766$3,777,602

24. Commitment Lines
Loan agreements and commitment line agreements relating toloans are agreements which oblige the Group to lend funds up to acertain limit agreed in advance. The Group makes the loans upon
the request of an obligor to draw down funds under such loan
agreements as long as there is no breach of the various terms andconditions stipulated in the relevant loan agreement. The unused

commitment balance relating to these loan agreements amounted
to ¥2,248,883 million ($27,046,108 thousand) and ¥2,240,812
million as of March 31, 2011 and 2010, respectively, out of which,¥2,200,298 million ($26,461,798 thousand) and ¥2,193,751 million
related to loans where the term of the agreement is one year or lessor unconditional cancellation of the agreement is allowed at any
time, as of March 31, 2011 and 2010, respectively.
In many cases, the term of the agreement runs its course
without the loan ever being drawn down. Therefore, the unusedloan commitment will not necessarily affect future cash flows.
Conditions are included in certain loan agreements which allow
the Group either to decline the request for a loan draw down or
to reduce the agreed limit amount where there is due cause to doso, such as when there is a change in financial condition or when
it is necessary to do so in order to protect the Group’s credit. The
Group takes various measures to protect its credit. Such measures
include having the obligor pledge collateral to the Group in the formof real estate, securities etc. on signing the loan agreement or, in
accordance with the Group’s established internal procedures,confirming the obligor’s financial condition etc. at regular intervals.

25. Segment Information
In March 2008, the ASBJ revised ASBJ Statement No. 17 “Accounting Standard for Segment Information Disclosures” and issued ASBJ
Guidance No. 20 “Guidance on Accounting Standard for Segment Information Disclosures.” Under the standard and guidance, an entity
is required to report financial and descriptive information about its reportable segments. Reportable segment are operating segments oraggregations 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. This accounting standard and theguidance are applicable to segment information disclosures for the fiscal years beginning on or after April 1, 2010. The segment information
for the year ended March 31, 2010 under the revised accounting standard is also disclosed hereunder as required.
(1) Outline of reportable segments
The Group’s reportable segment is defined as an operating segment for which discrete financial information is available and examined by the
Board of Directors and Management Committees regularly in order to make decisions about resources to be allocated to the segment andassess its performance.
The Group comprehensively conducts banking business as a core and other financial services under the control of the Company.
The Company recognized each of consolidated subsidiary as an operating segment. Therefore, Hokuriku Bank and Hokkaido Bank arereportable segments.
(2) Method of calculating ordinary income, profit (loss), assets, liabilities and others amount by reportable segments
Method of calculation applied to the reported operating segments is same as described in “Significant Account Policies.” Profits of operating
segments are same as the net income. Ordinary income from intersegment transactions is based on transaction price determined in thesame manner as ordinary income from outside customers.

Hokuhoku Financial Group, Inc. Annual Report 201137

(3) Information on ordinary income, profit (loss), assets, liabilities and others amount by reportable segments
Segment results for the years ended March 31, 2011 and 2010 are as follows:
Millions of yen
2011
Reportable segments
Hokuriku Bank Hokkaido Bank

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

Subtotal

Othersegment

Total

Reconciliation

Consolidated¥ 107,996
890
108,887
11,9186,079,002¥5,852,392¥

86,896106
87,002
7,767
4,448,519¥4,294,977¥

194,892997
195,889
19,686
10,527,522¥10,147,369¥19,829
6,809
26,6391,417
96,937¥86,341¥

214,722
7,806
222,529
21,103
10,624,459¥10,233,711¥(49)(7,806)(7,856)(2,698)(39,405)¥(75,315)¥

214,672—
214,672
18,404
10,585,054¥10,158,395

¥

4,360
—
—

¥

3,808
—
—

¥

8,168
—
—

¥

419
—
—

¥

8,588
—
—

¥

454
2,405
28,205

¥

9,042
2,405
28,205

¥

7,925

¥

2,258

¥

10,184¥279¥

10,463

¥

(193)

¥

10,270Reconciliation

Consolidated

Millions of yen
2010
Reportable segments
Hokuriku Bank Hokkaido Bank

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

Subtotal

Othersegment

Total¥ 226,702
7,683
234,386
26,414
10,156,956¥ 9,782,274¥

55(7,683)(7,627)(7,202)(49,748)¥(87,391)¥¥ 112,467
1,299
113,767
15,656
5,852,721¥5,637,902¥

93,65845
93,704
10,384
4,196,534¥4,045,790¥

206,126
1,345
207,472
26,041
10,049,256¥ 9,683,693¥ 20,576
6,337
26,914
373
107,700¥ 98,581

226,758—
226,758
19,212
10,107,208¥ 9,694,883

¥

3,523
—
—

¥

3,591
—
—

¥

7,114
—
—

¥

376
—
—

¥ 7,491
—
—

¥

740
2,405
30,611

¥

8,231
2,405
30,611

¥

6,290

¥

4,389

¥

10,679¥198¥ 10,878¥

1¥

10,880Total

Reconciliation

Thousands of U.S. dollars
2011
Reportable segments
Hokuriku Bank Hokkaido Bank

Ordinary income
Ordinary income from outside customers .......................... $ 1,298,815 $ 1,045,054 $ 2,343,869
Ordinary income from intersegment transactions ...............
10,711
1,280
11,991
Total .................................................................................. 1,309,526
1,046,334
2,355,860
Segment profit ....................................................................
143,339
93,415
236,754
Segment assets .................................................................. 73,108,868 53,499,938 126,608,806
Segment liabilities ............................................................... $70,383,552 $51,653,363 $122,036,915
OthersDepreciation ................................................................... $52,439 $45,801 $98,240
Amortization of goodwill ...................................................
———
Unamortized balance of goodwill .....................................
———
Increase in tangible fixed assets and intangible
fixed assets................................................................... $95,318 $27,164 $122,482(4) Geographic segment information
There is no geographic segment accounting for 10% or more of ordinary income.
(5) Information by major customer
There are no major customers individually accounting for 10% or more of ordinary income.

38

Hokuhoku Financial Group, Inc. Annual Report 2011

Other
segment

Subtotal

Consolidated$ 238,477 $ 2,582,346 $(591) $ 2,581,755
81,89993,890(93,890)—
320,376
2,676,236(94,481)
2,581,755
17,046
253,800(32,454)
221,346
1,165,818 127,774,624 (473,912) 127,300,712$1,038,386 $123,075,301 $(905,784) $122,169,517$

5,049 $——

103,289 $ 5,463—
28,932—339,211$

108,752
28,932339,211$3,356 $

125,838 $ (2,324) $123,514

26. Lease Transactions(1) Finance Lease Transactions(Lessee)
The Group leases ATMs, computer equipment, software and otherassets.
As discussed in Note 3 (12), the Group accounts for leases
which existed at the transition date and do not transfer ownershipof the leased property to the lessee as operating lease transactions.
Pro forma information for such leases existing at the transition
date for the years ended March 31, 2011 and 2010 are described
below.
Pro forma information with respect to the leased property, suchas acquisition cost, accumulated depreciation and net book value
at March 31, 2011 and 2010 are as follows:

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

Millions of yen
2011
2010

Thousands of
U.S. dollars
2011¥3,0262,497¥ 529$36,397
30,034$ 6,363¥3,2262,181¥1,045

Pro forma amounts of obligations under finance leases at March
31, 2011 and 2010 are as follows:
Millions of yen
2011
2010

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

¥420
108
¥529

¥ 516
529
¥1,045

Thousands of
U.S. dollars
2011

Pro forma information concerning lease payments and depreciation expenses for the years ended March 31, 2011 and 2010
are as follows:
Millions of yen
2011
2010

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

¥516
516

¥652
652

Thousands of
U.S. dollars
2011$6,2096,209

The method of calculating the pro forma amounts of depreciation expenses for the years ended March 31, 2011 and 2010 are
as follows:
Depreciation is computed based on the straight-line method
over the period of lease, with no residual value.
(2) Operating Lease Transactions(Lessee)
The minimum rental commitments under noncancelable operatingleases as of March 31, 2011 and 2010 are as follows:
Millions of yen
2011
2010

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

¥213
118
¥332

¥212
323
¥535

Thousands of
U.S. dollars
2011$2,573
1,425$3,998$5,0591,304$6,36327. Retirement Benefits(a) Overview of the Group’s retirement benefit plans
The Hokuriku Bank, Ltd. which had provided three defined benefit retirement programs, corporate pension, tax qualified pension and retirement bonus, terminated tax qualified pension and migrated with a portion of retirement bonus to 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 ofprojected benefit obligations in conformity with the standards for accounting for retirement benefits. The Minister of Health, Labor and Welfare
approved on February 17, 2003 that Hokuriku Bank Ltd. would be relieved of the obligation to administer the future payment service of thegovernment mandated portion of its employees pension fund. The Hokuriku Bank, Ltd. was further approved on March 1, 2005 to switchfrom the employees pension fund to a corporate pension fund.
The Hokkaido Bank, Ltd. provides defined benefit arrangements that combine a retirement lump sum grant and an employees pension
fund plan. The Hokkaido Bank, Ltd. was approved by the Minister of Health, Labor and Welfare on March 26, 2004 to be relieved of theobligation to administer the future payment service of the government mandated portion of the employees 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 fromwhich they each come.
The Banks have established benefit trust arrangements as a part of their plan assets.
(b) Retirement benefit
Millions of yen
2011
2010

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

¥(87,912)
54,663(33,248)
7,513
22,014(1,208)(4,929)2,850¥ (7,779)¥(92,643)
58,473(34,170)
9,474
19,055(1,251)(6,892)
1,260¥ (8,153)

Thousands of
U.S. dollars
2011$(1,057,273)
657,410(399,863)
90,358
264,759(14,536)(59,282)
34,279$ (93,561)

Hokuhoku Financial Group, Inc. Annual Report 201139

(c) Retirement benefit expenses

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

Millions of yen
2011
2010

Thousands of
U.S. dollars
2011¥1,882
2,069(1,989)
(417)
2,665
1,899
144
¥6,254
1,248¥7,503$22,640
24,888(23,927)(5,018)32,057
22,843
1,739$75,222
15,018$90,240¥2,1092,097(1,826)(1,252)
4,341
1,894
152
¥7,517—¥7,517(d) Assumptions for calculation of projected benefit obligations(1) Discount rate .........................................................................................................................................
(2) Expected rate of return on pension assets................................................................................................
(3) Method of benefit attribution ...................................................................................................................
(4) Period of amortization of unrecognized prior service costs ........................................................................
(5) Period of amortization of unrecognized actuarial differences .....................................................................
(6) Period of amortization of transitional obligation.........................................................................................

2011

2010

2.0% – 2.5%
3.5% – 4.0%
Straight-line method
8 years
8 or 9 years
Mainly 15 years

2.0% – 2.5%
3.5% – 4.0%
Straight-line method
8 or 9 years
8 or 9 years
15 years

28. Financial Instruments and Related Disclosures(1) Group Policy on financial instruments
The Group provides a wide variety of financial services, centered on banking services such as deposit-taking and lending.
Our lending activities are aimed at achieving co-prosperity with the regional economy and we endeavor to manage our lending in a soundand appropriate manner, while simultaneously working to strengthen credit risk management.
Investments in securities are strictly managed based on the Group’s risk management policies and regulations. Regarding deposit-taking
operations, the Group aims to ensure stable fund raising the expansion and upgrading of financial services for all customers in the region.
Borrowed money and corporate bonds are considered a means of medium-to long-term fundraising.
Given the different term structures of the Group’s financial assets such as loans and financial liabilities such as deposits, it is exposed tointerest-rate fluctuation risk in the financial markets. For this reason, the Group 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 which
could cause financial loss to the Group, such as declines or losses in asset value resulting from a possible deterioration in the financial condition of borrowers. With regard to securities, the Group is exposed to the credit risk of issuers, interest-rate risk, and market price volatility risk.
However, the Group takes adequate steps to diversify these risks.
Financial liabilities, including deposits and borrowed money, are exposed to liquidity risk arising from the possibility that the Group may 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, aswell as interest-related derivatives such as interest-rate swaps, interest-rate futures, and interest-rate caps, to meet the ALM needs of the
Banks themselves as well as the various needs of the Bank’s customers. These derivatives are exposed to the following risks among others:interest-rate risk, the risk of exchange rate fluctuations, price volatility risk, and credit risk.
However, none of the Group’s financial assets and liabilities are attended by notably high risk levels, nor do they include any particularderivatives with high market price volatility.
The Hokuriku Bank, Ltd. applies hedge accounting to hedge the value of some of its assets and liabilities against interest-rate fluctuations.
When applying hedge accounting, the Hokuriku Bank, Ltd. adopts integrated management in both hedging instruments and hedged items aslong as hedging is installed and evaluates the effectiveness of the hedges.
(3) Risk management for financial instruments
The Banks have established risk management departments and have stipulated basic regulations for risk management and other regulations
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 effectively. Changes in40

Hokuhoku Financial Group, Inc. Annual Report 2011

regulations and organizational structures of the Banks are under review or supervision of the Company to conform to the Group’s policy andthe results of above committees are reported to the Company.
(a) Credit Risk Management
The Group’s fundamental policy is to strive for improved earnings and ensure sound business operations through the appropriate management of credit risk. In line with this policy, the Company and the Banks collaborated in establishing various regulations, including Credit
Risk Management Regulations, and also ensuring the effective operation of internal checking functions by separating business promotion
departments from credit risk management departments. Rigorous screening is also conducted and credit ratings are granted based on theirCredit Policy. Additionally the setting of credit limits is managed on an individual customer basis to avoid the risk of an overconcentrationof loans in particular sectors. Finally, the Banks carry out self-assessment procedures and credit risk quantification and the risk situation isregularly reported to the Banks’ Board of Directors.
As for loan screening process of the Banks, the branches concerned carefully analyze each separate loan application and screen eachcustomer 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 carry out its own analysis and screening. Specialized staff members in place within thescreening departments are responsible for particular industries and geographical areas. These specialists provide the appropriate advice andguidance to the branches based on the particular features of the customer.
Concerning the creditworthiness of security issuers and counterparty risk in derivatives transactions, credit information and the state oftransactions are regularly monitored and managed in the risk 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 andother committees, the Banks appropriately control market risk associated with lending and deposit-taking in order to ensure stable earnings.
Interest Rate Risk Management
The risk management departments of the Banks regularly and comprehensively grasp the interest rates and time-frames involved in the
Bank’s financial assets and liabilities and monitor interest risk levels through methods such as gap analysis and sensitivity analysis of interest
rate, based on the Banks’ Interest Rate Risk Management Regulations and other related regulations where the methods and procedures tobe employed for risk management are described in detail.
The Banks set ceiling amounts for each type of interest rate risk to control it appropriately. Derivatives such as interest-rate swaps
and interest-rate caps are employed from ALM perspective, so that the Banks reduce interest rate risk by hedging against interest rate
fluctuations.
Foreign Exchange Risk Management
Using measures like currency swaps to reduce foreign exchange risk, the Banks manage exchange risk arising from fluctuations in foreignexchange rates that affect the values of assets and liabilities denominated in foreign currencies.
Price Volatility Risk Management
In investment 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 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 the stocks held by the Banks are
acquired and held for long-term strategic purposes. The Banks monitor the market conditions and financial positions of the securities issuers.
Value at Risk (VaR) and other methods is used to determine the amount of market risk for each securities held. The staffs of the responsible
departments make regular reports to the Banks’ Board of Directors and Management Committees so that they confirm the price risk iscontrollable and all rules pertaining to market risk management are being followed correctly.
Derivatives
The Banks arrange organizational structure securing separation and internal check-and-balance mechanism among front sections (specializing in market transactions), middle sections (engaging in risk management) and back sections (responsible for book entries and settlements).
Management sections confirm the validity of transactions, value the Banks’ daily derivatives positions, and measure gains and losses as wellas risk levels. Derivative transactions are carefully managed in such a way that losses never exceed a predetermined maximum.
Quantitative Information related to Market Risk
Hokuriku Bank and Hokkaido Bank respectively measure quantitative information related to market risk.
• Financial instruments in the trading account
Hokuriku Bank
In calculating VaR for trading securities and a portion of currency-related and interest-related derivatives transactions held in trading
account, Hokuriku Bank adopts the variance-covariance method as its measurement method (a holding period of ten business day, aconfidence interval of 99%, and main observation period of 250 business days).
As of March 31, 2011, the market risk amount (VaR) of the trading business of the bank was ¥31 million.
Hokkaido Bank
Hokkaido Bank has no financial instruments in the trading accounts.

Hokuhoku Financial Group, Inc. Annual Report 201141

• Financial instruments in the banking account
Hokuriku Bank
The main financial instruments in Hokuriku Bank, which are affected by interest rate risk, and typical risk parameter in the bank, are“Monetary claims bought,” “Loans and bills discounted,” “Bonds,” “Deposits,” “Borrowed money,” and transactions of interest rate
swaps and interest rate caps held in derivatives transactions.
With regard to financial assets and liabilities which are significantly exposed to interest rate risk, their balances are divided adequately
by interest terms and are measured by using interest rate change for each group of the interest terms. The bank also calculates 100BPV(100 Bases Points Value) of the assets and liabilities and change in their present value on the assumption that index interest rate rises by
1.00%. The 100BPV as of March 31, 2011 was ¥50,691 million decrease.
The correlations between interest and the other parameters are not considered, because the VaR is measured on the assumptionthat risk parameters except interest rate remain unchanged. Actual risk can exceed the calculated VaR in case of the drastic change ininterest rate beyond reasonable prior expectation occurs.
Hokuriku Bank measures VaR for bonds and listed stocks, the main financial instruments affected by market value. In calculating the
VaR, the bank adopts variance-covariance method as its measurement method (a holding period of 120 business day, a confidence
interval of 99%, and main observation period of 250 business days).
As of March 31, 2011, the market risk amount was ¥31,106 million for yen-denominated bonds and ¥27,189 million for listed stocks.
(Reference: ¥31,713 million for entire “Bonds”).
In using VaR, the bank performs back testing by 3-zone approach. VaR measures the amount of market risk by certain occurrence
probabilities which are statistically calculated based on past market movements. Therefore, there are cases in which VaR cannot capturerisk under sudden and dramatic changes in market beyond normal circumstances.
Hokkaido Bank
The main instruments in Hokkaido Bank which are affected by interest rate risk, and typical risk parameter in the bank are “Loansand bills discounted,” “Bonds,” “Deposits,” “Borrowed money,” and transactions of interest rate swaps and interest rate caps held in
derivatives transactions.
With regard to financial assets and liabilities which are significantly exposed to interest rate risk, the bank calculates 100BPV (100Bases Points Value) of the assets and liabilities and change in their present value in case in index interest rate rises by 1.00%. The
100BPV as of March 31, 2011 was ¥7,984 million decrease.
The correlations between interest and the other parameters are not considered, because the VaR is measured on the assumptionthat risk parameters except interest rate remain unchanged. Actual risk can exceed the calculated VaR in case of the drastic change ininterest rate beyond reasonable prior expectation occurs.
With regard to financial assets and liabilities, Hokkaido Bank mainly uses VaR as a method of statistical measurement and integrated
management for risks in interest rate and market price. In calculating VaR, the bank adopts variance-covariance method (a holding
period of 120 business day, a confidence interval of 99%, and main observation period of 250 business days).
As of March 31, 2011, the market risk amount (VaR) was ¥39,631 million for “Loans and bills discounted,” ¥34,391 million for“Bonds,” ¥11,643 million for listed stocks, ¥3,408 million for investment trusts and ¥45,686 million for “Deposits.”
In the above affected amount based on VaR, correlations between interest and the other parameters, including stock prices, are notconsidered for the purpose of cautiously recognizing risks. The bank periodically performs a back testing for measurement model of VaR
to ensure credibility of the model and adequate grasp of risks.
VaR measures the amount of market risk by certain occurrence probabilities which are statistically calculated based on past market
movements. Therefore, there are cases in which VaR cannot capture risk under sudden and dramatic changes in market beyond normal
circumstances.
(c) Liquidity Risk Management
In accordance with the Banks’ rules for management of liquidity risk, the Banks form an accurate appraisal of fund operations and procurement, and take measures to ensure smooth cash flows. Specifically, the Banks set benchmarks in various different categories to checkliquidity risk on a daily basis, and maintain adequate levels of high-liquidity assets that are readily convertible into cash, such as government
bonds.
We have in place mechanism for periodically assessing and managing liquidity risk through ALM committees, to prepare for every categories of concerned situations.

42

Hokuhoku Financial Group, Inc. Annual Report 2011

(4) Supplementary explanation relating to fair values of financial instruments
The fair values of financial instruments include, in addition to values determined based on market prices, valuations calculated on a reasonable basis if no market price is available. Certain assumptions are used for the calculation of such amounts. Accordingly, the result of suchcalculation may vary if different assumptions are used.
(5) Fair values of financial instrument
The fair value of the main financial instruments at March 31, 2011 and 2010 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 todetermine).
(a) Fair value of financial instruments
Millions of yen
Consolidatedbalance sheet
amountFair value¥ 406,848
85,657¥ 406,848
85,657
79,3942,217,467

698—

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

78,6952,217,467
7,224,636(75,639)
7,148,996¥9,937,666

7,230,015¥10,019,384

81,018¥81,717

Deposits ................................................................................................................................................
NCDs .....................................................................................................................................................
Borrowed money ....................................................................................................................................
Total liabilities .............................................................................................................................................

¥9,347,057
144,686
327,738¥9,819,482¥ 9,356,660
144,708
328,577¥ 9,829,946¥ 9,603
22
839¥10,464¥¥¥

March 31, 2011

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

Unrealized gain
(losses)¥——

Derivative transactions (*2)
Derivative transactions not qualifying for hedge accounting .......................................................................
Derivative transactions qualifying for hedge accounting .............................................................................
Total derivative transactions.........................................................................................................................

¥March 31, 2010

Consolidatedbalance sheet
amountFair value¥ 390,229
104,992¥ 390,229
104,992
74,6191,908,451

791—

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

73,827
1,908,451
6,981,201(82,289)6,898,912¥9,376,413

6,976,319¥9,454,613

77,407¥78,199

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

¥9,011,487
248,175¥9,259,663¥9,025,859
248,294¥9,274,154¥14,372119¥14,491

¥

¥

¥

6,959
(931)
6,028

¥

6,959
(931)
6,028

—
(*3) —¥—

Millions of yen

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

Derivative transactions (*2)
Derivative transactions not qualifying for hedge accounting .......................................................................
Derivative transactions qualifying for hedge accounting .............................................................................
Total derivative transactions.........................................................................................................................

¥

5,786
3,132
8,918

¥

5,786
3,132
8,918

Unrealized gain
(losses)¥———(*3) —¥—

Hokuhoku Financial Group, Inc. Annual Report 201143

Thousands of U.S. dollars

March 31, 2011

Consolidatedbalance sheet
amountFair value

Cash and due from banks............................................................................................................................ $ 4,892,949
Monetary claims bought (*1) ........................................................................................................................
1,030,152
Securities
Bonds classified as held-to-maturity ........................................................................................................
946,431
Available-for-sale securities ....................................................................................................................
26,668,286
Loans and bills discounted ..........................................................................................................................
86,886,785
Allowance for loan losses (*1)..................................................................................................................
(909,673)
85,977,112
Total assets ................................................................................................................................................ $119,514,930$ 4,892,949
1,030,152

Deposits ................................................................................................................................................ $112,411,993
NCDs .....................................................................................................................................................
1,740,070
Borrowed money ....................................................................................................................................
3,941,527
Total liabilities ............................................................................................................................................. $118,093,590
Derivative transactions (*2)
Derivative transactions not qualifying for hedge accounting ....................................................................... $Derivative transactions qualifying for hedge accounting .............................................................................
Total derivative transactions......................................................................................................................... $83,703(11,201)
72,502Difference$——

954,835
26,668,286

8,404
—

86,951,482$120,497,704

974,370$982,774$112,527,483
1,740,335
3,951,625$118,219,443$115,490
265
10,098$125,853$$$

83,703(11,201)
72,502—(*3) —$—*1. Allowance for loan losses shown on this table represent the general allowance and specific allowance for loan losses. Figures for allowance for losses
on monetary claims bought are directly deducted from the balance of monetary claims bought as the amount concerned is insignificant.
*2. Derivative transactions included in trading assets & liabilities and other assets & liabilities are shown together. Assets and liabilities arising from derivative transactions are shown within parentheses with respect to net liabilities.
*3. As interest-rate swaps subject to exceptional treatment are accounted for together with the loans being hedged by the swaps, their fair value isincluded in the loans in question on the balance sheet.

Cash and due from banks
The book values of cash and due from banks approximate their fair 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 determined basedon the quoted prices obtained from the counterparty financial institutions. The fair value of small-lot monetary claims resulting from asset
liquidation is determined by discounting the cash flows at the market interest rate.
Securities
The fair values of stocks are calculated on the basis of the average price of the stocks on the stock market for the one-month period immediately preceding the last day of the accounting term. The fair values of bonds are calculated using the price indicated on the securities markets
or other officially announced price. In the event that neither of these fair values are available, the price is based on a reasonable 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, the present value is separately calculated using the present value discounted
by the market interest rate where the credit risk of each bond issuer and the remaining period of bonds are considered.
Regarding variable rate Japanese Government Bonds (the “JGBs”) that are included in the amount presented under the line item
“Securities” in the table above, prices calculated from reasonable estimates are continuously used as the Group’s own criteria for those issues
whose market price cannot be treated as fair value, according to Practical Issue Task Force No. 25, Practical Solution on Measurement ofFair Value for Financial Assets (October 28, 2008, Accounting Standard Board of Japan). In this way, compared with the statement on the
consolidated balance sheet amount of the market prices, the values have been increased for the reporting term by ¥7,453 million ($89,643
thousand) for securities and by ¥4,442 million ($53,427 thousand) for valuation difference on available-for-sale securities, and the value has
decreased by ¥3,011 million ($36,216 thousand) for deferred tax assets.
The reasonably estimated value of the JGBs is calculated using the future cash flows estimated from the bond yield rate, which is thendiscounted at a discount rate based on the same yield rate. The yield rate of the JGBs and the volatility of that yield rate are the principal
variables employed in determining the fair value of the bond.
For more detailed information regarding the different types of securities, classified according to holding purpose, see “29. Fair Value ofSecurities and Money Held in Trust (1) 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 the creditworthiness of the borrower changes subsequent to the grating of the loan. Because of this, the book value is employed as the fair value.
For loans with fixed interest rates, the fair value is calculated using the total future cash flow from principal and interest discounted bycurrent market interest rates, taking account the credit risk involved. This calculation is performed separately for each different category ofloan, classified by type of loan, internal credit ratings and maturity length. For loans whose repayment period is one year or less, the book44

Hokuhoku Financial Group, Inc. Annual Report 2011

value is a close approximation to the fair value and is therefore employed as such.
Regarding the fair value of claims on bankrupt borrowers, substantially bankrupt borrowers, and potentially bankrupt borrowers, credit
losses are estimated based on the present value of estimated future cash flows or the estimated value recoverable from collateral andguarantees. Since the fair value is approximate to the value stated on the consolidated balance sheet amount as of the settlement date,minus the present value of estimated bad debt, this figure is therefore treated as the fair value.
For the category of loans whose maturity is not fixed because of the loan ceiling set within the estimated value recoverable from thecollateral, the book value is regarded as approximate to 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 the consolidated balance sheet date (i.e., the carrying amount) is considered tobe the fair value. In addition, the fair value of time deposits is calculated by discounting the estimated future cash flows for each of the specified periods. This calculation is performed separately as per remaining maturity of time deposits. The discount rate employed is the interest
rate that would be applied to newly accepted deposits. In the event that the deposit term is one year or less, the book value is regarded as
approximate to the fair value and is therefore treated as such.
Borrowed money
Borrowed money with floating interest rates reflects market interest rates and because the credit standing of the Company and its consolidated subsidiaries has changed little since the taking out of those loans, the book value is regarded as approximate to the fair value and istherefore treated as such.
For money borrowed through loans carrying fixed rates, the current value of these loans is determined by discounting the total of theirprincipal plus interest (separately for each specific period) at the rate currency applied to other loans of the same duration and terms. For
loans whose repayment period is one year or less, the book value is regarded as being approximate to the fair value and is therefore treatedas 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-related transactions and are based on the prices on securities exchanges, discounted
value of future cash flows, option pricing models and others.
(b) Financial instruments whose fair values are deemed to be extremely difficult to determine
Financial instruments whose fair values are deemed to be extremely difficult to determine are indicated below, and are not included in “Assets
Monetary claims bought” and “Assets Available-for-sale securities” in the fair value information of financial instruments.
Consolidated balance sheet amountMarch 31
Monetary claims bought (Subordinated beneficiary right in securitization of mortgage loans) (*1) .................................
Unlisted stocks (*1) (*2) ...........................................................................................................................................
Unlisted foreign securities (*1) .................................................................................................................................
Total .......................................................................................................................................................................

Thousands of
U.S. dollars
2011

Millions of yen
2011
2010

¥25,792
30,344
0¥56,137¥26,757
31,224
0¥57,982$310,193
364,935
9$675,137*1. These items are excluded from “fair value information of financial instruments” on the basis that no market price is available and a determination of thefair value would be extremely difficult.
*2. Unlisted stocks were written down by ¥500 million ($6,018 thousand) and ¥336 million as of March 31, 2011 and 2010, respectively.

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

March 31, 2011

Within 1 year

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

¥ 289,107
1,872
238,077
8,384
1,500
6,884
—
229,693
149,600
12,50863,256
4,328
2,263,824¥2,792,882

After 1 year
through 3 years

Millions of yen
After 3 years
through 5 years

After 5 years
through 7 years

After 7 years

¥

¥

¥

¥

—
1,050
413,185
18,772
5,000
13,772—
394,413
114,100
110,069
146,144
24,0991,403,014¥1,817,249——
431,460
23,5638,500
15,063—407,897
180,800
148,047
63,39815,651
1,070,864¥1,502,324——
190,736
15,362—
11,162
4,200
175,374
130,800
20,143
11,78812,641
530,622¥721,358—
82,479879,332
12,745
12,500245—
866,587
618,600
164,730
63,056
20,2001,729,407¥2,691,219

Hokuhoku Financial Group, Inc. Annual Report 201145

March 31, 2010

Within 1 year

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

¥ 274,482
2,182
135,112
8,765
—
8,765
—
126,347
26,60027,774
66,395
5,576
2,334,580¥2,746,357

March 31, 2011

Within 1 year

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

$ 3,476,939
22,5202,863,234
100,830
18,04082,790—2,762,404
1,799,161
150,430
760,754
52,05927,225,786$33,588,479

After 1 year
through 3 years

Millions of yen
After 3 years
through 5 years

After 5 years
through 7 years

After 7 years

¥

¥

¥

¥

—
1,434
369,925
16,1291,529
14,600—353,796
122,600
72,347
143,560
15,2891,230,505¥1,601,865

After 1 year
through 3 years$—
12,6284,969,156
225,761
60,132
165,629—
4,743,395
1,372,219
1,323,752
1,757,596
289,828
16,873,294$21,855,078—
1,450
399,21218,7808,000
10,780—380,432
127,100
147,512
93,113
12,706993,218¥1,393,881——
273,371
20,610—15,945
4,665
252,761
200,100
30,681
8,679
13,300557,966¥831,337—
100,201
658,003
9,775
7,000
775
2,000
648,228
439,200
128,967
61,121
18,938
1,621,643¥2,379,849

Thousands of U.S. dollars
After 3 years
After 5 years
through 5 years
through 7 years$——
5,188,938
283,380
102,225
181,155—
4,905,558
2,174,384
1,780,487
762,459
188,228
12,878,706$18,067,644$——
2,293,880
184,750—
134,239
50,5112,109,130
1,573,061
242,256
141,778
152,035
6,381,509$8,675,389

After 7 years$—
991,937
10,575,253
153,277
150,331
2,946—
10,421,976
7,439,571
1,981,119
758,349
242,937
20,798,653$32,365,843

Loans and bills discounted
Claims on bankrupt borrowers, substantially bankrupt borrowers, and potentially bankrupt borrowers amounted to ¥185,914 million($2,235,893 thousand) and ¥201,782 million as of March 31, 2011 and 2010, respectively, and loans with no contractual maturities amounted
to ¥40,988 million ($492,945 thousand) and ¥41,502 million as of March 31, 2011 and 2010, respectively. They are not included in the table
above.
(7) Maturity analysis for financial liabilities with contractual maturities
After 5 years
through 7 years

After 7 years

March 31, 2011

Within 1 year

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

¥7,980,165
144,686
213,144¥8,337,996¥1,133,881—
533¥1,134,415¥229,264—260¥229,524¥ 1,417—32,500¥33,917¥ 2,328—
81,000¥83,328

March 31, 2010

Within 1 year

After 1 year
through 3 years

Millions of yen
After 3 years
through 5 years

After 5 years
through 7 years

After 7 years

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

¥7,413,741
153,454¥7,567,195¥1,221,836
579¥1,222,415¥372,602
2,332¥374,935¥ 1,305
29,010¥30,315¥ 2,000
62,500¥64,500

Within 1 year

After 1 year
through 3 years

Deposits .......................................................................................... $ 95,973,122
NCDs ..............................................................................................
1,740,070
Borrowed money ..............................................................................
2,563,374
Total ............................................................................................... $100,276,566$13,636,582—
6,415$13,642,997

March 31, 2011

46

Millions of yen
After 3 years
through 5 years

After 1 year
through 3 years

Hokuhoku Financial Group, Inc. Annual Report 2011

Thousands of U.S. dollars
After 3 years
After 5 years
through 5 years
through 7 years$2,757,235—
3,127$2,760,362$ 17,051—
390,860$407,911

After 7 years$

28,004—
974,143$1,002,147

Deposits
Demand deposits are included in the “Within 1 year.”

29. Fair Value of Securities and Money Held in Trust(1) Securities
The fair value of securities at March 31, 2011 and 2010 were as follows:
1. The amounts shown in the following tables include trading securities classified as “Trading assets,” negotiable certificates of deposit
bought classified as “Cash and due from banks,” and commercial paper and beneficiary claims on loan trusts classified as “Commercial
paper and other debt purchased,” in addition to “Securities” stated in the consolidated balance sheets.
2. Investments in subsidiaries and affiliates have no market quotations.
(a) Securities classified as trading purposes

March 31
Valuation gains included in earnings for the fiscal year ...............................................................................................

Millions of yen
2011
2010

¥4

¥30

Thousands of
U.S. dollars
2011

$57

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

TypeConsolidatedbalance sheet
amountFair value

Japanese government bonds ...................................................................
Japanese corporate bonds.......................................................................
Other .....................................................................................................
Subtotal..................................................................................................

¥19,656
30,551
1,197
51,405¥20,106
30,9201,199
52,227

¥449
369
2
821

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

8,062
16,2273,000
27,290¥78,695

8,025
16,153
2,988
27,167¥79,394

(36)
(74)
(11)
(122)
¥698

March 31, 2011

Bonds whose fair values exceed
the consolidated balance
sheet amount

Bonds whose fair values do not
exceed the consolidatedbalance sheet amount

Unrealized gains(losses)Millions of yen

TypeConsolidatedbalance sheet
amountFair value

Japanese government bonds ...................................................................
Japanese corporate bonds.......................................................................
Other .....................................................................................................
Subtotal..................................................................................................

¥16,40937,816—54,225¥16,855
38,292—55,147

¥445
476
—
922

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

—
12,943
6,659
19,602¥73,827—
12,8496,622
19,472¥74,619

—
(93)
(36)
(130)
¥791

March 31, 2010

Bonds whose fair values exceed
the consolidated balance
sheet amount

Bonds whose fair values do not
exceed the consolidatedbalance sheet amount

Unrealized gains(losses)Thousands of U.S. dollars

Type

Consolidatedbalance sheet
amountFair value

Unrealized gains(losses)

Japanese government bonds ...................................................................
Japanese corporate bonds.......................................................................
Other .....................................................................................................
Subtotal..................................................................................................

$236,403
367,427
14,397618,227$241,811
371,867
14,429628,107$5,408
4,440
32
9,880

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

96,965
195,160
36,079328,204$946,431

96,520194,268
35,940326,728$954,835

(445)
(892)
(139)
(1,476)$8,404

March 31, 2011

Bonds whose fair values exceed
the consolidated balance
sheet amount

Bonds whose fair values do not
exceed the consolidatedbalance sheet amount

Hokuhoku Financial Group, Inc. Annual Report 201147

(c) Available-for-sale securities
Millions of yen
Consolidatedbalance sheet
amountAcquisition
cost¥

60,515
1,562,481
915,711375,984
270,785
95,776
1,718,773¥

48,265
1,538,105
902,383
368,291
267,430
94,147
1,680,519¥12,249
24,375
13,328
7,692
3,354
1,628
38,253

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

46,621
457,443
290,805
87,06079,57780,269584,333¥2,303,107

59,337461,219
293,206
87,72880,28484,718605,275¥2,285,794(12,715)(3,776)(2,401)(667)(707)(4,449)(20,941)¥17,312

March 31, 2010

Consolidatedbalance sheet
amountAcquisition
cost¥

59,774
1,390,982
690,918
368,713331,351
76,134
1,526,892¥

49,1971,370,681
681,188362,676
326,816
74,954
1,494,833¥10,577
20,301
9,730
6,036
4,534
1,179
32,058Stocks ....................................................................................................
Bonds ....................................................................................................
Japanese government bonds...............................................................
Japanese local government bonds .......................................................
Japanese corporate bonds ..................................................................
Other .....................................................................................................
Subtotal..................................................................................................
Total ..........................................................................................................................................................

47,918328,862
236,092
46,50046,269109,662
486,442¥2,013,335

59,447
330,371
237,206
46,633
46,530114,664
504,483¥1,999,316(11,529)(1,509)(1,114)(133)(261)(5,002)(18,040)¥14,018

March 31, 2011

Consolidatedbalance sheet
amountMarch 31, 2011

Available-for-sale securities
whose consolidated balance
sheet amount exceed
acquisition cost

Type

Stocks ....................................................................................................
Bonds ....................................................................................................
Japanese government bonds...............................................................
Japanese local government bonds .......................................................
Japanese corporate bonds ..................................................................
Other .....................................................................................................
Subtotal..................................................................................................

Available-for-sale securities
whose consolidated balance
sheet amount dose notexceed acquisition cost

Unrealized gains(losses)Millions of yen

Available-for-sale securities
whose consolidated balance
sheet amount exceed
acquisition cost

Type

Stocks ....................................................................................................
Bonds ....................................................................................................
Japanese government bonds...............................................................
Japanese local government bonds .......................................................
Japanese corporate bonds ..................................................................
Other .....................................................................................................
Subtotal..................................................................................................

Available-for-sale securities
whose consolidated balance
sheet amount dose notexceed acquisition cost

Unrealized gains(losses)Thousands of U.S. dollars

Available-for-sale securities
whose consolidated balance
sheet amount exceed
acquisition cost

Type

Stocks ....................................................................................................
Bonds ....................................................................................................
Japanese government bonds...............................................................
Japanese local government bonds .......................................................
Japanese corporate bonds ..................................................................
Other .....................................................................................................
Subtotal..................................................................................................

Stocks ....................................................................................................
Bonds ....................................................................................................
Japanese government bonds...............................................................
Japanese local government bonds .......................................................
Japanese corporate bonds ..................................................................
Other .....................................................................................................
Subtotal..................................................................................................
Total ..........................................................................................................................................................
Available-for-sale securities
whose consolidated balance
sheet amount dose notexceed acquisition cost

48

Hokuhoku Financial Group, Inc. Annual Report 2011

Acquisition
cost

Unrealized gains(losses)$

727,783
18,791,113
11,012,770
4,521,756
3,256,587
1,151,858
20,670,754$

580,464
18,497,967
10,852,481
4,429,247
3,216,239
1,132,267
20,210,698$147,319
293,146
160,289
92,50940,34819,591
460,056

560,689
5,501,423
3,497,362
1,047,030
957,031965,355
7,027,467$27,698,221

713,616
5,546,839
3,526,241
1,055,063
965,535
1,018,864
7,279,319$27,490,017(152,927)(45,416)(28,879)(8,033)(8,504)(53,509)(251,852)$208,204(d) Available-for-sale securities sold during the year ended March 31, 2011 and 2010
Millions of yen
2011

Proceeds fromsales

Gains on sales

Losses on sales

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

¥ 1,818
970,704
868,196
62,69439,813
3,921¥976,445

¥ 522
5,156
3,678
439
1,038
46
¥5,725

¥ 118
2,618
2,617
0
—
1,069
¥3,8062010

Proceeds fromsales

Gains on sales

Losses on sales

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

¥
4,214
1,275,822
1,171,022
37,54867,2516,560¥1,286,597

¥ 888
5,560
4,129
498
932
87
¥6,536

¥ 521
1,341
1,324
14
3
1,077
¥2,9402011

Proceeds fromsales

Gains on sales

Losses on sales

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

$
21,873
11,674,139
10,441,333
753,988478,818
47,165$11,743,177$ 6,285
62,01044,235
5,287
12,488561$68,856$ 1,430
31,48531,473
12—
12,867$45,782

Millions of yen

Thousands of U.S. dollars(e) Impairment (“Devaluation”) of securities

March 31
Stocks .....................................................................................................................................................................
Japanese corporate bonds........................................................................................................................................
Other ......................................................................................................................................................................
Total .......................................................................................................................................................................

Millions of yen
2011
2010

¥2,261308—¥2,569Thousands of
U.S. dollars
2011¥1,759—309¥2,069$27,202
3,705—$30,907

Millions of yen
2011
2010

Thousands of
U.S. dollars
2011¥3,99432¥4,00032$48,038
386

Millions of yen
2011
2010

Thousands of
U.S. dollars
2011(2) Money held in trust(a) Money held in trust classified as trading purposes

March 31
Consolidated balance sheet amount ..........................................................................................................................
Valuation gains (losses) included in profit/loss during the year ....................................................................................
(b) Money held in trust classified as held-to-maturity
Not applicable(c) Other money held in trust

March 31
Acquisition cost .......................................................................................................................................................
Consolidated balance sheet amount ..........................................................................................................................
Difference................................................................................................................................................................
Other money held in trust whose consolidated balance sheet amount exceed acquisition cost ..................................
Other money held in trust whose consolidated balance sheet amount dose not exceed acquisition cost ....................

¥—
—
—
—
—

¥400
400
0
0
—

$—
—
—
—
—

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

Hokuhoku Financial Group, Inc. Annual Report 201149

(3) Net unrealized gains on available-for-sale securities and other money held in trust

March 31
Net unrealized gains.................................................................................................................................................
Available-for-sale securities .................................................................................................................................
Other money held in trust .....................................................................................................................................
Net deferred taxes (liabilities) ....................................................................................................................................
Net unrealized gains (before following adjustments) ...................................................................................................
(–) Minority interests ................................................................................................................................................
(+) The Group’s interest in net unrealized gains on available-for-sale securities
held by affiliates accounted for by the equity method ..........................................................................................
Net unrealized gains.................................................................................................................................................

Millions of yen
2011
2010

Thousands of
U.S. dollars
2011¥17,312
17,312—(5,916)
11,39518¥14,018
14,0180(4,900)9,118
12$208,204
208,204—(71,157)
137,047218

42¥11,41975¥ 9,180508$137,337

March 31, 2011

Contract
value

Millions of yen
Fair
value

Recognizedgain (loss)

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

¥644,852
640,313258,297
259,061
13,237
5,911/¥10,588(4,688)(2,423)
2,443
(10)
1
¥ 5,911¥10,588(4,688)
352
2,443
576
(125)
¥ 9,147

March 31, 2010

Contract
value

Millions of yen
Fair
value

Recognizedgain (loss)

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

¥705,503
745,535
337,895
338,108
16,196
7,398/¥11,969(6,774)(3,124)
3,125
(14)
7
¥ 5,187¥11,969(6,774)
1,705
3,125
829
(183)
¥10,671

March 31, 2011

Contract
value

Thousands of U.S. dollars
Fair
value

Recognizedgain (loss)$7,755,297
7,700,702
3,106,400
3,115,594
159,199
71,098/$127,344(56,389)(29,142)
29,388(127)
15$ 71,089$127,344(56,389)
4,236
29,3886,933(1,503)$110,009

30. Derivatives(1) Derivative transactions to which hedge accounting is not applied· Interest Rate-Related Transactions

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

50

Hokuhoku Financial Group, Inc. Annual Report 2011

· Foreign Exchange-Related Transactions
Millions of yen
Fair
value

March 31, 2011

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

¥ 49,020
14,82918,054473,214473,214
/

94
660
164
(61,586)
61,586
¥ 919

94
660
164
(8,905)
19,460¥11,474

March 31, 2010

Contract
value

Millions of yen
Fair
value

Recognizedgain (loss)

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

¥ 59,686
19,741
22,409703,836
703,836/

March 31, 2011

Contract
value

Thousands of U.S. dollars
Fair
value

Recognizedgain (loss)$ 589,538
178,343
217,135
5,691,089
5,691,089/$ 1,132
7,948
1,975(740,667)
740,666$ 11,054$ 1,132
7,948
1,975(107,101)
234,039$137,993

March 31, 2011

Contract
value

Millions of yen
Fair
value

Recognizedgain (loss)

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

¥2,6012,601/¥(277)
407¥ 129¥(277)
407¥ 129

March 31, 2010

Contract
value

Millions of yen
Fair
value

Recognizedgain (loss)

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

¥1,630
1,630
/

¥255
(162)
¥ 93

¥255
(162)
¥ 93

March 31, 2011

Contract
value

Thousands of U.S. dollars
Fair
value

Recognizedgain (loss)

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

$31,288
31,288/$(3,338)
4,898$ 1,560$(3,338)
4,898$ 1,560

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

¥

¥

142
(46)
410
(62,707)62,707¥ 505

Recognizedgain (loss)

¥

¥

142
(46)
410
5,036
9,808
¥15,351· Commodity Related Transactions

At March 31, 2011 and 2010, the Group had no outstanding derivative contracts in stock related transactions, bond related transactions
and credit derivative transactions.

Hokuhoku Financial Group, Inc. Annual Report 201151

(2) Derivative transactions to which hedge accounting is applied· Interest Rate-Related Transactions
March 31, 2011
Hedge accounting method

Millions of yen
TypeMain financial instrument hedged

Swaps
Receive/floating and pay/fixed
Loans and bills discounted
Total .....................................................................................................................................................................................
Exceptional treatment forinterest swaps

Contract
value

Fair
value

¥39,300/(Note)March 31, 2010
Hedge accounting method

Millions of yen
TypeMain financial instrument hedged

Swaps
Receive/fixed and pay/floating
Loans and bills discounted
Total .....................................................................................................................................................................................
Exceptional treatment forinterest swaps

March 31, 2011
Hedge accounting method

Type

Main financial instrument hedged

Swaps
Receive/floating and pay/fixed
Loans and bills discounted
Total .....................................................................................................................................................................................
Exceptional treatment forinterest swaps

Contract
value

Fair
value

¥5,000/(Note)

Thousands of U.S. dollars
Contract
Fair
value
value

$472,640/(Note)

Note: Amounts resulting from interest swaps with exceptional treatment are accounted for together with the financial instruments thus hedged. As a result, thefair value is included in the fair value of the loans stated in “28. Financial Instruments.”· Foreign Exchange-Related Transactions
March 31, 2011
Hedge accounting method

Millions of yen
TypeMain financial instrument hedged

Swaps
Foreign securities
Forward contracts
Call loans and foreign due from banks
Total .....................................................................................................................................................................................
Accounting method employedin principle

Contract
value

Fair
value

¥ 4,989
66,798/¥1,293(2,225)¥ (931)March 31, 2010

Millions of yen
Contract
value

Fair
value

Accounting method employedin principle

Swaps
Foreign securities
Forward contracts
Call loans and foreign due from banks
Total .....................................................................................................................................................................................

¥10,234
98,188/¥1,363
1,768¥3,132

March 31, 2011

Thousands of U.S. dollars
Contract
Fair
value
value

Hedge accounting method

Hedge accounting method

Type

Type

Main financial instrument hedged

Main financial instrument hedged

Swaps
Foreign securities
Forward contracts
Call loans and foreign due from banks
Total .....................................................................................................................................................................................
Accounting method employedin principle$ 60,000
803,354/$ 15,558(26,759)$(11,201)

At March 31, 2011 and 2010, the Group had no outstanding derivatives contracts in stock related transactions, bond related transactions,commodity related transactions and credit derivative transactions.

31. Subsequent Events
Appropriations of retained earnings
The following appropriations of retained earnings at March 31, 2011 were approved at the Company’s general stockholders meeting held on
June 24, 2011:

Cash dividends, ¥3.75 per share on common stock ...................................................................................................................
Cash dividends, ¥7.50 per share on preferred stock (Type5).......................................................................................................

52

Hokuhoku Financial Group, Inc. Annual Report 2011

Millions of yen

Thousands of
U.S. dollars¥5,210805$62,6699,690

INDEPENDENT AUDITORS’ REPORT
Deloitte Touche Tohmatsu LLC
MS Shibaura Building
4-13-23, Shibaura
Minato-ku, Tokyo 108-8530
Japan
Tel:+81(3)3457 7321
Fax:+81(3)3457 1694
www.deloitte.com/jp

INDEPENDENT AUDITORS’ REPORTTo the Board of Directors of
Hokuhoku Financial Group, Inc.:
We have audited the accompanying consolidated balance sheets of Hokuhoku Financial Group, Inc. (the “Company”) andconsolidated subsidiaries as of March 31, 2011 and 2010, and the related consolidated statements of income for the years
then ended, the consolidated statement of comprehensive income for the year ended March 31, 2011, and the related
consolidated statements of changes in net assets, and cash flows for the years then ended, all expressed in Japanese yen.
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of the Company and consolidated subsidiaries as of March 31, 2011 and 2010, and the consolidated resultsof their operations and their cash flows for the years then ended in conformity with accounting principles generally acceptedin Japan.
Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, suchtranslation has been made in conformity with the basis stated in Note 1. Such U.S. dollar amounts are presented solely for theconvenience of readers outside Japan.

June 13, 2011

Member of
Deloitte Touche Tohmatsu Limited

Hokuhoku Financial Group, Inc. Annual Report 201153

NONCONSOLIDATED FINANCIAL STATEMENTSNONCONSOLIDATED BALANCE SHEETS (UNAUDITED)The Hokuriku Bank, Ltd.

2011

2010

Thousands of
U.S. dollars
2011

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

¥ 250,493
24,562
111,4316,966
1,217,508
4,252,329
6,149
60,33384,405
6,057
41,95559,288(42,478)¥6,079,002¥ 264,426
55,631
131,640
7,156
1,015,927
4,142,634
5,659
66,25883,401
4,320
53,062
69,217(46,615)¥5,852,721$ 3,012,548
295,397
1,340,128
83,788
14,642,312
51,140,462
73,952
725,595
1,015,099
72,847504,577
713,034(510,871)$73,108,868

Liabilities and net assets
Liabilities
Deposits ............................................................................................................
Call money and bills sold ...................................................................................
Trading liabilities ................................................................................................
Borrowed money ...............................................................................................
Foreign exchanges ............................................................................................
Other liabilities ...................................................................................................
Reserve for employee retirement benefits ..........................................................
Reserve for directors’ and corporate auditors’ retirement benefits......................
Reserve for contingent loss................................................................................
Reserve for reimbursement of deposits..............................................................
Deferred tax liabilities for land revaluation ...........................................................
Acceptances and guarantees ............................................................................
Total liabilities ..................................................................................................

¥5,439,922
20,0002,690
252,53877
65,300
90
231
2,145
1,207
8,901
59,2885,852,392¥5,306,740—
2,719
167,926
99
77,211
1,520
592
1,607
1,295
8,969
69,217
5,637,902$65,422,995
240,529
32,352
3,037,138
935
785,330
1,087
2,784
25,797
14,521
107,050713,034
70,383,552

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

140,409
14,99850,758206,166
11,7573
8,683
20,443
226,609¥6,079,002

140,409
14,99843,033
198,441
7,611
(17)
8,784
16,377
214,819¥5,852,721

1,688,629
180,383
610,4442,479,456
141,39638
104,426
245,860
2,725,316$73,108,868

Millions of yen
March 31

54

Hokuhoku Financial Group, Inc. Annual Report 2011

NONCONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)The Hokuriku Bank, Ltd.

2011

2010

Thousands of
U.S. dollars
2011

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

¥ 69,333
12,505779
1,461
19,959
1,143
1,480
2,252
108,914¥ 74,271
9,787
1,286
1,795
20,344
1,413
2,654
5,461
117,016$ 833,840
150,392
9,373
17,572240,044
13,747
17,80327,0881,309,859

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

8,311
2,155
546
7,060
646
56,1005,320
7,574
87,715

11,673
2,301
578
6,773
1,135
55,141
11,945
5,683
95,231

99,95425,923
6,571
84,915
7,769
674,694
63,984
91,1001,054,910

21,19821,784

254,949

87
381
(51)
8,862
¥ 11,918

90
(104)
(104)
6,141
¥ 15,656

1,051
4,587
(615)
106,587$ 143,339

Millions of yen
Years ended March 31

Income before income taxes..............................................................................
Income taxes:
Current .........................................................................................................
Prior periods .................................................................................................
Refund for prior periods ................................................................................
Deferred .......................................................................................................
Net income.......................................................................................................

Hokuhoku Financial Group, Inc. Annual Report 201155

NONCONSOLIDATED BALANCE SHEETS (UNAUDITED)The Hokkaido Bank, Ltd.

2011

2010

Thousands of
U.S. dollars
2011

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

¥ 156,060
62,494
2,336
3,994
1,097,665
2,988,825
7,085
70,73032,054
1,842
21,896
27,581(24,047)¥4,448,519¥ 124,692
22,791
2,501
4,400
999,158
2,851,049
5,518
126,148
32,577
3,005
22,10027,963(25,372)¥4,196,534$ 1,876,858
751,587
28,101
48,038
13,201,028
35,944,987
85,218850,633
385,499
22,155
263,335
331,704(289,205)$53,499,938

Liabilities and net assets
Liabilities
Deposits ............................................................................................................
Borrowed money ...............................................................................................
Foreign exchanges ............................................................................................
Bonds payable ..................................................................................................
Other liabilities ...................................................................................................
Reserve for employee retirement benefits ..........................................................
Reserve for directors’ and corporate auditors’ retirement benefits......................
Reserve for contingent loss................................................................................
Reserve for reimbursement of deposits..............................................................
Acceptances and guarantees ............................................................................
Total liabilities ..................................................................................................

¥4,083,927
100,100
53
15,00059,575
7,346
123
626
643
27,581
4,294,977¥3,813,608
123,200
42
15,00057,832
6,317
455
544
825
27,963
4,045,790$49,115,182
1,203,848
644
180,397
716,481
88,352
1,483
7,536
7,736
331,704
51,653,363

Net assets
Capital stock .....................................................................................................
Capital surplus...................................................................................................
Retained earnings ..............................................................................................
Total shareholders’ equity ..............................................................................
Valuation difference on available-for-sale securities ............................................
Total valuation and translation adjustments ..................................................
Total net assets ...............................................................................................
Total liabilities and net assets ........................................................................

93,524
16,79539,079149,398
4,144
4,144
153,542¥4,448,519

93,524
16,79534,383
144,702
6,041
6,041
150,744¥4,196,534

1,124,763
201,985
469,986
1,796,734
49,841
49,841
1,846,575$53,499,938

Millions of yen
March 31

56

Hokuhoku Financial Group, Inc. Annual Report 2011

NONCONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)The Hokkaido Bank, Ltd.

2011

2010

Thousands of
U.S. dollars
2011

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

¥53,403
10,54345
0183
15,0346,420
1,383
87,013¥56,708
9,584
16
1
235
15,475
9,748
3,316
95,086$ 642,253
126,802541
6
2,205
180,809
77,215
16,6391,046,470

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

5,135
1,037
327
1
7,096
2,856
47,025
6,933
2,709
73,123

7,192
1,389
175
1
6,863
2,288
44,5199,172
5,846
77,44861,76012,4803,933
1585,35034,358565,549
83,38932,582879,416

13,89017,638167,054

4,753
—
1,369
¥ 7,767

7,881
779(1,407)¥10,384

57,173—
16,466
93,415

Millions of yen
Years ended March 31

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

$

Hokuhoku Financial Group, Inc. Annual Report 201157

CORPORATE INFORMATION(as of March 31, 2011)

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

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

The Hokkaido Bank, Ltd.

Hokugin Lease Co., Ltd.
(Leasing)

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

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

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

Hokuriku International Cayman Limited(Finance)

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

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

Hokugin Software Co., Ltd.
(Software development)* Equity method-affiliated company
Hokuhoku Services Co., Ltd.
(Servicer)
Hokuhoku Capital Co., Ltd.*(Venture capital, IPO consulting)Major subsidiaries(units: millions of yen, %)Company name

Address

Established

Capital

FG’s share of
voting rights

Dividend

The Hokuriku Bank, Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Banking

July 31, 1943

140,409100.004,294

The Hokkaido Bank, Ltd.

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

Banking

March 5, 1951

93,524100.003,071

Hokugin Lease Co., Ltd.

2-21 Aramachi, Toyama City

Leasing

July 21, 1983

100

70.25

—

Hokuriku Card Co., Ltd.

1-2-1 Shintomi-cho, Toyama City

Credit card operations,loan guarantees

March 2, 1983

36

87.39

3

Hokuriku Hosho Services Co., Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Credit guarantees

December 12, 1978

50

100.00—

Hokugin Software Co., Ltd.

1-5-25 Higashidenjigata, Toyama City

Software development

May 1, 198630

100.00—

Hokuhoku Services Co., Ltd.

1-6-8 Chuo-dori, Toyama City

Servicer

December 5, 2003

500

100.00—

Hokugin Business Services Co., Ltd.

1883 Hiyodorijima, Toyama City

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

30(100.00)—

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

Finance

April 27, 1993

US$1,000(100.00)—

Dogin Business Service, Ltd.

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

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

50(100.00)—

Dogin Card Co., Ltd.

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

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

120(100.00)—

Hokuhoku Capital Co., Ltd.

1-6-8 Chuo-dori, Toyama City

Venture Capital

250

5.00
(38.75)—( ) Indicates voting rights involving shares held by subsidiaries

58

Main business activities

Hokuhoku Financial Group, Inc. Annual Report 2011

January 11, 1985

OUTLINE OF SUBSIDIARIES - HOKURIKU BANKThe Hokuriku Bank, Ltd..
http://www.hokugin.co.jp/

Establishment

History

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

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)

Company outline (as of March 31, 2011)
Company name:Business:
Incorporation:
Location of headquarters:
President:
Total assets:
Deposits (including NCDs):
Loans:
Issued shares:

The Hokuriku Bank, Ltd.
Banking
July 31, 1943 (founded in 1877)
1-2-26 Tsutsumicho-dori, Toyama City, Toyama
Shigeo Takagi¥6,079.0 billion¥5,439.9 billion¥4,252.3 billion
Common stock

1,047,542,335

Capital adequacy ratio(non-consolidated):
11.32%
Employees:
2,851
Branches (as of June 30, 2011)
Domestic:
188 (137 branches, 51 sub-branches)
Overseas:
5 representative offices

September 1961

Listed on the Tokyo Stock Exchange

November 1961

Present head office built

January 1971

Received blanket approval to engage in correspondentbanking services

November 1973

Completed first integrated online system linking all offices

March 1974

Received blanket approval to engage in foreign exchange
business

July 1978

Received blanket approval to handle yen-denominated andforeign-denominated syndicated loans

October 1979

Launched second online system

November 1981

Launched online foreign exchange system

January 1984

Launched firm banking service

May 1987

Introduced VI (visual identification)

August 1990

Completed third online system

November 1993

Launched investment trust agent operations

December 1998

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

Launched Internet and mobile banking services

July 2000

Completed new computer center (Alps building)January 2001

Launched new computer system

April 2001

Launched over-the-counter sales of casualty insurance

February 2002

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

February 2002

Launched convenience store ATM service

October 2002

Launched over-the-counter sales of life insurance

March 2003

Took over part of the Ishikawa Bank’s operations

September 2003

Established Hokugin Financial Group, Inc. through sharetransfer, then became subsidiary of the Hokugin Financial
Group, Inc.

September 2004

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

December 2004

Launched securities agency operations

March 2006

Entered into a contract on joint system use with Hokkaido
Bank and the Bank of Yokohama

May 2011

Commenced use of joint IT system with Hokkaido Bank andthe Bank of Yokohama

Hokuhoku Financial Group, Inc. Annual Report 201159

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

Establishment

History

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

March 1951

Hokkaido Bank established

April 1961

Launched foreign exchange operations

May 1962

Listed on the Sapporo Stock Exchange

August 1964

Present head office built

Company outline (as of March 31, 2011)
Company name:Business:
Incorporation:
Location of headquarters:
President:
Total assets:
Deposits (including NCDs):
Loans:
Issued shares:

The Hokkaido Bank. Ltd.
Banking
March 5, 1951
4-1 Odori Nishi, Chuo-ku, Sapporo City
Yoshihiro Sekihachi¥4,448.5 billion¥4,083.9 billion¥2,988.8 billion
Common stock:
Preferred stock ( Type 2):

486,634,512
107,432,000

Capital adequacy ratio(non-consolidated):
10.59%
Employees:
2,170
Branches (as of June 30, 2011)
Domestic:
138 (130 branches, 8 sub-branches)
Overseas:
2 representative offices

60

Hokuhoku Financial Group, Inc. Annual Report 2011

June 1971

Online system (first) launched

July 1976

Online system (second) launched

December 1980

Received blanket approval to engage in correspondentbanking services

April 1981

Hokkaido Small and Medium Corporation Human Resource
Development Fund established

June 1986

Launched online foreign exchange system

September 1987

Debuted on the first section of the Tokyo Stock Exchange

October 1990

Constructed the Higashi Sapporo Dogin Building

March 1991

Established Dogin Cultural Foundation

October 1991

Launched a new foreign exchange online system

November 1991

Constructed Dogin Building Annex

January 1993

Online system (third) launched

April 1994

Launched investment trust agent operations

December 1998

Started sales of investment trust accounts

July 1999

Issued preferred stock ( Type 2) (issuance amount was¥53.716 billion)

November 1999

Launched telephone banking service

June 2000

Launched Internet mobile banking

April 2001

Started sales of casualty insurance accounts

October 2002

Started sales of life insurance accounts

December 2003

Opened Business Loan Plaza

April 2004

Launched convenience store ATM service

September 2004

Came under management of Hokugin Financial Group, Inc.
parent of Hokuriku Bank; Hokuhoku Financial Group, Inc.
launched

April 2005

Launched securities agency operations

March 2006

Entered into a contract on joint system use with Hokuriku
Bank and the Bank of Yokohama

August 2006

Opened representative office in Shenyang, China

March 2009

Opened representative office in Yuzhno-Sakhalinsk, Russia

January 2010

Taiwan ATM/SmartPay Debit Service Started

May 2011

Commenced use of joint IT system with Hokuriku Bank andthe Bank of Yokohama

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

Directors:
Satoshi Kawai
Masahiro Sasahara
Taminori Iwasaki
Tetsuya Kitani
Eishin Ihori
Yuji Oshima

Corporate Auditors:
Koichi Sugawa
Yoshihiro Minami
Norikiyo Hayashi
Yozo Maeizumi

President:
Shigeo TakagiManaging Director:
Hidenori Mugino

Deputy President:
Satoshi Kawai

Director:
Tetsuya Kitani

Corporate Auditors:
Takashi Hirase
Kenichi Nakamura
Isao Nagahara
Tatsuo Kawada

Deputy President:
Yoshihiro Sekihachi

The Hokuriku Bank, Ltd.

Senior Managing Directors:
Taminori Iwasaki
Tatsuya Kaseda
Tatsuro Ishikuro

The Hokkaido Bank, Ltd.
President:
Yoshihiro Sekihachi
Deputy President:
Masahiro Sasahara
Senior Managing Director:
Hiroshi Sagayama

Managing Directors:
Akihiko Soma
Ikuo Takada
Toshihiro Katayama
Director:
Satoshi Kawai

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

The 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
3-2-10, Nihonbashi-muromachi,
Chuo-ku, Tokyo 103-0022, Japan
Telephone: +81-3-3231-7329
Facsimile: +81-3-3270-5028
E-mail: b.office@hokugin.co.jp
SWIFT Address: RIKBJPJTTreasury and Securities Department
3-2-10, Nihonbashi-muromachi,
Chuo-ku, Tokyo 103-0022, Japan
Telephone: +81-3-3231-7360
Facsimile: +81-3-3246-1255
E-mail: shikintky@hokugin.co.jp

Corporate Auditors:
Keiji Okuda
Tatsuhiro Ishikawa
Michio Hatamoto
Masao Hoshi

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
Singapore Representative Office
6 Battery Road # 17-04 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
Dalian Representative OfficeMori Building 7F, 147 Zhongshan,
Xigang District, Dalian, Liaoning, P.R.
of China
Telephone: +86-411-3960-8018
Facsimile: +86-411-3960-8019
E-mail: dalian@hokugin-zg.com

The Hokkaido Bank, Ltd.
International Division
4-1, Odori Nishi, Chuo-ku,
Sapporo City 060-8676, Japan
Telephone: +81-11-233-1093
Facsimile: +81-11-231-3133
E-mail: sckikaku@cello.ocn.ne.jp
Market and International Administration Center
2-33, Higashi Sapporo 3-jyo 1-chome,
Shiroishi-ku, Sapporo City, 003-0003,
Japan
Telephone: +81-11-815-1315
Facsimile: +81-11-815-2237
SWIFT Address: HKDBJPJTTreasury and Securities Department
3-2-10, Nihonbashi-muromachi,
Chuo-ku, Tokyo 103-0022, Japan
Telephone: +81-3-3241-3457
Facsimile: +81-3-3245-1779
Overseas Offices (Hokkaido Bank)
Shenyang Representative Office
Fangyuan Mansion, No. 1106
Yuebin Street No. 1, Shenhe District,
Shenyang City 110013, P.R. of China
Telephone: +86-24-2250-5350
Facsimile: +86-24-2250-5351
E-mail: dogin_shenyang@yahoo.co.jp
Yuzhno-Sakhalinsk Representative Office
Diplomat Office No.404 Chekhova street
1A, Yuzhno-Sakhalinsk 693020, Russia
Telephone: 7-4242-46-1774
Facsimile: 7-4242-46-1775
E-mail: mikami@hbkys.ru

Hokuhoku Financial Group, Inc. Annual Report 201161

北北金融控股集团简要企业名称∶北北金融控股集团股份有限公司
设立日期∶ 2003 年 9 月 26 日
总行地址∶富山县富山市堤町通 1 丁目 2 番 26 号

（截至 2011 年 3 月 31 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。
我们广泛的营业网点分布在下面所写的地区范围里：集团董事长∶高木繁雄（北陆银行 总行长）副董事长∶堰八义博（北海道银行 总行长）北陆地区 ..................................................... 149 分行（或支行）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

富山县 ......................................................... 91 分行（或支行）资本金∶ 708 亿 9,500 万日元发行股份∶ 普通股 ............................ 1,391,630,146 股
第一次第 5 种优先股.......... 107,432,000 股
上市交易所∶ 东京证券交易所（第一部）札幌证券交易所简历
自从 1877 年北陆银行成立以来已经在北陆地区设立了广

石川县 ......................................................... 36 分行（或支行）福井县 ......................................................... 22 分行（或支行）北海道地区.................................................. 156 分行（或支行）三大都市圈.................................................. 17 分行（或支行）其他地区 .....................................................

4 分行（或支行）

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

7 代表处

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）新加坡代表处 （北陆银行）纽约代表处域性的经营网点。
从“北前船”或者说“北航船（北上的经济圈）”的交易关（北陆银行）

南萨哈林斯克代表处 （北海道银行）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伦敦代表处（北陆银行）

经营网点。

（2011 年 6 月 30 日）

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，ଡ‫ں‬

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௕൶ߺૂ๑৻

෎Ⴠ‫ؙ‬ઘ

本三大都市圈（东京，名古屋，大阪）的巨大的地方金融网络。

ఊᆢණ߽

2002 年 5 月 北陆银行和北海道银行缔结了全面业务协助协议ူࣩ಄

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

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ҽ߽‫ل‬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。

ҽଇٜഘ
෩‫׎‬

‫ݙ‬඙

݁ঀ

‫ॻڍ‬
‫ؙ‬᐀

ண߁ྏ

ൻ‫ڞؙ‬ชത

62

Hokuhoku Financial Group, Inc. Annual Report 2011

北北金融控股集团 董事致辞日）

（相片左边）集团董事长

高木繁雄（北陆银行 总行长）
（右边）

副董事长

堰八义博（北海道银行 总行长）董事致词首先对在东日本大地震中受到灾害的各位表示衷心的慰问。从心底祝愿各位早日从灾难中恢复过来。
2010 年度，我国的经济虽然由于生产活动的恢复和政府政策的引导，个人消费等开始
出现缓慢的持续的复苏的迹象，但是雇用就业形势依然相当严峻；期末的 3 月又受到
大地震的影响，经济活动出现了大停滞。在金融方面，去年夏季以后持续的日元升值，严重影响了以出口为中心的产业。政府 6 年半以来，再次介入外汇市场；为了对应大
地震的冲击，同时又追加了实施金融缓和的措施。
在这样的大环境下，本公司把从 2010 年 4 月到 2013 年 3 月的 3 年期间定为 [ 面向未来挑战持续性增长的新时期 ]，着实地进军存款余额 10 兆日元的金融集团的行列。坚
持 [ 强化营业力 ]，[ 经营效率化 ]，[ 经营基础的稳定化 ] 三个经营理念，以这 3 个理念
为经营支柱脚踏实地实现 [Road to10] 的中期计划。
2011 年 5 月，和横滨银行三行共同开发的新系统 MEJAR 已经投入使用。新系统投入使用后，战略性地运用新系统，提高了便利性，得以实现银行事务处理的共同化，后台操作共同化，
并且能降低开发成本，减少多余人员，增强营业能力，加速实现集团间的合作效果。
由于大地震的影响和电力供应的制约等预计今后的经济环境的走向会很不明朗。作为
地区金融机构，我们有着强烈的使命感；将坚持 [ 地区共荣 ] 经营理念，实现和客户共
同发展的目标。
请广大客户一如既往地支持我们！
董事长

高木繁雄
2011 年 7 月

Hokuhoku Financial Group, Inc. Annual Report 201163

中期经营计划
本集团将自2010年4月份起的3年期间，定位为[面向未来挑战持续性增长的新时期]，已开始了为实现中期经营计划[Road to 10]的工作。
经营统合以后，我们更加坚定得推进[强化营业力]，[经营效率化]，[经营基础的稳定化]三个经营支柱，在归还政府资金后开始致力于新的经营目标，脚踏实地向着10兆日元存款的金融集团的目标迈进。

计划的概要
名称
期间
定位
集团目标形象中期经营计划 [Road to 10]
3年间（2010年4月~2013年3月）
面向未来挑战持续性增长的新时期 ~向存款额10兆日元的金融集团稳步迈进~成为有地方亲和力，可以被依靠的金融集团
1．在经济前景不明朗的环境中再造有稳定收益的基盘

解决课题

2．3行共同利用系统稳定运作，人员的灵活配备和店铺营业设施的完善
3．面向新资本充足率的规则，增发股息，偿还民间优先股而积累剩余金

计划的基本方针I. 强化营业力

II. 经营效率化

III. 经营基础的稳定化

中期经营计划
[Road to 10]n3 行共同利用系统稳定运作和灵n 扩充强化收益基盘
n 以顾客的立场提供咨询业务面向未来挑战持续性增长的新时期n 扩大有价证券的运用活运用战略n 提高资本的质量n 进一步追求协同作用（Synergy）

n 阶段性地增发普通股股息n 增强营业人员

2013年3月目标数（2行合算，联结）2010/3实际成绩

2013/3目标

8兆9,348亿日元

9兆2,776亿日元

9兆5,500亿日元贷款平均余额

7兆967亿日元

7兆1,133亿日元

7兆2,000亿日元

664亿日元567亿日元700亿日元主营业务净利润

192亿日元184亿日元255亿日元10.83%（7.05%）

11.29%（7.45%）

11.5%以上（7.5%以上）

OHR

58.68%

63.47%58%

ROA（主营业务净利润为基础）

0.68%

0.56%

0.68%

ROE（联结本期净利润为基础）

5.12%

4.60%

6%以上

不良债权比率

2.98%

2.96%

3%程度

联结本期净利润联结资本充足率（联结 Tier1 比率）64

2011/3实际成绩存款平均余额

Hokuhoku Financial Group, Inc. Annual Report 2011

I. 强化营业力实施“3个R”以实现“成为有地方亲和力，可以被依靠的金融集团”的目标Retail~~亲和力~~顾客数的扩大和交易多面化，主干化的推进顾客层次的细分，分别营销扩大小型企业交易（信用保证协会担保贷款等）推进住房贷款
增加代付工资和退休金的客户（公司）数Relation~~被信赖的~~

Region~~与地方区域的紧密联系~~提供顾及顾客方便的店铺机能
店铺的战略性重新配置（改变形式、搬迁）商务中心，咨询专用房，企业的招揽，产业学府政府的协作，
CSR，帮助地方的成长型行业（农业、医疗、环境）活跃的商务解决方案的展开
顾客生命周期各阶段相符合的商品营销
法人：创业 成长 事业扩大 事业继承个人：人生各阶段的个别咨询总部 PB（私人银行）小组
海外代表处的灵活运用

战略性的人员配置

加强联盟

提高行员的对外交际能力集团内人才交流而共享营销经验（诀窍）运用集团公司（北北债权回收株式会社）
他行、信用金库、信用合作社、便利店等的协作

II. 经营效率化
3行共同利用系统稳定运作和灵活运用战略2011年5月开始运作

协同作用（Synergy）的加速横滨银行于2010年1月先行运作压缩经费

3行系统共同利用(MEJAR)
2个品牌的营业

北陆银行

北海道银行
调整人员提高对外营业服务开发成本的降低事务手续共通化

共同筹备系统机器和票据事务处理要领和管理报表的共通化

扩大后方事务共同化扩大研修和监查业务的共同化制度变更应对方式的共通化（遵守市场价格核算、IFRS和新资本充
足率规定）北北债权回收株式会社

经营管理治理强化

北海道事业总部（2010年3月）
富山事业总部（2010年9月）

III. 经营基础的稳定化
积累收益提高资本的质量资本充足率･Tier1比率（北北金融控股集团联结）资本充足率Tier1比率10.83%

7.05%

11.5%以上

11.29%

7.45%

资本充足率12％Tier1 比率8 ％（预期）7.5%以上提高资本充足质量收益增加 Tier1 也提高

递延税项资产
对Tier1比率

21.03%

17.14%
10.0%以下

2010/3实际成绩

2011/3实际成绩阶段性增发普通股份股息2013/3计划

Hokuhoku Financial Group, Inc. Annual Report 2011

65

业绩精粹
营业概况（北北金融控股集团联结）（货币单位：亿日元）

2010 年度

2009 年度

本集团今年的联结会计年度的业绩：联结经常收益
与前年度相比减少了 120 亿日元，为 2,146 亿日元。联
结经常利润与前年度相比增加了 18 亿日元，为 372 亿

前年比
经常收益

2,146

－ 120

2,267

经常利润

372

＋ 18

354

本期净利润

184

－8

192

资本充足率

11.29%＋ 0.46%10.83%

日元。联结净利润与前年度相比减少了 8 亿日元，为184 亿日元。
联结资本充足率与前年度相比提高了 0.46 个百分点，达 11.29%。

营业概况（北陆银行、北海道银行）（货币单位：亿日元）

2 行合算
2010 年度代表银行本业务收益力的业务净利润随着劳务利润
和其他业务利润的减少，加上三行共用新系统的改进所2009 年度

投入的经费的增加，与前年度相比，减少了 97 亿日元，
为 567 亿日元。

前年比
经常收益

1,958

－ 115

2,074

主营业务毛利润

1,554

－ 55

1,609

经费 ( 临时处理部分除外 )

986

＋ 42

944

主营业务净利润

567

－ 97

664

信贷相关成本

145

－ 109

255

有价证券等相关盈亏

－ 10

－ 13

2

经常利润

370

＋1

368

本期净利润

196

－ 63

260

由于授信成本的大幅下降，本期的经常利润为 370
亿日元，与前年度持平。
本期的净利润，由于少了去年的特别利益那部分，
为 196 亿日元。

（货币单位：亿日元）（货币单位：亿日元）

北陆银行
2010 年度

北海道银行
2009 年度

2010 年度

前年比
1,088

－ 48

1,137

870

－ 67

937

主营业务毛利润

885

－ 15

901

668

－ 39

708

经费 ( 临时处理部分除外 )

538

＋ 20

518

447

＋ 21

426

主营业务净利润

346

－ 36

383

221

－ 60

281

信贷相关成本

71

－ 63

134

74

－ 45

120

经常利润

229

＋ 29

199

141

－ 28

169

本期净利润

119

－ 37

156

77

－ 26

103

资本充足率

11.32%＋ 0.52%10.80%

10.59%＋ 0.40%10.19%

经常收益66

2009 年度
前年比

Hokuhoku Financial Group, Inc. Annual Report 2011

Hokuhoku Financial Group, Inc.

Printed in Japan