CHUGIN FINANCIAL GROUP, INC.

CHUGIN FINANCIAL GROUP, INC. ANNUAL REPORT 2023

ANNUAL REPORT2023

C hugin G r o u p P hilosop hy
Gr o u p’s C o r p o ra t e P r in c ip l es

Create with Our Community, Customers and Employees a Rich Future that We Can All ShareS y s t em of P r in c ip lesContents

The Chugin Group’s System of Principles is comprised of the Group’s Corporate Principles in which the

Chugin Group Philosophy / Corporate Principles.....................................1

Group’s stated mission is set out, the Corporate Vision which is the ideal state the Group sees for itself,

Corporate Vision...................................................................................1

and the Chugin Value which are the set of values shared between all officers and employees of the Group.

System of Principles.............................................................................2
Chugin Value.......................................................................................2

The Chugin Group aims to transition into a corporate group that creates services based on the needs of its customers and that finds resolutions to issues faced by these

Corporate Data ...................................................................................3

customers as we look to build a sustainable business model that will develop together with regional societies and customers alike.

MissionGroup’s Corporate Principles

Consolidated Financial Highlights .........................................................4

To that end, due to the importance of raising awareness of the Group’s corporate management activities, including making maximum use of the Group’s management

Our societal mission

Create with our community, customers andInterview with the Management ...........................................................5

resources, as well as the importance of ensuring this thinking is fully internalized by each officer and employee of the Group, in April 2022, we established the “Group’s(Our raison d’être)employees a rich future that we can all share

Corporate Principles” as a set of management principles common throughout the Group.
The details of the “Group’s Corporate Principles” were established in the long-term management plan that began in 2017, with the details positioned in the long-term
vision set out in that management plan. However, in consideration of the transition to a holding company structure, we have decided to position them in the “Group’s

Corporate Vision

VisionCorporate Principles” as a mission for the Group to permanently adhere to and in order to communicate the Group’s raison d’être.

The long-term management plan,“Vision 2027: Plan for Creating the Future Together” ...........................11
Medium-term management plan
“Plan for Creating the Future Together: Stage III” .................................13
Financial strategy ..............................................................................15

A comprehensive financial services group that is

Our ideal vision for ourselves“chosen” and “trusted” by regional customers

C o r p o r a t e V is ion

Message from an Outside Director .....................................................19
Message from the CHRO ...................................................................21

A comprehensive financial services group that is “chosen” and “trusted” by regional customers

Chugin Value(Succeeds the previous “Chugin-no-kokoro”)

Value

To Customers We will aim for a Win-Win relationship with customers

The set of values shared between all

As Individuals We will realize dreams through our work

officers and employees of the GroupAs a Company We will provide motivating work and a place to grow

Review of Operations ........................................................................22
CSR / Compliance .............................................................................23
Corporate Governance .......................................................................25
Board of Directors and Audit & Supervisory Board Members.................26
Comprehensive Risk Management System .........................................27

Corporate Code of Conduct
A basic set of rules that we must all follow as membersof society when conducting corporate activities.

Code of Conduct
A basic set of rules regarding behavior that must be followed by
all officers and employees of the Group

Behavioral Guidelines
Specific decision-making standards that each officer
and employee of the Group must take into considerationin the performance of their duties

Internal Control .................................................................................29
Organization Chart ............................................................................31
Principal Operations of the Chugin Financial Group /Shareholder Information ....................................................................32

Service Networks...............................................................................33
Financial Section ...............................................................................34

C h u g in Valu e

Consolidated Financial Statements .....................................................35

The sharing of these behavior and decision-making standards and values displayed by all employees ofIndependent Auditors’ Report .............................................................68

the Chugin Group allows us to better align our vectors, improve the strengths of our organization and

Non-Consolidated Financial Statements ..............................................75

ensure greater satisfaction and impressions from our customers.

Disclosure Policy ...............................................................................78

To customers
We will aim for a Win-Win relationship with customers
Added value
We will deliver satisfaction andemotion to our customers through “mindful service”
StanceWe will
work toward mutual growth with customers

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CHUGIN FINANCIAL GROUP, INC.

As individuals
We will realize dreams through our work

We will provide motivating work and a place to growAs a company

GrowthWe will hold high motivationand challenge ourselves to grow

CultureThe Chugin Group will
provide a motivating workplace

Concentration of strength
We will recognize, respect,and cooperate with each other

Organizational strength
The Chugin Group will collect diverse strengths
to raise its organizational strength

CHUGIN FINANCIAL GROUP, INC.

2

Profile

Consolidated Financial Highlights

Chugin Financial Group,Inc. and its Consolidated Subsidiaries
Years ended March 31, 2023

Okayama Prefecture, home to the head office of the Chugin Financial Group, is situated approximately 700 kilometers west ofTokyo. Facing the Seto Inland Sea, the prefecture is known throughout Japan as “the sunny land” due to its mild climate andconsistently nice weather.
With a population of 1.86 million people, Okayama Prefecture yields a gross prefectural product of over ¥7,606 billion(U.S.$56,964 million), or an impressive 1.41% of Japan’s GDP. Manufacturing is the core industry in Okayama, having evolved
around the Mizushima Waterfront Industrial District—the world’s leading petrochemical complex—which was constructed in
the 1960s. Given the prefecture’s ever-improving highways, airports, and harbors, there is further growth anticipated, with thearea serving as an important economic and cultural center for the Eastern Setouchi region.
*The amounts in this document have been rounded down to the nearest figure.

Millions of Yen(except per share amounts)

Thousands of
U.S. Dollars(Note 1)

2023

2023

Total income �����������������������������������������������������������������������������������������������������������������������������������������������������������������������

¥183,675$1,375,533

Total expenses �������������������������������������������������������������������������������������������������������������������������������������������������������������������

154,172

1,154,586

Net income attributable to owners of parent �������������������������������������������������������������������������������������������������������������������������

20,477

153,351

Basic net income ����������������������������������������������������������������������������������������������������������������������������������������������������������������

¥110.96$0.830

Diluted net income ��������������������������������������������������������������������������������������������������������������������������������������������������������������

110.800.829

Deposits ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������

¥8,053,522$60,312,454

Loans and bills discounted ��������������������������������������������������������������������������������������������������������������������������������������������������

5,555,795

41,607,092

Securities ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������

2,324,053

17,404,725

Total assets ������������������������������������������������������������������������������������������������������������������������������������������������������������������������

9,849,678

73,763,783

Net assets ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������

527,894

3,953,373

For the year:

Per share of common stock (yen/U.S. dollars):
TottoriHyogo

At year-end:

OkayamaOkayama Airport

Hiroshima
Hiroshima

Port of Mizushima

Okayama

Kobe

Takamatsu

Okayama(Head Office)YonagoKagawa

Kobe
Hiroshima

For the year:

Ehime
Tokyo
Osaka
Takamatsu

Cash flows from operating activities �������������������������������������������������������������������������������������������������������������������������������������

(403,482)(3,021,658)

Cash flows from investing activities ��������������������������������������������������������������������������������������������������������������������������������������

164,298

1,230,420

Cash flows from financing activities �������������������������������������������������������������������������������������������������������������������������������������

(7,844)(58,743)

Cash and cash equivalents at end of year ����������������������������������������������������������������������������������������������������������������������������

1,506,361

11,281,067

Notes: 1. U.S. dollar amounts represent translations from yen, for convenience only, at the rate of ¥133.53 = US$1 in effect on March 31, 2023.
2. Net income per share is based on the weighted average number of shares of common stock outstanding during the year (excluding treasury stock).

Shanghai
New York

OkayamaHong Kong

Net Income attributable to owners of parent

Total Assets

Billions of Yen

Billions of Yen
10,00025

Bangkok

20.4

20Singapore

18.3

Billions of Yen
9,849.6

9,153.1

600

562.1

552.4

‘21

‘22

511.1

8,147.3

527.8

400

14.4

15

8,000

Net Assets
10,208.2

6,000

11.9

Corporate Data
(As of March 31, 2023)

Telephone:
Website:Date of Establishment:
Stated Capital:
Number of Authorized Shares:
Number of Issued and Outstanding
Shares of Common Stock:
Number of Shareholders:Number of Employees:

CHUGIN FINANCIAL GROUP, INC.

5

2,000

200

‘20

‘21

‘22

‘23

0

‘20

‘21

‘22

‘23

0

‘20

‘23

THE CHUGOKU BANK, LTD.
1-15-20, Marunouchi, Kita-ku,
Okayama, Japan(81) 86-223-3110
https://www.chugin-fg.co.jp
October 3, 2022
16,000 million yen
500,000,000

Address:
Telephone:
SWIFT Code:
Website:Date of Establishment:
Stated Capital:

1-15-20, Marunouchi, Kita-ku,
Okayama, Japan(81) 86-223-3111
CHGKJPJZ
https://www.chugin.co.jp
December 21, 1930
15,149 million yen

Deposits

Loans and Bills Discounted

Billions of Yen

Billions of Yen
7,667.0 7,861.6

8,000

8,053.5

Billions of Yen

6,000

6,896.7

4,899.9

Securities

5,135.4 5,259.1

5,555.7

3,000
2,618.0
2,500

2,339.5

2,505.7

2,324.0

6,000
4,000

2,000

4,000

1,500
2,000

1,000

2,000
500

184,771,461
16,495
3,009

Note: Number of employees does not include part-time and temporary staff or overseas local staff.

3

4,000

0

Chugin Financial Group,Inc.
Address:

10

0

‘20

‘21

‘22

‘23

0

‘20

‘21

‘22

‘23

0

‘20

‘21

‘22

‘23

* The figures for FY 2023 are shown on a consolidated basis of Chugin Financial Group, while the figures for FY 2022 and previous fiscal years are shown on a consolidated basis of the Chugoku Bank.

CHUGIN FINANCIAL GROUP, INC.

4

Interview with the Management

In the final stage of ourwhile responding to social
we will establish a newlong-term management plan,issues,business model.
“­ Stage III,” a period for steadily increasing
the results of reforms

We are deeply grateful to all our stakeholders
including the investors and shareholders for theircontinued support. As voices calling for efforts totackle the revitalization of regional economies andfor promotion of the SDGs are continuing to grow,under our Group slogan, “Our challenges build our
future,” the Chugin Group is working to solve issues
in regional societies from a medium- to long-term
perspective. We will continue to focus on building abusiness model for new growth and further
improving our corporate value.

The external environment is changing at a speed that exceeds our expectations, starting with changes in social structure such as population shrinkage, a declining
birthrate, and an aging population, as well as rapid digitalization, the global trend toward decarbonization, the emergence of geopolitical risks, and a sharp rise incommodity prices, etc.
In addition, the spread of COVID-19 has significantly changed individual lifestyles and business activities. In line with these changes, the roles and needs of regionalbanks are diversifying. In this situation, I believe that the scope of contribution we can make for our customers is also expanding. The Group is promoting various
initiatives with a sense of urgency, in order to contribute to the resolution of all of the management issues that are faced by our customers.
In 2017, we formulated the long-term management plan, “Vision 2027: Plan for Creating the Future Together” looking 10 years ahead, based on the belief that it isnecessary to build a sustainable business model to overcome environmental changes. This long-term management plan consists of “Stage I” from FY 2017, which
focuses on structural reforms and strengthening tangible aspects, “Stage II” from FY 2020, which focuses on behavioral changes and strengthening intangible aspects,
and “Stage III” from FY 2023, which is positioned as a time for demonstrating the results and taking on new challenges. In the six years of “Stage I” and “Stage II,”
although there were major changes in society and unexpected situations such as the COVID-19 pandemic, the Chugin Group has always looked ahead of the times, andfocused on anticipating changes and working for the development of regional societies and our customers, the sustainable growth of the Group, and the enhancement ofour corporate value.
Thus far, we have been quick to grasp the trend toward deregulation due to the revision of the Banking Act, and have established subsidiaries that can provide
solutions to a wide variety of customer issues, while always working to expand our business axis. These subsidiaries include SETONOWA Co., Ltd. which is a regional
trading company, Chugin Capital Partners Co., Ltd. which is a company specializing in investments, Chugin Human Innovations Co., Ltd. which provides human resource
services, and C Cube Consulting Co., Ltd. which provides consulting services for digital transformation (DX) and sustainability transformation (SX).
In October 2022, we established Chugin Financial Group, Inc. and transitioned to a holding company structure with Chugin Financial Group, Inc. as the parent company,in order to further enhance our service menu as a Group, implement an “appropriate allocation of management resources” to continue providing that menu, and continue
to pursue the “evolution of group governance.” As an indication of the mission that the Chugin Group should fulfill, we have newly established our long-term vision to“Create with our community, customers, and employees a rich future that we can all share” as our Group’s corporate principles, and are striving to evolve into a“comprehensive services business focused on finance.”
Furthermore, in April 2023, we established the regional energy company, Chugin Energy Co., Ltd., and are aiming to contribute to the sustainable growth of regionalsocieties by utilizing local resources and promoting local production for the local consumption of renewable energy.
I believe that pursuing synergies through alliances and partnerships is also an important strategy for continuing to create new value. The TSUBASA Alliance, which was

Positioning of “Plan for Creating the Future Together: Stage III”
FY 2017

3 years

FY 2020

3 years

FY 2023

4 years

FY 2026

T h e Lon g -T erm Man ag em en t Plan , “ V is ion 2027: Plan f or C reat in g t h e Fu t u re To ge the r”
The Medium-Term Management Plan, “Plan for Creating the Future Together: Stage I”

The Medium-Term Management Plan, “Plan for Creating the Future Together: Stage II”

HOP S t r en g t h en t an g ib le as p ec t s

STEP (org an izat ion an d h u m an res ou rc es )JUMP

S ta ge I

S ta g e I I

S t a g e III

Thorough structural reforms

Rethinking sales staff andoperating hours

Building a business model for growth❶ Strengthening our efforts in revitalizationof regional economies and SDGs*

Deposits, remittance and over-the-countertransactions
Reforms on over-the-counter transactions

Director and President
Sales
branches

Sales operations
Reforms on sales operations
Loans
Concentration of administrative operations to theheadquarters and increasing their efficiency

Headquarters

Reduction of headquarters operations andpromotion of reform in work style

5 pillars

Sadanori Kato

S t r en g t h en in g in t an g ib le as p ec t s“Plan for Creating the Future Together: Stage III”

❷ “Deepening” the sales with customers
first spirit❸ Revitalization of organization❹ Strengthening the digital strategies

Compilation

Establishing a business modelt h a t a l l o w s m u t u a l g ro w t h ,s h a re d b e t w e e n t h e re g i o n a lsociety and the BankThe Chugin Group to becomea re g i o n a l p l a t f o rm

❺ Establishing a sustainable growth model* SDGs: The acronym of “Sustainable Development Goals.” It sets forth the targets applicable to all international societies as determined by the UN Summit in September 2015.

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CHUGIN FINANCIAL GROUP, INC.

CHUGIN FINANCIAL GROUP, INC.

6

Interview with the Management
launched in 2015 by the Chugoku Bank, Chiba Bank, and Daishi Bank (currently Daishi Hokuetsu Bank), has grown into the largest alliance among regional banks, withten of the top banks in each region participating. With total assets of approximately ¥94 trillion, approximately 24 million individual customers, and approximately 2.24
million companies as corporate customers, we leverage economies of scale that are comparable to those of megabanks, as well as a wide area network that spans andextends across the Japanese archipelago, and our collaboration is expanding in a wide range of fields, including top-line reinforcement, cost reduction, and operational
sophistication, which would be difficult to carry out alone.
We, as the Chugin Group and the TSUBASA Alliance, aim to further improve our corporate value, by creating new business models that leverage our respective
strengths and by growing together with regional societies.

­Promoting the creation of new value
through the transition to a holding company structure
When we formulated our long-term management plan, the transition to a holding company structure was not factored into the plan. However, we have decided totransition to a holding company structure, based on the conviction that reforms are necessary to transform into a strong and flexible organizational structure, in order to
respond to changes in the business environment and realize our long-term vision. The reason we adopted a holding company structure with the Chugoku Bank alone wasthat we considered it to be the best way to provide solutions to our customers with a sense of urgency, while giving due consideration to matters such as speedy
management decision-making and resource allocation.
In the process of transitioning, we started by reviewing our corporate
principles from its starting point and painting a new vision of what we want to be.
Recognizing that it is extremely important for all officers and employees tounderstand and share the aim of transitioning to a holding company structure
and our ideal form, our officers split up to visit all of our sales branches andGroup companies, and exchanged frank opinions with those on the ground.
In this way, we aim to be an organization that can continue to create newvalue for our regions, as we promote the transformation of our business model.
One of our efforts involves a major overhaul of the sales system. In the past,sales activities were conducted by uniformly imposing targets set by ourheadquarters on all branches. However, in the current situation, where issues aredifferent for each region and are also becoming more complicated anddiversified, setting uniform goals can easily lead us to conduct activities that only
serve the convenience of the bank. The important point is for sales branches,
which operate closer to the field, to think autonomously and provide the best
possible service to our customers. Based on the idea that this is exactly what weare aiming for, namely ““deepening” the sales with customers first spirit,” in
addition to introducing a voluntary target system, we have also redesigned theRegional Headquarter System to create a system in which the sales branches,regional headquarters, and headquarters work together to solve issues.
In addition, the affiliated companies that were under the umbrella of the bankwill now have an equal relationship under the holding company, leading to a
departure from the bank-centric way of thinking, and enabling Group companies
to respond to local issues with a broader perspective, and proactiveness andautonomy. I believe that all of the officers and employees of the Group will beable to think and act autonomously from this point of view, and will be able tocarry out their duties with a higher level of motivation.

A­ iming for profitability while responding to social issues
through sustainability management
In the group strategy centered on Chugin Financial Group, Inc., we plan to accelerate sustainability management through measures such as revitalizing regional
economies and societies from the perspective of regional revitalization SDGs and communicating the appeal of the regions.
To promote sustainability management, we will steadily conduct the appropriate allocation of management resources through portfolio management in terms ofbusiness and human resources. To that end, we will accelerate DX initiatives in business process reforms and channel strategies, and we plan to significantly increase thenon-face-to-face transaction rate, while improving customer convenience by actively expanding the range of transactions that are completed online, and enhancing thefunctions of our app and the corporate portal website. We will deploy the human resources created by streamlining into growth fields and work to realize sustainable
management. On the other hand, not everything will shift to digitalization, automation, and non-face-to-face interaction. I believe that operations that require expertise andreliability, such as the provision of comprehensive financial consulting that meets our customers’ life plans and diverse needs, are an area that we should dare tostrengthen by adding human resources. We will expand our contact points with customers through the best mix of real and digital, and build a sustainable sales system.
The Eastern Setouchi Economic Zone, which is the business base of the Group, is a region with great potential, as it has a mild climate, a well-developed transportation

7

CHUGIN FINANCIAL GROUP, INC.

network, and abundant forest resources. Decarbonization is an urgent issue in the area centered on the southern part of Okayama Prefecture, which has a highconcentration of various manufacturing industries. While the demand for carbon neutrality applies throughout the entire supply chain, for local SMEs, responding todecarbonization is an issue that is directly linked to their survival, in terms of both risk avoidance and the acquisition of business opportunities. However, the reality is that
there are still differences in the level of awareness and approach.
The Chugin Group has positioned investments and loans that help to solve social and environmental issues, or support the activities of customers who are aiming to doso, and promote the realization of a sustainable society as sustainable finance, and we have set a target of executing ¥1.5 trillion (of which ¥1 trillion is environmentrelated) by the end of FY 2030. We are expanding our diverse service menu, which includes advanced GX (green transformation) and SX consulting by our group company
C Cube Consulting, as well as simple decarbonization support consulting that can be handled at our sales branches. The Group will take this business opportunity of
supporting for transition without missing anything, and we will further strengthen our system for providing optimal solutions by combining finance and consulting
according to the needs and scale of our customers.
In the northern part of Okayama Prefecture, through a joint proposal made by Nishiawakura Village and ourselves, the village was selected as a “decarbonization
leading area” solicited by the Ministry of the Environment. In addition to being recognized as an advanced model for regional decarbonization through the local production
and local consumption of electricity utilizing natural energy produced by abundant local resources, our unprecedented initiative on the joint proposal by a regional bankand a local government has received a great response, including many inquiries from local governments and companies. In June this year, Setouchi City was also selected
as a decarbonization leading area through a joint proposal with the Company. In addition to initiatives toward decarbonization, as an initiative for regional revitalization
using digital technology, Kibichuo Town in Okayama Prefecture has been designated as a “digital rural health special zone” through a collaboration with Okayama
University and our company. With the Chugin Group playing a role as a regional hub, various initiatives that are directly linked to regional growth strategies and regional
revitalization are being accelerated. If these initiatives in the Eastern Setouchi Economic Zone, which is our business base, become successful examples for regional
revitalization and spread to other regions, I believe that it will lead to solutions to problems such as overconcentration in urban areas, and by extension, contribute to thedevelopment of the Japanese economy. We hope to bring out the potential of regions by grasping regional issues and making a “co-creation platform” through multifaceted and multi-layered cooperation with partners. The areas in which we can contribute are expanding, and I feel a sense of anticipation and a positive response.
In June 2021, we established the “Regional Revitalization & SDGs Promotion Department” to drive the efforts of the entire Chugin Group, in order to strengthen regional
revitalization and SDGs initiatives, and speed up the implementation of measures. On the other hand, each sales branch considers the different issues and needs in eachregion by themselves, and works to solve them in cooperation with the regional societies. For example, they are developing autonomous activities according to the actual
situation in the region, such as revitalizing shopping streets and promoting tourism resources.
In the “Chugin Open Lab,” our in-house venture system started in April 2021, we have seen a series of exciting proposals for the future. Based on the themes of“solving regional issues and SDGs initiatives” and “new business and new work planning,” along with solving social issues, we are conducting activities focused on
pursuing profitability as a business. The business idea for Chugin Energy Co., Ltd., which I introduced at the beginning, sprang from Open Lab. Although not all of these
initiatives contribute directly to earnings, they can be regarded as important initiatives that will lead to the creation of new businesses, as we take the issues of theregional societies as our own and face them seriously. Open Lab is currently in its second phase of activity, and by fostering an organizational culture that continues totake on challenges through these initiatives, and utilizing diverse values and sensibilities in our management strategies, we hope it will serve as a driving force forinnovation.

G­ roup-wide progress
toward building a new business model
When I was working at a sales branch, it was an unforgettable experience for me as an employee to receive words of gratitude saying, “Thank you for helping,” in
response to acting wholeheartedly for our customers. That single phrase gave me the energy to do more for our customers. In this way, even if the actions of eachindividual are small, the efforts of the entire organization will become a great force.
Until now, in the corporate sales scene, it was not uncommon for us to work from loan proposals as the starting point. However, this makes it impossible to differentiate
ourselves, and we can easily fall into interest rate competition. On the other hand, it is a substantial added value to be deeply involved in customer issues from the
upstream, not limited to financing aspects, and to respond with problem-solving sales that provide solutions with the comprehensive strength of the Group, and this willlead to the establishment of an unrivaled competitive advantage. This is one of the aims of our shift to a holding company structure, and we intend to leverage thestrengths of the Group, which we have built up one by one, to firmly support our customers’ efforts to solve social and environmental issues from the perspectives of both
solutions and finance.
While steadily implementing the main growth strategies of “Stage I” and “Stage II,” we have actively expanded our business axis in response to customer needs thathave materialized due to deregulation and changes in the environment. In “Stage III,” I would like to realize profitability in these new business fields.
Even greater changes await us in the next ten years, and initiatives in the next four years will be of particular importance for carbon neutrality, as we look ahead to2030. There are many areas in which the Chugin Group can contribute, and we are already envisioning plans for the next ten years. The Chugin Group as a whole will
work with a sense of urgency, while actively developing and providing platforms together with our regional partners. Working toward the next phase, I consider it our
mission to steadily demonstrate results in “Stage III,” and to “create with our community, customers, and employees a rich future that we can all share,” which is theGroup’s corporate principles. By implementing our long-term management plan with the fiscal year ending March 31, 2027 as our goal, I intend for us to make further
progress toward realizing a prosperous future.
The year 2030 is a major milestone toward achieving carbon neutrality, and it marks the 100th anniversary of the founding of the Chugoku Bank. Thinking back to1930, when the Chugoku Bank was established through the merger of numerous banks, the economy of Japan, including Okayama was in a critical state during the socalled Showa Financial Depression. Under these circumstances, our first president, Magosaburo Ohara and other top management at the time devoted themselves
wholeheartedly to the development of the regional society and economy. Even in these modern times, I believe that regional revitalization is an unchanging philosophy andmission for us. The Chugin Group will strive to look ahead of the times so that we do not shame the efforts of our predecessors.

CHUGIN FINANCIAL GROUP, INC.

8

Interview with the Management­ ased on the results of “Stage II,” we will make further progressBover the next four years
In FY 2022, as I have already mentioned, we have steadily produced results one by one through the steady implementation of our long-term management plan andmedium-term management plan. Regarding the key performance indicators (KPIs) in “Stage II,” despite the difficult circumstances posed by the COVID-19 pandemic, wewere able to achieve targets for the top line that generally exceeded our plans. I believe that this is the result of the ceaseless efforts made by each and every employee,
as well as the results of the reforms made in “Stage I” and “Stage II.” In “Stage III,” which represents the compilation of our plans, we will strive with all our efforts torealize the future co-creation plan that we are aiming for, which we set forth in our long-term management plan.
In order to achieve these goals, I consider it essential for us to take initiatives regarding human capital, including at our Group companies, and we are indeed
implementing various initiatives.
Two years ago, we overhauled our personnel system which had been our issue for many years, and we are now focused on promoting diversity, equity, and inclusion(DE&I). Ten years ago, when I was serving as General Manager of the Personnel Department, society was already demanding the active participation of women. However,
our conventional personnel system suffered from many issues and restrictions, and we were not able to achieve our desired results. Accordingly, we set up an employeeled project team, and based on the proposals made by the team, we revised our personnel system for the first time in approximately 17 years, implementing a new
personnel system reform that enables diverse human resources, including women, to play an active role. I feel that we are making steady progress toward revitalizing ourorganization by expanding fields for those who can play an active role and responding to changes in work styles. On the other hand, in order to realize DE&I, I consider
reforming the mindset of officers and employees to be an urgent issue. In terms of the personnel systems of our Group companies, as we have shifted to a holding
company structure, we must revise the systems of Group companies including our benefits scheme, and we will continue to work on this point. In June this year, the “Next
10 Promotion Department” was placed under the direct administration of the President, then it was promoted to the “D&I Next 10 Promotion Department.” We will
accelerate our efforts to realize DE&I throughout the Group, and create an environment in which diverse human resources within the Group can demonstrate theirindividuality and strengths.
Working toward 2030, we will create a “co-creation platform” with our co-creation partners to address the issues faced by regions. While we are still halfway down theroad, the seeds that we have sown thus far by following a policy of industry-government-academia-financial institutions-press-civil society collaboration have sprouted,
and many co-creation partnerships, including our partnership with Okayama University, are bearing fruit.
As one example, the Ministry of the Environment, Okayama University, and the Chugoku Bank Secretariat established the “Okayama Consortium for Regional
Decarbonization Creation,” for the purpose of vigorously promoting regional revitalization through decarbonization, with all participating parties are based in Okayama
Prefecture. In addition, Okayama Prefecture is an “SDGs Advanced Prefecture,” as it is referred to by the Okayama Association of Corporate Executives, with Okayama
University winning the “1st Japan SDGs Award” (sponsored by the Ministry of Foreign Affairs) in 2017. The “Land of Sunshine, Okayama” is blessed with an abundanceand diversity of local resources, such as renewable energy resources, tourism resources, and agricultural and fishery resources. By making use of these resources, there
is great potential for the realization of regional revitalization and a decarbonized society that is “unique to the region,” and I have high expectations for future
developments.

Creating new value for regional societies
with three growth strategies
We have positioned “Stage III” of our medium-term management plan as a time for “demonstrating the results and taking on new challenges.” First, “demonstrating theresults” means achieving planned targets based on past reforms, as the final stage of our long-term management plan. “Taking on new challenges” means that this stage
is positioned as the beginning of new challenges for the next ten years, as Chugin Financial Group’s first medium-term management plan. In the age of VUCA, whenchanges are rapid and the future is difficult to predict, it is important for the Group as a whole to increase sensitivity to change, and accurately determine what isnecessary for sustainable growth in order to undertake new challenges. In recognition of this, the Chugin Group has defined six materialities as key issues for growing
together with regional societies, and we have formulated three growth strategies to give shape to these initiatives. By steadily executing our growth strategies, with theaim of improving not only economic value but also social and environmental value, we will promote sustainability management that creates a lasting virtuous cycle of“development of regional societies” and “improvement of corporate value.”
In addition, during the three years of “Stage II,” by transitioning to a holding company structure and establishing various Group companies, we have established asystem within the Group that enables us to provide one-stop services related to people, products, and money, and are expanding the business areas in which we canmake proposals to customers. For example, we are proposing human resources-related services according to the hierarchy that is in need, such as executive
management and middle management, and our investment specialist company contributes actively to solving management issues and regional issues through investment
and accompanied support. In addition, we provide consulting for our customers’ management issues, which are becoming more sophisticated and complex, such as DX
and SX.
One of the Chugin Group’s greatest strengths is our ability to provide people, funds, and methodologies in one stop. Of course, establishing trust through the bank willcontinue to be our most important role. However, with these functions, we will contribute to the first of our three growth strategies, ““Deepening” the revitalization ofregional economies and SDGs.”
As for our second growth strategy, “Creating innovation,” we consider it to be creating things that meet the needs of the era by combining existing technologies andsystems. In banking operations, we aim for bank-style DX, which includes reforming business processes and promoting next-generation channels. Based on our pastachievements and experiences with success, we currently offer consulting for customers and other financial institutions. Whether it concerns decarbonization or DX, wewill move forward with a sense of urgency in collaboration with various partners, while sometimes demonstrating leadership to drive regions and customers.
To be honest, “Stage II” made me reaffirm the importance of the human resources who are responsible for our strategies. In order to take on the challenge of new
business areas and deepen the sales with customers first spirit, we strengthened our human capital investment in “Stage II.” However, I believe that this is not enough. In

9

CHUGIN FINANCIAL GROUP, INC.

response, in “Stage III,” we will first accelerate DX within the Group and work to improve efficiency and productivity by reviewing our business processes, with no areas
left untouched. It is my policy to invest time and funds in human resources that have been secured in this manner, and create diverse strategic human resources.
As for our third growth strategy, “Strengthening our Group management foundation,” I believe it is essential that we build a solid foundation for implementing our
growth strategies. As I mentioned earlier, “promoting the active participation of diverse human resources” is a material issue, and we will continue to work on it as ourmost important issue. In FY 2022, the “ratio of female managers and supervisors” at the Chugoku Bank alone remained at 13.4%, so it is undeniable that management
decision-making is still dominated by men. In our modern rapidly changing society, it is crucial that we reflect the opinions and ideas of women on our management
strategies, in order to strengthen our management foundation. The “D&I Next 10 Promotion Department,” which I mentioned earlier plays a central role in reviewing ourinternal systems and structures, and with a focus on reforming awareness of female employees and those in managerial positions from a company-wide perspective, weplan to raise the percentage to 25% by FY 2026. However, our aim is not simply to match numbers. In order to adapt to an era that is so blessed with change anddiversity, we intend for us to accept diverse values as an organization, and without losing sight of the original aim of creating new value and innovation, we will develop
fair opportunities for growth. In the future, in order to strengthen our efforts for our growth strategies, in addition to human resource development within the Group,
securing specialized human resources through active mid-career recruitment will also play an important role. Bringing together people who harmonize with the Group’s
corporate principles of “creating the future together,” and developing an environment in which diverse human resources can play an active role will help to strengthen theGroup’s management foundation, so that we can pursue value that only we can create for regional societies.
Even if the economy changes unexpectedly in the future, I am certain that we can find solutions to unexpected difficulties, as long as we have human resources whoare cultivated inside the company. This is also the reason why we set increasing human capital investment as one of the KPIs for “Stage III.” We will focus on ensuring theachievement of the other KPIs and targets for FY 2026, and respond properly to the expectations of our stakeholders.
In transitioning to a holding company structure, Chugin Financial Group has adopted the slogan, “Our challenges build our future.” In order to survive in this era ofchange, our challenge is to create new businesses, services, and products, continue to deliver optimal solutions, and bring value to regions and our customers, whileleveraging our strengths in finance. This expresses our determination to accompany our customers in all their challenges. Here, “Our challenges” has two meanings: “eachchallenge in front of us” and “challenges for individuals.” I believe that the accumulation of daily challenges will lead us to the future, and I intend for us to forge our way
into the future without fear of failure. While I sometimes hear pessimistic opinions regarding the future of regions outside of major cities and regional banks, I do not sharethat pessimism. Our business base, the Eastern Setouchi Economic Zone, has great potential for growth and development. While there are certainly issues, the potential
for growth is immense as long as we address those issues appropriately.
Following our slogan, the Chugin Financial Group will make a Group-wide effort to build a business model geared toward new growth. Our aim with such efforts is tobecome a trusted financial group that functions as a regional platform. We humbly ask for the continued support of all our stakeholders, including all investors andshareholders.
CHUGIN FINANCIAL GROUP, INC.

10

The long-term management plan, “Vision 2027: Plan for Creating the Future Together”

Create with Our Community, Customers and Employees
a Rich Future that We Can All Share

Stage IIIF Y 2 0 2 3 to F Y 2 0 2 6

D e m o n s tr a tin g th e R e s u lts a n d T a k in g o n N e w C h a l l e n g e s

In March 2017, we established our 10-year long-term management plan, “Vision 2027: Plan for Creating the Future Together.” Our aim with this plan is to build asustainable business model that can rise to meet the challenges presented by a shrinking population and other societal changes, and one that will enable everyone,
not just the Chugin Financial Group, but also the entire region, our customers, and employees to share in a prosperous future.
The current four-year medium-term management plan is StageIII of this long-term management plan.
FY 2 0 2 0 t o FY 2 0 2 2

S t ag e I I

B e ha v i o r a l C ha nge( S tr e n g th e n in g in ta n g ib le a s p e c ts )F Y 2 0 1 7 to FY 20 19

Strengthening our efforts in revitalization of regional economies and SDGs
⃝ Establishing a dedicated department and sustainability committee⃝ Promoting revitalization of regional economies together with regions andcustomers

S tr u c tu ra l R efo rms(S tr e ngth e n ta n gib le a s pe c ts )⃝ Secure personnel and time for sales activities
through thorough structural reforms (BPR Promotion
Project)⃝ Launched Okayama Innovation Project and Okayama
Tech Planter⃝ Concluded Okayama Co-creation Partnership⃝ Transitioned to TSUBASA mission-critical system andjointly developed TSUBASA Fin Tech common
infrastructure⃝ Introduced flat meetings (invigorating internal
communication)⃝ Introduced head office recruitment system“Deepening” the sales with customers first spirit⃝ Introducing Regional Headquarter System and self-imposed targets⃝ Deepening consulting sales business and acceleration of new businesses⃝ Established Group companies (regional trading companies, investment
specialists, staffing agencies, consulting)
Revitalization of organization⃝ “Major overhaul” to human resource system for the first time in 17-years⃝ Promoting diversity
Strengthening the digital strategies⃝ Accelerating digitalization of sales, administrative, and headquarters operations⃝ Launched Chugin App and Chugin Business Portal
Establishing a sustainable growth model⃝Controlling expenses, reorganizing branches, reallocating staff, etc.

KPI Review on Stage II
Stakeholders

KPIs

Targets for FY 2022

Results in FY 2022

Continuous
improvement

Continuous improvement

Regional
societies

Number of projects to address regional issues that
contributed to the SDGs
❶ Total of the number of start-ups for which we provided
support*1 and the number of companies for which we
provided support in business succession*2❷ Activities contributing to the improvement of financial
literacy, etc.*3

Total of three years
200 customers

Total of three years
222 customers

Continuous
improvement

Total of three years 805 events
over 16,000 attendees

Continuous
improvement

Corporate Survey FY 2022 Customer satisfaction: 69%
Individual Survey FY2021 Customer satisfaction: 65%

54% or higher

44％¥15.0 billion
Remain stable at 12%¥20.4 billion
12.87%
3.79%

Customers
Employees
Shareholders,etc.
(all stakeholders)
*1
*2
*3
*4
*5

11

Customer satisfaction*4 (individuals and corporate)
Labor share in core business net profit before payment of
personnel expenses*5
Net income attributable to owners of parent
Consolidated capital adequacy ratio (Basel III)
Consolidated ROE―

Number of start-ups for which we provided support: Number of supported customers that started business through events for start-up support held by the Chugoku Bank
Number of companies for which we provided support in business succession: Number of entrusted contracts for business succession consulting services
Activities contributing to the improvement of financial literacy, etc.: Number of events and study meetings held for the improvement of financial literacy and business skills, etc.
Customer satisfaction: Number of answers indicating “Satisfied” or “Almost satisfied” in the customer questionnaires
Labor share in core business net profit before payment of personnel expenses: Personnel expenses divided by (core business net profit + personnel expenses)

CHUGIN FINANCIAL GROUP, INC.

Oct o b e r 2 022 - Tr an si t i on ed t o a h ol d i n g
c omp an y st r u c t u r e

St age I

Stage I­II KPI
Reason for selection

Profitability
Capital efficiency
Soundness
Materiality

Environmental management
promotion
Revitalization of regional
economy and society
Response to low birthrate andaging society

Financial KPI

Net income attributable to owners of parent
ROE
Capital adequacy ratio
Growth strategy“Deepening” therevitalization ofregional economies
and SDGs

DX promotion

Creating innovation

Promotion of diverse humanresources

Strengthening ourGroup managementfoundation

Results in FY 2022

Targets for FY 2026

¥20.4 billion
12.87%¥30.0 billion
5% or higher
11% to 13%

Results in FY 2022

Targets for FY 2026

3.79%

Sustainability KPI

CO2 emissions reduction

Carbon neutrality by FY 2030*1

Cumulative execution amount of sustainable financing*2
Number of entrusted contracts for consultations*3
Number of owners of 5 products in custody andhousing loans
Number of inheritance-related projects*4
Business model transformation (operations, channels,
and organizations)
Percentage of management/supervisory personnel thatare women (bank only)
Amount of human capital investment*5¥641.8 billion
256¥1 trillion
460

206,000

260,000

487―

800(Qualitative
assessment)

13.4%

25%

¥0.3 billion¥0.5 billion*1 Achieve net zero for Scope 1 (direct emissions from combustion consumption of gas, gasoline, light oil, etc.) and Scope 2 (indirect emissions from use of electricity, heat, etc., supplied by anothercompany) by the end of FY 2030
*2 Investment subjected is the execution amount from FY 2020 onward in social fields (medicine, nursing care, childcare, education, etc.), environmental fields (solar power, wind power, biomass power,EVs, etc.), and support for revitalization of regional economies and SDGs/ESG initiatives*3 Annual number of entrusted contracts of consulting project for business succession, environmental, and other consultation areas*4 Annual number of testamentary trusts, inheritance support, and similar projects*5 Amount of money invested in employees, such as training and education expenses, academic scholarship expenses, Chugin Open Lab activity expenses, and personnel expenses for taking training
and secondment

CHUGIN FINANCIAL GROUP, INC.

12

Medium-term management plan “Plan for Creating the Future Together: Stage III”

Demonstrating the Results and Taking on New Challenges

C o n ce p t u a l I m a g e o f P r o f i t G r o w t h

The plan, which covers the four-year period from FY 2023 to FY 2026, is the final stage of our long-term management plan and the “First medium-term management+¥2.0 billion

plan of the Chugin Financial Group.”+¥10.5 billion

Through the following “Three growth strategies,” we will demonstrate the results of the reforms implemented in Stages I and II, and seek to achieve the KPIs of our+¥1.0 billion
High value-added
operation

long-term management plan, while taking on new challenges for the decade to come.

(net fee income)1 “Deepening” the Revitalization of Regional Economies and SDGs■

Capital utilization(net interest income)Core business portion*+¥8.5 billion

Revitalization of regional
economies▶Reinforce measures, start-up support, and SDG activities that are rooted in DX/SX and address communities
as a whole

Local support activities▶Provide solutions that apply to everything from upstream to downstream▶Reinforce sustainable finance

Life plan support activities▶Support the realization of customer life plans▶Reinforce support for stable asset building and dependable asset succession

C or r e s p o n d i n g ma t e r i a l i ti e s

Response to low birthrate andaging society

Environmental management
promotion

DX promotion

Creating “New value” in order to achieve further growth
New businesses
Alliance▶Create new, unique Group businesses through collaboration▶Actively engage in regional alliances, community alliances, and alliances across industry lines
Promotion of diverse human resources

Other

FY 2022
results

FY 2026
targets

Net income attributable toowners of parent

Net income attributable toowners of parent* Core business: Regional business loans, personal loans, etc.

+

¥2.0 billion

Enhance ability to provide customers with composite proposals by utilizing co-operation
with the bank, which is their strengths
Leverage various insights and knowledge to lead efforts to solve the issues faced bycommunities, going beyond the bounds of finance alone
High value-added operation¥1.0 billion+

Advanced consulting to address customer issues(Corporate) Integrated solutions that apply to everything fromupstream to downstream(Personal) Coordinate to take optimal approach based on customer
life events and needs

3 Strengthening our Group Management Foundation■

Building a “Solid foundation” for implementing our growth strategies▶Optimize our business portfolio and strategically allocate management resources

Financial capital▶Carry out appropriate financial operations from the perspectives of financial soundness, profitability, and shareholder
returns

Human capital▶Significantly expand “Human capital investment” in line with business strategy

Diversity▶Reinforce hiring and advancement of diverse human resources

Governance▶Refine internal control system throughout the Group

Promotion of diverse human resources

Refining of governanceCapital utilization

+

¥10.5

billion

Effects of DX

3 Strengthening our Groupmanagement foundation+¥1.5 billion

Grow top line and gain access to more resources throughreforms of business process and next-generation channel

2Creating Innovation

Overall asset strategy (increase asset balance by ¥1 trillion, focusing on loans)⃝ Core fields: Increase in regional loans through sustainable financing, revitalization of regional economies, and share expansion⃝ Strategic operation fields: Reinforce strategic fields such as renewable energy, community equity, overseas branch utilization, and new businesses,
including leasing⃝ Marketable operation fields: Pursue high risk/return (RORA, etc.) through integrated operation of loans and securities“Deepening” the Revitalizationof Regional Economies and
SDGs

1

C or r e s p o n d i n g ma t e r i a l i ti e s

CHUGIN FINANCIAL GROUP, INC.

KPI
¥30.0 billion

The most effective growth driver is the expansion of
net interest income through capital utilization

Growth of individual Group companies▶Promote business process reforms and develop next-generation channels and digital human resources

DX Promotion

13

Increased investment in
human capital＋
Strategic investment

The above measures will not only generate profits but also
have spillover effects, building up a higher quality pool of assets

C or r e s p o n d i n g ma t e r i a l i ti e

Portfolio-¥2.4 billion

Effects of DX
Growth of individualGroup companies
other than bank

We plan to build up high quality assets by taking a wide-ranging and comprehensive approach to initiatives throughout
the Group, starting with upstream business, to address the issues faced by regional societies and customers.

2 ­ Creating Innovation■

DX-¥3.0 billion¥20.4 billion

Drawing out the allure and potential of communities and contributing to“Sustainable development of the communities”

Revitalization of regional
economy and society+¥1.5 billion

DX Promotion

CHUGIN FINANCIAL GROUP, INC.

14

Financial strategy

We implement financial management based on
soundness, profitability, and shareholder returns

Turning our attention to our internal environment, I feel that the measures that we have been implementing have begun to bear fruit.
With regard to loans, one of the Group’s main revenue pillars, we have provided support to local customers, primarily through regional business loans and personalloans, and our loan balance has risen steadily. We have been stepping up our sustainable financing for the environmental and social segments, increasing our cumulative
financing by ¥197.2 billion year on year to roughly ¥641.8 billion.
In our consulting sales, we are deeply involved in the solving of the issues our customers face, thus revenue from structured financing, M&As, business matching, andthe like is growing year by year. In FY 2022, we proposed solutions that addressed changes in the foreign currency exchange market, significantly increasing ourderivative fee revenue.
Furthermore, we established four new Group companies*. We hope that these companies will become new growth drivers for the Chugin Group.

as part of efforts to enable regional development* Four companies: Chugin Capital Partners, Chugin Human Innovations, C Cube Consulting, and Chugin Energy

and improve corporate value.

9,271● Changes in solution-related revenue (Unit: Millions of Yen)

+2,183
2,126

Director and Managing Executive Officer,

Soichi Yamamoto

Group companies*

7,088
6,452

Fees on derivative+1,3552,011

1 Performance
■

1,177

Other investment banking

Fiscal Year 2022
In FY 2022, consolidated ordinary profit increased by ¥3.7 billion year on year to ¥29.5 billion and net income attributable to owners of parent increased by ¥2.1 billion
year on year to ¥20.4 billion. We achieved our publicly announced forecast and increased profits year on year for the third consecutive year. I believe that we have thus
been able to show positive results to all of our stakeholders. This fiscal year was the year we were influenced tremendously by changes in the external environment.
The central banks of the U.S. and other countries rapidly raised their interest rates, which affected the Group’s securities management. Unrealized loss grew for someforeign currency bonds, and the Group recorded losses on sales. However, we had created enough unrealized gains on other assets (stocks, investment trusts, REITs, etc.)
to cover these losses. Because we made changes to our portfolio at the beginning of the rapid rise in interest rates, we have also recently been able to make major
improvements to the durations of our foreign currency bonds.
● Change in net income attributable to owners of parent

1,222Intermediary fees
(M&As, consulting, etc.)

Fees on corporate bonds

Investment banking

297

business included535

in net fee income

756

238

301
822

+184

620
1,140
956
643

517

+390

572
Fees on syndicated loans

1,831

1,441

1,066
FY 2020● Foreign currency bond durations - after taking asset-swapping into consideration(Unit: Billions of Yen)

2,532

2,000

Other

FY 2021

FY 2022* Total of lease gross profit and operating revenue from Chugin Card, Human Innovations, and C Cube Consulting (after excluding internal transactions)(Unit: Years)
4.2
20.4
18.3

3.4

+2.1

Management PlanIn FY 2017, the Group launched its 10-year long-term management plan, “Vision 2027: Plan for Creating the Future Together.” As part of this long-term management
plan, we have set out the following as KPIs for the final year of the plan (FY 2026): Net income attributable to owners of parent of ¥30.0 billion; Consolidated capital
adequacy ratio to remain stable at 12%; and Consolidated ROE of 5%. The previous medium-term management plan was positioned as “Plan for Creating the Future
Together: Stage II (FY 2020 to FY 2022),” a three-year plan based on the long-term management plan, and this three-year plan came to an end in FY 2022. Looking backat the plan’s financial KPI, in FY 2022 we recorded ¥20.4 billion in net income attributable to owners of parent, greatly surpassing the KPI of ¥15.0 billion. We alsoachieved our consolidated capital adequacy ratio KPI target of remaining stable at 12%, reaching 12.87% as of the end of FY 2022 (for Chugin Financial Group,
consolidated).

14.4
11.9
1.8

FY 2019

FY 2020

FY 2021

Mar 31, 2022

FY 2022● 10BPV (Unit: Billions of Yen)

-1.6

Financial KPI-0.6

Net income attributable to owners of parent
ROE
Capital adequacy ratio

FY 2022

FY 2021

Environmentally-related-1.0

Mar 31, 2023

*BPV: Changes in current value when the interest rate rises one basis point (0.01%)● Cumulative financing (Unit: Billions of Yen )Sustainable financing

Sept 30, 2022

YOY change

FY 2022Plan¥15.0 billion―
Remain stable at 12%

FY 2026 targets

Results¥20.4 billion¥30.0 billion

3.70%

5% or higher

12.87%

11% to 13%

FY 2030 targets

444.6

641.8

197.2

1,500.0

105.6

215.3

109.7

1,000.0* Includes some figures other than loans (security purchases, etc.)

15

CHUGIN FINANCIAL GROUP, INC.

CHUGIN FINANCIAL GROUP, INC.

16

Financial strategy
Given the above, we believe that we performed well overall during the preceding medium-term management plan period. However, our PBR was low, at roughly 0.3, andthere remain issues that we must tackle in order to increase our corporate value.
We recognize that enhancing our earning power will be essential to improving our corporate value, and we have set as a KPI target the achievement of ¥30.0 billion in“net income attributable to owners of parent” in FY 2026, the final year of our long-term management plan. As I mentioned earlier, profit rose steadily through theprevious medium-term management plan, but ¥30.0 billion is still a high KPI target. We must further enhance our consulting sales and accelerate our efforts towards
revitalization of regional economies while also leveraging group synergy, including synergy with newly established companies. From the perspective of capital efficiency,
we also recognize the need to deepen our internal discussions of indicators such as our consolidated capital adequacy ratio and consolidated ROE. Banks have always
been called on to exercise “sound, solid” management, and this, of course, remains unchanged. However, in the future, banks and comprehensive financial services
groups like our own will also need to focus on growth potential and capital efficiency in addition to the elements mentioned above. Unfortunately, I believe that our Grouphas yet to achieve the level sufficiently. Through the new medium-term management plan period, as well, we will continue to work on while addressing changes in theexternal environment, including the demands placed on us by society.

Total payout ratio*1

36.2％

38.2％

38.9％

36.9%

41.6％

40% or higher¥30 (+¥2)¥30¥28
Dividend amount per share
Total payout amount¥8.5 billion
¥22

¥22

¥23
¥7.1 billion
3.0

Share buyback*2
Total dividend amount

1.9¥5.5 billion¥5.3 billion

1.4

Total payout ratio of 40%

1.0¥4.1 billion

2 Capital Policy / Shareholder Returns■

or higher through dividends
and share buybacks

Before we establish the holding company, the Chugoku Bank was often praised for being a “solid bank.” This “soundness” is a strength that we established through therelationships we have built with our customers through the years. Now, having become a holding company, the Chugin Financial Group will leverage this strength toactively utilize capital to contribute to the development of the community.
With respect to capital utilization, under the new medium-term management plan, we have set a “consolidated capital adequacy ratio of 11.0% to 13.0%” as thecontrol range for our Group’s goal. This was arrived at by starting with a limit level for distribution of profit of 10.5% and applying a “growth investment buffer” and a “riskbuffer” from the perspectives of management soundness and profitability (capital efficiency). We will control our capital levels while investing capital in assets, primarily
focused on core businesses and strategic operation.
When transitioning to a holding company structure, we established a “Management Resource Committee” as a deliberative organization that appropriately allocatesmanagement resources related to human resources, costs, and the like for the Group as a whole. We will use this Management Resource Committee effectively to elevate● Consolidated capital adequacy ratio
Target level

FG Consolidated
Mar 31, 2023

13.0％

Control range
11.0％
12.87%

10.5％(limit)

4.1

4.1

4.3

FY 2018

FY 2019

FY 20205.2

5.5

FY 2021

FY 2022

FY 2023*1 Until FY 2019: Non-consolidated income base for Chugoku Bank
FY 2020 to FY 2021: Consolidated income base for Chugoku Bank
FY 2022 and after: Consolidated income base for Chugin Financial Group*2 Carried out for one-year, starting from the general meeting of shareholders

our business portfolio management throughout the Group.
With regard to our shareholder return policy, we also set the goal to raise
our total payout ratio from 35% or higher to 40% or higher through dividends
and share buybacks in the new medium-term management plan. We willcontinue to engage in capital management that balances soundness,
profitability, and shareholder returns.
Through measures such as these (increasing our earning power andimproving our capital efficiency), we will aim to achieve our KPI target of ROE
of 5% or more and we will seek to increase our ROE above capital costs,
increasing our Group’s corporate and shareholder value and raising our PBR.

● ROE (unit: %) (based on TSE)
5.0

3.9

4.0
3.7
3.2

3.0

Medium-term
management
plan KPI

2.6
2.2

3 Cross Shareholdings■
Overall assets

Core business
Regional business loans, personal loans, etc.

Strategic operation

Renewable energy, real estate/ ships/aircrafts, Marketable loans (including Tokyo), securities
equity, overseas sites, new businesses, etc.
management, etc.

Active initiatives based on sales strategies● Balance plan

Approx. ¥4.5 trillion

Integrated operation based on market
environment

Approx. ¥0.5 trillion(approx. +¥500.0 billion)

Approx. ¥4.0 trillion

Marketable operation

Our basic approach is for cross shareholdings to be held only when deemednecessary for achieving sustainable growth of the holding party and the Groupor for increasing corporate value. Looking at it from the perspective of capitalefficiency and managing shareholding risk, we intend to promote a reductionof cross shareholdings upon dialogue with the holding parties. By March 31,
2027, we plan to reduce the cross shareholdings by 20% in book value basein comparison to March 31, 2022. (We will perform regular and stringent
evaluations of all stocks from the perspectives of “profitability in light ofcapital costs,” “relationship with the regional economy,” and “management
strategy viewpoints.”)

Mar 31,
2017

Mar 31,
2018

Mar 31,
2019

Mar 31,
2020

Mar 31,
2021

Mar 31,
2022

Mar 31,
2023

Mar 31,2027● Reduction plan (unit: Billions of Yen)
from Mar 31, 2022

50.2
47.0

20% reduction

*

40.0

(approx. +¥200.0 billion)

Dynamically adjust through loans/

Approx. ¥0.3 trillion

securities based on market
environment
Mar 31, 2022

Mar 31, 2023

17

CHUGIN FINANCIAL GROUP, INC.

Mar 31, 2027

Mar 31, 2023

Mar 31, 2027

Mar 31, 2023

Mar 31, 2027

* Book value. Includes listed shares, unlisted shares, and deemed holding shares.

CHUGIN FINANCIAL GROUP, INC.

18

Corporate Governance
Message from an Outside Director

Sharing my views from a compliance perspective and contribute to the Group’s
management and corporate governance

It is my hope that each and every individual memberof every Group company takes on challenges with asense of pride and spirit that they are creating thefuture of the Chugin Financial Group and of theirregional society.

Outside Director and Outside Audit and Supervisory Committee Member

Yukiyo Kiyono

Yukiyo Kiyono is an Outside Director and Outside Audit and Supervisory Committee Member who scrutinizes the governance of the Chugin
Financial Group from an independent viewpoint from outside, not only from the perspective of legal compliance but also from theperspectives such as diversity & inclusion. We talked to her about her own commitment, management issues, and more.

Please share what you see as the position of the Chugin Financial Group within the community
and what kind of presence it will have in the future.
I was appointed Outside Director and Outside Audit and Supervisory Committee Member of the Chugoku Bank in June 2020. Before my appointment, my impression of
the Chugoku Bank was that it was a reliable and sincere bank that was a part of the lives of the people in the community, with branches in key areas, based in Okayama,and showing commercials on television and large outdoor screens. When I became Outside Director and was able to see the inner workings of the bank, it showed that
this impression was an accurate one. The Chugoku Bank works hard to resolve the issues faced by the community and customers and to contribute to their development.
The transitioning of the bank to a holding company structure in the form of the Chugin Financial Group (hereinafter “FG”) in last autumn has expanded its businessaxis, and I believe it is becoming a financial group that will provide even more widespread support and aid for the lifestyles and economies of the people living in thecommunity.

Based on your career and your past experience, how are you working to improve the Group’s
governance?
I registered as an attorney in 1995 and joined the Okayama Bar Association. I lived in Tokyo from my student days through legal apprenticeship period, but I came back to
Okayama because I wanted to work in this area where I grew up and to contribute in whatever little way I could to my community. As I do my duties at Chugoku Bank andthe FG, I will never forget my roots.
After becoming an attorney, I worked on issues for gender equality even before the passing of the Basic Act for Gender Equal Society in 1999. I took part in lecture
meetings and symposia on this topic and served as a member of the gender equality committees of several municipal governments. I also studied various types ofharassment, including sexual, academic, abuse of power, and maternity harassment, and I had many opportunities to carry out research, perform studies, and submit
opinions on request from companies, schools, and other organizations.
Based on this experience, I hope to share my views and contribute to the Group’s management and corporate governance from the perspective of eliminating various
forms of inequality within the company related to gender, helping achieve gender equality, and promoting diversity & inclusion, and also from the perspective ofcompliance, preventing and rooting out harassment in order to protect human rights and maintain a favorable working environment.

19

CHUGIN FINANCIAL GROUP, INC.

To achieve business growth, our management team must be diverse, and there is anurgent need for mentality transformation and the creation of a supporting framework.
I will keep a close eye on management from an outside perspective.
What are your principal activities within the Board of Directors?
Since being appointed as an Outside Director, I have attended the Board of Directors meetings, meetings of the Audit and Supervisory Committee, opinion-sharing
meetings with Representative Directors, opinion-sharing meetings with Outside Directors, and the like, but even outside these meetings, whenever I was asked to shareopinions, I declared them based on my own experience as an attorney and from the aforementioned perspectives of gender and compliance.
I believe that for a company, preventing disputes is just as important as legally resolving disputes - perhaps even more important. This is why I take every opportunity
to emphasize the need and the methods for internal awareness-raising activities and training.
For example, it has been over a decade since the financial ADR system (a non-judicial dispute resolution system) was adopted, and a certain amount of disputes
between financial institutions and customers that have been resolved through ADR have accumulated. I issued a proposal to the Board of Directors to conduct training onprotecting the rights and interests of customers and preventing disputes beforehand based on these case examples, and the training was immediately conducted. The
results were reported at the next Board of Directors meeting.
We have also established a whistleblowing and consultation system within the company to address harassment issues. Although I recognize and appreciate that thissystem is functioning, unfortunately there are still reports of sexual harassment and abuse of power. With the aim of completely eliminate harassment, I have provided myposition regarding the effectiveness of the mechanisms that have been put in place and explained the need I see for recurring training, and improvements are currently
being made.

What is your appraisal of Chugin FG’s corporate governance?
The goal of corporate governance is sustainable corporate growth and the medium- to long-term increase of corporate value. This requires that corporate management
ensures its transparency and that the rights and positions of stakeholders be respected. I strive to always keep these in minds as I observe the management of the bankand the FG.
Like all Outside Directors, I represent the expectations of investors and local stakeholders, in particular, and focus on respecting their rights and interests. As Outside
Director, I often share my opinions from a customer-centric, shareholder-centric perspective, based on the expertise I have in my fields of specialization.
As I mentioned earlier, internal directors have also been extremely receptive to the opinions of Outside Directors, deliberating and implementing future-looking
measures, and I feel that our governance is functioning effectively.
One example would be our promotion of the advancement of women. This has been one of social issues since before the enacting of the Act on Promotion of Women’sParticipation and Advancement in the Workplace, but this has become an increasingly pressing issue. A Cabinet Office questionnaire found that investors are placing evengreater importance on the advancement of women and focusing on figures such as the percentages of executives and people in managerial positions that are women.
Outside Directors have consistently pressed for the promotion of the advancement of women. I am very happy to say that because of these efforts, this fiscal year several
women have been promoted to executive officer positions in the FG and the bank. Furthermore, some of the Group companies have also appointed women as directors.
However, the percentage of managers that are women remains low, and the only female director is an Outside Director in the FG. For our Group’s business to grow, ourmanagement team must be a diverse one, with people of different genders and ages. Our current management recognizes the urgent need to strongly promote diversity,
to actively hire and promote women, to transform mentalities regardless of gender as a prerequisite in order to make this possible, and to prepare a supporting
framework. Internal policies for doing this have been announced, and I plan to keep a close eye on their application.

Could you share some words on the future you see for Chugin FG and how it can be achieved?
In March 2017, Chugoku Bank formulated its long-term management plan, a 10-year strategy called “Vision 2027: Plan for Creating the Future Together,” and aimed tobuild a sustainable business model that will develop in step with regional society. Chugoku Bank later became the FG, and in March 2023, we formulated a new mediumterm management plan, “Plan for Creating the Future Together: Stage III,” for the next four years, which will be the final stage of Vision 2027.
Under this plan, the FG will be collaborating with various partners, both inside and outside the Group, to create a shared platform for the community. It will generate
new, multifaceted, multilayered value and pave the way to a future of prosperous community development. We have created the slogan “Our challenges build our future.”
to epitomize these efforts, and we are calling all officers and employees to work as one and for individuals to take on new challenges.
It is my hope that the FG’s future vision will resonate with all of the Group companies and every individual member in the Group, and that each one will take onchallenges with a sense of pride and spirit that they are creating the future of the FG and of their regional society.
CHUGIN FINANCIAL GROUP, INC.

20

Message from the CHRO(*)

Review of Operations

Driven by our increased investment in human capitaland our promotion of diversity & inclusion, we are
creating a group of “human resources desired internallyand externally,” and provide the finest comprehensive
financial services to customers and members of thecommunity.
Director and Senior Managing Executive Officer

Ikuhide Harada

We see potential in our changing times and are always taking on new “challenges”
When our Group transitioned to a holding company structure in October 2022, we adopted the group slogan “Our challenges build our future.” New concepts such as DX
and SX are arising, and we are living in an age of tremendous change. In order to create new added value in line with our changing times and to supply that value to ourcustomers, I believe we must constantly take on the “challenge” of evolving ourselves.

The direction of our human capital investment
Monetary investment and time investment“Vision 2027: Plan for Creating the Future Together” is our long-term management plan that sets forth our 10-year long-term strategy, and in FY 2023 we began themedium-term management plan “Plan for Creating the Future Together: Stage III,” the final stage of the management plan. In order to maximize the power of our Group’s
wonderful human capital, the plan defines human capital investment from the two perspectives of “enriching the contents of human resources development itself, such as
career development support, e-learning, and scholarships (monetary investment)” and “expanding the scope of the target, the time and the duration of the humanresources development (time investment).”
Specifically, we are considering expanding our investment in four major directions: (1) rebuilding a group-focused training system with the aim of maximizing groupsynergy, (2) enhancing career support and reskilling with the aim of fostering greater employee autonomy, (3) expanding external secondment to provide “greater
opportunities for learning outside the company,” such as developing digital skills, and (4) reinforcing general-purpose business skills and management skills.

Promoting diversity & inclusion
I believe that diverse ideas that are unconstrained by conventional values will revitalize our organization, enabling us to stay abreast of our changing times. For thatreason, as well, we are using a top-down approach to promote diversity & inclusion, and in our current medium-term management plan we are promoting sweeping
reforms to our organizational culture, such as changing our internal promotion requirements and establishing a mentorship program for developing the leaders of the
future.
Furthermore, our Group has established new business companies and striven to “expand its business axis while creating new value.” We have focused our efforts on
mid-career hiring, including hiring people without prior financial industry experience, because promoting new businesses will require know-how that we have not beenable to develop in-house. These initiatives fuse a wide range of careers and ways of thinking, which I believe contribute to the promotion of the diversity & inclusion of ourorganization.
In addition, we have also been working to establish and coordinate a network of alumni (former employees), an area that has been drawing a great deal of attention inrecent years. There are a rising number of cases in which employees leave our Group for whatever reason, gain further experience in other companies while maintainingsome knowledge of our Group’s business and operations, and then come to work for us again as invaluable human resources.
In order to further improve the value of our organization, we are looking towards potentially coordinating with alumni in new ways, such as through secondary or
concurrent jobs, and we will further expand our Group’s circle of human resources.

Our aim is to receive the ultimate in gratitude from our customers
According to the ES questionnaire our Group conducted in January 2023, many of our employees find being thanked by customers to be rewarding and motivating, andto work each day to earn the gratitude of customers. We are using all kinds of techniques to motivate and reward our employees to further heighten their engagement.
Needless to say, employees are at the heart of our human capital investments. When the efforts and ambitions of each and every employee combine, they provide ourorganization with tremendous power.
I hope that all of our employees see our changing times as opportunities, striving to earn the ultimate gratitude from our customers and constantly taking on new
challenges.
* CHRO: The abbreviation of Chief Human Resource Officer. It refers to the person who has the most authority on human resources.

21

CHUGIN FINANCIAL GROUP, INC.

Financial Condition
Analysis of Financial Condition, Operating Results, and Status of Cash Flows
Since the Company was established on October 3, 2022, comparative
information with the previous fiscal year is not presented. The Group’s
consolidated operating results, etc. are prepared by taking over the consolidated
operating results, etc. of the Chugoku Bank, Limited, which became a wholly
owned subsidiary of the Company through a sole share transfer.

Overview of Results, etc.
Results
Regarding the results for the fiscal year ended March 31, 2023, consolidated
ordinary income was ¥183,586 million, and consolidated ordinary expenses
were ¥153,993 million. As a result, consolidated ordinary profit was ¥29,593
million, and net income attributable to owners of parent was ¥20,477 million.
With respect to the results by business segment, in the Banking business,ordinary income was ¥167,546 million, and ordinary profit was ¥30,360 million.
In the Leasing business, ordinary income was ¥17,461 million, and ordinary
profit was ¥3,640 million.
In the Securities business, ordinary income was ¥2,973 million, and ordinary
profit was ¥239 million.
In Other business, ordinary income was ¥14,769 million, and ordinary profit
was ¥11,970 million.

Consolidated Risk-managed Loans (Loans Disclosed under
the Financial Revitalization Act)The balance of consolidated risk-managed loans increased by ¥12.1 billion fromthe end of theprevious fiscal year to ¥109.1 billion.
Status of impaired loans(Milions of Yen)
End of March, 2023

Loans in Bankruptcy/rehabilitation or similar proceedings
Loans at risk
Loans past due three months or more but less than six
monthsRestructured loans¥20,019
62,106

Total¥109,146

724
26,295Ratings
The Company has obtained the A credit rating from Rating and Investment,
Inc. (R&I). In addition, the Chugoku Bank, its subsidiary, has obtained the A2
credit rating from Moody’s as well as the A+ credit rating from R&I.

[Outlook for FY 2023]
As for financial performance forecasts for the fiscal year ending March 31,
2024, the Group is expecting consolidated ordinary income of ¥167.2 billion,
consolidated ordinary profit of ¥21.5 billion, and net income attributable toowners of parent of ¥15.0 billion.

Cash FlowsThe status of cash flows is as follows.
Cash flows from operating activities
Net cash used in operating activities was ¥403.4 billion, due primarily to anincrease in loans and bills discounted and a decrease in borrowed money.
Cash flows from investing activities
Net cash provided by investing activities was ¥164.2 billion, due primarily toproceeds from sales and redemption of securities exceeding purchases of
securities.
Cash flows from financing activities
Net cash used in financing activities was ¥7.8 billion, due primarily to cash
dividends paid and purchases of treasury stock.
As a result of the above, cash and cash equivalents as of the end of the fiscal
year ended March 31, 2023 were ¥1,506.3 billion.

Dividend Policy
In light of the public nature and soundness of a holding company of a bank, theCompany makes it a basic policy to secure sufficient retained earnings while
maintaining shareholder returns in order to maintain a firm financial standing
capable of withstanding any challenging business environment.
For the fiscal year ended March 31, 2023, the Company have increased theyear-end dividend by ¥2 from the initial forecast of ¥14 (¥28 for the year) to¥16 per share (¥30 for the year).
With respect to the dividend policy for the fiscal year ending March 31, 2024,
we aim to achieve the total payout ratio of 40% or more of net income
attributable to owners of parent through the total of dividends and sharebuybacks, and we forecast an annual dividend of ¥30 (interim ¥15).

CHUGIN FINANCIAL GROUP, INC.

22

CSR / Compliance

Social Contribution through Business
Policy on Initiatives Related to Management Support for SMEs (Basic
policy concerning promotion of regional financing)As its corporate principles, the Company strives to “Remain firm in selfdriven sound management to develop in step with regional society byproviding unwavering trust and superior comprehensive financial services.”
By providing superior comprehensive financial services to regionalcustomers, the Company will work to contribute to the revitalization andcontinuous growth of regional society.
To achieve this, in addition to its role as a provider of funds marked mostsignificantly by loans, the Company recognizes as an important issue therevitalization of regional economies through consulting that corresponds tothe life stage of customers, which includes start-up and new businesssupport, growth support, management improvement and businessrenovation support, and business continuity.
The following three items have been defined as the “policy on initiatives
concerning promotion of regional financing,” and the Company will work to
expand its activities in these areas.
Making Full Use of Our Consulting Function According to the Life Stage of Our Customers● T he Company’s policy is to fully comprehend customer Companies’
management challenges on business and financial terms by evaluating
their commercial viability, and also to commit to fulfilling our consulting
function in coordination with outside experts.
● In “supporting start-ups/new businesses, growth support such as
development of sales channels and support for overseas expansion, andbusiness continuity support,” we are strengthening our consulting functions
through unified support from the start-up consideration stage untilcommercialization, various business meetings, and business matching, etc.
● In “management improvement and business rehabilitation supporting,” wefurther enhance our supporting activities for management improvement
through integration among the Company’s branches and headquarters topropose the right solutions at the right time, based on comprehension of thebusiness content of our customers. In addition, we actively employ outside
expert organizations such as REVIC and the Revitalization Support Council
and various funds to provide more advanced methods of assistance in the
management improvement and business rehabilitation supporting field.
Contributing to Regional Creation and Revitalization of Regional Economies● By setting up a “Comprehensive Town, Person, and Work Creation Strategy
Structure,” the Company actively participates in each local government
from the regional comprehensive strategic planning stage.
● In the strategy execution stage as well, the Company continues to work incooperation with local governments for regional creation via initiatives suchas new business proposals and participation in business operation
conferences that leverage its knowledge and networks.
● The Company collects and analyzes various forms of information from theregion, and actively promotes industry-academia-government-financecooperation. In addition, the Company is strengthening efforts to support
the cultivation of growth fields and efforts to promote the region.
Actively Offering Information to the Regional Society and Our Customers● The Company actively offers information about specific activities and theirresults with regard to efforts related to community-based financial services.
We will strive to improve our services even further in order to earn the trustand support of our regional customers.

23

CHUGIN FINANCIAL GROUP, INC.

Compliance System Overview
The Group believes that compliance means observing not only laws, regulations,and internal rules, but also meeting the expectations of local communities andcustomers through actions that conform to social norms.
All Group officers and employees are aware of our social responsibility andpublic mission as a comprehensive services group focused on finance. In order
to meet the expectations of a constantly changing society in terms ofrevitalization of regional economies and the SDGs, we are committed topracticing proactive and autonomous compliance that goes one step beyond
legal compliance to think and act independently.
Specifically, we are involved in the following compliance activities.
1. We have established a Group Compliance Committee as an organization todeliberate compliance-related matters across the Group, and we are working
to improve and strengthen the Group-wide compliance framework.
In addition, the Corporate Administration Department, which oversees
compliance, receives reports on compliance-related matters from the
management and Legal Compliance Supervisors at each Group company andprovides guidance and advice based on a timely and accurate understandingof the situation, thereby promoting mutual cooperation within the Group.
2. We create a Group Compliance Program each fiscal year as a plan for thepractical implementation of compliance, and through the steady
implementation of such plans, we ensure proactive and autonomouscompliance is practiced by officers and employees.
The Group Compliance Committee regularly monitors the progress of Group
Compliance Program plans.
3. We have enacted a Group Corporate Code of Conduct as the basis for
conduct that conforms to social norms in the course of management andoperations; the Group Behavioral Guidelines to be followed by officers andemployees in the course of their duties and private lives; and a Compliance
Manual that serves as a compliance handbook.
In addition, we have put together a Compliance Card containing a summary of
the rules and manuals which form the basis for practicing proactive andautonomous compliance, and we distribute the card to all officers andemployees so that they can refer to it at any time.
4. Through the implementation of various compliance-related training sessions
and seminars, we are working to instill compliance practices that meets
society’s expectations in all officers and employees.
5. With the objective of preventing inappropriate behavior by officers andemployees and facilitating the early detection of unethical activities, weoperate a Management Helpline which is an internal reporting system thatenables direct reporting to top management.
6. We take a firm stance against anti-social forces that threaten social orderand safety and prevent the development of a sound economy and society. We
deal with inappropriate demands by such anti-social forces as an organization
and we collaborate with external specialized organizations, such as thepolice.

Guidelines for Anti-Money Laundering and Combating the
Financing of Terrorism
As global threats of nuclear weapons, missiles, and terrorism continue toincrease, cutting off financial sources leading to criminals and terrorists is an
issue that needs to be addressed jointly by the Japanese and international
communities, and measures to prevent money laundering and terrorist financing
now bear greater importance.
The Financial Services Agency established and released the Guidelines for
Anti-Money Laundering and Combating the Financing of Terrorism which

outlines the basic approach that financial institutions should take inimplementing effective countermeasures. In such climate, the Company
formulated the following policy and takes measures to prevent the flow of funds
to criminal syndicates, to maintain bvsafe and convenient financial services, andto create an environment making it difficult for criminal syndicates to engage inactivities.

6.	Management of Correspondent Banks	The Group shall endeavor to collect sufficient information about its
correspondent banks, conduct an appropriate assessment on them, and carryout appropriate measures that are proportionate to the risks involved.
	No relationship shall be established or maintained with any shell banks
without a physical presence or operations.

Policy on Anti-Money Laundering and Combating the
Financing of Terrorism

7.	Development Training of Directors and Employees
	The Group shall continually conduct training or other programs for all of its
Directors and employees to deepen their understanding and raise theirawareness of AML/CFT, in an effort to develop and retain human resourceshaving expertise and fitness for the given roles.

The Chugin Financial Group (hereinafter, the “Group”) recognizes that measures
for anti-money laundering and combating the financing of terrorism (hereinafter,“AML/CFT”) is a priority task required not only domestically but also from therest of the global community. Based on this recognition, the Group shall takethe initiative in establishing the management system in which it shall execute
agile and effective responses to ever-changing international situations and therisks facing the Group, and set forth the following policy as a basis for executionof operations.

8.	Verification of Status of Compliance	The Group shall inspect the status of compliance with regard to AML/CFT,and based on the results of such inspections, shall continually make efforts
to improve its risk management system against ML/FT.

1.	Management Policy	In order to execute agile and effective responses to changes in internationalsituations, the Group shall take proactive steps to establish and maintain the
management system based on the concept of “risk-based approach,” inwhich it shall identify and assess its money laundering and the financing ofterrorism (hereinafter, “ML/FT”) risks in a timely and appropriate manner andtake mitigation measures that are proportionate to the risks.
2.	Organizational Structure and Officer
	The Group shall define AML/CFT as one of its critical management agenda
and shall clarify the internal roles and responsibilities for that purpose.
	
The Group shall appoint the officer in charge of the Corporate Administration
Department of the Chugin Financial Group as the supervisory manager for AML/
CFT. A dedicated division shall be newly established within the Corporate
Administration Department of the Chugin Financial Group to provide thecentralized function of ensuring the execution of measures for AML/CFT.
3.	Measures for AML/CFT under Laws and Regulations
	The Group shall establish an internal system capable of carrying out timely
and appropriate measures for AML/CFT under laws and regulations,
including, but not limited to, verification at the time of transaction, retentionof transaction records, confirmation of sanctions including freezing of assets,
and notification of suspicious transactions.
4.	Administration of Customer Information and Policy for Handling
Customers
	The Group shall establish an internal system for making appropriate
investigations about the basic information of customers in the course of thetransactions with them and for carrying out measures that are proportionate
to their attributes.
	Furthermore, the Group shall determine and carry out required risk mitigation
measures by way of making periodic investigations and analyses on thehistory of transactions with customers.
5.	Transaction Monitoring and Screening	The Group shall determine and carry out required risk mitigation measures
by way of investigating and analyzing the status of transactions by the use ofreports submitted by its branches or detection made by its computer systems
for any unusual transactions or transactions subject to sanctions.

CHUGIN FINANCIAL GROUP, INC.

24

Corporate Governance

Board of Directors and Audit & Supervisory Board Members (As of June 30, 2023)

Corporate Governance of the Company
Basic principles

Directors

The Company is committed to strengthening and enhancing the corporate governance based on our corporate principles and management vision, in order to achieve asound and sustainable growth and a medium- to long-term improvement of the corporate value, while considering profits of all stakeholders related to the Company
including the shareholders, customers, regional society, and employees.
1.	The Company strives to establish an appropriate corporate governance framework while the Board of Directors, the Audit and Supervisory Committee, and Directors
recognize the fiduciary responsibility to the shareholders.
2.	The Company strives to ensure the appropriateness of the business executions and the effectiveness of audits and supervision by measures such as determining
management policies and execution of important duties through adequate discussion in the Board of Directors and accurate execution of duties by Directors involved in
the execution of business, alongside audits by the Board of Directors, audits by the Audit and Supervisory Committee, and appropriate maintenance and operation of
the internal control system based on laws and regulations such as the Companies Act.
3.	The Company is committed to establishing the environment where the rights of shareholders are respected and properly executed, constructive dialogue is made withshareholders, and active disclosure is made for corporate information including non-financial statements, etc., as well as ensuring the real equality of shareholders.
(Representative Director)

Director and Senior
Managing Executive Officer(Representative Director)

Chairman

Sadanori Kato

Ikuhide Harada

Masato Miyanaga

President

Corporate governance framework
The Company has adopted the form of a company with an Audit and Supervisory Committee as its organizational design pursuant to the Companies Act.
Since voting rights at the Board of Directors are granted to Directors serving as Audit and Supervisory Committee Members at a company with an Audit andSupervisory Committee, highly effective audit and supervisory system over the Board of Directors and Directors has been secured.
In addition, since companies with an audit and supervisory committee can delegate a part of the authority of the Board of Directors to directors pursuant to provisionsof the Companies Act, the matters submitted to the Board of Directors are narrowed down to highly important proposals, deliberations on major proposals such as
strategy at the Board of Directors are enhanced, and leading to prompt management decision-making of the Company is ensured.
Also, to ensure mobility in management decision-making, the Company has established “Group Management Meeting,” which comprises Four Executive Directors,
including the President, and discusses matters delegated by the Board of Directors.
With regard to items such as risk management, which are important for conducting proper corporate activities, the Company has established various kinds ofcommittee structures as advisory bodies of the Group Management Meeting to discuss such items flexibly.

Corporate governance framework

Director and Managing
Executive Officer

Soichi Yamamoto

Outside Director

Kenichi Fukuhara

Directors (Audit and Supervisory Committee Members)
Instruction/
Management

Grou p co mpa n ies
Shareholders’ General Meeting
Election/Dismissal

Board ofDirectors

Audit/Supervision

Disclosure/Explanation

Audit and Supervisory Committee

Advisory/
Response

The Chugoku BankThe Chugin Credit Guarantee/
The Chugin Operation Center/CBS

The Chugin Lease

Nominating andCompensation Committee

Chugin Securities

Group Management
Meeting

Advisory

Committees:Group Compliance Committee

Consultation/Report

Audit & Supervisory
Committee Office

Audit

Instruction/
ReportGroup ALM Committee
Group Risk Management Committee and others

Corporate Administration
Department

Sustainability Promotion
Department

25

CHUGIN FINANCIAL GROUP, INC.

Human Resources
Strategy Department

D&I NEXT10 Promotion
Department

Chugin Asset Management

Director(Audit and Supervisory
Committee Member)

Outside Director(Audit and Supervisory
Committee Member)

Outside Director(Audit and Supervisory
Committee Member)

Outside Director(Audit and Supervisory
Committee Member)

Hiroyuki Ohara

Toshihide Saito

Kazuhiro Tanaka

Yukiyo Kiyono

SETONOWA
Audit

Audit & Inspection
Department

Corporate Planning
Department

The Chugin Card

Group Business
Strategy Department

Chugin Capital Partners
Chugin Energy
Audit

Chugin Human Innovations

Secretariat
C Cube Consulting*Messrs. Kenichi Fukuhara, Toshihide Saito, Kazuhiro Tanaka, and Ms. Yukiyo Kiyono are Outside Directors as stipulated in Article 2, Item 15 of the Companies Act.

CHUGIN FINANCIAL GROUP, INC.

26

Comprehensive Risk Management System

ALM
ALM is an abbreviation for Asset and Liability Management, which is asystem to comprehensively manage assets and liabilities, including various
types of risk analysis, to ensure stable earnings growth.
Three lines of defense
Line 1: Autonomous management by business divisions; Line 2: Checks andsupport by risk management divisions; Line 3: Verification of appropriatenessand effectiveness and recommendations for improvements by the internal audit
divisions.

Credit Risk Management
Credit risk refers to the risk of losses incurred when the value of assets(including off-balance-sheet assets) declines or becomes worthless due tochanges in the financial status of those to whom credit is provided.
Credit risk management aims to maintain and improve the financial
soundness of the Group through appropriate management of credit operations
in order to contribute to the sound development of the social economy and byextension, to develop the Group. The Group’s basic credit risk management
policy is to manage credit risk inherent in diverse transactions across all
divisions and business sections in a comprehensive and integrated manner, andto establish and appropriately manage risk assessment and management
methods that suit the characteristics of each risk.
A credit risk management system has been established so that each Group
company manages credit risks based on our basic credit risk management
policy, and the Corporate Administration Department, which is responsible foroverseeing and managing credit risk, oversees and manages credit risks for theentire Group.

27

CHUGIN FINANCIAL GROUP, INC.

Credit risk management methods include a credit management system that
establishes standards and procedures for making credit decisions and, as partof such procedures, a credit risk assessment system that stipulates standards
and procedures for conducting credit risk assessments that form the basis for
credit decisions has been established. These systems are properly operated tocontrol risk by preventing the credit risk losses or suppressing losses within acertain range. Credit concentration risk is also appropriately controlled by
avoiding excessive concentration of credit to specific customers or groups orspecific industries. Through these efforts, we aim to control credit risk andsecure stable earnings.
Regulatory capital requirements for credit risks are strictly measured in thecredit risk management system given the importance of capital ratio
requirements in risk management and information disclosure. We haveestablished a framework to assess credit risk and financial conditions understress such as economic recessions and defaults by large borrowers, to evaluate
capital sufficiency and appropriateness of risk management plans, and to reflect
such assessments and evaluations in our credit management, etc.

Group Risk Management System
A department in square
brackets is in chargeof the relevant risk.

Management/Check/
Instruction

Report/Consultation

Collaboration

Audit/Accounting Audit/■ First line dept. ■ Second line dept. ■ Third line dept.
SupervisionMarket Risk Management
Market risk refers to the risks of incurring losses from fluctuations in profits
arising from assets and liabilities and the risks of incurring losses fromfluctuations in the value of assets and liabilities (including those off balance
sheet) due to fluctuations in market risk factors such as interest rates, exchange
rates and share prices.
The Group’s basic risk management policy for market risks is to determine
and analyze risks from the point of view of fluctuations in both current value andnet interest income and to assess the risks from various angles, using stresstests and other methods.
A market risk management system has been established so that each Group
company manages market risks based on our basic market risk management
policy, and the Corporate Administration Department, which is responsible foroverseeing and managing market risk, oversees and manages market risks forthe entire Group.
In terms of the method of managing market risks, trading limits and loss
limits have been set for trading operations, the goal of which is to earn trading
profit from buying and selling securities in market operations. These limits aremanaged to ensure that losses in excess of a certain amount do not occur.
Banking operations (investment securities) are managed for risks by taking therisk-return balance into consideration through ALM analysis, Value at Risk (VaR)
analysis and other means to ensure stable profits over the medium and longterm. We have also established a system for the flexible management of market
risks as well as credit risks and liquidity risks related to market operations.
Market risk management, including lending and deposit services, is carriedout by analyzing risks from multiple aspects, such as the calculation of interest
rate risks. The Group Risk Management Committee and the Group ALM
Committee discuss the overall management of assets and liabilities andconsider management and lending policies.
VaR (Value at Risk)
Value at Risk (VaR) is the maximum loss, incurred in a portfolio during a
specific holding period and confidence interval, estimated using statisticalmethods based on historical data.

Board of Directors
Audit & Supervisory
Committee

Group Management MeetingGroup ALM Committee

Group Risk Management Committee

Group Compliance Committee

Comprehensive Risk Management[Corporate Administration Dept.]

Operational Risk
[Corporate Administration Dept.]
Credit Risk

Market Risk

Liquidity Risk

[Corporate
Administration
Dept.][Corporate
Administration
Dept.][Corporate
Administration
Dept.]

Administrative Risk, System Risk, Tangible Assets Risk,
Information Resource Risk, Compliance and Legal Risk
[Corporate Administration Dept.]

Human-related Risk

Outside Certified Public Accountant

The Group defines risk management as one of its critical management issues
and aims at well-balanced management in pursuit of enhanced profitability
while maintaining operational soundness through further development ofcomprehensive risk management. To this end, risks are managed in accordancewith the Basic Risk Management Rules which set out policies and a framework
for risk management for the entire Group along with other basic matters on thesubject.
Risks faced by the Group include credit risks, market risks, liquidity risks andoperational risks. The Group has established a risk management system basedon the “three lines of defense” concept. As the first line of defense, businessdivisions facing the risks engage in the responsible management of the risks.
The second line of defense is to designate sections in charge of each type ofrisk management, and understand, analyze and evaluate the status, andmanage and check each type of risk. In addition, we have established a systemfor comprehensively managing the various types of risks through theestablishment of committees and a department in charge of risk management(Corporate Administration Department). As the third line of defense, we haveestablished a system in which the internal audit department (Audit & Inspection
Department) verifies the appropriateness and effectiveness of risk management.
The Group strives to ensure operational soundness while enhancing
profitability at the same time, and has a policy to conduct appropriate risk-taking
within the limits of capital. The Group sets risk limits for each risk category(credit, market, and operational risks) and calculates, monitors, and manages
the amount of each risk using statistical and other methods.
In addition to comparing the total amount of risk aggregated each risk
amount with capital, we also evaluate and verify the degree of capital adequacyby estimating the impact of risk events that may not be captured in each risk
amount using stress tests, etc. The results of these evaluations and verifications
are used to strengthen and revise business plans and risk management.

work to limit the fund procurement risks. In addition, we manage liquidity risks
by establishing management policies for fund procurement risks, such aspolicies for holding highly liquid assets and setting limits on the gap between
funds under management and funds procured over a certain period of time.
Deposits comprise the vast majority of procurements at particularly important
subsidiary bank. While its fund procurement is stable, we are working todiversify our means of procurement to prepare for unforeseen circumstances,by procuring from the market utilizing marketable securities held by the Group.
For foreign currencies, we verify that funding is feasible using stress tests thatassumes that it is difficult to procure funds from markets due to deterioration in
conditions of foreign currency procurement, and we work to maintain themedium to-long-term stability of our foreign currency balance sheet bymeasuring and managing the stable foreign currency ratio which indicates thedegree of stability of foreign currency investments and procurement.

Audit & Inspection Dept.

Comprehensive Risk Management

outflow of funds, or to risks incurred when transactions cannot be conducted or
must be conducted at prices that are much more disadvantageous than normal
due to market disruptions or other factors (hereafter, “market liquidity risks”).
The Group recognizes the importance of fund procurement management andits basic fund procurement risks policy is to ensure a stable supply of funds. Ourbasic policy for managing market liquidity risks is to take into consideration thespecial features of markets for individual products, such as market size, liquidity,
and other factors, and to pay careful attention to their market liquidity.
A liquidity risk management system has been established so that each Group
company manages liquidity risks based on our basic liquidity risk management
policy, and the Corporate Administration Department, which is responsible foroverseeing and managing liquidity risk, oversees and manages liquidity risks forthe entire Group.
In terms of the method of managing liquidity risks, we pay attention to thedaily status of fund procurement by monitoring early warning indicators andOther Risk
(reputation, strategy,
crisis management and others)[Corporate Planning Dept.][Human Resources Strategy Dept.]

Liquidity Risk Management
Liquidity risk refers to the risks of incurring losses (hereafter, “fund procurement
risks”) when it becomes difficult to secure the requisite funds or when procuring
funds at a much higher than normal interest rate becomes necessary due to amismatch between the timing of use and procurement or to an unexpected

Depts. in the holding company The Chugoku Bank and other Group companies

CHUGIN FINANCIAL GROUP, INC.

28

Internal Control

Fundamental Policy for Establishment of Internal Control
System (Excerpt)
The Company has formulated a fundamental policy concerning theestablishment of an internal control system to ensure appropriateness ofoperations pursuant to a resolution of the Board of Directors. An outline of thepolicy is as follows.

1. System ensuring that the execution of duties by Directors
conforms to applicable laws, regulations and the Articles ofIncorporation(1)	Directors shall execute their duties based on the Group’s Corporate Code of
Conduct, which sets forth the Group’s corporate ethics, and the Guidelines
for the Conduct of Group’s Clerks, which must be taken into account in thecourse of duties, and comply with the Rules for Directors, which codify
basic considerations for directors. In principle, Board of Directors meetings
shall be held once a month, and on other occasions as required, to promote
communication among directors and enable mutual supervision of theexecution of duties. The Board shall be operated in accordance with theBoard of Directors Regulations in order to prevent violations of laws and the
Articles of Incorporation by ensuring proper business activities. The
Company is a company with an Audit & Supervisory Committee system,
wherein each Audit & Supervisory Committee Member audits the progressof the execution of duties by directors according to the policy and thedivision of tasks set forth by the Audit & Supervisory Committee and, whennecessary, voices opinion, prohibits action by a director and/or devises
other appropriate measures.
(2)	The Board of Directors shall establish systems to cut off and resolutely
eliminate any and all relationships with anti-social forces.

2. System for retaining and maintaining information regarding
the execution of duties by Directors
With respect to information concerning the execution of duties by Directors, theCompany shall retain the minutes of the Board of Directors meetings, along withother relevant materials, for a period of 10 years in accordance with the Boardof Directors Regulations, and maintain them in a state that renders themaccessible as needed. Other important documents shall also be maintained in
an appropriate manner, depending on the storage medium, in accordance with
the Information Asset Management Standards and internal regulations, andshall be maintained in a state that renders this information accessible asneeded.

3. Regulations and other systems concerning managing
exposure to loss(1)	The Company recognizes (a) credit risks, (b) market risks, (c) liquidity risks,(d) operational risks and (e) other risks which could have a serious impact
to the business as key risks involved in the execution of the Group’s
operations. Specific risks shall be identified and managed, and acomprehensive risk management system established. A detailed definitionof each risk shall be provided in the Group’s basic risk management rules.
(2)	The Company shall establish an equity capital management system and an
asset evaluation management system to ensure the soundness andappropriateness of the Group’s operations through sufficient capital
adequacy proportionate to the risks.
(3)	Each type of risk shall be managed in accordance with the Group’s basic
risk management policy set forth in the Group’s basic risk management
rules and other regulations pertaining to risk management. The Corporate
Administration Department shall be responsible for the comprehensive

29

CHUGIN FINANCIAL GROUP, INC.

management of the Group’s risks, a responsible department shall beassigned to each type of risk and such committees as the Risk
Management Committee shall be established to ensure appropriate risk
management.
(4)	A risk management plan shall be created when formulating strategic
objectives, such as business plans or the Medium-Term Management Plan.
The management status of each type of risk shall be reported to the Boardof Directors on a regular basis.
(5)	The Company shall establish necessary systems, including the Emergency
Countermeasures Headquarters in the event of unforeseen circumstances,and respond appropriately to prevent the spread of damage in accordancewith the Risk Management Manual.

4. System to ensure the efficient execution of duties bydirectors(1)	Matters that impact the Group’s operations, deemed to be significant
matters requiring the resolution of the Board of Directors, shall be
discussed and deliberated on in advance in the presence of the Audit &Supervisory Committee Members by the Group Management Committee,
which is comprised of the chairman, vice chairman, president, vicepresident, senior managing director and managing directors.
(2)	Business execution pursuant to a resolution of the Board of Directors shallbe in accordance with the decision-making authority and procedures
stipulated in the Rules Defining the Extent of Job Authority and various
other rules.

5. System ensuring that the execution of duties by employees
conforms to applicable laws, regulations and the Articles ofIncorporation(1)	The Company shall establish the Group’s Corporate Code of Conduct, theGuidelines for the Conduct of Group’s Clerks, the Rules on Compliance withLaws and Regulations etc., and the Compliance Manual in order to ensure
a compliance framework. The contents of employment regulations andother rules, as well as guidelines for the handling of business affairs andother guidelines, shall be in compliance with all pertinent laws and the
Articles of Incorporation.
(2)	T he Group Compliance Committee chaired by the president shall beestablished to foster a corporate culture that emphasizes compliance,enhancing compliance systems and monitoring the status of legal
compliance. The Corporate Administration Department shall be responsible
for overall compliance management and shall examine various measuresrelated to the compliance.
(3)	V arious measures shall be taken in a systematic manner in order toestablish a compliance framework, such as the formulation and review of
the annual Compliance Program, which serves as the Group’s basic
compliance policy and implementation plan, as well as periodic
compliance-related checks and compliance training.
(4)	The Audit & Inspection Department shall be established as an internal audit
department independent from the business execution departments, andshall perform audits to ensure that employee duties are in compliance withlaws, regulations, the Articles of Incorporation and other obligations.
(5)	Should legal violations or other compliance-related facts be detected, anappropriate response shall be taken in accordance with employee
regulations via the Management Help Line and other means as an internalreporting system.

6. System ensuring the appropriateness of operations
throughout the Chugin Financial Group(1)	Chugin Financial Group Management Regulations shall be formulated inorder to ensure appropriateness of business operations and effective
business management with respect to each company of the Chugin
Financial Group. Each Group company shall formulate its own rules inaccordance with the Company’s rules and establish systems befitting its
business content and organizational structure to ensure the appropriatenessof its business operations.
(2)	The Company shall formulate standards related to deliberation andreporting for each company in the Chugin Financial Group and shallmanage the business of the Group companies based on a system formaking final decisions and receiving reports in accordance with said
standards. Of the final decisions and reporting matters to the Company,
those of importance shall be reported to the Company’s Audit & Supervisory
Committee Members. The Company shall conclude an audit agreementwith each Group company and conduct internal audits.
(3)	Each group company shall formulate the Group’s basic risk management
rules to assess and manage each type of risk as well as to establish thesystem of a comprehensive risk management while they deliberate andreport the predetermined matters in accordance with the Chugin Financial
Group Management Regulations. The Company shall respond appropriately
to prevent the spread of damage in accordance with the Risk Management
Manual in the event of unforeseen circumstances.
(4)	Business execution pursuant to a resolution of the Board of Directors ineach Chugin Financial Group company shall be in accordance with thedecision-making authority and procedures stipulated in the Rules Defining
the Extent of Job Authority and various other rules.
(5)	The Company shall establish the Group’s Corporate Code of Conduct, theGuidelines for the Conduct of Group’s Clerks and the Compliance Manual toensure a compliance framework. The contents of employment regulations
and other rules shall be in compliance with laws, regulations and the
Articles of Incorporation.
(6)	The Chugin Financial Group shall formulate regulations concerning theManagement Help Line, an internal reporting system whereby employees
can report any wrongdoing directly to top management in order to maintainthe sound operation thereof.
(7)	E ach Group company shall report any legal violations in business
management or content of management guidance by the Company as wellas any other compliance-related issues to the Company’s Audit &Supervisory Committee Members.
(8)	The Chugin Financial Group shall comply with all laws, standards and otherobligations concerning accounting practices and establish an internal
control system to ensure the appropriateness of the Group’s financial
reporting.

7. Provisions for hiring assistants to the Audit & Supervisory
Committee Members, if required, their independence fromdirectors (excluding directors who are the Audit &Supervisory Committee Members) and ensuring of theeffectiveness of directions to the assistants by theCommittee Members

Supervisory Committee Members with their duties.
(2)	Employees who are to assist the Audit & Supervisory Committee Members
shall be stipulated to perform investigation, planning, management andinstruction concerning the audits of the Committee Members, which isordered by the Members, without performing additional work related to the
execution of duties by directors. The Audit & Supervisory Committee
Members shall be consulted and their agreement obtained before adecision is made regarding the evaluation, appointment and reassignmentof employees who are to assist the Audit & Supervisory Committee
Members with their duties to ensure independence from directors(excluding directors who are the Audit & Supervisory Committee Members.)

8. System for reporting to the Audit & Supervisory Committee
Members(1)	In accordance with the Standards of Reporting to Audit & Supervisory
Committee Members, directors and employees shall report to the Audit &Supervisory Committee Members matters that may have a significant
impact on the Company’s business and other matters essential to report ina timely manner. Notwithstanding the foregoing, the Audit & Supervisory
Committee Members may also request reports from directors andemployees as required.
(2)	In accordance with the Chugin Financial Group Management Regulations,those who are reported from directors, Audit & Supervisory Board Members
and the others in the subsidiaries shall report to the Audit & Supervisory
Committee Members important matters which may have impact on the
Company’s business and other matters essential to report, to the Audit &Supervisory Committee Members in a timely manner.
(3)	The Company and the subsidiaries shall not give any disadvantageous
treatment such as dismissal to directors and employees who reported thematter due to the report.

9. Matters for policies for procedures for advance payment
or reimbursement of expense incurred from the execution ofduties by the Audit & Supervisory Committee Members andfor handling of the other expense or debt incurred regarding
the execution of the duties
In accordance with the Auditing Standards for Audit & Supervisory Committee,
the Company shall include a budget in advance for the expenses acknowledgedby the Audit & Supervisory Committee to be necessary for the execution ofduties. Expenses expended urgently or temporary may be claimed to theCompany for reimbursement after the event.

10. System to ensure that audits of the Audit & Supervisory
Committee Members are implemented effectively
The Company works to ensure the effectiveness of the audits performed by the
Audit & Supervisory Committee Members by having them attend meetings
where decisions that have a significant impact on business management are
made, as well as through the circulation of important documents to them andtheir collaboration with the Internal Audit Department, certified public
accountants and outside certified public accountants in accordance with the
Audit & Supervisory Committee Regulations and the Auditing Standards for
Audit & Supervisory Committee. Representative Directors shall exchange
opinions with the Audit & Supervisory Committee on a regular basis, andenhance mutual awareness of such matters as to the issues to be addressed by
the Company and improvement of the environment for Audit & Supervisory
Committee Members.

(1)	The Company shall place assistants to the Audit & Supervisory Committee
Members in the Secretariat as employees who are to assist the Audit &CHUGIN FINANCIAL GROUP, INC.

30

Organization Chart

Principal Operations of the Chugin Financial Group(As of June 30, 2023)<Headquarters>

Chugin Financial Group, which comprises the Company along with thirteen subsidiaries, is positioned to offer a wealth offinancial services, including corporate and personal banking, leasing and securities businesses, and more.
Consolidated subsidiaries

Audit & Supervisory Committee Office

Organizational Chart for the Chugin Financial GroupThe Chugoku Bank, Limited

Audit &
Supervisory
Committee

Business segment

Banking business

Domestic offices: Head office, 131 branch offices,
5 sub-branch offices, 21 branch-in-branch offices, 2 branch-in-branch subbranch offices, 1 special sub-branch office, 1 representative office,1 internet branch
Locations with ATM installed Outside branches: 209 locations (234 ATMs)
Overseas offices: 2 branch and 3 representative offices

Audit & Inspection Department

CBS Company, Limited
The Chugin Operation Center Co., Limited

Secretariat

The Chugin Credit Guarantee Co., Limited
The Chugin Lease Company, Limited
The Chugin Card Company, Limited
Chugin Asset Management Company, Limited
Chugin Securities Co., Ltd.
SETONOWA Co., Ltd.
Chugin Capital Partners Co., Ltd.
Chugin Energy Co., Ltd. (Established in April 3, 2023)
Chugin Human Innovations Co., Ltd.
C Cube Consulting Co., Ltd.

D&I NEXT10 Promotion Department

Sustainability Promotion Department

Consigned administrative operations for banks
Deposits, loans, exchanges, direct debits, publicmoney services, Business processing anddocument management of investment trusts
Credit guarantee businessLeasing businesses
Credit card business
Asset management business
Securities business
Regional trading business
Fund operation and management business
Regional energy and decarbonization businessFee-charging employment placement business
Consulting business(As of March 31, 2023)

Shareholders’
GeneralMeeting

Board ofDirectors

Group
Management
Meeting

Shareholder Information(As of March 31, 2023)

Group Business Strategy Department

Breakdown of Types of Shareholders
Category

Human Resources Strategy Department

Corporate Administration Department
Customer Support Center

Government and local authorities .......................................................................................................................
Financial institutions ..........................................................................................................................................
Securities firms .................................................................................................................................................
Other corporations ............................................................................................................................................
Foreign investors
Non-Individuals ...............................................................................................................................................
Individuals ......................................................................................................................................................
Individuals ........................................................................................................................................................
Total .....................................................................................................................................................
Number of shares held in less than trading units .................................................................................................

31

CHUGIN FINANCIAL GROUP, INC.

Committees
Corporate Planning Department
Emergency
Countermeasures
Headquarters

Public Relations Center
Innovation Promotion Center

2
40
30
511

91
527,883
33,726516,147

0.00
28.60
1.83
27.96

209
4
12,803
13,599—249,4389
518,768
1,846,062
165,261

13.51
0.00
28.10
100.00—Major ShareholdersName of Shareholders

Nominating andCompensation
Committee

Number of shares
Number of shareholders (Hundreds of shares)
Percentage

The Master Trust Bank of Japan, Ltd...................................................................................................................
Custody Bank of Japan, Ltd................................................................................................................................
Okayama Tochisouko Co., Ltd.............................................................................................................................
Nippon Life Insurance Company..........................................................................................................................
KURABO INDUSTRIES LTD...................................................................................................................................
CP CHEMICAL INCORPORATED...........................................................................................................................
Chugin Financial Group Employee Stock Ownership Plan......................................................................................
Meiji Yasuda Life Insurance Company..................................................................................................................
GOVERNMENT OF NORWAY (Standing proxy: Citibank, N.A., Tokyo Branch)............................................................
Shizuka Forestry Co., Ltd....................................................................................................................................
Total

Unit: 1,000 shares

Number of holding
sharesPercentage ofoutstanding shares

23,436
9,693
5,358
4,756
4,559
4,478
4,372
3,804
2,910
2,370
65,740

12.75
5.27
2.91
2.58
2.48
2.43
2.38
2.07
1.58
1.29
35.78

CHUGIN FINANCIAL GROUP, INC.

32

Service Networks(As of June 30, 2023)

INTERNATIONAL DIVISION:
Head Office, Okayama
1-15-20, Marunouchi, Kita-ku,
Okayama, Japan

Shanghai Representative Office
Room 2007, Shanghai
International Trade Center,
2201 Yan-an Road (West),
Shanghai, People’s Republic of China
Telephone: (86) 21-6275-1988
Facsimile: (86) 21-6275-1989

International Department
Telephone: (81) 86-234-6539
Facsimile: (81) 86-234-6591
SWIFT: CHGKJPJZNew York Representative Office
150 East 52nd Street, 17th Floor,
New York, NY 10022, U.S.A.
Telephone: (1) 212-371-7700
Facsimile: (1) 212-371-7173

Funds and Securities Department
Telephone: (81) 86-234-6503
Facsimile: (81) 86-234-6595
Treasury Administration Department
Telephone: (81) 86-234-6664
Facsimile: (81) 86-227-6069
SWIFT: CHGKJPJTTokyo Office
1-5-5, Muromachi Chibagin Mitsui Building,
Nihonbashi-Muromachi, Chuo-ku,
Tokyo, Japan
Funds and Securities Department
Telephone: (81) 3-3243-0459
Facsimile: (81) 3-5255-7750
OVERSEAS OFFICES:
Hong Kong BranchRooms 601 & 609-610,
6th Floor Gloucester Tower,
The Landmark,15 Queen’s Road Central,
Hong Kong,
People’s Republic of China
Telephone: (852) 2523-0312
Facsimile: (852) 2521-8730
Shingapore Branch
16 Collyer Quay, #24-01/02
Singapore 049318
Telephone: (65) 6536-7757
Facsimile: (65) 6536-7767



FOREIGN EXCHANGE OFFICES:
Head Office Business Department
1-15-20, Marunouchi, Kita-ku, Okayama
Okayama-Minami Branch
1-8-11, Aoe, Kita-ku, Okayama
Okayama-Nishi Branch
3-101, Toiya-cho, Kita-ku, Okayama
Saidaiji Branch
3-7-1, Saidaiji-Naka, Higashi-ku, Okayama
Katakami Branch
36-1, Higashi-Katakami, Bizen, Okayama
Kojima Branch
2-1-33, Kojima Ajino, Kurashiki, Okayama
Kurashiki Branch257-1, Bakuro-cho, Kurashiki, Okayama
Kurashiki Ekimae Branch
2-2-2, Achi, Kurashiki, Okayama
Mizushima Branch
4-32, Mizushima Nishiyayoi-cho, Kurashiki, Okayama
Hayashima Branch
1380, Hayashima, Hayashima-cho,
Tsukubo-gun, Okayama
Soja Branch
1-4-20, Ekimae, Soja, Okayama
Kasaoka Branch
2-8, Rokuban-cho, Kasaoka, Okayama

Financial Section

Foreign Remittance Offices
96 Offices(As of June 30, 2023)

Location

Okayama Pref.
Hiroshima Pref.
Tottori Pref.
Kagawa Pref.
Ehime Pref.
Hyogo Pref.
Osaka Pref.
Tokyo
Liaison Offices
Overseas Offices
Internet Branch

33

Bangkok Representative Office689, Bhiraj Tower at EmQuartier,Room No. 1901, 19th Floor,
Sukhumvit Road, Klongton-nue, Wattana,
Bangkok, Thailand
Telephone: (66) 2-261-2676
Facsimile: (66) 2-261-2677

Ibara Branch
176-5, Ibara-cho, Ibara, Okayama
Tsuyama Branch
30-7, Sange, Tsuyama, Okayama
Fukuyama Branch
1-1, Momiji-cho, Fukuyama, Hiroshima
Onomichi Branch
2-9, Higashi-Gosho-cho, Onomichi, Hiroshima
Mihara Branch
1-11-7, Minatomachi, Mihara, Hiroshima
Shinichi Branch593-7, Shinichi, Shinichi-cho, Fukuyama, Hiroshima
Kure Branch
3-6-1, Hon-dori, Kure, Hiroshima
Fuchu Branch
1-3, Fukawa-cho, Fuchu, Hiroshima
Hiroshima Branch
15-4, Hatchobori, Naka-ku, Hiroshima
Hiroshima Higashi-Branch
1-5-2, Minamikaniya, Minami-ku, Hiroshima
Takamatsu Branch
3-6, Marugamemachi, Takamatsu, Kagawa
Sanbonmatsu Branch
610-4, Sanbonmatsu, Higashi-Kagawa, Kagawa
Sakaide Branch
1-2-2, Kyomachi, Sakaide, Kagawa
Marugame Branch207-6, Futaimachi, Marugame, Kagawa
Kawanoe Branch4062-4, Kawanoe-cho, Shikoku-chuo, Ehime
Yonago Branch
1-1-1, Higashi-Fukuhara, Yonago, Tottori
Kobe Branch
2-6-1, Sakaemachi-dori, Chuo-ku, Kobe, Hyogo
Himeji Branch108, Shirogane-cho, Himeji, Hyogo
Osaka Branch
3-6-1, Aioi Nissay Dowa Insurance Midosuji Building,
Hirano-machi, Chuo-ku, Osaka
Tokyo Branch
1-5-5, Muromachi Chibagin Mitsui Building,
Nihonbashi-Muromachi, Chuo-ku, TokyoCHUGIN FINANCIAL GROUP, INC.

Number of Offices

109
26
1
16
1
6
1
1
1
5
1
CHUGIN FINANCIAL GROUP, INC.

34

Consolidated Financial Statements
Consolidated Balance Sheets

Consolidated Statements of Income
Chugin Financial Group, Inc. and its Consolidated Subsidiaries
For the Year Ended March 31, 2023

Chugin Financial Group, Inc. and its Consolidated Subsidiaries
March 31, 2023

Thousands of
U.S. Dollars(Note 1)Millions of Yen

Millions of Yen

2023

2023

ASSETS:Cash and due from banks (Notes 21 and 25).................................................................................................................................. ¥ 1,510,394
178,907
Call loans.....................................................................................................................................................................................
Other debt purchased (Notes 6 and 10 ).........................................................................................................................................
22,3292,023
Trading account securities (Notes 6, 13 and 21).............................................................................................................................
Money trusts (Notes 7 and 21).......................................................................................................................................................
24,6002,324,053
Securities (Notes 6, 9, 13 and 21)..................................................................................................................................................
Loans and bills discounted (Notes 9, 10, 13 and 21).......................................................................................................................
5,555,795
Foreign exchange (Note 9).............................................................................................................................................................
14,742
Lease receivables and investments in leased assets........................................................................................................................
27,010
Other assets (Notes 9, 13, 18, 21 and 22)......................................................................................................................................
158,076
35,631
Tangible fixed assets (Note 11)......................................................................................................................................................
1,712
Intangible fixed assets (Note 12)....................................................................................................................................................
17,594
Deferred tax assets (Note 14)........................................................................................................................................................
31,110
Customers' liabilities for acceptances and guarantees (Note 9)........................................................................................................
Reserve for possible loan losses (Note 3)........................................................................................................................................
(54,302)
Total assets.............................................................................................................................................................................. ¥ 9,849,678$11,311,270
1,339,826
167,220
15,150184,228
17,404,725
41,607,092
110,402202,276
1,183,823
266,838
12,821
131,760
232,981(406,665)$73,763,783

LIABILITIES AND NET ASSETS:
Liabilities:
Deposits (Notes 13 and 21)........................................................................................................................................................... ¥ 8,053,522
Call money...................................................................................................................................................................................
1 79,987
9 3,913
Payables under repurchase agreements (Note 13)..........................................................................................................................
423,430
Payables under securities lending transactions (Notes 13 and 21)....................................................................................................
46,530Commercial paper (Note 15)..........................................................................................................................................................
320,843
Borrowed money (Notes 13, 15 and 21).........................................................................................................................................
492
Foreign exchange.........................................................................................................................................................................
10,000Bonds payable (Note 16)...............................................................................................................................................................
Due to trust account......................................................................................................................................................................
8,496
Other liabilities (Notes 15, 18, 21 and 22)......................................................................................................................................
147,572
Accrued employees' bonuses........................................................................................................................................................
1,547
25
Accrued directors' bonuses...........................................................................................................................................................
Reserve for directors' retirement benefits.......................................................................................................................................
49
Reserve for reimbursement of deposits..........................................................................................................................................
250
Reserve for point program.............................................................................................................................................................
114
Net defined benefit liability (Note 17)..............................................................................................................................................
3,466
423
Deferred tax liabilities (Note 14).....................................................................................................................................................
Reserves under special laws..........................................................................................................................................................
7
Acceptances and guarantees.........................................................................................................................................................
31,110Total liabilities........................................................................................................................................................................... ¥ 9,321,784$60,312,454
1,347,914
703,310
3,171,047
348,461
2,402,778
3,684
74,88963,626
1,105,159
11,585
187
366
1,872
853
25,9563,167
52
232,981$69,810,409

Net assets (Note 24):
Shareholders' equity
Common stock
Authorized shares: 500,000,000 shares in 2023
Issued shares: 184,771,461 shares in 2023.......................................................................................................................... ¥
16,000Capital surplus..........................................................................................................................................................................
7,302
Retained earnings.....................................................................................................................................................................
479,223
Less treasury stock, at cost
1,071,607 shares in 2023....................................................................................................................................................
(1,000)
Accumulated other comprehensive income:Net unrealized gains on available-for-sale securities (Note 8).......................................................................................................
34,234
Net deferred losses on hedging instruments...............................................................................................................................
(3,320)
Accumulated adjustments for retirement benefits (Note 17).........................................................................................................
(4,818)
Total........................................................................................................................................................................................
26,096272
Subscription rights to shares (Note 26)...........................................................................................................................................
Total net assets.............................................................................................................................................................................
527,894
Total liabilities and net assets........................................................................................................................................................ ¥ 9,849,678
See accompanying Notes to Consolidated Financial Statements.

35

CHUGIN FINANCIAL GROUP, INC.

Thousands of
U.S. Dollars(Note 1)

Income (Note 22):
Interest and dividends on:
Loans and discounts.................................................................................................................................................................
Securities.................................................................................................................................................................................
Other.......................................................................................................................................................................................
Fees and commissions..................................................................................................................................................................
Other operating income.................................................................................................................................................................
Bad debt recovered.......................................................................................................................................................................
Other income................................................................................................................................................................................
Total income.............................................................................................................................................................................

¥60,294
29,653
3,208
20,54547,44030
22,501
183,675$451,538
222,069
24,024
153,860
355,275224
168,508
1,375,533

Expenses:
Interest on:
Deposits...................................................................................................................................................................................
Borrowings...............................................................................................................................................................................
Other.......................................................................................................................................................................................
Fees and commissions..................................................................................................................................................................
Other operating expenses..............................................................................................................................................................
General and administrative expenses.............................................................................................................................................
Reserve for possible loan losses....................................................................................................................................................
Losses on impairment of fixed assets (Note 11)..............................................................................................................................
Other expenses.............................................................................................................................................................................
Total expenses..........................................................................................................................................................................

4,245
2,037
21,852
3,427
56,33355,662
5,717
55
4,841
154,172

31,79015,254
163,648
25,664
421,875
416,850
42,814411
36,254
1,154,586

Income before income taxes..........................................................................................................................................................
Income taxes (Note 14):
Current....................................................................................................................................................................................
Deferred...................................................................................................................................................................................

29,503220,946

9,705
(679)
9,025

72,680(5,084)67,587

Net income...................................................................................................................................................................................
Net income attributable to non-controlling interests.........................................................................................................................
Net income attributable to owners of parent....................................................................................................................................

20,477—¥20,477

153,351—$153,351

Yen

U.S. Dollars(Note 1)2023

Per share of common stock...........................................................................................................................................................
Basic net income......................................................................................................................................................................
Diluted net income....................................................................................................................................................................
Cash dividends applicable to the year (Note 24)..........................................................................................................................

$0.830
0.829
0.224

¥110.96
110.8030.00

See accompanying Notes to Consolidated Financial Statements.

Consolidated Financial Statements Consolidated Statements of Comprehensive Income
Chugin Financial Group, Inc. and its Consolidated Subsidiaries
For the Year Ended March 31, 2023

$

119,823
54,684
3,588,878(7,488)256,376(24,863)(36,081)
195,431
2,036
3,953,373$73,763,783

Thousands of
U.S. Dollars(Note 1)Millions of Yen
2023

Net income...................................................................................................................................................................................
Other comprehensive income (Note 20):
Net unrealized losses on available-for-sale securities..................................................................................................................
Net deferred losses on hedging instruments...............................................................................................................................
Adjustments for retirement benefits...........................................................................................................................................
Total other comprehensive income.............................................................................................................................................
Comprehensive income.................................................................................................................................................................
Comprehensive income attributable to:
Owners of parent......................................................................................................................................................................
Non-controlling interests...........................................................................................................................................................

¥20,477$153,351(33,373)(2,713)(1,356)(37,443)¥(16,966)(249,928)(20,317)(10,155)(280,408)$(127,057)¥(16,966)—$(127,057)—

See accompanying Notes to Consolidated Financial Statements.

CHUGIN FINANCIAL GROUP, INC.

36

Consolidated Statements of Changes in Net Assets

Consolidated Statements of Cash Flows

Chugin Financial Group, Inc. and its Consolidated Subsidiaries
For the Year Ended March 31, 2023

Chugin Financial Group, Inc. and its Consolidated Subsidiaries
For the Year Ended March 31, 2023

Millions of Yen
2023

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

Accumulated other comprehensive income
Net unrealized Net deferred Accumulated
gains (losses)
losses on adjustments foron availableTotal
hedging
retirementfor-sale
instruments
benefits
securities

Millions of Yen
2023
Subscription
rights tosharesTotal net
assetsBalance at beginning of year............... ¥15,149 ¥8,153 ¥476,938 ¥(11,623) ¥67,608 ¥(606) ¥(3,461) ¥63,540 ¥256 ¥552,414
Net income attributable to owners
20,477
20,477of parent...................................
850
Changes by share transfer.............
(850)—
Cash dividends..............................
(5,651)(5,651)(1,941)(1,941)
Purchases of treasury stock...........
Disposals of treasury stock.............
1
21
23(12,540)
12,542—
Cancellation of treasury stock.........
(1)
Net changes in items other thanshareholders' equity..................
(2,713)(1,356)(37,443)
15(37,428)(33,373)850
Net changes during the year...............
(850)
2,285
10,622(33,373)(2,713)(1,356)(37,443)
15(24,520)
Balance at end of year....................... ¥16,000 ¥7,302 ¥479,223 ¥(1,000) ¥34,234 ¥(3,320) ¥(4,818) ¥26,096 ¥272 ¥527,894
See accompanying Notes to Consolidated Financial Statements.
Thousands of U.S. Dollars (Note 1)
2023

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

Accumulated other comprehensive income
Net unrealized Net deferred Accumulated
gains (losses)
losses on adjustments foron availableTotal
hedging
retirementfor-sale
instruments
benefits
securities

Subscription
rights tosharesTotal net
assetsBalance at beginning of year............... $113,450 $61,057 $3,571,766 $(87,044) $506,313 $(4,538) $(25,919) $475,848 $1,917 $4,137,002
Net income attributable to owners
153,351
153,351of parent...................................
6,365
Changes by share transfer.............
(6,365)—
Cash dividends..............................
(42,320)(42,320)(14,536)(14,536)
Purchases of treasury stock...........
Disposals of treasury stock.............
7
157
172
(93,911)93,926—
Cancellation of treasury stock.........
(7)
Net changes in items other thanshareholders' equity..................
(20,317)(10,155) (280,408)
112(280,296)(249,928)
6,365
Net changes during the year...............
(6,365)
17,112
79,547 (249,928)(20,317)(10,155) (280,408)
112(183,629)
Balance at end of year....................... $119,823 $54,684 $3,588,878 $(7,488) $256,376 $(24,863) $(36,081) $195,431 $2,036 $3,953,373
See accompanying Notes to Consolidated Financial Statements.

Thousands of
U.S. Dollars(Note 1)

Cash flows from operating activities
Income before income taxes......................................................................................................................................................
Depreciation.............................................................................................................................................................................
Losses on impairment of fixed assets.........................................................................................................................................
Share-based compensation expenses........................................................................................................................................
Provision of reserve for possible loan losses...............................................................................................................................
Increase (decrease) in reserve for point program.........................................................................................................................
Increase (decrease) in reserve for directors' retirement benefits...................................................................................................
Increase (decrease) in accrued employees' bonuses...................................................................................................................
Increase (decrease) in accrued directors' bonuses......................................................................................................................
Increase (decrease) in net defined benefit liability.......................................................................................................................
Increase (decrease) in reserve for reimbursement of deposits......................................................................................................
Interest and dividend income.....................................................................................................................................................
Interest expense.......................................................................................................................................................................
Losses (gains) related to securities, net......................................................................................................................................
Losses (gains) on money trusts, net...........................................................................................................................................
Foreign exchange losses (gains), net..........................................................................................................................................
Losses (gains) on disposals of fixed assets, net...........................................................................................................................
Decrease (increase) in trading account securities, excluding foreign exchange contracts...............................................................
Decrease (increase) in call loans and other debt purchased.........................................................................................................
Increase (decrease) in payables under repurchase agreements....................................................................................................
Decrease (increase) in due from banks, excluding the Bank of Japan...........................................................................................
Increase (decrease) in commercial paper...................................................................................................................................
Decrease (increase) in foreign exchange assets..........................................................................................................................
Decrease (increase) in loans and bills discounted........................................................................................................................
Decrease (increase) in lease receivables and investments in leased assets...................................................................................
Decrease (increase) in other assets............................................................................................................................................
Increase (decrease) in deposits..................................................................................................................................................
Increase (decrease) in borrowed money.....................................................................................................................................
Increase (decrease) in call money..............................................................................................................................................
Increase (decrease) in foreign exchange liabilities.......................................................................................................................
Increase (decrease) in payables under securities lending transactions..........................................................................................
Increase (decrease) in due to trust account................................................................................................................................
Increase (decrease) in other liabilities.........................................................................................................................................
Interest and dividends received..................................................................................................................................................
Interest paid.............................................................................................................................................................................
Subtotal...................................................................................................................................................................................
Income taxes paid.....................................................................................................................................................................
Net cash used in operating activities......................................................................................................................................

¥29,503
3,177
55
39
5,717
6
2
67
0
(290)
190
(93,157)
28,134
1,745
297(36,402)
1
811
265,676(97,093)(256)(8,486)(8,459)(300,191)(1,606)(14,065)
191,848(353,291)
69,278(133)(164,925)
1,560
21,09891,567(28,113)(395,694)(7,787)(403,482)$220,946
23,792411
292
42,8144414501
0(2,171)
1,422(697,648)
210,694
13,0682,224(272,612)
7
6,073
1,989,635(727,124)(1,917)(63,551)(63,349)(2,248,116)(12,027)(105,332)
1,436,740(2,645,779)
518,819(996)(1,235,115)
11,682
158,001
685,741(210,536)(2,963,334)(58,316)(3,021,658)

Cash flows from investing activities
Purchases of securities.............................................................................................................................................................
Proceeds from sales of securities...............................................................................................................................................
Proceeds from redemption of securities.....................................................................................................................................
Purchases of money trusts........................................................................................................................................................
Proceeds from money trusts......................................................................................................................................................
Purchases of tangible fixed assets.............................................................................................................................................
Purchases of intangible fixed assets...........................................................................................................................................
Proceeds from sales of tangible fixed assets...............................................................................................................................
Net cash provided by investing activities.................................................................................................................................

(1,390,078)
1,273,089
280,810(7,323)
10,025(2,143)(642)
562
164,298(10,410,229)
9,534,104
2,102,973(54,841)
75,076(16,048)(4,807)4,208
1,230,420

Cash flows from financing activities
Cash dividends paid..................................................................................................................................................................
Purchases of treasury stock......................................................................................................................................................
Repayments on lease obligations...............................................................................................................................................
Proceeds from sales of treasury stock........................................................................................................................................
Proceeds from exercise of employee share options.....................................................................................................................
Net cash used in financing activities......................................................................................................................................
Effect of exchange rate changes on cash and cash equivalents........................................................................................................
Net decrease in cash and cash equivalents.....................................................................................................................................
Cash and cash equivalents at beginning of year..............................................................................................................................
Cash and cash equivalents at end of year (Note 25)........................................................................................................................

(5,651)(1,941)(251)
00(7,844)—(247,028)
1,753,389¥1,506,361(42,320)(14,536)(1,879)00(58,743)—(1,849,981)
13,131,049$11,281,067

See accompanying Notes to Consolidated Financial Statements.

37

CHUGIN FINANCIAL GROUP, INC.

CHUGIN FINANCIAL GROUP, INC.

38

Notes to Consolidated Financial Statements
Chugin Financial Group, Inc. and its Consolidated Subsidiaries

1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of Chugin Financial Group,
Inc. (the “Company”) and its consolidated subsidiaries (collectively, 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,
the Japanese Banking Law and the Japanese Uniform Rules for Bank Accounting
and in conformity with accounting principles generally accepted in Japan(“Japanese GAAP”), which are different in certain respects as to application anddisclosure requirements from International Financial Reporting Standards.
Since the Company was established on October 3, 2022, information for theprevious fiscal year is not presented.
The consolidated financial statements for the year ended March 31, 2023
were prepared by succeeding to the consolidated financial statements of The
Chugoku Bank, Limited, which became a wholly owned subsidiary through a sole
share transfer. Therefore, the consolidated financial statements for the year ended
March 31, 2023 include results of The Chugoku Bank, Limited for the six months
ended September 30, 2022.
The accompanying consolidated financial statements have been reformatted
and translated into English with some expanded descriptions from theconsolidated financial statements of the Company prepared in accordance withJapanese GAAP and filed with the appropriate Local Finance Bureau of the
Ministry of Finance as required by the Financial Instruments and Exchange Act.
Certain supplementary information included in the statutory Japanese language
consolidated financial statements is not presented in the accompanying
consolidated financial statements.
As permitted by the Financial Instruments and Exchange Act, amounts of lessthan ¥1 million have been rounded down. As a result, the totals shown in theaccompanying consolidated financial statements (both in yen and U.S. dollars) do
not necessarily agree with the sums of the individual amounts.
The translations of the Japanese yen amounts into the U.S. dollar amounts
were included solely for the convenience of readers outside Japan, using theprevailing exchange rate as at March 31, 2023, which was ¥133.53 for US$1.00.
The translations should not be construed as representations that the Japanese
yen amounts have been, could have been or could in the future be converted into
the U.S. dollars at this or any other rate of exchange.

2. Significant Accounting Policies(a) Principles of Consolidation
Scope of Consolidated Subsidiaries and Affiliates Accounted for by the Equity
MethodThe consolidated financial statements include the accounts of the Company andits eleven significant subsidiaries after elimination of all significant intercompany
transactions, balances and unrealized profits.
Following the establishment of the Company, The Chugoku Bank, Limited(hereinafter, “The Chugoku Bank”) became a wholly owned subsidiary of theCompany, and the Company acquired all of the seven companies’ shares held by
The Chugoku Bank, through distribution-in-kind from The Chugoku Bank. As aresult, The Chugoku Bank, its consolidated subsidiaries, and the seven companies
were included in the scope of consolidation for the year ended March 31, 2023.
Ten subsidiaries, of which the Company owns a majority of the voting rights,
were excluded from the scope of consolidation for the year ended March 31,
2023 because the total amounts of their assets, net income and retained
earnings were immaterial and their exclusion from the scope of consolidation
would not hinder a rational judgment regarding the consolidated financial position
or results of operations.
Investments in ten subsidiaries and one affiliated company also were notaccounted for by the equity method for the year ended March 31, 2023 because
their exclusion had no significant effect on the consolidated financial statements.

39

CHUGIN FINANCIAL GROUP, INC.

One company, of which the Company owns between 20% and 50% of thevoting rights (execution rights), was not recognized as an affiliate accounted forusing the equity method for the year ended March 31, 2023 because it is held by
the Company’s unconsolidated subsidiary for the purpose of incubating investees
or earning capital gains through business transactions and not for the purpose ofcontrolling the entity.
Balance Sheet Date of Subsidiaries
The balance sheet date of all consolidated subsidiaries is March 31, the same asthat of the Company.
Goodwill
Goodwill is amortized using the straight-line method over a period of five years.
Goodwill which is immaterial in amount is fully charged as loss when incurred.
(b) Trading Account Securities, Securities and Money Trusts
Trading account securities are stated at fair value (cost of sales is computed by
the moving-average method). Gains and losses realized on disposal andunrealized gains and losses from market value fluctuations of these securities arerecognized as gains and losses in the period of the change. Held-to-maturity debt
securities are stated at amortized cost (straight-line method) using the moving
average method. Investments in affiliated companies that are not accounted forby the equity method are stated at cost determined by the moving averagemethod. Available-for-sale securities are stated at fair value. Unrealized gains andlosses on these securities, net of applicable income taxes, are reported as aseparate component of net assets. Realized gains and losses on the sale of suchsecurities are computed using the moving average method.
Available-for-sale securities without a market price are stated at cost using themoving average method.
Securities constituting trust assets of money trusts are stated in the samemanner as trading account securities.
(c) Derivatives and Hedge Accounting
Derivatives are stated at fair value.
The consolidated subsidiaries that engage in the banking business apply thedeferred method of hedge accounting for transactions entered into to hedge theinterest rate risks associated with various financial assets and liabilities as
stipulated in “Accounting and Auditing Treatment of Accounting Standards for
Financial Instruments in the Banking Industry” (Industry Committee Practical
Guideline No. 24, March 17, 2022) issued by the Japanese Institute of Certified
Public Accountants (“JICPA”). The effectiveness of the hedges is assessed foreach identified group of hedged loans and securities and the corresponding groupof hedging instruments, such as interest rate swaps, in the same maturity bucket.
The consolidated subsidiaries that engage in the banking business apply thedeferred method of hedge accounting for transactions entered into to hedge
foreign exchange risks associated with various foreign currency-denominatedmonetary assets and liabilities as stipulated in “Accounting and Auditing
Concerning Accounting for Foreign Currency Transactions in the Banking Industry”(JICPA Industry Committee Practical Guideline No. 25, October 8, 2020). The
effectiveness of the currency swap transactions, exchange swap transactions andsimilar transactions that hedge the foreign exchange risks of monetary assets
and liabilities denominated in foreign currencies is assessed based on acomparison of the foreign currency position of the hedged monetary assets andliabilities and the hedging instruments.
In addition to the above methods, the consolidated subsidiary that engage inthe banking business applies the fair value hedge method to portfolio hedges forforeign exchange risks associated with foreign securities, except for bonds,
identified as hedged items in advance as long as the amount of foreign currency

payables of spot and forward foreign exchange contracts exceeds the acquisition
cost of the hedged foreign securities in foreign currency.
(d) Tangible Fixed Assets
Tangible fixed assets owned by the consolidated subsidiary that engage in thebanking business is stated at cost less accumulated depreciation. Depreciation iscomputed by the declining balance method over the estimated useful life of theasset. For the consolidated subsidiary that engage in the banking business,
estimated useful lives are mainly as follows:
Buildings............................ 4 to 40 years
Other……..........................2 to 20 years
For the Company and other consolidated subsidiaries, the useful life of anasset is mainly based on the Corporation Tax Law of Japan.
Lease assets with respect to finance leases that do not transfer ownership ofthe lease assets and are recorded in “Tangible fixed assets” are depreciatedusing the straight-line method over the term of the lease, assumed to be theuseful life, with a salvage value of zero or the guaranteed amount.
(e) Intangible Fixed Assets
Intangible fixed assets are depreciated using the straight-line method. Costs ofsoftware for the internal use are amortized based on the useable period
determined by the Company and its consolidated subsidiaries (five years).
(f) Foreign Currency Translation
The Company’s assets and liabilities denominated in foreign currencies aretranslated into Japanese yen at the exchange rates prevailing at the end of the
fiscal year.
(g) Reserve for Possible Loan Losses
The consolidated subsidiaries that engage in the banking business write off loans
and makes provisions for possible loan losses. For loans to insolvent customers
who are undergoing bankruptcy or other collection proceedings or who are in asimilar financial condition, the reserve for possible loan losses is provided in thefull amount of such loans, excluding the portion estimated to be recoverable due
to security interests or guarantees.
For large borrowers who are likely to become bankrupt and borrowers withrestructured loans, if the cash flows from the collection of principal and interest
can be reasonably estimated, a reserve is provided based on the difference
between the relevant cash flows discounted by the initial contractual interest
rates and the carrying amounts of the loans.
For unsecured and unguaranteed portions of loans to customers not presently
in these circumstances but who face a high probability of so becoming, thereserve for possible loan losses is provided for the estimated unrecoverable
amounts determined after an evaluation of the customer’s overall financial
condition. For other loans such as normal loans and loans requiring special
attention, the estimated loss for the average remaining term on loans and othertransactions or the estimated loss over the next three years is recorded, andthese estimated losses are calculated by using the loss ratio, derived from theaverage rate for the actual rate of loan losses of the consolidated subsidiaries
that engage in the banking business for a fixed past period based on the threeyear historical default rate or the past average rate with the long-term perspective
such as business cycles, and adding to that the necessary corrections for future
estimates. A specific reserve for loans to borrowers in certain countries has been
established in accordance with the regulations of the Ministry of Finance to coverpotential losses from specific overseas loans.

Assessment and classification are conducted by each business department
and Credit Supervision Department utilizing the internal rules on self-assessmentof assets and audited by the Risk Management Department (an independent
department). The reserve for possible loan losses is provided based on theauditing results.
Reserves for possible loan losses of other consolidated subsidiaries areprovided for general claims in the amount deemed necessary based on historicalloan loss ratios and for certain doubtful claims in the amount deemed
uncollectable based on individual assessments.
(h) Accrued Employees’ Bonuses
Accrued employees’ bonuses are provided for the future payment of bonuses to
employees in the amounts of the estimated bonuses attributable to the current
fiscal year.
(i) Accrued Directors’ Bonuses
Accrued directors’ bonuses are provided for the payment of bonuses to directors
and corporate auditors based on an estimated amount.
(j) Reserve for Directors’ Retirement Benefits
A reserve for directors’ retirement benefits is provided for severance andretirement benefits to directors and corporate auditors based on the required
amounts determined by internal regulations.
(k) Reserve for Reimbursement of Deposits
A reserve for reimbursement of deposits is provided for reimbursement ofdeposits that were derecognized from liabilities and credited to income. The
amount is determined based on the historical reimbursement ratio for suchaccounts.
(l) Reserve for Point Program
A reserve for the point program is provided for the accumulation of points granted
to credit card holders. The amount of reserve is determined based on the past
usage ratio of points by card holders.
(m) Reserve Under Special Laws
A reserve under special laws is provided for contingent liabilities from financial
instruments and exchange. This is a reserve pursuant to Article 46-5 of the
Financial Instruments and Exchange Act and Article 175 of Cabinet Office Orderon the Financial Instruments Business to indemnify losses incurred in connection
with the purchase and sale of securities and derivatives and other transactions.
(n) Accounting for Employees’ Severance and Retirement Benefits
In determining projected benefit obligation for the consolidated subsidiaries thatengage in the banking business, the estimated amount of retirement benefits is
attributed to periods based on a benefit formula basis.
Prior service cost of the cash balance pension plans is recognized as expense
using the straight-line method over 10 years, which is within the average of theestimated remaining service years, commencing with the period in which it arises.
Actuarial gains and losses are recognized as expenses using the straight-line
method over 10 years, which is within the average of the estimated remaining
service years, commencing with the following period.
In calculating the liability for retirement benefits and retirement benefit
expenses, other consolidated subsidiaries and subsidiary corporations, etc. apply
a simplified method under which the amount that would be required to be paid if
all the employees voluntarily retired at the fiscal year end is regarded as projected
benefit obligation.

CHUGIN FINANCIAL GROUP, INC.

40

(o) Recognition of Revenue and Expenses(1) Finance leases
As lessor:
Income from finance leases and related leasing costs are recognized when lease
payments are received.
(2) Revenue from contracts with customers
The Company and its consolidated subsidiaries recognize revenue from contracts
with customers applying the following steps:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in thecontract
Step 5: Recognize revenue when (or as) the entity satisfies a performanceobligation
The Company and its consolidated subsidiaries, which provide services related
to a wide range of the banking business such as domestic exchange, sales ofcustomers’ assets in custody and investment banking business, recognize
revenue when satisfying a performance obligation based on contracts withcustomers.

(p) Income Taxes
Deferred income taxes are recognized for loss carryforwards and taxable
temporary differences between carrying amounts for financial reporting purposes
and tax bases. In Japan, income taxes applicable to the Company and its
consolidated subsidiaries consist of corporation tax (national), inhabitant taxes(local) and enterprise taxes (local).
(q) Accounting Policy for Loss/Gain on Cancellation of Securities Investment
Trusts
The consolidated subsidiary that engage in the banking business records loss/
gain on cancellation during the period of securities investment trusts in interestand dividends on securities. If a negative amount arises for interest and dividends
on securities for a particular yen-denominated securities investment trust or
foreign-currency-denominated securities investment trust, the full negative
amount is recorded in loss on redemption of bonds.
(r) Consumption Taxes
Any non-deductible consumption taxes associated with asset purchases arerecorded as expense during the fiscal year.
(s) Per Share Information
Basic net income per share is based on the weighted average number of sharesof common stock outstanding during the year, excluding treasury stock. Diluted
net income per share reflects the potential dilution that could occur if outstanding
stock options were exercised. Diluted net income per share of common stock
assumes the full exercise of the outstanding stock options at the beginning of theyear or at the time of the grant.

3. Significant Accounting Estimates
The following describes possible significant impacts that may occur in the
consolidated financial statements for the following fiscal year as a result ofamounts being recorded in the consolidated financial statements for the fiscal
year under review based on accounting estimates.

41

CHUGIN FINANCIAL GROUP, INC.

Reserve for Possible Loan Losses
Credit services are the largest source of revenue for the Group, and credit risk
assets such as loans and bills discounted, and customers’ liabilities for
acceptances and guarantees constitute a high level of materiality on the
consolidated balance sheet, and their impact on business results and financial
position is large. Accordingly accounting estimates for such are deemed to beitems of significance.
(a) Amounts Recorded on the Consolidated Financial Statements for the
Fiscal Year Under Review
The reserve for possible loan losses recorded on the consolidated balance sheet
as of March 31, 2023 was ¥54,302 million ($406,665 thousand), and the details
related to the accounting estimates adopted when calculating that amount aredescribed below.
(b) Information to Facilitate Understanding of the Details Related to the
Significant Accounting Estimates for the Identified Items
1) Method for Calculating Amounts
For a description of the methods used to calculate amounts, refer to Note 2 (g)“Significant Accounting Policies”-“Reserve for Possible Loan Losses.”
The self-assessments of assets described in the “Reserve for Possible Loan
Losses” refers to the classification of assets according to the degree of risk ofcollection or risk of damage to value, which is determined by examining each
asset held individually. Appropriate write-offs and provisions are made according
to classification of borrowers (normal borrowers, borrowers requiring caution,
potentially bankrupt borrowers, effectively bankrupt borrowers, and bankrupt
borrowers). Loans that are delinquent for over three months and restructuredloans are classified as “substandard loans” and are written off or a provision ismade for them.
The Company determines a borrower’s ability to repay loans by considering theborrower’s actual financial position, cash flow, profitability, etc., based on thebasic rating using a rating model, etc., confirms the borrower’s loan conditions
and their fulfillment status, and determines the classification of borrowers bytaking into consideration the characteristics of the industry, etc., the prospects forbusiness continuity and profitability, the ability to repay the debt based on theannual repayment amount, the appropriateness of the business improvement
plan, etc., and support from financial institutions, etc.
Among the borrowers whose lending conditions have been relaxed, loans andbills discounted to such borrowers are not considered to be restructured loans if
the borrowers have started to restructure its business through the implementationof financial support in accordance with a drastic business restructuring plan thatis highly feasible and a reasonable and highly feasible business improvement
plan.
In addition, The Chugoku Bank manages loans and bills discounted managed
by the Structured Finance Center and the International Department, such as
structured finance including marketable loans and loans to non-Japanese entities,
as Headquarters Loans and bills discounted, and the Company bases its
determination of the classification of the borrowers by comprehensively taking
into account all factors including not only formal aspects such as the borrower’s
cash flow status, whether the borrower is delinquent and the length of any
delinquency, and whether the borrower is in legal liquidation or not, but also theunderstanding of risk factors, analyzing the degree of risk, and available
information such as external ratings.
2) Major Assumptions Used for Significant Accounting Estimates
Based on the assumption that there is a certain relationship between thehistorical default ratio and the expected future credit loss ratio, the Company

calculates the allowance for expected credit loss on loans to normal borrowers
and loans to borrowers requiring caution mainly by calculating the credit loss ratio
based on the average of the historical default ratio over a certain period of time,
which is based on the historical defaults for three years or the past average value
with the long-term perspective such as business cycles, and then calculating the
expected credit loss ratio after taking into account necessary adjustments suchas the average remaining term on loans and bills discounted (The averageremaining period for the fiscal year ended March 31, 2023 was 5.22 years, fornormal borrowers; 3.93 years, for borrowers requiring caution). The Company
calculates the allowance for expected credit loss on loans to potentially bankrupt
borrowers by deducting the estimated amount receivable through the disposal ofcollateral and the estimated amount that can be collected through guarantees
from the amount of the credit loss, and multiplying the remaining amount by the
expected credit loss ratio based on the historical default ratio.
As stated in 1) Method for Calculating Amounts, in cases where a borrower
whose loan conditions have been relaxed has started to restructure its businessthrough the implementation of financial support in accordance with drastic
management restructuring plan that is highly feasible and a reasonable andfeasible business improvement plan, the loans and bills discounted to suchborrowers are not considered to be restructured loans.
As of March 31, 2023, although the impact of COVID-19 was easing, there
were concerns regarding the impact of the yen’s depreciation and soaring
resource and energy prices on corporate earnings. A reserve for possible loan
losses was recorded after determining the classification of the borrowers, giving
consideration to the results of examination based on information currently
available to the Company, such as forecasts for the business recovery ofindividual borrowers that are impacted, and expected achievement of business
improvement plans etc., created by the borrowers.
3) Impact on Consolidated Financial Statements in the Following Fiscal Year
The major assumptions used when determining the classification of the borrowers
and calculating the reserve for possible loan losses such as assumptions on thecorrelating relationship between the historical default rate and the expected loss
rate, the average remaining term on loans and bills discounted, the feasibility ofbusiness improvement plan created by the borrowers and future trends in thebusiness environment, include uncertainties, and if there is an unexpected
increase in the default rate due to deteriorated business conditions for major
borrowers, extensions on the remaining term on loans and bills discounted, sharpchanges to the business environment that form the basis of assumption for
figures in business improvement plans created by the borrowers, the amount ofloss may increase due to the need to increase the reserve for possible loan
losses.

from using the acquisition cost as the balance sheet amount to using the mostrecently available reference price as the fair value. The effect on the consolidated
financial statements was immaterial.

5. New Accounting Standards to Be Applied- “Accounting Standard for Current Income Taxes” (Revised ASBJ Statement No.
27, October 28, 2022)- “Accounting Standard for Presentation of Comprehensive Income” (Revised
ASBJ Statement No. 25, October 28, 2022)- “Guidance on Accounting Standard for Tax Effect Accounting” (Revised ASBJ
Guidance No. 28, October 28, 2022)(a) Overview
The classification of income taxes in cases in which other comprehensive income
is subject to taxation and the tax effect treatment of sales of shares ofsubsidiaries in cases in which Group Taxation Regime is applied.
b) Scheduled Date of Application
These ASBJ statements and guidance will be applied from the start of the fiscal
year ending March 31, 2025.
c) Effects of Application of the Accounting Standard
The effects of the application of the Accounting Standard for Current Income
Taxes on the consolidated financial statements are currently being evaluated.

6. Securities
Securities include investments in interests and equity securities of unconsolidated
subsidiaries and affiliates in the amounts of ¥4,021 million ($30,113 thousand)and ¥108 million ($808 thousand) as at March 31, 2023.
Securities received under repurchase agreements, etc., that are permitted tobe disposed of through sale or pledge (re-pledge) were held in the amount of¥3,328 million ($24,923 thousand) as at March 31, 2023 without such disposal.
The amounts shown in the following tables include trust certificates classified
as “Other debt purchased” and “Trading account securities” in addition to“Securities” stated in the consolidated balance sheet.
The amount of liabilities for guarantees on corporate bonds included insecurities issued by private placement (Article 2, Paragraph 3 of the Financial
Instruments and Exchange Act) was ¥96,884 million ($725,559 thousand) as at
March 31, 2023.

4. Changes in Accounting Policies
Adoption of Implementation Guidance on Accounting Standard for Fair
Value Measurement, etc.
The Company has applied the “Implementation Guidance on Accounting Standard
for Fair Value Measurement” (ASBJ Guidance No. 31, June 17, 2021; hereinafter“Fair Value Measurement Implementation Guidance”) from the beginning of theyear ended March 31, 2023. The Company has prospectively adopted the new
accounting policies stipulated by the Fair Value Measurement Implementation
Guidance in accordance with the transitional treatment provided for in Paragraph27-2 of the Fair Value Measurement Implementation Guidance.
As a result, for investment trusts whose assets are real assets, in cases inwhich there are no transaction prices in the market and there are material
restrictions on cancellation, etc., such that market participants demandcompensation for the risk, the Company has changed its method of valuation

CHUGIN FINANCIAL GROUP, INC.

42

(1) Trading account securities(3) The following tables summarize carrying amounts and fair values of held-to-maturity debt securities with available fair values as of March 31, 2023:
Thousands of
U.S. Dollars

Millions of Yen

Amount of net unrealized gains (losses) included in the consolidated statements of income...............................................................

¥

2023

(21)

$

Millions of Yen
2023
Carrying amount

Acquisition cost

Difference

Available-for-sale securities whose fair value exceeds acquisition cost:
Equity securities................................................................................................................................. ¥92,347
Bonds...............................................................................................................................................
726,150
Japanese government bonds..........................................................................................................
383,905
Japanese municipal bonds.............................................................................................................
203,626
Japanese corporate bonds.............................................................................................................
138,618
Other................................................................................................................................................
209,209
Foreign bonds...............................................................................................................................
116,979
92,229Other............................................................................................................................................
Subtotal........................................................................................................................................ ¥1,027,707¥47,898
717,231376,867
202,689
137,674
175,015
115,281
59,734¥940,144¥44,449
8,919
7,038
937
943
34,193
1,698
32,495¥87,562

Available-for-sale securities whose fair value does not exceed acquisition cost:
Equity securities................................................................................................................................. ¥21,132
Bonds...............................................................................................................................................
916,562
Japanese government bonds..........................................................................................................
169,607561,457
Japanese municipal bonds.............................................................................................................
Japanese corporate bonds.............................................................................................................
185,498
325,402
Other................................................................................................................................................
Foreign bonds...............................................................................................................................
253,379
72,023
Other............................................................................................................................................
Subtotal........................................................................................................................................ ¥1,263,098
Total.................................................................................................................................................. ¥2,290,805¥23,196
932,094
171,694572,353
188,047
345,863
267,32178,542¥1,301,155¥2,241,299¥(2,064)(15,532)(2,086)(10,896)(2,549)(20,460)(13,942)(6,518)¥(38,056)¥49,505

2023
Carrying amount

Available-for-sale securities whose fair value exceeds acquisition cost:
Equity securities................................................................................................................................. $691,582
Bonds...............................................................................................................................................
5,438,103
2,875,046
Japanese government bonds..........................................................................................................
Japanese municipal bonds.............................................................................................................
1,524,945
Japanese corporate bonds.............................................................................................................
1,038,103
Other................................................................................................................................................
1,566,756
Foreign bonds...............................................................................................................................
876,050
Other............................................................................................................................................
690,698
Subtotal........................................................................................................................................ $7,696,450
Available-for-sale securities whose fair value does not exceed acquisition cost:
Equity securities................................................................................................................................. $158,256
Bonds...............................................................................................................................................
6,864,090
Japanese government bonds..........................................................................................................
1,270,178
Japanese municipal bonds.............................................................................................................
4,204,725
Japanese corporate bonds.............................................................................................................
1,389,185
2,436,920
Other................................................................................................................................................
Foreign bonds...............................................................................................................................
1,897,543
Other............................................................................................................................................
539,376
Subtotal........................................................................................................................................ $9,459,282
Total.................................................................................................................................................. $17,155,732

43

CHUGIN FINANCIAL GROUP, INC.

Acquisition cost

Difference$358,705
5,371,309
2,822,339
1,517,928
1,031,034
1,310,679
863,334
447,345$7,040,694$332,876
66,79352,7077,017
7,062
256,069
12,716
243,353$655,747$173,713
6,980,408
1,285,808
4,286,325
1,408,275
2,590,152
2,001,954
588,197$9,744,289$16,784,984

2023
Type

$(15,457)(116,318)(15,621)(81,599)(19,089)(153,223)(104,410)(48,813)$(284,999)$370,740

Carrying amountHeld-to-maturity debt securities whose fair value exceeds carrying amount:
Japanese government bonds.............................................................................................................. ¥11,398
Japanese municipal bonds.................................................................................................................
1,900
Subtotal........................................................................................................................................ ¥13,298
Total.................................................................................................................................................. ¥13,298

Fair value

Difference¥11,485
1,919¥13,404¥13,404

¥86
19
¥105
¥105

Thousands of U.S. Dollars
2023
Type

Carrying amountHeld-to-maturity debt securities whose fair value exceeds carrying amount:
Japanese government bonds.............................................................................................................. $85,359
Japanese municipal bonds.................................................................................................................
14,229Subtotal........................................................................................................................................ $99,588
Total.................................................................................................................................................. $99,588

Fair value

Difference$86,010
14,371$100,381$100,381

$644
142
$786
$786

(4) The Company recognized impairment loss on equity securities and Japanese corporate bonds in the amounts of ¥532 million ($3,984 thousand) and ¥12 million ($89
thousand), respectively, in the year ended March 31, 2023.
Impairment loss on securities other than trading account securities, excluding equity securities, etc., without a market price and investments in partnerships, isrecognized for the full amount of loss when the loss is 50% or more of the acquisition cost. For loss between 30% and 50% of the acquisition cost, impairment isdetermined by the possibility of recovery, with consideration for the trends in market values during the past year.
(5) Total sales of available-for-sale securities for the year ended March 31, 2023 were as follows:
Millions of Yen
2023
Type

Thousands of U.S. Dollars
Type

Millions of Yen(157)(2) The following tables summarize acquisition costs and carrying amounts (fair value) of available-for-sale securities with available fair values as of March 31, 2023:

Type

Held-to-maturity debt securities

Proceeds from sales

Equity securities................................................................................................................................. ¥59,752
Bonds...............................................................................................................................................
812,384
Japanese government bonds..........................................................................................................
753,490
Japanese municipal bonds.............................................................................................................
53,937
4,956
Japanese corporate bonds.............................................................................................................
Other................................................................................................................................................
305,371
266,349
Foreign bonds...............................................................................................................................
Other............................................................................................................................................
39,022
Total............................................................................................................................................. ¥1,177,508

Gains on sales

Losses on sales¥15,373
21,18921,095
92
0
7,558
582
6,975
¥44,121¥1,001
19,15818,366755
36
25,253
24,953300¥45,413

Thousands of U.S. Dollars
2023
Type

Proceeds
from sales

Equity securities................................................................................................................................. $447,479
Bonds...............................................................................................................................................
6,083,906
Japanese government bonds..........................................................................................................
5,642,851
Japanese municipal bonds.............................................................................................................
403,931
Japanese corporate bonds.............................................................................................................
37,115
Other................................................................................................................................................
2,286,909
Foreign bonds...............................................................................................................................
1,994,675
Other............................................................................................................................................
292,233
Total............................................................................................................................................. $8,818,303

Gains onsales

Losses on
sales$115,127
158,683
157,979688
056,601
4,358
52,235$330,420$7,496
143,473
137,5425,654
269
189,118
186,8712,246$340,095

CHUGIN FINANCIAL GROUP, INC.

44

7. Money Trusts(1) Money trusts as a type of trading account securities as at March 31, 2023 were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2023

Carrying amount (fair value)........................................................................................................................................................... ¥Amount of net unrealized gains (losses) included in the consolidated statements of income...............................................................

20,000—$

149,779—(2) Money trusts, other than for investment purposes or held-to-maturity purposes as at March31, 2023 were as follows:
Millions of Yen“Accounting and Auditing Treatment of Accounting Standards for Financial
Instruments in the Banking Industry” (JICPA Industry Committee Practical
Guideline No. 24, March 17, 2022). The Company has the right to sell or pledge(re-pledge) commercial bills discounted and foreign exchange bought without
restriction. The total face amount of such instruments as at March 31, 2023 was¥14,800 million ($110,836 thousand).
The amount of loan participation recorded in the consolidated balance sheet
and included in participated principals that were accounted for as loans to original
debtors in accordance with “Accounting Treatment and Representation of Loan
Participation” (JICPA Accounting System Committee Report No. 3, November 28,2014), was ¥1,363 million ($10,207 thousand) as at March 31, 2023.

(Millions of Yen)

Money trust......................................

Carrying amount

Acquisition cost

Difference¥4,600¥4,600¥—

Difference when carrying
amount does not exceed
acquisition cost

¥—

¥—

Thousands of U.S. Dollars
2023

Money trust......................................

Carrying amount

Acquisition cost

Difference$34,449$34,449$—Difference when carrying
amount exceeds
acquisition cost

Difference when carrying
amount does not exceed
acquisition cost

$—

$—

8. Net Unrealized Gains and Losses on Available-for-sale Securities
Net unrealized gains on available-for-sale securities as at March 31, 2023 were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2023

Net unrealized gains on available-for-sale securities....................................................................................................................... ¥Deferred tax liabilities...................................................................................................................................................................
Net unrealized gains on available-for-sale securities before adjustment for non-controlling interests, net of taxes..............................
Non-controlling interests..............................................................................................................................................................
Net unrealized gains on available-for-sale securities, net of taxes.................................................................................................... ¥

9. Loans and Bills Discounted, Other Assets
Loans based on the Banking Act and the Law concerning Emergency Measures
for the Revitalization of the Financial Functions are as follows:
Loans are defined as corporate bonds included in “Securities” in the
consolidated balance sheet (the whole or part of the redemption of the principal
and payment of interest are guaranteed and limited to the corporate bonds issued
through private placement of the securities (as provided for by Article 2,
Paragraph 3 of the Financial Instruments and Exchange Act)), loans, foreignexchange, those which are included in the accounts of accrued interest andtemporary payments under other assets and customers’ liabilities for acceptancesand guarantees and lent securities (limited to loan contract for use or lease
contracts).
Thousands of
U.S. Dollars

Millions of Yen
2023

Loans in Bankruptcy/rehabilitation or similar
proceedings................................................... ¥ 20,019
Loans at risk.......................................................
62,106Loans past due three months or more but lessthan six months..............................................
724
26,295
Restructured loans..............................................
Total.............................................................. ¥ 109,146

45

CHUGIN FINANCIAL GROUP, INC.

$ 149,921
465,108

5,422
196,922$ 817,389

49,010(14,775)
34,234—
34,234$$

367,033(110,649)
256,376—
256,376

Loans under bankruptcy/rehabilitation or similar proceedings are loans toborrowers under bankruptcy or similar proceedings due to the commencement ofbankruptcy proceedings, commencement of rehabilitation proceedings, petition
for rehabilitation proceedings, etc.
Loans at risk are loans whose principal and interest are not likely to becollected pursuant to the contract due to the deteriorated financial positions andoperating performances of the debtors, although they have not gone bankrupt,
and do not fall in the category of loans under bankruptcy/rehabilitation or similar
proceedings.
Loans past due three months or more but less than six months are loans
whose payment of principal and/or interest is past due for three months or morefrom the due date, and which do not fall in the category of loans underbankruptcy/rehabilitation or similar proceedings, or loans at risk.
Restructured loans are loans whose terms and conditions have been amendedin favor of borrowers, in order to facilitate or assist the borrowers’ restructuring
by reducing the rate of interest, by providing a grace period for the payment ofprincipal or interest, or by loan forgiveness, and are not classified in any of theabove categories.
The amounts of above loans are before deducting reserve for possible loan
losses.

Losses on
impairment of
fixed assets

Purpose of Use

TypeOkayama Prefecture

Branches
Idle assets

4 branches
1 itemLand andbuildings¥54

Prefectures otherthan Okayama

Idle assets

2 itemsLand¥0(Thousands of U.S. Dollars)

2023
Losses on
impairment of
fixed assets

Purpose of Use

TypeOkayama Prefecture

Branches
Idle assets

4 branches
1 itemLand andbuildings

Prefectures otherthan Okayama

Idle assets

2 items

Land

2023
Difference when carrying
amount exceeds
acquisition cost2023

10. Commitment Lines$404

Commitment line agreements are loan agreements that oblige the Company andits consolidated subsidiaries to lend funds up to certain limits agreed to inadvance. The Company and its consolidated subsidiaries make loans upon therequest of an obligor to draw down funds as long as there is no breach in thevarious terms and conditions stipulated in the relevant agreement. The total
unused commitment line balance related to these agreements as at March 31,
2023 amounted to ¥1,564,786 million ($11,718,610 thousand). Of this amount,¥1,450,085 million ($10,859,619 thousand) was related to loans in which theterm of the agreement was one year or less or for which the unconditional
cancellation of the agreement was allowed at any time.
With many of these commitment line agreements, the term of the agreement
runs its course without the loan ever being drawn down. Therefore, the unusedloan commitment does not necessarily affect future cash flows. In certain loan
agreements, conditions are included that allow consolidated subsidiaries andsubsidiary corporations, etc. either to decline the request to drawdown the loan orto reduce the agreed limit when there is cause to do so, such as when there is achange in financial condition or when it is necessary to protect credit of theconsolidated subsidiaries and subsidiary corporations, etc. The consolidated
subsidiaries and subsidiary corporations, etc. take various measures to protect
their credit, including having the obligor pledge collateral such as real estate or
securities when signing a loan agreement or confirming the obligor’s financial
condition at regular intervals in accordance with the established internal
procedures of the consolidated subsidiaries and subsidiary corporations, etc.

Within the consolidated subsidiary that engage in the banking business, the Group
office or branch manages and determines income and expenses, and it is theGroup office or branch that is the smallest unit of an asset group for recognition
and measurement of impairment loss. Fixed assets that do not have identifiable
cash flows, such as the corporate headquarters’ facilities, the computer center andrecreational facilities, are grouped with other assets. As for idle assets and assets
to be disposed of, impairment loss on each asset is measured individually.
With regard to the Company and other consolidated subsidiaries, each company
is considered as the smallest grouping unit.
For assets in which investments were not expected to be recovered following
the decision of branch consolidation, etc. made by The Chugoku Bank, Limited, aconsolidated subsidiary of the Company, the Company reduced the carrying
amount for branches to the recoverable amount (the net realizable value for all
assets) and recognized a corresponding loss of ¥55 million ($411 thousand) as“Losses on impairment of fixed assets” for the year ended March 31, 2023.
The recoverable amount for branches was the net realizable value. The net
realizable value was based on the appraisal value in accordance with Real EstateAppraisal Standards.

11. Tangible Fixed Assets

12. Intangible Fixed Assets
Intangible fixed assets as at March 31, 2023 were as follows:

Tangible fixed assets as at March 31, 2023 were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2023

Land................................................................. ¥
Buildings...........................................................
Lease assets.....................................................
Other tangible fixed assets.................................
Construction in progress.....................................
Total............................................................. ¥$018,827
10,043
1,595
5,101
62
35,631$ 140,994
75,211
11,94438,201464$ 266,838

Accumulated depreciation as at March 31, 2023 was ¥82,030 million ($614,318
thousand). The amount that was directly offset against acquisition costs as at
March 31, 2023 was ¥4,909 million ($36,763 thousand).
The differences between the recoverable amount and the book value of theassets below were recognized as “Losses on impairment of fixed assets” for theyear ended March 31, 2023 as follows:

Thousands of
U.S. Dollars

Millions of Yen
2023

Software............................................................. ¥Software in progress...........................................
Other intangible fixed assets................................
Total.............................................................. ¥

1,251
367
93
1,712

$

$

9,368
2,748
696
12,821

13. Pledged Assets
Pledged assets as at March 31, 2023 were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2023

Securities........................................................... ¥ 802,802
Loans and bills discounted..................................
479,785
Other assets.......................................................
73
Total.............................................................. ¥ 1,282,662$ 6,012,147
3,593,087546$ 9,605,796

Bills discounted such as commercial bills discounted and foreign exchangesbought are accounted for as financial transactions in accordance with the

CHUGIN FINANCIAL GROUP, INC.

46

Liabilities secured by pledged assets were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2023

Payables under securities lending transactions..... ¥ 423,430
305,599
Borrowed money.................................................
Payables under repurchase agreements...............
93,91324,071
Deposits.............................................................
Total.............................................................. ¥ 847,014$ 3,171,047
2,288,616
703,310
180,266$ 6,343,248

Figures for reconciliation between the statutory tax rate and the effective tax rateof the Company for the year ended March 31, 2023 have been omitted as thedifference between the statutory tax rate and the effective tax rate was less than
5% of the statutory tax rate.

15. Borrowed Money, Commercial Paper and Other Liabilities
Borrowed money, commercial paper and other liabilities as at March 31, 2023
were as follows:
Thousands of
U.S. Dollars

Millions of Yen

In addition, the following assets were pledged as collateral for settlement of
exchange at the Bank of Japan and for other purposes as at March 31, 2023:
Thousands of
U.S. Dollars

Millions of Yen
2023

Securities........................................................... ¥57,981
Trading account securities...................................
98
Other assets.......................................................
25$ 434,217
733
187
Thousands of
U.S. Dollars

2023

Initial margins for central counterparty.................. ¥Cash collateral paid for financial instruments........
Initial margins for futures markets........................
Guarantee deposits.............................................

52,56946,3091,902
808$ 393,686
346,805
14,2436,051

14. Deferred Tax Assets (Liabilities)
Significant components of deferred tax assets and liabilities as at March 31,
2023 were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2023

Deferred tax assets:
Reserve for possible loan losses......................... ¥15,830
Unrealized losses on available-for-sale securities...
11,592
Net defined benefit liability..............................
8,497
Depreciation...................................................
3,896
Deferred losses on hedging instruments...........
2,207
Losses on impairment of fixed assets...............
1,246
Accrued employees’ bonuses..........................
534
Write-down of securities.................................
532
463
Software........................................................
Other.............................................................
1,621
46,422
Subtotal.........................................................
Valuation allowance........................................
(1,908)
Total deferred tax assets.................................
44,513
Deferred tax liabilities:
Unrealized gains on available-for-sale securities...
(26,357)
Deferred gains on hedges...............................
(750)
Reserve for advanced depreciationof tangible fixed assets..................................
(235)
Other.............................................................
(0)
Total deferred tax liabilities..............................
(27,343)
Net deferred tax assets (liabilities)......................... ¥17,170

47

CHUGIN FINANCIAL GROUP, INC.

$ 2,402,778
348,461
1,647
8,634

The weighted average interest rates on the outstanding balances as at March 31,
2023 were as follows:
2023

Other assets included the following items as at March 31, 2023:
Millions of Yen

2023

Borrowed money................................................. ¥320,843
Commercial paper..............................................
46,530
Lease liabilities (due within one year).........................
220
Lease liabilities (due after one year)..........................
1,153$ 118,550
86,81163,63329,176
16,528
9,331
3,999
3,984
3,467
12,139347,652(14,288)333,355

Note: The weighted average interest rate is not shown for lease liabilities because the Company
uses a method that includes amounts equal to the interest in the total capital lease liabilities
and that spreads the total amount equal to interest equally over each fiscal year of the lease
period.

Borrowed money classified by maturity as at March 31, 2023 was as follows:
Thousands of
U.S. Dollars

Millions of Yen
2023

Less than one year.............................................. ¥310,338
From one to two years.........................................
3,735
From two to three years......................................
2,886
From three to four years......................................
1,628
From four to five years........................................
730
Over five years....................................................
1,524
Total borrowed money......................................... ¥320,843(1,759)(0)(204,770)$ 128,585$ 2,324,106
27,971
21,613
12,192
5,466
11,413$ 2,402,778

Commercial paper classified by maturity as at March 31, 2023 was as follows:
Thousands of
U.S. Dollars

Millions of Yen
2023

Less than one year.............................................. ¥46,530
Total commercial paper....................................... ¥46,530$ 348,461$ 348,461

Lease liabilities classified by maturity as at March 31, 2023 were as follows:
Thousands of
U.S. Dollars

Millions of Yen(197,386)(5,616)

1.146%
4.978%——

Borrowed money..........................................................................
Commercial paper.......................................................................
Lease liabilities (due within one year)............................................
Lease liabilities (due after one year)..............................................

16. Bonds Payable
Thousands of
U.S. Dollars

Millions of Yen
2023

Subordinated bond.............................................. ¥10,000

$

$

1,647
1,632
1,625
1,610
1,610
2,141
10,28974,88917. Liability for Employees’ Severance and Retirement Benefits(1) Outline of retirement benefit plans
The consolidated subsidiary that engage in the banking business has defined
retirement benefit plans and contribution retirement benefit plans. As for defined
retirement benefit plans, the consolidated subsidiary that engage in the banking
business has a corporate pension fund plan and a lump-sum payment plan.
Other consolidated subsidiaries mostly provide unfunded lump-sum payment
plans. In determining projected benefit obligation, a simplified method has been
adopted, and the consolidated subsidiary that engage in the banking businesshas set up an employees’ retirement benefit trust.

(2) Defined benefit plans(a) Changes in projected benefit obligation for the year ended March 31,
2023, were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2023

Beginning balance of projected benefit obligation..... ¥61,490
Service cost...................................................
1,757
122
Interest cost...................................................
65
Actuarial differences.......................................
Retirement benefits paid.................................
(1,690)—Prior service cost............................................
Other.............................................................
—
Ending balance of projected benefit obligation...... ¥61,745$ 460,495
13,158913
486(12,656)——$ 462,405(b) Changes in plan assets for the year ended March 31, 2023 were as
follows:

2023

Net defined benefit liability................................... ¥3,466
Net defined benefit asset.....................................
—Net liability (asset) recorded in the consolidatedbalance sheet................................................. ¥3,466$ 446,97810,304(21,530)
10,851(10,169)—$ 436,448(c)	R econciliation between the ending balances of projected benefit
obligation and plan assets and net defined benefit liability and net
defined benefit asset recorded in the consolidated balance sheet was
as follows:
Thousands of
U.S. Dollars

Millions of Yen
2023

Funded defined benefit obligation........................ ¥61,342
Plan assets.........................................................
(58,279)
3,063
Unfunded defined benefit obligation.....................
402
Net liability (asset) recorded in the consolidatedbalance sheet................................................. ¥
3,466$ 459,387(436,448)
22,9383,010$

25,956—$25,956

Thousands of
U.S. Dollars

Millions of Yen
2023

Service cost........................................................ ¥1,757
Interest cost.......................................................
122
Expected return on plan assets............................
(1,376)
1,406
Amortization of actuarial differences.....................
Amortization of prior service cost.........................
(418)
(7)
Other.................................................................
Retirement benefit expenses on defined benefit
plans............................................................. ¥1,483$

13,158913(10,304)
10,529(3,130)(52)$11,106

Note: Retirement benefit expenses of consolidated subsidiaries that adopted the simplified method
are included in “Service cost.”(e) The components of adjustments for retirement benefits (before tax
effect) were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2023

Prior service cost................................................ ¥(418)Actuarial differences...........................................
(1,534)
Total................................................................... ¥(1,952)$$

(3,130)(11,488)(14,618)(f) The components of accumulated adjustments for retirement benefits(before tax effect) were as follows:
Thousands of
U.S. Dollars

Millions of Yen

2023

Beginning balance of plan assets......................... ¥59,685
Expected return on plan assets........................
1,376
Actuarial differences.......................................
(2,875)Contribution from the employer........................
1,449
Retirement benefits paid.................................
(1,358)Other.............................................................
—
Ending balance of plan assets.............................. ¥58,279$(d) The components of retirement benefit expenses for the year ended
March 31, 2023 were as follows:

Thousands of
U.S. Dollars

Millions of Yen

2023

Less than one year.............................................. ¥220
From one to two years.........................................
218
From two to three years......................................
217
From three to four years......................................
215
From four to five years........................................
215
Over five years....................................................
286
Total lease liabilities............................................ ¥1,374$Thousands of
U.S. Dollars

Millions of Yen

2023

Unrecognized prior service cost........................... ¥3,694
Unrecognized actuarial differences.......................
(10,627)
Other.................................................................
—
Total................................................................... ¥(6,932)$$

27,664(79,585)—(51,913)(g) Plan assets
1) Components of plan assets
Plan assets consisted of the following:2023

Investment trusts.........................................................................
Equity securities...........................................................................
Cash and deposits.......................................................................
Bonds.........................................................................................
General account...........................................................................
Other..........................................................................................
Total............................................................................................

23.5%
18.2%
20.7%
10.0%
7.7%
19.9%
100%

Note: Total plan assets as at March 31, 2023 included an employees’ retirement benefit trust
established for corporate welfare pension plans that represented 42.0% of the total plan
assets.

25,956CHUGIN FINANCIAL GROUP, INC.

48

2) Method used to determine the long-term expected rate of return on plan assets
The long-term expected rate of return on plan assets is determined by considering
the allocation of plan assets and the long-term rates of return, which are expectedcurrently and in the future from the various components of the plan assets.
(h) Assumptions used for the year ended March 31, 2023 were as follows:
2023

0.200%
2.100% - 2.622%

Discount rateLong-term expected rate of return

Note: Since the Company has applied the benefit formula basis for calculating retirement benefit
obligation, the expected rate of salary increase is not taken into consideration.

(3) Amount of retirement benefit expenses for defined
contribution plans
The amount of required contribution to the defined contribution plan of theconsolidated subsidiaries for the year ended March 31, 2023 was ¥200 million($1,497 thousand).

Currency-related Derivatives:
Millions of Yen
2023

Type

Contract
amountThousands of U.S. Dollars
2023

Derivative transactions as at March 31, 2023 were as follows:(1) Derivative transactions to which hedge accounting is not applied
For derivative transactions to which hedge accounting is not applied, the contract
amount or corresponding principal amount stipulated by the contract, the fairvalue, recognized gains (losses) and the method used to calculate fair value bytype of transaction as of the consolidated balance sheet date are set forth in thetables below. The actual contract amounts do not indicate the market risk for thederivative transactions themselves.
Interest Rate Derivatives:
Millions of Yen
2023

Type

Over 1 year

Fair
value

Recognized
gains(losses)Over-the-countertransactions
Interest rate swaps
Pay fixed/
receive floating........ ¥62,723 ¥59,377 ¥1,263 ¥1,263
Pay floating/receive fixed............
59,16556,419(805)(805)
Total...............................
¥457 ¥457
Thousands of U.S. Dollars
2023

Type

Contract
amountOver 1 year

Fair
value

Recognized
gains(losses)Over-the-countertransactions
Interest rate swaps
Pay fixed/
receive floating........ $469,729 $444,671 $9,458 $9,458
Pay floating/receive fixed............
443,083
422,519(6,028)(6,028)
Total...............................
$3,422 $3,422
Note: The above transactions were stated at fair value, and gains and losses wererecognized in the consolidated statements of income.

49

CHUGIN FINANCIAL GROUP, INC.

Recognized
gains(losses)Over-the-countertransactions
Currency swaps............... ¥1,014,530 ¥967,776 ¥(7) ¥(7)Forward foreign exchange
90,391
Sold............................
70,931(1,691)(1,691)
Bought........................
86,927
68,2463,238
3,238
Currency options
Sold............................
2,014
(82)
73
4,600
4,600
Bought........................
2,014
82
(50)
Total...............................
¥1,539 ¥1,562

18. Derivative Transactions

Contract
amountOver 1 year

Fair
value

Type

Contract
amountOver 1 year

Fair
value

(2) Derivative transactions to which hedge accounting is applied
For derivative transactions to which hedge accounting is applied, the contract
amounts or corresponding principal amounts stipulated by the contract, the fairvalue, the method used to calculate fair value by type of transaction and thehedge accounting method as of the consolidated balance sheet date are set forthin the tables below. The actual contract amounts do not indicate the market risk
for the derivative transactions themselves.

Millions of Yen
2023
Type

Hedged items

Contract
amountFair
value

Over 1 year

The deferral method ofhedge accounting
Loans and bills
Interest rate swaps
discounted and
Pay fixed/receive
available-for-salefloating............... securities (bonds) ¥ 431,106 ¥ 421,130 ¥ (4,573)
Total...........................
¥ (4,573)
Thousands of U.S. Dollars
2023
Type

Hedged items

Contract
amountFair
value

Over 1 year

The deferral method ofhedge accounting
Loans and bills
Interest rate swaps
discounted and
Pay fixed/receive
available-for-salefloating............... securities (bonds) $3,228,532 $3,153,823 $(34,246)
Total...........................
$(34,246)
Note: T he deferral method of hedge accounting was applied to the abovetransactions in accordance with the “Accounting and Auditing Treatment of
Accounting Standards for Financial Instruments in the Banking Industry”(JICPA Industry Committee Practical Guideline No. 24, March 17, 2022).
Currency-related Derivatives:
Millions of Yen

Millions of Yen

2023

2023

Type

Contract
amountOver 1 year

Fair
value

Financial products exchangetransactions
Bond futures
Sold............................ ¥1,600 ¥— ¥(29) ¥(29)Total...............................
¥(29) ¥(29)Type

Hedged items

The deferral method ofhedge accounting
Fund-related swaps.......Call loans
Currency swaps.............Loans
Total.............................

Type

Contract
amountOver 1 year

Fair
value

Contract
amountFair
value

Over 1 year¥22,566 ¥—405,763 256,432

¥106
(309)
¥(203)Thousands of U.S. Dollars
2023

Thousands of U.S. Dollars
2023
Recognized
gains(losses)

Financial products exchangetransactions
Bond futures
Sold............................ $11,982 $— $(217) $(217)
Total...............................
$(217) $(217)
Note: The above transactions were stated at fair value, and gains and losses wererecognized in the consolidated statements of income.

As lessee:
Obligations under operating leases that were not cancellable as at March 31,
2023 were as follows:
Thousands of
U.S. Dollars
2023

Interest Rate Derivatives:

Bond-related Derivatives:

Recognized
gains(losses)

Information about operating leases as at March 31, 2023 was as follows:

Millions of Yen

Recognized
gains(losses)Over-the-countertransactions
Currency swaps............... $7,597,768 $7,247,629 $(52) $(52)Forward foreign exchange
Sold............................
676,934
531,198(12,663)(12,663)
650,992
Bought........................
511,091
24,24924,249Currency options
34,449Sold............................
15,082(614)
546
Bought........................
34,44915,082
614(374)
Total...............................
$11,525 $11,697
Note: The above transactions were stated at fair value, and gains and losses wererecognized in the consolidated statements of income.

19. Lease Transactions

Type

Hedged items

Contract
amountOver 1 year

Fair
value

The deferral method ofhedge accounting$168,995 $— $793
Fund-related swaps.......Call loans
Currency swaps.............Loans
3,038,740 1,920,407(2,314)
Total.............................
$(1,520)
Note: T he deferral method of hedge accounting was applied to the abovetransactions in accordance with the “Accounting and Auditing Concerning
Accounting for Foreign Currency Transactions in the Banking Industry”(JICPA Industry Committee Practical Guideline No. 25, October 8, 2020).

Due within one year............................................ ¥112
Due after one year..............................................
465
Total.............................................................. ¥578

$

838
3,482
4,328

$

20. Other Comprehensive Income
The components of other comprehensive income for the year ended March 31,
2023 were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2023

Net unrealized losses on available-for-sale securities:
Decrease during the year¥(64,206)
Reclassification adjustments
16,128Subtotal, before tax(48,078)
Tax benefit
14,704
Subtotal, net of tax(33,373)
Net deferred losses on hedging instruments:
Decrease during the year
(3,006)
Reclassification adjustments(897)
Subtotal, before tax(3,904)
Tax benefit
1,190
Subtotal, net of tax(2,713)Adjustments for retirement benefits:
Decrease during the year
(2,940)Reclassification adjustments
988
Subtotal, before tax(1,952)
Tax benefit
595
Subtotal, net of tax(1,356)
Total other comprehensive income¥(37,443)$ (480,835)
120,781(360,053)
110,117(249,928)(22,511)(6,717)(29,236)
8,911(20,317)(22,017)
7,399(14,618)
4,455(10,155)$ (280,408)

21. Financial Instruments(1) Information about Status of Financial Instruments(a) Policies for using financial instruments
The Group is engaged in financial services, primarily the banking business.
The Group’s core business of banking is mainly financing through deposittaking operations and investing funds through its loan and securities
investment operations.
The Group engages in derivative transactions principally to stabilize its
earnings by hedging the risk of future fluctuations in interest and exchange
rates related to assets and liabilities held by the Group as well as the risk offluctuation in the market prices of bonds, stocks and other investment
instruments held by the Group. In addition, the Group provides hedging
services to customers in accordance with their needs.
(b) Details of financial instruments used and the exposure to risks and how
they arise
The financial assets held by the Group consist primarily of loans tocorporations, local public organizations, local public corporations andindividuals in Japan. The Group’s loans are categorized into bills discounted,
CHUGIN FINANCIAL GROUP, INC.

50

loans on bills, loans on deeds and overdrafts. These loans are subject to the“credit risk” of decline in value or loss due to changes in the financial status of
those to whom credit is provided and to the “interest rate risk” of decline invalue due to changes in interest rates.
Among other financial assets, the Group holds securities, trading accountsecurities and other debt purchased, which mainly comprise Japanese stocks
and bonds and foreign bonds and trust certificates. The purpose of these
instruments include holding to maturity, investment and business development.
As financial assets, they are subject to various types of risk. These include thecredit risk of the issuer, interest rate risk, which is the risk that the value of theassets may decline due to changes in the prices of securities or other assets(“price fluctuation risk”) and the risk of loss incurred if exchange rates differ
from original expectations (“exchange rate risk”). Moreover, the Group’s
financial assets are subject to the risk that the Group might not be able to
make trades due to turmoil, etc., in the marketplace or be unable to avoid
making trades at prices that are more notably disadvantageous than usual(“liquidity risk”). Note that interest rate, price fluctuation and exchange raterisks are collectively known as “market risk.”
The Group also holds financial liabilities in the form of deposits andnegotiable certificates of deposit, which are chiefly deposits held in yen or aforeign currency by corporations, local public organizations, local public
corporations and individuals in Japan. These deposits are categorized intocurrent deposits, ordinary deposits, saving deposits, deposits at notice, time
deposits, installment time deposits, deposits for tax payment, non-resident yen
deposits, foreign currency deposits and deposits for offshore accounts. The
deposits are subject to the interest rate risk as well as the risk of loss arisingfrom the Group having difficulty in raising necessary funds or being forced toraise funds at significantly higher interest rates than usual in the event of ashortage of capital due to a mismatch in the terms of the Group’s deposits
and its investment portfolio of loans and securities or an unexpected run on
the Group’s deposits(“funding risk”).
Derivative transactions include interest rate-related transactions (swaps
and caps), currency-related transactions (swaps, options, forward exchange
contracts and non-deliverable forwards), bond-related transactions (bondfutures and bond options), stock-related transactions (stock futures and stock
options) and credit derivative transactions (credit default swaps). The Group
engages in derivative transactions principally to stabilize its earnings byhedging the risk of future fluctuations in interest or exchange rates related toassets and liabilities held by the Group and fluctuations in the market prices ofbonds, stocks and other investment instruments held by the Group. The Groupalso provides hedging services to customers in accordance with their needs.
Although the Group uses derivative transactions to capture short-term gains inassets for trading purposes, any possible loss on these derivative transactions
is limited by maintaining a fixed position quota and capping allowed losses.
Of the above-mentioned derivative transactions, used for hedging purposes
are carried out in accordance with the hedging policies (reduction of interest
risk, etc.) stipulated in the Company’s internal operating regulations andinclude interest rate swaps for loans and securities and currency swaps forforeign-currency-denominated securities and deposits. In evaluating theeffectiveness of hedges, the Group groups together the loans and interest rate
swaps used for market value hedges by the specific term (remaining) of thepositions to determine performance. In some cases, the Group also assesses
the effectiveness of market value hedging instruments on an individual basis.
The Group uses currency swaps and other methods to hedge exchange raterisks and evaluates the effectiveness of the hedges by confirming that aforeign currency hedge position exists in an amount equivalent to the foreigncurrency-denominated monetary assets or liabilities being hedged.

51

CHUGIN FINANCIAL GROUP, INC.

(c) Policies and processes for managing risk
1) Credit Risk Management
Credit risk refers to loss incurred when the value of assets (including offbalance-sheet assets) declines or becomes worthless due to changes in
the financial status of those to whom credit is provided.
The Group’s objective of credit risk management is to maintain andimprove its financial soundness by appropriately managing credit operations
in order to contribute to the sound development of society and theeconomy, and through this, the development of the Group itself. In addition,
the basic credit risk management policy is to appropriately manage thecredit risks of the diverse transactions of each of its divisions and businesssections in a comprehensive and integrated manner, using credit risk
assessment and management methods that suit the special characteristics
of each transaction.
Based on this framework, the Group companies manage credit risks
pursuant to the basic credit risk management policy, and the Management
Administration Department, which is the credit risk management control
department, supervises and manages the credit risks of the entire Group.
Credit risk management entails a credit management system that
establishes standards and procedures for making credit decisions, and acredit risk assessment system that is part of those procedures andestablishes standards and procedures for assessing credit risks as a basis
for making credit decisions. These systems are appropriately operated tocontrol risks by preventing the occurrence of credit risk losses or keeping
them within a certain range. Credit concentration risks are also managed
appropriately by avoiding excessive concentration of credit to specificcustomers, groups, or industries. Through these efforts, the Group strives toensure the control of credit risks and its ability to earn stable income.
In light of the importance of capital adequacy requirements in terms ofrisk management and information disclosure, the Group strictly measuresregulatory capital requirements for credit risks under the credit risk
management framework. The Group has a scheme in place to assess credit
risks and financial conditions under stress conditions such as economic
downturns and defaults of large borrowers, to evaluate capital adequacy
and the appropriateness of risk management plans, and to reflect theresults in credit management and other activities.

established a system for the flexible management of market risk as well as
credit risk and liquidity risk related to market operations.
Market risk management, including lending and deposit services, iscarried out by analyzing risk from multiple aspects such as the calculationof interest rate risk. The Group Risk Management Committee and the GroupALM Committee discuss the overall management of assets and liabilities
and evaluate management and lending policies.
Quantitative Information about Market Risk
(Financial instruments to which quantitative analysis of market risk isapplied for the purpose of risk management)
The Group measures market risk volume using VaR and monitors,
analyzes, evaluates and controls risks from various aspects, implementing
limit controls and stress tests.
The Group has adopted a variance-covariance model assuming thatfluctuations in prices and interest rates will follow a normal distribution anduses a five-year observation period, a 99.9% confidence interval, a125-business-day holding period for banking business and a 10-businessday holding period for trading activities. Among financial instruments, market
price fluctuation risk is measured for equity securities (excluding unlisted
equity securities), investment trusts and other assets. Interest rate risk ismeasured for debt securities, deposits and loans, taking into consideration
the correlation between price fluctuation risk and interest rate risk.
Under normal circumstances, interest rates will generally rise whenstock prices rise (prices of debt securities will decline) and decline when
the stock prices decline (prices of debt securities will rise). Thus, stock
prices and interest rates are mutually related, and stock prices and prices
of debt securities are inversely related. The Company maintains a market
risk volume smaller than the total price fluctuation risk and interest rate risktaking the correlation into account. At a time of stress, such as in times of adrastic change in the market environment, there is a possibility that theabove correlation would not work and another complementary system
would be established by different stress tests and capital allocation.
Market risk volume as of March 31, 2023 was as follows:
Thousands of
U.S. Dollars

Millions of Yen

2) Market Risk Management
Market risk refers to the risk of incurring loss from fluctuations in profits
arising from assets and liabilities and the risk of incurring loss fromfluctuations in the value of assets and liabilities (including off-balance-sheet
assets and liabilities) due to fluctuations in market risk factors such as
interest rates, exchange rates and share prices.
The Group’s basic risk management policy for market risk is todetermine and analyze the risk from the point of view of fluctuations in bothpresent value and net interest income and to assess the risk from various
angles using stress tests and other methods.
Based on this framework, the Group companies manage market risks
pursuant to the basic market risk management policy, and the Management
Administration Department, which is the market risk management control
department, supervises and manages the market risks of the entire Group.
Trading limits and loss limits have been set for trading operations, thegoal of which is to earn trading profit from buying and selling securities inmarket operations. The limits are managed to ensure that losses in excess
of a certain amount do not occur. Banking operations (investment securities)
are managed for risk by taking the risk-return balance into consideration
through ALM analysis, Value at Risk (VaR) analysis and other means toensure stable profits over the medium- to long-term. The Group has also2023

Market risk volume............................................. ¥144,120$ 1,079,308
Banking business............................................
1,079,188
144,104[Price fluctuation risk].................................
[94,720][709,353][Interest rate risk].......................................
[60,904][456,107][Considering correlation].............................
[(11,520)][(86,272)]
Trading activities.............................................
16
119
The Group conducts back testing, which compares VaR and profit and loss
on a regular basis to verify the effectiveness of its measurement of market
risk. The profit or loss expected at the time the measurement of VaR is fixedis used for comparison. As a result of back testing, the Group hasdetermined that there is no problem with its market risk measurement
model and measurement methods.
However, since VaR is statistically computed under certain assumptions
based on historical market fluctuations, certain risks beyond theassumptions may not be fully captured. Accordingly, a complementary
system is established by different stress tests and other considerations.

(Financial instruments to which quantitative analysis of market risk is notapplied for the purpose of risk management)
The Group does not apply market risk measurement to unlisted equity
securities, which are measured by credit risk.
3) Liquidity Risk Management
Liquidity risk refers to the risk of incurring losses when it becomes difficult
to secure the requisite funds or when funds at a much higher than normalinterest rate become necessary due to a mismatch between the timing ofprocurement and use, an unexpected outflow of funds (hereafter, “funds
procurement risks”) or risks incurred when transactions cannot be
conducted or must be conducted at prices that are much moredisadvantageous than normal due to market disruptions or other factors(hereafter, “market liquidity risk”).
The Group recognizes funds procurement as an important management
issue, and its basic funds procurement risk policy is to ensure a stablesupply of funds. The Group’s basic policy for managing market liquidity risk
is to take into consideration the special features of markets such as market
size, liquidity and other factors and pay careful attention to market liquidity.
Based on this framework, the Group companies manage liquidity risks
pursuant to the basic liquidity risk management policy, and theManagement Administration Department, which is the liquidity risk
management control department, supervises and manages the liquidity
risks of the entire Group.
Liquidity risk management entails careful monitoring of the daily statusof funds procurement, including monitoring of early warning indicators,
striving to limit the risks involved in the procurement of funds. In addition,liquidity risks are managed by establishing the management policies forrisks of procuring funds such as policies on holding highly liquid assets andsetting limits on financing gap between investments and procurement for acertain period.
Deposits comprise the vast majority of procurement for The Chugoku
Bank, Limited, which is a consolidated subsidiary of particular importance.
Although the procurement of funds is stable, the Group is working todiversify the means of procurement to prepare for unforeseen
circumstances such as procurement from the market utilizing marketablesecurities held by The Chugoku Bank, Limited. In addition, the Group
verifies that funding is available for foreign currencies through stress tests
that assume a market funding environment that deteriorates and makes it
difficult to procure funds in the market. The Group also measures andmanages the foreign currency stability ratio, which indicates the degree ofstability of foreign currency investments and funding, to maintain themedium- to long-term stability of the foreign currency balance sheet.
Furthermore, the Group monitors various indicators related to the yen andforeign currency funding environment, and has a scheme in place toconsider and implement countermeasures in response to changes in theenvironment.
(d) Supplementary information on fair values
In calculating fair value of financial instruments, certain assumptions are
adopted and other factors considered, and the values may differ when
adopting different assumptions and when considering other factors.

CHUGIN FINANCIAL GROUP, INC.

52

(2) Fair Values of Financial Instruments
The following are the consolidated balance sheet amounts and fair values and any differences between them as of March 31, 2023. Equity securities, etc., without market
prices and investments in partnerships are not included in the table below (see Note 1). In addition, the notes on cash and due from banks and payables under securities
lending transactions are omitted because they are matured or settled in a short period of time and their fair values approximate the book values.

(Note 1) Equity securities, etc. without market prices andinvestments in partnerships are indicated below and are notincluded in “Available-for-sale securities” in the fair value
information on financial instruments in the tables above.

Millions of Yen
2023
Book value

Assets(1) Trading account securities........................................................................................................................... ¥2,023
24,600(2) Money trusts...............................................................................................................................................
(3) Securities
Held-to-maturity debt securities................................................................................................................
13,2982,286,318
Available-for-sale securities(*1).................................................................................................................
(4) Loans and bills discounted...........................................................................................................................
5,555,795
Reserve for possible loan losses (*2)..........................................................................................................
(52,963)5,502,832
Total assets...................................................................................................................................... ¥7,829,072
Liabilities(1) Deposits���������������������������������������������������������������������������������������������������������������������������������������������������� ¥7,898,033(2) Negotiable certificates of deposit�����������������������������������������������������������������������������������������������������������������
155,489(3) Borrowed money����������������������������������������������������������������������������������������������������������������������������������������
320,843
Total liabilities���������������������������������������������������������������������������������������������������������������������������������� ¥8,374,365
Derivative transactions (*3)
Derivative transactions to which hedge accounting is not applied��������������������������������������������������������������� ¥(45,905)
Derivative transactions to which hedge accounting is applied (*4)���������������������������������������������������������������
(4,777)
Total derivative transactions�������������������������������������������������������������������������������������������������������������� ¥(50,682)

Fair value——

13,4042,286,318¥105—

5,538,125¥7,864,470¥7,897,592
155,493
320,865¥8,373,951

CHUGIN FINANCIAL GROUP, INC.

Millions of Yen

35,293¥35,398¥(440)4
21¥(414)2023
More than 1 year
within 3 years

Within 1 year

Due from banks (*1)..................................................................
Securities.................................................................................

¥1,458,299

More than 3 years
within 5 years

More than 5 years
within 7 years

More than 7 years
within 10 years

More than
10 years

—

—

—

—

—

157,611 ¥272,627¥353,254¥166,209¥218,791¥881,413

Held-to-maturity debt securities.............................................

5,099

6,299

200

—

1,700

—

Japanese government bonds.............................................

5,099

6,299

—

—

—

—

Japanese municipal bonds................................................

—

—

200

—

1,700

—

Available-for-sale securities with maturities............................

152,512266,328

353,054

166,209

217,091

881,413

Japanese government bonds.............................................

51,26036,447

93,20456,67090,028225,902

Thousands of U.S. Dollars

Japanese municipal bonds................................................

21,063

14,03873,42585,708103,591

467,256

2023

Japanese corporate bonds................................................

37,091

97,81391,745

10,405

16,912

70,148Other...............................................................................

43,096

118,029

94,67813,425

6,560

118,105

Loans and bills discounted (*2)..................................................

1,448,814

1,094,208

782,294

509,090524,754

1,085,678

Total.........................................................................................

¥3,064,725¥1,366,836¥1,135,548¥675,299¥743,546¥1,967,091

More than 7 years
within 10 years

More than
10 years¥(45,905)(4,777)¥(50,682)

Fair value

$

—
—
¥—

Difference

15,150184,228

100,381
17,122,129——$

Thousands of U.S. Dollars

786
—

2023
More than 1 year
within 3 years

Within 1 year

41,474,762$58,896,652$59,144,701
1,164,479
2,402,943$62,712,132$ (343,780)(35,774)$ (379,555)$$

264,307265,093$

(3,295)29
157(3,100)$———

Items that did not have a material impact on the consolidated balance sheets were omitted.
(*1) Available-for-sale securities include investment trusts to which the treatment in Paragraph 24-9 of the “Implementation Guidance on Accounting Standard for Fair Value
Measurement” (ASBJ Guidance No. 31, June 17, 2021) is applied, where the standard price is deemed to be the fair value.
(*2) Included are the general reserve for possible loan losses and the specific reserve for possible loan losses.
(*3) The net claims and obligations on derivative transactions were shown on a net basis, with obligations shown on a net basis indicated by parentheses.
(*4) These are derivative transactions such as interest rate swaps designated as hedging instruments to fix cash flows of hedged items such as loans, and the deferral methodof hedge accounting is primarily adopted. In addition, “Practical Solution on the Treatment of Hedge Accounting for Financial Instruments that Reference LIBOR” (ASBJ PITF
No. 40, March 17, 2022) is applied to these hedging relationships.

53$ 30,824
152,1680(Note 2) Maturities of monetary assets and securities with contractual maturities subsequent to the balance sheet date

Book value

Assets(1) Trading account securities�������������������������������������������������������������������������������������������������������������������������� $
15,150(2) Money trusts����������������������������������������������������������������������������������������������������������������������������������������������
184,228(3) Securities
99,588
Held-to-maturity debt securities���������������������������������������������������������������������������������������������������������������
Available-for-sale securities (*1)���������������������������������������������������������������������������������������������������������������
17,122,129(4) Loans and bills discounted��������������������������������������������������������������������������������������������������������������������������
41,607,092
Reserve for possible loan losses (*2)���������������������������������������������������������������������������������������������������������
(396,637)
41,210,454
Total assets������������������������������������������������������������������������������������������������������������������������������������� $58,631,558
Liabilities(1) Deposits���������������������������������������������������������������������������������������������������������������������������������������������������� $59,148,004
1,164,449(2) Negotiable certificates of deposit�����������������������������������������������������������������������������������������������������������������
(3) Borrowed money����������������������������������������������������������������������������������������������������������������������������������������
2,402,778
Total liabilities���������������������������������������������������������������������������������������������������������������������������������� $62,715,232
Derivative transactions (*3)
Derivative transactions to which hedge accounting is not applied��������������������������������������������������������������� $ (343,780)
Derivative transactions to which hedge accounting is applied (*4)���������������������������������������������������������������
(35,774)
Total derivative transactions�������������������������������������������������������������������������������������������������������������� $ (379,555)

2023

Unlisted equity securities (*1) (*2)........................ ¥4,116
Investments in partnerships (*3)...........................
20,319Foreign stocks in foreign currency (*1).................
0(*1) Unlisted equity securities are exempted from fair value disclosures in accordance with
Paragraph 5 of “Implementation Guidance on Disclosures about Fair Value of Financial
Instruments” (ASBJ Guidance No. 19, March 31, 2020).
(*2) Impairment losses on unlisted equity securities were not recognized.
(*3) Investments in partnerships, etc., are exempted from fair value disclosures inaccordance with Paragraph 24-16 of “Implementation Guidance on Accounting Standard
for Fair Value Measurement” (ASBJ Guidance No. 31, June 17, 2021).

Difference¥2,023
24,600Thousands of
U.S. Dollars

Millions of Yen

Due from banks (*1)..................................................................
Securities.................................................................................

$10,921,133

More than 3 years
within 5 years

More than 5 years
within 7 years

—

—

—

—

—

1,180,341 $2,041,691$2,645,502$1,244,731$1,638,515$6,600,861

1,497

—

12,731——

Held-to-maturity debt securities.............................................

38,18647,172

Japanese government bonds.............................................

38,18647,172———

Japanese municipal bonds................................................

—

—

1,497

—

12,731—

Available-for-sale securities with maturities............................

1,142,155

1,994,518

2,644,005

1,244,731

1,625,784

6,600,861

Japanese government bonds ............................................

383,883

272,949

698,000

424,399674,215

1,691,769

Japanese municipal bonds................................................

157,739

105,129549,876

641,863775,7883,499,258

Japanese corporate bonds................................................

277,772732,517

687,074

77,922

126,653525,335

Other...............................................................................

322,743

883,913709,039

100,539

49,127884,482

Loans and bills discounted (*2)..................................................

10,850,101

8,194,473

5,858,563

3,812,551

3,929,858

8,130,592

Total.........................................................................................

$22,951,583$10,236,171$8,504,066$5,057,283$5,568,381$14,731,453(*1) Amounts due from banks with no maturity date are included in “Within 1 year.”(*2) Loans due from bankrupt borrowers, virtually bankrupt borrowers and likely to become bankrupt borrowers in the amount of ¥82,042 million ($614,408 thousand) and loans without
contract due dates in the amount of ¥28,911 million ($216,513 thousand) are not included in the above tables as at March 31, 2023.

CHUGIN FINANCIAL GROUP, INC.

54

(Note 3) Repayment schedule of deposits, negotiable certificates of deposit, payables under securities lending transactions andborrowed money subsequent to the balance sheet dateThousands of U.S. Dollars
2023
Fair value

Millions of Yen
Level 1

2023
Within 1 year

Deposits (*)...............................................................................
Negotiable certificates of deposit...............................................
Payables under securities lending transactions...........................
Borrowed money.......................................................................
Total.........................................................................................

More than 1 year
within 3 years

More than 3 years
within 5 years

More than 5 years
within 7 years

More than 7 years
within 10 years

More than
10 years¥7,674,200 ¥179,727 ¥42,919 ¥308 ¥877—
154,339
1,150
—
—
—
—
423,430—————
310,338
6,621
2,358
559
471 ¥492¥8,562,308 ¥187,498 ¥45,278 ¥868 ¥1,349 ¥492
Thousands of U.S. Dollars
2023
Within 1 year

Deposits (*)...............................................................................
Negotiable certificates of deposit...............................................
Payables under securities lending transactions...........................
Borrowed money.......................................................................
Total.........................................................................................

More than 1 year
within 3 years

More than 3 years
within 5 years

More than 5 years
within 7 years

More than 7 years
within 10 years

More than
10 years$57,471,729 $1,345,967 $321,418 $2,306 $6,567—
1,155,837
8,612
—
—
—
—
3,171,047—————
2,324,106
49,584
17,6584,186
3,527 $3,684$64,122,728 $1,404,163 $339,084 $6,500 $10,102 $3,684(*) Demand deposits are included in “Within 1 year.”

Money trusts...................................................................................................
Trading account securities and securities
Trading securities
Japanese government bonds and Japanese municipal bonds, etc...............
Available-for-sale securities (*1)
Equity securities......................................................................................
Japanese government bonds....................................................................
Japanese municipal bonds.......................................................................
Japanese corporate bonds.......................................................................
Other......................................................................................................
Total assets.....................................................................................................
Derivative transactions (*2)
Interest rate-related derivatives.....................................................................
Currency-related derivatives.........................................................................
Bond-related derivatives...............................................................................
Total derivative transactions..............................................................................

Level 2

Level 3Total—

$149,779—$149,779$1,917

13,225—15,150849,838
4,137,212——
1,330,083$6,319,066—
8,020
5,729,671
1,682,026
2,579,824$10,162,555———$745,263
51,756$797,019

849,838
4,145,233
5,729,671
2,427,289
3,961,671$17,278,648——$(217)$(217)

$

—
—
—
$—

$(30,824)(348,513)(217)$(379,555)(30,824)(348,513)—$(379,337)(*1) Available-for-sale securities do not include investment trusts to which the treatment in Paragraph 24-9 of the “Implementation Guidance on Accounting Standard for Fair Value
Measurement” (ASBJ Guidance No. 31, June 17, 2021) is applied and according to which the standard price is deemed to be the fair value. The carrying amount of the investment trusts towhich the treatment in Paragraph 24-9 is applied was ¥1,122 million ($8,402 thousand).

(3) Fair Value Information by Level Within the Fair Value Hierarchy
The fair value of financial instruments is classified into the following three levels according to the observability and materiality of inputs used to measure fair value.
Level 1 fair value: Fair value measured using observable inputs, i.e., quoted prices in active markets for assets or liabilities that are the subject of the measurement.
Level 2 fair value: Fair value measured using observable inputs other than Level 1 inputs.
Level 3 fair value: Fair value measured using unobservable inputs.

A reconciliation from the beginning balances to the ending balances of the investment trusts to which the treatment in Paragraph 24-9 is applied
Millions of Yen

Profit (loss) or other comprehensive
income in the fiscal year

If multiple inputs are used that are significant to the fair value measurement, the fair value measurement is categorized in its entirety in the level of the lowest level inputthat is significant to the entire measurement.
Beginning balance

1) Financial instruments measured at fair values¥877

Millions of Yen

Recorded in profit(loss)—

Recorded in othercompre-hensive
income (*a)¥57

Amount where the Amount where the
Net amount of
net asset value of net asset value ofpurchases, sales, investment trusts is investment trusts isissuances anddeemed to be the not deemed to besettlements
fair value
the fair value
¥186
—
—

Recognized gains(losses) on investment
trusts held at the fiscal
year-end included in
profit (loss) for the
fiscal year
Ending balance¥1,122—2023
Fair value
Level 1

Money trusts...................................................................................................
Trading account securities and securities
Trading securities
Japanese government bonds and Japanese municipal bonds, etc...............
Available-for-sale securities (*1)
Equity securities......................................................................................
Japanese government bonds ...................................................................
Japanese municipal bonds.......................................................................
Japanese corporate bonds.......................................................................
Other......................................................................................................
Total assets.....................................................................................................
Derivative transactions (*2)
Interest rate-related derivatives.....................................................................
Currency-related derivatives.........................................................................
Bond-related derivatives...............................................................................
Total derivative transactions..............................................................................

55

CHUGIN FINANCIAL GROUP, INC.

Level 2—Thousands of U.S. Dollars
Level 3

¥20,000

Profit (loss) or other comprehensive
income in the fiscal year

Total

—

¥20,000

¥256

1,766

—

2,023

113,479
552,442——
177,606¥843,785—
1,071
765,083
224,601
344,484¥1,357,006———¥99,515
6,911¥106,426

113,479
553,513765,083
324,116
529,002¥2,307,218——¥(29)¥(29)¥(4,116)(46,537)—¥(50,653)

—
—
—
¥—

¥(4,116)(46,537)(29)¥
(50,682)

Beginning balance

Recorded in profit(loss)

6,567

—

$

Recorded in othercompre-hensive
income (*a)$

426

Amount where the Amount where the
Net amount of
net asset value of net asset value ofpurchases, sales, investment trusts is investment trusts isissuances anddeemed to be the not deemed to besettlements
fair value
the fair value
$
1,392
—
—

Ending balance$
8,402

Recognized gains(losses) on investment
trusts held at the fiscal
year-end included in
profit (loss) for the
fiscal year—(*a) Included in “Net unrealized gains (losses) on available-for-sale securities” under “Other comprehensive income” in the consolidated statements of comprehensive income.
(*2) The net claims and obligations on derivative transactions were shown on a net basis, with obligations shown on a net basis indicated in parentheses.

CHUGIN FINANCIAL GROUP, INC.

56

(Note 1) Description of valuation methods and inputs used in
the fair value measurement

2) Financial instruments other than those measured at fair value
Millions of Yen
2023

AssetsFair value
Level 1

Money trusts...................................................................................................

Level 2—

Level 3Total—

¥4,600¥4,600

11,485

Securities
Held-to-maturity debt securities
Japanese government bonds ...................................................................

¥11,485

Japanese municipal bonds ......................................................................

—

Loans and bills discounted...............................................................................

—

Total assets.....................................................................................................

¥11,485

¥
¥

—

—

1,919

—

1,919

—

5,538,125

5,538,125

1,919

¥

5,542,725¥

5,556,129

Deposits..........................................................................................................

—¥7,897,592—

Negotiable certificates of deposit......................................................................

—

155,493—

155,493

Borrowed money..............................................................................................

—

305,599¥

15,266

320,865

Total liabilities..................................................................................................

¥—8,358,685¥

15,266¥¥7,897,592¥

8,373,951

Thousands of U.S. Dollars
2023
Fair value
Level 1

Money trusts...................................................................................................

Level 2——

Level 3Total

$34,449$34,449

Securities
Held-to-maturity debt securities
Japanese government bonds ...................................................................

$Japanese municipal bonds ......................................................................

—

Loans and bills discounted...............................................................................
Total assets.....................................................................................................

86,010——86,010$

14,371—

14,371$

14,371—$

86,010—41,474,762$41,509,211

41,474,762$41,609,593

Deposits..........................................................................................................

—$59,144,701—$59,144,701

Negotiable certificates of deposit......................................................................

—

1,164,479—

1,164,479

Borrowed money..............................................................................................
Total liabilities..................................................................................................

57

CHUGIN FINANCIAL GROUP, INC.

—
$

—

$

2,288,616$

114,326

62,597,805$

114,326

2,402,943$62,712,132

Money trusts
In principle, the fair value of money trusts for which trust asset components are
securities is based on the price measured in the same method as securities, andis classified as Level 2.
The notes to Money Trusts based on holding purposes are stated in Note 7,“Money Trusts.”
Trading account securities and securities
The fair value of trading account securities and securities is classified as Level 1
for those whose unadjusted quoted prices in active markets are available, suchas for listed equity securities, ETF, listed REIT and Japanese government bonds.
For those using publicly released quoted prices in inactive markets, their fairvalues are classified as Level 2, such as for Japanese municipal bonds and Japanese
corporate bonds. In addition, for investment trusts in cases where there is notransaction price in the market and there are no material restrictions on cancellation
or repurchase request such that market participants demand compensation for
the risk, the standard price is their fair value and classified as Level 2.
The fair value of private placement bonds is measured by discounting total
future cash flows at the risk-free rate plus a premium, which is a credit risk
spread of individuals calculated by classification based on in-house rating, and isclassified as Level 3.
In cases in which there are no available quoted prices, the fair value isdetermined using valuation techniques such as the present value method basedon future cash flows. Observable inputs, such as swap rates, credit spread anddefault rates, are made the best of use in the fair value measurement. The fairvalue measured using significant unobservable inputs is classified as Level 3.
Loans and bills discounted
Since the terms of loans on bills, commercial bills discounted and overdrafts areshort, the fair value of these items approximates the book value. Therefore, thefair value is deemed to be the book value.
The fair value for loans on deeds is determined by estimating future cash flows
for individual transactions and calculating the present value. The discount rateused for commercial businesses, local public organizations and local public
corporations is the risk-free rate plus a premium for each in-house credit risk
rating factor. For loans to individuals, the interest rate on new loans at the end of
the fiscal year under review is used. In estimating future cash flows, since cash
flows based on variable interest rates reflect market rates in the short term, theirterms are deemed to be the period up to the date of the next interest rate change.
In addition, as to claims against bankrupt borrowers, virtually bankrupt
borrowers and likely to become bankrupt borrowers, since the estimated amountof bad debt is calculated based on estimated amounts that could be collectedfrom collateral and guarantees, the fair value approximates the consolidatedbalance sheet amount as of the consolidated balance sheet date minus thepresent estimated amount of bad debt. Therefore, the fair value is deemed to be
this amount.
In measuring these fair values, since the effect of unobservable inputs issignificant, these fair values are classified as Level 3.

Liabilities
Deposits and negotiable certificates of deposit
For demand deposits, including current deposits and ordinary deposits, the fairvalue is deemed to be the payment amount required on the consolidated balance
sheet date (i.e., book value).
In addition, we calculate the fair values of fixed deposits and others andnegotiable certificates of deposit by grouping the deposits based on future cash
flows and discounting to present value using the interest rate on new deposits as
at March 31, 2023. The fair value is classified as Level 2.
Borrowed money
For borrowed money with floating interest rates, the fair value approximates thebook value since it follows market interest rates in the short term and the credit
standing of the consolidated subsidiaries and subsidiary corporations, etc. has
not changed significantly after the transaction. Therefore, the book value serves
as fair value.
For borrowed money with fixed interest rates, the fair value is determinedbased on the present value calculated by discounting the total amount of principal
and interest of the borrowed money classified by a certain period, at an interest
rate assumed for a new borrowing under the same terms and conditions. For
borrowed money whose contract period is short (within a year), the fair value
approximates the book value, which is therefore used as fair value.
In measuring these fair values, the fair value is classified as Level 3 if theeffect of unobservable inputs is significant. Otherwise, the fair value is classified
as Level 2.
Derivative transactions
The fair value of derivative transactions is classified as Level 1 for those whose
unadjusted quoted prices in active markets are available, such as for bond futuresand interest rate futures.
However, as most of the derivative transactions are over-the-countertransactions and there is no publicly released quoted prices, valuation techniquessuch as the present value method and the Black-Scholes model are used tomeasure fair value depending on the type of transaction and the period tomaturity. The main inputs used in these techniques are interest rates, foreignexchange rates and volatility. In addition, price adjustments are made based on
counterparties’ credit risk and the Company’s own credit risk. In cases in which
unobservable inputs are not used or their effect is immaterial, the fair value ofderivative transactions is classified as Level 2, such as for plain vanilla interest
rate swaps and forward foreign exchange.

CHUGIN FINANCIAL GROUP, INC.

58

(Note 2) Information about Level 3 fair value of financial instruments measured at fair value

22. Revenue Recognition(1) Disaggregation of revenue from contracts with customers

23. Segment Information(1) Description of reportable segments

1) Quantitative information on significant unobservable inputs

Disaggregation of revenue from contracts with customers for the year ended
March 31, 2023 was as follows:

The Group’s reportable segments are components of the Group for which
separate information is available and evaluated regularly by the Board of Directors
in deciding how to allocate management resources and evaluating operating
segment performance. Each operating segment is controlled by each consolidated
subsidiary since each company provides different services.
Accordingly, the Group consists of operating segments differentiated by theservices each company provides, and the reportable segments are mainly“Banking,” “Leasing,” and “Securities.”
The “Banking” segment provides diversified financial services such as deposittaking and lending. The “Leasing” segment is engaged in leasing services andinstallment sales of properties and goods. The “Securities” segment provides
brokerage services for financial instruments.

2023
Valuation techniques

Securities
Japanese corporate bonds
Private placement bonds

Significant unobservable inputs

Scope of inputs

Weighted average of inputs

Thousands of
U.S. Dollars

Millions of Yen
2023

Present value method

Credit risk spread

0.028%-4.688%

0.220%

2) A reconciliation from the beginning balances to the ending balances and recognized gains (losses) included in profit (loss) for the fiscal year
Millions of Yen
2023
Profit (loss) or other comprehensive
income in the fiscal year

Beginningbalance

Trading account securities and securities
Available-for-sale securities
Japanese corporate bonds.................. ¥103,581
Other.................................................
9,267

Recorded in
profit (loss)(*1)

Recorded
Net amount ofin othercompre-hensive purchases, sales,issuances andincomesettlements(*2)¥(12)—¥131
30

Transfer into
Level 3

Transfer out of
Level 3————¥(4,186)(2,387)

Endingbalance¥99,515
6,911

Recognized gains(losses) on
financial assets
and financial
liabilities held at
the fiscal year-end
included in profit(loss) for
the fiscal year——

Thousands of U.S. Dollars
2023
Profit (loss) or other comprehensive
income in the fiscal year

Beginningbalance

Trading account securities and securities
Available-for-sale securities
Japanese corporate bonds.................. $775,713
69,400
Other.................................................

Recorded in
profit (loss)(*1)

Recorded
Net amount ofin othercompre-hensive purchases, sales,issuances andincomesettlements(*2)$(89)
—

$981
224

$(31,348)(17,876)

Transfer into
Level 3

Transfer out of
Level 3————Endingbalance$745,263
51,756

Recognized gains(losses) on
financial assets
and financial
liabilities held at
the fiscal year-end
included in profit(loss) for
the fiscal year——

Ordinary income (Note 1)........................... ¥183,586
Of which, fee and commissions (Note 2).....
20,545
Deposit-taking and lending business....
7,887
Domestic or Foreign exchange business....
4,803
Security-related business...................
1,850
Agency business................................
2,731
Custody and safe deposit business......
147
Guarantee business...........................
439
Other business..................................
2,685
Of which, trust fees................................
0
Ordinary income from contracts withcustomers............................................ ¥20,097
Ordinary income other than the above
163,488(Note 1)................................................
Total ordinary income (Note 1)................... ¥183,586$1,374,867
153,860
59,06535,96913,854
20,452
1,100
3,287
20,1070$150,505
1,224,354$1,374,867

Notes: 1. Includes revenue based on “Accounting Standard for Financial
Instruments “(ASBJ Statement No.10) and “Accounting Standard forLease Transactions (ASBJ Statement No. 13).
2. Includes revenue based on “Accounting Standard for Financial
Instruments “(ASBJ Statement No.10).

(2) Balances of receivables and contract liabilities
Disaggregation of receivables from contracts with customers and contract
liabilities as of March 31, 2023 were as follows:(2) Changes in reportable segments
Following the establishment of the Company and the reorganization within theGroup, the classification of business segments was revised for the fiscal year
ended March 31, 2023. As a result, CBS Company, Limited, The Chugin Operation
Center Co., Limited, and The Chugin Credit Guarantee Co., Limited, which werepreviously included in “Other,” are now included in the “Banking” segment.

(3) Methods of measurement for the amounts of ordinary
income, profit or loss, assets, liabilities and other items foreach reportable segment
The accounting policies for each reportable segment are consistent to those
disclosed in Note 2, “Significant Accounting Policies.” Intersegment income isbased on arm’s length prices.

Thousands of
U.S. Dollars

Millions of Yen
2023

Receivables from contracts with customers
included in other assets........................ ¥911
Contract liabilities included in other9
liabilities...............................................

$6,82267(*1) Included in “Other operating expenses” in the consolidated statements of income.
(*2) Included in “Net unrealized gains (losses) on available-for-sale securities” under “Other comprehensive income” in the consolidated statements of comprehensive income.

3) Description of valuation processes used for fair value measurement
The back division has established policies and procedures for measuring fairvalue while the middle division verifies whether inputs used in the fair value
measurement and fair value as a result of the measurement are in accordancewith the said policies and procedures. In addition, the back division determines
the classification of levels of the fair value hierarchy based on the result of suchverification. In addition, when using quoted prices obtained from third parties, theGroup verifies whether the prices are valid using appropriate methods, such asconfirming the valuation techniques and inputs used and comparing them withthe fair value of similar financial instruments.

59

CHUGIN FINANCIAL GROUP, INC.

4) Description of sensitivity of the fair value measurement to changes insignificant unobservable inputs
Credit risk spread
A credit risk spread is an estimated value calculated by classification based on inhouse rating. A significant increase or decrease in the credit risk spread will lead toa significant increase or decrease in fair value.

CHUGIN FINANCIAL GROUP, INC.

60

(4) Information about ordinary income, profit or loss, assets, liabilities and other items is as follows:

Related Information:
Information about services

Millions of Yen

Millions of Yen

2023
Reportable segments
Banking

Leasing

Securities

Total

Other

Total

Adjustments

Consolidated
financialstatements

Ordinary income:External customers.......................

¥164,419¥14,019¥2,903¥181,343¥2,242¥183,586—¥183,586

Intersegment income....................

3,126

3,441

69

6,637

12,526

19,164¥(19,164)—

Total.................................................

¥167,546¥17,461¥2,973¥187,981¥14,769¥202,7502023

Ordinary income from external customers......................

30,3603,640

239

34,241

11,97046,211(16,618)

29,593

Segment assets................................

9,802,088

45,6299,581

9,857,299

493,865

10,351,164(501,485)

9,849,678

Segment liabilities.............................

9,314,344

24,561

4,821

9,343,727

5,515

9,349,243(27,459)

9,321,784

Depreciation.................................

2,588

496

7

3,092

5

3,098

78

3,177

Interest income.............................

93,465148

193,616

9,149

102,765(9,608)93,157

Interest expense...........................

28,103102

128,206

028,207(73)

28,134

Other items:

Services

Other

Total

¥60,325¥73,858¥20,545¥28,855¥183,586

2023
Lending

Securities investment

Ordinary income from external customers...................... $451,771 $553,119
Note: Ordinary income is presented in place of net sales of non-financial industries.

Leasing

Securities

Total

Other

Total

Adjustments

External customers.......................

$1,231,326$104,987$21,740$1,358,069$16,790$1,374,867—$1,374,867

Intersegment income....................

23,41025,769516

49,70493,806

143,518$(143,518)—

Total.................................................

$1,254,744$130,764$22,264$1,407,781$110,604$1,518,385

Segment profit..................................

227,364

27,2591,789

256,429

89,642

346,072(124,451)

221,620

Segment assets................................

73,407,384

341,71371,75173,820,856

3,698,532

77,519,388(3,755,597)

73,763,783

Segment liabilities.............................

69,754,691

183,936

36,104

69,974,739

41,30170,016,048(205,639)

69,810,409

Depreciation.................................

19,381

3,714

52

23,15537

23,200584

23,792

Interest income.............................

699,9551,108

7

701,085

68,516769,602(71,953)

697,648

Interest expense...........................

210,462763

7

211,2330211,240(546)

210,694

Total$216,093$1,374,867

2023
Reportable segments
Banking

Leasing

Securities

Total

Other

Total

¥55

¥—

¥—

¥55

¥—

¥55

Millions of U.S. Dollars

Consolidated
financialstatements

Banking

Other$153,860

Millions of Yen

2023
Reportable segments

Services

Information about losses on impairment of fixed assets by reportable segments

Losses on impairment of fixed assets.............................

Thousands of U.S. Dollars

Securities investment

Millions of U.S. Dollars¥(19,164) ¥183,586

Segment profit..................................

Lending2023
Reportable segments

Ordinary income:Losses on impairment of fixed assets.............................

Banking

Leasing

Securities

Total

Other

Total

$411

$—

$—

$411

$—

$411

$(143,518) $1,374,867

Other items:

Notes: 1.	Ordinary income and ordinary profit (segment profit) are presented in place of net sales and operating profit of non-financial industries.
		Ordinary income and ordinary profit are calculated by deducting non-recurring items from total income or income before income taxes and non-controllinginterests.
2.	“Other” represents business segments that are not included in the reportable segments and includes the credit card business and investment management andadvisory services in accordance with the Financial Instruments and Exchange Act, etc.
3.	Adjustments mainly comprise elimination of intersegment transactions.
4.	Chugin Capital Partners Co., Ltd. (newly established on April 1, 2022), Chugin Human Innovations Co., Ltd. (newly established on May 30, 2022), C Cube
Consulting Co., Ltd. (newly established on September 1, 2022) and Chugin Financial Group, Inc. (newly established on October 3, 2022) are included in “Other”
as their business is the operation of funds, personnel placement business, consulting services, and management, respectively.

61

CHUGIN FINANCIAL GROUP, INC.

CHUGIN FINANCIAL GROUP, INC.

62

24. Net Assets
Under Japanese laws and regulations, the entire amount paid for new shares isrequired to be designated as common stock. However, a company may, by aresolution of the Board of Directors, designate an amount not exceeding one halfof the price of the new shares as additional paid-in capital, which is included incapital surplus.
Under the Law, in cases in which a dividend distribution of surplus is made,the smaller of an amount equal to 10% of the dividend or the excess, if any, of
25% of common stock over the total of additional paid-in capital and legal
earnings reserve must be set aside as additional paid-in capital or legal earnings
reserve. Legal earnings reserve was included in retained earnings in theaccompanying consolidated balance sheets.
The Japanese Banking Law provides that an amount equivalent to at least
20% of cash dividends and other cash appropriations of retained earnings must

be appropriated to a legal reserve until the total amount of legal earnings reserve
and additional paid-in capital equals the amount of the Company’s stated capital.
Under the Law, legal earnings reserve and additional paid-in capital can beused to eliminate or reduce a deficit or be capitalized. These appropriations
generally require a resolution of the shareholders’ meeting.
Additional paid-in capital and legal earnings reserve may not be distributed as
dividends. Under the Law, however, all additional paid-in capital and all legal
earnings reserve may be transferred to other capital surplus and retained
earnings, respectively, which are potentially available for dividends.
The movement of outstanding shares and cash dividends during the year
ended March 31, 2023 was as follows:(Thousands of shares)

Balance at beginning of year Increase during the year

Decrease during the year

Balance at end of year

Remarks(b) Dividends paid to the shareholders during the year:
For the year ended March 31, 2023
The Company is a holding company established on October 3, 2022, through a sole share transfer. Accordingly, dividends paid represent the amounts of the wholly owned
subsidiary pursuant to a resolution of the general meeting of shareholders or the Board of Directors’ meeting.
Resolution byType of shares

Aggregate amountAmount per share

Date of record

Effective dateJun. 24, 2022

General meeting of shareholders

Common stock of The
Chugoku Bank, Limited¥3,064 million($22,946 thousand)¥16.50($0.123)

Mar. 31, 2022

Jun. 27, 2022

Nov. 11, 2022

Board of Directors

Common stock of The
Chugoku Bank, Limited¥2,586 million($19,366 thousand)¥14.00($0.104)

Sep. 30, 2022

Dec. 6, 2022

Dividends were applicable to the year ended March 31, 2023 but were not recorded in the accompanying consolidated financial statements since the effective date issubsequent to the current fiscal year:
Date of resolution

Jun. 23, 2023

Resolution by

General meeting of shareholders

Type of shares

Common stock

The above cash dividends are distributed from retained earnings.

26. Stock Options(1) Line item where stock option expense is presented andthe amount2023

Cash and due from banks����������������������������������� ¥1,510,394
Due from banks, excluding the Bank of Japan�����
(4,033)$11,311,270(30,202)

Cash and cash equivalents��������������������������������� ¥1,506,361$11,281,067

Thousands of
U.S. Dollars

Millions of Yen

Thousands of
U.S. Dollars

Millions of Yen

Stock Options

Issued stock:
Common stock..................................................
195,272—
10,500184,771
Note 1
Treasury stock:
Common stock..................................................
9,520
2,071
10,521
1,071
Note 2
Notes: 1.	The decrease in issued stock of 10,500 thousand shares was due to the cancellation pursuant to the resolution made at the Board of Directors’ meeting.
2.	The increase in treasury stock of 2,071 thousand shares was due to the public bidding of 2,071 thousand shares pursuant to the resolution made at the Boardof Directors’ meeting, and due to purchases of 0 thousand shares of less than one unit.
		In addition, the decrease in treasury stock of 10,521 thousand shares was due to the cancellation of 10,500 thousand shares pursuant to the resolution madeat the Board of Directors’ meeting, the exercise of subscription rights to shares of 20 thousand shares, and due to the sale of 0 thousand shares of less than
one unit.

Date of resolution

The reconciliation between “cash and cash equivalents” in the consolidated
statements of cash flows and “cash and due from banks” in the consolidatedbalance sheets was as follows:

2023

General and administrative expenses������������������

¥

39

$

292

(2) Stock options outstanding as of March 31, 2023 were as follows:(a) Number of outstanding shares and treasury stock
For the year ended March 31, 2023
Type of shares

25. Cash and Cash Equivalents

Aggregate amount¥2,939 million($22,010 thousand)Amount per share

Date of record

Effective date

¥16.00($0.119)

Mar. 31, 2023

Jun. 26, 2023

Persons granted

Number of options granted(Note 3)

Date of grant

Exercise period

Chugin Financial Group, Inc.
15 directors of The Chugoku Bank, Limited
1st Subscription Rights to Shares (Note 1) (Note 2)

3,800

Jul. 31, 2009
(Note 4)

From Oct. 3, 2022 toJul. 31, 2039

Chugin Financial Group, Inc.
2nd Subscription Rights to Shares (Note 1)

15 directors of The Chugoku Bank, Limited(Note 2)

4,700

Aug. 2, 2010
(Note 4)

From Oct. 3, 2022 toAug. 2, 2040

Chugin Financial Group, Inc.
14 directors of The Chugoku Bank, Limited
3rd Subscription Rights to Shares (Note 1) (Note 2)

7,600

Aug. 1, 2011
(Note 4)

From Oct. 3, 2022 toAug. 1, 2041

Chugin Financial Group, Inc.
14 directors of The Chugoku Bank, Limited
4th Subscription Rights to Shares (Note 1) (Note 2)

7,400

Aug. 3, 2012
(Note 4)

From Oct. 3, 2022 toAug. 3, 2042

Chugin Financial Group, Inc.
15 directors of The Chugoku Bank, Limited
5th Subscription Rights to Shares (Note 1) (Note 2)

10,300Aug. 2, 2013
(Note 4)

From Oct. 3, 2022 toAug. 2, 2043

Chugin Financial Group, Inc.
15 directors of The Chugoku Bank, Limited
6th Subscription Rights to Shares (Note 1) (Note 2)

10,600Aug. 4, 2014
(Note 4)

From Oct. 3, 2022 toAug. 4, 2044

Chugin Financial Group, Inc.
12 directors of The Chugoku Bank, Limited
7th Subscription Rights to Shares (Note 1) (Note 2)

8,200

Jul. 30, 2015
(Note 4)

From Oct. 3, 2022 toJul. 30, 2045

Chugin Financial Group, Inc.
12 directors of The Chugoku Bank, Limited
8th Subscription Rights to Shares (Note 1) (excluding outside directors and directors serving as
audit and supervisory committee members) (Note 2)

13,500Aug. 2, 2016
(Note 4)

From Oct. 3, 2022 toAug. 2, 2046

Chugin Financial Group, Inc.
9 directors of The Chugoku Bank, Limited
9th Subscription Rights to Shares (Note 1) (excluding outside directors and directors serving as
audit and supervisory committee members) (Note 2)

17,400Aug. 2, 2017
(Note 4)

From Oct. 3, 2022 toAug. 2, 2047

Chugin Financial Group, Inc.
9 directors of The Chugoku Bank, Limited
10th Subscription Rights to Shares (Note 1) (excluding outside directors and directors serving as
audit and supervisory committee members) (Note 2)

21,800Aug. 3, 2018
(Note 4)

From Oct. 3, 2022 toAug. 3, 2048

Chugin Financial Group, Inc.
8 directors of The Chugoku Bank, Limited
11th Subscription Rights to Shares (Note 1) (excluding outside directors and directors serving as
audit and supervisory committee members) (Note 2)

45,300Aug. 2, 2019
(Note 4)

From Oct. 3, 2022 toAug. 2, 2049

Chugin Financial Group, Inc.
8 directors of The Chugoku Bank, Limited
12th Subscription Rights to Shares (Note 1) (excluding outside directors and directors serving as
audit and supervisory committee members) (Note 2)

48,000Jul. 30, 2020
(Note 4)

From Oct. 3, 2022 toJul. 30, 2050

Chugin Financial Group, Inc.
8 directors of The Chugoku Bank, Limited
13th Subscription Rights to Shares (Note 1) (excluding outside directors and directors serving as
audit and supervisory committee members) (Note 2)

54,000Jul. 29, 2021
(Note 4)

From Oct. 3, 2022 toJul. 29, 2051

Chugin Financial Group, Inc.
14th Subscription Rights to Shares

50,900Feb. 2, 2023

From Feb. 3, 2023 toFeb. 2, 2053

8 directors of The Chugoku Bank, Limited(excluding outside directors and directors serving
as audit and supervisory committee members)

Vesting conditions and applicable service periods have not been determined.
Notes: 1.	Following the establishment of the Company through a sole share transfer of The Chugoku Bank, Limited, subscription rights to shares of the Company weredelivered to the holders of the subscription rights to shares issued by The Chugoku Bank, Limited.
2.	Persons granted represent the classification and number of persons granted on the original date of grant at The Chugoku Bank, Limited.
3. Number of options is converted to number of shares.
4. The date of grant represents the original date of grant at The Chugoku Bank, Limited.

63

CHUGIN FINANCIAL GROUP, INC.

CHUGIN FINANCIAL GROUP, INC.

64

The following table describes changes in the number of stock options that existed during the year ended March 31, 2023. Number of stock options is converted tonumber of shares.

U.S. Dollars
Chugin Financial Chugin Financial Chugin Financial Chugin Financial Chugin Financial Chugin Financial Chugin Financial Chugin Financial
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
1st Subscription 2nd Subscription 3rd Subscription 4th Subscription 5th Subscription 6th Subscription 7th Subscription 8th Subscription
Rights to Shares Rights to Shares Rights to Shares Rights to Shares Rights to Shares Rights to Shares Rights to Shares Rights to Shares

Number of shares
Chugin Financial Chugin Financial Chugin Financial Chugin Financial Chugin Financial Chugin Financial Chugin Financial Chugin Financial
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
1st Subscription 2nd Subscription 3rd Subscription 4th Subscription 5th Subscription 6th Subscription 7th Subscription 8th Subscription
Rights to Shares Rights to Shares Rights to Shares Rights to Shares Rights to Shares Rights to Shares Rights to Shares Rights to Shares

Non-vested:
April 1, 2022 – Outstanding ��������������
Granted������������������������������������������
Forfeited�����������������������������������������
Vested��������������������������������������������
March 31, 2023 – Outstanding����������
Vested:April 1, 2022 – Outstanding���������������
Vested��������������������������������������������
Exercised ���������������������������������������
Forfeited�����������������������������������������
March 31, 2023 – Outstanding ���������

3,800
—
—
3,800

4,700
—
—
4,700

7,600
—
—
7,600

7,400
—
—
7,400

10,300——10,30010,600——10,600

8,200
—
—
8,200

13,500——13,500

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

Number of shares
Chugin Financial Chugin Financial Chugin Financial Chugin Financial Chugin Financial Chugin Financial
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
9th Subscription 10th Subscription 11th Subscription 12th Subscription 13th Subscription 14th Subscription
Rights to Shares Rights to Shares Rights to Shares Rights to Shares Rights to Shares Rights to Shares

Non-vested:
April 1, 2022 – Outstanding ��������������
Granted������������������������������������������
Forfeited�����������������������������������������
Vested��������������������������������������������
March 31, 2023 – Outstanding����������
Vested:April 1, 2022 – Outstanding���������������
Vested��������������������������������������������
Exercised ���������������������������������������
Forfeited�����������������������������������������
March 31, 2023 – Outstanding ���������

17,400——17,40021,800——21,80045,300——45,30048,000——48,00054,000——54,00050,900——50,900

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

¥1
—
1,197

¥1
—
935

¥1
—
917

¥1
—
926

¥1
—
1,281

¥1
—
1,483

Yen
Chugin Financial Chugin Financial Chugin Financial Chugin Financial Chugin Financial Chugin Financial
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
9th Subscription 10th Subscription 11th Subscription 12th Subscription 13th Subscription 14th Subscription
Rights to Shares Rights to Shares Rights to Shares Rights to Shares Rights to Shares Rights to Shares

CHUGIN FINANCIAL GROUP, INC.

$0.00
—
6.86

¥1
—
1,508

¥1
—
1,099

¥1
—
753

¥1
—
800

¥1
—
728

¥1
—
777

¥1
—
1,022

$0.00—9.59$0.00—11.10$0.00—13.59$0.00—
7.65

U.S. Dollars

Exercise price����������������������������������������
Average share price at time of exercise����
Fair appraisal price at date of grant���������

$0.00—11.29$0.00—8.23$0.00—5.63$0.00—5.99$0.00—5.45$0.00—
5.81(3) Method for estimating the fair value of stock options

27. Business Combinations

The Black-Scholes option pricing model was used to determine fair value.

Transactions under common control, etc.
1. Outline of the transaction(1) Name and business of the combined company
		The wholly owned subsidiary resulting from the share transfer: The
Chugoku Bank, Limited (Banking business)(2) Date of the business combination
		 October 3, 2022
(3) Legal form of the business combination
		 Establishment of a holding company through a sole share transfer(4) Name of the company after the business combination
		The sole parent company established in the share transfer: Chugin
Financial Group, Inc.
(5)	Other matters related to the outline of the transaction		The Company was established for the purpose of contributing to thesustainable development of local communities and enhancing thecorporate value of the entire Chugin Group by evolving into acomprehensive service provider with a focus on finance.
			 The Company acquired all the shares of The Chugin Lease Company,
Limited, Chugin Securities Co., Ltd., The Chugin Card Company, Limited,
Chugin Asset Management Company, Limited, Chugin Capital Partners,
Limited, Chugin Human Innovations Co., Ltd., and C Cube Consulting Co.,
Ltd., which are held by The Chugoku Bank, Limited, a wholly owned
subsidiary of the Company, and SETONOWA Co., Ltd., a non-consolidated
subsidiary of the Company, by the method of receiving distribution-in-kindfrom The Chugoku Bank, Limited on October 3, 2022.

Risk-free interest rate (Note 4)

¥1
—
1,815

$0.00—6.93

Chugin Financial Chugin Financial Chugin Financial Chugin Financial Chugin Financial Chugin Financial
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
9th Subscription 10th Subscription 11th Subscription 12th Subscription 13th Subscription 14th Subscription
Rights to Shares Rights to Shares Rights to Shares Rights to Shares Rights to Shares Rights to Shares

Volatility of stock prices (Note 1)
Estimated remaining outstanding
period (Note 2)
Estimated dividend (Note 3)

Yen

65

$0.00—7.00

Chugin Financial Group, Inc.
14th Subscription Rights to Shares

Chugin Financial Chugin Financial Chugin Financial Chugin Financial Chugin Financial Chugin Financial Chugin Financial Chugin Financial
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
Group, Inc.
1st Subscription 2nd Subscription 3rd Subscription 4th Subscription 5th Subscription 6th Subscription 7th Subscription 8th Subscription
Rights to Shares Rights to Shares Rights to Shares Rights to Shares Rights to Shares Rights to Shares Rights to Shares Rights to Shares

Exercise price����������������������������������������
Average share price at time of exercise����
Fair appraisal price at date of grant���������

$0.00—
8.96

The assumptions and methods used to estimate the fair value of Chugin Financial
Group, Inc. 14th subscription rights to shares were as follows:

Price information for 1st, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th, 9th, 10th, 11th, 12th, 13th and 14th subscription rights to shares is as follows:

Exercise price����������������������������������������
Average share price at time of exercise����
Fair appraisal price at date of grant���������

Exercise price����������������������������������������
Average share price at time of exercise����
Fair appraisal price at date of grant���������

27.815%
5 years and 11 months¥28.00 per share($0.209 per share)
0.279%

Notes: 1.	The volatility of stock prices was computed based on the actual stock
prices from March 2017 to February 2023, corresponding to theestimated remaining outstanding period.
2.	The remaining outstanding period was estimated based on historical
data of The Chugoku Bank, Limited.
3.	The estimated dividend was based on actual dividends for the year
ended March 31, 2023.
4.	The risk-free interest rate is equal to the yield on Japanese government
bonds corresponding to the estimated remaining outstanding period.

(4) Method for estimating the number of stock options
The Company adopted a method to reflect only the actual number of forfeitedstock options since it is difficult to reasonably estimate the number to be forfeitedin the future.

2. Outline of accounting treatments of the share transfer
The share transfer was accounted for as a common control transaction inaccordance with the “Accounting Standard for Business Combinations” (ASBJ
Statement No. 21, January 16, 2019) and the “Implementation Guidance on
Accounting Standard for Business Combinations and Accounting Standard forBusiness Divestitures” (ASBJ Guidance No. 10, January 16, 2019).

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28. Asset Retirement Obligations
The consolidated subsidiaries that engage in the banking business have future
obligations pertaining to the restitution of the facilities at the data center in Haga.
However, the period of use of the lease assets related to the obligations cannot
be determined because no termination, transfer, etc., has been planned.
Therefore, the consolidated subsidiaries that engage in the banking businesscannot reasonably estimate the asset retirement obligations and no asset
retirement obligation has been recorded.

29. Subsequent Events
Establishment of a subsidiary
The Company passed a resolution to establish a wholly owned subsidiary of
Chugin Capital Partners Co., Ltd., a subsidiary of the Company, at the Board of
Directors’ meeting held on December 23, 2022, and the subsidiary wasestablished on April 3, 2023.
(1) Objectives of the establishment
While expanding the Group’s business, the Group established the subsidiary to
proactively find solutions to management issues of customers and support theircore business with the realization of Sustainability Transformation (SX) throughthe promotion of local decarbonization such as with the solar PPA business.

(2) Overview of the subsidiary
1) Name:
Chugin Energy Co., Ltd.
2) Location of 1-15-20 Marunouchi, Kita-ku, Okayama-city
headquarters:(9th floor in the Chugin Head Office Building)3) Business
Renewable energy generation business centered on the solar
description:
PPA business
Environmental energy business utilizing storage batteries, EVs,
etc.
Investment and financing business related to the above,
de-carbonization consulting and carbon offsetting business
4) Date ofApril 3, 2023
establishment:
5) Stated capital: ¥100 million ($748 thousand)6) Shareholders: Chugin Capital Partners Co., Ltd.
(a wholly owned subsidiary of the Company)
Purchases of treasury stock
On May 12, 2023, the Board of Directors of the Company passed a resolution topurchase up to 2,400 thousand shares of the Company’s common stock from themarket at a price not exceeding ¥2,000 million ($14,977 thousand) during thepurchase period from July 24, 2023 to November 10, 2023. The purpose of thispurchase was to return profit to shareholders through improvement in its capitalefficiency. In accordance with the resolution, the Company acquired 931 thousand
shares for ¥857 million ($6,418 thousand) by August 31, 2023.

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Non-consolidated Financial Statements
Non-consolidated Balance Sheets

Non-consolidated Statements of Income
Chugin Financial Group, Inc.
For the Year Ended March 31, 2023				

Chugin Financial Group, Inc.
March 31, 2023

Thousands of
U.S. Dollars(Note 1)Millions of Yen

Millions of Yen

2023

2023

ASSETS:

Income:Cash and deposits......................................................................................................................................................................... ¥6,264
Income taxes refund receivable.......................................................................................................................................................

Thousands of
U.S. Dollars(Note 1)

$

1,802

46,91013,495

Operating revenue:
Dividends from subsidiaries and associates.................................................................................................................................

¥ 9,000$ 67,400

Commissions from subsidiaries and associates............................................................................................................................

833

6,238

0

0

Other............................................................................................................................................................................................

00

Tangible fixed assets .....................................................................................................................................................................

859

Intangible fixed assets ...................................................................................................................................................................

0

0Interest income..........................................................................................................................................................................

Investments and other assets.........................................................................................................................................................

474,0623,550,228

Miscellaneous income................................................................................................................................................................

2

14

Total assets............................................................................................................................................................................... ¥482,138$ 3,610,709

Total income..............................................................................................................................................................................

9,836

73,611

739

5,534

58

434

LIABILITIES AND NET ASSETS:

Expenses:

Liabilities:
Accounts payable - other................................................................................................................................................................ ¥Other income:Operating expenses:
12

$

89

Accrued expenses..........................................................................................................................................................................

11

82

Income taxes payable.....................................................................................................................................................................

19

142

Selling, general and administrative expenses...............................................................................................................................
Other expenses:
Organization expenses...............................................................................................................................................................

Accrued consumption taxes............................................................................................................................................................

60

449

Other........................................................................................................................................................................................

00

Accrued employees' bonuses.........................................................................................................................................................

49

366

Total expenses...............................................................................................................................................................................

798

5,976

Other............................................................................................................................................................................................

1

7
Income before income taxes...........................................................................................................................................................

9,037

67,677

Total liabilities............................................................................................................................................................................ ¥

155

$

1,160

Income taxes:
Net assets

Current.....................................................................................................................................................................................

50

374

Shareholders' equity

Deferred....................................................................................................................................................................................

(27)

(202)

22

164

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

¥ 9,015$ 67,512

Common stock.......................................................................................................................................................................... ¥

16,000Capital surplus...........................................................................................................................................................................

457,696$

3,427,664

119,823

Retained earnings......................................................................................................................................................................

9,015

67,512Less treasury stock, at cost........................................................................................................................................................

(1,000)(7,488)Subscription rights to shares..........................................................................................................................................................

272

2,036

Total net assets..............................................................................................................................................................................

481,983

3,609,548

Total liabilities and net assets......................................................................................................................................................... ¥

482,138$ 3,610,709

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Non-consolidated Statements of Changes in Net Assets

Disclosure Policy

Chugin Financial Group, Inc.
For the Year Ended March 31, 2023

The Chugin Financial Group proactively undertakes the disclosure of information in order that customers,

Millions of Yen
2023

Balance at beginning of year...............................................................

CapitalsurplusRetainedearnings

Treasurystock

Subscription
rights to shares

Total net
assets

¥—

¥—

¥—

¥—

¥—

¥—

Net income....................................................................................
Changes by share transfer..............................................................

investors, business partners and other parties can more accurately understand matters concerning theCommonstock

9,015
16,000Company as a result of conducting timely and appropriate information disclosure.

9,015

457,696473,696

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

(1,000)Net changes in items other than shareholders' equity......................

(1,000)272

272

Net changes during the year...............................................................

16,000457,696

9,015(1,000)272

481,983

Balance at end of year.......................................................................

¥16,000¥457,696¥9,015¥(1,000)¥272¥481,983

This includes disclosing information in a timely manner by producing disclosure pamphlets, business
reports, annual reports and financial reports as well as via our website and other mediums.
The Chugin Financial Group will continue to endeavor to disclose information in an appropriate and timely
manner.

Thousands of U.S. Dollars (Note 1)
2023

Balance at beginning of year...............................................................

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

Subscription
rights to shares

Total net
assets

$—

$—

$—

$—

$—

$—

Net income....................................................................................
Changes by share transfer..............................................................

67,512
119,823

67,512

3,427,664

3,547,487

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

(7,488)Net changes in items other than shareholders' equity......................

(7,488)
2,036

2,036

Net changes during the year...............................................................

119,823

3,427,664

67,512(7,488)2,036

3,609,548

Balance at end of year.......................................................................

$119,823$3,427,664$67,512$(7,488)$2,036$3,609,548

Forward-looking Statements
This annual report contains forward-looking statements regarding the future results and performance of Chugin Financial Group. Such forward-looking statements are
based on current information and assumptions. Please be advised that actual results could differ materially from those anticipated by the forward-looking statements due toa variety of factors.

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