Mebuki Financial Group, Inc.

Annual Report
Year Ended March 31, 2020

Annual Report 2020

2020

Corporate History (As of March 31, 2020)
Notice Regarding the Basic
Agreement Concerning a Business
November 2015

Group Philosophy of Mebuki Financial Group
Together with local communities, we will continue to build a more prosperous

Integration through a Sharefuture by providing high-quality comprehensive financial services.

and Ashikaga Holdings Co., Ltd.

Value Creation Process..........................................7

Notice Regarding Definitive

A Message from the Management.........................9Business Integration of The Joyo
Bank, Ltd. and Ashikaga Holdings
Exchange

We will build a better future together with local communities, seeking solutions to challenges that affectApproval of stock exchange
agreement at the ordinary general
June 2016

meeting of shareholders of The
Joyo Bank, Ltd. and Ashikaga

these communities by providing high-quality, comprehensive financial services.

Holdings Co., Ltd.
October 2016

Establishment of the Mebuki
Financial Group, Inc.
Acquired all shares of Mebuki

April 2017

Lease Co., Ltd. (formerly known as
The Joyo Lease Co., Ltd.) from The
Joyo Bank, Ltd.

October 2017

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 andDecember 2017

new value. The name Mebuki expresses our wish to create new energy and value
in local communities and pursue sustainable growth along with these communities.

March 2018

Management and Financial Strategies.................13
Initiatives for Value Creation.................................17
Create Growth Business Models with Local Regions....17
Structural Reform for Enhanced Productivity.....19
Developing Human Resources for Value Creation....21
Measures Against the Spread of COVID-19.........22
SDGs Initiatives...................................................23
Governance of Mebuki Financial Group...............25
Corporate Governance.....................................25
List of Directors.............................................31
Interview with Outside Directors.....................33
Risk Management System................................35
Initiatives for Compliance..................................37

Acquired all shares of MebukiGroup Structure and Corporate Data...................39

Securities Co., Ltd. (formerly known

Organization........................................................40

as The Joyo Securities Co., Ltd.)
from The Joyo Bank, Ltd.

The Japanese word mebuki, or “green shoots,” conveys an image of new leaves budding

Developments of Mebuki Financial Group..............3
Performance of Mebuki Financial Group................5

Co., Ltd. through a Share

The ingenuity of the entire Group will be combined to contribute to sustainable growth in communities.

Group Philosophy of Mebuki Financial Group........1

Exchange of The Joyo Bank, Ltd.

Agreement Concerning theApril 2016

Contents

Opened The Ashikaga Bank, Ltd.
Bangkok Representative OfficeOpened The Joyo Bank, Ltd. Hanoi
Representative Office

Stock Information................................................40
Market of the Group............................................41
Mebuki Financial Group’s Overseas BusinessSupport Activities................................................43
Financial Data................................................ 45-82

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 the time of publication of the Annual Report, and do not represent any guarantee bymanagement of future performance. We are under no obligation, and disclaim any obligation, to update or alter ourforward-looking statements, whether as a result of new information, future events or otherwise.
Details on ESG information are available on our website : https://www.mebuki-fg.co.jp/eng/esg/esg.html
1

Mebuki Financial Group, Inc.

Annual Report 20202

Developments of Mebuki Financial Group
1960
Start of development of Utsunomiya
1985
Industrial Park
Holding of Tsukuba EXPO
1962
Start of large-scale development 1982of Kashima Industrial Zone
Opening of Tohoku Shinkansen

History of Ibaraki Prefecture
History of Tochigi Prefecture

2005
Opening of the Tsukuba
Express

1999“Shrines and Temples of
Nikko” registered as
World Heritage Site

2020
Spread of COVID-19

2011
Great East Japan Earthquake

Developments of Mebuki Financial Group

Developments of Mebuki Financial Group1974
Completion of Tohoku Expressway within Tochigi Prefecture

2019
Suffered extensive damage by Typhoon Hagibis and other disasters

Financial and economic developments and history of the prefectures
Financial and economic
developments

1929
Start of the Great Depression

1997
1991
Collapse of bubble economy Japanese version of “Big Bang”
financial reforms
Asian currency crisis

1964
Tokyo Olympic Games1945
End of the Pacific War

2005
Full implementation of pay-off system in Japan2016
BOJ’s introduction of negative interest rate policy

2008
Global financial crisis following Lehman Brothers’ bankruptcy

1985
Plaza Accord

2010
European debt crisis

History of Joyo Bank
1974

Establishment of Joyo Lease(currently Mebuki Lease)

1995

2014

2007

Established Joyo Industrial Research Institutein commemoration of the Bank’s 60th
anniversary

Established Joyo Securities (currently
Mebuki Securities)

2015

Initiated study sessions and seminars for development of regional comprehensive
strategies

1996

1935

Opened Shanghai Representative Office

Establishment of Joyo Bank throughthe merger of the Tokiwa Bank and
the Goju Bank

Opened New York Representative Office
Launched “PLUS+” Project for the Collaborative Creation of the Region’s Future

2016

2011

Launched Joyo’s reconstruction project Commenced handling of private placement bonds with donation schemes to “support“Kizuna (bond)” in hopes of the regional future dreams”
2006
recovery and growth after the Great East
Started operating new branches in
2018Japan Earthquake
areas along the new Tsukuba Express
Joyo Industrial Research Institute started offering personnel placement
line
services
2012
Opened Joyo Tsukuba Building in 2008
Opened Representative Office Registered in Opened Hanoi Representative Office1999

Established the “soundmanagement, collaboration, andpartnership with the home region”
philosophy

Singapore

History of Mebuki Financial GroupJoyo Bank and Ashikaga Bank of Mebuki Financial Group (“the Group”), with their coremarkets in Ibaraki and Tochigi Prefectures, have been meeting the needs of the times andgrowing together with their customers and the region. In October 2016, Joyo Bank andAshikaga Holdings entered into a business integration, and with the subsequentconsolidation of Mebuki Lease and Mebuki Securities, the Group has grown into a structure
capable of meeting the diverse needs of its customers more than ever before. The Company
will continue to forge ahead in order to solve regional problems and to realize the region’ssustainable growth as well as the improvement of the Company’s corporate value.

2016

Established Mebuki Financial Group
Hosted the Mebuki Business Award
Set up the Mebuki Regional Revitalization Fund2019
Commenced handling of Mebuki SDGs private
placement bonds

2017
Mebuki Lease and Mebuki Securities became directly
and wholly-owned subsidiaries.

2020
Completed the system integration of JoyoBank and Ashikaga Bank
Invested in fund to help recovery efforts inareas affected by typhoons in 2019

History of Ashikaga Bank

1967
1895
Established in Ashikaga town,
Ashikaga county Tochigi
Prefecture

1897
Opened its first branch in Kiryu town,
Yamada county, Gunma Prefecture

3

Mebuki Financial Group, Inc.

Relocated the head office to Utsunomiya
city in Tochigi Prefecture

2003

2015

Decision made by Japanese
government to designate Ashikaga
Bank a bank under special crisis
management

Opened Hong Kong Representative OfficeSigned agreements with 10 local governments as part of its efforts
under the Comprehensive Strategy for Overcoming Population Decline
and Vitalizing Local Economy (as of July 2020)

1985

2008

Established “Corporate Philosophy” incommemoration of its 90th anniversary
Established the Ashigin International
Exchange Foundation

Established Ashikaga Holdings
Special crisis management designation
lifted2009
Established Ashigin Research Institute2013
Ashikaga Holdings listed on
the first section of the Tokyo
Stock Exchange

2017Commenced handling of private placement bonds withdonation schemes to “support the future of children”
Opened Bangkok Representative Office2019
Started offering personnel placement
services
Started offering trust services

Annual Report 20204

Performance of Mebuki Financial GroupNon-financial Highlights (Bank Total)
Performance of Mebuki Financial Group

Performance of Mebuki Financial Group

Financial Highlights
Mebuki FG (Consolidated)
Consolidated net income(Billion yen)
43.0

Consolidated ROE (%)

46.3
4.9

Number of business matches (Cumulative total)

Capital adequacy ratio (%)

10.95

10.38

5.1

36.3

Number of customers of accumulation services

157,272

1,605

9.94

149,374

4.0

142,458

1,077

520

FY2017FY2018FY2019FY2017FY2018FY2019FY2017FY2018

As of March 31, 2018 As of March 31, 2019 As of March 31, 2020

FY2019As of March 31, 2018 As of March 31, 2019 As of March 31, 2020

Bank Total**Joyo Bank + Ashikaga Bank

Gross business profit (Billion yen)
180.7

185.6

Issuance of private placement bonds with donation scheme

Ordinary expenses /OHR (Billion yen/%)

186.3

OHR

(Cumulative total in billion yen)

Ordinary expenses

Number of bonds

62.8

61.5

61.7

113.5

114.1

115.0

Number of lessons conducted
Number of participants

Issue amount

140

622
478

310

Financial education lessons

52.6

40.8

125

90
Approx. 2,800

Approx. 2,500

Approx. 2,400

FY2018FY201927.6

FY2017FY2018FY2019Core net business income (Billion yen)

FY2017FY2018FY2019FY2017FY2018FY2019Percentage of women in assistant manager positions or higher

Net income (Billion yen)

FY2017

Number of 1st-grade Certified Skilled Professionals of
Financial Planning (Cumulative total)

289

82.1
73.6

73.3

28.9

60.0

35.8

FY2018FY2019FY2017

250

27.9

46.8

FY2017273

FY2018FY201926.7

As of March 31, 2018 As of March 31, 2019 As of March 31, 2020

As of March 31, 2018 As of March 31, 2019 As of March 31, 2020

External evaluation
Average balance of loans (Billion yen)
10,366.0

10,698.5

Average balance of deposits (Billion yen)

11,339.8
13,662.5

14,082.4

CO2 emission (t-CO2)

14,408.8

19,366
18,712

17,502FY2017

5

Mebuki Financial Group, Inc.

FY2018FY2019FY2017FY2018FY2019FY2017FY2018FY2019“Platinum Kurumin” certification was
granted as a company that provides
superior support for childcare to its
employees based on the Act to Advance
Measures to Support Next-Generation
Child-Rearing

Recognized as outstanding organizations
under the 2020 Certified Health &Productivity Management Outstanding
Organizations Recognition Program (large
enterprise category)(Joyo Bank)(Joyo Bank+Ashikaga Bank)

Annual Report 2020

6

Value Creation Process
Value Creation Process

Value Creation Process

Based on the corporate philosophy of the Group, Mebuki Financial Group will provide high-quality, comprehensive financial services by taking advantage of its wide-area network, solid customer baseand other strengths, while contributing to the sustainable growth of local communities through improving the Group’s corporate value and creating value for stakeholders.

Provide comprehensive financial services to create value for stakeholders

Capital and management platform

Group Philosophy

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

Our vision

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

Human and intellectual
capital ystem capable of providing
S
comprehensive financial services
including leasing and securities
Diverse human resources
Shared platform

Meet diversifying needs of customers by organically combining
group functions, including banking, leasing, securities, IT andthink tanks.

Financial capital
Sufficient capitalSound assets
Stable funding

Social capital

Input
and
utilize ide-area networks based inW
Ibaraki and Tochigi Prefectures
Solid customer base

The Second Medium-Term Group Business Plan

P13

Create growth businessmodels with local regions

Structural reforms forenhanced productivity

Developing humanresources for value creation

P17

P19

P21

Value Provided
Communities and Customers
 roviding financial infrastructure andP
revitalization of regional economy
Regional contribution and environmental
conservation activities
Enhancement of financial literacy through consultingProviding secure and convenient financial
services

Shareholders
Providingcomprehensive
financialservices

Corporate value improvement
 table and sustained shareholder returns
S
Promoting engagement

Employees
 ork-style reforms/promotion of diversity
W
Improvement of job satisfaction

Management indicators(The Second Medium-Term Group Business Plan)

P13

Consolidated ROE :5.0% or more

Consolidated net income :approx. ¥47 billion

Core OHR :60%

Contributing to achievement of SDGs
P23

Corporate Governance
P25

SocialissuesExternal
environment

7

Mebuki Financial Group, Inc.

Population decline
and aging
Diversifying customer
needs and customer
contact points

Risk Management
P35

Asset building andasset succession

Corporate growthand businesssuccession

Structural issues incommunities

Compliance
P37

Digitalization

Prolonged low interest rates
in Japan and overseas

Diversity andinclusion

International instability

Environment
conservation andclimate change

Compliance

Companies of non-financial
sectors entering into
financial services

Cyber attacks andinformation leakage risks

Annual Report 2020

8

A Message from the Management“Change for the future!”
Build a more prosperous future through continuous change

Our Group was born through a business integration

administrative work. As we anticipate possible second

between two leading regional banks, Joyo Bank andand third COVID-19 waves, we are making necessary

Ashikaga Bank. Our greatest strength is a vast amount

preparations to enable our customers to use ourof information accumulated by both banks with a deep

financial services to ensure business continuity without

trust of customers based on our long-standing presence

visiting a branch. After experiencing the impact ofin communities. Therefore, solutions we offer on the

COVID-19 and the extensive damage from typhoons lastbasis of such trust and information are different fromyear, now more than ever, we find these initiatives

mere “consulting.” We provide an optimal solution tonecessary from a viewpoint of BCP in time ofvarious issues customers are facing, by making use of

emergency.

information extracted from a huge database built up to

Ritsuo Sasajima,

Kazuyuki Shimizu,

President

Executive Vice President

Operate sustainably in response to drastically changing external environment
With various developments such as prolonged low

highlighted an urgent need to address various issues

interest rate policies in Japan and overseas, regionalthat need to be resolved.

demographical problems such as declining population

communities, we are responding to the demand forwide-area network and customer base.

measures related to inheritance and vacant houses inour communities, and at the same time are proactively

proactively promoting digitalization at the same time. In

promoting initiatives based on the idea of financial

February 2020, we began joint research with Resona

gerontology for individual customers in preparation for

Holdings on banking apps, over-the-counter self-service

an even more accelerated aging society. We are also

terminals placed in branches, and digital businessplanning to offer financial products and services for our

processes, and then in June 2020 signed a strategic

customers to better prepare themselves for an increased

business partnership on digitization. To enhance

longevity, including the enhancement of collaboration

productivity through streamlining operations and improvewith regional comprehensive support centers to watch

customers’ convenience, we will also utilize external

over the elderly and provision of support services forknowledge and seek collaboration with external

asset management, asset succession and various

institutions to accelerate the shift to digitalization.

procedures that may become difficult for customers toFurther, we intend to allocate human resources freed up

take care of as they get older.

by digitalization to our consulting service so that we can

To meet ever-changing customers’ needs precisely,

put more effort into offering new value to our customers.

and address challenges that need to be overcome, theFor corporate customers, we have been promoting

Group will utilize strengths it has accumulated to date to

the use of internet banking. With this, customers canprovide communities and customers with new value

check their account balance and transaction history, andthrough comprehensive financial services. We hope that,

due to an aging society with fewer children,

have become intertwined with each other. Undertransfer money online from their personal computers.

by providing this new value, we can help drive thediversifying customer needs, and new entrants into

these circumstances, we realize that, once something

Internet banking saves customers’ time and effort ofgrowth of our local communities, customers and thefinancial services, the external environment

happens anywhere, whether in Japan or abroad, it will

having to visit a branch and also streamlines ourGroup, leading to the creation of a prosperous future.

surrounding regional financial institutions has been

inevitably affect our business significantly.

constantly changing, and the magnitude and speed ofsuch change is intensifying lately.

Bearing this situation in mind, the Group will focus
on strengthening its consulting function to solve

Moreover, the global increase of large-scaleissues of communities and customers, creating

disasters in number, including the impact of novelcommunities in which people can live safe andcoronavirus disease (COVID-19) on social andcomfortable lives and contributing to customers’

economic activities, the extensive damage brought by

growth, while promoting initiatives, such as

Typhoon Hagibis and other disasters last year indigitalization, business continuity plans (BCP) andJapan, has reminded us of the statuses of externalfinancial gerontology.

environment and risk factors surrounding us, and9

Amid the progress of globalization, all businesses

As for the issue of aging population in our local

date and organically combining it with the Group’s
We are strengthening our consulting function, while

Mebuki Financial Group, Inc.

A Message from the Management

A Message from the Management

Provide new value based on the strengths accumulated by the Group

Progress of the Second Medium-Term Group Business Plan
In October 2020, the Group will mark the fourth

including, among others, loans and solution

anniversary of the business integration of Joyo Banktransactions for corporate customers.

and Ashikaga Holdings. We believe that the Group

Under the Second Medium-Term Group Businesshas succeeded in generating synergetic effects from

Plan (April 2019 to March 2022) launched in last April,

the integration under the First Medium-Term Group

we first integrated the core systems of Joyo Bank andBusiness Plan (October 2016 to March 2019),

Ashikaga Bank, and, using the integrated coreresulting in our improved business operations

system, have been carrying out other structural

Annual Report 202010

the integration of the core systems, we will accelerate

the Company and subsidiary banks in order to achieveorganizational structure. We intend to invest

initiatives to reduce infrastructure costs and unify

sustainable improvement of the Company’s corporate

management resources freed up by these initiatives

administrative processes.

value and to allow them to share more values with our

into consulting and IT/digital fields and thereby build asustainable business model.

Meanwhile, net income attributable to owners of theparent for FY2019 fell short of the forecast mainly due

shareholders.
We will continue to focus on further developing theto inflated credit related costs and loss (gain) on sales

governance structure and ensure its effectiveness and thus

fields so far, including digitalization, at a faster paceof investment securities resulting from the spread ofenhance the Group’s ability of value creation, with the aim

than originally planned. The completion of the

COVID-19. However, thanks to measures in variousof realizing a sustainable future.

integration of the core systems, which is the key offields in the Second Medium-Term Group Businessour structural reforms, in January 2020, laid thePlan that have been making faster progress thanfoundation for us to improve customer service andoriginally planned, core net business income

streamline the Group’s business processes. Following(excluding loss (gain) on cancellation of private offering

We have managed to take measures in a number ofA Message from the Management

A Message from the Management

reforms mainly of business processes andinvestment trusts) and profit of customer services*were above the plans for the first year.
By harnessing the ongoing changes in environment,

Currently we are exposed to the external environment

improve business performance and create value for all

trigger to implement structural reforms, we want toand related risk factors that are changing more

stakeholders. In this sense, we see that the existence of

assure the achievement of the targets in the Second

drastically and at a more accelerated pace than ever

our Group and its corporate activities coincide with

Medium-Term Group Business Plan by speeding up

before, including COVID-19 as well as heavy rains,

Sustainable Development Goals (SDGs).

reforms of old business processes.

typhoons and other natural disasters brought about by*Profit of customer services = difference of interests between deposits and loans +climate change. To make business growth andengaged in structural reforms and businessdevelopment sustainable under these circumstances, it

development. Therefore, we are confident that ouris essential to keep changing ourselves. Therefore, “WeGroup has a great advantage over companies andwill not change” or “We cannot change” is not an option.

organizations that just recently, when facing challenges,

The slogan of the Second Medium-Term Groupcame to realize the importance of changing. However,Business Plan, “Change for the future!” represents thisrather than becoming complacent with our current

attitude.

status, all directors and employees of the Group are

net fees and commissions for customers + net trading income (e.g. derivatives
income from trading for customers) - expenses

Build effective governance structure for sustainable business growth
As one of the management platforms that support
sustainable growth through the execution of the Second

Then in June 2020, we decreased the total number of

We believe that, as catastrophic disasters have

The Group has made it a point to keep changing andworking together as one to further step up our efforts todirectors of subsidiary banks, mainly to revitalize

become more rampant worldwide in recent years,

Medium-Term Group Business Plan, we believe that it isdiscussions. We also had directors responsible forpeople are reminded more strongly than ever of thecritical to develop a governance structure centering on

executing important business operations serve concurrently

importance of changing themselves. We are required tonow. We can make our future brighter by constantly

corporate governance, risk management and compliance,

as delegated executive officers in order to clarify their roles.

change in many dimensions going forward, includingchanging. Everyone in the Group believes in this.

and ensure its effectiveness.

At the subsidiary banks, not only company management

economic activities in general and our way of living.

keep changing.
We must change the future by changing ourselves

We, at Mebuki Financial Group, will make continuous

Regarding corporate governance, it is extremely

but also the execution, supervision and oversight of theirimportant for the Board of Directors to hold discussions

banking businesses are important. Therefore, we madethat are sustainable and capable of growing with their“Comprehensive Financial Services Group Building theand make judgements in light of economic rationality insure that the right personnel are placed in positions inlocal communities by merely pursuing one-off profits andRegion’s Future” and bringing about a prosperous future

supervising business execution group-wide in order tocharge of carrying out these duties. By doing these, we

sticking to self-centered business activities. Supportingfor local customers and shareholders. We, therefore, ask

ensure the fairness and transparency of the Group’s

aim to separate the management decision-making,customers in communities, while being supported byfor your continued patronage in the future as well.

business operations.

supervising and execution functions more clearly, andtheir deep trust in us, on the basis of an effective

further reinforce our corporate governance structure.

governance structure, the Group has sought both to

For this reason, in June 2019, the Company increased
the number of outside directors from 3 to 5, raising the11

For a prosperous future, always “Change for the Future!”

including the increasing impact of COVID-19, as a

Furthermore, also in June 2020, the Company

ratio from 25% (3 out of 12 members) to 41% (5 out of 12

introduced a new restricted stock remuneration plan tomembers).

provide an incentive to directors and executive officers of

Mebuki Financial Group, Inc.

Meanwhile, we will never be able to create businesseschanges and put our utmost effort into serving as a

July 2020

Ritsuo Sasajima, President
Kazuyuki Shimizu, Executive Vice President

Annual Report 202012

Management and Financial Strategies
Results for FY2019

Under the Second Medium-Term Group Business Planfor the three years from April 2019 to March 2022, ourGroup has been taking various measures based on its
basic strategies, namely “Create growth businessmodels with local regions,” “Structural reforms forenhanced productivity” and “Develop human resources
for value creation.”
We position the three-year period of the Second
Medium-Term Group Business Plan as a period for“producing solid results and upshifting for the nextstage of growth.” Under the plan, we will promote
structural reforms mainly of business processes andorganizational structure, starting with the integration of
the core systems in January 2020. We will invest the
management resources freed up through thesemeasures into consulting services and IT fields and thus
create business models that grow with local
communities.

Outline of the Second Medium-Term Group Business Plan
V is ion

Building the region’s future as a comprehensive financial services group
Create growth business models
1 withP17
local regions
Enhance consulting services
Proactively utilize and invest in IT

2

Basic Strategies

Structural reforms forenhanced productivity

Building shared platform

P19

human resources
3 Develop
for value creation
P21
The Group’s strengths

Main Measures
Expansion of business support menu
(Business matching/business succession, etc.)

Enhancement of convenience and simplicity
BPR promotion

Support for asset building
Asset management

Core system integration
Administrative systems unification

Support for digitalization
Responding to a cashless society

Review of channels and networks
Review of personnel structure

Support for employee skill improvement
Higher employee satisfaction

Work-style reforms
Work-life balance

System capable of providing
comprehensive financial services

Solid customer base

Full utilization of the synergies
from the business integration

Integrate core system inJanuary 2020
(Profit of customer services)

Fees from Corporate customers (Bank total)(Billion yen)

9.6

9.5

8.0

FY2018FY2017

Plan
119.0
114.1

Customer assets under custody commissions

Systemintegration

115.0(Billion yen)
14.8

FY2019FY2017

Effects of structural reforms
implemented under the Second
Medium-Term Group Business Plan
Expenses of over 5.0 billion yen
were saved

2018

2019

2021

113.0

FY2018FY2019FY2020

FY2021

52.0

50.5
32.8
17.6

FY2022 and beyond

FY2019Core net Gains and losses
on sale ofbusinesssecurities Credit
income+16.1-7.8 related costs-6.8(Billion yen)Less than
115.0

Enhance productivity
Reduce cost

2020

FY2018(Bank total in FY2019)

110.0

Structural reforms(Operations/Organization)

14.6

13.8

Quarterly ordinary profit(Billion yen)

Revenue from consulting services

Investment for growth
Create a new business model

However, in the fourth quarter, although core net
business income for the three-month period (Bank total)remained at a reasonable level at 16.1 billion yen, loss
on securities of 7.8 billion yen and credit related costs of
6.8 billion yen due to the impact of COVID-19 negatively
affected full-year profitability. Ordinary profit for FY2019(Bank total) fell short of the plan and FY2018 results. As
a result, net income attributable to owners of the parent
amounted to 36.3 billion yen, lower than the forecast
and the results of the previous year.

(Bank total + Mebuki Securities)

Expenses (Bank total)

Positioning of the Second Medium-Term Group Business Plan

Level of profit

In FY2019, the first year of the Second Medium-Term
Group Business, the Group actively engaged instructural reforms and enhancement of consulting
services. As a result, ordinary profit (Bank total) steadily
progressed as planed until the third quarter of FY2019,
mainly because cost reduction exceeded the plan, andboth commissions for corporate solution andcommissions for customer assets under custodyincreased year on year (nine-month operating profit for
the third quarter was 50.5 billion yen, reaching 86.4% of
the full-year plan of 58.5 billion yen).

Management and Financial Strategies

Management and Financial Strategies

Medium-Term Business Plan

FY2022 and beyond

1Q

4Q
Ordinary profit (3 months)+¥1.4 billion

2Q
3Q(6 months) (9 months)

FY2019(full-year)

Shift in management resources resulting from structural reforms
People(Staff)

Shift in Management
Resources Resulting via
Structural Reforms“Invested” area 200 people (Consulting services/ IT planning, etc.)“ Saved” area 1,000 people (Administrative systems/ head office functions, etc.)

Things(Investment
amount)IT investment Total of ¥15 billion in 3 years (Increase of ¥4.0 billion from the previous 3 years)B ranch investment Improved efficiency of approx. 20% of existing branches (review offunctions, etc.)

Money(Expenses)

Cost reduction by structural reform ¥5.0 billion or more per year**Expenses in or after FY2022 - Expenses in FY2018 (excluding system integration costs)

Progress toward management objectives
Management Objectives(Results for FY2019)(Year-on-year change)

Consolidated ROE

4.0%(-1.1 points)

Net income attributable to ownersof the parent¥36.3 billion(-¥9.9 billion)

Core OHR (Bank total)

approx. 58.9 % (excluding system
integration expenses)(+1.8 points)

Management Objectives
Management Objectives(FY2021)

13

Mebuki Financial Group, Inc.

Consolidated ROE

5.0 % or more

Net income attributable to owners of the parent

Approx. ¥47 billion

Core OHR (Bank total)

approx. 60 % (excluding system integration expenses)

Annual Report 202014

Reduction of Strategic Shareholdings

Taking into account uncertain situations about
COVID-19 and based on a set of predictable
assumptions, we expect net income attributable toowners of the parent for FY2020 to decrease 3.3 billion

yen to 33 billion yen compared to the previous year. We
will immediately announce forecast revisions if the
COVID-19 situation changes and revisions are required.

Assumptions for calculating forecasts

Forecast (Mebuki FG)

We expect COVID-19 to be resolved in the first half of
FY2020. Economic activity will gradually recover then.
However, since effects of lower sales in some industries
will still remain, we estimate credit related costs of 10.0
billion yen due to the effects of COVID-19.

Forecast for (Year-on-year
FY2020change)Ordinary profit

48.5

-4.6

Net income attributable to owners of the parent

33.0

-3.3

(Billion yen)

Forecast for (Year-on-year
FY2020change)Ordinary profit

47.0

-5.0

Net income

33.5

-2.3

(Approx. 20.0) (+ Approx. +1.0)(Credit related costs)

Shareholder Returns and Capital Policy
We will target a total return ratio of 30% or more while
taking into account both the maintenance of solid capitallevels for our future growth and the appropriate
distribution of profits to our shareholders. We willcontinue to consider the total return ratio including thedividend level in light of market trend and business
forecast.
We maintained stable dividends and paid out 11 yen
per share in FY2019 (the same level as the previousyear), and acquired our own shares in a flexible manner,
making the total return ratio reach 46.2%, well above thetarget of 30%. Aiming to maintain stable dividends, weplan to pay out annual dividends of 11.0 yen per share
in FY2020 as we did in the previous year.
Consolidated capital adequacy ratio of Mebuki
Financial Group as of March 31, 2020 increased by 1.01
percentage point year on year to 10.95%.
Ashikaga Bank started to calculate each risk-weighted
asset according to foundation internal rating-based
approach (FIRB) from the end of March 2020 in its
efforts to better control credit-related risk.

Dividends and Shareholder Returns

Consolidated capital adequacy ratio(Billion yen)(%)

Share repurchase
Dividends

46.2%

30.0%

32.3%
35.3%

Assessing the rationality of holding individual stock by the Board of Directors, etc.
Our basic policy for strategic shareholdings is based on
medium- to long-term economic rationality on the basisof risk and returns and future outlook in order to securesustainable growth, increase corporate value of theGroup and issuing companies over the medium- to longterm, and build stable business relationships with thosecompanies.
The economic rationality of strategic shareholdings is
examined from the viewpoint of profitability,
creditworthiness, regional characteristics (relevancy toprincipal base of operations), improvement of business
relationship, etc., using their overall business RORA (*)
based on our ROE target.
As of March 31, 2020, the Board of Directors
confirmed every strategic shareholding to be meaningful
pursuant to the basic policy to secure a sustainablegrowth, increase corporate value of the Group andissuing companies over the medium- to long-term, andbuild stable business relationships with thosecompanies. Regarding the profitability, we confirmedthat their overall business RORA combining all listedcompanies of strategic shareholdings exceeded thetarget value.
(*)RORA = (Net interest margin on loans and deposits – Expenses (including credit related
costs) + Fees and Commissions + Dividends) ÷ Risk-weighted Assets (Loans and Stocks)

Strategic shareholdings(Bank total, listed companies only, based on acquisition cost)(Billion yen)
127.0

123.7

119.1
106.8

As of March 31, 2017 As of March 31, 2018 As of March 31, 2019 As of March 31, 2020

Dialogue with Shareholders and Investors
Our Group has endeavored to improve soundness andtransparency of the management and ensure timely andeasy-to-understand information disclosure and provisionin order to earn trust from and improve our Group’s
reputation among all stakeholders including customers,
shareholders and community residents.

In FY2019, although we held fewer investor relations
sessions than planned due to the impact of the spreadof COVID-19, we have enhanced information disclosureby other means, including through our website. We willcontinue to ensure impartial and fair information
disclosure and promote constructive dialogue withshareholders and investors.

Investor relations sessions
38.6%

27.8%
2.0

The amount of reduction in FY2019 was approx. 12.2
billion yen (based on acquisition cost, total of subsidiarybanks). The balance of strategic shareholdings (listedcompanies) was 106.8 billion yen as of March 31, 2020.
Ratio of the balance of strategic shareholdings toconsolidated capital assets decreased from 15.0% to13.7%.

(Billion yen)

Forecast (Bank total)

Total return ratio
Payout ratio

The subsidiary banks that hold strategic shareholdings
are making efforts to reduce the balance of strategic
shareholdings, taking into consideration the risk
reduction and capital efficiency based on its economic
rationality. We have been holding sufficient dialogues
with the issuing companies upon sales of such shares.

Management and Financial Strategies

Management and Financial Strategies

Forecast for FY2020

10.62%

10.38%

9.94%

3.9

12.9

12.9

12.8

12.7

FY2017FY2018FY2019FY2020 (scheduled)

FY2018FY2019IR sessions for individual investors

8 times, 845 participants(Cancelled)

IR sessions for institutional investors and analysts in Japan(including exclusive interviews)

79 times, 418 companies

68 times, 454 companies

IR sessions for overseas institutional investors and analysts

3 times, 19 companies

2 times, 12 companies

Total

90 times, 1,282 people(companies)

70 times, 466 companies

10.95%

As of March 31, 2017 As of March 31, 2018 As of March 31, 2019 As of March 31, 2020

Dividends per share

15

¥11.0

¥11.0

¥11.0

¥11.0

FY2017FY2018FY2019FY2020 (scheduled)

Mebuki Financial Group, Inc.

Annual Report 202016

Create Growth Business Models With Local Regions

Measures to meet the needs of an aging society

Since the business integration in October 2016, a wide range of support policies utilizing the wide-area network mainly
in Ibaraki and Tochigi prefectures are being implemented backed by the Group’s strong customer base, which is astrength of both Joyo Bank and Ashikaga Bank. Under the Second Medium-Term Group Business Plan, which waslaunched in April 2019, we support the growth and problem resolution of customers by leveraging the Group’s
strengths through the enhancement of consulting services and IT services/data utilization, while at the same time weutilize the resources held by the Group to cultivate and expand our business areas, thereby creating a business modelthat grows with customers and local communities.

To create communities in which people can continue tolive their lives in comfort, we have started expanding ourfinancial services in order to respond to financialtransaction problems and other diverse needs expectedfrom the imminent surge of the older population.

Asset succession

Reinforcing the organization for consulting
services to corporate customers

Number of specialists staffed in branches

25

60(As of September 30, 2018)(As of March 31, 2020)

To support companies in securing necessary personnel,
which has become a major management issue for many
companies, Joyo Industrial Research Institute Ltd. (asubsidiary of Joyo Bank) in October 2018, and Ashikaga
Bank in April 2019, commenced personnel placement
services. We are strengthening our consulting services
by deepening our dialogues with our customers, sharing
their management issues and providing appropriate
personnel placement and matching services to solve
their personnel problems, and supporting the review of
their personnel systems.

Officers and employees learning through a care-fitter training program

Results of personnel placement (cumulative)
Information gathering on personnel-related needs(from both banks’ offices)

Cases of successful
personnel placement

861 companies

61 companies, 80 cases(As of March 31, 2020)

Number of business succession and M&A consultation cases

3,591 cases(FY2019, bank total)

Mebuki Financial Group, Inc.

We signed a strategic business partnership in the digitalfield with Resona Holdings, Inc. We start developing a
new banking app for individual customers of Joyo Bank
and Ashikaga Bank, and will launch services during
FY2020. Both companies will seek synergies by sharing
knowledge and expertise with each other to explore new
digital banking services.

Details of the Strategic Business PartnershipEnhancing banking apps and continuously promoting
reforms in sales processes and over-the-counter
operations
Sharing and enhancing expertise through partnershipand exchange of human resources in the digital fieldIncreasing collaboration and partnership with externalfinancial institutions and enterprises of different industries

 evelopment and utilization of smartphoneDapps

Contracts and balance of customer assets under custodyof Mebuki Securities

19,599Balance (Billion yen)Contracts (Number)

13,557

16,692
14,615
272.8

168.4

As of March 31, 201717

We are working to improve convenience for customers and enhance the over-the-counter environment by utilizing IT
services within the Group as well as leveraging external knowledge, so that customers can use our banking services
anytime and anywhere they like.

Patented

Reinforcing the organization for consulting
services to individual customers
We have our employees acquire necessary knowledge
and market outlook information regularly through lecturebased and on-the-job training sessions to offer financial
products that suit each customer’s life plan and risk
appetite. To meet diversifying needs of customers, weare making proposals of customer oriented asset
management and asset building by creating a one-stop
sales scheme of highly specialized financial products
through collaboration between our banks and the Groupsecurities company.

 roviding “Elderly watching service” in collaborationPwith a security company, etc. (Joyo Bank)
Watching over elderly customers in collaboration withmunicipalities
Encouraging officers and employees to get qualified asa dementia supporter, placement of care-fitters at
branches

IT services and data utilization

Strategic business partnership with external bankBusiness Succession Support

Along with the aging of management executives, anincreasing number of companies are having businesssuccession issues. At the Group, the respective head
offices and branches of Joyo Bank and Ashikaga Bank,as well as external specialized institutions, collaborate
with each other to think through problems together withcustomers in order to facilitate business and asset
succession, and provide them with assistance in various
ways to resolve their issues.

Measures taken to respond to an aging society*Planning to shift 100 people (Bank total) in three years to consulting business for corporate
and individual customers.

Support for Securing Personnel

Asset management
 xpanding transactions by proxy, providing guarantorEand voluntary guardian services (Joyo Bank)
Starting handling of “guardianship support deposits”(Ashikaga Bank) rovision of services such as trust by will, trust as aP
substitute for a will, estate arrangement services, andinheritance assistance using insurance products
Setup of dedicated inheritance consulting service on
Saturdays and Sundays “Holiday Wealth Salon”(Ashikaga Bank)

Enhancement of consulting function

We have increased the number of specialists in
consulting service to corporate customers at the head
office, and have them work full time at branches.
Through this initiative, we are working to provide ourcustomers with solutions to various management
problems, such as smooth financing, business strategies
and business succession.

Initiatives for Value Creation

Initiatives for Value Creation

Initiatives for Value Creation

282.0

As of March 31, 2018

We introduced smartphone apps (for digital receipts/
company cars) in order to enhance efficiency of andupgrade sales activities of sales staff. The apps are
utilized for issuing digital receipts for passbooks andother items received from customers, management ofcompany cars, and management of customer visits
based on the GPS function.

As of March 31, 2019

(Image of the smartphone app for business use)

Utilization of robot advisor for investment trusts
Customers can utilize a robot advisor for simulation tofind asset management options and specific investment
products that meet their needs just by answering simple
questions on their PCs or smartphones, without visiting
a bank branch.

204.3

In April 2020, the Group obtained apatent on “Digital Receipts App” for its
function of receipt and return
management of customers’ passbook
and other items.

(Robot Advisor website)

As of March 31, 2020

Annual Report 202018

Initiatives for Value Creation

Initiatives for Value Creation

Structural Reform for Enhanced Productivity
In January 2020, we integrated the core systems of Joyo Bank and Ashikaga Bank. This allows us to accelerate our efforts to control the total number of staff and review our current channel
network, so that management resources freed up by the integration, such as staff and time, can be utilized for growth areas and improvement of customer service instead.
Change in total number of staff

Control of total number of staff

10,500

Achievements in FY2019

3-Year Plan (April 2019 through March 2022)(First year of the medium-term plan)

Unification and rationalization of businessprocessing and IT division
Consolidation of head office functions andsubsidiary functions and streamlining operations
BPR and digitization of branch office operations
Optimizing branch networks

Freed up
-1,000peopleFreed up
-300 people

Enhancement of consulting function
Strengthening IT planning and IT consulting
Invest in securities investment, structured
finance, new fields

Invested+200 people

Invested+50 people

Upon completion of integrationof core system (in January 2020),
we started to accelerate
structural reformU nification/Integration of IT DivisionU nification/Integration of Business
Administration and Concentration SectionU nification/Integration of the Head Offices’
Corporate Planning and Administration
functionsR estructuring organization of consulting
servicesR eorganization of group companies

6,400
regularemployees

Less than 9,700

As of March 31, 2020
-250 people(Compared withthe end of March 2019)

As of March 31, 2019 As of March 31, 2020

6,200
regularemployees

Optimization of Channels/Networks

In June 2020, we set up a new department in the Group (holding company), responsible for supervising project management
concerning system development in the Group.

Within the 3 years under the Medium-Term Group
Business Plan, we will optimize branch network byenhancing efficiency of about 20% of current 337
domestic branches. At the same time, we will increase
digital services through the internet and other methods,

Strengthen IT governance and improve organizational efficiency

Before reorganization
Mebuki Financial Group
Corporate Planning Department
Corporate Management
Department
Regional Revitalization
Department
Audit Department

System department (Subsidiary banks only)
Approx. 200 people in total
Joyo Banksystem department

Ashikaga Banksystem department

Free up
50 people

Banking App (Expansion of available functions)

Expansion of loan products available online (WEB)Balance inquiries

Transaction details

Automobile loans

Educational loans

Opening accountCollaboration with Internet Banking

Card loans

Free loans

Passbook

Opening investment
trust accountOpening account

System related department(Mebuki Financial Group and subsidiary banks)
Approx. 150 people in total
Joyo Banksystem department

Ashikaga Banksystem department

Integrate planning and management functions concerning
system development

Mebuki Financial Group, Inc.

so that customers can use banking services at anytime
and anywhere they like, and thus aim to provide services
that better meet their needs. The Group will continue toprovide financial services seamlessly even during the
COVID-19 pandemic.

Improvement of digital services

After reorganization (Jun 2020 and beyond)
Mebuki Financial Group
Corporate Planning Department
Corporate Management
Department
Regional Revitalization
Department
System Management Department
Audit Department

At the end of March 2020, the number of personnel
decreased by 250 people compared to the end of
March 2019, when we started Medium-Term Group
Business Plan. By taking the measures mentioned in theprevious page, we will continue to control total staff
through reallocation of personnel.

End of FY2021

Reorganization of system Departments

Purpose19

6,500
regularemployees

10,250Free up human resources and time
Increase time spent on consultation with customers

Develop and provide valuable products and services

Annual Report 202020

Developing Human Resources for Value Creation

We are making the utmost effort to support customers affected by the spread of COVID-19 by prioritizing thehealth and safety of customers and endeavoring to provide them with smooth financial services.

We are conducting training to improve the skills of each employee in order to meet the diverse needs of customers
and the local communities through the utilization of IT and digital technology. We are also striving to enhance our
employees’ knowledge and skills through having them acquire various qualifications in response to a growing demandfor comprehensive consulting services among corporate customers.

Business Continuity Support

Training specialized human resources

We have started offering special emergency loans forcustomers affected by the spread of COVID-19. We set
up consultation desks at branches on weekdays andholidays, including Golden Week, to provide consultation
for small and mid-size enterprises and individual
business owners.

Training human resources capable of utilizing
IT technology
We are reinforcing our support for employees to raise
their skill levels and training specialized human resources
through seminars by external lecturers on the utilizationof IT-related knowledge and information.
We are aiming to increase human resources withadvanced IT-related skills and encourage the utilizationof the Group’s IT services and data, while at the sametime providing our customers with tools and expertisedeveloped internally by the Group.

Funding support to affected business owners
through disaster recovery fundWe have added companies facing deteriorating businessenvironment due to the spread of COVID-19 to thedisaster recovery fund as its investment target. Throughthis fund, we will support such companies by utilizing a
wealth of expertise in business restructuring possessed“IT Service Creation Work Shop”

Promotion of Diversity
In order to grow together with our local communities,
we are also striving to establish a working environment
in which diverse people feel job satisfaction and cancontinue to work in the long term regardless of changes
in their lifestyles.

Promotion of active participation of women
We are proactively promoting capable and motivatedwomen employees to assistant manager positions or
higher. In order to foster women leaders who will leadthe active participation of women in the entire Groupand become role models for younger women
employees, we are conducting “Mebuki Women’s
Class.”

by Regional Economy Vitalization Corporation of Japan(REVIC) and working together with other financial
institutions.

Individual consultations for employment
adjustment subsidy
We are offering individual consultations concerning theemployment adjustment subsidy by HR and labor
management
experts including
licensed social
insurance consultants
free of charge.

Measures to prevent infection at branches

Acquisition of Expertise and Qualifications
We are providing support for employees to acquirevarious qualifications, such as financial planner, small
and mid-size enterprise management consultant andsecurities analyst.

Establishment of loan consultation desk
including on holidays

Measures Against the Spread of COVID-19

Initiatives for Value Creation

Measures Against the Spread of COVID-19

Percentage of women in assistant manager positions or
higher (Bank total)

28.9%
27.9%

We are prioritizing the safety and security of customers
and the health of employees and their family members,
while continuing to provide financial services as a social
infrastructure.
Introduction of shift-work arrangements and lunch
break closure during the state of emergency
declaration
Recommendation of social distancing (lobby area,around ATMs)Mask wearing, installment of partitions to prevent
droplet transmission
Teleworking, split operation

26.7%

As of March 31, 2018

As of March 31, 2019

As of March 31, 2020

Improvement of digital services
To help prevent the spread of COVID-19 by decreasing
human-to-human contact, we encourage our customers
to use our digital services instead of visiting a bankbranch. We are striving to promote the use of ourinternet banking services and banking apps byincreasing functions of digital services and loweringsome of the transaction fees.
Recommendation of transactions through internet
banking services for corporate customers andindividual customers
Inquiries by phone/e-mail and notices sent by post
Increasing of banking apps’ functions<Joyo Bank’s passbook app, Ashikaga Bank’s
Ashigin app>
Customers can now prepare a “proof of accountnumber,” a material identifying a bank account to receive
payment under programs including the government’s
special cash payment program.

Providing a pleasant working environment
We are establishing systems and working environmentsthat allow employees to work in line with their life stages,
such as raising children or nursing care of family, as wellas according to their lifestyles.
Flexible work system
Shortened work hour system (for childcare and nursingcare)Hourly paid leaveSeminars for employees returning to the workplacefrom childcare leave

21

Mebuki Financial Group, Inc.

Support to healthcare institutions
Healthcare Institutions added as donation
recipients of SDGs private placement bonds
With respect and gratitude to healthcare institutions thatare treating patients at the forefront while facing a highrisk of infection, we added healthcare institutions as
recipients of the donations, to help maintain healthcare
systems in our local communities.

Officers’ and employees’ contributions
To support healthcare workers at the forefront, weraised money from our Group’s officers and employees
and donated it as “funds supporting medical institutions”
to Ibaraki and Tochigi prefectural governments.

Seminars for employees returning to the workplace from childcare leave

Annual Report 202022

SDGs Initiatives

Social Issues

with local communities

Population decline
Aging

to create a moreGroup Philosophy

Asset succession

prosperous regionalsociety.

Together with local

Business succession

Handling of SDGs private placement bonds

Support for children’s independence

A portion of the commission received when issuing private
placement bonds for customers is used for donating goods toschools or organizations engaged in initiatives for SDGs of thecustomer’s choice. To date,
we have made donations ofmore than ¥100 million.
In May 2020, healthcare
institutions were added asrecipients of these
donations.
Kindergartners playing with donated toys

We conduct lessons on finance to teach theimportance of money and the role of banks to
the next generation. We also provide financial
education seminars intended for highschool
and college students for understanding themechanism of the monetary economy andspecific financial operations.

Private placement bonds with donation scheme (Cumulative)(As of March 31, 2020, bank total)

prosperous future byproviding high-quality,
services.

Initiatives to provide
comprehensive financial
services and promote therevitalization of theregional economy
utilizing a wide-area

Diversity and inclusionand climate change

network
Our vision
Building the region’s
future as acomprehensive financial

Compliance

Development of new businesses andexpansion of economic exchange

Joyo Bank and Ashikaga Bank jointly host the “Mebuki
Business Award,” in which entries for innovative and creative
business plans in the region are invited and an award ispresented to selected plans. Support is provided in various
ways to help make the award-winning plans take off asbusinesses, such as providing financial assistance by utilizing
funds, in addition to making
technical proposals andassisting in expanding sales.

By making the most of the Group’s wide-area
network, Joyo Bank and Ashikaga Bank jointly
hold various business conferences related toagriculture, food and manufacturing to assist
in business matching, etc. among clients.

Mebuki regional
revitalization fundAmount of investment (cumulative)¥1.9 billion

services group

Initiatives to preserve abeautiful and bountiful
environment for the

Mebuki Business Award ceremony

Environment conservation activities

Mebuki Financial Group is working to spread and develop
renewable energy in the region through environment-relatedloans for power generation businesses that utilize solar power,
wind power, biomass andother forms of clean energy.

We have conducted tree-planting activities
and promotion of environmental education inorder to pass our communities’ beautiful andsound forests on to the next generation. We
are also making efforts to protect limited
natural resources by promoting the use of
online passbooks in efforts to save paper.

future with the aim ofnatural environment

Solar power panels

Loans for solar power generation
Number of contracts
208

Contract amount¥27.8 billion(FY2019, bank total)

Mebuki Financial Group, Inc.

Mebuki Financial Group Manufacturing
Business Forum

Environment-related financing

maintaining a sound23

Economics Koushien

Discovering regional industries and supportingthe creation of new businesses(As of March 31, 2020, bank total)

Environmental conservation

Issue amount¥52.6 billion

continue to build a morecomprehensive financial
Digitalization

SDGs

Number of bonds
622

communities, we will
Corporate growth

In September 2015 the Sustainable Development Goals (SDGs) wereadopted at a United Nations summit.
The SDGs established 17 goals and 169 targets of specific actions as
the global sustainability agenda to be achieved by all countries including
advanced and developing countries by 2030.

The Group’s Initiatives

We will work in harmony

Asset building

What are SDGs?

SDGs Initiatives

SDGs Initiatives

Mebuki Financial Group will work with all of our stakeholders, including customers, shareholders, employees and business partners, to create a more
prosperous regional society and aim to keep growing together with our local communities. To achieve SDGs together with people in our local communities,
we have prepared leaflets describing our SDGs approach and examples of initiatives and are engaged in promoting activities and providing support
regarding SDGs efforts.

Tree planting

Annual Report 202024

Corporate Governance

Details of the Company’s organizations

Basic approach to corporate governance(Board of Directors)

A commitment to management characterized byresponsibility, and sound, appropriate business
operations will earn greater trust for the Group from all
stakeholders - customers, shareholders, local
communities and employees - and boost corporate
value. By following the approaches listed below, we areworking to strengthen and improve corporate
governance.

 e respect shareholders’ rights and ensure equality.
WWe consider the benefits of stakeholders, including
shareholders, and cooperate appropriately withstakeholders.
We disclose company information appropriately andensure transparency.
We ensure the effectiveness of a transparent, fair,
prompt and decisive decision-making function andsupervisory function of the Board of Directors on
business operation by utilizing independent outside
directors.
We work to communicate with shareholders
constructively about the continuous growth andimprovement of medium-to-long term corporate values.

Corporate governance structure
The Company has adopted a company with an Audit
and Supervisory Committee as a corporate governancesystem, which allows us to realize prompt and decisivedecision-making and business execution by entrusting
many of the decision-making authorities relevant tobusiness execution to directors as constituent membersof the Board of Directors in which the 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.

(Mebuki Financial Group’s corporate governance structure)
General Meeting of Shareholders

Corporate GovernanceCommittee

Management
Meeting

ALM/Risk Management
Committee

Directly-owned
subsidiaries

Compliance
Committee

Cooperate

Group Strategy
Committee
Corporate Management
Department

System Management
Department

Audit

Appoint/Dismiss(Audit Department)

Audit

Report/Request consultation

The Joyo Bank, Ltd.

The Ashikaga Bank, Ltd.

Mebuki Lease Co., Ltd.

Mebuki Securities Co., Ltd.

(Company with Audit andSupervisory Committee)(Company with Audit andSupervisory Committee)(Company with Auditors)(Company with Auditors)

Guide/Manage/
Supervise

Guide/Manage/
Supervise

Report/Request consultation

6 subsidiaries

Mebuki Financial Group, Inc.

Audit

Internal Audit Section

Regional Revitalization
Department

3 subsidiaries

5 outside directors(including 1 female
outside director)

12
members(Audit and Supervisory Committee)
The Audit and Supervisory Committee audits theexecution of duties by directors and determines thedetails of proposals related to the appointment,
dismissal, and non-reappointment of accounting
auditors to be submitted to the General Meeting of
Shareholders.
The Audit and Supervisory Committee meets monthly
in principle.

Audit and Supervisory Committee
3
3 outsideoutside directors
directors

5
5
members
members

We have established the Corporate GovernanceCommittee as an advisory board to the Board of
Directors to ensure the objectivity and transparency ofthe compensation for and the appointment of directors.
Matters regarding the nomination of director candidates
and the compensation for directors are decided by the
Board of Directors upon deliberation by the Corporate
Governance Committee.
The Corporate Governance Committee is chaired byan outside director, and the majority of its members arealso outside directors including the outside directors ofsubsidiary banks.

Corporate Governance Committee
5
5 outsideoutside directors
directors

9
9members
members
1
1 outsideoutside director
directorofof Joyo
Joyo Bank
Bank andand1
1 outsideoutside director
directorofof Ashikaga
Ashikaga BankBank

[Main matters for deliberation]
Audit

Report/Request consultation

Board of Directors(Corporate Governance Committee)

Audit and Supervisory
Committee Office

Guide/Manage/Supervise

Indirectly-owned
subsidiaries

Audit and Supervisory
Committee

Board of Directors
Cooperate

Corporate Planning
Department

25

Appoint/Dismiss

Accounting Auditor

Mebuki Financial Group, Inc.

Appoint/Dismiss
Consult/
Report

The Board of Directors decides basic corporate policies
and important business matters and supervises theexecution of duties by directors. We aim to realize
prompt and decisive decision-making and businessexecution by entrusting most decision-making
authorities relevant to business execution to directors asconstituent members of the Board of Directors in which
our Group’s knowledge and expertise are concentrated,while ensuring a transparent and fair decision-making
function and a solid supervisory function through theappointment of multiple outside directors that haveexperience as corporate managers, lawyers, andacademic experts.
The Board of Directors meets monthly in principle.

Governance of Mebuki Financial Group

Governance of Mebuki Financial Group

Governance of Mebuki Financial Group

Remuneration and bonuses for directors
Evaluation of the effectiveness of the Board of Directors
The Group’s governance structure
Appointment of director candidates, etc.

Annual Report 202026

Governance of Mebuki Financial GroupWe have established the Management Meeting, the
ALM/Risk Management Committee and the Compliance
Committee as bodies to discuss and decide importantmatters regarding business execution based on thedecisions made by the Board of Directors. Eachdecision-making body reports the status of deliberationand decisions regarding business execution to theBoard of Directors, and is supervised by the Board of
Directors.

Decision-Making
BodiesOverview

Management
Meeting

The Management Meeting is responsible formaking decisions on business execution to theextent of the authorities delegated by the Board of
Directors, as well as discussion on importantmatters regarding business execution.

All 5 Executive Directors
Both Executive Officers, a total of 7 members

ALM/RiskManagement
Committee

The ALM/Risk Management Committee is
responsible for making decisions on businessexecution relevant to group risk management and
ALM to the extent of the authorities delegated by
the Board of Directors and for considering anddiscussing important matters on businessexecution.

All 5 Executive Directors
Both Executive Officers
General Manager, Corporate Planning Department
General Manager, Corporate Management Department
General Manager, Basel Unit, Corporate Management
Department, a total of 10 members

Compliance
Committee

The Compliance Committee is responsible formaking decisions on business execution regarding
compliance to the extent of the authorities
delegated by the Board of Directors, andconsidering and discussing important mattersrelevant to the practice of compliance.

All 5 Executive Directors
Both Executive Officers
General Manager, Corporate Planning Department
General Manager, Corporate Management Department
General Manager, Audit Department, a total of 10
members

Composition

Evaluation of the effectiveness of the Board of Directors

The Board of Directors of the Company conducts analysis and evaluation of its effectiveness as a whole each year, in order toutilize the results of such evaluation to improve the operations of the Board of Directors, by confirming the opinions of eachdirector on such matters as the composition and operation of the Board of Directors.

<Evaluation method>

Regarding the FY2019 evaluation, opinions were exchangedon the evaluation method and the contents of thequestionnaire at the executive session comprising all outside
directors of the Company and its subsidiary banks, as was
the case in the previous fiscal year.
Based on this discussion, questionnaires on thecomposition and operations of the Board of Directors andother matters were distributed to all directors, and replies<Evaluation results>

The Board of Directors of the Company has confirmed that
directors with diverse knowledge and experience have been
elected and the composition is well balanced; all directors,
upon sharing the roles and responsibilities of the Board of
Directors, have successfully fulfilled both decision-making
and supervising functions while taking advantage of theperspective of independent outside directors; and thus theeffectiveness of the Board of Directors as a whole has beenmostly assured.

<Future Measures>

The following matters were recognized as issues that weneed to continuously address in aiming for the sustainablegrowth of the Group and the further improvement of its
corporate value in the medium- to long-term. By
implementing the necessary responses to these issues, ourGroup will strive to enhance the effectiveness of its corporate
governance structure.

1. “Improvement of the discussions by the
Board of Directors”
 nhancement of discussions aiming for improvement ofE
corporate value in the medium- to long-term.

27

Mebuki Financial Group, Inc.

and comments were obtained. With regard to the results ofthe evaluations based on these replies and comments, theBoard of Directors of the Company, upon deliberation by the
Corporate Governance Committee (with outside directors
accounting for the majority of its members), finalized anddetermined the results of analysis and evaluation of theeffectiveness of the Board of Directors as a whole.

With regard to issues recognized during the previous fiscal
year’s evaluation, “Review of the composition of the Board of
Directors in order to improve effectiveness” and “Further
improvement of the operations of the Board of Directors,”
were remediated by increasing the number of outside
directors to reflect diverse perspectives, as well as throughthe operations of the Board of Directors throughout the year.

 xpression of opinion by directors from a company-wideE
perspective, beyond the boundary of their duties

2. “Utilization of the perspectives of
independent outside directors”

 nhancement of discussions at the Corporate GovernanceE
Committee as an advisory body regarding the appointmentof and remuneration for directors.
Improvement of information provision to outside directors,
facilitation of communication among outside directors, etc.

Appointment of Directors
Governance of Mebuki Financial Group(Decision-Making Bodies)(Directors)
The Board of Directors selects candidates for directors
who satisfy the selection criteria for directors based on
the deliberation at the Corporate GovernanceCommittee.

(Outside Directors)

Selection criteria for candidates for outside directors

The Board of Directors selects candidates for outside
directors who meet the following selection criteria, in
addition to meeting the legal requisites for outside
directors. Two or more of such outside directors shall be
the persons who fulfill the independence standards foroutside directors of the Company.

(1) Shall be an appropriate person to supervise themanagement who has a wealth of experience as acorporate manager; is assuming a post as a legal,
accounting or financial expert or has equivalentknowledge and experience.
(2) Shall have personality and insight appropriate for an
outside director(3) Shall be able to secure time necessary to execute duties
as a director with integrity(4) Shall have no health- or business-related issues that may
prevent them from executing duties as an outside director.

Reasons for being selected as an outside director, concurrent positions and other statuses for each outside
director are as follows. The Group registered all of the five directors with the Tokyo Stock Exchange as
independent directors who do not have conflicts of interest with general shareholders.
Name

Reasons for selection

Hiromichi
Ono

Mr. Hiromichi Ono has accumulated a broad range of insight andabundant experience as a manager of a major food company. He
has been appointed as an Outside Director in the expectation that
he may provide appropriate guidance and advice for the overallbusiness operation of the Company by utilizing his insight andexperience as a corporate manager.

Concurrent positions and other statuses

Outside Audit & Supervisory Board
Member, Tokyo Gas Co., Ltd.

YoshimiShu

Ms. Yoshimi Shu has accumulated abundant work experience aswell as experience and achievements as a senior manager at a
global financial institution. She also has insight and experience invarious aspects towards the development corporate leaders. She
has been appointed as an Outside Director in the expectation that
she may provide appropriate guidance and advice for the overallbusiness operation of the Company from a professional perspective.

Deputy President & Representative
Director, Core Value Management, Co.,
Ltd.

SatoruKawamata

Mr. Satoru Kawamata has accumulated abundant insight andexperience as a corporate manager and conducted his duties
appropriately as Outside Director (Audit and Supervisory Committee
Member) of The Joyo Bank, Ltd. from June 2018 to June 2020. He
has been appointed as an Outside Director who is an Audit andSupervisory Committee Member in the expectation that he may utilize
his insight and experience corporate manager to provide appropriate
guidance and advice in relation to the overall business managementof the Company.

—

Toru
Nagasawa

Mr. Toru Nagasawa has specialized knowledge and experience incorporate legal affairs as an attorney. He has been appointed as an
Outside Director who is an Audit and Supervisory Committee
Member in the expectation that he may provide appropriate
guidance and advice from a specialist’s perspective, especially
corporate legal affairs in relation to the overall business managementof the Company.

Representative Attorney, Nagasawa Law
Offices
Outside Corporate Auditor, GREE, Inc.
Outside Director, Toho Holdings Co., Ltd.
Outside Corporate Auditor, Lancers, Inc.

Takashi
Shimizu

Mr. Takashi Shimizu has academic experience as well as specialized
knowledge and extensive experience in accounting. He has been
appointed as an Outside Director who is an Audit and Supervisory
Committee Member in the expectation that he may provide
appropriate guidance and advice from a specialist’s perspective,
especially accounting in relation to the overall business managementof the Company.

Professor, Graduate School of
Accountancy, Waseda University

Annual Report 202028

this monthly compensation amount is determined in(Procedure for Determining Directors’(Directors’ Compensation System)

performance-linked compensation accounted foraccordance with the regulations on compensation set

compensation)

Under the Company’s directors’ compensation system,

approximately 5% of the total compensation forforth by the Board of Directors.

In order to ensure the objectivity and transparency ofcompensation amounts are to be determined, as

executive directors.

directors’ compensation, the compensation for directors(excluding directors who are Audit and Supervisory(excluding directors who are Audit and Supervisory

an exercise price of ¥1 per share, granted as stock<Compensation for Audit and Supervisory
Committee Members>

Committee Members)” and “directors (who are Audit

compensation-type stock options, and the amount of

The compensation for “directors (who are Audit andDirectors, and the compensation for directors (who are

and Supervisory Committee Members),” within thestock options for each executive director is determined

Supervisory Committee Members) is comprised only

Audit and Supervisory Committee Members) is

maximum amount resolved by the Ordinary Generalbased on the director’s position. In FY2020, the Groupof a monthly fixed compensation. This monthly

determined by the Audit and Supervisory Committee

Meeting of Shareholders. At the General Meeting of

introduced a new restricted stock remuneration plan forcompensation amount is determined separately for fullupon deliberation by the Corporate Governance

Shareholders held on June 28, 2016, a resolution was

the purpose of providing the Company’s Directors

time and part time Directors (who are Audit andCommittee.

adopted setting the maximum amount of directors’(excluding Directors who are Audit and Supervisory

Supervisory Committee Members), in accordance withcompensation at ¥200 million per year for “directors

Committee Members and Outside Directors; the “Eligible

the regulations on compensation set forth by the Audit(excluding directors who are Audit and Supervisory

Directors”) with incentives to achieve sustainable

and Supervisory Committee, and the compensation

Committee Members) and ¥80 million per year forenhancement of the Company’s corporate value as wellamount for each director (who is an Audit and“directors (who are Audit and Supervisory Committee

as promoting further value-sharing with the Company’s

Supervisory Committee Member) is determined

Members).

shareholders, in lieu of the above-mentioned stock

through discussions among Audit and Supervisorycompensation-type stock options. In conjunction, theCommittee Members in accordance with said<Compensation, etc. for Executive Directors>

stock compensation-type stock option was abolishedregulations.

The compensation for executive directors among theand future stock acquisition rights granted as stock“directors (excluding directors who are Audit andcompensation-type stock options will no longer be

Supervisory Committee Members) comprises a monthly

allocated to the Directors. Under the restricted stockcompensation, which is a fixed compensation, stock

remuneration plan, the Eligible Directors shall makeoptions, and a bonus which is a performance-linked

payments in kind as contributed assets using all of thecompensation.

monetary compensation claims provided to them by thefollows, upon dividing the directors into “directors

The basic amount of the monthly compensation for

Stock options comprise stock acquisition rights, with

Company and receive the issuance or disposal of theeach executive director is determined by the director’sCompany’s common shares. Each of the Eligible

position.

Directors shall enter into a restricted stock allocation

With regard to bonuses which are performance-linked

agreement with the Company. Remuneration to be paidcompensation, the basic amount is determined infor the granting of restricted stock is monetaryaccordance with the director’s position and the totalcompensation claims and the total amount of suchamount of bonus payment is determined within aclaims will be set within the amount of annual

maximum amount which fluctuates each year according

remuneration for the Company’s Directors (excluding

to consolidated profit levels (ROE), and the amount paid

Directors who are Audit and Supervisory Committee

to each executive director is determined based on theMembers), that is, at 20 million yen or less per year. The

basic amount by the director’s position, which is

total number of common shares issued or disposed ofadjusted according to the level of contribution of eachby the Company shall be 200 thousand shares or lessexecutive director to business performance. The

per year. The amount of monetary compensation claims

consolidated ROE has been adopted as a performancefor each of the Eligible Directors is determined based on

indicator in order to provide stronger incentives to thethe director’s position.

Governance of Mebuki Financial Group

Governance of Mebuki Financial Group

Compensation for Directors

Committee Members) is determined by the Board of

Matters discussed by the Corporate Governance Committee and the Board of Directors indetermining directors’ compensation (FY2019)(Corporate Governance Committee)
April 2019
Matter regarding total amount of directors’ bonuses
Matter regarding individual distribution of directors’ bonuses, monthly compensation for directors
May 2019
February 2020 Matter regarding revision of directors’ compensation(Board of Directors)
May 2019	Matters regarding directors’ bonuses, and establishment and revision of the regulations on directors’ compensation
	(Revision in accordance with the introduction of outside directors who are Audit and Supervisory Committee
Members, etc.)
June 2019
Matter regarding determining monthly compensation amount for directors
July 2019 	Matter regarding the allocation of stock acquisition rights and stock option compensation amountdirectors to improve the Group’s corporate value. Under

29

the Second Medium-Term Group Business Plan (April 1,<Compensation for Outside Directors>

2019 to March 31, 2022), an ROE of 5.0% or more was

The compensation for outside directors who are nottargeted, and in the current fiscal year an ROE of 4.0%

Audit and Supervisory Committee Members is

was achieved. During the fiscal year under review,

comprised only of a monthly fixed compensation, andMebuki Financial Group, Inc.

Annual Report 202030

7 Directors

Governance of Mebuki Financial Group

Governance of Mebuki Financial Group

List of Directors

Outside Directors (5)Outside Director
Hiromichi Ono
April 1979
March 2004
June 2007
June 2011

June 2017
June 2019
June 2020

President and Director
Ritsuo Sasajima
June 2011

Executive Officer and General
Manager, Corporate Planning Division,
The Joyo Bank, Ltd.
June 2013 Managing Director, The Joyo Bank,
Ltd.
October 2016 Director, in charge of Corporate
Planning, the Company
June 2017 Senior Managing Director, The Joyo
Bank, Ltd.
June 2018 President, the Company (current
position)
President, The Joyo Bank, Ltd.
(current position)

Executive Vice President and Director
Kazuyuki Shimizu
April 2012

Executive Officer, The Ashikaga Bank,
Ltd.
Executive Officer, Ashikaga Holdings
Co., Ltd.
Executive Officer, The Ashikaga Bank,
Ltd.
April 2015
Managing Executive Officer, The
Ashikaga Bank, Ltd.
June 2016 Managing Director, The Ashikaga
Bank, Ltd.
October 2016 Director, the Company
June 2018 Senior Managing Director, The
Ashikaga Bank, Ltd.
June 2019 Executive Officer, the Company
June 2020 Executive Vice President, theCompany (current position)
President, The Ashikaga Bank, Ltd.
(current position)
April 2014

Director
Hidebumi Nishino
June 2013

Executive Officer and General
Manager, Business Promotion
Division, The Joyo Bank, Ltd.
June 2015 Managing Executive Officer and Vice
Director-General of Business
Headquarters, The Joyo Bank, Ltd.
October 2016 Director in charge of Regional
Revitalization, the Company
June 2017 Retired from the position as Director,
the Company
Managing Director, The Joyo Bank,
Ltd.
June 2020 Director in charge of Regional
Revitalization, the Company(current position)
Managing Executive Officer, The Joyo
Bank, Ltd.
(current position)

Director
Yoshihiro Naito
April 2016
June 2019
June 2020

Executive Officer, The Ashikaga Bank,Ltd.
Managing Director, The Ashikaga
Bank, Ltd.
Director in charge of Corporate
Management, Risk Management andInformation Security, the Company(current position)
Director, Managing Executive Officer,
The Ashikaga Bank, Ltd. (current
position)

Joined Ajinomoto Co., Inc.
General Manager, Finance Department, AjinomotoCo., Inc.
Corporate Executive Officer, Ajinomoto Co., Inc.
Member of the Board & Corporate Vice President incharge of finance and procurement, Ajinomoto Co.,
Inc.
Retired from the position as Member of the Board &Corporate Vice President, Ajinomoto Co., Inc.
Outside Director, the Company (current position)
Outside Audit & Supervisory Board Member, Tokyo
Gas Co., Ltd. (current position)

Outside Director
Yoshimi Shu
August 2000
June 2006

Joined JP Morgan Securities Japan Co., Ltd.
Head of Tokyo Control Room, ComplianceDepartment, JP Morgan Securities Japan Co., Ltd.
May 2012
Managing Director, JP Morgan Securities Japan Co.,
Ltd.
October 2012 Head of Japan Controls & Oversight Department, JP
Morgan Securities Japan Co., Ltd.
January 2014 Retired from JP Morgan Securities Japan Co., Ltd.
February 2014 Joined Core Value Management, Co., Ltd.
November 2016 Deputy President & Representative Director, Core
Value Management, Co., Ltd. (current position)
June 2019
Outside Director, the Company (current position)

Outside Director (Audit andSupervisory Committee Member)
Satoru Kawamata

Outside Director (Audit andSupervisory Committee Member)
Toru Nagasawa

Outside Director (Audit andSupervisory Committee Member)
Takashi Shimizu

April 1968
June 1995
April 1999

April 1984
April 1995

April 1995
April 1997

June 1999
June 2001
June 2009
June 2011
March 2013
June 2018
June 2020

Joined Hitachi, Ltd.
Deputy Head, Hitachi Works, Hitachi, Ltd.
Head, Power and Electricity Group, Hitachi Works,
Hitachi, Ltd.
Director, Head, Power and Electricity Group, Hitachi
Works, Hitachi, Ltd.
Representative Director and President, Hitachi Life, Ltd.
Advisor, Hitachi Life, Ltd.
Honorary Advisor, Hitachi Life, Ltd.
Retired from position as Honorary Advisor, HitachiLife Ltd.
Outside Director (Audit and Supervisory Committee
Member), The Joyo Bank, Ltd.
Outside Director, the Company (current position)

Registered as an attorney
Nagasawa Law Office (Currently, Nagasawa Law
Offices) opened, Representative Attorney (current
position)
September 2007 Outside Corporate Auditor, GREE, Inc. (current
position)
October 2014 Outside Corporate Auditor, Lancers, Inc. (current
position)
June 2015
Outside Director, Toho Holdings Co., Ltd. (current
position)
June 2016
Outside Director, Ashikaga Holdings Co., Ltd.
October 2016 Outside Director (Audit and Supervisory Committee
Member), the Company (current position)

Lecturer, School of Commerce, Waseda University
Associate Professor, School of Commerce, Waseda
University
September 2000 Received Ph.D. in Commerce (Waseda University)
April 2002
Professor, School of Commerce, Waseda University
August 2002
Visiting Researcher, University of California, Berkeley(until August 2003)
April 2005
Professor, Graduate School of Accountancy, Waseda
University (current position)
October 2016 Outside Director (Audit and Supervisory Committee
Member), the Company (current position)(List of Directors of subsidiaries)

Director
Tetsuya Akino
June 2016

Executive Officer and General
Manager, Personnel Division, The
Joyo Bank, Ltd.
October 2016 General Manager, Corporate
Management Department, theCompany
June 2017 General Manager, Corporate Planning
Department, the Company
Executive Officer and General
Manager, Corporate Planning Division,
The Joyo Bank, Ltd.
June 2018 Director, in charge of Corporate
Planning, the Company (current
position)Managing Director, The Joyo Bank,
Ltd.
June 2020 Director, Managing Executive Officer,
The Joyo Bank, Ltd. (current position)

31

Mebuki Financial Group, Inc.

Director (Audit and Supervisory Committee Member) Director (Audit and Supervisory Committee Member)
Eiji Murashima
Kunihiro Ono
June 2010

Executive Officer and General
Manager, Business Administration
Division, The Joyo Bank, Ltd.
June 2011 Executive Officer and General
Manager, Business Promotion
Division, The Joyo Bank, Ltd.
June 2012 Managing Executive Officer and Vice
Director-General of Business
Headquarters, The Joyo Bank, Ltd.
June 2013 Managing Director, The Joyo Bank, Ltd.
October 2016 Director in charge of Corporate
Management (Basel), the Company
June 2018 Senior Managing Director, The Joyo
Bank, Ltd.
June 2020 Retired from the position as Senior
Managing Director, The Joyo Bank,Ltd.
Director (Audit and Supervisory
Committee Member), the Company(current position)
Corporate Auditor, Mebuki Securities
Co., Ltd. (current position)

June 2010

Executive Officer, General Manager,
New Accounting System Transition
Promotion Division, The Ashikaga
Bank, Ltd.
October 2011 Executive Officer, The Ashikaga Bank,
Ltd.
June 2012 Director, The Ashikaga Bank, Ltd.
June 2013 Director, Ashikaga Holdings Co., Ltd.
June 2016 Retired from the position as Director,
The Ashikaga Bank, Ltd.
October 2016 Director (Audit and Supervisory
Committee Member), the Company(current position)
June 2017 Corporate Auditor, Mebuki Lease Co.,
Ltd. (current position)

JOYO BANKASHIKAGA BANKMEBUKI LEASE

Directors

Directors

Director

Kazuyoshi Terakado

Chairman and Director

Masanao Matsushita

President and Director

Hiroshige Sonobe

Ritsuo Sasajima

President and Director

Kazuyuki Shimizu

Senior Managing Director

Yoshiaki Kosugi

Director and Senior Managing
Executive Officer
Director and Managing Executive
Officer
Director and Managing Executive
Officer
Director and Managing Executive
Officer
Director and Managing Executive
Officer

Masaru Seki

Eisuke Suzuki

Senior Managing Director

Jun Ajima

Hiroshi AraiManaging Director

Hiroo Sugaya

Akio Hosoya

Managing Director

Teruo Yamaguchi

Kiyoshi Nozaki

Director and Senior Managing
Executive Officer
Director and Senior Managing
Executive Officer
Director and Managing Executive
Officer
Director and Managing Executive
Officer
Director and Managing Executive
Officer

Hideto Usui

Corporate Auditor

Hiroyuki Kimura

Director (part-time)

Toshihiko Ono

Yasuhiro Katada

Director (part-time)
Director (Audit and Supervisory
Committee Member)

Yoshihiko Yoshihara

Director (Audit and Supervisory
Committee Member)

Corporate Auditor (part time)

Akihiko Kuwako

Kunihiro Ono

Chairman and Director
President and Director

Hitoshi Takenouchi
Tetsuya Akino
Yuji Gorai

Outside Director
Outside Director (Audit andSupervisory Committee Member)
Outside Director (Audit andSupervisory Committee Member)
Outside Director (Audit andSupervisory Committee Member)

Yoshihiro NaitoMEBUKI SECURITIES

Outside Director
Naoki Goto
Zenichiro Ishihashi
Tomoko Ogura

Outside Director (Audit andSupervisory Committee Member)
Outside Director (Audit andSupervisory Committee Member)
Outside Director (Audit andSupervisory Committee Member)

Corporate Auditor

Shoji Fukui

Director

Seiichi Suzuki

President and Director

Fuminori Nakajima

Yoshikatsu Sugiyama

Senior Managing Director

Hiroshi Mori

Senior Managing Director

Toshihisa Onizawa

Senior Managing Director

Hiroo Shimada

Director

Katsuhiro Noda

Corporate Auditor
Corporate Auditor

Hiroshi Matsumoto

Corporate Auditor (part time)

Eiji Murashima
Annual Report 2020

32

A1 I realize that, in this challenging external environment, the Company’s biggest role is tocontribute to the revitalization of local economies. To this end, it is crucial to assist ourcustomers by providing them with not only funding but also know-how and information on
how to manage the provided funds as well; that is, consulting service that contributes toaddressing their business challenges.
Such service designed to listen to needs of local small and mid-size enterprises and thenprovide necessary assistance must differentiate us from new entrants into the financial
industry, such as IT companies specializing in FinTech. Obviously, it is necessary tothoroughly pursue operational efficiency through the promotion of digitalization. We should
work together with our local communities to revitalize the regional economy.

The Company has adopted the structure of a company with an audit and supervisory committee as its corporate
governance system in order to enhance its corporate governance. We asked our outside directors about the
management challenges the Company is facing and the roles they hope to play by utilizing their own experience.

A&

Q

Questions

Q1

Our external environment has been drastically changing recently
due to various developments including prolonged low interest
rates, advancement of digitalization and unpredictable events
such as COVID-19. What management challenges are posed bysuch environmental changes?

Outside Director (Audit
and Supervisory
Committee Member)
Satoru Kawamata

Q2 In addressing management challenges, what role can you play as
an outside director by harnessing your experience?

Governance of Mebuki Financial Group

Governance of Mebuki Financial GroupInterview with Outside Directors

A2 From my experience in management reforms and new business development as a manager
of a manufacturing company, I have become aware that banks are less willing to take risks
or take on new challenges because they are expected by the public to be morecreditworthy and stable than other businesses.
Now that banks are required to create new value by growing out of the conventional
notion of the business, I would like to utilize my insight to invite the Group to take on new
challenges.
Needless to say, these new challenges must be transparent and fair. Now more thanever before, the Board of Directors is functioning as a place for governance checking froma long-term perspective and discussion for supervising management. I will continue to see
how our business contributes to value creation while ensuring its transparency and fairness.

A1 Lately, I feel that roles of a banking business built on a solid customer base are changing, and“game change” is required. To be more specific, I find it important to offer problem-solving
type of financial services, which is beyond the boundary of the traditional finance industry,
through providing not only financing solutions but also people or information required bycustomers. The Company should remain as committed as ever to its local communities andcustomers and carefully listen to their needs, while striving to improve its responsiveness toa rapidly changing environment and to become able to offer new services in need.

A1 First of all, we need to streamline existing operations swiftly in response to a shrinking

market due to the ongoing population decline. Also, it is indispensable for the Company tosecure a broad range of revenue sources, while providing financing to customers. It is also
important for us to create a new business model in which profit is gained from provision of
information and know-how by enhancing the quality of services incidental to financing whichhave been provided free of charge. Moreover, in an effort to promote digital transformation,
it is necessary to further accelerate the shift toward digitalization in collaboration withexternal partners, or through outsourcing.

A2 Since I have engaged in financial affairs at a manufacturing company for years, I had
Outside Director
Hiromichi Ono

opportunities to receive services from various banks and other financial institutions. Throughmy extensive investor relations activities in Japan and abroad, I have also learned values ofpeople involved in capital markets.
By utilizing these experiences and perspectives, I would like to propose useful ideas in a
broad range of areas, including governance. I was appointed as an outside director lastyear, and now I realize that, most of all, regional banks are expected to serve the public
interest in communities and contribute to their revitalization. I hope that the Group will workin harmony with local governments, focus on measures such as attracting industries andresponding to a possible population increase in line with the new way of life, and contributeto further revitalization of the regional economy in the future.

A2 I, as a lawyer, have been involved in numerous cases of civil rehabilitation, corporate
Outside Director (Audit
and Supervisory
Committee Member)
Toru Nagasawa

A1 Among roles fulfilled by banks, financial intermediary and settlement functions are now

affected especially severely by the challenging environment of today. The financial
intermediary function is becoming less profitable due to diversified financing methods andzero interest rates. The settlement function is suffering a drop in customers who are
attracted by new entrants in the industry capitalizing on the trends of FinTech.
However, the most important job for a regional bank under any circumstances should beto support the development of the regional economy. I think that is our mission. It isessential for us to provide local companies and individuals with not only funds but also
ideas and methods for how to utilize the procured funds, along with information
accumulated by the bank over the years, and to offer new consulting services that are
helpful for any corporate manager to make better decisions.

A1 I understand that, as listed in the Second Medium-Term Group Business Plan, theenhancement of consulting services to meet various needs, the streamlining of business
operations through digitalization, and the structural reforms based on it, are matters of thehighest urgency, which need to be addressed at an even faster pace. I believe that, in orderto respond to the ever-changing environment of today, we must take a wide range ofactions including transforming our current business models.

A2 It is important to hire and train personnel capable of identifying and solving problems andOutside Director
Yoshimi Shu

33

Mebuki Financial Group, Inc.

accomplishing their missions independently. To this end, we need to nurture corporate
culture that draws out character and passion of each and every employee, and enables
them to build their career with a long-term vision. Taking advantage of my experience andlessons learned from working for a global financial institution, I would like to contribute to
the creation of such corporate culture.
Given the public nature of the Company, it is extremely important to position SDGs and
ESG as the foundation of its business. However, to continue to work on these initiatives,
the Company must also be profitable.
I intend to observe whether initiatives for SDGs and ESG lead to stable revenue growth,and promote the sustainability of communities as well, and thereby contribute to value
creation.

reorganization and business revitalization. From such experience, I am well aware of how
business operators see banks. So I believe I will be able to give suggestions on creating
new value from multiple perspectives.
The Company is now working on value creation based on a medium- to long-term
strategy. I will closely observe whether business operations are executed appropriately,while constantly looking at and redefining how our corporate activities are seen andevaluated by customers and business partners. Sticking to my motto, “speak frankly,” I willtake full advantage of my perspective as an outsider to the Company.

Outside Director (Audit
and Supervisory
Committee Member)
Takashi Shimizu

A2 Management accounting, my field of specialization, is an academic field that studies how tomotivate people in an organization to achieve a goal through developing management
strategies and providing information useful in its execution. I would like to use theknowledge I gained in this field for developing and operating an organization dedicated toprovide this new consulting service.
Any company capable of doing things that are obvious as a matter of course will always
be strong and resilient under any circumstances and unlikely to make a big mistake. Bysaying “things that are obvious” here, I don’t mean the things that must be done because
the company’s specific theory requires so, but those that are expected to be done in lightof social norms. In other words, companies are expected to conduct their businessactivities in ways the society deems appropriate. I would like to closely monitor whether thisis being done at the Group while serving the Board of Directors and, based on myexperience of having observed many companies’ management, I will endeavor to revitalize
the local economy with the aim of increasing the gross prefectural production.

Annual Report 2020

34

The Group aims to enhance the risk management system by positioning it as an important management task from theperspective of the maintenance and improvement of sound corporate management.

Risk management system

Mebuki Financial Group, Inc.

through consideration and discussion focused on closer
coordination between risk management and profit management
while controlling risks appropriately, and facilitates prompt andefficient decision-making by management.
Furthermore, we have organized the integrated risk
management section responsible for the supervision andintegrated 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

ALM/Risk Management Committee
Integrated risk management section(Corporate Management Department)

Decide on important business execution
Analysis, assessment and deliberation on matters for improvement
Capturing, measurement, assessment, and reportingof risk as a group

Internal audit section (Audit Department)

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 onimportant 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 the risk and return relationship

Audit

Type of risk

Strategic Risk

Credit Risk

Market Risk

Liquidity Risk

Operational Risk
Corporate Management
Department

Corporate Management Department

System Management
Department

Corporate Planning
Department

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

conducts internal audits as well as auditsof companies within the Group.

Report/Consult (risk status, response policies)

The Ashikaga Bank, Ltd.

Mebuki Lease Co., Ltd. Mebuki Securities Co., Ltd.

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

Audit and Supervisory Committee

Integrated risk management section(Risk Management Department)

Board ofDirectors

Corporate Auditors

Integrated risk
management section

Type of risk

Strategic Risk

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” whichquantitatively 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, andat 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 ourfinancial soundness (our capital 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 allocationof capital, we secure a risk buffer to cover losses larger thanthose expected in the statistical methods or risks unable to be
captured by the statistical methods. We confirm the sufficiencyof our capital reserves, including the capital to cover the
aforementioned risks, by performing stress tests by which we
capture the impact on our capital reserves under assumed

35

Audit

Mebuki Financial Group, Inc.

Audit

Internal audit section

The Joyo Bank, Ltd.

scenarios such as a sudden economic downturn. Furthermore,
we confirm the reasonableness and effectiveness of thestatistical methods through back tests in which the risk amountcalculated by VaR (value at risk) is compared with actual profit
or loss.

(Credit risk management)
Credit risk refers to the risk of incurring losses as a result ofcustomers becoming unable to pay the principal and interest ofloans as promised primarily due to the deterioration of theirfinancial conditions.
Recognizing credit risk as a material risk in our business
operations, the Group aims to enhance the management
system to prevent the emergence of 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 isorganizationally and functionally independent from the businesspromotion sections, is responsible for the planning andoperational management of the internal credit rating system,
self-assessment systems, write-offs and provisions to thereserve for loan losses, as well as for the monitoring of loan
assets as the specialized organization for the comprehensive
supervision and management of 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 a claim fromdeteriorating.
Internal credit ratings
We categorize our customers into 12-grade rating levels byadding qualitative assessment to the data on their financial
condition and cash flow status. In addition to serving as thebasis for self-assessment systems, internal credit ratings areused 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 suchassessment. In addition, the reasonableness of suchassessment is validated and audited by the sections in chargeof validation and auditing, respectively, and is also subject toexternal 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 the deterioration of financial
conditions of customers. The Group calculates the amount ofcredit 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 andconduct credit 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 andevaluation of credit situations by rating and region, or based oncomposition by industry.

(Market risk management)
Market risk refers to the risk of incurring losses due to changes
in the value of 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 basedon their understanding of risk supported by sufficient advanceresearch and analysis of market transactions.
For the appropriate control of market risk, we also perform
and report to the ALM/Risk Management Committee of theCompany held periodically the quantitative management andmeasurement 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 in securing necessary funds caused by an
unexpected outflow of funds or similar events, or a sharp rise infunding costs.
The Group has established the Group Liquidity Risk
Management Rules to set up the framework under which actionplans 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, we manage 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 perform periodical
drills for action plans upon a liquidity crisis to enhance theeffectiveness in a crisis.

Governance of Mebuki Financial Group

Governance of Mebuki Financial Group

Risk Management System(Operational risk management)
Operational risk refers to the risk of incurring losses caused byinappropriateness 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 thecomprehensive 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 the comprehensive risk management section responsible
for operational risk gather information on and analyze thecauses of administrative incidents occurring inside or outside
the Group to establish or revise administrative rules or enhancethe efficiency of administrative processes through theinformation system based on the results of such analysis. In
addition, the Group has the internal audit section validate theeffectiveness of the risk management system to establish theframework to detect or prevent administrative incidents.
System risk
System risk is the risk of incurring losses primarily due to thefailure of computer systems, erroneous computer operation, or
inappropriate computer use.
The Group has taken necessary measures to ensure thesafety and reliability of computer systems including failure
response exercises aiming to establish the framework for earlyrecovery 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 withrisk characteristics and take appropriate actions for: compliance(legal) risk, the risk of incurring losses mainly due to an illegal
act committed by directors and employees; personnel
management risk, the risk of incurring losses mainly due to an
act in violation of laws, regulations or agreements relevant toemployment, health or safety; tangible asset risk, the risk of
incurring losses due to damage to tangible assets caused bydisasters or defective management of buildings; andreputational risk, the risk of incurring losses due to thedeterioration 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 earlyrecovery of important business operations including therepayment of deposits, fund transfer and remittance uponfacing a crisis such as a natural disaster, system failure or
pandemic, as well as limiting human and physical damage tothe minimum extent possible.
Upon the occurrence of a crisis, we will establish emergency
response headquarters at the Company and directly-owned
subsidiaries to respond to 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 202036

Severing connections with antisocial forces

Mebuki Financial Group

Board of Directors

Audit and Supervisory Committee

Compliance Committee

Corporate Planning Department

Corporate Management Department

Regional Revitalization Department

System Management Department

Audit Department

Consult/Report

The Ashikaga Bank, Ltd.

Board of Directors

Mebuki Lease Co., Ltd. Mebuki Securities Co., Ltd.

Audit and Supervisory Committee

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

Managing sections<Joyo Bank>
Corporate Risk Management Division<Ashikaga Bank>
Compliance Management Division

Board ofDirectors

Corporate Auditors

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

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

Supervise
Head Office and branches
Officer and staff in change ofmanagement and compliance

SuperviseGroup companies

Managing section<Mebuki Lease>
General Affairs Division<Mebuki Securities>
Administrative Compliance Division
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 whichenables 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 forcompliance, and thereunder, other relevant rules andregulations systematically.
The Compliance Committee established within the
Company is responsible for decisions on compliancerelated important business execution of the Company
and the Group, and for analysis, assessment anddeliberation on matters for improvement relevant togroup-wide compliance.
Furthermore, we put compliance into practice through,among other factors, the establishment of the Legal and

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

Guide/Manage/Supervise

The Joyo Bank, Ltd.

Governance of Mebuki Financial Group

Governance of Mebuki Financial Group

Initiatives for Compliance

Compliance Group of the Corporate Management
Department as the managing and supervising section in
charge of group-wide compliance, the designation of theofficer responsible for the Corporate Management
Department, and the assignment of compliance staff ateach management organization within the Group.
Important matters regarding compliance at directlyowned subsidiaries are consulted on and reported to the
Corporate Management Department, which is
responsible for the guidance, management andsupervision thereof, pursuant to the Rules forManagement of Companies within the Group.

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.

Our customer protection management system (Measures for Customer Protection)
Our Group has established the “Group Management
Policy for Customer Protection” to organize and ensure
the appropriate management system for customer
protection from the perspective of the protection andimprovement of convenience for all existing and future
customers of the Group, as well as for facilitating
finance.
Joyo Bank and Ashikaga Bank have established asupervising section in charge of consultation, complaints
and other communication from customers, and havealso entered into a basic contract for the implementationof dispute resolution procedures with the Japanese
Bankers Association, the designated dispute resolution
organization under the Banking Act, and with the Trust
Companies Association of Japan, the designateddispute resolution organization under the Trust BusinessAct and the Act on Engagement in Trust Business by
Financial Institutions, to utilize the financial ADR systemfor dispute resolution with customers through the
involvement of third parties.
The Company has defined the Declaration on Personal
Information Protection and various regulations withregard to handling of personal information, individual
numbers and specific personal information received from
customers (“Personal Information, etc.”) and thereby
takes proper measures for security control of Personal
Information, etc. The Company, Joyo Bank andAshikaga Bank have also set up customer inquiry
windows for consultation and complaints regarding
Personal Information, etc. in their custody. In addition,
they are members of the All Banks Personal Data
Protection Council, an authorized organization for theprotection of personal information under the Act on theProtection of Personal Information. The Council also
accepts complaints, and provides consultation on thehandling of Personal Information, etc.

Compliance program
The Group establishes a compliance program as theaction plan to realize compliance. The companies within
the Group establish a program based on the Basic
Policy on Group Compliance Program developed
annually by the Company.
The status of the compliance program performed bycompanies within the Group is reported to and validated
by the Compliance Committee quarterly, and is also

37

Mebuki Financial Group, Inc.

subject to the annual overall assessment which isreflected in the next year’s program.
In addition, the Company established the FY2020
Group’s Basic Policy for Anti-Money Laundering, andhas decided to build and maintain a risk management
system against money laundering and financing ofterrorism through a risk-based approach.

Annual Report 202038

Group Structure and Corporate Data
Group Structure (as of March 31, 2020)

Organization (as of June 24, 2020)

Group Structure and Corporate Data

(Holding company)

General Meeting of Shareholders
Accounting Auditors
Corporate GovernanceCommittee

Mebuki Financial Group, Inc.
Address

7-2, Yaesu 2-chome, Chuo-ku, Tokyo

Head Officeaddress(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 142
Credit ratings

A (R&I)(Directly owned subsidiary)

Founded July 30, 1935
Head Office 5-5, Minami-machi 2-chome, Mito, Ibaraki Prefecture
Paid in capital 85.1 billion yen
Network Domestic: 183 offices(153 branches, 30 sub-branches)
Overseas: 4 Representative Offices(Shanghai, Singapore, New York, Hanoi)
Number of 3,319
employees*
Credit ratings A+ (R&I)
A3 (Moody’s)

Founded October 1, 1895
Head Office 1-25, Sakura 4-chome, Utsunomiya, Tochigi Prefecture
Paid in capital 135 billion yen
Network Domestic: 154 offices(107 branches, 47 sub-branches)
Overseas: 2 Representative Offices(Hong Kong, Bangkok)
Number of 2,831
employees*
Credit ratings A+ (R&I)

Compliance Committee

Cooperate
Consult/
ReportBoard of Directors
Audit and Supervisory Committee

Management Meeting

ALM/Risk Management Committee
Group Strategy Committee*Number of employees excludes employees seconded.

39

Mebuki Financial Group, Inc.

Audit Department
Oversight GroupOperational Audit Group(Corporate management)(System)(Regional revitalization)

Corporate Planning Department

Corporate Management Department

System Management Department

Regional Revitalization Department

Planning GroupIT Digital Strategy Group
Administrative BPR Promotion GroupAccounting Group
Executive Secretariat GroupTokyo OfficePublic Relations Office

Risk Management Group
Compliance and Legal Group
Personnel Group
General Affairs Group
Basel UnitManagement GroupRegional Revitalization Group

Stock Information (As of March 31, 2020)
Capital and number of issued shares
Common stock

117,495,550,000 yen

Number of issued stock

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

1,179,055,218 shares

Name

Founded November 30, 2007
Head Office 4-12, Minami-machi 3-chome, Mito, Ibaraki Prefecture
Paid in capital 3 billion yen
Network 7 offices(Head Office, 3 branches, 3 resident offices)
Number of 63
employees(Audit)(Business plan)

Major shareholders
Mebuki Financial Group, Inc.

Founded September 25, 1974
Head Office 4-12, Minami-machi 3-chome, Mito, Ibaraki Prefecture
Paid in capital 100 million yen
Network 13 offices(Head Office, 12 branches)
Number of 64
employees

Audit and Supervisory Committee OfficeNomura Financial Partners Co., Ltd.
The Master Trust Bank of Japan, Ltd. (trust account)
Japan Trustee Services Bank, Ltd. (trust account)
Nippon Life Insurance Company
Japan Trustee Services Bank, Ltd. (trust account 9)
Sompo Japan Nipponkoa Insurance, Inc.
STATE STREET BANK AND TRUST COM-PANY 505223
Sumitomo Life Insurance Company
Japan Trustee Services Bank, Ltd. (trust account 5)
The Dai-ichi Life Insurance Company, Limited
Total

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

107,419
63,224
47,103
34,48730,78828,32524,46521,65920,842
19,948398,265

9.26
5.45
4.06
2.97
2.65
2.44
2.11
1.86
1.79
1.72
34.35

Name

Mebuki Financial Group, Inc.

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

722,910100.00Ashikaga Bank
Name

Mebuki Financial Group, Inc.

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

1,340,520

100.00

Annual Report 202040

Market of the Group

Number of
336 officesbank offices
Ibaraki
157 offices
Tochigi
116 offices
Gunma
15 offices
Saitama
20 officesTokyo
8 officesChiba
7 offices
Others13 offices

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

as of March 31,2020
Kan-Etsu Expressway
Tohoku Expressway

Joban Expressway

Tochigi
Nikko

Gunma
Utsunomiya

MitoAshikaga
Kita-Kanto
Expressway
Ken-O Expressway—

Tsukuba

Ibaraki

Saitama
Economic scale of our operating area

Within 100km of Tokyo

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 (2017) (¥ trillion)

13.8

11

9.2

15

9.0

17

23.4

5

21.1

7

106.2

1

Population (2019)(thousand)

2,860

11

1,934

19

1,942

18

7,350

5

6,259

6

13,9211

Prefectural income
per capita (2016)(¥ thousand)

3,116

10

3,318

3

3,098

11

2,958

18

3,020

15

5,348

1

Number of businesses(2016)

118,03113

88,332

19

92,00618

250,8345

196,5799685,615

1

Manufactured goods
shipped (2018) (¥ trillion)

13.0

8

9.2

12

9.1

13

14.1

6

13.1

7

7.6

16

New Factory Locations(excluding power supply
65
sector) (2019)/ 150ha(number/area(ha))

3/1

25
57
13 / 18/ 25ha/ 65ha4/4

27
22
12 / 23
16 / 12/ 16ha/ 37ha- / -ha47 / 47

Tokyo

Chiba

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.

41

Mebuki Financial Group, Inc.

Annual Report 202042

Mebuki Financial Group’s Overseas Business Support Activities

The Group co-hosted events such as Manufacturers’Business Meeting in Bangkok, Ho Chi Minh and Shanghai, as well as FoodJapan 2019 in Singapore.

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 2020), we offer a wide variety of support services through business alliances with local financial institutions and government
agencies in Asia and North America.

Hong Kong Representative Office, Ashikaga Bank

Shanghai Representative Office, Joyo Bank
Address

Phone

Room 1901, Shanghai International Trade
Centre, 2201 Yan An Road (West),
Shanghai 200336
P. R. China+86-21-6209-0258

AddressPhone

New York Representative Office, Joyo Bank

Suite 1601, 16th Floor,
Tower2, The Gateway,
Harbour City, Kowloon,
Hong Kong+852-2251-9475

AddressPhone

712 Fifth Avenue, 8th Floor
New York, NY 10019
U. S. A.
+1-347-686-8420

Hanoi Representative Office, Joyo Bank
AddressPhone

5th Floor, Sun Red River,
23 Phan Chu Trinh Street,
Hoan Kiem District,Hanoi
Vietnam+84-24-3218-1668

Bangkok Representative Office, Ashikaga Bank
AddressPhone

689, Bhiraj Tower at EmQuartier,27th Floor, Room No.2714, Sukhumvit Road,
Klongton-nua, Wattana, Bangkok 10110
Thailand+66-2-261-2852

Representative Office Registered in Singapore, Joyo Bank
AddressPhone

63 Market Street, #11-03
Bank of Singapore Centre,
Singapore 048942+65-6225-6543

Country/region

Major alliance partners

East Asia

Bank of China (China)
China
Bank of Communications (China)
TaiwanCTBC Bank (Taiwan)
Kasikorn Bank

ThailandMajor alliance partners

Japan International Cooperation Agency (JICA)
Japan Bank for International Cooperation (JBIC)

Ashikaga
Bank

Business overview of alliance partners
Provision of various types of information concerning overseas business development;
provision of information concerning foreign country regulations, etc.
Provision of various types of information concerning overseas business development in developing
nations; provision of information concerning foreign country regulations
Provision of loans to support overseas business development

Nippon Export and Investment Insurance (NEXI)

Provision of various types of trade insurance to cover foreign transaction risks in export transactions

Organization for Small & Medium Enterprises and Regional Innovation, JAPANProvision of various types of information concerning overseas business development;
provision of information concerning foreign country regulations, etc.

Tokio Marine & Nichido Fire Insurance
Sompo Japan Nipponkoa Insurance

South East Asia/South Asia

Japan External Trade Organization (JETRO)

Joyo
Bank

Bangkok Bank

43

Mebuki Financial Group, Inc.

Vietin Bank
Vietnam

Foreign Investment Agency of Vietnam
BDO Unibank

India
Provision of security system and crime prevention equipment overseas;
provision of security services overseas

Vietcombank

Metrobank

Central America

Sohgo Security Services

Bank CIMB Niaga

Philippines

Provision of risk information overseas; provision of risk management consulting services;
provision of various types of P&C insurance

Mitsui Sumitomo Insurance
SECOM

Bank Negara Indonesia
Indonesia

State Bank of India
Banamex

MexicoGovernment of Aguascalientes,
Government of Jalisco, etc.

Joyo
Bank

Ashikaga
Bank

Business overview of alliance partners
Provision of information regarding China;
provision of various financial services including establishment of accounts
Provision of information regarding Taiwan;
provision of various financial services including establishment of accounts
Provision of information regarding Thailand;
provision of various financial services including establishment of accounts

Provision of information regarding Indonesia;
provision of various financial services including establishment of accounts
Provision of information regarding Vietnam;
provision of various financial services including establishment of accounts
Cooperation in hosting seminars relevant to Vietnam; various support
for business expansion to Vietnam; provision of investment-related information
Provision of information regarding Philippines;
provision of various financial services including establishment of accounts
Provision of information regarding India;
provision of various financial services including establishment of accounts
Provision of information regarding Mexico;
provision of various financial services including establishment of accounts
Provision of local market information;
provision of investment-related information regarding Mexico

Annual Report 202044

Financial Data

Consolidated Balance Sheet
March 31, 2020

Consolidated Statement of Income

Mebuki Financial Group, Inc. and Consolidated Subsidiaries

Year Ended March 31, 2020

Millions of Yen
2020
2019

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

ASSETSCash and due from banks (Notes 3 and 23)�������������������������������������������������������������� ¥ 1,935,324
Call loans and bills bought (Note 23)������������������������������������������������������������������������
18,754
11,849
Monetary claims bought (Note 23)���������������������������������������������������������������������������
Trading assets (Notes 4 and 23)������������������������������������������������������������������������������
15,632
1
Money held in trust (Note 5)������������������������������������������������������������������������������������
Securities (Notes 4, 10, 11, and 23)������������������������������������������������������������������������
4,076,146
Loans and bills discounted (Notes 7, 11, 23, and 27)����������������������������������������������� 11,342,541
Foreign exchanges (Note 7)�������������������������������������������������������������������������������������
16,150
Lease receivables and investments in lease (Note 22)�����������������������������������������������
67,710
Other assets (Notes 11 and 24)�������������������������������������������������������������������������������
218,875
109,693
Tangible fixed assets (Note 8)����������������������������������������������������������������������������������
Intangible fixed assets (Note 9)��������������������������������������������������������������������������������
19,316
Asset for retirement benefits (Note 14)���������������������������������������������������������������������
17,814
1,920
Deferred tax assets (Note 21)����������������������������������������������������������������������������������
Customers’ liabilities for acceptances and guarantees (Note 10)��������������������������������
23,029Allowance for loan losses����������������������������������������������������������������������������������������
(69,658)
Allowance for investment losses������������������������������������������������������������������������������
(292)
TOTAL�������������������������������������������������������������������������������������������������������������� ¥17,804,808¥ 1,468,877
10,38915,152
13,79923,175
4,346,628
11,122,484
6,508
62,653
205,611
112,518
18,38816,5501,583
21,442(73,179)(9)¥17,372,575$ 17,810,826
172,602
109,047
143,867
937,512,850
104,385,618
148,630
623,138
2,014,315
1,009,513
177,769
163,947
17,675211,943(641,068)(2,692)$163,857,986

LIABILITIES AND EQUITY
LIABILITIES:
Deposits (Notes 11 and 23)������������������������������������������������������������������������������������� ¥14,756,658
Negotiable certificates of deposit (Note 23)���������������������������������������������������������������
283,131
Call money and bills sold (Note 23)��������������������������������������������������������������������������
110,745
Payables under repurchase agreements (Note 11)����������������������������������������������������
129,195
215,548
Payables under securities lending transactions (Notes 11 and 23)�����������������������������
Trading liabilities�����������������������������������������������������������������������������������������������������
1,770
1,252,801
Borrowed money (Notes 11, 12, and 23)������������������������������������������������������������������
Foreign exchanges��������������������������������������������������������������������������������������������������
1,941
Bonds (Note 13)�����������������������������������������������������������������������������������������������������
5,000
Bonds with warrants (Note 13)���������������������������������������������������������������������������������
—Due to trust account�����������������������������������������������������������������������������������������������
1,573
Other liabilities��������������������������������������������������������������������������������������������������������
115,621
Provision for bonuses for directors���������������������������������������������������������������������������
237
Liability for retirement benefits (Note 14)������������������������������������������������������������������
8,724
Provision for retirement benefits for directors������������������������������������������������������������
37
Provision for reimbursement of deposits�������������������������������������������������������������������
2,874
Provision for contingent losses��������������������������������������������������������������������������������
2,141
Provision for point card certificates��������������������������������������������������������������������������
452
Provision for losses on interest repayments��������������������������������������������������������������
12
Reserves under special laws������������������������������������������������������������������������������������
2
Deferred tax liabilities (Note 21)�������������������������������������������������������������������������������
1,365
Deferred tax liabilities for land revaluation (Note 8)����������������������������������������������������
8,680
Negative goodwill����������������������������������������������������������������������������������������������������
1,027
Acceptances and guarantees (Note 10)��������������������������������������������������������������������
23,029Total liabilities��������������������������������������������������������������������������������������������������� 16,922,573¥14,373,888
282,158
191,740
120,832
202,152
1,065
1,053,077
637
5,000
33,297566
116,512
284
7,429
57
3,253
1,955
406
16
2
27,2418,823
1,185
21,442
16,453,028$135,805,803
2,605,667
1,019,190
1,188,989
1,983,693
16,298
11,529,554
17,86646,015—
14,477
1,064,068
2,186
80,291
345
26,453
19,711
4,165
115
18
12,57079,8889,453
211,943
155,738,758

117,495
148,545233
523,792(2,026)

1,081,314
1,367,108
2,289
5,036,539(54,949)

123,042(267)
13,497(4,765)131,507919,547¥17,372,575

642,571(9,837)
124,110(69,916)
686,927
8,119,228$163,857,986

EQUITY (Notes 15 and 16):
Common stock�������������������������������������������������������������������������������������������������������
117,495
Capital surplus�������������������������������������������������������������������������������������������������������
148,549
Stock acquisition rights�������������������������������������������������������������������������������������������
248
Retained earnings���������������������������������������������������������������������������������������������������
547,270(5,970)Treasury stock��������������������������������������������������������������������������������������������������������
Accumulated other comprehensive income:�������������������������������������������������������������
69,821
Unrealized gains on available-for-sale securities (Note 6)�������������������������������������
Deferred losses on derivatives under hedge accounting (Note 24)�������������������������
(1,068)Land revaluation surplus (Note 8)�����������������������������������������������������������������������
13,485
Defined retirement benefit plans (Note 14)����������������������������������������������������������
(7,597)
Total accumulated other comprehensive income��������������������������������������������
74,641
Total equity���������������������������������������������������������������������������������������������
882,235
TOTAL������������������������������������������������������������������������������������������������������������������������� ¥17,804,808

Mebuki Financial Group, Inc. and Consolidated Subsidiaries

Millions of Yen
2020
2019

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�������������������������������������������������������������������������������������������
Other income (Note 18)�������������������������������������������������������������������������������������������
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 19)��������������������������������������������������������
Provision of allowance for loan losses����������������������������������������������������������������������
Other expenses (Note 20)����������������������������������������������������������������������������������������
Total expenses���������������������������������������������������������������������������������������������
INCOME BEFORE INCOME TAXES���������������������������������������������������������������������������������
INCOME TAXES (Note 21)
Current������������������������������������������������������������������������������������������������������������������
Deferred�����������������������������������������������������������������������������������������������������������������
Total income taxes���������������������������������������������������������������������������������������NET INCOME���������������������������������������������������������������������������������������������������������������NET INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT�������������������������������������������

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

¥112,331
52,674
113
682
490
52
53,244
3,840
7,384
51,987
282,801¥113,944
57,377
179
764
482
31
52,9052,418
3,751
56,362
288,217$1,033,788
484,768
1,044
6,278
4,516
481
490,01135,34567,959478,4392,602,628

5,361
68
956
2,026
1,364
2,213
132
4,325
14,7197,178
119,630
9,555
63,696231,227
51,573

6,030
86
1,364
298
2,422
2,284
132
3,886
14,078
11,766
119,636
2,771
57,042
221,799
66,41849,343631
8,801
18,64812,553
20,3671,218
39,808135,461
66,062
1,100,965
87,940586,196
2,127,993
474,635

17,264(2,061)
15,20336,370¥ 36,370

21,683(1,603)20,07946,338¥ 46,338

158,889(18,972)
139,916
334,719$ 334,719

Yen

PER SHARE OF COMMON STOCK (Note 17):
Basic EPS��������������������������������������������������������������������������������������������������������������
Diluted EPS������������������������������������������������������������������������������������������������������������Cash dividends applicable to the year (Note 15)��������������������������������������������������������

¥31.14
31.12
11.00

U.S. Dollars¥39.47
39.45
11.00

$0.29
0.29
0.10

See notes to consolidated financial statements.

Consolidated Statement of Comprehensive Income
Year Ended March 31, 2020

Mebuki Financial Group, Inc. and Consolidated Subsidiaries

Millions of Yen
2020
2019

NET INCOME
OTHER COMPREHENSIVE INCOME (LOSS) (Note 25):
Unrealized (losses) gains on available-for-sale securities�������������������������������������������
Deferred losses on derivatives under hedge accounting��������������������������������������������
Land revaluation surplus�����������������������������������������������������������������������������������������
Defined retirement benefit plans�����������������������������������������������������������������������������
Total other comprehensive loss�������������������������������������������������������������������������������COMPREHENSIVE INCOME(LOSS)���������������������������������������������������������������������������������
TOTAL COMPREHENSIVE INCOME(LOSS) ATTRIBUTABLE TO:
Owners of the parent����������������������������������������������������������������������������������������������

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

¥ 36,370¥46,338$ 334,719(53,220)(801)
0(2,831)(56,853)¥(20,483)

2,314
(211)
2
(2,109)(3)¥46,335(489,790)(7,378)2(26,059)(523,225)$(188,506)¥(20,483)¥46,335$(188,506)

See notes to consolidated financial statements.

See notes to consolidated financial statements.

45

Mebuki Financial Group, Inc.

Annual Report 202046

Consolidated Statement of Changes in Equity
Year Ended March 31, 2020

Consolidated Statement of Cash Flows

Mebuki Financial Group, Inc. and Consolidated Subsidiaries

Year Ended March 31, 2020

Mebuki Financial Group, Inc. and Consolidated Subsidiaries

Millions of Yen

BALANCE, APRIL 1, 2018�������������������������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, 2019��������������������

Stock
Acquisition
RightsCommonStock(Note 14)

CapitalSurplus¥117,495¥148,541¥216

Retained
Earnings

Treasury
Stock¥489,697(12,930)¥

Accumulated Other Comprehensive Income
Deferred
Unrealized
Losses on
Gains
DefinedLand
on Available- Derivatives
under Hedge Revaluation Retirement
for-Sale
Benefit Plans
Surplus
Accounting
Securities(8)¥120,727¥ (56)¥14,182¥(2,656)

Millions of Yen
2020
2019
Total

¥132,197

46,338(690)(690)¥131,507

Total

Total
Equity687¥117,495

3¥148,545

16
16
¥233

34,095¥523,792(2,017)¥(2,026)

2,314
2,314
¥123,042

(211)
(211)
¥(267)(685)(685)¥13,497(2,109)(2,109)¥(4,765)¥888,139(12,930)
46,338(2,090)
76
687
(674)
31,407¥919,547(2,090)
72

3

Total
EquityMillions of Yen

BALANCE, APRIL 1, 2019�������������������������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, 2020��������������������

Stock
Acquisition
RightsCommonStock(Note 14)

CapitalSurplus¥117,495¥148,545¥233

Retained
Earnings¥523,792(12,904)

TreasuryStock¥(2,026)

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¥123,042¥  (267)¥13,497¥(4,765)¥131,507

36,370(56,865)(56,865)¥ 74,641

36,370(4,000)60
11(56,849)(37,311)¥882,235

Total

Total
Equity(4,000)56

4
11¥117,495

4¥148,549

15
15
¥248

23,477¥547,270(3,944)¥(5,970)(53,220)(53,220)¥ 69,821

(801)
(801)
¥(1,068)(11)(11)¥13,485(2,831)(2,831)¥(7,597)¥919,547(12,904)

Thousands of U.S. Dollars

CommonStock(Note 14)BALANCE, APRIL 1, 2019������������������������� $1,081,314
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, 2020�������������������� $1,081,314

CapitalSurplus$1,367,065

Stock
Acquisition
Rights$2,144

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

Retained
Earnings

TreasuryStock$4,820,474(118,763)$(18,648) $1,132,361$(2,460)$124,218$(43,857) $1,210,262

(108)
(108)
$124,110

334,719(36,818)560
110(26,059)(523,335)(523,190)(26,059)(523,335)(343,383)$(69,916) $ 686,927 $8,119,228

334,719(36,818)
518

43
110
43
$1,367,108

144
144$2,289216,065$5,036,539(489,790)(36,300)(489,790)$(54,949) $ 642,571(7,378)(7,378)$(9,837)$8,462,611(118,763)

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

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

¥ 51,573¥66,418$ 474,635(16,197)
8,608
1,112
(158)
(3,521)283(46)(2,596)(1,821)
(20)
(379)
186
45
(4)
(166,292)
16,447
7,929
7,598
493
(1,833)705(220,057)
382,769973
199,723
15,583(5,061)(72,632)
13,395(9,641)
1,304(5,056)
1,006
168,513(17,285)456
304,531¥ 356,104(22,828)
8,762
2,747
(158)
(6,144)—154(3,849)
(234)
(5)
(528)
352
112
3
(172,748)
16,504
10,471(8,097)368(1,259)560(624,507)
395,975
9,518
215,221(19,082)
4,482(148,800)
44,003(92)(71)(6,032)
554
171,997(16,381)
88,699(60,330)¥6,087(149,069)
79,226
10,234(1,454)(32,406)
2,610
(431)
(23,896)(16,760)(188)(3,490)
1,717
419
(39)
(1,530,394)
151,369
72,97669,925
4,542(16,873)
6,490(2,025,190)
3,522,638
8,959
1,838,061
143,417(46,579)(668,435)
123,278(88,728)
12,002(46,538)
9,264
1,550,831(159,082)
4,198
2,802,606$ 3,277,240

See notes to consolidated financial statements.

47

Mebuki Financial Group, Inc.

Annual Report 2020

48

Notes to Consolidated Financial Statements
Year Ended March 31, 2020

Millions of Yen
2020
2019
INVESTING ACTIVITIES:
Purchases of securities�������������������������������������������������������������������������������������������������
Proceeds from sales of securities�������������������������������������������������������������������������������������
Proceeds from redemption of securities�����������������������������������������������������������������������������
Increase in money held in trust���������������������������������������������������������������������������������������
Decrease in money held in trust��������������������������������������������������������������������������������������
Purchases of tangible fixed assets�����������������������������������������������������������������������������������
Proceeds from sales of tangible fixed assets�����������������������������������������������������������������������
Purchases of intangible fixed assets���������������������������������������������������������������������������������
Other-net�����������������������������������������������������������������������������������������������������������������
Net cash provided by (used in) investing activities�����������������������������������������������������������������
FINANCING ACTIVITIES:
Repayments of subordinated borrowings����������������������������������������������������������������������������
Redemption of bonds with warrants attached����������������������������������������������������������������������
Purchase of treasury stocks�������������������������������������������������������������������������������������������
Proceeds from sales of treasury stocks������������������������������������������������������������������������������Cash dividends paid�����������������������������������������������������������������������������������������������������
Net cash used in financing activities���������������������������������������������������������������������������������
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS�������������������������������������NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS�����������������������������������������������������
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR����������������������������������������������������������������
CASH AND CASH EQUIVALENTS, END OF YEAR (Note 3)��������������������������������������������������������������
NONCASH INVESTING AND FINANCING ACTIVITY:
Not applicable.
See notes to consolidated financial statements.

49

Mebuki Financial Group, Inc.

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

¥ (815,535)
483,205
493,125—
23,174(3,519)160(4,365)(151)
176,093¥(1,371,972)
822,176
374,002(23,175)—(5,730)259(7,086)
11(211,514)$ (7,505,393)
4,446,946
4,538,239—
213,271(32,388)
1,481(40,173)(1,395)
1,620,587—(33,297)(4,000)55(12,904)(50,146)(19)
482,0311,434,627¥1,916,659(40,000)—(2,090)75(12,930)(54,944)1,432(258,939)
1,693,567¥ 1,434,627(306,433)(36,818)514(118,763)(461,500)(180)
4,436,148
13,202,907$17,639,056

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 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. In addition, certain reclassifications have been
made in the 2019 consolidated financial statements to conform to the classifications used in 2020.
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 ¥108.66 to $1, the approximate rate of exchange at March 31, 2020. Suchtranslations should not be construed as representations that the Japanese yenamounts could be converted into U.S. dollars at that or any other rate.

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.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa. Consolidation — The consolidated financial statements as of March 31,
2020, include the accounts of the Company and its 13 significant subsidiaries.
Joyo Cash Service, Inc. was excluded from the scope of consolidation due
to dissolution on March 31, 2019 and completion of liquidation on August 9,
2019.
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, 2020, do not include
the accounts of four subsidiaries because the total assets, total income, net income, retained earnings, and accumulated other comprehensive income of thoseentities 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, 2020, do not apply
to the equity method of accounting of four unconsolidated subsidiaries and six
associated companies because the net income, retained earnings, and accumulated other comprehensive income of those entities would not have had a material effect on the consolidated financial statements.
All significant intercompany balances and transactions have been eliminatedon 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.

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, 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 trade-datebasis. Gains or losses 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 consolidated balance sheet date. Derivatives,
including swaps, futures, and options are valued assuming settlement on the
consolidated 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 amortizedcost using the straight-line method.
(2) Investments in unconsolidated subsidiaries that are not accounted for by
the equity 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.

Annual Report 202050

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 other subsidiaries is mainlycomputed 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 performance of 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.

51

Mebuki Financial Group, Inc.

For claims other than abovementioned, an allowance is provided mainly forthe expected loan losses for the next one to three years. Expected loan losses
are computed by using the loan loss ratios derived from the average of historicalloan loss ratio of the past one to three years. Where necessary, the expectedloan losses are modified for possible future scenarios.
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, 2020 and 2019, the deducted amounts were¥34,329 million ($315,935 thousand) and ¥25,870 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 oncertain type of non-marketable investments.
j. Provision for Bonuses for Directors — Provision for bonuses for directors(including executive officers) is provided in the amount of the estimated bonuses
that are attributable to each fiscal year.
k. Retirement Benefits for Employees — The Group accounts for the liability
for retirement benefits based on the projected benefit obligations and the fair value of plan assets at the consolidated balance sheet date. The projected benefit
obligations are attributed to periods on a benefit formula basis. Actuarial gains
and losses and past service costs that are 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 than the expected average remaining
service period of the employees.
l. Provision for Retirement Benefits for Directors — Provision for retirement
benefits for directors, 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 — Certain 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.

q. Reserves under Special Laws — Reserves under special laws is provided
for contingent liabilities incurred by an accident in relation to the sales and purchase or other transactions of securities which is amounted to ¥2 million ($18
thousand) and ¥2 million as of March 31, 2020 and 2019, pursuant to Article
46-5-1 of the Financial Instruments and Exchange Act and Article 175 of the related cabinet order.
r. Stock Options — Compensation expense for employee stock options whichwere granted on and after May 1, 2006, is 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 consolidated balance
sheet, the stock option is presented as a stock acquisition right as a separate
component of equity until exercised. The accounting standard allows unlistedcompanies to measure options at their intrinsic value if they cannot reliably estimate fair value.
s. Stock Issuance Costs — Stock issuance 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 consolidated balance sheet date(March 31, 2008) was recorded as the initial balance of “Lease receivables andinvestments 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 taxation system, whichallows companies to base tax payments on the combined profits or losses of theparent 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).

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 offset 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 consolidated statements of cash flows represent cash and due from banks in the consolidated balance sheets, excluding deposits with banks other than the Bank ofJapan, of the consolidated banking subsidiaries and exclude 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 (EPS) of common
stocks is computed by dividing net income attributable to common shareholders
by the weighted-average number of shares of common stock outstanding for theperiod, retroactively adjusted for stock splits.
Diluted EPS reflects the potential dilution that could occur if securities were
exercised or converted into common stock. Diluted EPS 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 exercise of 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.

Annual Report 202052

New Accounting Pronouncements
Accounting Standards for Fair Value Measurement“Accounting Standard for Fair Value Measurement” (ASBJ Statement No. 30,
July 4, 2019)“Implementation Guidance on Accounting Standard for Fair Value Measurement” (ASBJ Guidance No. 31, July 4, 2019)“Accounting Standard for Financial Instruments” (ASBJ Statement No.10(revised 2019), July 4, 2019)“Implementation Guidance on Disclosures about Fair Value of Financial Instruments” (ASBJ Statement No.19 (2019 revised), March 31, 2020)(i) Overview
To improve the comparability with international accounting standards, “Accounting Standard for Fair Value Measurement” and “Implementation Guidance on Accounting Standard for Fair Value”(together, Accounting Standards
for Fair Value Measurement) were developed and provide the guidance on fairvalue measurement. The accounting standards for fair value measurement tobe applied to the fair value of the followings.
• Financial instruments under “Accounting Standard for Financial Instruments”
In addition, “Implementation Guidance on Disclosures about Fair Valueof Financial Instruments” was revised and guidance for the breakdown bylevel of the fair value hierarchy of financial instruments has been introduced.
(ii) Scheduled date of application
The Group will apply these accounting standards from the beginning of the
fiscal year ending March 31, 2022.
(iii) Effects of application
The effect of applying these accounting standards is currently being examined.
Accounting Standard for Disclosure of Accounting Estimates“Accounting Standard for Disclosure of Accounting Estimates” (ASBJ Statement
No. 31, March 31, 2020)(i) Overview
The International Accounting Standards Board (“IASB”) issued the “International Accounting Standards (IASs)” 1, “Presentation of Financial Statements”
in 2003, and the paragraph 125 of this accounting standard requires a disclosure of key sources of estimation uncertainty. As these information is required for the convenience of users of financial statements in Japan, the
ASBJ has issued “Accounting Standard for Disclosure of Accounting Estimates.”
The accounting standard was developed by referring to the paragraph
125 of “Presentation of Financial Statements.” It provides that the item, thenature and the extent of the information to be disclosed should be decided bymanagement, with due consideration given to the objective of the disclosure
while Management should also present the principal (objective) of the disclosure.
(ii) Scheduled date of application
The Group will apply this accounting standard from the end of the fiscal year
ending March 31, 2021.

53

Mebuki Financial Group, Inc.

Additional Information
Application of Tax Effect Accounting on Transition from the Consolidated
Taxation System to the Group Tax Sharing System
Pursuant to the transitional treatment of the paragraph 3 of “Practical Solution on
the Treatment of Tax Effect Accounting for the Transition from the Consolidated
Taxation System to the Group Tax Sharing System” (ASBJ Practical Issues Task
Force (PITF) No. 39, March 31, 2020), which is prescribed after the institution of
the “Act on Partial Revision of the Income Tax Act” (Act No.8 of 2020) which is
the law revising the nonconsolidated tax system, the Group records the amountsof deferred tax assets and deferred tax liabilities on the related items in accordance with the provisions of the previous tax law, not applying 44 of “Partial
Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ Statement No.28, February 16, 2018).
Impact of the spread of COVID-19 on financial condition
The Group considers that the spread of COVID-19 will settle down in the first halfof the fiscal year ending March 31, 2021 and economic activities will gradually
resume. However, the Group also assumes that certain impacts on the businesswill remain, such as declining sales to customers and, in particular, a heightened
credit risks on the Group’s loans.
Given these assumptions, the Group has provided for future loan losses byreflecting the current worsening business performance of certain borrowers expected to be affected by the COVID-19 on the borrowers’ credit category.
However, these assumptions carry uncertainty, and the business performance of the Group may differ from what the Group currently anticipates depending on the situation of the spread of COVID-19 and the associated economic
fallout.

3. CASH AND CASH EQUIVALENTS
The reconciliation of “Cash and cash equivalents” in the consolidated statementsof cash flows and “Cash and due from banks” in the consolidated balance sheets
as of March 31, 2020 and 2019, was as follows:
Thousands of
U.S. Dollars
2020

Millions of Yen
2020
2019

Cash and due from banks������������������� ¥1,935,324 ¥1,468,877
Deposits with banks of the consolidatedbanking subsidiaries other than the
Bank of Japan�����������������������������������
(18,664)(34,249)
Cash and cash equivalents����������������� ¥1,916,659 ¥1,434,627$17,810,826(171,771)$17,639,056

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”,
as described in the consolidated balance sheet.
Valuation differences recognized as income and expenses as of March 31,
2020 and 2019, were as follows:
Thousands of
U.S. Dollars
2020

Millions of Yen
2020
2019

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

¥(14)

March 31, 2020

Thousands of
U.S. Dollars
2020

Millions of Yen
2020
2019

Japanese national government bonds���� ¥ 585,117 ¥ 708,237
Japanese local government bonds������
944,224939,276
Japanese corporate bonds�����������������
830,102789,381
Japanese corporate stocks�����������������
230,183
284,579
Other securities��������������������������������� 1,486,518 1,625,152
Total������������������������������������������������� ¥4,076,146 ¥4,346,628$ 5,384,851
8,689,712
7,639,445
2,118,386
13,680,455$37,512,850

The cost and aggregate fair value of available-for-sale securities andheld-to-maturity securities as of March 31, 2020 and 2019, were as follows:

March 31, 2020

Cost

Cost

Securities classified as:
Available-for-sale:���������������� ¥3,979,199 ¥213,014
Equity securities��������������� 143,988 141,744
Debt securities:���������������� 2,246,502 21,321
Japanese national
government bonds����� 614,856
7,552Japanese local
government bonds����� 933,329
5,478Japanese corporate
bonds������������������������ 698,316
8,291
Others:���������������������������� 1,588,708 49,948
Foreign bonds������������� 819,268 16,280
Others������������������������ 769,440 33,667
Held-to-maturity:������������������ 169,288
1,658Japanese national
government bonds����������
85,914
610
Japanese local
government bonds����������
500
0Japanese corporate
bonds����������������������������
82,8741,047$(130)¥15

Securities as of March 31, 2020 and 2019, consisted of the following:

Millions of Yen
Unrealized Unrealized
Gains
LossesSecurities classified as:
Available-for-sale:���������������� ¥3,783,049 ¥163,035
Equity securities��������������� 139,131 99,299
Debt securities:���������������� 2,185,373 12,019
Japanese national
government bonds����� 504,654
3,921Japanese local
government bonds����� 940,366
3,616Japanese corporate
bonds������������������������ 740,353
4,481
Others:���������������������������� 1,458,544 51,717
Foreign bonds������������� 807,357 32,639
Others������������������������ 651,186 19,077
Held-to-maturity:������������������ 164,851
1,251Japanese national
government bonds����������
77,871
240
Japanese local
government bonds����������
499
0Japanese corporate
bonds����������������������������
86,4791,011

March 31, 2019

Fair Value¥63,862 ¥3,882,222
12,372226,057
2,799 2,194,593
1,328

507,246258

943,724

1,212
48,6908,304
40,38673743,622
1,461,571
831,693
629,878
166,028—

78,1110499

73

87,417

Millions of Yen
Unrealized Unrealized
Gains
Losses

Cost

Fair Value¥38,037 ¥4,154,177
5,514
280,218217 2,267,607
85

622,32231

938,776100
32,3055,890
26,415
44706,507
1,606,351
829,657
776,693
170,902—86,524—500

4483,877

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

Securities classified as:
Available-for-sale:���������������� $34,815,476 $1,500,419
Equity securities��������������� 1,280,427 913,851
Debt securities:���������������� 20,112,035 110,613
Japanese national
government bonds����� 4,644,341
36,087
Japanese local
government bonds����� 8,654,211
33,281
Japanese corporate
bonds������������������������ 6,813,483
41,244
Others:���������������������������� 13,423,014 475,955
Foreign bonds������������� 7,430,130 300,382
Others������������������������ 5,992,884 175,573
Held-to-maturity:������������������ 1,517,127
11,518Japanese national
government bonds����������
716,653
2,209Japanese local
government bonds����������
4,601
0Japanese corporate
bonds����������������������������
795,873
9,309$587,728 $35,728,167
113,8622,080,415
25,767 20,196,881
12,2304,668,198

2,382

8,685,111

11,155448,099
76,425
371,673681

6,843,572
13,450,871
7,654,087
5,796,784
1,527,965—

718,862

2

4,600

679

804,503

Annual Report 202054

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

March 31, 2020

Millions of Yen
Realized
Realized
Proceeds
Gains
LossesAvailable-for-sale:
Equity securities������������������������������������� ¥ 20,482
Debt securities:�������������������������������������� 107,668
Japanese national government bonds���� 50,815
Japanese local government bonds������ 56,180
672
Japanese corporate bonds������������������
Others:�������������������������������������������������� 302,089
Foreign bonds������������������������������������ 82,318
Others����������������������������������������������� 219,770
Total���������������������������������������������������������� ¥430,240

March 31, 2019

¥ 1,215
851
797
53
—
21,1090
21,109¥23,176

Millions of Yen
Realized
Realized
Proceeds
Gains
LossesAvailable-for-sale:
Equity securities������������������������������������� ¥ 12,215
Debt securities:�������������������������������������� 243,200
Japanese national government bonds���� 177,798
Japanese local government bonds������ 50,338
Japanese corporate bonds������������������ 15,063
Others��������������������������������������������������� 495,026
Foreign bonds������������������������������������ 221,295
Others����������������������������������������������� 273,730
Total���������������������������������������������������������� ¥750,442

March 31, 2020

¥ 9,799
268
230
35
3
11,9522,821
9,131¥22,021¥ 5,852
435
345
66
22
19,029205
18,823¥25,317¥     3
711
644
60
6
25,9086,168
19,739¥26,623

Thousands of U.S. Dollars
Realized
Realized
Proceeds
Gains
LossesAvailable-for-sale:
Equity securities������������������������������������� $ 188,497
Debt securities:�������������������������������������� 990,877
Japanese national government bonds���� 467,659
Japanese local government bonds������ 517,028
Japanese corporate bonds������������������
6,190
Others:�������������������������������������������������� 2,780,137
Foreign bonds������������������������������������ 757,582
Others����������������������������������������������� 2,022,555
Total���������������������������������������������������������� $3,959,511$ 90,189
2,474
2,117
329
28
110,000
25,96384,037$202,664$ 11,186
7,838
7,344
494
—
194,2732
194,271$213,296

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, 2020 and 2019, were ¥1,573 million ($14,485 thousand) and ¥273 million, respectively.
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” 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, 2020 and 2019, securities included equity investments inunconsolidated subsidiaries and associated companies of ¥9 million ($85 thousand) and ¥9 million and capital subscriptions of ¥3,070 million ($28,261 thousand) and ¥3,018 million, respectively.

55

Mebuki Financial Group, Inc.

5. MONEY HELD IN TRUST
Money held in trust for trading purposes as of March 31, 2020 and 2019,consisted of the following:
Millions of Yen
2020
2019

Amounts recorded in the consolidatedbalance sheets���������������������������������
Valuation gain (loss) included in the
consolidated statements of income����

Thousands of
U.S. Dollars
2020

¥1

¥23,175

$9

—

—

—

6. UNREALIZED GAINS ON AVAILABLE-FOR-SALE SECURITIES
Unrealized gains on available-for-sale securities as of March 31, 2020 and
2019, consisted of the following:
Millions of Yen
2020
2019

Unrealized gains:������������������������������� ¥99,391
Available-for-sale securities
99,391
Money held in trust, except fortrading and held-to-maturity
purpose���������������������������������������
—Deferred tax liabilities:
29,569Unrealized gains on available-for-salesecurities before adjustments byownership share������������������������������� 69,821
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����������������������������������������� ¥69,821

Thousands of
U.S. Dollars
2020¥175,255
175,255$914,699
914,699—
52,212—
272,128

123,042—642,571———¥123,042$642,571

As of March 31, 2020 and 2019, the total unrealized gains include an unrealized gain of ¥218 million ($2,008 thousand) and ¥277 million, respectively,
on available-for-sale-securities contained in certain fund.

“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, 2020 and 2019, the amounts of unused commitments
were ¥2,900,178 million ($26,690,394 thousand) and ¥3,052,722 million, respectively. As of March 31, 2020 and 2019, the amounts of unused commitments whose remaining contract terms were within one year were ¥1,983,104
million ($18,250,545 thousand) and ¥2,139,690 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, 2020 and 2019, consolidated banking subsidiaries have the right to sell or
repledge bills discounted and foreign exchange bills bought and their total facevalue was ¥36,056 million ($331,831 thousand) and ¥45,440 million, respectively.

8. TANGIBLE FIXED ASSETS

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, 2020 and 2019, the carrying amount of the land
after the above onetime revaluation exceeded the market value by ¥24,041 million ($221,253 thousand) and ¥25,244 million, respectively.

9. INTANGIBLE FIXED ASSETS
Intangible fixed assets as of March 31, 2020 and 2019, consisted of the following:
Millions of Yen
2020
2019

Software�������������������������������������������� ¥15,706
3,609
Other������������������������������������������������
Total������������������������������������������������� ¥19,316¥14,237
4,150¥18,388

Thousands of
U.S. Dollars
2020$144,551
33,217$177,769

10. 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, 2020 and 2019, were ¥175,576 million($1,615,830 thousand) and ¥167,258 million, respectively.

Tangible fixed assets as of March 31, 2020 and 2019, consisted of the following:

7. LOANS AND BILLS DISCOUNTED
The following loans were included in loans and bills discounted as of March 31,
2020 and 2019:
Millions of Yen
2020
2019

Loans to borrowers
in legal bankruptcy��������������������������� ¥  2,279
Past due loans
138,147
Loans past due for three months
391
or more��������������������������������������������
Restructured loans�����������������������������
27,586
Total������������������������������������������������� ¥168,405

Thousands of
U.S. Dollars
2020¥3,505
136,152$   20,974
1,271,375

178
32,117¥171,953

3,607
253,878$1,549,835

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.

Millions of Yen
2020
2019

Buildings������������������������������������������� ¥ 39,302
Land������������������������������������������������� 58,044
Leased assets������������������������������������
11
Construction in progress���������������������
632
Other������������������������������������������������ 11,702
Total������������������������������������������������� ¥109,693¥ 40,181
59,04716
587
12,685¥112,518

Thousands of
U.S. Dollars
2020$361,705
534,182108
5,823
107,694$1,009,513

The accumulated depreciation of tangible fixed assets as of March 31,
2020 and 2019, amounted to ¥125,697 million ($1,156,798 thousand) and¥123,859 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, 2020 and 2019, such deferred profit amounted to ¥10,047 million($92,470 thousand) and ¥10,091 million, respectively. Newly recognizedamounts for the years ended March 31, 2020 and 2019, were ¥30 million ($281
thousand) and ¥28 million, respectively.

11. ASSETS PLEDGED AS COLLATERAL
Assets pledged as collateral and the related liabilities as of March 31, 2020 and
2019, were as follows:
Millions of Yen
2020
2019

Assets pledged as collateral:
Securities�������������������������������������� ¥1,666,746 ¥1,512,757
Loans and bills discounted������������� 119,578
34,000Total��������������������������������������������� ¥1,786,324 ¥1,546,757
Related liabilities to above assets:
Deposits��������������������������������������� ¥ 101,168 ¥   97,107
Payables under repurchaseagreements��������������������������������� 129,195
120,832
Payables under securities lendingtransactions��������������������������������� 215,548
202,152
Borrowed money��������������������������� 1,215,433 1,012,938

Thousands of
U.S. Dollars
2020$15,339,098
1,100,484$16,439,582$   931,058
1,188,989
1,983,693
11,185,657

Additionally, securities amounting to ¥5,470 million ($50,343 thousand)and ¥5,661 million as of March 31, 2020 and 2019, respectively, were pledged
as collateral for settlements of exchange or as substitute securities for margins
on futures transactions.

Annual Report 2020

56

Moreover, other assets included the following:Thousands of
U.S. Dollars
2020

Millions of Yen
2020
2019

Deposits for central counterparty�������� ¥94,918
Cash collateral paid for financial
3,737
instruments��������������������������������������Cash collateral paid for transactions
involving public funds�����������������������
2,065
Guarantee deposits����������������������������
1,984¥94,672$873,533

1,059

34,392

2,070
2,014

19,011
18,261

Borrowed money as of March 31, 2020 and 2019, consisted of the following:Thousands of
U.S. Dollars
2020

Millions of Yen
2020
2019

Borrowed money of which theweighted-average annual interest
rates were 0.15 %, due from April,2020 to March, 2026����������������������� ¥1,252,801 ¥1,053,077$11,529,554

Annual maturities of borrowed money as of March 31, 2020, for the next
five years were as follows:2021������������������������������������������������
2022������������������������������������������������
2023������������������������������������������������
2024������������������������������������������������
2025������������������������������������������������

Millions of Yen

Thousands of
U.S. Dollars¥992,102
62,76881,15386,577143$9,130,337
577,664
746,859
796,774
1,322

Borrowed money included borrowings from the Bank of Japan and other financial institutions. In addition, borrowed money included subordinated borrowings totaling ¥30,000 million ($276,091 thousand) and ¥30,000 million as ofMarch 31, 2020 and 2019, respectively.

13. BONDS
Bonds as of March 31, 2020 and 2019, consisted of the following:
Millions of Yen
2020
2019

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�������������������������������������������������

¥—
5,000
¥5,000¥33,297
5,000¥38,297

Thousands of
U.S. Dollars
2020

$—
46,015$46,015*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:$5.03

Total sum of issue price: $300,000 thousand
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:

57

Mebuki Financial Group, Inc.

Year Ending March 312021������������������������������������������������
2022������������������������������������������������
2023������������������������������������������������
2024������������������������������������������������
2025������������������������������������������������

Millions of Yen

Thousands of
U.S. Dollars¥5,000————$46,015————

14. RETIREMENT AND PENSION PLANS

12. BORROWED MONEY

Year Ending March 31

Annual maturities of bonds as of March 31, 2020, for the next five years
were as follows:(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.
(2) Defined benefit plans(a) The changes in defined benefit obligation for the years ended March 31, 2020
and 2019, were as follows:
Millions of Yen
2020
2019

Balance at beginning of year��������������� ¥122,177 ¥118,902
Current service cost�����������������������
3,778
3,757
Interest cost����������������������������������
374
505
Actuarial losses�����������������������������
261
4,668
Benefits paid���������������������������������
(6,258)(5,718)
Past service cost���������������������������
——Others������������������������������������������
38
62
Balance at end of year����������������������� ¥120,372 ¥122,177

Thousands of
U.S. Dollars
2020$1,124,405
34,773
3,444
2,408(57,599)—356$1,107,789(b) The changes in plan assets for the years ended March 31, 2020 and 2019,were as follows:
Millions of Yen
2020
2019

Balance at beginning of year��������������� ¥132,585 ¥129,651
2,572
2,925
Expected return on plan assets�������
Actuarial gains������������������������������
(4,361)
173
Contributions from the employer�����
3,551
3,482
(3,661)(3,685)
Benefits paid���������������������������������
Others������������������������������������������
38
38
Balance at end of year����������������������� ¥130,723 ¥132,585

Thousands of
U.S. Dollars
2020$1,220,187
23,674(40,143)
32,683(33,701)354$1,203,054*Figures above exclude retirement and benefit plans calculated by the simplified method.

(c) The changes in liabilities for retirement benefits adopting the simplified method for the years ended March 31, 2020 and 2019, were as follows:
Millions of Yen
2020
2019

Balance at beginning of year���������������
Retirement benefit expense������������
Benefits paid���������������������������������
Contribution to the defined benefit
pension plan��������������������������������
Other��������������������������������������������
Balance at end of year�����������������������

Thousands of
U.S. Dollars
2020¥1,286345(143)¥1,334413(156)$11,842
3,177(1,322)(233)
6¥1,261(281)(23)¥1,286(2,145)
59$11,610(d) Reconciliation between the liabilities recorded in the consolidated balance
sheets and the balances of defined benefit obligation and plan assets was asfollows:
Millions of Yen
2020
2019

Funded defined benefit obligation������� ¥ 125,261 ¥127,353
Plan assets���������������������������������������� (135,613) (137,760)
Total������������������������������������������������� (10,351) (10,407)
Unfunded defined benefit obligation����
1,261
1,286
Net asset arising from defined benefit
obligation����������������������������������������� ¥  (9,090) ¥(9,120)
Millions of Yen
2020
2019

Liability for retirement benefits������������ ¥ 8,724 ¥7,429
Asset for retirement benefits��������������� (17,814) (16,550)
Net asset arising from defined benefit
obligation����������������������������������������� ¥ (9,090) ¥ (9,120)

Thousands of
U.S. Dollars
2020

Millions of Yen
2020
2019

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

¥   —
4,069
¥4,069¥   —3,030¥3,030Thousands of
U.S. Dollars
2020$    —
37,447$37,447(g) Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement benefit plans as of March
31, 2020 and 2019, were as follows:
Millions of Yen
2020
2019

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

¥   —
4,246
¥4,246¥   —2,888¥2,888

Thousands of
U.S. Dollars
2020$    —
39,079$39,079(h) Plan assets
a. Components of plan assets
Plan assets as of March 31, 2020 and 2019, consisted of the following:
Debt investments�������������������������������������������������������
Equity investments�����������������������������������������������������
General accounts�������������������������������������������������������
Others�����������������������������������������������������������������������
Total�������������������������������������������������������������������������

2020

2019

47.5%
34.3%
10.8%
7.4%
100.0%

46.4%
37.0%
10.5%
6.1%
100.0%* As of March 31, 2020 and 2019, total plan assets that were set up on corporate pension
plans include a retirement benefit trust of 17.2% and 20.3%, respectively.

$1,152,787(1,248,053)(95,265)
11,610b. 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.

$  (83,655)(i) Assumptions used for the years ended March 31, 2020 and 2019, were set
forth as follows:

Thousands of
U.S. Dollars
2020$ 80,291(163,947)$ (83,655)*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,
2020 and 2019, 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�������������������

(f) Amounts recognized in other comprehensive income (before income tax effect)
in respect of defined retirement benefit plans for the years ended March 31,
2020 and 2019, were as follows:

Millions of Yen
2020
2019

Thousands of
U.S. Dollars
2020¥ 3,778374(2,572)554—¥ 3,757505(2,925)
1,464—$ 34,773
3,444(23,674)
5,104
—

345
(14)
¥ 2,465413(13)¥ 3,201

3,177
(131)
$ 22,693

2020

2019

Discount rate������������������������������������������� 0.20% — 0.50% 0.10% — 0.40%
Expected rate of return on plan assets�������
2.50% 2.50% — 3.30%
Expected rate of increase in salary������������ 4.54% — 9.00% 4.52% — 9.00%(3)Defined contribution plans
The amounts of the required contribution to the defined contribution plans of certain consolidated subsidiaries were ¥725 million ($6,679 thousand) and ¥740
million as of March 31, 2020 and 2019, respectively.

*Figures above exclude retirement and benefit plans calculated by the simplified method.

Annual Report 202058

15. 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 sostipulate. The Companies Act provides certain limitations on the amounts available for dividends or the purchase of treasury stock. The limitation is definedas the amount available for distribution to the shareholders, but the amount ofequity 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 theequity account that was charged upon the payment of such dividends until theaggregate amount of the legal reserve and additional paid-in capital equals
25% of capital 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, other capital surplus, and retained earnings can be transferred among
the accounts within equity under certain conditions upon resolution of theshareholders.
c. Treasury Stock and Treasury Stock Acquisition Rights
The Companies Act also provides for companies to purchase treasury stockand dispose 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 canpurchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity
or deducted directly from stock acquisition rights.

(2) Cash Dividends Per Share
Cash dividends per share for the years ended March 31, 2020 and 2019, were as follows:Year ended March 31, 2020
Dividends paid in the fiscal year ended March 31, 2020

Cash dividends approved at the Board of Directors’ meeting held on May 13, 2019:

Common stock

Cash dividends approved at the Board of Directors’ meeting held on Nov. 11, 2019:

Common stock

Total Amount(Millions of Yen/Thousands of
U.S. Dollars)¥6,451($59,378)
Total Amount(Millions of Yen/Thousands of
U.S. Dollars)¥6,452($59,386)

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

¥5.50($0.05)Mar. 31, 2019

Jun. 4, 2019

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

¥5.50($0.05)

Effective Date

Sep. 30, 2019

Effective Date

Dec. 3, 2019

Dividends to be paid after March 31, 2020

Cash dividends approved at the Board of Directors’ meeting held on May 13, 2020:

Common stock

Total Amount(Millions of Yen/Thousands of
U.S. Dollars)¥6,376($58,680)

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

¥5.50($0.05)Mar. 31, 2020

Effective Date

Jun. 2, 2020

Year ended March 31, 2019:
Dividends paid in the fiscal year ended March 31, 2019
Cash dividends approved at the Board of Directors’ meeting held on May 11, 2018:

Common stock
Cash dividends approved at the Board of Directors’ meeting held on Nov. 12, 2018:

Common stock

Total Amount(Millions of Yen)

¥6,478
Total Amount(Millions of Yen)

¥6,451Per Share Amount(Yen)
Dividend Record Date

¥5.50*

Mar. 31, 2018

Per Share Amount(Yen)
Dividend Record Date

¥5.50

Effective Date

Jun. 4, 2018

Sep. 30, 2018

Effective Date

Dec. 4, 2018

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

Dividends to be paid after March 31, 2019
Cash dividends approved at the Board of Directors’ meeting held on May 13, 2019:

Common stock

Total Amount(Millions of Yen)

¥6,451Per Share Amount(Yen)
Dividend Record Date

¥5.50

Mar. 31, 2019

Effective Date

Jun. 4, 2019(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, 2020, were as follows:

As of April 1, 2019

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

Shares in Thousands
Changes During the Year
Increase
Decrease

As of March 31, 2020

1,179,055
1,179,055

—
—

—
—

1,179,055
1,179,055

5,971
5,971

13,939*1

165*2

13,939165

19,74519,745*1 The number of shares of treasury stock increased by 13,937 thousand shares due to purchases of own shares and by 2 thousand shares due to purchases of shares less than the trading unit.
*2 The number of shares of treasury stock decreased by 2 thousand shares due to sales to shareholders in response to their demand to buy additional shares up to the trading unit and by 163
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, 2019, were as follows:

As of April 1, 2018

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

Shares in Thousands
Changes During the Year
Increase
Decrease

As of March 31, 20191,179,055
1,179,055

—
—

—
—

1,179,055
1,179,055

1,183
1,183

5,002*1

214*2

5,002

214

5,971
5,971

*1 The number of shares of treasury stock increased by 5,000 thousand shares due to purchases of own shares and by 2 thousand shares due to purchases of shares less than the trading unit.
*2 The number of shares of treasury stock decreased by 2 thousand shares due to sales to shareholders in response to their demand to buy additional shares up to the trading unit and by 211
thousand shares due to exercise of the stock acquisition rights.

59

Mebuki Financial Group, Inc.

Annual Report 2020

60

The stock option activity was as follows:

16. 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 ¥75 million ($697 thousand) and ¥91 million for the fiscal years ended
March 31, 2020 and 2019, respectively.
The stock options outstanding as of March 31, 2020, 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.
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
Mebuki Financial Group, Inc.
17th Series of Stock
Acquisition Rights
Mebuki Financial Group, Inc.
18th Series of Stock
Acquisition Rights
Mebuki Financial Group, Inc.
19th Series of Stock
Acquisition Rights
Mebuki Financial Group, Inc.
20th Series of Stock
Acquisition Rights

Persons Granted

Number of Options
Granted (Shares)

Date of Grant

Exercise
Price

Exercise Period

10 directors of Joyo*2

6,733

August 24, 2009*3¥1

From October 1, 2016,
to August 24, 2039

10 directors of Joyo*2

9,453

July 21, 2010*3¥1

From October 1, 2016,
to July 21, 2040

10 directors of Joyo*2

14,040July 20, 2011*3¥1

From October 1, 2016,
to July 20, 2041

10 directors of Joyo*2

13,586

July 19, 2012*3¥1

From October 1, 2016,
to July 19, 2042

10 directors of Joyo*2

16,802

July 18, 2013*3¥1

From October 1, 2016,
to July 18, 2043

15 executive officersof Joyo*2

3,107

July 18, 2013*3¥1

From October 1, 2016,
to July 18, 2043

10 directors of Joyo*2

17,408July 18, 2014*3¥1

From October 1, 2016,
to July 18, 2044

14 executive officersof Joyo*2

6,416

July 18, 2014*3¥1

From October 1, 2016,
to July 18, 2044

10 directors of Joyo*2

16,099July 17, 2015*3¥1

From October 1, 2016,
to July 17, 2045

13 executive officersof Joyo*2

12,366

July 17, 2015*3¥1

From October 1, 2016,
to July 17, 2045

29 directors of
the Company, Joyo and Ashikaga

72,513

December 6, 2016

¥1

From December 7, 2016,
to December 6, 2046

16 executive officersof Joyo

40,040December 6, 2016

¥1

From December 7, 2016,
to December 6, 2046

29 directors of
the Company, Joyo and Ashikaga

92,160August 9, 2017

¥1

From August 10, 2017,
to August 9, 2047

16 executive officers of Joyo

50,948August 9, 2017

¥1

From August 10, 2017,
to August 9, 2047

24 directors of
the Company, Joyo and Ashikaga

127,508

August 14, 2018¥1

From August 15, 2018,
to August 14, 2048

34 executive officers of Joyo and Ashikaga

147,282

August 14, 2018¥1

From August 15, 2018,
to August 14, 2048

23 executive officers of Joyo and Ashikaga

201,104

August 20, 2019¥1

From August 21, 2019,
to August 20, 2049

29 executive officers of Joyo and Ashikaga

193,295

August 20, 2019¥1

From August 21, 2019,
to August 20, 2049

Mebuki FG
1st

Mebuki FG
2nd

Mebuki FG
3rd

Mebuki FG
5thYear ended March 31, 2020
Non-vested (shares):
April 1, 2019 — Outstanding
GrantedCanceled
VestedMarch 31, 2020 — Outstanding

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

Vested (shares):
April 1, 2019 — Outstanding
VestedExercised
Canceled
March 31, 2020 — Outstanding

6,733
—
—
—
6,733

9,453
—
—
—
9,453

14,040———14,04013,586———
13,586

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
—
—
¥417
$3.84

¥1
$0.01
—
—
¥297
$2.73

¥1
$0.01
—
—
¥300
$2.76

¥1
$0.01
—
—
¥310
$2.85

Mebuki FG
7th

Mebuki FG
8th

Mebuki FG
9th

Mebuki FG
10th

Year ended March 31, 2020
Non-vested (shares):
April 1, 2019 — Outstanding
GrantedCanceled
VestedMarch 31, 2020 — Outstanding

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

Vested (shares):
April 1, 2019 — Outstanding
VestedExercised
Canceled
March 31, 2020 — Outstanding

16,802———
16,802

3,107
—
3,107
—
—

17,408———17,408

6,416
—
6,416
—
—

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
—
—
¥518
$4.77

¥1
$0.01
¥271
$2.49
¥542
$4.99

¥1
$0.01
—
—
¥500
$4.60

¥1
$0.01
¥271
$2.49
¥525
$4.83

*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.

61

Mebuki Financial Group, Inc.

Annual Report 202062

Mebuki FG
11th

Mebuki FG
12th

Mebuki FG
14th

Year ended March 31, 2020
Non-vested (shares):
April 1, 2019 — Outstanding
GrantedCanceled
VestedMarch 31, 2020 — Outstanding

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

Vested (shares):
April 1, 2019 — Outstanding
VestedExercised
Canceled
March 31, 2020 — Outstanding

16,099———16,09912,366
—
5,232
—
7,134

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
—
—
¥680
$6.26

¥1
$0.01
¥271
$2.49
¥708
$6.52

Mebuki FG
15thYear ended March 31, 2020
Non-vested (shares):
April 1, 2019 — Outstanding
GrantedCanceled
VestedMarch 31, 2020 — Outstanding

63

Mebuki FG
13th

Mebuki FG
16th

—
—
—
—
—

—
—
—
—
—

—
201,104—
201,104——
193,295—
193,295—

72,513—
14,258—58,25540,040—16,940—23,100

Vested (shares):
April 1, 2019 — Outstanding
VestedExercised
Canceled
March 31, 2020 — Outstanding—
201,104——
201,104—
193,295——
193,295

¥1
$0.01
¥271
$2.49
¥345
$3.18

¥1
$0.01
¥271
$2.49
¥374
$3.44

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
—
—
¥179
$1.65

¥1
$0.01
—
—
¥206
$1.90

The Assumptions Used to Measure Fair Value of Stock Option
Stock options issued by the Company in the fiscal year ended March 31, 2020, were valued using the Black-Scholes option-pricing model and the following principal parameters:

Mebuki FG
18th

—
—
—
—
—

—
—
—
—
—

Vested (shares):
April 1, 2019 — Outstanding
VestedExercised
Canceled
March 31, 2020 — Outstanding

92,160—18,998—73,16250,948—19,936—31,012

127,508—
21,664—
105,844

147,282—
57,093—90,189Excise price(Yen/US Dollars)
Average stock price at exercise(Yen/US Dollars)
Fair value price at grant date
(Yen/US Dollars)

¥1
$0.01
¥271
$2.49
¥360
$3.31

¥1
$0.01
¥271
$2.49
¥390
$3.59

¥1
$0.01
¥271
$2.49
¥319
$2.94

¥1
$0.01
¥271
$2.49
¥348
$3.20

Mebuki Financial Group, Inc.

Mebuki FG
20thYear ended March 31, 2020
Non-vested (shares):
April 1, 2019 — Outstanding
GrantedCanceled
VestedMarch 31, 2020 — Outstanding

Mebuki FG
17th

—
—
—
—
—

Mebuki FG
19th

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

Mebuki FG
19th

Mebuki FG
20th

27.47%
6 years¥11 per share(0.34)%

25.27%
3 years¥11 per share(0.28)%*1. 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, the volatility of the stock price was calculated based on the actual stock
price of a similar publicly traded company.
Mebuki FG 19th: From August 20, 2013, to August 19, 2019
Mebuki FG 20th: From August 20, 2016, to August 19, 2019
*2. Estimated remaining outstanding period is calculated based on average tenure of retired directors of the Company, Joyo, and Ashikaga and executive officers of Joyo.
*3. Estimated dividend paid in the fiscal year ended March 31, 2017 (excluding a commemorative dividend)*4. 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.

Annual Report 202064

17. PER SHARE OF COMMON STOCK

18. OTHER INCOME

21. INCOME TAXES

23. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES(1) EPS
Reconciliation of the differences between basic and diluted EPS for the years
ended March 31, 2020 and 2019, was as follows:

Other income for the years ended March 31, 2020 and 2019, 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 30.62% and30.86% for the years ended March 31, 2020 and 2019, respectively.
The tax effects of significant temporary differences and tax loss carryforwards, which result in deferred tax assets and liabilities, as of March 31, 2020
and 2019, were as follows:(1) Group Policies for Financial Instruments
The Group provides comprehensive financial services, such as lease and securities centering on banking. As the central business operation of the Group, theconsolidated banking subsidiaries raise funds by deposits as its basic function asa bank; the consolidated banking subsidiaries also procure funds by call moneytransactions from short-term markets to maintain an adequate degree of liquidity. The consolidated banking subsidiaries manage those funds through lending tocorporate 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.

Millions of Thousands ofYen
SharesNet Income
WeightedAttributable
Averageto Owners of
Sharesthe Parent

Year Ended March 31, 2020
Basic EPS —Net income available
to common shareholders�������
Effect of dilutive securities:
Warrants��������������������������������
Diluted EPS —Net income
for computation���������������������
Year Ended March 31, 2019
Basic EPS —Net income available
to common shareholders�������
Effect of dilutive securities
Warrants�������������������������������
Diluted EPS —Net income
for computation���������������������

¥36,370

1,167,915—¥36,370

Yen

1,168,675

U.S. Dollars

EPS¥31.14760

Millions of Yen
2020
2019

$0.29

—

—

¥31.12$0.29

Gain on sales of stock andother securities�������������������������������� ¥16,970
2,178
Recoveries of write-off of claims���������
Gain on disposal of fixed assets����������
64
Other������������������������������������������������ 32,773
Total������������������������������������������������� ¥51,987¥24,506
2,237
77
29,541¥56,362

1,173,785¥39.47—594—¥46,338

1,174,379¥39.45General and administrative expenses for the years ended March 31, 2020 and
2019, consisted of the following:

Salaries and allowances��������������������� ¥ 53,197
Periodic benefit costs�������������������������
3,067
Other������������������������������������������������ 63,365
Total�������������������������������������������������� ¥119,630

2020

Total equity per share������������������������� ¥760.78

2019

U.S. Dollars
2020¥783.67$7.00

Total equity per share as of March 31, 2020 and 2019, is calculated based on
the following:
Millions of Yen
2020
2019

Total equity���������������������������������������� ¥882,235
Deductions from total equity���������������
248
Total equity attributable
to common shareholders������������������ ¥881,986

Thousands of
U.S. Dollars
2020¥919,547
233$8,119,228
2,289¥919,314$8,116,939$ 489,578
28,234583,152$1,100,965

Other expenses for the years ended March 31, 2020 and 2019, consisted of thefollowing:
Millions of Yen
2020
2019

Loss on sales of stocks and othersecurities����������������������������������������� ¥15,998
Write-off of loans������������������������������ 11,612
1,112
Impairment on fixed assets*���������������
Loss on disposal of fixed assets����������
557
Other������������������������������������������������ 34,414
Total�������������������������������������������������� ¥63,696

1,173,083¥15,081
9,877
2,747
446
28,890¥57,042

Thousands of
U.S. Dollars
2020$147,235
106,872
10,234
5,133
316,722$586,196* Impairment losses on long-lived assets were recognized mainly on the properties of theBank’s branches in the Tochigi and Ibaraki prefectures, whose operations were discontinued because the Company believed the investment would not be recoverable. The components of impairment losses on fixed assets for the years ended March 31, 2020 and 2019,were as follows:

Number of Shares in Thousands
2020
2019

Number of shares of common stock used incomputing total equity pershare at year-end�������������������������������������������������� 1,159,309¥ 53,685
3,826
62,124¥119,636

Thousands of
U.S. Dollars
2020

20. OTHER EXPENSES(2) Total equity per share
Total equity per share as of March 31, 2020 and 2019, was as follows:Yen$156,180
20,052591
301,616$478,439

19. GENERAL AND ADMINISTRATIVE EXPENSES

Millions of Yen
2020
2019

¥46,338

Thousands of
U.S. Dollars
2020

Millions of Yen

2020Land��������������������������������������������������������������
Buildings��������������������������������������������������������
Leasehold improvements���������������������������������
Equipment������������������������������������������������������
Software���������������������������������������������������������
Telephone subscription rights��������������������������

¥706
316
45
42
—
—

Thousands of
U.S. Dollars

2019

2020

¥1,643
854
58
72
92
24

$6,503
2,913
423
395
—
—

Millions of Yen
2020
2019

Deferred tax assets:
Allowance for loan losses��������������� ¥ 28,912
Write-offs of securities������������������� 12,583

Mebuki Financial Group, Inc.

¥ 27,467$ 266,084

12,705
11,196
1,886
1,738

115,808
104,467
17,484
15,337

Liability for retirement benefits������� 11,351
Provision for employee bonuses�����
1,899
Tax loss carryforwards�������������������
1,666
Provision for reimbursement of874
989
deposits��������������������������������������
802
1,263
Depreciation����������������������������������
Other�������������������������������������������� 10,635
9,758
Subtotal deferred tax assets������� 68,726
67,004
Less valuation allowance���������������� (17,782) (18,247)
Total deferred tax assets����������� 50,943
48,756
Deferred tax liabilities:——
Unrealized gains on availablefor-sale securities������������������������ (39,266) (63,483)(4,467)(4,467)Retirement benefit trust�����������������
Other��������������������������������������������
(6,654)(6,463)
Total deferred tax liabilities�������� (50,388) (74,414)
Net deferred tax assets(liabilities)�������� ¥   554 ¥(25,657)

8,044
7,383
97,882
632,490(163,657)
468,833—(361,368)(41,116)(61,245)(463,728)$   5,105

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, a reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflected in the accompanying consolidated statements of income for the years ended March 31, 2020 and 2019,is omitted.

22. LEASES
Future minimum payments under noncancelable operating leases as of March
31, 2020 and 2019, were as follows:
LesseeMillions of Yen
2020
2019

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

¥145
141
¥287

¥159
124
¥284

Thousands of
U.S. Dollars
2020$1,3401,306$2,646

LessorMillions of Yen
2020
2019

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

65

Thousands of
U.S. Dollars
2020

¥2
2
¥5

¥2
4
¥7

Thousands of
U.S. Dollars
2020

$25
22
$47

(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 stable interest income, and to promote business relationships with the issuers. These securities are exposed to the issuers’ credit risks, interest rate fluctuation risks, andmarket price fluctuation risks.
The Group’s main financial liabilities are deposits received by the consolidated banking 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 that 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.
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 to not exceed Tier 1 capital allocated by each risk category. The bank assesses unquantifiable risks using stress tests and other measures.

Annual Report 202066

(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 give the issuers and counterparties
credit ratings as well as carrying out assessments of the issuers and counterparties as 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, 2020 and 2019, the Group’s VaR related to interest raterisks, which is a simple sum of its consolidated banking subsidiaries’ VaR, were¥73,266 million ($674,276 thousand) and ¥52,967 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, 2020 and 2019, the Group’s VaR related to price fluctuation risk, which is a simple sum of its consolidated banking subsidiaries’ VaR,
were ¥103,979 million ($956,928 thousand) and ¥100,252 million, respectively.
Correlation between interest rate risk and price fluctuation risk has not been 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, 2020 and 2019, the Group’s VaR related to trading account, which is simple sum of its consolidated banking subsidiaries’ VaR,
were ¥11 million ($104 thousand) and ¥7 million, respectively.

67

Mebuki Financial Group, Inc.

(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 consolidated balance sheet structure, lines of credit provided to the Group, collateralmanagement, 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.

Millions of Yen
March 31, 2019

Millions of Yen
March 31, 2020

Unrealized
Fair Value Gains/Losses(1) Cash and due from banks����������������������� ¥ 1,935,324 ¥1,935,324(2) Securities:���������������������������������������������
Held-to-maturity securities����������������������
164,851
166,028
Available-for-sale securities��������������������� 3,881,842 3,881,842(3) Loans and bills discounted���������������������� 11,342,541
Allowance for loan losses*1���������������������
(64,324)
Net���������������������������������������������������� 11,278,216 11,390,121
Total assets������������������������������������������������ ¥17,260,234 ¥17,373,317(1) Deposits������������������������������������������������ ¥14,756,658 ¥14,757,116(2) Negotiable certificates of deposit�������������
283,131
283,162(3) Call money and bills sold������������������������
——(4) Payables under securities lendingtransactions�������������������������������������������
215,548
215,548(5) Borrowed money������������������������������������ 1,252,801 1,252,888
Total liabilities��������������������������������������������� ¥16,508,139 ¥16,508,715
Derivative instruments*2 :Hedge accounting is not applied�������������� ¥     2,423 ¥     2,423
Hedge accounting is applied��������������������
665
665
Total derivative instruments������������������������� ¥     3,088 ¥     3,088

¥—
1,177
—

111,904¥113,082¥(457)
(30)
—
—
(87)
¥(575)¥——¥—

Unrealized
Fair Value Gains/Losses(1) Cash and due from banks����������������������� ¥ 1,468,877 ¥ 1,468,877(2) Securities:
Held-to-maturity securities����������������������
169,288
170,902
Available-for-sale securities��������������������� 4,152,863 4,152,863(3) Loans and bills discounted���������������������� 11,122,484
Allowance for loan losses*1���������������������
(66,422)
Net���������������������������������������������������� 11,056,061 11,168,148
Total assets������������������������������������������������ ¥16,847,090 ¥16,960,791(1) Deposits������������������������������������������������ ¥14,373,888 ¥14,374,359(2) Negotiable certificates of deposit�������������
282,158
282,170(3) Call money and bills sold������������������������
191,740
191,740(4) Payables under securities lendingtransactions�������������������������������������������
202,152
202,152(5) Borrowed money������������������������������������ 1,053,077 1,053,406
Total liabilities��������������������������������������������� ¥16,103,018 ¥16,103,829
Derivative instruments*2 :Hedge accounting is not applied�������������� ¥     2,020 ¥     2,020
Hedge accounting is applied��������������������
724
724
Total derivative instruments������������������������� ¥     2,744 ¥     2,744(5) Fair Values of Financial Instruments(a) Fair value of financial instruments
Carrying
AmountCarrying
AmountMarch 31, 2020

¥—
1,613
—

112,087¥113,701¥(470)
(12)
—
—
(328)
¥(811)¥——¥—Thousands of U.S. Dollars
Carrying
Unrealized
AmountFair Value Gains/Losses(1) Cash and due from banks����������������������� $ 17,810,826 $ 17,810,826(2) Securities:���������������������������������������������
Held-to-maturity securities���������������������� 1,517,127 1,527,965
Available-for-sale securities��������������������� 35,724,672 35,724,672(3) Loans and bills discounted���������������������� 104,385,618
Allowance for loan losses*1���������������������
(591,980)
Net���������������������������������������������������� 103,793,638 104,823,498
Total assets������������������������������������������������ $158,846,263 $159,886,960(1) Deposits������������������������������������������������ $135,805,803 $135,810,015(2) Negotiable certificates of deposit������������� 2,605,667 2,605,952(3) Call money and bills sold������������������������
——(4) Payables under securities lendingtransactions������������������������������������������� 1,983,693 1,983,693(5) Borrowed money������������������������������������ 11,529,554 11,530,358
Total liabilities��������������������������������������������� $151,924,717 $151,930,018
Derivative instruments*2 :Hedge accounting is not applied�������������� $     22,303 $     22,303
Hedge accounting is applied��������������������
6,120
6,120
Total derivative instruments������������������������� $     28,424 $     28,424$—
10,837—

1,029,860(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 the allowance 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.
(2) Negotiable certificates of deposit
Refer to (1) Deposits.

$1,040,697$(4,212)
(284)
—
—
(804)
$(5,301)
$—
—
$—

*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, andother liabilities include derivative transactions. Derivative instruments are presented as
net of assets and liabilities associated with derivative transactions.

(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 24. DERIVATIVES.”

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.

(b) Carrying amount of financial instruments whose fair value cannot be reliably
determined(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.
The Group treats market prices as fair values for floating-rate Japanese
Government Bonds and securitized products.

Equity securities without readily
available market price*1*2��������������� ¥ 4,126
Investments in partnerships*3���������� 24,427
Beneficial interests in trust��������������
898
Total���������������������������������������������� ¥29,452

Millions of Yen
2020
2019

¥ 4,360
19,167948¥24,476

Thousands of
U.S. Dollars
2020$ 37,973
224,807
8,271$271,051*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, 2020 and 2019, impairment losses on equity securities without readily available market price of ¥192 million ($1,770 thousand) and ¥6 million, respectively, were recognized.
*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.

Annual Report 202068

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

March 31, 2020

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�����������������������������������������������������������������

March 31, 2019

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, 2020

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¥1,780,991

¥—

¥—

¥—

39,72518,00050
21,67538,375—150
38,225

22,581—300
22,281

372,066
159,500
84,165
110,809
11,8695,722
2,836,747¥5,029,531

513,382
80,000188,087
166,455
65,914
12,925
1,777,555¥2,329,312

587,481
35,000289,42186,646108,279
68,133
1,434,690¥2,044,753

Due in 1 Yearor Less

Due after 1 Yearthrough 3 Years¥1,328,182

Due after 10 Years

March 31, 2020

Due after 1 Yearthrough 3 Years

¥—

¥—

4,044
—
—
4,044

50,26250,000
—
262

—
—
—
—

Deposits *1�������������������������������������������������������� ¥13,749,903
Negotiable certificates of deposit������������������������
283,131
Call money and bills sold������������������������������������
—215,548
Payables under securities lending transactions����
Borrowed money������������������������������������������������
1,022,102
Total����������������������������������������������������������������� ¥15,270,685¥855,999———
143,922¥999,922

330,813—
165,571
35,200114,086
15,955935,533¥1,270,390

723,590
41,150202,947
33,068335,992
110,432
1,019,385¥1,793,238

663,268
176,300
5,033
301,032
160,095
20,8052,997,509¥3,660,777

Due in 1 Yearor Less

Due after 1 Yearthrough 3 Years

Deposits *1�������������������������������������������������������� ¥13,314,783
Negotiable certificates of deposit������������������������
281,658
191,740
Call money and bills sold������������������������������������
Payables under securities lending transactions����
202,152
815,162
Borrowed money������������������������������������������������
Total����������������������������������������������������������������� ¥14,805,498¥ 913,897
500——
135,975¥1,050,372

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

¥—

¥—

¥—

¥—

¥—

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

25,1667,000
150
18,01652,88418,00050
34,834

26,422—300
26,122

2,721
—
—
2,721

1,188
—
—
1,188

50,00050,000——

Deposits *1�������������������������������������������������������� $126,540,614
Negotiable certificates of deposit������������������������
2,605,667
Call money and bills sold������������������������������������
—Payables under securities lending transactions����
1,983,693
Borrowed money������������������������������������������������
9,406,427
Total����������������������������������������������������������������� $140,536,402$7,877,780———
1,324,523$9,202,303$1,197,134———
798,097$1,995,231

414,911208,300
85,802
77,25022,227
21,331
2,685,194¥4,453,455

600,774
214,500
148,641
164,124
35,71337,794
1,856,590¥2,510,249

560,357
25,000257,794
123,966
105,853
47,742
1,386,877¥1,973,657

388,127
35,000174,703
71,27280,551
26,600925,491¥1,316,339

850,133
41,150253,549
11,787428,279
115,368
1,013,460¥1,864,782

483,840
78,0006,240
241,727
138,057
19,813
2,933,551¥3,467,392

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

Due after 7 Years
through 10 Years

Due after 10 Years$16,390,501

$—

$—

$—

$—

$—

365,595
165,654460
199,481353,166—
1,380
351,785

207,822—
2,761
205,061

37,217——
37,217

462,564
460,151
—
2,413

—
—
—
—

3,424,130
1,467,881
774,579
1,019,777
109,233
52,66026,106,642$46,286,868

4,724,666
736,241
1,730,972
1,531,889
606,613
118,951
16,358,874$21,436,706

5,406,599
322,106
2,663,551
797,411
996,497
627,035
13,203,486$18,817,907

3,044,479—
1,523,754
323,953
1,049,937
146,835
8,609,728$11,691,424

6,659,217
378,704
1,867,726
304,325
3,092,146
1,016,316
9,381,422$16,503,203

6,104,071
1,622,492
46,3232,770,412
1,473,366
191,477
27,586,134$33,690,205*1 As of March 31, 2020, loans and bills discounted with no contractual maturities amounting to ¥200,693 million ($1,846,982 thousand) and loans and bills discounted whose cash flow cannot
be estimated, such as “legal bankruptcy,” “virtual bankruptcy,” and “possible bankruptcy” loans, amounting to ¥140,426 million ($1,292,350 thousand) are not included.
*2 As of March 31, 2019, loans and bills discounted with no contractual maturities amounting to ¥181,659 million and loans and bills discounted whose cash flow cannot be estimated, such as“legal bankruptcy,” “virtual bankruptcy,” and “possible bankruptcy” loans, amounting to ¥139,657 million are not included.

69

Mebuki Financial Group, Inc.

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

Due in 1 Yearor Less

March 31, 2019

March 31, 2020

¥130,080———
86,721¥216,801

Due after 7 Years
through 10 Years¥2,184———55¥2,239Millions of Yen
Due after 3 Years
Due after 5 Years
through 5 Years
through 7 Years¥134,067———
101,673¥235,740

Due after 10 Years¥18,490————¥18,490

¥—
—
—
—
—
¥—

Due after 7 Years
through 10 Years¥3,905———241¥4,146

Due after 10 Years¥7,235———25¥7,260

¥—
—
—
—
—
¥—

Due after 7 Years
through 10 Years$20,104———507$20,611

Due after 10 Years$170,170————$170,170

$—
—
—
—
—
$—

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

24. DERIVATIVES(1) Derivative Transactions to Which Hedge Accounting Is Not Applied as of March 31, 2020 and 2019
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 described below. 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, 2020 and 2019, as
follows:

March 31, 2020

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

¥1,546——

March 31, 2019

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

¥2,290——Millions of Yen
Contract AmountDue afterFair
One Year
Value

¥—
—
—

¥21
—
¥21

Millions of Yen
Contract AmountDue afterFair
One Year
Value

¥—
—
—

¥(8)
—
¥(8)

Unrealized
Gains/Losses

¥21
—
¥21

Contract
Amount$14,234——

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

$—
—
—

Unrealized
Gains/Losses

$193
—
$193

$193
—
$193

Unrealized
Gains/Losses

¥(8)
—
¥(8)

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

Annual Report 202070

Consolidated banking subsidiaries had the following derivative contracts, which were not quoted on listed exchanges, outstanding as of March 31, 2020 and 2019, as follows:

March 31, 2020

Contract
AmountMillions of Yen
Contract AmountDue afterFair
One Year
Value*1*2

Unrealized
Gains/Losses

Contract
AmountThousands of U.S. Dollars
Contract AmountDue afterFair
One Year
Value*1*2

March 31, 2019
Unrealized
Gains/Losses

Interest rate-related transactions
Interest rate swaps:
Receive fixed and pay floating�����
Receive floating and pay fixed�����
Cap transactions:¥148,971
148,971¥137,184
137,184¥ 4,262(2,390)¥ 4,262(2,390)$1,370,985
1,370,985$1,262,514
1,262,514$ 39,228(21,999)$ 39,228(21,999)

Sold������������������������������������������
Bought��������������������������������������
Swaption:

1,073
1,073

656
656

(0)
0

8
(5)

9,876
9,876

6,046
6,046

(6)
6

77
(47)

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

15,69015,690—15,69015,690—(243)
243¥ 1,872(131)
243¥ 1,987

144,395
144,395—

144,395
144,395—(2,240)2,240$ 17,228(1,206)2,240$ 18,293

March 31, 2020

Contract
AmountMillions of Yen
Contract AmountDue afterFair
One Year
Value*1*2

Unrealized
Gains/Losses

Contract
AmountThousands of U.S. Dollars
Contract AmountDue afterFair
One Year
Value*1*2

Unrealized
Gains/Losses

Currency-related transactions
Currency swaps�������������������������������
Forward exchange contracts:¥216,463¥163,777

¥ 274

¥ 274

$1,992,117$1,507,249$ 2,529$ 2,529

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

96,44296,282

4,400
4,129

(1,084)
1,334(1,084)
1,334

887,561
886,090

40,49538,000(9,981)
12,279(9,981)
12,279Sold������������������������������������������
Bought��������������������������������������
Total����������������������������������������������������

121,434
121,424—

81,58981,585—(3,235)
3,241
¥ 530

269
1,926
¥ 2,720

1,117,561
1,117,476—

750,873
750,830—(29,776)
29,832$ 4,882

2,479
17,728$25,033

March 31, 2020

Contract
AmountMillions of Yen
Contract AmountDue afterFair
One Year
Value*3

Unrealized
Gains/Losses

Contract
Amount

¥(95)
95

—
—

$50,61750,617———

Thousands of U.S. Dollars
Contract AmountDue afterFair
One Year
Value*3

Other transactions
Earthquake derivatives:
Sold������������������������������������������
Bought��������������������������������������

¥5,500
5,500
—

—
—
—

—
—
—

$(883)
883

—
—

—

—

Unrealized
Gains/Losses

Interest rate-related transactions
Interest rate swaps:
Receive fixed and pay floating�����
Receive floating and pay fixed�����
Cap transactions¥116,901
116,901¥ 99,854
99,854¥ 3,018(1,483)¥ 3,018(1,483)

Sold������������������������������������������
Bought��������������������������������������
Swaption:

1,173
1,173

1,073
1,073

(0)
0

8
(4)

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

4,690
4,690
—

4,690
4,690
—

(56)
56
¥ 1,535(23)
56¥ 1,571

Currency swaps�������������������������������
Forward exchange contracts:¥228,866¥205,485

¥ 318

¥ 318

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

63,68963,806

5,963
5,380

(321)
487

(321)
487

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

130,934
130,931—

83,923
83,919—(3,569)
3,578
¥ 493

(188)
2,142
¥ 2,438

March 31, 2019

Contract
AmountMillions of Yen
Contract AmountDue afterFair
One Year
Value*3

Unrealized
Gains/Losses

Other transactions
Earthquake derivatives:
Sold������������������������������������������
Bought��������������������������������������

Unrealized
Gains/Losses

Contract
AmountMillions of Yen
Contract AmountDue afterFair
One Year
Value*1*2¥4,800
4,800
—

—
—
—

¥(84)
84

—
—

—

—

Note: *1 The above transactions are stated at fair value and the related valuation gains (losses) are reported in the consolidated statement of income.
*2 Fair values of above transactions are determined based on a discounted cash flow model, an option-pricing model, or other models as appropriate.
*3 Acquisition costs are regarded as fair value as it is extremely difficult to determine the fair appraised value.

(2) Derivative Transactions to Which Hedge Accounting Is Applied as of March 31, 2020 and 2019
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,
2020 and 2019, as follows:

March 31, 2020

Hedged Item

Contract
AmountMillions of Yen
Contract AmountDue after
One YearThousands of U.S. Dollars
Contract AmountDue after
Fair
Contract
One YearValue
AmountFair
Value¥85,000¥85,000¥(834)$ 782,257$782,257$ (7,678)¥85,000¥85,000¥(834)$ 782,257$782,257$ (7,678)¥137,400—
92,116¥15,429—56,503¥2,293—(1,731)$1,264,498—
847,748$141,998—
520,000$ 21,110—(15,937)

—

—

¥562

—

—

$ 5,173¥937$   29,781

¥937

—

Interest rate-related transactions*1*4
Interest rate swaps:
Receive floating and pay fixed������Securities
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

71

Mebuki Financial Group, Inc.

Available-for-sale securities

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

¥  3,235

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

—

¥

—
—

$

—
—

$ 8,625$ 8,625

Annual Report 202072

March 31, 2019

Hedged Item

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

Contract
AmountMillions of Yen
Contract AmountDue after
One Year

Fair
Value

¥147,355
2,042
34,041¥34,000
—
—

¥637
22
97

—

—

¥757

¥  3,899

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

—

¥

—
—

¥ (33)¥ (33)

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 flow model, an option-pricing model, or other models, as appropriate.
5. Fair value is determined based on a discounted cash flow 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,
2020:

March 31, 2020

Hedged Item

Contract
AmountMillions of Yen
Contract AmountDue after
One Year

Fair
Value

Thousands of U.S. Dollars
Contract AmountDue after
Fair
Contract
One YearValue
AmountInterest rate-related transactions
Interest rate swaps:
Receive fixed and pay floating������Loans and borrowed money
Receive floating and pay fixed������
Total�����������������������������������������������

March 31, 2019

Hedged Item¥   —11,464

¥   —
6,920

¥ —
(346)

$     —
105,512$    —
63,692$   —(3,189)——¥(346)——$(3,189)

Contract
AmountMillions of Yen
Contract AmountDue after
One Year

Fair
Value

¥—
16,910¥—
11,588

¥ —
(320)

—

—

¥(320)

Interest rate-related transactions
Interest rate swaps:
Receive fixed and pay floating������Loans and borrowed money
Receive floating and pay fixed������
Total�����������������������������������������������

26. SEGMENT INFORMATIONThe components of other comprehensive income (loss) for the years ended
March 31, 2020 and 2019, were as follows:

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.

Millions of Yen
2020
2019

Available-for-sale securities

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

25. OTHER COMPREHENSIVE INCOME (LOSS)

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 23. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES (5) Fair Values of Financial Instruments”).

Unrealized gains (losses)
on available-for-sale securities:(Losses) gains arising during theyear�������������������������������������������� ¥(72,359)
Reclassification adjustments
to profit or loss����������������������������� (3,504)
Amount before
income tax effect��������������������� (75,864)
Income tax effect���������������������� 22,643
Total������������������������������������������������� ¥(53,220)
Deferred gains (losses) on derivatives
under hedge:
Gains arising during the year���������� ¥837
Reclassification adjustments
to profit or loss����������������������������� (1,990)
Amount before income tax
effect�������������������������������������� (1,153)
351
Income tax effect����������������������
Total������������������������������������������������� ¥   (801)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����������������������
0
Total������������������������������������������������� ¥     0Defined retirement benefit plans:
Gains arising during the year���������� ¥ (4,623)
Reclassification adjustments toprofit or loss��������������������������������
554
Amount before income tax
effect�������������������������������������� (4,069)
Income tax effect����������������������
1,237
Total������������������������������������������������� ¥ (2,831)
Total other comprehensive loss����������� ¥(56,853)

Thousands of
U.S. Dollars
2020¥13,017$(665,927)(9,648)(32,252)

3,369(1,054)¥ 2,314(698,178)
208,388$(489,790)¥ 1,683$7,707(1,985)(18,323)(302)
91¥  (211)(10,616)3,239$  (7,378)¥—$     —

—

—

—
2
¥2

—
2
$      2

¥ (4,494)$ (42,551)

1,464

5,104

(3,030)921¥ (2,109)¥    (3)(37,447)
11,389$ (26,059)$(523,225)

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

March 31, 2020

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

Ordinary income
from external¥112,331
customers�������������� ($1,033,788)

March 31, 2019

Lending
Operations

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

¥113,944¥74,700($687,470)¥95,705¥282,737($880,779) ($2,602,037)

Millions of Yen
Investment
Operations
Other¥82,695¥91,499

Total¥288,139(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.

73

Mebuki Financial Group, Inc.

Annual Report 202074

27. 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, 2020 and 2019,were as follows:Year ended March 31, 2020

Name

Location

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

Kinichi Suzuki

—

—

—

—

—

Loan

¥102
($940)

Yoshie Suto

—

—

—

—

—

Loan

¥134
($1,237)

Yoshihiro Ono

—

—

—

—

—

Loan

¥12
($110)

—

—

Loan

¥11
($102)Type

A director or
director’s close relative

Companies in which a
Hoshinomajority of voting rights
Seisakusyo
are owned by a director orCo., Ltd.
director’s close relatives

Gunma

Business

Ownerships

Relationship

¥7
Steel
($64) manufacturing

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

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

Loans andbills
discounted
Loans andbills
discounted
Loans andbills
discounted¥133($1,232)

Loans andbills
discounted¥11($102)¥100($920)¥11($104)

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

Year ended March 31, 2019
Name

Location

Capital(Millions of Yen)

Business

Ownerships

Relationship

Kinichi Suzuki

—

—

—

—

—

Loan

¥106

Yoshie Suto

—

—

—

—

—

Loan

¥138

Yoshihiro Ono

—

—

—

—

—

Loan

¥13

Gunma

¥7

Steel
manufacturing

—

—

Loan

¥11

Type

A director or
director’s close relative

Companies in which a
Hoshinomajority of voting rights
Seisakusyo
are owned by a director orCo., Ltd.
director’s close relatives

Transactions(Millions of Yen)

Outstanding Balance(Millions of Yen)

Loans andbills
discounted
Loans andbills
discounted
Loans andbills
discounted
Loans andbills
discounted

¥104
¥135
¥12

¥11

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

28. SUBSEQUENT EVENTS
Not applicable.

75

Mebuki Financial Group, Inc.

Annual Report 2020

76

77

Mebuki Financial Group, Inc.

Annual Report 202078

Non-Consolidated Balance Sheet (Unaudited)

Non-Consolidated Statement of Income (Unaudited)

March 31, 2020 The Joyo Bank, Ltd.

Millions of Yen
2020
2019

79

Year Ended March 31, 2020

Thousands of
U.S. Dollars
2020

ASSETSCash and due from banks��������������������������������������������������������������������������������������� ¥ 1,118,929
12,778Call loans and bills bought ��������������������������������������������������������������������������������������
Monetary claims bought �����������������������������������������������������������������������������������������
5,901
Trading assets �������������������������������������������������������������������������������������������������������
13,124
Securities���������������������������������������������������������������������������������������������������������������
2,837,426
6,759,983
Loans and bills discounted��������������������������������������������������������������������������������������
Foreign exchanges �������������������������������������������������������������������������������������������������
10,224
Other assets ����������������������������������������������������������������������������������������������������������
83,685
Tangible fixed assets ���������������������������������������������������������������������������������������������
74,635Intangible fixed assets ��������������������������������������������������������������������������������������������
7,998
7,102
Prepaid pension cost ���������������������������������������������������������������������������������������������
Customers’ liabilities for acceptances and guarantees����������������������������������������������
12,897
Allowance for loan losses����������������������������������������������������������������������������������������
(32,903)(292)
Allowance for investment losses������������������������������������������������������������������������������
TOTAL�������������������������������������������������������������������������������������������������������������� ¥10,911,493¥   726,456
9,546
7,271
10,8173,025,904
6,594,731
3,420
80,821
77,1718,531
6,365
44,283(32,610)(9)¥10,562,699$ 10,297,530
117,60254,313
120,789
26,112,892
62,212,257
94,092
770,161
686,874
73,61365,361
118,699(302,814)(2,692)$100,418,676

LIABILITIES AND EQUITY
LIABILITIES:
Deposits ���������������������������������������������������������������������������������������������������������������� ¥ 8,973,110
Negotiable certificates of deposit�����������������������������������������������������������������������������
84,27973,257
Call money and bills sold ����������������������������������������������������������������������������������������
Payables under repurchase agreement��������������������������������������������������������������������
67,430
Payables under securities lending transactions���������������������������������������������������������
110,835
1,770
Trading liabilities�����������������������������������������������������������������������������������������������������
Borrowed money����������������������������������������������������������������������������������������������������
938,779
Foreign exchanges��������������������������������������������������������������������������������������������������
1,689
Bonds �������������������������������������������������������������������������������������������������������������������
5,000
Due to trust account�����������������������������������������������������������������������������������������������
1,199
Other liabilities��������������������������������������������������������������������������������������������������������
35,559Provision for bonuses for directors���������������������������������������������������������������������������
121
Provision for retirement benefits������������������������������������������������������������������������������
7,618
Provision for reimbursement of deposits�������������������������������������������������������������������
1,923
Provision for point card certificates��������������������������������������������������������������������������
121
Provision for contingent losses��������������������������������������������������������������������������������
952
Deferred tax liabilities����������������������������������������������������������������������������������������������
9,501
8,000
Deferred tax liabilities for land revaluation����������������������������������������������������������������
Acceptances and guarantees�����������������������������������������������������������������������������������
12,897
Total liabilities��������������������������������������������������������������������������������������������������� ¥10,334,047¥ 8,729,187
85,12359,542
62,482
84,286
1,065
786,125
351
5,000
566
40,275
154
8,301
2,261
114
949
32,1318,143
44,283¥ 9,950,348$ 82,579,698
775,624
674,190
620,560
1,020,020
16,2988,639,607
15,54846,015
11,035327,252
1,116
70,10917,6991,119
8,764
87,44473,631
118,699$ 95,104,429

EQUITY:
Common stock������������������������������������������������������������������������������������������������������� ¥    85,113
Capital surplus�������������������������������������������������������������������������������������������������������
58,574Retained earnings���������������������������������������������������������������������������������������������������
352,538
Valuation adjustments: �������������������������������������������������������������������������������������������
81,220
Unrealized gains on available-for-sale securities��������������������������������������������������
69,472
Deferred losses on derivatives under hedge accounting���������������������������������������
(180)
Land revaluation surplus �����������������������������������������������������������������������������������
11,928
Total equity��������������������������������������������������������������������������������������������������
577,446
TOTAL������������������������������������������������������������������������������������������������������������������������� ¥10,911,493¥    85,113
58,574
337,172
131,491
119,723(171)
11,940612,351¥10,562,699$    783,297
539,058
3,244,419
747,473
639,352(1,657)
109,778
5,314,247$100,418,676

Mebuki Financial Group, Inc.

The Joyo Bank, Ltd.

Millions of Yen
2020
2019

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
2020¥ 63,264
36,802
99
325
401
46
26,145517
6,666
16,319150,589¥ 64,082
33,074
139
419
361
31
25,709362
1,954
25,283
151,418$ 582,228
338,695
917
2,995
3,691
430
240,622
4,762
61,349150,190
1,385,878

3,760
23
623
378
38
1,550
132
2,150
474
8,992
5,934
64,791
5,196
22,187116,236
34,353

3,893
24
283
16
114
1,449
132
1,944
274
8,535
8,186
66,892386
18,633
110,770
40,64834,611
217
5,740
3,480
353
14,271
1,218
19,795
4,367
82,75754,620596,279
47,824204,192
1,069,722
316,156

10,851(1,151)
9,699¥ 24,653

11,709210
11,919¥ 28,729

99,866(10,601)
89,265$ 226,891

Annual Report 202080

Non-Consolidated Balance Sheet (Unaudited)

Non-Consolidated Statement of Income (Unaudited)

March 31, 2020 The Ashikaga Bank, Ltd.

Millions of Yen
2020
2019

81

Year Ended March 31, 2020

Thousands of
U.S. Dollars
2020

ASSETSCash and due from banks���������������������������������������������������������������������������������������
Call loans and bills bought���������������������������������������������������������������������������������������
Monetary claims bought������������������������������������������������������������������������������������������
Trading account securities��������������������������������������������������������������������������������������
Money held in trust�������������������������������������������������������������������������������������������������
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��������������������������������������������������������������������������������������������������������������

¥ 816,321
5,976
5,947
2,507
1
1,257,599
4,717,392
5,925
86,84528,201
10,94023,351
4,903
10,131(27,311)¥6,948,735¥ 741,475
843
7,881
2,982
23,175
1,338,495
4,657,025
3,088
82,67028,6089,480
20,7642,475
10,456(30,142)¥6,899,280$ 7,512,622
55,00054,73423,078
9
11,573,710
43,414,253
54,537799,238
259,541
100,689
214,905
45,127
93,243(251,349)$63,949,339

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

¥5,813,460
265,90237,487
61,765
104,712276,937251
374
27,132
108
951
1,189
237
10,131¥6,600,643¥5,709,204
263,084
132,198
58,349117,866
229,574286—
27,229
121
992
1,005
210
10,456¥6,550,580$53,501,389
2,447,106
345,000
568,429
963,6742,548,662
2,318
3,442
249,701
994
8,754
10,9482,190
93,243$60,745,848

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

¥ 135,000
188,074
25,01625,905(888)
348,091¥6,948,735¥ 135,000
181,429
32,27032,365(95)
348,699¥6,899,280$ 1,242,408
1,730,852
230,232
238,412(8,181)
3,203,491$63,949,339

Mebuki Financial Group, Inc.

The Ashikaga Bank, Ltd.

Millions of Yen
2020
2019

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��������������������������������������������������������������������������������������������
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 interest swap������������������������������������������������������������������������������������
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
2020¥47,945
20,59613356
104
521,670927
4,655
96,275¥ 48,772
29,47441344
132—
22,1003,320
16,543
120,730$441,239
189,548
127
3,283
964
51
199,430
8,540
42,848886,028

1,605
51
332
1,648
1,325
135
1,042
626
7,515
1,285
51,0784,652
8,892
80,19416,081

2,203
68
1,081
281
2,308
135
—
1,633
7,162
5,013
49,088
1,268
10,64980,892
39,837

14,778476
3,061
15,168
12,200
1,251
9,598
5,766
69,168
11,826
470,078
42,814
81,842738,028
148,000

4,341
495
4,836
¥11,245

8,351
195
8,546
¥ 31,291

39,955
4,557
44,512$103,488

Annual Report 202082