F i na n c ia l Se ct ion

Financial Section
YMFG Business Situation ………………………………… 82
Consolidated Financial Statements …………………… 84
Notes to Consolidated Financial Statements … …… 88
Independent Auditor’s Report … …………………… 113
Yamaguchi Bank Financial Statements … ………… 119
Momiji Bank Financial Statements … ……………… 121
Kitakyushu Bank Financial Statements … ………… 12381

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

YMFG Business Situation
Summary of Business Results■ The Regional Economy

Through the fiscal year ended March 31, 2022, theJapanese economy continued to face difficulty because of
the prolonged novel coronavirus disease (COVID-19)
pandemic. In the first half of the year, the economy
showed signs of recovery due to the promotion of
vaccinations, the effects of various governmental policies
and improvement in overseas economies. In the second
half of the year, however, the overall situation came to a
standstill due to the emergence of new mutated variant
and the effects of Russia’s invasion to Ukraine on soaring
raw material prices and fluctuations in the financial andcapital markets.
The regional economy also continued to face difficulty
because of the prolonged COVID-19 pandemic. However,production levels in the chemical industry remained high.
The automobile industry showed signs of improvement in
the second half of the year despite the impact of parts
supply chain. Personal consumption also picked up, andthe economy as a whole was on a recovery trend.
Against this backdrop, from the perspective of regional
invigoration and in line with their mission of contributing
to regional economic development, regional financial
institutions face requests to deliver stronger financial
soundness and profitability, supply funding more flexibly
and further enhance their financial services.

■ YMFG Performance

Amid these financial and economic conditions, supported
by its shareholders and business partners all YMFG’s
officers and employees were united in their efforts tostrengthen the Group’s management base, bolster
operating performance and contribute to the region.
YMFG strived to realize the YMFG Medium-Term
Management Plan 2019, which launched in the fiscal year
ended March 31, 2020, as this is the final fiscal year of theplan. In December 2021, YMFG formulated“Mission andReason for Existence (Purpose),”“Ideal Future (Vision)”and“Group Sustainability Policy,”and identified“Materiality,”aiming to enhance its corporate value bymobilizing all Group officers and employees and becomea corporate group that contributes to further valueenhancement of the region.
◦ “Mission and Reason for Existence (Purpose)”
Co-creation of the flourishing future of theregion◦ “Ideal Future (Vision)”
The corporate group that is chosen by theregion, trusted by the region, and contributes
to value enhancement of the region◦ “Group Sustainability Policy”
To walk and grow together with local
communities, YMFG will contribute to therealization of a sustainable society byworking to solve diverse issues and enhancecommunity value through various businessactivities.
◦ “Materiality”
YMFG has identified twelve“Materialities”tocontribute to the realization of a sustainable

society.
Through the business activities based on“Mission andReason for Existence (Purpose),”YMFG strives for regional
development and future creation. In view of themedium-term management plan starting in the fiscal year
ending March 31, 2023, losses were recorded mainly for“portfolio restructuring of securities”and“promotion of
fundamental business revitalization for customers affectedby the COVID-19 pandemic.”Due to this, the consolidated
statement of income for the current fiscal year reported
net loss attributable to owners of the parent of ¥13,005
million.
◦ Portfolio restructuring of securities
In light of the recent rise in geopolitical risks
and the accelerated normalization ofmonetary policy due to global inflation,
YMFG is restructuring its securities portfolio
by reducing mainly foreign bonds and equity
investment trusts with unrealized losses inorder to promote a shift to a stable profit
structure in the management of securities.
◦ Promotion of fundamental business revitalization
for customers affected by the COVID-19 pandemic
To vigorously promote smoother and fasterfundamental business revitalization, YMFG in
unison takes full advantage of the Group’s
strengths in having consulting and fundfunctions as well as servicing capabilities
within the Group. YMFG will allocate
additional reserves for customers who may
be affected by excessive debt or soaring
resource and energy prices, taking into
account the impact on the regional economy.
In addition, precautionary provisions areallocated for business sectors that areexperiencing increased uncertainty due tothe prolonged COVID-19 pandemic.
◦ Impairment losses on goodwill and others
associated with Hoken Hiroba
In light of the current situation where futureremains highly uncertain due to theprolonged COVID-19 pandemic, goodwill
and others, calculated as excess earning
power and recorded at the acquisition of
Hoken Hiroba in the consolidated financial
statements, have been fully amortized.
In the international business, the YMFG Overseas
Buyers’ Online Business Talks were held four times a year
online to provide opportunities to expand overseas sales
routes for the businesses that are considering overseas
operations against the backdrop of a shrinking domestic
market due to population decline and other factors, but
are facing difficulties in traveling overseas or participatingin business meetings under COVID-19 pandemic.

■ Financial Results

On a consolidated basis, total income decreased ¥29,213
million year on year, to ¥156,292 million, due to lower
gains on the cancellation of investment trusts and the saleof stock. As a result, net income (loss) attributable toowners of the parent decreased ¥37,963 million, to¥(13,005) million.
Comprehensive income decreased ¥92,869 million

YMFG Integrated Report2022

82year on year, to ¥(31,336) million. This decrease was due
primarily to a decrease of ¥37,886 million in net income(loss), ¥25,026 million in remeasurements of defined
benefit plans, and ¥21,089 million in unrealized gains(losses) on available-for-sales securities.
Deposits amounted to ¥10,334.6 billion, up ¥323.0
billion, due to efforts to enhance products and services tomeet increasingly diverse customer needs, as well as tosteady progress in developing sales rooted in the region.
Loans and bills discounted increased ¥249.9 billion, to¥8,144.0 billion as of March 31, 2022, due to the Group’s
efforts to fulfill its role as a regional financial institution
through its function as a financial intermediary andaggressive efforts to meet demand from business partners
with whom the Group has developed trust-based
relationships.
The Group’s holdings of securities came to ¥1,354.0
billion at year-end, down ¥431.5 billion. This change isdue to the portfolio restructuring to promote a shift to astable profit structure in terms of the management of
securities by reducing mainly foreign bonds and equity
investment trusts with unrealized losses.
Total assets amounted to ¥12,182.7 billion at fiscal
year-end, up ¥188.9 billion from one year earlier. This

increase was the result of smaller holdings of securities
and growth in due from banks and loans, against a
backdrop of higher deposits.
Net assets stood at ¥636.3 billion, down ¥44.8 billion
from a year earlier. The decrease was due to a ¥16.8
billion decrease in retained earnings due to the recordingof net loss attributable to owners of the parent, as well as
to a ¥11.3 billion decrease in unrealized gains onavailable-for-sale securities and ¥10.5 billion decrease inremeasurements of defined benefit plans from the revisionof retirement benefit plan.
Net cash used in operating activities was ¥77.1 billion,a ¥1,196.4 billion decrease from the previous year, mainly
due to the decrease in borrowed money. Net cash
provided by investing activities was ¥462.0 billion, a¥754.7 billion increase from the previous year, mainly due
to decrease in purchases of securities. Net cash used infinancing activities was ¥13.2 billion, and a difference of¥22.0 billion from the previous fiscal year is primarily
because subordinated bonds were not issued. As a resultof these cash flows, cash and cash equivalents at the endof the fiscal year came to ¥2,151.8 billion, up ¥371.6
billion.

Yamaguchi Financial Group, Inc., Management Indices (Consolidated)
Millions of yen

Millions of yen

Millions of yen

Millions of yen

Thousands of
U.S. dollars*1

2022

2021

2020

2019

2022

Consolidated total income

156,292

185,505

175,423

162,593

1,276,992

Consolidated net income (loss) attributable toowners of the parent(13,005)

24,95825,391

23,149(106,267)

Consolidated comprehensive income(31,336)

61,533(25,204)652(256,034)

Consolidated total net assets

636,345

681,139630,245

660,958

5,199,322

12,182,663

11,993,722

10,605,416

10,304,140

99,539,693

2,652.26
yen2,729.94
yen2,458.73
yen

2,580.74
yen

21.67
U.S. dollars(53.29)
yen

99.63
yen

100.07
yen

94.65
yen

(0.44)
U.S. dollars

—
yen

99.59
yen

93.86
yen

83.27
yen

—
U.S. dollars

Capital ratio*2

12.65%

13.43%

12.62%

13.62%—

Earnings on equity – increase(1.99)%

3.84%

3.97%

3.53%

—

Group price earnings ratio*4— times

7.38 times

6.11 times

9.91 times—

Consolidated total assets
Net assets per share
Current term net income (loss) per share
Current term net income per share (diluted)*3*1 US dollar amounts have been translated, for convenience only, at the rate of ¥122.39 = US$1.00 as of March 31, 2022.
*2 YMFG calculated its capital ratio according to the uniform international standard (Basel 3).
*3 Net income per share (diluted) for the year ended March 31, 2022 is not described, because net loss per share is recorded although dilutive
shares exist.
*4 Group price earnings ratio for the year ended March 31, 2022 is not described because net loss per share is recorded.

83

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETSMarch 31, 2022 and 2021

Millions of yen

ASSETS
AssetsMillions of yen

Thousands of U.S.
dollars (Note 1)

2022

2021

2022

¥2,175,914¥1,807,659$17,778,528

Call loans and bills purchased (Note 4)

31,7139,189

259,114

Monetary claims bought

5,443

4,556

44,473

Trading assets (Notes 4 and 6)

3,101

1,981

25,337

Money held in trust (Notes 4 and 6)

35,06035,093

286,461

Securities (Notes 4, 5, 6 and 9)

1,354,034

1,785,562

11,063,273

Loans and bills discounted (Notes 4, 7 and 8)

8,143,997

7,894,126

66,541,360

Foreign exchanges

30,041

22,408245,453

Lease receivables and investment assets

19,69920,320160,953

Other assets (Notes 4, 6 and 9)288,263285,229

2,355,282

Tangible fixed assets (Notes 10, 11, 15 and 20)

83,13388,790679,247

Intangible fixed assets (Note 20)

6,991

9,797

57,121

Net defined benefit asset (Note 14)

32,72859,607

267,407

Cash and due from banks (Notes 3, 4 and 9)

Deferred tax assets (Note 21)

3,513

3,254

28,703Customers’ liabilities for acceptances and guarantees (Note 16)

50,38239,495

411,651

Allowance for loan losses
Total assets(81,349)(73,344)(664,670)¥12,182,663¥11,993,722$99,539,693$84,439,562

LIABILITIES AND NET ASSETS
Liabilities¥10,334,558¥10,011,575

Call money and bills sold (Notes 4 and 9)

Deposits (Notes 4 and 9)

78,078167,152

637,944

Payables under securities lending transactions (Notes 4 and 9)

314,959

326,415

2,573,405

Trading liabilities (Notes 4 and 6)
Borrowed money (Notes 4, 9 and 13)
Foreign exchanges

749

11,275638,353

5,119,258

172

194

1,405

Corporate bonds

20,00020,000163,412

Other liabilities (Notes 4 and 6)

102,982

89,658841,427

Provision for bonuses

2,878

2,852

23,515Net defined benefit liability (Note 14)

2,652

2,789

21,668Provision for directors’ retirement benefits

287

294

2,345

Provision for loss on interest repayments

19

43

155

Provision for reimbursement of deposits

531

709

4,339

Provision for customers point services

83

70

678

Provision for directors’ stock benefits

489

434

3,995

Reserves under special laws

17

17

139

1,422

1,499

11,619Deferred tax liabilities for land revaluation (Notes 15 and 21)

8,883

10,28572,579Acceptances and guarantees (Note 16)

50,38239,495

411,651

Deferred tax liabilities (Note 21)

Total liabilities
Net Assets(Notes 22
and 23)

1,380
626,546

11,546,318

11,312,583

94,340,371

Capital stock

50,00050,000408,530

Capital surplus

58,64858,655479,189

Retained earnings

511,253

528,086

4,177,245

Treasury stock(25,045)(18,649)(204,632)

Total shareholders’ equity

594,856

618,092

4,860,332

Unrealized gains on available-for-sale securities (Note 6)

8,172

19,477

66,770

Deferred gains (losses) on hedges

4,749

1,480

38,802

Revaluation reserve for land (Note 15)

20,001

23,192

163,420

Remeasurements of defined benefit plans

2,102

12,553

17,175

Total accumulated other comprehensive income

35,02456,702

286,167

Stock options (Note 24)

82

117

670

Non-controlling interests

6,383

6,228

52,153

Total net assets
Total liabilities and net assets

636,345

681,139

5,199,322¥12,182,663¥11,993,722$99,539,693

See accompanying notes.

YMFG Integrated Report2022

84

CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended March 31, 2022 and 2021

Millions of yen

Millions of yen

Thousands of U.S.
dollars (Note 1)

2022

2021

2022

Interest on loans and discounts¥67,497¥69,188$551,491

Interest and dividends on securities

22,54737,395

184,223

Other interest income

2,196

849

17,94300026,57025,389217,093

Income (Note 26)
Interest income:

Trust fees
Fees and commissions
Trading income

1,752

1,925

14,315

Other operating income

20,10827,095

164,294

Recoveries of written-off claims

10

9

82

Compensation for branch relocation

—

2

—

Other income (Note 17)

15,612

23,653

127,551

Total income

156,292

185,505

1,276,992

Expenses
Interest expense:
Interest on deposits

1,594

2,274

13,024

Interest on borrowings and rediscounts

747

945

6,103

Interest on bonds payable

158

81

1,291

2,966

2,546

24,234

Other interest expense
Fees and commissions

9,561

9,577

78,119Other operating expenses

47,78650,895

390,440

General and administrative expenses (Notes 18 and 24)

60,56264,541

494,828

Impairment losses (Note 12)

5,631

381

46,009Other expenses (Note 19)

32,79017,470267,915

Total expenses

161,795

148,710

1,321,963(5,503)36,795(44,971)

Current

941

11,655

7,689

Deferred

6,432

130

52,553

Net income (loss)(12,876)

25,010(105,213)

129

52

1,054

Net income (loss) attributable to owners of the parent¥(13,005)¥24,958$(106,267)

Yen

Yen

U.S. dollars (Note 1)

Amounts per share of common stock:

2022

2021

2022

Net income (loss) attributable to owners of the parent (Note 30)¥(53.29)

Income (loss) before income taxes
Income taxes (Note 21):

Net income attributable to non-controlling interests¥99.63$(0.44)

Millions of yen

Millions of yen

Thousands of U.S.
dollars (Note 1)

See accompanying notes.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended March 31, 2022 and 2021

Net income (loss)
Other comprehensive income (Note 27)
Unrealized gains (losses) on available-for-sale securities
Deferred gains (losses) on hedges
Remeasurements of defined benefit plans
Comprehensive income (Note 27)
Comprehensive income attributable to owners of the parent
Comprehensive income attributable to non-controlling interests
See accompanying notes.

85

2022

2021

2022

¥(12,876)¥25,010$(105,213)(18,460)

36,523(150,821)(11,278)

9,811(92,140)

3,269

12,137

26,710(10,451)

14,575(85,391)¥(31,336)¥61,533$(256,034)(31,493)

61,459(257,317)

157

74

1,283

Management Letter

Business Strategy
for Value Creation

About YMFGManagement Foundation
Supporting Value Creation

Financial Section

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
Years ended March 31, 2022 and 2021

Millions of yen
Shareholders’ Equity

Accumulated other comprehensive income

Total
Shareholders’EquityTotal
Unrealized gains
accumulatedon
Remeasurements
otheravailable-for- Deferred losses
Revaluation of defined benefit comprehensive
sale securities
on hedges
reserve for landplansincomeCapital Stock

Capital Surplus

Retained
Earnings

Treasury Stock¥50,000¥58,656¥508,212¥(14,321) ¥602,547

Dividend paid

(6,347)(6,347)(6,347)

Net income attributable toowners of the parent

24,95824,95824,958(5,001)(5,001)(5,001)

673

672

672

1,263

1,263

Balance at March 31, 2020

¥9,689¥(10,657)¥24,455¥(2,022)¥21,465

Stock options¥127

Non-controlling
Interests
Total Net Assets¥6,106¥630,245

Changes of items during the year

Purchase of treasury stock
Disposal of treasury stock(1)

Reversal of revaluation reserve
for land

1,263

Net changes of items otherthan shareholders’ equity
Total changes of items during theyear
Balance at March 31, 2021

12,137(1,263)

14,57535,237(10)

12235,349—(1)

19,874(4,328)15,545

9,788

12,137(1,263)

14,57535,237(10)122

50,894¥50,000¥58,655¥528,086¥(18,649)¥618,092¥19,477¥1,480¥23,192¥12,553¥56,702¥117¥6,228¥681,139

Cumulative effects of changes
in accounting policies
Restated balance

9,788

(320)
50,00058,655

527,766(320)(18,649)

617,772(320)
19,477

1,480

23,192

12,55356,702

117

6,228

680,819

Changes of items during the year
Dividend paid

(6,699)(6,699)(6,699)Net loss attributable toowners of the parent(13,005)(13,005)(13,005)(6,501)(6,501)(6,501)

105

98

98

3,191

3,191

Purchase of treasury stock
Disposal of treasury stock(7)

Reversal of revaluation reserve
for land

3,191

Net changes of items otherthan shareholders’ equity
Total changes of items during theyear
Balance at March 31, 2022

(11,305)

3,269(3,191)(10,451)(21,678)

(35)

155

(21,558)—(7)(16,513)(6,396)(22,916)(11,305)

3,269(3,191)(10,451)(21,678)

(35)

155

(44,474)¥50,000¥58,648¥511,253¥(25,045)¥594,856¥8,172¥4,749¥20,001¥2,102¥35,024¥82¥6,383¥636,345

Thousands of U.S. dollars (Note 1)
Shareholders’ Equity

Retained
Earnings

Accumulated other comprehensive income
Total
Unrealized gains
accumulatedon
Remeasurements
otheravailable-for- Deferred losses
Revaluation of defined benefit comprehensive
sale securities
on hedges
reserve for landplansincomeStock options

Non-controlling
Interests
Total Net Assets$964$50,887 $5,565,324

Capital Stock

Capital Surplus$408,530$479,247 $4,314,781$(152,374) $5,050,184(2,605)(2,605)

4,312,176(152,374) 5,047,579

Dividend paid

(54,737)(54,737)(54,737)

Net loss attributable toowners of the parent(106,267)(106,267)(106,267)(53,116)(53,116)(53,116)

858

800

800

26,07326,073

Balance at March 31, 2021
Cumulative effects of changes
in accounting policies
Restated balance

408,530

479,247

Treasury Stock

Total
Shareholders’Equity$159,139$12,092$189,492$102,566$463,289(2,605)
159,139

12,092

189,492

102,566

463,289

964

50,887

5,562,719

Changes of items during the year

Purchase of treasury stock
Disposal of treasury stock(58)

Reversal of revaluation reserve
for land

26,073

Net changes of items otherthan shareholders’ equity
Total changes of items during theyear
Balance at March 31, 2022—
$408,530(58)(134,931)$479,189 $4,177,245(92,369)

26,710(26,072)(85,391)(177,122)

(294)

1,266

(176,150)(187,247)(92,369)

26,710(26,072)(85,391)(177,122)

(294)

1,266

(363,397)$(204,632) $4,860,332$66,770$38,802$163,420$17,175$286,167$670(52,258)$52,153 $5,199,322

See accompanying notes.

YMFG Integrated Report2022

86

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31, 2022 and 2021

Millions of yen
2022

Millions of yen
2021

Thousands of U.S.
dollars (Note 1)
2022¥(5,503)
5,401
5,631
400
5
8,005
26
26,879
(137)
(7)
54
(24)
(178)
13
0
(92,239)
5,465
34,738(245)(18,785)90(1,120)631(249,871)
323,940(956)(11,806)
3,392(23,412)(89,074)(11,456)(7,633)(22)
622(9,094)
1,241
81,234(5,614)(40,474)(69,883)(9,095)
1,846(77,132)¥36,795
5,787
381
378
7
7,542
87
(24,565)(1,141)
(0)
45
33
(321)
0
(11)
(107,432)
5,846
8,440
3,680
(9,935)
(733)
(439)
6
(241,500)
600,731(115,091)
610,354(487)(7,170)75,160164,949(1,715)
(3)
(558)
—
—
82,401(6,668)48,673
1,133,526(14,227)
2
1,119,301¥(44,971)
44,12946,0093,268
41
65,406
212
219,618(1,119)
(57)
441
(196)
(1,454)106
0(753,648)
44,652283,830(2,002)(153,485)
735(9,151)5,156(2,041,597)
2,646,785(7,811)(96,462)
27,715(191,290)(727,788)(93,602)(62,366)
(180)
5,082
(74,303)
10,140663,731(45,870)(330,672)(570,968)(74,312)
15,083(630,197)

Cash flows from investing activities:
Purchases of securities
Proceeds from sales of securities
Proceeds from maturity of securities
Purchases of money held in trust
Proceeds from sales of money held in trust
Purchases of tangible fixed assets
Proceeds from sales of tangible fixed assets
Purchases of intangible fixed assets
Purchases of shares of affiliates accounted for by the equity method
Net cash provided by (used in) investing activities(2,107,076)
2,534,144
35,224(8,510)8,970(1,516)2,740(1,992)(10)
461,974(2,623,555)
2,286,070
60,669(49,940)
37,131(1,666)754(2,202)—(292,739)(17,216,080)
20,705,483
287,801(69,532)
73,291(12,387)
22,388(16,276)(82)
3,774,606

Cash flows from financing activities:
Issuance of subordinated bonds
Dividends paid
Dividends paid to non-controlling shareholders
Purchases of treasury stock
Proceeds from disposal of treasury stock
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of fiscal year
Cash and cash equivalents at the end of fiscal year (Note 3)—(6,699)(3)(6,501)
0(13,203)7
371,646
1,780,180¥2,151,826

19,885(6,347)(3)(5,001)297
8,831
3
835,396944,784¥1,780,180—(54,735)(25)(53,116)0(107,876)
65
3,036,598
14,545,143$17,581,741

Cash flows from operating activities:
Income (loss) before income taxes
Depreciation
Impairment losses
Amortization of goodwill
Equity in earnings of affiliates
Net change in allowance for loan losses
Net change in provision for bonuses
Net change in defined benefit asset
Net change in defined benefit liability
Net change in provision for directors’ retirement benefits
Net change in provision for directors’ stock benefits
Net change in provision for loss on interest repayments
Net change in provision for reimbursement of deposits
Net change in provision for customers point services
Increase (decrease) in reserves under special laws
Interest income
Interest expenses
Net gains related to securities transactions
Net losses (gains) from money held in trust
Net exchange losses (gains)
Net losses (gains) from disposition of fixed assets
Net change in trading assets
Net change in trading liabilities
Net change in loans and bills discounted
Net change in deposits
Net change in negotiable certificates of deposits
Net change in borrowed money excluding subordinated loans
Net change in deposits with bank
Net change in call loans and bills purchased
Net change in call money and bills soldNet change in payables under securities lending transactions
Net change in foreign exchanges (asset account)
Net change in foreign exchanges (liability account)
Net change in lease receivables and investment assets
Losses (gains) on cancellation of retirement benefit trusts (Note 14)
Loss (gain) on revision of retirement benefit planInterest received
Interest paid
Other, net
Subtotal
Income taxes paid
Income taxes refunds
Net cash provided by (used in) operating activities

See accompanying notes.

87

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Notes to Consolidated Financial Statements
Years ended March 31, 2022 and 2021

1. BASIS OF PRESENTATION
Yamaguchi Financial Group, Inc. “YMFG”() is a holding
company for The Yamaguchi Bank, Ltd. “Yamaguchi(
Bank”), Momiji Bank, Ltd. “Momiji(
Bank”), The Kitakyushu
Bank, Ltd. “Kitakyushu(
Bank”) and other subsidiaries.
YMFG and its consolidated subsidiaries “the(Group”)
maintain their accounts and records in accordance withthe provisions set forth in the Financial Instruments andExchange Act and its related accounting regulation and in
conformity with accounting principles and practices
generally accepted in Japan “Japanese(
GAAP”). Japanese
GAAP are different in certain respects as to applicationand disclosure requirements of International Financial
Reporting Standards.
The accompanying consolidated financial statements
are a translation of the audited consolidated financial
statements of YMFG which were prepared in accordancewith Japanese GAAP and were filed with the appropriate
Local Finance Bureau of the Ministry of Finance as
required by the Financial Instruments and Exchange Act.
In preparing the accompanying consolidated financial
statements, certain restructuring and reclassifications havebeen made in the consolidated financial statements issued
domestically in order to present them in a form which ismore familiar to readers outside Japan.
The consolidated financial statements are stated inJapanese yen. The translations of the Japanese yenamounts into U.S. dollars are included solely for theconvenience of readers, using the prevailing exchange rate
at March 31, 2022, which was ¥122.39 to U.S.$1.00. Suchtranslations should not be construed as representations
that the Japanese yen amounts have been, could havebeen, or could in the future be, converted into U.S. dollars
at this or any other rate of exchange.

2. SIGNIFICANT ACCOUNTING POLICIESConsolidation and equity method(1) Scope of consolidation

Japanese accounting standards on consolidated financial
statements require a company to consolidate any
subsidiaries of which the company substantially controls
the operations, even if it is not a majority owned
subsidiary. Control is defined as the power to govern thedecision-making body of an enterprise.
(i) Consolidated subsidiaries were 19 at March 31, 2022
and 2021.
The names of the main consolidated subsidiaries arelisted on page 21.
The scope of consolidation includes Nishiseto
Regional Co-creation Servicer Inc. and Inesus inc. dueto their establishment in the year ended March 31,2021.
(ii) No unconsolidated subsidiary at March 31, 2022 and2021.
Maple Funding Corporation, an unconsolidated
subsidiary not accounted for by the equity method in
the year ended March 31, 2020, was liquidated in theyear ended March 31, 2021.

(2) Application of the equity method

Japanese accounting standards also require any
unconsolidated subsidiaries and affiliates with financial
and operating policies over which YMFG is able toexercise material influence to be accounted for by theequity method.
(i) No unconsolidated subsidiary was accounted for by theequity method at March 31, 2022 and 2021.
(ii) As at March 31, 2022 and 2021, three and two
affiliates were accounted for by the equity method,respectively.
Affiliates as at March 31, 2022 were as follows:
YM Saison Co., Ltd.
Momiji Card Co., Ltd.
Nishiseto Marine Partners
The scope of application of equity method includes
Nishiseto Marine Partners due to its establishment in
the year ended March 31, 2022.
Affiliates as at March 31, 2021 were as follows:
YM Saison Co., Ltd.
Momiji Card Co., Ltd.
(iii) As at March 31, 2022 and 2021, no unconsolidated
subsidiary was not accounted for by the equity
method.
Maple Funding Corporation, an unconsolidated
subsidiary not accounted for by the equity method in
the year ended March 31, 2020, was liquidated in theyear ended March 31, 2021.
(iv) There were no affiliates that were not accounted forby the equity method as at March 31, 2022 and 2021.

(3) The balance sheet dates of consolidated
subsidiaries

The balance sheet date of all of the consolidated
subsidiaries is March 31 every year.

(4) Accounting policies
Criteria for recording dividends payable on securities
Dividends distributed from other retained earnings (cashdividends only) are recorded in the year that includes theeffective date of the dividend-related resolution by theissuing company’s general meeting of shareholders, Boardof Directors or other institution with decision-making
authority.

Trading assets, trading liabilities and transactions for
trading purposes

The valuation method of“trading assets”and“trading
liabilities”is as follows:
Balances incurred by transactions of which the
purpose is to earn a profit by taking advantage ofshort-term fluctuations in a market or discrepancies indifferent markets of interest rates, currency exchange
rates, share prices or other indices (hereinafter referred toas“trading purposes”) are included in“trading assets”or“trading liabilities”in the consolidated balance sheets asof the date on which the transactions have been
contracted. The income or losses on these transactions
are recorded as“trading income”and“trading expenses”
in the consolidated statements of OPERATIONS.
Trading assets and trading liabilities are valued, in thecase of securities and commercial paper, at the market
value as of the date of the balance sheet and, in the case

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88

of derivatives, including swaps, futures and options, at theamount due if the transactions were to be settled as ofthe date of the balance sheet.“Trading income”and“trading expenses”include interest income and interest
expense, respectively, and gains and losses, respectively,
resulting from the valuation of securities, commercial
paper, derivatives, etc., which are included in“trading
assets”or“trading liabilities.”

Securities

With regard to the valuation of securities, held-to-maturity
debt securities are stated at amortized cost (straight-line
method) using the moving-average method.
Available-for-sale securities are stated at fair value (cost ofsale calculated primarily according to the moving-averagemethod). Shares, etc. that do not have a market price arevalued at cost using the moving-average method.
Unrealized gains (losses) on available-for-salesecurities (excluding valuation differences due to foreignexchange fluctuations, which are included in foreignexchange trading gains or losses as other operating
income or other operating expenses) are reported as acomponent of net assets.

Money in trust

Trust assets within money held in trust are valued using
the market value method.

Derivatives

Derivatives other than those for which exceptional
accounting treatment is applied are stated at fair value.

Criteria for recording gains or losses on thecancellation of investment trusts

When handling the cancellation of investment trusts byconsolidated subsidiaries engaged in the banking
business, YMFG does not offset cancellation gains andlosses occurring on each transaction. Rather, cancellation
losses are recorded in“loss on redemption of government
bonds, etc.,”which is within“other operating expenses.”
Cancellation gains are recorded in“interest and dividends
on securities.”

Criteria for recording income and expenses related
to lease transactions

Criteria for recording income and cost are recognized at
the time lease fees are received. Income is recorded in“other operating income,”and cost of sale is recorded in“other operating expenses.”

Criteria for recording sales and cost of sales of
installment sales transactions

Payment dates are used as the basis for installment
agreements, with installment sales and installment costs
recoded in accordance with the elapsed period.
Installment sales are recorded in“other operating
income,”and installment costs are recorded in“otheroperating expenses.”Unrealized profit on installment
sales is recorded under“other liabilities,”and unrealized
installment profit is deferred for installment receivables
that have not come due as of the end of the year.

89

Method for recording revenue

YMFG recognizes revenue when control of a promised
goods or services is transferred to a customer in an
amount that reflects the consideration to which YMFG
expects to be entitled in exchange for those goods orservices.

Method of hedge accounting

The subsidiaries that conduct banking business “the(Banks”) apply deferred hedge accounting in accordancewith the“Treatments of Accounting and Audit on
Application of Accounting Standard for Financial
Instruments in Banking Industry”(The Japanese Instituteof Certified Public Accountants “JICPA”() Industry Audit
Committee Report No. 24, March 17, 2022).
As for the hedge to offset market fluctuation, theBanks assess the effectiveness of the hedge by grouping
the hedged items such as deposits and loans and thehedging instruments such as interest rate swaps by theirmaturity.
Also, the Banks apply deferred hedge accounting tohedge foreign exchange risks associated with various
foreign currency denominated monetary assets andliabilities as stipulated in the“Treatment of Accounting
and Auditing Concerning Accounting for Foreign Currency
Transactions in Banking Industry”(JICPA Industry Audit
Committee Report No. 25, October 8, 2020).
The effectiveness of the currency swap transactions,exchange swap transactions and similar transactions
hedging the foreign exchange risks of monetary assets andliabilities denominated in foreign currencies is assessed
based on comparison of the foreign currency position of
the hedged monetary assets and liabilities and thehedging instruments.
The Banks apply an exceptional accounting treatment,
as permitted if certain conditions are met, for certain
interest rate swaps utilized as hedging instrument. In thattreatment, the interest swap contracts are not recorded atfair values but the net interest to be paid or received
under the contracts is added or deducted to the interest
arising from their related hedged assets.

Allowance for loan losses

The Banks provide allowance for loan losses according to
the following write-off and provisioning standards.
For loans to borrowers who are legally bankrupt (dueto bankruptcy, composition, suspension of transactions
with banks by the rules of clearinghouses, etc.) or
substantially bankrupt, an allowance is provided in theamount of loans, net of amounts expected to be collected
through disposition of collateral or through execution ofguarantees.
For loans to borrowers in danger of bankruptcy, anallowance is provided in the amount considered
uncollectible based on the amount of loans, net ofamounts expected to be collected through disposition ofcollateral or through execution of guarantees, and othersources.
Loans to normal borrowers and borrowers requiringcaution are classified into certain groups, and expected
losses are estimated for the upcoming one or three-year
period. For loans to normal borrowers, expected loss
amounts are calculated by using average values for actualManagement Letter

About YMFGBusiness Strategy
for Value Creation

rates of losses from bad debts during a specific period in
the past, based on actual amounts of bad debt over a
one-year period, and adjusted as necessary for futureforecasts taking into account the expected deteriorationof operating performance. For loans to borrowers
requiring caution, expected loss amounts are calculated
by using average values for actual rates of losses from bad
debts or default probabilities during a specific period in
the past, based on actual amounts of bad debt or
bankruptcy over a three-year period, and adjusted asnecessary for future forecasts taking into account the
expected deterioration of operating performance.
For loans to a large borrower requiring caution who
has formulated a management improvement plan andcarries specifically large credit risk and whose loan
amount, net of amounts expected to be collected throughdisposition of collaterals or execution of guarantees,
exceeding a certain amount, difference between amountobtained by discounting cash flows at the initial
contractual interest rate and the book value of loans isrecorded as allowance for loan losses (discounted cash
flow method; hereinafter,“DCF method”), if the cash
flows related to the collection of principal and the receipt
of interest can be reasonably estimated.
Each branch as well as the credit supervision
department evaluates all loans in accordance with theself-assessment rule.
Other consolidated subsidiaries provide an allowance
for an amount calculated using the rate of collection
losses in the past for loans of normal borrowers in
addition to amounts estimated based on collectability
analysis for borrowers in danger of bankruptcy and certain
other borrowers.

Tangible fixed assets (excluding lease assets)

Depreciation of tangible fixed assets of YMFG and its
consolidated subsidiaries that conduct banking businessare computed by using the declining-balance method
except for buildings (excluding fixtures) acquired after
April 1, 1998 and fixtures and buildings acquired after
April 1, 2016, which are depreciated using the straight-line
method.
The estimated useful lives of the assets are primarily
as follows:
Buildings: 7 to 50 years
Others: 2 to 15 years
Other consolidated subsidiaries depreciate their
tangible fixed assets using mainly the declining-balancemethod over the useful lives of the respective assets
provided by the Corporation Tax Act in Japan.

Intangible fixed assets (excluding lease assets)

Amortization of intangible fixed assets is computed byusing the straight-line method. Software costs for internal
uses are amortized over the estimated useful life (5 years).

Lease assets

Lease assets included within tangible and intangible fixed
assets related to finance lease transactions that do nottransfer ownership are depreciated over the lease termusing the straight-line method. For lease assets with aguaranteed residual value stated in their leaseagreements, the residual value is set at the guaranteed

Management Foundation
Supporting Value Creation

Financial Section

amount. Otherwise, the residual value is assumed to be
zero.

Income taxes

Income taxes comprise corporate, enterprise andinhabitant taxes. The Group recognizes tax effects of
temporary differences between the financial statement
basis and the tax basis of assets and liabilities. The asset
and liability approach is used to recognize deferred tax
assets and liabilities for the expected future tax
consequences of temporary differences.

Foreign currency translation

Foreign currency assets and liabilities and the accounts ofoverseas branches of YMFG and consolidated subsidiaries
are translated into yen at the rates prevailing at theconsolidated balance sheet date.

Provision for bonuses

Provision for bonuses is provided for payment of bonuses
to employees, in the amount of estimated bonuses thatare attributable to the year.

Method of accounting for retirement benefits

When calculating retirement benefit obligations, thebenefit formula method is used for attributing expected
retirement benefits to the year-end. The following
methods are used to expense prior service costs andactuarial gains or losses.
Prior service costs: Expensed as incurred using thestraight-line method over a fixed period (two years) within
the employee’s average remaining service period
Actuarial gains or losses: Apportioned for each year as
incurred using the straight-line method over a fixed period(10–11 years) and expensed in each of the following years
Some consolidated subsidiaries employ the simplified
method for calculating retirement benefit obligations andperiodic benefit costs, stating retirement benefit
obligations at the amounts required as if all employees
voluntarily terminate their employment as of the year-end.

Provision for directors’ retirement benefits

The provision for directors’ retirement benefits forconsolidated subsidiaries outside the banking business isprovided for the estimated amount corresponding to
accrued retirement benefit payments to directors as of theend of the year.

Provision for directors’ stock benefits

The provision for directors’ stock benefits is determinedaccording to the directors’ stock benefit regulations for
YMFG and its subsidiaries (banks within YMFG (Yamaguchi
Bank, Momiji Bank and Kitakyushu Bank) and YM
Securities; the same shall apply hereafter) in preparation
for the payment of stock benefits to directors (excluding
directors who are members of the Audit and Supervisory
Committee, part-time directors and outside directors) and
executive officers (hereinafter,“Subject Directors, etc.”)
based on expected stock benefit obligations as of March
31, 2022.

Provision for loss on interest repayment

Provision for loss on interest repayment is provided for

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90

possible losses on reimbursements of excess interest
payments and loan losses related to consumer financeloans extended at interest rates in excess of the maximum
interest rate prescribed in the Interest Rate Restriction
Law.
In accordance with the“Audit Guidelines on Consumer
Finance Companies’ Provisions for Possible Losses on
Reimbursements of Excess Interest Payments,”issued by
JICPA in 2012, the amount of such provision is rationallyestimated and booked based on actual historical
repayment claims by debtors.

Provision for reimbursement of deposits

Provision for reimbursement of deposits is provided for inorder to meet depositor requests for reimbursement on
deposits already derecognized as liabilities, in an amountdeemed necessary by estimating the losses corresponding
to the expected requests for reimbursements in the future.

Provision for customer point services

Provision for customer point services is provided inconjunction with a point system to promote credit carduse. The provision is recorded for the expected cost to be
incurred when credit card members use points they havereceived as of the balance sheet date.

Reserves under special laws

Reserves under special laws consist of the financial
instruments transaction responsibility reserve posted by
YM Securities Co., Ltd., which were calculated according
to the specified formula of Article 46-5 of the Financial
Instruments and Exchange Act and Article 175 of the
Cabinet Office Order Related to the Financial Instruments
Business, to prepare for future eventual losses originatingfrom incidents relating to the purchase and sale ofsecurities or other transactions.

Amounts per share of common stock

Computations of net income per share of common stock
are based on the weighted-average number of shares
outstanding during each year.
Cash dividends per share represent the cash dividends
declared as applicable to each year.

Amortization of goodwill

Goodwill is amortized mainly over a 10-year period using
the straight-line method.

Consumption taxes

YMFG and its consolidated subsidiaries employ the tax
exclusion method for consumption tax and local
consumption taxes, meaning that transaction amounts andconsumption tax amounts are treated separately foraccounting purposes.
However, non-deductible consumption taxes forpurchase of property, plant and equipment are recognized
as expenses for the year of the purchase.

Adoption of consolidated tax payment system

YMFG and certain of its consolidated subsidiaries adopted
the consolidated tax payment system as provided under
the Corporation Tax Act.

91

Major accounting estimates
Allowance for loan losses

The items below relate to all banks within YMFG.
1. Amounts in the consolidated financial statements forthe years ended March 31, 2022 and 2021
Millions of yen

Total loan amount before
intra-Group eliminations

Corresponding allowance forloan losses

Thousands of
U.S. dollars

2022

2021

¥8,223,908¥7,963,538$67,194,281

2022

78,06869,505

637,863

Of this, the following amounts were to borrowers ofmanagement improvement support initiatives.
Millions of yen

Total loan amount before
intra-Group eliminations

Corresponding allowance forloan losses

Thousands of
U.S. dollars

2022

2021

¥133,405¥137,771$1,089,999

2022

27,693

15,835226,268

2. Details of major accounting estimates related to items
identified separately(1) Calculation method
At YMFG banks, branches and departments conducting
self-assessments perform asset appraisals of all
obligations, including loans, based on asset
self-assessment criteria. Asset appraisals are conducted inaccordance with borrowers’ credit risk. In addition tofinancial details and other quantitative information,
judgments incorporate factors related to the borrower,such as forecasts for the future. Appraisals also take into
consideration the satisfaction of certain conditions, suchas the formulation of management improvement plans
determined to be rational and highly likely to be achieved.
Borrower categories are determined on the basis of suchconsiderations.
Information related to recording the allowance forloan losses is provided in“Allowance for loan losses”
under (4) Accounting policies in“2. SIGNIFICANTACCOUNTING POLICIES.”(2) Major assumptions
YMFG’s main bases of operation are in Yamaguchi
Prefecture, Hiroshima Prefecture and the city of
Kitakyushu. In addition to a shrinking population,
decreasing birthrate and aging population, and a shortageof business successors, recently the region has been
affected by the prolonged COVID-19 pandemic, which has
reduced corporate earnings, lowered personal
consumption and led to uncertainty about the future.
As one aspect of its efforts to achieve regional
revitalization and regional economic invigoration amid
these circumstances, YMFG conducts business feasibility
assessments. YMFG designates borrowers that it
determines to require management improvement support
as“borrowers of management improvement support
initiatives”and concentrates on providing such support.
The determination of borrower categories asborrowers of management improvement support initiatives
is based on YMFG’s estimates of future forecasts, namely,
the expectation that management improvement plans on
which such support is based are rational and achievable.
Recently, the impact of the prolonged COVID-19
pandemic on loan credit expenses has been at a low level
partly due to active financial support. However, for sectors
with increasing uncertainties due to the prolonged

Management Letter

About YMFGBusiness Strategy
for Value Creation

COVID-19 pandemic, additional allowance for loan losses
is recorded using the expected loss rate adjusted basedon the expected deterioration of operating performance.
(3) Impact on consolidated financial statements for the
next year
Actual losses that exceed bad-debt expectations, aninsufficient allowance for loan losses, deterioration of theoverall economic environment, a decrease in the value ofcollateral or other unforeseen circumstances could require
the Group to change the standards it has set or adjust
expected losses. Furthermore, accumulations in theallowance for loan losses could have a significant effecton operating performance and the financial condition.
If the COVID-19 pandemic persists for a longer periodof time or increases in severity, the operating environment
could deteriorate further. This situation could have amaterial impact on the allowance for loan losses for thefollowing year.

Changes in accounting policies
Application of the Accounting Standard for Revenue
Recognition and other standards

YMFG has applied the“Accounting Standard for Revenue
Recognition”(ASBJ Statement No. 29, March 31, 2020;
hereinafter“Revenue Recognition Standard”) and otherstandards from the beginning of the year ended March 31,
2022. YMFG recognizes revenue when control of apromised goods or services is transferred to a customer inan amount that reflects the consideration to which YMFG
expects to be entitled in exchange for those goods orservices. YMFG applies the“Revenue Recognition
Standard,”etc. in accordance with the transitional
treatment provided for in the proviso to Paragraph 84 of
the Revenue Recognition Standard. The cumulative impactof retrospectively applying the new accounting policies toprior years is adjusted to retained earnings at the
beginning of the year ended March 31, 2022, with the
new accounting policies applied from the beginningbalance. The impact of the application on the
consolidated financial statements is immaterial.
In accordance with the transitional treatment set forthin Paragraph 89-3 of the Revenue Recognition Standard,notes on revenue recognition for the year ended March
31, 2021 are not presented.

Application of the Accounting Standard for Fair
Value Measurement and other standards

YMFG has applied the“Accounting Standard for Fair
Value Measurement”(ASBJ Statement No. 30, July 4,
2019; hereinafter“Fair Value Measurement Standard”)
and other standards from the beginning of the year ended
March 31, 2022. In line with the application, YMFG
reviewed fair value measurement for unlisted derivativetransactions to reflect the credit risk of YMFG andcounterparties on the fair values. In applying the new
accounting policies, the cumulative impact to prior years
is reflected on retained earnings at the beginning of theyear ended March 31, 2022 in accordance with thetransitional treatment provided in the additional clause in
Paragraph 20 of the Fair Value Measurement Standard.
The impact of this measure on the consolidated financial
statements is immaterial.

Management Foundation
Supporting Value Creation

Financial Section

Moreover, YMFG prospectively applied the new
accounting policies stipulated by the Fair Value
Measurement Standard, etc. in accordance with thetransitional treatment provided in Paragraph 19 of the Fair
Value Measurement Standard and Paragraph 44-2 of the“Accounting Standard for Financial Instruments”(ASBJ
Statement No. 10, July 4, 2019). Accordingly, YMFG
changed the measurement criterion for the value of listed
shares on the consolidated balance sheets as of the endof the year ended March 31, 2022 from the average ofmarket prices for one month prior to the end of the year
to the market price at the end of the year.
In addition, YMFG included notes on fair value
information by level within the fair value hierarchy in thenotes on financial instruments. However, in accordancewith the transitional treatment provided in Paragraph 7-4of the“Implementation Guidance on Disclosures about
Fair Value of Financial Instruments”(ASBJ Guidance No.
19, July 4, 2019), notes pertaining to the year ended
March 31, 2021 are not presented.

Standards and guidance not yet adopted

The following guidance was issued but not yet adopted.
-“Implementation Guidance on Accounting Standard for
Fair Value Measurement”(ASBJ Guidance No. 31, June17, 2021)(1) Overview
The revision to the“Implementation Guidance on
Accounting Standard for Fair Value Measurement”(ASBJ
Guidance No. 31) as of June 17, 2021 is to revise andpublish“determination of the fair value of investment
trusts”and notes on the fair value of“investments inpartnerships, etc. for which equity interests are recorded
on a net basis on the consolidated balance sheet.”Whenthe ASBJ published this guidance on July 4, 2019, it
announced that these issues would be examined forapproximately one year after the publication of the“Accounting Standard for Fair Value Measurement,”
because“determination of the fair value of investment
trusts”requires certain examination in discussions with
relevant parties, and notes on the fair value of“investments in partnerships, etc. for which equity
interests are recorded on a net basis on the consolidatedbalance sheet”also require certain examination.
(2) Effective date
To be effective from the beginning of the year ending
March 31, 2023.
(3) Effects of the application of the standards
The impact of applying the“Implementation Guidance on
Accounting Standard for Fair Value Measurement”on the
consolidated financial statements is currently being
measured.

Changes in accounting estimates
Criteria for recording allowance for loan losses

Through business feasibility assessments, the banks within
YMFG have supported the formulation andimplementation of business plans and other plans leading
to the medium- to long-term growth of borrowers.
Meanwhile, for borrowers requiring caution who have

YMFG Integrated Report2022

92formulated a management improvement plan Underdifficult financial condition, the banks within YMFG
deliberated methods and frameworks for estimating
expected losses more precisely, since they confirmed thatthe portfolio of these borrowers has risk characteristics
different from that of other borrowers requiring caution In
terms of loss rates.
As a result, the banks within YMFG have successfully
established a framework for estimating expected losses
more precisely for the portfolio. Accordingly, since theyear ended March 31, 2022, the DCF method has been
applied to these large borrowers, of the aforementioned
borrowers, whowhose loan have the amount of loans andthe amount of loans, net of amounts expected to becollected through disposition of collateral or throughexecution of guarantees, exceedsing a certain amount.
As a result of this change, provision of allowance forloan losses and allowance for loan losses increased by¥828 million ($6,765 thousand), respectively, and ordinary
loss and loss before income taxes accordingly increasedby the same amount.

Additional information(Board Benefit Trust (BBT))YMFG has introduced a Board Benefit Trust “BBT”() toraise awareness among Subject Directors, etc. of YMFG
and its subsidiaries (banks within the Group (Yamaguchi
Bank, Momiji Bank and Kitakyushu Bank) and YM
Securities; the following shall apply hereinafter) towardraising operating performance at YMFG over the medium
to long term and contributing to increases in corporate
value.
(1) Overview of transactions
Via the trust, YMFG acquires YMFG’s common sharesusing funds provided by YMFG. YMFG’s share and cash
equivalent to fair value of YMFG’s stock measured at thetime of retirement are granted to be distributed via thetrust to Subject Directors, etc. according to Subject
Directors, etc.’ positions, and the level of achievement ofoperating performance in accordance with directors’ stock
benefit regulations established by YMFG and its
subsidiaries.
(2) Company shares residing in the trust
YMFG’s shares residing in the trust are recorded astreasury stock in the net assets section based on the bookvalue of the trust (excluding ancillary expenses).
The book value and the number of shares of thistreasury stock amounted to ¥743 million ($6 million) and
849 thousand shares on March 31, 2022 and ¥805 million
and 921 thousand shares on March 31, 2021.
(Treatment related to the application of tax effectaccounting for the transition from the consolidated
taxation system to the group tax sharing system)
With regard to matters related to the transition to thegroup tax sharing system established by the“Act for thePartial Amendment of the Income Tax Act”(Act No. 8 of2020) and the revision of the single tax payment system
to coincide with the transition to the group tax sharing
system, YMFG and certain consolidated subsidiaries basetheir amounts of deferred tax assets and deferred tax
liabilities on tax law prior to revision without applying

93

Paragraph 44 of the“Implementation Guidance on Tax
Effect Accounting”(ASBJ Guidance No. 28, February 16,2018), in accordance with treatment under Paragraph 3 ofthe“Practical Solution on the Treatment of Tax EffectAccounting for the Transition from the Consolidated
Taxation System to the Group Tax Sharing System”(PITF
No. 39, March 31, 2020).
From the beginning of the year ending March 31,
2023, YMFG and certain consolidated subsidiaries will
apply the“Practical Solution on the Accounting andDisclosure Under the Group Tax Sharing System”(PITF
No. 42, August 12, 2021) which stipulates the practicalsolution on the accounting and disclosure of corporate
taxes, local corporate taxes and tax effect accounting
under the group tax sharing system.

3. CONSOLIDATED STATEMENTS OF
CASH FLOWS AND CASH
EQUIVALENTS
In preparing the consolidated statements of cash flows,
the Group considers cash and due from THE BANK OF
JAPAN as cash and cash equivalents.
The reconciliation of cash and due from banks in the
consolidated balance sheets and cash and cash
equivalents in the consolidated statements of cash flows
at March 31, 2022 and 2021 was as follows:

Cash and due from banks
Time deposits in other banks
Other
Cash and cash equivalents

Millions of yen
2022
2021

Thousands of
U.S. dollars
2022¥2,175,914 ¥1,807,659 $17,778,528(12,421)(15,172)(101,487)(11,667)(12,307)(95,300)¥2,151,826 ¥1,780,180 $17,581,741

Significant transactions not requiring use of cash or cash
equivalents were acquisition of securities due to partial
cancellation of retirement benefit trusts of ¥25,026 million($204,477 thousand) for the year ended March 31, 2022.

4. FINANCIAL INSTRUMENTS
Items pertaining to the status of financial instruments(1) Policies on financial instruments

YMFG provides community-based integrated financial
services centered on the banking, securities and credit
card businesses. Accordingly, the Group is subject to avariety of risks, including credit risk, market risk andliquidity risk. Due to changes in economic, social andfinancial conditions, these risks have grown more diverseand complex. Under these conditions, the Groupconsiders strengthening its risk management structure asa priority issue. To maintain and enhance the soundnessof its operations, YMFG has created groupwide risk
management regulations, which clarify the Group’s
fundamental stance on risk management.

(2) Content and risks of financial instruments

Of financial assets held by the Group, principally loans
and bills discounted extended to business partners are
subject to the credit risk from breach of contract. The
Group holds securities, principally debt securities, equity

Management Letter

About YMFGBusiness Strategy
for Value Creation

securities and investment trusts, for trading purposes, forholding to maturity, for purely investment purposes or topromote positive business relations. These securities are
subject to issuer credit risk, interest rate fluctuation risk
and market price fluctuation risk.
The Group’s financial liabilities center on deposits andnegotiable certificates of deposit, and call money that itraises in the market. However, the Group is subject to theliquidity risk of becoming unable to secure necessary
funding. The Group is also subject to interest rate risk
arising from fluctuations in financial and economic
conditions.
The Group employs derivative transactions to hedge
underlying market risks on its assets and liabilities. The
Group also provides derivatives as financial products tomeet customers’ needs. Interest-related andsecurities-related derivative transactions are employed tolimit the impact on income of future interest rate
fluctuations and price fluctuations for loans and bills
discounted, deposits, securities and other instruments
bearing long-term interest at fixed rates. Currency-related
derivative transactions are used primarily to avoid
fluctuations in income stemming from future exchange
rate fluctuations, stabilize funding denominated in foreign
currencies, as well as offered as products to clients. With
regard to transactions to secure income through changes
in market rates, which are conducted on a limited basis,the Group has established stringent standards that include
risk limits and loss limits.
As market risk factors, interest-rate-related andsecurities-related derivative transactions are subject to therisk of fluctuations in interest rates and prices, andcurrency-related derivative transactions are subject toexchange rate fluctuations. For transactions that are notconducted on exchanges, the Group is subject to credit
risk, the risk of loss in the event a counterparty becomesunable to fulfill its contractual obligations due todeteriorating financial conditions.
With regard to use of hedge accounting, the Groupapplies deferred hedge accounting after it ensured inadvance that the established conditions are satisfied. As
for hedging methods, the Group employs the portfolio
hedge where certain group of assets with similar risk is
identified and such risk is hedged comprehensively. In
addition, for certain interest swap contracts, exceptional
accounting treatment is applied.

(3) Risk management structure related to financial
instruments(i) Management of credit risk
Through the appropriate operation of a credit rating
system, the Group endeavors to determine the financial
conditions of business partners and accurately evaluate
their credit risk. The Group has enhanced the precision of
its credit evaluations, reviewing business partner credit
ratings swiftly and appropriately for each financial period
and each time their credit conditions change.
The Group conducts self-assessments according tostringent standards that are consistent throughout theGroup. The Group performs write-off and provisions basedon the results of its self-assessments. The Group’s
authentication departments verify the content of suchself-assessments. Independence is maintained throughManagement Foundation
Supporting Value Creation

Financial Section

internal audits conducted by audit & inspection
departments. In addition, the Group undergoes external
audits conducted by its independent external auditors.
With regard to the screening of individual transactions,
the Group employs a screening system suited to eachsubsidiary bank’s size of the business and characteristics
to conduct detailed screenings that take individual sector
and regional characteristics into consideration. In terms of
portfolio management, the Group strives to enhance its
risk management by first measuring credit risk, and thenmanaging risk by category, sector and geographic area.
Risk administration departments periodically obtain
credit information and fair value as a part of managing
credit risks on securities issuers and counterparty risks onderivative transactions.
(ii) Management of market risk
Qualitative information on the management of market risk
The Group has formulated a market risk management
process that identifies and quantitatively measures market
risks. An asset-liability management (ALM) system is
employed to control market risk within allowable limits,and the Group ALM Committee is periodically held torespond to such risks.
YMFG periodically evaluates market risk conditionsand verifies the appropriateness of risk controls.
Quantitative information on the management of market
risk
The market risk (estimated loss amount) of the loans,securities, deposits and derivatives transactions of
Yamaguchi Bank, Momiji Bank and Kitakyushu Bank of theGroup is calculated according to value at risk (VaR).
Furthermore, the covariance method is used to calculate
VaR.
As of March 31, 2022, the market risk (estimated loss
amount) of Yamaguchi Bank was ¥50,361 million ($411
million), the market risk (estimated loss amount) of Momiji
Bank was ¥20,507 million ($168 million) and the market
risk (estimated loss amount) of Kitakyushu Bank was¥21,609 million ($177 million). Also, as of March 31, 2021,
the market risk (estimated loss amount) of Yamaguchi
Bank was ¥65,092 million, the market risk (estimated loss
amount) of Momiji Bank was ¥19,718 million and themarket risk (estimated loss amount) of Kitakyushu Bankwas ¥20,587 million.
Assumptions used in calculating VaR include a holding
period of three months (however, one year for a holding
period for shares held for the purpose of strategic
investment), a confidence interval of 99.9% and an
observation period of five years.
Yamaguchi Bank, Momiji Bank and Kitakyushu Bank
conduct back-testing to compare the VaR calculated by
the model with the actual losses. Increasing price volatility
in financial markets has led to cases in which the banks
were unable to cover risks. As a result, VaR was corrected,using a multiple obtained from the number of conflicts
resulting from back-testing from the year ended March 31,
2021.
However, as the practice of measuring market risk
amount with a set risk probability calculated on the basisof historical market fluctuations remains unchanged evenafter revising the measurement method to appropriately
capture the market risk amount, in some cases it is notpossible to capture market risk in the event of sudden

YMFG Integrated Report2022

94changes in the market environment outside the normally
expected scope.
(iii) Management of liquidity risk related to fundraising
The majority of funds is raised through deposits, whichconstitute a stable base for procuring funds. The Groupmanages funds on the basis of elaborate forecasts,
confirming cash flows primarily through the managementof financial balances using short-term financial markets.
For cash flow management, the Group strives tomanage the liquidity risk by ensuring stability, preparing
for unexpected events, and maintaining highly liquid
assets.

(4) Supplementary explanation of items pertaining to
the fair value of financial instruments(i) Money held in trust(ii) Securities
Held-to-maturity debt securities
Available-for-sale securities(iii) Loans and bills discounted
Allowance for loan losses (*1)
Total assets(i) Deposits(ii) Borrowed money
Total liabilities
Derivative transactions (*2)
Hedge accounting not applied
Hedge accounting applied
Total derivative transactions

As assumptions are used in the calculation of the fairvalues of financial instruments, different assumptions canyield different values.

Items pertaining to the fair value of financial
instruments

The table below indicates the consolidated balance sheet
amounts of financial instruments, as well as their fairvalues and the differences between the two. Line items
whose fair value is approximately the same as their bookvalue due to their short settlement period, including cash
and due from banks, call loans and bills purchased, callmoney and bills sold and payables under securities
lending transactions, as well as line items with little
significance to balance sheet amounts, have been omitted.
Shares and investments in partnerships, etc. that do nothave a market price are not included in the table below.
(Refer to (Note 1).)(i) Money held in trust(ii) Securities
Held-to-maturity debt securities
Available-for-sale securities(iii) Loans and bills discounted
Allowance for loan losses (*1)
Total assets(i) Deposits(ii) Borrowed money
Total liabilities
Derivative transactions (*2)
Hedge accounting not applied
Hedge accounting applied
Total derivative transactions

Consolidatedbalance sheet
amount¥35,060

Millions of yen
2022
Fair value¥35,060

Difference¥—

38,61338,892
1,286,606
1,286,606
8,143,997(78,208)
8,065,789
8,133,259¥9,426,068¥9,493,817¥10,334,558 ¥10,334,732
626,546626,540¥10,961,104 ¥10,961,272

279—¥(6,828)¥(19,892)¥(26,720)¥(6,828)¥(19,892)¥(26,720)

67,470¥67,749
¥174
(6)
¥168
¥—
¥—
¥—

Consolidatedbalance sheet
amount¥35,093

Millions of yen
2021
Fair value¥35,093

Difference¥—

31,621
31,992
1,731,871
1,731,871
7,894,126(69,721)
7,824,405
7,913,644¥9,622,990¥9,712,600¥ 10,011,575 ¥10,011,851
638,353
637,903¥10,649,928 ¥10,649,754

371—¥ (6,549)¥ (5,504)¥ (12,053)

89,240¥ 89,611¥276(450)¥(174)¥ (6,549)¥ (5,504)¥ (12,053)

¥—
¥—
¥—

Thousands of U.S. dollars
2022(i) Money held in trust(ii) Securities
Held-to-maturity debt securities
Available-for-sale securities(iii) Loans and bills discounted
Allowance for loan losses (*1)
Total assets(i) Deposits(ii) Borrowed money
Total liabilities
Derivative transactions (*2)
Hedge accounting not applied
Hedge accounting applied
Total derivative transactions

Consolidatedbalance sheet
amount$286,461

Fair value$286,461

Difference$—

315,491
317,771
10,512,346
10,512,346
66,541,360(639,006)
65,902,354
66,453,624$77,016,652 $77,570,202$84,439,562 $84,440,983
5,119,258
5,119,209$89,558,820 $89,560,192

2,280
—

$(55,789)$(162,530)$(218,319)

551,270$553,550$1,421(49)$1,372$(55,789)$(162,530)$(218,319)

$—
$—
$—

(*1) The general allowance for loan losses and specific allowance forloan losses are deducted.
(*2) The amount collectively represents derivative transactions that arerecorded as trading assets and liabilities, and other assets andliabilities. This indicates the net amount of rights and obligations
under derivative transactions. Parentheses, ( ), indicate that the net
amount is negative.

(Note 1) The consolidated balance sheet amounts ofshares and investments in partnerships, etc. that
do not have a market price
Shares and investments in partnerships, etc. that do nothave a market price are not included in“available-for-salesecurities.”

Category(1) Unlisted equity securities (*1, *2)(2) Investments in partnerships, etc. (*3)
Total

Thousands of
U.S. dollars
Millions of yen
2022
2021
2022
Consolidated balance sheet amount¥7,130¥7,466$58,256
21,685
14,605
177,180¥28,815¥22,071$235,436(*1) Unlisted equity securities are not included in the scope of fair value
disclosures based on Paragraph 5 of the“Implementation
Guidance on Disclosures about Fair Value of Financial Instruments”(ASBJ Guidance No. 19, March 31, 2020).
(*2) During the years ended March 31, 2022 and 2021, impairment
losses of ¥5 million ($41 thousand) and ¥55 million were recordedon unlisted equity securities.
(*3) Investments in partnerships, etc. are not included in the scope offair value disclosure based on Paragraph 27 of the“Implementation Guidance on Accounting Standard for Fair Value
Measurement”(ASBJ Guidance No. 31, July 4, 2019).

(Note 2) Expected maturity amount of monetary claims
and securities with maturities after the
consolidated balance sheet date95

Management Letter

Business Strategy
for Value Creation

About YMFG

(1) Due from banks(2) Call loans and bills
purchased(3) Money held in trust(4) Securities
Held-to-maturity debt
securities
Local government
bond
Corporate bond
Available-for-salesecurities withmaturities
Japanesegovernment bondLocal government
bond
Corporate bond
Others(5) Loans and bills
discounted (*)Total(1) Due from banks(2) Call loans and bills
purchased(3) Money held in trust(4) Securities
Held-to-maturity debt
securities
Local government
bond
Corporate bond
Available-for-salesecurities withmaturities
Japanesegovernment bondLocal government
bond
Corporate bond
Others(5) Loans and bills
discounted (*)
Total

—

—

—
118,109—670,183

7,897

3,220

1,100

3,020

6,797

200

110,212

666,963

18,500347,050

50,496

127,976

13,22427,992

24,531
167,406

868,266

3,228,626¥986,375 ¥3,898,809

Millions of yen
2021
More than More than More than
one year three years five years
Within one and within and within and within More thanyear
three years five years seven years seven years¥1,708,158
¥—
¥—
¥—
¥—
9,189

—

—

—

—

35,09380,433—
120,923—
241,993—
192,571—
802,099

1,544

5,458

14,956

6,195

3,470

100

700

2,530

900

2,970

1,444

4,758

12,4265,295

500

78,889115,465

227,037

186,376

798,629——

24,600—420,800

8,601

28,53825,572

46,433

159,41261,705
8,583

24,786
62,141

74,237
102,628

58,595
81,34830,093
188,324

1,638,436

1,109,516

1,133,446

958,395

3,054,333¥3,471,309 ¥1,230,439 ¥1,375,439 ¥1,150,966 ¥3,856,432
Thousands of U.S. dollars
2022
More than More than More than
one year three years five years
Within one and within and within and within More thanyear
three years five years seven years seven years$16,893,619
$—
$—
$—
$—
259,114

—

—

—

—

286,461
271,354—760,535—
1,109,493—
965,022—5,475,798

22,79682,253

119,625

64,52426,309817

13,89017,975

8,988

24,675

21,97968,363

101,650

55,536

1,634

248,558

678,282

989,868

900,498

5,449,489——

66,999151,156

2,835,607

123,597

186,510226,097

412,583

1,045,641

66,60758,354

262,701
229,071434,594
262,178

108,048
228,711200,433
1,367,808

13,750,446

10,040,191

9,276,648

7,094,256

26,379,819$31,460,994$10,800,726$10,386,141$8,059,278$31,855,617

Financial Section

interest-bearing liabilities to be repaid after the
consolidated balance sheet dateMillions of yen
2022
More than More than More than
one year three years five years
Within one and within and within and within More thanyear
three years five years seven years seven years¥2,067,610
¥—
¥—
¥—
¥—

(1) Due from banks(2) Call loans and bills
31,713——purchased(3) Money held in trust
35,060——(4) Securities
33,211
93,082
135,791
Held-to-maturity debt
2,790
10,067
14,641securities
Local government
100
1,700
2,200
bond
Corporate bond
2,690
8,367
12,441
Available-for-sale30,421
83,015
121,150
securities withmaturities
Japanese——
8,200
government bondLocal government
15,127
22,827
27,672bond
Corporate bond
8,152
32,15253,190
Others7,142
28,03632,088(5) Loans and bills
1,682,917 1,228,819 1,135,369
discounted (*)
Total¥3,850,511 ¥1,321,901 ¥1,271,160

Management Foundation
Supporting Value Creation

Millions of yen(i) Deposits (*)(ii) Call money and bills sold(iii) Payables under securities
lending transactions(iv) Borrowed money
Total

2022
More than More than
one year
two years
Within one and within and within Three years
year
two years three years
or more¥9,673,732¥480,751¥146,911¥33,164
78,078——314,959

—

—

—

—

611,586¥10,678,355

3,984¥484,735

2,461¥149,372

8,515¥41,679

Millions of yen(i) Deposits (*)(ii) Call money and bills sold(iii) Payables under securities
lending transactions(iv) Borrowed money

Within one
year¥9,290,409

2021
More than More than
one year
two years
and within and within Three years
two years three years
or more¥429,417¥255,309

326,415———

622,413

5,134

3,810

6,995

167,152——¥10,406,389(i) Deposits (*)

Thousands of U.S. dollars
2022
More than More than
one year
two years
Within one and within and within Three years
year
two years three years
or more$79,040,216 $3,928,025 $1,200,351$270,970

Total¥259,119¥36,441

Total(ii) Call money and bills sold(iii) Payables under securities
lending transactions(iv) Borrowed money¥434,551—¥43,436

637,944——2,573,405———

4,997,025

32,552

20,10869,573$87,248,590$3,960,577$1,220,459—$340,543(*) Within deposits, demand deposits are included in“within one year.”

Fair value information by level within the fair value
hierarchy

The fair value of financial instruments is classified into thefollowing three levels according to the observability andmateriality of inputs used to measure fair value.
Level 1 fair value: Fair value measured using observable
inputs, i.e. (unadjusted) quoted prices
in active markets for identical assets
or liabilities.
Level 2 fair value: Fair value measured using observable
inputs other than Level 1 inputs.
Level 3 fair value: Fair value measured using
unobservable inputs.
If multiple inputs are used that are significant to thefair value measurement, the fair value measurement iscategorized in its entirety in the level of the lowest level
input that is significant to the entire measurement.

(*) Loans and bills discounted for which no period is specified areincluded in“within one year.”(Note 3) Estimated repayment amounts of deposits,
negotiable certificates of deposit and other

YMFG Integrated Report2022

96

(1) Financial instruments measured at fair value

Category
Money held in trust
Securities (*1)
Available-for-sale securities
Japanese government bondand local government bondCorporate bondEquity securities
Foreign bond
Derivative transactions (*2)
Interest-rate-related
Currency-related
Total assets

Category
Money held in trust
Securities (*1)
Available-for-sale securities
Japanese government bondand local government bondCorporate bondEquity securities
Foreign bond
Derivative transactions (*2)
Interest-rate-related
Currency-related
Total assets

Level 1
¥5,849Millions of yen
2022
Fair value
Level 2
Level 3¥29,211¥—

Total¥35,060

373,861

242,762—

616,623—
111,699
95,200117,351
136
29,123

13,886——131,237
111,835
124,323——¥586,609

6,496(33,216)¥391,863——¥13,886

6,496(33,216)¥992,358

Thousands of U.S. dollars
2022
Fair value
Level 1
Level 2
Level 3
Total
$47,790$238,671$—$286,461

3,054,669

1,983,512—

5,038,181—
912,648
777,841

958,828
1,111
237,952

113,457——

1,072,285
913,759
1,015,793——$4,792,948

53,076(271,395)$3,201,755——$113,457

53,076(271,395)$8,108,160(*1) The above table does not include investment trusts and others towhich the transitional treatment provided in Article 5-6 of the
Supplementary Provisions of the“Cabinet Office OrdinancePartially Amending the Ordinance, etc. on Terminology, Forms, andPreparation Methods of Financial Statements, etc.”(Cabinet Office
Ordinance No. 9, March 6, 2020) is applied. The amount of theinvestment trusts and others on the consolidated balance sheets is¥302,588 million ($2,472,326 thousand).
(*2) The amount collectively represents derivative transactions that arerecorded as trading assets and liabilities, and other assets andliabilities. This indicates the net amount of receivables andpayables under derivative transactions. Parentheses, ( ), indicatethat the net amount is payable.

(2) Financial instruments other than those measured
at fair value

Category
Securities
Held-to-maturity debt securities
Local government bondCorporate bond
Loans and bills discounted
Total assets
Deposits
Borrowed money
Total liabilities

Category
Securities
Held-to-maturity debt securities
Local government bondCorporate bond
Loans and bills discounted
Total assets
Deposits
Borrowed money
Total liabilities

Level 1Millions of yen
2022
Fair value
Level 2
Level 3¥—
¥8,104
—
3,418
—
—
¥—
¥11,522— 10,334,732—
626,540¥— ¥10,961,272

Total

¥—
¥8,10427,37030,7888,133,259
8,133,259¥8,160,629 ¥8,172,151— 10,334,732—
626,540¥— ¥10,961,272

Thousands of U.S. dollars
2022
Fair value
Level 1
Level 2
Level 3
Total$—
$66,215$—$66,215—
27,927
223,629
251,556—— 66,453,624 66,453,624$—$94,142 $66,677,253 $66,771,395— 84,440,983— 84,440,983—
5,119,209—
5,119,209$— $89,560,192$— $89,560,192(Note 1) A description of the valuation technique(s) andinputs used in the fair value measurements

97(1) Assets
Money held in trust
As for the securities held as trusted assets in money heldin trust established independently for the purpose ofinvesting mainly in the securities, the value on stock
exchanges is taken as fair value for the equity securities,
and either the value on exchanges or a price indicated bybrokers or information vendors is taken as fair value forthe debt securities. The fair value is classified as Level 1 orLevel 2.
Additional information related to money held in trustby the purpose of holding is described in the note entitled“Money held in trust.”
Securities
The fair value of securities for which unadjusted quoted
prices in active markets are available is classified as Level
1. These securities mainly include equity securities,
Japanese government bonds and government bonds(foreign bonds) of major countries (G7). The fair value of
securities for which quoted prices are used but themarkets are not active is classified as Level 2. These
securities mainly include local government bonds andcorporate bonds (excluding private placement bonds
guaranteed by Yamaguchi Bank, Momiji Bank andKitakyusyu Bank).
The fair value of investment trusts is based on
disclosed net asset value. It is not classified into any levels
due to the application of the transitional treatment inaccordance with Paragraph 26 of the Implementation
Guidance on Accounting Standard for Fair Value
Measurement.
Since private placement bonds guaranteed by
Yamaguchi Bank and Momiji Bank do not have a quoted
price, their fair value is determined by discounting thetotal amount of interest, principal and guarantee
commission to their present value, using the interest rate
obtained by adding the credit cost for each internal rating
category. The fair value is classified as Level 3 because thediscount rate is unobservable.
Loans and bills discounted
For loans and bills discounted with floating interest rates,
as in the short term their values reflect market interest
rates, unless the credit status of the obligor has changed
significantly since the loans were extended, their fair value
is similar to their book value, so their book value is taken
as their fair value. For loans and bills discounted bearing
fixed interest rates, fair value is determined for each type
and period by discounting the total amount of interest
and principal to their present value, using as the discountrate the market interest rate as of the valuation date for
operating loans and bills discounted plus the credit costfor each internal rating category. For consumer loans andbills discounted and housing loans, fair value isdetermined by discounting the total amount of interest
and principal to their present value using the assumed
interest rate on new loans of the same type. These fairvalues are classified as Level 3, because they are
determined using a discount rate reflecting risk factors,
such as credit risk, and the discount rate is unobservable.
With regard to loans to legally bankrupt obligors,
substantially bankrupt obligors or obligors who are indanger of bankruptcy, the estimated collectible amount isbased on either the present value of estimated future cashManagement Letter

About YMFGBusiness Strategy
for Value Creation

flows or the expected amounts recoverable from thedisposal of collateral and/or under guarantees, etc. As thefair value is essentially equivalent to the amount after
deducting the allowance for possible loan losses from thebook value as of the consolidated balance sheet date, it isclassified as Level 3.
For loans that have no specific repayment period, as
the fair value is assumed to be equivalent to the bookvalue according to the expected payment dates andinterest rates, book value is taken as the fair value. The
fair value is classified as Level 3.
(2) Liabilities
Deposits
The fair value of demand deposits is determined as thepayment amount if payment were required on the
consolidated balance sheet date (book value). The fairvalue of time deposits is determined by discounting future
cash flows to their present value by certain time periods.
The discount rate employed is the interest rate required
for newly accepted deposits. For deposits having a shortperiod (within one year) and time deposits with variableinterest rates, as their fair values and book values areapproximately the same, their book value is taken as theirfair value.
The fair value of deposits is classified as Level 2.
Borrowed money
Short-term market interest rates are used for borrowings
having a short contract period (within one year) or
variable interest rates. In addition, the market value isassumed to be similar to the book value, as the credit
standing of YMFG and its consolidated subsidiaries isunchanged before and after taking out these borrowings.
The current values of borrowings having a long contract
period (more than one year) and borrowings with fixedinterest rates are calculated by applying an assumed
discount rate to the total principal amount borrowed,
separating principal amounts according to their borrowing
periods.
The fair value of borrowed money is classified as
Level 2.
Derivative transactions
The fair value of derivative transactions for which
unadjusted quoted prices in active markets are available
is classified as Level 1. These derivative transactions
mainly include bond futures transactions and stock futurestransactions.
However, most of the derivative transactions areover-the-counter transactions and do not have a quoted
price. Accordingly, the fair value of these derivativetransactions is determined using valuation techniques,
such as a present value technique and the Black-Scholesmodel, in accordance with the type of transactions andthe period to maturity. The main inputs used in thesevaluation techniques include interest rates, exchange rates
and volatility. Moreover, price adjustments are madebased on the credit risk of counterparties as well as thatof YMFG and its consolidated subsidiaries. The calculationof credit risk-related price adjustments takes into accountprobability of default and loss given default which areobserved from credit default swaps, or those which are
estimated from the country, sector and external ratings,
etc. of counterparties. The fair value of over-the-countertransactions which use observable inputs or which use

Management Foundation
Supporting Value Creation

Financial Section

unobservable inputs whose effect is immaterial isclassified as Level 2. These transactions include plain
vanilla interest rate swap transactions and foreignexchange forward contract transactions.
(Note 2) Information about Level 3 fair value of financial
instruments measured at fair value(1) Quantitative information on significant
unobservable inputs
Category
Securities
Corporate bondPrivate placement
bond

2022
Significant
unobservable inputs Scope of inputs

Valuationtechniques
Present value
technique

Credit cost
rate

0.016%0.326%

Weighted averageof inputs

0.044%(2) A reconciliation from the beginning balances tothe ending balances and gains or losses on
valuation of financial assets and liabilities held at
the end of the year included in profit (loss) for
the year
Profit (loss) or othercomprehensive income for theyear

BeginningbalanceSecurities
Available-forsale securities
Corporate¥12,331bondMillions of yen
2022

Gains or losses
on valuation offinancial assets
and liabilities
held at thePurchases,
end of the year
Recorded insales,
included in
Recorded inotherissuances andprofit (loss) for
profit (loss) comprehensive settlements, Transfer into Transfer out of(*1)
income (*2)
net
Level 3 (*3)
Level 3 (*4) Ending balance the year (*1)

¥—

¥(33)

¥1,588¥—¥—¥13,886¥—

Thousands of U.S. dollars
2022

Profit (loss) or othercomprehensive income for theyear

BeginningbalanceSecurities
Available-forsale securities
Corporate$100,752
bond

Gains or losses
on valuation offinancial assets
and liabilities
held at thePurchases,
end of the year
Recorded insales,
included in
Recorded inotherissuances andprofit (loss) for
profit (loss) comprehensive settlements, Transfer into Transfer out of(*1)
income (*2)
net
Level 3 (*3)
Level 3 (*4) Ending balance the year (*1)$—$(270)$12,975$—$— $113,457$—(*1) There were no gains or losses on valuation of financial assets andliabilities held at the end of the year included in profit (loss) for theyear.
(*2) Included in“unrealized gains (losses) on available-for-salesecurities”under“other comprehensive income”in the
consolidated statements of comprehensive income.
(*3) There was no transfer out of Level 2 fair value into Level 3 fairvalue.
(*4) There was no transfer out of Level 3 fair value into Level 2 fairvalue.

(3) A description of valuation processes used for fairvalue measurements

The risk administration divisions of the Group haveestablished policies and procedures for measuring fairvalue, and each trading division measures fair value
accordingly. Independent authentication departments
verify whether the fair value obtained is measured using
valid valuation techniques and inputs as well as whether
they are classified into an appropriate level of the fairvalue hierarchy to ensure that the policies and procedures
for measuring fair value are appropriate.
In measuring fair value, YMFG uses a valuation modelthat most appropriately reflects the nature, characteristics

YMFG Integrated Report2022

98

and risks of each asset. In addition, when using quoted
prices obtained from third parties, YMFG verifies whether
the prices are valid using appropriate methods, such asconfirming the valuation techniques and inputs used andcomparing them with similar financial instruments.

(4) A narrative description of sensitivity of the fairvalue measurement to changes in significant
unobservable inputs

Credit cost rate
The credit cost rate is determined by adding
brand-specific risk premiums according to credit risk to
the base market interest rate, such as TIBOR and OIS.
Generally, a significant increase (decrease) in the discountrate will result in a significantly lower (higher) fair value
measurement.

5. SECURITIESSecurities held at March 31, 2022 include shares of
unconsolidated subsidiaries and affiliates amounting to¥37 million ($302 thousand). The corresponding figure atMarch 31, 2021 was ¥27 million.
Bonds held at March 31, 2022 and 2021 of ¥20,000
million ($163 million) comprise waivers in the event of
substantial bankruptcy and subordinated bonds.
The amount of guarantee obligations for private
placement bonds (Financial Instruments and ExchangeAct, Article 2-3), out of bonds included in securities,
amounted to ¥40,924 million ($334 million) and ¥33,260
million as of March 31, 2022 and 2021, respectively.

6. FAIR VALUE INFORMATION
Securities

The following tables summarize book values, fair value
and acquisition cost of securities with available fair values
as of March 31, 2022 and 2021:(a) Trading securities
Amount of unrealized gain (loss) on trading securities
included in the consolidated statements of
OPERATIONS— ¥(4) million ($(34) thousand) and ¥(0) million as at
March 31, 2022 and 2021, respectively.

(b) Held-to-maturity debt securities
Millions of yen
2022
Type
Book value Fair value
Securities with fair Local government bonds¥2,900¥2,922
value exceeding
Corporate bonds
29,45929,757
book value
Subtotal
32,35932,679Securities with fair Local government bonds
5,220
5,181
value not exceeding Corporate bonds
1,034
1,031
book value
Subtotal
6,254
6,212
Total
¥38,613 ¥38,891

Difference
¥22
298
320
(39)
(3)
(42)
¥278

Millions of yen
2021
Type
Book value Fair value
Securities with fair Local government bonds¥3,930¥3,970value exceeding
Corporate bonds
23,83324,174book value
Subtotal
27,76328,144
Securities with fair Local government bonds
3,270
3,263
value not exceeding Corporate bonds
588
586
book value
Subtotal
3,858
3,849
Total
¥31,621 ¥31,993

Difference
¥40
341
381
(7)
(3)
(10)
¥371

Thousands of U.S. dollars
2022
Book value Fair value$23,695$23,874
240,698 243,133
264,393 267,007
42,65142,3328,448
8,424
51,09950,756$315,492 $317,763

Difference
$179
2,435
2,614
(319)
(24)
(343)
$2,271Type
Securities with fair Local government bonds
value exceeding
Corporate bonds
book value
Subtotal
Securities with fair Local government bonds
value not exceeding Corporate bonds
book value
Subtotal
Total(c) Available-for-sale securities
Millions of yen
2022
Securities withbook value
exceedingacquisition cost

Securities withbook value notexceedingacquisition cost

Book value¥95,975

Securities withbook value
exceedingacquisition costType
SharesJapanese government
bonds
Local government bonds
Corporate bonds
OthersSubtotal
SharesJapanese government
bonds
Local government bonds
Corporate bonds
OthersSubtotal
Total

Acquisition
cost
Difference¥44,523¥51,452

5,222

4,959

263

6,612
37,744
49,126
194,679
15,8606,611
37,62447,010140,727
20,7231
120
2,116
53,952(4,863)368,639

384,348(15,709)236,150
93,492377,785
1,091,926¥1,286,605

237,999
94,293398,725
1,136,088¥1,276,815(1,849)(801)(20,940)(44,162)¥9,790Millions of yen
2021

Securities withbook value notexceedingacquisition cost

99

Type
SharesJapanese government
bonds
Local government bonds
Corporate bonds
OthersSubtotal
SharesJapanese government
bonds
Local government bonds
Corporate bonds
OthersSubtotal
Total

Book value¥93,820

Acquisition
cost
Difference¥31,882¥61,939

2,095

1,806

288

113,741
157,781
83,750451,187
12,182

113,379
157,241
83,007387,315
14,012362
540
743
63,872(1,830)446,712458,570(11,857)

155,407
92,592573,792
1,280,685¥1,731,872

155,946
93,038595,195
1,316,761¥1,704,076

(539)
(447)
(21,403)(36,076)¥27,796

Management Letter

Securities withbook value
exceedingacquisition cost

Securities withbook value notexceedingacquisition cost

About YMFGBusiness Strategy
for Value Creation

Thousands of U.S. dollars
2022
Acquisition
Type
Book value
cost
Difference
Shares$784,174$363,780$420,394
Japanese government
42,66740,5182,149
bonds
Local government bonds
54,02454,016
8
Corporate bonds
308,391
307,411980
Others401,389
384,100
17,289Subtotal
1,590,645
1,149,825
440,820
Shares129,586
169,319(39,733)
Japanese government
3,012,003
3,140,355(128,352)
bonds
Local government bonds
1,929,488
1,944,595(15,107)
Corporate bonds
763,886
770,431(6,545)
Others
3,086,731
3,257,823(171,092)
Subtotal
8,921,694
9,282,523(360,829)
Total$10,512,339 $10,432,348$79,991(d) Held-to-maturity debt securities sold during the year
There were no held-to-maturity securities sold during theyears ended March 31, 2022 and 2021.
(e)Available-for-sale securities sold during the year

SharesJapanese government bonds
Local government bonds
Corporate bonds
Others
Total

Millions of yen
2022
Sale
Total gain Total loss
amounton saleon sale¥11,670¥442¥1,920605,664
969
4,666
94,368492—
102,021294
6806,809
6,241
22,099¥1,620,532¥8,438¥28,691

SharesJapanese government bonds
Local government bonds
Corporate bonds
Others
Total

Millions of yen
2021
Sale
Total gain Total loss
amounton saleon sale¥15,294¥11,515¥16
442,674
510
2,380
3,114
49
—
89,621
1,174—
803,113
17,6001,653¥1,353,816¥30,848¥4,049

SharesJapanese government bonds
Local government bonds
Corporate bonds
Others
Total

Thousands of U.S. dollars
2022
Sale
Total gain Total loss
amounton saleon sale$95,351$3,611$15,688
4,948,640
7,917
38,124
771,043
4,020—
833,5732,402
496,592,115
50,993
180,562$13,240,722$68,943$234,423(f) Securities for which purpose of holding changed
There were no securities for which the purpose of holding
changed at March 31, 2022 and 2021.

Management Foundation
Supporting Value Creation

Financial Section

securities. The basis for determining whether the market
value has fallen significantly is as follows.
If the market value of the securities in general has
fallen by 30% or more compared with the acquisition cost,the value of the securities is determined to have“fallen
significantly.”However in the case of shares andequivalent securities, if their market value has fallen by
30% or more but less than 50% of the acquisition cost,
the determination of whether the value has“fallen
significantly”takes into consideration other factors suchas the issuing company’s credit risk (independent debtor
classification, external ratings, etc.) and previous
percentage decreases over a specific period of time in the
past.

Money held in trust

Information on money held in trust as of March 31, 2022
and 2021 was as follows:(a) Money held in trust classified as trading purposes

Money held in trust classified as trading
purposes

Money held in trust classified as trading
purposes

Money held in trust classified as trading
purposesMillions of yen
2022
Unrealized gains
Consolidated (losses) included
balance sheet
in profit (loss)
amountfor the year
¥4,894¥—

Millions of yen
2021
Unrealized gains
Consolidated (losses) included
balance sheet
in profit (loss)
amountfor the year
¥4,673¥—Thousands of U.S. dollars
2022
Unrealized gains
Consolidated (losses) included
balance sheet
in profit (loss)
amountfor the year
$39,987$—(b) Money held in trust classified as held-to-maturity
There are no corresponding transactions as at March 31,
2022 and 2021.
(c) Available-for-sale money held in trust
Consolidatedbalance sheet
amountAvailable-for-sale money held in trust¥30,166

Millions of yen
2022
Acquisitioncost¥30,489

Unrealized
gains (losses)¥(323)

Impairment losses on securities

Regarding securities (excluding shares and investments inpartnerships, etc. that do not have a market price) otherthan trading securities, if their market values have fallen
substantially below their acquisition price and are notexpected to recover to the acquisition price, such market
values are recorded as the consolidated balance sheet
amounts. The valuation difference is recorded as a loss forthe year in which such difference is realized (hereinafter,“impairment losses”).
During the year ended March 31, 2022, impairment
losses were ¥380 million ($3,105 thousand) on equity
securities and during the year ended March 31, 2021,
impairment losses totaled ¥457 million on equity

Consolidatedbalance sheet
amountAvailable-for-sale money held in trust¥30,420

Millions of yen
2021
Acquisition
cost¥30,932

Unrealized
gains (losses)¥(512)

Thousands of U.S. dollars
2022
Consolidatedbalance sheet Acquisition
Unrealized
amountcost
gains (losses)
Available-for-sale money held in trust $246,474$249,113$(2,639)

YMFG Integrated Report2022

100

Unrealized gains (losses) on available-for-salesecurities(b) Currency-related:
Millions of yen
2022

Information on unrealized gains (losses) on
available-for-sale securities and available-for-sale money
held in trust was as follows:
Millions of yen

Net unrealized gains

Available-for-sale securities

Available-for-sale money held in trust

Deferred tax liabilities
Unrealized gains on available-for-salesecurities before following adjustment
Equivalent to non-controlling interests

YMFG’s interest in net unrealized gains on
valuation of available-for-sale securities
held by affiliates accounted for by theequity method
Unrealized gains on available-for-salesecurities2022¥11,3452021¥27,545

(323)

(512)

11,66828,057

Thousandsof U.S.
dollars
2022$92,696
95,335(2,639)

3,132

8,055

25,5908,213

19,49067,106

41

13

327

—

—

—

¥8,172¥19,477$66,779

Valuation differences on investments in partnerships,
etc. that do not have a market price of ¥1,877 million($15,336 thousand) at March 31, 2022, and valuationdifferences on investments in partnerships, etc. for whichmarket values are extremely difficult to determine of ¥263
million at March 31, 2021 are recorded inavailable-for-sale securities of net unrealized gains in thelist above.

Derivatives(1) Derivative transactions at March 31, 2022 and 2021,
to which hedge accounting is not applied(a) Interest-rate-related:
Millions of yen
2022

Type
Over-the-counter:
Interest rate swaps:
Receivable fixed, payable floating
Receivable floating, payable fixed
Total

Contract
amounts

UnrealizedOver one
gains
year
Fair value (losses)¥68,01068,011¥—¥66,839
66,840¥—¥(1,112)
1,825
¥713

Millions of yen
2021
Type
Over-the-counter:
Interest rate swaps:
Receivable fixed, payable floating
Receivable floating, payable fixed
Total

Type
Over-the-counter:
Interest rate swaps:
Receivable fixed, payable floating
Receivable floating, payable fixed
Total

101

Contract
amounts

Over oneyear
Fair value¥43,231
43,232¥—¥36,499
36,500
¥—

¥41
438
¥479

¥(1,112)
1,825
¥713

Unrealized
gains(losses)
¥41
438
¥479

Thousands of U.S. dollars
2022
Unrealized
Contract Over one
gains
amounts
year
Fair value (losses)$555,683
555,691$—$546,115
546,123$—$(9,086)
14,911$5,825$(9,086)
14,911$5,825Type
Over-the-counter:
Currency swaps
Foreign exchange forward
contracts:
Sold
BoughtCurrency options:
Sold
BoughtTotal

Contract
amounts

Over oneyear
Fair value¥138,528¥72,929¥(4,125)¥(69)

207,932
109,344

78,60576,967(9,111)
5,755(9,111)
5,755

212,131
212,131¥—

168,844
168,844¥—(7,723)
7,662¥(7,542)267
1,493¥(1,665)

Millions of yen
2021
Type
Over-the-counter:
Currency swaps
Foreign exchange forward
contracts:
Sold
BoughtCurrency options:
Sold
BoughtTotal

TypeOver-the-counter:
Currency swaps
Foreign exchange forward
contracts:
Sold
BoughtCurrency options:
Sold
BoughtTotal

Unrealized
gains(losses)

Contract
amounts

Over oneyear
Fair value

Unrealized
gains(losses)¥289,392¥64,017¥(7,083)¥(72)

160,202
133,339

60,71753,672(2,625)2,683(2,625)
2,683

166,746
166,746¥—

121,677
121,677¥—(6,878)6,876¥(7,027)

1,120
452¥1,558

Thousands of U.S. dollars
2022
Unrealized
Contract Over one
gains
amounts
year
Fair value (losses)$1,131,857$595,874$(33,704)$(564)

1,698,930
893,406

642,250
628,867(74,442)47,022(74,442)47,022

1,733,238
1,733,238$—

1,379,557
1,379,557$—(63,102)62,603$(61,623)

2,182
12,199$(13,603)(c) Stock-related:
There were no stock-related transactions as at March 31,
2022 and 2021.
(d) Bond-related:
There were no bond-related transactions as at March 31,
2022 and 2021.
(e) Commodity-related:
There were no commodity-related transactions as at
March 31, 2022 and 2021.
(f) Credit-derivatives:
There were no credit-related transactions as at March 31,
2022 and 2021.

Management Letter

Business Strategy
for Value Creation

About YMFG

(2) Derivative transactions as at March 31, 2022 and
2021, to which hedge accounting is applied(a) Interest-rate-related:

Management Foundation
Supporting Value Creation

Financial Section

7. LOANS AND BILLS DISCOUNTED(c) Stock-related:
There were no stock-related transactions at March 31,
2022 and 2021.

Loans under the Banking Act and the Act on Emergency
Measures for the Revitalization of the Financial Functionsat March 31, 2022 and 2021 are as follows. These loans
consist of corporate bonds in“ securities”(limited tothose corporate bonds for which redemption of theprincipal and payment of interest are fully or partiallyguaranteed and which are issued through private
placement of securities (Article 2-3 of the Financial
Instruments and Exchange Act)), loans and bills
discounted, foreign exchanges, interest accrual andsuspense payments in“other assets”and customers’
liabilities for acceptances and guarantees in the
consolidated balance sheets, as well as securities loaned
under a loan-for-use or lease agreement.
(1) Bankrupt/de facto bankrupt loans amounting to¥33,432 million ($273 million) and ¥45,099 million
denote loans at March 31, 2022 and 2021,
respectively, held against borrowers with failed
business status due to commencement of bankruptcy
proceedings, commencement of reorganization
proceedings or commencement of rehabilitation
proceedings, and any other type of loans equivalent
thereto.
(2) Doubtful loans amounting to ¥89,439 million ($731
million) and ¥45,267 million denote loans at March
31, 2022 and 2021, respectively, whose borrower is
not yet in the status of failure in business althoughsuch borrower’s financial status and operating
performance are worsening,and for which it is highly
probable that the principal will not be collected orinterests will not be received in accordance with thecontract, excluding bankrupt/de facto bankrupt loans.
(3) Loans past due for three months or more amounting to¥364 million ($3 million) and ¥445 million denoteloans at March 31, 2022 and 2021, respectively,
where payment of interest or principal has been
delayed for three months or more, excluding
bankrupt/de facto bankrupt loans and doubtful loans.
(4) Restructured loans amounting to ¥4,569 million ($37
million) and ¥10,630 million denote loans at March
31, 2022 and 2021, respectively, to borrowers forwhich the repayment terms have been modified tomore favorable terms including reduction of interest
rate, deferral of interest payments, extension ofprincipal payments and debt forgiveness with theobjective of promoting recovery of borrowers ineconomic difficulty, excluding bankrupt/de facto
bankrupt loans, doubtful loans and loans past due forthree months or more.
The total of bankrupt/de facto bankrupt loans,doubtful loans, loans past due for three months or more
and restructured loans amounted to ¥127,804 million($1,044 million) and ¥101,441 million at March 31, 2022
and 2021, respectively.
The loan amounts disclosed above are amounts
before deducting an allowance for loan losses.

(d) Bond-related:
There were no bond-related transactions at March 31,
2022 and 2021.

(Changes in presentation method)
Applying the“Cabinet Office Order Partially Amending theRegulation for Enforcement of the Banking Act, etc.”

Type
Principal accounting procedure:Interest rate swaps
Receive floating, payable fixedInterest rate swaps employing exceptional
accounting treatment:Interest rate swaps
Receive floating, payable fixed
Total

Type
Principal accounting procedure:Interest rate swaps
Receive floating, payable fixedInterest rate swaps employing exceptional
accounting treatment:Interest rate swaps
Receive floating, payable fixed
Total

Type
Principal accounting procedure:Interest rate swaps
Receive floating, payable fixedInterest rate swaps employing exceptional
accounting treatment:Interest rate swaps
Receive floating, payable fixed
Total

Millions of yen
2022
Contract Over one
amounts
year
Fair value¥402,778¥280,878¥5,783

42
¥—

42
¥—

*
¥5,783

Millions of yen
2021
Contract Over one
amounts
year
Fair value¥279,245¥279,245¥2,234

75
¥—

75
¥—

*
¥2,234

Thousands of U.S. dollars
2022
Contract Over one
amounts
year
Fair value$3,290,939 $2,294,942

343
$—

343
$—

$47,251*$47,251(*) Of interest rate swaps employing exceptional accounting treatment,
as these instruments are accounted for together with the hedgedloans and bills discounted and borrowings, their fair value isincluded in the fair value of said loans and bills discounted within“4.
FINANCIAL INSTRUMENTS.”(b) Currency-related:

Type
Principal accounting procedure:
Currency swaps
Total

Type
Principal accounting procedure:
Currency swaps
Total

Type
Principal accounting procedure:
Currency swaps
Total

Millions of yen
2022
Contract Over one
amounts
year
Fair value¥324,749¥—¥112,040¥—¥(25,676)¥(25,676)

Millions of yen
2021
Over oneyear
Fair value

Contract
amounts¥176,233¥—¥75,844¥—¥(7,737)¥(7,737)

Thousands of U.S. dollars
2022
Contract Over one
amounts
year
Fair value$2,653,395$—$915,434 $(209,788)$— $(209,788)

YMFG Integrated Report2022

102

(Cabinet Office Order No. 3, January 24, 2020) that cameinto effect on March 31, 2022, the classification of“riskmanagement loans”under the Banking Act is presented inaccordance with the classification of disclosed loans
under the Act on Emergency Measures for the
Revitalization of the Financial Functions.

Commercial bills

Bills discounted are accounted for as financing
transactions in accordance with the Industry Audit
Committee Report No. 24, March 17, 2022, of the JICPA,
although the Banks have the right to sell or pledge themwithout restrictions. The total face value of commercial
bills and purchased foreign exchange bills obtained as aresult of discounting was ¥20,760 million ($170 million) at
March 31, 2022 and ¥20,648 million at March 31, 2021.

Loan participation

Based on the“Accounting Treatment and Presentation ofLoan Participation”(Japanese Institute of Certified Public
Accountants Accounting System Committee Report No. 3,
November 28, 2014), the consolidated balance sheet
amount of loan participation agreements in which theBanks have acquired the economic benefits and risks of
the underlying loans from the original lender was ¥2,783
million ($23 million) and ¥2,783 million at March 31, 2022
and 2021, respectively.

8. COMMITMENT LINES
Loan agreements and commitment line agreements
relating to loans are agreements that oblige theconsolidated subsidiaries to lend funds up to a certain
limit agreed in advance. The consolidated subsidiaries
make the loans upon the request of an obligor to draw
down funds under such loan agreements as long as there
is no breach of the various terms and conditions stipulated
in the relevant loan agreement. The unused commitment
balance relating to these loan agreements amounted to¥937,356 million ($7,659 million) at March 31, 2022 and¥949,071 million at March 31, 2021. Of this amount,¥745,398 million ($6,090 million) at March 31, 2022 and¥774,026 million at March 31, 2021 relate to loans forwhich the term of the agreement is one year or less, or
unconditional cancellation of the agreement is allowed at
any time.
In many cases the term of the agreement runs its
course without the loan ever being drawn down.
Therefore, the unused loan commitment will notnecessarily affect future cash flows. Conditions areincluded in certain loan agreements that allow theconsolidated subsidiaries either to decline the request fora loan draw-down or to reduce the agreed limit amountwhen there is due cause to do so, such as when there is achange in financial condition or when it is necessary toprotect the consolidated subsidiaries’ credit. Consolidated
subsidiaries take various measures to protect their credit.
Such measures include having the obligor pledge collateral
to the consolidated subsidiaries in the form of real estate,securities, etc., at entering into a loan agreement or inaccordance with the consolidated subsidiaries’
established internal procedures for confirming theobligor’s financial condition, etc., at regular intervals.

103

9. PLEDGED ASSETSAt March 31, 2022 and 2021, the following assets were
pledged as collateral for certain liabilities of the Banks.

Cash and due from banks
Securities
Loans and bills discounted

Millions of yen
2022
2021
¥14
¥14
535,274
588,440
585,530
633,488

Thousands of
U.S. dollars
2022
$114
4,373,511
4,784,133

The collateral was pledged to secure the following:

Deposits
Payables under securities lendingtransactions
Borrowings

Millions of yen
2022
2021
¥48,378¥39,569

Thousands of
U.S. dollars
2022$395,277

314,959

326,4142,573,405

605,400

613,500

4,946,483

In addition, securities not included in the aboveschedules were pledged as collateral for operatingtransactions, such as foreign exchange contracts andforward exchange contracts. These securities amounted
to ¥1,983 million ($16 million) at March 31, 2022 and¥23,225 million at March 31, 2021.
Also, other assets included security deposits, collateralpledged for transactions involving public funds, collateralpledged for financial instruments, collateral pledged forexchange settlements, the financial futures margin andmargin on bond futures transactions, as indicated below.

Deposits
Collateral pledged for transactions
involving public funds
Collateral pledged for financial
instruments
Collateral pledged for exchange
settlements
Financial futures margin
Margin on bond futures transactions

Millions of yen
2022
2021
¥1,864¥2,220Thousands of
U.S. dollars
2022$15,230

1,299

1,199

10,614

44,831

22,503366,296

84,00076,400686,331

10
1,000

10
1,000

82
8,171

10. ACCUMULATED DEPRECIATION
Accumulated depreciation of tangible assets was ¥80,477
million ($658 million) at March 31, 2022, and ¥80,146
million at March 31, 2021.

11. ADVANCED DEPRECIATION AMOUNTOF TANGIBLE FIXED ASSETSAt March 31, 2022 and 2021, accumulated advanced
depreciation amount of tangible fixed assets was ¥9,628
million ($79 million) and ¥8,147 million. Advancedepreciation expenses in the years ended March 31, 2022
and 2021 were ¥1,592 million ($13 million) and none,
respectively.

Management Letter

Business Strategy
for Value Creation

About YMFG

12. IMPAIRMENT LOSSES
During the years ended March 31, 2022 and 2021,
impairment losses were recorded on the following assets.

Location
WithinYamaguchi
PrefecturePrimary use
Business-use
assets,corporate
assets,welfarefacility
WithinBusiness-use
Hiroshimaassets,Prefecture
corporate
assets,welfarefacility
Within Hyogo Business-use
Prefecture
assets,welfarefacility
Within Tokyo Welfare
Metropolitan facility
Within Aichi
WelfarePrefecture
facility
WithinWelfareShimanefacility
Prefecture
WithinBusiness-use
FukuokaassetsPrefecture
Within Osaka Business-use
Prefecture
assetsWithin Oita
Prefecture

Business-use
assetsWithinKumamoto
Prefecture
Other

Business-use
assets—Business-use
assets,welfarefacility—

WithinHiroshima
Prefecture
WithinYamaguchi
Prefecture

Business-use
assetsWithin Aichi
Prefecture
Within Tokyo
Metropolitan

Business-use
assets
Welfarefacility for
sale
Business-use
assetsWithinFukuoka
Prefecture
Total

Business-use
assetsTypeLand,buildings,
other tangible
fixed assets

Impairment loss
Thousandsof U.S.
Millions of yen
dollars
2022
2021
2022
¥1,941¥—$15,859Land,
buildings,
other tangible
fixed assets

1,501

—

12,264Land,
buildings,
other tangible
fixed assets
Buildings

251

—

2,051

190

—

1,552

Land,
buildings
Land,buildings

54

—

441

46

—

376

43

—

351

18

—

147

13

—

106

12

—

98

17

—

139

1,545

—

12,625

—

183

—

—

155

—

—

37

—

Buildings—

5—

Buildings,
movableproperty—

1—¥5,631¥381$46,009

Buildings,
other tangible
fixed assets
Buildings,
other tangible
fixed assets
Buildings,
other tangible
fixed assets
Buildings
Land,buildings
Other assets,
goodwill
Buildings,
movablepropertyLand,
buildings,
movableproperty
Buildings(1) Land, buildings and other tangible fixed assets YMFG
and its consolidated subsidiaries that engage in thebanking and securities business group their business-use
assets into the smallest units possible from the standpointof management accounting, which is the branch (Ifmultiple branches operate in a same building, thesebranches are grouped in one group). Idle assets are, in
principle, grouped as units of individual assets. In addition,
corporate headquarters, administrative centers, training
facilities, company housing and dormitories are
considered corporate assets, as these are related to all
the consolidated subsidiaries which are engaged in thebanking businesses.
Consolidated subsidiaries that do not engage in thebanking and securities business group their assets, inprinciple, on an individual company basis.
In the year ended March 31, 2022, the book values ofbusiness-use assets which were determined not to create

Management Foundation
Supporting Value Creation

Financial Section

sufficient operating cash flow and assets to be moved,
discontinued in use or sold are reduced to theirrecoverable values, and the reduction of ¥4,086 million($33,384 thousand) was recognized as impairment losses.
This amount includes land of ¥3,071 million ($25,091
thousand), buildings (including exit and disposal costs) of¥1,009 million ($8,244 thousand) and movable propertyof ¥6 million ($49 thousand).
In the year ended March 31, 2021, the book values ofbusiness-use assets which were determined not to create
sufficient operating cash flow and assets to be moved,
discontinued in use or sold are reduced to theirrecoverable values, and the reduction of ¥381 million wasrecognized as impairment losses. This amount includes
buildings (including exit costs) of ¥248 million, land of¥132 million and movable property of ¥1 million.
The recoverable amount used to estimate theimpairment loss for the years ended March 31, 2022 and2021 is the net selling price, which is calculated bydeducting the expected disposal cost from the expected
disposal value.
(2) Other assets
In the year ended March 31, 2022, the book values ofother assets whose value has declined are reduced totheir recoverable values, and the reduction of ¥18 million($147 thousand) was recognized as impairment losses.
(3) Goodwill
In the event of signs of impairment of fixed assets statedin the consolidated financial statements (including
goodwill), if the total amount of undiscounted future cash
flows from the target assets falls below the book value of
fixed assets (including goodwill), book value is reduced to
the recoverable value, and the reduction in book value isrecognized as an impairment loss.
With respect to goodwill which YMFG recorded at theacquisition of Hoken Hiroba, a consolidated subsidiary,
Hoken Hiroba experienced a substantial decline in thenumber of people visiting its branches amid the prolonged
COVID-19 pandemic, during the year ended March 31,
2022, and income declined and operating performance
deteriorated accordingly. As a result, YMFG
determined signs of impairment in this business, including
goodwill. In deliberating on whether to recognize
impairment losses, YMFG determined that the amount of
undiscounted future cash flows from the target fixed
assets (including goodwill) fell below their book value, so
recognized goodwill of ¥1,527 million ($12,477 thousand)as impairment losses.

13. BORROWED MONEY
Payment schedule of borrowed money as of March 31,
2022 is as follows:
2022
2023
2024
2025
2026
Thereafter
Total

Millions ofyen¥611,586
3,984
2,461
1,690
1,160
5,665
¥626,546

Thousands of
U.S. dollars$4,997,026
32,552
20,10813,8089,478
46,286$5,119,258

YMFG Integrated Report2022

104

14. PROVISION FOR EMPLOYEERETIREMENT BENEFITS(4) Retirement benefit costs and their breakdowns

Overview of severance payments and pension plans

Service cost (*1)
Interest cost
Expected return on plan assets
Recognized actuarial loss
Recognized past service cost
OthersRetirement benefit costs on defined
benefit plans
Gains on cancellation of retirement
benefit trusts (*2)
Loss on revision of retirement benefit
plan (*3)

YMFG and some consolidated subsidiaries employ funded
and unfunded defined benefit and defined contributionplans as employee retirement benefits.
Defined benefit plans include defined benefit
corporate pension plans and lump-sum retirement plans.
Also, some are established as retirement benefit trusts.
Moreover, in the year ended March 31, 2022, part ofplan assets under defined benefit corporate pension plans
was transferred to defined contribution pension plans.
Some consolidated subsidiaries employ the simplified
method for calculating retirement benefit obligations.

Defined benefit plans(1) Reconciliation of retirement benefit obligation
balances at the beginning and the end of the years
ended March 31, 2022 and 2021

Retirement benefit obligations at the
beginning of the year
Service cost
Interest cost
Actuarial differences
Past service cost
Retirement benefit payments
OthersRetirement benefit obligations at theend of the year

Thousands of
U.S. dollars
2022

Millions of yen
2022
2021
¥53,953¥61,677$440,828

1,396
116
(681)
—
(3,398)
(5)

1,853
110
(1,023)(5,577)(3,099)12

11,406948(5,564)—(27,764)(41)¥51,381¥53,953$419,813(2) Reconciliation of plan asset balances at the beginningand the end of the years ended March 31, 2022 and2021

Balance of plan assets at the beginningof the year
Expected return on plan assets
Actuarial differences
Contribution from employer
Retirement benefit payments
Decrease resulting from transfer todefined contribution pension plans
Cancellation of retirement benefit
trustsOthersBalance of plan assets at the end of
the yearThousands of
U.S. dollars
2022

Millions of yen
2022
2021
¥110,770¥92,788$905,058

1,846(1,946)456(2,358)2,060
17,167623(2,162)

15,083(15,900)
3,726(19,266)(1,241)—(10,140)(26,286)—(214,772)

216

294

1,764

¥81,457¥110,770$665,553(3) Reconciliation of the balances of retirement benefit
obligations and plan assets at March 31, 2022 and
2021, and the carrying amounts of net defined benefit
liability and net defined benefit asset

Retirement benefit obligations offunded plans
Plan assets
Retirement benefit obligations of
unfunded plans
Net carrying amount of Liabilities andassetsNet retirement benefit liability
Net retirement benefit asset
Net carrying amount of Liabilities andassets105

Millions of yen
2022
2021

Thousands of
U.S. dollars
2022¥51,269¥53,846$418,899(81,457)(110,770)(665,553)(30,188)(56,924)(246,654)

112

107

915

¥(30,076)¥(56,817)$(245,739)

Millions of yen
2022
2021
¥2,652¥2,789(32,728)(59,607)

Thousands of
U.S. dollars
2022$21,668(267,407)¥(30,076)¥(56,818)$(245,739)

Millions of yen
2022
2021
¥1,396¥1,853116
110(1,846)(2,060)(621)(20)(2,788)(2,788)106
80

Thousands of
U.S. dollars
2022$11,406
948(15,083)(5,074)(22,780)866¥(3,637)¥(2,825)$(29,717)¥9,094¥—$74,303

1,241—

10,140(*1) Excludes employee contribution portion of defined benefit
corporate pensions(*2)“Gains on cancellation of retirement benefit trusts”are recorded inother income.
(*3)“Loss on revision of retirement benefit plan”is recorded in otherexpenses.

(5) Remeasurements of defined benefit plans
Items posted as remeasurements of defined benefit plans(before tax-effect exclusions) break down as follows:

Actuarial gain (loss)
Past service cost
Total

Thousands of
U.S. dollars
2022$(100,016)(22,780)$(122,796)

Millions of yen
2022
2021
¥(12,241)¥18,171(2,788)2,788¥(15,029)¥20,959(6) Cumulative remeasurements of defined benefit plans
Items posted as cumulative remeasurements of defined
benefit plans (before tax-effect exclusions) break down as
follows:

Unrecognized actuarial gain (loss)
Unrecognized past service cost
Total

Millions of yen
2022
2021
¥(3,022)¥(15,263)—(2,788)¥(3,022)¥(18,051)

Thousands of
U.S. dollars
2022$(24,692)—$(24,692)(7) Plan assets(i) Percentages of major asset categories to total plan
assets are as follows:
Bonds
SharesOthers
Total

2022
36%
36%
28%
100%

2021
30%
53%
17%
100%

(Note) Plan assets include 31% of corporate pension plans established
as retirement benefit trusts at March 31, 2022, and 49% at
March 31, 2021.

(ii) Method of establishing expected long-term return onplan assets(Corporate pensions)
Based on the weighted average rate according to thepolicy asset mix (medium- to long-term portfolio) of the
expected rate of return for individual investment fiduciary
institutions, net of investment cost
(Retirement benefit trusts)
Past dividend performance is converted to yield.
(8) Basis of actuarial calculation
The basis of actuarial calculations as of March 31, 2022
and 2021
Discount rate
Expected long-term rate of return on plan
assetsExpected rate of salary increase2022
0.00%—1.27%

2021
0.00%—0.98%

1.00%—2.60%

1.60%—2.60%

0.63%—3.84%

0.63%—3.84%

Management Letter

About YMFGBusiness Strategy
for Value Creation

Defined contribution plans

The required contribution to the consolidated subsidiaries’
defined contribution plans at March 31, 2022 and 2021
was ¥317 million ($3 million) and ¥269 million,
respectively.

Management Foundation
Supporting Value Creation

18. GENERAL AND ADMINISTRATIVE
EXPENSES
Items included in operating expenses for the years ended
March 31, 2022 and 2021 were as follows:

Other items pertaining to retirement benefits

As a result of transferring part of plan assets from defined
benefit corporate pension plans to defined contribution
pension plans in the year ended March 31, 2022,“loss onrevision of retirement benefit plan”of ¥1,241 million ($10
million) is recorded in other expenses.

15. REVALUATION RESERVE FOR LAND
Pursuant to the Law concerning Revaluation of Land (Law
No. 34, promulgated March 31, 1998, the“Law”), YMFG
revalued certain land used for banking operations by
consolidated subsidiaries. The tax-equivalent portion ofthis revaluation amount was recorded in liabilities under“deferred tax liabilities for revaluation reserve for land,”and the reminder under net assets as“revaluation reserve
for land.”
Revaluation date: March 31, 1998
Article 3-3 of the Law establishes the evaluation
method as that prescribed by Article 2-4 of the Order for
Enforcement of Law on Revaluation of Land (Enforcement
Order No. 119, promulgated March 31, 1998), and theamount of land tax is calculated on the basis of the land
tax amount specified under Article 16 of the Land-holding
Tax Act, adjusted rationally in accordance with the basisof calculation announced officially by the Director Generalof the National Tax Administration Agency.
Total difference between market value of land forbusiness use revalued in accordance with Article 10 of the
Law and the total post-revaluation book value of land at
March 31, 2022 and 2021 was ¥12,474 million ($102
million) and ¥15,005 million, respectively.

16. CONTINGENT LIABILITIES —ACCEPTANCES AND GUARANTEESAll contingent liabilities, including letters of credit,
acceptances and guarantees are reflected in acceptancesand guarantees. As a contra account, customers’ liabilities
for acceptances and guarantees are shown on the asset
side, which represent the Banks’ right of indemnity from
customers.

17. OTHER INCOME
Other income included the gains on sale of stock of¥3,725 million ($30 million), dividends from creditor groupinsurance of ¥919 million ($8 million) and income frominvestment partnership of ¥398 million ($3 million) for theyear ended March 31, 2022 and the gains on sale of stockof ¥19,295 million, dividends from creditor groupinsurance of ¥691 million and income from investment
partnership of ¥343 million for the year ended March 31,
2021.

Financial Section

Millions of yen
2022
2021
¥28,729¥30,214
5,401
5,787

Salary and allowance
Depreciation

Thousands of
U.S. dollars
2022$234,733
44,12919. OTHER EXPENSES
Items included in other expenses for the years ended
March 31, 2022 and 2021 were as follows:

Loss on sale of stock
Losses on investment partnership
Loss on financial derivatives
Losses on devaluation of stocks andother securities
Loss on investment in money held in
trust

Millions of yen
2022
2021
¥7,140
¥656
858
574
424
198

Thousands of
U.S. dollars
2022$58,338
7,010
3,464

386

512

3,154

0

3,680

0

In addition to the above, the ESOP Trust for employee
shareholders was unable to pay off its debt obligations, so
the Group recorded a loss on loan guarantees of ¥535
million for the redemption period ended March 31, 2021.

20. LEASE TRANSACTIONS
1. Finance lease transactions
Finance lease transactions that do not transfer ownership
Borrower(i) Content of lease assets
Tangible fixed assets
		 Mainly vehicles and office equipment
Intangible fixed assets
		 Software(ii) Depreciation method for lease assets
As described in“Tangible fixed assets (excluding leaseassets)”under (4) Accounting policies in“2.
SIGNIFICANT ACCOUNTING POLICIES.”
2. Operating leases
Future minimum lease payments at March 31, 2022 and2021 were as follows:
Borrower

Within one year
More than one year
Total minimum lease payments

Millions of yen
2022
2021
¥130
¥117
522
575
¥652
¥692

Thousands of
U.S. dollars
2022$1,062
4,265$5,327

Millions of yen
2022
2021
¥44
¥4
127
27
¥171
¥31

Thousands of
U.S. dollars
2022
$360
1,038
$1,398

LenderWithin one year
More than one year
Total minimum lease payments

YMFG Integrated Report2022

106

21. INCOME TAXES
1. Significant components of the deferred tax assets andliabilities as of March 31, 2022 and 2021 were as
follows:

Deferred tax assets:
Allowance for loan losses
Unrealized gains on available-forsale securities
Net operating losses carryforwards
Provision for bonuses
Depreciation
Losses on devaluation of securities
Net defined benefit liability
Other
Deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Unrealized gains on available-forsale securities
Net defined benefit asset
Securities contributed to retirement
benefit trusts
Deferred gains or losses on hedges
Capital gain (loss) adjustment
Gains on cancellation of retirement
benefit trusts
Reserve for advanced depreciationof non-current assets
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)

Thousands of
U.S. dollars
2022

Millions of yen
2022
2021
¥22,692¥18,519$185,407

4,693

3,829

38,345

1,014
881
637
611
324
2,370
33,222(10,168)
23,054

486
901
584
581
143
1,808
26,851(1,632)
25,219

8,285
7,198
5,205
4,992
2,647
19,364271,443(83,079)
188,364(7,826)(11,884)(63,943)(2,906)(6,421)(23,744)(2,620)(3,045)(21,407)(2,076)(1,886)

(644)
(130)

(16,962)(15,410)(1,793)—(14,650)(1,324)(1,334)(10,818)(533)(20,964)¥2,090(5)(23,464)¥1,755(4,355)(171,289)$17,075(Note) The main change in valuation allowance is an increase invaluation allowance related to allowance for loan losses.

2. Significant differences between the statutory effective
tax rate and the actual income tax rate after applicationof deferred income tax accounting for the year ended
March 31, 2021 were as follows:
Effective statutory tax rate
(Adjustments)
Changes in the valuation reserve
Items that are not permanently included in
profits, such as dividends received
Non-deductible goodwill amortization
Items that are not permanently included inlosses, such as entertainment expenses
Inhabitant tax on a per capita basis
Consolidation adjustments
OthersTax burden after the application of tax-effectaccounting

2022
—%

2021
30.46%

—%

0.44%

—%

(0.63)%

—%

0.28%

—%

0.72%

—%
—%
—%

0.36%
0.14%
0.26%

—%

32.03%(Note) Information for the year ended March 31, 2022 is not describedas loss before income taxes is recorded.

Consolidated Balance Sheets.
Under the Act, legal earnings reserve and additional
paid-in capital may be used to eliminate or reduce a
deficit, or may be capitalized, by a resolution of theshareholders’ meeting.
Under the Act, additional paid-in capital and legal
earnings reserve may not be distributed as dividends,
however all of these may be transferred to other capitalsurplus and retained earnings, respectively, which arepotentially available for dividends.
The maximum amount that YMFG can distribute as
dividends is calculated based on the Non-Consolidated
Financial Statements of YMFG in accordance with the Act.
At the annual shareholders’ meeting, held on June 24,
2022, the shareholders approved cash dividends
amounting to ¥3,337 million ($27 million). Suchappropriations have not been accrued in the consolidated
financial statements as of March 31, 2022 and to berecognized in the period in which they are approved by
the shareholders.
At the annual shareholders’ meeting, held on June 25,
2021, the shareholders approved cash dividends
amounting to ¥3,225 million. Such appropriations havenot been accrued in the consolidated financial statements
as of March 31, 2021 and to be recognized in the period
in which they are approved by the shareholders.

23. CHANGES IN NET ASSETS
1. Type and number of shares issued and treasury shareswere as follows:

Shares issued
Common stock
Total
Treasury stock
Common stock (*1, *2)
Total

107

264,353
264,353————

264,353
264,353

17,171
17,171

9,806
9,806

112
112

26,865
26,865(*1) The increase in the number of treasury stock is due to market
purchases of 9,805 thousand shares, and purchases of sharesconstituting less than one trading unit, totaling 1 thousand shares.
The decrease of treasury stock included 71 thousand shares dueto the exercise of rights of the Board Benefit Trust (BBT) and 41
thousand shares for the exercise of share options.
(*2) Treasury stock as of beginning and ending of year ended March
31, 2022 includes 921 thousand shares and 849 thousand shares
held by the Board Benefit Trust (BBT).

22. NET ASSETS
Under the Companies Act of Japan (the“Act”), the entire
amount paid for new shares is in principle required to be
designated as common stock. However, a company may,by a resolution of the Board of Directors, designate an
amount not exceeding one-half of the price of the newshares as additional paid-in capital, which is included incapital surplus.
Under the Act, in cases where dividend distribution of
surplus is made, the smaller of an amount equal to 10% of
the dividend or the excess, if any, of 25% of common
stock over the total of additional paid-in capital and legal
earnings reserve must be set aside as additional paid-in
capital or legal earnings reserve. Legal earnings reserve is
included in retained earnings in the accompanying

Number of shares (in thousand)March 31,
March 31,2021
Increase
Decrease
2022

Shares issued
Common stock
Total
Treasury stock
Common stock (*1, *2, *3)
Total

Number of shares (in thousand)March 31,
March 31,
2020
Increase
Decrease
2021
264,353
264,353————

264,353
264,353

10,55910,559

7,160
7,160

549
549

17,171
17,171(*1) The increase in the number of treasury stock is due to market
purchases of 7,159 thousand shares, and purchases of sharesconstituting less than one trading unit, totaling 1 thousand shares.
The decrease of treasury stock included the sale of 456 thousand
shares from the ESOP Trust for Group employees to the YMFG
stock ownership plan, 84 thousand shares due to the exercise ofrights of the Board Benefit Trust (BBT), 8 thousand shares for the
exercise of share options and purchases of shares constituting lessthan one trading unit, which amounted to 0 thousand shares.
(*2) Treasury stock as of beginning and ending of year ended March
31, 2021 includes 456 thousand shares held by the ESOP Trust forManagement Letter

About YMFGBusiness Strategy
for Value Creation

employee shareholders. The trust has sold all of the Company’s
shares it held; as of March 31, 2021, the trust had no holdings ofCompany shares.
(*3) Treasury stock as of beginning and ending of year ended March
31, 2021 includes 1,005 thousand shares and 921 thousand
shares held by the Board Benefit Trust (BBT).

2. Stock options
Stock options at March 31, 2022 and 2021 were ¥82
million ($1 million) and ¥117 million, respectively.
3. Information on dividends is as follows:(a) Dividends paid in the years ended March 31, 2022 and2021.

Type of shares
Resolved at the board of
directors meeting on May
14, 2021
Common stock
Resolved at the board of
directors meeting on
November 12, 2021
Common stock

Aggregate
amount ofdividends(Millions of
yen)

Cash
dividends
per share(Yen)¥3,225 (*1)

¥13.00Mar. 31, 2021 Jun. 28, 2021

¥3,474 (*2)

¥14.00Sep. 30, 2021 Dec. 10, 2021

Recorddate

Effective
dateManagement Foundation
Supporting Value Creation(b) Dividends to be paid in the years ending March 31,
2023 and 2022 are as follows:

Type of shares
Resolved at the boardof directors meetingon May 13, 2022
Common stock

Type of shares
Resolved at the board of
directors meeting on May
15, 2020
Common stock
Resolved at the board of
directors meeting on
November 13, 2020
Common stockCashdividends
per share(Yen)¥3,063 (*1)

¥12.00Mar. 31, 2020 Jun. 26, 2020

¥3,284 (*2)

¥13.00Sep. 30, 2020 Dec. 10, 2020

Recorddate

Effective
date(Millions of yen, except per share amount)
Aggregate
amount ofCashdividends
dividends(Millions Source of per share
RecordEffectiveof yen)dividends
(Yen)
date
date

¥3,337*Retainedearnings¥14.00Mar. 31,2022

Jun. 27,
2022* The total amount of dividend on common stock includes ¥12 million
in dividends to Board Benefit Trust (BBT).

Type of shares
Resolved at the boardof directors meetingon May 14, 2021
Common stock(Millions of yen, except per share amount)
Aggregate
amount ofCashdividends
dividends(Millions Source of per share
RecordEffectiveof yen)dividends
(Yen)
date
date

¥3,225*Retainedearnings¥13.00Mar. 31,2021

Jun. 28,
2021* The total amount of dividend on common stock includes ¥12 million
in dividends to Board Benefit Trust (BBT).

(*1) The total amount of dividend on common stock includes ¥12
million in dividends to Board Benefit Trust (BBT).
(*2) The total amount of dividend on common stock includes ¥13
million in dividends to Board Benefit Trust (BBT).
Aggregate
amount ofdividends(Millions ofyen)

Financial Section

Type of shares
Resolved at the boardof directors meetingon May 13, 2022
Common stock(Thousands of U.S. dollars, except per share amount)
Aggregate
amount ofCashdividends
dividends(Thousands
per shareof U.S.
Source of(U.S.
RecordEffective
dollars)
dividends
dollars)
date
date$27,265*

Retainedearnings$0.11

Mar. 31,2022

Jun. 27,
2022* The total amount of dividend on common stock includes $98
thousand in dividends to Board Benefit Trust (BBT).

(*1) The total amount of dividend on common stock includes ¥18
million in dividends to ESOP Trust for employee shareholders andBoard Benefit Trust (BBT).
(*2) The total amount of dividend on common stock includes ¥14
million in dividends to ESOP Trust for employee shareholders andBoard Benefit Trust (BBT).

Type of shares
Resolved at the board of
directors meeting on May
14, 2021
Common stock
Resolved at the board of
directors meeting on
November 12, 2021
Common stock

Aggregate
amount ofdividends(Thousandsof U.S.
dollars)Cashdividends
per share(U.S.
dollars)$26,350 (*1)

$0.12

Mar. 31, 2021 Jun. 28, 2021

$28,385 (*2)

$0.13

Sep. 30, 2021 Dec. 10, 2021

Recorddate

Effective
date(*1) The total amount of dividend on common stock includes $98
thousand in dividends to Board Benefit Trust (BBT).
(*2) The total amount of dividend on common stock includes $106
thousand in dividends to Board Benefit Trust (BBT).

YMFG Integrated Report2022

10824. STOCK OPTIONS
At a Board of Directors meeting, resolutions were passedwith regard to subscription requirements for the allotmentof stock options as compensation to directors of YMFG’s
banking subsidiaries, Yamaguchi Bank, Momiji Bank andKitakyushu Bank. The details of these resolutions aredescribed below.
1. Recording of expenses related to stock options and thename of line items.
There were no expenses in the years ended March 31,
2022 and 2021.
2. The contents of the stock options are outlined as
below:
Category and number of
persons to be granted stock
options
Number of stock options byclass of stock*
Grant date2016
27 directors (excluding directors who aremembers of the Audit and Supervisory
Committee, part-time directors and outside
directors) of YMFG’s subsidiaries, Yamaguchi
Bank, Momiji Bank and Kitakyushu Bank
122,000 shares of YMFG’s common stock
August 25, 2015

Vesting conditions
No vesting conditions set
Target length of service period No target length of service period set
Period for exercise of rights

Category and number of
persons to be granted stock
options
Number of stock options byclass of stock*
Grant dateAugust 26, 2015—August 25, 2045

2015
27 directors (excluding outside directors) of
YMFG’s subsidiaries, Yamaguchi Bank, Momiji
Bank and Kitakyushu Bank
182,900 shares of YMFG’s common stock
July 29, 2014

Vesting conditions
No vesting conditions set
Target length of service period No target length of service period set
Period for exercise of rights

3. The summary of stock option activity is as indicatedbelow:(a) Number of stock options
2016
2015
2014
2013
Prior to vesting
As of the end of the previous year————
Granted————Expired————
Vested————Rights not yet determined————
After vesting
As of the end of the previous year 31,600 34,200 21,900 20,200
Rights determined————
Rights exercised
4,900 7,300 9,100 11,900
Expiry————Amount unexercised
26,700 26,900 12,800 8,300

2012
—
—
—
—
—
7,800
—
7,800
—
—

(b) Price information
Exercise price
Average share price at time of
exercise
Fair value on date granted

2015
¥1

Yen
2014
¥1

2013
¥1

2012
¥1

634

634

634

634

634

1,377

1,015

973

619

660

2016
¥1

4. Method for estimating the number of rights determined
for stock options
Due to the difficulty of rationally estimating the future
number of rights that will expire, in general a method is
employed that reflects only the number of rights that haveactually expired.

July 30, 2014—July 29, 2044

2014
27 directors (excluding outside directors) of
YMFG’s subsidiaries, Yamaguchi Bank, Momiji
Bank and Kitakyushu Bank
225,100 shares of YMFG’s common stock

Category and number of
persons to be granted stock
options
Number of stock options byclass of stock*
Grant dateJuly 23, 2013
Vesting conditions
No vesting conditions set
Target length of service period No target length of service period set
Period for exercise of rights
July 24, 2013—July 23, 2043

2013
Category and number of
27 directors (excluding outside directors) of
persons to be granted stock
YMFG’s subsidiaries, Yamaguchi Bank, Momiji
options
Bank and Kitakyushu Bank
Number of stock options by
294,900 shares of YMFG’s common stockclass of stock*
Grant dateJuly 30, 2012
Vesting conditions
No vesting conditions set
Target length of service period No target length of service period set
Period for exercise of rights
July 31, 2012—July 30, 2042

109

Yamaguchi Bank, Momiji Bank and Kitakyushu Bank
(excluding directors who are Audit and Supervisory
Committee members, part-time directors and outside
directors) was discontinued.

25. INVESTMENT AND RENTAL PROPERTYThis note is omitted, as the total amount of investment
and rental property is immaterial.

26. REVENUE RECOGNITION
1. Disaggregation of revenue from contracts withcustomers
The Group’s business is predominantly consisted of thebanking business, and the securities brokerage, credit
card, leasing, consulting and other businesses conductedby the Group collectively are limited.
Disaggregation of revenue from contracts withcustomers is as follows:
Millions of Thousands ofyen
U.S. dollars
2022
2022
¥23,823$194,648
5,095
41,6294,911
40,126
4,014
32,797
248
2,026
209
1,708
9,346
76,362603
4,927
24,426
199,575
122,591
1,001,642¥147,017 $1,201,217

2012
Category and number of
27 directors (excluding outside directors) of
persons to be granted stock
YMFG’s subsidiaries, Yamaguchi Bank, Momiji
options
Bank and Kitakyushu Bank
Number of stock options by
192,600 shares of YMFG’s common stockclass of stock*
Grant date
October 31, 2011
Vesting conditions
No vesting conditions set
Target length of service period No target length of service period set
Period for exercise of rights
November 1, 2011—October 31, 2041

Category
Fees and commissions
Deposit and loan and bill discounted business
Exchange business
Securities-related businessAgency business
Safe custody and safe deposit box business
Other businesses
Other income
Income from contracts with customers
Income from other sources
Income from external customers

Note: Stated as the equivalent number of shares.
From the year ended March 31, 2016, the issuance ofstock options to directors of the YMFG subsidiaries

2. Useful information in understanding revenue fromcontracts with customers

Management Letter

About YMFGBusiness Strategy
for Value Creation

As described in“Method for recording revenue”under (4)Accounting policies in“2. SIGNIFICANT ACCOUNTINGPOLICIES.”
3. Contract asset and contract liability balances andtransaction price allocated to the remaining
performance obligations(1) Contract asset and contract liability balances
Contract assets and contract liabilities of YMFG and its
subsidiaries are omitted, as their balances have little
significance and have not changed significantly. Revenue
recognized in the year ended March 31, 2022 fromperformance obligations satisfied in prior periods is
immaterial.
(2) Transaction price allocated to the remaining
performance obligations
As for the transaction price allocated to the remaining
performance obligations, YMFG and its subsidiaries haveno significant contracts whose term initially expectedexceeds one year. Accordingly, consideration fromcontracts with customers contains no significant financing
component included in the transaction price.

27. CONSOLIDATED STATEMENTS OFCOMPREHENSIVE INCOME
Amounts of reclassification adjustments and tax effectamounts related to other comprehensive income in theyears ended March 31, 2022 and 2021 were as follows.

Unrealized gains (losses) on availablefor-sale securities
Amount generated during the year
Reclassification adjustments
Before tax effect adjustment
Tax effect amount
Unrealized gains (losses) on availablefor-sale securities
Deferred gains (losses) on hedges
Amount generated during the year
Reclassification adjustments
Before tax effect adjustment
Tax effect amountDeferred gains (losses) on hedges
Remeasurements of defined benefit
plans
Amount generated during the year
Reclassification adjustments
Before adjustment for tax effects
Tax effect amountRemeasurements of defined benefit
plans
Total other comprehensive income

Millions of yen
2022
2021

Thousands of
U.S. dollars
2022¥(38,468)
22,591(15,877)
4,599¥33,907(19,864)
14,043(4,232)$(314,307)
184,582(129,725)
37,577(11,278)

9,811(92,140)

3,544
1,156
4,700
(1,431)
3,269

17,106348
17,454(5,317)
12,13728,957
9,445
38,402(11,692)
26,710(1,265)(13,764)(15,029)
4,578

20,979(20)
20,959(6,384)(10,336)(112,468)(122,804)
37,413(10,451)

14,575(85,391)¥(18,460)¥36,523$(150,821)

28. SEGMENT INFORMATIONBusiness segment information is not presented, as theGroup’s business is predominantly consisted of thebanking business, and the securities brokerage, credit
card, leasing, consulting and other businesses conductedby the Group collectively are limited.
Geographic segment information is not presented, as
domestic income of the Bank and consolidated
subsidiaries and their consolidated assets locatedsubstantially in Japan represent more than 90% of theGroup’s consolidated income and assets.

Management Foundation
Supporting Value Creation

Financial Section

Overseas sales information is not presented, as
overseas sales are less than 10% of the Group’s
consolidated income.

29. RELATED PARTY TRANSACTIONS
Details of the transactions between the consolidated
subsidiaries of YMFG submitting the consolidated financial
statements and related parties are as follows:
Executives and major shareholders of YMFG submitting
the consolidated financial statements (only for individuals),etc.

For the year ended March 31, 2022

Category:
Executive
Kazuo Tsukuda
Name:
Occupation or title:	Director and Audit andRelationship with related party:
Content of transaction:

Supervisory Committee
Member of YMFG
Lender of funds

Lending of funds*
Transaction amount:	¥223 million ($2 million)(average balance)
Loan
Account name:Year-end balance:¥223 million ($2 million)* Conditions for this transaction and for method of deciding thistransaction conditions were the same as general transactions.

For the year ended March 31, 2021

Category:
Executive
Name:
Kazuo Tsukuda
Occupation or title:	Director and Audit andSupervisory Committee
Member of YMFG
Relationship with related party:
Lender of funds
Content of transaction:
Lending of funds*
Transaction amount:	¥223 million (averagebalance)
Account name:Loan
Year-end balance:¥223 million* Conditions for this transaction and for method of deciding thistransaction conditions were the same as general transactions.

Corporate pensions for employees, etc.

For the year ended March 31, 2022

Category:
Corporate pensions
Name:
Retirement benefit trusts
Relationship with related party:	Plan assets on retirement
benefit accounting
Content of transaction:
Return of part of assets
Transaction amount:	¥25,026 million ($204
million)For the year ended March 31, 2021

There was no transaction related to corporate pensions for
employees, etc.

YMFG Integrated Report2022

110

30. PER SHARE DATA
Net assets per share
Net income (loss) per share
Net income per share (diluted)

31. SUBSEQUENT EVENTS
yen
2022
2021
¥2,652.26 ¥2,729.94(53.29)99.63—¥99.59U.S. dollars
2022$21.67(0.44)—(Note) Net income per share (diluted) for the year ended March 31,
2022 is not described, because net loss per share is recorded
although dilutive shares exist.

Net assets per share are calculated based on thefollowing:

Net assets
Amounts excluded from net assets
Stock options
Non-controlling interests
Net assets attributable to common
stock at the year-end
Number of common stock at the yearend used for the calculation of net
assets per share (in thousands)*

Millions of yen
Thousands of
except number of shares U.S. dollars
2022
2021
2022
¥636,344¥681,139$5,199,314
6,465
6,345
52,823
82
117
670
6,383
6,228
52,153629,879

674,794

5,146,491

237,488247,182—* Shares of YMFG held by the Board Benefit Trust (BBT) are shown on
the balance sheets as treasury stock, so are not included in theabove number of common stock at the year-end used for the
calculation of net assets per share. This number of shares held by the
Board Benefit Trust (BBT) was 849 thousand as of March 31, 2022,
and 921 thousand as of March 31, 2021.

Net income (loss) per share is calculated based on thefollowing:

Net income (loss) attributable toowners of the parent
Amount not attributable to commonshareholders
Net income (loss) attributable toowners of the parent for common
stock
Average shares of common stockduring the year* (in thousands)

Millions of yen
Thousands of
except number of shares U.S. dollars
2022
2021
2022
¥(13,006)¥24,958$(106,267)

—

—

—

(13,006)

24,958(106,267)

244,077

250,496—

Diluted net income per share is calculated based on thefollowing:

Net income adjustment attributable toowners of the parent
Increase of shares of common stock
Warrant
Dilutive shares not including calculation
due to no dilutive effectMillions of yen
Thousands of
except number of shares U.S. dollars
2022
2021
2022
¥—

¥—

$—

—
—

118
118

—
—

—

—

—

(*1) Diluted net income per share for the year ended March 31, 2022 is
not described, because net loss per share is recorded although
dilutive shares exist.
(*2) Shares of YMFG held by the ESOP trust and the Board Benefit Trust(BBT) are shown on the balance sheets as treasury stock, so are
not included in the above average shares of common stock during
the year. The average number of shares was 899 thousand in theyear ended March 31, 2022 and 1,103 thousand in the year ended
March 31, 2021.
The ESOP Trust for employee shareholders was terminated in
March 2021.

111

For the year ended March 31, 2022

Dividends were made in June 2022. Please refer to“22.
NET ASSETS.”

Acquisition of treasury stock

At a Board of Directors meeting on May 13, 2022, YMFG
resolved to acquire common stock issued by YMFG as
follows, based on Article 156 of the Companies Act asapplied by replacing terms pursuant to provisions ofArticle 165-3 of the Act, in accordance with provisions ofArticle 7 of the Articles of Incorporation of YMFG pursuant
to provisions of Article 165-2 of the Act for the purpose ofenhancing shareholder returns and improving capitalefficiency.
1. Resolution at a Board of Directors meeting on May 13,2022(1) Type of shares to be acquired
Common stock of YMFG
(2) Total number of shares to be acquired
20,000,000 shares (maximum)(3) Total acquisition price of the shares¥10,000,000,000 (maximum) ($81,706 thousand)(4) Acquisition period
May 16, 2022 to March 24, 2023
(5) Acquisition method
Market purchases on the Tokyo Stock Exchange

For the year ended March 31, 2021

There were no significant subsequent events. Dividends
were made in June 2021. Please refer to“22. NET
ASSETS.”

Issuance of unsecured subordinated bonds (with a
non-viability write-off clause)

Based on the resolution at the board of directors meeting
held on September 26, 2022 for issuance of unsecured
bonds, YMFG determined the following conditions for theissuance on October 14, 2022. Issuance for the 8th and9th series of unsecured callable bonds were completed
on October 20, 2022 and October 31, 2022, respectively.

Management Letter

Name

Total amount of
issue
Denomination ofeach bondCoupon rate

Issue price

Redemption price
Maturity date
Use of proceeds

Collateral/guarantee

Business Strategy
for Value Creation

About YMFGManagement Foundation
Supporting Value Creation

Financial Section

8th series of unsecured
9th series of unsecured
subordinated callable bonds subordinated callable bonds(with a non-viability write-off (with a non-viability write-off
clause)clause)(Green Bonds)(Green Bonds)¥2,400 million¥20,000 million¥100 million¥1 million

1. ‌First five years (until
1. ‌First five years (until
October 20, 2027): 1.10%
October 31, 2027): 1.10%
per annum
per annum
2. ‌After five years: Six-month 2. ‌After five years: Mid-rate
Japanese yen TIBOR
for five-year Japanese yen+0.68%
swap + 0.68%¥100 per face value ¥100 of each bond¥100 per face value ¥100 of each bondOctober 20, 2032
October 31, 2032
The proceeds from the issuance of these bonds will be
used by the Banks to finance new and existing loans thatmeet the following eligibility criteria.
1. Renewable energy   ‌Financing for the following renewable energy power
generation projects (both new/existing projects)   i. Solar power generation‌   ii. Biomass
power generation (limited to projects thatuse sustainable feedstock or waste materials)   iii. Wind power generation   iv. ‌Hydro power generation (limited to projects with acapacity less than 25 MW)
2. Green buildings   ‌Financing for projects associated with (1) construction/purchase of new buildings or (2) renovation/rebuildingof existing buildings which have obtained, or arescheduled to obtain, the following certifications   i: LEED: Gold or higher   ii. BREEAM: Excellent or higher   iii. CASBEE: Rank A or higher   iv. BELS: Four stars or higher   v. DBJ Green Building: Four stars or higher
These bonds are not secured by collateral or guarantee
and there are no assets pledged particularly for thesebonds.

YMFG Integrated Report2022

112

Independent auditor’s report
To the Board of Directors of Yamaguchi Financial Group, Inc.:
OpinionWe have audited the accompanying consolidated financial statements of Yamaguchi Financial Group,
Inc. and its consolidated subsidiaries (collectively referred to as “the Group”), which comprise theconsolidated balance sheets as at March 31, 2022 and 2021, the consolidated statements of income, theconsolidated statements of comprehensive income, the consolidated statements of changes in net assets
and the consolidated statements of cash flows for the years then ended , and notes, comprising asummary of significant accounting policies, other explanatory information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as at March 31, 2022 and 2021, and its
consolidated financial performance and its consolidated cash flows for the years then ended inaccordance with accounting principles generally accepted in Japan.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Consolidated Financial Statements section of our report. We are independent of the Groupin accordance with the ethical requirements that are relevant to our audit of the consolidated financial
statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with theserequirements. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in thecontext of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Appropriateness of the Borrower Classification for Allowance for Loan Losses

113

The key audit matter

How the matter was addressed in our audit

In the consolidated balance sheet of
Yamaguchi Financial Group, Inc., loans andbills discounted (hereinafter referred to as the"Loans") of ¥8,143,997 million wererecognized, accounting for approximately
66.8%, which is a significant portion of the

The primary procedures we performed to assess theappropriateness of the borrower classification of therecipients of management improvement support
initiatives taking into account qualitative factors at
Group banks included the following:(1) Internal control testingManagement Letter

About YMFGBusiness Strategy
for Value Creation

total consolidated assets. The corresponding
allowance for loan losses was ¥78,208
million. These included the balances of
Yamaguchi Bank, Ltd, Momiji Bank, Ltd
and Kitakyushu Bank, Ltd (hereinafterreferred to as the "Group banks"), all ofwhich are consolidated subsidiaries. Loans of
the Group banks, before eliminations ofintercompany balances of consolidated
subsidiaries, were ¥8,223,908 million and thecorresponding allowance for loan losses was¥78,068 million.
As described in Note 2, "SIGNIFICANTACCOUNTING POLICIES, (4) Accounting
Policies, Allowance for loan losses" to theconsolidated financial statements, the Groupbanks assess their receivables, including theLoans, in accordance with the selfassessment criteria. Based on the results ofthe self-assessments, the Loans are classified
into loans to normal borrowers, etc., and anallowance for loan losses is provided by eachclass, in accordance with the method
specified in the write-off and provisioning
standards, for the expected amount of losses
based on the actual rate of losses from bad
debts and the default probability, or theamount calculated by deducting the amount
expected to be collected through dispositionof collateral or execution of guarantees, etc.
As described in Note “Major accounting
estimates, Allowance for loan losses” to theconsolidated financial statements, in the selfassessment, the borrower classification isdetermined based on the status of theborrower's credit risk, taking into accountqualitative factors including forward-looking
information as well as quantitative factors
including financial information. If certain
conditions are met, such as the existence of areasonable and highly feasible business
improvement plan, the borrowerclassification is determined taking into
account the details of the plan.
In Yamaguchi Prefecture, Hiroshima
Prefecture and the city of Kitakyushu, theprincipal business areas of the Group banks,Management Foundation
Supporting Value Creation

Financial Section

We evaluated the design and operating effectivenessof certain internal controls over the process ofdetermining the borrower classification, focusing on
the following:① Establishment of rules for self-assessment incompliance with the applicable accounting
standards.
② Controls to take into account qualitative factors
in determining the borrower classification.
(2) Evaluation of the appropriateness of the borrowerclassification
We mainly performed the following procedures forborrowers selected based on certain criteria. We
considered not only quantitative factors but also
qualitative factors, including the effects of the
prolonged spread of COVID-19, in our selection.
① We inspected the financial analyses and othermaterials used as a basis for the borrowerclassification to determine whether the
borrower classification was carried out inaccordance with the Group bank’s rules for selfassessment.
② If a business improvement plan has beencreated, we mainly performed the following
procedures to assess the reasonableness andfeasibility of the plan, taking into account the
impact of the prolonged spread of COVID-19.
•

Inspection of the business improvement
plans

•

Inquiry to the assessment departments
about the basis for assumptions included in
the business improvement plans•

Comparison of financial position andoperating results of borrowers with theforward-looking information, including
planned figures③ We inquired of the assessment departments
about the basis for the borrower classification.
We assessed the appropriateness of the borrowerclassification by comprehensively taking into accountthe actual financial status of the borrower, the debt
repayment capacity considering the latest operating
results and cash flows, liquidity position, forwardlooking information including the business
improvement plans, and the effects of the prolonged
spread of COVID-19.

YMFG Integrated Report2022

114

there is uncertainty in the future businessprospect, such as a decline in corporate
profits and a decrease in personal
consumption, due to the effects of the
prolonged spread of COVID-19, in addition
to a declining population, aging population
with low birthrate and a shortage of businesssuccessors. In order to cope with thesecircumstances, the Group banks conductbusiness feasibility assessment activities aspart of measures to develop and revitalize theregional economy. In particular, the Groupbanks designate borrowers who are deemed
to require business improvement support as"recipients of management improvement
support initiatives" and focus on supporting
them. Loans to borrowers designated as“recipients of management improvement
support initiatives” amounted to ¥133,405
million, and the corresponding allowance forloan losses was ¥27,692 million.
The determination of the borrowerclassification for those borrowers designatedas recipients of management improvement
support initiatives takes into accountqualitative factors and depends significantly
on the estimates based on forward-looking
information, such as the reasonableness andfeasibility of the business improvement plans
prepared assuming such support. Suchestimates involve significant uncertainty andrequire a high degree of management
judgment.
We, therefore, determined that evaluation of
the appropriateness of the allowance for loan
losses of the Group banks for recipients ofmanagement improvement support
initiatives, specifically the appropriateness ofthe borrower classification which takes into
account qualitative factors, was the mostsignificant in the audit of the consolidated
financial statements for this fiscal year, andaccordingly, a key audit matter.
Other Information
The other information comprises the information included in the Integrated Report but does not include
the consolidated financial statements and our auditor’s reports thereon. Management is responsible for115

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

the preparation and presentation of the other information. the audit and supervisory committeeare
responsible for overseeing the directors’ performance of their duties with regard to the design,
implementation and maintenance of the reporting process for the other information.
Our opinion on the consolidated financial statements does not cover the other information and we do
not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read theother information and, in doing so, consider whether the other information is materially inconsistent
with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears
to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of thisother information, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of Management and the audit And Supervisory Committee for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in Japan, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern inaccordance with accounting principles generally accepted in Japan. The audit and supervisorycommittee is responsible for overseeing the directors’ performance of their duties with regard to thedesign, implementation and maintenance of the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’sreport that includes our opinion. Reasonable assurance is a high level of assurance, but is not aguarantee that an audit conducted in accordance with auditing standards generally accepted in Japan
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected toinfluence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, andobtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The riskof not detecting a material misstatement resulting from fraud is higher than for one resulting fromerror, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or theoverride of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit proceduresthat are appropriate in the circumstances, while the objective of the audit is not to express an
opinion on the effectiveness of the Group’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.

YMFG Integrated Report2022

116



Conclude on the appropriateness of management’s use of the going concern basis of accounting
and based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’sreport to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Group tocease to continue as a going concern.



Evaluate whether the presentation and disclosures in the consolidated financial statements are inaccordance with accounting standards generally accepted in Japan, the overall presentation,
structure and content of the consolidated financial statements, including the disclosures, andwhether the consolidated financial statements represent the underlying transactions and events in amanner that achieves fair presentation.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities orbusiness activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the group audit. We remainsolely responsible for our audit opinion.

We communicate with the audit and supervisory committee regarding, among other matters, theplanned scope and timing of the audit, significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide the audit and supervisory committee with a statement that we have complied with
relevant ethical requirements regarding independence, and communicate with them all relationships andother matters that may reasonably be thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated with the audit and supervisory committee , we determine those mattersthat were of most significance in the audit of the consolidated financial statements of the current period
and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences ofdoing so would reasonably be expected to outweigh the public interest benefits of such communication.
Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year
ended March 31, 2022 are presented solely for convenience. Our audit also included the translation of
yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis
described in Note 1 to the consolidated financial statements.
Interest required to be disclosed by the Certified Public Accountants Act of Japan
We do not have any interest in the Group which is required to be disclosed pursuant to the provisions of
the Certified Public Accountants Act of Japan.

117

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

Atsuji Maeno
Designated Engagement Partner
Certified Public Accountant
Yoshinao Abe
Designated Engagement Partner
Certified Public Accountant
Noriyuki Akiyama
Designated Engagement Partner
Certified Public Accountant
KPMG AZSA LLC
Tokyo Office, Japan
November 18, 2022

Notes to the Reader of Independent Auditor’s Report:
This is a copy of the Independent Auditor’s Report and the original copies are kept separately by theCompany and KPMG AZSA LLC.

YMFG Integrated Report2022

118

Yamaguchi Bank Financial Statements
NONCONSOLIDATED BALANCE SHEETS (UNAUDITED)March 31, 2022 and 2021

Millions of yen

ASSETS
Assets2022
Cash and due from banks

Millions of yen

Thousands of
U.S. dollars
2022

2021

¥1,201,587¥967,224$9,817,689

Call loans and bills purchased

50,80624,356415,116

Monetary claims bought

5,443

4,556

44,473

Trading assets

2,454

1,373

20,051

Money held in trust

25,38625,180207,419

861,952

1,174,387

7,042,667

4,541,577

4,374,246

37,107,419

Securities
Loans and bills discounted
Foreign exchanges

12,993

10,482

106,161

Other assets

163,571

160,869

1,336,481

Tangible fixed assets

36,26541,888296,307

Intangible fixed assets

2,818

3,185

23,025Prepaid pension cost

19,261

21,146

157,374

Deferred tax assets
Customers’ liabilities for acceptances and guarantees
Allowance for loan losses
Total assets

—

—

—

29,901

21,470244,309(28,923)(32,975)(236,318)¥6,925,091¥6,797,387$56,582,173$47,503,685

LIABILITIES AND NET ASSETS (SHAREHOLDERS’ EQUITY)
Liabilities:¥5,813,976¥5,639,379

Call money and bills sold

Deposits

10,592

84,93886,543

Payables under securities lending transactions

266,663259,166

2,178,797

Trading liabilities

2,109

1,122

17,232

Borrowed money

292,387

292,561

2,388,978Foreign exchanges

7,856

6,194

64,188Other liabilities

67,34050,761550,192
114

Provision for bonuses

14

34

Provision for retirement benefits

120

119

989

Provision for directors’ stock benefits

139

137

1,136

Provision for reimbursement of deposits

327

439

2,672

Provision for customers point services

52

44

433

4,083

634

33,361

Deferred tax liabilities
Deferred tax liabilities for land revaluation

5,436

6,826

44,415

Acceptances and guarantees

29,901

21,470244,3096,500,995

6,363,824

53,117,044

10,006

10,00681,755

380

380

3,105

Retained earnings

390,334

394,051

3,189,264

Total shareholders’ equity

3,274,124Total liabilities
Net assets:

Capital stock
Capital surplus

400,720

404,437

Net unrealized gains on securities

7,653

13,22562,530

Deferred gains or losses on hedges

3,464

476

28,303

Revaluation reserve for land

12,25915,425100,172

Total valuation and translation adjustments

23,37629,126

191,005

Total net assets
Total liabilities, and net assets

119

424,096

433,563

3,465,129¥6,925,091¥6,797,387$56,582,173

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

NONCONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Years ended March 31, 2022 and 2021

Millions of yen

Millions of yen

Thousands of
U.S. dollars

2022

2021

2022

Interest on loans and discounts¥35,360¥36,378$288,912

Interest and dividends on securities

15,39627,928125,795

Other interest income

1,325

657

10,826

10,871

10,87788,823

112

103

915

5,411

10,954

44,211

IncomeInterest income:Fees and commissions
Trading income
Other ordinary income
Other income

7,376

11,60560,266

Total income

75,851

98,502619,748

1,069

1,564

8,734

537

729

4,388

2,783

3,060

22,739

Expenses
Interest expense:
Interest on deposits
Interest on borrowings and rediscounts
Other interest expense
Fees and commissions payments

4,487

4,705

36,661Other operating expenses

22,84027,902

186,617

General and administrative expenses

22,25424,658

181,829

Impairment losses

3,040

197

24,839Other expenses

13,097

9,287

107,009

Total expenses

70,107

72,101

572,816

Income before income taxes and minority interests

5,744

26,401

46,932Current

(323)

5,711

(2,639)Deferred

3,298

851

26,947

Net income¥2,769¥19,839$22,624

Yen

Yen

U.S. dollars

Amounts per share of common stock:

2022

2021

2022

Net income¥13.84¥99.20$0.11

Cash dividends applicable to the year

47.62

36.23

0.39

Income taxes:

YMFG Integrated Report2022

120

Momiji Bank Financial Statements
NONCONSOLIDATED BALANCE SHEETS (UNAUDITED)March 31, 2022 and 2021

Millions of yen

ASSETS
AssetsCash and due from banks

Millions of yen

Thousands of
U.S. dollars
2022

2022

2021

¥829,668¥734,062$6,778,887
5,997

Call loans and bills purchased

734—

Trading assets

647

608

5,286

4,894

4,673

39,987

Money held in trust
Securities
Loans and bills discounted

431,831557,057

3,528,319

2,393,538

2,332,083

19,556,647

Foreign exchanges

12,116

6,101

98,995

Other assets

83,54091,621

682,574

Tangible fixed assets

32,696

34,677

267,146

Intangible fixed assets

1,912

2,114

15,622

Prepaid pension cost

8,346

18,291

68,192

Deferred tax assets

9,231

11,49275,423Customers’ liabilities for acceptances and guarantees

8,883

8,017

72,579Allowance for loan losses
Total assets(35,883)(27,213)(293,186)¥3,782,153¥3,773,583$30,902,468$26,591,543

LIABILITIES AND NET ASSETS (SHAREHOLDERS’ EQUITY)
Liabilities:¥3,254,539¥3,209,720

Call money and bills sold

Deposits

6,487

2,214

53,003

Payables under securities lending transactions

48,296

67,249394,607

Borrowed money

289,806

296,7392,367,890

26

28

212

16,01018,249130,813

Foreign exchanges
Other liabilities
Provision for bonuses
Provision for directors’ stock benefits

—
915

182

238

1,487

Deferred tax liabilities for land revaluation

4,221

4,419

34,488

8,883

8,017

72,5793,628,562

3,606,972

29,647,537

Capital stock

10,00010,00081,706

Capital surplus

54,88959,533

448,476

Total liabilities

Retained earnings

89,69996,070732,895

Total shareholders’ equity

154,588

165,603

1,263,077

Net unrealized gains on securities(10,442)(8,394)(85,317)

Deferred gains or losses on hedges

1,277

996

10,434

Revaluation reserve for land

8,168

8,405

66,737

Total valuation and translation adjustments
Total net assets
Total liabilities, and net assets

121

7
92

Provision for reimbursement of deposits
Acceptances and guarantees
Net assets:

—
112

(997)

1,007

(8,146)

153,591

166,6101,254,931¥3,782,153¥3,773,583$30,902,468

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

NONCONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Years ended March 31, 2022 and 2021

Millions of yen

Millions of yen

Thousands of
U.S. dollars

2022

2021

2022

¥21,459¥22,334$175,333

6,603

8,862

53,950

805

740

6,577

Fees and commissions

5,933

6,193

48,476

Other ordinary income

2,067

3,971

16,880

Other income

8,014

5,539

65,489Total income

44,881

47,639366,705

Interest on deposits

304

403

2,484

Interest on borrowings and rediscounts

160

148

1,307

Other interest expense

181

(0)

1,487

IncomeInterest income:Interest on loans and discounts
Interest and dividends on securities
Other interest income

Expenses
Interest expense:

Fees and commissions payments

3,782

3,848

30,901Other operating expenses

13,614

11,795111,235

General and administrative expenses

16,00817,042

130,795

Impairment losses

1,910

183

15,606

Other expenses

13,697

5,132

111,904

Total expenses

49,65638,551

405,719(Loss)Income before income taxes and minority interests(4,775)

9,088(39,014)

Income taxes:
Current(1,008)2,801(8,236)

Deferred

2,804(1,027)

22,919Net (loss) income(¥6,571)¥7,314($53,697)

Yen

Yen

U.S. dollars

Amounts per share of common stock:

2022

2021

2022

Net (loss) income(¥15.08)¥16.79($0.12)

10.85

8.50

0.09

Cash dividends applicable to the year

YMFG Integrated Report2022

122

Kitakyushu Bank Financial Statements
NONCONSOLIDATED BALANCE SHEETS (UNAUDITED)March 31, 2022 and 2021

Millions of yen

ASSETS
AssetsCash and due from banks
Call loans and bills purchased
Securities
Loans and bills discounted

Millions of yen

Thousands of
U.S. dollars
2022

2022

2021

¥143,882¥106,607$1,175,603

—

—

—

51,715

48,591

422,543
10,530,215

1,288,793

1,257,209

Foreign exchanges

12,692

11,856

103,701

Other assets

24,322

9,962

198,733

Tangible fixed assets

18,85919,066

154,089

Intangible fixed assets

869

928

7,100

Prepaid pension cost

1,424

1,170

11,635

Customers’ liabilities for acceptances and guarantees

13,59912,007111,112

Allowance for loan losses(13,929)(10,614)(113,808)¥1,542,226¥1,456,782$12,600,923

Total assets

LIABILITIES AND NET ASSETS (SHAREHOLDERS’ EQUITY)
Liabilities:¥1,293,736¥1,189,817$10,570,602

Call money and bills sold

Deposits

80,827

95,167660,405

Borrowed money

36,63335,609299,314

49

2

400

6,452

5,798

52,725

Foreign exchanges
Other liabilities
Provision for bonuses
Provision for retirement benefits—
10,123891

Provision for directors’ stock benefits

109

89

22

31

180

2,370

3,751

19,364

Deferred tax liabilities for land revaluation

3,447

3,458

28,164

Acceptances and guarantees

13,59912,007111,112
11,753,280

Total liabilities

1,438,483

1,346,949

Capital stock

10,00010,00081,706

Retained earnings

75,28577,331

615,124

Total shareholders’ equity

85,28587,331

696,830

Net unrealized gains on securities

10,717

14,73587,564

Revaluation reserve for land

7,741

7,767

63,249150,813

Total valuation and translation adjustments
Total net assets
Total liabilities, and net assets

123

7
1,213

Provision for reimbursement of deposits
Deferred tax liabilities

Net assets:

—
1,239

18,45822,502

103,743

109,833

847,643¥1,542,226¥1,456,782$12,600,923

Management Letter

About YMFGBusiness Strategy
for Value Creation

Management Foundation
Supporting Value Creation

Financial Section

NONCONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Years ended March 31, 2022 and 2021

Millions of yen

Millions of yen

Thousands of
U.S. dollars

2022

2021

2022

IncomeInterest income:Interest on loans and discounts¥11,195¥11,000$91,470

Interest and dividends on securities

524

574

4,281

Other interest income

134

52

1,095

Fees and commissions

1,893

1,722

15,467

Other ordinary income

662

382

5,409

Other income

585

3,766

4,780

Total income

14,993

17,496

122,502

Interest on deposits

221

307

1,806

Interest on borrowings and rediscounts

71

90

580

Other interest expense

14

3

114

Fees and commissions payments

1,293

1,295

10,565General and administrative expenses

6,647

7,073

54,310

Other expenses

5,046

1,580

41,229Total expenses

13,292

10,347

108,604

Income before income taxes and minority interests

1,701

7,149

13,898Current

1,140

1,877

9,314

Deferred

320

(22)

2,615

Net income¥241¥5,294$1,969

Expenses
Interest expense:

Income taxes:

Yen

Yen

U.S. dollars

2022

2021

2022

Net income¥240,517.08¥5,294,543.73$1,965.17

Cash dividends applicable to the year

2,325,482.97

1,713,650.74

19,000.60

Amounts per share of common stock:

YMFG Integrated Report2022

124