The Bank of Iwate, Ltd. Annual Report 2018

Annual Report2018Sachio Taguchi
President

Message from the President
The Bank is advancing its medium-term management plan“Iwagin Frontier Plan 2nd stage – The・Innovation,”
which spans the three years from April 2016 to March 2019.
In this medium-term management plan, we set four principal indicator targets: “consolidated net income,”“capital ratio,” “outstanding loans and bills discounted to SMEs” and “assets in custody.” In addition, we set“consolidated ROE” (return on shareholders’ equity) as a long-term management indicator (target indicator to be
aimed at all times without time frame toward achievement of long-term vision). In fiscal 2017, the second year of
this plan, we steadily achieved our goals for “consolidated net income,” “capital ratio” and “outstanding loans andbills discounted to SMEs,” but fell short of our targets and indicators for “assets in custody” and “consolidated
ROE.” In the final fiscal year of the plan, we intend to accelerate efforts toward achieving goals by further
enhancing the promotion of loans for SMEs to accumulate balances, and with regard to assets in custody, by
broadening our business scope and enhancing our ability to make proposals through identifying needs.
The Bank will continue striving to promote policies to the best of our ability with the aim of being a bank that
local customers trust and choose.

― 1 ―Overview of the Medium-term Management Plan

Sachio Taguchi, President― 2 ―Analysis of the Financial Position and Business Performance of the Bank(on a consolidated basis)
Financial Position
Principal Accounts
Deposits (including negotiable certificate of deposit) and Asset Under Management
Deposits (including negotiable certificate of deposit) at the term-end increased by ¥8.7 billion from the previous
term-end to ¥3,280.1 billion (US$30,874.6 million). This was attributable to an increase in deposits by corporateclients and individuals, despite a decrease in public deposits.
The term-end balance of assets under management posted an increase of ¥7.3 billion from the previous term-end to¥271.9 billion (US$25,593.0 million), due to increases in insurances and public bonds.
Loans
The term-end balance of loans decreased by ¥47.9 billion from the previous term-end to ¥1,752.7 billion(US$16,497.2 million). This was attributable to increases in loans to SMEs and individuals, despite a decrease inloans to local governments.
Securities
The value of total securities decreased by ¥45.9 billion from the previous term-end to ¥1,298.8 billion(US$12,225.2 million). This was attributable to a decrease in national government bonds and others undermanagement.
Cash Flow Analysis
Net cash used in operating activities was a net outflow of ¥56.0 billion (US$527.1 million) in the current fiscal year,
while net cash of ¥120.6 billion was provided in the previous term. This was due to a decrease in net cash as aresult of an increase in loans exceeding an increase in deposits in the current fiscal year, whereas in the previous
term net cash increased primarily as a result of a decrease in loans and an increase in deposits.
Net cash provided by investing activities was a net inflow of ¥39.5 billion (US$372.1 million) in the current fiscal
year, while net cash of ¥34.8 billion was used in the previous term. This was due to the proceeds from sale andredemption of securities exceeding the acquisition of securities in the current fiscal year.
Net cash used in financing activities was a net outflow of ¥1.6 billion (US$15.1 million) in the current fiscal year,
while net cash of ¥11.7 billion was used in the previous term. This was due to the payment of cash dividends inaddition to the repayment of subordinated borrowings in the previous term.
As a result of the above, the term-end balance of cash and cash equivalents decreased by ¥18.1 billion from theprevious term-end to ¥408.5 billion (US$3,845.3 million).
Business Performance
Earnings
Total income decreased by ¥3.9 billion from the previous term to ¥47.2 billion (US$444.4 million). This was
mainly attributable to a decrease in interest income including interest on loans and discounts due to a decline in theyield on investments and the absence of a gain on negative goodwill which was recorded in the previous term,
despite an increase in other income including gain on sale of stocks and other securities.
Total expenses increased by ¥0.7 billion from the previous term to ¥39.2 billion (US$368.5 million). This was
mainly due to an increase in other operating expenses, despite a decrease in interest expenses including interest on
deposits.
As a result, income before income taxes decreased by ¥4.6 billion from the previous term to ¥8.1 billion (US$75.9
million). Net income attributable to owners of parent decreased by ¥4.6 billion from the previous term to ¥5.5
billion (US$52.0 million), mainly due to the absence of the gain on negative goodwill recorded in the previous termin conjunction with the acquisition of additional shares of the Three Group Companies.
Capital Ratio
The capital ratio declined by 0.25% from the previous term-end to 12.52% on a consolidated capital adequacy basis
and by 0.27% from the previous term-end to 12.11% on a non-consolidated capital adequacy basis, as a result of anincrease in risk assets mainly due to an increase in outstanding loans to SMEs, etc. and an increase in othersecurities under management in securities.

― 3 ―Corporate Governance
1 Corporate Governance(1) Outline of the Bank’s Governance Structure① Basic approach to corporate governanceEver since its establishment, the management of the Bank has been based on the fundamental mission
objectives of contributing to the development of the regional community and ensuring the financial
soundness of the Bank under all circumstances. Even in today’s rapidly changing business environment, inorder to fulfill the duties expected of us as the leading bank in our region, by all stakeholders including ourbusiness partners and shareholders, we take complete responsibility for our management decisions and aim
to establish the highest standard of corporate governance that includes improved management transparency
and strengthened oversight functions.
②

Details of the corporate governance functions within the Bank
The Bank, pursuant to the resolution on the partial amendments to the Articles of Incorporation at theGeneral Meeting of Shareholders held on June 22, 2018, transitioned to a company with Audit &Supervisory Committee. By strengthening oversight functions through the voting rights on the Board of
Directors and the right to voice opinions on executive appointments and dismissals held by the Directors
serving as Audit & Supervisory Committee Members, the Bank shall strive to further improve its corporate
value through the enhancement of its corporate governance system.
a. Board of Directors
The Board of Directors comprises a total of fourteen Directors, including ten Directors (excluding
Directors serving as Audit & Supervisory Committee Members), three of whom are Outside Directors,
and four Directors serving as Audit & Supervisory Committee Members, three of whom are Outside
Directors. Outside Directors account for 42% of the Board of Directors. Additionally, two female
Outside Directors have been appointed.
b. Audit & Supervisory Committee
Directors serving as Audit & Supervisory Committee Members hold voting rights on the Board of
Directors and are delegated certain business execution responsibilities, in addition to the auditing
authority. The Audit & Supervisory Committee collaborates closely with the internal audit division and
the Accounting Auditors to maintain and enhance audit quality, as well as conducts effective andefficient audits by appointing Standing Audit & Supervisory Committee Members and assigning
support staff.
c. Executive Committee and Compliance Committee
The Bank has established the Executive Committee and the Compliance Committee as mechanisms that
discuss and decide the matters referred by the Board of Directors. The Bank is planning to reinforce its
organization with a greater emphasis on compliance by having the Compliance Committee, rather thanthe Executive Committee, discuss important matters relating to compliance.
d. Nomination and Compensation Advisory Committee
The Nomination and Compensation Advisory Committee has been established as an advisory body to
the Board of Directors to improve the transparency and objectivity of the nomination and compensationof Directors. The Bank stipulates that the Nomination and Compensation Advisory Committee
comprises a total of five members, including two Representative Directors and three Outside Directors
who are not serving as Audit & Supervisory Committee Members, so that the majority is made up of
Outside Directors, and that an Outside Director serves as chairman.

― 4 ―

③

Corporate governance structure
General Meeting of Shareholders
Appointment/dismissal

Nomination andCompensation
Advisory
Committee

Involvement
and advice

Board of Directors

Directors not serving as
Audit & Supervisory
Committee Members

Reports

Audit andoversight

Appointment/dismissal

Appointment/dismissal

Reports
Audit & Supervisory Committee

Reports

Directors serving as Audit &Supervisory Committee Members

Coordination

References and reports
on important items

Instructions
and orders

Coordination
Reports
Coordination

ALM Committee
Credit Risk Committee
Operational Risk Committee

Accounting
Auditors

Compliance Committee

Executive Committee

Customer Interest Protection Committee

Audit Division

Visiting audit andmonitoring

Business branches, Head Office, subsidiaries, etc.

④

Internal control system development
With regard to internal control, the Board of Directors has laid down the Basic Policies Regarding theStructure of the Bank’s Internal Control System, and established a system for eleven items, including asystem that ensures that the conduct of all Directors and employees conforms both to law and regulations
as well as to the Articles of Incorporation of the Bank and a system that ensures the adequacy of business
operations by the Group consisting of the Bank and subsidiaries etc.

⑤

Development of risk management structureWith regard to risk management, the Bank, upon developing structures for the execution of operations andmonitoring, has established a structure to manage individual risks as well as a structure to manage suchrisks on an integral basis. To firm up these management structures, the Risk Management Regulations havebeen set out to clearly indicate the basic principles of risk management and to clearly define the structureof responsibility. Furthermore, the Risk Management Division is in place as the department responsible forboth the integrated management of the various categories of risks, and risk management throughout theBank.
The Audit Division, upon ensuring its independence from the departments being audited, undertakes
auditing of the appropriateness and effectiveness of internal control systems, including compliance and risk
management, and strives to improve business administration based on the verification of that auditing.

⑥

Accounting audit
Accounting audits of the Bank are conducted by the independent auditing company KPMG AZSA LLC at
the request of the Bank. The certified public accountants in charge of auditing the Bank’s financial
statements for the reporting term are Kazuhiko Kusano, Motofumi Okumura, and Toru Narushima, assisted
by eleven other certified public accountants and eleven additional staff.

― 5 ―(2) Internal Audits and Auditing by Audit & Supervisory Committee① Internal audits
The Bank’s Audit Division, with a staff of seventeen, is responsible for conducting internal audits as anorganization independent of all business divisions. Audits are conducted on all divisions of the head office,branches, subsidiaries and affiliates for the purpose of verifying adequacy and effectiveness of the internal
control system, as well as to prevent fraud and errors. Internal audits are furthermore conducted on Bank’s
securities reports and financial statements in order to confirm the effective operation of the Bank’s internal
control system. Staff of the division strives to enhance coordination with the Audit & Supervisory
Committee by exchanging information to ensure objective and efficient auditing.
② Auditing by Audit & Supervisory Committee
The Audit & Supervisory Committee, pursuant to the Audit & Supervisory Committee Regulations and the
Audit & Supervisory Committee Audit Standards, attends important meetings including the Board of
Directors, and audits the Directors’ execution of duties, in accordance with the audit plan determined by
the Audit & Supervisory Committee, as well as conducts research on the status of business and assets of
the Bank. In addition, it receives various reports from the internal control division, monitors thedevelopment and implementation of internal control systems, and gives advice and instruction, as
necessary. Furthermore, the Audit & Supervisory Committee strives to carry out appropriate auditing by
maintaining close coordination with the Audit Division and Accounting Auditors to exchange opinions andinformation, through measures including regular meetings.
(3) Outside Directors① Human relationships, capital relationships, trading relationships and other conflicts of interest
The Outside Directors of the Bank have no special conflicts of interest with the Bank other than standardtransactions such as deposits, and the Bank has determined that there are no risks of conflict of interests
between the Outside Directors and the general shareholders. The Bank has also determined that no conflictsof interest including human relationships, capital relationships and significant trading relationships exist
between the Bank and the entities that the Outside Directors serve.
The Bank’s relationship with each of the Outside Directors is as follows.
Outside Directors (excluding Directors serving as Audit & Supervisory Committee Members)- The Bank has three Outside Directors (excluding Directors serving as Audit & Supervisory Committee
Members): Hiroshi Miura, Atsushi Takahashi and Fumio Ube. Mr. Miura, as the President and CEO of
IWATE NIPPO CO., LTD., is in an executive position of said company as of the date of submission of theAnnual Securities Report (hereinafter “currently”). Mr. Takahashi served as the Chairman of The
Sumitomo Trust and Banking Company, Limited (currently Sumitomo Mitsui Trust Bank, Limited) until
March 2011, and is currently the Senior Corporate Advisor of said company, as well as an Outside
Director of Keio Corporation. Mr. Ube served as the Representative Director and Executive Vice
President of Tohoku Electric Power Company, Incorporated until June 2012, as the Vice Chairman of
TOHOKU ECONOMIC FEDERATION until June 2015, and currently serves as Chairman of Tohoku
Productivity Center.
- In terms of the transactions between the Bank and the Outside Directors (excluding Directors serving as
Audit & Supervisory Committee Members), transactions including loans exist between the entities inwhich the Outside Directors currently serve as executive directors, and entities in which the Outside
Directors served as executive directors in the past; however, they are all standard transactions and do notpose any special conflicts of interest.
- In terms of capital relationships between the Bank and Outside Directors (excluding Directors serving as
Audit & Supervisory Committee Members), Mr. Takahashi holds 1,000 shares of the Bank’s shares;
however, such shares only account for a small portion of outstanding shares.
- The Bank’s three Outside Directors (excluding Directors serving as Audit & Supervisory Committee― 6 ―Members) have been reported to the Tokyo Stock Exchange, Inc. as Independent Directors who pose norisk of conflict of interest with general shareholders.
Outside Directors serving as Audit & Supervisory Committee Members- The Bank has three Outside Directors serving as Audit & Supervisory Committee Members: Shinobu
Obara, Mizuhiko Yoshida and Etsuko Sugawara. Ms. Obara currently serves as Representative Directorand Executive Vice President of Iwate Menkoi Television Co., Ltd. Mr. Yoshida, as a lawyer, hasestablished a law office and has served as Chairman of the Iwate Prefecture Public Interest Certification,etc., Council since April 2008. Ms. Sugawara serves as Director and Vice President of Iwate University.
- In terms of transactions between the Bank and Outside Directors serving as Audit & Supervisory
Committee Members, the Bank has standard loans transactions with Mr. Yoshida, and standard banking
transactions including deposits with the respective entities at which Ms. Obara and Ms. Sugawara serve.
Also, in December 2017, on the occasion of the new construction of the “day-care center in theworkplace” operated jointly by the Bank and Iwate University, where Ms. Sugawara serves as Director,
the Bank made a donation to the university to support balancing of work and child-rearing.
- The Bank’s three Outside Directors serving as Audit & Supervisory Committee Members have beenreported to the Tokyo Stock Exchange, Inc. as Independent Directors who pose no risk of conflict ofinterest with general shareholders.
② The status and standards for functions, duties, and appointment of Outside Directors with regard tocorporate governance
The Bank elects six Outside Directors in order to reinforce the functions of monitoring and supervision of
the Bank’s management. The Bank’s Board of Directors and the Audit & Supervisory Committee monitor
the Directors’ execution of duties, while the Outside Directors (excluding Directors serving as Audit &Supervisory Committee Members) undertake the role of reinforcing management decision-making andsupervisory functions, with full regard for the interests of general shareholders and from an objective,
outside position based on extensive knowledge. Additionally, the Outside Directors serving as Audit &Supervisory Committee Members, based on their extensive insight and specialized knowledge, undertakethe role of reinforcing the audit functions in regard to Directors’ execution of duties.
In addition to the establishment of independence standards for Outside Directors, the Bank expects theofficers to objectively and appropriately fulfill the functions and roles of supervision and audit based on
specialty understanding and extensive knowledge, and elects them based on the fundamental understandingthat no conflicts of interest will arise with the general shareholders.
(4) Outline of the Liability Limitation Agreement
The Bank has concluded liability limitation agreements with its Outside Directors, under which the liability
for damages due to the negligence of duty on the side of Outside Directors is confined to the minimum
statutory limits, in accordance with the provisions of Article 427, Paragraph 1 of the Companies Act.

― 7 ―(5) Compensation for Directors and Corporate Auditors① Aggregate amount of compensation paid to Directors and Corporate Auditors, aggregate amount ofcompensation by category of compensation, and the number of eligible Directors and Corporate Auditors
Aggregate amount of compensation
Classification of
NumberDirectors and Corporate
Retirement
Basicof persons (¥ million)
Bonus
Stock option
Auditors
benefits
compensation
Directors (excluding
9
258
185
25
46
Outside Directors)
Corporate Auditors
2
20
20(excluding Outside
Auditors)
Outside Directors and632
32
Outside Auditors(Notes) 1. The above numbers of persons include one Corporate Auditor who retired at the closing of the 135th
General Meeting of Shareholders held on June 22, 2017.
2. The above amounts include ¥25 million accrued bonuses for Directors and Corporate Auditors
during the current fiscal year (¥25 million for Directors), and ¥46 million for stockcompensation-type stock acquisition rights (¥46 million for Directors).
3. Apart from the above, ¥29 million employees’ compensation was paid as compensation to Directors
concurrently serving as employees (¥23 million employees’ salaries and ¥6 million employees’
bonuses).
② Combined compensation for individual Directors and Corporate Auditors
Not applicable, as there are no Directors or Corporate Auditors whose combined compensations exceeded¥100 million.
③ Policies on determining the amount of compensation for Directors
Annual compensation limits payable to the Bank’s Directors are determined according to a resolution
passed at the General Meeting of Shareholders, and are set at a maximum of ¥260 million (including amaximum of ¥20 million for Outside Directors) for Directors (excluding Directors serving as Audit &Supervisory Committee Members), including Outside Directors, and a maximum of ¥60 million for
Directors serving as Audit & Supervisory Committee Members. In addition to the aforementioned limits
for compensation, the General Meeting of Shareholders has passed a resolution to allocate stock acquisitionrights to Directors (excluding Directors serving as Audit & Supervisory Committee Members and Outside
Directors) as stock compensation-type stock options at an annual limit of ¥80 million.
The Bank’s compensation system for Directors (excluding Directors serving as Audit & Supervisory
Committee Members and Outside Directors) comprises basic fixed compensation, bonuses and stockcompensation-type stock options, while that for Outside Directors and Directors serving as Audit &Supervisory Committee Members comprises basic fixed compensation alone.
The monthly amount of basic fixed compensation is decided at the Board of Directors meeting and throughdiscussion by Directors serving as Audit & Supervisory Committee Members following the General
Meeting of Shareholders, based on the duties and experience of each Director that is paid. The amount ofbonus for Directors is decided according to the Bank’s internal rules separately set out, in consideration of
the Bank’s financial business results each fiscal year as well as each Director’s personal contribution
thereto.

― 8 ―(6) Holding of Shares① Number of stocks held by the Bank for other purposes than pure investment and their balance sheet value
Number of stocks held: 132
Balance sheet value: ¥ 26,272 million② Classification, stock name, number of shares, balance sheet values, and purpose of holding investment
securities for purposes other than pure investment are as follows:(Previous fiscal year)
The stocks whose balance sheet values exceed a hundredth of capital amount are displayed below.
(Specific investment stocks)
Balance sheet
Number ofvaluesPurpose of holding
Stock nameshares(Millions of yen)
Tohoku Electric Power Company, Inc.

2,277,797

3,434

TAIYO NIPPON SANSO CORPORATION

1,822,849

2,373

200,000

1,938

2,424,110

1,696

104,644

833

Daiwa Securities Group Inc.

1,099,806

745

The Yamagata Bank, Ltd.

1,323,800

642

Tokio Marine Holdings, Inc.

127,086596

THE AKITA BANK, LTD.

1,517,159

526

YAKUODO Co., Ltd.

180,000

500

The Toho Bank, Ltd.

1,052,090

440

The Bank of Kyoto, Ltd.

540,000437

JFE Holdings, Inc.

200,047

381

THE OITA BANK, LTD.

860,000374

NTN CORPORATION

657,555364

Yamaguchi Financial Group, Inc.

300,000

362

The Aomori Bank, Ltd.

937,000

357

Sumitomo Seika Chemicals Company, Limited

71,200337

The Yamanashi Chuo Bank, Ltd.

656,000

326

DCM Holdings Co., Ltd.

317,949

326

The Daishi Bank, Ltd.

731,000

322

East Japan Railway Company
Mitsubishi UFJ Financial Group, Inc.
SECOM CO., LTD.

― 9 ―Close ties to local economy as well as
promotion of general transactions andreinforcement of relationship
Maintenance and reinforcement ofbusiness relationship
Close ties to local economy as well as
promotion of general transactions andreinforcement of relationship
Maintenance and reinforcement ofcollaborative relationship forfinance-related businesses
Maintenance and reinforcement ofbusiness relationship
Maintenance and reinforcement ofcollaborative relationship forfinance-related businesses
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement ofcollaborative relationship forfinance-related businesses
Maintenance and reinforcement
cooperative relationship
Close ties to local economy as well as
promotion of general transactions andreinforcement of relationship
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement ofbusiness relationship
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement ofbusiness relationship
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement ofbusiness relationship
Maintenance and reinforcement
cooperative relationship
Close ties to local economy as well as
promotion of general transactions andreinforcement of relationship
Maintenance and reinforcement
cooperative relationshipNumber ofsharesBalance sheet
values(Millions of yen)

ARCS COMPANY, LIMITED

109,590291

The Ogaki Kyoritsu Bank, Ltd.

863,000

285

Kyushu Financial Group, Inc.

418,470

284

The Hyakugo Bank, Ltd.

619,000

274

TOSHIBA CORPORATION

1,024,483

247

THE BANK OF SAGA LTD.

801,000

244

MS&AD Insurance Group Holdings, Inc.

66,756236

The Musashino Bank, Ltd.

71,600236

The Kita-Nippon Bank, Ltd

68,250219

ORIX Corporation

132,300

217

Nagase & Co., Ltd.

137,000

212

Electric Power Development Co., Ltd.

72,000187

Mitsubishi UFJ Lease & Finance Company Limited

296,600

164

THE SHIMIZU BANK, LTD.

45,400153

Katakura Industries Co., Ltd.

99,000137

Stock name― 10 ―

Purpose of holding
Close ties to local economy as well as
promotion of general transactions andreinforcement of relationship
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement ofbusiness relationship
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement ofcollaborative relationship forfinance-related businesses
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement ofbusiness relationship
Maintenance and reinforcement ofbusiness relationship
Maintenance and reinforcement ofbusiness relationship
Maintenance and reinforcement ofbusiness relationship
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement ofbusiness relationship(Current fiscal year)
The stocks whose balance sheet values exceed a hundredth of capital amount are displayed below.
(Specific investment stocks)
Balance sheet
Number ofvaluesPurpose of holding
Stock nameshares(Millions of yen)
Tohoku Electric Power Company, Inc.

2,277,797

3,236

TAIYO NIPPON SANSO CORPORATION

1,822,849

2,936

200,000

1,972

2,424,110

1,689

104,644828

1,099,806

746

YAKUODO Co., Ltd.

180,000

718

The Bank of Kyoto, Ltd.

108,000

641

The Yamagata Bank, Ltd.

264,760623

Tokio Marine Holdings, Inc.

127,086

601

THE AKITA BANK, LTD.

151,715431

JFE Holdings, Inc.

200,047

428

The Toho Bank, Ltd.

1,052,090

428

Sumitomo Seika Chemicals Company, Limited

71,200362

The Daishi Bank, Ltd.

73,100343

DCM Holdings Co., Ltd.

317,949

343

The Hyakugo Bank, Ltd.

619,000

311

The Aomori Bank, Ltd.

93,700301

NTN CORPORATION

657,555

291

The Yamanashi Chuo Bank, Ltd.

656,000

287

ARCS COMPANY, LIMITED

109,590281

ORIX Corporation

132,300

248

Nagase & Co., Ltd.

137,000

247

The Musashino Bank, Ltd.

71,600240

The Ogaki Kyoritsu Bank, Ltd.

86,300231

MS&AD Insurance Group Holdings, Inc.

66,756223

East Japan Railway Company
Mitsubishi UFJ Financial Group, Inc.
SECOM CO., LTD.
Daiwa Securities Group Inc.

― 11 ―

Close ties to local economy as well as
promotion of general transactions andreinforcement of relationship
Maintenance and reinforcement ofbusiness relationship
Close ties to local economy as well as
promotion of general transactions andreinforcement of relationship
Maintenance and reinforcement ofcollaborative relationship forfinance-related businesses
Maintenance and reinforcement ofbusiness relationship
Maintenance and reinforcement ofcollaborative relationship forfinance-related businesses
Close ties to local economy as well as
promotion of general transactions andreinforcement of relationship
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement ofcollaborative relationship forfinance-related businesses
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement ofbusiness relationship
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement ofbusiness relationship
Maintenance and reinforcement
cooperative relationship
Close ties to local economy as well as
promotion of general transactions andreinforcement of relationship
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement ofbusiness relationship
Maintenance and reinforcement
cooperative relationship
Close ties to local economy as well as
promotion of general transactions andreinforcement of relationship
Maintenance and reinforcement ofbusiness relationship
Maintenance and reinforcement ofbusiness relationship
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement ofcollaborative relationship forfinance-related businesses

Number ofsharesBalance sheet
values(Millions of yen)

Kyushu Financial Group, Inc.

418,470

220

The Kita-Nippon Bank, Ltd

68,250202

Electric Power Development Co., Ltd.

72,000193

THE BANK OF SAGA LTD.

80,100186

Mitsubishi UFJ Lease & Finance Company Limited

296,600

185

Katakura Industries Co., Ltd.

99,000136

THE SHIMIZU BANK, LTD.

45,400134

MIKUNI CORPORATION

193,884

124

Stock name― 12 ―

Purpose of holding
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement ofbusiness relationship
Maintenance and reinforcement
cooperative relationship
Maintenance and reinforcement ofbusiness relationship
Maintenance and reinforcement ofbusiness relationship
Maintenance and reinforcement
cooperative relationship
Close ties to local economy as well as
promotion of general transactions andreinforcement of relationship③ Balance sheet value, dividend income, gain or loss on sales and gain or loss on valuation, in respect of theinvestment stocks held purely for investment purpose(Millions of yen)
At the end of the previous fiscal year
Gain or loss on
Balance sheet value Dividend income Gain or loss on sales
valuation
Listed stocks
26,624529
636
13,066
Unlisted stocks(Millions of yen)
At the end of the current fiscal year
Balance sheet value Dividend income Gain or loss on sales
Listed stocks
Unlisted stocks

30,233
-

604
-

624
-

Gain or loss on
valuation
16,731-④ Of all investment stocks held during the current fiscal year, those whose purpose of holding changed fromother than pure investment to pure investment
None(7) Statutory Number of Directors
The Articles of Incorporation of the Bank stipulate that there shall be no more than twelve Directors(excluding Directors serving as Audit & Supervisory Committee Members) and no more than four
Directors serving as Audit & Supervisory Committee Members.
(8) Resolutions for Appointment of Directors
The Articles of Incorporation provide that resolutions for appointment of Directors are passed by simple
majority at a General Meeting of Shareholders at which at least one-third of eligible shareholders withvoting rights are present, without use of cumulative voting.
(9) Important Items that may be Approved by Resolution of the Board of Directors① Based on Article 165, Paragraph 2 of the Companies Act, the Articles of Incorporation of the Bank providethat Bank shares may be purchased on the markets by resolution of the Board of Directors only, without theneed for approval at the General Meeting of Shareholders. This measure is intended to ensure flexible
adjustment of the number of the Bank’s shares on the market.
② Based on Article 454, Paragraph 5 of the Companies Act, the Articles of Incorporation of the Bank providethat an interim dividend may be paid by resolution of the Board of Directors only, with September 30 eachyear as date of record. This measure is to ensure a more stable distribution of profits to shareholders.
(10) Special Resolutions of the General Meeting of Shareholders
Based on Article 309, Paragraph 2 of the Companies Act, special resolutions may be passed with a majorityof two-thirds of eligible shareholders at a meeting at which at least one-third of shareholders with voting
rights are present. By relaxing quorum requirements for approval of special resolutions by the General
Meeting of Shareholders, our objective is to achieve smoother progress through the agenda at meetings ofshareholders.

― 13 ―

2 Compensation for Audit Certification Services(1) Compensation Paid to Certified Public Accountants for Audit Certification Services
FY2016Compensation forCompensation foraudit certification
services other thanservices
audit certification¥57¥4(Millions of yen)
FY2017Compensation forCompensation foraudit certification
services other thanservices
audit certification¥57¥1

For the Bank
For consolidated
subsidiaries of the
Bank
Total
¥57
¥4
¥57
¥1
Notes: 1. Compensation paid during the previous term with respect to audit certification services includes ¥1million paid to KPMG AZSA LLC for the auditing of the English-language version (translation) of theBank’s financial statements on a consolidated basis for fiscal 2016.
2. Compensation paid during the reporting term with respect to audit certification services includes ¥1million paid to KPMG AZSA LLC for the auditing of the English-language version (translation) of theBank’s financial statements on a consolidated basis for fiscal 2017.
(2) Other Important Compensatory Payments
None(3) Nature of Services Performed for the Bank by the Certified Public Accountants Other than Financial
Accounting
Previous fiscal year
This comprises advisory services regarding the interpretation of regulatory requirements relating to thecalculation of credit risk assets as well as the CRS.
Current fiscal year
This is advisory services regarding the interpretation of regulatory requirements relating to the calculationof credit risk assets as well as the CRS.
(4) Changes in Policy Regarding Payment of Compensation for Auditing Services
There were no changes during the reporting period.

― 14 ―

Consolidated Balance Sheets
The Bank of Iwate, Ltd. and its consolidated subsidiaries
Years ended 31 March 2018 and 2017

ASSETSCash and due from banks (Notes 3 and 6)
Monetary claims bought (Note 6)
Money held in trust (Notes 5 and 6)
Securities (Notes 4, 6, 8 and 16)
Loans and bills discounted (Notes 6, 7, 9 and 29)
Foreign exchange assets
Premises and equipment (Notes 11 and 24)
Intangible assets (Notes 12 and 24)
Net defined benefit asset (Note 17)
Deferred tax assets (Note 18)
Customers’ liabilities for acceptances and guarantees (Note 16)
Other assets (Notes 6, 8 and 10)
Allowance for doubtful accounts (Note 6)
Total assets
LIABILITIES AND NET ASSETS
Liabilities:
Deposits (Notes 6, 8 and 13)
Call money and bills sold (Notes 6 and 8)
Payables under securities lending transactions (Notes 6 and 8)
Borrowed money (Notes 6 and 8)
Foreign exchange liabilities
Corporate bonds with stock acquisition rights (Notes 6 and 14)
Accrued bonuses for directors and corporate auditors
Net defined benefit liability (Note 17)
Retirement benefits for directors and corporate auditors
Provision for losses on reimbursement of dormant deposits
Provision for contingent losses
Deferred tax liabilities (Note 18)
Acceptances and guarantees (Note 16)
Other liabilities (Notes 6, 15 and 24)
Total liabilities
Net assets (Note 19):
Common stock:
Authorized — 49,450 thousand shares at 31 March 2018 and 2017
Issued and outstanding —18,498 thousand shares at 31 March 2018 and 2017
Capital surplus
Retained earnings
Treasury stock, at cost
Total shareholders’ equity
Net unrealized holding gains on available-for-sale securities (Note 4)
Net unrealized losses on hedging derivatives (Note 6)
Remeasurements of defined benefit plans (Note 17)
Total accumulated other comprehensive income
Stock acquisition rights (Note 20)
Non-controlling interests
Total net assets
Total liabilities and net assets

Millions of yen
2018
2017
¥408,997¥427,050
4,277
2,851
7,982
4,982
1,298,808
1,344,719
1,752,659
1,704,750
2,498
1,874
17,30916,907
1,241
1,556
4,543
4,080
489
557
7,264
7,281
60,02744,779(9,262)(8,908)¥3,556,832¥3,552,478

Thousands of
U.S. dollars(Note 1)
2018
$3,849,746
40,25875,132
12,225,226
16,497,167
23,513
162,923
11,681
42,762
4,603
68,373565,013(87,180)$33,479,217¥3,280,121
2,337
4,134
13,602
7
10,624
26
1,944
19
451
226
10,7497,264
21,9503,353,454¥3,271,398
5,610
1,130
14,102
20
11,219
26
1,709
20
569
288
10,985
7,281
29,8333,354,190$30,874,633
21,99738,912
128,03166
100,000
245
18,298
179
4,245
2,127
101,177
68,373
206,608
31,564,891

12,09012,090113,799

5,667
151,236(2,989)166,004
41,696(3,358)(1,167)
37,171
203－
203,378

5,502
146,965(3,117)
161,440
41,417(3,355)(1,530)36,532
157
159
198,288

53,341
1,423,532(28,134)
1,562,538
392,470(31,608)(10,985)
349,877
1,911－
1,914,326¥3,556,832¥3,552,478$33,479,217

2018

2017

U.S. dollars
2018¥11,346.27¥11,075.22

Yen
Per share data:
Net assets (Note 26)

See accompanying notes.

― 15 ―$106.80

Consolidated Statements of Income
The Bank of Iwate, Ltd. and its consolidated subsidiaries
Years ended 31 March 2018 and 2017
Thousands of
U.S. dollars(Note 1)Millions of yen
Income:Interest income:Interest on loans and discounts
Interest and dividends on securities
Other interest income
Fees and commissions
Other operating income (Note 21)
Other income (Note 23)
Total income
Expenses:
Interest expenses:
Interest on deposits
Interest on borrowings
Other interest expenses
Fees and commissions
Other operating expenses (Note 21)
General and administrative expenses (Note 22)
Other expenses (Note 23)
Total expenses

2018

2017

2018

¥17,811
13,404
52
8,250
4,402
3,297

¥18,296
13,501
66
8,406
3,742
7,120

$167,649
126,167
489
77,654
41,43531,03447,216

51,131

444,428

525
155
575
3,112
5,522
28,108
1,154

704
173
609
2,958
4,293
28,040
1,695

4,942
1,459
5,412
29,292
51,977
264,571
10,86239,151

38,472368,515

Income before income taxes
Provision for income taxes (Note 18)
Current
Deferred

8,065

12,65975,913

3,044
(499)

1,827
672

28,652(4,697)

2,545

2,499

23,955

Net income

5,520

10,16051,958Net income (loss) attributable to non-controlling interests
Net income attributable to owners of parent

(3)

8

(28)

¥5,523¥10,152$51,986Yen
Per share data:
Net income (Note 26)
Diluted net income (Note 26)
Cash dividends applicable to the year (Note 30)

See accompanying notes.

― 16 ―

U.S. dollars

2018

2017

¥308.70276.91
70.00¥567.99509.82
70.00

2018
$2.91
2.61
0.66

Consolidated Statements of Comprehensive Income
The Bank of Iwate, Ltd. and its consolidated subsidiaries
Years ended 31 March 2018 and 2017
Thousands of
U.S. dollars(Note 1)Millions of yen
2018
Net income
Other comprehensive income (losses): (Note 25):
Net unrealized holding gains(losses) on available-for-sale securities
Net unrealized gains (losses) on hedging derivatives (Note 6)
Remeasurements of defined benefit plans (Note 17)
Share of the other comprehensive losses of affiliates accounted for using theequity method

2017

2018

¥5,520¥10,160$51,958

279
(3)
363

(5,769)
719
50

2,626
(28)
3,417

－

(12)

－

639

(5,012)

6,015

Comprehensive income¥6,159¥5,148$57,973

Total comprehensive income
Attributable to:
Owners of parent
Non-controlling interests¥6,159¥5,148$57,973

6,162
(3)

5,140
8

58,001(28)

Total other comprehensive income (losses)

See accompanying notes.

― 17 ―

Consolidated Statements of Changes in Net Assets
The Bank of Iwate, Ltd. and its consolidated subsidiaries
Years ended 31 March 2018 and 2017
Millions of yen
Shareholders’ equity

Accumulated other comprehensive income
Net unrealized

Common stock

CapitalRetained

Treasury

surplusearnings

stock, at costTotalholding gains

shareholders’(losses) on

equityavailable-for-salesecurities

BALANCE, 1 April 2016
Change during year
Cash dividends
Net income attributable toowners of parent
Acquisition of treasury stock

12,090

Disposal of treasury stock
Change in scope of consolidation
Change in equity of parent
arising from transactions with
non-controlling shareholders
Net changes of items other thanstockholders’ equity during
year
Total change during year
BALANCE, 1 April 2017
Change during year
Cash dividends
Net income attributable toowners of parent

4,811

138,254(3,748)Net unrealized
gains (losses)on hedging
derivatives

Total
Remeasurements

accumulated

Stockof definedotheracquisition

benefit planscomprehensive

rights

Noncontrollinginterests

Total
net assets

income (losses)

151,40747,198(4,074)(1,580)41,544147－

193,098

－

－

－

－

－

(1,246)－－(1,246)－(1,246)

－

－
－
－
－

－
－
－
－

10,152
－
(175)
(20)

－
(4)
761
(123)

10,152
(4)
586
(143)

－
－
－
－

－
－
－
－

－
－
－
－

－
－
－
－

－
－
－
－

－
－
－
－

10,152
(4)
586
(143)

－

691

－

(3)

688

－

－

－

－

－

－

688

－

－

－

－

－

(5,781)719

50(5,012)

10

159(4,843)－¥12,090691¥5,502

8,711¥146,965

631¥ (3,117)

10,033¥161,440(5,781)¥41,417719¥ (3,355)50¥ (1,530)(5,012)¥36,532

10
157

159
159

5,190
198,288－－(1,252)－(1,252)

－

－

－

－

－

－

(1,252)

－

－

5,523

－

－

－

－

－

－

5,523

－
－

－
－

－

－
(3)

5,523

Acquisition of treasury stock
Disposal of treasury stock

(3)

0

0

－
－

－
－

－
－

－
－

－
－

(3)

(0)

－
－

Sales of shares of parent held byconsolidated subsidiaries

－

7

－

131

138

－

－

－

－

－

－

138

－

158

－

－

158

－

－

－

－

－

－

158

－
－
12,090

－
165
5,667

－
4,271
151,236－128(2,989)－4,564
166,004

279

(3)

363

639

46

(159)

526

279
41,696(3)(3,358)363(1,167)639
37,171

46
203

(159)
－

5,090
203,378

Change in equity of parent
arising from transactions with
non-controlling shareholders
Net changes of items other thanstockholders’ equity during
year
Total change during year
BALANCE, 31 March 2018

0Thousands of U.S. dollars (Note 1)
Shareholders’ equity

Accumulated other comprehensive income
Net unrealized

Common stock

CapitalRetained

Treasury

surplusearnings

stock, at costTotalholding gains

shareholders’(losses) on

equityavailable-for-salesecurities

BALANCE, 1 April 2017
Change during year

113,799

Net unrealized
gains (losses)on hedging

Total
Remeasurements

accumulatedof definedotherbenefit plans

derivatives

comprehensive

Stockacquisitionrights

Noncontrollinginterests

Total
net assets

income (losses)

51,788 1,383,330(29,339)

1,519,578

389,844(31,580)(14,402)343,862

1,478

1,497

1,866,415

Cash dividends
Net income attributable toowners of parent
Acquisition of treasury stock
Disposal of treasury stock－－(11,784)－(11,784)

－

－

－

－

－

－

(11,784)

－
－
－

－
－
－

51,986
－
(0)

－
(28)
0

51,986
(28)
0

－
－
－

－
－
－

－
－
－

－
－
－

－
－
－

－
－
－

51,986(28)
0

Sales of shares of parent held byconsolidated subsidiaries

－

66

－

1,233

1,299

－

－

－

－

－

－

1,299

－

1,487

－

－

1,487

－

－

－

－

－

－

1,487

－
－
1,553
40,202
53,341 1,423,532

－

－

2,626

(28)

3,417

6,015

433

(1,497)

4,951

1,205
(28,134)

42,9601,562,538

2,626

(28)

3,417

6,015

433

392,470(31,608)(10,985)

349,877

1,911(1,497)－

47,911
1,914,326

Change in equity of parent
arising from transactions with
non-controlling shareholders
Net changes of items other thanstockholders’ equity during
year
Total change during year
BALANCE, 31 March 2018－
113,799

See accompanying notes.

― 18 ―

Consolidated Statements of Cash Flows
The Bank of Iwate, Ltd. and its consolidated subsidiaries
Years ended 31 March 2018 and 2017
Millions of yen
2018
2017
Cash flows from operating activities:
Income before income taxes¥8,065Adjustments to reconcile income before income taxes to net cash provided by (used in) operating activities:
Depreciation
2,064
Impairment losses
181
Gain on bargain purchase－(Gain) loss on step acquisitions－
Gain on revision of defined benefit plans－
Increase (decrease) in allowance for doubtful accounts
354
Increase (decrease) in provision for contingent losses(62)
Increase (decrease) in accrued bonuses for directors and corporate auditors
0(Increase) decrease in net defined benefit asset
329
Increase (decrease) in net defined benefit liability(33)
Increase (decrease) in retirement benefits for directors and corporate auditors(1)
Increase (decrease) in provision for losses on reimbursement of dormant deposits(118)Interest income(31,267)Interest expenses
1,255
Investment securities (gains) losses, net(774)(Increase) decrease in money held in trust(160)
Foreign exchange (gains) losses, net
877(Gains) losses on disposal of premises and equipment37
Net (increase) decrease in loans and bills discounted(47,909)
Net increase (decrease) in deposits
23,861
Net increase (decrease) in negotiable certificates of deposit(15,139)
Net increase (decrease) in borrowed money(500)
Net (increase) decrease in due from banks, excluding the Bank of Japan(1)
Net (increase) decrease in call loans and others(1,426)
Net increase (decrease) in call money and others(3,272)
Net increase (decrease)in payables under securities lending transactions
3,004
Net (increase) decrease in foreign exchange assets(624)
Net increase (decrease) in foreign exchange liabilities(12)
Interest received
31,910Interest paid
(1,354)
Other, net(24,285)
Sub-total(55,000)
Income taxes paid
(1,638)
Income taxes refunded635
Net cash provided by (used in) operating activities(56,003)
Cash flows from investing activities:
Acquisition of securities
Proceeds from sale of securities
Proceeds from redemption of securities
Increase of money held in trust
Acquisition of premises and equipment
Proceeds from sale of premises and equipment
Payment for retirement of premises and equipment
Acquisition of intangible assets
Payment for asset retirement obligations
Payment for acquisition of shares of subsidiaries resulting in change in scope of consolidation(Note3)
Net cash provided by (used in) investing activities― 19 ―

Thousands of
U.S. dollars(Note 1)
2018

¥12,659$75,9132,215
65(4,340)251(864)(1,623)
(9)
1
130
(327)
(3)
68
(31,863)
1,486
(138)
2
(30)
145
67,42654,736(24,716)
8,758
11,954
21,056
4,483
1,130
(164)
19
33,082(1,742)(28,685)
125,162(4,541)
1
120,622

19,428
1,704
－
－
－
3,332
(584)
0
3,097
(311)
(9)
(1,111)(294,305)
11,813(7,285)(1,506)8,255
348(450,951)
224,595(142,498)(4,706)(10)(13,423)(30,798)
28,276(5,874)(113)
300,358(12,745)(228,586)(517,696)(15,418)
5,977(527,137)(996,635)
43,760997,608(3,000)(1,828)
75
(63)
(353)
(30)

(587,093)
40,619515,930－(1,689)
149
(155)
(523)
(82)

(9,380,977)
411,898
9,390,136(28,238)(17,206)
706(593)(3,323)(283)－
39,534(1,982)(34,826)－
372,120

Consolidated Statements of Cash Flows (Continued)
The Bank of Iwate, Ltd. and its consolidated subsidiaries
Years ended 31 March 2018 and 2017
Millions of yen
2018
2017

Thousands of
U.S. dollars(Note 1)
2018

Cash flows from financing activities:
Decrease in subordinated borrowings
Repayments of lease obligations
Cash dividends paid
Dividends paid to non-controlling interests
Payment for acquisition of treasury stock
Proceeds from sale of treasury stock－(487)(1,252)(0)(3)
0(10,000)(489)(1,246)
(6)
(4)
0

－
(4,584)(11,784)
(0)
(28)
0

Payment for acquisition of shares of subsidiaries that do not result in change in scope of
consolidation
Proceeds from sale of shares of parent held by subsidiaries
Net cash used in financing activities(2)145(1,599)－－(11,745)

(19)
1,364
(15,051)

14(18,054)426,581¥408,527

16
74,067352,514¥426,581

132(169,936)
4,015,258$3,845,322

Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year (Note 3)

See accompanying notes.

― 20 ―

Notes to Consolidated Financial Statements
The Bank of Iwate, Ltd. and its consolidated subsidiaries
Years ended 31 March 2018 and 2017
1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements of The Bank of Iwate, Ltd. (the “Bank”) and its consolidated subsidiary havebeen prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Law of Japan, its related
accounting regulations and the Banking Law of Japan, and in conformity with accounting principles generally accepted in Japan(“Japanese GAAP”), which are different in certain respects as to application and disclosure requirements to International Financial
Reporting Standards.
The accompanying consolidated financial statements have been restructured and translated into English (with some expanded
descriptions) from the consolidated financial statements of the Bank prepared in accordance with Japanese GAAP and filed with theappropriate Local Finance Bureau of the Ministry of Finance as required by the Financial Instruments and Exchange Law. Some
supplementary information included in the statutory Japanese language consolidated financial statements, but not necessarily
required for fair presentation, is not presented in the accompanying consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience of readers, using the prevailingexchange rate at 31 March 2018, which was ¥106.24 to U.S. $1. The convenience translations should not be construed as
representations that the Japanese yen amounts have been, could have been, or could in the future be converted into U.S. dollars at
this or any other rate of exchange.

2. SIGNIFICANT ACCOUNTING POLICIESReporting entity
The consolidated financial statements include the accounts of the Bank and its significant subsidiaries. Japanese GAAP on
consolidated financial statements requires consolidation of all significant investees that are controlled through substantial ownershipof majority voting rights or existence of certain conditions. All significant intercompany transactions and account balances are
eliminated.
A non-consolidated subsidiary is excluded from the scope of consolidation because in terms of its total assets, ordinary income, net
income or loss (amount corresponding to equity), retained earnings (amount corresponding to equity) and accumulated othercomprehensive income or loss (amount corresponding to equity), it has minor impact on the consolidated financial statements even
if it is excluded from the scope of consolidation.
Investments in affiliates over which the Bank has the ability to exercise significant influence in terms of operating and financial
policies of the investees are accounted for by the equity method.
There are no investments in affiliates that are accounted for by the equity method.
A non-consolidated subsidiary and investments in affiliates that are not accounted for by the equity method are excluded from thescope of equity method because in terms of their net income or loss (amount corresponding to equity), retained earnings (amountcorresponding to equity) and accumulated other comprehensive income or loss (amount corresponding to equity), they have minor
impact on the consolidated financial statements even if they are excluded from the scope of equity method.

― 21 ―

Trading account securities and securities
Securities are classified as follows based on the purpose: (a) securities held for trading purposes (“trading account securities”), (b)debt securities intended to be held to maturity (“held-to-maturity debt securities”), (c) equity securities issued by unconsolidated
subsidiaries and affiliated companies, and (d) all other securities that are not classified in any of the above categories(“available-for-sale securities”).
(a) Trading account securities — National government bonds held for trading purpose are presented as trading account securities.
Trading account securities are stated at fair value (cost of securities sold is calculated using the moving-average method). Gains andlosses realized on disposal and unrealized gains and losses from market value fluctuations are recognized as gains or losses in the
period of the change.
(b) Held-to-maturity debt securities are carried at amortized cost (straight-line method) using the moving-average method.
(c) Equity securities issued by subsidiaries and affiliated companies, which are not consolidated or accounted for by the equity
method, are carried at cost using the moving-average method.
(d) Available-for-sale securities with available fair values are primarily carried at the period end market prices (cost of securities
sold is calculated using the moving-average method).
Securities for which it is extremely difficult to determine the fair value are stated at moving average cost.
Net unrealized holding gains (losses) on these securities, net of applicable income taxes, are reported in a separate component of net
assets.
Available-for-sale securities with available fair values are written down when a significant decline in fair value below the cost ofsuch securities is deemed to be other than temporary. The amount written down is accounted for as an impairment loss.

Money held in trust
Securities that are invested as part of trust assets in independently managed money trusts that invest primarily in securities are stated
at fair value.

Derivatives and hedge accounting
The Bank employs forward exchange contracts, currency swaps and interest rate swaps to meet customers’ needs and to mitigate
interest rate risks and foreign exchange risks. Derivative financial instruments are stated at fair value.
If derivative financial instruments are used as hedges and meet certain hedging criteria, the Bank defers recognition of gains orlosses resulting from changes in fair value of the derivative financial instruments until the related losses or gains on the hedged
items are recognized (deferral method).
Transactions to hedge against interest rate risks affecting the financial assets and liabilities of the Bank are accounted for using
deferred hedge accounting in accordance with the provisions of “Treatment of Accounting and Auditing of Application of
Accounting Standard for Financial Instruments in the Banking Industry” (Japanese Institute of Certified Public Accountants(“JICPA”) Industry Audit Committee Report No. 24, 13 February 2002).
Regarding the effectiveness of a hedge, a hedge that is intended to offset the effects of market fluctuations is assessed on agroup-by-group comparison of hedged items and hedging instruments. Both hedged items, including deposits and loans, and― 22 ―

hedging instruments, including interest rate swaps, are classified into groups by remaining maturity period. The effectiveness of acash flow hedge is assessed on the basis of the correlation between the base interest rate index of the hedged cash flow and that of
the hedging instrument.
As for the hedging transactions against currency exchange risks arising from assets and liabilities in foreign currencies, the Bank
applies deferred hedge accounting in accordance with the provisions of “Treatment of Accounting and Auditing Concerning
Accounting for Foreign Currency Transactions in the Banking Industry” (JICPA Industry Audit Committee Report No. 25, 29 July
2002). The Bank assesses the effectiveness of currency swap and foreign exchange swap transactions executed for offsetting therisks of changes in currency exchange rates by verifying that there exist foreign currency positions of the hedging instruments
corresponding to the foreign currency monetary claims and debts to be hedged.
Certain interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at fair values,
but the differential to be paid or received under the swap contracts is recognized as interest expenses or income (exceptional
method).
Depreciation and amortization methods(1)

Premises and equipment (excluding leased assets)

Premises and equipment are stated at cost less accumulated depreciation. The Bank depreciates its premises and equipment under
the declining-balance method over their estimated useful lives. Depreciation of buildings acquired on and after 1 April 1998
(excluding installed facilities) and installed facilities and structures acquired on and after 1 April 2016 by the Bank is computed
under the straight-line method. Estimated useful lives are as follows:
Buildings: 3-30 years
Equipment and furniture: 2-20 years
Consolidated subsidiaries depreciate their premises and equipment primarily under the declining-balance method over theirestimated useful lives.
(2)

Intangible assets (excluding leased assets)

The Bank and its consolidated subsidiaries (the “Group”) amortize the intangible assets under the straight-line method over theirestimated useful lives. Costs of computer software developed or obtained for internal use are amortized using the straight-line
method over estimated useful lives of 5 years.
(3)

Leased assets

Depreciation and amortization of leased assets pertaining to finance lease transactions other than those that transfer the ownership ofthe leased assets to the Group, which are included in “Premises and equipment” and “Intangible assets,” are computed under thestraight-line method. The lease term is equal to the useful life and that there is no residual value except where residual value
guarantees are stipulated in lease contracts.
Depreciation of leased assets that transfer the ownership to the Group is computed by the same method used for owned assets.

― 23 ―

Allowance for doubtful accounts
The reserve for loans to borrowers which are classified as legally bankrupt or substantially bankrupt is calculated by deducting theestimated disposal value of collateral and the amount deemed collectible from guarantees from the book value.
The Bank also provides specific reserves for potentially bankrupt borrowers for an amount deemed necessary based on the loanbalance, less expected collection from disposal of collateral, guarantees and repayment on uncovered portion of the loan from
historical experiences.
For all the other loans, general reserves are provided collectively. The ratio of the general reserves is determined based on the
Bank’s loan loss experience. The above-mentioned allowance for doubtful accounts is made on the basis of the results of a strict
assessment of the quality of all the Bank’s loan assets, using the Bank’s internally established rules for self-assessment.
The allowance for doubtful accounts recorded in consolidated subsidiaries is calculated as follows:
General reserves are provided at an amount deemed necessary considering the historical ratio of loan losses. Specific reserves for
doubtful borrowers are provided at an amount expected to be uncollectable, considering collectability on an individual basis.

Accrued bonuses for directors and corporate auditors
Accrued bonuses for directors and corporate auditors are provided in the amount of the estimated bonuses which are attributable toeach fiscal year.

Retirement benefits for directors and corporate auditors
Retirement benefits for directors and corporate auditors are provided for the future payments of directors and corporate auditors’
retirement benefits incurred up to the end of the fiscal year based on the approved internal rule.

Provision for losses on reimbursement of dormant deposits
Provision for losses on reimbursement of dormant deposits which were recorded as profit is provided for the future reimbursement
based on the historical reimbursement experience.

Provision for contingent losses
Provision for contingent losses is provided for estimated future payments related to a risk-share agreement with public credit
guarantee associations for the Bank’s loans guaranteed by the associations. The provision is calculated by expected loss ratios basedon historical foreclosure experiences by the category of the borrowers.

Accounting for retirement benefits
Upon the calculation of projected benefit obligation, the estimated amount of all retirement benefits to be paid at future retirement
dates is allocated by using the benefit formula basis. The Bank has also set up retirement benefit trusts.
Actuarial differences are amortized as income or expenses commencing from the following year under the straight-line method over
10 years, which is determined as the amortization period within a range of estimated remaining service year of the eligible
employees at the time the actuarial differences occur.

― 24 ―

The consolidated subsidiaries adopt a simplified method, as allowed for small companies, which is to record retirement benefits
liabilities for an amount assuming all employees would retire at the end of the fiscal year on a voluntary basis.

Income taxes
Income taxes consist of corporation, enterprise and inhabitants taxes. The provision for income taxes is computed based on thepretax income of each of the Bank and its consolidated subsidiaries with certain adjustments required for tax purposes.
Deferred tax assets and liabilities are recorded based on the temporary differences between the financial statement and tax bases ofassets and liabilities. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.

Foreign currency translation
Assets and liabilities denominated in foreign currencies are translated into Japanese yen at the exchange rate prevailing at the end ofeach year.

Appropriations of retained earnings
Under the Companies Law of Japan, the appropriation of retained earnings with respect to a given financial period is made byresolution of the shareholders at a general meeting held subsequent to the close of the financial period. The accounts for that period,
therefore, do not reflect such appropriations. See Note 30.

Amounts per share
Net income per share of common stock is computed based on the weighted average number of shares outstanding, excluding
treasury stock, during each year. Diluted net income per share reflects the potential dilution that could occur if stock options to issuecommon stock were exercised. Cash dividends per share represent the amounts applicable to the respective years and consist ofinterim dividends for the current year and year-end dividends declared after the end of the year.

Consumption taxes
National and local consumption taxes are accounted for with the tax exclusion method.

― 25 ―

Accounting standards which have not been applicable yet“Accounting Standard for Revenue Recognition” (Accounting Standards Board of Japan (“ASBJ”) Statement No.29, 30 March2018)“Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No.30, 30 March 2018)(1) Overview
They are comprehensive standards on revenue recognition. Revenue will be recognized based on the following 5 steps.
Step 1: Identify contracts with customers.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

(2) Application date
The Group will apply these accounting standards from the beginning of the fiscal year ending 31 March 2022.

(3) Effects of the application of the standards
The Group is currently assessing the effects of these standards.

3. NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS(1) Cash and cash equivalents
In preparing the consolidated statements of cash flows, cash and due from the Bank of Japan are considered to be cash and cash
equivalents. At 31 March 2018 and 2017, the reconciliation of cash and cash equivalents in the consolidated statements of cash
flows with cash and due from banks in the consolidated balance sheets was as follows:

Cash and due from banks
Less: Deposits in other banks other than the Bank of Japan
Cash and cash equivalents― 26 ―

Millions of yen
2018
2017
¥408,997¥427,050
(470)
(469)
¥408,527¥426,581

Thousands of U.S.
dollars
2018$3,849,746(4,424)$3,845,322

(2) Breakdown of assets and liabilities of companies newly consolidated through acquisition of shares
The breakdown of assets and liabilities at the time of commencing the consolidation of three subsidiaries, Iwagin Lease Data,
Iwagin DC Card and Iwagin Credit Service, through acquisition of their shares, and their acquisition cost and expenditure on
acquisition (net) were as follows:
Millions of yen
AssetsLiabilities
Non-controlling interests
Gain on bargain purchase
Acquisition cost of shares
Amount evaluated by the equity method until acquisition
Loss on step acquisition
Cash and cash equivalents
Less: Expenditure on acquisition, net

2018
－
－
－
－
－
－
－
－
－

2017
¥22,321(13,108)(1,394)(4,340)
3,479
(455)
251
(1,293)¥1,982Thousands of U.S.
dollars
2018
－
－
－
－
－
－
－
－
－

(3) Details of major non-monetary transactions
Transactions accompanied with making Iwagin DC Card and Iwagin Credit Service the Bank’s wholly owned subsidiaries
Millions of yen
2018
Increase in capital surplus due to share exchange
Decrease in treasury stock due to share exchange

－
－

2017
¥691
718

Thousands of U.S.
dollars2018－－

4. SECURITIESSecurities held by the Group at 31 March 2018 and 2017 consisted of the following:
Millions of yen
2018
2017
¥326,976¥399,266
331,192
317,940
301,860
325,054
53,131
49,825
285,649
252,634¥1,298,808¥1,344,719

National government bonds
Local government bonds
Corporate bonds
Corporate stocks
Other securities

Thousands of
U.S. dollars
2018$3,077,711
3,117,395
2,841,303
500,104
2,688,713$12,225,226

The securities placed under unsecured lending agreements, which borrowers have the right to sell or pledge in the amount of¥87,000 million ($818,901 thousand) and ¥97,000 million at 31 March 2018 and 2017 were included in national government bonds,
respectively.

― 27 ―

A. The following tables summarize acquisition costs, book values and fair values of securities with available fair values at 31 March2018 and 2017:(a) Held-to-maturity debt securities
Millions of yen
At 31 March 2018:

Book value¥37,368

Fair value¥41,627

Difference¥4,259Gain¥4,260At 31 March 2017:¥36,576¥40,806¥4,230¥4,231

At 31 March 2018:

Book value$351,732

Fair value$391,820

Loss
¥(1)
¥ (1)

Thousands of U.S. dollars
Difference$40,088Gain$40,098

Loss

Gain

Loss

$(10)

(b) Available-for-sale securities
Securities below include negotiable certificates of deposit classified as cash and due from banks.
Millions of yen
Acquisition cost
At 31 March 2018:
Corporate stocks
Bonds
Other
At 31 March 2017:
Corporate stocks
Bonds
Other

Book value

Difference¥24,449
900,081271,797¥51,918
927,467
276,373¥27,469
27,386
4,576¥27,848
27,7137,855¥(379)(327)(3,279)¥1,196,327¥1,255,758¥59,431¥63,416¥(3,985)¥25,288
977,212
241,449¥48,6121,009,200
245,051¥23,324
31,988
3,602¥23,506
32,8736,755¥ (182)(885)(3,153)¥1,243,949¥1,302,863¥58,914¥63,134¥ (4,220)

Thousands of U.S. dollars
Acquisition cost
At 31 March 2018:
Corporate stocks
Bonds
Other

Book value

Difference

Gain

Loss

$230,130
8,472,148
2,558,330$488,686
8,729,923
2,601,402$258,556
257,775
43,072$262,123
260,853
73,936$(3,567)(3,078)(30,864)$11,260,608$11,820,011$559,403$596,912$(37,509)

B. For the year ended 31 March 2018, there were no sales of held-to-maturity debt securities. For the year ended 31 March 2017,
cost of sales, total sales and related loss of held-to-maturity debt securities amounted to ¥100 million , ¥97 million and ¥3 million,
respectively. Based on the investment standard in consolidated subsidiaries, they were sold since a significant deterioration was seenin the issuer’s credit standing.
Total sales of available-for-sale securities sold in the years ended 31 March 2018 and 2017 amounted to ¥43,759 million ($411,888
thousand) and ¥40,521 million, respectively. The related gains and losses amounted to ¥2,560 million ($24,096 thousand) and ¥60
million ($565 thousand) in 2018, and ¥1,738 million and ¥59 million in 2017, respectively.

C. There were no available-for-sale securities written down for the years ended 31 March 2018 and 2017.

― 28 ―

D. Net unrealized holding gains on available-for-sale securities on the consolidated balance sheets at 31 March 2018 and 2017consisted of the following:Thousands of
U.S. dollars

Millions of yen
2018

2017

2018

Net unrealized holding gains before deferred tax on:
Available-for-sale securities (Note)
Deferred tax assets
Deferred tax liabilities
Net unrealized holding gains before interests adjustment
Amount equivalent to non-controlling interests¥59,432－(17,736)
41,696－¥58,983(45)(17,521)
41,417(0)$559,413－(166,943)
392,470－

Net unrealized holding gains on available-for-sale securities¥41,696¥41,417$392,470

Note: The amount of ¥2 million ($19 thousand) and ¥71 million, which is net unrealized holding gains before deferred tax on
available-for-sale securities that are component assets of investment limited partnerships classified as securities for which it isextremely difficult to determine the fair values, was included in the balance at 31March 2018 and 2017, respectively.

E. Equity securities issued by unconsolidated subsidiaries and affiliated companies are as follows:
Thousands of
U.S. dollars

Millions of yen
2018
SharesInvestments

2017
¥20
916

2018
¥20
613

$188
8,622

5. MONEY HELD IN TRUST
Money held in trust at 31 March 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2018
Money held in trust for trading purposes:
Carrying amount
Realized gains included in earnings￥7,982－― 29 ―

2017¥4,982－

2018$75,132－

6. FINANCIAL INSTRUMENTS(1) Overview
a. Policy for financial instruments
The Group provides financial services, mainly focusing on banking businesses such as deposit taking, grant of loans, trading of
securities and investment in securities, as well as financial services including lease operation and credit card operation.
For its main operations, the Group raises funds through deposits and call money, etc. and applies them to loans receivable andinvesting in securities. Therefore, the financial assets and liabilities of the Group tend to be affected by interest rate fluctuations, andare exposed to risks stemming from changes in financial market environments (interest rate risks and price fluctuation risks), as wellas to risks arising from fund shortage.
The Group manages those risks using the ALM method in order to appropriately control the balance between revenues and risks inconsideration of the status of the financial assets and liabilities, trend of financial markets, policies for fund management andinvestment policies. The Group uses derivatives for the purpose of reducing risks, but not for speculative purposes.

b. Types of financial instruments and related risks
The financial assets of the Bank consist mainly of loans for domestic enterprises and individuals and investment securities.
Loans are exposed to credit risks stemming from defaults of borrowers. The largest industrial categories of loans as of the current
fiscal year-end was individuals, followed by local governments, real estate industries and leasing - more or less all kinds ofindustries - and manufacturing industries.
Securities are fundamentally constituted of bonds, stocks and investment trusts, which are held for investing purposes,
held-to-maturity purposes and for maintaining business relationships, while trading account securities are held for trading purposes.
These are exposed to credit risks of issuers, interest rate risks and risks stemming from fluctuation of market prices.
Liabilities, such as deposits, corporate bonds and call money, are exposed to risks arising from fluctuation of interest rates stemmingfrom mismatching between interests or periods of assets and liabilities. In addition, these are exposed to risks of fund shortage
where the Bank fails to control cash receipts and disbursement due to unexpected fund outflow and suffering losses from unusualhigh interest rates imposed on, as well as market liquidity risks where the Bank fails to raise funds owing to market shrinkage and is
obliged to enter into unusual unfavorable transactions.
Regarding derivative transactions, the Bank enters into interest rate swap contracts in terms of ALM control and adopt hedge
accounting to them as hedging instruments for interest rate risks on loans and bonds as hedged items. The Bank evaluates
effectiveness of the hedge based on accumulated fluctuation of cash flows of hedging instruments and hedged items for the periods
beginning from implementation of the hedging to the date of the evaluation and analysis on them.
Furthermore, there are interest rate swap contracts (hedging instruments) and loans and bonds (hedged items), which are treatedunder the exceptional method.

c. Monitoring of credit risks
In accordance with the internal policies of the Bank for managing credit risks arising from loans, each related division monitors
credit worthiness of their customers periodically and due dates and outstanding balances by individual customer. In addition, the― 30 ―

Bank is making efforts to identify and mitigate risks of bad debts from customers who are having financial difficulties.
The results of the above monitoring are regularly reported to the board of directors and the results of monitoring internal rating, loan
portfolios and quantification of credit risks are reported to the credit risk committee on a quarterly basis. Audit Division strictly
reviews to ensure the monitoring procedures function properly.
Credit risks of issuers of securities and counterparty risks of derivative transactions are controlled through periodical review on
credit information and fair value of securities by Financial Markets Division.

d. Monitoring of market risks(Interest rate risks)
The risks arising from fluctuations in interest rates are controlled using ALM at the ALM committee, with reference to thediscussion at the fund management meeting and interest rate analysis group, through monitoring and analysis of execution of the
ALM and the discussion of future actions. Concretely, the results of the above monitoring are reported on a monthly basis to the
ALM committee using gap analysis or interest rate sensitivity analysis such as BPV and VaR. Derivative instruments such as
interest rate swap contracts to hedge interest rate risks are used in terms of ALM.
(Foreign currency exchange risks)Foreign currency swap contracts and foreign currency exchange swap contracts are used in order to control the foreign currency
exchange risks.
(Price fluctuation risks)
In accordance with the internal policies of the Bank on managing market related risks, the risks arising from fluctuation of market
price of investment securities are controlled through a daily VaR based on certain holding periods and confidence interval byconfirming that the quantities of its risk fall under the certain portion of equity capital or not. Upper limits on losses on an
aggregation basis or on a realization basis are defined to control them on a daily basis. These results are reported by Risk
Management Division to the management on a daily basis.
Investments in securities at Financial Markets Division are executed in accordance with invested items and investing guidelines
prescribed in the market business operation standards, the marketing risk management standards and primary polices on investing,and controlled through continuous monitoring. The information related to the market environment and the investment status isreported to the management on a regular basis.
(Derivative transactions)
In conducting derivative transactions, each division responsible for execution of transactions, evaluation of efficiency of the hedging
and related administration is clearly identified, following the hedge transaction guidelines, the market business operation standards
and market risk management standards, with setting up segregation of duties and checking systems.

― 31 ―

(Information on volume of market risk)
The Bank employs the variance-covariance method (confidence interval of 99%, observation period of 1 year) in calculating VaR ofdeposits, loans receivable and securities (investments in bond, investments in stock, shares held for policy reasons, investments intrust). The holding period used as a parameter for the calculation is set as 6 months for deposits, loans receivable and shares held forpolicy reasons, and 3 months for investments in stock and investments in trust.
The volume of market risk, which is supposed to be estimated losses, at the end of the year ended 31 March 2018 was ¥20,010
million ($188,347 thousand).
For securities, the Bank periodically verifies the effectiveness of risk measurement by a back-testing protocol that compares thevolume under VaR with the amount of actual gains or losses or hypothetical gains or losses on a fixed portfolio. As a result ofconducting the back-testing protocol, the Group supposes the method undertaken will provide a reliable indicator of the market risks.
The method of variance and covariance the Bank uses to measure the volume under VaR assumes that changes in the market follow
a normal distribution. Accordingly, under conditions subject to changes in the market exceeding the assumption, risks may beunderestimated.

e. Monitoring of liquidity risks
The Bank adequately manages its liquidity risks based on various internal quantitative standards prescribed in liquidity risks
management regulations, monitoring their liquidity positions on a daily basis with minimum fund reserve established twice a year.

f. Supplementary explanation of the estimated fair value of financial instruments
The fair value of financial instruments is based on their quoted market price, if available. When there is no quoted market priceavailable, the fair value is reasonably estimated. Since various assumptions and factors are reflected in estimating the fair value,
different assumptions and factors could result in different fair values.

― 32 ―

(2) Fair value of financial instruments
The carrying amounts and the estimated fair value of financial instruments at 31 March 2018 and 2017 were as follows.
Millions of yen

Thousands of U.S. dollars
2017

2018

Assets:Cash and due from banks
Monetary claims bought
Money held in trust
Securities
Held-to-maturity debt securities
Available-for-sale securities
Loans and bills discounted
Allowance for doubtful accounts
Liabilities:
Deposits
Call money and bills soldPayables under securities lendingtransactions
Borrowed money
Corporate bonds with stockacquisition rights
Derivative transactions:
Derivative instruments not
qualifying for hedge accounting
Derivative instruments qualifying
for hedge accounting

2018

Carrying
amounts

Fair value

Carrying
amounts

Fair value

Carrying
amounts

Fair value¥408,997
4,005
7,982

¥408,997
4,024
7,982

¥427,050
2,457
4,982

¥427,050
2,486
4,982

$3,849,746
37,69875,132$3,849,746
37,87775,132

34,686
1,255,758
1,752,659(8,901)

38,926
1,255,758

35,304
1,302,863
1,704,750(8,725)39,505
1,302,863

326,487
11,820,011
16,497,167(83,782)

366,397
11,820,011

1,743,758

1,747,582

1,696,025

1,700,818

16,413,385

16,449,379

3,280,121
2,337

3,280,252
2,337

3,271,398
5,610

3,271,593
5,610

30,874,633
21,99730,875,866
21,997

4,134
13,602

4,134
13,603

1,130
14,102

1,130
14,10538,912
128,031

38,912
128,040

10,624

10,619

11,21911,309100,000

99,953

182

182

56

56

1,713

1,713

(4,826)(8,200)

5,053

1,679

(45,426)(77,184)(Note 1) Methods to determine the estimated fair value of financial instruments
a. Cash and due from banks
All cash and due from banks are short-term in nature, and therefore their carrying amounts approximate the fair value.
b. Monetary claims bought
As for monetary claims bought whose terms are less than one year, their carrying amounts are supposed to approximate the fairvalue, while the fair value of those with long term is based on either quoted market prices or prices provided by the financial
institutions making markets.
c. Money held in trust
For the securities that are invested as part of trust assets in independently managed money trusts that invest primarily in securities,
the fair value of the equity securities is determined using quoted market prices and the fair value of debt securities is determinedusing either quoted market prices or prices provided by the financial institutions that the Group has been dealing with.
d. Held-to-maturity debt securities and available-for-sale securities
The fair values of held-to-maturity debt securities and available-for-sale securities are based on either quoted market prices or prices
provided by the financial institutions making markets in these bonds, etc. The fair values of investments in trust are based on
published net asset value. Private placement bonds are based on the discounted present value, which is calculated by discounting― 33 ―

estimated future cash flows arising from the financial assets.
e. Loans and bills discounted
Carrying amounts of loans and bills discounted with floating rates, which indicate the short-term market interest rates, are supposed
to approximate the fair value as long as the credit status of the borrower has not largely changed. The fair value of loans and bills
discounted with fixed rates is based on the present value of the total of principal and interest discounted by the interest rate to be
applied if similar new loans were entered into, by the types, self-assessment and the terms. As for loans and bills with short-term
settlement (within a year), their carrying amounts are supposed to approximate the fair value.
The estimated uncollectable amount of loans to borrowers which are classified as legally bankrupt, substantially bankrupt andpotentially bankrupt is based on the estimated disposal value of collateral and the amount deemed collectible from guarantees, andtherefore their carrying amounts after deduction of allowance for doubtful accounts at the closing date are supposed to approximate
the fair value.
Carrying amounts of loans and bills discounted with no specified repayment dates settled, due to some characteristics such as theoutstanding balance which is not exceeding the value of collateral, are supposed to approximate the fair value, given the estimatedrepayment period, interest rates and other conditions.
f. Deposits
The fair value of deposits at notice is based on the payment amount that would be required to pay at the end of the year.
The fair value of time deposits is based on the present value of the total of principal and interest discounted by an interest rate to be
applied if similar new deposits were entered into. As to time deposits with short-term maturities, their carrying amounts
approximate the fair value.
g. Call money and bills sold, and payables under securities lending transactions
Call money and bills sold, and payables under securities lending transactions are short-term in nature, and therefore their carrying
amounts approximate the fair value.
h. Borrowed money
The fair value of borrowed money is based on the present value discounted by an interest rate to be applied if a similar new
borrowing is entered into. As to borrowed money with short-term maturity, its carrying amount approximates the fair value.
i. Corporate bonds with stock acquisition rights
The fair value of corporate bonds is determined using the prices provided by the financial institutions that the Bank has been dealing
with.
j. Derivative transactions
Please refer to the following section of the notes to Derivatives.
(Note 2) The following table summarizes book values of securities for which it is extremely difficult to determine the fair values at
31 March 2018 and 2017:
Thousands of
U.S. dollars

Millions of yen
2018
Available-for-sale securities
Monetary claims bought

2017¥8,364272¥6,552394― 34 ―

2018$78,7282,560

(Note 3) Expected collections of assets and payments of liabilities with maturities at 31 March 2018 and 2017 were as follows:
Millions of yen
2018
Within one
year

One to three
years

Three tofive years

Five toseven years

Seven toten years

Over tenyears

Due from banks (*1)
Monetary claims bought
Securities
Held-to-maturity debt securities
Mainly consists of the following:
National bonds
Corporate bonds
Available-for-sale securities
Mainly consists of the following:
National bonds
Local government bonds
Corporate bonds
Loans and bills discounted¥384,041
1,323

¥－
－

¥－
－

¥－
－

¥－
－

¥－
2,954

10,301

2,430

－

－

1,983

19,972

10,000300
175,851－305
330,054－－
145,173－－
74,6591,983－
363,722

19,972－73,53577,547
6,842
54,724292,186

118,347
30,651
109,879
420,680

14,701
7,388
82,701
296,541

10,68630,671
8,848
147,20221,215245,597
33,234
131,637

52,525
10,043
4,557
274,173

Deposits
Call money and bills soldPayables under securities lendingtransactions
Borrowed money (*2)

3,160,552
2,337
4,134

111,678
－
－

6,532
－
－

278
－
－

1,081
－
－

－
－
－

4,762

85

－

－

－

－

Millions of yen
2017
Within one
year

One to three
years

Three tofive years

Five toseven years

Seven toten years

Over tenyears

Due from banks (*1)
Monetary claims bought
Securities
Held-to-maturity debt securities
Mainly consists of the following:
National bonds
Corporate bonds
Available-for-sale securities
Mainly consists of the following:
National bonds
Local government bonds
Corporate bonds
Loans and bills discounted¥404,081
1,185

¥－
－

¥－
－

¥－
－

¥－
－

¥－
1,666

500

12,545

307

－

1,982

19,970500－
180,531

10,001300
321,616－307
237,928－－
67,854

1,982－
332,501

19,970－83,35674,753
3,971
83,483
297,018

135,989
13,956
115,678
416,641

71,29429,21990,120286,572

9,612
24,37014,515
141,729

21,526226,246
13,046
133,677

53,63920,1783,209
253,624

Deposits
Call money and bills soldPayables under securities lendingtransactions
Borrowed money (*2)

3,138,796
5,610

124,078
－

7,110
－

169
－

1,245
－

－
－

1,130
4,945

－
385

－
－

－
－

－
－

－
－

Notes: *1. Due from banks that does not have maturity is included in the “within one year” column.
*2. Borrowed money is stated for the interest-bearing borrowed money.

― 35 ―

Thousands of U.S. dollars
2018
Within one
year

One tothree years

Three tofive years

Five toseven years

Seven toten years

Over tenyears

Due from banks
Monetary claims bought
Securities
Held-to-maturity debt securities
Mainly consists of the following:
National bonds
Corporate bonds
Available-for-sale securities
Mainly consists of the following:
National bonds
Local government bonds
Corporate bonds
Loans and bills discounted$3,614,844
12,453

$－
－

$－
－

$－
－

$－
－

$－
27,80596,96022,873－－

18,665

187,989

94,1272,824
1,655,224－
2,871
3,106,683－－
1,366,463－－
702,739

18,665－
3,423,588

187,989－
692,159

729,923
64,401
515,098
2,750,245

1,113,959
288,507
1,034,253
3,959,714

138,375
69,541
778,436
2,791,237

100,584
288,695
83,283
1,385,561

199,689
2,311,720
312,820
1,239,053

494,400
94,53142,8932,580,695

Deposits
Call money and bills soldPayables under securities lendingtransactions
Borrowed money

29,749,172
21,99738,912

1,051,186－－

61,483
－
－

2,617
－
－

10,175－－－－44,823

800

－

－

－

－

Derivatives
As stated in significant accounting policies, the Bank deals in interest rate swaps, currency swaps, and forward exchange contracts.
a. Derivative instruments not qualifying for hedge accounting
Notional amounts, fair values, and unrealized gains (losses) for the years ended 31 March 2018 and 2017 were as follows:(Currency-related transactions)
Millions of yen
2018

Thousands of U.S. dollars
2017

Unrealized
Notional

gains

amounts Fair value (losses)

Forward foreign exchange:
Sell
Buy

14,529
384

196
(14)

196
(14)

2018
Unrealized

Notional

gains

amounts Fair value (losses)¥6,027
573

¥54
2

¥54
2

Unrealized
Notional

gains

amounts Fair value (losses)

136,756
3,614

1,845
(132)

1,845
(132)

Note: Transactions in the above table are revalued at fair value. Unrealized gains (losses) are included in the consolidated statements
of income.

― 36 ―

(Earthquake derivatives)
Millions of yen

Thousands of U.S. dollars

2018

2017

2018

Unrealized
Notional

gains

Notional

amounts Fair value (losses)

Earthquake derivatives:
Sell
Buy

705
705

(10)
10

Unrealized
gains

amounts Fair value (losses)

－
－

－
－

－
－

Unrealized
Notional

－
－

gains

amounts Fair value (losses)

6,636
6,636

(94)
94

－
－

Note: For transactions in the above table, acquisition costs are regarded as fair value as it is extremely difficult to determine the fairappraised value.

b. Derivative instruments qualifying for hedge accounting
Notional amounts and fair values for the years ended 31 March 2018 and 2017 were as follows:(Interest-related transactions)
Millions of yen

Thousands of U.S. dollars

2018
Notional
amounts
Interest rate swap:
Receive floating / Pay fixed rate
(Deferral method)
Receive floating / Pay fixed rate
(Exceptional method)

2017
Notional
amounts

Fair value

2018
Fair value

Notional
amounts

Fair value¥40,915¥(4,826)¥41,885¥ (4,811)$385,119$(45,426)

22,430(3,374)

22,526(3,374)

211,126(31,758)(Currency-related transactions)
Millions of yen
2018
Notional
amounts
Currency swap:(Deferral method)

Fair value－

Thousands of U.S. dollars
2017－

Notional
amounts

2018
Fair value¥81,000¥9,864

Notional
amounts

Fair value－－

7. LOANS AND BILLS DISCOUNTED
Loans and bills discounted at 31 March 2018 and 2017 consisted of the following:

Millions of yen
Bills discounted
Loans on notes
Loans on deeds
Overdrafts

Thousands of
U.S. dollars

2018

2017

2018

¥4,782
67,7491,493,615
186,513¥3,33075,354
1,453,321
172,745$45,011637,698
14,058,876
1,755,582¥1,752,659¥1,704,750$16,497,167

Bills discounted are accounted for as financial transactions in accordance with JICPA Industry Audit Committee Report No. 24. The
Group has rights to sell or pledge commercial bills discounted and foreign bills of exchanges bought without restrictions. The total― 37 ―

face value at 31 March 2018 and 2017 was ¥4,781 million ($45,002 thousand) and ¥3,329 million, respectively.
The Group is required to disclose loans to customers who meet specific criteria in accordance with the Banking Law. Doubtful loans
at 31 March 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2018
Loans to borrowers under bankruptcy proceedings
Past due loans
Loans past due three months or more
Restructured loans, including loans to borrowers financiallyassisted by the Bank

2017

2018

¥853
29,34526¥398
30,365
3$8,029276,214
245

7,695

8,077

72,430¥37,919¥38,843$356,918

8. PLEDGED ASSETSAt 31 March 2018, deposits of ¥42,482 million ($399,868 thousand), payables under securities lending transactions of ¥4,134
million ($38,912 thousand) and borrowed money of ¥13,162 million ($123,889 thousand) were secured by a pledge of securities in
the amount of ¥102,353 million ($963,413 thousand) and guarantee money deposits in the amount of ¥71 million ($668 thousand).
At 31 March 2017, deposits of ¥55,534 million and, call money and bills sold of ¥5,610 million, payables under securities lendingtransactions of ¥1,130 million, borrowed money of ¥13,300 million were secured by a pledge of securities in the amount of¥103,243 million and guarantee money deposits in the amount of ¥72 million. In addition to the above-mentioned assets pledged ascollateral, the Group provided securities of ¥1,506 million ($14,175 thousand) and ¥29,683 million, and other assets in the amountof ¥34,225 million ($322,148 thousand) and ¥9,798 million, respectively, as collateral for transactions such as exchange settlementtransactions at 31 March 2018 and 2017.
Other assets include cash collateral paid for financial instruments, guarantee deposits and lease deposits in the amount of ¥8,370
million ($78,784 thousand) and ¥8,430 million, ¥90 million ($847 thousand) and ¥57 million, and ¥193 million ($1,817 thousand)and ¥193 million at 31 March 2018 and 2017, respectively.

9. COMMITMENT LINE AGREEMENTS
Commitment line agreements are agreements to lend to customers to a prescribed amount when they apply for borrowing, unlessviolation of the condition of the agreement exists. The amount of unused commitment line related to such agreements at 31 March2018 and 2017 amounted to ¥707,700 million ($6,661,333 thousand) and ¥704,265 million, respectively. The amount ofcommitment line agreements, having a condition that the original agreement period was less than one year or unconditionallycancelable at any time, was ¥673,027 million ($6,334,968 thousand) and ¥667,893 million at 31 March 2018 and 2017, respectively.
The amount of unused commitment line does not necessarily affect the future cash flows of the Group because most of suchagreements were terminated without being used. The majority of these agreements contain provisions which stipulate that the Groupmay refuse to make loans or may decrease the commitment line when there are certain changes in financial conditions, security forthe loans or other reasons. When entering into loan agreements with the customers, the Group requests pledges of collateral in theform of premises or securities if necessary. After entering into loan agreements, the Bank periodically checks the financial conditionof the customers based on its internal rules and performs certain actions relating to the security of the loans if necessary.

― 38 ―

10. OTHER ASSETS
Other assets at 31 March 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2018
Accrued income
Other

2017

2018

¥3,55856,469¥3,521
41,258$33,490
531,523¥60,027¥44,779$565,013

11. PREMISES AND EQUIPMENT
Premises and equipment at 31 March 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2018

2017

2018

Land
Buildings
Equipment
Leased assets
Other¥8,88435,046
8,365
1,213
956

¥8,93934,160
8,350
1,214
850

$83,622
329,876
78,737
11,417
8,998

Accumulated depreciation

54,46437,15553,51336,606

512,650
349,727¥17,309¥16,907$162,923

To conform with the Companies Law of Japan, deferred gains on sale of real estate in the amount of ¥922 million ($8,678 thousand)and ¥932 million at 31 March 2018 and 2017, respectively, were deducted from the acquisition cost of premises and equipment.

12. INTANGIBLE ASSETS
Intangible assets at 31 March 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2018
SoftwareLeased assets
Other― 39 ―

20172018¥1,08294
65¥1,213303
40$10,184885
612¥1,241¥1,556$11,68113. DEPOSITS
Deposits at 31 March 2018 and 2017 consisted of the following:
Millions of yen
Current deposits
Ordinary deposits
Deposits at noticeTime deposits
Other deposits
Negotiable certificates of deposit

Thousands of
U.S. dollars

2018

2017

2018

¥54,341
1,792,480
1,758
1,157,586
70,610203,346¥56,063
1,670,039
2,896
1,150,184
173,731
218,485$511,493
16,871,988
16,547
10,895,953
664,627
1,914,025¥3,280,121¥3,271,398$30,874,633

14. CORPORATE BONDS WITH STOCK ACQUISITION RIGHTS
Corporate bonds with stock acquisition rights at 31 March 2018 and 2017 were summarized as follows:
Thousands of
U.S. Dollars

Millions of Yen
Name

IssuedZero coupon convertiblebond-type bonds withstock acquisitionrights due 2018
payable in U.S.
dollars

25 July 2013

2018

2017

¥10,624¥11,2192018$100,000

Coupon Rate(%)

Secured or
UnsecuredDue

Non-interest

Unsecured

25 July 2018

Notes: 1. Outline of corporate bonds with stock acquisition rights was as follows:
Zero coupon convertible bond-type bonds with stock acquisition rights due
2018 payable in U.S. dollars
Type of stock involved
Issue price of stock acquisition rights
Issue price of stock (Yen / U.S. Dollars)
Total amount of issue(Millions of Yen / Thousands of U.S. Dollars)
Total amount of stock acquisition rights exercised
Percentage of stock acquisition right granted
Exercise period of stock acquisition rights

Common stock
Gratis¥5,284 ($49.74)¥10,624 ($100,000)－
100%
From 8 August 2013 to 11 July 2018

Upon the request to exercise stock acquisition rights from the bondholders, it shall be deemed as payment by thebondholders of the full amount required to be paid upon the exercise of stock acquisition rights, rather than as redemptionof corporate bonds with stock acquisition rights at their total amount of issue. In addition, if the bondholders exercise thestock acquisition rights, it would be considered that such request has been made.
2. These corporate bonds are bonds issued in European markets and denominated in U.S. dollars. The amount of corporate
bonds with stock acquisition rights was translated into Japanese yen at the telegraphic transfer middle rate at 31 March2018 announced by the Bank.

― 40 ―

3. Annual maturities of corporate bonds with stock acquisition rights at 31 March 2018 were as follows:Year ending 31 MarchMillions of yen

2019
2020
2021
2022
2023 and thereafterThousands of U.S.
dollars¥10,624－－－－$100,000－－－－

15. OTHER LIABILITIESOther liabilities at 31 March 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2018
Accrued income taxes
Accrued expenses
Unearned income
Lease obligations
Other

2017

2018

¥1,927
2,588
468
2,058
14,909

¥250
2,415
600
2,470
24,098$18,138
24,3604,406
19,371
140,333¥21,950¥29,833$206,608

16. CONTINGENT LIABILITIES, ACCEPTANCES AND GUARANTEESAll contingent liabilities including letters of credit, acceptances and guarantees are reflected in acceptances and guarantees. As acontra account, customers’ liabilities for acceptances and guarantees are shown on the asset side, which represent the Group’s rightof indemnity from customers.
The amount of guarantee obligation for privately-placed bonds (Financial Instruments and Exchange Law, Article 2, Paragraph 3),
out of bonds included in securities, stands at ¥2,518 million ($23,701 thousand) in 2018 and ¥2,160 million in 2017.

17. EMPLOYEES’ SEVERANCE AND RETIREMENT BENEFITSThe Group has adopted funded and unfunded defined benefit plans to prepare for the employees’ retirement benefits. In addition, asof 1 April 2016, the Bank transferred part of the defined benefit plans (excluding the portion for vested pensioners in a waiting
period and current pensioners) to defined contribution plans.
Under the defined benefit pension plan, which is a funded plan, employees receive lump-sum payments or pensions based onsalaries and service periods and a cash balance plan has been introduced. Each participant has a hypothetical individual account withthe amount equivalent to the reserve as resource of pension for each participant. In hypothetical individual accounts, interest credits
based on trends in market interest rates and benefit credits based on the salary level are accumulated. Also, the Bank has set up
retirement benefit trusts related to defined benefit pension plan.
Under the lump-sum retirement benefit plan (even though it is an unfunded plan, this has become a funded plan as a result of setting
up retirement benefit trusts.), predetermined points based on years of service and ability-based grade / job title are given to eachparticipant annually, and employees receive lump-sum payments, which are calculated by multiplying the unit price of points to theaccumulated points at the time of retirement, as retirement benefits.
The consolidated subsidiary adopts the simplified method in calculating net defined benefit liability and retirement benefit expenses.

― 41 ―

Defined benefit plans(i) Change in projected benefit obligation
Thousands of
U.S. dollars

Millions of yen
2018

2017

2018

Balance at beginning of year
Service costs (including the amount of employee contributions)Interest costs
Actuarial differences
Retirement benefits paid
Decrease due to transfer to defined contribution plans
Increase due to change in scope of consolidation¥25,644673
107
219(1,129)－－¥28,469680
108
570(1,392)(3,096)305$241,378
6,335
1,007
2,061
(10,627)－－

Balance at end of year

¥25,514¥25,644$240,154

Note: Since the consolidated subsidiaries, which adopt the simplified method, are insignificant, the net defined benefit liability,
retirement benefit expenses and retirement benefits paid are included in the above accounts. All retirement benefit expenses
are included in service costs.
(ii) Change in plan assets
Millions of yen
2018

2017

Thousands of
U.S. dollars
2018

Balance at beginning of year
Expected return on plan assets
Actuarial differences
Employer contributions
Employee contributions
Retirement benefits paid

¥28,015
582
97
114
53
(748)

¥28,209
585
(317)
219
55
(736)

$263,695
5,479
913
1,073
499
(7,041)

Balance at end of year

¥28,113¥28,015$264,618(iii) Reconciliation from projected benefit obligation and plan assets to net defined benefit liability (asset)
Thousands of
U.S. dollars

Millions of yen
2018

2017

2018

Funded projected benefit obligation
Plan assets¥25,187(28,113)¥25,317(28,015)$237,076(264,618)

Unfunded projected benefit obligation(2,926)327(2,698)327(27,542)3,078

Net liability (asset) recognized in consolidated balance
sheets¥(2,599)¥ (2,371)$(24,464)

Net defined benefit liability
Net defined benefit asset

1,944(4,543)

1,709(4,080)18,298(42,762)

Net liability (asset) recognized in consolidated balance
sheets¥(2,599)¥ (2,371)$(24,464)

Note: The table above includes the plans to which the simplified method is applied.

― 42 ―

(iv) Retirement benefit expenses and its breakdown
Thousands of
U.S. dollars
2018

Millions of yen
2018
2017
Service costs (excluding the amount of employee contributions)Interest costs
Expected return on plan assets
Amortization of actuarial differences

¥620
107
(582)
645

¥625
108
(585)
531

＄5,836
1,007(5,479)6,071

Retirement benefit expenses

¥790

¥679

＄7,435

Notes: 1. The retirement benefit expenses of the consolidated subsidiaries adopting the simplified method are included in service
costs.
2. Other than the above, a gain on revision of defined benefit plans in the amount of ¥864 million is recorded, resulting fromthe partial transfer of the Bank’s retirement benefit plans to defined contribution plans for the year ended 31 March 2017.
(v) Remeasurements of defined benefit plans on other comprehensive income
The component of items recognized in remeasurements of defined benefit plans (pre-tax) on other comprehensive income was asfollows:
Thousands of
U.S. dollars

Millions of yen
2018

2017

2018

Actuarial differences

¥523

¥74

$4,923

Total

¥523

¥74

$4,923

Note: Actuarial differences for the year ended 31 March 2017 include reclassification adjustment in the amount of ¥430 million due
to the partial transfer of the Bank’s retirement benefit plans to retirement contribution plans.

(vi) Remeasurements of defined benefit plans on accumulated other comprehensive income
The component of items recognized in remeasurements of defined benefit plans (pre-tax) on accumulated other comprehensive
income was as follows:
Millions of yen

Thousands of
U.S. dollars

2018

2017

Unrecognized actuarial differences¥ (1,677)¥ (2,200)$(15,785)

Total¥ (1,677)¥ (2,200)$(15,785)― 43 ―

2018

(vii) Plan assets(a) Percentage by major category of plans assets was as follows:
2018

2017

Bonds
Equities
General accountCash and deposits
Other

53%
29%
15%
3%
0%

65%
16%
16%
2%
1%

Total

100%

100%

Retirement benefit trusts set up for defined benefit pension plans account for 19% and 19% of total plan assets for the years
ended 31 March 2018 and 2017, respectively. In addition, retirement benefit trusts set up for the lump-sum retirement
benefit plans account for 22% and 23% of total plan assets for the years ended 31 March 2018 and 2017, respectively.
(b) Determination procedure of long-term expected rate of return on plan assets
In determining a long-term expected rate of return on plan assets, the Bank considers the current and projected asset
allocations, as well as a current and future long-term expected rate of return for various categories of the plan assets.

(viii) Basis for calculation of actuarial assumptions
The basis for calculation of actuarial assumptions (presented as a weighted-average rate for discount rate and long-term expected
rate of return on plan asset) at 31 March 2018 and 2017 was as follows:
2018

2017

Discount rate

0.4%

0.4%

Long-term expected rate of return on plan assets
Expected salary increase rate in defined benefit plans
Expected salary increase rate in lump-sum retirement
benefit plans

2.0%
3.9%

2.0%
3.9%

7.4%

7.4%

The contribution made by the Bank to defined contribution plans was ¥126 million ($1,186 thousand) and ¥126 million for the year
ended 31 March 2018 and 2017, respectively.
The amount of plan assets transferred to the defined contribution plans resulting from the transfer of its portion from retirement
benefit plans to such plans was ¥1,802 million ($16,962 thousand) and the transfer is expected to be completed in four years.
The remaining transfer of plan assets as of 31 March 2018 in the amount of ¥836 million ($7,869 thousand) is included in accounts
payable – other under other liabilities.

― 44 ―

18. INCOME TAXESThe Group is subject to a number of taxes based on income such as corporation, inhabitant and enterprise taxes, which, in theaggregate, indicated a statutory tax rate in Japan of approximately 30.6% and 30.6% for the years ended 31 March 2018 and 2017,
respectively.
Significant components of the Group’s deferred tax assets and liabilities at 31 March 2018 and 2017 were as follows:
Thousands of U.S.
dollars

Millions of yen
2018

2017

2018

Deferred tax assets:
Allowance for doubtful accounts
Net defined benefit liability
Accumulated depreciation
Securities
Deferred hedge
Other¥2,755
2,844
1,119
567
1,467
1,492

¥2,463
2,576
1,115
579
1,466
1,628

$25,932
26,77010,533
5,337
13,80814,043

Subtotal
Valuation allowance

10,244(2,240)9,827(2,179)96,423(21,084)

8,004

7,648

75,339(17,838)(422)(4)(17,643)(433)(0)(167,903)(3,972)(38)(18,264)(18,076)(171,913)¥ (10,260)¥ (10,428)$(96,574)

Total deferred tax assets
Deferred tax liabilities:
Net unrealized holding gains on available-for-sale securities
Deferred gains on sale of real estate
Other
Total deferred tax liabilities
Net deferred tax liabilities

The following summarizes the significant difference between the statutory tax rate and the Bank’s effective tax rate for the years
ended 31 March 2018 and 2017.
2018
Statutory tax rate

2017

30.6%

30.6%

Non-deductible expenses

0.4

0.2

Non-taxable income

(1.0)

(2.5)

Per capita inhabitant taxes

0.5

0.3

Valuation allowance

0.8

0.8

Gain on bargain purchase－(10.5)

Loss on step acquisition－

0.6

Other, net

0.3

0.2

31.6%

19.7%

Effective tax rate

― 45 ―

19. NET ASSETS
Under the Companies Law and the Banking Law of Japan, the following is provided: the entire amount of the issue price of shares isrequired to be accounted for as capital, although a company may, by a resolution of its board of directors, account for an amount notexceeding one-half of the issue price of the new shares as additional paid-in capital, which is included in capital surplus.
The Companies Law and the Banking Law provide that an amount equal to at least 20% of cash dividends and other cash
appropriations shall be appropriated and set aside as a legal earnings reserve until the total amount of legal earnings reserve andadditional paid-in capital equals 100% of common stock. The legal earnings reserve and additional paid-in capital may be used toeliminate or reduce a deficit by a resolution of the shareholders’ meeting or may be capitalized by a resolution of the board of
directors. On condition that the total amount of legal earnings reserve and additional paid-in capital remains equal to or exceeds
100% of common stock, they are available for distribution by the resolution of the shareholders’ meeting. Legal earnings reserve is
included in retained earnings in the accompanying financial statements.
The maximum amount that the Bank can distribute as dividends is calculated based on the non-consolidated financial statements of
the Bank in accordance with the Companies Law.
The number of treasury stock held by the Group was 591 thousand shares and 623 thousand shares at 31 March 2018 and 2017,
respectively.

20. STOCK OPTIONS
1. Share-based compensation expenses accounted for as general and administrative expenses
The balance of stock acquisition rights granted for the stock option program was ¥203 million ($1,911 thousand) and ¥157 million
at 31 March 2018 and 2017, respectively.
Share-based compensation expenses which were accounted for as general and administrative expenses for the years ended 31 March2018 and 2017 amounted to ¥46 million ($433 thousand) and ¥49 million, respectively.

2. Details of stock options, volume and activity(a) Details of stock options

Title and number ofgrantees
Number of stock options
by type of shares
Grant dateCondition for vesting
Requisite service period
Exercise period

2013 Stock OptionPlan2014 Stock OptionPlan2015 Stock OptionPlan2016 Stock Option
Plan

Directors of the Bank:
9
Common stock: 13,400
shares24 July 2013
Not applicableNot applicable
From 25 July 2013 to
24 July 2043

Directors of the Bank:
9
Common stock: 10,400
shares24 July 2014
Not applicableNot applicable
From 25 July 2014 to
24 July 2044

Directors of the Bank:
9
Common stock: 9,100
shares23 July 2015
Not applicableNot applicable
From 24 July 2015 to
23 July 2045

Directors of the Bank:
9
Common stock: 12,100
shares25 July 2016
Not applicableNot applicable
From 26 July 2016 to
25 July 2046

― 46 ―

2017 Stock Option
Plan
Title and number ofgrantees
Number of stock options
by type of shares
Grant dateCondition for vesting
Requisite service period

Directors of the Bank:
9
Common stock: 11,100
shares26 July 2017
Not applicableNot applicable
From 27 July 2017 to
Exercise period
26 July 2047
Note: Reported in terms of shares of stock.

― 47 ―

(b) Volume and activity
The following describes volume and activity that existed during the year ended 31 March 2018. The number of stock options isreported in terms of shares of stock.
(i) Number of stock options
2013 Stock Option Plan

2014 Stock Option Plan

2015 Stock Option Plan

2016 Stock Option Plan

Before vesting (shares):
At 31 March 2017
GrantedForfeited
VestedOutstanding

9,000
－
－
－
9,000

7,800
－
－
－
7,800

6,900
－
－
－
6,900

12,100－－－12,100After vesting (shares):
At 31 March 2017
VestedExercised
Forfeited
Outstanding

－
－
－
－
－

－
－
－
－
－

－
－
－
－
－

－
－
－
－
－

2014 Stock Option

2015 Stock Option

2016 Stock Option

2017 Stock Option Plan
Before vesting (shares):
At 31 March 2017
GrantedForfeited
VestedOutstanding－
11,100－－
11,100After vesting (shares):
At 31 March 2017
VestedExercised
Forfeited
Outstanding

－
－
－
－
－
－

(ii) Price information2013 Stock Option
Exercise price
Average exercise price
Fair value at the grant¥1 ($0.01)¥－ ($－)¥4,119 ($38.77)¥1 ($0.01)¥－ ($－)¥4,437 ($41.76)

2017 Stock Option
Exercise price
Average exercise price
Fair value at the grant¥1 ($0.01)¥－ ($－)¥4,178 ($39.33)― 48 ―¥1 ($0.01)¥－ ($－)¥5,287 ($49.76)¥1 ($0.01)¥－ ($－)¥4,032 ($37.95)

3. Valuation method for fair value of stock options
The valuation methods for fair value of stock options granted in the year ended 31 March 2018 were as follows:(a) The valuation method: Black-Scholes formula(b) Major basic numerical values and valuation method
2017 Stock Option Plan
Stock price volatility (*1)
Expected years to expiration (*2)
Expected dividends (*3)
Risk-free interest rate (*4)

28.0%
2.5 years¥70 ($0.66) per share(0.10)%

Notes:*1. Stock price volatility was calculated based on the actual stock prices from 19 January 2015 to 17 July 2017.
*2. As a rational estimation was difficult due to the insufficient amount of historical data, expected years to expiration
were set up by the estimated average remaining service period.
*3. Expected dividends are determined based on actual dividends for the year ended 31 March 2017.
*4. Risk-free interest rate is Japanese government bond yield corresponding to the expected years to expiration.
4. Estimation method for the vested number of stock options
Since it is difficult to make a reasonable estimate on future forfeited stock options, the actual number of forfeited stock options isreflected in the estimation.

21. OTHER OPERATING INCOME AND EXPENSES
Other operating income and expenses for the years ended 31 March 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2018
Other operating income:Gain on sale of foreign bills of exchange
Gain on trading account securities transactions
Gain on sale of bonds
Gain on financial instruments
Other

2017

¥－
0
242
25
4,135

¥1
1
546
－
3,194

$－
0
2,278
236
38,921¥4,402¥3,742$41,435

Thousands of
U.S. dollars

Millions of yen
2018
Other operating expenses:
Loss on sale of foreign bills of exchange
Loss on sales of bonds
Loss on redemption of bonds
Loss on financial instruments
Other― 49 ―

2018

2017

2018

¥152
4
1,726
－
3,640

¥－
18
1,538
－
2,737

$1,431
38
16,246－34,262¥5,522¥4,293$51,97722. GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the years ended 31 March 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2018
Salaries and allowances
Fringe benefits and welfare
Retirement benefit expenses
Depreciation for premises and equipment
Rental expenses
Taxes other than income taxes
Deposit insurance premium
Business outsourcing expenses
Other expenses

2017

2018

¥11,762
3,069
918
2,033
817
1,571
1,068
2,691
4,179

¥11,739
3,050
805
2,193
814
1,487
1,212
2,645
4,095

＄110,712
28,887
8,641
19,136
7,690
14,787
10,05325,32939,336¥28,108¥28,040＄264,571

23. OTHER INCOME AND EXPENSES
Other income and expenses for the years ended 31 March 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2018
Other income:Gain on sale of stocks and other securities
Gain on disposal of premises and equipment
Gain on revision of defined benefit plans
Gain on bargain purchase
Other

2017

¥2,31848－－
931¥1,192
60
864
4,340
664

$21,819
452
－
－
8,763

¥3,297¥7,120$31,034
Thousands of
U.S. dollars

Millions of yen
2018
Other expenses:
Provision of allowance for doubtful accounts
Loss on disposal of premises and equipment
Loss on devaluation of stocks and other securities
Impairment losses
Loss on transfer of receivables
Loss on step acquisitions
Other― 50 ―

2018

2017

2018

¥ 598
85
0
181
31
－
259

¥453
205
－
65
213
251
508

$5,629
800
0
1,703
292
－
2,438

¥1,154¥1,695$10,86224. LEASE TRANSACTIONS
A. Finance leases(a) As lessee(1) Finance leases that transfer the ownership(i) Details of leased assets
Premises and equipment:
Not applicable
Intangible assets:
Mainly consists of software for the branch operating system(ii) Depreciation and amortization methods of leased assets
Depreciation and amortization methods of leased assets are described in Note 2. Depreciation and amortization methods, (3) Leased
assets.
(2) Finance leases other than those that transfer the ownership(i) Details of leased assets
Premises and equipment:
Mainly consists of equipment for the branch operating system
Intangible assets:
Mainly consists of software for the branch operating system(ii) Depreciation and amortization methods of leased assets
Depreciation and amortization methods of leased assets are described in Note 2. Depreciation and amortization methods, (3) Leased
assets.
(3) Current portion of lease obligations and lease obligations (excluding current portion) at 31 March 2018 and 2017 consisted of
the following:
Millions of yen
2018
Current portion of lease obligations
Lease obligations (excluding current portion)

2017

Thousands of
U.S. dollars

Average interest
rate (%)

2018

2018

¥915
1,143

¥849
1,621

$8,612
10,759¥2,058¥2,470$19,371

Note: The average interest rate represents the weighted-average rate applicable to the year-end balance.

The aggregate annual maturities of lease obligations were summarized as follows:Year ending 31 March
2019
2020
2021
2022
2023 and thereafter

Millions ofyen

Thousands of
U.S. dollars

2018

2018

¥915
618
258
153
114

― 51 ―$8,612
5,817
2,428
1,440
1,074

2.43%
2.96%

Year ending 31 MarchMillions of
yen
2017

2018
2019
2020
2021
2022 and thereafter

¥849
810
522
170
119

B. Operating leases(a) As lessee
There were no future lease payments under non-cancelable operating leases at 31 March 2018 and 2017.

(b) As lessor
Future lease receivables under non-cancelable operating leases at 31 March 2018 were ¥340 million ($3,200 thousand) including¥42 million ($395 thousand) due within one year.
Future lease receivables under non-cancelable operating leases at 31 March 2017 were ¥301 million including ¥41 million due
within one year.

― 52 ―

25. COMPREHENSIVE INCOME
Reclassification adjustments and tax effect amounts of other comprehensive income (losses) for the years ended 31 March 2018 and2017 were as follows:
Thousands of U.S.
dollars

Millions of yen
2018
Net unrealized holding gains (losses) on available-for-salesecurities:
Amount for the year
Reclassification adjustment

2017

2018

¥1,656(1,207)¥ (6,631)(1,758)$15,587(11,361)

Amount before tax effectTax effect amount

449
(170)

(8,389)
2,620

4,226
(1,600)Net unrealized holding gains (losses) on
available-for-sale securities

279(5,769)2,626

Net unrealized gains (losses) on hedging derivatives:
Amount for the year
Reclassification adjustment

(562)
557

431
601

(5,290)5,243

Amount before tax effectTax effect amount

(5)
2

1,032
(313)

(47)
19

Net unrealized gains (losses) on hedging derivatives

(3)

719

(28)

Remeasurements of defined benefit plans:
Amount for the year
Reclassification adjustment

(122)
645

(887)
961

(1,148)6,071

Amount before tax effectTax effect amount

523
(160)

74
(24)

4,923
(1,506)

Remeasurements of defined benefit plans

363

50

3,417

Share of other comprehensive losses of affiliates accounted
for by the equity method:Amount for the year
Reclassification adjustment

－
－

－
(12)

－
－

－
－

(12)
－

－
－

Amount before tax effectTax effect amount
Share of other comprehensive losses of affiliates
accounted for by the equity method

－

(12)

－

Total other comprehensive income (losses)¥ 639¥ (5,012)$6,015― 53 ―

26. PER SHARE DATA
Amounts per share at March 31 2018 and 2017 and for the years then ended were as follows:Yen
Net assets per share
Net income per share
Diluted net income per share

U.S. dollars

2018

2017

2018

¥11,346.27
308.70276.91¥11,075.22
567.99509.82$106.80
2.91
2.61

Amounts per share were calculated based on the following:Thousands of
U.S. dollars

Millions of yen or
thousands of shares
Net assets per share:
Total net assets
Amount to be deducted from total net assets
Stock acquisition rights
Non-controlling interests
Net assets at the end of fiscal year attributed to common stock
Number of shares of common stock at the end of fiscal year usedin computing net assets per share attributed to common stock

2018

2017

2018

¥203,378203
203－
203,175¥198,288
316
157
159
197,972$1,914,326
1,911
1,911
－
1,912,415

17,907

17,875

Net income per share:
Net income attributable to owners of parent
Net income attributable to owners of parent attributed to common
stock
Average number of shares of common stock during the year

5,523

10,152

51,986

5,523
17,893

10,152
17,874

51,986

Diluted net income per share:
Number of increased common stock used in computing diluted
net income per share
Convertible bond-type bonds with stock acquisition rights
Compensation-type stock option

2,054
2,011
43

2,040
2,006
34

― 54 ―

27. BUSINESS COMBINATION
Transactions under common control
Iwagin Lease Data Co., Ltd. (“Iwagin Lease Data”), which is a consolidated subsidiary of the Bank, acquired its shares on 29
September 2017.
(1) Overview of the business combinationa. Name and business description of the company subject to the business combination
Name of the company subject to the business combination

Business description

Iwagin Lease Data Co., Ltd.

Leasing and computerized accounting services

b. Date of the business combination
29 September 2017c. Legal form of the business combination
Acquisition by a consolidated subsidiary of its sharesd. Name of the company subsequent to the business combination
There was no change to the name of the company.
e. Other matters
Iwagin Lease Data acquired its shares held by non-controlling interests for the purpose of strengthening the Group’s
management. As a result, the Bank’s ratio of voting rights in Iwagin Lease Data became 100%.

(2) Overview of accounting treatment
Based on “Accounting Standard for Business Combinations” (ASBJ Statement No. 21, 13 September 2013) and “Guidance on
Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures” (ASBJ Guidance No. 10, 13
September 2013), the acquisition by the consolidated subsidiary of its shares was accounted for as a transaction with non-controllinginterests among the transactions under common control.

(3) Matters regarding the acquisition by the consolidated subsidiary of its shares
Acquisition cost and the breakdown of respective considerations
Thousands of
U.S. dollars

Millions of yen
Considerations

Cash and due from banks

Acquisition cost

¥2

$19

¥2

$19

(4) Matters regarding the change in equity of the Bank arising from transactions with non-controlling interests
a. Factor behind the change in capital surplus
The acquisition cost of the consolidated subsidiary’s shares acquired from non-controlling interests was lower than the amountof the decrease in non-controlling interests due to the acquisition.
b. The amount of capital surplus increased from the transaction with non-controlling interests¥158 million ($1,487 thousand)― 55 ―

28. SEGMENT INFORMATION(1) Reportable segment information
Although the Group conducts businesses other than the commercial banking business, such as the leasing business, reportablesegment information was omitted for the years ended 31 March 2018 and 2017, since the Group’s performance in otherbusinesses were immaterial and the commercial banking business was the only reportable segment of the Group.
(2) Other segment-related informationa. Information by services
Information by services for the years ended 31 March 2018 and 2017 was as follows:
2018
Millions of yen

Ordinary income from external customers

Banking

Investment
in securities

Other

Total

¥17,816¥15,964¥13,389¥47,169

2017
Millions of yen

Ordinary income from external customers

Banking

Investment
in securities

Other

Total

¥18,310¥15,239¥12,318¥45,8672018
Thousands of U.S. dollars

Ordinary income from external customers

Banking

Investment
in securities

Other

Total

$167,696$150,263$126,026$443,985

Note: “Ordinary income” corresponds to net sales of non-banking industries.

b. Information by geographic regioni. Ordinary income
Information as to ordinary income from domestic customers for the years ended 31 March 2018 and 2017 was omitted, because theamount of ordinary income from domestic customers was more than 90% of consolidated ordinary income.
ii. Premises and equipment
Information as to premises and equipment for the years ended 31 March 2018 and 2017 was omitted, because there were no
premises and equipment located abroad.

c. Major customers’ segment information
Major customers’ segment information was not shown for the years ended 31 March 2018 and 2017, since there was no customer
accounting for more than 10% of ordinary income to customers in the consolidated statements of income.

― 56 ―

d. Information on impairment of fixed assets for each reportable segment
Although the Group conducts businesses other than the commercial banking business, such as the leasing business, information on
impairment of fixed assets for each reportable segment was omitted for the years ended 31 March 2018 and 2017, since the Group’s
performance in other businesses were immaterial and the commercial banking business was the only reportable segment of theGroup.

e. Segment information on amortization of goodwill and its remaining balance
There is no information to be reported on amortization of goodwill and its remaining balance for the years ended 31 March 2018and 2017.

f. Information on gain on negative goodwill for each reportable segment
There is no information to be reported on gain on negative goodwill for the year ended 31 March 2018.
Although the Group conducts businesses other than the commercial banking business, such as the leasing business, information on
gain on negative goodwill for each reportable segment was omitted for the year ended 31 March 2017, since the Group’s
performance in other businesses were immaterial and the commercial banking business was the only reportable segment of theGroup.

― 57 ―

29. RELATED PARTY TRANSACTIONS(1) Related party transactions
a. Transactions between the Bank and related parties
Transactions with executive officers of the Bank and major shareholders (limited to individual) and others
For the year ended 31 March 2018
Category

Corporate/
Individual nameBusiness

Executive officer
Corporate Auditor
and close family Mizuhiko Yoshidaof the Bank
members

Voting rights(%)

Relation to therelated party

Type of transaction

Amount oftransaction

Account

Balance at 31
March 2018－

Creditor

Term loan－

Loans and bills
discounted¥23 million($216 thousand)For the year ended 31 March 2017
Category

Executive officer
and close family
members

Corporate/
Individual nameBusiness

Voting rights(%)

Relation to therelated party

Type of transaction

Amount oftransaction

Account

Balance at 31
March 2017

Mizuhiko Yoshida

Corporate Auditorof the Bank－

Creditor

Term loan－

Loans and bills
discounted¥25 million

Satoshi Kikuchi

Close family
member of a
Director of theBank－

Creditor

Term loan－

Loans and bills
discounted¥11 million

Note: Terms and conditions of the transaction are determined on an arm’s length basis.

b. Transactions between the Bank’s consolidated subsidiary and related parties
There is no significant transaction to be disclosed between the Bank’s consolidated subsidiary and related parties for the years ended
31 March 2018 and 2017.

(2) Notes to the Bank’s parent company and significant affiliates
There is no information to be reported on the notes to the Bank’s parent company and significant affiliates for the years ended 31
March 2018 and 2017.

― 58 ―

30. SUBSEQUENT EVENTS(1) Concern in collectability or delay in collection of claims
Taiyo Sangyo Co., Ltd., one of the Bank’s customers, has filed a petition to commence civil rehabilitation proceedings to the Tokyo
District Court on 9 July 2018. Consequently, there is a concern that the claims against Taiyo Sangyo Co., Ltd. may become
uncollectable or the collection of such receivable will be delayed.
a. Overview of the respective customer
Name of the company

Taiyo Sangyo Co., Ltd.

Head office

5-1, Nonoda, Ofunatocho, Ofunato, Iwate

Representative name

Akira Matsuoka

Common stock¥100 million($941 thousand)Business description

Manufacturing and sales of fresh fish, frozen fish and processed foodb. The nature and the amount of the claims against the respective customer (as at 9 July 2018)

Loans¥2,801 million($26,365 thousand)

Customers’ liabilities for acceptances andguarantees¥35 million($329 thousand)Lease receivables¥60 million($565 thousand)Total¥2,896 million($27,259 thousand)c. The effect of this subsequent event to the Bank’s operating results
Among the claims listed above, specific reserves have been provided for the portion which is not covered by collateral or provision,amounting to approximately ¥1,881 million ($17,705 thousand) during the first quarter ending 30 June 2018.

(2) Cash dividends
On 22 June 2018, the shareholders of the Bank authorized the following appropriations of retained earnings at 31 March 2018:
Millions of yen
Cash dividends (¥35 ($0.33) per share for year-end)¥627― 59 ―

Thousands of
U.S. dollars$5,902

─ 60 ─

Corporate Profile
・Board of Directors (As of July 1, 2018)
Chairman
Directors
Masahiro Takahashi
Hiroshi Miura (Outside
Director)
President
Atsushi Takahashi
Sachio Taguchi(Outside Director)
Fumio Ube (Outside
Managing Directors
Director)
Shigeki Miura
Mikio Kikuchi
Hiroaki Takahashi
Motomu Sato
Yasushi Sasaki

Directors serving as Audit &Supervisory Committee
Members
Yuji Chiba (Standing)
Shinobu Obara (Outside
Director)
Mizuhiko Yoshida (Outside
Director)
Etsuko Sugawara (Outside
Director)― 61 ―

Executive Officers
Katsuhiro Kawamura
Kensei Ishikawa
Yasutaka Kakiki
Yasuhiro Sasaki
Shinji Niisato
Toru Iwayama

・Organization (As of July 1, 2018)

General Meeting of Shareholders

Managing Directors
Executive Officers

Nomination and Compensation
Advisory Committee
Board of Directors
Audit & Supervisory Committee
Executive
Committee

ChairmanPresident

General Planning Division
Profit Management OfficePublic Relations and CSR Office
Tokyo Liaison Office
General Affairs Division
Personnel Division
Human Resources Development Office

Local Office

Head Office

Customer Response Center

Public Affairs and Regional Revitalization Office

Corporate Strategy Division
Retail Strategy Division
Direct Banking Center
Credit Card Center
CS Promotion OfficeMorioka Loan Plaza
Financial Markets DivisionInternational Business OfficeSendai Office

Hachinohe Office
Corporate Financial Support Office

Loan Supervision Division
Personal Loan Center

Branches

Tokyo OfficeBusiness Management Division
Operations Concentration Center
Receivables Documents Center
Systems Division
Risk Management Division
Financial Products Management OfficeCompliance Office
General Secretariat

Audit Division

IIwagin Jigyo Souzou Capital
Co.,Ltd.

Iwagin Business Service Co.,Ltd.

Iwagin Lease Data Co., Ltd.

Iwagin DC Card Co., Ltd.

Iwagin Credit Service Co.,Ltd.

― 62 ―

Affiliate

Subsidiaries

・The Bank of Iwate Group

Iwagin Business
Service Co., Ltd.
1-2-3 Chuo Dori,Morioka City, Iwate
Prefecture
Iwagin Lease Data Co.,Ltd.
1-5-31 Nakanohashi
Dori, Morioka City,
Iwate Prefecture

10Administrative
work of theBank

September 4, 1979

100%

Voting Rights
of Subsidiaries,
etc. Other than
Said
Subsidiaries,
etc.
0%

30

Computerizedaccounting
services,
leasing

April 1, 1972

100%

0%

Iwagin DC Card Co.,Ltd.
1-2-14 Nakanohashi
Dori, Morioka City,
Iwate Prefecture20

Credit cards
and consumer
loans

August 1, 1989

100%

0%

Iwagin Credit Service
Co., Ltd.
14-10-301 Morioka
Ekimae Dori, Morioka
City, Iwate Prefecture20

Credit cards
and consumer
loans

August 1, 1989

100%

0%

Iwagin Jigyo Souzou
Capital Co.,Ltd.
1-2-3 Chuo Dori,Morioka City, Iwate
Prefecture

50

Investment
fundmanagement

April 1, 2015

40%

0%

Name/Address

Capital(Millions ofyen)

Main Business― 63 ―

Date of
Establishment

The Bank’s
VotingRightsHead Office

A message from Iwate Bank concerning reconstruction

Trust, and beyond
By virtue of your support, the Bank of Iwate was able to celebrate the 86th
anniversary of its foundation in May of this year.
This is entirely thanks to your loyal patronage, and all executives and employeesof the Bank extend our heartfelt gratitude.
The Bank will continue to dedicate its utmost efforts to the reconstruction anddevelopment of the regional community, as we strive to be your trusted bank ofchoice.
We thank you for your continued support and loyal patronage.

The Bank of Iwate, Ltd.

2-3, Chuodori 1-chome, Morioka, Iwate 020-8688, Japan
Phone: +81-19-623-1111
URL: https://www.iwatebank.co.jp/

General Planning Division
Public Relations and CSR Office2-3, Chuodori 1-chome, Morioka, Iwate 020-8688, Japan
Phone: +81-19-623-1111 Fax: +81-19-652-7571
SWIFT: BAIWJPJT