Annual Report
2015
Year ended March 31, 2015

Hokuhoku Financial Group, Inc.

Company outline (as of March 31, 2015)
Company name: Hokuhoku Financial Group, Inc.
Date of establishment: September 26, 2003
Location of head office: 1-2-26 Tsutsumicho-dori, Toyama City
Purpose of business: Management and control of subsidiaries and affiliates and ancillary and related business
Capital: ¥70,895 million
Shares issued and outstanding:Common stock………………………… 1,351,630,146
Preferred stock (Type 5)………………

107,432,000

Exchange listings: ‌Tokyo Stock Exchange (First Section)
Sapporo Securities ExchangeThis document contains forward-looking statements. Statements of this kind do not constitute guarantees of future performance, as factors such as changes in
the operating environment may cause actual performance to differ.
The figures stated in this document are, in principle, rounded down to the nearest whole unit.

CONTENTS

Profile………………………………………………………………………… 1
Message from the Management…………………………………………… 2
Medium-term Management Plan…………………………………………… 4
Performance Highlights…………………………………………………… 6
Corporate Governance……………………………………………………… 9
Measures for Compliance………………………………………………… 12
Measures for Risk Management…………………………………………… 14
Characteristics of Our Main Business Area……………………………… 19
Corporate Social Responsibility…………………………………………… 21
Topics………………………………………………………………………… 23
Consolidated Financial Statements
Consolidated Balance Sheet…………………………………………… 26
Consolidated Statement of Income…………………………………… 27
Consolidated Statement of Comprehensive Income………………… 27
Consolidated Statement of Changes in Equity………………………… 28
Consolidated Statement of Cash Flows……………………………… 30
Notes to Consolidated Financial Statements………………………… 31
Independent Auditor’s Report……………………………………………… 57
Non-consolidated Financial Statements
The Hokuriku Bank, Ltd.
Non-consolidated Balance Sheet (Unaudited)……………………… 58
Non-consolidated Statement of Income (Unaudited)……………… 59
The Hokkaido Bank, Ltd.
Non-consolidated Balance Sheet (Unaudited)……………………… 60
Non-consolidated Statement of Income (Unaudited)……………… 61
Corporate Information……………………………………………………… 62
Outline of Subsidiaries — Hokuriku Bank………………………………… 63
Outline of Subsidiaries — Hokkaido Bank………………………………… 64
Board of Directors and Audit & Supervisory Board Members…………… 65
简单的本集团中文简要…………………………………………………… 66

Profile
Since its establishment in 1877, Hokuriku Bank has

The operations of the Hokuhoku Financial Groupextend beyond the limits of a single district.

developed an extensive network of branches throughout

Our extensive network is outlined below.

the Hokuriku district. On account of trade through the

Hokuriku district……………………………… 149 branches
Toyama prefecture……………………………… 91 branches
Ishikawa prefecture…………………………… 36 branches
Fukui prefecture………………………………… 22 branches

Kitamae-bune or “Northbound Ships,” branches extended
to the major cities of Hokkaido, enabling the bank tomeet customers’ needs. The Hokkaido Bank, which wasestablished in 1951, has developed a network of branches

Hokkaido……………………………………… 159 branches

throughout Hokkaido, and built a firm business structure

Three major metropolitan areas…………… 16 branches
9 branches
Tokyo and Yokohama…………………………
Nagoya…………………………………………
3 branches
Osaka and Kyoto………………………………
4 branches

centered on individuals and small and medium-sizedenterprises.
The Hokuriku Bank, Ltd. and The Hokkaido Bank, Ltd.
underwent management integration in September 2004 toform the Hokuhoku Financial Group Inc., which today oper-

Others (Sendai, Niigata, Nagano, Takayama)……

ates a super-regional financial network that encompasses

Overseas………………………………………
9 offices
New York Representative Office (Hokuriku Bank)
Yuzhno-Sakhalinsk Representative Office (Hokkaido Bank)
Vladivostok Representative Office (Hokkaido Bank)
London Representative Office (Hokuriku Bank)
Singapore Representative Office (Hokuriku Bank)
Bangkok Representative Office (Hokuriku Bank)
Dalian Representative Office (Hokuriku Bank)
Shanghai Representative Office (Hokuriku Bank)
Shenyang Representative Office (Hokkaido Bank)

the Hokuriku region, Hokkaido, and Japan’s three major
metropolitan areas (Tokyo, Osaka, and Nagoya areas).

May 2002

Comprehensive business alliance
between
Hokuriku Bank and Hokkaido BankMay 2003

Agreement on full integration ofmanagement of Hokuriku Bank andHokkaido Bank

(As of June 30, 2015)

LondonSeptember
2003

Vladivostok
YuzhnoSakhalinsk

Shenyang
DalianHokugin Financial Group, Inc.
established

New York

Shanghai

Hokuriku Bank Group comes undermanagement of Hokugin Financial
Group

Bangkok
Singapore

Management integration effected
through equity swap
September
2004

4 branches

Hokkaido

Hokuhoku Financial Group, Inc. wasborn.

Hokuriku district
Ishikawa

Toyama

Fukui

Tokyo
Osaka

NagoyaThree major metropolitan areas
Hokuhoku Financial Group, Inc. Annual Report 2015

1

MESSAGE FROM THE MANAGEMENT

2

Left: Eishin Ihori

Right: Masahiro Sasahara

President(concurrently serving as president of
The Hokuriku Bank, Ltd.)

Deputy President(concurrently serving as president of
The Hokkaido Bank, Ltd.)

Hokuhoku Financial Group, Inc. Annual Report 2015

We would like to express our sincere appreciation to all of you for your continued support of the Hokuhoku Financial Groupand its group companies. We are pleased to present this report for the Hokuhoku Financial Group for the fiscal year ended
March 31, 2015. The report covers our operating performance in the fiscal year ended March 31, 2015, and introduces thevarious initiatives that we are undertaking.
The Japanese economy is currently benefitting from the gradual settling in of the positive effects from the various
policies enacted under Abenomics, and regional economies are also enjoying modest recoveries. In the Hokuriku area
(Toyama, Ishikawa and Fukui prefectures), the Hokuhoku Financial Group’s primary operating region, the Hokuriku bullet train
began operating, and seizing this as a new business opportunity, corporate activity has been revitalized in a wide range ofsectors, including tourism and manufacturing. Expectations for ripple effects to the local economy are also increasing in
Hokkaido, where the Hokkaido bullet train will begin operating within under a year. In addition to providing funding support tolocal companies, the Group is proactively supporting local companies’ efforts to expand sales. The Group’s initiatives include
business-matching leveraging the Group’s expansive network, as well as promoting products from regional areas in theTokyo metropolitan area.
The Hokuhoku Financial Group was formed in September 2004, through a management integration of Hokuriku Bankand Hokkaido Bank, and celebrated its 10th anniversary in fiscal 2014. This is entirely due to the warm support we havereceived from all of our customers and shareholders, and we are extremely grateful for this. Going forward, we will continue
to refine our wide-area financial group business model to provide our customers with quality financial services, and pursue
the advantages of group management.
Fiscal 2015 is the final fiscal year of the “GO for IT!” medium-term management plan. During fiscal 2015, aiming to be a“close and reliable financial group for local customers,” as expressed in the plan, we will continue to strive to boost our
corporate value as we endeavor to invigorate the regional economy. We ask for your continued support and encouragement.
July 2015

Eishin Ihori
President

Masahiro Sasahara
Deputy President

Hokuhoku Financial Group, Inc. Annual Report 2015

3

MEDIUM-TERM MANAGEMENT PLAN
In April 2013, the Group launched the “GO for IT!” medium-term management plan, and positioned the three-year period of
the plan as a period for optimizing the business strategy with an eye towards sustainable growth. In addition to further advancing the existing management policies of “Strengthening Marketing Capabilities” and “Improving Management Efficiency”,
we will work on “Cementing Management Foundation”, and work to raise our corporate value by gaining the trust of local
communities and contributing to the revitalization of the regional economy.

Overview of the Medium-Term Management PlanTitle

GO for IT!

Period3 Years (April 2013 — March 2016)

Position

A term for establishing an optimized the business strategy for sustainable growthTarget Corporate Profile

Close and Reliable Financial Group for Local Customers

Basic Policies
in Management Plan

1. ‌Establish solid management foundation for sustainable growth under changing businesscircumstances by constructing close relationship with regional customers and effective
internal control.
2. ‌Keep on “Strengthening Marketing Capabilities” and “Improving Management Efficiency”
and “Cementing Management Foundation.”
3. ‌Raise our corporate value by obtaining the trust of local customers and contributing to therevitalization of the regional economy.

Basic Policies of Medium-Term Management Plan “GO for IT!”
Develop Proper Measures
Strengthening Marketing Capabilities

Improving Management Efficiency

Cementing Management Foundation

Expand customer baseStrengthen consultation service‌ onsolidation and pooling of operaC
tions

I‌mprove quality of capital in line with
Basel Ⅲ‌ ake advantages of our extensive
T
network‌ ake advantages of shared use of
Tbanking systems

Enhance asset quality

I‌mprove marketing strategy for
personal customers‌ nhance operational effectivenessE
Reconsider resource allocation of
headquarters and branches

Increase investments in securities

Strengthen corporate revitalization

Establish Solid Internal Controls
Training Employees

Accelerate Synergies

Reallocate Management Resources

Reorganize Risk Management Framework

Strengthen Compliance

Fiscal 2015 Numerical Targets (Total of 2 Banks, Consolidated)

4

FY2013 (Result)

FY 2014 (Result)

FY2015 (Target)

Deposits (Average Balance)¥10,129.2bn¥10,433.6bn¥10,110.0bn

Loans and Bills Discounted (Average Balance)¥7,344.0bn¥7,452.0bn¥7,480.0bn

Core Net Business Profits¥48.2bn¥51.2bn¥47.0bn

Net Income (Consolidated)¥27.3bn¥28.2bn¥18.5bn

Capital Adequacy Ratio (Consolidated)

12.31%

11.13%

10% or above

OHR (Core Gross Business Profit Basis)

66.08%

64.64%

67%

NPL Ratio

2.67%

2.43%

Below 3%

Hokuhoku Financial Group, Inc. Annual Report 2015

Strengthening Marketing Capabilities

Strategies

Expand customer base

Further increase customer accounts
Become the main bank and promote cross sale of various financial products

Strengthen consultation service‌ ccumulate knowledge and promote sales in priority industries
A(Agriculture, Healthcare, Welfare, Environment, Renewable energy)
Private Banking, M&A, Business Succession

Take advantages of our extensive network‌ nhance business-matching information services and support ofEcustomers’ overseas business development

Improve marketing strategy for
personal customers

Effective sales promotion based on account-holder category
Activate service channels other than face-to-face transactions‌Review organizational structure and strengthen our sales system forinvestment trust and insurance products

Increase investments in securities

Supplement decreased interest revenue from corporate loans

Improving Management Efficiency

Strategies

Consolidation and pooling of operations‌Establish more efficient cost structure as a top-level financial group among regionalbanks (Consolidation of operation in headquarters, Shared back office, Collaboration in product development and advertising)
Improve operational efficiency through integrated management

Take advantages of shared useof banking systems

I‌ncrease number of banks sharing use of banking system (3 banks >> 4 banks)and pursue additional cost reduction
Joint development of subsystems and continuous integration of business process

Enhance operational effectiveness
Reconsider resource allocation of
headquarters and branches

Optimize business process in branches and headquarters
Redeploy strategically key personnel to priority areas

Cementing Management Foundation

Strategies

Capital management

Improve quality of capital in line with Basel Ⅲ
Develop capital operations for higher equity value

Enhance asset quality

Raise proportion of asset with a low risk-weighting

Strengthen corporate revitalization

Alliance with external organizations
Active use of regional revitalization fund

Capital Adequacy Ratio (Consolidated Financial Group)
11.88％

12.31％
11.13％

Capital adequacy ratio
10.00%

Control of amount ofpreferred stocks andsubordinated debts
in line with Basel Ⅲ
564.2

605.5

576.0

Include the following
transitional capital:• Subordinated capital :¥72.5 Bn
• Preferred stock :¥53.7 Bn
524.4

Increase core
capital by internal
reserve
13/3 result 14/3 result 15/3 result(¥ billion)

16/3 plan*Calculated based on Basel Ⅱ for the end of March 2013, and calculated based onBasel Ⅲ for the end of March 2014, and subsequent years.

Dividend Policy
Dividends forcommon equities

Steady increase individends‌
Maintaina 30% or above dividend payout
ratio and aim for step-by-step increase individend by increasing earnings.
‌Maintain an about 10% capital adequacy
ratio by building up internal reserves
based on the reduced inclusion ofpreferred stocks, subordinate capitals
and other items through gradualapplication of Basel Ⅲ regulations.

Hokuhoku Financial Group, Inc. Annual Report 2015

5

PERFORMANCE HIGHLIGHTS
Summary of Operations (Hokuhoku Financial Group, Inc.; on a consolidated basis)(¥ billion)

FY2014FY2013

Ordinary income
Ordinary profits
Net income

193.9
48.1
28.2

Y-o-Y Change
2.9
(1.3)
0.9

190.9
49.4
27.3

Capital adequacy ratio

11.13%(1.18)%

12.31%In the fiscal year ended March 31, 2015, Hokuhoku FG
recorded net income of ¥28.2 billion, a ¥0.9 billion year-onyear increase.
The capital adequacy ratio was 11.13% on aconsolidated basis at the end of the fiscal year.
The Group paid a fiscal year-end dividend of thedesignated ¥7.50 per share to shareholders of preferredstock (Type 5). While an interim dividend was not paid, afiscal year-end dividend of ¥4.25 per share, marking an
increase of ¥0.25 from the previous year, was paid tocommon shareholders.

Summary of Operations (Hokuriku Bank and Hokkaido Bank)
Total of both banks

(¥ billion)

FY2014
Ordinary income
Core gross business profits
Expenses (excluding
temporarily processed
portion)Core net business profits
Credit costs
Ordinary profits
Net income

179.4
144.8

FY2013
Y-o-Y Change
1.4
2.5

178.0
142.2

93.6

(0.4)

94.0

51.2
6.0
47.1
28.2

2.9
7.4
(1.4)
0.7

48.2
(1.3)
48.5
27.5

‌Core gross business profits……¥144.8 billion
Core gross business profits increased by ¥2.5 billion
year-on-year, due to the increase in both net interest
income as well as net fees and commissions.
‌Expenses……¥93.6 billion
Expenses fell by ¥0.4 billion year-on-year, due to the drop
in both personnel expenses and property expenses.
‌Core net business profits……¥51.2 billion‌Ordinary profits……¥47.1 billion
Ordinary profits declined by ¥1.4 billion year-on-year, as
an increase in net gains related to bonds was offset by anincrease in credit costs.
‌Net income……¥28.2 billion
Net income increased by ¥0.7 billion year-on-year, due toa decline in income taxes.

(¥ billion)(¥ billion)

Hokuriku Bank
FY2014

Hokkaido Bank
FY2013

FY2014FY2013

97.7
77.0

85.4
68.3

Y-o-Y Change
5.2
3.0

(0.1)

50.5

43.1

(0.3)

43.4

26.0
1.7
24.5
14.6

(0.4)
6.0
(5.9)
(3.1)

26.4
(4.2)
30.4
17.8

25.1
4.2
22.6
13.5

3.3
1.4
4.5
3.8

21.7
2.8
18.0
9.6

10.61%(1.79)%

12.40%

10.75%(0.01)%

10.76%

Ordinary income
Core gross business profits
Expenses (excluding
temporarily processed
portion)Core net business profits
Credit costs
Ordinary profits
Net income

94.0
76.5
50.4

Capital adequacy ratio

Y-o-Y Change
(3.7)
(0.5)

80.2
65.2

Capital Adequacy Ratio <On a consolidated basis>
Capital11.88%‌Capital adequacy ratio…..11.13%
The capital adequacy ratio fell by 1.18 percentage points
compared with the end of the previous fiscal year, as theaccumulation of profits was offset by the repayment ofsubordinated loans, etc.

Capital adequacy ratio

12.31%
11.13%*‌‌Calculated based on Basel Ⅱ for the end of March 2013,and calculated based on Basel Ⅲ for the end of March
2014, and subsequent years.
564.2

605.5

576.0

2013

2014

2015

(¥ billion)
End of March

6

Hokuhoku Financial Group, Inc. Annual Report 2015

Core Gross Business Profits <Total of both banks>
Net interest income

Net fees and commissions

Total

Other income

144.8
2.7
19.9

145.5
2.7
18.3

142.2
2.8
17.7

124.3

121.7

122.1

FY2012FY2013

FY2014‌Net interest income……¥122.1 billion
Net interest income increased by ¥0.4 billion year-on-year,
as the decline in interest on loans was offset by anincrease in interest and dividends on securities.
‌Net fees and commissions……¥19.9 billion
Net fees and commissions increased ¥2.1 billion year-onyear, due to an increase in commissions on sales ofinvestment trusts and insurance.
‌Other income……¥2.7 billion
Other income was roughly flat year-on-year, as theincrease in gains on derivatives was offset by a decline ingain on foreign exchange transactions.

(¥ billion)

Core Net Business Profits <Total of both banks>
Hokuriku Bank

Hokkaido Bank

ROA

0.47%

48.2

Hokuriku Bank

27.5
Total

Total

28.2

51.2
14.6

19.5

26.0
31.4

Hokkaido Bank

0.45%

0.44%
50.3

Net Income <Total of both banks>

17.8

26.4
12.3

18.9

21.7

13.5

25.1
(¥ billion)

FY2012FY2013

FY20147.2

FY2012

9.6(¥ billion)

FY2013

FY2014

Deposits (Including negotiable certificates of deposit) <Total of both banks>
Hokuriku Bank

‌Deposits (Including negotiable certificates ofdeposit)……¥10,651.3 billion
Deposits increased by ¥479.3 billion compared with theend of the previous fiscal year, due to the steady increasein both individual deposits and corporate deposits, as wellas an increase in negotiable certificates of deposit.

Hokkaido Bank

Total 10,651.3

10,008.1

10,172.0

5,726.2

5,909.0

6,076.0

4,281.9

4,262.9

4,575.3

2013

2014

2015

(¥ billion)
End of March

Hokuhoku Financial Group, Inc. Annual Report 2015

7

PERFORMANCE HIGHLIGHTS

Loans and Bills Discounted <Total of both banks>
Hokuriku Bank

Outstanding Loans to Small- and Medium-sizedEnterprises (SMEs) <Total of both banks>

Hokkaido Bank

Hokuriku Bank

Total

7,561.7

Hokkaido Bank

Total

4,767.8

4,692.5

4,639.6

4,365.3

2,797.5

2,765.1

2,858.3

3,108.6

3,196.4

1,895.0

1,874.4

1,909.5

2014

2015

2013

2014

2015

7,402.0

7,336.3

4,332.7

4,227.6

3,069.3

2013(¥ billion)
End of March(¥ billion)
End of March‌Loans and bills discounted……¥7,561.7 billion
Loans and bills discounted increased by ¥225.4 billion
compared with the end of the previous fiscal year,
attributable to increases in all segments of corporateloans, individual loans, and loans to regional publicbodies.

‌Outstanding loans to SMEs……¥4,767.8 billion
Outstanding loans to SMEs increased by ¥128.2 billion
compared with the end of the previous fiscal year, due toour proactive efforts to be a leader in regional financial
services.

Disposed Claims under the Financial Reconstruction Law <Total of both banks>‌Disclosed claims under the Financial Reconstruction
Law……¥189.2 billion
Disclosed claims under the Financial Reconstruction Law
fell by ¥12.1 billion compared with the end of the previous
fiscal year.
‌NPL ratio……2.43%
The NPL ratio declined by 0.24 percentage points
compared with the end of the previous fiscal year.
Substandard claims
Bankrupt and substantially bankrupt claims

3.11%
236.7

2.67%

42.4

201.3

Doubtful claims
NPL Ratio

Total

End of March

Substandard
claims

189.2
29.4

Bankrupt andsubstantiallybankrupt claims

157.6
134.5

● ‌Claims subject to disclosure: loans, customers’ liabilities for acceptance and guarantees, foreign exchanges, accrued interest, suspense
payments, securities loaned, private bonds with the Bank’s own
guarantees (regarding claims on obligors requiring caution, loans andprivate bonds with the Bank’s own guarantees only).

Doubtful claims

2.43%

36.4

● ‌Disclosed Claims under the Financial Reconstruction Law: The
bankclassifies both loans and other assets in line with the stipulationsof theFinancial Reconstruction Law.

136.2

36.6

30.5

23.6

2013

2014

2015

This category is defined as claims on borrowers
requiring caution under asset self-assessment.
This category comprises past due loans (threemonths or more) and restructured loans underthe Banking Law.
This category is defined as claims on potentiallybankrupt borrowers under asset self-assessment.
The execution of contracts on repayment of theprincipal and payments of interest is highly
doubtful.
This category is defined as the sum of claims onbankrupt borrowers and effectively bankrupt
borrowers.

● ‌NPL ratio: Indicates NPLs (under the Financial Reconstruction Law) asa percentage of total credit. The lower the ratio, the sounder the credit
portfolio.
(¥ billion)

Ratings
Rating and Investment
Information, Inc.

R&I

A
8

Hokuhoku Financial Group, Inc. Annual Report 2015

“Ratings” are determined by ratings agencies, third-party institutions with no vested
interest in the companies they rate, and indicate a company’s creditworthiness and ability
to fulfill obligations in concise signs.
Hokuhoku Financial Group Inc., Hokuriku Bank and Hokkaido Bank have obtained“A” ratings from Rating and Investment Information, Inc. (R&I), and are considered as
being highly creditworthy. Hokuriku Bank also has obtained “A-” rating from Standard &Poor’s Ratings Japan K. K. and Hokkaido Bank also has obtained “A” rating from Japan
Credit Rating Agency Ltd.

CORPORATE GOVERNANCE
We will increase management transparency and enhance our corporate
governance.
Basic approach
The Company and all group companies regard strengthening and enhancing corporate governance as one of the mostimportant management priorities. We have drawn up a basic policy — our management philosophy — covering all our
activities including the formulation of management strategies and making management decisions. We share basic values anda sense of ethics through the Hokuhoku Financial Group Code of Conduct, and endeavor to increase corporate value andrealize solid management aimed at contributing to the development of the Hokuriku and Hokkaido regions.

Corporate governance
We have established a framework that enables quick decision-making, with the Shareholders’ Meeting and Board of
Directors at the top of the framework, and day-to-day
operational authority delegated in accordance with internal
rules. Bodies such as the Management Committee are able
to respond quickly to specific and expert matters based on
basic policies established by the Board of Directors. Furthermore, separate from the Management Committee, wehave established a Business Promotion Committee which
ensures that business policies are correctly carried out
among group companies.

We use the Audit & Supervisory Board Member system
and also appoint external Director. Additionally, in order tobolster our group governance framework and, as a holding
company, to ensure that operations are managed appropriately, people from each of our principal subsidiaries, Hokuriku Bank and Hokkaido Bank, are appointed as Directors at
the other bank to promote mutual understanding andmutual checks and balances.
In this way, in addition to having established this framework to cyclically enable effective decision-making, implementation, evaluation, and improvements, the Board of
Directors decides the basic policy on internal controls, tocreate an effective internal control system.

Hokuhoku Financial Group, Inc.
Shareholders’ Meeting

Business Promotion Committee

Members: Full-time Hokuhoku FG Directors and subsidiary presidents
Purpose: To ensure sound management policy implementation,
ascertain the status of business and provide instructions

Internal Auditing
Executionof
PDCA

Planning Group

Board of Directors

Appointment of 2 external Audit &Supervisory Board Members

Audit & Supervisory Board
Appointment of 2 external Directors

Management Committee

Administration Group

Risk Management Group

Audit & Supervisory Group

Hokkaido Bank

Hokuriku Bank
Shareholders’ Meeting

Shareholders’ Meeting

Audit & Supervisory Board

Other
Subsidiaries

Board of Directors

Audit & Supervisory Board
Board of Directors

Management Committee

Management Committee

Each bank appoints a person from the other bank as its Director

Overview of key bodies
1. Board of Directors
Responsible for decisions related to important policies for
management of the Group as a whole, and for overseeing thebusiness management, risk management and auditing carriedout by the holding company and its subsidiaries. Two Directors
are appointed and oversight is strengthened by incorporating
perspectives that are independent from management.
2. Audit & Supervisory Board
Determines matters related to auditing policies and the performance of duties by Audit & Supervisory Board Members, andmonitors the performance of duties by Directors.
3. Management Committee

makes decisions — in accordance with the basic policies laid
down by the Board of Directors — on matters relating tobusiness execution policies for the entire Group and mattersrelated to the implementation of particularly important tasks by
specific divisions.
4. Business Promotion Committee
Comprising full-time Directors of the Company and presidents
of subsidiaries, this body is responsible for making sure thatimportant issues and management policies for the entire Groupare widely known and understood, as well as for keeping trackof business results at each company to ensure that business iscarried out appropriately.

Comprising full-time Directors of the Company, this body
Hokuhoku Financial Group, Inc. Annual Report 2015

9

CORPORATE GOVERNANCE

Basic policy on internal controls
1. ‌System to ensure that executives and employees of theCompany and group companies perform their duties inconformity with laws and ordinances, as well as inconformity with our articles of incorporation‌In addition to setting matters pertaining to laws andordinances, or the articles of incorporation, the Board of
Directors decides on basic management policies andimportant issues related to the execution of operations,establishes organizations and systems, and supervises
performance of duties by Directors.
‌It also recommends external Directors for appointment at
Shareholders’ Meetings, to ensure a stronger system ofchecks and balances.
‌Audit & Supervisory Board Members attend important
meetings including Board of Directors meetings, investigate
the Company’s operations and financial position, and audit theperformance of duties by Directors as an independent body.
‌The Board of Directors views compliance as one of the mostimportant management issues, and fully recognizes the factthat a lack of compliance can weaken the management base.
Based on this understanding, the Board of Directors formulates the rules that form the foundation of compliance, such as
the basic compliance policy and the compliance charter.
‌In accordance with the aforementioned basic rules, theCompany and group companies work together to ensurehonest and fair corporate activities.
‌The Board of Directors establishes basic rules for the
management of customer protection, and puts in place amanagement policy and management framework for theprotection of customers’ interests.
‌A whistleblower system is put in place whereby an executive
or an employee who discovers illegal or inappropriate actions
can report to a whistleblower contact point established inadvance.
‌The Company is determined to avoid relationships with antisocial forces which threaten order and safety in society, andworks to prevent doing business with such groups.
‌The Company is aware that money transacted throughfinancial institutions may be used for various crimes or acts ofterrorism, and is therefore committed to the prevention ofmoney laundering.

10‌A contingency plan has been formulated, and a crisis
management system has been established to prepare forunexpected events and risks such as natural disasters.
‌Each group company carries out appropriate risk management in close partnership with each group company’s risk
management department, following the Group’s basic policy.
4. ‌System to ensure that Directors, etc. of the Company andgroup companies perform duties efficiently‌The Board of Directors sets overall organizational standards
for basic tasks, operational entities, and assignment of duties,
and ensures a system in which the Company and all groupcompanies perform well-organized and efficient business
operations.
‌The Management Committee executes business operations
promptly and efficiently, based on delegation of authority andassignment of duties by the Board of Directors.
‌Teleconferencing systems and other IT tools are proactively
utilized.
5. ‌System to ensure the appropriateness of operations within
the corporate group‌The Board of Directors is responsible for overall group management. It establishes the group management regulations,prepares frameworks for agenda-setting and reporting foreach group company with regard to important matters, andreceives reports from internal audit departments on the findings of audits into the status of legal compliance, risk management, and the appropriateness and effectiveness of business
operations at the Company and all group companies.
‌We also have in place mechanisms to ensure the propriety offinancial reporting, ensuring honest and clear statements of
the Group’s financial position and business results.

2. ‌System related to the storage and management of information related to the performance of duties by Directors‌Based on the Board of Directors rules as well as document
management rules and other regulations, the Board of
Directors creates systems for the storage and management of
information related to performance of duties by Directors.

6. ‌Matters related to employees in the case that Audit &Supervisory Board Members request the assignment of
employees to assist with duties‌When Audit & Supervisory Board Members request theassignment of employees to assist them in the conduct of
their duties, the Board of Directors shall respect the Audit &Supervisory Board Member’s views and provide the necessary
personnel based on the required expertise.
‌In addition, to ensure the independence of these employees
from Directors as well as their effectiveness, the Company
shall place employees who carry out this work only and towhom Audit & Supervisory Board Members may directly give
directions and orders, and prior consent from the Audit &Supervisory Board is required for personnel transfers anddisciplinary measures regarding such employees.

3. ‌Rules and other systems related to the management of riskof losses‌Recognizing the existence of various risks surrounding theCompany and group companies, and fully aware of the importance of controlling such risks, the Board of Directors decides
the basic risk management policy and risk management
regulations. By accurately recognizing the various risks
accompanying group company management and by carryingout appropriate management and operations, the Board of
Directors establishes systems to ensure the soundness ofgroup management.

7. ‌System for Company and group company executives andemployees to report to Audit & Supervisory Board Members‌Executives and employees shall report to Audit & Supervisory
Board Members if they discover matters that could causesignificant losses to the Company or group companies.
‌An effective and flexible reporting system shall be established
for matters reported to the Audit & Supervisory Board byexecutives and employees as designated in advance by the
Audit & Supervisory Board Members and Directors.
‌The Audit & Supervisory Board Members may request reports
from executives and employees as needed.

Hokuhoku Financial Group, Inc. Annual Report 2015

‌A system shall be established to ensure that executives andemployees of the Company or group companies are not
mistreated as a result of having consulted with or reported to
Audit & Supervisory Board Members.
8. ‌Other systems to ensure effective auditing by Audit &Supervisory Board Members‌The Board of Directors shall give due acknowledgement to theimportance and usefulness of auditing by the Audit &Supervisory Board Members, and shall give due consideration
if the Audit & Supervisory Board Members request creation ofa system for smoother and more effective performance ofauditing duties.
‌The Audit & Supervisory Board shall regularly meet with therepresentative Directors and outside accounting auditors.
‌The Audit & Supervisory Board may invoice the Company forany expenses deemed necessary in order to perform its
duties.

We are strengthening internal auditing mechanisms to ensure soundmanagement of the Group
Basic approach
The Group believes that establishment of internal auditing mechanisms that effectively meet requirements according to thescale and nature of operations, laws and regulations applied to the Group’s businesses and categories of risk, is
indispensable for enabling due legal and regulatory compliance by the Group, customer protection and risk management.
Based on this conviction, the Company and its subsidiary banks, Hokuriku Bank and Hokkaido Bank have establishedinternal auditing departments.
The internal auditing departments of each Group company develop mechanisms of checks and balances, which thereby
ensure that those departments function independently of other departments.

Group-wide measures
The Company verifies the appropriateness andeffectiveness of Group company internal management
mechanisms, and has accordingly established the Audit &Supervisory Group, tasked with overseeing the internal audit
function of those companies. In line with basic policy andrules on internal audits compiled by the Board of Directors,
the Audit & Supervisory Group carries out internal audits on
the Company and its non-banking subsidiaries and affiliates,
and also receives reports from Hokuriku Bank andHokkaido Bank that include results of internal audits andprogress made on matters requiring improvement.
Furthermore, when necessary, the Audit & Supervisory
Group centrally assesses and manages the implementationof internal audits within Group companies through on-sitebank investigations, guidance and reports.
Results of internal audits at Group companies are
periodically reported to the Board of Directors promptly

when needed. In particular, mechanisms have been put inplace for prompt reporting to the Board of Directors withrespect to events that could significantly impact management of the Group.
Also at Hokuriku Bank and Hokkaido Bank, operational
and asset audits are performed involving head offices,branches and subsidiaries of each bank, based on thepolicy and rules for internal audits of the respective banks.
Conducting these audits involves assessing legal andregulatory compliance, customer protection, and risk
management at each entity subject to audit, and thenmaking efficient and effective internal audit plans taking into
account factors such as the frequency and extent of suchaudits.
When necessary, the audit departments of both banks
and the Audit & Supervisory Group of the Company
conduct joint audits in order to strengthen and streamline
overall Group auditing.

Hokuhoku Financial Group, Inc. Annual Report 2015

11

MEASURES FOR COMPLIANCE
The Group rigorously ensures compliance with laws, regulations and social norms.
Basic policy
At Hokuhoku Financial Group, we regard compliance as one of our most important management priorities, thereby fullyrecognizing that shortfalls with respect to compliance could weaken our business foundations. Therefore, the Board of
Directors has established basic compliance policies which underpin our efforts to engage in business activities in a fair andhonest manner.

Systems

3. Strict observance of laws, regulations and rules

To establish compliance systems, the Group has established acompliance charter, put in place organizational structures andarranged joint measures by involving the Company and eachGroup company.
The Risk Management Group acts as the Compliance
General Department responsible for overseeing compliancewithin the Group, and the head of the Risk Management Group
acts as the officer in charge of compliance.
Compliance officers and other such managers are deployed
to each branch of subsidiary banks and each Group company inorder to aggressively implement training and awareness-raising
initiatives regarding compliance in the workplace. Subsidiarybanks have established Compliance General Departments andCompliance Committees, which work to assess progress incompliance measures and make improvements.

Basic compliance policy
1. ‌Recognition of the Group’s basic mission and social
responsibilities	‌As a regional financial institution, the Group recognizes its
public duties and social responsibilities, and accordingly
strives to gain greater trust through the conduct of soundbusiness operations.

2. Providing quality financial services
	‌By providing high-quality, integrated financial services, theGroup will contribute to enabling stable economic and social
development of its operating regions, while facilitating better
lives for its customers.

Hokuhoku Financial Group, Inc.

	‌The Group strictly observes all relevant laws, regulations andrules, and conducts business in a fair and prudent manner, in
adherence with its own standards of corporate ethics andsocial norms.

4. Rejection of all ties with anti-social elements	‌The Group contributes to a healthy society by resolutely
refusing to associate or work with anti-social elements thatthreaten social peace and security.

5. Ensuring management transparency	‌The Group aims to achieve a highly transparent management
and organizational culture through accurate and swift
disclosure and decision making.

Compliance manual and compliance programs
To ensure rigorous compliance, we have formulated acompliance manual (code of conduct) compiling all fundamental
considerations which executive officers and employees need toobserve. The manual is distributed to all executive officers andemployees, and in-house seminars and training sessions are
conducted to ensure thorough familiarity with its content.
In addition, every year the Board of Directors decides on the
Compliance Program which acts as a detailed action plan
implemented to maintain the compliance structure. The Board
also receives regular reports on the state of the Program’s
execution, and ensures that compliance procedures are put into
practice.

Board of Directors
Management Committee

Compliance General Department

Subsidiaries, etc.

Management Committee

Risk Management Group

Board of Directors

President

Audit & Supervisory Group

Audit & Supervisory Board Members,
Audit & Supervisory Board
Management Committee
Compliance Committee

Compliance Committee

12

Audit & Supervisory Board Members,
Audit & Supervisory Board

Compliance OfficeCompliance General Department

Compliance Department

Compliance officers, etc.

Compliance officers, etc.

Compliance manager

Hokuriku Bank

Other Subsidiaries, etc.

Hokkaido Bank

Hokuhoku Financial Group, Inc. Annual Report 2015

Measures for better customer protection andgreater customer convenience
To protect customer assets, information and other interests, theGroup has established policies for management of customer
protection within its basic rules for management of customer
protection.
Furthermore, we have formulated protocols and appropriate
response structures based on five separate considerations, inorder to provide pertinent explanations to our customers inaccordance with the Japanese Financial Instruments andExchange Act and other laws, and to properly handle customer
grievances and inquiries through a customer consultation office
set up to serve as a point of customer contact.
Moreover, the Compliance General Departments of respective Group companies act as offices responsible for overallcustomer protection management, and in partnership with eachdepartment in charge, they operate through a framework that

Basic rules for management ofcustomer protection

enables them to draft and implement various improvement
measures through efforts that involve ongoing review geared
toward ensuring proper functioning of management systems,
problem resolution and data analysis.

Measures for protection of personal information
In the financial industry, ensuring the safety of information assets
is of utmost importance in terms of gaining customer trust. As
such, we are committed to rigorously protecting and using any
and all customer information in our custody and preventing its
leakage.
Especially in the area of personal information, the Group has
formulated a personal information protection declaration, which
is disclosed on our website, in order to comply with the
Personal Information Protection Act and other laws, and to gain
the full trust of our customers in acting as a financial institutionthat contributes to local communities.

Policies for management of customer protection

Explaining to the customer

In line with laws and regulations, we will adequately and sufficiently explain financial products
and provide information when carrying out transactions with our customers.

Customer service support

We will listen carefully to customer grievances and give advice in an appropriate manner.

Protection of customer data

We will lawfully acquire and securely manage all information concerning our customers.

Outsourcing
Conflict of interest

When outsourcing operations relating to transactions with customers, we will duly supervise
service providers to protect customer information and interests.
We will appropriately manage transactions involving customers where conflict of interest could
be an issue so as to prevent customer interests from becoming unduly impaired.

Measures for dealing with anti-social elements
The Group has established basic policies for dealing with
anti-social elements, with the aim of earning the public’s trust
and maintaining appropriate and sound financial services.
Our initiatives in this regard also involve deploying officers to
respective Group companies in order to address issues
regarding organized crime syndicates, coordinating with law
enforcement, implementing firm measures for dealing with
anti-social elements, and severing all relations with anti-social
elements that threaten the peace and security of social order.

Whistleblower protection systems
The Group has set up a whistleblower and consultation hot line
and developed a framework for strengthening the compliancesystem by incorporating checks and balances in order topromptly detect and counteract any unlawful and wrongful
behavior.

Anti-money laundering and measures to deal
with financial crime
In recent years, bank card theft and “Furikome” fraud (banktransfer scams) have been on the rise. As such, our subsidiarybanks have bolstered security measures to prevent such occurrences, while taking proper action with respect to victims ofsuch scams, such that includes reimbursing them in accordancewith Japan’s Furikome Fraud Relief Act.

The Group regards its pursuit of measures for preventing
money laundering and other financial crimes as an importantmanagement challenge. Accordingly, we have been working toclarify divisions of internal roles on the basis of our anti-money
laundering policy, while building a control system that enables us
to implement effective measures at the right time with regard toverifying transactions, reporting suspicious transactions andmanaging correspondent relationships. Moreover, we have been
educating our executive officers and employees through training, and striving to improve relevant mechanisms throughinitiatives that include performing audits to evaluate complianceof our anti-money laundering policies.

Measures for financial alternative dispute
resolution (ADR) system
In order to promptly and properly respond to customer feedback
and grievances, our subsidiary banks have concluded agreements with the Japanese Bankers Association, which is a
designated dispute resolution organization that works to resolve
disputes from a fair and impartial position.
Name of designated dispute resolution organization:
Japanese Bankers Association
Inquiries:
Japanese Bankers Association Customer Relations Center

Hokuhoku Financial Group, Inc. Annual Report 2015

13

MEASURES FOR RISK MANAGEMENT
We are upgrading our risk management systems to ensure that they
properly address the type and scale of risk to which we are exposed.
General risk management system
Financial services are becoming increasingly diversified and complex, as financial institutions remain exposed to a wide rangeof risk. As such, the Group recognizes that risk management — ensuring proper resource allocation and risk taking inbalance with earnings targets while keeping overall levels of risk within the Group’s managerial capacity to address such risk
— is one of our most important management tasks. As such, the Group is working to upgrade risk management systems inorder to protect customer deposits and earn the trust of our shareholders and creditors.
The Company and companies of the Group have each taken steps that include creating basic risk management policies
that address various risks, establishing risk management departments, and preparing regulations. The companies are also
working closely together to ensure integrated risk management within the Group.
At our subsidiary banks, which have the highest risk exposure within the Group, we categorize risk for management
purposes as: credit risk, market risk, liquidity risk and operational risk, which we manage through our Asset Liability Management (ALM) Committees and Comprehensive Risk Management Committees. Meanwhile we further divide operational risk
into administrative and system risk, and engage in fine-tuned management of such risk through our Operational Risk
Subcommittees. Additionally, the audit departments conduct inspections to verify the appropriateness and effectiveness of
the risk management systems.
The Company’s Risk Management Group handles risk management oversight for the entire Hokuhoku Financial Group,
and accordingly ensures sound operations. To that end, the Risk Management Group aims to manage risk in line with thetype and scale of risk encountered by each Group company, through operations that involve receiving risk management
status reports, then issuing Group companies appropriate instructions such as for improvement of regulations and systems,
and also discussing and reporting to the Board of Directors and other senior management with respect to details on risk
facing the Group and points of concern in that regard, along with policies for addressing such risk.
Hokuhoku Financial Group, Inc.

Board of Directors
Management Committee
Risk Management Group

Hokuriku Bank

Hokkaido Bank

Board of Directors

Audit & Supervisory Board Members,
Audit & Supervisory Board
Audit & Supervisory Group

Audit & Supervisory Board Members,
Audit & Supervisory Board

Other
Subsidiaries

Management Committee
ALM Committee

Comprehensive Risk Management Committee
Operational Risk Subcommittee

Market risk

Liquidity risk

Credit risk

Operational risk

Allocation of risk capital
The Group’s risk management practices involve taking aunified approach to the extent possible in terms of quantifying
the various risks that emerge with respect to its operations,and then taking steps to ensure that overall levels of risk are
kept within the Group’s capacity to take on such risk.
The subsidiary banks control and manage risk with theaim of ensuring that levels of risk remain within a range
permissible for banking operations. To that end, they
estimate maximum potential loss through a process thatinvolves quantifying credit risk, market risk and operationalrisk. They then allocate risk capital by using core capital as
allocation source, with the aim of making effective use ofcapital resources.
14

Hokuhoku Financial Group, Inc. Annual Report 2015

Deductions: Adjustments to included amounts
due to transitional provisions
Excess: Provisions for other risk at subsidiaries
other than subsidiary banks

Deductions

ExcessCore
capitalMarket risk
Risk capital
allocation
at subsidiarybanks

Capital

Allocation
sourceMarket risk
Credit risk

Credit risk

Operational risk

Operational risk

Risk capital
allocation at
subsidiary banks

Risk amount at
subsidiary bank

Meanwhile, the Company ensures that excessively large

In addition, we perform stress tests to calculate therisks are not taken relative to capital on a Group-wide basis,

extent of potential losses that would be anticipated in thethrough initiatives that include checking risk allocation planscase of normally inconceivable deterioration of businessof subsidiary banks, verifying that amounts in excess of risk

conditions, excessive market fluctuations and other suchcapital allocations are sufficient to cover risk conceivably

scenarios. In this way, we periodically examine the substan-affecting subsidiaries other than the subsidiary banks astiality of our capital position against risk that cannot bewell as risk not included in the risk assumptions, and moni-

easily perceived.

toring actual levels of risk.

Credit risk management
Basic approach
Credit risk involves, for instance, the threat that deterioration of a customer’s financial health might make it impossible torecover principal or receive interest of loans and bills discounted, etc. as initially contracted. Although this is an unavoidable
risk when it comes to banks whose role is to act as financial intermediaries, the Group endeavors to maintain and enhance
asset soundness by developing and strengthening its credit risk management systems.

Credit risk management systems

Internal ratings systems

To maintain and enhance asset integrity, the Group applies
a unified system of internal ratings and asset self-assessment, promptly and accurately appraises credit risk, andperforms write-offs and provisions to reserves for possible
loan losses as appropriate.
Subsidiary banks each have their own credit risk
management systems, while the Company manages suchrisk on a Group-wide basis.
Subsidiary banks divide duties such that executive
officers and organizational units that handle credit screening
are not involved in business promotion, thereby helping toensure that credit decisions and management are made on
an individual basis, with credit screening and management
carried out rigorously and in a manner not influenced bybusiness promotion.
When making individual judgements on granting credit,
rigorous screening is carried out in accordance withstandards and principles stated in our credit policy. For thispurpose, we actively work to upgrade screening systems,
such as through efforts to fortify our screening capabilities
by enhancing system support and providing training in thatregard.
More specifically, we perform detailed analysis andscreening of individual loan applications at each bankbranch, and in cases where a manager lacks the authority
for approvals, further analysis and screening is conductedby the head office credit screening department. Officers
specializing in particular industries and regions are deployedin the credit screening departments, thereby ensuring asystem of consultation and guidance tailored to the needsof individual branches, based on borrower characteristics.

To enable objective appraisal of credit risk of loans and bills
discounted, etc., our subsidiary banks have introduced
internal ratings systems. Using 15 credit ratings based on
financial data and qualitative information regarding borrower
creditworthiness, the system enables ongoing monitoring ofchanges in ratings.
Based on the ratings generated by the internal ratingssystems at the subsidiary banks, we compute credit risk
and forecast loss rates for each individual borrower category, and then ensure that interest rates duly match risk. In
conformity to Group-wide management rules for credit
limits, we seek to enhance credit risk management by suchmeans as curbing risk on a Group-wide basis of credit
concentration in terms of the aggregate of marketable andoff-balance-sheet credits.
Internal
rating
S
A
B
C
D
E
F
N
J
G
H
I
X
Y
Z

Borrower categorization by asset self-assessment—

Normal borrowers

Borrowers requiring caution(Substandard borrowers)
Borrowers threatened with bankruptcy
Substantially bankrupt borrowers
Bankrupt borrowers

Hokuhoku Financial Group, Inc. Annual Report 2015

15

MEASURES FOR RISK MANAGEMENT

Asset self-assessment, write-offs andprovisions to reserves for possible loan losses
The Group has established asset self-assessment standards bywhich it performs assessments of loans and bills discounted,
and other assets.
The self-assessments are performed in order to gain a true
picture of the assets and to enhance asset integrity. Self-assessment is a prerequisite for appropriate write-offs and provisions toreserves for possible loan losses, as required by corporate
accounting principles in Japan.
Under unified Group standards established for write-offs andprovisions to reserves for possible loan losses, provisions are
made to the general reserve for possible loan losses withrespect to loans to normal borrowers and borrowers requiringcaution, based on the historical loan-loss ratio over a particular
past period. For loans to borrowers threatened with bankruptcy,
a provision is made to specific reserves for possible loan losses,

in the amount deemed necessary, excluding amounts that may
be recoverable through collateral and guarantees. For loans tosubstantially bankrupt and bankrupt borrowers, we either
amortize amounts in full or recognize a provision of the fullamount in the specific reserve for possible loan losses,
excluding amounts that may be recoverable through collateraland guarantees.

Corporate rehabilitation
After making a loan to a corporate customer, we endeavor toprevent such loans from becoming designated as bad debt byassessing business conditions faced by our borrowers andperforming follow-up reviews of the borrower’s business plans.
Meanwhile, we strive to ensure asset integrity through creationof a framework for dedicated management of bad debt andenhanced support for corporate rehabilitation.

Market risk management
Basic approach
Market risk involves the threat of incurring losses due to fluctuations in the value of assets and liabilities held by the Group, orin the earnings generated by the Group, such that may be caused by fluctuations in various market risk factors, such as
interest rates, stock prices, and foreign exchange rates.
The Group endeavors to properly control market risk and manage operations in a manner that ensures stable earnings.
To that end, at the subsidiary banks that mainly handle transactions involving market risk, we have created regulations formarket risk management and comprehensively manage assets and liabilities by employing asset-liability management (ALM)
practices.

Main types of risk and management systems(1) Interest-rate risk
Bonds, other securities, deposits and loans and bills discounted are exposed to the risk of declining profits orlosses due to interest rate fluctuations amid situations
involving interest rate asset-liability mismatch or duration
mismatch. Our subsidiary banks have established regulations on interest rate management to diversify risk, and their
ALM Committees appropriately control interest-rate risk.
The risk management departments assess risk level
daily, using such indicators as value-at-risk (VaR), whichmeasures the largest conceivable loss possible given fixedprobabilities, and also periodically run gap analysis andinterest rate sensitivity analysis to monitor interest-rate risk.
The results are reported and reviewed at ALM Committees
for implementation of necessary measures.
To ensure that the subsidiary banks are not exposed toexcessive interest-rate risk, we set various investment ceilings
for bonds and other securities under risk capital allocation
based on VaR, etc., and manage both balances and risk
levels of securities. We have also set rules for taking action
when faced with mounting losses (unrealized and realized).

16

Hokuhoku Financial Group, Inc. Annual Report 2015

For market transactions, we have established a system
of mutual checks and balances on the departments carryingout transactions (front office), the processing departments(back office) and the risk management departments (middle
office). The front office conducts operations in strict observance of policies and ceiling amounts stipulated by theManagement Committee. The middle office continuously
monitors risk levels and the status of compliance withvarious rules. It also sets “alarm points” to enable early
diffusion of risk issues, discusses measures to respond tothese issues at ALM Committees, and regularly reports
such matters to the Management Committee.
Furthermore, we periodically perform stress testing todetermine the extent of conceivable losses under certain
scenarios in cases where it is not possible to accurately
measure levels of risk due to substantial market fluctuations,and given the threat that an unforeseen risk may materialize.
(2) Price fluctuation risk
Among marketable securities, stocks are exposed to therisk of declining asset prices arising from fluctuations inmarket prices. However, as with interest-rate risk
management, we stringently manage risk of stock pricefluctuations through efforts that include setting ceilings,
monitoring at-risk amounts, and regularly reporting suchmatters to the Management Committee and other relevantbodies.
We also perform pre-acquisition screening with respect
to shareholdings, monitor market conditions and financial
positions of individual corporations after acquiring stocks,
and hold regular discussions regarding our shareholdings.
(3) Foreign exchange rate risk
Foreign currency assets and liabilities are exposed to risk
involving the threat of losses incurred due to a foreignexchange price being different to that initially planned for. To
reduce such risk, we regularly monitor the international
affairs and major indicators in Europe and the US, conduct
risk management with due consideration to the maturity of

individual assets and liabilities, and mitigate forex risk
through currency swaps and other such transactions.
(4) Derivative transactions risk
To meet the various needs of customers, as well as those of
our respective banks for ALM and risk hedging, our subsidiary banks engage in currency swaps and options, currency
forward contracts and other currency-related derivativetransactions, as well as interest rate swaps, caps, forward
interest-rate-related derivatives and other interest-rated
based derivatives.
Meanwhile, because derivatives are exposed to various
kinds of market risk, we manage such risk on a daily basis
to ensure that losses remain within certain thresholds, byperforming fair value assessments of our positions andmeasuring risk levels.

Liquidity risk management
Liquidity risk refers to fund procurement risk involving the threat of losses that may be incurred due to a fall in creditworthiness or the like diminishing an entity’s financing availability and forcing it to procure funds at significantly higher interest rates
than normal. Liquidity risk also refers to market liquidity risk involving the threat of losses that may be incurred due to market
disruptions or the like preventing an entity from engaging in transactions and forcing it to engage in transactions on considerably less favorable terms than normal.
The subsidiary banks, which account for a majority of the Group’s liquidity risk, stipulate regulations on liquidity risk
management and maintain adequate levels of government bonds and other payment reserve assets that are readily convertible into cash. They also set various control indices pertaining to liquidity risk and monitor those on a daily basis. Developments regarding liquidity risk are regularly reported in meetings of the ALM Committees and other such bodies, and discussions are held in that regard, to ensure that we will be able to take action to address any crisis, should one emerge,
appropriate to the stage of the particular situation.
By precisely assessing management and procurement levels at subsidiary banks, we ensure that fund procurement canproceed smoothly.

Hokuhoku Financial Group, Inc. Annual Report 201517

MEASURES FOR RISK MANAGEMTNT

Operational risk management
Basic approach
Operational risk refers to the threat of losses arising from inappropriate operational processes, improper conduct of executive
officers and employees, unsuitable computer systems, or adverse external events.
The Group categorizes operational risk as follows. We take ongoing measures to correctly recognize, appraise andmanage each type of risk, while avoiding or reducing losses that could significantly affect business operations.
Administrative risk

Risk of losses due to executive officers and employees failing to carry out administrative work
correctly, causing an accident, or committing an illegal act

System risk

Risk of losses due to computer system downtime, malfunction or other system deficiencies, or illicit
computer use

Legal risk

Risk of losses due to breaches of obligations resulting from negligence toward customers

Personnel risk

Risk of losses due to unfair or discriminatory behavior in personnel management

Tangible asset risk

Risk of losses due to natural disasters or other such events damaging tangible assets

Reputational risk

Risk of losses due to diminished trust in the Group caused by deterioration of its reputation or
spreading of unjustified rumors

Management structure
The Company has established rules for management ofoperational risk stipulating categories of risk and setting
forth basic processes for the management of such risk.
Upon compiling instances of various operational risks
having materialized in the form of administrative errors,grievances, leaked information, system failures and“Furikome” fraud, operating risk panels at our subsidiarybanks meet on a monthly basis to analyze the causes ofsuch incidents and to review measures for preventing
recurrence. They also anticipate potential risk, identify
preventative measures and otherwise review means of
reducing risk.
Whereas management teams of our subsidiary banks
and the Company are provided with reports on the status ofoperational risk and outcomes of reviews in that regard, theCompany also maintains a framework for enabling properrisk management by comparing actual losses incurred as aconsequence of operational risk and allocated risk capital.
In performing internal audits, we ensure mutual checks
and balances, establish measures to prevent administrative
errors from reoccurring and verify the effectiveness of suchmeasures, and also report results of audits to management
and relevant departments. In that way, we strive to establish
Plan, Do, Check and Act (PDCA) cycle frameworks that will
help improve operations.

Risk management systems by major category• Administrative risk management
The Group painstakingly analyzes causes of administrative
errors and other incidents, and discusses measures toprevent recurrence, with the aims of preventing accidents,

18

Hokuhoku Financial Group, Inc. Annual Report 2015

grievances and other issues involving administrative operations and maintaining swift and accurate office operations.
At the same time, we endeavor to raise administrative
standards by developing sets of rules, improving administrative processing systems, dispatching advisory staff from thehead office, centralizing clerical work at branches andintroducing equipment to automate procedures.
• System risk management
Increasingly sophisticated financial business operations andthe growth in transaction volumes mean that it is becoming
ever more crucial that computer systems which are essential to business operate reliably.
As such, the Group has formulated rules for system risk
management, established a robust management andoperating structure, and implements a variety of security
management measures that include backup systems.

Crisis management
To minimize the impact of any large-scale disaster or otheremergency, should one occur, the Group has compiled acrisis management manual with contingency plans andother such content, and has also established a contingency
framework that includes mechanisms for information-gathering as well as centralized crisis instruction and command.
In particular, at our subsidiary banks, we have drawn up
a Business Continuity Plan (BCP), which enables us tocontinue to perform our settlement functions and otheroperations required of financial institutions in the event of anearthquake, outbreak of a new strain of influenza or othersuch crisis, and have otherwise established a frameworkthat enables a full-scale response to crisis situations.

CHARACTERISTICS OF OUR MAIN BUSINESS AREA
Population and Square Measure*1

Number of businesses*1

ToyamaPrefecture aIshikawa
Prefecture b

Fukui
Prefecture c

Total
a+b+c

Hokkaido

Population(Proportion)

1.08Mn(0.8%)

1.16Mn(0.9%)

0.80Mn(0.6%)

3.04Mn
(2.3%)

5.43Mn
(4.2%)

Square Measure(Proportion) km2

4,248(1.1%)

4,186(1.1%)

4,190(1.1%)—

83,457(22.0%)

Gross Prefectural Product*1,2

Hokkaido

242

Hokuriku

163

Toyama55

Ishikawa

64

Fukui

44

(JPY Bn)

ToyamaaIshikawa
b

Fukui
c

Total
a+b+c

4,383.9(0.88%)(31st)

4,426.4(0.88%)(29th)

3,089.8(0.62%)(42nd)

11,900.3(2.38%)

GPP(Proportion)(Ranking)(Thousand)

Hokkaido
18,124.1(3.62%)(8th)

Industrial Structure*2
Primary
1.1%

Primary
3.8%
Secondary
28.1%

Primary
1.1%
Secondary
15.8%

Secondary
23.6%

Hokuriku

Hokkaido

All Japan

Tertiary
70.8%

Tertiary
80.4%

Tertiary
75.3%

Data source : *1 Ministry of Internal Affairs and Communications,*2 Cabinet Office

Hokkaido• ‌With vast expanses of land and ample fishing areas in the ocean surrounded on all sides, Hokkaido has thriving  primary industries such as
agriculture and fisheries compared to the rest of Japan. As a result, Hokkaido is called the largest food supply base of Japan.
• It is also popular as a tourist destination, and receives many visitors both from Japan and overseas.

Abundant Natural Resources
Hokkaido
25%

Agricultural
land

75%

Hokkaido
22%

Agricultural
products*On a calorie
supply basis

Hokkaido
27%

Fishery
products

78%

73%

Wheat / Potato / Onion /Milk etc.

Atka mackerel / Tangle /Salmon / Cod / Scallops etc.

Data source : ‌Ministry of Agriculture, Forestry and Fisheries / Ministry of Land, Infrastructure, Transport and Tourism Hokkaido Regional Development Bureau /Department of Agriculture, Hokkaido Government

Hokuhoku Financial Group, Inc. Annual Report 201519

CHARACTERISTICS OF OUR MAIN BUSINESS AREA

Increasing Numbers of Tourists Visiting Hokkaido

Renewable Energy

Data source : ‌Bureau of Tourism, Department of Economic Affairs,
Hokkaido GovernmentNo.1 presence of resources

Inbound tourists

Total tourists(Mn)

Hydroelectric power / Geothermal energy / Wind power / Solar power

6.8
6.2

5.9
5.4

0.7

0.5

0.7

2010

2011

2012

1.1

YoY
+45%

2013

Hokuriku• ‌The Hokuriku region is bordered by the Japan Sea to its front, and flanked by steep mountains, such as the Tateyama mountain range, toits back. This creates a topography in which massive amounts of meltwater from snow flow into rivers, and this water is used for hydroelectric power generation, and also plays a role in attracting manufacturing companies to the region. ( The Hokuriku region has a higher ratio of
secondary industries compared to Japan as a whole.)• ‌The 3 prefectures of Hokuriku have each developed industries that match their distinctive characteristics.

Toyama Prefecture’s Pharmaceutical Product Production

Fukui Prefecture’s Eyeglasses Production

Data source: Ministry of Health, Labour and Welfare, Statistics of Production by Pharmaceutical Industry

Data source: Ministry of Economy, Trade and Industry, Census of Manufactures(¥ billion)(¥ billion)

575.4

608.3

608.9

No. 3
in Japan

Fukui Prefecture

76.7%

473.7

2010

2011

2012

2013

Toyama Prefecture, which forms the medicine capital known as
Medicine city Toyama, is home to a diverse range of pharmaceutical companies, from the allocated drug sales industry of the past,
to new drug developers, generic drug manufacturers, and over-thecounter drug manufacturers. In addition, peripheral industries, suchas plastic container packaging and printing, are well developed in
the prefecture. Toyama Prefecture is home to highly-distinctive
pharmaceuticals companies, such as a pioneer company in thefield of transdermal absorption-type medications, and the firstcompany in the world to develop intraoral film-type medications.

2010

Ratio

89.6

90.5

57.3%

61.2%

70.3%

70.6
54.1

Nationwide

73.1
51.4

2011

51.4

2012

55.5

2013

Fukui Prefecture (Sabae City in particular) has more than a 100-year
history as a manufacturing base for eyeglasses, and boasts the top
share in the eyeglasses manufacturing industry (including frames) inJapan. The prefecture is a global hub for frame manufacturing inparticular, on par with Italy and China. Leveraging its excellent
technological capabilities, the prefecture is working to increasevalue-added, including enhancing its brand power, with an eye
towards capturing demand in the growing Asian market.

Many Global Niche Top Companies in Ishikawa Prefecture
Ishikawa Prefecture has a developed industrial sector, centered on the textile and machinery industries. In 2014, the Ministry of Economy,
Trade and Industry’s Manufacturing Industries Bureau selected 4 machinery and processing-related companies, and 2 textiles-related companies from Ishikawa Prefecture to be included in the “Global Niche Top Companies.” Companies were selected based on a determinationthat they were strong in such areas as: [i] Compatibly achieving both global share and profits; [ii] Having unique and independent characteristics; [iii] Addressing approaches to risk of losing out to competitors; and [iv] Maintaining sustainability of their global share.

20

Hokuhoku Financial Group, Inc. Annual Report 2015

CORPORATE SOCIAL RESPONSIBILITY
Fundamental approach to group CSR
1. Basic stance
The Hokuhoku Financial Group has positioned the fulfillment of the Group’s corporate social responsibility as one of its highest
management priorities. Guided by our overall corporate philosophy, we aim always to comply with the law and observe
generally accepted principles of ethical behavior. The principal purpose of existence of the Group is to serve as a linchpin of
the communities in which it operates by fulfilling its role as a financial services group doing business across a wide area of thecountry. In addition, we take seriously our obligation to contribute to the realization of a thriving economy and a sustainable
society by means of active involvement in environmental preservation, as well as other activities that benefit society as a whole.

2. Definitions
1) CSR
The Hokuhoku Financial Group views its corporate social responsibilities not simply as the duty to pursue economic gains
for the good of the regional economy and to contribute to the development of a sustainable society. We see our social
responsibilities as also encompassing efforts to address the wide range of environmental and social issues affecting our
stakeholders.
2) Our Stakeholders
We define our stakeholders as being all persons and institutions whose interests are closely linked to those of the Group,
including our customers, shareholders, and employees, as well as the wider community of which we are all members.

To meet diversifying customer needs
While fostering close links between the Group and the regions we serve, we will listen to customer opinions
and take measures to make our branches more appealing and to offer better services.

Enhancing the Hokkaido Bank’s Home Renovation Loan Product (Hokkaido Bank)To respond to all of its customers’ home renovation loanrelated needs, the product was expanded to raise themaximum loan amount to ¥10 million, whereas the ceiling
had previously been ¥5 million.
In addition, to provide financial support for the environment, preferred interest rates are offered in cases where
home renovations involve eco-friendly related work, such as
the installation of heat pump-type hot water heaters or heaters, or the installation of solar panels.

Giving customers round the clock access atconvenience store ATMs (Hokuriku Bank)
We extended ATM service hours to a maximum of 24 hours
a day for convenience store ATMs offered by Seven Bank,
E-net and Lawson nationwide. When combined with
BankTime ATMs in the 3 Hokuriku prefectures which havealready been offering 24-hour service, this brings the total
number of 24-hour service convenience store ATMs to
44,000, which has boosted the level of convenience both interms of time and location. This service is the first of its kindby a regional bank or credit association headquartered in
one of the 3 prefectures in Hokuriku.

for the loan at bank branches, or via the Internet, post or
FAX, thereby being approved for the loan without evenvisiting a branch.

Remodeled branches reopen for business(Hokuriku Bank)The Takaokaminami Branch reopened as the new
Takaokaminami Chuo Branch following the relocation of the
Takaokasogoichiba Sub-Branch and Loan Plaza
Takaokaminami Chuo (formerly Takaokaminami) and a namechange. The branch is located close the Shin-takaoka
Station of the Hokuriku Shinkansen, and going forward thisbranch will contribute to the development of the local
society as the central branch in the southern part of
Takaoka City, where growth is anticipated.
The Higashitoyama Sub-Branch and the Echizenmachi
Branch/Nishidenjigata Sub-Branch each relocated to newly
constructed buildings. The Higashitoyama Sub-Branch uses
a lot of aluminum, which is a core industry in Toyama, andoffers a larger space for customers and an expanded parking
lot. The Echizenmachi Branch/Nishidenjigata Sub-Branch
was moved to the Ichibanmachi Square Building. It is an
eco-friendly space featuring LED lighting and high-efficiency
air conditioning equipment. In addition, the facility is barrierfree, enabling all people to use the branch with ease.

Launch of Hokkaido Bank Education Card
Loan (Hokkaido Bank)
Hokkaido Bank launched a card loan-type education loan
targeting all types of education-related funds throughgraduation. Customers are able to borrow money in ATM as
much as they need, whenever they need to, on a repeatedbasis up to a maximum of ¥10 million. Customers can apply

Reopening ceremony of
Takaokaminami Chuo Branch

The Ichibanmachi Square
Building
Hokuhoku Financial Group, Inc. Annual Report 201521

CORPORATE SOCIAL RESPONSIBILITY

More dialog and better disclosure
We continuously communicate with investors and analysts for better disclosure.
IR meetings for investors and analysts

IR meetings for individual investors

November 2014: Fiscal 2014 interim results (Tokyo)
May 2015: Fiscal 2014 results (Tokyo)

June 2015: ‌Two cities in Hokuriku (Toyama and Kanazawa) andtwo cities in Hokkaido (Sapporo and Asahikawa)IR overseas roadshow

General meeting of shareholders

July 2015: ‌Europe (London, Edinburgh)
North America (New York, Boston, Sunfransisco)

June 2015: ‌12th ordinary general meeting of shareholders(Sapporo, with live broadcast to Toyama)

Advancing with regional communities
We take part in social contribution activities.
Financial education• ‌All-Japan high-school quiz in finance and economy “EconomicsKoshien,” in Hokkaido, Toyama and Fukui prefectures• ‌Management school for the managers who will form the next
generation of business leaders• Dispatch of lecturers to high schools and universities• Internships

Support for industry-academia cooperation
The Group has concluded cooperation agreements with universities
in the region, and is supporting industry-academia cooperation bytaking on an intermediary role in joint research and use of its resultswith local companies, and by promoting business matching basedon intellectual property assets.

Support for arts and culture• ‌Arranging and supporting
concerts• ‌Establishment of artgalleries

Presentation of the Dogin Art and Culture Promotion
Award (Hokkaido Bank)
Hokkaido Bank honors and awards grants to artists and artisticorganizations possessing the potential for future greatness throughoutstanding art and culture activities and who are expected tocontribute to the development of Hokkaido’s art and culture.
In fiscal 2014, awards were presented to one artist in the music
category and one artist in the arts category. Great things are
expected of both artists in the future.

Establishment of the Ichibanmachi Square Building Art
Promenade (Hokuriku Bank)
Hokuriku Bank established the Ichibanmachi
Square Building Art Promenade in conjunction
with the opening of the newly built Echizenmachi Branch and Nishidenjigata Sub-Branch.
At night, this space is lit up, which creates aneven more vivid exhibit, adding beautiful color
to the town streets.

Support for HOKKAIDO BANK FORTIUS (Hokkaido Bank)

Lilac Concert

Hokkaido Bank is the main sponsor of the women’s curling team,
the HOKKAIDO BANK FORTIUS.
The team won its first championship at the Japan CurlingChampionships, and represented
Japan at the World Women’s
Curling Championship held in
Sapporo.

Helping conserve the regional environment
Measures undertaken as a financial institution
Environmentally-friendly housing loans, intermediary role in carbonrights trading, lending based on environmental ratings.

Helping reduce greenhouse gases
Adoption of casual dress code for summer, introduction of solar
power generation and water-heating facilities, and reduction of
paper usage through a shift to electronic account record systems
and document management systems.

Odori Park Clean-Up (Hokkaido Bank)
Every year, employees working near Odori Park take part in a volunteer
clean-up event. The clean-up
event takes place before and after
events held at Odori Park, suchas the YOSAKOI Soran Festival,
creating a clean environment toallow people to enjoy their time in
the park.
22

Hokuhoku Financial Group, Inc. Annual Report 2015

Participation in the Sakuragaike Eco-Village Sakura Full
Bloom Project (Hokuriku Bank)
Approximately 100 new bank
employees participated, for asocial contribution activity, in the
Sakuragaike Eco-Village Sakura
Full Bloom Project carried out by
Nanto City in Toyama Prefecture.
The participants helped withcleaning and planting trees.

TOPICS

Hokuhoku Financial Group
Business Meeting to Support the “Sixth Industrialization” of Companies based in Hokkaido, Tohoku andHokuriku

Heads of Overseas Representative Office Deliver
Briefing in JapanThe head of Hokuriku Bank’s New York Representative Office andHokuriku Bank, Hokkaido Bank and 10 Tohoku regional banks

the head of Hokkaido Bank’s Vladivostok Representative Office

which are partnering to promote exchange between Tohoku andheld a joint briefing in Sapporo. At the briefing, the two heads

Hokkaido held a business meeting in Tokyo in order to expand

reported to clients about the latest information and economic

sales channels for client companies. At the event, 17 buyers

trends in each location. Going forward, we will continue to work to

primarily from the Tokyo metropolitan area and 36 exhibiting

improve the level of service to clients by utilizing the resources ofcompanies held a total of 100 individual business talks aimed atour overseas offices.

raising the value-added of products and to promote the sixth
industrialization.
In addition, a business event about the sixth industrialization forcustomers in Tohoku and Hokkaido was held in Sapporo.

Business Tie-Up with CTBC Financial Holding Co., Ltd.
We concluded a business tie-up with CTBC Financial Holding Co.,
Ltd., a leading Taiwan-based financial services group. Under thisBusiness-Matching Event for ASIA
Due to a lack of experience with export operations, it has not been
uncommon for business transactions with overseas buyers toultimately fall through despite having reached an agreement at
business meetings. At this event, in order to raise the transaction
closing rate of companies with no prior exporting experience, we

tie-up, we will provide information about Taiwan, including its
economy and investment environment, to customers who areentering the Taiwanese market, as well as customers who are
considering an entry into the Taiwanese market, and will be able toprovide financial support through CTBC Bank Co. Ltd., a subsidiaryof CTBC Financial Holding Co., Ltd.

invited buyers, primarily Japanese trading companies possessing
overseas sales channels, to allow companies to export overseas via
domestic transactions following the completion of business negotiations. At the event, a total of 94 business negotiations between
the 21 exhibiting companies and the 13 buyers took place.

Hokuhoku Financial Group, Inc. Annual Report 201523

TOPICS

Hokuriku Bank
Using the Launch of the Hokuriku Shinkansen to Invigorate the Region

Three Hokuriku Universities Send Students to Dalian in
China

In order to help the March 2015

In March 2015, based on the “Memorandum of Understanding

launch of the Hokuriku Shinkansen

about a Comprehensive Partnership and Cooperation Agreement,”

contribute to revitalizing the region,

Kanazawa University and Toyama University each sent 10 students

branches in the Tokyo metropolitan

to Dalian in China for training, while Toyama Prefectural University

area and the Nagano Branch put up

likewise sent 2 students to Dalian for training.

promotional posters produced byDuring the training, the trainees learned about the situation inmunicipalities in the 3 prefectures

China, and visited Hokuriku companies which have entered thecomprising the Hokuriku region,

market in Dalian for the purpose of developing personnel who

played tourism DVDs produced bypossess the global mindset to succeed on the global stage, andToyama Prefecture and Kanazawa

the head of the Hokuriku Bank Dalian Representative Office deliv-

City, and carried out other PR
activities to promote the region.

Toyamaekimae Branchered a talk, etc. In addition, a lively debate was held with local
university students during the roundtable discussion.

Also, based on the Comprehensive Agreement on Partneringand Collaborating with Toyama Prefecture, the Toyamaekimae
Branch installed an electric countdown sign which counted down
the days until the launch of service and built up excitement for thestart of operations.

Signing of MOU on Business Alliance and Cooperation
with Japan Finance Corporation
Introduction of Hokuriku in the Tokyo
metropolitan area

Helping Customers Exhibit at Ito-Yokado’s “Hokuriku
Fair”

Branch, Kanazawa Branch, and Fukui Branch of the Japan FinanceCorporation, which supports the development of small- andmedium-sized enterprises and as well as people in the agriculture,
forestry and fishing industries in the 3 prefectures comprising the

In January 2015, we held individual business meetings with cus-

Hokuriku region. This agreement pertains to help businesses get

tomers interested in exhibiting at the “Hokuriku Fair” put on by

started, support for start-up companies, cooperation between

general merchandise store and supermarket operator Ito-Yokado

agriculture, commerce and industry, and the provision of financing

Co., Ltd., as a way to help local companies expand their sales

and information for management innovation. By complementing

channels and to serve as a bridge between Hokuriku and the Tokyo

one another’s expertise, the Hokuriku Bank and the Japan Financemetropolitan area.

Corporation will be able to give small- and medium-sized enter-A total of 36 companies participated in the event, where they
showcased specialties from Hokuriku, a region which received
much attention ahead of the launch of the Hokuriku Shinkansen.
Ten of the participatingcompanies exhibited atthe “Hokuriku Fair” which
was held at approximately
150 stores nationwide
during March.

24

We concluded a memorandum of understanding with the Toyama

Hokuhoku Financial Group, Inc. Annual Report 2015prises more detailed support, and contribute to the revitalization of
the regional economy.

Hokkaido Bank
Hokkaido Bank Holds Russia Business Event

Support for Wind Power Generation Projects

Hokkaido Bank held business networking events in bothIn accordance with the Tohoku and Hokkaido Area Partnership

Vladivostok and Sapporo to help Hokkaido companies grow their

Agreement concluded in March 2013, we worked Hokuto Bank tobusinesses in far eastern Russia.

together provide financing for a project finance for a wind power
project carried out by a wind power company.

In Vladivostok, we
promoted Hokkaido

Going forward, we will step up our efforts in the environment

through efforts infield, centered on renewable energy, and to utilize a diverse range

observation tours of local

of techniques to reinvigorate the regional economy.

Japanese companies andRussian companies,
presentations delivered byparticipating companies,

Individual business talk with clients(Sapporo)and individual company networking.
At the Sapporo event, Russian companies fromYuzhno-Sakhalinsk and Vladivostok were invited to give presenta-

Sample image

tions and to engage in individual business talks with clients. Also,
tours of Hokkaido companies were given to deepen the level ofmutual understanding.

Working with Recruit Hokkaido Jalan to Promote the
Appeal of Southern Hokkaido
With the aim of contributing to the revitalization of Hokkaido’s
economy ahead of the launch of the Hokkaido Shinkansen in thespring of 2016, we are working with Recruit Hokkaido Jalan Co.,
Ltd., with which we have concluded a partnership and cooperation

Presentations to clients (Vladivostok)

agreement, to place featurearticles entitled “The Hakodate
and Southern Hokkaido

Three Hokkaido Municipalities Hold Joint Business
SeminarAmazement Discovery Team” in

The three towns of Kuriyama, Shiraoi, and Tobetsu jointly held abeginning with the February 2015

business seminar in Tokyo to attract companies to the region. As

edition.

the Hokkaido Jalan magazine,

companies increasingly look to location of resources, 61 companies
participated in the event, centered on food-related companies
looking for ingredients produced in Hokkaido. The threemunicipalities were pleased with the event, as together they wereable to hold this type of seminar to attract companies as suggestedby the bank, which would have been difficult for any one of thesesmall municipalities to hold on its own.

Hokuhoku Financial Group, Inc. Annual Report 2015

25

CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEET
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries

2015

2014

Thousands of
U.S. dollars (Note 1)
2015

Cash and due from banks (Notes 3 and 30)........................................................

¥ 1,210,607¥   844,182$10,074,122

Call loans and bills bought (Note 30)...................................................................

94,59985,734787,215

Monetary claims bought (Note 30)......................................................................

72,52480,161

603,512

Trading assets (Note 4).......................................................................................

4,508

5,007

37,515

Money held in trust (Note 5)................................................................................

7,947

7,759

66,134

Millions of yen
March 31

AssetsSecurities (Notes 6, 12 and 30)...........................................................................

2,493,601

2,493,619

20,750,618

Loans and bills discounted (Notes 7, 12, 13 and 30)..........................................

7,546,819

7,323,290

62,801,192

Foreign exchanges (Note 8)................................................................................

14,533

14,506

120,938

Other assets (Note 12)........................................................................................

91,952

98,254765,187

Tangible fixed assets (Note 9).............................................................................

101,878

103,563

847,789

Intangible fixed assets (Note 10).........................................................................

28,07632,905

233,641

Asset for retirement benefits (Note 17)................................................................

2,069

—

17,218Deferred tax assets (Note 27).............................................................................

462

11,3783,848

Customers’ liabilities for acceptances and guarantees (Note 11).........................

68,71173,661

571,789

Allowance for loan losses...................................................................................

(55,290)¥11,683,001(59,218)¥11,114,807(460,105)$97,220,613

Deposits (Notes 12, 14 and 30)..........................................................................

¥10,627,748¥10,147,805$88,439,279

Call money and bills sold (Note 12).....................................................................

58,45457,273

486,431

Payables under securities lending transactions (Note 12)....................................

27,809—231,419

Trading liabilities (Note 4)....................................................................................

1,184

1,434

9,856

Borrowed money (Notes 12, 15 and 30).............................................................

125,680

121,797

1,045,852

Total assets.......................................................................................................
Liabilities and equity
Liabilities

Foreign exchanges (Note 8)................................................................................

179

151

1,495

Bonds payable (Note 16)....................................................................................

43,00058,000357,826

Other liabilities....................................................................................................

126,322

123,643

1,051,200

Liability for retirement benefits (Note 17).............................................................

8,930

14,961

74,314

Reserve for directors’ and audit & supervisory board members’ retirement benefits.....

277

328

2,310

Reserve for contingent losses................................................................................

1,970

2,499

16,398Reserve for reimbursement of deposits...............................................................

1,366

1,252

11,373

Deferred tax liabilities..........................................................................................

12,313—

102,464

Deferred tax liabilities for revaluation...................................................................

6,064

6,872

50,470Acceptances and guarantees (Note 11)..............................................................

68,711
11,110,014

73,661
10,609,681

571,789
92,452,476

Total liabilities...................................................................................................
Equity (Notes 18, 19 and 21)
Capital stock......................................................................................................

70,89570,895589,956

Capital surplus....................................................................................................

148,197

148,193

1,233,230

Stock acquisition rights (Note 20).......................................................................

266

191

2,218

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

242,701

222,995

2,019,655

Treasury stock....................................................................................................

(1,514)(1,529)(12,603)

101,033

61,301

840,751

Accumulated other comprehensive income........................................................
Valuation difference on available-for-sale securities (Note 6)...........................
Deferred gains (losses) on hedges.................................................................

(845)

(194)

(7,035)

Revaluation reserve for land (Note 9)..............................................................

8,502

8,182

70,754

Defined retirement benefit plans (Note 17).....................................................

2,473
571,710(6,077)503,957

20,587
4,757,513

Total...................................................................................................................
Minority interests................................................................................................

1,276

1,168

10,624

Total equity.......................................................................................................

572,987

505,125

4,768,137

Total liabilities and equity.................................................................................

¥11,683,001¥11,114,807$97,220,613

See notes to consolidated financial statements.

26

Hokuhoku Financial Group, Inc. Annual Report 2015

CONSOLIDATED STATEMENT OF INCOME
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries

2015

2014

Thousands of
U.S. dollars (Note 1)
2015

IncomeInterest income:Interest on loans and discounts.....................................................................
Interest and dividends on securities...............................................................
Interest on receivables under resale agreements............................................
Interest on deposits with other banks............................................................
Other interest income....................................................................................
Fees and commissions.......................................................................................
Trading income...................................................................................................
Other ordinary income (Note 23).........................................................................
Other income (Note 25)......................................................................................
Total income.......................................................................................................

¥102,254
24,322
6
1,017
867
39,505388
17,273
8,422
194,059¥106,400
22,053
2819
992
37,067573
15,072
8,171
191,153$  850,919
202,398
54
8,466
7,220
328,749
3,230
143,745
70,0901,614,871

Expenses
Interest expense:
Interest on deposits.......................................................................................
Interest on payables under securities lending transactions.............................
Interest on borrowings and rediscounts.........................................................
Interest on bonds payable.............................................................................
Other interest expense...................................................................................
Fees and commissions.......................................................................................
Other ordinary expenses (Note 24).....................................................................
General and administrative expenses..................................................................
Provision of allowance for loan losses.................................................................
Other expenses (Note 26)...................................................................................
Total expenses....................................................................................................

4,250
42
1,484
586
800
14,3929,203
106,048
4,202
6,140
147,152

5,359
0
2,114
655
744
14,342
8,753
105,212—
6,636
143,820

35,371354
12,356
4,879
6,659
119,768
76,591
882,486
34,97251,0971,224,533

46,90647,333

390,338

9,360
9,231
28,31479¥ 28,235

5,875
14,062
27,39461¥ 27,332

77,89576,821
235,622660$  234,962

Millions of yen
Year ended March 31

Income before income taxes and minority interests.............................................
Income taxes (Note 27):
Current..........................................................................................................
Deferred........................................................................................................
Net income before minority interests...................................................................
Minority interests in net income...........................................................................
Net income........................................................................................................

Yen

Per share of common stock (Notes 2-t and 22)
Basic net income...........................................................................................
Diluted net income.........................................................................................
Cash dividends applicable to the year............................................................

U.S. dollars¥19.2019.18
4.00¥19.87
19.84
4.25

$0.17
0.17
0.04

See notes to consolidated financial statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries

Year ended March 31

2015

2014

Thousands of
U.S. dollars (Note 1)
2015

Net income before minority interests...................................................................
Other comprehensive income (Note 28)..............................................................
Valuation difference on available-for-sale securities........................................
Deferred gains (losses) on hedges.................................................................
Revaluation reserve for land...........................................................................
Defined retirement benefit plans.....................................................................
Share of other comprehensive income of associates accounted forusing equity method....................................................................................
Total comprehensive income..............................................................................
Comprehensive income attributable to owners of the parent..........................
Comprehensive income attributable to minority interests...............................

¥28,314
48,28839,726
(650)
626
8,551

¥27,394
8,795
8,642
106
—
—

$235,622
401,833
330,587(5,413)
5,211
71,158

34¥76,60376,493
109

46¥36,190
36,11079

290$637,455
636,547
908

Millions of yen

See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 201527

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries

BALANCE, APRIL 1, 2013........................................

Thousands
IssuedIssuednumber of
number ofshares ofshares ofcommon stock preferred stock

Capitalstock

CapitalsurplusStockacquisitionrightsRetainedearnings

Treasurystock

1,351,630¥70,895¥148,197¥107¥201,138¥(1,547)

107,432

Millions of yen

Cash dividends.....................................................

(6,634)

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

27,332

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

(17)

Disposals of treasury stock...................................

(4)

35

Reversal of revaluation reserve for land.................

1,158

Net changes in the year........................................
BALANCE, MARCH 31, 2014
(APRIL 1, as previously reported)............................

83
1,351,630

107,432¥70,895¥148,193¥191

Cumulative effects of accounting change..............
BALANCE, APRIL 1, 2014 (as restated)...................

¥222,995

1,351,630

107,432

70,895

148,193

191

221,130

Cash dividends.....................................................

(6,970)Net income...........................................................

28,235Purchases of treasury stock.................................

(1,529)(17)

Disposals of treasury stock...................................

3

32

Reversal of revaluation reserve for land.................

305

Net changes in the year........................................
BALANCE, MARCH 31, 2015...................................

¥(1,529)(1,864)75
1,351,630

107,432¥70,895¥148,197¥266¥242,701¥(1,514)

Total

Minority
interests

Total
equity¥480,461¥1,089¥481,550

Millions of yen
Accumulated other comprehensive income
Valuation
Deferred
Revaluation
Defineddifference on
reserve forretirement
available-for-sale gains (losses)on hedges
landbenefit planssecurities
BALANCE, APRIL 1, 2013........................................

¥ 52,630¥(301)¥9,340¥—Cash dividends.....................................................

(6,634)(6,634)

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

27,332

27,332(17)

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

(17)

Disposals of treasury stock...................................

30

30

Reversal of revaluation reserve for land.................

1,158

1,158

Net changes in the year........................................

8,671

106

(1,158)(6,077)

1,626

79

1,705

BALANCE, MARCH 31, 2014
(APRIL 1, as previously reported)............................

¥ 61,301¥(194)¥8,182¥(6,077)¥503,957¥1,168¥505,125

1,168

503,261

Cumulative effects of accounting change.............
BALANCE, APRIL 1, 2014 (as restated)...................

28(1,864)61,301

(194)

8,182

(6,077)502,093(1,864)

Cash dividends.....................................................

(6,970)(6,970)Net income...........................................................

28,23528,235Purchases of treasury stock.................................

(17)

(17)

Disposals of treasury stock...................................

36

36

Reversal of revaluation reserve for land.................

305

305

Net changes in the year........................................

39,731

(650)

320

8,551

48,027

108

48,136BALANCE, MARCH 31, 2015...................................

¥101,033¥(845)¥8,502¥2,473¥571,710¥1,276¥572,987

Hokuhoku Financial Group, Inc. Annual Report 2015

Capital
stock
BALANCE, MARCH 31, 2014
(APRIL 1, as previously reported)..............................

$589,956

Thousands of U.S. dollars (Note 1)
Stock
Capitalacquisition
Retained
surplusrightsearnings$1,233,199$1,593Cumulative effects of accounting change................
BALANCE, APRIL 1, 2014 (as restated)...................

$1,855,669$(12,726)(15,517)589,956

1,233,199

1,593

1,840,152

Cash dividends.......................................................

(58,004)

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

234,962

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

(12,726)(148)

Disposals of treasury stock.....................................

31

271

Reversal of revaluation reserve for land...................

2,545

Net changes in the year..........................................
BALANCE, MARCH 31, 2015...................................

Treasurystock

625$589,956$1,233,230$2,218$2,019,655$(12,603)

Thousands of U.S. dollars (Note 1)
Accumulated other comprehensive income
Valuation
Deferred
Revaluation
Defineddifference on
reserve forretirement
available-for-sale gains (losses)on hedges
landbenefit planssecurities
BALANCE, MARCH 31, 2014
(APRIL 1, as previously reported)..............................

$510,121$(1,622)$68,088$(50,571)

Cumulative effects of accounting change................
BALANCE, APRIL 1, 2014 (as restated)...................

Total

Minority
interests

Total
equity$4,193,707$9,720$4,203,427

9,720

4,187,910(15,517)510,121(1,622)

68,088(50,571)

4,178,190(15,517)

Cash dividends.......................................................

(58,004)(58,004)

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

234,962

234,962

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

(148)

(148)

Disposals of treasury stock.....................................

302

302

Reversal of revaluation reserve for land...................

2,545

2,545

Net changes in the year..........................................

330,630(5,413)

2,666

71,158399,666

904

400,570

BALANCE, MARCH 31, 2015...................................

$840,751$(7,035)$70,754$20,587$4,757,513$10,624$4,768,137

See notes to consolidated financial statements.

Hokuhoku Financial Group, Inc. Annual Report 2015

29

CONSOLIDATED STATEMENT OF CASH FLOWS
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries

2015

2014

Thousands of
U.S. dollars (Note 1)
2015¥   46,906
8,290
1,013
2,102
(27)
(3,927)(528)—(2,069)(6,030)¥ 47,333
8,564
2,142
2,102
(1)
(14,523)(534)(9,829)—14,961$  390,338
68,9908,434
17,494(232)(32,686)(4,400)—(17,218)(50,186)(50)
113(128,468)
7,164(6,914)(72)(5,443)
258
498
(249)
(223,529)
228,035
251,907
33,882
38,669(356)(3)(130,268)
8,875(2,097)
41
(960)
154
2,221
(618)
64,644
94,16870,771(125,754)
14,348(420)
948(1,069,057)
59,619(57,538)(602)(45,296)
2,150
4,152
(2,080)(1,860,108)
1,897,603
2,096,262
281,957
321,793(1,227)1,180
27,809(26)
28
104,365(6,248)
5,580
372,992(5,671)
367,32156,395
16,928—(3,890)27
110,504(10,814)42,505
257,038(5,753)
251,285(10,218)
9,824
231,419(219)
235
868,480(51,996)
46,435
3,103,877(47,194)
3,056,683(457,336)
305,749
224,051(15,362)
15,17524,394(3,756)113(1,426)
91,602(333,634)
169,289
193,526(13,719)
9,910
22,053(3,654)43(1,186)
42,628(3,805,744)
2,544,305
1,864,456(127,842)
126,280
203,000(31,257)
945(11,872)
762,271—(30,000)—(15,000)(1,908)(6,970)(0)(17)
0(53,896)67
405,094
743,974¥1,149,068

15,000(20,000)
25,000—(2,539)(6,634)(0)(17)
010,80864
304,786
439,187¥743,974—(249,646)—(124,823)(15,883)(58,004)
(4)
(149)
5
(448,504)
561
3,371,011
6,191,018$9,562,029

Millions of yen
Year ended March 31
1. Cash flows from operating activities:
Income before income taxes and minority interests.....................................................
Depreciation...............................................................................................................
Impairment losses......................................................................................................
Amortization of goodwill..............................................................................................
Equity in losses (gains) of affiliates...............................................................................
Increase (decrease) in allowance for loan losses.........................................................
Increase (decrease) in reserve for contingent losses...................................................
Increase (decrease) in reserve for employee retirement benefits..................................
Decrease (increase) in asset for retirement benefits.....................................................
Increase (decrease) in liability for retirement benefits...................................................
Increase (decrease) in reserve for directors’ andaudit & supervisory board members’ retirement benefits...........................................
Increase (decrease) in reserve for reimbursement of deposits.....................................
Interest income...........................................................................................................
Interest expense.........................................................................................................
Losses (gains) on securities........................................................................................
Losses (gains) on money held in trust.........................................................................
Losses (gains) on foreign exchange............................................................................
Losses (gains) on sales of fixed assets........................................................................
Net decrease (increase) in trading assets....................................................................
Net increase (decrease) in trading liabilities.................................................................
Net decrease (increase) in loans and bills discounted.................................................
Net increase (decrease) in deposits............................................................................
Net increase (decrease) in negotiable certificates of deposit........................................
Net increase (decrease) in borrowed money (excluding subordinated borrowed money)....
Net decrease (increase) in due from banks (excluding deposits with the Bank of Japan)....
Net decrease (increase) in call loans, bills bought, commercial paperand other debt purchased........................................................................................
Net increase (decrease) in call money and bills sold....................................................
Net increase (decrease) in payables under securities lending transactions..................
Net decrease (increase) in foreign exchanges (assets)................................................
Net increase (decrease) in foreign exchanges (liabilities)..............................................
Interest income-cash basis.........................................................................................
Interest expense-cash basis.......................................................................................
Other, net...................................................................................................................
Subtotal..........................................................................................................................
Income taxes paid.....................................................................................................
Net cash provided by (used in) operating activities....................................................
2. Cash flows from investing activities:
Purchases of securities...............................................................................................
Proceeds from sales of securities...............................................................................
Proceeds from redemption of securities......................................................................
Purchases of money held in trust................................................................................
Proceeds from sales of money held in trust................................................................
Proceeds from fund management..............................................................................
Purchases of tangible fixed assets..............................................................................
Proceeds from sales of tangible fixed assets..............................................................
Purchases of intangible fixed assets...........................................................................
Net cash provided by (used in) investing activities
3. Cash flows from financing activities:
Proceeds from issuance of subordinated borrowed money........................................
Repayment of subordinated borrowed money............................................................
Proceeds from issuance of subordinated bonds ........................................................
Repayment of subordinated bonds.............................................................................
Expenditures for fund procurement.............................................................................
Dividends paid............................................................................................................
Dividends paid to minority shareholders......................................................................
Purchases of treasury stock.......................................................................................
Proceeds from disposals of treasury stock.................................................................
Net cash provided by (used in) financing activities.....................................................
4. Effect of exchange rate changes on cash and cash equivalents...............................
5. Net increase (decrease) in cash and cash equivalents...............................................
6. Cash and cash equivalents at beginning of the period...............................................
7. Cash and cash equivalents at end of the period (Note 3)............................................
See notes to consolidated financial statements.

30

Hokuhoku Financial Group, Inc. Annual Report 2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hokuhoku Financial Group, Inc. and Consolidated Subsidiaries

1. Basis of Presentation
The accompanying consolidated financial statements have been
prepared in accordance with the provisions set forth in the Japanese
Financial Instruments and Exchange Act and its related accounting
regulations, the Enforcement Regulation for the Banking Act and in
conformity with accounting principles generally accepted in Japan(“Japanese GAAP”), which are different in certain respects as to theapplication and disclosure requirements of International Financial
Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present
them in a form which is more familiar to readers outside Japan. In
addition, certain reclassifications have been made in the 2014 consolidated financial statements to conform to the classifications usedin 2015.
All Japanese yen figures in the consolidated financial statements
have been rounded down to the nearest million yen. Accordingly,
the total of each account may not be equal to the combined total of
the individual items. The U.S. dollar amounts are then rounded tothousand dollars.
The consolidated financial statements are stated in Japaneseyen, the currency of the country in which Hokuhoku Financial
Group, Inc. (the “Company”) is incorporated and operates. The
translations of Japanese yen amounts into U.S. dollar amounts areincluded solely for the convenience of readers outside Japan andhave been made at the rate of ¥120.17 to U.S. $1, the rate of exchange at March 31, 2015. Such translations should not be construed as representations that the Japanese yen amounts could be
converted into U.S. dollars at that or any other rate.

2. Summary of Significant Accounting Policies
a. Consolidation
The consolidated financial statements as of March 31, 2015 include
the accounts of the Company and its 11 subsidiaries (together, the“Group”).
Under the control and influence concepts, those companies inwhich the Company, directly or indirectly, is able to exercise control
over operations are fully consolidated, and those companies overwhich the Group has the ability to exercise significant influence areaccounted for by the equity method.
All significant intercompany balances and transactions havebeen eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group is also
eliminated.
An investment in one associated company is accounted for by
the equity method.
Assets and liabilities of newly consolidated subsidiaries are valued at fair value at the respective dates of acquisition, and goodwill
is amortized using the straight-line method over 20 years.
b. Cash and Cash Equivalents
For the purpose of reporting cash flows, “Cash and cash equivalents” consists of “Cash” and “Due from the Bank of Japan.”c. Trading Purpose Transactions“Transactions for trading purposes” (for purposes of seeking to cap-

ture gains arising from short-term changes in interest rates, currency exchange rates or market prices of securities and other marketrelated indices or from gaps among markets) are included in“Trading assets” and “Trading liabilities” on a trade-date basis.
Trading securities and monetary claims bought for trading purposes are stated at fair value at the balance sheet date. Tradingrelated financial derivatives, such as swaps, futures, and options arestated at amounts that would be received or paid for settlement if
such transactions were terminated at the balance sheet date.
Income and losses on trading purpose transactions are recognizedon a trade-date basis and recorded as “Trading income” or “Trading
losses.”Trading income and losses include interest received and paid
during the fiscal year and unrealized gains and losses resulting fromthe change in the value of securities, monetary claims bought, andderivatives between the balance sheet dates.
d. Securities
Securities are classified and accounted for, based principally on theGroups’ intent, as follows: (a) held-to-maturity debt securities,
which are expected to be held to maturity with the positive intent
and ability to hold to maturity, are stated at amortized cost computed by the straight-line method and (b) available-for-sale securities, which are not classified as trading purpose securities or heldto-maturity securities, are stated at fair value with unrealized gains
and losses, net of applicable taxes, reported in a separate component of equity. Available-for-sale securities for which fair value is notreliably determined are stated at cost determined by the movingaverage method.
For other-than-temporary declines in fair value, securities are reduced to net realizable value by a charge to income.
Securities included in money held in trust are recorded in thesame manner as securities mentioned above.
e. Tangible Fixed Assets (excluding Lease Assets)
Tangible fixed assets are stated at cost less accumulated depreciation. The Company and its consolidated banking subsidiaries (thesubsidiaries hereafter referred to as the “Banks”) depreciate theirequipment based on the declining-balance method and their premises principally based on the straight-line method. The estimateduseful lives of major assets are as follows: (1) buildings: 6 to 50
years and (2) equipment: 3 to 20 years.
Consolidated non-banking subsidiaries depreciate their equipment and premises principally based on the declining-balancemethod over their expected useful lives.
f. Intangible Fixed Assets (excluding Lease Assets)
Intangible fixed assets are depreciated based on the straight-line
method. Capitalized software for internal use owned by consolidated subsidiaries is depreciated using the straight-line method
over its estimated useful life (mainly 5 years).
g. Lease Assets
Lease assets under non-transfer ownership finance lease contracts(in which the ownership of leased assets is not transferred to thelessee; included in tangible fixed assets and intangible fixed assets)are depreciated on a straight-line basis over the lease period with a

Hokuhoku Financial Group, Inc. Annual Report 201531

residual value of zero when contracted amounts for residual value
are specified.
h. Long-Lived Assets
The Group reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate the carrying amount ofan asset or asset group may not be recoverable. An impairment
loss would be recognized if the carrying amount of an asset or asset
group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of
the asset or asset group. The impairment loss would be measured
as the amount by which the carrying amount of the asset exceeds
its recoverable amount, which is the higher of the discounted cash
flows from the continued use and eventual disposition of the asset
or the net selling price at disposition.
i. Allowance for Loan Losses
The Banks provide an allowance for loan losses which is determined based on management’s judgment and an assessment of
future losses based on their self-assessment systems. These systems reflect past experience of credit losses, possible credit losses,
business and economic conditions, the character, quality and performance of the portfolio, the value of collateral or guarantees, andother pertinent indicators.
The Banks have implemented a self-assessment system to determine the quality of their assets. The quality of all loans is assessed by branches and the credit supervisory division with a subsequent audit by the asset review and inspection division inaccordance with the Banks’ policy and guidelines for the self-assessment of asset quality.
The Banks have established a credit rating system under whichcustomers are classified into five categories. The credit rating system is used in the self-assessment of asset quality. All loans areclassified into five categories for self-assessment purposes: “normal,” “in need of caution,” “possible bankruptcy,” “virtual bankruptcy,” and “legal bankruptcy.”
For loans to borrowers classified as legal bankruptcy or virtual
bankruptcy, the Banks fully provide the net amount of loans andestimated collectible amounts by collateral or guarantees. Regarding
loans to borrowers classified as possible bankruptcy, a specific reserve is provided as necessary for the net amount of loans and estimated collectible amounts by collateral or guarantees.
For borrowers classified as possible bankruptcy or holding restructured loans with which the unsecured portion of claims or
credit exceeds a certain amount, if cash flows from collection ofprincipal and interest can be reasonably estimated, the Banks provide the difference between the present values of these cash flows
discounted at the initial contractual interest rate and the book values of the loans (the “DCF” method).
For other loans, a general allowance is provided based on thehistorical loan loss ratio.
The Company and its consolidated non-banking subsidiaries
determine the allowance for loan losses by a similar self-assessment system as that of the Banks.
For collateralized or guaranteed claims to borrowers who are in“virtual bankruptcy” or “legal bankruptcy,” the amount exceeding
the estimated value of collateral or guarantees has been deducted
32

Hokuhoku Financial Group, Inc. Annual Report 2015

as deemed uncollectible directly from those claims. The deductedamounts were ¥79,071 million ($658,000 thousand) and ¥84,264
million at March 31, 2015 and 2014, respectively.
j. Accounting Method for Retirement Benefits
In calculating retirement benefit obligations, the benefit formula basis is used as a method of attributing expected retirement benefits
to the period up to the end of this fiscal year.
The unrecognized prior service cost is amortized using thestraight-line method over eight years within the employees’ averageremaining service period at incurrence.
The unrecognized actuarial (gains) losses are amortized using
the straight-line method over eight or nine years within the employees’ average remaining service period, commencing from the next
fiscal year of incurrence.
The unrecognized transitional obligation from the initial application of the new accounting standard for employee retirement benefits of ¥28,196 million ($234,640 thousand) is amortized primarily
using the straight-line method over 15 years.
k. ‌Reserve for Directors’ and Audit & Supervisory Board
Members’ Retirement Benefits
A reserve for directors’ and audit & supervisory board members’
retirement benefits is provided for payment of retirement benefits todirectors and audit & supervisory board members in the amountdeemed accrued at the fiscal year end, based on the estimatedamount of benefits.
The Company and the Banks abolished their directors’ and audit& supervisory board members’ retirement benefits system at theboard of directors’ meeting on May 11, 2012, and resolved to provide a lump-sum payment of retirement benefits of directors andaudit & supervisory board members at the general meeting ofshareholders on June 26, 2012. According to these resolutions, thelump-sum payment of retirement benefits of directors and audit &supervisory board members shall be effectuated upon the retirement of each individual director and audit & supervisory board
member. Reserve for directors’ and audit & supervisory board
members’ retirement benefits was ended in June 2012, and theentire remaining amount is included in “reserve for directors’ andaudit & supervisory board members’ retirement benefits.”
l. Reserve for Contingent Losses
A reserve for contingent losses is provided for possible losses inaccordance with the Joint Responsibility System of Credit Guarantee
Corporations and possible losses from contingencies not coveredby other specific reserves.
m. Reserve for Reimbursement of Deposits
A reserve for reimbursement of deposits which were not previously
recognized as liabilities under certain conditions is provided for possible losses on the future claims of withdrawal based on historicalreimbursement experience.
n. Stock Options
The companies are required to recognize compensation expense for
employee stock options based on the fair value of the stock options
at the date of grant and over the vesting period as consideration forreceiving goods or services. The companies are also required to account for stock options granted to non-employees based on the fairvalue of either the stock option or the goods or services received. In
the balance sheet, the stock options are presented as stock acquisition rights as a separate component of equity until exercised.
o. Income Taxes
The provision for income taxes is computed based on pretax income included in the consolidated statement of income. The asset
and liability approach is used to recognize deferred tax assets andliabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted income tax rates to the temporary differences.
p. Translation of Foreign Currencies
Assets and liabilities denominated in foreign currencies are translated into Japanese yen mainly at the exchange rate prevailing as of
the balance sheet date.
q. Derivatives and Hedging Activities
Derivatives are stated at fair value. Derivative transactions that meethedge accounting criteria are primarily accounted for under the deferral method whereby unrealized gains and losses are deferred until maturity as deferred gains (losses) on hedge accounting in a
separate component of equity.
The Banks hedge interest rate risks arising from their financial
assets and liabilities by employing the technique known as “individual hedging” that establishes a specific position to directly hedge
a particular item. Such hedges, limited to certain assets and liabilities, are accounted for by the deferred method or, where appropriate interest rate swaps are involved, by the special rule method.
The effectiveness of hedges is assessed as follows: the Banks
specify the hedged items according to their risk management regulations, with the aim of centralizing hedging instruments, and verify
the extent to which the exposure of interest rate risks on hedged
items is mitigated.
The Banks hedge currency exchange fluctuation risks arisingfrom their foreign currency denominated financial assets and liabilities. Such hedges are accounted for by the deferred method specified in the “Accounting and Auditing Treatments in Banking
Business in Accounting for Foreign Currency DenominatedTransactions and Others” (The Japanese Institute of Certified Public
Accountants (“JICPA”) Industry Audit Committee Report No. 25).
The effectiveness of these hedges is assessed as follows: where
currency swap transactions and exchange swap transactions areused as hedging instruments to offset exchange fluctuation risks
arising from foreign currency denominated financial assets and liabilities, hedge effectiveness is assessed by verifying the agreementof the amounts of the designated hedging instruments corresponding to the hedged foreign currency financial assets and liabilities.
The Company and consolidated non-banking subsidiaries are
not engaged in hedging operations using derivative transactions.
r. Consumption Taxes
The Company and its domestic consolidated subsidiaries accountfor consumption tax and local consumption tax by the tax exclusion

method, whereby receipts and payments of consumption taxes are
not included in the transaction amounts and, accordingly, consumption tax amounts do not affect the measurement of profit orloss transactions. However, consumption taxes on tangible fixed
assets that are not tax-deductible are expensed in the fiscal year
under review.
s. Finance Lease
Sales and cost of sales are accounted for when lease payments are
paid.
t. Per Share Information
Basic net income per share is computed by dividing net income
available to common shareholders by the weighted-average number of shares of common stock outstanding for the period, retroactively adjusted for stock splits.
Diluted net income per share reflects the potential dilution that
could occur if securities were exercised or converted into common
stock. Diluted net income per share of common stock assumes fullconversion of the outstanding convertible notes and bonds at the
beginning of the year (or at time of issuance) with an applicableadjustment for interest expense, net of tax, and full exercise of outstanding warrants.
Cash dividends per share presented in the accompanying consolidated statement of income are dividends applicable to the respective fiscal years including dividends to be paid after the end of
the fiscal year.
u. Changes in Accounting Policies
Accounting Standard for Retirement Benefits — In May 17,
2012, the Accounting Standards Board of Japan (“ASBJ”) issued
ASBJ Statement No. 26, “Accounting Standard for Retirement
Benefits,” and ASBJ Guidance No. 25, “Guidance on AccountingStandard for Retirement Benefits,” which replaced the AccountingStandard for Retirement Benefits that had been issued by theBusiness Accounting Council in 1998 with an effective date of April
1, 2000, and the other related practical guidance, and were followed by partial amendments from time to time through 2009.
Major changes are as follows:(a) Treatment in the balance sheet‌Under the revised accounting standard, actuarial gains or losses
and past service costs that are yet to be recognized in profit orloss are recognized within equity (accumulated other comprehensive income), after adjusting for tax effects, and any resulting
deficit or surplus is recognized as a liability (liability for retirement
benefits) or asset (asset for retirement benefits).
(b)	‌Treatment in the statement of income and the statement of comprehensive income‌The revised accounting standard does not change how to recognize actuarial gains and losses and past service costs in profit orloss. Those amounts are recognized in profit or loss over a certain period no longer than the expected average remaining service period of the employees. However, actuarial gains and losses and past service costs that arose in the current period andhave not yet been recognized in profit or loss are included inother comprehensive income, and actuarial gains and losses andHokuhoku Financial Group, Inc. Annual Report 201533

past service costs that were recognized in other comprehensive
income in prior periods and then recognized in profit or loss in thecurrent period, are treated as reclassification adjustments (seeNote 28).
(c)	‌Amendments relating to the method of attributing expected benefit to periods and relating to discount rate and expected futuresalary increases
The revised accounting standard also made certain amend‌
ments relating to the method of attributing expected benefit toperiods, the discount rate, and expected future salary increases.
This accounting standard and the guidance for (a) and (b) above are
effective for the end of annual periods beginning on or after April 1,
2013, and for (c) above are effective for the beginning of annual
periods beginning on or after April 1, 2014, or for the beginning ofannual periods beginning on or after April 1, 2015, subject to certain
disclosure in March 2015, all with earlier application being permitted
from the beginning of annual periods beginning on or after April 1,
2013. However, no retrospective application of this accounting

standard to consolidated financial statements in prior periods is required.
The Group applied the revised accounting standard and guidance
for retirement benefits for (a) and (b) above, effective March 31,
2014, and for (c) above, effective April 1, 2014.
With respect to (c) above, the Group changed the method of attributing the expected benefit to periods from a straight-line basis toa benefit formula basis and the method of determining the discountrate from using the period which approximates the expected average remaining service period to using a yield curve equivalent approach, and recorded the effect of (c) above as of April 1, 2014, inretained earnings. As a result, liability for retirement benefits as ofApril 1, 2014, increased by ¥2,885 million ($24,009 thousand), retained earnings as of April 1, 2014, decreased by ¥1,864 million($15,517 thousand), and income before income taxes and minority
interests for the year ended March 31, 2015, increased by ¥227
million ($1,894 thousand).

3. Cash and Cash Equivalents
The reconciliation of “Cash and cash equivalents” in the consolidated statement of cash flows and “Cash and due from banks” in the
consolidated balance sheet as of March 31, 2015 and 2014 consisted of the following:

2014

Thousands of
U.S. dollars
2015¥844,182(100,208)¥743,974$10,074,122(512,093)$ 9,562,029

Millions of yen
2015

Cash and due from banks................................................................................................................................... ¥ 1,210,607(61,538)
Due from banks except for deposits with the Bank of Japan.................................................................................
Cash and cash equivalents................................................................................................................................. ¥ 1,149,068

4. Trading Assets and Liabilities
Trading assets and liabilities as of March 31, 2015 and 2014 consisted of the following:

Trading Assets

2015

2014

Thousands of
U.S. dollars
2015

Trading securities...............................................................................................................................................
Trading-related financial derivatives....................................................................................................................
Total..................................................................................................................................................................

¥2,898
1,609¥4,508¥2,8352,171¥5,007$24,124
13,391$37,515

Millions of yen

Trading Liabilities

2015

2014

Thousands of
U.S. dollars
2015

Trading-related financial derivatives....................................................................................................................
Total..................................................................................................................................................................

¥1,184¥1,184¥1,434¥1,434$9,856$9,856

Millions of yen

5. Money Held in Trust
Money held in trust for trading purposes as of March 31, 2015 and 2014 consisted of the following:

2015

2014

Thousands of
U.S. dollars
2015¥7,94741¥7,75912$66,134
344

Millions of yen

Amounts recorded in the consolidated balance sheet...........................................................................................
Valuation gain (loss) included in consolidated statement of income........................................................................
There was no money held in trust for other purposes as of March 31, 2015 and 2014.

34

Hokuhoku Financial Group, Inc. Annual Report 2015

6. Securities
Securities as of March 31, 2015 and 2014 consisted of the following:

2015

2014

Thousands of
U.S. dollars
2015¥1,280,622
397,008
330,217
237,508248,245¥2,493,601¥1,423,713
416,514337,568
182,149
133,674¥2,493,619$10,656,753
3,303,721
2,747,920
1,976,441
2,065,783$20,750,618

Millions of yen

Japanese national government bonds.................................................................................................................
Japanese local government bonds......................................................................................................................
Japanese corporate bonds.................................................................................................................................
Japanese corporate stocks.................................................................................................................................
Other securities.................................................................................................................................................
Total..................................................................................................................................................................

As of March 31, 2015 and 2014, securities included equity investments in non-consolidated subsidiaries that amounted to ¥593 million($4,936 thousand) and ¥669 million, respectively.
In the following description, in addition to “Securities,” also presented are trading account securities which are classified as “Trading assets”
in the consolidated balance sheet and beneficiary claims on loan trusts which are classified as “Monetary claims bought” in the consolidatedbalance sheet.
Valuation gain or loss on trading account securities included in income before income taxes and minority interests was ¥6 million ($54
thousand) and ¥3 million as of March 31, 2015 and 2014, respectively.
The amounts on the consolidated balance sheet, aggregate fair value and unrealized gains (losses) on held-to-maturity debt securities asof March 31, 2015 and 2014 were as follows:
Millions of yen
March 31, 2015

Fair value exceeding amount on consolidated balance sheet:
Held-to-maturity debt securities:
Japanese government bonds.....................................................................................................................
Japanese corporate bonds........................................................................................................................
Total...................................................................................................................................................
Fair value below amount on consolidated balance sheet:
Held-to-maturity debt securities:
Japanese government bonds.....................................................................................................................
Japanese corporate bonds........................................................................................................................
Total..................................................................................................................................................
Grand total...........................................................................................................................................................

Amount on
consolidatedbalance sheet

Estimated
fair value

Net unrealized
gains (losses)¥ 71,608
71,746¥143,354¥ 78,509
72,475¥150,985¥6,901729¥7,630¥    500
14,344
14,845¥158,199¥    499
14,29014,790¥165,775¥   (0)(54)(55)¥7,575

Millions of yen
March 31, 2014

Fair value exceeding amount on consolidated balance sheet:
Held-to-maturity debt securities:
Japanese government bonds.....................................................................................................................
Japanese corporate bonds........................................................................................................................
Total...................................................................................................................................................
Fair value below amount on consolidated balance sheet:
Held-to-maturity debt securities:
Japanese government bonds.....................................................................................................................
Japanese corporate bonds........................................................................................................................
Total...................................................................................................................................................
Grand total...........................................................................................................................................................

Amount on
consolidatedbalance sheet

Estimated
fair value

Net unrealized
gains (losses)¥ 75,114
43,904¥119,018¥ 78,372
44,243¥122,616¥3,257339¥3,597¥  2,504
25,56728,071¥147,090¥  2,498
25,461
27,960¥150,576¥   (5)(105)(110)¥3,486

Hokuhoku Financial Group, Inc. Annual Report 201535

Thousands of U.S. dollars
March 31, 2015

Fair value exceeding amount on consolidated balance sheet:
Held-to-maturity debt securities:
Japanese government bonds.....................................................................................................................
Japanese corporate bonds........................................................................................................................
Total...................................................................................................................................................
Fair value below amount on consolidated balance sheet:
Held-to-maturity debt securities:
Japanese government bonds.....................................................................................................................
Japanese corporate bonds........................................................................................................................
Total...................................................................................................................................................
Grand total...........................................................................................................................................................

Amount on
consolidatedbalance sheet

Estimated
fair value

Net unrealized
gains (losses)$  595,893
597,039$1,192,932$  653,324
603,108$1,256,432$57,4316,069$63,500$ 4,163
119,372
123,535$1,316,467$ 4,157
118,920
123,077$1,379,509$    (6)
(452)
(458)
$63,042

The amounts on the consolidated balance sheet, acquisition or amortized cost and unrealized gains (losses) on available-for-sale securities asof March 31, 2015 and 2014 were as follows:
Millions of yen
March 31, 2015

Amount on consolidated balance sheet exceeding acquisition or amortized cost:
Japanese corporate stocks..............................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities..............................................................................................................................................
Total...................................................................................................................................................
Amount on consolidated balance sheet below acquisition or amortized cost:
Japanese corporate stocks..............................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities..............................................................................................................................................
Total.........................................................................................................................................................
Grand total...........................................................................................................................................................

36

Hokuhoku Financial Group, Inc. Annual Report 2015

Amount on
consolidatedbalance sheet

Acquisition/amortized cost

Net unrealized
gains (losses)¥  203,028¥  113,621¥ 89,407

1,114,750
370,844
218,486
1,704,080
264,349¥2,171,459

1,088,608
363,372
214,429
1,666,410
252,243¥2,032,275

26,142
7,472
4,056
37,67012,105¥139,183¥    4,288¥    5,267¥   (978)93,762
26,16425,640145,566
48,282
198,138¥2,369,598

93,981
26,21925,712
145,91249,261
200,441¥2,232,717

(218)
(55)
(72)
(345)
(978)
(2,302)¥136,881

Millions of yen
March 31, 2014

Amount on
consolidatedbalance sheet

Acquisition/amortized cost

Net unrealized
gains (losses)¥  128,738¥   83,961¥44,777

1,339,592
393,063
241,696
1,974,352
153,601¥2,256,692

1,311,426
384,497
237,897
1,933,821
145,678¥2,163,461

28,166
8,565
3,798
40,531
7,922¥93,230

Amount on consolidated balance sheet exceeding acquisition or amortized cost:
Japanese corporate stocks..............................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities..............................................................................................................................................
Total...................................................................................................................................................
Amount on consolidated balance sheet below acquisition or amortized cost:
Japanese corporate stocks..............................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities..............................................................................................................................................
Total.........................................................................................................................................................
Grand total...........................................................................................................................................................

¥  23,484¥   27,704¥ (4,220)

6,502
23,451
26,40056,35351,905
131,743¥2,388,435

6,503
23,49026,50456,49854,254
138,457¥2,301,919

(0)
(39)
(104)
(144)
(2,348)(6,714)¥86,516

March 31, 2015

Amount on
consolidatedbalance sheet

Acquisition/amortized cost

Net unrealized
gains (losses)$ 1,689,513$   945,502$  744,011

9,276,446
3,085,996
1,818,142
14,180,584
2,199,799$18,069,896

9,058,904
3,023,817
1,784,388
13,867,109
2,099,059$16,911,670

217,542
62,17933,754313,475
100,740$1,158,226$    35,691$    43,832$    (8,141)

780,251
217,725
213,366
1,211,342
401,788
1,648,821$19,718,717

782,068
218,185
213,966
1,214,219
409,934
1,667,985$18,579,655(1,817)(460)(600)(2,877)(8,146)(19,164)$1,139,062

Thousands of U.S. dollars

Amount on consolidated balance sheet exceeding acquisition or amortized cost:
Japanese corporate stocks..............................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities..............................................................................................................................................
Total...................................................................................................................................................
Amount on consolidated balance sheet below acquisition or amortized cost:
Japanese corporate stocks..............................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities..............................................................................................................................................
Total.........................................................................................................................................................
Grand total...........................................................................................................................................................

Information on available-for-sale securities, which were sold during the years ended March 31, 2015 and 2014 was as follows:
March 31, 2015

Proceeds

Millions of yen
Realized gains

Realized losses

Japanese corporate stocks....................................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities..............................................................................................................................................
Total.....................................................................................................................................................................

¥ 72,238¥3,948¥  933

119,782
4,307
9,180
133,269
44,911¥250,419

2,662
7
87
2,757
1,566
¥8,272

14
—
—
14
198
¥1,146

Hokuhoku Financial Group, Inc. Annual Report 201537

March 31, 2014

Proceeds

Millions of yen
Realized gains

Realized losses

Japanese corporate stocks....................................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities..............................................................................................................................................
Total.....................................................................................................................................................................

¥ 16,394¥1,242¥693

102,429
31,023
9,367
142,820
5,762¥164,977

1,295
0
43
1,339
380
¥2,962

31
5
—
37
—
¥730

March 31, 2015

Proceeds

Japanese corporate stocks....................................................................................................................................
Bonds:
Japanese government bonds.....................................................................................................................
Japanese local government bonds.............................................................................................................
Japanese corporate bonds........................................................................................................................
Total bonds.....................................................................................................................................................
Other securities..............................................................................................................................................
Total.....................................................................................................................................................................

Thousands of U.S. dollars
Realized gains
Realized losses$  601,135$32,860$7,768996,773
35,84376,392
1,109,008
373,734$2,083,877

22,15861
725
22,944
13,036$68,840

124
—
—
124
1,648
$9,540

Impairment losses on available-for-sale securities amounted to ¥244 million ($2,038 thousand) and ¥176 million as of March 31, 2015 and2014, respectively.
An impairment of securities is recognized if the decline in fair value is substantial and the decline is determined to be other-than-temporary.
The assessment of whether or not a decline in fair value is other-than-temporary by classification of the security issuer which is used in the
self-assessment of asset quality is as follows:(1) ‌For issuers who are classified as borrowers under “in need of caution,” “possible bankruptcy,” “virtual bankruptcy,” “legal bankruptcy.”
Stocks: where the fair value is lower than the acquisition cost.
Bonds: where the fair value declines by over 30% compared to the amortized cost or acquisition cost.
(2) ‌For issuers who are classified as borrowers under “normal.” 
Stocks and bonds: where the fair value declines by 50% or more compared to the amortized cost or acquisition cost, or the fair value
declines by over 30% but less than 50% compared to the amortized cost or acquisition cost and market prices remaining below acertain level.
Reconciliation of valuation difference on available-for-sale securities to the amounts included in “valuation difference on available-for-salesecurities,” presented as a separate component of net assets as of March 31, 2015 and 2014, in the consolidated balance sheet, was asfollows:

2015

2014

Thousands of
U.S. dollars
2015¥136,881(35,865)
101,015(90)
108¥101,033¥86,516(25,227)
61,288(60)
73¥61,301$1,139,062(298,457)
840,605(754)
900$  840,751

Millions of yen

Valuation difference before taxes on available-for-sale securities..........................................................................
Deferred tax liabilities.........................................................................................................................................
Valuation difference on available-for-sale securities (before adjustment)................................................................
Amounts attributable to minority interests............................................................................................................
The Company’s portion of valuation difference on available-for-sale securities of equity method investees...............
Amounts recorded in the consolidated balance sheet...........................................................................................

38

Hokuhoku Financial Group, Inc. Annual Report 2015

7. Loans and Bills Discounted
Loans and bills discounted as of March 31, 2015 and 2014 consisted of the following:
Millions of yen
2015
2014

Bills discounted............................. ¥   49,555 ¥   52,979
330,670
345,643
Loans on bills................................
Loans on deeds............................. 6,242,549 6,061,731
924,043862,935
Overdrafts.....................................
Total.............................................. ¥7,546,819 ¥7,323,290

Thousands of
U.S. dollars
2015$   412,381
2,751,688
51,947,651
7,689,472$62,801,192

Loans and bills discounted include loans to borrowers in bankruptcy, past due loans, past due loans (three months or more) and
restructured loans. The amounts of these loans were as follows:
Millions of yen
2015
2014

Loans to borrowers in bankruptcy..... ¥   5,269
Past due loans............................... 154,483
Past due loans
1,217(three months or more).................
28,185
Restructured loans.........................
Total.............................................. ¥189,155

Thousands of
U.S. dollars
2015¥   8,475
159,017$   43,847
1,285,542

585
35,814¥203,892

10,129234,545$1,574,063

Loans to borrowers in bankruptcy represent nonaccrual loans to
debtors who are legally bankrupt, as defined in the Order for
Enforcement of the Corporation Tax Act.
Past due loans are nonaccrual loans which include loans classified as “possible bankruptcy” and “virtual bankruptcy.”
Nonaccrual loans are defined as loans (after the partial chargeoff of claims deemed uncollectible) on which the Banks havestopped accruing interest income due to substantial doubt existing
about the ultimate collection of principal and/or interest. Such loans
are classified either as “possible bankruptcy” or “virtual bankruptcy”
under the Banks’ self-assessment guidelines.
In addition to past due loans as defined above, certain otherloans classified as “in need of caution” under the Banks’ self-assessment guidelines include past due loans (three months or more)which consist of loans for which the principal and/or interest is threemonths or more past due, but exclude loans to borrowers in bankruptcy and past due loans.
Restructured loans are loans where the Group relaxes lending
conditions by reducing the original interest rate or by forbearing interest payments or principal repayments to support the borrower’s
reorganization. Restructured loans exclude loans to borrowers inbankruptcy, past due loans or past due loans (three months ormore).
These amounts represent the gross amounts before deductionof the allowance for loan losses.
Bills discounted are accounted for as financial transactions inaccordance with “Accounting and Auditing treatment of AccountingStandards for Financial Instruments in Banking Industry” (JICPA
Industry Audit Committee Report No. 24). The Banks have a right tosell or repledge as collateral such discounted bills at their discretion.
The total face value of bank acceptance bills, commercial bills, documentary bills and foreign currency bills bought, which were obtained at a discount, were ¥53,025 million ($441,250 thousand) and¥55,489 million as of March 31, 2015 and 2014, respectively.

As of March 31, 2015 and 2014, loans and bills discounted included the portion of loans extended to original borrowers based onloan participation agreements, as permitted by the JICPA
Accounting Committee Report No. 3, in the amount of ¥1,500 million ($12,482 thousand) and ¥1,500 million, respectively.

8. Foreign Exchanges
Foreign exchanges as of March 31, 2015 and 2014 consisted of thefollowing:

AssetsDue from foreign banks...................
Foreign exchange bills bought..........
Foreign exchange bills receivable.....
Total..............................................
Liabilities
Due to foreign banks.......................
Foreign exchange bills sold..............
Foreign exchange bills payable.........
Total..............................................

Millions of yen
2015
2014

Thousands of
U.S. dollars
2015¥ 9,9643,469
1,099¥14,533¥10,2212,510
1,775¥14,506$ 82,923
28,8699,146$120,938¥    3299
47¥   179¥    2293
35¥   151

$

274
829
392
$  1,495

9. Tangible Fixed Assets
Tangible fixed assets as of March 31, 2015 and 2014 were as­follows:
Millions of yen
2015
2014

Buildings....................................... ¥ 33,505
61,645Land.............................................
651
Lease assets..................................
Construction in progress..................
187
5,888
Other tangible fixed assets...............
Total.............................................. ¥101,878¥ 33,637
62,521
774
360
6,269
¥103,563

Thousands of
U.S. dollars
2015$278,818
512,989
5,421
1,560
49,001$847,789

Accumulated depreciation amounted to ¥104,849 million($872,514 thousand) and ¥103,784 million as of March 31, 2015
and 2014, respectively.
The book value of tangible fixed assets adjusted for gains onsales of replaced assets amounted to ¥3,895 million ($32,416­thousand) and ¥3,875 million as of March 31, 2015 and 2014,­respectively.
Under the “Act Concerning Land Revaluation,” Hokuriku Bank,
Ltd. revalued its own land for business operations as of March 31,
1998. The revaluation gain is included in net assets as “Revaluation
reserve for land.” The carrying amount of the land after the above
one-time revaluation exceeded the market value by ¥20,505 million($170,640 thousand) and ¥21,379 million as of March 31, 2015 and2014, respectively.

Hokuhoku Financial Group, Inc. Annual Report 201539

10. Intangible Fixed Assets

13. Loan Commitments

Intangible fixed assets as of March 31, 2015 and 2014 were as­follows:

All contingent liabilities arising from acceptances and guarantees
are reflected in acceptances and guarantees in liabilities on the consolidated balance sheet. As a contra account, customers’ liabilities
for acceptances and guarantees are also shown in assets, which
represent the Banks’ right of indemnity from the applicants.
Guarantee obligations on securities issued by private placement(pursuant to Article 2, Clause 3 of the Japanese Financial
Instruments and Exchange Act) amounted to ¥114,428 million($952,218 thousand) and ¥105,129 million as of March 31, 2015
and 2014, respectively.

Overdraft facility and loan commitment contracts with customers tolend up to the prescribed limits in response to customers’ applications for a loan, as long as there is no violation of any condition
within the contracts. The unused amount of such contracts totaled¥2,321,927 million ($19,322,022 thousand) and ¥2,244,753 million
as of March 31, 2015 and 2014, respectively, of which amounts
with original agreement terms of less than one year are ¥2,275,702
million ($18,937,360 thousand) and ¥2,206,638 million as of March
31, 2015 and 2014, respectively.
Since many of the commitments expire without being drawn
upon, the unused amount does not necessarily represent a future
cash requirement. Most of these contracts have conditions allowing
the Group to refuse customers’ applications for a loan or decrease
the contract limits with proper reasons (e.g., changes in financial
situation, deterioration in customers’ creditworthiness). At the inception of the contracts, the Group obtains collateral including realestate, securities, etc., if considered to be necessary. Subsequently,
the Group performs a periodic review of the customers’ businessresults based on internal rules and takes necessary measures toreconsider conditions in contracts and require additional collateraland guarantees.

12. Assets Pledged

14. Deposits

Assets pledged as collateral and their relevant liabilities as of March
31, 2015 and 2014 were as follows:

Deposits as of March 31, 2015 and 2014 consisted of the following:

Software........................................
Goodwill........................................
Lease assets..................................
Other intangible fixed assets............
Total..............................................

Millions of yen
2015
2014

Thousands of
U.S. dollars
2015¥ 7,291
19,796190
798¥28,076$ 60,673
164,736
1,584
6,648$233,641¥ 9,960
21,898296
749¥32,905

11. Customers’ Liabilities for Acceptances and Guarantees

Millions of yen
2015
2014

Assets pledged as collateral:
Securities................................... ¥399,850
Loans and bills discounted........... 123,512
Relevant liabilities to the above assets:
Deposits.................................... ¥ 28,713
Call money and bills sold
20,000
Payables under securities lending
27,809transactions...............................
53,532
Borrowed money........................

Thousands of
U.S. dollars
2015¥386,711
150,249$3,327,375
1,027,817¥ 26,962
30,000$  238,941
166,431—
19,415

231,419445,470

In addition to the assets presented above, the following assets
were pledged as collateral relating to transactions on exchange
settlements or as substitutes for futures transaction margins as ofMarch 31, 2015 and 2014:
Millions of yen
2015
2014

Securities....................................... ¥146,095
219
Other assets..................................

¥144,350
210

Thousands of
U.S. dollars
2015$1,215,740
1,826

In addition to the above, initial margins for futures transactions,cash collateral paid for financial instruments and guarantee deposits
are included in “Other assets” in the consolidated balance sheet.
Millions of yen
2015
2014

Initial margins for futurestransactions ................................
Cash collateral paid forfinancial instruments....................
Guarantee deposits .......................

40

Thousands of
U.S. dollars
2015¥   10¥    6$    85

200
4,014

200
3,767

1,664
33,408

Hokuhoku Financial Group, Inc. Annual Report 2015

Millions of yen
2015
2014

Current deposits, ordinary deposits,
saving deposits anddeposits at notice ........................ ¥ 5,867,009 ¥ 5,452,672
Time deposits and installment
savings........................................ 4,142,065 4,322,884
Negotiable certificates of deposits....
487,347
235,439
Other deposits................................
131,324
136,808
Total.............................................. ¥10,627,748 ¥10,147,805

Thousands of
U.S. dollars
2015$48,822,584
34,468,385
4,055,485
1,092,825$88,439,279

15. Borrowed Money
As of March 31, 2015 and 2014, the weighted-average annualinterest rates applicable to borrowed money were 0.86% and­1.39%, respectively.
Borrowed money includes borrowings from the Bank of Japanand other financial institutions. In addition, borrowed money­includes ¥70,500 million ($586,669 thousand) and ¥100,500 millionof subordinated borrowed money as of March 31, 2015 and 2014,
respectively.
Annual maturities of borrowed money as of March 31, 2015
were as follows:
Millions of yen

Thousands of
U.S. dollars

2016.................................................................. ¥ 24,156
315
2017..................................................................
388
2018..................................................................
30,2302019..................................................................
90
2020..................................................................
70,5002021 and thereafter.............................................
Total................................................................... ¥125,680$  201,021
2,621
3,232
251,560
749
586,669$1,045,852

Year ending March 31

16. Bonds Payable
Bonds payable as of March 31, 2015 and 2014 consisted of the following:

2015

2014

Thousands of
U.S. dollars
2015¥10,000¥10,000$ 83,215

8,000

8,000

66,57225,00025,000208,039—¥43,000

15,000¥58,000—$357,826

Millions of yen

Thousands of
U.S. dollars¥43,000$357,826

Millions of yen

Issued by the Company:
Unsecured fixed and floating subordinated bonds, payable in Japanese yen,
due January 2021, 1.27% interest............................................................................................................
Unsecured fixed and floating subordinated bonds, payable in Japanese yen,
due December 2021, 1.50% interest.........................................................................................................
Unsecured fixed and floating subordinated bonds, payable in Japanese yen,
due October 2023, 0.75% interest.............................................................................................................
Issued by Hokkaido Bank, Ltd.:
Unsecured fixed and floating subordinated bonds, payable in Japanese yen,
due September 2019, 2.18% interest........................................................................................................
Total..................................................................................................................................................................
Annual maturities of bonds payable as of March 31, 2015 were as follows:Year ending March 31
2021 and thereafter...........................................................................................................................................

17. Retirement Benefits
Overview of the Group’s retirement benefit plans
The Hokuriku Bank, Ltd. which previously provided three defined
benefit retirement programs, corporate pensions, and tax qualified
pension and retirement bonuses, terminated the tax qualified pension and migrated a portion of the retirement bonus to a defined
contribution pension in March 2011. At the time of retirement, employees may be issued a premium retirement grant that is not subject to inclusion in the actuarial computation of projected benefit
obligations in conformity with the standards for accounting for retirement benefits. The Minister of Health, Labour and Welfare approved on February 17, 2003 that Hokuriku Bank Ltd. would be
relieved of the obligation to administer the future payment service ofthe government mandated portion of its employee pension fund.
The Hokuriku Bank, Ltd. was further approved on March 1, 2005 to
switch from an employee pension fund to a corporate pension fund.
The Hokkaido Bank, Ltd. provides defined benefit arrangementsthat combine a retirement lump sum grant and an employee pension fund plan. The Hokkaido Bank, Ltd. was approved by the
Minister of Health, Labour and Welfare on March 26, 2004 to berelieved of the obligation to administer the future payment service ofthe government mandated portion of the employee pension fund.
The Hokkaido Bank, Ltd. was further approved on March 31, 2006
to switch from an employee pension fund to an employee pension
fund.
The consolidated domestic subsidiaries other than the two­noted above provide retirement lump sum grants.
The Company’s employees are all on loan from its subsidiaries
and are covered by the retirement benefit program of the subsidiaries from which they each come.
The Banks have established benefit trust arrangements as a part oftheir plan assets.

(a) Defined benefit plan(1) ‌The changes in defined benefit obligations for the years ended
March 31, 2015 and 2014 were as follows:
Millions of yen
2015
2014

Balance at beginning of year
(as previously reported)................. ¥88,836
Cumulative effects of
2,885
accounting change...................
Balance at beginning of year
91,721(as restated)...................................
2,105
Service cost...............................
1,368
Interest cost...............................
2,101
Actuarial (gains) losses................
(5,008)Benefits paid..............................
90
Others.......................................
Balance at end of year.................... ¥92,378

Thousands of
U.S. dollars
2015¥90,289$739,254—

24,00990,289
2,002
1,787
(412)
(4,926)
94¥88,836

763,263
17,521
11,386
17,485(41,679)755$768,731(2) ‌The changes in plan assets for the years ended March 31, 2015
and 2014 were as follows:
Millions of yen
2015
2014

Balance at beginning of year............ ¥73,875
2,307
Expected return on plan assets....
8,964
Actuarial (gains) losses................
4,026
Contributions from the employer....
(3,746)
Benefits paid..............................
90
Others.......................................
Balance at end of year.................... ¥85,517¥66,326
2,173
4,982
4,009
(3,711)
94¥73,875

Thousands of
U.S. dollars
2015$614,755
19,19974,60133,504(31,178)755$711,636

Hokuhoku Financial Group, Inc. Annual Report 201541

(3) ‌Reconciliation between the liability recorded in the consolidatedbalance sheet and the balances of defined benefit obligation andplan assets
Millions of yen
2015
2014

Funded defined benefit obligation.....
Plan assets....................................
Unfunded defined benefit obligation....
Plan assets....................................
Net liability (asset) arising fromdefined benefit obligation ..............

Liability for retirement benefits.........
Asset for retirement benefits............
Net liability (asset) arising fromdefined benefit obligation...............

Thousands of
U.S. dollars
2015¥76,491(77,839)(1,348)15,887(7,677)
8,210¥72,726(66,950)
5,776
16,109(6,924)
9,184$636,524(647,748)(11,224)
132,208(63,888)
68,320¥ 6,861¥14,961$ 57,096

Millions of yen
2015
2014

Thousands of
U.S. dollars
2015¥8,930(2,069)¥14,961—$74,314(17,218)¥6,861¥14,961$57,096

The components of net periodic benefit costs for the years(4) ‌
­ended March 31, 2015 and 2014 were as follows:
Millions of yen
2015
2014

Service cost...................................
Interest cost...................................
Expected return on plan assets........
Recognized actuarial (gains) losses....
Amortization of prior service costs....
Amortization of transitional
obligation.......................................
Others...........................................
Net periodic benefit costs................

Thousands of
U.S. dollars
2015¥2,1051,368(2,307)4,530(46)¥2,002
1,787(2,173)
3,082(46)$17,521
11,386(19,199)
37,702
(389)

1,693
102
¥7,446

1,939
119¥ 6,712

14,095854$61,970(5) ‌Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement benefit plans forthe years ended March 31, 2015 and 2014
Millions of yen
2015
2014

Prior service cost............................ ¥   (46)
Actuarial gains (losses).................... 11,394
1,693
Transitional obligation......................
Total.............................................. ¥13,041

¥—
—
—
¥—

Thousands of
U.S. dollars
2015$   (389)
94,81814,093$108,522(6) ‌Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement
benefit plans as of March 31, 2015 and 2014
Millions of yen
2015
2014

Unrecognized prior service cost..........
Unrecognized actuarial (gains) losses...
Unrecognized transitional obligation.....
Total..............................................

42¥  (187)(3,452)—¥(3,639)

Hokuhoku Financial Group, Inc. Annual Report 2015

¥ (233)
7,942
1,693¥9,401Thousands of
U.S. dollars
2015$ (1,557)(28,728)—$(30,285)(7) Plan assets• Components of plan assets
Bonds...................................................................
Stocks..................................................................
Cash and deposits.................................................
General accounts...................................................
Other....................................................................
Total.....................................................................

2015

2014

28.61%
50.06%
4.23%
4.87%
12.23%
100.00%38.99%
48.42%
0.45%
5.54%
6.60%
100.00%Note: ‌Plan assets include retirement benefit trusts of 23.70% and 23.17%
as of March 31,2015 and 2014, respectively.

• ‌Method of determining the expected rate of return on plan ­assets
The expected rate of return on plan assets is determined considering the long-term rates of return which are expected currently and in
the future from the various components of the plan assets.
(8) ‌Assumptions used for the years ended March 31, 2015 and2014 were set forth as follows:
2015

Discount rate.........................................................1.4%–1.6%
3.5%
Expected rate of return on plan assets.....................

2014

2.0%
3.5%

(b) Defined contribution pension plan
Millions of yen
2015
2014

Contribution...................................

¥274

¥277

Thousands of
U.S. dollars
2015$2,285

18. Equity

19. Capital StockJapanese banks are subject to the Banking Act and the Companies
Act of Japan (the “Companies Act”). The significant provisions in the
Companies Act that affect financial and accounting matters are
summarized below:(a) Dividends	‌Under the Companies Act, companies can pay dividends at any
time during the fiscal year in addition to the year-end dividend
upon resolution at the shareholders’ meeting. For companies
that meet certain criteria such as (1) having a Board of Directors,(2) having independent auditors, (3) having an Audit & Supervisory
Board and (4) the term of service of the directors is prescribed as
one year rather than two years of normal term by its articles ofincorporation, the Board of Directors may declare dividends (except for dividends in kind) at any time during the fiscal year if thecompany has prescribed so in its articles of incorporation.
However, the Company cannot do so because it does not meet
all the above criteria.

Information with respect to capital stock of the Company as ofMarch 31, 2015 and 2014 is as follows:	‌   Semiannual interim dividends may also be paid once a year
upon resolution by the Board of Directors if the articles of incorporation of the Company so stipulate. The Companies Act provides a certain limitation on the amounts available for dividends
or the purchase of treasury stock. The limitation is defined as theamount available for distribution to the shareholders, but theamount of net assets after dividends must be maintained at noless than ¥3 million.
(b)	‌Increases / decreases and transfer of common stock, reserveand surplus
	‌The Banking Act requires that an amount equal to 20% of dividends must be appropriated as a legal reserve (a component ofretained earnings) or as additional paid-in capital (a componentof capital surplus) depending on the equity account charged
upon the payment of such dividends until the total of the aggregate amount of the legal reserve and additional paid-in capitalequals 100% of common stock. Under the Companies Act, thetotal amount of additional paid-in capital and legal reserve may
be reversed without limitation. The Companies Act also provides
that common stock, legal reserve, additional paid-in capital,
other capital surplus and retained earnings can be transferredamong the accounts under certain conditions upon resolution of
the shareholders.
(c) Treasury stock and treasury stock acquisition rights	‌The Companies Act also provides for companies to purchasetreasury stock and dispose of such treasury stock by resolutionof the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to
the shareholders which is determined by a specific formula.
	‌   Under the Companies Act, stock acquisition rights are presented as a separate component of equity.
	‌   The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock.
Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.

2015

Number of shares:
Authorized:
Common...................................... 2,800,000,000
400,000,000
Preferred (Type 1).........................
200,000,000
Preferred (Type 2).........................
200,000,000
Preferred (Type 3).........................
90,000,000
Preferred (Type 4).........................
110,000,000
Preferred (Type 5).........................
Issued and outstanding:Common...................................... 1,351,630,146
107,432,000
Preferred (Type 5).........................
Treasury stock:
11,887,214
Common......................................
1,420
Preferred (Type 5)..........................

2014

2,800,000,000
400,000,000
200,000,000
200,000,000
90,000,000
110,000,000
1,351,630,146
107,432,000
12,067,668
1,420

Preferred stock (Type 5)
Preferred stock (Type 5) is noncumulative and nonparticipating for
dividend payments. Shareholders of the preferred stock (Type 5) arenot entitled to vote at the general meeting of shareholders, except
when the proposal to pay the prescribed dividends to shareholders
is not submitted to the general meeting of shareholders or is rejected at the general meeting of shareholders.
   Annual dividends per share of preferred stock (Type 5) are paid
to shareholders at ¥15.00.
   The changes in the number of treasury stock for the fiscal years
ended March 31, 2015 and 2014 were as follows:
As of April Changes during the fiscal year As of March
1, 201431, 2015
Decrease*2
Increase*1
2015
Common.................. 12,067,668
79,487259,941
11,887,214
Preferred (Type 5)......
1,420
—
—
1,420
*1 The increase of common represents the acquisition of odd-lot shares.
*2 ‌The decrease of common represents the disposal of 1,341 shares of
odd-lot shares and 258,600 shares exercised of stock options.

As of April Changes during the fiscal year As of March
1, 201331, 2014
Decrease*2
Increase*1
2014
Common.................. 12,266,448
82,606
281,386
12,067,668
Preferred (Type 5)......
710
—
1,420
710
*1 ‌The increase of common and preferred (Type 5) represents the acquisitionof odd-lot shares.
*2 ‌The decrease of common represents the disposal of 1,686 shares of
odd-lot shares and 279,700 shares exercised of stock options.

20. Stock Acquisition Right
Stock acquisition right as of March 31, 2015 and 2014 consisted ofstock options.

21. Stock Options
The stock option plans grant options to the Company’s directors
and the Banks’ directors and executive officers to purchase certain
shares of the Company’s common stock in the respective exercise
periods. The exercise prices are subject to adjustments for stock
issuances below fair value and stock splits.

Hokuhoku Financial Group, Inc. Annual Report 201543

  Stock option expenses in the amount of ¥111 million ($927
thousand) and ¥114 million were recorded under general and­­administrative expenses for the years ended March 31, 2015 and2014, respectively.
The stock options outstanding as of March 31, 2015 were as
follows:

Stock option

Persons
grantedDate of
grant

19 directors
2012 Stock 23 executive
November
Optionofficers
1,058,500 28, 201219 directors
2013 Stock 22 executive
August 13,
Optionofficers
629,5002013
19 directors
2014 Stock 21 executive
July 11,
Optionofficers
554,000
2014

Exercise
priceYear ended
March 31, 2015
Exercise period

From November
29, 2012 toNovember 28,
2042
From August 14,
2013 to August
13, 2043
From July 12,2014 to July 11,
2044

¥1
¥1
¥1

The stock option activity was as follows:

Non-vested:
March 31, 2014–outstanding.....
Granted.................................
Canceled...............................
Vested...................................
March 31, 2015–outstanding.....
Vested:March 31, 2014–outstanding.....
Vested...................................
Exercised..............................
Canceled...............................
March 31, 2015–outstanding.....
Exercise price.................................
Average stock price at exercise........
Fair value price at grant date...........

(1) Net income per share of common stock
Reconciliation of the difference between basic and diluted net income per share (“EPS”) for the years ended March 31, 2015 and2014 was as follows:
Millions of yen

Numberof options
granted(Shares)Year ended March 31, 201522. Per Share Information2012 stock2013 stock2014 stock
option (Shares) option (Shares) option (Shares)

—
—
—
—
—

—
—
—
—
—

—
554,000—
554,000—

715,700—
154,800—
560,900
¥1
$0.01
¥220
$1.83
¥108
$0.90

627,300—
97,800—529,500
¥1
$0.01
¥220
$1.82
¥182
$1.51

—
554,000
6,000
2,900
545,100
¥1
$0.01
¥282
$2.35
¥201
$1.67

Basic EPS – Net income
available to commonshareholders
Effect of dilutive securities
Diluted EPS – Net income
for computation

Net income

Basic EPS – Net income
available to commonshareholders
Effect of dilutive securities
Diluted EPS – Net income
for computation

Yen

EPS

1,339,706
1,555¥19.87$0.17¥26,623

1,338,151¥19.84$0.17

Net income

Thousands ofshares
Weightedaverage shares

Yen
EPS

¥25,721

1,339,539
1,171¥19.20¥25,7211,340,710¥19.18(2) Net assets per share of common stock
Net assets per share of common stock as of March 31, 2015 and2014 were as follows:
Yen

The Assumptions Used to Measure the Fair Value of the 2014 Stock
Options
Estimate method.......................................... Black-Scholes option-pricing model
Volatility of stock price.............................. 31.508%
Estimated remaining outstanding period.... Two years and one month
Estimate dividend..................................... ¥4.00 per share
Interest rate with risk free......................... 0.061%
In estimating the vested number of stock options, the Company
basically reflects only the actual forfeited number, since it is difficult
to make a reasonable estimate on the future forfeited number.

U.S. dollars¥26,623

Millions of yen
Year ended March
31, 2014

Thousands ofshares
Weightedaverage shares

Net assets per shareof common stock..........................

2015

2014

U.S. dollars
2015¥385.83335.36$3.21

Net assets per share of common stock as of March 31, 2015 and2014 were calculated based on the following:
Millions of yen
2015
2014

Total equity.................................... ¥572,987
Deductions from total equity:
Stock acquisition rights..............
266
Minority interests.......................
1,276
Preferred stock..........................
53,715Preferred dividends....................
805
Net assets attributable tocommon stock at the end of
the fiscal year.............................. 516,922
Number of shares of common
stock at the end of the fiscal year
used for the calculation of net
assets per share of common stock(shares in thousands)..................... 1,339,742

Thousands of
U.S. dollars
2015¥505,125$4,768,137

191
1,168
53,715805

2,218
10,624446,994
6,705

449,245

4,301,596

1,339,562

Because of the change of the accounting standard for retirement
benefits, net assets per share of common stock decreased by¥1.28 ($0.01), basic EPS increased by ¥0.11 ($0.00) and diluted
EPS increased by ¥0.10 ($0.00) (see Note 2u. "Changes in
Accounting Policies").

44

Hokuhoku Financial Group, Inc. Annual Report 2015

23. Other Ordinary Income

27. Income Taxes

Other ordinary income for the years ended March 31, 2015 and2014 is as follows:

The Company and its domestic subsidiaries are subject to Japanesenational and local income taxes which, in the aggregate, resulted ina normal effective statutory tax rate of approximately 35.37% and37.75% for the years ended March 31, 2015 and 2014, respectively.
The tax effects of significant temporary differences and tax loss
carryforwards which resulted in deferred tax assets and liabilities at
March 31, 2015 and 2014 are as follows:

Millions of yen
2015
2014

Gain on foreign exchangetransactions – net.........................
Gains on sales and redemption ofbonds and other securities.............
Gains on derivatives........................
Lease receipts................................
Other.............................................
Total..............................................

Thousands of
U.S. dollars
2015¥ 1,437¥ 1,698$ 11,963

3,739
1,034
6,496
4,565
¥17,273

1,547
809
6,742
4,274
¥15,072

31,1198,611
54,05737,995$143,745

24. Other Ordinary Expenses
Other ordinary expenses for the years ended March 31, 2015 and2014 are as follows:
Millions of yen
2015
2014

Losses on sales, redemption anddevaluation of bonds andother securities.............................
Lease costs....................................
Other.............................................
Total..............................................

¥  257
5,742
3,203¥9,203¥   47
5,902
2,803¥8,753Thousands of
U.S. dollars
2015$ 2,146
47,78926,656$76,591

25. Other Income
Other income for the years ended March 31, 2015 and 2014 is asfollows:
Millions of yen
2015
2014

Gains on sales of stocks..................
Reversal of allowance
for loan losses..............................
Gains on sales oftangible fixed assets.....................
Other.............................................
Total..............................................

Thousands of
U.S. dollars
2015¥4,598¥ 1,480$38,264

—

2,839

—

38
3,786
¥8,422

5
3,845¥8,171318
31,508$70,090

26. Other Expenses
Other expenses for the years ended March 31, 2015 and 2014 are
as follows:
Millions of yen
2015
2014

Losses on write-offs of loans andbills discounted............................
Losses on sales of stocks................
Losses on impairments of stocks
and other securities......................
Losses on sales of loans.................
Losses on impairments anddisposals of fixed assets................
Other.............................................
Total..............................................

Thousands of
U.S. dollars
2015¥  5901,131¥  616693$ 4,913
9,416

33
297

189
512

282
2,474

1,310
2,777
¥6,1402,302
2,322¥6,636

10,902
23,110$51,097

Thousands of
U.S. dollars
2015

Millions of yen
2015
2014

Deferred tax assets:
Allowance for loan losses............ ¥ 34,052
Depreciation...............................
1,066
Liability for retirement benefits..... 13,755
Loss on valuation of securities..... 13,718
Other.........................................
5,698
240
Operating loss carryforwards.......
Subtotal................................
68,532
Less: Valuation allowance............ 27,507
Total deferred tax assets.............. 41,024
Deferred tax liabilities:
Valuation difference on
available-for-sale securities....... 42,969
Book-value correction
for securities............................
4,779
2,911
Land transfer through merger......
2,214
Other.........................................
Total deferred tax liabilities........... 52,875
Net deferred tax assets............... ¥(11,850)¥40,874
1,186
17,862
15,1094,936
6,702
86,672
34,861
51,811$283,371
8,874
114,469
114,158
47,424
1,997
570,293
228,905
341,388

30,218357,574

4,593
3,212
2,409
40,433¥11,378

39,771
24,232
18,427440,004$(98,616)

A reconciliation between the normal effective statutory tax rates andthe actual effective tax rates reflected in the accompanying consolidated statement of income for the years ended March 31, 2015 and2014 is as follows:
2015

Normal effective statutory tax rate.................................... 35.37%
Change in valuation allowance.................................... (0.44)
Permanently non-taxable income................................ (2.21)
Per capita portion of inhabitants’ taxes......................... 0.34
Permanently non-deductible expenses......................... 0.35
Decrease in deferred tax assets due to changes in tax rate.... 5.60
Other........................................................................ 0.62
Actual effective tax rate................................................... 39.63%

2014

37.75%
0.37(1.42)
0.34
0.38
1.75
2.95
42.12%New tax reform laws enacted in 2015 in Japan changed the normal
effective statutory tax rate for the fiscal year beginning on or after
April 1, 2015, to approximately 32.82% and for the fiscal year beginning on or after April 1, 2016, to approximately 32.06%. The effect of this change in the consolidated balance sheet and the consolidated statement of income as of March 31, 2015 is as follows:
Millions of Thousands ofyen
U.S. dollars

Decrease deferred tax assets........................................... ¥   28Decrease deferred tax liabilities........................................ 1,179
Increase valuation difference on available-for-sale securities....... 3,698
Increase income taxes—deferred.................................... 2,625
Decrease deferred tax liabilities for revaluation and626
increase revaluation for land..........................................

$   239
9,814
30,78021,851
5,211

Hokuhoku Financial Group, Inc. Annual Report 201545

28. Other Comprehensive Income
The components of other comprehensive income for the years ended March 31, 2015 and 2014 are as follows:
Millions of yen
2015
2014

Valuation difference on
available-for-sale securities:
Amount incurred
during the fiscal year................. ¥55,464
Reclassification adjustment..........
(5,099)Prior to deducting tax effect.... 50,364
Tax effect.............................. (10,637)
Total..................................... 39,726

Thousands of
U.S. dollars
2015¥13,137(3,161)
9,975(1,332)8,642$461,549(42,438)
419,111(88,524)
330,587(1,668)
725
(942)
291
(650)

(477)
642
165
(58)
106

(13,882)
6,039(7,843)2,430(5,413)

Revaluation reserve for land:
Amount incurred during
the fiscal year..........................
Reclassification adjustment..........
Prior to deducting tax effect....
Tax effect..............................
Total.....................................

—
—
—
626
626

—
—
—
—
—

—
—
—
5,211
5,211

Defined retirement benefit plans:
Amount incurred during
the fiscal year..........................
Reclassification adjustment..........
Prior to deducting tax effect....
Tax effect..............................
Total.....................................

6,863
6,177
13,041(4,489)
8,551

—
—
—
—
—

57,11751,405
108,522(37,364)
71,158

61
(10)
51
(4)
46

725
(192)
533
(243)
290

¥ 8,795$401,833

29. Leases(1) Finance lease transactions(Lessee)
The Group leases ATMs, computer equipment, software and otherassets.
(2) Operating lease transactions(Lessee)
The minimum rental commitments under noncancelable operatingleases as of March 31, 2015 and 2014 are as follows:46

Hokuhoku Financial Group, Inc. Annual Report 2015

Within one year..............................
Over one year.................................
Total..............................................

¥2
2
¥5

¥2
5
¥7

Thousands of
U.S. dollars
2015

$21
23
$44

30. Financial Instruments and Related Disclosures

Deferred gains (losses) on hedges:
Amount incurred during
the fiscal year...........................
Reclassification adjustment..........
Prior to deducting tax effect....
Tax effect.............................
Total.....................................

Share of other comprehensive
income of associates accounted
for using the equity method:Amount incurred during
the fiscal year.............................
87
Reclassification adjustment..........
(23)
Prior to deducting tax effect....
64
Tax effect..............................
(29)
34
Total.....................................
Total othercomprehensive income ............... ¥48,288

Millions of yen
2015
2014

(1) Group policy on financial instruments
The Group provides a wide variety of financial services, centered onbanking services such as deposit-taking and lending.
Our lending activities are aimed at achieving co-prosperity withthe regional economy and we endeavor to manage our lending in asound and appropriate manner, while simultaneously working tostrengthen credit risk management.
Investments in securities are strictly managed based on theGroup’s risk management policies and regulations. Regarding deposit-taking operations, the Group aims to ensure stable fundraising by the expansion and upgrading of financial services for all customers in the region. Borrowed money and corporate bonds areused mainly for medium- to long-term fundraising.
Given the different term structures of the Group’s financial assets suchas loans and financial liabilities such as deposits, the Group is exposed tointerest-rate fluctuation risk in the financial markets. For this reason, theGroup conducts comprehensive asset liability management (“ALM”) toappropriately control such market risk and ensure stable earnings.
(2) Nature and extent of risks arising from financial instruments
The financial assets held by the Group consist primary of securities
and loans to domestic customers. Loans are subject to credit risks
that could cause financial loss to the Group, such as declines orlosses in asset value resulting from a possible deterioration in thefinancial condition of borrowers. With regard to securities, theGroup is exposed to the credit risk of issuers, interest-rate risk, andmarket price volatility risk. However, the Group takes adequate
steps to mitigate these risks.
Financial liabilities, including deposits and borrowed money, areexposed to liquidity risk arising from the possibility that the Groupmay be obliged to procure funds at interest rates significantly higher
than normal owing to a sudden change in the market environment
or a deterioration in the Group’s financial position.
The Banks make use of currency-related derivatives such as
currency swaps, forward exchange contracts, and currency options, as well as interest-related derivatives such as interest-rate
swaps, interest-rate futures, and interest-rate caps, to meet the
ALM needs of the Banks as well as the various needs of the Banks’customers. These derivatives are exposed to the following risks
among others: interest-rate risk, the risk of exchange rate fluctuations, price volatility risk, and credit risk.
However, none of the Group’s financial assets and liabilities areattended by notably high risk levels, nor do they include any particular derivatives with high market price volatility.
The Hokuriku Bank, Ltd. applies hedge accounting to hedge thevalue of some of its assets and liabilities against interest-rate fluctuations. When applying hedge accounting, the Hokuriku Bank, Ltd.
adopts integrated management in both hedging instruments andhedged items as long as hedging is managed and evaluates theeffectiveness of the hedges.

(3) Risk management for financial instruments
The Banks have established risk management departments andhave stipulated basic regulations for risk management and otherregulations pertaining to risk. In addition, the Banks have established an ALM Committee and a Comprehensive Risk Management
Committee, where qualified risks and administration matters are
discussed regularly to ensure that all categories of risk are managed
effectively. Changes in regulations and organizational structures of
the Banks are revised or supervised by the Company to ensure
conformance to the Group’s policies and the results of the above
committees are reported to the Company.
(a) Credit Risk Management
The Group’s fundamental policy is to strive for improved earnings
and ensure sound business operations through the appropriate
management of credit risk. In line with this policy, the Company andthe Banks collaborated in establishing various regulations, including
Credit Risk Management Regulations, and also ensuring the effec-

swaps and interest-rate caps are employed from an ALM perspective so that the Banks reduce interest rate risk by hedging againstinterest rate fluctuations.
Foreign Exchange Risk Management
Using measures such as currency swaps to reduce foreign exchange risk, the Banks manage exchange risk arising from fluctuations in foreign exchange rates that affect the values of assets andliabilities denominated in foreign currencies.
Price Volatility Risk Management
Regarding investments in instruments such as securities, the Banks
carry out prior screening and set investment ceilings, and then constantly monitor the investment status to minimize price volatility risk.
Every process above has to be strictly managed under the supervision of the Banks’ Board of Directors and to be in line with policies
laid down by Management Committees. A high percentage of thestocks held by the Banks are acquired and held for long-term strategic purposes. The Banks monitor the market conditions and fi-tive operation of internal checking functions by separating businesspromotion departments from credit risk management departments.
Rigorous screening is also conducted and credit ratings are granted
based on their Credit Policy. Additionally, the setting of credit limits
is managed on an individual customer basis to avoid the risk of an
overconcentration of loans in particular sectors. Finally, the Banks
carry out self-assessment and credit risk quantification procedures
and the risk situation is regularly reported to the Banks’ Board of
Directors.
As for the loan screening process of the Banks, the branches
concerned carefully analyze each separate loan application andscreen each customer involved. In the event that the decision exceeds the limits of authority of the branch manager, the appropriate
loan screening departments at the headquarters of the Banks carryout their own analysis and screening. Specialized staff members inplace within the screening departments are responsible for particular industries and geographical areas. These specialists provide theappropriate advice and guidance to the branches based on the particular features of the customer.
Concerning the creditworthiness of security issuers and counterparty risk in derivative transactions, credit information and thestate of transactions are regularly monitored and managed by therisk management departments of the Banks.
(b) Market Risk Management
Having stipulated regulations such as Market Risk Management
Regulations and an arranged organizational structure including ALM
and other committees, the Banks appropriately control market risk
associated with lending and deposit-taking in order to ensure stableearnings.
Interest Rate Risk Management
The risk management departments of the Banks regularly and comprehensively monitor the interest rates and time-frames involved in
the Banks’ financial assets and liabilities and monitor interest risk
levels through methods such as gap analysis and sensitivity analysis
of interest rates, based on the Banks’ Interest Rate Risk
Management Regulations and other related regulations where themethods and procedures to be employed for risk management aredescribed in detail.
The Banks set ceiling amounts for each type of interest rate risk
to control such risk appropriately. Derivatives such as interest-ratenancial positions of the securities issuers. Value at Risk (“VaR”) andother methods are used to determine the amount of market risk foreach security held. The staff members of the responsible departments provide regular reports to the Banks’ Board of Directors andManagement Committees to confirm that price risk is controllable
and all rules pertaining to market risk management are being followed correctly.
Derivatives
The Banks arrange their organizational structures securing the separation and internal check-and-balance mechanisms among front
sections (specializing in market transactions), middle sections (engaging in risk management) and back sections (responsible forbook entries and settlements). Management sections confirm thevalidity of transactions, value the Banks’ daily derivative positions,and measure gains and losses as well as risk levels. Derivativetransactions are carefully managed in such a way that losses neverexceed a predetermined maximum.
Quantitative Information Related to Market Risk
Hokuriku Bank and Hokkaido Bank measure quantitative information related to market risk.
• Financial instruments in the trading accountIn calculating VaR for trading securities and a portion of currencyrelated and interest-related derivative transactions held in the
trading account, Hokuriku Bank adopts the historical simulation
method (a holding period of 1 business day, a confidence intervalof 99% and main observation period of 1,250 business days).
The market risk amounts (VaR) of the trading business of
Hokuriku Bank were ¥54 million ($449 thousand) and ¥17 million
as of March 31, 2015 and 2014, respectively.
Hokkaido Bank has no financial instruments in the trading­accounts.
• Financial instruments in the banking accountIn the Banks, the main financial instruments affected by interest
rate risk are “Monetary claims bought,” “Loans and bills dis­counted,” “Bonds,” “Deposits,” “Borrowed money,” and transactions of interest rate swaps, interest swaptions and interest rate
caps held in derivative transactions. The main financial instruments affected by market value are listed stocks and investment
trust. The Banks use VaR for integrated management of these­financial instruments.

Hokuhoku Financial Group, Inc. Annual Report 201547

For calculating VaR, the Banks adopt the historical simulation
method (a holding period of 120 business days, a confidence interval of 99% and main observation period of 1,250 businessdays) and consider the correlations between interest and the fluctuation of prices of the listed stocks. In addition, Hokkaido Bank
has set a holding period of 10 business days for trading accountsecurities (including public bonds traded over the counter) and forspecified fund trust as investment securities. Hokkaido Bank also
considers the correlation between interest rates and the fluctuation of prices of the listed stocks in calculating VaR of specified
fund trust as investment securities.
Hokuriku Bank’s VaR of the financial instruments in the banking account was ¥30,894 million ($257,086 thousand) and¥30,730 million as of March 31, 2015 and 2014, respectively.
Hokkaido Bank’s VaR of the financial instruments in the banking
account was ¥16,081 million ($133,819 thousand) and ¥27,929
million as of March 31, 2015 and 2014, respectively. Hokkaido
Bank’s trading account securities totaled ¥10 million ($83 thousand) and ¥8 million as of March 31, 2015 and 2014, respectively.
Hokkaido Bank’s specified fund trust totaled ¥9 million ($75 thousand) and ¥5 million as of March 31, 2015 and 2014, respectively.
The Banks perform back testing of the VaR measurement
model at fixed intervals. VaR measures the amount of market risk
by certain occurrence probabilities that are statistically calculated
based on past markets movements. Therefore, there are cases inwhich VaR cannot capture risk under sudden and dramaticchanges in markets beyond normal circumstances.
VaR shows the maximum loss during the holding period of thefinancial instruments under the confidence interval (99%) that is
statistically calculated based on past market movements. In particular, the Banks calculate 100BPV (100 Basis Point Value), as
supplements, of the assets and liabilities and change in their present value on the assumption that index interest rate rises by
1.00%.
Hokuriku Bank’s 100BPV was a ¥14,039 million decrease($116,826 thousand decrease) and a ¥21,180 million decrease asof March 31, 2015 and 2014, respectively. Hokkaido Bank’s
100BPV was a ¥22,724 million decrease ($189,099 thousand decrease) and a ¥18,116 million decrease as of March 31, 2015 and2014, respectively.
For calculating 100BPV, the correlations between interest
rates and the other parameters are not considered because the
100BPV is measured on the assumption that risk parameters except interest rate remain unchanged. Actual risk can exceed thecalculated 100BPV in the case of a drastic change in interest rates
beyond reasonable prior expectations occur.
(c) Liquidity Risk Management
In accordance with the Banks’ rules for management of liquidity
risk, the Banks form an accurate appraisal of fund operations andprocurement, and take measures to ensure smooth cash flows.
Specifically, the Banks set benchmarks in various different categories to check liquidity risk on a daily basis, and maintain adequatelevels of high-liquidity assets that are readily convertible into cash,
such as government bonds.
We have in place mechanisms for periodically assessing andmanaging liquidity risk through ALM committees, to prepare for every possible scenario.
48

Hokuhoku Financial Group, Inc. Annual Report 2015(4) ‌Supplementary explanation relating to fair values of­financial instruments
The fair values of financial instruments include, in addition to values
determined based on market prices, valuations calculated on a­reasonable basis if no market prices are available. Certain assumptions are used in the calculations of such amounts. Accordingly, theresult of such calculations may vary if different assumptions areused.
(5) Fair value of financial instruments
The fair values of the main financial instruments at March 31, 2015
and 2014 are as follows. These amounts do not include unlisted
stocks whose fair values are extremely difficult to determine (see(b) Financial instruments whose fair values are deemed to be­extremely difficult to determine).
(a) Fair value of financial instruments
Millions of yen
March 31, 2015

Carrying
amountFair value

Unrealized gain
(loss)Cash and due from banks................ ¥ 1,210,607 ¥ 1,210,605
Call loans and bills bought...............
94,59994,599
Monetary claims bought *1..............
64,39064,390
Securities
Bonds classified as
held-to-maturity......................
158,199
165,775
Available-for-sale securities........ 2,305,207
2,305,207
Loans and bills discounted............... 7,546,819
Allowance for loan losses *1........
(52,601)
7,494,217
7,581,622
Total assets.................................... ¥11,327,222 ¥11,422,201¥     (2)——Deposits........................................ ¥10,627,748 ¥10,628,638
Borrowed money............................
125,680
126,923
Total liabilities................................. ¥10,753,428 ¥10,755,562

¥ 890
1,243
¥ 2,134

Derivative transactions *2
Derivative transactions not
qualifying for hedge accounting.... ¥     1,714 ¥     1,714
Derivative transactions qualifying(4,549)(4,549)for hedge accounting...............
Total derivative transactions............. ¥     (2,834) ¥     (2,834)

7,575
—

87,405¥94,978¥    ——*3¥    —

Millions of yen
March 31, 2014

Carrying
amountFair value

Unrealized gain
(loss)Cash and due from banks............... ¥   844,182 ¥   844,184
Call loans and bills bought..............
85,73485,734
Monetary claims bought *1.............
71,83571,835
Securities
Bonds classified as
147,090
150,576held-to-maturity......................
Available-for-sale securities....... 2,316,600
2,316,600
Loans and bills discounted............. 7,323,290
Allowance for loan losses *1.......
(56,601)
7,266,688
7,339,354
Total assets................................... ¥10,732,130 ¥10,808,285

72,666¥76,154

Deposits........................................ ¥10,147,805 ¥10,148,619
Borrowed money............................
121,797
123,913
Total liabilities................................ ¥10,269,602 ¥10,272,533¥   8142,116¥ 2,930

Derivative transactions *2
Derivative transactions not
qualifying for hedge accounting.... ¥     3,733 ¥     3,733
Derivative transactions qualifying(1,654)(1,654)for hedge accounting..............
Total derivative transactions............ ¥     2,079 ¥     2,079

March 31, 2015

Carrying
amount¥    1——3,486—¥    ——*3¥    —

Thousands of U.S. dollars
Unrealized gain
Fair value(loss)Cash and due from banks................ $10,074,122 $10,074,104
Call loans and bills bought...............
787,215
787,215
Monetary claims bought *1.............
535,829535,829
Securities
Bonds classified as
held-to-maturity...................... 1,316,467
1,379,508
Available-for-sale securities........ 19,182,889 19,182,889
Loans and bills discounted............... 62,801,192
Allowance for loan losses *1........
(437,725)
62,363,467 63,090,812
Total assets.................................... $94,259,989 $95,050,357$     (18)——

Deposits........................................ $88,439,280 $88,446,692
Borrowed money............................ 1,045,852
1,056,199
Total liabilities................................. $89,485,132 $89,502,891$ 7,412
10,347$ 17,759

63,041—

727,345$790,368

Derivative transactions *2
Derivative transactions not
qualifying for hedge accounting.... $    14,265 $    14,265 $     —Derivative transactions qualifying(37,855)(37,855)—*3for hedge accounting...............
$    (23,590)$     (23,590)$     —
Total derivative transactions.............
*1. ‌
Allowance for loan losses shown in this table represents the general­allowance and specific allowance for loan losses. Figures for allowance
for loan losses on monetary claims bought are directly deducted fromthe balance of monetary claims bought as the amount concerned is­insignificant.
*2. ‌Derivative transactions included in trading assets and liabilities and otherassets and liabilities are shown together. Assets and liabilities arising fromderivative transactions are shown within parentheses with respect to net
liabilities.
*3. ‌As interest-rate swaps subject to exceptional treatment are accounted
for together with the loans being hedged by the swaps, their fair value isincluded in the loans in question on the consolidated balance sheet.

Cash and due from banks
The fair values of due from banks with no maturity are considered tobe equal to the book value since the fair values of these items approximate their book values. The fair values of due from banks withmaturity are calculated using the total cash flows from principal andinterest discounted by current market interest rates, taking into account the credit risk involved. This calculation is performed separately for each maturity length. In the event that the terms of duefrom banks are one year or less, the book values are regarded as
approximate to the fair values and are therefore treated as such.
Call loans and bills bought
The fair values of call loans and bills bought are considered to beequal to the book value since the contractual terms are one year orless and fair values of these items approximate their book values.
Monetary claims bought
The fair values of trust beneficiary rights relating to mortgage loans
purchased by the Banks and relating to loan claims are determinedbased on the quoted prices obtained from counterparty financial
institutions. The fair values of small-lot monetary claims resulting
from asset liquidations are determined by discounting the cash
flows at the market interest rates, taking into account the credit risk
involved.
Securities
The fair values of stocks are calculated on the basis of the average
price of the stocks on the stock market for the one-month period
immediately preceding the last day of the accounting term. The fairvalues of bonds are calculated using the price indicated on the securities market or other officially announced prices. In the event thatneither of these fair values are available, the price is based on areasonable estimate. For investment trusts, the fair value is calculated on the basis of a publicly available benchmark price.
For privately-placed bonds guaranteed by one of the Banks, thepresent value is separately calculated using the present value discounted by the market interest rate where the credit risk of eachbond issuer and the remaining period of the bonds are considered.
For more detailed information regarding the different types of
securities classified according to holding purpose, see “6.
Securities.”
Loans and bills discounted
As loans with variable interest rates reflect short-term market interest rates, the fair value will approximate the book value unless thecreditworthiness of the borrower changes subsequent to the grading of the loan. Because of this, the book value is employed as thefair value.
For loans with fixed interest rates, the fair value is calculated using the total future cash flows from principal and interest discounted
by current market interest rates, taking into account the credit risk
involved. This calculation is performed separately for each different
category of loans, classified by type of loan, internal credit ratingsand maturity length. For loans whose repayment period is one year
or less, the book value is a close approximation of the fair value andis therefore employed as such.
Regarding the fair value of claims on bankrupt borrowers, substantially bankrupt borrowers, and potentially bankrupt borrowers,
credit losses are estimated based on the present value of estimatedfuture cash flows or the estimated value recoverable from collateraland guarantees. Since the fair value approximates the value stated

Hokuhoku Financial Group, Inc. Annual Report 201549

on the consolidated balance sheet as of the settlement date, minus
the present value of estimated bad debt, this figure is treated as thefair value.
For the category of loans whose maturity is not fixed because of
the loan ceiling set within the estimated value recoverable from thecollateral, the book value is deemed to approximate the fair value
because of the expected period for repayment and the interest
rates applied. The book value is therefore employed as the fair value.
Deposits
For demand deposits, the amount payable on demand as of theconsolidated balance sheet date (i.e., the carrying amount) is considered to be the fair value. In addition, the fair value of time deposits is calculated by discounting the estimated future cash flows foreach of the specified periods. This calculation is performed separately as per the remaining maturity of time deposits. The discountrate employed is the interest rate that would be applied to newly

terms. For loans whose repayment period is one year or less, thebook value is deemed to approximate the fair value and is therefore
treated as such.
Derivative transactions
Derivative transactions include interest rate-related transactions (futures, options, swaps and others), foreign exchange-related transactions (futures, options, swaps and others) and commodity-relatedtransactions and are based on the prices on securities exchanges,
discounted value of future cash flows, option pricing models andothers.
(b) ‌Financial instruments whose fair values are deemed to be
extremely difficult to determine
Financial instruments whose fair values are deemed to be extremely
difficult to determine are indicated below, and are not included in“Monetary claims bought” and “Available-for-sale securities” in thefair value information of financial instruments.

accepted deposits. In the event that the deposit term is one year or
less, the book value is deemed to approximate the fair value and istherefore treated as such.
Borrowed money
Borrowed money with floating interest rates reflects market interest
rates and because the credit standing of the Company and its consolidated subsidiaries has changed little since taking out suchloans, the book value is deemed to approximate the fair value andis therefore treated as such.
For money borrowed through loans carrying fixed rates, the current value of such loans is determined by discounting the total of
their principal plus interest (separately for each specific period) at
the rate currently applied to other loans of the same duration andConsolidated balance sheet amounts
Millions of yen
2015
2014

March 31

Monetary claims bought(subordinated beneficiaryrights in securitization ofmortgage loans) *1.......................
Unlisted stocks *1, 2........................
Unlisted foreign securities *1...........
Total..............................................

¥ 8,132
30,193
0¥38,326¥ 8,325
29,9290¥38,255

Thousands of
U.S. dollars
2015$ 67,671
251,2593$318,933*1. ‌These items are excluded from “fair value information of financial instruments” on the basis that no market price is available and a determinationof the fair value would be extremely difficult.
*2. ‌Unlisted stocks were written down by ¥32 million ($267 thousand) and¥22 million as of March 31, 2015 and 2014, respectively.

(6) Maturity analysis for financial assets and securities with contractual maturities

50

March 31, 2015

Due in 1 year
or less

Due after 1 year
through 3 years

Millions of yen
Due after 3 years
through 5 years

Due after 5 years
through 7 years

Due after
7 years

Due from banks................................................................................
Call loans and bills bought.................................................................
Monetary claims bought....................................................................
Securities.........................................................................................
Bonds classified as held-to-maturity..............................................
Japanese government bonds....................................................
Japanese corporate bonds.......................................................
Available-for-sale securities with maturities...................................
Japanese government bonds....................................................
Japanese local government bonds............................................
Japanese corporate bonds.......................................................
Other......................................................................................
Loans and bills discounted................................................................
Total.................................................................................................

¥1,083,655
94,5991,778
289,325
17,396
1,520
15,876
271,929
93,600100,258
60,83017,2392,210,851¥3,680,210¥      ——
—619,632
37,7003,500
34,200581,932
375,900
87,45066,856
51,725
1,473,159¥2,092,792¥      —
—400682,734
35,8233,000
32,823646,911364,900
145,177
36,630100,202
973,098¥1,656,233¥      —
—7,210351,873
5,784
2,520
3,264
346,089
288,400
36,83910,882
9,966
649,796¥1,008,879¥      —
—54,788226,172
61,81561,500315
164,357
55,00019,33564,852
25,1692,047,566¥2,328,526

Hokuhoku Financial Group, Inc. Annual Report 2015

March 31, 2014

Due in 1 year
or less

Due after 1 year
through 3 years

Millions of yen
Due after 3 years
through 5 years

Due after 5 years
through 7 years

Due after
7 years

Due from banks................................................................................
Call loans and bills bought.................................................................
Monetary claims bought....................................................................
Securities.........................................................................................
Bonds classified as held-to-maturity..............................................
Japanese government bonds....................................................
Japanese corporate bonds.......................................................
Available-for-sale securities with maturities...................................
Japanese government bonds....................................................
Japanese local government bonds............................................
Japanese corporate bonds.......................................................
Other......................................................................................
Loans and bills discounted................................................................
Total.................................................................................................

¥  713,434
85,734
1,872
190,170
19,0697,000
12,069171,101
65,00061,57438,925
5,602
2,055,024¥3,046,235¥    4,000——
643,701
28,138
4,020
24,118615,563333,100
136,942
101,952
43,5691,481,807¥2,129,508¥      ——
—465,295
31,5122,500
29,012433,783
269,100
93,91941,39929,364
1,008,910¥1,474,205¥      —
—3,056553,716
6,627
2,520
4,107
547,089
437,800
92,113
13,9003,276
620,555¥1,177,328¥      —
—66,649370,396
61,85061,500350
308,546
205,500
22,462
68,027
12,556
1,954,943¥2,391,988

March 31, 2015

Due in 1 year
or less

Due after 1 year
through 3 years

Due from banks................................................................................
Call loans and bills bought.................................................................
Monetary claims bought....................................................................
Securities.........................................................................................
Bonds classified as held-to-maturity..............................................
Japanese government bonds....................................................
Japanese corporate bonds.......................................................
Available-for-sale securities with maturities...................................
Japanese government bonds....................................................
Japanese local government bonds............................................
Japanese corporate bonds.......................................................
Other......................................................................................
Loans and bills discounted................................................................
Total.................................................................................................

$ 9,017,690
787,215
14,8002,407,634
144,762
12,649132,1132,262,872
778,897
834,309506,207
143,459
18,397,698$30,625,037$       ——
—5,156,300
313,722
29,125284,597
4,842,578
3,128,068
727,723556,348
430,439
12,258,962$17,415,262

Thousands of U.S. dollars
Due after 3 years
Due after 5 years
through 5 years
through 7 years$       —
—3,3285,681,410
298,103
24,965273,138
5,383,307
3,036,534
1,208,105
304,826
833,842
8,097,684$13,782,422$      —
—60,0002,928,129
48,132
20,97027,1622,879,997
2,399,933
306,565
90,56082,9395,407,307$8,395,436

Due after
7 years$       —
—455,921
1,882,102
514,396
511,775
2,621
1,367,706
457,685
160,900
539,670
209,451
17,038,917$19,376,940

Loans and bills discounted
Claims on bankrupt borrowers, substantially bankrupt borrowers, and potentially bankrupt borrowers amounted to ¥159,752 million($1,329,388 thousand) and ¥167,492 million as of March 31, 2015 and 2014, respectively, and loans with no contractual maturities amounted
to ¥32,594 million ($271,237 thousand) and ¥34,555 million as of March 31, 2015 and 2014, respectively. They are not included in the table
above.
(7) Maturity analysis for financial liabilities with contractual maturities

March 31, 2015

Due in 1 year
or less

Due after 1 year
through 3 years

Millions of yen
Due after 3 years
through 5 years

Due after 5 years
through 7 years

Due after
7 years

Deposits...........................................................................................
Borrowed money...............................................................................
Total.................................................................................................

¥9,363,586
24,156¥9,387,743¥1,064,416
703¥1,065,119¥191,418
30,320¥221,738¥ 3,124
55,500¥58,624¥ 5,202
15,000¥20,202

March 31, 2014

Due in 1 year
or less

Due after 1 year
through 3 years

Millions of yen
Due after 3 years
through 5 years

Due after 5 years
through 7 years

Due after
7 years

Deposits...........................................................................................
Borrowed money...............................................................................
Total.................................................................................................

¥8,766,223
20,150¥8,786,373¥1,096,413
784¥1,097,197¥277,865
362¥278,228¥ 2,586
61,000¥63,586¥ 4,71739,500¥44,217

March 31, 2015

Due in 1 year
or less

Due after 1 year
through 3 years

Deposits...........................................................................................
Borrowed money...............................................................................
Total.................................................................................................

$77,919,501
201,021$78,120,522$8,857,590
5,853$8,863,443

Thousands of U.S. dollars
Due after 3 years
Due after 5 years
through 5 years
through 7 years$1,592,897
252,309$1,845,206$ 25,997
461,846$487,843

Due after
7 years$ 43,295
124,823$168,118

Deposits
Demand deposits are included in “Due in 1 year or less.”
Hokuhoku Financial Group, Inc. Annual Report 201551

31. Derivatives(1) Derivative transactions to which hedge accounting is not appliedWith respect to derivatives to which hedge accounting is not applied, notional principal or contract amount, fair value at the balance sheet dateby transaction type and related unrealized gain or loss and computation method of fair value are as follows. Note that contract amounts do
not represent the market risk exposure of derivative transactions.
• Interest Rate-Related Transactions

March 31, 2015

Millions of yen
Notional principal or contract amountTotal
Due after 1 year
Fair value

Over-the-counter transactions
Swaps
Receive/fixed and pay/floating................................................................................
Receive/floating and pay/fixed................................................................................
Options/sell...............................................................................................................
Options/buy...............................................................................................................
Others/sell.................................................................................................................
Others/buy................................................................................................................
Total..............................................................................................................................

¥367,101
370,082
194,848
198,575427
2/March 31, 2014

Millions of yen
Notional principal or contract amountTotal
Due after 1 year
Fair value

Over-the-counter transactions
Swaps
Receive/fixed and pay/floating................................................................................
Receive/floating and pay/fixed................................................................................
Options/sell...............................................................................................................
Options/buy...............................................................................................................
Others/sell.................................................................................................................
Others/buy................................................................................................................
Total..............................................................................................................................

¥517,383
520,067
280,217285,9141,923
12/March 31, 2015

Thousands of U.S. dollars
Notional principal or contract amountTotal
Due after 1 year
Fair value

Over-the-counter transactions
Swaps
Receive/fixed and pay/floating................................................................................
Receive/floating and pay/fixed................................................................................
Options/sell...............................................................................................................
Options/buy...............................................................................................................
Others/sell.................................................................................................................
Others/buy................................................................................................................
Total..............................................................................................................................

$3,054,851
3,079,654
1,621,436
1,652,457
3,558
21
/

¥339,965
339,563
91,382
91,95190—/¥471,044
473,475
126,822
127,153707
12/$2,829,035
2,825,693
760,439
765,175
750—/¥6,609(3,830)(1,239)1,258(0)
0¥2,798¥9,346(5,776)(2,978)2,982(0)
0¥ 3,573$55,000(31,874)(10,311)
10,471(1)
0$23,285

Unrealized gain (loss)¥6,609(3,830)
336
1,258
45
(4)
¥4,414

Unrealized gain (loss)¥9,346(5,776)
(799)
2,982
103
(4)
¥ 5,851

Unrealized gain (loss)$55,000(31,874)
2,797
10,471381(38)$36,737

Notes: ‌1. The above transactions are stated at fair value and unrealized gain or loss is charged to income or expenses in the consolidated statement of income.
2. The fair value is determined using the discounted value of future cash flows, option pricing models, etc.

• Foreign Exchange-Related Transactions

52

March 31, 2015

Millions of yen
Notional principal or contract amountTotal
Due after 1 year
Fair value

Over-the-counter transactions
Swaps.......................................................................................................................
Forward contracts/sell................................................................................................
Forward contracts/buy................................................................................................
Options/sell...............................................................................................................
Options/buy...............................................................................................................
Total.............................................................................................................................

¥  1,074
68,22812,738
175,151
175,151/

Hokuhoku Financial Group, Inc. Annual Report 2015¥     43—
28
109,574
109,574/¥    2(1,221)
117(6,898)
6,898¥(1,101)

Unrealized gain (loss)¥    2(1,221)
117
9,620(7,997)¥  521

March 31, 2014

Millions of yen
Notional principal or contract amountTotal
Due after 1 year
Fair value

Over-the-counter transactions
Swaps.......................................................................................................................
Forward contracts/sell................................................................................................
Forward contracts/buy................................................................................................
Options/sell...............................................................................................................
Options/buy...............................................................................................................
Total.............................................................................................................................

¥  5,203
20,091
11,380250,439
250,439/

March 31, 2015

Thousands of U.S. dollars
Notional principal or contract amountTotal
Due after 1 year
Fair value

Over-the-counter transactions
Swaps.......................................................................................................................
Forward contracts/sell................................................................................................
Forward contracts/buy................................................................................................
Options/sell...............................................................................................................
Options/buy...............................................................................................................
Total.............................................................................................................................

$    8,942
567,767
106,003
1,467,531
1,457,531/¥    990
54
72
172,141
172,141/$    365—241
911,833
911,833/¥      7(236)347
(10,130)
10,130¥    118$    22(10,161)
975(57,408)
57,407$ (9,165)

Unrealized gain (loss)¥     7(236)
347
16,304(13,431)¥ 2,992

Unrealized gain (loss)$    22(10,161)
975
80,060(66,554)$  4,342

Notes: ‌1. The above transactions are stated at fair value and unrealized gain or loss is charged to income or expenses in the consolidated statement of income.
2. The fair value is determined using the discounted value of future cash flows.

• Commodity Related Transactions

March 31, 2015

Over-the-counter transactions
Swaps
Receive/fixed and pay/floating................................................................................
Receive/floating and pay/fixed................................................................................
Total..............................................................................................................................

March 31, 2014

Over-the-counter transactions
Swaps
Receive/fixed and pay/floating................................................................................
Receive/floating and pay/fixed................................................................................
Total..............................................................................................................................

March 31, 2015

Over-the-counter transactions
Swaps
Receive/fixed and pay/floating................................................................................
Receive/floating and pay/fixed................................................................................
Total..............................................................................................................................

Millions of yen
Notional principal or contract amountTotal
Due after 1 year
Fair value

¥340
340
/

¥295
295
/

¥(13)
30
¥ 17

Millions of yen
Notional principal or contract amountTotal
Due after 1 year
Fair value

¥749
749
/

¥519
519
/

¥(28)
68
¥ 40

Thousands of U.S. dollars
Notional principal or contract amountTotal
Due after 1 year
Fair value$2,8342,834/$2,4592,459/$(111)
257$ 146

Unrealized gain (loss)

¥(13)
30
¥ 17

Unrealized gain (loss)

¥(28)
68
¥ 40

Unrealized gain (loss)$(111)
257$ 146

Notes: ‌1. The above transactions are stated at fair value and unrealized gain or loss is charged to income or expenses in the consolidated statement of income.
2. The fair value is determined using the price of the underlying asset, terms of contract and other factors which structure the contract.
3. The above derivative transactions consist of those for oil, copper, aluminum, etc.

Hokuhoku Financial Group, Inc. Annual Report 201553

(2) Derivative transactions to which hedge accounting is appliedWith respect to derivatives to which hedge accounting is applied, notional principal or contract amount and fair value at the balance sheet dateby transaction type and hedge accounting method and computation method of the fair value are as follows. Note that contract amounts do
not represent the market risk exposure of derivative transactions.
• Interest Rate-Related Transactions
March 31, 2015
Hedge accounting method

Type

Hedged item

Swaps
Yen-based bondReceive/floating and pay/fixed
Swaps
Loans and bills discounted
Exceptional treatment forinterest swaps
Receive/floating and pay/fixed
Total.........................................................................................................................................................

Accounting method
employed in principle

March 31, 2014
Hedge accounting method

Type

Hedged item

Swaps
Yen-based bondReceive/floating and pay/fixed
Swaps
Loans and bills discounted
Exceptional treatment forinterest swaps
Receive/floating and pay/fixed
Total.........................................................................................................................................................

Accounting method
employed in principle

March 31, 2015
Hedge accounting method

Type

Hedged item

Swaps
Yen-based bondReceive/floating and pay/fixed
Swaps
Loans and bills discounted
Exceptional treatment forinterest swaps
Receive/floating and pay/fixed
Total.........................................................................................................................................................

Accounting method
employed in principle

Millions of yen
Notional principal or contract amountTotal
Due after 1 year

Fair value¥55,000¥55,000¥(1,200)

5,061
/

773
/

(Note)¥(1,200)

Millions of yen
Notional principal or contract amountTotal
Due after 1 year

Fair value¥50,000¥50,000¥(379)

15,934/

12,934/(Note)¥(379)

Thousands of U.S. dollars
Notional principal or contract amountTotal
Due after 1 year

Fair value$457,685$457,685$(9,988)

42,116/6,437/(Note)$(9,988)

Notes: 1. Deferred hedge accounting is mainly applied in accordance with JICPA Industry Audit Committee Report No. 24.
2. The fair value is determined using the discounted value of future cash flows, option pricing models, etc.
3. ‌Amounts resulting from interest swaps with exceptional treatment are accounted for together with the financial instruments hedged. As a result, the fairvalue is included in the fair value of the loans stated in “30. Financial Instruments and Related Disclosures.”• Foreign Exchange-Related Transactions
March 31, 2015
Hedge accounting method

Type

Hedged item

Foreign loans and foreignSwaps
securities
Accounting method
employed in principle
Call loans and due from banks
Forward contracts(foreign currencies)
Total.........................................................................................................................................................
March 31, 2014

Millions of yen
Notional principal or contract amountTotal
Due after 1 year

Fair value¥ 14,781¥14,652¥(1,296)

76,601/—/(2,052)¥(3,348)

Millions of yen
Notional principal or contract amountTotal
Due after 1 year

Fair value

Foreign loans
Accounting method
Call loans and due from banks
employed in principle
Forward contracts(foreign currencies)
Total.........................................................................................................................................................

¥    630¥630¥   (76)

119,469/—/(1,198)¥(1,274)

March 31, 2015

Thousands of U.S. dollars
Notional principal or contract amountTotal
Due after 1 year

Fair value$ 123,008$121,931$(10,791)

637,439/—/(17,076)$(27,867)

Hedge accounting method

Type

Hedged item

Swaps

Hedge accounting method

Type

Hedged item

Foreign loans and foreignSwaps
securities
Accounting method
employed in principle
Call loans and due from banks
Forward contracts(foreign currencies)
Total.........................................................................................................................................................

Notes: 1. Deferred hedge accounting is mainly applied in accordance with JICPA Industry Audit Committee Report No. 25.
2. The fair value is determined using the discounted value of future cash flows.

54

Hokuhoku Financial Group, Inc. Annual Report 2015

32. Segment Information
An entity is required to report financial and descriptive information about its reportable segments. Reportable segments are operating ­segments
or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which separate
financial information is available and such information is evaluated regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance. Generally, segment information is required to be reported on the same basis as is used internally forevaluating operating segment performance and deciding how to allocate resources to operating segments.
(1) Outline of reportable segments
A reportable segment is defined as an operating segment for which discrete financial information is available and examined by the Board of
Directors and Management Committees regularly in order to make decisions about resources to be allocated to the segment and assess its
performance.
The Group comprehensively conducts banking business as its core business and other financial services under the control of the Company.
The Company recognized each of its consolidated subsidiaries as an operating segment. Therefore, Hokuriku Bank and Hokkaido Bank
are reportable segments.
(2) Method of calculating ordinary income, profit (loss), assets, liabilities and other amounts by reportable segments
The method of calculation applied to the reportable segments is the same as that described in “Significant Accounting Policies.” Profits ofreportable segments are the same as net income. Ordinary income from intersegment transactions is based on transaction prices determinedin the same manner as ordinary income from outside customers.
(3) Information on ordinary income, profit (loss), assets, liabilities and other amounts by reportable segments
Segment results for the years ended March 31, 2015 and 2014 are as follows:
Millions of yen
2015
Reportable segments
Hokuriku Bank Hokkaido Bank

Ordinary income
Ordinary income from outside customers.......................... ¥   92,974
Ordinary income from intersegment transactions...............
1,073
Total....................................................................................
94,047
Segment profit.....................................................................
14,680
Segment assets................................................................... 6,712,709
Segment liabilities................................................................ ¥6,386,844
OthersDepreciation.................................................................... ¥    4,515
Amortization of goodwill...................................................
—
Unamortized balance of goodwill.......................................
—
Increase in tangible fixed assets and intangible
fixed assets ................................................................. ¥    3,567

Othersegment

Total¥   84,477 ¥   177,452
932
2,005
85,410179,458
13,57328,253
4,915,851 11,628,561¥4,709,393 ¥11,096,238¥16,479
4,993
21,472
2,858
79,609¥63,447¥   193,932
6,998
200,930
31,111
11,708,171¥11,159,685¥      4 ¥   193,936(6,998)—(6,993)
193,936(2,876)28,235(25,170) 11,683,001¥ (49,671) ¥11,110,014¥    3,480 ¥     7,995————¥   274——¥     8,269——¥     20
2,102
19,796¥ 8,290
2,102
19,796¥    1,493 ¥     5,061¥   212¥     5,273¥      4¥     5,278

Othersegment

Total

Reconciliation

Consolidated¥   79,723 ¥   176,501
482
1,501
80,206
178,003
9,693
27,5274,599,042 11,059,414¥4,415,948 ¥10,585,970¥16,263
5,207
21,471
2,465
79,765¥66,072¥   192,765
6,709
199,474
29,992
11,139,179¥10,652,043¥   (1,798) ¥   190,966(6,709)—(8,508)
190,966(2,660)27,332(24,372) 11,114,807¥ (42,361) ¥10,609,681¥    3,720 ¥     8,219————¥   301——¥     8,520——¥     43
2,102
21,898¥    2,245 ¥     4,957¥   103¥     5,061¥      (1) ¥     5,059

Subtotal

Reconciliation

Consolidated

Millions of yen
2014
Reportable segments
Hokuriku Bank Hokkaido Bank

Ordinary income
Ordinary income from outside customers.......................... ¥   96,777
Ordinary income from intersegment transactions...............
1,019
Total....................................................................................
97,797
Segment profit.....................................................................
17,833
Segment assets................................................................... 6,460,371
Segment liabilities................................................................ ¥6,170,022
OthersDepreciation.................................................................... ¥    4,499
Amortization of goodwill...................................................
—
Unamortized balance of goodwill.......................................
—
Increase in tangible fixed assets and intangible
fixed assets ................................................................. ¥    2,712

Subtotal¥     8,564
2,102
21,898

Hokuhoku Financial Group, Inc. Annual Report 201555

Thousands of U.S. dollars
2015
Reportable segments
Hokuriku Bank Hokkaido Bank

Other
segment

Total$137,135
41,550178,685
23,789662,476$527,983$ 1,613,815
58,238
1,672,053
258,899
97,430,067$92,865,822$     40 $ 1,613,855(58,238)—(58,198)
1,613,855(23,937)
234,962(209,454) 97,220,613$(413,346) $92,452,476$  2,286——$    68,819——$    171 $    68,990
17,494
17,494
164,736
164,736$  1,766$    43,881$     41 $    43,922

Subtotal

Ordinary income
Ordinary income from outside customers.......................... $   773,694 $   702,986 $ 1,476,680
Ordinary income from intersegment transactions...............
8,930
7,758
16,688
Total....................................................................................
782,624
710,744
1,493,368
Segment profit.....................................................................
122,161
112,949
235,110Segment assets................................................................... 55,860,115 40,907,476 96,767,591
Segment liabilities................................................................ $53,148,411 $39,189,428 $92,337,839
OthersDepreciation.................................................................... $    37,574 $    28,959 $    66,533
Amortization of goodwill...................................................
———
Unamortized balance of goodwill.......................................
———
Increase in tangible fixed assets and intangible
fixed assets .................................................................. $    29,690 $    12,425 $    42,115

Reconciliation

Consolidated

Because of the change of the accounting standard for retirement benefits, segment profit of Hokuriku Bank increased by ¥153 million ($1,279
thousand) and segment profit of Hokkaido Bank decreased by ¥6 million ($55 thousand) (see Note 2u. “Changes in Accounting Policies”).
(4) Information about services
Year ended March 31, 2015

Deposit andloan operations

Millions of yen
Investment
operations
Other

Ordinary income from outside customers.........................................................................

¥113,558¥38,777

Year ended March 31, 2014

Deposit andloan operations

Millions of yen
Investment
operations
Other

Ordinary income from outside customers ........................................................................

¥117,792¥30,298

Year ended March 31, 2015

Deposit andloan operations

Thousands of U.S. dollars
Investment
operations
Other

Ordinary income from outside customers.........................................................................

$944,978$322,685

Total¥41,601¥193,936
Total¥42,875¥190,966

Total$346,192$1,613,855(5) Geographic segment information
There is no geographic segment accounting for 10% or more of ordinary income.
(6) Information by major customer
There are no major customers individually accounting for 10% or more of ordinary income.

33. Related Party Transactions
Related party transactions as of March 31, 2015 and 2014 were as follows:• Officers and principal individual shareholders of the company submitting consolidated financial statements
March 31, 2015

Related party

Account Classification

Nakamura-tome Precision Industry co., ltd.*2
NAKAMURA-TOME HOLDING CO., LTD.*2

Loans and bills discounted
Loans and bills discounted

Transaction amount *3
Thousands ofMillions of yen
U.S. dollars

¥950
¥783

$7,905$6,516

Balance at end of year
Thousands ofMillions of yen
U.S. dollars

¥950
¥783

$7,905$6,516

March 31, 2014
Related party

Account Classification

Nakamura-tome Precision Industry co., ltd.*2
NAKAMURA-TOME HOLDING CO., LTD.*2

Loans and bills discounted
Loans and bills discounted

Transaction amount *3
Millions of yen

Balance at end of year
Millions of yen

¥950
¥783

¥950
¥783

Notes: 1. Terms and conditions of the transactions are similar to those with unrelated parties.
2. ‌A member of the Hokuriku Bank’s audit & supervisory board and his close relatives own the majority of the voting rights, and he is the president ofthese companies.
3. Transaction amount was reported at the average balance for the period.

34. Subsequent Event(1) Appropriations of retained earnings
The following appropriations of retained earnings at March 31, 2015 were approved at the Company’s general shareholders’ meeting held on
June 26, 2015:
Thousands ofCash dividends, ¥4.25 ($0.04) per share of common stock.......................................................................................................
Cash dividends, ¥7.50 ($0.06) per share of preferred stock (Type 5)..........................................................................................
56

Hokuhoku Financial Group, Inc. Annual Report 2015

Millions of yen

U.S. dollars¥5,694805$47,387
6,705

INDEPENDENT AUDITOR’S REPORT

Hokuhoku Financial Group, Inc. Annual Report 2015

57

NON-CONSOLIDATED FINANCIAL STATEMENTS

NON-CONSOLIDATED BALANCE SHEET (UNAUDITED)The Hokuriku Bank, Ltd.

2015

2014

Thousands of
U.S. dollars
2015

Millions of yen
March 31

AssetsCash and due from banks..................................................................................

¥  790,579¥  696,147$ 6,578,845

Call loans and bills bought..................................................................................

84,59985,734704,000

Monetary claims bought.....................................................................................

72,52280,160603,499

Trading assets....................................................................................................

2,475

3,169

20,598

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

1,275,498

1,238,326

10,614,122

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

4,365,302

4,227,696

36,326,063

Foreign exchanges.............................................................................................

9,133

7,172

76,001Other assets.......................................................................................................

17,69024,065147,212

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

78,10978,867649,990

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

4,340

5,784

36,116

Deferred tax assets.............................................................................................

—

749

—

Customers’ liabilities for acceptances and guarantees........................................

35,08036,148291,925

Allowance for loan losses...................................................................................

(22,622)¥6,712,709(23,651)¥6,460,371(188,256)$55,860,115

Total assets.......................................................................................................
Liabilities and equity
Liabilities
Deposits.............................................................................................................

¥6,076,043¥5,909,098$50,562,066

Call money and bills sold....................................................................................

58,45452,642486,431

Payables under securiteis lending transactions...................................................

27,809—231,419

Trading liabilities..................................................................................................

1,184

1,434

9,856

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

114,185

111,942

950,204

Foreign exchanges.............................................................................................

111

119

930

Other liabilities....................................................................................................

52,98149,051

440,885

Reserve for employee retirement benefits...........................................................

1,616

105

13,452

Reserve for directors’ and audit & supervisory board members’ retirement benefits.....

57

89

481

Reserve for contingent losses................................................................................

1,344

1,675

11,188Reserve for reimbursement of deposits...............................................................

909

842

7,567

Deferred tax liabilities..........................................................................................

11,000—91,537

Deferred tax liabilities for land revaluation............................................................

6,064

6,872

50,470Acceptances and guarantees.............................................................................

35,0806,386,844

36,1486,170,022

291,925
53,148,411

Total liabilities...................................................................................................
EquityCapital stock......................................................................................................

140,409140,409

1,168,424

Capital surplus....................................................................................................

14,99814,998124,814Retained earnings...............................................................................................

89,45980,377744,445

Valuation difference on available-for-sale securities........................................

73,34046,576

610,302

Deferred gains (losses) on hedges.................................................................

(845)

(194)

(7,035)

Revaluation reserve for land...........................................................................
Total equity.......................................................................................................

8,502
325,865

8,182
290,349

70,754
2,711,704

Total liabilities and equity.................................................................................

¥6,712,709¥6,460,371$55,860,115

Valuation and translation adjustments.................................................................

58

Hokuhoku Financial Group, Inc. Annual Report 2015

NON-CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)The Hokuriku Bank, Ltd.

2015

2014

Thousands of
U.S. dollars
2015

Millions of yen
Year ended March 31

IncomeInterest income:Interest on loans and discounts.....................................................................

¥54,858¥57,923$456,505Interest and dividends on securities...............................................................

12,327

12,304

102,585

Interest on deposits with other banks............................................................

842

710

7,009

Other interest income....................................................................................

674

800

5,609

Fees and commissions.......................................................................................

17,695

16,220147,251

Trading income...................................................................................................

230

309

1,917

Other ordinary income........................................................................................

5,209

2,738

43,352Other income......................................................................................................

2,236
94,073

6,795
97,802

18,611
782,839

20,879Total income.......................................................................................................
Expenses
Interest expenses:
Interest on deposits.......................................................................................

2,509

3,222

Interest on payables under securities lending transactions.............................

42

—

354

Interest on borrowings and rediscounts.........................................................

1,285

1,460

10,696

Other interest expenses.................................................................................

797

740

6,633

Fees and commissions.......................................................................................

7,124

7,097

59,283

Other ordinary expenses.....................................................................................

—

5

—

General and administrative expenses..................................................................

55,251

53,974

459,782

Provision of allowance for loan losses.................................................................

1,350

—

11,240

Other expenses..................................................................................................
Total expenses....................................................................................................

2,287
70,6482,926
69,427

19,034
587,901

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

23,42528,374

194,938

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

1,747

1,106

14,543

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

6,997¥14,680

9,434¥17,833

58,234$122,161

Income taxes:

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

Hokuhoku Financial Group, Inc. Annual Report 2015

59

NON-CONSOLIDATED FINANCIAL STATEMENTS

NON-CONSOLIDATED BALANCE SHEET (UNAUDITED)The Hokkaido Bank, Ltd.
Thousands of
U.S. dollars
2015

Millions of yen
March 31

2015

2014

AssetsCash and due from banks..................................................................................

¥  418,619¥  146,774$ 3,483,559

Call loans and bills bought..................................................................................

10,000—83,215

Trading account securities..................................................................................

2,032

1,837

16,916

Money held in trust.............................................................................................

7,947

7,759

66,134

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

1,205,913

1,243,120

10,035,060

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

3,196,487

3,108,677

26,599,710

Foreign exchanges.............................................................................................

5,400

7,333

44,937

Other assets.......................................................................................................

33,53738,199279,086

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

28,94829,792

240,896

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

3,696

5,008

30,759Deferred tax assets.............................................................................................

2,214

8,778

18,428Customers’ liabilities for acceptances and guarantees........................................

24,611

26,143204,810

Allowance for loan losses...................................................................................

(23,557)¥4,915,851(24,383)¥4,599,042(196,034)$40,907,476$38,073,682

Total assets.......................................................................................................
Liabilities and equity
Liabilities
Deposits.............................................................................................................

¥4,575,314¥4,262,953

Call money and bills sold....................................................................................

—

4,631

—

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

52,88451,000440,077

Foreign exchanges.............................................................................................

67

32

565

Bonds payable...................................................................................................

—

15,000—

Other liabilities....................................................................................................

45,51245,169378,730

Reserve for employee retirement benefits................................................................

9,810

9,659

81,642

Reserve for directors’ and audit & supervisory board members’ retirement benefits....

108

124

906
5,210

Reserve for contingent losses.............................................................................

626

823

Reserve for reimbursement of deposits...............................................................

457

410

3,806

Acceptances and guarantees.............................................................................

24,611
4,709,393

26,143
4,415,948

204,810
39,189,428

Total liabilities...................................................................................................
EquityCapital stock......................................................................................................

93,524

93,524

778,264

Capital surplus....................................................................................................

16,795

16,795

139,761Retained earnings...............................................................................................

64,61354,060537,684

Total equity.......................................................................................................

31,525
206,457

18,714
183,094

262,339
1,718,048

Total liabilities and equity.................................................................................

¥4,915,851¥4,599,042$40,907,476

Valuation and translation adjustments
Valuation difference on available-for-sale securities........................................

60

Hokuhoku Financial Group, Inc. Annual Report 2015

NON-CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)The Hokkaido Bank, Ltd.

2015

2014

Thousands of
U.S. dollars
2015

Millions of yen
Year ended March 31

IncomeInterest income:Interest on loans and discounts.....................................................................

¥47,422¥48,447$394,628Interest and dividends on securities...............................................................

12,811

10,104

106,612Interest on receivables under resale agreements............................................

6

2

54

Interest on deposits with other banks............................................................

174

108

1,451

Other interest income....................................................................................

193

192

1,611

Fees and commissions.......................................................................................

17,622

16,944

146,646

Other ordinary income........................................................................................

1,016

1,317

8,456

Other income......................................................................................................

6,261
85,5083,276
80,393

52,102
711,560

14,533

Total income.......................................................................................................
Expenses
Interest expenses:
Interest on deposits.......................................................................................

1,746

2,142

Interest on payables under securities lending transactions.............................

—

0

—

Interest on borrowings and rediscounts.........................................................

608

961

5,065

Interest on bonds payable.............................................................................

151

327

1,264

Other interest expenses.................................................................................

1

1

14

Fees and commissions.......................................................................................

8,259

8,321

68,732Other ordinary expenses.....................................................................................

257

51

2,147

General and administrative expenses..................................................................

44,74645,253372,363

Provision of allowance for loan losses.................................................................

4,150

2,588

34,535

Other expenses..................................................................................................
Total expenses....................................................................................................

3,054
62,9772,653
62,30025,421
524,074

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

22,53018,093

187,486

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

6,748

3,916

56,155

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

2,209¥13,573

4,483¥ 9,693

18,382$112,949

Income taxes:

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

Hokuhoku Financial Group, Inc. Annual Report 2015

61

CORPORATE INFORMATION(as of March 31, 2015)

Business activities
The Hokuhoku Financial Group is composed of the holding company and 11 consolidated subsidiaries and one affiliate. Our core business isbanking, and we also provide a wider range of financial services including leases, credit cards, loan guarantees and venture capital. The following is a diagram of our business.

Business diagram
Hokuhoku Financial Group, Inc.
The Hokuriku Bank, Ltd.

Hokugin Lease Co., Ltd.
(Leasing)

Hokugin Business Services Co., Ltd.
(Document management,
concentrated business processing,human resource solutions)

The Hokkaido Bank, Ltd.

Hokuriku Card Co., Ltd.
(Credit card operations)

Dogin Business Service, Ltd.
(Document management, cash management,
concentrated business processing)

Hokuriku Hosho Services Co., Ltd.
(Loan guarantees)

Dogin Card Co., Ltd.
(Credit card operations, loan guarantees)

Hokugin Software Co., Ltd.
(Software development)

Dogin Regional Research Institute Co., Ltd.
(Research on regional economy,
survey research services, consulting)

Hokuhoku Services Co., Ltd.
(Servicer)
Hokuhoku Capital Co., Ltd.*(Venture capital)* Equity method-affiliated company

Major subsidiaries(units: millions of yen, %)Company name

Address

Established

Capital

FG’s share of
voting rights

Dividend

The Hokuriku Bank, Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Banking

July 31, 1943

140,409100.004,085

The Hokkaido Bank, Ltd.

4-1 Odori Nishi, Chuo-ku, Sapporo City

Banking

March 5, 1951

93,524100.002,974

Hokugin Lease Co., Ltd.

2-21 Aramachi, Toyama City

Leasing

July 21, 1983

100

70.25

—

Hokuriku Card Co., Ltd.

1-2-1 Shintomi-cho, Toyama City

Credit card operations

March 2, 1983

36

87.39

3

Hokuriku Hosho Services Co., Ltd.

1-2-26 Tsutsumicho-dori, Toyama City

Loan guarantees

December 12, 1978

50

100.00—

Hokugin Software Co., Ltd.

1-5-25 Higashidenjigata, Toyama City

Software development

May 1, 198630

100.00—

Hokuhoku Services Co., Ltd.

1-6-8 Chuo-dori, Toyama City

Servicer

December 5, 2003

500

100.00—

Hokugin Business Services Co., Ltd.

1883 Hiyodorijima, Toyama City

March 25, 1953
Document management,
concentrated business processing,human resource solutions

30(100.00)—

Dogin Business Service, Ltd.

4-1 Odori Nishi, Chuo-ku, Sapporo City

Document management, cash
management, concentrated
business processing

June 8, 1979

50

(100.00)—

Dogin Card Co., Ltd.

2-2-14 Chuo-ku Minami, Sapporo City

Credit card operations, loan
guarantees

June 13, 1977

120

(100.00)—

Dogin Regional Research InstituteCo., Ltd.

Dogin Annex Building, 4-1
Odori Nishi, Chuo-ku, Sapporo City

Research on regional economy,
survey research services,
consulting

August 8, 2002

100

(100.00)—

Hokuhoku Capital Co., Ltd.

1-6-8 Chuo-dori, Toyama City

Venture capital

January 11, 1985

250

5.00
(38.75)—( ) Indicates voting rights involving shares held by subsidiaries

62

Main business activities

Hokuhoku Financial Group, Inc. Annual Report 2015

OUTLINE OF SUBSIDIARIES - THE HOKURIKU BANK, LTD.
The Hokuriku Bank, Ltd.
http://www.hokugin.co.jp/

Establishment

History

The Hokuriku Bank has its origins as the Kanazawa 12th National
Bank, which was established on August 26, 1877, with the Houseof Kaga-Maeda providing 70% of the capital. The bank was thecreation of the family established by Maeda Toshiie, the founder ofthe Kaga clan. The bank celebrated its 138th anniversary this year.
Since its founding, the bank has worked hand-in-hand withcustomers in the region, and grown into a bank with a wide branch
network covering Hokuriku, Hokkaido, as well as Japan’s threemajor metropolitan areas. Based on the bank’s management
philosophy of “Prospering Together with the Region,” “Fair &Steady Management” and “Progressive & Innovative Services,”
Hokuriku Bank draws fully on its management resources toprovide high-quality comprehensive financial services, aiming tobecome the bank preferred and relied on by local communities.

August 1877

Kanazawa 12th National Bank founded

February 1879

Toyama 123rd National Bank founded

January 1884 	‌Kanazawa 12th National Bank and Toyama 123rd National
Bank merged to form Toyama 12th National Bank with
headquarters in Toyama City
July 1897

Toyama 12th National Bank changed name to 12th Bank

July 1943 	‌Four banks, 12th, Takaoka, Chuetsu, and Toyama Bank,
merged to form Hokuriku Bank
January 1950	‌Launched foreign exchange operations (first regional bank to
do so)
September 1961

Listed on the Tokyo Stock Exchange

November 1961

Completed present head office

January 1971 	‌Received blanket approval to engage in correspondentbanking services
November 1973

Launched first online system

March 1974	‌Received blanket approval to engage in foreign exchange
business

Company outline (as of March 31, 2015)
Company name:
The Hokuriku Bank, Ltd.
Business:
Banking
Incorporation:
July 31, 1943 (founded in 1877)
Location of headquarters:
1-2-26 Tsutsumicho-dori, Toyama City, Toyama
Total assets:¥6,712.7 billion
Deposits (including NCDs):¥6,076.0 billion
Loans and bills discounted:¥4,365.3 billion
Issued shares:
Common stock:
1,047,542,335
Capital adequacy ratio(non-consolidated):
10.61%
Employees:
2,806
Branches (as of June 30, 2015)
Domestic:
187 (145 branches, 42 sub-branches)
Overseas:
6 representative offices

July 1978	‌Received blanket approval to handle yen-denominated andforeign-denominated syndicated loans
October 1979

Launched second online system

November 1981

Launched online foreign exchange system

January 1984

Launched firm banking service

May 1987

Introduced VI (visual identity)

August 1990

Launched third online system

November 1993

Launched investment trust agent operations

December 1998	‌Launched over-the-counter sales of securities investment
trustsJune 2000

Launched Internet and mobile banking services

July 2000

Completed new computer center (Alps building)January 2001

Launched new computer system

April 2001

Launched over-the-counter sales of casualty insurance

February 2002 	‌Third-party allocation worth ¥39.1 billion, brought newcapital to ¥140.4 billion
February 2002

Launched convenience store ATM service

October 2002

Launched over-the-counter sales of life insurance

March 2003

Took over part of the Ishikawa Bank’s operations

September 2003 	‌Established Hokugin Financial Group, Inc. through sharetransfer, then became a subsidiary of the Hokugin Financial
Group, Inc.
September 2004 	‌Integrated management with Hokkaido Bank, name of parent
company changed to Hokuhoku Financial Group, Inc.
December 2004

Launched securities agency operations

March 2006 	‌Entered into a contract on joint system use with Hokkaido
Bank and the Bank of Yokohama
May 2011 	‌Commenced use of joint IT system with Hokkaido Bank andthe Bank of Yokohama
December 2013 	‌The head office building was registered as a Tangible
Cultural Property (structures)

Hokuhoku Financial Group, Inc. Annual Report 2015

63

OUTLINE OF SUBSIDIARIES - THE HOKKAIDO BANK, LTD.
The Hokkaido Bank, Ltd.
http://www.hokkaidobank.co.jp/

Establishment

History

Hokkaido Bank was established on March 5, 1951, in response to
the strong demand for financing from small and medium-sized corporations in Hokkaido accompanying the sudden increase in population and development of new industries in Hokkaido during thepost-war recovery period.
Based on this background, and as a bank deeply rooted in
Hokkaido, Hokkaido Bank considers it its mission to contribute toregional economic growth by smoothly providing financing andquality financial services to its customers in Hokkaido. Going forward, Hokkaido Bank will never abandon the spirit with which it was
created, and will continue to move forward together with its customers in Hokkaido.

March 1951

Hokkaido Bank established

April 1961

Launched foreign exchange operations

May 1962

Listed on the Sapporo Stock Exchange

August 1964

Completed present head office

June 1971

Launched first online system

July 1976

Launched second online system

Company outline (as of March 31, 2015)
Company name:
The Hokkaido Bank, Ltd.
Business:
Banking
Incorporation:
March 5, 1951
Location of headquarters:
4-1 Odori Nishi, Chuo-ku, Sapporo City
Total assets:¥4,915.8 billion
Deposits (including NCDs):¥4,575.3 billion
Loans and bills discounted:¥3,196.4 billion
Issued shares:
Common stock:486,634,512
Preferred stock (Type 2): 107,432,000
Capital adequacy ratio(non-consolidated):
10.75%
Employees:
2,275
Branches (as of June 30, 2015)
Domestic:
141 (135 branches, 6 sub-branches)
Overseas:
3 representative offices

December 1980 	‌Received blanket approval to engage in correspondentbanking services
April 1981 	‌Hokkaido Small and Medium Corporation Human Resource
Development Fund established
June 1986

Launched online foreign exchange system

September 1987

Listed on the first section of the Tokyo Stock Exchange

October 1990

Completed the Higashi Sapporo Dogin Building

March 1991

Established Dogin Cultural Foundation

October 1991

Launched a new foreign exchange online system

November 1991

Completed Dogin Building Annex

January 1993

Launched third online system

April 1994

Launched investment trust agent operations

December 1998 	‌Launched over-the-counter sales of securities investment
trustsJuly 1999 	‌Issued preferred stock ( Type 2) (issuance amount was¥53.716 billion)
November 1999

Launched telephone banking service

June 2000

Launched Internet mobile banking

April 2001

Launched over-the-counter sales of casualty insurance

October 2002

Launched over-the-counter sales of life insurance

December 2003

Opened Business Loan Plaza

April 2004

Launched convenience store ATM service

September 2004 	‌Came under management of Hokugin Financial Group, Inc.,
parent of Hokuriku Bank; Hokuhoku Financial Group, Inc.
launched
April 2005

Launched securities agency operations

March 2006 	‌Entered into a contract on joint system use with Hokuriku
Bank and the Bank of Yokohama
August 2006

Opened representative office in Shenyang, China

March 2009

Opened representative office in Yuzhno-Sakhalinsk, Russia

January 2010

Taiwan ATM/SmartPay Debit Service started

May 2011 	‌Commenced use of joint IT system with Hokuriku Bank andthe Bank of Yokohama
March 201464

Hokuhoku Financial Group, Inc. Annual Report 2015

Opened representative office in Vladivostok, Russia

BOARD OF DIRECTORS AND AUDIT & SUPERVISORY BOARD MEMBERS
Hokuhoku Financial Group, Inc.
President:
Eishin Ihori
Deputy President:
Masahiro Sasahara

Directors:
Hidenori Mugino
Hiroyuki Yamakawa
Takashi Nakano
Tsutomu Morita
Takashi Ogura
Yuji Oshima
Ryoji Nakagawa
Audit & Supervisory
Board Members:
Junichi Inaba
Yozo Maeizumi
Tatsuo Kawada

The Hokuriku Bank, Ltd.
Chairman:
Hidenori Mugino

Director:
Takashi Ogura

President:
Eishin Ihori

Audit & Supervisory
Board Members:
Satoshi Kikushima
Kenichi Nakamura
Isao Nagahara
Katsusuke Watanuki

Senior Managing
Director:
Takashi Nakano
Managing Directors:
Takafumi Nishida
Tsutomu Morita

The Hokkaido Bank, Ltd.
Chairman:
Yoshihiro Sekihachi

Director:
Takashi Nakano

President:
Masahiro Sasahara

Audit & Supervisory
Board Members:
Hiroshi Sagayama
Ken Ebina
Shuji Iwamura
Atsuhito Mito

Deputy President:
Hiroyuki Yamakawa
Senior Managing
Director:
Toshihiro Katayama
Managing Directors:
Makoto Uesugi
Hideki Nishiyama

Addresses
Hokuhoku Financial Group, Inc.

The Hokkaido Bank, Ltd.

1-2-26, Tsutsumicho-dori Toyama
City, Toyama 930-8637, Japan
Telephone: +81-76-423-7331
http://www.hokuhoku-fg.co.jp/
E-mail: honsha2@hokuhoku-fg.co.jp

International Division
4-1, Odori Nishi, Chuo-ku,
Sapporo City, Hokkaido 060-8676,
Japan
Telephone: +81-11-233-1093
Facsimile: +81-11-231-3133
E-mail: sckikaku@cello.ocn.ne.jp

The Hokuriku Bank, Ltd.
International Department
1-2-26, Tsutsumicho-dori Toyama
City, Toyama 930-8637, Japan
Telephone: +81-76-423-7815
Facsimile: +81-76-423-7561
E-mail: kokusaibu@hokugin.co.jp
International Operations Center
2-1-1, Nihonbashi-muromachi,
Chuo-ku, Tokyo 103-0022, Japan
Telephone: +81-3-3231-7329
Facsimile: +81-3-3270-5028
E-mail: b.office@hokugin.co.jp
SWIFT Address: RIKBJPJTTreasury and Securities Department
2-1-1, Nihonbashi-muromachi,
Chuo-ku, Tokyo 103-0022, Japan
Telephone: +81-3-3231-7360
Facsimile: +81-3-3246-1255
E-mail: shikintky@hokugin.co.jp
Overseas Offices (Hokuriku Bank)• New York Representative Office
780 Third Avenue, 28th Floor,
New York, NY 10017, U.S.A.
Telephone: +1-212-355-3883
Facsimile: +1-212-355-3204
E-mail: newyork@hokugin.com• Shanghai Representative Office
Shanghai International Trade
Center, 602, Yan’an West Road
2201,
Changning, Shanghai 200336,
P.R. of China
Telephone: +86-21-6270-8108
Facsimile: +86-21-6270-8338
E-mail: toyama@hokugin.net• Dalian Representative Office
7F Senmao Building, 147 Zhongshan
Road, Xigang District, Dalian,
Liaoning, 116011 P.R. of China
Telephone: +86-411-3960-8018
Facsimile: +86-411-3960-8019
E-mail: dalian@hokugin-zg.com

Market andInternational Administration Center
2-33, Higashi Sapporo 3-jyo
1-chome, Shiroishi-ku,
Sapporo City, Hokkaido 003-0003,
Japan
Telephone: +81-11-815-1315
Facsimile: +81-11-815-2237
SWIFT Address: HKDBJPJTTreasury and Securities Division
2-1-1, Nihonbashi-muromachi,
Chuo-ku, Tokyo 103-0022, Japan
Telephone: +81-3-3241-3457
Facsimile: +81-3-3242-3588
Overseas Offices (Hokkaido Bank)• Shenyang Representative Office
Room 1118, Office Tower 1,
Forum 66, No. 1-1 Qingnian
Da jie, Shenhe District,
Shenyang 110063, China
Telephone: +86-024-3185-7008
Facsimile: +86-024-3185-7018
E-mail: dogin_shenyang@yahoo.co.jp• Yuzhno-Sakhalinsk
Representative Office
Diplomat Office, Room 404 1a
Chekhov St., Yuzhno-Sakhalinsk,
693020, Russia
Telephone: +7-4242-46-1774
Facsimile: +7-4242-46-1775
E-mail: mikami@hbkys.ru• Vladivostok Representative OfficeFresh Plaza, Room 613 17
Okeanskiy Pr., Vladivostok,
690091, Russia
Telephone: +7-4232-65-8851
Facsimile: +7-4232-65-8852
E-mail: temma@hbvl.ru• Singapore Representative Office
6 Battery Road # 15-02 Singapore
049909
Telephone: +65-6534-0010
Facsimile: +65-6534-0070
E-mail: hokuriku@singnet.com.sg• London Representative Office
Level 12, City Tower, 40
Basinghall Street, London EC2V
5DE UK
Telephone: +44-20-7374-6028
Facsimile: +44-20-7374-6055
E-mail: london@hokugin.co.uk• Bangkok Representative Office
No.209, K-Tower A, 9th Floor, Unit
2/1, Sukhumvit 21 Road (Asoke),
Klongtoey Nua, Wattana Bangkok
10110, Thailand
Telephone: +66-2-261-8495
Facsimile: +66-2-261-8497
E-mail: bangkok@hokugin.asia

Hokuhoku Financial Group, Inc. Annual Report 201565

北北金融控股集团简要（截至 2015年3月31日）

设立日期∶2003年9月26日

北北金融集团的经营活动范围不是限于一个地域，而是在广泛的地域内展开着。

总行地址∶富山县富山市堤町通1丁目2番26号

我们广泛的营业网点分布在下面所写的地区范围里 ：经营目的∶集团伞下的子公司的经营管理，以及连带的相关业务

北陆地区.................................................... 149分行（或支行）资本金∶708亿9,500万日元

富山县 ....................................................... 91分行（或支行）发行股份∶ 普通股 ........................... 1,351,630,146股

石川县 ....................................................... 36分行（或支行）企业名称∶北北金融控股集团股份有限公司

第一次第5种优先股 ........

107,432,000股

上市交易所∶ 东京证券交易所（第一部）札幌证券交易所简历自从1877年北陆银行成立以来已经在北陆地区设立了广域性的经营网点。

福井县 ....................................................... 22分行（或支行）北海道地区 ................................................ 159分行（或支行）三大都市圈 ................................................ 16分行（或支行）东京、横滨 ................................................

9分行（或支行）

名古屋 .......................................................

3分行（或支行）

大阪、京都 ................................................

4分行（或支行）其他地区（仙台、新泻、长野、高山）..........

4分行（或支行）

海外............................................................

9代表处纽约代表处 （北陆银行）从“北前船”或者说“北航船（北上的经济圈）”的交易关
系和客户的需要出发还在北海道各个主要城市内设立了自己的经营网点。
北海道银行成立于1951年，以支援中小企业和个人业务为中心在北海道道内的各个地区都设有营业网点。
北陆银行和北海道银行于2004年9月进行了经营统合，成立了（控股公司）北北金融控股集团股份有限公司。现在，北北金融控股集团已经形成了覆盖日本北陆地区北海道以及日本三大都市圈（东京，名古屋，大阪）的巨大的地方金融网络。

（北海道银行）南萨哈林斯克代表处符拉迪沃斯托克代表处 （北海道银行）伦敦代表处 （北陆银行）新加坡代表处（北陆银行）
曼谷代表处 （北陆银行）大连代表处 （北陆银行）
上海代表处 （北陆银行）沈阳代表处 （北海道银行）（2015年6月30日）
伦敦

2002 年5月 北陆银行和北海道银行缔结了全面业务协助协议符拉迪沃斯托克南萨哈林斯克沈阳大连

2003年5月

纽约北陆银行和北海道银行对经营统合取得一致意见

上海
曼谷
新加坡

2003年9月

设立北银金融控股集团股份有限公司
北陆银行成为北银金融控股集团伞下的银行
北海道

通过股份交换实现经营统合

2004年9月

北北金融控股集团股份有限公司诞生

注：北银金融控股集团股份有限公司改名为北北金融控股集团
股份有限公司。
北陆地区
石川

富山

福井

东京
大阪

名古屋

三大都市圈

66

Hokuhoku Financial Group, Inc. Annual Report 2015

北北金融控股集团 董事致辞

（相片左边）董事长

庵

荣伸（北陆银行 总行长）

（右边）
董事副社长

笹原晶博（北海道银行 总行长）承蒙各位平日对我北北金融控股集团以及我集团子公司的特别关照，谨向各位表示衷
心的感谢。在此，将我集团的《信息公开微型杂志（2015年3月期·营业报告）》送给大家。
本杂志介绍了我集团2014年度的业绩以及各类活动，敬请阅读。通过这本杂志，如果能够增加您对我集团的理解，我们将十分荣幸。
目前国内经济在安倍经济学的推行下，各种政策正在逐渐成效，地方经济也在缓慢恢复。在我集团的主要营业地区北陆地区随着“北陆新干线”的开通，旅游业、制造业等各
种行业都在瞄准这个商业契机，因此企业活动也变得越来越活跃。在北海道，“北海道新干线”还有1年即将开通，这对地方经济的波及效果也是指日可待的。我集团不局限于支援当地企业在资金方面的需求，同时也在致力于利用广域网来进行商务洽谈，并对首都圈地区的产品进行宣传活动等，为了使当地企业的销路拓宽，我们正在进行着积极的支援活动。
我集团是在2004年9月由北陆银行和北海道银行合并经营而诞生的，2014年正好迎来了成立10周年。在此，谨向给予我们厚爱和大力支持的各位客户以及各位股东深表感谢。
今后，我们也将不断磨砺“广泛领域的地方金融集团”这一商业模式，在为地方的各位提供充实的金融服务的同时，我们将追求集团经营的优势。

2015年度是中期经营计划“GO for IT!”的最后一年。我们会向着计划中所提到的《为地区所信赖，能够依靠的金融集团》这一目标，为活跃地方经济而竭尽全力，并且从中实现企业价值。敬请各位一如既往地支持和惠顾本公司。谢谢！

董事长

庵

荣伸

2015年7月

Hokuhoku Financial Group, Inc. Annual Report 201567

中期经营计划
本集团将2013年4月份以后的未来3年定位为“朝着持续发展而奋斗的崭新的事业战略的最佳努力期间”，开始着手了中期经
营计划“GO for IT !”。坚持强力推进“强化营业力”，“经营效率化”的经营措施，并且同时“强化经营基础”，通过取得地方客户的信任，激活该地区经济来提高全企业的价值。

计划的概要
名

称

中期经营计划“GO for IT !”期间

3年（2013年4月～2016年3月）

定位

朝着持续发展而奋斗的崭新的事业战略的最佳努力期间

集 团 的 目 标成为地方可值得亲近和信赖的金融集团

基1. 加强与地方客户的关系，加强和重建内部管理，从而做好在不断变化的环境中可持续发展的准备。
“经营效率化”措施的同时，坚持进行“强化经营基础”。
2. 在进一步推行“强化营业力”、
3. 通过取得地方社会的信任，激活该地区经济来提高企业的价值。

本

方

针

中期经营计划“GO for IT！”基本方针

展开措施方案
强化营业力

经营效率化

强化经营基础

■ 强化交易平台■ 强化业务集中化共同化■ 遵循巴塞尔协议Ⅲ提高资金的质量■ 强化咨询业务

■ 追求共用系统的优势■ 提高资产质量

■ 发挥广区域集团的优点■ 业务效率化改善总行和分行的运营■ 强化支援企业重组■ 加大个人交易市场
■ 强化运用有价证券加强和重建内部管理
人力资源开发

经营资源再分配风险管理系统的完善加速协同效应
加强企业社会责任

2016年3月期的目标计数（2行合算，联结）68

2014年3月期（业绩）2015年3月期（业绩）2016年3月期（目标）总存款平均余额

10兆1,292亿日元

10兆4,336亿日元

10兆1,100亿日元贷款平均余额

7兆3,440亿日元

7兆4,520亿日元

7兆4,800亿日元

主营业务净利润

482亿日元512亿日元470亿日元联结本期净利润273亿日元282亿日元185亿日元联结资本充足率12.31%

11.13%

10%以上

OHR（以主营业务毛利润为基础）

66.08%

64.64%

67%

不良贷款率

2.67%

2.43%

2%多

Hokuhoku Financial Group, Inc. Annual Report 2015强化营业力措施■强化交易平台进一步增加客户数■ 争取成为客户的首要交易银行，扩大金融产品的营销■强化咨询业务

■■发挥广区域集团的优点■

加强在重点领域的知识深度（农业，医疗，福利，环境和再利用能源领域）
强化推行私人银行，收购，事业继承等业务创新商贸洽谈的内容，提高成交率
提高支援海外投资业务的办公水平针对每个细节展开各种措施
灵活运用非面对面的营销形势■ 完善和强化投资信托和保险营销体系■

加大个人交易市场

■强化运用有价证券

■

经营效率化

措施

在对企事业资金需求冷缩而导致资金收益减少方面起到补充效果构建符合北北金融控股集团规模的成本体系（总行机能的集中化,后勤办公业务的共同化,商品和广告等共同化）■ 强化集体化管理的基础■强化业务集中化
共同化■

追求共用系统的优势■从3行共同利用改为4行共同利用，从而降低成本
继续推行集团内部的辅助系统和业务集体化

业务效率化改善总行和分行的运营■强化经营基础

措施■■

遵循巴塞尔协议Ⅲ提高资金的质量实行为了提高股东价值的政策■积累风险比重较低的良好资产

■

与外部机构的协作
灵活运用地方的重组基金

■

资本政策

提高资产质量强化支援企业重组

合理调整总行和分行业务，实现有效运营战略性的把人员配置到重点营业地区■

资本充足率（北北金融控股集团联结）11.88％

12.31％
11.13％

还原方针

资本充足率

10.00％

依据预测的资本
充足率，控制优先股和劣等资本
5,642

6,055

5,760

包括过渡期的劣等资本725亿日元，优先股537亿日元
5,244

以积累收益来扩大主营业务资本2013/3业绩 2014/3业绩 2015/3业绩

普通股股息

(亿日元)

阶段性的增发股息

以股息达到30%以上为基本目标，扩大收益将阶段性的增发股息。
■ 考虑到巴塞尔协议Ⅲ过渡期算入的劣等资本金额较少，为了确保联结资本充
足率达到 10% 左右，将调高储备净利润
比率。
■

2016/3计划

巴塞尔协议Ⅱ 巴塞尔协议Ⅲ为基准为基准

Hokuhoku Financial Group, Inc. Annual Report 2015

69

业绩精粹
营业概况（北北金融控股集团联结）（货币单位：亿日元）

2014年度

2013年度
变动

经常收益

1,939

＋29

1,909

经常利润

481

－13

494

本期净利润

282

＋9

273

资本充足率

11.13％－1.18％

12.31％

我集团的本期联结会计年度的业绩 ：本期净利润与上年度相比增加了9亿日元，为282亿日元。
联结资本充足率达到了11.13%。
2014年度期末的第1回第5种优先股按照原定计划发放了每股7.50日元股息。另外，虽然普通股的中期股息没有发放，但是期末每股发放了4.25
日元股息，这与上年度相比增加了0.25日元。

营业概况（北陆银行，北海道银行）（货币单位：亿日元）

2行合算
2014年度

2013年度
变动

经常收益

1,794

＋14

1,780

主营业务毛利润

1,448

＋25

1,422

经费（临时处理部分除外）

936

－4

940

主营业务净利润

512

＋29

482

信贷相关成本

60

＋74

－13

经常利润

471

－14

485

本期净利润

282

＋7

275

主营业务毛利润 ：由于资金利润以及劳务交易等业务的增加，主营业务毛利润与上年度相比
增加了25亿日元，为1,448亿日元。
经费 ：人工费和店铺物业费用减少,经费与上
年度相比减少了4亿日元，为936亿日元。
主营业务净利润 ：为512亿日元。
经常利润 ：国债等债券收益有所增加，但是由于信贷成本的提高，经常利润与上年度相比减
少了14亿日元，为471亿日元。
本期净利润 ：随着法人税的减少，本期净利
润与上年度相比增加了7亿日元，为282亿日元。

（货币单位：亿日元）（货币单位：亿日元）

北陆银行

2014年度北海道银行

2013年度

2014年度变动

70

2013年度
变动

经常收益

940

－37

977

854

＋52

802

主营业务毛利润

765

－5

770

683

＋30

652

经费（临时处理部分除外）

504

－1

505

431

－3

434

主营业务净利润

260

－4

264

251

＋33

217

信贷相关成本

17

＋60

－42

42

＋14

28

经常利润

245

－59

304

226

＋45

180

本期净利润

146

－31

178

135

＋38

96

资本充足率

10.61％－1.79％

12.40％

10.75％－0.01％

10.76％

Hokuhoku Financial Group, Inc. Annual Report 2015

Hokuhoku Financial Group, Inc.

Hokuhoku Financial Group, Inc.

Annual Report 2015

Printed in Japan