Annual Report
2018Year Ended March 31, 2018

About Mebuki Financial Group, Inc.
Ideals reflected in the Company’s name and logo
Name

Ideals reflected in the name
The Japanese word mebuki, or “green shoots,” conveys an image of new leaves budding
on tree branches. This word is used in the Group’s name to express its approach of drawing
on the knowledge and creativity of each of its companies to create fresh ideas andnew value. The name Mebuki expresses our wish to create new energy and value
in local communities and pursue sustainable growth along with these communities.

L ogo[Brand logo design concept][Colors in the logo]

The brand’s distinctive logo design shows three fresh young leaves

The main color is “assuring blue,” a distinctive shade which

sprouting, expressing an image of vibrant life and growth. Mebuki

represents wisdom and trust. This is combined with “grow-

Financial Group is symbolically portrayed as firmly rooted in theing green,” a youthful color which represents growth andcommunity, constantly creating new value and developing a prom-

the future.

ising future.

1

Mebuki Financial Group, Inc.

Corporate History (As of March 31, 2018)

November 2015

P.1

About Mebuki Financial Group, Inc.

Notice Regarding the Basic

P.2

Corporate History

Agreement Concerning a Business
Integration through a Share
Exchange of The Joyo Bank, Ltd.

P.3-4

A Message from the Management

P.5-6

Financial Highlights

P.7-8

Group Philosophy and Vision

P.9-10Market of the Groupand Ashikaga Holdings Co., Ltd.

April 2016

Notice Regarding Definitive
Agreement Concerning the

P.11-12 Mebuki Financial Group’s Overseas
Business Support Activities

Business Integration of The Joyo
Bank, Ltd. and Ashikaga Holdings
Co., Ltd. through a Share

P.13-14 Developments since Establishment of
Mebuki Financial Group

Exchange

June 2016

Approval of stock exchange
agreement at the ordinary general
meeting of shareholders of The
Joyo Bank, Ltd. and Ashikaga
Holdings Co., Ltd.

October 2016

Establishment of the Mebuki
Financial Group, Inc.

April 2017

Acquired all shares of Mebuki
Lease Co., Ltd. (formerly known as
The Joyo Lease Co., Ltd.) from The
Joyo Bank, Ltd.

October 2017

Contents

Acquired all shares of Mebuki
Securities Co., Ltd. (formerly known
as The Joyo Securities Co., Ltd.)
from The Joyo Bank, Ltd.

P.15-20 ESG Initiatives
P.21-22 Risk Management System
P.23-24 Initiatives for ComplianceP.25-26 List of Directors
P.27

Organization

P.27

Stock Information

P.28-62 Financial Data
P.63

Corporate Data

Disclaimer regarding forward-looking
statements
This Annual Report contains certain forward-looking statements, including estimates,
forecasts, targets and plans. Such forward-looking statements are based on the information available and the assumptions
deemed reasonable by management at thetime of publication of the Annual Report, anddo not represent any guarantee by manage-

December 2017

Opened The Ashikaga Bank, Ltd.

ment of future performance. We are under no

Bangkok Representative Officeobligation, and disclaim any obligation, to update or alter our forward-looking statements,

March 2018

Opened The Joyo Bank, Ltd. Hanoi
Representative Office

whether as a result of new information, future
events or otherwise.

Annual Report 20182

A Message from the Management

Continue
prosperous
with local
Ritsuo Sasajima, President

Thank you for your continued patronage.
As of June 2018, Ritsuo Sasajima has
assumed office as President and operation
has started under a new management
structure.
We at the Mebuki Financial Group, Inc.
(hereinafter referred to as the “Company”,
and together with its subsidiaries collectivelyt h e “ G ro u p ” ) w o u l d a p p re c i a t e y o u rcontinued support as we devote efforts tolive up to the expectations of our customers,
home regions, shareholders and all otherstakeholders.
The environment surrounding local
communities is now facing numerous issues
including the progress of decreasing
population and aging society combined withlow birthrates, labor shortage, an increasing
number of unoccupied houses and concern
over the shrinking local economies amid

3

Mebuki Financial Group, Inc.

changes in social structure caused by the
progression of economic globalization.
On the other hand, with the rapid
advancement in ICT (information andcommunication technology), creation of newservices and values is boosting drastic
innovations in industrial structure.
Additionally, the northern Kanto area, ourprincipal base of operations, has highpotential, given its geographical advantage ofbeing located adjacent to the Tokyo area,
and interactions between customers as well
as regions have been further encouraged,
supported by the development of high-speed
infrastructure networks.
Amid such an environment, under its groupphilosophy of providing high-quality comprehensive financial services to continue building
a more prosperous future together with local

creating afuturecommunities
Masanao Matsushita,
Executive Vice President

communities, the Group is determined totake the initiative in resolving challenges of
local communities.
The Group was established in October
2016 through the business integration of The
Joyo Bank, Ltd. and Ashikaga Holdings Co.,
Ltd. Making the most of the wide-area
networks centered around the northern
Kanto area held by The Joyo Bank, Ltd. and
The Ashikaga Bank, Ltd., the leading regionalbanks based in Ibaraki Prefecture and Tochigi
Prefecture, the Group is making efforts to
expand economic exchange in the region. In
addition, to tackle challenges facing the local
communities, the Group will work to support
customers in efficient asset building,sophisticating and revitalizing consumption
activities, and improving productivity throughactive use of evolving digital technologies.

As befits the name of “Mebuki,” Japanese for“green shoots,” as a financial group capableof creating fresh ideas and new values one
after another, we are committed to making
every effort to contribute to the developmentof sustainable local communities and to continuously design a prosperous future in
partnership with local communities by consolidating the ingenuity of all officers and employees of the Group.
We ask for your continued kindness andsupport in the future as well.
June 2018
Ritsuo Sasajima, President
Masanao Matsushita, Executive Vice President
Mebuki Financial Group, Inc.

Annual Report 20184

Financial Highlights (Year ended March 31, 2018)

Mebuki FG (Consolidated basis)



FY2017

Result

Net income attributable to owners of the parent

Capital adequacy ratio(Billion yen)

Progress

Forecast

43.0

101.3%

42.5

10.38%——The Group’s consolidated total income and total expenses were 263.3 billion yen and 200.9
billion yen, respectively.
Net income attributable to owners of the parent reached 43.0 billion yen.
Consolidated capital adequacy ratio reached 10.38%.

Total (Joyo Bank + Ashikaga Bank)
Gross business profit
1H
2H(Billion yen)

Expenses
1H
2H

180.7 billion yen
195.8

187.5

95.8

100.0

FY2015

Point

5

99.9

FY2016113.5 billion yen

180.7

87.5

115.3

115.0

113.5

85.7

56.5

56.6

56.4

94.9

58.7

58.3

57.1

FY2017Gross business profit decreased by 6.7 billion yen
YoY to 180.7 billion yen as the increase in net fees
and commissions due to the enhancement of consulting services was offset by the decrease ingains/losses on bond transactions.

Mebuki Financial Group, Inc.

(Billion yen)

FY2015Point

FY2016FY2017

Expenses decreased by 1.4 billion yen YoY to113.5 billion yen, mainly due to the implementationof various measures to reduce expenses, the decrease in deposit insurance premiums, etc.

Core net business income
1H
2H(Billion yen)

Net income1H
2H

73.6 billion yen(Billion yen)

46.8 billion yen
58.6

73.6

72.0

50.8

66.9

46.8
32.9

Point

18.3

FY2017FY2015

Core net business income increased by 6.7 billion
yen YoY to 73.6 billion yen, due to such factors as
the increase in net fees and commissions as a result of the enhancement of consulting services, aswell as the reduction in expenses.

Balance of deposits
Public sector
Corporate customers
Individual customers(Billion yen)

14,038.8 billion yen

Mar-16

804.4

748.0

3,020.8

3,062.8

Point

29.2

FY201628.4

FY2017

Net income decreased by 3.9 billion yen YoY to
46.8 billion yen, mainly due to the decrease ingains/losses on bond transactions, despite the increase in core net business income.

Balance of loans
Public sector
Corporate customers
Individual customers(Billion yen)

10,580.8 billion yen
10,580.8

10,315.4

10,187.1
776.3

1,153.6

1,232.9

1,348.3

3,158.8

4,813.1

4,809.6

4,025.6

4,272.8

4,935.9

10,103.6

9,762.1

Mar-17

Point

14,038.8

13,572.9

9,502.6

31.9

37.2

34.1

FY2016

13,327.9

21.6

32.7

39.1

FY2015

26.7

36.3

Mar-16

Mar-18The balance of deposits increased by 465.8 billion
yen YoY to 14,038.8 billion yen overall due to increased deposits by both individual and corporate
customers.

Point

Mar-17

4,491.2

Mar-18The balance of loans increased by 265.3 billion yen
YoY to 10,580.8 billion yen overall mainly due to anincrease in loans to individual customers including
housing loans.
Annual Report 20186

Group Philosophy and Vision
Group Philosophy

Together with local communities, we will continue to build a more prosperous future
by providing high-quality, comprehensive financial services.

The Group’s philosophical structure and basic approach of the new Group’s activities

MissionContributing to local communities
by developing and growing together

Expanding into more areas of business, more regions,and a greater scale as an open financial group

VisionUsing our network to Developing andBuilding thepromote local
offering advanced
revenue baseeconomic growth:
services:
through integration:

Growthdrivers

We will draw on our
wide-area network, which
includes major corporationsin the Metropolitanarea, to increase the flow ofcommerce, information,
and B2B exchanges.

ValuesUnderpinnings

7

Mebuki Financial Group, Inc.

We will develop
and promoteadvanced financial
services based on
IT and inter-industry
collaboration.

Our revenue base will
be strengthened bystreamlining operations
and strategicallyreallocating businessresources.

Training
professionals:
Our training will enable

employees to respondprofessionally tocomplex and diverse
financial needs with anunderstanding of thelocal communities.

One-stop comprehensive financial services including leasing,securities, research functions, and IT services

Solid relationships of trust with local communities
Regional financial institutions with the top market shares

Vision of the new Group (strategic goals)

Building the region’s future as a comprehensive financial services group

Targets for realization of the vision

Second Medium-term Group Business Plan
(FY2019 to FY2021)

Producing solid results and upshifting
for the next stage of growthFirst Medium-term Group Business Plan
(2nd half of FY2016 to FY2018)

Getting the new Groupon the right track to successBasic strategies for business integration(1) Combined ingenuity for regional revitalization ......... P.16 - 17(2) Expansion of comprehensive financial services ....... P.13
(3) Expansion of area and channels ................................. P.14
(4) Innovative operations .................................................... P.18
(5) Development of the new group’sbusiness management structure ............................ P.19-20
About 15 billion yen

Developing systems and other infrastructure

About 5 billion yen

Top line synergy*
Cost saving synergy
Reverse synergy(system migration costs)(depreciation for initial costs to becompleted in FY2024)

2nd half of FY2016

FY2017FY2018FY2019FY2020

FY2021*Top line synergy:
After deducting the increased costs related
to top line increases

Annual Report 20188

Market of the Group
Impressive share of its core market, Ibaraki and Tochigi prefectures,
Near the greater Tokyo region.

—

Economic scale of our operating area
Ibaraki National Tochigi National Gunma National Saitama National Chiba National Tokyo National
Prefecture Rank Prefecture Rank Prefecture Rank Prefecture Rank Prefecture Rank Metropolitan Rank

Prefectural grossproduct (2015) (¥ trillion)

13.0

11

9.0

15

8.7

17

22.3

5

20.2

7

104.3

1

Population (2017)(thousand)

2,892

11

1,957

19

1,960

18

7,310

5

6,246

6

13,7241

Prefectural income
per capita (2014) (¥ thousand)

3,088

11

3,204

4

3,092

10

2,903

20

2,970

16

4,512

1

Number of businesses(2016)

118,03113

88,332

19

92,00618

250,8345

196,5799685,615

1

Manufactured goods
shipped (2015) (¥ trillion)

12.0

8

8.8

13

9.1

12

12.8

6

12.7

7

8.4

14

New Factory Locations(excluding power supply
sector) (2016)
(number/area(ha))

40/ 93ha7/1

29/ 55ha13 / 756/ 54ha3/8

32
21
10 / 15
17 / 16/ 28ha/ 27ha2/ 1ha

46 / 47

Note: The above ranks are the ranks among the 47 prefectures.
Source: Prefectural gross product and prefectural income per capita data is from the Cabinet Office. Population data and Number of businesses arefrom the Ministry of Internal Affairs and Communications. Manufactured goods shipped and New factory locations data come from the Ministryof Economy, Trade and Industry.

9

Mebuki Financial Group, Inc.

Number of
336 officesbank offices
Ibaraki155 offices
Tochigi
120 offices
Gunma
15 offices
Saitama
20 officesTokyo
6 officesChiba
7 offices
Others13 offices
as of March 31,2018
Kan-Etsu Expressway
Tohoku Expressway

Joban Expressway

Tochigi
Tochigi
Nikko Nikko

Gunma
Gunma
Utsunomiya

MitoAshikaga
Ashikaga

Mito

Kita-Kanto
Expressway
Ken-O Expressway

Tsukuba
Tsukuba

Ibaraki
Ibaraki

Saitama
SaitamaWithin 100km of Tokyo

TokyoTokyo

ChibaChiba

Annual Report 201810

Mebuki Financial Group’s Overseas Business Support Activities
The Group offers various overseas business support services including foreign currency exchange, overseas remittances, loans andstandby credit in local currencies, and the provision of information obtained from local partner banks and government agencies.
In addition to six overseas representative offices of the Group (four offices of Joyo Bank and two offices of Ashikaga Bank, as ofMarch 2018), we offer a wide variety of support services through business alliances with local financial institutions and government
agencies in Asia and North America.

Represen
HongHong
KongKong
RepresentaShanghai
Representative
Office,Shanghai
Representative
Office,JoyoJoyo
BankBank
Address Address
RoomShanghai
1901, Shanghai
International
Room 1901,
International
Trade Trade

Phone

Address Address
Suite 16th
1601,Floor,
16th Floor,
Suite 1601,

2201
Road (West),Centre, Centre,
2201 Yan
An YanRoadAn(West),
Shanghai
Shanghai200336200336
P. R. China
P. R. China
Phone+86-21-6209-0258+86-21-6209-0258

Phone

Tower2,The Gateway,
Tower2,The Gateway,
Harbour
City, Kowloon,
Harbour
City, Kowloon,
Hong Kong
Hong Kong
Phone+852-2251-9475+852-2251-9475

Hanoi
Representative
Office,Bank
Hanoi
Representative
Office,JoyoJoyoBank
Address Address
5th SunFloor,Sun
Red River,
5th Floor,
Red
River,

Phone

23Chu
PhanTrinh
ChuStreet,
Trinh Street,
23 Phan
HoanDistrict,Hanoi
Kiem District,Hanoi
Hoan Kiem
VietnamVietnamPhone+84-24-3218-1668+84-24-3218-1668

Singapore
Representative
Office,Singapore
Representative
Office,JoyoJoyo
BankBank
Address Address
63 Market
63 Market
Street,Street,#11-03#11-03

Phone

of Singapore
Bank ofBank
Singapore
Centre,Centre,
Singapore048942Singapore048942Phone+65-6225-6543+65-6225-6543

Majorpartners
alliance partners
Major alliance

Joyo
Bank

Japan Trade
External
Trade Organization
Japan External
Organization(JETRO) (JETRO)Japan International
Cooperation
Agency (JICA)
Japan International
Cooperation
Agency (JICA)

Joyo
Ashikaga
Ashikaga
ofpartners
alliance partners
BusinessBusinessoverviewoverview
of alliance
Bank
Bank
Bank
of various
types of information
overseasdevelopment;
business development;
Provision ofProvisionvarious typesof information
concerningconcerning
overseas businessof information
foreigncountry regulations,etc.
provision ofprovision
information
concerningconcerning
foreign country
regulations,etc.
of various
types of information
overseasdevelopment
business development
in developing
Provision ofProvisionvarious typesof information
concerningconcerning
overseas businessin developing
nations;ofprovisionof information
foreigncountry regulations
nations; provision
information
concerningconcerning
foreign country
regulations

Japan
Bank for International
Cooperation
Japan Bankfor International
Cooperation(JBIC) (JBIC)

loans tosupportbusinessoverseasdevelopment
business development
Provision ofProvisionloans to of
supportoverseas

NipponExportand Investment
Nippon Export
andInvestment
InsuranceInsurance(NEXI) (NEXI)

of various
types
of trade toinsurance
to coverforeign transaction
riskstransactions
in export transactions
Provision ofProvisionvarious typesof tradeinsurancecover foreigntransaction
risks in export

for Small& Mediumand Regional
Innovation, JAPAN
Organization forOrganization
Small & Medium
Enterprises
andEnterprises
Regional Innovation,JAPANof various
types of information
overseasdevelopment;
business development;
Provision ofProvisionvarious typesof information
concerningconcerning
overseas businessof information
foreigncountry regulations,etc.
provision ofprovision
information
concerningconcerning
foreign country
regulations,etc.

Tokio&Marine
NichidoFire Insurance
Tokio Marine
Nichido&Fire
Insurance
Sompo
Japan Nipponkoa
Sompo Japan
Nipponkoa
InsuranceInsuranceof risk information
overseas;ofprovisionof risk management
Provision ofProvisionrisk information
overseas; provisionrisk management
consulting consulting
services; services;of various
types
of P&C insurance
provision ofprovisionvarious typesof P&C
insurance

Mitsui Sumitomo
Mitsui Sumitomo
InsuranceInsurance
SECOM SECOM
Sohgo Services
Security Services
Sohgo Security

11

Mebuki Financial Group, Inc.

security
and crime prevention
Provision ofProvision
security ofsystemandsystem
crime prevention
equipment equipment
overseas; overseas;
securityoverseas
services overseas
provision ofprovision
security ofservicesAshikaga Bank’s Bangkok Representative Office and Joyo Bank’s Hanoi Representative Office were established in November
2017 and February 2018, respectively.
The Group has demonstrated its collaborative creation capabilities through holding events such as the Japan-China BusinessMeeting in Liaoning Province, Joint Seminar and Business Meeting of Regional Banks in Shenzhen City, Guangdong Province,
Bangkok Business Meeting, as well as co-hosting Manufacturers’ Business Meetings in Hanoi and Bangkok.

enativetative
Ashikaga
Office,Office,Ashikaga
Bank Bank

Representative
Office,NewNew
YorkYork
Representative
Office,JoyoJoyo
BankBank
Address Address
712Avenue,
Fifth Avenue,
8th Floor
712 Fifth
8th Floor

Phone

NewNY
York,
NY 10019
New York,
10019
U. S. A.
U. S. A.
Phone
+1-347-686-8420+1-347-686-8420

Bangkok
Representative
Office,Ashikaga
Bangkok
Representative
Office,Ashikaga
BankBank
Address Address
689,Tower
Bhiraj Tower
at EmQuartier,689, Bhirajat EmQuartier,

Phone

Country/region
Country/regionthFloor,No.2714,
Room No.2714,
Sukhumvit
27th Floor,27Room
Sukhumvit
Road, Road,
Klongton-nua,Klongton-nua,
Wattana,Wattana,
BangkokBangkok
10110 10110
ThailandThailandPhone+66-2-261-2852+66-2-261-2852

Joyo
Majorpartners
alliance partners
Major allianceBank

East Asia

East Asia

Bank of
China (China)
Bank of China(China)
China

China
Bank of Communications
Bank of Communications(China) (China)

Joyo
Ashikaga
Ashikaga
Bank
Bank
Bank

ofpartners
alliance partners
BusinessBusinessoverviewoverview
of allianceof information
Provision Provisionof information
regardingregarding
China; China;
various services
financial including
services including
establishmentof accounts
provision provisionof variousoffinancial
establishmentof accounts

South East Asia/South Asia

South East Asia/South Asia

CTBCBank (Taiwan)(Taiwan)Taiwan Taiwan CTBC Bankof information
Provision Provisionof information
regardingregarding
Taiwan; Taiwan;
various services
financial including
services including
establishmentof accounts
provision provisionof variousoffinancial
establishmentof accounts

Bank
Kasikorn Kasikorn
Bank
Thailand Thailand
Bank
BangkokBangkok
Bankof information
Provision Provisionof information
regardingregarding
Thailand; Thailand;various services
financial including
services including
establishmentof accounts
provision provisionof variousoffinancial
establishmentof accounts

BankIndonesia
Negara Indonesia
Bank Negara
IndonesiaIndonesia
Bank
CIMB Niaga
Bank CIMB
Niaga

of information
Provision Provisionof information
regardingregarding
Indonesia;Indonesia;
various services
financial including
services including
establishmentof accounts
provision provisionof variousoffinancial
establishmentof accounts

Vietin Bank
Vietin Bank
Vietcombank
Vietnam VietnamVietcombank
Foreign Agency
Investment
Agency of Vietnam
Foreign Investmentof Vietnam
BDO Unibank
BDO Unibank
Philippines
Philippines
Metrobank
Metrobank
India

India

State
Bank of India
State Bankof India

Central America

Central America

BanamexBanamex
Mexico Mexico

Governmentof Aguascalientes,
Governmentof Aguascalientes,
Governmentof Jalisco, etc.
Governmentof Jalisco, etc.

of information
Provision Provisionof information
regardingregarding
Vietnam; Vietnam;
various services
financial including
services including
establishmentof accounts
provision provisionof variousoffinancial
establishmentof accounts
Cooperation
hosting seminars
relevant
to Vietnam;
various support
Cooperation
in hostinginseminars
relevant toVietnam;various support
for businessto Vietnam;of investment-related
information
for businessexpansionexpansion
to Vietnam;
provision provisionof investment-related
informationof information
Philippines;
Provision Provisionof information
regardingregarding
Philippines;
various services
financial including
services including
establishmentof accounts
provision provisionof variousoffinancial
establishmentof accounts
of information
India;
Provision Provisionof information
regardingregarding
India;
various services
financial including
services including
establishmentof accounts
provision provisionof variousoffinancial
establishmentof accounts
of information
Provision Provisionof information
regardingregarding
Mexico; Mexico;various services
financial including
services including
establishmentof accounts
provision provisionof variousoffinancial
establishmentof accountsof localinformation;market information;
Provision Provisionof local market
of investment-related
information
provision provisionof investment-related
information
regardingregarding
Mexico Mexico
Annual Report 201812

Developments since Establishment of
Mebuki Financial GroupWe continue to forge ahead in order to realize sustainable growth and higher corporate value of the Mebuki Financial Group.

OpenedOpened
Funabashi
Funabashi
Branch/Branch/
Funabashi
Funabashi
Loan Plaza.
Loan Plaza.

Establishment
Establishmentof Mebukiof Mebuki
Financial
Financial
GroupGroup

StrategyStrategy(2)(2)* March *2018:
MarchRelocated2018: Relocatedto new premises.
to new premises.

Expansion
Expansionof comprehensiveof comprehensive
financialfinancial
servicesservices

ReciprocatedReciprocated
ATM installation
ATM installation- Joyo Lease- JoyohadLease
its trade
had itsname
tradechanged
name changedtoto“Mebuki“Mebuki
Lease” andLease”
wasandturnedwasintoturneda into adirectly directly
and wholly-owned
and wholly-owned
subsidiarysubsidiaryof the of theCompany.
Company.
- Integrated- Integrated
the leasing
the leasing
operations
operations
within thewithin theGroup. Group.
- Expanded- Expandedbusinessbusiness
units in units
Tochigiin Prefecture
Tochigi Prefecture
to threeto(i.e.,three
Utsunomiya,(i.e., Utsunomiya,
Oyama andOyama andAshikaga).
Ashikaga).

October
October
20172017
JuneJune
20172017
AprilApril
20172017

October
October
20162016

13

Mebuki Financial Group, Inc.

- Mebuki- Mebuki
Securities
Securities
was turned
wasintoturneda into adirectly directly
and wholly-owned
and wholly-owned
subsidiarysubsidiaryofof
the Company.
the Company.
OpenedOpened
Utsunomiya
Utsunomiya
Branch.Branch.
- Joyo Securities
had itsname
trade name- Joyo Securities
had its trade
to “Mebuki
Securities.”changedchanged
to “Mebuki
Securities.”- Increased
the numberof Ashikaga- Increased
the numberof Ashikaga
Bank’s branches
which provide
Bank’s branches
which provide
intermediaryfinancialfinancial
product productintermediaryservicesservices
13 to 128.
from 13fromto 128.

StrategyStrategy(3)(3)

Expansion
Expansionof area andof areachannelsand channels

Achieved
Achieved
integration
integration
synergysynergy
in the in theamountamountof 4.8 billionof 4.8yen.
billion yen.
billion billion¥4.8¥4.8¥2.7 billion¥2.7 billion

OpenedOpened
Tokorozawa
Tokorozawa
Branch.Branch.

FutureFuturePlanPlan

FY2017FY2017plan plan
FY2017FY2017
result result

FY2021
FY2021January
January
20202020* May 2018:* MayRelocated2018: Relocatedto new premises.
to new premises.

March
March
20182018
January
January
20182018
December
December
20172017

Complete
Completesystemsystem
integration.
integration.
OpenedOpened
Bangkok
Bangkok
Representative
Representative
Office. Office.

OpenedOpened
Hanoi Representative
Hanoi Representative
Office. Office.

Aiming Aiming
to achieveto achieve
integration
integration
synergysynergy
in the amountin the amountofof
15 billion
15yen.
billion yen.

billion billion¥15¥15

Annual Report 201814

ESG Initiatives
Based on Mebuki Financial Group’s philosophy of “Together with local communities, we will continue to create a more prosperous
future by providing high-quality, comprehensive financial services,” officers and employees of the Group are working as one andmaking various efforts to realize sustainable local communities.

E nvironment
Mebuki Financial Group is engaged in initiatives to pass on the bountiful and beautiful environment to the future, with the aim ofmaintaining the natural environment in a healthy state, through the provision of comprehensive financial services.

1. Environment-related loans
Mebuki Financial Group is working to spread and develop renewable energy in the region through environment-related loans for power generation businesses thatutilize solar power, wind power, biomass and other formsof clean energy.
The Group also assists business operators who are
working to resolve environment-related issues by suchmeans as offering preferential lending rates for funds forequipment related to environmental conservation. (JoyoBank and Ashikaga Bank)
Ashikaga Bank supports companies engaged in environmentally-friendly initiatives by setting the fee for issuing private placement bonds of customers at a lower
level than general private placement bonds when corporate customers that have obtained certification, accreditation, etc. from institutions specified by the Bank issue
private placement bonds.

FY2017Loans for solar power
generation(Joyo Bank + Ashikaga Bank)

FY2017
Environmentallyfriendly private
placement bonds

Number ofcontracts

Contract amount377 cases ¥34.9 billion
Number ofissuesIssue amount51 cases ¥6.0 billion(Ashikaga Bank)

2. Relationship with Local Communities
Environmental conservation activities through trust
schemes, etc.
In 1992, we established an environmental conservation fund in
the form of a charitable trust called “Eco-Ibaraki,” and have
granted subsidies on an ongoing basis to organizations, etc. engaged in environmental conservation initiatives in Ibaraki Prefecture.
Subsidies are put to use for the development of flowerbeds,
biological environment, etc. at schools and other locations.
(Joyo Bank)

FY2017 subsidies¥9.62 million to 121 recipients
Cumulative total amount of subsidies granted
since establishment¥130 million to 1,178 recipients
15

Mebuki Financial Group, Inc.

17
20

Sustainable Finance Awards
Mebuki Financial Group wins
“Regional Finance Award”!

We received acclaim for having supported environmental conservation
activities in the region over many years and won the Award from the
Research Institute for Environmental Finance (RIEF).

S ocial
Mebuki Financial Group is seeking to achieve growth together with local communities through “social” initiatives that translate into prosperous regional development by enhancing comprehensive financial services and utilizing wide-area networks.
Strategy (1)1. Discovering regional industries and supporting the creation of new businesses

Combined ingenuity for regional
revitalization

Discovering regional industries through business plan contest
Joyo Bank and Ashikaga Bank jointly host the “Mebuki BusinessAward,” in which entries for innovative and creative business plans in
the region are invited and an award is presented to selected plans.
Support is provided in various ways to help make the award-winning plans take off as businesses, such as providing financial assistance by utilizing funds, in addition to making technical proposals andassisting in expanding sales channels. (Joyo Bank and Ashikaga
Bank)

Number of plan entries

637

Number of plans awarded

30 plans(Results of second award ceremony held)

Mebuki Regional Revitalization Fund

In addition to food, agricultural and tourism sectors, businesses
that contribute to regional development and winners of the
Mebuki Business Award are among those that are provided withsupport for creating new businesses and expanding businesses
through the Fund.
Amount of investment(cumulative total)¥1.65 billion/ 8 projects

Fund size: ¥4 billion

March 31, 2018

Strategy (1)2. Development of New Businesses and Expansion of Economic Exchange

Combined ingenuity for regional
revitalization

Business Matching by Taking Advantage of the Group’s Network
By making the most of Mebuki Financial Group’s wide-area network, JoyoBank and Ashikaga Bank jointly hold various business conferences related to agriculture, food and manufacturing to assist in business matching,etc. among clients. (Joyo Bank and Ashikaga Bank)
Outline of “Mebuki FG Manufacturing Business Forum”
480 cases
390 cases
2,000 visitors

2,200 visitors

Number of cases ofbusiness negotiations(based on reservationin advance)
Number of visitors

2017/2

2018/2(Forum year/month)

Overseas Business Matching
To assist in customers’ overseas business expansion, we hold seminars,
business conferences and networking events overseas, which are utilized
as an opportunity not only for local firms and exhibiting companies to engage in business negotiations with each other, but also for providing thelatest business information and for Japanese companies with a local
presence across different industries to exchange information with eachother. (Joyo Bank and Ashikaga Bank)
Overseas businessmatching cases(FY2017)155 cases(Joyo Bank + Ashikaga Bank)
Annual Report 201816

Strategy (1)Combined ingenuity for regional
revitalization

3. Initiatives to Support Sustainable Growth of Regional Economy(1) Innovation and Passing Down Technical Know-how
Business Succession Support

Along with the aging of management executives, an increasing number of companies are having business succession issues. At Mebuki
Financial Group, the respective head offices and branches of Joyo Bank and Ashikaga Bank as well as external specialized institutions, etc.
collaborate with each other to think through problems together with customers in order to facilitate business and asset succession, etc. andprovide them with assistance in various ways to resolve their issues. (Joyo Bank and Ashikaga Bank)- Establishment of a team dedicated to business succession, inheritance-related operations, etc. in the head offices- Development of a framework of collaboration among branches, head
offices and specialized institutions- Delivery of information through seminars, etc.
- Classes held on an ongoing basis to train next-generation management
executives, etc.
Number of business succession and
M&A proposal clients (FY2017)

3,766 (Joyo Bank + Ashikaga Bank)(2) Support for Development of Human Resources of the Region’s Future
Lessons on FinanceWe conduct lessons on finance to teach the importance ofmoney and the role of banks to the next generation. (JoyoBank and Ashikaga Bank)
Number of lessons
conducted

90

Number of participants

Approx.

2,800 participants(FY2017: Joyo Bank + Ashikaga Bank)(3) Support for Prosperous and Dynamic Regional Development and Safe & Secure Urban Development
Contribution to Local Communities through Financial Services
We help community-loving customers who want to do something for the future of children and local communities fulfill their wish. By making
good use of a part of the commissions on private placement bonds issued by customers, we have contributed books, sporting goods, welfare
equipment and other items to schools, etc. of customers’ choice Joyo Bank andAshikaga Bank have donated a combined total of more than 40 million yen to date.
(Joyo Bank and Ashikaga Bank)By utilizing a similar scheme, we have also donated items to be used at the Iki Iki
Ibaraki Yume Kokutai/Taikai (“Active Ibaraki Dream National Sports Festival”) scheduled to be held in September 2019. (Joyo Bank)
Private placement bonds with donation scheme (Cumulative total)
Number of issues

Amount issued

310¥27.6 billion(March 31, 2018: Joyo Bank + Ashikaga Bank)

Support for Regional Revitalization through Sports
We support regional revitalization through the promotion of sports. Both JoyoBank and Ashikaga Bank sponsor local sports clubs, etc. and support theactivities of teams together with local community members. (Joyo Bank andAshikaga Bank)
17

Mebuki Financial Group, Inc.

Regional Contribution Initiatives by Employees
Our employees are engaged in the “Eco-cap Campaign,” in which the proceeds from the collection/sale of PET bottle caps are donated to purchasevaccines for children in developing countries. This has not only helped reducethe volume of waste but also contributed to the reduction of CO2 emission.
(Joyo Bank)

Reduction in CO2emission

Cumulative total numberof caps collected

737,910

Approx.

5,490 kg(CO2 emission generated if collected
caps had been incinerated as waste)
Strategy (4)(4) Provision of Services Utilizing Digital Technology

Innovative operations

We are striving to develop innovative services that leverage IT functions in an effort to improve convenience for customers. We are also
promoting digitization to alleviate the administrative burden and reduce the costs of the Group, and utilize the staff and time freed up thereby to enhance the sales force. (Joyo Bank and Ashikaga Bank)
Provision of smartphone app

Utilization of video phone
Total number of downloads(March 31, 2018)

Approx. 65,000(Joyo Bank + Ashikaga Bank)

Improved customer convenience and service
Smartphone app- Customers can check balance and deposits/withdrawals
wherever they are at any time
Video phone- Customers can get expert advice
Over-the-counter reception navigation system- Reduces troublesome tasks for customers- Shortens waiting time

Higher productivity in Mebuki Financial Group- More time to respond to customers’ inquiries- Reduces cost through operation of branches with fewer staff- Reassignment of freed-up staff to growth areas

Introduction of an over-the-counterreception navigation system(1) No need to fill in forms, etc.
(2) No need to affix seal
(3) Shortens customers’ waiting time

Processing time(in the case of procedures for changing address)

18 minutes

6 minutes(12 minute reduction)(5) Enhancement of Capabilities of Human Resources
Promotion of Active Participation of Women
We are proactively promoting motivated and competent women employees tomanagerial positions. We also hold workshops for Joyo Bank and Ashikaga Bank
jointly to train women leaders.
Percentage of women in managerial positions(assistant manager and higher)
23.9%
2016

25.3%

2017

26.7%

2018

(Joyo Bank + Ashikaga Bank)

Mebuki women’s class
Annual Report 201818

Strategy (5)G overnance

Development of the new group’s business management structure

The Company takes the initiative in formulating the Group’s management policies and strategies and realizing collaboration within the Group
with the aim of maximizing the effects of integration. It is also the role of the Company to increase corporate value of the Group as a wholethrough corporate management of Group companies.
In terms of institutional design, the Company takes the form of a company with an audit and supervisory committee, and thereby seeks to realize
prompt and decisive decision-making and business execution by entrusting many of the decision-making authorities relevant to business execution
to directors as constituent members of the Board of Directors in which the knowledge and expertise of Joyo Bank and Ashikaga Bank are concentrated, while ensuring a transparent and fair decision-making function and a solid audit and supervisory function through the appointment of multiple outside directors.
In addition to appointing multiple outside directors at subsidiary banks that are in charge of executing key strategies, we have established the Corporate Governance Committee consisting primarily of outside directors of the Company and its subsidiary banks, as an advisory body to the Boardof Directors. The Corporate Governance Committee nominates candidates for directors, deliberates compensation for officers, evaluates governanceof the Group and makes other such efforts to improve the effectiveness of governance. We have also organized an executive session comprised exclusively of outside directors of the Company and its subsidiary banks, providing the framework for outside directors to exchange information andshare views with each other and proactively absorb diverse opinions.
The Company engages in management guidance, management and supervision of directly and wholly-owned subsidiaries, and through suchdirectly and wholly-owned subsidiaries, executes corporate management of other subsidiaries. Appropriate corporate management and governance is thereby ensured on a Group-wide scale.
Joyo Bank and Ashikaga Bank serve as the frontier for expanding business based on the Group’s management policies and strategies and translating the integration effects into revitalization and promotion of the regional economy, while not only maintaining and demonstrating their uniqueproperties for deepening the relationship with local communities they have built but also collaborating closely as a group.
In terms of institutional design, subsidiary banks are similar to the Company in that they take the form of a company with an audit and supervisorycommittee. Multiple outside directors with expertise and extensive knowledge of regional circumstances are appointed in the subsidiary banks aswell (three outside directors at each subsidiary bank).
Corporate management of subsidiaries that are not directly owned by the Company is executed by the subsidiary bank that directly owns such subsidiaries; the Company properly manages their status to ensure appropriate and efficient corporate management and highly effective governancewithin the Group as a whole.

[Corporate Governance Structure of the Group] (As of June 27, 2018)
General Meeting of Shareholders
Appoint/Dismiss

Appoint/Dismiss(3 Outside Directors, 1 Outside Director eachfrom Joyo Bank and Ashikaga Bank,
2 Representative Directors)

Board of Directors(12 Directors including
3 Outside Directors)

Cooperate

Management
Meeting

ALM/Risk Management
Committee

Compliance
Committee

System Integration
Committee

Group Strategy Committee
Corporate Management
Department

Directly-owned
subsidiaries

Appoint/Dismiss

Audit

Cooperate
Audit

Internal Audit Section(Audit Department)

Regional Revitalization
Department

Guide/Manage/Supervise

indirectly-owned
subsidiaries(5 Audit and Supervisory Committee
Members including 3 Outside Members)

Audit and Supervisory
Committee Office

Corporate Planning
Department

19

Audit and Supervisory Committee

Accounting Auditors

Mebuki Financial Group, Inc.

Corporate Governance Committee Consult/Report

Audit

Report/Request consultation

Audit

The Joyo Bank, Ltd.

The Ashikaga Bank, Ltd. Mebuki Lease Co., Ltd.

(Company with Audit andSupervisory Committee)
Guide/Manage/Supervise(Company with Audit andSupervisory Committee)
Guide/Manage/Supervise

Report/Request consultation

7 subsidiaries

Mebuki Financial Group, Inc.

Report/Request consultation

3 subsidiaries(Company with Auditors)

Mebuki Securities Co., Ltd.
(Company with Auditors)

Details of the Company’s organizations<Board of Directors>
The Board of Directors consists of 12 directors (of which three are outside directors). It decides basic corporate
policies and important business matters and supervises the execution of duties by directors. We aim torealize prompt and decisive decision-making and business execution by entrusting most decision-making
authorities relevant to business execution to directors as constituent members of the Board of Directors in which
our Group’s knowledge and expertise are concentrated, while ensuring the transparent and fair decision-making
function and the solid audit and supervisory function through the appointment of multiple outside directors suchas lawyers and academic experts. The Board of Directors meets once a month in principle.
<Audit and Supervisory Committee>
The Audit and Supervisory Committee, which consists of five directors (of which three are outside directors) who
are Audit and Supervisory Committee Members, audits the execution of duties by directors and determines thedetails of proposals related to the appointment, dismissal, and non-reappointment of the accounting auditors tobe submitted to the General Meeting of Shareholders. The Audit and Supervisory Committee meets once amonth in principle.
<Corporate Governance Committee>
We have established the Corporate Governance Committee as an advisory body to the Board of Directors toenhance the effectiveness of corporate governance for sustainable growth and the medium to long termenhancement of corporate value of the Group. The Corporate Governance Committee, composed by a majorityof outside directors (including outside directors of wholly-owned banks), deliberates matters regarding nomination of director candidates and compensation for directors, and reports back to the Board of Directors.
<Decision-making bodies>
We have established the Management Meeting, the ALM/Risk Management Committee, the Compliance Committee and the System Integration Committee as the bodies to discuss and decide important matters regarding
business execution based on the decisions made by the Board of Directors.
○Management Meeting
The Management Meeting, which consists of all executive directors, is responsible for making decisions on business execution to the extent of the authorities delegated by the Board of Directors, as well as discussion on
important matters regarding business execution. The Management Meeting is held once a month and additionally as necessary.
○ALM/Risk Management Committee
The ALM/Risk Management Committee, which consists of all executive directors, the general manager of the
Corporate Planning Department, the general manager of the Corporate Management Department and the general manager of the Basel Unit of the Corporate Management Department, is responsible for making decisions
on business execution relevant to group risk management and ALM to the extent of the authorities delegated by
the Board of Directors and for considering and discussing important matters on business execution. The ALM/
Risk Management Committee meets once a month and additionally as necessary.
○Compliance Committee
The Compliance Committee, consisting of all executive directors, the general manager of the Corporate Planning Department, the general manager of the Corporate Management Department and the general manager ofAudit Department, is responsible for making decisions on business execution regarding compliance to the extent
of the authorities delegated by the Board of Directors, and considering and discussing important matters relevant to practice of compliance. The Compliance Committee holds a meeting quarterly and additionally as necessary.
○System Integration Committee
The System Integration Committee, which consists of all executive directors, manages and supervises projects
as a whole and makes business execution decisions within the scope of authority delegated by the Board of Directors based on the system integration project plan decided by the Board of Directors, in addition to examining
and discussing important matters regarding business execution. Meetings of the System Integration Committee
are convened once a month, and whenever necessary.
Annual Report 201820

Risk Management System
The Group aims to enhance the risk management system by positioning it as an important management task
from the perspective of the maintenance and improvement of sound corporate management.
Risk management system
The Group undertakes its risk management based on the Basic Rules on Group
Risk Management determined by the Board of Directors of the Company.
In order to perform the matters set forth in the Basic Rules on Group
Risk Management, the Company has established the ALM/Risk Management
Committee, which makes decisions on important business execution regarding the Group’s risk management and performs analysis, assessment andimprovement of the matters relevant to the risk management of the overall
Group. The said committee ensures corporate management emphasizing therisk and return relationship through consideration and discussion focused on
Mebuki Financial Group, Inc.

closer coordination between risk management and profit management while
controlling risks appropriately, and facilitates prompt and efficientdecision-making by management.
Furthermore, we have organized the integrated risk management section
responsible for the supervision and integrated management of various risks,
and at the same time, established the framework under which the audit section independent from business execution sections performs internal auditing
and validates the appropriateness and effectiveness of the respective risk
management status.

Board of Directors

Validate appropriatenessand effectiveness ofrisk management system

Audit and Supervisory Committee

Internal audit section (Audit Department)

Decide on important business execution

ALM/Risk Management Committee Analysis, assessment and deliberation on matters for improvement
Integrated risk management section Capturing, measurement, assessment, and reporting

Audit(Corporate Management Department) of risk as a group
Type of risk

Strategic Risk

Credit Risk

Market Risk

Liquidity Risk

Operational Risk
Corporate Management Department/
Corporate Planning Department

Corporate Management Department

Instruct (establishment of risk management system) Mebuki Financial Group’s Audit Division

conducts internal audits as well as audits ofcompanies within the Group.

Report/Consult (risk status, response policies)

The Ashikaga Bank, Ltd.

Mebuki Lease Co., Ltd.

Board of Directors

Important meeting bodies for risk management<Ashikaga Bank><Joyo Bank>(1) Management Meeting(1) ALM Committee(2) Risk Management (2) ALM Meeting(3) Credit Portfolio Meeting
Committee

Mebuki Securities Co., Ltd.

Board ofDirectors

Audit and Supervisory Committee

Integrated risk
management section

Integrated risk management section(Corporate Management Department)

Type of risk

Strategic Risk

Audit
Type of risk

Credit Risk

Market Risk

Liquidity Risk

Operational Risk

Sections in charge of respective risk categories

Strategic Risk, Credit Risk,
Market Risk, Liquidity Risk,
Operational Risk

Branches, head offices and group companies

Sections in charge of respective risk categories

Integrated risk management
The Group undertakes “integrated risk management” which quantitatively
measures various types of risk including credit risk and market risk, using
statistical methods, such as VaR (value at risk), in order to individually manage increasingly diversified and complicated types of risk relevant to financial
services, and at the same time, to comprehensively capture said risks. We
aim at maintaining an appropriate level of our capital reserves by comparing
and contrasting the total amount of risk with our financial soundness (ourcapital reserves).
Specifically, we allocate capital to each type of risk (credit risk, interest
rate risk, price fluctuation risk and operational risk) in advance to the extent
of our capital reserves and monitor whether the amount of each risk quantified (risk capital used) stays within the extent of allocated capital. Upon the
allocation of capital, we secure a risk buffer to cover losses larger than those
expected in the statistical methods or risks unable to be captured by the statistical methods. We confirm the sufficiency of our capital reserves, including
the capital to cover the aforementioned risks, by performing stress tests bywhich we capture the impact on our capital reserves under assumed scenarios such as a sudden economic downturn. Furthermore, we confirm the reasonableness and effectiveness of the statistical methods through back tests
in which the risk amount calculated by VaR (value at risk) is compared withactual profit or loss.

21

Corporate Auditors

Mebuki Financial Group, Inc.

Audit

Internal audit section

The Joyo Bank, Ltd.

Credit risk management
Credit risk refers to the risk of incurring losses as a result of customers becoming unable to pay the principal and interest of loans as promised primarily due to the deterioration of their financial conditions.
Recognizing credit risk as a material risk in our business operations, theGroup aims to enhance the management system to prevent the emergenceof new non-performing loans and to improve asset soundness.
Credit risk management system
The Group has established the Group Guidelines for Credit Risk Management,
which set forth, as our basic policy of credit risk management, the appropriate management of credit risk on individual loans and the management of
the credit portfolio focusing on risk diversification.
The section in charge of credit risk management, which is organizationally and functionally independent from the business promotion sections, is
responsible for the planning and operational management of the internal
credit rating system, self-assessment systems, write-offs and provisions to
the reserve for loan losses, as well as for the monitoring of loan assets as the
specialized organization for the comprehensive supervision and managementof the credit portfolio.
Management of credit risk on individual loans
We separate the credit-screening sections of companies within the Group
from the business promotion sections to ensure strict screening while also

focusing on credit management during repayment to prevent the status of aclaim from deteriorating.
Internal credit ratings
We categorize our customers into 12-grade rating levels by adding qualitative
assessment to the data on their financial condition and cash flow status. In
addition to serving as the basis for self-assessment systems, internal credit
ratings are used across the full range of credit risk management, including
the capturing of credit risk exposure, the setting of lending rates and the allocation of lending authority.
Self-assessment systems
Companies within the Group strictly implement self-assessment systems
based on common standards and provide appropriate reserves or write down
problem loans based on such assessment. In addition, the reasonableness ofsuch assessment is validated and audited by the sections in charge of validation and auditing, respectively, and is also subject to external audits by accounting auditors.
Quantification of credit risk
The quantification of credit risk refers to the statistical forecasting of future
losses (amount of credit risk) that can be expected due to bankruptcies or thedeterioration of financial conditions of customers. The Group calculates theamount of credit risk for each customer based on “internal credit ratings”
with collateral and other factors taken into account.
Credit portfolio management
We capture loan assets in their entirety as a single portfolio and conductcredit risk management from a macro perspective. Based on the quantification of credit risk, we carry out periodic monitoring such as whether the credit risk is concentrated in specific sectors or corporate groups, and analysis
and evaluation of credit situations by rating and region, or based on composition by industry.

Market risk management
Market risk refers to the risk of incurring losses due to changes in the valueof financial assets and liabilities of the Group caused by fluctuation in interest
rates, foreign exchange rates, and stock prices.
Our subsidiaries are engaged in investment activities based on theirunderstanding of risk supported by sufficient advance research and analysis
of market transactions.
For the appropriate control of market risk, we also perform and report to the
ALM/Risk Management Committee of the Company held periodically the quantitative management and measurement under the ALM (asset and liability management) framework to take action according to the situation.

Liquidity risk management
Liquidity risk refers to the risk of incurring losses primarily due to difficulty insecuring necessary funds caused by an unexpected outflow of funds orsimilar events, or a sharp rise in funding costs.
The Group has established the Group Liquidity Risk Management Rules
to set up the framework under which action plans according to respective
situations ranging from a normal state to urgent cases are defined to promptly respond thereto.
Specifically, under cash flow management in a normal situation, wemanage indicators such as the trend of deposit/loan balances and funding
limits in addition to primary indicators (funding gap and liquid asset balance)
to avoid an increase of liquidity risk. Furthermore, we define and performperiodical drills for action plans upon a liquidity crisis to enhance theeffectiveness in a crisis.

Operational risk management
Operational risk refers to the risk of incurring losses caused by inappropriateness in the Group’s business processes, activities of directors and employees
or system operations, or by external events. The Group classifies and manages such risk according to the following six categories: administrative risk,
system risk, compliance (legal) risk, personnel management risk, tangible
asset risk, and reputational risk.
Furthermore, the Group designates the sections responsible for each of
the aforementioned six categories, and also has the comprehensive risk
management section manage overall operational risk.
Administrative risk
Administrative risk refers to the risk of incurring losses due to directors, employees or external contractors neglecting precise administration, causing incidents, or committing acts of fraud.
In the Group, the sections responsible for administrative risk and thecomprehensive risk management section responsible for operational risk
gather information on and analyze the causes of administrative incidents
occurring inside or outside the Group to establish or revise administrative
rules or enhance the efficiency of administrative processes through the information system based on the results of such analysis. In addition, the Group
has the internal audit section validate the effectiveness of the risk management system to establish the framework to detect or prevent administrative
incidents.
System risk
System risk is the risk of incurring losses primarily due to the failure ofcomputer systems, erroneous computer operation, or inappropriate computeruse.
The Group has taken necessary measures to ensure the safety and reliability of computer systems including failure response exercises aiming toestablish the framework for early recovery from system failure, in addition to
sufficient advance testing upon the development or operation of systems, thecontinuous monitoring of operational status and duplexing facilities.
Compliance (legal) risk, personnel management risk, tangible asset risk
and reputational risk
We also identify and assess risk through methods in line with risk characteristics and take appropriate actions for: compliance (legal) risk, the risk of incurring losses mainly due to an illegal act committed by directors andemployees; personnel management risk, the risk of incurring losses mainly
due to an act in violation of laws, regulations or agreements relevant to employment, health or safety; tangible asset risk, the risk of incurring losses due
to damage to tangible assets caused by disasters or defective managementof buildings; and reputational risk, the risk of incurring losses due to the deterioration of credit worthiness mainly attributable to reputational damage
caused by inappropriate actions taken by the Group or the circulation of
unfounded rumors.

Crisis management and business continuity management
We have established the framework for the continuity or early recovery of important business operations including the repayment of deposits, fund transfer and remittance upon facing a crisis such as a natural disaster, system
failure or pandemic, as well as limiting human and physical damage to theminimum extent possible.
Upon the occurrence of a crisis, we will establish emergency response
headquarters at the Company and directly-owned subsidiaries to respondto such emergencies in cooperation with each other. Furthermore, we continuously perform crisis management exercises and review the business
continuity plan to enhance the effectiveness thereof upon facing a crisis.

Annual Report 201822

Initiatives for Compliance
Mebuki Financial Group

Board of Directors

Audit and Supervisory Committee

Compliance Committee

Corporate Planning Department

Corporate Management Department

Regional Revitalization Department

Audit Department

Guide/Manage/Supervise
Consult/Report

The Joyo Bank, Ltd.

The Ashikaga Bank, Ltd.

Board of Directors

Managing sections<Joyo Bank>
Corporate Risk Management Division<Ashikaga Bank>
Compliance Management Division
Supervise
Head Office and branches
Officer and staff in change ofmanagement and compliance

Audit and Supervisory Committee

Mebuki Lease Co., Ltd.

Mebuki Securities Co., Ltd.

Board ofDirectors

Corporate Auditors

Key bodies in compliance<Joyo Bank>
Compliance Committee<Ashikaga Bank>
Compliance Meeting

Key bodies in compliance<Mebuki Lease/Mebuki Securities>
Compliance Committee

Group company management<Joyo Bank>
Corporate Planning Division<Ashikaga Bank>Management Planning Division

Managing section<Mebuki Lease>
General Affairs
Division<Mebuki Securities>
Administrative
Compliance
Division

SuperviseGroup companies

Supervise
Head Office and business units/branches
Officer and staff in change ofmanagement and compliance

The Company has established a management system aimed at group-wide comprehensive management
which enables the Group to perform business operations under the appropriate compliance framework.
We aim to enhance the compliance framework by positioning compliance as one of the most material
management tasks.
Organization and structure
We have established the Basic Rules on Group Compliance as the Group’s highest standards for compliance, andthereunder, other relevant rules and regulations systematically.
The Compliance Committee established within the Company is responsible for decisions on compliance-related
important business execution of the Company and the Group, and for analysis, assessment and deliberation onmatters for improvement relevant to group-wide compliance.
Furthermore, we put compliance into practice through, among other factors, the establishment of the Legaland Compliance Group of the Corporate Management Department as the managing and supervising section in
charge of group-wide compliance, the designation of the officer responsible for the Corporate Management Department, and the assignment of compliance staff at each management organization within the Group. Importantmatters regarding compliance at directly-owned subsidiaries are consulted on and reported to the Corporate Management Department, which is responsible for the guidance, management and supervision thereof, pursuant to
the Rules for Management of Companies within the Group.
Compliance program
The Group establishes a compliance program as the action plan to realize compliance. The companies within theGroup establish a program based on the Basic Policy on Group Compliance Program developed annually by theCompany.
The status of the compliance program performed by companies within the Group is reported to and validated
by the Compliance Committee quarterly, and is also subject to the annual overall assessment which is reflected in
the next year’s program.
23

Mebuki Financial Group, Inc.

In addition, the Company established the FY2018 Group’s Basic Policy for Anti-Money Laundering, etc. in accordance with the “Guidelines for Anti-Money Laundering and Combating the Financing of Terrorism” published by
the Financial Services Agency in February 2018, and has decided to build and maintain a risk management systemagainst money laundering and financing of terrorism by taking a risk-based approach.
Severing connections with antisocial forces
The Group has established the basic policy against antisocial forces to stand firmly against and sever any connections with antisocial forces which threaten the order and safety of civil society and hinder sound economic andsocial development.

Regarding severing connections with antisocial forces
Mebuki Financial Group, Inc. and its group companies will take the following initiatives to sever all connections with
antisocial forces.
1. We will respond to antisocial forces as an organization with a strong recognition of our social responsibility.
2. We will maintain close relationships with the police, the Center for Removal of Criminal Organizations and external
expert organizations including lawyers.
3. We will sever all connections with antisocial forces, including any transactions therewith.
4. We will decisively reject any and all unreasonable demands from antisocial forces and take legal action from both
civil and criminal perspectives.
5. We will never provide any funding or benefits to antisocial forces.

Management system for customer protection (initiatives for customer protection)
The Group has established the Group Management Policy for Customer Protection to organize and ensure theappropriate management system for customer protection from the perspective of the protection and improvementof convenience for all existing and future customers of the Group, as well as for facilitating finance.
Joyo Bank and Ashikaga Bank have established a supervising section in charge of consultation, complaints
and other communication from customers, and have also entered into a basic contract for the implementation of
dispute resolution procedures with the Japanese Bankers Association, the designated dispute resolution organization under the Banking Act, to utilize the financial ADR system for dispute resolution with customers through the
involvement of a third party.
Joyo Bank, which concurrently operates a trust business, has also entered into a basic contract for the
implementation of dispute resolution procedures with the Trust Companies Association of Japan, the designateddispute resolution organization under the Trust Business Act and the Act on Engagement in Trust Business Activities by Financial Institutions.

Annual Report 201824

List of Directors (as of June 27, 2018)[Directors (excluding Directors who are Audit and Supervisory Committee Members)]

President and Director
Ritsuo Sasajima

Executive Vice President and Director
Masanao Matsushita

Director
Kazuyoshi Terakado

Director
Yutaka Horie
In charge of Corporate Management, Risk
Management and Information Security

25

Director
Eiji Murashima

Director
Kazuyuki Shimizu

Director
Tetsuya Akino

In charge of Corporate Management

In charge of Regional Revitalization

In charge of Corporate Planning[Directors (excluding Directors who are Audit and Supervisory Committee Members)]
Chairman and Director
Kazuyoshi Terakado
President and Director
Ritsuo Sasajima
In charge of Risk Management andSenior Managing Director
Eiji Murashima
Corporate Management
Senior Managing Director
Director-General of Business Headquarters Masaru Seki
In charge of Markets Administration andManaging Director
Jun Kawauchi
International
Vice Director-General of Business
Managing Director
Hidebumi Nishino
Headquarters
Managing Director
In charge of Examination and Screening
Hitoshi Takenouchi
In charge of Corporate Management andManaging Director
Tetsuya Akino
Group Companies
In charge of Administrative Systems andManaging Director
Yuji Gorai
Information Security
Director (part time)
Eisuke Suzuki[Directors (excluding Directors who are Audit and Supervisory Committee Members)]
Chairman and Director
Satoshi Fujisawa
President and Director
Masanao Matsushita
In charge of Corporate Planning Section andSenior Managing Director
Yutaka Horie
Administrative Systems Section
Senior Managing Director
Director-General of Business Headquarters Kazuyuki Shimizu
Managing Director
Corporate Management Section
Keizo Shinozaki
Managing Director
Markets Section
Eisuke Suzuki
Vice Director-General of Business
Managing Director
Hiroo Shimada
Headquarters
Managing Director
Credit Supervision Section
Mitsugu Hoshino
Director (part time)
Kiyoshi Nozaki[Directors who are Audit and Supervisory Committee Members]
Director (Audit and Supervisory Committee Member/full time)
Takao Shimizu
Director (Audit and Supervisory Committee Member/full time)
Yoshihiko Yoshihara
Outside Director (Audit and Supervisory Committee Member)
Toshio Mizushima
Outside Director (Audit and Supervisory Committee Member)
Kinichi Suzuki
Outside Director (Audit and Supervisory Committee Member)
Satoru Kawamata[Directors who are Audit and Supervisory Committee Members]
Director (Audit and Supervisory Committee Member/full time)
Akihiko Kuwako
Outside Director (Audit and Supervisory Committee Member/full time)
Shoji Fukui
Outside Director (Audit and Supervisory Committee Member)
Yoshio Kohra
Outside Director (Audit and Supervisory Committee Member)
Junichi Sato

Mebuki Financial Group, Inc.

[Directors who are Audit and Supervisory Committee Members]

Director
Yoshiaki Terakado

Outside Director
Ryuzaburo Kikuchi

President and Director
Senior Managing Director
Senior Managing Director
Managing Director
Managing Director

Mikio Kawamata
Hiroshige Sonobe
Sadaaki Kuno
Masataka Komata
Kazuhiko Hiyama
Yoshiaki Kosugi

Chairman and Director

Hiroshi Matsumoto
Kunihiro Ono

Corporate Auditor[Corporate Auditors]
Corporate Auditor
Corporate Auditor (part time)

Outside Director
Toru Nagasawa

Outside Director
Takashi Shimizu[Directors][Directors]
Chairman and Director

Director
Kunihiro Ono

President and Director
Senior Managing Director
Senior Managing Director
Director
Director

Toru Hakata
Atsuyuki Kurosawa
Hiroshi Mori
Hirobumi Fujita
Fumio Shimane
Hiroo Sugaya[Corporate Auditors]
Corporate Auditor (part time)

Shuichi Ishii
Yoshiaki Terakado

Annual Report 201826

Organization (as of June 27, 2018)(holding company)

General Meeting of Shareholders
Accounting Auditors
Corporate GovernanceCommittee

Management Meeting

Cooperate

Board of Directors
Audit and Supervisory Committee

Consult/
Report

ALM/Risk Management Committee

Audit and Supervisory Committee OfficeCompliance Committee

System Integration Committee

Group Strategy Committee(Business plan)(Corporate management)(Regional revitalization)(Audit)Corporate Planning Department

Corporate Management Department

Regional Revitalization Department

Audit Department

Planning Group
System Integration Promotion GroupAccounting Group
Executive Secretariat GroupTokyo OfficePublic Relations Office

Risk Management Group
Compliance and Legal Group
Personnel Group
General Affairs Group
Basel Unit

Regional Revitalization Group

Oversight GroupOperational Audit Group

directly-owned subsidiary

Company with Audit and Supervisory Committee

Company with Audit and Supervisory Committee

Company with Auditors

Company with Auditors

Stock Information (As of March 31, 2018)
Capital and number of issued shares
Paid in capital

117,495,550,000 yen

Number of issued shares

1,179,055,218 sharesof which, common stock

1,179,055,218 shares

Major shareholders
Mebuki Financial Group, Inc.
Name

Nomura Financial Partners Co., Ltd.
Japan Trustee Services Bank, Ltd. (trust account)Sompo Japan Nipponkoa Insurance Inc.
The Master Trust Bank of Japan, Ltd. (trust account)
Nippon Life Insurance Company
Japan Trustee Services Bank, Ltd. (trust account 9)
State Street Bank And Trust Company 505223
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Sumitomo Life Insurance Company
The Dai-ichi Life Insurance Company, Limited
Total

27

Mebuki Financial Group, Inc.

Joyo Bank
Number of Shareholding ratio toshares held the total number of(thousand shares) issued shares (%)

122,900
47,81840,11837,982
34,487
27,336
26,58522,22521,65919,948401,063

10.43
4.05
3.40
3.22
2.92
2.32
2.25
1.88
1.83
1.69
34.04

Name

Mebuki Financial Group, Inc.

Number of Shareholding ratio toshares held the total number of(thousand shares) issued shares (%)

722,910100.00Ashikaga Bank
Name

Mebuki Financial Group, Inc.

Number of Shareholding ratio toshares held the total number of(thousand shares) issued shares (%)

1,340,520

100.00Financial Data

Consolidated Balance Sheet
March 31, 2018

Mebuki Financial Group, Inc. and Consolidated Subsidiaries

Millions of Yen
2018
2017

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

ASSETSCash and due from banks (Notes 3 and 22)�������������������������������������������������������������� ¥ 1,708,734
Call loans and bills bought (Note 22)������������������������������������������������������������������������
14,636
Monetary claims bought (Note 22)���������������������������������������������������������������������������
15,388
Trading assets (Notes 4 and 22)������������������������������������������������������������������������������
12,539Securities (Notes 4, 9, 10, 22, and 26)��������������������������������������������������������������������
4,176,768
Loans and bills discounted (Notes 6, 10, 22, and 26)����������������������������������������������� 10,497,976
Foreign exchanges (Note 6)�������������������������������������������������������������������������������������
6,416
Lease receivables and investments in lease (Notes 10 and 21)����������������������������������
56,620
Other assets (Notes 10 and 23)�������������������������������������������������������������������������������
187,737
Tangible fixed assets (Note 7)����������������������������������������������������������������������������������
115,146
Intangible fixed assets (Note 8)��������������������������������������������������������������������������������
14,801
Asset for retirement benefits (Note 13)���������������������������������������������������������������������
15,428Deferred tax assets (Note 20)����������������������������������������������������������������������������������
2,119
Customers’ liabilities for acceptances and guarantees (Note 9)����������������������������������
24,902
Allowance for loan losses����������������������������������������������������������������������������������������
(79,324)
Allowance for investment losses������������������������������������������������������������������������������
(9)
TOTAL�������������������������������������������������������������������������������������������������������������� ¥16,769,883¥ 1,393,762
5,160
15,952
7,226
4,190,681
10,244,730
7,222
48,366120,249
117,732
12,414
12,275
1,609
25,916(78,840)(9)¥16,124,452$ 16,079,180
137,728
144,805
117,997
39,303,363
98,785,892
60,376532,801
1,766,610
1,083,523
139,283
145,181
19,949234,330(746,444)(85)$157,804,490

LIABILITIES AND EQUITY
LIABILITIES:
Deposits (Notes 10 and 22)������������������������������������������������������������������������������������� ¥13,977,912
Negotiable certificates of deposit (Note 22)���������������������������������������������������������������
272,640
Call money and bills sold (Notes 10 and 22)�������������������������������������������������������������
340,540
Payables under repurchase agreements (Notes 10)��������������������������������������������������
26,314
Payables under securities lending transactions (Notes 10 and 22)�����������������������������
158,149504
Trading liabilities�����������������������������������������������������������������������������������������������������
Borrowed money (Notes 10, 11, and 22)������������������������������������������������������������������
877,856
708
Foreign exchanges��������������������������������������������������������������������������������������������������
Bonds (Note 12)�����������������������������������������������������������������������������������������������������
5,000
Bonds with warrants (Note 12)���������������������������������������������������������������������������������
31,881
Due to trust account�����������������������������������������������������������������������������������������������
11
Other liabilities �������������������������������������������������������������������������������������������������������
114,060
129
Provision for directors’ bonuses ������������������������������������������������������������������������������
Liability for retirement benefits (Note 13)������������������������������������������������������������������
6,014
Provision for directors’ retirement benefits���������������������������������������������������������������
63
Provision for reimbursement of deposits�������������������������������������������������������������������
3,781
Provision for contingent losses��������������������������������������������������������������������������������
1,603
294
Provision for point card certificates��������������������������������������������������������������������������
Provision for losses on interest repayments��������������������������������������������������������������
13
Reserves under special laws������������������������������������������������������������������������������������
2
Deferred tax liabilities (Note 20)�������������������������������������������������������������������������������
28,789Deferred tax liabilities for land revaluation (Note 7)����������������������������������������������������
9,226
Negative goodwill����������������������������������������������������������������������������������������������������
1,343
Acceptances and guarantees (Note 9)����������������������������������������������������������������������
24,902
Total liabilities��������������������������������������������������������������������������������������������������� 15,881,743¥13,507,047
284,705
303,312—167,640
511
735,593757
5,000
33,657
13
140,446
111
8,896
51
3,480
1,548
294
12
2
31,4109,454
1,501
25,916
15,261,366$131,532,068
2,565,543
3,204,487
247,619
1,488,184
4,750
8,260,623
6,670
47,050300,000
112
1,073,304
1,218
56,594594
35,58815,0852,769
125
19
270,91286,817
12,640234,330
149,447,101

117,495
148,490193
461,631(6)

1,105,632
1,397,774
2,038
4,608,048(82)

128,545(674)
12,844(5,433)
135,282
863,086¥16,124,452

1,136,048(529)
133,458(24,997)
1,243,979
8,357,389$157,804,490

EQUITY (Notes 14 and 15):
Common stock�������������������������������������������������������������������������������������������������������
117,495
Capital surplus�������������������������������������������������������������������������������������������������������
148,541
Stock acquisition rights�������������������������������������������������������������������������������������������
216
Retained earnings���������������������������������������������������������������������������������������������������
489,697
Treasury stock��������������������������������������������������������������������������������������������������������
(8)
Accumulated other comprehensive income:Unrealized gains on available-for-sale securities (Note 5)�������������������������������������
120,727
Deferred losses on derivatives under hedge accounting (Note 23)�������������������������
(56)
Land revaluation surplus (Note 7)�����������������������������������������������������������������������
14,182
Defined retirement benefit plans (Note 13)����������������������������������������������������������
(2,656)
Total accumulated other comprehensive income��������������������������������������������
132,197
Total equity���������������������������������������������������������������������������������������������
888,139TOTAL������������������������������������������������������������������������������������������������������������������������� ¥16,769,883
See notes to consolidated financial statements.

Annual Report 201828

Consolidated Statement of Income
Year Ended March 31, 2018

Mebuki Financial Group, Inc. and Consolidated Subsidiaries

Millions of Yen
2018
2017

INCOME:Interest income:Interest on loans and discounts��������������������������������������������������������������������������
Interest and dividends on securities��������������������������������������������������������������������
Interest on call loans and bills bought�����������������������������������������������������������������
Interest on deposits with banks��������������������������������������������������������������������������
Other interest income����������������������������������������������������������������������������������������
Trust fees���������������������������������������������������������������������������������������������������������������
Fees and commissions��������������������������������������������������������������������������������������������
Trading income������������������������������������������������������������������������������������������������������
Other operating income�������������������������������������������������������������������������������������������
Gain on negative goodwill����������������������������������������������������������������������������������������
Other income (Note 17)�������������������������������������������������������������������������������������������
Total income������������������������������������������������������������������������������������������������
EXPENSES:Interest expenses:
Interest on deposits�������������������������������������������������������������������������������������������
Interest on negotiable certificates of deposit��������������������������������������������������������
Interest on call money and bills sold�������������������������������������������������������������������
Interest on payables under repurchase agreements���������������������������������������������
Interest on payables under securities lending transactions�����������������������������������
Interest on borrowing and rediscounts����������������������������������������������������������������
Interest on bonds����������������������������������������������������������������������������������������������
Other interest expenses�������������������������������������������������������������������������������������
Fees and commissions��������������������������������������������������������������������������������������������
Other operating expenses����������������������������������������������������������������������������������������
General and administrative expenses (Note 18)��������������������������������������������������������
Provision of allowance for loan losses����������������������������������������������������������������������
Other expenses (Note 19)����������������������������������������������������������������������������������������
Total expenses���������������������������������������������������������������������������������������������
INCOME BEFORE INCOME TAXES���������������������������������������������������������������������������������
INCOME TAXES (Note 20)
Current������������������������������������������������������������������������������������������������������������������
Deferred�����������������������������������������������������������������������������������������������������������������
Total income taxes���������������������������������������������������������������������������������������NET INCOME���������������������������������������������������������������������������������������������������������������NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS������������������������������������NET INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT�������������������������������������������

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

¥113,739
45,584
108
652
423
42
50,717
3,669
4,768
—
43,608263,315¥ 89,325
35,186
66
502
419
22
36,2452,241
12,964
119,219
36,316
332,510$1,070,292
428,947
1,018
6,139
3,986
404
477,253
34,52644,876—410,358
2,477,799

3,668
91
589
246
2,395
2,103
132
4,926
13,7408,411
120,427
6,903
37,339200,977
62,338

2,572
48
595
—
1,198
1,101
233
4,537
10,036
7,017
98,0886,277
31,407
163,115
169,395

34,524
865
5,545
2,324
22,545
19,797
1,242
46,360129,298
79,152
1,133,218
64,959351,365
1,891,192
586,606

20,182(913)
19,26943,069—¥ 43,069

16,880(5,968)
10,911
158,48328¥158,455

189,919(8,593)
181,326
405,280—$ 405,280

Yen

PER SHARE OF COMMON STOCK (Note 16):
Basic net income����������������������������������������������������������������������������������������������������
Diluted net income��������������������������������������������������������������������������������������������������Cash dividends applicable to the year (Note 14)��������������������������������������������������������

¥36.56
36.54
11.00

U.S. Dollars¥156.78156.72
12.00

$0.34
0.34
0.10

See notes to consolidated financial statements.

Consolidated Statement of Comprehensive Income
Year Ended March 31, 2018

Mebuki Financial Group, Inc. and Consolidated Subsidiaries

Millions of Yen
2018
2017

NET INCOME
OTHER COMPREHENSIVE INCOME (Note 24):
Unrealized losses on available-for-sale securities �����������������������������������������������������
Deferred gains on derivatives under hedge accounting ���������������������������������������������
Land revaluation surplus ����������������������������������������������������������������������������������������
Defined retirement benefit plans ����������������������������������������������������������������������������
Total other comprehensive income (loss)������������������������������������������������������������������COMPREHENSIVE INCOME
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Owners of the parent����������������������������������������������������������������������������������������������
Noncontrolling interests�������������������������������������������������������������������������������������������
See notes to consolidated financial statements.

29

Mebuki Financial Group, Inc.

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

¥43,069¥158,483$405,280(7,817)
617
468
2,777
(3,954)¥39,114(6,507)
2,399
—
5,233
1,125
¥159,609(73,564)
5,813
4,409
26,132(37,210)$368,070¥39,114—¥159,581
27$368,070—

Consolidated Statement of Changes in Equity
Year Ended March 31, 2018

Mebuki Financial Group, Inc. and Consolidated Subsidiaries

Millions of Yen

CommonStock(Note 14)BALANCE, APRIL 1, 2016�������������������������
Increase due to share exchange����������Cash dividends�����������������������������������
Net income attributable to owners of
the parent ���������������������������������������
Purchase of treasury stock������������������
Disposal of treasury stock�������������������
Retirement of treasury stock����������������
Changes due to acquiring equity ofconsolidated subsidiaries������������������
Reversal of land revaluation surplus�����
Net changes during the fiscal year�������
Total changes during the fiscal year����������
BALANCE, MARCH 31, 2017��������������������

¥ 85,113
32,382

CapitalSurplus¥ 58,574
90,616(1,832)Stock
Acquisition
RightsRetained
Earnings

Treasury
Stock

¥132

¥333,964¥(21,569)

Accumulated Other Comprehensive Income
Unrealized Deferred Gains
Gains (Losses) (Losses) on
DefinedLand
on Available- Derivatives
under Hedge Revaluation Retirement
for-Sale
Benefit Plans
Surplus
Accounting
Securities¥135,031¥(3,073)¥13,002¥(10,667)

Total¥134,293

Noncontrolling
Interests¥1,562(9,397)
158,4551

158,455(11)
25—

21,562
¥
(6)

1,131
158
(512)
271,016¥863,086(0)(21,548)

158
89,916¥148,490

61
61
¥193

127,666¥461,631¥592,070
122,998(11,230)(11)
25
21,5481,131

32,382¥117,495

Total
Equity(6,485)(6,485)¥128,545

2,399
2,399
¥ (674)

(158)
(158)
¥12,844

5,233
5,233
¥ (5,433)

988
988¥135,282(1,562)(1,562)¥—Millions of Yen

BALANCE, APRIL 1, 2017�������������������������Cash dividends�����������������������������������
Net income attributable to owners of
the parent ���������������������������������������
Purchase of treasury stock������������������
Disposal of treasury stock�������������������
Reversal of land revaluation surplus�����
Net changes during the fiscal year�������
Total changes during the fiscal year����������
BALANCE, MARCH 31, 2018��������������������

CommonStock(Note 14)

CapitalSurplus¥117,495¥148,490

Stock
Acquisition
Rights¥193

Retained
Earnings¥461,631(14,133)

Accumulated Other Comprehensive Income
Unrealized Deferred Gains(Losses) on
Gains (Losses)
DefinedLand
Derivatives
on Availableunder Hedge Revaluation Retirement
for-Sale
Benefit Plans
Surplus
Accounting
Securities

Treasury
Stock

¥(6)

¥128,545¥(674)¥12,844¥(5,433)

Total¥135,282

43,069(3,084)(3,084)¥132,197

Total

Total
Equity(869)¥117,495

50¥148,541

23
23
¥216

28,065¥489,697(1)¥(8)(7,817)(7,817)¥120,727

617
617
¥(56)

1,338
1,338
¥14,182

2,777
2,777
¥(2,656)¥863,086(14,133)
43,069(2)
51(869)(3,061)
25,053¥888,139

(2)
0

50

Total
EquityThousands of U.S. Dollars

CommonStock(Note 14)BALANCE, APRIL 1, 2017������������������������� $1,105,632
Cash dividends�����������������������������������
Net income attributable to owners of
the parent ���������������������������������������
Purchase of treasury stock������������������
Disposal of treasury stock�������������������
Reversal of land revaluation surplus�����
Net changes during the fiscal year�������
Total changes during the fiscal year����������
BALANCE, MARCH 31, 2018�������������������� $1,105,632

CapitalSurplus$1,397,296

Stock
Acquisition
Rights$1,821Retained
Earnings$4,343,948(132,998)

TreasuryStock

Accumulated Other Comprehensive Income
Unrealized Deferred Gains(Losses) on
Gains (Losses)
DefinedLand
Derivatives
on Availableunder Hedge Revaluation Retirement
for-Sale
Benefit
Plans
Surplus
Accounting
Securities$(65) $1,209,612$(6,343)$120,866$(51,129) $1,273,006

12,592
12,592$133,458

405,280(24)
485(8,182)
26,132(29,027)(28,810)
26,132(29,027)
235,751$(24,997) $1,243,979 $8,357,389

405,280(24)
7

478(8,182)478$1,397,774

217
217$2,038264,100$4,608,048(73,564)(17)(73,564)$(82) $1,136,048

5,813
5,813
$ (529)$8,121,638(132,998)

See notes to consolidated financial statements.

Annual Report 201830

Consolidated Statement of Cash Flows
Year Ended March 31, 2018

Mebuki Financial Group, Inc. and Consolidated Subsidiaries

OPERATING ACTIVITIES:
Income before income taxes�������������������������������������������������������������������������������������������������������������������
Adjustments for:
Income taxes paid����������������������������������������������������������������������������������������������������������������������������
Depreciation and amortization����������������������������������������������������������������������������������������������������������
Impairment loss�������������������������������������������������������������������������������������������������������������������������������
Gain on negative goodwill�����������������������������������������������������������������������������������������������������������������
Loss on step acquisition�������������������������������������������������������������������������������������������������������������������
Amortization of negative goodwill������������������������������������������������������������������������������������������������������
Increase (decrease) in allowance for loan losses��������������������������������������������������������������������������������
Increase in provision for directors’ bonuses���������������������������������������������������������������������������������������
Increase in asset for retirement benefits��������������������������������������������������������������������������������������������
Increase (decrease) in liabilities for retirement benefits�����������������������������������������������������������������������
Increase in provision for directors’ retirement benefits������������������������������������������������������������������������
Increase in provision for reimbursement of deposits���������������������������������������������������������������������������
Increase (decrease) in provision for contingent losses������������������������������������������������������������������������
Increase (decrease) in provision for point card certificates������������������������������������������������������������������
Increase (decrease) in provision for interest repayments���������������������������������������������������������������������
Gain on fund management���������������������������������������������������������������������������������������������������������������
Financing expenses�������������������������������������������������������������������������������������������������������������������������
Losses (gains) related to securities���������������������������������������������������������������������������������������������������
Foreign exchange losses (gains)�������������������������������������������������������������������������������������������������������
Losses (gains) on disposal of fixed assets������������������������������������������������������������������������������������������
Net decrease (increase) in trading assets������������������������������������������������������������������������������������������
Net decrease in trading liabilities������������������������������������������������������������������������������������������������������
Net increase in loans and bills discounted�����������������������������������������������������������������������������������������
Net increase in deposits�������������������������������������������������������������������������������������������������������������������
Net increase (decrease) in negotiable certificates of deposit���������������������������������������������������������������
Net increase in borrowed money (excluding subordinated borrowings)������������������������������������������������
Net decrease in deposit (excluding cash equivalents)�������������������������������������������������������������������������
Net decrease in call loans����������������������������������������������������������������������������������������������������������������
Net increase in call money���������������������������������������������������������������������������������������������������������������
Net increase (decrease) in payables under securities lending transactions�������������������������������������������
Net decrease in foreign exchanges - assets��������������������������������������������������������������������������������������
Net decrease in foreign exchanges - liabilities�����������������������������������������������������������������������������������
Net increase in lease receivables and investments in lease����������������������������������������������������������������
Net decrease in due to trust account�������������������������������������������������������������������������������������������������
Proceeds from fund management�����������������������������������������������������������������������������������������������������
Payments for finance�����������������������������������������������������������������������������������������������������������������������
Other--net���������������������������������������������������������������������������������������������������������������������������������������
Total adjustments����������������������������������������������������������������������������������������������������������������������������
Net cash provided by operating activities�������������������������������������������������������������������������������������������������

31

Mebuki Financial Group, Inc.

Millions of Yen
2018
2017

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

¥ 62,338¥169,395$ 586,606(22,393)
8,654
1,813
—
—
(158)
484
18
(3,561)(1,359)
11
301
54
(0)
0
(160,508)
14,155
11,236
11,488(630)(5,313)(6)(253,246)
470,864(12,064)
142,262
8,693(8,911)
37,228(9,490)806(48)(8,254)(1)
160,454(13,823)(18,880)
349,877¥412,215(16,614)
7,327
1,463
(119,219)
184
(158)
(400)
44
(1,323)
8,764
13
317
(18)
38
(2)
(131,337)
10,305(4,941)(12,902)
431
1,225
(383)
(153,758)
270,177
37,290272,353
57,258(1,499)35,956
15,881
1,256(409)(5,135)(0)129,285(8,791)(62,863)
329,815¥499,210(210,718)
81,437
17,061——(1,487)
4,556
170(33,511)(12,790)
107
2,834
514
(6)
9
(1,510,383)
133,200
105,737
108,109(5,929)(49,995)(65)(2,383,046)
4,430,836(113,531)
1,338,693
81,805(83,853)
350,315(89,309)
7,592
(459)
(77,672)(12)
1,509,877(130,076)(177,667)
3,292,342$3,878,949

Millions of Yen
2018
2017
INVESTING ACTIVITIES:
Purchases of securities��������������������������������������������������������������������������������������������������������������������
Proceeds from sales of securities�����������������������������������������������������������������������������������������������������
Proceeds from redemption of securities��������������������������������������������������������������������������������������������
Purchases of tangible fixed assets����������������������������������������������������������������������������������������������������
Proceeds from sales of tangible fixed assets�������������������������������������������������������������������������������������
Purchases of intangible fixed assets�������������������������������������������������������������������������������������������������
Other--net���������������������������������������������������������������������������������������������������������������������������������������
Net cash used in investing activities��������������������������������������������������������������������������������������������������
FINANCING ACTIVITIES:Redemption of subordinated bonds���������������������������������������������������������������������������������������������������
Purchase of treasury stocks�������������������������������������������������������������������������������������������������������������
Proceeds from sales of treasury stocks���������������������������������������������������������������������������������������������Cash dividends paid�������������������������������������������������������������������������������������������������������������������������
Dividends paid to noncontrolling interests������������������������������������������������������������������������������������������
Payments from changes in ownership interests that do not result in change in scope of consolidation�������
Net cash used in financing activities�������������������������������������������������������������������������������������������������
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS��������������������������������������������NET INCREASE IN CASH AND CASH EQUIVALENTS����������������������������������������������������������������������������������
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR�����������������������������������������������������������������������������
INCREASE IN CASH AND CASH EQUIVALENTS DUE TO SHARE EXCHANGE������������������������������������������������
CASH AND CASH EQUIVALENTS, END OF YEAR (Note 3)��������������������������������������������������������������������������
NONCASH INVESTING AND FINANCING ACTIVITY:
Increase in assets and liabilities due to share exchange when it was decided that The Joyo Bank, Ltd.
would be the acquiring company and Mebuki Financial Group, Inc. would be the acquired company
Total assets:������������������������������������������������������������������������������������������������������������������������������������
Of which, loans and bills discounted�������������������������������������������������������������������������������������������
Of which, securities�������������������������������������������������������������������������������������������������������������������
Of which, allowance for loan losses��������������������������������������������������������������������������������������������
Total liabilities:��������������������������������������������������������������������������������������������������������������������������������
Of which, deposits���������������������������������������������������������������������������������������������������������������������

Thousands of
U.S. Dollars(Note 1)2018¥(1,352,901)
897,937
391,620(5,337)
2,117(6,101)
6(72,659)¥(1,405,130)
1,017,603
271,065(4,973)167(3,348)(94)(124,710)$(12,730,792)
8,449,581
3,685,143(50,226)
19,924(57,415)62(683,722)—(2)
50(14,133)——(14,085)(1,796)323,673
1,369,893—¥1,693,567(10,000)(11)
3(11,230)(1)(453)(21,693)29352,836
396,713620,343¥1,369,893

—
(24)
474
(132,998)——(132,548)(16,909)
3,045,770
12,890,690—$15,936,460

¥—
—
—
—
—
—

¥6,207,461
4,221,375
1,314,586(38,581)5,964,697
5,148,407

$—
—
—
—
—
—

See notes to consolidated financial statements.

Annual Report 201832

Notes to Consolidated Financial Statements
Year Ended March 31, 2018

Mebuki Financial Group, Inc. and Consolidated Subsidiaries

1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of Mebuki Financial Group,
Inc. (the “Company”) and its consolidated subsidiaries (together, the “Group”)
have been prepared in accordance with the provisions set forth in the Japanese
Financial Instruments and Exchange Act and its related accounting regulations, inaccordance with the Enforcement Regulation for the Banking Act and in accordance with accounting principles generally accepted in Japan (“Japanese
GAAP”), which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards. In addition,certain reclassifications have been made in the 2017 consolidated financial
statements to conform to the classifications used in 2018.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is morefamiliar to readers outside Japan.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company is incorporated and operates. The
translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rateof ¥106.27 to $1, the approximate rate of exchange at March 31, 2018. Suchtranslations should not be construed as representations that the Japanese yenamounts could be converted into U.S. dollars at that or any other rate.
The Company conducted a share exchange on October 1, 2016, underwhich the Company became the wholly-owning parent company and The Joyo
Bank, Ltd. (“Joyo”) became the wholly-owned subsidiary. Based on the Accounting Standard for Business Combinations, this share exchange is a reverse acquisition wherein the Company is considered to be the acquired company and Joyo
to be the acquiring company. As a result, the consolidated statement of income
for the year ended March 31, 2017, includes those of Joyo for the period from
April 1, 2016, to September 30, 2016, and those of the Company for the period
from October 1, 2016, to March 31, 2017.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa. Consolidation — The consolidated financial statements as of March 31,
2018, include the accounts of the Company and its 14 significant subsidiaries.
Under the control and influence concepts, those companies in which theCompany, directly or indirectly, is able to exercise control over operations are fully consolidated.
All consolidated subsidiaries have a fiscal year ending on March 31, whichis the same as the fiscal year of the Company.
The consolidated financial statements as of March 31, 2018, do not include
the accounts of three subsidiaries because the total assets, total income, net income, retained earnings, and accumulated other comprehensive income of theentity would not have had a material effect on the consolidated financial statements.
Investments in unconsolidated subsidiaries and associated companies werestated at cost. If the equity method of accounting had been applied to the investments in these companies, the effect on the accompanying consolidated financial
statements would not be material.
The consolidated financial statements as of March 31, 2018, do not apply
to the equity method of accounting of three unconsolidated subsidiaries and six
associated companies because the net income, retained earnings, and accumulated other comprehensive income of the entity would not have had a material
effect on the consolidated financial statements.
All significant intercompany balances and transactions have been eliminatedin consolidation. All material unrealized profit included in assets resulting fromtransactions within the Group is also eliminated.
Negative goodwill represents the difference between the cost of an acquisition and the fair value of the net assets of the acquired subsidiary at the date ofacquisition. Negative goodwill incurred before March 31, 2010, is amortized using the straight-line method over 20 years.

33

Mebuki Financial Group, Inc.

b. Business Combinations — Business combinations are accounted for using
the purchase method. Acquisition-related costs, such as advisory fees or professional fees, are accounted for as expenses in the periods in which the costs are
incurred. If the initial accounting for a business combination is incomplete by theend of the reporting period in which the business combination occurs, an acquirer shall report in its financial statements provisional amounts for the items forwhich the accounting is incomplete. During the measurement period, which shallnot exceed one year from the acquisition, the acquirer shall retrospectively adjust
the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition
date and that would have affected the measurement of the amounts recognized
as of that date. Such adjustments shall be recognized as if the accounting for thebusiness combination had been completed at the acquisition date. The acquirer
recognizes any bargain purchase gain in profit or loss immediately on the acquisition date after reassessing and confirming that all of the assets acquired and allof the liabilities assumed have been identified after a review of the procedures
used in the purchase price allocation. A parent’s ownership interest in a subsidiary might change if the parent purchases or sells ownership interests in its subsidiary. The carrying amount of noncontrolling interest is adjusted to reflect thechange in the parent’s ownership interest in its subsidiary while the parent retains its controlling interest in its subsidiary. Any difference between the fair value of the consideration received or paid and the amount by which thenoncontrolling interest is adjusted is accounted for as capital surplus as long as
the parent retains control over its subsidiary.
The Company conducted a share exchange on October 1, 2016, underwhich the Company became the wholly-owning parent company and Joyo became the wholly-owned subsidiary and accounted for this share exchange by thepurchase method of accounting.
c. Trading Assets and Trading Liabilities — Transactions for “trading purposes” (seeking to capture gains arising from short-term changes in interest rates,
currency exchange rates or market prices of securities and other market-related
indices or from arbitrage between markets) are valued at market or fair value,and have been included in trading assets and trading liabilities on a tradedate-basis. Gain or loss on such trading transactions are reflected as trading income or trading expenses in the consolidated statement of income.
Among the trading assets and liabilities, securities and monetary claims arecarried at market value as of the balance sheet date. Derivatives, including
swaps, futures, and options are valued assuming settlement on the balance
sheet date.
Trading income or trading expenses include interest received or paid during
the fiscal year. The year-on-year valuation differences of securities and monetaryclaims are also recorded in the above-mentioned accounts. As for the derivatives, assuming that the settlement will be made in cash, the year-on-year valuation differences are also recorded in the above-mentioned accounts.
d. Securities — Securities are classified and accounted for, depending on management’s intent, as follows:(1) held-to-maturity debt securities, which are expected to be held -to- maturity with the positive intent and ability to hold to maturity, are stated at amortized cost using the straight-line method.
(2) investments in unconsolidated subsidiaries that are not accounted for by theequity method are stated at cost determined by the moving-average method.
(3) available-for-sale securities are stated at fair value with unrealized gains
and losses, net of applicable taxes, reported in a separate component of equity. Securities whose fair values cannot be reliably determined are stated atcost determined by the moving-average cost method.
For other-than-temporary declines in fair value, securities are reduced to
net realizable value by a charge to income.

e. Tangible Fixed Assets — Tangible fixed assets (except for leased assets) arestated at cost, less accumulated depreciation. Depreciation of tangible fixed assets owned by the consolidated banking subsidiaries is computed by the straightline method.
The range of useful lives is from 3 to 50 years for buildings and from 3 to
20 years for other tangible fixed assets.
Depreciation of tangible fixed assets owned by the other subsidiaries ismainly computed by the declining-balance method in estimated useful lives.
Depreciation of leased assets from finance lease transactions that do notdeem to transfer ownership of the leased property to the lessee is computed using the straight-line method over the respective lease periods. The residual valueof leased assets is determined using the guaranteed residual value indicated on
the lease contracts where provided; otherwise, they have a nil residual value.
f. Intangible Fixed Assets — Amortization of intangible fixed assets is computed by the straight-line method. The cost of computer software obtained for internal use is amortized principally using the straight-line method over the estimateduseful lives of mainly five years.
g. Long-Lived Assets — The Group reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate the carrying amount of anasset or asset group may not be recoverable. An impairment loss is recognized if
the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would bemeasured as the amount by which the carrying amount of the asset exceeds its
recoverable amount, which is the higher of the discounted cash flows from thecontinued use and eventual disposition of the asset or the net selling price at disposition.
h. Allowance for Loan Losses — The consolidated banking subsidiaries haveprovided an allowance for loan losses, which is determined based on management’s judgment and assessment of future losses based on their self-assessment
systems. These systems reflect past experience of credit losses; possible credit
losses; business and economic conditions; the character, quality, and performanceof the portfolio; value of collateral or guarantees; and other pertinent indicators.
The consolidated banking subsidiaries have implemented self-assessment
systems to determine their asset quality. The quality of all loans is assessed by
the branches and the related head office divisions, with a subsequent audit by
the Internal Audit division, which is independent from these divisions in accordance with the consolidated banking subsidiaries’ policy and guidelines for the
self-assessment of asset quality.
The consolidated banking subsidiaries have established credit rating systems, under which their customers are classified into five categories. The credit
rating systems are used in the self-assessment of asset quality. All loans areclassified into five categories for self-assessment purposes: “normal,” “in needof caution,” “possible bankruptcy,” “virtual bankruptcy,” and “legal bankruptcy.”
For claims on borrowers that have entered into bankruptcy, special liquidation proceedings, or similar legal proceedings (“legal bankruptcy”), or borrowersthat are not legally or formally insolvent, but are regarded as substantially in thesame situation (“virtual bankruptcy”), an allowance is provided based on theamount of claims, after the write-offs as stated below, net of the expectedamount of recoveries from collateral and guarantees.
For claims on borrowers that are not currently bankrupt, but are likely to become bankrupt in the future (“possible bankruptcy”), an allowance is provided in
the amount deemed necessary based on an overall solvency assessment of theclaims, net of the expected amount of recoveries from collateral and guarantees.
For claims on borrowers whose loans are classified as “restructured loans”
over a certain amount, for which future cash flows from the collection of principal
and interest are reasonably estimated, an allowance is provided for the difference
between the present value of expected future cash flows discounted at the contracted interest rate and the carrying value of the claims based on the discounted
cash flow method.

For other claims, an allowance is provided based on the actual historicalloss ratio.
For collateralized or guaranteed claims of borrowers who are in “virtual
bankruptcy” or “legal bankruptcy,” the amount exceeding the estimated value ofcollateral or guarantees has been deducted as deemed uncollectible directly fromthose claims. As of March 31, 2018 and 2017, the deducted amounts were¥20,194 million ($190,032 thousand) and ¥23,642 million, respectively.
Other consolidated subsidiaries determine allowances for loan losses thatare provided for general claims at an amount based on the actual historical rateof loan losses and for specific claims (from potentially bankrupt customers, etc.)
at an estimate of the amounts deemed uncollectible based on the respective assessments.
i. Allowance for Investment Losses — Allowance for investment losses is provided at the amount deemed necessary to cover estimated possible losses on investments, which one consolidated banking subsidiary may incur in the future.
j. Provision for Directors’ Bonuses — Provision for directors’ bonuses (including executive officers) is provided in the amount of the estimated bonuses thatare attributable to each fiscal year.
k. Employees’ Retirement Benefits — The Company accounts for the liability
for retirement benefits based on the projected benefit obligations and plan assets atthe balance sheet date. The projected benefit obligations are attributed to periods
on a benefit formula basis. Actuarial gains and losses and past service costs thatare yet to be recognized in profit or loss are recognized within equity (accumulated
other comprehensive income), after adjusting for tax effects and are recognized in
profit or loss from the next year of incurrence and the year of incurrence, respectively, by the straight-line method over a period (mainly 10 years) no longer thanthe expected average remaining service period of the employees.
l. Provision for Directors’ Retirement Benefits — Provision for directors’ retirement benefits, which is provided for payments of retirement benefits to directors, is recorded in the amount deemed accrued at the fiscal year end datebased on the estimated amount of benefits.
m. Provision for Reimbursement of Deposits — Provision for reimbursementof deposits, which were derecognized as liabilities under certain conditions, isprovided for possible losses on future claims and is calculated based on the historical reimbursement experience.
n. Provision for Contingent Losses — Provision for contingent losses is provided for possible loan losses guaranteed by the credit guarantee corporations in
an amount deemed necessary based on estimated losses in the future, calculated using historical default rates after exclusion of contingent losses covered byother reserves.
o. Provision for Point Card Certificates — Provision for point card certificates,
which is provided for the future use of points granted to customers under credit
card points program, is calculated by converting the outstanding points into amonetary amount and rationally estimating and recognizing the amount that will
be redeemed in the future.
p. Provision for Losses on Interest Repayments — Some consolidated subsidiaries provide a provision for losses on interest repayments in an amountdeemed necessary based on estimated amounts to be repaid, taking into accounthistorical records of interest repayments on the portion of loans whose interest
rates exceeded the maximum interest rate stipulated by the Interest Limitation Law.

Annual Report 201834

q. Reserves under Special Laws — Reserves under special laws is a reservefor contingent liabilities and provided for compensation for losses from securities-related transactions or derivative transactions in the amount of ¥2 million($19 thousand) and ¥2 million as of March 31, 2018 and 2017, pursuant to Article 46-5-1 of the Financial Instruments and Exchange Act and Article 175 of therelated cabinet order.
r. Stock Options — Compensation expense for employee stock options whichwere granted on and after May 1, 2006 are recognized based on the fair value atthe date of grant and over the vesting period as consideration for receiving goods
or services in accordance with the Accounting Standards Board of Japan(“ASBJ”) Statement No. 8, “Accounting Standard for Stock Options.” Stock options granted to nonemployees are accounted for based on the fair value of either
the stock option or the goods or services received. In the balance sheet, thestock option is presented as a stock acquisition right as a separate component ofequity until exercised. The accounting standard allows unlisted companies tomeasure options at their intrinsic value if they cannot reliably estimate fair value.
s. Stock Issue Costs — Stock issue costs are charged to income as incurred.
t. Leases — As a lessor, finance leases that are not deemed to transfer ownership of the leased property to the lessee are recognized as investments in lease.
Income and expenses are recognized when lease receivables are collected
as for finance lease transactions that do not transfer ownership of the property.
As for finance lease transactions that do not transfer ownership of theleased property and which commenced prior to April 1, 2008, in line with thestipulations of Article 81 of the Guidance on Accounting Standard for Lease
Transactions the ASBJ Guidance No. 16, March 25, 2011), book value (after deduction of accumulated depreciation) of lease assets included in tangible fixed
assets and intangible assets as of the previous balance sheet date (March 31,2008) was recorded as the initial balance of “Lease receivables and investments
in lease.”u. Income Taxes — The provision for income taxes is computed based on thepretax income included in the consolidated statement of income. The asset andliability approach is used to recognize deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. Deferred taxes are measured
by applying currently enacted income tax rates to the temporary differences.
The Group files a tax return under the consolidated corporate-tax system,
which allows companies to base tax payments on the combined profits or lossesof the parent company and its wholly-owned subsidiaries.
v. Translation of Foreign Currencies — Assets and liabilities denominated inforeign currencies are translated at exchange rates prevailing as of the consolidated balance sheet date.
w. Derivatives and Hedging Activities — Derivative financial instruments areclassified and accounted for as follows: (a) all derivatives, except those enteredinto for hedging purposes, are recognized as either assets or liabilities and measured at fair value with gains or losses on derivative transactions recognized in
the consolidated statement of income or (b) for derivatives used for hedging purposes, if the derivatives qualify for hedge accounting because of high correlationand effectiveness between the hedging instruments and the hedged items, gains
or losses on the derivatives are deferred until maturity of the hedged transactions(deferral hedge accounting).

35

Mebuki Financial Group, Inc.

The consolidated banking subsidiaries apply deferral hedge accounting
based on the rules of the Japanese Institute of Certified Public Accountants(“JICPA”) Industry Audit Committee Report No. 24, “Accounting and Auditing
Treatments on the Application of Accounting Standards for Financial Instrumentsin the Banking Industry,” for interest rate derivatives to manage interest rate risk
from various financial assets and liabilities, as a whole. Under these rules, the effectiveness of a fair value hedge is assessed by an identified group of hedge deposits, loans, and similar instruments and by a corresponding group of hedging
instruments, such as interest rate swaps in the same maturity category. Also,
under these rules, the effectiveness of cash flow hedges is assessed based on
the correlation between a base interest rate index of the hedged cash flow andthat of the hedging instrument.
The consolidated banking subsidiaries apply deferral hedge accounting
based on the rules of the JICPA Industry Audit Committee Report No. 25, “Accounting and Auditing Treatments for Foreign Currency Transactions in the Banking Industry,” to currency swaps and funding swaps used for the purpose ofcurrency exchange. Under the deferral hedge accounting, hedged items are
identified by grouping the foreign currency-denominated financial assets and liabilities by currencies and designating derivative transactions, such as currency
swap transactions and foreign exchange swaps as hedging instruments. Effectiveness of derivative transactions, such as currency swap transactions and foreign exchange swap transactions, is reviewed by comparing the total foreign
currency position of the hedged items and the hedging instrument by currency.
One consolidated banking subsidiary applies individual deferral hedge accounting to offsetting the price fluctuation of the strategic shares that are classified under available-for-sale securities, using stock forward contracts as hedged
items. The hedge effectiveness of derivative transactions is reviewed by comparing the changes in value of the hedged item and hedging instruments.
The consolidated banking subsidiaries apply individual deferral hedge accounting and exceptional accrual method for interest rate swap to some assets
and liabilities.
x. Cash and Cash Equivalents — Cash and cash equivalents in the statementsof cash flows represent cash and due from banks in the consolidated balance
sheets, excluding deposits with banks other than the Bank of Japan of the consolidated banking subsidiaries and excluding the time deposits of the Company
and the other consolidated subsidiaries.
y. Consumption Taxes — Consumption tax is excluded from transactions reported by the Group. However, nondeductible consumption tax on tangible fixed
assets is charged to income as incurred.
z. Per Share Information — Basic net income per share of common stocks iscomputed by dividing net income attributable to common shareholders by theweighted-average number of shares of common stock outstanding for the period,
retroactively adjusted for stock splits.
Diluted net income per share reflects the potential dilution that could occur
if securities were exercised or converted into common stock. Diluted net income
per share of common stock assumes full conversion of the outstanding convertible notes and bonds at the beginning of the year (or at the time of issuance) with
an applicable adjustment for related interest expense, net of tax, and full exerciseof outstanding warrants.
Cash dividends per share presented in the accompanying consolidated
statement of income are dividends applicable to the respective years, including
dividends to be paid after the end of the year.

3. CASH AND CASH EQUIVALENTS
The reconciliation of “Cash and cash equivalents” in the consolidated statementof cash flows and “Cash and due from banks” in the consolidated balance sheet
as of March 31, 2018 and 2017, was as follows:
Thousands of
U.S. Dollars
2018

Millions of Yen
2018
2017

Cash and due from banks¥1,708,734 ¥1,393,762
Deposits with banks of the consolidatedbanking subsidiaries other than the
Bank of Japan����������������������������������
(15,166)(23,868)
Cash and cash equivalents����������������� ¥1,693,567 ¥1,369,893$16,079,180(142,721)$15,936,460

4. TRADING SECURITIES AND SECURITIESThe amounts shown in the following tables include “Securities,” trading securities in “Trading assets,” and trust beneficiary right in “Monetary claims bought”
described in the consolidated balance sheets.
Valuation difference recognized as income as of March 31, 2018 and 2017,
were as follows:
Thousands of
U.S. Dollars
2018

Millions of Yen
2018
2017

Trading securities��������������������������������

¥(11)

March 31, 2018

Thousands of
U.S. Dollars
2018

Millions of Yen
2018
2017

Japanese national government bonds���� ¥ 851,574 ¥1,145,390
Japanese local government bonds������
795,583
628,036
Japanese corporate bonds�����������������
727,179
672,639
Japanese corporate stocks�����������������
312,224
311,020
Other securities��������������������������������� 1,490,205 1,433,593
Total������������������������������������������������� ¥4,176,768 ¥4,190,681$ 8,013,310
7,486,435
6,842,758
2,938,035
14,022,825$39,303,363

The cost and aggregate fair value of available-for-sale securities andheld-to-maturity securities as of March 31, 2018 and 2017, were as follows:

March 31, 2018

Cost

Cost

Securities classified as:
Available-for-sale:���������������� ¥3,857,001 ¥216,101
Equity securities��������������� 159,550 147,566
Debt securities:���������������� 2,283,438 27,636
Japanese national
government bonds����� 1,044,508 14,948
Japanese local
government bonds����� 626,225
2,939Japanese corporate
bonds������������������������ 612,704
9,749
Others:���������������������������� 1,414,013 40,898
Foreign bonds������������� 686,614
2,465
Others������������������������ 727,399 38,433
Held-to-maturity:������������������ 139,385
488
Japanese national
government bonds����������
88,00625
Japanese local
government bonds����������
249
1
Japanese corporate
bonds����������������������������
51,129461$(111)¥(32)

Securities as of March 31, 2018 and 2017 consisted of the following:

Millions of Yen
Unrealized Unrealized
Gains
LossesSecurities classified as:
Available-for-sale:���������������� ¥3,833,680 ¥226,533
Equity securities��������������� 150,542 158,520
Debt securities:���������������� 2,203,100 18,839
Japanese national
government bonds����� 757,168
8,391
Japanese local
government bonds����� 793,365
2,703
Japanese corporate
bonds������������������������ 652,566
7,744
Others:���������������������������� 1,480,037 49,172
Foreign bonds������������� 628,613
1,738
Others������������������������ 851,423 47,434
Held-to-maturity:������������������ 154,787
651
Japanese national
government bonds����������
86,96037
Japanese local
government bonds����������
399
0Japanese corporate
bonds����������������������������
67,427
613

March 31, 2017

Fair Value¥54,921 ¥4,005,292
1,173
307,8902,389 2,219,550
945

764,614885

795,183559
51,357
13,801
37,556518

659,752
1,477,852
616,551
861,301
154,920486

86,5100400

3168,009Millions of Yen
Unrealized Unrealized
Gains
Losses

Cost

Fair Value¥33,284 ¥4,039,818
418
306,697
4,393 2,306,681
2,071

1,057,384

1,378

627,786943
28,472
9,434
19,038
1,169

621,509
1,426,439
679,645746,793
138,705

1,142

86,888—251

2651,565

Thousands of U.S. Dollars
Unrealized Unrealized
Gains
LossesFair Value

Securities classified as:
Available-for-sale:���������������� $36,074,910 $2,131,676
Equity securities��������������� 1,416,607 1,491,678
Debt securities:���������������� 20,731,161 177,281
Japanese national
government bonds����� 7,124,948
78,963
Japanese local
government bonds����� 7,465,563
25,440Japanese corporate
bonds������������������������ 6,140,650
72,878Others:���������������������������� 13,927,142 462,718
Foreign bonds������������� 5,915,249
16,360
Others������������������������ 8,011,894 446,357
Held-to-maturity:������������������ 1,456,550
6,134Japanese national
government bonds����������
818,294
352
Japanese local
government bonds����������
3,764
5
Japanese corporate
bonds����������������������������
634,492
5,777$516,808 $37,689,779
11,041
2,897,243
22,489 20,885,953
8,896

7,195,016

8,332

7,482,671

5,262
483,277
129,868
353,409
4,882

6,208,266
13,906,582
5,801,741
8,104,841
1,457,802

4,581

814,066

2

3,767

299

639,969

Annual Report 201836

Information for available-for-sale securities which were sold during theyears ended March 31, 2018 and 2017, is as follows:

March 31, 2018

Millions of Yen
Realized
Realized
Proceeds
Gains
LossesAvailable-for-sale:
Equity securities������������������������������������� ¥ 16,660
Debt securities:�������������������������������������� 237,165
Japanese national government bonds���� 153,078
Japanese local government bonds������ 83,623
462
Japanese corporate bonds������������������
Others:�������������������������������������������������� 586,250
Foreign bonds������������������������������������ 372,610
Others����������������������������������������������� 213,640
Total���������������������������������������������������������� ¥840,076

March 31, 2017

¥

12
235
194
40
0
13,528
6,134
7,393¥13,776

Millions of Yen
Realized
Realized
Proceeds
Gains
LossesAvailable-for-sale:
Equity securities������������������������������������� ¥ 9,768
Debt securities:�������������������������������������� 520,395
Japanese national government bonds���� 416,573
Japanese local government bonds������ 55,234
Japanese corporate bonds������������������ 48,587
Others��������������������������������������������������� 450,759
Foreign bonds������������������������������������ 284,282
Others����������������������������������������������� 166,477
Total���������������������������������������������������������� ¥980,923

March 31, 2018

¥ 7,286
828
706
119
2
7,460
1,288
6,171
¥15,575¥ 3,446
6,984
6,466
110
406
10,531
3,009
7,522¥20,962

¥

47
1,209
876
261
71
6,477
3,419
3,058
¥7,734

Thousands of U.S. Dollars
Realized
Realized
Proceeds
Gains
LossesAvailable-for-sale:
Equity securities������������������������������������� $ 156,775
Debt securities:�������������������������������������� 2,231,724
Japanese national government bonds���� 1,440,469
Japanese local government bonds������ 786,899
Japanese corporate bonds������������������
4,355
Others:�������������������������������������������������� 5,516,617
Foreign bonds������������������������������������ 3,506,265
Others����������������������������������������������� 2,010,352
Total���������������������������������������������������������� $7,905,116$ 68,563
7,798
6,651
1,126
21
70,20012,126
58,074$146,561

$

122
2,216
1,834
382
0
127,300
57,73069,570$129,638

Marketable available-for-sale securities, whose fair value significantly declined in comparison with the acquisition cost and whose fair value is not considered likely to recover to their acquisition cost, are written down and recognized
as impairment losses.
The impairment losses on marketable available-for-sale securities for theyears ended March 31, 2018 and 2017, were nil.
Pursuant to “Practical Guidelines for Accounting for Financial Instruments”(JICPA Accounting Committee Report No. 14, April 14, 2015), the criteria for determining whether the fair value is “significantly declined” are defined that securities whose fair value has declined by 30% or more of the acquisition cost are
deemed to be impaired.
As of March 31, 2018 and 2017, securities included equity investments inunconsolidated subsidiaries and associated companies of ¥9 million ($87 thousand) and ¥9 million and capital subscriptions of ¥2,784 million ($26,205 thousand) and ¥2,145 million, respectively.

37

Mebuki Financial Group, Inc.

5. UNREALIZED GAINS ON AVAILABLE-FOR-SALE SECURITIES
Unrealized gains on available-for-sale securities as of March 31, 2018 and2017, consisted of the following:
Millions of Yen
2018
2017

Unrealized gains:������������������������������� ¥171,886
Available-for-sale securities����������� 171,886
Money held in trust, except fortrading and held-to-maturity
purpose���������������������������������������
—Deferred tax liabilities:������������������������ 51,158
Unrealized gains on available-for-salesecurities before adjustments byownership share������������������������������� 120,727
Noncontrolling interests����������������������
—Company’s ownership share in
unrealized gains on available-for-salesecurities held by affiliates accounted
for using the equity method���������������
—Unrealized gains on available-for-salesecurities����������������������������������������� ¥120,727

Thousands of
U.S. Dollars
2018¥182,976
182,976$1,617,447
1,617,447—
54,431—
481,399

128,545—

1,136,048———¥128,545$1,136,048

As of March 31, 2018 and 2017, the total unrealized gains include an unrealized gain of ¥273 million ($2,578 thousand) and ¥159 million, respectively
on available-for-sale-securities, contained in certain fund.

6. LOANS AND BILLS DISCOUNTED
The following loans were included in loans and bills discounted as of March 31,2018 and 2017:
Millions of Yen
2018
2017

Loans to borrowers
in legal bankruptcy �������������������������� ¥ 4,437
Past due loans����������������������������������� 142,266
Loans past due
for three months or more������������������
426
Restructured loans�����������������������������
37,348
Total������������������������������������������������� ¥184,479

Thousands of
U.S. Dollars
2018¥ 2,757
151,089$ 41,761
1,338,726

805
36,280¥190,932

4,009
351,450$1,735,946

The amounts above are stated before the deduction of the allowance forloan losses.
“Loans to borrowers in legal bankruptcy” are nonaccrual loans, which arehighly probable to become unrecoverable. Specific conditions for inclusion in thiscategory are as follows:(i) Borrowers have made application for procedures under the Corporate Reorganization Act, Civil Rehabilitation Act, Bankruptcy Act, liquidation under theCompanies Act of Japan (the “Companies Act”), or liquidation under other legal provisions.
(ii) Clearance of promissory notes or bills issued by the borrower is suspended.
“Past due loans” are loans on which accrued interest income is not recognized, excluding “loans to borrowers in legal bankruptcy” and loans on which interest payments are deferred in order to support the borrowers’ recovery fromfinancial difficulties.
“Loans past due for three months or more” include accruing loans for whichprincipal or interest is past due three months or more.
“Restructured loans” are loans to borrowers in financial difficulty to whom
the Group has provided financial support through modification of the lending
terms to be more favorable to the borrower, including reduction of interest rates,
suspension of repayment of principal and interest, and debt forgiveness.

Contracts of overdraft facilities and loan commitment limits are contracts
under which the consolidated banking subsidiaries and certain consolidated subsidiaries lend to customers up to the prescribed limits in response to customer
applications for loans as long as there is no violation of any condition in the contracts. As of March 31, 2018 and 2017, the amounts of unused commitments
were ¥2,922,672 million ($27,502,331 thousand) and ¥2,938,456 million, respectively. As of March 31, 2018 and 2017, the amounts of unused commitments whose remaining contract terms were within one year were ¥2,011,724
million ($18,930,314 thousand) and ¥2,064,015 million, respectively.
As many of these commitments expire without being drawn down, the unused amount does not necessarily represent a future cash requirement. Most ofthese contracts have conditions whereby the consolidated banking subsidiaries
and certain consolidated subsidiaries can refuse customer applications for loans
or decrease the contract limits for certain reason (e.g., changes in financial situation and deterioration in customers’ creditworthiness). At the inception of thecontracts, the consolidated banking subsidiaries and certain consolidated subsidiaries obtain real estate, securities, or other assets as collateral if considered tobe necessary. Subsequently, the consolidated banking subsidiaries and certain
consolidated subsidiaries perform periodic reviews of the customers’ businessresults based on the internal rules and take necessary measures to reconsider
conditions in the contracts and/or require additional collateral and guarantees.
Discounting bills are treated as secured lending transactions. As of March
31, 2018 and 2017, consolidated banking subsidiaries have the right to sell or
repledge bills discounted and foreign exchange bills bought and their total facevalue was ¥48,375 million ($455,217 thousand) and ¥44,662 million, respectively.

7. TANGIBLE FIXED ASSETS
Tangible fixed assets as of March 31, 2018 and 2017, consisted of the following:
Millions of Yen
2018
2017

Buildings������������������������������������������� ¥ 40,556
Land������������������������������������������������� 60,949
Leased assets������������������������������������
20
1,202
Construction in progress���������������������
Other������������������������������������������������ 12,416
Total������������������������������������������������� ¥115,146¥ 41,423
63,10726
652
12,522¥117,732

Thousands of
U.S. Dollars
2018$ 381,633
573,534
196
11,318116,842$1,083,523

The accumulated depreciation of tangible fixed assets as of March 31,2018 and 2017, amounted to ¥126,724 million ($1,192,478 thousand) and¥126,558 million, respectively.
Under certain conditions, such as exchanges of fixed assets of similar kinds
and sales and purchases resulting from expropriation, Japanese tax laws permit
companies to defer the profit arising from such transactions by reducing the costof the assets acquired or by providing a special reserve in the equity section. Asof March 31, 2018 and 2017, such deferred profit amounted to ¥10,204 million($96,028 thousand) and ¥9,864 million, respectively. Newly recognized amounts
for the years ended March 31, 2018 and 2017, were ¥344 million ($3,238
thousand) and ¥7 million, respectively.
Under the “Law of Land Revaluation,” one banking subsidiary elected a
onetime revaluation of its own-use land to a value based on real estate appraisal
information as of March 31, 1998. The resulting revaluation reserve for land represents unrealized appreciation of land and is stated, net of income taxes, as acomponent of equity. There was no effect on the consolidated statement of income. Continuous readjustment is not permitted, unless the land value subsequently declines significantly such that the amount of the decline in value should
be removed from the revaluation reserve for land account and related deferred
tax liabilities. As of March 31, 2018 and 2017, the carrying amount of the land
after the above onetime revaluation exceeded the market value by ¥26,942 million ($253,524 thousand) and ¥28,106 million, respectively.

8. INTANGIBLE FIXED ASSETS
Intangible fixed assets as of March 31, 2018 and 2017, consisted of the following:
Millions of Yen
2018
2017

Software�������������������������������������������� ¥10,498
4,303
Other������������������������������������������������
Total������������������������������������������������� ¥14,801¥ 8,254
4,160¥12,414

Thousands of
U.S. Dollars
2018$ 98,788
40,495$139,283

9.	CUSTOMERS’ LIABILITIES FOR ACCEPTANCES AND GUARANTEESAll contingent liabilities arising from acceptances and guarantees are reflected in
acceptances and guarantees in the Consolidated Balance Sheet. As a contra account, customers’ liabilities for acceptances and guarantees are presented asassets, representing the consolidated banking subsidiaries’ and certain consolidated subsidiaries’ rights of indemnity from the applicants.
Guarantee obligations for private placement bonds included in “Securities”(provided in accordance with the Article 2-3 of the “Financial Instruments andExchange Act”) as of March 31, 2018 and 2017, were ¥143,712 million($1,352,334 thousand) and ¥115,880 million, respectively.

10. ASSETS PLEDGED AS COLLATERAL
Assets pledged as collateral and the related liabilities as of March 31, 2018 and2017, were as follows:
Millions of Yen
2018
2017

Assets pledged as collateral:
Securities�������������������������������������� ¥1,244,340 ¥1,081,752
Loans and bills discounted�������������
6,500—
Total��������������������������������������������� ¥1,250,840 ¥1,081,752
Related liabilities to above assets:
Deposits��������������������������������������� ¥ 113,111 ¥ 149,269
Call money and bills sold—5,609
Payables under securities lendingtransactions��������������������������������� 158,149 167,640
Payables under securities
repurchase agreements����������������
26,314—
Borrowed money��������������������������� 798,937 646,948

Thousands of
U.S. Dollars
2018$11,709,234
61,165$11,770,399$ 1,064,374—
1,488,184
247,619
7,517,999

Additionally, securities amounting to ¥31,615 million ($297,505 thousand)and ¥103,860 million as of March 31, 2018 and 2017, respectively, were
pledged as collateral for settlements of exchange or as substitute securities for
margins on futures transactions.
One consolidated subsidiary’s lease receivables amounting to nil and ¥117
million as of March 31, 2018 and 2017, respectively, were pledged as collateralfor borrowed money.
Moreover, other assets included deposits for central counterparty amounting
to ¥92,768 million ($872,954 thousand) and ¥26,371 million, cash collateral
paid for financial instruments amounting to ¥1,731 million ($16,291 thousand)and ¥3,327 million, and guarantee deposits amounting to ¥2,051 million($19,303 thousand) and ¥2,062 million as of March 31, 2018 and 2017, respectively.

Annual Report 201838

11. BORROWED MONEY

13. RETIREMENT AND PENSION PLANS

Borrowed money as of March 31, 2018 and 2017, consisted of the following:Thousands of
U.S. Dollars
2018

Millions of Yen
2018
2017

Borrowed money of which theweighted-average annual interest
rates were 0.26%, due from April,2018 to March, 2026����������������������� ¥877,856$8,260,623¥735,593

Annual maturities of borrowed money as of March 31, 2018, for the next
five years were as follows:Year Ending March 31

2019������������������������������������������������
2020������������������������������������������������
2021������������������������������������������������
2022������������������������������������������������
2023������������������������������������������������

Millions of Yen

Thousands of
U.S. Dollars¥657,268
41,66245,18063,720
5$6,184,893
392,042425,151599,61356

Borrowed money included borrowings from the Bank of Japan and other financial institutions. In addition, borrowed money included subordinated borrowings totaling ¥70,000 million ($658,700 thousand) and ¥70,000 million as ofMarch 31, 2018 and 2017, respectively.

12. BONDS
Bonds as of March 31, 2018 and 2017, consisted of the following:Thousands of
U.S. Dollars
2018

Millions of Yen
2018
2017

Unsecured Euro-US dollardenominated convertible bonds withstock acquisition rights issued by theCompany, date of issue October 1,
2016, due April 24, 2019*1��������������
Unsecured straight bonds issued by
Joyo, date of issue May 24, 2000,
due May 22, 2020, 2.64% interest�����
Total�������������������������������������������������

¥31,881¥33,657$300,000

5,000¥36,8815,000¥38,657

47,050$347,050*1 On October 1, 2016, the Company succeeded Euro-US dollar-denominated convertible bondsthat were originally issued by Joyo.

Information on convertible bonds with stock acquisition rights is as follows:
Name
Euro-US dollar-denominated convertible bonds withstock acquisition rights issued by the Company due
2019Type of stock:

Common stock

Issue price of stockacquisition rights:

Free of charge

Issue price of stock:$5.07

Grant ratio of stockacquisition rights:

100.0%

Exercise period of stockacquisition rights:

From October 1, 2016 to April 10, 2019

Description and price of On execution of the stock acquisition rights, the correthe property to be con- sponding bonds are to be invested, and the bond’s
tributed upon the exer- price is same as face amount.
cise of the stockacquisition rights:
Annual maturities of bonds as of March 31, 2018, for the next five years
were as follows:2019������������������������������������������������
2020������������������������������������������������
2021������������������������������������������������
2022������������������������������������������������
2023������������������������������������������������

39

Mebuki Financial Group, Inc.

(2) Defined benefit plans(a) The changes in defined benefit obligation for the years ended March 31, 2018and 2017, were as follows:
Millions of Yen
2018
2017

Total sum of issue price: $300,000 thousand

Year Ending March 31(1) Outline of the adopted retirement benefit plans
The Company’s banking subsidiary, Joyo, and its consolidated subsidiaries haveadopted defined employees’ retirement benefit plans, i.e., the employees’ welfare
pension fund supplemented by the employees’ public pension system and lumpsum retirement benefits.
In addition, extra benefits that are excluded from the projected benefit obligation in employees’ retirement benefits accounting may be paid on a case-bycase basis. Joyo has established an employees’ retirement benefit trust.
The Company’s banking subsidiary, Ashikaga Bank, Ltd. (“Ashikaga”), andits consolidated subsidiaries have adopted funded and unfunded defined benefit
plans as well as defined contribution plans to provide for the employees’ retirement benefits. All of the retirement benefit plans are managed in an integrated
manner through retirement benefit points that are determined based on years ofservice and capabilities of employees, as well as employee performance evaluation. The determined points are then allocated to each plan.
The defined benefit pension plans (funded plans) have introduced pension
plans similar to cash balance plan-type pension plans. Under the plan, each participant will set up a virtual individual account where pension or lump-sum payments will be made based on the accumulated retirement benefit points
allocated. A retirement benefit trust is established for this defined benefit pension
plan.
Under the lump-sum retirement benefit plans (unfunded plans that have become funded plans due to the establishment of a retirement benefit trust), lumpsum payments are made based on the accumulated retirement benefit points
allocated. In some cases, premium severance payments may be made to employees in conjunction with the employees’ retirement, etc.
Under the defined contribution plans, the contribution amount is decided
based on the accumulated retirement benefit points allocated.
The Company’s consolidated subsidiaries are members of the defined benefit pension funds under the multiemployer plans, and as the amount of plan assets corresponding to the contribution of each subsidiary may be reasonably
calculated, such information is included in the notes to defined benefit plans.
Regarding the lump-sum retirement benefit plans adopted by certain consolidated subsidiaries, liability for retirement benefits and retirement benefit expenses are calculated by the simplified method.

Millions of Yen¥—
31,881
5,000——

Thousands of
U.S. Dollars$—
300,000
47,050——

Balance at beginning of year��������������� ¥117,530 ¥76,181
Increase due to share exchange�����
—42,016
Current service cost�����������������������
3,531
2,767
Interest cost����������������������������������
615
387
Actuarial losses�����������������������������
3,262
651
Benefits paid���������������������������������
(6,077)(4,493)——
Past service cost���������������������������
Others������������������������������������������
39
18
Balance at end of year����������������������� ¥118,902 ¥117,530

Thousands of
U.S. Dollars
2018$1,105,962—
33,236
5,788
30,701(57,190)—371$1,118,869*Figures above exclude retirement and benefit plans calculated by the simplified method.

(b) The changes in plan assets for the years ended March 31, 2018 and 2017,
were as follows:
Millions of Yen
2018
2017

Balance at beginning of year��������������� ¥122,190 ¥61,303—
54,330
Increase due to share exchange�����
Expected return on plan assets�������
2,794
1,813
Actuarial gains������������������������������
4,301
4,495
Contributions from the employer�����
3,916
3,038
(3,591)(2,810)Benefits paid���������������������������������
Others������������������������������������������
39
18
Balance at end of year����������������������� ¥129,651 ¥122,190

Thousands of
U.S. Dollars
2018$1,149,809—
26,30040,47336,858(33,793)371$1,220,017(f) Amounts recognized in other comprehensive income (before income tax effect)
in respect of defined retirement benefit plans for the years ended March 31,2018 and 2017, were as follows:

Prior service cost�������������������������������
Actuarial losses���������������������������������
Total�������������������������������������������������

Millions of Yen
2018
2017

Thousands of
U.S. Dollars
2018

¥ —
(4,021)¥(4,021)$—(37,844)$(37,844)¥—(7,532)¥(7,532)(g) Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement benefit plans as of March
31, 2018 and 2017, were as follows:*Figures above exclude retirement and benefit plans calculated by the simplified method.

(c) The changes in liability for retirement benefits adopting the simplified method
for the years ended March 31, 2018 and 2017, were as follows:
Millions of Yen
2018
2017

Balance at beginning of year���������������
Increase due to the share exchange����
Retirement benefit expense����������������
Benefits paid�������������������������������������
Contribution to the defined benefit
pension plan������������������������������������
Balance at end of year�����������������������

¥1,280
—
455
(111)
(289)
¥1,334

¥ 598
620
454
(67)
(325)
¥1,280Thousands of
U.S. Dollars
2018

Funded defined benefit obligation������� ¥126,787 ¥125,279
Plan assets���������������������������������������� (136,201) (128,658)
Total�������������������������������������������������
(9,414)(3,379)——Unfunded defined benefit obligation����
Net asset arising from defined benefit
obligation����������������������������������������� ¥ (9,414) ¥(3,379)
Millions of Yen
2018
2017

Liability for retirement benefits������������ ¥ 6,014
Asset for retirement benefits��������������� (15,428)
Net asset arising from defined benefit
obligation����������������������������������������� ¥ (9,414)—
1,285¥1,285¥—
7,815¥7,815$—
12,094$12,094(2,721)$12,561

Debt investments�������������������������������������������������������
Equity investments�����������������������������������������������������
General accounts�������������������������������������������������������
Others�����������������������������������������������������������������������
Total�������������������������������������������������������������������������

Thousands of
U.S. Dollars
2018

2018

2017

48.8%
31.8%
12.2%
7.2%
100.0%

47.9%
31.7%
12.6%
7.8%
100.0%* As of March 31, 2018 and 2017, total plan assets that were set up on corporate pension
plans include a retirement benefit trust of 21.3% and 20.9%.

$1,193,068(1,281,655)(88,588)—b. Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determined considering the longterm rates of return which are expected currently and in the future from the various components of the plan assets.

$ (88,588)(i) Assumptions used for the years ended March 31, 2018 and 2017, were set
forth as follows:

Thousands of
U.S. Dollars
2018$ 56,594(145,181)¥ (3,379)$ (88,588)*Figures above include retirement and benefit plans calculated by the simplified method.

(e) The components of net periodic benefit costs for the years ended March 31,2018 and 2017, were as follows:

Service cost���������������������������������������
Interest cost��������������������������������������
Expected return on plan assets�����������
Recognized actuarial losses����������������
Amortization of prior service cost��������
Retirement benefit expense calculatedby the simplified method�������������������
Others�����������������������������������������������
Net periodic benefit costs�������������������¥(h) Plan assets
a. Components of plan assets
Plan assets as of March 31, 2018 and 2017, consisted of the following:¥ 8,896(12,275)

Millions of Yen
2018
2017

Unrecognized prior service cost����������
Unrecognized actuarial losses��������������
Total�������������������������������������������������

Thousands of
U.S. Dollars
2018$12,046—
4,283(1,048)(d) Reconciliation between the liability recorded in the consolidated balance sheet
and the balances of defined benefit obligation and plan assets was as follows:
Millions of Yen
2018
2017

Millions of Yen
2018
2017

2018

2017

Discount rate������������������������������������������� 0.20% — 0.57% 0.20% — 0.57%
Expected rate of return on plan assets������� 2.50% — 3.30% 2.50% — 3.30%
Expected rate of increase in salary������������ 4.57% — 9.00% 4.63% — 9.00%(3) Defined contribution plans
The amounts of the required contribution to the defined contribution plans of certain consolidated subsidiaries were ¥750 million ($7,065 thousand) and ¥598
million as of March 31, 2018 and 2017, respectively.

Thousands of
U.S. Dollars
2018¥3,531615(2,794)2,960—¥2,767387(1,813)
3,688—$33,236
5,788(26,300)
27,856—455(16)¥4,751454(9)¥5,475

4,283(154)$44,710Annual Report 201840

14. EQUITY
Japanese companies are subject to the Companies Act. The significant provisions in the Companies Act that affect financial and accounting matters are summarized below:
a. Dividends
Under the Companies Act, companies can pay dividends at any time during the
fiscal year in addition to the year-end dividend upon resolution at the shareholders’ meeting. Additionally, for companies that meet certain criteria including (1) having a Board of Directors, (2) having independent auditors, (3) having
an Audit & Supervisory Board, and (4) the term of service of the directors beingprescribed as one year rather than the normal two-year term by its articles ofincorporation, the Board of Directors may declare dividends (except for dividends-in-kind) at any time during the fiscal year if the company has prescribedso in its articles of incorporation. With respect to the third condition above, theBoard of Directors of companies with (a) board committees (namely, appointment committee, compensation committee and audit committee) or (b) an audit
and supervisory committee (as implemented under the Companies Act effective
May 1, 2015) may also declare dividends at any time because such companies, by nature, meet the criteria under the Companies Act. The Company isorganized as a company with an audit and supervisory committee. The Company meets all the above criteria, and accordingly, the Board of Directors may
declare dividends (except for dividends-in-kind) at any time during the fiscal
year.
The Companies Act permits companies to distribute dividends-in-kind (noncash assets) to shareholders subject to certain limitations and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution
by the Board of Directors if the articles of incorporation of the company so stipulate. The Companies Act provides certain limitations on the amounts available fordividends or the purchase of treasury stock. The limitation is defined as theamount available for distribution to the shareholders, but the amount of equity
after dividends must be maintained at no less than ¥3 million.

b. Increases/Decreases and Transfer of Common Stock, Reserve, andSurplus
The Companies Act requires that an amount equal to 10% of dividends must be
appropriated as a legal reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity
account that was charged upon the payment of such dividends until the aggregate amount of the legal reserve and additional paid-in capital equals 25% ofcapital stock. Under the Companies Act, the total amount of additional paid-in
capital and legal reserve may be reversed without limitation. The Companies Act
also provides that capital stock, legal reserve, additional paid-in capital, othercapital surplus, and retained earnings can be transferred among the accounts
within equity under certain conditions upon resolution of the shareholders.
c. Treasury Stock and Treasury Stock Acquisition Rights
The Companies Act also provides for companies to purchase treasury stock anddispose of such treasury stock by resolution of the Board of Directors. The
amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders which is determined by a specific formula. Under
the Companies Act, stock acquisition rights are presented as a separate component of equity. The Companies Act also provides that companies can purchaseboth treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.

(1) Capital Stock Changes during the YearThe changes in the number and class of issued stock and treasury stock for the year ended March 31, 2018, were as follows:

As of April 1, 2017

Issued stock:
Common stock
Total
Treasury stock
Common stock
Total

Shares in Thousands
Changes During the Year
Increase
Decrease

As of March 31, 2018

1,179,055
1,179,055

—
—

—
—

1,179,055
1,179,055

1,303
1,303

5*1
5

125*2
125

1,183
1,183

*1 The number of shares of treasury stock increased by 5 thousand shares due to purchases of shares less than the trading unit.
*2 The number of shares of treasury stock decreased by 3 thousand shares due to sales to shareholders in response to their demand to buy additional shares up to the trading unit and by 122
thousand shares due to exercise of the stock acquisition rights.

The changes in the number and class of issued stock and treasury stock for the year ended March 31, 2017, were as follows:

As of April 1, 2016

Issued stock:
Common stock
Total
Treasury stock:
Common stock
Total

Shares in Thousands
Changes During the Year
Increase
Decrease

As of March 31, 2017

333,250
333,250

845,805*1
845,805——

1,179,055
1,179,055——

1,306*2
1,306

3*3
3

1,303
1,303

*1 845,805 thousand shares are issued due to the share exchange with Joyo on October 1, 2016.
*2 The number of shares of treasury stocks increased by 1,290 thousand shares due to a dividend-in-kind from a subsidiary and by 16 thousand shares due to purchases of shares less than the
trading unit.
*3 The number of shares of treasury stock decreased by 3 thousand shares due to sales to shareholders in response to their demand to buy additional shares up to the trading unit.

41

Mebuki Financial Group, Inc.

(2) Cash Dividends Per Share
Cash dividends per share for the years ended March 31, 2018 and 2017, were as follows:Year ended March 31, 2018
Dividends paid in the fiscal year ended March 31, 2018

Cash dividends approved at the Board of Directors’ meeting held on May 12, 2017:

Common stock

Cash dividends approved at the Board of Directors’ meeting held on Nov. 13, 2017:

Common stock

Total Amount(Millions of Yen/Thousands of
U.S. Dollars)¥7,655($72,037)
Total Amount(Millions of Yen/Thousands of
U.S. Dollars)¥6,478($60,961)

Per Share Amount(Yen /U.S. Dollars) Dividend Record Date

¥6.50*($0.06)

Mar. 31, 2017

Jun. 5, 2017

Per Share Amount(Yen /U.S. Dollars) Dividend Record Date

¥5.50($0.05)

Effective Date

Sep. 30, 2017

Effective Date

Dec. 4, 2017

* Of the per share amount above, ¥1.00 ($0.01) is the amount of a commemorative dividend for the business integration.

Dividends to be paid after March 31, 2018

Cash dividends approved at the Board of Directors’ meeting held on May 11, 2018:

Common stock

Total Amount(Millions of Yen/Thousands of
U.S. Dollars)¥6,478($60,961)

Per Share Amount(Yen /U.S. Dollars) Dividend Record Date

¥5.50($0.05)Mar. 31, 2018

Effective Date

Jun. 4, 2018Year ended March 31, 2017:
Dividends paid in the fiscal year ended March 31, 2017
The amounts of dividends below were paid to shareholders recorded in the register of shareholders of the Company (formerly Ashikaga Holdings, Co., Ltd.) at market closing time on March 31, 2016, or September 30, 2016.
Cash dividends approved at the Board of Directors’ meeting held on May 13, 2016:

Common stock
Cash dividends approved at the Board of Directors’ meeting held on Nov. 14, 2016:

Common stock

Total Amount(Millions of Yen)

¥1,499*Total Amount(Millions of Yen)

¥1,832Per Share Amount(Yen)
Dividend Record Date

¥4.50

Mar. 31, 2016

Per Share Amount(Yen)
Dividend Record Date

¥5.50

Effective Date

Jun. 8, 2016

Sep. 30, 2016

Effective Date

Dec. 2, 2016

* Being paid by the Company before the business integration, the dividend whose record date is March 31, 2017, which is before the share exchange, is not included in the changes in shareholders’ equity.

The Company conducted a share exchange whereby the Company became the wholly-owning parent company and Joyo became the wholly-owned subsidiary of the Company on October 1, 2016. In regard to the following dividend amount, the dividend payment resolved at Joyo’s ordinary general meeting of shareholders were paid by Joyo
to the shareholders recorded in the register of shareholders of Joyo at market closing time on March 31, 2016, and so the amount approved at Joyo’s board meeting was
paid to those who were on the record as shareholders of Joyo at market closing time on September 30, 2016.
Cash dividends approved at the Ordinary General Meeting of Shareholders held on June 28, 2016:

Common stock
Cash dividends approved at the Board of Directors’ meeting held on Nov. 7, 2016:

Common stock

Total Amount(Millions of Yen)

¥5,060Total Amount(Millions of Yen)

¥4,337

Per Share Amount(Yen)
Dividend Record Date

¥7.00

Mar. 31, 2016

Per Share Amount(Yen)
Dividend Record Date

¥6.00

Effective Date

Jun. 29, 2016

Sep. 30, 2016

Effective Date

Dec. 2, 2016

Dividends to be paid after March 31, 2017
Cash dividends approved at the Board of Directors’ meeting held on May 12, 2017:

Common stock

Total Amount(Millions of Yen)

¥7,655Per Share Amount(Yen)
Dividend Record Date

¥6.50*

Mar. 31, 2017

Effective Date

Jun. 5, 2017

* Of the per share amount above, ¥1.00 is the amount of a commemorative dividend for the business integration.

Annual Report 201842

15. STOCK OPTIONSThe Company’s stock option plans grant options to directors and others to purchase certain shares of the Company’s common stock in the respective exercise periods.
The Company recorded stock option expenses in “General and administrative expenses” of ¥74 million ($698 thousand) and ¥83 million for the fiscal years ended
March 31, 2018 and 2017, respectively.
The stock options outstanding as of March 31, 2018, were as follows:
Stock Options

Mebuki Financial Group, Inc.
1st Series of Stock
Acquisition Rights*1
Mebuki Financial Group, Inc.
2nd Series of Stock
Acquisition Rights*1
Mebuki Financial Group, Inc.
3rd Series of Stock
Acquisition Rights*1
Mebuki Financial Group, Inc.
5th Series of Stock
Acquisition Rights*1
Mebuki Financial Group, Inc.
6th Series of Stock
Acquisition Rights*1
Mebuki Financial Group, Inc.
7th Series of Stock
Acquisition Rights*1
Mebuki Financial Group, Inc.
8th Series of Stock
Acquisition Rights*1
Mebuki Financial Group, Inc.
9th Series of Stock
Acquisition Rights*1
Mebuki Financial Group, Inc.
10th Series of Stock
Acquisition Rights*1
Mebuki Financial Group, Inc.
11th Series of Stock
Acquisition Rights*1
Mebuki Financial Group, Inc.
12th Series of Stock Acquisition
Rights*1
Mebuki Financial Group, Inc.
13th Series of Stock
Acquisition Rights
Mebuki Financial Group, Inc.
14th Series of Stock
Acquisition Rights
Mebuki Financial Group, Inc.
15th Series of Stock
Acquisition Rights
Mebuki Financial Group, Inc.
16th Series of Stock
Acquisition Rights
2009 Stock Option
2010 Stock Option

Persons Granted

Number of Options
Granted (Shares)

Exercise
Price

Date of Grant

Exercise Period

10 directors of Joyo*2

16,833

August 24, 2009*¥1

From October 1, 2016,
to August 24, 2039

10 directors of Joyo*2

23,634

July 21, 2010*3¥1

From October 1, 2016,
to July 21, 2040

10 directors of Joyo*2

43,430July 20, 2011*3¥1

From October 1, 2016,
to July 20, 2041

10 directors of Joyo*2

42,024

July 19, 2012*3¥1

From October 1, 2016,
to July 19, 2042

16 executive officersof Joyo*2

5,089

July 19, 2012*3¥1

From October 1, 2016,
to July 19, 2042

10 directors of Joyo*2

39,241

July 18, 2013*3¥1

From October 1, 2016,
to July 18, 2043

15 executive officersof Joyo*2

12,428July 18, 2013*3¥1

From October 1, 2016,
to July 18, 2043

10 directors of Joyo*2

40,656

July 18, 2014*3¥1

From October 1, 2016,
to July 18, 2044

14 executive officersof Joyo*2

16,040July 18, 2014*3¥1

From October 1, 2016,
to July 18, 2044

10 directors of Joyo*2

40,041

July 17, 2015*3¥1

From October 1, 2016,
to July 17, 2045

13 executive officersof Joyo*2

22,830July 17, 2015*3¥1

From October 1, 2016,
to July 17, 2045

29 directors of
the Company, Joyo and Ashikaga

142,176

December 6, 2016

¥1

From December 7, 2016,
to December 6, 2046

16 executive officersof Joyo63,910December 6, 2016

¥1

From December 7, 2016,
to December 6, 2046

29 directors of
the Company, Joyo and Ashikaga

135,990

August 9, 2017

¥1

From August 10, 2017,
to August 9, 2047

16 executive officers of Joyo

62,024

August 9, 2017

¥1

From August 10, 2017,
to August 9, 2047

2,684,900

March 2, 2009

¥550

From March 2, 2011,
to December 31, 2018

2,698,700

January 4, 2010

¥550

From January 4, 2012,
to December 31, 2018

6 directors and executive officers of the company
10 directors and executive officers of Ashikaga
1,848 employees of Ashikaga
6 directors and executive officers of the company
10 directors and executive officers of Ashikaga
1,878 employees of Ashikaga

3*1 As a result of the share exchange conducted between the Company and Joyo on October 1, 2016, stock acquisition rights of the Company were allotted to the holders of stock acquisitionrights of Joyo based on the share exchange ratio.
*2 The number is initially granted by Joyo.
*3 The date is initially granted by Joyo.

43

Mebuki Financial Group, Inc.

The stock option activity was as follows:
Mebuki FG
1st

Mebuki FG
2nd

Mebuki FG
3rd

Mebuki FG
5thYear ended March 31, 2018
Non-vested (shares):
April 1, 2017 — Outstanding
GrantedCanceled
VestedMarch 31, 2018 — Outstanding

16,833———
16,83323,634———
23,63443,430——7,488
35,94242,024——
7,245
34,779Vested (shares):
April 1, 2017 — Outstanding
VestedExercised
Canceled
March 31, 2018 — Outstanding

—
—
—
—
—

—
—
—
—
—

—
7,488
7,488
—
—

—
7,245
7,245
—
—

¥1
$0.01
—
—
¥417
$3.92

¥1
$0.01
—
—
¥297
$2.79

¥1
$0.01
¥421
$3.96
¥300
$2.82

¥1
$0.01
¥421
$3.96
¥310
$2.92

Excise price(Yen / US Dollars)
Average stock price at exercise(Yen / US Dollars)
Fair value price at grant date
(Yen / US Dollars)

Mebuki FG
6th

Mebuki FG
7th

Mebuki FG
8th

Mebuki FG
9thYear ended March 31, 2018
Non-vested (shares):
April 1, 2017 — Outstanding
GrantedCanceled
VestedMarch 31, 2018 — Outstanding

5,089
—
—
5,089
—

39,241——
8,672
30,56912,428
—
—
9,321
3,107

40,656——
8,984
31,672

Vested (shares):
April 1, 2017 — Outstanding
VestedExercised
Canceled
March 31, 2018 — Outstanding

—
5,089
5,089
—
—

—
8,672
8,672
—
—

—
9,321
9,321
—
—

—
8,984
8,984
—
—

Excise price(Yen / US Dollars)
Average stock price at exercise(Yen / US Dollars)
Fair value price at grant date
(Yen / US Dollars)

¥1
$0.01
¥421
$3.96
¥331
$3.11

¥1
$0.01
¥421
$3.96
¥518
$4.87

¥1
$0.01
¥421
$3.96
¥542
$5.10

¥1
$0.01
¥421
$3.96
¥500
$4.70

Annual Report 201844

Mebuki FG
10th

Mebuki FG
12th

Mebuki FG
13thYear ended March 31, 2018
Non-vested (shares):
April 1, 2017 — Outstanding
GrantedCanceled
VestedMarch 31, 2018 — Outstanding

16,040
—
—
9,624
6,416

40,041——
9,906
30,13522,830——10,464
12,366142,176——
29,945112,231

Vested (shares):
April 1, 2017 — Outstanding
VestedExercised
Canceled
March 31, 2018 — Outstanding

—
9,624
9,624
—
—

—
9,906
9,906
—
—

—
10,464
10,464———29,94529,945——

Excise price(Yen / US Dollars)
Average stock price at exercise(Yen / US Dollars)
Fair value price at grant date
(Yen / US Dollars)

¥1
$0.01
¥421
$3.96
¥525
$4.94

¥1
$0.01
¥421
$3.96
¥680
$6.40

¥1
$0.01
¥421
$3.96
¥708
$6.66

¥1
$0.01
¥421
$3.96
¥345
$3.25

Mebuki FG
14th

45

Mebuki FG
11th

Mebuki FG
15th

Mebuki FG
16th

Year ended March 31, 2018
Non-vested (shares):
April 1, 2017 — Outstanding
GrantedCanceled
VestedMarch 31, 2018 — Outstanding

63,910——16,17047,740—135,990——
135,990—62,024——62,024

Vested (shares):
April 1, 2017 — Outstanding
VestedExercised
Canceled
March 31, 2018 — Outstanding—
16,17016,170
—
—

—
—
—
—
—

—
—
—
—
—

Excise price(Yen / US Dollars)
Average stock price at exercise(Yen / US Dollars)
Fair value price at grant date
(Yen / US Dollars)

¥1
$0.01
¥421
$3.96
¥374
$3.52

¥1
$0.01
—
—
¥360
$3.39

¥1
$0.01
—
—
¥390
$3.67

Mebuki Financial Group, Inc.

2009 Stock
Option2010 Stock
OptionYear ended March 31, 2018
Non-vested (shares):
April 1, 2017 — Outstanding
GrantedCanceled
VestedMarch 31, 2018 — Outstanding

1,856,600—
62,800—1,793,800

1,929,700—
61,100—1,868,600

Vested (shares):
April 1, 2017 — Outstanding
VestedExercised
Canceled
March 31, 2018 — Outstanding

—
—
—
—
—

—
—
—
—
—

¥550
$5.18
—
—
—
—

¥550
$5.18
—
—
—
—

Excise price(Yen / US Dollars)
Average stock price at exercise(Yen / US Dollars)
Fair value price at grant date
(Yen / US Dollars)

The Assumptions Used to Measure Fair Value of Stock Option
Stock options received from Joyo and issued by the Company were valued using the Black-Scholes option-pricing model and the following principal parameters:

Volatility of stock price*1:
Estimated remaining outstanding period*2:
Estimated dividend*3:
Risk free interest rate*4:

Volatility of stock price*1:
Estimated remaining outstanding period*2:
Estimated dividend*3:
Risk free interest rate*4:

Volatility of stock price*1:
Estimated remaining outstanding period*2:
Estimated dividend*3:
Risk free interest rate*4:

Volatility of stock price*5:
Estimated remaining outstanding period*6:
Estimated dividend*7:
Risk free interest rate*9:

Mebuki FG
1st

Mebuki FG
2nd

Mebuki FG
3rd

Mebuki FG
5th

33.93%
6 years¥8 per share
0.76%

33.00%
6 years¥8 per share
0.45%

34.16%
6 years¥8 per share
0.48%

32.54%
6 years¥8 per share
0.26%

Mebuki FG
6th

Mebuki FG
7th

Mebuki FG
8th

Mebuki FG
9th

33.56%
6 years¥8.5 per share
0.38%

27.19%
3 years¥8.5 per share
0.14%

Mebuki FG
10th

Mebuki FG
11th

Mebuki FG
12th

25.77%
3 years¥9 per share
0.08%

25.64%
6 years¥10 per share
0.14%

26.72%
3 years¥10 per share
0.03%

Mebuki FG
13th

Mebuki FG
14th

29.13%
6 years¥11 per share(0.08)%

30.89%
3 years¥11 per share(0.15)%

24.41%
3 years¥8 per share
0.10%

30.90%
6 years¥9 per share
0.19%

Annual Report 201846

Volatility of stock price*5:
Estimated remaining outstanding period*6:
Estimated dividend*8:
Risk free interest rate*9:

Mebuki FG
15th

Mebuki FG
16th

28.36%
6 years¥11 per share(0.03)%

29.44%
3 years¥11 per share(0.07)%*1. Volatility of stock price is calculated based on the actual stock price of Joyo during the period below.
Mebuki FG 1st : From August 22, 2003, to August 21, 2009
Mebuki FG 2nd : From July 21, 2004, to July 20, 2010
Mebuki FG 3rd : From July 20, 2005, to July 19, 2011
Mebuki FG 5th : From July 19, 2006, to July 18, 2012
Mebuki FG 6th : From July 21, 2009, to July 18, 2012
Mebuki FG 7th : From July 18, 2007, to July 17, 2013
Mebuki FG 8th : From July 20, 2010, to July 17, 2013
Mebuki FG 9th : From July 18, 2008, to July 17, 2014
Mebuki FG 10th : From July 19, 2011, to July 17, 2014
Mebuki FG 11th : From July 17, 2009, to July 16, 2015
Mebuki FG 12th : From July 17, 2012, to July 16, 2015
*2. Estimated remaining outstanding period is calculated based on average tenure of retired directors and executive officers of Joyo
*3. Actual dividend payments conducted by Joyo just before each stock option was issued*4. Yield of Japanese government bonds approximating the estimated remaining outstanding period at the time when Joyo issued each stock option*5. Volatility of stock price is calculated based on the actual stock price of the Company during the period. Only a short time has passed since the business combination was conducted through ashare exchange between the Company and Joyo, during the period before the business combination was completed, volatility of stock price was calculated based on the actual stock price of asimilar publicly traded company.
Mebuki FG 13th : From December 6, 2010 to December 5, 2016
Mebuki FG 14th : From December 6, 2013 to December 5, 2016
Mebuki FG 15th : From August 9, 2011 to August 8, 2017
Mebuki FG 16th : From August 9, 2014 to August 8, 2017
*6. Estimated remaining outstanding period is calculated based on average tenure of retired directors of the Company, Joyo, and Ashikaga, and executive officers of Joyo.
*7. Estimated dividend paid in the fiscal year ended March 31, 2017 (excluding a commemorative dividend)*8. Actual dividend payments (excluding a commemorative dividend) conducted by the company just before each stock option was issued.
*9. Yield of Japanese government bonds approximating the estimated remaining outstanding period at the time when the Company issued each stock option

The Method Used to Estimate the Number of Stock Options Expected to Vest
Since it is difficult to rationally estimate the number of unexercised options in the future, a method of only reflecting actual unexercised options is adopted.
(2009 Stock Option and 2010 Stock Option)
As the Company was an unlisted company when stock option rights were granted, they were measured at their intrinsic value because the fair value of stock options cannot be reliably estimated. The Company does not recognize relevant expenses since their fair value on the date of grant was zero. The amounts of their intrinsic value asof March 31, 2018, were nil.

16. PER SHARE OF COMMON STOCK(1) Net income per share
Reconciliation of the differences between basic and diluted net income per share(“EPS”) for the years ended March 31, 2018 and 2017, was as follows:
Millions of Thousands ofYen
SharesNet Income
WeightedAttributable
Averageto Owners of
Sharesthe Parent

Year Ended March 31, 2018
Basic EPS —Net income available tocommon shareholders����������� ¥ 43,069
Effect of dilutive securities:
Warrants��������������������������������
—Diluted EPS —Net income
for computation��������������������� ¥ 43,069
Year Ended March 31, 2017
Basic EPS —Net income available
to common shareholders������� ¥158,455
Effect of dilutive securities�������
—Diluted EPS —Net income
for computation��������������������� ¥158,455

47

Mebuki Financial Group, Inc.

(2) Total equity per share
Total equity per share as of March 31, 2018 and 2017, was as follows:
Yen
2018

Total equity per share������������������������� ¥753.83
Yen

2017

U.S. Dollars
2018¥732.66$7.09

U.S. Dollars

Total equity per share as of March 31, 2018 and 2017, is calculated based on
the following:

EPS

Millions of Yen
2018
2017

1,177,843 ¥ 36.56
541

$0.34

—

—

1,178,385 ¥ 36.54$0.34

Total equity���������������������������������������� ¥888,139
Deductions from total equity���������������
216
Total equity attributable
to common shareholders������������������ ¥887,923¥863,086
193$8,357,389
2,038¥862,892$8,355,351

Number of Shares in Thousands
2018
2017

Number of shares of common stock used incomputing total equity pershare at year-end�������������������������������������������������� 1,177,872
1,010,667 ¥156.78
380—

1,011,047 ¥156.72

Thousands of
U.S. Dollars
2018

1,177,751

17. OTHER INCOME

20. INCOME TAXESOther income for the years ended March 31, 2018 and 2017, consisted of thefollowing:

The Group is subject to Japanese national and local income taxes which, in theaggregate, resulted in a normal effective statutory tax rate of 30.86% for theyears ended March 31, 2018 and 2017.
The tax effects of significant temporary differences and loss carry forwards
which result in deferred tax assets and liabilities as of March 31, 2018 and2017, were as follows:

Millions of Yen
2018
2017

Gain on sales of stock andother securities�������������������������������� ¥13,078
Recoveries of write-off claims�������������
2,088
942
Gain on disposal of fixed assets����������
Other������������������������������������������������ 27,498
Total������������������������������������������������� ¥43,608¥9,9022,688
6
23,718¥36,316

Thousands of
U.S. Dollars
2018$123,073
19,6498,871
258,765$410,358

18. GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the years ended March 31, 2018 and2017, consisted of the following:
Millions of Yen
2018
2017

Salaries and allowances��������������������� ¥ 52,841
Periodic benefit costs�������������������������
5,402
Other������������������������������������������������ 62,183
Total�������������������������������������������������� ¥120,427¥42,922
5,956
49,209¥98,088

Thousands of
U.S. Dollars
2018$ 497,236
50,839585,143$1,133,218

19. OTHER EXPENSES
Other expenses for the years ended March 31, 2018 and 2017, consisted of thefollowing:
Millions of Yen
2018
2017

Loss on sales of stocks and othersecurities����������������������������������������� ¥ 5,366
Write-off amount of loans�������������������
4,517
1,813
Impairment losses*����������������������������
Loss on disposal of fixed assets����������
312
Other������������������������������������������������ 25,329
Total�������������������������������������������������� ¥37,339¥ 2,211
3,940
1,463
438
23,354¥31,407

Thousands of
U.S. Dollars
2018$ 50,502
42,50917,061
2,942
238,351$351,365* Impairment losses on long-lived assets were recognized mainly on the properties of theBank’s branches in Tochigi and Ibaraki prefecture, which were decided to be closed, as investments could not be recovered. The components of impairment losses by fixed assets
for the years ended March 31, 2018 and 2017, were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2018Land��������������������������������������������������������������
Buildings��������������������������������������������������������
Software���������������������������������������������������������
Equipment������������������������������������������������������
Leasehold�������������������������������������������������������

¥811
485
383
84
48

2017

¥470
198
324
266
202

2018

$7,635
4,564
3,607
797
457

Millions of Yen
2018
2017

Deferred tax assets:
Allowance for loan losses��������������� ¥ 27,445
Write-offs of securities������������������� 12,920

Thousands of
U.S. Dollars
2018¥ 29,004$ 258,262

13,217
12,832
1,758
1,779
1,104

121,586
104,383
17,153
15,508
11,777

Liability for retirement benefits������� 11,092
1,822
Provision for employee bonuses�����
Tax loss carryforwards�������������������
1,647
Depreciation����������������������������������
1,251
Provision for reimbursement of
1,149
1,058
deposits��������������������������������������
Other��������������������������������������������
9,332
9,783
70,538Subtotal deferred tax assets������� 66,663
Less valuation allowance���������������� (18,212) (18,485)
Total deferred tax assets����������� 48,450
52,053
Deferred tax liabilities:——
Unrealized gains on availablefor-sale securities������������������������ (63,777) (69,694)
Retirement benefit trust(4,467)(4,467)(6,875)(7,692)Other��������������������������������������������
Total deferred tax liabilities�������� (75,120) (81,854)
Net deferred tax liabilities������������������� ¥(26,669) ¥(29,800)

10,82187,814
627,304(171,380)
455,923—(600,146)(42,040)(64,700)(706,886)$(250,963)

A reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflected in the accompanying consolidated statement ofincome for the year ended March 31, 2018, with the corresponding figures for
2017, was as follows:
Normal effective statutory tax rate����������������������������
Gain on negative goodwill����������������������������������������
Change in valuation allowance���������������������������������
Dividends exempted from taxation����������������������������
Expenses that are not deductiblefor income tax purposes�����������������������������������������
Other — net�����������������������������������������������������������
Actual effective tax rate�������������������������������������������

2018

2017

—
—
—
—

30.86%(21.71)(2.67)(0.27)

—
—
—

0.05
0.18
6.44%

Since the difference between the legally effective tax rate and the actual effective tax rate after applying tax effect accounting is equal to or less than 5% of
the legally effective tax rate, notes for the year ended March 31, 2018, are omitted.

Annual Report 201848

21. LEASES
Future minimum payments under noncancelable operating leases as of March
31, 2018 and 2017, were as follows:
LesseeMillions of Yen
2018
2017

Due within one year������������������������
Due after one year��������������������������
Total����������������������������������������������

¥183
187
¥371

Thousands of
U.S. Dollars
2018

¥ 69
156
¥226

$1,731
1,762$3,493

Millions of Yen
2018
2017

Thousands of
U.S. Dollars
2018

Derivatives transactions to which hedge accounting is not applied are exposed to interest rate fluctuation risks, foreign currency exchange rate fluctuation
risks, price fluctuation risks, and credit risks.
(3) Risk Management for Financial Instruments(a) Integrated Risk Management
The Group conducts integrated risk management to holistically control risks fromvarious financial assets and liabilities and risks related to the banking business.
More specifically, the periodically quantified risks of the Group are controlled so
as not to exceed Tier 1 capital allocated by each risk category. The bank assesses unquantifiable risks using stress tests and other measures.

LessorDue within one year������������������������
Due after one year��������������������������
Total����������������������������������������������

¥2
3
¥5

¥1
3
¥5

$21
33
$54

22. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES(1) Group Policies for Financial Instruments
The Group provides financial services, centering on banking. As the central business operation of the Group, the consolidated banking subsidiaries raise funds bydeposits as its basic function as a bank; the consolidated banking subsidiaries
also procure funds by call money transactions from short-term markets to maintain an adequate degree of liquidity. The consolidated banking subsidiaries manage those funds through lending to corporate customers and individuals, such as
housing loans, investing in securities, mainly bonds, and investing in money
markets.
The Group utilizes Asset Liability Management (ALM) to avoid unfavorable
floating interest rate fluctuation of the financial assets and liabilities it holds. As apart of ALM, the Group has entered into derivative transactions.
(2) Nature and Extent of Risks Arising from Financial Instruments
The Group’s financial assets are mainly loans made by the consolidated banking
subsidiaries to domestic corporations and individuals in Japan, which are exposed not only to interest rate fluctuation risks, but also to customers’ credit
risks. Securities and investment securities, such as bonds, stocks, and investment trusts, are possessed to trade, to hold to maturity dates to generate stableinterest income, and to promote business relationships with the issuers. These
securities are exposed to the issuers’ credit risks, interest rate fluctuation risks,and market price fluctuation risks.
The Group’s main financial liabilities are deposits received by the consolidated baking subsidiaries, which are exposed to interest rate fluctuation risks
and liquidity risks. Borrowed money and bonds are exposed to the risks that theGroup may not be able to repay them on their maturity dates if, under certain circumstances, the Group is not able to access a capital market.
The consolidated banking subsidiaries utilize derivative transactions tohedge the customers’ interest and currency risks and to control the interest rate
fluctuation risks in ALM. Derivatives transactions are utilized to hedge interest
rate fluctuation risks, foreign currency exchange rate fluctuation risks, and market price fluctuation risks on the Group’s financial assets and liabilities. Derivatives mainly include interest rate swaps, currency swaps, and bond futures, andare exposed to the interest rate fluctuation risks, market price fluctuation risks,
foreign currency exchange rate fluctuation risks, and credit risks.
Hedge accounting is applied to certain derivatives.
In hedge transactions against foreign currency fluctuation risks, mainly currency swaps and foreign exchange swaps, the effectiveness of hedging is determined by confirming the amount of the hedging instruments is generally
consistent with that of the hedged items. Regarding an exceptional accounting
treatment in interest rate swaps, post testing is conducted to confirm that requirements for the treatment are satisfied.

49

Mebuki Financial Group, Inc.

(b) Credit Risk Management
The group has enacted “Group Guidelines for Credit Risk Management,” which
provides for basic policies comprising appropriate credit exposure management
on individual and portfolio bases. The portfolio-based credit exposure management involves diversification of risks.
Credit risk management divisions have been segregated from the divisions
under business headquarters to achieve rigorous credit review, and conduct
monitoring of borrowers’ financial condition to prevent deterioration of loans.
In the self-assessments that evaluate the quality of assets, the business offices categorize the borrowers based on credit ratings, which are then reviewed
by credit-related divisions in the headquarters. Furthermore, audit divisions examine results and process of the self-assessments for accuracy and adequacy.
As for credit risks of the issuers of securities and the counterparties of derivatives transactions, global markets and market operation divisions monitor
credit information and market prices and gives the issuers and counterparties
credit ratings as well as carry out assessments of the issuers and counterparties
like general borrowers.
(c) Market Risk Management① Market Risk Management Measures
The Group manages market risks by ALM. Risk management policies and procedures are prescribed in relevant ALM rules and manuals, and these policies, decided in ALM / Risk Management Committee and so forth, are closely monitored
and regularly discussed.
② Market Risk Quantitative information(i) Banking Accounta. Interest Rate Risk
The Group adopts the variance-covariance method as the measurement method(a holding period of six months, a confidence interval of 99%, and an observation
period of one year) for calculating VaR related to interest rate risk of loans andbills discounted, domestic bonds, deposits, borrowed money, corporate bonds,
and derivatives such as interest rate swaps. The Group uses the historical simulation method (a holding period of six months, a confidence interval of 99%, andan observation period of five years) for the calculation of VaR related to interest
rate risk of foreign bonds, trust beneficiary right, market fund transaction, andderivatives like interest rate swaps and currency swaps.
As of March 31, 2018 and 2017, the Group’s VaR related to interest raterisks, which is a simple sum of its consolidated banking subsidiaries’ VaR, were¥42,371 million ($398,720 thousand) and ¥69,256 million, respectively.
b. Price Fluctuation Risk
The Group adopts the historical simulation method (a holding period of six
months, a confidence interval of 99%, and an observation period of five years)
for calculating VaR related to price fluctuation risk of listed equities and investment trust.
As of March 31, 2018 and 2017, the Group’s VaR related to price fluctuation risk, which is a simple sum of its consolidated banking subsidiaries’ VaR,
were ¥144,794 million ($1,362,512 thousand) and ¥130,317 million, respectively. Correlation between interest rate risk and price fluctuation risk has notbeen considered.

(ii) Trading Account
The Group adopts the historical simulation method (a holding period of 10 days,
a confidence interval of 99%, and an observation period of five years) for calculating VaR related to trading securities; trading purpose foreign exchange transactions; and trading purpose derivatives, such as forward transactions and option
transactions. As of March 31, 2018 and 2017, the Group’s VaR related to trading account, which is simple sum of its consolidated banking subsidiaries’ VaR,
were ¥5 million ($55 thousand) and ¥11 million, respectively.
(iii) Validity of VaR
The Group performs back testing to compare VaR calculated by its internal measurement model with the actual profit and loss to confirm whether the model
captures market risks with sufficient accuracy. However, there could be cases inwhich VaR cannot capture risks under sudden and dramatic changes in market
conditions beyond normal circumstances since VaR is statistically calculated
based on historical market fluctuation.
(d) Liquidity Risk Management
Under “Group Liquidity Risk Management Rules,” the Group conducts financing
activities after fully analyzing its cash flows and strives to maintain the diversity
and stability of funding sources, while paying continuous attention to the balance
sheet structure, lines of credit provided to the Group, collateral management,
and costs to maintain the liquidity.
(4) Supplementary Explanation on Fair Values of Financial Instruments
The fair values of financial instruments are based on their market prices and, incases, where market prices are not readily available, reasonably calculated prices. Such prices have been calculated using certain assumptions and may differ if
calculated based on different assumptions.
(5) Fair Values of Financial Instruments(a) Fair value of financial instruments
Millions of Yen
March 31, 2018

Carrying
AmountUnrealized
Fair Value Gains/Losses(1) Cash and due from banks����������������������� ¥ 1,708,734 ¥ 1,708,734(2) Securities:
Held-to-maturity securities����������������������
154,787
154,920
Available-for-sale securities��������������������� 4,002,942 4,002,942(3) Loans and bills discounted���������������������� 10,497,976
Allowance for loan losses*1���������������������
(73,370)
Net���������������������������������������������������� 10,424,606 10,523,344
Total assets������������������������������������������������ ¥16,291,070 ¥16,389,942(1) Deposits������������������������������������������������ ¥13,977,912 ¥13,979,361(2) Negotiable certificates of deposit�������������
272,640
272,695(3) Call money and bills sold������������������������
340,540
340,540(4) Borrowed money������������������������������������
877,856
878,500
Total liabilities��������������������������������������������� ¥15,468,950 ¥15,471,099
Derivative instruments*2 :Hedge accounting is not applied�������������� ¥1,804 ¥
1,804
Hedge accounting is applied��������������������
4,634
4,634
Total derivative instruments������������������������� ¥6,439 ¥
6,439

¥—
133
—

98,738¥98,871¥(1,449)
(55)
—
(644)
¥(2,148)
¥—
—
¥—

Millions of Yen
March 31, 2017

Carrying
AmountUnrealized
Fair Value Gains/Losses(1) Cash and due from banks����������������������� ¥ 1,393,762 ¥ 1,393,762(2) Securities:
Held-to-maturity securities����������������������
139,385
138,705
Available-for-sale securities��������������������� 4,036,244 4,036,244(3) Loans and bills discounted���������������������� 10,244,730
Allowance for loan losses*1���������������������
(72,767)
Net���������������������������������������������������� 10,171,962 10,283,426
Total assets������������������������������������������������ ¥15,741,355 ¥15,852,138(1) Deposits������������������������������������������������ ¥13,507,047 ¥13,508,898(2) Negotiable certificates of deposit�������������
284,705
284,757(3) Call money and bills sold������������������������
303,312303,312(4) Payables under securities lendingtransactions�����������������������������������������
167,640
167,640(5) Borrowed money������������������������������������
735,593736,548
Total liabilities��������������������������������������������� ¥14,998,299 ¥15,001,158
Derivative instruments*2 :Hedge accounting is not applied�������������� ¥1,754 ¥
1,754
Hedge accounting is applied��������������������
(475)
(475)
Total derivative instruments������������������������� ¥1,279 ¥
1,279

March 31, 2018

¥—
(680)
—

111,464¥110,783¥(1,850)
(52)
—
—
(955)
¥(2,858)
¥—
—
¥—

Thousands of U.S. Dollars
Carrying
Unrealized
AmountFair Value Gains/Losses(1) Cash and due from banks����������������������� $ 16,079,180 $ 16,079,180(2) Securities:
Held-to-maturity securities���������������������� 1,456,550 1,457,802
Available-for-sale securities��������������������� 37,667,661 37,667,661(3) Loans and bills discounted���������������������� 98,785,892
Allowance for loan losses*1���������������������
(690,413)
Net���������������������������������������������������� 98,095,478 99,024,606
Total assets������������������������������������������������ $153,298,870 $154,229,250(1) Deposits������������������������������������������������ $131,532,068 $131,545,704(2) Negotiable certificates of deposit������������� 2,565,543 2,566,064(3) Call money and bills sold������������������������ 3,204,487 3,204,487(4) Borrowed money������������������������������������ 8,260,623 8,266,688
Total liabilities��������������������������������������������� $145,562,721 $145,582,942
Derivative instruments*2 :Hedge accounting is not applied�������������� $16,984 $16,984Hedge accounting is applied��������������������
43,612
43,612
Total derivative instruments������������������������� $60,596 $60,596

$

—
1,252
—

929,128$930,380$ (13,636)(520)—(6,065)$ (20,221)
$

—
—

$

—

*1 Allowances for loan losses relevant to loans and bills discounted have been deducted.
*2 Derivative instruments recorded as trading assets, trading liabilities, other assets and other liabilities include derivative transactions. Derivative instruments are presented as net ofassets and liabilities associated with derivative transactions.

Assets(1) Cash and due from banks
The fair values of these items approximate the carrying amount, which are
deemed to be the fair value.
(2) Securities
The fair values of marketable equity securities are measured at the quoted market price of the stock exchange for equity instruments. Fair values of bonds aremeasured at the market price or the quoted price obtained from financial institutions. Fair values of investment trusts are measured at the quoted price.
The fair values of private placement bonds are determined by discounting
future cash flows. The discount rates used in the calculation were calculated
based on the bankruptcy probability by credit rating and the coverage ratio of
each claim.
We treat market prices as fair values for floating-rate Japanese Government
Bonds and securitized products.

Annual Report 201850

(3) Loans and bills discounted
The carrying amounts of loans and bills discounted with floating-interest rates
approximate fair value as long as customers’ credit risks have not changed significantly after lending because the market rates are promptly reflected in the
floating interest rates.
The fair values of loans and bills discounted with fixed-interest rates are determined by discounting the principal and interest amount with the interest rateused for new loans for each category of loan calculated based on the bankruptcy
probability by credit rating and the coverage ratio of each claim, internal credit
rating, and loan period. The carrying amounts of loans and bills discounted withmaturity less than one year approximate fair value because of their short maturities.
For loans to obligors classified as “legal bankruptcy,” “virtual bankruptcy,”and “possible bankruptcy,” an allowance is provided based on the discounted
cash flow method or based on amounts expected to be collected through thedisposal of collateral or execution of guarantees. The carrying value, net of theallowance, as of the consolidated balance sheet date is a reasonable estimate of
the fair values of those loans.
The carrying amounts of loans and bills discounted that do not have fixedmaturities due to loan characteristics, such as limited loan amounts within thevalue of pledged assets, approximate fair value due to their expected repayment
periods and interest rate conditions.
Liabilities(1) Deposits
The fair values of demand deposits are recognized as the payment at the date of
the consolidated balance sheet. The fair values of time deposits are determinedby discounting the contractual cash flows grouped by the remaining duration at
the rates that would be applied for similar new contracts.

(3) Call money and bills sold
The carrying amounts of call money and bills sold approximate fair value because
they have maturities of one year or less.
(4) Payables under securities lending transactions
Refer to (3) Call money and bills sold.
(5) Borrowed Money
The fair value of borrowed money is discounted at the rate that would be applied
for similar new contracts. The carrying amount of borrowed money with maturityof one year or less approximates fair value because of its short maturity period.
Derivatives
See “Note 23. DERIVATIVES.”(b) Carrying amount of financial instruments whose fair value cannot be reliably
determined
Thousands of
U.S. Dollars
2018

Millions of Yen
2018
2017

Equity securities without readily
available market price*1*2�������������� ¥ 4,335
Investments in partnerships*3���������� 14,703
Total���������������������������������������������� ¥19,038$ 40,793
138,358$179,151¥ 4,323
10,727¥15,051*1 Equity securities without readily available market prices are out of the scope of the fairvalue disclosure because their fair values cannot be reliably determined.
*2 During the years ended March 31, 2018 and 2017, impairment losses on equity securities without readily available market price of ¥2 million ($27 thousand) and ¥46 million
was recognized respectively.
*3 Investments in partnerships, the assets of which comprise equity securities without readily available market price, are out of the scope of the fair value disclosure.

(2) Negotiable certificates of deposit
Refer to (1) Deposits.

(6) Maturity Analysis for Financial Assets and Liabilities with Contractual Maturities

March 31, 2018

Due from banks�������������������������������������������������
Securities:���������������������������������������������������������
Held-to-maturity securities�����������������������������
Japanese national government bonds���������
Japanese local government bonds�������������
Japanese corporate bonds�������������������������
Available-for-sale securities
with contractual maturities����������������������������
Japanese national government bonds���������
Japanese local government bonds�������������
Japanese corporate bonds�������������������������
Foreign currency bonds�����������������������������
Other��������������������������������������������������������
Loans and bills discounted*1�������������������������������
Total�����������������������������������������������������������������

51

Mebuki Financial Group, Inc.

Due in 1 Yearor Less

Due after 1 Yearthrough 3 Years

Millions of Yen
Due after 3 Years
Due after 5 Years
through 5 Years
through 7 Years

Due after 7 Years
through 10 Years

Due after 10 Years¥1,585,188
340,607
14,583—50
14,533¥¥¥¥

326,023
187,000
35,65860,35030,85912,1552,281,662¥4,207,458

769,690367,800
153,220
174,006
45,22629,4381,860,348¥2,683,247—
822,898
53,20725,000200
28,007—
509,615
21,792—150
21,642487,82280,000167,188
146,887
60,01833,728
1,345,704¥1,855,320¥—
414,507
2,043
—
—
2,043

412,464
35,000188,273
59,87180,26549,053
901,598¥1,316,106—
655,895
1,209
—
—
1,209

654,686
10,000233,796
33,127
315,60762,155
976,467¥1,632,362—
388,12450,00050,000——338,124
57,5007,447
171,154
90,346
11,6752,793,958¥3,182,082

March 31, 2017

Due from banks�������������������������������������������������
Securities:���������������������������������������������������������
Held-to-maturity securities�����������������������������
Japanese national government bonds���������
Japanese local government bonds�������������
Japanese corporate bonds�������������������������
Available-for-sale securities
with contractual maturities����������������������������
Japanese national government bonds���������
Japanese local government bonds�������������
Japanese corporate bonds�������������������������
Foreign currency bonds�����������������������������
Other��������������������������������������������������������
Loans and bills discounted*2�������������������������������
Total�����������������������������������������������������������������

March 31, 2018

Due from banks�������������������������������������������������
Securities:���������������������������������������������������������
Held-to-maturity securities�����������������������������
Japanese national government bonds���������
Japanese local government bonds�������������
Japanese corporate bonds�������������������������
Available-for-sale securities
with contractual maturities����������������������������
Japanese national government bonds���������
Japanese local government bonds�������������
Japanese corporate bonds�������������������������
Foreign currency bonds�����������������������������
Other��������������������������������������������������������
Loans and bills discounted*1�������������������������������
Total�����������������������������������������������������������������

Due in 1 Yearor Less

Due after 1 Yearthrough 3 Years

Millions of Yen
Due after 3 Years
Due after 5 Years
through 5 Years
through 7 Years

Due after 7 Years
through 10 Years

Due after 10 Years¥1,268,298
361,435
14,407——
14,407¥¥¥¥

347,028
205,000
49,49743,74944,886
3,894
2,235,506¥3,865,240

806,788395,300
104,546
123,563
146,694
36,683
1,788,224¥2,622,106

610,290
214,500
121,618
133,213112,716
28,241
1,390,264¥2,033,326

Due in 1 Yearor Less

Due after 1 Yearthrough 3 Years$14,916,613
3,205,115
137,234—
470
136,764$

3,067,881
1,759,669
335,542
567,900
290,387
114,383
21,470,432$39,592,160

7,242,786
3,460,996
1,441,802
1,637,395
425,580
277,014
17,505,871$25,249,341—
833,882
27,0937,000
200
19,893—
7,743,469
500,683
235,250
1,882
263,551—
643,062
32,771
18,00050
14,721¥—
367,724
1,085
—
—
1,085

—
347,886
50,00050,000——605,256
108,600
193,048
69,635207,062
26,909980,891¥1,587,169

297,886
60,0008,655
149,368
71,9827,880
2,622,773¥2,970,659

Thousands of U.S. Dollars
Due after 3 Years
Due after 5 Years
through 5 Years
through 7 Years

Due after 7 Years
through 10 Years

Due after 10 Years

$

$

$

—
4,795,481
205,071—
1,411
203,660

4,590,410
752,799
1,573,239
1,382,210
564,776
317,385
12,663,074$17,458,555

366,639
25,000139,543
84,183
98,02019,891
872,298¥1,240,023—
606,278
1,022
—
—
1,022

$

—
3,900,515
19,229——19,2293,881,286
329,350
1,771,651
563,389755,298
461,598
8,484,040$12,384,555—
6,171,971
11,377——
11,377

6,160,594
94,1002,200,024
311,725
2,969,864
584,881
9,188,548$15,360,520—
3,652,246
470,500
470,500——

3,181,746
541,075
70,085
1,610,558
850,160
109,868
26,291,129$29,943,375*1 As of March 31, 2018, loans and bills discounted with no contractual maturities amounting to ¥191,531 million ($1,802,310 thousand) and loans and bills discounted whose cash flow cannot
be estimated, such as “legal bankruptcy,” “virtual bankruptcy,” and “possible bankruptcy” loans, amounting to ¥146,704 million ($1,380,487 thousand) are not included.
*2 As of March 31, 2017, loans and bills discounted with no contractual maturities amounting to ¥200,924 million and loans and bills discounted whose cash flow cannot be estimated, such as“legal bankruptcy,” “virtual bankruptcy,” and “possible bankruptcy” loans, amounting to ¥153,847 million are not included.

Due in 1 Yearor Less

Due after 1 Yearthrough 3 Years

Deposits * �������������������������������������������������������� ¥12,960,866
272,640
Negotiable certificates of deposit������������������������
Call money and bills sold������������������������������������
340,540
Borrowed money������������������������������������������������
697,268
Total����������������������������������������������������������������� ¥14,271,316¥874,853——
116,443¥991,296

Due in 1 Yearor Less

Due after 1 Yearthrough 3 Years

Deposits * �������������������������������������������������������� ¥12,402,723
284,605
Negotiable certificates of deposit������������������������
Call money and bills sold������������������������������������
303,312
Payables under securities lending transactions����
167,640
502,373
Borrowed money������������������������������������������������
Total����������������������������������������������������������������� ¥13,660,655¥ 964,401
100——
156,360¥1,120,862

March 31, 2018
1

March 31, 2017
1

Millions of Yen
Due after 3 Years
Due after 5 Years
through 5 Years
through 7 Years¥129,996——
63,926¥193,922¥9,175——211¥9,387

Millions of Yen
Due after 3 Years
Due after 5 Years
through 5 Years
through 7 Years¥126,609———
76,833¥203,443¥9,161———
12¥9,173Due after 7 Years
through 10 Years¥3,021——
5¥3,027

Due after 7 Years
through 10 Years¥4,152———
12¥4,164Due after 10 Years

¥—
—
—
—
¥—

Due after 10 Years

¥—
—
—
—
—
¥—

Annual Report 201852

Due in 1 Yearor Less

Due after 1 Yearthrough 3 Years

Thousands of U.S. Dollars
Due after 3 Years
Due after 5 Years
through 5 Years
through 7 Years

Deposits * �������������������������������������������������������� $121,961,670
2,565,543
Negotiable certificates of deposit������������������������
3,204,487
Call money and bills sold������������������������������������
Borrowed money������������������������������������������������
6,561,293
Total����������������������������������������������������������������� $134,292,992$8,232,363——
1,095,729$9,328,092$1,223,263——
601,551$1,824,814

March 31, 20181

Due after 7 Years
through 10 Years$86,344——1,994$88,338$28,429——56$28,485

Due after 10 Years

$—
—
—
—
$—

*1 The cash flow of demand deposits is included in “Due in one year or less.”

23. DERIVATIVES(1) Derivative Transactions to Which Hedge Accounting Is Not Applied as of March 31, 2018 and 2017
With respect to derivatives to which hedge accounting is not applied, contract amount or notional principal, fair value, and the related valuation gains (losses) at the fiscal
year end date by transaction type and valuation method of fair value are as follows. Note that contract amounts do not represent the market risk exposure associated with
derivatives.
Consolidated banking subsidiaries had the following derivative contracts, which were quoted on listed exchanges, outstanding as of March 31, 2018 and 2017, as
follows:

March 31, 2018

Contract
AmountBond-related transactions
Bond futures:
Sold����������������������������������������������
Bought������������������������������������������
Total���������������������������������������������������

¥5,579754—

March 31, 2017

Contract
AmountBond-related transactions
Bond futures:
Sold���������������������������������������������
Bought�����������������������������������������
Total���������������������������������������������������

¥2,553——

Millions of Yen
Contract AmountDue afterFair
One Year
Value

¥—
—
—

¥1
(0)
¥0

Millions of Yen
Contract AmountDue afterFair
One Year
Value

¥—
—
—

¥(1)
—
¥(1)

Unrealized
Gains/Losses

¥1
(0)
¥0

Contract
Amount$52,503
7,099—

Thousands of U.S. Dollars
Contract AmountDue afterFair
One Year
Value

$—
—
—

$10
(6)
$ 4

Unrealized
Gains/Losses

$10
(6)
$ 4

Unrealized
Gains/Losses

¥(1)
—
¥(1)

Note: 1 The transactions above are stated at fair value, and the related valuation gains (losses) are reported in the consolidated statement of income.
2 Fair values of transactions above are determined based on closing prices at the Osaka Exchange or other relevant exchanges.

Consolidated banking subsidiaries had the following derivative contracts, which were not quoted on listed exchanges, outstanding as of March 31, 2018 and 2017, as follows:

March 31, 2018

Contract
AmountMillions of Yen
Contract AmountDue afterFair
One Year
Value

Unrealized
Gains/Losses

Contract
AmountThousands of U.S. Dollars
Contract AmountDue afterFair
One Year
Value

Unrealized
Gains/Losses

Interest rate-related transactions
Interest rate swaps:

53

Receive fixed and pay floating�����
Receive floating and pay fixed�����
Cap transaction¥113,752
113,752¥ 97,411
97,411¥1,762(275)¥1,762(275)$1,070,406
1,070,406$ 916,638
916,638$16,588(2,589)$16,588(2,589)Sold������������������������������������������
Bought��������������������������������������
Total����������������������������������������������������
Currency-related transactions

775
775
—

710
710
—

(0)
0
¥1,4873(2)¥1,489

7,300
7,300
—

6,688
6,688
—

(4)
3
$13,99836(23)$14,012Currency swaps�������������������������������
Forward exchange contracts:¥208,362¥186,339

¥349

¥349

$1,960,688$1,753,456$ 3,287$ 3,287

Sold������������������������������������������
Bought��������������������������������������
Currency option contracts:

64,14885,701

5,320
2,599

1,111
(1,098)1,111(1,098)603,638
806,454

50,06924,46010,455(10,339)

10,455(10,339)

Sold������������������������������������������
Bought��������������������������������������
Total����������������������������������������������������

101,897
101,897—

63,37463,374—(3,392)
3,348
¥ 316

(898)
2,227
¥1,690958,858
958,858—

596,353596,353—(31,927)
31,506$ 2,982(8,455)20,961$15,910

Mebuki Financial Group, Inc.

March 31, 2017

Contract
AmountMillions of Yen
Contract AmountDue afterFair
One Year
Value

Unrealized
Gains/Losses

Interest rate-related transactions
Interest rate swaps:
Receive fixed and pay floating�����
Receive floating and pay fixed�����
Swaption¥106,628
106,628¥87,406
87,406¥1,629(296)¥1,629(296)

Sold������������������������������������������
Bought��������������������������������������
Total����������������������������������������������������
Currency-related transactions

2,030
2,030
—

—
—
—

(1)
1
¥1,3329
1¥1,343Currency swaps�������������������������������
Forward exchange contracts:¥276,519¥181,614

¥ 393

¥ 393

Sold������������������������������������������
Bought��������������������������������������
Currency option

45,875
46,771

4,937
4,191

(1,048)1,064(1,048)1,064

Sold������������������������������������������
Bought��������������������������������������
Total����������������������������������������������������

70,34470,344—37,36337,363—(1,941)
1,954
¥ 422

(484)
1,223
¥1,148

Note: 1 The transactions above are stated at fair value and the related valuation gains (losses) are reported in the consolidated statement of income.
2 Fair values of transactions above are determined based on a discounted cash flows model, an option pricing model or other models as appropriate.

(2) Derivative Transactions to Which Hedge Accounting Is Applied as of March 31, 2018 and 2017
With respect to derivatives to which hedge accounting is applied, contract amount or notional principal and fair value at the fiscal year end date by transaction type andhedge accounting method and valuation method of fair value are as follows. Note that contract amounts do not represent the market risk exposure associated with derivatives.
Consolidated banking subsidiaries had the following derivative contracts, which were accounted for based on the principle method, outstanding as of March 31,2018 and 2017, as follows:

March 31, 2018

Hedged Item

Contract
AmountMillions of Yen
Contract AmountDue after
One YearThousands of U.S. Dollars
Contract AmountDue after
Fair
Contract
One YearValue
AmountFair
Value

Interest rate-related transactions*1*4
Interest rate swaps:
Interest-bearing financial assets
and liabilities, including loans,available-for-sale securities,
deposits and negotiable
Receive floating and pay fixed������ certificates of deposit, etc.
Total�����������������������������������������������
Currency-related transactions*2*5
Loans, securities, deposits,
Currency swaps������������������������������� foreign exchanges, etc., which
Forward exchange contracts������������ are denominated in foreign
Foreign exchange swap������������������� currencies
Total�����������������������������������������������
Equity-related transactions*3*6
Stock forward contracts¥ 20,000¥ (182)$ 188,200

—

¥
—

—

¥ (182)—$——$ (1,715)$ (1,715)¥131,077
20,50825,062¥59,546——¥3,0171,193
501$1,233,443
192,986
235,835$560,333——$28,391
11,227
4,716——¥4,711——$44,334

Available-for-sale securities

Sold�������������������������������������������

¥ 4,147

Total�����������������������������������������������

—

¥

—
—

¥ 105
¥ 105

$

39,028
—

$

—
—

$

992

$

992

Annual Report 2018

54

March 31, 2017

Hedged Item

Contract
AmountMillions of Yen
Contract AmountDue after
One Year¥ 40,000¥30,000¥(543)——¥(543)¥161,342
103,10279,207¥84,642——¥ (58)
825
(722)

—

—

¥ 44

Fair
Value

Interest rate-related transactions*1*4
Interest rate swaps:
Interest-bearing financial assets
and liabilities, including loans,available-for-sale securities,
deposits and negotiable
Receive floating and pay fixed������ certificates of deposit, etc.
Total�����������������������������������������������
Currency-related transactions*2*5
Loans, securities, deposits,
Currency swaps������������������������������� foreign exchanges, etc., which
Forward exchange contracts������������ are denominated in foreign
Foreign exchange swap������������������� currencies
Total�����������������������������������������������
Equity-related transactions*3*6
Stock forward contracts

Available-for-sale securities

Sold�������������������������������������������

¥ 4,473

Total�����������������������������������������������

—

¥

—
—

¥ 24
¥ 24

Note: 1. Interest rate-related transactions are primarily accounted for using the deferral method in accordance with “Accounting and Auditing Treatment relating to the Adoption of ‘Accounting
for Financial Instruments’ for Banks” (JICPA Industry Audit Committee Report No. 24, February 13, 2002).
2. Currency-related transactions are primarily accounted for using the deferral method in accordance with “Accounting and Auditing Treatment relating to Accounting for Foreign Currency
Transactions in the Banking Industry” (JICPA Industry Audit Committee Report No. 25, July 29, 2002).
3. Equity-related transactions are accounted for using the deferral method.
4. Fair values of exchange-traded transactions are determined based on closing prices at the Tokyo Financial Exchange or other relevant exchanges. Fair values of over-the-counter-traded transactions are determined based on a discounted cash flows model, an option-pricing model or other models, as appropriate.
5. Fair value is determined based on a discounted cash flows model.
6. Fair value is determined based on prices provided by correspondent financial institutions.

Consolidated banking subsidiaries had the following derivative contracts, which were accounted for by the exceptional accrual method, outstanding as of March 31,
2018.

March 31, 2018

Hedged Item

Fair
Value

Thousands of U.S. Dollars
Contract AmountDue after
Fair
Contract
One YearValue
Amount—13,153

¥ —
(471)

$
—
173,859$—
123,776$ —(4,433)——¥(471)——$(4,433)

Contract
AmountMillions of Yen
Contract AmountDue after
One Year

Fair
Value

Contract
AmountMillions of Yen
Contract AmountDue after
One YearInterest rate-related transactions
Interest rate swaps:
Receive fixed and pay floating������Loans and borrowed money
Receive floating and pay fixed������
Total�����������������������������������������������

March 31, 2017

Hedged Item¥—
18,475¥Interest rate-related transactions
Interest rate swaps:
Receive fixed and pay floating������Loans and borrowed money
Receive floating and pay fixed������
Total�����������������������������������������������

¥ 2,000
24,016—¥—
18,594

¥ 21
(852)

—

¥(831)

Note: The exceptional accrual method of hedge accounting, as specifically permitted for certain interest rate swaps, is valued with the hedged items as a whole so that the fair value is included in
the fair value of borrowed money and loans and bills discounted (“Note 22. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES (5) Fair Values of Financial Instruments”).

55

Mebuki Financial Group, Inc.

Other segment-related information:(1) Information by services

24. OTHER COMPREHENSIVE INCOME (LOSS)
The components of other comprehensive income (loss) for the years ended
March 31, 2018 and 2017, were as follows:
Millions of Yen
2018
2017

Unrealized gains (losses)
on available-for-sale securities:
Gains (losses) arising during theyear�������������������������������������������� ¥ (8,655)
Reclassification adjustments
to profit or loss����������������������������� (2,434)
Amount before
income tax effect��������������������� (11,090)
Income tax effect����������������������
3,272
Total������������������������������������������������� ¥ (7,817)
Deferred gains (losses) on derivatives
under hedge:
Gains arising during the year���������� ¥ 2,985
Reclassification adjustments
to profit or loss����������������������������� (2,097)
Amount before
income tax effect���������������������
888
Income tax effect����������������������
(270)
Total������������������������������������������������� ¥ 617
Land revaluation excess, net of taxes:
Gains arising during the year���������� ¥—Reclassification adjustments to—profit or loss��������������������������������
Amount before income tax
effect��������������������������������������
—Income tax effect����������������������
468
Total������������������������������������������������� ¥ 468
Defined retirement benefit plans:
Gains arising during the year���������� ¥ 1,038
Reclassification adjustments
to profit or loss�����������������������������
2,960
Amount before
income tax effect���������������������
3,998
Income tax effect���������������������� (1,221)
Total������������������������������������������������� ¥ 2,777
Total other comprehensive
income (loss)������������������������������������ ¥ (3,954)¥ 4,630

Thousands of
U.S. Dollars
2018(22,911)(9,789)3,281¥ (6,507)(104,361)
30,797$ (73,564)¥ 6,412$ 28,098(2,963)(19,740)

3,448(1,049)¥ 2,399

8,358(2,545)$ 5,813

¥

$

—

—

—

—
—
—

$

—
4,409
4,409

¥ 3,843

$

9,771

¥

Ordinary income
from external¥113,739
customers�������������� ($1,070,292)

3,688

27,856

7,532(2,298)¥ 5,233

37,627(11,495)$ 26,132¥ 1,125$ (37,210)¥61,159($575,511)¥87,473¥262,373($823,125) ($2,468,928)

March 31, 2017

Lending
Operations

Millions of Yen
Investment
Operations
Other

Ordinary income
from externalcustomers��������������

¥89,325¥56,209$ (81,450)(14,419)—

March 31, 2018

Millions of Yen (Thousands of U.S. Dollars)
Lending
Investment
Operations
Operations
Other
Total

¥67,750

Total¥213,284(2) Information by geographic region
Since the ordinary income and total tangible fixed assets attributable to the “Japan” segment account for more than 90% of the total of all geographic segments, geographical segment information has not been presented.
(3) Information by major customers
Since there has been no specific customer to whom the Group sells more than
10% of total ordinary income on the consolidated statement of income, information on major customers has not been presented.
(4) Information on loss on impairment of fixed assets by reportable segment
Information on loss on impairment of fixed assets is not disclosed due to immateriality, except for the banking business.
(5) Information on amortization and unamortized balance of goodwill by reportable segment
Information on amortization and unamortized balance of goodwill is not disclosed
due to immateriality, except for the banking business.
(6) Information on gain on negative goodwill by reportable segment
Information on gain on negative goodwill is not disclosed due to immateriality, except for the banking business.

25. SEGMENT INFORMATION
Under ASBJ Statement No. 17, “Accounting Standard for Segment Information
Disclosures,” and ASBJ Guidance No. 20, “Guidance on Accounting Standard for
Segment Information Disclosures,” an entity is required to report financial anddescriptive information about its reportable segments. Reportable segments areoperating segments or aggregations of operating segments that meet specified
criteria. Operating segments are components of an entity about which separate
financial information is available, and such information is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and inassessing performance. Generally, segment information is required to be reported on the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources to operating segments.
The Group engages in banking and other related activities, such as leasing,securities, and credit card services. Segment information is not disclosed due tothe immateriality of operations other than banking.

Annual Report 201856

26. RELATED PARTY TRANSACTIONS
Related party transactions of consolidated subsidiaries of the Company with its directors or major individual shareholders for the years ended March 31, 2018 and 2017,
were as follows:Year ended March 31, 2018

Type

A director or
director’s close relative

Name

Yoshie Suto

Companies in which a
Hoshinomajority of voting rights is
Seisakusyo Co.,
owned by a director orLtd.
director’s close relatives

Location

Capital(Millions of Yen/Thousands of
U.S. Dollars)

Business

Ownerships

Relationship

—

—

—

—

—

Loan

¥47
($444)

Loans andbills
discounted¥46($434)

Gunma

¥7
($66)

Steel
manufacturing

—

—

Loan

¥11
($108)

Loans andbills
discounted¥11($107)

Transactions(Millions of Yen/
Thousands of U.S. Dollars)

Outstanding Balance(Millions of Yen/
Thousands of U.S. Dollars)

Terms and conditions on transactions and transaction policy:
The interest rate on loans is reasonably determined considering the market rate.

Year ended March 31, 2017
Location

Capital(Millions of Yen)

Business

Ownerships

Relationship

Yoshie Suto

—

—

—

—

—

Loan

¥28

Loans andbills
discounted¥48

Companies in which a
Ito dentist
majority of voting rights isowned by a director or
director’s close relatives

Ibaraki¥22

Dental Clinic

—

—

Loan

¥12

Loans andbills
discounted

¥28

Loan

¥114

Loans andbills
discounted¥100

Underwriting
privateplacement
bond

¥100

Securities

¥100

Type

A director or
director’s close relative

Name

Yokokura
HontenCO., LTD.

Tochigi¥20

Wholesale——Transactions(Millions of Yen)

Outstanding Balance(Millions of Yen)

Terms and conditions on transactions and transaction policy:
The interest rate on loans is reasonably determined considering the market rate.

27. SUBSEQUENT EVENTS
Acquisition of treasury stock
At the Board of Directors’ meeting held on May 11, 2018, the Company resolved to acquire treasury stock for the purpose of enhancement of shareholder returns and improving capital efficiency, pursuant to the provisions of the Articles of Incorporation in accordance with the provision of Article 459, Paragraph 1, of the Companies Act. The
repurchase of treasury stock pursuant to the resolution of that meeting has completed.
1. Contents of the resolution adopted by the Board of Directors’ meeting held on May 11, 2018
(1) Class of shares to be acquired: Common stock(2) Total number of shares to be acquired : 5,000,000 shares (upper limit)(3) Total acquisition cost: ¥2,500 million (upper limit)
		 ($23,525 thousand)(4) Period of acquisition: From May 14, 2018, to June 22, 2018(5) Method of acquisition: Purchase through the market on the Tokyo Stock Exchange
2. Status of acquisition of treasury stock(1) Class of shares acquired: Common stock(2) Total number of shares acquired: 5,000,000 shares(3) Total acquisition cost: ¥2,089 million
		 ($19,660 thousand)(4) Period of acquisition: From May 14, 2018, to May 25, 201857

Mebuki Financial Group, Inc.

Annual Report 201858

Non-Consolidated Balance Sheet (Unaudited)
March 31, 2018 The Joyo Bank, Ltd.

Millions of Yen
2018
2017

59

Thousands of
U.S. Dollars
2018

ASSETSCash and due from banks��������������������������������������������������������������������������������������� ¥ 968,263
13,786
Call loans and bills bought���������������������������������������������������������������������������������������
7,447
Monetary claims bought �����������������������������������������������������������������������������������������
Trading assets��������������������������������������������������������������������������������������������������������
8,526
2,802,591
Securities���������������������������������������������������������������������������������������������������������������
Loans and bills discounted��������������������������������������������������������������������������������������
6,063,500
Foreign exchanges��������������������������������������������������������������������������������������������������
3,341
77,320
Other assets�����������������������������������������������������������������������������������������������������������
Tangible fixed assets����������������������������������������������������������������������������������������������
81,764
Intangible fixed assets���������������������������������������������������������������������������������������������
9,153
6,495
Prepaid pension cost����������������������������������������������������������������������������������������������
Customers’ liabilities for acceptances and guarantees����������������������������������������������
46,564
Allowance for loan losses����������������������������������������������������������������������������������������
(35,002)(9)
Allowance for investment losses������������������������������������������������������������������������������
TOTAL�������������������������������������������������������������������������������������������������������������� ¥10,053,746¥ 754,116
3,365
8,161
4,060
2,793,575
5,967,030
2,826
48,07685,8549,531
7,231
47,620(34,416)(9)¥9,697,024$ 9,111,350
129,730
70,08080,23926,372,367
57,057,501
31,448727,589
769,403
86,134
61,124438,175(329,369)(85)$94,605,686

LIABILITIES AND EQUITY
LIABILITIES:
Deposits����������������������������������������������������������������������������������������������������������������� ¥ 8,509,025
Negotiable certificates of deposit�����������������������������������������������������������������������������
67,24965,340Call money and bills sold�����������������������������������������������������������������������������������������
Payables under repurchase agreement��������������������������������������������������������������������
26,314
Payables under securities lending transactions���������������������������������������������������������
61,535504
Trading liabilities�����������������������������������������������������������������������������������������������������
Borrowed money����������������������������������������������������������������������������������������������������
579,167
Foreign exchanges��������������������������������������������������������������������������������������������������
451
5,000
Bonds��������������������������������������������������������������������������������������������������������������������
Due to trust account�����������������������������������������������������������������������������������������������
11
Other liabilities��������������������������������������������������������������������������������������������������������
38,513
Provision for directors’ bonuses�������������������������������������������������������������������������������
65
Provision for retirement benefits������������������������������������������������������������������������������
8,638
Provision for reimbursement of deposits�������������������������������������������������������������������
2,838
Provision for point card certificates��������������������������������������������������������������������������
85
Provision for contingent losses��������������������������������������������������������������������������������
946
Deferred tax liabilities����������������������������������������������������������������������������������������������
33,260
Deferred tax liabilities for land revaluation����������������������������������������������������������������
8,546
Acceptances and guarantees�����������������������������������������������������������������������������������
46,564
Total liabilities���������������������������������������������������������������������������������������������������
9,454,062¥8,240,398
56,252
61,337—
135,417511
436,978
501
5,000
13
63,079
48
8,415
2,585
106
1,038
35,662
8,774
47,6209,103,740$80,069,873
632,820614,857
247,619579,053
4,750
5,449,959
4,253
47,050112
362,414
612
81,29026,715809
8,907
312,983
80,419438,175
88,962,667

EQUITY:85,113
Common stock�������������������������������������������������������������������������������������������������������
Capital surplus�������������������������������������������������������������������������������������������������������
58,574Retained earnings���������������������������������������������������������������������������������������������������
319,555
Valuation adjustments:��������������������������������������������������������������������������������������������
136,441
Unrealized gains on available-for-sale securities��������������������������������������������������
123,847
Deferred losses on derivatives under hedge accounting���������������������������������������
(31)
Land revaluation surplus������������������������������������������������������������������������������������
12,625
Total equity��������������������������������������������������������������������������������������������������
599,683
TOTAL������������������������������������������������������������������������������������������������������������������������� ¥10,053,746

85,11358,574308,341
141,254
130,542(574)
11,287593,283¥9,697,024

800,914551,181
3,007,015
1,283,909
1,165,406(300)
118,8035,643,019$94,605,686

Mebuki Financial Group, Inc.

Non-Consolidated Statement of Income (Unaudited)Year Ended March 31, 2018

The Joyo Bank, Ltd.

Millions of Yen
2018
2017

INCOME:Interest income:Interest on loans and bills discounted�����������������������������������������������������������������
Interest and dividends on securities��������������������������������������������������������������������
Interest on call loans and bills bought�����������������������������������������������������������������
Interest on deposits with banks��������������������������������������������������������������������������
Other interest income����������������������������������������������������������������������������������������
Trust Fees��������������������������������������������������������������������������������������������������������������
Fees and commissions��������������������������������������������������������������������������������������������
Trading income������������������������������������������������������������������������������������������������������
Other operating income�������������������������������������������������������������������������������������������
Other income���������������������������������������������������������������������������������������������������������
Total income������������������������������������������������������������������������������������������������
EXPENSES:Interest expenses:
Interest on deposits�������������������������������������������������������������������������������������������
Interest on negotiable certificates of deposit��������������������������������������������������������
Interest on call money and bills sold�������������������������������������������������������������������
Interest on payables under repurchase agreements���������������������������������������������
Interest on payables under securities lending transactions�����������������������������������
Interest on borrowed money�������������������������������������������������������������������������������
Interest on bonds����������������������������������������������������������������������������������������������
Interest on interest swap������������������������������������������������������������������������������������
Other interest expenses�������������������������������������������������������������������������������������
Fees and commissions��������������������������������������������������������������������������������������������
Other operating expenses����������������������������������������������������������������������������������������
General and administrative expenses�����������������������������������������������������������������������
Provision of allowance for loan losses����������������������������������������������������������������������
Other expenses������������������������������������������������������������������������������������������������������
Total expenses���������������������������������������������������������������������������������������������
INCOME BEFORE INCOME TAXES ��������������������������������������������������������������������������������
INCOME TAXES:
Current������������������������������������������������������������������������������������������������������������������
Deferred�����������������������������������������������������������������������������������������������������������������
Total income taxes���������������������������������������������������������������������������������������NET INCOME���������������������������������������������������������������������������������������������������������������

Thousands of
U.S. Dollars
2018¥63,245
30,213
70
291
349
42
24,801
373
3,503
16,252
139,143¥63,726
28,625
33
315
401
22
22,154449
11,997
13,332141,059$595,143
284,306
664
2,741
3,285
404
233,378
3,518
32,969152,937
1,309,344

2,497
16
561
246
1,146
801
132
2,088
859
7,917
6,138
69,347
3,340
7,646
102,740
36,403

2,125
13
471
—
957
616
233
2,478
1,007
7,815
6,757
72,544
3,811
7,379
106,21134,84723,499
153
5,280
2,324
10,788
7,543
1,242
19,656
8,090
74,501
57,764
652,561
31,437
71,950966,787
342,557

10,360529
10,890¥25,513

10,477(84)
10,392¥24,454

97,493
4,986
102,479$240,078

Annual Report 201860

Non-Consolidated Balance Sheet (Unaudited)
March 31, 2018 The Ashikaga Bank, Ltd.

Millions of Yen
2018
2017

61

Thousands of
U.S. Dollars
2018

ASSETSCash and due from banks���������������������������������������������������������������������������������������
Call loans and bills bought���������������������������������������������������������������������������������������
Monetary claims bought������������������������������������������������������������������������������������������
Trading account securities��������������������������������������������������������������������������������������
Securities���������������������������������������������������������������������������������������������������������������
Loans and bills discounted��������������������������������������������������������������������������������������
Foreign exchanges��������������������������������������������������������������������������������������������������
Other assets�����������������������������������������������������������������������������������������������������������
Tangible fixed assets����������������������������������������������������������������������������������������������
Intangible fixed assets���������������������������������������������������������������������������������������������
Prepaid pension cost����������������������������������������������������������������������������������������������
Deferred tax assets�������������������������������������������������������������������������������������������������
Customers’ liabilities for acceptances and guarantees����������������������������������������������
Allowance for loan losses����������������������������������������������������������������������������������������
TOTAL��������������������������������������������������������������������������������������������������������������

¥ 740,378
849
7,941
4,012
1,391,021
4,517,299
3,074
69,50427,001
5,207
18,310
4,005
10,219(34,283)¥6,764,543¥ 639,631
1,795
7,791
3,166
1,417,158
4,348,447
4,396
32,10625,872
2,370
15,323
2,461
11,953(34,746)¥6,477,729$ 6,966,958
7,998
74,72537,75813,089,505
42,507,762
28,928654,040
254,081
49,005
172,299
37,68996,165(322,608)$63,654,305

LIABILITIES AND EQUITY
LIABILITIES:
Deposits�����������������������������������������������������������������������������������������������������������������
Negotiable certificates of deposit�����������������������������������������������������������������������������
Call money and bills sold�����������������������������������������������������������������������������������������
Payables under securities lending transactions���������������������������������������������������������
Borrowed money����������������������������������������������������������������������������������������������������
Foreign exchanges��������������������������������������������������������������������������������������������������
Other liabilities��������������������������������������������������������������������������������������������������������
Provision for directors’ bonuses�������������������������������������������������������������������������������
Provision for reimbursement of deposits�������������������������������������������������������������������
Provision for contingent losses��������������������������������������������������������������������������������
Provision for point card certificates��������������������������������������������������������������������������
Acceptances and guarantees�����������������������������������������������������������������������������������
Total liabilities���������������������������������������������������������������������������������������������������

¥5,529,812
279,440
275,200
96,613
222,366
256
26,562
54
943
656
130
10,2196,442,255¥5,332,582
289,303
241,975
32,222220,047256
30,324
53
895
509
111
11,953
6,160,235$52,035,499
2,629,533
2,589,630
909,1312,092,470
2,417
249,955
509
8,874
6,179
1,225
96,16560,621,586

EQUITY:
Common stock�������������������������������������������������������������������������������������������������������
Retained earnings:��������������������������������������������������������������������������������������������������
Valuation adjustments:��������������������������������������������������������������������������������������������
Unrealized gains on available-for-sale securities��������������������������������������������������
Deferred losses on hedges���������������������������������������������������������������������������������
Total equity��������������������������������������������������������������������������������������������������
TOTAL�������������������������������������������������������������������������������������������������������������������������

135,000
157,188
30,09830,123(24)
322,287¥6,764,543

135,000
145,333
37,16037,259(99)
317,494¥6,477,729

1,270,349
1,479,140
283,230
283,459(229)
3,032,719$63,654,305

Mebuki Financial Group, Inc.

Non-Consolidated Statement of Income (Unaudited)Year Ended March 31, 2018

The Ashikaga Bank, Ltd.

Millions of Yen
2018
2017

INCOME:Interest income:Interest on loans and bills discounted�����������������������������������������������������������������
Interest and dividends on securities��������������������������������������������������������������������
Interest on call loans and bills bought�����������������������������������������������������������������
Interest on deposits with banks��������������������������������������������������������������������������
Other interest income����������������������������������������������������������������������������������������
Fees and commissions��������������������������������������������������������������������������������������������
Other operating income�������������������������������������������������������������������������������������������
Other income���������������������������������������������������������������������������������������������������������
Total income������������������������������������������������������������������������������������������������
EXPENSES:Interest expenses:
Interest on deposits�������������������������������������������������������������������������������������������
Interest on negotiable certificates of deposit��������������������������������������������������������
Interest on call money and bills sold�������������������������������������������������������������������
Interest on payables under securities lending transactions�����������������������������������
Interest on borrowed money�������������������������������������������������������������������������������
Other interest expenses�������������������������������������������������������������������������������������
Fees and commissions payments����������������������������������������������������������������������������
Other operating expenses����������������������������������������������������������������������������������������
General and administrative expenses�����������������������������������������������������������������������
Provision of allowance for loan losses����������������������������������������������������������������������
Other expenses������������������������������������������������������������������������������������������������������
Total expenses���������������������������������������������������������������������������������������������
INCOME BEFORE INCOME TAXES���������������������������������������������������������������������������������
INCOME TAXES:
Current������������������������������������������������������������������������������������������������������������������
Deferred�����������������������������������������������������������������������������������������������������������������
Total income taxes���������������������������������������������������������������������������������������NET INCOME���������������������������������������������������������������������������������������������������������������

Thousands of
U.S. Dollars
2018¥49,379
22,65537361
8821,1691,267
4,139
99,097¥51,017
20,07360373
82
20,040
1,772
4,348
97,768$464,657
213,186
354
3,399
831
199,203
11,92538,952
932,507

1,236
82
28
1,249
61
1,934
7,275
2,808
47,3072,591
3,847
68,42230,675

1,110
85
152
411
40
1,508
6,747
1,062
46,526
4,444
3,717
65,80731,960

11,631775
264
11,757580
18,202
68,461
26,429445,163
24,38636,202643,851
288,656

7,900
1,420
9,320
¥21,354

9,350(3,802)
5,547¥26,412

74,343
13,36687,709$200,946

Annual Report 201862

Corporate Data (as of March 31, 2018)
Mebuki Financial Group, Inc.

The Joyo Bank, Ltd.

7-2, Yaesu 2-chome, Chuo-ku, Tokyo(Mito Head Office)5-5, Minami-machi 2-chome, Mito, Ibaraki Prefecture(Utsunomiya Head Office)1-25, Sakura 4-chome, Utsunomiya, Tochigi Prefecture
Paid in capital
117.4 billion yen
Establishment
April 1, 2008
(Change of tradename: October 1, 2016)
Stock exchange listing Tokyo Stock Exchange
Number of employees 120
Credit ratings
A (R&I)

July 30, 1935
5-5, Minami-machi 2-chome, Mito, Ibaraki Prefecture85.1 billion yen
Domestic: 183 offices (152 branches, 31 sub-branches)
Overseas: 4 Representative Offices (Shanghai, Singapore, New York,
Hanoi)
Number of employees* 3,332
Credit ratings
A+ (R&I) A2 (Moody’s)

Address
Head Office address*Excluding those transferred to organizations

63

Mebuki Financial Group, Inc.

FoundedHead Office
Paid in capital
Network

The Ashikaga Bank, Ltd.
October 1, 1895
1-25, Sakura 4-chome, Utsunomiya, Tochigi Prefecture
135.0 billion yen
Domestic: 153 offices (106 branches, 47 sub-branches)
Overseas: 2 Representative Office (Hong Kong, Bangkok)
Number of employees* 2,826
Credit ratings
A+ (R&I)
FoundedHead Office
Paid in capital
Network