Financial Section

CHUGIN FINANCIAL GROUP, INC.

34

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

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

ASSETS:Cash and due from banks (Notes 21 and 25).................................................................................................................................. ¥ 1,510,394
Call loans.....................................................................................................................................................................................
178,907
Other debt purchased (Notes 6 and 10 ).........................................................................................................................................
22,329Trading account securities (Notes 6, 13 and 21).............................................................................................................................
2,023
Money trusts (Notes 7 and 21).......................................................................................................................................................
24,600
Securities (Notes 6, 9, 13 and 21)..................................................................................................................................................
2,324,053
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
Tangible fixed assets (Note 11)......................................................................................................................................................
35,631Intangible fixed assets (Note 12)....................................................................................................................................................
1,712
Deferred tax assets (Note 14)........................................................................................................................................................
17,594
Customers' liabilities for acceptances and guarantees (Note 9)........................................................................................................
31,110Reserve 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)..........................................................................................................................
Payables under securities lending transactions (Notes 13 and 21)....................................................................................................
423,430
Commercial paper (Note 15)..........................................................................................................................................................
46,530320,843
Borrowed money (Notes 13, 15 and 21).........................................................................................................................................
Foreign exchange.........................................................................................................................................................................
492
Bonds payable (Note 16)...............................................................................................................................................................
10,000Due to trust account......................................................................................................................................................................
8,496
Other liabilities (Notes 15, 18, 21 and 22)......................................................................................................................................
147,572
Accrued employees' bonuses........................................................................................................................................................
1,547
Accrued directors' bonuses...........................................................................................................................................................
25
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
Deferred tax liabilities (Note 14).....................................................................................................................................................
423
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
16,000Issued shares: 184,771,461 shares in 2023.......................................................................................................................... ¥Capital 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........................................................................................................................................................................................
26,096
Subscription rights to shares (Note 26)...........................................................................................................................................
272
527,894
Total net assets.............................................................................................................................................................................
Total liabilities and net assets........................................................................................................................................................ ¥ 9,849,678
See accompanying Notes to Consolidated Financial Statements.

35

CHUGIN FINANCIAL GROUP, INC.

$

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

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

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

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)..........................................................................................................................

¥110.96
110.8030.00$0.830
0.829
0.224

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

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
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

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 ownersof parent...................................
20,477
20,477
Changes by share transfer.............
850
(850)
—
Cash dividends..............................
(5,651)(5,651)
Purchases of treasury stock...........
(1,941)(1,941)
Disposals of treasury stock.............
1
21
23
Cancellation of treasury stock.........
(1)(12,540)
12,542—
Net changes in items other thanshareholders' equity..................
(33,373)(2,713)(1,356)(37,443)
15(37,428)
Net changes during the year...............
850
(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 ownersof parent...................................
153,351
153,351
Changes by share transfer.............
6,365(6,365)—
Cash dividends..............................
(42,320)(42,320)
Purchases of treasury stock...........
(14,536)(14,536)
Disposals of treasury stock.............
7
157
172
Cancellation of treasury stock.........
(7)(93,911)93,926—
Net changes in items other thanshareholders' equity..................
(249,928)(20,317)(10,155) (280,408)
112(280,296)
Net changes during the year...............
6,365(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.

37

CHUGIN FINANCIAL GROUP, INC.

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

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

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.

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
Thousands of
U.S. Dollars

Millions of Yen

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

¥

2023

(21)

$

(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:
Millions of Yen
2023
Type

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
Other............................................................................................................................................
92,229Subtotal........................................................................................................................................ ¥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..........................................................................................................
169,607
Japanese municipal bonds.............................................................................................................
561,457
Japanese corporate bonds.............................................................................................................
185,498
Other................................................................................................................................................
325,402
Foreign bonds...............................................................................................................................
253,379
Other............................................................................................................................................
72,023
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

Thousands of U.S. Dollars
2023
Type

Acquisition cost

Difference

Available-for-sale securities whose fair value exceeds acquisition cost:
Equity securities................................................................................................................................. $691,582
Bonds...............................................................................................................................................
5,438,103
Japanese government bonds..........................................................................................................
2,875,046
Japanese municipal bonds.............................................................................................................
1,524,945
Japanese corporate bonds.............................................................................................................
1,038,103
Other................................................................................................................................................
1,566,756
Foreign bonds...............................................................................................................................
876,050
Other............................................................................................................................................
690,698
Subtotal........................................................................................................................................ $7,696,450$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

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.................................................................................................................................................. $17,155,732$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$(15,457)(116,318)(15,621)(81,599)(19,089)(153,223)(104,410)(48,813)$(284,999)$370,740

43

Carrying amountCHUGIN FINANCIAL GROUP, INC.

(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:
Held-to-maturity debt securities
Millions of Yen
2023
Type

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

Proceeds from sales

Equity securities................................................................................................................................. ¥59,752
Bonds...............................................................................................................................................
812,384
Japanese government bonds..........................................................................................................
753,490
Japanese municipal bonds.............................................................................................................
53,937
Japanese corporate bonds.............................................................................................................
4,956
Other................................................................................................................................................
305,371
Foreign bonds...............................................................................................................................
266,349
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
2023

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

Carrying amount

Acquisition cost

Difference¥4,600¥4,600¥—

Difference when carrying
amount exceeds
acquisition cost

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
Restructured loans..............................................
26,295
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.
Bills discounted such as commercial bills discounted and foreign exchangesbought are accounted for as financial transactions 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). 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)

2023
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 itemsLand

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

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
Borrowed money.................................................
305,599
Payables under repurchase agreements...............
93,913
Deposits.............................................................
24,071
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
Software........................................................
463
Other.............................................................
1,621
Subtotal.........................................................
46,422
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)..............................................

2023

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

$

$

1,647
1,632
1,625
1,610
1,610
2,141
10,28916. Bonds Payable
Thousands of
U.S. Dollars

Millions of Yen
2023

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

74,88917. 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
Interest cost...................................................
122
Actuarial differences.......................................
65
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)
Amortization of actuarial differences.....................
1,406
Amortization of prior service cost.........................
(418)
Other.................................................................
(7)
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

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
Sold............................
90,39170,931(1,691)(1,691)
Bought........................
86,927
68,2463,238
3,238
Currency options
Sold............................
4,600
2,014
(82)
73
Bought........................
4,600
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

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)
Bought........................
650,992
511,091
24,24924,249Currency options
Sold............................
34,44915,082(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.
Bond-related Derivatives:
Millions of Yen
2023

Type

Contract
amountOver 1 year

Fair
value

Recognized
gains(losses)

Financial products exchangetransactions
Bond futures
Sold............................ ¥1,600 ¥— ¥(29) ¥(29)Total...............................
¥(29) ¥(29)Thousands of U.S. Dollars
2023
Type

Contract
amountOver 1 year

Fair
value

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.

(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.

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

Millions of Yen
2023

Interest Rate Derivatives:
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
2023
Type

Hedged items

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

Contract
amountFair
value

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

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

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
2023

Market risk volume............................................. ¥144,120$ 1,079,308
Banking business............................................
144,104
1,079,188[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.
Millions of Yen
2023
Book value

Assets(1) Trading account securities........................................................................................................................... ¥2,023(2) Money trusts...............................................................................................................................................
24,600(3) Securities
Held-to-maturity debt securities................................................................................................................
13,298Available-for-sale securities(*1).................................................................................................................
2,286,318(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

Difference¥2,023
24,600——13,4042,286,318¥105—

5,538,125¥7,864,470

35,293¥35,398¥7,897,592
155,493
320,865¥8,373,951¥(440)4
21¥(414)¥(45,905)(4,777)¥(50,682)

—
—
¥—

Thousands of U.S. Dollars
2023
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(2) Negotiable certificates of deposit�����������������������������������������������������������������������������������������������������������������
1,164,449(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)

Fair value$

Difference

15,150184,228

100,381
17,122,129

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

—
—
$

$
$

786
—

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

CHUGIN FINANCIAL GROUP, INC.

(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.

Thousands of
U.S. Dollars

Millions of Yen
2023

Unlisted equity securities (*1) (*2)........................ ¥4,116
Investments in partnerships (*3)...........................
20,319Foreign stocks in foreign currency (*1).................
0$ 30,824
152,1680(*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).

(Note 2) Maturities of monetary assets and securities with contractual maturities subsequent to the balance sheet dateMillions of Yen
2023
More than 1 year
within 3 years

Within 1 year

More than 3 years
within 5 years

More than 5 years
within 7 years

More than 7 years
within 10 years

More than
10 yearsDue from banks (*1)..................................................................

¥1,458,299

—

—

—

—

—

Securities.................................................................................

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

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

21,063

14,03873,42585,708103,591

467,256

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 yearsThousands of U.S. Dollars
2023
More than 1 year
within 3 years

Within 1 year

More than 3 years
within 5 years

More than 5 years
within 7 years

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

$10,921,133

—

—

—

—

—

Securities.................................................................................

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

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

38,18647,172

1,497—

12,731—

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 dateMillions of Yen
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.”(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.
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.
1) Financial instruments measured at fair values
Millions of Yen
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

Level 3Total—

¥20,000—¥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)

Thousands of U.S. Dollars
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..............................................................................

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).

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

Beginning balance¥877

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—

Thousands of U.S. Dollars

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

Beginning balance
$

6,567

Recorded in profit(loss)—

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

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

(Note 1) Description of valuation methods and inputs used in
the fair value measurement
AssetsMoney 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
1) Quantitative information on significant unobservable inputs
2023

Securities
Japanese corporate bonds
Private placement bonds

Valuation techniques

Significant unobservable inputs

Scope of inputs

Weighted average of inputs

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——(*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.

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

23. Segment Information(1) Description of reportable segments

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.

Thousands of
U.S. Dollars

Millions of Yen
2023

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

CHUGIN FINANCIAL GROUP, INC.

60

(4) Information about ordinary income, profit or loss, assets, liabilities and other items is as follows:
Millions of Yen
2023
Reportable segments
Banking

Leasing

Securities

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

¥164,419¥14,019

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

3,126

3,441

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

¥167,546¥17,461

Adjustments

Consolidated
financialstatements

Total

Other

Total

¥2,903¥181,343¥2,242¥183,586—¥183,586

69

6,637

12,526

19,164¥(19,164)—¥2,973¥187,981¥14,769¥202,750

Ordinary income:¥(19,164) ¥183,586

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

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:

Thousands of U.S. Dollars
2023
Reportable segments
Adjustments

Consolidated
financialstatements

Banking

Leasing

Securities

Total

Other

Total

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)—

Ordinary income:

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

Other items:
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

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.

Related Information:
Information about services
Millions of Yen
2023

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

Lending

Securities investment

Services

Other

Total

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

Millions of U.S. Dollars
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.

Services

Other

Total

$153,860$216,093$1,374,867

Information about losses on impairment of fixed assets by reportable segments
Millions of Yen
2023
Reportable segments

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

Banking

Leasing

Securities

Total

Other

Total

¥55

¥—

¥—

¥55

¥—

¥55

Millions of U.S. Dollars
2023
Reportable segments

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

Banking

Leasing

Securities

Total

Other

Total

$411

$—

$—

$411

$—

$411

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:(a) Number of outstanding shares and treasury stock
For the year ended March 31, 2023
Type of shares(Thousands of shares)

Balance at beginning of year Increase during the year

Decrease during the year

Balance at end of year

Remarks

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.
(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.
Date of resolution

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.

63

CHUGIN FINANCIAL GROUP, INC.

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

25. Cash and Cash Equivalents
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:

26. Stock Options(1) Line item where stock option expense is presented andthe amountMillions of Yen
2023

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

2023

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

¥

39

$

292

(2) Stock options outstanding as of March 31, 2023 were as follows:
Stock Options

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.
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.
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

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

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:
Yen
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���������

¥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

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

65

CHUGIN FINANCIAL GROUP, INC.

¥1
—
1,508

¥1
—
1,099

¥1
—
753

¥1
—
800

¥1
—
728

¥1
—
777

¥1
—
1,815

¥1
—
1,022

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

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

$0.00—8.96$0.00—7.00$0.00—6.86$0.00—6.93$0.00—9.59$0.00—11.10$0.00—13.59$0.00—
7.65

U.S. Dollars
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

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.

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

Volatility of stock prices (Note 1)
Estimated remaining outstanding
period (Note 2)
Estimated dividend (Note 3)
Risk-free interest rate (Note 4)

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).

CHUGIN FINANCIAL GROUP, INC.

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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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CHUGIN FINANCIAL GROUP, INC.