Annual Report
2020
Year ended March 31, 2020

Hokuhoku Financial Group, Inc.

Company outline (as of March 31, 2020)
Company name: Hokuhoku Financial Group, Inc.
Date of establishment: September 26, 2003
Location of head office: 1-2-26 Tsutsumicho-dori, Toyama City
Purpose of business: Management and control of subsidiaries and affiliates and ancillary and related business
Capital: ¥70,895 million
Shares issued and outstanding:Common stock…………………………

132,163,014

Preferred stock (Type 5)………………

96,698,000

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
Performance Highlights…………………………………………………… 4
Characteristics of Our Main Business Area……………………………… 8
President’s Message………………………………………………………… 10
Process for value creation………………………………………………… 14
Hokuhoku Financial Group SDGs Declaration and Key CSR Activity Themes……… 16
Medium-Term Management Plan “ALL for the Region”………………… 17
Medium-Term Management Plan………………………………………… 19
TOPICS in each strategic area …………………………………………… 21
Stakeholder Communication……………………………………………… 27
Building a sound and resilient management foundation………………… 28
CORPORATE GOVERNANCE………………………………………… 28
MEASURES FOR RISK MANAGEMENT……………………………… 33
MEASURES FOR COMPLIANCE……………………………………… 36
Consolidated Financial Statements
Consolidated Balance Sheet…………………………………………… 39
Consolidated Statement of Income…………………………………… 40
Consolidated Statement of Comprehensive Income………………… 40
Consolidated Statement of Changes in Equity………………………… 41
Consolidated Statement of Cash Flows……………………………… 43
Notes to Consolidated Financial Statements………………………… 44
Independent Auditor’s Report……………………………………………… 74
Non-consolidated Financial Statements
The Hokuriku Bank, Ltd.
Non-consolidated Balance Sheet (Unaudited)……………………… 77
Non-consolidated Statement of Income (Unaudited)……………… 78
The Hokkaido Bank, Ltd.
Non-consolidated Balance Sheet (Unaudited)……………………… 79
Non-consolidated Statement of Income (Unaudited)……………… 80
Corporate Information……………………………………………………… 81
Outline of Subsidiaries — Hokuriku Bank………………………………… 82
Outline of Subsidiaries — Hokkaido Bank………………………………… 83
Directors……………………………………………………………………… 84
简单的本集团中文简要…………………………………………………… 85

Profile
Since its establishment in 1877, Hokuriku Bank has

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

developed an extensive network of branches throughout

Our extensive network is outlined below.

the Hokuriku district. On account of trade through the

Hokuriku district……………………………… 151 branches
Toyama prefecture……………………………… 93 branches
Ishikawa prefecture…………………………… 36 branches
Fukui prefecture………………………………… 22 branches

Kitamae-bune or “Northbound Ships,” branches extended
to the major cities of Hokkaido, enabling the bank tomeet customers’ needs. The Hokkaido Bank, which wasestablished in 1951, has developed a network of branches

Hokkaido……………………………………… 161 branches

throughout Hokkaido, and built a firm business structure

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

centered on individuals and small and medium-sizedenterprises.
The Hokuriku Bank, Ltd. and The Hokkaido Bank, Ltd.
underwent management integration in September 2004 toform the Hokuhoku Financial Group Inc., which today oper-

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

ates a super-regional financial network that encompasses

Overseas………………………………………
9 offices
New York Representative Office (Hokuriku Bank)
Yuzhno-Sakhalinsk Representative Office (Hokkaido Bank)
Vladivostok Representative Office (Hokkaido Bank)
London Representative Office (Hokuriku Bank)
Singapore Representative Office (Hokuriku Bank)
Bangkok Representative Office (Hokuriku Bank)
Dalian Representative Office (Hokuriku Bank)
Shanghai Representative Office (Hokuriku Bank)
Shenyang Representative Office (Hokkaido Bank)

the Hokuriku region, Hokkaido, and Japan’s three major
metropolitan areas (Tokyo, Osaka, and Nagoya areas).

May 2002

Comprehensive business alliance
between
Hokuriku Bank and Hokkaido BankMay 2003

Agreement on full integration ofmanagement of Hokuriku Bank andHokkaido Bank

(As of June 30, 2020)

LondonSeptember
2003

Vladivostok
YuzhnoSakhalinsk

Shenyang
DalianHokugin Financial Group, Inc.
established

New York

Shanghai

Hokuriku Bank Group comes undermanagement of Hokugin Financial
Group

Bangkok
Singapore

Management integration effected
through equity swap
September
2004

4 branches

Hokkaido

Hokuhoku Financial Group, Inc. wasborn.

Hokuriku district
Ishikawa

Toyama

Fukui

Tokyo
Osaka

NagoyaThree major metropolitan areas
Hokuhoku Financial Group, Inc. Annual Report 2020

1

MESSAGE FROM THE MANAGEMENT

2

Left: Eishin Ihori

Right: Masahiro Sasahara

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

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

Hokuhoku Financial Group, Inc. Annual Report 2020

We would like to express our sincere gratitude for your continued patronage of
Hokuhoku Financial Group and its subsidiaries.
The environment surrounding the Group has changed significantly since theoutbreak of the COVID-19. Various demands have been lost due to decrease inactivities of people, and it has affected the whole economy as we can see in deterioration in business confidence, production adjustment, postponement of capital
investment and deterioration in employment environment. The impact on the regional economy, which has structural issues such as declining birthrate, aging
population and outflow of population to urban areas, is intense and the outlook forthe future is uncertain.
In such an environment, our group will make full use of our ability to propose
optimal solutions to customers with the wide range of financial products and services, which we have honed through our daily effort to meet customers’ various
needs and to carry out the medium-term management plan, “ALL for the Region”.
As a regional financial institution, we will exert our financial intermediary function anddo our best to support customers in the region.
In addition, regarding digital services such as online banking and cashless
settlement services which we have promoted to improve convenience for customers and operational efficiency in the Group, we will continue to improve and expand
such services to meet customers’ new needs in their "new lives in the society with
the COVID-19".
In the medium-term management plan, we established our goal to be “a financial group that contributes to customers and local communities by providing thebest financial services in the region to create common values and to grow up anddevelop together with the region." We will continue to make efforts to improve
corporate value and shareholder value by achieving that goal and by being chosen
in the region.
We would like to ask for your continued support and patronage.
July 2020

Eishin Ihori
President

Masahiro Sasahara
Deputy President

Hokuhoku Financial Group, Inc. Annual Report 2020

3

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

FY2019FY2018Y-o-Y Change
(1.2)
(3.6)

Ordinary income
Ordinary profits
Net income attributable toowners of the parent

182.4
31.6

183.6
35.3

20.2

(4.1)

24.3

Capital adequacy ratio

8.94%(0.15%)

9.09%

With regard to the Company’s operating performance in thefiscal year ended March 31, 2020, consolidated ordinary
income fell by ¥1.2 billion year-on-year to ¥182.4 billion.
Consolidated ordinary profits decreased by ¥3.6 billion to¥31.6 billion.
Net income attributable to owners of the parent decreased by ¥4.1 billion to ¥20.2 billion.
The capital adequacy ratio was 8.94% on a consolidated basis at the end of the fiscal year.
With regard to the payment of dividends for the fiscal
year ended March 31, 2020, dividends for common stock
were ¥40.00 per share, paid once as the year-end dividends, and dividends for preferred stock (Type 5) were thedesignated ¥7.50 per share (¥15 annually) paid respectively
as the interim and year-end dividends.

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

(¥ billion)

FY2019Ordinary income
Core gross business profits
Expenses (excluding temporarily processed portion)
Core net business profits
Excluding gains (losses) on
cancellation of investment trusts
Credit costs
Ordinary profits
Net income

163.5
123.2

FY2018Y-o-Y Change
(2.2)
(2.4)

165.7
125.7

85.3

(1.1)

86.5

37.8

(1.2)

39.1

34.5

(2.4)

37.0

12.0
31.4
20.8

7.4
(5.2)
(5.7)

4.6
36.7
26.6

Total ordinary income for both banks was ¥163.5 billion,
down ¥2.2 billion year-on-year, while net income decreasedby ¥5.7 billion to ¥20.8 billion.
At Hokuriku Bank, ordinary income decreased by ¥1.7
billion to ¥88.5 billion and net income decreased by ¥4.3
billion year-on-year to ¥11.2 billion.
At Hokkaido Bank, ordinary income decreased by ¥0.5
billion to ¥74.9 billion and net income decreased by ¥1.4
billion year-on-year to ¥9.5 billion.

(¥ billion)(¥ billion)

Hokuriku Bank
FY2019Ordinary income
Core gross business profits
Expenses (excluding temporarily processed portion)
Core net business profits
Excluding gains (losses) on
cancellation of investment trusts
Credit costs
Ordinary profits
Net income

88.5
66.8

Capital adequacy ratio

Hokkaido Bank
FY2018Y-o-Y Change
(1.7)
(2.2)

FY2019FY2018

90.2
69.1

74.9
56.3

Y-o-Y Change
(0.5)
(0.1)

75.5
56.5

45.7

(0.7)

46.4

39.6

(0.4)

40.1

21.1

(1.5)

22.6

16.7

0.2

16.4

19.9

(1.2)

21.1

14.6

(1.2)

15.9

9.2
17.7
11.2

6.4
(4.4)
(4.3)

2.8
22.1
15.5

2.7
13.7
9.5

1.0
(0.7)
(1.4)

1.7
14.5
11.0

8.59%

(0.20%)

8.79%

8.76%

(0.07%)

8.69%

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

130.7
1.5
17.8
16.7

Net fees and commissions

Other income

125.7
1.0
16.5

Total 123.2
1.2
16.5

112.5

108.1

105.4

FY2017FY2018FY2019(¥ billion)

4

Hokuhoku Financial Group, Inc. Annual Report 2020

‌Net interest income……¥105.4 billion
Due to falls in interest on loans and discounts and interestand dividends on securities, net interest income declinedby ¥2.7 billion year on year.
‌Net fees and commissions……¥16.5 billion
Although commissions on sales of insurance declined, net
fees and commissions overall were level year on year.
‌Other income……¥1.2 billion
Due to an increase in gain on foreign exchange transactions, other income rose by ¥0.2 billion year on year.
‌Core gross business profits……¥123.2 billion
As a result of the above, core gross business profits
decreased by ¥2.4 billion year on year.

Expenses <Total of both banks>
Hokuriku Bank

67.89%

Hokkaido Bank

‌Expenses……¥85.3 billion
Due to a decline in personnel expenses, expenses fell by¥1.1 billion year on year.

OHR

68.85%
69.27%

88.8

86.5

47.5

46.4

45.7

41.3

40.1

39.6

FY2017FY2018FY2019

Total

85.3

(¥ billion)

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

0.34%

41.9

23.7

Hokkaido Bank

ROA

0.30%

0.28%

39.1

Total

‌Core net business profits……¥37.8 billion
As the decline in expenses partly offset the decline in coregross business profits, core net business profits declinedby ¥1.2 billion year on year.

37.8

22.6

21.1

18.2

16.4

16.7

FY2017FY2018FY2019(¥ billion)

Net Income <Total of both banks>
Hokuriku Bank

‌Net income……¥20.8 billion
Net income decreased by ¥5.7 billion year-on-year due
mainly to an increase in credit costs.

Hokkaido Bank

26.6
24.0
Total

20.8

15.5
15.7

8.2

11.2

11.0

9.5

FY2018FY2019(¥ billion)

FY2017

Hokuhoku Financial Group, Inc. Annual Report 2020

5

PERFORMANCE HIGHLIGHTS

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

‌Loans and bills discounted……¥8,673.1 billion
Due to the increase in loans to SMEs and individuals,
including housing and consumer loans, there was anincrease of ¥312.2 billion compared with the end of theprevious fiscal year.

Hokkaido Bank

Total

8,673.1

8,189.4

8,360.8

4,670.1

4,740.3

3,519.2

3,620.5

3,762.7

2018

2019

2020

4,910.3(¥ billion)
End of March

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

‌Loans to SMEs……¥5,397.4 billion
Due to actively working on initiatives related to regional
demand for financing, loans to SMEs increased by ¥121.5
billion compared with the end of the previous fiscal year.

Hokkaido Bank

Total

5,397.4

5,153.9

5,275.8

3,050.2

3,094.8

3,191.4

2,103.7

2,180.9

2,206.0

2018

2019

2020

(¥ billion)
End of March

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

‌Deposits (including negotiable certificates ofdeposit)……¥11,662.6 billion
Deposits increased by ¥222.9 billion compared with theend of the previous fiscal year due to increases mainly inindividual deposits.

Hokkaido Bank

Total 11,662.6

11,180.7

11,439.7

6,505.8

6,636.8

6,735.4

4,674.9

4,802.8

4,927.2

2018

2019

2020

(¥ billion)
End of March

6

Hokuhoku Financial Group, Inc. Annual Report 2020

Capital Adequacy Ratio <On a consolidated basis>
Capital‌Capital adequacy ratio……8.94%
Although 10% of the ¥53.7 billion in preferred stock (Type5) was the subject of a partial redemption on October 1,
2019, capital adequacy on a consolidated basis stayed
securely in the upper 8% level at 8.94%, 0.15 points
lower than the end of the previous fiscal year, owing to
the accumulation of retained earnings.

Capital adequacy ratio

9.49%

9.09%

8.94%

544.5

521.0

529.8

2018

2019

2020

(¥ billion)
End of March

Disclosed Claims under the Financial Reconstruction Law <Total of both banks>‌Disclosed claims under the Financial Reconstruction
Law……¥153.4 billion
Disclosed claims under the Financial Reconstruction Law
fell by ¥1.2 billion compared with the end of the previous
fiscal year.
‌NPL ratio……1.71%
The NPL ratio fell by 0.08 percentage points comparedwith the end of the previous fiscal year.
Substandard claims
Bankrupt and substantially bankrupt claims

Doubtful claims
NPL Ratio● ‌Disclosed Claims under the Financial Reconstruction Law: The bankclassifies both loans and other assets in line with the stipulations of the
Financial Reconstruction Law.
● ‌Claims subject to disclosure: loans, customers’ liabilities for acceptance and guarantees, foreign exchanges, accrued interest, suspense
payments, securities loaned, private bonds with the Bank’s own
guarantees (regarding claims on obligors requiring caution, loans andprivate bonds with the Bank’s own guarantees only).
Substandard
claimsDoubtful claims
1.74%

1.79%

147.5
19.2

154.6
18.2

112.2

120.3

16.1

End of March

2018

16.1

2019

1.71%

Total

153.4

Bankrupt andsubstantiallybankrupt claims

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

119.5

12.8

This category is defined as claims on borrowers
requiring caution under asset self-assessment.
This category comprises past due loans (threemonths or more) and restructured loans underthe Banking Law.
This category is defined as claims on potentiallybankrupt borrowers under asset self-assessment.
The execution of contracts on repayment of theprincipal and payments of interest is highly
doubtful.
This category is defined as the sum of claims onbankrupt borrowers and effectively bankrupt
borrowers.

(¥ billion)

2020

Ratings
Rating and Investment
Information, Inc.

R&I

A

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

Hokuhoku Financial Group, Inc. Annual Report 2020

7

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

Number of businesses*1

ToyamaPrefecture aIshikawa
Prefecture b

Fukui
Prefecture c

Total
a+b+c

1.06Mn(37th)

1.15Mn(34th)

0.78Mn(43rd)

3.00Mn4,248(33rd)

4,186(35th)

4,191(34th)

Population(Ranking)
Square Measure(Ranking) km2

Hokkaido—

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

Hokkaido

242

Hokuriku

163

Toyama55

Ishikawa

63

Fukui

44

(JPY Bn)

ToyamaaIshikawa
b

Fukui
c

Total
a+b+c

4,566.2(0.83%)(31st)

4,623.0(0.84%)(29th)

3,211.1(0.58%)(42nd)

12,400.4(2.26%)

GPP(Proportion)(Ranking)(Thousand)

Hokkaido
19,018.0(3.46%)(9th)

Industrial Structure*2
Primary
1.0%

Primary
4.5%
Secondary
34.4%

Primary
1.1%
Secondary
17.7%

Secondary
27.3%

Hokuriku

Hokkaido

All Japan

Tertiary
64.6%

Tertiary
77.8%

Tertiary
71.6%

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

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

Abundant Natural Resources
Hokkaido
26%

Hokkaido
13%

Hokkaido
25%

Agricultural
land

Agricultural
products

Fishery
products

74%

87%

75%

Wheat / Potato / Onion /Milk etc.

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

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

8

Hokuhoku Financial Group, Inc. Annual Report 2020

Increasing Numbers of Tourists Visiting Hokkaido

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

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

Total tourists

(Mn)
9.1

8.8
8.2

7.8

2.0

2015

2.3

2016

2.7

2017

3.1

2018

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

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

732.5
621.8

654.0

624.6

No. 2
in Japan

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

Many Global Niche Top Companies in Ishikawa Prefecture

2015

2016

2017

2018

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

Ishikawa Prefecture has a developed industrial sector, centered on
the textile and machinery industries. In 2020, the Ministry of Economy, Trade and Industry’s Manufacturing Industries Bureau selected
2 machinery and processing-related companies, and 1 electricaland electonic-related companies from Ishikawa Prefecture to be
included in the “Global Niche Top Companies.” Companies wereselected based on a determination that they were strong in suchareas as: [i] Compatibly achieving both global share and profits; [ii]Having unique and independent characteristics; [iii] Addressing
approaches to risk of losing out to competitors; and [iv] Maintaining
sustainability of their global share.

Hokuhoku Financial Group, Inc. Annual Report 2020

9

PRESIDENT’S MESSAGE

Hokuhoku
Financial Group’sMission
The Group’s mission is to contribute to building thefuture for regions by providing financial support forsustained development that overcomes the various issues
and difficulties in the local communities where we arefirmly based.
I will explain the approach and initiatives that we think
are important in fulfilling this mission.

Eishin Ihori Pr e sident(Pr e sident, The Hokuriku Bank, L t d.)

The Group’s FY2019 Operating PerformanceFirst, I will explain the FY2019 operating performance.
A l t h o u g h t h e G r o u p’s consolidated net income
attributable to owners of the parent fell ¥4.1 billion yearon-year, it stood at ¥20.2 billion, surpassing the level
forecast at the beginning of the fiscal year by ¥0.7 billion.
On the basis of the total for both banks (The Hokuriku
Bank, Ltd. and The Hokkaido Bank, Ltd.), core net
business profits calculated by deducting expenses fromincome generated from the main business such as loans,interest and dividends on securities, and commissions

10

Hokuhoku Financial Group, Inc. Annual Report 2020

stood at ¥37.8 billion, exceeding the forecast operating
performance by ¥0.8 billion. Credit costs relating to thedisposal of bad debts stood at ¥12.0 billion, exceeding
the forecast by ¥8.5 billion, ordinary profits stood at¥31.4 billion, and net income stood at ¥20.8 billion.

Regarding the forecast operating performance for
FY2020, we have set consolidated ordinary profits at¥26.0 billion, down ¥5.6 billion year-on-year and net
income attributable to owners of the parent at ¥16.5
billion, down ¥3.7 billion year-on-year.

The Environment and Issues for the Region and the Group
Next, I would like to talk about the environment andissues that are facing the region and the Group.
The circumstances in Japan during the past year haveencompassed downward pressures on the economy
such as the serious shortage of people due to thesustained decline in population and the declining birthrate and aging population as well as the increase in the
consumption tax and frequent natural disasters fromtyphoons and torrential rains, yet there had been
support from the opportunities ahead of the 2020
Tokyo Olympics and the economy had been stabilizing.
However, the impact from the spread of the novel coronavirus
disease (COVID-19) from 2020 has pushed down the real
growth rate for FY2019 GDP to negative 0.1%, the firstnegative growth rate in five years and a change in direction.
There are concerns about a second and third wave for
COVID-19, and the entire world is likely to be racking its brains
about how to adapt to this complete change in environment.
In the Company’s primary areas of Hokuriku andHokkaido, urban infrastructure is in decay with theincrease in unoccupied houses and hollowing out of
town centers due to population decline, declining birthrate and aging population. Furthermore, the outflow of
population to the three major metropolitan areas byyounger generations means there is tendency for it tobecome difficult to train and secure people to support
the future growth of local economies and industry.

This is a particularly big issue for Hokuriku’s manufacturingindustry and Hokkaido’s primary industry.
On the other hand, I believe that we are heading for an
era when people will live beyond 100 and be able towork for a longer period of time with increased
opportunity for changing jobs and working side jobs.
Therefore, new initiatives for converting the employment
system and for securing personnel are likely to become
issues even for small- and medium sized regional companies.
In addition, while the importance of asset formation andasset succession will become much greater than in thepast, there are various investment needs depending on
matters such as age group and asset background.
Investment products are also varied, and complex, so
financial literacy is required from an early stage.
In addition, preparing for natural disasters is also an
important regional issue.
The weakness in social infrastructure such as the largescale blackout that occurred with the Hokkaido Eastern
Iburi Earthquake in September 2018 and the flood
damage that occurred with Typhoon Hagibis (alsoknown as the Reiwa 1 East Japan Typhoon) in October
2019 has also been faced.
Hokkaido in particular is one of the Japan’s largest foodproduction area and measures to deal with climatechange are extremely important from the perspective ofprotecting primary industry.

Management philosophy
In light of such issues, the Group took the needs of themarket into consideration getting close to customers
and sharing their concerns and issues to refine the salesof solutions.
We are also proactively thinking about initiatives toresolve issues caused by COVID-19.
Regarding future initiatives, we believe it is important tosupport economic development by solving the issues
confronting regions, as well as protecting the future of
the region through the implementation of environmental
conservation, promotion of agricultural, fishery andtourism industries that utilize the abundance of nature,and the maintenance and development of local cultures.
For this, we believe it necessary to have initiatives thatv a l u e t h e G r o u p’s management philosophies of“Prospering Together with the Region,”“Fair & SteadyManagement,”and“Progressive & Innovative Services.”

Based on the philosophy of“Prospering Together with
the Region,”we want to strengthen the provision ofsolutions that develop and deepen the relationships
with customers more than before by training experts
and enhancing consulting services thereby leading toregional“innovation”and“expansion of local economic
areas.”
T h e G r o u p m a k e s a p r i n c i p l e o f“F a i r & S t e a d yManagement”because initiatives in operations are fromthe outset to deepen employee awareness of theinvolvement in local communities.
To exercise our stable financial intermediary capabilities
as a regional financial infrastructure, we are striving tobuild solid governance and strong management
functions necessary to address various risks including
conduct risk and to strictly observe compliance.

Hokuhoku Financial Group, Inc. Annual Report 2020

11

PRESIDENT’S MESSAGE

T h e G r o u p’s foundation includes the spirit of“Progressive & Innovative Services”to implement new
initiatives that are always at the forefront. This has been
handed down with examples such as at Hokuriku Bank,
which was the first regional bank to commence foreignexchange operations.

There have been major changes in the environment due
to COVID-19, and we are advancing enhancements
needed to both improve the level of convenience forcustomers and to improve the Group’s operating
efficiencies for non-face-to-face financial services to suitthe new lifestyles that will be required in future.

The Group’s strengths
Next, I will explain the Group’s strengths.
First is the business base.
The Group has operated for 16 years since ourmanagement integration in 2004, but the cornerstone
has been the transactions with the many customers
located in our primary areas of Hokuriku and Hokkaido
by The Hokuriku Bank, Ltd. (founded in 1877) and The
Hokkaido Bank, Ltd., (founded in 1951). We haveworked hand-in-hand and grown with our customers
during a long history.
The business base with customers backed by our historyis the source of the Group’s stable management andgrowth.
We have responded flexibly to the demands and needsof the times and society to date, while expanding ourbusiness base. The Group now has total assets in excess

12

Hokuhoku Financial Group, Inc. Annual Report 2020of ¥13 trillion.
Next is our incomparable wide branch network for aregional banking group.
We have a wide branch network in Hokuriku, Hokkaido,
and the three major metropolitan areas and have also
expanded to 9 overseas offices, with a commitment towide business matching, etc.
Furthermore, we are working to build a financial
infrastructure that links to improved level of conveniencefor customers, aiming to optimize store functions suchas more flexible opening hours and transition to store
with various sales formats as well as provide apps andenhance Webservice and electronic payment functions,etc.
“Human resources”are also a strength of the Group.
We actually have a large variety of human resources

with the diligence that is said to be a characteristic of
the Hokuriku region and the frontier spirit of Hokkaido.
Utilizing such human resources, we have the top classregional bank know-how in areas such as businesssuccession, M&A, agriculture-related business, andinternational business.
In addition, we aim to proactively develop new areas
such as employment agency business and trust business,
expand business and accumulate know-how.
Furthermore, we are actively involved in solving regional
issues through“partnerships with local governments anduniversities, etc. and collaborations between industrial,academic, government and financial organizations.”
We are also working to enhance support for renewableenergies such as hydro power and solar strengthen
utilizing the nature with which Hokuriku and Hokkaido
are blessed, as well as proactively support primaryindustries and enhance support for the revitalization of
the tourism industry.
We believe that we will be able to increase thesustainability of all stakeholders including customers andlocal community by utilizing these strengths.

The Group’s initiatives and contribution to the region
In FY2019, for the corporate sector we focused on
exercising financial intermediary capabilities that are notoverly dependent on collateral and guarantees bydeepening business evaluation and strengthened
consulting to resolve customers’
management issues.
In addition, we are proactively implementing initiatives
in new areas such as commencing the employment
agency and investing and providing management
support for agricultural corporations as well as
enhancing the solutions menu.
In the retail sector, we are implementing enhancements
needed to strengthen both face-to-face sales and nonface-to-face sales, enhancing the training system for thedevelopment of human resources, handling trust
business, starting new services such as the smartphone
payment service“Hokuhoku Pay”and enhancing app
functions.
In future, initiatives to resolve new issues such as
responding to“new lifestyles”that also take account of
the impact of COVID-19 will be required.
While there are some uncertainties about the outlook,
we will enhance financial services by improving
convenience through the advancement of digital banking
and strengthening non-face-to-face channels and expand
contactless transactions through the portion of cashlesstransactions so that the Group’s customer will be able tosmoothly adopt new lifestyles.
In addition, we aim for a diversity of working
arrangements to provide seamless financial services andare also working to ensure the safety and health of
employees.
Usually, I believe that interacting“Face to Face”is themethod of communication that creates the foundation
for connection between people and it is the form ofinteraction with customers that continues to survive atfinancial institutions even with the developments indigitalization.
Each and every opportunity to interact with customers is
precious, and I believe it will enhance the activities forknowing the customer and consulting services.
In this way, all of the Group’s executives and employees
will work as one with determination to achieve thefuture for sustained development of local communities
and the Group.
At all the various internal committees such as the Boardof Directors and the Management Committee we havefirst started with everyone reciting the“management
philosophy.”This is because we believe that the correct answer canbe derived by returning to the management philosophy
when there is a deadlock or divided opinions.
We will continue to contribute to building the future for
Hokuriku and Hokkaido, flexibly and proactively
advancing various measures based on our management
philosophy.
We sincerely look forward to your ongoing support andpatronage.

Hokuhoku Financial Group, Inc. Annual Report 2020

13

PROCESS FOR VALUE CREATION

Create common values by providing service that respond to customer andCustomer issues■

Asset formation■

Assets succession to the next generation■

Growth strategy■

Business succession problem■

Correspondence to AI/IoTManagement
Prospering together
with the region

Fair & Steady

Capital to utilize

Community issues■

Declining birthrate and aging population■

Population decrease■

Concentration in urban areas■

Issues of ESG and SDGs

Financial capital
The 5th asset size among
regional banks

Human capital
Diligent and strong talentIntellectual capital
Top-class know-how among
regional banks and external
collaboration

Financial issues■

Long term low interest rate■

Entry from different industries■

Expanding business of public financial institutions

Society capitalHigh regional share and wide
area network

Natural capitalRich nature of Hokkaido and
Hokuriku

Practice of management
philosophy
14

Hokuhoku Financial Group, Inc. Annual Report 2020＝

community issues

Value provided to each stakeholder

philosophy
Management

Progressive &Innovative Services

Shareholder

・Enrichment of shareholder returns
・Creating shareholder value over the
medium to long term
・High transparency information disclosure

Community

・Regional activation
・Promote responsible investment and loan
・Improvement of financial literacy
・Reduction of environmental burden
・Realization of recycling-based society

Customer・Activate financial assets
・Successful business and asset succession
・Business growth support
・Regional core industry support
・Provision of highly convenient and fulfilling
services

Employee・Fulfilling workplace
・Promotion of diversity
・Promotion of work-life balance

Medium-termManagement Plan
Exercise thegroup’scomprehensive
strength

Contribution tocommunity
development

Evolution andchange to the
futureSDGs Declaration
Realization of sustainable community
Improving financial literacy in theregionBuilding a sound and resilient
management foundation
Imp rovi ng co nvenience for a l lcustomers
Ensuring good work environment
leading to better productivity

Return to community/Sharing issues through dialogue with stakeholders

Solving customer and community
issuesHokuhoku Financial Group, Inc. Annual Report 2020

15HOKUHOKU FINANCIAL GROUP SDGs DECLARATION AND KEY CSR ACTIVITY THEMES
Based on the perspectives of ESG (Environment, Society and Governance) required for the sustainable growth of companies
and the SDGs (Sustainable Development Goals) advocated by the United Nations, the Hokuhoku Financial Group proactively
undertakes activities addressing these issues based on our basic CSR policy, and aims for the sustainable development of
the Group, the regional economy, and local communities.
As a part of this, on April 1, 2019, we released the “Hokuhoku Financial Group SDGs Declaration,” and established “Key CSR
Activity Themes.”

Hokuhoku Financial Group SDGs Declaration

Based on our management philosophy of “Prospering Together
with the Region,” “Fair & Steady Management”, and “Progressive& Innovative Services,” the Hokuhoku Financial Group will aim to
improve the sustainability of the local economy and the local
communities by proactively engaging in CSR initiatives based on
the SDGs advocated by the United Nations.
April 1, 2019
Eishin Ihori
President

Key CSR Activity Themes
Management
philosophy
Prospering
Together with theRegionKey themes
Realization of sustainable community

E

S

G

Contribute to responsible investment and financing as a regional financial
institution by promoting constructive dialogue based on issues including SDGs
and ESG, stable job creation by actively supporting startup companies andgrowth companies in the region, and the realization of sustainable local
communities by promoting collaboration with local governments and customers
Strive to reduce environmental burden, including promoting the use of renewableenergy and reducing greenhouse gas emissions

Improving financial literacy in the region

S

Work to improve the financial literacy of customers and children throughfinancial and economic education and financial consulting, and support asset
formation and smooth business and asset succession for the future

Fair & SteadyManagement

G

Building a sound and resilient management foundation
Enhance transparency by promoting dialogue with stakeholders, build a stronger
management base by enhancing governance, thoroughly managing various risks,and further strengthening compliance

Progressive &Innovative Services

Improving convenience for all customers

S

Strive to further improve convenience by providing advanced financial products
and services that all customers can easily access and use with peace of mind

Ensuring good work environment leading to better productivity
Work to create rewarding and fulfilling workplaces by promoting the active
participation of diverse personnel, promoting work style reform including abalance between work and childcare/nursing care, and developing personnel
who will lead the Group in the future

16

Hokuhoku Financial Group, Inc. Annual Report 2020

SMEDIUM-TERM MANAGEMENT PLAN “ALL FOR THE REGION”

Aiming to be a comprehensive
financial services group that
achieves growth and developmentwith local communities
The Group commenced the new 3-year Medium-Term
Management Plan“ALL for the Region”in April 2019
All of the Group’s executives and employees will work as one
with the aim of the Hokuhoku Financial Group being acomprehensive financial services group that contributes tocustomers and local communities by providing No. 1 financial
services and solutions, creates“shared value”between them andthe Group, and achieves growth and development together withthem. This is based on our management philosophy of“Prospering Together with the Region,”“Fair & SteadyManagement,”and“Progressive & Innovative Services”and ouraim to meet the expectations of stakeholders such as ourcustomers and shareholders and to contribute to the sustained
development of local communities.

M asahir o Sasahar a Deput y Pr e sident(Pr e sident, The Hokk aido Bank, L t d.)Approach to the Medium-Term Management Plan“ALL for the Region”
We are also concerned about the prospect of ashrinking economy in the Group’s primary areas of
Hokuriku and Hokkaido, which like the national trend,
are facing a declining birth rate and aging population as
well as a population shift towards urban areas.
In the finance sector, while ultra-low interest rates
continue due to monetary easing policies, there havealso been upheavals in the competitive environment
such as the progress in digitalization, which has made itdifficult to survive under traditional banking businessmodels.
Regarding the Medium-Term Management Plan“ALL for
the Region,”the target period is considered to be a“period during which the Group will progress both
services closely attracting customers at Face to Faceand digital financial services pursuing convenience,
continuing to contribute to the development of theregion .”In lin e w it h our t hr ee bas i c pol i c i e s o f“Contribution to community development,”“Evolution
and change to the future,”and“Exercise the Group’scomprehensive strength,”the Group is implementing
each key measure needed for the Group to createshared value with our customers and local communities.
“Contribution to community development”means
working together with customers to address local issues
such as declining birth rate and aging population toprovide solutions that contribute to the development of
the region and customers.“Evolution and change to the
future”means providing financial services that capture
technological innovation and changes in needs to meetc u s t o m e r e x p e c t a t i o n s . “E x e r c i s e t h e G r o u p’sc o m p r e h e n s i v e s t r e n g t h”m e a n s s t r e n g t h e n i n gcollaboration between companies in the Hokuhoku
Financial Group centered on The Hokuriku Bank, Ltd.
and The Hokkaido Bank, Ltd., while establishing
optimum business promotion and management systems
for the Group. By advancing each key measure based onthese basic policies, we aim to overcome changes in theenvironment, grow and develop together with theregions.

FY2019 initiatives
I will provide an explanation of the FY2019 initiatives under
the Medium-Term Management Plan“ALL for the Region.”
Regarding the corporate sector, we were able toexercise the Group’s financial intermediary capabilities
and address various financing needs by proactively
promoting the business evaluation of customers.

While expanding the lineup of services such as solutions toaddress customer issues, the Group developed experts
through external training and improved infrastructure suchas with the installation of a common business matchingsystem for The Hokuriku Bank, Ltd. and The HokkaidoBank, Ltd., as well as strengthening consulting services.

Hokuhoku Financial Group, Inc. Annual Report 202017

Regarding the retail sector, while improving theconvenience for customers by revising the content of
housing loan products, we improved our preparedness toaddress wide ranging needs aligned with the life stagesof our customers, from asset formation to asset
succession. Initiatives included the strengthening ofcooperation between the banking and securities arms
within the Group, commencing the offering of trust
business, and increasing the level of persons in charge ofexternal relations utilizing an internal qualification system.
In addition, we implemented initiatives to further
improve customer convenience through the utilization of
IT technology such as enhancing non-face-to-facetransactions through installation of“Hokuhoku Pay”and“J-Coin Pay”and improvement to each app, as well as
the use of electronic contracts for housing loans.
As a regional financial institution, we proactively initiatedESG (Environment, Society and Governance) and SDGs
(Sustainable Development Goals) for community
revitalization.
Apart from initiatives for sustained development of local
communities such as the execution of collaborative
agreements with local governments and promoting
financial and economics education for the younger
generations, the Group invested in Green Bonds issued
by businesses that have a positive environmental impact
and started offering loans with special terms of waiving
principal during earthquake disasters to smoothly
support the business continuity of business operators
affected by disasters.
We strived to improve operating efficiencies throughincreased IT, including Robotic Process Automation(RPA), and consolidation of clerical work at branches tocentralized headquarter divisions to strengthen the

management function.
We implemented initiatives to utilize the Group’smanagement resources for the greater benefit ofcustomers such as by accelerating decision-making
through consolidation of the management of thesubsidiary banks’planning divisions and businessmatching that straddles the business bases of both banks.
Furthermore, regarding the governance function,
external Directors also proactively provided theirobjective views in the Corporate GovernanceCommittee and the Board of Directors and enhanced
the discussion about matters such as the medium tolong-term strategy.
Note that the following are the FY2019 results for eachpriority indicator set out in the Medium-Term
Management Plan: Main business profit (*) fell ¥1.0 billion
year-on-year to ¥16.9 billion, net income declined ¥4.1
billion year-on-year to ¥20.2 billion, capital adequacy
ratio fell 0.15 points from the end of the previous fiscal
year to 8.94%, and OHR rose 0.42 points year-on-year to
69.27%.

[ Priority Indicators]

FY18 Result

FY19 Result

Main Business Profit(Total of both banks)*¥18.0 billion¥16.9 billion

Net Income(On a consolidated basis)¥24.3 billion¥20.2 billion

Capital Adequacy Ratio(On a consolidated basis)

9.09%

8.94%

OHR (Total of both banks)

68.85%

69.27%*‌We calculate main business profit in line with our own standard“Core net
business profits - Net interest income (loss) of securities.”

The outlook for FY2020
In FY2020, the nationwide spread of the unexpected
impact of the novel coronavirus disease (COVID-19) andthe recent slump in the economy have led us to foldback the Medium-Term Management Plan“ALL for the
Region.”Meanwhile, the Group is proactively developing
activities to return to the starting point of the MediumTerm Management Plan, which aims for the Group to be
a comprehensive financial services group that
contributes to customers and local communities by
providing No. 1 financial services and solutions, creates
shared value between them and the Group, andachieves growth and development together with them.
First, we will concentrate management resources withthe capability of making proposals to resolve issues
based on the solutions that were enhanced in theMedium-Term Management Plan and businessevaluations and use all of our efforts to support local
communities and our customers.
In addition, even in relation to pursuing conveniencethrough digital financial services such as internet banking
and cashless transactions that have been promoted to18

Hokuhoku Financial Group, Inc. Annual Report 2020

both improve the level of convenience for customers
and improve the Group’s operating efficiencies, we will
invest in the new lifestyles that will be required in future
and continue to provide enhancements.

MEDIUM-TERM MANAGEMENT PLAN
The new Medium-Term Management plan “ALL for the Region” positions the three years starting from April 2019 as a “Period
during which all employees of the Group evolve in terms of both ‘services that empathize with Face to Face customers’ and‘digital financial services pursuing convenience’ and in which we will continue to contribute to the local community.”
All of the Group’s executives and employees will work as one to become a comprehensive financial services group that
contributes to customers and local communities by providing No. 1 financial services and solutions, creates shared value,
and achieves growth and development together with them.

Outline of the Plan
Title

ALL for the Region

Positioning

Period during which all employees of the Group evolve in terms of ˝services closely attracting
customers at Face to Face˝ and ˝digital financial services pursuing convenience˝ and will continue tocontribute to the local community

Basic policies

Contribution tocommunity development• Face problems together and work to provide solutions
that contribute to the development of the region andcustomers

Evolution and change tothe future• Provide financial services that capture technologicalinnovation and changes in needs to meet customer
expectations

Exercise the group´scomprehensive strength• Strengthen group collaboration and establish optimum
business promotion and management system

Creating
commonvaluesThe New Medium-term Management Plan’s priority indicator (Total of 2 banks, consolidated)
FY2018 Result

FY2019 Result

FY2021 Target

Main business profit*¥18.0 billion¥16.9 billion

Over ¥22 billion

Consolidated net income¥24.3 billion¥20.2 billion

Over ¥22 billion

Capital Adequacy Ratio

9.09%

8.94%

Maintain 8% level

OHR

68.85%

69.27%

Maintain under 70% level* We calculate main business profit in line with our own standard

Hokuhoku Financial Group, Inc. Annual Report 2020

19

Key initiatives in each strategic area based on the basic policies
Key Initiatives◆Exercise financial intermediation function◦Bolster strategies and promotion system according to the characteristics of sales areas andStrategy for corporate
customers

Strategy for individual
customers

the business stages of customers, and develop a lending strategy based on assessing
business possibilities.
◆Strengthen corporate consulting◦Expand the lineup of solution services, and offer consulting services according to thebusiness stage of each customer◆Strengthen consulting to individual customers and expand individual customer base◦Expand products for various life stages and the face-to-face as well as non-face-to-facechannels, support asset formation, enhance services for wealthy customers, better address
various financing needs, and grow the business base◆Enhance digital banking functions◦Enhance digital banking channels by expanding functions for non-face-to-face channels,

Digitalization & Fintech
strategysuch as smartphone apps

◦Improve customer convenience by phasing out the use of personal seals, paper documents,

and cash cards.

◆Contribute to development of cashlesss society◦Build an infrastructure to promote a cashless environment in the region

Community revitalization
strategy◆Contribute to regional revitalization and respond to issues of ESG and SDGs
◦Revitalize the regional economy in cooperation with local governments, local companies andeducational institutions◦Aim for sustainable development of the local economy and local communities though CSR

activities based on ESG and SDGs

Strategy for security
investment◆Increase and stabilize investment return◦Increase returns through diversified investments in diverse investment asset classes, as well

as strategic and flexible investments◦Enhance risk control system by emphasizing comprehensive profit/loss and enhancing theability to respond to sudden and rapid market movements◆Strengthen governance using Risk Appetite Framework (RAF) and respond to diversifying

risks

Risk management◦Formulate management strategy and improve risk control system utilizing RAF◦Foster a risk culture for appropriate risk-taking and eliminating legal violations, etc. throughemployee training◦Enhance the risk control system by improving simulations and stress tests to respond

immediately to changes in the market environment◆Improve management efficiency,productivity and work environment◦Streamline operations by slimming down operations, centralizing headquarters operations,

Business reform,
optimization of branch
store network and strategy
for utilization of humanresources

and promoting outsourcing◦Promote business rationalization by utilizing ICT (digitalization, RPA, elimination of paper)◦In order to maintain regional financial infrastructure, improve the branch network by clarifying

the roles and functions of each branch and reviewing ATM operations◦Develop human resources with a goal of improving customer service, expertise andmanagement ability◦Create and maintain a work environment in which diverse human resources can play anactive role

◆Strengthen and expand collaboration in Hokkaido area
◦Strengthen sales promotion capabilities through joint use of consulting and financial service

functions

Hokuhoku FG Groupstrategy◦Advance the joint use of branches that both banks will renovate going forward in Hokkaido◦Expand joint use of offices in Hokkaido, including headquarters and back office functions◆Centralization of headquarters operations◦Pursue additional synergies by consolidating functions into holding company Hokuhoku FG◆Strengthen cooperation with banks and affiliates◦Provide financial services through cooperation between subsidiary banks and affiliates, andexercise integrated capabilities◆Efforts to improve shareholder value◦Maintain stable dividends while accumulating profits to bolster capital

20

Hokuhoku Financial Group, Inc. Annual Report 2020

TOPICS IN EACH STRATEGIC AREA
Strategy for corporate customers
Initiatives to address the novel coronavirus disease (COVID-19)
The Hokuriku Bank, Ltd. and The Hokkaido Bank, Ltd. have established the“Financial
Consultation Desk for Matters relating to the spread of the novel coronavirus disease(COVID-19)”and the“Holiday Telephone Call Center”and provide a flexible response
to supporting financial positions such as with requests from customers for change ofloan terms and conditions and funding needs through the introduction of dedicatedproducts, etc.
We are striving to respond to impacted customers and others in a much more targeted
way than in the past.

(as of July 3, 2020)
Applications for new loans*

Applications forchange in terms
and conditions*

Number ofapplications

Number ofapplications

Amount

14,913 ¥544.3 billion

419*Excludes applications withdrawn by customers, etc.

Established the Dosanko Regional Revitalization FundIn April 2019, Hokkaido Bank established the“Dosanko Regional Revitalization Investment Limited Partnership (Dosanko Regional
Revitalization Fund)”together with local entity Hokkaido Venture Capital, Inc.
In addition to investing in venture companies that utilize regional resources for growth, which the Hokkaido Regional Creation
Fund has been engaged in, the fund has been established to promote regional revitalization and contribute to the continuous
maintenance and development of industry by providing growth support and help in building a successor framework for companies
that are growing and working on business succession and business improvement.
By the fund providing funds and financial intermediary capabilities, we will support the growth of small and medium-sized companies that support Hokkaido’s economy.
■ Scheme (Initiatives to support growth)
Various types of support

Investors[ Unlimited liability partners ]Hokkaido Venture Capital, Inc.

[ Limited liability partners ]The Hokkaido Bank, Ltd.

Create new industries

Investment
and operation

Investment

Dosanko Regional
Revitalization Fund

Investment(Total: ¥510 million)

TargetGrowth andcompanies developmentfor
investment

and support growthBusiness succession andbusiness improvement support
Regional development
and revitalization

Awarded Makuake, Inc’s“Makuake Bank Partner Prize”
In February 2020, Hokkaido Bank was awarded the“Makuake Bank Partner Prize”from business partner Makuake, Inc., which operates“Makuake”crowd funding sites.
The“Makuake Bank Partner Prize”is conferred on financial institutions amongst the financial
institutions collaborating with Makuake, Inc. that are proactively implementing new challenges,
introducing business operators in each region nationwide.
Apart from making multiple introductions for business operators within the prefecture, Hokkaido
Bank undertook initiatives to resolve issues using“Makuake”even in relation to issues of funding, test marketing and product PR when venture companies were developing BtoC products.
The prize was also awarded in recognition of the support for such new initiatives for regional
revitalization.
We will continue to contribute to regional development through collaboration with various partners.

Commenced employment agency operations
In July 2019, Hokuriku Bank joined with four employment agencies, becoming the contact
point for companies with employment needs, forming a structure able to provide a onestop consulting service from the introduction of people at management and mid-management levels and people with specialist skills to the recruitment of management personnel
to help customers with the formulation and implementation of management strategies.
The bank itself is the first financial institution with a head office in the three Hokuriku prefectures to acquire an employment agency business license (a fee-charging employment
placement business license).
We contribute to the revitalization of local economies through the employment agency
business by fostering the repatriation of personnel in urban area to local areas, solving
customers’management issues, and supporting the realization of sustained growth.

■ Scheme
People who want to change jobs and customers’
employees who are approaching a retirement age

Matching

Inquiry

Understand the needs

Consultation
Understand the needs

Customers finding problems securing human resources
Hokuhoku Financial Group, Inc. Annual Report 2020

21

TOPICS IN EACH STRATEGIC AREA

Strategy for individual customers
Commenced handling calendar year gift type trusts
In April 2019, Hokuriku Bank commenced handling the trust business to cater to the asset succession
needs of customers.
In addition, we commenced handling new“calendar year gift type trusts”from April 2020 in response
to customer needs.
Calendar year gift type trusts are products that enable the implementation of a gift inter vivos without
cumbersome procedures such as the creation of a gift contract and transfer procedures. Hokuriku Bank
confirms the intent of the person giving the gift and the person receiving the gift in relation to funds
entrusted by the customer on an annual basis.
Consequently, we strive to support customers who want to provide gifts to their precious family not
only after inheritance occurs, but even while they are healthy.

Commenced handling group credit life insurance for joint debtor couples that
includes a guarantee for eight major diseases
In January 2020, Hokuriku Bank became the first financial institution in the three Hokuriku prefectures tocommence handling“Group credit life insurance for joint debtor couples that includes a guarantee for eight
major diseases”as a group credit life insurance product to be taken when taking out a housing loan.
“Group credit life insurance for joint debtor couples that includes a guarantee for eight major diseases”isan insurance to reduce the balance of a housing loan to ¥0 when a couple has a housing loan with joint
obligation and one of the couple dies or becomes seriously disabled.
Furthermore, to provide enhanced coverage, in addition to“death or seriously disability”we are handling guarantee products that together with the couple provides insurance for eight major diseases including cancer.

Opened offices to improve the level of convenience for customers■ Opened the new“Account Opening Plaza”
In March 2019, Hokkaido Bank opened the“Account Opening Plaza (Odori Subway
Station Sub-Branch),”which allows people to open accounts on weekdays after
3:00 p.m. as well as on weekends and holidays, with the aim of improving the levelof convenience for customers.
At the plaza, we are working to improve convenience by offering the“Cash Card
Immediate Delivery Service,”which provides customers with a cash card immediately upon opening an account, rather than sending it to them in the mail as wehave done in the past.
■ Opened the new“Hokugin Favore Plaza”
In October 2019, Hokuriku Bank opened the“Hokugin Favore Plaza (Hayahoshi
Branch Favore Plaza Sub-Branch)”in conjunction with the opening of the enlarged
and renovated“Future City Favore,”a large shopping center in Toyama City.
Favore Plaza is open until 8:00 p.m. everyday including holidays.
This branch can carefully respond to customer inquiries such as concerns about
asset management and inheritance as it equipped with a consultation booth, business discussion room and fulfilled kid’s space.
In addition, consultation is also available concerning the use of internet banking andapps and the branch accepts applications for change of address and change ofnames.
The facility is useful for customers who find it difficult to visit on weekdays and during the day.

Digitalization & Fintech strategy
Commenced operation of the financial institution linked platform“Hokuriku Big Advance”
In November 2019, Hokuriku Bank commenced operation of the management support platform“Hokuriku Big Advance,”which enables corporate and individual business owners toaccess and use the website on the internet by themselves.
Provides a one-stop response to various management issues faced by local companies suchas expanding sales channels, securing personnel, improving business efficiency and businesssuccession through business matching between more than 400 major companies and financial institution members participating in the platform, while supporting new technologies andservices created in the region and realizing the creation of new businesses for the future
through open innovation with major companies.

22

Hokuhoku Financial Group, Inc. Annual Report 2020

Commenced handling“electronic contracts service”for housing loans
Hokkaido Bank commenced handling“electronic contracts service”for housing loans in December 2019 followed by Hokuriku Bank in January 2020.
It is now possible to execute a contract in electronic form when taking out a housing loan by
inputting into a tablet at the reception desk, which confers an electronic signature on a contract with the same legal force as a signature and seal on a paper contract.
We continue to strive to provide services that improve the level of convenience for customers.

Commenced“Hokuhoku Pay”service
In November 2019, Hokuriku Bank and Hokkaido Bank commenced handling the smartphone payment service“Hokuhoku Pay.”
A service that enables individual customers to immediately withdraw funds from a pre-registered bank account to complete payment by scanning the QR code using a smartphone app when making payments for shopping at member stores.
The payment will be deposited in the member store’s bank account at a later date.
There is no need to register for a credit card or load money in advance, and customers can shop smartly without having to carrya purse or credit card.
“Hokuhoku Pay”uses the“Ginko Pay”base system supplied by GMO Payment Gateway, Inc. and enables sequential use of the“multi-bank settlement”functions with banks that have installed“Ginko Pay.”
We continue to improve the level of convenience for customers through implementation of cashless and digital banking solutionsin the region.

How to use“Hokuhoku Pay”
First, please advise the store
that you will pay with thesmartphone payment service

In the caseof scanning
the store’s
QR codeThe person in the store
will display the QR code
Scan the store’s QR code

Tap payment
In the caseof showing
the QR code
to the store

Tap“Code pay”

Payment complete
Confirm thepayment receipt

Show the QR code to theperson in the store

For details, please refer to the websites of Hokuriku Bank (https://www.hokugin.co.jp/) and Hokkaido Bank (https://www.hokkaidobank.co.jp/) or visit your nearest branch.

Community revitalization strategy

Realization of sustainable community
Community revitalization support
Investment in agricultural corporation OMEGA Farmers LLC andsupport for management
In July 2019, Hokkaido Bank directly invested in agricultural corporation OMEGA
Farmers LLC and seconded personnel as representatives for the purpose of contributing to the development of Hokkaido’s agriculture using the“commercialization ofagriculture management”method through the concentration of management andmanagement resources.
In future, we shall provide advice, etc. for diversification of that company’s activities
to include primary, secondary, and tertiary industries from the production of the materials used in its vegetable oils to the processing of oil extraction and sales, so thatit can better contribute to revitalization of the local economy.

Hokuhoku Financial Group, Inc. Annual Report 2020

23

TOPICS IN EACH STRATEGIC AREA

Executed a comprehensive collaborative agreement concerning
the implementation of SDGs with Toyama City and put together
project finance for the“Project to utilize the public land on thenorthern side of the main government building.”
In August 2019, Hokuriku Bank executed“a comprehensive collaborative agreement concerning the implementation of SDGs”for achieving SDGs with Toyama
City, which has been selected as a SDGs Future City.
In addition, Hokuriku Bank and the Development Bank of Japan put together project financing for PPP Shinsakura K.K., which was established to undertake the“Project to utilize the public land on the northern side of the main government building”
as a PPP project in Toyama City, to utilize the funds and know-how of local companies to realize Toyama City’s Compact City Strategy.

Coordinated public-private partnership for measures to deal withunoccupied houses
In September 2019, Takasu Town and Sanyu Appraisal Corporation executed a“Partnership agreement concerning measures for unoccupied houses,”which wascoordinated by Hokkaido Bank.
Both parties are collaborating with the aim of making effective use and reducing thenumber of unoccupied houses and Takasu Town will be used as the field to implement“Training Business for Unoccupied House Survey Members”(entrusted by the
Ministry of Land, Infrastructure, Transport and Tourism).
Through such business, the aim is to train unoccupied house survey members who
can respond in one-stop to consultation concerning unoccupied houses and to implement initiatives to prevent unoccupied houses and vacant land appearing in local areas.
Through the collaboration between industrial, academic, government and financialorganizations and local experts in areas such as law, real estate, construction andfinance, unoccupied house survey members will conduct an“unoccupied house triage”factoring in the economic rationalism of unoccupied houses.

Held“X-Tech Innovation 2019”
In December 2019, Hokkaido Bank held a business contest selection meeting tocollect a range of new service and business ideas spanning different industries, witha focus on various technologies that are developing at a rapid pace.
Last fiscal year, this contest was held jointly with Fukuoka Financial Group, The
Bank of Okinawa and The 77 Bank, Ltd. as the contest was held by four banks infour regions.
Through this contest, we will contribute to the revitalization of local economies by
supporting the commercialization of business ideas for startup companies and exploring the possibilities for applying business ideas to existing businesses.
This time, we allowed time for special presentations by student teams and awarded
a“Special Regional Revitalization Prize”and a“Special SDGs Prize.”

Commenced provision of the PR TIMES“Hokkaido Bank Special Plan”
In March 2020, Hokkaido Bank commenced the provision of“Hokkaido Bank Special Plan”in the PR TIMES, a press release distribution service, for the purpose ofadvertising and providing PR support for companies and local governments within
the prefecture.
Hokuriku Bank commenced“Hokuriku Bank Special Plan”from November 2017.
“PR TIMES”is a press release distribution site with 27 million PV views per month.
Using these plans enables the effective nationwide distribution of useful news fromlocal companies and local government initiatives for regional revitalization.
Using these plans will advance the creation of an environment that facilitates thenationwide distribution of useful news from local companies and local government
initiatives for regional revitalization, and contribute to the revitalization of local
economies and the promotion of regional revitalization.

24

Hokuhoku Financial Group, Inc. Annual Report 2020

Responsible Investment and Finance
Purchased a“Green Bond”that invests in improving the environment considering ESG
In September 2019, Hokuriku Bank purchased a“Green Bond”security that invests in green projects
considering ESG issued by Mitsui Fudosan Co., Ltd.
This bond will be used for refinancing capital to acquire reserved floors in Nihonbashi Muromachi Mitsui
Tower, which is the building that houses the Tokyo branches of Hokuriku Bank and Hokkaido Bank,
completed in March 2019 as a high-rise building incorporating energy efficient businesses.
Nihonbashi Muromachi Mitsui Tower receives its electricity and heat supply through the“Nihonbashi
Smart Energy Project,”which not only achieves energy efficiency and reduces CO2 through the effective
use of energy but is also well prepared for natural disasters.
Through the purchase of this bond, we contribute to achieving Goal 7 of the Sustainable Development
Goals (SDGs) advocated by the United Nations“Affordable and Clean Energy.”

Improving financial literacy in the region
Financial and economic education
Held“Economics-Koshien”
Hokuriku Bank and Hokkaido Bank held regional contests called“Economics-Koshien”from November to December 2019 for high school students to acquire financial and economics knowledge in a fun quiz format, and as a way to prompt themto start thinking about their relationship with money as well as life planning.
Hokuriku Bank managed the Toyama and Fukui contests, while Hokkaido Bank managed the Hokkaido contest.
One high school student commented,“The contest provided me with an opportunity to gain information not available in class and to obtain knowledge that will be
useful for my life in future.”

Strategy for utilization of human resources
Human resource development
The Hokuhoku Financial Group is actively dispatched to overseas and overseas training for the purposeof developing advanced specialized knowledge and practical skills, developing a sense of management,
and forming personal connections. As a finance professional, we aim to acquire solution skills that solve
the needs and issues of customers and local communities.
FY2019 dispatch results

Hokuriku Bank

Hokkaido Bank

Outside training

57 people

54 people

Overseas training

46 people

19 people

Hokuhoku Financial Group, Inc. Annual Report 2020

25

TOPICS IN EACH STRATEGIC AREA

Promotion of diversity
We regard the promotion of diversity as a major management issue, and are working to“raise awareness of career development”
and“reform the corporate culture”with the aim of creating a workplace where diverse human resources can play an active role.
The Hokuriku Bank and the Hokkaido Bank have established Diversity Promotion Offices to create an environment where all motivated and capable staff can play an active role by promoting the active participation of women, enhancing the work-life balance
support system, and realizing diverse work styles. We are focusing on maintenance.
Acquisition of diversity certification and various initiatives
Hokuriku Bank
2016

Obtained“Platinum Kurumin Certification”for the first time in Toyama Prefecture by the Ministry of Health, Labor andWelfare2016

Implemented“Hokuriku Bank Ikuboss Declaration”

2017

Obtained“Eruboshi”Stage 2 certification by the Minister of Health, Labour and Welfare, based on the Act on
Promotion of Women's Participation and Advancement in the Workplace

2018- Certified by the Ministry of Economy, Trade and Industry as“Excellent Health Management Corporation (White 500)”
2020
Hokkaido Bank
2012

Opened“Dosanko Kid's Room”, an in-house childcare facility

2018

Acquired“Sapporo City Work-Life Balance plus Company Certification”*Active corporate certification for work-life balance and active participation by women

2018- Certified by the Ministry of Economy, Trade and Industry as“Excellent Health Management
2020 Corporation (White 500)”

Promotion of work style reform
By thoroughly streamlining and streamlining operations throughout the Group, we are working to efficiently allocate human resources through productivity improvements, reduce overtime work, and enhance work-life balance.
Various numerical indicators and results (FY2019)
1. Corporate/Individual External Relations Ratio
32.1% (+2.5% YoY)
2. Acquired paid leave (annual average)
Hokuriku Bank:14.0 days

Hokkaido Bank:12.4 days

HokuHoku FG Group strategy
Three-bank coalition for foreign exchange operations
We decided with Concordia Financial Group’s Bank of Yokohama for the three banks to workin a coalition in relation to foreign exchange operations such as overseas remittances andtrade transactions.
Hokkaido Bank implemented this from November 2019 and Hokuriku Bank will also implementfrom October 2020.
To date there has been joint operation of the core system“MEJAR”aiming to reduce IT costs.
This coalition in relation to foreign exchange operations will lead to the sharing of the threebanks’know-how while building a sustainable model for foreign exchange operations that willachieve both improved risk management and cost reduction.

Integrate business matching system
In April 2020, Hokkaido Bank installed the business matching system jointly developed by Linkers Corporation and Hokuriku Bank.
The installation of this system enables proposals to be made for resolving the various businessmatching needs faced by customers in a speedy manner.
In addition, this further strengthens the collaboration with Hokuriku Bank, which had installed
the system earlier.

26

Hokuhoku Financial Group, Inc. Annual Report 2020

Exercisesynergies
throughcoalition of
three banks

STAKEHOLDER COMMUNICATION
Relationship with stakeholders<Shareholders and investors>
Hokuhoku Financial Group places great importance on opportunities for dialogue with shareholders and investors.
In FY2019, we held IR presentation meetings for institutional investors in Tokyoand IR presentation meetings for retail investors in Toyama, Kanazawa, Sapporo
and Asahikawa, providing explanations of the Group’s profile, operating performance and strategy, etc.

*We have postponed holding such presentations in 2020 in order to prevent the spread of COVID-19.

<Local communities and environment>
Participating in Forest Building in Nanto

Held the Hokkaido Bank Curling Classic

Hokuriku Bank endorses the ideals of the initiative that began in November 2015 with the goal of replacing missing
thatch in the rooves of Gokayama’s traditional Gassho-style
houses (Historic Village of Gokayama, World Heritage site), andhas participated from the outset
to realize a sustainable society inaccordance with our SDGs.

Hokkaido Bank has been holding the Hokkaido Bank CurlingClassic at the Hokkaido Bank Curling Stadium since 2015.
Each time, domestic and foreign men’s and women’s teamshave competed and enjoyed exciting matches.
From 2019, the tournament has
been registered in the World Curling Tour and it is now established
as an international competition.

<Authorities, educational institutions and industry groups>
Hokuriku Bank and Hokkaido Bank aim to enhance communication through collaborations with authorities, educational institutions and various groups, proactively implementing education to improve
local financial literacy and SDGs literacy and matching local needs with the seeds of study.
As of the end of FY2019, collaborations have been formalized with 46 local government bodies and
22 universities.

<Customers>
Hokuriku Bank and Hokkaido Bank conducts surveys of customers engaged in asset managementtransactions, listen sincerely to the opinions of customers, which are useful for proposing better
services and products.
The survey utilizes the NPS®(Net Promoter Score®), which provides a score for“How likely is itthat you would recommend our company/product/service to a friend or colleague?,”measuring
the high level of interest that a customer has in a corporate brand, product and person in charge.
In FY2019, both banks exceeded the average score for the 50 regional banks that participatedin the survey.

<Employees>
Held Hokuhoku Young Forum
Hokuriku Bank and Hokkaido Bank have been holding the“Hokuhoku
Young Forum”since 2014 to strengthen links and to promote dialogue
between young employees and executive officers.
21 young employees participated in the seventh forum, held in FY2019,
where they discussed and deepened their understanding about“Hokuhoku collaboration” and “exercising the Group’s comprehensive
strength,”in order to exercise the group’s comprehensive strength, one ofthe pillars of the Medium-Term Management Plan.”

Hokuhoku Financial Group, Inc. Annual Report 2020

27

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

Corporate governance

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

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

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

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

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

Planning Group

Board of Directors
Executionof
PDCA

Audit and Supervisory
Committee

Appointment of 4 external Directors

Corporate Governance Committee
Management Committee

Administration Group

Risk Management Group

Hokuriku Bank

Hokkaido Bank

Shareholders’ Meeting
Audit & Supervisory Board
Board of Directors

Shareholders’ Meeting
Other
Subsidiaries

Management Committee

Hokuhoku Financial Group, Inc. Annual Report 2020

Audit & Supervisory Board
Board of Directors
Management Committee

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

28

Audit GroupReason for appointment as external Director
In the selection of candidates for external Directors, in addition to the knowledge, experience and capabilities to perform the role, the Company places great importance on ensuring independence to meet therequirements for external directors provided by the Companies Act and to exercise the management supervisory function.
Name

Position

Reason for appointment

Tatsuo Kawada

Chairman and C.E.O.,
SEIREN CO., LTD.

He is well versed in management and local economies as a business
manager and he is expected to strengthen the supervisory function of
the Company’s overall management, so he has been appointed an external Director.
In addition, he does not breach the criteria for independence prescribedin Securities Listing Regulations, etc., meets the“criteria for judging independence”prescribed by the Company, does not present any concern
about conflicts of interest with general shareholders, is judged to haveadequate neutrality, and has been designated an independent director.

Ryoji Nakagawa

Attorney-at-law

Due to his extensive experience and high-level insight concerning legal
matters as an attorney-at-law and Justice of the Supreme Court of Japan,
he is expected to strengthen the supervisory function of the Company’soverall management, so he has been appointed an external Director.
In addition, he does not breach the criteria for independence prescribedin Securities Listing Regulations, etc., meets the“criteria for judging independence”prescribed by the Company, does not present any concern
about conflicts of interest with general shareholders, is judged to haveadequate neutrality, and has been designated an independent director.

Masaaki Manabe

Chairman and Representative Director,
HOKUYAKU TAKEYAMA
Holdings, Inc.

He is well versed in management and local economies as a business
manager and he is expected to strengthen the supervisory function of
the Company’s overall management, so he has been appointed an external Director.
In addition, he does not breach the criteria for independence prescribedin Securities Listing Regulations, etc., meets the“criteria for judging independence”prescribed by the Company, does not present any concern
about conflicts of interest with general shareholders, is judged to haveadequate neutrality, and has been designated an independent director.

Nobuya Suzuki

Chairman of theBoard, Representative
Executive Officer,
Meiji Yasuda Life
Insurance Company

He has extensive experience in the management of financial institutions(life insurance) and he is expected to strengthen the supervisory functionof the Company’s overall management, so he has been appointed an
external Director.
In addition, he does not breach the criteria for independence prescribedin Securities Listing Regulations, etc., meets the“criteria for judging independence”prescribed by the Company, does not present any concern
about conflicts of interest with general shareholders, is judged to haveadequate neutrality, and has been designated an independent director.

Assessment of the effectiveness of the Board of Directors
The Company’s Board of Directors conducts analysis and assessment of the overall corporate governancesystem including the overall effectiveness of the Board of Directors each year in light of the purpose of our
Corporate Governance Guidelines, discloses an overview of the results and aims to make the necessary
improvements.

Hokuhoku Financial Group, Inc. Annual Report 2020

29

BUILDING A SOUND AND RESILIENT MANAGEMENT FOUNDATION

Overview of the analysis and assessment results concerning the effectiveness of the FY2018 Board of Directors
The assessment is that the composition and management of the Board of Directors and the Corporate GovernanceCommittee, which is established with external Directors as key members under the Board of Directors, are appropriate and the effectiveness of the Board of Directors has been secured.
Note that in the discussion about the assessment, opinions were shared about the need to provide more information
to external Directors concerning important topics, while monitoring of the Medium-term Management Plan should beenhanced, and we plan to take the necessary actions in the future.
Initiatives in FY2019
Apart from aiming to improve the information, including materials for monitoring the Medium-term Management Plan,
provided to external Directors, and develop the system for enabling enhanced discussion, reports were also implemented to share important management issues and changes in the external environment with the Board of Directors.
Overview of the analysis and assessment process concerning the effectiveness of the FY2019 Board of Directors
Assessment concerning the effectiveness was conducted at the Board of Directors meeting in May after registeredself-assessment survey was conducted for all directors and suggestions were put forward from the Corporate Governance Committee based on the survey results.
[Items in the self-assessment survey (headings)]
1) Composition of the Board of Directors2) Operation of the Board of Directors3) Operation of the Corporate Governance Committee
4) Role and responsibilities of Directors, support system of external Director, etc.
5) Relationship with shareholders and investors
6) Corporate governance system and overall effectiveness of the Board of Directors
7) Status of improvements since the previous fiscal year
Overview of the analysis and assessment results concerning the effectiveness of the FY2019 Board of Directors
The assessment is that the composition and management of the Board of Directors and the Corporate GovernanceCommittee, which is established with external Directors as key members under the Board of Directors, is appropriate
and the effectiveness of the Board of Directors has been secured.
Note that in the discussion about the assessment, opinions were shared about the need for further improvements ofmaterials to stimulate discussion to improve corporate value and the need to make an effort further to enhance theinformation provided to external Directors and we plan to take the necessary action in the future.

Director training
In order for Directors to appropriately perform the roles and responsibilities expected of persons in chargeof important governance bodies, the Company’s Board of Directors encourages and supervises efforts of
Directors to study for the acquisition of the necessary knowledge and appropriate updates to deepen theirunderstanding of such roles and responsibilities.
(Key initiatives in FY2019)
Shared information relating to the Financial Services Agency’s Financial Services Policy with external Directors at the meeting of Corporate Governance Committee

Directors’ remuneration
The Company has established the Corporate Governance Guidelines at the Board of Directors and theCompany prescribes the policy concerning the determination of amounts such as Directors’remuneration,etc. and its calculation method, and the method and procedures for determining such policy in the Guidelines as follows.

ⅰ	‌The Company determines the level and composition of Directors’remuneration to function as an incentive
for the Group’s sustained growth and the medium to long-term improvement in corporate value.

ⅱ	‌The remuneration, etc. of Directors excluding Directors serving as Audit and Supervisory Committee Members shall comprise the following basic remuneration and share remuneration, with the respective amounts
within the upper limits of the annual remuneration approved at the General Meeting of Shareholders, andbe determined by the Board of Directors in an objective and transparent manner upon the recommendation from the Corporate Governance Committee concerning the appropriateness and validation of theamounts calculated in accordance with separately prescribed Directors’remuneration provisions andshare remuneration-type stock option provisions.
(a) Basic remuneration
Basic remuneration shall be a fixed amount of remuneration prescribed for each position.

(b) Share remuneration‌Share remuneration shall be share remuneration-type stock options equivalent to amounts prescribedfor each position.

30

Hokuhoku Financial Group, Inc. Annual Report 2020

ⅲ	‌The remuneration, etc. of Directors serving as Audit and Supervisory Committee Members shall comprise
only basic remuneration in light of the role to direct and audit the execution of business from a neutral andindependent perspective, and be determined by discussion of Directors serving as Audit and Supervisory
Committee Members in accordance with the separately prescribed Directors’remuneration provisions,
within the upper limits of the annual remuneration approved at the General Meeting of Shareholders.
The details of resolutions concerning Directors’remunerations, etc. at the General Meeting of Shareholders
are as follows.

ⅰ	‌Resolution was made at the Ordinary General Meeting of Shareholders held on June 27, 2017.

ⅱ	‌The amount of remuneration including bonuses for Directors (excluding Directors serving as Audit andSupervisory Committee Members) shall be an amount not exceeding 250 million yen per year (not including the salaries of employees serving concurrently as Directors).
ⅲ	‌The amount of remuneration for Directors serving as Audit and Supervisory Committee Members shall bean amount not exceeding 80 million yen per year.

ⅳ	‌In addition to the upper limit of the amount of remuneration for Directors (excluding Directors serving as
Audit and Supervisory Committee Members) there shall be a separate allocation of stock acquisition rights
as share remuneration-type stock options for Directors (excluding Directors serving as Audit and Supervisory Committee Members and external Directors) for an amount not exceeding 45 million yen per year
(not including the salaries of employees serving concurrently as Directors).

Basic policy on internal controls
1. ‌System to ensure that executives and employees of theCompany and group companies perform their duties inconformity with laws and regulations, as well as in conformity with our articles of incorporation‌In addition to setting matters pertaining to laws and regulations, or the articles of incorporation, the Board of Directors
decides on basic management policies and important issues
related to the execution of operations, establishes organizations and systems, and supervises performance of duties byDirectors.
‌The Board of Directors selects multiple external Directors inpositions independent from the Group in the selection ofcandidates for the Board of Directors, working to boost themutual checks and balances function.
‌The Board of Directors establishes the Corporate GovernanceCommittee, creating a system to provide the appropriate
advice and involvement in important items to the Company
through coordination with the external Directors.
‌The Board of Directors, positioning compliance as one of themost important management issues, draws up both basic
compliance policy and the compliance charter.
	‌It furthermore establishes control departments to maintain andenhance the compliance system of the Company and groupcompanies.
‌The Board of Directors draws up a Compliance Program as
each fiscal year’s action plan, thoroughly implementing honest
and fair corporate activities, rejecting all relationships with
antisocial forces, and preventing money laundering, etc.
‌The Board of Directors establishes a whistleblower system
whereby an executive or an employee who discovers illegal orinappropriate actions can report to a whistleblower contact
point established in advance.
‌Every fiscal year the Board of Directors draws up an Audit
Policy and has the internal audit department, in accordancewith this, conduct audits of the state of compliance to laws
and regulations, etc. of the Company and group companies,
and report these results to the Board of Directors and the
Audit and Supervisory Committee, etc.
2. ‌System related to the storage and management of information related to the performance of duties by Directors‌Based on the Board of Directors rules as well as document

management rules and other regulations, the Board of Directors creates systems for the storage and management of information related to performance of duties by Directors.
Directors can access the documents at any time.
3. ‌Rules and other systems related to the management of riskof losses of the Company and group companies‌Recognizing the existence of various risks surrounding theCompany and group companies, and fully aware of theimportance of controlling such risks, the Board of Directors
formulates the basic risk management policies and risk management rules.
	‌It furthermore establishes control departments, establishing asystem to accurately recognize and gauge individual risk
associated with Group company management, and to ensure
the soundness of Group management through appropriate
management and operations.
‌The Board of Directors have formulated contingency plans,
etc. and established a crisis management system to prepare
for unexpected events and risks such as natural disasters.
‌Each group company carries out appropriate risk management in close partnership with each group company’s risk
management department, following the Group’s basic policy.
‌Every fiscal year the Board of Directors draws up an Audit
Policy and has the internal audit department, in accordancewith this, conduct audits of the state of risk management of
the Company and group companies, and report these results
to the Board of Directors and the Audit and Supervisory
Committee, etc.
4. ‌System to ensure that Directors, etc. of the Company andgroup companies perform duties efficiently‌The Board of Directors draws up a management plan to clarify
the Group’s desired vision and its performance goals.
‌The Board of Directors sets overall organizational standards
for basic tasks, operational entities, and assignment of duties,
and establishes a system in which the Company and all groupcompanies perform well-organized and efficient business
operations.
‌The Management Committee executes business operations
promptly and efficiently, based on the delegation of authority
by the Board of Directors with regard to the execution ofbusiness operations, and on the predetermined assignment of
duties.

Hokuhoku Financial Group, Inc. Annual Report 2020

31

BUILDING A SOUND AND RESILIENT MANAGEMENT FOUNDATION

5. ‌System to ensure the appropriateness of financial reporting‌The Board of Directors draws up a basic policy related to theinternal control evaluation of financial reporting, establishing asystem to ensure the suitability of financial reporting and toprovide true and clear reporting on both financial conditions
and management results.
6. ‌System to ensure the appropriateness of operations within
the corporate group which consists of the Company andgroup companies‌The Board of Directors is responsible for overall group management. It establishes the group management rules, prepares frameworks for agenda-setting and reporting to theCompany for each group company with regard to importantmatters, and receives reports from internal audit departmentson the findings of audits into the state of compliance to laws
and regulations, etc., risk management, and the appropriateness and effectiveness of business operations.
‌The Board of Directors draws up Regulations for Intra-Group
Transactions with the aims of clarifying the control system for
intra-group transactions, etc. and of carefully maintaining thesoundness of management practices for the Group as awhole. The Board of Directors performs its duties of management and administration based on these regulations.
7. ‌Matters related to employees required to assist with dutiesof the Audit and Supervisory Committee‌In order to assist the Audit and Supervisory Committee in the
conduct of their duties, the Board of Directors shall place
employees who carry out this work only and to whom Audit
and Supervisory Committee Members may directly give
directions and orders based on their independence andeffectiveness etc.
‌The Board of Directors requires prior consent from the Audit
and Supervisory Committee for personnel transfers anddisciplinary measures regarding such employees.
8. ‌System for the Company and group company executives
and employees to report to the Audit and Supervisory
Committee and other systems related to reporting to the
Audit and Supervisory Committee‌If executives and employees of the Company or group companies discover matters that could cause significant losses to theCompany or group companies, they shall directly or indirectly
report such matters to the Audit and Supervisory Committee.
‌The Board of Directors establishes a system to report to theappointed Directors serving as Audit and Supervisory Committee Members for reports carried out in accordance with rules,
including such reports within the Company and such reports
from group companies to the Company.
‌Either the Audit and Supervisory Committee or appointed
Director serving as Audit and Supervisory Committee Member
may request reports from executives and employees of theCompany or group companies as needed.
‌The Board of Directors shall establish a system to ensure that
executives and employees of the Company or group companies are not mistreated as a result of having reported to,
consulted or investigated with the Audit and Supervisory
Committee.
9. ‌Other systems to ensure effective auditing by the Audit andSupervisory Committee‌The Board of Directors shall give due acknowledgement to theimportance and usefulness of auditing by the Audit and Supervisory Committee, and shall discuss and take responsive
action appropriately if the Audit and Supervisory Committee
requests creation of a system for smoother and more effective
performance of auditing duties.
‌The appointed Director serving as Audit and Supervisory
Committee Member may attend important meetings such as
the Management Committee.
‌Furthermore, either the Audit and Supervisory Committee or
appointed Director serving as Audit and Supervisory Committee Member shall regularly meet with the representative
Directors and outside accounting auditors, in addition to which
it shall maintain close collaboration and cooperative relations
with internal audit departments and other departments withinternal control functions, receiving reports both on a regularbasis and as required, and requesting explanations as andwhen necessary.
‌Directors serving as Audit and Supervisory Committee Members may invoice the Company for any expenses deemednecessary in order to perform duties of the Audit and Supervisory Committee.

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

32

Hokuhoku Financial Group, Inc. Annual Report 2020

Group-wide measureswhen needed. In particular, mechanisms have been put inplace for prompt reporting to the Board of Directors with

The Company verifies the appropriateness andrespect to events that could significantly impact manage-effectiveness of Group company internal management

ment of the Group.

mechanisms, and has accordingly established the Audit
Group, tasked with overseeing the internal audit function of
those companies. In line with basic policy and rules oninternal audits compiled by the Board of Directors, the Audit
Group carries out internal audits on the Company and its

Also at Hokuriku Bank and Hokkaido Bank, operational
and asset audits are performed involving head offices,branches and subsidiaries of each bank, based on thepolicy and rules for internal audits of the respective banks.
Conducting these audits involves assessing legal andnon-banking subsidiaries and affiliates, and also receives

regulatory compliance, customer protection, and risk

reports from Hokuriku Bank and Hokkaido Bank that in-management at each entity subject to audit, and thenclude results of internal audits and progress made on
matters requiring improvement. Furthermore, when necessary, the Audit Group centrally assesses and manages theimplementation of internal audits within Group companies
through on-site bank investigations, guidance and reports.
Results of internal audits at Group companies aremaking efficient and effective internal audit plans taking into
account factors such as the frequency and extent of suchaudits.
When necessary, the audit departments of both banks
and the Audit Group of the Company conduct joint audits inorder to strengthen and streamline overall Group auditing.

periodically reported to the Board of Directors promptly

MEASURES FOR RISK MANAGEMENT
General risk management systems
The Group has created basic risk management policies that address various risks and is working to upgrade general risk
management systems to ensure proper resource allocation and risk taking in balance with earnings targets while keeping
overall levels of risk within the Group’s managerial capacity to address such risk and in order to protect customer deposits
and earn the trust of our shareholders and creditors.
In addition, the Group has established a general risk management department to integrate and manage the various risks
while also conducting internal audits by an independent audit department with a structure to verify the appropriateness andeffectiveness of the risk management system.
Hokuhoku Financial Group, Inc.

Board of Directors
Audit and Supervisory
Committee

Management Committee

Hokuriku Bank

Hokkaido Bank

Risk Management Group

Audit Group

Board of Directors

Audit & Supervisory Board Members,
Audit & Supervisory Board

Other
Subsidiaries

Management Committee
ALM Risk Management Committee

Market risk

Liquidity risk

Credit risk

Operational risk

Hokuhoku Financial Group, Inc. Annual Report 2020

33

BUILDING A SOUND AND RESILIENT MANAGEMENT FOUNDATION

Allocation of risk capitalthrough initiatives that include checking risk allocation plans

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

of subsidiary banks, verifying that amounts in excess of risk

Meanwhile, the Company ensures that excessively large

capital allocations are sufficient to cover risk conceivably
affecting subsidiaries other than the subsidiary banks aswell as risk not included in the risk assumptions, and monitoring actual levels of risk.
In addition, we perform stress tests to calculate theextent of potential losses that would be anticipated in thecase of normally inconceivable deterioration of businessconditions, excessive market fluctuations and other such
scenarios. In this way, we periodically examine the substantiality of our capital position against risk that cannot beeasily perceived.

risks are not taken relative to capital on a Group-wide basis,

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

Credit risk management systems
To maintain and enhance asset integrity, the Group applies
its internal ratings system and asset self-assessment,
promptly and accurately appraises credit risk, and performs
write-offs and provisions to reserves for possible loan losses
as appropriate.
When making individual judgements on granting credit,
rigorous screening is carried out in accordance with standards and principles stated in our credit policy.

34

of large borrowers based on the Group-wide management
rules for credit limits and manage so that no excessive credit
concentration risk materializes.

Asset self-assessment standards
Self-assessments are strictly performed by the asset assessment departments in the subsidiary banks according to theasset self-assessment standards and the appropriateness isverified by the risk management department and independentinternal management department.

Internal ratings systems

Corporate rehabilitation

To enable objective appraisal of credit risk of loans and bills
discounted, etc., our subsidiary banks have introduced
internal ratings systems. Using 15 credit ratings based on
financial data and qualitative information regarding borrower
creditworthiness, the system enables ongoing monitoring ofchanges in ratings.
In addition, we monitor the credit concentration status

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

Hokuhoku Financial Group, Inc. Annual Report 2020

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

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

Operational risk management
Basic approach
Operational risk refers to the threat of losses arising from inappropriate operational processes, improper conduct of executive
officers and employees, unsuitable computer systems, or adverse external events.
The Group categorizes operational risk into seven categories as prescribed in the “Rules for management of operationalrisk”: 1) Administrative risk, 2) System risk, 3) Legal risk, 4) Personnel risk, 5) Tangible asset risk, 6) Reputational risk, and 7)
Other risks. The status of these risks is monitored at the Operational Risk Specialist Committee, which convenes monthly at
the subsidiary banks, and we strive to establish Plan, Do, Check and Act (PDCA) cycle frameworks by grasping potential
risks through risk assessments, etc. and the evaluation of preventative measures.

Management structure
The Company has established rules for management of operational risk stipulating categories of risk and setting forth basic
processes for the management of such risk.
Upon compiling instances of various operational risks having materialized in the form of administrative errors, grievances,leaked information, system failures and “Furikome” fraud, operating risk panels at our subsidiary banks meet on a monthly
basis to analyze the causes of such incidents and to review measures for preventing recurrence. They also anticipate potential risk, identify preventative measures and otherwise review means of reducing risk.
Whereas management teams of our subsidiary banks and the Company are provided with reports on the status ofoperational risk and outcomes of reviews in that regard, the Company also maintains a framework for enabling proper risk
management by comparing actual losses incurred as a consequence of operational risk and allocated risk capital.
In performing internal audits, we ensure mutual checks and balances, establish measures to prevent administrative errors
from reoccurring and verify the effectiveness of such measures, and also report results of audits to management and relevant
departments. In that way, we strive to establish Plan, Do, Check and Act (PDCA) cycle frameworks that will help improve
operations.
Hokuhoku Financial Group, Inc. Annual Report 2020

35

BUILDING A SOUND AND RESILIENT MANAGEMENT FOUNDATION

Risk management systems by major category

Crisis management• Administrative risk management
Through the analysis of the causes of administrative errors
and other incidents, the Group discusses measures toprevent reoccurrence, while advancing improved efficiencies
and centralization of headquarter administrative operations
from the perspective of consolidation and mutual checks
and endeavoring to implement initiatives that will reduce
administrative risk.
• System risk management
The Group has formulated “rules for system risk management” as well as “a basic policy on ensuring the safety of
information assets (security policy)”, has established arobust management and operating structure, and implements a variety of security management measures, including backup systems. In addition, the Group is working tostrengthen its security management system in order topromptly address cyberattacks which have been on the risein recent years.

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

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

Basic compliance policy

5. Ensuring management transparency

1. ‌Recognition of the Group’s basic mission and social
responsibilities	‌The Group aims to achieve a highly transparent management
and organizational culture through accurate and swift
disclosure and decision making.

	‌As a regional financial institution, the Group recognizes its
public duties and social responsibilities, and accordingly
strives to gain greater trust through the conduct of soundbusiness operations.

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

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

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

36

Hokuhoku Financial Group, Inc. Annual Report 2020

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

Hokuhoku Financial Group, Inc.

Board of Directors
Audit and Supervisory
Committee

Management Committee

Risk Management Group

Compliance General Department

Subsidiaries, etc.

Board of Directors

Audit Group

Audit & Supervisory Board Members,
Audit & Supervisory Board

President

Management Committee

Management Committee
Compliance Committee

Compliance Committee
Compliance Department

Compliance General Department

Compliance Department

Compliance officers, etc.

Compliance officers, etc.

Compliance manager

Hokuriku Bank

Other Subsidiaries, etc.

Hokkaido Bank

Compliance manual and compliance programs
To ensure rigorous compliance, we have formulated acompliance manual (code of conduct) compiling all fundamental
considerations which executive officers and employees need toobserve. The manual is distributed to all executive officers andemployees, and in-house seminars and training sessions are
conducted to ensure thorough familiarity with its content.

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

Basic rules for management ofcustomer protection

In addition, every year the Board of Directors decides on the
Compliance Program which acts as a detailed action plan
implemented to maintain the compliance structure. The Board
also receives regular reports on the state of the Program’s
execution, and ensures that compliance procedures are put into
practice.

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

Measures for protection of personal information
In the financial industry, ensuring the safety of information assets
is of utmost importance in terms of gaining customer trust. As
such, we are committed to rigorously protecting and using any
and all customer information in our custody and preventing its
leakage.
Especially in the area of personal information, the Group has
formulated a personal information protection declaration, which
is disclosed on our website, in order to comply with the
Personal Information Protection Act and other laws, and to gain
the full trust of our customers in acting as a financial institutionthat contributes to local communities.

Policies for management of customer protection

Explaining to the customer

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

Customer service support

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

Protection of customer data

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

Outsourcing
Conflict of interest

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

Hokuhoku Financial Group, Inc. Annual Report 2020

37

BUILDING A SOUND AND RESILIENT MANAGEMENT FOUNDATION

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

Internal notification system
The Group has set up a whistleblower and consultation hot line
and developed a framework for strengthening the compliancesystem by incorporating checks and balances in order topromptly detect and counteract any unlawful and wrongful
behavior.

Anti-money laundering and measures to deal
with financial crime
In recent years, bank card theft, exploitation and “Furikome”
fraud (bank transfer scams) have been on the rise. As such, oursubsidiary banks have bolstered security measures to prevent
such occurrences, while taking proper action with respect tovictims of such scams, such that includes reimbursing them inaccordance with Japan’s Furikome Fraud Relief Act.

38

Hokuhoku Financial Group, Inc. Annual Report 2020

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

Measures for financial alternative dispute
resolution (ADR) system
In order to promptly and properly respond to customer feedback
and grievances, our subsidiary banks have concluded agreements with the Japanese Bankers Association, which is a
designated dispute resolution organization that works to resolve
disputes from a fair and impartial position.
Banking
Name of designated dispute resolution organization:
Japanese Bankers Association
Inquiries:
Japanese Bankers Association Customer Relations Center
Financial instruments business
Name of designated dispute resolution organization:
Financial Instruments Mediation Assistance Center2020/09/16 10:47:28 / 20647229_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

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

2020

2019

Thousands of
U.S. dollars (Note 1)2020¥ 2,725,025
59,79532,684
3,790
16,054
1,815,484
8,656,450
19,014
194,483
96,905
17,320―6,456
56,099(54,703)¥ 2,556,419
80,21037,030
4,072
10,723
1,797,605
8,344,137
15,706217,369
99,17721,067398
1,474
53,483(52,903)$ 25,039,287
549,437
300,323
34,827
147,521
16,681,838
79,541,029
174,719
1,787,037
890,431
159,151―
59,325515,481(502,649)¥13,644,861¥13,185,972$125,377,757¥ 11,638,618
68,264
11,877
294,641497
827,574
113
534
119,799
12,199
190
1,025
1,978
5
10,9195,20156,099¥ 11,410,328
27,214―352,650544
612,665795―
64,694
6,994
184
1,089
2,244
2
19,767
5,309
53,483$ 106,943,108
627,262
109,141
2,707,353
4,569
7,604,287
1,043
4,911
1,100,794
112,100
1,747
9,419
18,182
47
100,332
47,799515,481

13,049,541

12,557,968

119,907,575

70,895
139,269497
329,343(1,237)70,895
144,622443
316,329(1,281)

651,429
1,279,696
4,567
3,026,216(11,370)

55,525(1,076)
8,211(9,049)91,608(910)
8,354(4,865)510,203(9,888)75,453(83,152)

592,378
2,941
595,319¥13,644,861

625,196
2,807
628,004¥13,185,972

5,443,154
27,0285,470,182$125,377,757

Millions of yen
March 31

AssetsCash and due from banks (Notes 3 and 29)
Call loans and bills bought (Note 29)
Monetary claims bought (Note 29)
Trading assets (Note 4)
Money held in trust (Note 5)
Securities (Notes 6, 12, and 29)
Loans and bills discounted (Notes 7, 12, 13, and 29)
Foreign exchanges (Note 8)
Other assets (Note 12)
Tangible fixed assets (Note 9)
Intangible fixed assets (Note 10)
Assets for retirement benefits (Note 16)
Deferred tax assets (Note 26)
Customers’ liabilities for acceptances and guarantees (Note 11)
Allowance for loan losses
Total assets
Liabilities and equity
Liabilities
Deposits (Notes 12, 14, and 29)
Call money and bills sold (Note 12)
Payables under repurchase agreements
Payables under securities lending transactions (Note 12)
Trading liabilities (Note 4)
Borrowed money (Notes 12, 15, and 29)
Foreign exchanges (Note 8)
Borrowed money from trust account
Other liabilities
Liability for retirement benefits (Note 16)
Reserve for directors’ and audit & supervisory board members’ retirement benefits
Reserve for contingent losses
Reserve for reimbursement of deposits
Reserve under the special laws
Deferred tax liabilities (Note 26)
Deferred tax liabilities for revaluation
Acceptances and guarantees (Note 11)
Total liabilities
Equity (Notes 17, 18, and 20)
Capital stock
Capital surplus
Stock acquisition rights (Note 19)
Retained earnings
Treasury stock
Accumulated other comprehensive income
Valuation difference on available-for-sale securities (Note 6)
Deferred gains (losses) on hedges
Revaluation reserve for land (Note 9)
Defined retirement benefit plans (Note 16)
Total
Non-controlling interests
Total equity
Total liabilities and equity
See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 2020

CONSOLIDATED BALANCE SHEET

39

2020/09/16 10:47:28 / 20647229_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

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

Millions of yen

Thousands of
U.S. dollars (Note 1)
2020

Year ended March 31

2020

2019

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
Trust fees
Fees and commissions
Trading income
Other ordinary income (Note 22)
Other income (Note 24)
Total income¥85,027
22,817
(4)
878
518
6
38,8201,270
24,303
9,127
182,765¥87,583
24,026
(9)
1,092
748
―
39,1281,097
20,011
10,121
183,801$781,290
209,660
(41)
8,072
4,767
56
356,709
11,671
223,316
83,865
1,679,365

Expenses
Interest expense:
Interest on deposits
Interest on payables under repurchase agreements
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 23)
General and administrative expenses
Provision of allowance for loan losses
Other expenses (Note 25)
Total expenses

1,047
37
1,162
340
―
1,807
15,416
12,544
94,962
11,463
13,390152,172

1,293
217
1,924
611
105
2,237
15,755
14,77396,090
5,587
11,183
149,781

9,624
341
10,677
3,131―
16,613
141,660
115,266
872,575
105,331
123,0391,398,257

30,59334,019281,108

9,226
972
20,393
141¥20,252

9,994
(453)
24,477
118¥24,359

84,778
8,939
187,391
1,299$186,092

Income before income taxes
Income taxes (Note 26):
Current
Deferred
Net income
Net income attributable to non-controlling interests
Net income attributable to owners of the parent

Yen

Per share of common stock (Notes 2-u and 21)
Basic net income
Diluted net income
Cash dividends applicable to the year

¥142.74
142.37
40.00

U.S. dollars¥173.50
173.12
44.00

$1.31
1.31
0.37

See notes to consolidated financial statements.

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

Year ended March 31

2020

2019

Thousands of
U.S. dollars (Note 1)
2020

Net income
Other comprehensive income (Note 27)
Valuation difference on available-for-sale securities
Deferred gains (losses) on hedges
Defined retirement benefit plans
Share of other comprehensive income of associates accounted forusing equity method
Total comprehensive income
Comprehensive income attributable to owners of the parent
Comprehensive income attributable to non-controlling interests¥20,393(40,440)(36,012)(165)(4,183)¥24,477
648
1,505
65
(888)

$187,391(371,593)(330,909)(1,522)(38,444)(78)¥(20,046)(20,180)133(34)¥25,125
24,981
144(718)$(184,202)(185,433)
1,231

Millions of yen

See notes to consolidated financial statements.

40

Hokuhoku Financial Group, Inc. Annual Report 2020

CONSOLIDATED STATEMENT OF INCOME、CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

2020/09/16 10:47:28 / 20647229_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries
Thousands
IssuedIssuednumber of
number ofshares ofshares ofcommon stock preferred stock
BALANCE, APRIL 1, 2018

132,163

107,432

Millions of yen

Capitalstock

Capitalsurplus¥70,895¥144,590

StockacquisitionrightsRetainedearnings¥451¥299,060

Cash dividends(7,378)Net income attributable to owners of the parent

24,359Treasurystock¥(1,367)

Purchases of treasury stock(8)

Disposals of treasury stock32

94

Reversal of revaluation reserve for land

287
(8)

Net changes in the year
BALANCE, MARCH 31, 2019

132,163

107,432¥70,895¥144,622¥443¥316,329

Cash dividends(7,381)

Net income attributable to owners of the parent

20,252

Purchases of treasury stock(5,380)

Disposals of treasury stock
Retirement of treasury stock(10,734)

13

56(5,367)

5,367

Reversal of revaluation reserve for land

142
53

Net changes in the year
BALANCE, MARCH 31, 2020¥(1,281)

132,163

96,698¥70,895¥139,269¥497¥329,343¥(1,237)

Noncontrollinginterests

Total
equityMillions of yen
Accumulated other comprehensive income
Valuationdifference on
Deferredavailable-for-sale gains (losses)
securities
on hedges
BALANCE, APRIL 1, 2018

¥90,163¥(975)

Revaluation
reserve forland

Definedretirement
benefit plans¥8,642¥(3,977)

Total¥607,482¥2,664¥610,147

Cash dividends(7,378)(7,378)Net income attributable to owners of the parent

24,35924,359Purchases of treasury stock

(8)

(8)

Disposals of treasury stock

127

127

Reversal of revaluation reserve for land

287

287

Net changes in the year

1,445

65

(287)

(888)

326

143

469

BALANCE, MARCH 31, 2019

¥91,608¥(910)¥8,354¥(4,865)¥625,196¥2,807¥628,004

Cash dividends(7,381)(7,381)

Net income attributable to owners of the parent

20,252

20,252

Purchases of treasury stock(5,380)(5,380)

Disposals of treasury stock

70

70

Retirement of treasury stock――Reversal of revaluation reserve for land

142

142

Net changes in the year

(36,083)

(165)

(142)

(4,183)(40,522)133(40,389)

BALANCE, MARCH 31, 2020

¥55,525¥(1,076)¥8,211¥(9,049)¥592,378¥2,941¥595,319

Hokuhoku Financial Group, Inc. Annual Report 2020

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

41

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Capitalstock
BALANCE, MARCH 31, 2019

$651,429

Thousands of U.S. dollars (Note 1)
Stock
Capitalacquisition
Retained
surplusrightsearnings$1,328,883$4,076$2,906,637

Cash dividends(67,827)

Net income attributable to owners of the parent

186,092

Purchases of treasury stock

Treasurystock$(11,771)(49,435)

Disposals of treasury stock

128

521

Retirement of treasury stock(49,315)

49,315

Reversal of revaluation reserve for land

1,314
491

Net changes in the year
BALANCE, MARCH 31, 2020

$651,429$1,279,696$4,567$3,026,216$(11,370)

Thousands of U.S. dollars (Note 1)
Accumulated other comprehensive income
Valuationdifference on
Deferredavailable-for-sale gains (losses)
securities
on hedges
BALANCE, MARCH 31, 2019

$841,761$(8,366)

Revaluation
reserve forland

Definedretirement
benefit plans$76,767$(44,707)

Total
equity$5,744,709$25,801$5,770,510

Cash dividends(67,827)(67,827)

Net income attributable to owners of the parent

186,092

186,092

Purchases of treasury stock(49,435)(49,435)

Disposals of treasury stock

649

649

Retirement of treasury stock

―

―

1,314

1,314

Reversal of revaluation reserve for land
Net changes in the year

(331,558)(1,522)(1,314)(38,445)(372,348)

1,227(371,121)BALANCE, MARCH 31, 2020

$510,203$(9,888)$75,453$(83,152)$5,443,154$27,028$5,470,182

See notes to consolidated financial statements.

42

Total

Noncontrollinginterests

Hokuhoku Financial Group, Inc. Annual Report 2020

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

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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
Depreciation
Impairment losses
Amortization of goodwill
Equity in losses (gains) of affiliates
Increase (decrease) in allowance for loan losses
Increase (decrease) in reserve for contingent losses
Decrease (increase) in asset for retirement benefits
Increase (decrease) in liability for retirement benefits
Increase (decrease) in reserve for directors’ andaudit & supervisory board members’ retirement benefits
Increase (decrease) in reserve for reimbursement of deposits
Interest income
Interest expense
Losses (gains) on securities
Losses (gains) on money held in trust
Losses (gains) on foreign exchange
Losses (gains) on sales of fixed assets
Net decrease (increase) in trading assets
Net increase (decrease) in trading liabilities
Net decrease (increase) in loans and bills discounted
Net increase (decrease) in deposits
Net increase (decrease) in negotiable certificates of deposit
Net increase (decrease) in borrowed money (excluding subordinated borrowed money)
Net decrease (increase) in due from banks (excluding deposits with the Bank of Japan)
Net decrease (increase) in call loans, bills bought, commercial paper,and other debt purchased
Net increase (decrease) in call money and bills soldNet increase (decrease) in payables under securities lending transactions
Net decrease (increase) in foreign exchanges (assets)
Net increase (decrease) in foreign exchanges (liabilities)
Net increase (decrease) in borrowed money from trust accountInterest income—cash basis
Interest expense—cash basis
Other, net
Subtotal
Income taxes paid
Net cash provided by (used in) operating activities
2. Cash flows from investing activities:
Purchases of securities
Proceeds from sales of securities
Proceeds from redemption of securities
Purchases of money held in trust
Proceeds from sales of money held in trust
Proceeds from fund management
Purchases of tangible fixed assets
Proceeds from sales of tangible fixed assets
Purchases of intangible fixed assets
Net cash provided by (used in) investing activities
3. Cash flows from financing activities:
Repayment of subordinated borrowed money
Repayment of subordinated bonds
Expenditures for fund procurement
Dividends paid
Dividends paid to non-controlling shareholders
Purchases of treasury stock
Proceeds from disposals of treasury stock
Net cash provided by (used in) financing activities
4. Effect of exchange rate changes on cash and cash equivalents
5. Net increase (decrease) in cash and cash equivalents
6. Cash and cash equivalents at beginning of the period
7. Cash and cash equivalents at end of the period (Note 3)

Thousands of
U.S. dollars (Note 1)
2020

2020

2019

¥ 30,593
7,159
915
2,102
1
1,799
(64)
398
5,205

¥ 34,019
7,379
1,027
2,102
(13)
4,490
(264)
497
775

$ 281,108
65,782
8,411
19,317
14
16,535(590)
3,659
47,8356(265)(109,237)
4,395(6,213)
68
2,053
174
281
(47)
(312,312)
261,483(33,193)
214,909
(488)

(5)
322
(113,442)
6,390(2,922)(3)(2,859)
271
325
(138)
(171,249)
268,113(8,998)60,152
11,36857(2,440)(1,003,748)
40,385(57,096)634
18,873
1,602
2,590
(438)
(2,869,727)
2,402,677(305,002)
1,974,725(4,486)

24,761
52,928(58,009)(3,307)(681)
534
87,943(4,468)54,043
223,469(9,727)
213,741(20,309)(36,625)(73,626)
3,075
608
―
89,614(6,364)(6,145)47,566(5,951)
41,614

227,528
486,340(533,028)(30,394)(6,263)
4,911
808,086(41,058)
496,583
2,053,382(89,385)
1,963,997(1,036,495)
621,687
368,078(25,463)
20,295
22,817(3,343)965(1,379)(32,838)(725,930)
677,669
214,366(20,117)
20,482
24,030(4,226)354(1,678)
184,949(9,523,989)
5,712,468
3,382,140(233,974)
186,484
209,660(30,719)
8,872(12,680)(301,738)―――(7,381)(0)(5,380)0(12,761)(23)
168,118
2,553,235¥2,721,353(15,000)(25,000)(307)(7,378)(0)(8)
0(47,694)8
178,879
2,374,356¥2,553,235―――(67,827)(4)(49,435)
3(117,263)(219)
1,544,777
23,460,771$25,005,548

See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 2020

CONSOLIDATED STATEMENT OF CASH FLOWS

43

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

1. Basis of Presentation
The accompanying consolidated financial statements have been
prepared in accordance with the provisions set forth in 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 in certain respects as to the application and disclosure
requirements of International Financial Reporting Standards.
In preparing these consolidated financial statements, certain
reclassifications and rearrangements have been made to theconsolidated financial statements issued domestically in orderto present them in a form which is more familiar to readers
outside Japan. In addition, certain reclassifications have been
made in the 2019 consolidated financial statements to conformto the classifications used in 2020.
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 to thousand 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 ¥108.83 to U.S. $1, the rateof exchange at March 31, 2020. 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.

included in “Trading assets” and “Trading liabilities” on a tradedate basis.
Trading securities and monetary claims bought for trading
purposes are stated at fair value at the balance sheet date.
Trading-related financial derivatives, such as swaps, futures,and options are stated at amounts that would be received or
paid for settlement if such transactions were terminated at thebalance sheet date. Income and losses on trading purposetransactions are recognized on a trade-date basis and recorded
as “Trading income” or “Trading losses.”
Trading income and losses include interest received andpaid during the fiscal year and unrealized gains and losses
resulting from the change in the value of securities, monetaryclaims bought, and derivatives between the balance sheet dates.
d. Securities
Securities are classified and accounted for, based principally on
the Group’s intent, as follows: (a) held-to-maturity debt
securities, which are expected to be held to maturity with thepositive intent and ability to hold to maturity, are stated atamortized 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 atfair value with unrealized gains and losses, net of applicabletaxes, reported in a separate component of equity. Available-forsale securities for which fair value is not reliably determined arestated at cost determined by the moving-average method.
For other-than-temporary declines in fair value, securities
are reduced to net realizable value by a charge to income.
Securities included in money held in trust are recorded in thesame manner as securities mentioned above.

2. Summary of Significant Accounting Policies
a. Consolidation
The consolidated financial statements as of March 31, 2020
include the accounts of the Company and its 12 subsidiaries(together, the “Group”).
Under the control and influence concepts, those companies
in which the Company, directly or indirectly, is able to exercise
control over operations are fully consolidated, and thosecompanies over which the Group has the ability to exercise
significant influence are accounted for by the equity method.
All significant intercompany balances and transactions havebeen eliminated in consolidation. All material unrealized profit
included in assets resulting from transactions within the Groupis also eliminated.
An investment in one associated company is accounted forby the equity method.
Assets and liabilities of newly consolidated subsidiaries arevalued at fair value at the respective dates of acquisition, andgoodwill is amortized using the straight-line method over 20
years.
b. Cash and Cash Equivalents
For the purpose of reporting cash flows, “Cash and cash
equivalents” consists of “Cash” and “Due from the Bank ofJapan.”
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 andother market-related indices or from gaps among markets) are44

Hokuhoku Financial Group, Inc. Annual Report 2020

Basis of Presentatione. Tangible Fixed Assets (excluding Lease Assets)
Tangible fixed assets are stated at cost less accumulated
depreciation. The Company and its consolidated banking
subsidiaries (the subsidiaries hereafter referred to as the“Banks”) depreciate their equipment based on the decliningbalance method and their premises principally based on thestraight-line method. The estimated useful 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 theirequipment and premises principally based on the decliningbalance method over their expected useful lives.
f. Intangible Fixed Assets (excluding Lease Assets)
Intangible fixed assets are depreciated based on the straightline method. Capitalized software for internal use owned byconsolidated subsidiaries is depreciated using the straight-line
method over its estimated useful life (mainly five years).
g. Lease Assets
Lease assets under non-transfer ownership finance lease
contracts (in which the ownership of leased assets is nottransferred to the lessee; included in tangible fixed assets andintangible fixed assets) are depreciated on a straight-line basis
over the lease period with a residual value of zero, excepting
when contracted amounts for residual value are specified.

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h. Long-Lived Assets
The Group reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate thecarrying amount of an asset or asset group may not berecoverable. An impairment loss would be recognized if thecarrying amount of an asset or asset group exceeds the sum of
the undiscounted future cash flows expected to result from thecontinued use and eventual disposition of the asset or asset
group. The impairment loss would be measured as the amountby 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 theasset or the net selling price at disposition.
i. Allowance for Loan Losses
The Banks provide an allowance for loan losses which isdetermined based on management’s judgment and anassessment of future losses based on their self-assessment
systems. These systems reflect past experience of credit losses,
possible credit losses, business and economic conditions, thecharacter, quality, and performance of the portfolio, the value ofcollateral or guarantees, and other pertinent indicators.
The Banks have implemented a self-assessment system todetermine the quality of their assets. The quality of all loans is
assessed by branches and the credit supervisory division with asubsequent audit by the asset review and inspection division inaccordance with the Banks’ policy and guidelines for the selfassessment of asset quality.
The Banks have established a credit rating system underwhich customers are classified into five categories. The credit
rating system is used in the self-assessment of asset quality. Allloans are classified into five categories for self-assessment
purposes: “normal,” “in need of caution,” “possible bankruptcy,”“virtual bankruptcy,” and “legal bankruptcy.”
For loans to borrowers classified as legal bankruptcy or
virtual bankruptcy, the Banks fully provide the net amount ofloans and estimated collectible amounts by collateral or
guarantees. Regarding loans to borrowers classified as possible
bankruptcy, a specific reserve is provided as necessary for the
net amount of loans and estimated collectible amounts bycollateral or guarantees.
For borrowers classified as possible bankruptcy or holding
restructured loans with which the unsecured portion of claims or
credit exceeds a certain amount, if cash flows from collection ofprincipal and interest can be reasonably estimated, the Banks
provide the difference between the present values of these cash
flows discounted at the initial contractual interest rate and thebook values of the loans (the “DCF” method).
For other loans, a general allowance is provided based onone- or three-year expected loan losses. Expected loan losses
are measured based on one- or three-year historical loan loss
ratio and forward-looking information.
The Company and its consolidated non-banking subsidiaries
determine the allowance for loan losses by a similar selfassessment system as that of the Banks.
For collateralized or guaranteed claims to borrowers who arein “virtual bankruptcy” or “legal bankruptcy,” the amountexceeding the estimated value of collateral or guarantees has
been deducted as deemed uncollectible directly from thoseclaims. The deducted amounts were ¥38,565 million ($354,367
thousand) and ¥40,109 million at March 31, 2020 and 2019,respectively.

j. Accounting Method for Retirement Benefits
In calculating retirement benefit obligations, the benefit formulabasis is used as a method of attributing expected retirement
benefits to the period up to the end of this fiscal year.
The unrecognized prior service cost is amortized using thestraight-line method over eight years within the employees’
average remaining service period at incurrence.
The unrecognized actuarial (gains) losses are amortizedusing the straight-line method over eight or nine years within theemployees’ average remaining service period, commencing
from the next fiscal year of incurrence.
k. Reserve for Directors’ and Audit & Supervisory Board
Members’ Retirement Benefits
A reserve for directors’ and audit & supervisory board members’
retirement benefits is provided for payment of retirement
benefits to directors and audit & supervisory board members in
the amount deemed accrued at the fiscal year end, based on
the estimated amount of benefits.
The Company and the Banks abolished their directors’ andaudit & supervisory board members’ retirement benefits systemat the Board of Directors’ meeting on May 11, 2012, andresolved to provide a lump-sum payment of retirement benefitsof directors and audit & supervisory board members at thegeneral meeting of shareholders on June 26, 2012. According
to these resolutions, the lump-sum payment of retirement
benefits of directors and audit & supervisory board members
shall be effectuated upon the retirement of each individual
director and audit & supervisory board member. Reserve fordirectors’ 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 &supervisory board members’ retirement benefits.”
l. Reserve for Contingent Losses
A reserve for contingent losses is provided for possible losses inaccordance with the Joint Responsibility System of Credit
Guarantee Corporations and possible losses from contingencies
not covered by other specific reserves.
m. Reserve for Reimbursement of Deposits
A reserve for reimbursement of deposits which were notpreviously recognized as liabilities under certain conditions isprovided for possible losses on the future claims of withdrawal
based on historical reimbursement experience.
n. Reserve under the Special Laws
A reserve under the special laws is a reserve for contingent
liabilities and provided for compensation for losses fromsecurities related transactions or derivative transactions inaccordance with Article 46-5 of the Japanese Financial
Instruments and Exchange Act.
o. Stock Options
The companies are required to recognize compensation
expense for employee stock options based on the fair value ofthe stock options at the date of grant and over the vesting period
as consideration for receiving goods or services. The companies
are also required to account for stock options granted to nonemployees based on the fair value of either the stock option or
the goods or services received. In the consolidated balance
sheet, the stock options are presented as stock acquisition rights
as a separate component of equity until exercised.
Hokuhoku Financial Group, Inc. Annual Report 2020

Basis of Presentation45

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p. Income Taxes
The provision for income taxes is computed based on the pretax
income included in the consolidated statement of income. The
asset and liability approach is used to recognize deferred tax
assets and liabilities for the expected future tax consequencesof temporary differences between the carrying amounts and thetax bases of assets and liabilities. Deferred taxes are measured
by applying currently enacted income tax rates to the temporary
differences.
q. Translation of Foreign Currencies
Assets and liabilities denominated in foreign currencies aretranslated into Japanese yen mainly at the exchange rate
prevailing as of the balance sheet date.
r. Derivatives and Hedging Activities
Derivatives are stated at fair value. Derivative transactions thatmeet hedge accounting criteria are primarily accounted forunder the deferral method whereby unrealized gains and losses
are deferred until maturity as deferred gains (losses) on hedge
accounting in a separate component of equity.
The Banks hedge interest rate risks arising from theirfinancial assets and liabilities by employing the techniqueknown as “individual hedging” that establishes a specificposition to directly hedge a particular item. Such hedges, limited
to certain assets and liabilities, are accounted for by thedeferred method or, where appropriate interest rate swaps are
involved, by the special rule method.
The effectiveness of hedges is assessed as follows: theBanks specify the hedged items according to their risk
management regulations, with the aim of centralizing hedging
instruments, and verify the extent to which the exposure ofinterest rate risks on hedged items is mitigated.
The Banks hedge currency exchange fluctuation risks
arising from their foreign currency denominated financial assets
and liabilities. Such hedges are accounted for by the deferred
method specified in the “Accounting and Auditing Treatments in
Banking Business in Accounting for Foreign Currency
Denominated Transactions and Others” (The Japanese Instituteof Certified Public Accountants (“JICPA”) Industry Audit
Committee Report No. 25).
The effectiveness of these hedges is assessed as follows:
where currency swap transactions and exchange swap
transactions are used as hedging instruments to offset
exchange fluctuation risks arising from foreign currency
denominated financial assets and liabilities, hedge effectivenessis assessed by verifying the agreement of the amounts of thedesignated hedging instruments corresponding to the hedged
foreign currency financial assets and liabilities.
The Company and consolidated non-banking subsidiaries are
not engaged in hedging operations using derivative transactions.
s. Consumption Taxes
The Company and its domestic consolidated subsidiaries
account for consumption tax and local consumption tax by thetax exclusion method, whereby receipts and payments ofconsumption taxes are not included in the transaction amounts
and, accordingly, consumption tax amounts do not affect themeasurement of profit or loss transactions. However,consumption taxes on tangible fixed assets that are not taxdeductible are expensed in the fiscal year under review.

46

Hokuhoku Financial Group, Inc. Annual Report 2020

Basis of Presentationt. Finance Lease
Sales and cost of sales are accounted for when lease payments
are paid.
u. Per Share Information
Basic net income per share is computed by dividing net income
attributable to common shareholders by the weighted-average
number of shares of common stock outstanding for the period,
retroactively adjusted for stock splits.
Diluted net income per share reflects the potential dilutionthat 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 at the beginning of the year (or at time of issuance)with an applicable adjustment for interest expense, net of tax,
and full exercise of outstanding warrants.
Cash dividends per share presented in the accompanying
consolidated statement of income are dividends applicable to
the respective fiscal years, including dividends to be paid after
the end of the fiscal year.
v. New Accounting Pronouncements
Accounting standards for Revenue Recognition
On March 31, 2020, the ASBJ issued ASBJ Statement No. 29,"Accounting Standard for Revenue Recognition" and ASBJ
Guidance No. 30, "Implementation Guidance on AccountingStandard for Revenue Recognition." The core principle of thestandard and guidance is that an entity should recognize
revenue to depict the transfer of promised goods or services tocustomers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods orservices. An entity should recognize revenue in accordance withthat core principle by applying the following steps:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performanceobligations in the contract
Step 5: Recognize r e v e n u e w h e n ( o r a s ) t h e e n t i t ysatisfies a performance obligation
The accounting standard and guidance are effective forannual periods beginning on or after April 1, 2021.
The Company expects to apply the accounting standard andguidance for annual periods beginning on or after April 1, 2021,
and is in the process of measuring the effects of applying theaccounting standard and guidance in future applicable periods.
Accounting standards for Fair Value Measurement
On July 4, 2019, the ASBJ issued ASBJ Statement No. 30,"Accounting Standard for Fair Value Measurement" and ASBJ
Guidance No. 31, "Implementation Guidance on AccountingStandard for Fair Value Measurement," and revised related
ASBJ Statements and ASBJ Guidance (the "New AccountingStandards"). Under the New Accounting Standards,
nonmarketable available-for-sale equity securities are stated atcost, while under the current accounting standards,
nonmarketable available-for-sale securities are stated at cost.
The New Accounting Standards are effective for annual
periods beginning on or after April 1, 2021.

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The Company expects to apply the New AccountingStandards for annual periods beginning on or after April 1,
2021, and is in the process of measuring the effects of applying
the New Accounting Standards in future applicable periods.
w. Additional Information
The Group's current expectation is that the majority of the
impact of COVID-19 on our society will manifest in the next 1 to
2 years, and that during this period, there will be a distinct
impact on the financial health of debtors. The government has
prepared a number of financial aid programs to mitigate thedeterioration of solvency of debtors, for which reason the Group
anticipates that debtor solvency will not be a significant issue atthe end of this fiscal year. The Group therefore assumes that
the Group will not suffer significant losses from an increase incredit losses in relation to the COVID-19 pandemic.
This assumption is an area of significant estimation
uncertainty and if the COVID-19 pandemic lasts for longer thanthe Group's current estimate, it is possible that the situation will
have an adverse impact on the Group's future financial
performance.

Hokuhoku Financial Group, Inc. Annual Report 2020

Basis of Presentation47

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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, 2020 and 2019 consisted of the following:
Millions of yen
2020
2019

Cash and due from banks
Due from banks except for deposits with the Bank of Japan
Cash and cash equivalents¥2,725,025(3,671)¥2,721,353¥2,556,419(3,183)¥2,553,235

Thousands of
U.S. dollars
2020$25,039,287(33,739)$25,005,548

4. Trading Assets and Liabilities
Trading assets and liabilities as of March 31, 2020 and 2019 consisted of the following:

Trading Assets

Millions of yen
2020
2019

Trading securities
Trading-related financial derivatives
Total¥3,139650¥3,790

Trading Liabilities

Millions of yen
2020
2019

¥497
¥497

Trading-related financial derivatives
Total¥3,416655¥4,072¥544¥544

Thousands of
U.S. dollars
2020$28,848
5,979$34,827
Thousands of
U.S. dollars
2020$4,569$4,5695. Money Held in Trust
Money held in trust for trading purposes as of March 31, 2020 and 2019 consisted of the following:Amounts recorded in the consolidated balance sheet
Valuation gain (loss) included in consolidated statement of income

Millions of yen
2020
2019

Thousands of
U.S. dollars
2020¥14,204(53)$130,522(492)¥9,123
10

Money held in trust for other purposes as of March 31, 2020 and 2019 consisted of the following:
Millions of yen
2020
2019

Amounts recorded in the consolidated balance sheet
Valuation gain (loss) included in consolidated statement of income¥1,850―¥1,600―Thousands of
U.S. dollars
2020$16,999―

6. Securities
Securities as of March 31, 2020 and 2019 consisted of the following:
Millions of yen
2020
2019

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

48

Hokuhoku Financial Group, Inc. Annual Report 2020

Cash and Cash Equivalents、Trading Assets and Liabilities、Money Held in Trust、Securities¥ 452,102
476,500
303,771
197,884
385,225¥1,815,484¥ 603,529
367,148
303,834
237,586
285,505¥1,797,605

Thousands of
U.S. dollars
2020$ 4,154,208
4,378,393
2,791,247
1,818,290
3,539,700$16,681,838

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As of March 31, 2020 and 2019, securities included equity investments in non-consolidated subsidiaries that amounted to ¥1,194 million($10,972 thousand) and ¥1,012 million, respectively.
In the following description, in addition to “Securities,” also presented are trading account securities which are classified as “Trading
assets” in the consolidated balance sheet and beneficiary claims on loan trusts which are classified as “Monetary claims bought” in the
consolidated balance sheet.
Valuation gain or loss on trading account securities included in income before income taxes was ¥(27) million ($(256) thousand) and¥(14) million as of March 31, 2020 and 2019, respectively.
The amounts on the consolidated balance sheet, aggregate fair value, and unrealized gains (losses) on held-to-maturity debt
securities as of March 31, 2020 and 2019 were as follows:
Millions of yen
March 31, 2020

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

Amount on
consolidatedbalance sheet

Estimated
fair value

Net unrealized
gains (losses)¥64,026
1,500
118,983¥184,510¥73,740
1,519
119,803¥195,063¥9,713
19
819¥10,553

¥

¥

¥

―
1,000
20,784
21,784¥206,294―
999
20,68921,688¥216,751

―
(0)
(95)
(96)
¥10,456

Millions of yen
March 31, 2019

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

March 31, 2020

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

Amount on
consolidatedbalance sheet

Estimated
fair value

Net unrealized
gains (losses)¥64,536
2,000
124,609¥191,145¥76,007
2,026
125,635¥203,669¥11,47026
1,026¥12,523

¥

¥

¥

―
―
16,334
16,334¥207,480――
16,23916,239¥219,908

―
―
(95)
(95)
¥12,428

Thousands of U.S. dollars
Amount on
Estimated
Net unrealized
consolidated
fair value
gains (losses)balance sheet$588,316
13,783
1,093,299$1,695,398

$

―
9,189
190,982
200,171$1,895,569$677,571
13,963
1,100,832$1,792,366

$

―
9,182
190,106
199,288$1,991,654$89,255
180
7,533$96,968

$

―
(7)
(876)
(883)
$96,085

Hokuhoku Financial Group, Inc. Annual Report 2020

Securities49

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The amounts on the consolidated balance sheet, acquisition or amortized cost, and unrealized gains (losses) on available-for-salesecurities as of March 31, 2020 and 2019 were as follows:

March 31, 2020

Amount on consolidated balance sheet exceeding acquisition or amortized cost:
Japanese corporate stocks
Bonds:
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Total bonds
Other securities:
Foreign securities
Other
Total other securities
Total
Amount on consolidated balance sheet below acquisition or amortized cost:
Japanese corporate stocks
Bonds:
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Total bonds
Other securities:
Foreign securities
Other
Total other securities
Total
Grand total

March 31, 2019

Millions of yen
Amount on
consolidated
Acquisition/
Net unrealizedbalance sheet amortized cost gains (losses)

Amount on consolidated balance sheet exceeding acquisition or amortized cost:
Japanese corporate stocks
Bonds:
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Total bonds
Other securities:
Foreign securities
Other
Total other securities
Total
Amount on consolidated balance sheet below acquisition or amortized cost:
Japanese corporate stocks
Bonds:
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Total bonds
Other securities:
Foreign securities
Other
Total other securities
Total
Grand total

50

Hokuhoku Financial Group, Inc. Annual Report 2020

Securities

Millions of yen
Amount on
Acquisition/
Net unrealized
consolidatedbalance sheet amortized cost gains (losses)¥ 131,254¥ 51,407¥79,846

344,350
271,621116,305732,277

340,467
269,956
114,096
724,521

3,883
1,664
2,208
7,756

154,875
102,271
257,146¥1,120,678

143,077
96,204
239,282¥1,015,210

11,797
6,066
17,863¥105,467¥37,111¥46,171¥(9,059)

43,725
202,379
47,697
293,80243,957
202,918
48,111
294,987

(231)
(539)
(414)
(1,185)

15,352
145,405
160,758
491,672¥1,612,350

15,507
164,756
180,264
521,423¥1,536,634(155)(19,350)(19,506)(29,751)¥75,715¥ 171,998¥ 63,576¥108,422

538,992
360,696
155,072
1,054,761

530,149
357,719
152,000
1,039,868

8,843
2,977
3,071
14,892

127,485
98,588226,073¥1,452,834

121,471
92,323
213,794¥1,317,239

6,014
6,265
12,279¥135,595¥ 39,382¥ 46,340¥ (6,957)

―
4,451
7,818
12,270

―
4,453
7,843
12,296

―
(1)
(24)
(25)

8,433
88,02596,459148,112¥1,600,947

8,438
91,681
100,120
158,757¥1,475,996(5)(3,656)(3,661)(10,644)¥124,950

2020/09/16 10:47:28 / 20647229_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

March 31, 2020

Amount on consolidated balance sheet exceeding acquisition or amortized cost:
Japanese corporate stocks
Bonds:
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Total bonds
Other securities:
Foreign securities
Other
Total other securities
Total
Amount on consolidated balance sheet below acquisition or amortized cost:
Japanese corporate stocks
Bonds:
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Total bonds
Other securities:
Foreign securities
Other
Total other securities
Total
Grand total

Thousands of U.S. dollars
Amount on
consolidated
Acquisition/
Net unrealizedbalance sheet amortized cost gains (losses)$1,206,046$472,362$733,684

3,164,116
2,495,831
1,068,690
6,728,637

3,128,435
2,480,538
1,048,393
6,657,366

35,681
15,293
20,297
71,271

1,423,092
939,7362,362,828$10,297,511

1,314,693
883,989
2,198,682$9,328,410

108,399
55,747
164,146$969,101$341,007$424,256$(83,249)

401,776
1,859,590
438,277
2,699,643

403,9071,864,544
442,083
2,710,534(2,131)(4,954)(3,806)(10,891)

141,067
142,497
1,336,082
1,513,890
1,477,149
1,656,387
4,517,799
4,791,177$14,815,310 $14,119,587(1,430)(177,808)(179,238)(273,378)$695,723

Information on available-for-sale securities, which were sold during the years ended March 31, 2020 and 2019 is as follows:
March 31, 2020

Proceeds

Millions of yen
Realized gains Realized losses

Japanese corporate stocks
Bonds:
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Total bonds
Other securities:
Foreign securities
Other
Total other securities
Total¥49,437¥4,176¥3,991

25,21434,602
1,754
61,570

124
237
9
371

44
22
―
66

220,473
124,414344,888¥455,897

5,531
4,976
10,508¥15,056

249
1,266
1,516
¥5,575

March 31, 2019

Proceeds

Japanese corporate stocks
Bonds:
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Total bonds
Other securities:
Foreign securities
Other
Total other securities
Total¥102,663¥ 5,795¥5,43851,061―
1,313
52,375

182
―
5
187

81
―
―
81

375,985
107,489
483,475¥638,514

3,536
2,687
6,224
¥12,207

3,738
180
3,918
¥9,438Millions of yen
Realized gains Realized losses

Hokuhoku Financial Group, Inc. Annual Report 2020

Securities51

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March 31, 2020

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

Thousands of U.S. dollars
Proceeds
Realized gains Realized losses$454,265$38,376$36,680

231,683
317,953
16,118565,754

1,148
2,181
88
3,417

407
207
―
614

2,025,853
1,143,204
3,169,057$4,189,076

50,82445,731
96,555$138,348

2,296
11,637
13,933$51,227

Impairment losses on available-for-sale securities amounted to ¥3,389 million ($31,143 thousand) and ¥99 million as of March 31,
2020 and 2019, respectively.
An impairment of securities is recognized if the decline in fair value is substantial and the decline is determined to be other-thantemporary. The assessment of whether or not a decline in fair value is other-than-temporary by classification of the security issuer which
is used in the self-assessment of asset quality is as follows:(1) For issuers who are classified as borrowers under “in need of caution,” “possible bankruptcy,” “virtual bankruptcy,” “legal bankruptcy.”
Stocks: where the fair value is lower than the acquisition cost.
Bonds: where the fair value declines by over 30% compared to the amortized cost or acquisition cost.
(2) For issuers who are classified as borrowers under “normal.”
Stocks and bonds: where the fair value declines by 50% or more compared to the amortized cost or acquisition cost, or the fairvalue declines by over 30% but less than 50% compared to the amortized cost or acquisition cost and market prices remaining
below a certain level.
Reconciliation of valuation difference on available-for-sale securities to the amounts included in “valuation difference on available-forsale securities,” presented as a separate component of net assets as of March 31, 2020 and 2019, in the consolidated balance sheet,
was as follows:
Millions of yen
2020
2019

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

52

Hokuhoku Financial Group, Inc. Annual Report 2020

Securities¥75,715(20,098)
55,616(159)
67¥55,525¥124,950(33,320)
91,629(166)
146¥ 91,608

Thousands of
U.S. dollars
2020$695,723(184,679)
511,044(1,465)624$510,203

2020/09/16 10:47:28 / 20647229_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

7. Loans and Bills Discounted

8. Foreign Exchanges

Loans and bills discounted as of March 31, 2020 and 2019consisted of the following:

Foreign exchanges as of March 31, 2020 and 2019 consisted ofMillions of yen
2020
2019

¥41,712$271,645
Bills discounted¥29,563
Loans on bills
225,441
247,850
2,071,506
Loans on deeds
7,282,401 6,991,840
66,915,384
1,119,043 1,062,733
10,282,494
Overdrafts¥8,656,450 ¥8,344,137 $79,541,029
Total
Loans and bills discounted include loans to borrowers inbankruptcy, past due loans, past due loans (three months ormore), and restructured loans. The amounts of these loans
were as follows:
Millions of yen
2020
2019

the following:Thousands of
U.S. dollars
2020

Thousands of
U.S. dollars
2020

Loans to borrowers in bankruptcy¥3,196¥4,483$29,370
Past due loans
131,319 133,522
1,206,652
Past due loans(three months or more)
367
595
3,376
20,767
17,617
190,829
Restructured loans¥155,651 ¥156,219 $1,430,227
Total
Loans to borrowers in bankruptcy represent nonaccrualloans to debtors who are legally bankrupt, as defined in theOrder for Enforcement of the Corporation Tax Act.
Past due loans are nonaccrual loans which include loansclassified as “possible bankruptcy” and “virtual bankruptcy.”
Nonaccrual loans are defined as loans (after the partial
charge-off of claims deemed uncollectible) on which the Banks
have stopped accruing interest income due to substantial doubt
existing about the ultimate collection of principal and/or interest.
Such loans are classified either as “possible bankruptcy” or“virtual bankruptcy” under the Banks’ self-assessment guidelines.
In addition to past due loans as defined above, certain otherloans classified as “in need of caution” under the Banks’ selfassessment guidelines include past due loans (three months ormore) which consist of loans for which the principal and/orinterest is three months or more past due, but exclude loans toborrowers in bankruptcy and past due loans.
Restructured loans are loans where the Group relaxes
lending conditions by reducing the original interest rate or byforbearing 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 or more).
These amounts represent the gross amounts before
deduction of the allowance for loan losses.
Bills discounted are accounted for as financial transactionsin accordance with “Accounting and Auditing treatment of
Accounting Standards for Financial Instruments in Banking
Industry” (JICPA Industry Audit Committee Report No. 24). The
Banks have a right to sell or repledge as collateral suchdiscounted bills at their discretion. The total face value of bankacceptance bills, commercial bills, documentary bills and foreign
currency bills bought, which were obtained at a discount, were¥33,036 million ($303,561 thousand) and ¥44,011 million as ofMarch 31, 2020 and 2019, respectively.

Millions of yen
2020
2019

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
2020¥13,9123,473
1,628¥19,014¥12,2852,298
1,122¥15,706$127,837
31,916
14,966$174,719

¥21
22
69
¥113

¥227
23
544
¥795

$194
206
643
$1,0439. Tangible Fixed Assets
Tangible fixed assets as of March 31, 2020 and 2019 were as
follows:
Millions of yen
2020
2019

Thousands of
U.S. dollars
2020

Buildings¥32,963 ¥32,838$302,890
Land
56,92757,876
523,083
Lease assets
846
670
7,782
Construction in progress
260
657
2,393
5,907
7,133
54,283
Other tangible fixed assets¥96,905 ¥99,177$890,431
Total
Accumulated depreciation amounted to ¥103,037 million($946,779 thousand) and ¥101,965 million as of March 31, 2020
and 2019, respectively.
The book value of tangible fixed assets adjusted for gains onsales of replaced assets amounted to ¥5,738 million ($52,728
thousand) and ¥3,666 million as of March 31, 2020 and 2019,respectively.
Under the “Act Concerning Land Revaluation,” Hokuriku
Bank, Ltd. revalued its own land for business operations as ofMarch 31, 1998. The revaluation gain is included in net assets
as “Revaluation reserve for land.” The carrying amount of theland after the above one-time revaluation exceeded the market
value by ¥16,982 million ($156,049 thousand) and ¥17,840
million as of March 31, 2020 and 2019, respectively.

Hokuhoku Financial Group, Inc. Annual Report 2020

Loans and Bills Discounted

53

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10. Intangible Fixed Assets

13. Loan Commitments

Intangible fixed assets as of March 31, 2020 and 2019 were as

Overdraft facility and loan commitment contracts with customers
to lend up to the prescribed limits in response to customers’applications for a loan, as long as there is no violation of any
condition within the contracts. The unused amount of suchcontracts totaled ¥2,447,305 million ($22,487,413 thousand)and ¥2,458,526 million as of March 31, 2020 and 2019,respectively, of which amounts with original agreement terms ofless than one year are ¥2,320,671 million ($21,323,826
thousand) and ¥2,354,300 million as of March 31, 2020 and
2019, 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 haveconditions allowing the Group to refuse customers’ applications
for a loan or decrease the contract limits with proper reasons(e.g., changes in financial situation, deterioration in customers’
creditworthiness). At the inception of the contracts, the Groupobtains collateral including real estate, securities, etc., if
considered necessary. Subsequently, the Group performs aperiodic review of the customers’ business results based oninternal rules and takes necessary measures to reconsider
conditions in contracts and require additional collateral andguarantees.

follows:
Millions of yen
2020
2019

Software
Goodwill
Lease assets
Other intangible fixed assets
Total¥7,038
9,285
325
671
¥17,320¥8,625
11,387405
649¥21,067

Thousands of
U.S. dollars
2020$64,674
85,317
2,987
6,173$159,151

11. Customers’ Liabilities for Acceptances and Guarantees
All contingent liabilities arising from acceptances andguarantees are reflected in acceptances and guarantees inliabilities 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 ofindemnity 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¥170,406 million ($1,565,806 thousand) and ¥168,373 million
as of March 31, 2020 and 2019, respectively.

12. Assets Pledged
Assets pledged as collateral and their relevant liabilities as ofMarch 31, 2020 and 2019 were as follows:
Millions of yen
2020
2019

Thousands of
U.S. dollars
2020

Assets pledged as collateral:
Securities¥749,462 ¥766,947 $6,886,544
Loans and bills discounted
653,398
478,723
6,003,844
Relevant liabilities to the above assets:
Deposits¥28,280¥26,275$259,858
Call money and bills sold
45,00025,549413,489
Payables under securities
352,650
lending transactions
294,641
2,707,353
822,015
606,416
7,553,206
Borrowed money
In addition to the assets presented above, the following
assets were pledged as collateral relating to transactions on
exchange settlements or as substitutes for futures transaction
margins as of March 31, 2020 and 2019:
Millions of yen
2020
2019

Thousands of
U.S. dollars
2020

Securities¥ 2,006 ¥ 4,117$18,432
105,219 105,219
966,824
Other assets
In addition to the above, initial margins for futurestransactions, cash collateral paid for financial instruments, andguarantee deposits are included in “Other assets” in the
consolidated balance sheet.
Millions of yen
2020
2019

Cash collateral paid forfinancial instruments
Guarantee deposits

54¥6,151¥4,290$56,522

4,348

5,050

39,957

Hokuhoku Financial Group, Inc. Annual Report 2020

Loans and Bills Discounted

Thousands of
U.S. dollars
2020

14. Deposits
Deposits as of March 31, 2020 and 2019 consisted of thefollowing:
Millions of yen
2020
2019

Thousands of
U.S. dollars
2020

Current deposits, ordinary
deposits, saving deposits ¥7,953,259 ¥7,581,084 $73,079,665
and deposits at noticeTime deposits and3,479,486 3,587,505
31,971,760
installment savings
Negotiable certificates of deposit
80,500113,693739,688
125,371
128,045
1,151,995
Other deposits¥11,638,618¥11,410,328 $106,943,108
Total

15. Borrowed Money
As of March 31, 2020 and 2019, the weighted-average annualinterest rates applicable to borrowed money were 0.03% and0.06%, respectively.
Annual maturities of borrowed money as of March 31, 2020
were as follows:Year ending March 31

2021
2022
2023
2024
2025
2026 and thereafter
Total

Millions of yen

Thousands of
U.S. dollars¥139,324
256,631
68,716
361,929458
516¥827,574$1,280,200
2,358,091
631,407
3,325,639
4,209
4,741
$7,604,287

2020/09/16 10:47:28 / 20647229_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

16. Retirement Benefits
Overview of the Group’s retirement benefit plans
The Hokuriku Bank, Ltd. which previously provided threedefined benefit retirement programs, corporate pensions, andtax qualified pension and retirement bonuses, terminated thetax qualified pension and migrated a portion of the retirement
bonus to a defined contribution pension in March 2011. At thetime of retirement, employees may be issued a premium
retirement grant that is not subject to inclusion in the actuarial
computation of projected benefit obligations in conformity withthe standards for accounting for retirement benefits. The
Minister of Health, Labour and Welfare approved on February
17, 2003 that Hokuriku Bank Ltd. would be relieved of theobligation to administer the future payment service of thegovernment mandated portion of its employee pension fund.
The Hokuriku Bank, Ltd. was further approved on March 1,
2005 to switch from an employee pension fund to a corporate
pension fund.
The Hokkaido Bank, Ltd. provides defined benefit
arrangements that combine a retirement lump sum grant and an
employee pension fund plan, and also provides a defined
contribution pension since fiscal year 2016. The Hokkaido Bank,
Ltd. was approved by the Minister of Health, Labour andWelfare on March 26, 2004 to be relieved of the obligation toadminister the future payment service of the government
mandated portion of the employee pension fund. The HokkaidoBank, Ltd. was further approved on March 31, 2006 to switchfrom an employee pension fund to a corporate 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 programof the subsidiaries from which they each come.
The Banks have established retirement benefit trusts.

(a) Defined benefit plan
(1) The changes in defined benefit obligations for the years
ended March 31, 2020 and 2019 were as follows:

Balance at beginning of year
Service cost
Interest cost
Actuarial (gains) losses
Benefits paid
OthersBalance at end of year

Millions of yen
2020
2019

Thousands of
U.S. dollars
2020¥97,879
2,339
602
985
(5,440)87¥96,454$899,382
21,4985,536
9,058(49,992)800$886,282¥99,996
2,396
615
306
(5,521)
86¥97,879(2) The changes in plan assets for the years ended March 31,
2020 and 2019 were as follows:

Balance at beginning of year
Expected return on plan assets
Actuarial (gains) losses
Contributions from the employer
Establishment of retirement
benefit trust
Benefits paid
OthersBalance at end of year

Millions of yen
2020
2019

Thousands of
U.S. dollars
2020¥91,283
2,651(6,300)443$838,775
24,368(57,897)
4,071¥94,673
2,594(2,040)
141

―

―

―

(3,910)87¥84,254(4,174)
89¥91,283(35,935)
800$774,182

Hokuhoku Financial Group, Inc. Annual Report 2020

Retirement Benefits55

2020/09/16 10:47:28 / 20647229_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）(3) Reconciliation between the liability recorded in the
consolidated balance sheet and the balances of defined
benefit obligation and plan assets was as follows:

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

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

Millions of yen
2020
2019

Thousands of
U.S. dollars
2020¥81,729(74,845)6,884
14,724(9,408)5,315¥82,416(79,827)
2,588
15,463(11,456)
4,007$750,987(687,729)
63,258135,295(86,453)
48,842¥12,199¥6,595$112,100Millions of yen
2020
2019

Thousands of
U.S. dollars
2020¥12,199―¥6,994(398)$112,100―¥12,199¥6,595$112,100(4) The components of net periodic benefit costs for the years
ended March 31, 2020 and 2019 were as follows:
Millions of yen
2020
2019

Service cost
Interest cost
Expected return on plan assets
Recognized actuarial (gains) losses
Amortization of prior service costs
OthersNet periodic benefit costs¥2,339602(2,651)
1,272―
56¥1,619¥2,396615(2,594)
1,116
(46)
73
¥1,560Thousands of
U.S. dollars
2020$21,498
5,536(24,368)
11,693―521$14,880(5) Amounts recognized in other comprehensive income (before
income tax effect) in respect of defined retirement benefit
plans for the years ended March 31, 2020 and 2019 were as
follows:
Millions of yen
2020
2019

Prior service cost
Actuarial gains (losses)
Total

¥―
(6,014)¥(6,014)¥(46)(1,229)¥(1,276)

Thousands of
U.S. dollars
2020$―(55,262)$(55,262)(6) Amounts recognized in accumulated other comprehensive
income (before income tax effect) in respect of defined
retirement benefit plans as of March 31, 2020 and 2019were as follows:

Unrecognized prior service cost
Unrecognized actuarial (gains) losses
Total

56

Millions of yen
2020
2019

Thousands of
U.S. dollars
2020¥―
13,008¥13,008$―
119,531$119,531

Hokuhoku Financial Group, Inc. Annual Report 2020

Retirement Benefits

¥ ―
6,994
¥6,994(7) Plan assets• Components of plan assets

Plan assets as of March 31, 2020 and 2019 consisted of thefollowing:
Bonds
StocksCash and deposits
General accounts
Other
Total

2020

2019

35.14%
34.11
11.86
7.88
11.01
100.00%36.89%
41.53
4.21
7.58
9.79
100.00%Note: Plan assets include retirement benefit trusts of 19.15% and 22.47%
as of March 31, 2020 and 2019, respectively.

• Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determinedconsidering the long-term rates of return which are expectedcurrently and in the future from the various components of theplan assets.
(8) Assumptions used for the years ended March 31, 2020 and2019 were set forth as follows:
2020

Discount rate
Expected rate of return on plan assets

2019

0.61%–0.63% 0.61%–0.63%
3.0%–3.3%
3.0%(b) Defined contribution pension plan
Millions of yen
2020
2019

Contribution

¥353

¥366

Thousands of
U.S. dollars
2020$3,251

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17. Equity
Japanese banks are subject to the Banking Act and theCompanies Act of Japan (the “Companies Act”). The significant
provisions in the Companies Act and the Banking Act that affectfinancial and accounting matters are summarized below:(a) Dividends
Under the Companies Act, companies can pay dividends at
any time during the fiscal year in addition to the year-end
dividend upon resolution at the shareholders’ meeting.
Additionally, for companies that meet certain criteria including(1) having a Board of Directors, (2) having independent
auditors, (3) having an Audit & Supervisory Board, and (4) theterm of service of the directors being prescribed as one year
rather than the normal two-year term by its articles ofincorporation, 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. With respect to the third condition above, theBoard of Directors of companies with an audit and supervisorycommittee (as implemented under the Companies Act
effective May 1, 2015) may also declare dividends at any time
because such companies, by nature, meet the criteria under
the Companies Act. The Company is organized as a company
with an audit and supervisory committee, effective June 27,
2017. The Company meets all the above criteria, andaccordingly, the Board of Directors may declare dividends(except for dividends-in-kind) at any time during the fiscal year.
Semiannual interim dividends may also be paid once a
year upon resolution by the Board of Directors if the articles
of incorporation of the company so stipulate. The
Companies Act provides certain limitations 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 the amount of net assets
after dividends must be maintained at no less than ¥3 million.
(b) Increases / decreases and transfer of common stock,reserve, and surplus
The Banking Act requires that an amount equal to 20% of
dividends must be appropriated as a legal reserve (acomponent of retained earnings) or as additional paid-in
capital (a component of capital surplus), depending on theequity account charged upon the payment of such dividends,
until the aggregate amount of the legal reserve and additional
paid-in capital equals 100% of common stock. Under theCompanies Act, the total amount of additional paid-in capitaland legal reserve may be reversed without limitation. The
Companies Act also provides that common stock, legal
reserve, additional paid-in capital, other capital surplus, andretained earnings can be transferred among the accounts
within equity under certain conditions upon resolution of theshareholders.
(c) Treasury stock and treasury stock acquisition rights
The Companies Act also provides for companies topurchase treasury stock and dispose of such treasury stockby resolution of the Board of Directors. The amount oftreasury stock purchased cannot exceed the amountavailable for distribution to the shareholders, which isdetermined by a specific formula.
Under the Companies Act, stock acquisition rights arepresented 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
as a separate component of equity or deducted directly fromstock acquisition rights.
On October 1, 2016, the Company implemented a common
stock consolidation at a ratio of ten stocks to one stock basedon the resolution of the General Shareholders’ meeting held on
June 24, 2016.
(d) Appropriations of retained earnings
The following appropriations of retained earnings at March 31,
2020 will be approved at the Company’s general shareholders’meeting held on June 23, 2020:
Cash dividends, ¥40.00($0.37) per share of common
stock
Cash dividends, ¥7.50 ($0.07)
per share of preferred stock(Type 5)

Millions of yen

Thousands of
U.S. dollars¥5,247$48,214

725

6,663

Hokuhoku Financial Group, Inc. Annual Report 2020

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18. Capital Stock

19. Stock Acquisition Rights

Information with respect to capital stock of the Company as of

Stock acquisition rights as of March 31, 2020 and 2019consisted of stock options.

March 31, 2020 and 2019 is as follows:
Number of shares:
Authorized:
CommonPreferred (Type 5)
Issued and outstanding:CommonPreferred (Type 5)
Treasury stock:
CommonPreferred (Type 5)

2020

2019

280,000,000
110,000,000

280,000,000
110,000,000

132,163,014
96,698,000

132,163,014
107,432,000

999,658
11,144

1,038,191
2,160

Preferred stock (Type 5)
Preferred stock (Type 5) is noncumulative and nonparticipating.
Shareholders of the preferred stock (Type 5) are not entitled tovote at the general meeting of shareholders, except when the
proposal to pay the prescribed dividends to shareholders is not
submitted to the general meeting of shareholders or is rejected
at the general meeting of shareholders.
Annual dividends per share of preferred stock (Type 5) are
paid to shareholders at ¥15.00.
The changes in the number of treasury stock for the fiscal
years ended March 31, 2020 and 2019 were as follows:
As of April Changes during the fiscal year As of March
1, 2019
2020
Increase*1 Decrease*2 31, 2020
Common1,038,191
7,777
46,310999,658
Preferred (Type 5)2,160 10,742,984 10,734,000
11,144*1 The increase of common represents primarily the acquisition of odd-lot
shares.
The increase of preferred (Type5) represents the acquisition oftreasury stock.
*2 The decrease of common represents primarily the exercise of stock
options.
The decrease of preferred (Type5) represents the retirement oftreasury stock.

As of April Changes during the fiscal year As of March
1, 2018
2019
Increase*1 Decrease*2 31, 2019
Common1,109,893
5,791
77,493 1,038,191
Preferred (Type 5)
2,160
―
―
2,160
*1 The increase of common represents primarily the acquisition of odd-lot
shares.
*2 The decrease of common represents primarily the exercise of stock
options.

58

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20. Stock Options
The stock option plans grant options to the Company’s directors
and the Banks’ directors and executive officers to purchasecertain shares of the Company’s common stock in therespective exercise periods. The exercise prices are subject toadjustments for stock issuances below fair value and stock
splits.
Stock option expenses in the amount of ¥123 million ($1,137
thousand) and ¥118 million were recorded under general andadministrative expenses for the years ended March 31, 2020
and 2019, respectively.
The stock options outstanding as of March 31, 2020 were as
follows:

Stock options

Persons
grantedNumberof options
granted(Shares)

Date of Exercise
grantprice Exercise period

19 directors
2012 Stock 23 executive
November
Optionofficers
105,850 28, 201219 directors
2013 Stock 22 executive
August 13,
Optionofficers
62,9502013
19 directors
2014 Stock 21 executive
July 11,
Optionofficers
55,4002014
18 directors
2015 Stock 24 executive
July 14,
Optionofficers
41,7302015
19 directors
2016 Stock 25 executive
August 12,
Optionofficers
106,2002016
20 directors
July 14,2017 Stock 25 executive
75,9602017
Optionofficers
19 directors
2018 Stock 24 executive
July 11,
Optionofficers
87,4202018
19 directors
2019 Stock 24 executive
July 10,
Optionofficers
114,610
2019

¥1
¥1
¥1
¥1
¥1
¥1
¥1
¥1

From November
29, 2012 toNovember 28,
2042
From August 14,
2013 to August
13, 2043
From July 12,2014 to July 11,
2044
From July 15,
2015 to July 14,
2045
From August 13,
2016 to August
12, 2046
From July 15,2017 to July 14,
2047
From July 12,2018 to July 11,
2048
From July 11,
2019 to July 10,2049

The stock option activity was as follows:Year ended
March 31, 2020

Non-vested:
March 31, 2019
–outstanding
GrantedCanceled
VestedMarch 31, 2020
–outstanding
Vested:March 31, 2019
–outstanding
VestedExercised
Canceled
March 31, 2020
–outstanding
Exercise price
Average stock
price at exercise
Fair value priceat grant date2012 stock option 2013 stock option 2014 stock option 2015 stock option(Shares)(Shares)(Shares)(Shares)

―
―
―
―

―
―
―
―

―
―
―
―

―
―
―
―

―

―

―

―

21,970―3,200―

19,930―3,230―

19,550―3,950―

19,710―2,750―

18,770¥1$0.01

16,700¥1$0.01

15,600¥1$0.01

16,960¥1$0.01¥1,098$10.09¥1,098$10.09¥1,098$10.09¥1,098$10.09¥1,080$9.92¥1,820$16.72¥2,010$18.47¥2,650$24.35

Year ended
March 31, 2020

Non-vested:
March 31, 2019
–outstanding
GrantedCanceled
VestedMarch 31, 2020
–outstanding
Vested:March 31, 2019
–outstanding
VestedExercised
Canceled
March 31, 2020
–outstanding
Exercise price
Average stock
price at exercise
Fair value priceat grant date2016 stock option 2017 stock option 2018 stock option 2019 stock option(Shares)(Shares)(Shares)(Shares)

―
―
―
―

―
―
―
―

―
―
―
―

―
114,610―
114,610

―

―

―

―

68,840―12,450―55,650―9,520―

87,420―10,960――114,610――54,390¥1$0.01

46,130¥1$0.01

76,460¥1$0.01

114,610¥1$0.01¥1,098$10.09¥1,098$10.09¥1,098$10.09¥―$―¥1,170$10.75¥1,717$15.78¥1,353$12.43¥1,080$9.92

Shares and per share figures have been restated, as appropriate,
to reflect a one-for-ten stock consolidation effected October 1,
2016.
The Assumptions Used to Measure the Fair Value of the 2019
Stock Options
Black-Scholes option-pricing model
Estimate method
Volatility of stock price26.703%
Estimated remaining outstanding period One years and ten months
Estimate dividend¥44.00 per share
Risk-free interest rate
(0.186)%
In estimating the vested number of stock options, the Company
basically reflects only the actual forfeited number, since it isdifficult to make a reasonable estimate on the future forfeited
number.

Hokuhoku Financial Group, Inc. Annual Report 2020

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21. Per Share Information

22. Other Ordinary Income(1) Net income per share of common stock

Other ordinary income for the years ended March 31, 2020 and2019 is as follows:

Reconciliation of the difference between basic and diluted net
income per share (“EPS”) for the years ended March 31, 2020
and 2019 was as follows:Year ended
March 31, 2020

Basic EPS – Net
income available tocommon shareholders
Effect of dilutive securities
Diluted EPS – Net
income for computation

Year ended
March 31, 2019

Basic EPS – Net
income available tocommon shareholders
Effect of dilutive securities
Diluted EPS – Net
income for computation

Thousands ofsharesMillions of yen
Net income
attributable to
Weightedowners of parent average shares

Yen

U.S. dollars

EPS¥18,721

131,153 ¥142.74
338

$1.31

¥18,721

131,492 ¥142.37$1.31

Thousands ofMillions of yen
shares
Net income
attributable to
Weightedowners of parent average shares¥22,747

Losses on sales, redemption
and devaluation of bonds
and other securities
Lease costs
Other
Total

131,394 ¥173.12(2) Net assets per share of common stock
Net assets per share of common stock as of March 31, 2020
and 2019 were as follows:Yen

Net assets per shareof common stock2019¥4,138.44 ¥4,348.77

U.S. dollars
2020$38.03

Net assets per share of common stock as of March 31, 2020
and 2019 were calculated based on the following:
Millions of yen
2020
2019

Total equity¥595,319 ¥628,004
Deductions from total equity:
Stock acquisition rights
497
443
Non-controlling interests
2,941
2,807
Preferred stock
48,34353,714725
805
Preferred dividends
Net assets attributable tocommon stock at the endof the fiscal year
542,812 570,232
Number of shares of common
stock at the end of the fiscal
year used for the calculation of
net assets per share of common
stock (shares in thousands)

60

131,163

Hokuhoku Financial Group, Inc. Annual Report 2020

Retirement Benefits

131,124¥1,100¥969$10,110

9,387
48
12,257
1,510¥24,303

6,057
2
11,4891,491¥20,01186,257442
112,631
13,876$223,316

23. Other Ordinary Expenses

EPS

131,109 ¥173.50

2020

Gain on foreign exchangetransactions – net
Gains on sales and redemptionof bonds and other securities
Gains on derivatives
Lease receipts
Other
Total

Thousands of
U.S. dollars
2020

Other ordinary expenses for the years ended March 31, 2020
and 2019 are as follows:

Yen

284
¥22,747

Millions of yen
2020
2019

Thousands of
U.S. dollars
2020$5,470,182
4,567
27,028444,210
6,663
4,987,714

Millions of yen
2020
2019

Thousands of
U.S. dollars
2020

¥907
11,243394¥12,544$8,335
103,310
3,621$115,266¥3,928
10,535309¥14,773

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24. Other Income

A reconciliation between the normal effective statutory tax rate

Other income for the years ended March 31, 2020 and 2019 are

and the actual effective tax rate reflected in the accompanying
consolidated statement of income for the year ended March 31,
2020 and 2019 are as follows:

as follows:
Millions of yen
2020
2019

Gains on sales of stocks
Gains on sales of tangible
fixed assets
Other
Total

Thousands of
U.S. dollars
2020¥5,797¥6,430$53,270362
2,967¥9,127154
3,535¥10,121

3,329
27,266$83,865

25. Other Expenses

2020

Normal effective statutory tax rate
Change in valuation allowance
Permanently non-taxable income
Per capita portion of inhabitants’ taxes
Permanently non-deductible expenses
Other
Actual effective tax rate

2019

30.45% 30.45%
1.87(1.79)(1.05)(0.97)
0.52
0.47
0.37
0.34
1.17
(0.46)
33.33% 28.04%

Other expenses for the years ended March 31, 2020 and 201927. Other Comprehensive Income

are as follows:
Millions of yen
2020
2019

Losses on write-offs of loans
and bills discounted¥458
Losses on sales of stocks
4,982
Losses on impairments ofstocks and other securities
3,081
Losses on sales of loans
404
Losses on impairments anddisposals of fixed assets
1,452
3,011
Other
¥13,390
Total

Thousands of
U.S. dollars
2020

¥506
5,559

$4,21045,78077
143

28,316
3,717

1,454
3,441
¥11,183

13,342
27,674$123,039

26. Income Taxes
The Company and its domestic subsidiaries are subject toJapanese national and local income taxes which, in theaggregate, resulted in the normal effective statutory tax rate of
approximately 30.45% for the years ended March 31, 2020 and
2019.
The tax effects of significant temporary differences and tax
loss carryforwards which resulted in deferred tax assets andliabilities at March 31, 2020 and 2019 are as follows:

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

Millions of yen
2020
2019

Thousands of
U.S. dollars
2020¥25,366755
12,19911,4515,878
52
55,70228,28027,421$233,081
6,938
112,093
105,22054,014482
511,828
259,860
251,968¥24,785809
11,440
11,2306,243
59
54,56825,793
28,77526,44341,514
2,765
2,765
2,675
2,788
31,88447,068¥(4,462) ¥(18,293)

The components of other comprehensive income for the years
ended March 31, 2020 and 2019 are as follows:
Millions of yen
2020
2019

Thousands of
U.S. dollars
2020

Valuation difference on
available-for-sale securities:
Amount incurred
during the fiscal year¥(39,879)(9,355)
Reclassification adjustment
Prior to deducting tax effect (49,234)
13,222
Tax effect(36,012)
Total¥7,701(4,367)
3,333(1,827)1,505$(366,437)(85,964)(452,401)
121,492(330,909)

Deferred gains (losses) on hedges:
Amount incurred during
the fiscal year
Reclassification adjustment
Prior to deducting tax effectTax effectTotal(1,713)
1,689
(24)
(141)
(165)

(2,220)
2,317
97
(31)
65

(15,743)
15,521(222)(1,300)(1,522)

Defined retirement benefit plans:
Amount incurred during
the fiscal year
Reclassification adjustment
Prior to deducting tax effectTax effectTotal(7,286)1,272(6,014)
1,830(4,183)(2,346)
1,070(1,276)388(888)(66,955)
11,693(55,262)
16,818(38,444)

(49)
(1)
(50)
16
(34)

(1,111)80(1,031)
313
(718)

¥648

$(371,593)

Share of other comprehensive
income of associates accounted
for using the equity method:Amount incurred during
the fiscal year(120)
8Reclassification adjustment
Prior to deducting tax effect(112)
34
Tax effect
Total
(78)
Total other¥(40,440)
comprehensive income

242,978
25,414
24,583292,975$(41,007)

Hokuhoku Financial Group, Inc. Annual Report 2020

Other Income

61

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28. Leases(1) Finance lease transactions(Lessee)
The Group leases ATMs, computer equipment, software, andother assets.
(2) Operating lease transactions(Lessee)
The minimum rental commitments under noncancelable
operating leases as of March 31, 2020 and 2019 are as follows:
Millions of yen
2020
2019

Within one year
Over one year
Total

¥3
13
¥17

¥3
17
¥21

Thousands of
U.S. dollars
2020

$36
127
$163

29. 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.
The Group's lending activities are aimed at achieving coprosperity with the regional economy and the Group endeavors
to manage the Group's lending in a sound and appropriatemanner, while simultaneously working to strengthen 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 used mainly for 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, theGroup 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 suchmarket risk and ensure stable earnings.
(2) Nature and extent of risks arising from financial instruments
The financial assets held by the Group consist primarily of
securities and loans to domestic customers. Loans are subject
to credit risks that could cause financial loss to the Group, suchas declines or losses in asset value resulting from a possible
deterioration in the financial condition of borrowers. With regard
to securities, the Group is exposed to the credit risk of issuers,interest-rate risk, and market price volatility risk. However, theGroup takes adequate steps to mitigate these risks.
Financial liabilities, including deposits and borrowed money, areexposed to liquidity risk arising from the possibility that the Groupmay be obliged to procure funds at interest rates significantly
higher than normal owing to a sudden change in the market
environment or a deterioration in the Group’s financial position.
The Banks make use of currency-related derivatives such as
currency swaps, forward exchange contracts, and currency
options, as well as interest-related derivatives such as interestrate swaps, interest-rate futures, and interest-rate caps, to meet
the ALM needs of the Banks as well as the various needs of the62

Hokuhoku Financial Group, Inc. Annual Report 2020

Other Income

Banks’ customers. These derivatives are exposed to thefollowing 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 interestrate fluctuations. When applying hedge accounting, theHokuriku Bank, Ltd. adopts integrated management in both
hedging instruments and hedged items as long as hedging ismanaged and evaluates the effectiveness of the hedges.
(3) Risk management for financial instruments
The Banks have established risk management departments andhave stipulated basic regulations for risk management and otherregulations pertaining to risk. In addition, the Banks haveestablished an ALM Committee and a Comprehensive Risk
Management Committee, where qualified risks andadministration matters are discussed regularly to ensure that all
categories of risk are managed effectively. Changes inregulations and organizational structures of the Banks arerevised or supervised by the Company to ensure conformance to
the Group’s policies and the results of the above committees arereported to the Company.
(a) Credit Risk Management
The Group’s fundamental policy is to strive for improved
earnings and ensure sound business operations through theappropriate management of credit risk. In line with this policy,
the Company and the Banks collaborated in establishingvarious regulations, including Credit Risk Management
Regulations, and 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 Credit Policy. Additionally, the setting of credit
limits is managed on an individual customer basis to avoid therisk of an overconcentration of loans in particular sectors.
Finally, the Banks carry out self-assessment and credit risk
quantification procedures and the risk situation is regularly
reported to the Banks’ board of directors.
As for the loan screening process of the Banks, the branches
concerned carefully analyze each separate loan application andscreen each customer involved. In the event that the decision
exceeds the limits of authority of the branch manager, theappropriate loan screening departments at the headquarters of
the Banks carry out 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 tothe branches based on the particular features of the customer.
Concerning the creditworthiness of security issuers andcounterparty risk in derivative transactions, credit informationand the state of transactions are regularly monitored andmanaged by the risk management departments of the Banks.
(b) Market Risk Management
Having stipulated regulations such as Market Risk Management

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Regulations and an arranged organizational structure including
ALM and other committees, the Banks appropriately control
market risk associated with lending and deposit-taking in orderto ensure 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 rate 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 raterisk to control such risk appropriately. Derivatives such as
interest-rate swaps and interest-rate caps are employed from an
ALM perspective so that the Banks reduce interest rate risk byhedging against interest rate fluctuations.
Foreign Exchange Risk Management
Using measures such as currency swaps to reduce foreignexchange risk, the Banks manage exchange risk arising fromfluctuations in foreign exchange rates that affect the values ofassets 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
high percentage of the stocks held by the Banks are acquiredand held for long-term strategic purposes. The Banks monitor themarket conditions and financial positions of the securities issuers.
Value at Risk (“VaR”) and other methods are used to determine
the amount 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 toconfirm that price risk is controllable and all rules pertaining tomarket 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 for book entries and settlements). Management
sections confirm the validity of transactions, value the Banks’daily derivative positions, and measure gains and losses as wellas risk levels. Derivative transactions are carefully managed insuch a way that losses never exceed 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 ofcurrency-related and interest-related derivative transactions
held in the trading account, Hokuriku Bank adopts thehistorical simulation method (a holding period of 1 businessday, a confidence interval of 99%, and a main observation
period of 1,250 business days).
The market risk amounts (VaR) of the trading business of
Hokuriku Bank were ¥119 million ($1,093 thousand) and ¥239
million as of March 31, 2020 and 2019, respectively.
Hokkaido Bank has no financial instruments in the trading
accounts.
• Financial instruments in the banking accountIn the Banks, the main financial instruments affected byinterest rate risk are “Monetary claims bought,” “Loans andbills discounted,” “Bonds,” “Deposits,” “Borrowed money,” andtransactions of interest rate swaps, interest swaptions, andinterest rate caps held in derivative transactions. The main
financial instruments affected by market value are listed stocks
and investment trust. The Banks use VaR for integrated
management of these financial instruments.
For calculating VaR, the Banks adopted the historicalsimulation method (a holding period of 120 business days, aconfidence interval of 99% and main observation period of 1,250
business days) and consider the correlations between interestand the fluctuation of prices of the listed stocks. In addition,
Hokkaido Bank has set a holding period of 10 business days for
trading account securities (including public bonds traded overthe counter) and for specified fund trust as investment securities.
Hokkaido Bank also considers the correlation between interest
rates and the fluctuation of prices of the listed stocks incalculating VaR of specified fund trust as investment securities.
Hokuriku Bank’s VaR of the financial instruments in thebanking account was ¥57,954 million ($532,519 thousand)and ¥62,151 million as of March 31, 2020 and 2019,respectively. Hokkaido Bank’s VaR of the financial instrumentsin the banking account was ¥15,622 million ($143,545
thousand) and ¥20,730 million as of March 31, 2020 and
2019, respectively. Hokkaido Bank’s trading account securities
totaled ¥14 million ($129 thousand) and ¥12 million as ofMarch 31, 2020 and 2019, respectively. Hokkaido Bank’s
specified fund trust totaled ¥2 million ($18 thousand) and ¥2
million as of March 31, 2020 and 2019, 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 statisticallycalculated based on past market movements. Therefore, there
are cases in which VaR cannot capture risk under sudden anddramatic changes in markets beyond normal circumstances.
VaR shows the maximum loss during the holding period of
the financial instruments under a confidence interval (99%)
that is statistically calculated based on past market
movements. In particular, the Banks calculate 100BPV (100Basis Point Value) as supplements of the assets and liabilities
and change in their present value on the assumption thatindex interest rate rises by 1.00%.
Hokuriku Bank’s 100BPV was a ¥70,325 million increase($646,191 thousand increase) and a ¥58,692 million increase
as of March 31, 2020 and 2019, respectively. Hokkaido Bank’s
100BPV was a ¥18,061 million increase ($165,956 thousand
increase) and a ¥26,013 million increase as of March 31, 2020
and 2019, respectively.
Hokuhoku Financial Group, Inc. Annual Report 2020

Other Income

632020/09/16 10:47:28 / 20647229_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

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
other than interest rate remain unchanged. Actual risk canexceed the calculated 100BPV in the case of a drastic change
in interest rates beyond reasonable prior expectations.
(c) Liquidity Risk Management
In accordance with the Banks’ rules for management of liquidity
risk, the Banks form an accurate appraisal of fund operations
and procurement, and take measures to ensure smooth cash
flows. Specifically, the Banks set benchmarks in various
different categories to check liquidity risk on a daily basis, andmaintain adequate levels of high-liquidity assets that are readily
convertible into cash, such as government bonds.
The Banks have in place mechanisms for periodicallyassessing and managing liquidity risk through ALM committees,
to prepare for every possible scenario.
(4) Supplementary explanation relating to fair values offinancial instruments
The fair values of financial instruments include, in addition tovalues determined based on market prices, valuations
calculated on a reasonable basis if no market prices areavailable. Certain assumptions are used in the calculations ofsuch amounts. Accordingly, the results of such calculations mayvary if different assumptions are used.
(5) Fair value of financial instruments
The fair values of the main financial instruments at March 31,
2020 and 2019 are as follows. These amounts do not include
unlisted stocks whose fair values are extremely difficult todetermine (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, 2020

Carrying
amountFair value

Cash and due from banks¥2,725,025 ¥2,725,025
Call loans and bills bought
59,79559,795
Monetary claims bought *1
32,68332,683
Securities
Bonds classified as
206,294
216,751
held-to-maturity
Available-for-sale securities
1,579,666
1,579,666
Loans and bills discounted
8,656,450(52,904)
Allowance for loan losses *1
8,603,545
8,708,651
Total assets¥13,207,011 ¥13,322,574
Deposits
Payables under securities
lending transactions
Borrowed money
Total liabilities
Derivative transactions *2
Derivative transactions not
qualifying for hedge accounting
Derivative transactions
qualifying for hedge accounting
Total derivative transactions
64¥11,638,618 ¥11,638,722
294,641¥―――
10,456

March 31, 2019

Fair value

Cash and due from banks¥2,556,419 ¥2,556,419
Call loans and bills bought
80,21080,210
Monetary claims bought *1
37,03037,030
Securities
Bonds classified as
207,480
219,908
held-to-maturity
Available-for-sale securities
1,563,916
1,563,916
Loans and bills discounted
8,344,137(50,945)
Allowance for loan losses *1
8,293,192
8,387,331
Total assets¥12,738,249 ¥12,844,817
Deposits
Payables under securities
lending transactions
Borrowed money
Total liabilities
Derivative transactions *2
Derivative transactions not
qualifying for hedge accounting
Derivative transactions
qualifying for hedge accounting
Total derivative transactions

March 31, 2020

¥11,410,328 ¥11,410,522
352,650

Unrealized
gain (loss)¥―――
12,428―

94,139¥106,567¥193

352,650―

612,665
613,229¥12,375,644 ¥12,376,402

564
¥758

¥940

¥940

¥―

(1,762)(1,762)―*3¥(821)¥(821)¥―

Thousands of U.S. dollars
Carrying
Unrealized
amountFair value gain (loss)$25,039,287 $25,039,287$―
Cash and due from banks
Call loans and bills bought
549,437
549,437―
Monetary claims bought *1
300,318
300,318―
Securities
Bonds classified as
1,895,569
1,991,654
96,085held-to-maturity
Available-for-sale securities
14,514,992 14,514,992―
Loans and bills discounted
79,541,029(486,118)
Allowance for loan losses *1
79,054,911 80,020,688
965,777
Total assets$121,354,514 $122,416,376 $1,061,862
Deposits
Payables under securities
lending transactions
Borrowed money
Total liabilities$106,943,108 $106,944,065
2,707,353$957

2,707,353―

7,604,287
7,612,143$117,254,748 $117,263,561

7,856$8,813―

105,105¥115,562¥104

294,641―

827,574
828,429¥12,760,834 ¥12,761,793

855
¥959

¥176

¥176

¥―

(1,304)(1,304)―¥(1,127)¥(1,127)¥―

Hokuhoku Financial Group, Inc. Annual Report 2020

Other Income

Unrealized
gain (loss)

Millions of yen
Carrying
amountDerivative transactions *2
Derivative transactions not
qualifying for hedge accounting
Derivative transactions
qualifying for hedge accounting
Total derivative transactions$1,624$1,624$―(11,983)(11,983)―$(10,359)$(10,359)$―*1. Allowance for loan losses shown in this table represents the generalallowance and specific allowance for loan losses. Figures forallowance for loan losses on monetary claims bought are directlydeducted from the balance of monetary claims bought as the amountconcerned is insignificant.
*2. Derivative transactions included in trading assets and liabilities andother assets and liabilities are shown together. Assets and liabilities
arising from derivative transactions are shown within parentheseswith respect to net liabilities.
*3. As interest-rate swaps subject to exceptional treatment are accounted
for together with the loans being hedged by the swaps, their fair value
is included in the loans in question on the consolidated balance sheet.

2020/09/16 10:47:28 / 20647229_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

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 ofthese items approximate their book values. The fair values ofdue from banks with 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 of due 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 tobe equal to the book value since the contractual terms are one
year or less and fair values of these items approximate theirbook values.
Monetary claims bought
The fair values of trust beneficiary rights relating to mortgage
loans purchased by the Banks and relating to loan claims are
determined based on the quoted prices obtained fromcounterparty financial institutions. The fair values of small-lot
monetary claims resulting from asset liquidations are
determined by discounting the cash flows at the market interest
rates, taking into account the credit risk involved.
Securities
The fair values of stocks are calculated on the basis of theaverage price of the stocks on the stock market for the onemonth period immediately preceding the last day of theaccounting term. The fair values of bonds are calculated using
the price indicated on the securities market or other officiallyannounced prices. In the event that neither of these fair values
are available, the price is based on a reasonable estimate. For
investment trusts, the fair value is calculated on the basis of apublicly 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 a market interest rate where the credit riskof each bond issuer and the remaining period of the bonds are
considered.
For more detailed information regarding the different types of
securities classified according to holding purpose, see “6.
Securities.”
Loans and bills discounted
As loans with variable interest rates reflect short-term market
interest rates, the fair value will approximate the book value
unless the creditworthiness of the borrower changes
subsequent to the grading of the loan. Because of this, the bookvalue 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 accountthe credit risk involved. This calculation is performed separately
for each 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
approximation of the fair value and is therefore employed as
such.

Regarding the fair value of claims on bankrupt borrowers,
substantially bankrupt borrowers, and potentially bankrupt
borrowers, credit losses are estimated based on the present
value of estimated future cash flows or the estimated value
recoverable from collateral and guarantees. Since the fair value
approximates the value stated on the consolidated balance
sheet as of the settlement date, minus the present value of
estimated bad debt, this figure is treated as the fair value.
For the category of loans whose maturity is not fixed
because of the loan ceiling set within the estimated value
recoverable from the collateral, the book value is deemed toapproximate the fair value because of the expected period for
repayment and the interest rates applied. The book value istherefore employed as the fair value.
Deposits
For demand deposits, the amount payable on demand as of theconsolidated balance sheet date (i.e., the carrying amount) is
considered to be the fair value. In addition, the fair value of time
deposits is calculated by discounting the estimated future cash
flows for each of the specified periods. This calculation is
performed separately as per the remaining maturity of time
deposits. The discount rate employed is the interest rate thatwould be applied to newly accepted deposits. In the event thatthe deposit term is one year or less, the book value is deemed
to approximate the fair value and is therefore treated as such.
Payables under securities lending transactions
The fair values of Payables under securities lendingtransactions are considered to be equal to the book value since
the contractual terms are one year or less and fair values ofthese items approximate their book values.
Borrowed money
Borrowed money with floating interest rates reflects market
interest rates and because the credit standing of the Company
and its consolidated subsidiaries has changed little since taking
out such loans, the book value is deemed to approximate thefair value and is therefore treated as such.
For money borrowed through loans carrying fixed rates, thecurrent value of such loans is determined by discounting thetotal of their principal plus interest (separately for each specificperiod) at the rate currently applied to other loans of the same
duration and terms. For loans whose repayment period is one
year or less, the book value is deemed to approximate the fairvalue and is therefore treated as such.
Derivative transactions
Derivative transactions include interest rate-related transactions(futures, options, swaps, and others), foreign exchange-relatedtransactions (futures, options, swaps, and others), andcommodity-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 notincluded in “Monetary claims bought” and “Available-for-salesecurities” in the fair value information of financial instruments.

Hokuhoku Financial Group, Inc. Annual Report 2020

Other Income

65

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Consolidated balance sheet amounts

March 31

Millions of yen
2020
2019

Thousands of
U.S. dollars
2020

Unlisted stocks *1, 2
Unlisted foreign securities *1
Total¥29,5220¥29,523$271,274
3$271,277¥26,2070¥26,208*1. These items are excluded from “fair value information of financial
instruments” on the basis that no market price is available and adetermination of the fair value would be extremely difficult.
*2. Unlisted stocks were written down by ¥6 million ($61 thousand) and¥28 million as of March 31, 2020 and 2019, respectively.

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

66

March 31, 2020

Due in 1 year
or less

Due after 1 year
through 3 years

Due from banks
Call loans and bills bought
Monetary claims bought
Securities
Bonds classified as held-to-maturity
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Available-for-sale securities with maturities
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Other
Loans and bills discounted
Total¥2,589,878
59,795
1,127
275,71239,0162,520―
36,496236,696
160,400
47,00015,175
14,1202,877,722¥5,804,237

¥―
―
5,000
331,628
65,3451,000―
64,345266,283
146,600
66,086
26,51427,081
1,370,996¥1,707,625

March 31, 2019

Due in 1 year
or less

Due after 1 year
through 3 years

Due from banks
Call loans and bills bought
Monetary claims bought
Securities
Bonds classified as held-to-maturity
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Available-for-sale securities with maturities
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Other
Loans and bills discounted
Total¥2,416,709
80,2101,153
371,164
36,479500―
35,979334,684
207,400
94,04021,274
11,9702,710,539¥5,579,777

¥―
―
5,442
441,324
63,0762,520―
60,556378,247
255,000
75,10931,61816,5191,346,951¥1,793,717

Millions of yen
Due after 3 years Due after 5 years
through 5 years through 7 years¥―――
236,445
35,630500
1,000
34,130200,815―
101,593
32,861
66,3591,101,553¥1,337,998¥―――
121,948
15,976
10,0001,500
4,476
105,971―
51,762
15,55738,652725,964¥847,912

Millions of yen
Due after 3 years Due after 5 years
through 5 years through 7 years¥―――
254,344
41,5001,500
500
39,500212,844
52,00092,16525,06743,611
1,065,220¥1,319,564

Hokuhoku Financial Group, Inc. Annual Report 2020

Other Income、Maturity analysis for financial assets and securities with contractual maturities¥―――
112,014
14,45010,000―4,450
97,563―37,277
15,11445,171
705,305¥817,319

Due after
7 years¥――
26,310510,645
50,61550,000―615
460,030
76,500204,720
72,155
106,654
2,417,153¥2,954,109

Due after
7 years¥――
30,124
269,592
52,13550,0001,500
635
217,457
15,00063,23766,72972,4902,353,914¥2,653,631

2020/09/16 10:47:28 / 20647229_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

March 31, 2020

Due in 1 year
or less

Thousands of U.S. dollars
Due after 1 year Due after 3 years Due after 5 years
through 3 years
through 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 local government bonds
Japanese corporate bonds
Available-for-sale securities with maturities
Japanese government bonds
Japanese local government bonds
Japanese corporate bonds
Other
Loans and bills discounted
Total$23,797,473
549,437
10,3642,533,428
358,510
23,156―335,354
2,174,918
1,473,858
431,871
139,442
129,747
26,442,360$53,333,062$――
45,943
3,047,217
600,4389,189―
591,2492,446,779
1,347,055
607,244
243,635
248,845
12,597,596$15,690,756$―――
2,172,616
327,398
4,594
9,189
313,615
1,845,218―
933,509
301,953
609,756
10,121,778$12,294,394$―――
1,120,543
146,805
91,886
13,783
41,136
973,738―
475,623
142,951
355,164
6,670,626$7,791,169

Due after
7 years$――
241,761
4,692,139
465,083
459,432―
5,651
4,227,056
702,931
1,881,107
663,012980,006
22,210,360$27,144,260

Loans and bills discounted
Claims on bankrupt borrowers, substantially bankrupt borrowers, and potentially bankrupt borrowers amounted to ¥134,317 million($1,234,195 thousand) and ¥138,006 million as of March 31, 2020 and 2019, respectively, and loans with no contractual maturities
amounted to ¥28,743 million ($264,114 thousand) and ¥24,199 million as of March 31, 2020 and 2019, respectively. They are notincluded in the table above.
(7) Maturity analysis for financial liabilities with contractual maturities

March 31, 2020

Due in 1 year
or less

Due after 1 year
through 3 years

Deposits
Payables under securities lending transactions
Borrowed money
Total¥10,683,960
294,641
139,324¥11,117,925¥787,429―
325,347¥1,112,776

March 31, 2019

Due in 1 year
or less

Due after 1 year
through 3 years

Deposits
Payables under securities lending transactions
Borrowed money
Total¥10,368,716
352,650
158,337¥10,879,703¥857,073―
384,200¥1,241,274

March 31, 2020

Due in 1 year
or less

Due after 1 year
through 3 years$98,171,094
2,707,353
1,280,200$102,158,647$7,235,409―
2,989,497$10,224,906

Millions of yen
Due after 3 years Due after 5 years
through 5 years through 7 years¥157,866―
362,387¥520,253¥4,637―471¥5,108Millions of yen
Due after 3 years Due after 5 years
through 5 years through 7 years¥174,218―
69,589¥243,807¥4,906―418¥5,324Due after
7 years¥4,725―45¥4,770Due after
7 years¥5,413―120¥5,533Thousands of U.S. dollars

Deposits
Payables under securities lending transactions
Borrowed money
Total

Due after 3 years Due after 5 years
through 5 years through 7 years$1,450,575―
3,329,848$4,780,423$42,608―
4,328$46,936

Due after
7 years$43,421―414$43,835

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

Hokuhoku Financial Group, Inc. Annual Report 2020

Maturity analysis for financial assets and securities with contractual maturities、Maturity analysis for financial liabilities with
contractual maturities67

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

March 31, 2020

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

March 31, 2019

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

March 31, 2020

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

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

¥86,72286,700541
541/¥73,81773,809541
541/¥1,912(1,315)(1)
1¥597

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

¥101,013
101,032
350
350/¥93,303
93,251350
350/¥2,785(1,998)(0)0¥787

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

$796,867
796,658
4,973
4,973
/

$678,279
678,211
4,973
4,973
/

$17,575(12,086)(15)
14$5,488

Unrealized gain (loss)¥1,912(1,315)9(3)¥603

Unrealized gain (loss)¥2,785(1,998)6(1)¥793

Unrealized gain (loss)$17,575(12,086)86(30)$5,545

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

• Foreign Exchange-Related Transactions

March 31, 2020

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

March 31, 2019

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

March 31, 2020

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

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

¥5,456
43,52544,75338,971
38,971/¥1,231523
450
16,208
16,208
/

¥4
(155)
(323)
(837)
835
¥(476)

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

¥4,31425,53821,65348,527
48,527/¥3,867460
377
14,272
14,272
/

¥3
34
98
(910)
909
¥135

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

$50,137
399,939
411,222
358,092
358,092/$11,319
4,808
4,135
148,932
148,932/$45(1,429)(2,977)(7,697)
7,675$(4,383)

Unrealized gain (loss)

¥4
(155)
(323)
1,478
(1,254)¥(250)

Unrealized gain (loss)

¥3
34
98
2,468
(2,250)¥354

Unrealized gain (loss)$45(1,429)(2,977)
13,582(11,522)$(2,301)

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

68

Hokuhoku Financial Group, Inc. Annual Report 2020

Derivative transactions to which hedge accounting is not applied

2020/09/16 10:47:28 / 20647229_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）• Commodity-Related Transactions

March 31, 2020

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

March 31, 2019

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

March 31, 2020

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

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

¥331
331
/

¥250
250
/

¥170
(113)
¥56

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

¥333
333
/

¥333
333
/

¥(43)
60
¥16

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

$3,043
3,043/$2,301
2,301/$1,563(1,044)$519

Unrealized gain (loss)

¥170
(113)
¥56

Unrealized gain (loss)

¥(43)
60
¥16

Unrealized gain (loss)$1,563(1,044)$519

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

• Others

March 31, 2020

Over-the-counter transactions
Earthquake derivatives
Sell
Buy
Total

March 31, 2019

Over-the-counter transactions
Earthquake derivatives
Sell
Buy
Total

March 31, 2020

Over-the-counter transactions
Earthquake derivatives
Sell
Buy
Total

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

¥8,615
8,615
/

¥―
―
/

¥(55)
55
/

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

¥―
―
/

¥―
―
/

¥―
―
/

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

$79,160
79,160/$――/$(506)
506/

Unrealized gain (loss)¥――/

Unrealized gain (loss)¥――/

Unrealized gain (loss)$――/

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

Hokuhoku Financial Group, Inc. Annual Report 2020

Derivative transactions to which hedge accounting is not applied69

2020/09/16 10:47:28 / 20647229_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）(2) Derivative transactions to which hedge accounting is appliedWith respect to derivatives to which hedge accounting is applied, notional principal or contract amount and fair value at the balance
sheet date by transaction type and hedge accounting method and computation method of the fair value are as follows. Note that
contract amounts do not represent the market risk exposure of derivative transactions.
• Interest Rate-Related Transactions
March 31, 2020
Hedge accounting method

Type

Hedged item

Accounting method
employed in principle

Swaps
Receive/floating and pay/fixed
Swaps
Receive/floating and pay/fixed

Yen-based bondExceptional treatment forinterest swaps

March 31, 2019
Hedge accounting method

Type

Hedged item

Accounting method
employed in principle

Swaps
Receive/floating and pay/fixed
Swaps
Receive/floating and pay/fixed

Yen-based bondMarch 31, 2020
Hedge accounting method

Type

Hedged item

Accounting method
employed in principle

Swaps
Receive/floating and pay/fixed
Swaps
Receive/floating and pay/fixed

Yen-based bond

Total

¥65,883¥65,883¥(1,449)

38,545/38,531/*3¥(1,449)

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

Fair value¥55,000¥55,000¥(1,403)

32,094/32,025/*3¥(1,403)

Loans and bills discounted

Total

Exceptional treatment forinterest swaps

Fair value

Loans and bills discounted

Total

Exceptional treatment forinterest swaps

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

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

$605,375$605,375$(13,321)

354,180/

354,055/*3$(13,321)

Loans and bills discounted

Notes: 1. Deferred hedge accounting is mainly applied in accordance with JICPA Industry Audit Committee Report No. 24.
2. The fair value is determined using the discounted value of future cash flows, option pricing models, etc.
3. Amounts resulting from interest swaps with exceptional treatment are accounted for together with the financial instruments hedged. As a result,the fair value is included in the fair value of the loans stated in “30. Financial Instruments and Related Disclosures.”70

Hokuhoku Financial Group, Inc. Annual Report 2020

Derivative transactions to which hedge accounting is applied

2020/09/16 10:47:28 / 20647229_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）• Foreign Exchange-Related Transactions
March 31, 2020
Hedge accounting method

Accounting method
employed in principle

Type

Swaps
Forward contracts

Hedged item

Foreign loans and foreign
securities
Call loans and due frombanks (foreign currencies)

Total
March 31, 2019
Hedge accounting method

Accounting method
employed in principle

Type

Swaps
Forward contracts

Hedged item

Foreign loans and foreign
securities
Call loans and due frombanks (foreign currencies)

Total
March 31, 2020
Hedge accounting method

Accounting method
employed in principle

Type

Swaps
Forward contracts

Hedged item

Foreign loans and foreign
securities
Call loans and due frombanks (foreign currencies)

Total

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

Fair value¥34,135¥298¥39

27,287
/

―
/

105
¥145

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

Fair value¥18,117¥254¥(452)

57,197/―/93¥(358)

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

$313,659$2,739$366

250,737/―/971$1,337

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

31. Segment Information
An entity is required to report financial and descriptive information about its reportable segments. Reportable segments are operating
segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about
which separate financial information is available and such information is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally, segment information is required to be reported on thesame basis as is used internally for evaluating operating segment performance and deciding how to allocate resources to operating
segments.
(1) Description of reportable segments

The Group's reportable segments are those for which separate financial information is available and regular evaluation by the Board of
Directors and Management Committees is being performed in order to decide how resources are allocated among the Group andassess performance.
The Group comprehensively conducts banking business as its core business and other financial services under the control of theCompany.
The Company recognized each of its consolidated subsidiaries as an operating segment. Therefore, Hokuriku Bank and Hokkaido
Bank are reportable segments.
(2) Methods of measurement for the amounts of ordinary income, profit (loss), assets, liabilities and other items for each reportablesegment
The accounting policies of each reportable segment are consistent with those disclosed in Note 2, "Summary of Significant Accounting
Policies." Profits of reportable segments are the same as net income. Ordinary income from intersegment transactions is based ontransaction prices determined in the same manner as ordinary income from external customers.

Hokuhoku Financial Group, Inc. Annual Report 2020

Derivative transactions to which hedge accounting is applied、Segment Information71

2020/09/16 10:47:28 / 20647229_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）(3) Information about ordinary income, profit (loss), assets, liabilities, and other items
Segment results for the years ended March 31, 2020 and 2019 are as follows:
Millions of yen
2020
Reportable segment
Hokuriku Bank Hokkaido Bank
Total

Ordinary income
Ordinary income from external 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¥87,353
1,175
88,528
11,2388,108,929¥7,754,187¥74,206¥161,560
775
1,951
74,982
163,511
9,592
20,831
5,496,607 13,605,537¥5,278,836 ¥13,033,024

Other

Total

¥21,118¥182,678
4,767
6,718
25,885
189,397
2,455
23,286
93,104 13,698,642¥67,258 ¥13,100,282

Reconciliations Consolidated¥(275)¥182,402(6,718)―(6,994)
182,402(3,034)
20,252(53,780) 13,644,861¥(50,740) ¥13,049,541¥4,271――¥2,571――¥6,842
―
―

¥309
―
―

¥7,152
―
―

¥6
2,102
9,285

¥7,1592,102
9,285¥3,085¥1,849¥4,935¥150¥5,085¥3¥5,088Millions of yen
2019
Reportable segment
Hokuriku Bank Hokkaido Bank
Total

Ordinary income
Ordinary income from external 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¥89,229
1,009
90,23915,5907,820,921¥7,451,782¥74,292¥163,522
1,227
2,237
75,519165,759
11,01826,6095,322,018 13,142,940¥5,097,094 ¥12,548,877

Other

Total

¥20,267¥183,789
4,561
6,798
24,828
190,587
1,155
27,764
94,927 13,237,867¥70,978 ¥12,619,855

Reconciliations Consolidated¥(143)¥183,645(6,798)―(6,942)
183,645(3,405)24,359(51,894) 13,185,972¥(61,887) ¥12,557,968¥4,441――¥2,590――¥7,032
―
―

¥343
―
―

¥7,375
―
―

¥4
2,102
11,387¥7,3792,102
11,387¥4,479¥1,336¥5,815¥109¥5,925¥1¥5,926

Thousands of U.S. dollars
2020

Ordinary income
Ordinary income from external 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

72

Hokuhoku Financial Group, Inc. Annual Report 2020

Segment Information

Reportable segment
Hokuriku Bank Hokkaido Bank
Total

Other

$802,660
10,799813,459
103,270
74,510,061$71,250,457$194,052 $1,678,569
43,80561,734
237,857
1,740,303
22,559213,974855,503 125,871,930$618,011 $120,373,814$681,857 $1,484,517
7,130
17,929688,987
1,502,446
88,145
191,41550,506,366 125,016,427$48,505,346 $119,755,803

Total

Reconciliations Consolidated$(2,533) $1,676,036(61,734)―(64,267)
1,676,036(27,882)
186,092(494,173) 125,377,757$(466,239) $119,907,575$39,251――$23,626――$62,877――$2,848――$65,725――$57
19,31785,317$65,782
19,31785,317$28,352$16,994$45,346$1,379$46,725$28$46,753

2020/09/16 10:47:28 / 20647229_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）(4) Information about services
Millions of yen
Investment
operations
Other

Deposit andloan operations

Year ended March 31, 2020

Ordinary income from external customers¥96,631¥43,484

Year ended March 31, 2019

¥99,098¥42,019

Year ended March 31, 2020

Total

¥42,527¥183,645

Thousands of U.S. dollars
Investment
operations
Other

Deposit andloan operations

Ordinary income from external customers¥182,402

Millions of yen
Investment
operations
Other

Deposit andloan operations

Ordinary income from external customers

Total¥42,287$887,914$399,561

Total$388,561$1,676,036(5) Information about geographical areas
There is no geographical segment outside Japan accounting for 10% or more of ordinary income and tangible fixed assets.
(6) Information about major customers
There are no major customers individually accounting for 10% or more of ordinary income.

32. Related Party Transactions
Related party transactions as of March 31, 2020 and 2019 were as follows:• Officers and principal individual shareholders of the company submitting consolidated financial statements
March 31, 2020
Transaction amount *5
Related party

Account Classification

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

Balance at end of year

Millions of yen

Thousands of
U.S. dollars

Millions of yen

Thousands of
U.S. dollars¥950$8,729¥950$8,729¥1,013¥320¥11$9,308$2,940
$101

¥500
¥311
¥10

$4,594$2,858$92

March 31, 2019
Related party

Account Classification

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

Transaction amount *5

Balance at end of year

Millions of yen

Millions of yen

¥950

¥950

¥796
¥314
¥12

¥1,083¥327¥11

Notes: 1. Terms and conditions of the transactions are similar to those with unrelated parties.
2. A member of the Hokuriku Bank’s audit & supervisory board and his close relatives own the majority of the voting rights, and he is the president ofthese companies.
3. A close relative of an ex-member of the Group’s directors owns the majority of this company’s voting rights.
The transaction amount is the average balance during the period in which the Group had a related party relationship with the company.Balance atthe end of the year is the balance outstanding on the date when the related party relationship ceased to exist.
4. Mr. Tsurui is a close relative of a member of the Group’s directors.
5. Transaction amount was reported at the average balance for the period.
6. Land and buildings were pledged as collateral for the loans.

33. Subsequent Events
There are no applicable matters.

Hokuhoku Financial Group, Inc. Annual Report 2020

Segment Information、Related Party Transactions、Subsequent Events73

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INDEPENDENT AUDITOR’S REPORT

74

Hokuhoku Financial Group, Inc. Annual Report 2020

INDEPENDENT AUDITOR’S REPORT

2020/09/16 10:47:28 / 20647229_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

Hokuhoku Financial Group, Inc. Annual Report 2020

INDEPENDENT AUDITOR’S REPORT75

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76

Hokuhoku Financial Group, Inc. Annual Report 2020

INDEPENDENT AUDITOR’S REPORT

2020/09/16 10:47:28 / 20647229_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

NON-CONSOLIDATED FINANCIAL STATEMENTS

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

2020

2019

Thousands of
U.S. dollars
2020

Cash and due from banks¥1,780,569¥1,596,327$16,361,019

Call loans and bills bought

59,79580,210549,437

Monetary claims bought

32,68337,030300,318

Trading assets

1,067

1,188

9,809

Money held in trust

4,939

―

45,389Millions of yen
March 31

AssetsSecurities

1,158,001

1,197,044

10,640,460

Loans and bills discounted

4,910,354

4,740,350

45,119,489

Foreign exchanges

9,840

8,392

90,420

Other assets

66,187

73,203608,169

Tangible fixed assets

74,202

76,152681,822

Intangible fixed assets

4,369

5,349

40,146

Prepaid pension cost

3,900

3,693

35,839Customers’ liabilities for acceptances and guarantees

29,41926,879270,328

Allowance for loan losses
Total assets(26,400)(21,207)(242,585)¥8,108,929¥7,820,921$74,510,060¥6,735,467¥6,636,846$61,889,808

68,264

27,214627,262

Liabilities and equity
Liabilities
Deposits
Call money and bills soldPayables under repurchase agreements

11,877―

109,141

Payables under securities lending transactions

285,243

335,9142,620,996

Trading liabilities

497

544

4,569

Borrowed money

547,987

377,217

5,035,257

Foreign exchanges

47

55

440

Borrowed money from trust account

534

―

4,911

54,04418,095496,597

443

716

4,071

Other liabilities
Reserve for employee retirement benefits
Reserve for directors’ and audit & supervisory board members’ retirement benefits

43

43

399

Reserve for contingent losses

703

726

6,463

Reserve for reimbursement of deposits

1,473

1,608

13,543

Deferred tax liabilities

12,937

20,608118,873

Deferred tax liabilities for land revaluation

5,201

5,309

47,799Acceptances and guarantees

29,41926,879270,328

7,754,187

7,451,782

71,250,457

Capital stock

140,409140,4091,290,173

Capital surplus

14,99814,998137,819

Retained earnings

144,299

133,724

1,325,915
440,131

Total liabilities
EquityValuation and translation adjustments
Valuation difference on available-for-sale securities

47,89972,562

Deferred gains (losses) on hedges(1,076)(910)(9,888)

Revaluation reserve for land

8,211

8,354

75,453354,742

369,139

3,259,603¥8,108,929¥7,820,921$74,510,060

Total equity
Total liabilities and equity

Hokuhoku Financial Group, Inc. Annual Report 2020

NON-CONSOLIDATED BALANCE SHEET (UNAUDITED)_Hokuriku

77

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NON-CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)The Hokuriku Bank, Ltd.
Thousands of
U.S. dollars
2020

Millions of yen
2020

2019

Interest on loans and discounts¥43,722¥45,480$401,751

Interest and dividends on securities

14,257

16,391

131,008

Interest on deposits with other banks

606

819

5,572

Other interest income

356

478

3,271

6

―

56

17,961

17,345

165,040

IncomeInterest income:

Trust fees
Fees and commissions
Trading income
Other ordinary income

136

52

1,251

6,064

5,143

55,721Other income

5,778

4,663

53,100Total income

88,88990,374

816,770

Interest on deposits

740

924

6,803

Interest on payables under repurchase agreements

37

217

341

Interest on payables under securities lending transactions

791

1,033

7,270

Expenses
Interest expenses:

Interest on borrowings and rediscounts
Other interest expenses
Fees and commissions
Other ordinary expenses

274

557

2,526

1,800

2,228

16,541

7,397

7,391

67,974

314

2,416

2,889

General and administrative expenses

46,60947,492428,281

Provision of allowance for loan losses

9,004

2,692

82,741Other expenses

5,097

4,334

46,841

Total expenses

72,067

69,289662,207

Income before income taxes

16,821

21,085

154,563

5,185

5,105

47,646

Income taxes:
Current

78

Deferred

396

389

3,647

Net income¥11,238¥15,590$103,270

Hokuhoku Financial Group, Inc. Annual Report 2020

NON-CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)_Hokuriku

2020/09/16 10:47:28 / 20647229_株式会社ほくほくフィナンシャルグループ_総会その他（Ｃ）

NON-CONSOLIDATED FINANCIAL STATEMENTS

NON-CONSOLIDATED BALANCE SHEET (UNAUDITED)The Hokkaido Bank, Ltd.
Thousands of
U.S. dollars
2020

Millions of yen
March 31

2020

2019

Cash and due from banks¥942,323¥958,032$8,658,675

Trading account securities

2,722

2,883

25,018

Money held in trust

9,265

9,123

85,133

AssetsSecurities
Loans and bills discounted

649,217591,833

5,965,429

3,762,756

3,620,530

34,574,623

Foreign exchanges

9,174

7,314

84,298Other assets

76,957

94,204

707,138

Tangible fixed assets

28,03828,318257,638

Intangible fixed assets

3,378

3,980

31,045

Deferred tax assets

6,830

2,658

62,766

Customers’ liabilities for acceptances and guarantees

26,674

26,594245,106(20,732)(23,454)(190,503)¥5,496,607¥5,322,018$50,506,366¥4,927,225¥4,802,889$45,274,517

9,398

16,73686,356274,600

230,000

2,523,201

65

739

603

Other liabilities

37,73916,885

346,776

Reserve for employee retirement benefits
Reserve for directors’ and audit & supervisory board members’ retirement
benefits
Reserve for contingent losses

2,213

2,156

20,336

93

93

856

321

362

2,956

504

635

4,639

26,674

26,594245,106

5,278,836

5,097,094

48,505,346

Allowance for loan losses
Total assets
Liabilities and equity
Liabilities
Deposits
Payables under securities lending transactions
Borrowed money
Foreign exchanges

Reserve for reimbursement of deposits
Acceptances and guarantees
Total liabilities
EquityCapital stock

93,524

93,524859,359

Capital surplus

16,795

16,795

154,324

Retained earnings

98,92994,708909,029

Valuation and translation adjustments
Valuation difference on available-for-sale securities
Total equity
Total liabilities and equity

8,522

19,89678,308217,771

224,9232,001,020¥5,496,607¥5,322,018$50,506,366

Hokuhoku Financial Group, Inc. Annual Report 2020

NON-CONSOLIDATED BALANCE SHEET (UNAUDITED)_Hokkaido

79

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NON-CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)The Hokkaido Bank, Ltd.
Thousands of
U.S. dollars
2020

Millions of yen
2020

2019

¥41,367¥42,183$380,112

9,024

8,603

82,923

(4)

(9)

(41)

270

271

2,488

IncomeInterest income:Interest on loans and discounts
Interest and dividends on securities
Interest on receivables under resale agreements
Interest on deposits with other banks

161

268

1,479

Fees and commissions

Other interest income

15,907

16,621

146,166

Other ordinary income

4,471

1,896

41,088Other income

3,786

5,716

34,791

Total income

74,98475,553

689,006

Interest on deposits

308

370

2,832

Interest on payables under securities lending transactions

370

890

3,408

Interest on borrowings and rediscounts

(0)

111

(6)

Other interest expenses

6

7

64

Fees and commissions

9,907

9,995

91,039Other ordinary expenses

614

1,522

5,642

General and administrative expenses

40,21240,330369,495

Provision of allowance for loan losses

2,556

1,770

23,493

Other expenses

7,436

6,143

68,330Total expenses

61,412

61,142564,297

Income before income taxes

13,572

14,411

124,709

Expenses
Interest expenses:

Income taxes:

80

Current

3,242

4,089

29,796

Deferred

736

(696)

6,768

Net income¥9,592¥11,018$88,145

Hokuhoku Financial Group, Inc. Annual Report 2020

NON-CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)_Hokkaido

CORPORATEINFORMATIONCORPORATE INFORMATION(as(asofofMarch
March31,
31,2018)
2020)

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

Business diagram

Hokuhoku Financial Group, Inc.
The Hokuriku Bank, Ltd.
Hokugin Business Services Co., Ltd.
(Document management,
concentrated business processing)

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

The Hokkaido Bank, Ltd.

Hokugin Lease Co., Ltd.
(Leasing)

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

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

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

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

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

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

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

Major subsidiaries
Company name

Address

Main business activities

Established

Capital(units: millions of yen, %)FG’s share of Dividend
voting rights

The Hokuriku Bank, Ltd.

1-2-26 Tsutsumicho-dori, Toyama City Banking

July 31, 1943

140,409100.00806

The Hokkaido Bank, Ltd.

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

March 5, 1951

93,524100.00—

Hokuhoku Tokai Tokyo
Securities Co., Ltd.

1-8-10 Marunouchi, Toyama City Financial instruments business April 21, 2016

1,250

60.00

—

July 21, 1983

100

70.25

—

March 2, 1983

36

87.39

3

December 12, 1978

50

100.00—

Hokugin Lease Co., Ltd.

2-21 Aramachi, Toyama City

Hokuriku Card Co., Ltd.

1-2-1 Shintomi-cho, Toyama City Credit card operations

Leasing

Hokuriku Hosho Services Co., Ltd. 1-2-26 Tsutsumicho-dori, Toyama City Loan guarantees
Hokugin Software Co., Ltd.

1-5-25 Higashidenjigata, Toyama City

Software development

May 1, 198630

100.00—

Hokuhoku Services Co., Ltd.

1-6-8 Chuo-dori, Toyama City

Servicer

December 5, 2003

500

100.00—Document management,
concentrated business processing
Document management, cash
management, concentrated
business processing
Credit card operations, loan
guarantees
Research on regional economy,
survey research services,
consulting
Venture capital

March 25, 195330

(100.00)—

June 8, 1979

50

(100.00)—

June 13, 1977

120

(100.00)—

August 8, 2002

100

(100.00)—

January 11, 1985

250

5.00
(38.75)—

Hokugin Business Services Co., Ltd. 1883 Hiyodorijima, Toyama City
Dogin Business Service, Ltd.
Dogin Card Co., Ltd.

Higashisapporo Dogin Building,Higashisapporo 3-1-2-33,
Shiroishi-ku, Sapporo City
2-2-14 Chuo-ku Minami, Sapporo City

Dogin Regional Research Institute Dogin Annex Building, 4-1
Co., Ltd.
Odori Nishi, Chuo-ku, Sapporo City
Hokuhoku Capital Co., Ltd.

1-6-8 Chuo-dori, Toyama City( ) Indicates voting rights involving shares held by subsidiaries

64

Hokuhoku Financial Group, Inc. Annual Report 2018

Hokuhoku Financial Group, Inc. Annual Report 2020

81

OUTLINE
HOKURIKU BANK,BANK, LTD.
LTD.
OUTLINE OF
OF SUBSIDIARIESSUBSIDIARIES - THE HOKURIKUThe Hokuriku Bank, Ltd.
https://www.hokugin.co.jp/

Establishment

History

The Hokuriku Bank has its origins as the Kanazawa 12th
National Bank, which was established on August 26, 1877, with
the House of Kaga-Maeda providing 70% of the capital. The
bank was the creation of the family established by Maeda
Toshiie, the founder of the Kaga clan.
Since its founding, the bank has worked hand-in-hand withcustomers in the region, and grown into a bank with a wide
branch network covering Hokuriku, Hokkaido, as well asJapan’s three major metropolitan areas. Based on the bank’s
management philosophy of “Prospering Together with theRegion,” “Fair & Steady Management”, and “Progressive &Innovative Services,” Hokuriku Bank draws fully on its
management resources to provide high-quality comprehensive
financial services, aiming to become the bank preferred andrelied on by local communities.

August 1877
February 1879
January 1884
July 1897
July 1943
January 1950
September 1961
November 1961
January 1971
November 1973
March 1974
July 1978

Company outline (as of March 31, 2020)
Company name:
The Hokuriku Bank, Ltd.
Business:
Banking
Incorporation:
July 31, 1943 (founded in 1877)
Location of headquarters:
1-2-26 Tsutsumicho-dori, Toyama City, Toyama
Total assets:¥8,108.9 billion
Deposits (including NCDs): ¥6,735.4 billion
Loans and bills discounted: ¥4,910.3 billion
Issued shares:
Common stock:
1,047,542,335
Capital adequacy ratio(non-consolidated):
8.59%
Employees:
2,511
Branches (as of June 30, 2020)
188 (145 branches, 43 sub-branches)
Domestic:
Overseas:
6 representative offices

October 1979
November 1981
January 1984
May 1987
August 1990
November 1993
December 1998
June 2000
July 2000
January 2001
April 2001
February 2002
February 2002
October 2002
March 2003
September 2003
September 2004
December 2004
March 2006
May 2011
December 2013
October 2015
April 2019
July 201982

Hokuhoku Financial Group, Inc. Annual Report 2020

Kanazawa 12th National Bank foundedToyama 123rd National Bank founded
Kanazawa 12th National Bank and Toyama 123rd
National Bank merged to form Toyama 12th
National Bank with headquarters in Toyama City
Toyama 12th National Bank changed nameto 12th Bank
Four banks, 12th, Takaoka, Chuetsu, andToyama Bank, merged to form Hokuriku Bank
Launched foreign exchange operations (firstregional bank to do so)
Listed on the Tokyo Stock Exchange
Completed present head office
Received blanket approval to engage incorrespondent banking services
Launched first online system
Received blanket approval to engage in
foreign exchange business
Received blanket approval to handle yendenominated and foreign-denominatedsyndicated loans
Launched second online system
Launched online foreign exchange system
Launched firm banking service
Introduced VI (visual identity)
Launched third online system
Launched investment trust agent operations
Launched over-the-counter sales of
securities investment trusts
Launched Internet and mobile banking services
Completed new computer center (Alps building)Launched new computer system
Launched over-the-counter sales of casualty
insurance
Third-party allocation worth ¥39.1 billion,
brought new capital to ¥140.4 billion
Launched convenience store ATM service
Launched over-the-counter sales of life insurance
Took over part of the Ishikawa Bank’s operations
Established Hokugin Financial Group, Inc.
through share transfer, then became a subsidiaryof the Hokugin Financial Group, Inc.
Integrated management with HokkaidoBank, name of parent company changed to
Hokuhoku Financial Group, Inc.
Launched securities agency operations
Entered into a contract on joint system use with
Hokkaido Bank and the Bank of Yokohama
Commenced use of joint IT system with
Hokkaido Bank and the Bank of Yokohama
The head office building was registered as aTangible Cultural Property (structures)
Opened an individual consulting base“Hokugin Plaza”
Launched Trust Business Service
Launched Recruitment Service
Hokuhoku Financial Group, Inc. Annual Report 2018

65

OUTLINE OF
OF SUBSIDIARIESSUBSIDIARIES - THE HOKKAIDOHOKKAIDO BANK,OUTLINE
BANK,LTD.
LTD.
The Hokkaido Bank, Ltd.
https://www.hokkaidobank.co.jp/

Establishment

History

Hokkaido Bank was established on March 5, 1951, in responseto the strong demand for financing from small and mediumsized corporations in Hokkaido accompanying the sudden
increase in population and development of new industries in
Hokkaido during the post-war recovery period.
Based on this background, and as a bank deeply rooted in
Hokkaido, Hokkaido Bank considers it its mission to contributeto regional economic growth by smoothly providing financing
and quality financial services to its customers in Hokkaido.
Going forward, Hokkaido Bank will never abandon the spirit withwhich it was created, and will continue to move forward together
with its customers in Hokkaido.

March 1951
April 1961
May 1962
August 1964
June 1971
July 1976
December 1980

Company outline (as of March 31, 2020)
Company name:
The Hokkaido Bank, Ltd.
Business:
Banking
Incorporation:
March 5, 1951
Location of headquarters:
4-1 Odori Nishi, Chuo-ku, Sapporo City
Total assets:¥5,496.6 billion
Deposits (including NCDs): ¥4,927.2 billion
Loans and bills discounted: ¥3,762.7 billion
Issued shares:
Common stock:486,634,512
Preferred stock (Type 2): 96,688,800
Capital adequacy ratio(non-consolidated):
8.76%
Employees:
2,172
Branches (as of June 30, 2020)
Domestic:
144 (136 branches, 8 sub-branches)
Overseas:
3 representative offices

April 1981
June 1986
September 1987
October 1990
March 1991
October 1991
November 1991
January 1993
April 1994
December 1998
July 1999
November 1999
June 2000
April 2001
October 2002
December 2003
April 2004
September 2004
April 2005
March 2006
August 2006
March 2009
January 2010
May 2011
March 2014
March 2019
April 201966

Hokuhoku Financial Group, Inc. Annual Report 2018

Hokkaido Bank establishedLaunched foreign exchange operations
Listed on the Sapporo Stock Exchange
Completed present head office
Launched first online system
Launched second online system
Received blanket approval to engage incorrespondent banking services
Hokkaido Small and Medium Corporation Human
Resource Development Fund establishedLaunched online foreign exchange system
Listed on the first section of the Tokyo Stock
Exchange
Completed the Higashi Sapporo Dogin Building
Established Dogin Cultural Foundation
Launched a new foreign exchange online system
Completed Dogin Building Annex
Launched third online system
Launched investment trust agent operations
Launched over-the-counter sales of
securities investment trusts
Issued preferred stock (Type 2) (issuanceamount was ¥53.716 billion)
Launched telephone banking service
Launched Internet mobile banking
Launched over-the-counter sales of casualty
insurance
Launched over-the-counter sales of life insurance
Opened Business Loan Plaza
Launched convenience store ATM service
Came under management of Hokugin Financial
Group, Inc., parent of Hokuriku Bank; Hokuhoku
Financial Group, Inc. launched
Launched securities agency operations
Entered into a contract on joint system use
with Hokuriku Bank and the Bank of
Yokohama
Opened representative office in Shenyang, China
Opened representative office in YuzhnoSakhalinsk, Russia
Taiwan ATM/SmartPay Debit Service started
Commenced use of joint IT system with
Hokuriku Bank and the Bank of Yokohama
Opened representative office in Vladivostok,
RussiaOpened Account Opening Plaza“Odori Subway Station Sub-Branch”
Opened the NISEKO Sub-Branch

Hokuhoku Financial Group, Inc. Annual Report 2020

83

DIRECTORSDIRECTORS

Hokuhoku Financial Group, Inc.

Addresses

President:
Eishin Ihori

Hokuhoku Financial Group, Inc.

The Hokkaido Bank, Ltd.

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

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

Deputy President:
Masahiro Sasahara

Directors:
Hidenori Mugino
Yuji Kanema
Hiroshi Nakazawa
Masahiko Kobayashi
Takayuki Kaji
Directors serving as
Audit and Supervisory
Committee Members:
Hirokuni Kitagawa
Tatsuo Kawada
Ryoji Nakagawa
Masaaki Manabe
Nobuya Suzuki

The Hokuriku Bank, Ltd.
Chairman:
Hidenori Mugino
President:
Eishin Ihori
Senior Managing
Director:
Hiroaki Ishida
Managing Directors:
Hiroshi Nakazawa
Hiroyuki Jogan
Masahiko Kobayashi

Directors:
Takayuki Kaji
Kaoru Funamoto
Audit & Supervisory
Board Members:
Masahiro Numada
Kenichi Nakamura
Isao Nagahara
Katsusuke Watanuki

The Hokkaido Bank, Ltd.
Chairman:
Yoshihiro Sekihachi

Director:
Naoki Minami

President:
Masahiro Sasahara

Audit & Supervisory
Board Members:
Akira Sakai
Ken Ebina
Shuji Iwamura
Satoshi Chiba

Deputy President:
Takashi Ohki
Managing Directors:
Yuji Kanema
Takashi Ogura
Yoshimasa Takada

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
3-2-1 14th Floor,
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
3-2-1 14th Floor,
Nihonbashi-muromachi,
Chuo-ku, Tokyo 103-0022, Japan
Telephone: +81-3-3231-7360
Facsimile: +81-3-3246-1255
E-mail: shikintky@hokugin.co.jp
Overseas Offices (Hokuriku Bank)• New York Representative Office
780 Third Avenue, 28th Floor,
New York, NY 10017, U.S.A.
Telephone: +1-212-355-3883
Facsimile: +1-212-355-3204
E-mail: newyork@hokugin.com• Shanghai Representative Office
Shanghai International Trade
Center, 602, Yan’an West Road
2201,
Changning, Shanghai 200336,
P.R. of China
Telephone: +86-21-6270-8108
Facsimile: +86-21-6270-8338
E-mail: shanghai@hokugin.net• Dalian Representative Office
7F Senmao Building, 147 Zhongshan
Road, Xigang District, Dalian,
Liaoning, 116011 P.R. of China
Telephone: +86-411-3960-8018
Facsimile: +86-411-3960-8019
E-mail: dalian@hokugin-zg.com

Markets and International
Administration Center
2-33, Higashisapporo 3-jo
1-chome, Shiroishi-ku,
Sapporo City, Hokkaido 003-0003,
Japan
Telephone: +81-11-815-1315
Facsimile: +81-11-815-2237
SWIFT Address: HKDBJPJTTreasury and Securities Division
3-2-1 14th Floor,
Nihonbashi-muromachi,
Chuo-ku, Tokyo 103-0022, Japan
Telephone: +81-3-3241-3457
Facsimile: +81-3-3242-3588
Overseas Offices (Hokkaido Bank)• Shenyang Representative Office
Room 1118, Office Tower 1,
Forum 66, No. 1-1 Qingnian
Da jie, Shenhe District,
Shenyang 110063, China
Telephone: +86-24-3185-7008
Facsimile: +86-24-3185-7018
E-mail: dogin_shenyang@yahoo.co.jp• Yuzhno-Sakhalinsk
Representative Office
Office 44,18 Kommunisticheskiy Av.,
Yuzhno-Sakhalinsk,
693000, Russia
Telephone: +7-4242-45-7523
Facsimile: +7-4242-45-7524
E-mail: tateyama@hbkys.ru• Vladivostok Representative Office
Room 613,Fresh Plaza,17Okeanskiy Pr., Vladivostok,
690091, Russia
Telephone: +7-4232-65-8851
Facsimile: +7-4232-65-8852
E-mail: nakagawa@hbvl.ru• Representative Office
Registered in Singapore
6 Battery Road # 15-02 Singapore
049909
Telephone: +65-6534-0010
Facsimile: +65-6534-0070
E-mail: hokuriku@singnet.com.sg• London Representative Office
7th Floor, 52-54
Gracechurch Street, London EC3V
0EH, UK
Telephone: +44-20-7283-1212
Facsimile: +44-20-7929-7222
E-mail: london@hokugin.co.uk

84• Bangkok Representative Office
23rd Floor Unit 2314, Bhiraj Tower
at EmQuartier, 689 Sukhumvit
Road, North Klongton, Wattana
Bangkok 10110, Thailand
Telephone: +66-2-261-8495
Facsimile: +66-2-261-8497
E-mail: bangkok@hokugin.asia
Hokuhoku Financial Group, Inc. Annual Report 2020

Hokuhoku Financial Group, Inc. Annual Report 201867

北北金融控股集团简要设立日期∶2003年9月26日

北北金融集团的经营活动范围不是限于一个地域，而是在广泛的地域内展开着。

总行地址∶富山县富山市堤町通1丁目2番26号

我们广泛的营业网点分布在下列地区范围里 ：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.................................................... 151分行（或支行）资本金∶708亿9,500万日元

富山县 ....................................................... 93分行（或支行）企业名称∶北北金融控股集团股份有限公司发行股份∶ 普通股 ...........................

132,163,014股

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

96,698,000股福井县 ....................................................... 22分行（或支行）

上市交易所∶ 东京证券交易所（第一部）札幌证券交易所简介自从1877年北陆银行成立以来已经在北陆地区设立了广域性的经营网点。

三大都市圈 ................................................ 16分行（或支行）东京、横滨 ................................................

9分行（或支行）

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

3分行（或支行）

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

4分行（或支行）其他地区（仙台、新泻、长野、高山）..........

4分行（或支行）

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

9代表处纽约代表处 （北陆银行）从“北前船”或者说“北航船（北上的经济圈）”的交易关
系和客户的需要出发还在北海道各个主要城市内设立了自己的经营网点。
北海道银行成立于1951年，以支援中小企业和个人业务为中心在北海道道内的各个地区都设有营业网点。
北陆银行和北海道银行于2004年9月进行了经营统合，成立了（控股公司）北北金融控股集团股份有限公司。现在，北北金融控股集团已经形成了覆盖日本北陆地区北海道以及日本三大都市圈（东京，名古屋，大阪）的巨大的地方金融网络。

2002年5月

北海道地区 ................................................ 161分行（或支行）（北海道银行）南萨哈林斯克代表处符拉迪沃斯托克代表处 （北海道银行）伦敦代表处 （北陆银行）新加坡代表处（北陆银行）
曼谷代表处 （北陆银行）大连代表处 （北陆银行）
上海代表处 （北陆银行）沈阳代表处 （北海道银行）（2020年6月30日）
伦敦

北陆银行和北海道银行缔结了全面业务协助协议符拉迪沃斯托克南萨哈林斯克沈阳大连

2003年5月

纽约北陆银行和北海道银行对经营统合取得一致意见

上海
曼谷
新加坡

2003年9月

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

通过股份交换实现经营统合

2004年9月

北北金融控股集团股份有限公司诞生

注：北银金融控股集团股份有限公司改名为北北金融控股集团
股份有限公司。
北陆地区
石川

富山

福井

东京
大阪

名古屋

三大都市圈

Hokuhoku Financial Group, Inc. Annual Report 202085

北北金融控股集团 董事致辞

（相片左边）董事长

庵

荣伸（北陆银行 总行长）

（右边）
董事副社长

笹原晶博（北海道银行 总行长）感谢各位对北北金融控股集团的惠顾，在此表示深切的谢意。
本集团所处的环境，在新冠肺炎疫情以后，发生了很大的变化。伴随着人们自觉约束相互来
往和出席活动，各种需求随之消失，景气状况恶化，生产调整设备投资延迟，雇佣环境恶化等，
已经波及到经济整体。地方社会的高龄少子化、人口流向大城市的结构问题已经对地方经济造成很大的影响，今后的形势非常不明了。
处在如此环境中，本集团通过磨练，努力达成与客人戚戚相关的中期经营计划“ALL for the

Region”目标,利用解决课题型的提案能力和各类（金融衍生）产品、服务，发挥金融中介机构的
作用，举全力支持地方客户。
另外，在新冠肺炎疫情中让我们看到“新的生活方式”，齐头并进提高客户的便利性和本集团业务高效化，我们在继续推进网银和无现金的数字化金融服务。
在中期经营计划中，本集团的目标是成为“通过提供地域第一的金融服务，为客户和地域社
会作贡献，创造共同价值，致力于成为与地域共同成长发展的综合金融集团”，通过努力返回原点，
被地方社会所选择，力争提高企业价值，股东价值。
希望大家一如既往地支持我们金融集团。

董事长

庵

荣伸

2020年7月

86

Hokuhoku Financial Group, Inc. Annual Report 2020

中期经营计划
新中期经营计划“ALL for the Region”是指，从2019年4月开始的3年时间, 同时把这3年定位为“本公司集团全体职员将推进‘Face to Face的贴近客户的服务’和‘追求便利性的数字金融服务’等两方面的服务，为持续致力于为地域做贡献
的体制构筑期间”。
本公司集团的全体职员团结一致，通过提供地域第一的金融服务，为客户和地域社会做贡献，创造共同价值，我们将
致力于成为与地域共同成长、发展的综合金融集团。

■ 计划的概要
名称

ALL for the Region

定位

本公司集团的全体职员推进“Face to Face的贴近客户的服务”和“追求便利性的数字金融服务”等两方面
的服务，持续地致力于为地域做贡献的体制构筑期间。

基本方针“对地域社会发展做贡献”·共同面对课题, 努力提供有助
于地域和客户发展的解决方案。

“对未来的进化变革”·提供反映技术革新和需求变化的金融服务, 不辜负客户的期望。

“集团综合实力的发挥”·在加强集团合作的同时，构筑
集团最佳的推进、管理体制。

创造
共同价值

■ 新中期经营计划的重点指标（2家银行合算、联结）
2021年度（最终）

2018年度业绩

2019年度业绩主要业务利润（2家银行合算）180亿日元169亿日元220亿日元以上

本期净利润（联结）243亿日元202亿日元220亿日元以上

资本充足率（联结）

9.09%

8.94%

维持高于8%OHR（2家银行合算）68.85%

69.27%

维持高于60%

Hokuhoku Financial Group, Inc. Annual Report 202087

根据基本方针而定的各战略区分的重点措施
重点措施

88

法人市场战略◆金融中介功能的发挥·完善与营业区域的特性以及顾客的商业舞台等对应的战略、推进体制，根据事业性评价，
展开融资战略。
◆加强法人咨询
·扩充解决方案菜单，推进与顾客的商业舞台对应的咨询建议。

个人市场战略◆加强个人咨询，扩大个人交易基础·扩充与生活舞台以及面对面、非面对面渠道对应的商品，支援资产形成，应对富裕阶层，加强应对各种资金需求，实现扩大交易基础。

数字化、Fintech战略◆增强数字银行功能·强化智能手机应用程序等非面对面渠道的功能，推进数字银行化·提高顾客的便利性（无印章、无纸化、无现金卡）◆推进地域的无现金化·致力于推进地域无现金化的基础设施建设

地域社会活性化战略◆对地方再生的贡献和ESG、SDGs课题的对应·通过与地方公共团体、地域企业、教育机关的合作，实现地域经济的活性化·通过基于ESG、SDGs的CSR活动，以地域经济、地域社会的持续发展为目标市场、有价证券运用战略◆运用收益的增强和稳定化·通过运用对象的多样化形成的分散投资以及战略性的、机动灵活的运用，来实现收益的增强。
·通过建立重视综合损益的管理体制，强化行情突变时的对应力，来完善风险控制体制。

加强风险管理、合规守法◆强化对活用RAF（风险偏好框架）的治理以及应对多样化风险·活用RAF来实现制定经营战略，强化风险管理体制·通过职员教育，构建切实杜绝风险行为和违法行为的风险文化·通过充实各种模拟和压力测试，强化适应环境变化的风险管理体制

业务改革、店铺优化、人财活用战略◆兼顾经营效率化、生产性向上以及工作价值
·通过业务简化、总部集中化、促进外部资源，推进业务合理化。
·通过活用ICT（数字化、RPA、无纸化），推动业务的效率化。
·为了维持地域的金融基础设施，通过明确职责和功能，来实现改善店铺体制和ATM运营。
·为提高顾客对应能力、专业性、管理能力，进行人财育成。
·打造一个能够有多种人才活跃的职场环境。

北北金融控股集团 集团战略◆加强和扩大在北海道地区的合作·通过共同活用咨询和金融服务功能，强化营业推进力·两行今后将在北海道内共同推进店铺的重建·扩大包括总部功能以及后勤管理部门在内的北海道内据点的共同化◆通过对控股公司北北金融控股集团的功能集中，来追求更大的协同效果◆子银行、关联公司合作并发挥综合实力，提供金融服务◆致力于提高股东价值·在维持稳定的分红的同时，通过利益积累来充实资本。

Hokuhoku Financial Group, Inc. Annual Report 2020业绩精粹营业概况（北北金融控股集团联结）（单位：亿日元）

2019年度

2018年度
变动

经常收益

1,824

－12

1,836

经常利润

316

－36

353

202

－41

243

8.94％

－0.15%

9.09％

归属于母公司股东的净利润资本充足率我集团本期联结会计年度的业绩 ：本期联结
经常收益与上年度相比减少了12亿日元，为1,824
亿日元。联结经常利润与上年度相比减少了36亿
日元，为316亿日元。归属于母公司股东的净利润
减少了41亿日元，为202亿日元。
联结资本充足率达到了8.94%。
2019年度的股息 ：普通股于期末每股支付了40.00日元股息，对第一回第5种优先股按照原定计划分别于期中和期末每股支付了7.50日元 （即年度股息为15日元）。

营业概况（北陆银行，北海道银行）（单位：亿日元）

2家银行合算2019年度

2018年度
变动

经常收益

1,635

－22

1,657

主营业务毛利润

1,232

－24

1,257

经费（临时处理部分除外）

853

－11

865

主营业务净利润

378

－12

391

扣除投资信托解约损益后

345

－24

370

信贷相关成本

120

74

46

经常利润

314

－52

367

本期净利润

208

－57

266

2家银行合算的经常收益与上年度相比减少了
22亿日元，为1,635亿日元。本期净利润与上年度
相比减少了57亿日元，为208亿日元。
北陆银行的经常收益与上年度相比减少了17亿日元，为885亿日元。本期净利润与上年度相比减少了43亿日元，为112亿日元。
北海道银行的经常收益与上年度相比减少了5亿日元，为749亿日元。本期净利润与上年度相比减少了14亿日元，为95亿日元。

（单位：亿日元）（单位：亿日元）

北陆银行

2019年度北海道银行

2018年度

2019年度变动

2018年度
变动

经常收益

885

－17

902

749

－5

755

主营业务毛利润

668－22

经费（临时处理部分除外）

457

－7

691

563

－1

565

464

396

－4

401

主营业务净利润

211

－15

226

167

2

164

扣除投资信托解约损益后

199

－12

211

146

－12

159

信贷相关成本

92

64

28

27

10

17

经常利润

177

－44

221

137

－7

145

本期净利润

112

－43

155

95

－14

110

资本充足率

8.59％

－0.20%

8.79％

8.76％

0.07%

8.69％

Hokuhoku Financial Group, Inc. Annual Report 202089

Hokuhoku Financial Group, Inc.

Hokuhoku Financial Group, Inc.

Annual Report 2020

Printed in Japan