Annual Report
2013
Year ended March 31, 2013

Hokuhoku Financial Group, Inc.

Company outline (as of March 31, 2013)
Company name: Hokuhoku Financial Group, Inc.
Date of establishment: September 26, 2003
Location of head office: 1-2-26 Tsutsumicho-dori, Toyama City
Purpose of business: Management and control of subsidiaries and affiliates and ancillary and related business
Capital: ¥70,895 million
Shares issued and outstanding:Common stock.................................. 1,351,630,146
Preferred stock ( Type 5) .................... 107,432,000
Exchange listings: Tokyo Stock Exchange (First Section)
Sapporo Securities ExchangeThis document contains forward-looking statements. Statements of this kind do not constitute guarantees of future performance, as factors such as changes in
the operating environment may cause actual performance to differ.
The figures stated in this document are, in principle, rounded down to the nearest whole unit.

CONTENTS

Profile .................................................................................................. 1
Message from the Management .......................................................... 2
Medium-term Management Plan.......................................................... 4
Performance Highlights ....................................................................... 6
Corporate Governance ........................................................................ 10
Approach to Compliance ..................................................................... 13
Risk Management System ................................................................... 15
Corporate Social Responsibility ........................................................... 20
Topics ................................................................................................. 23
Consolidated Financial Statements
Consolidated Balance Sheet............................................................ 26
Consolidated Statement of Income .................................................. 27
Consolidated Statement of Comprehensive Income ........................ 27
Consolidated Statement of Changes in Equity ................................. 28
Consolidated Statement of Cash Flows ........................................... 30
Notes to Consolidated Financial Statements .................................... 31
Independent Auditor’s Report .............................................................. 53
Non-consolidated Financial Statements
The Hokuriku Bank, Ltd.
Non-consolidated Balance Sheet (Unaudited) .............................. 54
Non-consolidated Statement of Income (Unaudited) .................... 55
The Hokkaido Bank, Ltd.
Non-consolidated Balance Sheet (Unaudited) .............................. 56
Non-consolidated Statement of Income (Unaudited) .................... 57
Corporate Information.......................................................................... 58
Outline of Subsidiaries — Hokuriku Bank ............................................. 59
Outline of Subsidiaries — Hokkaido Bank ............................................ 60
Board of Directors and Audit & Supervisory Board Members ............... 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

Comprehensive business alliance
between
Hokuriku Bank and Hokkaido BankMay 2003

Agreement on full integration ofmanagement of Hokuriku Bank andHokkaido Bank

The operations of the Hokuhoku Financial Groupextend beyond the limits of a single district.
Our extensive network is outlined below.
Hokuriku district ........................................ 149 branches
Toyama prefecture ...................................... 91 branches
Ishikawa prefecture ..................................... 36 branches
Fukui prefecture........................................... 22 branches
Hokkaido .................................................... 158 branches
Three major metropolitan areas ...............
Tokyo and Yokohama..................................
Nagoya........................................................
Osaka and Kyoto .........................................

17 branches
10 branches
3 branches
4 branches

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

4 branches

Overseas ....................................................
8 offices
New York Representative Office (Hokuriku Bank)
Yuzhno-Sakhalinsk Representative Office (Hokkaido Bank)
London Representative Office (Hokuriku Bank)
Singapore Representative Office (Hokuriku Bank)
Bangkok Representative Office (Hokuriku Bank)
Dalian Representative Office (Hokuriku Bank)
Shanghai Representative Office (Hokuriku Bank)
Shenyang Representative Office (Hokkaido Bank)(As of June 30, 2013)

LondonSeptember
2003

YuzhnoSakhalinsk

Shenyang
DalianHokugin Financial Group, Inc.
established

New York

Shanghai

Hokuriku Bank Group comes undermanagement of Hokugin Financial
Group

Bangkok
Singapore

Management integration effected
through equity swap
September
2004

Hokkaido

Hokuhoku Financial Group, Inc. isborn.

Hokuriku district
Ishikawa

Toyama

Fukui

Tokyo
Osaka

NagoyaThree major metropolitan areas
Hokuhoku Financial Group, Inc. Annual Report 2013

1

MESSAGE FROM THE MANAGEMENT(from left)

2

Yoshihiro Sekihachi

Eishin Ihori

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

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

Hokuhoku Financial Group, Inc. Annual Report 2013

We would like to express our sincere appreciation to all our customers for their continued patronage of the Hokuhoku
Financial Group.
Hereunder, we present Annual Report 2013 of the Hokuhoku Financial Group. The report includes the Group’s businessperformance for fiscal 2012, an outline of our current medium-term management plan, and an introduction to the various
business strategies we have been pursuing. We hope that it will assist you in understanding the Group’s present situationand future prospects.
For the Japanese economy, there have been a number of signs of improvement recently, including a likely recovery inbusiness performance figures, centered on export-oriented companies, under the influence of the yen’s depreciation since
the inauguration of the Abe administration. At the same time, however, interest rates appear increasingly likely to maintaintheir present low levels, and financial institutions will thus continue to face a difficult earnings environment for some time tocome.
Amid these circumstances, from fiscal 2013 the Hokuhoku Financial Group commenced its latest medium-term management plan, dubbed “GO for IT!.” Our achievements under the previous medium-term plan include further expanding thenumber of customer accounts, increasing deposits to ¥10 trillion, and realizing stable operation of a joint IT system for threebanks (the Hokuriku Bank, the Hokkaido Bank, and the Bank of Yokohama). On the negative side, however, we have been
faced with a number of serious obstacles to achieving adequate earnings, most notably low growth in interest and noninterest revenues, and expenses hovering at a high level. There is also the need to create a system for nurturing the desired
job skills in an increased number of young bank employees, as well as the necessity for enhanced compliance and more
rigorous internal control.
Under our new medium-term management plan, covering the three-year period from April 2013 to March 2016, we aim
to become a trustworthy financial group that enjoys friendly relations with all members of its local communities. To this end,
we have dedicated this three-year period to establishing an optimized business strategy for sustainable growth by deploying
a market strategy that involves strengthening our relationships with local customers. We also plan to reallocate the Group’s
management resources to improve management efficiency, reinforce our employee training systems, cultivate a corporate
culture of fair and stable banking, and strengthen our internal control systems.
The scheduled commencement of services on the Hokuriku Shinkansen (Bullet Train) and Hokkaido Shinkansen lines
is expected to stimulate economic growth in the operational areas of the Group’s two banking subsidiaries – the Hokuriku
Bank and the Hokkaido Bank. The Hokuhoku Financial Group intends to play an important role in revitalizing these banks’
local economies by leveraging its strengths in information collection to offer a business-matching service as well as
enhanced support for clients’ overseas business developments.
At the Hokuhoku Financial Group, we will work to enhance our enterprise value by earning the trust of our regional
communities and helping revitalize local economies. We ask for your continued support and encouragement in our businessendeavors going forward.
July 2013

Yoshihiro Sekihachi

Eishin Ihori

ChairmanPresident

Hokuhoku Financial Group, Inc. Annual Report 20133

MEDIUM-TERM MANAGEMENT PLAN
The Hokuhoku Financial Group took measures to solidify its position as a financial group with ¥10 trillion in deposits
promoted under the previous medium-term management plan “Road to 10” (fiscal 2010–fiscal 2012). Despite falling short ofearnings targets in light of severe business circumstances, we have built a transaction platform for future growth by achieving ¥10.0081 trillion in deposits as of March 31, 2013, surpassing our ¥10 trillion target. In addition, we improved management efficiency through stable operation of a joint IT system for three banks (the Hokuriku Bank, the Hokkaido Bank, and the
Bank of Yokohama). Reaching our capital adequacy ratio target level, we implemented a new capital policy to enhance stock
value, which includes the purchase of 50 million shares of treasury stock in fiscal 2012.
The business circumstances currently surrounding the Hokuhoku Financial Group are forecasted to increase in severity.
This is attributable to market shrinkage accompanying decreases in regional population and households; ongoing low interest rates; intensifying competition with other banks; and uncertainties mainly involving nuclear issues and sluggish growth inemerging countries.
Under these circumstances, we will strengthen relationships with regional customers and establish effective internal
control in order to maintain sustainable growth under changing business circumstances. To this end, we have positioned thenext three-year period as “a term for establishing an optimized business strategy of sustainable growth.” We remain committed to the existing management policies of “Strengthening Marketing Capabilities” and “Improving Management Efficiency”
along with “Cementing Management Foundation.” In addition, we will raise our corporate value by obtaining the trust of local
customers and contributing to the revitalization of the regional economy.

Overview of the Medium-Term Management PlanTitle

GO for IT!

Period3 Years (April 2013–March 2016)

A term for establishing an optimized business strategy of sustainable growthTargetClose and Reliable Financial Group for
Corporate Profile Local Customers
Basic Policies 1. Establish solid management foundation
for sustainable growth under changing
in Managementbusiness circumstances by constructingPlanclose relationship with regional customers and effective internal control
Position

2. Keep on “Strengthening Marketing
Capabilities” and “Improving
Management Efficiency” and“Cementing Management Foundation”
3. Raise our corporate value by obtaining
the trust of local customers and contributing to the revitalization of the regional
economy.

Fiscal 2015 Numerical Targets( Total of 2 banks)
Deposits¥10,110.0 Bn

Loans¥7,480.0 Bn

Core net business profits¥47.0 Bn

Net income(Consolidated)¥18.5 Bn

Capital adequacy ratio(Consolidated)

10% or above

OHR(Core gross business profit basis)
NPL Ratio

67%
Below 3%

Basic Policies of New Medium-Term Management Plan “GO for IT!”

Activate regional economy

Strengthening Marketing Capabilities

Raise corporate value

Improving Management Efficiency

Cementing Management Foundation

Develop Proper Measures
Establish Solid Internal Control
Training Employees

Reallocate management resource

Reorganize risk management framework

4

Hokuhoku Financial Group, Inc. Annual Report 2013

Accelerate Synergy
Strengthen ComplianceStrengthening Marketing Capabilities▼ Strategies

Expand customer base

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

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

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

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

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

Improving Management Efficiency▼ Strategies

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

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

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

Cementing Management Foundation▼ Strategies

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

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

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

Capital adequacy ratio
Capital adequacy ratio
Tier 1 ratio

11.88%

10.0%
Capital adequacy ratio

8.20%
Control of amount of preferred stocks andsubordinated debts in line with Basel III

174.8

524.4

389.3
Tier 2 etc.
Tier 1

Increase core capital by internal reserve13/3 result

Dividend Policy
Dividends forcommon equities

Steady increase individends

Include below transitional capital• Subordinated capital : ¥72.5 Bn• Preferred stock :¥53.7 Bn

Forecast under Basel III

16/3 plan(¥ billion)• Maintain a 30% or above dividend payout ratio and aim forstep-by-step increase in dividend by increasing earnings.
• Maintain a 9% or above capital adequacy ratio by building up
internal reserves based on the reduced inclusion of preferredstocks, subordinate capitals and other items through gradualapplication of Basel III regulations.
Hokuhoku Financial Group, Inc. Annual Report 2013

5

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

FY2012FY2011

Ordinary income
Ordinary profits
Net income

199.1
29.3
18.1

Change
(8.8)
(9.5)
3.9

207.9
38.8
14.1

Capital adequacy ratio

11.88%+0.16%

11.72%In the fiscal year ended March 31, 2013, Hokuhoku FG
recorded ordinary income of ¥199.1 billion, a year-on-year
decrease of ¥8.8 billion, on a consolidated basis. Ordinary
profits likewise decreased ¥9.5 billion to ¥29.3 billion, while

net income rose ¥3.9 billion to ¥18.1 billion.
Our capital adequacy ratio stood at 11.88% at theterm-end on a consolidated basis, an increase of 0.16
percentage points from the previous term-end.
Regarding the fiscal year-end dividend for 2012, theGroup paid ¥7.5 per share for shareholders of preferredstock (type 5), the same amount as specified in advance.
Regarding common stock shareholders, although an interim
dividend was not paid, a fiscal year-end dividend of ¥3.75
per share was paid, the same amount as at the end of fiscal
2011.

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

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

Hokuriku Bank andHokkaido Bank
FY2012FY2011
Change
184.6
(8.3)
193.0
145.5
(10.8)
156.3
95.1
(5.5)
100.6
50.3
(5.3)
55.7
17.0
6.6
10.4
0.4
1.8
(1.4)
30.0
(10.5)
40.5
19.5
2.8
16.6

Due to a decline in interest income and earnings fromfinancial derivative products, core gross business profits fell
¥10.8 billion year-on-year to ¥145.5 billion. Core net business profits decreased ¥5.3 billion year-on-year to ¥50.3
billion, despite a reduction in expenses of ¥5.5 billion as thecost surge caused by a computer system upgrade in theprevious fiscal year petered out. Ordinary profits decreased¥10.5 billion year-on-year to ¥30.0 billion, due to a ¥6.6
billion increase in credit costs.
Net income increased ¥2.8 billion to ¥19.5 billion, due tothe decrease in deferred income taxes.

(¥ billion)(¥ billion)

Hokkaido Bank

Hokuriku Bank
FY2012

6FY2011

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

103.0
82.3
50.9
31.4
9.3
18.3
12.3

Change
(2.3)
(6.1)
(3.3)
(2.8)
4.9
(9.1)
0.9

Capital adequacy ratio

11.78%(0.07)%

Hokuhoku Financial Group, Inc. Annual Report 2013

105.4
88.5
54.2
34.3
4.4
27.4
11.4
11.85%FY2012FY2011

81.6
63.1
44.2
18.9
7.6
11.6
7.2

Change
(5.9)
(4.6)
(2.2)
(2.4)
1.6
(1.4)
1.9

87.5
67.8
46.4
21.4
5.9
13.1
5.2

11.23%+0.43%

10.80%

Core Gross Business Profits (Both banks)
Net interest income decreased ¥6.8 billion year-on-year to¥124.3 billion, due to a decrease in interest on loans and ininterest and dividends on securities.
Net interest income

155.4
3.8
20.8

Net fees and commissions

156.3
6.2
18.9

Others

145.5
2.7
18.3

Net fees and commissions decreased ¥0.5 billion to¥18.3 billion, reflecting a decline in commissions frominvestment trust sales and an increase in loan insurance
and other fees.
Other net operating income decreased ¥3.4 billion
year-on-year to ¥2.7 billion, due to a decrease in earnings
from derivatives. As a result, core gross business profits
decreased ¥10.8 billion to ¥145.5 billion.
● Core gross business profits = net interest income + net fees andcommissions + other net operating income; Equivalent to gross profit
margin in the case of companies other than banks.

130.7

131.1

● Net interest income = income from interest on loans, receivable bonds
and dividends on equity shares, after deduction of interest on deposits

124.3● Net fees and commissions = fees and commissions received relating
to remittance, investment trust and insurance sales agency businesses
after deduction of corresponding expenses(¥ billion)
Years ended
March 31

2011

2012

2013

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

Core Net Business Profits (Both banks)
Hokuriku Bank

0.56%

Hokkaido Bank

Although core gross business profits fell ¥10.8 billion yearon-year to ¥145.5 billion, the reduction in expenses of ¥5.5
billion meant that core net business profits decreased only
¥5.3 billion year-on-year, to ¥50.3 billion.

ROA

0.53%
0.47%

Years ended
March 3150.3

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

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

56.7

55.7

34.6

34.3

22.1

21.4

18.9

2011

2012

2013

(¥ billion)

Net Income (Both banks)
Hokuriku Bank

Ordinary profits fell ¥10.5 billion to ¥30.0 billion, due largely
to an increase in credit costs and in losses on devaluationof stocks and others. Net income increased ¥2.8 billion to¥19.5 billion, due to the decrease in deferred income taxes.

Hokkaido Bank

19.5

19.6
16.6
11.9

12.3
11.4

7.7
Years ended
March 31

2011

5.2

2012

7.2
(¥ billion)

2013

Hokuhoku Financial Group, Inc. Annual Report 2013

7

PERFORMANCE HIGHLIGHTS

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

Deposits increased by ¥307.3 billion to ¥10,008.1 billion,
due to an increase in individual and corporate customers.

Hokkaido Bank

10,008.1

9,523.8

9,700.8

5,439.9

5,545.1

4,083.9

4,155.7

4,281.9

2011

2012

2013

5,726.2(¥ billion)
End of March

Loans and Bills Discounted (Both banks)
Hokuriku Bank

Loans increased ¥115.0 billion from the end of March 2012
to ¥7,402.0 billion, due to an increase in lending mainly to
local governments, and in housing loans.

Hokkaido Bank

7,402.0

7,241.1

7,287.0

4,252.3

4,233.9

4,332.7

2,988.8

3,053.0

3,069.3

2011

2012

2013

(¥ billion)
End of March

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

Outstanding Loans to SMEs (Both banks)
Hokuriku Bank

Outstanding loans to SMEs totaled ¥4,692.5 billion, adecrease of ¥72.4 billion from the end of March 2012.
We actively continued our initiatives to facilitate financing
for regional borrowers, in the belief that this is a key role forthe bank, but the balance of outstanding loans decreased
due to slower growth in business funding needs resulting
from the weak economic recovery.

Hokkaido Bank

4,826.3

4,765.0

4,692.5

2,871.3

2,826.5

2,797.5

1,955.0

1,938.4

1,895.0

2011

2012

2013

(¥ billion)
End of March

8

Hokuhoku Financial Group, Inc. Annual Report 2013

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

11.29%

7.45%

11.72%

7.82%

570.5

561.6

Our capital adequacy ratio, a key indicator of financial
soundness, rose 0.16 percentage points from the end of
March 2012, to 11.88%, due to a reduction in risk assets.
An increase in retained earnings due to accumulationof earnings enabled us to increase our Tier 1 capital by¥8.1 billion compared with March 2012, to ¥389.3 billion.
Regulatory capital declined ¥6.2 billion year-on-year to¥564.2 billion, due to a decrease in Tier 2 capital fromrepayment of subordinated loans.

Tire 1 capital
Tier 1 capital ratio

370.8

11.88%

8.20%

564.2
389.3

381.1

(¥ billion)

2011

End of March

2012

2013

● Capital adequacy ratio
This ratio indicates the proportion of the bank’s regulatory capital(capital stock, capital surplus, retained earnings and supplementaryelements) to its risk-weighted assets. The higher the ratio, the healthierits financial position.
● 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.
* Calculated in accordance with the current BIS standards (Basel II).

Disclosed Claims under the Financial Reconstruction Law (Both banks)
Disclosed Claims under the Financial Reconstruction Law
came to ¥236.7 billion at the end of March 2013, almost
unchanged year-on-year, but the NPL ratio fell 0.06
percentage point to 3.11%.
.
Substandard claims
Doubtful claims
Bankrupt and substantially bankrupt claims

This category is defined as claims on borrowers
requiring caution under asset self-assessment.
This category comprises past due loans (threemonths or more) and restructured loans underthe Banking Law.

42.4

Doubtful claims

157.6

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.

3.11%

236.8

236.7

50.5

146.6

220.5
38.0

133.7

● 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
claims

3.17%
2.96%

End of March

NPL ratio● Disclosed Claims under the Financial Reconstruction Law: The bankclassifies both loans and other assets in line with the stipulations of the
Financial Reconstruction Law.

48.9

39.7

36.6

2011

2012

2013

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

Ratings
Japan Credit Rating
Agency, Ltd.

Rating and Investment
Information, Inc.

A

A

JCR

R&I

“Ratings” are determined by ratings agencies, third-party
institutions with no vested interest in the companies theyrate, and indicate a company’s creditworthiness and ability
to fulfill obligations.
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 2013

9

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

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

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

Hokuhoku Financial Group, Inc.
Shareholders’ Meeting

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

Executionof
PDCA

Planning Group

Board of Directors

Administration Group

Risk Management Group

Other
Subsidiaries

Audit & Supervisory Board

Audit & Supervisory Group

Shareholders’ Meeting
Audit & Supervisory Board

Board of Directors

Board of Directors

Each bank sends an
executive tothe other’s Board.

1. Board of Directors
Responsible for decisions related to important management
policies involving the Group as a whole; and for overseeing
the general management, and risk management and auditing
conducted by the holding company and its subsidiaries.
2. Audit & Supervisory Board
Determines auditing policies and assigns specific duties toparticular statutory auditors, and monitors the performance of
duties by the directors.
Three of the four members of the board are external
auditors, ensuring a high degree of independence in auditing
activities.
Hokuhoku Financial Group, Inc. Annual Report 2013

1 external director

Hokkaido Bank

Shareholders’ Meeting

10

Audit & Supervisory Board

Management Committee

Hokuriku BankManagement Committee

3 external auditors

Internal Audit

Management Committee

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

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

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

Hokuhoku Financial Group, Inc. Annual Report 201311

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 2013

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.

Systembetter life for its customers.

To 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 a

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

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

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

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

President

Management Committee

Compliance OfficeCompliance General Department

Compliance Department

Compliance officers, etc.

Compliance officers, etc.

Compliance manager

Compliance Committee

Compliance Committee

Hokuhoku Financial Group, Inc. Annual Report 201313

APPROACH TO COMPLIANCE

Program’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 throughcustomer consultation office, which serves as points ofcontact, we have formulated protocols and an appropriate
response structure, based on five separate considerations.
The Compliance General Section of every Group
member is the office responsible for overall managementof customer protection. Compliance officials at each Group
Basic rules of management ofcustomer protection

Measures for protection of personal information
In the financial industry, ensuring the safety of information
assets is of absolute importance for gaining customer
trust. We are committed to rigorously protecting any 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 thecompliance 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)14

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 2013

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.

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

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

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

Audit & Supervisory Group
Other Subsidiaries

Hokuriku Bank
Hokkaido Bank

Board of Directors

Audit & Supervisory Board Members,
Audit & Supervisory Board

Management Committee
ALM Committee

Comprehensive Risk Management Committee
Operational Risk Subcommittee

Market risk

Liquidity risk

Credit risk

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

Tier 2
Exclusion
items

Operational risk

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

ExcessTier 1

Regulatory
capitalMarket risk
Risk capital
allocation
at subsidiarybanks

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 2013

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 2013

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 201317

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 2013

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

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

System risk

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

Legal risk

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

Personnel risk

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

Tangible asset risk

Risk of losses due to natural disasters damaging tangible assets

Reputational risk

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

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

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

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

Hokuhoku Financial Group, Inc. Annual Report 201319

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

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

To meet diversifying customer needs
While fostering close links between the Group and the regions we serve, we will listen to customer opinions
and take measures to make our branches more appealing and to offer better services.
Upgrading of three Hokuriku Bank
sub-branches into branches
In November 2012, Hokuriku Bank upgraded the Toyota (Toyama),
Takaokashimizumachi (Takaoka) and Nishioka (Sapporo) subbranches into branches. Equipped with full banking functions andoffering services specializing
in retail services mainly to individuals and family businesses,
these three new branches
aim to help Hokuriku Bank
become an even closer andToyota Branchmore reliable partner for local
customers in their respective
regions.

Takaokashimizumachi Branch

Opening of the new Hokkaido Bank Soen Branch
In April 2013, Hokkaido Bank opened the Soen Branch in front of
Sapporo’s JR Soen Station. Featuring a dedicated consultation
room and booths along with specialists in charge of asset management and mortgage loans, the Soen Branch’s enhanced systems is
meeting the consultation needsof individual customers.

Commencing consulting services at the
Dogin Insurance Plaza Odori
In April 2013, Hokkaido Bank opened the Dogin Insurance Plaza
Odori on the sixth floor of the Hokkaido Bank Headquarters, the firstchannel in Hokkaido specializing in insurance service. Beginningwith life insurance, this new plaza offers wide-range services to meetvarious customer needs of each life stage.

Nishioka Branch
The plaza in operation

20

Hokuhoku Financial Group, Inc. Annual Report 2013

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

Agreements with overseas municipal andother government organizations
Year

Month/Location

2006

4 ■ Shanghai

9 ■ Liaoning

3 ■ Changchun

6 ■ Suzhou

2008

2 ■ Guangdong

6 ■ Harbin

2 ■ Ningbo

11 ■ Khabarovsk

2 ■ Sakhalin

4 ■ Kunshan

2010

11 ■ Vietnam govt.

12 ■ Wuxi

6 ■ Dalian Sub-Council of CCPT*
1 ■ Yingkou

3 ■ Jinzhou New Area

6 ■ Shenyang Sub-Council of CCPT*
2011

8 ■ Shaoxing City

Month

2002

10

■ Bank of China

2005

12

■ KASIKORNBANK (Thailand)

2006

7

■ Standard Chartered Bank

2007

9

■ State Bank of India

9■ Mizuho Corporate Bank

12

■ Bank of Communications, PRC

4■ Financial Information Service Co., Taiwan

9■ Deutche Bank

12

■ Vietcombank

2009
2010

2011

2012

2013

2013

Location

Industry

Exhibiting companies(No. of business meetings)

9

Shanghai

Manufacturing

582 (17,500)

7

Ishikawa

Food

36 (63)

7

NingboManufacturing

85

9NagoyaAll industry types

224 (c. 1,200)

10

Tokyo

Food

620

11

Tokyo

Food

50 (230)

2

Bangkok

All industry types

131 (400)

6

SapporoAll industry types

128 (c. 500)

6

Hakodate,
Food
Others98 (189)■ Hokkaido Bank

2012

4 ■ Amur Oblast

Alliances with overseas banks and other partners

2008

2012

1 ■ The Board of Investment of Thailand* CCPT: Council for the Promotion of International Trade

Year

Month

■ Hokuriku Bank

6 ■ Shenyang Municipal Tourism Administration
6 ■ Liaoning Provincial Bureau of SMEs

2013

Year

2012

2005 11 ■ Shenyang

2009

Business-matching events (fiscal 2012-2013)■ Hokuhoku FG, ■■ Both Bank

2004 10 ■ Dalian

2007■ Hokkaido Bank

2013

9

SapporoFood

71 (330)

10

SapporoAgriculture27

2

YuzhnoConstruction
Sakhalinsk

6 (23)

Association of bank clients (as of March 31, 2013)
No. of companies■ Hokuriku Bank
Hokuriku Choujou Association

1,120

Hokuhoku ASEAN Association

152

Shanghai Choujou Association

510

Dalian Choujou Association70■ Hokkaido Bank
Hokkaido Choujou Association

241

8■ Liaoning Radio and Television

Support of customers expanding overseas business4■ Nippon Export and Investment Insurance

4■ Bank Negara Indonesia

2012 China-Japan Manufacturing Business Conference
held in Shanghai
Hokuriku Bank and Hokkaido Bank held the 2012 China-Japan
Manufacturing Business Conference jointly with 39 Japanese regionalbanks and municipalities in September 2012 and hosted by Factory
Network China (a company that supports business matching for
manufacturers in China). Greatly anticipated by both exhibitors andvisitors, this conference featured exhibits from a record 582 companies. A total of 15 of our clients exhibited, including four participating
for the first time. We will continue providing opportunities to develop
sales and supply channels
in China.

6■ KASIKORNBANK (Thailand)

10■ Tokio Marine & Nichido Fire Insurance Co., Ltd.

11

■ Bank of shanghai

12■ Nippon Export and Investment Insurance

5■ Sberbank

5■ The Yamaguchi Bank, Ltd.

6

■ Aioi Nissay Dowa Insurance Co., Ltd.

6

■ Sompo Japan Insurance Inc.

6

■ Tokio Marine & Nichido Fire Insurance Co., Ltd.

6

■ NIPPONKOA Insurance Company, Limited

6■ Mitsui Sumitomo Insurance Company, Limited

9■ Ernst & Young ShinNihon LLC

5■ VTB 24 Bank

7

■ VTB Bank

Hokuhoku Financial Group, Inc. Annual Report 201321

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 2012: Fiscal 2012 interim results (Tokyo)
May 2013: Fiscal 2012 results ( Tokyo)

June 2013: Two cities in Hokuriku ( Toyama and Kanazawa) andtwo cities in Hokkaido (Sapporo and Asahikawa)

General meeting of shareholders
June 2013: 10th ordinary general meeting of shareholders( Toyama, with live broadcast to Sapporo)

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

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

Support for arts and culture• Arranging and supporting
concerts

Lilac Concert• Establishment of art galleries

Head Office Sales Department,
Hokuriku Bank

• Opening of the Hokugin Galerie Millet art gallery
In September 2012, the Hokugin Galerie
Millet art gallery located on Toyama City’s
Chuo-dori Street opened its doors with theaim of attracting interest in the downtown
core. The gallery exhibits art work of such
artists as Jean-François Millet and othermembers of the Barbizon school, a groupof French painters who were active in the
A commemorative
gift being given
mid-19th century in the suburbs of Paris.
to the gallery’s
Beyond art lovers, numerous visitors from 10,000th visitor
across Japan, including shoppers, tourists
and those on business trips, have visited Hokugin Galerie Millet.
Since opening seven months ago, over 10,000 people havevisited the gallery. Looking ahead, Hokugin Galerie Millet willhold distinctive exhibits as an art gallery beloved by everyone.
• Opening of the Hokkaido Bank Curling Stadium
In September 2012, the Hokkaido Bank Curling Stadium
opened after Hokkaido Bank acquired the naming rights.
Japan’s first public curling-oriented facility, Hokkaido Bank
Curling Stadium is home to the Hokkaido
Bank Fortius, a women’s curling team forwhich Hokkaido Bank is the main sponsor. This facility also hosts the JCA’s
World Curling Championships.

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 2012, the 4th treeplanting was held in “Dogin Forest.”
Branches also cooperated withlocal governments in tree-planting
activities.

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

Forest campaign

22

Hokuhoku Financial Group, Inc. Annual Report 2013

TOPICS

Hokuriku Bank
1. Conference Held in Ningbo City,
Zhejiang Province, China

3. The 2012 Toyama General Manufacturing Industry
Trade Fair Held for Overseas Buyers

In July 2012, Hokuriku Bank held a business matchingconference in Ningbo City, with which the Bank has signed
an economic cooperation agreement. Ningbo City’s mainindustry is manufacturing, which includes automobile
components, equipment, home appliances and molds.
Accordingly, the strengthening business relationshipbetween Ningbo City and the Hokuriku region is boosting
the component supply needs of the Bank’s clients. This
year’s conference was held with the purpose of identifying

In September 2012, Hokuriku Bank held a conference incooperation with Toyama Prefecture and the Japan External
Trade Organization (JETRO) Toyama Trade Information
Center to help develop and expand overseas marketing
channels for Toyama and other Hokuriku-based businesses.
In conjunction with thisconference, we held
the Toyama General
Manufacturing Industry

new buyers as well as contract and subcontract factories.

Trade Fair, whichshowcases manufacturing technologies
developed in Toyama
Prefecture, the rest ofJapan and overseas.
This event invited buyers from five countries,
including India and theASEAN nations.

2. Agreement Concluded with The Ogaki Kyoritsu Bank,
Ltd. to Provide Mutual Assistance during Disasters
Hokuriku Bank concluded an agreement with its generalbusiness partner Ogaki Kyoritsu Bank to provide mutual,comprehensive assistance during disasters. In the eventof a disaster, both banks will provide each other with relief
supplies, dispatch employees and deploy mobile financial
service vehicles equipped with ATMs in order to maintainbanking services in disaster-affected areas. Headquarteredin Ogaki City, Ogaki Kyoritsu Bank operates branches
throughout Gifu Prefecture and Nagoya City. Since
Hokuriku Bank’s headquarters are located in Toyama City,a significant distance from Ogaki City, both banks havedeveloped a system that enables effective cooperation
during disasters.

Venue

Conference

4. Ceremony Held to Commemorate the 15th Anniversaryof the Singapore Representative Office’s Establishment
In November 2012,
Hokuriku Bank held a ceremony to commemorate
the 15th anniversary of theSingapore Representative
Office’s establishment
at the Four Seasons
Hotel Singapore. Approximately 100
guests attended this lavish ceremony,
including the Japanese ministerto Singapore, the Deputy CEO ofInternational Enterprise Singapore andlocal clients.
This ceremony served as anopportunity to strengthen the Bank’sbusiness support system in the
ASEAN region, which is experiencing
major demand for “China plus one”
business expansion.

Ceremony

The building where theSingapore Representative
Office is locatedSigning ceremony

Hokuhoku Financial Group, Inc. Annual Report 201323

5. Toyama Prefecture Bangkok Business Support Desk
Opened6. Economic Exchange Memorandum Concluded with
the Board of Investment (BOI) of Thailand

Entrusted by the prefecture to run its local business support
operations, Hokuriku Bank opened the Toyama Prefecture
Bangkok Business Support Desk in December 2012 within
the Bank’s Bangkok Representative Office. This support
desk’s services include offering order-made matchingassistance through individual consultations, promoting
Toyama Prefecture in Thailand, providing buyer dispatches
and developing local personnel networks.

In January 2013, Hokuriku Bank became the first regionalbank in Hokuriku to conclude an economic exchange
memorandum with the BOI Thailand, a governmental
agency in charge of attracting investment in Thailand. This
memorandum enables the Bank to provide accurate local
information and introduce the BOI to client businesses
considering expanding into Thailand.
Hokuriku Bank has already concluded a business
partnership agreement with Kasikorn Bank, a major Thai
commercial bank, making it possible to provide clients withboth investment and financial assistance.

The Bangkok Representative Office

Hokkaido Bank
1. Third Hokkaido Tourism Special Business Meet Upwith China Event

2. Dogin Regional Research Institute Co., Ltd.
Commences Operations

In June 2012, Hokkaido Bank held the Third Hokkaido
Tourism Special Business Meet Up with China Event as
part of efforts to promote Hokkaido as a tourist destination.
During this event, 90 Hokkaido-based businesses werejoined by 30 travel companies from Shenyang, Dalian,Beijing, Shanghai, Suzhou, Hangzhou and Guangzhou, withwhich they had over 500 business meetings. This event
offered assistance to clients in Hokkaido’s tourist industry
and the organiza-

In October 2012, Dogin Regional Research InstituteCo., Ltd. commenced operations as a subsidiary of
Hokkaido Bank. The Institute consists of the Consultation
Department—which conducts various seminars andconsultations—the Regional Strategic Research
Department—which supports the formulation of regional
strategies, individual surveys on consignment and commercialization—and the Economic Survey Department—whichconveys information

tion of various
sightseeing tours.

mainly through macroeconomic surveys
that contributes toregional economic
development. The
Hokkaido Bank
Group will leverage
The Institute’s operations

24

Hokuhoku Financial Group, Inc. Annual Report 2013

its think tank functions underpinned by these three departments to meet a wide array of regional needs and, in turn,contribute to Hokkaido’s development and revitalization.
3. Agribusiness Forum 2012
The Agribusiness Forum 2012 was held in October 2012
under the theme, “crop factories,” and provided the latest
information on this new field. Crop factories have attracted
attention as a stable means for ensuring safe and reliable
food. For farmers using conventional methods, crop factories enable them to grow crops year round, including thewinter. For regular businesses, crop factories represent newopportunities to expand their operations. Looking ahead,
we will aggressively support customers who are planning toenter the agricultural field.

5. Personnel Exchange Memorandum Signed withThailand’s Kasikorn Bank and the Hokkaido Business
Seminar Held
In February 2013, Hokkaido Bank signed a personnel
exchange memorandum with its business partner, Kasikorn
Bank. In addition, the Hokkaido Business Seminar washeld in Thailand on the same day as the signing, with
Hokkaido Bank President Yoshihiro Sekihachi showcasing
the Hokkaido’s appeal and business opportunities insuch areas as tourism, agricultural products and food. A
lively question-and-answer session was held during theseminar that revealed the Thai participants’ keen interest in
Hokkaido.

Signing ceremony

Seminar

6. Agricultural Memorandum Signed with the RussianFederation’s Amur Oblast

4. JETRO Regional Industry Tie-Up (RIT) Russia Far East
Cold Climate Housing Business Networking Event HeldIn the Russian Far East, there is great interest in Hokkaidobased companies that possess superior technologies andproducts used in cold climate housing construction as well
as residential building materials and equipment. Against
this backdrop, in February 2013, Hokkaido Bank jointly
held with JETRO a networking event in Sakhalin to promotetechnological and industrial exchanges on cold climate
housing construction. Six Hokkaido-based businesses
participated in this event, which featured presentations andlively discussions with Russian companies.

In April 2013, Hokkaido Bank and the government of Amur
Oblast signed a memorandum to promote agricultural
cooperation. This agreement will provide assistance in suchareas as cold climate agricultural research and technology
dissemination along with farmer exchanges in order todevelop agriculture and related industries, key sectors forboth Hokkaido and Amur Oblast.
The signing ceremony was held in Moscow, withJapanese Prime Minister Shinzo Abe and Russian President
Vladimir Putin in attendance. At the Japan-Russia Forum
convened on thefollowing day, President
Sekihachi gave aspeech on the role that
agriculture is playing indeveloping new businessmodels and fostering
economic exchanges.
Speech given by President Sekihachi
In fiscal 2013,
Hokkaido Bank plans toestablish a representative
office in Vladivostok
with the aim of further
strengthening systems
that support Russian
agribusiness.

Hokuhoku Financial Group, Inc. Annual Report 2013

25

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

Millions of yen
March 31

2012

2013

Thousands of
U.S. dollars (Note 1)
2013

AssetsCash and due from banks (Notes 3 and 27).......................................................
Call loans and bills bought (Note 27) ..................................................................
Monetary claims bought (Note 27) .....................................................................
Trading assets (Note 4) ......................................................................................
Money held in trust ............................................................................................
Securities (Notes 5, 11 and 27) ..........................................................................
Loans and bills discounted (Notes 6, 11 and 27) ...............................................
Foreign exchanges (Note 7) ...............................................................................
Other assets (Note 11) .......................................................................................
Tangible fixed assets (Note 8) ............................................................................
Intangible fixed assets (Note 9) ..........................................................................
Deferred tax assets (Note 24) ...........................................................................
Customers’ liabilities for acceptances and guarantees (Note 10) ........................
Allowance for loan losses ..................................................................................
Total assets .....................................................................................................

¥

553,744
135,426
86,8647,228
4,000
2,509,794
7,387,934
10,616109,182
106,211
38,09824,141
79,728(73,742)¥10,979,231¥

326,031
67,397112,7888,002
3,948
2,483,485
7,272,698
10,691
141,301
108,320
43,386
41,66789,049(79,452)¥10,629,316

5,887,772
1,439,947
923,598
76,85842,531
26,685,748
78,553,269
112,880
1,160,902
1,129,310
405,092
256,684
847,721(784,074)$116,738,238

Liabilities and equity
Liabilities
Deposits (Notes 11, 13 and 27) .........................................................................
Call money and bills sold (Note 11) ....................................................................
Trading liabilities (Note 4) ...................................................................................
Borrowed money (Notes 11, 14 and 27) ............................................................
Foreign exchanges (Note 7) ...............................................................................
Bonds payable (Note 15) ...................................................................................
Other liabilities ...................................................................................................
Reserve for employee retirement benefits (Note 16) ...........................................
Reserve for directors’ and audit & supervisory board members’ retirement benefits...
Reserve for contingent losses ............................................................................
Reserve for reimbursement of deposits..............................................................
Deferred tax liabilities for revaluation ..................................................................
Acceptances and guarantees (Note 10) .............................................................
Total liabilities ..................................................................................................

¥ 9,982,864
40,345
2,052
252,551
123
33,00084,703
9,829
684
3,033
1,256
7,506
79,728
10,497,680¥ 9,670,262
64,273
2,190
187,28672
34,500109,343
9,211
673
2,974
1,403
7,513
89,04910,178,754$106,144,230
428,979
21,8252,685,294
1,316
350,877
900,623
104,515
7,277
32,255
13,356
79,818
847,721111,618,086

70,895
148,197
107
201,138(1,547)70,895
153,188—
189,845(605)

753,801
1,575,735
1,143
2,138,637(16,452)

52,630(301)
9,340
480,461
1,089
481,550¥10,979,231

26,898(15)
9,351
449,557
1,003
450,561¥10,629,316

559,598(3,207)99,317
5,108,572
11,5805,120,152$116,738,238

Equity (Notes 17, 18 and 19)
Capital stock .....................................................................................................
Capital surplus...................................................................................................
Stock acquisition rights......................................................................................
Retained earnings ..............................................................................................
Treasury stock ...................................................................................................
Accumulated other comprehensive income
Valuation difference on available-for-sale securities .......................................
Deferred gains (losses) on hedges ................................................................
Revaluation reserve for land (Note 8) ............................................................
Total .................................................................................................................
Minority interests ...............................................................................................
Total equity ......................................................................................................
Total liabilities and equity ...............................................................................
See notes to consolidated financial statements.

26

Hokuhoku Financial Group, Inc. Annual Report 2013$

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

2013

2012

Thousands of
U.S. dollars (Note 1)
2013

IncomeInterest income:Interest on loans and discounts ....................................................................
Interest and dividends on securities ..............................................................
Interest on receivables under resale agreements ..........................................
Interest on deposits with other banks ...........................................................
Other interest income ...................................................................................
Fees and commissions ......................................................................................
Trading income..................................................................................................
Other ordinary income (Note 21) ........................................................................
Other income.....................................................................................................
Total income......................................................................................................

¥112,396
21,0582352
1,063
37,396325
23,503
3,038
199,136¥117,817
23,71917873
1,421
37,676614
23,1932,647
207,982$1,195,069
223,905
26
3,746
11,303397,6273,456
249,90932,3102,117,351

Expenses
Interest expense:
Interest on deposits ......................................................................................
Interest on payables under securities lending transactions ............................
Interest on borrowings and rediscounts ........................................................
Interest on bonds payable ............................................................................
Other interest expense .................................................................................
Fees and commissions ......................................................................................
Other ordinary expenses (Note 22).....................................................................
General and administrative expenses.................................................................
Provision of allowance for loan losses ................................................................
Other expenses (Note 23) ..................................................................................
Total expenses ..................................................................................................

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

9,845
2
2,381
929
676
13,414
11,126
110,515
10,13312,752
171,777

80,90028
24,665
6,257
3,728
147,540
101,471
1,129,028
170,744
147,175
1,811,536

28,761

36,204

305,815

4,119
6,467
18,17469¥ 18,105

7,184
14,833
14,18656¥ 14,129

43,803
68,766
193,246739$ 192,507

Millions of yen
Year ended March 31

Income before income taxes and minority interests............................................
Income taxes (Note 24):
Current .........................................................................................................
Deferred .......................................................................................................
Net income before minority interests ..................................................................
Minority interests in net income..........................................................................
Net income.......................................................................................................

Yen

Per share of common stock (Notes 2-r and 20)
Basic net income ..........................................................................................
Diluted net income........................................................................................
Cash dividends applicable to the year...........................................................

U.S. dollars¥9.00¥12.19
12.19
3.75

3.75

$0.13
0.13
0.04

See notes to consolidated financial statements.

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

2013

2012

Thousands of
U.S. dollars (Note 1)
2013¥18,174
25,461
25,741(286)—¥14,186
16,13815,509(18)
668$193,246
270,719
273,699(3,048)—6¥43,635
43,55085(21)¥30,324
30,2586568$463,965
463,054
911

Millions of yen
Year ended March 31

Net income before minority interests ..................................................................
Other comprehensive income (Note 25) .............................................................
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 ..............................
See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 201327

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

Capitalstock

CapitalsurplusStockacquisitionrightsRetainedearnings

Treasurystock

1,391,630

107,432¥70,895¥153,188¥ —¥182,131¥(600)Cash dividends ....................................................

—

—

—

—

—

(6,822)—

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

—

—

—

—

—

14,129—Purchases of treasury stock.................................

—

—

—

—

—

—

(6)

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

—

—

—

(0)

—

—

0

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

—

—

—

—

—

406

—

—

—

¥189,845¥ (605)—

Balance as of April 1, 2011 .....................................

Millions of yen

Changes during the period

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

—

—

—

—

Balance as of March 31, 2012 ................................

1,391,630

107,432¥70,895¥153,188¥ —Cash dividends ....................................................

—

—

—

—

—

(6,822)

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

—

—

—

—

—

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

—

—

—

—

—

—

(5,932)

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

—

—

—

(0)

—

—

0

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

(40,000)——(4,990)

—

—

4,990

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

—

—

—

—

—

10

—

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

—

—

—

—

107

—

—

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

1,351,630

107,432¥70,895¥148,197¥107¥201,138¥(1,547)

Total

Minority
interests

Total
equity¥425,720¥ 938¥426,658

Changes during the period

Millions of yen
Accumulated other comprehensive income
Valuationdifference on
Deferredavailable-for-sale gains (losses)
Revaluation
securities
on hedges reserve for land
Balance as of April 1, 2011 ..............................................................

¥11,419¥ 3¥8,683

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

—

—

—

(6,822)—(6,822)

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

—

—

—

14,129—14,129Purchases of treasury stock..........................................................

—

—

—

(6)

—

(6)

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

—

—

—

0

—

0

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

—

—

—

406

—

406

Changes during the period

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

15,478(18)

668

16,12965

16,194

Balance as of March 31, 2012 .........................................................

¥26,898¥ (15)¥9,351¥449,557¥1,003¥450,561

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

—

—

—

(6,822)—(6,822)

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

—

—

—

18,105—

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

—

—

—

(5,932)—(5,932)

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

—

—

—

0

—

0

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

—

—

—

—

—

—

Changes during the period

28

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

—

—

—

10

—

10

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

25,731

(286)

(10)

25,54185

25,627

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

¥52,630¥(301)¥9,340¥480,461¥1,089¥481,550

Hokuhoku Financial Group, Inc. Annual Report 2013

Thousands of U.S. dollars (Note 1)
Stockacquisition
CapitalRetained
surplusrightsearnings

Capitalstock
Balance as of March 31, 2012 .........................................................

$753,801$1,628,796$—

Treasurystock$2,018,556$ (6,439)—

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

—

—

—

(72,539)

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

—

—

—

192,507—

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

—

—

—

—

(63,078)

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

—

(1)

—

—

5

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

—(53,060)——

53,060

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

—

—

—

113

—

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

—

—

1,143

—

—

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

$753,801$1,575,735$1,143$2,138,637$(16,452)

Thousands of U.S. dollars (Note 1)
Accumulated other comprehensive income
Valuationdifference on
Deferredavailable-for-sale gains (losses)
Revaluation
securities
on hedges reserve for land
Balance as of March 31, 2012 .........................................................

Total

Minority
interests

Total
equity$4,779,987$10,674$4,790,661$286,003$ (160)$99,430

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

—

—

—

(72,539)—(72,539)

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

—

—

—

192,507—

192,507

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

—

—

—

(63,078)—(63,078)

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

—

—

—

4

—

4

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

—

—

—

—

—

—

Changes during the period

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

—

—

—

113

—

113

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

273,595(3,047)(113)

271,578906

272,484

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

$559,598$(3,207)$99,317$5,108,572$11,580$5,120,152

See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 2013

29

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

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

30

Hokuhoku Financial Group, Inc. Annual Report 2013

2012

2013

36,204
10,295
1,087
2,102
(0)
(1,498)202
1,431$ 305,815
96,655
4,312
22,471(10)(60,715)
631
6,577

11
(147)
(134,872)
10,870(414)(67)(1,357)
164
774
(138)
(115,236)
250,620
61,982
77,765(14,706)143(447)(143,850)
13,834
1,681
49
2
366
1,300
(499)
(48,062)
220,519(42,000)(144,951)(7,109)120(1,566)(1,434,049)
115,578(4,411)(723)(14,432)
1,753
8,234
(1,471)(1,225,265)
2,664,755
659,033
826,849(156,371)(42,105)(23,928)74
51
113,605(12,600)
10,020215,703(4,506)211,196

18,322
44,273
2,543(58)
117,332(18,551)
1,894
66,559(5,081)
61,477(447,693)(254,422)
796
545
1,207,929(133,979)
106,547
2,293,493(47,916)
2,245,577(937,155)
695,672
255,911(51)
21,126(3,176)29(1,096)(17)
31,242(1,735,224)
1,357,350
229,771(5)
23,719(3,315)168(9,546)—(137,081)(9,964,440)
7,396,840
2,721,019(544)
224,628(33,770)
310(11,660)(191)
332,192—(12,500)—(1,500)(2,752)(6,822)(0)(5,932)
0(29,506)
74
213,006
226,181¥ 439,187

24,500(20,000)
8,000(15,000)(2,979)(6,822)(0)(6)
0(12,308)(13)(87,926)
314,107¥ 226,181—(132,908)—(15,949)(29,262)(72,539)(4)(63,078)
4(313,736)
792
2,264,825
2,404,902$4,669,727¥ 28,761
9,090
405
2,113
(0)
(5,710)59
618¥

Thousands of
U.S. dollars (Note 1)
2013

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

1. Basis of Presentation
The accompanying consolidated financial statements havebeen prepared in accordance with the provisions set forth in theJapanese Financial Instruments and Exchange Act and its related
accounting regulations, the Enforcement Regulation for the
Banking Act and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different incertain respects as to the application and disclosure requirementsof International Financial Reporting Standards.
In preparing these consolidated financial statements, certain
reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan.
In addition, certain reclassifications have been made in the 2012
consolidated financial statements to conform to the classifications
used in 2013.
All Japanese yen figures in the consolidated financial statements
have been rounded down to the nearest million yen. Accordingly,
the total of each account may not be equal to the combined total of
the individual items. The U.S. dollar amounts are then rounded tothousand dollars.
The consolidated financial statements are stated in Japaneseyen, the currency of the country in which Hokuhoku Financial
Group, Inc. (the “Company”) is incorporated and operates. The
translations of Japanese yen amounts into U.S. dollar amounts
are included solely for the convenience of readers outside Japanand have been made at the rate of ¥94.05 to U.S. $1, the rate ofexchange at March 31, 2013. Such translations should not be construed as representations that the Japanese yen amounts could be
converted into U.S. dollars at that or any other rate.

2. Summary of Significant Accounting Policies
a. Consolidation
The consolidated financial statements as of March 31, 2013 include
the accounts of the Company and its 12 subsidiaries (together, the“Group”).
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.
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.
An investment in one associated company is accounted for by theequity method.
Assets and liabilities of newly consolidated subsidiaries are valued
at fair value at the respective dates of acquisition, and goodwill isamortized using the straight-line method over 20 years.
b. Cash and Cash Equivalents
For the purpose of reporting cash flows, “Cash and cash equivalents”
consists of “Cash” and “Due from the Bank of Japan.”c. Trading Purpose Transactions“Transactions for trading purposes” (for purposes of seeking tocapture gains arising from short-term changes in interest rates,
currency exchange rates or market prices of securities and othermarket-related indices or from gaps among markets) are included in“Trading assets” and “Trading liabilities” on a trade date basis.
Trading securities and monetary claims bought for trading
purposes are stated at fair value at the balance sheet date. Tradingrelated financial derivatives, such as swaps, futures, and options arestated at amounts that would be received or paid for settlement if
such transactions were terminated at the balance sheet date.
Income and losses on trading purpose transactions are recognized on a trade date basis and recorded as “Trading income” or“Trading losses.”
Trading income and losses include interest received and paid
during the fiscal year and unrealized gains and losses resulting fromthe change in the value of securities, monetary claims bought, andderivatives between the balance sheet dates.
d. Securities
Securities are classified and accounted for, based principally on theGroups’ intent, as follows: (a) held-to-maturity debt securities, which
are expected to be held to maturity with the positive intent and ability to hold to maturity, are stated at amortized cost computed by
the straight-line method and (b) available-for-sale securities, which
are not classified as trading purpose securities or held-to-maturity
securities, are stated at fair value with unrealized gains and losses,
net of applicable taxes, reported in a separate component of equity.
Available-for-securities for which fair value is not reliably determined
are stated at cost determined by the moving-average method.
For other than temporary declines in fair value, securities are
reduced to net realizable value by a charge to income.
Securities included in money held in trust are recorded in thesame manner as securities mentioned above.
e. Tangible Fixed Assets (excluding Lease Assets)
Tangible fixed assets are stated at cost less accumulated depreciation. The Company and its consolidated banking subsidiaries (thesubsidiaries hereafter referred to as the “Banks”) depreciate theirequipment based on the declining-balance method and their premises principally based on the straight-line method. The estimateduseful lives of major assets are as follows: (1) buildings: 6 to 50 years
and (2) equipment: 3 to 20 years.
Consolidated non-banking subsidiaries depreciate their equipment and premises principally based on the declining-balancemethod over their expected useful lives.
(Changes in accounting policies which are difficult to distinguish fromchanges in accounting estimates)
The Company and its domestic consolidated subsidiaries haveapplied the depreciation method based on the revised Corporation
Tax Act to tangible fixed assets newly booked on or after April 1,2012 beginning with that interim period. The effect of this applicationon the consolidated statement of income is immaterial.
f. Intangible Fixed Assets (excluding Lease Assets)
Intangible fixed assets are depreciated based on the straight-line
method. Capitalized software for internal use owned by consolidated

Hokuhoku Financial Group, Inc. Annual Report 201331

subsidiaries is depreciated using the straight-line method over its
estimated useful life (mainly 5 years).

amounts were ¥106,892 million ($1,136,554 thousand) and¥114,746 million at March 31, 2013 and 2012, respectively.

g. Lease Assets
Lease assets under non-transfer ownership finance lease contracts(in which the ownership of leased assets is not transferred to thelessee; included in tangible fixed assets and intangible fixed assets)are depreciated on a straight-line basis over the lease period with aresidual value of zero when contracted amounts for residual value are
specified.

j. Reserve for Employee Retirement Benefits
A reserve for employee retirement benefits is provided for payment of
retirement benefits to employees in the amount deemed accrued at
the fiscal year-end, based on the projected retirement benefit obligation and the fair value of plan assets at the fiscal year-end.
The unrecognized prior service costs are amortized using thestraight-line method over eight years within the employees’ averageremaining service period at incurrence.
The 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.
The unrecognized net transitional obligation from the initial
application of the new accounting standard for employee retirement
benefits of ¥28,196 million ($299,805 thousand) is amortized primarily
using the straight-line method over 15 years.

h. Long-Lived Assets
The Group reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate the carrying amountof an asset or asset group may not be recoverable. An impairment
loss would be recognized if the carrying amount of an asset or
asset group exceeds the sum of the undiscounted future cash flows
expected to result from the continued use and eventual disposition of
the asset or asset group. The impairment loss would be measured
as the amount by which the carrying amount of the asset exceeds its
recoverable amount, which is the higher of the discounted cash flows
from the continued use and eventual disposition of the asset or the
net selling price at disposition.
i. Allowance for Loan Losses
The Banks provide an allowance for loan losses which is determinedbased on management’s judgment and an assessment of future
losses based on their self-assessment systems. These systems
reflect past experience of credit losses, possible credit losses,
business and economic conditions, the character, quality and performance of the portfolio, the value of collateral or guarantees, and otherpertinent indicators.
The Banks have implemented a self-assessment system to determine the quality of its assets. The quality of all loans is assessed bybranches and the credit supervisory division with a subsequent audit
by the asset review and inspection division in accordance with theBanks’ policy and guidelines for the self-assessment of asset quality.
The Banks have established a credit rating system under whichcustomers are classified into five categories. The credit rating system
is used in the self-assessment of asset quality. All loans are classified
into five categories for self-assessment purposes: “normal,” “in needof caution,” “possible bankruptcy,” “virtual bankruptcy,” and “legal
bankruptcy.”
The allowance for loan losses is calculated based on actual
historical loss ratio for normal and in need of caution categories,
with the fair value of the collateral for collateral-dependent loans andother factors of solvency, including future cash flows, for the otherself-assessment categories.
The Company and its consolidated non-banking subsidiaries
determine the allowance for loan losses by a similar self-assessment
system as that of the Banks.
For collateralized or guaranteed claims to borrowers who are in“virtual bankruptcy” or “legal bankruptcy,” the amount exceeding
the estimated value of collateral or guarantees has been deducted
as deemed uncollectible directly from those claims. The deducted

32

Hokuhoku Financial Group, Inc. Annual Report 2013

k. Reserve for Directors’ and Audit & Supervisory Board
Members’ Retirement Benefits
A reserve for directors’ and audit & supervisory board members’
retirement benefits is provided for payment of retirement benefits
to directors and audit & supervisory board members in the amountdeemed accrued at the fiscal year-end, based on the estimatedamount of benefits.
(Additional Information)
The Company and the Banks abolished their directors’ and audit &supervisory board members’ retirement benefits system at the boardof directors’ meeting on May 11, 2012, and resolved to provide a
lump-sum payment of retirement benefits of directors and audit &supervisory board members at the general meeting of shareholders
on June 26, 2012. According to these resolutions, the lump-sum
payment of retirement benefits of directors and audit & supervisoryboard members shall be effectuated upon the retirement of eachindividual director and audit & supervisory board member.
Reserve for directors’ and audit & supervisory board members’
retirement benefits was ended in June 2012, and the entire remaining
amount is included in “reserve for directors’ and audit & supervisoryboard members’ retirement benefits.”
l. Reserve for Contingent Losses
A reserve for contingent losses is provided for possible losses inaccordance with the Joint Responsibility System of Credit Guarantee
Corporations and possible losses from contingencies not covered byother specific reserves.
m. Reserve for Reimbursement of Deposits
A reserve for reimbursement of deposits which were not previously
recognized as liabilities under certain conditions is provided for possible losses on the future claims of withdrawal based on historicalreimbursement experience.

n. Stock Options
In December 2005, the Accounting Standards Board of Japan(the “ASBJ”) issued ASBJ Statement No. 8, “Accounting Standard
for Stock Options,” and related guidance. This standard requires
companies to recognize compensation expense for employee stock
options based on the fair value of the stock options at the date of
grant and over the vesting period as consideration for receiving
goods or services. The standard also requires companies to accountfor stock options granted to non-employees based on the fair valueof either the stock option or the goods or services received. In thebalance sheet, the stock options are presented as stock acquisition rights as a separate component of equity until exercised. The
standard covers equity-settled, share-based payment transactions,but does not cover cash-settled, share-based payment transactions.
o. Income Taxes
The provision for income taxes is computed based on pretax
income included in the consolidated statement of income. The asset
and liability approach is used to recognize deferred tax assets andliabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets
and liabilities. Deferred taxes are measured by applying currently
enacted tax laws to the temporary differences.
p. Translation of Foreign Currencies
Assets and liabilities denominated in foreign currencies are translated
into Japanese yen mainly at the exchange rate prevailing as of thebalance sheet date.
q. Derivatives and Hedging Activities
Derivatives are stated at fair value. Derivative transactions that meethedge accounting criteria are primarily accounted for under thedeferral method whereby unrealized gains and losses are deferred
until maturity as deferred gains (losses) on hedges accounting in a
separate component of equity.
The Banks hedge interest rate risks arising from their financial
assets and liabilities by employing the technique known as “individual
hedging” that establishes a specific position to directly hedge a particular item. Such hedges, limited to certain assets and liabilities, areaccounted for by the deferred method or, where appropriate interest
rate swaps are involved, by the special rule method.
The effectiveness of hedges is assessed as follows: the subsidiaries specify the hedged items according to their risk management
regulations, with the aim of centralizing hedging instruments, andverify the extent to which the exposure of interest rate risks onhedged items is mitigated.
The Banks hedge currency exchange fluctuation risks arising fromtheir foreign currency denominated financial assets and liabilities.
Such hedges are accounted for by the deferred method specified
in the “Accounting and Auditing Treatments in Banking Business inAccounting for Foreign Currency Denominated Transactions andOthers” (JICPA Industry Audit Committee Report No. 25).
The effectiveness of these hedges is assessed as follows: where
currency swap transactions and exchange swap transactions areused as hedging instruments to offset exchange fluctuation risks arising from foreign currency denominated financial assets and liabilities,
hedge effectiveness is assessed by verifying the agreement of theamounts of the designated hedging instruments corresponding to thehedged foreign currency financial assets and liabilities.
The Company and consolidated non-banking subsidiaries are notengaged in hedging operations using derivative transactions.
r. Per Share Information
Basic net income per share is computed by dividing net income
available to common shareholders by the weighted-average numberof shares of common stock outstanding for the period, retroactively
adjusted for stock splits.
Diluted net income per share reflects the potential dilution that
could occur if securities were exercised or converted into common
stock. Diluted net income per share of common stock assumes
full conversion of the outstanding convertible notes and bonds atthe beginning of the year (or at time of issuance) with an applicableadjustment for interest expense, net of tax, and full exercise of outstanding warrants.
Cash dividends per share presented in the accompanying
consolidated statements of income are dividends applicable to therespective years including dividends to be paid after the end of the
fiscal year.
s. New Accounting Pronouncements
Accounting Standard for Retirement Benefits — On May 17, 2012,
the ASBJ issued ASBJ Statement No. 26, “Accounting Standard for
Retirement Benefits,” and ASBJ Guidance No. 25, “Guidance on
Accounting Standard for Retirement Benefits,” which replaced the
Accounting Standard for Retirement Benefits that had been issued
by the Business Accounting Council in 1998 with an effective date ofApril 1, 2000, and the other related practical guidance, and followedby partial amendments from time to time through 2009.
Major changes are as follows:(a) Treatment in the balance sheet
Under the current requirements, actuarial gains and losses andpast service costs that are yet to be recognized in profit or loss are
not recognized in the balance sheet, and the difference between
retirement benefit obligations and plan assets (hereinafter, “deficit
or surplus”), adjusted by such unrecognized amounts, is recognized as a liability or asset.
Under the revised accounting standard, actuarial gains orlosses and past service costs that are yet to be recognized in
profit or loss shall be recognized within equity (accumulated othercomprehensive income), after adjusting for tax effects, and any
resulting deficit or surplus shall be recognized as a liability (liability
for retirement benefits) or assets (asset for retirement benefits).
(b) Treatment in the statement of income and the statement of comprehensive income
The revised accounting standard does not change how to recognize actuarial gains and losses and past service costs in profit orloss. Those amounts would be recognized in profit or loss overa certain period no longer than the expected average remaining
working lives of the employees. However, actuarial gains andlosses and past service costs that arose in the current period andhave not yet been recognized in profit or loss shall be included inother comprehensive income and actuarial gains and losses andpast service costs that were recognized in other comprehensive

Hokuhoku Financial Group, Inc. Annual Report 201333

income in prior periods and then recognized in profit or loss in thecurrent period shall be treated as reclassification adjustments.
(c) Amendments relating to the method of attributing expected benefit
to periods and relating to discount rate and expected future salary
increases
The revised accounting standard also made certain amendments relating to the method of attributing expected benefit toperiods and relating to the discount rate and expected futuresalary increases.
This accounting standard and the guidance for (a) and (b) above
are effective for the end of annual periods beginning on or after April
1, 2013, and for (c) above are effective for the beginning of annual
periods beginning on or after April 1, 2014, or for the beginning ofannual periods beginning on or after April 1, 2015, subject to certain
disclosure in March 2015, both with earlier application being permitted from the beginning of annual periods beginning on or after April 1,
2013. However, no retrospective application of this accounting standard to consolidated financial statements in prior periods is required.
The Group expects to apply the revised accounting standard for (a)and (b) above from the end of the annual period beginning on April
1, 2013, and for (c) above from the beginning of the annual period
beginning on April 1, 2014, and is in the process of measuring theeffects of applying the revised accounting standard in future applicable periods.

3. Cash and Cash Equivalents
The reconciliation of “Cash and cash equivalents” in the consolidated statement of cash flows and “Cash and due from banks” in the
consolidated balance sheet as of March 31, 2013 and 2012 consisted of the following:

2013

2012

Thousands of
U.S. dollars
2013¥553,744(114,557)¥439,187¥326,031(99,850)¥226,181$5,887,772(1,218,045)$4,669,727

Millions of yen

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

4. Trading Assets and Liabilities
Trading assets and liabilities as of March 31, 2013 and 2012 consisted of the following:

Trading Assets

2013

2012

Thousands of
U.S. dollars
2013

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

¥3,971
3,257¥7,228¥3,723
4,279¥8,002$42,222
34,636$76,858

Millions of yen

Trading Liabilities

2013

2012

Thousands of
U.S. dollars
2013

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

¥2,052¥2,052¥2,190¥2,190$21,825$21,825

Millions of yen

5. Securities
Securities as of March 31, 2013 and 2012 consisted of the following:

2013

2012

Thousands of
U.S. dollars
2013¥1,463,775
460,528
338,492
145,237
101,760¥2,509,794¥1,435,521
462,450
347,436
131,180
106,895¥2,483,485$ 15,563,801
4,896,631
3,599,069
1,544,261
1,081,986$ 26,685,748

Millions of yen

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

In the following description, in addition to “Securities,” also presented are beneficiary claims on loan trusts which are classified as“Monetary claims bought” in the consolidated balance sheet.

34

Hokuhoku Financial Group, Inc. Annual Report 2013

The carrying amounts and aggregate fair value of securities as of March 31, 2013 and 2012 were as follows:
Millions of yen

March 31, 2013
Securities classified as:
Available-for-sale:
Equity securities ............................................................................................................
Debt securities ..............................................................................................................
Other securities.............................................................................................................
Held-to-maturity..................................................................................................................

Cost

¥

91,5872,085,332
173,713130,718

Unrealized gains Unrealized losses¥29,650
47,7428,039
3,751

Fair value¥6,155
997
1,738
240

¥ 115,082
2,132,077
180,014134,230

Millions of yen

March 31, 2012
Securities classified as:
Available-for-sale:
Equity securities ............................................................................................................
Debt securities ..............................................................................................................
Other securities.............................................................................................................
Held-to-maturity..................................................................................................................

Cost

¥

98,2412,138,961
193,949
70,320

Unrealized gains Unrealized losses¥15,748
38,8572,104
1,093

Fair value¥13,041
730
3,346
170

¥ 100,948
2,177,088
192,707
71,243Thousands of U.S. dollars

March 31, 2013
Cost
Securities classified as:
Available-for-sale:
Equity securities ............................................................................................................ $ 973,818
Debt securities .............................................................................................................. 22,172,590
Other securities.............................................................................................................
1,847,031
Held-to-maturity..................................................................................................................
1,389,887

Unrealized gains Unrealized losses$315,258
507,63185,48439,891

Fair value$65,445
10,60718,4862,557$ 1,223,631
22,669,614
1,914,029
1,427,221

Information on available-for-sale securities, which were sold during the years ended March 31, 2013 and 2012 were as follows:
Millions of yen

March 31, 2013
Equity securities...................................................................................................................................................
Debt securities.....................................................................................................................................................
Other securities ...................................................................................................................................................
Total ...................................................................................................................................................................

Proceeds¥ 4,509
676,035
2,031¥682,576

Realized gains
¥ 335
9,854
94
¥10,284

March 31, 2012
Equity securities...................................................................................................................................................
Debt securities.....................................................................................................................................................
Other securities ...................................................................................................................................................
Total ...................................................................................................................................................................

Proceeds¥
2,777
1,344,016
2,718¥1,349,512

Realized gains
¥ 210
5,120
169
¥5,500March 31, 2013
Equity securities...................................................................................................................................................
Debt securities.....................................................................................................................................................
Other securities ...................................................................................................................................................
Total ...................................................................................................................................................................

Proceeds$ 47,946
7,188,046
21,599$7,257,591

Realized losses
¥203
528
1
¥733

Millions of yen

Realized losses
¥ 785
975
115
¥1,876

Thousands of U.S. dollars

Realized gains$ 3,562
104,780
1,005$109,347

Realized losses$2,1685,616
19$7,803

Impairment losses on available-for-sale securities amounted to ¥9,024 million ($95,957 thousand) and ¥4,583 million as of March 31,
2013 and 2012, respectively.

Hokuhoku Financial Group, Inc. Annual Report 201335

6. Loans and Bills Discounted

7. Foreign Exchanges

Loans and bills discounted as of March 31, 2013 and 2012 consisted of the following:

Foreign exchanges as of March 31, 2013 and 2012 consisted of
the following:

Millions of yen
2013
2012

Bills discounted............................. ¥ 61,971 ¥ 67,623
Loans on bills ...............................
355,627
393,293
Loans on deeds ............................ 6,140,092 5,928,681
Overdrafts ....................................
830,243
883,099
Total ............................................ ¥7,387,934 ¥7,272,698

Thousands of
U.S. dollars
2013$

658,918
3,781,265
65,285,405
8,827,681$78,553,269

Loans and bills discounted include loans to borrowers in bankruptcy, past due loans, past due loans (three months or more) and
restructured loans. The amounts of these loans were as follows:
Millions of yen
2013
2012

Loans to borrowers in bankruptcy ... ¥ 12,049
Past due loans .............................. 184,445
Past due loans(three months or more) ................
101
Restructured loans ........................
42,310Total ............................................ ¥238,908

Thousands of
U.S. dollars
2013¥ 9,886
179,590$ 128,121
1,961,146

706
49,818¥240,001

1,081
449,876$2,540,224

Loans to borrowers in bankruptcy represent nonaccrual loans
to debtors who are legally bankrupt, as defined in the Order for
Enforcement of the Corporation Tax Act.
Past due loans are nonaccrual loans which include loans classified as “possible bankruptcy” and “virtual bankruptcy.”
Nonaccrual loans are defined as loans (after the partial chargeoff of claims deemed uncollectible) which the Banks have stopped
accruing interest income due to substantial doubt existing about
the ultimate collection of principal and/or interest. Such loans areclassified either as “possible bankruptcy” or “virtual bankruptcy”
under the Banks’ self-assessment guidelines.
In addition to past due loans as defined, certain other loansclassified as “in need of caution” under the Banks’ self-assessment
guidelines include past due loans (three months or more) which
consist of loans which the principal and/or interest is three months
or more past due, but exclude loans to borrowers in bankruptcy
and past due loans.
Restructured loans are loans where the Group relaxes lending
conditions by reducing the original interest rate or by forbearing
interest payments or principal repayments to support the borrower’s reorganization. Restructured loans exclude loans to borrowers
in bankruptcy, past due loans or past due loans (three months ormore).
These amounts represent the gross amounts before deductionof the allowance for loan losses.

36

Hokuhoku Financial Group, Inc. Annual Report 2013

Millions of yen
2013
2012

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
2013¥ 7,379
1,589
1,647¥10,616¥ 6,092
2,123
2,474¥10,691$ 78,460
16,903
17,517$112,880

¥

¥

$

¥

28
60
34
123

¥

30
29
12
72

299
645
372
$ 1,316

8. Tangible Fixed Assets
Tangible fixed assets as of March 31, 2013 and 2012 were as
follows:
Millions of yen
2013
2012

Buildings ...................................... ¥ 34,449
Land.............................................
64,443
Lease assets ................................
756
Construction in progress................
45
Other tangible fixed assets ............
6,515
Total ............................................ ¥106,211¥ 35,466
64,385
903
464
7,100
¥108,320

Thousands of
U.S. dollars
2013$ 366,293
685,201
8,048
488
69,280$1,129,310

Accumulated depreciation amounted to ¥101,975 million($1,084,272 thousand) and ¥99,632 million as of March 31, 2013
and 2012, respectively.
The book value of tangible fixed assets adjusted for gains onsales of replaced assets amounted to ¥3,886 million ($41,320
thousand) and ¥3,886 million as of March 31, 2013 and 2012,
respectively.
Under the “Act Concerning Land Revaluation,” Hokuriku Bank,
Ltd. revalued its own land for business operations as of March 31,
1998. The revaluation gain is included in net assets as “Revaluation
reserve for land.” The carrying amount of the land after the above
one-time revaluation exceeded the market value by ¥23,364 million($248,421 thousand) and ¥23,281 million as of March 31, 2013
and 2012, respectively.

9. Intangible Fixed Assets

12. Loan Commitments

Intangible fixed assets as of March 31, 2013 and 2012 were as
follows:

Overdraft facility and loan commitment contracts with customers
to lend up to prescribed limits response to customers’ applications
for a loan, as long as there is no violation of any condition within thecontracts. The unused amount of such contracts totals ¥2,260,093
million ($24,030,763 thousand) and ¥2,318,844 million as of March
31, 2013 and 2012, respectively, of which amounts with original
agreement terms of less than one year are ¥2,221,859 million($23,624,236 thousand) and ¥2,288,023 million as of March 31,
2013 and 2012, respectively.
Since many of the commitments expire without being drawn
upon, the unused amount does not necessarily represent a
future cash requirement. Most of these contracts have conditions
allowing the Group to refuse customers’ applications for a loan ordecrease the contract limits with proper reasons (e.g., changes infinancial situation, deterioration in customers’ creditworthiness).
At the inception of the contracts, the Group obtains collateralincluding real estate, securities, etc., if considered to be necessary. Subsequently, the Group performs a periodic review of thecustomers’ business results based on internal rules and takes necessary measures to reconsider conditions in contracts and require
additional collateral and guarantees.

Millions of yen
2013
2012

Software....................................... ¥12,877
Goodwill ....................................... 24,000
Lease assets ................................
462
Other intangible fixed assets ..........
758
Total ............................................ ¥38,098¥15,878
26,103644
760¥43,386

Thousands of
U.S. dollars
2013$ 136,920
255,193
4,919
8,060$ 405,092

10. Customers’ Liabilities for Acceptances and Guarantees
All contingent liabilities arising from acceptances and guarantees
are reflected in acceptances and guarantees in liabilities on the
consolidated balance sheet. As a contra account, customers’
liabilities for acceptances and guarantees are also shown in assets,
which represent the Banks’ right of indemnity from the applicants.
Guarantee obligations on securities issued by private placement (pursuant to Article 2, Clause 3 of the Japanese Financial
Instruments and Exchange Act) amounted to ¥101,131 million($1,075,297 thousand) and ¥94,327 million as of March 31, 2013
and 2012, respectively.

13. Deposits

11. Assets Pledged
Assets pledged as collateral and their relevant liabilities as of March
31, 2013 and 2012 were as follows:
Millions of yen
2013
2012

Assets pledged as collateral:
Securities ................................. ¥390,030
Loans and bills discounted ........ 314,064
Relevant liabilities to above assets:
Deposits .................................. ¥ 27,139
Call money and bills sold...........
30,000Borrowed money ...................... 145,703

Thousands of
U.S. dollars
2013¥444,777
311,147$ 4,147,058
3,339,337¥ 26,709
60,00067,840$ 288,569
318,979
1,549,217

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, 2013 and 2012:
Millions of yen
2013
2012

Securities ..................................... ¥157,563
Other assets .................................
210¥187,744
210

Thousands of
U.S. dollars
2013$ 1,675,314
2,237

Other assets included guarantee deposits of ¥3,900 million($41,473 thousand) and ¥3,937 million as of March 31, 2013 and2012, respectively.

Deposits as of March 31, 2013 and 2012 consisted of the following:
Millions of yen
2013
2012

Current deposits, ordinary deposits,
saving deposits anddeposits at notice........................ ¥5,237,507 ¥4,946,290
Time deposits andinstallment savings ..................... 4,455,603 4,505,638
Negotiable certificates of deposits ...
164,667
102,685
Other deposits ..............................
125,084
115,647
Total ............................................ ¥9,982,864 ¥9,670,262

Thousands of
U.S. dollars
2013$ 55,688,548
47,374,843
1,750,856
1,329,983$106,144,230

14. Borrowed Money
As of March 31, 2013 and 2012, the weighted-average annualinterest rates applicable to borrowed money were 0.85% and1.22%, respectively.
Borrowed money includes borrowings from the Bank of Japanand other financial institutions. In addition, borrowed money
includes ¥105,500 million ($1,121,744 thousand) and ¥118,000
million of subordinated borrowed money as of March 31, 2013 and2012, respectively.
Annual maturities of borrowed money as of March 31, 2013
were as follows:Year ending March 31
Millions of yen
2014................................................................. ¥146,408
2015.................................................................
375
2016.................................................................
138
2017.................................................................
75
2018.................................................................
55
2019 and thereafter ........................................... 105,500
Total ................................................................. ¥252,551

Thousands of
U.S. dollars$1,556,709
3,987
1,472
797
585
1,121,744$2,685,294

Hokuhoku Financial Group, Inc. Annual Report 201337

15. Bonds Payable
Bonds payable as of March 31, 2013 and 2012 consisted of the following:
2013

2012

Thousands of
U.S. dollars
2013¥10,000¥10,000$106,326

8,000

8,000

85,061

15,00015,000159,490—¥33,000

1,500¥34,500—$350,877

Millions of yen

Thousands of
U.S. dollars¥33,000$ 350,877

Millions of yen

Issued by the Company:
Unsecured fixed and floating subordinated bonds, payable in Japanese yen,
due January 2021, 1.27% interest..............................................................................................................
Unsecured fixed and floating subordinated bonds, payable in Japanese yen,
due December 2021, 1.50% interest .........................................................................................................
Issued by Hokkaido Bank, Ltd.:
Unsecured fixed and floating subordinated bonds, payable in Japanese yen,
due September 2019, 2.18% interest ........................................................................................................
Issued by: Hokuriku International Cayman Ltd.:
Unsecured floating perpetual subordinated bonds, payable in Japanese yen, 1.93586% interest .....................
Total ................................................................................................................................................................
Annual maturities of bonds payable as of March 31, 2013 were as follows:Year ending March 31
2019 and thereafter ..........................................................................................................................................

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

38

Hokuhoku Financial Group, Inc. Annual Report 2013(b) Retirement benefit
Millions of yen
2013
2012

Projected benefit obligations .......... ¥(90,289)
Plan assets at fair value................. 66,326
Projected benefit obligations inexcess of plan assets .................. (23,963)
Unrecognized net
transitional obligation .................
3,633
Unrecognized net actuarial loss ...... 16,419
Unrecognized prior service costs ....
(280)
Net projected benefit obligations
recognized on the consolidatedbalance sheet ............................
(4,190)Prepaid pension costs ...................
5,638
Reserve for
employee retirement benefits....... ¥(9,829)

Thousands of
U.S. dollars
2013¥(90,981)
59,711$(960,021)
705,225(31,269)(254,796)

5,573
24,554(744)

38,635
174,586(2,984)(1,886)
7,324(44,559)
59,956¥(9,211)$(104,515)(c) Retirement benefit expenses

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

Millions of yen
2013
2012

Thousands of
U.S. dollars
2013¥1,987¥1,862$21,129

1,801(1,986)
(463)
3,217

1,961
(1,923)
(463)
2,215

19,150(21,121)(4,934)34,207

1,939

1,939

20,626

492

444

5,235

¥6,987¥6,038$74,292

(d) Assumptions for calculation of projected benefit obligations
2013
2012
Discount rate ................................
2.0%
2.0%
Expected rate of return on
pension assets............................
3.5%
3.5% – 4.0%
Method of benefit attribution .......... Straight-line method Straight-line method
Amortization period of priorservice costs...............................
8 years
8 years
Amortization period of
actuarial gain/loss .......................
8 or 9 years
8 or 9 years
Amortization period of
net transitional obligation............. Mainly 15 years
Mainly 15 yearsof the Board 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 are presented as a separate component of equity.
The Companies Act also provides that companies canpurchase both treasury stock acquisition rights and treasury
stock. Such treasury stock acquisition rights are presented asa separate component of equity or deducted directly from stockacquisition rights.

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

Information with respect to capital stock of the Company as ofMarch 31, 2013 and 2012 are as follows:
2013

2012

Number of shares:
Authorized:
Common ..................................... 2,800,000,000
Preferred (Type 1) ........................
400,000,000
Preferred (Type 2) ........................
200,000,000
Preferred (Type 3) ........................
200,000,000
Preferred (Type 4) ........................
90,000,000
Preferred (Type 5) ........................
110,000,000
Issued and outstanding:Common ..................................... 1,351,630,146
Preferred (Type 5) ........................
107,432,000
Treasury stock:
Common .....................................
12,266,448
Preferred (Type 5) ........................
710

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
2,230,039
710

Preferred stock ( Type 5)
Preferred stock ( Type 5) is noncumulative and nonparticipating
for dividend payments. Shareholders of the preferred stock (Type5) are not entitled to vote at the general meeting of shareholders,
except when the proposal to pay the prescribed dividends toshareholders is not submitted to the general meeting of shareholders or is rejected at the general meeting of shareholders.
Annual dividends per share of preferred stock ( Type 5) are paid
to shareholders at ¥15.00.

19. Stock Options
The stock option plans grant options to the Company’s directors
and the Banks’ directors and executive officers to purchase certain
shares of the Company’s common stock in the respective exercise
periods. The exercise prices are subject to adjustments for stock
issuances below fair value and stock splits.
Stock option expenses in the amount of ¥107 million ($1,143
thousand) were recorded under general and administrative
expenses for the year ended March 31, 2013.
The stock options outstanding as of March 31, 2013 were as
follows:

Stock option

Persons
grantedNumberof options
granted(Shares)

Date of
grant

19 directors
232012 Stock executive
November
Optionofficers
1,058,500 28, 2012

Exercise
price

Exercise period¥1

From November
29, 2012 toNovember 28,
2042

Hokuhoku Financial Group, Inc. Annual Report 201339

21. Other Ordinary Income

The stock option activity was as follows:Year ended March 31, 20132012 stock option (Shares)

Non-vested:
March 31, 2012–outstanding.........................
Granted ....................................................
Canceled ..................................................
Vested ......................................................
March 31, 2013–outstanding.........................
VestedMarch 31, 2012–outstanding.........................
Vested ......................................................
Exercised..................................................
Canceled ..................................................
March 31, 2013–outstanding.........................
Exercise price ....................................................
Average stock price at exercise...........................
Fair value price at grant date ..............................

—
1,058,500—
1,058,500—

Millions of yen
2013
2012

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

—
1,058,500—
63,100995,400¥1$ 0.01
—
—
¥108
$1.15

40

¥ 1,590$ 14,798

9,998
1,086
7,016
4,011
¥23,503

5,290
4,159
7,643
4,509
¥23,193

106,305
11,55074,60742,649$249,909

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

Millions of yen
2013
2012

Thousands of
U.S. dollars
2013

¥ 945
6,070
2,527
¥9,543$ 10,055
64,541
26,875$101,471¥ 1,711
6,566
2,848¥11,126

23. Other Expenses
Other expenses for the years ended March 31, 2013 and 2012 are
as follows:

Reconciliation of the difference between basic and diluted net
income per share (“EPS”) for the years ended March 31, 2013 and2012 were as follows:
Millions of yen

Thousands ofshares

Net income

Weightedaverage shares¥16,493¥ 1,391

Other ordinary expenses for the years ended March 31, 2013 and2012 are as follows:

20. Per Share Information

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

Thousands of
U.S. dollars
2013

22. Other Ordinary Expenses

The Assumptions Used to Measure the Fair Value of the 2012
Stock Options
Estimate method .................................. Black-Scholes option-pricing model
Volatility of stock price.......................... 30.896%
Estimated remaining
outstanding period ............................. One year and one month
Estimate dividend................................. ¥3.75 per share
Interest rate with risk free ..................... 0.095%

Year ended
March 31, 2013

Other ordinary income for the years ended March 31, 2013 and2012 are as follows:

Yen

EPS

1,352,326354¥12.19¥16,493

1,352,680¥12.19Millions of yen

Thousands ofsharesYen

Year ended March 31, 2012

Net income

Weightedaverage shares

EPS

Basic EPS – Net income
available to common
stockholders¥12,518

1,389,416¥9.00

Hokuhoku Financial Group, Inc. Annual Report 2013

U.S. dollars$ 0.13$ 0.13

Millions of yen
2013
2012

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

¥

659
205

Thousands of
U.S. dollars
2013

797
785

$ 7,008
2,187

8,824
725

4,685
692

93,832
7,711

570

1,459

6,065

—
2,856
¥13,841

1,195
3,137
¥12,752—
30,372$147,175¥24. Income Taxes

25. Other Comprehensive Income

The Company and its domestic subsidiaries are subject toJapanese national and local income taxes which, in the aggregate,
resulted in a normal effective statutory tax rate of approximately
37.75% and 40.43% for the years ended March 31, 2013 and2012, respectively.
The tax effects of significant temporary differences and tax loss
carry-forwards which resulted in deferred tax assets and liabilities
at March 31, 2013 and 2012 are as follows:

The components of other comprehensive income for the years
ended March 31, 2013 and 2012 are as follows:

Millions of yen
2013
2012

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

Thousands of
U.S. dollars
2013¥50,842
1,320¥ 57,421
1,405$ 540,586
14,042

14,41914,9395,513
10,583
97,61836,501
61,117

15,94013,647
5,392
11,772
105,579
39,71565,863

153,316
158,846
58,618112,529
1,037,937
388,102649,835

26,795¥ 12,686

284,912

4,651
3,212
2,315
36,975¥24,141

4,694
3,212
3,602
24,196¥ 41,667

49,46034,15924,620393,151$ 256,684

Thousands of
U.S. dollars

Millions of yen
2013

Valuation difference on
available-for-sale securities:
Amount incurred
during the fiscal year ............... ¥37,235
Reclassification adjustment .......
(285)
Prior to deducting tax effect...
36,949Tax effect ............................ (11,207)
Total ...................................
25,741

2012

2013¥19,618
2,661
22,279(6,770)15,509$395,908(3,039)392,869(119,170)
273,699

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

(668)
226
(442)
156
(286)

(601)
572
(29)
11
(18)

(7,112)
2,405(4,707)1,659(3,048)

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

—
—
—
—
—

(718)
—
(718)
1,387
668

—
—
—
—
—

(22)
(12)
(34)
13
(21)

246
(118)
128
(60)
68

¥16,138$270,719

Share of other comprehensive
income of associates accounted
for using equity method:Amount incurred
during the fiscal year ...............
23
Reclassification adjustment .......
(11)
Prior to deducting tax effect...
12
Tax effect ............................
(5)
Total ...................................
6
Total othercomprehensive income................ ¥25,461

26. Leases(1) Finance lease transactions(Lessee)
The Group leases ATMs, computer equipment, software and otherassets.
(2) Operating lease transactions(Lessee)
The minimum rental commitments under noncancelable operatingleases as of March 31, 2013 and 2012 are as follows:
Millions of yen
2013
2012

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

¥ 2
7
¥10

¥108
10
¥118

Thousands of
U.S. dollars
2013

$ 27
82
$109

Hokuhoku Financial Group, Inc. Annual Report 201341

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

42

Hokuhoku Financial Group, Inc. Annual Report 2013

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

Foreign Exchange Risk Management
Using measures like currency swaps to reduce foreign exchangerisk, the Banks manage exchange risk arising from fluctuations inforeign exchange rates that affect the values of assets and liabilities
denominated in foreign currencies.
Price Volatility Risk Management
Regarding investments in instruments such as securities, theBanks carry out prior screening and set investment ceilings, andthen constantly monitor the investment status to minimize pricevolatility risk. Every process above has to be strictly managed
under the supervision of the Banks’ Board of Directors and to bein line with policies laid down by Management Committees. A highpercentage of the stocks held by the Banks are acquired and held
for long-term strategic purposes. The Banks monitor the market
conditions and financial positions of the securities issuers. Valueat Risk (“VaR”) and other methods are used to determine theamount of market risk for each security held. The staff members of
the responsible departments provide regular reports to the Banks’
Board of Directors and Management Committees so to confirm
that price risk is controllable and all rules pertaining to market risk
management are being followed correctly.
Derivatives
The Banks arrange their organizational structures securing theseparation and internal check-and-balance mechanisms among
front sections (specializing in market transactions), middle sections(engaging in risk management) and back sections (responsible forbook entries and settlements). Management sections confirm thevalidity of transactions, value the Banks’ daily derivatives positions,and measure gains and losses as well as risk levels. Derivativetransactions are carefully managed in such a way that losses neverexceed a predetermined maximum.
Quantitative Information Related to Market Risk
Hokuriku Bank and Hokkaido Bank measure quantitative information related to market risk.
• Financial instruments in the trading accountIn calculating VaR for trading securities and a portion of currencyrelated and interest-related derivative transactions held in the
trading account, Hokuriku Bank adopts the historical simulation
method (a holding period of 1 business day, a confidence intervalof 99% and main observation period of 1,250 business days).
The market risk amounts (VaR) of the trading business of
Hokuriku Bank were ¥80 million ($851 thousand) and ¥63 million
as of March 31, 2013 and 2012, respectively.
Hokkaido Bank has no financial instruments in the trading
accounts.
• Financial instruments in the banking accountIn the Banks, the main financial instruments affected by interest rate risk are “Monetary claims bought,” “Loans and bills
discounted,” “Bonds,” “Deposits,” “Borrowed money,” andtransactions of interest rate swaps, interest swaptions and interest rate caps held in derivative transactions. The main financial
instruments affected by market value are listed stocks and investment trust. The Banks use VaR for integrated management ofthese financial instruments.
For calculating VaR, the Banks adopt the historical simulation
method (a holding period of 120 business days, a confidence

interval of 99% and main observation period of 1,250 businessdays) and consider the correlations between interest and the fluctuation of prices of the listed stocks. In addition, Hokkaido Bank
has set a holding period of 10 business days for trading accountsecurities (including public bonds traded over the counter) andfor specified fund trust as investment securities. Hokkaido Bank
also considers the correlation between interest rates and thefluctuation of prices of the listed stocks in calculating VaR ofspecified fund trust as investment securities.
Hokuriku Bank’s VaR of the financial instruments in thebanking account were ¥66,928 million ($711,621 thousand) and¥23,969 million as of March 31, 2013 and 2012, respectively.
Hokkaido Bank’s VaR of the financial instruments in the banking account were ¥48,366 million ($514,258 thousand) and¥12,181 million as of March 31, 2013 and 2012, respectively.
Hokkaido Bank’s trading account securities totaled ¥19 million($202 thousand) and ¥9 million as of March 31, 2013 and 2012,
respectively. Hokkaido Bank’s specified fund trust totaled ¥5
million ($53 thousand) and ¥9 million as of March 31, 2013 and2012, respectively.
The Banks perform back testing of the VaR measurement
model at fixed intervals. VaR measures the amount of market risk
by certain occurrence probabilities that are statistically calculated
based on past markets movements. Therefore, there are cases
in which VaR cannot capture risk under sudden and dramaticchanges in markets beyond normal circumstances.
VaR shows the maximum loss during the holding period of
the financial instruments under the confidence interval (99%)
that is statistically calculated based on past market movements.
Especially, the Banks calculate 100BPV (100 Bases Points
Value), as supplements, of the assets and liabilities and change
in their present value on the assumption that index interest rate
rises by 1.00%.
Hokuriku Bank’s 100BPV was a ¥24,241 million increase($257,746 thousand increase) and a ¥33,423 million decrease
as of March 31, 2013 and 2012, respectively. Hokkaido Bank’s
100BPV was a ¥19,832 million increase ($210,867 thousand
increase) and a ¥19,560 million decrease as of March 31, 2013
and 2012, respectively.
For calculating 100BPV, the correlations between interest
rates and the other parameters are not considered because the
100BPV is measured on the assumption that risk parameters
except interest rate remain unchanged. Actual risk can exceed
the calculated 100BPV in the case of a drastic change in interest
rates beyond reasonable prior expectations occur.
(c) Liquidity Risk Management
In accordance with the Banks’ rules for management of liquidity
risk, the Banks form an accurate appraisal of fund operations andprocurement, and take measures to ensure smooth cash flows.
Specifically, the Banks set benchmarks in various different categories to check liquidity risk on a daily basis, and maintain adequatelevels of high-liquidity assets that are readily convertible into cash,
such as government bonds.
We have in place mechanisms for periodically assessing andmanaging liquidity risk through ALM committees, to prepare forevery possible scenario.

Hokuhoku Financial Group, Inc. Annual Report 201343

(4) Supplementary explanation relating to fair values offinancial instruments
The fair values of financial instruments include, in addition to values
determined based on market prices, valuations calculated on areasonable basis if no market prices are available. Certain assumptions are used in the calculations of such amounts. Accordingly,
the result of such calculations may vary if different assumptions areused.
(5) Fair values of financial instruments
The fair value of the main financial instruments at March 31, 2013
and 2012 are as follows. These amounts do not include unlisted
stocks whose fair values are extremely difficult to determine (see(b) Financial instruments whose fair values are deemed to be
extremely difficult to determine).
(a) Fair value of financial instruments
Millions of yen
March 31, 2013

Carrying
amountFair value

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

Deposits ....................................... ¥ 9,818,196 ¥ 9,820,010
Negotiable certificates ofdeposits .....................................
164,667
164,698
Borrowed money ...........................
252,551
253,632
Total liabilities ............................... ¥10,235,416 ¥10,238,341¥ 1,813

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

(3)
—
—

Millions of yen
March 31, 2012

Carrying amount¥

Deposits ....................................... ¥ 9,567,576 ¥ 9,571,026
Negotiable certificates ofdeposits .....................................
102,685
102,728
Borrowed money ...........................
187,286
188,163
Total liabilities ............................... ¥ 9,857,549 ¥ 9,861,919¥ 3,450

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

4,879

¥

—

(968)
3,911 ¥

(968)
3,911

(*3) —
¥
—

—
—
—

922
—

83,553¥84,47642876¥ 4,369

7,304 ¥

7,304

¥

—

(3,990)3,314 ¥

(3,990)3,314¥(*3) ——

Thousands of U.S. dollars
March 31, 2013

30
1,080
¥ 2,924

Unrealized gains(losses)Cash and due from banks.............. ¥ 326,031 ¥ 326,031
Call loans and bills bought .............
67,39767,397
Monetary claims bought (*1) ..........
87,82487,824
Securities
Bonds classified as
held-to-maturity .....................
70,32071,243Available-for-sale securities ...... 2,382,929
2,382,929
Loans and bills discounted ............ 7,272,698
Allowance for loan losses (*1)....
(73,847)
7,198,851
7,282,405
Total assets .................................. ¥10,133,355 ¥10,217,831

3,511
—

87,000¥90,508

Fair value

Carrying amount

Fair value

Cash and due from banks.............. $ 5,887,771 $ 5,887,736
Call loans and bills bought .............
1,439,947
1,439,947
Monetary claims bought (*1) ..........
832,102
832,102
Securities
Bonds classified as
held-to-maturity .....................
1,389,887
1,427,221
Available-for-sale securities ...... 24,975,200 24,975,200
Loans and bills discounted ............ 78,553,269
Allowance for loan losses (*1)....
(746,429)
77,806,840 78,731,883
Total assets .................................. $112,331,747 $113,294,089
Deposits ....................................... $104,393,374 $104,412,659
Negotiable certificates ofdeposits .....................................
1,750,856
1,751,178
Borrowed money ...........................
2,685,294
2,696,780
Total liabilities ............................... $108,829,524 $108,860,617
Derivative transactions (*2)
Derivative transactions not
qualifying for hedge accounting ... $Derivative transactions qualifying
for hedge accounting.................
Total derivative transactions........... $Unrealized gains(losses)

$

(35)
—
—

37,334—925,043$962,342$ 19,285
322
11,486$ 31,093

51,887 $51,887$—(10,293)
41,594 $(10,293)
41,594$(*3) ——*1. Allowance for loan losses shown on this table represents thegeneral allowance and specific allowance for loan losses. Figures
for allowance for loan 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 and liabilities
and other assets and liabilities are shown together. Assets andliabilities arising from derivative transactions are shown withinparentheses with respect to net liabilities.
*3. As interest-rate swaps subject to exceptional treatment are
accounted for together with the loans being hedged by theswaps, their fair value is included in the loans in question on the
consolidated balance sheet.

44

Hokuhoku Financial Group, Inc. Annual Report 2013

Cash and due from banks
The fair values of due from banks with no maturity are considered
to be equal to the book value since the fair values of these items
approximate their book values. The fair values of due from bankswith maturity are calculated using the total cash flows from principal and interest discounted by current market interest rates, taking
into account the credit risk involved. This calculation is performed
separately for each maturity length. In the event that the terms ofdue from banks are one year or less, the book values are regarded
as approximate to the fair values and are therefore treated as such.
Call loans and bills bought
The fair values of call loans and bills bought are considered to beequal to the book value since the contractual terms are one year orless and fair values of these items approximate their book values.
Monetary claims bought
The fair values of trust beneficiary rights relating to mortgage loans
purchased by the Banks and relating to loan claims are determinedbased on the quoted prices obtained from counterparty financial
institutions. The fair values of small-lot monetary claims resulting
from asset liquidations are determined by discounting the cash
flows at the market interest 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 market or other officially announced prices. In the eventthat neither of these fair values are available, the price is basedon a reasonable estimate. For investment trusts, the fair value iscalculated on the basis of a publicly available benchmark price.
For privately-placed bonds guaranteed by one of the Banks,
the present value is separately calculated using the present value
discounted by the market interest rate where the credit risk of eachbond issuer and the remaining period of the bonds are considered.
As of March 31, 2012, regarding variable rate Japanese
Government Bonds (the “JGBs”) that are included in the amountpresented under the line item “Securities” in the table above,
prices calculated from reasonable estimates are continuously usedas the Group’s own criteria for those issues whose market pricecannot be treated as fair value, according to Practical Issues Task
Force No. 25, Practical Solution on Measurement of Fair Value forFinancial Assets (October 28, 2008, Accounting Standards Boardof Japan). In this way, compared with the consolidated balance
sheet amounts based on market prices, the values have been
increased for the reporting term by ¥2,429 million for securities andby ¥1,570 million for valuation difference on available-for-sale securities, and the values have decreased by ¥858 million 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 isthen discounted 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 bonds.
For more detailed information regarding the different types of
securities classified according to holding purpose, see “5. Securities.”

Loans and bills discounted
As loans with variable interest rates reflect short-term market
interest rates, the fair value will approximate the book value unlessthe creditworthiness of the borrower changes subsequent to thegrading of the loan. Because of this, the book value is employed
as the fair value.
For loans with fixed interest rates, the fair value is calculatedusing the total future cash flows from principal and interest discounted by current market interest rates, taking into account thecredit risk involved. This calculation is performed separately foreach different category of loans, classified by type of loan, internal
credit ratings and maturity length. For loans whose repayment
period is one year or less, the book value is a close approximationof the fair value and is therefore employed as such.
Regarding the fair value of claims on bankrupt borrowers,
substantially bankrupt borrowers, and potentially bankrupt borrowers, credit losses are estimated based on the present valueof estimated future cash flows or the estimated value recoverablefrom collateral and guarantees. Since the fair value is approximate
to the value stated on the consolidated balance sheet as of thesettlement date, minus the present value of estimated bad debt,
this figure is therefore treated as the fair value.
For the category of loans whose maturity is not fixed becauseof the loan ceiling set within the estimated value recoverable fromthe collateral, the book value is regarded as approximate to thefair value because of the expected period for repayment and theinterest rates applied. The book value is therefore employed as thefair value.
Deposits
For demand deposits, the amount payable on demand as of theconsolidated balance sheet date (i.e., the carrying amount) is considered to be the fair value. In addition, the fair value of time deposits is calculated by discounting the estimated future cash flows foreach of the specified periods. This calculation is performed separately as per the remaining maturity of time deposits. The discountrate employed is the interest rate that would be applied to newly
accepted deposits. In the event that the deposit term is one year
or less, the book value is regarded as approximate to the fair value
and is therefore treated as such.
Borrowed money
Borrowed money with floating interest rates reflect market interest
rates and because the credit standing of the Company and its
consolidated subsidiaries have changed little since the taking out of
those loans, the book value is regarded as approximate to the fairvalue and is therefore treated as such.
For money borrowed through loans carrying fixed rates, thecurrent value of these loans is determined by discounting the totalof their principal plus interest (separately for each specific period) at
the rate currently applied to other loans of the same duration andterms. For loans whose repayment period is one year or less, thebook value is regarded as being approximate to the fair value andis therefore treated as such.
Derivative transactions
Derivative transactions include interest rate-related transactions(futures, options, swaps and others), foreign exchange-related

Hokuhoku Financial Group, Inc. Annual Report 201345

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“Monetary claims bought” and “Available-for-sale securities” in the fair value information of financial instruments.
Consolidated balance sheet amounts

Millions of yen
2013
2012

March 31

Monetary claims bought (subordinated beneficiary rights in securitization of mortgage loans) (*1) ................................
Unlisted stocks (*1) (*2) ...........................................................................................................................................
Unlisted foreign securities (*1) .................................................................................................................................
Total .......................................................................................................................................................................

¥ 8,604
30,157
0¥38,762

Thousands of
U.S. dollars
2013$ 91,486
320,657
4$412,147¥24,962
30,2340¥55,197*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 ¥217 million ($2,313 thousand) and ¥149 million as of March 31, 2013 and 2012, respectively.

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

46

March 31, 2013

Due in 1 year
or less

Due after 1 year
through 3 years

Millions of yen
Due after 3 years
through 5 years

Due after 5 years
through 7 years

Due from banks ...............................................................................
Call loans and bills bought ................................................................
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 ...............................................................................................

¥ 430,591
135,426
1,997
179,321
9,463
3,010
6,453
—
169,858
42,10058,21854,784
14,7552,213,331¥2,960,668

¥

4,000
—
—
495,583
28,625
8,520
20,105—466,958
190,800
162,380
89,191
24,586
1,483,240¥1,982,824

¥

—
—
—
549,225
24,7772,500
22,277—524,448369,900
80,97152,00921,567
1,056,814¥1,606,039

¥

—
—
400
457,197
4,151
—
4,151
—
453,046
328,900
102,402
17,613
4,129
568,593¥1,026,190——
75,351
604,245
63,87563,520355—
540,370
415,600
44,12067,13013,5191,833,849¥2,513,446

March 31, 2012

Due in 1 year
or less

Due after 1 year
through 3 years

Millions of yen
Due after 3 years
through 5 years

Due after 5 years
through 7 years

Due after
7 years

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

¥ 208,747
67,397
2,199
229,527
11,540
2,000
9,540
—
217,987
71,00051,49381,097
14,3972,326,497¥2,834,369¥¥

Hokuhoku Financial Group, Inc. Annual Report 2013——
250
363,242
23,31810,01013,308—339,924
108,100
117,571
88,98025,272
1,451,635¥1,815,127———
515,299
17,4483,020
14,428—497,851
336,100
85,94944,97030,831
1,069,815¥1,585,114

¥

—
—
—
270,924
5,281
—
3,281
2,000
265,643
192,100
54,91013,783
4,849
546,312¥817,236

Due after
7 years¥¥——
85,089909,309
12,89012,520370—
896,419
667,600
140,72174,652
13,4451,650,008¥2,644,408

March 31, 2013

Due in 1 year
or less

Due after 1 year
through 3 years

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

$ 4,578,323
1,439,947
21,243
1,906,658
100,617
32,004
68,613—
1,806,041
447,634
619,015582,503
156,889
23,533,563$31,479,734$

42,530——5,269,365
304,359
90,590213,769—
4,965,006
2,028,708
1,726,539
948,340
261,419
15,770,766$21,082,661

Thousands of U.S. dollars
Due after 3 years
Due after 5 years
through 5 years
through 7 years

$

—
—
—
5,839,720
263,445
26,582
236,863—5,576,275
3,933,014
860,943552,997229,321
11,236,727$17,076,447

$

—
—
4,253
4,861,215
44,136—44,136—
4,817,079
3,497,079
1,088,814
187,275
43,911
6,045,647$10,911,115

Due after
7 years$——
801,1816,424,729
679,160
675,385
3,775—
5,745,569
4,418,926
469,113713,777
143,753
19,498,670$26,724,580

Loans and bills discounted
Claims on bankrupt borrowers, substantially bankrupt borrowers, and potentially bankrupt borrowers amounted to ¥196,495 million ($2,089,267
thousand) and ¥189,476 million as of March 31, 2013 and 2012, respectively, and loans with no contractual maturities amounted to ¥35,610
million ($378,629 thousand) and ¥38,952 million as of March 31, 2013 and 2012, respectively. They are not included in the table above.
(7) Maturity analysis for financial liabilities with contractual maturities

March 31, 2013

Due in 1 year
or less

Due after 1 year
through 3 years

Millions of yen
Due after 3 years
through 5 years

Due after 5 years
through 7 years

Due after
7 years

Deposits ..........................................................................................
Negotiable certificates of deposits .....................................................
Borrowed money ..............................................................................
Total ...............................................................................................

¥8,308,886
164,227
146,408¥8,619,523¥1,173,522
440
513¥1,174,476¥329,555—
130¥329,685¥ 2,076—
50,000¥52,076¥ 4,154—
55,500¥59,654

March 31, 2012

Due in 1 year
or less

Due after 1 year
through 3 years

Millions of yen
Due after 3 years
through 5 years

Due after 5 years
through 7 years

Due after
7 years

Deposits ..........................................................................................
Negotiable certificates of deposits .....................................................
Borrowed money ..............................................................................
Total ...............................................................................................

¥8,065,385
97,68568,345¥8,231,416¥1,123,446
5,000
804
¥1,129,250¥373,746—
137¥373,884¥ 1,868—
32,500¥34,368¥ 3,129—85,500¥88,629

March 31, 2013

Due in 1 year
or less

Due after 1 year
through 3 years

Deposits ..........................................................................................
Negotiable certificates of deposits .....................................................
Borrowed money ..............................................................................
Total ...............................................................................................

$88,345,422
1,746,178
1,556,709$91,648,309$12,477,647
4,678
5,459
$12,487,784

Thousands of U.S. dollars
Due after 3 years
Due after 5 years
through 5 years
through 7 years$3,504,051—
1,382$3,505,433$ 22,079—
531,632$ 553,711

Due after
7 years$ 44,175—
590,112$634,287

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

Hokuhoku Financial Group, Inc. Annual Report 201347

28. Derivatives(1) Derivative transactions to which hedge accounting is not applied• Interest Rate-Related Transactions
Millions of yen
March 31, 2013

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

March 31, 2012

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

Contract amountContract amountdue after 1 year

Fair value

Unrealized
gain (loss)¥610,524
614,867
333,845339,287
4,088
462
/

¥559,504
562,325
266,332
266,9822,359
22/¥11,887(6,969)(3,868)3,869(1)
0¥ 4,918¥11,887(6,969)(1,221)
3,869
189
(13)
¥ 7,742Millions of yen
Contract amountdue after 1 year
Fair value

Unrealized
gain (loss)

Contract amount¥774,917
772,456
393,154
396,905
7,578
2,612
/

¥674,744
673,312229,710230,175
4,789
552
/

¥10,787(3,950)(2,542)2,543(3)
0¥ 6,834¥10,787(3,950)
764
2,543
319
(46)
¥10,418
Unrealized
gain (loss)

March 31, 2013

Contract amountThousands of U.S. dollars
Contract amountdue after 1 year
Fair value

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

$6,491,484
6,537,664
3,549,660
3,607,527
43,471
4,918/$5,949,010
5,979,006
2,831,813
2,838,729
25,086239/$126,400(74,100)(41,128)
41,143(16)
1$ 52,300$126,400(74,100)(12,989)
41,143
2,017(146)$ 82,325

Contract amountMillions of yen
Contract amountdue after 1 year
Fair value

Unrealized
gain (loss)• Foreign Exchange-Related Transactions

March 31, 2013

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

48

Hokuhoku Financial Group, Inc. Annual Report 2013

¥ 15,742
28,14819,677300,094
300,094/¥ 4,984
141—
222,524
222,524
/

¥

21
(827)
690
(12,143)
12,142¥ (116)

¥

21
(827)
690
21,787(17,436)¥ 4,235

March 31, 2012

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

Contract amount¥ 30,946
13,961
13,851
353,635
353,635/

March 31, 2013

Contract amount

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

$ 167,385
299,294
209,228
3,190,798
3,190,798/

Millions of yen
Contract amountdue after 1 year
Fair value¥ 14,712——
258,725
258,725
/

¥

45
215
96
(34,366)
34,366¥ 356

Unrealized
gain (loss)

¥

45
215
96
8,440
(1,587)¥7,210Thousands of U.S. dollars
Contract amountdue after 1 year
Fair value

Unrealized
gain (loss)$$

52,9961,500—
2,366,024
2,366,024/$

228(8,798)7,338(129,113)
129,109$ (1,236)

228(8,798)
7,338
231,657(185,392)$ 45,033

Millions of yen
Contract amountdue after 1 year
Fair value

Unrealized
gain (loss)• Commodity Related Transactions

March 31, 2013

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

March 31, 2012

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

March 31, 2013

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

Contract amount¥1,407
1,407/

Contract amount¥1,953
1,953/

Contract amount$ 14,966
14,966/¥1,4071,407/¥ (88)
166¥ 77¥ (88)
166¥ 77

Millions of yen
Contract amountdue after 1 year
Fair value

Unrealized
gain (loss)¥1,9531,953/¥ (22)
135¥113¥ (22)
135¥113

Thousands of U.S. dollars
Contract amountdue after 1 year
Fair value

Unrealized
gain (loss)$ 14,966
14,966/$ (946)
1,769
$ 823

$ (946)
1,769
$ 823

Hokuhoku Financial Group, Inc. Annual Report 201349

(2) Derivative transactions to which hedge accounting is applied• Interest Rate-Related Transactions
March 31, 2013

Millions of yen

Hedge accounting method

Contract amountContract amountdue after 1 year

¥50,000¥50,000¥(525)

24,522/

24,522/(Note)¥(525)March 31, 2012

Millions of yen

Hedge accounting method

Contract amountContract amountdue after 1 year

¥34,012/¥33,012/Type

Hedged item

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

Accounting method
employed in principle

Type

Hedged item

Swaps
Loans and bills discounted
Receive/floating and pay/fixed
Total .......................................................................................................................................................

Exceptional treatment forinterest swaps

March 31, 2013
Hedge accounting method

Fair value

Fair value(Note)—

Thousands of U.S. dollars
Type

Hedged item

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

Accounting method
employed in principle

Contract amountContract amountdue after 1 year

Fair value$531,632$531,632$(5,591)

260,735/

260,735/(Note)$(5,591)

Note: Amounts resulting from interest swaps with exceptional treatment are accounted for together with the financial instruments hedged. As a result, the fairvalue is included in the fair value of the loans stated in “27. Financial Instruments and Related Disclosures.”• Foreign Exchange-Related Transactions
March 31, 2013

Millions of yen

Hedge accounting method

Contract amountdue after 1 year

Type

Hedged item

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

Swaps
Forward contracts

Contract amount

¥

¥534

¥(126)

58,275
/

—
/

(315)
¥(442)March 31, 2012

Millions of yen

Hedge accounting method

Contract amountdue after 1 year

Type

Hedged item

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

Contract amount¥62,283/

March 31, 2013
Hedge accounting method

50

¥—
/

Fair value¥(3,990)¥(3,990)

Thousands of U.S. dollars
Type

Swaps
Forward contracts

Hedged item

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

Fair value

534

Hokuhoku Financial Group, Inc. Annual Report 2013

Contract amountContract amountdue after 1 year

Fair value$ 5,682$5,682$(1,346)

619,618/—/(3,356)$(4,702)29. 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 segments 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.
(1) Outline of reportable segments
The Group’s reportable segment is defined as an operating segment for which discrete financial information is available and examined by the
Board of Directors and Management Committees regularly in order to make decisions about resources to be allocated to the segment andassess its performance.
The Group comprehensively conducts banking business as its core business and other financial services under the control of the Company.
The Company recognized each of its consolidated subsidiaries as an operating segment. Therefore, Hokuriku Bank and Hokkaido Bank
are reportable segments.
(2) Method of calculating ordinary income, profit (loss), assets, liabilities and other amounts by reportable segments
Method of calculation applied to the reported operating segments is the same as described in “Significant Accounting Policies.” Profits ofoperating segments are the same as net income. Ordinary income from intersegment transactions is based on transaction prices determinedin the same manner as ordinary income from outside customers.
(3) Information on ordinary income, profit (loss), assets, liabilities and other amounts by reportable segments
Segment results for the years ended March 31, 2013 and 2012 are as follows:
Millions of yen
2013
Reportable segments
Hokuriku Bank Hokkaido Bank

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

¥

Subtotal

Othersegment

Total

Reconciliation

Consolidated

81,227382
81,6097,270
4,647,435¥4,472,758¥

183,135
1,560
184,696
19,586
10,923,481¥10,480,167¥16,037
5,654
21,691
1,108
76,746¥65,380¥

199,173
7,215
206,388
20,695
11,000,228¥10,545,547¥(36)(7,215)(7,251)(2,590)(20,997)¥(47,866)¥

199,136—
199,136
18,105
10,979,231¥10,497,680

¥

4,078
—
—

¥

8,573
—
—

¥

331
—
—

¥

8,904
—
—

¥

185
2,113
24,000

¥

9,090
2,113
24,000

¥

1,218

¥

4,239

¥

99

¥

4,338

¥

1

¥

4,340

Millions of yen
2012
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¥ 104,333
1,126
105,460
11,407
6,067,357¥5,823,337¥

86,263
1,318
87,582
5,284
4,498,409¥4,336,320¥

190,596
2,445
193,042
16,692
10,565,766¥10,159,658¥17,435
6,321
23,757864
78,401¥68,034¥

208,032
8,766
216,799
17,556
10,644,168¥10,227,693¥(54)(8,766)(8,821)(3,427)(14,851)¥(48,938)¥

207,977—
207,977
14,12910,629,316¥10,178,754

¥

5,131
—
—

¥

4,480
—
—

¥

9,612
—
—

¥

340
—
—

¥

9,952
—
—

¥

342
2,102
26,103¥

10,295
2,102
26,103

¥

6,505

¥

6,908

¥

13,414¥180¥

13,594¥(7)¥

13,586

Hokuhoku Financial Group, Inc. Annual Report 2013

51

Thousands of U.S. dollars
2013
Reportable segments
Hokuriku Bank Hokkaido Bank

Subtotal

Ordinary income
Ordinary income from outside customers .......................... $ 1,083,561 $ 863,658 $ 1,947,219
Ordinary income from intersegment transactions ...............
12,525
4,071
16,596
Total .................................................................................. 1,096,086
867,729
1,963,815
Segment profit ....................................................................
130,946
77,309208,255
Segment assets .................................................................. 66,730,952 49,414,519 116,145,471
Segment liabilities ............................................................... $63,874,625 $47,557,242 $111,431,867
OthersDepreciation ................................................................... $47,790 $43,366 $91,156
Amortization of goodwill ...................................................
———
Unamortized balance of goodwill ......................................
———
Increase in tangible fixed assets and intangible
fixed assets................................................................... $32,118 $12,958 $45,076Other
segment

Total

Reconciliation

Consolidated$170,517
60,121
230,638
11,791
816,023$695,169$ 2,117,736 $(385) $ 2,117,351
76,717(76,717)—
2,194,453(77,102)
2,117,351
220,046(27,539)
192,507
116,961,494 (223,256) 116,738,238$112,127,036 $(508,950) $111,618,086$ 3,527——$

94,683 $ 1,972 $—
22,471—
255,193

96,65522,471
255,193$ 1,058$

46,134 $46,15521$(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.

30. Subsequent Event(1) Appropriations of retained earnings
The following appropriations of retained earnings at March 31, 2013 were approved at the Company’s general stockholders’ meeting held on
June 21, 2013:

Cash dividends, ¥3.75 ($0.04) per share on common stock ......................................................................................................
Cash dividends, ¥7.50 ($0.08) per share on preferred stock (Type 5).........................................................................................

52

Hokuhoku Financial Group, Inc. Annual Report 2013

Millions of yen

Thousands of
U.S. dollars¥5,023805$53,410
8,567

INDEPENDENT AUDITOR’S 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 AUDITOR’S REPORTTo the Board of Directors of
Hokuhoku Financial Group, Inc.:
We have audited the accompanying consolidated balance sheet of Hokuhoku Financial Group, Inc. (the “Company”) and its consolidated subsidiaries as of March 31, 2013, and the related consolidated statements of income, comprehensive income, changes inequity, and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information,
all expressed in Japanese yen.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance withaccounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable
the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit
in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness ofthe entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial
position of the Company and its consolidated subsidiaries as of March 31, 2013, and the consolidated results of their operations andtheir cash flows for the year then ended in accordance with accounting principles generally accepted in Japan.
Convenience Translation
Our audit also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation
has been made in accordance with the basis stated in Note 1 to the consolidated financial statements. Such U.S. dollar amounts arepresented solely for the convenience of readers outside Japan.

June 17, 2013

Member of
Deloitte Touche Tohmatsu Limited

Hokuhoku Financial Group, Inc. Annual Report 201353

NONCONSOLIDATED FINANCIAL STATEMENTS

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

2013

2012

Thousands of
U.S. dollars
2013

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

¥ 394,219
45,42686,8604,499
1,269,622
4,332,774
5,594
31,571
81,257
7,345
11,48538,481(33,093)¥6,276,045¥ 224,048
5,753
112,777
5,659
1,315,428
4,233,960
6,415
46,27881,817
8,768
24,34040,987(38,878)¥6,067,357$ 4,191,594
483,009923,560
47,845
13,499,440
46,068,842
59,487
335,686
863,979
78,102
122,122409,160(351,875)$66,730,951

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

¥5,726,249
38,4642,052
165,06162
26,102
113
294
2,169
848
7,506
38,481
6,007,408¥5,545,102
64,1092,190
119,23631
40,620
143
304
2,294
803
7,513
40,987
5,823,337$60,885,167
408,979
21,825
1,755,044
666
277,544
1,206
3,135
23,064
9,017
79,817409,160
63,874,624

140,409
14,99864,632

140,409
14,99858,277

1,492,924
159,478
687,215

39,557(301)
9,340
268,637¥6,276,045

20,997(15)
9,351
244,019¥6,067,357

420,601(3,208)99,3172,856,327$66,730,951

Millions of yen
March 31

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

54

Hokuhoku Financial Group, Inc. Annual Report 2013

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

2013

2012

Thousands of
U.S. dollars
2013

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

¥ 61,739
13,318298
860
17,712
152
7,452
1,551
103,086¥ 65,662
14,349855
1,234
18,758
516
2,920
1,162
105,460$ 656,456
141,613
3,177
9,148
188,335
1,621
79,237
16,499
1,096,086

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

4,315
1,563
345
7,089
407
54,1438,487
8,803
85,156

5,923
1,919
668
7,069
—
55,9083,274
5,680
80,44345,885
16,624
3,671
75,376
4,332
575,692
90,247
93,608905,435

17,93025,017

190,651270
5,344¥ 12,315

45
13,563¥ 11,407

2,880
56,825$ 130,946

Millions of yen
Year ended March 31

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

Hokuhoku Financial Group, Inc. Annual Report 2013

55

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

2013

2012

Thousands of
U.S. dollars
2013

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

¥ 158,344
90,0002,728
4,000
1,228,276
3,069,307
5,021
40,51929,9006,497
13,836
26,533(27,531)¥4,647,435¥ 101,656
61,6432,342
3,948
1,156,403
3,053,067
4,276
57,95031,187
8,200
18,236
26,110(26,615)¥4,498,409$ 1,683,616
956,938
29,012
42,531
13,059,829
32,634,849
53,393
430,824
317,924
69,091
147,120
282,125(292,733)$49,414,519

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

¥4,281,922
1,881
104,180
61
15,00032,414
9,317
176
864
408
26,5334,472,758¥4,155,748
164
86,13041
15,00042,984
8,692
169
680
599
26,1104,336,320$45,528,147
20,0001,107,709
650
159,490344,651
99,068
1,872
9,191
4,339
282,125
47,557,242

93,524
16,79547,00093,524
16,79541,341

994,408
178,576499,744

17,356
174,676¥4,647,435

10,427
162,088¥4,498,409

184,549
1,857,277$49,414,519

Millions of yen
March 31

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

56

Hokuhoku Financial Group, Inc. Annual Report 2013

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

2013

2012

Thousands of
U.S. dollars
2013

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

¥50,602
8,146
2
53
202
15,768
5,176
1,660
81,612¥51,985
10,69917
17
187
14,885
8,199
1,596
87,589$538,044
86,62226
565
2,155
167,656
55,036
17,652867,756

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

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

3,929
2
1,045
327
1
7,648
1,743
48,7905,821
5,351
74,66135,081
28
10,5853,477
1385,5495,723
489,342
74,98040,956
745,734

11,476

12,927122,0223,215
989¥ 7,270

6,410
1,232
¥ 5,284

34,188
10,525$ 77,309

Millions of yen
Year ended March 31

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

Hokuhoku Financial Group, Inc. Annual Report 201357

CORPORATE INFORMATION(as of March 31, 2013)

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

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

The Hokkaido Bank, Ltd.

Hokugin Lease Co., Ltd.
(Leasing)

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

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

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

Hokuriku International Cayman Limited *1(Finance)

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

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

Hokugin Software Co., Ltd.
(Software development)

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

Hokuhoku Services Co., Ltd.
(Servicer)
Hokuhoku Capital Co., Ltd.*2(Venture capital, IPO consulting)*1. Liquidation was completed on July 19, 2013.
*2. Equity method-affiliated company

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

140,409100.005,970

The Hokkaido Bank, Ltd.

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

Banking

March 5, 1951

93,524100.001,611

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—December 5, 2003

500

100.00—30(100.00)—

Hokuhoku Services Co., Ltd.

1-6-8 Chuo-dori, Toyama City

Servicer

Hokugin Business Services Co., Ltd.

1883 Hiyodorijima, Toyama City

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

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)—

Dogin Regional Research InstituteCo., Ltd.

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

Research on regional economy,
survey research services,
consulting

August 8, 2002

100

(100.00)—

Hokuhoku Capital Co., Ltd.

1-6-8 Chuo-dori, Toyama City

Venture Capital

January 11, 1985

250

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

58

Main business activities

Hokuhoku Financial Group, Inc. Annual Report 2013

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)

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

Company outline (as of March 31, 2013)
Company name:Business:
Incorporation:
Location of headquarters:
Total assets:
Deposits (including NCDs):
Loans:
Issued shares:

The Hokuriku Bank, Ltd.
Banking
July 31, 1943 (founded in 1877)
1-2-26 Tsutsumicho-dori, Toyama City, Toyama¥6,276.0 billion¥5,726.2 billion¥4,332.7 billion

Common stock
1,047,542,335
Capital adequacy ratio(non-consolidated):
11.78%
Employees:
2,889
Branches (as of June 30, 2013)
Domestic:
188 (143 branches, 45 sub-branches)
Overseas:
6 representative offices

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 2013

59

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

Company outline (as of March 31, 2013)
Company name:Business:
Incorporation:
Location of headquarters:
Total assets:
Deposits (including NCDs):
Loans:
Issued shares:

The Hokkaido Bank. Ltd.
Banking
March 5, 1951
4-1 Odori Nishi, Chuo-ku, Sapporo City
¥4,647.4 billion¥4,281.9 billion¥3,069.3 billion
Common stock:
Preferred stock ( Type 2):

486,634,512
107,432,000

Capital adequacy ratio(non-consolidated):
11.23%
Employees:
2,347
Branches (as of June 30, 2013)
Domestic:
140 (133 branches, 7 sub-branches)
Overseas:
2 representative offices

60

Hokuhoku Financial Group, Inc. Annual Report 2013

August 1964

Present head office built

June 1971

Online system (first) launched

July 1976

Online system (second) launched

December 1980

Received blanket approval to engage in correspondentbanking services

April 1981

Hokkaido Small and Medium Corporation Human Resource
Development Fund established

June 1986

Launched online foreign exchange system

September 1987

Debuted on the first section of the Tokyo Stock Exchange

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 AUDIT & SUPERVISORY BOARD MEMBERS
Hokuhoku Financial Group, Inc.
Chairman:
Yoshihiro Sekihachi

Directors:
Hidenori Mugino
Masahiro Sasahara
Takashi Nakano
Tsutomu Morita
Hirotaka Nikaido
Yuji Oshima

Audit & Supervisory Board
Members:
Koichi Sugawa
Norikiyo Hayashi
Yozo Maeizumi
Tatsuo Kawada

Chairman:
Hidenori Mugino

Managing Director:
Tsutomu Morita

President:
Eishin Ihori

Director:
Hirotaka Nikaido

Audit & Supervisory Board
Members:
Masaru Nanbu
Kenichi Nakamura
Isao Nagahara
Katsusuke Watanuki

President:
Eishin Ihori

The Hokuriku Bank, Ltd.

Senior Managing Directors:
Tatsuya Kaseda
Tetsuji Mitsuzuka
Takashi Nakano

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

Managing Directors:
Toshihiro Katayama
Tetsuya Kitani
Noriyoshi Murakami
Director:
Takashi Nakano

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
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

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

• Shanghai Representative Office
Shanghai International Trade Center,
602, Yan’an West Road 2201,
Changning, Shanghai 200336, P.R. of
China
Telephone: +86-21-6270-8108
Facsimile: +86-21-6270-8338
E-mail: shanghai@hokugin.net• Dalian Representative OfficeMori Building 7F, 147 Zhongshan,
Xigang District, Dalian, Liaoning, P.R.
of China
Telephone: +86-411-3960-8018
Facsimile: +86-411-3960-8019
E-mail: dalian@hokugin-zg.com• Singapore Representative Office
6 Battery Road # 15-02 Singapore
049909
Telephone: +65-6534-0010
Facsimile: +65-6534-0070
E-mail: hokuriku@singnet.com.sg• London Representative Office
Level 12, City Tower, 40 Basinghall
Street, London EC2V 5DE UK
Telephone: +44-20-7374-6028
Facsimile: +44-20-7374-6055
E-mail: london@hokugin.co.uk• Bangkok Representative Office
No.209, K-Tower A, 9th Floor, Unit 2/1,
Sukhumvit 21 Road (Asoke), Klongtoey
Nua, Wattana Bangkok 10110, Thailand
Telephone: +66-2-261-8495
Facsimile: +66-2-261-8497
E-mail: bangkok@hokugin.asia

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 201361

北北金融控股集团简要（截至 2013 年 3 月 31 日）

设立日期∶ 2003 年 9 月 26 日

北北金融集团的经营活动范围不是限于一个地域，而
是在广泛的地域内展开着。

总行地址∶富山县富山市堤町通 1 丁目 2 番 26 号

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

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

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

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

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

福井县 ......................................................... 22 分行（或支行）北海道地区.................................................. 158 分行（或支行）三大都市圈.................................................. 17 分行（或支行）东京、横滨.................................................. 10 分行（或支行）名古屋 .........................................................

3 分行（或支行）

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

4 分行（或支行）

其他地区 ( 仙台、新泻、长野、高山 ) ...........

4 分行（或支行）

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

8 代表处

纽约代表处

（北陆银行）

南萨哈林斯克代表处 （北海道银行）伦敦代表处（北陆银行）

新加坡代表处 （北陆银行）
曼谷代表处（北陆银行）

大连代表处（北陆银行）

上海代表处

（北陆银行）

沈阳代表处

（北海道银行）（2013 年 6 月 30 日）

2002 年 5 月 北陆银行和北海道银行缔结了全面业务协助协议ఘ‫ޱ‬

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

ೌ๭ࣱஹ཈૲

໅ᆷ
‫ܐ‬ஏ

ഁኙ
ຢࣴ
ఽࢻ

设立北银金融控股集团股份有限公司ᄧৠൻ

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

北北金融控股集团股份有限公司诞生ҽ߽‫ل‬

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 2013日）

北北金融控股集团 董事致辞

（相片左边）

董事长

堰八义博（北海道银行 总行长）
（右边）

总裁

庵

荣伸（北陆银行 总行长）承蒙大家平时对我公司以及集团公司的惠顾及提拔，不胜感谢。
日本的经济自安倍政府上台以来，日元继续贬值，可以预见以出口为主业的企业的业绩会逐渐恢复 ；但同时低利息的金融政策不会改变的预测也越来越强，对金融机构来说，可以预见到将来比较长的一段时间内收益环境会比较严酷。
在此大环境下，本公司 2013 年度的中期经营计划“GO for IT !”出炉了。在前中期
计划中，扩大客户数以及存款达到 10 兆日元的基础上，稳定运转三行共同利用系统，前中期务实的努力取得了应有的成果。但另一方面，由于存贷款差幅的缩小和手续费用等劳务利润的增长的困难，各种经营费率的居高不下等收益方面的挑战；还有由于年轻行员的增加，所需的人才培养，以及合规性应对的强化的必要性等内部应对方面的问题也反映了出来。
新中期计划，从现在至 2015 年度为止的三年间，是实现本集团公司的持续性成长事业战略成为《为地区所信赖，能够依靠的金融集团》的最佳努力期间 ；展开加强与地区客户
的联系的市场战略 ；提高经营能力进行经营资源再分配 ；培养人才，创造公正坚实的企业
文化以及加强内部统一管理。
另外，伞下的北陆银行和北海道银行的经营区域内，广受关注的北陆新干线和北海道
新干线在不久的将来会开通，这二条线被期待作为区域经济发展的起爆器 ；本集团公司作为地区经济的活性剂被寄予极大的厚望。本集团充分发挥大地域金融机构的优点，灵活运用对接洽谈会的形式积极展开对客户的海外商务活动的支援。
本集团将取得地区的信赖，为恢复地区活力而作贡献，我们将通过这些努力，提高本企业的价值。今后，请各位继续支持惠顾本公司，请多多关照。

总裁

庵

荣伸
2013 年 7 月
Hokuhoku Financial Group, Inc. Annual Report 201363

中期经营计划
我集团在上次的中期经营计划“Road to 10”（2010 年 4 月到 2013 年 3 月）中，为了成为“存款额 10 兆日元的金融
集团”这一目标努力着。在严峻的经营环境下，收益项目虽然未达成计划，但在 2013 年 3 月末存款余额为 10 兆 81 亿日元，从而达到了 10 兆日元这一目标。这些为未来的发展建立了一个交易平台。另外，三行共同利用系统的稳定运行等在提高经营效率方面也取得了一定的成绩。资本充足率也超过了目标水平，2012 年还实现了获得 5,000 万股的库存股等，在资金
政策方面，为了增加股东价值我们一直在努力推行新措施。
当前，围绕着我公司的经营环境是，由于地方人口和家庭数量的减少而导致的市场萎缩，低利率的持续存在，加上银
行之间的竞争加剧，也包括核电站问题及新兴国的发展放缓等不确定性因素，我们的经营环境将比以往任何时候还要严峻。
在这样的环境中，我们将未来 3 年定位为“朝着持续发展而奋斗的崭新的事业战略的最佳努力期间”，为了在不断变化
的环境中可持续发展，我们将加强与地方客户的关系，并努力加强和重建内部管理。经营措施上，在进一步推行“强化营业力”、“经营效率化”的同时，坚持进行“强化经营基础”，通过取得地方社会的信任，激活该地区经济来提高企业的价值。

2016 年 3 月期的目标计数（2 行合算，联结）

计划的概要
名 称

中期经营计划“GO for IT ！”期 间

3 年（2013 年 4 月～ 2016 年 3 月）

定 位

朝着持续发展而奋斗的崭新的事业战略的
最佳努力期间

集团的目标

成为地方可值得亲近和信赖的金融集团

基本方针

1. 加强与地方客户的关系，加强和重建内
部管理，从而做好在不断变化的环境中
可持续发展的准备。
2. 在进一步推行“强化营业力”、“经营效总存款平均余额10 兆 1,100 亿日元贷款平均余额

7 兆 4,800 亿日元

主营业务净利润

470 亿日元联结本期净利润

185 亿日元

联结资本充足率10% 以上率化”措施的同时，坚持进行“强化经营基础”。

OHR（以主营业务毛利润为基础）

67%

不良贷款率

2% 多

3. 通过取得地方社会的信任，激活该地区经济来提高企业的价值。

中期经营计划“GO for IT ！”基本方针

地域活性化

强化营业力

提高企业价值

经营效率化强化经营基础

展开措施方案加强和重建内部管理
人力资源开发
风险管理系统的完善64

Hokuhoku Financial Group, Inc. Annual Report 2013

经营资源再分配加速协同效应
加强企业社会责任强化营业力▼ 措施• 进一步增加客户数强化交易平台• 争取成为客户的首要交易银行，扩大金融产品的营销• 加强在重点领域的知识深度（农业，医疗，福利，环境和再利用能源领域）强化咨询业务

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

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

加大个人交易市场

• 灵活运用非面对面的营销形势• 完善和强化投资信托和保险营销体系

强化运用有价证券

• 在对企事业资金需求冷缩而导致资金收益减少方面起到补充效果

经营效率化

▼ 措施

• 构建符合北北金融控股集团规模的成本体系

强化业务集中化( 总行机能的集中化 , 后勤办公业务的共同化 , 商品和广告等共同化 )共同化• 强化集体化管理的基础• 从 3 行共同利用改为 4 行共同利用，从而降低成本

追求共用系统的优势• 继续推行集团内部的辅助系统和业务集体化

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

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

提高资产质量• 积累风险比重较低的良好资产
• 与外部机构的协作

强化支援企业重组

• 灵活运用地方的重组基金资本充足率 ( 北北金融控股集团联结 )11.88%

10.0%

资本充足率
Tier 1 比率

资本充足率

8.20%
依据预测的资本充足率，控制优先股和劣
等资本

1,748

5,244

3,893
Tier 2 其他Tier 1

包括过渡期的劣等资本 725 亿日元，优先股 537 亿日元以积累收益来扩大主营业务资本
巴塞尔协议Ⅲ为基准

2013/3 业绩

还原方针
普通股股息

阶段性的增发股息

2016/3 计划（亿日元）• 以股息达到 30% 以上为基本目标，扩大收益将阶段性的增发股息。
• 考虑到巴塞尔协议Ⅲ过渡期算入的劣等资本金额较少，为了确保联结资本充足率达到 10% 左右，将调高储备净利润比率。

Hokuhoku Financial Group, Inc. Annual Report 2013

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）

2012 年度

2011 年度

1,991

－ 88

与上年度相比减少 88 亿日元，为 1,991 亿日元。联结
经常利润与上年度相比减少 95 亿日元，为 293 亿日元。

变动
经常收益

我集团今年的联结会计年度的业绩 ：联结经常收益

2,079

经常利润

293

－ 95

388

本期净利润

181

＋ 39

141

资本充足率

11.88%＋ 0.16%

11.72%

联结本期净利润与上年度相比增加 39 亿日元，为 181
亿日元。
联结资本充足率与上年度相比提高了 0.16 个百分点，达到 11.88%。
2012 年度期末的第 1 回第 5 种优先股，按照原定计划每股支付了 7.50 日元股息。另外，普通股虽然未能支
付期中的股息，但是到了期末每股支付了 3.75 日元股息，
这与上年度股息同额。

营业概况（北陆银行、北海道银行）（货币单位 ：亿日元）

2 行合算
2012 年度

主营业务毛利润 ：因为资金利润以及金融衍生商品
利润的减少，与上年度相比减少了 108 亿日元，为 1,455

2011 年度

亿日元。今年与上年度不同的是今年没用更新系统方面
的因素，所以经费与上年度相比只减少了 55 亿日元。随

变动
经常收益

1,846

－ 83

1,930

之，主营业务净利润与上年度相比减少了 53 亿日元，为主营业务毛利润

1,455

－ 108

1,563

503 亿日元。

经费 ( 临时处理部分除外 )

951

－ 55

1,006

经常利润 ：信贷成本与上年度相比增加了 66 亿日

主营业务净利润

503

－ 53

557

元，因此，经常利润与上年度相比减少了 105 亿日元，信贷相关成本

170

＋ 66

104

为 300 亿日元。

4

＋ 18

－ 14

经常利润

300

－ 105

405

本期净利润

195

＋ 28

166

有价证券等相关盈亏

本期净利润 ：随着法人税等调整额的减少，本期净
利润与上年度相比增加了 28 亿日元，为 195 亿日元。

（货币单位 ：亿日元）（货币单位 ：亿日元）

北陆银行
2012 年度

北海道银行
2011 年度

2012 年度

变动
1,030

－ 23

1,054

816

－ 59

875

主营业务毛利润

823

－ 61

885

631

－ 46

678

经费 ( 临时处理部分除外 )

509

－ 33

542

442

－ 22

464

主营业务净利润

314

－ 28

343

189

－ 24

214

信贷相关成本

93

＋ 49

44

76

＋ 16

59

经常收益

66

2011 年度
变动

经常利润

183

－ 91

274

116

－ 14

131

本期净利润

123

＋9

114

72

＋ 19

52

资本充足率

11.78%－ 0.07%

11.85%

11.23%＋ 0.43%10.80%

Hokuhoku Financial Group, Inc. Annual Report 2013

Hokuhoku Financial Group, Inc.

Printed in Japan