Notes to Consolidated Financial Statements
Years ended March 31, 2017 and 2016

1. BASIS OF PRESENTATION

2. SIGNIFICANT ACCOUNTING POLICIESYamaguchi 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 Law and its related accounting regulation andin 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 requiredby the Financial Instruments and Exchange Law.
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, 2017, which was ¥112.19 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.

Consolidation 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 substantiallycontrols the operations, even if it is not a majority
owned subsidiary. Control is defined as the power togovern the decision making body of an enterprise.
(i) 16 consolidated subsidiaries at March 31, 2017
and 14 at March 31, 2016.
The names of the main consolidated subsidiaries
are listed on page 1.
The scope of consolidation includes YM Life
Planning Co., Ltd., due to its establishment in thefiscal year ended March 31, 2017. In addition,
the newly established YM Life Planning Co., Ltd.
acquired all shares in HOKEN HIROBA Co., Ltd.
Accordingly, HOKEN HIROBA is included in YMFG’s
scope of consolidation from the current fiscal year.
(ii) Five unconsolidated subsidiaries at March 31, 2017and 2016.
Name of major subsidiary:
Yamaguchi Capital 2nd Investment Business
Limited Liability Association
The unconsolidated subsidiaries are excluded
from the scope of consolidation because their total
assets, ordinary income, net income (in proportion
to ownership), retained earnings (in proportion toownership) and accumulated other comprehensive
income are so immaterial that they do not hinder arational judgment of YMFG’s consolidated financial
position and results of operations when excluded
from the scope of consolidation.

(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 subsidiaries were accounted forby the equity method at March 31, 2017 and 2016.
(ii) As at March 31, 2017 and 2016, three affiliates
accounted for by the equity method, and theseaffiliates at March 31, 2017 and 2016 were as follows:

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YMFG Annual Report 2017

YM Saison Co., Ltd.
Yamaguchi Capital Co., Ltd.
Momiji Card Co., Ltd.
(iii) As at March 31, 2017 and 2016, fiveunconsolidated subsidiaries were not accounted forby the equity method.
Name of major subsidiary:
Yamaguchi Capital 2nd Investment Business
Limited Liability Association
The unconsolidated subsidiaries that are notaccounted for by the equity method are also
excluded from the scope of application of equity
method because their net income (in proportion
to ownership), retained earnings (in proportion toownership) and accumulated other comprehensive
income (in proportion to ownership) are so
immaterial that they do not hinder a rational
judgment of YMFG’s consolidated financial position
and results of operations when excluded from thescope of equity method.
(iv) There were no affiliates that were not accounted
for by the equity method as at March 31, 2017and 2016.

(3) The balance sheet dates of consolidated
subsidiaries
The balance sheet date of consolidated subsidiaries is
as follows:
March 31
16 companies(4) Accounting Policies
Trading assets, trading liabilities andtransactions 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 of short-term
fluctuations in a market or discrepancies in different
markets of interest rates, currency exchange rates, shareprices or other indices (hereinafter referred to as “trading
purposes”) are included in “Trading assets” or “Trading
liabilities” in the consolidated balance sheets as of thedate 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 statement of income.
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 caseof derivatives, including swaps, futures and options, at theamount due if the transactions were to be settled as of thedate 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. Investments
in unconsolidated subsidiaries that are not accounted forby the equity method are stated at cost determined by themoving-average method. Available-for-sale securities are in
general stated at fair value (cost of sale calculated primarily
according to the moving-average method) indicatedaccording to market price at the consolidated balance
sheet date (for equity securities, the average market priceduring the one-month period ending on the consolidatedbalance sheet date). Available-for-sale securities having noreadily available market value are valued at cost using themoving-average method.
Unrealized gains (losses) on available-for-sale securities
are reported as a component of net assets.

Money in trust
Securities constituting trust assets within money held in
trust are valued using the same methods as those for theabove-mentioned trading assets, liabilities and securities.

Derivatives
Derivatives other than those for specific trading purpose or
those for which certain exceptional accounting treatment isapplied are stated at fair value.

Method of hedge accounting
The subsidiaries that conduct banking business (“theBanks”) apply deferred hedge accounting in accordancewith “Treatments of Accounting and Audit on Applicationof Accounting Standard for Financial Instruments in
Banking Industry”(The Japanese Institute of Certified Public
Accountants (“JICPA”) Industry Audit Committee Report
No. 24, February 13, 2002). As for the hedge to offset

YMFG Annual Report 201726

market fluctuation, the Banks assess the effectiveness ofthe hedge by grouping the hedged items such as deposits
and loans and the hedging instruments such as interest rate
swaps by their maturity.
Also, the Banks apply deferred hedge accounting tohedge foreign exchange risks associated with various
foreign currency denominated monetary assets andliabilities as stipulated in “Treatment of Accounting and
Auditing Concerning Accounting for Foreign Currency
Transactions in Banking Industry” (JICPA Industry
Audit Committee Report No. 25, July 29, 2002). The
effectiveness of the currency swap transactions, exchange
swap transactions and similar transactions hedging theforeign exchange risks of monetary assets and liabilities
denominated in foreign currencies is assessed based oncomparison of the foreign currency position of the hedged
monetary assets and liabilities and the hedging instruments.
The Banks apply an exceptional treatment, as permitted
if certain conditions are met, for certain interest rate swaps
utilized as hedging instrument. In that treatment, theinterest swap contracts are not recorded at fair values but
the net interest to be paid or received under the contracts isadded or deducted to the interest arising from their related
hedged assets or liabilities.

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
the amount of loans, net of amounts expected to becollected through disposition of collateral or throughexecution of guarantees.
For loans to borrowers in danger of bankruptcy,
an allowance is provided in the amount considered
uncollectible based on the amount of loans, net ofamounts expected to be collected through dispositionof collateral or through execution of guarantees, andother sources.
Loans to normal borrowers and borrowers requiringcaution are classified into certain groups, and anallowance is provided for each group using the rate ofloan losses experienced for the Banks during certain
reference periods in the past.

27

YMFG Annual Report 2017

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 andcertain 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: 3 to 15 years
Other consolidated subsidiaries depreciate their tangible
fixed assets using mainly the declining-balance method
over the useful lives of the respective assets provided by
the 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 lease agreements,
the residual value is set at the guaranteed amount.
Otherwise, the residual value is assumed to be zero.

Income taxes
Income taxes comprise corporate, enterprise and inhabitanttaxes. The Group recognizes tax effects of temporary
differences between the financial statement basis and thetax basis of assets and liabilities. The asset and liability

approach is used to recognize deferred tax assets andliabilities 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 that are
attributable to the fiscal year.

Method of accounting for retirement benefits
When calculating retirement benefit obligations, thebenefit formula method is used for attributing expected
retirement benefits to periods through the year-end. The
methods for recognizing past service cost and actuarial
gains or losses are as follows:
Past service cost:
Recognition of past service cost
is apportioned by the straightline method over a fixed numberof years (2 years) within theemployees’ average remaining
service period from the time of
their occurrence
Actuarial gains or losses: Recognition of actuarial gains
or losses are apportioned by thestraight-line method over a fixed
number of years (Mainly 10 to
11 years) within the employees’
average remaining service period
at the time of their occurrence ineach fiscal year, starting from thefollowing fiscal year
Some consolidated subsidiaries employ the simplified
method for calculating retirement benefit obligations
and periodic benefit costs, stating retirement benefit
obligations at the amounts required as if all employees
voluntarily terminate their employment as of the year-end.

accrued retirement benefit payments to directors as of theend of the fiscal year.

Standards for recording provision for directors’
stock benefits
To prepare for the provision of YMFG’s shares distributed
to directors of the Banks (excluding directors who arealso Audit and Supervisory Committee members, parttime directors and outside directors; hereinafter, “Subject
Directors”), the provision for directors’ stock benefits isrecorded based on the expected value of stock benefit
obligations as of the balance sheet date, in accordance withdirectors’ stock benefit regulations formulated by the Banks.

Provision for loss on interest repayment
Provision for loss on interest repayment is provided forpossible 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 “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 isrationally estimated 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.

Provision for directors’ retirement benefits
The provision for directors’ retirement benefits forconsolidated subsidiaries outside the banking businessis provided for the estimated amount corresponding to

YMFG Annual Report 201728

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 thetax exclusion method for consumption tax and local
consumption taxes, meaning that transaction amounts
and consumption 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.

Changes in Accounting Principles
For the year ended March 31, 2017
(Adoption of the “Practical Solution on a Change inDepreciation Method Due to Tax Reform 2016”)
In line with revisions to the Corporation Tax Act, fromthe current fiscal year YMFG has adopted the “Practical
Solution on a Change in Depreciation Method Due to Tax
Reform 2016” (ASBJ PITF No. 32, June 17, 2016), changing
the method for the depreciation of fixtures and buildings
acquired on or after April 1, 2016, from the declining-

29

YMFG Annual Report 2017balance method to the straight-line method.
As a result, ordinary income and income before income
taxes for the year ended March 31, 2017, each increasedby ¥18 million.
For the year ended March 31, 2016
(Adoption of the “Accounting Standard for Business
Combinations”)
YMFG has adopted the “Accounting Standard for Business
Combinations” (ASBJ Statement No. 21, September 13,2013), the “Accounting Standard for Consolidated Financial
Statements” (ASBJ Statement No. 22, September 13,2013), the “Accounting Standard for Business Divestitures”(ASBJ Statement No. 7, September 13, 2013), and otherrelated standards from the fiscal year ended March 31,
2016. As a result, the accounting method has beenchanged to record the difference caused by changes inequity in subsidiaries YMFG continues to control as capitalsurplus, and to record acquisition-related costs for the fiscal
year in which the costs were incurred. Furthermore, forbusiness combinations carried out on or after the beginningof the current fiscal year, the accounting method waschanged to reflect the revised acquisition cost allocation
resulting from the finalization of the provisional accounting
treatment in the consolidated financial statements of theyear in which the business combination occurs. In addition,
YMFG has changed its presentation of net income andrelated items, and renamed “minority interests” as “noncontrolling interests.” The consolidated financial statements
for the fiscal year ended March 31, 2015, have been
reclassified to reflect this change.
In the consolidated statements of cash flows for the
fiscal year under review, cash flows for the purchaseor sale of shares in subsidiaries without changing thescope of consolidation are listed under “cash flows fromfinancing activities.” Cash flows for expenses related tothe purchase of shares in subsidiaries resulting in changes
in the scope of consolidation and expenses related to thepurchase or sale of shares in subsidiaries without changing
the scope of consolidation are listed under “Cash flows
from operating activities.”
Adoption of the “Accounting Standard for Business
Combinations” and other related standards is inaccordance with the transitional measures provided for in
Article 58-2 (4) of the “Accounting Standard for Business
Combinations,” Article 44-5 (4) of the “AccountingStandard for Consolidated Financial Statements,”

and Article 57-4 (4) of the “Accounting Standard forBusiness Divestitures.” YMFG has applied the standards
prospectively from the beginning of the fiscal year ended
March 31, 2016.
As a result, income before income taxes for the fiscal
year ended March 31, 2016 decreased by ¥1,086 million.
In addition, capital surplus as of March 31, 2016 increasedby ¥1,084 million.
The ending balance of capital surplus in the consolidated
statements of changes in net assets for the fiscal year
ended March 31, 2016 increased by ¥1,084 million.
Information on the impact per share is provided in therelevant sections.

Additional Information(Adoption of the “Guidance on Recoverability of Deferred
Tax Assets”)
YMFG adopted the “Guidance on Recoverability ofDeferred Tax Assets” (ASBJ Guidance No. 26, March 28,2016) from the fiscal year ended March 31, 2017.
(ESOP Trust)
To enhance its welfare benefits, YMFG has introduced the
ESOP Trust for Group employees (hereinafter, “Employees”)
1. ESOP Trust for Employees introduced in September 2011
(1) Overview of Transactions
Of those Employees enrolled in the Yamaguchi Financial
Group Employee Stock Ownership Plan (hereinafter,“YMFG’s ESOP”), YMFG has established the trust for
those beneficiaries satisfying certain conditions. This trust
acquired as a lump sum certain number of shares of YMFG
corresponding to the number expected to be acquired
by YMFG’s ESOP over the five-year period beginning in
September 2011. Thereafter, the trust has sold YMFG’sshares to YMFG’s ESOP each month on a specific date.
(2) Company Shares Residing in the Trust
YMFG’s shares residing in the trust are recorded in treasury
stock in the net assets section based on the book value ofthe trust (excluding ancillary expenses). During the current
fiscal year, the trust sold all its holdings of YMFG’s shares,
so the trust held no shares as of March 31, 2017.
(3) Book Value of Borrowings Recorded by Applying theGross Price Method
The book value of borrowings recorded by applying thegross price method was ¥210 million on March 31, 2016,
and zero on March 31, 2017.

2. ESOP Trust for Employees introduced in March 2017
(1) Overview of Transactions
Of those Employees enrolled in YMFG’s ESOP, YMFG has
established a trust for those beneficiaries satisfying certain
conditions. This trust acquired as a lump sum certain
number of shares of YMFG corresponding to the number
expected to be acquired by YMFG’s ESOP over the fiveyear period beginning in March 2017. Thereafter, the trust
will sell YMFG’s shares to YMFG’s ESOP each month on a
specific date.
(2) Company Shares Residing in the Trust
YMFG’s shares residing in the trust are recorded in treasury
stock in the net assets section based on the book value ofthe trust (excluding ancillary expenses).
The book value and the number of shares of this treasury
stock amounted to ¥2,084 million ($19 million) and 1,619
thousand shares on March 31, 2017.
(3) Book Value of Borrowings Recorded by Applying theGross Price Method
The book value of borrowings recorded by applying thegross price method was ¥2,099 million ($19 million) on
March 31, 2017.
(Board Benefit Trust (BBT))YMFG has introduced a Board Benefit Trust (“BBT”) toraise awareness among Subject Directors of Banks within
YMFG toward raising operating performance at YMFG overthe medium to long term and contributing to increases incorporate 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
the time of retirement are granted to be distributed via
the trust to Subject Directors of Banks within YMFG
according to Subject Directors’ positions, and the level ofachievement of operating performance in accordance withdirectors’ stock benefit regulations established by Banks
within YMFG.
(2) Company Shares Residing in the Trust
YMFG’s shares residing in the trust are recorded as treasury
stock in the net assets section based on the book value ofthe trust (excluding ancillary expenses).
The book value and the number of shares of this treasury
stock amounted to ¥610 million ($5 million) and 633
thousand shares on March 31, 2017.

YMFG Annual Report 201730

3. CONSOLIDATED STATEMENTS OF CASHFLOWS AND CASH EQUIVALENTS
In preparing the consolidated statements of cash flows, theGroup 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 equivalentsin the consolidated statements of cash flows at March 31,2017 and 2016 were as follows:

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

Millions of yen
2017
2016
¥960,386 ¥1,174,642(11,565)(7,066)(11,255)(8,869)¥937,566 ¥1,158,707

Thousands of
U.S. dollars
2017$8,560,353(103,084)(100,321)$8,356,948

HOKEN HIROBA Co., Ltd., was newly consolidated dueto the acquisition of shares during the fiscal year ended
March 31, 2017. A breakdown of assets and liabilities atthe start of the consolidation is provided below, along withthe acquiring cost of shares in HOKEN HIROBA Co., Ltd.,and the (net) expenditure for the acquisition.

Current assets
Fixed assets
Goodwill
Current liabilities
Non-current liabilities
Share acquisition cost
Cash and cash equivalents
Less: Expenditure for the acquisition

Millions of Thousands ofyen
U.S. dollars
2017
2017
¥749
$6,676
687
6,124
3,393
30,243(391)(3,485)(638)(5,687)3,800
33,871(0)(0)¥3,800$33,871

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 cardbusinesses. Accordingly, the Group is subject to a variety
of risks, including credit risk, market risk and liquidity
risk. Due to changes in economic, social and financial
conditions, these risks have grown more diverse andcomplex. Under these conditions, the Group considers
strengthening its risk management structure as a priority

31

YMFG Annual Report 2017

issue. To maintain and enhance the soundness of its
operations, YMFG has created groupwide risk management
regulations, which clarify the Group’s fundamental stanceon risk management.

(2) Content and risks of financial instruments
Of financial assets held by the Group, principally loans andbills discounted extended to business partners are subject
to the credit risk of breach of contract. The Group holds
securities, principally debt securities, equity securities andinvestment trusts, for trading purposes, for holding tomaturity, for purely investment purposes or to promote
positive business relations. These securities are subject toissuer 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 thatit raises in the market. However, the Group is subject tothe liquidity risk of becoming unable to secure necessary
funding. The Group is also subject to interest rate risk arisingfrom 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 and securitiesrelated derivative transactions are employed to limit the
impact on income of future interest rate fluctuations andprice fluctuations for loans and bills discounted, deposits,
securities and other instruments bearing long-term interest
at fixed rates. Currency-related derivative transactions areused primarily to avoid fluctuations in income stemmingfrom 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 areconducted on a limited basis, the Group has establishedstringent standards that include risk limits and loss limits.
As market risk factors, interest rate related andsecurities-related derivative transactions are subject tothe risk of fluctuations in interest rates and prices, andcurrency-related derivative transactions are subject toexchange rate fluctuations. For transactions that are
not conducted on exchanges, the Group is subject tocredit risk, the risk of loss in the event a counterparty
becomes unable to fulfill its contractual obligations due todeteriorating financial conditions.
With regard to use of hedge accounting, the Groupapplies 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
treatments are applied.

(3) Risk management structure related tofinancial 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 precisionof 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
based on the results of its self assessments. The Group’s
authentication departments verify the content of such self
assessments. Independence is maintained through internal
audits conducted by audit 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 management 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 to respond tosuch risks.

YMFG periodically evaluates market risk conditions andverifies 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 the Group arecalculated according to value at risk (VaR). Furthermore,
the covariance method is used to calculate VaR.
As of March 31, 2017, the market risk (estimated loss
amount) of Yamaguchi Bank was ¥80,793 million ($720
million), the market risk (estimated loss amount) of Momiji
Bank was ¥25,142 million ($224 million) and the market
risk (estimated loss amount) of Kitakyushu Bank was¥17,293 million ($154 million). Also, as of March 31, 2016,
the market risk (estimated loss amount) of Yamaguchi
Bank was ¥69,017 million, the market risk (estimated loss
amount) of Momiji Bank was ¥17,205 million and themarket risk (estimated loss amount) of Kitakyushu Bankwas ¥14,574 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. However, the observation
period for foreign bond funds is one year.
Yamaguchi Bank, Momiji Bank and Kitakyushu Bank
conduct back-testing to compare the VaR calculated by
the model with the actual losses. However, because of
relatively large fluctuations in Japanese stock and foreignexchange market prices this year, instances arose in which
they were unable to capture the risk on Japanese stocks
and foreign bond funds. Consequently, the method for
determining the amount of risk on Japanese stocks andforeign bond funds was revised beginning in fiscal 2016.
Specifically, VaR is measured for observation periods ofboth one year and five years, with the larger number taken
as the risk amount. Based on this revision, the observation
period on VaR for foreign bond funds as of the end of
fiscal 2016 was one year. However, as the practice ofmeasuring market risk amount with a set risk probability
calculated statistically on the basis of historical market
fluctuations remains unchanged even after revising themeasurement method to appropriately capture the market
risk amount, in some cases it is not possible to capture
market risk in the event of sudden changes in the market
environment outside the normally expected scope.

YMFG Annual Report 201732

(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 forunexpected events, and maintaining highly liquid assets.

(4) Supplementary explanation of items
pertaining to the fair value of financial
instruments
The fair values of some financial instruments are basedon market prices. The fair values of other instruments, forwhich market prices are not readily available, are basedon rational calculation. However, as assumptions are usedin these calculations, different assumptions can yield
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 fair values
and the differences between the two. Line items with little
significance to balance sheet amounts have been omitted.
Unlisted equity securities and other instruments for which
fair value is not easily determinable are not included in thetable below. (Refer to (Note 2).)Millions of yen
2017
Consolidatedbalance sheet Fair value Difference
amount¥ 960,386 ¥ 960,386¥—(1) Cash and due from banks(2) Call loans and bills purchased
278,732
278,732—(3) Money held in trust
46,953
46,953—(4) Securities
6,081
6,213
132
Held-to-maturity debt
securities
Available-for-sale securities
1,882,319
1,882,319—(5) Loans and bills discounted
6,751,378
Allowance for loan losses (* 1)(51,930)
6,699,448
6,772,806
73,358
Total assets¥9,873,919 ¥9,947,409¥73,490(1) Deposits¥8,453,837 ¥8,454,828¥ 991(2) Negotiable certificates
775,958
775,958
0of deposit
Total liabilities¥9,229,795 ¥9,230,786¥991
Derivative transactions (* 2)
469 ¥
469
¥
—
Hedge accounting not applied ¥Hedge accounting applied
(693)
(693)
—
Total derivative transactions¥(224) ¥
(224)
¥
—

33

YMFG Annual Report 2017

Millions of yen
2016
Consolidatedbalance sheet Fair value Difference
amount—(1) Cash and due from banks ¥ 1,174,642 ¥ 1,174,642 ¥(2) Call loans and bills purchased
356,719
356,719—(3) Money held in trust
47,65547,655—(4) Securities
Held-to-maturity debt
5,129
5,291
162
securities
Available-for-sale securities
2,104,752
2,104,752—(5) Loans and bills discounted
6,448,887
Allowance for loan losses (* 1)(64,931)
6,383,956
6,492,550
108,594
Total assets¥10,072,853 ¥10,181,609¥108,756(1) Deposits¥ 8,703,691 ¥ 8,705,754¥ 2,063(2) Negotiable certificates
806,399
806,399
0of deposit
Total liabilities¥ 9,510,090 ¥ 9,512,153¥ 2,063
Derivative transactions (* 2)
6,605 ¥
6,605 ¥—
Hedge accounting not applied ¥Hedge accounting applied
983
983
—
Total derivative transactions¥
7,588 ¥
7,588 ¥—

Thousands of U.S. dollars
2017
Consolidatedbalance sheet Fair value Difference
amount$—(1) Cash and due from banks $ 8,560,353 $ 8,560,353(2) Call loans and bills purchased 2,484,464
2,484,464—(3) Money held in trust
418,513418,513—(4) Securities
Held-to-maturity debt
54,20355,379
1,176
securities
Available-for-sale securities 16,777,957 16,777,957—(5) Loans and bills discounted
60,178,073
Allowance for loan losses (* 1)(462,876)
59,715,197 60,369,071
653,874
Total assets$88,010,687 $88,665,737$655,050(1) Deposits$75,352,857 $75,361,690$ 8,833(2) Negotiable certificates
6,916,463
6,916,463—
of deposit
Total liabilities$82,269,320 $82,278,153$ 8,833
Derivative transactions (* 2)4,180 $
4,180$—
Hedge accounting not applied $Hedge accounting applied(6,177)(6,177)—
Total derivative transactions$(1,997) $(1,997) $—(* 1) The general allowance for loan losses and specific allowance for loan losses are deducted.
(* 2) The amount collectively represents derivative transactions that are recorded as trading
assets and liabilities, and other assets and liabilities. This indicates the net amount ofrights and obligations under derivative transactions. Parentheses, ( ), indicate that the net
amount is negative.

(Note 1) Methods of calculating the fair value of financial
instruments(1) Assets(i) Cash and due from banks
As the settlement term of these instruments is short(within one year) and their fair values and book values areapproximately the same, their book values are taken as
their fair values.
(ii) Call loans and bills purchased
As the settlement term of these instruments is short(within one year) and their fair values and book values areapproximately the same, their book values are taken as
their fair values.
(iii) 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 of the Group, the value
on stock exchanges is taken as fair value for the equity
securities, and either the value on exchanges or a priceindicated by other financial institutions dealing with thespecific instruments is taken as fair value.
Notes pertaining to money held in trust exchanges forthe purpose of holding are indicated within “Money heldin trust.”(iv) Securities
For equity securities, fair value is determined by stock
exchange prices; the fair value of debt securities isdetermined by exchange prices or prices received frominformation vendors. Fair values of investment trusts are
determined by exchange prices or standard prices disclosed
by investment trust management companies.
The fair value of private placement bonds guaranteedby Yamaguchi Bank and Momiji Bank is determined foreach internal rating category and period by discounting topresent value the total amount of interest and principal,
using as the discount rate the risk-free rate plus thecredit cost determined for each internal rating category.
However, fair value of bonds of legally bankrupt debtors,
substantially bankrupt debtors and debtors in dangerof bankruptcy is determined by deducting the expectedamount of loss on the bond by using the same method
applied to loans from the bond’s face value.
(v) 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 internal rating
category and period by discounting to present value
the total amount of interest and principal, using as thediscount rate the risk-free rate for operating loans andbills discounted plus the credit cost for each internalrating category. For consumer loans and bills discounted,
fair value is determined by discounting the total amountof interest and principal to their present value using theassumed interest rate on new loans of the same type. For
instruments having a short settlement period (within oneyear), as their fair values and book values are approximately
the same, their book value is taken as their fair value.
With regard to loans to legally bankrupt obligors,
substantially bankrupt obligors or obligors who are indanger of bankruptcy, the estimated collectible amountis based on either the present value of estimated future
cash flows or the expected amounts recoverable fromthe disposal of collateral and/or under guarantees. As
the fair 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, thisamount is taken as fair value.
For loans that have no specific repayment period, as thefair value is assumed to be equivalent with the book value
according to the expected payment dates and interest
rates, book value is taken as the fair value.
(2) Liabilities(i) Deposits and (ii) Negotiable certificates of deposit
The fair value of demand deposits is determined as
the payment 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 short period(within one year), as their fair values and book values areapproximately the same, their book value is taken as theirfair value.
(3)Derivative transactions
The fair value of derivative transactions, comprisinginterest-rate-related transactions (such as interest rate
futures, interest rate options and interest rate swaps)
currency-related transactions (such as currency futures,
currency options and currency swaps), bond-related

YMFG Annual Report 201734

transactions (such as bond futures and bond options) istaken as their value on exchanges, discounted present
value or price as calculated using option pricing models.
Interest rates swaps that employ exceptional accounting
treatment are accounted for as part of the loans and bills
discounted that are hedged. Therefore, their fair value isincluded in the fair value of loans and bills discounted.
(Note 2) The consolidated balance sheet amounts offinancial instruments for which market prices are notreadily available
Financial instruments for which market prices are notreadily available are not included in “Assets (4) Availablefor-sale securities.”

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

Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Consolidated balance sheet amount¥ 7,650¥ 6,832$ 68,188
4,221

3,939

37,623¥11,871¥10,771$105,811(*1) As unlisted equity securities have no market prices and their fair value is not readily
available, they are not included in the scope of fair value disclosures.
(*2) During the fiscal year ended March 31, 2016 and 2017, impairment losses of ¥15 millionand ¥21 million ($187 thousand) were recorded on unlisted equity securities.
(*3) Of investments in partnerships, those partnership assets comprising unlisted equity
securities, which have no readily available fair value, are not included in the scope of fairvalue disclosure.

35

YMFG Annual Report 2017

(Note 3) Expected maturity amount of monetary claims andsecurities with maturities after the consolidated balance
sheet dateMillions of yen
2017
More than More than More thanWithinone year three years five years More than
one year and within and within and within seven years
three years five years seven years¥ 862,527 ¥
— ¥
— ¥
— ¥
—

(1) Due frombanks(2) Call loans
278,732——
and bills
purchased(3) Securities
263,661
384,169
178,659
Held-to416
894
610
maturity debt
securities
Local
—
—
100
government
bond
Corporate
416
894
510
bond
Others———Available-for263,245
383,275
178,049
sale securities
with maturities
Japanese
68,224
120,931
13,174government
bond
Local
1,420
4,511
13,834government
bond
Corporate
157,124
213,034
130,612bond
Others36,47744,79920,429(4) Loans and 2,077,007
918,513
841,537bills discounted
(*)
Total
¥3,481,927 ¥1,302,682 ¥1,020,196——

157,397
1,380

651,511
2,781

500

1,200

880

1,581

—
156,017—
648,730

9,433

301,624156

17,042

111,533

238,315

34,89591,749599,167 2,315,154¥756,564 ¥2,966,665

Millions of yen
2016
More than More than More thanWithinone year three years five years More than
one year and within and within and within seven years
three years five years seven years¥1,079,667 ¥
— ¥
— ¥
— ¥
—

(1) Due frombanks(2) Call loans
356,719——and bills
purchased(3) Securities
278,134
549,979
328,786
Held-to476
772
289
maturity debt
securities
Local
—
—
—
government
bond
Corporate
190
772
289
bond
Others286——
Available-for277,658
549,207328,497
sale securities
with maturities
Japanese
58,209169,310
114,541government
bond
Local
2,731
3,362
6,856
government
bond
Corporate
202,719
315,843
176,263
bond
Others13,99960,69230,837(4) Loans and 2,230,165 1,099,315
818,895
bills discounted
(*)
Total
¥3,944,685 ¥1,649,294 ¥1,147,681——

171,503230

551,170
3,362

—

1,400

230

1,962

—
171,273—
547,808

33,081

239,983

7,300

10,411

100,993258,165

29,89939,249553,191 1,747,321¥724,694 ¥2,298,491

Thousands of U.S. dollars
2017
More than More than More thanWithinone year three years five years More than
one year and within and within and within seven years
three years five years seven years$ 7,688,092 $
— $
— $
— $
—

(1) Due frombanks(2) Call loans
2,484,464————
and bills
purchased(3) Securities
2,350,129 3,424,271 1,592,468 1,402,951 5,807,211
Held-to3,708
7,969
5,437
12,301
24,788maturity debt
securities
Local
—
—
891
4,457
10,696government
bond
Corporate
3,708
7,969
4,546
7,844
14,092bond
Others—————Available-for2,346,421 3,416,302 1,587,031 1,390,650 5,782,423
sale securities
with maturities
Japanese
608,111 1,077,912
117,426
84,081 2,688,511
government
bond
Local
12,65740,209123,309
1,390
151,903
government
bond
Corporate
1,400,517 1,898,868
1,164204
994,144 2,124,209
bond
Others
325,136
399,313
182,092
311,035
817,800(4) Loans and 18,513,299 8,187,120 7,500,988 5,340,645 20,636,021
bills discounted
(*)
Total
$31,035,984 $11,611,391 $9,093,466 $6,743,596 $26,443,232(*) Loans and bills discounted for which no period is specified are included in “within one year.”(Note 4) Estimated repayment amounts of deposits, negotiablecertificates of deposit and other interest-bearing liabilities to be
repaid after the consolidated balance sheet dateMillions of yen
2017
More than More thanThree
Withinone year two years
or
one year and within and within years
more
two years three years¥7,815,897 ¥464,555 ¥140,370¥33,015
Deposits (*)
Negotiable certificates
775,278680——
of deposit
Total¥8,591,175 ¥465,235 ¥140,370¥33,015

Millions of yen
2016
More than More thanThree
Withinone year two years
or
one year and within and within years
more
two years three years¥7,783,476 ¥690,244 ¥192,698¥37,273
Deposits (*)
Negotiable certificates
806,119280——
of deposit
Total¥8,589,595 ¥690,524 ¥192,698¥37,273

YMFG Annual Report 201736

Thousands of U.S. dollars
2017
More than More thanThree
Withinone year two years
years orone year and within and within
more
two years three years$69,666,610 $4,140,788 $1,251,181$294,278
Deposits (*)
Negotiable certificates
6,910,402
6,061——
of deposit
Total$76,577,012 $4,146,849 $1,251,181$294,278(*) Within deposits, demand deposits are included in “within one year.”

5. SECURITIESSecurities held at March 31, 2017 include shares of
unconsolidated subsidiaries and affiliates amounting to ¥92
million ($1 million) and investments of ¥1,107 million ($10
million). Corresponding figures at March 31, 2016, were
¥90 million and ¥1,078 million.
The amount of guarantee obligations for private
placement bonds (Financial Instruments and Exchange
Law, Article 2, Item 3), out of bonds included in securities,
amounted to ¥7,907 million ($70 million) and ¥6,180 million
as of March 31, 2017 and March 31, 2016 respectively.
Bonds included in securities also include securities
lent through unsecured loan agreements (bond lendingtransactions) of ¥5,040 million ($45 million) and ¥5,065
million, at March 31, 2017 and 2016 respectively.

6. FAIR VALUE INFORMATION(b) Held-to-maturity debt securities:
Type
Local
government
bonds
Corporate
bonds
OthersSubtotal
Securities with fairLocalvalue not exceeding government
book value
bonds
Corporate
bonds
OthersSubtotal
Total

Securities with fairvalue exceeding
book value

Type
Local
government
bonds
Corporate
bonds
OthersSubtotal
Securities with fairLocalvalue not exceeding government
book value
bonds
Corporate
bonds
OthersSubtotal
Total
Securities with fairvalue exceeding
book value

Securities
The following tables summarize book values, fair value andacquisition cost of securities with available fair values as ofMarch 31, 2017 and 2016:(a) Trading securities
Amount of unrealized gain (loss) on trading securities
included in the consolidated statement of income— ¥(31) million ($(276) thousand) and ¥17 million as at
March 31, 2017 and 2016, respectively.

37

YMFG Annual Report 2017

Type
Local
government
bonds
Corporate
bonds
OthersSubtotal
Securities with fairLocalvalue not exceeding government
book value
bonds
Corporate
bonds
OthersSubtotal
Total
Securities with fairvalue exceeding
book value

Millions of yen
2017Book value Fair value Difference¥1,400¥1,446
¥ 46

3,972

4,062

90

—
5,372
400

—
5,508
399

—
136
(1)

309

306

(3)

—
709
¥6,081—
705¥6,213—(4)¥132

Millions of yen
2016Book value Fair value Difference¥1,400¥1,455
¥ 55

3,337

3,441

104

286
5,023
—

289
5,185
—

3
162
—

106

106

(0)

—
106
¥5,129—106¥5,291—(0)¥162

Thousands of U.S. dollars
2017Book value Fair value Difference$12,479 $12,898$ 419

35,40436,197793—
47,883
3,565—
49,095
3,556

—
1,212
(9)

2,755

2,728

(27)

—
6,320
$54,203—6,284$55,379—(36)$1,176

(c) Available-for-sale securities

Type

Millions of yen
2017
Acquisition
Book value
Differencecost¥ 129,583 ¥ 47,106 ¥ 82,477
284,413281,698
2,715

Securities with book Sharesvalue exceeding
Japaneseacquisition costgovernment
bonds
Local
28,34027,641government
bonds
Corporate
740,235
726,320
bonds
Others50,53449,522
Subtotal
1,233,105 1,132,287
Securities with book Shares
10,54911,876value not exceeding Japanese
228,973
234,852
acquisition costgovernment
bonds
Local
8,623
8,675
government
bonds
Corporate
110,385
111,832
bonds
Others290,684
303,431
Subtotal
649,214670,666
Total¥1,882,319 ¥1,802,953

Type

699
13,915
1,012
100,818(1,327)(5,879)(52)(1,447)(12,747)(21,452)¥ 79,366

Millions of yen
2016
Acquisition
Book value
Differencecost¥ 108,872 ¥ 49,024¥ 59,848
600,562
588,705
11,857

Securities with book Sharesvalue exceeding
Japaneseacquisition costgovernment
bonds
Local
29,371
28,405government
bonds
Corporate
1,031,214 1,011,984
bonds
Others117,964
116,084
Subtotal
1,887,983 1,794,202
Securities with book Shares
12,514
13,899value not exceeding Japanese
14,562
14,630acquisition costgovernment
bonds
Local
1,288
1,290
government
bonds
Corporate
22,76022,853bonds
Others
165,645
180,808
Subtotal
216,769
233,480
Total¥2,104,752 ¥2,027,682

TypeSecurities with book Sharesvalue exceeding
Japaneseacquisition costgovernment
bonds
Local
252,607
246,377
government
bonds
Corporate
6,598,048 6,474,017
bonds
Others450,432
441,412Subtotal
10,991,220 10,092,584
Securities with book Shares
94,028105,856
value not exceeding Japanese
2,040,939 2,093,342
acquisition costgovernment
bonds
Local
76,861
77,324government
bonds
Corporate
983,911996,809bonds
Others2,590,998 2,704,617
Subtotal
5,786,737 5,977,948
Total$16,777,957 $16,070,532

1,880
93,781(1,385)(68)

124,0319,020
898,636(11,828)(52,403)(463)(12,898)(113,619)(191,211)$ 707,425(e) Available-for-sale securities sold during the fiscal year

SharesJapanese government bonds
Local government bonds
Corporate bonds
Others
Total

Millions of yen
2017
Sale
Total gain Total loss
amounton saleon sale¥ 15,719¥10,191¥ 68
917,543
9,255
2,608
—
—
—
103,890
1,668—
289,024
3,624
1,691¥1,326,176¥24,738¥4,367

SharesJapanese government bonds
Local government bonds
Corporate bonds
Others
Total

Millions of yen
2016
Sale
Total gain Total loss
amounton saleon sale¥6,724¥ 3,575¥ 115
1,050,859
8,774
582
—
—
—
161,673
2,074
4359,283
9,395
2,227¥1,578,539¥23,818¥2,928(2)(93)(15,163)(16,711)¥ 77,070

6,230(d) Held-to-maturity debt securities sold during the fiscal year
There were no held-to-maturity securities sold during
the fiscal year ended March 31, 2017 and 2016.

966
19,230Thousands of U.S. dollars
2017
Acquisition
Book value
Differencecost$ 1,155,032 $ 419,877 $ 735,155
2,535,101 2,510,901
24,200YMFG Annual Report 201738

Shares
Japanese government bonds
Local government bonds
Corporate bonds
Others
Total

Thousands of U.S. dollars
2017
Sale
Total gain Total loss
amounton saleon sale$ 140,111$ 90,837$ 606
8,178,474
82,49423,246———926,018
14,868—2,576,201
32,302
15,073$11,820,804$220,501$38,925

Money held in trust
Information on money held in trust as of March 31, 2017and 2016 is as follows:(a) Money held in trust classified as trading purposes

Money held in trust classified as
trading purposes(f) Securities for which purpose of holding changed
There were no securities for which the purpose of holding
changed at March 31, 2017 and 2016.

Impairment losses on securities
Regarding securities (excluding those for which market
prices are not readily available) other than trading securities,
if their market values have fallen substantially below theiracquisition price and are not expected to recover to theacquisition price, such market values are recorded in the
consolidated balance sheets. The valuation difference
is recorded as a loss for the fiscal year in which suchdifference is realized (hereinafter, “impairment losses”).
During the fiscal year ended March 31, 2017,
impairment losses were ¥103 million ($918 thousand) on
equity securities and during the fiscal year ended March
31, 2016, impairment losses totaled ¥682 million on equity
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.

39

YMFG Annual Report 2017

Money held in trust classified as
trading purposes

Money held in trust classified as
trading purposes

Millions of yen
2017
Unrealized gains
Consolidated(losses) included
balance sheet
in profit (loss) for
amountthe fiscal year
¥9,873¥—

Millions of yen
2016
Unrealized gains
Consolidated(losses) included
balance sheet
in profit (loss) for
amountthe fiscal year¥—¥—

Thousands of U.S. dollars
2017
Unrealized gains
Consolidated(losses) included
balance sheet
in profit (loss) for
amountthe fiscal year
$88,002$—(b) Money held in trust classified as held-to-maturity
There are no corresponding transactions as at March
31, 2017 and 2016.
(c) Available-for-sale money held in trust

Available-for-sale money heldin trust

Available-for-sale money heldin trust

Millions of yen
2017
Consolidated
Unrealized
Acquisition
balance sheet
gains
cost
amount(losses)¥37,080¥37,559¥(479)

Millions of yen
2016
Consolidated
Unrealized
Acquisition
balance sheet
gains
cost
amount(losses)¥47,655¥47,642¥13

Available-for-sale money heldin trust

Thousands of U.S. dollars
2017
Consolidated
Unrealized
Acquisition
balance sheet
gains
cost
amount(losses)$330,511 $334,780$(4,269)

Unrealized gains (losses) on available-for-salesecurities
Information on unrealized gains (losses) on available-forsale securities and available-for-sale money held in trust
is as follows:

Net unrealized gains
Available-for-sale securities
Available-for-sale money heldin trust
Deferred tax liabilities
Unrealized gains on availablefor-sale securities before
following adjustment
Equivalent to non-controllinginterests
YMFG’s interest in net
unrealized gains on valuationof available-for-sale securities
held by affiliates accounted forby the equity method
Unrealized gains on availablefor-sale securities

Millions of yen
2017
2016
¥78,956 ¥77,132
79,435
77,119(479)
1323,42655,53023,11254,020Thousands of
U.S. dollars
2017$703,770
708,040(4,270)

(0)

54

0

0

0

¥54,020(1) Derivative transactions at March 31, 2017 and 2016, towhich hedge accounting is not applied(a) Interest-rate-related:
Millions of yen
2017
Type
Over-the-counter:
Interest rate swaps:
Receivable fixed,
payable floating
Receivable floating,payable fixedInterest rate cap
Sold
Total

$494,910

Valuation differences on investments in partnerships,
etc., of ¥69 million ($615 thousand) at March 31, 2017and ¥49 million at March 31, 2016, for which market
values are extremely difficult to determine, are recorded inavailable-for-sale securities of net unrealized gains in thelist above.

Contract
amounts

Over oneyear

Fair value

Realized
gains(losses)¥28,493¥24,261

¥539

¥539

28,51924,255

(375)

(375)

—
—

(0)
¥164

4
¥168

¥

32
—

¥

Millions of yen
2016

208,806
494,9646¥55,524

Derivatives

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

Contract
amounts

Over oneyear

Fair value

Realized
gains(losses)¥36,160¥28,512

¥ 760

¥ 760

36,21928,571

(650)

(650)

64
—

(0)
¥ 110

4
¥ 114

¥

64
—

¥

Thousands of U.S. dollars
2017
Type
Over-the-counter:
Interest rate swaps:
Receivable fixed,
payable floating
Receivable floating,payable fixedInterest rate cap
Sold
Total

Over oneyear

Fair value

Realized
gains(losses)$253,971 $216,249$4,804$4,804

254,203(3,342)(3,342)(0)$1,46235$1,497

Contract
amounts$

216,196

285
— $

—
—

YMFG Annual Report 201740

(d) Bond-related:(b) Currency-related:
Millions of yen
2017

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

Contract
amounts

Over oneyear

Fair value¥357,796 ¥131,744¥ (466)113,673
23,712Millions of yen
2017
Realized
gains(losses)¥(1,500)

839
152

492
(106)

492
(106)

142,252
99,320142,252
99,320¥— ¥—(4,993)
5,520
¥ 447

3,091
(843)
¥ 1,134

Millions of yen
2016

Type
Over-the-counter:
Currency swaps
Foreign exchange
forward contracts:
Sold
BoughtCurrency options
Sold
Bought
Total

Over oneyear

Fair value

Realized
gains(losses)¥327,634 ¥132,655¥ 3,163¥(1,319)

Contract
amounts

148,196
36,781

1,292
860

2,621
(65)

2,621
(65)

158,874 114,263
158,874 114,263¥— ¥—(5,626)
6,583¥ 6,676

4,138(1,279)¥ 4,096

Thousands of U.S. dollars
2017

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

Contract
amounts

Over oneyear$3,189,197 $1,174,294

Fair value

Realized
gains(losses)$ (4,154)$(13,370)

7,478
1,355

4,385
(945)

4,385
(945)

1,267,956
885,284
1,267,956
885,284$— $—(44,504)
49,202$ 3,984

27,552(7,514)$ 10,108

1,013,219
211,356(c) Stock-related:
There were no stock-related transactions as at March 31,2017 and 2016.

41

YMFG Annual Report 2017Type
Listed:Bond futures
Sold
Total

Contract
amounts

Over oneyear

Fair value¥126,996
¥
—

¥—
¥—

¥(142)¥(142)

Realized
gains(losses)¥(142)¥(142)

Millions of yen
2016

Type
Listed:Bond futures
Sold
Total

Contract
amounts

Over oneyear

Fair value¥136,594
¥
—

¥—
¥—

¥(182)¥(182)

Realized
gains(losses)¥(182)¥(182)

Thousands of U.S. dollars
2017

Type
Listed:Bond futures
Sold
Total

Contract
amounts

Over oneyear

Fair value$1,131,973
$
—

$—
$—

$(1,266)$(1,266)

Realized
gains(losses)$(1,266)$(1,266)(e) Commodity-related:
There were no commodity-related transactions as at March
31, 2017 and 2016.
(f) Credit-derivatives:
There were no credit related transactions as at March 31,2017 and 2016.

(2) Derivative transactions as at March 31, 2017 and 2016,
to which hedge accounting is applied(a) Interest-rate-related:

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

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

Millions of yen
2017
Contract Over one
Fair value
amounts
year¥10,438

¥

1,108
—

¥10,438

1,000
—

¥

Type
Principal accounting procedure:
Currency swaps
Total¥(274)*¥(274)

Type
Principal accounting procedure:
Currency swaps
Total

Millions of yen
2016
Contract Over one
Fair value
amounts
year¥29,891
¥
—

¥96
¥—

¥1,443¥1,443Thousands of U.S. dollars
2017
Contract Over one
Fair value
amounts
year$308,468$—$18,362$—$(3,735)$(3,735)

Millions of yen
2016
Contract Over one
Fair value
amounts
year(c) Stock-related:
There were no stock-related transactions at March 31,2017 and 2016.

¥12,074(d) Bond-related:
There were no bond-related transactions at March 31,2017 and 2016.

¥

1,655
—

¥12,074¥(460)

1,608—*¥(460)¥

7. LOANS AND BILLS DISCOUNTED
Type
Principal accounting procedure:Interest rate swaps
Receive floating, payable fixedInterest rate swaps employing
exceptional accounting:Interest rate swaps
Receive floating, payable fixed
Total

Thousands of U.S. dollars
2017
Contract Over one
Fair value
amounts
year$93,039

$

9,876
—

$93,039$(2,442)

8,913
—

*
$(2,442)$(*) Of interest rate swaps employing exceptional accounting, as these instruments areaccounted for together with the hedged loans and bills discounted and borrowings, theirfair value is included in the fair value of said loans and bills discounted within “Financial
instruments.”(b) Currency-related:

Type
Principal accounting procedure:
Currency swaps
Total

Millions of yen
2017
Contract Over one
Fair value
amounts
year¥34,607¥—¥2,060¥ —¥(419)¥(419)

Loans at March 31, 2017 and 2016 include “Risk-Managed
Loan Amounts” as follows:(1) Loans to borrowers in bankruptcy amounting to¥14,652 million ($131 million) and ¥18,738 million
denote loans subject to Article 96-1-3 and 96-1-4 of“Order for Enforcement of the Corporation Tax Act”
(Cabinet Order No. 97 of 1965) on which interest
accrual has stopped as there is doubt about thecollectability of either principal or interest because they
have been contractually past due for a considerable
period of time or for other reasons.
(2) Other delinquent loans amounting to ¥65,203 million($581 million) and ¥73,782 million denote loans
on which the Banks have stopped accruing interest
excluding loans to borrowers in bankruptcy and loans
on which interest payments are deferred in order topromote recovery of borrowers in economic difficulty.
(3) Loans past due for three months or more amounting to¥471 million ($4 million) and ¥552 million denote loans
where payment of interest or principal has been delayed
for three months or more excluding loans to borrowers
in bankruptcy and other delinquent loans.

YMFG Annual Report 201742

(4) Restructured loans amounting to ¥10,039 million($89 million) and ¥12,286 million denote loans toborrowers for which the repayment terms have been
modified to more favorable terms including reductionof interest rate, deferral of interest payments, extensionof principal payments and debt forgiveness withthe objective of promoting recovery of borrowers ineconomic difficulty excluding loans to borrowers inbankruptcy, other delinquent loans, and past-due loans.
(5) The total of loans to borrowers in bankruptcy, otherdelinquent loans, past-due loans, and restructuredloans amounted to ¥90,365 million ($805 million) and¥105,358 million.
The loan amounts disclosed from (1) to (5) above areamounts before deducting an allowance for loan losses.

the unused loan commitment will not necessarily affectfuture cash flows. Conditions are included in certain loan
agreements that allow the consolidated subsidiaries either
to decline the request for a loan draw-down or to reduce
the agreed limit amount when there is due cause to doso, such as when there is a change in financial condition
or when it is necessary to protect 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., atentering into a loan agreement or in accordance with theconsolidated subsidiaries’ established internal proceduresfor confirming the obligor’s financial condition, etc., atregular intervals.

Commercial bills
Bills discounted are accounted for as financing transactionsin accordance with the Industry Audit Committee Report
No. 24, February 13, 2002, of the JICPA, although theBanks have the right to sell or pledge them without
restrictions. The total face value of commercial bills andpurchased foreign exchange bills obtained as a result of
discounting was ¥40,304 million ($359 million) at March
31, 2017 and ¥41,223 million at March 31, 2016.

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 makethe loans upon the request of an obligor to draw down
funds under such loan agreements as long as there is nobreach of the various terms and conditions stipulated in therelevant loan agreement. The unused commitment balance
relating to these loan agreements amounted to ¥917,600
million ($8,179 million) at March 31, 2017 and ¥923,165
million at March 31, 2016. Of this amount, ¥834,969
million ($7,442 million) at March 31, 2017, and ¥847,805
million at March 31, 2016, relates to loans for which theterm 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,

43

YMFG Annual Report 2017

9. PLEDGED ASSETSAt March 31, 2017 and 2016, the following assets were
pledged as collateral for certain liabilities of the Banks.

Cash and due from banks
Securities

Millions of yen
2017
2016
¥
18 ¥
18
247,444
235,549

Thousands of
U.S. dollars
2017
$
160
2,205,580

The collateral was pledged to secure the following:

Deposits
Call money
Payables under securities
lending transactions
Borrowed money

Millions of yen
2017
2016
¥36,332¥38,656
11,219—32,861
32,001—

901

Thousands of
U.S. dollars
2017$323,843
100,000
292,905—

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 ¥104,578 million ($932 million) and cash and due frombanks ¥3 million ($27 thousand) at March 31, 2017. The
corresponding figures at March 31, 2016, were ¥104,750
million and ¥3 million.
Also, other assets included security deposits, collateralpledged for transactions involving public funds, collateralpledged for financial instruments and collateral pledged forexchange settlements, as indicated below.
Millions of yen
2017
2016
¥2,728¥4,1801,189
1,199

Deposits
Collateral pledged fortransactions involving
public funds
Collateral pledged forfinancial instruments
Collateral pledged forexchange settlements

Thousands of
U.S. dollars
2017$24,316
10,5982,335

43

20,813

9,595—

85,525

10. ACCUMULATED DEPRECIATION
Accumulated depreciation of tangible assets was ¥72,422
million ($646 million) at March 31, 2017, and ¥73,571
million at March 31, 2016.

11. ADVANCED DEPRECIATION AMOUNTOF TANGIBLE FIXED ASSETSAt March 31, 2017 and 2016, advanced depreciation
amount of tangible fixed assets were ¥7,813 million($70 million) and ¥8,154 million. Corresponding amountdepreciated from certain tangible fixed assets in fiscal year
ended March 31, 2017 were ¥108 million ($1 million) andthere were no amount in fiscal year ended March 31, 2016.

YMFG and its consolidated subsidiaries that engage inthe banking and securities business group their businessuse assets into the smallest units possible from thestandpoint of management accounting, which is thebranch. Idle assets are, in principle, grouped as units ofindividual 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 areengaged in the banking businesses.
Consolidated subsidiaries that do not engage in thebanking and securities business group their assets, inprinciple, on an individual company basis.
In the fiscal year ended March 31, 2017 and 2016, thebook values of the business-use and idle assets, whichhave problem in operating cash flow, and assets thatare scheduled for sale are reduced to their recoverable
values, and recognized the reduction of ¥69 million ($615
thousand) and ¥118 million as impairment losses. This
amount includes land of ¥31 million ($276 thousand) andbuildings of ¥38 million ($339 thousand) in fiscal year ended
March 31, 2017, and land of ¥92 million and buildings of¥26 million in fiscal year ended March 31, 2016.
The recoverable amount used to estimate theimpairment loss for the fiscal year ended March 31, 2017and 2016, is the net selling price, which is calculated bydeducting the expected disposal cost from the expected
disposal value.

12. IMPAIRMENT LOSSES
During the fiscal year ended March 31, 2017 and 2016,
impairment losses were recorded on the following assets.
Location

PrimaryuseTypeWithinBusiness- Land,
Hiroshima use andbuildings
Prefecture idle assets
for saleWithinBusiness- Land,
Yamaguchi use assets buildings
Prefecture
WithinBusiness- Land,
Fukuokause assets, buildings
Prefecture idle assets
Other
Business- Buildings
use assets
Total

Impairment loss
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
¥50
¥ 17
$446

¥—

¥ 59

$ —

¥—

¥ 42

$ —

¥19

¥ —

$169

¥69

¥118

$615

13. BORROWED MONEY
Payment schedule of borrowed money as of March 31,2017 is as follows:
2017
2018
2019
2020
2021
Thereafter
Total

Millions of yen¥12,036
5,568
4,101
2,952
1,841
4,897
¥31,395

Thousands of
U.S. dollars$107,282
49,63036,554
26,313
16,41043,649$279,838

YMFG Annual Report 201744

14. PROVISION FOR EMPLOYEERETIREMENT BENEFITS
Overview of severance payments and pension plans
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, someare established as retirement benefit trusts.
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
fiscal year ended March 31, 2017 and 2016Retirement benefit obligations at
the beginning of the fiscal year
Service cost
Interest cost
Actuarial differences
Retirement benefit payments
Past service cost
OthersRetirement benefit obligations
at the end of the fiscal year

Millions of yen
2017
2016
¥63,038¥60,381
1,851
119
22
(3,323)—
2¥61,709

1,707
344
5,200
(3,447)(1,139)(8)¥63,038

Thousands of
U.S. dollars
2017$561,886
16,4991,061
196(29,620)—18$550,040(2) Reconciliation of plan asset balances at the
beginning and the end of the fiscal year ended
March 31, 2017 and 2016

Balance of plan assets at the
beginning of the fiscal year
Expected return on plan assets
Actuarial differences
Contribution from employer
Retirement benefit payments
Partial returns of retirement
benefit trust
OthersBalance of plan assets at theend of the fiscal year

45

YMFG Annual Report 2017

Millions of yen
2017
2016
¥82,675¥90,390

Thousands of
U.S. dollars
2017$736,920

2,051
4,533
1,999
(2,126)—

2,903(7,497)1,620(2,220)(2,746)

18,28140,405
17,818(18,951)—294¥89,426

225¥82,675

2,621$797,094(3) Reconciliation of the balances of retirement
benefit obligations and plan assets at the end of
the fiscal year ended March 31, 2017 and 2016,
and the carrying amounts of net defined benefit
liability and net defined benefit asset

Retirement benefit obligationsof funded plans
Plan assets
Retirement benefit obligationsof unfunded plans
Net carrying amount of
obligations and assets

Net retirement benefit liability
Net retirement benefit asset
Net carrying amount of
obligations and assets

Millions of yen
2017
2016
¥ 61,638 ¥ 62,979

Thousands of
U.S. dollars
2017$ 549,407(89,426)(27,788)71(82,675)(19,696)59(797,094)(247,687)
633¥(27,717)¥(19,637)$(247,054)

Millions of yen
2017
2016
¥ 1,879 ¥ 2,057(29,596)(21,694)¥(27,717) ¥(19,637)

Thousands of
U.S. dollars
2017$ 16,748(263,802)$(247,054)(4) Retirement benefit costs and their breakdowns

Service cost*
Interest cost
Expected return on plan assets
Recognized actuarial loss
Amortization of past service cost
OthersRetirement benefit costs on
defined benefit plans

Millions of yen
2017
2016
¥1,851¥1,707119344(2,051)(2,903)
2,200
571
(570)
(142)
233
30
¥1,782¥ (393)Thousands of
U.S. dollars
2017$16,499
1,061(18,281)
19,610(5,081)
2,076$15,884* Excludes employee contribution portion of defined benefit corporate pensions(5) Remeasurements of defined benefit plans
Items posted as remeasurements of defined benefit plans(before tax-effect exclusions) break down as follows.

Past service cost
Actuarial gain (loss)
Total

Millions of yen
2017
2016
¥ (570) ¥996
6,711(13,093)¥6,141 ¥(12,097)

Thousands of
U.S. dollars
2017$ (5,080)
59,818$54,738(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 past service cost
Unrecognized actuarial gain
(loss)
Total

Millions of yen
2017
2016
¥ (427)¥ (997)(978)
5,732¥(1,405)¥4,735

Thousands of
U.S. dollars
2017$ (3,806)(8,717)$(12,523)(7) Plan assets(i) Percentages of major asset categories to total plan assets
are as follows.
2017
19%
66%
15%
100%

Bonds
SharesOthers
Total

2016
21%
65%
14%
100%

(Note) Plan assets include 46% of corporate pension plans established as retirement benefit
trusts at the end of the fiscal year ended March 31, 2017, and 25% at March 31, 2016.

(ii) Method of establishing expected long-term return onplan assets(Corporate pensions)
Based on the weighted average rate according to the policy
asset mix (medium- to long portfolio) of the expected rateof return for individual investment fiduciary institutions, netof investment cost.
(Retirement benefit trusts)
Past dividend performance is converted to yield.

(8) Basis of actuarial calculation

Defined contribution plans
The required contribution to the consolidated subsidiaries’
defined contribution plans at the end of the fiscal year
ended March 31, 2017 and 2016 were ¥263 million ($2million) and ¥153 million, respectively.

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
Item 3, Article 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 basis of
calculation announced officially by the Director General of
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, 2017 and 2016 were ¥22,589 million ($201
million) and ¥23,245 million, respectively.

The basis of actuarial calculations as of March 31, 2017and 2016
Discount rate

2017
2016
0.00%—1.21% 0.00%—0.63%

Expected long-term rate of returnon plan assets

1.60%—3.10% 1.20%—3.00%

Expected rate of salary increase

0.80%—4.65% 0.80%—4.65%

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 shownon the asset side, which represent the Banks’ right ofindemnity from customers.

YMFG Annual Report 201746

17. OTHER INCOME
Other income for the fiscal year ended March 31, 2017and 2016 included the gains on sale of stock of ¥11,802
million ($105 million) and ¥10,392 million, respectively.

18. GENERAL AND ADMINISTRATIVE
EXPENSES

2. Operating leases
Future minimum lease payments at March 31, 2017 and2016 were as follows:
At March 31, 201720182019 and thereafter
Total minimum lease payments

Thousands of
U.S. dollars
$ 874
8,289
$9,163

Millions of yen¥ 98930¥1,028At March 31, 2016
Items included operating expenses for the year ended
March 31, 2017 and 2016 were as follows:

Salary and allowance
Depreciation

Millions of yen
2017
2016
¥31,944¥31,417
5,675
7,093

Thousands of
U.S. dollars
2017$284,731
50,584

19. OTHER EXPENSES
Other expenses included ¥921 million ($8,209 thousand)in loss on sale of stock, ¥124 million ($1,105 thousand)devaluation of stock and ¥1,119 million ($9,974 thousand)loss on investment in money held in trust for the year
ended March 31, 2017. For the year ended March 31,
2016, other expenses included ¥1,779 million loss on saleof stock, ¥697 million devaluation of stock.

20. LEASE TRANSACTIONS
1. Finance lease transactions
Finance lease transactions that do not transfer ownership(i) Content of lease assets
Tangible fixed assets
Mainly office equipment
Intangible fixed assets
Software(ii) Depreciation method for lease assets
As described in “Lease assets under” (5) Accounting
Policies, in “2. SIGNIFICANT ACCOUNTING POLICIES.”

47

YMFG Annual Report 2017

Millions of yen
¥ 94
1,003
¥1,09720172018 and thereafter
Total minimum lease payments

21. INCOME TAXES
1. Significant components of the deferred tax assets andliabilities as of March 31, 2017 and 2016 were as follows:

Deferred tax assets:
Allowance for loan losses
Net defined benefit liability
Losses on devaluation of
securities
Provision for bonuses
Depreciation
Net operating losses
carryforwards
Other
Deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Unrealized gains onavailable-for-sale securities
Securities contributed toretirement benefit trusts
Other
Total deferred tax liabilities
Net deferred tax assets(liabilities)

Millions of yen
2017
2016

Thousands of
U.S. dollars
2017¥ 14,360
2,639
1,575

¥ 17,314
5,312
1,523

$ 127,997
23,523
14,039

1,100
636
269

1,118
752
304

9,805
5,669
2,407

2,595
23,174(2,387)
20,787

3,820
30,143(2,377)
27,76623,129206,569(21,276)
185,293(23,426)(23,166)(208,806)(4,243)(4,243)(37,820)(1,350)(29,019)¥ (8,232)(2,077)(29,486)¥ (1,720)(12,042)(258,668)$ (73,375)

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, 2017 and 2016 were as follows:%
Effective statutory tax rate
(Adjustments)
Revision of valuation allowances
Items permanently exempted from income suchas dividend income
Non-deductable goodwill amortization
Inhabitant tax on per capita basis
Items permanently excluded from expense suchas entertainment expenses
Downward revision in deferred tax assets at theend of the fiscal year due to changes in tax rate
Consolidation adjustment
OthersActual tax rate after application of deferredincome tax accounting

2017
—

2016
32.83

—
—

(2.61)(0.42)

—
—
—

3.15
0.26
0.27

—

1.83

—
—
—

0.07
0.35
35.73

(Note) Information for the year ended March 31, 2017 was omitted, as the difference
between the effective statutory tax rate and the actual tax rate after application ofdeferred income tax accounting is 5% or less of the effective statutory tax rate.

3. Revisions in amounts of deferred tax assets andliabilities due to changes in the corporate tax rate
For the year ended March 31, 2017
The “Act for Partial Revision of Acts, Including Partial
Revision of the Consumption Tax Act for the Fundamental
Reform of the Taxation System to Achieve a Stable Sourceof Revenue for Social Security” and the “Act for Partial
Revision of Acts, Including Partial Revision of the Local Tax
Act and the Local Allocation Tax Act for the Fundamental
Reform of the Taxation System to Achieve a Stable
Source of Revenue for Social Security” were enacted by
the Japanese government on November 18, 2016. In
conjunction with these acts, the effective statutory rateused in calculating deferred tax assets and liabilities for the
fiscal year ended March 31, 2017, has changed from thatused for the fiscal year ended March 31, 2016.
As a result, deferred tax assets increased by ¥37 million
and deferred income taxes decreased by the same amount.

For the year ended March 31, 2016
The “Act on Partial revision of Income Tax Act” (Law No.
15 of 2016) and the “Act on Partial Revision of the Local
Tax Act” (Law No. 13 of 2016) were passed on March
29, 2016, lowering the corporate tax rate from the fiscal
years beginning on or after April 1, 2016. Accordingly, thestatutory effective tax rate used for calculating deferred
tax assets and liabilities was reduced from 32.38%
to 30.69% applied for temporary differences that are
expected to be deductible in the fiscal year beginning
April 1, 2016 and 2017, and further to 30.46% applied
for temporary differences that are expected to be
deductible in the fiscal year beginning April 1, 2018.
This change in the tax rate had the effect of reducing
deferred tax liabilities by ¥210 million, increasing
unrealized gains on available-for-sale securities by ¥1,222
million, reducing deferred gains or losses on hedges by¥7 million, decreasing remeasurements of defined benefit
plans by ¥72 million and increasing deferred income taxes
by ¥933 million. Deferred tax liabilities for land revaluation
decreased by ¥571 million, and revaluation reserve for land
increased by the same amount.

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
Consolidated Balance Sheets.

YMFG Annual Report 201748

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 the shareholders’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 28,
2017, the shareholders approved cash dividends amounting
to ¥1,989 million ($18 million). Such appropriations havenot been accrued in the Consolidated Financial Statements
as of March 31, 2017 and to be recognized in the period inwhich they are approved by the shareholders.
At the annual shareholders’ meeting, held on June29, 2016, the shareholders approved cash dividends
amounting to ¥1,970 million. Such appropriations have notbeen accrued in the Consolidated Financial Statements asof March 31, 2016 and to be recognized in the period inwhich they are approved by the shareholders.

23. CHANGES IN NET ASSETS
1. Type and number of shares issued and treasury shareswere as follows:
Number of shares (in thousand)March 31,
March 31,
Increase Decrease
2016
2017
Shares issued
Common stock
Total
Treasury stock
Common stock*1, *2, *3
Total

264,353
264,353————

264,353
264,353

19,472
19,472

2,284
2,284

3,202
3,202

18,554
18,554*1 The increase in the number of shares is due to the acquisition of 1,631 thousand of
YMFG’s shares by the ESOP Trust for Employees, the acquisition of 633 thousand of
YMFG’s shares by the Board Benefit Trust (BBT), and 19 thousand shares were due topurchases of shares constituting less than one trading unit.
Of the decreases in the number of shares, 1,631 thousand shares were due to allocation
to the ESOP Trust for Employees, 793 thousand shares were due to the sale of sharesto the Group’s employee stock ownership program, 663 thousand shares were due toallocation to the Board Benefit Trust (BBT), 144 thousand shares were due to the exerciseof stock options, and 0 thousand shares were in response to demand for the purchase of
fractional shares.
*2 Treasury stock as of beginning and ending of fiscal year ended March 31, 2017 include 781
thousand shares and 1,619 thousand shares held by the ESOP Trust for Employee Shareholders.
*3 Treasury stock held by the Board Benefit Trust (BBT) includes 633 thousand shares held asof March 31, 2017.

49

YMFG Annual Report 2017

Number of shares (in thousand)March 31,
March 31,
Increase Decrease
2015
2016
Shares issued
Common stock
Total
Treasury stock
Common stock*1, *2
Total

264,353
264,353——

264,353
264,353

20,857
20,857

27
27

1,412
1,412

19,472
19,472*1 The increase in the number of shares is due to purchases of shares constituting less than
one trading unit.
Of the decreases in the number of shares, 1,037 thousand shares were due to a shareexchange between YMFG and an affiliated company, 266 thousand shares were due tothe sale of shares to the Group’s employee stock ownership program, 103 thousand shareswere due to the exercise of stock options, 3 thousand shares were due to the changes inownership of YMFG’s subsidiaries, and 1 thousand shares were in response to demand forthe purchase of fractional shares.
*2 Treasury stock as of beginning and ending of fiscal year ended March 31, 2016 include 1,047
thousand shares and 781 thousand shares held by the ESOP Trust for Employee Shareholders.

2. Stock options
Stock options at March 31, 2017 and 2016 were ¥513
million ($5 million) and ¥601 million, respectively.
3. Information on dividends is as follows:(a) Dividends paid in the fiscal year ended March 31, 2017and 2016.

Type of shares
Resolved at the boardof directors meetingon May 13, 2016
Common stock
Resolved at the boardof directors meetingon November 11, 2016
Common stock

Aggregate
amount ofdividends(Millionsof yen)Cashdividends
per share(Yen)

Recorddate

Effective
date¥1,970*1¥8.00 Mar. 31, Jun. 30,
2016
2016

¥2,471*2¥10.00 Sep. 30,
2016

Dec. 9,2016*1 The total amount of dividend on common stock includes ¥6 million in dividends to ESOP
Trust for employee shareholders.
*2 The total amount of dividend on common stock includes ¥12 million in dividends to ESOP
Trust for employee shareholders and Board Benefit Trust (BBT).

Type of shares
Resolved at the boardof directors meetingon May 8, 2015
Common stock
Resolved at the boardof directors meetingon November 6, 2015
Common stock

Aggregate
amount ofdividends(Millionsof yen)Cashdividends
per share(Yen)

Recorddate

Effective
date¥1,712*1¥7.00 Mar. 31,
2015

Jun. 29,2015¥1,713*2¥7.00 Sep. 30,
2015

Dec. 10,2015*1 The total amount of dividend on common stock includes ¥7 million in dividends to ESOP
Trust for employee shareholders.
*2 The total amount of dividend on common stock includes ¥6 million in dividends to ESOP
Trust for employee shareholders.

Type of shares
Resolved at the boardof directors meetingon May 13, 2016
Common stock
Resolved at the boardof directors meetingon November 11, 2016
Common stock

AggregateCashamount ofdividends
dividends
per share(Thousands of(U.S. dollars)
U.S. dollars)

Recorddate$17,559*1$0.07 Mar. 31, Jun. 30,
2016
2016

$22,025*2$0.09 Sep. 30,
2016

Dec. 9,2016*1 The total amount of dividend on common stock includes $53 thousand in dividends to
ESOP Trust for employee shareholders.
*2 The total amount of dividend on common stock includes $107 thousand in dividends to
ESOP Trust for employee shareholders and Board Benefit Trust (BBT).

(b) Dividends to be paid in the fiscal year ending March 31,2018 and 2017 are as follows:(Millions of yen, except per share amount)
AggregateCashamount of Source
dividends Record
Effective
dividendsof
per share
datedate(Millions of dividends
(Yen)
yen)

Type of shares
Resolved at theboard of directors
meeting on
May 12, 2017
Common stock¥1,989* Retained
earnings¥8.00 Mar. 31,
2017(Thousands of U.S. dollars, except per share amount)
Aggregate
amount ofCashdividends
Source dividends
RecordEffective(Thouofper sharedatedatesands of dividends (U.S. dolU.S. dollars)
lars)

Effective
dateJun. 28,2017

Type of shares
Resolved at theboard of directors
meeting on
May 12, 2017
Common stock$17,729* Retained
earnings

AggregateCashamount of Source
dividends
dividendsof
per share(Millions of dividends
(Yen)
yen)

Type of shares
Resolved at theboard of directors
meeting on
May 13, 2016
Common stock¥1,970* Retained
earnings

Recorddate¥8.00 Mar. 31,
2016

Effectivedate

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

General and administrative
expenses* The total amount of dividend on common stock includes ¥6 million in dividends to ESOP
Trust for employee shareholders.

Millions of yen
2017
2016
¥42
¥172

Thousands of
U.S. dollars
2017
$374

2. The content of the stock options is as outlined below.
Category and number of
persons to be granted
stock options

Jun. 30,
2016

Jun. 28,2017* The total amount of dividend on common stock includes $160 thousand in dividends to
ESOP Trust for employee shareholders and Board Benefit Trust (BBT).

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

(Millions of yen, except per share amount)$0.07 Mar. 31,
2017

Number of stock options
by class of stock*2016
27 directors (excluding directors who
are members of the Audit and Supervisory Committee, part-time directors andoutside directors) of YMFG’s subsidiaries, Yamaguchi Bank, Momiji Bank andKitakyushu Bank.
122,000 shares of YMFG’s common
stock

Grant dateAugust 25, 2015

Vesting conditions

No vesting conditions set

Target length of service
periodNo target length of service period set

Period for exercise of rights August 26, 2015—August 25, 2045

YMFG Annual Report 201750

Category and number of
persons to be granted
stock options

2015
27 directors (excluding outside directors)of YMFG’s subsidiaries, Yamaguchi Bank,
Momiji Bank and Kitakyushu Bank.

Number of stock options
by class of stock*

182,900 shares of YMFG’s common
stock

Grant dateJuly 29, 2014

Vesting conditions

No vesting conditions set

Target length of service
periodNo target length of service period set

Period for exercise of rights July 30, 2014—July 29, 2044

Category and number of
persons to be granted
stock options

2014
27 directors (excluding outside directors)of YMFG’s subsidiaries, Yamaguchi Bank,
Momiji Bank and Kitakyushu Bank.

Number of stock options
by class of stock*

225,100 shares of YMFG’s common
stock

Grant dateJuly 23, 2013

Vesting conditions

No vesting conditions set

Target length of service
periodNo target length of service period set

Period for exercise of rights July 24, 2013—July 23, 2043

Category and number of
persons to be granted
stock options

2013
27 directors (excluding outside directors)of YMFG’s subsidiaries, Yamaguchi Bank,
Momiji Bank and Kitakyushu Bank.

Number of stock options
by class of stock*294,900 shares of YMFG’s common
stock

Grant dateJuly 30, 2012

Vesting conditions

No vesting conditions set

Target length of service
periodNo target length of service period set

Period for exercise of rights July 31, 2012—July 30, 2042

Category and number of
persons to be granted
stock options

2012
27 directors (excluding outside directors)of YMFG’s subsidiaries, Yamaguchi Bank,
Momiji Bank and Kitakyushu Bank.

Number of stock options
by class of stock*

192,600 shares of YMFG’s common
stock

Grant date

October 31, 2011

Vesting conditions

No vesting conditions set

Target length of service
periodNo target length of service period set

Period for exercise of rights November 1, 2011—October 31, 2041
Note: Stated as the equivalent number of shares.

51

YMFG Annual Report 2017

From the fiscal year ended March 31, 2016, the issuanceof stock options to directors of the YMFG subsidiaries
Yamaguchi Bank, Momiji Bank and Kitakyushu Bank
(excluding directors who are Audit and Supervisory
Committee members, part-time directors and outside
directors) was discontinued.
3. The summary of stock option activity is as indicated below.
(a) Number of stock options
2016
2015
2014
2013
Prior to vesting
As of the end
122,000———of the previous
consolidated
fiscal year
Granted————Expired————
Vested122,000———
Rights not yet————
determined
After vesting
As of the end— 160,400 144,400 170,800
of the previous
consolidated
fiscal year
Rights determined 122,000———
Rights exercised
21,700 32,300 28,600 37,200
Expiry————Amount100,300 128,100 115,800 133,600
unexercised

2012
—

—
—
—
—

99,400—24,500—74,900(b) Price information

Exercise price
Average share priceat time of exercise
Fair value on dategranted

2016
¥
1
964

Yen
2015
2014
¥
1 ¥
1
964
964

1,377

1,015

973

2013
¥
1
964

2012
¥
1
964

619

660

4. Method of estimating the fair value of stock options
The method employed to estimate the fair value of stock
options granted during the consolidated fiscal year ended
March 31, 2016 is as follows:(a) Valuation method employed: Black-Scholes method(b) Main base figures and estimation method
Volatility of stock price*1
Expected number of years remaining*2
Forecast dividend*3
Risk-free interest rate*4

201627.87%
3.40 years¥14/share
0.015%*1 Calculated on the basis of stock price performance during a period (March 2012 to August2015) corresponding to the expected number of years remaining (3.40 years).
*2 The number of remaining years in service of current directors is estimated on the basis of theaverage number of years of service of directors retiring, excluding the current service period.
*3 Based on the actual dividend for the fiscal year ended March 31, 2015.
*4 Japanese government bond yields for the expected number of years remaining.

5. 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.

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

26. CONSOLIDATED STATEMENTS OFCOMPREHENSIVE INCOME
Amounts of reclassification adjustments and tax effectamounts related to other comprehensive income in the
consolidated fiscal year ended March 31, 2017 and 2016
were as follows.
Thousands of
U.S. dollars
2017

Millions of Yen
2017
2016
Unrealized gains (losses) on
available- for-sale securities
Amount generated during
the year
Reclassification adjustments
Before tax effect adjustment
Tax effect amount
Unrealized gains (losses) on
available-for-sale securities
Deferred gains on hedges
Amount generated during
the year
Reclassification adjustments
Before tax effect adjustment
Tax effect amountDeferred gains on hedges
Revaluation reserve for land
Amount generated during
the year
Reclassification adjustment
Before adjustment for tax
effects
Tax effect amount
Revaluation reserve for landRemeasurements of defined
benefit plans
Amount generated during
the year
Reclassification adjustment
Before adjustment for tax
effects
Tax effect amountRemeasurements of defined
benefit plans
Share of other comprehensive
income in affiliated companies
accounted for using theequity method
Amount generated during
the year
Reclassification adjustments
Before tax effect adjustment
Tax effect amount
Share of other comprehensive
income in affiliated companies
accounted for using theequity method
Total other comprehensive
income¥13,692¥(7,920)$122,043(11,381)
2,311
(801)
1,510

(18,371)(26,291)
9,155(17,136)(101,444)
20,599(7,139)13,460

(503)

(352)

(4,483)

631
128
(38)
90

376
24
(15)
9

5,624
1,141
(339)
802

—

—

—

—
—

—
—

—
—

—
—

571
571

—
—

4,511

(11,558)

40,209

1,630
6,141

(539)
(12,097)

14,52954,738(1,871)
4,270

3,805
(8,292)(16,678)
38,060

0

(0)

0

—
0
—
0

—
(0)
—
(0)

—
0
—
0

5,870

(24,848)

52,322YMFG Annual Report 201752

27. SEGMENT INFORMATION

29. PER SHARE DATA

Business segment information is not presented, as theGroup’s business is predominantly consisted of the banking
business, and the securities brokerage, credit card, leasing
and other businesses conducted by the Group collectively
is limited.
Geographic segment information is not presented, as
domestic income of the Bank and consolidated subsidiaries
and their consolidated assets located substantially in Japan
represent more than 90% of the Group’s consolidated
income and assets.
Overseas sales information is not presented, as overseas
sales are less than 10% of the Group’s consolidated income.

Yen
2017
2016
Net assets per share¥2,486.35 ¥2,357.89
Net income per share
128.70132.43
Net income per share (diluted) ¥ 106.64 ¥ 109.39

28. 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 theconsolidated financial statements (only for individuals), etc.
For the year ended March 31, 2017
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:¥86 million (averagebalance)
Account name:Loan
Year-end balance:¥223 million* Conditions for this transaction and for method of deciding this transaction conditions were
the same as general transactions.

For the year ended March 31, 2016
Nothing to report.

53

YMFG Annual Report 2017

U.S. dollars
2017$22.161.15$ 0.95

Net assets per share are calculated based on the following:

Net assets
Amounts excluded fromnet assets
Stock options
Non-controling interests
Net assets attributable tocommon stock at the fiscal
year-end
Number of common stock at
the fiscal year-end used forthe calculation of net assets
per share (in thousands)*

Millions of yen
except number ofshares2017
2016¥617,053 ¥583,168¥ 5,910 ¥ 5,765

Thousands of
U.S. dollars
2017$5,500,071$ 52,678

513
5,397
611,143

601
5,164
577,403

4,573
48,1055,447,393

245,800

244,881* Shares of YMFG held by the ESOP trust and the Board Benefit Trust (BBT) are shown on thebalance sheets as treasury stock, so are not included in the above number of common stockat the fiscal year-end used for the calculation of net assets per share. This number of shares
held by the ESOP and the Board Benefit Trust (BBT) was 781 thousand as of March 31,
2016, and 2,252 thousand as of March 31, 2017.
(Note) As previously described in Changes in Accounting Principles, YMFG’s adoption of
the “Accounting Standard for Business Combinations” and other standards is inaccordance with the transitional measures provided for in Article 58-2 (4) of the“Accounting Standard for Business Combinations, ”Article 44-5 (4) of the “AccountingStandard for Consolidated Financial Statements, “and Article 57-4 (4) of the“Accounting Standard for Business Divestitures.
As a result, net income per share and diluted net income per share decreased ¥4.44($0.04) and ¥3.65 ($0.03) respectively in the fiscal year ended March 31 2016. The
impact on net assets per share was slight.

Net income per share is calculated based on the following:

Net income attributable toowners of the parent
Amount not attributable tocommon shareholders
Net income attributable toowners of the parent forcommon stock
Average shares of common
stock during the year*(in thousands)

Millions of yen
except number ofshares2017
2016¥ 31,587 ¥ 32,296

Thousands of
U.S. dollars
2017$281,549———

31,58732,296

281,549

245,428

243,872—

Diluted net income per share is calculated based on
the following:

Net income adjustment
attributable to owners of
the parent
Interest expenses(excluding tax amount)
Increase of shares ofcommon stock
Bonds with warrant
Warrant
Dilutive shares not including
calculation due to no
dilutive effectMillions of yen
except number ofshares
2017
2016
¥
68
¥
6

Thousands of
U.S. dollars
2017
$606

68

6

606

51,42351,427—50,826597—

50,728
698
—

—
—
—

* Shares of YMFG held by the ESOP trust and the Board Benefit Trust (BBT) are shown on thebalance 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 907 thousand in the fiscal year
ended March 31, 2016, and 893 thousand in the fiscal year ended March 31, 2017.

(5) Name of the company following the combination
The name of the company is unchanged following the
combination.
(6) Percentage of voting rights acquired
100%(7) Main reasons for deciding to acquire the company
YMFG’s consolidated subsidiary, YM Life Planning Co., Ltd.,acquired all shares of HOKEN HIROBA Co., Ltd., for cash
consideration.
2 Period of the financial results of the acquired company
included in the consolidated financial statements
From October 3, 2016, to March 31, 2017
3 Acquisition cost of the acquired company andbreakdown thereof
Acquisition priceCash ¥3,800 million
Acquisition cost
¥3,800 million

30. SUBSEQUENT EVENTS
There were no significant subsequent events. Dividends
were made in June 2017 and 2016. Please refer to “23.
NET ASSETS.”

31. BUSINESS COMBINATIONS
For the year ended March 31, 2017
Business Combination due to Acquisition
1 Overview of the business combination(1) Name and businesses of the acquired company
Name: HOKEN HIROBA Co., Ltd.
Business: Life insurance solicitation, non-life insurance
agency business(2) Principal reason for conducting the business combination
In order to provide one-stop financial services based onlife planning(3) Date of the business combination
October 3, 2016(4) Legal form of the business combination
Conversion to subsidiary through the acquisition of shares

4 Content and amounts of principal acquisition-related
expensesDue diligence expenses of ¥8 million
5 Amount of goodwill, reasons for the goodwill and periodof amortization(1) Amount of goodwill¥3,393 million(2) Reasons for the goodwill
Mainly because of anticipation of excess earning power tobe generated through future business development(3) Method and period of amortization
Amortization over 10 years using the straight-line method
6 Amounts of assets received and liabilities assumed on the
day of the business combination and breakdown thereof
Current assets¥749 million
Fixed assets¥687 million
Total assets¥1,436 million
Current liabilities¥391 million
Non-current liabilities¥638 million
Total liabilities¥1,029 million

YMFG Annual Report 201754

7 Estimated impact on the consolidated financial
statements in the fiscal year ended March 31, 2017, if
the business combination had been concluded at the
beginning of the fiscal year and method of calculation
Total income¥2,159 million
Ordinary profit¥347 million(Method of calculating the estimated impact)
Calculated using information on ordinary income andprofit and loss as if the business combination had beenconcluded at the beginning of the fiscal year
This note has not received an audit certification fromKMPG AZCA LLC.
For the year ended March 31, 2016
Transaction under common control
Acquisition of additional shares in subsidiary
1 Overview of the transaction(1) Name and business of combined company
Name: YM Guarantee Co., Ltd.
(hereinafter, “YM Guarantee”)
Business: Credit guarantee business(2) Date of the business combination
February 1, 2016
(3) Legal form of the business combination
Share exchange in which YMFG is the wholly owningparent company and YM Guarantee is the wholly owned
subsidiary company(4) Company name following the combination
No change(5) Overview of other matters related to the transaction
The objective is to strengthen YMFG’s internal control
function of the Group.
2 Overview of accounting standards employed
The transaction is handled under common control
transactions, based on the “Accounting Standard forBusiness Combinations” (ASBJ Statement No. 21,
September 13, 2013) and the “Guidance on AccountingStandard for Business Combinations and AccountingStandard for Business Divestures (ASBJ Guidance No. 10,
September 13, 2013).”55

YMFG Annual Report 2017

3 Matters related to acquisition of additional sharesin subsidiary(1) Acquisition cost and breakdown
Acquisition consideration
Treasury stock¥603 million
Acquisition cost¥603 million
The above-mentioned transaction is a transaction with
non-controlling owners, and total amount being eliminatedas transactions between consolidated companies.
Expenses directly required for the transaction were ¥2
million.
(2) Exchange ratio by type of shares, calculation method
and number of shares delivered
1) Exchange ratio by type of shares 1,237 shares of
YMFG’s common stock: 1 share of YM Guarantee’scommon stock2) Exchange ratio calculation method
To ensure the fairness and appropriateness of the shareexchange ratio, YMFG selected Daiwa Institute of ResearchLtd. as an independent calculation agent to calculate theshare exchange ratio. Based on prudent negotiations anddeliberations between YMFG and YM Guarantee of theshare exchange ratio, referring to these calculation results,
the above-stated share exchange ratio was judged to beappropriate, agreed and determined.
3) Number of shares delivered 466 thousand shares
4 Changes in YMFG’s equity related to transaction with
non-controlling owners(1) Principal reason for changes in capital surplus
Acquisition of additional shares in subsidiary(2) Amount of increase in capital surplus due to transaction
with non-controlling owners¥1,194 million